Last Friday, the 6th, the behavior of bank securities on the Spanish stock market clearly reflected the doubts that hover among investors about how the confusing economic and political situation of recent months will affect financial institutions. While the titles of Banco Sabadell and Bankinter, the two medium-sized banks listed on the Ibex-35, boasted that they had risen in value so far this year by 19.49% and 15.92%, respectively, Santander and BBVA, the more internationalized, continued in negative territory.
The shares of the former lost 8.18% until the first week of May in relation to the end of 2021, and those of the latter were worth 8.59% less than on December 31. The third largest Spanish bank, Caixabank, exhibited, however, its current strength, with a rise in its titles of 28.17%, perhaps because its business, for better or worse, is concentrated in Spain.
A week later, the circumstances that guide the markets have not changed enough for the situation of bank securities to have changed substantially. Inflation remains high; Russia does not give in to its imperialist claims in Ukraine and the tension in the prices of energy products remains. Santander and BBVA continue their ordeal (its shares lose 5.50%% and 3.39%, respectively, of their value in 2022), although they have improved somewhat in the last seven days. Caixabank, Sabadell and Bankinter ratify their good moment, with revaluations so far this year of 25.52%, 24.73%% and 19.51%, respectively.
There are too many differences for a highly regulated sector and subject to the strictest control of national and international authorities, in which surprises usually come only in drops. Javier Urones, an analyst at XTB, believes that some of the countries in which Banco Santander and BBVA are present, such as Mexico, Brazil or Turkeythey are not contributing to the accounts of their respective groups what was expected of them.
The current situation of monetary policy changing course in the United States (much faster than expected) and, sooner rather than later, in the European Union, together with the vertiginous increase in inflation in the last eight months and the unknowns of all kinds that the invasion of Ukraine opens up by Russian troops, have made more than one analyst think that some economies could slow down their growth or even come to a standstill. There are no problems endemic to a country, but rather a generalized evil.
Santander Expansion
Banco Santander has in Brazil one of the jewels of its income statement. He arrived there in 1997; in 2000 it bought Banespa and became stronger in 2008, when, in a three-way operation, it ended up integrating Banco Real. In 2021, the activities in that country reported an ordinary profit of 2,325 million euros, 26.96% of the 8,654 million that the group obtained in that year.
In the first three months of this year, its contribution has been 627 million euros, 24.65%. In constant euros, it has fallen by 1%. Brazil is fighting runaway inflation, which has raised the entity’s costs by up to 14% in recent months, as price increases are passed on to wages. In addition, loan-loss provisions have risen 38%, and delinquency is the highest in the entire group: 5.68% in March, when a year ago it was 4.42%.
Some analysts believe that Brazil’s problem is not only economic but also political because of Jair Bolsonaro’s erratic way of governing. If Lula finally runs again for the presidency of the Government in the next elections, the situation could become even more confused due to her political background.
Santander also has another of its sources of current uncertainty in Mexico. The high inflation of these first months of the year could be a brake on the necessary economic expansion. The central bank’s policy maintains a very restrictive tone, which has brought the interest rate to 11.75%. At the moment, the entity chaired by Ana Patricia Botín weathers the storm, although the ordinary profit it contributes to the group remains below 10% of the total in the first quarter, when in 2020 it was 15%.
BBVA Exhibition
In Mexico it has BBVA its star entity, Bancomer. In the first quarter, it has obtained an ordinary profit of 777 million euros, 41% of that obtained by the group as a whole, well ahead of Spain, with 32.2%, or Turkey (13.3%). The entity chaired by Carlos Torres foresees the continuation of inflationary pressures and a moderation in the country’s economic growth to a token 1.2%, one percentage point less than forecast.
As if the economic situation were not enough, the president of Mexico, Andrés Manuel López Obrador has been adding fuel to the fire in relations with Spain since he came to power in December 2018.
This review ends in Turkey, where BBVA has made its last big bet: it bought 25% of Garanti’s capital in 2011, a stake that increased, first in 2015, and then in 2017. Until next Wednesday, the 18th, the period of acceptance of the offer for the purchase of up to 100% of the capital through a takeover bid.
The operation has not been very well understood by the markets, which blame the current CEO, the Turkish Onur Genç, for the decision at a time when the economic policy of the country’s president, Recep Tayyid Erdoganis highly questioned by the impoverishment that inflation and its monetary policy is causing among the 86 million inhabitants of the country.
Just a year ago, in May 2021, to buy one euro you needed 10.26 Turkish lira; today they need 16.2%. In just twelve months it has been devalued by 57.8% and in two years, by 114.8%. “The International Practices Task Force” is considering declaring Turkey’s economy “highly inflationary”.
Garanti today represents, with 249 million euros in profits, 13.3% of the group’s total, 15.67% of risk-weighted assets, although only 8.6% of the group’s total assets. It has 19.46% of the employees (21,680) and 16.52% of the offices (1,003).
Santander and BBVA have another thing in common. Both entities are being carefully observed by the European Central Bank, which continues to think that the distribution of powers between the presidents and the CEOs of both entities does not adhere to the recommendations made by the institution directed by Christrine Lagarde. The return of José Antonio Álvarez to the first executive level of Banco Santander, after the frustrated signing of Andrea Orcel, has not finished convincing in Frankfurt. Nor is BBVA’s constant link with the plot of the so-called “Villarejo case”.
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