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Zacks Industry Outlook Highlights: Royal Bank of Canada, Toronto Dominion Bank, UBS Group AG and Bank of N.T. Butterfield & Son

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For Immediate Release

Chicago, IL – May 10, 2021 – Today, Zacks Equity Research discusses Foreign Banks, including Royal Bank of Canada (RY - Free Report) , The Toronto-Dominion Bank (TD - Free Report) , UBS Group AG (UBS - Free Report) and The Bank of N.T. Butterfield & Son Limited (NTB - Free Report) .


The Zacks Foreign Banks Industry is expected to tide over the broader challenges as developments on the coronavirus vaccines are expected to lead to accelerated economic recovery. Though low interest rates across the globe remain a headwind; developed nations as well as emerging economies are anticipated to make the backdrop favorable for banks.

The gradual easing of regulations is also anticipated to support the industry. Thus, some of the industry players, including Royal Bank of Canada, Toronto Dominion Bank, UBS Group AG and Bank of N.T. Butterfield & Son, will likely benefit from the developments.

Industry Description

The Zacks Foreign Banks Industry consists of overseas banks that also have operations in the United States. Since a foreign banking organization might have both federally- and state-chartered offices in the country; the Federal Reserve plays a major role in supervising their U.S. operations.

In addition to providing a broad range of products and services to U.S. customers, the banks offer financial services to corporate clients having businesses in the United States.

Moreover, these financial firms establish relations with U.S. corporations operating in their home countries. Some units of foreign banks offer a broad range of both wholesale and retail services along with conducting money-market transactions for their parent organizations, while others involve in developing only specialized services.

3 Foreign Banks Industry Trends to Watch

Favorable Coronavirus Vaccine Data to Act as Tailwind: The COVID-19 pandemic shattered business confidence and loomed over corporate earnings and global growth from the beginning of 2020. However, thanks to the developments regarding the vaccines, the trend has been gradually reversing. The vaccines are anticipated to combat the health crisis and help in the revival of economies across the globe, which, in turn, will likely support foreign banks.

Unfavorable Impact of Low Interest-Rate Environment: The central banks across the globe lowered interest rates last year to cushion the economies from the coronavirus-induced slowdown. While the effort aided economic growth to some extent, it has been eroding banks’ profitability.

Notably, as economic recovery is likely to be uneven in the developed nations (which are homes to a number of major foreign banks) and the emerging economies; a rise in interest rates is less likely in the near term. Therefore, foreign banking operations are not expected to get significant support.

Easing Regulations to Provide Some Respite: Foreign banks in the United States have been trying to push the central bank to receive some regulatory relief in terms of capital requirements, which are perceived to be too high for carrying out operations profitably. Therefore, ease in regulations under the new regime will likely aid foreign banking operations.

Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects.

The Zacks Foreign Banks Industry is a 63-stock group within the broader Zacks Finance Sector. The industry currently carries a Zacks Industry Rank #99, which places it at the top 39% of more than 250 Zacks industries.

The group’s Zacks Industry Rank indicates consistent outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic regarding the group’s earnings growth potential. Since May 2020, the industry’s earnings estimates for the current year have been revised upward by 22%.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags on Shareholder Returns

The Zacks Foreign Banks Industry has underperformed both the S&P 500 and its own sector in the past two years.

Stocks in the industry have collectively lost 2.1%. However, the S&P 500 composite has gained 48.2%, and the Zacks Finance Sector has appreciated 22.8%.

Industry’s Current Valuation

One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing banks because of large variations in their earnings results from one quarter to the next.

The industry currently has a trailing 12-month P/TBV of 1.45X. When compared with the highest level of 2.12X and median level of 1.64X over the past five years, there is decent upside left.

Additionally, the industry is trading at a discount when compared with the market at large, as the trailing 12-month P/TBV for the S&P 500 is 20.64X.

As finance stocks typically have a lower P/TBV ratio, comparing foreign banks with the S&P 500 might not make sense to many investors. But a comparison of the group’s P/TBV ratio with that of its broader sector ensures that it is trading at a decent discount. The Zacks Finance Sector’s trailing 12-month P/TBV of 3.83X and the median level of 3.60X for the same period are above the Zacks Foreign Banks Industry’s respective ratios.

4 Foreign Banks to Keep a Close Eye On

Royal Bank of Canada: Headquartered in Canada, it operates as a diversified financial service company globally. Being a recognized leader in environmental, social and corporate governance, and corporate citizenship, the bank inculcates differentiated technology investments and digital capabilities along with a disciplined approach to risk and expense management.

This Zacks Rank #2 (Buy) stock has appreciated 31% in six months’ time on the NYSE. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has moved up nearly 1% in the past 60 days.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Toronto Dominion: The company offers various personal and commercial banking products and services in Canada and the United States. The bank works with a diversified business model, and also provides capital markets, and corporate and investment banking services; and trading, funding, and investment services to companies, governments, and institutions.

The Zacks Consensus Estimate for its fiscal 2021 earnings has moved 2.2% upward over the past 60 days. The company presently carries a Zacks Rank of 2. Shares of the company have rallied 46.2% on the NYSE over the past six months.

UBS: This Zacks Rank #2 stock’s business strategy is centered on pre-eminent global wealth-management businesses and universal bank in Switzerland along with global asset-management business and investment bank. Based in Zurich, the company’s efficiency programs will likely free up resources to make investments to support growth and enable it to serve clients with greater dexterity, improving quality and speed to market.

Over the years, UBS has been fortifying its footprint in various areas by undertaking partnerships with other firms, and maintaining cost discipline and capital-deployment activities.

Its shares have rallied 15.8% over the past six months on the NYSE. The Zacks Consensus Estimate for 2021 earnings has increased 15.8% over the past 60 days.

Bank of N.T.: Headquartered in Bermuda, the company provides a range of community, commercial, and private banking services to individuals and small- to medium-sized businesses. It operates through offices in the Cayman Islands, Guernsey, Jersey, the U.K., the Bahamas, Switzerland, Singapore, Mauritius, and Canada.

With steady loan growth and capital deployment activities, this Zacks Rank #2 stock has appreciated 26.3% in six months’ time on the NYSE. The Zacks Consensus Estimate for its current-year earnings has increased 5% in the past 60 days.

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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

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