As investors pummel Spanish bank shares over political uncertainty in Catalonia, lenders and the authorities in Spain have been seeking to quell concerns, but an escalation of events could have a long-term negative impact, according to analysts.
Following an Oct. 1 independence referendum that was marked by police confiscations of ballot papers and hundreds of reported injuries, the Catalan government said 90% of voters had opted for secession in a poll that saw the participation of 42% of the eligible population. The situation has become increasingly fraught, with large-scale protests and strikes through the region Oct. 3.
Firefighters join protesters outside the Spanish government delegation during a one-day strike Oct. 3 in Barcelona.
The country's head of state, King Felipe VI, said in a rare televised address the same day that he was committed to Spain's unity, and he criticized the Catalan government for pursuing the referendum. The region now appears poised to declare independence Oct. 9.
Bank shares routed
Bank stocks, already suffering over political tensions, tumbled Oct. 4. Banco de Sabadell SA was off 5.7% and was the biggest faller in the benchmark IBEX 35, which hit its lowest level since mid-March, while CaixaBank SA, which like Sabadell is headquartered in Catalonia, lost nearly 5% to post the third-worst performance of the day.
Shares of Spain's other large banking groups, Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and Bankia SA, were also down more than 3.5% apiece, posting the fifth-, sixth- and seventh-biggest falls among benchmark shares. All five banks have underperformed the STOXX Europe 600 Banks index in the past six months, according to data compiled by S&P Global Market Intelligence.
Spanish banks are in the midst of a recovery after a crisis that saw massive state bailouts and a complete restructuring of the financial sector. The collapse of the housing market in 2008 left lenders saddled with billions in bad real estate loans and pulled the economy into a deep recession, yet most banks have turned themselves around as the economy rebounds, improving their financial performance and prompting rises in their share prices.
Now, however, investors are likely getting jittery.
"If we are going to live a period of prolonged uncertainty, that erodes the ability of banks to strengthen their balance sheet and improve as they have been doing in the past three years," Daniel Lacalle, chief investment officer at fund manager Tressis Gestión, said in an interview.
"It is not just the quantification of the exposure to Catalonia but the ramifications of the flight of deposits, of nonperforming loans increasing," he said. "From a long-term perspective, the investor therefore might be waiting for more clarification about how the situation is going to play out before thinking about value."
Banks, officials offer reassurances
"The uncertainty is unhelpful, investors don't like uncertainty," Benjie Creelan-Sandford, an analyst at Jefferies, said in an interview. "In the near term, that could delay some investment decisions possibly, but I don't think at this stage three days after the referendum that we are talking about a major impact on the economy."
Newspaper ABC reported Oct. 3 that Spanish banks had strengthened their liquidity contingency plans in case of an outflow of savings, while Economy Minister Luis de Guindos told Catalan bank customers Oct. 4 that they had nothing to fear and that the Catalan banks were "solid."
Sabadell Chairman Josep Oliu, meanwhile, sought to allay concerns that the bank might find itself outside the EU, saying the bank would take the necessary measures to continue operating within the bloc and the eurozone. News agency EFE reported that CaixaBank had sent a note to staff, underlining the need to protect its clients' interests.
Sabadell, CaixaBank, Santander and Bankia did not respond to requests for comment, while a BBVA spokesperson told S&P Global Market Intelligence that the bank had seen no changes in deposits and was running as normal.
BBVA has a strong presence in Catalonia from a domestic market point of view, Creelan-Sandford said, but the bank is cushioned because of its large international presence. BBVA generates 40% of its profits in Mexico.
However, should the situation escalate, all lenders would be affected, and their stock prices would decline because the whole of the Spanish economy would come under pressure.
"If you did get to that worst-case scenario, then the ... impact on the Spanish economy is going to be quite negative, [so] you do have to think about the broader impact," he said.