Three banks lost their buy recommendations for the first time in a year

What was proposed as a gold rate for banking appears to have run into its first doubts just over half a month into this year. Europe’s long horizon of high interest rates (they are at their highest since 2001, at 4.5%) could be longer than expected at the end of 2023, with the market expecting five cuts for the region compared with six , which were previously estimated and four that many analysts even foresee. It should be remembered that this measure (higher rates) directly affects the margin of banking institutions, which increases as the price of money rises. But despite this slight slowdown in rate cuts, banks’ guidance already points to some weaknesses.

In Bloomberg’s latest 2024 Monetary Policy Outlook, analysts don’t believe in the scenario of such a big cut in rates that have been discounted through the swap (the interest rate investors are willing to pay in the options market) and are opting for something easier: four cuts, totaling 100 basis points.

However, these forecasts are already affecting the financial sector, and three of the six banks listed on the Ibex 35 (Sabadell, Bankinter and Unicaja) have lost their market recommendation to buy, which is the first time in a year. in three banks (the others are Santander, BBVA and CaixaBank). So, Sabadell and Bankinter have lost the best possible recommendation at the beginning of this week, and they add to the maintenance that the Andalusian entity has already carried out since December. Not so long ago, in September, six banks agreed to buy advice for the first time in a long time. But now the scenario is different.

Added to this is the unexpected turn that came a few days ago from Christine Lagarde, the President of the ECB, who for the first time admitted that cuts could happen in the summer of 2024 in the eurozone. “The scenario that is now starting to be ignored is the opposite of that of previous years (when investors discounted rate hikes in a soft landing scenario for major economies),” explains Juan Jose Fernandez-Figares of Link Securities. The expert explains that the horizon now is “lower rates, with the risk that eurozone economies will contract more than expected, a scenario that would in principle negatively impact banks at both a marginal and business level.” more crimes).”

Ignacio Cantos, an analyst at ATL, comments in the same sense that 2024 has turned from a very positive year for the banking sector into a year of transition. “In the fourth quarter of 2023, the average Euribor is lower than in the third quarter, hence the margin is lower. We saw very explosive margins compared to the second quarter, and they will be smaller.”
Firms such as Bestinver already have the biggest doubts about the sector as reduces the impact of Spanish banking from 30% to 20%. Bank of America’s first monthly survey of managers in 2024 also shows this trend, with a significant reduction in exposure to the banking sector.

Recommendations for 2024

The results season that is about to begin and the guidelines that will be learned from it will be the market’s roadmap for the coming days. As for Renta 4, for 2024 they expect that “targets will be higher than those observed in 2023, provided that they do not make emergency provisions in the fourth quarter of 2023 in order to make money to cover part of the expected deterioration of the situation.” in 2024,” they describe in their latest report.

However, given the current scenario, Fernandez-Figares continues to see banking institutions as attractive: “Banks in the eurozone continue to trade at a strong discount to their book value, a discount that follows the improvement in their return on equity funds (an improvement that, according to in our opinion, will continue in 2024) means that the sector will retain its investment attractiveness, especially given the high dividend yield offered by most enterprises.” Therefore, the expert does not believe that the banking sector should be discarded, and names BBVA and Santander as favorites “due to the high geographical diversification of their business.”

Although Bloomberg Intelligence just lost a buy rating from the FactSet consensus, Bloomberg Intelligence believes in the ability Sabadell to increase profitability by 2024. “Sabadell’s higher proportion of fixed-rate mortgage portfolios suggests it may have a slower, albeit longer, turnaround period than its peers, with net interest margins remaining above 2% in coming quarters,” they explain.

At Bankinter, a deterioration in recommendations from “buy” to “hold” has occurred in recent days from Medioabanca and Alantra. Renta 4 believes that when presenting the results (January 25), the organization will maintain “the positive message and the planned evolution of the main variables, which should not differ much from what has been observed so far, with the exception of the interest margin.” On the other side of the board is Banquo. Santander, the best recommended banking institution. among banks and ranks ninth among the best posters on Ibex.

Santander and BBVA are in red this year

Like European stock markets, Ibex Banks (comprising six Spanish companies) is in negative territory for the year, with losses of around half a point compared with the more than 2% fall of the Ibex 35 index in 2024. Banco Sabadell is the most bullish firm with a profit of about 3.2%, followed by CaixaBank with 3%. Banker with 1% and Unicaja with a sluggish 0.3% were also saved from the “claws” of the “reds”. Santander is the most bullish firm with a fall of 1.8%, followed by BBVA with -1.6%.

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