The U.S. banking sector is grappling with instability marked by deposit outflows, credit downgrades, and growing domestic lender caution. Thus, one could explore beyond geographical borders and consider investing in sturdy foreign bank stocks Erste Group Bank AG (EBKDY), Banco Macro S.A. (BMA), and KB Financial Group Inc. (KB) instead.
Let’s understand this in detail.
The March collapse of Silicon Valley Bank and Signature Bank led to substantial deposit outflows and heightened scrutiny of the financial stability of lenders. Subsequently, S&P downgraded credit ratings and revised outlooks for several U.S. banks, mirroring a prior action by Moody's, further unsettling the sector.
Amid concerns of an economic slowdown, ongoing deposit outflows, and impending stricter liquidity regulations, U.S. lenders are stockpiling substantial cash reserves. This cautious strategy, driven by regional bank failures, may lead to limited lending activity, especially affecting mid-sized banks, as the sector remains cautious and aims to stabilize.
As of August 2023, cash assets of U.S. banks totaled $3.26 trillion, reflecting a 5.4% increase from the end of 2022. While this surpasses pre-pandemic norms, it remains lower than the peak seen in the weeks following the March bank failures, according to Federal Reserve data.
Also, during the second quarter, U.S. banks disclosed an astounding $558 billion in unrealized losses on their held securities, according to data compiled by the Federal Deposit Insurance Corporation. This marked an 8.2% rise from the first quarter's $515.50 billion, signifying a continued accumulation of losses since the crisis commenced.
Dubbed "March madness" by Cadence Bank (CADE) CEO Dan Rollins, the regional banking crisis earlier this year has receded after six months, yet its repercussions persist in the industry. Several regional bank executives and economists concur that it has left a lasting mark on the regional banking sector and the economy.
Considering the current condition of the U.S. banking industry, it could be wise to look beyond domestic boundaries. Considering this, let's take a look at the fundamentals of the three best Foreign Banks stocks, starting with number 3.
Stock #3: Erste Group Bank AG (EBKDY)
Based in Vienna, Austria, EBKDY offers an array of banking and financial services to retail, corporate, and public sector clients. The company's segments include Retail; Corporates; Group Markets; Asset/Liability Management; Local Corporate Center; Savings Banks; and Group Corporate Center.
On June 5, EBKDY unveiled an upgrade for its corporate clients, integrating Yokoy, an AI-driven spend management tool, into George Business. This enhancement simplifies financial operations for mid-sized and large companies, granting entrepreneurs more time to concentrate on their core business activities.
From its inception, EBKDY has pursued strategic collaborations to bolster its service portfolio. The union with Yokoy underscores EBKDY's unwavering dedication to providing corporate clients with cutting-edge digital solutions, promising heightened financial efficiency and profitability through innovative tools and technologies.
On May 26, the company reported that the European Investment Fund (EIF) committed to a €53 million ($56.41 million) guarantee agreement with EBKDY. This agreement is set to unleash over €66 million ($70.25 million) in support for social entrepreneurs in Austria, the Czech Republic, Hungary, Romania, and Slovakia.
For EBKDY, this agreement represents an opportunity for improved financial positioning, diversification, and expansion of its services, ultimately fostering financial growth through the facilitation of better financing conditions for social enterprises.
During the first half that ended June 2023, EBKDY’s net interest income increased 25.5% year-over-year to €3.56 billion ($3.79 billion). Its operating income rose 24.5% from the year-ago value to €5.16 billion ($5.49 billion).
In addition, net result attributable to the owners of the parent grew 31% from the prior year’s period to €1.49 billion ($1.59 billion) while earnings per share came in at €3.36, up 32.2% year-over-year.
The consensus revenue estimate of $11.26 billion for the fiscal year ending December 2023 reflects a 24.2% year-over-year rise. Likewise, the consensus EPS estimate of $3.61 for the ongoing year indicates a 37.5% year-over-year improvement. Moreover, the company topped the consensus EPS estimates in all four trailing quarters.
EBKDY’s shares have gained 42.6% over the past year to close the last trading session at $17.32.
EBKDY’s positive fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EBKDY has a B grade for Growth, Value, Momentum, Stability, and Sentiment. It is ranked #6 in the 89-stock Foreign Banks industry.
In addition to the POWR Ratings I’ve just highlighted, you can see EBKDY’s rating for Quality here.
Stock #2: Banco Macro S.A. (BMA)
Headquartered in Buenos Aires, Argentina, BMA delivers a diverse portfolio of retail banking products and services. Furthermore, the company extends corporate banking offerings and provides transaction services, along with a comprehensive range of short-term and medium-to-long-term corporate lending products.
On August 24, Itau Unibanco (ITUB) initiated a binding agreement to divest its Argentine operations to BMA for roughly 250 million reais ($51.47 million). This acquisition grants BMA access to 71 branches and approximately 1,500 employees in Argentina, positioning it for potential market share growth and improved financial performance in the Latin American banking arena.
For the second quarter that ended June 30, 2023, BMA’s interest income increased 48.3% year-over-year to ARS 307.12 billion ($877.52 million). Its operating income rose 80.6% from the year-ago value to ARS 173.08 billion ($494.54 million).
In addition, net income for the period grew 394.2% from the prior year’s quarter to ARS 44.16 billion ($126.18 million), while earnings per average outstanding share stood at ARS 69.02, up 393.7% from the previous year’s period.
Analysts expect BMA’s revenue to grow 38.2% year-over-year to $2.64 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is estimated to come in at $7.24, up 90.5% from the prior year. Also, BMA surpassed the consensus revenue estimates in all of the trailing four quarters.
The stock has gained 38.2% year-to-date, closing the last trading session at $21.85.
BMA’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
BMA has an A grade for Value and a B for Growth, Momentum, and Quality. It is ranked #4 out of 89 stocks within the same industry.
Click here to access the additional BMA ratings (Stability and Sentiment).
Stock #1: KB Financial Group Inc. (KB)
With its headquarters in Seoul, South Korea, KB provides loans, deposit products, and a spectrum of related financial services. The company's operations encompass seven distinct segments, Retail Banking; Corporate Banking; Other Banking; Credit Card; Securities; Life Insurance; and Non-Life Insurance.
On April 11, KB Securities Co., an investment dealer in the KB and Finhaven™ Technology Inc. signed a memorandum of understanding. Driven by the Korea Financial Services Commission's security token regulations and strategic roadmap, the collaboration aims to develop innovative security token products and introduce a dedicated Korean security token issuance and trading platform.
The alliance leverages Finhaven's expertise in security tokens and digital asset management, potentially enabling KB Securities to achieve financial growth and leadership in the evolving security token sector.
For the fiscal 2023 first half, KB’s net interest income increased 5.2% year-over-year to ₩5.76 trillion ($4.31 billion). Its gross operating income grew 25.8% from the year-ago value to ₩8.66 trillion ($6.48 billion). Furthermore, the company’s profit for the period rose 11.8% from the prior year’s period to ₩3 trillion ($2.25 billion).
The company’s revenue for the fiscal year ending December 2023 is expected to increase 8.9% year-over-year to $12.40 billion. Similarly, analysts expect KB’s EPS for the current period to come in at $10.08, up 22% from the previous year. Furthermore, the company surpassed the consensus revenue estimates in three of the four trailing quarters.
Over the past year, the stock has gained 21%, closing the last trading session at $42.21.
KB’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
KB has an A grade for Stability and a B for Value, Momentum, and Sentiment. It has topped the 89-stock Foreign Banks industry.
Click here to access additional KB ratings for Growth and Quality.
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KB shares were trading at $42.21 per share on Monday afternoon, down $0.00 (0.00%). Year-to-date, KB has gained 10.99%, versus a 14.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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