Spanish Banking Powerhouses: Navigating Q2 Resilience and Strategic Gambits

The Spanish banking sector is once again center stage as Q2 2025 earnings roll in. Amid a backdrop of slowing global growth and uncertain interest rate trajectories, two giants—BBVA and Caixabank—are proving that net interest income (NII) resilience and disciplined capital returns can still drive value. While regulators have thrown a wrench into BBVA's merger ambitions, both banks are positioning themselves to capitalize on sector consolidation and shifting financial landscapes. Let's break down the numbers and strategy behind these plays.

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BBVA: Navigating Merger Headwinds, Maintaining Momentum

BBVA's Q2 results, due July 31, will test its ability to balance strategic moves with short-term profitability. Despite a proposed 3-year merger ban on its $12 billion deal with Banco Sabadell, BBVA remains bullish. The merger's synergy benefits—projected at €300 million annually—are now delayed, but CEO Onur Genç insists the combined entity will offer Sabadell shareholders 27% higher earnings per share (EPS) than standalone projections.

The bigger story, however, lies in BBVA's core performance. In Q1 2025, NII hit €6.4 billion, down 1.7% in nominal terms but up 8.5% at constant exchange rates due to strong growth in Turkey and Mexico. This resilience aligns with Bank of America's (BofA) outlook: Spanish banks' NII will remain stable quarter-on-quarter, outperforming consensus by 1%-2%, driven by mortgages and consumer lending.

But the Sabadell merger's regulatory hurdles are a wildcard. While synergies are delayed, BBVA's geographic diversification (Spain, Türkiye, Mexico) and ROTE of 19.7% (2024) provide a cushion. Investors should watch for signs of margin discipline and whether the bank maintains its €5 billion annual shareholder returns.

Caixabank: The Buyback Star of Spanish Banking

Caixabank, meanwhile, is set to shine as the sector's capital-return champion. With Q2 results and a Capital Markets Day on July 24, the bank is expected to announce a €500 million buyback—bolstering its already strong shareholder-friendly reputation. BofA highlights Caixabank's “top performer” status, citing robust NII growth and non-interest income from digital services.

Crucially, Caixabank's focus on Spain's mortgage market—where it holds a 10% share—positions it well as the country's housing market stabilizes. The bank's Q1 NII rose 3% yoy, and its capital adequacy ratio (14.5%) leaves room for further returns.

Investors should prioritize Caixabank's execution on its buyback and its ability to sustain NII growth amid slowing rate hikes. Unlike BBVA, it faces no major strategic distractions, making it a safer bet for income-focused investors.

BofA's Take: NII Resilience Amid Rate Cuts

BofA's analysis is key here: Spanish banks' NII is proving sticky even as central banks pivot toward rate cuts. The firm attributes this to strong loan growth (14% yoy in BBVA's case) and disciplined pricing in consumer finance. For Q2, BofA expects NII to stay stable, with mortgage refinancing and corporate lending offsetting any declines from lower rates.

This resilience argues for selective investments in banks that:
1. Focus on high-margin NII streams (e.g., mortgages, SME lending).
2. Prioritize capital returns (buybacks, dividends) over risky M&A.
3. Operate in stable geographies with diversified revenue streams.

Investment Thesis: Pick the Disciplined, Not the Distressed

The sector's bifurcation is clear: BBVA's merger woes make it a “wait-and-see” play, while Caixabank's buyback and NII strength make it a buy now.

• BBVA: Hold for long-term strategic upside, but brace for volatility around regulatory rulings.
• Caixabank: Buy the July 24 results, targeting a 5% yield with capital returns.

Final Word: NII Is King—But Discipline Reigns Supreme

Spanish banks are proving that even in uncertain times, banks with strong NII foundations and shareholder-friendly policies can thrive. Caixabank's focus on returns and BBVA's geographic diversification make them the sector's crown jewels—if investors can stomach BBVA's merger-related noise. For now, Caixabank's Q2 results offer the clearer path to gains.

Stay tuned to the earnings calendars: July 24 and July 31 will determine whether these banks can turn resilience into outperformance.

Disclaimer: This article is for informational purposes only. Always conduct your own research and consult a financial advisor before making investment decisions.