BBVA adds its EAGLES to the BRIC, CIVETS debate

Friday, November 12, 2010

In the growing din for emerging market strategy, Spain's BBVA (NYSE: BBVA) has added its EAGLES criteria to a debate that has been dominated by the BRICs from Goldman Sachs (NYSE: GS) and recently challenged by CIVETS from HSBC (NYSE: HBC).

In a presentation in Medellin, Colombia at the annual Latin American and Caribbean Economic Association (LACEA) conference, BBVA group chief economist Jose Luis Escriva presented his team's best bets for 10-year economic expansion, pointing out the perceived flaws of the BRIC and CIVETS concepts, as well as admitting that these projections could drive the bank's own expansion strategies.

BRIC (Brazil, Russia, India and China) and CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) present various problems for Escriva, including the fact that bigger is not necessarily better - as these lists tend to imply - and their timeframes are too long at 25 years in the case of BRIC. The acronym naming system also implies an unchanging list of economies on which to focus.

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BBVA is taking the approach of focusing on economies that look likely to add more to global growth than the average of the G6 (the six largest economies minus the US) for its EAGLES, making Brazil Latin America's major contributor. A second group of countries that will add to global growth somewhere between the G6 average and the worst performer of the G6 - Italy - are being called the "EAGLES nest" countries and include Argentina, Colombia and Peru in Latin America.

BBVA's economists believe the concept explores potential growth paths with greater precision and also allows better and worse performing economies to move in and out - respectively - of the sample over time.

However, Joaquin Vial Ruiz-Tagle, BBVA's chief economist for South America, told BNamericas that each of the Latin American EAGLES nest countries presents downside risks: Colombia with its informal economy and need for financial integration, Argentina for its deep-seeded macro issues and Peru because of its size, which is at the cut-off point for BBVA's criteria, as well as its informal economy.

As for Latin America's two other major economies, Brazil could see downsides from its previously overly optimistic GDP outlook, as well as its productivity projections, while Mexico is likely to face issues from its heavy trade with the US, in addition to productivity.


In terms of how this will guide BBVA's corporate strategy, Escriva said that Asia, Turkey and Latin America would continue to loom large for future investment, with a focus on countries that are big enough to support the volumes and scale necessary to make a banking presence profitable and always recognizing political and other risk factors.

Vial added that a focus on economies where growth among people making more than US$10,000 per year would be part of the criteria, since this is the level at which they begin to really have a need for the retail banking services that BBVA provides.

BBVA's largest presence is in Mexico, with subsidiaries in Argentina, Chile, Colombia, Panama, Peru, Uruguay and Venezuela. The formal announcement of the EAGLES project and its implications for Mexico is scheduled for November 16.