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Archives: CreditSights Issuer List
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Fundamental View
AS OF 27 Nov 2023- Bank of America is a strong and steady credit, having dramatically improved its risk profile over the last decade and significantly closed the gap with industry bellwether(s); effective expense management has also been a demonstrated core competency.
- The company remains well diversified across business lines in lending, markets, and asset/wealth management and has shown little appetite for excessive risk-taking, exemplified in part by strong stress test performance versus peers.
Business Description
AS OF 27 Nov 2023- Bank of America ranks as the 2nd largest U.S. bank by total assets ($3.15 tn) and by total deposits ($1.88 tn) as of 3Q23.
- Bank of America ranked 2nd in terms of U.S. deposits at YE22 with approximately $1.88 tn in deposits and 3,796 branches (S&P Capital IQ) with a coast-to-coast branch presence including leading market shares in California (#1), North Carolina (#1), Texas (#2), Florida (#1), and New York (#3).
- Bank of America's major business lines include U.S. retail banking, credit cards, global corporate & investment banking, and global wealth & investment management.
Risk & Catalysts
AS OF 27 Nov 2023- Bank of America has made excellent progress generating operating efficiencies and improving profitability as the crisis-era overhangs fade further into the background; it still lags peer JPM on some measures, including capital markets, but is well positioned to capture any rebounding loan growth.
- The company is relatively more sensitive to interest rates than peers, estimating that a +100 bp parallel shift in the interest rate yield curve would increase net interest income by $3.1 bn over the next 12 months (as of 3Q23).
- Also a sector-wide concern, Bank of America is exposed to cyber threats, although it has been deploying significant resources into tech spend the past few years.
Key Metric
AS OF 27 Nov 2023| $ mn | FY19 | FY20 | FY21 | FY22 | 3Q23 |
|---|---|---|---|---|---|
| ROAE (annual) | 10.2% | 6.7% | 11.7% | 10.2% | 10.9% |
| ROAA (annual) | 1.1% | 0.6% | 1.0% | 0.9% | 1.0% |
| PPNR / Avg. Assets | 1.48% | 1.06% | 0.94% | 1.02% | 1.20% |
| Efficiency Ratio | 60% | 66% | 67% | 65% | 63% |
| Net Interest Margin (Annual) | 2.43% | 1.90% | 1.66% | 1.83% | 2.14% |
| Net charge-offs (LTM) / Loans | 0.37% | 0.40% | 0.23% | 0.18% | 0.30% |
| Common Dividend Payout | 22% | 35% | 21% | 25% | 24% |
| CET1 Ratio | 11.2% | 11.9% | 10.6% | 11.2% | 11.9% |
| Supplementary Leverage Ratio (SLR) | 6.4% | 7.2% | 5.5% | 5.9% | 6.2% |
| Liquidity Coverage Ratio (LCR) | 118% | 116% | 122% | 115% | 116% |
CreditSight View Comment
AS OF 16 Jan 2024Our Outperform recommendation on BAC is based on a combination of fundamental strength (consistent peer-leading stress test loss rates), spread pickup over high-quality peer banks, and attractive valuations against broader corporates. Technical support is not as strong as we see all the banks returning to more normalized issuance in 2024; positively, we think BAC is less exposed than money center peers to net new issue needs from Basel III endgame implementation. The company’s missteps on the HTM portfolio is an earnings and margin opportunity cost issue, not a fundamental one, and justified ex post by the large and stable retail deposit base demonstrated through the post-SVB failure fallout; and profitability is still healthy with solidly mid-teens ROTCE, despite the securities drag.
Recommendation Reviewed: January 16, 2024
Recommendation Changed: November 04, 2013
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
How may we help you?
Search topics about wealth insights and investments.Amazon.com
- Sector: ConsumerTechnology Media and Telecommunications
- Sub Sector: Retail/GrocersTechnology
- Region: US
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Fundamental View
AS OF 11 Aug 2023- We continue to have confidence in CEO Andy Jassy and the company’s long-term business for both AWS and consumer. The 2Q23 results support our view as AWS growth is stabilizing and the North America consumer segment significantly improved its GAAP operating profit. AWS customers are shifting from workload optimizations to new workload deployments, and we expect AWS to remain a profitable growth driver for the foreseeable future.
- We anticipate the North America segment to see continued profitability improvements driven by operating leverage, cost reductions, and productivity gains including the regionalization of its fulfillment network. Gross leverage declined by nearly 2 ticks to 0.8x or 1.6x on a lease-adjusted basis. Also, Amazon’s equity cushion is ~$1.4 tn.
Business Description
AS OF 11 Aug 2023- Amazon is an e-commerce company which sells a wide range of its own products and those of 3rd party sellers. Amazon offers fulfillment services for 3rd party sellers (FBA) and sells cloud computing services (AWS). In 2Q23, 3rd party units were 60% of total paid units, and FBA units are a majority of 3rd party units.
- In LTM 2Q23, NA segment was 62% of sales, International was 22% of sales, and AWS was 16% of sales.
- Amazon disclosed it surpassed 200 mn Prime members in April 2021. The annual membership was increased in February 2022 from $119 to $139 in the US, although fees vary by country. In mid-2019, Amazon Prime began to transition from 2-day to 1-day shipping. Amazon Prime also offers Prime Video, streaming music, and other benefits.
- In 2006, Amazon launched AWS which remains the leader in cloud computing (IaaS/PaaS). Amazon sells its own devices (e-reader, smart speaker, streaming media player, etc.).
Risk & Catalysts
AS OF 11 Aug 2023- We think Amazon has moderate event risk as its large size (~$1.4 tn market cap) provides a buffer against the regulatory risks.
- Amazon has taken steps to improve profitability including multiple rounds of layoffs which could preempt activist investor campaigns that have become more common lately for Big Tech including GOOGL and META.
- Amazon continues to face regulatory scrutiny. The FTC is finalizing a lawsuit alleging AMZN disadvantages third-party merchants who do not use its services. The biggest risk would be a breakup, although we view that as unlikely.
- Amazon’s $14 bn acquisition of Whole Foods has shown its proclivity for large M&A, although the regulatory environment could make large deals challenging e.g., FTC scrutiny on its $8.5 bn MGM acquisition.
- Amazon repurchased $6.0 bn shares in 1H22, which were the first buybacks in 10 years, although the company has not repurchased any shares since then.
Key Metric
AS OF 11 Aug 2023| $ mn | 2019 | 2020 | 2021 | 2022 | LTM 2Q23 |
|---|---|---|---|---|---|
| Revenue YoY % | 20.5% | 37.6% | 21.7% | 9.4% | 10.7% |
| EBITDA | 43,394 | 57,284 | 71,994 | 74,593 | 87,648 |
| EBITDA Margin | 15.5% | 14.8% | 15.3% | 14.5% | 16.3% |
| CapEx % of Sales | 4.5% | 9.1% | 11.8% | 11.3% | 10.0% |
| Sh. Ret. % of CFO-CapEx | 0% | 0% | 0% | (52%) | 0% |
| Net Debt | (30,201) | (50,497) | (44,771) | 7,316 | 7,902 |
| Gross Leverage | 0.6x | 0.6x | 0.7x | 1.0x | 0.8x |
| EV / EBITDA | 20.8x | 28.3x | 23.3x | 11.7x | 15.6x |
CreditSight View Comment
AS OF 21 Dec 2023We continue to have confidence in CEO Andy Jassy and the long-term business for both AWS and consumer. The 3Q23 results support our view as AWS growth has stabilized, AWS and North America both had record profits, and International nearly reached breakeven profitability. We expect AWS to remain a profitable growth driver for the foreseeable future, and the North America segment to see improved profitability driven by operating leverage, cost reductions, and productivity gains including the regionalization of its fulfillment network. We estimate gross leverage declined sharply to 0.6x or 1.4x on a lease-adjusted basis. We think Amazon should be able to address the FTC’s concerns with behavioral remedies and fines, and we view a breakup as unlikely.
Recommendation Reviewed: December 21, 2023
Recommendation Changed: December 21, 2023
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Fundamental View
AS OF 29 Feb 2024Crédit Agricole’s business model enjoys benefits of scale, with a strategy of organic growth and bolt-on acquisitions.
Italy is an important part of its operations, accounting for around 7% of the loan book, and while asset quality there is weaker than at the group level, its performance has been improving.
Group asset quality and capital ratios are robust, reflecting a largely low-risk balance sheet – retail and related banking accounts for around 80% of group net profits.
Business Description
AS OF 07 Jun 2023- Crédit Agricole (CA Group) includes 38 regional banks (Caisses Régionales or CRs) owned by 2,401 local credit co-operatives themselves, owned by 11.5 million mutual shareholders.
- The scope of consolidation used by regulators (e.g. for stress tests) is the CA Group level. The listed entity is Crédit Agricole SA (CASA), owned 57.1% by the CRs (via a holding company); the remaining 42.9% is free float.
- CASA has four business lines in its own operations and through subsidiaries: Retail Banking (LCL, Italy operations), Asset Gathering (Amundi, Indosuez Wealth Management, and insurance business via Crédit Agricole Assurances), Large Customers (Corporate & Investment Bank and Caceis Investor Services), and Specialised Financial Services (Leasing & Factoring and Consumer Finance).
- It mainly operates in banking and insurance in France. Its second largest market is Italy, where CA Italia offers consumer, private and corporate banking, asset management and insurance. It acquired Cariparma in 2007, and since then has added a number of other small banks, most recently Credito Valtellinese in 2021.
Risk & Catalysts
AS OF 29 Feb 2024Crédit Agricole regards Italy as its second domestic market. Asset quality is still weaker than in the rest of the group but has been improving for some time now.
The group aims to strengthen its already strong positions in specialist finance and asset management via organic growth, partnerships, and bolt-on acquisitions. The group regularly looks for opportunities and it builds stakes in various businesses, which remain areas to monitor. The group tends to only pursue opportunities which generate specific return on investments, return on normalised equity, and the capacity to integrate without any difficulty.
Retail Banking in France remains under pressure due to higher (deposit) funding costs.
Group capital ratios remain of comfort for bondholders, with CASA run more tightly, although capital ratios improved there on the first time adoption of IFRS 17.
Key Metric
AS OF 29 Feb 2024| € mn | 4Q23 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return On Equity | n/m | 6.3% | 6.3% | 7.4% | 4.0% |
| Total Revenues Margin | 1.4% | 1.5% | 1.5% | 1.6% | 1.6% |
| Cost/Income | 64.8% | 60.5% | 60.6% | 62.7% | 65.0% |
| CET1 Ratio (Transitional) | 17.5% | 17.5% | 17.6% | 17.5% | 17.2% |
| CET1 Ratio (Fully-Loaded) | 0.0% | 0.0% | 17.2% | 17.2% | 16.9% |
| Leverage Ratio (Fully-Loaded) | n/m | n/m | 5.3% | 6.0% | 6.0% |
| Liquidity Coverage Ratio | 144% | 144% | 167% | 171% | 149% |
| Impaired Loans (Gross)/Total Loans | 2.1% | 2.1% | 2.1% | 2.0% | 2.4% |
CreditSight View Comment
AS OF 20 Dec 2024Crédit Agricole remains a core holding amongst European banks, with the benefits of several large business franchises. The largest retail banking group in France has reduced the complexity in its mutual structure, with stakes in all the regional banks formerly held by the quoted entity Crédit Agricole S.A. now transferred to a new group entity. Retail banking has been under pressure but there are signs this is now reducing. Asset quality and capital are sound. This strong starting position helped protect the group’s financial ratios during the COVID-19 pandemic, and the latest set of results were resilient in the face of a challenging macro-economic backdrop globally.
Recommendation Reviewed: December 20, 2024
Recommendation Changed: August 10, 2017
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
How may we help you?
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Fundamental View
AS OF 11 May 2023CDB’s credit standing is based on its role as a quasi-sovereign policy bank that provides financial support for implementation of the government’s socio-economic policy priorities both domestically and externally.
It is the largest issuer in the Chinese domestic bond market (accounting for near one-tenth of the whole China bond market) after the government itself.
CDB is wholly owned by the Chinese government and can lean on the central bank for liquidity and capital needs. In 2015, the government injected $32 bn in FX reserves into the bank to facilitate financing for Belt and Road Initiative (BRI) projects.
Business Description
AS OF 11 May 2023- CDB was established in 1994 to alleviate the problem of insufficient funds for China's economic growth and to take over the long-term financial agency function and policy loan function of CCB.
- From 1998-2013, under the leadership of Chen Yuan, CDB started its commercialization journey with its management attempting to demonstrate that a policy bank can be run along relatively commercial lines. But the commercialization raised the issue of higher bond financing costs for CDB. Unlike commercial banks, bond financing is the major source of funding for CDB. Since 2013, after a new CEO took over, CDB gradually returned to its original position of a policy bank.
- CDB is owned by the Chinese government via the MOF (37%), Huijin (35%), Buttonwood (27%) - an investment company held by SAFE - and the National Council for Social Security Funds (2%). CDB's main subsidiaries are CDB Capital Co (private equity), CDB Securities Co (underwriting & brokerage) and CDB Leasing, which is listed in Hong Kong.
Risk & Catalysts
AS OF 11 May 2023As its credit standing is strongly linked to the government, CDB is rated in line with the China sovereign (A1/A+/A+). Any downgrade of China’s sovereign rating would affect its own ratings.
Any reduction in the government’s willingness to support CDB would weaken its credit standing. Some uncertainty did arise as the bank moved towards commercialisation pre-2013, but CDB’s policy bank status has since been reaffirmed.
CDB’s policy role may involve it taking on exposure that lead to financial losses, in which case we would expect proactive state support to ensure that the bank remains financially sound.
Key Metric
AS OF 11 May 2023| Key Metrics | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Operating Income/Average Assets | 1.53% | 1.33% | 0.98% | 1.09% | 1.31% |
| Pre-Impairment Operating Profit / Average Assets | 1.43% | 1.22% | 0.88% | 0.99% | 1.22% |
| ROA | 0.7% | 0.7% | 0.7% | 0.5% | 0.5% |
| ROE | 8.7% | 8.7% | 8.2% | 5.2% | 5.3% |
| CET1 Ratio | 9.7% | 9.9% | 9.9% | 9.9% | 9.3% |
| Credit Costs | 0.86% | 0.45% | 0.05% | 0.59% | 0.85% |
| NPL Ratio | 0.92% | 0.95% | 0.79% | 0.84% | 0.78% |
| Total Equity/Total Assets | 7.90% | 8.30% | 8.51% | 8.82% | 8.66% |
CreditSight View Comment
AS OF 03 Jul 2023CDB is China’s largest policy bank. It is owned by the government and plays a key role in implementing the Chinese government’s economic plans both inside China and overseas. It is a quasi-sovereign entity that is rated in line with China’s sovereign rating. We therefore view its debt as attractive for additional spread pick-up over the $-denominated sovereign curve given that its ultimate risk is that of the Chinese government.
Recommendation Reviewed: July 03, 2023
Recommendation Changed: July 16, 2021
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group