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Banks Should Benefit From Buffett's and Soros' Buys This Week

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This week will see the publication of the minutes of the Federal Reserve's last monthly meeting with Ben Bernanke as its chairman. Interested parties will be scanning between the lines to determine to what degree the Fed's tapering of its latest round quantitative easing will continue, among other indicators.

Tapering continues this month with a $10 billion slice; although many will hunt for clues as to the program's future, don't expect any smoking gun revelation given that Bernanke and his successor Janet Yellen have strongly hinted that it will continue.

Looking at the economy from the top down, the next few days will see a few key macro numbers released. These include the consumer price index, the Empire State (i.e., New York) manufacturing index, and critically for mortgage lenders, the Census Bureau's new residential construction figures released on Wednesday. The latter includes the January figures for housing starts, which, because of awful weather will almost certainly be down from those of December.

This is of particular concern to the nation's top mortgage lenders, especially big daddy Wells Fargo (NYSE: WFC  ) and No. 2 JPMorgan Chase (NYSE: JPM  ) . Both could use encouraging news in the construction sphere, but Wells is probably hungrier for something that'll juice the segment -- apparently the bank's resorted to lowering its threshold for the creditworthiness of its potential mortgage borrowers.

Morgan, meanwhile, has a famous financier bullish about its prospects. George Soros' eponymous fund management behemoth has disclosed its latest portfolio, revealing that in Q4 of last year, the ever-sharp investor grabbed a stake of over 2.8 million shares of the bank. Soros is also a believer in the future of Citigroup (NYSE: C  ) , buying almost 2.3 million shares during the quarter. That should add to the growing positive sentiment about the big lender in some circles.

Warren Buffett's Berkshire Hathaway (NYSE: BRK-A  ) , famously a massive shareholder in Wells Fargo, also added to its financial holdings during the quarter. Buffett's pick was investment banking stalwart Goldman Sachs, with Berkshire exercising warrants to build a stake of 12.6 million shares. As with Soros and Citi/Morgan, we shouldn't be surprised to see a resultant lift in bullish outlook for Goldman over the next few days.

This week, as with any week dating back to about 2009, one of the nation's banking incumbents will be the subject of a legal proceeding. On Wednesday, the New York State Supreme Court will hear arguments from several parties wanting to delay Bank of America's (NYSE: BAC  ) proposed $8.5 billion settlement with investors aggrieved about their soured crisis-era purchases of securities backed by mortgages from Countrywide Financial (purchased by Bank of America in 2008).

Those investors, including insurance giant American International Group (NYSE: AIG  ) , want the final judgement delayed, claiming further litigation is warranted in order to fix the details of the settlement.

Well, at least there aren't any more lawsuits coming down the pike over the next few days... not yet, at any rate. That's good, because there are Fed minutes to pore over, macro numbers to ponder, and big portfolios to follow. There will be enough to for the nation's financials to deal with this week.

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  • Report this Comment On February 19, 2014, at 6:52 PM, CASIII wrote:

    We've heard this all before about Citibank, endlessly! Throughout all the management changes, new leadership from inside the bank, outside the bank, good assets and bad asset pools, blah, blah, blah.

    The net-net is that the 1000 shares I bought way back when, after TARP funds injection, at $5 are now worth about $50, but gotcha, after a 1-for-10 reverse split. So my $5000 investment is still worth $5000!

    I'm beginning to think the pipe dreams and goofy actions of Walter Wriston, John Reed, and Sandy Weill, viewed optimistically at the time for no other reason than hot air and superb press-agentry, may have been terminal and impossible to remediate. For three decades the management at Citi forgot what a bank is supposed to do: collect deposits at a low rate and lend them out to creditworthy borrowers at a higher rate, then send the difference to the shareholders.

    Why should I think anything is going to change now?

    I don't!

  • Report this Comment On February 20, 2014, at 3:55 PM, TMFVolkman wrote:

    CASIII, I can understand the frustration of someone who's been waiting for Citi to get up on its feet for years now. But look at what's happening with Citi Holdings (the bad asset holding pen of the company) -- I'd argue that management has done an exceptionally good job of selling off that junk. That's the key, and I think it's why you're seeing the bulls creep cautiously back to the stock. I'm not one of them, necessarily, but I do feel Citi's going in the right direction. It IS a turnaround story, in my humble opinion, but as the company is big, sprawling and messy, it's going to take some time. I think you'll be rewarded if you're willing to hang on.

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Eric Volkman

Eric has been writing about stocks and finance since the mid-1990s, when he lived in Prague, Czech Republic. Over the course of a varied career, he has also been a radio newscaster, an investment banker, and a bass player in a selection of rock and roll bands. A native New Yorker, he currently lives in Los Angeles.

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