Both GS and MS (as well as other FIs) are off there highs because of all the volatility in the markets the past 6 months and worries about losses from bad energy loans. BAC, WF, Citi are all off their 12-month highs by a significant margin despite doing relatively well in Q1.
Also, this has nothing to do with discounting the cash flows, it's mostly stock buybacks that's driving all the action:
> Both GS and MS (as well as other FIs) are off there highs because of all the volatility in the markets the past 6 months and worries about losses from bad energy loans.
No, they are off because they are making way less money (down 55% from a year ago!). In general volatility can be good for investment banks because it means higher trading volume. Revenue has been way down thanks to fewer deals (remember when tech companies had IPOs?) and reduced fixed income trading volume (GS revenue from fixed income trading is down 48% from a year ago).
It would be interesting if they could release metrics on trading or investing activity, the way some software companies release stats about active users.
Then you could calculate revenue per trade (or something more useful along those lines) to use as a signal in these cases.
They break out a lot of numbers, but I'm not sure how useful metrics on trading activity would be. Not all trades are equal, so something like revenue per trade is pretty meaningless.
I think you may have overlooked the recent DOL Proposal and it's potential impact on profit margins if it pushes forward. Good for consumers, but bad if you have to improve processes, hire people to handle them, etc.
GS has $11BB in oil sector exposure. MS is $4.8BB. BofA and Citi are around $20BB. JPM is around $15BB. These are fractions of total loans outstanding (MS is 5%, all the rest are much smaller). Each of these banks has more in reserves than oil loan exposure. Does that sound scary to you?
Again, relatively sophisticated investors understand these things. This is basic research. Where is your evidence?
How much exposure do they have to the financial sector ? As in 2008, we should be wary of cross-pollination.
The limits on the banks' exposures are dependent on counter party risk. GS's exposure is far more, but they insured most of it with other banks, and please allow me the simplifying assumption they insured all of it with BAC. Which means that (hypothetical scenario) if BAC goes bankrupt, suddenly GS exposure to oil goes up to, say $100BB. Suddenly the reserves are woefully insufficient. Then there's the sudden risk that GS goes belly-up, which would increase everyone else's exposure. One of them goes and ...
Additionally, oil fuels the economy. Oil is what builds the roads, what makes everything on the roads moving, what keeps planes in the air and boats going forward. Oil provides significant parts of our electricity supply, and so on and so forth. So you can look at the oil sector problem in 2 ways. Either you look at the supply side, which is producing somewhere around 2% more oil than the market is willing to buy (at any price). This is short-sighted. "If we'd all just put 2% more gas in our tanks, there wouldn't be a problem", which is not realistic.
The other oil to look at is demand-side oil. The market is simply not buying 2% of the oil, except to store it. Why not ? One explanation would be that there is a global recession and the oil price move is simply the result of that. The fact that the price crash happened with oil production/supply constant (even slightly declining) would seem to support this. For instance the baltic dry index plunged before oil started having problems, same with container shipping, and this explains quite a bit of the excess capacity in oil, and therefore, I say caused the price drop in oil. Oil crashed because manufacturing (the source of the demand for shipping) crashed a few months before the oil crash (and hasn't recovered).
In other words : you've identified the wrong problem. Oil is a symptom of the underlying situation, not a cause. You say banks are capable of withstanding one aspect of a greater problem ? Well, I'm not saying that's bad, but it's not reassuring at all (and may not be true due to financial engineering).
Also, this has nothing to do with discounting the cash flows, it's mostly stock buybacks that's driving all the action:
http://www.bloomberg.com/news/articles/2016-04-19/early-warn...