The U.S. Banking industry is facing its most difficult challenge since 2008, when the global financial crisis began. It could be wise to purchase fundamentally strong foreign banks such as China Minsheng Banking, Commerzbank and Banco Macro. Continue reading ....
First Republic Bank's failure, along with the failures of Silicon Valley Bank and Signature Bank last March, has caused a major upheaval within the U.S. Banking Industry. First Republic Bank is the second largest bank failure in U.S. banking history.
Investors remain nervous about the viability and safety of the U.S. Banking System, despite assurances from Federal regulators. In this context, it may be prudent to invest in foreign bank stocks that are fundamentally sound, such as China Minsheng Banking Corp., Ltd.(CMAKY), Commerzbank AG(CRZBY), or Banco Macro S.A.(BMA).
Before we dive deeper into these fundamentals, let's talk about what's going on in the U.S. Banking Industry and why it might be prudent to purchase foreign bank stocks.
In the first quarter of 2009, over two dozen U.S. Banks saw their deposits decline by more than 5%. In the aftermath of bank failures, deposits have been transferred from smaller banks to 'too big to fail' banks. The U.S. Treasury Department stated that the banking sector has substantial liquidity, and stable deposits flows.
Investors remain worried about the stability of the banking system despite the announcement. Los Angeles regional bank PacWest Bancorp confirmed that it is exploring strategic options including a possible sale. To retain their customers, banks must offer higher rates of interest on savings accounts. It will also increase their cost of funding.
Money market funds are also a threat to banks, as depositors move their money into these funds in order to get higher returns. Money market funds offer higher yields than banks, with yields up to 4.6%. Total money market fund assets increased by $47.15 billion for the week ending May 3, 2023.
After the financial crisis, U.S. Banks are likely to be faced with a number of regulatory challenges, including increased capital requirements and supervision, risk management that is more stringent, increased disclosures, etc. Tighter credit requirements are expected to increase their operating costs and decrease their lending volume, further putting pressure on their profits.
Moody's has changed the outlook for the U.S. Banking System to Negative, from Stable. The reason given was a rapidly degrading operating environment. These factors suggest that buying foreign bank stocks may be prudent, as these banks will benefit from higher interest rates and growth in their respective economies.
Let's examine their basics in detail.
China Minsheng Banking Corp., Ltd. (CMAKY)
CMAKY, with its headquarters in Beijing, China offers a wide range of financial products and services for individuals, micro- and small businesses, corporations, government agencies and financial institutions. The company is divided into three segments: Corporate Banking, Retail Banking and Others.
CMAKY has a 0.30x trailing-12-month price/book, which is 67.8% less than the industry average of 0.94x. The 1.34x price/sales ratio is 29.4% less than the industry average. Its 5.70x trailing-12 month GAAP P/E ratio is 33% less than the industry average of 8.52x.
CMAKY’s total non performing loans (NPLs), for the first quarter ending March 31, 2023, were RMB69.27 ($9.99 billion), compared with RMB69.39 ($10.01 billion) in the fiscal year ending December 31, 2022. Total loans and advances made to customers were RMB 4,34 trillion ($626.30 Billion), compared with RMB 4,14 trillion ($597.44 Billion) for the fiscal period ended December 31, 2020.
Operating income increased by 0.4% to RMB36.77 ($5.31 billion) in the past year. The Bank's net profit, which is attributable only to its shareholders, has increased by 4.3% over the past year to RMB14.27bn ($2.06bn). Its EPS was RMB0.33, which represents a 6.5% increase year-over-year.
Analysts predict that CMAKY will increase its revenue by 11.5% to $21.89 Billion in fiscal 2024. The stock gained 34.2% in the past nine-months to close at $4.12 during the last trading session.
CMAKY POWR Ratings reflect a positive outlook. CMAKY's overall rating is B, which translates into a Buy according to our proprietary rating system. The POWR ratings assess stocks based on 118 factors, each of which has its own weighting.
It is ranked 6th out of 88 stocks within the Foreign Banks sector. It is rated A for Stability, B for Value, and C for Momentum. Click here to view the other ratings for CMAKY, including Growth, Sentiment and Quality.
Commerzbank AG (CRZBY)
CRZBY offers banking and capital markets products and services in Germany and abroad to small and medium-sized businesses, corporate groups and financial service providers. It is divided into two segments: Private and Small Business Customers and Corporate Clients. CRZBY's headquarters are in Frankfurt am Main.
CRZBY has a trailing-12-month price/book of 0.42x, which is 55.3% less than the industry average of 0.94x. The 1.32x price/sales ratio is 30.6% less than the industry average. Its 0.03x trailing-12 month GAAP PEG, meanwhile, is 92.3% less than the industry average of 0.40x.
CRZBY’s net interest income for the fourth quarter ending December 31, 2022 increased by 50.7% over the prior-year quarter to EUR1,96 billion ($2,15 billion). The company's total revenue increased 12.7% over the previous quarter, to EUR2.36 (US$2.59 billion). Operating profit for the company increased by 274.5% over the past year to EUR528 millions ($579.30million). The company's consolidated profit grew 12.1% over the past year to EUR472 millions ($517.86).
CRZBY reported a 0.6% increase in revenue year-over-year for the quarter ending March 31, 2023. The stock closed the last trading day at $10.85, up 68.2% over the previous year.
CRZBY POWR Ratings indicate solid prospects. The rating is B which in our rating system translates into Buy.
In the same industry it is ranked number 5. It is rated A for Growth, and B for Momentum and Sentiment. Click here to see the other ratings for Value, Stability and Quality.
Banco Macro S.A. (BMA)
BMA, with its headquarters in Buenos Aires (Argentina), provides a variety of banking products and services for retail and corporate clients in Argentina. BMA offers a variety of retail banking services and products, including savings and checking account, time deposits and credit cards, as well as consumer finance loans and mortgage loans.
BMA's 0.58x forward Price/Book is 34.7% less than the 0.88x average industry. The 0.90x price/sales forward is 52.5% less than the industry average of 1.90x. Its trailing 12-month non-GAAP P/E ratio of 4.18x is 48.4% less than the industry average of 8.09x.
BMA's net profit for the fourth quarter ending December 31, 2022 was ARS16.60 milliards ($72.71 millions). Operating income increased 79% from the previous year to ARS78.20 ($342.55 millions). Annualized returns on average equity (ROAE), and annualized returns on average assets(ROAA) were 16.9% and respectively. The total deposits of the bank increased by 13% over the past year to ARS148.40 million ($649.37 millions).
Analysts predict that BMA's earnings per share (EPS) for the quarter ending June 30, 2023 will increase 36.2% over last year to $0.71. The revenue for fiscal year 2023 will increase by 34.7% over the previous year to $2.57 Billion. In the last nine months, this stock has risen 46.4% and closed the last trading session on $18.31.
BMA's POWR ratings reflect this positive outlook. It is rated B overall, which in our proprietary system translates into Buy.
It is ranked 4th in the Foreign Banks Industry. It is rated A for Value, B for Growth, Momentum and Quality. Click here
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CMAKY's shares were unchanged during premarket trading on Thursday. CMAKY shares have gained 10.75% year-to-date compared to an 8.43% increase in the benchmark S&P 500 Index during the same time period.
About the Author: Dipanjan B.
Dipanjan has been interested in stock markets since he was a child. Dipanjan obtained a Master's Degree in Finance and Accountancy. Dipanjan is a financial journalist and investment analyst. He has a keen interest in reading about and analyzing new trends in the financial markets.