Thanks to US Fed led liquidity, the US stock market witnessed a steep rise in asset prices over the last 24 months. However, 2022 is already painting a different picture in the equity market. Since the Fed announcement on the impending hike in interest rates and the tapering of liquidity, the markets are off the pedal. In fact, the sector rotation is already underway. A recent Bank of America survey of global fund managers shows overweight allocations to technology shares fell to the lowest since 2008 as they tilted in favor of assets that benefit from the economic upturn from banks to energy stocks.
Amid higher yields and tighter Federal Reserve policy, it is expected that rising rates globally will bolster banking shares. And, this is probably reflecting in the market capitalisation of banking shares as well. According to a recent report by GlobalData, the aggregate market capitalization of the global top 25 banks remained stable at $3.9 trillion in Q4 2021.
The leading data and analytics company notes that not only did 15 out of the 25 banks report growth over Q3 2021, but the most impressive performers—TD Bank, Charles Schwab, Al Rajhi Banking, Scotiabank, and HSBC—reported over 10% quarter-on-quarter (q-o-q) growth in their market values.
Andrew Haslip, Lead Analyst at GlobalData, in the report says, “The top banks in terms of quarterly growth pursued widely different strategies and geographic footprints; reflecting a broad-based optimism at the end of 2021, even if storm clouds are gathering once more. Even the two Canadian banks have pursued different geographic expansions, TD Bank focused on the US; while Scotiabank has been building up its Latin American operations, notably in Mexico.”
Parth Vala, Company Profiles Analyst at GlobalData, offers his view on the results of key banks in GlobalData’s Top 25 Banks by MCAP ranking:
TD Bank’s share price reached CAD97.24 in Q4 2021, up from CAD83.85 in Q3 2021. The bank beat analysts’ expectations in net profits, which amounted to CAD3.9 billion in Q4 2021, reflecting a q-o-q increase of 6.6% and a 30.2% year-on-year (y-o-y) increase over Q4 2020.
Vala says, “Canadian and US retail businesses were the main growth drivers for the bank, as these businesses clocked an annual growth of 8.1%; 2.3% in net revenue, as well as 18.6% and 57.7% in net profitability, respectively, in FY2021.”
Charles Schwab reported growth of 15.6% in its market value over the previous quarter, as the US brokerage giant beat analyst estimates in its revenue and net income growth, which grew by 0.9% and 20.6%, respectively, in Q3 2021.
“Charles Schwab’s new client assets rose by 27.8%, from $108.8 billion in Q2 2021 to $139 billion in Q4 2021. The firm’s profitability before taxes from investor services and advisory services were up by 19.9% and 6.8% over the previous quarter,” adds Vala.
HSBC generated $3.5 billion profit in Q3 2021, reflecting an increase of 4.3% over Q2 2021 and 160.7% Q3 2020. For the first nine months ended in 2021, the bank’s profits were up substantially, by 224.3% over the corresponding period in 2020.
Vala says, “HSBC’s improved performance, as well as its announcement of share buyback of around $2 billion, bolstered investor confidence.”
Citigroup’s announcement in Q3 2021 to exit from the Korean consumer-banking business, which could cost it between $1.2 billion and $1.5 billion, could have triggered a decline in its market value. Earlier in the year, the bank also announced its exit from 13 other overseas markets in Asia and the EMEA regions, where it lacked the scale to compete.