Opinions
Mark Grammer
Credit Suisse Group
CS-N
COMMENT
May 03, 2012
Stock price when the opinion was issued
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Unlike a lot of European banks, this had a bit of a flat year in 2013 with a lot of volatility. Banks, especially in Europe, are facing huge regulatory pressures to increase their capital and increase their liquidity in an environment where moving their top line is very, very challenging. There is not a lot of demand for loans. Valuation is particularly cheap and they are very well-positioned among investment banks as they have an attractive asset management arm, which is very profitable. This would not be his 1st pick. Feels the European financials have run way ahead of themselves.
Chart looks like it may be breaking a downtrend and putting in a bit of a bottom. The catalyst for that bottom might be the change in the CEO. Stock doesn’t look too bad and looks like it is attempting to breaking the downtrend. He would watch it for a little while to make sure it is definitively breaking the downtrend line.
It went on his watch list about 6 months ago. It was very badly beaten up. But it went up over $10 so is not of interest right now. It is an interesting play because he thinks the Euro has a lot of upside. You could also look at some Greek banks. LYG-N is not quite cheap enough for him. The British government has sold off its entire stake in it.
This has issues on multiple levels. They’ve had to raise capital twice in the last 12-18 months. He has a real issue with financial institutions where there is a question about capital. Looking at their lines of business, they are particularly concentrated in fixed income, relative to their peers. Not sure of being a huge fan of the high-yield area. The RNBS (mortgage-backed bonds?) space needs a very particular catalyst. RNBS is well below normal because of the function of Dodd Frank requiring banks to have skin in the game when they issue mortgages.
He is very favourable on banks. He has been more focused in the US than in Europe, but money has been moving into the European market all year long. This was with the view that if the global economy is getting better, there is a little more leverage in the European markets. This bank is performing well. It broke out technically at $16. He believes we are in early stages of reflation around the world. This one is a great brand, and will participate.
He would recommend staying away from this. If you have a choice of where to go in banking, the right place right now is the US. They are getting regulatory relief. Expects there will be more freedom in the US to make loans. Tax reform is very positive economic development for the US banks. Also, this bank has the old DLJ, and you would have to love the high-yield bond market, which is a big part of their product mix. He would rather be involved where investment banking is broader based with more exposure to equity.