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BBVA is going through a monumental shift as 2019 begins, with the departure of the man who has led the bank for almost 20 years, Francisco González Rodríguez. The former executive chair announced he would step down in late September to make way for Carlos Torres Vila, chief executive since 2015. Onur Genc, head of BBVA’s US operation, will become chief executive.
González has led the bank since the 1999 merger between Banco Bilbao Vizcaya and former state-owned bank Argentaria, of which he had been president from 1996. He strengthened BBVA’s global retail strategy, most importantly with the $10 billion acquisition of Compass Bancshares in the US in 2007 and more recently by becoming the biggest shareholder in Istanbul-listed Garanti, Turkey’s second biggest private bank, whose numbers it now consolidates and of which it owns just short of a majority.
Last year, 2018, Turkey was investors’ biggest cause for concern at BBVA when the lira lost about a third of its value in the summer. Nevertheless, the group has continued to beat analysts’ expectations consistently, especially in Turkey, despite hyperinflation in Argentina and currency volatility in Mexico, BBVA’s biggest market.
BBVA’s new leadership is unlikely to change probably the biggest legacy of González, the bank’s relatively long-standing tilt towards digital investment.
Indeed, Torres was previously BBVA’s head of digital banking. Moreover, the chief executive role at Spain’s biggest banks is akin to chief operating officer elsewhere, a role naturally associated with technological transformation. Torres’ appointment as executive chair could perpetuate this governance structure.
Torres was a consultant at McKinsey before joining BBVA as head of strategy and corporate development in 2008. Genc was previously head of retail banking at Garanti, which has also invested heavily in digital banking.
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| Carlos Torres Vila |
It remains to be seen if the new management, in a similar way to Ana Botín after taking over as executive chairman of Santander in 2015, will take a different attitude to the bank’s capital level to predecessors. Like Santander, BBVA’s common equity tier-1 ratio is relatively low by European standards, although both sought to reach 11% last year and BBVA reached that level in the third quarter.
BBVA (like Santander) was one of the biggest banks subject to dividend restrictions in the adverse scenario of the European Banking Authority’s stress tests in 2018. Even so, chief financial officer Jaime Sáenz de Tejada points out that the EBA’s adverse scenario capital depletion at BBVA would be less than half the European average at around 190 basis points, even if its starting point is lower than average. Moreover, Sáenz de Tejada says the EBA’s models did not include the effect of the sale of its bank in Chile this year, which added about 50bp in capital.
“The bank has further strengthened its capital position by selling Chile and by de-risking in Spain with the last sale of foreclosed real estate assets to Cerberus in October,” says Sáenz de Tejada.
Turkey’s currency crisis over the summer prompted the bank to ratchet up its 2018 Turkish cost of risk guidance from 140bp to around 200bp in September (compared with about 80bp in 2017, according to Berenberg) due to the pressure on foreign currency borrowings by the local corporate sector.
Sáenz de Tejada draws solace from Turkey’s belated monetary policy response, including a 625bp rate hike in mid September and the release of US pastor Andrew Brunson, whose detention had caused strains with the US government. As the lira recouped some of its summer losses over the autumn, he says there is better visibility over the local corporate sector’s trajectory, even if cost of risk in 2019 will remain high before what hopes will be a rapid economic rebound in 2020.
“We need to understand the level of sustainable debt that dollar-leveraged companies have at the new exchange rate,” says Sáenz de Tejada. “Hopefully the worst is over and we can start to restructure, especially the foreign currency loan portfolio.”
The attitude to Mexico is even more sanguine. Despite lingering doubts about relations with the US and the economic approach of new president Andrés Manuel López Obrador, Sáenz de Tejada expects Mexico to remain stable as the most important bulwark of BBVA’s business.
“Sometimes the market tends to overreact to news around Mexico,” he says.
Not Mexico but the US, in fact, was the main area of disappointment for analysts in third-quarter results, partly due to the expense of a marketing campaign to sustain its consumer loans growth. Yet the bank’s profit is growing rapidly in the US, where it is concentrated in the fast-growing Sunbelt states, especially Texas. Higher Federal Reserve interest rates will further benefit its US business, according to Sáenz de Tejada.
