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雷达卡
Increasing shift to second-round risks
Although ‘first-round’ markdowns have yet to run their full course, we believe second-round
risks will become increasingly prevalent. Credit crunch-led recessions are typically longer
and deeper with outstanding credit contraction of some 20%. In getting to our price targets,
we stress-test using cumulative peak provisioning estimates: Deutsche Bank fares worse
given its business mix as well as ‘risky asset’ transfers to the loanbook.
Swimming against the tide
While most banks have shifted to deleveraging mode, this not only affects longer-term
profitability, but also can give rise to near-term ‘hits’ as recently flagged by Deutsche Bank. In
our view, both BNP Paribas and CASA are behind the deleveraging curve. However, RWA
procyclicality remains a key risk from trading operations and Basel II, which differentiates this
cycle from previous ones as we move into the credit cycle.
Capital debate here to stay
The major French banks can pay their way through the peak provisioning cycle, on our
analysis. However, their relatively low starting point core T1 ratios, RWA procyclicality and
residual markdown risks leave them exposed to further capital raising risk of some
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