Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary:<a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered's (STAN LN)</a> Q1 performance looked good optically, when seen from a sharp angle, but the issue is whether this is sustainable. We think not for three reasons.First, StanLn was rather coy regarding the likely impact on revenues and reserving from the on-going Covid-19 disaster in India. Second, aside from the potentially negative revenue impact from India, StanLn does not anticipate an increase in revenues overall until next year, despite the phantom 4% increase in Q1 lending quarter-on-quarter. Third, expenses rose faster than revenues during the quarter. We would not be surprised to see another costly restructuring announcement before year-end.To its credit, Standard Chartered’s expected credit loss reserve release is better substantiated than that undertaken by <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a>.Nonetheless, management’s unchanged revenue expectations juxtaposed with inorganic regional growth opportunities creates a situation which may be unpleasant for credit investors. Given the double jeopardy facing StanLn’s capital buffer and near-term loss absorbing ability, we would prefer to position within less event sensitive securities, such as StanLn’s Tier 2 bonds.

Executive Summary:Standard Chartered's (STAN LN) Q1 performance looked good optically, when seen from a sharp angle, but the issue is whether this is sustainable. We think not for three reasons.First, StanLn was rather coy regarding the likely impact on revenues and reserving from the on-going Covid-19 disaster in India. Second, aside from the potentially negative revenue impact from India, StanLn does not anticipate an increase in revenues overall until next year, despite the phantom 4% increase in Q1 lending quarter-on-quarter. Third, expenses rose faster than revenues during the quarter. We would not be surprised to see another costly restructuring announcement before year-end.To its credit, Standard Chartered’s expected credit loss reserve release is better substantiated than that undertaken by HSBC Holdings (HSBA LN).Nonetheless, management’s unchanged revenue expectations juxtaposed with inorganic regional growth opportunities creates a situation which may be unpleasant for credit investors. Given the double jeopardy facing StanLn’s capital buffer and near-term loss absorbing ability, we would prefer to position within less event sensitive securities, such as StanLn’s Tier 2 bonds.

Standard Chartered Q1 Results: Unsustainable and Event Risk Is Not Priced In

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

HSBC is now talking about bidding up staff costs in Asia, namely in wealth and investment banking. This comes as it tries to restructure costs lower. The bank may disappoint yet again, and it may not be only with expenses.

HSBC is now talking about bidding up staff costs in Asia, namely in wealth and investment banking. This comes as it tries to restructure costs lower. The bank may disappoint yet again, and it may not be only with expenses. 

Executive Summary: US investment banking Q1 results set us up for an interesting European bank earnings season. After reserve releases, investment banking revenues were the second largest driver of net revenues as compared to the prior year.The upcoming set of European bank results may be as good as it gets for this year. As each bank may release reserves, investment banking specialization may be the differentiating factor in terms of revenue results.With US banks noting that their more macro-related trading activities were lower than in the prior year, we consider which European banks may report similar activity. We suspect that the French institutions, Société Générale in particular, could benefit most from their investment banking results provided their real economy activity continues to strengthen.

Executive Summary: US investment banking Q1 results set us up for an interesting European bank earnings season. After reserve releases, investment banking revenues were the second largest driver of net revenues as compared to the prior year.The upcoming set of European bank results may be as good as it gets for this year. As each bank may release reserves, investment banking specialization may be the differentiating factor in terms of revenue results.With US banks noting that their more macro-related trading activities were lower than in the prior year, we consider which European banks may report similar activity. We suspect that the French institutions, Société Générale in particular, could benefit most from their investment banking results provided their real economy activity continues to strengthen.

US Investment Bank Results and Upcoming European Bank Earnings

Specialist in Indian Banking and Economic Research

Hemindra Hazari

<a href="https://www.smartkarma.com/entities/citigroup-inc" target="_blank" data-smartkarma-citation="entities:279:1" rel="noopener">Citigroup Inc (C US)</a>’s decision to <a href="https://www.citigroup.com/citi/investor/data/qer121.pdf?ieNocache=351" target="_blank" rel="noopener">withdraw</a>  from consumer banking in 13 geographies, including India, and focus instead on corporate/institutional banking, is a lesson in missed opportunities, at least in the case of India. Citi India was the pioneer in consumer banking, in products such as mortgages and credit cards, but it flourished when there were only government banks. The post-1991 entry of the new private banks in India which concentrated on the retail and corporate customers of foreign banks, and the post-Lehman crisis in 2008, heralded the decline of foreign banks in India. The present market capitalisation of the new private banks, and their significant footfall in retail banking in India, highlight the missed opportunity by foreign banks like Citi. The Reserve Bank of India (RBI) provided the foreign banks an opportunity from <a href="https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/IEPR936SC1113.pdf" target="_blank" rel="noopener">2013</a>  to set up Indian subsidiaries which could unfetter their network shackles and expand their branches, which is necessary for consumer banking, but the foreign banks preferred not to get tied down by the other regulatory and social commitments. Instead they focused on hiring direct sales agents to grow their consumer book. Although Citi developed a premium retail clientele franchise, the lack of a broader retail network and intense competition impeded their growth in retail. They preferred to remain focused on the corporate portfolio where, using their global balance sheet, creating structured products and handling treasury and foreign exchange transactions, they managed a lucrative business. Citi’s 5% market share in credit cards remains the jewel in its retail consumer franchise in India, and its monthly credit card spends per customer are at the top of the league, and close to HDFC Bank. Many players are eyeing Citibank’s market share in credit cards and it remains to be seen whether Citi offloads it on a standalone basis, or sells it with its other retail franchise in India, or sells all 13 geographies to a global player.

Citigroup Inc (C US)’s decision to withdraw  from consumer banking in 13 geographies, including India, and focus instead on corporate/institutional banking, is a lesson in missed opportunities, at least in the case of India. Citi India was the pioneer in consumer banking, in products such as mortgages and credit cards, but it flourished when there were only government banks. The post-1991 entry of the new private banks in India which concentrated on the retail and corporate customers of foreign banks, and the post-Lehman crisis in 2008, heralded the decline of foreign banks in India. The present market capitalisation of the new private banks, and their significant footfall in retail banking in India, highlight the missed opportunity by foreign banks like Citi. The Reserve Bank of India (RBI) provided the foreign banks an opportunity from 2013  to set up Indian subsidiaries which could unfetter their network shackles and expand their branches, which is necessary for consumer banking, but the foreign banks preferred not to get tied down by the other regulatory and social commitments. Instead they focused on hiring direct sales agents to grow their consumer book. Although Citi developed a premium retail clientele franchise, the lack of a broader retail network and intense competition impeded their growth in retail. They preferred to remain focused on the corporate portfolio where, using their global balance sheet, creating structured products and handling treasury and foreign exchange transactions, they managed a lucrative business. Citi’s 5% market share in credit cards remains the jewel in its retail consumer franchise in India, and its monthly credit card spends per customer are at the top of the league, and close to HDFC Bank. Many players are eyeing Citibank’s market share in credit cards and it remains to be seen whether Citi offloads it on a standalone basis, or sells it with its other retail franchise in India, or sells all 13 geographies to a global player.   

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Grupo Financiero Banorte SAB d / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/citigroup-inc" target="_blank" data-smartkarma-citation="entities:279:1" rel="noopener">Citigroup Inc (C US)</a>  1Q21 results shows that Citi’s LatAm business – with Mexico at its core – continues to be a drag on its earnings</li>
<li>The main headwind in Citibanamex’s core business of Mexican consumer banking, bar weak revenue trends, was the sharp rise in credit provisions and charge-offs which served to lower its delinquency ratio</li>
<li>Citibanamex’s earnings hit from credit charges is not an early warning for Banorte’s upcoming 1Q21 results; <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a> management bit that bullet early, and took large provision expenses and charge-offs “kitchen sinking” its 2Q20 results</li>
<li>In addition, according to the latest CNBV data on the Mexican bank system to February 2021, Banorte’s consumer NPL ratio was far lower than that of Banamex, with Banorte’s overall NPL ratio being less than half of that of Citibanamex</li>
<li>Banorte reports 1Q21 results on 23rd April, and we do not expect a large credit provisioning hit to earnings, which should underpin its attractive valuations</li>
<li>Risks to our positive view on Banorte include softer than expected revenue growth, from fee and credit spread pressure and higher than expected opex as well as higher than expected credit charges</li>
</ul>



Citigroup Inc (C US)  1Q21 results shows that Citi’s LatAm business – with Mexico at its core – continues to be a drag on its earnings
The main headwind in Citibanamex’s core business of Mexican consumer banking, bar weak revenue trends, was the sharp rise in credit provisions and charge-offs which served to lower its delinquency ratio
Citibanamex’s earnings hit from credit charges is not an early warning for Banorte’s upcoming 1Q21 results; Grupo Financiero Banorte-O (GFNORTEO MF) management bit that bullet early, and took large provision expenses and charge-offs “kitchen sinking” its 2Q20 results
In addition, according to the latest CNBV data on the Mexican bank system to February 2021, Banorte’s consumer NPL ratio was far lower than that of Banamex, with Banorte’s overall NPL ratio being less than half of that of Citibanamex
Banorte reports 1Q21 results on 23rd April, and we do not expect a large credit provisioning hit to earnings, which should underpin its attractive valuations
Risks to our positive view on Banorte include softer than expected revenue growth, from fee and credit spread pressure and higher than expected opex as well as higher than expected credit charges


Citigroup 1Q21 Results – Mexican Consumer Banking’s Charge-Offs Are Not an Early Warning for Banorte

United States

Citigroup Inc. is a diversified financial services holding company that provides a broad range of financial services to consumer and corporate customers. The Company services include investment banking, retail brokerage, corporate banking, and cash management products and services. Citigroup serves customers globally.

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Citigroup Inc (C US)

Standard Chartered Q1 Results: Unsustainable and Event Risk Is Not Priced In

Standard Chartered’s Q1 performance looked good optically, when seen from a sharp angle. Is this sustainable? We think not for 3 reasons and prefer...

Hank Calenti, CFA

HSBC – Management Cries Costs

HSBC is now talking about bidding up staff costs in Asia. This comes as it tries to restructure costs lower. The bank may disappoint yet again, and...

Daniel Tabbush

US Investment Bank Results and Upcoming European Bank Earnings

Upcoming European bank results may be as good as it gets for this year. As each bank should release reserves, investment bank specialization may be...

Hank Calenti, CFA

While Citi Slept

Citi's decision to withdraw from consumer banking in 13 geographies, including India, and focus on corp./institutional banking, is a lesson in...

Hemindra Hazari

Citigroup 1Q21 Results – Mexican Consumer Banking’s Charge-Offs Are Not an Early Warning for Banorte

Another weak quarter from Citi's Mexican entity is not, we believe, an amber light for Banorte's upcoming 1Q21 results; Banorte pre-empted with...

Victor Galliano

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