European Banks To Consider - Barron's

by: SA Editor Judy Weil October 05, 2008 | about stocks: BCS / CS / HBC / RBS / SOV / STD / UBS    
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Which beaten down European bank shares look enticing in this environment? Barron's likes Banco Santander Central Hispano (STD), citing its reputation as a savvy acquirer-- despite a (so far) money-losing 25% stake in Sovereign Bancorp (SOV). The bank is scooping up valuable distressed assets, and its $15.60 shares are trading at just 6.5 times expected 2009 earnings. Other bargains: Royal Bank of Scotland (RBS), Barclays (BCS) and UBS (UBS). 

Barron's isn't sure about those as it expects more billion-dollar writedowns that will hurt Europe’s less-capitalized banks. Large banks with high credit ratings like Credit Suisse (CS) and HSBC Holdings (HBC) or those with acquisition experience like Santander, should benefit in the current consolidating environment. 

Chad Deakins, manager of the Ridgeworth International Equity Fund, likes conservatively-managed HSBC, even at an expensive two times book value. He also likes Barclays and RBS which sell for six and five times forward P/E, respectively—even with RBS’s recapitalization troubles. European banking stocks rose ahead of the bailout vote, but are still down due to recent market turmoil. 

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Belgo-Dutch bank Fortis will have to sell its part of the top-of-the-market ABN-Amro acquisition last year as part of its restructuring efforts. Santander and RBS were Fortis’ other partners, but each fared differently. Stephanie Grimmett writes that the Latin American divisions that Santander acquired as part of the deal have thrived (echoing Barron’s sentiments on Santander’s buyout smarts). RBS however, has already had to offer a hefty $21.7 billion rights issue this year. It’s unclear how much more capital-raising the bank can do. However, Grimmett says rumors abound that RBS could benefit substantially from the bailout plan passed on Friday. 

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This article has 10 comments:

  •  
    Oct 05 11:35 AM
    Europeans banks are as rotten as America's, even more so, with AIG insuring many of them. The irony is that Barrons' perpetually bearish, is going to lead its readers to lose money in a bear market if they follow this foolish advice and buy Euro banks!
    Reply | Link to Comment
  •  
    Oct 05 01:48 PM
    Of the banks listed here, I think that HSBC and perhaps Barclays are good buys right now and aren't "as rotten as America's". HSBC, I think is in strong shape. In contrast, RBS paid far too much for ABN Amro, and is in poor shape. I don't care how cheap it gets, I'd stay away.
    Reply | Link to Comment
  •  
    Oct 05 02:12 PM
    some hedge funds shorting some of the banks mentioned above: www.marketfolly.com/20...
    Reply | Link to Comment
  •  
    Oct 05 02:42 PM
    The retail investor should avoid all financials worldwide (if not stocks in general) untill at least 2Q 2009 IMO. If you're a prop desk trader at a bank favoured by Emperor Paulson though, well knock yourself out (and Uncle Sam while you're at it)....
    Reply | Link to Comment
  •  
    Oct 05 07:59 PM
    I am not a fan of HSCB. They are not as conservatively run as many assume. They quickly jumped in to low quality ALT-A mortgage origination in the US and I assume that this is more indicative of current management culture than the previous reputation for conservatism
    Reply | Link to Comment
  •  
    Oct 05 09:00 PM
    RBS is still on shaky ground, IMHO. UBS, however, has been among the most proactive in removing gangrene assets. UBS may continue to have minor write downs (minuscule, in comparison to what they purged earlier in the year)... I strongly believe that this is already priced in; it's a bargain under $35 per share and they'll benefit from any European bailout. If their future was bleak, then news released at the recent shareholder meeting last Thursday would have caused it to plummet. The opposite happened--it gained strength on heavy volume on one of the darkest trading days of the year.
    Reply | Link to Comment
  •  
    Oct 06 08:07 AM
    BCS, is my choice. while all the banks in Europe will continue to be under pressure worldwide-and the UK enters a recession period, BCS's other financial services should keep it within reasonable revenue guidelines. Dividends are pretty good, while--hopefully-waiti... for better times!

    You may want to "nibble" these shares at the moment and follow it closely for the next 1-2 quarters to see how they do.
    Reply | Link to Comment
  •  
    Oct 06 10:02 AM
    I agree with what Jase says. Those who were proatcive and dumped toxic assets early and were honest and transparent enough to take the writedowns sooner rather than later will emerge in a position of leadership, those who played accounting games in order to hide losses and hope for a market turnaround will emerge as the laggards if they emerge at all. In my opinion the issue at hand is still the determination of what kind of earnings expectations will be realistic for the emerging leaders in financial services. A significant decrease in future earning and a return to more conservative P/E ratios can still spell a serious decline in share price.
    Reply | Link to Comment
  •  
    Oct 06 10:13 AM
    a lot people know exactly what s going on with this bank and that bank.I just can t stop laughing when I see all those comments,most of them ridiculous at best. Marketfolly, hedge funds are party animals, they live day to day ,they short today and next week they might be long on the exact same stocks. If you don t understand the mechanism of hedge fund just watch Cramer ,he was one of them. But the point of this article ,that you didn t understand, is to position yourself for the recovery. Maybe tomorrow ,maybe in a month, maybe in a year but it will happen,I sure hope you know that .
    Reply | Link to Comment
  •  
    Oct 06 09:47 PM
    Ray Lopez if you made payments on your credit cards and your stinkin' mortgage, there would be no rotten banks anywhere.
    Reply | Link to Comment
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