US Banks: 1Q2017 results of US investment banks JP
Morgan (JPM) and Citigroup (CT) beat analyst expectations by 9-10% due to
better trading revenue following bond market volatility and buoyant equity
markets, as well as strong capital markets performance across the board.
Besides strong 1Q non-interest income, asset quality improved, and balance
sheet strengthened with both banks adding 20 bps to CET1 capital. We estimate
that JPM and CT have about 3% and 3.3% of excess capital respectively, compared
to an average of 2.3% for large US banks.
In line with our 2Q 2017 strategy, we pick a longer duration
CT USD bond as a possible tactical play. Overall, we are positive on the US
banking sector as expect better NIMs, stronger US growth, possible lower tax
rates and decreased regulation. We note that C 4.75% 2046 trades wide compared
to its peers at a spread of 230 bps despite being relatively well capitalized.
CIMIC: CIMIC’s 1Q2017 result delivered sustainable
cash-backed profits after a period of deleveraging. Sector outlook remain
positive with strong pipeline of infrastructure and mining projects relevant to
CIMIC of nearly A$80bn of tenders to be bid and awarded during the rest of
2017, and a further A$250bn in 2018 and beyond. Even though CIMIC’s standalone
credit metric remain strong, we note that the weaker credit quality of the
parent is a constraint to the overall credit profile of CIMIC. In terms of
valuation, CIMIC 5.95% 2022 AUD notes is trading at z-spread of 150 bps above
USD Industrial BBB +/BBB/BBB- bonds. However, we believe current valuation is
fair given that it is now trading 20bps below its historical average of 285bps.
DISCLAIMER:
The information and opinions in this report were prepared by
AmInvestment Bank Bhd. The investments discussed or recommended in this report
may not be suitable for all investors. This report has been prepared for
information purposes only and is not an offer to sell or a solicitation to buy
any securities. The directors and employees of AmInvestment Bank Bhd. Bhd may
from time to time have a position in or with the securities mentioned herein.
Members of the AmBank Group Bhd and their affiliates may provide services to
any company and affiliates of such companies whose securities are mentioned
herein. The information herein was obtained or derived from sources that we
believe are reliable, but while all reasonable care has been taken to ensure
that stated facts are accurate and opinions fair and reasonable, we do not
represent that it is accurate or complete and it should not be relied upon as
such. No liability can be accepted for any loss that may arise from the use of
this report. All opinions and estimates included in this report constitute our
judgment as of this date and are subject to change without notice.
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