The crisis roiled the U.S. banking system earlier this year following the collapse of three relatively large regional banks. While the financial sector has shown few signs of stabilization, continued tighter credit conditions could hamper economic growth or bring the economy closer to a recession.
Hence, it could be wise to explore beyond national borders and invest in fundamentally sound foreign stocks Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), Commerzbank AG (CRZBY), and Woori Financial Group Inc. (WF), which are attracting significant investors’ attention lately.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the U.S. financial sector and why it could be wise to look out for foreign bank stocks.
The U.S. banking crisis erupted in early March with the closure of Silicon Valley Bank and Signature Bank, which faced enormous losses on long-term securities that had plunged in value due to higher interest rates. When depositors and investors panicked, a bank run ensued.
Following this, in April, First Republic Bank became the third major bank to fail, and JPMorgan Chase would assume all of its assets, as per the Federal Deposit Insurance Corporation (FDIC). The recent bank collapses were the biggest to hit the country since the 2008 financial crisis.
According to a new quarterly report from the FDIC, U.S. banks lost about $472 billion in deposits during the first quarter of 2023. The deposit decline was the largest since the FDIC began collecting quarterly industry data in 1984 and marked the fourth consecutive quarter of industry outflows.
After recent bank failures, the Federal Reserve warned that tighter credit conditions could hinder economic growth.
“Evidence suggests that the recent banking-sector stress and related concerns about deposit outflows and funding costs contributed to tightening and expected tightening in lending standards and terms at some banks beyond what these banks would have reported absent the banking-sector stress, the Fed’s semi-annual monetary report to Congress stated.
Moreover, according to Goldman Sachs analysts led by chief economist Jan Hatzius, the stress in the banking system is expected to weigh on credit growth, which in turn could reduce real gross domestic product (GDP) growth. The financial sector remains unsettled due to the lack of clarity on the government's willingness to guarantee customer deposits, Hatzius said.
Further, he added that investors are concerned about the shaken confidence of depositors. Minneapolis Fed President Neel Kashkari also thinks that recent turmoil in the banking system and the probability of a follow-on credit crunch could bring the economy closer to a recession.
Amid this backdrop, quality foreign bank stocks BBVA, CRZBY, and WF could be ideal investments now.
Let’s take a closer look at the fundamentals of these stocks.
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)
Headquartered in Bilbao, Spain, BBVA offers retail banking, wholesale banking, and asset management services. The company provides current accounts; and demand, savings, overnight, time, term, and subordinated deposits. Also, it offers loan products, deals in securities; leasing, factoring, brokerage, and asset management services; and manages pension and investment funds.
On February 13, 2023, BBVA announced the successful integration of Mastercard to its corporate expense management solution, Pivot Commercial Cards.
“The incorporation of Mastercard products and solutions into Pivot Commercial Cards reinforces our commitment to offer the most relevant products for corporate payments to our customers. Our seamless integration with the leading expense management tools to facilitate control and traceability will give customers the flexibility to choose what best suits their needs,” said Javier Balbin, Global Head of SME and Enterprise Solutions at BBVA.
In terms of forward non-GAAP P/E, BBVA’s 5.36x is 38.4% lower than the 8.70x industry average. Likewise, its 1.46x forward Price/Sales is 33.1% lower than the 2.19x industry average, while its 0.83x forward Price/Book is 12.8% lower than the 0.95x industry average.
For the first quarter that ended March 31, 2023, BBVA’s net interest income increased 43.1% year-over-year to €5.64 billion ($6.19 billion). Its gross income grew 29% from the year-ago to €6.96 billion ($7.64 billion). Its operating income rose 34.3% year-over-year to €2.96 billion ($3.25 billion). Also, the company’s income before tax was €2.94 billion ($3.23 billion), up 32.3% year-over-year.
In addition, the company’s net attributable profit increased 39.4% year-over-year to €1.85 billion ($2.03 billion), while its EPS from continuing operations was €0.29, an increase of 52.6% year-over-year.
Analysts expect BBVA’s revenue for the quarter (ending June 2023) to increase 19.7% year-over-year to $7.45 billion. For the fiscal year 2023, the company’s revenue is expected to grow 9.9% from the previous year to $30.03 billion. Moreover, it topped the consensus revenue estimates in all four trailing quarters.
Over the past six months, the stock has gained 23.1% and 61.1% over the past year to close the last trading session at $7.36.
BBVA’s POWR Ratings reflect this positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BBVA has a B grade for Growth, Stability, and Momentum. It is ranked #5 out of 89 stocks in the Foreign Banks industry.
Beyond what I have stated above, we have also given BBVA grades for Quality, Value, and Sentiment. Get all BBVA ratings here.
Commerzbank AG (CRZBY)
CRZBY offers banking and capital market products and services to private and small business customers, financial service providers, corporate groups, and institutional clients internationally. The company operates through two segments: Private and Small-Business Customers; and Corporate Clients. It is based in Frankfurt am Main, Germany.
CRZBY’s first share buyback program of €122 million ($133.92 million) recently got approved by the European Central Bank (ECB) and the Finance Agency. Moreover, in line with its capital return policy, Commerzbank would distribute 30% of last year’s net profit after the deduction of AT 1 coupon payments.
The company has a good start to 2023 and is on track to meet its full-year targets, including a payout ratio of 50%. For the fiscal year 2023, CRZBY expects its net interest income to come to €7 billion ($7.68 billion). It expects to achieve the target of 400 branches this year. Also, its CET 1 ratio is expected to be around 14%, while its net commission income is expected to be around last year’s level.
In terms of trailing-12-month P/E, CRZBY’s 8.50x is 7.3% lower than the 8.17x industry average. The stock’s trailing-12-month Price/Sales of 1.45x is 35.4% lower than the 2.25x industry average. Moreover, its 0.51x trailing-12-month Price/Cash Flow is 91.6% lower than the 6.01x industry average.
During the first quarter that ended March 31, 2023, CRZBY’s net interest income increased 39% year-over-year to €1.95 billion ($2.14 billion). Its operating result grew 61% year-over-year to €875 million ($960.45 million). Also, the company’s net profit after tax and minority interests rose 94.6% from the year-ago value to €580 million ($636.64 million).
Analysts expect CRZBY’s revenue for the second quarter (ending June 2023) to increase 15.3% year-over-year to $2.84 billion. Also, the company’s revenue for the fiscal year 2023 is expected to grow 7.1% year-over-year to $10.29 billion. Additionally, it surpassed the consensus revenue estimates in all four trailing quarters, which is impressive.
The stock has gained 19.9% over the past six months and 28% over the past year to close the last trading session at $11.20.
CRZBY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system.
CRZBY has a B grade for Growth, Momentum, and Sentiment. Within the same industry, the stock is ranked #9.
In addition to the POWR Ratings I’ve just highlighted, you can see CRZBY’s ratings for Value, Stability, and Quality here.
Woori Financial Group Inc. (WF)
Headquartered in Seoul, South Korea, WF operates as a commercial bank. It provides a wide range of financial services to individuals, businesses, and institutions in Korea. The company operates through segments: Banking; Credit Card; Capital; Investment Banking; and Others.
WF’s forward non-GAAP P/E of 3.00x is 65.6% lower than the industry average of 8.70x. Likewise, the stock’s Price/Sales multiple of 0.87 is 60.4% lower than the industry average of 2.19. In addition, its trailing-12-month Price/Cash Flow of 1.17x is 71.6% lower than the 6.01x industry average.
WF’s net operating revenue increased 7.6% year-over-year to KRW 2.55 trillion ($1.97 billion) for the first quarter that ended March 31, 2023. Its operating income rose 2% from the year-ago value to KRW 1.25 trillion ($960 million). Also, the company’s net income rose 8.3% year-over-year to KRW 944 billion ($727.97 million).
Furthermore, as of March 31, 2023, the company’s total assets stood at KRW 477.90 trillion ($368.53 billion), compared to KRW 465.70 trillion ($359.12 billion) as of March 31, 2022.
Analysts expect WF’s revenue for the fiscal year (ending December 2024) to increase 2.7% year-over-year to $8 billion. The consensus EPS estimate of $9.60 for the same period reflects a 3.7% growth year-over-year. Furthermore, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
Shares of WF have gained 2.1% year-to-date to close the last trading session at $27.75.
WF’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
WF has an A grade for Value and a B for Stability and Momentum. It is ranked #7 out of 89 stocks within the Foreign Banks industry.
Click here to access additional WF ratings (Quality, Growth, and Sentiment).
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BBVA shares fell $0.13 (-1.77%) in premarket trading Friday. Year-to-date, BBVA has gained 27.41%, versus a 15.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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