The relatively poor performance continues. “So far this year, Spanish banks have been the worse performing subsegment in the universe of European banks we cover, with average fall of c.14% (total returns)”, analysts at Santander point out.
“This contrasts with the 8% rise in the SX7P, which, in turn, performed more than 12% worse than the European market as a whole (-15% since we adopted a negative vision of the sector in January).
Q219 could be the positive catalyst which we needed to have a less negative posture, as we foresee encouraging tendencies in the accounts of results after the positive performance in Q119 and more favourable capital dynamics. Nevertheless, it is likely that ever more adverse outlooks for interest rates will lead our management team to maintain, in the best case scenario, a prudent vision, or even cut the forecasts for 2019.
Net financial margins and net profits before provisions for the main activities in Q219 at the highest levels in aggregate terms for 2 years. On an aggregate base, we forecast an expansion in the national sector´s net financial margins of 1.5% y/y and of almost 3% in the quarter, securing the highest level for two years. The same can be said about the profits before provisions for the main activities in aggregate terms (+0.6% y/y; +8% q/q), thanks to the evolution of the previously mentioned incomes (+0.1% y/y) and to operational costs between stable or in light decline (-0.3%).
We have again lowered our forecasts and objective prices due to the long term persistence of negative interest rates. The Euribor at 12 months is again at historical lows and is likely to remain there, or even fall further. Principally to take account of this, we have reduced our forecasts for the results of Spanish banker 10% for 2019 and 12% for 2020. This translates into an average ROTE for the sector comfortably below the cost of capital, while it is likely that aggregate profits before provisions will fall in the period 2018-2021.
The pressure on profit forecasts could intensify if there are additional interest rate cuts (impact of 10%-15% in net profits for each additional 20 bp) and MREL emission.
There remains considerable upside scope for Caixabank (we believe the market has been too negative about the Reference Index for Mortgage Loans question – it remains our favourite share) and for BBVA. We maintain caution about Sabadell and Bankia due to their exposure to interest rates and problems about capital of a completely different nature”.