You're watching...
UBS Director of Equity Research Brennan Hawken on the outlook for the financial sector.
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
They got blowout earnings from Wall Street's biggest banks Goldman Sachs and JPMorgan now shares of both companies soared both actually and hitting new 52 week highs today.
UBS director of equity research -- -- -- is here with more.
A positive earnings you expect the rest of the banking system to report positively as well.
Yeah I mean I would say that usually -- these these entities working as hurts right now.
So it's not as though you have one.
It's a huge out liar and the others are are not when that one thing that I think is really interesting.
That we saw with -- JP and Goldman.
Is that the comp leverage within the investment bank.
Hum -- -- comp of accruals were meaningfully lower than most folks had expected -- myself certainly included.
And that led to much better than expected results.
Thanks to that operating leverage so I think we can count on that for tomorrow when we've got Citi MB -- I -- Thursday and -- only -- -- -- You know JPMorgan's.
Mortgage production revenue down a little bit more than I guess you guys we're expecting but it does seem time both -- reducing their loan losses.
I think that's got to this have to bode well going forward right West Bank defaults us kidney housing.
Mortgage defaults.
Right would it be usually with with for the production revenue that is just the origination that they don't sell off to Fannie and Freddie right.
So they're actually not taking a whole ton of credit exposure there but you're right in the loan book the reserve releases to continue and what's interesting is is that.
It previously it had been mostly credit card.
We JPMorgan that increasing confidence in the housing market and the continued -- decent economic growth is allowing them to draw down more reserves in their mortgage book.
Com the point on -- mortgage production though I think is interesting -- volumes have continue to be strong.
We're seeing the yields start to compress -- what the banks are able to actually print on that business is starting to deteriorated -- Right which I guess is not a great sign up.
At the same time -- Goldman Sachs for instance in your note you noted that big rebound especially in our own trading activity.
It's actually kind of counterintuitive be some of the president's been trying to do is -- it.
Well what that is is in -- investing and lending book.
Which is really more of a merchant banking operation it's not really a vol curve or you know prop trading type of operation.
So they'll take its its a lot of lending businesses and some investing that they do on a merchant banking basis so.
It's not necessarily be.
The same sort of thing.
Like -- hedge fund within these these entities.
I think -- so -- you know brilliant about these banks that can't find a way to make money regardless of the rules that come out of Washington.
Before I let you go that you have both stocks I mean Goldman Sachs picked up 42% over the last six months.
-- up about 32%.
Is it too late to get into them now.
Well I think it to me Tom Goldman Sachs seems about fairly valued right now.
When you think about potential return on tangible equity it's gonna probably be about ten to 11% next year.
Stock is currently right now -- about a one to one point one point one times painful multiple -- that's about fairly valued.
-- however JPMorgan.
You know you're looking at somewhere between thirteen to 14% return -- -- it's -- trading at one point two times -- preferred JPMorgan here.
JPMorgan have a Goldman Sachs UK -- thanks so much for being with us thank you look as good stuff.
