*No big surprises
French banks’ Q4 results will be followed (and are therefore likely to be eclipsed) by their capital markets days (see Sober ambitions). Divisional targets will be useful but we believe that the most significant targets have already been largely announced: 1) ET1 targets of 9.5% (CA) to 10% (BNPP, SG); 2) pay-out targets of 35% at CA, ‘a little more than 30–40%’ at BNPP (say 35–45%), 35–50% at SG and 50% at Natixis; 3) ROE of 10% at SG, probably 10–11% at BNPP. For CA a level of c. 12% ROTE is the most likely. Our recent visit to French banks suggests that surprises on these key targets are unlikely.
*Q4 is usually on the weak side
We do not believe that French banks’ CIB divisions will have been particularly impressive: client activities are always more subdued in Q4 and lending activities may have slowed due to the weak economy, margin pressure and the festive season. However, market parameters remained strong (spreads tightening, market levels higher and volatility at a favourable level) probably favouring SG vs peers. Costs and provisions are usually seasonally high in Q4 and may also be impacted by restructuring (BNPP, Natixis). Finally the USD weakness (down c. 5% QoQ) is likely to have impacted revenues (BNPP most exposed, but also Natixis due to its structured finance business).
*Stock calls: long SG, buy Natixis on weakness, CA: pause for breath
Likely underwhelming results at Natixis (Outperform) will not alter our conviction that the yield story will play out as we expect, i.e. c. 40% of market cap will be returned to shareholders by end 2017. The Coface IPO could release 60bp of capital in H1 14 and could prove a catalyst. SG (Outperform) should have a decent Q4 in CIB, and also, we believe, no accidents on the cost of risk in France, both sensitive items. These should help to more than offset a potential poor cost of risk in Romania. Following CA’s sharp bounce YTD (+3% relative) we believe that delivery is now needed on capital improvement.