Alpha-Centric ESG Research

Kyle Rudden

In a recently published report (<a href="https://www.smartkarma.com/insights/cop26-u-n-climate-conference-to-address-mitigation-financing-and-carbon-pricing" target="_blank" data-smartkarma-citation="insights:59779" rel="noopener">COP26: U.N. Climate Conference to Address Mitigation, Financing, and Carbon Pricing</a>) I mentioned how the COP26 international climate conference (31 October to 12 November) will have far-reaching implications for global capital markets and investing.That Insight was largely about the COP26 conference itself – background, objectives, three critical agenda items with trillions of dollars at stake, and that will influence global financial markets from today (headlines coming out of the conference) through the end of this century.That report was necessary context for this Insight and others that will follow; successively deeper dives into country-specific climate action plans, and investment themes and trading ideas around the COP26 conference and climate change in general. This is the first of those follow-up reports.Herein, I present a brief overview of investment themes and angles directly linked to the three key COP26 agenda items: 1) mitigation of global warming, 2) climate finance, and 3) the development of international carbon markets and pricing mechanisms. Themes and subthemes such as:<ul>
<li>
Climate Transition: "Green" utilities, renewable energy, cleantech, electric vehicles and other areas of smart mobility, green buildings, and related. The "buy solar, sell coal" kinds of stuff.</li>
<li>
Climate Financing: Financial sector stocks poised to benefit from climate change mitigation, reduced risk from portfolio debarbonisation, and new inflows into sustainable/ESG funds.</li>
<li>
Carbon Markets: Pure-play (or close thereto) carbon capture and storage/sequestration (CCS) stocks, plus a few financial sector overlaps (e.g., related to carbon markets, futures, etc.)</li>
</ul>

In a recently published report (COP26: U.N. Climate Conference to Address Mitigation, Financing, and Carbon Pricing) I mentioned how the COP26 international climate conference (31 October to 12 November) will have far-reaching implications for global capital markets and investing.That Insight was largely about the COP26 conference itself – background, objectives, three critical agenda items with trillions of dollars at stake, and that will influence global financial markets from today (headlines coming out of the conference) through the end of this century.That report was necessary context for this Insight and others that will follow; successively deeper dives into country-specific climate action plans, and investment themes and trading ideas around the COP26 conference and climate change in general. This is the first of those follow-up reports.Herein, I present a brief overview of investment themes and angles directly linked to the three key COP26 agenda items: 1) mitigation of global warming, 2) climate finance, and 3) the development of international carbon markets and pricing mechanisms. Themes and subthemes such as:

Climate Transition: "Green" utilities, renewable energy, cleantech, electric vehicles and other areas of smart mobility, green buildings, and related. The "buy solar, sell coal" kinds of stuff.

Climate Financing: Financial sector stocks poised to benefit from climate change mitigation, reduced risk from portfolio debarbonisation, and new inflows into sustainable/ESG funds.

Carbon Markets: Pure-play (or close thereto) carbon capture and storage/sequestration (CCS) stocks, plus a few financial sector overlaps (e.g., related to carbon markets, futures, etc.)


COP26: An Overview of Investment Themes and Catalysts Related to COP26 Conference

Two days ago the U.K. Financial Reporting Council announced 125 successful signatories (aka "not greenwashers") to the revised U.K. Stewardship Code. Signatories are integrating stewardship and ESG (Environmental, Social, Governance) factors into investment decisions, to high standards.Whilst this is ostensibly limited to U.K. pension assets, ramifications are more far-reaching than it might at first appear (one indication is the number of North American and Asia Pacific signatories, in addition to the expected European names). More specifically, the broad relevance is because it:<ul>
<li>Affects firms doing business with U.K. asset managers/owners not just the managers/owners.</li>
<li>Is a quasi-blueprint for similar anti-greenwashing initiatives taking root in the U.S. and Asia.</li>
<li>Greenwashing is having an increasing impact on stocks prices (e.g., DWS Group last month).</li>
</ul>This is one battle in an emerging global war on greenwashing. The U.S. SEC has its own agenda to fight greenwashing and Asia isn't far behind (e.g., regulators in Japan stepping up scrutiny). There is more to come, and a lot to learn from this including who is (and is not) on the signatory list.

Two days ago the U.K. Financial Reporting Council announced 125 successful signatories (aka "not greenwashers") to the revised U.K. Stewardship Code. Signatories are integrating stewardship and ESG (Environmental, Social, Governance) factors into investment decisions, to high standards.Whilst this is ostensibly limited to U.K. pension assets, ramifications are more far-reaching than it might at first appear (one indication is the number of North American and Asia Pacific signatories, in addition to the expected European names). More specifically, the broad relevance is because it:
Affects firms doing business with U.K. asset managers/owners not just the managers/owners.
Is a quasi-blueprint for similar anti-greenwashing initiatives taking root in the U.S. and Asia.
Greenwashing is having an increasing impact on stocks prices (e.g., DWS Group last month).
This is one battle in an emerging global war on greenwashing. The U.S. SEC has its own agenda to fight greenwashing and Asia isn't far behind (e.g., regulators in Japan stepping up scrutiny). There is more to come, and a lot to learn from this including who is (and is not) on the signatory list.

The War on Greenwashing: UK Stewardship Code "Successful Signatories" Has Broader Implications

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

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: It may be time to take duration, at least through the summer. Swap spread trends suggest to us that interest rates may have peaked over the near term, or at least until the Fed decides to talk about talking about tapering its asset purchases. We do not anticipate this discussion before next year.US inflation hit its highest annualized rate since 1995 and, after a brief spike upwards, interest rates were no more volatile than in prior weeks without significant data announcements. In fact, the Treasury curve barely moved week-on-week while Fed Fund rate expectations rose slightly.Credit spreads continue to track interest rates with shorter-end securities outperforming on a total return basis, while intermediate four-to-five-year spreads outperformed on pure credit terms. There was consistent performance across geographies, across the curve and across bank bond asset classes. European bank credit continues to slightly outperform Asia, although this may be tempered as Bund rates rise.Spread compression is likely to remain driven by economic growth expectations with lower rated high yield securities having a higher beta to the economic recovery. Higher grade securities remain defensive and expensive from a total return perspective.In the primary market, a jumbo-sized bond by <a href="https://www.smartkarma.com/entities/credit-suisse-group-ag" target="_blank" data-smartkarma-citation="entities:22253:1" rel="noopener">Credit Suisse (CSGN VX)</a> took issuance to almost US$11 billion for a second week in a row. Credit Suisse Group’s Senior Unsecured note priced in-line with its curve. <a href="https://www.smartkarma.com/entities/danske-bank-a-s" target="_blank" data-smartkarma-citation="entities:22336:1" rel="noopener">Danske Bank's (DANSKE DC)</a> Additional Tier 1 may be more interesting for investors.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.

Executive Summary: It may be time to take duration, at least through the summer. Swap spread trends suggest to us that interest rates may have peaked over the near term, or at least until the Fed decides to talk about talking about tapering its asset purchases. We do not anticipate this discussion before next year.US inflation hit its highest annualized rate since 1995 and, after a brief spike upwards, interest rates were no more volatile than in prior weeks without significant data announcements. In fact, the Treasury curve barely moved week-on-week while Fed Fund rate expectations rose slightly.Credit spreads continue to track interest rates with shorter-end securities outperforming on a total return basis, while intermediate four-to-five-year spreads outperformed on pure credit terms. There was consistent performance across geographies, across the curve and across bank bond asset classes. European bank credit continues to slightly outperform Asia, although this may be tempered as Bund rates rise.Spread compression is likely to remain driven by economic growth expectations with lower rated high yield securities having a higher beta to the economic recovery. Higher grade securities remain defensive and expensive from a total return perspective.In the primary market, a jumbo-sized bond by Credit Suisse (CSGN VX) took issuance to almost US$11 billion for a second week in a row. Credit Suisse Group’s Senior Unsecured note priced in-line with its curve. Danske Bank's (DANSKE DC) Additional Tier 1 may be more interesting for investors.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.

Bank Credit Weekly: Inflation Non-Event Suggests Time to Take Duration?

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)

The War on Greenwashing: UK Stewardship Code "Successful Signatories" Has Broader Implications

Telegraph from European front in global war on greenwashing. U.K. names stewardship victors ("not greenwashers"). Many notable casualties. Anti...

Kyle Rudden

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

Bank Credit Weekly: Inflation Non-Event Suggests Time to Take Duration?

Time to take duration? At the same time, high yield securities have a higher beta to the economy. As such, long duration, high yield may offer...

Hank Calenti, CFA

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COP26: An Overview of Investment Themes and Catalysts Related to COP26 Conference

COP26, the climate conference happening now, will impact global capital markets. Perhaps over the next two weeks, depending on headlines, but...

Kyle Rudden

The War on Greenwashing: UK Stewardship Code "Successful Signatories" Has Broader Implications

Telegraph from European front in global war on greenwashing. U.K. names stewardship victors ("not greenwashers"). Many notable casualties. Anti...

Kyle Rudden

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

Bank Credit Weekly: Inflation Non-Event Suggests Time to Take Duration?

Time to take duration? At the same time, high yield securities have a higher beta to the economy. As such, long duration, high yield may offer...

Hank Calenti, CFA