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

*Always The Magician: Founded in 2010, Metro Bank plc (MTRO.LN) [Metro] was the first de novo high street bank in the United Kingdom in over 150 years. After a period of rapid growth, Metro ran into some difficulties. Over the years, we have learned never to count out Founder Vernon Hill (former Chair and Founder of former Commerce Bancorp in New Jersey) who always walks between the raindrops. Metro has moved forward with the sale of its mortgage portfolio to Natwest Group plc on December 18, 2020; and *Large Capital Gain: The sold Metro portfolio should provide the company with and GBP 83mm gain on sale – representing 42% of market-cap. The sale of 20% of Metro’s loan portfolio also removes Metro’s need to issue expensive MREL debt versus its prior debt guidance issuance of between GBP 200-300 mn.

 *Always The Magician: Founded in 2010, Metro Bank plc (MTRO.LN) [Metro] was the first de novo high street bank in the United Kingdom in over 150 years. After a period of rapid growth, Metro ran into some difficulties. Over the years, we have learned never to count out Founder Vernon Hill (former Chair and Founder of former Commerce Bancorp in New Jersey) who always walks between the raindrops. Metro has moved forward with the sale of its mortgage portfolio to Natwest Group plc on December 18, 2020; and *Large Capital Gain: The sold Metro portfolio should provide the company with and GBP 83mm gain on sale – representing 42% of market-cap. The sale of 20% of Metro’s loan portfolio also removes Metro’s need to issue expensive MREL debt versus its prior debt guidance issuance of between GBP 200-300 mn. 

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

<ul>
<li>A merged BBVA-Sabadell would be the second largest Spanish bank by domestic assets, and one with substantial potential for branch network streamlining and cost savings supported by BBVA’s digital expertise</li>
<li>The big challenge in this process is TSB, <a href="https://www.smartkarma.com/entities/banco-de-sabadell-sa" target="_blank" data-smartkarma-citation="entities:21295:1" rel="noopener">Banco De Sabadell Sa (SAB SM)</a>’s loss-making UK subsidiary, which is, ideally, a disposal candidate</li>
<li>Sabadell’s low PBV ratio reflects, in part, Sabadell’s relatively low Spanish NPL coverage and, more importantly, the TSB “drag”</li>
<li>There is some activity in the M&amp;A market for small UK banks, as we will focus on in this report, but pricing is likely to be depressed</li>
<li>In the event of a successful TSB disposal, and given the <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>  merger talks, we believe that Sabadell would justify a further 20-25% premium to its current market value</li>
<li>An alternative, and sub-optimal, path would be to retain TSB post-restructuring (2022-23), and extract better value from the sale, but this would be a management distraction from the prospective Sabadell-BBVA merger of the Spanish operations</li>
<li>Risks to our positive view on Sabadell include the failure to agree on merger terms between the two parties, resulting in a termination of discussions; also poorer than expected performance from TSB’s restructuring programme and continued headwinds on credit quality</li>
</ul>


A merged BBVA-Sabadell would be the second largest Spanish bank by domestic assets, and one with substantial potential for branch network streamlining and cost savings supported by BBVA’s digital expertise
The big challenge in this process is TSB, Banco De Sabadell Sa (SAB SM)’s loss-making UK subsidiary, which is, ideally, a disposal candidate
Sabadell’s low PBV ratio reflects, in part, Sabadell’s relatively low Spanish NPL coverage and, more importantly, the TSB “drag”
There is some activity in the M&amp;A market for small UK banks, as we will focus on in this report, but pricing is likely to be depressed
In the event of a successful TSB disposal, and given the Banco Bilbao Vizcaya Argentari (BBVA SM)  merger talks, we believe that Sabadell would justify a further 20-25% premium to its current market value
An alternative, and sub-optimal, path would be to retain TSB post-restructuring (2022-23), and extract better value from the sale, but this would be a management distraction from the prospective Sabadell-BBVA merger of the Spanish operations
Risks to our positive view on Sabadell include the failure to agree on merger terms between the two parties, resulting in a termination of discussions; also poorer than expected performance from TSB’s restructuring programme and continued headwinds on credit quality


Banco De Sabadell (SAB SM): TSB, Fly in the Merger Ointment

United Kingdom

Metro Bank Holdings Plc is a holding company that, through its subsidiary Metro Bank PLC, provides retail and commercial banking services in the United Kingdom. It focuses on deposit-taking and lending activities for personal and small and medium-sized commercial customers, offering various bank accounts, savings, borrowing services, insurance, and mortgages. The company is headquartered in London, United Kingdom, and was founded in 2010.

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Metro Bank (MTRO LN)

Metro Bank Plc – Emrys

METRO BANK PLC: Metro was the first de novo high street bank in the United Kingdom in over 150 years. Metro ran into some difficulties, and moved...

Thomas J. Monaco

Banco De Sabadell (SAB SM): TSB, Fly in the Merger Ointment

We see re-rating potential at Sabadell, with the key catalyst as the TSB disposal, which would, in our view, improve investor sentiment and...

Victor Galliano

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