Swiss credit believes that Santander should carry out a capital increase if it is interested in Citi’s small business and consumer banking business in Mexico, according to its analysis of southern European banking ahead of annual results.
Specifically, it has evaluated the potential bid of BBVA Y Santander by Citi’s retail banking in Mexico Banamex, which would result in a market share of 34% for BBVA Bancomer and 23% for Santander Mexico.
Thus, it has stated that, in the case of BBVA being the one to take over this business, its combined participation in the market would be “much higher” than that of its competitors and could exceed the limit to obtain the approval of the Mexican regulator.
Alternatively, it points to the possibility that BBVA Bancomer buy some specific portfolios, although the “high interest” of other buyers “makes this scenario unlikely”.
As to Santander Mexico, Credit Suisse indicated that the operation would give this entity a market position similar to that of BBVA, although the purchase would require a capital increase that, “after the recent repurchase of shares from retailers in the country, will probably have to be addressed at the group level,” he said.
In this sense, analysts Swiss credit They noted that they continue to feel “comfortable” with Santander’s capital level, although there are “some limits.” The fully loaded CET1 capital ratio of the Spanish group stood at 11.86% at the end of September, still below the maximum of 12% set by the entity itself.
As a positive factor, the analysis highlights that the purchase of Citi’s retail business could boost Santander’s profitability in Mexico thanks to the optimization of financing costs, particularly deposits, which may mean that the banking group seeks options, including the expansion capital.
On the other hand, Credit Suisse made its forecasts on the results of Santander, BBVA Y CaixaBank in the 2021 financial year, maintaining its ‘neutral’ recommendations for the three entities.
On BBVA, it cut its net profit estimate by 3%, as it expects higher costs due to inflation and an increase in provisions due to the deterioration of the macroeconomic outlook, especially in Turkey. It has set its target price at 5.2 euros.
For Santander, it set a target price of 3.3 euros and has cut its net profit forecast by 2% due to the worse economic forecasts, which could increase its provisions, particularly in Spain, Brazil and Chile, although it raises its revenue estimates by 1% for 2022 and 2023.
Finally, it made a 1% cut in the profit estimate of CaixaBank, as it forecasts lower commission income as a result of a lower number of managed assets in Spain, higher costs derived from high inflation and an increase in provisions.
