BBVA Jumps as Earnings Beat Estimates as Bank Grows Capital

  • Net interest income and fees rebounded from slow first quarter
  • CEO Carlos Torres says bank committed to Turkey’s business

Banco Bilbao Vizcaya Argentaria SA rose in Madrid trading after the bank improved its capital buffer and lending returns improved in the second quarter.

The stock climbed as much as 5 percent, the most in a month. Net income fell to 1.12 billion euros ($1.24 billion) from 1.22 billion euros a year earlier, the Bilbao-based lender said in a regulatory filing on Friday. That beat the 948 million-euro average estimate in a Bloomberg survey of six analysts.

Chief Executive Officer Carlos Torres is working to accelerate the lender’s technological transformation while investing in digital banks and financial technology companies. The company’s board on Thursday approved its second management reorganization in 14 months to streamline its decision-making process. Torres has signaled that BBVA may cut its branch network in Spain as the lender weighs a fresh round of job cuts across the company, people familiar with the matter said last week.

“Good set of results overall,” Citigroup Inc. analyst Stefan Nedialko said in a note to clients. “Spanish net interest income has now surprised positively, costs are under control and capital has come in better than expected.”

The bank’s common equity Tier 1 ratio, a measure of financial strength, rose to 10.71 percent percent from 10.54 percent in the first quarter. The lender is looking to take that measure to 11 percent in 2017.

Turkey Boost

Net interest income, a measure of what the bank earns from lending after deducting what it pays on deposits and other liabilities, rose to 4.21 million euros from 3.86 billion euros a year earlier, lifted by the integration last year of a Turkish bank to the group’s earnings. It rose 1.5 percent from the first quarter.

The shares were up 4.2 percent at 5.25 euros at 2:31 p.m. in Madrid, among the best performers on the benchmark IBEX 35 index. That cuts this year’s decline to 22 percent.

‘Cautious’ on Spain

BBVA remains “cautious” over its Spanish business, Torres said in a call with analysts on Friday. Loan growth will remain “flattish,” especially in the corporate business as Spain’s uncertain political situation may be weighing on demand for loans from companies, Torres said. Spain has been in a political deadlock since December after two inconclusive elections.

Net income from banking dropped 9.4 percent in Spain, with net interest income falling 2.6 percent from year earlier, as low interest rates and weak demand for credit keep putting pressure on Spanish lenders’ margins. Net interest income rose 3.5 percent from the previous quarter.

In Turkey, where BBVA holds a 39.9 percent stake in Turkiye Garanti Bankasi AS, net income rose to 191 million euros after integrating the Turkish lender’s profit in the group’s earnings last year. BBVA is the most vulnerable among European banks in terms of risks linked to Turkey, rattled this month by a failed military coup, according to Deutsche Bank AG analysts.

BBVA is fully committed to Turkey as its business there is important for the group, Torres told analysts.

The increase in fees was positive after the drop seen in the first quarter, Renta 4 banking analyst Nuria Alvarez said. Fees and commissions grew 4 percent from a year earlier and net trading income rose 26 percent.

Costs, Taxes

Operating costs increased by 7.4 percent in the quarter and taxes jumped by almost 30 percent, the bank said. Pretax profit increased by 28 percent. Bad loans as a share of the total fell to 5.1 percent from 5.3 percent in the first quarter.

The bank’s contribution to the European Resolution Fund, set up after the 2008 financial crisis to prevent state-funded bailouts, hurt profit by 85 million euros. The sale of a stake in Visa Europe Ltd. to Visa Inc., completed last month, boosted profit by 128 million euros.

CaixaBank SA, Spain’s third largest lender, reported a 365 million euro profit in the second quarter, beating analyst estimates. The shares rose as much as 6 percent in Madrid trading.

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