FINANCIALS: Financials - Week in Review
Financials - Week in Review
Following favourable inflation numbers, the tone of the week has been very strong. Positive US bank earnings and a very active primary market where demand was generally strong were positive catalysts. French banks continued to reverse the spread increases of Q4 last year and were some of the best performers. UK banks also performed well on the week, reversing the previous weeks spread gains, but are still lagging year to date. PBBGR gave up some ground, although spreads for it are still meaningfully tighter YTD.
US Banks performed well, as a group holding net interest income just below flat, and expanding commission & fee (C&F) and other sources of income. As a group non-interest expenses were also flat on 2023, which shows very good cost discipline.
Diving into Specifics, JPM excelled in every category. OpInc/RWA at 4.27% is the highest we're likely to see from any bank driving RoTE of over 22%. https://mni.marketnews.com/40nDFR6 . Citi - who we think was the standout performer - had marginally lower NII but it was made up for by C&F income which was very strong and -4% lower non-interest expenses. https://mni.marketnews.com/4g2KFIQ BofA's results looks a similar to Citi's although slightly behind, but starting from a higher base. https://mni.marketnews.com/4jvRy8O .
Not ones to fail to capitalise on opportunities, Goldman Sachs https://mni.marketnews.com/42nKQvv and Morgan Stanley https://mni.marketnews.com/4atzWGw both saw their IB's perform exceptionally well. Both saw OpInc/RWA increase more than 1%, although MS's reaching 3.7%, well ahead of GS is a very good result.
Wells Fargo https://mni.marketnews.com/4g84i2d and US Bancorp https://mni.marketnews.com/4aDpHzz both saw their NII pressured more at -9% and -6.4% yoy respectively. Although both increased C&F income and showed good discipline on expenses. We highlight the EUR US Bancorp senior preferred bond screens cheap.
New issues
Nykredit issued €2.15bn to help finance their purchase of Spar Nord. https://mni.marketnews.com/4ajdHD3 They managed to print a Tier 2 at +165 alongside two Sr-Prefs. We believe the T2 contains 10bps of new issue concession, although it has closed half this game at time of writing.
Goldman Sachs issued a Sr Non-Pref with a very generous looking IPT vs secondary https://mni.marketnews.com/4ao89Hj- although in our result coverage the day before (linked above) we mentioned that the GS curve looks very tight. We assume this was reflected when the syndicate desks discussed primary valuations and led to the wide IPT of MS+150. The bonds eventually came at +115 and have since rallied to our FV of +107bps.
Nippon Life issued their first EUR Tier 2. The bonds were highly in demand and printed at MS+160 - roughly flat to their 9 year in USD after cross currency swap - and have since rallied to MS+150. While our initial IPT on Nippon was very much overly conservative https://mni.marketnews.com/4g6u1YW - we do not believe they should trade inside the Allianz curve.
Aareal issued an AT1 with an eye catching 10% IPT. It eventually came just an eighth tighter, and only 1.3x covered. Our FV for this bond was 10-10.5% https://mni.marketnews.com/42jsrzY, based on much stronger comps of SocGen and DB trade north of 9% yield. . Currently the bond is struggling a little at 99.5, despite the stronger risk sentiment.
Caixabank issued a AT1 at 6.25%, which was on our FV, following an early tender of its soon to be callable AT1s. Toronto Dominion issued a Tier 2 that was well received, despite ongoing AML worries. Santander, LBBW, KBCBB, RBC and BPCE issued Sr Non-Pref's which generally saw good demand and low concessions. In quite a heavy, but positive, week for senior pref issuance, Novo Banco, LF Bank, BAWAG, SBAB and ABN Amro all came.
Banco Sabadell saw a ratings upgrade from Fitch, on both its own performance and an improved operational environment in Spain. Ratings were lifted across the whole capital structure, pushing the tier 2 bonds to BBB- and into the IG index - although this was largely priced in before the event. Moody's & S&P remain on positive outlook for the issuer. Unipol announced it was to pay down its outstanding EUR market debt, which also earned it an upgrade from Fitch due to its newly expected declining leverage path - we expect other agencies to follow suit as their upcoming bonds are due in Q1