1、DISCLOSUREDISCLOSURE APPENDIXAPPENDIX ATAT THETHE BACKBACK OFOF THISTHIS REPORTREPORT CONTAINSCONTAINS IMPORTANTIMPORTANT DISCLOSURES,DISCLOSURES,ANALYSTANALYST CERTIFICATIONS,CERTIFICATIONS,LEGALLEGAL ENTITYENTITY DISCLOSUREDISCLOSURE ANDAND THETHE STATUSSTATUS OFOF NONNON-USUS ANALYSTSANALYSTS.USU
2、S DisclosureDisclosure:CreditCredit SuisseSuisse doesdoes andand seeksseeks toto dodo businessbusiness withwith companiescompanies coveredcovered in in itsits researchresearch reportsreports.AsAs a a result,result,investorsinvestors shouldshould bebe awareaware thatthat thethe FirmFirm maymay haveha
3、ve a a conflictconflict ofof interestinterest thatthat couldcould affectaffect thethe objectivityobjectivity ofof thisthis reportreport.InvestorsInvestors shouldshould considerconsider thisthis reportreport asas onlyonly a a singlesingle factorfactor in in makingmaking theirtheir investmentinvestmen
4、t decisiondecision.Credit Suisse US Banks Research Prepare for the Great DividePrepare for the Great Divide 2019 Outlook2019 Outlook January 2019January 2019 Research AnalystsResearch Analysts Susan Roth KatzkeSusan Roth Katzke Large Cap Banks Analyst 212.325.1237 susan.katzkecredit- Adam Krasner,CF
5、AAdam Krasner,CFA Large Cap Banks Associate 212.325.7116 adam.krasnercredit- Gerard PadillaGerard Padilla Large Cap Banks Associate 212.325.3579 gerard.padillacredit- 1 Prepare for the Great Divide Large Cap Banks 2019 Outlook Table of Contents Susan Roth Katzke(212)325-1237 susan.katzkecredit- Thes
6、is and Key Themes for 2019(pages 2-3)Valuation Perspective(pages 4-10)Macro Confidence Is Critical to Outperformance(page 14)Banking industry cyclicality(pages 16-17)Fear Factor:perspective setting with a look back to prior cyclical downturns(pages 18-23)Risk vs reward:gauging upside and downside(pa
7、ge 24)Prepare for the Great Divide(pages 29-30)Scale Matters,Fragmentation Drives Opportunity,Catalysts for Consolidation Are in Place Catalysts for consolidation(page 31)The changing competitive landscape in banking(page 32)Scale matters;fragmentation drives opportunity(pages 33-39)Earnings Outlook
8、:2019/2020 Vision(page 43)Key assumptions underpinning our base case forecast(page 45)Earnings sensitivity:NIM,loan growth,trading,revenue,and credit costs(page 46)Net interest revenue drivers(pages 47-49)Moving through the cycle;credit quality metrics(pages 50-53)Coverage:Thesis,Catalysts,and Risks
9、(pages 55-57)Recent Bank Research(page 59)Appendix Detail Regulatory roadmap,CCAR and capital payout rates(pages 61-68)Balance sheet positioning:then and now(page 70)Technology spending history(page 73)2 Large Cap Banks:Large Cap Banks:2019 Outlook 2019 Outlook Prepare for the Great Divide:Prepare f
10、or the Great Divide:All All B Banks Are Not Equalanks Are Not Equal Here we sit in the midst of an elongated economic cycle,with competition intensifying and an inevitable end to Here we sit in the midst of an elongated economic cycle,with competition intensifying and an inevitable end to the cycle
11、somewhere on the horizon.When,where,how its hard to say.More clear is the toll that late cycle the cycle somewhere on the horizon.When,where,how its hard to say.More clear is the toll that late cycle uncertainty has taken on the stocks.2018s share price underperformance was in stark contrast to the
12、strength uncertainty has taken on the stocks.2018s share price underperformance was in stark contrast to the strength of banking fundamentalsof banking fundamentalssustainability is the issue,with growth and returns threatened by competition and sustainability is the issue,with growth and returns th
13、reatened by competition and credit quality erosion,both late cycle risks.All banks are not equal.Some will fare better than others.Those credit quality erosion,both late cycle risks.All banks are not equal.Some will fare better than others.Those that fare best will be the profitable market share tak
14、ers.These are the banks we want to own.that fare best will be the profitable market share takers.These are the banks we want to own.Prepare for the Great Divide Prepare for the Great Divide those best positioned to thrive in the midst of intensifying competition will be those best positioned to thri
15、ve in the midst of intensifying competition will be the scaled,techthe scaled,tech-embracing marketers.They will drive profitable market share gains(modest revenue growth embracing marketers.They will drive profitable market share gains(modest revenue growth with operating leverage)alongside managea
16、ble credit cost increases and capital efficiency to sustain with operating leverage)alongside manageable credit cost increases and capital efficiency to sustain respectable earnings growth and aboverespectable earnings growth and above-average ROTEs.average ROTEs.R Risk vs Reward Favors Investment i
17、n JPM,BAC,MS,GS,and C.isk vs Reward Favors Investment in JPM,BAC,MS,GS,and C.Well Well continue to assess valuations cognizant continue to assess valuations cognizant of the economic of the economic cycle and the evercycle and the ever-changing changing operating operating and competitive environmen
18、t.Our and competitive environment.Our base case estimates base case estimates translate translate to 7to 7-10%annual 10%annual EPS growth EPS growth into 2020 and into 2020 and 16%ROTE on average.16%ROTE on average.Gauging upsideGauging upside the the weighted weighted average of our blue average of
19、 our blue sky(25%),sky(25%),base case base case(50%)and(50%)and gray gray sky(25%)scenarios sky(25%)scenarios translates to translates to 25%+25%+total return in total return in our recommended our recommended names;names;and downsideand downside now 20%in our gray sky/recession scenario.now 20%in o
20、ur gray sky/recession scenario.We strongly favor We strongly favor the universal banking model with its multiple levers for the universal banking model with its multiple levers for growth and growth and greater potential for realization of scale greater potential for realization of scale economiesec
21、onomies.Herein we explore several key themesHerein we explore several key themesmacro features heavily followed by the regulatory backdrop,macro features heavily followed by the regulatory backdrop,competition and the next wave of banking industry market share petition and the next wave of banking i
22、ndustry market share consolidation.In this next wave,scale and a In this next wave,scale and a determination to invest should drive towards a virtuous cycle for industry leaders(i.e.,profitable market share determination to invest should drive towards a virtuous cycle for industry leaders(i.e.,profi
23、table market share takers).Scale matters;market fragmentation drives opportunity;catalysts for consolidation are in place.takers).Scale matters;market fragmentation drives opportunity;catalysts for consolidation are in place.Consistent with our stock recommendations,we believe the best way to play t
24、his next wave will be through Consistent with our stock recommendations,we believe the best way to play this next wave will be through investment in the scaled universal banks.investment in the scaled universal banks.Best wishes for a healthy,happy and productive 2019.Best wishes for a healthy,happy
25、 and productive 2019.Susan,Adam and Gerard,the Credit Suisse Banks TeamSusan,Adam and Gerard,the Credit Suisse Banks Team Susan Roth Katzke(212)325-1237 susan.katzkecredit- 3 Large Cap Banks:Large Cap Banks:Four Key Themes for 2019Four Key Themes for 2019 Prepare for the Great Divide:Prepare for the
26、 Great Divide:All Banks All Banks Are Are Not EqualNot Equal Macro SupportMacro SupportModerating GDP Growth with a“Late Cycle”OverhangModerating GDP Growth with a“Late Cycle”Overhang Were in year ten of whats historically been a fiveWere in year ten of whats historically been a five-toto-seven year
27、 economic cycle,with precedent for seven year economic cycle,with precedent for extension extension set by the 1991set by the 1991-2001 experience.Given the tight correlation between GDP growth and banking industry 2001 experience.Given the tight correlation between GDP growth and banking industry f
28、undamentals(loan growth,capital markets activity,credit costs),confidence in sustainable macro support is fundamentals(loan growth,capital markets activity,credit costs),confidence in sustainable macro support is criticalcriticalthis is our starting pointthis is our starting point.Regulatory Reform
29、How Open is the Window of Opportunity(and for how long)Regulatory Reform How Open is the Window of Opportunity(and for how long)All eyes on tailoring(for the subAll eyes on tailoring(for the sub-$700bn asset banks),CCAR and GSIB recalibration for the bigger banks.$700bn asset banks),CCAR and GSIB re
30、calibration for the bigger banks.Scale Matters;Fragmentation Drives Opportunity;Catalysts for Consolidation Scale Matters;Fragmentation Drives Opportunity;Catalysts for Consolidation Are Are in Placein Place Beyond Beyond the the macro,our macro,our thematic focus continues to revolve around competi
31、tion and market share thematic focus continues to revolve around competition and market share consolidation(the consolidation(the former former a driver a driver of the of the latter).Were focused latter).Were focused on scaleon scalespending power as well as lower unit spending power as well as low
32、er unit operating operating costscosts-increasingly evident and increasingly increasingly evident and increasingly valuable in valuable in driving driving an increasingly Great Divide an increasingly Great Divide between the haves and the have nots.between the haves and the have nots.And were focuse
33、d And were focused on the still quite significant degree on the still quite significant degree of fragmentation of fragmentation in basic banking productsin basic banking productsthis this will be will be the fuel for growth,via both market share shifts and the fuel for growth,via both market share
34、shifts and M&A(for M&A(for those those below the Feds$700bn tailoring below the Feds$700bn tailoring line).line).Competition is Intensifying;the Most FitCompetition is Intensifying;the Most Fit-Scaled,TechScaled,Tech-Embracing,Marketers Embracing,Marketers-Will ThriveWill Thrive Less macro tailwind,
35、the competitive positioning of Less macro tailwind,the competitive positioning of the the big banks and the big banks and the struggle of those struggle of those left left to compete to compete on on price alone,will take its toll.Our recommendations favor the profitable price alone,will take its to
36、ll.Our recommendations favor the profitable market share market share takertakerthe the scaled,techscaled,tech-embracing embracing marketers able marketers able to compete on price,but less compelled to do to compete on price,but less compelled to do so,so,with profitability with profitability furth
37、er further supported supported by declining unit operating by declining unit operating costs(the costs(the latter realized through investment rather than latter realized through investment rather than starvation).Top starvation).Top picks JPM and BAC most clearly fit this bill.picks JPM and BAC most
38、 clearly fit this bill.All in,we continue to favor the universal All in,we continue to favor the universal b banking model when scaled,complete,and well integrated anking model when scaled,complete,and well integrated to drive profitable market share gains with multiple to drive profitable market sh
39、are gains with multiple l levers for growth.evers for growth.Susan Roth Katzke(212)325-1237 susan.katzkecredit- 4 CS Large Cap Banks P/E Valuation History Large Cap Large Cap Banks:Banks:Valuation and Late Cycle Price PerformanceValuation and Late Cycle Price Performance Susan Roth Katzke(212)325-12
40、37 susan.katzkecredit- CS Large Cap Banks P/TBV Valuation History Valuations reflect late cycle uncertaintiesValuations reflect late cycle uncertainties the Large Cap Banks underperformed the broader the Large Cap Banks underperformed the broader market by 1700 bps in 2018 despite above average earn
41、ings growth and improved returns.market by 1700 bps in 2018 despite above average earnings growth and improved returns.Sustainability is the issue,threatened by competition and credit quality erosion,both late cycle risks.Sustainability is the issue,threatened by competition and credit quality erosi
42、on,both late cycle risks.Share price performance prospects Share price performance prospects P/Es and P/BV are below their historical averages;dividend P/Es and P/BV are below their historical averages;dividend yields are above.From here dividend yields and visible earnings growth will be key to per
43、formanceyields are above.From here dividend yields and visible earnings growth will be key to performance,alongside market sentiment;expect share price volatility to remain elevated.Realongside market sentiment;expect share price volatility to remain elevated.Re-valuation is most valuation is most l
44、ikely to stick/be sustained only once the banks prove their ability to weather a recession.likely to stick/be sustained only once the banks prove their ability to weather a recession.Source:FactSet,Credit Suisse estimates and research.Metrics on this slide exclude trust banks.14.1x11.3x8.8x11.3x11.7
45、x14.1x0.0 x4.0 x8.0 x12.0 x16.0 x20.0 x1998199920002001200220032004200520062007200820092010201120122013201420152016201720182019Recession2 Yrs Prior to RecessionCS Large Cap Banks(ex-Trust)Cycle Average0.8x1.0 x1.5x3.4x1.4x0.0 x1.0 x2.0 x3.0 x4.0 x5.0 x199719981999200020012002200320042005200620072008
46、2009201020112012201320142015201620172018Recession2 Yrs Prior to RecessionCS Large Cap Banks(exGS/MS and Trust Banks)Cycle Average3.9x4.0 x3.4x5 CS Large Cap Banks Late Cycle Share Price Volatility(1998-2000)Large Cap Large Cap Banks:Banks:Valuation and Late Cycle Price VolatilityValuation and Late C
47、ycle Price Volatility Susan Roth Katzke(212)325-1237 susan.katzkecredit- CS Large Cap Banks Late Cycle Share Price Volatility(2015-2018)A look back to the 24 months preceding the 2000/2001 A look back to the 24 months preceding the 2000/2001 recessionrecessiona a period more like the period more lik
48、e the present than the years preceding the financial crisispresent than the years preceding the financial crisisshows the price volatility that comes with shows the price volatility that comes with late cycle fundamental concerns.late cycle fundamental concerns.The bottom line its later in the cycle
49、;volatility is likely to remain elevated.The bottom line its later in the cycle;volatility is likely to remain elevated.Source:FactSet,Credit Suisse estimates and research.NTM P/EP/TBVPriceDatePeak17.0 x4.2xJul-98Decline-5.2x-1.1x-25%Trough11.8x3.1xSep-98Rebound5.2x0.9x35%Peak17.1x4.1xApr-99Decline-
50、3.7x-0.6x-10%Trough13.4x3.4xSep-99Rebound0.3x0.2x16%Peak13.7x3.6xOct-99Decline-0.8x0.3x-28%Trough12.9x4.0 xFeb-00Avg Change-23%-Avg Peak15.9x4.0 x-Avg Trough12.7x3.5x-NTM P/EP/TBVPriceDatePeak12.6x1.4xJul-15Decline-3.0 x-0.4x-19%Trough9.6x1.0 xFeb-16Rebound3.9x0.6x56%Peak13.4x1.6xFeb-17Decline-1.1x-