European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a> and <a href="https://www.smartkarma.com/entities/bankia-sa" target="_blank" data-smartkarma-citation="entities:21252:1" rel="noopener">Bankia SA (BKIA SM)</a> have both issued statements on merger conversations to create what would be the biggest retail bank operating in Spain, with assets totaling EUR 650 bn and over 7.000 branches. The statements were issued as a result of a <a href="https://www.elconfidencial.com/empresas/2020-09-04/bankia-caixabank-consejo-septiembre-fusion_2736575/" target="_blank" rel="noopener">scoop</a> from daily El Confidencial.
Fundation La Caixa would be the largest shareholder followed by the Spanish state. By market value, CaixaBank triples that of Bankia; the respective market caps pre-announcement were:
<ul>
<li>CaixaBank: EUR 10.852 mn</li>
<li>Bankia: EUR 3,039 mn</li>
</ul>
At the time of writing this report, Bankia's shares have gone up by 26.5% whilst those of CaixaBank have increased by 14.8%. The market believes that both banks will benefit from this transaction, specially Bankia. The combined market cap increase has been c. EUR 2 bn. Prior to the announcement, both banks had lost over 30% of their market value so far in 2020.
This is a defensive merger which will be likely blessed by the European Central Bank (ECB) because of the low profitability of both banks. Synergies will run into several billions of Euro.
Taking into consideration market values at 3 September, shareholders of CaixaBank would hold c. 77.5% of the merged entity whilst Bankia's shareholders would hold c. 22.4%. But following the latest price increases the equation could change. It would most likely be an acquisition using CaixaBank's shares as currency.
This deal has all the chances to succeed (the recommendation would be to set up the spread in the usual way). Next critical date, according to El Confidencial, will be around 14 September with Board meetings to seal the operation.
This transaction could be the harbinger of more concentration moves within the Spanish banking sector, with all sights now on <a href="https://www.smartkarma.com/entities/liberbank-sa" target="_blank" data-smartkarma-citation="entities:21279:1" rel="noopener">Liberbank SA (LBK SM)</a> .

CaixaBank SA (CABK SM) and Bankia SA (BKIA SM) have both issued statements on merger conversations to create what would be the biggest retail bank operating in Spain, with assets totaling EUR 650 bn and over 7.000 branches. The statements were issued as a result of a scoop from daily El Confidencial.
Fundation La Caixa would be the largest shareholder followed by the Spanish state. By market value, CaixaBank triples that of Bankia; the respective market caps pre-announcement were:

CaixaBank: EUR 10.852 mn
Bankia: EUR 3,039 mn

At the time of writing this report, Bankia's shares have gone up by 26.5% whilst those of CaixaBank have increased by 14.8%. The market believes that both banks will benefit from this transaction, specially Bankia. The combined market cap increase has been c. EUR 2 bn. Prior to the announcement, both banks had lost over 30% of their market value so far in 2020.
This is a defensive merger which will be likely blessed by the European Central Bank (ECB) because of the low profitability of both banks. Synergies will run into several billions of Euro.
Taking into consideration market values at 3 September, shareholders of CaixaBank would hold c. 77.5% of the merged entity whilst Bankia's shareholders would hold c. 22.4%. But following the latest price increases the equation could change. It would most likely be an acquisition using CaixaBank's shares as currency.
This deal has all the chances to succeed (the recommendation would be to set up the spread in the usual way). Next critical date, according to El Confidencial, will be around 14 September with Board meetings to seal the operation.
This transaction could be the harbinger of more concentration moves within the Spanish banking sector, with all sights now on Liberbank SA (LBK SM) .

CaixaBank-Bankia Merger Conversations Announcement: First Take

<a href="https://www.smartkarma.com/entities/veolia-environnement-sa" target="_blank" data-smartkarma-citation="entities:21568:1" rel="noopener">Veolia Environnement Sa (VIE FP)</a> announced on 30 August a firm offer to <a href="https://www.smartkarma.com/entities/engie-sa" target="_blank" data-smartkarma-citation="entities:21449:1" rel="noopener">Engie SA (ENGI FP)</a> to acquire a 29.9% stake of <a href="https://www.smartkarma.com/entities/suez-sa" target="_blank" data-smartkarma-citation="entities:21546:1" rel="noopener">Suez (SEV FP)</a> at €15.5 per share. If this offer is accepted by Engie, Veolia intends to launch a voluntary takeover offer for the remaining shares of Suez and estimates the process to last between 12 and 18 months. Veolia aims to create "the French World Champion of Ecological Transformation" and is banking on the increasing demand for water treatment and waste management services worldwide, especially in emerging markets.
<ul class="">
<li>Suez closed today (2 September) at €14.9 per share, a 3.8% absolute spread to the proposed takeover offer price.</li>
</ul>
Suez says that "the approach of Veolia has not been solicited and has not been discussed at all with Suez". But the announcement has almost surely all the blessings of the French government.
The transaction with Engie is highly likely to succeed, thus a full-on offer for Suez is to be expected. The offer price seems fair, 8x EV/forward EBITDA vs. 7.8x for European peers.

Veolia Environnement Sa (VIE FP) announced on 30 August a firm offer to Engie SA (ENGI FP) to acquire a 29.9% stake of Suez (SEV FP) at €15.5 per share. If this offer is accepted by Engie, Veolia intends to launch a voluntary takeover offer for the remaining shares of Suez and estimates the process to last between 12 and 18 months. Veolia aims to create "the French World Champion of Ecological Transformation" and is banking on the increasing demand for water treatment and waste management services worldwide, especially in emerging markets.

Suez closed today (2 September) at €14.9 per share, a 3.8% absolute spread to the proposed takeover offer price.

Suez says that "the approach of Veolia has not been solicited and has not been discussed at all with Suez". But the announcement has almost surely all the blessings of the French government.
The transaction with Engie is highly likely to succeed, thus a full-on offer for Suez is to be expected. The offer price seems fair, 8x EV/forward EBITDA vs. 7.8x for European peers.

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>European bank earnings have been hit hard by the need to build loan loss provisions, in the pandemic driven downturn</li>
<li>We look at 2Q20 cost of risk for the largest European banks, and compare it to balance sheet strength, as well as bad loan ratio and coverage</li>
<li>The picture that emerges is that the biggest provisioning effort in the last two quarters has come from UK and Southern Europe banks, mainly Italy and Spain</li>
<li>Although Nordic banks generally screen well on capital, and to some extent credit quality, we believe that the value opportunities lie elsewhere</li>
<li>Specifically, we are looking for those banks that are good value and in a strong position to potentially pay dividends from 2021 onwards</li>
<li>In Southern Europe, <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> continues to screen well and management has committed to returning capital to shareholders in due course; in the UK, <a href="https://www.smartkarma.com/entities/barclays-plc" target="_blank" data-smartkarma-citation="entities:1121:1" rel="noopener">Barclays PLC (BARC LN)</a> stands out and <a href="https://www.smartkarma.com/entities/danske-bank-a-s" target="_blank" data-smartkarma-citation="entities:22336:1" rel="noopener">Danske Bank A/S (DANSKE DC)</a> in the Nordics; among the runners up from our screens, we highlight <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a> and <a href="https://www.smartkarma.com/entities/abn-amro-group-nv" target="_blank" data-smartkarma-citation="entities:24858:1" rel="noopener">Abn Amro Group Nv (ABN NA)</a> </li>
<li>Risks to our positive view on these European banks include a much worse than expected pandemic-driven economic downturn, that results in worse-than-expected credit quality and a need for further heightened provision charges adversely impacting returns</li>
</ul>


European bank earnings have been hit hard by the need to build loan loss provisions, in the pandemic driven downturn
We look at 2Q20 cost of risk for the largest European banks, and compare it to balance sheet strength, as well as bad loan ratio and coverage
The picture that emerges is that the biggest provisioning effort in the last two quarters has come from UK and Southern Europe banks, mainly Italy and Spain
Although Nordic banks generally screen well on capital, and to some extent credit quality, we believe that the value opportunities lie elsewhere
Specifically, we are looking for those banks that are good value and in a strong position to potentially pay dividends from 2021 onwards
In Southern Europe, UniCredit SpA (UCG IM) continues to screen well and management has committed to returning capital to shareholders in due course; in the UK, Barclays PLC (BARC LN) stands out and Danske Bank A/S (DANSKE DC) in the Nordics; among the runners up from our screens, we highlight CaixaBank SA (CABK SM) and Abn Amro Group Nv (ABN NA) 
Risks to our positive view on these European banks include a much worse than expected pandemic-driven economic downturn, that results in worse-than-expected credit quality and a need for further heightened provision charges adversely impacting returns


European Banks: 2Q20 Capital & Credit Quality Screens

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

There are continued positive signs of recovery in Europe. It’s not just limited to the US. In all likelihood we are past the dire days of the crisis, or the ‘great interruption.’ Germany just reopened its borders to European travel and the region shows several positive signs from reopening economies. The impact to banks can be significant, which are highly leveraged to economic improvements. We wonder if this is well expected, considering the market capitalization of many EU banks?

There are continued positive signs of recovery in Europe. It’s not just limited to the US. In all likelihood we are past the dire days of the crisis, or the ‘great interruption.’ Germany just reopened its borders to European travel and the region shows several positive signs from reopening economies. The impact to banks can be significant, which are highly leveraged to economic improvements. We wonder if this is well expected, considering the market capitalization of many EU banks?

Banco Bilbao Vizcaya Argentari / Equity Bottom-Up

<ul>
<li>European banks are at the deep value end of the equities spectrum, in the current investment climate</li>
<li>We are not, however, consigning the entire sector to the “basket case”, and we sift through the European banks universe looking for attractively valued banks with solid digital banking credentials</li>
<li>We focus on two banks that are well placed to strengthen their digital banking positions on the back of the acceleration in society’s digital shift, due to the Covid-19 pandemic</li>
<li>Aside from the challenger banks, <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a> and <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>  are both legacy banks that are leading the Spanish digital banking drive, with BBVA also a major player in Mexico, Turkey, USA and parts of South America</li>
<li>Our conclusion is that BBVA is our preferred pick, given its attractive valuations, and superior digital banking credentials across multiple geographies, and that is despite its relative weakness versus CaixaBank in capital adequacy and, to a lesser degree, in terms of credit quality</li>
<li>Risks to our view include increased competition in digital banking, as well as worse than expected credit losses in Spain, Mexico and Turkey and the latter two carry the risk of further MXN and TRY currency depreciation</li>
</ul>


European banks are at the deep value end of the equities spectrum, in the current investment climate
We are not, however, consigning the entire sector to the “basket case”, and we sift through the European banks universe looking for attractively valued banks with solid digital banking credentials
We focus on two banks that are well placed to strengthen their digital banking positions on the back of the acceleration in society’s digital shift, due to the Covid-19 pandemic
Aside from the challenger banks, CaixaBank SA (CABK SM) and Banco Bilbao Vizcaya Argentari (BBVA SM)  are both legacy banks that are leading the Spanish digital banking drive, with BBVA also a major player in Mexico, Turkey, USA and parts of South America
Our conclusion is that BBVA is our preferred pick, given its attractive valuations, and superior digital banking credentials across multiple geographies, and that is despite its relative weakness versus CaixaBank in capital adequacy and, to a lesser degree, in terms of credit quality
Risks to our view include increased competition in digital banking, as well as worse than expected credit losses in Spain, Mexico and Turkey and the latter two carry the risk of further MXN and TRY currency depreciation


European Banks: Focus on Digital Banking Pioneers Trading at Attractive Valuations

Spain

CaixaBank accepts deposits and offers banking services.  The bank offers portfolio management services, insurance, investment strategy advice, international banking services, and other specialist financial services.

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CaixaBank SA (CABK SM)

CaixaBank-Bankia Merger Conversations Announcement: First Take

CaixaBank and Bankia have both issued statements

Jesus Rodriguez Aguilar

Veolia - Suez: Another French Champion

Veolia environment announced on 30 August a firm offer to Engie to acquire a 29.9% stake of Suez, at €15.5 per share.

Jesus Rodriguez Aguilar

European Banks: 2Q20 Capital & Credit Quality Screens

European bank earnings have been hit hard by the need to build loan loss provisions, in the pandemic driven downturn We look at 2Q20 cost of risk...

Victor Galliano

EU Banks – Leveraged To Sharp Recovery

There are continued positive signs of recovery in Europe. It’s not just limited to the US. In all likelihood we are past the dire days of the...

Daniel Tabbush

European Banks: Focus on Digital Banking Pioneers Trading at Attractive Valuations

European banks are at the deep value end of the equities spectrum, in the current investment climate We are not, however, consigning the entire...

Victor Galliano

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