For many, one of the great attractions of banking for 2019 is its high dividend yield. With a yield that reaches 5.7% in the remuneration charged to 2019, the Ibex banks exceed the profitability offered by the index payments -4.8%-, but the weakness that the estimates have shown give reasons for worry.
In the last 18 months, the consensus has cut the expected dividend per share of Ibex financial institutions in 2019 by an average of 11% from its peak and by 15% in 2020. In addition, the other two listed banks are not spared either of the cuts and, in fact, they bear the brunt, with a drop of 20% in Unicaja and 47% in Liberbank for this year. In the midst of the snips, on January 7 the president of the ECB, Mario Draghi, sent a letter in which he recommended banks to establish dividend policies in which “conservative and prudent estimates” are used in order to “satisfy “capital requirements.
The influence of the ‘payout’
The dividend policy of the Spanish banks is linked to the payout (percentage of profit intended to remunerate the shareholder), so this cut is mainly explained by the drop in earnings expectations, which dropped 12%. On average, Spanish banks allocate 44% of profit to distribute dividends. This figure is 7 points below the percentage that the eurozone industry is expected to distribute from 2019.
“In the end, it is a question of forecasting net profit. In general, the forecasts for 2019 are being reviewed due to the mere fact that the market environment has not changed and the expectations that rates will rise are very low,” explains Nuria. Álvarez, from Renta 4.
The continuous delay in the forecasts of a rise in rates in the region has begun to affect the consensus figures since . This situation contrasts with that experienced at the start of 2018, when the ECB was expected to raise rates at the meeting in December of that same year.
In this sense, the Berenberg analysts argue that the problem is common to all banks in the eurozone: “Since the global financial crisis and that of the eurozone began, the turnover of the sector has disappointed. This has been caused by the combination of low interest rates, low demand for loans and the willingness of banks to compete on price, since their products have become standardized (…) We believe that these pressures will continue to create disappointments in the figure of business for the next few years.
Analysts hope that expectations of a rise in interest rates will continue to be the catalyst that drives the price of a sector that last year dropped 33% of its stock market value. “As of today, the key concern for the sector is that Europe will miss the opportunity to raise rates before the next downturn in the economy. If rates were to stay lower for longer, we see limited downside risk in the estimates, but we also calculate a possible 10% cut in profit,” they point out at UBS. For now, banks in the euro area have started 2019 with increases of 8%.
who holds
The entity that has best supported its dividend estimate for 2019 is Bankinter, which has barely suffered a 3% cut from the highest forecast of the year. The orange bank has managed to sustain its results more solidly throughout the crisis and obtains the highest profitability in the sector, above 11%. Of course, its 2020 forecasts have fallen to double digits.
The second best holding bank is Santander, whose estimated dividend has only fallen by 6%. Of course, with current expectations, it would have to distribute close to 45% of the profit, compared to 42% previously expected and above the established range – pending its new strategic plan – between 30 and 40%. In third position is CaixaBank whose dividend forecast has barely fallen by 6%. In addition, for 2020 the estimate has yielded another 6%, the smallest setback in the industry.
In contrast, BBVA, Bankia and Sabadell suffer cuts of more than 15% in their remuneration estimates charged to 2019. For 2020 the snip is even greater for the first two entities, around 25%. Meanwhile, the Catalan entity contains the drop to 11%.
Only Liberbank and Unicaja hold with a buy recommendation
During the last months, CaixaBank, Banco Santander, Liberbank and Unicaja have achieved a buy recommendation. However, in recent weeks analysts have lost confidence in the Catalan and Cantabrian entities, which now remain on a hold advice, although it remains close to buy. On the other hand, corporate noise has increased the confidence of experts in Liberbank and Unicaja, which each have acquisition recommendations. The first gets its best advice since the early stages of 2015 and the second’s recommendation is one of the strongest since it went public.
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