3 Banking Takeaways From the Quarter

Jim Sinegal: Three big stories in banking this quarter are related to regulation, rates, and real estate. On the regulatory front, it continues to cost banks a lot of money. We saw JPMorgan invest a lot in internal controls. It seems that Deutsche Bank has been providing faulty data to regulators for a number of years, and Discover, now is having trouble with bank secrecy and money laundering. So expenses related to increased regulation are not going anywhere; it's something that's going to continue to affect banks for a number of quarters.

On the rate front, people are getting excited about rising rates. I'm a little less optimistic. We have the most dovish Fed share in a long time. It looks like she's willing to keep monetary stimulus going as long as it takes to get the economy back to normal, and it's not so much that will only benefit banks. It's hurting them on the interest revenue side, on the lending side of the business, but it's helping in terms of asset management, M&A, and things like that. So, even if rates do start to rise, it won't be all good for banks.

Third, is real estate. I think the story about the decline of branches is in its very early stages. We've seen JPMorgan and Citigroup investing a lot in technology, but I think a lot of that gets passed on to customers. It reminds me of Warren Buffett's stories about the textile mills, where every year they'd buy a new loom, but they'd never made any money. On the flip side there, some companies are starting to benefit. Now, we've seen Discover, which is really one of the only big pure-play online banks, pick up a lot of market share, and we raised our fair value estimate for Discover this quarter as a result.