Yet José Barréiro, head of global wholesale banking and asset management at Banco Bilbao Vizcaya Argentaria (BBVA), Spain’s second largest bank, not only relished last year but expects 2008 to be a defining period for his newly restructured business lines.
All change
It was all change in December 2006 when, under the leadership of BBVA CEO and chairman Francisco González, Mr Barréiro was given the remit to create a single global business line that would encompass investment, corporate banking and asset management. 2007 would be the year of Reestructuración at the Bilbao bank and the timing of this was crucial.
“The starting point was to form a global unit with a single strategy cutting across all businesses, so we would have the same management and business philosophy here in Madrid, as we do in our Mexican and Colombian offices,” he explains. He now has direct responsibility for the worldwide markets business, global corporate clients, investment banking, asset management, private banking and BBVA’s fast-growing Asian business.
On the softly-spoken banker’s radar are Spain’s growing entrepreneurial class, China’s pensions market, Mexico’s expanding base of high net worth individuals, and the development of fund management services in Chile.
BBVA’s asset management and private banking businesses had €78.38bn in assets under management at the end of 2007 and made around €232m (€152m in 2006) in operating profits during the same period. But these numbers only tell half the story, says Mr Barréiro.
“We are not pretending to be a global heavyweight in the institutional marketplace – we’re too late in this respect and the market is too crowded – but we do see opportunities in offering an integrated mutual fund, pension fund and wealth management business at a global level,” he says. BBVA’s asset management and private banking businesses still only account for about 16 per cent of the banking group’s hefty €500bn asset base.
Far-flung ambitions
Though not yet a global heavyweight, BBVA’s aspirations are ambitious and far-reaching geographically. Asia is one region the bank is talking up. It recently acquired a 5 per cent stake in Citic’s China business and 15 per cent in its Hong Kong office and is now in talks about creating a private banking venture there with another company. “To compete globally we must be in China, the institutional business is huge and all the international banks are there,” adds Mr Barréiro.
BBVA also has operating units in Taiwan, Korea, Japan and Singapore and recently set up shop in Australia’s centre of commerce, Sydney. “Last year, I made the decision for BBVA to become a truly global bank so this led, logically, to tentatively explore the Australian market. It is a good country for our corporate finance business, and there are openings related to infrastructure finance, oil and energy,” he says. And though not mentioned, surely Australia’s lucrative superannuation pensions market will tempt BBVA’s asset management service to come ashore in the future? However, Asia remains an outside and long-term bet for BBVA’s asset management business. Instead, after Europe, it is the institutional spaces of Latin America where the money is, for the time being.
Exciting changes to Argentina’s pensions market, and expansion in Chile and Mexico, will give BBVA’s new pensions and insurance Americas boss, Eduardo Fuentes, a chance to shine. “We feel we can develop our product capability in Latin America more easily. We already have a 30 per cent share of the pension fund market and believe we can leverage our capital there efficiently,” confirms Mr Barréiro. He says one area ripe for expansion in the Latin American region is BBVA’s alternatives offering.
Finishing touches
Late 2007 saw Mr Barréiro put the finishing touches to the bank’s asset management restructuring, having begun 12 months earlier with his challenge for a focused global strategy. BBVA Asset Management now forms three business lines – traditional (long-only, equity, fixed income), alternatives (via Próxima and Altitude Teide), and private equity (through Valanza, its subsidiary).
Próxima is a E4bn hedge fund and Altitude Teide, its hedge fund of funds, was launched with Schroders in 2006. “We have the best alternatives offering in Spain,” says Mr Barréiro, who is also Próxima’s chairman. Through Valanza, BBVA is looking to invest over E600m in European and Latin American ventures by 2009.
Another significant change made by Mr Barréiro has been to its private banking unit, BBVA Patrimonios, which is now independent of asset management. Private banking services are instead channelled through BBVA’s domestic retail network. “We are not a big player like Credit Suisse, so consolidating the domestic business in Spain makes sense,” he adds. Its international private banking is concentrated in BBVA Switzerland with its Miami branch now shut for business.
In its mutual fund business, BBVA has around €43bn in assets under management, with about €40bn in traditional funds and €3bn in real estate funds.
BBVA has also launched a new fund that tracks the Ibex Top Dividendo, an index of the highest-performing securities of Spanish companies based on dividend yields, and the first exchange-traded funds (ETFs) based on fixed-income, AFI Monetario Euro ETF and AFI Bonos Medio Plazo Euro ETF. These replicate indices containing public eurobond issues that are more liquid. Says Mr Barréiro: “We have the widest range of this type of fund in the Spanish financial sector: seven different ETFs in total.”
Reporting to Mr Barréiro is BBVA’s head of private banking, Daniel de Fernando, who has driven a number of exciting developments in its structured products range. The most recent offering, which came after a trip made by Mr de Fernando to Mexico (BBVA owns the country’s largest bank, Bancomer), is referred to as a structured entrepreneurial product. This fund offers diversification across assets such as property and includes currency hedging. Around 60 investors seeking exposure to Latin America’s strong real estate story, and especially Mexico City’s, have bought into the fund at a minimum investment of €2.5m each.
BBVA, with €12bn in Spanish wealth assets under management, trails Santander and its private banking subsidiary Banif (€30bn in total assets under management) by some margin, yet this hasn’t stopped Mr Barréiro from declaring confidence in his business gaining domestic market share.
“Spain is a very attractive market for us, especially given its size and high growth potential,” he says. The fourth quarter of 2007 saw the opening of a solar photovoltaic power plant – La Gineta in Albacete – which has been developed by BBVA Patrimonios as an investment opportunity for its private banking customers.
Recent research found Spain leads Europe in the growth of ‘new fortunes’, up 9 per cent in the space of a year, and the private banking market is worth an estimated €220bn, according to Madrid-based consultancy Tatum. The economy’s decade-long bull run, driven by the housing sector, has been a major contributing factor to this growth.
Private banking
Wealth management in Latin America, with the focus on Chile, Brazil and Colombia, holds significant potential for BBVA’s private banking aspirations. Economic growth and a boom in commodities (coffee, copper and sugar) have helped to expand the number of clients in BBVA’s wealth servicing range. “Those with assets of between $5m-$10m are [our] ideal customers,” says Mr Barréiro.
BBVA Europe has added 200 staff to its global markets, asset management and private banking business in 2007. “What has happened [the credit crunch] hasn’t changed our minds about the value Europe offers or on expansion in 2008,” he adds.
But this value doesn’t lie in Spain’s pensions market; assets in the pension funds managed by BBVA in Spain grew a modest 5 per cent year-on-year to €17bn. Of this amount, individual plans accounted for €9bn and employee and associate schemes accounted for €8bn, and hardly CalPERS territory.
“In the global business, the world is changing every minute, and we need to adapt,” says Mr Barréiro. “Either you adapt, or [your business] dies.” And it is perhaps this sombre ultimatum that has driven BBVA to steer clear, as best it can, of the toxicity affecting virtually everyone else’s business model in the capital markets.
Opportunities
Though recent credit conditions have injected nervousness and caution into money management (and severe dislocation in the investment banking world) they nevertheless represent a source of opportunity for BBVA, says a confident Mr Barréiro. “We’re not saying we anticipated the crisis, but we believe we know the credit quality of our customers very well. From now on, the market needs to be less leveraged and with fewer complex products. We have no exposure to toxic structured products and our business model has been successfully backtested by market turbulence,” he says.
Being leveraged to the maximum doesn’t appeal any more and credit spreads are stretched for good reason. “We are not a pure investment bank,” says Mr Barréiro as he sketches where he believes BBVA lies within the hierarchy of European banks, “near the base is where we are at the moment. From a structural point of view, the bank is pretty safe and in terms of global banking, the present environment has not affected our plans for 2008. Yes, we will continue to expand business; why not?”
Mr Barréiro’s reasoning is that, looking at investment banking top down, it is the sophisticated product houses that are the most leveraged.
“We are not in this area, we are at the base of the pyramid and from here we are comfortable. We are taking this as an opportunity to hire people in global markets, corporate and investment banking and to strengthen capabilities in products we’re good at offering,” he says.
Brazil offers potential for investment banking deals in 2008 and UK activity “could be on the table”, he says. “It is important to keep our teams very tight. The market is competitive and we’ll wait and see, but we need to keep our approach the same.”
THE MAKING OF A CHIEF
José Barréiro
2005-present: Global head, wholesale banking and asset management, BBVA
2001-2005: Head of global markets and distribution, trading and equity, BBVA
2000-2001: Head of Spanish markets, BBVA
Mr Barréiro holds a Bachelor of Economics degree from the Universidad Complutense of Madrid.
