Acquisition of Hipotecaria Nacional

Acquisition of
Hipotecaria Nacional:
A further step in a growing market
September 2004
Disclaimer
T h is d o c u m e n t is o n ly p r o v id e d fo r in fo r m a tio n p u r p o s e s a n d d o e s n o t c o n s titu te , n o r m u s t it b e
in te r p r e te d a s , a n o f f e r to s e ll o r e x c h a n g e o r a c q u ir e , o r a n in v ita tio n f o r o ff e r s to b u y s e c u r itie s is s u e d b y
a n y o f th e a fo r e m e n tio n e d c o m p a n ie s . A n y d e c is io n to b u y o r in v e s t in s e c u r itie s in r e la tio n to a s p e c if ic
is s u e m u s t b e m a d e s o le ly a n d e x c lu s iv e ly o n th e b a s is o f th e in f o r m a tio n s e t o u t in th e p e r tin e n t
p r o s p e c tu s f ile d b y th e c o m p a n y in r e la tio n to s u c h s p e c if ic is s u e . N o b o d y w h o b e c o m e s a w a r e o f th e
in f o r m a tio n c o n ta in e d in th is r e p o r t m u s t r e g a r d it a s d e f in itiv e , b e c a u s e it is s u b je c t to c h a n g e s a n d
m o d if ic a tio n s .
T h is d o c u m e n t c o n ta in s o r m a y c o n ta in f o r w a r d lo o k in g s ta te m e n ts ( in th e u s u a l m e a n in g a n d w ith in th e
m e a n in g o f th e U S P r iv a te S e c u r itie s L itig a tio n A c t o f 1 9 9 5 ) r e g a rd in g in te n tio n s , e x p e c ta tio n s o r
p r o je c tio n s o f B B V A o r o f its m a n a g e m e n t o n th e d a te th e r e o f , th a t r e f e r to m is c e lla n e o u s a s p e c ts ,
in c lu d in g p r o je c tio n s a b o u t th e f u tu r e e a r n in g s o f th e b u s in e s s . T h e s ta te m e n ts c o n ta in e d h e r e in a r e b a s e d
o n o u r c u rr e n t p r o je c tio n s , a lth o u g h th e s a id e a r n in g s m a y b e s u b s ta n tia lly m o d if ie d in th e f u tu r e b y
c e r ta in r is k s , u n c e r ta in ty a n d o th e r s f a c to r s r e le v a n t th a t m a y c a u s e th e r e s u lts o r f in a l d e c is io n s to d if f e r
f r o m s u c h in te n tio n s , p r o je c tio n s o r e s tim a te s . T h e s e f a c to r s in c lu d e , w ith o u t lim ita tio n , ( 1 ) th e m a r k e t
s itu a tio n , m a c r o e c o n o m ic f a c to r s , r e g u la to r y , p o litic a l o r g o v e r n m e n t g u id e lin e s , ( 2 ) d o m e s tic a n d
in te r n a tio n a l s to c k m a r k e t m o v e m e n ts , e x c h a n g e r a te s a n d in te r e s t r a te s , ( 3 ) c o m p e titiv e p r e s s u r e s , ( 4 )
te c h n o lo g ic a l c h a n g e s , ( 5 ) a lte r a tio n s in th e f in a n c ia l s itu a tio n , c r e d itw o r th in e s s o r s o lv e n c y o f o u r
c u s to m e r s , d e b to r s o r c o u n te r p a r ts . T h e s e f a c to r s c o u ld c o n d itio n a n d r e s u lt in a c tu a l e v e n ts d iff e r in g
f r o m th e in f o r m a tio n a n d in te n tio n s s ta te d , p r o je c te d o r f o r e c a s t in th is d o c u m e n t a n d o th e r p a s t o r f u tu r e
d o c u m e n ts . B B V A d o e s n o t u n d e r ta k e to p u b lic ly r e v is e th e c o n te n ts o f th is o r a n y o th e r d o c u m e n t, e ith e r
if th e e v e n ts a r e n o t e x a c tly a s d e s c r ib e d h e r e in , o r if s u c h e v e n ts le a d to c h a n g e s in th e s ta te d s tr a te g ie s
a n d in te n tio n s .
T h e c o n te n ts o f th is s ta te m e n t m u s t b e ta k e n in to a c c o u n t b y a n y p e r s o n s o r e n titie s th a t m a y h a v e to
m a k e d e c is io n s o r p r e p a r e o r d is s e m in a te o p in io n s a b o u t s e c u r itie s is s u e d b y B B V A a n d , in p a rtic u la r , b y
th e a n a ly s ts w h o h a n d le th is d o c u m e n t. T h is d o c u m e n t m a y c o n ta in s u m m a r is e d in f o r m a tio n o r
in f o r m a tio n th a t h a s n o t b e e n a u d ite d , a n d its r e c ip ie n ts a r e in v ite d to c o n s u lt th e d o c u m e n ta tio n a n d
p u b lic in fo r m a tio n f ile d b y B B V A w ith s to c k m a r k e t s u p e r v is o ry b o d ie s , in p a r tic u la r , th e p r o s p e c tu s e s
a n d p e r io d ic a l in fo r m a tio n f ile d w ith th e S p a n is h S e c u r itie s E x c h a n g e C o m m is s io n ( C N M V ) a n d th e
A n n u a l R e p o r t o n fo r m 2 0 - F a n d in f o r m a tio n o n fo r m 6 - K th a t a r e d is c lo s e d to th e U S S e c u r itie s a n d
E x c h a n g e C o m m is s io n .
D is tr ib u tio n o f th is d o c u m e n t in o th e r ju r is d ic tio n s m a y b e p ro h ib ite d , a n d r e c ip ie n ts in to w h o s e
p o s s e s s io n th is d o c u m e n t c o m e s s h a ll b e s o le ly r e s p o n s ib le f o r in fo r m in g th e m s e lv e s a b o u t, a n d
o b s e r v in g a n y s u c h r e s tr ic tio n s . B y a c c e p tin g th is d o c u m e n t y o u a g r e e to b e b o u n d b y th e f o r e g o in g
re s tric tio n s .
2
Table of Contents
Overview and economics of the transaction
The Mexican mortgage business
Drivers for housing demand
Conclusions
3
Terms of the transaction
Transaction
structure
Acquisition
Acquisition of Hipotecaria Nacional (HN): Mexican
“Sofol”
Sofol”(1) specialised in mortgage business
100%
100% stock purchase paid in cash
Purchase
price
US$
US$ 375 m
Valuation
6,3
6,3 PER04e and 2,2 P/BV06/04
Financing
Acquistion
Acquistion will be financed through BBVA Bancomer
Timetable
Expected
Expected closing: 1st Q. 2005
Required
Required approvals: Mexican and Spanish regulators
(1) Financial company limited
4
internal resources
Hipotecaria Nacional: leading Sofol by
market share and profitability
Largest Mexican mortgage SOFOL: 29% market share
Mortgage
Mortgage loan portfolio:
portfolio: US $2,150 m
Shareholders
Shareholders funds (2Q 04): US $ 170 m
2003
2003 Net Profit:
Profit: US $48 m. (US $60 m 2004E)
ROE
ROE : 34%. ROA: 2.5%
US$ m
HIPOTECARIA NACIONAL
SU CASITA
CREDITO Y CASA
CREDITO INMOBILIARIO
METROFINANCIERA
PATRIMONIO
5
MORTGAGE SOFOLes / December 2003
Loans M. Share NPL ratio NPL Cov. Capital Net profit
2,092
1,234
1,069
656
425
393
29.3%
17.3%
15.0%
9.0%
6.0%
5.5%
1.11%
2.35%
2.05%
3.01%
1.55%
2.23%
54%
50%
50%
40%
50%
41%
142
101
69
86
30
29
48
19
10
10
11
10
ROE
34%
19%
15%
12%
37%
35%
Transaction Rationale
BoltingBolting-on a new distribution channel with a
successful business model
Positioning BBVA Bancomer in a leadership
position in the mortgage market
Financing for individuals
Financing for developers
Lower funding costs for Hipotecaria Nacional
CrossCross-selling potential of new customer segment
Completing product offering for Mexican
customers in USA
6
Financial impacts
Financial
Impacts(1)
04(e)
04(e)
05(e)
06(e)
BBVA Group
Net Attributable Profit(1)
(€ m)(2)
na.
na.
49
59
BBVA Group
EPS Impact(3)
na.
na.
1.6%
1.7%
Earnings accreative from initial year
Financed through BBVA Bancomer internal
resources
(1) Does not consider Goodwill amortization (International Accounting Standards)
(2) MXN/EUR 13,695
(3) Based on BBVA IBES estimates
7
Table of Contents
Overview and economics of the transaction
The Mexican mortgage business
Drivers for housing demand
Conclusions
8
Mexico:
Mexico: a sizeable economy entering
a new growth phase
GDP growth (1)
(yoy %)
GDP (BN USD)
650
4.0
637
3.8
403
0.9
Spain
Mexico
Emerging
(1 )
Eur G10
... with similar population
(approx. 100 mn.)
9
-0.3
2001
2002
1.3
2003
2004e 2005e
Source: BBVA Economic Research
(1)Emerg. Eur. G10: Group of 10 emerging countries in Eastern Europe, with 100 M inhabitants:
inhabitants:
Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta,
Malta, Poland, Slovenia and Slovakia.
Credit penetration is low,
low, but there is
a high growth potential
Loans / GDP (%)
41.6
Tequila
Crisis
Profitability of current 20
million banked clients
27.3
Potential market estimated at 30 million
18.2
14.2
Integration of informal
economy
Stabilization of macro
outlook for credit activity
1995
10
1998
2000
2003
The banks lost presence in the mortgage
market in the aftermath of the “Tequila crisis”
Mortgage loans granted (bn constant pesos) (1)
391
130.000
new
mortgages
260
128
120
2
3
16.000
New
mortgages
2
113
10
99
16
81
26
67
35
48
60 67 60
88
dec-94 dec-95 dec-96 dec-97 dec-98 dec-99 dec-00 dec-01 dec-02 dec-03
Banks
11
Source: Central Bank of Mexico
(1) Excluding “fideicomisos UDIS e IPAB”
Sofoles
At present,
present, public agencies have a
predominant presence in the mortgage market
Number of mortages 2003:
market share
Around 500,000 mortgages
granted in 2003 and
SHF &
Sofoles
12%
Fovisste
15%
Principally social housing
catered by public agencies
Other
9%
Banks
4%
575,000 expected in 2004
Infonavit
60%
(+15%)
The banks have a higher
market share by portfolio
(20%), due to larger average
size
12
... With the main focus in the low and
middle income segments
Housing segment structure
Housing
Segment
“Economic”
Economic”
“Social”
“Middle”
Middle”
Residential””
“Residential
Monthly
salary (US$)
Lenders (1)
Public
< 564
FONHAPO
564 – 1,224
INFONAVIT
& FOVISSTE
1,224 – 3,765
> 3,765
Private
SOFOLes
BANKS
Mortgages
2004E
213,000
220,000
110,000
32,000
(1) FONHAPO: Trust fund that finances low income housing for families earnings less than four times the minimum
Wage financing through tax and by World Bank
INFONAVIT:
INFONAVIT Mandated pension programme for private pension workers, funded by a 5% levy on wages
FOVISSTE:
FOVISSTE Mandated pension programme for public sector workers, funded by a 5% levy on public employee wages
SOFOLes:
SOFOLes Private companies, funded mainly by SHF (“Sociedad Hipotecaria Federal”, public entity)
Source: Sedesol (Ministry of Social Develpment), INEGI (Statistic National Agency)
13
The “SOFOLes”
SOFOLes” have taken advantage of
low competition from the banks
Number of mortgages financed by
Sofoles (in thousands)
thousands)
14%
+
:
R
CAG
67
58
46
Financial entities specialised
in mortgage lending
Lower regulatory
requirements
50
Funded mainly by SHF
Competitive and attractive
positioning in the low and
middle income segments
Strong links with housing
developers
2000
2001
2002
2003
SOFOLes mortgage portfolio is MXN 83.0bn (US $7.3
bn),
bn), or 15% of total Mexican market
14
“SOFOLes”:
SOFOLes”: leading institutions in private
mortgage financing
Significant growth and high business profitability
driven by:
(1)
Withdrawal of banks from mortagage business
Created after 1994 crisis, therefore not affected by high
NPLs,
NPLs, FOBAPROA contingencies,
contingencies, etc
Specialisation,
Specialisation, sole object financial entities
Government support (Sociedad Hipotecaria Federal):
funding and loan guarantees
However,
However, financing constraints and renewed interest from
banks represent future challenges for the sustainability of
business model as it stands today
15 (1) First licenses in 1994
In this environment,
environment, BBVA Bancomer is
creating a solid mortgage franchise
franchise...
...
1. An integral
mortgage strategy
2. Entering the
Public Market:
Market:
“Infonavit”
Infonavit”
3. Private Market:
Market:
nonnon-organic approach
16
ReRe-launch in April 2003
Development of business model
Segmented product offering, with
attractive promotions and pricing
Innovative strategic alliance
Infonavit”” and co“Apoyo Infonavit
co-financing
Infonavit
Targetting a new customer base, with
potential for crosscross-selling
Acquisition of the Sofol “Hipotecaria
Nacional””
Nacional
Market leadership
Consolidating the position of the bank in all market
segments
Table of Contents
Overview and economics of the transaction
The Mexican mortgage business
Drivers for housing demand
Conclusions
17
Drivers for housing demand
1. Positive demographic profile
2. Unsatisfied demand (significant housing
deficit)
deficit)
3. Increasing average income of Mexican
households
4. Improvement of the affordability ratio
Ample room to grow for the Mexican mortgage
business
18
1 The demographic profile is growing in
segments driving the housing sector...
Population by age group in millions
>70
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
0-14
19
2.1
1.7
2.2
2.6
3.4
4.1
5.2
6.4
31 million Mexicans
between 25 y 50 years
7.1
8.2
9.1
31% of population
10.0
32,5
... high rate of household formation in
2525-50 years age bracket
Household formation by age groups (%)
55
>65
71
60-64
76
55-59
79
50-54
82
45-49
40-44
83
35-39
83
79
30-34
68
25-29
43
20-24
11
15-19
'12-14
20
0
Source: Population and Housing Census
2
High level of unsatisfied housing demand
Demand and financing of houses
2003 (in thousands)
thousands)
1,065
333
Housing deficit
31% housing deficit en
2003
Construction/
Construction/
Self construction
Only 46% of the total
demand and 67% of the
construction was financed
732
489
Demand
Mortgages granted
Housing deficit estimated at 7.5 million
21
... and the trend will continue due to the
expected growth in population
Household formation (E) 20042004-2006
(in thousands)
thousands)
+2.2%
1,088
2004
22
+2.3%
1,112
2005
1,138
2006
3 Average income of Mexican households
is rising ...
Household quarterly income by decile (thousand pesos of 2000)
180
160
140
1992
1996
2000
120
100
80
60
40
20
0
23
Average
1
3
5
8
10
Average household income has increased 25% in the
period 1992 to 2000, with all deciles improving
4
...and
...and the affordabilty ratio has improved
Affordability Ratio
100
25% Defined as Affordability Boundary
86%
63%
75
(1)
63%
62%
50
45%
39%
25
28%
20%
02A
03A
0
96A
97A
98A
99A
00A
01A
Affordability Boundary: 25% of Household Income
(1) % of household income to pay the mortgage (medium segment residential)
A mortgage is today more accessible:
accessible: higher
salaries, lower interest rates,
rates, longer maturities
and tax deductions
24
Source: Merrill Lynch
Table of Contents
Overview and economics of the transaction
The Mexican mortgage business
Drivers for housing demand
Conclusions
25
Conclusions
BBVA
BBVA Bancomer achieves a leading position in
the private mortgage business in Mexico
Significant
Significant synergies from lower cost of funding
Earnings
Earnings accretion from initial year
Positive
Positive economic outlook,
outlook, excellent
demographic factors and improved affordability
imply that the mortgage market has ample
room to grow
26
The acquisition of Hipotecaria Nacional is a decisive
step in the expansion of BBVA Bancomer mortgage
business
BBVA Bancomer mortgage portfolio
(Bn Pesos)
Non-manageable(2)
HN portfolio
Manageable(1)
24.9
stock of market mortgages
of BBVA Bancomer
28.5
approximately 26% for the
36.4
10.1
JunJun-03
(1)
(2)
27 (3)
11.6
JunJun-04
The combined market
share stands at
24.8
24.9
HN doubles the current
private market
11.6
JunJun-04
Proforma
Portfolio in pesos mainly residential mortgages
Udis portfolio (“Punto Final scheme”)
Banks +Sofoles
(3)
Presence in all key
mortgage segments