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
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Georgia
Florida
1) Five Economic Trends
3
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#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
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#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
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#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
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'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
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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
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2.5%
2) Five Business Trends –
9
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#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
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#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
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#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
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#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
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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
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#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
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#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
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#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
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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
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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.
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4) Five Developing Macro Trends
21
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#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
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#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
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#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
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#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
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#5 Global Demographic Themes –
US is the youngest of the Advanced Economies
26
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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.
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May Lose Value
Are Not A Deposit