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>Interest rate risk in the system increased with the Fed’s steep interest rate hikes and due to the opt-out for many US banks on the AFS securities market-to-market capital hit</li>
<li>Uninsured and concentrated deposits, at the first hint of bank trouble, can take flight very quickly especially in the case of concentrated, key elements of the Silicon Vally Bank collapse</li>
<li>We believe that it is premature to look for buy opportunities in US banks, although we believe that the largest US banks are sound in terms of their balance sheets</li>
</ul>


Interest rate risk in the system increased with the Fed’s steep interest rate hikes and due to the opt-out for many US banks on the AFS securities market-to-market capital hit
Uninsured and concentrated deposits, at the first hint of bank trouble, can take flight very quickly especially in the case of concentrated, key elements of the Silicon Vally Bank collapse
We believe that it is premature to look for buy opportunities in US banks, although we believe that the largest US banks are sound in terms of their balance sheets


US Bank Sector Stress – Old Fashioned Risks and a Regulatory Loophole Meet the Digital Age

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

Market dynamics remain largely healthy, and new developments continue to point to improving risk appetites. Still, Energy (XOP, RYE) is the only cyclical value Sector that has been able to decisively break to new price highs, while others remain in congestion. Therefore, our outlook remains neutral yet constructive overall, and we see pullbacks as buying opportunities.Charts highlighted: XLF, Copper, IWM, MCHI, KRE, XLB, S&amp;P 500, CNQ, SU, IMO, CVE, OVV, COP, EOG, PXD, OXY, HES, DVN, CLR, CFR, PB, BOKF, IBTX, TBK, BSVN, BAC, WFC, USB, PNC, TFC, FITB, KEY, RF, and CMA

Market dynamics remain largely healthy, and new developments continue to point to improving risk appetites. Still, Energy (XOP, RYE) is the only cyclical value Sector that has been able to decisively break to new price highs, while others remain in congestion. Therefore, our outlook remains neutral yet constructive overall, and we see pullbacks as buying opportunities.Charts highlighted: XLF, Copper, IWM, MCHI, KRE, XLB, S&amp;P 500, CNQ, SU, IMO, CVE, OVV, COP, EOG, PXD, OXY, HES, DVN, CLR, CFR, PB, BOKF, IBTX, TBK, BSVN, BAC, WFC, USB, PNC, TFC, FITB, KEY, RF, and CMA

U.S. Equity Strategy: Risk Appetites Improving; Watching Financials, Copper, US Dollar

Last week's FOMC announcement was more hawkish than expected, and the market took the news in stride. Market dynamics have improved significantly since the announcement, which has us inching toward an outright bullish outlook; we are just waiting for price breakouts from cyclical areas including small-caps (IWM), Financials (XLF), and Energy (XOP).Charts highlighted: COP, EOG, DVN, CLR, FANG, MRO, XEC, COG, AR, MUR, USB, PNC, FITB, KEY, RF, CMA, SIVB, WAL, EWBC, ZION, PACW, UMPQ, FHB, and CATY.

Last week's FOMC announcement was more hawkish than expected, and the market took the news in stride. Market dynamics have improved significantly since the announcement, which has us inching toward an outright bullish outlook; we are just waiting for price breakouts from cyclical areas including small-caps (IWM), Financials (XLF), and Energy (XOP).Charts highlighted: COP, EOG, DVN, CLR, FANG, MRO, XEC, COG, AR, MUR, USB, PNC, FITB, KEY, RF, CMA, SIVB, WAL, EWBC, ZION, PACW, UMPQ, FHB, and CATY.

10-Yr Treasury Yield Breaking Out; Downgrading U.S. Consumer Staples and Utilities To Underweight

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Loan data for August 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for all Japanese commercial banks is now in negative territory, driven by a sharp YoY decline in lending by the major banks over the last four months.  Even on a month-on-month basis, total lending by Japanese banks has been falling for four out of the last five months.  Credit lines that were drawn down in 2020 as Japan went into nationwide COVID-induced lockdown, but were ultimately largely unneeded, are now being repaid.Interest rates remain at rock bottom, a fact that helps minimize funding costs, while the recovery in the stock market has given the banks some valuable ‘breathing space’ to offset rising credit costs with gains on selling some of the investment portfolio.  Nevertheless, margins remain under intense pressure, pushing core earnings down.  The quality of bank profits therefore continues to deteriorate, even though bottom-line profits for 1H FY3/2022 are likely to exceed most banks’ cautious initial earnings guidance.  That said, we expect few banks to opt to raise their full-year guidance significantly, regardless of 1H FY3/2022 results (due out mid-November).The Japanese banking sector in 2021 has outperformed Topix for the first time in several years, aided by a weakening Yen against the US$.  Yet, as we head into the third quarter of FY3/2022, much of the earlier outperformance by the banking sector against Topix has already been given back.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/501/original/8300-WR-JBanks-2021-0719-TooLow4Zero-TPNBNKvsTPX+2015-2021.jpg?1632884040" class="editor-image img-responsive" data-smartkarma-image-id="232501"></figure></section>

Loan data for August 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for all Japanese commercial banks is now in negative territory, driven by a sharp YoY decline in lending by the major banks over the last four months.  Even on a month-on-month basis, total lending by Japanese banks has been falling for four out of the last five months.  Credit lines that were drawn down in 2020 as Japan went into nationwide COVID-induced lockdown, but were ultimately largely unneeded, are now being repaid.Interest rates remain at rock bottom, a fact that helps minimize funding costs, while the recovery in the stock market has given the banks some valuable ‘breathing space’ to offset rising credit costs with gains on selling some of the investment portfolio.  Nevertheless, margins remain under intense pressure, pushing core earnings down.  The quality of bank profits therefore continues to deteriorate, even though bottom-line profits for 1H FY3/2022 are likely to exceed most banks’ cautious initial earnings guidance.  That said, we expect few banks to opt to raise their full-year guidance significantly, regardless of 1H FY3/2022 results (due out mid-November).The Japanese banking sector in 2021 has outperformed Topix for the first time in several years, aided by a weakening Yen against the US$.  Yet, as we head into the third quarter of FY3/2022, much of the earlier outperformance by the banking sector against Topix has already been given back.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.

Japanese Bank Lending:  Too Low For Zero

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

Equity Bottom-Up

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

*USB Pounces Quickly: US Bancorp (USB.US) announced the acquisition of MUFG’s West Coast regional bank (Union Bank) for USD 8.0 bn in a 70/30 cash/stock transaction. Admittedly, this transaction is smaller than we had anticipated – only being Union Bank, the largest portion of MUFG Americas, MUFG’s US bank holding company; and  *Headache Relieved: MUFG recently received a regulatory C&amp;D for "unsafe and unsound practices" with respect to operational risk management and non-compliance with security standards. USB is now the responsible party. MUFG receives USD 5.5 bn in cash and a 2.9% stake in USB, and likely will record a gain of JPY 150 bn. At MUFG Americas, approximately USD 22.6 bn in assets remains at the CIB.

*USB Pounces Quickly: US Bancorp (USB.US) announced the acquisition of MUFG’s West Coast regional bank (Union Bank) for USD 8.0 bn in a 70/30 cash/stock transaction. Admittedly, this transaction is smaller than we had anticipated – only being Union Bank, the largest portion of MUFG Americas, MUFG’s US bank holding company; and  *Headache Relieved: MUFG recently received a regulatory C&amp;D for "unsafe and unsound practices" with respect to operational risk management and non-compliance with security standards. USB is now the responsible party. MUFG receives USD 5.5 bn in cash and a 2.9% stake in USB, and likely will record a gain of JPY 150 bn. At MUFG Americas, approximately USD 22.6 bn in assets remains at the CIB. 

United States

U.S. Bancorp is a diversified financial services company that provides lending and depository services, cash management, foreign exchange and trust and investment management services.  The Company also provides credit card services, mortgage banking, insurance, brokerage, and leasing.  U.S Bancorp operates in the Midwest and Western United States.

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US Bancorp (USB US)

US Bank Sector Stress – Old Fashioned Risks and a Regulatory Loophole Meet the Digital Age

US bank system strains reflects heightened interest rate risk, exacerbated by uninsured and concentrated deposits at a time of sharply rising...

Victor Galliano

U.S. Equity Strategy: Risk Appetites Improving; Watching Financials, Copper, US Dollar

Financials (XLF) are on the cusp of a breakout above $39, while copper is on the cusp of a breakout above $4.38; breakouts above resistance would...

Vermilion Research

10-Yr Treasury Yield Breaking Out; Downgrading U.S. Consumer Staples and Utilities To Underweight

The 10-year Treasury yield broke above the key 1.38% resistance level last week, a bullish signal for the broad equity market and also a bullish...

Vermilion Research

Japanese Bank Lending: Too Low For Zero

Data for August 2021 from both the JBA and the BoJ confirm that YoY loan growth for all Japanese commercial banks has turned negative, driven by a...

J. Brian Waterhouse

Mitsubishi UFJ Financial – Sayonara

MUFG: US Bancorp announced the acquisition of MUFG’s West Coast Union Bank for USD 8.0 bn. MUFG recently received a regulatory C&D for "unsafe and...

Thomas J. Monaco

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