ING: Steady And Underappreciated, Or Boring And Underwhelming?

The best I can say about ING Groep (ING) and its performance over the past eight months or so is that the shares have at least beaten its European peers … albeit only by a few percentage points and the shares are still down over that time period. For better or worse, the story remains the same – steady execution, but uninspiring growth in a low-rate environment where credit costs probably can’t get much better.

There are certainly areas where ING could look to improve, including fee income, but I think the company’s credit and capital position are healthy, and while I don’t expect ING to be a scintillating growth name, I think its underlying growth potential is still undervalued by the market. I’ve cut back my growth expectations on a weaker overall outlook for Europe and the banking cycle, but if 3% to 4% long-term core growth is still a credible target, these shares should trade in the mid-to-high teens.

Click here for more:
ING: Steady And Underappreciated, Or Boring And Underwhelming?

Seeking Alpha: ING Has Been Executing To Plan And Reaping The Rewards

A lot of European banks have laid out detailed plans for improving their cost base, stimulating loan growth, and generally restructuring their operations in the direction of better long-term sustainable profitability. There's a reason, though, that ING's (NYSE:ING) shares are up almost 20% since my last article on the company ("ING Groep NV Looks Significantly Undervalued Today") and well ahead of Euro peers like Societe Generale (OTCPK:SCGLY), UniCredit (OTCPK:UNCFF), BNP Paribas (OTCQX:BNPQY), HSBC (NYSE:HSBC) and Santander (NYSE:SAN) - they're actually doing it!

In point of fact, ING shares have been even stronger than the nearly 20% gain from the ADRs would suggest, as currency moves have blunted the 45% move in the local shares. I mention that mostly as reminder that currency moves can give or take, and investors have to keep them in mind. At this point I am no longer as bullish on ING share. I think this is an excellent bank and I think the strategy that management has used to such good effect in Germany can be replicated elsewhere, but I just don't see the level of undervaluation that would make this an exciting buy as opposed to a solid long-term holding.

Follow this link for the full article:
ING Has Been Executing To Plan And Reaping The Rewards

Seeking Alpha: UniCredit Needs Help To Be Better

Regular readers of my work will know that I have a certain affection for tangled, messed up, trainwreck-y stories, as I often find a lot of value in stories that are too ugly, too complicated, or too time-consuming to get a lot of attention from institutional investors.

I think that's an apt lead-in for UniCredit SpA (OTCPK:UNCFF), as this large pan-European bank continues to work through a lot of the lingering damage of the European banking sector meltdown. A year ago I didn't see all that much surplus value in the shares and they have only appreciated about 6% since then (the local shares; because of currency the ADRs are down closer to 20%).

Unfortunately, I still don't see a lot of value unless and until the bank can drive its ROE above 12% again - and despite its high-quality operations across Central and Eastern Europe, that could take quite a bit longer to achieve.

Read the full article here:
UniCredit Needs Help To Be Better

From Sons of Athens ... to Sons of Anarchy

Thanks Greece.

Virtually every financial system is built upon a certain level of trust and good faith amongst its members, and Greece seems to have taken up the role of "turd in the punchbowl". Greece basically lied their way into the European Union, gorged on cheap debt, wasted it on unproductive assets, and then turned around and held the financial system hostage with a version of "bail us out … or else!".

Of course, anybody wasting their time bashing on the Greeks is overlooking events a little closer to home. Let's see … lying to get favorable loans, using those loans foolishly, and then whining, wheedling, and begging for a bailout. Where have we seen that before?

Oh yeah, that's right. We did that too.

Now we have the S&P lowering Greek debt to "junk" (way to be on the stick ahead of time, guys … oh wait, we've seen that before too!), Greek 2-year notes yielding about 19%, and a lot of people nervously watching Portugal, Spain, and Ireland for signs of weakness.

Think about that for a moment … Greek 2-year notes are yielding almost 19%. That's like credit card rates. On second that, maybe I shouldn't have said that … Capital One (COF) may soon be seeing a flood of applications from Athens at this rate.

The scary part, though, is how long this could last. Latvia went into crisis a little while ago and even massive cuts to government wages, pensions, and spending (and other austerity measures) didn't help much. Greece, then, could be looking at quite a few years of high taxes, a sharply contracted public sector, malaise, and discontent. Not too many countries have the capability to withstand that, and there could be unrest as a result (as seen a few years back in Argentina).

It's almost a given that the "market" won't be much help here, and the rescue package will have to come out fully-funded by other European countries. On top of that, you're probably looking at wage cuts of 20% or higher as part of the package, and I don't think many Greek civil servants will be happy about that. Worse still, after 12 or 18 months of that, it may still not be enough and Greece may opt to default/restructure that debt and send more ripples of chaos through the market. Simply put, we're talking here about a program that would take four or five years … and that's assuming that Portugal and Spain don't fall over and make it even worse.

In the meantime, a lot of banks have gotten smacked already. Several German and French banks have (or had) major exposure to Greece, with names like Commerzbank, Credit Agricole, Societe Generale and BNP Paribas among them. The damage there is probably already done, but I'd be very cautious around any banks heavily exposed to Spain … or frankly almost any European country at this point.  After all, plenty of British banks have loans on the books for vacation homes in Spain, so you can never just assume a bank in Country X is safe.

Sooner or later, this storm will pass. The U.S. economic recovery isn't heavily predicated on Europe at this point, though chaos in the credit market can quickly become a global issue. But that isn't to say that the fallout won't cause some chaos and hairy days. Expect talk to begin about creating a mechanism to boot out European Union countries that can't get their stuff together, and should the Euro actually collapse … well, that's probably a really good day to own gold (and probably dollars as well, because as messed up as we are, we're not that bad).

Here's hoping the sons of Athens figure a way out of this mess before it gets too much worse.

(Disclosure - I own shares of Societe Generale)