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>US Banks’ office credit exposures represent a big part of the sector’s credit quality concerns, given the decline in office space occupancy and rising interest rates</li>
<li>Industry data shows that bank funding costs are rising fast, and 3Q23 bank spread trends are mixed; banks with greater mortgage exposure are potentially at greater risk of narrowing spreads</li>
<li>We stick with Capital One for its high lending spreads, negligible mortgage exposure and limited office credit exposure with high coverage; Capital One also has healthy overall NPL coverage</li>
</ul>


US Banks’ office credit exposures represent a big part of the sector’s credit quality concerns, given the decline in office space occupancy and rising interest rates
Industry data shows that bank funding costs are rising fast, and 3Q23 bank spread trends are mixed; banks with greater mortgage exposure are potentially at greater risk of narrowing spreads
We stick with Capital One for its high lending spreads, negligible mortgage exposure and limited office credit exposure with high coverage; Capital One also has healthy overall NPL coverage


US Banks – Office Exposures, Interest Spread Trends to 3Q23

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)

<ul>
<li>Weekly mortgage loan applications index in the US is declining rapidly as is the weekly mortgage loan volume index. This gives a good forward view of growth.</li>
<li>Mortgage loans remain one of the most important segments for US banks at 23% of loans in the most recent week, so their decelerating growth is meaningful.</li>
<li>Given the high level of 30-year mortgage rates - not moving lower fast - decelerating mortgage loan growth should continue, and is likely to turn negative soon.</li>
</ul>


Weekly mortgage loan applications index in the US is declining rapidly as is the weekly mortgage loan volume index. This gives a good forward view of growth.
Mortgage loans remain one of the most important segments for US banks at 23% of loans in the most recent week, so their decelerating growth is meaningful.
Given the high level of 30-year mortgage rates - not moving lower fast - decelerating mortgage loan growth should continue, and is likely to turn negative soon.


US Banks - Mtg Loan Applications Index -15% from July | Mtg Loans 23% of Total | Growth Can Turn -Ve

<ul>
<li>WFC is seeing net interest income growth rate decelerate sharply from 29% YoY in 2Q23 to 8% YoY in 3Q23. Its deposit costs rose from 23bps to 192bps YoY</li>
<li>CRE NCO's rose to USD93m in 3Q23 from reversals in 3Q22. Its CRE non-accruals rose to USD3,863m in 3Q23, vs USD2,507m in 2Q23, vs USD853m in 3Q22</li>
<li>Mortgage, Auto, CRE loans are down QoQ and YoY. C&amp;I loans, its largest loan bucket are down 0.9% QoQ. Total gross loans declined USD5.5bn QoQ, now down USD13bn from peak.</li>
</ul>


WFC is seeing net interest income growth rate decelerate sharply from 29% YoY in 2Q23 to 8% YoY in 3Q23. Its deposit costs rose from 23bps to 192bps YoY
CRE NCO's rose to USD93m in 3Q23 from reversals in 3Q22. Its CRE non-accruals rose to USD3,863m in 3Q23, vs USD2,507m in 2Q23, vs USD853m in 3Q22
Mortgage, Auto, CRE loans are down QoQ and YoY. C&amp;I loans, its largest loan bucket are down 0.9% QoQ. Total gross loans declined USD5.5bn QoQ, now down USD13bn from peak.


WFC - Net Interest Income +8% YoY Vs +29% | CRE Non-Accruals +54% QoQ, +4.5x YoY | NIM -17bps in 6M

<ul>
<li>US Federal Reserve Bank balance sheets are released weekly and more current than commercial banks. Latest Fed B/S is for 4 October, shows -USD47bn WoW in loans, securities, repos.</li>
<li>Liquidity conditions in the US banking system are becoming tighter faster, with the most recent week showing loans, securities, repos at -9.4% YoY vs -8.3% four weeks ago.</li>
<li>With tighter liquidity we should expect less loan growth, but also more difficult conditions for cash-strapped companies, prompting more defaults, and higher credit costs at banks.</li>
</ul>


US Federal Reserve Bank balance sheets are released weekly and more current than commercial banks. Latest Fed B/S is for 4 October, shows -USD47bn WoW in loans, securities, repos.
Liquidity conditions in the US banking system are becoming tighter faster, with the most recent week showing loans, securities, repos at -9.4% YoY vs -8.3% four weeks ago.
With tighter liquidity we should expect less loan growth, but also more difficult conditions for cash-strapped companies, prompting more defaults, and higher credit costs at banks.


US - Fed Liquidity Moves USD147bn Lower In Past 3 Weeks, Pace Is Accelerating

<ul>
<li>US large banks' new balance sheet data for 27 September show surging cash at +USD90bn in the week putting YoY growth highest all year, at 11.6%. This is risk aversion.</li>
<li>Commercial &amp; Industrial lending, shows another subdued week, down USD1bn to 27 Sept WoW, and YoY growth at 0.36% compared with 12.5% early this year. Suggests a weak underlying economy.</li>
<li>CRE lending growth remains negative, and book value growth worsens in past 2 weeks, from +USD9.4bn to +USD4.0bn and now to +0.4bn WoW. </li>
</ul>


US large banks' new balance sheet data for 27 September show surging cash at +USD90bn in the week putting YoY growth highest all year, at 11.6%. This is risk aversion.
Commercial &amp; Industrial lending, shows another subdued week, down USD1bn to 27 Sept WoW, and YoY growth at 0.36% compared with 12.5% early this year. Suggests a weak underlying economy.
CRE lending growth remains negative, and book value growth worsens in past 2 weeks, from +USD9.4bn to +USD4.0bn and now to +0.4bn WoW. 


US Banks - Cash +USD90bn in Week, CRE  -0.55% YoY, C&I +0.36% YoY, Book Value Growth Dwindles 3 Wks

United States

Capital One Financial Corporation is a diversified bank. The Bank, through its subsidiaries, offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients both domestically and internationally.  Capital One has bank locations in Connecticut, Louisiana, New Jersey, New York, and Texas.

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Capital One Financial (COF US)

US Banks – Office Exposures, Interest Spread Trends to 3Q23

US banks face office and CRE credit quality risks. Bank funding costs are rising, squeezing the spreads of banks with big mortgage exposures; we...

Victor Galliano

US Banks - Mtg Loan Applications Index -15% from July | Mtg Loans 23% of Total | Growth Can Turn -Ve

HFD in the US shows worsening weekly data for mortgage loan applications and for mortgage loan volume. Growth is decelerating fast and it can turn...

Daniel Tabbush

WFC - Net Interest Income +8% YoY Vs +29% | CRE Non-Accruals +54% QoQ, +4.5x YoY | NIM -17bps in 6M

Net interest income is slowing dramatically and could turn negative in 4Q23. NIM pressure is worsening and CRE nonaccrual loans are soaring. Most...

Daniel Tabbush

US - Fed Liquidity Moves USD147bn Lower In Past 3 Weeks, Pace Is Accelerating

Fed data shows USD147bn lower liquidity in just the past 3 weeks, and the pace is accelerating. There are negative implications for bank loan...

Daniel Tabbush

US Banks - Cash +USD90bn in Week, CRE -0.55% YoY, C&I +0.36% YoY, Book Value Growth Dwindles 3 Wks

New weekly balance sheet data shows USD90bn surge in cash assets in the most recent week. Growth YoY has never been higher this year. There are...

Daniel Tabbush

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US Banks – Office Exposures, Interest Spread Trends to 3Q23

​US banks face office and CRE credit quality risks. Bank funding costs are rising, squeezing the spreads of banks with big mortgage exposures; we...

Victor Galliano

US Banks - Mtg Loan Applications Index -15% from July | Mtg Loans 23% of Total | Growth Can Turn -Ve

HFD in the US shows worsening weekly data for mortgage loan applications and for mortgage loan volume. Growth is decelerating fast and it can turn...

Daniel Tabbush

WFC - Net Interest Income +8% YoY Vs +29% | CRE Non-Accruals +54% QoQ, +4.5x YoY | NIM -17bps in 6M

Net interest income is slowing dramatically and could turn negative in 4Q23. NIM pressure is worsening and CRE nonaccrual loans are soaring. Most...

Daniel Tabbush

US - Fed Liquidity Moves USD147bn Lower In Past 3 Weeks, Pace Is Accelerating

Fed data shows USD147bn lower liquidity in just the past 3 weeks, and the pace is accelerating. There are negative implications for bank loan...

Daniel Tabbush

US Banks - Cash +USD90bn in Week, CRE -0.55% YoY, C&I +0.36% YoY, Book Value Growth Dwindles 3 Wks

New weekly balance sheet data shows USD90bn surge in cash assets in the most recent week. Growth YoY has never been higher this year. There are...

Daniel Tabbush

US banks face office and CRE credit quality risks. Bank funding costs are rising, squeezing the spreads of banks with big mortgage exposures; we...