Asia is just one of the regions where BBVA wants to grow its footprint. CEO Francisco González tells Karina Robinson what buying stakes in China’s CITIC banks will achieve.

BBVA’s acquisition of a stake in Chinese banks CITIC and CITIC International, both controlled by Chinese conglomerate CITIC, does not mean the Spanish bank is ruling out other acquisitions, says chairman and CEO Francisco González. “We are open to all areas of the world. It is evident that Spain, which [accounts for] 45% of profits, should not be more than 20% in four to five years. Thus we want to grow in Latin America, where we believe a more normal business cycle has taken over from the old boom-bust cycles, and in the US and Asia, and if opportunities arise, in eastern Europe or Turkey,” he says in an interview in the bank’s Madrid headquarters.

BBVA, which posted third quarter results in October in line with market expectations, announced in November a €3bn placing of new shares with large institutional shareholders in an effort to increase its depleted core capital to its target of more than 6%. Analysts believe that the bank is also ensuring it is in a position to take advantage of other acquisition opportunities.

In the past two-and-a-half years, BBVA has bought a mortgage company in Mexico and made acquisitions in both Colombia and Chile. Additionally, it bought three US banks to leverage its franchise for remittances and other services to immigrants.

Equity research firm Keefe, Bruyette & Woods said in a report following the bank’s Q3 results that the bank “is one of the few large capitalisation stocks with organic revenue-driven EPS [earnings per share] growth above 20%, with high-quality 35% return on equity and a proven track record of disciplined acquisitions”. The research firm, which is advising its clients to buy the shares, expects the bank’s share price to rise to €23 from the current €19.

Strategic stake in Chinese banking

The bank’s acquisition of 5% of China’s CITIC Bank (CNCB), the seventh largest by assets on the mainland, and 15% of CITIC International Financial Holdings (CIFH), which is listed in Hong Kong, represents the latest in a series of strategic stake-buying by foreign banks in Chinese ones. Mr González disagrees with critics who say the bank overpaid for its stakes by buying at 3.3 times book value versus comparable acquisitions by other foreign banks at 2.3 times. Analysts say CNCB, a mainland institution, is one of the better managed Chinese banks.

“This is the start of a marvellous adventure. The China theme is strategic, not financial, although it has to be said that if we sold the CIFH stake now, the price is already 10% up on our acquisition price,” says Mr González.

BBVA paid €501m for the stake in CNCB and €488m for the stake in CIFH. It has the option to increase its stake in CIFH from 15% to 35% and in CNCB from 5% to 9.9%. The latter is planning an initial public offering in the middle of 2007.

The combined assets of the CITIC banks come to €71.5bn. They have more than 15,000 employees and 454 branches throughout mainland China and Hong Kong.

Joint venture planning

The new banking partners are currently exploring a number of joint ventures in both the retail and wholesale areas, including leveraging BBVA’s Latin American franchise on the back of the interest of Chinese companies in the commodity-rich continent.

As for BBVA’s arch-rival Santander, Mr González is sanguine. “Of course, it is a great rival, but our main rival is ourselves and our ability to change. Rivalry in financial services is no longer about losing market share to competitors. It is about increasing revenue from other sources, not only the financial world,” he says.

“We consider ourselves a distribution company,” he adds.

The bank denies it is interested in a merger with a bank such as Bank of America. “We are not, today, interested in a merger. We are creating value by ourselves,” says Mr González.

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