Concern over Portuguese banks as second bailout looms

Worries continue to mount over the health of the Portuguese banking sector. Analysts at Nomura find that the Portuguese banks underperformed the sector by nine per cent. When compared to other banks in the banks in the troubled Mediterranean companies the situation looks even more dire.

When compared to Spain underperformance of the Portuguese banking sector rises to to 32 per cent. Some analysts conclude the prospect of a further bailout for Portugal as causing many of the problems seen in the sector.

Nomura analyst Jaime Hernandez:

We believe that: 1) the macroeconomic concerns and the risk of a second bailout programme explain a large part of the Portuguese banks' recent underperformance; Portuguese government bond (PGB) yields have risen from below 6% before the summer to currently above 7%, reflecting the rising risk of Portugal missing its bailout programme targets, and negatively affecting the banks' share prices owing to the high inverse correlation; 2) the banks' lower trading gains compared with 2012 and a cost of risk that remains high have led to losses in 1H13; and 3) exposure to local sovereign debt might be relatively more penalised under the upcoming Asset Quality Review and EU stress tests. Overall we do not expect to see a Portuguese banks' rally until the macroeconomic concerns improve and PGB yields decrease.