BBVA Results Positive But M&A Risk May Grow

BBVA’s conf call indicated mgmt’s positive outlook on the business and we can still see consensus profit upgrades coming through here. However, a lack of buyback upgrade is the reason for today’s equity move, we feel, and this may point to future M&A ambitions which could grow BBVA’s risk profile. So, whilst today’s results are spread positive, the mid-term outlook is more balanced, we feel.

• The bank is running with clear excess capital, we feel. Its CET target is 11.5-12.0%, it’s just reported 12.82% and the profit upgrade appears likely to support this level at the least. However, mgmt remained reticent about sizing its buyback ambitions or being more clear on timings. This is likely what’s disappointing equity watchers today. The current (EUR781m) buyback is only c. 20bp of CET1.
• One theory about that reticence is mgmt is keeping its power dry for M&A, most likely in LatAm. This remains a small part of the profitability of the business (c.5% of profits but 13-14% of both revenues and capital) and lags on returns – adding scale would address that. However, such M&A would likely increase the risk profile of the business, we fear.
• Key positive on guidance today is for net income to grow in double-digits across FY24 – consensus only has low single-digit growth right now, so there’s a clear upgrade here, we feel.