European Banking Weekly Notes: Barclays, Credit Suisse and Deutsche Bank

March 23rd, 2015 by Trefis Team
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European bank shares gained considerably last week, as improving investor confidence about a recovery in the region’s economy coupled with favorable exchange rate movements helped share prices across sectors. Deutsche Bank (NYSE:DB) was the biggest gainer for the week at 7.3%, followed by gains of 6% for the Swiss banks UBS (NYSE:UBS) and Credit Suisse (NYSE:CS). Among the British banks, HSBC (NYSE:HSBC) shares rallied just under 5% while RBS (NYSE:RBS) saw nearly no change to its share price.

The banking sector-specific STOXX Europe 600 Banks index gained 4.1% over the week – faring slightly better than its multi-industry counterpart, the STOXX Europe 600 index.

Barclays

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Barclays (NYSE:BCS) and Citigroup (NYSE:C) have reportedly finalized a deal with private investors to settle their foreign exchange manipulation-related lawsuits for a total sum of $800 million. [1] Both banking giants have been in talks with pension funds as well as other private investment firms for several months now to put the forex issue behind them. Although it is not clear how much each of these two banks will shell out individually, the total figure is almost twice what JPMorgan and UBS agreed to pay these investors in a recent settlement.

Also, the Department of Justice is seeking as much as a billion dollars from each bank that was allegedly involved in the forex rigging scandal. [2] This figure is over and above the $4.3 billion that global banking giants agreed to pay regulators last November (see Five Banks Settle Forex Manipulation Charges For $3.4 Billion). With Barclays yet to reach a settlement with any financial regulator on this issue, the British bank has the largest outstanding legal burden stemming from currency manipulation among all global banks.

  • Trefis has a $17.50 price estimate for Barclays’ shares, translating into a $72 billion market cap. This is roughly 15% ahead of the current market price of around $15 seen over the week.
  • We estimate the company’s FY 2015 revenues to be $45 billion for an earnings per share of $0.89, compared to a consensus of $0.87 according to Reuters

See our full analysis for Barclays

Credit Suisse

In a unique settlement, Credit Suisse (NYSE:CS) has agreed to pay Freeport-McMoran $10 million and to also give the natural resources company free investment banking advice worth $6.25 million to settle a dispute between the two banks over a 2013 acquisition deal. [3] Credit Suisse had advised Freeport in the latter’s acquisition of McMoRan Exploration and Plains Exploration & Production, but a mathematical error by the bank had resulted in Freeport overpaying for the deal. The total fine amount ($10 million cash plus $6.25 million in services) is relatively insignificant, given that it is just over half the $30.5 million in investment banking fees that Credit Suisse pocketed from the deal. But it sets a precedent for other such settlements by disgruntled firms that have run into tangible trouble owing to advice from their investment banks.

  • Trefis has a $27 price estimate for Credit Suisse’s shares, translating into a $43 billion market cap. This is slightly ahead of the market price between $25-26 seen over the week.
  • We estimate the company’s FY 2015 revenues to be $29 billion for an earnings per share of $2.99, compared to a consensus of $2.55 according to Reuters

See our full analysis for Deutsche Bank

Deutsche Bank

A consortium of KKR, Varde Partners and Deutsche Bank (NYSE:DB) recently inked a deal to acquire GE Capital’s consumer lending unit in Australia and New Zealand. [4] The consortium will pay AUD 8.2 billion ($6.26 billion) for the business, which has more than 3 million customers. GE was advised on the deal by Credit Suisse and Morgan Stanley, while the consortium was assisted by Bank of America-Merrill Lynch, Moelis and Citigroup.

  • Trefis has a $37 price estimate for Deutsche Bank’s shares, translating into a $51 billion market cap. This is about 10% ahead of the market price between $32-34 seen over the week.
  • We estimate the company’s FY 2015 revenues to be $44.5 billion for an earnings per share of $3.79, compared to a consensus of $3.15 according to Reuters

See our full analysis for Deutsche Bank

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Notes:
  1. Citigroup, Barclays Close to Settling Forex Lawsuit With Private Investors, The Wall Street Journal, Mar 17 2015 [↩]
  2. U.S. Is Seeking Billions From Global Banks in Currency Manipulation Settlement, Bloomberg, Mar 13 2015 [↩]
  3. Free Advice Helps End a Dispute Over Advice, The Wall Street Journal, Mar 14 2015 [↩]
  4. KKR, Varde and Deutsche buy GE Capital consumer finance arm for $6.3 bln, Reuters, Mar 15 2015 [↩]