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Sector: Financial Services
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Fundamental View
AS OF 06 Nov 2024BDO Unibank (BDO) is the largest bank in the Philippines in terms of assets & market share and is rated Baa2(stb)/NR/BBB-(stb).
Given its size and systemic importance, BDO is considered too big to fail and is strongly likely to be supported by its controlling shareholder SM Investments, as well as the Philippine government in times of stress.
BDO is widely viewed as the soundest bank in the country given its strong fundamentals, well-diversified businesses, and good management. Its CET1 ratio is maintained at a lower level than its first-tier peers, BPI and Metrobank.
Business Description
AS OF 06 Nov 2024- BDO Unibank was established as Acme Savings Bank in 1968, and was then acquired by SM Investments in 1976. It became a commercial bank in 1994 and a universal bank in 1996.
- BDO was listed in May 2002. SM Investments remains the bank's largest shareholder with a 41% stake.
- BDO has expanded through a series of M&As. Among its key transactions, it merged with Dao Heng Bank Philippines in 2001, Banco Santander Philippines in 2003, UOB Philippines in 2005, Equitable PCI Bank in 2007, GE Money Bank in 2009, Citibank Savings, DB Trust and Real Bank in 2014, One Network Bank in 2015 (the largest rural bank in the Philippines), and RB Pandi's banking business in 2019. It also acquired the insurance business of Generali in the Philippines in 2016.
- BDO has the largest distribution network in the country and is ranked the largest bank in terms of consolidated resources, total assets, loans, deposits and trust funds under management.
- Its loan book is split 51% large corporates, 25% middle market, and 24% consumer at 3Q24. 44% of the consumer book comprises mortgages, 25% are credit cards, 13% are auto loans and the remaining are personal loans (13%) and others (5%).
Risk & Catalysts
AS OF 06 Nov 2024Sustaining returns will be a challenge without the rates tailwind. Management is thus focused on volume growth in loans as well as CASA, pivoting the loan mix towards higher yielding segments, and releasing provisions, similar to its first tier peers (BPI and MBT).
We view this as acceptable for BDO given its relatively higher NPL cover (178% at 3Q24) than peers. We would prefer a higher CET1 ratio, but BDO’s large corporates-focused book (52% of total loans) and underwriting track record give comfort around potential asset quality deterioration as a result prolonged high interest rates and inflation.
NIM compression in 3Q24 has been guided by management to revert in Q4 on the back of the BSP’s 250 bp reduction in the reserve requirement ratio (RRR) effective 25 October. Still, NIM reduction is likely in FY25 should the market’s expectations of more BSP rate cuts come through.
Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would negatively impact BDO’s credit ratings.
Key Metric
AS OF 06 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| NIM | 4.36% | 4.05% | 4.14% | 4.37% | 4.32% |
| Reported ROA (Cumulative) | 0.9% | 1.2% | 1.5% | 1.7% | 1.8% |
| Reported ROE (Cumulative) | 7.6% | 10.4% | 13.0% | 15.2% | 15.0% |
| Equity/Assets | 11.6% | 11.7% | 11.3% | 11.5% | 11.8% |
| CET1 Ratio | 13.2% | 13.6% | 13.4% | 13.8% | 14.1% |
| NPL ratio | 2.7% | 2.8% | 2.0% | 1.9% | 1.8% |
| Provisions/Loans | 1.34% | 0.72% | 0.64% | 0.59% | 0.44% |
| PPP ROA | 2.3% | 2.1% | 2.3% | 2.7% | 2.5% |
| Liquidity Coverage Ratio | 127% | 145% | 141% | 123% | 136% |
| Net Stable Funding Ratio | 122% | 124% | 124% | 124% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024BDO is the largest bank in the Philippines. Management is well-regarded, the business is well-diversified and it is the market leader in many business lines. The NIM has peaked, but non-interest income is a third of operating income given good fee generation and overall core profitability is strong. Management aims to sustain returns, supported by growth in higher yielding loans and paring down provision reserves. Still, we remain comfortable with BDO given the large corporate book and high NPL cover, as well as underwriting track record, which provide comfort around weaker asset quality from prolonged high rates and inflation. Capital could be higher but remains acceptable with the CET1 ratio at 14.1%.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: November 28, 2023
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Fundamental View
AS OF 01 Nov 2024ING displays robust and consistent asset quality, good earnings, solid capital ratios and a well-balanced funding profile.
These attributes are supported by its strong franchise in retail and wholesale banking in the Benelux region, its good geographic diversification, and its focus on low risk residential mortgage lending.
At the same time, it has sizeable exposures to cyclical industry sectors in its Wholesale Banking division, although these have been reduced in recent years.
Business Description
AS OF 01 Nov 2024- ING was founded in 1991 by a merger between Nationale-Nederlanden and NMB Postbank Group. It is now the largest Dutch financial institution by total assets.
- ING Bank is focused on retail and commercial banking in the Benelux countries, with direct banking franchises in Germany, Spain, Italy, Australia, as well as Poland, Romania, Turkey and the Philippines.
- In April 2016, it completed the process of divesting all of its insurance business (in Europe, the US and Asia), under the Restructuring Plan conditions imposed by the European Commission after it received state aid in 2008-2009.
- In November 2016, ING announced that its resolution entity would be its holding company, ING Groep NV. ING Groep is now the issuing entity for all TLAC/MREL-eligible debt (AT1, Tier 2 and senior unsecured), and its sole operating entity is ING Bank N.V.
Risk & Catalysts
AS OF 01 Nov 2024Exposure to Russia has been coming down meaningfully, and the book is well covered (€1.0 bn offshore exposure with >€0.5 bn cover from guarantees). It also has €400 mn of equity in its Russian subsidiary. We highlight this as Russian exposure is continuing to attract interest and led to some additions to Stage 3 exposures year to date. To put these figures in context, the figures for Russian offshore exposure and equity in Russia at the beginning of the war in February 2022 were €5.3 bn (€2.2 bn covered by risk transfers to third parties) and €0.2 bn.
ING’s CET1 ratio will trend down towards its 12.5% target in the coming years, bringing it more in line with other major peers.
Customer deposits fund over 60% of ING’s balance sheet. 85% of deposits are insured.
Key Metric
AS OF 01 Nov 2024| € mn | Y20 | Y21 | Y22 | Y23 | 3Q24 |
|---|---|---|---|---|---|
| Return On Equity | 4.6% | 8.8% | 7.1% | 14.4% | 14.8% |
| Total Revenues Margin | 1.9% | 2.0% | 1.9% | 2.3% | 2.3% |
| Cost/Income | 63.2% | 60.5% | 60.3% | 51.2% | 49.1% |
| CET1 Ratio (Transitional) | 15.5% | 15.9% | 14.5% | 14.7% | 14.3% |
| CET1 Ratio (Fully-Loaded) | 15.5% | 15.9% | 14.5% | 14.7% | 14.3% |
| Leverage Ratio (Fully-Loaded) | 4.8% | 5.9% | 5.1% | 5.0% | 4.7% |
| Liquidity Coverage Ratio | 137.0% | 139.0% | 134.0% | 143.0% | 146.0% |
| Impaired Loans (Gross)/Total Loans | 2.1% | 1.8% | 1.7% | 1.8% | 1.9% |
CreditSight View Comment
AS OF 31 Oct 2024After divesting its insurance operations, the remaining business, ING Bank, has stayed a solid Benelux-based bank with a strong direct banking arm in several countries. Profitability growth has been supported by a gradual recovery in the Dutch economy, but since 2018 heavily affected by higher compliance costs after ING was hit by a money-laundering charge. In this rate environment, ING’s balance sheet looks less sensitive than some other peers. Net interest revenues are declining but fundamentally, the bank looks in good shape versus several other core European banks and fee income is increasing. Capital ratios are trending downwards given distributions on offer to shareholders. We moved to Outperform on its HoldCo bonds on 2 May 2024, from Market perform.
Recommendation Reviewed: October 31, 2024
Recommendation Changed: May 02, 2024
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Search topics about wealth insights and investments.BMO Financial
- Sector: Financial Services
- Sub Sector: Consumer Finance and Banking
- Region: Canada
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Fundamental View
AS OF 01 Nov 2024BMO Financial Group is rated Aa2/A+/AA-, but bail-in senior debt for BMO is rated A2 by Moody’s and A- by S&P.
BMO is geographically diversified within Canada & via its commercial banking business in the U.S. BMO has improved its revenue mix by building wealth & capital markets, though the latter has been pressured across the industry over the past year.
Business Description
AS OF 01 Nov 2024- BMO Financial Group is the fourth largest depository institution in Canada with C$1,400 bn in assets as of F3Q24 and a market capitalization of US$66 bn. Total deposits were C$914 bn at F3Q24.
- BMO operates 1,890 branches in Canada and the United States in 2024.
- As of YE23, BMO had 1,013 branches within the United States, mostly in the Midwest. BMO ranked 11th in deposit market share in the U.S. (SNL), with a top-2 share in Illinois.
Risk & Catalysts
AS OF 01 Nov 2024BMO has a strong core deposit base in Canada and in the U.S., which mitigates the potential for a liquidity event.
BMO closed the acquisition of Bank of the West from BNP Paribas in February 2023, significantly expanding its footprint in the U.S. We don’t expect deal integration to have much impact on the credit profile. Capital remains well above requirements following deal closing.
We view real estate-related risk in Canada as manageable for BMO given low LTV of exposures in vulnerable markets and conservative underwriting. Commercial real estate accounts for ~10% of total loans, and office is quite manageable at ~1% of total.
Key Metric
AS OF 01 Nov 2024| $ mn | FY20 | FY21 | FY22 | FY23 | LTM 3Q24 |
|---|---|---|---|---|---|
| Revenue | 23,480 | 25,788 | 34,394 | 29,260 | 32,158 |
| Net Income | 5,097 | 7,754 | 13,537 | 4,437 | 6,733 |
| ROAE | 0.94% | 0.87% | 0.87% | 0.87% | 0.87% |
| NIM | 1.58% | 1.52% | 1.52% | 1.52% | 1.52% |
| Net Charge-offs / Loans | 0.25% | 0.14% | 0.08% | 0.14% | 0.25% |
| Total Assets | 949,261 | 988,175 | 1,173,397 | 1,347,006 | 1,400,470 |
| Unsecured LT Funding | 51,916 | 51,915 | 64,886 | 63,418 | 66,235 |
| CET1 Ratio (Fully-Phased-In) | 11.9% | 13.7% | 16.7% | 12.5% | 13.0% |
CreditSight View Comment
AS OF 04 Sep 2024We maintain our Market perform for BMO, with our view largely unchanged by the deal for Bank of the West, now closed. Results in F3Q24 featured solid revenue growth in Canadian P&C, capital markets, and even slight growth in U.S. P&C; however provisions were higher once again as normalization combined with lumpy commercial credits. We still see asset quality as manageable. On valuation grounds with the sector trading in a tight range at the 5Y part of the curve we have a preference for the highest quality names in the group such as RBC and TD, but like BMO relative to Scotia and CIBC.
Recommendation Reviewed: September 04, 2024
Recommendation Changed: August 26, 2020
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Fundamental View
AS OF 01 Nov 2024Toronto Dominion is rated Aa3/A+/AA- by Moody’s/S&P/Fitch, but bail-in senior debt for TD is rated A2/A-/AA-. TD was downgraded by S&P and Moody’s following the agreement with regulators including an asset cap for the U.S. business.
Despite the impact of the BSA/AML situation on the U.S. retail business TD’s overall credit profile remains stable, supported by diversification by revenue & geography, history of strong credit risk and conservative underwriting. At this point, we view the CEO succession in 2025 as having neutral impact on its business strategy.
TD still has substantial excess capital above all-in requirements.
Business Description
AS OF 01 Nov 2024- Toronto Dominion is the second largest depository institution in Canada with C$1,967 bn in assets as of F3Q24 and a market cap of US$80.8 bn as of September 27, 2024. The company has C$1,221 bn in total deposits.
- As of 2024, TD ranked 9th in terms of U.S. deposits with approximately US$290.1 bn in deposits and 1,154 branches (SNL). The U.S. footprint is focused on the Atlantic coast including Delaware, New Jersey, New York, Massachusetts, New Hampshire, Connecticut, Maine, Vermont, and Pennsylvania.
Risk & Catalysts
AS OF 01 Nov 2024Toronto Dominion has a strong, largely retail-driven deposit base in both Canada and the U.S., which should mitigate the potential for a liquidity event. We don’t see the BSA/AML situation having a notable impact on depositor behavior in the U.S.
The remediation efforts related to the U.S. business represent a medium term headwind for TD’s overall earnings profile (though the US$3 bn in fines has already been reserved for), but one we view as manageable given the strength of the Canadian and Wholesale banking parts of the franchise. We expect TD to maintain strong capital and liquidity positions throughout the remediation period.
We view real estate-related risk in Canada as manageable for TD given low LTV of exposures in vulnerable markets and conservative underwriting, as well as significantly lower interest rates in Canada compared to the start of 2024.
Key Metric
AS OF 01 Nov 2024| $ mn | FY20 | FY21 | FY22 | FY23 | LTM 3Q24 |
|---|---|---|---|---|---|
| Revenue | 40,760 | 39,986 | 46,132 | 45,676 | 49,258 |
| Net Income | 11,895 | 14,298 | 17,429 | 10,634 | 8,073 |
| ROAE | 1.30% | 0.72% | 0.72% | 0.72% | 0.72% |
| NIM | 1.72% | 1.56% | 1.69% | 1.75% | 1.71% |
| Net Charge-offs / Loans | 0.34% | 0.18% | 0.15% | 0.24% | 0.33% |
| Total Assets | 1,715,865 | 1,728,672 | 1,917,528 | 1,955,139 | 1,967,181 |
| Unsecured LT Funding | 55,061 | 67,073 | 88,875 | 90,998 | 89,839 |
| CET1 Ratio | 13.1% | 15.2% | 16.2% | 14.4% | 12.8% |
CreditSight View Comment
AS OF 28 Oct 2024We maintain our Outperform recommendation for Toronto Dominion. Historically TD has traded as one of the tightest names in the Canadian bank peer group. However, over the past several quarters TD has traded towards the middle of the pack among Canadian banks, closer to BMO and BNS than to RBC. We continue to believe the best value in the sector in current conditions involves trading up in quality to TD and RBC (which we already rate at Outperform). Despite the more than US$3 bn set aside in provisions, including a moderate net loss in F3Q24, we believe going forward the BSA/AML concerns are largely a manageable earnings headwind and not overly impactful to our long-term view of the credit.
Recommendation Reviewed: October 28, 2024
Recommendation Changed: March 08, 2023
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Fundamental View
AS OF 30 Oct 2024Standard Chartered has been making good progress in the past few years, improving its asset quality and profitability and dealing with legacy litigation issues. Capital, funding and liquidity look solid.
However, tension between China and the West, and global economic headwinds continue to cloud the near term outlook.
Its unusual business mix – headquartered and regulated in the UK but operating primarily in Asia, Africa and the Middle East – means it is well diversified but sensitive to geopolitical developments and emerging market volatility.
Business Description
AS OF 30 Oct 2024- Standard Chartered PLC is the holding company and listed entity of the group, in which Standard Chartered Bank is the main operating company.
- Although Standard Chartered is headquartered in London and therefore subject to UK banking regulation, its operations are mainly in Asia (Hong Kong is its biggest single market, as part of its Greater China & North Asia region), Africa and the Middle East. It is present in over 60 markets.
- It has the usual variety of businesses across these regions, including corporate and institutional banking, retail banking, commercial banking and private banking. It specialises in trade finance and cross-border cash management.
- The group announced a revised strategy in 2019 aimed at improving profitability after several years of de-risking, with a targeted return on tangible equity of 10%.
- It is classified as a G-SIB, with a regulatory capital buffer of 1%.
Risk & Catalysts
AS OF 30 Oct 2024Anti-government protests in Hong Kong, a slowing economy in China and a weak commercial real estate sector, and US/China trade tensions have threatened the growth and stability of some of Standard Chartered’s key markets.
A number of Standard Chartered’s markets have underperformed in the past and have therefore been seen as turnaround stories, including India, Korea, Indonesia and the UAE.
The group has had to improve its AML and sanctions controls. In April 2019, it paid a $947 mn fine to US authorities over breaches of US sanctions and a £102 mn fine to the UK FCA for AML weaknesses.
Key Metric
AS OF 30 Oct 2024| $ mn | 3Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return on Equity | 8.8% | 7.0% | 5.7% | 4.5% | 1.4% |
| Total Revenues Margin | 2.3% | 2.2% | 2.0% | 1.8% | 2.0% |
| Cost/Income | 60.0% | 64.1% | 66.9% | 74.3% | 70.4% |
| CET1 Ratio (Transitional) | 14.2% | 14.1% | 14.0% | 14.1% | 14.4% |
| CET1 Ratio (Fully-Loaded) | 14.2% | 14.1% | 13.9% | 14.1% | 14.3% |
| Leverage Ratio (Fully-Loaded) | 4.7% | 4.7% | 4.8% | 4.9% | 5.2% |
| Loan Impairment Charge | 0.2% | 0.2% | 0.3% | 0.1% | 0.8% |
| Impaired Loans (Gross)/Total Loans | 2.2% | 2.5% | 2.5% | 2.7% | 3.2% |
CreditSight View Comment
AS OF 30 Oct 2024We revised our recommendation on Standard Chartered HoldCo senior from Underperform to Market perform on 26 April 2023, but we changed our recommendations on Tier 2 and AT1 from Fair to Rich on 10 January 2024. The changes reflect StanChart’s recent resilient performance, with no impact on its deposit base from recent stresses in the banking system, while taking into account that the Chinese real estate market, a source of credit impairments in recent periods, remains weak (but has stabilised). Capital and liquidity ratios are robust, and profitability has improved significantly, but the bank continues to face geopolitical tensions inherent in its extensive operations in Hong Kong, China and the rest of Asia.
Recommendation Reviewed: October 30, 2024
Recommendation Changed: April 26, 2023
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Fundamental View
AS OF 30 Oct 2024UBS agreed to acquire Credit Suisse in March 2023 after the latter collapsed following a severe liquidity crisis.
CS was a large and complex organisation, so the integration, and the inevitable associated losses and costs, will dominate UBS’s strategic outlook and financial performance for several years.
However, UBS was able to negotiate substantial downside protection which should shield it from losses at CS.
Away from CS, UBS has reshaped its business model, with a greater emphasis on wealth management and less focus on investment banking, particularly fixed income.
Its earnings remain somewhat dependent on capital market conditions, but its capital, asset quality and profitability ratios have been among the best for European banks.
Business Description
AS OF 30 Oct 2024- Headquartered in Zurich, Switzerland, UBS has private, corporate and institutional clients worldwide and retail clients in Switzerland. It is one of the world's largest wealth managers.
- It completed the acquisition of CS on 12 June 2023. It has merged CS’s domestic Swiss bank (Credit Suisse Schweiz AG) with its own domestic bank (UBS Switzerland AG) in 2024, keeping the CS brand “for the time being”.
- CS’s holding company (Credit Suisse Group AG) has been merged into UBS Group AG, so that the group has a single holding company, and the operating subsidiaries, including UBS AG and Credit Suisse AG, were merged on 31 May 2024.
- UBS operates through its Corporate Center and four business divisions: Global Wealth Management, Personal & Corporate Banking, Asset Management, and the Investment Bank, plus a new Non-core and Legacy division following the acquisition of CS.
- The Investment Bank has been restructured in recent years to scale back fixed income trading and focus on equities trading and origination & advisory business.
Risk & Catalysts
AS OF 30 Oct 2024The acquisition of CS will be a long and complex process, and the necessary restructuring is likely to result in heavy losses and costs, although UBS has substantial protection, not least in the large negative goodwill.
Litigation costs have been a feature of UBS’s results in recent years, although it has agreed settlements in various cases recently.
A French court imposed fines and civil damages of €4.5 bn ($5.1 bn) in February 2019, which UBS appealed. The Court of Appeal retried the case de novo in March 2021 and reduced the fine to €3.75 mn plus civil damages of €800 mn and confiscation of €1 bn. UBS has appealed again and has set aside reserves of €1.1 bn ($1.2 bn) so far.
Key Metric
AS OF 30 Oct 2024| $ mn | 3Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return On Equity | 6.7% | 40.3% | 13.0% | 12.4% | 11.6% |
| Total Revenues Margin | 3.1% | 2.9% | 3.1% | 3.2% | 3.2% |
| Cost/Income | 83.4% | 95.0% | 72.1% | 73.6% | 73.0% |
| CET1 Ratio (Transitional) | 14.3% | 14.3% | 14.2% | 15.0% | 13.8% |
| CET1 Ratio (Fully-Loaded) | 14.3% | 14.4% | 14.2% | 15.0% | 13.8% |
| Leverage Ratio (Fully-Loaded) | 5.7% | 5.4% | 5.7% | 5.7% | 5.4% |
| Liquidity Coverage Ratio | 199% | 216% | 164% | 155% | 152% |
| Impaired Loans (Gross)/Total Loans | 0.6% | 0.4% | 0.4% | 0.4% | 0.6% |
CreditSight View Comment
AS OF 08 Nov 2024We have Market perform recommendations on UBS AG (operating bank) and UBS Group (holding company) having revised the HoldCo recommendation from Underperform on 14 August 2024. Its rescue and takeover of Credit Suisse in March 2023 was a seminal event that has had major consequences for UBS’s strategy and financial performance, as well as carrying substantial execution risk. However, the integration is on track, and UBS’s performance has been steadily improving. Capital, asset quality and liquidity all look strong, although Swiss regulatory capital requirements will continue to increase in coming years.
Recommendation Reviewed: November 08, 2024
Recommendation Changed: August 14, 2024
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Fundamental View
AS OF 02 Oct 2024BNP’s financial strength is based on its strong franchises across retail, commercial and investment banking, particularly in Europe, and its wide business and geographic diversification.
Profitability is sound and fairly resilient, while asset quality has held up well despite the effects of COVID-19 and the war in Ukraine. However, its operations in Italy (less than 10% of credit exposure) and consumer finance (12% of lending) are potentially riskier.
Capital ratios look sound, especially in the context of its liquid and relatively low-risk balance sheet. They have improved considerably thanks to the exit from the USA.
Business Description
AS OF 02 Oct 2024- BNP is one of the most diversified banking groups in Europe, having been created from a merger of the retail/commercial bank BNP and the corporate/investment bank Paribas in 2000.
- Domestic Markets (DM) comprises the Group's four retail banking networks in the eurozone and its three specialised business lines (including leasing and digital banking). The retail banks are French Retail Banking (FRB), BNL in Italy, BNP Paribas Fortis in Belgium and BGL BNP Paribas in Luxembourg.
- International Financial Services (IFS) includes consumer finance, asset management and private banking, and subsidiaries in non-eurozone countries, including TEB in Turkey and BNP Paribas Bank Polska.
- Corporate & Institutional Banking (CIB) is a global provider of financial solutions to corporate and institutional clients and includes BNP's extensive trading and investment banking businesses.
Risk & Catalysts
AS OF 03 Oct 2024BNP’s Polish subsidiary has taken higher provisions for legal risks in its FX mortgage portfolio – these have been absorbed readily, and should have peaked.
Pressure on margins is high in Personal Finance, and despite the change in product mix – reducing the concentration in Personal loans and credit cards and moving to Auto loans, it was still a difficult FY23.
BNP Paribas remains the subject of various claims concerning the Madoff matter; amongst other claims. The bank says it has substantial defenses in the face of these claims. Litigation provisions on the balance sheet stood at €841 mn at 30 June 2024. BNP says the latest claims against it stand at $1.1 bn as of June 2024.
There is a lot of uncertainty around France’s budget deficit and subsequently its sovereign ratings. If there was a negative rating action on the sovereign via an outlook change or notch downgrade, it is possible that BNP’s ratings will be impacted but it is difficult to say with any uncertainty.
Key Metric
AS OF 02 Oct 2024| mn | 2Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return On Equity | 11.0% | 9.0% | 8.2% | 8.2% | 6.4% |
| Total Revenues Margin | 1.8% | 1.7% | 1.7% | 1.8% | 1.9% |
| Cost/Income | 58.5% | 62.6% | 60.7% | 67.3% | 68.2% |
| CET1 Ratio (Transitional) | 13.0% | 13.2% | 12.3% | 12.9% | 12.8% |
| CET1 Ratio (Fully-Loaded) | 13.0% | 13.2% | 12.3% | 12.9% | 12.8% |
| Leverage Ratio (Fully-Loaded) | 4.4% | 4.6% | 4.4% | 4.1% | 4.9% |
| Liquidity Coverage Ratio | 132% | 148% | 129% | 143% | 154% |
| Impaired Loans (Gross)/Total Loans | 2.9% | 2.9% | 2.9% | 3.3% | 3.6% |
CreditSight View Comment
AS OF 02 Dec 2024BNP remains one of the more diversified bank names in Europe. Its strong business and geographic diversification has helped it maintain good profitability and asset quality. It has extensive operations in Italy via its subsidiary BN. Earnings have been resilient and CIB in particular a stand-out performer. Liquidity and funding metrics look sound. Asset quality has held up well, although an outlier is the group’s personal finance business. The latter is being restructured, to focus more on auto finance rather than personal lending. BNP’s capital position strengthened in 2024 but it will weaken in 2025/6. It is looking to expand now in insurance and asset management, likely to grow fee income. A catalyst remains potential negative rating changes.
Recommendation Reviewed: December 02, 2024
Recommendation Changed: October 30, 2018
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Search topics about wealth insights and investments.China CITIC Financial Asset Management (Huarong)
- Sector: Financial Services
- Sub Sector: Banks
- Region: China
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Fundamental View
AS OF 02 Oct 2024A large impairment loss in FY20 brought HRINTH to the brink of insolvency, but a state-led rescue plan provided HRINTH with liquidity support and brought its capital back above minimum requirements. CITIC has replaced the MoF as HRINTH’s largest shareholder. HRINTH remains as one of the Big 5 state-owned AMCs in China and will continue to perform national services.
On the guidance of the authorities, HRINTH has divested almost all of its non-core subsidiaries.
We expect HRINTH’s operational performance to remain weak until China’s economy is back on the upswing, residents regain confidence in the property market, and improved capital markets lead to better valuations on their securities books.
Business Description
AS OF 02 Oct 2024- China CITIC Financial Asset Management (formerly Huarong) is one of the five major state-owned asset management companies in China. It was first set up in 1999 to take over the bad debts of ICBC.
- The AMCs were originally due to be wound up after dealing with these "policy loans" that had come onto the books of the banks under government direction before their commercialisation, but the AMCs found a new role as commercial bad debt managers.
- HRINTH was commercialised in 2012 and completed its IPO on the HK stock exchange in 2015. Since then, HRINTH expanded its financial services to banking, financial leasing, securities & futures, trust, as well as consumer finance. However, after heavy losses in FY20, HRINTH divested much of its non-core business as directed by the authorities.
- Following the CITIC-led rescue plan of HRINTH and the planned equity transfer from the Ministry of Finance (MOF) to CITIC, CITIC has become HRINTH's largest shareholder (26.46%). Other significant shareholders include MOF (24.76%), Zhongbaorongxin (18.08%), Cinda AMC (4.89%), China Life Insurance (4.50%), National Social Security Fund (3.08%), Warburg Pincus (2.57%), and ICBC Financial AM (2.44%). HRINTH was renamed to share the "CITIC" brand in Nov-23.
Risk & Catalysts
AS OF 02 Oct 2024CITIC’s support is strong (name change, investment in CEB and CITIC Ltd, subsidiary disposal, new management team, etc.) and more meaningful to the company compared to direct ownership by the government.
Derisking continues with lower property exposure, non-core businesses have largely been disposed of and the company is able to focus on its main DDA business per the guidance of the authorities.
While HRINTH was able to deliver profit growth on the back of CITIC support and its associate interest holdings in CEB and Citic Ltd, core performance remains weak, and there could be continued volatility in the name.
AMCs may find it harder to dispose DDAs at good valuations amid a deceleration economic cycle. Longer holding periods and lower fair values of acquired DDAs could dampen return yields and increase the NPL ratio of restructuring-type DDAs.
Key Metric
AS OF 02 Oct 2024| CNY mn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| ROA | (6.40%) | 0.10% | (2.20%) | 0.02% | 1.00% |
| ROE | (147.6%) | 1.0% | (49.8%) | 3.6% | 21.2% |
| Total Capital Ratio | 4.2% | 13.0% | 15.1% | 15.1% | 16.1% |
| Leverage Ratio | 1,330.0x | 14.2x | 16.1x | 11.5x | 10.1x |
| Equity/Assets | 1.1% | 3.8% | 5.2% | 5.0% | 5.0% |
CreditSight View Comment
AS OF 02 Sep 2024CITIC AMC continued to post profits in 1H24, on the back large fair value gains from volatile other financial assets as well as on DDAs, reduced impairment losses and shared profits from its investments in CEB and CITIC Ltd. CITIC’s support is strong and more meaningful to the company compared to direct ownership by the government, derisking continues with substantially lower property exposures, non-core businesses have almost all been cleared, and the company is able to focus on main DDA business per the authorities’ guidance. However, we expect to continue to see high earnings volatility and poor disclosure is turning poorer still. We maintain our Market perform recommendation.
Recommendation Reviewed: September 02, 2024
Recommendation Changed: August 31, 2021
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Fundamental View
AS OF 06 Sep 2024IBK benefits from a legally binding solvency guarantee from the Korean government and is viewed as a Korean quasi-sovereign issuer. The bank is listed, but remains majority state-owned. Previous governments had proposed privatizing it, but subsequent governments scrapped these plans. The government intends to keep its stake above 50%, and wants IBK to focus on lending to SMEs and provide earlier stage investment capital.
IBK manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks.
Business Description
AS OF 04 Sep 2024- IBK was established under its own Act in 1961 to assist the development of Korea's small business sector. It claims a 23% market share in SME lending.
- It was listed in the early 1990s, but was re-nationalised following heavy losses in the Asian economic crisis of the late 1990s. It was re-listed in 2003, and is majority owned by the government which holds 59.5%; the National Pension Scheme holds 5.6%, and other policy banks have small stakes (7.2% by Korea Development Bank and 1.8% by the Export-Import Bank of Korea).
- Under Article 43 of the IBK Act, if the bank incurs losses they should be set against its reserves and "if the reserves are not sufficient the Government shall assume the remaining loss". Although this is a solvency guarantee and not an explicit guarantee for the timely payment of debts, we believe the Korean government will ensure IBK is in a position to make such timely payments.
Risk & Catalysts
AS OF 06 Sep 2024The bank’s ratings (Aa2/AA-/AA-) are closely tied to the Korean sovereign’s ratings (Aa2/AA/AA-) due to its quasi-sovereign status.
Its ratings and its default risk should therefore not be impacted by any deterioration in its financials, provided the government continues to inject new capital when needed, which it is expected to.
Its policy mandate requires it to use at least 70% of its funding for SMEs. Risks are mitigated by its granular SME exposures which are more than 80% secured, including guarantee from state-owned credit guarantee agencies. Korean governments have also always been quick to provide support including capital injections to IBK when needed, with the most recent injection of KRW 1.3 tn during the COVID.
Key Metric
AS OF 04 Sep 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Operating Profit / Average Assets | 1.33% | 1.30% | 1.49% | 1.59% | 2.78% |
| ROAA | 0.5% | 0.6% | 0.6% | 0.6% | 0.6% |
| ROAE | 6.4% | 9.2% | 9.5% | 8.8% | 8.7% |
| Provisions/Average Loans | 0.60% | 0.34% | 0.50% | 0.67% | 1.03% |
| Nonperforming Loans/Total Loans | 1.08% | 0.85% | 0.85% | 1.05% | 1.30% |
| CET1 Ratio | 11.1% | 11.3% | 11.1% | 11.3% | 11.6% |
| Total Equity/Total Assets | 6.95% | 6.92% | 6.79% | 7.10% | 7.06% |
| NIM | 1.55% | 1.51% | 1.78% | 1.79% | 1.73% |
CreditSight View Comment
AS OF 23 Sep 2024IBK is not wholly government owned – 59.5% direct government ownership, 7.2% KDB and 1.8% KEXIM – but is a policy bank benefiting from a Korean government solvency guarantee. For a policy bank it also has a fairly good track record and manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks. As the leading lender to Korea’s medium and small businesses, IBK plays a key role in the country’s economy, enhanced by the longstanding objective of numerous administrations to achieve a more diversified economy less reliant on the “chaebol”. Successive Korean governments have always been quick to provide support including capital injections to the policy banks when needed.
Recommendation Reviewed: September 23, 2024
Recommendation Changed: March 17, 2017
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Fundamental View
AS OF 29 Aug 2024JPMorgan is one of the strongest and best positioned banks to navigate the current environment, with a well-diversified business model and good competitive positioning across a variety of lending and capital markets areas.
The company continues to deploy its considerable earnings power into reinvestment, specifically around technology where we are bullish on its ability to drive competitive advantages through strategic enhancements and efficiency gains.
Business Description
AS OF 29 Aug 2024- JPMorgan ranks as the largest U.S. bank by total assets ($4.14 tn at 2Q24) and deposits ($2.40 tn at 2Q24).
- JPMorgan ranks 1st in terms of U.S. deposits with approximately $2.07 tn in deposits at YE23 across 4,891 branches (S&P Capital IQ). JPMorgan's footprint includes New York (#1), Texas (#1), California (#2), Illinois (#1), Michigan (#1), Arizona (#1), Ohio (#5), and Florida (#4), among others.
- JPMorgan's major business lines include investment banking, retail banking, card services, treasury & securities services, commercial banking, and asset & wealth management.
Risk & Catalysts
AS OF 29 Aug 2024Succession planning at JPMorgan has a higher profile than many peers, with CEO Dimon (68 year-old) having held the top spot for over 15 years. Another recent round of shuffling top management did not yield much clarity, with presumed frontrunners Marianne Lake becoming sole CEO of the Consumer Bank and Jennifer Piepszak moving over to co-CEO of the new Commercial & Investment Bank segment, alongside Troy Rohrbaugh who has been running Markets & Securities Services.
The sector remains exposed to reputational, legislative/administrative risk, and cyber threats, although the significant tech spend over the past few years should (theoretically) result in a stronger position for JPM to manage the security threats.
Although not likely a credit risk, JPMorgan may continue to be acquisitive around non-bank financial and ancillary services; but we would expect any deal to be conservatively funded and looking to further technology and fee income strategies (e.g. payments or asset management).
Key Metric
AS OF 29 Aug 2024| $ mn | FY20 | FY21 | FY22 | FY23 | 2Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 10.9% | 17.0% | 13.2% | 16.0% | 16.7% |
| ROAA (annual) | 0.9% | 1.3% | 1.0% | 1.3% | 1.3% |
| PPNR / Avg. Assets | 1.52% | 1.32% | 1.39% | 7.06% | 1.91% |
| Efficiency Ratio | 57% | 59% | 58% | 214% | 56% |
| Net Interest Margin (Annual) | 1.98% | 1.63% | 2.00% | 2.70% | 2.72% |
| Net charge-offs (LTM) / Loans | 0.52% | 0.26% | 0.25% | 0.48% | 0.58% |
| Common Dividend Payout | 38% | 24% | 32% | 101% | 24% |
| CET1 Ratio | 13.1% | 13.1% | 13.2% | 15.0% | 15.3% |
| Supplementary Leverage Ratio (SLR) | 6.9% | 5.4% | 5.6% | 6.1% | 6.1% |
| Liquidity Coverage Ratio (LCR) | 110% | 110% | 110% | 112% | 112% |
CreditSight View Comment
AS OF 05 Dec 2024Our upgrade to an Outperform view on JPM is all about defensive value: rightfully perceived as the industry bellwether, spread differentials among Big 6 peers have collapsed with investors now able to rotate into highest quality with only a nominal spread sacrifice. Bank spreads also still look fairly cheap against corporates, especially the more defensive A-tier given record tight quality spreads in IG, further underpinning our bullish view. Technicals may be mildly supportive, with larger JPM facing ~$25 bn in maturities/calls in FY25, below BAC with peer banks in the $21-22 bn range. Core credit strengths including capitalization may slide with the BISIII softening and delay, but from an extremely strong starting point.
Recommendation Reviewed: December 05, 2024
Recommendation Changed: December 05, 2024
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