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Michael Steinberg submits:The “got-you” model of investment banking made famous by Goldman Sachs (GS) is reaching obsolescence for the big retail banking franchises according to JP Morgan Chase (JPM) and Bank of America (BAC). With financial reform each customer will now have to carry their own weight. No longer will the financially sloppy, disadvantaged or simply naïve be tricked into paying high fees to subsidize the financially conscientious.Overdraft fees are dead according to Bank of America. They think it is bad business to induce customers into opting into something the customer will regret the first time a cup of Starbucks (SBUX) ends up costing $30. Bank of America, Citigroup (C) and JP Morgan all see revenue losses related to credit/debit card interchange fees (Durbin amendment), but none has revealed their specific mitigation plans.Complete Story »

Trader Mark submits:With the S&P 500 grasping at 1070, and yet another "90% day" as the student body has run back to the left ("risk off" stampede), let's take a look ahead at the key reports next week; both for the greater market and what we have our eyes on. The next three weeks are the heart of the earnings season, and some of our holdings begin to pop up next week.Names the market will focus on:Complete Story »

There has been much discussion of the Collins Amendment to the Dodd Bill (aka Fin Reg) and what it means for trust preferreds and their investors. First, it means that it is unlikely that financial institutions will use such structures in the future, as trusts (or hybrids as they are also known) will no longer we counted toward a bank's Tier-1 capital levels (there will be some grandfather provisions for smaller banks). However, Tier-1 classification was not the only reason why banks issued these securities. A clue is the word "hybrid."Trust securities are debt / equity hybrids. Depending on the specific structure an issuer could count a portion of the capital as debt and a portion as equity. The equity portion would count toward a bank's Tier-1 capital requirement. However, since hybrids pay interest instead of dividend (even though the payments on $25-par securities appears to be dividends the payments are in fact interest) banks could take advantage treating payments as an expense as is customary with interest payments. When banks really wanted to raise Tier-1 capital without diluting common shareholders they would issue non-cumulative preferred equity as they did in 2008 when mounting mortgage losses deteriorated the values of their existing Tier-1 capital.Complete Story »

Optimi Trading submits: Wells Fargo (WFC) is the most efficiently run of the super sized commercial banks in the United States. Their service oriented business model has led to consistently higher returns on both equity and capital in comparison to their peers over the long run. One of the big reasons for this outperformance in that Wells Fargo is a “true bank”, as opposed to a closet investment bank like a Citigroup (C), or a JP Morgan (JPM). Wells’ bread and butter is building extremely deep customer relationships with their banking clients. Wells Fargo sales representatives attempt to package together a plethora of products to each client, and the goal is to average 8 products per client. In the first quarter of 2010 they averaged 6 products per client. This business model attracts fee income which is in high demand these days as it doesn’t entail taking on balance sheet risk. Wells Fargo also has the lowest deposit costs of their peers allowing them to generate the highest net interest margins in the industry. According to Morningstar between 2003 to 2008 WFC averaged a net interest margin of 4.9% which is by far and away the highest in the industry. Even better, 21% of WFC’s deposits are non-interest bearing which is emblematic of the significant emphasis on the sales process within the branches.Complete Story »

Luckless Hero submits: Happy Fourth of July weekend! The Fourth of July is a time where we reflect on one of the most important moments in history, a moment and a revolution that created the longest running democracy in the history of the world. Now, let’s put all negative feelings aside, all politics should be put to rest for a day, all spears and spite lowered because this weekend is a weekend of history, family, fireworks and BBQ. I figured that I would put together an A-Z list of companies to invest in that will invest in America.

1. American Tower (AMT) – American Tower – Massachusetts based company builds cell phone towers. Look for movement in the company with the expansion of 4G networks to urbanized and suburban areas and the expansion of 3G coverage to more rural areas.
2. Berkshire Hathaway – (BRK.A) – If there is anyone who believes in America and buys American it is Warren Buffet. He believes in rail cars, brick and mortar companies, insurance and good advice.
3. Caterpillar (CAT) – Somber moment, the infrastructure of America is in disrepair. Highways, bridges, dams and toll roads are all in need of a major overhaul and CAT will be part of that government and private spending boon.
4. Disney (DIS) – It has become a small world after all. Theme park turned entertainment and advertising super star. Disney has great brand recognition and brand control. The company has been able to effectively lobby to have copyright law changed numerous times. It is a force to be reckoned with.
5. EMC (EMC) – Is the parent company of VMWare. The company will make computers more efficient, protect data and maintain data integrity. EMC is a major IT solution provider and as computers expand even further in use and become more prevalent in all aspects of life the company will be well positioned to profit.
6. FORD - (F) – Ford is a company that did not take any bailout money from the government. It is a company that seems to be listening to consumers and adapting its products with a forward looking view. The recent problems at Toyota have opened a window of opportunity even wider for this American auto giant to forge a return to prevalence and continued automotive relevance.
7. Google – (GOOG) – Infrastructure, Infrastructure, Infrastructure. Not roads to drive on but certainly information high ways and a commuter cloud! Talk about the best and the brightest, move over NASA. Google continues to innovate and enter new product markets. They are a currently unparalleled search engine that has managed to stay disentangled from more moneyed interests. Finally, Google continues to invest in new VC and PC ideas fostering more American growth and innovation.
8. Hewlett Packard – (HPQ) – With Dell’s recent woes and looming legal problems, HP, like Ford, has a great opportunity to completely dominate and revolutionize the computing market. HP has moved from a printer company to a PC company to a flat screen TV maker to a maker of high quality digital devices across many spectrums. As well HP, is like our next candidate, Intel, and the engineers at HP have been pushing the limit on computer chip design.
9. Intel – (INTC) – Intel has and will be a driving tech force. The corporate culture is the value.
10. Johnson and Johnson – (JNJ) – that’s right folks the people that make your baby shampoo, they love America. But really this behemoth of a company is a medical device maker. With the passage of the new health care reform bill JNJ stands to profit and prosper as more people will have access to surgeries and procedures that will be able to take advantage of the products that JNJ puts out for medical device purposes.
11. Coca-Cola (KO) -- So I cheated a little on this one by listing Coca-Cola by their ticker KO. But this is a company that has been getting beaten up a little bit in the market lately. Make no mistake Coca-Cola is still king. There is still a strong grown potential in the global scheme.
12. Lowes (LOW) – Much like their Home Depot counter part, Lowes is in a tricky position of being in a place where the recession and housing slow down will defiantly affect the company short term. But as the infrastructure projects pick up to rebuild and revive America I think that Lowes will be well positioned to be in a highly profitable area of the market.
13. McDonald’s – (MCD) - McDonald’s… need I say more? They pay dividends, they grow domestically and globally, they have almost unparalleled brand recognition. McDonald’s has started serving good coffee at a low price and is rumored to be testing out low fat breakfast options with even an oatmeal offering, showing that they are still looking to innovate their product offering. If the price is right I can see customers leaving Starbucks and other higher end stores for the lower cost McDonalds option.
14. Northrop Grumman Corporation – (NOC) – If you are a news junkie like me then you saw that Israel is still blockading Palestine. Iran has threatened to try to bust the blockade by force and is sending ships to aid in the effort. The US is sending cruisers up the Suez now for the potential show down. The Koreas have tensions running high. The United States has armed forces in Iraq and Afghanistan. Until the world returns to a more sane mind frame I am a strong believer that weapon makers are a good buy now.
15. Oracle – (ORCL) – Essentially the database king, ORCL stands alone atop a computing mountain. With software that runs most corporate enterprises and even mom and pop shops Oracle is a stock to own. More and more Oracle is trying to offer the complete business solution and be the hardware and software provider. The growth potential for this company is every expansive because it has a corporate culture to be acquisitive and pick up good ideas and bring them into the Oracle fold.
16. Pfizer – (PFE) – With the pick up of Wyeth, Pfizer has breathed new life into its company. Wyeth had a good pipeline and also has some strong brands with good market recognition. PFE is still hunting out its next block buster drug. But with Merck (MRK) flagging recently PFE looks like the stronger of the pharma giants.
17. Quest Diagnostics Incorporated – (DGX) – Just like (JNJ), I believe that Quest stands to profit from the new health care overhaul. As medicine shits to a preventative focus Quest will be well positioned as more of the tests are done for people as medicine attempts to catch and treat illness before it becomes catastrophic.
18. Raytheon – (RTN) – Push to far and you see a strong backlash. I support and believe in the current administration, but when cuts on spending or defense are pushed to far I believe that there is an inevitable backlash. I also like this pick now because as spending has been cut the stock may be able to be picked up on the cheap. I see tensions in the geopolitical sphere also creating additional demand for RTN’s products.
19. Starbucks – (SBUX) – Good corporate culture, great corporate governance, creates a fantastic product. Starbucks is still the number one premium beverage provider. The company pays well, has a good health insurance plan, offers tuition reimbursement for barristas, these programs create good will and put investors mind at ease. If other companies acted like Starbucks acted then I do not even think many of the government programs that we have would be necessary. Want a smaller government? Get better corporations.
20. ATT - (T) – has a killer iPhone, has moved away from unlimited data plans and has better customer service. Verizon (VZ) is terrible for customer service. VZ representatives are horrible to work with in the stores, brutal. T – gets my vote for a long term investing prospect as they have had the iPhone for longer and have had to deal with a much higher volume of data being transmitted over their system.
21. United Technologies Corporation - (UTX) – This is a conglomerate company that has some great bread and butter brands that will continue to churn out profits along with a little more high flying division that deals with aerospace engineering and getting humans from point A Earth to point B outer space. While NASA is on the ropes the destiny of human space flight seems to be solidly set as a long term goal and vision. The private sector will have to take the reigns on this project and make the magic and the money happen as we reach for the stars.
22. Visa – (V) – It’s everywhere you want to be! Visa and the other big card companies are potentially in for a hit as the new FinReg law looms large. I would wait till the dust settles on the new rule and see if the market looks attractive. As the recession begins to end consumer and corporate spending will increase and V will be a good long term selection.
23. WTR – Aqua America - (WTR) – Spending on America will require that the utilities update their lines. WTR is a specialist at finding distressed water utility companies and making them into turn around stars. As the infrastructure of the USA ages I believe that this company will be a strong selection in the consolidated water delivery market.
24. Exxon Mobil - (XOM) – Big oil just got bigger. With the pick up of XTO XOM is well positioned for the near future. I worry about the lack of spending on alternative forms of energy that I am seeing from this decided oil company. I want XOM to look forward a little more and become an energy company. One cannot argue with their results, the dividend and the fact that they are relatively cheap now due to the oil prices lagging across the globe due to the current recession.
25. Yahoo – (YHOO) – the company may symbolize America. We do not always get it right, we try hard. We are willing to make deals. We want to give access and choice and deep down we think that we are making the right and good decision. Here is a company that is trying to transform itself into a media portal. Why do I think this company has upside? The baby boomers. Yahoo makes the internet easy. It is a good portal for games, news, email and search. iGoogle is 1 step to complicated and Bing might not have enough on their splash page besides a nice picture. Yahoo is the happy medium and has room for regrowth.
26. Zoll - (ZOLL) – Medical device maker and soft way maker!

Now set off the fireworks! Again Happy Fourth! If I goofed up on a company actually being an American Company mea culpa. My disclaimer is that I was going quick before the holiday weekend as I too can’t wait for some good ole fashioned Americana.Complete Story »

Wade Slome submits:

Dividends are like fruit and an investment in stock is much like purchasing a sapling. When purchasing a stock (sapling) the goal is two-fold: 1) Buy a sapling (tree) that is expected to bear a lot of fruit; and 2) Pay a cheap or fair price. If the right saplings are purchased at the right prices, then investors can enjoy a steady diet of fruit that has the potential of producing more fruit each year. Fruit can come in the form of future profits, but as we will see, the sweetness of a profitable company also paying dividends can prove much more fruitful over the long-term. Investing in growth equities at reasonable prices seems like a pretty intelligent strategy, but of late the vast majority of fresh investor capital has been piling into bonds. This is not a flawed plan for retirees (and certain wealthy individuals) and should be a staple in all investment portfolios, to a degree (some of my client portfolios contain more than 80%+ in fixed income-like securities), but for many investors this overly narrow bond focus can lead to suboptimal outcomes. Right now, I like to think of bonds like a reliable bag of dried fruit, selling for a costly price. However, unlike stocks, bonds do not have the potential of raising periodic payments like a sapling with strong growth prospects. “Double-dippers” who are expecting the economy to spiral into a tailspin, along with nervous snakebit equity investors, prefer the reliability of the bagged dry fruit (bonds)… no matter how high the price.Complete Story »

Hickey and Walters (Bespoke) submit:
With the House and Senate reaching a deal on financial regulation early this morning, we checked up on credit default swap prices of key US financial companies to see what -- if any -- impact the deal had. Default risk climbed quite a bit for the financials in the early stages of the recent market correction, but it then eased quite a bit in the middle part of this month as shares rebounded. This week's decline in the market once again caused default risk for the sector to spike, however. Yesterday's market decline coincided with a big jump in financial CDS prices. The financial sector was one area of strength in the market today as investors tried to dissect the impact of the rules that did and didn't make it into the proposed legislation (at least those in the 2,000+ page document that people have been able to read). But the strength in financial shares today didn't really carry over into the CDS market, as default risk pretty much held steady. As shown in the CDS prices (in basis points) of six major US financial firms below, today's move was a very small blip lower. So while stock investors saw the finreg agreement as somewhat of a positive for financials, the swap market is still be trying to make up its mind.Complete Story »

Susan M. Mangiero submits: The current situation with BP (BP) raises a bevy of thorny questions, not the least of which is how pensions and other types of institutional investors should deal with the asset allocation fallout.Let's start with the facts about institutional ownership of BP. According to Yahoo Finance and as excerpted in the table below, over 1,000 institutions owned stock in BP as of late March 2010. A relatively high dividend payout rate and dividend yield likely held great appeal for organizations seeking stability.Complete Story »

Market Folly submits:(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)Next up is Chris Shumway's hedge fund Shumway Capital Partners. Prior to founding his firm, Shumway was previously one of Julian Robertson's right-hand men at legendary hedge fund Tiger Management. As such, he joins the other successful Tiger Cubs and is included in the Tiger Cub portfolio created with Alphaclone for hedge fund replication. Shumway Capital Partners focuses on intensive fundamental research to drive their long/short equity strategy. Back in 2009, Shumway was listed in Barron's top 100 hedge funds for 2009 with a rolling 3-year annualized return of 28%. However, 2010 has proven difficult for the firm as its Sakkonet Fund was down 10% in May after it had gained 4.3% through April. Shumway received his MBA from Harvard Business School and his undergraduate degree from the University of Virginia.Complete Story »

Morningstar submits: By Matthew Warren Just as the U.S. Federal Reserve was winding down its quantitative easing program at the end of March, we were harboring concerns about how much higher U.S. mortgage rates might reset with such a large buyer stepping back from the market. During the month of April, long idling but persistent rumblings regarding sovereign credit concerns around peripheral EU countries quickly grew louder, as a different link turned out to be the weakest in the global credit market chain. In the ensuing months, the cost of capital rapidly reset higher for European countries perceived to face the weakest combined debt/deficit/economic pictures, most prominently Greece, Portugal, and Spain. Based on market action, it appears that there are also some lingering concerns about Ireland, Italy, and the U.K. It is somewhat of a chicken or egg argument about whether some of these countries potentially faced solvency issues that caused the debt markets to react so negatively or vice versa. What we find undeniable is that a rapid reset higher in the cost of credit for already troubled countries increased the odds of a bad outcome for any particular country. This situation closely mirrors what happened in the U.S. with its most financially troubled households. When the cost of (and access to) mortgage and credit card debt quickly reset in adverse fashion, the already high odds of default jumped overnight.Complete Story »