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

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Focus on dividend sustainability

Banco Santander, S.A. (ADR) (NYSE:SAN) is working towards normalizing its profits, but is having pressure on its revenue due to macroeconomic context. The Spanish bank is de-leveraging its business and divesting units to strengthen its capital, while putting efforts into attracting new deposits to improve its liquidity. This last strategy hasn’t had a positive impact on the bank’s funding yet. Banco Santander, S.A. (ADR) (NYSE:SAN)’s non-performing loans have been increasing in the last year, showing the deterioration of asset quality, justifying the discount in book value multiple valuation the bank is reflecting nowadays.

One of the main questions is whether the bank can maintain its current dividend yield, which is above 8% and higher than its peers’. This yield sustains part of its current valuation, amid the uncertainty surrounding its core operations.

Bottom line

Although UBS AG (ADR) (NYSE:UBS) appears to be enjoying a turnaround in its operating inefficiencies and to have solved its capital problems, it would be wise to have more insight into its potential new litigation with the French authorities.

It would be wise to avoid Spanish banks until there’s a clearer view on the housing market and its impact on banks’ loans, although both Banco Santander, S.A. (ADR) (NYSE:SAN) and BBVA have big exposures to emerging markets and have globally diversified portfolios. Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA) is a good bet for a recovery in Spain’s economy if the bank continues to reduce its exposure to the country’s real estate, while Banco Santander, S.A. (ADR) (NYSE:SAN) showed more pressure on its operations that could hurt its high dividend yield, its main attraction in comparison to its peers. Both banks are trading at a discount with respect to their book values, justified by current uncertainty regarding their non-performing loans.

Vanina Egea has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
Vanina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article 3 European Banks: A Review originally appeared on is written by Vanina Egea.

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