‘A trophy asset’
BBVA Compass has made a big impression in Houston with sponsorships, volunteering
THE ubiquitous BBVA Compass logo adorns a glittering 22story office building near the Galleria, the Dynamo soccer stadium in east downtown and 77 regional branches across the Houston area. Roughly 1,300 employees can be found volunteering in local schools or fixing up houses in the East End.
The bank has developed a formidable Houston presence in just over a decade, and that extends beyond sponsorships and volunteering. In terms of deposits, it’s the area’s fourth-largest bank behind behemoths Chase, Wells Fargo and Bank of America.
“We think of our Texas investment as really a trophy asset for the BBVA organization,” chairman and CEO Manolo Sánchez said in a recent interview to discuss the bank’s local role.
Citing a “flagship commitment to Houston,” Sánchez stressed that the bank is here for the long haul. He pointed to the bank’s $8 million donation to the Museum of Fine Arts, Houston, for a roof top garden at the new Glass ell School of Art.
BBVA Compass is the lead corporate sponsor for the MFAH’s Degas exhibit that continues through Jan. 16. Karen Dixon, the Houston global wealth executive, recently visited the exhibit to discuss art and the bank. Behind her lectern hung one of Edgar Degas’ earliest paintings, an 1855 portrait of his brother. Deeper into the exhibit were his renowned ballerinas.
“We recognize the lifechanging power of art and strive to make it accessible to everyone,” Dixon said. “So a lot of our community programs are structured around making sure that we help children, and help people who can’t afford to get to the museum, get here to experience this beautiful place.”
The deal that vaulted the bank to such a prominent position locally — the 2007 purchase of Compass
BBVA Group “paid top of the market, top price for Compass … a nosebleed price.” Jeff Davis, Financial Institutions Group for Mercer Capital
Bancshares — was quickly followed by the deep and long-lived recession. Like other banks, it more recently has hit a rough patch induced by the collapse in oil prices. Net income for the first nine months of this year was $282 million, down 32 percent from the same period last year.
Nonperforming loans, essentially problem loans, totaled $1.2 billion in the third quarter, or 1.91 percent of the bank’s total loans. That’s up from $455.2 million, or 0.75 percent of total loans, for the same period last year.
Yet, Sánchez said, the downturn proved the state’s diversification because most of the nonperforming loans are energy loans. There’s been very little contagion in other sectors.
He remains bullish on Texas and the state’s economic performance. Entering the U.S.
Spain-based BBVA Group entered the U.S. banking market in 2004 when it bought Los Angeles-based Valley Bank for $16.7 million. Early Texas purchases included Laredo National Bank, completed in 2005, followed by Texas State Bank and State National Bank.
The $9.1 billion purchase of Compass Bancshares gave BBVA Group a large Sun Belt footprint, and it shook up energy lending in Houston, said Dan Bass, managing director of investment banking for bank advisory firm Performance Trust Capital Partners.
Compass Bancshares never had the balance sheet to lead the underwriting of large energy loans. The combined bank had that capability, and executives wanted to operate like a big bank rather than a community bank, Bass said.
The bank’s holding company, BBVA Compass Bancshares, with roughly $90 billion in assets, is headquartered in a branded building near Houston’s Galleria that is visible from the West Loop. Its subsidiary, BBVA Compass, with roughly $85 billion in assets, remains based in Birmingham, Ala.
The bank has 674 branches: 345 in Texas, 89 in Alabama, 75 in Arizona, 62 in California, 45 in Florida, 38 in Colorado and 20 in New Mexico.
The purchase of Compass Bancshares, however, came at the height of banking acquisitions. It was finalized right before the U.S. banking system collapsed and the country entered a deep recession.
“They paid top of the market, top price for Compass,” said Jeff Davis, Nashville-based managing director of the Financial Institutions Group for Mercer Capital. “It was a nosebleed price.”
BBVA Compass Bancshares later made accounting moves that, essentially, indicated the price it paid for Compass Bancshares was no longer justified by the earnings the acquired bank produced. It wrote off billions of dollars as impairment charges.
Roger Turro, a director at Fitch Ratings, said BBVA Group likes to have a critical mass in the markets it operates. Buying Compass Bancshares gave it that mass in the U.S., he said, but the impairment charge means “it did not reach what it wanted.” It indicates financial targets weren’t achieved.
Sánchez acknowledged that BBVA Group paid a lot for the deal, but he said the bank’s analysts did their homework when entering the U.S. and successfully avoided problem markets. If BBVA Group had made such significant investments in Florida or California, states hit especially hard by the housing crisis, Sánchez said the bank likely wouldn’t have survived. The same goes for avoiding subprime lending.
“We saw that the (subprime) business model was not sustainable,” he said. “From a compliance perspective, from the kind of viable position for the consumer, it wasn’t something we wanted to invest into.”
The investment in Texas, he said, was based on factors such as population and export growth. For many years, Texas outpaced the U.S. in terms of job growth.
Analysts also considered the state’s proximity to Mexico, where BBVA Group has a large presence. The bank has since created a strong program for Mexican and other foreign residents seeking mortgages in the U.S. Dodd-Frank’s effects
Like many bankers, Sánchez also has pointed to new banking regulations as a burden. He complained about the DoddFrank Wall Street Reform and Consumer Protection Act that was signed into law in 2010. The Durbin amendment, for instance, cost the bank millions in revenues as stores began paying less in fees for customers who shopped with debit cards.
He acknowledged the law’s successes, too, as it was meant to prevent such financial meltdowns. But after last month’s presidential election, a bank spokesperson said executives expect the new administration to support some type of rollback of Dodd-Frank.
“BBVA Compass looks forward to working with Congress to make prudent adjustments to DoddFrank that take into account all we have learned about the impact of the new laws and the evolution of the industry since 2010,” the spokesperson said in an email.
BBVA Compass Bancshares reported sizable losses in net income in 2009, 2010 and 2011 as it wrote down its high purchase price of Compass Bancshares and set aside money for problem loans caused by the recession.
It has since turned a profit but is reporting weaker net income this year as the bank deals with problem energy loans. In the third quarter, it set aside $65.1 million for such loans, up from $29.2 million for the same period last year.
That provision for loan losses is down, however, from $86.7 million in the second quarter of this year, $113.2 million in the first quarter and $76.3 million in the fourth quarter of last year.
Fitch Ratings senior director Julie Solar said the bank’s earnings are in line with expectations. BBVA Compass Bancshares generally has weaker earnings than other regional banks, but that’s normal for foreign-owned banks.
Its energy portfolio was $3.3 billion at the end of the third quarter, down $410 million from the second quarter and $829 million from the first quarter.
The bank’s energy port- folio represents 5.5 percent of its total loan portfolio, compared with 6 percent at the end of the second quarter and 6.7 percent at the end of the first quarter.
Sánchez emphasized the bank’s conservative energy lending practices. To keep regional issues from spreading throughout the organization, BBVA Group wants its subsidies to run independently from the parent company in terms of capital and funding, Fitch Ratings’ Turro said.
He said there aren’t really issues in Spain that could affect BBVA Compass Bancshares in the United States.
Davis, with Mercer Cap- ital, said the bank’s earnings should perk up next year barring something “cataclysmic” happening to the price of oil or the broader economy.
“I think they’re very much through the worst of it,” Davis said.