After ruling out its integration with Banco Sabadell and with improved macro perspectives in Turkey, where it owns over 49.85% of Garanti bank, BBVA can potentially devote a higher amount to increasing shareholder remuneration. This could be through share repurchases as it does not need to strengthen provisions and has excess capital.
BBVA has a high liquidity position available after the sale of its business in the U.S. for 9.7 billion euros in cash. In the previous situation, this liquidity would probably have been used, in whole or in part, to buy Banco Sabadell.
Meanwhile in Turkey (its third market after Mexico and Spain), the macro news flow will progressively improve. This week we have seen positive Q3’20 GDP data (up 6.7% year-on-year compared to the 4.8% expected rise and the 9.9% fall in Q2). In addition, the Turkish Central Bank, following a change of Governor, announced on 19 November a rise in its key rate to 15% from the 10.25%. This has supported the currency’s recovery (rising 7.4% from the November lows).
Analysts at Bankinter consider that both the potential share buybacks and the macro improvement in Turkey are two factors which could support BBVA’s price in the short term. And they add:
“However, we are still very much aware of the increase in the risk profile represented in the fact that by selling the business in the United States, it will indirectly and unexpectedly increase its weight in Garanti (Turkey). This will be both in ATMs (Automated Teller Machine), where we estimate 9.2% vs. 8%, and in Attributed Net Income (19.6% vs. 18.7% with figures for 9M’20). “
For its part, after concluding talks with BBVA, Banco Sabadell has announced it will develop a new business plan. This will prioritise the domestic market as a formula to increase efficiency in the use of the group’s capital and resources. So profitability and the creation of value for shareholders will enhanced.
The main objectives of the plan will be made public during Q1’21. However, Sabadell is in a position to anticipate that it will consider, amongst other measures, the expansion of the efficiency and transformation programme in the Spanish retail market -with a neutral impact on capital. It will also analyse strategic alternatives with its advisors related to the creation of value with respect to the group’s international assets, including TSB.
Nevertheless, with regard to this same issue, should Sabadell finally decide to sell its British subsidiary TSB, the process would have to compete with the sale processes involving Sainsbury’s Bank and The Co-op Bank, which they have already announced or are immersed in the process.