French banks outperforming German peers, says Markit
Markit Securities Finance has reported a positive outlook for key French banks such as Natixis, Credit Agricole and Societe General, in a note that compares these organisations favourably against German peers.
“Despite macro-economic headwinds, investor sentiment towards French banks is positive. They have outperformed their German equivalents amid tightening CDS spreads, bullish dividend prospects and low short interest,” Markit said.
Data published last week suggested France otherwise fell back into recession, with GDP down by -0.2% for a second quarter – against consensus of a decline of -0.1%. Crucially, business investment contracted by -0.8%, while exports were down -0.5% and household spending dropped -0.1%. Only public spending mitigated the GDP contraction.
However, Markit said that French bank CDS spreads have tightened “considerably” over the past 12 months, along with other banks across Europe.
The ongoing liquidity programmes of central banks explain this turnaround.
And while it is difficult to value banks because traditional metrics such as working capital and operating income are hard to define in this context, Markit said use of the book-to-market factor indicates that out of a group of 20 French and German banks, the French ones on average have performed better.
Investors can also expect improved dividends from French banks going forward. Markit said Credit Agricole is expected to resume paying dividends after a gap of two years in which it stopped paying these. Meanwhile, Societe General is expected to double its dividend payments. SG’s earnings per share reported for the first quarter of 2013 were already equivalent to half the earnings reported for all of last year. BNP is the laggard in this respect. But the French banks still beat German counterparts such as Deutsche Bank and Commerzbank, neither of which are expected to provide dividend growth.