The main reasons for the downgrade are the economic deterioration in the regions where the bank is present, especially Mexico and Spain. However, it also flags that even after losing a rating notch, BBVA has sufficient financial cushion, geographical diversification and a good competitive position in its reference markets to avoid being affected by new downward revisions in the short term.
Holvi, the digital banking startup for freelancers acquired in 2016 by BBVA, has announced its entry into the United Kingdom, the third largest market it has broken into after Germany and Finland. Its aim is to become the financial partner of British SMEs and freelancers, thanks to its range of digital accounting tools.
Bankinter analysis team believes that the cut in the deposit rate to -0.50% (from -0.4%) further penalises keeping excess liquidity in the ECB. Tiering (or the method of charging in tranches) only partially mitigates the impact with a volume of up to six times the coefficient of obligatory reserves (currently 1.0%) exempt. This favours banks with higher and more internationally diversified ratios of credit investment/typical resources like Banco Santander and BBVA.
One day before the General Shareholders’ Meeting, the former president of BBVA announced on Thursday by letter that he is temporarily leaving the positions that bind him to the entity (he is the honorary president of the bank and the Foundation) until the end of the investigation of the Villarejo case, in which BBVA is related to a supposed espionage of politicians, businessmen and journalists when González occupied the presidency.
BBVA is a well-managed bank, but with a geographical exposure that is currently very negative. The financial entity’s shares have risen in a roller coast since the new President of Brazil, Andrés Manuel López Obrador, announced and then retracted his party’s plan to limit bank commissions.
The Spanish financial entity BBVA has entered the Dow Jones sustainability index, which Telefonica has left. BBVA shares have accumulated losses of -23.38% so far in this exercise, weighed down by the situation in Turkey, a region which contributed 11% of the Group’s net profits in the first half of 2018.
Renta 4 | The ratings agency S&P has maintained the rating of BBVA, but has lowered the Outlook from stable to negative because its exposure to Turkey through Garanti, of which BBVA controls 49.85% and which accounts for 15% of the Group´s profits.
Bankinter | We are revising our recommendation for BBVA to Neutral from Buy because of the deterioration of the situation in Turkey.
Turkish President Erdogan has began to exercise his new “attributes”, recently provided by an ever more authoritarian political system, in relation to the monetary policy of the central bank by affirming informally that interest rates will be lowered. This weakened the Turkish Lira from 4.66/$ to 4.85/$ (although it layered recovered to 4.82/$). This had a negative impact on the share price of BBVA, which holds 49.85% in the Turkish bank Garantí.
Bankinter analysts believe the markets are undervaluing the European Financial Sector. Expect average BPA for the sector as a whole to exceed 10% in 2018.