Shares in Banco Santander (LSE: BNC) (NYSE: SAN.US) were unchanged after this morning’s impressive first-quarter results, but Standard Chartered (LSE: STAN) fell by 3% after the emerging markets bank reported a sharp fall in profits.
Santander shines
Trading continued to improve at Santander during the first quarter. The eurozone’s largest bank reported a 39% rise in pre-tax profits, which rose to €2.99bn.
Lending and deposits both rose by 14% compared to the same period last year, while the bank’s cost to income ratio fell 0.9% to 47%, which is one of the lowest in the banking sector.
Santander confirmed that a quarterly dividend of €0.05 will be paid this year, giving a prospective yield of 2.9% at current exchange rates.
All to prove at Standard Chartered
The news wasn’t so good at Standard Chartered.
Pre-tax profits fell by 22% to $1,467m during the first quarter.
Loan impairments — a key metric — increased by 80% to $476m, from $265m during the same period last year, although the bank said that they were lower than in the third and fourth quarters of 2014.
Standard Chartered said that it remained on track to deliver a common equity tier 1 ratio of between 11% and 12% and sustainable cost savings of at least $400m in 2015, but I suspect shareholders will be looking for more decisive action from new CEO Bill Winters, when he starts work in June.
StanChart vs Santander
So far this year, shares in Santander have fallen by 10%, while those in Standard Chartered have risen by almost 15%.
Both banks trade on similar 2015 forecast P/E ratings of around 12, but current forecasts suggest that Santander could outperform Standard Chartered in terms of earnings growth:
|
Forecast earnings per share (eps) growth |
Banco Santander |
Standard Chartered |
|
2015 |
43% |
9% |
|
2016 |
12% |
11% |
On this basis, Santander could be a better buy at today’s prices, as the Spanish bank’s share price is likely to rise to keep pace with growing earnings per share.
What about dividends?
Standard Chartered’s 2015 prospective yield of 4.6% is around 50% higher than the 2.9% on offer at Santander.
However, Standard Chartered’s dividend is more vulnerable to further cuts than that of Santander, in my view, especially if Mr Winters decides that the bank needs to raise new capital in a rights issue.
In contrast, Santander raised €7,500m of new capital earlier this year, so its dividend should be safe for the next few years.
Today’s best buy?
If I was to buy one of these banks today, I’d probably choose Santander.
