Barclays turns defensive on Spanish banks, updates ratings ahead of Q1 results

Investing.com -- Barclays has upgraded CaixaBank to Overweight and downgraded BBVA to Equal Weight ahead of first-quarter results, adopting a more defensive view on Spanish banks as the Middle East conflict pushes inflation higher and clouds the growth outlook.

Shares in BBVA fell 1.6% in Madrid trading.

The moves reflect a broader repositioning by the bank’s analysts, who said the evolving macro backdrop now favours earnings visibility and downside protection over growth stories that depend on a benign environment.

Barclays now expects the European Central Bank (ECB) to raise its deposit rate by a further 50 basis points to 2.5%, where it sees rates remaining through end-2027, while also factoring in materially higher rates in Turkey.

“The escalation in the Middle East shifts the balance of risks towards a higher inflation, higher rates and lower growth environment,” analysts Cecilia Romero Reyes and Paola Sabbione said.

CaixaBank was upgraded on the strength of its domestic franchise, conservative risk profile and rate sensitivity. The analysts see the bank’s bond portfolio roll-offs as a significant earnings driver, estimating that reinvestment at higher yields could push 2027 net interest income to around €13 billion, above management’s own €12.5 billion target.

Barclays’ EPS estimates for CaixaBank sit 6% above consensus estimates for both 2026 and 2027.

"Investors will likely be increasingly willing to pay for visibility rather than peak returns, which should support CaixaBank’s premium valuation,” the analysts said.

For BBVA, Barclays trimmed earnings estimates by around 3% per year in 2026 and 2027, citing negative rate sensitivity in Turkey following higher policy rate assumptions of roughly 300 basis points, and a roughly €100 million annual drag from partial non-deductibility of IPAB contributions in Mexico.

The analysts also raised their CET1 distributable threshold assumption to 12.5%, reducing projected dividends.

Separately, ongoing USMCA renegotiations ahead of a July deadline represent a near-term overhang, with headline risk skewed to the downside.

“Overall, given the current backdrop, risk-reward appears more balanced to us despite BBVA’s superior growth profile,” the analysts said. The price target on the stock was cut to €20.50 from €21.80.

Banco Santander was kept at Overweight, with Barclays citing its diversification and visible self-help levers. Banco Sabadell was retained at Underweight given limited rate support and higher SME exposure, while Bankinter and Unicaja remain at Equal Weight.

For first-quarter results, Barclays expects broadly solid prints across the sector, with BBVA likely the standout performer supported by FX tailwinds and a large synthetic risk transfer transaction.

CaixaBank’s quarter is seen as more timing-driven, with no new buyback expected until the second quarter.

Overall, the analysts said Q1 performance is "unlikely to be decisive for positioning given the current evolving macro backdrop."