April 26, 2024 13:25 GMT
Financials on Friday: Healthy Balance Sheets
FINANCIALS
Little balance sheet deterioration has yielded little spread dispersion at all this results season. The gearing of equity performance to revenue guidance has been strongly evident, however.
- Revenues, revenues, revenues. Results season has presented a simple dichotomy in many ways this time around – largely because of the lack of credit blow-ups, we think. It is well understood that the positive tailwind from rising rates is coming to a close. The question simply remains around the rate of deceleration and the ability to mitigate with non-interest revenue streams.
Those who have surpassed expectations have seen strong equity performance (over 10% up across the week, in some cases) whereas the opposite has been true for the odd weaker business.
Spreads have, however, remained in a tight range with even these “equity standouts” showing little more than a couple of basis points of tightening, relative to the sector.- Deutsche has been one of the standouts this week. It showed positive revenue momentum from its investment bank and, perhaps as importantly, failed to show much asset quality deterioration. Stress in CRE, both in Germany and US, has been evident and there was a time when you could almost rely on DB to slip up. That mantle has been passed elsewhere. The “lack of negatives” is a positive for Commerzbank, DePfa and Aareal, we feel. DB spreads are c.8bp tighter on the week.
- Sabadell similarly surprised on revenues but more from recovering volumes and margins in the core Spanish banking business. This is positive for Caixabank, Ibercaja, Kutxa and the two Spanish majors.
- NatWest today posted revenues ahead of expectations and better loan losses and the equity is well ahead in current trading.
- At the other end is Handelsbanken in Sweden which missed on revenues (margin contraction and weak volumes) and gave a sense of inability to guide on margin trajectory due to the vagaries of branch-based autonomous pricing. Costs also disappointed and the equity is down over 10% this week. However, as there’s no meaningful credit issue here, spreads have tightened 4bp, only a couple shy of the sector’s move this week.
- Swedbank, SEB, Lloyds Banking, BNP and DNB all posted figures which were broadly inline and don’t appear likely to generate much upgrade interest from the analyst community. Spreads on all of these are little dispersed from the sector mean.
- Credit quality has been a non-event so far this results season. US bank reporting largely finished over a week ago and deteriorations were little worse than what was already expected. Here in Europe, we’ve seen little to alarm at all with the trend being lower loan losses with only small upticks in non-performers.
The Nordic banking system remains very low risk with few movements of note but, even in Spain, for example, Sabadell saw loan losses well below consensus-implied run-rates and non-performers improved from the Dec-23 balance sheet. - Next week we have the Spanish banks, the UK internationals, some of the CEE businesses along with Danske, SocGen, ING and, on Friday evening, Intesa kicking off Italian reporting.
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