Bank of America highlights the potential of traditional banking and bets on BBVA and Bankinter

05/01/2022 – 13:55 Updated: 01/05/2022 – 14:00

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The great stock market resurgence of banks? Bank of America analysts believe that retail banking will perform better in Europe in 2022 than investment banking, reinforcing their preference for banks focused on the retail customer, including the Spanish BBVA and Bankinter.

In a recent report, Bank of America emphasizes that credit growth is picking up and is “real and sustainable”, with mortgages approaching 6%, consumer loans back in positive territory and companies back to normal after the fall in loans with public guarantee. “With euro area nominal GDP growth exceeding 6% in 2022, we see a substantial increase in our expectation for credit growth of 3%, which is already the best in years. Consumers could spend above 40 % more in mortgages before reaching historical levels, “says the report.

At the same time, the entity’s analysts point out that the days of windfall capital markets are behind us, following “unusually high” revenues in 2020 and 2021. According to Bank of America, this creates a complex outlook for European investment banks Barclays, Deutsche Bank, Credit Suisse, and UBS, while positioning the most commercial and retail-focused entities for strong performance in 2022. As such, Bank of America analysts highlight their purchase recommendation on a number of European retail banks, such as the Spanish BBVA and Bankinter, Intesa, Unicredit, BNP, Credit Agricole, ING, NatWest, HSBC, DNB, Allied Irish Banks, Bank of Ireland and Raiffeisen.

In the case of Bankinter, The firm provides a target price of 6.15 euros, which implies a potential for revaluation of almost 32%. Regarding the downside risks for this target price, it indicates elements such as a slower recovery of GDP in Spain impacting growth and asset quality or tighter price competition in the auto insurance market, while the upside drivers would be a stronger recovery in Spain, structurally higher interest rates and a weakening environment competitive in the Spanish banking system.

Bank of America otorga a BBVA a 12-month target price of 7 euros, which represents a revaluation of almost 30%. The downside risks are a more pronounced slowdown in GDP in the main geographies in which the bank operates, a weaker foreign exchange market in Mexico, Turkey and Latam, risks associated with the closing of the sale of BBVA Compass, higher requirements of capital that could hinder distribution to shareholders or a use of excess capital for mergers and acquisitions, which generates less value for shareholders than buybacks, according to the report.

On the opposite side, The drivers for the rise in the target price for the entity chaired by Carlos Torres are a stronger recovery in Spain and GDP growth in the main geographies from BBVA with an effect on the expansion of the volume and quality of the assets, structurally higher interest rates (especially in Spain) and a stronger foreign exchange market in Mexico, Turkey and Latam.

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