Banco Sabadell, one of the big banks listed on the Madrid Stock Exchange, has the highest return among international banks, with a 103.28% increase so far in 2021 in its share price.
Other Spanish banks include BBVA with a 46.96% increase in its shares this year, Santander with 31.99% and Bankinter with an increase in the value of its shares of 17.36% as of last Friday.
On the New York Stock Exchange, the biggest gains are for Wells Fargo (59.05% on the year), and Goldman Sachs (48.96%). Investment banks Morgan Stanley and JPMorgan post returns of 45.98% and 33.96%, respectively, so far in 2021.
Other financial institutions have lower returns this year, such as UBS, BlackRock and Citigroup which have gains of 18.26, 17.03 and 17.34%, respectively, on Wall Street.
Also in Mexico
In the Mexican Stock Exchange (BMV), the highest gains in 2021 are for Banco del Bajio, with an advance of 44.17% at a price of 39.33 pesos per share, followed by the microfinance company Gentera with 31.65% increase and Banco Regional with 25.66 percent.
The titles of the Monterrey-based Banorte have an increase of 22.77% in 2021, trading at $134.96 pesos each in the stock market, being the Mexican bank with the highest price.
Meanwhile, Inbursa and Santander Mexico (the latter is still in the process of delisting from the BMV), are the banks that are lagging behind in the Mexican Stock Exchange with 1.74 and 15.85% increase in 2021, respectively.
Amin Vera, deputy director of Economic Analysis at Black Wallstreet Capital, explained that ‘the first to attract market liquidity are banks as they acquire resources with zero or very low rate, and place it at a higher rate, which means a higher profit for them.
He added that “part of the rise in bank shares is due to a circle that feeds back, that is, the financial market expects to see a rally in the sector to start buying (both in stocks and bonds), money falls on the banks by central banks. These resources are lent by commercial banks and improve their fundamentals and raises the price of its share in the stock market, which ends up being a catalyst for the rest of the market,” said the specialist.
Excess liquidity in the economy, injected mainly by the U.S. Federal Reserve (Fed), has greatly benefited the capital market, and now with expectations of an increase in benchmark interest rates of central banks, commercial banks may benefit from increased borrowing costs.
Investors expect that by the end of this year or early 2022, the Fed will begin the cycle of raising the benchmark interest rate, which in principle would negatively impact the equity market and benefit the fixed income market.
“They say banks don’t lose, although in equities there should be a loss from the increase in the central banks’ interest rate. Banks, especially the largest ones, are the ones with the fastest capital turnover, because a large part of their investments are in shares, because they are rising,” said Amin Vera.
The analyst said that a rate hike increases the cost of credit, which is the main business of banks, in addition to the push they have for economic expansion, but above all there will be an increase in the cost of loans granted by commercial banks and therefore will have higher revenues.
“We are waiting for next week’s financial reports, but in previous quarters banks have recorded good indicators. Their fundamentals have reflected the good market outlook,” he concluded.
According to the analysis area of Banorte, Banco del Bajio has a target price of $40.54 pesos per share, in other words, could rise almost 5% additional to the current performance. Inbursa could rise 23% and reach $23.42 pesos per share and Banorte would reach $142.19 pesos at the end of this year.
Manuel Jimenez, director of Estrategia de Mercados, said there is still volatility in the market, because “although the Fed has mentioned that the withdrawal of asset purchases will be gradual, it does not stop worrying the markets due to inflationary pressures that have been recorded and could accelerate the tapering, quickly cutting market liquidity.