Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Thematic (Sector/Industry)

*Odd Finance Minister Commentary: A report on Bloomberg, suggests that Finance Minister Albayrak has ruled out capital controls in Turkey. This is strange, as capital controls have already been in place for well over a year given the longer settlement dates, higher taxes, limited liquidity, threats of prison, et al. These reported comments suggest a full blown crisis is a fait accompli;  *Low Rates Destroying TRY: Turkey is a slow moving train wreck thanks largely to the policies of President Erdogan. The Central Bank of Turkey (CBT) is keeping interest rates low, and failed to raise interest rates at its latest meeting – against consensus of a 200 bp increase. Despite what were punitive capital controls (in contravention to the Finance Minister’s comments), the Turkish lira (TRY) actually declined 2% on the day the CBT failed to raise rates at its last meeting – now nearing 8.2 TRY/USD and achieving another record low down 40% YTD versus the USD when most other currencies are strengthening versus the USD;  and*Risk Is High For Europe, and an EM Domino Effect Is Real: BBVA (BBVA.SM), BNP Paribas (BNPP.FP), and Unicredit (UCG.IM), and HSBC Holding (5.HK) are most exposed. With Turkish corporates/banking system F/X debt in the USD hundreds of billions, worries over counterparty risks are arising. Investors are likely to continue to take advantage an artificially high TRY by continuing to sell while the getting is still good. Geopolitical risk only adds to our concern.

*Odd Finance Minister Commentary: A report on Bloomberg, suggests that Finance Minister Albayrak has ruled out capital controls in Turkey. This is strange, as capital controls have already been in place for well over a year given the longer settlement dates, higher taxes, limited liquidity, threats of prison, et al. These reported comments suggest a full blown crisis is a fait accompli;  *Low Rates Destroying TRY: Turkey is a slow moving train wreck thanks largely to the policies of President Erdogan. The Central Bank of Turkey (CBT) is keeping interest rates low, and failed to raise interest rates at its latest meeting – against consensus of a 200 bp increase. Despite what were punitive capital controls (in contravention to the Finance Minister’s comments), the Turkish lira (TRY) actually declined 2% on the day the CBT failed to raise rates at its last meeting – now nearing 8.2 TRY/USD and achieving another record low down 40% YTD versus the USD when most other currencies are strengthening versus the USD;  and*Risk Is High For Europe, and an EM Domino Effect Is Real: BBVA (BBVA.SM), BNP Paribas (BNPP.FP), and Unicredit (UCG.IM), and HSBC Holding (5.HK) are most exposed. With Turkish corporates/banking system F/X debt in the USD hundreds of billions, worries over counterparty risks are arising. Investors are likely to continue to take advantage an artificially high TRY by continuing to sell while the getting is still good. Geopolitical risk only adds to our concern.

Turkey – Start Worrying About Counterparties

*Train Wreck: The Central Bank of Turkey (CBT) is keeping interest rates low, and failed to raise interest rates at its latest meeting last week – against consensus of a 200 bp increase. In our view, low rates are likely to result in modest inflation. Despite what feel like punitive capital controls, the Turkish lira (TRY) actually declined 2% on day – nearing 8 TRY/USD achieving another record low and down 35% YTD versus the USD; *Artificially High Turkish Lira: CBT data exhibits that the easing of trading restrictions resulted in foreign investor selling nearly 70% of their previously held Turkish government bonds and equities YTD. Investors are likely to continue to take advantage of President Erdogan's ineptitude of an artificially high TRY by continuing to sell while the getting is still good; and *Continue Reducing Risk: Turkish banks and the Turkish economy should be sold, and if the former Vice President Joe Biden actually wins the White house this could be the end of the TRY.

*Train Wreck: The Central Bank of Turkey (CBT) is keeping interest rates low, and failed to raise interest rates at its latest meeting last week – against consensus of a 200 bp increase. In our view, low rates are likely to result in modest inflation. Despite what feel like punitive capital controls, the Turkish lira (TRY) actually declined 2% on day – nearing 8 TRY/USD achieving another record low and down 35% YTD versus the USD; *Artificially High Turkish Lira: CBT data exhibits that the easing of trading restrictions resulted in foreign investor selling nearly 70% of their previously held Turkish government bonds and equities YTD. Investors are likely to continue to take advantage of President Erdogan's ineptitude of an artificially high TRY by continuing to sell while the getting is still good; and *Continue Reducing Risk: Turkish banks and the Turkish economy should be sold, and if the former Vice President Joe Biden actually wins the White house this could be the end of the TRY.

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

Grupo Financiero Banorte SAB d / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/citigroup-inc" target="_blank" data-smartkarma-citation="entities:279:1" rel="noopener">Citigroup Inc (C US)</a>’s 3Q 2020 results underscore the improvement in Mexican credit quality</li>
<li>
<a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a>’s recently announced better 2020 guidance is driven by management’s improved Mexico outlook</li>
<li>
<a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a>  reports results on 30th October, and we expect to see better credit volumes, as well as a lower QoQ cost of risk to drive its returns recovery</li>
<li>We believe that Mexican equity valuations generally are very attractive, and within LatAm financials Banorte’s valuations to prospective returns stand out</li>
<li>Risks to our view include worse than expected credit quality in consumer and SME credit, as well as softer credit spreads and loan volumes at Banorte</li>
</ul>



Citigroup Inc (C US)’s 3Q 2020 results underscore the improvement in Mexican credit quality

Banco Bilbao Vizcaya Argentari (BBVA SM)’s recently announced better 2020 guidance is driven by management’s improved Mexico outlook

Grupo Financiero Banorte-O (GFNORTEO MF)  reports results on 30th October, and we expect to see better credit volumes, as well as a lower QoQ cost of risk to drive its returns recovery
We believe that Mexican equity valuations generally are very attractive, and within LatAm financials Banorte’s valuations to prospective returns stand out
Risks to our view include worse than expected credit quality in consumer and SME credit, as well as softer credit spreads and loan volumes at Banorte


Banorte (GFNORTEO MM): Constructive Citi and BBVA Read-Across for 3Q 2020

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Media (Bolsamanía, Bloomberg) reported during the weekend that "Spain’s Unicaja is Said to Move Closer to Liberbank Takeover".As a result:
<ul>
<li>
<a href="https://www.smartkarma.com/entities/unicaja-banco-sa" target="_blank" data-smartkarma-citation="entities:28379:1" rel="noopener">Unicaja Banco SA (UNI SM)</a> has confirmed to the National Securities Market Commission (CNMV, the Spanish market watchdog) "preliminary contacts with Liberbank, with the knowledge of the Board of Directors without, for the moment, the participation of external advisers and without having made a decision in this regard."</li>
<li>
<a href="https://www.smartkarma.com/entities/liberbank-sa" target="_blank" data-smartkarma-citation="entities:21279:1" rel="noopener">Liberbank SA (LBK SM)</a> has confirmed "preliminary contacts with Unicaja Banco, without, so far, having adopted any decision in this regard."</li>
</ul>
During Monday's trading session, Unicaja's shares gained 10% whilst Liberbank's gained 16%. Over the last two sessions, investors have booked some profits and the shares of Unicaja have dropped by 8% and those of Liberbank by 4%.
Last year, both banks held conversations regarding a merger, but the conversations stopped mainly about discrepancies on the exchange ratio and the top management positions.
Both banks are well capitalised, but their P/BV is around 0.3x. The merger of both entities would have proforma assets of EUR 108.8 bn, potentially the fifth largest group in Spain, which would allow it to try to acquire Ibercaja Banco (unlisted).
<div>
Recommendation is long Liberbank / short Unicaja, using a 40.4% / 59.6% exchange ratio.
<div>
Risks: the float in Unicaja is currently 28.3%, so there is a short squeeze risk in a position to capture the spread, especially if Abanca enters the fray.
</div>
</div>
Read across: <a href="https://www.smartkarma.com/entities/banco-de-sabadell-sa" target="_blank" data-smartkarma-citation="entities:21295:1" rel="noopener">Banco De Sabadell Sa (SAB SM)</a> seems to be now the Spanish bank with the lowest ROE (even negative), and rumors are that it is being shopped around. A potential operation could be a combination <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> - Sabadell.

Media (Bolsamanía, Bloomberg) reported during the weekend that "Spain’s Unicaja is Said to Move Closer to Liberbank Takeover".As a result:


Unicaja Banco SA (UNI SM) has confirmed to the National Securities Market Commission (CNMV, the Spanish market watchdog) "preliminary contacts with Liberbank, with the knowledge of the Board of Directors without, for the moment, the participation of external advisers and without having made a decision in this regard."

Liberbank SA (LBK SM) has confirmed "preliminary contacts with Unicaja Banco, without, so far, having adopted any decision in this regard."

During Monday's trading session, Unicaja's shares gained 10% whilst Liberbank's gained 16%. Over the last two sessions, investors have booked some profits and the shares of Unicaja have dropped by 8% and those of Liberbank by 4%.
Last year, both banks held conversations regarding a merger, but the conversations stopped mainly about discrepancies on the exchange ratio and the top management positions.
Both banks are well capitalised, but their P/BV is around 0.3x. The merger of both entities would have proforma assets of EUR 108.8 bn, potentially the fifth largest group in Spain, which would allow it to try to acquire Ibercaja Banco (unlisted).

Recommendation is long Liberbank / short Unicaja, using a 40.4% / 59.6% exchange ratio.

Risks: the float in Unicaja is currently 28.3%, so there is a short squeeze risk in a position to capture the spread, especially if Abanca enters the fray.


Read across: Banco De Sabadell Sa (SAB SM) seems to be now the Spanish bank with the lowest ROE (even negative), and rumors are that it is being shopped around. A potential operation could be a combination Banco Bilbao Vizcaya Argentari (BBVA SM) - Sabadell.

Liberbank - Unicaja: Merger Conversations, Exchange Ratio

*Military Flashpoint With Greece: In late July, a Turkish seismic exploration ship (“Oruc Reis”) was sent to Kastellorizo, an island on the Greek constellation shelf, to carry out gas surveys through August 23rd, and was accompanied by 15 Turkish naval ships. The French have deployed warships and fighter jets to the area, as the La Fayette frigate is participating in joint exercises with the Greek navy. Tensions between Turkey and France have already been at heightened levels since Turkey targeting the Forbin with radar; and   *Feckless Central Bank Leads To Crisis: A crisis in confidence starts slowly but is difficult to stop once momentum gathers. In Turkey's case, the stop gap measures now appear to be crumbling. With both locals and foreigners fleeing the TRL, the the risks of the introduction of a TRL gray market should NOT be underestimated. MSCI has also threatened to downgrade Turkey's equity market to frontier status which would trigger further outflows.

*Military Flashpoint With Greece: In late July, a Turkish seismic exploration ship (“Oruc Reis”) was sent to Kastellorizo, an island on the Greek constellation shelf, to carry out gas surveys through August 23rd, and was accompanied by 15 Turkish naval ships. The French have deployed warships and fighter jets to the area, as the La Fayette frigate is participating in joint exercises with the Greek navy. Tensions between Turkey and France have already been at heightened levels since Turkey targeting the Forbin with radar; and   *Feckless Central Bank Leads To Crisis: A crisis in confidence starts slowly but is difficult to stop once momentum gathers. In Turkey's case, the stop gap measures now appear to be crumbling. With both locals and foreigners fleeing the TRL, the the risks of the introduction of a TRL gray market should NOT be underestimated. MSCI has also threatened to downgrade Turkey's equity market to frontier status which would trigger further outflows.

Spain

Banco Bilbao Vizcaya Argentaria, S.A. attracts deposits and offers retail, wholesale, and investment banking services.  The Bank offers consumer and mortgage loans, private banking, asset management, insurance, mutual funds, and securities brokerage services.  It operates in Europe, Latin America, United States, China and Turkey.

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Banco Bilbao Vizcaya Argentari (BBVA SM)

Turkey – Start Worrying About Counterparties

TURKEY RISK: Odd Comments From Finance Minister Suggest Lack Of Understanding Of Capital Controls In Place. No Rate Hikes, Weak TRY/USD, And...

Thomas J. Monaco

Turkey – Choo Choo

TURKEY: A Crisis Is Coming As a Result of Strongman President Erdogan's Inability to See The forest From The Trees. Rates Too High, Artificially...

Thomas J. Monaco

Banorte (GFNORTEO MM): Constructive Citi and BBVA Read-Across for 3Q 2020

Positive recent read-across trends from both Citi's and BBVA's Mexican operations indicate an improving fundamental outlook for Banorte; combine...

Victor Galliano

Liberbank - Unicaja: Merger Conversations, Exchange Ratio

Following Bloomberg/media reports Unicaja has confirmed to the National Securities Market Commission (CNMV) "preliminary contacts with Liberbank,...

Jesus Rodriguez Aguilar

Turkey – On The Brink

*Military Flashpoint With Greece: In late July, a Turkish seismic exploration ship (“Oruc Reis”) was sent to Kastellorizo, an island on the Greek...

Thomas J. Monaco

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