BUT BBVA Joy of takeover bid success Warranty. His Turkish bank is once again on the list of enterprise managers’ priorities when it comes to limiting balance sheet risk. Turkish lirathe currency of his large purchase, has begun to fall again in the markets and is moving towards all-time lows which in November 2021 was marked at 17.48 lira per euro and 16.35 per dollar. Coin falls by 10% in May, its worst month since the fall crisis of 2021 and its second worst month since the great turbulence of summer 2018.
The bank that presides Charles Torres The acquisition process was closed on May 18 through a public offer to purchase the subsidiary. BBVA acquired an additional 36.12% stake in Garanti and increased its participation from 49.85% to 86% of the capital, with a commitment of 22,757 million lire, or 1,360 million euros at the exchange rate last week. He has achieved such success despite a difficult journey that began in November 2021 and was marked by deep economic instability in Turkey under the government Recep T. Erdogan.
Since there is no evil that does not come to good, the crisis in the country laid the red carpet for his proposal and Shareholders of Garanti rushed to sell their shares at an improved price of 15 lire per share, starting at 12.2. Up to 3,223 investors were sold during the operation. For BBVA, the savings were significant (€300 million) compared to the original approach, despite having to raise the price by 23% at the time of the takeover bid. It was all thanks to the exchange rate between the euro and the lira, the same double-edged sword that now hangs over the Turkish company’s valuation.
A 100% stake in Garanti is now worth around 62,000,000,000,000 Lira. at the Istanbul Stock Exchange, about 3,500 million euros at the rate for this Thursday. The figure contrasts with almost 8,300 million euros, which he has invested since 2010 in his capital. Over the past four years, BBVA has allowed an accounting depreciation of €3,224 million due to depreciation of the lira, which since 2017 exceeds 70%. The Spanish education, far from retreating before the Turkish hornet’s nest, made a leap forward with a new leadership under the command of the Turkish Onur Gench as general manager.
Turkey will put pressure on the parent company in Spain
Genç was the architect of the operation with which seeks to erase the losses and historical error of the previous decade. Turkey has become a major international BBVA bet since the US exit. However, experts warn that traffic can be expensive now that he already owns 86% of Garanti shares and has completely immersed himself in the country. “Rising macro risks in Turkey could put pressure on BBVA’s creditworthiness and the likely application of hyperinflationary accounting would increase the volatility of reported earnings at the group level. Fitch this Wednesday.
Under these conditions, the rating agency believes that Garanti’s financial performance is better than that of its competitors in Turkey, although it recalls that this is partly due to the support of the main shareholder. “Has a history of strong financial performance backed by a solid national franchise, significant liquidity in foreign currencies and prudent capital reserves. We also recognize BBVA experience in risk management previous periods of high volatility in Turkey and emerging markets,” Fitch adds in the report, in which it believes the BBB+ rating (three notches above a junk bond) remains safe in the short-term scenario.
As this newspaper reported, the weight of developing countries is now much more relevant than before for the Spanish organization. In the first trimester Mexico brought in a profit of 777 million euros and took the lead ahead of Spain (601 million) and Turkey (249 million). South America, which includes Peru, Argentina and Colombia, among others, generated $158 million in profits. According to Fitch, NPL ratio (4.3%) remains high compared to the European average, “although this offset by wider spreads in emerging markets and historically high loss provision coverage.”
Turkey is on the brink of hyperinflation after its main price evolution index was in orbit for eight months, rising from 20% year-on-year to 70% at the latest. Erdogan’s decision to take control of the central bank and cut interest rates instead of raising them is at the heart of the problem, independent observers warn. Although he GDP grows at a rate of 9% -well below the rate of inflation – unemployment has begun to decline in recent months and amounted to 11.5%. Economic evolution refutes from top to bottom all the theses expressed by Erdogan, although his presidency has no counterbalance.
This is a big risk that the second largest Spanish bank is now taking on and therefore, as the Bank of Spain warned in its latest reports, the entire banking system of the country. “Given the hyperinflationary environment in Turkey, BBVA’s capitalization is now more sensitive to Garanti’s ability to generate positive results in real terms,” Fitch’s latest analysis says. a foreign investor in this country through Garanti and its major financier through its banking system.
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