Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Accelerating Tomorrow’s Independent Research

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Thematic (Sector/Industry)

<ul>
<li>The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that there would be no cap or regulatory-enforced reduction in Mexican banking fee and commission charges</li>
<li>AMLO stated that he expects fees to decline going forward, as a result of increased competition between banks; in the ABM convention, it was also announced that banks will charge zero commissions on the planned platform for digital payments</li>
<li>This seems a better outcome on fees than the market expected - at least in the near term, as fees are still on the political agenda - and there was greater emphasis at the convention on how to achieve increased financial inclusion, via digital banking initiatives</li>
<li>Yet we still believe that bank fees could be a bone of contention over the medium term, and we show the FY 2018 ratio of fees to revenues and to assets for eight banks, in the charts below</li>
<li>The January 2019 Mexican banks data implies slower system loan growth going forward, yet credit quality remains healthy and credit spreads are holding steady</li>
<li>Despite the volatile global markets, in the short term banks like <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a> could benefit from the "fee relief"; longer term, we would highlight <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a> as an attractive fundamental pick in Mexican banks</li>
</ul>


The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that there would be no cap or regulatory-enforced reduction in Mexican banking fee and commission charges
AMLO stated that he expects fees to decline going forward, as a result of increased competition between banks; in the ABM convention, it was also announced that banks will charge zero commissions on the planned platform for digital payments
This seems a better outcome on fees than the market expected - at least in the near term, as fees are still on the political agenda - and there was greater emphasis at the convention on how to achieve increased financial inclusion, via digital banking initiatives
Yet we still believe that bank fees could be a bone of contention over the medium term, and we show the FY 2018 ratio of fees to revenues and to assets for eight banks, in the charts below
The January 2019 Mexican banks data implies slower system loan growth going forward, yet credit quality remains healthy and credit spreads are holding steady
Despite the volatile global markets, in the short term banks like Grupo Financiero Banorte-O (GFNORTEO MM) could benefit from the "fee relief"; longer term, we would highlight Gentera SAB De CV (GENTERA* MM EQUITY) as an attractive fundamental pick in Mexican banks


Mexican Banks - Near Term Relief on Fees from the ABM Convention; Thoughts on January's Bank Data

<ul class="">
<li>We take a contrarian bullish view on microfinance bank <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a> , despite the AMLO headwinds, and a cautious stance on <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a>
</li>
<li>AMLO push to increase financial inclusion in Mexico, focused on the low income and rural population, may add to bank sector costs at the margin without materially impacting revenues</li>
<li>Early fears of increased intervention in the bank sector – such as capping fees and commissions – appear to have abated. Interest-free loans for micro-entrepreneurs have hit sentiment on microfinance and consumer finance stocks, especially <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a>; we believe, on a medium-term view, these concerns may be overdone</li>
<li>We would be cautious on the Mexican big cap banks, and especially <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a> ; we see downside risk to consensus estimates from overly-positive GFI acquisition synergies, and potential pressure on local government loan rates over the medium term</li>
<li>We are neutral on <a href="https://www.smartkarma.com/entities/24776" target="_blank" data-smartkarma-citation="entities:24776:1">Grupo Financiero Inbursa-O (GFINBURO MM)</a>  and <a href="https://www.smartkarma.com/entities/27672" target="_blank" data-smartkarma-citation="entities:27672:1">Banco Santander Mexico-B (BSMXB MM)</a> , we like BBVA Bancomer long-dated unsecured bonds as an alternative to Mexican bank equity exposure</li>
</ul>


We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance on Grupo Financiero Banorte-O (GFNORTEO MM)

AMLO push to increase financial inclusion in Mexico, focused on the low income and rural population, may add to bank sector costs at the margin without materially impacting revenues
Early fears of increased intervention in the bank sector – such as capping fees and commissions – appear to have abated. Interest-free loans for micro-entrepreneurs have hit sentiment on microfinance and consumer finance stocks, especially Gentera SAB De CV (GENTERA* MM EQUITY); we believe, on a medium-term view, these concerns may be overdone
We would be cautious on the Mexican big cap banks, and especially Grupo Financiero Banorte-O (GFNORTEO MM) ; we see downside risk to consensus estimates from overly-positive GFI acquisition synergies, and potential pressure on local government loan rates over the medium term
We are neutral on Grupo Financiero Inbursa-O (GFINBURO MM)  and Banco Santander Mexico-B (BSMXB MM) , we like BBVA Bancomer long-dated unsecured bonds as an alternative to Mexican bank equity exposure


Mexican Banks AMLO Effect; Less Bad than Feared?

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>We stick with our pairs trade long on BanBajio and short on Banorte; we remove BanRegio from buy, as we do not see it to be so compelling on valuations</li>
<li>BanBajio stands out versus both Banorte and Gentera in terms of its PBV ratio discount; in both cases, BanBajio’s PBV discount is c 40%</li>
<li>Based on our updated propietary scorecard, BanBajio remains top with Inbursa bottom of the ranking</li>
</ul>


We stick with our pairs trade long on BanBajio and short on Banorte; we remove BanRegio from buy, as we do not see it to be so compelling on valuations
BanBajio stands out versus both Banorte and Gentera in terms of its PBV ratio discount; in both cases, BanBajio’s PBV discount is c 40%
Based on our updated propietary scorecard, BanBajio remains top with Inbursa bottom of the ranking


Mexican Banks – BanBajio (BBAJIO:MM) Remains the Value Play

Grupo Financiero Banorte SAB d / Equity Bottom-Up

Grupo Financiero Banorte SAB d (GFNORTEO MF)

<ul>
<li>Banorte’s solid 4Q22, and the prospect of a healthy dividend payout, have so far trumped concerns of an earnings downturn from credit spread erosion, higher opex and cost of risk</li>
<li>Bank sector data trends to November accentuate the return headwinds that we see emerging; further tightening credit spreads and a rising cost of credit, credit cards a likely leading indicator</li>
<li>BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, due to the growing risks to returns</li>
</ul>


Banorte’s solid 4Q22, and the prospect of a healthy dividend payout, have so far trumped concerns of an earnings downturn from credit spread erosion, higher opex and cost of risk
Bank sector data trends to November accentuate the return headwinds that we see emerging; further tightening credit spreads and a rising cost of credit, credit cards a likely leading indicator
BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, due to the growing risks to returns


Banorte 4Q22 & Mexican Banks’ November Data – Rising Risk of Credit Spread Erosion and NPL Worsening

Event-Driven

Grupo Financiero Banorte SAB d / Event-Driven

<ul>
<li>Santander’s USD6bn offer for Banamex was rejected by Citi as too low, according to press reports; the estimated valuation range for Banamex is now from USD7bn to USD8bn</li>
<li>This leaves Inbursa, the Mifel-Grupo Mexico consortium and Banorte as contenders, with Banorte still a leading contender</li>
<li>We continue to be cautious on Banorte, as its potential M&amp;A success would mean big challenges in terms of capital requirements, along with portfolio de-risking and unpopular cost-cutting</li>
</ul>


Santander’s USD6bn offer for Banamex was rejected by Citi as too low, according to press reports; the estimated valuation range for Banamex is now from USD7bn to USD8bn
This leaves Inbursa, the Mifel-Grupo Mexico consortium and Banorte as contenders, with Banorte still a leading contender
We continue to be cautious on Banorte, as its potential M&amp;A success would mean big challenges in terms of capital requirements, along with portfolio de-risking and unpopular cost-cutting


Banamex – Now There Are Three Potential Bidders, Still Including Banorte

Mexico

Grupo Financiero Inbursa, SAB de C.V. is a holding company.  The Company, through its subsidiaries, attracts deposits and offers retail and commercial banking services.  The Bank manages stock and fixed income funds, and offers fire, transportation, automobile, agriculture, liability, casualty, and health insurance.  Inbursa also offers automobile and equipment lease financing.

Price Gauge
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Grupo Financiero Inbursa-O (GFINBURO MM)

Mexican Banks - Near Term Relief on Fees from the ABM Convention; Thoughts on January's Bank Data

The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that...

Boost Research

Mexican Banks AMLO Effect; Less Bad than Feared?

We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance...

Boost Research

Mexican Banks – BanBajio (BBAJIO:MM) Remains the Value Play

We keep our pairs trade long on scorecard top-rated BanBajio and short on Banorte, removing BanRegio from the buy list. BanBajio's PBV ratio...

Victor Galliano

Banorte 4Q22 & Mexican Banks’ November Data – Rising Risk of Credit Spread Erosion and NPL Worsening

The market reacted positively to Banorte’s 4Q22 results, yet from the sector data as well as Banorte's report, we see 2023 challenges from rising...

Victor Galliano

Banamex – Now There Are Three Potential Bidders, Still Including Banorte

Banorte is expected to bid for Banamex and the risks are skewed against its shareholders; Banorte could need to raise capital and could find it...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Mexican Banks - Near Term Relief on Fees from the ABM Convention; Thoughts on January's Bank Data

The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that...

Boost Research

Mexican Banks AMLO Effect; Less Bad than Feared?

We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance...

Boost Research

Mexican Banks – BanBajio (BBAJIO:MM) Remains the Value Play

​We keep our pairs trade long on scorecard top-rated BanBajio and short on Banorte, removing BanRegio from the buy list. BanBajio's PBV ratio...

Victor Galliano

Banorte 4Q22 & Mexican Banks’ November Data – Rising Risk of Credit Spread Erosion and NPL Worsening

The market reacted positively to Banorte’s 4Q22 results, yet from the sector data as well as Banorte's report, we see 2023 challenges from rising...

Victor Galliano

Banamex – Now There Are Three Potential Bidders, Still Including Banorte

Banorte is expected to bid for Banamex and the risks are skewed against its shareholders; Banorte could need to raise capital and could find it...

Victor Galliano

We keep our pairs trade long on scorecard top-rated BanBajio and short on Banorte, removing BanRegio from the buy list. BanBajio's PBV ratio...