BBVA CEO Onur Genç has assured that the group expects to close this year with positive results, the same as in Spain, despite the losses registered in the semester, due to strong provisions by the United States and Covid.
“We hope to close the year with clearly positive results at the group level and, of course, in Spain. The negative figures that we are seeing in the attributable profit is due to this deterioration in goodwill, which does not affect liquidity or anything (..) , but even with that we are going to close the year with a positive result “, Genç explained.
These forecasts contrast with those of Banco Santander, which expects to close the year with accounting losses, although with a positive ordinary profit of more than 4,000 million euros
BBVA incurred losses of 1,157 million euros during the first half of this year after provisions of 2,084 million euros recorded due to the impairment of goodwill in the United States in the first quarter of the year. These red numbers are lower than those registered in the first quarter, which totaled 1,792 million euros, when the bulk of the write-downs were carried out.
Without taking this impact into account, BBVA obtained an attributable profit of 928 million euros, 57.8% less at constant exchange rates and 62% less in current ones.
The attributable profit in the second quarter amounted to 636 million euros, 40.5% less than the same period a year earlier at constant exchange rates (-49.5% in current), after incorporating the provisions related to the Covid-19 pandemic for an amount of 644 million euros: 576 million in sanitation and 68 million in provisions.
This result is 118% higher than the attributable profit for the first quarter of 2020, excluding the deterioration of the goodwill of the United States. The group’s account highlights the contribution of results from financial operations (ROF), which has soared its growth by more than 100%, to 1,107 million euros due to the sale of portfolios and the best performance in the markets. In this way, the gross margin rises to 12,045 million, a figure similar to a year earlier.
BUSINESS IN SPAIN
The bank has highlighted the commercial situation of the bank in Spain, always taking into account the fall of the economy due to the coronavirus pandemic.
Loan investment grew 2.7% in the semester compared to December balances, thanks to the corporate banking, retail businesses and companies and SMEs segments, which were boosted by the ICO’s public guarantee lines.
Gross margin grew 4.6% year-on-year thanks to recurring income and results from financial operations (ROF), while operating expenses decreased 6.1%. Thus, the net margin registered a year-on-year growth of 19.8%, to 1,371 million euros.
The area earned 88 million in the semester, which is 88.1% less, after allocations for sanitation and provisions. Onur Genç assured that the bank will close the year in Spain with benefits. The country, which contributed more than 25% of the group’s recurring results, now only amounts to 7%.
The cost of risk improved in the second quarter (from 1.54% to 1%), while the default and coverage rate, 4.26% and 65.7%, respectively, were at similar levels at the end of March.
MEXICO AND TURKEY
Mexico and Turkey have been the engines of the bank’s result, despite the fact that in both cases profits fall. In the Central American country the profit was 654 million euros, with a decrease of 49%, despite this it represents 52% of the group’s ordinary result, improving its position in previous quarters. Turkey, for its part, added a profit of 266 million euros, with a drop of 5%, but it becomes the second market, contributing 21% of the profits.
The group expects to continue with the sanitation by Covid in the second half, but at lower levels than those produced from January to June.
DIVIDEND
The bank does not plan to distribute a dividend in 2020, following the recommendation of the ECB. It also rules out remunerating the shareholder via scrip in the coming months, as announced by Banco Santander. However, in January 2021, BBVA will analyze the dividend distribution charged to the 2020 results if the ECB lifts the veto of not paying cash dividends to strengthen solvency.
“We said years ago that we were going to be consistent and predictable with dividends, our policy is to pay 100% in cash a percentage of the result and we will maintain that policy,” said the CEO.
The group’s chief financial officer, Jaime Sáenz de Tejada, explained that the bank could partially offset the dilution of value suffered by shareholders, complementing part of the cash distribution with a share buyback.
The market negatively welcomes the results and the stock plunges 8.07%, the biggest drop since March. The CEO ensures that both the bank and analysts are surprised by this fall, since the results for the semester are above expectations. The group does not rule out that it was due to the sale of a package of shares by an investor, but on Thursday it did not know the reason for the collapse of its titles.
CAPITAL RATIO
The bank has managed to improve its capital ratio, one of its pending subjects in the first quarter. Thus, the CET1 capital ratio ‘fully loaded’ stood at 11.22% as of June 30, representing a “significant” capital generation of 38 basis points compared to the March figure, which was 10, 84%.
The CEO of the bank explained that this has been thanks to a greater contribution to the results in the quarter, together with an improvement in the evolution of the markets. With 263 basis points above the minimum required, something that Genç has had a great impact on the telematic press conference in the presentation of results.
BBVA is thus in the upper part of the target range: to maintain a buffer over its new ‘fully-loaded’ CET1 ratio requirement (currently at 8.59%) of between 225 and 275 basis points. These capital ranges would allow the bank to distribute the dividend comfortably, as explained by its managers.
After anticipating provisions in the first quarter, the bank has seen a substantial improvement in the cost of risk, going from 257 basis points in the first quarter to 1.51% from April to June. And it expects to end the year with a cost of risk (provisions on credit) of between 150 to 180 basis points.
MERGERS
Regarding mergers, Genç has ensured that BBVA’s priority is organic growth, but he has also left the door open for corporate operations. “We will analyze the opportunities that arise, as is our obligation.”
Regarding a possible merger with Bankia, the manager replied that they do not speak of specific entities.
As the rest of the sector repeats, BBVA also plans to accelerate the closing of branches in the coming years. The plan to cut branches in Spain announced at the beginning of the year, which contemplates the closure of 160 branches, remains in force and without modification. So far 109 closings have already been carried out.
But by 2021, the banker has assured that it is not yet defined, although he has recognized that the acceleration trend of digital channels could also “slightly accelerate” said strategy. It has also ruled out the sale of subsidiaries this year, regardless of what is expected in Paraguay.
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