Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Equity Bottom-Up

<ul><li>The past six months has been a challenging period for global bank shareholders.  Global banks have declined by 20% since August, well below the 5% decline in the broader global market index.   European banks, particularly those in the periphery countries, have delivered dismal returns.  Despite the reduction of European banks' non-performing loans in the past two years, they still account for 7% of total loans, well above other developed markets.</li><li>In dissecting the global bank sector under-performance, I show that those that have delivered the worst returns have been the riskiest with low loss absorbing capital.  Despite global bankers' predictable chorus since the financial crisis that more stringent capital regulatory requirements are impeding their ability to lend, Evidente's analysis demonstrates that banks with more loss absorbing capital have been resilient to the market turbulence of the past six months.  Global bankers should therefore be grateful to Basel and prudential regulators.</li><li>Evidente's framework identifies two UK banks, RBS and Standard Chartered, as significantly overpriced.   Despite their high profitability adjusted book multiples, they remain poorly capitalised with few defensive attributes.  Further, they are unlikely to be cum-earnings upgrades because analysts have downgraded their 12 month forward EPS forecasts for RBS and Standard Chartered by 15% and 50% respectively in the past six months.   The possibility that global market sentiment swings quickly from risk aversion to risk appetite represents the key risk to an underweight or short position in these stocks.</li></ul>

The past six months has been a challenging period for global bank shareholders.  Global banks have declined by 20% since August, well below the 5% decline in the broader global market index.   European banks, particularly those in the periphery countries, have delivered dismal returns.  Despite the reduction of European banks' non-performing loans in the past two years, they still account for 7% of total loans, well above other developed markets.In dissecting the global bank sector under-performance, I show that those that have delivered the worst returns have been the riskiest with low loss absorbing capital.  Despite global bankers' predictable chorus since the financial crisis that more stringent capital regulatory requirements are impeding their ability to lend, Evidente's analysis demonstrates that banks with more loss absorbing capital have been resilient to the market turbulence of the past six months.  Global bankers should therefore be grateful to Basel and prudential regulators.Evidente's framework identifies two UK banks, RBS and Standard Chartered, as significantly overpriced.   Despite their high profitability adjusted book multiples, they remain poorly capitalised with few defensive attributes.  Further, they are unlikely to be cum-earnings upgrades because analysts have downgraded their 12 month forward EPS forecasts for RBS and Standard Chartered by 15% and 50% respectively in the past six months.   The possibility that global market sentiment swings quickly from risk aversion to risk appetite represents the key risk to an underweight or short position in these stocks.

NatWest Group

Bankers Should Be Grateful to Basel