BANKING SECTOR: RULING ON REVOLVING CREDIT CARDS (ANÃLISIS BANCO SABADELL)
Supreme Court ruling on revolving cardsIn the long-awaited ruling on revolving credit cards the Supreme Court has stated that any interest above 20% is predatory, meaning all interest charged must be returned. Despite being a negative ruling that sets a legal precedent, our initial reading is positive, as it ruled out the most pessimistic scenario of setting the predatory loan threshold at traditional consumer loan rates (8%/9%). The impacts from this ruling are difficult to calculate, as we do not know the percentage of credit withdrawn from each bank with an interest rate above 20% and the average rate applied. In our central-case scenario we assume that only 30% exceed predatory limits, with an average rate of 25% BS(e) (based on the 26.82% APR from the ruling and that new loan production could be at 24%). We believe there is a strong likelihood of interest being returned (70%), given the probability of the courts ruling against the banks in theoretical lawsuits. Our hypotheses mean small impacts, -1.5% and -2% on the market cap of CABK and BKT, which are the two banks with the most exposure (which is irrelevant in the rest of the banks). Both banks shed around -5% yesterday after the ruling was announced, and thus we think the punishment was overly harsh and should be corrected in the short term. The share prices have factored in that all credit withdrawn was above the predatory limit, a scenario we see as unlikely.
Banco Santander is a holding company, providing a range of financial products. Co.'s products and services include: retail banking business that covers all customer banking businesses; wholesale banking business; as well as asset management and insurance business. Co.'s principal operations are in Spain, the U.K., Portugal, Germany, Italy and Latin America. As of Dec 31 2014, Co.'s total assets amounted to Euro1,266,296,000,000 and total customer deposits amounted to Euro647,627,000,000.
Bankia is a financial institution based in Spain. Co. is primarily engaged in operations in the banking sector. Co.'s business operations are structured into seven areas: Retail Banking, Business Banking, Private Banking, Asset Management and Bancassurance, Capital Markets and Holdings. Co. offers financial products and services to various customer segments, such as individuals, small and medium enterprises, large corporations, as well as public and private institutions. As of Dec 31 2014, Co. had total assets and total customer deposits of Euro233,648,603,000 and Euro106,806,698,000 respectively.
Bankinter is the parent company of a group engaged in banking activities. Services provided include: investment banking; capital market services; financial services insurance; international services such as foreign exchange transactions and travelers' checks; wholesale corporate banking; and retail and private banking services. Co. offers its products and services through the following channels of distribution: branch network; telephone banking, interactive (software) banking; agents; and Internet banking. As of Dec 31 2014, Co. had assets totalling Euro57,332,974,000 and deposits totalling Euro29,966,129,000.
Caixabank is an investment company based in Spain. Co. is involved in investment portfolio management activities across two areas: Services and Financial Business and Insurance. In the services area, Co. provides investment solutions for companies involved in the infrastructure, energy, services and entertainment sectors. In the financial business and insurance area, Co. is engaged in the investments for international banks, insurance and specialist financial services. Co. focuses most of its banking investments in India, China, the U.S., and Central and Eastern Europe with a particular interest in retail banking. Co. is also involved in the disinvestments activities.
Unicaja Banco SA is a Spain-based financial institution (the Bank) engaged in the banking sector. The Bank offers services to individual and business customers. Its products and services range includes current and savings accounts, debit and credit cards, consumer and commercial loans, real estate credit, securities brokerage, funds management, leasing, factoring, pension plans, life and non-life insurance, international trade financing, money transfer, as well as treasury, among others. The Bank operates a number of branches in Spain and Morocco. The Bank is controlled by Fundacion Bancaria Unicaja.
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