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IBERIAN DAILY 22 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, FERROVIAL, REPSOL.

Market consolidation
New Covid-19 restrictions in China increased fears about global economic prospects, which led to corrections in European stock markets. Thus, in the Euro STOXX, Food and Household were the best performers, with Basic Resources and Energy showing the worst relative performance. On the macro side, in Germany, October’s production prices slowed down more than expected. In Spain, the government agreed with banks flexibilization measures in mortgage payment (extension of up to 7 years, among others) for families with income < € 29,400. From the ECV, Holzman (Austria) backs rate rises of 75bps in December’s meeting whereas Centeno (Portugal) supports a lower pace. From OPEC+, rumours that Saudi Arabia would be discussing an increasing of up to 500,000 barrels/day for the OPEC+ meeting to be held on 04/12 were denied by the country. In China, the Covid outbreak hit record levels not seen since April with restrictions in 48 cities (around 20% of GDP).
What we expect for today
European stock markets would open with a slightly bullish slant, with the energy sector recovering following yesterday’s drop in Brent prices and cyclical stocks impacted by restrictions in China. Currently, S&P futures are flat (the S&P 500 ended +0.34% higher vs. the European closing bell). Volatility in the US dropped (VIX 22.36). Asian markets are climbing (China’s CSI 300 +0.15% and Japan’s Nikkei +0.7%).
Today in the euro zone we will learn November’s consumer confidence, and in the US November’s Richmond manufacturing index. As for auctions, Germany will issue € 3 Bn in bonds due 20227.


COMPANY NEWS
BANKING SECTOR
According to the press, the banking sector would have reached an agreement with the government to relax some measures for mortgage clients with some financial vulnerability. The package of measures will soften the mortgage burden for 1 M Spanish families. The agreement includes reinforcing the Code of Good Practices in force that contemplates those families with income 3x the public income index in 14 payments; € 25,250 with the update in 2023. Thus, this agreement would apply for those families seeing a +30% increase in their mortgage burden and meaning 40% of household income. These families will obtain an interest rate reduction for a 5-year period (from current Euribor +0.25% to -0.10% Euribor), with the possibility of a second debt restructuring and a 2-year extension of the period to request the transfer in lieu of payment. Furthermore, a new Cod of Good Practices will be created to enable middle-class families (with income < € 29,400 annually) to ease the financial burden of mortgages subscribed until 30/12/2022 by freezing the mortgage payment and extension of the amortisation period by 7 years. These measures would also include the elimination of the fees for early repayment and for conversion from variable to fixed loans in 2023, among others. News virtually without impact for the sector, as it would only be an extension of the amortisation period, which, in short, is an accrual in instalments. Bearing in mind that the group affected would also be small, the impact on NII would be irrelevant. The key lies in the classification of these loans, given that once they have been restructured, the regulation requires them to be classified as Stage 2 or 3, with a higher coverage requirement than current loans (Stage 1). The easing of this criterion would be, in our view, an adjustment for the sector. With this in mind, we welcome the fact that measures are taking shape, as this reduces pressure on the sector.