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.

Event-Driven

Grupo Financiero Banorte SAB d / Event-Driven

<ul>
<li>We continue to believe that Banorte is one of the main potential acquirers of Banamex; CitiBanamex’s opex and credit quality metrics worsened to May, making the acquisition more challenging</li>
<li>Banorte’s 2Q22 results include a reduced core capital ratio post dividend payments which, in the event of a Banamex acquisition, increases the risk of an approximately USD1bn capital raise</li>
<li>Furthermore, AMLO’s latest pronouncements on the Banamex sale – which include that there should be no mass lay-offs – threaten to limit the acquiring bank’s scope to extract merger synergies </li>
</ul>


We continue to believe that Banorte is one of the main potential acquirers of Banamex; CitiBanamex’s opex and credit quality metrics worsened to May, making the acquisition more challenging
Banorte’s 2Q22 results include a reduced core capital ratio post dividend payments which, in the event of a Banamex acquisition, increases the risk of an approximately USD1bn capital raise
Furthermore, AMLO’s latest pronouncements on the Banamex sale – which include that there should be no mass lay-offs – threaten to limit the acquiring bank’s scope to extract merger synergies 


Banorte – Shareholders Would Be Better off Without Banamex

<ul>
<li>Banorte and Santander have both hired M&amp;A advisors for a potential Citibanamex bid, according to Reuters; Banco Azteca is not participating in the bidding, whilst Inbursa is potentially still interested</li>
<li>In the event of a bid, we do not expect Santander to be aggressive on price; Banorte could be more aggressive, which would increase its chances of a winning bid</li>
<li>Were Banorte to acquire Citibanamex, we continue to believe that its prospective dividend could be at risk; in essence, the risks of M&amp;A still outweigh the potential opportunities</li>
</ul>


Banorte and Santander have both hired M&amp;A advisors for a potential Citibanamex bid, according to Reuters; Banco Azteca is not participating in the bidding, whilst Inbursa is potentially still interested
In the event of a bid, we do not expect Santander to be aggressive on price; Banorte could be more aggressive, which would increase its chances of a winning bid
Were Banorte to acquire Citibanamex, we continue to believe that its prospective dividend could be at risk; in essence, the risks of M&amp;A still outweigh the potential opportunities


CitiBanamex – Potential Bidders Get Serious, We Stay Cautious on Banorte

<ul>
<li>Citibanamex legacy operations represent a series of challenges for the acquirer, which include its high cost base, bloated branch network and higher credit risk exposure to consumers and SMEs</li>
<li>The opportunity for an acquirer is access to a rich and stable deposit base with a relatively low loan-to-deposit ratio and Banamex’s fee generating AFORE pension administrator</li>
<li>Banamex is attracting much interest, which puts pressure on bidders to pay up, especially Banorte; we revisit our potential capital absorption calculations, but still see risk to Banorte’s dividend prospects</li>
</ul>


Citibanamex legacy operations represent a series of challenges for the acquirer, which include its high cost base, bloated branch network and higher credit risk exposure to consumers and SMEs
The opportunity for an acquirer is access to a rich and stable deposit base with a relatively low loan-to-deposit ratio and Banamex’s fee generating AFORE pension administrator
Banamex is attracting much interest, which puts pressure on bidders to pay up, especially Banorte; we revisit our potential capital absorption calculations, but still see risk to Banorte’s dividend prospects


CitiBanamex Legacy Operations – Revisiting Banorte’s Potential M&A Challenge and Opportunity

<ul>
<li>Banorte delivered solid 1Q22 results; management is dangling the carrot of a multi-year shareholder dividend pay-out in 2022, implying a potential dividend yield of c7%</li>
<li>The potential catch is the real risk of Banorte acquiring the Citibanamex franchise, which could require capital and cash retention, thereby potentially curtailing the dividend prospects</li>
<li>In the event of Banorte acquiring Citibanamex, we believe that our calculations imply the likely risk of an equity cash call, which drives us to turn cautious on Banorte again</li>
</ul>


Banorte delivered solid 1Q22 results; management is dangling the carrot of a multi-year shareholder dividend pay-out in 2022, implying a potential dividend yield of c7%
The potential catch is the real risk of Banorte acquiring the Citibanamex franchise, which could require capital and cash retention, thereby potentially curtailing the dividend prospects
In the event of Banorte acquiring Citibanamex, we believe that our calculations imply the likely risk of an equity cash call, which drives us to turn cautious on Banorte again


Banorte – Potential M&A Raises Questions on Dividend Prospects

Equity Bottom-Up

<ul>
<li>The prospect of Russia being excluded from key emerging market indices is very real, in our view, and here we focus on the iShares MSCI Emerging Markets ETF</li>
<li>The main beneficiaries of an index re-balancing would be the dominant EM Asian economies, and select African economies, but we cannot disregard LatAm and in particular we concentrate on financials</li>
<li>Largest weightings aside, we highlight our preferred LatAm financial names based on fundamentals; Banco do Brasil, B3, BanColombia and Banco del Bajio, we also remove Banorte from the sell list</li>
</ul>


The prospect of Russia being excluded from key emerging market indices is very real, in our view, and here we focus on the iShares MSCI Emerging Markets ETF
The main beneficiaries of an index re-balancing would be the dominant EM Asian economies, and select African economies, but we cannot disregard LatAm and in particular we concentrate on financials
Largest weightings aside, we highlight our preferred LatAm financial names based on fundamentals; Banco do Brasil, B3, BanColombia and Banco del Bajio, we also remove Banorte from the sell list


EM Banks and Financials – The Rebalancing in Index Weightings from the LatAm Perspective

Mexico

Grupo Financiero Banorte S.A.B. de C.V. is a financial institution in Mexico. The Company offers banking services, premium banking, wholesale banking, leasing and factoring, warehousing, insurance, pensions and retirement savings.

Grupo Financiero Banorte SAB d (GFNORTEO MF)

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Grupo Financiero Banorte SAB d (GFNORTEO MF)

Banorte – Shareholders Would Be Better off Without Banamex

We believe three factors increase the hurdles for a potential Banamex acquirer, especially Banorte; AMLO’s pronouncements, Banorte’s reduced 2Q22...

Victor Galliano

CitiBanamex – Potential Bidders Get Serious, We Stay Cautious on Banorte

Banorte and Santander hire M&A advisors for their Banamex bids, Inbursa is a likely candidate; Banorte remains the favourite, we believe, and so we...

Victor Galliano

CitiBanamex Legacy Operations – Revisiting Banorte’s Potential M&A Challenge and Opportunity

Banorte to buy Banamex? We think it likely, and that competition is pushing up the price for a bank in need of opex cuts and better credit quality;...

Victor Galliano

Banorte – Potential M&A Raises Questions on Dividend Prospects

Banorte management is proposing a big dividend pay-out in 2022, but there's a potential catch if Banorte acquires Citibanamex; it could require...

Victor Galliano

EM Banks and Financials – The Rebalancing in Index Weightings from the LatAm Perspective

Potential Russian shares exclusion from indices is real, with Asian EMs set to gain big, but do not disregard LatAm; our preferred financials are...

Victor Galliano

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