Macquarie sorry for wrong call, gives Yes Bank double downgrade

Mumbai: Shares of Yes Bank are likely to face selling pressure post disappointing fourth quarter financial performance and downgrade by brokerages.

Yes Bank had reported a loss of Rs 1,506.6 crore for the fourth quarter on Friday.

In a surprising development, brokerage Macqu-arie has admitted to overlooking the risks from the structured finance business of Yes Bank and has downgraded the stock by full two notches.

Citing the management commentary following the quarterly results, the Australian brokerage also flagged concerns on the fee income and the retail franchise of the lender.

“We must eat the humble pie today and admit we underestimated the risks in structured finance. We got the call wrong," Macquarie said in a note on Monday, adding that over the past eight years, it felt the bank can thrive in a risky business like structured finance.

The brokerage also announced a double-downgrade of the Yes Bank stock to 'underperform' and also massively slashed the stock price to a low Rs 165 over the next 12 months, against Friday's close of Rs 237.40.

The bank reporting a three-times increase in BB-rated and below accounts despite a higher slippage of Rs 3,408 crore in the quarter is a negative surprise, the brokerage said, adding the sharp decline in fee income due to changes in accounting practices is also a concern.

Moreover, the new chief executive Ravneet Gill's revelation that only 30 per cent of its 1,100-odd branches are profitable further dampens the fundamental view on the bank, Macquarie said.

However, some brokerages said the new management’s business strategy under newly appointed Managing Director and CEO Ravneet Gill is good in the long run, though medium-term woes in terms of asset quality, management uncertainty and subdued return ratios are inevitable.

“We like the business strategy of its new MD,  Ravneet Gill, to granularise the asset/liability business, uncompromising focus on regulatory compliance/governance and strengthening risk management architecture, but it will be a long-drawn process with high  execution  risks,” said Anand Dama and Shreesh Chandra, Analysts at Emkay Global Financial Services.

Pritesh Bumb and Prabal Gandhi, Analysts, Prabhu-das Liladher, said, “From our interaction with management, we assess risky assets can further emanate from the balance sheet especially from real estate and infrastructure.”

“Significant worry comes from collapse of fee income in near term, higher credit cost if more risks arise from unidentified stress and risks of NIMs going down on higher interest reversals if stress book falls into NPA, leading to an infinite loop of lower return ratios in medium term,” analysts from Prabhudas Liladher said .

(With inputs from agencies)