Director’s Cut-- Seeking real value in European IBs ::Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Director’s Cut
Seeking real value in European IBs
With the European investment banks looking cheap on traditional metrics, Piers
Brown has done a deep dive into the sector to identify the true bargains.
One of the key themes in his detailed, 100 page industry report is the challenge
facing European investment banks in terms of recapitalising their balance
sheets, which remain well below target levels. Keep in mind, the operating
environment is already tough, while the task is not being made any easier by the
ongoing regulatory risk. It’s therefore no surprise investors are looking for some
big discounts to base case valuations as some protection against the tail risk
posed by potential game changers such as ring-fencing and litigation.
In terms of stock recommendations, Piers favours investment banks that are
meeting earnings expectations, with high capital levels and a low risk of
regulatory change in their home country. On this basis, his key pick in the space
is Deutsche Bank (DBK GR), as it offers many defensive qualities that others
lack such as low funding spreads, low risk from regulator driven structural
remedies and low sovereign debt exposures. Deutsche’s capital position is still a
negative but this is somewhat offset by its resilient earnings. In contrast, UBS
(UBSN VX) and Credit Suisse (CSGN VX) are rated Underperform on the back
of their weak earnings and weak capital positions


Highlights
 Michael Kurtz believes the latest correction has moved Asia ex-Japan
stocks into value territory and recommends overweighting China.
 Jason Gammel believes the market cannot continue to ignore strong profits
of the integrated oil sector and would buy Chevron and Oxy.