Transcript Slide 1
Economic, Business, Market & Macro Landscape John Augustine, CFA Chief Economic & Market Strategist Fifth Third Bank September 2013 Fifth Third Bank | All Rights Reserved Fifth Third Bank Overview (6/30/2013) Headquartered in Cincinnati, Ohio Operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, Investment Advisors Michigan Pennsylvania Ohio Indiana 18 affiliates across the Midwest and Southeast United States 1,326 banking centers; 2,433 ATMs $123 billion bank assets $313 billion in assets under care $27 billion in managed assets for individuals, corporations and notfor-profit organizations Illinois Missouri Kentucky North Carolina Tennessee Listed on NASDAQ, Ticker: FITB Data as of 2Q13 unless noted otherwise; ranked among U.S. commercial banks 2 West Virginia Fifth Third Bank | All Rights Reserved Georgia Florida 1) Five Economic Trends 3 Fifth Third Bank | All Rights Reserved #1 Global Economic Focus – LEI’s suggest a pick-up in global GDP Top 10 Economies - YoY LEI Trends 30 Japan = 6.41 30 US = 4.21 India = 4.10 Germany = 2.29 Brazil = 2.14 UK = 1.56 China = 0.91 Italy = 0.17 France = 0.10 Russia = -0.47 20 10 0 20 10 0 -10 -10 -20 -20 -30 -30 '09 '10 '11 (% 1YR) Leading Index Total, 1996=100, SA - United States (% 1YR) Leading Index Total, 1996=100 - China, Peoples Rep Of Deu Cli Leading Indicator Trend Restored, Growth Rate Same Period Previous Year, Sa, % - Germany (% 1YR) Leading Index, Total Composite, 2005=100 - Japan Gbr Cli Leading Indicator Trend Restored, Growth Rate Same Period Previous Year, Sa, % - United Kingdom Bra Cli Leading Indicator Trend Restored, Growth Rate Same Period Previous Year, Sa, % - Brazil '12 '13 Fra Cli Leading Indicator Trend Restored, Growth Rate Same Period Previous Year, Sa, % - France Ita Cli Leading Indicator Trend Restored, Growth Rate Same Period Previous Year, Sa, % - Italy Ind Cli Leading Indicator Trend Restored, Growth Rate Same Period Previous Year, Sa, % - India Rus Cli Leading Indicator Trend Restored, Growth Rate Same Period Previous Year, Sa, % - Russia Recession Periods - United States Source = FactSet 4 Fifth Third Bank | All Rights Reserved #2 US Economic Focus – GDP growth expected to improve pace into 2015 Real GDP Annualized vs. Leading Economic Indicators (LEI) YoY Trend 15 15 25 year average 10 10 5 Avg = 2.54 Cur rent Qtr = 2.50 5 0 0 -5 -5 -10 -10 -15 -15 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Gross Domestic Product, Real %Chg P/P - United States (AVG) Gross Domestic Product, Real %Chg P/P - United States (% 1YR) Leading Index Total, 2004=100, SA - United States Recession Periods - United States 2013 2014 2015 Private US Economists: 1.60 2.70 3.00 Federal Reserve: 2.15 3.00 3.25 OECD: 1.90 2.80 n/a IMF: 1.70 2.70 n/a Actual annualized Real GDP growth*: 2010 2011 2012 2.4% 1.8% 2.2% * Source = Moody’s economy.com 5 Projections = Bloomberg; IMF; Federal Reserve Fifth Third Bank | All Rights Reserved #2 US Economic Building Blocks – Private sector economy doing reasonably well Five Private-Sector Economic Building Blocks - YoY% Changes 50 50 40 Housing Starts = 16.95 Vehicle Sales = 10.85 Construction = 5.19 Ex ports = 2.11 Employment = 1.41 30 20 10 0 30 20 10 0 -10 -10 -20 -20 -30 -30 -40 -40 -50 -50 '99 (% 1YR) (% 1YR) (% 1YR) (% 1YR) (% 1YR) 6 40 '00 '01 '02 '03 '04 '05 '06 '07 '08 Motor Vehicles Total vehicle sales, Number of, Annual Rate, SA - United States Housing Starts 1 unit, Number of, Annual Rate, SA - United States Net Exports Of Goods & Services, Exports, Bil. Chained 2005 $, Saar - United States Employment - Persons, Sa - United States Total Construction Put In Place, Mil. Usd, Sa - United States Fifth Third Bank | All Rights Reserved '09 '10 '11 '12 Recession Periods - United States '13 #3 US Consumer Trends – Conflicted consumer data… US Consumer Trends 10 120 110 8 Consumer Confidence = 81.52 Income YoY% = 3.28 Spending YoY% = 3.09 Household NW = 70.35 6 4 2 100 90 80 70 60 0 50 -2 40 -4 30 -6 20 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Balance sheet of households & nonprofit organizations - Net worth, B.100 - United States / 1000 (Left) Composite Series: Index Numbers, 1985=100, Consumer Confidence Index - United States (Left) (% 1YR) Personal Consumption Expenditures, Bil. $, Saar - United States (Right) (% 1YR) Personal Income, Bil. $, Saar - United States (Right) Recession Periods - United States 7 Fifth Third Bank | All Rights Reserved Source = FactSet #4 US Monetary Policy Focus (contd.) – What does the Fed want? Unemployment Rate vs. Inflation Rate 12 10 12 What the Fed wants? 1. 6.5% unemployment rate 2. 2.5% inflation rate 10 8 8 Unemployment Rate = 7.30 6.5% 6 6 4 4 Consumer Inflation Rate YoY% = 1.52 2 2 0 0 -2 -2 -4 -4 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Unemployment Rate Total, Percent, SA - United States (% 1YR) Cpi-U All Items U.S. City Average Sa 1982-84=100 - United States Recession Periods - United States Source = FactSet 8 Fifth Third Bank | All Rights Reserved 2.5% 2) Five Business Trends – 9 Fifth Third Bank | All Rights Reserved #1 US Business Focus – Profits outpacing Capex since 2010 US Corporate Profits vs. Capex Spending Trends 2,200 2,200 Corporate Profits = 2098.90 2,000 2,000 1,800 1,800 1,600 1,600 Capex = 1466.63 1,400 1,400 1,200 1,200 1,000 1,000 800 800 600 600 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 National Income, Corporate Profits With Iva & Ccadj, Bil. $, Saar - United States Nonfinancial Business - Gross Investment - Capital Expenditures, F.101 - Flows, Saar - United States Recession Periods - United States Trendline: Linear Trendline: Linear Source = FactSet 10 Fifth Third Bank | All Rights Reserved #2 Healthcare Focus – Benefit cost increases hold back wages Employment Cost Index Components 125 125 Benefits 120 Total Wages 120 115 115 110 110 105 105 100 100 95 95 90 90 85 85 80 80 75 75 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Employment Cost Index Total Benefits All Civilian All Workers Sa Dec. 2005=100 - United States Employment Cost Index Total Compensation All Civilian All Workers Sa Dec. 2005=100 - United States Employment Cost Index Wages And Salaries All Civilian All Workers Sa Dec. 2005=100 - United States Recession Periods - United States Source = FactSet 11 Fifth Third Bank | All Rights Reserved #3 Business Growth Characteristics – Sales and/or Margins need to start to improve S&P 1500 - Sales per Share vs. Earnings per Share (YoY% change) 50 50 40 40 30 30 20 20 EPS YoY% change = 6.34 Sales per Share YoY% change = 2.62 10 0 10 0 -10 -10 -20 -20 -30 -30 -40 -40 '01 '02 '03 '04 '05 '06 '07 (% 1YR) S&P Composite 1500 - Earnings per Share (% 1YR) S&P Composite 1500 - Sales per Share '08 '09 '10 '11 '12 '13 Recession Periods - United States Source = FactSet 12 Fifth Third Bank | All Rights Reserved #4 Business Valuations (S&P 500) – Getting close to long-term averages S&P 500 Index - P/E Multiple and P/CF Multiple 35 35 30 30 25 25 20 P/E Avg = 16.35 Current P/E = 15.97 15 P/CF Avg = 9.53 Current P/CF = 9.44 10 5 20 15 10 5 0 0 '54 '57 '60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 AVAIL(ECON_CLIENT[SP50_PE],SPEC_ID[SP50:FMA_PE(LTM,'PORTAGG','MEANR')]) [Max: 31.13, Min: 6.84, Last: 15.97] (AVG) AVAIL(ECON_CLIENT[SP50_PE],SPEC_ID[SP50:FMA_PE(LTM,'PORTAGG','MEANR')]) [Max: 16.35, Min: 16.35, Last: 16.35] S&P 500 - Price to Cash Flow (Excluding Negatives) Ratio [Max: 25.87, Min: 4.18, Last: 9.44] (AVG) S&P 500 - Price to Cash Flow (Excluding Negatives) Ratio [Max: 9.53, Min: 9.53, Last: 9.53] Recession Periods - United States Source = FactSet 13 Fifth Third Bank | All Rights Reserved Late Summer Business Update – 2013 14 1. Focus on top-line US growth via a combination of acquisitions (technology, geography or new sales channels) and/or organic investment in areas of multi-year growth: i. Rise of the Gen Y’ers ii. Transition of the Baby Boomers iii. Rebalancing of US Manufacturing participation in the Global Supply Chain iv. Privatization/Consolidation of Government v. Rearrangement of Energy – Sources, Supply & Usage 2. Constantly reinforce employee understanding of the business: who we are; what we do; when are our seasonal peaks & valleys; where are our markets; how we make a profit. 3. Understand that we live in a connected business world. Innovation and productivity need to be constantly improved. Use employee/independent input for fresh looks at each. 4. Hedge currency risk – that is where the volatility is this year with active central banks. 5. Review & update transition, insurance and strategic planning – as we are now four years out from the Great Recession and in a period of relative calm. 6. Maintain a qualified employment pool by investing in adequate internal training or partnering with local community colleges, technical schools or equivalents. 7. Continually monitor Affordable Care Act implementation trends via a consultant! 8. Global economic trends (LEI’s) are starting to pick-up. Pay attention to copper (EM), US & China LEI, EuroZone unemployment. Structure for potential pick-up in growth. Fifth Third Bank | All Rights Reserved 3) Five Market Trends 15 Fifth Third Bank | All Rights Reserved #1 US Stock Market (S&P 500) – Just broke to a new high, but now needs to hold it S&P 500 Price Index 3 2,000 6 years 1,000 800 700 600 500 400 300 2,000 1,000 800 700 600 500 400 300 2 200 200 9 years 100 80 70 60 50 40 30 100 80 70 60 50 40 30 1 22 years 20 20 10 8 7 6 5 4 10 8 7 6 5 4 '28 '31 '34 '37 '40 '43 '46 '49 '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12 Standard & Poors 500 Composite Index, Price Return, Close - United States Recession Periods - United States Source = FactSet 16 Fifth Third Bank | All Rights Reserved #2 US Stock Market Focus – Over the long term, stock prices follow earnings S&P 500 Index - Price vs. Earnings Per Share (EPS) 120 2,000 EPS = 107.59 Price = 1722.34 100 1,800 1,600 1,400 80 1,200 60 1,000 800 40 600 400 20 200 0 0 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 S&P 500 - Index Price Level / AVAIL(ECON_CLIENT[SP50_PE],SPEC_ID[SP50:FMA_PE(LTM,'PORTAGG','MEANR')]) [Max: 107 S&P 500 - Price Index [Max: 1725.52, Min: 62.28, Last: 1722.34] (Left) Recession Periods - United States Source = FactSet 17 Fifth Third Bank | All Rights Reserved #3 US Bond Market – What should the 10-year Treasury yield be? 10-year Treasury Yield vs. GDP Trends 20 20 15 15 10 10 Nominal GDP = 3.21 10yr Treas Yield = 2.76 Real GDP = 2.50 5 5 0 0 -5 -5 -10 -10 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Gross Domestic Product, Implicit Price Deflator, 2009=100, SA - United States + Gross Domestic Product, Real %Chg P/P - United States Gross Domestic Product, Real %Chg P/P - United States US Benchmark Bond - 10 Year - Yield Recession Periods - United States 18 Fifth Third Bank | All Rights Reserved Source = FactSet #4 Real Asset Markets – Gold and REITs separating from CRB Real Assets - Gold, REITs and Commodities 2,000 2,000 Gold = 1325.71 1,000 900 800 700 600 500 S&P REIT = 855.01 400 1,000 900 800 700 600 500 400 CRB Index = 288.00 300 300 200 200 100 90 80 70 60 50 100 90 80 70 60 50 40 40 30 30 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 AVAIL(ECON_CLIENT[CRB_HISTORY],SPEC_ID[LPL1K:FG_TOTAL_RET_IDX]) S&P United States REIT - Total Return Index 19 Fifth Third Bank | All Rights Reserved Gold, Nymex ($/Oz) - World Recession Periods - United States Source = FactSet Late Summer Investor Update – 2013 20 1. This year has been about a rotation from gold to stocks. Waiting to see what happens in bond market. 2. US economic growth leadership is very narrow – housing, aerospace, autos, energy – and needs to broaden. Current economic holdbacks include slow consumer income/spending, business investment and rising federal tax receipts vs. sequestered spending. 3. Macro headlines likely increasing financial market volatility into the Fall include: US fiscal and monetary policy debates & changes. German elections; Japan consumer & corporate tax changes; Middle East tensions. Adjustments to 2014 EPS earnings estimates for S&P 500 companies. 4. Investors can E-A-S-E in to or out of markets keeping some basics in-mind: Employ a diversified, disciplined and dynamic investment strategy. Accumulate a diverse base of assets continuously in an incremental manner. Simplify finances to a maximum of nine statements for couples – bank, insurance (2), 401k (2), IRA (2), online brokerage, managed investment account. Enjoy the current Bull Market in stocks (S&P 500 higher in each of last five years). 5. Rising bond yields represent long-term risk for investors. Understand and/or adjust bond holdings. 6. With Fed temporarily on-hold, broaden asset groups in portfolios (stocks, bonds, real assets), but be very nimble to take profits in the volatility. Fifth Third Bank | All Rights Reserved 4) Five Developing Macro Trends 21 Fifth Third Bank | All Rights Reserved #1 US Fiscal Policy Focus – Tax Receipts higher; Spending lower Federal Government - Receipt vs. Expenditure Trends 4,500 4,500 4,000 Ex penditures = 3905.70 3,500 4,000 3,500 Receipts = 3164.00 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Federal Govt Current Receipts & Expenditures, Total Expenditures, Bil. $, Saar - United States Federal Govt Current Receipts & Expenditures, Current Receipts, Bil. $, Saar - United States Recession Periods - United States '12 Trendline: Linear Trendline: Linear Source = FactSet 22 Fifth Third Bank | All Rights Reserved #2 US Stock Market Trends – Company listings and trading volumes lower NYSE and NASDAQ - Listed Companies and 30-day Moving Average of Daily Trading Volume 3,000 6,000 2,500 5,000 2,000 4,000 NASDAQ Volume = 1521.88 NASDAQ Companies = 2577.00 NYSE Companies = 2339.00 1,500 1,000 NYSE Volume = 663.18 500 0 3,000 2,000 1,000 0 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 Nyse, Number Of Listed Companies - United States (Left) Nasdaq Omx, Number Of Listed Companies - United States (Left) (MOV 30D) NYSE Statistics: Volume - Index Price Level / 10 (Right) (MOV 30D) NASDAQ Statistics: Volume - Index Price Level / 10 (Right) Recession Periods - United States Source = FactSet 23 Fifth Third Bank | All Rights Reserved #3 US Banking Focus – Deposits continue to dominate Loans & Leases US Bank Deposits & Lending 10,000 10,000 Deposits = 9540.98 9,000 9,000 8,000 8,000 Loans & Leases = 7314.13 7,000 7,000 6,000 6,000 5,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 H.8, Liabilities Of Commercial Banks, Deposits, Bil. Usd, Sa - United States H.8, Assets Of Commercial Banks, Loans & Leases In Bank Credit, Bil. Usd, Sa - United States Recession Periods - United States Source = FactSet 24 Fifth Third Bank | All Rights Reserved #4 US Energy Production – A leading area of growth US Natural Gas and Crude Oil Production 10,000 2.2 Natural Gas = 2.10 9,000 2.1 2 8,000 Crude Oil = 7827.00 1.9 1.8 7,000 1.7 6,000 1.6 1.5 5,000 1.4 4,000 1.3 3,000 1.2 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 U.S. Crude Oil Field Production (Thousand Barrels Per Day) - United States (Right) Eia Monthly Energy Review, Primary Energy Production By Source, Natural Gas (Dry), Quadrillion Btu Usd - United States (Left) Recession Periods - United States Source = FactSet 25 Fifth Third Bank | All Rights Reserved #5 Global Demographic Themes – US is the youngest of the Advanced Economies 26 Fifth Third Bank | All Rights Reserved Disclosures and Disclaimers The opinions expressed herein are those of Fifth Third Bank, Investment Advisors Division, and may not actually come to pass. This information is current as of the date of the presentation and is subject to change at any time, based on market and other conditions. Prior to making any financial or investment decision, you should assess, or seek advice from a professional regarding, whether any particular transaction is relevant or appropriate to your individual circumstances. Index performance is used throughout this presentation to illustrate historical market trends and performance. Indexes are unmanaged and do not incur investment management fees. An investor is unable to invest in an index. Past performance is no guarantee of future results. Fifth Third Asset Management, Inc (FTAM) is an indirect, wholly owned subsidiary of Fifth Third Bancorp and an affiliated company with Fifth Third Bank Investment Advisors division. Fifth Third Bank provides access to investments and investment services through various subsidiaries, including Fifth Third Securities. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a registered brokerdealer and a registered investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Securities and investments offered through Fifth Third Securities, Inc. and insurance products: Are Not FDIC Insured Offer No Bank Guarantee Are Not Insured By Any Federal Government Agency 27 Insurance products made available through Fifth Third Insurance Agency, Inc. Fifth Third Bank | All Rights Reserved May Lose Value Are Not A Deposit