School kids desperate to share their knowledge bounce up and down in their seats blurting out the right answers. Carlos Torres Vila has been indulging in the adult equivalent. The chair of BBVA trumpeted a strong dividend on Monday. The bank reports detailed full-year results in a couple of weeks. Torres Vila just could not wait.
The far-flung assets of banks such as BBVA can often look like a weakness. There is a danger they can foster lethargy and a lack of focus. Not this time. Subsidiary BBVA Mexico, the country’s largest bank, has had a great year. Profits from that segment, the majority of group operating earnings, jumped a record 47 per cent in the nine months to September.
Torres Vila claims that a strong digital platform places BBVA Mexico ahead of rivals. Relative performance was helped by a 14 per cent rally in the Mexican peso against the euro.
BBVA’s largest rival, Santander, also has plenty of Latin American assets, but the bulk lie in Brazil. Santander enjoyed a double-digit percentage lift in profits there in the first nine months.
A stronger boost in Mexico is what has lifted the BBVA share price. The stock has climbed 55 per cent in the last six months, outrunning most local peers and the MSCI Europe banks index. BBVA shares trade at their trailing tangible book value, while Santander’s retain a 25 per cent discount.
Mexico aside, BBVA is helped by its sizeable Spanish mortgage portfolio, which ranks it second only to retail-focused CaixaBank. The euro’s negative interest rate era came to an end last year. BBVA’s net interest income has already risen smartly. That should support an even larger dividend per share increase for BBVA of 39 per cent for 2022, thinks Citi, better than the average for Spanish banks. BBVA should remain top in its league for dividend growth next year as well.
For all Torres Vila’s optimism, BBVA shares have priced in plenty. His bank’s next earnings report will have to offer a further big positive surprise to push the shares higher this quarter.
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