Director’s Cut --Clouds clearing on bank rules::Macquarie Research

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Director’s Cut
Clouds clearing on bank rules
The Basel Committee for Banking Supervision has said 28 banks would count at
Globally Systemically Important Banks (G-SIBs), and would soon face a capital
surcharge of 100 to 150 basis points because they are “too big to fail.” So far
there are no banks in the 250 basis points bucket.
Michael Wiblin believes the G-SIB requirements go some way in attempting to
slow growth amongst the global banks. He also thinks this could further lengthen
the period in which these banks continue to deleverage and in reality just
formalises the diseconomies of scale for the largest global banks.
More importantly this is likely to see growth taken up by banks outside the 28 GSIBs,
reducing the systemic risk from any one particular bank failure. This is why
Al Savastano has a preference for the regional banks in the US, with two of his
top picks being M&T Bank (MTB US) and Zions Bancorp (ZION US).
The Committee also said the list of G-SIBs will be reviewed annually. So even if
a bank escapes this round, the regulations provide food for thought for the
borderline G-SIBs in terms of their expansion plans. It’s yet to be seen whether
there are any advantages to trade off the extra cost of being a G-SIB, with one
possible advantage being the perception the bank will not be allowed to fail, and
hence less risky for depositors. It also seems likely the effect of being on the list
will vary across the cycle, as there will be times when the surcharge restricts a
bank’s freedom and ability to compete with banks not on the list. There is also
the question of whether banks on the list will attempt to game the system in
order to reduce their surcharge is also open to question, according to Michael,
as the process is sufficiently complex and well controlled by the regulator.
Still on the post GFC banking theme, Alessandro Roccati does not expect the
European bank stress test results to restore confidence in the sector. This
seems right given the recent stress tests did not account for a default even
though one appears likely in Greece. Given the still heightened risk for
European banks, he therefore maintains a preference for well capitalised and
well funded banks, with ING (INGA LN) a top pick. >> Read Report
Highlights
 Julian Wentzel has launched a Macquarie Marquee that includes the
European team’s highest conviction bottom up stock calls.
 John Conomos has updated Australia’s macro distance model, and he
says the results continue to favour momentum over value.
 Nigel Browne has upgraded his estimates for Halliburton (HAL US) after the
company posted a strong quarterly result.
 HDFC Bank (HDFCB IN) has delivered yet another quarter of 30% year on
year growth, and Suresh Ganapathy is still a buyer.
 Christian Faitz’ likes Akzo Nobel (AKZA NA), as he sees the company as
one of the cheapest ways to enter the paints sector.
 With copper our favoured base metal, and after a solid quarterly, Martin
Stulpner recommends to buy OZ Minerals (OZL AU).