BBVA launches offer for rest of Garanti in bet on Turkey

BBVA has launched a €2.25bn bid to give it full ownership of Turkish lender Garanti, as the Spanish bank deepens its long-term bet on an economy whose currency has sunk in recent years.

The Spanish lender said on Monday that it had offered to buy the 50.15 per cent it does not already own of Garanti, Turkey’s biggest bank by market value. The price represents a 34 per cent premium to the average price of Garanti’s shares over the past six months.

The move is the most recent example of BBVA deploying some of the $11.6bn it netted from selling its US assets to PNC this year. The bank is also carrying out a previously announced €3.5bn share buyback, one of the largest in Europe, over the next 12 months.

“We are selling at a very, very attractive price in the US and we are buying at a very, very attractive price in Turkey,” Carlos Torres Vila, BBVA’s executive chair, told the Financial Times. “We are selling at 20 times earnings in the US; we are buying at 3.6 times earnings in Turkey.” He added that Garanti’s 20 per cent market share in Turkey compared with just 4 per cent for the assets BBVA sold in the US.

The deal takes place against a steep slide in value of the Turkish lira, whose purchasing power in euros has tumbled to about a quarter of what it was in November 2014, when BBVA agreed to pay €2bn for a 14.89 per cent stake in Garanti, a transaction that was completed in 2015.

Torres referred to the purchase price for the rest of Garanti as “very attractive”, emphasising Turkey’s status as a “strategic market” for BBVA. “This deal is not predicated on any change of environment,” he said of Turkey’s macroeconomic factors. “If there is any improved macro, that would be a bonus.”

He added that, despite the lira’s devaluation, Garanti had produced an annual average of €1.2bn-€1.3bn in net profits over the past five years. “You look at half of that, that is what we are buying: we are buying asset flow of €600m, north of that, I would say.”

BBVA’s move contrasts with last week’s announcement by UniCredit that it would complete its exit from Turkey by March next year through selling its remaining 20 per cent stake in the private Turkish bank Yapi Kredi. The sale is part of a broader push by the Italian lender to focus on its core markets.

Garanti, which has more than 21,000 employees and 1,000 branches, says it is the most profitable bank in the country, with return on equity of 19.3 per cent and a non-performing loan ratio of 4 per cent.

BBVA has controlled Garanti’s board since the 2015 transaction. It had previously bought a 25 per cent stake in the Turkish lender in 2010 and that holding rose to 49.85 per cent in 2017.

Capturing the rest of Garanti, which BBVA expects to be completed in the first quarter of next year, would also allow all of the Turkish bank’s capital to be taken into account in calculating BBVA’s capital ratios.

Turkey’s BIST 100 share index enjoyed its best day since March 2020 after Monday’s announcement, rallying by 4 per cent as investors were cheered by a rare international show of confidence.

The country has suffered an exodus in foreign capital in recent years.

Short-term investors have fled stocks and bonds over concerns about management of Turkey’s $765bn economy under President Recep Tayyip Erdogan, who has repeatedly pressured the central bank to slash interest rates despite chronic double digit inflation.

New foreign direct investment has slumped to the lowest level of Erdogan’s 19 years in power as international business has been scared away not only by the volatile economic backdrop but also concerns about the erosion of the rule of law and Turkey’s deeply strained relations with the west.