The bank, which until now has ruled out major adjustment plans, opens the door to a “rapid restructuring” in Spain and the Corporate Centre, which it would carry out in the first half of this year. It closes 2020 with profits of 1,305 million, 62.9% less. It will pay 0.059 euros as a dividend, the maximum allowed by the ECB this year, and announces a buyback of around 10% of shares.
BBVA returned to profit at the end of 2020, achieving earnings of EUR 1,305 million in the year, down 62.9% (-55% at constant exchange rates). The bank reacted to the publication of the figures with falls on the stock market.
The result, which has evolved from less to more in the year, has been weighed down by the extraordinary provisioning of 2,084 million applied to the US subsidiary before its sale to PNC. On the positive side, BBVA also recorded capital gains of €304 million in the last quarter from the sale of part of its insurance business to Allianz. Without these atypical items, the result would have been EUR 3,084 million, 36.1% less (-27% excluding the currency effect).
The accounts were also affected by higher provisions as a result of the coronavirus crisis. Provisions increased 45% to EUR 5,900 million.
Following the easing of dividend limits agreed by the ECB in December, the bank has also announced the return of the dividend. BBVA plans to make a cash payment of 0.059 euros gross in April as remuneration charged to 2020. This is equivalent to a pay-out (percentage of profit going to shareholders) of 15%, the ceiling set by the supervisor. The interim dividend for 2019 amounted to 0.26 euros.
In parallel, the bank has also anticipated that it expects to recover its traditional payout policy as early as 2021. It establishes a payout of between 35% and 40% entirely in cash, to be distributed in two payments (October and April).
On the other hand, BBVA, which had already indicated that it would use part of the funds obtained from the sale of the US subsidiary to improve remuneration to its investors, has now specified that it will launch a programme to buy back around 10% of the shares (around 2.6 billion at current share price levels). The plan, which will not be carried out before the effective closing of the sale of the US subsidiary, scheduled for the middle of this year, is conditional on the evolution of the share price and on receiving the ECB’s approval.
Restructuring in Spain and excess capital
The group has also specified the excess capital it will have after the sale of the US subsidiary and the establishment of a new solvency target, which it has raised to a range of between 11.5% and 12%. The current one was linked to a buffer over the minimum required by the ECB, which in practice placed the own funds target between 10.84% and 11.34%. The bank thus recovers the capital target set for 2019, which it decided to modify last year.
The bank, which closed the year with a maximum quality capital of 11.73%, calculates that it will have a ratio of 14.58% after the sale of the US business. This will mean excess equity of 8,000 million euros, which the bank will use to invest profitably in its markets, to increase shareholder remuneration and, as a novelty now, to “reduce costs in our markets”. BBVA is the only large bank that has so far ruled out undertaking a major adjustment plan.
In this line, during the presentation of the results to analysts, the CEO, Onur Genç, has cooled the bank’s participation in mergers and has hinted that BBVA will devote part of its excess equity to finance a restructuring of the business in Spain. “We are exploring all [cost-cutting] alternatives in lower-growth geographies, especially in Spain and the Corporate Centre,” he said. “We are still in the definition phase and we will adopt measures in the first half of 2021, which we will communicate,” said Genç, who raised the possibility of a “rapid” restructuring. BBVA operates in Spain with 2,482 branches and has a workforce of 29,330 employees.
“We want to make a very clear message. The fact that we have capital available does not mean that we are obliged to engage in new mergers. We are studying opportunities, but we are only looking for projects that bring us value,” he said.
The account, affected by the exchange rate, shows a fall in net interest income of 7.3% to 16,801 million. Net fee and commission income fell 8.1% to 4,616 million, while net trading income (1,692 million) increased 22.3%.
Total revenues were 6.1% lower at EUR 22,974 million. Operating expenses fell 9.6% to EUR 10,755 million. The efficiency ratio improved to 46.8% from 48.7% a year earlier.
Impairment losses increased 45% to EUR 5,908 million, in line with the 40% growth in other provisions (EUR 1,085 million). The NPL ratio rose to 4% from 3.8% in September and coverage dropped from 85% to 81%. The bank ended the year with a cost of risk of 151 p.p., within its target range for the year (150-160 p.p.). BBVA expects the cost of risk to be lower in 2021.
Return on equity (ROE) fell to 6.9% from 9.9% a year ago.
Mexico, 45% of profit
The Mexican subsidiary remains the main driver of profit, with a 45% weighting. The unit contributed EUR 1,759 million, 35% less than a year ago.
Spain was the second market (15%), with profits of EUR 606 million, down 56%. Turkey, meanwhile, earned 563 million, 11% more, and contributed 14% of profits.
The US generated 11% of the results, contributing 429 million, down 27%. South America earned 446 million, down 38%. It has a weight of 11%.
Finally, the rest of Eurasia generates 134 million, up 7.6%. Its share in profit is 4%.