Trump Trade Causes Pain in Spain

Spanish banks may suffer from emerging-market woes following Donald Trump’s U.S. election victory, particularly those exposed to Mexico

By Paul J. Davies

     The Santander Group logo. Photo: Zuma Press


Donald Trump’s U.S. election victory has hurt some European banks: Spanish banks in particular have underperformed due to worries about the president-elect’s attitude to trade and the pain that will cause Mexico and South America.

Shares in Santander Group and BBVA have recovered ground they lost right after the election, but have lagged behind the Stoxx 600 Banks index and are way behind investment banks, such as Barclays, Credit Suisse and Deutsche Bank, which have rallied on deregulation hopes.

For BBVA, President Trump poses real potential problems. The lender gets its biggest chunk of earnings from Mexico, about 40% in the first nine months of 2016, which is the market most threatened by the president-elect’s stance against globalization and immigration.

The peso has slid, making Mexican earnings worth less, while investment and loan growth is expected to suffer immediately. If Mexico loses industry and exports, really weakening the economy, bad loans will rise too.

Santander relies less on Mexico. Its big South American market is Brazil, which contributes about one-fifth of earnings. The country could really suffer if trade with the U.S. declines, but it has been recovering strongly and the currency has been strengthening all year.

BBVA has another problem: Its other major market outside Spain is Turkey, where a coup attempt and political crackdown have spooked investors, leading to a weak currency and higher interest rates.

Pessimism about trade under President Trump might prove overdone—as might optimism about investment bank freedoms to come. But Santander looks like a safer bet than BBVA. Fears alone will hurt Mexico for now.

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