It was good to see Warren Buffett on the ol' telly Monday morning. I have long said that parents should gather around with their children every time this man speaks. At least for the moment, Buffett has reminded the investing masses that it's OK to disregard the broader market and to research individual stocks instead. So, in the spirit of "Crazy Warren" (a nickname offered in the latest annual missive), I have decided to lock in on the financial group. Major catalysts are major approaching here -- which, strangely, are not being discussed out in the open.
Oh, and on the topic of the market: The green on the screen lacked conviction, and there were continued signs of dumping among names with outsized European exposure. This has meant richer bids for domestically oriented names -- probably unjustified valuations, even as rumors surface on robust earnings upside to the first quarter. Remember, there is no such thing as decoupling.
The fireworks are about to begin as the major banking players prepare to open their spending spigots for shareholders. For obvious reasons, I would not be surprised if the news reached the Main Street level. On March 7, results are expected on how big banks would weather a financial shock ("Dodd-Frank Tests"). The following week, on March 14, the Fed will release its evaluations of the capital plans submitted by the banks.
JPMorgan Chase (JPM) is the way to play the convergence of news. Its shares are strong vs. the 52-week high; an annual latter from CEO Jamie Dimon is upcoming; and its capital-allocation plans are promising, per what we know. (For the entire group, 52-weeks highs were clustered around Feb. 19 to Feb. 20, just as the 10-year U.S. Treasury yield began to catch bids.)
In March of last year JPMorgan declared a quarterly dividend of $0.30 per share, an increase of $0.05. It also authorized a new $15 billion stock-repurchase program -- of which up to $12 billion was approved for 2012, with the rest slated for the current quarter.
Here's what Jamie Dimon had to say during last month's earnings call:
"When we started the dividends, we said that the intent would be to increase them a little bit every year, so you should have expected to see that. We're going to ask for less capital return from stock buyback than we have in the past. So I can do $3 billion in the first quarter. We're going to do less. And we don't exactly know how these stress tests work. So we think, under severe stress, we'd have plenty of capital, but last time the Fed's numbers were very different. We don't understand that. "
I think Wells Fargo (WFC), meanwhile, is the sleeper investment here. Its capital ratios are very robust -- and, in my view, the stock has been penalized for that. This could indeed jolt returns to shareholders, on top of the rather generous showing in 2012. In addition, the company raised its dividend by 14% in January, and it has submitted plans to the Federal Reserve to further up shareholders returns.
Morgan Stanley (MS), for its part, is likely to favor a share buyback. CEO James Gorman noted that it would be "much better" to return capital to "long-suffering shareholders" than make additional investments in well-established businesses at the firm. Bank of America (BAC) is also likely to repurchase stock, given its share prices relative to book value. In fact, rumors say it will return $10 billion to shareholders via buybacks and dividends this year.
As for Citigroup (C), in January management requested a "minimal" share buyback from the Fed, according to reports, a year after the central bank rejected another plan from the bank. Goldman Sachs (GS) returned $5.5 billion to shareholders in the form of buybacks and dividends in 2012; take from that what you will.