Covering IPOs, Healthcare and Technology Stocks

Andrei Zakharov

Algosun Global

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/remitly-global-inc" target="_blank" data-smartkarma-citation="entities:11929:1" rel="noopener">Remitly Global (RELY US)</a> , the Seattle-based all-digital financial services provider for immigrants and their families, filed for an IPO and with the most recent S-1/A, fintech unicorn plans to raise ~$285 million at midpoint of the price range at $40/share. This implies IPO valuation of ~$7.6 billion on a fully diluted basis, including options, RSUs and warrants. PayU, a payment technology leader and one of the world’s top investors in fintech, agreed to purchase a number of Remitly shares at IPO price with an aggregate purchase price of up to $25 million in a private placement. <a href="https://www.smartkarma.com/entities/remitly-global-inc" target="_blank" data-smartkarma-citation="entities:11929:1" rel="noopener">Remitly Global (RELY US)</a>  applied to list common stock on the Nasdaq Global Select Market under the symbol “RELY”. Goldman Sachs and J.P Morgan are leading the IPO.

Remitly Global (RELY US) , the Seattle-based all-digital financial services provider for immigrants and their families, filed for an IPO and with the most recent S-1/A, fintech unicorn plans to raise ~$285 million at midpoint of the price range at $40/share. This implies IPO valuation of ~$7.6 billion on a fully diluted basis, including options, RSUs and warrants. PayU, a payment technology leader and one of the world’s top investors in fintech, agreed to purchase a number of Remitly shares at IPO price with an aggregate purchase price of up to $25 million in a private placement. Remitly Global (RELY US)  applied to list common stock on the Nasdaq Global Select Market under the symbol “RELY”. Goldman Sachs and J.P Morgan are leading the IPO.   

Remitly IPO. VC-Funded Disruptor Transforming Remittances

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: A liquidity driven melt-up combined with month-end rebalancing to drive bank credit spread performance over the last week. Remove the month-end rebalancing and short duration positioning may remain the best strategy over the next few weeks, absent a material inflection point in the upcoming non-farm payroll numbers. The short end of the rates market continued to push investors up the curve to generate returns. Awash with still rising liquidity, this melt-up was the key driver of credit spread outperformance.Risk asset volatility and talking about, talking about, talking about tapering had little lasting impact on US interest rates over the last few weeks. In fact, rate curve flattening, and falling forward breakeven rates, suggest that the interest rate market may buy the Fed’s assessment of inflation as being transitory.While the transitory mantra is believed, whispers of supply driven growth constraints are being mentioned. This would be interest rate and credit spread positive as it would extend the duration of the recovery and thereby delay late-stage economic cycle repositioning. Although not consensus, this thought is disconcerting, as it suggests the rising rates consensus is very wrong.Therefore, the risk is clearly that the rates market is underpricing the potential for an extended period of higher than anticipated inflation. However, holding cash is expensive. Moving too early to position for higher or longer than anticipated inflation may be career ending. Extending duration to take advantage of declining rates is considered insane. Carry trades remain unloved. Ergo, the silent self-doubtful suffering of the rate and credit markets. Security selection based on fundamental analysis, in so much as one avoids unexpected spread widening, may be the differentiator for outsized total returns over the next few weeks.  We elaborate on these themes within.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender rather than the bouncer.

Executive Summary: A liquidity driven melt-up combined with month-end rebalancing to drive bank credit spread performance over the last week. Remove the month-end rebalancing and short duration positioning may remain the best strategy over the next few weeks, absent a material inflection point in the upcoming non-farm payroll numbers. The short end of the rates market continued to push investors up the curve to generate returns. Awash with still rising liquidity, this melt-up was the key driver of credit spread outperformance.Risk asset volatility and talking about, talking about, talking about tapering had little lasting impact on US interest rates over the last few weeks. In fact, rate curve flattening, and falling forward breakeven rates, suggest that the interest rate market may buy the Fed’s assessment of inflation as being transitory.While the transitory mantra is believed, whispers of supply driven growth constraints are being mentioned. This would be interest rate and credit spread positive as it would extend the duration of the recovery and thereby delay late-stage economic cycle repositioning. Although not consensus, this thought is disconcerting, as it suggests the rising rates consensus is very wrong.Therefore, the risk is clearly that the rates market is underpricing the potential for an extended period of higher than anticipated inflation. However, holding cash is expensive. Moving too early to position for higher or longer than anticipated inflation may be career ending. Extending duration to take advantage of declining rates is considered insane. Carry trades remain unloved. Ergo, the silent self-doubtful suffering of the rate and credit markets. Security selection based on fundamental analysis, in so much as one avoids unexpected spread widening, may be the differentiator for outsized total returns over the next few weeks.  We elaborate on these themes within.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender rather than the bouncer.

Bank Credit Weekly: Month-End Rebalancing Takes Risk-Off Before Take-Off

Executive Summary: Issuance expectations are often a topic of anxiety for actively trading investors. The concern is that if issuance is expected to be large, then the value of the currently on-the-run security may fall as the market moves into the new security. Our experience is that timing matters. Any decline generally represents a buying opportunity in the older security; however, it can take a week or two for the security to regain lost value. As such, unexpected debt issuance just before quarter-end can be painful.With leverage ratios yet to be a requirement for Eurozone area banks, risk-weighted asset (RWA) capital ratios remain the constraining capital measure. By this standard, <a href="https://www.smartkarma.com/entities/bnp-paribas" target="_blank" data-smartkarma-citation="entities:525:1" rel="noopener">BNP Paribas (BNP FP)</a> and <a href="https://www.smartkarma.com/entities/credit-agricole-sa" target="_blank" data-smartkarma-citation="entities:21373:1" rel="noopener">Credit Agricole Group (ACAFP)</a> remain underweight in Additional Tier 1 (AT1) bond issuance.Amongst UK banks, <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a> looks to have a surplus of AT1 bonds from a RWA capital ratio perspective. However, we calculate a deficiency relative to its leverage capital ratio needs. Basel IV inflation may diminish the RWA-base surplus; but for now, HSBC’s leverage ratio is its AT1 governor.In terms of Tier 2 needs, Eurozone banks are largely where they need to be from an efficiency perspective with the main exception of <a href="https://www.smartkarma.com/entities/cooperatieve-rabobank-ua" target="_blank" data-smartkarma-citation="entities:28085:1" rel="noopener">Cooperative Rabobank UA (RABO NA)</a>. Meanwhile, HSBC may be in a position to reduce its Common Equity Tier 1 levels by issuing Tier 2 bonds while remaining well above minimum capital requirements. Concurrently, <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered's (STAN LN)</a> Tier 2 levels are materially more than minimum regulatory requirements. These look better value than HSBC’s.

Executive Summary: Issuance expectations are often a topic of anxiety for actively trading investors. The concern is that if issuance is expected to be large, then the value of the currently on-the-run security may fall as the market moves into the new security. Our experience is that timing matters. Any decline generally represents a buying opportunity in the older security; however, it can take a week or two for the security to regain lost value. As such, unexpected debt issuance just before quarter-end can be painful.With leverage ratios yet to be a requirement for Eurozone area banks, risk-weighted asset (RWA) capital ratios remain the constraining capital measure. By this standard, BNP Paribas (BNP FP) and Credit Agricole Group (ACAFP) remain underweight in Additional Tier 1 (AT1) bond issuance.Amongst UK banks, HSBC Holdings (HSBA LN) looks to have a surplus of AT1 bonds from a RWA capital ratio perspective. However, we calculate a deficiency relative to its leverage capital ratio needs. Basel IV inflation may diminish the RWA-base surplus; but for now, HSBC’s leverage ratio is its AT1 governor.In terms of Tier 2 needs, Eurozone banks are largely where they need to be from an efficiency perspective with the main exception of Cooperative Rabobank UA (RABO NA). Meanwhile, HSBC may be in a position to reduce its Common Equity Tier 1 levels by issuing Tier 2 bonds while remaining well above minimum capital requirements. Concurrently, Standard Chartered's (STAN LN) Tier 2 levels are materially more than minimum regulatory requirements. These look better value than HSBC’s. 

Debt Capital Surplus (Shortfall) And Trading Opportunities in European Banks

Executive Summary: Given its business model, juxtaposed with its Additional Tier 1 (AT1) security ratings and capital buffer above which AT1 coupons may be suspended, <a href="https://www.smartkarma.com/entities/barclays-plc" target="_blank" data-smartkarma-citation="entities:1121:1" rel="noopener">Barclays' (BACR)</a> AT1 seems to trade in-line with its peers in the 2025 first call area. However, most of Barclays current stack of AT1 bonds does not look good value when considered relative to the level at which its Tier2 Subordinated debt trades.Barclays holding company Senior Unsecured debt trades at approximately the same level of <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a> at certain points along their respective credit curves, despite having a lower credit rating.  Concurrently, in the Tier 2 Subordinated debt space, Barclays offers considerably more value than HSBC. Please see <a href="https://www.smartkarma.com/insights/barclays-bail-in-debt-value-relative-to-hsbc" target="_blank" data-smartkarma-citation="insights:52135" rel="noopener">Barclays: Bail-In Debt Value Relative to HSBC</a> for more details. In the AT1 area, the roles are reversed.Loaded with shorter first call dated AT1 notes, Barclays has yet to benefit from materially lower interest costs within its AT1 stack. Barclays was an early adopter in the AT1 issuance space. This aided it in bringing other AT1 issuers to the primary market. However, it also effectively created a first mover disadvantage given the level to which risk premiums and interest rates fell since the Covid-19 health crisis erupted. We expect that Barclays will greatly extend the maturity of its AT1 curve as its shorter maturity bonds are called.  Until then, we anticipate that HSBC’s AT1 notes may offer a more attractive spread pick-up.

Executive Summary: Given its business model, juxtaposed with its Additional Tier 1 (AT1) security ratings and capital buffer above which AT1 coupons may be suspended, Barclays' (BACR) AT1 seems to trade in-line with its peers in the 2025 first call area. However, most of Barclays current stack of AT1 bonds does not look good value when considered relative to the level at which its Tier2 Subordinated debt trades.Barclays holding company Senior Unsecured debt trades at approximately the same level of HSBC Holdings (HSBA LN) at certain points along their respective credit curves, despite having a lower credit rating.  Concurrently, in the Tier 2 Subordinated debt space, Barclays offers considerably more value than HSBC. Please see Barclays: Bail-In Debt Value Relative to HSBC for more details. In the AT1 area, the roles are reversed.Loaded with shorter first call dated AT1 notes, Barclays has yet to benefit from materially lower interest costs within its AT1 stack. Barclays was an early adopter in the AT1 issuance space. This aided it in bringing other AT1 issuers to the primary market. However, it also effectively created a first mover disadvantage given the level to which risk premiums and interest rates fell since the Covid-19 health crisis erupted. We expect that Barclays will greatly extend the maturity of its AT1 curve as its shorter maturity bonds are called.  Until then, we anticipate that HSBC’s AT1 notes may offer a more attractive spread pick-up.  

Barclays: AT1 Value Points Relative to HSBC

Executive Summary: The experience of the last year has proven <a href="https://www.smartkarma.com/entities/barclays-plc" target="_blank" data-smartkarma-citation="entities:1121:1" rel="noopener">Barclays (BACR)</a> CEO’s assertion that it is better to be a combination of an investment, commercial and retail bank rather than only two of those three segments. <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a> is similarly constructed, albeit with a broader geographic focus. Meanwhile, from a credit perspective, HSBC is clearly a better, more diversified, credit. Nonetheless, some of Barclays’ debt securities already trade at levels which suggest that a higher credit rating may be appropriate.Either Barclays is a stronger credit than reflected in its rating or the melt-up phenomena taking place in the rates market is also applicable to credit rating perceptions. We see a mixture of both.Despite having a lower credit rating, Barclays holding company Senior Unsecured debt trades at approximately the same level of HSBC at certain points along their respective credit curves. Concurrently, in the Tier 2 Subordinated debt space, Barclays offers considerably more value than HSBC.

Executive Summary: The experience of the last year has proven Barclays (BACR) CEO’s assertion that it is better to be a combination of an investment, commercial and retail bank rather than only two of those three segments. HSBC Holdings (HSBA LN) is similarly constructed, albeit with a broader geographic focus. Meanwhile, from a credit perspective, HSBC is clearly a better, more diversified, credit. Nonetheless, some of Barclays’ debt securities already trade at levels which suggest that a higher credit rating may be appropriate.Either Barclays is a stronger credit than reflected in its rating or the melt-up phenomena taking place in the rates market is also applicable to credit rating perceptions. We see a mixture of both.Despite having a lower credit rating, Barclays holding company Senior Unsecured debt trades at approximately the same level of HSBC at certain points along their respective credit curves. Concurrently, in the Tier 2 Subordinated debt space, Barclays offers considerably more value than HSBC.

Barclays: Bail-In Debt Value Relative to HSBC

United Kingdom

Barclays is a British multinational universal bank headquartered in London, England. It provides a wide range of financial services including retail banking, corporate banking, wealth management, and investment banking. The company serves individual customers, small and medium-sized businesses, and large corporate clients globally. Barclays traces its origins to goldsmith banking in London, founded in 1690.

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Barclays (BARC LN)

Remitly IPO. VC-Funded Disruptor Transforming Remittances

Remitly IPO is a promising investment opportunity to increase exposure to high-growth disruptors transforming global remittance market

Andrei Zakharov

Bank Credit Weekly: Month-End Rebalancing Takes Risk-Off Before Take-Off

Short duration positioning may remain the best strategy over the next few weeks, absent a material inflection point in the upcoming non-farm...

Hank Calenti, CFA

Debt Capital Surplus (Shortfall) And Trading Opportunities in European Banks

Timing matters. A price decline in an on-the-run bond due to issuance represents a buying opportunity; however, it can take time to regain value....

Hank Calenti, CFA

Barclays: AT1 Value Points Relative to HSBC

Barclays current stack of AT1 bonds does not look good value when considered relative to the level at which its Tier2 Subordinated debt trades....

Hank Calenti, CFA

Barclays: Bail-In Debt Value Relative to HSBC

Either Barclays is a stronger credit than reflected in its rating or the melt-up phenomena taking place in the rates market is also applicable to...

Hank Calenti, CFA

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