The failures of the Silicon Valley Bank and Signature Bank in March, followed by the recent failure of the First Republic Bank, have caused an upheaval in the U.S. banking industry. The First Republic Bank became the second-largest bank failure in U.S. history.
Although Federal regulators have assured that the banking system is safe, investors remain jittery about the viability of the U.S. banking system. Amid this backdrop, it could be wise to look beyond borders and invest in fundamentally strong foreign bank stocks China Minsheng Banking Corp., Ltd. (CMAKY), Commerzbank AG (CRZBY), and Banco Macro S.A. (BMA).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the U.S. banking industry and why it could be prudent to buy foreign bank stocks.
During the first quarter, more than two dozen U.S. banks faced more than 5% deposit declines. The bank failures have seen an outflow of deposits from smaller banks to the ‘too-big-to-fail’ banks. The U.S. Treasury Department has stated that the banking system has substantial liquidity and stable deposit flows.
Despite the statement, investors remain concerned about the banking system’s stability as Los Angeles-based regional bank PacWest Bancorp (PACW) confirmed it was exploring strategic options, including a sale. Banks must now offer higher interest rates on savings accounts to retain customers. This, in turn, will raise their cost of funds.
Banks are also facing competition from money market funds as depositors put their deposits into these funds for higher yields. Money market funds are attractive for investors as they offer yields upwards of 4.6% compared to the sub-1% yield offered by banks. For the week ended May 3, 2023, total money market funds assets were $5.31 trillion, increasing by $47.15 billion.
In the wake of the banking crisis, U.S. banks are also increasingly likely to face several regulatory challenges like increased capital requirements, heightened supervision, stricter risk management, increased disclosure, etc. Tighter credit standards are also expected to lead to an increase in their operational costs and reduce their lending volumes, piling further pressure on their profitability.
Moody’s cut the outlook on the U.S. banking system to Negative from Stable, citing a rapidly deteriorating operating environment. Considering these factors, buying the featured foreign bank stocks could be prudent as they will likely benefit from the higher interest rates and the growth in the economies they operate in.
Let’s discuss their fundamentals in detail.
China Minsheng Banking Corp., Ltd. (CMAKY)
Headquartered in Beijing, China, CMAKY provides various financial products and services to individuals, small and micro-enterprises, corporate customers, government agencies, and financial institutions. The company operates through Corporate Banking, Retail Banking, and Others segments.
In terms of trailing-12-month Price/Book, CMAKY’s 0.30x is 67.8% lower than the 0.94x industry average. Its 1.34x forward Price/Sales is 29.4% lower than the 1.90x industry average. Likewise, its 5.70x trailing-12-month GAAP P/E is 33% lower than the 8.52x industry average.
CMAKY’s total non-performing loans (NPLs) for the first quarter ended March 31, 2023, came in at RMB69.27 billion ($9.99 billion), compared to RMB69.39 billion ($10.01 billion) for the fiscal year ended December 31, 2022. Its total loans and advances to customers came in at RMB4.34 trillion ($626.30 billion), compared to RMB4.14 trillion ($597.44 billion) for the fiscal year ended December 31, 2022.
Its operating income increased 0.4% year-over-year to RMB36.77 billion ($5.31 billion). In addition, its net profit attributable to shareholders of the Bank, excluding extraordinary gain/loss items, increased 4.3% year-over-year to RMB14.27 billion ($2.06 billion). Also, its EPS came in at RMB0.33, representing an increase of 6.5% year-over-year.
Analysts expect CMAKY’s revenue for fiscal 2024 to increase 11.5% year-over-year to $21.89 billion. Over the past nine months, the stock has gained 34.2% to close the last trading session at $4.12.
CMAKY’s POWR Ratings reflect this positive outlook. CMAKY has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 88 stocks in the Foreign Banks industry. It has an A grade for Stability and a B for Value and Momentum. Click here to see the other ratings of CMAKY for Growth, Sentiment, and Quality.
Commerzbank AG (CRZBY)
CRZBY provides banking and capital market products and services to private and small business customers, corporate groups, financial service providers, and institutional clients in Germany and internationally. It operates through two segments, Private and Small-Business Customers, and Corporate Clients. CRZBY is based in Frankfurt am Main, Germany.
In terms of trailing-12-month Price/Book, CRZBY’s 0.42x is 55.3% lower than the 0.94x industry average. Its 1.32x forward Price/Sales is 30.6% lower than the 1.90x industry average. Likewise, its 0.03x trailing-12-month GAAP PEG is 92.3% lower than the 0.40x industry average.
For the fourth quarter ended December 31, 2022, CRZBY’s net interest income increased 50.7% year-over-year to €1.96 billion ($2.15 billion). Its total revenues rose 12.7% over the prior-year quarter to €2.36 billion ($2.59 billion). The company’s operating profit increased 274.5% year-over-year to €528 million ($579.30 million). Also, its consolidated profit increased 12.1% year-over-year to €472 million ($517.86 million).
For the quarter ended March 31, 2023, CRZBY’s revenue increased 0.6% year-over-year to $2.92 billion. Over the past year, the stock has gained 68.2% to close the last trading session at $10.85.
CRZBY’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
Within the same industry, it is ranked #5. It has an A grade for Growth and a B for Momentum and Sentiment. To see the other ratings of Value, Stability, and Quality, click here.
Banco Macro S.A. (BMA)
Headquartered in Buenos Aires, Argentina, BMA provides various banking products and services to retail and corporate customers in Argentina. It offers various retail banking products and services, such as savings and checking accounts, time deposits, credit and debit cards, consumer finance loans, mortgage loans, automobile loans, overdrafts, credit-related services, utility payments, and money transfers.
In terms of forward Price/Book, BMA’s 0.58x is 34.7% lower than the 0.88x industry average. Its 0.90x forward Price/Sales is 52.5% lower than the 1.90x industry average. Likewise, its 4.18x trailing-12-month non-GAAP P/E is 48.4% lower than the 8.09x industry average.
BMA’s net income for the fourth quarter ended December 31, 2022, came in at ARS16.60 billion ($72.71 million). Its operating income rose 79% year-over-year to ARS78.20 billion ($342.55 million). The company’s annualized return on average equity (ROAE) and annualized return on average assets (ROAA) came in at 16.9% and 3.3%, respectively. Also, its total deposits increased 13% year-over-year to ARS148.40 billion ($649.37 million).
Analysts expect BMA’s EPS for the quarter ended June 30, 2023, to increase 36.2% year-over-year to $0.71. Its revenue for fiscal 2023 is expected to increase 34.7% year-over-year to $2.57 billion. Over the past nine months, the stock has gained 46.4% to close the last trading session at $18.31.
BMA’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It is ranked #4 in the Foreign Banks industry. It has an A grade for Value and a B for Growth, Momentum, and Quality. Click here to see the other ratings of BMA for Stability and Sentiment.
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
CMAKY shares were unchanged in premarket trading Thursday. Year-to-date, CMAKY has gained 10.75%, versus a 8.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
3 Foreign Bank Stocks to Consider Amid U.S. Banking Turmoil StockNews.com
