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Banco Bilbao Vizcaya Argentaria, S.A. (BBV), the second largest bank in Spain, made another acquisition when they bought Compass Bancshares for $1.64 billion, part of BBVA group’s strategic international growth plan. Now, BBVA group is a major player in USA, Latin America, Spain, and, soon enough, Asia.

Growing US Hispanic/Latino Population = Profits for US Southern Banks

The Compass Bancshares acquisition provides Banco Bilbao with enough capital to tap into the growing Southern US Hispanic population and their economic pull. Nearly half of all Compass Bank branches are located in Texas, one of the more attractive markets for Hispanic/Latino consumers. Compass holds $34 billion in assets, and earned record profits of $460.4 million in FY 2006. A strong banking position in Texas provides substantial growth potential for Banco Bilbao’s North American banking operations. As the US Hispanic population continues to grow, competition for Hispanic customers will intensify. Since 2000, 50% of all births in the US are of Hispanic decent. In fact, Bank of America (NYSE:BAC) has already begun to market their credit card services to this growing Hispanic contingent; targeting illegal and legal Hispanic immigrants has become a popular marketing tactic in the United States. If Banco Bilbao plans to compete with domestic and international banking firms for Hispanic/Latino customers, acquiring one of America’s 30 largest banks is a step in the right direction.

Asia-Pacific Plan: Partnership with CITIC

Banco Bilbao also has eyes for the Asian banking market as well, particularly in China and Hong Kong. Even a small market share in the massive Asian market could mean big profits in the future. New Asian-Pacific branches additions, along with the assistance of CITIC, will expedite the global “branding” process that would delay most growth initiatives. BBVA Group could also pursue partial equity stakes in well established Chinese banks.

Banco Bilbao Vizcaya Argentaria SA Outlook for 2007

One of my readers, Lucas from Five Percent Stocks, maintains a bullish outlook towards shares of Banco Bilbao stock. He left the following comment on The Long Case for Barclays (NYSE:BCS):

First, nice play here- Barlcay’s has been on a great tear. I do think, however, that there are some ’sexier’ bank plays abroad that will outperform BCS (unless perhaps we see a merger)… e.g. I think you’ll continue to see Banco Bilbao (BBV) outperform it in 07- jmo

Right now, BBV fundamentals look very “sexy” to global investors. Below are my observations (and recent findings) on Banco Bilbao stock:

  • Zero Long-term Debt - Banco Bilbao is long-term debt free. When analyzing companies, I favor firms that incur little or no debt. Companies with little debt usually have wonderful management, driven by a painstaking CFO, and understand how to keep profits in the black.
  • Combination of Growth and Profitability - Banco Bilbao combines stellar domestic and foreign banking assets with highly focused growth initiatives to expand their global reach.
  • 15% 5 Year EPS Growth - Earnings are expected to grow 15% over the next 5 years, a PEG growth ratio of 0.83. Stocks with PEG growth ratios of 1 or below are often solid buy candidates.
  • Interest Margin Analysis - net interest income over average earnings assets ratio has steadily declined since 2001. Weakening net interest margins could spell bad news for BBV if their US expansion strategy takes longer than expected.
  • Credit Approved - Jesus Martinez, Standard & Poor research analyst, gave a positive outlook on Banco Bilbao’s financial condition.
  • Questions for my readers on Banco Bilbao Vizcaya Argentaria

    1. How much does the Compass Bancshares acquisition impact Banco Bilbao’s international growth plans?
    2. Is Banco Bilbao the best Spanish banking stock for international investors?
    3. Will Banco Bilbao offer similar loan incentives to illegal immigrants as Bank of America did?
    4. Is BVV stock a buy, sell, or hold?

    BBV 1-yr chart
    BBV

    Source: Banco Bilbao's Quest for World Domination