| --- |
| title: "House Oversight: Estate Documents (Nov 12) (HOUSE_OVERSIGHT_014860)" |
| source: "House Oversight: Estate Documents (Nov 12)" |
| sourceUrl: "https://oversight.house.gov" |
| date: "2026-01-01" |
| category: "House Oversight" |
| eftaNumber: "HOUSE_OVERSIGHT_014860" |
| ocrPages: 1 |
| ocrChars: 1802 |
| ocrElapsed: 0.0 |
| parseTier: "external-fixhub" |
| engine: "Digital-native (Concordance TEXT export, not OCR)" |
| externalSource: "house-official-containers" |
| externalLicense: "US Government work (public domain, 17 U.S.C. sec. 105)" |
| externalCredit: "House Oversight Committee, official estate production" |
| externalUrl: "https://oversight.house.gov" |
| --- |
| |
| From: Ens, Amanda |
| Sent: 4/7/2017 12:24:59 PM |
| To: jeffrey E. [jeeyacation@gmail.com]; Richard Kahn |
| Subject: EU BANKS: BIG EQUITY OUTFLOWS BUT REMAIN UPBEAT ON REFLATION TRADE: SALES TOP PICKS = SOC GEN, |
| INTESA, NORDEA |
| Attachments: image001.gif; image001jpg01D2AF7627BB3E30.jpg; image012png01D2AF7627BB3E30.png; |
| image014jpg01D2AF762A2ADEAO.jpg; image015jpg01D2AF762A2ADEAO.jpg; image016jpg01D2AF762A2ADEAO.jpg; |
| image017jpg01D2AF762A2ADEAO.jpg; image018jpg01D2AF762A2ADEAO.jpg |
| Importance: High |
| We remain positive on banks that can make acceptable returns in the current environment and are geared |
| into the upside when rates begin to recover... ING, KBC, Intesa, Unicredit, SocGen, Erste, BKIR are |
| all Buy rated. |
| Global Equities |
| Specialist Sales - European Financials |
| MAR disclosure |
| EU BANKS: BIG EQUITY OUTFLOWS BUT REMAIN UPBEAT ON REFLATION TRADE |
| Spec Sales Comment: |
| Big Equity outflows but we see this is a pause not a reversal |
| BofAML latest flow show data this morning shows the largest equity outflows in 40 weeks and first |
| outflows YTD (click here). Our BofAML Bull & Bear Indicator is now at 7.1, the highest level since Jul'14 |
| and not far from "sell" signal. So is this just a pause for breath in the reflation trade? BofAML strategists |
| think so. In our updated thoughts this morning we think reflation is real so stay long equities, short rates, |
| selectively long USD (click here). |
| Chart 12: BofAML B&B Indicator (scale from 0 to 10) |
| 13mdt |
| Feb.16 lows |
| Today |
| 10 |
| Extreme Extreme |
| Bearish Bullish |
| Source BotA Merniloynch Global Investment Strategy |
| Why do we remain bullish the reflation trade? |
| The main reasons for equity investor concern in recent weeks = the gap between hard and soft data, plus |
| the delay in the Trump fiscal package |
| HOUSE OVERSIGHT 014860 |
| Chart 1: The gap between hard and soft data is a concern to investors Chart 2: Mediocre US Q1 data partly down to seasonal adjustments |
| Residual seasonality in GDP growth from 1985 to 2015 |
| 25 |
| 2 08 |
| 15 06 |
| 1 |
| 04 |
| 05 0 02 |
| -0 5 0 |
| -1 |
| -1 5 -0 2 |
| -2 -0 4 |
| -2 5 01 00 01/02 01104 01/06 0108 01/10 01/12 01/14 01/16 -0 6 |
| -0 8 |
| —Surveys & Business Cycte Indicators —Hard Data |
| -1 |
| Scs,oce SoM Mend Lynch Glcbal Research Bloortf-ri |
| 01 |
| Source Cleveland Federal Reserve |
| • GDP |
| • Pnvate Investment |
| • Government consumptron & investment |
| 02 |
| 03 |
| 04 |
| We continue to believe in the reflation theme because: |
| 1. Strength in the global economy is genuine - European PMIs are at 6 year highs, Chinese and |
| Japanese PMIs continue to improve too. In fact —90% of PMIs globally are above 50 and 60% have |
| increased in the last 3 months. |
| 2. Earnings revisions and Global Wave point to continued upturn - earnings revisions now |
| above 1.0 for the first time since 2011. |
| 3. We expect Trump to deliver on tax, even if it is smaller than hoped for - should such a |
| package be put together it would likely support the Trump trade once again after the failure to reform |
| Obamacare |
| 4. Bond markets are being too sanguine about the likely pace of Fed tightening - the Fed |
| funds curve is once again well below the dot plot. We continue to see upside in yields if and when the |
| market becomes more convinced that the soft data is right. |
| Chart 7: Bond yields have pulled back from FOMC highs |
| 2.7 - |
| 2.5 |
| 2.3 |
| 2.1 |
| 1.9 |
| 1.7 |
| 1.5 |
| 1.3 |
| fAINA |
| CO CO CO CD GO tO CD CO CO CO CO CO N.- N.- |
| —UST 10y yield |
| C 9.4. 5, 1 .7 3-3 <-81A |
| Source Btoombero |
| Chart 8: As the market refuses to price the dot plot |
| 250- |
| 200 - |
| 150 |
| 100 - |
| 50 |
| 1 |
| 0 |
| —Current market pncmg |
| Median dot. Mar-17 SEP |
| —BofAML forecast |
| # of meetings into tightening cycle |
| 4 8 12 16 20 24 |
| Source SofA !item' Lynch 7,PRearcti Bloomberg |
| European Banks holding up better than US Peers on pull back |
| In Banks, the reoccurring feedback from investors has been that clients have rotated out of US banks and |
| into European banks. This conflicts with our latest Fund Manager Survey which suggested allocation to |
| European Banks fell the most of any sector MoM in the first two weeks of March, however, its true |
| European Banks have quickly reversed the performance gap to US peers. The spread between the SX7E |
| and S5BANKX Index is back to pre-US election levels. |
| What the EU banks bulls are saying: |
| EUR rates are going higher it's just a matter of timing, positive EPS revisions continue, EU is starting to |
| see pockets of volume growth and asset yield recovery, credit spreads have been tightening YTD and |
| HOUSE OVERSIGHT 014861 |
| attractive valuations of EU banks vs. US peers (EU banks on 12.0x 2017E PIE vs. US Banks on -14x and |
| some EU banks still on a large discount vs 10-year historical median P/B valuations). |
| What the EU banks bears are saying: |
| EU macro declining, US lead re-flation trade cooling (tax, deregulation, healthcare headwinds) and toppy |
| multiples/high ownership of EU banks going into Q1 results. They believe the pressure will be off Draghi to |
| act on the deposit rate if the macro starts to reverse which may cause people to push back the assumed |
| timing of European rate hikes and tapering. The French election is also a big risk factor which is clearly |
| holding back some global investors from buying into Europe. |
| Rates Update |
| Consensus has started to factor in the higher rate outlook in Europe. The bears are pointing out that these |
| probabilities have fallen a lot this week while the bulls argue it's just a matter of timing. |
| I monitor market expectations for ECB normalisation in rates using the World Interest Rate Probability |
| (WIRP) function on Bloomberg. It's been very volatile recently. I currently see the market is pricing a |
| 16.6% probability of a EUR rate hike before the end of 2017 (row 6, column 2 below). a 32.7% probability |
| in the next 12 months (row 9, column 2) and a 67.6% probability in the next 18 months. |
| Ei Ir.-. |
| • Instrument |
| 3 Future Implied Probability |
| Current Implied Probabilities |
| 1) Overview |
| OIS: Eurozone OIS - Deposit F( |
| Dates o Meeting Calculation |
| Meeting Prob Of Hike Prob of Cut |
| 04/27/2017 0.0% 2A' |
| 06/08/2017 0.0% 3.3% |
| 07/20/2017 2.1% 3.2% |
| 09/07/2017 7.2% 3.1% |
| 10/26/2017 8.8% 3.0% |
| 12/14/2017 16.6% 2.8% |
| 01/25/2018 21.6% 2.6% |
| 03/08/2018 29.4% 2.3% |
| 04/26/2018 32.7% 2.2% |
| 06/14/2018 41.4% 1.9% |
| • Historical Analysis for Meeting |
| :17/2017 |
| ) Add |
| ikal ted |
| -0.6 |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| • Current Rate -0.40 |
| ,•2 rates |
| In Based on rate -0.40 |
| .)-1 '07/2017 |
| -0.5 |
| 2.4% |
| 3.3% |
| 3 2% |
| 3.1% |
| 3.0% |
| 2.7% |
| 2.6% |
| 2.3% |
| 2.2% |
| -0.4 |
| 97.6% |
| 96.7% |
| 94,6% |
| 89.7% |
| 88.2% |
| 80.6% |
| 75.8% |
| 68.2% |
| 65.1% |
| •4) Add/Remove Series |
| -0.3 -0.2 BPS• |
| 0.0% 0.0% -0.2 |
| 0.0% 0.0% -0.3 |
| 2.1% 0,0% -0.1 |
| 7.1% 0.1% 0.4 |
| 8.6% 0.2% 0.6 |
| 15.6% 1.0% 1.5 |
| 19.6% 1.9% 2.1 |
| 25.4% 3.7% 3.1 |
| 27.5% 4.8% 36 |
| 32.5% 7.8% 5.0. |
| As a reminder our research team estimate that euro area banks could see as much as €26bn in earnings |
| uplift from a return of ECB rates to zero. This would represent a 25% uplift to profits - a big prize when it |
| happens (click here for report). |
| What to buy in banks if you share our view on sustained reflation? |
| We remain positive on banks that can make acceptable returns in the current environment and are geared |
| into the upside when rates begin to recover... ING, KBC, Intesa, Unicredit, SocGen, Erste, BKIR are |
| all Buy rated. |
| Top picks: |
| Buy Soc Gen, PO C55 |
| • Still fourth worst performer in the SX7E YTD due to French election overhang. |
| • Yet reported a strong set of Q4 results, beating on P&L, capital and dividend which comforts our |
| view that the stock is set for re-rating. |
| • Continues to tick a number of boxes offering a dividend yield of 5.1% in 2017E, an attractive |
| valuation of 0.79x 2017e TNAV, solid capital position and has strong EPS momentum. |
| • Our EPS (2017 and 2018) is 10% above consensus with further upside from CIB, Russia recovery |
| and Corporate Center |
| • Stronger capital position allows for growth (organic and bolt-on M&A) |
| Buy Intesa, PO C2.80 |
| • On NPEs, capital, profitability, operating trends, and cash payouts, Intesa stands above other |
| Italian banks in our view. |
| HOUSE OVERSIGHT 014862 |
| • ISP will pay a dividend (confirmed) equivalent to an 8.0% yield vs. a 4.0% European banks |
| average and on our estimates |
| • Italian banks are trading at a PNAV discount to ISP but their profitability is half that of ISP's and |
| their capital is lower |
| • ISP retains the lowest (gross/net) Italian NPE ratio and in 4Q16 NPE were down yoy by 8% |
| gross/10% net. |
| • Shares have suffered from the uncertainty related to a possible tie-up with insurer Generali - still |
| the seventh worst performing bank in the SX7E YTD |
| Also remain very bullish on market exposed Nordic banks |
| This morning we reiterate our preference for Nordic banks (click here for report) with more market |
| exposed revenues and reiterate our Buy ratings on Danske Bank, Nordea, DNB and SEB ahead of Q1 |
| results. We expect to see good fee /trading income in Q1 on the back of strong AUM and continued high |
| activity levels. |
| The relative P/E premium of Nordic banks vs. the sector is now 7% vs. a long term average of 11%. We |
| also note that Nordic banks are expected to continue to deliver close to 4% better ROTE (2017-19E) and |
| have a lower beta. |
| Chart 1: Danske Bank remains best capital return story (Capital buffers as `)/0 of market cap) |
| 300 |
| 200 |
| 100 |
| 00 |
| 208 |
| 69 |
| 13.8 |
| 11.0 |
| DANSKE SHBA |
| 10.8 10.8 10.4 10.3 |
| 5.8 6.4 6.1 6.0 |
| 4.9 ZIEN |
| SEBA NDA DNB SWEDA |
| Buffer 17E Divi + Buyback (not yet executed) Buffer + Dii + Buyback (not executed) |
| Source. SofA Merrill Lynch Global Research estimates |
| Please let me know if you would like to discuss in more detail or meet any of our analysts on |
| the above reports. |
| Kind regards, |
| Russell Quelch |
| European Financials Specialist Sales |
| Bank of America Merrill Lynch |
| Global Financials Specialist Sales Team: |
| Russell Quelch - European Banks — London |
| Juliette Nichols — European Insurance, Div Fo, |
| Scott Smith — US Financials — New York |
| The power of global connectionsTM |
| HOUSE OVERSIGHT 014863 |
| Bankof America |
| Merrill Lynch |
| This material was prepared by Sales personnel of Bank of America Merrill Lynch and is subject |
| to the terms available at the following link: |
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| message. |
| HOUSE OVERSIGHT 014864 |
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