Latest news with #CapitalOneFinancialCorp
Yahoo
05-07-2025
- Business
- Yahoo
The Securities That Banks Are Backing Away From: Credit Weekly
(Bloomberg) -- US banks, among the few companies that still sell preferred shares, are following JPMorgan Chase & Co.'s lead and retreating from the securities, even as investors are eager to buy them. Foreign Buyers Swoop on Cape Town Homes, Pricing Out Locals Trump's Gilded Design Style May Be Gaudy. But Don't Call it 'Rococo.' Massachusetts to Follow NYC in Making Landlords Pay Broker Fees NYC Commutes Resume After Midtown Bus Terminal Crash Chaos What Gothenburg Got Out of Congestion Pricing Capital One Financial Corp. redeemed a $500 million preferred share this week, resulting in the market shrinking on a net basis this year, according to data compiled by Bloomberg. If the trend continues, this will be the second year in a row that the market for US bank preferreds has shrunk, something that hasn't happened since the lenders were replacing obsolete capital after the global financial crisis. At the same time, preferred managers have received more cash to invest this year, as investors pile into higher-yielding assets that can perform well when rates are cut. Assets under management in the 10 largest funds in the space have risen by more than 10% on average year-to-date, based on Bloomberg-compiled data. Capital One's redemption follows JPMorgan cutting its preferreds outstanding by more than a quarter last year. Banks are broadly paying off the securities because they don't need as many of them anymore: capital regulations that made preferred shares attractive to issue, including the Basel III endgame rules, are being eased now in the US. The securities are expensive for banks, because they pay relatively high dividends. But banks were among the few companies still selling preferred equities, a sort of equity with some debt-like characteristics, that helped finance the industrialization of America. For earlier generations of investors, the securities were an attractive source of income, offering more than a company's notes would pay, but also coming with more risk. If the company fell on hard times, preferreds were close to the back of the line to be repaid, for instance. Non-financial companies have been backing away from preferreds, in favor of securities known as 'hybrid bonds.' Hybrids are among the last bonds to be repaid if a company runs into trouble, but aren't as far back in line as preferreds, which are equity. Issuance became viable for companies once Moody's Ratings changed its methodology in early 2024 and the securities quickly became one of the hottest sources of capital-raising in the US. With preferreds growing less popular, the managers of the largest preferred-focused funds are looking for alternatives. They are banking on the relatively high leeway they have to invest in securities similar to preferreds, such as hybrid bonds. 'That's the nice thing about our universe. When people talk about preferred securities, the definition is very grey,' said Douglas Baker, head of preferred securities at Nuveen. 'If things get tight in one area, we typically have plenty of places to pivot to,' he said. It's a view shared by Mark Lieb, founder and CEO of Spectrum Asset Management and a veteran of the preferred market, who expects the supply of hybrids from US utilities to expand in order to cover the growing demand for infrastructure investments supporting AI. That growth can outweigh any loss of issuance from US banks, as their regulatory needs keep decreasing. 'We will have to see what the final rules and regulations are but on the utility side it's going to more than offset it,' Lieb said in an interview. 'Capex is going to go up.' Non-financial corporates in the US sold about $30 billion of hybrids last year, with another $10 billion sold so far in 2025, data compiled by Bloomberg shows. This far exceeded what was repaid through the exercise of call options. Week In Review JPMorgan Chase & Co. helped Warner Bros. Discovery Inc. restructure its debt by offering creditors a deal that would leave them with billions less than they were owed, despite the notes having an investment-grade rating. A trio of banks joined Morgan Stanley in a $5 billion debt deal for xAI Corp., after the company requested their participation to maintain relationships that could help with financings down the line. New World Development Co. closed a record $11 billion refinancing deal, averting a potential crisis in Hong Kong's fragile property market. SoftBank Group Corp. sold $4.2 billion of bonds in dollars and euros, as the technology investment firm turns to global debt markets to accelerate its artificial intelligence push. JPMorgan Chase & Co. and UBS Group AG are among a group of Wall Street banks sounding out investors ahead of a mid-July launch for a $4.25 billion debt package backing Sycamore Partners' buyout of UK pharmacy Boots. The European Central Bank held onto two bonds of embattled payments company Worldline SA while prices slumped after news reports alleging the company covered up fraud by some of its customers. Goldman Sachs Group Inc. is leading a potential transaction for Gray Media Inc. to help the company refinance some of its existing debt, aiming to raise at least $750 million in the high-yield bond market. Flora Food Group BV is the first issuer in Europe rated one of the lowest levels of junk to sell bonds in nearly a year, a sign of investors' insatiable appetite for risk. Vodafone Group Plc pulled in multi-billion investor bids across a multi-currency debt sale, the proceeds of which will be used to finance a sweeping €2 billion ($2.35 billion) debt buyback. Wolfspeed Inc., a chipmaker caught in President Donald Trump's push to reshape Biden-era tech subsidies, filed for bankruptcy to enact a creditor-backed plan to slash $4.6 billion in debt. AMC Entertainment Holdings Inc. said it reached an agreement with creditors to end litigation that resulted from the movie theater chain's debt restructuring last year. Merit Street Media, the startup founded by celebrity psychologist Phil McGraw, filed for bankruptcy in Texas. On the Move Josh Harris' 26North Partners is hiring bankers from JPMorgan Chase & Co. and Deutsche Bank AG as it continues to grow its investment-grade bets. The platform has tapped Todd Marr, formerly global head of debt private placements at JPMorgan, and Ravi Suresh, former head of insurance private asset solutions at Deutsche. BNP Paribas hired Denise Chow from Morgan Stanley's leveraged finance team, one in a string of recent moves across lenders' debt capital markets desks. Uros Stosic, a longtime leveraged loan trader, left Morgan Stanley to join Truist Financial Corp.'s team in New York as a managing director. He reports to Eddie Ferguson, head of loan and sales trading. SNAP Cuts in Big Tax Bill Will Hit a Lot of Trump Voters Too For Brazil's Criminals, Coffee Beans Are the Target America's Top Consumer-Sentiment Economist Is Worried Sperm Freezing Is a New Hot Market for Startups Pistachios Are Everywhere Right Now, Not Just in Dubai Chocolate ©2025 Bloomberg L.P.
Yahoo
20-05-2025
- Business
- Yahoo
Capital One's stock looks like a bargain following Discover acquisition
Capital One Financial Corp. announced Sunday it had completed its acquisition of Discover Financial Services, ending a long regulatory approval process after announcing the merger agreement in February 2024. Through Friday, Capital One's COF stock had returned 10.9% for 2025, while Discover shares had returned 16% as investors became more confident the deal would be completed. The KBW Bank Index had returned 2.8% so far this year. Those figures include reinvested dividends. My father's widow keeps sending me $200 checks in the mail. Why would she do this? My ex-wife said she should have been compensated for working part time during our marriage. Do I owe her? 'I'm an idiot': I'm middle aged, earn $68,000 a year and have $39,000 in credit-card debt This Morgan Stanley investor warns of three big disconnects with stocks on the verge of a bull market Recession indicators are out of control. When will this madness end? Investors might be wondering whether or not the postmerger Capital One is now fully valued. In a note to clients on Sunday, Keefe, Bruyette & Woods analyst Sanjay Sakhrani rolled out his firm's 2027 earnings-per-share estimate of $22.42 for the postmerger Capital One. Capital One's stock closed at $197.22 on Friday. So if we use KBW's 2027 EPS estimate, Capital One would be trading at a price-to-earnings ratio of 8.8 — a low valuation, as you can see from the table below. Forward price-to-earnings ratios are typically based on consensus earnings estimates for the following 12 months among analysts working for brokerage or research firms. But Capital One will go through a transition as it integrates Discover. This will shift Capital One more toward credit-card lending. Card loans made up 49% of the bank's average loans held for investment during the first quarter. And along with Discover's card loan portfolio, Capital One now owns Discover's payment-processing network, which handles Discover-branded card transactions. American Express Co. AXP also has its own processing system. Based on their March 31 financial reports, the combined Capital One and Discover had $638 billion in total assets, ranking eighth among the largest U.S. bank holding companies. So here are the largest 20 U.S. banks, with two P/E ratios — the customary forward P/E using the consensus estimates among analysts polled by FactSet for the next 12 months, which is marked 'NTM,' and one based on consensus 2027 EPS estimates. Largest 20 U.S. banks Ticker City Forward P/E – NTM Price/ consensus 2027 EPS estimate Total assets ($bil) JPMorgan Chase & Co. JPM New York 14.7 12.6 $4,358 Bank of America Corp. BAC Charlotte, N.C. 12.0 9.3 $3,349 Citigroup Inc. C New York 9.9 6.6 $2,572 Wells Fargo & Co. WFC San Francisco 13.0 9.9 $1,950 Goldman Sachs Group Inc. GS New York 13.9 11.2 $1,766 Morgan Stanley MS New York 15.5 13.1 $1,300 U.S. Bancorp USB Minneapolis 10.2 8.5 $676 Capital One Financial Corp. COF McLean, Va. 11.7 9.1 $638 PNC Financial Services Group Inc. PNC Pittsburgh 11.5 9.3 $555 Truist Financial Corp. TFC Charlotte, N.C. 10.2 8.4 $536 Charles Schwab Corp. SCHW Westlake, Texas 20.0 14.9 $463 Bank of New York Mellon Corp. BK New York 13.2 10.8 $441 State Street Corp. STT Boston 10.3 8.4 $373 American Express Co. AXP New York 19.2 15.0 $282 Citizens Financial Group Inc. CFG Providence, R.I. 10.5 6.8 $220 Fifth Third Bancorp FITB Cincinnati 10.8 8.9 $213 M&T Bank Corp. MTB Buffalo, N.Y. 11.3 9.1 $210 Huntington Bancshares Inc. HBAN Columbus, Ohio 11.1 9.2 $210 Ally Financial Inc. ALLY Detroit 9.0 6.0 $193 KeyCorp KEY Cleveland 11.2 8.7 $189 Source: FactSet The average forward P/E ratio for these 20 banks is 12.5, while the average P/E based on Friday's closing prices and consensus 2027 EPS estimates is 9.8. Capital One trades at a forward P/E of 11.7 and at 9.1 times the consensus 2027 EPS estimates, which is slightly above the 8.8 valuation based on KBW's 2027 EPS estimate. To add some more perspective to the valuations, the S&P 500's forward P/E valuation is 21.6, based on consensus 12-month EPS estimates weighted by market capitalization. Over the past 20 years, the index's average forward P/E has been 16.6, according to FactSet. For the banking-industry group within the S&P 500 SPX, the current forward P/E is a weighted 12.2, and the 20-year average has been 11.5, according to FactSet. The banks currently trade for 56% the valuation of the full S&P 500, while they have traded at an average valuation of 69% over the past 20 years. So the banks appear relatively inexpensive — and Capital One even more so. 'With shares trading at a material discount to bank peers on average, we believe COF warrants a more in-line multiple given the potential for higher levels of capital return, asset diversification, and deposit funding similar to regional banks, and leverage to a rising interest rate environment,' Sakhrani wrote. The analyst called his 2027 EPS of $22.42 his 'base case' for Capital One but added that there was '$30 of potential EPS power' that year depending on cost synergies, 'normalization' of credit quality for the Discover card portfolio to its pre-2020 state and a reduction of the share count through stock buybacks. The consensus price target for Capital One among analysts polled by FactSet was $216.32 before the open on Monday. Wall Street analysts typically set 12-month targets. The target was 10% higher than Capital One's closing price on Friday. But in this case, 12 months might be too short a period for long-term investors. Sakhrani called the merger 'a transformative deal that will benefit shareholders for the next several years.' He added: 'There remains significant upside potential of around 15%-50%.' Don't miss: These $5,000 bonds can help you fix a stock-heavy portfolio 'He's lied to us all': My father is leaving my sister, brother and me a $450K lakefront property. We want to cut my feckless brother out. I'm 57 and ready to retire next year on $7,500 a month, but my wife says no. Who's right? My wife and I paid off my stepdaughter's $415K mortgage in exchange for her house, but it's now worth $310K. Should we sue? My husband and I spend more money on our daughter and her family than on my single son. Do we compensate him? Stock futures, dollar fall after Moody's strips U.S. of its top credit rating Sign in to access your portfolio
Bloomberg
02-05-2025
- Business
- Bloomberg
Senator Warren Urges Fed to Reconsider Capital One Deal for Discover
The top Democrats on congressional banking committees called on the Federal Reserve to reconsider its decision to approve Capital One Financial Corp. 's purchase of Discover Financial Services, saying it would inflict 'serious harm' on consumers and the banking system. The decision sounds like the Fed 'had predetermined it was going to approve the transaction and either ignored relevant facts or explained them away with baseless assertions copied and pasted from Capital One's application,' Senator Elizabeth Warren and Representative Maxine Waters said in a letter sent to the Fed this week and seen by Bloomberg News.
Economic Times
01-05-2025
- Business
- Economic Times
US' economic contraction something of a head fake
US Q1 Economic Contraction: Despite a first-quarter contraction driven by tariff-related import surges, the US economy shows resilience. Consumer spending remains steady, supported by a stable labor market through April. While businesses express concerns, capital expenditure plans, particularly among tech giants investing in AI, remain largely unchanged. Major investment and labor decisions are being delayed, awaiting greater policy clarity later in the year. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of The US economy 's contraction last quarter was something of a head fake, driven by a surge in imports as businesses tried to front-run tariffs. Consumption, though, has remained steady, begging the question of how soon tariffs will percolate through the economy and deliver the kind of negative shock to the hard data that household and business confidence surveys predict lies answer hinges to a large degree on when businesses that say they're downbeat on the future put their money where their mouth is and slash spending, which would mean significant job losses followed by declines in consumer spending. And while that scenario may eventually play out, it's likely to come closer to the end of the year given the uncertainty of this moment and the dynamics of corporate decision-making.A stable labor market through April signals that consumers will keep spending over the next few months and companies that stockpiled imported goods in the first quarter will have no trouble meeting demand. Don't take that to mean the economy is brushing off President Donald Trump's import levies, just that big investment and labor decisions are being delayed until there's greater policy clarity later in the has been evidence of this in the slate of first-quarter earnings updates this month. In the aggregate, S&P 500 Index companies haven't cut spending plans with estimates for 2025 capital expenditure essentially unchanged since April 2, when Trump announced his 'Liberation Day' tariffs. That's driven in part by the big technology companies, which look unlikely to allow the recent uncertainty to derail their investments in artificial intelligence. Alphabet Inc. reiterated its full-year capex guidance for $75 billion last week, while Meta Platforms Inc. increased its projected spending this year to as much as $72 billion from $39.2 billion in 2024, signaling that the race for AI dominance too, keep spending, executives tell us. Capital One Financial Corp. said that they saw a slight uptick in people's credit card usage in April relative to this time last year, though they noted the timing of Easter may have helped, and that some softness in airfare spending has emerged. Visa Inc. said this week that they have seen no signs of overall weakness in consumer spending through April 21. Customer trends at regional casino operator Boyd Gaming Corp. in the first three weeks of April have remained consistent with March, the company reason for this is that jobs losses have stayed contained even as companies grow more cautious on new hiring. Weekly initial jobless claims through April 19 are consistent with the levels seen over the previous three of this means that the direct and indirect impact of tariffs won't be a big negative for the US economy, only that companies may take even longer than consumers to translate diminishing confidence into action. Federal Reserve Governor Christopher Waller said last week that he didn't believe tariffs would have a significant impact on the economy before July. Freight activity and company inventory levels will decline well ahead of that, but at a macroeconomic level, there are buffers and product substitution options that will kick in before the top-shelf economic data starts to must weigh the ramifications of tariffs remaining at their proposed levels along with the possibility that they'll be dialed back substantially, as the White House sometimes signals and as financial markets seem to be anticipating. For now, that means contingency planning rather than substantial spending will mark the end of President Trump's 90-day pause for tariffs on dozens of trading partners, delivering clarity for companies (unless another delay kicks in). But mid-year is a particularly difficult time for companies to cut spending, especially when they started 2025 optimistic about economic growth. We have some recent evidence of this from when corporate America had to adjust to the fast-moving conditions that emerged from the pandemic in 2022 and recession fears to analyst concerns about big capital expenditures in late April 2022, Inc. Chief Financial Officer Brian Olsavsky said that 'many of the build decisions were made 18 to 24 months ago, so there are limitations on what we can adjust mid-year.' Similarly, Meta didn't announce significant job cuts until November 2022 even though its revenues began declining in the second quarter. The company didn't declare its 'year of efficiency' until February of the following good and bad news in the slow-motion reality of how tariffs will flow into capex and headcount decisions. On the one hand, even if retailer shelves start to empty out later this quarter, we're unlikely to get the kind of sudden stop in overall economic activity that we saw after the bankruptcy of Lehman Brothers Holdings Inc. in 2008 or when Covid had the world sheltering in place in March the same time, just because companies are more focused on contingency planning than laying off millions of workers now doesn't mean a recession will be avoided. Companies came into 'Liberation Day' betting on good times ahead and are trying to play that hand as best they can, hoping for a de-escalation in Trump's trade war. But they will run out of patience if the economic outlook continues to darken when it comes time to make staffing and investment plans for 2026.
