Banks
Low rates really helping – Q2
emerging themes supportive
The early signs from Q2 results are supportive for a
number of our top picks. Low rates & policy response
are starting to suppress NPL formation in Western
markets, and alongside strong wholesale earnings this
is driving up book value expectations. What’s more,
capital ratios are ticking up for wholesale/universal
banks from better earnings, shrinking RWAs & capital
raising. Whilst the key uncertainties remain – outlook for
provisions in 2010e, the impact of regulation, the impact
on earnings of shrinking books and what will be the “new
normal” – we think these results are supportive of our
best ideas (BBVA, CSG, SEB, UCG & Baer).
At CSG we reiterate our OW: At ~8x our new 2010e,
we raise our PT 6% to SFr 63. A core thesis of why we
are still constructive on CSG & some other wholesale
banks – despite what is likely to be a soggy summer and
with margins drifting down – is we think the thirst for
yield and the weakness of the banking system will
lead to an acceleration in disintermediation of
corporate loans by bonds. This could lead to
bumper European debt underwriting. We also
believe CSG is further through the crisis and is seizing
opportunities to pick up share in both i-banking and
private banking.
With this note, we also raise our 2009e book values for
SHB and NDA by 5-7% following a 2Q of solid
PPP-generation and continued low provisions. Our
Nordic top pick remains SEB, due to a strong capital
position, manageable risks, and well positioned
business mix, in combination with attractive valuation.
In Spain our top idea is BBVA (at 1.8x 2009e TBVPS
and 7x adj. P/E 2010e), and the early reporters support
this view. Whilst on fundamentals we are still very
concerned that rising unemployment & multi-year
deleveraging will mean the growth outlook for the
domestics will be unappealing, data this quarter seem to
indicate that the NPL trend is stabilizing.