Bank Stocks Slide On Resurgent Agentic Fears
It used to be software that was the first casualty of fears of AI disruption. Today, it's the banks.
In a generally flat (and higher for tech stocks) market landscape, banks are conspicuously underperforming today, prompting questions what's the reason for the underperformance.
According to some traders, the reason is the market's newfound obsession with the latest shiny agentic models that are taking the world by storm.
As Goldman trader Gaelle Jarrousse writes, she is noting the agentic hit on bank and insurance stocks. She lays it out as follows:
I took a close look at INSTINCT, the ready to use personal agent with simple chat interfaces incl what's app integration. The other one is MUSE in the US. You can ask INSTINCT pretty much everything you want from find a bottle of wine and buy it for you, gym class, restaurants bookings, travel bookings but also find an insurance products and buy it for you, ie this is a one step ahead vs Moneysupermarket for example as INSTINCT does everything for you (5 min process vs a few hours). It is like having a personal assistant. And it will find the best available deal on the market.
She notes that the pushback is do you trust it to give your email address and credit card details to buy things but as time goes by, trust will increase especially with arrival of Muse.
One month ago, the WSJ did a profile on Instinct, calling it the "Latest Viral AI Assistant Rocketing Across Silicon Valley."
A new AI assistant is rocketing across Silicon Valley.
Months after OpenClaw, the viral AI-powered assistant, captured the attention of the technology industry, a company called Instinct appears to be gaining traction among early-adopting techies.
The startup began testing Instinct in private beta in February and quickly generated substantial interest among venture capitalists, who are among its earliest users. Its popularity surged earlier this month, as users began posting about what they saw as a highly capable AI assistant that worked fairly seamlessly, a goal technologists have long considered a holy grail.
Users of Instinct can call or text the AI bot and ask it to respond to emails, manage calendars, book a ride to the airport, arrange a handyman and more. Some users have reported using it to shop for homeowners insurance or order custom merch for a wedding.
“We saw someone buy a house on the platform. A lot of our younger users are using it to find apartment rentals,” Shinn said. “It’s a one-stop shop to do almost everything.”
Going back to Goldman, Jarrousse writes that we saw some early sell off in Telcos on the theme at the end of last week and we are seeing US banks and insurers down on the same theme today.
"I will pay attention to this and i started to get questions yesterday as a potential trigger for some profit taking in insurance esp when looking at the high valuation of Allianz which is a sector proxy."
She shares some additional color below:
See table below, which is our best estimates based on company data, of Motor and non-motor exposure. The Nordics screen the highest on P&C exposure with Sampo, Tryg and GJEN at the top of the table. Admiral is the one of the pure play on the theme although we can argue that the UK is already very competitive. Amongst the multi liners Generali is at the top given retail P&C exposure followed by Allianz.
Looking at banks, KBC is the biggest P&C with about 20% of insurance revenues. Caixa and Intesa have 3-4% of P&C insurance exposure and I would argue that Italy and Spain are ripe for disruption on other products as well from deposits to asset management given high upfront fees, low betas. Historically the Irish have been weak each time agentic/ deposits competition kicks in and ING can come in the debate too given high L/D, deposits structure, positioning and NII expectations. Outside of agentic, I am also bearish on Caixa given risk of short term NII disappointment due to deposits repricing vs time lag in asset repricing and a valuation at 2.5x P/TE. So overall I will be cautious on rates sensitive banks here and Greece and Lloyds/ Natwest are now my only longs. On the Platforms, we have some constructive feedback from Italian trip and Munich conference on FINECO and FLATEX (see below) and I feel less concerned about those from an agentic disruption angle as they are the disruptors to incumbents and cash sitting on those platforms is meant is to be deployed/ invested.
Goldman's US Financials specialist, Christian Degrasse, also confirmed that while he was seeing plenty of debate & inbounds coming in on sectors where price action is more muted today, a common starting point appears to be interaction with the consumer... with AGENTS are the primary focus...
...largely on businesses with Consumer Touch points as the market prices in risk that agents narrow the ability for companyies to monetize the consumer, and also change the landscape re lead generation & marketing .. this all comes amidst greater excitement around Muse + other agent products - and GS' Consumer Inertia basket (GSXUSWCH) is one of our most actively traded baskets in recent sessions ..
There was some chatter yesterday on personal insurance (ALL), with focus today broadening out to Personal Insurance peers (PGR, TRV etc), Lead generators (investors have pointed to a couple of small cap insurance lead generators down HSD % - LDD %), Insurance Brokers (GSHD u/p peers 2 days in a row), Wealth Managers & Retail brokers (SCHW LPPA AMP RJF).. Banks are also trading heavy, and feedback here is debated – but focus does remain on banks with business mix geared towards the Consumer (Consumer deposits, wealth management) – which may explain from a high level the relative outperformance in smid banks (which in aggregate have less fee businesses like wealth + greater mix in commercial deposits) vs large banks – though positioning & liquidity may also potentially playing a part in todays volatility.
Payments … entered today where convos were very comfortable around V MA’s positioning on Agentic, and how integrated card was into present agent capabilities … Some questions here around whether the late morning underperformance is either 1) flow of funds driven (ie selling of liquid & owned financials) or 2) any worries around more direct wallet integration following announcement of a PYPL partnership (most feedback thinks #1 so far but welcome to views)
As we move into the afternoon – price action is somewhat indicative of investors in fins broadly pulling back & getting incrementally more defensive (with positioning starting to play a greater role in dispersion) … Signs = CBRE & JLL underperforming peers by ~2% (two popular names in real estate among Financials specialists), 2) large/liquid & defensive names viewed as (per feedback) having good tech (JPM) and/or well positioned on agentic (V MA), or more weighted towards commercial exposure (ie insurance brokers) trading heavy, 3) choppy underperformance across various sectors without direct agent reads (ie exchanges) ... In our view, this is all indicative of 1) the market pricing in a ‘uncertainty discount’ as investors potentially try to get up to speed on implications (risk/reward) on fundamentals, and 2) the market’s cognizant that in past choppy tapes that dealt with AI, it was better to be more patient rather than defending day 1 …
on that note, Mitola highlights volumes are High and we’re seeing 1) an uptick in thematic trading and a willingness to press names where an "agentic economy" presents a potential headwind & 2) a complete buyers strike with no signs of defense across the sector, similar to previous episodes YTD (AI risk, Perpetual Futures, etc) ..
For now software, where shorts got badly burned after the recent surge, is insulated but as agents make a fresh push for attention - and disintermediation of traditional applications, how long before the pain returns?