…Greek banks seen as takeover targets
The multinational giant UBS has placed the shares of Bank of Cyprus Group Public Co. Ltd. (CSE:BOC, ASE:KYPR) among its top 10 investment picks for the second quarter of 2006 based on BOC’s asset growth and asset quality leverage prospects.
“We are overweight banks in Japan, Europe and emerging markets as well as those with capital markets exposure. Reflecting this, our latest global banks preferred list comprises Goldman Sachs, Credit Suisse, Barclays, Unicredito, SMFG, Sumitomo Trust, ANZ, Bank of Cyprus, Itau and Standard Bank, “ UBS said in its Global Banks Report dated April 6.
According to Financial Mirror calculations, the direct and indirect stake of UBS in the share capital of Bank of Cyprus amounts to 20 mln shares.
Referring to the banking sector in Greece, UBS said that in an absence of regulatory barriers to acquirers, the potential for in market
mergers, the small market value of the banks, and strong capital
positions make Greek banks likely M&A targets. Greek banks also offer
rapid growth and have among the highest ROE levels in Europe.
Emporiki Bank is in the list of possible participant in a merger/acquisition deal. UBS forecasts that some deals will take place among the Greek banks domestically this year as well as in the Portuguese and Swedish markets while similar deals are expected in Italy in 2007.
Investment strategy
UBS continue to be bullish on Japanese banks, viewing them as the best hedge against higher global inflationary expectations. The rationale for the positive view on the sector is fourfold: (1) upside potential from higher interest rates; (2) wealth management growth potential and liquidity support, arising from capital inflows into domestic mutual funds; (3) potential for further provisioning writebacks; and (4) additional earnings upgrades and higher sector ROE, culminating in
a further sector re-rating.
SMFG and Sumitomo Trust are the UBS top picks in Japan.
UBS analysts are also overweight banks in Europe on the basis of strong sector earnings growth momentum (with 2006E EPS rising from 9.5% to 14.3% during the first quarter), coupled with higher interest rates, M&A re-rating potential, and supportive valuations. In addition, European banks are highly sensitive to capital markets and are likely to deliver strong first quarter 2006 results, given the robust operating environment for capital markets during this quarter.
“Our preferred European banks are Credit Suisse (pure capital markets play), Barclays (capital markets/emerging markets exposure), Unicredito (merger driven cost savings, NPL restructuring upside potential), and Bank of Cyprus (asset growth, asset quality leverage),” said UBS.
“We reiterate our overweight stance on emerging markets banks, given their attractive growth outlook, superior ROEs and valuation re-rating potential. Stronger macroeconomic growth, a more benign interest rate environment in 2007, improving GEM bank fundamentals and liquidity support should further underpin investors’ risk appetite, in our opinion. Itau (asset growth and credit cost restructuring story) and Standard Bank (earnings momentum and attractive valuations) are our top picks in GEM.”
