In December 2012, we published a note, entitled “100 Bank Mergers”. In the original note, we predicted that, in the following 3 years, there would be approximately 100 bank deals in the U.S. mid-cap banking sector (i.e., representing ~25% of the approximately 450 publicly-traded U.S. banks). To support this prediction, we detailed five potential catalysts in 2012: 1) Deals beget deals … and deal activity had…
Insights: Region
European Bank Profitability Continues to Recover
Despite a macro driven correction holding back stock prices, Q3 2015 earnings season demonstrated that the recovery towards pre-cycle profitability continues. As the chart highlights, the European banks generated ~€130 bln in “core earnings” in 2007, i.e., before the cycle began (source: Keefe Bruyette and Woods, universe is ~70 banks, accounting for ~90% of system assets). During the sovereign debt crisis in 2011/2012, European bank earnings…
U.S. Banks: Notes from Boston Banc Analysts Conference
On November 5th and 6th, we attended the 2015 Banc Analysts Association of Boston conference (BAAB), at which many of the biggest banks in the United States presented. The theme of the conference was growth, with a focus on technological change, although presenters used the venue to cover a variety of issues, which are outlined below.
Greek Banks “Stressed” Again, Basically Un-investable
From a systemic perspective, the recapitalization of the European banking sector is complete. So, while capital actions for certain banks are possible (i.e. Deutsche Bank), we continue to forecast limited EPS dilution from capital raises, overall. Moreover, the recovery in European banks from both an earnings and stock price perspective continues to track very closely the recovery of U.S. banks at a similar stage of the…
U.S. Banks: Two Significant Deals in Two Days Met with Market Skepticism
On Thursday, the second significant bank acquisition was announced in two days, with NYCB acquiring AF, followed by KEY acquiring FNFG. As we have written in the past, with over 350 publicly-traded banks (5,600 in total), we expect the 30+ year secular trend of U.S. bank consolidation to continue for many years (see our December 13th, 2012 note “100 Bank Mergers”, where we discuss consolidation in the…
Canadian Banks: ~$1 bln in Restructuring Charges in Past Year; What it Means
On October 15th, National Bank announced an $85 mln pre-tax restructuring charge (among other things). What is interesting is that this was the sixth such charge announced by the Canadian banks since Q4 2014.
Canadian Banks: New Federal Government Not (Likely) Significant to Banks
Last week, the Canadian federal election ended with a majority victory for the Liberal party. Although a minority win for the Liberals or governing Conservatives was seen as the most likely outcome according to the polls, the preferred outcome for the market (and the banks), in our view, was a Conservative or Liberal majority government. The worst plausible election outcome would have been a minority Liberal government supported…
Business Development Corps: Notes from NYC Field Trip
We recently travelled to New York City to meet with executives from a group of business development companies (“BDCs”), a diverse category of “other financials” focused on yields. There are over 30 publicly traded BDCs in our investable universe, with market capitalizations ranging from ~$100 mln to several billion dollars. Yields for these financials are generally over 8%.
European Trip to London, Frankfurt, and Madrid: Notes from the Field
A recent trip to Europe – 3 days in London at a European financial services conference, and 1 day field trips to Frankfurt and Madrid – gave us an opportunity to meet with executives from more than 25 financial services companies and agencies (including 19 banks and 3 insurers) representing 9 countries. Notably, the trip reinforced our European investment thesis, although a disparity of country and…
Deutsche Bank Pre-Announces Charges, Possible Dividend Reduction
After the U.S. close last night, Deutsche Bank (ticker: DBK GR) announced a series of write-downs, an increase in its litigation reserve, and a Management Board recommendation to reduce (or possibly eliminate) its dividend in 2015. Most of the announcement was anticipated and/or priced in with the exception of the announcement the bank might eliminate its dividend. As a result, at the time of writing, the…
On Greece, European Fixed Income Markets Remain Calm
The tiny country of Greece is dominating the news – yet again. Notwithstanding the wall-to-wall press coverage and declines in equity markets, it is worth noting that the changes in sovereign yields of other European countries remain muted, reflecting the fact Greece is extremely small, at just 1% of European GDP (< 2% of the eurozone).
Why This Weekend Was About Spain; Not Greece
Greece is in the headlines … again. But in our view, the events of this past month are about Spain, not Greece. There is no need for us to review the Greek soap opera (it is all over the news), but suffice to say, this is the first step in a process that virtually assures a terrible outcome for Greece (either painful internal devaluation, or an…