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A Look At The Global Banking Industry

Hong Kong was the site of Citigroup Inc (NYSE:C)’s Global Financials Conference last week. The event offered participants a snapshot of global banking activity across sectors and national borders. Banks and asset managers that presented shared their growth strategies, including US banks discussing their Asia expansion plans.

Details included Goldman Sachs Group Inc (NYSE:GS) reporting that 4Q13 trading conditions were on the upswing after a slow first three quarters. The common refrain among European banks was that the recovery was clearly underway. Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA) (MCE:BBVA) focused on Spain’s return to normal financial conditions by 2015-17. UK-based Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) offered an upbeat assessment for the next year. The French banks BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) and Credit Agricole SA (EPA:ACA) (OTCMKTS:CRARY) also mustered a positive outlook on capital over the next few quarters.

Global banking activity: Asia overview

Fears of a China hard landing seem to be receding, as the main topics focused on regional NIM/liquidity outlook and asset quality. The reform blueprint from the recent plenary meeting in China was also a hot topic, especially currency reform and the potential clampdown on interbank business. The real estate market and the potential for significant property value declines were major concerns for Hong Kong and Singapore-based participants.

US and European bank international strategy updates

As an overview, most non-US markets, especially Asia, remain key strategic priorities for US and European financial institutions. A number of participants mentioned developing strategies to take advantage of the ongoing trend toward urbanization in Asia and beyond.

Mergers and acquisitions activities in the sector have yet to pick up much steam, however, and the Citigroup Inc (NYSE:C) analysts expressed doubts regarding the likelihood of major deals in the near future. They mention the possibility of targeted acquisitions in China and the Asia Pacific, but feel the size of most deals will be limited due to questions about asset quality.

Citi Research — Chinese Banks

Citi Research released a report this week with details on their recent Global Financials Conference. The Highlighted Research section included the following note: “We prefer big banks as they are less leveraged and have strong liquidity and deposit profiles. Joint stock banks have somewhat overstretched balance sheets and are vulnerable to tightening of interbank/ shadow banking. Top picks CCB, ABC and CRCB. Least favored — MSB.”