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BBVA: 2Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs. 2Q'19 Results
N.I.I.: € 4.097 Bn (-10.3% vs. -17.6% BS(e) and -9.8% consensus);
Total Revenues: € 5.561 Bn (-6.1% vs. -12.2% BS(e) and -7.3% consensus);
Operating Profit: € 2.967 Bn (0.0% vs. -16.8% BS(e) and -8.9% consensus);
Net Profit: € 637.0 M (-50.2% vs. -50.6% BS(e) and -55.4% consensus);
2Q'20 vs. 1Q'20 Results
N.I.I.: € 4.097 Bn (-10.1% vs. -17.4% BS(e) and -9.6% consensus);
Total Revenues: € 5.561 Bn (-14.2% vs. -19.9% BS(e) and -15.4% consensus);
Operating Profit: € 2.967 Bn (-16.8% vs. -30.8% BS(e) and -24.2% consensus);
Net Profit: € 637.0 M (-1792 in 1Q'20 vs. 631.0 BS(e) and 570.0 consensus);

The company reached € 637 M of Net Profit (-50% vs. 2Q’19), in line with our estimate (€ 631 M), but beating the consensus by around +10% (€ 570 M) thanks to higher trading revenues and lower costs. These two aspects mean Operating Income remained flat (vs. -8% consensus and -16% BS(e)), given that core revenues were in line (NII -10% vs. 2Q’19; fee revenues -16%). Costs were reduced by -12% (vs. -8% BS(e) and -5% consensus) due to the impact from the lockdown, with a strong reduction in the corporate centre costs.
CoR stands at 150bps, in line with the consensus (and vs. 130bps BS(e)), of which ~50bps stems from the increased provisions for Covid-19, totalling € 576 M in 2Q’20 (€ 2 Bn in 1H’20). Here, we see a bigger impact on Mexico, Spain and US. The increase in the provisions for Covid-19 stems from the revision of the macro scenario, although BBVA reiterates its CoR guidance of between 150-180bps.
Capital was a positive surprise, with CET1 at 11.22% (+38bps vs. 1Q’20) from mark-to-market in the bond portfolio and organic generation. It is now at the high end of the target range of 10.8-11.3%, although the company reiterates its decision not to pay out the dividend’20 until there is higher visibility.
By countries, solid performance in Spain and the US, thanks to better Operating Income, and weakness in Mexico and LatAm (strong economic downturn and rise in CoR). We expect a positive market reaction. Presentation at 09:30 (CET). SELL. Target Price: € 3.34/sh (upside 13.77%)