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The Zacks Foreign Banks Industry is expected to continue to benefit from higher rates as central banks across the globe are likely to keep raising interest rates to combat inflation. Thus, rising interest rates, along with an increase in loan demand, will support revenue growth for industry players like HSBC Holdings plc, UBS Group AG and Barclays PLC.
While banks’ restructuring initiatives to focus on core operations will be fruitful in the long run, these have resulted in higher costs. Also, uneven economic recovery in developed and emerging nations has been hampering foreign banks’ revenue growth.
About the Industry
The Zacks Foreign Banks Industry consists of overseas banks with operations in the United States. Since a foreign banking organization might have federal 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 customers in the United States, the banks offer financial services to corporate clients having businesses in the country.
Additionally, the financial firms establish relations with U.S. corporations operating in their home countries. Some units of foreign banks offer a broad range of wholesale and retail services, along with conducting money-market transactions for their parent organizations, while others are involved in developing only specialized services.
3 Foreign Bank Industry Trends to Watch
Higher Interest Rates Likely to Aid Top-Line Growth: The efforts taken by the central banks across the globe to cushion economies from the pandemic-induced economic slowdown in 2020 (reducing benchmark interest rates to record lows) were successful in aiding immediate economic growth. But, it eroded banks’ profitability to a great extent. Also, the pace of economic recovery, which remains uneven in the developed (home to a number of major foreign banks) and emerging nations, has been hampering banking operations globally.
Nevertheless, almost all central banks across the globe have been raising interest rates since the beginning of 2022 to counter inflation, which has supported banks’ top-line growth. With expectations of more hikes in the near term, banks are predicted to witness growth in net interest income and margins.
Restructuring Efforts Might Result in Higher Costs: Several foreign banks are undertaking business restructuring efforts. Many banks have been divesting/closing non-core operations to increase focus on core businesses and regions. While restructuring efforts are expected to aid growth in the long run, these have been leading to a rise in costs. Increased costs related to technology upgrades are likely to hamper banks’ bottom-line growth to an extent.
Uneven Global Economic Recovery Might Pose a Concern: After the coronavirus outbreak, business confidence was shattered across the globe as the pandemic loomed over corporate earnings and economic growth. While the record pace of vaccine coverage globally aided the economic recovery in most parts of the world, growth has slowed in some regions because of certain issues like the Russia-Ukraine war, supply-chain disruptions and other geopolitical concerns. Banks’ performance is directly linked to the performance of the overall economy. Thus, uneven economic growth might hurt banks’ finances to some extent in the near term.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Foreign Banks Industry is a 66-stock group within the broader Zacks Finance Sector. The industry currently carries a Zacks Industry Rank #28, which places it in the top 11% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 a solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in the group’s bottom-line growth potential. The industry’s most recent 2023 earnings estimates have been revised 9.2% higher since March 2022 end.
Thus, we present a few stocks from the prospering industry that you may wish to invest in. But before that, let’s check out the industry’s recent stock market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Foreign Banks Industry has outperformed the S&P 500 and its sector over the past two years.
Stocks in the industry have collectively gained 2.4%. The S&P 500 composite has rallied 0.8% and the Zacks Finance Sector has depreciated 2.2%.
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 1.80X. When compared with the highest level of 1.92X over the past five years, there is a slight upside left. Notably, the current value compares with the median value of 1.57X.
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 9.85X.
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 4.87X and the median level of 3.90X for the same period are above the Zacks Foreign Banks Industry’s ratios.
3 Foreign Banks Worth Investing In
HSBC: With its headquarter in London, HSBC provides a wide range of financial services to nearly 64 countries and regions in Europe, Asia, the Middle East and North Africa, and North and Latin America. As of Dec 31, 2022, it had $2.97 trillion in assets.
For the past few years, HSBC has been undertaking measures to bolster its performance, with a special focus on building operations in Asia, including Hong Kong and China. In sync with this, the company fully acquired the issued share capital of AXA Insurance in Singapore for $529 million and L&T Investment Management Limited. HSBC intends to position itself as a top bank for high net worth and ultra-high net worth clients in Asia.
Moreover, HSBC plans to restructure its operations to further improve operating efficiency. In February 2020, the bank announced its transformation plan, which is aimed at reshaping underperforming businesses, simplifying the complex organization and reducing costs. Since the start of this initiative, the company has realized gross savings of $5.6 billion, with cost to achieve a spend of $6.5 billion. HSBC expects to achieve an additional $1 billion of gross cost savings this year due to the actions undertaken in 2022.
HSBC’s brand, capital strength, extensive global network and positioning enable it to continuously attract and retain clients. The company’s product and service leadership in alternative investments, foreign exchange, credit, investment advice and many other cross-border banking services help it widen its customer base.
Currently, HSBC sports a Zacks Rank #1 (Strong Buy). The stock has gained 22.6% on the NYSE over the past three months. The Zacks Consensus Estimate for the company’s 2023 earnings has been revised 19.2% upward over the past 60 days. Its 2024 earnings estimates have been raised 10.9%.
UBS: Headquartered in Zurich, the company’s business strategy is centered on pre-eminent global wealth-management businesses and a universal bank in Switzerland, along with a global asset-management business and investment bank. UBS’ 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 fortified its footprint in various areas by undertaking partnerships with other firms and maintaining cost discipline and capital-deployment activities.
The company is making efforts to become more digital and data-driven to provide clients with digital-first services. It has established a leveling-up strategy based on five key pillars through Agile@UBS, quarterly business reviews and digital roadmaps, modern technology, automation and engineering excellence. The company is migrating toward a cloud-based application system and is accelerating digitalization and facilitating connection with the financial industry ecosystem to provide better and faster client services.
UBS’ expenses witnessed a CAGR of 2.3% in the four-year period ended 2022. Nevertheless, the bank delivered $200 million in gross savings in 2021, and is on track to deliver $1 billion in gross cost savings per annum by 2023.
Currently, UBS sports a Zacks Rank #1. The stock has rallied 17.1% on the NYSE over the past three months. The Zacks Consensus Estimate for the company’s 2023 earnings has been revised 4.3% upward over the past 60 days. Its 2024 earnings estimates have been raised 5%.
Barclays: Headquartered in London, Barclays is a major global banking and financial services company with £1,513.7 billion ($1,830 billion) in total assets as of Dec 31, 2022. The Zacks Rank #2 (Buy) company has been striving to simplify operations and focus on core businesses over the past few years.
With this aim, BCS restructured its business lines into two divisions and divested/closed several non-strategic and less profitable operations globally. The bank completed the ring-fencing of its investment banking operations in April 2018, while reintegrating its non-core division into core operations in July 2017. Driven by these initiatives, the company’s profitability is expected to improve over time.
Barclays’ cost-saving efforts are expected to further support the bottom line in the near term. While total operating expenses increased in 2022, the same declined at a CAGR of 2.4% over the six-year period ended 2021. The company intends to undertake further cost-saving actions to improve efficiency. Over the medium term, the cost-to-income ratio is targeted to be below 60%.
Barclays has been rewarding shareholders with enhanced capital deployments. The bank intends to pay a 2022 full-year dividend of 5 pence per share, taking the total dividend for 2022 to 7.25 pence per share. On Oct 3, 2022, the company completed a share buyback of £0.5 billion. Barclays now intends to initiate a share buyback of up to £0.5 billion.
Shares of the company have gained 1.7% over the past three months on the NYSE. The Zacks Consensus Estimate for BCS’ 2023 earnings has moved up 3% over the past 60 days. Its 2024 earnings estimates have declined 5.1%.
Why Haven’t You Looked at Zacks' Top Stocks?
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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.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights HSBC, UBS and Barclays
For Immediate Release
Chicago, IL – March 10, 2023 – Today, Zacks Equity Research discusses HSBC Holdings plc (HSBC - Free Report) , UBS Group AG (UBS - Free Report) and Barclays PLC (BCS - Free Report) .
Industry: Foreign Banks
Link: https://www.zacks.com/commentary/2063386/3-foreign-bank-stocks-to-consider-in-a-prospering-industry
The Zacks Foreign Banks Industry is expected to continue to benefit from higher rates as central banks across the globe are likely to keep raising interest rates to combat inflation. Thus, rising interest rates, along with an increase in loan demand, will support revenue growth for industry players like HSBC Holdings plc, UBS Group AG and Barclays PLC.
While banks’ restructuring initiatives to focus on core operations will be fruitful in the long run, these have resulted in higher costs. Also, uneven economic recovery in developed and emerging nations has been hampering foreign banks’ revenue growth.
About the Industry
The Zacks Foreign Banks Industry consists of overseas banks with operations in the United States. Since a foreign banking organization might have federal 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 customers in the United States, the banks offer financial services to corporate clients having businesses in the country.
Additionally, the financial firms establish relations with U.S. corporations operating in their home countries. Some units of foreign banks offer a broad range of wholesale and retail services, along with conducting money-market transactions for their parent organizations, while others are involved in developing only specialized services.
3 Foreign Bank Industry Trends to Watch
Higher Interest Rates Likely to Aid Top-Line Growth: The efforts taken by the central banks across the globe to cushion economies from the pandemic-induced economic slowdown in 2020 (reducing benchmark interest rates to record lows) were successful in aiding immediate economic growth. But, it eroded banks’ profitability to a great extent. Also, the pace of economic recovery, which remains uneven in the developed (home to a number of major foreign banks) and emerging nations, has been hampering banking operations globally.
Nevertheless, almost all central banks across the globe have been raising interest rates since the beginning of 2022 to counter inflation, which has supported banks’ top-line growth. With expectations of more hikes in the near term, banks are predicted to witness growth in net interest income and margins.
Restructuring Efforts Might Result in Higher Costs: Several foreign banks are undertaking business restructuring efforts. Many banks have been divesting/closing non-core operations to increase focus on core businesses and regions. While restructuring efforts are expected to aid growth in the long run, these have been leading to a rise in costs. Increased costs related to technology upgrades are likely to hamper banks’ bottom-line growth to an extent.
Uneven Global Economic Recovery Might Pose a Concern: After the coronavirus outbreak, business confidence was shattered across the globe as the pandemic loomed over corporate earnings and economic growth. While the record pace of vaccine coverage globally aided the economic recovery in most parts of the world, growth has slowed in some regions because of certain issues like the Russia-Ukraine war, supply-chain disruptions and other geopolitical concerns. Banks’ performance is directly linked to the performance of the overall economy. Thus, uneven economic growth might hurt banks’ finances to some extent in the near term.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Foreign Banks Industry is a 66-stock group within the broader Zacks Finance Sector. The industry currently carries a Zacks Industry Rank #28, which places it in the top 11% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 a solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in the group’s bottom-line growth potential. The industry’s most recent 2023 earnings estimates have been revised 9.2% higher since March 2022 end.
Thus, we present a few stocks from the prospering industry that you may wish to invest in. But before that, let’s check out the industry’s recent stock market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Foreign Banks Industry has outperformed the S&P 500 and its sector over the past two years.
Stocks in the industry have collectively gained 2.4%. The S&P 500 composite has rallied 0.8% and the Zacks Finance Sector has depreciated 2.2%.
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 1.80X. When compared with the highest level of 1.92X over the past five years, there is a slight upside left. Notably, the current value compares with the median value of 1.57X.
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 9.85X.
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 4.87X and the median level of 3.90X for the same period are above the Zacks Foreign Banks Industry’s ratios.
3 Foreign Banks Worth Investing In
HSBC: With its headquarter in London, HSBC provides a wide range of financial services to nearly 64 countries and regions in Europe, Asia, the Middle East and North Africa, and North and Latin America. As of Dec 31, 2022, it had $2.97 trillion in assets.
For the past few years, HSBC has been undertaking measures to bolster its performance, with a special focus on building operations in Asia, including Hong Kong and China. In sync with this, the company fully acquired the issued share capital of AXA Insurance in Singapore for $529 million and L&T Investment Management Limited. HSBC intends to position itself as a top bank for high net worth and ultra-high net worth clients in Asia.
Moreover, HSBC plans to restructure its operations to further improve operating efficiency. In February 2020, the bank announced its transformation plan, which is aimed at reshaping underperforming businesses, simplifying the complex organization and reducing costs. Since the start of this initiative, the company has realized gross savings of $5.6 billion, with cost to achieve a spend of $6.5 billion. HSBC expects to achieve an additional $1 billion of gross cost savings this year due to the actions undertaken in 2022.
HSBC’s brand, capital strength, extensive global network and positioning enable it to continuously attract and retain clients. The company’s product and service leadership in alternative investments, foreign exchange, credit, investment advice and many other cross-border banking services help it widen its customer base.
Currently, HSBC sports a Zacks Rank #1 (Strong Buy). The stock has gained 22.6% on the NYSE over the past three months. The Zacks Consensus Estimate for the company’s 2023 earnings has been revised 19.2% upward over the past 60 days. Its 2024 earnings estimates have been raised 10.9%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
UBS: Headquartered in Zurich, the company’s business strategy is centered on pre-eminent global wealth-management businesses and a universal bank in Switzerland, along with a global asset-management business and investment bank. UBS’ 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 fortified its footprint in various areas by undertaking partnerships with other firms and maintaining cost discipline and capital-deployment activities.
The company is making efforts to become more digital and data-driven to provide clients with digital-first services. It has established a leveling-up strategy based on five key pillars through Agile@UBS, quarterly business reviews and digital roadmaps, modern technology, automation and engineering excellence. The company is migrating toward a cloud-based application system and is accelerating digitalization and facilitating connection with the financial industry ecosystem to provide better and faster client services.
UBS’ expenses witnessed a CAGR of 2.3% in the four-year period ended 2022. Nevertheless, the bank delivered $200 million in gross savings in 2021, and is on track to deliver $1 billion in gross cost savings per annum by 2023.
Currently, UBS sports a Zacks Rank #1. The stock has rallied 17.1% on the NYSE over the past three months. The Zacks Consensus Estimate for the company’s 2023 earnings has been revised 4.3% upward over the past 60 days. Its 2024 earnings estimates have been raised 5%.
Barclays: Headquartered in London, Barclays is a major global banking and financial services company with £1,513.7 billion ($1,830 billion) in total assets as of Dec 31, 2022. The Zacks Rank #2 (Buy) company has been striving to simplify operations and focus on core businesses over the past few years.
With this aim, BCS restructured its business lines into two divisions and divested/closed several non-strategic and less profitable operations globally. The bank completed the ring-fencing of its investment banking operations in April 2018, while reintegrating its non-core division into core operations in July 2017. Driven by these initiatives, the company’s profitability is expected to improve over time.
Barclays’ cost-saving efforts are expected to further support the bottom line in the near term. While total operating expenses increased in 2022, the same declined at a CAGR of 2.4% over the six-year period ended 2021. The company intends to undertake further cost-saving actions to improve efficiency. Over the medium term, the cost-to-income ratio is targeted to be below 60%.
Barclays has been rewarding shareholders with enhanced capital deployments. The bank intends to pay a 2022 full-year dividend of 5 pence per share, taking the total dividend for 2022 to 7.25 pence per share. On Oct 3, 2022, the company completed a share buyback of £0.5 billion. Barclays now intends to initiate a share buyback of up to £0.5 billion.
Shares of the company have gained 1.7% over the past three months on the NYSE. The Zacks Consensus Estimate for BCS’ 2023 earnings has moved up 3% over the past 60 days. Its 2024 earnings estimates have declined 5.1%.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.