European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul class="">
<li>The new CaixaBank has established the composition of its Board of directors, which will be the largest domestic bank in Spain.</li>
<li> The independent expert (BDO) has endorsed the exchange ratio,
<ul>
<li>
0.6845 new CaixaBank shares for each Bankia share.</li>
</ul>
</li>
<li>The FROB believes that the operation will have a positive effect on the recovery of the aid.</li>
</ul>
I recommend keeping an eye on the spread.
<ul>
<li>It closed on 27 October at 1.66% (gross), not far from the maximum reached on 20 October of 1.73%, and in any case an interesting level for a deal that will certainly close (est. March 2021).
</li>
</ul>
Further catalysts post-merger are (increased) dividend payouts and the exit in the short to medium term of the Kingdom of Spain from the capital of the merged entity.
M&amp;A consolidation seems as a reasonable way to reduce costs and protect profits. These can be among domestic banks or, much to the liking of the ECB, between banks domiciled in different EU countries that share common markets, and would create European champions (see list of banks that appear in many rumours at the end of the note).


The new CaixaBank has established the composition of its Board of directors, which will be the largest domestic bank in Spain.
 The independent expert (BDO) has endorsed the exchange ratio,


0.6845 new CaixaBank shares for each Bankia share.


The FROB believes that the operation will have a positive effect on the recovery of the aid.

I recommend keeping an eye on the spread.

It closed on 27 October at 1.66% (gross), not far from the maximum reached on 20 October of 1.73%, and in any case an interesting level for a deal that will certainly close (est. March 2021).


Further catalysts post-merger are (increased) dividend payouts and the exit in the short to medium term of the Kingdom of Spain from the capital of the merged entity.
M&amp;A consolidation seems as a reasonable way to reduce costs and protect profits. These can be among domestic banks or, much to the liking of the ECB, between banks domiciled in different EU countries that share common markets, and would create European champions (see list of banks that appear in many rumours at the end of the note).

Bankia - CaixaBank: Merger in Progress, Spread Attractive

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.

Thematic (Sector/Industry)

There is another EUR100bn package announced in France. This is the same pattern we are seeing in most places, with governments and central banks increasing support, not limiting support. Where the main three banks in France took sizable credit costs during 1H20, with this new package there is greater likelihood of easing credit costs. We wonder if <a href="https://www.smartkarma.com/entities/societe-generale-sa" target="_blank" data-smartkarma-citation="entities:21478:1" rel="noopener">Societe Generale Sa (GLE FP)</a> has the most to gain, considering that it lost the most during 1H20?

There is another EUR100bn package announced in France. This is the same pattern we are seeing in most places, with governments and central banks increasing support, not limiting support. Where the main three banks in France took sizable credit costs during 1H20, with this new package there is greater likelihood of easing credit costs. We wonder if Societe Generale Sa (GLE FP) has the most to gain, considering that it lost the most during 1H20?

There are continued positive signs of recovery in Europe. It’s not just limited to the US. In all likelihood we are past the dire days of the crisis, or the ‘great interruption.’ Germany just reopened its borders to European travel and the region shows several positive signs from reopening economies. The impact to banks can be significant, which are highly leveraged to economic improvements. We wonder if this is well expected, considering the market capitalization of many EU banks?

There are continued positive signs of recovery in Europe. It’s not just limited to the US. In all likelihood we are past the dire days of the crisis, or the ‘great interruption.’ Germany just reopened its borders to European travel and the region shows several positive signs from reopening economies. The impact to banks can be significant, which are highly leveraged to economic improvements. We wonder if this is well expected, considering the market capitalization of many EU banks?

Equity Bottom-Up

It should be clear by now that even the Fed is surprised at the pace of recovery, noting specifically the job gains during May. This does not mean the economy is strong, rather the pace of restarting is strong. France’s <a href="https://www.smartkarma.com/entities/societe-generale-sa" target="_blank" data-smartkarma-citation="entities:21478:1" rel="noopener">Societe Generale Sa (GLE FP; "SocGen") </a>offers an impressive view for segments of its business. After the re-opening up of European countries, the bank has seen its auto leasing business in Germany move back to pre-shutdown levels, while its total credit card transactions are nearly back to pre-shutdown levels. The bank further notes that 2Q20 will see the peak of credit costs. This could make sense, given the causes of this crisis, together with incredibly low rates, high fiscal stimulus and labor support.

It should be clear by now that even the Fed is surprised at the pace of recovery, noting specifically the job gains during May. This does not mean the economy is strong, rather the pace of restarting is strong. France’s Societe Generale Sa (GLE FP; "SocGen") offers an impressive view for segments of its business. After the re-opening up of European countries, the bank has seen its auto leasing business in Germany move back to pre-shutdown levels, while its total credit card transactions are nearly back to pre-shutdown levels. The bank further notes that 2Q20 will see the peak of credit costs. This could make sense, given the causes of this crisis, together with incredibly low rates, high fiscal stimulus and labor support.

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

*Software Assets To Become Part Of CET1: The European Banking Authority (EBA) [and we are not exactly shocked that the entire banking sector is in agreement] has proposed to include software within core Tier 1 capital (CET1) with up to a two year amortization and maximum representation of CET1 of up to 25 bp at sector level. With limited stated capital on hand and COVID-19 write-offs well on the way, there is no question that increased capital forbearance is right around the corner to which the banking sector will gladly accept; and*Europe Is In Bizarro Land, With Rest Of World Likely Too Follow: According to the EBA’s own statement "based on investigations performed by the EBA on a representative selection of concrete cases of software transactions, it appears that software has no recoverable value in case of liquidation, whilst it is worth pointing out that in some cases software assets continue to be used during the liquidation process, contributing to an orderly liquidation….”. This one sentence states that EBA has concluded that software assets have zero value. So why will these assets be considered capital?

*Software Assets To Become Part Of CET1: The European Banking Authority (EBA) [and we are not exactly shocked that the entire banking sector is in agreement] has proposed to include software within core Tier 1 capital (CET1) with up to a two year amortization and maximum representation of CET1 of up to 25 bp at sector level. With limited stated capital on hand and COVID-19 write-offs well on the way, there is no question that increased capital forbearance is right around the corner to which the banking sector will gladly accept; and*Europe Is In Bizarro Land, With Rest Of World Likely Too Follow: According to the EBA’s own statement "based on investigations performed by the EBA on a representative selection of concrete cases of software transactions, it appears that software has no recoverable value in case of liquidation, whilst it is worth pointing out that in some cases software assets continue to be used during the liquidation process, contributing to an orderly liquidation….”. This one sentence states that EBA has concluded that software assets have zero value. So why will these assets be considered capital?

France

Societe Generale SA attracts deposits and offers commercial, retail, investment, and private banking services.  The Bank offers consumer credit, vehicle lease financing, information technology equipment leasing, life and non-life insurance, custodian services, trade and project financing, currency exchange, treasury services, and financial and commodities futures brokerage services.

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Societe Generale Sa (GLE FP)

Bankia - CaixaBank: Merger in Progress, Spread Attractive

I recommend keeping an eye on the spread. It closed today (27 October) at a gross 1.66%, an interesting level for a deal that will certainly close...

Jesus Rodriguez Aguilar

France Banks – Reboot Package

There is another EUR100bn package announced in France. This is the same pattern we are seeing in most places, with governments and central banks...

Daniel Tabbush

EU Banks – Leveraged To Sharp Recovery

There are continued positive signs of recovery in Europe. It’s not just limited to the US. In all likelihood we are past the dire days of the...

Daniel Tabbush

Societe General – Business Is Back?!

It should be clear by now that even the Fed is surprised at the pace of recovery, noting specifically the job gains during May. This does not mean...

Daniel Tabbush

A Bridge (Way) Too Far

*Software Assets To Become Part Of CET1: The European Banking Authority (EBA) [and we are not exactly shocked that the entire banking sector is in...

Thomas J. Monaco

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