FINANCIALS: On Friday: Tighter Towards The Tail; X-Border M&A Hints

The tail end of results season has seen spreads tighten again, even with some results coming in more mixed e.g. Generali. The first hints of cross-border M&A in a good while have emerged with Scotiabank taking a stake in US regional KeyCorp – it looks underwhelming. We prefer in-market deals but must be cautious being underweight any of a range of smaller, potential target banks.

• General insurance claims experience: Generali missed on a weak P&C combined ratio (on 9-Aug) but actually outperformed the insurance peers over the following week, as both it and Zurich had underperformed on their runs into results. Hannover Re, conversely, beat expectations with no such claims impacts in evidence.
• UBS posted results with evidence of better operational metabolism and improved capital and credit stats. Spreads hadn’t performed that well into results, so we viewed these as credit positive, but the issuer is only 1bp ahead of the banking peers over the last week.
• DePfa results were mixed but at least there’s some evidence that risk costs are coming down from 2H23 levels, along with an indication that it didn’t need to tap credit markets again this year. Spreads have recovered well on this news.
• Nykredit and Aviva both posted pretty decent figures without spreads seeing much impact. NN Group results were ahead at the operating level with good Solvency II results, too – again with little spread impact.
• M&A: Scotiabank moved to shore up KeyCorp’s capital ratios and allow it to derisk its balance sheet a little – injecting USD2.8bn for 14.9% of the struggling US regional. This deal appears opportunistic, tough to make the industrial case for and expensive. But highlights the danger of being underweigh potential targets (BCP, smaller Italians, UK building societies).