Performance of bank business lines could flip; bettors hedging GSEs lick their wounds

Receiving Wide Coverage ...

Winning bet

An exchange-traded fund that tracks the S&P 500’s financial sector “is hovering near an all-time high for the first time since the onset of the Covid-19 pandemic, propelled by a handful of big stocks,” the Wall Street Journal reports. “The Financial Select Sector SPDR ETF, which has roughly $30 billion in assets, reached $31.46 a share last week, eclipsing its February 2020 high.”

“Investors have sought to increase their exposure to bank stocks by putting money into the Financial Select Sector ETF for 11 straight weeks. Flows so far in January have reached $3.6 billion, already exceeding every full-month total since November 2016, according to data from Refinitiv Lipper.”

While bank stocks have been doing well, the individual businesses that banks engage in are a mixed bag, the New York Times says. “Parts of the economy are booming, others are at a standstill and the outlook is extraordinarily uncertain.”

“Wall Street’s core business is booming. It’s a different story for Main Street. Other banks with big consumer-lending arms didn’t fare as well, with Bank of America, Citigroup and Wells Fargo lagging in terms of profit growth.”

Looking ahead, though, “few bank bosses appear to think that Wall Street-focused businesses will perform as well this year, [while] worries about Main Street units seem less acute than last year.”

One of those banks, JPMorgan Chase, “paid its chief executive, Jamie Dimon, $31.5 million for 2020, the same sum as the previous year,” the Financial Times reported. The bank “is the first large U.S. bank to report the compensation of its chief executive.”

Mr. Dimon is consistently one of the highest-paid U.S. bank bosses. As in 2019, his 2020 package consisted of $1.5 million in cash base pay, a $5 million cash bonus and $25 million in ‘performance share units’ that vest over several years and vary in value with the price of JPMorgan shares.”

Wall Street Journal

Losing bet

Hedge funds that bet big on Fannie Mae and Freddie Mac returning to private hands saw their hopes evaporate with “the end of the Trump administration. Many funds are now expected to have lost money on the investment, though some early buyers and active traders profited.”

“The trade seemed likely to pay off four years ago, when Treasury Secretary Steven Mnuchin stated his goal was to move the companies out of government control. But as the months passed, the likelihood declined significantly. Last week, Mr. Mnuchin said it wasn’t happening on his watch. The most commonly traded class of Fannie’s preferred shares have now fallen more than 40% from mid-November, to near $6. Common shares of Fannie have fallen from $3 at the end of November to $1.83 at Thursday’s close.”

Staying put

In the housing market itself, the fact that “homeowners [are] staying in their residences longer is contributing to the worsening shortage of homes on the market. [And] the shortage of homes for sale and near-record-low borrowing rates are pushing up prices and stoking competition among buyers. The median existing-home price last year topped $300,000 for the first time. In November, it stood at $310,800, up 15% from a year earlier.”

Opportunity Knocks

One lender trying to benefit from those high prices is “home-financing startup Knockaway, [which] hired its first finance chief to set its house in order as it looks to expand into dozens of markets amid strong demand for housing in the U.S. Michelle DeBella started as chief financial officer of New York-based Knockaway, which does business as Knock.”

“Founded in 2015, Knock says it wants to make it easier for people to buy a new home before selling their old one. The company offers financing to home buyers as a licensed mortgage lender and offers an interest-free bridge loan to cover the mortgage on the old home for up to six months. The bridge loan can also be used for up to $25,000 in repairs to the old home or toward the down payment on the new home.”

Re-upped

The Federal Reserve said “all 12 regional bank presidents and their current second-in-commands are approved for new five-year terms.”

“The little-known renomination process happens every five years. It is implemented by the boards that oversee the regional Fed banks and the Fed board in Washington. No officials were fired in this process. Michael Strine, the first vice president of the New York Fed, didn’t participate because of his retirement, which was scheduled for this year.”

Financial Times

Ready for action

President Biden’s nomination of Rohit Chopra to run the Consumer Financial Protection Bureau is “a signal that the new administration wants it to quickly roar back into action … after four years of hibernation during Donald Trump’s administration — and Wall Street’s lobbyists have taken note.”

Dave Uejio, the CFPB’s chief strategy officer, was named acting director until Chopra is confirmed by the Senate, American Banker reports.

Quotable

“We are in a really huge supply crunch. It becomes a cycle where people don’t want to move because it’s so difficult to buy a home, and then that in turn makes it even more difficult to buy a home because people aren’t moving and freeing up inventory.” — Daryl Fairweather, Redfin’s chief economist, describing the homebuying market.