European Banking Weekly Notes: HSBC, RBS and Barclays

April 6th, 2015 by Trefis Team
-16.08%
Downside
10.29
Market
8.63
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Barclays

European bank shares showed notable improvements in prices last week, benefiting from hopes of Greece evading a crisis coupled with continued strength in the U.S. dollar. Reports that Germany is looking to adopt a new law that will boost the capital position of the country’s banks helped Deutsche Bank (NYSE:DB) rally 3.6% over the week. [1] The law, which allows existing senior bonds to qualify towards regulatory capital requirements, will likely find takers among other European nations, leading shares of other European banks to sizable gains. Swiss banks UBS (NYSE:UBS) and Credit Suisse (NYSE:CS) saw a 2% increase in value, while British banks Barclays (NYSE:BCS) and RBS (NYSE:RBS) edged forward 3.2% and 1.8% respectively..

The banking sector-specific STOXX Europe 600 Banks index gained 1.7% over the week – outperforming its multi-industry equivalent, the STOXX Europe 600 index which remained at the same level over the period.HSBC

HSBC (NYSE:HSBC) has been flagged by the U.S. Department of Justice (DoJ) for not moving quickly enough to fix the operational issues which were a part of its $1.92 billion settlement deal with the U.S. in 2012. [2] The globally diversified banking group signed a deferred prosecution deal with the regulator in December that year after it was revealed that the bank failed to enforce anti-money laundering rules. But the bank’s progress in the matter, while earnest, has been slow over the last 2 years.

  • 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) sold a portfolio of commercial loans in the U.A.E. worth 3 billion dirhams ($817 million) to the Commercial Bank of Dubai (CBD). [3] The move is yet another step by the British banking giant to refocus its business model towards retail and commercial banking operations in the U.K. The bank had sold its retail banking operations in the U.A.E. to Abu Dhabi Commercial Bank (ADCB) in 2010.

  • 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 $10.50 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

Barclays

Last week, the Bank of England detailed the scenarios which will be used as a part of the 2015 stress test for the largest banks in the U.K. [4] The revamped tests will focus on the impact of a global economic downturn as well as a sharp decline in equity market valuations under an adverse scenario – along the lines of the Federal Reserve’s more stringent stress test for U.S. banks. This will make it more difficult for Barclays (NYSE:BCS), HSBC and Standard Chartered to clear the tests this time around, as the tests last year revolved around U.K. property values.

  • Trefis has a $17.50 price estimate for Barclays’ shares, translating into a $72 billion market cap. This is roughly 15% ahead of the current market price of around $15 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

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Notes:
  1. European Banks’ Surprising German Gift, The Wall Street Journal, Apr 2 2015 [↩]
  2. U.S. says HSBC must do more to improve compliance, Reuters, Apr 1 2015 [↩]
  3. RBS sells $817 million of UAE company loans to Dubai bank CBD, Reuters, Apr 1 2015 [↩]
  4. Bank of England publishes details of 2015 stress test for largest UK banks and building societies, Bank of England Press Releases, Mar 30 2015 [↩]