Good News in Insurance
2009-01-05 18:24:06
Despite the dark cloud hanging over much of the economy, there is some good news to be had. Analyst J. Paul Newsome of Sandler O'Neil + Partners, L.P. talked to us a little bit about where the good news lies in the Insurance space:"The good news has been relatively benign claim frequency and severity. Benign claims inflation has meant that the reserves have proven to be adequate for just about every company. So the liability side has been largely good news from a solvency perspective in the sense that the reserves look to be very solid really across the board."For the complete Insurance report, including an overview of the space as a whole and stock picks, click here.
Top Picks in Life Insurance
2009-01-05 17:54:56
As our focus this week is on Insurance, our top picks from our roundtable discussion on Life Insurance. This sector was hard hit by the financial turbulence of 2008, but the analyst we spoke to did have a few picks in this space:- "Aflac (AFL) is our top pick. It's a very solid, protection-focused company. You get a very reliable EPS stream that is not market sensitive, and from a credit perspective they do relatively well. I think I said before that no insurance company is perfect but their more risky exposure is concentrated exposure to bank and financial debt from Europe and Japan."
- "My top pick is Assurant (AIZ). It's a specialty insurance company as well. It's got four or five niche oriented businesses, and no equity sensitivity in their earnings stream either. They've benefited in one of their businesses from the housing crisis. It doesn't seem like anybody in the insurance business should benefit from a crisis, but their specialty property business has tripled in size in about three years owing to higher mortgage delinquencies and default rates."
- "Reinsurance Group of America (RGA). It's a pure play life reinsurance company. It's not quite as cheap as it was maybe a month or two ago when they raised some equity, but their equity raise was much more about a proactive opportunity to take advantage of some new business opportunities here as a bunch of the primary life insurers are looking for opportunities and ways to relieve capital strain, unlock capital."
Advice to Small & Mid-Sized Banks
2008-12-09 19:02:54
Continuing our special focus on Banks this week, analyst Chris Marinac of FIG partners has some advice for the smaller end of the banking spectrum:"If you are a small or medium-sized bank, you have to be very nimble and very focused. It is not time to take on new customers with both hands, it's time to be very selective and very opportunistic, and I think you need to be thoughtful about the customers that you want to support, the customers you want to take on."For the complete interview with Mr. Marinac, including a complete overview of the banking space and stock picks, click here.
Top Picks in Eastern Banks
2008-12-08 16:55:24
Our special focus this week here at TWST is on Banking. As part of this focus, this week we held a roundtable discussion with a vareity of analysts in this space. Despite a generally sanguine view of the present and immediate future, the analysts we spoke to did have a few stocks to recommend in this space:- Mike Shafir, Sterne Agee: Some of the names that we have been recommending are Danvers (DNBK), about 20 miles north of Boston. While that's a commercial lender, the valuation along with 15% capital allows investors to be pretty secure there with the company trading at 95% of tangible book.
- Anthony Polini, Raymond James & Associates: You certainly want to commit some funds to this industry. Our top pick, New York Community Bank (NYB), is experiencing margin expansion, loan growth acceleration, double-digit earnings growth, and trades near its 52-week low.
- Andrew Stapp, Riley & Co. : I like Signature Bank (SBNY). It has been generating extremely robust loan growth, with loans rising 62% year-over-year organically as of September 30,2008. What is amazing is that it has been realizing this pace of growth by cherry picking only prime quality credits. As a matter of fact, its weighted average risk rating on its loan portfolio has been coming down over the past several quarters due to the quality of the loans that they have been placing on their books. The company also has low exposure to construction and development loans at only 5% of total loans.
Big Bonus - Yes, Please
2008-11-20 12:49:32
Interesting article in the NY Times today about the impact of large bonuses on performance. Conclusion of psyche tests - for complex cognitive tasks large bonuses led to no improvement in performance versus smaller bonuses. Worse - it showed inferior performance. Hypothesis - stress induced by the higher expectations led to lower performance.
Of course this leads to questions about executive pay - at the C level, and at investment banks. According to the article, its conclusions were immediately challenged by banking executives when referring to their own firms. Duh! Any senior executive is going to challenge anything that would suggest he or she is overpaid. The executive pay issue is exactly the same as that faced in baseball. A-Rod performs no better now he is paid $30m per year, than when he was in Seattle. The reason senior banking executives at bulge bracket banks are paid so handsomely is that they have convinced their bosses that they are rare and special talents. Their bosses are easily convinced, because they are generally poor people managers, and because they are using the same arguments themselves to their boss. Boards of directors bring in compensation consultants to assess fair pay for the top guys. These consultants are like house appraisers - easily replaced if they provide the wrong answer. The reason executives are so highly paid, is that they have successfully framed the market environment for their skills. Scott Boras on one side, with no Theo Epstein on the other. How have sports teams countered competitive inflation in salaries? Generally not well. Salary caps - how about that NASD? Deep farm systems. Long terms contracts. Depth in every position is the best hedge.