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20 Dec 16
The group has announced the acquisition of MBNA, BofA’s UK credit business, for a £1.9bn cash consideration. The deal, which would increase LBG’s segment market share by 11ppt to a large 25%, still needs regulatory approval. If so, it is expected to be completed by the end of H1 17. On top of the obvious strategic rationale, the transaction has strong financial appeal.
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Not growing as fast
22 Feb 17
Metro Bank (3,516p, SELL, TP 2,700p) – 4Q16 results U/L PBT of £1.5m compares to our forecasts of £0.6m. Revenues of £57.6m were 3% ahead of expectations due to better NIM of 2.03% driven by deposit costs that fell from 80bp to 66bp, which benefitted from the fall in interest rates and growth in PCA. However, total loans of £5.8bn were lower than our estimates of £6.1bn. Deposits of £7.95bn were also lower than our estimates of £8.22bn. Loan-todeposit ratio increased to 74%. CET1 ratio fell to 18.1% (Panmure 18.3%). TNAV per share also fell from 921p to 917p. Overall the beat is in NIM is encouraging but growth in deposits and loans is lower than our forecasts. With Metro Bank trading at reported P/TBV of 3.8 we remain SELLERS.
21 Feb 17
The group posted a stronger-than-expected loss in the fourth quarter. The underlying profitability corresponded to a meagre 5.9% annualised ROE while management delivered a conservative message by signalling its confidence in maintaining the dividend this year. The commitment to return the rest of the equity freed up by the disposal of Brazilian operations will be of little help, confirming the lack of growth opportunities while the excess capital was already priced in.
Net interest margin and dividend remain the keys...
16 Feb 17
Following the Q4 16 earnings release, we are updating our model so as to factor in the latest trends in KBC’s operating divisions. Total income at €1.9bn was respectively 6.7% and 8% higher than consensus forecasts and our own expectations. The beat was, however, entirely driven by both trading income and other income, which we do not find sustainable going into 2017 and 2018. Total expenses were in line with consensus numbers but above our expectations due to a one-off expense of €33m for early retirement in Belgium. Loan losses at €73m were in line with expectations but higher than the €55m we had expected. All in all, operating income at €865m was 13.3% higher than our expectations. In terms of capital, the CET1 ratio at 15.8% is 50bp higher qoq and 440bp above ECB’s requirements. Even if management remains committed to paying a minimum 50% pay-out ratio, the actual dividend for 2016 is rather disappointing as, with a €2.8 total dividend, the pay-out ratio is therefore in the low range of the guidance at 50%.
UK CHALLENGER BANKS
16 Feb 17
We initiate coverage of the Challenger banks with BUY recommendations on Aldermore, OneSavings Bank, Shawbrook and Virgin Money, and SELL ratings on CYBG and Metro Bank. We particularly like the specialist lenders as they have avoided direct competition with large UK banks and offer high growth and returns at attractive valuations (helped by the fallout from the Brexit vote) of 2017E PE and P/TBV of 7.5 and 1.6 for RoTE of 23% compared to large UK banks on 18.4 and 0.9 for RoTE of 8%. Among the true challengers we prefer Virgin Money for its 2017E RoTE of 14% for P/BV of 1.1 but are not keen on CYBG as it reminds us of the low growth and returns and continual restructuring costs recently seen at large UK banks, nor Metro Bank for its exorbitant 2017E P/TBV of 3.9 for no profits. Our Top Pick is Shawbrook as it is the most specialised of the lenders.
A strong set of results...
15 Feb 17
CASA released its Q4 16 earnings. Total income at €4.58bn is 5% higher than expectations and total expenses at €3bn are 3.5% higher than expected. As loan losses at -€395m were €80m better than consensus’s forecasts, operating profit is therefore 22% higher than expectations. In terms of capital, the dividend is €0.6, or a 50% pay-out ratio, and the CET1 ratio at 12.1% is 10bp higher qoq.
Again, disastrous Q4 16 results, as expected, due to litigation charges
14 Feb 17
Preliminary net result attributable to shareholders was a loss CHF2.35bn for Q4 16 compared to a loss of CHF5.83bn for Q4 15. The preliminary net loss attributable to shareholders was CHF2.44n for FY2016 compared to a loss of CHF2.94bn for FY2015. FY2016 was burdened by litigation costs of CHF2.4bn mainly due to the DoJ case settlement (RMBS) and FY2015 suffered on an goodwill impairment of CHF3.8bn. Net revenues were down by 15% to CHF20.3bn for 2016 compared to 2015. Total operating expenses decreased by 15% to CHF22.0bn for 2015. The pre-tax result was a loss of CHF2.0bn for 2016 compared to a loss of CHF2.4bn for 2015. The RoE was negative at -6.8% for 2015 and -5.5% for 2016. Assets under management rose by 3.2% to CHF1,253bn at the end of 2016 compared to 2015. Net new money inflow was CHF27.8bn for 2016 compared to CHF49.1bn for 2015. Credit Suisse’s fully-applied Basel III common equity tier 1 (CET1) ratio was 11.6% at the end of 2016 compared to 11.4% at the end of 2015. The dividend per share proposal is unchanged at CHF0.70 for FY2016. The release of the 2016 report is due on 24 March 2017.
Quarterly results and balance sheet on track according to management
10 Feb 17
The quarterly loss was in line with the preliminary estimate disclosed at the end of January. Operating trends were still under pressure but are on track according to management. The latter also detailed the technical reasons behind the sharper than expected depletion of the capital position prior to the rights issue.
Strong beat in terms of P&L; capital and dividend in line
09 Feb 17
Natixis has just released its Q4 16 earnings. Total revenues at €2.52bn were 6% higher than expectations (and 5% higher than our own expectations). Total expenses were therefore mechanically higher than expectations at €1.65bn (versus €1.57bn expected by the consensus and us). Loan losses at -€60m were also better than expected (-€80m as for the consensus). All in all, operating profit at €801m was 8% higher than expectations and 7% higher than our forecasts. The CET1 ratio at 10.8% (fully-loaded except for DTA which remains phased-in) is 20bp lower qoq (to the benefit of an (expected) €0.10 exceptional dividend). Total dividend at €0.35 is in line with expectations.
Stronger quarterly results, ongoing reduction in capital requirements
09 Feb 17
The group posted a good set of quarterly results. This should support the ongoing upgrade of consensus expectations. On top of this, the new SREP ratio was reduced by 50bp to 8.25%, thus mechanically reducing the group’s cost of equity.
A strong set of P&L results...
09 Feb 17
Société Générale (SocGen) has just released its Q4 16 (FY16) earnings. Total income at €6.13bn was 1% higher than consensus expectations, while expenses were 1% higher than expectations. Thanks to net loan loss recoveries in the CIB division, Q4 16’s cost of risk was much lower than expected at €486m (€701m expected). Operating income at €1,245m was therefore 22% above expectations. The CET1 ratio at 11.5% was 10bp higher qoq (100bp higher than the fully-loaded 2019 requirements). SocGen also announced it is intending to float its ALD subsidiary on the stock market in 2017 through the disposal of a limited stake (the French bank remaining the majority shareholder).