The recent credit-rating downgrade by Moody’s suggests that problems for the regional banking sector are far from over. Thus, it could be wise to invest in fundamentally sound foreign bank stocks Banco Macro S.A. (BMA), Banco Santander, S.A. (SAN), and Barclays PLC (BCS).
Earlier last year, the U.S. banking sector was in crisis after the collapses of major regional banks, including Silicon Valley Bank, Signature Bank, and First Republic Bank. Banks grappled with various headwinds, such as a slowing economy, increased deposit costs in a high-interest rate environment, and credit rating downgrades.
While the regional banking industry is believed to have regained its footing after the biggest bank failures, New York Community Bancorp has been recently hit with Moody’s downgrade.
Moody’s cut New York Community Bancorp’s (NYCB) credit rating to junk territory, from Baa3 to Ba2, citing “financial, risk-management and governance challenges.”. The rating agency also slashed all long-term and some short-term ratings and assessments of its lead bank, Flagstar Bank.
This rating downgrade follows NYCB’s larger-than-expected provisions for non-performing loans arising due to its exposure to commercial real estate (CRE) loans, thereby casting doubt on the U.S. banking sector’s stability. Given this backdrop, it could be wise to look beyond borders and invest in foreign banking stocks.
The global banking industry seems on a sound footing, although revenue models could be tested. While banks generally benefit from rising interest rates as they improve net interest margins, higher rates can also pose risks like higher deposit costs that banks must manage adequately.
Further, the adoption of emerging technologies, such as AI, blockchain, mobile banking, cybersecurity, and big data analytics, is transforming the global banking industry. Digital transformation allows banks to improve customer experience, boost operational efficiency, and lower costs.
According to a report by Polaris Market Research, AI in the banking market is expected to reach $236.70 billion, growing at a CAGR of 31.7% from 2024 to 2032.
Given these favorable trends in mind, let’s look at three fundamentally strong Foreign Banks stocks, beginning with number three.
Stock #3: Barclays PLC (BCS)
Headquartered in London, the United Kingdom, BCS provides various financial services like retail banking, credit cards, investment banking, wholesale banking, wealth management, and investment management. It also engages in securities dealing activities. It operates in two segments: Barclays UK and Barclays International.
On January 11, BCS announced the establishment of a new Energy Transition Group within its Corporate and Investment Bank. The said group will be responsible for offering strategic advice to clients to allow them to explore potential energy transition opportunities.
“The creation of this new team is a natural evolution and further enables us to better serve as a lead advisor to clients in the energy and power sectors and presents a powerful One Barclays opportunity to drive value for shareholders,” said Cathal Deasy, Global Co-Head of Investment Banking.
BCS’ annual dividend of $0.27 per share translates to a yield of 3.66% on the prevailing share price. Its four-year average yield is 2.82%. The company’s dividend payouts have grown at a 9.5% CAGR over the past five years.
In terms of forward non-GAAP P/E, BCS is trading at 5.68x, 44.8% lower than the industry average of 10.29x. Likewise, the stock’s forward Price/Sales multiple of 0.85 is 65.2% lower than the industry average of 2.45.
For the third quarter that ended September 30, 2023, BCS’ total income increased 5.1% year-over-year to £6.26 billion ($7.90 billion), while income from Barclays International grew 9.3% from the year-ago value to £4.44 billion ($5.60 billion). The company’s profit after tax came in at £1.54 billion ($1.94 billion).
In addition, the company’s total assets came in at £1.59 trillion ($2.01 trillion) as of September 30, 2023, compared to £1.51 trillion ($1.91 trillion) as of December 31, 2022.
Analysts expect BCS’ EPS for the fiscal year (ending December 2024) to increase 7.2% year-over-year to $1.40. The company’s revenue for the current year is expected to grow marginally year-over-year to $32.67 billion.
BCS’ stock has gained 9.9% over the past three months to close the last trading session at $7.35.
BCS’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value and Momentum. Within the Foreign Banks industry, BCS is ranked #9 among 89 stocks.
Click here to access additional ratings of BCS for Stability, Quality, Growth, and Sentiment.
Stock #2: Banco Macro S.A. (BMA)
Based in Buenos Aires, Argentina, BMA offers various banking products and services to its retail and corporate customers. The company provides retail banking products and services, like savings and checking accounts, time deposits, credit and debit cards, consumer finance loans, mortgage loans, automobile loans, and credit-related services.
On August 24, 2023, BMA entered into a stock purchase agreement to acquire Banco Itaú Argentina S.A. and its subsidiaries. BMA will acquire from Itaú the shares representing 100% of the capital stock and votes of Banco Itaú Argentina S.A., Itaú Asset Management S.A. and Itaú Valores S.A. This acquisition might bode well for the company.
BMA pays an annual dividend of $2.97 per share, translating to a dividend yield of 9.14% on the current share price. Its four-year average yield is 3.72%. BMA’s dividend payments have grown at a 7.2% CAGR over the past five years.
In terms of forward non-GAAP P/E, BMA is trading at 1.23x, significantly lower than the industry average of 10.29x. Also, the stock’s forward Price/Sales multiple of 1.88 is 23.2% lower than the industry average of 2.45.
For the third quarter that ended September 30, 2023, BMA reported net interest income of ARS 112.69 billion ($135.71 million) and net fee income of ARS 35.49 billion ($42.74 million). Its net operating income grew 23% year-over-year to ARS 356.46 billion ($429.27 million). Its net income was ARS 7.51 billion ($9.04 million) and ARS 11.71 per outstanding share, respectively.
Street expects BMA’s revenue for the fourth quarter (ended December 2023) to increase 126.1% year-over-year to $1.16 billion. For the fiscal year 2024, the company’s revenue is expected to grow 67.6% year-over-year to $2.81 billion. In addition, BMA has surpassed the consensus revenue estimates in all four trailing quarters.
Shares of BMA have surged 15.5% over the past six months and 38% over the past year to close the last trading session at $28.82.
BMA’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
BMA has an A grade for Momentum and a B for Value and Quality. It is ranked #8 out of 89 stocks in the Foreign Banks industry.
In addition to the POWR Ratings we’ve just highlighted, you can see BMA’s ratings for Stability, Growth, and Sentiment here.
Stock #1: Banco Santander, S.A. (SAN)
Headquartered in Madrid, Spain, SAN offers several retail and commercial banking products and services to individuals, small and medium-sized enterprises, and large companies internationally. It operates through Retail Banking; Santander Corporate & Investment Banking; Wealth Management & Insurance; and PagoNxt segments.
On December 20, 2023, SAN announced closing a transaction with the Federal Deposit Insurance Corporation (FDIC) to participate in a joint venture consisting of a $9 billion portfolio of New York-based multifamily real estate assets retained by the FDIC after the failure of Signature Bank.
SAN has acquired a 20% equity stake in the joint venture for $1.10 billion and will service 100% of the assets in the portfolio. The FDIC partnership will strengthen SAN’s deep expertise and scale in the multifamily sector.
In terms of forward Price/Sales, SAN is trading at 0.97x, 60.3% lower than the industry average of 2.45x. Likewise, the stock’s forward non-GAAP P/E multiple of 4.68 is 54.5% lower than the industry average of 10.29. Also, its forward Price/Book of 0.56x is 44.4% lower than the industry average of 1.01x.
For the fiscal year that ended December 31, 2023, SAN’s net interest income increased 12.0% year-over-year to €43.26 billion ($46.61 billion), and its total income grew 10.2% from the prior year to €57.42 billion ($61.86 billion). The company’s net operating income came in at €32 billion ($34.47 billion), up 13.4% from the previous year.
In addition, the company’s profit attributable to the parent increased 15.3% year-over-year to €11.08 billion ($11.93 billion). Its total assets as of December 2023 were €1.80 trillion ($1.94 trillion), compared to total assets of €1.73 trillion ($1.87 trillion) as of December 2022.
Analysts expect SAN’s EPS for the second quarter (ending June 2024) to increase 26.4% year-over-year to $0.22, while its revenue is expected to grow 5.7% year-over-year to $16.51 billion. Further, the company surpassed the consensus EPS estimates in all of the trailing four quarters.
Over the past six months, the stock has gained 1.8% and 5.1% over the past year to close the last trading session at $3.93.
SAN’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.
SAN has an A grade for Momentum and a B for Value, Stability, and Sentiment. It is ranked #2 in the list of 89 stocks within the Foreign Banks industry.
To see the other ratings of SAN for Growth and Quality, click here.
What To Do Next?
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SAN shares were unchanged in premarket trading Friday. Year-to-date, SAN has declined -5.07%, versus a 5.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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