EUR 100.00 For Business Accounts Only

IBERIAN DAILY 09 JUNE (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BBVA, BANKING SECTOR EUROPE, INDITEX, INDRA, NEINOR HOMES, NH HOTEL GROUP.

MARKETS YESTERDAY AND TODAY

Falls due to the US
The European session kicked off on a strong note following the good macro data, but lost momentum after the bearish opening of the US stock markets. Within the Euro STOXX, almost all sectors ended in the black, with Travel & Leisure and Real Estate standing out vs. Banks and Autos, which saw the biggest drops. On the macro side, in the Euro zone, the 1Q’21 GDP was raised to -1.3% YoY vs. -1.8% previously. In Germany, June’s ZEW expectations index contracted from historical highs unexpectedly, although the current conditions component recovered more than expected. In the US, the number of job vacancies climbed to an all-time record (since 2000) of 9.3 M, whereas resignations also hit highs at 4.0 M, showing a dynamic labour market. Separately, the Senate approved the Innovation and Competition Act favouring US tech companies with more than US$ 250 Bn (AI, quantic computing, € 52 Bn for semiconductors) to the detriment of Chinese firms. In China, May’s production prices rose more than expected to 9.0% YoY (high since 2008), whereas inflation rose less than expected to 1.3% YoY from the previous 0.95%.
What we expect for today
European stock markets would open flat once again, awaiting US inflation numbers and the ECB’s meeting tomorrow. Currently, S&P futures are up +0.05% (the S&P 500 ended practically unchanged vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 17.07). Asian markets are mixed (China’s CSI +0.15% and Japan’s Nikkei -0.3%).
Today we will learn in Mexico May’s inflation data. In debt auctions: Italy (€ 7.5 Bn in 12M T-bills), Greece (€ 625 M in 12M T-bills) and Germany (€ 1.5 Bn in bonds due 2050).

COMPANY NEWS

INDITEX. 1Q’21 Results above expectations with strong growth at the beginning of the 2Q. SELL.
All headings with the exception of OPEX fared better than expected: Sales: € 4.942 Bn (+50% vs. +47% BS(e) and +48% cons); EBIT: € 569 M (€ -508 M in 1Q'20 vs. € 507 M BS(e) and € 493 M cons). We have seen a strong rise in revenues on a quarter with an increasing performance (98% of stores are already open), with sales fluctuating depending on the impact from the restrictions brought by Covid-19. Sales would still be -17% lower compared to 1Q’19 although as the financial year goes by the situation improves, with a +5% increase at the beginning of the 2Q (1 May-6 June) vs. 2019 (+102% vs. 2020), which we regard as a positive indication. With this in mind, we believe that the stock already prices in a strong recovery, not seeing upside.

BBVA, BUY
At yesterday’s closing bell the company announced an agreement for its personnel restructuring plan in Spain, which will include layoffs of 2,935 workers (10.1% of the total) and the closing of 430 branches (18% of the total). This plan will generate € 250 M of gross annual savings (€ 65 M in 2021) or 9.6% of the cost base in Spain (3% of the group’s), with a +6% impact on group Net Profit’22 (€ 175 M), raising sustainable RoTE by +40bps (+7% on the valuation). The plan will have € 960 M of associated costs, of which € 720 M stems from the personnel restructuring (3x the synergies, in line with expectations) and € 240 M from office closings, and an impact of -28bps on CET1 (and vs. 13.55% pro-forma after the sale of the US business and the share buyback). After the plan is executed, we estimate the bank still has “an excess” of €~4.5 Bn (13% of market cap) yet to be invested.
The plan had already been announced and is not very different from expectations, and thus we expect a neutral/positive reaction on the market.

BANKING SECTOR EUROPE
According to FT, some EU countries, especially Nordic countries (with Germany and France) would be pressuring the EC to make more flexible the measures agreed upon within the CRR2 capital directive, the risk reduction measures or the banking measures known as Basel IV (although within Basel III). The revision is focused on the calculation of Risk Weighted Assets (RWAs) for the main banking risks (lending, market and operational) or “output floor”. The new measures were expected to come into effect on 1 January’22, although they were pushed back due to Covid-19 until 1 January’23, with a 5-year phase-in period (through 2028). According to the EBA, this could mean an increase in capital needs of between +10% and +20%.
Specifically, and as a reminder, with the revised output floor, the banks’ RWAs will have to be calculated as the higher amount between (i) total risk-weighted assets calculated with the methods the bank is authorised to use by its supervisor based on the Basel capital framework (both standard methods and those based on internal models) and (ii) 72.5% of total risk-weighted assets calculated using only standard methods.
Positive news, as it suggests more flexible capital in the banks, although the proposal is unknown. That said, we think it is very difficult to be able to take a different approach, bearing in mind that the new consumption of RWAs has been analysed for some 10 years.
In our coverage universe, the banks benefiting from greater flexibility would be the French banks and ING (with lower density of RWAs) and those benefiting the least would be Spanish and Italian banks (with higher density). To give an idea, Santander announced a very preliminary impact from the measures (i.e. without any type of Management Actions, some -100bps).