Spanish banks a buy for first time 'in years'

Wednesday, 24 Jul 2013 | 9:31 AM ET
Marco Cristofori | Robert Harding World Imagery | Getty Images

Analysts are starting to see value in Spanish banks for the first time in years, despite anticipating further earnings downgrades and heavy regulatory headwinds later on this year.

Spain's main lenders post earnings on Thursday and are expected to report more pressure on profits despite being granted 100 billion euros of European aid.

(Read more: Why hopes of Spain's recovery may be 'far too optimistic')

However, John-Paul Crutchley, European bank analyst at UBS said while Spain's economy remains challenging, there are signs of improvement in unemployment and consumption, and he believes the debate has moved on from balance-sheet issues.

"We expect the sector to book virtually no profits in the second quarter excluding one-offs to meet provisioning needs. The outlook for the second half remains challenging," he said. "But since the beginning of the year, we have become gradually less negative on Spanish banks... We are starting to see some value in several banks for the first time in years."

Crutchley believes earnings for Spain's banking sector could soon bottom out.

BBVA is Crutchley's top pick out of Spanish banks because of its exposure to the Mexican market. He predicts the stock, which is down 7 percent so far this year, will rise 18 percent in the next 12 months. Crutchley upgraded the stock earlier this week to a "buy" from "neutral" with a price target of 7.60 euros.

Steven Bryce, research analyst at Credit Suisse said "spring cleaning" was in progress in Spain's banking sector and the restructuring of bank balance sheets had advanced.

"The majority of measures of Spain's financial sector program have been implemented and recapitalization together with the transfer of assets to Sareb, the bad bank set up at the end of last year, has bolstered banks' liquidity and solvency," said Bryce.

(Read more: Caught texting on the job: Spain's premier faces fresh turmoil)

Credit Suisse prefers shares of BBVA and Santander, though both are rated "neutral." Bryce said he remain cautious and while the valuations have become cheaper, Spanish bank stocks are still risky. Credit Suisse rates Banco de Sabadell as "underperform" because of capital concerns.

But other analysts are not so upbeat about the prospects for Spanish lenders, with Jason Napier, research analyst at Deutsche Bank revising down both Santander and BBVA's estimates because of difficult conditions in the Latin American market and volatile foreign exchange rates.

"Brazil, Mexico and Chile are all showing decelerating loan growth, with non-performing loans rising in Mexico and Chile. Naturally, we still expect growth from these markets for BBVA and Santander shareholders, but we expect consensus expectations for these businesses to fall near term," he said.

(Read more: Spain Scandal Returns, as Markets Brace for More Pain)

Shailesh Raikundlia, European banks analyst at Espirito Santo said Spanish banks still haven't booked enough provisions to pay for future losses.

"We don't see a recovery in Spain and continue to think that impairments are going to run higher than the market is expecting," he said.

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave


  • Pro-Russian activists seized the main administration building in the eastern Ukrainian city of Donetsk.

    Deadly clashes in eastern Ukraine have spiked fears of all-out war in the region. So who are the armed, flag-waving rebels who appear to be behind it all?

  • An employee wipes a TV screen in a shop in Moscow, on April 17, 2014, during the broadcast of President Vladimir Putin's televised question and answer session with the nation.

    Russian President Vladimir Putin warned of possible disruption to Europe's gas supply on Thursday, as the U.S. confirmed it would send additional military support to Ukraine.

  • The recovery in the EU's car industry carried on through March, providing some much needed cheer for automakers.

  • Amazon is facing fresh strikes in Germany after pay negotiations with the country's second-largest union Ver.di broke down, the Financial Times reports.

Contact Europe News


    Get the best of CNBC in your inbox

    › Learn More

Europe Video

  • Jan Dunning, CEO of St Petersburg-headquartered hypermarket chain Lenta, says the situation in Ukraine has had no impact on the group, as consumer confidence remains unaffected in Russia.

  • Vincent Deluard, European strategist at Ned Davis Research Group, says the strong euro is a problem for the region's companies, especially for the large exporters.

  • European shares closed higher on Thursday as investors brushed aside concerns regarding Ukraine and focused instead on Wall Street earnings and the latest U.S. jobs data.