|INDEX||18th April 2019||26th April 2019||% Loss/Gain|
Just look at the performance of a selection of European bank shares in isolation since just before the 2008/9 crash in 2007 to today – Barclays 731p to 163p (-77%), Deutsche Bank €107 to €9.71 (-91%), Credit Suisse CHF 88.94 to CHF13.62 (-86%), UBS 2011 to today CHF70.12 to CHF 13.55 (-81%), RBS (equivalent before split) 6056p to 251p (96%), HSBC 880p to 662p (-25%) – excluding bail-outs and rights issues. As you can see, they make desperate reading, despite rights issues, recovery plans and a massive contribution from global quantitative easing. The performance of these banks against their peers in the US leaves a fair bit to be desired. I think it is generally acknowledged that that the US FED and Treasury put their policies in to place rather more quickly and resolutely that here in Europe. Also, in all fairness, the stringent cost of extra capital required to meet regulatory requirements and the low level of interest rates that has prevailed, have restricted the levels of profitability.
This week we have seen a slew of earnings from mainly European banks starting with Credit Suisse and UBS. Both these banks have been undergoing huge structural changes under the respective stewardship of Tijane Thiam and Sergio Ermotti, with the focus of their attention now being in the wealth management arena. This has been quite a tortuous and painful process, which has been reflected in their share prices which have struggled to rally. UBS going back to the dark days of the banking crisis lost over $50 billion in the US in sub-prime and derivative trading, plus significant fines paid to the US and EU over taxation issue, which did little for its reputation.
Credit Suisse unexpectedly boosted Q1 earnings. Its first-quarter net profit rose nearly 8% to CHF749 million as larger-than-expected wealth management gains offset investment banking declines. Tijane Thiam seemed satisfied with progress made. Investors were marginally underwhelmed. UBS’S Ermotti UBS posted a 27% fall in net profit after a ‘very challenging quarter.’ Net income for the first quarter came in at $1.1 billion, versus $848 million estimate. However, this was lower than the $1.57 billion reported this time last year in what was a strong quarter for the bank. UBS’S shares were up 2.6% in the past week – OK, but hardly electrifying.
Unsurprisingly the merger talks between Deutsche Bank and Commerzbank collapsed. Shareholders and staff resented the idea hugely. It would have meant 30,000 redundancies at least and the natural synergy was hard to see. Both banks have similar problems and putting them together may have compounded the issue. Deutsche still has far too large a commitment to derivative trading, which has been exacerbated by being the largest global participant for many years. Many of these trades are hard to unwind. So Christian Sewing, Deutsche’s CEO will have to go back to the drawing board and Commerzbank no doubt will be serenaded by UniCredit. A deal of that nature makes no sense to me at all. UniCredit really struggled with their last bond issue and if my memory serves me right some of it had a coupon of 8% on it! One thing is certain and that is Deutsche Bank will always be caressed and loved by the German Government, whatever happens!
Deutsche posted good bottom line numbers but from a pathetically low base – profits for the quarter were up 67% to €201 million! Return on capital was parsimonious in the extreme – 1.3%. Bond trading was down 19% and asset management portfolios dipped. There is much work to be done.
RBS has been grabbing most of the domestic deadlines this week, with Ross McEwan serving notice to leave in a year’s time. He has been in situ for 5.5 years and believes that the bank’s agenda is now in place and it is time to move on. Has he done a good job? In the circumstances bearing in mind that the job was always going to be a ‘poisoned chalice’, post the Stephen Hester regime, which ended with an acrimonious argument with George Osborne and complaints about his pay, which in the grand scheme of bank executive pay was modest.
Hindsight is the ‘best trader in the World’ and I think if we all had our time back again, the Government of the day with advice from UK Investments chose the wrong course of action for RBS. The £45 billion bail-out was essential but there should have been a division of a ‘good and bad bank.’ All the toxic rubbish could have been dealt with over a few years and the ‘good bank’ would have thrived more quickly. It was always going to be a difficult task cutting the balance sheet down from eye-watering £2.2 trillion. The balance sheet has been about halved, but so many decent assets such as Citizens Bank, Direct Line and Clerical/Scottish Widows were sold – such a pity. Considering Ross McEwan had to fight fires with IT problems and GRG and probably was never his own master, I think he did an excellent job. The taxpayers’ holding has been reduced from 82% to 62%. However, the share price is at 250p – half the breakeven with the outlook for a sale no in discussion publicly with the government in a precarious position with little clarity over BREXIT.
This morning RBS posted a profit for the last quarter of £707m net EST: £546m. Return on capital 8.3% and Tier one capital extremely good at 16.2%. Income was down and impairments were £44 million higher than Q1 2018 reflecting lower provision releases and recoveries and an increase in the stage 1 and 2 charge, reflecting IFRS 9 predictive loss model adjustments in Q1 2019, following a slight deterioration in default rates. The clever money is on Alison Rose replacing McEwan. She is currently deputy CEO of NatWest Holdings.
I won’t dwell on Barclays. Suffice to say the figures were indifferent with investment banking revenues down 6.2% in comparison to an average of 14% with its peers in New York. Jes Staley needs to sharpen up with Barclays high street operation and for the share price to gains some momentum, it needs to have closure on its former executives’ fraud trial regarding Qatar’s equity participation. Barclays may well have staved off Edward Bramson’s quest for a seat on the board for the time being, but the ‘Bald Eagle’ will need to raise its game.
Mobile – 07788 144 877
Financial spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Click here to read the full risk warning.
Cable $1.2935, €/£0.8667, €/$1.1211, $/Y111.78 – Gold $1271.20 – Nymex $65.94, Brent $74.13
|INDEX||15th April 2019||18th April 2019||% Loss/Gain|
UK companies posting results and trading Statements – Wednesday – AB Foods, Centamin, Antofagasta, Boohoo, Thursday – Barclays Bank, Taylor Wimpey, Ferrexpo, Acacia Mining, Anglo-American, Cobham, Kaz Minerals, Relx, Tullow Oil – Friday – RBS, Astra Zeneca, AON, AJ Bell. Computacenter, Hastings, Pearson, Rotork, WPP
US companies posting results this coming week – Monday – Halliburton, Kimberly-Clark, Tuesday – Whirlpool, Twitter, Hasbro, Procter & Gamble, United Technologies, Verizon, Pulte, Coca-Cola, State Street, Harley-Davidson, Jetblue, Lockheed Martin, Snap, eBay, Wednesday – MaxCyte, Biogen, AT&T, General Dynamics, Boeing, Caterpillar, Visa, Facebook, Tesla, Microsoft, Thursday – Hershey, DR Horton, £Ms, Raytheon, Altia, Freeport-McMoRan, Bristol Myers Squibb, Mattel, Starbucks, Intel, Amazon, Ford Motor, Friday – Zimmer, Archer Daniels Midland, Exxon Mobil, Goodyear, Knoll, Weyerhaeuser, Chevron, Colgate-Palmolive
Economic data posted this week – Monday – US Existing Home Sales, Wednesday – UK PSBR, Thursday – CBI Industrial trends, US Durable Goods, Friday – UK housing Finance loans, US Q1 GDP estimates.
|INDEX||8th April 2019||12th April 2019||% Loss/Gain|