QUANTAMENTAL RESEARCH
April 2017
Authors
Vivian Ning, CFA
312-233-7148
Quantamental Research
vning@spglobal
Richard Tortoriello
Quantamental Research
212-438-9506
richard.tortoriello@spglobal
David Pope, CFA
Managing Director of
Quantamental Research
617-530-8112
dpope@spglobal
Acknowledgements
The authors would like to thank
Emily Parker, Alem Husain,
Nathan Stovall, and Katie Darden
of S&P Global Market
Intelligence, and Erik Oja of S&P
Global Ratings for their extensive
help in all phases of this project.
Our research benefited greatly
from their expertise and diligence.
Industry-Specific Alpha Series
Banking on Alpha: Uncovering Investing Signals
Using SNL Bank Data
On April 13th, JPMorgan Chase is scheduled to report first quarter earnings, kicking off a
highly anticipated quarter for U.S. banks (Figure 1). This study leverages S&P Global Market
Intelligenceˉs SNL Financial data to answer three questions of importance to bank investors:
1. which widely-used
investment strategies1
have historically been
profitable; 2. which lesser-
known strategies deserve
wider attention; 3. how do
these strategies perform
across varying macro
environments: rising vs.
falling interest rates and
above- vs. below-average
financial stress. SNL Bank
fundamental data provides
a comprehensive range of
data items that form the
foundation for this research. Strategies are empirically examined and categorized according
to industry standard ¨C capital adequacy, asset quality, profitability, growth, and valuation:
followed by asset quality and profitability. The three most effective factors in these
categories are core EPS to price, the 1-year change in the Texas ratio, and the 3-year
change in operating profit to Tier 1 capital. Investment strategies based on these
ratios produced long-only excess annual returns of 7.4%, 5.7%, and 4.0%, all
significant at the 1% level.
with significant core deposits outperform. Strategy results for savings & money
market deposit accounts to total deposits had a 4.1% annual long-only excess return.
investment strategies tend to perform best. During periods of above-average
financial stress, capital adequacy and asset quality strategies are most important.
quality and profitability, as the study commences in 2007. The three strongest
strategies in Europe are the risk-based capital ratio (11.7% annual long-only excess
return), total pretax expense to assets (10.8%), and problem loans to equity plus
reserves (10.1%). Note: Problem loans, a data item
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