Top analyst Mike Mayo believes Wall Street is underestimating financials ahead of earnings season.

Mayo, who follows large-cap banks for Wells Fargo Securities, suggests investors haven&rsquo t fully acknowledged the benefits associated with the booming stock market &mdash from merger to wealth management fees.

&ldquo It&rsquo s bull market banking,&rdquo the firm&rsquo s managing director told CNBC&rsquo s &ldquo Trading Nation&rdquo on Thursday. &ldquo It&rsquo s a good time to be long banks.&rdquo

His outlook comes amid enthusiasm for financials. The  SPDR S& P Bank ETF  just saw its fourth positive session in five, up 0.77% on Thursday. It&rsquo s now risen more than 10% over the past three months while the  S& P 500  is up about 1%.

Two of Mayo&rsquo s top picks,  JPMorgan Chase  and  Bank of America, are on a tear, too. JPMorgan shares are trading at all-time highs and Bank of America is at levels not seen since February 2008, months before the credit crisis.

Yet, Mayo is still questioning investors&rsquo attitude toward banks.

&ldquo You have credit euphoria. I mean this is night and day versus the global financial crisis,&rdquo he said. &ldquo Banks were stumbling after you came out of the crisis. Now after the pandemic, banks have been a source of strength, and they should have the lowest level of loan losses, in some cases, in history.&rdquo

Mayo is one of Institutional Investor&rsquo s topped-ranked analysts. From 1999 until 2016, Mayo had a sell rating on the banking industry. In early 2010, he testified before the Financial Crisis Inquiry Commission, which was formed in the aftermath of the 2008 credit crisis.

His bullish stance on banks  now spans several years.

&ldquo Banks during the pandemic played very good defense,&rdquo he said. &ldquo Now, banks are ready to play offense.&rdquo

His positive take on the industry comes with a caveat: loan growth may take longer than anticipated. But Mayo views it as a temporary setback  tied to supply chain disruptions  and the impact on inventory growth, which is known to spur lending. He also lists the delta variant of  Covid  as a headwind.

&ldquo That may take up some time. But it is likely to come back,&rdquo Mayo said. &ldquo That&rsquo s what I&rsquo ll be asking the management teams about during the earnings call.&rdquo

In addition, he&rsquo s watching  inflation&rsquo s impact  on the banking industry.

&ldquo Once interest rates increase, and the yield curve gets steeper, and the short end goes higher &mdash that is going to be a boon for banks and their net interest margins,&rdquo said Mayo. &ldquo That&rsquo ll be great. Now, if you have too much increase in interest rates and you have inflation,  that could eventually be hell.&rdquo

Mayo suggests it&rsquo s too early to seriously consider that scenario. His base case is technological advances are making banks more efficient and propelling them into the multiyear bull market.

&ldquo This is the point that&rsquo s most underappreciated about the banks. ... They spent in the last decade retooling with technology,&rdquo Mayo said. &ldquo We are very big on the technology revolution at banks, and we favor those banks that not only look good in the short term, but also in long term.&rdquo

He also lists  Goldman Sachs  and  PNC Financial  among his top plays as earnings season gets closer. It kicks off with JPMorgan&rsquo s quarterly results Wednesday.

The Edge Singapore    Published on Mon, Oct 11, 2021 / 7:24 PM GMT+8 / Updated 17 hours ago

Commodity trading houses are a cyclical business as Singapore investors experienced with the likes of Noble Group. According to Bloomberg and other wire services, Glencore, Gunvor, Trafigura and Vitol are being told by brokers, bankers and exchanges to top up their margin accounts because of rising gas prices.

  Normally, commodity traders which build long positions in a particular commodity - say liquefied natural gas (LNG) - normally hedge these positions with corresponding short positions which are often in derivatives in the futures markets. The price of gas has spiked in Europe, and the wires are reporting that these large commodity houses have been told to deposit additional funds for these short positions.  

  On Sept 30, Gunvor announced it had issued five-year US$300  million  of senior notes priced at 6.25%. The  bond prospectus showed that the company pre-sold or hedged inventories totalled US$5.3 billion in June, up from US$2.8 billion in 2018. Natural gas and LNG trading accounted for nearly half of its traded volumes for the period at about 45%.  The prospectus also showed that at least US$2.5 billion of the company' s credit lines were allocated for margin call funding, out of its total credit facilities of US$18 billion.
The wire services report that Gunvor&rsquo s trading activity in Switzerland has been frozen. According to people familiar with Gunvor, its largest lenders are Rabobank with US$2.39 billion, BPCE Group with US$2 billion, ING with $US$1.9 billion, ABN AMRO with US$1.8 billion, DBS with US$1.5 billion and Credit Agricole with US$1.4 billion. These exposures may not necessarily be problematic as Gunvor could well have sufficient liquidity for its hedging strategies.