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.

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ING: Steady And Underappreciated, Or Boring And Underwhelming?

Seeking Alpha: ING Feeling An Uncomfortable Squeeze

About nine months ago, I wrote the following in reference to Netherlands-based bank ING (NYSE:ING), "... the potential here appears to be among the best in Europe right now."

I was wrong.

While others certainly have done worse (including Unicredit (OTCPK:UNCFF), Deutsche Bank (NYSE:DB), and Santander (NYSE:SAN)), and European banks have performed poorly in general, ING's nearly 25% decline in local terms since that article is quite weak and notably worse than the performance of French banks like BNP Paribas (OTCQX:BNPQY) and Societe Generale (OTCPK:SCGLY) and Austria's Erste (OTCPK:EBKDY), not to mention fellow Dutch (but state-owned) bank ABN AMRO.

ING has taken hits on multiple fronts. Loan growth and spreads in its core Benelux markets haven't been great, and the prospect for rate increases (and higher lending margins) has faded across the banking sector. Investors have also grown more concerned with ING's energy loan book, while more stringent capital ratio rules are going to reduce prospective capital returns (as well as returns on capital).

The conditions in which ING operates are certainly less than ideal, but I do not believe that the book should trade for less than tangible book value. My base case estimates value of the bank at around $15/ADR on long-term earnings growth in the 5% to 6% range (a long-term ROE of 10% to 11%), but if lower-for-long rates, higher loan losses, and weaker returns on capital drive ROEs persistently below 10% for the future, today's price is pretty close to the mark on value.

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ING Feeling An Uncomfortable Squeeze

Seeking Alpha: HSBC Has A Valuable Core Franchise, But A Lot Of Work To Do

The giant global franchises of Standard Chartered (OTCPK:SCBFF), Citigroup (C), Deutsche Bank (DB), and HSBC (HSBC) definitely didn't live up to the notion that a global footprint would insulate them in tougher times. In the particular case of HSBC, it got to a point where some started asking whether it was actually a good global bank or just a very good Hong Kong bank with a lot of foreign market albatrosses dragging it down.

The truth, as is often the case, is somewhere between. HSBC certainly made some big mistakes in markets like the U.S., and the China operation has its challenges today, but Hong Kong continues to be exceptionally profitable and the large low-cost deposit bases in the U.K. and U.S. give the company attractive leverage to rising rates.

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HSBC Has A Valuable Core Franchise, But A Lot Of Work To Do

Investopedia: Bid Rigging Costs Barclays Its Diamond

As news continues to unfold regarding the scale and depth of the LIBOR manipulation scandal, politicians are starting to hunt for scalps. The now-former CEO of British bank Barclays (NYSE:BCS) has chosen to cooperate, as Bob Diamond has resigned his position. It remains to see just how far this scandal will reach, and whether or not Diamond will be the only major CEO to lose his job over bad behavior that is increasingly looking like an industry phenomenon.

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http://stocks.investopedia.com/stock-analysis/2012/Bid-Rigging-Costs-Barclays-Its-Diamond-BCS-RBS-HSB-LYG0704.aspx

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.

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

Investopedia: Greece - Of Banks And Tanks

The great thing about reality (at least for a writer) is that it has this way of going in directions so strange that not even fiction writers would dare attempt. If recent news out of Greece is to be believed, the Greek government has pulled a whopper - ordering some heavy-duty military hardware at a time when its largest European creditors are debating just how far they should push their own citizens to float this bankrupt nation. (For more on Greece, read 5 Reasons You Should Care About Greece.)

Tanks, with a Side of Skepticism  
Word broke yesterday morning that the Greek and U.S. governments have apparently reached agreement on a deal that will "grant" up to 400 Abrams tanks to Greece, along with a host of refurbishments and upgrades. Investors should realize that the sourcing on this is hardly airtight - the sources include Svenska Dagbladet and other less-than-regular outfits like Defencegreece.com and Hellenic Defence & Technology. Accordingly, this could be a hoax or old news made to seem new again, and it is worth noting that there aren't any corresponding entries in the Federal Register yet.

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http://stocks.investopedia.com/stock-analysis/2011/Greece--Of-Banks-And-Tanks-GD-NOC-NBG-DB-ING-CCH-MS1006.aspx

Investopedia: Here We Go Again - Markets Continue To Move On Governments

Those who believe that the best government is unobtrusive and nearly invisible have probably ground their teeth to dust by now, but as markets open again on Monday it looks like governments on each side of the Atlantic continue to call the tune in the markets. While Europe tries every trick in the book to keep Greece afloat, politicians in the U.S. seem committed to elbowing each other aside in a rush to drill more holes in the bottom of their boat. 

A Government Shutdown?  
If the politicians in Washington continue to court a government shutdown and play a massive game of chicken with each other, the general public may stop caring and the markets may just decide to install a semi-permanent "knucklehead premium" on U.S. government securities. In the meantime, though, investors should expect another spate of debate, controversy and wall-to-wall talk about whether Congress can come together and agree on another short-term funding measure to keep the government working.

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http://stocks.investopedia.com/stock-analysis/2011/Here-We-Go-Again--Markets-Continue-To-Move-On-Governments-TLT-SHY-GLD-DB-UBS-MS-GS0926.aspx

Investopedia: Bank of America's Incredible Shrinking Liability

At this point in the credit crisis it would seem that anybody claiming to have a firm handle on everything going on is either crazy, dishonest or a singular genius. Take the latest news from Bank of America (NYSE:BAC) - the terms of a deal to settle much of its liability to Freddie Mac (Nasdq:FMCC) and Fannie Mae (Nasdaq:FNMA) for mortgage put-backs not only surprised most observers, but angered a lot of people all over again. Moreover, there is uncertainty everywhere an investor cares to look regarding whether or not other banks will be able to strike similar deals and how these banks will deal with other claimants.

A Quick Take on the Deal
Early in January, Bank of America announced a deal with Freddie and Fannie whereby it was settling its potential put-back obligations to these entities for a total of $2.8 billion. This deal covers just mortgages related to Countrywide (which Bank of America bought), but will avoid more litigation regarding BAC's ultimate responsibility in buying back misrepresented or outright fraudulent mortgages under the terms of the put-back agreements that it had with these agencies.

In many respects, this was a deal so favorable to BAC it was close to outright theft. The liability between BAC and Freddie/Fannie could have been anywhere from $10 billion to upwards of $20 billion depending upon the assumptions an investor wanted to make about the settlement. As it stands, even more than $20 billion would have represented only about a 1% delinquency rate for these loans, when the actual rate has been running more like 11%.

It is also worth mentioning that this is tantamount to another bailout for the banks. Freddie/Fannie are under direct government control, while Bank of America (along with Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and many others) needed very cheap government money to stay liquid. What is interesting about this move, though, is that it avoids the splashy headlines of another TARP-like program that would be announced from a White House or Congressional podium. (For more, see Liquidity And Toxicity: Did TARP Fix The Financial System?)

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http://stocks.investopedia.com/stock-analysis/2011/Bank-Of-Americas-Incredible-Shrinking-Liability-BAC-C-GS-AGO-MBI-WFC-AZ0110.aspx

HSBC's Earnings Mystery

Global banking giant HSBC (NYSE:HBC) is not going to win any points this time around for presenting clean and intelligible earnings. I am not suggesting that the company is hiding anything or attempting to mislead investors, but investors are certainly to be forgiven if they came away from Monday's report not really sure exactly how the company is doing.

At the most basic level, things are getting better for HSBC, but the pace of the "real" recovery (as opposed to the accounting recovery) is still rather slow.

The First Half That Was
HSBC reported first half results that were certainly good enough to get cheers from the financial press and institutional investors. On first blush, that makes a certain amount of sense. The bank reported that loan losses were down about 40%, helped by a sizable drop in provisions in the North American business. Impaired loans continued to decline as a percentage of the total, and the company managed to leave the first half of the year with a return on equity of over 10%. (To learn more, check out Return On Equity from Investopedia Video.) 

Well ... not exactly.

The complete piece can be read at:
http://stocks.investopedia.com/stock-analysis/2010/HSBCs-Earnings-Mystery-HBC-C-BAC-BCS-RBS-DB0804.aspx

Santander's Footprint Pays Off

Wall Street vacillates between loving companies that stay lean, focused and specialized and loving those that diversify across the board and across the globe. Banking is no exception; investors often question whether the diversification benefits of global expansion are worth the headaches and the risks. Looking at the first half results from Spain's Santander (NYSE: STD), I think we have a strong tally in the "diversification is good" column. 

The Quarter That Was
Santander had a relatively good second quarter - that is, it was not a terribly good quarter unless you view it in the context of a pretty unimpressive reporting season for banks overall. Net interest income did grow 4% sequentially and net operating income rose 1% sequentially. How those results came to be is a critical part of the Santander story. Spain and the U.S. were not strong contributors, but the company's operations in Brazil and Latin America did quite well, as Latin American profits rose 12%.

To read more, please go to:
http://stocks.investopedia.com/stock-analysis/2010/Santanders-Footprint-Pays-Off-STD-C-BAC-DB-MTB-RF-ZION-FITB0803.aspx

Iron-Clad Swaps

However much the politicians in Washington, D.C. rail against swaps and derivatives, it amounts to about as much as the legends of Xerxes ordering his retainers to whip the ocean for disobeying him. Amidst the debate about how to limit the exposure of U.S. banks to derivatives, a brand new market is taking shape. This is not a new derivative, but rather applying old tricks to a new market - iron ore.  


The global iron ore trade is huge, totaling about 840 million metric tons and $100 billion a year. Oddly enough, though, it was a market that for 40 years was managed by the major iron producers holding once-a-year negotiating sessions with major buyers (steel companies, mostly) to set the price for the year.

This approach has worked well enough for the major producers, names that include Brazil's Vale (Nasdaq:VALE) and Anglo-Australian giants BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RTP). Customers, though, have been less pleased with this arrangement in recent years and the Chinese in particular have been looking for alternatives. Bowing to this pressure, the major companies began ditching the annual pricing concept earlier this year in favor of quarterly pricing.

For the complete story, please go to: 
http://stocks.investopedia.com/stock-analysis/2010/Iron-Clad-Swaps-VALE-BHP-DB-CS-MS-CME-MT0709.aspx