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.

Equity Bottom-Up

Grupo Financiero Banorte SAB d / Equity Bottom-Up

<ul>
<li>Banorte’s solid 4Q22, and the prospect of a healthy dividend payout, have so far trumped concerns of an earnings downturn from credit spread erosion, higher opex and cost of risk</li>
<li>Bank sector data trends to November accentuate the return headwinds that we see emerging; further tightening credit spreads and a rising cost of credit, credit cards a likely leading indicator</li>
<li>BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, due to the growing risks to returns</li>
</ul>


Banorte’s solid 4Q22, and the prospect of a healthy dividend payout, have so far trumped concerns of an earnings downturn from credit spread erosion, higher opex and cost of risk
Bank sector data trends to November accentuate the return headwinds that we see emerging; further tightening credit spreads and a rising cost of credit, credit cards a likely leading indicator
BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, due to the growing risks to returns


Banorte 4Q22 & Mexican Banks’ November Data – Rising Risk of Credit Spread Erosion and NPL Worsening

<ul>
<li>We analyse key trends to October 2022 for Banorte and Banco del Bajio, two of the top three ROE generating banks in Mexico which also trade on premium PBV ratios</li>
<li>For both, the challenges are funding costs that rise faster than loan yields, crimping credit spreads, as well as the indications that cost of risk may have bottomed out</li>
<li>Although the operating expenses ratio is well controlled so far, it seems unlikely that it can improve much more; these data trends add weight to our cautious view on Banorte</li>
</ul>


We analyse key trends to October 2022 for Banorte and Banco del Bajio, two of the top three ROE generating banks in Mexico which also trade on premium PBV ratios
For both, the challenges are funding costs that rise faster than loan yields, crimping credit spreads, as well as the indications that cost of risk may have bottomed out
Although the operating expenses ratio is well controlled so far, it seems unlikely that it can improve much more; these data trends add weight to our cautious view on Banorte


Banorte and BanBajio - October Data Trends, a First Look at 4Q 2022; Returns Pressure Building?

<ul>
<li>Bank sector trends to October continue to be sound, but return headwinds are emerging; further tightening credit spreads and initial signs of worsening in consumer credit quality</li>
<li>To October, funding costs are rising faster than loan yields, crimping credit spreads, and the rising credit card cost of risk indicates a worsening outlook for consumer credit quality</li>
<li>BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, and we recommend taking profits on BanBajio</li>
</ul>


Bank sector trends to October continue to be sound, but return headwinds are emerging; further tightening credit spreads and initial signs of worsening in consumer credit quality
To October, funding costs are rising faster than loan yields, crimping credit spreads, and the rising credit card cost of risk indicates a worsening outlook for consumer credit quality
BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, and we recommend taking profits on BanBajio


Mexican Banks’ October Data and Trends – Credit Spread Erosion a Bigger Threat than Credit Quality?

<ul>
<li>Banorte pulls out of the Banamex bidding, leaving two Mexican groups as potential bidders; this now removes the risk of a capital raise for Banorte and a potential dividend cut</li>
<li>Banorte delivered a strong set of 3Q22 results, yet we believe that its returns could be close to peaking and that we expect a profitability downturn in 2023</li>
<li>The withdrawal from the Banamex bidding is shareholder positive, but we see that current valuations do not reflect 2023 risks, especially from higher cost of risk and squeezed credit spreads</li>
</ul>


Banorte pulls out of the Banamex bidding, leaving two Mexican groups as potential bidders; this now removes the risk of a capital raise for Banorte and a potential dividend cut
Banorte delivered a strong set of 3Q22 results, yet we believe that its returns could be close to peaking and that we expect a profitability downturn in 2023
The withdrawal from the Banamex bidding is shareholder positive, but we see that current valuations do not reflect 2023 risks, especially from higher cost of risk and squeezed credit spreads


Banorte (GFNORTEO MX) – No Longer Bidding for Banamex, but Tougher Fundamental Hurdles into 2023

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?

Mexico

Banco Santander Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero Santander Mexico provides commercial banking services. The Bank offers personal and corporate loans, saving accounts, deposits, credit cards, mutual funds, lease financing, investment facilities, and business consulting services. Banco Santander Mexico serves its customers in Mexico.

Regional SAB de CV provides banking services. The Bank offers deposits, personal loans, e-banking, mortgage lending, auto finance, and other banking services. Regional serves customers in Mexico.

CFE Capital, S. de R.L. de C.V. operates as a real estate investment trust. The Company acquires and owns assets of transmission, generation, and distribution of electric power, as well as infrastructure projects. CFE Capital, S. de R.L. serves electric sector in Mexico.

Bolsa Mexicana de Valores SAB de CV operates full service cash and derivatives exchanges, with equities and fixed income securities listings. The Group offers fully electronic platforms for cash equities, financial derivatives and OTC fixed income and derivatives. Bolsa Mexicana's post trade activities include central counterparts and clearing services.

Bolsa Mexicana De Valores Sab (BOLSAA MM)

Grupo Financiero Inbursa, SAB de C.V. is a holding company.  The Company, through its subsidiaries, attracts deposits and offers retail and commercial banking services.  The Bank manages stock and fixed income funds, and offers fire, transportation, automobile, agriculture, liability, casualty, and health insurance.  Inbursa also offers automobile and equipment lease financing.

Grupo Financiero Banorte S.A.B. de C.V. is a financial institution in Mexico. The Company offers banking services, premium banking, wholesale banking, leasing and factoring, warehousing, insurance, pensions and retirement savings.

Grupo Financiero Banorte SAB d (GFNORTEO MF)

Unifin Financiera, S.A.B. de C.V. S.O.F.O.M. E.N.R. operates as a multiple purpose financial company. The Company offers financing products, including leasing, factoring, credit and insurance to individuals and corporate customers.

Atlantic Union Bankshares Corporation provides banking services. The Bank checking accounts, lending, credit cards, online and mobile banking, and wealth and treasury management services. Atlantic Union Bankshares serves customers in the United States.

International Bancshares Corporation, through its bank subsidiaries, provides commercial and retail banking services through offices in south and southeast Texas.  The Bank accepts deposits from the general public and uses those funds to make a variety of loans.

Fulton Financial Corporation is a multi-bank holding company. The Banks offer a full range of general retail and commercial banking services, including deposits, loans, equipment leasing and financing, and credit cards. Fulton operates in Pennsylvania, Maryland, Delaware, and New Jersey.

The Bank of East Asia, Limited and its subsidiaries provide general banking, related financial, business corporate, and investor services.

Huishang Bank Corporation Limited is a commercial bank. The Bank provides banking services including loans, money market operations, treasury business, investment and trading services, and valet transactions.

The Bank of Kyoto, Ltd. is a regional bank in Kyoto.  The Bank provides banking services including deposits, savings, loans, foreign exchange transactions, and securities investments.  The Bank of Kyoto also provides financial services such as letter of credit, leasing, loans, and credit cards.

Hong Leong Financial Group Berhad is a banking and financial services holding company. The Company provides a range of services including commercial and consumer banking, investment banking, and insurance broking. Through its subsidiaries, Hong Leong Financial underwrites life/general insurance, provides funds management, corporate advisory, and stock and share broking services.

Ameris Bancorp is a multi-bank holding company. The Banks provide a broad range of retail and commercial banking services to its customers, including checking and savings deposits, commercial and consumer loans, trust services, discount brokerage services, and electronic funds transfer services. Ameris Bancorp operates in Georgia, Florida, and Alabama.

United Community Banks, Inc. is a multi-bank holding company with locations throughout north Georgia and western North Carolina.  The Banks are community oriented and offer retail and corporate banking services including checking, savings, and time deposit accounts, secured and unsecured loans, wire transfers, trust services, and rental of safe deposit boxes.

Associated Banc-Corp is a Midwest banking franchise headquartered in Green Bay, Wisconsin. The Bank offers a full range of financial products and services through banking locations serving communities throughout Wisconsin, Illinois, and Minnesota, and commercial financial services in Indiana, Michigan, Missouri, Ohio and Texas.

Banco del Bajio S.A. provides a full range of commercial banking services. The Bank offers mortgages loans, saving, investment option, pension advice, and electronic billing services. Banco del Bajio operates in Mexico.

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Banco del Bajio SA (BBAJIOO MM)

Banorte 4Q22 & Mexican Banks’ November Data – Rising Risk of Credit Spread Erosion and NPL Worsening

The market reacted positively to Banorte’s 4Q22 results, yet from the sector data as well as Banorte's report, we see 2023 challenges from rising...

Victor Galliano

Banorte and BanBajio - October Data Trends, a First Look at 4Q 2022; Returns Pressure Building?

Especially for Banorte the hurdles are fast rising funding costs crimping credit spreads, and indications that cost of risk may have bottomed out;...

Victor Galliano

Mexican Banks’ October Data and Trends – Credit Spread Erosion a Bigger Threat than Credit Quality?

Mexican bank October data show more credit spread erosion and signs of poorer credit quality; we advise BanBajio holders to take profits, we stay...

Victor Galliano

Banorte (GFNORTEO MX) – No Longer Bidding for Banamex, but Tougher Fundamental Hurdles into 2023

Banorte's withdrawal from Banamex bidding is positive, but current valuations do not reflect 2023 risks, especially from higher cost of risk,...

Victor Galliano

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

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