In banking, boring matters

Two banking franchises that are of very high quality and have consistently delivered results for decades are ICICI Bank and Capital One Financial—both key holdings of the Blackwattle Global Quality Fund. Both are also known for being “boring,” which, in this case, is a good thing.

ICICI Bank (NSE: ICICIBANK/NASDAQ: IBN) – Structural Opportunity

"Indian Household debt to GDP remains amongst lowest in developing countries presenting long term growth for banking products and services"

ICICI has been a core structural holding of mine since 2016. Since then, the company has grown more than fourfold, yet the original thesis remains intact, and the opportunity is still in play.

Our conviction is supported by three key factors:

1. Leading Retail Banking Franchise: The business has established a dominant retail banking presence with the lowest cost of retail deposits and a technology-savvy platform.

2. Favourable Household Debt-to-GDP Ratio: Household debt to GDP remains among the lowest in the developing world, providing ICICI with significant market share gains in household lending.

3. Best-in-Class Management: The bank is led by a high-quality management team, which has been instrumental in driving consistent performance.

ICICI trades at a 16x P/E multiple, with a 19% return on equity (ROE) and 17-20% earnings growth, offering excellent value for its growth potential.

Capital One Financial (NYSE: COF) – Cyclical Opportunity

"Expect the best: Prepare for the worst, and capitalize on what comes."

A leading US credit card & auto lender, Capital One Financial has operated in the sub-prime lending space for decades, capitalizing on inefficiencies in this segment—often overlooked by major U.S. banks—allowing it to focus on simplicity and profitability.

Credit card lending is inherently cyclical and requires sharp, relentless focus. Over the years, Capital One has proved to be a highly counter-cyclical lender. During boom periods, the company tightens its credit standards to prepare for downturns, positioning itself to weather economic cycles better than its peers. Its business model is often misunderstood, as it is built on the principle: *"Expect the best: Prepare for the worst, and capitalize on what comes."*

Our conviction is supported by three key factors:

1. Challenging Sub-Prime Lending Market: Sub-prime credit card lending is notoriously difficult, with a only few key players being able to generate excess returns over time. The market is more consolidated than appears on first glance.

2. Prudent Economic Management: Capital One’s focus on delaying economic gratification has positioned it well for an earnings upgrade cycle.

3. Strong Leadership: The original founder remains actively involved in running the business, ensuring continuity and strategic focus.

Capital One trades at an 11x P/E multiple, offering a 14% return on tangible book value and 20%+ earnings growth over the next 12 months.