FINANCIALS
- 1Q24 reporting has kicked off this week, just as geopolitics, amongst other things, has driven the first real risk-off session of the year. Overall, new is solid for IB revenues, US asset quality continues to concern and there were a couple of capital surprises.
- Investment bank revenues surprised positively (see graphic): GS was the clear winner with a balanced performance, JPM much less of a bellwether than normal. FICC overall was less bad than expected (and DCM good) so positive for Deutsche and Barclays in Europe, we feel.
Outlook statements varied from GS’s caution, referring to FICC revenues being near “peak” to MS’soptimism around the start of a “multi-year M&A cycle”. On commercial banking revenues, however, the picture remained muted though the delays to a Fed rate cut remain a (minor positive) for banks’ income lines. So, a revenue sense, mildly positive for spreads.
- Investment bank revenues surprised positively (see graphic): GS was the clear winner with a balanced performance, JPM much less of a bellwether than normal. FICC overall was less bad than expected (and DCM good) so positive for Deutsche and Barclays in Europe, we feel.
- US asset quality was weaker overall but perhaps only as weak as expected. Citigroup, JPMorgan, Bank of America, US Bancorp and M&T Bank all reported asset quality figures weaker than expectations… but not egregiously so. Considering the moves in e.g. PBB and Aareal’s credit over the last few months, this seems something of a relief to us.
On that subject, we also noted the wide disparity between those two German real estate lenders. We’d agree that Aareal’s takeover by a consortium of private investors lends additional resilience to its capital, but that was captured in the months following the deal announcement (Jun-23). Aareal is more a US lender vs. PBB being more German but the disparity for two real estate markets with some similarities appears overblown to us.
- Capital surprises: the new term for the season appears to be “B3E” which is the terrible abbreviation for Basel III endgame – in short, the finalisation of capital rules which is coming later this year in the US. Most of the US majors covered this topic in the context of running higher capital buffers until clarity is reached with regulators. We take this as a near-term credit positive.
Separately, but similarly, Nordea reported results yesterday (18-Apr) and specifically talked about slowing capital returns to equity holders as the Nordic regulators remain in talks with the ECB over final implementation of capital rules for that bloc. The corollary here is that all the Nordic banks appear likely to run higher capital levels for some months to come – in a risk-off environment, this has to be constructive for spreads, in our view. - What’s up next – 1Q24 results
- 23-Apr: DNB – capital to surprise positively?
- 24-Apr: Handelsbanken, SEB and Lloyds Banking
- 25-Apr: BNP, Swedbank, Sabadell (positive after BKT’s good results this week?), Barclays and Deutsche (FICC has been a key positive of IB results, good for these two issuers) and Capital One (another look into US consumer quality).
- 26-Apr: NatWest
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