BBVA’s Mexico resilience helps it beat profit estimates

Bloomberg

Banco Bilbao Vizcaya Argentaria SA’s (BBVA) Mexican business shrugged off an economic slowdown in the country, helping the Spanish bank make up for the effect of ultra-low interest rates in Europe.
The Mexico unit posted its highest quarterly profit in at least a decade, helping BBVA report group earnings that beat analyst estimates. That bucks a trend among Spanish banks that have been forced to reduce their forecasts as low interest rates persist.
BBVA and Banco Santander SA, Spain’s two largest banks, are riding out the low-rate environment in Europe by leaning on their more robust investments in Latin America, aided by faster economic growth and low levels of bank penetration, which allows more room to add customers.
While Mexico has long been the crown jewel of the group’s business, accounting for about 40 percent of profit, a potential recession could hurt earnings at a unit that has helped BBVA make up for sluggish growth in Spain. Mexico’s economy shrank in April and May, the first two-month decline since the financial crisis.
The bank posted a strong result “despite a complex macroeconomic environment,” Chief Executive Officer Onur Genc said in a statement. “All of this is driven by our diversified business model.”
Still, BBVA’s outlook is clouded by potential interest rate cuts in its large markets.
The European Central Bank (ECB) last week set the stage for another round of monetary stimulus in September to combat an economic slowdown in the euro area.
In Mexico, President Andres Manuel Lopez Obrador said in a Bloomberg interview he’d like to see lower rates to “kick start the economy.”
Overshadowing the results is a mounting furor in Spain over allegations that BBVA hired a then-active police commissioner to spy on politicians and business rivals. A judge has placed the bank under formal investigation.
Genc said the case has so far had no direct impact on business and reiterated that the bank is cooperating with the investigation.
Second-quarter net income gained 2.7 percent to 1.28 billion euros ($1.4 billion).
BBVA rose as much as 1.5 percent in Madrid trading and before reversing course and falling 1.2 percent to 4.6 euros. The stock is little changed this year, compared with a 1 percent decline of the STOXX Europe 600 Bank Price Index.
The bank’s fully-loaded and phased in CET1 ratio was 11.5 percent, up 17bps. Net interest income of 4.57 billion euros beat the consensus of 4.44 billion euros.
A fee income of 1.26 billion euros beat the consensus of 1.24 billion euros.
The bank’s profit rose as much as 4.4 percent in Mexico to 660 million euros, aided by strong net interest income which rose 16 percent from a year earlier. Earnings at the Spanish business rose 14 percent in spite of virtually flat core revenue, due mainly to a write-back in impairments of 102 million euros.