Banco Bilbao Vizcaya Argentaria SA of Madrid has designated the United States its primary growth market as it integrates its biggest U.S. bank deal to date, for Compass Bancshares Inc., and pushes its California remittance business, BBVA Bancomer USA, to operate more as a full-service bank.
Though the $629 billion-asset Spanish company's priority is to integrate the $35 billion-asset Compass, Jose Maria Garcia Meyer, chief executive of the $57 billion-asset BBVA USA, the holding company for U.S. operations, said synergies may eventually emerge between Compass, of Birmingham, Ala., and BBVA Bancomer USA in Diamond Bar, Calif.
"BBVA Bancomer is in a pilot for testing products and services for first-generation immigrants," he said; "Compass has an in-house Hispanic research department … , so we will be working with them in the future."
The parent BBVA has been developing a stronger retail banking culture in BBVA Bancomer's 33 California branches that operate under the BBVA Bancomer USA brand.
"We have opportunities here," he said in an interview Wednesday, "but we still need to reach more customers to make this business profitable. But we are really in the first stage of this pilot."
"Our priority is on the Compass integration," he said, "so our pilot program is not the most important thing at this point in time."
BBVA bought Compass Sept. 7 for $9.6 billion, more than three years after entering the U.S. banking market with the purchase of a small California bank and a plan to expand a remittance business that offers money transfer services in the states bordering Mexico, where it operates BBVA Bancomer, a 2,000-branch banking company.
This strategy changed in 2005 and 2006 when it bought three Texas banks. Now BBVA plans to merge those Texas banks into Compass in January, with systems integration planned for the succeeding October. Compass' 417 branches make up more than two-thirds of BBVA USA's 620-branch network and its loan portfolio.
Though Compass missed Wall Street estimates in the second quarter due largely to margin compression and a loan-loss provision that nearly doubled from the first quarter, D. Paul Jones, the former chairman and CEO at Compass who is running BBVA's U.S. banking business, said in an interview Friday that credit quality is holding up relatively well. Compass did not originate subprime mortgages, and it sold mortgages on a flow basis rather than through securitizations, he said. It has also avoided selling its commercial loans in the secondary market, he said. "The only real challenge for us is bringing their Texas banks into Compass with minimal disruption," Mr. Jones said.
Compared to BBVA USA, the $300 million-asset BBVA Bancomer remains a small operation, with less than 0.3% of the company's U.S. deposits. Mr. Meyer, however, said he would like the unit to be larger.
Mr. Meyer said BBVA has been trying to offer deposit products and loans through BBVA Bancomer for roughly a year. This is a major shift for BBVA Bancomer, and the results thus far are mixed. As of Aug. 31, checking account openings were up 36% from a year earlier, at 50,000. The remittance business, however, continued to outpace deposits, with transfer volumes up 50% from a year earlier, to $170 million.
BBVA Bancomer had a net loss of $5.4 million at midyear, according to a second-quarter call report. Deposit volume rose 14% from a year earlier, to $93 million, but the unit's loan portfolio shrank 35%, to $40 million.
Profitability "is not the goal today," Mr. Meyer said. "We have to spend a lot of money to start these banking projects from scratch. We need a lot of people to do that. This is all part of our investment in researching the Hispanic market."
The loan portfolio is down because BBVA purposely stopped making construction loans after "the real estate market in California became more complex," he said.
Though BBVA Bancomer is testing several consumer loan products, he said, many of the outstandings are being held at its banks in Texas.
BBVA Bancomer, for instance, introduced a credit card this year whose accounts are held at Laredo National Bancshares Inc., one of the Texas banks bought in recent years. The California branches opened 4,000 card accounts before temporarily stopping the program to "analyze the results." Mr. Meyer said he plans to reintroduce, in a larger version, a credit card program at BBVA Bancomer in late 2008 using Hispanic research and a card platform that exists at Compass.
BBVA Bancomer also created a mortgage program last month that lets Hispanic customers buy properties in Mexico. The program, which can be linked to a customer's remittance account, has brought in about 1,000 referrals, Mr. Meyer said.
Despite these product introductions, he said, there is no plan to drop the remittance business. It is "possible" that his company could eventually merge BBVA Bancomer into the U.S. retail bank, he said, "but then we wouldn't be able to test this particular method of targeting the Mexican community. The most remarkable experience so far has been the brand recognition for Bancomer within that community."