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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: ChanceIs who wrote (156984)	9/15/2011 12:08:52 PM
From: Dennis Roth	4 Recommendations Read Replies (1) \| Respond to of 206089

OT: European Banks The lost decade Sector Review 92 pages, 181 figures Download Link: sendspace.com First page: Underweight European banks: While optically cheap at 0.7x last reported tangible equity and 5.6x 2012E earnings, adjusting for higher funding costs and recapitalisation needs the sector looks expensive at 1.2x adjusted equity and 13.3x capital adjusted PE, suggesting further downside. Our top picks are the Nordics: SEB (OP) which is added to Credit Suisse Focus List, SHB (OP) and Nordea (OP) and we are most negative on Credit Agricole (UP), Sabadell (UP) and Popular (UP). We need to see structural improvement in funding markets to be more positive. We review target prices and cut sector earnings by 5–6% in 12E/13E, putting us 8% below consensus, but do not incorporate an accelerated sovereign crisis. We see the sub prime and sovereign crises as part of the same process which will force banks to deleverage and restructure more significantly. This process is being accelerated by funding markets where we see the market readjusting to a world without ‘too big to fail’ guarantees. Given the variability of outcomes, our current estimates do not reflect the scenario we discuss for the European banks. We see two main areas of ‘costs’ from the current sovereign crisis: 1. Absolute losses could be greater now than in sub prime: European banks have lost €184bn so far from credit market assets, versus €213bn of potential losses in this crisis, based on our accelerated sovereign loss scenario, equating to 26% of last reported tangible equity. 2. Weaker sovereigns driving structurally higher funding costs: We see 26% of 2012E sector PBT at risk in our sensitivity analysis. If an accelerated sovereign debt scenario were to play out it is unclear to us where the capital would come from given a current lack of equity investor appetite and lower sovereign capacity than in 2008. Other stake holders may end up playing a bigger role, especially if rules change e.g. bail-in regulation.