Banks – Free To Seize Rebound Opportunities
The Stoxx Europe 600 Banks index has tumbled 37% since the beginning of the year, with the drop from high to low measuring 46%. As the coronavirus pandemic continues to spread, economic forecasts for the euro area are getting increasingly bleak, with the European Commission currently guiding for an 8.8% contraction this year as compared with 8.3% predicted in March. The crisis has not spared the financial sector, with our aggregate net earnings expectations for the European coverage universe ex Poland slashed by 53% to reflect low interest rates and additional crisis provisions. At the revised level, our expectations look conservative at 13% below the market consensus. That being said, note that interest rates in the Czech Republic and Hungary are still above all-time lows, and in the Eurozone there have been no rate cuts at all so far this year. Moreover, thanks to various emergency relief programs, EU banks have not seen a big rise in recurring costs of risk. With the help of fiscal stimulus on an unprecedented scale, assuming fast-paced economic recovery and no more rate cuts, European banks should not have to set aside as much emergency capital in 2021 as they do this year. If we add to this relatively low sector levies, we believe many CEE banks will be able to resume dividend payments next year. Our more optimistic outlook for FY2021 is reflected in an aggregate net income estimate 6% above the market consensus. Moreover we are forecasting 45% earnings growth for our CEE universe in 2021 versus a 33% increase expected in Poland, where banks are weighed down by greater legal risk and higher taxes. Similarly, we see better ROE generating potential in foreign banks, reflected in a 2021 ROE forecast of 8.1% vis-à-vis 4.7% Poland. Another reason why we favor CEE banks are their more attractive valuations, with MSCI EME Financials currently trading at a 29% premium over the WIG-Banks index even though historically we usually saw an 11% discount. We see the premium as widening further in the months ahead. We select Erste Group and Moneta Money Bank as our top CEE picks. For Erste, we see a sharp pickup in profits in 2021, fueled among others by the Czech business, and for Moneta the momentum will build through to 2022, when the full synergies from the Wüstenrot acquisition should kick in.
Erste Group is a financial services provider based in Austria. As of Dec 31 2015, Co.'s total assets amounted to Euro199,743 million and the number of customers was approximately 16.5 million. Co.'s key business is the retail business, covering the entire spectrum from lending, deposit and investment products to current accounts and credit cards. In addition to providing financial services to private individuals, Co.'s core activities also include advisory services and support for corporate clients in financing, investment and access to international capital markets, public sector funding and interbank market operations.
Komercni banka is a universal banking group based in the Czech Republic. Co. is engaged in the provision of a range of financial services in retail, corporate and investment banking. Co.'s operating segments include: Retail Banking, the provision of products and services to individuals, such as among others building savings, pension insurance, overdrafts, credit card and personal loans and mortgages; Corporate Banking, the provision of products and services to corporate entities such as foreign currency and derivative products, syndicated and export financing, and guarantee transactions; and Investment Banking, which involves trading in financial instruments.
Moneta Money Bank as is a Czech Republic-based retail and expanding small and medium enterprises (SME) bank. The Company holds an universal banking licence and provides a range of retail and SME-focused financial products and services. The Company operates through a national distribution network of 229 branches and through alternative distribution channels, such as the internet, its call centre, auto dealers, brokers and approximately 4,700 leasing partners. The Company together with its controlled subsidiaries offers current accounts, savings accounts, term deposits and transactional banking products including payment services and debit cards, consumer loans, credit cards, overdrafts, mortgages and auto loans, auto leases and other complementary products such as bancassurance and sales of investment funds.
OTP Bank is a financial institution based in Hungary. Co. is engaged in retail banking (account management, bankcards and Electronic sevices - OTPdirekt) corporate banking and private banking. In Hungary traditional banking operations are performed by Co. while specialized services, including car leasing, investment funds and insurance are developed and offered by Co.'s subsidiaries. Co. expands its operations throughout the region via its foreign subsidiaries. As of Dec 31 2011, Co. had total assets of HUF10,200,527,000,000 and deposits of HUF6,398,853,000,000.
Raiffeisen Bank International is a universal bank focusing on corporate and retail customers in Central and Eastern Europe (CEE) and on corporate customers in Austria. In CEE, Co. consists of a network of banks, leasing companies and financial service providers. In Austria, Co. is involved in corporate finance and export and trade finance banks. Co. provides services to customers in 2,800 branch offices. In the retail banking business, Co.'s product and service portfolio comprises inter alia credit services (mortgages, credit cards and personal loans), as well as payment transaction and current account package services. As of Dec 31 2014, Co.'s total assets amounted to Euro121.6 million
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
Clients get access to a comprehensive selection of research products including daily market insights, monthly roundups, macroeconomic views, industry- and company- specific analyses, investing strategies, earnings comments, etc.
We give our institutional clients numerous opportunities to connect with industry professionals, top executives, and leading analysts:
- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
- Engage in our many industry events, featuring listed Polish and global firms (in 2018, we hosted sector-themed conferences around industrials, chemical companies, telecoms, retail, and financials, and co-hosted a Best of Poland investors' with Commerzbank and the Warsaw Stock Exchange),
- Stay informed through an array of enlightening discussion panels, workshops, and briefing sessions with regulatory officials.
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