Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: <a href="https://www.smartkarma.com/entities/credit-suisse-group-ag" target="_blank" data-smartkarma-citation="entities:22253:1" rel="noopener">Credit Suisse Group's (CSGN VX)</a> press release of this morning is no reason to buy its Contingent Capital (CoCos). Credit Suisse is skating on thin ice from a capital perspective. Another loss of less than CHF2bn (US$2.1bn) could result in the suspension of coupons on CS’ Contingent Capital securities. This is one-half the charges related to the Archegos Capital Management affair. This leaves little room for maneuver.A warm wind blowing from a hot US economy could crack the ice. Low interest rates, which are pushing investors to take more risk, are generating asset bubbles. CS, like other banks, intermediates in this asset-inflated environment. Unlike other banks, something as simple as an unexpected spike in interest rates could be the catalyst which leads to a fissure in the firm’s capital layer. Another family or hedge fund disaster like Archegos and CS’ CoCo coupons could be at risk.Bank capital analysis is arcane and further complicated by selective disclosure. CoCo investors may not be aware of how slim CS’ capital buffer truly is. And yet, this is at the core of whether the security is under- or over- priced. We deconstruct the press release to determine this level within.As we noted in <a href="https://www.smartkarma.com/compose/insight/49970/Credit%20Suisse:%20Where%20There%E2%80%99s%20Smoke,%20There%E2%80%99s%20a%20Capital%20Raise.%20Read%20more:%20https:/skr.ma/yxeJd" target="_blank" rel="noopener">Credit Suisse: Where There’s Smoke, There’s a Capital Raise</a>, we were fortunate to be ahead of the market with our Underweight recommendation on CS bonds. When we initiated this call, the CS 4.5% coupon 2030 callable Additional Tier 1 bond was trading close to par. It is now trading around $95.We continue to believe that Credit Suisse needs to enhance its capital base. Assuming no additional cracks in the ice – a large assumption - it may take CS two quarters to achieve current UBS-type capital buffer levels. However, CS has a materially higher risk tolerance and is clearly impaired from a risk management perspective. At least, one full year of earnings retention may be needed to address these deficiencies. Furthermore, there are weak spots yet to traverse including legacy RMBS costs, CS Supply Chain Fund shortfalls and a debt scandal in Mozambique to say nothing of increased regulatory capital charges following recent events. Together, these may see to it that share buybacks are suspended for some time to come. This would be beneficial for CS’ debt capital over time. In the interim CS’ CoCos may recover somewhat; however, we continue to believe that these securities will lag the market until the layer of capital is strengthened. As such, we remain Underweight.

Executive Summary: Credit Suisse Group's (CSGN VX) press release of this morning is no reason to buy its Contingent Capital (CoCos). Credit Suisse is skating on thin ice from a capital perspective. Another loss of less than CHF2bn (US$2.1bn) could result in the suspension of coupons on CS’ Contingent Capital securities. This is one-half the charges related to the Archegos Capital Management affair. This leaves little room for maneuver.A warm wind blowing from a hot US economy could crack the ice. Low interest rates, which are pushing investors to take more risk, are generating asset bubbles. CS, like other banks, intermediates in this asset-inflated environment. Unlike other banks, something as simple as an unexpected spike in interest rates could be the catalyst which leads to a fissure in the firm’s capital layer. Another family or hedge fund disaster like Archegos and CS’ CoCo coupons could be at risk.Bank capital analysis is arcane and further complicated by selective disclosure. CoCo investors may not be aware of how slim CS’ capital buffer truly is. And yet, this is at the core of whether the security is under- or over- priced. We deconstruct the press release to determine this level within.As we noted in Credit Suisse: Where There’s Smoke, There’s a Capital Raise, we were fortunate to be ahead of the market with our Underweight recommendation on CS bonds. When we initiated this call, the CS 4.5% coupon 2030 callable Additional Tier 1 bond was trading close to par. It is now trading around $95.We continue to believe that Credit Suisse needs to enhance its capital base. Assuming no additional cracks in the ice – a large assumption - it may take CS two quarters to achieve current UBS-type capital buffer levels. However, CS has a materially higher risk tolerance and is clearly impaired from a risk management perspective. At least, one full year of earnings retention may be needed to address these deficiencies. Furthermore, there are weak spots yet to traverse including legacy RMBS costs, CS Supply Chain Fund shortfalls and a debt scandal in Mozambique to say nothing of increased regulatory capital charges following recent events. Together, these may see to it that share buybacks are suspended for some time to come. This would be beneficial for CS’ debt capital over time. In the interim CS’ CoCos may recover somewhat; however, we continue to believe that these securities will lag the market until the layer of capital is strengthened. As such, we remain Underweight.

Credit Suisse: Skating on a Thin Layer of Capital

Executive Summary: The <a href="https://www.smartkarma.com/entities/credit-suisse-group-ag" target="_blank" data-smartkarma-citation="entities:22253:1" rel="noopener">Credit Suisse Group (CSGN VX)</a> requires between CHF4 to 8bn in additional Common Equity Tier 1 (CET1) to remain competitive and bring its capital buffer in-line with peers. We noted several week ago that the firm’s capital buffer was too thin to absorb large losses while its Contingent Capital (CoCo) securities continued to trade rich relative to peers. The thin, and likely declining, buffer may now affect its ability to compete. In our view, the issue is quickly moving from damage control towards a capital raise.We derive our capital estimates by starting with the amount required to bring the CET1 buffer up to peer levels. To this we add various exceptional charges which are increasing every other week. Details within.We were ahead of the market with our Underweight recommendation on CS bonds. When we initiated this call, the CS 4.5% coupon 2030 callable Additional Tier 1 bond was trading close to par. It is now below $95. Our recommendation was based on a fundamental assessment of CS’ business model, risk tolerance and capitalization. Please see: <a href="https://www.smartkarma.com/compose/insight/49775/Credit%20Suisse%20%E2%80%93%20Perfection%20Priced%20into%20Long-Dated%20AT1.%20Read%20more:%20https:/skr.ma/7w5Cm" target="_blank" rel="noopener">Credit Suisse – Perfection Priced into Long-Dated AT1</a> for more details. These negative factors were magnified by the Greensill episode. Please see: <a href="https://www.smartkarma.com/compose/insight/49775/Credit%20Suisse:%20Greensill%20Sows%20Reputation%20Risks,%20Underweight%20CS%20Bonds.%20Read%20more:%20https:/skr.ma/tq31o" target="_blank" rel="noopener">Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds</a> and <a href="https://www.smartkarma.com/compose/insight/49775/Credit%20Suisse:%20Greensill's%20Capital%20Implications%20Outweigh%20Asset%20Management%20Corrective%20Action.%20Read%20more:%20https:/skr.ma/WWiXU" target="_blank" rel="noopener">Credit Suisse: Greensill's Capital Implications Outweigh Asset Management Corrective Action</a>. The Archegos affair adds fuel to this fire.It is too early to consider this a buying opportunity. While we believe in our recapitalization call, we do not anticipate an immediate move towards improving the firms’ competitive position. The flames are rising and more fuel could be added before the capital blanket is applied. As such, we believe CS’ bonds may continue to lag that of its peers.However, the Swiss regulator may be unwilling to wait for the smoke to dampen and the arrival of a new Board Chairman should create the opportunity to clear the air at Credit Suisse. Obviously in addition to raising equity, CS would need to take serious action concerning its risk management and tolerance. Risk tolerance needs to be reduced until risk management is improved as these are the embers which stated this fire. This should be beneficial to AT1 investors over the long-run.

Executive Summary: The Credit Suisse Group (CSGN VX) requires between CHF4 to 8bn in additional Common Equity Tier 1 (CET1) to remain competitive and bring its capital buffer in-line with peers. We noted several week ago that the firm’s capital buffer was too thin to absorb large losses while its Contingent Capital (CoCo) securities continued to trade rich relative to peers. The thin, and likely declining, buffer may now affect its ability to compete. In our view, the issue is quickly moving from damage control towards a capital raise.We derive our capital estimates by starting with the amount required to bring the CET1 buffer up to peer levels. To this we add various exceptional charges which are increasing every other week. Details within.We were ahead of the market with our Underweight recommendation on CS bonds. When we initiated this call, the CS 4.5% coupon 2030 callable Additional Tier 1 bond was trading close to par. It is now below $95. Our recommendation was based on a fundamental assessment of CS’ business model, risk tolerance and capitalization. Please see: Credit Suisse – Perfection Priced into Long-Dated AT1 for more details. These negative factors were magnified by the Greensill episode. Please see: Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds and Credit Suisse: Greensill's Capital Implications Outweigh Asset Management Corrective Action. The Archegos affair adds fuel to this fire.It is too early to consider this a buying opportunity. While we believe in our recapitalization call, we do not anticipate an immediate move towards improving the firms’ competitive position. The flames are rising and more fuel could be added before the capital blanket is applied. As such, we believe CS’ bonds may continue to lag that of its peers.However, the Swiss regulator may be unwilling to wait for the smoke to dampen and the arrival of a new Board Chairman should create the opportunity to clear the air at Credit Suisse. Obviously in addition to raising equity, CS would need to take serious action concerning its risk management and tolerance. Risk tolerance needs to be reduced until risk management is improved as these are the embers which stated this fire. This should be beneficial to AT1 investors over the long-run. 

Credit Suisse: Where There’s Smoke, There’s a Capital Raise

<a href="https://www.smartkarma.com/entities/jpmorgan-chase-co" target="_blank" data-smartkarma-citation="entities:277:1" rel="noopener">JPMorgan Chase &amp; Co's (JPM US)</a> fortress foundation needs repair. Rather than a rock-solid balance sheet, JPM’s capital foundation needs to be strengthened to handle the leverage load. It has the lowest Supplementary Leverage Ratio (SLR) amongst the largest US banks and its Tier 1 securities suffer, in part, due to this. It is time to lighten the leverage exposure and add a layer of capital. This creates an investment opportunity.As the pandemic-induced economic crisis unfolded last year, we noted that JPM Tier 1 securities were over-bought relative to the leverage exposure risk at the institution. Please see: <a href="https://www.smartkarma.com/compose/insight/49670/Bank%20Credit%20Weekly:%20US%20Capital%20Buffer%20Risk%20&amp;%20Q1%20Earnings%20Reports-%20JPMorgan%20Looks%20Slightly%20Overbought.%20Read%20more:%20https:/skr.ma/uQHaQ" target="_blank" rel="noopener">Bank Credit Weekly: US Capital Buffer Risk &amp; Q1 Earnings Reports- JPMorgan Looks Slightly Overbought.</a>The Fed exemption of Treasury securities and deposits with the central bank from the SLR bought JPM time. Fast forward one year later to the expiration of these exemptions and, despite ample opportunity, JPMorgan did not issue Tier 1 securities until only two weeks ago when it brought a $25 par security. In additional to raising needed capital, the firm recently threatened to stop taking deposits. It may price itself out of the deposit market, temporarily, but this is not a long-term strategy. The SLR is the binding capital constrain on the firm’s asset growth. JPM needs to obtain or retain more Tier 1 capital. We quantify this within.We believe that JPM could easily bring a 10-year Tier 1 bond to the market and find between US$2 to US$3bn in demand, thereby taking the total Tier 1 financing needs, or balance sheet optimization equivalent, down materially for the remainder of the year. Based on its recently issued Preferred, we believe JPM could achieve a price of Treasuries plus circa 300bps in a 10-year Tier 1 note.Aside from its SLR level, JPMorgan’s credit metrics are on-par with, if not superior to, most other large systemically important financial institutions. And yet, as we present within, JPM’s Tier 1 bonds trade at a discount to materially weaker banks located outside the US. Furthermore, we find that JPMorgan’s 2025 callable Tier 1 bond is at least 40bps oversold as, in our view, its call option is overvalued by the same amount.JPM faces an inflection point with respect to its capital adequacy. Concurrently, the Fed may re-adjust the SLR requirements before year-end; however, we believe it would be foolish of JPM not to take the opportunity to increase its SLR in an improving economic environment. It should re-enforce the foundation of its fortress balance sheet. We believe investors should pre-position for this eventuality. We recommend overweighting JPMorgan’s Tier 1 securities.

JPMorgan Chase &amp; Co's (JPM US) fortress foundation needs repair. Rather than a rock-solid balance sheet, JPM’s capital foundation needs to be strengthened to handle the leverage load. It has the lowest Supplementary Leverage Ratio (SLR) amongst the largest US banks and its Tier 1 securities suffer, in part, due to this. It is time to lighten the leverage exposure and add a layer of capital. This creates an investment opportunity.As the pandemic-induced economic crisis unfolded last year, we noted that JPM Tier 1 securities were over-bought relative to the leverage exposure risk at the institution. Please see: Bank Credit Weekly: US Capital Buffer Risk &amp; Q1 Earnings Reports- JPMorgan Looks Slightly Overbought.The Fed exemption of Treasury securities and deposits with the central bank from the SLR bought JPM time. Fast forward one year later to the expiration of these exemptions and, despite ample opportunity, JPMorgan did not issue Tier 1 securities until only two weeks ago when it brought a $25 par security. In additional to raising needed capital, the firm recently threatened to stop taking deposits. It may price itself out of the deposit market, temporarily, but this is not a long-term strategy. The SLR is the binding capital constrain on the firm’s asset growth. JPM needs to obtain or retain more Tier 1 capital. We quantify this within.We believe that JPM could easily bring a 10-year Tier 1 bond to the market and find between US$2 to US$3bn in demand, thereby taking the total Tier 1 financing needs, or balance sheet optimization equivalent, down materially for the remainder of the year. Based on its recently issued Preferred, we believe JPM could achieve a price of Treasuries plus circa 300bps in a 10-year Tier 1 note.Aside from its SLR level, JPMorgan’s credit metrics are on-par with, if not superior to, most other large systemically important financial institutions. And yet, as we present within, JPM’s Tier 1 bonds trade at a discount to materially weaker banks located outside the US. Furthermore, we find that JPMorgan’s 2025 callable Tier 1 bond is at least 40bps oversold as, in our view, its call option is overvalued by the same amount.JPM faces an inflection point with respect to its capital adequacy. Concurrently, the Fed may re-adjust the SLR requirements before year-end; however, we believe it would be foolish of JPM not to take the opportunity to increase its SLR in an improving economic environment. It should re-enforce the foundation of its fortress balance sheet. We believe investors should pre-position for this eventuality. We recommend overweighting JPMorgan’s Tier 1 securities.

US Banks and the SLR Situation: Overweight JPM Tier 1 Securities

As the fallout from the Greensill affair continues, <a href="https://www.smartkarma.com/entities/credit-suisse-group-ag-f4b24f0c-c294-40b3-b491-759f0cb277e9" target="_blank" data-smartkarma-citation="entities:27915:1" rel="noopener">Credit Suisse Group (CSGN SW)</a> acknowledged 3 items regarding this situation:First, the Pillar 2 capital buffer requirement may be impacted by the Greensill affair. This may have long lasting negative implications for the valuation of CS contingent capital Tier 1 bonds.Second, certain notes underlying the Supply Chain Finance (SCF) funds will not be repaid when they fall due. The nonpayment creates considerable uncertainty regarding the valuation of a significant part of the remaining US$6.9bn. of assets in the SCF funds.Third, certain investors have already threatened litigation and, CS also stated that it “might also suffer reputational harm associated with these matters that might cause client departures or loss of assets under management.” This is what we warned when the Greensill news broke two weeks ago. Please see <a href="https://www.smartkarma.com/insights/credit-suisse-greensill-sows-reputation-risks-underweight-cs-bonds" target="_blank" data-smartkarma-citation="insights:48839" rel="noopener">Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds</a> for more details. In the intervening time-period, CS equity and credit have materially underperformed their respective indexes.At this point, investors’ main concern should be the amount or level of additional Pillar 2 capital which the firm may need to retain. The is not currently factored into CS’ debt or equity valuations.To its credit, the bank is taking prompt corrective action in restructuring the leadership, transparency, and compensation of the Asset Management division. However, we remain skeptical with whether the worst is past in this affair. Alternative assets require greater oversight as they are harder to manage and value. Combining risk management and compliance functions across CS stills seems like a mistake when it comes to asset management. However, the segmental separation of the Asset Management division may be a first step to unloading the relatively undersized entity. Distancing the unit from the Wealth Management operations may limit client departures.We continue to believe that the pricing of Credit Suisse bonds does not fully reflect the risks, complexity, and low capitalization of the firms’ underlying business model; nor does it capture potential franchise impairment from increasing reputation risk. The recent suspension of redemptions from certain CS funds is at best an embarrassment and at worst a signal that controls remain in need of considerable attention. This is unfortunate, as CS is highly geared to the business cycle and could outperform peers, if it can get its house in order. However, CS’s long-dated Additional Tier 1 bonds already trade tight relative to the challenges facing the firm. Please see: <a href="https://www.smartkarma.com/insights/credit-suisse-perfection-priced-into-long-dated-at1" target="_blank" data-smartkarma-citation="insights:48461" rel="noopener">Credit Suisse – Perfection Priced into Long-Dated AT1</a> for more details.   We suspect that credit may continue to follow equity and underperform over the near term. Longer-term, Pillar 2 considerations suggest that an even lower capital buffer as a cushion for AT1 investors, unless hidden capital is realized, or shareholders receive less in returns. Taken together, we remain comfortable with our recommendation that investors underweight Credit Suisse.

As the fallout from the Greensill affair continues, Credit Suisse Group (CSGN SW) acknowledged 3 items regarding this situation:First, the Pillar 2 capital buffer requirement may be impacted by the Greensill affair. This may have long lasting negative implications for the valuation of CS contingent capital Tier 1 bonds.Second, certain notes underlying the Supply Chain Finance (SCF) funds will not be repaid when they fall due. The nonpayment creates considerable uncertainty regarding the valuation of a significant part of the remaining US$6.9bn. of assets in the SCF funds.Third, certain investors have already threatened litigation and, CS also stated that it “might also suffer reputational harm associated with these matters that might cause client departures or loss of assets under management.” This is what we warned when the Greensill news broke two weeks ago. Please see Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds for more details. In the intervening time-period, CS equity and credit have materially underperformed their respective indexes.At this point, investors’ main concern should be the amount or level of additional Pillar 2 capital which the firm may need to retain. The is not currently factored into CS’ debt or equity valuations.To its credit, the bank is taking prompt corrective action in restructuring the leadership, transparency, and compensation of the Asset Management division. However, we remain skeptical with whether the worst is past in this affair. Alternative assets require greater oversight as they are harder to manage and value. Combining risk management and compliance functions across CS stills seems like a mistake when it comes to asset management. However, the segmental separation of the Asset Management division may be a first step to unloading the relatively undersized entity. Distancing the unit from the Wealth Management operations may limit client departures.We continue to believe that the pricing of Credit Suisse bonds does not fully reflect the risks, complexity, and low capitalization of the firms’ underlying business model; nor does it capture potential franchise impairment from increasing reputation risk. The recent suspension of redemptions from certain CS funds is at best an embarrassment and at worst a signal that controls remain in need of considerable attention. This is unfortunate, as CS is highly geared to the business cycle and could outperform peers, if it can get its house in order. However, CS’s long-dated Additional Tier 1 bonds already trade tight relative to the challenges facing the firm. Please see: Credit Suisse – Perfection Priced into Long-Dated AT1 for more details.   We suspect that credit may continue to follow equity and underperform over the near term. Longer-term, Pillar 2 considerations suggest that an even lower capital buffer as a cushion for AT1 investors, unless hidden capital is realized, or shareholders receive less in returns. Taken together, we remain comfortable with our recommendation that investors underweight Credit Suisse. 

Credit Suisse: Greensill's Capital Implications Outweigh Asset Management Corrective Action

Stronger than expected US employment data combined with uncertainty surrounding the Fed’s next steps to drive broader credit markets wider by weekend, although financials remained better bid. Taperless tantrums may be repeated over the near term but financials may be less impacted.While US CCC-rated bonds and Asia High Yield sold-off, almost all European contingent capital and Asia High Yield bonds tightened in credit spread terms as investors remained anchored to banks as an economic recovery play. Investors grabbed longer duration Additional Tier 1 (AT1) bonds as the week progressed, on economic strength expectations, while lower duration Senior Unsecured bonds outperformed on rising interest rate expectations. Friday’s non-farm report generated concerns on European growth in a rising rate environment. Queue central bank assurances that they will respond to rising rates over the next few weeks.Despite higher spreads available in more moderate duration AT1 notes, Europe's outperformers were almost exclusively long duration bonds. This outperformance is a very bullish signal. However, we are not convinced that this should apply to each of these institutions.  Please see <a href="https://www.smartkarma.com/insights/credit-suisse-greensill-sows-reputation-risks-underweight-cs-bonds" target="_blank" data-smartkarma-citation="insights:48839" rel="noopener">Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds</a> for further details.Financials remain the sweet spot in Asia credit. Levered to the economy and rising rates, this is the place to be at this point in the market cycle.  Performance attributes varied amongst the various bank credit classes in Asia. Risk-on sentiment drove higher risk AT1 and less subordinated Tier 2 bonds tighter. Meanwhile duration concerns drove investors to target higher spreads per unit of duration in BBB-rated and High Yield Senior Unsecured notes. Taken together, this performance outcome is likely evidence of the melt-up in spreads that we anticipated several weeks ago. Please see <a href="https://www.smartkarma.com/insights/bank-credit-strategy-melt-up-before-meltdown-where-to-position" target="_blank" data-smartkarma-citation="insights:48133" rel="noopener">Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position</a> for more details.Admittedly, however, we are surprised by the credit strength of Asia-headquartered financials during the global rates rout. We attribute this to two items. First, China is further along the Covid-19 curve in recovery and will clearly benefit as the rest of the world catches-up. Second, financials are a leverage play on the global recovery. Taken together, Asia financials overall are well placed to continue outperforming other markets over the near term.Market Outlook: The Fed will likely Twist before it Tapers, but the timing of both remain uncertain as real long term interest rates remain negative. In the interim, global treasury markets may remain unsettled. The US economy may run very hot before we see a change in Fed policy regarding short-term interest rates and the US dollar should remain stronger than analysts forecasted at year-end. Broadly, this is not Emerging Market IEM) friendly; however, a strong US economic rebound should benefit EM and European financials. Short duration in investment grade financials combined with high credit spreads in High Yield financials and more subordinated debt may remain the way forward.

Stronger than expected US employment data combined with uncertainty surrounding the Fed’s next steps to drive broader credit markets wider by weekend, although financials remained better bid. Taperless tantrums may be repeated over the near term but financials may be less impacted.While US CCC-rated bonds and Asia High Yield sold-off, almost all European contingent capital and Asia High Yield bonds tightened in credit spread terms as investors remained anchored to banks as an economic recovery play. Investors grabbed longer duration Additional Tier 1 (AT1) bonds as the week progressed, on economic strength expectations, while lower duration Senior Unsecured bonds outperformed on rising interest rate expectations. Friday’s non-farm report generated concerns on European growth in a rising rate environment. Queue central bank assurances that they will respond to rising rates over the next few weeks.Despite higher spreads available in more moderate duration AT1 notes, Europe's outperformers were almost exclusively long duration bonds. This outperformance is a very bullish signal. However, we are not convinced that this should apply to each of these institutions.  Please see Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds for further details.Financials remain the sweet spot in Asia credit. Levered to the economy and rising rates, this is the place to be at this point in the market cycle.  Performance attributes varied amongst the various bank credit classes in Asia. Risk-on sentiment drove higher risk AT1 and less subordinated Tier 2 bonds tighter. Meanwhile duration concerns drove investors to target higher spreads per unit of duration in BBB-rated and High Yield Senior Unsecured notes. Taken together, this performance outcome is likely evidence of the melt-up in spreads that we anticipated several weeks ago. Please see Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position for more details.Admittedly, however, we are surprised by the credit strength of Asia-headquartered financials during the global rates rout. We attribute this to two items. First, China is further along the Covid-19 curve in recovery and will clearly benefit as the rest of the world catches-up. Second, financials are a leverage play on the global recovery. Taken together, Asia financials overall are well placed to continue outperforming other markets over the near term.Market Outlook: The Fed will likely Twist before it Tapers, but the timing of both remain uncertain as real long term interest rates remain negative. In the interim, global treasury markets may remain unsettled. The US economy may run very hot before we see a change in Fed policy regarding short-term interest rates and the US dollar should remain stronger than analysts forecasted at year-end. Broadly, this is not Emerging Market IEM) friendly; however, a strong US economic rebound should benefit EM and European financials. Short duration in investment grade financials combined with high credit spreads in High Yield financials and more subordinated debt may remain the way forward.

Bank Credit Weekly: One Size Does Not Fit All

France

BNP Paribas S.A. attracts deposits and offers commercial, retail, investment, private and corporate banking services.  The Bank also provides asset management and investment advisory services to institutions and individuals in Europe, the United States, Asia and the Emerging Markets.

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BNP Paribas (BNP FP)

Credit Suisse: Skating on a Thin Layer of Capital

CS is skating on thin ice from a capital perspective while its risk management blade is dulled. Asset bubbles could crack the ice. A loss of less...

Hank Calenti, CFA

Credit Suisse: Where There’s Smoke, There’s a Capital Raise

CS needs as much as CHF8bn in common equity to bring its capital buffer in-line with peers. The Archegos affair adds fuel to risk management and...

Hank Calenti, CFA

US Banks and the SLR Situation: Overweight JPM Tier 1 Securities

JPM’s fortress foundation needs repair. It has the lowest SLR buffer, and its Tier 1 suffers from this. Leverage slimming and a deeper capital...

Hank Calenti, CFA

Credit Suisse: Greensill's Capital Implications Outweigh Asset Management Corrective Action

Additional Pillar 2 capital requirements are not currently factored into valuations. CS bonds do not reflect the risks, complexity, and low...

Hank Calenti, CFA

Bank Credit Weekly: One Size Does Not Fit All

Performance attributes varied amongst bank credit classes. Short duration in IG financials combined with high credit spreads in HY and more...

Hank Calenti, CFA

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