Big bank profits will highlight the unofficial start of the third quarter earnings season this week, with investors looking for sequentially improving performance, as well as a guide on economic trends heading into the final months of the year. 

With the Federal Reserve keeping its cap on dividend and buybacks in place until at least 2021 in order to ensure that lenders have enough capital to absorb a protracted downturn triggered by the coronavirus pandemic, investors will be looking to see how each of the largest U.S. banks will manage both their credit provisions and near-term economic forecasts as they publish third quarter earnings throughout the week.

Under the Fed’s restrictions, banks will be limited to paying dividends that are either in line with payouts from last year or equal to an average of earnings for the previous four quarters. 

The six biggest U.S. banks — JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs Morgan Stanley and Wells Fargo — have booked around $60 billion in loan loss provisions so far this year, including $34.6 billion over the three months ending in June, as they took advantage of accounting changes that allowed them to front-load the economic costs of the pandemic.

Below is a brief snap shot of analysts’ expectations for Big Six earnings this week, starting with JPMorgan’s third quarter update, which is slated for around 6:45 am Eastern time on Tuesday.

JPMorgan Chase & Co.  (JPM) – Get Report: The country’s biggest bank is expected to report a 17.2% decline in core earnings, to $2.22 per share, on revenues of around $20.13 billion. 

JPMorgan isn’t expected to add to its loan loss provisions in the third quarter, following a front-loaded $10.5 billion increase in the three months ending in June, and investors are likely instead

Investment Thesis

Based in Kansas City, Missouri, Commerce Bancshares, Inc. (CBSH) is a $30.5 billion asset holding company and parent to Commerce Bank. CBSH has a rich history of lending to the Midwest for more than 150 years. It currently operates a little over 160 branches with serving its local markets located in Colorado, Illinois, Kansas, Missouri, Oklahoma and Texas.

To me, CBSH is a bank that you would want to own in the beginning of a recession and but not necessarily today. Since the bank has a solid net interest margin and operating expense base it is typically more profitable than the average peer bank, and because of this has a that valuation is typically higher than peers. As one can see from the chart below, it currently trades at ~2.2x price to tangible book value per share.

While I do think that CBSH has a great mouse-trap, the current valuation is too today in order to have material upside tomorrow. I think credit could potentially more of an issue, but should not be a limiting factor today. In short, I think peer banks are likely to perform better.

ChartData by YCharts

Revenue Outlook

During the second quarter the spread revenue was $203 million. While most banks were dealing with margin compression and stagnate core loan growth, CBSH continued to grow net interest income by $2 million from the first quarter. While its net interest margin ((NIM)) did continue to fall in the second quarter, much like nearly every other bank, it was a little more muted than most Midwest based peers. In the second quarter the NIM fell by 37 basis points.

Throughout the second quarter, CBSH grew loans by a little more $1.3 billion. Given the diverse lending portfolio, there were some obvious puts and takes to

(RTTNews) – The Taiwan stock market had moved higher in six straight sessions, surging more than 500 points or 4 percent along the way. The Taiwan Stock Exchange now rests just beneath the 12,750-point plateau and it’s expected to open in the green again on Thursday.

The global forecast for the Asian markets suggests a higher open on renewed stimulus hopes, although some of the overbought bourses may see profit taking as the day progresses. The European markets were mixed and the U.S. bourses were firmly higher and the Asian markets figure to split the difference.

The TSE finished modestly higher on Wednesday as gains from the technology stocks were limited by weakness from the financials and cement companies.

For the day, the index added 42.14 points or 0.33 percent to finish at 12,746.37 after trading between 12,619.81 and 12,774.36.

Among the actives, Cathay Financial eased 0.13 percent, while CTBC Financial sank 1.08 percent, Fubon Financial dropped 0.84 percent, First Financial slid 0.72 percent, E Sun Financial fell 0.58 percent, Taiwan Semiconductor Manufacturing Company added 0.80 percent, United Microelectronics Corporation soared 4.06 percent, Hon Hai Precision shed 0.51 percent, Catcher Technology climbed 1.13 percent, MediaTek surged 5.20 percent, Formosa Plastic lost 0.49 percent, Asia Cement retreated 1.44 percent, Taiwan Cement was down 0.60 percent and Largan Precision and Mega Financial were unchanged.

The lead from Wall Street is broadly positive as stocks opened higher on Monday and stayed that way throughout the session, offsetting losses from the previous day.

The Dow spiked 530.70 points or 1.91 percent to finish at 28,303.46, while the NASDAQ jumped 210.00 points or 1.88 percent to end at 11,364.60 and the S&P 500 rallied 58.49 points or 1.74 percent to close at 3,419.44.

The rebound on Wall Street comes after President Donald Trump indicated he

Aaron’s Inc. AAN is one of the stocks that have been doing well in the pandemic-ridden market, owing to the momentum in its business in the past two months. Despite the continuity of the COVID-19 outbreak-related woes, the company provided a business update for third-quarter 2020, revealing that solid performances across all products and categories as well as a strong customer base and robust lease portfolio have been contributing to third-quarter performance. As a result, management raised its earnings and sales guidance for the third quarter.

Further, the company has been in investors’ good books on its plans to spin-off into two independent publicly traded companies to sharpen focus and operational execution, while delivering long-term shareholder value. Also, strength in its Progressive business and progress on transformation initiatives for the Aaron’s business is keeping the stock going.

We note that shares of Aaron’s have gained 31.4% in the past three months despite the pandemic-related impacts on its business and the economy on the whole. Meanwhile, the industry has witnessed growth of 32.3% in the same period.

 

 

Factors Outlining the Growth Story

Robust Q3 Outlook: Driven by the aforementioned business momentum, Aaron’s anticipates revenues of $1-$1.02 billion for the third quarter, with adjusted earnings of $1.4-$.15 per share. Adjusted EBITDA is projected to be $140-$150 million. This suggests a rise from its earlier view of revenues of $950-$975 million and adjusted earnings of 80-90 cents per share. Segment-wise, revenues in the Progressive segment are envisioned to be $575-$585 million along with adjusted EBITDA of $100-$105 million. Further, invoice growth is likely to increase on a sequential basis to the tune of low to mid-single digits. Notably, strong invoice gain in the segment is likely to continue aiding growth in the quarter.

Moreover, revenues for the Aaron’s Business segment are forecast to

Radian Group RDN is well-poised for growth, driven by higher insurance in force, increased monthly premium policies, higher average investment balances and prudent capital deployment.

The company continues to benefit from strong mortgage origination market including higher refinance activity, aided by a historically low interest rate environment and increased private mortgage insurance penetration rates, which have been aiding new mortgage insurance written (NIW) to increase. Despite the risks and uncertainties due to the COVID-19 pandemic, it continues to expect NIW to be more than $75 billion in 2020.

Recent trends of lower persistency and higher levels of new insurance written have contributed to a faster rate of change in the yield of mortgage insurance portfolio.

Its premium should benefit from increase in insurance in force IIF (primary driver of future premiums), higher monthly premium policies, and increase in single premium policy cancellations due to an increase in refinance activity.
Given higher investment yields, higher average investment balances owing to investing positive cash flow from operations, investment income is expected to improve despite the current low interest rate environment.

Additionally, this mortgages insurer improved its capital and liquidity positions through the extension of the maturity of unsecured revolving credit facility of $267.5 million and the issuance of $525 million aggregate principal amount of Senior Notes due 2025. Also, total debt to total capital of 28.4% compares favorably with the industry average of 30.8%.

The company increased its dividend at a six-year (2014-2020) CAGR of 99.2% and currently yields 3.4% compared with the industry average of 3%. These make the stock appealing to yield-seeking investors.

Radian’s return on equity was 11% in the trailing 12-month period, higher than the industry average of 7.5%. Return on equity is a profitability measure that identifies a company’s efficiency in utilizing its shareholders’ funds.

However, we