EUR 850.00 For Business Accounts Only

Morningstar | BBVA's long-term fundamentals remain intact despite short-term volatility.

We believe that Banco Bilbao Vizcaya Argentaria, or BBVA, will generate higher midcycle profitability than its peers, supported by its market-leading positions in attractive banking jurisdictions, notably Mexico. We do not believe that this superior profitability comes with higher risks, as BBVA's geographical diversification and its retail and commercial focus mitigate against risk.BBVA emerged as one of Europe's strongest banks after the 2008 financial crisis, mainly because it is largely a retail and commercial bank, with corporate and investment banking making a relatively smaller contribution. In addition, its earnings are dominated by the contribution from emerging markets, which offsets the weak contribution from its historical Spanish home market. Apart from the diversification that BBVA's emerging-markets operations bring to its earnings, its emerging-market businesses are also highly profitable. This is especially true for the Mexican business, BBVA Bancomer. We believe that the high profitability BBVA enjoys in Mexico allows it to take relatively less risk in the whole group. It allowed BBVA the luxury of avoiding chasing the risky higher returns available in capital markets prior to the financial crisis. The near-term outlook for BBVA is clouded by the unfolding crisis in Turkey. We believe that earnings at BBVA's Turkish subsidiary Garanti will be decimated in 2019, and we anticipate that the recovery will be slow. The main risk for BBVA will be that the Turkish crisis transforms to a full-blown emerging-market crisis that also affects BBVA's operations in Latin America. The conclusion of a revised trade deal between the U.S. and Mexico will come as a welcome relief for BBVA, and Mexico should continue to benefit from the strong American economy. In Spain, BBVA should at some stage benefit from a return to normal monetary policy by the European Central Bank.