Good and bad European bank stocks get hit--just how good are the good ones, though?

09/12/2011 2:24 pm EST


Jim Jubak

Founder and Editor,

Not unexpectedly, European bank stocks are taking another hit today.

Not unexpectedly given fears of a Greek default, a pending downgrade of French banks, and worries that the European Central Bank is hamstrung in its ability to respond by German opposition. But still painfully.

You’ve probably cut way back on your exposure to European banks—but maybe you still own a few. I’ve given the thumbs up to several European bank stocks with high dividends in the last few months. How are they—Banco Santander (STD), Banco Bilbao Vizcaya (BBVA) and Svenska Handelsbanken (SVNLFY in New York and SHBA in Stockholm)—doing? (Banco Santander is a member of my Dividend Income portfolio )

On price not so well. In today’s rout Santander is down another 7.2%, Banco Bilbao another 7.5%, and Svenska Handelsbanken an addition 8%.

This is a big enough crisis to take everything down, the good, the bad, and the indifferent.

But the fundamentals at these banks suggest that while they’ll keep getting killed along with the rest of the European banking sector, the banks themselves are in relatively good shape to weather the storm.

So, for example, Banco Santander has just 200 million euros in exposure to Greek government bonds, according to Goldman Sachs. At Banco Bilbao the exposure is just 100 million euros. Svenska Handelsbanken has no exposure to Greek, Irish, Portuguese, Spanish or Italian sovereign debt.

The big potential problems for Banco Santander and Banco Bilbao are their exposure to Spanish government debt of 42 billion euros ($58.8 billion) and 54 billion euros ($76 billion), respectively.

Goldman has also looked at the effect on bank profits of a big write down in Greek, Portuguese, Irish, Spanish, and Italian debt. The investment bank has used a scenario that sees a 60% write down from current values of market holdings in Greek government debt, a 40% write down in Portuguese and Irish debt, and a 20% write down in Italian and Spanish government debt.

Cranking the numbers they see earnings falling below previous forecasts for all three banks (no surprise, there) but remaining positive.

Calculating new target prices on the basis of that scenario Goldman gets a 12-month target price of 8.3 euros a share for Banco Santander (current price 5.3 euros), 9.4 euros for Banco Bilbao (current price 5.1 euros) and 276 Swedish krona for Svenska Handelsbanken (current price 150 krona.) That translates as gains to target of 57% for Banco Santander, 84% for Banco Bilbao, and 84% for Svenska Handelsbanken.

All this, of course, is just projection on Goldman’s part. But to me it provides some comfort that I’m not looking at a bottomless pit as I try to hold onto these stocks for their dividends during this crisis. At current prices Banco Santander yields 11.8%, Banco Bilbao 13.7%, and Svenska Handelsbanken 6.3%.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund , may or may not now own positions in any stock mentioned in this post.  The fund owned shares in Banco Bilbao, Banco Santander, and Svenska Handelsbanken as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at






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