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Banco Santander, S.A. (ADR) (SAN), Banco Bilbao Vizcaya Argentaria SA (ADR) (BBVA)- Three European Banks: A Review

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Stocks of Europe’s biggest banks have outpaced Europe’s most important market indices in the past year. This out-performance happened while the banks were working towards strengthening their balance sheets to abide by newly implemented Basel III rules. Some of these banks have been restructuring their operations by shrinking their workforce and businesses. Spanish banks are fiercely competing for market share in their home country to manage their liquidity in a sluggish economy. Their exposure to Spain’s real estate sector prompts the question of whether there could be big impairments in their equity values, since non-performing assets could be wrongly valued. The following are some cases worth mentioning.

Focusing on wealth management

UBS AG (ADR) (NYSE:UBS) is one of Switzerland’s biggest banks. It is implementing strict cost discipline and headcount reductions. Also in line with its new business model, the management team is focusing on net new money growth in its wealth management and investment banks businesses, which delivered strong results for its first quarter. UBS AG (ADR) (NYSE:UBS)’s CEO stated recently that there’s no need to raise more capital. The company’s efforts have allowed it to be well positioned ahead of Basel III required capital ratios, providing the Swiss bank some cushion to be priced above its book value, richer than the industry’s average multiples.

The bank has reduced its charges from litigation in its last quarter, contributing to its recent earnings improvement. Nevertheless, new reports stated that it will be under investigation by French authorities to verify if the bank helped French citizens evade taxes.

Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA)

Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA) is Spain’s second-biggest bank. Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA)’s main issue is its exposure to Spanish real estate loans. One of the management’s main objectives is to lower this exposure, which has mildly declined in the first quarter. Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA) is also trying to reduce its liquidity gap in Spain, looking for new clients in a very competitive and economically difficult environment. Although its loans and deposits grew this last year, the bank is experiencing an uptick in non-performing assets.

Also, to manage liquidity, Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA) placed a €4.500 million debt on several markets in the first quarter. This amount is not worrisome, as it represents a 3% of its total debt amount and as Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA) has maintained a steady relationship between debt and assets. A third of its revenue is concentrated in Europe, while a total 58% is concentrated on emerging markets. This provides the bank with satisfactory regional diversification, although it has experienced some negative currency effects in the last quarters on its income statements.

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