You might just lump all the big banks into one and write them off as belonging to a dodgy sector that deserved all it got. But if you do that, I think you’ll be missing some potentially good investments, as they don’t all look the same to me.
Beating the competition
Did you know, for example, that shares in Santander (LSE: BNC) were nowhere near as badly hit as the UK’s troubled-three in the worst of the financial crisis? Barclays, the one that did not need to go cap-in-hand to the government for a bailout, lost 90% of its valuation between January 2007 and the crisis low of March 2009. And the two taxpayer-saved ones did a bit worse — Lloyds shares lost 92%, while Royal Bank of Scotland lost 96%.
But Santander got away with a fall of just 61% — still a big loss, but not quite the same catastrophe. In fact, Santander shares performed only marginally worse than those of HSBC Holdings, which was largely protected from the Western-focused crunch by its business being mostly in Asia. HSBC fell 55%.
And to bring that right up to date, Santander shares are now 57% down, after the whole sector was hit by the shock of the UK’s Brexit vote. But that’s still significantly ahead of the other big fallers, with Barclays still down 74%, Lloyds on an 84% drop, and RBS still crushed by 96%. HSBC, largely unaffected by Brexit, is now down only 16% since before the banking crisis.
One of the best dividends
Even if you’d lost 55% from Santander shares since 2007, you’d have enjoyed some impressive dividends, which would have made up for it. Santander had a policy of paying big dividends, which weren’t close to being covered by earnings, and it managed that because of a tradition in its home market of Spain for shareholders to take scrip dividends instead of cash.
What that meant was the depressed share price had pushed dividend yields to around 9%, still as recently as 2014. That’s when the competing FTSE casualties were all slashing their dividends in order to shore up their balance sheets (with the honourable exception of HSBC, which was still paying good money).
Even now that Santander has brought its dividend policy into line with convention and cover by earnings is good, the low share price still puts expected yields at over 5%.
More highly valued
Another thing I note about the Santander share price is that it’s really only a little higher, compared to forecast earnings, than its three troubled sector fellows. Santander’s forward P/E stands at just over nine, very close to RBS’s valuation. Only Lloyds falls significantly lower, with a forecast P/E of under eight.
What does that say to me? For one thing, I think the whole sector is undervalued. Comparing to HSBC’s forward P/E of 11.6, it does seem to be Brexit that’s holding them back. But does Santander face the same risks as Lloyds, Barclays and RBS? I don’t think so.