1. Expansion of QE, including the "dangerous experiment" of negative rates,
risks flipping from a positive to a negative for many Eurozone banks –
prompting intense battle to shift models to Fees and Trading. We're ~ 3-8 %
below consensus 16e NII fro some regions (eg Spanish, Swedes). Prefer some
wholesale/restructuring/ $ earners.
2. Market is still not bearish enough on effect on bank revenues and bad debts
from EM due to China slow down. Prefer CEE over STAN or ING.
3. UK divis may disappoint more than Eurozone – contrary to consensus – as
stress tests are increasingly the gate on payouts. Below consensus for BARC,
LLOY, STAN. Ahead for Natixis, Danske (Since our Outlook we have added to
our Most Preferred List), KBC, ISP, UBS.
4. Fears of a new wave of regulations ("Basel IV") could be overstated as policy
makers re-assess impact of regulations on the economy. Rather, local macroprudential
rules in UK, Neths, Swiss, & Sweden pose the key risks. Prefer
French (BNP, Natixis); Nordics, BARC more disadvantaged.
5. Market set to be positively surprised by a more aggressive sell down of noncore
assets prompted by ECB-led risk budgeting, stress tests and new teams.
But execution to take out costs will be key. Positive surprises for Unicredit, CS
possible.
6. Rising Brexit fears may prove a bigger risk to valuations of UK asset
managers than UK banks. Risks for Schroders, Aberdeen, Henderson.
7. SWF redemptions may be a more material risk than retail bond mutual
funds – but mutual fund stress tests still likely on concerns on corporate bond
market liquidity. Risks for Aberdeen, Ashmore.
8. Banks will launch many pilots & form partnerships - particularly around P2P
& Roboadvisers - given anxiety that digital disruptors will skim the cream of
banks' profits and concerns on re-engineering legacy systems.
9. Cross-border Eurozone M&A should disappoint. Banking markets could
become more not less balkanised due to SSM, US IHC and complexity.
Challenging for DB. Capital markets union more promising.
10. Investors may start to reward European banks for being lower risk, helping
beta fall further and boosting valuation of divi payers. Prefer those where
we're ahead on divis most.