European Banking Weekly Notes: Deutsche Bank, HSBC and Barclays

European bank shares fared worse than those of U.S. banks last week as the latter saw a notable improvement in share prices from the growing possibility of an interest rate hike by the Federal Reserve over coming months. With concerns of a default by Greece growing on investors’ minds, most major European bank ended the week with a loss. The banking sector-specific STOXX Europe 600 Banks index lost 1% over the week – performing slightly better than its multi-industry equivalent, the STOXX Europe 600 index, which lost 1.4%.

Deutsche Bank

Deutsche Bank (NYSE:DB) announced a change at its helm on Sunday, June 7, with the German bank’s co-CEOs Jürgen Fitschen and Anshu Jain stepping down to make way for John Cryan. ^[1] Mr. Fitschen will remain co-CEO until next May after which Mr. Cryan will be sole CEO of the banking giant. Mr. Jain will continue until next January as a consultant. The move was largely expected, as shareholders expressed their disapproval of the current management at the bank’s annual general meeting (AGM) late last month. ^[2]

• Trefis has a $37 price estimate for Deutsche Bank’s shares, translating into a $51 billion market cap. This is about 20% ahead of the market price between $30-31 seen over the week.
• We estimate the company’s FY 2015 revenues to be $44.5 billion for an earnings per share of $3.27, compared to a consensus of $2.79 according to Reuters

See our full analysis for Deutsche Bank

HSBC

HSBC (NYSE:HSBC) will face three lawsuits for failing in its role as a trustee for residential mortgage-backed securities (RMBS) worth more than $34 billion. ^[3] The U.K.-based banking giant was the trustee to 283 trusts that issued these securities between 2004 and 2006, and a U.S. court decided that HSBC did not fulfill its fiduciary duty as trustee for 271 of these trusts. BlackRock, PIMCO and TIAA-CREF are the largest among the investors that have sued HSBC, and a settlement could cost the bank millions of dollars in the near future.

• Trefis has a $53 price estimate for HSBC’s shares, translating into a $204 billion market cap. This is roughly 15% ahead of the market price between $47-48 seen over the week
• We estimate the company’s FY 2015 revenues to be around $65 billion for an earnings per share of $0.91, compared to a consensus of $0.84 according to Reuters

See our full analysis for HSBC

Barclays

Barclays (NYSE:BCS) has settled its outstanding litigation with the trustee of Lehman Brothers, and the British bank will receive all but $80 million of the $1.1 billion in assets that were under dispute. ^[4] Barclays acquired most of Lehman Brothers’ U.S. investment banking assets in a fire-sale in late 2008, but the two parties remained embroiled in a long-drawn legal battle since then over the ownership of  specific assets on Lehman’s books. The settlement will allow Barclays to finally close the chapter on a high note. The bank will recognize a one-time gain of $750 million in Q2 as a result of the settlement.

• 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

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1. Deutsche Bank appoints John Cryan to succeed Jürgen Fitschen and Anshu Jain, Deutsche Bank Press Releases, June 7 2015 [↩]
2. Shareholders’ Rebuke Pressures Deutsche Bank CEOs to Perform, The Wall Street Journal, May 22 2015 [↩]
3. HSBC must face U.S. lawsuits over $34 billion mortgage debt losses, Reuters, Jun 1 2015 [↩]
4. Barclays Settles Lehman Brothers Inc. Litigation, Barclays Press Releases, Jun 5 2015 [↩]