Portuguese bank bonds are said to show significant value in comparison to their lower tier-two peers, especially those in Spain with exposure to Latin America. Banco Comercial Portugues (BCP) and Banco Espirito Santo (BES) offer both yield and stability in the lower tier-two market, which is otherwise quite rich, says Carlo Mareels, analyst at Morgan Stanley in London. He believes BCP and BES will likely maintain stable credit profiles in the near- to medium-term, whereas continued uncertainty in Argentina could adversely affect Spain's Banco Santander Centro Hispanio (BSCH) and Banco Bilbao Vizcaya Argentaria (BBVA). His top pick is BES' euro-denominated lower tier-two debt due in '11, which as of last week was offered at roughly Euribor plus 70 basis points, five basis points wider than similar debt of BSCH.
Not all analysts agree. Tiago Parente, an analyst at Bear Stearns in London, says that overall he would not pick Portuguese banks over Spanish ones. "They trade wider and are lower rated. One could argue Spanish banks have created a better track record in fixed income," he says. Bear Stearns is underweight Spanish banks with Argentine exposure, he adds. "For investors prepared to go down to the A- rating, Portugal has a fundamentally sound banking system. Would I hold BCP rather than BBVA? Yes. Would I hold La Caixa [the largest Spanish savings bank] rather than BCP? Yes," he says.