Implications for Investors.
The word in English to define Europe’s crisis is “protracted” which means: extended, long, prolonged, lengthy, time-consuming, never-ending, drawn-out, interminable, spun out, dragged out, long-drawn-out, overlong. That said, I don’t think the ECB would let a bank run happen in any of the big troubled European economies, mainly Italy and Spain.
Cyprus is unique in its own way: Bank deposits run as high as 800% of the country’s GDP, making the country tough to rescue. I think that, at the end, a higher one-off tax will be imposed on big deposits (above 100,000 euros or even above 500,000 euros), while no taxes are to be imposed on smaller deposits. The precedent would still be dangerous, but the impact should be less socially unacceptable. Besides, I don’t see any of this happening in Italy or Spain. To begin with, banks in both those economies are not as big (relatively to GDP) as banks in Cyprus are. Moreover, after many painful write-downs, Italian and Spanish banks are in much better shape than they were two years ago.
As a matter of fact, I think that if a big sell-off on high quality banks were to happen, it might be time to buy. I am long Banco Santander, S.A. (ADR) (NYSE:SAN) equities and I also own Senior bonds from Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), which is also a great bank to own but is not as diversified out from Spain as Santander is (besides, its cash dividend yield is “just” 5.4%). I am also considering going long on the Italian banking champion Unicredit (NASDAQOTH:UNCFF). The Italian economy is in terrible condition, but there is huge value in the country and Unicredit is trading at 50% of tangible book value (against 130% for Banco Santander, S.A. (ADR) (NYSE:SAN) and 120% for Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA)). Buffett always recommends being greedy when others are fearful. Maybe it’s time to follow his piece of advice and start looking at Europe’s leading banks.
The article Cyprus and Your Banking Shares originally appeared on Fool.com and is written by Federico Zaldua.
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