Zacks Industry Outlook Highlights: UBS, Barclays and HSBC Holdings
CHICAGO, Feb. 28, 2013
CHICAGO, Feb. 28, 2013 /PRNewswire/ --Today, Zacks Equity Research discusses
the U.S. Foreign Banks, including UBS AG (NYSE:UBS), Barclays PLC (NYSE:BCS)
and HSBC Holdings plc (NYSE:HBC).
A synopsis of today's Industry Outlook is presented below. The full article
can be read at
In order to plan the path to future growth, banks all over the world are
seeking new strategies to lessen the regulatory burden. Almost every bank has
its focus on capital efficiency. And most of the foreign banks are adopting
reconstruction-by-asset-sale strategies to strengthen their capital ratios.
Self-protective efforts are significantly helping these banks to stay afloat,
though at the cost of moderating top and bottom-line growth. Moreover, the
industry remains thwarted by non-stop challenges that are keeping its
The latest deterrents, nagging macroeconomic issues -- the European sovereign
debt crisis in particular -- and regulatory pressures, are continuously taking
a toll on the financials of many banks, resulting in the sector's
As growth remains the primary focus of central banks, interest rates are not
expected to increase at least in the next couple of years as inflation is not
a major concern for most of the countries other than a few emerging economies.
Thus, banks operating in a low interest rate environment will not be able
boost revenue through interest income. On the other hand, non-interest revenue
sources will be limited by regulatory restrictions.
Banks in emerging economies will, however, not face significant challenges
related to interest income due to a not-too-low interest rate environment.
Anti-inflationary measures of the central banks of these economies are
expected to keep interest rates high. However, non-interest revenue challenges
Complying with stringent regulation is not a major concern for most of the
banks, but it would be difficult to optimize business investments in the way
banks run their businesses. So banks will need to reassess and restructure
their operating models to be successful, which will take considerable time.
The Recent Past and Near Future
Despite a number of high-profile scandals, many of the world's largest banks
were able to gain investors' confidence in 2012 as reflected by their share
price performance. Many foreign banks, including giants like UBS AG
(NYSE:UBS), Barclays PLC (NYSE:BCS) and HSBC Holdings plc (NYSE:HBC), ended
the year with substantially higher share prices compared to the beginning of
the year. Also, the MSCI World Bank Index increased more than 20% in 2012.
However, with respect to the financial health, less resilience was seen during
the year than was anticipated. Growing challenges related to funding,
still-high costs despite belt-tightening through layoffs and limited access to
revenue sources kept bottom-line growth under pressure.
The upcoming quarters don't look any better, with several negatives hampering
the sector like asset-quality troubles, high borrowing costs, steeper expenses
and weak loan demand. But thanks to worldwide regulatory reform, the sector
has at least entered a transformation phase with the restructuring efforts in
place. Needless to mention, an essence of growth has yet to be felt.
On the Fundamental Side
Looking at the fundamentals, a rising risk-aversion tendency has still kept
client activity slowed, resulting in weak trading volumes and subdued credit
demand. Also, learning from past experience, banks are now more cautious about
Consequently, lower business activities and anticipated subdued profitability
are making foreign banks less appealing to investors. Valuation multiples of
these banks will continue to reflect the fundamental challenges at least
through the first half of 2013.
The growth potential of some non-U.S. banks could be restrained by higher
reserve requirements and outsized losses related to capital markets. But
strict lending limits as part of the regulatory overhaul as well as greater
transparency in regulations could strengthen the fundamentals of many sector
participants. Eventually, these are expected to create a less risky lane for
the overall industry.
As inter-country investment walls have fallen, some large non-U.S. banks are
freely expanding beyond their domestic boundaries through mergers and
acquisitions to utilize regional regulatory benefits. On the other hand,
regulatory pressure to focus more on the home market is forcing some global
banking giants to sell overseas assets. Accordingly, banks are trying hard to
restructure their operating models and address funding needs.
While the sector saw a moderate recovery in 2010, the performance in 2011 was
among the poorest in its history. Then in 2012, the industry came across a
number of new difficulties. But a risk-averse approach helped it perform
better than 2011.
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