Caixabank, one of MS’ top picks

CaixaBankSpanish banks and end of TLTRO; Caixabank top pick

Morgan Stanley | Overview of Q2: 80% of the banks have exceeded in terms of PBT, clocking up the 6th consecutive quarter with a positive surprise. And the main driver of the outperformance in revenues has been the NII, whose strength has arrived ahead of schedule (growing 11%/5% YoY/QoQ). The NII should remain strong in 2023, as we are factoring in a further 50bp rise in interest rates, and with an upside risk. We have seen very positive operating leverage, exceeding the css by 8%/12% in Europe/Eurozone. Credit quality was one of the focal points and provisions have come in lower than expected, so that signs of deterioration are still limited. Our estimates for provisions for 2022/2023 of 90bp is close to the 84bp of 2021. The CoR would have to increase by 4x to erode operating profits. This buffer, together with existing provisions, should provide tranquility.

Taking all this into accoumt, we have hiked our profit forecasts by 7-13% in 2022, although for 2023 the figure is just 1-2%. The sector continues to trade at a 40% discount to the market. We are neutral like the strategists, but we would highlight the resistance of profits in 2023 and the ROTE of 11% on average.

Top Picks: Caixabank, Intesa, Lloyds, Commerzbank, BNP

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.