Goldman Sachs predicts that 2024 will be a transition year for the European economy. Banks will grow and the ECB will start lowering interest rates. However, they do not believe that the decrease in interest rates will significantly affect the economy and 2025. These are the main conclusions of the report published by the North American bank this Thursday and what is expected from them accordingly is “higher financial fees, operating expenses and manageable credit costs.”
On the other hand, an increase in intra-sector distribution is expected as the economy moves away from maximum interest rates. And this allows a lower ROTE to be expected in 2024, despite the fact that in 2023 almost all of the banks in the coverage area recorded a higher ROTE on an annual basis. The distribution will lead to:a number of interesting investment opportunities” because “strong P&L performance combines with sustained and improved capital allocation to support double-digit EPS and ROTE growth through 2025-27.”
Although the profitability of the European banking sector in the stock market were higher than European stocks overallThe report notes that the sector “remains relatively cheap”, which is largely attributed to the “significant momentum in earnings so far this year”.
CaixaBank and Santander
Goldman Sachs has started covering CaixaBank and is predicting a 25% rise in the stock market. In fact, the valuation of the Spanish entity was set at 5.20 euros; This is one of the highest values that make up the Bloomberg consensus valuation, giving it a neutral recommendation. The bank explained that CaixaBank “is one of the biggest beneficiaries of the high interest rate environment in Europe, given its relatively greater exposure to variable rate loans and effective control of deposit financing costs.”
But CaixaBank “has more exposure” falling rate environmentDespite this, they expect a “double-digit structural ROTE from the American bank, facilitating return of capital in line with other European banks in scope.”
Santander, which is also under its umbrella, has a buy recommendation and a price of 5 euros, which represents a 30% potential. “The global presence allows the bank to benefit from growth dynamics in Latin America as well as rising interest rates and productivity in Europe. We believe in this. will increase profitability It will enable us to continue raising capital and distributing to shareholders throughout our forecast period,” the report states.
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The forecast is that the Group’s ROTE will remain above 14% until 2025. “We believe that the bank’s above-average growth, improvement in profitability and strengthening of capital should support an increase in CET1 by up to 13% in 2024. , increase in distribution rate (total distribution to shareholders) will be up to 50% from 2023 and a high return on capital will be around 9%-10% of market value in 2023 and 2024,” he concludes.