For Immediate Release
Chicago, IL – November 2, 2012 – Today, Zacks Equity Research discusses the U.S. Foreign Banks, including Barclays plc (BCS - Analyst Report) , Credit Suisse Group (CS - Snapshot Report) , HSBC Holdings plc , Deutsche Bank AG (DB - Analyst Report) and UBS AG (UBS - Analyst Report) .
A synopsis of today’s Industry Outlook is presented below. The full article can be read at
Valuations Look Attractive
Balance sheet repair and credit environment recovery will make the valuations of some non-U.S. banks attractive. Particularly, valuations of the mega banks, which could comfortably maintain the minimum capital norms mandated by the Basel Committee, will experience the fastest valuation upside. Consequently, we believe this would be a good time for long-term investors to consider foreign bank stocks, as the valuations at present look comparatively cheaper.
Investors with short-term targets, however, should be watchful while choosing foreign bank stocks at this point as near-term fundamentals remain weak. Asset quality lacks the potential to rebound anytime soon as default rates for individuals and companies are not expected to materially subside, and revenue growth might remain weak with faltering loan growth and a low interest rate environment.
If any improvement occurs in the near to mid term, it will vary from country to country, depending on industry circumstances.
Ratings downgrades are a major threat for major global banks. In July 2012, Moody’s Investors Service downgraded credit ratings of 15 systematically important banks in the U.S., U.K. and Europe. The foreign banks include the likes of Barclays plc (BCS - Analyst Report) , Credit Suisse Group (CS - Snapshot Report) , HSBC Holdings plc , Deutsche Bank AG (DB - Analyst Report) and UBS AG (UBS - Analyst Report) .
The downgrade was based on the agency’s concern related to these banks’ significant exposure to the volatility and expected losses from capital market activities. This rating action could compel many of these banks to post billions in additional collateral, which will make derivative trading costly. Also, already-high borrowing costs for these banks will increase further.
In October 2012, Standard and Poor’s (S&P) downgraded three French banks, including BNP Paribas, due to rock bottom French consumer confidence. Also, in a report issued in the same month, Moody’s kept a negative outlook on Germany's banking system as it believes intense competition, margin pressure due to a low interest rate environment, high balance-sheet leverage and low pre-provision profits will make it difficult for a number of German banks to stay afloat if they incur major losses.
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