* Two Oppenheimer reports commented on why bank investors should rely on neither the yield curve nor government inflation statistics.
"The super-tight correlation between the 10 year [Treasury] rate and bank stocks strikes us as somewhat artificial," wrote Chris Kotowski. But "there are enough people that believe that the curve and long rates drive bank stocks," the analyst admitted, "and over the short term that can create a self-fulfilling prophecy."
Kotowski also thinks long-term rates may rise above expectations. Nominal rates, after all, depend on inflation expectations, but those in turn are "sharply" understated by the Labor Statistics Bureau's consumer price index. The CPI "measures inflation where the people are, not where the bondholders are" and places more weight on what is easily quantifiable, such as the costs of certain goods, as opposed to factors such as healthcare and housing.
Bank stocks are cheap regardless, Kotowski added, but if his analysis is right, "the upside should be even better."
* Sandler O'Neill & Partners on Oct. 12 reported on the California wildfires and the potential impact on banks.
Analyst Aaron James Deer noted that, "unlike flood damage ... most property insurance covers loss due to fire," and so loan losses should be "relatively minor." Deer further pointed out that the grape harvest in the wine-making counties of Napa and Sonoma was nearly over when the fires broke out, but the destruction of even a single acre of vines "can cost tens of thousands of dollars to replace and [three to five] years to regain productive capacity."
* Compass Point's Charles Peabody now covers U.S. Bancorp, rating the stock "neutral" with a $55 price target.
Peabody kept the 2017 EPS estimate of $3.44, but lowered 2018's to $3.73 from $4.18. Peabody commented, however, "If there is one bank that you want to own in good times and bad, it's USB."
* Piper Jaffray's Matthew Breese now covers Signature Bank. The analyst Oct. 13 rated the stock "neutral" and gave it a price target of $140.
The company faces more headwinds than tailwinds, Breese wrote, what with a 55% year-over-year decrease in New York City multifamily volumes, commercial real estate loans amounting to 561% of its total risk-based capital, deposit pricing pressures and taxi medallion concerns.
The company may cross the $50 billion asset threshold organically "over the next several years," the analyst commented. But because Signature has no holding company, it may undergo a "DFAST-plus or a CCAR-light type of stress test" by the Federal Deposit Insurance Corp. instead of the Federal Reserve.
* Keefe Bruyette & Woods' Nicholas Grant on Oct. 15 assumed coverage of Live Oak Bancshares Inc.
Grant rated the stock "market perform" and gave it a target price of $26.
Wilmington, N.C.-based Live Oak "focuses almost entirely on the origination, sale, and servicing of guaranteed small business loans," the analyst commented, and has a technology focus that adds shareholder value over the longer term.
* Merion Capital Group on Oct. 12 discontinued coverage of Little Rock, Ark.-based Bank of the Ozarks.
Joe Gladue last rated the stock "outperform." The price target was $57.