BBVA: Strategic Fit for Latin America

March 11, 2011

By Anne Friberg

BBVA presented to The NeuGroup’s LatAm Treasury Managers’ Peer Group recently and outlined how it serves MNC clients in the region. 

As the old “established” markets’ growth rates are slowing down, companies are looking for their next growth spurt in emerging markets. And banks who serve the needs of these multinationals are doing the same, while realigning their coverage models to emphasize global relationships that deliver all the bank’s geographies to the customer. Although Latin America is not enjoying quite the same levels of economic expansion as many countries in Asia, there is still plenty to be optimistic about in the region, and it is one where Spanish bank BBVA has been able to serve its clients from a position of strength.

increased stability and growth

Latin America has “broken with the past” in a variety of ways, said Joaquín Vial, BBVA’s chief economist for Latin America. Mr. Vial pointed to the region having passed several “stress tests” in the more recent past, including a speedy recovery from the recent financial crisis and consistent growth rates above the developed markets

More diversified trade relationships contribute to the increased stability, and the region’s economy is no longer heavily dependent on the US. Further, the expanding ranks of the middle class have also increased expectations of stability, ensured that measures to control inflation are in place, and forced politicians to promote mainstream, business-friendly policies. The
current line of thinking on the region is that pragmatism in politics and reforms that benefit the masses also contribute to peaceful transfers of power—as evidenced by the marked decline in market turmoil and volatility that used to
accompany election cycles.

financial strength

BBVA’s strong financial position makes it among the most highly rated banks globally. Currently, S&P rates it AA and Moody’s Aa2, which puts it in the top three with BNP Paribas and Santander.

The ratings reflect the bank’s diversified geographies and type of business, as well as its robust capital base. With an enviable 77 percent customer-deposit-to-loans ratio, the bank has very little reliance on the wholesale funding markets. It was one of only a few banks that survived the financial crisis without requiring any public or private recapitalization, and through the crisis it generated consistent profits.

Julio Ojea Quintana, head of clients USA, credits the bank’s strong performance to the global business model it operates and which he feels is “among the most efficient in the banking industry,” with an efficiency ratio below 43 percent.

REALIGNING FOR GLOBAL COVERAGE

Within five years, BBVA wants to leverage its strong financial position to triple the bank’s business. To do that, the bank’s US strategy is to focus primarily on multinational clients with a Latin American presence.

Like many other top banks, BBVA is moving to a global banking, or “customer centric,” model where the bank follows the customer to serve its needs in whatever markets it has a presence. This allows a global relationship banker, sitting at the top of a realigned client-facing team, to coordinate the delivery of products and services across all geographies and forge a more valuable, long-term strategic relationship for both sides.

BBVA is moving to a global banking or “customer centric,” model.

Corporate headquarters thus gets its point of view elevated to better control and coordinate activities centrally, while still being able to draw in local resources of a sound global bank to support local business needs. In Latin America, this cuts across an integrated platform in cash management and FX, where the bank has worked to enhance the speed of its execution, the number of currencies covered and offer greater depth in forwards, swaps and options through its own platforms and via integration with FXall.

By concentrating on clients in specific industries, the bank also hopes to become more customer centric in its understanding of sector-related finance needs. This model is responsible for delivering BBVA’s global franchise to the
clients by coordinating the relationship across geographies and products.

Integrated cash management

The one thing that continues to frustrate MNC clients in Latin America is how to overcome
inefficiencies related to regulatory restrictions, taxes and the many jurisdictions involved. Cross-border pooling is possible in a few countries, but where it would really make a difference for large corporates—in Brazil—it is still a distant prospect, according to Ignacio Escudero, head of global cash management sales.

A speedy recovery from the recent financial crisis and consistent growth rates shows how LatAm has broken with the past.

Next on the wish list is a higher degree of integration in banking platforms to make reporting and liquidity management easier. BBVA has been investing heavily in technology to achieve these objectives. The bank is also looking at innovative ways of providing payments and collections solutions, including using third-party non-bank correspondents (such as Walmart in Mexico) to offer reach in areas not served by banks. Mr. Escudero also noted that supply-chain financing and other ways to free up working capital is the new frontier in Latin America and the bank is aspiring to have a leadership position in this area.

Brazil the exception

BBVA overlaps almost perfectly with where most MNCs have most of their business, with the glaring exception of Brazil, where the bank has no branches or retail customers but a relatively large rep office. With more than 100 people (vs. 20,000 in Mexico), the Brazil office serves corporate clients with foreign currency and US dollar loans, trade finance and investment banking, including M&A, and for Brazilian clients, raising funds in the US or Europe.

However, it is unlikely for US and other foreign MNCs looking for a full range of service to award any Brazilian cash management business to BBVA. And it will continue to be the case as long as BBVA operates only through correspondent banks, and is unable do local payments and collections on its own. BBVA said that it is only a matter of time before the bank expands into
Brazil (likely through further acquisition).

Sharper scrutiny

Companies have emerged from the financial crisis with a new sense of purpose as it relates to risk. One result of this is that it has forced them to scrutinize their banks as closely as their banks had previously done their clients. Indeed, the crisis may be over but from now on the strength of a bank will forever be a crucial part of selecting long-term partners to support business growth across the world. Regional powerhouses like BBVA will serve an important middle ground between local banks and the global behemoths.

Considering BBVA’s financial strength, leadership franchise in Latin America, growing US presence and “customer centric” model, the bank is very well positioned to successfully enhance its partnership with US multinationals.

Growing out of Spain by acquisition

It used to be said that on every corner in Spain was either a bank or a bar. While the purveyors of sherry and tapas have stayed independent in the main, banks have gone through waves of mergers. Such is the case with BBVA which itself is the product of a merger of two banks, Banco Bilbao Vizcaya and Argentaria . Since 1995, the bank has expanded its presence to countries with “cultural, language and historical affinities,” meaning Latin America. This growth has been achieved by acquisition, starting in Peru in 1995 and then: 

  • Argentina and Colombia in 1996,
  • Puerto Rico in 1998,
  • Two banks in Chile in 1998 and 1999,
  • Venezuela in 1998,
  • A second and third bank in Argentina in 1998 and 1999,
  • Mexico in 2000.

 Since 2004, this mainly “Euro-Latin American” bank has also expanded in the US by acquiring several banks and now operates in this country under the name BBVA Compass, which is the largest regional bank in the Sunbelt and the 15th largest US commercial bank (based on deposits).

A good partner in Venezuela

Members of the LATMPG spend a disproportionate amount of their time dealing with Venezuela. Getting cash out through CADIVI, which controls approvals for FX purchases, for anything other than prioritized imports like food and pharmaceuticals, is fraught with uncertainty and delays.

BBVA has established itself as a key strategic and reliable partner both in advising companies on bidding for the various bond issues by the government or by the oil company PDVSA and in helping its clients to manage their local liquidity (both by taking deposits in local currency, which other global banks increasingly shy away from, and offering alternative investment solutions).

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