Chasing Yields: Looking at USD Financials Credit

Shawn Sng  |   12 Dec 2023  |    40 views

With fixed income yields starting to show signs of tapering down due to softer inflationary data pointers being released, are there any other opportunities out there that would offer yields that may fetch above 5%? Listed below are a few financial institutions whose perpetuals are still offering above 5% range.

 

 

BNP Paribas

First, we have BNP Paribas who is a French international banking group with total assets amounting to €2.7 trillion. The bank is headquartered in Paris and comprises 3 main operating divisions which are Corporate & Institutional Banking (CIB); Commercial, Personal Banking & Services (CPBS); and the Investment & Protection Service (IPS). BNP Paribas has a long term debt credit rating of A+/AA-/Aa3 by (S&P/Fitch/Moody’s).

 

In 3Q2023, BNP Paribas’s revenue was up 4.3% YoY supported by the strength of its 3 operating divisions Corporate & Institutional Banking (+5.1%), Commercial, Personal Banking & Services (+6.7%), Investment & Protection Services (-1.8%, +5.6%1 excluding Real Estate and Principal Investments). Its Net Income has also grown 9.5% YoY after the impact of the sale of Bank of the West and after the impact of the ramp-up of the SRF. BNP has a CET1 ratio of 13.44% as at 30.09.23, 365 bps above regulatory requirement and has a Liquidity Coverage Ratio (LCR) of 138% as at 30 September 2023. Its leverage ratio came to 4.5%.

 

Bond worth the look

BNP 9.250% Perpetual (USD)

Indicative Price: 106.61

Indicative YTW: 7.290%

Reset Date: 17 Nov 2027 and every 5 years thereafter

Reset Rate: 5Y UST Rate + Initial Margin (4.969%)

 

 

DBS

Next up would be DBS Bank. Headquartered and listed in Singapore (SGX: D05), DBS is in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia with total assets amounting to $745 billion. DBS has a long-term debt credit rating of AA-/AA-/Aa1 by (S&P/Fitch/Moody’s).

 

DBS Group’s third-quarter 2023 net profit rose 18% YoY to SGD 2.63 billion and total income grew 16% to a record SGD 5.19 billion from higher net interest margin and growth in commercial book non-interest income. DBS maintained a comfortable CET1, LCR and Leverage ratio of 14.1%, 146% and 6.5% respectively keeping afloat with regulatory requirements. Currently, Temasek holds 28.8% of stake in DBS as at 30 June 2023.

 

Bond worth the look

DBS 5.479% 12 Sep 2025 (USD)

Indicative Price: 100.735

Indicative YTM: 5.033%

 

 

HSBC

Moving along we have HSBC. HSBC is a British universal banking group with total assets amounting to €3.02 trillion. The bank is headquartered in London and serves its customers through its global businesses: Wealth and Personal Banking; Commercial Banking; and Global Banking & Markets. HSBC has a long term debt credit rating of A-/A+/A3 by (S&P/Fitch/Moody’s).

 

HSBC’s third-quarter 2023 revenue rose 40% YoY attributable to higher Net Interest Income (+16%) and also primarily due to: (i) the nonrecurrence of a $2.5bn impairment in 3Q22 relating to the planned sale of its retail banking operations in France; (ii) $1.6bn higher revenue offset into non-NII from the central costs of funding GBM trading activity; (iii) offset by $0.6bn Treasury disposal losses taken for hedging and risk management purposes.  HSBC’s CET1 rose from 14.7% to 14.9% in the 3Q2023 and has a Liquidity Coverage Ratio (LCR) of 134%  and a leverage ratio of 5.7%.

 

Bond worth the look

HSBC 6.547% 20 Jun 2034 (USD)

Indicative Price: 98.523

Indicative YTW: 6.759%

Reset date: 20 June 2033 and every quarterly thereafter

Reset Rate: SOFR + Margin (2.980%)

 

 

ING Group

ING Group is a Dutch multinational banking and financial services corporation headquartered in Amsterdam. Its primary businesses are retail banking, direct banking, commercial banking, investment banking, wholesale banking, private banking, asset management, and insurance services. With total assets of €1.02 trillion. ING Group has a long term debt credit rating of A-/A+/N.A by (S&P/Fitch/Moody’s).

 

ING Groups’s third-quarter 2023 total income rose 20.6% YoY driven by continued support from a positive rate environment on the replicating portfolio. The Group’s CET1 ratio stood at 15.2% (increased from 14.9 in 2Q2023) driven by strong capital generation and this is also well above their targeted range of 12.5% level.

 

Bond worth the look

ING Groep NV 7.500% Perpetual (USD)

Indicative Price: 95.750

Indicative YTW: 8.080%

Reset Date: 16 Nov 2028 and every 5 years thereafter

Reset Rate: 5Y UST Yield + Initial Margin (3.711%)

 

 

Nomura

Nomura is a global financial service that services the needs of individuals, institutions, corporations and governments through its three business divisions: Retail, Investment Management and Wholesale (Global Markets and Investment Banking). The group has an integrated network spanning approximately 30 countries and regions alongside credit ratings of BBB+/A-/Baa1 by (S&P/Fitch/Moody’s).

 

Nomura’s 1H2023 Net revenue has increased by 16% YoY due to stronger performances across all divisions. (Retail: Number of flow business clients significantly higher than last year and flow revenues grew further following realignment of teams to better respond to client needs; Investment Management: Net inflows lifted AuM to record high of ¥76.5trn; Wholesale: Investment Banking revenues grew 10% QoQ driven by Japan related Equity Capital Market and Advisory transactions). The Group continues to portray its robust financial position as it CET1 ratio stood at 16.2%, while its LCR clocked in at 203.8%.

 

Bond worth the look

NOMURA 5.842% 18 Jan 2028 (USD)

Indicative Price: 100.965

Indicative YTM: 5.574%

 

 

OCBC

Lastly would be OCBC. OCBC is also a Singapore multinational banking and financial services corporation headquartered in OCBC Centre, Singapore with more than 400 branches and offices in Singapore, Malaysia, Indonesia, Vietnam and Thailand, as well as Mainland China, Hong Kong SAR, Macau SAR and Taiwan. OCBC has a credit ratings of AA-/AA-/Aa1 by (S&P/Fitch/Moody’s).

 

For OCBC’s 3Q2023, its Total Income has grown 13% YoY underpinned by record net interest income (+17%) and growth in non-interest income (+4%). The group’s net profit has also rose by 21% from the previous year to S$1.81 billion. Operating expenses were S$1.34 billion, 5% higher than the prior year, on the back of continued investments in the Group’s people and technology. The Group maintained its sound capital position with its CET1 ratio edging 0.4% higher from the previous year to 14.8% in its 3Q2023 while maintaining its Leverage ratio unchanged at 6.8% similar to prior year.

 

Bond worth the look

OCBCSP 4.602% 15 Jun 2032 (USD)

Indicative Price: 97.582

Indicative YTM: 5.365%

Reset Date: 15 Jun 2027

Reset Rate: prevailing 5 year US Treasury + Initial Spread (1.575%)

(No step-up)

 

 

Overall, for investors who have a slightly larger risk appetite and is keen on looking at financial institution USD-denominated bond that yield above 5% range. These could be some considerations to look at to secure those rates at the moment.

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