What is the margin of bank intermediation?
As everyone knows the first business of a bank (including a bank network) is to the credit. Profits from this activity are derived from the differential which the bank finances itself on the market and the rate that it serves its customers multiplied by the leverage entrenched claims to be losses (this which occurs when the client no longer meet its deadlines and that the bank guarantees carried by the bank can not cover the loss).
Take the points one by one.
Today, interest rates on the market are relatively low. Just look at interest rates of the market: over the Euribor 1 month, 3 months and 1 year are respectively 0.33%, 0.70% and 1.26%.
But the rates of past and current credits granted by banks to housing credit are well above refinancing rates. Today they are around 4% on average for fixed rates and 3% for variable rate for a credit on 15 / 20 years for the best record (source: www.meilleurtaux.com ) .
banks lend more money they really have is leverage. It multiplies the output when the differential rate is to their advantage or else can cause significant losses if not. You will understand, for banks, the current period is the jackpot!
The regional Crédit Agricole for Main business credit. Certainly, they also exert an insurance business, supply of means of payment and savings. Even if these activities are increasing (especially insurance), they remain marginal activities in relation to credit.
What is interesting is that regional banks have no banking or investment funding, what are banks network. They may of course invest their surplus capital markets vehicles in more or less risky (monetary \u0026lt;bonds \u0026lt;shares) according to the policy risk of each management. Moreover, they are also jointly responsible for profits and losses from the banks financing the parent Crédit Agricole and its subsidiaries on market activities through Calyon in proportion to their holdings of participation in it. You will find all the information in the annual reports of each fund.
Returning to leverage. The regional banks are generally well endowed with capital as well represent over 10% of total assets . For simplicity, this would mean that at least 10% of allocations are failing and that all guarantees taken on these claims are invalid for the bank to clear. This does not take into account the provisions already made for doubtful debts and litigation (CDL).
All this partly explains the recurrence of regional banks' profits and their consistency over time.
Currently, there are 13 regional banks that have cooperative investment certificates (TCC) quoted on the Paris market. They give a pecuniary right on property and profits, but have no voting rights. What is in our view the main risk of this investment vehicle. However with withdrawals ITC Centre-Loire and Aquitaine recently, the speculative is not zero.
According to our calculations, all the ICC has a forward PE of 5.1 in 2010 an estimated average yield of 6.4% and appreciation potential that values the ICC in capital of 208 % (equity at 31.12.2009).
These figures are averages, and some ICC are more undervalued. Apart fund Toulouse we hold on our shopping list , we recommend you take a look at the cases of Ile-et-Vilaine, Haute-Loire and Seine-Normandy which have respectively a PER of 4.2, 4.2 and 4.0 and a potential appreciation on equity of 278%, 246% and 244% (during the May 28, 2010).
Finally, note that the average CDL observed for all cases is 2.5% of outstanding credit and that is provisioned on average at 70%.
The results of the first quarter of 2010 tend to confirm that the hedging was appropriate because the benefits are yet to go and market shares are increasing. These profits continue to increase the spread between the CCI and CCI capital. In two words: the undervaluation continues to grow!
figures of Q1 2010 CRCAM Toulouse 31: here.
figures of Q1 2010 CRCAM Toulouse 31: here.
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