Thursday, January 27

The market turns against BBVA due to the vagueness of Carlos Torres

The market consensus continues to review its valuations and metrics on BBVA to find out how you will be able to meet the goals announced during the Investor Day.

The task is complex due to the lack of details offered by Carlos Torres Vila after the analysts’ questions and therefore the experts ask the bank for more explanations in order to know the entity’s position in the face of its new challenges.

“The lack of detail dilutes the messages”, exhibited from Deutsche Bank is his latest report on BBVA. The German entity is clear that the “promises are too high and without details.”

Deutsche Bank considers that BBVA’s strategic plan “Has been disappointed by its lack of granularity to achieve some quite challenging objectives”.

Barclays is another of the investment firms that once again asks BBVA to deepen its comments.

Analysts at the British bank released a first report in which they saw the targets as “very difficult to fulfill ” until you have greater visibility about it.

Modesty in the capital ratio

The London entity returns to the load with a new report where it indicates that there are still “questions” that, as they are not resolved, cannot become “catalysts for action”.

Analysts Bloomberg Intelligence they qualified for to these objectives, such as the one announced in profitability based on ROTE, of 14 percent by 2024, of “Inexplicable, with few explanations and visibility”.

The use of surplus capital is another point of friction between analysts and BBVA. The entity has a capital ratio of 14 percent, while it has reiterated the current target, which is lower, between 11.5-12 percent.

This “fully loaded” CET 1 level implies a capital surplus of around 6,000 million euros and there were no major explanations about its use, according to consensus projections.

Barclays lowers it to 4.2 billion in 2025 and given that the bank is above the CET1 target “it could consider an extraordinary cash dividend or other stock program without ruling out new corporate operations.”

More explanations for the ROTE

Deustche Bank acknowledges the resilience of BBVA’s capital despite increased exposure to emerging markets, but believes that the solvency objective “It could have clearly improved above 12 percent by reassuring the markets”.

“The presentation of a strategic plan lacked a stronger message about the distribution of capital in the future despite the increase in the payment of dividends (pay-out of 40-50 percent plus complementary dividend) and ROTE’s goal seems too ambitious”, They expose from Deutsche Bank.

Deutsche Bank is surprised at how BBVA beat analysts’ estimates for ROTE, which were the highest in the consensus at 13 percent for 2023-2024.

BBVA only indicated that it is confident of achieving high revenue growth in all its regions, with tight cost control and a significant reduction in commissions. Thus, it would reach its goal of 10 million new customers in 2024.

A missed opportunity to enhance BBVA

“Despite this, the details remain limited”, they point out from Deutsche Bank.

In this sense, Barclays doubts the ability to reach the objectives because, in the absence of explanations, it believes that it should generate profits of 6,200 million euros at the close of the strategy, 24 percent more than what was exposed by the consensus ”.

“Initially it seems difficult to breach and the cost reduction should reach 800 million euros,” they explain from Barclays.

Regarding the fall in stocks, Barclays says that the price reaction is adjusting to the “clear disappointment for the total purchase of Garanti, the monetary policy decisions in Turkey and the depreciation of its currency with poor visibility for investors on the allocation of capital ”.

Analysts at the British bank release their forecasts on the acceptance of the offer by the minority shareholders of Garanti and believe that BBVA will close the purchase in the last quarter of 2022 reaching the objective of controlling 100 percent of the capital stock.

Garanti would contribute 765 million euros of profit to the group in 2023, while from Deutsche Bank they consider that, although the plans for Spain and Mexico are “potentially achievable”, the targets for Turkey and South America “seem to need a significant leap of faith to be credible”.

However, the experts of the German entity believe that with this plan “BBVA has probably missed an opportunity to convince markets about strong trends and opportunities, especially its clear sale in generating profits over most of its competitors in Europe ”.