Financial Services Roundup: Market Talk

The latest Market Talks covering Financial Services. Exclusively on Dow Jones Newswires at 4:20 ET, 12:20 ET and 16:50 ET.

0736 GMT - NatWest's trends are generally positive despite the corporate noise around its first-quarter results, Barclays says in a note after the U.K. bank's quarterly update was flattered by better net interest income and softer noninterest income. On the positive side, its first-quarter net interest margin is stable on quarter with stale deposits and net interest income is likely run-rating well ahead of the consensus for the year, analysts point out. This is tempered by a 4% miss against expectations in core business noninterest income, they add. Shares rise to their highest price since February 2023 and trade 3.4% higher at 300 pence. (elena.vardon@wsj.com)

0718 GMT - NatWest's guidance confirmation may disappoint investors despite the quarterly beat on several metrics, Shore Capital says after the British lender confirmed its outlook for 2024. It expects return on tangible equity to be around 12% while consensus forecasts 12.5%. This is despite a 14.2% first-quarter ROTE and the recent strengthening of swap rates which should underpin better net interest margin, analyst Gary Greenwood writes in a note. Shortly after market open, shares in London trade 4% higher at 302 pence, their highest price in 14 months. (elena.vardon@wsj.com)

0712 GMT - Singapore banks are likely to see their overall earnings momentum flatline in 1Q with net interest income having peaked and slower non-interest income recovery, says Maybank Research analyst Thilan Wickramasinghe in a note. Higher funding costs could also reduce net interest margins but rising expectations for delayed rate-cuts may provide some offset to keep loan yields supported, Wickramasinghe says. Loans growth could still be pressured due to a weak North Asia, high rates and a strong Singapore dollar impacting foreign currency translation, he adds. Maybank has a buy rating for DBS, with a target of S$37.66. It has a hold rating for UOB and OCBC with a targets of S$30.88 and S$14.05, respectively. DBS shares last at S$34.44, UOB at S$30.45 and OCBC at S$14.25.(amanda.lee@wsj.com)

0350 GMT - Australian retail banks may see their profitability stymied due to the high cost of mortgage broker distribution, say UBS analysts John Storey and Jason Napier in a note. Accordingly, investor expectations of reduced competition driving improved return on equity for the sector needs to be tempered. Economic profit between a broker-originated mortgage and one written through the bank's own proprietary channel can be as wide as 8 percentage points, they note. These findings from UBS' own research reaffirm its cautious view of Commonwealth Bank, which they say is the most exposed to this industry disruption via brokers. UBS lowers its loan growth assumptions for CBA by 0.1% for FY 2024. (alice.uribe@wsj.com)

0323 GMT - Market expectations for Perpetual's strategy review update, expected by May 8, remain low, say UBS analysts Shreyas Patel and Scott Russell in a note. This comes amid multiple completion delays for the Australian wealth manager's review, UBS notes. The investment bank sees that potential upside is shrinking for Perpetual's asset management business, which is likely to be retained post the review, as it continues to face funds and cost pressures. For 3Q FY 2024, UBS notes that Perpetual's headline assets under management, which was up 6.3% on quarter, was supported by stronger equities markets, but that underlying trends in asset management were weak with net outflows (excluding cash) well below market expectations. (alice.uribe@wsj.com)

0127 GMT - Perpetual's ongoing strategic review could results in the sale or demerger of the company's corporate trust and wealth-management businesses, says Bell Potter analyst Marcus Barnard in a note. This, he reckons, would reduce the firm's debt burden and focus investor attention on the low multiple that the market seems to be applying to the Australian wealth manager's asset-management business. Perpetual has said the strategic review is expected to be complete by May 8. Bell Potter says its investment case on Perpetual remains intact, seeing that it is delivering on its Pendal integration and should be well-placed to grow as conditions improve. The investment bank raises the stock's target price 1.7% to A$27.60. Perpetual falls 3.2% to A$23.08. (alice.uribe@wsj.com)

0059 GMT - Perpetual's strategic review seems to be progressing, but whether it will lead to a favorable outcome remains to be seen, says Citi analyst Nigel Pittaway in note. The Australian wealth manager told investors that it expected to provide a detailed update no later than May 8. Citi notes Perpetual had previously indicated that the outcome of the strategic review would be available much earlier than that date, with the investment bank continuing to see the review as critical for the near-term direction of the share price. "With zero resolution likely to see the share price fall," says Citi. Ahead of the strategic review outcome Citi keeps its neutral call on the stock, and lifts its target price 1.7% to A$27.60. Perpetual falls 3.3% to A$23.05. (alice.uribe@wsj.com)

2309 GMT - Capital One says smaller, later tax refunds are weighing on consumers. Chief Executive Richard Fairbank says on a call with analysts that delinquency and charge-off-rate trends were somewhat worse than the company would expect for the first quarter, and he attributes it to tax refunds being smaller and later in the season. Tax refunds generally lead to improvements in delinquency payments and recoveries, as consumers have more cash on hand to pay bills. If the trend in tax refunds continue, Fairbank says it could raise charge-off rates in the near term. (ben.glickman@wsj.com; @benglickman)

2241 GMT - Higher cost of living will likely see more Australians reconsider private health insurance, Jefferies analysts say in a note. It says that this, alongside a lower migration rate, may lead to a decline in PHI participation. Still, it reckons this could be tempered by FY 2023 elective surgery waiting times which are at 20-year highs as public hospitals work to clear the pandemic-related backlog. "We expect participation rates to moderate slowly as consumers self-select whilst the public system works to return to business as usual," Jefferies says. It keeps a buy call on Medibank and moves Nib to a hold from buy, saying it likes the former's market leading share. This, Jefferies says, allows it sharper negotiations with hospitals, and lower weighting to international and travel policies. (alice.uribe@wsj.com)

1627 GMT - High mortgage rates are not bringing U.S. home prices down. The median U.S. home-sale price hit a record $383,725 during the four weeks ending April 21, up 5.2% from a year earlier--one of the biggest jumps since October 2022, Redfin says. The average weekly mortgage rate hit 7.1% this week. High prices and mortgage rates drove the median monthly housing payment to a record $2,843, up 13% year over year. And prices are soaring despite the fact that there's more inventory than last year. New listings are up 10.2% year over year, though growth in listings may be losing momentum as stubbornly high rates solidify the lock-in effect. Demand is holding up fairly well in the face of 7%-plus rates, though some indicators are starting to show a slowdown. (chris.wack@wsj.com)

1624 GMT - SPDR Gold shares are up 0.3%, with gold catching a lift as other markets wobble in the face of slowed economic growth along with stubborn inflation. A larger-than-expected 3.7% growth in the quarterly PCE reading has some analysts mulling if rate cuts are still coming this year -- and if new rate hikes are necessary. However, for gold, the more important factor is the status of conflicts around the world, Hani Abuagla of XTB MENA says. "If tension persists and interest rates are lowered, it may even more strongly stimulate the desire to buy gold, also from ETF funds, which constitute the final piece in building a multi-year bull market in precious metals," Abuagla says. Underlying gold futures are up 0.1%. (kirk.maltais@wsj.com; @kirkmaltais)

1213 GMT - Toronto-Dominion Bank's U.S. retail arm looks to be significantly undervalued, Keefe, Bruyette & Woods reckons. TD's shares have underperformed those of the other big Canadian banks since its planned acquisition of First Horizon was scrapped, and analysts Mike Rizvanovic and Abhilash Shashidharan note it's trading at an about 14-year low relative to peers. And that, they say, adequately reflects headwinds from the ongoing Justice Department investigation of anti-money laundering risk processes and offers a compelling value play. They add a sum-of-the parts valuation of TD suggests reasonably valuation multiples for TD's Canadian and capital markets units, but undervalued U.S. retail against other U.S. lenders. KBW has an outperform call and C$92 target. (robb.stewart@wsj.com; @RobbMStewart)

(END) Dow Jones Newswires

April 26, 2024 04:20 ET (08:20 GMT)

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