Mean Reversion Play for European Banks (EUFN, RAIFY, UNCRY, SCGLF, ISNPY)

Initiating this thread to track European banks that have been most affected by the Russian-Ukraine war.

Tickers tracked:

  • ETF: iShares MSCI Europe Financials Sector Index ETF (EUFN)
  • NYSE: Credit Suisse (CS), Deutsche Bank (DB), ING Group (ING)
  • OTC: Unicredit (UNCRY), Societe General (SCGLF), Raiffeisen Bank (RAIFY), Intesa Sanpaolo (ISNPY)

As we can see below, the stocks started tanking as the drumrolls of war intensified in the second half of February, and fell as much as 50% for some banks, before starting to mean revert over the last 2 weeks. The OTC tickers suffered the most, with the Austrian Raiffeisen Bank still down ~50%, and Italian Unicredit coming second at -36%. The ETF is down only 8% after a low of 24% on the eve of the invasion.

Based on initial research, first order effects from their direct involvement in Russia seem to post limited financial downside despite exposure amounts, number of customers, and branches and employees in-country. Losses are said to be limited even in cases of complete impairments. Some sources:

Would have felt better to have the food folks in the ECB or BIS saying this stuff though; will have to wait for those I suppose.


(Source)

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Raiffeisen seems to be the most in a bother, though we’re talking about a third of its profits:

Austria’s Raiffeisen, with 4.2mn customers and €22.9bn of direct exposure to Russia, is one of the few western lenders to have increased its presence there following the annexation of Crimea eight years ago. Russia accounts for about a third of Raiffeisen’s profits and its stock has plunged 50 per cent since tensions escalated on the border.

This makes it seem like some of the ones that are still down might be worth putting speculative positions in. Not feeling quite confident to do this yet though, as there doesn’t seem to be good information on the expected second order effects of the crisis. Particularly around European economies starting to slow down from the high energy prices and supply chain issues.

Will add to this thread over time as I find out more. Requesting others to do the same!

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I believe I talked about this on the Ukraine thread as well, but $DAX, the Germany ETF seemed to have had a huge drop on the start of the war as well, but seemed to have come back up a little. The only problem with playing this is that the spread is really wide on options.

What with news of a strategic reorientation in the reverse direction by the Russian Army (RA) bumbling around near Kyiv, and rumors of progress in peace talks despite a bit of pesky poisoning making a few negotiators feel a bit under the weather, EU banks were feeling pretty breezy today, rising between 3% to 10%.

This follows the hardest hit moving in a channel the last two weeks, and the less hard hit actually appreciating in price. During this time, all of them have either curtailed their businesses in Russia, or have made solemn promises to do so, so known impairments should be “priced in.”

Barring things (and the RA) going further south, perhaps the bottom is in?

Amongst the tickers with options, I like ING (-22%) best. The others have closed to gap to pre-conflict prices a bit too much.

With the OTCs, RAIFY and UNCRY are the ones with most room to appreciate, but it does seem they were on the slightest of downtrend until this bump, so may look for a bit more confirmation before getting those.

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The following filled for ING:

Jan 20, 2023 10C LEAPS @ $1.80/ea
May 20, 2022 12C @ $0.18/ea

Will look to release the 12C as price gap fills to even half-way to pre-war prices. Planning on holding the LEAPS longer, maybe release around a $15/$16 price point.

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In the last three weeks, European banks have moved sideways, or even fallen some.

The OTC ones - Unicredit (UNCRY), Societe General (SCGLF), Raiffeisen Bank (RAIFY), Intesa Sanpaolo (ISNPY) - all still feel like a bargain.

Have not found any new negative news specific to any of these. Russia/Ukraine continues to weigh heavily though all have enumerated their exposure and markdowns they will need to take, and it doesn’t seem to warrant a correction equivalent to a 1/3 - 1/2 of market cap. The upcoming almost-certain recession is probably depressing things though.

Nevertheless, if an ECB rate hike occurs, this could boost returns. The ECB said they will consider rate hikes “later this year,” but with inflation rising quite rapidly across Europe, “later” might come sooner than Lagarde wishes.

Overall, this is still a play to keep an eye on, but not enter yet as the trend has not shifted to :arrow_upper_right: yet.

Hey! Just got an alert on HYG, it’s hanging on for dear life and it reminded to post here. late last night I found good video arguing that the euro is about to follow the yen in the next 30 days. This video provided some great insight from a previous FX trader Brent Donnelly . I hope this helps some, currency is confusing to me so I appreciate you guys capacity to make it make sense.

https://twitter.com/MacroAlf/status/1516922913366048768?s=20&t=Y5F9BPjAHThCsNLj09-gLg

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ING has gone absolutely nowhere since I initiated positions, but they announced that they will buy back 10% of their issued shares. This should help.

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