One rupee: The value that foreign brokerages attach to the YES Bank stock

JP Morgan cut its target price for YES Bank on Thursday to Rs 1 per share, taking into account the potential fall in the lender’s net worth due to stressed assets. Macquarie Capital Securities also said if State Bank of India (SBI) decided to buy stake in the bank, they should buy it at Rs 1 per share as the net worth is hugely impaired.

“We believe forced bailout investors will likely want the bank to be acquired at near-zero value to account for risks associated with the stress book and likely loss of deposits. We think the bank will need to be recapitalised at nominal equity value and could test dilution of additional tier 1 (AT1) capital. We remain underweight and cut our target price to Rs 1 as we believe net worth is largely impaired,” JP Morgan said.
Explaining its reasons for the meagre price for YES Bank shares, Macquarie said the bank has a net worth of Rs 25,000 crore. However, its BB and below rated loan portfolio is approximately Rs 30,000 crore and the BBB below book is almost Rs 50,000 crore. “If we assume substantial portion of BB and below is wiped off, and say 10-15 per cent of the BBB book is to be written off, it implies the current net worth of the bank is zero (after factoring in 25 per cent of the tax benefits),” it said. Read More