When US investors have eyed the menu of banking shares on offer in Europe, they have taken big bites out of Spanish banks.
Although Spain’s banking collapse was one of the most severe on the continent, it is also the country that has acted fastest and most decisively to repair the battered sector, fund managers say.
Its former savings banks, or cajas, have either retrenched, merged with better capitalised rivals, or been taken into government care, leaving a smaller and increasingly safe sector.
“The Spanish have done a lot, a lot more than the Italians,” said Ruth Nagle, lead portfolio manager for the financial sector on BlackRock’s Global Opportunities funds.
The share price performance of the two largest Spanish banks, Santander and BBVA, reveals how they have become a favoured play on eurozone recovery. They are up by almost one-third since the end of June, compared with less than 20 per cent for the Stoxx Europe 600 Banks index.
Smaller Spanish banks Sabadell and Caixabank are both up more than 50 per cent.
A big purchase by BlackRock meant the number of BBVA shares in US hands leapt 70 per cent to more than 10 per cent of the outstanding stock.
T Rowe Price was another US fund manager to increase its holdings in BBVA recently, according to Jason White, portfolio specialist at the Baltimore-based firm. “Spain’s banking sector has been consolidating, so it is better from a market structure standpoint.”
Ms Nagle also highlighted steps towards banking union as a positive. This will soon usher in consistency of reporting standards from Spain to Germany, she said, making it easier to compare banks, and helping nervous investors to assess periphery countries’ banks.
But the bottom line is valuation. Where US banks have soared, European companies still trade at a discount to book value, and dividends in Europe are above 3 per cent, compared with below 2 per cent in the US.
“There are still questions about the speed of the economic recovery and whether or not the property cycle in Spain has bottomed,” Ms Nagle said, “but given the valuations, the risk-reward balance is favourable.”