Despite Significant Near-Term Growth Challenges, Danske Bank Looks Undervalued Today

With negative bond yields across much of Europe and historically low valuations in the banking sector, it’s not hard to find apparent bargains among European banks. The real trick here, though, is separating the real bargains from the likely value traps. I don’t want to underplay the risk that weak rates will have a lasting negative impact on earnings, but I believe Danske Bank (OTCPK:DNKEY) is undervalued today on the basis of low-to-mid single-digit pre-provision profit growth over the next three to five years, a solid collection of fee-generating businesses, and above-average credit quality.

Read more here: 

Despite Significant Near-Term Growth Challenges, Danske Bank Looks Undervalued Today

Seeking Alpha: After A Big Run, Can Danske Bank A/S Still Impress?

It's hard to complain about the performance of the Nordic banks over the past year. When Swedbank (OTCPK:SWDBY) is one of the laggards with a 14% yoy rise in the local stock price, you know you're talking about a fairly solid group. Amidst yoy performances like DNB (OTCPK:DNBHF) (up 23%), Nordea (OTCPK:NRBAY) (up 28%), SEB (OTC:SEBYF) (up 40%), Danske Bank A/S (OTCPK:DNSKY) has been a clear winner with a nearly 54% rise over the past year on new management, a new operating plan that emphasizes tighter operations, and expectations for improved funding costs and loan loss realizations.

Click this link to continue:
After A Big Run, Can Danske Bank A/S Still Impress?

Investopedia: HSBC Faces A Longer Road Back To Normal

With operations in 87 countries and every major region of the world, HSBC (NYSE:HBC) basically is world banking, or at the very least has a much wider view than almost any of its competitors. To that end, investors should take some encouragement from what looks like better operating conditions around the globe. That said, investors should not ignore HSBC's lower forward ROE guidance - a strong hint that the banking industry of tomorrow will not resemble the intra-bubble levels of profitability any time soon. (For background reading, see Analyzing A Bank's Financial Statements.)

An OK End to the Year 

For the full year of 2010, HSBC reported that revenue increased just over 3% to $68.2 billion, missing the consensus estimate by about $1 billion. Net interest income fell a bit more than 3%, largely due to lower rates. The company's overall net interest margin fell as well. The biggest delta on the revenue lines, though, was in trading results: HSBC booked about 25% less revenue here than in the year-ago period and that meant $2.6 billion less in operating revenue.

Unfortunately, the company did not exactly make up for it as it went along. Compensation and administrative expenses both grew at rates that outstripped revenue growth and the company saw its efficiency ratio move to an uninspiring 55.2% - well above its 50% target level. (For related reading, see Measuring Company Efficiency.)

Continue to the full piece through this link:
http://stocks.investopedia.com/stock-analysis/2011/HSBC-Sees-A-Longer-Road-Back-To-Normal-HBC-STD-BBVA-BCS-USB-BAP-PNC0301.aspx

A Little More on Unicredit

The more I look at this Unicredit situation, the less I like it.

It looks like the proximate cause of former CEO Profumo's departure (which very much reads like a "jump ... or we push" situation) was two Libyan entities taking a combined 7.4% stake in the bank. Nevermind the fact that Unicredit needed to raise capital and large stable investors are typically a good thing, apparently this rankled some on the board and caused problems.

Truth be told, I don't know exactly what the problem is. Libya is not exactly fully rehabilitated in the eyes of the West and its not as though European institutions are overjoyed to see Arab/African investors buying their assets. And maybe that's part of what lies underneath the controversy - Libya and Italy certainly have a "history" together, and it probably aggravates the hell out of some Italians to see Libya buying into Italian assets from a position of relative power. With rumors that certain Italian politicians were displeased with this arrangement and making that known to the board, who knows exactly what role this had.

Whatever the case may be, the fact still remains that Profumo guided Unicredit from being just another Italian bank to being a major player in Europe - the second-largest bank in Italy, the third-largest in Germany, and the largest in both Austria and CEE. Even granting that the stock performed better in the first half of his tenure than the second, Profumo should still be appreciated by long-term shareholders.

And now it's time to see where the bank goes from here. There is definitely some need for restructuring at Unicredit, and perhaps that was also part of the CEO's departure - whether he wanted to go slower than the board or faster. So if Unicredit is about to change itself in some pretty significant ways, maybe it is better to do so with new management at the helm.

The vacuum at the top is certainly a big risk factor, as nobody can really say what the near-term direction for the bank is going to be (at least not until the new CEO lays it out). Likewise, it is fair to wonder just how this board operates and what sort of "non-operating influences" get to be played out behind the closed doors of the boardroom.

Still ... this bank was a quality company before the crisis and even if Italy sometimes seems like a perpetual economic and political head-case, it seems likely to be a good candidate for a strong recovery. I have enough European banking exposure for now (though Santander (NYSE: STD, Danske, and a few Swedish banks are enticing...), and would rather add in places like South America (Itau), South Africa (Standard), and Asia (DBS Group), but Unicredit seems pretty dang cheap right now.  Assuming that the board isn't daft enough to screw up over a decade of progress, this could be a good opportunity to buy a dip and get a quality pan-European bank.

Bad Timing For UniCredit

This is not a good time for UniCredito to be seeing a change at the top, but word came out tonight that CEO Profumo quit. He had been in a pretty heated squabble with the board (obviously...), and it finally comes to a head with him leaving.

It's unfortunate - although UniCredit has clearly been badly hurt in the credit crunch, they are in vast company in that regard. And it should be remembered that during Profumo's tenure at the top, he did guide the company from a conglomeration of unspectacular Italian banks into a sizable pan-European bank with once-promising businesses in Central and Eastern Europe (that could still be worth quite a bit in the future).

Admittedly, I was wrong to be so keen on banks like Societe Generale, Danske Bank, and Unicredito going into the credit crisis; I would have been far better off with banks like Itau (Nasdaq: ITUB), DBS Group (Nasdaq: DBSDY) and Standard. Luckily, SocGen was the only one I actually bought, but still ... knowing your aim was off is not comforting even if you didn't pull the trigger.

I want to write more on this tomorrow ... but suffice it to say for now that this is another challenge for a bank that already has plenty of them.

Disclosure - I own shares of SocGen