The Spanish Bank, Banco Bilbao Vizcaya Argentaria (NYSE:BBVA), is a long-term equity play that is worth assuming the risk of Europe and Spain’s fiscal problems. While, it has been said that Spain could be the Lehman Brothers of Europe, I cannot imagine that happening as Portugal is very much dependant on Spain for economic success, and it appears Europe is in this together. Furthermore, BBVA has positioned itself well to weather the Spanish fiscal storm by increasing their Tier I capital to 9.2%, and diversifying away from Spain and focusing on Latin America, Mexico, Turkey, and the United States.
BBVA recently purchased a 24.9% stake in the largest Turkish bank, Garanti Bank, positioning BBVA to take advantage of tremendous Turkish growth. They also own Bancomer, the largest bank in Mexico, which should allow them to benefit from the economic development of Mexico. I understand that Mexico is currently dealing with a massive drug cartel problem, but the United States and other countries bordering Mexico have the incentive to prevent the problem from destabilizing the region. I view Mexico will mirror Columbia’s past problems and successes. Lastly, about 50% of BBVA profits come from Latin America, United States, and other countries, further distancing themselves from Spain. BBVA has 1,987 branches in South America, 1,497 in the United States, and 778 in the rest of the world contrasted to 3,147 branches in Spain (57.52% of branches located outside of Spain). They are also the official bank of the NBA, for what that is worth.
BBVA focuses on the less risky aspects of banking, which has allowed them to be less exposed to subprime mortgages. Their Non-Performing assets feel 1.2% to a NPA ratio of 4.1% overall. In Mexico, the NPA ratio fell 46 basis points to 3.4%, and in South America 24 basis points to 2.4%. Global Finance also named BBVA the Safest Bank of 2010. Furthermore, loan loss provision fell by 22.1% in Mexico and profit in that area was up 2% since Q3 2009. They also gained market share in both lending and customer funds in Latin America over the past year; year on year profit in Latin America was up 13.7%.
The discount at which BBVA is trading right now justifies monitoring going into 2011, and even investing in presently. I do believe some of the recent gains experienced by the bank will be given back as investors struggle to wade through the European fiscal fog, as the United States debate over tax increases, and as investors engage in yearend profit taking. I also believe that Spain’s fiscal issues have already been priced into BBVA’s stock price.
The company is currently trading near its 52 week low of $8.65, and below its book value of $11.06. BBVA also has a very attractive dividend of $0.50 per share, which, even if they were to cut the dividend to further increase their cash reserve, I would still believe in the long term value of this company. Furthermore, according to Morningstar, BBVA’s TTM P/E Ratio is 6.3, their five-year P/E Ratio average is 10.9, and the industry P/E Ratio is 11.4. Also, with BBVA’s TTM EPS being 2.07 and their projected EPS being 1.75, the stock should be trading around $20, with all else remaining constant.The main criticism I expect is that BBVA is a Spanish bank; however, because the bank is fervently focusing on expanding out of Spain to take advantage of emerging markets, has a strong capital base, is showing encouraging signs of increased earnings in Latin America and Mexico, and is positioned to take advantage of Turkey’s growth I expect this to be a slam dunk in the long run.
Disclosure: No positions as of yet.