Turmoil in emerging markets has weighed heavily on the shares ofSantander(LSE: BNC) andStandard Chartered (LSE: STAN) this year. In the year-to-date, excluding dividends, Santandersshareshave fallen33%, whilst Standards shares have dropped 27%.
But is now the time to buy these banks or are there further declines to come?
Unfortunately, Standard Chartered has a very bleak outlook indeed. The bank is struggling with a rising level of loan losses across its emerging market operations, and these losses are eating away at the banks capital reserves. As a result, most City analysts agree that Standard will be forced to conduct a rights issue at some point in the near-future, to rebuild its battered balance sheet.
And with an impending rights issue on the cards, investors might want to stay away. Moreover, Standards valuation isnt overly attractive. The bank currently trades at a forward P/E of 13.3 and yields 3.6%.
Unlike Standard, it seems as if the emerging markets crisis has yet to affect Santander.
The banks third-quarter profits rose by more than 17% during the first nine months of 2015. A drop in the overall number of bad loans on the companys balance was a key contributor to the banks better-than-expected results. That said, Santander did reveal an increase in the number of delinquent loans at its Brazilian arm. Profits at this division fell 14.8% during the quarter to385m, as the countrys recession deepened. Delinquent loans increased to 5.3% for the three months to the end of September.
Santander group net profit rose 17.1% to5.1bn, and net interest income increased 11.3%, to 24.3bn.
Unlike Standard, Santander has a significant presence inEurope, the UK, andthe US, so the bank isnt really an emerging markets lender. If anything, Santander is a European bank with some exposure to emerging markets.
Three key concerns
Still, there are three key reasons why many City analysts are concerned about recommending Santander to clients.
Firstly, Santanders Spanish revenues areunder pressure. Smaller peers are stealing market share from the bank in its home market. Secondly, Brazils deteriorating economic situation is concerning many analysts. And thirdly, Santanders capital position is worse than that of many of its peers. At the end of the third quarter Santanderscommon equity tier one ratio, a measure of a banks financial strength came in at 9.85%, compared to the European average of around 10.5%.
So, there are three major factors that could be a drag on Standard. With this being the case, only you can decide if the bank is suitable for your portfolio.
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