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

<ul>
<li>BBVA Mexico expanded its premium return on equity of the big nine Mexican banks to 23% to December, and through opex control, it “works” its healthy core capital ratio hard</li>
<li>The bank system trends remain healthy, with additional improvements to NPL ratios and healthy coverage; Banorte and BanBajio screen better than peers on combined credit quality metrics to December</li>
<li>We believe that mid-cap bank BanBajio is good value, and are positive on BBVA for its Mexican exposure; on balance, we remain cautious on Banorte, due largely to valuation</li>
</ul>


BBVA Mexico expanded its premium return on equity of the big nine Mexican banks to 23% to December, and through opex control, it “works” its healthy core capital ratio hard
The bank system trends remain healthy, with additional improvements to NPL ratios and healthy coverage; Banorte and BanBajio screen better than peers on combined credit quality metrics to December
We believe that mid-cap bank BanBajio is good value, and are positive on BBVA for its Mexican exposure; on balance, we remain cautious on Banorte, due largely to valuation


Mexican Banks’ December Data Adds to Positive Trend on Credit Quality, but Lending Spread Eroding

Event-Driven

<ul>
<li>Citi is to sell its Mexican retail and SME banking operations, which we call new Banamex; it is an attractive banking franchise that needs investment and a focus on costs</li>
<li>Based on peer group valuations, and on new Banamex’s disclosed parameters, we estimate that the disposal entity’s valuation range could range from USD7bn to USD10bn, and we identify potential bidders</li>
<li>We believe that our new Banamex valuation range emphasizes BanBajio’s attractive valuations, we stick with our positive view on mid-cap BanBajio; we believe that Banorte is fully valued</li>
</ul>


Citi is to sell its Mexican retail and SME banking operations, which we call new Banamex; it is an attractive banking franchise that needs investment and a focus on costs
Based on peer group valuations, and on new Banamex’s disclosed parameters, we estimate that the disposal entity’s valuation range could range from USD7bn to USD10bn, and we identify potential bidders
We believe that our new Banamex valuation range emphasizes BanBajio’s attractive valuations, we stick with our positive view on mid-cap BanBajio; we believe that Banorte is fully valued


Citi’s Mexican Exit; Our Thoughts on “new Banamex”

<ul>
<li>BBVA Mexico delivered premium return on equity (ROE) of the big nine Mexican banks to November, at 20%+ and, through opex control, “works” its healthy core capital ratio hard</li>
<li>The bank system trends remain healthy, with improving NPL ratios and healthy coverage; Banorte and BanBajio continue to screen better than peers on combined credit quality metrics to November</li>
<li>We like mid-cap bank BanBajio for its good value, and are positive on BBVA for its Mexican exposure; we remain cautious on Banorte to a degree, due largely to valuation</li>
</ul>


BBVA Mexico delivered premium return on equity (ROE) of the big nine Mexican banks to November, at 20%+ and, through opex control, “works” its healthy core capital ratio hard
The bank system trends remain healthy, with improving NPL ratios and healthy coverage; Banorte and BanBajio continue to screen better than peers on combined credit quality metrics to November
We like mid-cap bank BanBajio for its good value, and are positive on BBVA for its Mexican exposure; we remain cautious on Banorte to a degree, due largely to valuation


Mexican Banks’ November Data Looking Positive on Credit Quality, Lending Spread Stable

Thematic (Sector/Industry)

<ul>
<li>BBVA Bancomer delivered the best return on equity (ROE) of the biggest nine Mexican banks to October, at 20%+ and “works” its healthy core capital ratio harder than their peers</li>
<li>The bank system trends remain healthy, with well controlled NPL ratios and healthy coverage; Banorte and BanBajio continue to screen better than peers on combined credit quality metrics to October</li>
<li>We remain cautious on Banorte, due largely to valuation and increasing competition; we like mid-cap bank BanBajio for its good value, and are positive on BBVA for its Mexican exposure</li>
</ul>


BBVA Bancomer delivered the best return on equity (ROE) of the biggest nine Mexican banks to October, at 20%+ and “works” its healthy core capital ratio harder than their peers
The bank system trends remain healthy, with well controlled NPL ratios and healthy coverage; Banorte and BanBajio continue to screen better than peers on combined credit quality metrics to October
We remain cautious on Banorte, due largely to valuation and increasing competition; we like mid-cap bank BanBajio for its good value, and are positive on BBVA for its Mexican exposure


Mexican Banks’ October Data Looks Benign on Credit Quality, Watch for Spread Erosion Going Forward

<ul>
<li>BBVA Bancomer delivered the best return on equity (ROE) of the biggest nine Mexican banks to September, at 20%, improving on a MoM basis due largely to a sub 40% efficiency ratio; in terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their healthy levels of core capital harder than their peers</li>
<li>The bank system trends seem healthy, with well controlled NPL ratios and healthy coverage; one core risk to this rosy scenario is, in our view, worse than expected GDP growth leading to an up-tick in consumer delinquencies going forward, which would warrant an increase in cost of risk charges. Another factor that could upset returns is eroding credit margins due to rising funding costs</li>
<li>
<a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-s-a-b-de-c-v" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte (GFNORTEO MF)</a>  and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> continue to screen better than peers on credit quality metrics to August, with best-in-class combination of low NPL ratios and healthy coverage. Despite its good metrics, we recently turned negative on Banorte, due largely to valuation and increasing competition; we would highlight mid-cap bank BanBajio for its better relative value, and in the context of improving consumer credit quality</li>
</ul>


BBVA Bancomer delivered the best return on equity (ROE) of the biggest nine Mexican banks to September, at 20%, improving on a MoM basis due largely to a sub 40% efficiency ratio; in terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their healthy levels of core capital harder than their peers
The bank system trends seem healthy, with well controlled NPL ratios and healthy coverage; one core risk to this rosy scenario is, in our view, worse than expected GDP growth leading to an up-tick in consumer delinquencies going forward, which would warrant an increase in cost of risk charges. Another factor that could upset returns is eroding credit margins due to rising funding costs

Grupo Financiero Banorte (GFNORTEO MF)  and Banco del Bajio SA (BBAJIOO MM) continue to screen better than peers on credit quality metrics to August, with best-in-class combination of low NPL ratios and healthy coverage. Despite its good metrics, we recently turned negative on Banorte, due largely to valuation and increasing competition; we would highlight mid-cap bank BanBajio for its better relative value, and in the context of improving consumer credit quality


Mexican Banks’ September Data Looks Benign, but Not Without Potential Challenges

Mexico

Banco del Bajio S.A. provides a full range of commercial banking services. The Bank offers mortgages loans, saving, investment option, pension advice, and electronic billing services. Banco del Bajio operates in Mexico.

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Banco del Bajio SA (BBAJIOO MM)

Mexican Banks’ December Data Adds to Positive Trend on Credit Quality, but Lending Spread Eroding

Credit quality ends the year strong, with evidence of marginal spread erosion in December; we like mid-cap bank BanBajio and BBVA for BBVA Mexico;...

Victor Galliano

Citi’s Mexican Exit; Our Thoughts on “new Banamex”

Citi sale of its Mexican commercial bank, new Banamex, will need the acquirer to control opex; in this report we estimate the valuation range &...

Victor Galliano

Mexican Banks’ November Data Looking Positive on Credit Quality, Lending Spread Stable

November Mexican bank sector credit quality data are positive, with little spread erosion. BBVA Mexico remains the local benchmark based on...

Victor Galliano

Mexican Banks’ October Data Looks Benign on Credit Quality, Watch for Spread Erosion Going Forward

Bank system trends are healthy; we like mid-cap bank BanBajio for its good value, & are positive on BBVA for its Mexican exposure, yet we are...

Victor Galliano

Mexican Banks’ September Data Looks Benign, but Not Without Potential Challenges

Mexican banks data to September are healthy, but rising funding costs threaten credit spreads, and any potential GDP slowdown could worsen consumer...

Victor Galliano

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