The hy­pe­r-­re­gu­la­tion of ban­king

Why Inditex Is Worth Twice As Much As Santander If It Earns Half As Much


Aurelio Medel (5 Días) | Inditex, the tex­tile em­pire con­tro­lled by Amancio Ortega, has be­come the Spanish com­pany with the hig­hest stock market value (145,000 mi­llion), a ca­pi­ta­li­sa­tion that is al­most double that of Banco Santander (74,000 mi­llion). But the sur­pri­sing thing is that this dif­fe­rence in value bears no re­la­tion to pro­fit, neither pre­sent nor fo­re­seeable in the me­dium term. Inditex is today worth twice as much as Santander des­pite the fact that this year it is ex­pected to earn half of the 12 bi­llion ex­pected by the bank.

Arguing about the validity of stock market valuations is sterile. The market is sovereign and it is more useful to analyse the possible reasons why the money earned by Inditex is of greater value than that earned by Santander, such that investors pay for the shares of the textile company 24 times its profit (in the jargon it is called PER), while in the case of the bank the multiplier is only six times.

Therefore, a euro earned by selling textiles is worth four times more than by putting money in. If the earnings of the bank chaired by Ana Botín were valued the same as those of Marta Ortega’s company, its capitalisation would be 288,000 million.

This difference in valuation is even more striking when one notes that both companies share a successful foreign expansion. Spain accounts for only 15% of Inditex’s sales and 18% of Santander’s margin. Moreover, each in its own way suffers from the digital and global threat. The financial sector has multiple start-ups trying to capture part of its business. The Galician company sees the great threat of Shein, a company created in China in 2012 and which ten years later has a turnover (42,000 million) 6,000 million more than Inditex.

Therefore, the geographical deployment and threats do not justify their difference in value. What surely makes them stock market animals of very different species is the obvious: one belongs to the textile world, to the glamour of fashion, which already dresses royalty. Santander, on the other hand, is part of the banking sector, a sector that is visualised as a herd and accused, without discrimination, of causing the financial crisis at the beginning of this century, which cost large amounts of public money to save the savings that customers had deposited, in Spain, in certain savings banks.

The reaction of governments, supervisors and international organisations was resounding and global. Since then, banking has suffered a regulatory tsunami, which has multiplied capital, liquidity and control requirements, but in addition, politicians, whose management of that crisis is highly questionable, as can be seen by comparing it with the handling of Covid-19 and the war in Ukraine, have preferred to cover up their miseries by pointing the finger at the banks.

But in addition to their own regulation of the intermediation of savings and credit, governments have turned their attention to banking as an instrument of control over other activities. A large part of the prevention and control of money laundering falls on the banks, which means that they invest huge amounts in systems to try to detect these operations. It is grotesque that two senior ECB officials state in a central bank blog that bitcoin is worth zero and that its use is concentrated in criminal activities and nothing happens. Why are they capable of producing all kinds of regulations that turn banks into policemen of organised crime, corruption, the environment, whatever, and yet they do nothing with cryptoassets?

Regulatory fatigue is such that, in the United States, banks have launched a massive publicity campaign against the implementation of the new capital requirements that the Basel Committee on Banking Supervision wants to introduce, the regulation known as Basel IV, which is a further twist on the criteria established in the three previous phases of 1988, 2006 and 2010. Before the 2008 crisis, Spanish banks traded with multipliers of between 10 and 15 times earnings. Now there are none that exceed eight times, and the norm is six times. Moreover, during the worst years of the crisis there were times when they were trading at PERs above 16, in the confidence of a rapid recovery of results that did not come. The one-year Euribor fell below 1% in August 2012 and settled at negative rates from February 2016 until March 2022.

No one has taken pity on them for being forced to sell their raw material below cost for seven years. What is more, as soon as central banks started to raise rates in order to control inflation, not to fix bank accounts, a wave has been unleashed again against the sector, a fertiliser to justify a special tax on the sector that there is no technical argument to support.

In contrast, this week saw the unusual situation of electricity producers having to sell at a loss for a few hours in the face of excess renewable production that could not be stored. On the same day, the minister for the sector, Teresa Ribera, warned that “if this situation is reproduced, it will disrupt investors’ investment and recovery plans”. The banks have endured this situation for seven consecutive years, and there has never been a government that has been capable of such pedagogy.

The hyper-regulation and stigmatisation of banking are still in force and have a lot to do with the fact that the banking sector is listed with the worst ratios on the stock market. Hence, a year ago, Francisco Paramés, one of the country’s star investors, told his clients that “the degree of regulation and control by the authorities is so great that I don’t know if it makes sense to be a shareholder in a bank”.

More recently, his colleague Beltrán de la Lastra said that banks are still “with huge margins and dwarfed NPLs, an ideal world, and they can probably do well this year, but I prefer to retire”. If the banking sector is giving professional investors a hard time, and not exactly for technical reasons, there is a serious problem of sustainability in the sector. Just ask the last two CEOs of Inditex, Isla and Maceiras, both from banking. They will explain it very well.

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