European Banking Weekly Notes: HSBC, RBS and Deutsche Bank

+25.05%
Upside
38.42
Market
48.04
Trefis
HSBC: HSBC logo
HSBC
HSBC

European bank shares fared much better than their U.S.-based counterparts last week largely because their share prices did not suffer from the negative impact of a strengthening U.S. dollar. While U.S. banks lost between 3-4% of their share value over the week, the Swiss banks UBS (NYSE:UBS) and Credit Suisse (NYSE:CS) followed by nominal gains for Deutsche Bank (NYSE:DB). However, the British banks HSBC (NYSE:HSBC), RBS (NYSE:RBS) and Barclays (NYSE:BCS) saw a reduction in share prices this week.

The banking sector-specific STOXX Europe 600 Banks index gained over 3% over the week – signficantly outperforming its multi-industry equivalent, the STOXX Europe 600 index which only rose 1.1%.HSBC

The U.S. banking units of HSBC (NYSE:HSBC), RBS (NYSE:RBS) and BNP Paribas were flagged by the Federal Reserve and FDIC for not putting forward a credible resolution plan. [1] The Dodd-Frank Act requires all major banking groups to submit the resolution plan, dubbed “living wills,” to ensure that they can be liquidated in an orderly manner in the “event of material financial distress or failure of the company.” The three foreign banks have until the end of this year to ensure that they fix the concerns raised by the two regulators – failing which they could face a sanction in the country. Notably, 11 U.S. banks also failed to submit proper resolution plans last year.

  • Trefis has a $54 price estimate for HSBC’s shares, translating into a $208 billion market cap. This is roughly 25% ahead of the market price of around $43 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
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See our full analysis for HSBC

RBS

The Royal Bank of Scotland Group (NYSE:RBS) took two major steps towards falling in line with the British government’s directive to focus on its commercial and retail banking operations in the U.K. last week. On Monday, March 23, the bank announced plans to cut its stake in Citizens Financial Group (CFG) to less than 50%. A better than expected demand for CFG shares over the following days led RBS to hike its share offering – potentially cutting its stake to 41.9%. [2] The bank is also reportedly looking to follow up with another stake sale later this year to take its total stake in CFG to below 33% – allowing it to take the unit’s assets off its balance sheet by the end of 2015. [3]

More recently, RBS also announced the sale of its private banking and wealth management business, Coutts International, to Switzerland-based Union Bancaire Privee (UBP). [4] The deal comes seven months after the bank’s decision to get rid of the business last August. We detailed the deal and its impact on RBS in our article RBS Close To A Deal With UBP For Sale Of Coutts International.

  • Trefis has a $12.50 price estimate for RBS’s shares, translating into a $40 billion market cap. This is roughly 20% ahead of the market price of around $12 seen over the week.
  • We estimate the company’s FY 2015 revenues to be around $31 billion for an earnings per share of $1.03, compared to a consensus of $1.08 according to Reuters

See our full analysis for RBS

Deutsche Bank

Deutsche Bank (NYSE:DB) is reportedly mulling three separate restructuring plans to be implemented in the near future, with the most drastic case being a spin-off of the bank’s retail banking operations. [5] Struggling to improve its profitability in a lukewarm economic environment, the German banking giant’s size is posing an additional problem under the tighter regulatory requirements that have been adopted worldwide. The other options before the bank are drastic cuts to a newly formed unit that merges Postbank with existing retail operations, or an outright sale of the Postbank operations.

  • 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 $34-35 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. Agencies provide feedback on resolution plans of three foreign banking organizations, Federal Reserve Press Releases, Mar 23 2015 []
  2. Partial Sale of Citizens Financial Group, Inc., RBS Press Releases, Mar 25 2015 []
  3. RBS raises value of Citizens sale to $3.7bn, Financial Times, Mar 25 2015 []
  4. Disposal of Private Banking and Wealth Businesses, RBS Press Releases, Mar 27 2015 []
  5. Deutsche Bank revamp plan to hit retail hardest, Reuters, Mar 21 2015 []