Santander, BBVA Revenue Up with Rates; BBVA Plans €781M Buyback

Key Takeaway

• Santander and BBVA report record revenues, with 10% and 18% increases respectively, benefiting from high interest rates in Europe.
• BBVA announces a €781 million share buyback program, reflecting strong capital position and commitment to shareholder returns.
• BBVA shares surge by 34% in 2023, outperforming the Stoxx 600 Banks Index significantly due to investor confidence.

Record Revenue Amid High Interest Rates

Spain's banking sector is experiencing a significant upturn, with the country's largest banks reporting unprecedented revenue figures. This surge is largely attributed to the benefits reaped from high interest rates across Europe. Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA (BBVA), two of Spain's banking giants, have led this trend with remarkable first-quarter performances. Santander reported a 10% increase in revenue, primarily driven by a boost in lending income, while BBVA announced an 18% growth in gross income, subsequently raising its profit guidance for the year. This positive trajectory is not limited to the larger banks; smaller institutions like CaixaBank SA and Banco Sabadell SA have also revised their annual targets upwards. The Spanish banking sector's robust performance comes after a decade of restructuring, which saw a significant reduction in branches and staff numbers, enhancing operational efficiency.

Strategic Diversification and Outlook

The Spanish banks' success is partly due to their strategic geographic diversification, which mitigates risks associated with fluctuating interest rates in different markets. For instance, Santander benefits from its presence in Brazil, where potential rate decreases could allow the bank to adjust deposit payments more swiftly than loan charges. Amidst this financial prosperity, bank executives remain optimistic about future quarters, undeterred by Spain's political uncertainties. Santander's CFO, Jose Garcia Cantera, expressed confidence in the bank's continued growth across all operational geographies. Similarly, BBVA's CEO, Onur Genc, has revised the bank's profit outlook to reflect expected "double-digit growth," buoyed by a strong first-quarter performance that surpassed analysts' forecasts.

Enhanced Shareholder Returns and Capital Strategy

BBVA's announcement of a share buyback program worth €781 million underscores the bank's commitment to rewarding its shareholders. This initiative is part of a broader capital strategy, leveraging the bank's €2.5 billion in excess capital to enhance shareholder value. The decision reflects BBVA's strong capital position and its intention to distribute excess funds effectively. Both BBVA and Santander's strategies highlight a focus on sustainable growth and shareholder returns, indicating a healthy financial ecosystem for Spain's banking sector.

Market Performance and Investor Confidence

The Spanish banks' stellar performance has significantly impacted their market standing. BBVA, in particular, has seen its shares surge by 34% in 2023, outperforming the Stoxx 600 Banks Index by a considerable margin. This growth reflects a high level of investor confidence in BBVA's strategic direction and financial health, setting a positive precedent for the sector. The bank's upward revision of its profit outlook and the strong first-quarter results have contributed to this optimistic market sentiment. As rival banks prepare to release their earnings, BBVA's achievements provide a benchmark for success in the current economic climate.

Street Views

• S&P (Bullish on Spanish banks):

  "Spain’s banks have finally been able to benefit in full from their earlier efforts to enhance efficiency."

Management Quotes

• Jose Garcia Cantera, CFO of Banco Santander:

  "He expects net interest income to grow 'quarter to quarter' in all of the geographies where the bank does business."