BARCLAYS | Santander was just above breakeven in the quarter due to one offs and underlying earnings 25% light as a result of higher provisions and weaker costs. Negative one offs of €1,435m include €600m for PPI and €683m for intangible asset write offs. Even before this Santander’s Q4 earnings were 24% below expectations mainly due to higher provisions but also costs.
It’s good news for Spain’s automobile sector. And it’s not only because sales grew 20% to 1.034.232 units in 2015 from a year ago, leaving behind the bad memory of 2008 when they started what would be as much as a 50% drop from their peak.
The political parties in Spain seemed unwilling to break the deadlock one month after the general elections had taken place. Then there was a dramatic emergence from the doldrums last Friday, when Podemos made a surprise call for a left-wing coalition headed by the Socialists.
In December, the number of jobless in Spain fell by 55,790 people, bringing the total number of unemployed for the full-year to 4.039 million. So the government’s hopes that the jobless number would fall below 4 million in 2015 were dashed. And those who were expecting a significant slowdown in the labour market in the second part of the year, after the strong rise in the first half, were proven wrong.
It looks as if 2016 will be the first year to bring some normality to Spain’s banking sector in terms of capital requirements since the start of the deep financial crisis. The most important consquence of this crisis has been the sharp drop in the industry’s profitability – a 6.8% decline in return on equity (ROE) to 5.3% in six years. But AFI analysts estimate that the Spanish banking sector’s profitability will be around 6-7% over the next few years.
The Bank of Spain plans to change the method for calculating provisions in H1 2016, in advance of the European Commission’s new accounting regulations due to be implemented in 2018. Under the new rules elaborated by the International Accounting Standards Board (IASB), provisions will be calculated based on the expected loss in credit operations and not on the loss already incurred, as has been the case up to now.
Investment in Spain’s property sector rose 67% to a record 11.7 billion euros in 2015, according to a study by consultancy firm BNP Paribas Real Estate. This figure is 25% higher than the total investment recorded in the pre-crisis years. But the consultancy predicts that the scarcity of adequate investment opportunities will see investment stabilising at around 8.5 billion euros.
Spain’s renewable energy market is expected to see further consolidation activity in 2016, with transactions estimated at around €4 billion euros, in line with a year earlier. The fragmented nature of the industry and asset disposals by European firms will fuel M&A.
The Spanish bourse was the worst performer in Europe in 2015. But it is not yet ready for a rally. According to influential Anglo Saxon newspapers there are some extremely negative and toxic elements in Spain with regard to regulated sectors following the December 20 elections. These could affect the risk premium and the risk-free rate etc, with the consequence negative impact on companies’ WACC and valuations.
Spanish banks’ market capitalisation is still in the doldrums. Six of the seven lenders listed on the Ibex 35 occupied the top positions in the ranking of European banks with the worst stock market performance in 2015. And investors are continuing to punish Spain’s banking sector at the start of 2016. Analysts agree that profitability is the problem for Spanish banks. And, as the Bank of Spain insists, one solution could be a new wave of mergers, which would probably affect the mid-sized lenders.