Financial Services Roundup: Market Talk

1300 ET – Profit across the banking industry fell 6% in 2022 compared with the previous year, according to Federal Deposit Insurance Corp. data released this week. Still, the $263B in profit was the biggest of any year except 2021. Higher rates meant banks could charge more on loans. And since banks were flooded with deposits in 2020 and 2021, many of them have been slow to raise rates on deposits. A crucial measure of bank profitability, net interest margin, widened to 2.95% in 2022 from 2.54% a year earlier. On 4Q earnings calls, many bank executives said they are preparing for more Americans to fall behind on loans, especially if the US enters a recession. Banks stashed away $51.6B for potential loan losses in 2022, after releasing $31B in provisions the previous year.

1255 ET – Canadian Western Bank’s 1Q results were weaker than the beat would suggest, Meny Grauman of Scotiabank says in a report. The analyst says Canadian Western earnings beat Scotiabank and consensus by 12%, but its 1Q result is “actually weaker than it seems given the benefit from a loan loss provision recovery.” He says the recovery got a boost to net interest margin by 3 bps, without which, its margin would have been down 4 bps Q/Q instead of just 1 bp as reported. Shares drop 5.1% to C$26.41.

1147 ET – National Bank of Canada’s credit performance stood out among peers in 1Q, Paul Holden of CIBC says in a report. Total personal and commercial loans ratio of 16bps was below the group average of 22bps and down 1bp quarter-on-quarter, the analyst says. “National Bank was the only bank to report a quarter-on-quarter decline in impaired PCLs and took advantage of that to build performing allowances more than others,” he says. Meanwhile, net interest income increased 9%, above CIBC’s estimate of 7%, and above the peer average of 2%. Shares are down 0.2% at C$101.66, but up over 11% in the year.

1044 ET – Mutual funds and exchange-traded funds aligned with environmental, social and governance principles continue to gain share despite a rebound in non-ESG equity flows, Goldman Sachs analysts say in a note. Environmental, social and governance mutual funds and ETFs gathered $10.2 billion in January, while non-ESG equity flows stood at $9.8 billion, the U.S. bank says. Passive and active ESG flows were identical at $5.1 billion, which shows signs of a potential return to a more balanced mix of flows between both investment styles, it adds. Climate-focused strategies continue to lead the way in attracting thematic flows, Goldman Sachs says.

0953 ET – Metro Bank drops 4% after what analysts at Barclays described as mixed full-year results. Metro’s second-half underlying loss before tax was better than the market expected, Barclays says. The company’s new 2024 mid-single-digit return-on-tangible-equity target was also welcome, but uncertainties remain around the outlook for 2023 on issues such as cost inflation and capital, Barclays says. “We note outperformance [versus the sector in the year to date], with expectations building into results,” Barclays analysts say in a note.

0855 ET – Reports of Macquarie considering a takeover bid for M&G will raise questions at the British investment manager’s upcoming results, Citi says in a note. “Both M&G and Macquarie have declined to comment so far but U.K. takeover rules will likely result in a comment at some stage,” analyst Andrew Baker says, adding it will undoubtedly be a source of questioning on March 9 at the new CEO’s first results presentation. Citi rates the stock neutral. Shares are flat at 219.3 pence.

0745 ET – M&G shares edge 0.2% lower following reports that Australian banking group Macquarie was considering a potential takeover of the FTSE 100-listed investment manager. Macquarie is at the early stages of exploring an approach to M&G, which has a market capitalization of just over GBP5 billion, Sky News cited sources as saying. “Bid chatter about Macquarie potentially lining up a takeover bid for M&G didn’t trigger a rally in the target’s share price,” Russ Mould, investment director at AJ Bell, writes. “That suggests the market is sceptical about a deal emerging, or that a bid premium won’t be generous.”

0655 ET – Metro Bank’s 2022 results showed strength in execution to shift the asset side to higher yielding loans and the liability side to lower cost deposits, says Jefferies in a note. It sees the bank’s guidance of mid-single digit return on tangible equity in 2024 as a good staging post. “The drivers are margin expansion as the bank capitalizes on its low cost deposit base (…) and generates operating leverage,” say analysts at the U.S. bank. Jefferies, which expects Metro Bank to be profitable in 2023, rates the stock buy and raises its target price to 190 pence from 148 pence. Shares fall 3.7% at 144.4 pence.

0517 ET – Schroders’s full-year results were mixed, Panmure Gordon says. The asset manager’s wealth business made profits below expectations and its capital business reported flows and period-end assets under management short of forecasts, Panmure says. Meanwhile, the company’s preferred definition of operating profit–before central costs–was shy of consensus, apparently mainly due to costs, the brokerage says. “It’s a mixed bag at best today,” Panmure analyst Rae Maile says in a note. Shares fall 3%.

0505 ET – Beazley’s guidance seems prudent, says Jefferies in a note after the specialty insurer said it sees net premium growth at mid-20s and a high-80s combined ratio for 2023. “We believe that the combined ratio guidance contains some prudence, given another year of excellent rate increases in 2023 and heavy industry claims last year,” say analysts at the U.S. bank. They add the group has done this before, guiding to a COR of around 90% at the start of 2022 to then improve it to high-80s, despite losses from Hurricane Ian and Russia/Ukraine. Shares drop 8.5% at 624.5 pence and sit at the bottom of the FTSE 100.

0407 ET – London Stock Exchange reported its full-year results broadly in line with market expectations while its guidance update shows a better-than-expected upgrade in 2023, Jefferies analysts say in a note. The FTSE 100 stock-exchange and financial-information company reported a total income in line with consensus driven by a positive underlying performance in its core data and analytics division and post trade segments, they say. Looking ahead, 2023 revenue growth guidance is revised to 6%-8% from a market consensus of around 6%, they add.

0351 ET – The FTSE 100 falls 0.3% to 7889 points as traders wade through a slew of corporate earnings. Beazley drops 4.8% after the insurer said net profit slumped 48% in 2022 on investment losses. Flutter Entertainment declines 3.8% after the gambling company posted a 17% drop in full-year adjusted pre-tax profit. Schroders declines 3.2% after reporting a 23% decline in annual pre-tax profit as assets under management fell. Consumer healthcare group Haleon and London Stock Exchange shed 2.9% and 0.9% respectively after posting full-year earnings. Building materials company CRH jumps 9.9% and turnaround specialist Melrose Industries gains 3.5% after both companies posted well-received results.

0340 ET – Scor’s miss at its property & casualty business at its fourth quarter results raises questions, coming in worse than consensus despite natural catastrophes being lighter, Citi analysts James A Shuck and Punit Rajesh Pandya say in a note. The French reinsurer’s headline combined ratio in 4Q of 96% was 2.1 percentage points worse than consensus, explained by a higher attritional losses, while its catastrophes came in lower than consensus, they say. Scor’s solvency ratio of 213% missed consensus of 222%, and the dividend cut by 22% on year was in line but poorly explained, they say. Shares fall 3.1% to EUR22.47.

0336 ET – Beazley reported a 2H pretax profit 28% above market views boosted by better investment income, RBC Capital Markets analysts say in a note. The specialty insurer’s combined ratio was in-line with both market expectations and guidance, but premiums were 9% weaker-than-expected due to a slight contraction in 4Q, they add. “Most key metrics were in-line but the growth slowdown in 4Q might attract some scrutiny. Still a positive, albeit largely expected, update”, they add.

Original article here: https://www.wsj.com/articles/financial-services-roundup-market-talk-cb552250

Author: The Wall Street Journal

Rae Maile

Managing Director, Research Analyst, Financials & Tobacco