BBVA and CEO Francisco González are pulling back the curtain in China. The bank has sold 5.1% of its local branch, Citic Bank, for 944 million euros. This gives BBVA an extra 131 million euros. It keeps 9.9% of Citic Bank, because owning more than 10% of another financial institution would increase BBVA's capital requirements for covering potential losses.
BBVA is partially divesting of stock positions where too much bureaucracy stymies efficient business and where it seems obvious that a real estate bubble is rising, which could harm the financial sector.
Still, the bank has no intention of fleeing China completely. Its goal is to optimize capital allocation by sharing assets that are less likely to yield a profit. Other firms have done the same thing. BBVA wants to be in top shape in 2014, a year in which European banks will have to pass new stress tests issued by the European Central Bank. Also, Basil III regulations will go into effect next year.
Although it will create a smaller dividend payout for shareholders, BBVA's decision to strengthen its capital reserves will show markets that the bank has weathered the crisis with some of the strongest cash reserves in the industry. BBVA will finish this year with around 2 billion euros of net profits, which is more than it collected in 2012.
More important, BBVA will not have problems meeting Basil III requirements in January 2014, because its core capital resources will exceed the 9% requirements of this new regulation.
