Canadian banks are exploring options to strengthen their balance sheets in the face of increasing bad debts. With stock prices of the top five banks declining this year, further equity dilution may not be the preferred route. Instead, banks are considering selling non-core assets and capping dividends. One potential strategy is to offload parts of their loan books, which could be attractive to fixed-income investors and private equity firms. The Office of the Superintendent of Financial Institutions (OSFI) has been increasing the capital requirement, despite the banks already having a Common Equity Tier 1 (CET1) ratio between 12.2% to 15.2%.
According to the November 2023 Financial Stability Report, real estate and debt securities make up 50% of total assets in the Portuguese banking system [60b6099c]. Exposure to real estate represented 35.4% of assets in June, with loans secured by real estate being the most significant component. The report highlights the risk of falling real estate prices and the impact it could have on bank loan guarantees. Additionally, the report mentions that the public debt securities portfolio represents 15.5% of assets, with Portuguese banks holding significant amounts of Portuguese public debt. The report discusses the potential impact of exposure to sovereign debt on banks, noting that when public debt rises, banks record capital gains, but when it falls, it results in capital losses. The Bank of Portugal revealed that the public debt securities portfolio increased to 15.5% of assets, with an increase in debt securities and a decrease in total assets. The report also highlights the heterogeneity of public debt securities weight among institutions and the average remaining maturity of public debt securities in the banking system. Overall, the report provides insights into the composition of banking assets and the potential risks associated with real estate and sovereign debt exposure.
In other news, Danish tax authority SKAT has been granted the right to pursue British hedge fund trader Sanjay Shah and several companies over an alleged $1.8 billion tax fraud. Additionally, Amancio Ortega's investment firm Pontegadea is nearing a deal with Repsol to acquire a 49% stake in its wind farms and photovoltaic power plants in Spain.
Fondazione CRT, an Italian foundation, has adjusted its investment strategy by divesting from Banco BPM and increasing its stake in Generali, Italy's leading insurer. The foundation aims to maintain a 2% investment threshold in Generali, reflecting its confidence in the company's potential and stability. This strategic recalibration demonstrates Fondazione CRT's nuanced understanding of market dynamics and its strategic positioning within the Italian banking and insurance sectors [c678d9ea].
Scott Goodwin, co-founder of credit asset management firm Diameter Capital, sees value in investing in bonds and stocks of failed Signature Bank. Goodwin believes recent joint-ventures sealed by the Federal Deposit Insurance Corp-run Signature with real estate investors such as Blackstone are likely to allow the bank's securities to generate returns within five years. The FDIC sold 20% of its equity stake in a venture that holds a $16.8 billion real estate loan portfolio to investors, including Blackstone Real Estate Income Trust. Spain's Santander also bought 20% of Signature's real estate portfolio for $1.1 billion from the FDIC. Goodwin's firm has bought positions in the bank's securities. He estimates that the market capitalization of Signature Bank will jump to over $600 million from the current $145 million and sees Signature's bond prices more than doubling. Goodwin's thesis is not related to his optimism about the real estate market, as his firm is net short on commercial real estate (CRE) [cff7c0e8].