EUR 100.00 For Business Accounts Only

IBERIAN DAILY 05 OCTOBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, GRIFOLS, ROVI.

Easing rates fuel stock markets
Stock markets welcomed (with gains of around +4% in Europe and +3.0% in the US) the possibility that the Fed could ease the rate hike after the slighter-than-expected rate rise in Australia and the partial withdrawal of the fiscal plan in the UK. As for the war, there are rumours that Belarus might take a more active part in the war. Thus, all sectors in the Euro STOXX posted gains, led by Travel&Leisure and Consumer Goods vs. the worse relative performance of Real Estate and Utilities. On the macro side, in Spain, the number of unemployed rose in September for the first time since 2012. Meanwhile, the government will transfer almost € 2 Bn to the state pension fund for the first time in 13 years, expecting to update pensions to inflation in 2023. As for the macro scenario, the Govt. forecasts 4.4% and 2.1% growth in 2022 and 2023, respectively (vs. 4.3% and 2.7% previously), with fiscal deficit of -5.0% in 2022, nearing 3.0% in 2025. In the US, the number of job vacancies showed the sharpest drop in August in 2 years although remaining at high levels. Separately, the OPEC+ is considering production cuts of between 1 and 2 mb/d that could be implemented gradually.
What we expect for today
European stock markets would see profit taking of as much as -0.5%. Currently, S&P futures are down -0.4% (the S&P 500 ended +0.2% higher vs. the European closing bell). Volatility in the US dropped (VIX 29.28). Asian markets are rising (China’s CSI 300 closed and Japan’s Nikkei +0.5%).
Today OPEC+ meeting. In the euro zone we will learn September’s final services PMI, in Spain September’s services PMI, and in the US September’s services ISM and September’s ADP employment survey. As for auctions, Germany will issue € 1.5 Bn in bonds due 2038.


COMPANY NEWS

BANKING SECTOR
According to different press media, the ECB, the European Banking Authority and the Bank of Spain would be requesting the sector maximum caution to estimate provisions against a backdrop of clear downward growth risks in addition to high inflation. In view of a deterioration of the current economic situation, these bodies outline that in the absence of an extremely cautious stance, the positive impact from the rate rise could not be sufficient to offset the lower growth mentioned (affecting lending volumes and lower fee revenues), higher funding costs (both in deposits and wholesale debt) and operating expenses under upward pressure (due to the high inflation), in addition to the hike in NPL.
Negative news although expected to some extent and included in consensus estimates. We believe that nothing suggests that Net Profit’23 will be below 2022 levels, i.e., the sudden hike in interest rates for the banks in our coverage universe (particularly for Italian and Spanish banks) has been enough to offset the downward risks. Note that for every +100bps rise in interest rates, NII would increase by +15% two years after the repricing. This would also take into consideration the higher liability costs (passed on from inelastic term-deposits). Moreover, we should take into account the increased returns obtained from the ALCO portfolio (due to higher yields). Likewise, many banks in our coverage universe have room for manoeuvre in costs thanks to synergies in their restructuring plans (such is the case of Caixabank and Unicaja). NPL levels in Spanish banks as of the 1H’22 stand at 3.85%, far from French, Nordic and ISP banks (12.5% on average ex Santander).
In conclusion, rising interest rates would hedge all downside risks in the sector for the time being (even hedging the Spanish government tax in the case of the Spanish banks). Our top picks are Caixabank, Bankinter and Unicaja.