银行信贷（雷曼1118）

1、.FINANCIAL SERVICESMortgage & SpecialtyFinanceDividend Increases NotGLOBAL EQUITY RESEARCHUNITED STATES;Sector Views:Mortgage Finance: 2-EQUAL WEIGHTSpecialty Finance: 1-POSITIVEInsignificant for Mortgage andSpecialty Finance StocksReview of Dividend Yields and Who Has the Most Potential to Incr

2、ease DividendsBruce W. Harting, CFA1.212.526.3007bhartingMortgage FinanceJoanne Yerman1.212.526.6716jyermanJin Zhang, CFA1.212.526.8715jinzhangSpecialty FinanceJoshua Steiner, CFA1.212.526.2723Given the recent, mostly substantial, increases from over half of the companiesunder our coverage over the

3、last two quarters, we would expect the dividendincrease wave to subside a bit, reverting toward more normal single-digitincreases. Some of the most likely candidates for continued significant increasesinclude IndyMac, American Express, and Fidelity National.In our universe of stocks, we have one sto

4、ck yielding more than 4%, two between3% and 4%, and another seven between 2% and 3%. The average ROE in ourgroup is 23.4%, while the average tangible equity to tangible assets ratio is15.1% or 7.1% excluding the capital-intensive title and mortgage insurers. Thus,with payout ratios averaging just 24

5、%, plenty of excess equity and returns onequity that exceed internally generated asset growth, there would appear to beplenty of room to raise dividends in our coverage universe.josteinePartly in response to favorable tax legislation, several companies under ourcoverage significantly increased their

6、 dividends in the second quarter, includingFidelity National (up 50%), Sallie Mae (up 36%), Washington Mutual (up 33%),American Express (up 25%), and MBNA (up 25%). Of these five companies withthe biggest percentage increase, Sallie Mae, Washington Mutual, and AmericanExpress are traditionally regul

7、ar buyers of their own stock through steady stockrepurchase programs.Analyst CertificationI, Bruce W. Harting, CFA ,hereby certify (1) that the viewsexpressed in this research reportaccurately reflect my personalviews about any or all of thesubject securities or issuersreferred to in this report and

8、 (2)no part of my compensationwas, is or will be directly orindirectly related to the specificrecommendations or viewsexpressed in this report.The dividend increases continued in the third quarter, with a 50% increase fromtwo of the three mortgage insurers under our coverage (MGIC, PMI Group), a43%

9、increase from Countrywide, a 33% increase from IndyMac, and an 18%increase from Golden West. With all but IndyMac still yielding below 1%, there isstill significant room for further increases from these high-growth companies, butwe caution that high-growth companies typically embrace a low payout po

10、licy.As for the rest of the companies that we follow, only time will tell if they increasetheir dividends in favor of other methods of capital deployment. Companies thatare unlikely to increase their dividends include high-growth companies such asCapital One and Countrywide, and companies in the pro

11、cess of rebuildingcapital, such as Providian and Sovereign.November 18, 2003PLEASE REFER TO BACK COVER FOR IMPORTANT DISCLOSURES.Dividend Increases Not Insignificant for Mortgage and Specialty Finance StocksTable of ContentsIntroduction. 3Dividend Yield. 3Capital Generation and Uses (American Expres

12、s Case Study) . 4Excess Capital . 7Dividend Payout . 9Dividend Increases . 11Conclusion . 14Table of FiguresFigure 1: Dividend Yield as of November 14, 2003. 4Figure 2: American Express Net Income Returned to Shareholders 19952001 . 5Figure 3: Future EPS Growth Rates vs. Current ROEs . 6Figure 4: RO

13、Es, Payouts, Asset Growth, Share Repurchases, and Excess Capital . 7Figure 5: Tangible Equity to Tangible Assets 4Q02 3Q03. 8Figure 6: Dividend Payouts 4Q023Q03 Annualized . 10Figure 7: 2003 Quarterly Dividends Payable and Payable Growth Rates . 11Figure 8: Dividend Growth Rate and Number of Annual

14、Increases Last 5 Years . 12Figure 9: Mortgage and Specialty Finance Valuation Table . 152November 18, 2003Dividend Increases Not Insignificant for Mortgage and Specialty Finance StocksIntroductionPartly in response to the favorable tax legislation passed on dividends in the secondquarter, several co

15、mpanies under our coverage significantly increased their dividends inthe second and third quarters, including cumulative increases by IndyMac (up 88%),Countrywide Financial (up 51%), Fidelity National (up 50%), MGIC (up 50%), PMI (up50%), Sallie Mae (up 36%), Washington Mutual (up 35%), American Exp

16、ress (up 25%),and MBNA (up 25%). With all but IndyMac still yielding below 1%, there is significantroom for further increases from these high growth companies, but we point out that highgrowth companies typically have low payouts as capital is used to grow the business.In our universe of stocks, we

17、have one stock yielding more than 4%, two between 3%and 4%, and another seven between 2% and 3%, with the remainder yielding below2%. This compares to an average dividend yield for the financials sector of 2.5% at theend of 2002. By contrast, average yields for low growth sectors like utilities were

18、 4.6%at the end of 2002, while yields in high growth sectors like technology averaged 0.3%at the end of 2002.The average ROE in our group is 23.4%, while the average tangible equity to tangibleassets ratio is 15.1% or 7.1% excluding the capital-intensive title and mortgage insurers.With payout ratio

19、s averaging just 24%, plenty of excess equity and returns on equity thatexceed internally generated asset growth, there would appear to be plenty of room toraise dividends in our coverage universe.Dividend YieldThe dividend yield represents the annual return earned by an investor on the dividendpaid

20、 and is calculated as a percentage of the current market price of the stock. In lowrate environments, investors look to own higher yielding stocks to compensate for loweryields on alternative investments. Higher yielding stocks are also more favorable forstocks that return lower capital appreciation

21、, or are no longer in their earnings growthstage.In low rate environments,investors look to own higheryielding stocks to compensateWe see from Figure 1 that all of the mortgage and specialty finance stocks exceptPeoples Bank yield below 4% and roughly one-third have yields lower than 1% versus anfor

22、 lower yields on fixedaverage dividend yield for the financials sector of 2.5% at the end of 2002.Byincome investments.contrast, average yields for low growth sectors like utilities were 4.6% at the end of2002, while yields in high growth sectors like technology averaged 0.3% at the end of2002.Novem

23、ber 18, 20033Dividend Increases Not Insignificant for Mortgage and Specialty Finance StocksFigure 1: Dividend Yield as of November 14, 2003People's BankWaMuWash'n FedGreenPointIndyMacFannie MaeAstoria Fin'lBanknorthFidelity NationalFirst AmericanSallie MaeHudson CityMBNACITAmerican Expre

24、ssCountrywideSovereignPMI GroupGolden WestMGICCapital OneRadianCapitalSourceProvidian0.0%1.0%2.0%3.0%4.0%5.0%6.0%Source: Reuters, Lehman BrothersFinancials under ourcoverage are characterizedby high long-term earningsgrowth, excess capital,midteen or higher ROEs, ahistory of stock buybacks,and payou

25、t ratios in theFigure 1 shows that in our universe of stocks most have yields associated with highgrowth stocks, with only one stock yielding more than 4%, two between 3% and 4%,another seven between 2% and 3%, and the rest below 2%. Financials under ourcoverage are characterized by high long-term e

26、arnings growth, excess capital, midteenor higher ROEs, a history of stock buybacks, and payout ratios in the 20%25% range.The average five-year EPS CAGR is 16%, with long-term earnings growth projections20%25% range.averaging 13%.Furthermore, the average ROE is 23.4%, and tangible equity totangible

27、asset ratios average 15.1%, or 7.1% excluding the capital-intensive title andmortgage insurers. Thus, with payout ratios averaging just 24%, plenty of excess equityand returns on equity that exceed internally generated asset growth, there would appearto be plenty of room to raise dividends in our co

28、verage universe.Capital Generation and Uses (American Express Case Study)Last summer, Gary Crittenden, the CFO at American Express, went through an interestingpresentation that showed how American Express had returned 65% of the capital thecompany had generated between 1995 and 2000 to shareholders

29、via dividends andstock repurchases (Figure 2). During that time period, the company generated a return onequity ranging from 21.3% to 26.2%, maintained an average payout ratio of 20.8%,4November 18, 20033.2%2.9%4.8%2.2%2.0%1.8%0.9%0.8%0.3%0.2%0.2%0.0%0.0%Dividend Increases Not Insignificant for Mort

30、gage and Specialty Finance Stocksand repurchased over 180 million shares, or approximately 11.7% of the total. Mr.Crittenden got his point across that American Express's business model is not a capital-intensive model, and that it can generate 8% revenue growth along with low-double-digitEPS gro

31、wth and still generate an ROE in the mid- to high twenties.Figure 2: American Express Net Income Returned to Shareholders 19952001$2.25$2.07$2.00$1.81$1.75$1.50$1.30$1.39$1.54$1.65$1.28$1.25$1.16$1.16$1.00$1.04$0.90$1.01$0.98$0.78$0.75$0.50$0.25$0.001995199619971998199920002001EPSEPS Returned (Divid

32、ends & Repuchases)Source: Company reports and presentations, Lehman BrothersAmerican Express was one of the first companies to raise its dividend after the taxlegislation lowered the tax rate on dividend income in the second quarter, which wasactually the first time the company materially change

33、d its dividend since the spinoffin 1994. In 2000, the company raised its split-adjusted dividend 7% from $0.30 to$0.32. We recommend shares of American Express based on our expectation that thecompany will regain its lofty ROE in the mid-twenties, and continue to return a largepercentage of the capi

34、tal generation to shareholders, although it will more likely be in theform of a cash dividend.We see there are a numberof names under our coveragesimilar to American Expressthat exhibit high future long-term earnings growthforecasts and above-averageROEs.In Figure 3 we see there are a number of name

35、s under our coverage similar toAmerican Express that exhibit high future long-term earnings growth forecasts andabove-average ROEs, which would indicate that there is sufficient capital expected to begenerated to support ROE, with potential for any excess to be deployed in the form ofdividends, asse

36、t growth, or share repurchases. Those names include: Capital One,MBNA, American Express, Golden West, IndyMac, Washington Mutual, FidelityNational, and First American.November 18, 20035Dividend Increases Not Insignificant for Mortgage and Specialty Finance StocksFigure 3: Future EPS Growth Rates vs.

37、 Current ROEs25%20%15%10%5%0%0%10%20%30%Current ROESource: Baseline, SNL Financial, Lehman BrothersWe see several others thatare characterized by excesscapital ratios, with relativelyhigh ROEs that are likely tocontinue to replenish equityratios even after allowing forasset growth.As we screen throu

38、gh the specialty and mortgage finance companies in Figure 4 oncapital generations, uses, and balances, we see several others that are characterized byexcess capital ratios, with relatively high ROEs that are likely to continue to replenishequity ratios even after allowing for asset growth. As shown

39、in Figure 4, standoutsinclude: Countrywide Financial, IndyMac, American Express, Capital One, GoldenWest, Fannie Mae, Fidelity National, and CIT.6November 18, 2003CSEPVNCOFMTGRDNPMISOVNDE KRBWM FNFFAFAXPGDWPBCTAFBNKCITGPTLT Future EPS Growth RateDividend Increases Not Insignificant for Mortgage and

40、Specialty Finance StocksFigure 4: ROEs, Payouts, Asset Growth, Share Repurchases, and Excess CapitalGenerationUsesBalance3Q03ROE(annualized)3Q03Div Payout(annualized)Avg Annl'zdAsset GrowthTTM5 Yr ShareIssuance(Repurch)*As of 9/30/03Tang Equity/Tang Assets*MGICPMI GroupRadianCapitalSourceFidelit

41、y NationalWash'n FedCITAmerican ExpressProvidianHudson CityCountrywideCapital OneIndyMacPeople's BankGolden WestMBNAGreenPointAstoria Fin'lBanknorthWaMuSovereignSallie MaeFannie MaeFirst AmericanAverageAverage Specialty (ex CSE)Average MortgageAverage Insurers11.4%9.7%14.6%15.0%30.0%13.0

42、%11.4%20.5%15.1%14.9%58.6%19.7%20.7%6.1%20.1%25.5%22.6%11.3%14.6%20.0%13.8%72.6%60.9%31.9%23.1%27.5%23.0%19.5%2.4%5.6%1.7%0.0%9.1%44.9%17.4%17.0%0.0%51.9%1.8%2.3%17.2%162.5%4.6%19.6%28.2%41.5%34.6%35.7%6.8%16.4%16.7%9.3%22.8%12.1%37.2%5.6%10.9%12.0%16.7%93.8%37.6%2.0%6.5%12.5%-11.4%19.1%80.6%16.8%46

43、.0%-0.3%15.4%15.1%1.4%0.8%14.0%8.9%3.6%8.0%20.3%27.8%18.1%7.9%17.6%21.0%-5.2%0.6%25.4%-190.9%-1.4%-20.0%-2.7%1.8%-17.0%12.4%14.8%-11.8%1.1%-4.9%6.2%-7.6%-18.0%3.9%8.0%15.1%-3.2%-3.0%13.2%8.6%-0.5%-1.9%45.0%64.4%63.8%54.2%39.0%21.6%13.4%10.6%9.1%8.6%8.5%8.1%8.0%7.7%7.5%7.4%6.6%6.5%5.9%5.5%5.0%4.7%3.5

44、%1.7%-16.1%7.7%6.8%51.0%* specialty finance names (ex AXP) are calculated as tangible equity to managed assets*BOP shares divided by EOP shares; therefore, includes shares issued for M&A and to settle optionsSource: SNL Financial, company reports, Lehman BrothersExcess CapitalThe mortgage and ti

45、tleinsurers are the most capitalintensive of the specialty andmortgage financecompanies, as they arerequired to maintain highcapital balances in order topay claims.As show in Figure 5, with an average tangible equity to tangible asset ratio of 51% lastquarter, the mortgage and title insurers are the

46、 most capital intensive of the specialty andmortgage finance companies. This is because they are required to maintain high capitalbalances in order to pay out claims. We singled out Fidelity National among theinsurers as it has the highest ROE, despite a near doubling of its shares outstanding, andt

47、he highest payout ratio, which is still low at just 9%, but signals that the company is ableto use capital not only for double-digit asset growth, but for dividend payment.November 18, 20037Dividend Increases Not Insignificant for Mortgage and Specialty Finance StocksFigure 5: Tangible Equity to Tan

48、gible Assets 4Q023Q03Tangible Equity/Tangible Assets3Q032Q031Q034Q02MGICPMI GroupRadianCapitalSourceFidelity NationalWash'n FedCITAmerican ExpressProvidianHudson CityCountrywideCapital OneIndyMacPeople's BankGolden WestMBNAGreenPointAstoria Fin'lBanknorthWaMuSovereignSallie MaeFannie Mae

49、First AmericanGroup AverageAverage Specialty (ex CSE)Average MortgageAverage Insurers64.4% 65.0% 64.0% 64.1%63.8% 63.5% 63.0% 62.4%54.2% 52.3% 51.6% 51.4%39.0% 29.3% 33.3% 40.8%21.6% 14.9% 28.0% 27.1%13.4% 13.4% 13.1% 12.8%10.6% 10.9% 10.8% 10.8%9.1% 9.1% 9.2% 8.8%8.6% 7.9% 7.6% 7.3%8.5% 8.8% 8.9% 9.3%8.1% 7.0% 7.7% 8.9%8.0% 8.2% 8.2% 7.5%7.7% 8.3% 9.0% 8.6%7.5% 7.3% 7.1% 6.8%7.4% 7.5% 7.4% 7.4%6.6% 6.2% 6.0% 5.5%6.5% 6.8% 6.9% 7.1%5.9% 6.1% 6.1% 6.4%5.5% 5.4% 5.4% 6.0%5.0% 5.3% 5.2% 5.2%4.7% 4.5% 3.8% 3.7%3.5% 3.1% 3.1% 2.7%1.7% 1.9% 2.0% 1.8%- 29.3% 30.5% 27.5%16