In the first quarter of 2014, the BBVA Group’s earnings have been negatively affected by the year-on-year changes in exchange rates against the euro of the currencies with an impact on the Bank’s financial statements. This quarter the impact was lower than in the last twelve months, except for the Venezuelan bolivar and the Argentinean peso. In the case of the bolivar, this was due to the application of the currency purchase-sale system called SICAD I, which has reduced the final exchange rate of the Venezuelan currency against the euro by 41.2% over the quarter (the system called Cadivi was in force until December 2013). In the case of the Argentinean peso, it was due to its depreciation (down 18.6% since 31-Dec-2013). Other highlights of the quarter are summed up below:
1. From the point of view of earnings, revenue continued to perform well and increased above the rate of expenses. This combined with lower loan-loss provisions led to strong growth in net income from ongoing operations of 18.7% year-on-year (76.1% without the exchange-rate effect).
2. In activity South America, Mexico and the United States loan book showed once more a strong performance. In Eurasia, the volume of credit with wholesale clients was stable, and Garanti’s loan portfolio growth slowed down. In Spain the deleveraging process continued, although at a more moderate pace than in previous quarters, as the flow of new loan transactions has begun to grow in some segments. The trend in customer funds remains favorable in all geographical areas.
3. In terms of solvency, the new CRD IV regulation that took effect in 2014 has had a limited impact on the Group’s solvency ratios, which are at levels far above the minimum required and compare very positively with its peer group. BBVA continues managing actively its capital. In line with this, is worth noting the two issues that have strengthened the capital base and contributed to optimize its structure under CRD IV (more detailed information in the Capital Base and Corporate Center sections). It is also worth noting that BBVA Compass has passed the stress tests carried out in the United States and thus its capital plans have been accepted with no objections by the Federal Reserve (Fed).
4. The quality of the loan portfolio behaved well between January and March 2014, with a reduction in the NPA ratio due to a decline in the non-performing loans, basically in Spain. The Group’s coverage ratio remains stable. Lastly, there was an improvement of 32 basis points in the risk premium over the quarter.
5. Other relevant highlights in the quarter include:
- The Annual General Meeting was held on March 14, 2014 with attendance at 63.2%, much in line with previous years. The average backing in voting for the items on the agenda was over 98%, with massive support from both institutional and individual shareholders. BBVA´s management has thus once again received very strong support during the difficult year of 2013.
- With respect to shareholder remuneration, a capital increase against reserves approved by the AGM was executed in April to implement the system of shareholder remuneration called the “dividend option”. This offers BBVA shareholders the chance to choose between receiving the amount equivalent to the traditional final dividend in either new BBVA shares or in cash, for a guaranteed amount of €0.168 gross per share. The holders of 89.2% of the free allocation rights opted to receive new shares, which once more confirms the success of this remuneration system.
- Acquisition of Simple, the U.S. company that has created a new model for digital banking. This operation is part of BBVA’s strategy to lead the technological transformation of the financial industry. The deal values Simple at US$ 117 million.
- Boost to BBVA’s transformation process with the creation of the Digital Banking business area, headed by Carlos Torres. It has been created with the double mission of speeding up the Group’s transformation and boosting the development of new digital businesses. In addition, BBVA has appointed Jaime Sáenz de Tejada CFO and head of Strategy. A new division has also been set up that includes the global lines of the retail business and the South America franchises, headed by Ignacio Deschamps. Cristina de Parias joins the Management Committee as head for Spain and Portugal. These organizational changes do not affect the Group’s reporting structure, which is basically the same as in 2013.
- Moody’s has upgraded BBVA’s rating by one notch to Baa2 and has changed its outlook to positive from stable.
