Thomson Reuters has announced the latest results of its proprietary TRust Index, showing that first-quarter 2014 trust sentiment in the Top 50 Global Financial institutions as a whole remained steady, but negative.
However, institutions from the Americas started the year well, ending with the first positive trust score of any region since the Index was launched a year ago.
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Tracking trust through news sentiment shows that the Americas institutions followed by the TRust Index crossed into positive territory to end the first quarter with a trust score of 2% (-1.85% Q4 2013), due in part to increased profits at Canadian banks. This compared to a -1% score for the Top 50 Global institutions as a whole (-1.75% Q4) and -2% for both Europe (-1.25% Q4) and Asia (-1.5% Q4). In Asia, decreasing trust was partially attributable to tightening credit conditions in China, while European financial institutions experienced a decline in trust due to continuing investigations around interest rate fixing, rigging of exchange rates and tax fraud.
David Craig, president, Financial & Risk, Thomson Reuters, said: "During the financial crisis, and since, Canada has been noteworthy for the policies and discipline that allowed the country to better weather the storm, and its financial institutions to more quickly recover. It is no surprise therefore to see Canadian banks leading the Americas region into positive sentiment as we measure trust in the Top 50 Global Financials for the 5th consecutive quarter of the TRust Index."
Other features of this quarter’s TRust Index follow below; please click here for further insight and data:
The Confidence of the Marketplace – Investors and Analysts
First-quarter earnings growth estimates for the financial sector continue to show positive expectations from analysts, but at levels lower than previous quarters.
Sridharan Raman, senior research analyst at Thomson Reuters, said: "The Q1 data show that financials are encountering tougher conditions relative to the S&P 500 and compared to last year. We are seeing a number of the big banks settling lawsuits, impacting earnings growth in this quarter and the next as banks take these big charges. Higher mortgage rates have also taken their toll on bank earnings this quarter. However, double digit growth is expected again in the third quarter."
According to Thomson Reuters StarMine, analysts forecast forward 5-year growth rate for the Top 50 Global Financials at 8%, on a par with the 8 percent expectations for the S&P 500. Investor expectations for growth in the Top 50 Global Financials are beginning to catch up with analyst expectations, as the market-implied growth rate reaches 0%, out of negative territory for the first time since the Index was launched, but still undervalued compared to analyst expectations.
This is further reinforced by the price change figures, which show that the Top 50 Global Financials rose by 2.1% over the quarter, compared with 3.8% for the S&P 500 and 2.6% for the Thomson Reuters Global Index.
Aggregate changes to analyst recommendations for the Top 50 Global Financial institutions over the first quarter reveal more analyst upgrades than downgrades in all three regions – for the first time in five quarters.
Counterparties: Credit Spreads as an Indicator of Trust
Credit default spreads (CDS) continued to narrow, as confidence amongst the Top Global Financial institutions in pricing the relative risk of doing business with each other continued.
CDS for institutions in the Americas ended the first quarter with the tightest spreads (around 90 basis points), and Asia the widest (around 116). With the average spread for the Top 50 Global Financials at about 105 basis points, CDS continue to be far below 2011’s high of nearly 350.
Regulation as a Barometer of Trust
Chris Perry, managing director of Risk at Thomson Reuters, said: "From my recent meetings with financial institutions it’s clear that the cost of doing business has risen substantially. As the level of regulatory activity continues ever-upwards, banks have expanded compliance and legal teams to make sure they have the resources in place to respond to the raft of regulatory change and not only meet, but exceed the requirements prescribed. The fines are so large that financial institutions have a real intent to self-police and while early days, it is definitely driving up the TRust Index to new and more trusting levels."
At 129, the average daily number of regulatory alerts tracked by Thomson Reuters Accelus was above 100 for the third consecutive quarter, reaching 8,447 by the end of the first quarter and well on track to exceed 2013’s total by year-end.
Tracking Controversy and Governance as Factors in Rebuilding Trust
Thomson Reuters ASSET4 environmental, social and governance data continues to show 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.
