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

Equity Bottom-Up

*No Stranger To Losses: As initially discussed in our “Credit Suisse Group – Hit Parade Continues” note dated March 30, 2021, we expressed our concerns related to various high profile screw-ups at Credit Suisse Group (CSGN.VX) [Credit Suisse]. Credit Suisse’ high profile challenges still include: Archegos Capital Management; Greensill Capital; Wirecard, and Luckin Coffee; and   *Adding Insult To Injury: According to Bloomberg, construction start-up, Katerra, has burned through over USD 2.0 bn and is now being shut down.  Credit Suisse initially indicated losses of between USD 1.0-USD 1.5 bn on its Greensill-related exposures.  Well, this figure appears to increase those losses closer to USD 2.0 bn.

*No Stranger To Losses: As initially discussed in our “Credit Suisse Group – Hit Parade Continues” note dated March 30, 2021, we expressed our concerns related to various high profile screw-ups at Credit Suisse Group (CSGN.VX) [Credit Suisse]. Credit Suisse’ high profile challenges still include: Archegos Capital Management; Greensill Capital; Wirecard, and Luckin Coffee; and   *Adding Insult To Injury: According to Bloomberg, construction start-up, Katerra, has burned through over USD 2.0 bn and is now being shut down.  Credit Suisse initially indicated losses of between USD 1.0-USD 1.5 bn on its Greensill-related exposures.  Well, this figure appears to increase those losses closer to USD 2.0 bn.  

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?

Executive Summary: Friday’s jobs report shocker capped off a week which included US Treasury Secretary Janet Yellen needing to be Mirandized. This was followed by the Fed stating the obvious in its financial stability report. Unmentioned in this report is that the role of this Fed is no longer to take away the punchbowl, but instead it is the bartender. The week ended with a jobs report that was the biggest miss in nominal terms, ever.The report was at odds with recent PMI surveys in which respondents stated that it was difficult to hire. This may be the result of frictions in hiring as unemployment benefits as well as child-care needs and postponed school re-openings delay employee re-entry. The truth serum for the US economy may occur around September when extended unemployment payments expire.The market impact was an immediate 10 basis point (bp) drop in the 10-year Treasury while the 2-year note even fell 1bp. Prices on the 10-year gave up these gains as the day progressed, but the smart money, that is the bond market, may be correct with the recent dampening of interest rates suggesting a longer time period to a less accommodative Fed.  The US Treasury bond curve ended the week flatter with short-end yields falling by much less than the longer part of the curve.With rates continuing to push credit spreads, Asia- and European-headquartered banks generated negative total returns in all but the lowest duration notes. There was a clear preference for Additional Tier 1 (AT1) bond issuance over the past week while over US$11 billion equivalent was raised by financial institutions globally in USD and Euros. In what may have been the busiest AT1 bond issuance weeks of the year, five institutions brought over US$6.5 billion in six securities.Nonetheless, this is a great credit environment and spreads which could go even tighter into year-end. A single piece of data, such as April’s non-farm payroll figure, is unlikely to change investor positioning. It may be a little too early to fade the market as fundamentals catch-up.Next week we will get a record-matching $126 billion slate of Treasury auctions. We may also see a robust serving of corporate and financials debt issuance. US consumer-price data is set to be published on Tuesday, 12 May. A sharp annual acceleration is forecast, although the market is likely to dismiss the figure as resulting from a comparison to depressed levels of a year earlier.With peak Q1 earnings season now behind us, Japanese banks will deliver their year-end results over the next week while several other stragglers pepper the remainder of the month. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow with material debt issuance over the next few weeks after reporting earnings.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: Friday’s jobs report shocker capped off a week which included US Treasury Secretary Janet Yellen needing to be Mirandized. This was followed by the Fed stating the obvious in its financial stability report. Unmentioned in this report is that the role of this Fed is no longer to take away the punchbowl, but instead it is the bartender. The week ended with a jobs report that was the biggest miss in nominal terms, ever.The report was at odds with recent PMI surveys in which respondents stated that it was difficult to hire. This may be the result of frictions in hiring as unemployment benefits as well as child-care needs and postponed school re-openings delay employee re-entry. The truth serum for the US economy may occur around September when extended unemployment payments expire.The market impact was an immediate 10 basis point (bp) drop in the 10-year Treasury while the 2-year note even fell 1bp. Prices on the 10-year gave up these gains as the day progressed, but the smart money, that is the bond market, may be correct with the recent dampening of interest rates suggesting a longer time period to a less accommodative Fed.  The US Treasury bond curve ended the week flatter with short-end yields falling by much less than the longer part of the curve.With rates continuing to push credit spreads, Asia- and European-headquartered banks generated negative total returns in all but the lowest duration notes. There was a clear preference for Additional Tier 1 (AT1) bond issuance over the past week while over US$11 billion equivalent was raised by financial institutions globally in USD and Euros. In what may have been the busiest AT1 bond issuance weeks of the year, five institutions brought over US$6.5 billion in six securities.Nonetheless, this is a great credit environment and spreads which could go even tighter into year-end. A single piece of data, such as April’s non-farm payroll figure, is unlikely to change investor positioning. It may be a little too early to fade the market as fundamentals catch-up.Next week we will get a record-matching $126 billion slate of Treasury auctions. We may also see a robust serving of corporate and financials debt issuance. US consumer-price data is set to be published on Tuesday, 12 May. A sharp annual acceleration is forecast, although the market is likely to dismiss the figure as resulting from a comparison to depressed levels of a year earlier.With peak Q1 earnings season now behind us, Japanese banks will deliver their year-end results over the next week while several other stragglers pepper the remainder of the month. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow with material debt issuance over the next few weeks after reporting earnings.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: Jobs Report Shocker Flattens Curves

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 (CSGN SW)

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

Credit Suisse Group – Here We Go Again

CREDIT SUISSE GROUP: There were already concerns related to various high profile screw-ups. The latest appears to be Greensill-related construction...

Thomas J. Monaco

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

Bank Credit Weekly: Jobs Report Shocker Flattens Curves

Job data raises uncertainty as the Fed continues to act as bartender. Financial stability risks appear binary while rates push credit spreads. Can...

Hank Calenti, CFA

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