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In this article I intend to present four Spanish banks and compare them with an American bank in recovery. The goal is to benchmark those banks, currently recovering from the European sovereign debt crisis, with a bank that also has gone through a reinforcement of capital ratios, but in a different geography.

I will use six metrics:

  1. Growth in assets per share (5 year comparison: 2013 - 2009)
  2. Growth in deposits per share (5 year comparison: 2013 - 2009)
  3. Growth in net loans per share (5 year comparison: 2013 - 2009)
  4. Growth in net interest income (5 year comparison: 2013 - 2009)
  5. Growth in leverage (5 year comparison: 2013 - 2009)
  6. Leverage (2013)

With this analysis I am trying to collate banks in a depressed geography to a bank in a stable geography, in order to create a short list for further research.


The basic rationale revolves around the idea that, among the banks suffering from lower profitability, there are two different sets of banks. On one hand, we have banks suffering from lower cyclical profitability and on the other hand, we have banks suffering from lower structural profitability.

Growth in client's deposits per share is a good indicator of access to cheap funding (i.e. lower funding costs). On the other hand, the growth in net loans per share is a good indicator of the ability to keep generating business in retail banking. Together, those two metrics should indicate the overall ability of the balance sheet to generate above average returns in the future. The growth in assets per share should also be a good indicator of future profitability. Finally, the ability to keep generating interest income is important to evaluate the health of the overall business.

Obviously, many banks issued new shares to address regulators' demands for capital ratios, therefore, I use per share figures in order to understand the dilution of the value for the shareholder. Also, when good results are obtained we should check if those results were originated by an increase in leverage. And finally, the leverage itself is a good indicator of risk.

The Benchmarking

I choose to use Bank of America (NYSE:BAC) as the benchmark for this comparison. This bank is a good example of a non-Eurozone bank that has gone through a public bail-out. BAC was rescued by the U.S. government in 2008-2009 and faced the regulators' demand to reinforce capital ratios (just like the Spanish banks have been facing since the 2010 sovereign debt crisis).

In the Spanish banks side, I choose: Banco Bilbao Vizcaya Argentaria (NYSE:BBVA), Santander (NYSE:SAN), Banco de Sabadell (OTC:BNDSF) and Banco Popular (OTCPK:BPESF). Other banks were excluded mainly due to a speculative profile.

Let's see the results obtained (Source: Reuters):

(click to enlarge)


BAC faced a tremendous challenge during the 2008 -2009 period. Since 2010, BAC has been committed to a downsizing that led to a smaller balance sheet. Right now, the bank has started to show some signs of recovery, which led to a stock price appreciation. Therefore, in my opinion, BoA is a good reference for where the Spanish banks should be in about one year.

BBVA is the closest bank in terms of growth in loans and deposits (it had the least decrease of all banks analyzed). It even got a better result for growth in assets than our benchmark. During the five years period, BBVA was able to keep the deleveraging process from getting out of control. The bank was able to reduce leverage by 22% while trimming the assets by only 17% (the least of the banks reviewed).

Santander was the best performer in terms of growth in net interest income which reveals the strength of the bank's overall business. On the other metrics, SAN was right behind BBVA. This evidences the similarities between the banks' profiles.

Banco de Sabadell wasn't far from Santander's performance, however, the high leverage halts any investment prospect. I fear that the bank's performance would be significantly worse if it had to lower the current levels of leverage.

Banco Popular had a really bad performance in the majority of the metrics used. Clearly, this bank will have structural profitability issues in the years to come.


From the results obtained I think that the best banks, the Spanish banking industry has to offer, are BBVA and Santander. Both are not far from the BAC's performance. I've wrote about Santander before: here and here. In those articles, I clearly state my belief that Santander has a great business potential. However, BBVA's performance surprised me and I believe that it deserves a closer look. Both banks are on a low profitability cycle but both seem to maintain a high profitability potential.

Source: Spanish Banks Benchmarking: BBVA And Santander Deserve A Closer Look