BBVA's Acquisition Of Guaranty Not As Easy As It Looks

Texas-based Guaranty Financial may provide Spanish giant BBVA with a useful entry point to service multiple Hispanic customers in the U.S. But it's far from fitting like one of the snuggles you see advertised on CNBC.

Thursday morning, speculators were taking bets that Banco Bilbao Vizcaya Argentaria, Spain's second largest bank by market value, would end up winning the government-run auction for U.S. regional Guaranty Financial. Guaranty ran into problems earlier this year, and has been unable to overcome them.

If BBVA succeeds in winning the auction, Guaranty will be the Spanish bank's second purchase in the United States in two years. In 2007, BBVA bought Compass, with branches across the south of the country. According to analysts, the Guaranty acquisition would be a useful fit with BBVA's stateside strategy, which is to bolster branches in densely populated Spanish-speaking areas of the country.

Despite 18 percent unemployment and a cascading property market, Spanish banks shouldered off the brunt of the crisis in the first quarter through heavy workforce reductions and by increasing interest on lending.

BBVA recently reported a record €1.56 billion ($2.2 billion) second quarter income, up 35 percent from the previous year. Of that, a paltry €85 million ($120 million) came from the bank's U.S. operations, down more than 45 percent on the year.

Those numbers illustrate just how big the challenge of growing a unit in another country is. The main stumbling block for BBVA will be working out how to make lending profitable. Back at home, BBVA has been able to deflect much of its lower deposit base this year by charging extortionate fees for lending. That's because borrowing is much less widespread (and thus confined to a higher net worth portion of borrowers) in Spain than it is the U.S., where many new customers consider a more competitive credit card package to go along with their checking account as pretty much a given.

And despite falling as much as 50 percent in areas, Spain's commercial property market was quickly buoyed in January by private investors from other areas of continental Europe. "An important driver of this investor interest in Spain is the relative speed with which the market has repriced," realtor CB Richard Ellis told Reuters.

The same is not the case in the U.S., which is far more region-specific than in Spain, and where huge advantages are dealt to banks with dominant national market share, such as Citigroup or Bank of America.

Indeed, because of the strong lending culture stateside, many foreign banks (in particular Japanese ones) have found in the past that although the rewards from banking are huge in the U.S., the risks associated with penetrating the market competitively are too high for their domestic shareholders to stomach. That might be the case for BBVA, whose investor base consists of those more used to lending to institutions and the creditworthy than to taking gambles on riskier customers based on the hope of increased future transaction volumes.

Although the bulk of BBVA's Hispanic American customers will speak Spanish with their kids at home, when they turn up for work, they will speak American.