On Deck Lending Grows Cold

Lending Club and On Deck have seen their shares plunge from their highs following closely watched initial public offerings.

Alternative online lending marketplaces Lending Club and On Deck Capital are taking a beating on Wall Street this summer, with both companies’ shares plummeting below the opening prices of their respective initial public offerings.

Lending Club LC -0.95% , which debuted on the New York Stock Exchange in December, has seen its stock fall 50% from a high of $29 per share shortly after thecompany went public. Lending Club’s stock, which is now trading at $14.56, is below its original price of $15 per share.

On Deck ONDK -2.42% has also been getting hit by investors after its December IPO. The company’s shares are now trading at $11.60, 42% lower than the company’s initial offering price of $20.

Lending Club was one of the pioneers in peer to peer lending by creating a marketplace that connect borrowers and lenders. Founded in 2006, the company took traditional banks out of the equation to connect investors directly with those in need of a loan like small business owners who may not have qualified for a loan from a traditional bank and individuals looking to consolidate their debt. After clearing a few hurdles with federal regulators, Lending Club started gaining traction while raising massive amounts of cash from investors like Google Capital and Kleiner Perkins.

While On Deck also challenges traditional banks, the company differs from Lending Club in that it lends its own money to small businesses. From 2007, On Deck has lent more than $2 billion to hair salons, pizza parlors, and convenience stores.

Michael Tarkan, an analyst at Compass Point Research & Trading, is not optimistic about the prospects for both companies. He’s set a $14 price target for Lending Club’s shares and a $12 target for On Deck, and believes the stocks may sink lower. Why?

“The stocks are too expensive relative to underlying risk,” he said in an interview.

Tarkan further explained that Wall Street has realized that the stock price was overvalued considering the competitive and regulatory risks in the alternative lending space. He cited an increased amount of fast-growing competitors including Marlette and Prosper. Other startups that have raised money in the lending space include CAN Capital, LendUp, and Bond Street.

Traditional banks are starting to see opportunity in online lending as well. Goldman Sachs will soon let consumers apply for and receive small loans online, according to theNew York Times.

Both Lending Club and On Deck have been lauded by Silicon Valley as disrupting traditional banks by opening up the floodgates for underserved customers to credit. Lending Club and On Deck make money primarily by taking a cut of interest rates from loans.

Renaud Laplanche, founder and CEO of Lending Club, acknowledged the declining value of his company’s stock, but maintained that some of gyrations are from a flood of shares into the market following end of an investor lock up period. The company also issued disappointing revenue guidance following earnings in the second quarter, which was later raised.

As for the increased competition, Laplanche points to the company’s second quarter revenue more than doubling to $81 million compared with the same period a year earlier. And with this growth, the cost the company was incurring to acquire customers has gone down over the past year, he added.

On Deck’s revenue has also grown year over year. The company doubled revenue to $56.46 million in the second quarter of 2015, but posted a net loss of $5 million for the quarter.

While there hasn’t been any renewed regulatory problems like Lending Club faced five years ago, Tarkan says that it’s still early days from a regulatory perspective.

LaPlanche says Lending Club has worked well with regulators thus far, and he’s optimistic that regulators will continue to see the marketplace as a positive financial platform.

OnDeck declined to comment on the company’s stock performance for this article.

The Banking Report Card : Stress-Test Results of Top Wall Street Banks



(Bloomberg) — Citigroup Inc.’s plans to return capital to shareholders got the cleanest approval from the Federal Reserve among top Wall Street banks, one year after the firm failed the regulator’s annual stress tests.
Bank of America Corp. got a conditional pass requiring it to shore up internal processes and resubmit its plan for managing capital, while Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley cleared only after revising proposals, the Fed said Wednesday in a statement.

U.S. units of Deutsche Bank AG and Banco Santander SA failed because of qualitative concerns about their processes. The Fed didn’t place any conditions in passing Citigroup or 24 other firms, including Wells Fargo & Co.
Michael Corbat, Citigroup’s chief executive officer, had staked his job on passing this year’s test after the Fed found the bank’s processes inadequate last year. He spent more than $180 million to improve the bank’s systems and asked Eugene McQuade, a veteran executive with close regulatory ties, to delay his retirement to oversee this year’s submission.
The tests are a cornerstone of the Fed’s strategy to prevent a repeat of the 2008 financial crisis and another government bailout of the largest U.S. banks. The results released Wednesday are the annual exam’s second and final round, determining whether lenders can withstand losses and still pay dividends, buy back stock or make acquisitions.
Analysts estimated before Wednesday’s results that publicly traded U.S. banks subject to the review were strong enough to boost quarterly shareholder payouts 53 percent on average, disbursing $109 billion over the next 15 months. The Fed didn’t specify how New York-based Goldman Sachs, JPMorgan and Morgan Stanley altered their proposals.
Citigroup’s Payout
Citigroup, which pays a token 1-cent dividend after last year’s failure, will lead increases with a 60-fold jump in quarterly disbursements through dividends and stock buybacks, according to seven analysts’ estimates compiled by Bloomberg. While payouts from Wells Fargo and JPMorgan will climb less than average, the rewards will remain the largest among the U.S. banks tested, the estimates show.
Banks can disclose details of their capital plans as early as Wednesday. If all of the banks that passed return the capital they asked for, they will pay out almost 60 percent of their projected income over five quarters, a senior Fed official said.
Failing the test can mean banks have to forgo increases to capital payouts, forcing executives to shore up balance sheets or internal systems while facing shareholders eager for more cash. The U.S. units of Santander, Royal Bank of Scotland Group Plc, HSBC Holdings Plc failed last year because of the Fed’s so-called qualitative look at risk management, corporate governance and internal controls.
BofA Faulted
Citigroup’s Tier 1 common ratio fell to a minimum of 7.1 percent under the worst-case economic scenario in the test after taking into account the firm’s planned capital actions. With the pass, Corbat, 54, ends a year of turmoil that included the Fed’s rejection of the New York-based bank’s plan last March because of what regulators described as deficiencies in the firm’s processes for projecting revenue and losses across its global operations.
Bank of America’s revenue and loss models and parts of its internal controls were lacking and need to be resubmitted by Sept. 30, the Fed said Wednesday. If the lender hasn’t fixed its capital planning by then, the Fed can restrict payouts.
Bank of America, led by CEO Brian T. Moynihan, disclosed Feb. 25 that regulators had demanded changes to models, including those for wholesale credit, which would probably decrease the Charlotte, North Carolina-based company’s capital ratios. The Fed didn’t say whether the requested changes in models were related to its critique of Bank of America’s stress-test process.
Deutsche Bank
Deutsche Bank Trust Corp. and Santander Holdings USA will be restricted from paying dividends to their foreign parent companies or to any other shareholders. That may not have a significant impact, because a Fed rule approved last year will require foreign banks to inject more capital into their U.S. units by July 2016.
That rule forces the largest foreign firms to consolidate U.S. operations into one subsidiary and abide by the same capital and liquidity minimums as domestic peers. It came after lenders including Deutsche Bank and Barclays Plc dropped the bank holding company status of their primary U.S. units.
Deutsche Bank Trust represents about 15 percent of the parent company’s assets in the U.S., a Fed official said last week. It’s a holding company for several units of the German lender, including a U.S.-based trust business that accepts deposits and groups that provide back-office services to the bank, and doesn’t include the firm’s broker-dealer unit, according to a regulatory filing last year.
Severe Scenario
Past Fed tests let banks make payouts in the four quarters that followed. This time, the test will determine payouts for five quarters.
Last week, the Fed said all 31 banks have sufficient capital to absorb losses during a sharp and prolonged economic downturn. That review didn’t factor in the companies’ capital plans. It was the first time since the central bank started stress tests in 2009 that no firm fell below any of the main capital thresholds.
Goldman Sachs got closest among the top six U.S. banks to breaching regulatory thresholds in the first phrase of the test, surpassing the 8 percent minimum for total risk-based capital by 0.1 percentage point. Morgan Stanley’s ratio in three capital measures fell to within 1 percentage point of the required minimum. Firms can modify their capital plans in the week before the second round results are released.
Goldman Sachs, which paid out the highest percentage of earnings among Wall Street firms in 2014, had to resubmit its capital plan to win Fed approval for a second straight year. The firm has pushed to give back capital to shareholders as it tries to boost return on equity, which has been 11 percent in each of the past three years.
Regulators don’t hold it against firms if their original capital plan is so aggressive that they are forced to resubmit, or if they do it in subsequent years, because it’s now a part of the process, a senior Fed official said.
The Fed subjects banks to two dire economic scenarios, with the most severe downturn marked by a 60 percent plunge in stock indexes, a 25 percent decline in housing prices and an unemployment rate that tops out at 10 percent.
Last week’s results showed that loan-loss estimates for the 31 banks totaled $490 billion under that worst-case scenario, down from $501 billion for the 30 banks tested last year. The losses include a $102.7 billion hit to trading, led by JPMorgan’s $23.6 billion. The heaviest damage was in consumer lending, with 39 percent of projected losses from such activity as mortgages and credit cards.

Guarantee from ANZ Bank 0 % Annually ! Hurry Now !

ANZ-zero-interest ( Compare to our Guaranteed  Minimum 12 %)

If you’re looking around right now for a new bank account that pays a reasonable rate of return, ANZ bank has a hell of a deal for you: 0%!

That’s right. ANZ is offering its depositors absolutely zero interest.

Now, a bank paying 0% isn’t exactly abnormal in today’s banking environment. But what’s really strange is that ANZ actually took out an ad in an Australian newspaper to advertise this.

Yesterday’s page 10 of the Australian Financial Review (AFR) had a quarter-page ad from ANZ boasting about 0% interest rates for accounts denominated in number of foreign currencies, including Hong Kong dollars, Japanese yen, British pounds, and more.

Curiously, in order to qualify for this bargain 0% rate, you have to meet a rather significant deposit minimum.

For the 0% Japanese yen account, for example, you have to deposit 23.5 million yen (currently about $223,000 US dollars).

So basically some manager at ANZ actually thought that paying 0% interest on substantial account minimums would be an attractive offer… so attractive, in fact, that they should brag about it in the newspaper.

This is so completely ridiculous. But it really crystalizes what’s wrong with the entire financial system.

We’re told to keep our money in banks… that banks are safe. But the objective data tells a completely different story.

Holding money in most banks guarantees that you will lose money.

Adjusting for taxes and inflation, you’re losing at least 2% per year, even if you believe the governments’ notoriously understated official inflation statistics.

This level of absurdity pushes people into riskier and riskier assets, simply in an effort to avoid LOSING money.

Case in point– the government of Spain recently issued 1 BILLION euros worth of bonds that yield a paltry 4%. And they’re due in 2064.

Bear in mind, Spain is completely broke. And just two years ago the government had to pay 7.5% on ten year notes.

Now people are lending money to the Spanish government for 50 freaking years at just 4%.

This is insane.

But couldn’t this insanity last forever? Couldn’t the grand wizards of the financial system continue to engineer one deranged bailout after another for decades to come?

Possibly. But unlikely.

Right now the US dollar is the world’s dominant reserve currency. This gives the United States nearly total control of the global financial system.

In order to clear cross-border trade transactions, foreign banks HAVE to use the US banking system (which is controlled by the US government).

Further, rest of the world must essentially mirror US Federal Reserve policy.

But this power… and insanity… only lasts as long as the US dollar is the dominant reserve currency. And this is starting to change rapidly.

China’s renminbi is becoming much more widely accepted around the world for trade settlement; a number of foreign governments are now holding renminbi reserves and doing deals to promote trade in renminbi.

Even in the United States, renminbi payment business increased 327% last year, and the US is now the fifth largest offshore renminbi settlement center.

It’s no secret here, this is happening right under our noses. The financial system IS changing.

People who ignore this trend do so at their own financial peril.

Yet those who understand what’s happening and align themselves accordingly stand to make fortunes.

The Weimar Republic’s episode with hyperinflation in the 1920s is a great example.

Despite all the warning signs, most people did nothing… and they got wiped out.

A handful of people, though, saw the writing on the wall. They took steps to safeguard what they had. And they allocated their investment capital to bet that the currency would collapse.

They were right. And vast fortunes were created in a matter of months.

Throughout history there’s always a handful of people ahead of the trend. And they’re rewarded for their foresight.

Right now we’re in the very early stages of a similar transition– arguably one of the most important economic transformations since the Industrial Revolution.

Because of this, opportunities already abound if you know where to look. It’s an incredibly exciting time to be alive.

If you agree with this premise but are just starting to wrap your mind around what’s happening, let me extend an invitation :


In the same way that I urge investors to use an adviser I too have a business coach. This week I complained that my performance of a 31% gain in 2013 was not gaining me the respect or new clients to which I thought I was entitled.

He challenged me :
a) I was not ” entitled ” to anything more than I earned by performance
b) My performance allowed me to guarantee an annual 12 % return or I will forfeit the 1 % annual fee and the 20 % performance fee.

The Challenge – a guarantee of a minimum of 12 % for your annual investment return 

Investors and pensions need efficient methods to screen, research, perform due diligence and monitor managers in their quest to deliver returns. They need to know the data they are using is accurate and fresh — and represents the best options available worldwide across every asset class. They must take into account their own assets and liabilities and the impact to portfolio risk while screening strategies and tracking exposures. They also need polished reports and presentations to provide evidence of a sound, inclusive selection processes for regulators and committees.

Placing these decisions in Jack A. Bass Managed Accounts removes the work from your hands to ours .

Meeting the Challenge

Jack A. Bass Managed Accounts offers a comprehensive suite of solutions for screening and monitoring, as well as risk assessment leveraging the data of the most important databases. In fact, 89% of surveyed clients agree that Jack A. Bass Managed Accounts helps them save their time during the due diligence process, while 75% of pension clients agreed .

The answer to When? – is always NOW ! – not tomorrow.
Contact Information

Information must proceed action and that is why we offer a no cost / no obligation inquiry service if you are not already a client.

Email info@jackbassteam.com

or Call Jack direct at 604-858-3202 – Pacific Time 10:00 – 5;00 Monday to Friday

George Soros sells all shares of Citigroup, Bank of America and JP Morgan

Is this a sign of trouble ahead for the banking industry?

By John Vibes

WASHINGTON (INTELLIHUB) — Just over 2 decades ago banker George Soros made his most famous investment by shorting the British pound and pocketing a billion dollars in the process.  Since then he has become famous for betting on stock market crashes and in some cases even rigging markets to fail for his own gain.

Just months ago, Soros made headlines by making a billion dollar stock bet against the S&P 500.  At the time this was said to be a sign of trouble ahead for the US economy, as Soros has seemed to have had advance knowledge of market crashes in the past.  As a result of this reputation, investors have begun to keep a close eye on his holdings.

This week investors took notice again when Soros sold his shares of three major American banks, including Bank of America, JP Morgan and Citigroup.

The Wall Street Journal reported that “George Soros dumped his stakes in banks and went for tech and gold miners in the first quarter, according to a filing with the Securities and Exchange Commission Thursday. Soros sold his holdings in Citigroup (NYSE:C) , J.P. Morgan (NYSE:JPM) and Bank of America (NYSE:BAC)”

In February 2009, Soros said the world financial system had effectively disintegrated, adding that there was no prospect of a near-term resolution to the crisis. “We witnessed the collapse of the financial system … It was placed on life support, and it’s still on life support. There’s no sign that we are anywhere near a bottom.”

Canadian Western Bank


TSX : C$36.99
BUY  Target: C$42.00

COMPANY DESCRIPTION: Canadian Western Bank is a Schedule I chartered bank that operates in Western Canada. The Bank specializes in mid-market commercial lending and offers a full complement of personal banking services. Through the Canadian Western Bank Group, the firm offers a diversified range of financial services across Canada. CWB operates 41 bank branches and has more than $19 billion in assets.
All amounts in C$ unless otherwise noted

Financials- Banks

Investment recommendation We are maintaining our BUY rating and slightly increasing our target price to C$42.00 (from C$41.00). We have increased CWB’s valuation target premium to 17% (from 14%), in-line with its historical average (see Fig. 11) to reflect relatively higher EPS growth expectations of 14%/16% vs. the Big-6 banks average at 5%/7% (based on consensus estimates). Our annual EPS estimates remain relatively the same (see Today’s Changes box). The partial replacement of high cost Series 3 Preferred with NVCC (4.4% yield) is offset by our lower NIM forecasts of 2.75% (from 2.87%) for F2015. CWB has a favourable positioning towards our key bank themes, specifically better operating leverage (+1%/1% in F14/15E) and large exposure to higher growth commercial loans (~75%), contributing to solid loan growth (+13% YoY).
Investment highlights  Q1/F14 results solid. CWB reported adjusted cash EPS of $0.67 (up 3.1% QoQ and 15.5% YoY), above our (and consensus) forecast of $0.65. While NII of $125.3 million (up 0.4% QoQ) was lower than expected due to NIM, non-NII of $28.5 million (up 9.0% QoQ) was higher than expected, PCLs were lower than expected, and NIE was in-line. CWB generated positive leverage of 1.7% in Q1/F14. Total loans grew 3.7% QoQ.
 Strong credit trends. The PCL ratio was flat QoQ at 19 bps and below our 21 bps forecast. The result was at the low end of management’s F2014 guidance for 18-23 bps. GILs declined 16.0% QoQ to $53.9 million (33 bps of total loans).
Valuation F2015E bank group P/E multiple of 11.5x that CG uses in valuing the Canadian banks.

Bank of Montreal

This BMO branch in Waterloo, Ontario retains t...
This BMO branch in Waterloo, Ontario retains the Molsons Bank name on the plinth. (Photo credit: Wikipedia)

BMO : TSX : C$62.50
Target: C$69.00

With more than $525 billion in assets, Bank of Montreal, together with its subsidiaries, provides a broad range of retail banking, wealth management and investment banking products and solutions in North America and internationally. BMO operates approximately 1,600 bank branches and employs approximately 46,000 full time employees globally.
All amounts in C$ unless otherwise noted.

BMO reported Q2/13 adjusted EPS of $1.46, below our estimate and consensus of $1.49. EPS was up 1% YoY. Excluding the $66 million after tax recovery on the impaired credit portfolio acquired from M&I, EPS would have been $1.36. Relative to our estimate, stronger capital markets revenues were offset by lower insurance results, higher expenses, and a higher tax rate.
The Basel III CET ratio increased to 9.7% from 9.4%, reflecting earnings in the quarter and model refinements which lowered RWA. The bank bought back 4 million shares in the quarter. We believe BMO’s strong Tier 1 ratio and weaker earnings growth supports building in more aggressive share repurchase activity for 2013 and 2014. Insofar as capital allocation is concerned, we believe BMO is leaning more toward buy backs than acquisitions.

U.S. P&C earnings were up 9% YoY reflecting lower PCLs and expenses offset by weak top line growth (loan growth offset by NIM pressure). The 3% YoY decline in expenses reflects M&I synergies. On a US$ basis, total loans were up 0.4% QoQ (the second consecutive quarter of growth) as commercial loans were up 1.9 % QoQ and personal loans were down 1.2%. We expect synergies and good commercial loan growth (offset by NIM pressure) to drive mid- to- high-single-digit earnings growth.
Domestic P&C earnings were down 0.7% YoY, reflecting -2.3% operating leverage and additional NIM pressure. Expense growth was elevated, but consistent with commentary regarding the desire to continue to invest in the franchise. BMO’s issue with operating leverage does not appear to be expense control but rather the very weak top line growth. We do not believe revenue growth will accelerate in the near term largely because we expect margins to remain under pressure.

We continue to believe that BMO’s more aggressive posture in mortgages, while leading to strong mortgage growth this quarter (discussed below) is hurting the bank’s margin. Our 12-month target price of C$69.00 (down from C$70.00) is based on the stock trading at 10.8x our 2013E EPS, a 6% discount to the group multiple of 11.5x. We continue to rate BMO a HOLD. Our outlook on the stock is constrained by an expectation of below group average EPS growth driven by: a) higher PCLs as recoveries decline, b) NIM pressure, and c) weak operating leverage in domestic retail. We also expect BMO’s dividend growth to lag its peers.

Bank of Nova Scotia

Scotia Tower, as seen from Seymour Street.
Scotia Tower, as seen from Seymour Street. (Photo credit: Wikipedia)

BNS : TSX : C$59.61
Target: C$67.00

Scotiabank is one of North America’s premier financial institutions, and Canada’s most international bank. With over 80,000 employees, Scotiabank Group and its affiliates serve over 19 million customers in more than 55 countries around the world. Scotiabank offers a diverse range of products and services including personal, commercial, corporate and investment banking.

Q2/13 core cash EPS was $1.24 (up 6% YoY) versus our estimate of $1.25 and consensus of $1.26. At 6% YoY, BNS’ earnings growth is likely to be in line with the group average. Relative to our estimate, revenue was higher than expected, with capital markets revenue coming in better than expected. Slightly weaker than expected results relates to higher PCLs and higher expenses.
International earnings were up 5% YoY, reflecting good revenue growth offset by higher than expected investment spending and a 34% YoY increase in PCLs. Noninterest expense growth was 11% (5% QoQ), with half of the increase relating to acquisitions and the other half to investment spending. Operating leverage in the quarter was nil.

Given the investment spending in 2012, we expected BNS to deliver 2-3% operating leverage in the segment in 2013. In this respect, the expense growth in the quarter was surprisingly high. Higher PCLs reflect the expected normalization of credit losses in Colombia. We expect International
earnings growth to return to the low double-digits as early as next quarter.
Domestic P&C earnings were up 18.7% YoY on 15.1% YoY revenue growth and operating leverage of 2.4%. YoY, we were looking for earnings growth of 16.8%, revenue growth of 13.1%, and operating leverage of 1.1%. Earnings growth, excluding ING Direct, would have been 7.6%. Only Royal Bank is expected to deliver better organic earnings growth this quarter. With ING contributing $45 million in earnings last quarter and $51 million in Q2/13, the bank is already at the $190 million run rate discussed at the time of the deal.
Over the last five years, the bank’s better earnings stability and momentum has earned Scotia an average premium of 5-7%. On our estimates, the stock currently trades at a 5% premium to the group. For the reasons outlined below, we set our target price on BNS based on the stock trading at a 6% premium (consistent with RY).

Our target P/E premium drives a target P/E of 12.2x applied against our 2014E EPS and a target price of C$67.00 (down from C$69.00).