EUR 400.00 For Business Accounts Only

BANKING SECTOR REPORT: IRPH - EYES ON CABK AND BKIA (ANÁLISIS BANCO SABADELL)

Cuts in BKIA and CABK and analysis of impact from IRPH.
We cut our estimates and T.P. for the two hardest hit banks by IRPH (CABK and BKIA), updating our 12M Euribor hypotheses (to -35bps/-40bps for Dec’19 and ’20, around -20bps vs. our previous estimate), and obtaining new references of € 3.26/sh. (-8% vs. previous T.P.) and € 2.07/sh. (-21% vs. previous T.P.). We stress that on the 10th of September we will learn the opinion of the advocate general of the European Court of Justice (ECJ) on the IRPH clauses, which will be key as it is usually the same as the court’s ruling. The case is complex (IRPH index cannot be annulled, but the clause containing it can). Our opinion is that only 50% of the lawsuits will move forward, although we measure the worst possible scenario (100% of the suits + full retroactivity + IRPH replaced with Euribor). The impact would be significant in CABK (around -5% on sustainable Net Profit and -80bps on CET1 BS(e) and additional -10% in T.P.) and BKIA (-4% and -35bps BS(e) and additional -9% in T.P.), which could lead to DPS cuts’19 (CABK) on the increase in provisions. For the rest of the banks the impact would be below -1% on Net Profit and -10bps on CET1. We think the IRPH would therefore be factored in to CABK’s share price and the stock should close the gap in its share price (after 10/09), and we maintain our BUY recommendation.