Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Thematic (Sector/Industry)

Slovenia Banks / Thematic (Sector/Industry)

<div class="content-highlight">Turkish exposures are manageable, but pressure on profits is likely.</div><hr>Turkey's rapid economic growth was fuelled by a surge in credit, with Turkish banks increasing their lending books by 22% per year over the past eight years. Foreign-currency loans make up 36% of the lending book of Turkish banks, while Turkish banks rely on foreign exchange borrowings and deposits for nearly half of their funding. The recent collapse in the value of the Turkish lira threatens to topple this house of cards.Our base-case scenario is that the Turkish economy goes through a phase of painful rebalancing during which it weans itself off its reliance on foreign funding. The profitability of Turkish banks will be under substantial pressure over the medium term, and they might require capital and funding support. <a href="https://www.smartkarma.com/entities/21251" target="_blank" data-smartkarma-citation="entities:21251:1">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> and <a href="https://www.smartkarma.com/entities/21234" target="_blank" data-smartkarma-citation="entities:21234:1">UniCredit SpA (UCG IM)</a> count on Turkey for 14% and 10% of earnings, respectively, and have the most to lose under this scenario. We recently cut our fair value estimates for BBVA and UniCredit by 20% and 18%, respectively, partially due to the lower contribution we anticipate from Turkey over the medium term.We believe it is extremely unlikely that a Turkish affiliate of a European bank will fail (which would require the parent to write off its exposure), as the Turkish affiliate banks can count on liquidity and capital support from their European parents. However, it is exactly this implicit support that drives our downside scenario. We are concerned that the European banks will support discounted capital calls to keep their Turkish affiliates afloat and safeguard their full Turkish exposure. European banks that provide significant liquidity and funding support to their Turkish affiliates will have even less of an option to walk away from their investments, given the magnitude of their exposure. UniCredit especially stands out in this regard: While its equity participation in <a href="https://www.smartkarma.com/entities/25062" target="_blank" data-smartkarma-citation="entities:25062:1">Yapi Ve Kredi Bankasi As (YKBNK TI)</a> is equal to 5% of its consolidated equity, we estimate that funding and liquidity support increases its full Turkish exposure to as much as 20% of its equity.Analyst: Johann Scholtz, CFA

Turkish exposures are manageable, but pressure on profits is likely.Turkey's rapid economic growth was fuelled by a surge in credit, with Turkish banks increasing their lending books by 22% per year over the past eight years. Foreign-currency loans make up 36% of the lending book of Turkish banks, while Turkish banks rely on foreign exchange borrowings and deposits for nearly half of their funding. The recent collapse in the value of the Turkish lira threatens to topple this house of cards.Our base-case scenario is that the Turkish economy goes through a phase of painful rebalancing during which it weans itself off its reliance on foreign funding. The profitability of Turkish banks will be under substantial pressure over the medium term, and they might require capital and funding support. Banco Bilbao Vizcaya Argentari (BBVA SM) and UniCredit SpA (UCG IM) count on Turkey for 14% and 10% of earnings, respectively, and have the most to lose under this scenario. We recently cut our fair value estimates for BBVA and UniCredit by 20% and 18%, respectively, partially due to the lower contribution we anticipate from Turkey over the medium term.We believe it is extremely unlikely that a Turkish affiliate of a European bank will fail (which would require the parent to write off its exposure), as the Turkish affiliate banks can count on liquidity and capital support from their European parents. However, it is exactly this implicit support that drives our downside scenario. We are concerned that the European banks will support discounted capital calls to keep their Turkish affiliates afloat and safeguard their full Turkish exposure. European banks that provide significant liquidity and funding support to their Turkish affiliates will have even less of an option to walk away from their investments, given the magnitude of their exposure. UniCredit especially stands out in this regard: While its equity participation in Yapi Ve Kredi Bankasi As (YKBNK TI) is equal to 5% of its consolidated equity, we estimate that funding and liquidity support increases its full Turkish exposure to as much as 20% of its equity.Analyst: Johann Scholtz, CFA

European Banks: Little Delight From Turkey