European investment banks' dividends at risk
European investment banks are unlikely to return to double-digit revenue growth “anytime soon” and their dividends are at risk due to tightening regulatory capital constraints, an analyst at ING said.
Analyst Alain Tchibozo also said he expects additional markdowns at the banks due to a combination of rising default rates, liquidity squeeze and possible hedging gains.
Tchibozo began coverage of Switzerland's largest bank UBS AG with a “sell” rating, and initiated its local rival Credit Suisse and Germany's Deutsche Bank with “hold” ratings.
Shares of UBS will see little recovery potential due to rising litigation risk, revenue growth deceleration and likely additional writedowns on the bank's exposure to collateralized debt obligations, the analyst said.
Deutsche Bank's focus on capital market would come under scrutiny if regulators were to require higher capital ratios for trading operations, Tchibozo wrote in an August summary note to clients. The option of a rights issue could soon come to the table, capping any re-rating potential, he said.
He, however, expects Credit Suisse's above-average capital ratios to make its earnings more resilient that its peers.
The analyst set a share price target of 13 Swiss francs on UBS, 55.5 Swiss francs on Credit Suisse and €55.5 on Deutsche Bank. (Reuters)
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.