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Happy Friday and the weekend ahead! A welcome to all those who have joined the mailing list and all the readers, to this 30th post of investing, not rocket science! Investing Doesn't Have to Be Rocket Science: this is our Non-Expert Guide to Portfolio Management. In the last three months, this free blog has added 500+ readers to our mailing list.
A quick recap of this blog series (investing, not rocket science) so far:
In the 1st post: I defined a basic portfolio framework. The objective of this million dollar portfolio is beat inflation and an equity index. The investment style presented here is active portfolio management, without the use of leverage and a time horizon greater than 5 years. The benchmark index is the MSCI ACWI Investible Market Index. Typically, there are two posts a week, which includes details of the portfolio and actionable evaluations (Mondays and Fridays).
From posts 2 to 20, 28-29: I have evaluated 71 stocks and 4 potential bond additions. The portfolio is long 15 stocks, 1 Bond and short 1 stock.
Posts 21 to 27 were focused on the Q1 2023 earnings announcements, particularly of stocks in the portfolio and in the watch-list. You can read all about it in the previous posts here: https://www.claritech.app/blog
You can click on the charts, graphs or illustrations to expand or zoom in. There is no remuneration received to evaluate specific companies or to add to the portfolio or the watch-list. The Amazon adverts you see are the source of revenue for this free blog (subject to purchases or subscriptions).
Today, we evaluate the Q1 2023 earnings of the banking stocks in the portfolio: Citigroup, Deutsche Bank, Industrial and Commercial Bank of China.
Q1 2023 Earnings - Citigroup
Citi posted revenue of US$19.7 B for Q12023, a 4.2% YoY growth. Operating expenses at US$13.5B was lower than the US$ 13.6B in Q1 2022. Net income to shareholders was at US$ 4.6B, up from US$ 4.3B in the prior year quarter.
According to its recent SEC filing, Citi has a Total Capital Ratio of 17.79% while under the Basel III standardized approach, it has a capital requirement of 15.5%. Total Capital ratio in excess of requirement is +229bps which is similar to the +229bps in the previous quarter (Q42022).
Liquidity Coverage Ratio (LCR), which is calculated by dividing High Quality Liquid Assets (HQLA) by estimated net outflows (assuming a 30 day stress period), is at 120%, this is an improvement from the 118% in Q4 2022 and 116% in Q1 2022.
Trends in financials (twelve month trailing): sees improvement in revenues, operating income margin and earnings per share compared to the previous quarter. Looking at the last ten years data, there is room for improvement in the operating income margin, which can have a positive impact on eps.
Q1 2023 Earnings - Deutsche Bank
The bank posted net revenues of EUR 7.8B for Q1 2023, up 8.8% from Q1 2022 and highest quarterly net revenues since 2016. Corporate Bank revenues were up 35% YoY, Investment Bank revenues declined by 17% YoY, Private Bank revenues were up 10% YoY and Asset Management revenues were lower by 14% YoY. Non interest expenses were up 1% YoY. Provision for credit losses were at EUR 372 Million for the quarter, compared to 292 Million in Q1 2022. Diluted EPS at EUR 0.65 up from EUR 0.5 in previous year quarter.
According to its recent SEC filing, Deutsche Bank has a common CET1 ratio of 13.6% up from 13.4% in the previous quarter. The bank is yet to publish its pillar 3 report for more information.
Liquidity Coverage Ratio (LCR), which is calculated by dividing High Quality Liquid Assets (HQLA) by estimated net outflows (assuming a 30 day stress period), is at 147%, this is an improvement from the 135% in Q4 2022.
Trends in financials (twelve month trailing): sees improvement in revenues, operating income margin and earnings per share compared to the previous quarter and since the lows of 2020. Operating income margin sees major improvement, which is likely due to the bank’s strategy.
The Bank has declared a dividend of EUR 0.3 per share for its performance in 2022. Up 50% from 2021.
Q1 2023 Earnings - Industrial and Commercial Bank of China
According to its Q1 report, ICBC has posted revenue of RMB 218.4B, a decline of 3.5% from Q1 2022, a Net profit of RMB 90B, a growth of 0.5% from Q1 2022 and an EPS of 0.25, unchanged from previous year quarter.
Operating expenses increased from RMB 45B to 47B in Q12023. The bank has a liquidity coverage ratio of 112% and a CET1 ratio of 13.7%, lower than the 14.04% in Q4 2022.
Trends in financials (twelve month trailing): In the last 10 year period, improvements seen in revenues, while operating income margin has declined and earnings per share has remained stable.
Dividend Yield and Price to Book
In the last ten year period, dividend yield from Citigroup has improved from 0.1% in 2014 to 4.4% currently. Dividend yield for Deutsche Bank dropped from 3.5% in 2014 to about 1.5% in 2018 and has shown improvements since and is currently at 3.2%. The dividend yield of ICBC has fallen from the 10% levels in 2014 to around 6% in 2018 and remains at these levels.
The Price to Book ratio for all three banks have declined in the last ten years, which relates to their stocks are priced better. Price to Book ratio are currently between 0.3 and 0.5
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At the end of this evaluation:
There is no change to the current weight of these stocks in the portfolio. Some of the positives and risks that I keep in mind when allocating to banking / financial stocks:
· Potential for growth: Financial stocks are directly correlated to the growth of the global economy. As businesses and consumers grow, they need more financial services, which can lead to increased profits for financial companies.
· Dividends: Many financial companies pay dividends to their shareholders. This can provide a steady stream of income for investors.
· Diversification: Adding financial stocks to your portfolio can help to diversify risk.
· Volatility: This means that their prices can fluctuate more dramatically.
· Regulation: The financial sector is heavily regulated. This can make it difficult for financial companies to make a profit.
· Macro Risks: Tied to the economy, this sector could underperform in economic downturns.
That’s all for today, thank you for your time! See you in the next post!
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