European Banking Weekly Notes: UBS, HSBC and Deutsche Bank

European bank shares fared worse than those of U.S. banks last week because of a notable improvement in the value of the euro with respect to the U.S. dollar. While U.S. banks saw a marginal increase in their share prices over the period, shares of almost every major European bank ended the week with a loss. UBS (NYSE:UBS) was the only exception, with its shares gaining almost 2% over the week – the result of a lower-than-expected penalty for the bank over forex manipulation charges.

The banking sector-specific STOXX Europe 600 Banks index lost 1.6% over the week – performing worse than its multi-industry equivalent, the STOXX Europe 600 index, which only lost 1%.UBS

UBS (NYSE:UBS), Barclays (NYSE:BCS), RBS (NYSE:RBS), Citigroup (NYSE:C), JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC) settled the ongoing investigations by U.S and U.K. regulators into their role in manipulating benchmark foreign-exchange rates early last week. ^[1] The settlement will see the banks shell out almost $6 billion in fines, with all the banks except for Bank of America also entering guilty pleas.

Notably, UBS got away with the lightest fine among the banks due to its role in bringing the forex manipulation issue to regulators’ attention, and for also extending its cooperation to the investigation. ^[2] However, the bank was on the receiving end of an unprecedented move by the U.S. Department of Justice (DoJ) to tear up its 2012 Non-Prosecution Agreement (NPA). The NPA related to UBS’s LIBOR misgivings, and with its termination the bank had to plead guilty in the older matter and also agreed to pay $203 million in additional fines.

• Trefis has a $23 price estimate for UBS’s shares, translating into a $84 billion market cap. This is roughly 5% ahead of the market price of between $21-22 seen over the week
• We estimate the company’s FY 2015 revenues to be around $34 billion for an earnings per share of $1.53, compared to a consensus of $1.31 according to Reuters

See our full analysis for UBS

HSBC

HSBC (NYSE:HSBC) become the first major banking group to impose a charge on retail customers that hold deposits in several European currencies. ^[3] The diversified banking giant will impose a fee on all deposits held in euros, Swiss francs, Danish krone and Swedish krona – a move that aims to mitigate the impact of the negative interest rates these currencies carry on the bank’s net interest figure. HSBC’s decision to impose the fee on retail clients too is in sharp contrast to most local and international banks that have limited such fees only to institutional clients. The Swiss banks UBS and Credit Suisse were among the first global banks to implement a fee on specific deposits, when they introduced this measure in late 2012 (see What’s The Story Behind Credit Suisse’s Negative Interest Rates For Deposits?).

• Trefis has a $54 price estimate for HSBC’s shares, translating into a $208 billion market cap. This is roughly 15% ahead of the market price of around $48 seen over the week
• We estimate the company’s FY 2015 revenues to be around $65 billion for an earnings per share of $0.94, compared to a consensus of $0.89 according to Reuters

See our full analysis for HSBC

Deutsche Bank

Deutsche Bank (NYSE:DB) is reportedly working on a contingency plan to relocate operations in the U.K. in the event the country votes to leave the European Union (EU). ^[4] The largest German bank is conducting a strategic review to understand the impact of the so-called ‘Brexit’ on its business model, and may move thousands of its jobs out of Britain to Germany. This news is likely to attract a similar response from other global banking giants – Goldman Sachs, JPMorgan, UBS and Bank of America, among others – who have a strong presence in the U.K.

Separately, Deutsche Bank’s shares lost more than 4% of their value over trading on Friday, May 22, after shareholders expressed their disapproval of the current management at the bank’s annual general meeting (AGM) the previous day. ^[5] Just 61% of the bank’s shareholders thought that the bank’s top management was capable of running it properly – a sharp decline from the 89% figure for the previous year.

• Trefis has a $37 price estimate for Deutsche Bank’s shares, translating into a $51 billion market cap. This is about 15% ahead of the market price between $32-33 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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1. Global banks admit guilt in forex probe, fined nearly $6 billion, Reuters, May 20 2015 [↩]
2. UBS participates in resolutions of industry-wide FX matter, UBS Press Releases, May 20 2015 [↩]
3. HSBC to charge for holding deposits, Financial Times, May 19 2015 [↩]
4. Deutsche Bank fires warning shot over UK vote on EU exit, Financial Times, May 18 2015 [↩]
5. Shareholders’ Rebuke Pressures Deutsche Bank CEOs to Perform, The Wall Street Journal, May 22 2015 [↩]