Credit Suisse – Perfection Priced into Long-Dated AT1

HSBC Q4 ’20: Surprisingly Credit Positive Results and Strategic Update

Standard Chartered Results: Lost at Sea with No Credit Catalyst

Société Générale AT1: Resolution or Resilience in the Retail Restructuring? Take Shorter Duration

Bank Credit Strategy: Q1 Glass Half Full as Market Dynamics Overwhelm Relative Valuations

BNP Paribas: Personal Finance and Global Markets Sensitivity

Gravity Works As WeWork Doesn't; Now Plan B

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p>Equity markets applauded <a href="https://www.smartkarma.com/entities/societe-generale-sa" target="_blank" data-smartkarma-citation="entities:21478:1" rel="noopener">Société Générale's (SocGen)</a> Q4 results while credit markets were less impressed. The dichotomy resulted in additional, possibly unwarranted, spread widening between SocGen’s 10-year Additional Tier 1 (AT1) and <a href="https://www.smartkarma.com/entities/bnp-paribas" target="_blank" data-smartkarma-citation="entities:525:1" rel="noopener">BNP Paribas' (BNP)</a> similar security. BNP is clearly perceived to be a better credit. We question whether this is entirely appropriate.</p><p>We find that fundamental differences between SocGen and BNP may be less than perceived in the credit markets with respect to core recurrent earnings, trading risks and asset quality. Nonetheless, SocGen’s AT1 trades at a discount of 17 to 75bps to BNP. At the same time, SocGen reports a materially higher buffer of capital to potential earnings distribution restrictions. Juxtaposed with the current interest rate environment, this is meaningful. Concurrently, upcoming, potentially positive, event risk could restrict SocGen’s spread widening relative to BNP over the near term.  Investors may be better served in SocGen’s AT1 curve over the near term. We identify our preferred entry point within.</p>

Equity markets applauded Société Générale's (SocGen) Q4 results while credit markets were less impressed. The dichotomy resulted in additional, possibly unwarranted, spread widening between SocGen’s 10-year Additional Tier 1 (AT1) and BNP Paribas' (BNP) similar security. BNP is clearly perceived to be a better credit. We question whether this is entirely appropriate.We find that fundamental differences between SocGen and BNP may be less than perceived in the credit markets with respect to core recurrent earnings, trading risks and asset quality. Nonetheless, SocGen’s AT1 trades at a discount of 17 to 75bps to BNP. At the same time, SocGen reports a materially higher buffer of capital to potential earnings distribution restrictions. Juxtaposed with the current interest rate environment, this is meaningful. Concurrently, upcoming, potentially positive, event risk could restrict SocGen’s spread widening relative to BNP over the near term.  Investors may be better served in SocGen’s AT1 curve over the near term. We identify our preferred entry point within.

Société Générale’s AT1: Better Fundamental and Relative Value than BNP

Societe Generale Sa

Société Générale’s AT1: Better Fundamental and Relative Value than BNP