Insights: Europe

Notes from the Field: At Home with the Challengers of U.K. Banking

During a recent trip to London, we had the opportunity to sit down with executives from six UK-based banks, including teams from two High Street banks and four from what are commonly referred to as “Challenger banks”.  In this note, we review our stance on U.K. banks, provide a brief breakdown of the market, and discuss our key takeaways from the trip.

Wells Fargo/Deutsche Bank: Some Thoughts on Regulatory/Litigation Risk

Recent events impacting Deutsche Bank (DBK.GY) and Wells Fargo (WFC) underscore – yet again – that the mega-cap banks, particularly those with (1) global investment banks and/or (2) operating in the U.S., continue to face significant regulatory/litigation risk, irrespective of quality. In general, these two categories of banks, which overlap, are not growing very fast (in some instances shrinking), have mid-single digit ROEs, and/or continue to…

On HBG, Post-Brexit Rebound Portfolio Changes: Increasing Cash by Reducing South America; U.S.

As previously disclosed, the Hamilton Capital Global Bank ETF (HBG) entered the Brexit referendum vote on June 23rd with ~12% cash and materially underweight U.K. banks (see our July 6th HBG Manager Comment). This provided an opportunity to strategically deploy cash/add positions after the “Leave” side declared victory and global bank stocks declined sharply. In the two trading days following the Brexit vote, the global banks…

One Chart on Stress Test Highlights the Diversity of European Banks

The Hamilton Capital Global Bank ETF (HBG; TSX) is expected, over time, to hold ~25% exposure to European banks. Prominent among the ETF’s identified objectives is to generate yield and to limit volatility. As a result, in the European portfolio, HBG places a significant emphasis on Northern European countries which are – on balance – wealthier than Canada/U.S. and have higher forecast GDP growth, and whose…

HBG: Post-Brexit Portfolio Changes

The Hamilton Capital Global Bank ETF (HBG) held almost 12% cash leading up to the Brexit vote on June 23rd, which provided an opportunity to strategically add positions after the “Leave” side declared victory and equity markets and bank stocks declined sharply. From Thursday June 23rd to Monday June 27th, the global banks experienced a sharp correction, falling 11%. The European banks took the brunt of…

European Banks: Negative Rates – Four Charts Showing They are Not as Menacing as Advertised

In our Insight “European Banks: Sector Profitability Almost “Normal”, Reaching ~€90 bln in 2015”, we highlighted that the sector has seen  ‘core’ earnings recover to ~€90 bln, which represents a near complete recovery in earnings to pre-cycle (2007) levels. However, at the same time, European bank index levels are closer to levels last seen at the peak of the sovereign debt crisis (2011/2012).

European Banks: Sector Profitability Almost “Normal”, Reaching ~€90 bln in 2015

Macro issues continue to dominate European bank valuations as the sector remains in focus, particularly following the recent Brexit vote. Given all of the concerns over European banks, it is worth noting that profitability for the sector has almost completely recovered to pre-cycle levels. In 2007 (the last “normal” year), the European banks made just over €100 bln in “core” earnings. At the same time, the…

Thoughts on Brexit (Entering Referendum with 12% Cash; Underweight U.K.)

In the Hamilton Capital Global Bank ETF (HBG; TSX), we went underweight U.K. banks heading toward the Brexit referendum, with just 3% of exposure; over time, we would expect this to be closer to 5-7% (see our HBG Manager Comment, “U.K. Banks: Remaining Underweight for Brexit as CDS Spreads/Polls Diverge”, June 8th). Here are some preliminary thoughts on implications of Brexit, particularly as related to HBG. First, the…

U.K. Banks: Remaining Underweight for Brexit as CDS Spreads/Polls Diverge

Given the United Kingdom’s superior long-term growth profile and favourable demographics, we would expect the Hamilton Capital Global Bank ETF (HBG; TSX) to – over time – have an allocation to U.K. banks of between 5 and 7%, including the ‘challenger’ banks. That said, since the fund was launched, the portfolio weighting to U.K. banks has been closer to 3% as we seek to reduce the…

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