EUR 100.00 For Business Accounts Only

IBERIAN DAILY 16 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, BANKIA, DIA, FERROVIAL, IAG.

MARKETS YESTERDAY AND TODAY

The IBEX leads gains in Europe
Stock markets on both sides of the Atlantic ended in the black, with the Spanish index leading gains with a 1.20% rise. Within the Euro STOXX, all sectors except for Banks and Insurance posted gains, led by Travel & Leisure and Retail. On the macro side, in Germany, the ZEW index climbed above expectations in September. In the United Kingdom, the ILO unemployment rate increased to 4.1% in July, as expected, whereas the number of unemployed in August rose less than expected. In the US, the Empire manufacturing index increased more than expected in September, whereas August’s industrial output came in below expectations. Separately, the WTO admitted that US tariffs on China imposed in 2018 violate trade regulations. In Japan, exports contracted less than expected in August, while imports fell more than expected, leading to an unexpected trade surplus. In China, total financing came in far above expectations in August.
What we expect for today
Stock markets would open with a slightly bearish slant. Currently, S&P futures are currently up +0.1% (the S&P 500 was down -0.33% vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 25.59%). Asian markets are falling (Japan -0.05% and Hong Kong -0.2%).
Today, we will learn in the UK August’s inflation data. In the US, the Fed will hold its meeting, which will be followed by a press conference by J. Powell. Also we will learn August’s retail sales and September’s NAHB index. In debt auctions: Portugal (€ 1.25 Bn in 6M and 12M T-bills) and Germany (€ 1.5 Bn in bonds maturing in 2048).


COMPANY NEWS

BANKIA, BUY
At yesterday’s closing bell the company announced that in the end it has obtained the ECB’s approval for its internal mortgage model that it had requested in October’18. This will be applied immediately starting in 3Q’20 on BKIA’s mortgages, freeing up a total of € 5.97 Bn of RWAs, around +112bps on FL CET1. The bank also understands that it will be able to extend the model to BMN’s mortgages in 4Q’20, which would free up another € 2.28 Bn, another +48bps on FL CET1. In total, by the end of the year some € 8.25 Bn of RWAs would be freed up, with an impact of around +160bps on FL CET1 that would stand at 14.87% (13.27% in 2Q’20).
Positive news thanks to the timing (while the integration with CABK is being negotiated) and to the greater capital to be freed up than expected. We estimated a total of some € 6 Bn would be freed up (and we understand the consensus estimated a similar figure), that is around +100bps on FL CET1. The +160bps means going from a current mortgage density of ~33% to ~20.5% with the new model, and vs. ~25% BS(e). The model’s approval also further shows the ECB’s flexibility in facilitating M&A moves. All this leads us to believe that the market will welcome the news although our calculations for the merger of BKIA and Caixabank largely assumed this revised FL CET1.

FERROVIAL, BUY
According to the press, ETR 407 (43.23% FER; 57% T.P.) would have resumed the dividend payment with a proposal of CAD 0.32/sh. (-7% vs. 2019; ~ € 70 M attributable to FER) after cancelling it for 2 quarters due to the impact from Covid-19.
Positive news. We expected the ETR407 to cancel the dividend payment for 3 quarters this year and although the impact from this announcement is not significant (the ~ € 70 M mean ~ 0.4% of its market cap), we welcome this decision, as it means that the operating prospects for the 2H’20 are positive, and the ETR 407 provides >40% of FER’s total dividends of infrastructures assets, and this would increase the probabilities that the company decides to pay the interim dividend’20 to its shareholders (€ 0.43/sh.; BS(e); ~1.9% yield), which we have not included in our estimates due precisely to the cancellation of dividends in Heathrow and ETR407.