Equity Research and Investment Analysis

There are no more major earnings reports until October to buoy the market, so macroeconomics should be the focus for investors. The developments in the Chinese stock market suggests that there is a risk of the China leading the market to the downside as well.

New York AG Andrew Cuomo's crusade against brokers and investment banks who peddled Auction Rate Securities has hit a road block with Charles Schwab (SCHW). While most banks who have been targeted by the investigation have been anxious to settle and make this problem go away, Schwab is holding their ground.

The crew on CNBC's Fast Money can be counted on to quickly cover all of the major market-moving stories each trading day. Today, a lot of the focus was on financials as Bank of America (BAC) was added to the conviction buy list at Goldman Sachs (GS), and the accompanying price target was nearly doubled from $7 to $13.

Now that the market has opened and is off from its highs just after opening, so too are all of these stocks. The fact remains that Bank of America and Citi continue to head higher while Morgan Stanley and Wells Fargo are not.

Just when you think the market could not get any weirder, an investment bank swings to a loss on the back of a strengthening in their bonds. As CEO John J. Mack, stated the quarterly results would have been much better and profitable were it not for this "dramatic improvement" in credit spreads.

RazorWire Recap on CNBC's Street Signs from Friday April 17, 2009

Three banks have announced a temporary moratorium on foreclosures as the Obama administration formulates its plan going forward. However, the market remains unimpressed by the move and we can understand why.

A sweeping downgrade of financials by credit rating agency S&P was one of the major stories of the day. Or on second thought, what does this tell us that we did not already know, and so far the market has not even noticed.

Goldman reported a wider than expected loss for their recent quarter, but the marketplace has brushed that aside and bid up the price more than 11 percent. We are concerned that Morgan Stanley might not get the same treatment if they are to slip up tomorrow.

A recent study suggests what we have been trying to explain for quite a while now, that in addition to lacking credibility, Wall Street Research ratings appear to not perform very well either. We think this fascinating study is worth a read for both individual and institutional investors.

Genworth has seen significant appreciation well in advance of the fundamentals justifying such gains. Analysts are expecting fiscal 2010 earnings of $1.10 which would make the valuation look attractive, but that seems to expect quite a bit out of Genworth’s other units if the mortgage unit will see its peak losses in that year. As capital markets have healed this year, GNW has raised capital through asset sales, a debt offering, and a secondary offering of stock in order to provide a cushion for any future losses.

There is significantly less risk in this bank than probably any other major bank, and their CEO believes that the conventional wisdom regarding New York City is probably too bearish. With a multiple below 13x and a dividend yield around 4.5%, we firmly believe this investment will start to attract some attention as quality becomes more of a premium.

Cramer talked about enormous upside on this deal with Colonial, as their mortgage unit, which had come under DoJ investigation, posses no liability to BB&T. The offering went on sale Tuesday, and so far in morning trading the stock is up more than 2 percent. Clearly, BB&T is having no trouble raising money in the open market.

Clearly, the relaxation of mark to market has served the purpose of giving banks a breather from book value destroying write-downs. However, as Weil exposed, book value is really simply accounting fiction. Many of the credit issues that caused this mess are still yet to be worked out, and at Ockham we remain very wary of bank stocks.

As today's earnings release demonstrates, credit concerns still necessitate fortification of their balance sheet. We will continue advising investors to steer clear of Deutsche Bank for the time being because the recent economic improvements are still vulnerable and the actions of the company do not inspire a lot of confidence in the immediate future.

There were a couple of very interesting pieces of news from the this morning that I believe are important. One, a study by the WSJ, has shown that banks thus far are lending less than before they received the TARP funding. The second comes from a newsletter from John Mauldin that warns of the possibility of more TARP programs headed our way.