The Spain-specific exchange traded fund could see more pain before turning around as the country’s largest bank raises capital to hedge against any turns and cuts dividends to shareholders.
The iShares MSCI Spain Capped ETF (NYSEArca: EWP) has declined 10.9% over the past year.
Banco Santander SA, the Eurozone’s largest bank by market value, estimates 5.8 billion, or $6.9 billion, in net income for 2014, or a 30% surge year-over-year, Bloomberg reports.
Moreover, in an attempt to bolster capital, the bank will sell as much as 7.5 billion euros, or $8.8 billion, in shares and cut dividends to 0.20 euros per share from 0.60 euros per share, according to a separate Bloomberg report.
The banking industry makes up a significant portion of EWP, which includes a 46.5% weight toward the financial sector, along with a 21.4% allocation in Banco Santander.
Due to Banco Santander’s size and significant impact on global markets, investors have shown concern over the lender’s buffers, which were not as high as some competitors’.
“Santander was a bit short of capital compared with other big banks,” Filippo Alloatti, an analyst at Hermes Fund Managers, said in the article.
The dividend cut “is likely to disappoint both yield and retail investors, thereby putting additional pressure on the share price,” Francisco Riquel, an analyst with N+1 Group, said in note, Wall Street Journal reports.
EWP also shows a 4.67% 12-month yield, and given the fund’s large exposure to Banco Santander, investors should also brace for lower yields ahead.
However, considering the size of the capital influx, some believe the bank may be positioning for a takeover bid.
iShares MSCI Spain Capped ETF
For more information on Spain, visit our Spain category.
Max Chen contributed to this article.