The Federal Reserve has been working to make the financial system more resilient, but the stress in the U.S. banking sector continues to be a concern for the nation's growth. Hence, it seems wise to look beyond the national shores and invest in quality foreign bank stocks Banco Santander, S.A. (SAN), Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), and KB Financial Group Inc. (KB) instead.
Before delving into the fundamentals of the highlighted stocks, let’s first examine the current state of the U.S. banking space.
The collapse of First Republic Bank in May marked the third major bank failure this year, following Silicon Valley Bank and Signature Bank. These three banks collectively held approximately $559 billion in assets, exceeding the inflation-adjusted value of $523 billion held by 25 failed banks in 2008.
After Silicon Valley Bank's downfall, small U.S. banks experienced a historic loss of $119 billion in deposits, bringing the total to $5.46 trillion, as per data from the Federal Reserve. This shifted the banking industry's focus from an immediate crisis to medium-term concerns regarding economic growth.
In the wake of the bank failures, the Fed’s top regulatory official proposed an extensive plan to increase capital requirements for the nation’s largest banks. However, Rob Nichols, president and CEO of the American Bankers Association, stated, “Higher capital requirements come at a cost to the economy, and regulators have other existing regulatory tools to manage risks."
Meanwhile, Goldman Sachs (GS) analysts, led by chief economist Jan Hatzius, anticipate that constrained credit growth resulting from banking stress might dampen real GDP growth. Minneapolis Fed President Neel Kashkari has also cautioned that it could push the United States closer to recession.
Considering the current condition of the U.S. banking industry, it could be wise to look beyond domestic boundaries. Therefore, quality bank stocks SAN, BBVA, and KB could be ideal additions to your portfolio. The featured stocks belong to the Foreign Banks industry with an overall rating of B, equating to Buy in our proprietary POWR Ratings system.
Let’s explore in detail what could make these stocks worthwhile investments.
Banco Santander, S.A. (SAN)
SAN, headquartered in Madrid, Spain, offers diverse retail and commercial banking solutions to global individuals, small and medium-sized enterprises, and large companies. The company operates through Retail Banking; Santander Corporate & Investment Banking; Wealth Management & Insurance; and PagoNxt segments.
On June 21, SAN and Komgo, the world's largest multi-bank trade finance network, partnered to expedite digital transformation in Trade & Working Capital products. SAN invested in Komgo to synergize Komgo's cutting-edge technology and client base with SAN's global presence and trade finance leadership.
Partnering with Komgo would enable SAN to automate communications, optimize end-to-end processes, and reduce operational risk, ensuring an improved client experience. Moreover, the alliance would fuel innovation and synergies within SAN's extensive Trade Finance business.
Moreover, on May 15, SAN announced the launch of a new alternative asset manager. Santander Asset Management (SAM) is expanding its alternative assets offering to assist clients in achieving investment objectives. This move capitalizes on synergies across the Santander group.
For the first quarter that ended March 2023, SAN’s revenue from net interest income increased 17.4% year-over-year to €10.40 billion ($11.68 billion), while its total income grew 13.1% from the year-ago value to €13.92 billion ($15.64 billion). In addition, profit attributable to parent and EPS rose 1.1% and 7.1% year-over-year to €2.57 billion ($2.89 billion) and €0.15, respectively.
The consensus revenue estimate of $65.18 billion for the fiscal year (ending December 2024) reflects a 3.5% year-over-year improvement. Likewise, the consensus EPS estimate of $0.78 for the same period indicates a 13.7% rise year-over-year. Moreover, the company surpassed the consensus revenue estimates in all four trailing quarters, which is impressive.
Shares of SAN have gained 15.6% over the past six months and 60.4% over the past year to close the last trading session at $3.85.
SAN’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SAN has a B grade for Value, Stability, Sentiment, and Momentum. It has ranked #6 in the 89-stock B-rated Foreign Banks industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SAN’s ratings for Growth and Quality here.
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)
Based in Bilbao, Spain, BBVA provides retail banking, wholesale banking, and asset management services. It offers various deposit and loan products, deals in securities, and offers leasing, factoring, brokerage, and asset management services. The company also manages pension and investment funds.
On July 7, BBVA's Turkish unit, Garanti BBVA, achieved a record with 14 million digital customers and became the country's most widely used banking app. As a leading private bank in digital channel usage, the company aims to enhance the overall customer experience by continually investing in diverse algorithms for marketing, sales, pricing, fraud prevention, credit evaluation, and customer satisfaction.
During the first quarter that ended March 31, 2023, BBVA’s gross income increased 29% year-over-year to €6.96 billion ($7.82 billion). Its operating income rose 31.9% from the year-ago value to €3.94 billion ($4.43 billion).
Also, its profit for the period came in at €1.99 billion ($2.24 billion), registering a 50.9% year-over-year improvement, while adjusted EPS grew 38.1% from the prior year’s quarter to €0.29.
BBVA’s revenue is expected to grow 13.5% year-over-year to $31.04 billion for the fiscal year ending December 2024. Likewise, the consensus revenue estimate of $31.51 billion for the next fiscal 2024 reflects a 1.5% rise year-over-year. Furthermore, the company surpassed the consensus revenue estimates in all of the trailing four quarters.
The stock has gained 16% over the past six months and 94.7% over the past year to close the last trading session at $8.04.
BBVA’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
BBVA has a B grade for Growth, Stability, and Momentum. It is ranked #4 out of 89 stocks within the Foreign Banks industry.
Click here to access additional BBVA ratings (Quality, Sentiment, and Value).
KB Financial Group Inc. (KB)
With its headquarters in Seoul, South Korea, KB offers loans, deposits, and other financial products and services. It also engages in securities and derivatives trading. The company's segments include Retail Banking; Corporate Banking; Other Banking; Credit Card; Securities; Life Insurance; and Non-Life Insurance.
On April 11, KB and Finhaven™ Technology Inc., a financial services company, signed a memorandum of understanding. With Korea's new security token regulations, they plan to collaborate in developing security token products and a trading platform. The alliance would benefit KB by enabling its entry into the Korean security token market.
For the first quarter that ended March 31, 2023, KB’s net interest income increased 5.1% year-over-year to ₩2.79 trillion ($2.20 billion). Its gross operating income grew 23.3% from the year-ago value to ₩4.36 trillion ($3.44 billion).
Furthermore, its net operating profit rose 11.3% year-over-year to ₩2.13 trillion ($1.68 billion), while profit for the period came in at ₩1.50 trillion ($1.18 billion), up 1.9% from the prior year’s period.
Analysts expect KB’s revenue to increase 11.7% year-over-year to $12.71 billion for the fiscal year ending December 2023. Similarly, the company’s EPS is expected to grow 11.8% from the prior year to $9.24. Shares of KB have gained 10.9% over the past year to close the last trading session at $38.73.
KB’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
KB has an A grade for Stability and a B for Value and Momentum. It is ranked #8 out of 89 stocks within the same industry.
Click here to access additional KB ratings for Growth, Quality, and Sentiment.
What To Do Next?
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SAN shares were trading at $3.92 per share on Tuesday morning, up $0.07 (+1.82%). Year-to-date, SAN has gained 34.58%, versus a 19.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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