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European banking stocks are ready for a rebound, Barclays strategists says

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European banks are finally showing signs of recovery and investors should be looking to reduce their bearish positioning in the beleaguered sector, according to Barclays strategists.

In a note published Wednesday, Barclays’ European banking and European equity teams projected that the stabilization of euro zone economic data and bond yields may bolster the banks, which have the most positive correlation to these two metrics of all European sectors.

“Euro zone composite PMI (purchasing managers’ index) is stabilizing and the key domestic drivers of activity are well oriented,” the note stated.

It added that in the meantime, bond yields and inflation expectations are “trying to find a floor,” which gives a breather to value stocks, those which trade at a lower price relative to their fundamentals.

On top of this, the Italian government is “showing some fiscal discipline” and the European Central Bank (ECB) has opened the door to new quantitative easing while “seeking to mitigate the drag from negative rates on banks.”

European banks suffered a sharp sell-off in the second quarter of 2019, shedding more than 13% over the past three months, and are down 18.64% over the past year.

However, they have begun to rebound slightly in recent weeks, gaining 5% over the past 30 days, and though consensus has the European banking sector at an underweight position, Barclays is maintaining an equal weight.

Short-covering expectations

The Barclays strategists, led by head of European equity strategy Emmanuel Cau, also highlighted that bank stocks at present are cheap and under-owned. As the third-worst performing sector year-to-date, many banks are trading at a “near-extreme valuation discount and offer and attractive dividend yield of 6%,” the note said.

Combined with depressed valuations and current bearish positioning from investors, this environment could lead to further “short-covering,” the buying in of securities that have been sold short (when traders bet they will lose value) in the hope of minimizing losses if the share price increases.

The note highlighted, however, that “structural headwinds are not going away,” with earnings remaining constrained by negative interest rate policy, and trade tensions, Brexit and anti-money laundering issues continuing to cloud the outlook.

But the analysts identified several banks which offer “quality at a reasonable price,” and have established overweight positions in Lloyds, Caixabank and ABN while remaining “skeptical of certain restructuring stories” involving Deutsche Bank, Standard Chartered, UBS and BNP Paribas.

The note suggested Deutsche would struggle to achieve the revenue it sought from a recent mass strategic overhaul, and questioned whether the German lender might need to raise equity within the next 12-24 months.

“In our view, many investors simply believe the sector is not investible anymore and see it as a value trap,” the note stated.

“While we agree that its medium-term profitability backdrop remains challenging, we think the some of the macro headwinds that exacerbated its recent underperformance are easing.”

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Santander Q4 2019 earnings

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Spanish Santander Bank executive chairperson Ana Botin.

JAVIER SORIANO | AFP | Getty Images

Santander posted a 35% year-on-year increase in net income for the fourth quarter of 2019, beating market expectations, supported by a rise in its customer base and capital gains.

The Spanish bank posted a net profit of 2.78 billion euros ($3.06 billion) in the last quarter of the year. For the whole of 2019, the bank’s net income dropped by around 16%.

Here are some of the highlights for the fourth quarter:

  • Total income hit 12.5 billion euros — slightly lower than the fourth quarter of 2018.
  • CET 1 capital ratio stood at 11.65%, compared to 11.30% at the end of 2018.
  • The total dividend proposal is 0.23 euros per share.

Santander also reported a 9% increase in the number of its “loyal” customers over the last year — meaning those that use the Spanish lender as their primary bank. “Our focus on customer loyalty, geographic diversification and scale drove strong operating performance across all regions,” Ana Botin, the chair of Banco Santander, said in a statement.

Speaking to CNBC’s Geoff Cutmore, Botin said she felt “very good” about the latest results. “We have delivered on all our strategic priorities,” she said, “We have created a lot of capital this year.”

The Spanish bank also recorded some charges in 2019 as well as restructuring costs in several markets. These amounted to about 1.7 million euros. Nonetheless, their impact was somewhat offset by a 693 million euro business transaction.

“Our South American business continued to generate healthy growth; we maintained strong momentum in North America, with the U.S. delivering among the fastest growing underlying profit of all markets; and in Europe we achieved a 10% return on tangible equity, despite a challenging interest rate environment,” Botin added in her statement.

Santander’s stock rose 4% in early deals on Wednesday.

UK market still under pressure

In the U.K., Santander reported a lower underlying profit due to “ongoing competitive pressures,” Botin told CNBC that the U.K. has experienced a “very important transformation program.”

“You’re only just beginning to see the results, so U.K. costs actually came down and costs will come down more next year but not at expense of service,” she said.

Costs dropped by 3% in real terms for its U.K. business. The total number of branches has fallen by more than 18% in annual terms to 616, and the number of employees has also dropped by about 4% in the same period.

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Pru, Acqua, Suay, Wagyu, Anise

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The image of Phuket as a cut-price destination for backpackers and budget-conscious retirees is long out of date.

Phuket has now become a favorite vacation destination for the world’s wealthiest individuals, many of them arriving on super-yachts.

Yachts are becoming a common sight in Phuket.

Asiandelight

It started when the Amanpuri resort opened and spearheaded the island’s upmarket transformation. Anthony Lark was the founding general manager at Amanpuri, before setting off in 2004 to create Trisara, one of the poshest resorts on the island.

Over the past 16 years at Trisara, Lark has taken care of a host of bold-faced names — Kate Moss, Roger Federer, Tom Jones, Kylie Minogue, members of U2 and Maroon 5. And he has watched Phuket evolve to cater to a choosier clientele.

“The changing culinary scene has been driven by supply and demand,” Lark said. “When I first got here, it was all pad Thai noodles, green curry and grilled fish on the beach. There were a few good Italian restaurants but absolutely no demand for fine dining, so that category simply didn’t exist.”

Pru’s jampa salad, which includes 15 different ingredients grown on the restaurant’s farm, is topped with a passion fruit vinaigrette.

Courtesy of Pru

Phuket wasn’t on super-yacht owners’ radar 20 years ago, said Lark, whereas today, five marinas have been built to cater to them.

“There were maybe a dozen million dollar holiday homes on Phuket,” said Lark of the 1980s. “Now, there are 150 villas worth in excess of that sum.”

“That’s brought a customer with higher, more exacting demands.”

Phuket earns its first Michelin star

In 2016, Trisara opened Pru — a restaurant specifically aimed at catering to the tastes of nomadic foodies and wealthy travelers.

An acronym for “plant, raise, understand,” Pru is a creative farm-to-table establishment that sources many ingredients from its own 96-hectare organic farm.

Black kingfish, sourced from the Andaman Sea, is paired with organic beetroot sorbet and house-made mulberry vinegar.

Courtesy of Pru

Young chef Jimmy Ophorst, who came to Phuket from the Netherlands nearly eight years ago, was rewarded for his efforts when Pru won a Michelin star — the first to be awarded to a restaurant on Phuket — on the inaugural 2019 Thailand list. Retaining the accolade in 2020, Pru remains the only Michelin-starred restaurant on the island.

“It’s unbelievable the impact winning a Michelin star has had on me as a chef, and on this restaurant,” Ophorst said.

Duck egg, charred eggplant, locally-sourced abalone and wild herbs.

Courtesy of Pru

“I’ve never worked in a Michelin-starred restaurant before in my life,” he said. “From the moment we won it, the restaurant has been full — many people tell me they’ve come to the island just to dine with us.”

Ophorst said when Pru was opened, a key goal was to make Phuket the second-best dining destination in Thailand, after Bangkok. He said the level of cuisine has grown a lot since Michelin started looking at restaurants on Phuket.

“There are so many good chefs here, I’m sure we can get plenty more stars on the island.”

A decade of decadence

Ten years ago, there was little in the way of upscale dining outside the big hotels. Now, there are many independent restaurants doing brisk business.

Sardinian chef Alessandro Frau’s modern-Mediterranean Acqua Restaurant is the bookmakers’ favorite to be the next Phuket spot to secure a star.

Acqua’s smoked Sardinian eel and pickled vegetables in a white balsamic vinegar sauce.

Courtesy of Acqua.

But an array of others is quietly vying for the attention of Phuket’s discerning gourmands. For example, Suay Restaurant in the upscale northwest neighborhood of Cherngtalay serves creative, modern Thai.

Suay Restaurant earned a spot in the Michelin Guide 2020.

Courtesy of Suay Restaurant

British-run Bampot specializes in contemporary European cuisine, alongside excellent cocktails. Exquisite Italian is served at the lilliputian (just six tables) La Gaetana. Carnivores are catered for at Twin Palms’ new Wagyu Steakhouse — unimaginative name, but unbelievable meat.

High-end southern Thai food at Anise.

Courtesy of Anise

Despite Phuket’s increasingly upmarket positioning, it’s still possible to enjoy an incredible meal here for a humble sum. Even Lark has deviated from his traditional high-luxury lane to launch a new value-focused restaurant, Anise. Its proposition: simple, beautiful, authentic Thai food served in an elegant space at affordable prices.

“Phuket’s culinary scene has now done what Bali did in the 1990s,” said Lark. “It’s grown up.”

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Bollywood’s Deepika Padukone’s battle with mental illness, depression

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Bollywood star Deepika Padukone has spoken out about her battle with depression, calling for greater public discussion to help tackle the mental health crisis.

Padukone, who is one of India’s highest-paid actresses, said her experience during a seeming “professional high” revealed the illness’ indiscriminatory nature and inspired her to campaign for other sufferers.

“Mental illness crept up on me when I least expected it,” Padukone said last week.

“The perception and the general understanding was that I was at a professional high,” she said last Tuesday at the World Economic Forum in Davos, Switzerland. “But what I was also experiencing was this hollow, empty, pittish feeling … I would just cry out of nowhere.”

Padukone was diagnosed with depression in 2014.

The 34-year-old celebrity, who has over 30 movies to her name, said she considered herself lucky that her mother had spotted her symptoms and urged her to seek medical help.

Indian actress Deepika Padukone delivers her acceptance speech during the “Crystal Award” ceremony at the World Economic Forum (WEF) annual meeting in Davos, on January 20, 2020.

Fabrice Coffrini

However, she noted that stigma and lack of awareness surrounding mental illness can make it difficult for sufferers to reach out. In India alone, an estimated 7.5% of the population suffers from some kind of mental illness, according to the World Health Organization, yet provisions remain scarce.

That inspired Padukone to set up the Live, Love, Laugh Foundation in 2015 to support other sufferers. The charity aims to spread awareness of mental health issues, having launched India’s first national campaign, as well as working to help people reach diagnoses.

Learning to understand what she was experiencing was the first step to recovery, Padukone said. She encouraged potential sufferers and the people around them to look out for telltale signs of depression, such as prolonged feelings of sadness, sleeping and eating irregularities, as well as suicidal thoughts.

“The toughest part in the journey for me was not understanding what I was feeling,” said Padukone. “Just having the diagnoses in itself felt like a massive relief.”

Padukone was speaking at the WEF meeting — a gathering of global business leaders and policymakers — where she was honored with the 2020 Crystal Award for her contributions to mental health awareness.

In 2018, she was named as one of Time magazine’s 100 most influential people of the year.

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