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.

Thematic (Sector/Industry)

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<li>The UBS acquisition of Credit Suisse includes the write-off of CHF15.8bn (USD17bn) of Additional Tier 1 (AT1) bonds, despite there being residual equity value for CS shareholders in the deal</li>
<li>AT1s are the most junior, loss absorbing of bonds; precedent exists for the zeroing of AT1s in Spain’s Banco Popular 2017 failure, but importantly this also included shareholders being zeroed</li>
<li>The Credit Suisse AT1 write-off is by far the biggest so far and this unconventional treatment of shareholders versus junior bondholders should lead European banks’ cost of equity to rise</li>
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The UBS acquisition of Credit Suisse includes the write-off of CHF15.8bn (USD17bn) of Additional Tier 1 (AT1) bonds, despite there being residual equity value for CS shareholders in the deal
AT1s are the most junior, loss absorbing of bonds; precedent exists for the zeroing of AT1s in Spain’s Banco Popular 2017 failure, but importantly this also included shareholders being zeroed
The Credit Suisse AT1 write-off is by far the biggest so far and this unconventional treatment of shareholders versus junior bondholders should lead European banks’ cost of equity to rise


Head of Research, Krungthai XSpring

Waraporn Wiboonkanarak

Head of Research

A full service Thai brokerage

Krungthai XSpring

Krungthai XSpring is a full service broker. The company provides a wide range of investment services such as Securities Brokerage, Derivative Agent Business, Securities Borrowing and Lending, Securities Trading, Underwriting, Financial Advisory, Wealth Advisory, Private Fund Management and International Markets Securities Trading. 

In terms of credibility, Fitch Ratings has assigned Krunghtai XSpring a long-term rating of AA- and a national short-term rating of F1+ with stable outlook.

<ul><li>The bank runs in the global banking system will continue to pose downside risk to global banking stocks, including Thai banks, until the Fed and the ECB can come up with systematic solutions, and a worsening of the situation would lead to huge unrealized losses from investment in government bonds.</li><li>A temporary full-deposit guarantee is another potential way to address the banking crisis; note that the US guarantees around USD10trn out of total deposits of USD18trn, and the FDIC incurs costs of just USD100bn.</li><li>The longer the banking crisis is drawn-out, the greater the risks related to a credit crunch and the higher the chance of a global economic recession.</li></ul>

The bank runs in the global banking system will continue to pose downside risk to global banking stocks, including Thai banks, until the Fed and the ECB can come up with systematic solutions, and a worsening of the situation would lead to huge unrealized losses from investment in government bonds.A temporary full-deposit guarantee is another potential way to address the banking crisis; note that the US guarantees around USD10trn out of total deposits of USD18trn, and the FDIC incurs costs of just USD100bn.The longer the banking crisis is drawn-out, the greater the risks related to a credit crunch and the higher the chance of a global economic recession.

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

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<a href="https://www.smartkarma.com/entities/banco-de-sabadell-sa" target="_blank" data-smartkarma-citation="entities:21295:1" rel="noopener"><strong>Banco De Sabadell SA (SAB SM)</strong></a><strong> refuses to sell TSB to Co-operative Bank for €1,200 million</strong>. Sabadell confirmed that it had received "<strong>an unsolicited show of interest</strong>" from the British retail bank Co-operative Bank for 100% of the capital of TSB, its UK subsidiary. The offer, according to Sky News exceeds £1,000 million. Sabadell confirmed in a statement that it had received a letter from Co-operative Bank in which a proposal for an offer by TSB was presented. However, Sabadell said its Board of Directors had officially responded to the Co-operative bank saying that "this is not a transaction that we wish to explore at this time, as we have previously publicly expressed."</div>
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<p>The <strong>market is cautious about Sabadell, but less concerned about its solvency and asset quality</strong>. Sabadell has domestic exposure to SMEs, still vulnerable due to the Covid-19 crisis. Nevertheless, Sabadell is the best performer in the IBEX 35 this year, albeit it was penalized in 2020 due to the lack of visibility of its business, especially due to its subsidiary TSB and the possible impact of the crisis on bad debts. Sabadell bought TSB in 2015 for about 2.3 billion. TSB is mainly dedicated to mortgages (2% UK market share).</p>
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<p>Management sticks to the strategy that began earlier this year after the arrival of César González-Bueno “TSB was one of the great doubts that weighed on the group, the market gave it a zero value, but from now on its contribution is going to be high. It will be one of the key elements of our profitability". A new three-year plan was launched in May, and the contribution of TSB is paramount to improve  profitability. After accumulating losses of €500 million during the last three years, the British subsidiary begins to bear fruit thanks to a strong restructuring of branches and staff. In the first six months of the current year, it contributed €39 million to the Group's profits.</p>
<p>Sabadell has set itself the objective of reaching a ROTE profitability of over 6% in 2023. The market trusts TSB's contribution to the group's profitability due to the growth of mortgages in the United Kingdom and the prospects for a rate hike by the Bank of England.</p>
<p>Interest in TSB had a positive effect on the shares of Sabadell, last Monday closed 2.75% higher, although the shares rose by more than 5% during the session. TSB has a favorable outlook and the rejection of the Co-op Bank offer confirms management's strategy. For this reason, <strong>a possible sale of TSB in the medium term is ruled out. Without the contribution of TSB, the profitability of the strategic plan would be difficult to obtain</strong>.</p>
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<p><strong>Sabadell trades on 9.65x adjusted 2022e P/E and c. 0.36x PTBV</strong>. TP is €0.7/share (vs. a median Capital IQ consensus TP of €0.63), which represents a 7% upside.</p>
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Banco De Sabadell SA (SAB SM) refuses to sell TSB to Co-operative Bank for €1,200 million. Sabadell confirmed that it had received "an unsolicited show of interest" from the British retail bank Co-operative Bank for 100% of the capital of TSB, its UK subsidiary. The offer, according to Sky News exceeds £1,000 million. Sabadell confirmed in a statement that it had received a letter from Co-operative Bank in which a proposal for an offer by TSB was presented. However, Sabadell said its Board of Directors had officially responded to the Co-operative bank saying that "this is not a transaction that we wish to explore at this time, as we have previously publicly expressed."

The market is cautious about Sabadell, but less concerned about its solvency and asset quality. Sabadell has domestic exposure to SMEs, still vulnerable due to the Covid-19 crisis. Nevertheless, Sabadell is the best performer in the IBEX 35 this year, albeit it was penalized in 2020 due to the lack of visibility of its business, especially due to its subsidiary TSB and the possible impact of the crisis on bad debts. Sabadell bought TSB in 2015 for about 2.3 billion. TSB is mainly dedicated to mortgages (2% UK market share).



Management sticks to the strategy that began earlier this year after the arrival of César González-Bueno “TSB was one of the great doubts that weighed on the group, the market gave it a zero value, but from now on its contribution is going to be high. It will be one of the key elements of our profitability". A new three-year plan was launched in May, and the contribution of TSB is paramount to improve  profitability. After accumulating losses of €500 million during the last three years, the British subsidiary begins to bear fruit thanks to a strong restructuring of branches and staff. In the first six months of the current year, it contributed €39 million to the Group's profits.
Sabadell has set itself the objective of reaching a ROTE profitability of over 6% in 2023. The market trusts TSB's contribution to the group's profitability due to the growth of mortgages in the United Kingdom and the prospects for a rate hike by the Bank of England.
Interest in TSB had a positive effect on the shares of Sabadell, last Monday closed 2.75% higher, although the shares rose by more than 5% during the session. TSB has a favorable outlook and the rejection of the Co-op Bank offer confirms management's strategy. For this reason, a possible sale of TSB in the medium term is ruled out. Without the contribution of TSB, the profitability of the strategic plan would be difficult to obtain.









Sabadell trades on 9.65x adjusted 2022e P/E and c. 0.36x PTBV. TP is €0.7/share (vs. a median Capital IQ consensus TP of €0.63), which represents a 7% upside.










Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

<p>For our next Smartkarma Webinar, we have the pleasure of welcoming back Insight Provider <a href="https://www.smartkarma.com/profiles/jesus-rodriguez-aguilar" target="_blank" data-smartkarma-citation="accounts:5842" rel="noopener">Jesus Rodriguez Aguilar</a> to go over ideas in European Event-Driven. Jesus will examine offers that target FTSE 250 companies (particularly in healthcare and financial services); the real estate sector in Central and Eastern Europe; and special situations in European share classes and holding companies.</p>
<h3>The webinar was hosted on Wednesday, 16 June 2021, 17:00 SGT/HKT.<a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=89974520966" target="_blank" rel="noopener"></a>
</h3>
<p>Watch the session here:</p>
<p><iframe src="https://www.youtube.com/embed/V5Kk8nkuLA8" width="560" height="315" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe>Or subscribe to our podcast feed and listen on the go:</p>
<p><iframe src="https://open.spotify.com/embed/episode/34F1xaRo0opzAuBgwai2wy?utm_source=generator" width="100%" height="232" style="border-radius: 12px;" frameborder="0" allowfullscreen="allowfullscreen" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture"></iframe></p>
<p>Jesus Rodriguez Aguilar is an Event-Driven Analyst looking across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations.</p>

For our next Smartkarma Webinar, we have the pleasure of welcoming back Insight Provider Jesus Rodriguez Aguilar to go over ideas in European Event-Driven. Jesus will examine offers that target FTSE 250 companies (particularly in healthcare and financial services); the real estate sector in Central and Eastern Europe; and special situations in European share classes and holding companies.
The webinar was hosted on Wednesday, 16 June 2021, 17:00 SGT/HKT.

Watch the session here:
Or subscribe to our podcast feed and listen on the go:

Jesus Rodriguez Aguilar is an Event-Driven Analyst looking across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations.

Smartkarma Webinar | European Event-Driven: Top Ideas

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<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>  and <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> have broken off merger discussions</li>
<li>BBVA management can potentially deliver shareholder value through a potential share buyback, but plans o redeploy surplus capital in its core EM markets could increase perceived risk and limit the size of the buyback</li>
<li>Sabadell’s intentions to deliver improved returns, on a stand-alone basis, are, in our view, challenged by its lack of scale, the negative interest rate climate, as well as the TSB drag</li>
<li>Even after today’s sharp fall in the Sabadell share price, we would recommend a short on Sabadell shares – with no M&amp;A premium, Sabadell’s PBV ratio could fall back to close to 0.10x</li>
<li>Risks to our bearish view on Sabadell include finding buyer for TSB in the near term, as well as the potential for another domestic merger with either Liberbank or Unicaja</li>
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Banco Bilbao Vizcaya Argentari (BBVA SM)  and Banco De Sabadell SA (SAB SM) have broken off merger discussions
BBVA management can potentially deliver shareholder value through a potential share buyback, but plans o redeploy surplus capital in its core EM markets could increase perceived risk and limit the size of the buyback
Sabadell’s intentions to deliver improved returns, on a stand-alone basis, are, in our view, challenged by its lack of scale, the negative interest rate climate, as well as the TSB drag
Even after today’s sharp fall in the Sabadell share price, we would recommend a short on Sabadell shares – with no M&amp;A premium, Sabadell’s PBV ratio could fall back to close to 0.10x
Risks to our bearish view on Sabadell include finding buyer for TSB in the near term, as well as the potential for another domestic merger with either Liberbank or Unicaja


Merger Undone: Tougher Outlook for Sabadell, BBVA Plans Buybacks and EM M&A

Spain

Banco de Sabadell SA attracts deposits and offers commercial banking services. The Bank offers mortgage, consumer, student, and building improvement loans, private banking services, and insurance, and sponsors Visa credit cards.  The Bank operates branches throughout Spain, elsewhere in Europe, the Caribbean, the Americas, and Asia.

Banco De Sabadell SA (SAB SM)

AT1 Bonds; Life After Credit Suisse

The CS AT1 write-off due to UBS's acquisition is an unconventional action on bondholders versus shareholders, implying a rising banks' cost of...

Victor Galliano

Special Report: Bank Runs

The longer the banking crisis is drawn-out, the greater the risks related to a credit crunch and the higher the chance of a global economic recession.

Krungthai XSpring

Unlikely Disposal of TSB

TSB has a favorable outlook and the rejection of the Co-op's offer confirms management's strategy. A possible sale of TSB is ruled out. Without...

Jesus Rodriguez Aguilar

Smartkarma Webinar | European Event-Driven: Top Ideas

On 16 June, 5pm SGT, join us and Jesus Rodriguez Aguilar to go over top ideas in European Event-Driven, including offers that target FTSE 250...

Smartkarma Research

Merger Undone: Tougher Outlook for Sabadell, BBVA Plans Buybacks and EM M&A

Merger breakup equals the end of merger premium for Sabadell shares; despite the share price drop, it is challenged by its lack of scale, the...

Victor Galliano