EUR 100.00 For Business Accounts Only

IBERIAN DAILY 24 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, BANKIA, BBVA, FERROVIAL, GRUPO CATALANA OCCIDENTE, LIBERBANK, REPSOL, SANTANDER, UNICAJA.

MARKETS YESTERDAY AND TODAY

Recovery fears return
Bullish opening yesterday in European stock exchanges above +1.5% that were not highly affected by the mixed PMI performance in the euro zone in September, where the manufacturing PMI climbed above expectations and that of services was disappointing after falling below 50. However, the bearish opening of Wall Street, where as opposed to Europe, cyclical sectors with value bias outperformed growth and momentum, dragged down European indices that ended with gains below 0.8%. In this regard, Lagarde did not help by insisting in maintaining a flexible stance on fiscal deficits over many years, nor did the fact that the Recovery Fund is of a permanent nature. In the Euro STOXX, almost all sectors ended in positive territory, with Travel&Leisure (partially fuelled by the news that J&J vaccine will initiate phase III in the US) and Consumer Goods (driven by Nike’s positive prospects) leading gains vs. Banks and Real Estate that saw the biggest drops (due to Lagarde’s statements). On the macroeconomic level, in Spain, the final 2Q’20 GDP was raised to -21.5% from -22.1% previously, and while the government announced it would reach an agreement to update pensions with the CPI, the BoS warned that such an adjustment would represent an unbearable cost for the Social Security in the future and that, awaiting further stimuli, the risk of NPL levels rising is very high. In the euro zone, the PMI confirmed the negative impact from the new Covid-19 outbreaks on the services sector while the manufacturing sector remains in recovery zone. In this regard, C. Lagarde insisted on keeping the flexibility of fiscal deficits for many years and the permanent nature of the Recovery fund.
What we expect for today
The European stock markets would open with drops of more than -1.0%, dragged down by cyclical sectors, especially with a value slant, due to recovery fears after Fed members Powell, Evans, Rosengren and Clarida warned that although additional fiscal stimuli are necessary they might not come until after the US elections. Currently, S&P futures are down -0.4% (the S&P 500 was up +1.5% vs. its price at the closing bell in Europe). Volatility in the US increased (VIX 28.58%). Asian markets are falling (Japan -1.2% and Hong Kong -1.9%).
Today in Germany we will learn the IFO index, in the US weekly jobless claims and new home sales, and in Mexico the Central Bank meeting. As for auctions, Italy will issue € 4.8 Bn in CTZ bonds due 2022 and I/L.


COMPANY NEWS

SANTANDER, BUY
Highlights from our meeting with SAN’s investor relations team:
(i) No M&A. The Company reiterated the messages that have been conveyed over the past few days by the Chairwoman and CFO regarding not participating in M&A moves. SAN is not interested in taking part in any consolidation processes, as they could generate “synergies” that would reduce the bank’s own structures. Note that the € 1 Bn of cost savings forecast in the ID could be enlarged in the near future. No details were given on the amount, or if associated restructuring costs would be necessary, although we believe it will come in Spain and in the Corporate Centre. If this were the case, we would be talking about a reduction of around -10% to the cost base in Spain, which would mean €~360 M of synergies (net of taxes). The impact would be +1.6% on consolidated Net Profit and around +40bps on RoTE.
(ii) The bank is confident in how the moratoria are progressing. Of the € 116 Bn in moratorium, some € 63 Bn has matured (~55%) and only 2% has fallen into NPL, the same amount as in June’20. Likewise, the performance in Brazil and SCUSA has been good, especially thanks to the strong Govt. backing. Thus, SAN has reiterated a CoR’20 of between 140-150bps, likely reaching the low end of the range in 2020 and below it in 2021. All this is in line with our estimates.
(iii) Capital. SAN reiterates its guidance of being in the high end of the 11-12% target range in 2020. In 1H’20 it reached 11.84%, to which we must add +5bps from Puerto Rico, +8bps from minority interests in SCUSA and +20bps from the flexibility in software that would offset the pending -20bps adjustment to TRIM (SMEs in Spain).
(iv) Dividend. For the time being the bank aims to reserve around -10bps in 3Q’20 capital and another -10bps in 4Q’20, which along with the -6bps from 2Q’20 will allow it to face the dividend payment of € 0.10/sh., as long as the “CET1 range is not jeopardised” and the payout remains below 50% (which is the case). This implies that Operating Net Profit’20 should come in above € 3.5 Bn BS(e). Consesus is slightly below (c € 3.3 Bn).
(v) Operating trends. In general terms, Spain and UK would see a higher NIM in 2H’20 vs. 1H’20, which would mean a flat or slightly higher NII vs. 2019. This would be backed by credit volumes, lower costs of deposits and TLROs III totalling € 56 Bn. Moreover, in the UK, the company underscored the changes in the conditions of the 123 current account, which saw its remuneration reduced to 1% in May, and to 0.6% in August, in addition to lower remuneration of deposits. However, the company revised the change in the accounting for overdrafts, totalling € 250 M annually. This year, some € 200 M, of which between € 70 M and € 90 M are “passed on to NII vs. commissions”. This fact partially explains the expected -40% drop in fee revenues in the UK vs. 2019 (BS(e) in line). In Spain, the drop will also be significant due to falling activity levels. Separately, the respective CoRs should stand at 90bps in Spain (vs. 43bps before Covid-19), and some 25bps-30bps in the UK. However, the company is optimistic as regards Brazil, where credit volumes would grow by double-digit rates and the CoR would stand at