Being Irish, he had an abiding sense of tragedy
March 17, 2017

Mint - Blain's Morning Porridge

Being Irish, he had an abiding sense of tragedy, which sustained him through temporary periods of joy….

Top of the morning! A happy St Patrick's Day to everyone. Of course it should be Brains Bitter rather than Guinness we're drinking as St Patrick was Welsh… but just like the Scottish National Party, let's not let the facts get in the way… (There.. I've managed to insult three of the nations of the UK in a single sentence..)

I have done my head in with this Scotland referendum nonsense. I'm almost embarrassed to be a proud and passionate Scotsman. If I have to listen to another SNP minister mangle truth, common sense and the language again I shall scream. One of my best chums from Edinburgh called to say Theresa May has shot herself in the foot by saying Scotland can't have another referendum: "Scots don't like being told what they can do!" he told me.

Dear me! It's like dealing with teenage daughters. If Scotland is going into a monumental strop because some wee English lassie told them to wait, then it's time we grew up. Scots are being deeply emotional about a very serious issue.

I suspect that is the SNP's plan.

Wind up Westminster as much as possible so the English overreact. Their only hope is to rile the Scots electorate into anger by having them focus on perceived insults from London rather than the facts. Grow up! Wee Eck Salmond can go "boil his heid" with his exit sterling idea. Nicola Krankie should read the terms of the last referendum – which democratically bound Scotland to the Union a mere 30 months ago (editor's note: when Scots living in England start complaining about the ubiquity of whingeing Jocks, it's a sure sign that their compatriots have gone too far with the vocabulary of national victimhood).

Meanwhile..I am moderately pleased with myself. A client actually called to thank me for a trade idea..! Back in October 2016 he not only read my comment in the Porridge about Europe's dismal banks being a great contrarian trade, but he acted on the trade recommendation and bought the Euro Stoxx Bank 30 – an exchange-traded fund of the top 30 European bank stocks.

In October 2016, European banks were at the nadir. Even senior banking executives admitted many banks were "uninvestible". I reckoned the depressed prices and dismal news flow spelt a massive contrarian opportunity. So I stuck my neck out and on the basis "it's never as bad as they say it is", I recommended buying European banks.

Guess what. Since then… the ETF is nearly 40 percent higher. European banks have rallied. The recovery is ascribed to enhanced capitalization and an improving European economic backdrop. Others say the impending European Central Bank taper will help banks – although my own view is negative.

Now... I'm wondering if it's time to rejig the trade…? I'm still positive on banks, but not all of them. I reckon the rules of financial gravity are about to be reapplied on some of the weaker names.

There is no particular event I'm anticipating. Just the undiminished ability of banking executives to do the wrong thing, and the fact that the environment facing European banks is bad, remains bad and will stay bad for the foreseeable future. Most European banks remain essentially unreformed, with weak balance sheets, massive non-performing loans and questionable capital. Growth is anaemic. Returns are marginal.

While there isn't anything imminent from deranged regulators or spiteful judiciaries set to trigger a reversal…something ain't right. I feel we're in a phoney calm before the storm hits weak European banks..

Some folk are talking further upside from European banking mergers and acquisitions. Short-term spotting targets might be a profitable exercise, but long-term it's a shocking loser. Tell me a single cross-border successful European bank buys another European bank story? Oh, there was BBVA broking the Italian bank it inherited as part of the ABN farce a few years ago…but explain to me how well Unicredit's foray in the Teutonic World played out.

Other's think there will be upside from the ECB tightening rates. Higher rates meaning better margins. What on earth are they smoking? Like rising European rates are ever going to actually happen in our lifetimes. And if it happens, higher rates would just put the enormous stock of European NPLs back in context as will holdings of government bonds.

Growth is happening – but in the obvious places.. Scandinavia, the UK and selectively elsewhere. Perhaps some Spanish names are worth a punt. There is growth in Germany, but I'm reverting to seller mode on German banks on the basis.. well I'm sorry but for all sorts of reasons they just aren't very good.

And then there is regulatory threat – like worst-case Basel 4 being adopted because no one can agree to anything else. Recall Blain's primary rule of bank investment: "The only thing worse than a bank with too little capital is a bank with too much."

And there is Europe being Europe, which is pretty much unfixable in any way that isn't going to result in bank stocks crashing with the alacrity of a heavy weight dropped from the top of a skyscraper. So, sell the exchange-traded fund and buy some decent bank stocks… which are…well, that's going to cost you a trade…

Finally...why has Bob Diamond re-entered the London market with his bid for Panmure Gordon? Not such a crazy idea perhaps: firstly it will cement his alliance with the Qataris – who have invested multiple times the £15 million Diamond Geezer will pay for the nameplate. It's a good old famous name – and potentially a stepping stone to build something bigger. It's an acquisition that's worth watching.

Have a great weekend…

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint - Blain's Morning Porridge

Being Irish, he had an abiding sense of tragedy, which sustained him through temporary periods of joy….

Top of the morning! A happy St Patrick's Day to everyone. Of course it should be Brains Bitter rather than Guinness we're drinking as St Patrick was Welsh… but just like the Scottish National Party, let's not let the facts get in the way… (There.. I've managed to insult three of the nations of the UK in a single sentence..)

I have done my head in with this Scotland referendum nonsense. I'm almost embarrassed to be a proud and passionate Scotsman. If I have to listen to another SNP minister mangle truth, common sense and the language again I shall scream. One of my best chums from Edinburgh called to say Theresa May has shot herself in the foot by saying Scotland can't have another referendum: "Scots don't like being told what they can do!" he told me.

Dear me! It's like dealing with teenage daughters. If Scotland is going into a monumental strop because some wee English lassie told them to wait, then it's time we grew up. Scots are being deeply emotional about a very serious issue.

I suspect that is the SNP's plan.

Wind up Westminster as much as possible so the English overreact. Their only hope is to rile the Scots electorate into anger by having them focus on perceived insults from London rather than the facts. Grow up! Wee Eck Salmond can go "boil his heid" with his exit sterling idea. Nicola Krankie should read the terms of the last referendum – which democratically bound Scotland to the Union a mere 30 months ago (editor's note: when Scots living in England start complaining about the ubiquity of whingeing Jocks, it's a sure sign that their compatriots have gone too far with the vocabulary of national victimhood).

Meanwhile..I am moderately pleased with myself. A client actually called to thank me for a trade idea..! Back in October 2016 he not only read my comment in the Porridge about Europe's dismal banks being a great contrarian trade, but he acted on the trade recommendation and bought the Euro Stoxx Bank 30 – an exchange-traded fund of the top 30 European bank stocks.

In October 2016, European banks were at the nadir. Even senior banking executives admitted many banks were "uninvestible". I reckoned the depressed prices and dismal news flow spelt a massive contrarian opportunity. So I stuck my neck out and on the basis "it's never as bad as they say it is", I recommended buying European banks.

Guess what. Since then… the ETF is nearly 40 percent higher. European banks have rallied. The recovery is ascribed to enhanced capitalization and an improving European economic backdrop. Others say the impending European Central Bank taper will help banks – although my own view is negative.

Now... I'm wondering if it's time to rejig the trade…? I'm still positive on banks, but not all of them. I reckon the rules of financial gravity are about to be reapplied on some of the weaker names.

There is no particular event I'm anticipating. Just the undiminished ability of banking executives to do the wrong thing, and the fact that the environment facing European banks is bad, remains bad and will stay bad for the foreseeable future. Most European banks remain essentially unreformed, with weak balance sheets, massive non-performing loans and questionable capital. Growth is anaemic. Returns are marginal.

While there isn't anything imminent from deranged regulators or spiteful judiciaries set to trigger a reversal…something ain't right. I feel we're in a phoney calm before the storm hits weak European banks..

Some folk are talking further upside from European banking mergers and acquisitions. Short-term spotting targets might be a profitable exercise, but long-term it's a shocking loser. Tell me a single cross-border successful European bank buys another European bank story? Oh, there was BBVA broking the Italian bank it inherited as part of the ABN farce a few years ago…but explain to me how well Unicredit's foray in the Teutonic World played out.

Other's think there will be upside from the ECB tightening rates. Higher rates meaning better margins. What on earth are they smoking? Like rising European rates are ever going to actually happen in our lifetimes. And if it happens, higher rates would just put the enormous stock of European NPLs back in context as will holdings of government bonds.

Growth is happening – but in the obvious places.. Scandinavia, the UK and selectively elsewhere. Perhaps some Spanish names are worth a punt. There is growth in Germany, but I'm reverting to seller mode on German banks on the basis.. well I'm sorry but for all sorts of reasons they just aren't very good.

And then there is regulatory threat – like worst-case Basel 4 being adopted because no one can agree to anything else. Recall Blain's primary rule of bank investment: "The only thing worse than a bank with too little capital is a bank with too much."

And there is Europe being Europe, which is pretty much unfixable in any way that isn't going to result in bank stocks crashing with the alacrity of a heavy weight dropped from the top of a skyscraper. So, sell the exchange-traded fund and buy some decent bank stocks… which are…well, that's going to cost you a trade…

Finally...why has Bob Diamond re-entered the London market with his bid for Panmure Gordon? Not such a crazy idea perhaps: firstly it will cement his alliance with the Qataris – who have invested multiple times the £15 million Diamond Geezer will pay for the nameplate. It's a good old famous name – and potentially a stepping stone to build something bigger. It's an acquisition that's worth watching.

Have a great weekend…

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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