Rates Stop Falling, Volume Keeps Compounding: Initiating BBVA at Outperform

Results vs. Consensus

Q1 2026 Scorecard

BBVA is a euro-reporting IFRS bank, and the consensus that matters is the euro-denominated sell-side poll on group net attributable profit and net interest income. That is the basis the Madrid line trades against and the basis used below. The bank reports before the European open; the print landed on the morning of April 30 and the call followed the same morning.

Two rows deserve a flag before anything else. The ADR earnings line is the same quarter translated into dollars, so it corroborates the euro beat rather than adding an independent one; we show it because it is the figure most US readers will see quoted. Separately, a widely syndicated "revenue miss" of −25% is a basis artifact and is not used here: it differences a vendor's revenue definition against a number that corresponds to neither gross income nor net interest income for this quarter. Every euro-basis source shows revenue ahead. We use the filed income statement throughout.

Year-Over-Year Comparison

The right-hand column is management's constant-currency presentation, which is how the bank frames every operating comparison. The reported column is what actually hit the P&L. The gap between them, roughly four points at the revenue line, is the currency translation of Mexican, Turkish and South American earnings back into euros.

Quarter-Over-Quarter Comparison

Sequential moves below are in reported euros against the fourth quarter of 2025. Management's own sequential figures on the call were quoted at constant FX and therefore run several points lower; the two are not interchangeable.

Segment Performance

BBVA reports five geographic areas plus a Corporate Center, with a pro-forma cross-cutting view of Corporate & Investment Banking laid over the top. Note that the 2025 comparatives below were restated in the first quarter for an internal resegmentation that moved certain commercial customers into CIB; group consolidated figures were unaffected.

Business-area totals and group differ by the Corporate Center and rounding. Türkiye's constant-currency change is not meaningful because of hyperinflation accounting. The CIB line is a pro-forma overlay that cuts across the geographies and excludes hyperinflation accounting and the Venezuelan wholesale business; it is not additive to the areas above.

The comparative column in BBVA's business-area indicator blocks is December 31, 2025, meaning the full-year 2025 ratio, not the first quarter of 2025. Comparisons above are stated on that basis.

Spain

Spain cleared €1bn of net profit for the quarter at €1,095M, up 8.1%, on gross income of €2,653M. The composition is less exciting than the headline: net interest income grew only 3.6% and fees 3.5%, with net trading income up 20.0% doing a disproportionate share of the work. Loans grew 6.3% year on year and 1.2% sequentially, with mid-sized companies up 2.7% in the quarter. New loan production was up 5% year on year, consumer up 11% and CIB up 12%.

The deposit franchise is the underappreciated part. Deposits grew 7.9% year on year, of which demand deposits contributed 5.6%, and the bank added roughly 250,000 clients in the quarter after close to a million in 2025. Management's own framing of why that matters is a conversion statistic rather than a balance statistic.

"What we see is that when we onboard clients, 30% of the onboarded clients after 6 months bring either a payroll or pension product. These clients become active clients, more valued clients, 70% of them after 6 months. So really, this goes back to our bread and butter of customer acquisition, where we are #2 bank in Spain in client acquisition also this year and last year." — Luisa Gómez Bravo, Group CFO

Set against that, the bank is deliberately losing mortgage share, down 27bp over the year, on the view that the Spanish market is mispricing the product. That is a defensible choice and a visible drag on reported loan growth. Costs rose 9.7% but only 4.8% excluding the redundancy charge, which mostly landed here and in the Corporate Center.

Assessment: Spain is the low-beta half of the story and it is doing what it needs to: funding itself cheaply, converting new customers into product holders, and staying out of a mortgage price war. The 3.6% NII growth looks thin, but two-thirds of the mortgage book reprices every six months and roughly 46% is floating, which means Spain has already absorbed most of the downward repricing that peers are still working through. Spain is the option on Euribor, and management chose not to sell that option in the guidance.

Mexico

Mexico produced €1,453M, 44% of business-area profit, on gross income of €4,274M. Growth of 9.3% in reported euros flatters a constant-currency 4.5%, because the peso was stronger than plan. Net interest income grew 8.3% at constant FX against loan growth above 10% excluding currency, with the shortfall explained by a 19bp sequential decline in customer spread. Roughly 7bp of that 19bp was mix rather than price: the quarter grew faster in enterprise lending than in credit cards, which is normal after a heavy fourth quarter of card promotion.

The efficiency ratio of 30.8% remains the best in the group and among the best of any large bank anywhere. Cost of risk at 345bp was flat sequentially and in line with the roughly 340bp full-year guide.

"As shown on this slide, customer spreads show strong resilience even as the reference rate has declined by 225 basis points since March of last year. We expect rates to bottom out this year at 6.5% from 6.75% currently." — Luisa Gómez Bravo, Group CFO

The deposit-cost question got the most substantive answer of the call. Cost of deposits rose to 2.12% from 2.09%, which looks wrong in a falling-rate quarter until you see that time deposits grew 26% year on year. Management is deliberately swapping wholesale funding for corporate time deposits now that rates are low enough to make deposit competition affordable.

Assessment: The quarter's Mexican loan growth of 2.6% sequential, achieved in what management described as a macroeconomically soft quarter, is the number to hold onto. Annualized, it is ahead of the year-on-year figure, which means the trajectory is improving, not decaying. Combined with a policy rate 25bp from its floor and a corporate pipeline that management says is finally showing long-term funding demand from the government's infrastructure program, the upward bias on loan growth looks credible rather than promotional. The concentration risk is real and unhedged by anything except diversification of the other 56%.

Türkiye

Türkiye earned €263M against €158M, and the 66.1% growth is the largest in the group, driven by wider lira customer spreads as deposit costs fell faster than loan yields. The efficiency ratio improved sharply to 39.6% from 44.4% for full-year 2025. Yet this is the one area where guidance moved the wrong way, and the reason is macro assumptions rather than performance.

"We were very clear in the fourth quarter results presentation, basically telling you that we are expecting EUR 1 billion with clear assumptions behind that on the macro parameters… 25% inflation, 32% December 2026 interest rate and 19% depreciation of the Turkish lira versus euro… we recently increased our inflation expectation in Turkey from 25% to 28.5%. Given the change in the macro parameters, it's a reflection of that basically, nothing more." — Onur Genç, CEO

Management supplied the sensitivity grid to go with it: roughly €40M per percentage point of interest rate, €15–20M per point of inflation, and about €20M per point of currency depreciation. NPLs rose 25bp in the quarter to 4.1% on retail inflows, and cost of risk of 253bp was 238bp excluding the post-model overlay, against a full-year guide of about 200bp that is explicitly back-loaded to improve in the second half.

Assessment: The disclosure quality here is unusually good, and the market should reward it rather than punish it. Management did not quietly reset the guide; it published the assumptions the guide was built on, changed one of them, and let the reader do the arithmetic. A 3.5-point inflation reassumption at €15–20M per point explains most of the bias by itself. That said, Türkiye is the group's highest-torque exposure to a conflict whose duration nobody can underwrite, and the retail NPL inflow is a genuine early-warning signal rather than an overlay.

South America

South America delivered €249M, up 16.3% in reported euros and 33.8% at constant FX, with the wedge showing how much currency drag the region carries. Net interest income grew close to 14% sequentially on loan growth and spread expansion in Argentina and Peru. Efficiency improved markedly to 41.6% from 44.4%. The offset is credit: cost of risk of 276bp against a below-250bp full-year guide, with Argentina's retail book the identified source and improvement not expected until the second half.

Assessment: The region is running ahead of guidance on revenue and behind it on credit, which is the normal shape of an Argentine recovery. The reiteration of the sub-250bp full-year guide against a 276bp first quarter is the most stretched commitment management made on this call, and it is the one to grade next quarter.

Rest of Business

The smallest area is the fastest-growing and the least modelled. Net profit of €236M rose 36.0% at constant FX on lending growth of 54.5%, with corporate lending at 77% of the book and up 10% sequentially. Efficiency collapsed from 49.0% to 40.2% as revenue outran a cost base built for a larger business. Cost of risk of 30bp against 15bp for 2025 reflects specific exposures rather than a trend, on a book with a 0.1% NPL ratio and 197% coverage.

This area houses two very different things: cross-border CIB conducted outside the core footprint, and the digital banks in Italy and Germany. Italy has reached 900,000 customers since a 2021 launch, Germany over 100,000 since mid-2025, and both are still loss-making with no disclosed break-even date.

Assessment: Guidance for this area was raised from roughly 20% to above 30% loan and revenue growth, the largest proportional upgrade in the guide. It is also the only place where BBVA is compounding a genuinely new franchise rather than optimizing an old one. The lack of standalone digital-bank economics is the single biggest disclosure gap in the report, and it cuts both ways: the drag on NII growth in this area is acknowledged by management, so the CIB piece is growing faster than the reported line implies.

Key Topics & Management Commentary

Overall Management Tone: Confident and unusually specific, with the confidence located in activity rather than in rates. Management repeatedly separated what it controls from what it does not, raising guidance only where the driver was volume and declining to raise it where the driver would have been Euribor. Where the news was worse, on Türkiye and on provisioning, the framing was quantitative and pre-committed rather than defensive: the sensitivities were published before the assumption changed. The least convincing passages were on the digital banks, where the answer stayed at customer counts, and on the post-model overlay's country split, which was withheld.

1. The Rate Cycle Bottoming Out Is the Whole Thesis

For two years BBVA has been running a treadmill: strong volume growth partly cancelled by spread compression as central banks cut. Mexico's policy rate has fallen from 11.25% to 6.75% and management sees 6.50% as the floor. Spain's floating book has largely finished repricing. The claim on this call is that the treadmill stops.

"And looking forward, it's important to mention that we are already seeing the bottom of the rate cycle in both countries… if the rates have reached their bottom more or less in both countries, this implies continued NII growth, obviously, with sustained activity levels." — Onur Genç, CEO

Management tied this directly to the 2025–2028 plan when asked about the shape of the ROTE path: "the key driver of the numbers and the strategic plan is the fact that we do expect rates will be bottoming out in Europe and Mexico in the 4-year period. And once rates bottom out… spreads will not be declining anymore. Activity growth will be directly flowing to the bottom line."

Assessment: This is the single most important sentence of the quarter and it is a falsifiable one. If spreads stabilize, 17% loan growth converts into something close to 17% NII growth instead of the 20.2% that currently depends partly on volume outrunning price. If the ECB or Banxico cuts further than expected, the plan's central mechanism weakens. The whole four-year ROTE bridge rests on it, which makes quarterly customer-spread disclosure the metric to track above all others.

2. Seventeen Percent Loan Growth, and Where It Actually Came From

Group lending grew 17% at constant FX and 4.0% in the quarter alone, with gross loans and advances to customers of €491,614M. The composition matters: wholesale drove the quarter, with business lending up 5.2% at group level against 2.2% for individuals. Total assets reached €894,267M, up 15.7% year on year.

By area the picture is uneven: Spain +6.3%, Mexico +8.4%, Türkiye +45.3% in lira, South America +15%, Rest of Business +54.5%. Risk-weighted assets grew to €408,854M and consumed 34bp of CET1 in the quarter.

Assessment: Growth this fast in a bank this size is either a franchise story or a risk story, and the honest answer is that it is currently both. The reassurance is that RWA growth is being funded out of organic capital generation while the ratio still rose 13bp, and that management explicitly frames growth as subject to a jaws test. The caution is that group provisions grew 35% at constant FX in the same period, and lending books do not season in a single quarter.

3. Mexico Deposit Costs Rose in a Falling-Rate Quarter, on Purpose

Cost of deposits in Mexico went to 2.12% from 2.09% sequentially, an odd-looking number that drew a direct question. The explanation is a deliberate funding-mix switch.

"We said it before… when interest rates are quite high, we would rather fund ourselves from wholesale funding from the market rather than pure deposits because we don't want to be triggering too much of deposit price competition in the market. But when rates come down, which is the case at the moment… we would be a bit more competitive and get more deposits because we can afford the increase of prices in the market in that sense." — Onur Genç, CEO

Time deposits grew 26% year on year, concentrated in corporate and mid-sized company relationships, while wholesale funding fell relative to what it would otherwise have been.

Assessment: This is a good trade executed at the right point in the cycle, and it is worth noting how it will look in the data. Reported deposit cost will keep drifting up while total funding cost falls, which means anyone tracking deposit beta in isolation will draw the wrong conclusion for the next several quarters. It also builds the funding base for the loan growth management is guiding to, which is the part that matters.

4. USMCA: Three Scenarios, and Why the Middle One Is Fine

With roughly 44% of business-area profit in Mexico, the July decision point on USMCA is the largest identifiable binary in the story. Management laid out the decision tree in more detail than the question required.

"So this year, until July, there will be a decision on whether they extended another 6 years, but overall 16-year contract to 2042… If the parties do not agree on the full terms… there is going to be an annual periodic review without the extension of additional 6 years… And then there is a third scenario where the contract is basically discarded. They cancel the contract. We don't think that the third scenario of canceling the agreement is on the table at all." — Onur Genç, CEO

The supporting argument was competitive rather than political: Mexico's effective tariff into the US is 7.2% against 18% for the rest of the world and 45% for China, Mexican exports rose 6% in 2025 and continued gaining share in the first two months of 2026, and US corporates have publicly backed the agreement in submissions to the Trade Commissioner.

Assessment: The relative-tariff framing is the right one and it is the piece most commentary misses. Mexico's advantage is not the absolute level of its tariff but the 11-point and 38-point gaps to its competitors. A rollover under annual review preserves that gap. The residual risk is that the annual-review scenario removes the multi-year certainty that long-duration corporate capex requires, which is precisely the demand management says it is now seeing in the pipeline.

5. The €98M Overlay and the Question of What Is Actually Deteriorating

Group cost of risk rose to 154bp from 130bp a year ago. Of the increase, roughly 7bp is a management overlay rather than observed loss: the filed report records "an adjustment amounting to €98 million, motivated by the high geopolitical uncertainty associated with the conflict in the Middle East, particularly due to its duration and scope." Excluding it, group cost of risk was 147bp and Türkiye's 238bp against 253bp reported.

"We haven't seen in the cost of risk numbers that we provided any signs of distress or pressure in terms of the outstanding credit. The PMA that we've done of around EUR 100 million is more on the cautionary side. We have very limited exposure to — direct exposure to Middle East… We've identified 12 subsectors that are most exposed, electric power supply, transportation, steel, cement, your typical sectors that would be more exposed to the context of elevated energy costs and weaker demand and higher rates." — Luisa Gómez Bravo, Group CFO

The underlying credit data is genuinely benign at group level: NPL ratio improved 6bp sequentially and 24bp year on year to 2.6%, and coverage rose 129bp in the quarter to 86%. The deterioration is localized in Türkiye retail and Argentine retail.

Assessment: The overlay is defensible and the sector-level work behind it is more concrete than most banks disclose. But the arithmetic that should worry an investor is not the overlay: it is that ex-overlay cost of risk of 147bp is still 17bp above the year-ago level, and impairments grew twice as fast as revenue. A book growing 17% will mechanically carry higher stage-1 provisioning, and that is most of the answer. The part that is not growth-driven is the Türkiye and Argentina retail inflow, and that is the piece to watch.

6. Costs Grew 17.5%, and Management Refused to Apologize for It

Operating expenses grew 17.5% at constant FX, or 13.9% excluding the €125M voluntary-redundancy charge, against weighted-average footprint inflation of about 9%. That gap drew the sharpest question of the call, and the answer was a statement of philosophy rather than a promise to cut.

"If you grow, you have to deliver that growth. You might be increasing your costs, but you have to deliver that cost increase by having more revenues. And we are not very short-term oriented. We can wait, but that has to happen. And every growth should lead to capital — organic capital generation. That's the mindset that we have… Comparison with inflation, obviously, is less relevant as long as you, again, drive that growth with the organic capital generation that comes with it." — Onur Genç, CEO

The restructuring itself affected roughly 750 employees group-wide with an approximately three-year payback, booked mainly in the Corporate Center and Spain, and was already inside the guidance given at the start of the year.

Assessment: Positive jaws at 18.3% revenue against 17.5% costs is a thin 80bp of operating leverage, and thinner than the efficiency ratio's 24bp improvement suggests at first read. The defence holds only while revenue growth stays high teens. If revenue decelerates toward the mid-single digits that Spain alone would deliver, a 14% cost run-rate becomes a serious problem inside two quarters. This is the line where management has given itself the least margin for error, and it knows it: every area was individually checked for positive jaws on the call, including the small ones.

7. Capital: 12.83%, and a Standing Commitment to Give Back Everything Above 12%

CET1 rose 13bp to 12.83%, comfortably above both the 8.98% requirement and the 11.5–12.0% management target range. The waterfall is worth reading in full because it shows how much growth the ratio is absorbing: +75bp from results, −40bp for dividend and AT1 accrual, −34bp for RWA growth after a 12bp give-back from significant risk transfers, and +12bp from market and hyperinflation-related items, netting to the +13bp reported. Leverage ratio was 6.18% and MREL 29.63% in RWA against a 23.13% requirement.

"We still have excess capital, and we remain fully committed to distributing our excess capital above the upper end of our CET1 target range." — Onur Genç, CEO

The third and final tranche of the roughly €4bn framework, €1,460M, was approved on April 29 and starts May 6. Two tranches of the framework have already been executed, €1,500M completed in March 2026 and €1,000M completed on April 17, totalling €2,500M; a separate €993M program outside the framework completed in December 2025. Share capital was formally reduced on March 31 by the redemption of the first tranche's 74,963,302 shares. On the cash side, the €0.60 final dividend against 2025 results was paid on April 10, bringing total 2025 cash distribution to €0.92 per share.

Assessment: The distribution policy is the cleanest part of the equity story and the least conditional. At the April 30 Madrid close of €18.81, the €0.92 trailing cash distribution is a 4.9% yield, and the €4bn framework against a market capitalization near €106bn is another 3.7%. That is roughly 8.6% of market value returned, funded out of a ratio that still rose during a quarter in which RWAs consumed 34bp. The constraint on further distribution is not capacity but management's stated preference for reinvesting into 17% loan growth first.

8. Significant Risk Transfers Are Now a Structural Part of the Capital Plan

SRTs contributed 12bp to CET1 in the quarter against 13bp in the same quarter last year, and management reiterated a 30–40bp full-year target with pricing better than 2025 levels. This is no longer opportunistic balance-sheet management; it is a budgeted line in the capital plan that partly funds the RWA growth described above.

Assessment: Investors should hold two thoughts here. Risk transfer at improving spreads is a legitimate and efficient way to fund growth, and the capacity is demonstrably there. It is also a form of capital generation that depends on a functioning securitization bid, which is exactly the market that closes first when credit conditions turn. Thirty to forty basis points a year is a meaningful slice of the capital the ratio actually builds once dividend accrual is deducted, and that dependency is worth naming.

9. AI Framed as the Second Transformation, Without Numbers Yet

Management devoted a full slide to eight named AI initiatives spanning a client-facing adviser, a banker copilot, risk, operations and software development, with an explicit ambition to industrialize agent creation and governance at scale.

"BBVA has always harnessed innovation as a critical lever to differentiate itself from competitors. We have proven it in our view, through digitalization in the last decade, and we are committed to do it again through AI… what truly will differentiate BBVA is our ability to scale AI across the group, similar to what we did in digital transformation." — Onur Genç, CEO

No quantified benefit was disclosed. Management described results as "very early but very promising" and committed to updating as outcomes consolidate.

Assessment: Credit where due: BBVA's digital claim is the rare one with a decade of evidence behind it, and customer acquisition rankings in Spain support the argument that the digital engine works. But an unquantified AI narrative sitting alongside a 14% cost run-rate is the combination that most invites scepticism. A peer disclosing a specific euro figure for AI-generated business value sets a bar that BBVA has not yet met, and management should expect the comparison.

10. Pruning the Footprint: Romania, and the Cost-of-Equity Test

Garanti BBVA agreed on March 28 to sell 100% of its Romanian subsidiaries to Raiffeisen Bank SA, with closing expected in the fourth quarter of 2026 and the assets reclassified as held for sale. Asked whether this signalled a broader review, management gave a general principle rather than a list.

"If you don't feel that we have the competitive power to be able to deliver above our cost of equity in any market, we always look into it. It's not a one-off exercise to us, but it's an ongoing exercise… In Romania, we do have 2% market share. It's subscale. And as a result, it doesn't deliver the cost of equity for us." — Onur Genç, CEO

Management declined to comment on other names that had appeared in press speculation, and gave no figure for potential capital release from any disposal.

Assessment: The stated test, local scale sufficient to earn above cost of equity in a full-service model, is coherent and it explains the geography of this bank better than any strategic narrative: BBVA is number one or two where it operates, or it leaves. Applied consistently, it puts a question mark over any subscale position, which is why the refusal to quantify releasable capital reads as a genuine gap rather than a deflection.

11. Currency Hedging Was Repriced, Not Reduced

Mexican excess capital hedging fell to about 44% from the 55–57% range at December, but sensitivity to a 10% peso depreciation was unchanged at about 15bp of CET1, because management shifted into option structures. The cost of those hedges fell to roughly 0.2bp per month from 0.5bp. Türkiye capital hedging held at about 43% with 2bp sensitivity to a 10% lira move, and P&L hedging runs at about 33% for Türkiye and 37% of expected next-twelve-month results in Mexico.

Assessment: Same protection at 40% of the cost is a straightforwardly good outcome, and the disclosure is precise enough to model. The nuance an investor should hold is that options protect against the tail but not the drift; a slow grind lower in the peso is exactly the scenario the new structure covers least well, and management noted the plan still assumes further depreciation from current levels.

Guidance & Outlook

Two guidance items were raised, two received a directional bias, and everything else was reiterated. The raises share a common characteristic: both are activity-driven rather than rate-driven.

Implied path to the four-year target: the 22% figure is a four-year average, not an exit rate, and management was explicit that the shape is a steady climb rather than a back-loaded hockey stick: 19.3% delivered in 2025, 2026 better than 2025, and 2027 and 2028 better again. With one quarter already at 21.7%, a 2026 outcome comfortably above 20% would put the average within reach without requiring a heroic final year. That is a materially lower-risk bridge than the headline number implies.

What management deliberately left off the page: Spanish net interest income upside. Asked why, given a steeper curve and rising Euribor, management said the omission was a choice about controllability, not a view. "That upside would come from rates, from customer spreads… that upside is completely driven by what's going on in the world. In the case of Mexico, we put it there as a clear upside for a reason because it's more activity driven, which is within our control." Spain's disclosed sensitivity is 4–5% of NII per 100bp, higher than Spanish peers, and the ALCO book grew €1.7bn in the quarter at yields above 3.2%.

Guidance style: On the evidence of this single quarter, conservative and unusually legible. Management publishes the assumptions underneath the guide, publishes the sensitivities to those assumptions, and then adjusts the guide when an assumption changes. That is a bank that expects to be held to its numbers. The absence of any group revenue or NII guide is the notable omission: ROTE is the only group-level commitment.

Analyst Q&A Highlights

Whether a Peer's Mexican Credit-Card Warning Reads Across

The call opened on the sharpest available question: a competitor had flagged deterioration in Mexican credit cards the previous day, and Mexico is 44% of BBVA's business-area profit. The response was a flat denial of any read-across, supported by the observation that the reported cost of risk already carries an overlay and would have looked better without it.

Q: "I want to start with Mexico. Santander warned yesterday about asset quality in credit cards. So I wonder if you can please comment on asset quality trends in your credit cards business, in particular, and overall in Mexico, an update on your cost of risk guidance for the year?"
— Francisco Riquel, Alantra

A: "On the cost of risk, we feel quite confident on our guidance. It was — we gave 3.40%. You see in the documentation that this quarter, it's 3.45%, which is exactly the same amount of the last quarter on a quarterly basis… the number would have been actually even better, if that post-model adjustment wasn't there… you asked specifically credit cards, we don't see any deterioration whatsoever."
— Onur Genç, CEO

Assessment: A clean answer, and the supporting detail was specific enough to be checkable. The subtlety worth extracting is the mix point made later in the same response: the sequential customer-spread decline was 19bp of which 7bp was mix, because enterprise lending outgrew cards after a strong fourth quarter. That means the card book grew slower this quarter, which mechanically suppresses both spread and card-related credit costs. The read-across question therefore gets a partial deferral rather than a full answer, and the next quarter's card growth is the test.

Whether the Türkiye Guidance Cut Is About Credit or About Macro

Two separate lines of questioning pressed on the same point: the profit guide picked up a downward bias in a quarter when Türkiye's profit grew 66% and its efficiency ratio improved by nearly five points. Management's answer was that nothing in the franchise changed and one macro assumption did.

Q: "You are now slightly more negative for 2026. How do you see the 2028 targets in the current macro context, please?"
— Multiple analysts incl. Maksym Mishyn, JB Capital; Antonio Reale, Bank of America

A: "Every single percentage interest rate point implies EUR 40 million. Every single inflation, which — there are correlations in between, but every single inflation by itself independently is EUR 15 million to EUR 20 million negative impact and every single depreciation is around again, EUR 20 million. Given the macro parameters has changed… it's a reflection of that basically, nothing more."
— Onur Genç, CEO

Assessment: This is the disclosure standard the rest of the sector should be judged against. The sensitivities were published at the fourth-quarter call, before the assumption moved, which removes any suspicion that they were reverse-engineered to explain a miss. A 3.5-point inflation reassumption at €15–20M a point accounts for most of the bias on its own. The residual worry is not the guide but the retail NPL inflow underneath it, which the sensitivity grid does not cover.

What Happens to Capital Above the Target Range

With CET1 at 12.83% against a 11.5–12.0% target range and the final buyback tranche about to start, the natural question was what happens next. The answer was a repeated, unqualified commitment rather than a specific programme.

Q: "But if I look at your CET1 ratio, you're still running well ahead of your target range… So if you could give us an update as to what's coming next when it comes to distribution."
— Antonio Reale, Bank of America

A: "That will last until the end of June, June-July period. And at that point, we will continue on our commitment, which is to deliver excess capital above the end — the top end of our range of 12%. Above the 12%, we will return it back to the shareholders. Very simple, very clear."
— Onur Genç, CEO

Assessment: Management committed to the principle and declined to commit to a date or an amount, which is the correct posture with a tranche still in flight and a July USMCA decision pending. The useful inference is arithmetic: at 12.83% today, with results contributing 75bp a quarter against roughly 74bp of combined dividend accrual and RWA consumption, the ratio drifts up slowly even while funding 17% asset growth. Excess capital is being generated faster than the current framework distributes it.

Whether Cost Growth Above Inflation Is Sustainable

The most confrontational exchange of the call put a specific gap on the table: group costs up roughly 14% excluding redundancies against weighted-average footprint inflation of 9%. Management did not dispute the gap and refused the frame.

Q: "You show group cost growth in Q1 was 14% year-on-year ex-redundancies. That's above the weighted average inflation footprint of 9%. Are you comfortable in operating with that gap over an extended period as long as you have the positive jaws?"
— Benjamin Toms, RBC

A: "Our key focus has always been the jaws… If you exclude those, there is — practically all the areas have positive jaws, even the smaller countries. We do have this jaw notion as a management discipline in BBVA… Comparison with inflation, obviously, is less relevant as long as you, again, drive that growth with the organic capital generation that comes with it."
— Onur Genç, CEO

Assessment: A confident answer that answers a slightly different question than the one asked. Jaws being positive today is not evidence that a 14% cost run-rate is sustainable; it is evidence that revenue is currently growing 18%. The tell is that the group's jaws in the quarter were only 80bp wide at constant FX. This is the exchange to revisit if revenue growth decelerates, and it is the reason the cost line belongs on any BBVA watch list even though the efficiency ratio looks excellent.

Why Spanish NII Upside Was Withheld From the Guidance Upgrade

A questioner pointed out that with the current curve, the standing Spanish NII guide looks conservative, and asked why it was not raised alongside Mexico and Rest of Business. The answer was the most revealing methodological disclosure of the call.

Q: "And with that, what is the balance of risk of NII in Spain? Because it looks like with a steeper yield curve with rates are today, I think we probably — your current guidance is a bit short of what we could see."
— Marta Sánchez Romero, JPMorgan

A: "We decided at the end not for a reason because at the moment, that upside would come from rates, from customer spreads… In the case of Mexico, we put it there as a clear upside for a reason because it's more activity driven, which is within our control… given the fact that whatever we put there, we feel obliged more or less to deliver… we felt uncomfortable to do it at the moment."
— Onur Genç, CEO

Assessment: The most useful thing said on the call about how to read this company's guidance. Management treats a published guide as an obligation and therefore only publishes what it controls. It follows that every raised item carries a management-confidence premium and every unraised item is not a statement of pessimism. Spanish NII upside is real, disclosed at 4–5% per 100bp, and deliberately absent from the guide. Investors should carry it in their own numbers, not wait for the company to concede it.

Whether the Trading Result Is Repeatable

Net trading income of €915M was the strongest in four quarters and up 31.8% sequentially, which invited the standard question about recurrence. The answer separated a client-driven core from a one-off duration trade.

Q: "If you can give us a bit of a breakdown basically of why the figure has been so strong across most geographies, where that strength is coming from? And kind of any comment you can make around recurrence and sustainability, seasonality?"
— Ignacio Cerezo, UBS

A: "40% of the global markets revenue that is booked under NTI is basically the FX business. Given the volatility in the market, our clients have traded, especially on the FX side… There's also one other component, which is a smaller component… given the steepening of the curves in some geographies, especially Spain and Mexico, we have extended the duration… which meant we sold short end of the curve, which was NTI, and we bought long end of the curve."
— Onur Genç, CEO

Assessment: An unusually candid answer, and the second half is the part to underline. Part of the trading result was realized by selling the short end of the ALCO book, which converts future net interest income into present net trading income. That is a legitimate portfolio decision taken alongside a genuine steepening, and management volunteered it without being pressed. It also means a portion of this quarter's trading strength is a timing shift rather than franchise earnings, and the client FX business, which is the recurring 40%, is the piece to underwrite.

Whether the Footprint Is Being Actively Pruned

Following the Romanian disposal and press speculation about other assets, a questioner asked whether a broader portfolio review was under way and how much capital could be released. Management answered the principle and declined the specifics.

Q: "We've read headlines about potential disposal of Atom Bank. You've recently announced the disposal of Garanti Romania. So that — does this all mean that you are taking a harder look at the footprint? And have you identified how much capital you could release from the disposal of noncore assets?"
— Marta Sánchez Romero, JPMorgan

A: "You mentioned names, Marta, the ones that are not public or already happened. We don't comment on any of those, as you know well… We do believe local scale in the traditional business model that we have… scale is important — local scale is important. In Romania, we do have 2% market share. It's subscale. And as a result, it doesn't deliver the cost of equity for us."
— Onur Genç, CEO

Assessment: The refusal to quantify releasable capital is the substantive gap here, and it is the one place a shareholder is entitled to more. The stated test is clear and consistently applied, which makes the set of candidate assets reasonably inferable from the disclosure that already exists. The tension worth naming is that the same scale logic that justifies exiting a 2%-share Romanian bank sits awkwardly beside two greenfield digital banks in markets where BBVA has no scale at all, a distinction management draws on business model rather than on share.

How Much of Latin America Is Actually Exposed to the Conflict

With roughly half of group profit in Latin America and an active Middle East conflict, a questioner asked management to make the diversification case concretely rather than rhetorically.

Q: "Yesterday, one of your competitors indicated that LatAm economies should be relatively better shielded, as they are oil producing and around 50% of your net profit last year came from LatAm. So I would like to ask if you could provide more details."
— Borja Ramirez, Citi

A: "When we look into the potential impact of an extended duration crisis in the Middle East, what we see is that in terms of different geographies, Latin American geographies are either neutral or positive. Argentina and Colombia would be positively affected because they are, in general, oil exporters… They might benefit in terms of tourism flows. They might benefit from supply chain redirections."
— Onur Genç, CEO

Assessment: The argument is directionally right and slightly too clean. Oil-exporter status is a genuine buffer at the sovereign level, but the transmission that actually hits a retail bank is inflation and consumer sentiment, both of which management acknowledged in the same breath and then set aside. The Argentine retail cost of risk already running at 276bp against a sub-250bp guide is the counter-example sitting inside the same quarter's numbers.

What They're NOT Saying

1. No group revenue or net interest income guidance. ROTE is the only group-level commitment for 2026. Every other guided item is a country-level cost-of-risk or activity figure. For a bank whose entire thesis is that spread compression is ending, the absence of a group NII path is the most conspicuous omission, and it is the number the market will have to build itself.
2. Digital bank economics remain undisclosed. Italy at 900,000 customers and Germany above 100,000 were offered as evidence of success, with the acknowledgement that both are loss-making and the observation that peers typically take nine or ten years to break even. No revenue, no loss, no break-even date, no capital consumed. Management said disclosure will come "once we have some maturity in these businesses," which is a promise without a trigger.
3. The post-model overlay was not split by country. Asked directly for the breakdown of the €98M by unit, management said only that more than half sits in Türkiye and Spain. Given the overlay accounts for roughly 7bp of the 24bp year-on-year rise in cost of risk, the split is material to judging where underlying credit is actually moving.
4. The restructuring charge components do not sum. The CEO gave approximately €60M in the Corporate Center and €40M in Spain against a €125M total. The remaining €25M was not identified, and no one asked.
5. No quantification of releasable capital from disposals. The question was asked explicitly and answered with the cost-of-equity principle instead of a number. With Romania closing in the fourth quarter, a gain-on-sale and capital impact estimate should exist internally.
6. No euro figure for AI benefit. Eight initiatives, an operating-model ambition and "very early but very promising" results, with no quantification of revenue uplift, cost saving or provisioning benefit. This is the disclosure gap most likely to be closed by competitive pressure rather than by choice.
7. Spanish NII upside was withheld deliberately and said so. This belongs on the list not as a criticism but as a signal: management confirmed the upside exists, quantified the sensitivity at 4–5% per 100bp, and chose not to guide to it. It is the one omission that is unambiguously favourable.

Market Reaction

• Pre-print setup: The NYSE ADR closed at $21.29 on April 29, down 8.7% year to date against the S&P 500 up 4.2%, but up 55.4% over trailing twelve months and down 1.7% over the trailing thirty days. The 52-week closing range entering the print was $13.70 to $26.11, so the stock came in roughly 18% below its own high after a violent twelve-month re-rating. Positioning was cautious rather than crowded.
• Reaction session (April 30, before-the-open print): The ADR opened at $21.80, a 2.4% gap, traded $21.72 to $22.12, and closed at $22.12, up 3.9% or $0.83. Volume was 1.6M against a 2.0M thirty-day average, or 0.8x. The move happened without a volume surge, which is a strong signal about consensus quality: the print repriced the stock without needing a change of hands.
• Madrid primary listing: The ordinary shares closed at €18.81, up 1.79% from €18.48, on volume of 12.49M against 12.25M the prior session. The IBEX 35 rose 0.78%, so BBVA outperformed its home index by roughly one point.
• Intraday path: The Madrid line was up a little over 1% by midday European time and finished stronger, while the ADR carried the gain further during US hours as the S&P 500 rose 1.0%.

The gap between the two listings is worth explaining because it will mislead anyone reading only one of them. The ADR gained 3.9% and the ordinary share gained 1.79% on the same results. Two mechanical reasons, not one: the euro appreciated roughly half a percent against the dollar that day, which translates straight into the ADR, and Madrid closes four and a half hours before New York on a session when the broad US market was up. Neither number is wrong; they are struck at different times in different currencies. The Madrid close is the cleaner read on how the print itself was received, and a point of outperformance against the IBEX is a solid but unspectacular endorsement.

What the market appears to have paid for is the guidance action rather than the beat. A 7% profit beat driven by core revenue is worth something, but European banks routinely beat by that margin without moving. The ROTE upgrade is different: it is a change to the multi-year earnings power the stock is capitalized on, delivered one quarter into the year rather than at the half. Against that, the market discounted the 24bp rise in cost of risk, which is the correct call given that roughly a third of it is a discretionary overlay and the rest is largely the arithmetic of a book growing 17%.

The setup behind the move deserves emphasis. This was not a stock priced for perfection: it entered the print down 8.7% year to date while the market was up, having given back a meaningful part of a twelve-month run. That is the profile of a name where the marginal holder had already de-risked, and it is why a good but not extraordinary quarter produced a clean 3.9% move on below-average volume rather than a squeeze.

Street Perspective

Debate: Is "Above 20%" the New Floor for ROTE, or the Ceiling?

Bull view: The bull case on the Street is that the upgrade one quarter into the year, from a management team that treats guidance as an obligation, is a floor rather than a target. With 21.7% already delivered in the first quarter and management describing the four-year path as a steady climb rather than a back-loaded one, the 22% average through 2028 looks achievable without a heroic final year.

Bear view: The bear camp contends the first quarter is seasonally and mix-flattered: a four-quarter high in trading income, part of it a realized duration trade, plus a peso running ahead of the bank's own plan assumption. Strip both and the underlying ROTE is closer to 20% than 22%, with a rising cost of risk still to be absorbed through the rest of the year.

Our take: The bulls have the better of this. The trading contribution is a fair criticism and management disclosed the ALCO piece unprompted, but net trading income was still down 3.4% year on year in reported terms, so it cannot be the source of a 150bp ROTE improvement. What actually drove ROTE higher was net interest income and fees growing 19.1% at constant FX against a share count falling 2.2%. Both are durable. The peso point is real and cuts the other way too: management's plan still assumes further depreciation, so a stable peso is upside not yet in the guide.

Debate: Does Mexico at 44% of Profit Deserve a Discount or a Premium?

Bull view: The argument circulating on the bull side is that Mexico is the best banking market in the developed-adjacent world and BBVA owns the best bank in it, with a 30.8% efficiency ratio and 129% NPL coverage. A structurally under-levered economy, a policy rate at its floor, and a government infrastructure programme now generating long-duration corporate demand make concentration an asset, not a liability.

Bear view: The bear framing is that a single emerging market generating 44% of profit is a valuation cap regardless of how good the franchise is, and that the July USMCA decision, a 345bp cost of risk, and a peso that has already outrun plan assumptions are three independent ways for the same exposure to disappoint at once.

Our take: The concentration is genuinely a cap on the multiple, and it should be. But the market is pricing the wrong risk. The tariff analysis presented on this call, showing Mexico at a 7.2% effective rate against 18% for the rest of the world and 45% for China, means the trade risk is about relative position, not absolute burden, and Mexico's relative position improved through 2025 and into 2026. The exposure we would actually underwrite more carefully is credit: a 345bp cost of risk on a consumer book being deliberately grown is a bigger source of variance than the trade file.

Debate: Is 154 Basis Points of Cost of Risk a Clean Number?

Bull view: The optimistic reading is that 7bp of the increase is a discretionary overlay for a conflict with no direct exposure, that group NPLs improved 6bp sequentially and 24bp year on year while coverage rose to 86%, and that a book compounding at 17% mechanically front-loads provisioning against loans that have not yet earned anything.

Bear view: The sceptical reading is that ex-overlay cost of risk of 147bp is still 17bp above the year-ago level, that the two areas driving NPL inflows are precisely those running above their own full-year guides, and that management reiterated a sub-250bp South American guide against a 276bp first quarter.

Our take: Both sides are describing real things and the bears are pointing at the right one. Growth-driven stage-1 provisioning explains most of the increase and is not a credit event. The South American reiteration is the exposed commitment: 276bp reported against a below-250bp guide requires visible improvement from the second quarter, and management explicitly deferred that improvement to the second half. That is the single guidance line most likely to break, and it should be graded hard next quarter.

Debate: Has the Twelve-Month Re-Rating Exhausted the Valuation?

Bull view: At the April 30 Madrid close of €18.81 against tangible book of €9.57, the shares trade near 1.97x tangible book for a 21.7% ROTE, roughly 10.4x trailing reported earnings, with a 4.9% trailing cash distribution and a €4bn buyback still running. On any standard residual-income framework, a bank sustainably earning 20%+ on tangible equity supports a multiple around 2x. The stock is not expensive against its own return profile.

Bear view: The bear camp points at the trailing move: up 55% over twelve months means most of the re-rating from a sub-1.3x multiple has already happened, and the marginal buyer is now paying a full price for cyclical peak profitability in emerging markets, with the reinvestment risk of a bank that keeps deploying capital into 17% asset growth instead of returning it.

Our take: The bulls are right on the arithmetic and the bears are right that the easy money has been made. Those are compatible. A 2x tangible book multiple capitalizes a roughly 20% sustainable ROTE at an 11% cost of equity with modest growth, which is a fair rather than generous assumption set for this franchise. The year-to-date de-rating of 8.7% against a rising market is what converts "fairly valued" into an entry point, and the roughly 8.6% combined distribution yield pays the holder to wait. The reinvestment critique has it backwards: capital deployed at a 21.7% ROTE is worth more than capital returned, provided the jaws discipline holds.

Model Framework & Valuation

This is an initiation, so the table below states the framework we are adopting rather than a change to a prior model.

Valuation framework. At the April 30 Madrid close of €18.81 the shares trade at 1.97x the €9.57 tangible book per share reported at March 31, and 1.86x the €10.10 book value. Trailing four-quarter reported EPS of €1.81 puts the multiple at 10.4x; annualizing the first quarter's €0.51 puts it at 9.2x. Market capitalization on the 5,634M shares outstanding is approximately €106bn.

The residual-income arithmetic is the honest way to frame this. A bank earning a sustainable 20% on tangible equity, growing tangible book at roughly 3%, and carrying an 11% cost of equity supports a price to tangible book of about 2.1x. BBVA trades at 1.97x while currently earning 21.7%. The multiple is therefore fair to modestly cheap, and the argument for owning it is not multiple expansion but the combination of tangible book compounding and distribution. Tangible book per share plus dividends grew 14.7% year on year, or 18.1% before the dilutive effect of buying back stock above book.

Distribution. Cash distributions against 2025 results totalled €0.92 per share, a 4.9% yield at €18.81. The roughly €4bn buyback framework against a €106bn market capitalization adds about 3.7%. Combined, roughly 8.6% of market value is being returned while the CET1 ratio still rises. That is the downside support.

What would change our view. A further leg of policy easing in either core market, which would invalidate the central mechanism of the thesis. South American cost of risk failing to converge toward the sub-250bp guide by the third quarter. Group cost growth staying near 14% while revenue growth decelerates below the mid-teens. Or a USMCA outcome in the discarded-contract scenario management assigns near-zero probability to.

Thesis Scorecard

This is our initiation, so the table below establishes the pillars we will carry forward and grade each quarter rather than scoring a standing thesis. The status tags reflect this quarter's evidence only.

Overall: Thesis established at a positive starting point. Four bull pillars confirmed on this quarter's evidence, one bear point already emerging, three contained. The structure of the story is unusually legible for a bank of this complexity: one mechanism, rate floors converting volume into revenue, drives most of the upside, and one line, impairments, carries most of the downside.

Action: Buy. The de-rating year to date against a rising market, the roughly 8.6% combined distribution yield, and a 1.97x tangible book multiple on a 21.7% ROTE make the entry favourable. Size the position for the credit risk rather than the trade risk, and grade South American cost of risk and group cost growth at the half.