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>We examine key balance sheet ratios of the Latam banks looking into liquidity, credit quality and capital adequacy, at a time of investor nervousness and concern</li>
<li>Based on our screening, our positive value picks are Bradesco and BanColombia, with Banco de Chile, BanBajio and BanRegio composing our positive high quality picks</li>
<li>Our bearish picks are Banorte and BCI; Banorte is strong in terms of capital adequacy and credit quality, but is exposed in terms of its big securities portfolio</li>
</ul>


We examine key balance sheet ratios of the Latam banks looking into liquidity, credit quality and capital adequacy, at a time of investor nervousness and concern
Based on our screening, our positive value picks are Bradesco and BanColombia, with Banco de Chile, BanBajio and BanRegio composing our positive high quality picks
Our bearish picks are Banorte and BCI; Banorte is strong in terms of capital adequacy and credit quality, but is exposed in terms of its big securities portfolio


LatAm Banks – Liquidity, Solvency and Credit Quality in Focus in a Crisis

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

<ul>
<li>The MSCI EM vs.EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the DXY peaked in November 2022, and also shows signs of reversing the 2-year downtrend.</li>
<li>As long as the DXY remains below $103.50-$106, we expect outperformance from EM to continue.</li>
<li>China/Hong Kong, Greece, South Africa, and Mexico stand out as attractive countries. Our top actionable Sectors include Communications, Consumer Discretionary, and Technology. We highlight 76 attractive EM stocks.</li>
</ul>


The MSCI EM vs.EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the DXY peaked in November 2022, and also shows signs of reversing the 2-year downtrend.
As long as the DXY remains below $103.50-$106, we expect outperformance from EM to continue.
China/Hong Kong, Greece, South Africa, and Mexico stand out as attractive countries. Our top actionable Sectors include Communications, Consumer Discretionary, and Technology. We highlight 76 attractive EM stocks.


EM Outperformance to Continue (Vs. EAFE) -- Add on a Pullback; DXY Needs to Hold Below $106

<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?

Equity Bottom-Up

<ul>
<li>BBVA Mexico expanded its premium return on equity of the big nine Mexican banks to 23% to December, and through opex control, it “works” its healthy core capital ratio hard</li>
<li>The bank system trends remain healthy, with additional improvements to NPL ratios and healthy coverage; Banorte and BanBajio screen better than peers on combined credit quality metrics to December</li>
<li>We believe that mid-cap bank BanBajio is good value, and are positive on BBVA for its Mexican exposure; on balance, we remain cautious on Banorte, due largely to valuation</li>
</ul>


BBVA Mexico expanded its premium return on equity of the big nine Mexican banks to 23% to December, and through opex control, it “works” its healthy core capital ratio hard
The bank system trends remain healthy, with additional improvements to NPL ratios and healthy coverage; Banorte and BanBajio screen better than peers on combined credit quality metrics to December
We believe that mid-cap bank BanBajio is good value, and are positive on BBVA for its Mexican exposure; on balance, we remain cautious on Banorte, due largely to valuation


Mexican Banks’ December Data Adds to Positive Trend on Credit Quality, but Lending Spread Eroding

<ul>
<li>BBVA Bancomer delivered the best return on equity (ROE) of the biggest nine Mexican banks to September, at 20%, improving on a MoM basis due largely to a sub 40% efficiency ratio; in terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their healthy levels of core capital harder than their peers</li>
<li>The bank system trends seem healthy, with well controlled NPL ratios and healthy coverage; one core risk to this rosy scenario is, in our view, worse than expected GDP growth leading to an up-tick in consumer delinquencies going forward, which would warrant an increase in cost of risk charges. Another factor that could upset returns is eroding credit margins due to rising funding costs</li>
<li>
<a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-s-a-b-de-c-v" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte (GFNORTEO MF)</a>  and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> continue to screen better than peers on credit quality metrics to August, with best-in-class combination of low NPL ratios and healthy coverage. Despite its good metrics, we recently turned negative on Banorte, due largely to valuation and increasing competition; we would highlight mid-cap bank BanBajio for its better relative value, and in the context of improving consumer credit quality</li>
</ul>


BBVA Bancomer delivered the best return on equity (ROE) of the biggest nine Mexican banks to September, at 20%, improving on a MoM basis due largely to a sub 40% efficiency ratio; in terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their healthy levels of core capital harder than their peers
The bank system trends seem healthy, with well controlled NPL ratios and healthy coverage; one core risk to this rosy scenario is, in our view, worse than expected GDP growth leading to an up-tick in consumer delinquencies going forward, which would warrant an increase in cost of risk charges. Another factor that could upset returns is eroding credit margins due to rising funding costs

Grupo Financiero Banorte (GFNORTEO MF)  and Banco del Bajio SA (BBAJIOO MM) continue to screen better than peers on credit quality metrics to August, with best-in-class combination of low NPL ratios and healthy coverage. Despite its good metrics, we recently turned negative on Banorte, due largely to valuation and increasing competition; we would highlight mid-cap bank BanBajio for its better relative value, and in the context of improving consumer credit quality


Mexican Banks’ September Data Looks Benign, but Not Without Potential Challenges

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.

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Regional SAB de CV (RA MM)

LatAm Banks – Liquidity, Solvency and Credit Quality in Focus in a Crisis

Focus on LatAm banks liquidity, solvency and credit quality; we like Bradesco and BanColombia as value plays with Banco de Chile, BanBajio &...

Victor Galliano

EM Outperformance to Continue (Vs. EAFE) -- Add on a Pullback; DXY Needs to Hold Below $106

EM vs. EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the $DXY peaked in November 2022. If the DXY remains below...

Vermilion Research

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

Mexican Banks’ December Data Adds to Positive Trend on Credit Quality, but Lending Spread Eroding

Credit quality ends the year strong, with evidence of marginal spread erosion in December; we like mid-cap bank BanBajio and BBVA for BBVA Mexico;...

Victor Galliano

Mexican Banks’ September Data Looks Benign, but Not Without Potential Challenges

Mexican banks data to September are healthy, but rising funding costs threaten credit spreads, and any potential GDP slowdown could worsen consumer...

Victor Galliano

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