Mirage or reality? Banking is headed for historic profits with the risk of defaults and recession on the horizon

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The second meaning of mirage that the RAE includes says that it is the “concept or image without true reality.” “Mirage” was also the term chosen a few days ago by the vice president of the European Central Bank (ECB), Luis de Guindosto make a call to reduce the euphoria in the banking sector a few days before the entities present their third quarter results.

The rise in rates in the last year has boosted the sector’s income and profits, which in some cases could become historic at the end of the year. Despite this, national and European supervisors and regulators have intensified messages in recent weeks so that banks do not fall into complacency in the face of the risks and uncertainty that are already perceived in the economy. On the contrary, they want them to ensure the cushion with which they face possible turbulence on the horizon and that means, among other things, being “prudent” in remuneration and remuneration to shareholders.

Precisely this is one of the main workhorses at a time when the country’s largest banks are immersed in the execution of their shareholder remuneration plans and repurchase of their own shares. In the latter, the 1,310 million Santander Bank1,000 million BBVA and 500 million CaixaBankto mention the most recent buyback announcements.

The ECB and the Bank of Spain appeal to the “prudence“as a euphemism to ask banks to allocate their profits not so much to the remuneration of their shareholders but to raising provisions and funds in order to protect themselves from the economic deterioration in Europe and possible defaults, which are already beginning to grow.

“There is perhaps a lack of sensitivity on the part of supervisors when they draw attention to share buybacks. Banks are trading below their book value and now that they have excess capital they decide to allocate part of that excess to raising the listing. It is a strategy that for me makes complete sense from a financial point of view in a context like the current one and as long as the liquidity and profit situation allows it,” says Enrique Reina, partner in the Financial Services area of ​​Accuracy. , consulting firm specialized in the sector.

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