RBC Capital Markets downgraded Banco Bilbao Vizcaya Argentaria (BBVA) to “sector perform” from “outperform” due to valuation concerns. Despite strong metrics, RBC believes further share price increases will be challenging. The brokerage raised its price target to €19.75, implying an 8% downside from the previous trading day's close. BBVA shares fell over 2% following the announcement.

RBC shifted its preference to Banco Santander due to perceived lower risk and upside potential. The valuation gap between BBVA and Santander has widened, reaching the largest differential in over a decade. BBVA's management projects a 22% average return on tangible equity and €36 billion in total distributions through 2028. However, RBC sees the current valuation as full.

BBVA’s profitability is heavily reliant on international markets, with Mexico contributing 50% of its fiscal 2025 net attributable profit. Turkey, accounting for 8% of profits, introduces uncertainty due to upcoming elections. RBC valued BBVA using a sum-of-the-parts model. Investors should keep a close eye on these international risks.

This downgrade reflects a shift in sentiment toward Spanish banks, with RBC signaling a preference for Santander. The analysts' adjustments highlight the importance of careful valuation in the current market environment. Investors should monitor how the relative performance of BBVA and Santander evolves, particularly in the context of global economic conditions and interest rate expectations.