Banks in Spain adjust strategy post-Brexit referendum

santanderSpanish banks have analysed their financial future in the wake of the UK’s vote to leave the European Union and the uncertainty which currently reigns until Article 50 is triggered and the results of negotiations between Britain and the other 27 EU nations are known.

Banca March says: “This new scenario undoubtedly affects our vision of investment risk levels, and we would recommend a more cautious approach in the medium term.”

Banco Santander (pictured), which is present in the UK after buying out Abbey National in 2004, says its shares have lost 10% since the results of the referendum were made known.

But their situation is not as drastic as that of Morgan Stanley, which estimates its average profits across its branches will shrink by a typical 18% by the end of 2018.

Machinery, transport equipment, chemicals, fuel, insurance companies and the financial and banking sector in general will be the industries most likely to suffer, says Deutsche Asset Management.
Bankinter, which is Dutch but heavily present on the Spanish high street, expects the next few months to see ongoing market volatility, especially as many UK fund managers have locked in investments in property in response to the flood of requests for reimbursement.

“It seems improbable that the scenario post-Brexit will be better than the one before it, and valuations will gradually be reduced – the only convincing factor for those looking to invest in the UK could be a more attractive market based upon lower prices – but the downside is that the stock markets will probably be blocked for some time,” Bankinter’s third-quarter strategy report reads.

Like Banca March, it recommends ‘proactive caution in the market at this time’.

Bankinter’s Spanish arm advises ‘a focus on selecting assets with healthy, solvent balances, with visible profits and an attractive dividend return, as a priority’.

Amongst these, it recommends utilities, franchises and consumer goods.

Bestinver, based in Spain, has just presented its strategic report for the third and fourth quarters of 2016 and reveals it is ‘rotating progressively between portfolios in search of opportunities’.

It cites insurance company MAPFRE, and BME, as replacements for Iberpapel and airports governing body AENA.

Airline IAG, a fusion of British Airways and Iberia, has seen its share prices drop in response to fears the tourism sector will be affected because of the fall in the sterling making holidays in Spain more expensive, possibly leaving lower-income Brits to resign themselves to ‘staycations’ instead of foreign beach breaks.

But Spain still hopes to capitalise on the future Brexit by hosting the City of London in Madrid.
It will be competing against the likes of Frankfurt and Dublin if major financial corporations decide to pull out of the British capital, but the Greater Madrid region has begun planning an aggressive campaign to attract investors.

USA-based bank JP Morgan believes Madrid would be ‘the best city’ for any possible relocation.
The creation of a new ‘City of Madrid’ would have a huge and positive impact on Spain’s economy and job market, as well as generating a high level of investment in property.

Published Think Spain 22 August 2016

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