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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 26 August 2013 at 7:50 GMT

Quant Corner: Raiffeisen Bank becomes model's most undervalued

Head of Equity Strategy / Saxo Bank
Denmark

Over the past couple of weeks, several new European banks have entered our Quant Model as they are now providing pro forma Basel III Tier 1 capital ratios. Raiffeisen Bank has surpassed Deutsche Bank to become the most undervalued bank.

French banks still top picks
The three major French banks (Credit Agricole, Societe Generale and BNP Paribas) remain the model's favourites on a relative basis among European banks. Analysts have not changed their estimates for return on equity over the past week, so the outlook for the French banks remain unchanged and below average among its peers.

Major European Banks

Raiffeisen Bank is new most undervalued bank
Austria's Raiffeisen Bank is one of the newcomers to the model as the bank now reports its pro forma Basel III Common Equity Tier 1 capital ratio, which it states as 9.8 percent, a level very close to the average. Analysts have a relatively positive outlook for Raiffeisen Bank despite its low price-to-book ratio. Our model indicates that the bank is 61 percent undervalued given how other banks are valued relative to their expected return on equity. However, the relative momentum is negative and as a result, the model's view is neutral.

Commerzbank goes against the model
Our model fell 0.88 percent last week, before costs, if positions had been taken early Monday. Commerzbank is the primary reason for the negative alpha. The negative view on the German bank was punished by a 7.1 percent gain in its stock. However, all up the model remains negative on Commerzbank.

Model performance

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Saxo Bank - View on European banks - 2013_08_26

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