Making the right investment calls in a turbulent economy

From its inception, the BBK Banking Foundation has shown a measured approach when plotting a course ahead, and in doing so, it has weathered the storms of numerous global crises


Since 2008, a series of global events has made us question most of our preconceptions about the world we live in: economic and environmental crises; a pandemic that slowed down the whole economy; and, most recently, geopolitical crises and even wars that have altered energy markets as strategic as the European one. All of it came with harsh consequences not just for the global markets, but at a personal level.

Our future offers more questions than answers. However, the only way to improve our reality is to understand how it changes, and from that perspective, make the right decisions that allow us to move forward. After all, we stand where we are today because of the decisions that we all took in the past.

This was the case for BBK Banking Foundation since it started its activity in 2014. It is worth remembering that the Savings Banks and Banking Foundations Act of 26/2013 clearly defined a series of conditions for banking foundations that maintained a shareholding equal to or greater than 50 percent of their respective financial institutions. That is indeed the case of the BBK Banking Foundation, with respect to Kutxabank, as it controls 57 percent of its shares.

All entities in such a situation are required to present a reinforced financial plan that includes its forecasts in terms of investment diversification and risk management. This requirement seeks to minimise the financial dependence of banking foundations on the investor credit institutions they support. Furthermore, those foundations interested in maintaining their majority positions have to set up a reserve fund to meet any future needs that the investor might face that could jeopardise its solvency. The alternative is to sell stakes in the bank until it reaches a threshold below the control position, either through an IPO or with a different transaction.

Making the right call
From the very beginning, BBK was committed to opt for the endowment of the reserve fund, being well aware of both the disincentives to retaining its majority position and the financial dimensions that the fund required; €231m at the end of 2022. And its commitment emerged from its understanding of Kutxabank as a strategic contributor to the Basque economy, its unquestionable institutional relevance, and its need of a stability provider that could manage its growth without a dependence on cyclical factors.

We stand where we are today because of the decisions that we all took in the past

BBK made the right call: this investment is generating a moderate but stable return regardless of the many crises that economies all around the world have been facing. This decision was also essential as it allowed Kutxabank not to become a listed company, which has also been proven as the best fit for the context of the operation. Those savings banks that chose to become publicly traded companies have not performed as well as expected. Meanwhile, a study conducted by Deusto Business School last year concluded that not being a listed company avoided about €2bn in losses.

What could have happened if the company had instead chosen to let go and turn Kutxabank into a listed firm? In our opinion, the bank would have suffered greatly and the successes we have realised would have been that much harder to achieve. BBK recently managed to fill its reserve fund two years earlier than expected. This was despite very complex economic contexts, namely the drastic reduction in income experienced during the pandemic and the uncertainty generated by the health crisis in the absence of dividends.

The milestone of the early endowment of this fund allows the BBK Banking Foundation to strengthen the strategic horizon of our activity, which is none other than to guarantee, reinforce and promote the activity of our social work, the largest per capita in Spain. This is our raison d’être. And to achieve it through a prudent management model that focuses on diversification and minimising risk, as demanded by the law since its enactment. So it’s a model that adapts its course to make it sustainable over time and one that enhances the financial solvency of the entity and energetically defends the roots of its activity in the province of Bizkaia. With this model in place, we can make decisions with the goal of meeting the strategic objectives set.

Although we acknowledge that our approach is not always the fastest, the most striking or the noisiest, we do not know any other way. The measure of our success can be seen in the steps we have taken since we began our journey nine years ago and it proves that as a banking firm, we are without doubt, a success story.