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.

Thematic (Sector/Industry)

<ul>
<li>We screen 30 European banks for their core profitability and their credit quality and coverage post 2Q21 results</li>
<li>The aim is to identify banks that are good value and have potential to deliver sustainably higher dividends going forward</li>
<li>We use a number of metrics including pre-provision and post-provision profit, cost of risk and credit quality</li>
<li>We highlight <a href="https://www.smartkarma.com/entities/lloyds-banking-group-plc" target="_blank" data-smartkarma-citation="entities:21009:1" rel="noopener">Lloyds Banking (LLOY LN)</a> and <a href="https://www.smartkarma.com/entities/bankinter-sa" target="_blank" data-smartkarma-citation="entities:21253:1" rel="noopener">Bankinter SA (BKT SM)</a> and stick with <a href="https://www.smartkarma.com/entities/credit-agricole-sa" target="_blank" data-smartkarma-citation="entities:21373:1" rel="noopener">Credit Agricole Sa (ACA FP)</a> and <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 AG (CSGN SW)</a> from the 1Q21 review</li>
<li>We are cautious on <a href="https://www.smartkarma.com/entities/intesa-sanpaolo-spa" target="_blank" data-smartkarma-citation="entities:21200:1" rel="noopener">Intesa Sanpaolo (ISP IM)</a> and <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered (STAN LN)</a> </li>
<li>Risks to our view include, for our bullish calls, worse than expected cost of risk, opex and fee generation; for our bear calls, better than expected revenue generation with opex control leading to higher dividend prospects</li>
</ul>


We screen 30 European banks for their core profitability and their credit quality and coverage post 2Q21 results
The aim is to identify banks that are good value and have potential to deliver sustainably higher dividends going forward
We use a number of metrics including pre-provision and post-provision profit, cost of risk and credit quality
We highlight Lloyds Banking (LLOY LN) and Bankinter SA (BKT SM) and stick with Credit Agricole Sa (ACA FP) and Credit Suisse Group AG (CSGN SW) from the 1Q21 review
We are cautious on Intesa Sanpaolo (ISP IM) and Standard Chartered (STAN LN) 
Risks to our view include, for our bullish calls, worse than expected cost of risk, opex and fee generation; for our bear calls, better than expected revenue generation with opex control leading to higher dividend prospects


European & UK Banks; Screening for Investment Opportunities

<ul>
<li>We screen thirty European banks, for their dividend yield relative to their dividend pay-out ratios on 2022 consensus estimates, to assess how well is their prospective dividend is covered by forecast profitability</li>
<li>We also screen for attractive valuations, for healthy credit quality metrics and the potential for banks to deliver better returns going forward</li>
<li>In the case of those banks that have built up their provisioning buffers, cost of risk should recede over the coming quarters</li>
<li>We highlight <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-57298707-4faa-42d6-a353-ab1f6ee92fd4" target="_blank" data-smartkarma-citation="entities:28330:1" rel="noopener">HSBC Holdings PLC (HSBC US)</a> , <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>  and <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>, as well as <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>, <a href="https://www.smartkarma.com/entities/credit-agricole-sa" target="_blank" data-smartkarma-citation="entities:21373:1" rel="noopener">Credit Agricole Sa (ACA FP)</a>, <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> and, as a recovery and contrarian play, <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 AG (CSGN SW)</a>
</li>
<li>Risks to our positive view on our highlighted banks include worse than expected credit quality, as well as weaker than expected revenue generation and higher than expected opex</li>
</ul>


We screen thirty European banks, for their dividend yield relative to their dividend pay-out ratios on 2022 consensus estimates, to assess how well is their prospective dividend is covered by forecast profitability
We also screen for attractive valuations, for healthy credit quality metrics and the potential for banks to deliver better returns going forward
In the case of those banks that have built up their provisioning buffers, cost of risk should recede over the coming quarters
We highlight HSBC Holdings PLC (HSBC US) , Banco Bilbao Vizcaya Argentari (BBVA SM)  and UniCredit SpA (UCG IM), as well as ABN AMRO Group NV (ABN NA), Credit Agricole Sa (ACA FP), Danske Bank A/S (DANSKE DC) and, as a recovery and contrarian play, Credit Suisse Group AG (CSGN SW)

Risks to our positive view on our highlighted banks include worse than expected credit quality, as well as weaker than expected revenue generation and higher than expected opex


European Banks Value Screens – Focus on Dividend Yields and Healthy Dividend Coverage Metrics

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

* Pandemic Stay At Home Orders To Be Extended:  Excluding the Northeast Corridor and West Coast, major American cities would appear to be at the tipping point of major corona virus outbreaks. Virginia and Maryland have ordered their state lockdowns to be extended through June 10th (12 weeks). The City of Toronto also announced the cancellation of city programs. Several other factors too would suggest that the Trump administration’s stay at home order - now through April 30th – will again be extended;* SME Risk Increasing With Each Passing Day: The longer the stay at home order for the Corona Crisis lasts, the longer small-to-medium sized entities (SMEs) [the driver of US economic growth] will remain impaired.  As it stands, SMEs contribute about 1/3 to US GDP, employ about 50% of the private workforce, and have contributed 2/3 of the net employment gains since 2011. The Small Business Administration (SBA) has warned of a 28 day process, which is an eternity (18 days into the stay at home order) given the average 27 days of SME cash reserves;  and* Liquidity Risks Elsewhere Are Increasing: The ongoing market liquidity crisis (hedge funds/sovereign wealth/CLOs/REITs/HNW/State of Illinois, et al) shows no signs of abating.

* Pandemic Stay At Home Orders To Be Extended:  Excluding the Northeast Corridor and West Coast, major American cities would appear to be at the tipping point of major corona virus outbreaks. Virginia and Maryland have ordered their state lockdowns to be extended through June 10th (12 weeks). The City of Toronto also announced the cancellation of city programs. Several other factors too would suggest that the Trump administration’s stay at home order - now through April 30th – will again be extended;* SME Risk Increasing With Each Passing Day: The longer the stay at home order for the Corona Crisis lasts, the longer small-to-medium sized entities (SMEs) [the driver of US economic growth] will remain impaired.  As it stands, SMEs contribute about 1/3 to US GDP, employ about 50% of the private workforce, and have contributed 2/3 of the net employment gains since 2011. The Small Business Administration (SBA) has warned of a 28 day process, which is an eternity (18 days into the stay at home order) given the average 27 days of SME cash reserves;  and* Liquidity Risks Elsewhere Are Increasing: The ongoing market liquidity crisis (hedge funds/sovereign wealth/CLOs/REITs/HNW/State of Illinois, et al) shows no signs of abating.  

Choke Hold On American SMEs and Ongoing Liquidity Crisis

<ul>
<li class="MsoListParagraphCxSpFirst">
Darkest Hour Ahead: The US is entering its darkest hour with the dumb college kids at spring break being the tipping point for community spread and national guard call-up.</li>
<li class="MsoListParagraphCxSpMiddle"> Financial and Sovereign Crises Underway: The safest credit markets are not properly functioning, and the symbiotic relationship between European financials and the sovereigns which is pressuring sovereign CDS spreads. With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” US banking system are now causing systemic wobbles. </li>
<li class="MsoListParagraphCxSpMiddle"> Equity Unravel Set to Continue: QE6 is not going to stop the equity market bleeding. Quant Funds are every bit as vulnerable as active management in times of stress. Risk Parity Funds have declined in size from USD 600 bn in February 2020 to USD 250 bn as at March 18, 2020. US brokers/investment banks for aggressively lending on margin to high net worth (HNW)/retail investors. Margin to the average retail client is up to 50% of the market value of their securities and are quite willing to lend up to 70% of the market value of a client's investment portfolio for the purchase of real estate - owner-occupied or on speculation.</li>
<li class="MsoListParagraphCxSpLast">
QE7 Is Not Far Behind:Beyond bailing out Boeing (BA.US) which is a national security priority, there will clearly be an all-time record handout coming with TARP 2. In addition, the FRB expects to announce the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA. </li>
</ul>



Darkest Hour Ahead: The US is entering its darkest hour with the dumb college kids at spring break being the tipping point for community spread and national guard call-up.
 Financial and Sovereign Crises Underway: The safest credit markets are not properly functioning, and the symbiotic relationship between European financials and the sovereigns which is pressuring sovereign CDS spreads. With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” US banking system are now causing systemic wobbles. 
 Equity Unravel Set to Continue: QE6 is not going to stop the equity market bleeding. Quant Funds are every bit as vulnerable as active management in times of stress. Risk Parity Funds have declined in size from USD 600 bn in February 2020 to USD 250 bn as at March 18, 2020. US brokers/investment banks for aggressively lending on margin to high net worth (HNW)/retail investors. Margin to the average retail client is up to 50% of the market value of their securities and are quite willing to lend up to 70% of the market value of a client's investment portfolio for the purchase of real estate - owner-occupied or on speculation.

QE7 Is Not Far Behind:Beyond bailing out Boeing (BA.US) which is a national security priority, there will clearly be an all-time record handout coming with TARP 2. In addition, the FRB expects to announce the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA. 


<ul>
<li> Dusting Off the Old Playbook: The globe is finally coming to the realization that corona virus containment means that global economic activity will grind to a halt over the next 2-3 months. The market is going to aggressively retest the firewalls put in place during the GFC.  As a result, the GFC and sovereign crisis playbook is now being dusted off - including the Troubled Asset Recovery Program (TARP) in the US and the European Stability Mechanism (ESM) credit lines.  
</li>
<li> Not The Europeans....Again:Given the symbiotic relationship between European financials and sovereigns, the most recent market collapse has already pressured sovereign CDS spreads. The ebbing economic tide has significantly exposed the European financial system for what it always was - a low profit, weak capital generating, and highly geared sector which has been dangerously close to loss making for over a decade. The European Central Bank’s (ECB) faltering asset purchase program is unable to keep CDS spreads from significantly widening and having a knock-on effect with the rest of the world. </li>
<li>
Americans Getting Stressed Over Counterparty Risk Et al.  With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” yet vulnerable US banking system will cause additional systemic wobbles. </li>
</ul>


 Dusting Off the Old Playbook: The globe is finally coming to the realization that corona virus containment means that global economic activity will grind to a halt over the next 2-3 months. The market is going to aggressively retest the firewalls put in place during the GFC.  As a result, the GFC and sovereign crisis playbook is now being dusted off - including the Troubled Asset Recovery Program (TARP) in the US and the European Stability Mechanism (ESM) credit lines.  

 Not The Europeans....Again:Given the symbiotic relationship between European financials and sovereigns, the most recent market collapse has already pressured sovereign CDS spreads. The ebbing economic tide has significantly exposed the European financial system for what it always was - a low profit, weak capital generating, and highly geared sector which has been dangerously close to loss making for over a decade. The European Central Bank’s (ECB) faltering asset purchase program is unable to keep CDS spreads from significantly widening and having a knock-on effect with the rest of the world. 

Americans Getting Stressed Over Counterparty Risk Et al.  With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” yet vulnerable US banking system will cause additional systemic wobbles. 


Deja Wu – Corona Virus Now Infects Global Financials

Switzerland

Credit Suisse Group AG operates as a wealth management firm. The Company specializes in investment banking and offers wealth management activities aiming to capitalize on both the large pool of wealth within mature markets, as well as the significant growth in wealth in Asia Pacific and other emerging markets. Credit Suisse Group serves customers worldwide.

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Credit Suisse Group (CS US)

European & UK Banks; Screening for Investment Opportunities

We screen banks’ core earnings & credit quality to identify banks that are good value & can deliver higher dividends - we like Lloyds, BankInter,...

Victor Galliano

European Banks Value Screens – Focus on Dividend Yields and Healthy Dividend Coverage Metrics

We screen European banks for dividend yield and its sustainability, with other valuation metrics; we highlight HSBC, BBVA, Unicredit, ABN Amro,...

Victor Galliano

Choke Hold On American SMEs and Ongoing Liquidity Crisis

* Pandemic Stay At Home Orders To Be Extended: Excluding the Northeast Corridor and West Coast, major American cities would appear to be at the...

Thomas J. Monaco

QE6 – To Infinity and Beyond

Darkest Hour Ahead: The US is entering its darkest hour with the dumb college kids at spring break being the tipping point for community spread...

Thomas J. Monaco

Deja Wu – Corona Virus Now Infects Global Financials

Dusting Off the Old Playbook: The globe is finally coming to the realization that corona virus containment means that global economic activity...

Thomas J. Monaco

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