Morningstar | BBVA 3Q 2018: Full Turkish Impact Not Yet Felt in a Very Messy Quarter
BBVA reported net attributable profit of EUR 1 billion for the third quarter of 2018, excluding a one-off capital gain on the disposal of BBVA's Chilean business of EUR 600 million. This represents a 9% decline compared with the third quarter of 2017. We maintain our EUR 6.30 fair value estimate and narrow-moat rating.As always currency movements complicates an analysis of BBVA's results, even more so in this quarter--with the Turkish lira declining in value by 40% and the value of the Argentine peso collapsing by 60%. To make things even more interesting BBVA has been forced to follow hyperinflation accounting for its Argentinian operations (5% of BBVA's fiscal 2017 attributable profits), with the result that a significant part of the earnings it derives from Argentina bypass the income statement and is recognized directly in profit and loss. On a constant currency basis net attributable profit increased by 8%.
The results from Garanti in Turkey (15% of BBVA's fiscal 2017 attributable profits) does still not reflect the full impact of the country's currency crisis. Loan growth will all but disappear, margins will come under increasing pressure and loan losses will be much more. Garanti contributed 15% of BBVA's earnings in the 2017 fiscal year. As a reminder, our base-case view is that the fallout from the Turkish crisis is limited to three to four years of little or no contribution to BBVA's profits. At this stage we do not believe that Garanti will need to be recapitalized --that represents downside risk to our view. In our opinion, it is better to do a pre-emptive capital call rather than being forced by the market into a deeply discounted rights issue at severely depressed multiples.
BBVA's Mexican operation (5% of BBVA's fiscal 2017 attributable profits) continues to deliver strong results, with net attributable income in Mexican pesos growing by 25%. BBVA Bancomer continues to benefit from a moderation in loan losses.
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