European Banking Notes: Deutsche Bank, HSBC and UBS

European bank shares got off to a strong start last week as investors reacted positively to the European Central Bank’s (ECB) continued focus on buying bonds to jump start the region’s economy. The optimism was fueled further by improvements in key economic metrics for the Eurozone. However, concerns about the slow progress of talks between Greece and its creditors figured high on investors’ minds over the end of the week, resulting in a slump in share prices across sectors on Friday, April 17.

The banking sector-specific STOXX Europe 600 Banks index lost 3.2% over the week – underperforming its multi-industry equivalent, the STOXX Europe 600 index which shed 2.2% over the same period.Deutsche Bank

Deutsche Bank (NYSE:DB) is reportedly in the final phase of a plan that will see it dispose off its Postbank operations in the near future. ^[1] The largest German bank has been reviewing its business model over recent weeks to find a way to improve profitability and capital position, and the decision to float a majority stake in Postbank will help it achieve both these goals. Deutsche Bank has had trouble integrating the acquired retail banking franchise with its own, and the divestment will also shrink its investment banking balance sheet by a good €200 billion ($216 billion).

• 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 $33-35 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

HSBC

HSBC (NYSE:HSBC) and Standard Chartered are reportedly mulling a plan to move their headquarters out of London in view of the steep bank tax the U.K. is imposing on them. (Britain’s bank tax jump threatens to push HSBC, StanChart to new home, Reuters, Apr 19 2015)) The British government has hiked its bank levy eight times since it was introduced in 2010, with the figure being nearly doubled in the last two years. The two bank will together pay a bank tax of £1.3 billion ($2 billion) in 2015 – forcing them to consider the move which will likely result in a one-time cost of up to $2.5 billion per head.

• Trefis has a $54 price estimate for HSBC’s shares, translating into a $208 billion market cap. This is roughly 20% ahead of the market price of $45-46 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

UBS

UBS (NYSE:UBS) has discontinued its U.S. automated options market-making business, with the Swiss banking giant informing its clients and options exchanges about its decision last week. ^[2] While the bank will retain its other offerings related to the options trading business, it will redeploy its staff working on this low profit unit. The reduction in options trading volume over recent months is an important factor contributing to this move.

• Trefis has a $20 price estimate for UBS’s shares, translating into a $75 billion market cap. This is around the market price seen over the week
• We estimate the company’s FY 2015 revenues to be around $34.5 billion for an earnings per share of $1.57, compared to a consensus of $1.40 according to Reuters

See our full analysis for UBS

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1. Deutsche Bank Leaning Toward Disposing of Postbank, The Wall Street Journal, Apr 19 2015 [↩]
2. UBS Exiting U.S. Automated Options Market-Making Business, The Wall Street Journal, Apr 17 2015 [↩]