European Equities, Credit and Financials


European equities rebounded yesterday with the Stoxx Europe 600 1.5% higher, led by miners and banks. Synthetic indices also had a positive session with the Main and the Senior Financials 1bp tighter while the Crossover tightened 5bp. Looking ahead there is the ECB meeting on Thursday. While we do not expect any major announcement, we expect Draghi to quell tapering talks and bring the focus back to a probable QE extension in December. This would be viewed positively by the market and therefore for credit markets we would expect to see spreads tighten in the following days, with a preference for higher beta names. That would also give a more positive backdrop for a continuation of the crowding out effect from the CSPP. Back to yesterday’s session, overall cash spreads closed unchanged, with some outperformance from higher yielding papers. In Autos, Fiat Chrysler (FCAIM) outperformed with the bonds up to 15bp tighter in the 5yr maturity. In Consumers, Mondelez international (MDLZ) outperformed slightly with spreads 1-2bp tighter after the issuer announced a tender offer on Monday on some of its outstanding debt, including euro denominated papers. Some of the bonds like the MDLZ 2.375 1/21 saw their spread reaching new lows for the year. In TMT, the widening in BT Group (BRITEL) stopped which could be due to reduced expectations of a hard Brexit. With the general positive backdrop there were a few new issues yesterday. Snam (SRGIM) was in the market with a €500m 4yr bond priced at MS+20bp (IPT at +30/35bp). In FIG, Segro European Logistics (SEGPLP) issued a €500m 7yr bond at MS+120bp.

Handelsbanken (SHBASS) reported SEK4.6bn net earnings up 21% YoY. The bank booked one-off share sales gains in the quarter, and excluding these the earnings were roughly stable YoY. Net interest income increased by 3% YoY, a positive, as higher volumes and loan margins offset lower deposit margins. Interestingly the bank points out that its deposit driven NII is SEK7.5bn lower on a yearly basis in Sweden compared to the levels in 2011 illustrating the effects of negative rates. Net fees and commissions were down by 2% YoY. Net gains on financial transactions were SEK1.1bn, up from SEK0.2bn in 3Q15 and SEK0.5bn in 2Q16, as the item is supported by SEK769m of capital gains. Handelsbanken kept its operating costs rather stable increasing only 1% YoY and as such its cost to income ratio improved with higher revenues. Handelsbanken’s loan quality somewhat weakened with its net loan losses at SEK476m (10bp), up from SEK229m (5bp). The rise was mainly due to a provision made to a single exposure according to the bank, and thus not a trend change. Impaired loans were somewhat lower QoQ corresponding to a low 17bp of lending. Handelsbanken strengthened its capital metrics with its CET1 ratio at 24.0% up QoQ from 23.0%, while the total capital ratio improved to 30.1%. The ratio is well ahead of the Swedish regulator’s CET1 capital requirement set at 21.1% for the year-end 2016