E After The Drop, Wait And See

After the Drop, Wait and See

After the huge global selloff yesterday, markets around the world are in wait-and-see mode overall, but reacting to real news when it hits. Wall Street indicators slumped again and many of the shares falling were reporting better-than-expected earnings. We have some results in the banking sector.

Finance

*Banco Santander in Q3 returned to profits and also said it will earn more in 2020 than its prior forecasts. SAN stock gained 5% in Madrid while the other market leader there, Telefonica, fell over concerns that it will no longer be regulated by the EU after Brexit. TEF sellers bought SAN.

Chair Ana Patricia Botin stressed that next year's results depend on how the pandemic goes, “our strategy and business model position us well to continue supporting customers and delivering results for shareholders.” She also said SAN will chop another euros 1 bn in costs by the end of this year ($1.2 bn) and further boost provisions for loan losses. YTD they already amount to euros 9.56 bn, of which euros 2.54 bn was taken in Q3

A key indicator is that the cost of credit has fallen to ~1.3% now vs 1.4-1.5% earlier.

Net profit in Q3 hit euros 1.75 bn vs a prior year quarterly level of euros 501 mn (hit by UK charges) and a consensus forecast of net profit of euros 971.5 mn so this was a dramatic gain. Revenues were down 11% y/y to euros 11.09 bn. It expects to earn euros 5 bn profits for the full year.

SAN also boosted its tier 1 ratio to 11.98% at the end of Sept from 11.84% at the end of June. SAN also predicted that its full-year tier 1 ratio would be at the top of the 11-12% range, not too unlikely given where it closed Sept.

SAN stock is down 1.94% but that is purely symbolic.

*HSBC Q3 results were good, with losses of $785 mn vs consensus prediction of $2 bn. Its profits fell 36% to $4.3 bn, easily beating the forecast of $2.7 bn probably helped by Hang Seng Bank, it is Hong Kongsub which we own outright. HSNGF did not trade today. Honkers and Shankers will also cut costs and unlike SAN also suggested it might resume dividends, which SAN is not allowed to do under European Union rules. HSBC stock is up 3.4% here.

*CBOE, Chicago Board Options Exchange Global Markets, my options play (on the market where puts and calls trade) rose a dollar at today's opening before falling back 0.35% More on options below.

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