BANKING SECTOR: ECJ RULING ON IRPH, FAVOURABLE FOR BANKS (ANÃLISIS BANCO SABADELL)
Therefore, the case-by-case scenario is confirmed, and some aspects are clarified (transparency verification, replacement of the index) in a way that, in our view, is favourable to banks. Moreover, we should also point out that the risk of collective lawsuits has been minimised, given that verification of transparency must be carried out on an individual basis. Considering that around 80% of the Spanish court rulings on this matter are favourable to banks and that the Supreme Court also ruled in favour of banks in 2017, we believe that the risk of individual claims is also limited. Lastly, the possibility of banks having to make any sort of provision for this contingent risk is removed. We assume that banks will continue to face high legal costs for this judicial process and other currently under consideration (multicurrencies, mortgage costs, revolving cards...), but this aspect would already be included in our estimates, meaning that we do not expect a financial impact (neither positive nor negative) from this ruling.The table below shows the estimated exposure and impact BS(e) for the banks within our coverage universe as of the end of 2019. The greater risk was in CABK and BKIA, which explains the two stocks’ outperformance today (+7% and +5%, respectively, vs. around +3% in the rest of the Spanish banks listed on the IBEX 35). Although, following the sell-off seen in the last week, the IRPH risk on the stocks’ trading levels is difficult to assess, the maximum impact we expected represented ~7% of CABK’s market cap and ~5% of BKIA’s. Therefore, we believe that the stocks’ current trading levels might yield some upside (+2%/+3%), thus closing the gap vs. the rest of the banks. CABK, UNI and SAN remain our top picks from the Spanish Banking Sector.
Banco Bilbao Vizcaya Argentaria is an international financial group, engaged primarily on providing banking services and consumer finance to private individuals and businesses in Spain and Portugal; providing real estate activity in Spain; providing services to international companies and investment banking, capital markets and treasury management services to clients; and providing the banking, insurance and pension businesses in Mexico and the U.S., as well as in South America.
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.
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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