HSBC Holdings Plc, UBS AG and ING Groep NV are among Europe’s long-term winners in the banking industry this year, Berenberg Bank said.
KBC Groep NV, Swedbank AB, Svenska Handelsbanken AB and Nordea Bank AB are the other lenders that are focused on generating returns irrespective of economic-growth levels and managing risk rather than regulation, Berenberg analysts including Nick Anderson wrote in a follow-up report to its Jan. 9 note on the industry.
Berenberg also picked different lists of winners and losers based on possible outcomes from 11 scenarios affecting the economy and industry this year. The scenarios included economic growth, rising interest rates and the European Central Bank’s probe of lender assets, the report said.
The Frankfurt-based ECB is conducting a three-stage assessment of bank assets before it assumes oversight of about 130 lenders across the 18-member euro area in November. Improvement in the currency bloc will fuel a 3.2 percent expansion in the global economy this year, according to the World Bank’s projections. The ECB has pledged to leave interest rates at a record low for an extended period.
Banks most vulnerable to loan-loss writedowns are those in Austria, Belgium, Denmark, France, Hungary and the U.K., according to the Berenberg report.
“Credible asset values are key to restoring faith in equity values,” the analysts said.
German and Italian banks are likely to benefit from a potential increase in rates, based on a comparison of the ratio of overnight deposits to total loans, Berenberg said. The ECB held its benchmark interest rate at 0.25 percent last week and President Mario Draghi said risks to the regional economy remain on the downside.
While Spanish, Italian and Austrian banks will benefit most from lower loan-loss charges, an estimated 50 percent decline in provisions is already factored into share prices, they said.
Banks that carry the highest sovereign-credit risk as a percentage of tangible equity include Credit Agricole SA, Skandinaviska Enskilda Banken AB, Banco Comercial Portugues SA, Banco BPI SA, Banca Monte dei Paschi di Siena SpA and Erste Group Bank AG. They will be sensitive to a selloff in government debt.
Stress in wholesale funding markets would hurt banks in the so-called peripheral areas of the euro zone more than northern European banks, the report said.
The greatest restructuring opportunities are among Italian banks, Raiffeisen Bank International AG, Deutsche Bank AG, UniCredit SpA, Societe Generale SA, Credit Agricole, Commerzbank AG and Barclays Plc. Nordic banks are most vulnerable to structural change in its industry, according to the analysts.
The implementation of a single bank supervisor in the region could trigger a wave of bank mergers, ECB Vice President Vitor Constancio said last month.
While large industry mergers are unlikely “given that regulators remain focused on repairing bank balance sheets,” Italian banks, selected Spanish lenders, Raiffeisen and Danske Bank A/S are most vulnerable, Berenberg said.
“An unexpected changes in capital regulations remain a risk for banks given regulators’ determination that surplus capital accrues to them and not to shareholders,” the analysts said. Those most vulnerable to such changes are French banks, Barclays and Commerzbank, Berenberg said.