European banking has re-emerged in recent months as a pillar of the recovery of the stock markets. From the lows set by the sector last July, the index that groups together the 38 largest entities on the continent, including four of the six Spaniards, has risen by more than 12% and is now less than 6% below exceeding pre-pandemic levels -in February of last year-.
What has motivated this change in money flows? There are several explanations behind. The first is a good quarterly results season -the entities presented their accounts throughout the month of July-. The second is the increasingly forthcoming new roadmap in the hands of the US Federal Reserve in light of the good macroeconomic data in the country.
The third is the return to dividends that, according to Bloomberg Intelligence , will exceed a 50% payout in the next few years. And a fourth, less specific, which has to do with the hopes placed on a speedy global recovery after the Covid and from whichbanking will be one of the sectors that will benefit the most .
“For the industry, it is time to reverse the impact of March 2020 when all bank stocks fell and the most affected were those that distributed the highest dividends. This shock, no matter how well capitalized they were or how profitable they were, impacted all the same. Now we see the potential of the sector to be the one who shines again “, point the analysts of Bank of America.
The result of all this is that half of the panel of the largest banks that make up the Stoxx 600 Banks already have a buy recommendation . Just a year ago that percentage was limited to 34% and at the beginning of 2021 it rose to 39%.
Among the national firms, Banco Santander and CaixaBank have the best possible advice – looking further, so does Unicaja, although it is not included in the index – and contrasts with that of BBVA and Bankinter . The orange entity holds its best recommendation since 2004. And only Sabadell continues to be a sell -it is the second worst recommendation for analysts, only surpassed by Deutsche Bank-.
If the banking giants of Europe are selected , only HSBC and BBVA are a keep against the purchase of big ones like BNP Paribas, Santander (already mentioned), Intesa San Paolo, ING, Nordea, Lloyds, Credit Agricole and Barclays. They are, to date, the second most bullish sector, with gains of 28%, only surpassed by technology.
For this, the last weeks of July were key. During the presentation of their semi-annual results , the ten largest entities of the Stoxx 600 managed to surprise a 52% increase to what analysts expected about their accounts at the end of June. It must be taken into account that this is the first semester during the pandemic where the extraordinary provisions made by the entities have been practically non-existent and did not distort their figures.
BBVA was the one who misled the mostto analysts, since its net profit was 90% higher than expected – up to 1,911 million euros. After the rise in recent weeks, the Ibex banks, which groups the five entities of the selective -and without Bankia-, triples the revaluation of the Ibex 35 in the last year, with a rise of 78%, compared to 25% of the index national.
2021 is a clear turning point. The consensus foresees that the largest European banks will increase their net profits by 14.7% until 2023 , when they will jointly exceed 104.6 billion euros, although 39 billion -37% of the total- will come only from the big five of the sector : HSBC, BNP, Santander, Intesa and ING.
Three of the national entities will be above this growth. They will be Santander, with 23%, reaching 8,230 million euros; BBVA, 18% will increase its net result to 4,230 million, and, above all, Sabadell stands out, which leads the table in continental terms. The market expects it to double its profit in two years, from 275 million at the end of December to almost 570 million in two years.
“The key takeaways from the earnings season are the strength of commission income, an increase in guidance to the end of the year, the rebuilding of fully loaded CET1 [top-tier capital], the resilience they have demonstrated to the tests of stress [published on July 30] and the announcement of the return to the dividend, “they point out from Bloomberg Intelligence .
Shareholder remuneration appears to be a key catalyst for their actions and the sector knows that. That is why they have ventured how far their payments will skyrocket – compared to 2020 – after the ECB lifts its veto in the autumn. “Many announced their share buyback programs even earlier,” they say. Bloomberg estimates that only the increase in treasury shares of Barclays, NatWest Group, Standard Chartered, Société and ING will exceed 4.2 billion euros. There it does not include the 3.3 trillion from BBVA or another 500 from Credit Agricole for the fourth quarter of the year.
USA moves tab
The US is moving towards full employment rates – it is understood by unemployment of no more than 5% – and this is something that neither the market nor the Federal Reserve had expected to happen so soon. After the unemployment data that was released last Friday (it stood at 5.6% at the end of July), the ‘tapering’ drums sound again.
It is not ruled out that the Fed announces a progressive withdrawal of stimulus next September, and the market predicts that it would not be unreasonable to see an increase in interest rates by the end of next year. This is ‘gasoline’ for banks. Goldman rises 52% in the year among investment banks and retailers such as Wells Fargo or Bank of America, an average of 30%.