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TRUSTA THOMSON REUTERS FINANCIAL & RISK PROPRIETARY BENCHMARK OF TRUST IN THE GLOBAL FINANCIAL MARKETPLACE, Q4 2013
TRUSTQ4 2013
“ When we began monitoring the TRust Index metrics in Q1 2013, there was considerable uncertainty for global financial institutions and world markets. Throughout a year which saw dramatic improvement in markets and economies (and numerous headline events impacting the top 50 global financial institutions), trust sentiment amongst news and social media, whilst still modestly negative, had recovered from 2012’s lows and stabilized, and the analyst community continued their strong assessment of the sector’s prospects. By year end, our data revealed a stronger industry had passed the five-year anniversary of 2008’s crisis and looked ahead to 2014 within a much-changed landscape and an ever-increasing regulatory burden.”
David Craig – President of the Financial & Risk business at Thomson Reuters
The value of trust to the financial sector – and of reputational capital to individual financial institutions around the globe – has been front and center in the news in recent years. Seeking to enable deeper insight into the topic, we created the TRust Index at the beginning of 2013 from a wide array of Thomson Reuters data, news and analytical capabilities to provide metrics for tracking trust and confidence in the financial sector across a range of critical constituencies.
Analyzing the Top 50 Global Financials throughout 2013, the Index’s fourth consecutive quarter saw a continuation of several trends we’ve observed for the sector and the Top 50 Global Financials throughout 2013, among them a stabilization and convergence of news and social media sentiment; continued confidence in analyst expectations; and proliferation of regulatory activity.
JUL ‘12 OCT ‘12 JAN ‘13 APR ‘13 JUL ‘13 OCT ‘13 JAN ‘14APR ‘12JAN ‘12
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
Asia (19)Americas (19) Europe (12)Global (50) Regions based on domicile institutions in the Top 50 Global Financials
Trust in the Top 50 Global Financials Expressed Through Media Sentiment
SOURCE: TRNA/MarketPsych/Sentiment Indicators
TRACKING TRUST THROUGH NEWS AND SOCIAL MEDIA SENTIMENTOur proprietary sentiment analysis below provides an ongoing indicator by drawing on millions of business and financial news and social media sources to track trust sentiment for global financial institutions. The Top 50 Global Financials ended the year with a Q4 trust score of -1.75 percent, down modestly from -1.5 percent in Q3.
At the regional level, the 12 institutions in Europe/UK scored the highest trust sentiment in Q4, ending the year at 9-1.25 percent, down modestly from -1.0 percent in Q3 and above the 19 Asian institutions which had led in trust scores for most of 2013, at -1.5 percent (vs. -1.0 percent in Q3). The 19 institutions in the Americas scored lowest with -1.85 percent in Q4 vs. -1.6 percent in Q3.
Sentiment scores, and the trust and confidence in financial institutions and markets they reflect, are very sensitive to industry events, macroeconomic developments and to policy decisions, especially those made by central banks. According to head of machine readable news Asif Alam, “headline events affecting scores over Q4 included record mortgage and LIBOR- related bank fines, penalties and settlements exacted by US and European regulators; the US government shutdown; cuts to Asian GDP growth forecasts by the World Bank; IMF and ECB activities around capital buffers, debt, leverage and risk; and the December 10th release of the approved Volker Rule”.
DESPITE A STRONG YEAR, TRUST STILL LAGS FOR THE FINANCIAL SECTOR
With world equity markets ending 2013 close to six-year peaks, our Q4 TRust Index shows the Top 50 Global Financials stronger but trust sentiment is still negative.TRUST
THE CONFIDENCE OF THE MARKETPLACE – INVESTORS AND ANALYSTSQ4 earnings growth estimates for the sector continue to show high expectations by analysts for financials. According to our senior research analyst Sridharan Raman, “at 22.4 percent earnings growth estimates for the sector, financials are just below telecommunications companies this quarter at 22.6 percent, but still well ahead of all other S&P 500 sectors”.
MATERIALS
ENERGY
TELECOM
CONSUMER
DISCRETIONARY
FINANCIA
LS
INDUSTRIA
LS
CONSUMER
STAPLES
HEALTHCARE
TECHNOLOGY
UTILITIES
S&P 500: Earnings Growth Estimates, Q4 2013
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
Q4/2013 Earnings Growth Estimates for Financials Remain High
SOURCE: Thomson Reuters I/B/E/S
Our StarMine data below show analysts forecast forward 5-year EPS CAGR for the Top 50 Global Financials at 9.0 percent, above their 8.0 percent expectations for the S&P 500. We are still seeing investors discount growth, with market-implied growth rates at -2.1 percent. The Top 50 Global Financials achieved a 4.9 percent price increase over the last 90 days, below both the S&P 500 and Thomson Reuters Global Index.
Above, aggregate changes to recommendations over the fourth quarter by sector analysts on the Top 50 Global Financial institutions reveal downgrades outnumbered upgrades across all regions, and with the highest numbers of revisions for the UK/Europe institutions.
Analyst Expectations/Q4
ANALYST FORECASTS
OF FORWARD 5-YEAR
EPS CAGR (STARMINE)
MARKET PRICES
IMPLIED FORWARD
5-YEAR EPS CAGR
(STARMINE)
PRICE CHANGE % (PAST 90 DAYS)
CREDIT SMARTRATIOS
IMPLIED RATING
(STARMINE)
S&P 500 8.0% 6.00% 9.30% BBB-
TOP 50 GLOBAL
FINANCIALS9.0% -2.10% 4.90% BBB
THOMSON REUTERS
GLOBAL INDEX8.0% 4.00% 6.70%
SOURCE: StarMine Professional(BBB- and higher: investment grade)
A THOMSON REUTERS FINANCIAL & RISK PROPRIETARY BENCHMARK OF TRUST IN THE GLOBAL FINANCIAL MARKETPLACE, Q4 2013
Analyst Recommendation Changes/Q4
0
20
15
10
5
25
35
30
40Percentage of companies that describe, claim to have, or mention processes in place
ASIAAMERICAS EUROPE
# of Upgrades # of Downgrades
COUNTERPARTIES: CREDIT SPREADS AS AN INDICATOR OF TRUSTCredit default spreads (CDS) provide another (implied) metric for trust. In our Datastream analysis, spreads illustrate the level of confidence institutions have in each other as reliable counterparties within the larger landscape of market conditions, macroeconomic environment, government and central bank policies and other external factors.
In Q4, CDS continued a long-term tightening trend and an overall increase in confidence among the Top 50 Global Financials in pricing the relative risk of doing business with each other. The Americas institutions ended the year with tightest spreads, and Asia the widest, but with the average spread for the Top 50 Global Financials at about 103 basis points, CDS ended 2013 far below 2011’s high of nearly 350.
TRACKING CONTROVERSY AND GOVERNANCE AS FACTORS IN REBUILDING TRUSTEmploying our ASSET4 environmental, social and governance (ESG) data, we see a high level of controversies reported for the Top 50 Global Financials relative to the Financial Sector as a whole, but that adoption of processes and governance to address responsible marketing practices, improve fair competition and avoid bribery and corruption all continue to be priorities.
Credit Spread (CDS) Trends for the Top 50 Global Financials
50
0
100
150
200
250
300
350
DEC ‘11 JUN ‘12 DEC ‘12 JUN ‘13 DEC ‘13
Asia (12 companies) Europe (14 companies)Americas (15 companies)Global
Weighted CDS Spreads (2012 Revenue)
SOURCE: Thomson Reuters Datastream
Percentage of Financials that Have Had Controversies
0%
20%
40%
60%
80%Percentage of Financials that have had Controversies
Top 50 Financial Sector
BRIBERY ANDFRAUD
PRODUCT RESPONSIBILITY
MARKETINGRESPONSIBILITY
ANTI-COMPETITION
WAGES, WORKINGCONDITIONS
DIVERSITYANDOPPORTUNITY
SOURCE: ASSET4
Percentage of Companies with Processes in Place
0%
20%
40%
60%
80%Percentage of companies that describe, claim to have, or mention processes in place
MAINTAIN RESPONSIBLE MARKETING PRACTICES
IMPROVE FAIRCOMPETITION
AVOID BRIBERY ANDCORRUPTION PRACTICES
Top 50 Financial Sector
SOURCE: ASSET4
REGULATION AS A BAROMETER OF TRUSTData drawn from our governance, risk & compliance data and Thomson Reuters Accelus reveal that the level of regulatory activity worldwide continued its strong upward trend this quarter, and particularly in the Americas. According to risk segment managing director Chris Perry, “the proliferation of regulatory activity over the past several years must be seen as growing and permanent conditions for the global financial industry and a significant factor in the cost of doing business”.
The average daily number of regulatory alerts tracked by Thomson Reuters Accelus was above 100 for the second consecutive quarter, roughly double the daily average in 2010, and at the end of Q4 stood at nearly 27,000 alerts, an increase of 43 percent over the prior year.
A THOMSON REUTERS FINANCIAL & RISK PROPRIETARY BENCHMARK OF TRUST IN THE GLOBAL FINANCIAL MARKETPLACE, Q4 2013
Total Regulatory Alerts Year–On–Year
2013
2012
26,898
18,761
0
1000
2000
3000
4000
5000
6000
7000
8000
Asia Americas Europe/UK Global
Q3 Q42012, Q1 Q2 Q3 Q42013, Q1 Q2
*NOTE: Tracked activity includes document changes, announcements, and enforcementsby regulators. Average Daily Alerts = Total alerts year–on–year / 261 working days
103
Total Regulatory Alerts Year-On-YearTotal Regulatory Alerts Year–On–Year
2013
2012
26,898
18,761
0
1000
2000
3000
4000
5000
6000
7000
8000
Asia Americas Europe/UK Global
Q3 Q42012, Q1 Q2 Q3 Q42013, Q1 Q2
*NOTE: Tracked activity includes document changes, announcements, and enforcementsby regulators. Average Daily Alerts = Total alerts year–on–year / 261 working days
103SOURCE: Thomson Reuters Accelus
Total Regulatory Alerts By Year Average Daily Alerts
METHODOLOGYExcept where otherwise indicated, data is for the Top 50 Global Financial Institutions based on market capitalization and for the period through Q4/2013. Regions based on domicile of institutions within the Top 50 Global Financial Institutions.
THOMSON REUTERS DATA SOURCES• ASSET4 provides objective and transparent environmental, social, and governance (ESG) information and analysis
tools to enable professional investors to benchmark, compare, and integrate extra-financial information into their investment processes. Coverage – 4,700+ listed companies including the S&P 500, BOVESPA, FTSE 100, STOXX Europe 600, ASX 300, TSX, MSCI World Index and MSCI emerging markets companies. Database depth – 650+ data points and 250+ key performance indicators give you the most in-depth coverage in the industry.
• Datastream provides vast reserves of historical financial content, enabling research on the correlations and relationships between global economic indicators, and asset classes. Access up to 50 years of history, millions of global instruments and indicators and coverage for 175 countries in 60 global markets. Real-time market data seamlessly integrates streaming real-time market data, economic news, First Call® research reports, and more in a single integrated application. Datastream simplifies the graphical exploration of trends and relationships between series and allows sophisticated analysis across a broad range of financial instruments.
• StarMine Quantitative Models are stock selection factors grounded in sound economic intuition and developed using best-of-breed modeling techniques. The models are robust across regions, sectors, and market environments.
• Thomson Reuters Accelus suite provides market-leading solutions for global regulatory intelligence, financial crime, anti-bribery and corruption, enhanced due diligence, compliance management, internal audit, e-learning, risk management, and board of director or disclosure services. The Thomson Reuters Governance, Risk & Compliance (GRC) business delivers a comprehensive suite of solutions designed to empower audit, risk, and compliance professionals; business leaders; and the Boards they serve to reliably achieve business objectives, address uncertainty, and act with integrity.
• Thomson Reuters News Analytics (TRNA) is a powerful tool that allows users to analyze millions of public and premium sources of Internet content, tag and filter that content to focus on the most relevant sources, and turn the mass of data into actionable analytics that can be used to support trading, investment, and risk management decisions.
• Thomson Reuters MarketPsych Indices (TRMIs) provide easy-to-interpret, real-time psychological analysis of news and social media. Users can view and model the impact of investor psychology across global asset classes and regions by analyzing the specific attitudes expressed within stories and tracking the macroeconomic themes that are most relevant to price movements in each asset class.
• Thomson Reuters I/B/E/S provides detailed and consensus estimates featuring up to 26 forecast measures, including GAAP and pro-forma EPS, revenue/sales, net income, pretax profit and operating profit, and price targets and recommendations for more than 60,000 companies in 67 countries worldwide.
• Thomson Reuters Business Classification (TRBC) is our global, comprehensive, industry classification schema. TRBC helps you identify, analyze, and monitor companies and industries across global markets and is the ideal tool for benchmarking, peer comparison, and navigation. TRBC Indices track 124 industries, 52 industry groups, 25 business sectors, and 10 economic sectors on a global and/or regional basis.
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