With the markets still dealing with the aftershocks of the recent banking crisis, which has rocked economies on both sides of the Atlantic and around the world, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), Deutsche Bank Aktiengesellschaft (DB), and Société Générale Société Anonyme (SCGLY) could be promising buys for impressive risk-adjusted returns.
The casualties so far of the recent banking crisis have suggested a recurring pattern. The institutions were flooded with abundant deposits from individuals and businesses flush with easy money gushing in from the government’s stimulus checks and low-interest loans.
However, the Federal Reserve and other major central banks reversed their accommodative monetary stance and started tightening their belts by increasing interest rates.
With rising interest rates also came higher-order effects. The narrow base of depositors on which these banks depended also needed to dip into their savings as their economic prospects began to feel the heat of rising borrowing costs and overall macroeconomic sluggishness.
This caught a few financial institutions wrong-footed and exposed them to interest-rate risks. To curtail the crisis, policymakers took decisive action. The central banks stepped in, providing more than $400 billion in direct support.
While the collapse of U.S. regional banks prompted fears of contagion, after the financial crisis, economists are of the opinion that Europe is in a better position than it was before to weather a banking system crisis.
In the above context, let us look closely at the featured stocks.
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)
BBVA is a diversified financial company based in Madrid, Spain, that is engaged in retail banking, wholesale banking, asset management, and private banking. The bank’s operating segments are Spain; the United States; Turkey; Mexico; South America; and Rest of Eurasia.
BBVA was due to pay its final dividend of €0.31 per share on April 5. The bank has raised the cash dividend for 2022 to €0.43 per share, 39% above its payout for 2021 and the highest in 14 years.
BBVA pays $0.45 per share annually as dividends. This translates to a trailing-12-month yield of 6.58% at the current price level, above its four-year average dividend yield of 5.24%.
On March 20, BBVA started executing its €422 million ($461.42 million) share buyback program, announced on February 1. The acquired shares would be canceled, thereby reducing the bank’s share capital and increasing the intrinsic value of the holdings of existing shareholders.
This buyback, which demonstrates the confidence of the management in the bank’s prospects amid a banking scare, along with the aforementioned cash dividend payment, is part of shareholder distributions for 2022.
For the fiscal year 2022, BBVA’s net interest income increased by 30.4% year-over-year to €19.15 billion ($20.94 billion). During the same period, the bank’s gross income increased by 18.2% year-over-year to €24.89 billion ($27.22 billion), while its operating income increased by 22.5% year-over-year to €14.13 billion ($15.45 billion).
As a result of the strong increase in revenue, with 13.3% growth in lending, acquisition of 11.2 million new customers, and channeling of €50 billion ($54.67 billion) in sustainable finance, BBVA’s net attributable profit for the fiscal year 2022 increased by 38% year-over-year to a record €6.42 billion ($7.02 billion). This translated to an adjusted EPS of €1.05, up 47.9% year-over-year.
Given the exceptional performance, BBVA also announced that it would earmark €3 billion ($3.28 billion), or €0.50 per share, equivalent to a payout of 47%, to shareholder distributions through cash dividends and share buybacks.
BBVA’s trailing-12-month net income margin of 27.78% is 4.1% above the industry average of 26.69%. Likewise, its trailing-12-month return on common equity of 13.44% compares favorably with the industry average of 11.15%.
BBVA’s revenue and EPS for the fiscal year 2023 are expected to increase by 9.2% and 18.3% year-over-year to $29.85 billion and $1.36, respectively. The stock has gained 17.1% year-to-date to close the last trading session at $7.04. Its forward P/E multiple of 5.16 is 38.9% lower than the industry average of 8.44.
BBVA’s POWR Ratings are consistent with its uncertain prospects. The stock has an overall rating of B which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
BBVA also has B grades for Growth, Stability, and Sentiment. These attributes have earned it the top spot among 92 stocks in the Foreign Banks category.
Click here to access additional ratings for BBVA’s Value, Momentum, and Quality.
Deutsche Bank Aktiengesellschaft (DB)
DB is an investment bank and financial services company based in Frankfurt, Germany, that caters to private individuals, corporate entities, and institutional clients. The company operates through three segments: Corporate & Investment Bank (CIB), Private & Commercial Bank (PCB), and Asset Management (AM).
On January 18, DB announced that it had issued its inaugural Panda bond, raising CN¥ 1 billion ($0.15 billion) via three-year senior preferred notes. This transaction has enabled the bank to directly tap into China’s deep onshore bond market, accessing a new investor base at attractive funding levels.
For the fiscal year that ended December 31, 2022, DB’s total net revenues increased by 7.1% year-over-year to €27.21 billion ($29.75 billion). During the same period, the profit attributable to DB’s shareholders increased by 159% year-over-year to €5.03 billion ($5.50 billion).
DB’s total assets stood at €1.34 trillion ($1.47 trillion) as of December 31, 2022, compared to €1.32 trillion ($1.44 trillion) as of December 31, 2021.
Given its stellar performance, DB has proposed a dividend of €0.30 per share, up 50% year-over-year.
DB’s revenue for the fiscal year 2023 is expected to increase by 4.3% year-over-year to $30.97 billion, while its EPS is expected to come in at $1.86. The bank has an impressive earnings surprise history of surpassing consensus EPS estimates in three of the trailing four fiscals.
DB’s stock has gained 1.4% over the past five days to close the last trading session at $10.20. Its forward P/E multiple of 5.99 is 29.1% lower than the industry average of 8.44.
It’s no surprise that DB has an overall rating of B, which translates to Buy in our POWR Ratings system. It has an A grade for Momentum and a B for Value.
DB is ranked #6 of 92 stocks in the Foreign Banks category. Click here for additional ratings for DB’s Growth, Stability, Sentiment, and Quality.
Société Générale Société anonyme (SCGLY)
SCGLY is a financial services group headquartered in Paris, France. It offers a wide range of advisory services and tailored financial solutions to help its clients secure transactions, protect and manage assets and savings, and finance their projects, operating through French Retail Banking; International Retail Banking & Financial Services; and Global Banking and Investor Solutions segments.
On January 2, SCGLY announced the completion of the legal merger of its two French Retail Banking networks, Societe Generale and Crédit du Nord Group. As a result, SG is now the group’s new French Retail Banking. It aims to build a leading banking partner in the French market, serving 10 million customers, and be in the Top 3 of customer satisfaction.
On November 22, SCGLY and AllianceBernstein Holding L.P. (AB) announced their plans to form a joint venture combining their cash equities and equity research businesses.
The joint venture would combine the latter’s premier global equity research and execution platform with the former’s equity research and execution capabilities to form a leading global cash equities and equity research business.
For the fiscal year 2022, SCGLY’s underlying net banking income increased 9.3% year-over-year to a record €28.06 billion ($30.68 billion). During the same period, the bank’s underlying operating income increased by 8.4% year-over-year to €8.42 billion ($9.21 billion), while the underlying group net income increased by 6.7% over the previous year to come in at €5.62 billion ($6.14 billion).
As a result of this solid performance, SCGLY has proposed a return of €1.8 billion or €2.25 per share to its shareholders, with €1.70 per share as cash dividends and the remaining €0.55 as share buybacks.
SCGLY’s revenue for the fiscal year 2023 is expected to increase by 1.8% year-over-year to $30.59 billion, while its EPS is expected to increase by 152.9% year-over-year to come in at $0.94. Both revenue and EPS are expected to increase by 3.1% and 25.9% year-over-year during the next fiscal to $31.54 billion and $1.18, respectively.
SCGLY’s stock has gained 9.7% over the past six months to close the last trading session at $4.63. Its forward non-GAAP P/E multiple of 1.16 is 86% below the industry average of 8.28.
SCGLY’s robust fundamentals are reflected in its POWR Ratings. It has an overall B rating, equating to Buy in our proprietary rating system. It also has an A grade for Growth and a B for Value.
SCGLY is ranked #2 in the same industry. Click here to see the additional ratings of SCGLY (Stability, Sentiment, Momentum, and Quality).
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BBVA shares were trading at $7.17 per share on Thursday afternoon, up $0.13 (+1.85%). Year-to-date, BBVA has gained 24.05%, versus a 7.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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