About anyone and anything anywhere related to banking and making money with money - by Aivars Jurcans
Welcome to the pilot issue of my digest! It features news, facts and comments that I have come across recently (over the last week or so, to be precise) and consider interesting and worth paying attention. All the content is attributed to sources, all the errors, omissions, misinterpretations and typos are exclusively mine. Enjoy!
Buying, Selling, Merging
The German NordLB bank is planning to hold additional discussions with the two unnamed bidders (thought to be Cerberus and Apollo) which might push reaching an agreement on the deal to sell an equity stake into 2019.
The bank is also discussing the sale of 2 portfolios of non-performing shipping loans with a combined value of EUR 6.5 billion. Such a transaction, though, is said to be contingent on a successful sale of equity as it could lead to a balance sheet loss. Apparently, the write-downs represent most of the bank’s capital needs.
Deal Ideas Cooking
The 4 largest European lenders, measured by revenues, are just half the size of top 4 US and only a third of top Chinese banks. Despite all the cost cutting the return on tangible equity for European banks still remains below the cost of capital.
The Economist’s suggested response to lacking scale – merging Barclays and Standard Chartered – would create a global bank with strong presence in several key markets and ranking No 5 among global corporate and investment banks and No 5 by revenues from global payments. An idea worth pondering.
The Danske Bank money laundering scandal (alleged USD 200 billion through its Estonian branch) which started somewhat slowly and almost reluctantly is now generating its own momentum. Having removed the bank’s former chairman A.P. Moller Holding (the main shareholder with c. 21% of shares) has called for an extraordinary meeting of shareholders this Friday to nominate new chairman and vice-chairman to the Board with a mandate to rebuild the management team.
Bank’s shares have almost halved in value since March wiping out c. USD 15 billion in market value. This probably explains why A.P. Moller supported by other institutional shareholders has taken an unusually active stance in this matter.
Priced by Markets
Several small bank stocks have performed significantly better than the market in 2018. To a large extent it is because those stocks are included in passive funds which have seen strong inflow of money this year. As a result, a Texas-based bank First Financial Bankshares is trading at 5.0x times its tangible book value, with another five banks reporting a multiple of above 3.0x times book.
Meanwhile, bank stocks were the biggest losers on the US market selloff this Tuesday with all the major banks being down by more than 4%, except for Goldman Sachs (3.8%). This has been attributed to investors’ concerns about lack of growth and the expectation that 2018 results would be “roughly equivalent” to last year’s.
Citigroup warned that it is likely to miss the efficiency target originally set for 2018 and will report an improvement of 90bps only as opposed to the planned 100bps. The impact of this on share price remains to be seen (the US markets were closed on Wednesday) but analysts say that every such missed target, however small, casts doubt over the bank’s ability to achieve a 13.5% return on its tangible common equity.
Zopa, the UK P2P lender, has become the first to move into retail banking and to receive a banking licence. Since 2005 Zopa has granted loans totalling almost GBP 4 billion and will now offer fixed-term savings accounts and its own credit cards to diversify the funding base.
Justice Not Served
The London High Court has ruled that it has no jurisdiction in the case against the Ukrainian PrivatBank former shareholders Ihor Kolomoisky and Gennadiy Bogolyubov. The Court concluded that bringing in several UK companies into the claim was done with the sole purpose to have the case tried in London. PrivatBank was nationalised by the Ukrainian Government in 2016 and is now seeking to claw back funds it claims it has lost because of fraud. The bank is expected to appeal against the judgement.
Closer to Home
Barclays, the UK bank, has agreed to expand its relationship with HCL Technologies to a strategic worldwide IT services partnership. As a result, 460 out of 918 of Barclays Vilnius, Lithuania, operations centre employees will be transferred to HCL, while the rest will be offered redundancy arrangements. Barclays was among the first international companies to open a centre in Vilnius some years ago.
Nordic Investment Bank, the triple-A rated Helsinki-based international financial institution owned by Nordic and Baltic countries, has agreed to extend a EUR 50 million 10-year loan to finance further expansion of the Lidl grocery store chain in Lithuania. Lidl, which is owned by German Schwarz group, has been operating in Lithuania since 2016 and is in the process of opening up in Latvia.
A Thought Worth Noting
“Bank deals usually happen when valuations are high, balance-sheets stretched, profits inflated, and managers and investors are wildly bullish. That is why they often do not work. Today the exact opposite conditions are in place. That is a sign it is time to act.”
See you again next time!