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.

Thematic (Sector/Industry)

<ul>
<li>Bank sector trends to August continue to be robust, but potential challenges lie ahead for returns; tightening credit spreads and a potential worsening of credit quality</li>
<li>Credit spreads are being crimped by fast rising funding costs, and there is emerging evidence of worsening consumer credit quality through consumer cost of risk and delinquency</li>
<li>BBVA Mexico generates the highest ROE versus its peers due to strong revenue returns, Banorte has the lowest NPL ratio and BanBajio has high capital ratios and returns</li>
</ul>


Bank sector trends to August continue to be robust, but potential challenges lie ahead for returns; tightening credit spreads and a potential worsening of credit quality
Credit spreads are being crimped by fast rising funding costs, and there is emerging evidence of worsening consumer credit quality through consumer cost of risk and delinquency
BBVA Mexico generates the highest ROE versus its peers due to strong revenue returns, Banorte has the lowest NPL ratio and BanBajio has high capital ratios and returns


Mexican Banks’ August Data and Trends – as Good as It Gets?

Event-Driven

Grupo Financiero Banorte SAB d / Event-Driven

<ul>
<li>Banorte and Santander have both hired M&amp;A advisors for a potential Citibanamex bid, according to Reuters; Banco Azteca is not participating in the bidding, whilst Inbursa is potentially still interested</li>
<li>In the event of a bid, we do not expect Santander to be aggressive on price; Banorte could be more aggressive, which would increase its chances of a winning bid</li>
<li>Were Banorte to acquire Citibanamex, we continue to believe that its prospective dividend could be at risk; in essence, the risks of M&amp;A still outweigh the potential opportunities</li>
</ul>


Banorte and Santander have both hired M&amp;A advisors for a potential Citibanamex bid, according to Reuters; Banco Azteca is not participating in the bidding, whilst Inbursa is potentially still interested
In the event of a bid, we do not expect Santander to be aggressive on price; Banorte could be more aggressive, which would increase its chances of a winning bid
Were Banorte to acquire Citibanamex, we continue to believe that its prospective dividend could be at risk; in essence, the risks of M&amp;A still outweigh the potential opportunities


CitiBanamex – Potential Bidders Get Serious, We Stay Cautious on Banorte

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Turkiye Garanti Bankasi As / Event-Driven

<ul>
<li>Until last week, BBVA had already secured a 71.1% stake in Garanti. The deadline to accept BBVA's takeover bid ends on 18 May. Settlement will take place on 19 May.</li>
<li>Gross spread is 0.2%. Recently, the offer price has acted as a support for the share price, which may drop if BBVA doesn't reach the squeeze-out threshold. Tender.
</li>
<li>The squeeze-out threshold is 98% (95% for delisting). My understanding is that the squeeze-out price is arithmetic average of the daily VWAP in the 30 days before threshold disclosure. </li>
</ul>


Until last week, BBVA had already secured a 71.1% stake in Garanti. The deadline to accept BBVA's takeover bid ends on 18 May. Settlement will take place on 19 May.
Gross spread is 0.2%. Recently, the offer price has acted as a support for the share price, which may drop if BBVA doesn't reach the squeeze-out threshold. Tender.

The squeeze-out threshold is 98% (95% for delisting). My understanding is that the squeeze-out price is arithmetic average of the daily VWAP in the 30 days before threshold disclosure. 


Equity Bottom-Up

Banco Bilbao Vizcaya Argentari / Equity Bottom-Up

<ul>
<li>Mexico continues to be the key contributor to BBVA group, with the offer for Garanti minorities set to increase BBVA’s share of higher risk higher reward returns from emerging markets</li>
<li>The revised offer to Garanti minorities is still 10%+ cheaper in Euro terms than at the time of its 4Q21 announcement, with a modest hit of 34bps to CET1 ratio</li>
<li>We see BBVA as an attractive value play in select emerging markets and Spain, with its well-established digital offerings as a driver for sustained premium returns and premium capital distribution</li>
</ul>


Mexico continues to be the key contributor to BBVA group, with the offer for Garanti minorities set to increase BBVA’s share of higher risk higher reward returns from emerging markets
The revised offer to Garanti minorities is still 10%+ cheaper in Euro terms than at the time of its 4Q21 announcement, with a modest hit of 34bps to CET1 ratio
We see BBVA as an attractive value play in select emerging markets and Spain, with its well-established digital offerings as a driver for sustained premium returns and premium capital distribution


BBVA – Mexico Is the Motor for Further Capital Distribution

<ul>
<li>BBVA sweetness the offer price for Garanti by 23% due to very low acceptances so far (the share price of Garanti has increased by 64% over the last six months).</li>
<li>The increased offer price should placate disgruntled shareholders, while at the same time saving BBVA €264 million (c. 12% less than originally forecasted) due to Turkish lira depreciation.</li>
<li>Gross spread is 0.2%, and the annualized return is 3.05% (assuming settlement on 19 May). Long GARAN IT.</li>
</ul>


BBVA sweetness the offer price for Garanti by 23% due to very low acceptances so far (the share price of Garanti has increased by 64% over the last six months).
The increased offer price should placate disgruntled shareholders, while at the same time saving BBVA €264 million (c. 12% less than originally forecasted) due to Turkish lira depreciation.
Gross spread is 0.2%, and the annualized return is 3.05% (assuming settlement on 19 May). Long GARAN IT.


BBVA/Garanti: Looking to Secure Acceptances with a 23% Increase

Spain

Banco Bilbao Vizcaya Argentaria, S.A. attracts deposits and offers retail, wholesale, and investment banking services.  The Bank offers consumer and mortgage loans, private banking, asset management, insurance, mutual funds, and securities brokerage services.  It operates in Europe, Latin America, United States, China and Turkey.

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Banco Bilbao Vizcaya Argentari (BBVA SM)

Mexican Banks’ August Data and Trends – as Good as It Gets?

Bank sector trends to August continue to be robust, but potential challenges lie ahead; tightening credit spreads and a potential NPL worsening; we...

Victor Galliano

CitiBanamex – Potential Bidders Get Serious, We Stay Cautious on Banorte

Banorte and Santander hire M&A advisors for their Banamex bids, Inbursa is a likely candidate; Banorte remains the favourite, we believe, and so we...

Victor Galliano

BBVA/Garanti: End of Offer Period

Prior to the end of the extended offer period (18 May), BBVA has already secured a 71% stake. With the share price supported by the offer (and risk...

Jesus Rodriguez Aguilar

BBVA – Mexico Is the Motor for Further Capital Distribution

BBVA's premium returns engine is Mexico, supported by improving Spanish returns and the growth potential of Turkey, where it is buying the...

Victor Galliano

BBVA/Garanti: Looking to Secure Acceptances with a 23% Increase

BBVA sweetens its bid for Garanti to secure acceptances. If and when BBVA crosses the 50% threshold, it will be able to buy shares in the market...

Jesus Rodriguez Aguilar

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