In barely a week, the baseline scenario managed by the large listed banks has turned 180 degrees. At the beginning of the year, the context in which the market moved was one of interest rate rises that would result in the appreciation of the credit portfolio where the entities expected double-digit growth in their interest margin. Block banking presents the good tone in the stock market with double-digit increases. However, the earthquake caused by SVB and, especially by Credit Suisse, has caused a crisis of confidence that is in the process of being digested, in which the ECB could have carried out its last big rate hike yesterday, worried about the impact it will have on the economy.
It is true that the injection of 50,000 million Swiss francs from the Swiss National Bank (SNB) has served to reduce the risk of a possible flight of deposits from Credit Suisse, but it has also forced the European Central Bank (ECB) to include in its statement that the agency would be willing to provide support to the financial system if needed. The body led by Christine Lagarde has given a hard time by avoiding ruling on new increases or the need to combat inflation, which is still too high, according to the body itself.
This will only result in the volatility that analysts expect. Nuria Álvarez, from Renta 4, believes that “in the context of uncertainty, we should continue to see high volatility in prices, with downward pressure.” Analysts insist that despite the swift Swiss reaction, uncertainty is still present and will take time to clear.
Experts make two distinctions: short and medium term. For this first quarter, the entities must maintain in their income statement the traction that they will affect in the last quarter of 2022. Credit in the interest margin, ”explains Joaquín Robles, an analyst at XTB. In these results, they would not have been affected by the bankruptcy of SVB and the aid to Credit Suisse, but rather they would register a good tone thanks to the rise in the Euribor.
A changing scenario in a week
Instead, the situation changes to a year. “In the medium term, the outlook for the sector is bad because you have all the variables against it,” explains Álvarez. To begin with, because the European Central Bank (ECB) has been forced to slow down the rate of interest rate rises, since, although its mandate is to control inflation, it must also monitor the financial sector. As a consequence of this, “you have the Euribor slowed down at 3.5% -4%”, continues the expert.
In turn, credit would also stagnate, either because you have raised interest rates, or because even if the body chaired by Christine Lagarde reduces the rate of increases, high inflation reduces the purchasing power of families and companies to request it and this is sum that banks could be forced to advance the rise in remuneration of deposits in several months, experts highlight. This does not mean that now these forecasts on the interest margin of the entities are compromised, but they do show a certain lack of visibility that can affect the prices.
“What is clear is that we are not in the same situation as a week ago,” explains Cantos, who adds that “until everything returns to normality it will take a while.” The crisis of confidence caused by Credit Suisse has already caused the first negative consequences and that is that the risk premium has caused the cost of credit to rise “and that is not good for the economy or for credit”, insists Ignacio Cantos, director of ATL Capital investments.
For David Ardura, director of Finacess Value, there are still many questions that remain unresolved: now what, what is the next step and “see how the aid is structured, if there is a sale.” Until these issues are resolved there will still be a lot of volatility. Proof of this is that the market is still pending these issues despite the strong rise in Credit Suisse, listed Spanish banks have posted rather tepid rises, compared to the 5% expected, for example, says Rafael Alonso, an analyst at Bankinter.
Stop the dividend?
It is still early, but the central bank of the eurozone could ask banks to be restrained when it comes to remunerating their shareholders, at a time when entities have highlighted their dividend remuneration policies, in the case of that the crisis of confidence will cause a flight of deposits and therefore will affect the liquidity of banking entities.
It should not be forgotten that financial institutions maintain a ‘pay out’ commitment of between 50 and 60%. This would not be anything new. Already during the pandemic, the ECB established a ban on financial institutions distributing dividends to try to get credit to the small economy.