麦格理-美股-银行业-综合银行：把风暴赶出去-2019.1.1-24页.pdf

Please refer to page 21 for important disclosures and analyst certification,or on our website January 2019 United States EQUITIES Estimate Revisions Source:Macquarie Capital(USA),January 2019 Universal Banks Stock Performance Source:FactSet,Macquarie Capital(USA),January 2019 Analysts Macquarie Capital(USA)Inc.David Konrad,CFA +1 212 231 0525 Jack Walsh +1 212 231 1840 Universal Banks Ridin the storm out Upgrading C to OP;Downgrading BAC to N Key points Concerns of global growth and trade wars have driven stocks lower in 4Q18.This risk-off environment has led to widening valuation gaps Upgrading C to OP,trading at 89%of TBV despite expectations of 20%TBV growth through 4Q20 due to buybacks and potential benefit from card repricing We are downgrading BAC to N due to a premium valuation,exposure to flattening curve and less expense leverage going forward Event It was a brutal end to 2019,as universal bank stocks were down approximately 19%in 4Q,underperforming the S&P by 500bps.Although potential peak earnings concerns initially weighed the group,the downdraft gained steam due to global economic growth and geopolitical uncertainty.The market volatility led to a material slowdown for underwriting and a choppy trading environment led by declines in prime brokerage as hedge funds de-levered.As a result,we are lowering estimates across the board for the quarter.Universal bank valuations have reached a multi-year low at 8.3x 2019E,which is 56%of the S&P multiple vs.near 70%historically.Moreover,Citi and GS are now trading below current TBV while MS is trading only modestly above our forward TBV estimate.This risk-off environment has led to outperformance for JPM and BAC,leading to a widening valuation gap and a change in our investment thesis.We are upgrading Citi to OP(from N)and downgrading BAC to N(from OP).Impact Time to go to the Citi.We are upgrading Citi to OP,partly due to valuation coupled with outsized buybacks and ability to improve yields in cards despite a more challenging rate environment.The stock underperformed peers in 2018,down 27%versus the group-19%,driving a 13%discount to peers.The stock is trading at 89%of TBV despite excess capital and expected returns on capital in the low double digit range.Despite uncertainties in the macro environment,we believe Citis stock is compelling due to 1)improving performance in cards;2)nearly 20%expected TBV growth by 4Q20;3)continued operating leverage;4)credit risk concerns overdone in valuation;and 5)strong risk/reward relationship.Strong catalysts are looking backwards rather than forward.We are downgrading BAC to N based on recent outperformance in a risk-off environment driving a premium valuation.BAC is trading at a 10%premium to peers on 2019E and a 28%premium on TBV.Although we believe a premium valuation is warranted due to above peer returns coupled with a lower credit risk profile,we believe the premium valuation may be stretched(20%premium to Citi versus 12%historically)owing to fewer catalysts going forward.The asset sensitivity thesis may be played out assuming we are in the later stages of the Fed rate hike cycle coupled with the flattening yield curve.Additionally,BAC has achieved its expense leverage goal of near$53bn,resulting in less of a catalyst going forward.Ticker4Q18E2018E2019E2020EPTBAC$0.62$2.51$2.80$3.15$30C$1.50$6.41$7.55$8.60$76GS$4.12$23.33$24.50$26.30$220JPM$2.21$9.33$10.05$10.90$120MS$0.87$4.74$5.00$5.40$50NewTicker4Q18E2018E2019E2020EPTBAC$0.64$2.54$2.82$3.15$34C$1.65$6.57$7.70$8.75$83GS$6.25$25.46$25.80$26.80$275JPM$2.32$9.43$10.15$10.95$120MS$1.16$5.03$5.20$5.45$61OldSuper Regional BanksFY184Q18BB&T CorporationBBT-12.9%-10.8%U.S.BancorpUSB-14.7%-13.5%M&T Bank CorporationMTB-16.3%-13.0%Huntington Bancshares IncorporatedHBAN-18.1%-20.1%PNC Financial Services Group IncPNC-19.0%-14.2%Zions BancorporationZION-19.9%-18.8%Comerica IncorporatedCMA-20.9%-23.8%SunTrust Banks,Inc.STI-21.9%-24.5%Fifth Third BancorpFITB-22.4%-15.7%Regions Financial CorporationRF-22.6%-27.1%Wells Fargo&CompanyWFC-24.0%-12.3%KeyCorpKEY-26.7%-25.7%Citizens Financial Group IncCFG-29.2%-22.9%Median-20.9%-18.8%Average-20.7%-18.6%Universal BanksJPMorgan ChaseJPM-8.7%-13.5%Bank of AmericaBAC-16.5%-16.4%Morgan StanleyMS-24.4%-14.9%CitigroupC-30.0%-27.4%Goldman SachsGS-34.4%-25.5%Median-20.9%-18.7%Average-21.2%-18.9%S&P 500-6.2%-14.0%Macquarie Research Universal Banks 7 January 2019 2 Ridin The Storm Out It was a brutal end to 2019,as universal bank stocks were down approximately 19%in the fourth quarter,underperforming the S&P by 500bps.Although concerns regarding potential peak earnings initially weighed on the group,the downdraft gained steam due to trade war concerns,political uncertainty in Europe,the US government shut down and the potential end to the Fed rate hike cycle.The market volatility led to a material slowdown in the market for underwriting and a choppy trading environment led by declines in prime brokerage as hedge funds de-levered.Fig 1 Bank 2018 Stock Performance Source:FactSet,Macquarie Capital(USA),January 2019 Super Regional BanksFY184Q18BB&T CorporationBBT-12.9%-10.8%U.S.BancorpUSB-14.7%-13.5%M&T Bank CorporationMTB-16.3%-13.0%Huntington Bancshares IncorporatedHBAN-18.1%-20.1%PNC Financial Services Group IncPNC-19.0%-14.2%Zions BancorporationZION-19.9%-18.8%Comerica IncorporatedCMA-20.9%-23.8%SunTrust Banks,Inc.STI-21.9%-24.5%Fifth Third BancorpFITB-22.4%-15.7%Regions Financial CorporationRF-22.6%-27.1%Wells Fargo&CompanyWFC-24.0%-12.3%KeyCorpKEY-26.7%-25.7%Citizens Financial Group IncCFG-29.2%-22.9%Median-20.9%-18.8%Average-20.7%-18.6%Universal BanksJPMorgan ChaseJPM-8.7%-13.5%Bank of AmericaBAC-16.5%-16.4%Morgan StanleyMS-24.4%-14.9%CitigroupC-30.0%-27.4%Goldman SachsGS-34.4%-25.5%Median-20.9%-18.7%Average-21.2%-18.9%S&P 500-6.2%-14.0%Macquarie Research Universal Banks 7 January 2019 3 These factors have worked in concert to drive universal bank valuations to a multi-year low at 8.3x 2019 estimates,which is 56%of the S&P multiple versus near 70%historically.Moreover,Citi and GS are now trading below current TBV while MS is trading only modestly above our forward TBV estimate.This risk-off environment has led to outperformance for JPM and BAC,which has led to a widening valuation gap and a change in our investment thesis.Fig 2 Universal Bank Peer Valuation Source:Company data,Macquarie Capital(USA),January 2019 Fig 3 Historical Valuation vs S&P 500 Source:FactSet,Macquarie Capital(USA),January 2019 Price/Price/Price/Price/Price/2018E2019E2020ECET1CET1Price CompanyTickerPrice3Q18 TBV 4Q19E TBV 2018E EPS 2019E EPS 2020E EPSROTCEROTCEROTCE3Q184Q20RatingTargetBank of AmericaBAC25.58$1.48x1.36x10.2x9.1x8.1x15.0%15.9%16.7%11.5%11.0%N30$CitigroupC55.13$0.89x0.80 x8.6x7.3x6.4x10.5%11.5%12.1%11.8%10.9%OP76$Goldman SachsGS175.05$0.93x0.87x7.5x7.1x6.7x13.1%12.8%12.8%11.4%11.3%OP220$JPMorgan ChaseJPM100.69$1.81x1.65x10.8x10.0 x9.2x17.2%17.4%17.6%12.0%11.1%N120$Morgan StanleyMS41.30$1.16x1.09x8.7x8.3x7.6x13.6%13.6%13.9%16.7%16.2%OP50$Median1.16x1.09x8.7x8.3x7.6x13.6%13.6%13.9%11.8%11.1%Average1.26x1.15x9.2x8.4x7.6x13.9%14.2%14.6%12.7%12.1%Forward P/ESPXUniversal Banks%S&PLarge Regionals%S&P2000-200718.8x13.4x71%13.0 x69%2003-200716.6x12.0 x73%13.1x79%2012-Current16.6x11.0 x66%12.6x76%Current:2018E15.9x8.7x55%10.1x63%Current:2019E14.8x8.3x56%9.3x63%Current:2020E13.9x7.6x55%8.9x64%Macquarie Research Universal Banks 7 January 2019 4 Stock Views&Estimate Revisions We are upgrading Citigroup to Outperform from Neutral and downgrading Bank of America to Neutral from Outperform.Citi is now trading at 89%of TBV and a 20%discount to BACs 2019 P/E.Although BAC currently offers better returns and lower credit risk,we believe this gap will close as Citi takes out further excess capital coupled with the continued liquidation of non-core assets.We expect greater TBV growth from Citi partly due to the expectation for outsized buybacks while the stock is trading below TBV.Although the current interest rate environment is a headwind for both banks,it will likely be more problematic for BAC with more exposure to a flattening curve and investor sentiment shifting away from historic asset sensitive enthusiasm.For Citi,the flattening curve will be a headwind for trading NIM;however,the bank is more exposed to the short end of the curve partly due to its card portfolio.Importantly,Citi is beginning to gain traction on card conversion of promotional balances,which should help improve margins.Fig 4 Valuation NTM P/E Fig 5 Valuation P/Forward TBV Source:FactSet,Macquarie Capital(USA),January 2019 Source:FactSet,Macquarie Capital(USA),January 2019 Citigroup(C,Outperform)We are upgrading Citi to Outperform partly due to valuation coupled with outsized buybacks and ability to improve yields in cards despite a more challenging rate environment.The stock underperformed peers in 2018,down 27%versus the group down 19%,driving a 13%discount to peers.Importantly,the stock is trading at 89%of tangible book value despite excess capital and expected returns of capital in the low double digit range.Despite uncertainties in the macro environment,we believe Citis stock is compelling with a 3.4%dividend yield and due to 1)improving performance in cards;2)nearly 20%expected TBV growth by 4Q20;3)continued operating leverage;4)credit risk concerns overdone in valuation;and 5)strong risk/reward relationship.Citi Catalysts Card yields should help at the latter stages of Fed cycle.Should the Fed be close to the end of its rate hike campaign,we believe Citi is better positioned than banking peers as a halt in rates may ease dollar strength benefiting its global footprint,coupled with the fact that investor sentiment for this name is not tied to asset sensitivity.More important,however,is the recent traction in cards and Citis ability to reprice and convert promotional card balances to full rate revolving balances.In the last quarter,Citis conversion rate was nearly 50%,driving a 7%YoY growth in full-rate revolving balances(4%growth for total balances)and a 40bps sequential increase in yields for North American branded cards.This conversion may help improve yields despite the current falling yield curve.6.0 x7.0 x8.0 x9.0 x10.0 x11.0 x12.0 x13.0 x14.0 x15.0 xCBAC0.0 x0.3x0.5x0.8x1.0 x1.3x1.5x1.8x2.0 xCBACMacquarie Research Universal Banks 7 January 2019 5 Fig 6 Citi-Branded North American Cards(ex Hilton)Source:Company data,Macquarie Capital(USA),January 2019 Buybacks drive TBV growth.Citi is on track to return over$60bn to shareholders over a three year period,which is attractive and driving meaningful TBV growth given Citi is trading at a material discount to TBV.In fact,Citi is trading at 75%of our 4Q20 TBV estimate,which incorporates nearly 20%growth from current levels.As a result,Citi is positioned for decent EPS growth in a flat revenue environment,in our view.Fig 7 Capital Trends and Estimates Source:Company data,Macquarie Capital(USA),January 2019 9.2%9.4%9.6%9.8%10.0%10.2%10.4%$82$83$84$85$86$87$88$893Q174Q171Q182Q183Q18Average Yield (%)Average Loans($bn)10.2%10.4%10.6%10.8%11.0%11.2%11.4%11.6%11.8%12.0%12.2%12.4%0%20%40%60%80%100%120%140%160%Total Payout RatioBasel 3 Tier 1 Common RatioMacquarie Research Universal Banks 7 January 2019 6 Operating leverage improvement should continue.Citis core efficiency ratio has improved by approximately 400bps over the past four years and we expect an additional 300bps improvement over the next two years.Citi has sold several businesses and exited several low margin markets over the past few years and now believes it can manage expenses in the low$40bn range.Although a global slowdown in economic growth may slow the improvement,we believe Citi can still drive operating leverage considering high single digit growth rates in Treasury and Trade Solutions and Securities Services.As discussed earlier,the conversion of promotional card balances should also help drive operating leverage.Finally,we believe Citi could be better positioned with lower exposure to investment banking fees and greater exposure to trading,which could improve late cycle as the Fed becomes less involved in the market through unwinding QE,which may increase volatility and benefit active management.Fig 8 Efficiency Ratio Outlook Source:Company data,Macquarie Capital(USA),January 2019 Credit risk concerns may be overdone.With concerns of a global slowdown and a risk-off environment,Citi is typically not considered a safe haven by investors given its emerging market exposure and business in Mexico.However,the risk aversion trade has already occurred with Citi trading at a substantial discount to both JPM and BAC.In addition,since the crisis,Citi has worked out of nearly$1 trillion of risky assets in the old Citi Holdings.Moreover,corporate risk is geared toward investment grade multi-national companies and emerging market consumer credit is geared toward the affluent community,and in many cases,associated with the multi-national companies.That said,Citi will most likely experience meaningful charge-offs in the credit card portfolio;however,based on our scenario analysis,the stock offers a strong risk/reward relationship.Nearly a 3:1 risk/reward relationship.Given the current valuation,we believe Citis stock is attractive with an estimated 60%upside on our bull case estimate(more closely resembles managements guidance)and 22%downside in our bear case/deep recession estimate.However,more important is that our base case offers 38%upside while a slowdown/recession still provides only 2%downside.53%54%55%56%57%58%59%2015A2016A2017A2018E2019E2020EEfficiency RatioMacquarie Research Universal Banks 7 January 2019 7 Fig 9 Scenario Analysis Valuation Source:Macquarie Capital(USA),January 2019 Scenario details:Base Case:Our base case assumes 2020 EPS of$8.60,ROTCE of 12.0%,and an efficiency ratio of 55%.This scenario assumes total revenue growth of under 3%with total trading increasing 3%in 2020 following flat expectations on 2019.We assume 7%growth in IB in 2019 and a 2%decline in IB revenues in 2020.Finally,credit costs pick up modestly due to cards but remain reasonable.We expect provisions to increase in the low double digit range in 2019 and 2020.Bull Case:The bull case scenario assumes total revenue growth of 3%with improved capital markets revenue.With an assumed efficiency ratio of 54%and similar credit costs as our base case,the earnings power is approximately$9.25 and an ROTCE of 12.8%.Total trading growth rates are assumed to be 4%while IB revenue growth rates are assumed to be 8%in 2019 and flat in 2020.Slowdown/Recession:This scenario assumes slowdown in revenues coupled with elevated credit costs.The earnings power is$7.10 and assumes an efficiency ratio of 56%and an ROTCE of just under 10%for 2020.Total revenues are expected to grow approximately 2%with 4%declines in trading and 12%declines in investment banking in 2020.Credit deteriorates in this scenario primarily due to cards.Total cards