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How the Sell Side Differs with BoomBustBlog on the Outlook for Big Banks and Technology

Submitted by Reggie Middleton on 11/02/2010 08:45 -0400

It is interesting to see what the analysts on the Street have to say
about the companies that I have have commented on in the recent past.
Let’s traipse through a summary of opinion…

	Research				Analyst
	Company				Opinion (10/22/10 – 10/25/10)
		GOOG	GS	JPM		MS	WFC
Thomson Reuters			hold	Buy		buy	hold
Ativo Research			sell	Strong sell		Strong sell	Strong Sell
Columbine capital Services Inc.			Neutral	Sell		sell	sell
Value Line			4(below Average)	3(AVG. Performer)		3(AVG. Performer)	4(Below Average)
Ford Equity Research			Neutral	Stong Buy		Neutral	Strong buy
S&P			3 Star	5 star		3 Star	4 Star
Meredith Whitney advisers				hold		hold	hold
Barclays Capital		overweight	Equal Weight	overweight			overweight
Wells Fargo			outperform	outperform		Market Perform
J.P.Morgan			overweight			overweight	overweight
Deutsche Bank		buy	Buy
Jefferies & company		buy
PiperJaffray		overweight
Stifel Nicolaus							Buy

Here are a few excerpts from the various reports…

Comments from various analyst for JPM

Detailed reports from Meredith
Whitney Advisors were not available plus there were no comments on the
summary, just some fundamentals chart.

“The market appeared to express
reservations presumably stemming from an increase in its mortgage
repurchase reserve build and continued high levels of litigation
accruals. While these issues create near term headwinds, we believe
JPM’s now more than 3 billion repurchase reserve should allow the pace
of its build to moderate over the next couple of quarters and do not see
its current legal challenges materially impacting its earning power
outlook”. – Barclays capital.

In regards to the forward looking
statements. “It noted that as its card losses normalize in the 4.5% area
then another $4-$6 billion reserve release is possible” – Barclays

“JPM released $1.5 billion of
reserves in card services and continued to under-provision in aggregate:
additional future reserve releases are likely, in our view”- WFC

“JPM believes foreclosure matter a
short term challenge”.”JPM is currently reviewing approximately 115,000
files currently in the foreclosures process and noted that by the time a
foreclosure sale occurs a borrower is 14 months delinquent(with New
York averaging 26 months and Florida Averaging about 23 Months).”-WFC

“Trading at just 4x our 2012 EPS
estimate, we believe wfc shares are the most compelling within our large
cap bank universe.” - Stifel Nicolaus.

Here my public and subscription-only comments on JPM. Notice that I
focus on issues that rarely, actually practically never appear in the
sell side and large equity research house reports:

Older yet still quite relevant research:

The full JPM Q2 review can be downloaded by subscribers here: JPM 2Q10 review
The JP Morgan Professional Level Forensic Report (subscription only)
The JP Morgan Retail Level Forensic Report (subscription only)
Those that don’t subscribe
still have a lot of BoomBustBlog JPM opinion and analysis to chew
on, including a free, condensed (but still about 15 pages) version
of the forensic analysis above. You can find it below this pretty
graphic from “An Unbiased Review of JP Morgan’s Q1 2010 Results Yields Less Roses Than the Maintream Media Presents“…

Comments on WFC

“Positives for the quarter included
strong mortgage banking results coupled with a solid pipeline looking
out, lower loan losses and expectations for continued loan loss reserve
release, and improved capital ratios with an eye toward a possible
dividend increase when the industry returns to that path. The company
appeared unfazed by recent mortgage repurchase concerns and downplayed
risks associated with private securitization where WFC originated the
loan.”- Barclays Capital

“with respect to private
securitizations where WFC originated the loan and therefore has some
repurchase risk (~$140 B), 55% are from vintage 2005 and prior 83% are
prime, and it had $69 million of repurchases in 3Q10”-Barclays

“WFC expects the issue to be
manageable as only 8%($145 bil) of the portfolio is private label MBS
and of this, 83% is prime jumbo. Mortgage repurchase expenses declined a
tad qoq but losses up sharply and therefore repurchase reserve
declined. Similar to peers WFC is seeing about 50% approval rate and 50%
loss severity.- jpm

“Based on management discussion…..The
Company would have a $1.25 billion loss tax-affected loss exposure on
its $144 billion in private label originations. We simply applied
delinquency rate of 10% on the prime portion of these loans and a
delinquency rate of 39% on the non-prime and then assumed a
20%successful loan put back rate and a 50%loss severity on loans
repurchased.- Stifel Nicolaus

I am still working on the Wells Fargo updates. Our research from 2008
ran contrary to the entire sell side, and as we predicted WFC took a
very big dive, producing profits for the bears. Subscribers, see WFC Research Note Sep 2009 2009-09-30 13:01:30 281.29 Kb, ~ WFC Off Balance Sheet Exposure 2009-10-19 04:25:53 258.77 Kb ~ WFC Investment Note 22 May 09 – Retail 2009-05-27 01:55:50 554.15 Kb ~ WFC Investment Note 22 May 09 – Pro 2009-05-27 01:56:54 853.53 Kb ~ Wells Fargo ABS Inventory 2008-08-30 06:40:27 798.22 Kb to expound on our opinions of Wells Fargo, below.

Comments of GS

“Seperately, management also provided
some color around the recent foreclosure/mortgage industry issues and
potential impacts on the business noting that they were not a very big
player in either the origination business (40^th largest
originator from 2005 – 2008 originated 30B and GS originated $1.75 B)
or the securitization business (not in top 5)- Deutsche bank

“Interestingly, we noticed a 1/3
decline in currency VaR during the quarter, suggesting to us that the
firm has stepped back meaningfully from FX trading” –Barclays

The firm continue to see outflows
from its asset management business, with the highest outflow from equity
funds ($8B or 6%)”-Barclays

The long term picture looks positive
for GS being a winner in a world of high frequency trading ability in a
more transparent/ cash –like fixed income world considering its strong
technology.”JPMorgan Cazenove

Comp accrual needs to be adjusted in
Q4. Clearly GS might adjust its comp in 4Q-as it did last year reducing
the accrual level from 47%in 9M09 and paid out 36% for FY 2009,
adjusting 2009.We estimate FY 2010 comp/revenue ratio to come down to
39% through adjustment in Q4 compensation expense and expect
comp/revenue ratios of 40% in 2011E and 2012E.- JPM

A Few Questions on Goldman Sachs 3rd Quarter 2010 Results That No One Thought to Ask
The BoomBustBlog Review of Goldman Sach’s 2nd Quarter, 2010 Performance: I Told You So!
GS 3rd Quarter 2010 Update (subscription only)
Can
You Believe There Are Still Analysts Arguing How Undervalued Goldman
Sachs Is? Those July 150 Puts Say Otherwise, Let’s Take a Look” and “When the Patina Fades… The Rise and Fall of Goldman Sachs???“
On Goldman’s Latest Earnings Results…
What Do Goldman Sachs and B.B. King Have in Common? The Thrill is Gone…
A Realistic View of Goldman Sachs and Their Latest Quarterly Results
The Brown Stinky Stuff is Splattering Off the Fan Blades and Landing on That Shiny New Building on the West Side Highway.
No One Can Say I Didn’t Warn Them About Goldman Sachs, Several Times…
Subscribers can find our most recent Full Forensic report on Goldman Sachs here - GS 4Q09 Final Review and Updated Valuation, current as of January 2010, the month I started reiterating my warnings about this company’s drastic overvaluation.
Reggie Middleton vs Goldman Sachs, Round 2

Comments on MS

Revel marked down again-but future risk
is limited. As a result of MS’ decision to sell its Revel real estate
development in Atlantic City, MS updated its view on the worth of the
investment driving a write-down of about $200M. MS noted that valuations
for the partially completed casino property are driven by valuations
related to the gaming industry than valuation trends in CRE markets.
The current carrying value is approximately $40 MM at present”- WFC

“our preference is for GS over MS. So why
is MS an OW? The simple answer is that we view the stock as cheap. It
Trades at 0.8x fully diluted tangible BV 2012 E, for RONAV ex own debt
of 10%. With MS GWM an important earnings deriver going forward , no
capital issues , and a cleaned up structured credit book – franchise
re-rating is possible over the long term , in our view.” Barclays

Equities were solid considering MS had no
material hedging losses in Equity Derivatives in 2Q and expected to
hence have limited gains in 3Q compared to peers(see gs 2Q vs 3Q)

My Morgan Stanley update should be available to subscribers in about 48 hours. Below is my historical opinion…

Trading revenues account for 37% (TTM basis) of total net
revenues of Morgan Stanley and fluctuations in this line item can
significantly influence the revenues and profitability of the company. The
effect of high volatility of trading revenues has trickled down to its
net revenues and earnings and the same is reflected in the chart
below:

We have uncovered hints of solvency stress (considerably more so than
that of Goldman’s) and the usual high risk after pouring over Morgan’s
books. All paying subscribers can download our analysis and view of
MS’s latest results below (click here to subscribe):

MS 2Q10 review
MS 1Q10 Review (351.75 kB 2010-05-24 09:43:31). Historical MS analysis and valuations may downloaded as follows:
MS 4Q09 results (275.43 kB 2010-01-28 04:38:11)
MS Simulated Government Stress Test (2.49 MB 2009-05-05 11:36:25)
MS Stess Test Model Assumptions and Stress Test Valuation (339.99 kB 2009-04-22 07:55:17)

Comments on Google

“We believe 3Q10 results and increasing
evidence that display and mobile are becoming more material drivers will
help bring investors back to Google shares. -Barclays

What concerned us- heavy capex spending/heavy headcount additions/4Q CPC facing tougher comps.

What surprised us – Google Instant has Minimal Revenue impact – Barclays

“While we knew there was tremendous
momentum in the world of mobile (more especially the Android O/S) and
display advertising (Doubleclick Exchange and YouTube/video), it now
appears Google has clearly become a three headed monster in terms of
paid search via desktop internet, display advertising as well as
advertising in the rapidly growing Smartphone world.- Deutsche Bank

“Google no longer a one trick pony – Jefferies

My question is, where were the bullish comments BEFORE earnings and
throughout all of last quarter.We first turned bullish on Google in June
and got the full forensic report well before earnings.

I strongly urge all paying subscribers to read and reread the longest forensic analysis that I have ever released (@63 pages): File Icon Google Final Report, as well as the An Analysis and Valuation of Google’s Android and AdMob. Professional subscribers are strongly urged to play with all of the market and valuation models that we have to offer (click here to subscribe or upgrade):

Google Valuation Model (pro and institutional).
Smartphone Market Model – Blog Download Version – all paying subscribers
Mobile Operating System Market Share Model – all paying subscribers – This model is key to showing the trends across operating systems, and not just handset manufacturers.

This carries on with the strong performance of the Research in Motion
Analysis, which I am now giving away for free since it has hit our
initial price point, see The Research In Motion Forensic Valuation and Analysis is Released to the Public. …

Google has devised a stratagem to literally knock the ball out of the
park. Knowing how bearish I am on the US equities market, this should
be saying a lot coming from me.

Of course, many of these observations above may not be
surprising to some, since the best performing sell side analyst during
this time period (save yours truly, of course) only racked up 38% in
accurate calls: Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

Those interested in subscribing to BoomBustBlog should click here.

- advertisements -

Tue, 11/02/2010 - 11:29 | 693271 Reggie Middleton

JPM analysts reduced their estimates for the cost of pushbacks for the industry based on the fact a large number of originators have already failed!

Surely you jest!!!???

Wed, 11/03/2010 - 02:25 | 695201 The Navigator

I'd have to agree. Even though the originator (i.e. Countrywide) is gone, some entity (i.e. BofA) bought their crap and is now the 'holder/servicer' who can be told 'take this crap back'

Personally, I'd get Mozilo back in the picture and stuff the crap down his throat. If he's not available, then Ken Lewis would be my next choice. Preferably I'd like to see both taking a cram-back, on national TV - "who wants to be an 'anti-millionaire' or 'cram-back millionaire' "

Tue, 11/02/2010 - 11:27 | 693253 A Man without Q...

It feels like they are rolling a car with no engine down a hill and trying to convince us it still works fine. Dimon has told all staff that the foreclosure problems are exaggerated in the media and the banks have all reserved sufficiently to meet putbacks, which will come slowly on a case by case basis (me, I think this is wrong). JPM analysts reduced their estimates for the cost of pushbacks for the industry based on the fact a large number of originators have already failed! I call this bullshit, as the burden will then fall to the arranger of the securitization and failing that, the investor has the right to sue the trustee for failure of fiduciary care.

Truth is, nobody knows the full cost, but the banks still believe that this can be resolved at Federal level, when this is a state government matter. What we shouldn't forget is most of these states lost money buying these toxic RMBS and CDOs, so I am not so sure they will receive as much love as they have come to believe is theirs by rights.

Tue, 11/02/2010 - 09:44 | 692920 razorthin

Another day, another dollar-killing pump attempt.

Tue, 11/02/2010 - 09:33 | 692889 Raging Debate

This is very simple Reggie. There are those that wish to preserve the status quo. We live longer and the urge to hedge for old age increases. On the other side of that is our Generation - X. We have been worked like mules and have grown very grumpy, worse than old men at times.

We will force evolution forward into a new growth cycle. The status quo investors will fund us and the gap in-between is where everything crashes and makes it worth the status quo funding the next growth cycle. Banks, corporations, politics, mostly noise in the news on who to bet with that really involve small clusters of people and their nature as described but sound money semantics DO matter.

On a global basis I believe we will find a decade from now the effects of the bust cycle with WMD are not worth the opportunity for the few to benefit tremendously from the boom cycle and have it trickle down. I saw your work on Seeking Alpha Reggie these last three years. I have the screen name iThinkBig and Jason Rines. If you ever want to chat, my number is 603-953-3388. I build some neat I.T. or so I am told.

The job we have now is a tough one and I have concluded it is about mitigating loss while we simultaneously do the diligence and package micro-cap opportunity for the Boomers. The seeding is coming as the frustration of no growth mounts. Give it a year or two. They are, after all expecting service and we shall not dissapoint.

Tue, 11/02/2010 - 09:27 | 692864 doolittlegeorge

don't you "save mine" mo fo. i made a Google call...just before earnings no less! kids...just do the darndest thing, don't they! great year Reggie if a guy people claim me to be can say that. All I have to say as I have since "day one" is "beware that government market."

Tue, 11/02/2010 - 09:21 | 692845 MeTarzanUjane

Nice try. Vapid and hollow. Sophisticated? No. Do people really pay for this garbage?

If you were a stock I would have naked sold you years ago.

Tue, 11/02/2010 - 10:17 | 693013 Eternal Student

Do you have anything intelligent to offer, beyond your ad hominem attack? That's really unimpressive, and a candidate for junking, though I'll refrain.

Tue, 11/02/2010 - 11:39 | 693303 MeTarzanUjane

Stay on topic. I am merely saying that the article is really unimpressive, and a candidate for junking. A protective design decision by Tyler left no option to junk the author so without any other alternative I leave my comment.

If you do not value them then please move on fanboi. It's not my fault that you paid for a multiyear subscription to the municipal bustblogboom landfill, or ZHunicipal landfill. We all make our own decisions in life. Carry on.

Tue, 11/02/2010 - 12:15 | 693430 Reggie Middleton

I am merely saying that the article is really unimpressive, and a candidate for junking. A protective design decision by Tyler left no option to junk the author so without any other alternative I leave my comment. If you do not value them then please move on fanboi.

Of course you can take your own advice and move on when you see my name. You, of all people, have proven yourself to be the biggest fanboi since you insist on reading and commenting on my columns.

Tue, 11/02/2010 - 12:56 | 693568 MeTarzanUjane

I like most cannot make it past the first few sentences. It's like reading spam posted by Ringling Bros Barnum Bailey.

Only the desperate and gullible buy into it. But I do not object to your posting it. It's your right to do so. I seldom visit your posts except when I see outright BS, like your theft of the Derivatives article the other day.

We both know where that article originated but not one credit to the originator.

But look at it this way. If you improve your style and integrity you may get your anti-fanboys onboard.

Tue, 11/02/2010 - 09:10 | 692828 jus_lite_reading

Blue horseshoe buys all banks...

Reggie, that is because we know the game, we know the secret, we learned the tricks of the trade, we see the corruption, we smell the rats on Whore Street.

In the meantime, I'm playing the EU CDS spreads- check out the Greek 10yr yield at 10.99% and rising rapidly. To me, this is far more interesting than the giant ponzi coverup here in the US. There is going to be a major unwinding of positions, so rapidly, so unexpected that these big banks will not know what to do. End game has arrived.

How the Sell Side Differs with BoomBustBlog on the Outlook for Big Banks and Technology

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