Analysis-Spain’s battle of the banks as BBVA narrows gap to Santander By Reuters



© Reuters. BBVA Chairman Carlos Torres Vila speaks during the Annual Shareholders’ Meeting at the Palacio Euskalduna in Bilbao, Spain, March 15, 2024. REUTERS/Vincent West/File Photo


It’s Jesus Aguado

MADRID (Reuters) – BBVA’s (BME: ) share price has surged since the end of 2020, narrowing its margin to Santander (BME: ) and pointing to a financial gap between Spanish banks that may be short-lived.

Both originated in 1857 and neighboring cities in northern Spain, but Santander emerged as Spain’s largest bank with twice BBVA’s assets and, until recently, the largest market.

But the gap has shrunk from 20 billion euros ($22 billion) three years ago to about 5.5 billion euros, raising questions about their correct strategy.

The change shows how investors benefit from banks that share their recovery profits more than those that prioritize future growth, and that have made the right bets outside of Europe’s slow growth.

The stake in BBVA, which is worth 64 billion euros compared to Santander’s market value of 69.5 billion, was boosted by its Mexican subsidiary, which has almost a quarter of the stock market.

“BBVA in Mexico has one of the best retail banks in any emerging market and is doing better for BBVA than in Brazil for Santander,” said Enrique Quemada, chairman of investment bank ONEtoONE Corporate Finance Group.

Investors have also rewarded BBVA for its decision to leave the United States in November 2020 to focus on providing more cash to shareholders, analysts and investors told Reuters.

“For us to grow, profits … share growth, and share purchases, the market continues to reward us,” BBVA Chairman Carlos Torres told shareholders this month.

Torres has been the chairman since the end of 2018, when Onur Genç became CEO of BBVA.

Since 2021, BBVA has distributed 13.19 billion euros to shareholders, including extraordinary acquisitions of 4.16 billion euros. That equates to 20.6% of its current market value, Reuters calculations show.

A cautious approach to handouts led by Santander Chief Executive Ana Botin, declining profits in Brazil and a mixed economy in its 10 largest markets have weighed on the central bank’s shares, analysts and investors added.

Botin, whose father Emilio once ran for Santander, has been involved since his death in September 2014.

Santander, which unlike BBVA does not make dramatic acquisitions, paid 12.8 billion euros, 18.4% of its market capitalization, Reuters calculations show.

A focus on dividend payments has lifted shares of other European banks such as Italy’s UniCredit, while stocks with low payout ratios including Santander and BNP Paribas (OTC:

Santander’s Chief Financial Officer, Jose Garcia Cantera, told Reuters that the preference for paying cash today during high interest rates rather than discounting future profits will not last when rates fall.

“Future growth will be greatly appreciated…We are starting to see the first signs,” Cantera said.

BBVA declined to comment.


Although BBVA cannot compete with Santander in terms of reach and growth, its shares will trade at a price of more than 1.2 thanks to a jump of 32.5% so far in 2024.

Shares in Santander have risen 15.5% over the same period but trade at a premium of just over 0.7, below three of Europe’s biggest banks, LSEG shows.

“For Santander you have a lot of moving parts … you need a lot of stars to align,” said Berenberg analyst in London, Michael Christodoulou, who hopes to benefit from the decline in commodity prices, including in Brazil.

Christodoulou has the idea to ‘hold’ on both banks.

Whether BBVA’s shares remain strong will depend as much on returns as on how well it can meet its financial demands in its key markets of Mexico and Spain, given its presence in fewer countries than Santander.

BBVA makes more than two-thirds of its profits in emerging markets and is also lending to smaller businesses than Santander.

BBVA expects a return to tangible assets (ROTE), profit, of between 17% and 20% in 2024 from 17% in 2023, while Santander is looking for a ROTE of 16% in 2024, from 15.06% last year.

Analysts at broker Alantra expect Santander to benefit in the short-term or long-term from cost reductions and the release of international units and to bring profits quickly.

Performance improvements in Santander’s car rental business in Europe and the US should also help, he predicts.

However, Santander needs to improve profits in Brazil, some analysts say, adding that its US plans should pay off following a 48% fall in 2023 in total profits there.

In order to prevent BBVA from disappearing, Santander will have to be more aggressive in its acquisitions, said Caixabank analyst Carlos Peixoto, adding: “but at the moment they cannot do that.”

Santander’s core Tier 1 full capital ratio, a standard measure of solvency, stood at 12.26% at the end of last year, compared to 12.67% for BBVA.

On March 22 Santander said it expects to pay more than 6 billion euros in dividends and common purchases against the results of 2024 in accordance with its policy of distributing half of its earnings to shareholders.

Santander’s strategy of investing in diversified businesses will pay off in the long run, Cantera said.

“As the situation changes and the market begins to value growth more, banks that have not made provision for the future will be at risk,” he added.

($1 = 0.9245 euros)


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