Rob Wessel and Jennifer Mersereau

Are REITs Set to Underperform the Financials?

We are pleased to announce the launch of the Hamilton Capital Global Financials Yield ETF (HFY), which will begin trading on the TSX on Tuesday, February 7th. The objective of the ETF is to offer attractive distribution potential. Put differently, our aspiration is for the ETF to have “REIT-like yields, but with positive rate sensitivity”. Although REITs were recently separated from certain financial services indices (for…

WFC: A Canadian Bank Counterfactual as it Enters Year #4 of No Growth

We generally have minimal exposure to the global mega-cap banks primarily because of their very low EPS growth, higher regulatory risk, and relative to their mid-cap peers, materially lower interest rate sensitivity. In this Insight, we explain why we believe “slow growth” WFC basically represents a Canadian bank counterfactual.

OCC Letter Shows WFC is Not Out of the Regulatory Woods Yet

As we have written in prior Insights, Wells Fargo (“WFC”) – like its other mega-cap peers – continues to struggle to generate earnings growth. The mega-caps also struggle with regulatory risk; before the recent U.S. election, we cautioned that the risk that regulators were shifting their focus from the capital markets banks to the largest regionals appeared to be rising. WFC was a prime example, coping…

Canadian Banks: Revisiting our “End of an Era” Thesis (Five Years Later)

In May 2011, we wrote an essay entitled “The Canadian Banks – The End of an Era”. In this essay – which was excerpted in the Globe and Mail – we explained why the Canadian banks were entering a period in which their two-decade period of double digit EPS/dividend growth was ending. Specifically, we identified three reasons supporting this thesis: (i) the drivers of the sector’s…

Canadian Banks: Housing Correction Concerns Increasing Regulatory Risk

As we have highlighted in numerous Hamilton Capital Insights, regulatory risk is a key risk in global banking, and one we attempt to minimize our exposure. It is most intense for the mega-banks in the U.S. and Europe, particularly those with global investment banking operations (i.e., C, BAC, JPM, CSGN.VX, UBS.VX, DBK.GY, BARC.LN). Although post-crisis, those global banks have been the epicentre of regulatory risk, the recent…

Wells Fargo/Deutsche Bank: Some Thoughts on Regulatory/Litigation Risk

Recent events impacting Deutsche Bank (DBK.GY) and Wells Fargo (WFC) underscore – yet again – that the mega-cap banks, particularly those with (1) global investment banks and/or (2) operating in the U.S., continue to face significant regulatory/litigation risk, irrespective of quality. In general, these two categories of banks, which overlap, are not growing very fast (in some instances shrinking), have mid-single digit ROEs, and/or continue to…

2016 EBA Stress Tests Confirm Strength of Northern European Banks (and a Word on Italy)

The Hamilton Capital Global Bank ETF (HBG; TSX) is expected, over time, to hold ~25% exposure to European banks. Prominent among the ETF’s identified objectives is to generate yield and to limit volatility. As a result, in its European portfolio, HBG places a significant emphasis on Northern European countries, which are – on balance – wealthier than Canada/U.S. and have higher forecast GDP growth. Relative to…

European Bank Profitability Continues to Recover

Despite a macro driven correction holding back stock prices, Q3 2015 earnings season demonstrated that the recovery towards pre-cycle profitability continues. As the chart highlights, the European banks generated ~€130 bln in “core earnings” in 2007, i.e., before the cycle began (source: Keefe Bruyette and Woods, universe is ~70 banks, accounting for ~90% of system assets). During the sovereign debt crisis in 2011/2012, European bank earnings…

Greek Banks “Stressed” Again, Basically Un-investable

From a systemic perspective, the recapitalization of the European banking sector is complete. So, while capital actions for certain banks are possible (i.e. Deutsche Bank), we continue to forecast limited EPS dilution from capital raises, overall. Moreover, the recovery in European banks from both an earnings and stock price perspective continues to track very closely the recovery of U.S. banks at a similar stage of the…

Stay Informed!

We are Canada's leading specialists in the financials sector.
Subscribe to get notified of our latest insights, updates and upcoming events.