European Banking Weekly Notes: HSBC, RBS and Deutsche Bank
European bank shares saw a sharp decline in value over last week, as share prices across sectors plummeted in response to Greece’s unexpected decision to put its bailout agreement to a referendum. With Greece likely to be forced out of the euro in the event the Greek public voted against proposed austerity measures, investor sentiments were at a notable low. The banking sector-specific STOXX Europe 600 Banks lost 4.5% of its value over the week – performing slightly worse than its multi-industry equivalent, the STOXX Europe 600 index, which fell by just under 4%. Notably, the STOXX Europe 600 was at its lowest level since last December at the end of the week.
HSBC
HSBC (NYSE:HSBC) is likely to sell its retail banking operations in Turkey to ING, with the diversified banking group reportedly zeroing in on the Dutch bank last week. [1] HSBC announced a large-scale reorganization plan in June, and an important aspect of the plan was its decision to exit retail banking operations in Brazil and Turkey. The bank’s gross outstanding loan portfolio at the end of 2014 was slightly less than $8.6 billion in Turkey with total assets of roughly $15 billion.
- Trefis has a $53 price estimate for HSBC’s shares, translating into a $204 billion market cap. This is roughly 20% ahead of the market price of around $45 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
RBS
The Royal Bank of Scotland Group (NYSE:RBS) could face a penalty of as much as $13 billion if it loses the mortgage-related lawsuit filed against it by U.S. regulators. [2] The figure is more than twice the amount Bank of America paid to settle the issue with the FHFA, and is based on the $806 million penalty imposed by the court in another lawsuit against Nomura and RBS. Although RBS has not engaged in talks with the FHFA over the matter and continues to seek a dismissal of the lawsuit, we estimate that a potential settlement for the bank could cost up to $5 billion (see How Much Will RBS Pay FHFA To Settle Mortgage Lawsuit?)
- Trefis has an $11.50 price estimate for RBS’s shares, translating into a $37 billion market cap. This is around the market price seen over the week.
- We estimate the company’s FY 2015 revenues to be around $27 billion for an earnings per share of $0.83, compared to a consensus of $0.98 according to Reuters
Deutsche Bank
Deutsche Bank’s (NYSE:DB) new CEO John Cryan has deferred the strategic update announced by his predecessors this May by a few months in order to buy some time to understand the existing businesses. [3] Besides expressing his commitment to the changes detailed in the strategic overhaul, Cryan hinted at additional cuts in the bank’s securities and derivatives trading businesses to free up more capital and to shrink the balance sheet further.
- 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
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- ING on course to win auction for HSBC’s Turkish bank, Reuters, Jul 2 2015 [↩]
- U.S. Regulators Tell RBS It Faces $13 Billion Mortgage Fine, Bloomberg, Jul 2 2015 [↩]
- Message from John Cryan to employees, Deutsche Bank Press Releases, Jul 1 2015 [↩]