Financials
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News and Views
So much for that 200 day moving average, as the XLF dropped well below that $14.91 level after the unemployment data. Banks finished off (1.61%) with regional banks continuing to lag the BKX despite improving credit quality, balance sheet shrinkage is a continued concern. Insurance names closed off (0.79%) despite a strong day from AIG after earnings and planned asset sales. Financial services led the sector Friday behind credit cards and mortgage insurers. Credit cards continue the roller coaster moves as Barrons has a positive piece on Visa and Mastercard claiming the Durbin amendment impact is overdone. Mortgage insurers, another group that won’t sit still, were boosted by AGO’s solid qtr.
Macro/Technicals
XLF: -0.13; -0.87KIE: -0.32; -0.83
KRE: -0.30; -1.25
C: -0.04; -0.98
BAC: -0.06; -0.43
JPM: -0.83; -2.01
GS: -0.74; -0.47
WFC: -0.13; -0.47
Leaders: AGO +14.53%, DRL +4.62%, PEBO +4.37%, CACC +3.48%, SLM +3.15%, MA +2.87%, FFG +2.84%, AIG +2.58%
Laggards: GRNB -6.39%, MTG -6.00%, WFSL -5.69%, FMR -5.68%, WAL -4.93%, OKSB -4.42%, FMD -4.27%, MSFG -3.66%
Active Names
Big Banks - BAC, C, WFC, JPM, GS, MS, FITB, STT, USB, HBAN, HCBK, PBCT, FHN, RF, BBT
Mid/SmallcapBanks/S&L- FBP, WAL, EWBC, GSBC, HMPR, IBKC, PRWT, RBPAA, WBCO,NYB,DCOM,SBIB,CVBF,GAIN,LKFN,TFSL,IBCP,BRKL
Brokers KCG, SCHW, AMTD, ETFCD
Asset Managers/Inv co’s- BX, FIG, GLG, GROW, JNS, LAZ, MF, LM,KFN
Insurance- GNW, HIG, MET, ALL, TRV
CreditCards- AXP, COF, MA, V, DFS
Specialty Finance/Mort Insurers- ACAS, ABK, MBI, MTG, RDN
Earnings
BRK.B Berkshire Hathaway reports Q2 operating earnings $3,074 vs year-ago $1,780
NNI NelNet reports Q2 base EPS $1.17 Reuters estimate is $0.98 and unlikely comparable -- Base net income in Q2 of 2010 includes pre-tax gains of $8.8M, or $0.11 per share after tax, from the company's repurchase of $118M of asset-backed debt and is compared with pre-tax gains of $5.9M, or $0.07 per share after tax, from the repurchase of debt in Q2 of 2009.
AWH Allied World announces $250M share repurchase from founding shareholders Allied World Assurance has repurchased 5M common shares at $50 per share from certain GS Capital Partners and other investment funds, which are founding shareholders of Allied World. The repurchase represents 9.4% of the diluted shares outstanding as of June 30. Following the repurchase, these affiliates of Goldman Sachs hold 3.16M non-voting shares of Allied World, or 7.2% of the company's total. The repurchase has been executed separately from the company's $500M share repurchase program that was authorized by its board in May 2010.
MKL Markel reports Q2 EPS $2.12 vs year-ago $3.34-- from 10Q filing Reuters estimate is $3.34 and may not be comparble
HGIC Harleysville Group reports Q2 EPS $0.61, including $0.19 in catastrophe losses previously announced vs Reuters $0.61
- book value $28.82, up 15% y/y
- net written premiums $230.2M vs. $222.3M y/y
- statutory combined ratio 101.3% vs. 99.5% y/y
Sector News, M&A, Capital Raises
o AIG Faces Fed Scrutiny as Buffett’s Bets Spared by Dodd Law- BBG
§ American International Group said controls on Wall Street signed into law by President Barack Obama may force the insurer to raise capital, undergo stress tests and limit bets on private equity and hedge funds.
§ The Dodd-Frank Act could “materially and adversely affect AIG’s businesses” and hurt cash flows and credit ratings
o MS Morgan Stanley Group’s $11 Billion Makes Chicago Taxpayers Cry- BBG
§ Chicago drivers will pay a Morgan Stanley-led partnership at least $11.6 billion to park at city meters over the next 75 years, 10 times what Mayor Richard Daley got when he leased the system to investors in 2008.
§ Morgan Stanley, Abu Dhabi Investment Authority and Allianz Capital Partners may earn a profit of $9.58 billion before interest, taxes and depreciation,
o GS Goldman Sachs Lost Money on 10 Trading Days in Second Quarter- BBG
§ Goldman Sachs, the bank that makes the most revenue trading stocks and bonds, lost money in that business on 10 days in the second quarter, ending a three-month streak of loss-free days at the start of the year.
o MS Morgan Stanley Reports 11 Days of Net Trading Losses in 2nd Qtr- BBG
o AWH Allied World announces $250M share repurchase from founding shareholders
o The Fed has to embrace quantitative easing to avoid economic stagnation similar to Japan. In a separate article, Robert Prechter argues that the market is positioned for inflation, which is the wrong bet. – Barron’s
o Up and Down Wall Street: Alan Abelson takes a glass half empty view of Friday's employment report and its implications for the market. The Economic Beat offered a more optimistic assessment of the week's economic reports. – Barron’s
o The Striking Price discusses the stock-replacement strategy, arguing that options prices are inexpensive. – Barron’s
o Current Yield notes falling global yields, and says that deflationary risks may lead the FOMC to note at next week's meeting that it is prepared to take further action. – Barron’s
KKR WSJ notes that Kohlberg Kravis Roberts may be forced to change practices ($9.86)
A "Heard on the Street" column says KKR is one of the last firms collecting a percentage of all profits its funds earn. Most competitors only take the fees if profits are more than 8%. With only 6% of funds raised in 2009 and 2010 not having similar hurdles, investors are likely to soon decide that funds without the rates are not where they will put their dollars, especially as the potential for sillily high returns declines. Without a hurdle, the column says, KKR probably won't be able to raise the $13.5B for its new fund that Blackstone (BX) managed to for its.
V Barron's feature argues that Visa, Mastercard (MA) shares have discounted Durbin amendment ($72.14)
While noting the risks inherent in the Durbin amendment's impact on interchange fees, Barron's argues that these risks have been discounted by the market. Goldman Sachs analyst Julio Quinteros says that the shares have been "terribly discounted", and Barron's suggests that Visa shares do not reflect the powerful shift still underway from cash and checks to electronic payments, while also noting growth areas such as money transfer, e-commerce and mobile payments. Barron's goes on to discuss Mastercard, arguing that as the number two player in the market, the legislative mandate for the Fed to expand network access could benefit Mastercard
]LAND Gladstone Land files 12.1M share IPO; expected to price in range of $14-16 per share ($16.37)
Gladstone Land is an externally-managed corporation that currently owns two farms in California that it leases to Dole Fresh Vegetables, a wholly owned subsidiary of Dole Foods (DOLE).
- Gladstone Land has three publicly traded sister companies: Gladstone Commercial (GOOD), Gladstone Capital (GLAD) invests and Gladstone Investment (GAIN)
- Gladstone Land intends to apply to have its common stock listed on the NASDAQ Global Market under the symbol LAND.
- The company did not disclose any underwriters in the filing.
AMG Affiliated Managers files mixed shelf of indeterminate amount
Citing sources, the WSJ reports that private equity firms are possible buyers of BAC's prop trading desk. The WSJ also notes that Goldman (GS) and Morgan Stanley (MS) are considering changes for their prop trading units, as has been widely reported.
BRO Brown & Brown acquires Synergy Benefits, Inc. ($20.06)
BRO announced the asset acquisition of Synergy Benefits, Inc. by Brown & Brown Insurance Agency of Virginia, Inc., a subsidiary of Brown & Brown, Inc.
Research Away
PRU Prudential Financial added to Short-term Buy List at Deutsche Bank
CBOE CBOE Holdings initiated outperform at Oppenheimer ($23.80)
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