Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: Issuance expectations are often a topic of anxiety for actively trading investors. The concern is that if issuance is expected to be large, then the value of the currently on-the-run security may fall as the market moves into the new security. Our experience is that timing matters. Any decline generally represents a buying opportunity in the older security; however, it can take a week or two for the security to regain lost value. As such, unexpected debt issuance just before quarter-end can be painful.With leverage ratios yet to be a requirement for Eurozone area banks, risk-weighted asset (RWA) capital ratios remain the constraining capital measure. By this standard, <a href="https://www.smartkarma.com/entities/bnp-paribas" target="_blank" data-smartkarma-citation="entities:525:1" rel="noopener">BNP Paribas (BNP FP)</a> and <a href="https://www.smartkarma.com/entities/credit-agricole-sa" target="_blank" data-smartkarma-citation="entities:21373:1" rel="noopener">Credit Agricole Group (ACAFP)</a> remain underweight in Additional Tier 1 (AT1) bond issuance.Amongst UK banks, <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> looks to have a surplus of AT1 bonds from a RWA capital ratio perspective. However, we calculate a deficiency relative to its leverage capital ratio needs. Basel IV inflation may diminish the RWA-base surplus; but for now, HSBC’s leverage ratio is its AT1 governor.In terms of Tier 2 needs, Eurozone banks are largely where they need to be from an efficiency perspective with the main exception of <a href="https://www.smartkarma.com/entities/cooperatieve-rabobank-ua" target="_blank" data-smartkarma-citation="entities:28085:1" rel="noopener">Cooperative Rabobank UA (RABO NA)</a>. Meanwhile, HSBC may be in a position to reduce its Common Equity Tier 1 levels by issuing Tier 2 bonds while remaining well above minimum capital requirements. Concurrently, <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> Tier 2 levels are materially more than minimum regulatory requirements. These look better value than HSBC’s.

Executive Summary: Issuance expectations are often a topic of anxiety for actively trading investors. The concern is that if issuance is expected to be large, then the value of the currently on-the-run security may fall as the market moves into the new security. Our experience is that timing matters. Any decline generally represents a buying opportunity in the older security; however, it can take a week or two for the security to regain lost value. As such, unexpected debt issuance just before quarter-end can be painful.With leverage ratios yet to be a requirement for Eurozone area banks, risk-weighted asset (RWA) capital ratios remain the constraining capital measure. By this standard, BNP Paribas (BNP FP) and Credit Agricole Group (ACAFP) remain underweight in Additional Tier 1 (AT1) bond issuance.Amongst UK banks, HSBC Holdings (HSBA LN) looks to have a surplus of AT1 bonds from a RWA capital ratio perspective. However, we calculate a deficiency relative to its leverage capital ratio needs. Basel IV inflation may diminish the RWA-base surplus; but for now, HSBC’s leverage ratio is its AT1 governor.In terms of Tier 2 needs, Eurozone banks are largely where they need to be from an efficiency perspective with the main exception of Cooperative Rabobank UA (RABO NA). Meanwhile, HSBC may be in a position to reduce its Common Equity Tier 1 levels by issuing Tier 2 bonds while remaining well above minimum capital requirements. Concurrently, Standard Chartered's (STAN LN) Tier 2 levels are materially more than minimum regulatory requirements. These look better value than HSBC’s. 

Debt Capital Surplus (Shortfall) And Trading Opportunities in European Banks

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE:  Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

European Event-Driven Analyst

Jesus Rodriguez Aguilar

On 20 April, <a href="https://www.smartkarma.com/entities/credit-agricole-sa" target="_blank" data-smartkarma-citation="entities:21373:1" rel="noopener">Credit Agricole Sa (ACA FP)</a> boosted its offer for <a href="https://www.smartkarma.com/entities/credito-valtellinese-spa" target="_blank" data-smartkarma-citation="entities:21175:1" rel="noopener">Credito Valtellinese SpA (CVAL IM)</a> to €12.50/share from €12.20, regardless of any threshold met, 0.8% above my TP on <a href="https://www.smartkarma.com/insights/creval-credit-agricole-grounds-for-an-improved-offer" target="_blank" data-smartkarma-citation="insights:50036" rel="noopener">CreVal - Crédit Agricole: Grounds for an Improved Offer</a>).
Crédit Agricole holds now 91.17% of CreVal. As per the offer document, conditions for the purchase obligation are met.
<ul>
<li>
Crédit Agricole Italy will still buy your shares at a fair price should you decide to sell (probably the wisest decision, as Borsa Italiana will order the delisting).
</li>
<li>
CreVal closed at €12.29 on 26 April, a gross spread of 1.7%, and the annualised spread should, at worst, be c. 7%.
</li>
<li>
The exact payment date for shares tendered under the purchase obligation is not specified, but "as soon as possible and, in any case, no later than three months from the payment date" (30 April 2021).
</li>
<li>
Liquidity is thinner now, button exactly illiquid, c. €1.8 mn on 16 April.
</li>
<li>
Recommendation is long AND exercise the purchase obligation.
</li>
</ul>

On 20 April, Credit Agricole Sa (ACA FP) boosted its offer for Credito Valtellinese SpA (CVAL IM) to €12.50/share from €12.20, regardless of any threshold met, 0.8% above my TP on CreVal - Crédit Agricole: Grounds for an Improved Offer).
Crédit Agricole holds now 91.17% of CreVal. As per the offer document, conditions for the purchase obligation are met.


Crédit Agricole Italy will still buy your shares at a fair price should you decide to sell (probably the wisest decision, as Borsa Italiana will order the delisting).


CreVal closed at €12.29 on 26 April, a gross spread of 1.7%, and the annualised spread should, at worst, be c. 7%.


The exact payment date for shares tendered under the purchase obligation is not specified, but "as soon as possible and, in any case, no later than three months from the payment date" (30 April 2021).


Liquidity is thinner now, button exactly illiquid, c. €1.8 mn on 16 April.


Recommendation is long AND exercise the purchase obligation.



Credit Agricole/CreVal: Purchase Obligation

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

Credit Agricole and Societe Generale have reported dismal quarterly results. This may have negative implications for HSBC in the region. We continue to believe that HSBC Holdings will not fare as well as many banks globally, and perhaps its operations in France are just one reason for this.

Credit Agricole and Societe Generale have reported dismal quarterly results. This may have negative implications for HSBC in the region. We continue to believe that HSBC Holdings will not fare as well as many banks globally, and perhaps its operations in France are just one reason for this. 

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Our bullish outlook continues to be supported by ongoing positive market dynamics and the absence of breakdowns for major indexes around the globe. The path of least resistance remains higher and we continue to believe a melt-up is likely in the weeks/months ahead. The global Technology, Discretionary, and Manufacturing Sectors remain leadership -- add exposure/remain overweight. The Financial Sector has been playing catch-up and continues to show signs of price and RS bottoms as expectations rise for a global recovery -- add exposure.

Our bullish outlook continues to be supported by ongoing positive market dynamics and the absence of breakdowns for major indexes around the globe. The path of least resistance remains higher and we continue to believe a melt-up is likely in the weeks/months ahead. The global Technology, Discretionary, and Manufacturing Sectors remain leadership -- add exposure/remain overweight. The Financial Sector has been playing catch-up and continues to show signs of price and RS bottoms as expectations rise for a global recovery -- add exposure.

Global Equity Strategy: Santa Claus Rally Underway

France

Credit Agricole S.A. is the lead bank of the Credit Agricole Group.  The Company acts as the central bank of the Group, coordinates its sales and marketing strategy and ensures the liquidity & solvency of each of the Caisses Regionales. Credit Agricole S.A., through its subsidiaries, designs and manages specialized financial products that are distributed primarily by the Caisses Regionales.

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Credit Agricole Sa (ACA FP)

Debt Capital Surplus (Shortfall) And Trading Opportunities in European Banks

Timing matters. A price decline in an on-the-run bond due to issuance represents a buying opportunity; however, it can take time to regain value....

Hank Calenti, CFA

Last Week in Event SPACE: Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Credit Agricole/CreVal: Purchase Obligation

Crédit Agricole Italy will exercise the purchase obligation. Borsa Italiana will order the delisting. CreVal closed at €12.29 on 26 April, a gross...

Jesus Rodriguez Aguilar

HSBC – Vive La France!

Credit Agricole and Societe Generale have reported dismal quarterly results. This may have negative implications for HSBC in the region.

Daniel Tabbush

Global Equity Strategy: Santa Claus Rally Underway

Our bullish outlook continues to be supported by ongoing positive market dynamics and the absence of breakdowns across indexes, and we continue to...

Vermilion Research

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