In our Insight “Five Reasons We Don’t Own C. JPM, BAC, GS, or MS” (June 14, 2016), we explained why – despite their low valuations – we held no positions in these widely owned banks/brokers. We outlined that we prefer mid-cap banks over the largest banks, for reasons including: (i) earnings headwinds for the larger banks, (ii) higher rate sensitivity for the mid-caps, combined with (iii)…
Hamilton ETFs
On HBG: With Focus on Mid-Caps, U.S. Bank Holdings Generate 13% Y/Y EPS Growth in Q2 – Significantly Outpacing Sector
Over time, we expect to have 50% exposure to North America in the Hamilton Capital Global Bank ETF (TSX; HBG). As stated in our note, “HBG: Post-Brexit Portfolio Changes” (July 6, 2016), we went underweight Canada (to 0%) and increased our exposure to the U.S. (to 44%) heading into Q2 earnings season. Entering earnings season, HBG had positions in 26 U.S. banks, of which 19 were…
Australian Banks: Rate Cut Highlights Benefits of Flexible Monetary Policy
The Hamilton Capital Global Bank ETF (HBG; TSX) emphasizes the benefits of investing in countries with flexibility in monetary policy – i.e., those with a central bank rate materially above zero. As of month-end, the weighted average central bank rate was over 1.0%, materially higher than that of Canada (50 bps) or the U.S. (~38 bps – i.e., between 25 and 50 bps). One of those…
One Chart on Stress Test Highlights the Diversity of European Banks
The Hamilton Capital Global Bank ETF (HBG; TSX) is expected, over time, to hold ~25% exposure to European banks. Prominent among the ETF’s identified objectives is to generate yield and to limit volatility. As a result, in the European portfolio, HBG places a significant emphasis on Northern European countries which are – on balance – wealthier than Canada/U.S. and have higher forecast GDP growth, and whose…
2016 EBA Stress Tests Confirm Strength of Northern European Banks (and a Word on Italy)
The Hamilton Capital Global Bank ETF (HBG; TSX) is expected, over time, to hold ~25% exposure to European banks. Prominent among the ETF’s identified objectives is to generate yield and to limit volatility. As a result, in its European portfolio, HBG places a significant emphasis on Northern European countries, which are – on balance – wealthier than Canada/U.S. and have higher forecast GDP growth. Relative to…
One Trillion Reasons Why Europe is Not Japan
Recently, we have seen many comparisons between Europe now to Japan after it emerged from its deep and protracted cycle (from 1989 to 1999). In this note, we address why this analogy, and by extension the comparison between their respective banking systems, lacks merit.
On Capital, Canadian Banks Continue to Lose Ground vs. Global Peers
In our Insight, “Canadian Banks – Are Falling Global Reserve/Capital Rankings Increasing Regulatory Risk?” (April 27th, 2016), we highlighted that on the most important capital ratio, CET1, the Canadian banks have an average ratio of ~10%, which is well below the average of ~13.5% for the banks in 35 “major” countries (ranking 34th out of 35). We also explained in that Insight that we believe the…
HBG: Post-Brexit Portfolio Changes
The Hamilton Capital Global Bank ETF (HBG) held almost 12% cash leading up to the Brexit vote on June 23rd, which provided an opportunity to strategically add positions after the “Leave” side declared victory and equity markets and bank stocks declined sharply. From Thursday June 23rd to Monday June 27th, the global banks experienced a sharp correction, falling 11%. The European banks took the brunt of…
European Banks: Negative Rates – Four Charts Showing They are Not as Menacing as Advertised
In our Insight “European Banks: Sector Profitability Almost “Normal”, Reaching ~€90 bln in 2015”, we highlighted that the sector has seen ‘core’ earnings recover to ~€90 bln, which represents a near complete recovery in earnings to pre-cycle (2007) levels. However, at the same time, European bank index levels are closer to levels last seen at the peak of the sovereign debt crisis (2011/2012).
European Banks: Sector Profitability Almost “Normal”, Reaching ~€90 bln in 2015
Macro issues continue to dominate European bank valuations as the sector remains in focus, particularly following the recent Brexit vote. Given all of the concerns over European banks, it is worth noting that profitability for the sector has almost completely recovered to pre-cycle levels. In 2007 (the last “normal” year), the European banks made just over €100 bln in “core” earnings. At the same time, the…
Spanish Election Results: No Governing Coalition (Yet), and No Gains for Anti-Austerity/Euro Skeptic Parties
Spaniards returned to the polls on Sunday, June 26 for the country’s second national election in six months. This came just three days after the UK surprised markets by voting to leave the EU.
Thoughts on Brexit and its Impact on the European Banks
It is safe to say, looking at today’s market movements, that the result of the U.K.’s E.U. referendum – a 51.9% victory for the LEAVE camp – has taken many investors by surprise. In this Insight, we share some preliminary thoughts on the implications of Brexit, particularly as it relates to the European banks.