In this note, we provide a review of the Italian banking system, including an overview and a discussion of the most important issues facing the sector. Italian banks represent a deeply discounted, fragmented system undergoing a cyclical recovery while at the same time, undergoing regulatory reform, and potential M&A.
Insights: Banks
Another U.S. Mid-Cap Bank Deal as HBAN Buys FMER
The trend in U.S. mid-cap bank M&A continues, with Huntington Bancshares Incorporated (HBAN) announcing an agreement to acquire FirstMerit Corporation (FMER) for US$3.4 bln. HBAN is paying 1.6x tangible book value in a stock and cash transaction (75%/25%), implying a 31% premium for FMER shareholders as of yesterday’s close. The deal follows a very steep correction in the U.S. banks year-to-date (e.g., BKX down ~18%, KRX…
Notes from Switzerland: Rising Regulatory Risk Places Swiss Private Banking Under Pressure
We recently traveled to Switzerland to meet with regulatory policy experts and representatives from the country’s major banks. Switzerland, while geographically small and landlocked, is home to a highly developed and skilled economy. It is one of the world’s most affluent nations, with the 6th highest GDP per capita (3rd excl. very small economies) of ~US$87,000 (Canada at ~US$50,000). Consistent with its longstanding neutrality, Switzerland is…
Notes from Sweden: Large Nordic Country; Oligopoly Banking Sector with High Capital Levels
We recently traveled to Sweden to meet representatives from the country’s four major banks and regulatory policy experts. For background, Sweden is the largest of the five Nordic countries by both population (9.7 mln) and economic output (US$570 bln). Of significance, it remains outside of the eurozone, i.e., it has its own currency/central bank (Finland is the only Nordic country in the eurozone; the other three…
Notes from the Netherlands: Eurozone Country Dominated by Two Large Public Banks
We recently traveled to the Netherlands to meet with representatives from the country’s major banks and regulatory policy experts. The Netherlands is the most densely populated large economy outside of Asia, with 16.8 mln people, and is a member of the eurozone. Its developed economy is focused on foreign trade, and it ranks as the second largest exporter of agricultural products in the world. It’s GDP…
Notes from Denmark: Small, Wealthy Country; Well Capitalized Banks
We recently traveled to Denmark to meet with regulatory policy experts and representatives from the country’s major banks. Denmark is the smallest of the Nordic countries by size, but the second largest by population with ~5.7 mln. It remains outside of the eurozone, along with three of the other four Nordic countries (Finland is a eurozone member). It has a developed (mixed) economy focused on foreign…
BofA Merrill Lynch Financials Conference in NYC: Notes from the Field
We recently attended the Bank of America Merrill Lynch Banking & Financial Services Conference in New York City. Representatives from major banks, asset managers, and consumer finance companies participated in very informative Q&A sessions, providing us and other investors with their thoughts on interest rates, M&A, and the credit environment. We would identify the following key takeaways:
U.S. Banks: Revisiting “100 Bank Mergers”, 3 Years Later
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…
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…