Spanish mid-sized banks beat giants Santander and BBVA on the inventory market | Business | EUROtoday

The finest banks are available small, concentrated bottles. This is, not less than, what traders will need to have thought this 12 months. So far in 2024, it’s the entities with nearly all of their enterprise in Spain which have shone the brightest on the inventory market, with will increase starting from 30% to 70%, with Banco Sabadell, Unicaja, Bankinter and CaixaBank as notable members. To the detriment of the 2 Spanish banking giants, Santander and BBVA, which lag behind, with will increase of 17% and 13%, respectively. Quarter after quarter, the banks break their very own earnings information. But for the ever-vigilant markets, some triumphs shine greater than others.

There are a number of causes, however one is prime: the great efficiency of the nationwide market. An ideal storm has gathered over it. Economic progress, though not buoyant, is larger than the European common and rates of interest, regardless of latest cuts, stay at comfy ranges and much from the lengthy period of zero charges. Credit is choosing up and the price of deposits has by no means actually risen. In addition, the entities have seen some regulatory necessities relaxed, akin to contributions to the Deposit Guarantee Fund. [el instrumento destinado a cubrir los depósitos de hasta 100.000 en caso de quiebra de una entidad].

“Domestic banks have managed in recent years to reduce their sensitivity to rate cuts in their interest margin [refleja la diferencia entre lo que ingresan por prestar dinero y lo que pagan por las cuentas corrientes, un indicador de la marcha del negocio típicamente bancario]. There is also a valuation issue. At the beginning of the year, the consensus of analysts was more negative, coming from high returns, but the banks have been revising their forecasts for the end of the year upwards,” explains Nuria Álvarez, analyst at Renta 4.

Stock market investors usually reward businesses that are well diversified geographically. Large groups, in which the poor performance of one market is offset by the good performance of another, are supported by investors, while firms that are very focused on one business are seen as weaker. What has happened with Spanish banks in recent months is the opposite.

The arguments in favour of national banks have also supported the accounts of the Spanish divisions of Santander and BBVA. However, in the case of these two giants, the contribution of the Spanish business has been diluted like a drop of water in the ocean. They have had to face other problems overseas, which has caused the Stock Market to not reward them equally. In the case of the entity chaired by Ana Botín, for Álvarez it is weighed down by the doubts of investors about the progress of the business in Brazil and Poland, affected by a legal conflict over mortgages denominated in Swiss francs, but fundamentally by the effect of hyperinflation in Argentina. The same is true for BBVA, where the problems have been focused on Turkey and Mexico, as well as the increase in the cost of risk (the percentage of provisions for insolvencies over the total loans granted). “For investors it has been safer to invest in domestic banks, they have fewer scares,” concludes Álvarez. The rise within the inventory market is just not solely because of the advantage of the nationwide banks, but additionally to the demerit of the massive multinationals.

It is true that, in essence, the market has created two groups among Spanish banks. The national ones, stars of the Stock Market (CaixaBank, Banco Sabadell, Bankinter and Unicaja) and the two big ones. But each one has its particularities. Unicaja, for example, finally seems to have digested the merger with Liberbank. After the change in its leadership, it is beginning to take off in its accounts. In this sense, if a corporate operation is affecting the perception of investors about Spanish banking, it is the BBVA takeover bid for Banco Sabadell.

The transaction is historic. It is the first hostile takeover bid in the Spanish financial sector in 30 years. It is also the umpteenth twist in the concentration of the Spanish financial system after the crisis, which will leave three entities with two thirds of the market. For BBVA it is an attempt, precisely, to gain weight in the Spanish market on its balance sheet to the detriment of two emerging markets, Mexico and Turkey. However, this has not yet been reflected in the share price, which has dropped around 15% since the rumours of a merger with the Catalan entity began. The offer is still subject to many uncertainties. The most important are the possible problems for its approval by the National Commission of Markets and Competition (CNMC) and the opposition of the Government, which could block the merger between the two entities after the takeover bid. Analysts also question the calculation of costs and synergies that the entity chaired by Carlos Torres has made. In this way, the takeover bid is acting as a burden on the share price. On the other hand, many are questioning what the value of Sabadell shares, which have risen by 10% since April, would be if the supply were to evaporate.

The penalty for geographical diversification is paradoxical in the case of Santander. The bank has completely changed its structure, organizing its business into five global areas, so that it now reports its results by each of these divisions, to the detriment of organization by country. It wants to present itself as a large global bank with several businesses, not a sum of entities by country. A recent report by Citi criticizes precisely this division, considering that it “adds noise” and calls for more transparency in the publication of figures at a national level.

This same publication highlights the strength of the Spanish market, but begins to sow optimism in other markets. As for the United Kingdom, it expects an improvement in business, based on cost containment and improved income from mortgages, while commissions will remain frozen. It sees Brazil as highly dependent on interest rates and points out that costs and commissions will behave better than expected and that the cost of credit will remain frozen. And with respect to the commitment to the US, Citi points out that Santander will not be able to close the gap between its results and the share price until the restructuring of the business in that country bears fruit. Héctor Grisi, CEO of the entity, said in the last presentation of results that they expected the Spanish market to begin to show signs of weakness in the next quarters, but that this would be offset by the improvement in other geographies.

Asset supervisor Bestinver agrees with this forecast of a change of coronary heart. In its opinion, native banks will likely be extra affected within the coming months by the drop in rates of interest, which is able to damage their revenue. Specifically, it cites CaixaBank and Unicaja as essentially the most delicate, whereas stating that Sabadell has already coated a big a part of its publicity to the fluctuations within the worth of cash, and expects its British franchise, TSB, to enhance, and considers its potential to achieve market share and the great efficiency of commissions. On the opposite hand, it clearly helps worldwide banks and cites Santander as its most well-liked possibility.