Following the announcement of the acquisition of the failed Guaranty Bank by BBVA Compass, Moody’s has affirmed its current downgraded ratings on the company. BBVA Compass is a wholly-owned subsidiary of Banco Bilbao Vizcaya Argentaria (BBV).
Though the rating agency reaffirmed its negative outlook, it said that the acquisition of $12 billion in Guaranty Bank assets will significantly strengthen the bank’s presence in Texas, which housed 105 Guaranty bank branches. The acquisition would take the bank deeper into Texas and California, accelerating the company’s strategy to become a regional U.S. bank.
BBVA Compass will receive an additional investment of $440 million from its parent in the form of common stock as a result of the transaction.
Currently, the company’s long-term issuer credit rating is Aa3, and its financial strength rating is B-. The overall outlook on the company is negative.
The negative outlook mirrors the risks related to the company’s exposure to consumer loans, mortgages, home equity lines and loans, as well as credit cards. If the economic turmoil worsens further, the company’s exposure to these loans might lead to losses causing weaker results, which may strain the company’s capital base.
Despite having problem loans in its portfolio, last month the group (BBVA) reported a 35% rise in net profit in the second quarter. In addition, the bank has improved its position in all its markets by strengthening relationships with customers. This is borne out by its increased market share of savings and current accounts in the three main retail areas: Spain & Portugal, Mexico and South America.
BBVA’s capital base is sound. Despite the complex economic situatio,n it maintains its capacity to generate capital in an organic and recurrent manner. It is the only one of the 28 big European and American banks that did not need government aid or fresh capital in the crisis.
Zacks Investment Research
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