From “The Numbers” section of the latest edition of Bloomberg BusinessWeek:
Governments around the world haven been borrowing heavily in the past 10 years so much that the debt level has now more than doubled to $55 Trillion.
CNBC has published a list of The World’s Biggest Debtor Nations based on the total outstanding external debt as a percentage of GDP. Greece ranks ahead of the U.S. at number 16.
The Bank Director magazine has published the results of the 2009 Bank Performance Scorecard which ranks the top 150 banks in the U.S.
In an article titled “Home Run Hitters: Results of the 2009 Bank Performance Scorecard” the magazine noted:
“In what’s been one of the toughest years in banking, institutions that played it fiscally conservative ended up batting a thousand on our annual performance rankings.
Glancing at the performance rankings of the nation’s largest 150 banks this year, it’s not hard to spot trouble. Nearly half of the banks lost money over a 12-month period ended June 30, 2009, a cruel reminder that many financial institutions are still paying dearly for the shaky underwriting conducted during the credit bubble earlier this decade.
Yet a look at the top banks tells a different story. Despite the upheaval of bank balance sheets across America, there are many financial institutions still going strong, especially ones that adhere to a basic formula for successful banking: lend money to low-risk borrowers, keep a lid on expenses, and dominate local market share.
Once again, plain vanilla banking won out over the growth-at-any-cost mentality, according to our annual Bank Performance Scorecard. Based on measurement criteria and analysis complied by Sandler O’Neill & Partners LP, a New York-based investment banking firm that specializes in the financial services industry, the Scorecard usually includes repeat performers that generate high ranks in boom times and bust.”
The following criteria were used to rank the banks:
The data from the last two quarters of 2008 and the first two quarters of last year were analyzed for this review.
Top 25 U.S. Bank Stocks from Bank Director’s 2009 Bank Performance Scorecard:
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First Financial(FFIN) of Texas ranked the No.1 in the Scorecard this year. The bank operates 50 locations in west and north Texas. First Financial bankers know their customers well and can detect problems with loans in the early stages. The bank was ranked high consistently in the rankings especially in profitability measures. Currently FFIN pays a 2.66% dividend.
Bank of Ozarks (OZRK) based in Arkansas, jumped from 12th rank last year to second rank this year. Ozarks has 72 branches in Arkansas, metropolitan Dallas, and the Texarkana metropolitan area. Bank of Ozarks got $75M from the TARP in 2008 but repaid it in the last quarter of 2009. The current yield of OZRK is 1.91%.
Last year’s No.1 bank in the Scorecard, Montana-based Glacier Bancorp (GBCI) came in at third spot this year. Glacier experienced rise in nonperforming assets which reached 3.92% in 2nd quarter 2009. The higher NPAs was due to the deterioration in its construction and development portfolio in Boise,ID. However Glacier raised $78M in an equity offering in 4Q, 2008 during the credit crisis and is well capitalized to weather the storm.
Westamerica Bancorp(WABC) of San Rafael, California and Republic Bancorp(RBCAA) of Louisville, Kentucky took the 4th and 5th spots this year.
You can download the complete 2009 Bank Performance Scorecard results here.
The current Fed Funds Rate is 0.25%. It been at this rate for many months now and the Fed plans to keep the rate at this level for an extended period of time. However despite this low rate bank lending has not increased. Both consumers and businesses are not borrowing due many reasons such as uncertainty about the future, lack of demand for products and services, lack of investment opportunities, etc.
Reuters reported the following last month:
“Despite a more stable financial system, banks are still not lending and the quality of loans on their books continues to get worse as the U.S. housing market remains in the doldrums, a top official at the Federal Reserve said on Wednesday.
“Access to credit also remains difficult, especially for households and small businesses that depend significantly on banks for financing,” said Jon Greenlee, Associate Director for Bank Supervision and Regulation at the Fed.
“Loan quality continues to deteriorate across a number of asset classes, and … has declined further as weakness in housing markets affects performance of residential mortgages and construction loans,” Greenlee said in prepared remarks to a Congressional Oversight Panel field hearing in Atlanta.” (emphasis added)
Consumers have cut down on spending in the past few months due to the recession and high unemployment. Just this month the Federal Reserve reported:
“Consumer credit decreased at an annual rate of 4-3/4 percent in the fourth quarter of 2009. Revolving credit decreased at an annual rate of 13 percent, and nonrevolving credit was unchanged on net. In December, consumer credit decreased at an annual rate of 3/4 percent.”
This is the 11th straight month that consumer credit has declined. Since the U.S. economy is still a consumption-driven economy as opposed to export-driven economy like that of Germany or Japan, the economic recovery will take a long time. Businesses are still in the process of repairing their broken balance-sheets. Hence they will not be able to stimulate the economy and replace the spendthrift millions of U.S. consumers.
The phenomenon of debt rejection can take some time to subside. According to the following chart it took 30 years for the US interest rates to recover to their 1920s level.
Click to Enlarge
Source:
The Age of Balance Sheet Recessions: What Post-2008 U.S., Europe and China Can Learn from Japan 1990-2005 by Richard C. Koo, Chief Economist, Nomura Research Institute
Tokyo, March 2009
From a report last October by The Asian Banker, the following are the strongest banks in the Asia-Pacific and the Arab Middle East. These rankings were based on the aggregate score that was calculated using many financial performance indicators.
Asia Pacific’s Strongest Banks
 AP500 Aggregate
Strength Commercial Bank Country Strength
Rank 2009 Score 2009
1 HDFC Bank India 3.99
2 Punjab National Bank India 3.91
3 Public Bank Malaysia 3.84
4 Bank Central Asia Indonesia 3.83
4 Bank of Nanjing China 3.83
6 ANZ Panin Bank Indonesia 3.78
7 China CITIC Bank China 3.76
8 ANZ National Bank New Zealand 3.70
8 Union Bank of India India 3.70
10 Westpac Banking Corporation Australia 3.68
The Arab Middle East’s Strongest Banks 2009
Strength Commercial Bank Country Score
Rank
1 Commercial Bank of Qatar Qatar 4.05
2 Qatar National Bank Qatar 4.04
3 First Gulf Bank United Arab Emirates 4.01
4 Ahli Bank Qatar 3.79
5 Bank Muscat Oman 3.76
6 National Bank of Abu Dhabi United Arab Emirates 3.73
6 Saudi British Bank Saudi Arabia 3.73
8 Banque Saudi Fransi Saudi Arabia 3.61
9 International Bank of Qatar Qatar 3.60
10 Union National Bank United Arab Emirates 3.59
Traditionally electric utility stocks have offered stable growth and high dividend yields. Though they are boring to own they are usually preferred by income seeking investors such as retirees and others. Electric utilities are highly regulated in many states in the U.S. Despite the tough regulatory conditions electric companies are a monopoly in the areas they operate and are granted rate increases by regulators on a regular basis helping them generate higher profits.
Power company stocks that are traded on the NYSE are shown below:
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This week FirstEnergy announced to buy competitor Allegheny Energy for in $4.7B stock paying a 32% premium based on Wednesday’s closing price.The combined company would have six million customers in the seven states of Virginia, West Virginia, Ohio, Maryland, New Jersey, New York and Pennsylvania. Total annual revenues of the merged company is projected to be $16B.More consolidation may happen in the industry as companies try to maximize efficiency and gab market share. FPL Group, Inc.(FPL) is a high quality dividend stock that has performed consistently over many year. The current yield is 4.15%. Among the ADRs, CPFL Energia (CPL) of Brazil pays a 6.36% dividend.