Navigating Spanish Banking Investments: Post-Crisis Recovery and Current valuations
The Spanish banking sector carries the weight of a notable restructuring, born from the deep brick crisis and the 2012 bank rescue. This period necessitated drastic cost-cutting measures, including substantial employment adjustments and office closures, alongside a forceful recapitalization of institutions. Now, years later, investors are reassessing the landscape.
Valuation Concerns Emerge After Rally
Following a period of strong gains in the Spanish stock market, bank valuations are a key point of contention. The historical discount to book value previously seen in Spanish banks has vanished, with some, like Bankinter, now trading at a premium not observed in over a decade – around 100%. This has prompted caution from some analysts. Víctor Álvarez, Director of variable Income at Tressis, argues that current valuations already reflect a highly optimistic scenario, leading him to recommend reducing exposure to Spanish banking rather than increasing it. He anticipates slower business growth as interest rates appear to have bottomed out in the Eurozone.
PER Analysis: A More Nuanced Picture
However, a price-to-earnings ratio (PER) comparison suggests Spanish banks aren’t significantly overvalued compared to their European peers. Commerzbank currently has an estimated PER of 10.5 times for 2026, while Deutsche Bank stands at 9.3 times, according to FactSet consensus. Within Spain, Sabadell appears particularly attractive based on it’s PER, estimated at nine times when excluding the contribution of its British subsidiary, TSB, which is slated for sale in early 2026.
Analyst Recommendations & Positive Outlook
Despite Álvarez’s caution, several firms maintain a positive outlook. Jefferies recommends CaixaBank as its top pick within the Spanish domestic banking sector,recently raising its target price to €10 per share.Barclays favors BBVA, aligning with its overall optimistic view of the Spanish banking market. Barclays analyst Cecilia Romero highlights the strong performance of Spanish domestic banks, driven by faster loan and deposit growth and favorable funding costs, alongside the potential of internationally diversified banks with attractive valuations. Romero believes strong bank performance will continue to support the broader Ibex 35 index.
Potential for Consolidation
The possibility of further mergers and acquisitions remains a topic of discussion. S&P financial institutions analyst Luigi Motti suggests concentration movements are likely, particularly among mid-sized entities, due to a gap in market positioning between the largest banks and the rest. However,marisa Mazo counters that the unsuccessful takeover attempt of Sabadell indicates no immediate urgency for consolidation. She argues that current profitability levels across Spanish banks - all now exceeding their cost of capital – remove the pressure to pursue mergers solely for profitability improvement.