Banking, the sector most punished on the stock market, may have ended its suffering. According to Santander's investment banking unit, the market has slowed down and discounted a much greater impact of the crisis than it is going to happen, thanks to aid measures from the Government and the ECB. For this reason, he believes that the sector has a 35% recovery potential On average, with BBVA, CaixaBank, Liberbank and Unicaja in the lead.
In the opinion of its analyst Jose Coll, the market does not attach sufficient importance to the bank relief measures adopted by the authorities, such as ICO loans: Santander estimates that state guarantees will cover 60% of the financing needs of SMEs. To which must be added the regulatory relaxation adopted by the ECB. Arguments very similar to those that support the increasingly widespread idea that "Spanish banks will not petar"that is, that no entity is going to have to increase capital or be rescued.
Santander considers that the entities will not need to ask shareholders for money thanks to the possibility of postponing the recognition of delinquencies in the accounts (especially in credits that are covered by the moratorium or that are refinanced), the lower need for provisions for delinquencies and the relaxation of capital requirements.
This will allow the sanitation to be distributed over the next three years – instead of having to endow it all at once – and that it can be absorbed by the profits before provisions generated by the banks. Which it's will prevent them from losing in 2020 and that its capital be reduced. Of course, its profitability will be "extremely low" in the next two years as the sector completes that balance sheet cleanup.
However, Coll calculates that current market valuations already discount these levels of profitability (they quote an average of 0.4 times book value, understood as CET1 capital) and do not take into account another element: the sector will pay dividend again in 2021, his big complaint regarding 2020, although he does not expect his dividend yield to return to double digits before 2022 or 2023, and only in some cases.
Santander also believes that we will see corporate operations, due to the excess of offices, the need to seek synergies and the acceleration of the digital transformation that the pandemic has caused. However, we will have to wait for potential buyers to recover higher valuations on the stock market and to have greater visibility of the real impact of the Covid crisis on the accounts of their potential targets … unless they are friendly mergers, such as the that the government is trying to raise between BBVA and Bankia due to pressure from the PNV, as ForexNews.online has advanced.
As for specific values, this analyst's favorites are BBVA, CaixaBank, Liberbank and Unicaja because they are the names in which the market is discounting a much greater deterioration in assets than Santander calculates and, therefore, they are the ones with the greatest potential for recovery in their prices.
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