Global banking industry saw an eventful year so far. Since there was a crash of Silicon Valley Bank and there were several downgrades from S&P and Moody’s, investors have been avoiding investments in banking sector stocks. However, since now we have headed into 2H23, there are some banking stocks which are beginning to harbor renewed hopes for entire sector. Conditions which might play out in upcoming few months—combination of increased interest rates, higher regulatory pressure, and moderating, but still troubling, inflation—are the trends that several senior financial services industry (FSI) leaders have seen earlier. These leaders should now focus on what’s coming up next. In 2024, technological turbulence—which includes generative AI, transition to cloud, greater fraud and cyber risk—will need financial services leaders to be much more agile in comparison to before. Therefore, investors should now consider investing in some of the promising global banking stocks which might deliver returns in upcoming 2-3 years.
In long term, promising global banking stocks are required to pursue new sources of value over and above product, industry, or business model boundaries. New economic order which should likely emerge in upcoming few years will require bank leaders to forge ahead with strong conviction. Promising global banking stocks are required to be bold and they should stay ahead of the curve and should proactively shape emerging forces, and envision possibilities beyond present fog of uncertainties.
1. U.S. Bancorp
The company has been categorised as a diversified banking company which is situated in Minneapolis, Minnesota. It provides a range of financial services, which consists of corporate and commercial banking, consumer and business banking, wealth management and investment services, etc.
Net income attributable to the company came in at $1,361 million for 2Q23, which was $170 million lower than $1,531 million for 2Q22 and $337 million lower than $1,698 million for 1Q23. The decrease was due to increased provision expense, including balance sheet optimization activities, and non-interest expense, which consists merger and integration-related charges, partially offset by the increased total net revenue.
In 2Q, the company successfully completed its conversion of Union Bank and further accelerated accretion of capital, closing the quarter with CET 1 ratio of 9.1%. It posted diluted EPS of $1.12, as adjusted, due to continued momentum throughout its businesses supplemented by positive operating leverage on linked quarter basis. The company closed 2Q with $522 billion in total deposits, exhibiting a rise of 3.2% in comparison to previous quarter.
2. Nu Holdings Ltd.
Nu Holdings Ltd provides digital banking services, and gives several financial services including credit cards, Personal Account, Investments, Personal Loans, Insurance, Mobile payments, etc.
At holding level, the company continued to enable increased profitability and posted net income of $224.9 million in comparison to $29.9 million loss in 2Q22. Adjusted net income of the company touched $262.7 million, while adjusted ROE came at 19% in comparison to adjusted Net Income of $17.0 million in 2Q22. It saw $1.9 billion in revenues, a new all-time record high, exhibiting 60% growth from 2Q22 on FX-neutral basis. This was the result of compounding effect of customer growth and increased levels of customer monetization in Brazil.
Gross profit of the company expanded in 2Q23 to $782 million, exhibiting a rise of 113% year-over-year FX neutral. Gross profit margin saw an expansion to 42% from 31% in 2Q22.
On 30th June 2023, the company had interest-earning portfolio (IEP) of $6.3 billion, while total deposits were 3x this amount at $18.0 billion. It continues to optimize use of deposits quarter after quarter, as reflected in 35% loan-to-deposit ratio.
Analysts at JPMorgan upgraded the company’s shares from neutral to overweight, announcing the price objective of $9 in the research report dated September 11.
3. Citizens Financial Group, Inc.
Citizens Financial Group is retail bank holding company, which operates in New England, Mid-Atlantic, and Midwest regions of the US. It carries out its operations through 2 segments: consumer and commercial banking.
The company navigated well through dynamic and challenging environment in 2Q and it was very focused on further strengthening its capital, liquidity and funding position. CET1 ratio saw an improvement to 10.3%, while also buying back more than $250 million in stock. It grew its deposits by $5.5 billion, and reduced FHLB borrowings by ~$7 billion to $5 billion.
Net interest income was $1.6 billion, exhibiting a fall of 3% in 2Q23 against 2Q22, exhibiting lower net interest margin and slightly lower interest-earning assets, mainly offset by increased day count. Underlying non-interest expense was $1.2 billion and was broadly stable exhibiting increased other operating expense, equipment and software and outside services, offset by the seasonally lower salaries and employee benefits.
CET1 capital ratio came in at 10.3% as of June 30, 2023 in comparison to 10.0% at March 31, 2023 and 9.6% at June 30, 2022. This was above targeted CET1 range of 9.5%-10%. Total capital ratio came in at 13.3% in comparison to 12.9% at March 31, 2023 and 12.3% as of June 30, 2022. The company paid $205 million in common dividends to shareholders during 2Q23 as compared to $205 million in common dividends during 1Q23 and $195 million during 2Q22.
KeyCorp is mainly focused on serving middle-market commercial clients through hybrid community/corporate bank model.
The company’s 2Q23 results exhibit its durable relationship-based business model, sound risk management, and healthy and stable balance sheet. Longstanding commitment to primacy served the company well, resulting in period-end deposit growth of $1 billion from previous quarter.
Capital position of the company remained strong in 2Q23, with estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios coming at 9.2% and 10.7%, respectively.
Resilient household spending and stable labor market should collectively help the US economy avoid a recession, which should support promising global banking stocks as businesses will also plan to revive and make significant capital expenditures. Increased inflation should moderate relatively quickly, creating significant opportunities for policymakers to reduce the rates, thereby, aiding businesses of promising global banking stocks.