European Banking Weekly Notes: RBS, HSBC and Barclays

June 15th, 2015 · by Trefis Team
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European bank shares witnessed a sharp recovery in prices last week after starting the period on a weak note. Investors remained concerned about Greece’s failure to finalize a deal with creditors over the beginning of the week, and the S&P’s decision to downgrade the credit ratings of several European banking giants dealt a blow to valuation across the sector. [1] But growing optimism about Greece and favorable movements in exchange rates ensured that European bank shares outperformed those of their U.S.-based counterparts by the end of the week.

The banking sector-specific STOXX Europe 600 Banks index gained almost 2% over the week – performing slightly better than its multi-industry equivalent, the STOXX Europe 600 index, which rose 1.5%.

RBS

The British government could begin the process of reducing its stake in The Royal Bank of Scotland Group (NYSE:RBS) over coming months. [2] RBS’s shares currently trade roughly 20% lower than what the government paid for them at the peak of the economic downturn. So a sale will most likely result in a loss for the government’s UK Financial Investments (UKFI), which owns an 80% stake in RBS. However, with RBS looking to begin returning cash to investors as early as next year, subsequent stake sales can very easily make up for the government’s loss in the future. [3]

  • Trefis has an $11.50 price estimate for RBS’s shares, translating into a $37 billion market cap. This is roughly 5% ahead of the market price of around $11 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

See our full analysis for RBS

[trefis_slideshow ticker=”RBS” rhs=”3″]

HSBC

HSBC (NYSE:HSBC) detailed its long-awaited reorganization plan last week, with the diversified banking looking to reduce the size of its risk-weighed assets (RWAs), to cut costs and to increase investments in specific high-growth markets with the long-term goal of improving shareholder payout. [4] The bank aims to reduce recurring costs by as much as $5 billion by the end of 2017, and could slash up to 50,000 jobs to achieve improved operating efficiency. HSBC is also eyeing a return of equity in excess of 10% for full-year 2017.

You can read about the plan and its impact on HSBC’s share price in our article A Detailed Look At HSBC’s Large-Scale Reorganization Plan.

  • 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

[trefis_slideshow ticker=”HSBC” rhs=”3″]

Barclays

Barclays (NYSE:BCS) has agreed to sell its wealth management operations in the Americas to the U.S. investment banking firm Stifel Financial. [5] The division primarily consists of Lehman’s brokerage assets which the British bank acquired in a fire-sale in late 2008. The sale, which is expected to be finalized in mid-November, will see Stifel adding 180 financial advisors managing roughly $56 billion in client assets to its existing operations. ((Stifel to Acquire Barclays’ Wealth and Investment Management, Americas, Stifel Press Releases, Jun 8 2015)) Also, the deal will make Stifel the private wealth distribution partner for certain Barclays’ products in the U.S.

  • Trefis has a $17.50 price estimate for Barclays’ shares, translating into a $72 billion market cap. This is roughly 10% ahead of the current market price of around $16.50 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

[trefis_slideshow ticker=”BCS” rhs=”3″]

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Notes:
  1. S&P Cuts Ratings on European Banks, The Wall Street Journal, Jun 9 2015 [↩]
  2. RBS shares jump after Chancellor George Osborne signals sell-off, The Telegraph, Jun 11 2015 [↩]
  3. Osborne boost as RBS mulls multi-billion pound share buyback, The Telegraph, Jun 13 2015 [↩]
  4. Investor Update 2015, HSBC Website, Jun 9 2015 [↩]
  5. Agreement to sell Wealth and Investment Management, Americas, franchise to Stifel, Barclays Press Releases, Jun 8 2015 [↩]
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