BBVA Posting Better Results And Making Better Decisions

Spanish banks have done alright over the past year, with BBVA (BBVA), Santander (SAN), and Caixa (OTCPK:CAIXY) all up between 20% and 30%, in line with other well-liked European banks like ING (ING), and well ahead of some of their other large European peers. Even with the turbulence in Catalonia, economic conditions have been improving in Spain, and with that so has credit quality. What’s more, both BBVA and Santander have gotten a little more proactive about selling underperforming assets.

While BBVA has done fine over the past year, there could still be a little upside left in the shares. Even though I don’t think BBVA will get to the psychologically important 10% ROE level for a few years, I do expect double-digit earnings growth over the next five years and high single-digit growth over the long term, supporting a fair value around $9/ADR.

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BBVA Posting Better Results And Making Better Decisions

Seeking Alpha: BBVA Not Yet Rewarding Patience

Back in June, I wrote that I thought that Societe Generale (OTCPK:SCGLY) looked like the best pick among a four-stock basket of big European banks (SocGen, BBVA (NYSE:BBVA), Santander (NYSE:SAN), and Unicredit (OTCPK:UNCFF)) in need of a lot of self-improvement. While I got that call right, it's hard to call the roughly 17% erosion in SocGen a victory, nor the 30% erosion in BBVA given what I thought was a reasonably attractive (and undervalued) collection of assets that could outperform in more favorable conditions.

As it happens, those "more favorable conditions" haven't really showed up. Spain's economy is improving and overall bad debt levels are declining, but the prospects for better rates have wilted amid prolonged economic doldrums. What's more, bad debt in the energy space has jumped out as the next big challenge to bank's capital levels.

BBVA still looks as though it has potential, but potential can be a watchword for value traps. I'm not so concerned about the company's highly profitable Mexican operations, but there is a real risk that Turkey and Latin America won't grow as quickly as previously expected. Spain has been improving, but weak prospects for rate/spread growth make the recovery process more difficult. Long-term attributable profit growth of 9% can drive a fair value of over $8.50 today, but my former target of around $10.50 requires an average growth rate of over 12% that looks increasingly difficult to reach.

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BBVA Not Yet Rewarding Patience

Seeking Alpha: HSBC Has A Lot Of Work Left To Do

I had pretty equivocal feelings about HSBC (NYSE:HSBC) a year ago, and the stock's 10% decline since then fits that outlook. HSBC has done quite a bit better than other Euro banks like Societe Generale (OTCPK:SCGLY) and Santander (NYSE:SAN), but really doesn't hold up well compared to the performances of JPMorgan (NYSE:JPM) or DBS Group (OTCPK:DBSDY) - banks that I believe are superior models of what HSBC aspires to be in some respects.

As is, I'm still not sold on HSBC as a great investment today. Even if management can control costs and improve operations and lift the bank's ROE above 11% in 2019, I don't see a compelling value. On the other hand, if management is willing to be bolder and adopt a "be great or be gone" philosophy, the potential of a smaller, leaner, and better HSBC could be considerably more compelling.

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HSBC Has A Lot Of Work Left To Do

Seeking Alpha: BBVA's Improving Performance No Longer Fully Reflected In The Price

Large European banks like BBVA (NYSE:BBVA), and large banks in general, have an interesting dilemma these days. There are definite benefits of scale in banking and almost equally definite benefits from the diversification that comes from operating across multiple geographies, but regulators are increasingly looking to make the biggest banks pay a price for their size and importance in the form of higher capital ratios (which depress earnings and returns over time). With that, I believe large multinationals like BBVA, Santander (NYSE:SAN), Societe Generale (OTCPK:SCGLY), and UniCredit (OTCPK:UNCFF) have to be increasingly on top of the risks and benefits of their various operations and more willing to pull the weeds to let the flowers have more space.

A year ago I wasn't very keen about the valuation on BBVA's ADRs, and the shares have dropped about 25% since then (the local shares are down about 7%). That said, I did like BBVA quite a bit better than Santander, and the latter has been even weaker (down about a third over the same period). With that valuation reset, I'm definitely more favorably inclined toward BBVA but I wouldn't say that the value makes it a can't-miss prospect.

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BBVA's Improving Performance No Longer Fully Reflected In The Price

Seeking Alpha: Santander Looks Pricey Relative To Its Capital And Growth Prospects

The economy in Spain has been looking a little better and that has led Spanish banking shares to do quite a lot better, with Bankia up close to 120%, CaixaBank up about 90% and the big boys BBVA (BBVA) and Santander (SAN) up around 60%. Credit recovery can be a powerful factor in bank stock appreciation and incoming bad credits in Spain are getting better for Santander. On the other hand, Santander Mexico (BSMX) hasn't been doing as well as I'd hoped, Santander Brasil (BSBR) is losing share, and the company's credit position is still quite weak relative to other large banks. These shares already seem to reflect a lot of optimism about improving interest spreads and loan growth and I don't see much value at these levels.

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Santander Looks Pricey Relative To Its Capital And Growth Prospects

Seeking Alpha: Strong Operations In Mexico Buying Time For BBVA In Spain

Diversification has paid off for BBVA (BBVA). While Spain's economy continues to struggle, operations in Mexico, the U.S., and South American countries like Chile, Peru, and Colombia have continued to generate much-needed profits from their capital base. Although there may be too much optimism about a pronounced near-term turnaround in Spain, BBVA is nevertheless positioned to benefit from consolidation, better consumer conditions, and long-term credit repair.

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Strong Operations In Mexico Buying Time For BBVA In Spain

Seeking Alpha: Like The Black Knight, Societe Generale Isn't Dead Yet

French-based multinational bank Societe Generale (OTCPK:SCGLY) definitely got some parts lopped off during the credit crisis and European recession, but the bank has since proven that reports of its demise (or perpetual irrelevancy) were greatly exaggerated. The company's performance in 2013 was by no means flawless, and the company has much still to do, but patient shareholders have been rewarded with a nearly 70% rise over the past year and a 90% rise over the past two years.

Relative to distressed brethren like Citigroup (C), Bank of America (BAC), Santander (SAN), and HSBC (HSBC), Societe Generale has the best two-year performance of the lot, with only Bank of America coming close to challenging SocGen's return. Looking ahead, there is still a credible argument that SocGen can do better and see further re-rating. The company's ROE goal of 10% does not seem out of line and can underpin a $14 fair value, while outperformance in areas like Russia could offer some scope for upside.

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Like The Black Knight, Societe Generale Isn't Dead Yet

Investopedia: Has Santander Made It Through The Worst?

Like so many other banks in Europe, Santander (NYSE:SAN) has been through the wringer. Its home market of Spain has seen devastating economic decline, and relatively healthier operations in faster-growing areas like Brazil and Mexico haven't made up the difference. The bank's shares have dropped more than 50% over the past five years.

Bad as things have been, investors in the U.S. have seen plenty of examples of how bank stocks can recover significantly once credit costs begin to stabilize and then improve. On one hand, then, is the possibility of a Bank of America (NYSE:BAC) or Citigroup-like (NYSE:C) rise from the ashes. But on the other hand is the truly scary state of affairs in Spain and the risk that Latin America is starting to slow to a significant degree. Although Santander shares may be a little cheap today and would certainly have significant upside if/when the market believes Spain has stabilized (and with it, Santander's credit costs), the risk/reward tradeoff does not seem appealing enough to me when considering the options available to investors in other European and Latin American banking stocks.

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http://www.investopedia.com/stock-analysis/090313/has-santander-made-it-through-worst-san-bbva-bac-itub.aspx

Investopedia: For BBVA, Does More Spain Mean More Pain?

Spain is a bigger mess than most Americans can appreciate, as the 26% unemployment rate in Spain (which was a quarter-over-quarter improvement) is higher than has ever been seen in the U.S., including during the Great Depression. Likewise, major Spanish banks like Santander (NYSE:SAN) and BBVA (Nasdaq:BBVA) continue to see bad credit levels that would be hard to imagine at major U.S. banks.

Still, U.S. banks such as Bank Of America-like (NYSE:BAC) have seen prices spike once credit costs bottom out. While BBVA is unlikely to see a BAC-type return in the next few quarters, BBVA's management of its Spanish business and the quality of its Latin American operations will ultimately lead to improved results and a better valuation.

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http://www.investopedia.com/stock-analysis/090313/bbva-does-more-spain-mean-more-pain-bbva-san-itub-bbd.aspx

Investopedia: Global Giant HSBC Still An Attractive Story

When I last wrote on HSBC (NYSE:HBC) about 18 months ago, I was positive on this global banking giant. In the intervening period the shares are up about 30% (excluding a pretty solid dividend), making that a pretty solid call. Although HSBC's second quarter/first half results were not perfect by any means, this isn't a bank that runs itself on a quarter-by-quarter basis and I see little to quibble with in the bank's excellent ratios and profits, nor its policy of redirecting copious surplus capital to both growing markets and shareholders. With the shares about 10% to 15% undervalued, there's still a case to be made for buying/holding these shares.

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http://www.investopedia.com/stock-analysis/080713/global-giant-hsbc-still-attractive-story-hbc-c-san.aspx

Investopedia: Societe Generale Continues To Clean Up Its Act

The stocks of U.S. banks like Bank of America (NYSE:BAC) and Citigroup (NYSE:C), not to mention smaller regional players like Zions (Nasdaq: ZION), Regions (NYSE:RF), and Synovus (NYSE:SNV), have enjoyed strong rebounds on the back of the clean-up trade – ongoing improvements in bad debt inflow, credit ratios, and so on.

As bad as things got in the U.S., they were much worse in Europe and Societe Generale (Nasdaq:SCGLY) teetered on the brink of going the way of Lehman Brothers and Washington Mutual. Since going almost to the very edge of the cliff, though, SocGen management has been working hard to clean up the business, shore up its capital, and reposition the company for profitable growth. Although there is still a lot left to be done, and ample doubts as to whether they can do it, a strong second quarter and ongoing improvements are a good sign.

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http://www.investopedia.com/stock-analysis/080713/societe-generale-continues-clean-its-act-scgly-bac-c-san.aspx

Investopedia: Scotiabank's Balanced Model Continues To Deliver

Each of the Canadian Big Five banks has its own strategy to diversify its growth outside of the Canadian banking market. In the case of Bank Of Nova Scotia (“Scotiabank”) (NYSE:BNS), that strategy revolves around building its high-growth Latin American banking business and it's less appreciated (but still lucrative) wealth management operations. Although investors should not underestimate the risk of a banking slowdown in Canada nor the inherent risks of emerging market banking, Scotiabank looks as though it may be a relative bargain in the banking sector.

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http://www.investopedia.com/stock-analysis/052813/scotiabanks-balanced-model-continues-deliver-bns-c-bmo-bap-san-cm-n.aspx

Seeking Alpha: Can Societe Generale Ever Be Relevant Again?

I have no doubt at all that many readers will read that article title, snort, say "no", and move on with their day. And that's certainly understandable - while Societe Generale (SCGLY.PK) may not be the European bank most damaged by the Great Recession, credit crunch, and resulting European sovereign debt crisis, they certainly did their best (or worst) to be in the running.

Societe Generale has emerged from this mess as a different bank, though, and the company has gone to great lengths to improve its balance sheet and capital position. Perhaps the question to ask with Societe Generale isn't so much about whether it can be a top-tier bank again (if it ever was), but rather whether it deserves to lag relative to other troubled banks like Citigroup (C), Bank of America (BAC), and Santander (SAN).

Please read the full article at Seeking Alpha:
Can Societe Generale Ever Be Relevant Again?

Seeking Alpha: AFP Provida - A Very Different Dividend Play

There aren't too many companies out there quite like AFP Provida (PVD). Provida is part of the Chilean pension system; a system that requires Chilean workers to contribute to privately-run pension plans that manage the money on their behalf for retirement. With a growing population and a lucrative fee-collecting business, Provida is an interesting way for American investors to collect significant dividends from a company heavily levered to economic growth in one of the more stable Latin American economies.

A Weird Mix Of Private And Public
There is nothing especially normal or straightforward about the system in which Provida operates. A long time ago now, the Chilean government decided to scrap its public retirement system in favor of a system that would let private pension companies invest and manage money on behalf of workers.

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AFP Provida: A Very Different Dividend Play

Investopedia: HSBC Still Muddling Through And Still Cheap

Lucky for HSBC (NYSE:HBC) that it's such a globally diversified bank. At present, the company's European and North American operations are adding little to group profits, but Hong Kong remains a cash cow and growth in Asia and Latin America has been quite solid. While institutional investors still seem quite down on this name, and there are definitely risks in emerging markets, patient value investors should be relatively content holding these shares for their long-term potential. (For more, see Earning Forecasts: A Primer.)

Not a Great Close to the Year
Bank earnings are hard to enough to parse and interpret when it's just a small regional bank; a global bank like HSBC is a maze for even experienced investors. All that said, and acknowledging that not all investors agree when it comes to adjustments, HSBC's fourth quarter earnings weren't great.

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http://stocks.investopedia.com/stock-analysis/2012/HSBC-Still-Muddling-Through-And-Still-Cheap-HBC-C-STD-DB0229.aspx

An Improving Tale For This Citi

More than any of the other U.S. money center banks, Citigroup (NYSE:C) arguably most owes its continuing survival to the government's bailout. Staggering credit losses probably should have toppled this bank, but a huge infusion of cash stabilized the situation and the company is slowing pulling itself towards recovery. Citi's third-quarter earnings are not spotless, but do support the idea that this one-time giant has a future once again.

The Quarter That Was
A system-wide mess concerning foreclosure documentation has really dominated the talk about banks recently, but that was not a meaningful factor for Citigroup. What was meaningful was a 6% sequential decline in revenue (down approximately 10% year over year), but an overall improvement in credit. Although net interest income fell about 6% sequentially, the company did see some strength in equity trading, improved investment banking results and a decent performance in the regional consumer banking unit.

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http://stocks.investopedia.com/stock-analysis/2010/An-Improving-Tale-For-This-Citi-C-BAC-WFC-USB-STD-HBC1020.aspx

A Small Bank Deal With A Big Premium

The M&A scene for U.S. banks has been big on rumors (like Santander (NYSE:STD) and M&T Bank (NYSE:MTB)) and the acquisition of small, failed institutions, but there has been relatively little in terms of willing deals among two solvent parties. Old National Bancorp (NYSE:ONB) shook that up in a big way on Wednesday by buying Monroe Bancorp (Nasdaq:MROE) at a sizable premium. 

The Deal
At the time of the announcement, Old National was offering almost $84 million in stock to acquire Monroe Bancorp, a deal that works out to 1.275 shares of Old National for every share of Monroe. At the prices of each stock prior to the open of trading Wednesday, that represented an eye-popping 148% premium for Monroe shares. The deal does include a collar, though, such that if Old National's stock moves above $10.98, Monroe shareholders will get $14 of Old National shares.

Although the deal was designed with a target price of $13.35 in mind for Monroe shares, as of this writing the market has pushed Monroe's price up to only about $11.30. Do not let the "only" mislead, however; that still represents over 100% appreciation for the stock. At this price, the trailing price-to-book ratio is 1.27; a strong premium relative to larger Midwestern banks like Fifth Third (Nasdaq:FITB), TFS Financial (Nasdaq:TFSL) or Marshall & Ilsley (NYSE:MI). 


Please go to Investopedia and read the full article:
http://stocks.investopedia.com/stock-analysis/2010/A-Small-Bank-Deal-With-A-Big-Premium-MROE-ONB-STD-MTB-FITB1008.aspx

M&T Bank, Santander, and Allied Irish - The Latest

Well, here's an idea that I really had not considered.

Amidst all of the speculation about whether Santander (NYSE: STD) would buy Allied Irish Banks' (NYSE: AIB) stake in M&T Bank (NYSE: MTB) as part of a play to buy all of M&T, Allied Irish took a different path. I had wondered recently whether or not Allied Irish would shop the stake to other banks or whether M&T might band together with Berkshire Hathaway (NYSE: BRK.A) to buy it back from Allied Irish.

Instead, Allied Irish is basically floating the stake into the public markets via a mandatory convertible note that converts into those M&T shares.

It's an interesting move. I am not sure whether it is the best way to maximize the value of that stake for Allied Irish, but it is a relatively quick way of converting that into capital. What's more, it is safe to assume that none of the potential corporate bidders were going to do the deal without a discount, so Allied Irish probably accepted the idea that "fair value" was not going to be full price.

For M&T, this is probably a big load off of their minds - with that stake no longer likely to go to Santander, the near-term pressures to talk about a deal likely dry up. That is not to say that M&T could not still be in play or that Santander suddenly loses interest, but it seems a lot less likely now than before.

The Tortured Mating Dance Of M&T and Santander

Even though the right amount of money has a way of smoothing over many differences, it looks like the all-too-logical acquisition of M&T Bank (NYSE:MTB) and Spain's Santander (NYSE:STD) is once again leaning more towards "unlikely" than "likely". With reports out there suggesting that talks once again broke down over an issue of control, it may be time for both parties to move on and pursue strategies that do not involve each other. 

The Story So Far
Both Santander and M&T Bank have acknowledged that the two companies have talked about possible combinations, but so far they have not managed to strike a deal. While M&T is a fine target in its own right, it is probable that Santander's interest originated in the struggles of Allied Irish Banks (NYSE:AIB). Allied Irish owns a large chunk of M&T (about 22%), but desperately needs to clean up its balance sheet and raise capital. Consequently, that stake in M&T is pretty much up for bid. 


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http://stocks.investopedia.com/stock-analysis/2010/The-Tortured-Mating-Dance-Of-MT-And-Santander-MTB-STD-AIB-HBC-USB-PNC-STI0929.aspx

Correction - Got a very nice email from MTB's head of Corp Comm., who pointed out that MTB has not actually officially/formally responded to any of these rumors/stories. So, I have asked the editors at Investopedia to correct the piece to reflect that. 

Santander and M&T Bank - Here We Go Again (Again...)

The dealings between Spain's Santander (NYSE: STD) and U.S. bank M&T Bank (NYSE: MTB) are starting to remind me of the cheesy horror movies I loved as a kid. This deal just will not die ... it keeps coming back again and again, only to die at the end of the latest installment.

According to multiple media reports, Santander and M&T had once again been in discussions regarding some sort of merger. And once again, the deal fell apart over an inability to agree on who would run the company.

If these reports are to be believed, M&T's CEO Robert Williams actually had the chutzpah to insist that his team run the combined entity. Keep in mind, Santander is 10 TIMES the size of M&T. Although Santander was apparently willing to consider letting them run Sovereign Bank (that is Santander's U.S. operation and the likely "home" for M&T if a deal happens), that was not acceptable to MTB.

The fact that this keeps coming up shows that Santander is indeed keen to do this deal; helped no doubt by the reality that Allied Irish Banks (NYSE: AIB) is very much in trouble and needs to sell its large stake in M&T Bank. It seems equally clear, though, that M&T management does not want to let go of the reins and sell the company.

Who knows how much longer this is all going to go on? I have to imagine that M&T would dearly love for AIB to find another more-or-less silent partner that would take that 22.5% stake and just be content with that. Unfortunately, non-controlling stakes in foreign banks have burned many of the major European banks and there is likely a shortage of volunteers to try again.

Likewise, I am beginning to wonder if Santander needs to move on to a new target. M&T is a well-run bank, but you can only pine for the girl of your dreams for so long before you need to get on with life. If Santander could find a more willing partner in PNC (NYSE: PNC), BB&T (NYSE: BBT), or SunTrust (NYSE: STI), maybe they ought to explore that.

Ultimately, this deal does make financial sense for both sides. Unfortunately, there are issues of ego and non-financial factors that seem to be very difficult to surmount. Given the track record of M&T management, MTB shareholders should not be in any great hurry (the "down side" to no deal is that it is still an excellent independent bank). Likewise, Santander should not be so keen on M&T that they ignore other high-quality (and perhaps more willing) partners.

Disclosure - I own shares of BBT

Update - Other sources are indicating that the debate about post-merger control has to do only with Sovereign; whether M&T management would control the combined Sovereign + MTB bank or whether it would be the current team. That certainly makes a great deal more sense than my initial read (thinking that MTB wanted control of all of STD).