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>The elephant in the Italian bank M&amp;A room is government controlled <a href="https://www.smartkarma.com/entities/banca-monte-dei-paschi-di-siena" target="_blank" data-smartkarma-citation="entities:21162:1" rel="noopener">Banca Monte dei Paschi di Siena (BMPS IM)</a>, which needs to find a merger partner in 2021; will that be <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>, post-Mustier, and who could be its new CEO?</li>
<li>We believe that, in the event of a Unicredit acquisition of BMPS, it would require meaningful “government sponsorship”; in effect, for BMPS, pre-deal, to dispose of the bulk of its NPLs – which is underway – and for a capital infusion that renders the deal to be capital neutral for Unicredit</li>
<li>The other big M&amp;A unknowns relate to the listed mid-cap banks especially <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a> and <a href="https://www.smartkarma.com/entities/bper-banca-s-p-a" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">BPER Banca S.p.A (BPE IM)</a>; these banks need to cut costs and branch networks, which can be more readily incorporated into a merger restructuring plan</li>
<li>We believe that the risk of a BMPS acquisition is largely priced into Unicredit shares, and we expect its wide PBV discount to premium valued <a href="https://www.smartkarma.com/entities/intesa-sanpaolo-spa" target="_blank" data-smartkarma-citation="entities:21200:1" rel="noopener">Intesa Sanpaolo (ISP IM)</a> to narrow;  our recommendation is to go long Unicredit, short Intesa</li>
<li>We think <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> is unlikely to sweeten the <a href="https://www.smartkarma.com/entities/credito-valtellinese-spa" target="_blank" data-smartkarma-citation="entities:21175:1" rel="noopener">Credito Valtellinese Sc (CVAL IM)</a> cash offer of €10.50 per share, and with CreVal shares trading at a 7% offer premium, there could be downside risk</li>
<li>We remain negative on Banco BPM shares, as, in the wake of the CredAg offer for CreVal, we believe that BPM’s options are limited, and that it may be the potential “back-stop” merger candidate with BMPS, in the event of no deal with Unicredit; the alternative could be a BPM-BPER merger, and we turn constructive on BPER, after its protracted underperformance</li>
<li>Risks to our view include Unicredit acquiring BMPS on worse than expected terms, with Intesa on the other hand delivering better than expected synergies and savings from the UBI integration; other risks also include a bidder emerging for BPM, as well as no merger or bid for BPER</li>
</ul>


The elephant in the Italian bank M&amp;A room is government controlled Banca Monte dei Paschi di Siena (BMPS IM), which needs to find a merger partner in 2021; will that be UniCredit SpA (UCG IM), post-Mustier, and who could be its new CEO?
We believe that, in the event of a Unicredit acquisition of BMPS, it would require meaningful “government sponsorship”; in effect, for BMPS, pre-deal, to dispose of the bulk of its NPLs – which is underway – and for a capital infusion that renders the deal to be capital neutral for Unicredit
The other big M&amp;A unknowns relate to the listed mid-cap banks especially Banco BPM SpA (BAMI IM) and BPER Banca S.p.A (BPE IM); these banks need to cut costs and branch networks, which can be more readily incorporated into a merger restructuring plan
We believe that the risk of a BMPS acquisition is largely priced into Unicredit shares, and we expect its wide PBV discount to premium valued Intesa Sanpaolo (ISP IM) to narrow;  our recommendation is to go long Unicredit, short Intesa
We think Credit Agricole Sa (ACA FP) is unlikely to sweeten the Credito Valtellinese Sc (CVAL IM) cash offer of €10.50 per share, and with CreVal shares trading at a 7% offer premium, there could be downside risk
We remain negative on Banco BPM shares, as, in the wake of the CredAg offer for CreVal, we believe that BPM’s options are limited, and that it may be the potential “back-stop” merger candidate with BMPS, in the event of no deal with Unicredit; the alternative could be a BPM-BPER merger, and we turn constructive on BPER, after its protracted underperformance
Risks to our view include Unicredit acquiring BMPS on worse than expected terms, with Intesa on the other hand delivering better than expected synergies and savings from the UBI integration; other risks also include a bidder emerging for BPM, as well as no merger or bid for BPER


Italian Banks M&A Scenarios: The Italian Job in 2021

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

* ECB Potentially Killing Dividends: The European Central Bank (ECB) is likely to make a final decision next week on whether to allow banks to pay dividends in 2020 from 2019 results. The ECB leaning towards not allowing banks to pay dividends;*Asia-Pacific Likely To Follow: The financial sectors of Japan, Australia, mainland China, and India had been experiencing feeling capital pressures prior to COVID-19, now the entire Asia-Pacific regions would appear to be in the same boat. As such, we look for the entire region to follow the ECB’s lead on dividends – possibly even some of the ECB’s more ridiculous capital forbearance moves; and    *Europeans Banks Not Likely At Risk: BNP Paribas (BNP.FP) and Intesa Sanpaolo (ISP.IM) likely have the best lobbying power to pay a dividend in the event that national regulators are given the discretion to allow dividends. On a regulatory capital basis, as noted in our “DNB ASA – Window to Be Constructive Is Now Open” report dated July 13, 2020, DNB ASA (DNB.NO) remains best positioned to resume dividend payment and share buybacks, as CET1 is already back in compliance with pre-COV-19 capital target excluding all regulatory forbearance.

* ECB Potentially Killing Dividends: The European Central Bank (ECB) is likely to make a final decision next week on whether to allow banks to pay dividends in 2020 from 2019 results. The ECB leaning towards not allowing banks to pay dividends;*Asia-Pacific Likely To Follow: The financial sectors of Japan, Australia, mainland China, and India had been experiencing feeling capital pressures prior to COVID-19, now the entire Asia-Pacific regions would appear to be in the same boat. As such, we look for the entire region to follow the ECB’s lead on dividends – possibly even some of the ECB’s more ridiculous capital forbearance moves; and    *Europeans Banks Not Likely At Risk: BNP Paribas (BNP.FP) and Intesa Sanpaolo (ISP.IM) likely have the best lobbying power to pay a dividend in the event that national regulators are given the discretion to allow dividends. On a regulatory capital basis, as noted in our “DNB ASA – Window to Be Constructive Is Now Open” report dated July 13, 2020, DNB ASA (DNB.NO) remains best positioned to resume dividend payment and share buybacks, as CET1 is already back in compliance with pre-COV-19 capital target excluding all regulatory forbearance.

ECB Dividend Action Likely Leads to Similar Moves In Asia

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.

The European Central Bank (ECB) provided EUR1.3tr to banks at a negative interest rate, to promote, to push lending, to support economies, companies, consumers. We know from how central banks and governments are responding to the impact of shutdown, that at the margin they are doing more. Banks are the core of this, with the likely impact being better margins and volume. Where margins are incredibly low for some EU banks, this new facility can provide a sizable delta to net interest income. In turn, this helps support credit costs, which for most regions are being pushed out longer, being phased in over many more months, and unlike what was first anticipated, announced early in the year.

The European Central Bank (ECB) provided EUR1.3tr to banks at a negative interest rate, to promote, to push lending, to support economies, companies, consumers. We know from how central banks and governments are responding to the impact of shutdown, that at the margin they are doing more. Banks are the core of this, with the likely impact being better margins and volume. Where margins are incredibly low for some EU banks, this new facility can provide a sizable delta to net interest income. In turn, this helps support credit costs, which for most regions are being pushed out longer, being phased in over many more months, and unlike what was first anticipated, announced early in the year.

Equity Bottom-Up

<ul>
<li>Italian banks have big challenges, exacerbated by the covid-19 crisis</li>
<li>Now the European Commission is putting forward a recovery package, with Italy as one of the key beneficiaries, and with Italy also seeming to emerge from the worst of the crisis</li>
<li>This is by no means a panacea, but it is already leading to a tightening of BTP-Bund spreads</li>
<li>In addition, investors appear to be rotating into value and out of growth stocks, given the extreme valuation differentials between the two</li>
<li>In light of these factors, we highlight <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>  and <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a> as our preferred deep value picks in Italian banks</li>
<li>Risks to our view include a worse-than-expected economic outlook with a long slow recovery, impacting NPLs adversely and the Italian banks’ ability to deliver positive returns</li>
</ul>


Italian banks have big challenges, exacerbated by the covid-19 crisis
Now the European Commission is putting forward a recovery package, with Italy as one of the key beneficiaries, and with Italy also seeming to emerge from the worst of the crisis
This is by no means a panacea, but it is already leading to a tightening of BTP-Bund spreads
In addition, investors appear to be rotating into value and out of growth stocks, given the extreme valuation differentials between the two
In light of these factors, we highlight UniCredit SpA (UCG IM)  and Banco BPM SpA (BAMI IM) as our preferred deep value picks in Italian banks
Risks to our view include a worse-than-expected economic outlook with a long slow recovery, impacting NPLs adversely and the Italian banks’ ability to deliver positive returns


Italian Banks: Value Picks in a Time of Crisis

Banco Bilbao Vizcaya Argentari / Equity Bottom-Up

<ul>
<li>European banks are at the deep value end of the equities spectrum, in the current investment climate</li>
<li>We are not, however, consigning the entire sector to the “basket case”, and we sift through the European banks universe looking for attractively valued banks with solid digital banking credentials</li>
<li>We focus on two banks that are well placed to strengthen their digital banking positions on the back of the acceleration in society’s digital shift, due to the Covid-19 pandemic</li>
<li>Aside from the challenger banks, <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a> and <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a>  are both legacy banks that are leading the Spanish digital banking drive, with BBVA also a major player in Mexico, Turkey, USA and parts of South America</li>
<li>Our conclusion is that BBVA is our preferred pick, given its attractive valuations, and superior digital banking credentials across multiple geographies, and that is despite its relative weakness versus CaixaBank in capital adequacy and, to a lesser degree, in terms of credit quality</li>
<li>Risks to our view include increased competition in digital banking, as well as worse than expected credit losses in Spain, Mexico and Turkey and the latter two carry the risk of further MXN and TRY currency depreciation</li>
</ul>


European banks are at the deep value end of the equities spectrum, in the current investment climate
We are not, however, consigning the entire sector to the “basket case”, and we sift through the European banks universe looking for attractively valued banks with solid digital banking credentials
We focus on two banks that are well placed to strengthen their digital banking positions on the back of the acceleration in society’s digital shift, due to the Covid-19 pandemic
Aside from the challenger banks, CaixaBank SA (CABK SM) and Banco Bilbao Vizcaya Argentari (BBVA SM)  are both legacy banks that are leading the Spanish digital banking drive, with BBVA also a major player in Mexico, Turkey, USA and parts of South America
Our conclusion is that BBVA is our preferred pick, given its attractive valuations, and superior digital banking credentials across multiple geographies, and that is despite its relative weakness versus CaixaBank in capital adequacy and, to a lesser degree, in terms of credit quality
Risks to our view include increased competition in digital banking, as well as worse than expected credit losses in Spain, Mexico and Turkey and the latter two carry the risk of further MXN and TRY currency depreciation


European Banks: Focus on Digital Banking Pioneers Trading at Attractive Valuations

Italy

Intesa Sanpaolo attracts deposits and offers banking and financial services. The Bank offers consumer credit, asset management, Internet banking, merchant banking, securities brokerage, factoring, and lease financing services, and manages mutual funds.  Intesa Sanpaolo operates branches throughout Italy, and offices elsewhere in Europe, Asia, and the United States.

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Intesa Sanpaolo (ISP IM)

Italian Banks M&A Scenarios: The Italian Job in 2021

Italian banks M&A is gathering and we take a largely contrarian stance on stocks; pairs trade long Unicredit, short Intesa; positive on BPER,...

Victor Galliano

ECB Dividend Action Likely Leads to Similar Moves In Asia

* ECB Potentially Killing Dividends: The European Central Bank (ECB) is likely to make a final decision next week on whether to allow banks to pay...

Thomas J. Monaco

European Banks – Paid to Lend

The European Central Bank (ECB) provided EUR1.3tr to banks at a negative interest rate, to promote, to push lending, to support economies,...

Daniel Tabbush

Italian Banks: Value Picks in a Time of Crisis

Italian banks have big challenges, exacerbated by the covid-19 crisis Now the European Commission is putting forward a recovery package, with...

Victor Galliano

European Banks: Focus on Digital Banking Pioneers Trading at Attractive Valuations

European banks are at the deep value end of the equities spectrum, in the current investment climate We are not, however, consigning the entire...

Victor Galliano

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