Carlos Torres, president of BBVA
The BBVA Group obtained an attributable result of 1,911 million until June, which contrasts with the losses of 1,157 million in the first half of 2020 originated by the provisions necessary to cover the deterioration of the United States subsidiary (2,084 million euros) and the problems of the economic crisis.
All the margins of the income statement of the entity chaired by Carlos Torres show falls due to the depreciation of the currencies of Latin America and Turkey. The decrease in provisions by 60% due to the economic improvement is what drives the profit for the semester. The entity charges against the account 696 million “for costs associated with the restructuring”, which include the layoffs of 2,935 employees, as well as the closure of 480 offices.
BBVA also reports that on June 1 it completed the sale of 100% of BBVA USA’s capital to PNC (The PNC Financial Services Group) with a net income of taxes of 582 million euros. “After the closing of this sale, the group maintains a solid capital position, with a CET 1 ratio. fully loaded ” (the highest quality) “from 14.17% as of June”. BBVA announces that on November 18 it will hold a meeting with investors “to share the details of its strategy and objectives” which, as it has commented on previous occasions, will involve the repurchase of treasury shares and the return to the distribution of the dividend.
Dividend of up to 40% in October and April
In the results note, BBVA states that it intends to “return as of September 30 to its shareholder remuneration policy consisting of distributing annually between 35% and 40% of the profits obtained in cash (predictably in October and April) ”. The European Central Bank (ECB) vetoed the distribution of dividends at the beginning of the economic crisis so that entities would have more capital to maintain their ability to make loans. Later, in the presentation of results to the media, Onur Genç, CEO, pointed to 40% in the distribution of dividends.
The entity comments that “it has begun to take the necessary steps for the repurchase process” and plans to start the program “in the last quarter of the year, once the approval of the supervisor is obtained.” The final percentage you acquire will depend on factors such as BBVA’s listed price. The CEO specified that, of the 8,000 million of capital that the sale of the United States subsidiary has contributed, 3,500 million will be used to buy back its own securities.
The bank’s plan is to start buying shares in November and continue to do so until November 2022, depending on the appreciation of the securities. However, Genç commented that “the difference between what we think the share should be worth according to our earnings outlook and its market price is very high, so we have room to buy.” If the bank invested 3,500 million in its shares today, at a fixed price, it could acquire 9.5% of its capital. Your CET 1 1 ratio fully loaded proforma, including said share buyback plan, would drop to 12.89%.
Do not rule out purchases in Spain
In addition to the 3,500 million that will be spent on securities, BBVA has allocated 700 million to pay the dismissals. That is, it has 3.8 billion left for other operations. Asked about the possible destination of this money, Onur Genç, mentioned the possibility of “making purchases in the markets where we are already provided that the acquisition is profitable”, without ruling out Spain. He did not deny or affirm that he was still interested in Sabadell, after the failed merger attempt due to price disagreements. At that time, the stock market value of the Sabadell was about 1,200 million lower than the current one.
The CEO of BBVA also said that they could spend the resources on an extraordinary dividend or on more buy-backs of own shares, depending on what benefits the shareholders the most. Genç was very optimistic about the evolution of the Spanish economy, as have all the bankers who have presented results so far.
He stated that the tourism sector, the most affected, could bill 70% of a normal year and that foreigners’ spending with credit cards in the last week of July is 80% over the same week in 2019. He also indicated that BBVA’s recurring attributable profit reached 1,294 million, “exceeding pre-pandemic levels.”
Genç did not want to comment on the consequences that the accusation of Paul Tobin, global head of Communication and Responsible Business, could have in the BBVA-Villarejo case. “We are not talking about specific people or about that case,” he said.
Regarding the origin of the results, Mexico continued to be the key division, since it contributed 43% of the results; Spain achieved a profit of 745 million – seven times more than a year ago – thanks to the reduction in provisions. This situation allowed it to contribute 28.4%; Turkey contributed 14.7% of the profit, South America with 8.3% and 5.5% was provided by the rest of the geographies.
Cost savings by ERE
Regarding the restructuring plan in Spain, BBVA estimates that it will lead to cost savings of around 250 million euros gross per year from 2022 “of which approximately 220 correspond to personnel expenses. In 2021 the estimated savings will be approximately 65 million before taxes ”. It clarifies that the cost before taxes is 754 million euros for the collective dismissal and 240 million euros for the closure of offices.
Regarding the opportunity for the sale of the United States subsidiary, coinciding with the moment when Santander is achieving its greatest benefits in that country, Genç justified the exit because they had a 2% share in the states where they were present: “It was not a sufficient presence to apply economies of scale that was profitable; technology requires more and more investments ”.
The bank highlights that if “non-recurring impacts [los negocios del Grupo en Estados Unidos hasta el cierre de su venta a PNC y los costes de la reestructuración en España], the attributable profit of the group in the first half of 2021 reaches 2,327 million between January and June 2021 ”. This figure is 146% higher than that corresponding to the first half of 2020 and 183% more without taking into account the depreciation of currencies.
The entity attributes this result “to the strength of the income, particularly of the typical ones of the banking business (interest margin and commissions) and to the lower write-offs compared to the first half of 2020”.