EMEA IPOs Update
* CTT EUR580m IPO Books covered / Investors guided towards high end of the range (4.10-5.52) Retail tranche 6.5x covered Books to close next Monday, company will be on the road in Madrid JPM, Caixa GloCos
* Energa, up to $900m IPO (Z2.8bn) Books covered / Investors guided towards midpoint of the range; ie. 16-18 vs. initial range @ 15-20 Management in Varsaw today, in Paris on Monday Books to close next Tuesday JPM UBS GloCos
* Self-help story with material re-rating potential CASA is one of the most compelling self-help stories in the European banking sector, in our view. At 6.5x 2015E P/E, CASA trades at a 30% earnings discount to European peers, despite 70% of net income being driven by the low-volatility, highly profitable French retail and Savings businesses. Depressed valuation reflects continued market concerns about low capital and high leverage at the listed-entity level, in our view. We think these concerns are overplayed. Though CASA has a low starting point on Basel 3 Capital – 6.9%, we think the combination of strong retained earnings (+170bps), derisking in the CIB (+80bps) and the already-announced 'SWITCH' mechanism (+80bps), will drive Core tier I above 10% by FY 2015E. We expect strong capital generation to drive +8% TNAV CAGR - leaving the stock at 0.8x TNAV 2015E for a 13% RoTE: we think the re-rating potential from this capital catch-up is material
*Market appears to be discounting worst-case scenario Some regulatory tail-risks exist, but we currently think the market discounts a worstcase scenario – an outcome we view as unlikely. We expect the ECB's Asset Quality and balance-sheet review to be conducted at the level of the Credit Agricole Group (not listed entity) – leaving CASA management in a strong position to deliver a shareholderfriendly deleveraging agenda in 2014E.
* Upside risk from CIB de-risking We see some upside risks to company targets in coming years – particularly if management pursue a more meaningful CIB de-risking agenda. As it stands, we forecast CASA CIB to consume ~40% of Basel 3 capital in 2014, while contributing ~25% of group earnings at a 7% divisional RoE. We would therefore expect the division to be high on management's list of priorities at the forthcoming Strategic Review in March 2014.
*Valuation: We have a Buy rating and increase our Price Target to €10.80 (from €10.50), driven by a probability-weighted Gordon Growth Model.
Asian Market Update: Asian markets trade weaker; Japan core inflation hit five-year highs
***Observations/Insights*** - With the US markets closed for Holiday Asian bourses were mostly trading weaker on thin volumes. Japan's key inflation figure increased at the fastest pace in five years and reinforcing the positive effects from Abenomics. The yen declined to a five-year low versus the euro after Japanese inflation data. The core inflation data rose 0.9% marking the fifth consecutive gain in the index highest ever recorded since November 2008.
- The Australian benchmark S&P/ASX 200 was trading in negative territory with GrainCorp trading by lower than 25% following earlier news that the Australian Treasurer Hockey blocked American food giant Archer Daniels Midland takeover bid. - Australia private sector credit for the month October increased at the same pace as it did in September, with the annual rate increasing the most since January reflecting the impact of higher home prices last year, but much slower than late 2008.
***Economic Data*** - (AU) AUSTRALIA OCT PRIVATE SECTOR CREDIT M/M: 0.3% V 0.4%E; Y/Y: 3.5% V 3.5%E >- (JP) JAPAN OCT PRELIM INDUSTRIAL PRODUCTION M/M: 0.5% V 2.0%E (2nd straight rise); Y/Y: 4.7% V 6.3%E - (JP) JAPAN NOV MARKIT/JMMA MANUFACTURING PMI: 55.1 V 54.2 PRIOR (highest reading in over 7 years) - (JP) JAPAN OCT NATIONAL CPI Y/Y: 1.1% V 1.1%E; NATIONAL CPI EX-FRESH FOOD Y/Y: 0.9% V 0.9%E (5-YEAR HIGH) - (JP) JAPAN NOV TOKYO CPI Y/Y: 0.9% V 0.7%E; TOKYO CPI EX-FRESH FOOD Y/Y: 0.6% V 0.4%E - JP) JAPAN OCT JOB-TO-APPLICANT RATIO: 0.98 V 0.96E (highest reading since Dec 2007); JOBLESS RATE: 4.0% V 3.9%E - (KR) SOUTH KOREA OCT INDUSTRIAL PRODUCTION M/M: +1.8% V 0.8%E; Y/Y: 3.0% V 0.9%E - (NZ) NEW ZEALAND OCT BUILDING PERMITS M/M: -0.6% V +1.7%E - (NZ) NEW ZEALAND OCT MONEY SUPPLY M3 Y/Y: 6.6% V 7.3% PRIOR - (JP) JAPAN OCT VEHICLE PRODUCTION Y/Y: 10.1% V 13.0% PRIOR - (KR) SOUTH KOREA OCT CYCLICAL LEADING INDEX CHANGE Y/Y: +0.4% V -0.2% PRIOR - (SG) SINGAPORE OCT BANK LOANS AND ADVANCES: 15.6% V 15.7% PRIOR - (SG) SINGAPORE OCT CREDIT CARD BAD DEBTS (SGD): 20.6M V 19.8M PRIOR; CREDIT CARD BILLINGS: 3.6B V 3.4B PRIOR - (UK) UK NOV GFK CONSUMER CONFIDENCE: -12 V -10E
***Fixed Income/Commodities/Currencies*** - (AU) Australia MoF (AOFM) sells A$800M in 2019 Bonds; avg yield: 3.5060%; bid-to-cover: 4.15x - (TW) Taiwan govt sells NT$35B in 10-yr bonds, bid-to-cover 1.86x, Avg yield 1.673% v 1.799% prior
***Speakers/Political/In the Papers*** - (JP) Japan Chief Cabinet Sec Suga: Not aware at time China planes through air defense zone - (JP) Japan Fin Min Aso: Japan economy not out of deflation yet - (JP) Japan BOJ Gov Kuroda: Easing putting strong downward pressure on yields; Prepared to further ease policy if risks to economy threaten 2% inflation target - addressing parliament - (JP) Japan, US to increase surveillance operations in the East China Sea - Japanese press - (JP) Japan Econ Min Amari: Will meet US Trade Rep (USTR) head about TPP on Dec 1st - (JP) Japan said to be planning the FY13 supplementary budget of ¥7T - Japanese press
- (CN) China City of Taiyuan, Xi'an tighten property curbs - Chinese press - (CN) China National Development and Reform Commission (NDRC) researcher Wang: China may maintain economy growth at 7.5% in 2014 - Chinese press
***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 -0.9%, S&P/ASX -0.3%, Kospi -0.2%, Shanghai Composite flat, Hang Seng +0.3%, Dec S&P500 +0.2% at 1,807, Feb gold +0.3% at $1,242, Jan crude oil flat at $92.27/brl
Notable movers by sector: - Consumer discretionary: Panasonic Corporation 6752.JP -2.5% (to end circuit board business); Get Nice Holdings Ltd 64.HK +2.8% (H1 results) - Industrials: China International Marine Containers Group Co Ltd 000039.CN +1.8%; Honda Motor Co Ltd 7267.JP -0.6% (to invest in Brazil); Zhong Wang Group 1333.HK -3.1% (plans shares offering); GrainCorp GNC.AU -21.9% (Australia rejects ADM's acquisition plan); Jiangxi Hongdu Aviation 600316.CN +10.0%, Xi'an Aero-Engine 600893.CN +7.5%, Sichuan Chengfa Aero-Science 600391.CN +5.3%, China Spacesat 600118.CN +5.3% (China defense companies gain on air zone tensions) - Materials: Rio Tinto Ltd RIO.AU +2.6% (production plans) - Technology: Fujitsu Ltd 6702.JP +1.5% (liquidate subsidiary); NetDragon Websoft Inc 777.HK -7.3% (Q3 results) - Healthcare: Jointown Pharmaceutical Group Co Ltd 600998.CN +2.2% (to set up private bank); Ain Pharmaciez Inc 9627.JP +2.7% (H1 results) - Source TradeTheNews.com
European Banks Could Take Their Hits Early
Banks Face Up to Next Year's Asset Review by ECB
European banks could be in for a painful end to 2013.
European banks are already facing up to a huge potential capital shortfall next year, thanks to several regulatory pressures. The European Central Bank will carry out an asset quality review aimed at ensuring banks' balance sheets conform to uniform rules in areas like bad loans; stress tests will examine how robust banks might be in a downturn.
That's not the banks' only problem. They also need to comply with minimum capital requirements under Basel III regulations; and ensure they meet leverage ratio rules designed to make them less reliant on borrowed funds. In sum, European banks could need to plug a €280 billion ($380.21 billion) capital gap, according to a report by PwC. Technical adjustments could reduce the gap by around €100 billion. But banks could still have to raise €180 billion from new capital raising or restructuring, PwC reckons.
Rather than wait for the ECB, banks could try to get ahead. Already this year European banks have issued €60 billion of new equity, according to Thomson Reuters data, up from €30 billion in the whole of 2012. Banks like Barclays BARC.LN +1.18% and Deutsche Bank DBK.XE +1.34% have undergone sizable rights issues.
But the process is far from complete. One implication is that banks could use upcoming fourth-quarter results to clear the decks, so that their balance sheets anticipate as far as possible the rules they expect the ECB to apply in its asset quality review. The European Banking Authority last month issued standards for defining nonperforming loans, aimed at stemming divergent practices across the euro zone. Banks could apply them as soon as the current quarter, according to senior executive at a major European bank—with the aim of getting their balance sheets in shape before the ECB's inspectors come to town.
That could make the coming earnings season something of a bloodbath. Already, reserves against bad loans look short in some countries. Italian banks' reserves covered only 41% of their bad loans at the end of September, according to Morgan Stanley. MS +0.06% If they were to raise that ratio to 65%, say, Italian banks would need an extra €11.3 billion of capital to meet a minimum core tier one equity ratio of 8%.
Banks in other countries have made progress earlier. Spain's central bank this year forced its banks to clean up their mortgage lending books. That's one reason why Spanish banks on average trade at close to their tangible book value, compared with Italian banks that trade at around 0.6 times tangible book, according to Berenberg Bank: Investors simply trust Spanish banks' accounts more right now.
Bridging the credibility gap is becoming a matter of urgency for Europe's banks.
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BN 11/28 15:35 *DRAGON OIL OFFER FOR BLOCK 19 IN GULF OF SUEZ ACCEPTED BN 11/28 15:34 *DRAGON OIL DGO AWARD OF EXPLORATION BLOCK IN EGYPT BN 11/28 15:34 *DRAGON OIL DGO AWARD OF AN EXPLORATION BLOCK IN EGYPT
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Dragon Oil Gets Exploration Block in Southern Gulf of Suez 2013-11-28 15:43:40.91 GMT
By James Ludden Nov. 28 (Bloomberg) -- Awaits final government approval. * Plans two exploratory wells. * Annual report from 2012 says main exploration assets in Tunisia and Iraq
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To contact the editor responsible for this story: James Ludden at +44-20-7673-2645 or jludden@bloomberg.net
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(Reuters) - In the 1990s, London-based investment banks rewarded top employees with gold bars, fine wine and oriental carpets to dent the impact of higher payroll taxes.Now, with public anger at banking excess near all time highs, they are looking at less flashy ways to cope with curbs on bonuses, including a new monthly allowance. European rules due to take force in January say bankers' bonuses cannot exceed annual salary, or twice that if shareholders approve, to curb the sort of excessive risk-taking blamed for the 2008-09 financial crisis. Salaries have not dropped in line with banks' revenues since the crisis, consultancy McKinskey said this month, despite a series of huge, taxpayer-funded bank bailouts. At least 10,000 bankers, most of them in London, take home more than half a million euros 500,000 euros ($678,700), according to industry sources, more than 10 times the average wage in wealthier European states. With much of pay currently in bonuses, the biggest banks in London, including Deutsche Bank (DBKGn.DE), Barclays (BARC.L) and JP Morgan (JPM.N), look certain to bump up salaries. Britain and the banks in what is Europe's financial capital argue the new rules play into the hands of competing financial centers such as New York, Hong Kong and Singapore. They also say it provides less scope to claw back pay if it turns out an individual had taken too much risk, and limits the ability to pay bonuses in shares awarded in the future. The cap affects all "risk taking" staff for EU banks and the European staff of those outside the trading bloc, so all major investment banks are affected, including U.S. lenders such as JP Morgan and Goldman Sachs (GS.N). "There's absolutely no question that fixed pay is going to rise," said Jon Terry, partner at PwC. "But the standard response may not be by increases in salary, by far the most common response will be the introduction of allowances. "They are a bit more flexible, but it will fundamentally involve a shift of a proportion of variable pay into fixed pay." Britain's Barclays last week said it will increase fixed pay using such a structure. It plans to give bankers in specific risk-taking roles an additional monthly payment, set at the start of the year and to run for 12 months. The top-up will not be included in pension calculations and could rise or fall depending on demand for a particular role. Other banks, such as JPMorgan, Deutsche Bank and HSBC, are expected to consider similar plans, and could vary the structure with longer payment terms or by paying it quarterly. RISKIER? While raising fixed pay is likely to be the most obvious response to the bonus cap, generous housing allowances and loyalty payments could also be considered. HSBC Chief Executive Stuart Gulliver said he would "take whatever steps necessary to protect the competitiveness" of his bank, noting that three-quarters of staff affected by the rules work outside the European economic area. PwC's Terry said more than 80 percent of 40 banks surveyed by his firm last month said they planned to use allowances as their primary response to the bonus cap. The British government has launched a legal challenge to the legislation arguing that it will force up fixed salaries, making the banks riskier rather than safer. "Firms' remuneration strategies may become less flexible which could make adjustment during periods of stress more difficult, undermining financial stability," the UK's Prudential Regulation Authority said. But other countries do not think the EU is going far enough. The Dutch government on Tuesday said it will cap bonuses at banks at no more than 20 percent of total salary from 2015, although overseas staff could get higher amounts. PUBLIC DISAPPROVAL The European Banking Authority, the watchdog overseeing the rule, said any staff earning more than 500,000 euros a year are likely to be affected. It could also include any employee whose bonus is at least 75,000 euros and 75 percent of their fixed pay, or anyone paid more than the lowest member of senior management. The rules will be finalized early next year. Some 3,175 bankers earned 1 million euros or more in the EU in 2011, indicating at least 10,000 people would be caught by a rule covering any employee earning half that amount, according to published salary scales. The British Bankers' Association has said more than 35,000 people could be affected at 10 major banks it surveyed, representing 5.5 percent of their global workforce. More than three-quarters of the top EU bank earners were based in London, fuelling the city's property prices, swanky restaurants and upmarket shops. In 2011, the bonuses of London's top bankers were 3.5 times fixed pay, EBA data showed, meaning their employers would need to switch almost 400 million euros to fixed pay from bonuses to meet the new rules in aggregate. The rules come into effect in January, but will not apply to bonuses for 2013, which are typically paid in February and March. Barclays said it discussed its plan with regulators and shareholders. Investors are keen for banks to rein in pay, and George Dallas, director of corporate governance at F&C Investments, said banks need to follow the spirit of the law as well as the letter to avoid "further regulatory scrutiny and public disapproval". "How banks respond to this (bonus cap) regulation will be one of the key issues in 2014," Dallas said. Bonuses for 2013 at most investment banks are expected to be flat or slightly lower than the year before, following a drop in revenues.
Songa Drilling Moody's: Lowers probability of default rating (PDR) to Ca-PD from Caa1-PD; affirmed the Caa1; revises outlook to negative - The rating actions follow the company's announcement of a proposed debt refinancing and restructuring, with the issuance of up to $425 million in new capital, in the form of up to $275 million in new equity and a $150 million convertible bond. The capital raise is dependent on a number of conditions, including the extension of the existing bank facility and unsecured bond maturities, reductions in the bond interest rates and the bank amortisation payments, and waivers on certain maintenance covenants, and the company has already received the required pre-acceptance from two-thirds of the bond holders that is necessary. Upon successful completion of the restructuring -- expected around the end of December 2013 - Moody's expects to review the ratings and assign the LD suffix to the PDR. - The downgrade of the PDR to Ca-PD reflects Moody's view that under its definition of default, Songa's recapitalisation including maturity extensions and interest rate reductions, will constitute a default within the company's group structure. Moody's notes, however, that this recapitalisation will not adversely affect Songa's CFR as, at maturity, the company still intends to redeem all debt at par and the 2016 bonds at 103.5%. - The negative outlook reflects Moody's view that, under its rating definitions, a default will occur as a result of the proposed recapitalisation, maturity extensions and interest rate and payment profile amendments.
European Stock ETF Attractively Valued
U.S. equity investors have feasted on large gains this year. However, Europe is no turkey. Why Vanguard's FTSE Europe ETF could take flight.
U.S. stocks have delivered heady gains this year. However, European equities represent one of the best investing opportunities in 2014. Many strategists expect that European stocks will continue to appreciate at a double-digit clip next year. And inflows into European equities haven't made up for the crisis-fueled exodus. As investment increases, so too should stock prices. Moreover, European equities look attractively valued. And with expectations for modest euro-zone economic growth, sales and margins should improve.
"People are underinvested in Europe" despite the opportunity posed by euro-zone recovery and lower valuations relative to U.S. equities, argues Randy Brown, co-CIO at Deutsche Asset & Wealth Management. Earnings for European enterprises may have hit bottom. And multinationals there should benefit from an improving domestic market and growth in emerging markets. Also, the European Central Bank is cutting rates and contemplating other measures to boost markets and the economy. "It is not inconceivable that the ECB ends up being the most equity-friendly central bank in 2014, and I didn't think I would ever hear myself say that," says Peter Sullivan, head of European equity strategy at HSBC in London. "Growth just picking up to between 0.5% and 1% means stabilization continues." The Vanguard FTSE Europe exchange-traded fund (ticker: VGK) represents an excellent way to play the euro zone. It is based on the performance of the FTSE Developed Europe Index and captures the top 90% of the region's market capitalization. The fund, which holds about 500 stocks, is up nearly 23% this year, besting the FTSE 100 Index. Yet stocks in the fund are trading at about 15 times forward earnings. "There is a case for buying something reasonably close to the FTSE Europe index because there is a case for Europe. If you want to do better than the index, look for a value tilt," Sullivan says. The fund's top 10 holdings account for about 20% of assets. Financials are the largest sector concentration at 21%, followed by consumer staples and health care. Nestle(NSRGY), at 2.7%, is the largest position followed by HSBC Holdings (HSBC), at 2.4%, as of Oct. 31, according to Morningstar. The fund's expense ratio is a miniscule 0.12%. Portfolio manager David Herro has invested about 75% of the Oakmark International Fund (OAKIX) in a big bet on Europe. He doesn't want the indexed ETF's heavy exposure to commodity calls in energy, nor to pharmaceuticals beholden to government spending cuts. He prefers value-priced names and multinationals, including luxury auto makers like Daimler (DDAIF) and BMW (BMW.Germany), financials Credit Suisse Group(CS) and Allianz (AZSEY), and consumer plays Danone (DANOY) and Diageo (DEO). (See Q&A, "Beating the Market for 20 Years," Aug. 13.) "Share prices have rallied a little bit, but they lag North America and Japan. You are left with the same investment proposition that you had a year ago, even though shares are not as cheap," Herro tells Barrons.com. Barron's was bullish on Europe in a December 2012 cover story. Then in a July cover story, Barron's said Europe was taking its first steps to recovery. We remained optimistic in a recent follow-up and as Barron's Penta blog recently reported, JPMorgan Private Bank recommends a 31% allocation to Europe. Of course, another round of euro-zone bank stress tests next year may strain lending and spending, which could clip financial stocks. But private-equity players and others are investing in struggling nations where borrowing costs are high. Even in countries like Spain, where unemployment remains high, things look less bleak. As American investors give thanks for living in the land of plenty, it's worth looking across the pond for signs of renewed life.
The war of words over the definition financial regulators should use for the process of raising money from online backers escalated after the head of the crowdfunding industry’s trade group accused her peer-to-peer lending equivalent of being unhelpful and inaccurate. Julia Groves, chair of the UK Crowdfunding Association (UKCFA), was responding to claims by Christine Farnish, her counterpart at the Peer-to-Peer Finance Association that the Financial Conduct Authority displayed a worrying ignorance of the fast evolving market by using the word “crowdfunding” as a catch-all for both debt and equity fundraising.
“Any suggestion that crowdfunding is just about taking equity in early-stage businesses is both unhelpful and entirely inaccurate,” Ms Groves said. She added that there are crowdfunding platforms that do facilitate loans through debt-based securities, which raise money for existing businesses and infrastructure with relatively low-risk investment through debentures and bonds. The argument over the words used by the FCA in its consultation about regulation of the online fundraising market started when Ms Farnish criticised the FCA for using the phrase “debt-based crowdfunding” in its consultation on regulation. “Language is important,” she said. However, it is more than just a battle of semantics. Both sides are keen to see the market legitimised by government regulation but are concerned that providers, whether they be peer-to-peer lenders or crowdfunding marketplaces, will be penalised if the rules are poorly framed. Crowdfunding has become a catch-all term for various funding proposals, ranging from people taking equity stakes in new ventures to causes looking for donations to get off the ground. Kickstarter, the world’s largest crowdfunding platform, has a stated mission to help bring creative projects to life. Those pledging money over the platform tend to be offered free samples or special experiences rather than shares in return for their cash. Those that call themselves peer-to-peer lenders differentiate themselves from such crowdfunders by focusing purely on linking companies and individuals with those willing to lend them money at a certain rate of interest. The FCA tried to create a distinction between these different forms of web-based fundraising by announcing plans to create separate levels of regulation for debt and equity funding services, Ms Groves noted. This, she claimed, was more important than arguing whether debt-based fundraising should be classed as crowdfunding or peer-to-peer lending. “The characterisation of peer-to-peer simple loans versus debt-based crowdfunding models as low-risk versus high-risk is, in our view, a mistake,” she said. “Both models allow retail investors to access lower-risk assets, but where there is a debt security or a retail bond the funds are raised by a public limited company with a full offer document and higher standards of disclosure. That these should be treated as higher-risk than a simple loan is counterintuitive.”