Dipping developing markets
I have previously been über-bullish about the earnings prospects of Santander thanks to its terrific exposure to emerging markets. The business generates 36% of total profits from South America -- half of which come from regional heavyweight Brazil -- while its Polish division also gives it exposure to lucrative Eastern Europe.
But while I believe a backcloth of rising wealth and population levels should power Santander in the coming years, current turbulence in these markets could significantly undermine the bank's performance in the near-term. Collapsing commodity demand is significantly hampering economic growth in these regions, while inflation is also running riot -- data this week showed Brazilian price rises hit 12-year peaks in January.
Flying the flag
Barclays also has significant exposure to emerging regions through its retail and investment banking divisions, not to mention its Barclaycard arm. Still, the company's greater dependence on the comparatively robust UK economy give it a stronger base upon which to deliver earnings growth, in my opinion.
Conversely, RBS does not have any significant exposure to foreign climes, thanks to extensive streamlining following the government bail-out back in 2008. But such has been the aggressive scale of divestments that I think RBS is likely to struggle to generate meaningful revenues growth.
As such, the City expects RBS to endure a 4% earnings slide in 2016, although this still results in a very-attractive P/E rating of 10.6 times. Santander, meanwhile, is expected to see the bottom-line edge just 1% higher, resulting in a smashing earnings multiple of 7.9 times.
But Barclays blows both firms out of the water with an expected 14% earnings bounce this year, resulting in a P/E ratio of just 7 times.
Naturally the issue of PPI-related costs remains a bugbear for all three firms. Royal Bank of Scotland recently stashed away another £500m to cover claims, Santander put aside £450m, and Barclays is expected to have hiked provisions again when it reports next week.
On paper, RBS arguably has the stronger balance sheet to absorb further shocks ahead of 2018's proposed claims 'deadline'. Last month RBS said it expects its CET1 ratio to register at 15% as of December, blasting Barclays' ratio of 11.1% -- albeit as of the third quarter -- and Santander's ratio of just 10.05% at the close of 2015.
However, RBS's healthier finances are unlikely to assuage dividend hunters thanks to its insipid earnings outlook, in my opinion. This view is shared by the City, with a projected payout of 1.8p per share for 2016 yielding just 0.7%. And the resurrection of the bank's dividend policy is yet to be signed off by regulators, of course.
Meanwhile, an anticipated dividend of 19.2 euro cents per share at Santander blows RBS out of the water with a 5.5% yield. But the prospect of fresh revenues weakness in far-flung markets, combined with its wafer-thin balance sheet, could put paid to such predictions.
As a consequence, I reckon Barclays' projected 7.4p per share dividend for 2016 -- yielding a chunky 4.6% -- is the best bet for income-hungry investors, its superior earnings profile likely to give payouts plenty of fuel looking ahead.
Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.