“Ni Despidos, Ni Dividendos, Ni Ampliaciones Podrán Salvar A First Republic”. Antonio Castelo

Positive Surprises: Microsoft and Alphabet

Antonio: Good afternoon, Fernando! How are you today?

Fernando: Good afternoon, Antonio. Sorry for the wait. We thought the press conference with Lula and Pedro Sánchez was at a different time.

Antonio: No problem. The market was a bit unpredictable today.

Fernando: Yes, indeed. But today's session seems a bit better than yesterday. We are somewhat happier with the technology sector, but there is still a lot of concern about the financial sector.

Antonio: That's true. The earnings results of Microsoft and Alphabet were positively surprising. We had some doubts, particularly regarding Microsoft, but the numbers surpassed all expectations. The revenue from their cloud computing and artificial intelligence businesses was outstanding. This, combined with strong guidance for next quarter, has generated a lot of positivity around these stocks. The same can be said for Alphabet. While their traditional online advertising business didn't improve significantly, it also didn't decline as much as expected. And their cloud business finally started monetizing, surprising everyone with a new share buyback program. The market always appreciates these moves.

Banking Concerns: Ferre Republic and Santander

Fernando: It seems like the market has turned around its expectations for these stocks. The consensus among analysts wasn't particularly positive for both Microsoft and Alphabet.

Antonio: Yes, it's a bit puzzling. I think the market should already be aware of the problems facing some regional American banks, particularly Ferre Republic. After all, they were one of the causes of the crisis in the early days of March. The consequences of this were visible yesterday, with a steep decline in regional bank stocks and even large American banks were affected. These larger banks usually benefit from receiving a significant amount of deposits from smaller banks. We also saw the impact on European banks, especially here in Spain, particularly with Santander. There is growing concern in the White House, the US Treasury, and the Federal Reserve about finding solutions to prevent the flight of customers and the continuous selling of shares. Today, there's a slight rebound, but it's not even 1%, following yesterday's 49% drop. This adds to the 90% decline experienced during the financial storm in March.

Fernando: What options does Ferre Republic have to address this situation? I heard there are talks about selling assets and creating a "bad bank" in the US, which brings back painful memories for Spaniards.

Antonio: That's a good question. Rotter seems to be leaning towards selling assets, but some officials are also exploring the possibility of creating a bad bank in the US. This situation is reminiscent of our own painful experiences. What deeply concerns me is that in the United States, it seems like someone isn't doing their job. Obviously, bank managers have failed in some aspects, as they clearly haven't properly managed their assets and liabilities. But it's also surprising that auditors and regulators failed to catch these issues. It's reminiscent of the previous financial crisis. It seems like they haven't learned their lesson. Perhaps they should take these matters more seriously and start working on finding solutions.

Fernando: The situation for Ferre Republic seems quite complicated. Their loan-to-deposit ratio is already over 160%. Announcements of job cuts, dividend suspension, and even a capital increase might not be enough unless they stabilize deposits and reassure depositors. The problem seems to be bigger than can be solved with just these measures. I can't even begin to imagine what the American regulators should do, but I do hope they take this situation seriously and do a better job of anticipating and addressing potential issues.

The Federal Reserve's Next Move

Antonio: It's a tough spot indeed. Looking at the bigger picture, I believe the Federal Reserve will continue with their plans. As we've observed in the past, they've been quite accurate with their rate hike expectations. I don't think they'll lower interest rates unless there is a significant slowdown in inflation. Doing so would not only make them appear weak, but also add to the confusion they already caused with their initial comments about inflation being transitory. So, my prediction is that they'll stick to their plan of gradually increasing rates. However, I don't see many more hikes coming this year. Perhaps one or two more, at most. In any case, it's important to note that the big effort has already been made. From now on, we will need to start monitoring other factors that may impact the market.

Fernando: That's an interesting perspective, Antonio. It does seem like the interest rate hikes are nearing their end. We'll have to keep an eye on developments as they unfold. For those who are long in the market, this is reassuring news. As for those who are short, the market continues to hold up. European stock markets are reaching their all-time highs, with some even surpassing them. The recent dips we've seen are significant, but we've also experienced much larger and more powerful downturns in the past. So, we'll have to wait and see how things develop in the coming days.

Iberdrola's Strong Performance

Antonio: Before we wrap up, I'd like to mention that Iberdrola's earnings once again exceeded expectations. It has been a strong performer on the IBEX 35, along with Repsol. But I see that things have changed a bit now, as the top positions are currently held by Telefónica, Colonial, and Repsol. Other companies like Arcelor, Salud, Defensiva, Robbies, Asir Cellex, and Verdura are also performing well. Iberdrola's stock is slightly up by 0.25% at 1186, and it's very close to its all-time highs. It may not be a flashy company, but it's well-managed. Their financials have consistently exceeded expectations, and they are making substantial investments in green and alternative energy without increasing their net debt. I think this makes them an appealing investment option. They may not deliver extraordinary gains in terms of stock price, but they are unlikely to cause any major surprises either. Furthermore, their shareholder return remains strong.

Fernando: Thank you, Antonio, as always, for your insights. I appreciate your time. Take care, and we'll continue discussing the markets soon.