Bloomberg News

BBVA Profit Misses Estimates on Trading Loss, Spain Slump

October 26, 2011

(Closes shares.)

Oct. 26 (Bloomberg) -- Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, said third-quarter profit dropped 29 percent after “convulsed” markets caused a trading loss and earnings slumped in its home market.

Net income fell to 804 million euros ($1.12 billion), from 1.14 billion euros in the year-earlier period, the Bilbao-based bank said today. That missed the mean 865.3 million-euro profit estimate in a Bloomberg survey of 10 analysts.

Earnings fell by half in Spain, where lenders are lumbered with assets damaged by the country’s real-estate crash. That confirmed Mexico, where profit also declined, as the biggest contributor to earnings. “Low activity” at its wholesale banking unit and a drop in asset prices produced the trading loss, BBVA said.

“It’s really hard going for them at the moment,” said Neil Smith, an analyst at WestLB AG in Dusseldorf, who has a “sell” rating on the shares. “Earnings are disappointing, well below consensus.”

BBVA fell 1.3 percent to 6.23 euros in Madrid trading, extending this year’s decline to 18 percent. That compares with a 30 percent drop in the 46-company Bloomberg Europe Banks and Financial Services Index and the 25 percent slide by larger Spanish rival Banco Santander SA, which reports third-quarter earnings tomorrow.

Bad Loans

Net interest income rose 1.3 percent to 3.29 billion euros, the bank said. BBVA posted a loss of 25 million euros on financial operations, compared with revenue of 519 million euros a year ago.

“There has been a generalized decline in prices in all the markets, including emerging ones,” Angel Cano, BBVA’s president and chief operating officer, said on a webcast, adding that fixed-income securities in its pension-funds businesses had also been affected. “It’s a pure effect of the markets.”

Bad loans as a proportion of BBVA’s total lending rose to 4.1 percent from 4 percent in June, the bank said.

Loans newly classed as in default fell to 2.9 billion euros from 3.7 billion euros in the second quarter, when the lender “subjectively” classified 450 million euros of Spanish mortgages as non-performing. Costs for covering damaged assets fell to 904 million euros from 1.19 billion euros a year ago.

Asset Quality

“Trading revenues were under pressure in this quarter, and maybe that’s a bit unusual for a bank like BBVA, but in general I thought the numbers they presented were reasonable enough,” said Daragh Quinn, an analyst at Nomura International in Madrid. “Net interest income was stable in Spain and loan-loss charges were broadly in line with previous trends.”

BBVA said its core capital ratio, a measure of financial strength, rose to 9.1 percent from 9 percent in June. BBVA may have a capital deficit of about 3.1 billion euros, based on the needs of banks under a 100 billion-euro plan to recapitalize European lenders, JPMorgan Chase & Co. said in an Oct. 24 report.

BBVA doesn’t know what requirements may be imposed after European leaders attend today’s debt-crisis summit in Brussels, Cano said. The bank estimates that it will have about 4.7 billion euros to deploy to meet any new requirements that may be put in place by about June of next year, he said.

That amount comes from estimates of how much BBVA could free up from the earnings it generates and by managing its “internal models” in discussion with the Bank of Spain, Cano said. Marking its 26 billion euros of Spanish sovereign debt to market value would generate a negative impact for the bank of 404 million euros, Chief Financial Officer Manuel Gonzalez Cid said at a Madrid news conference.

‘Absolute Calm’

“We have sufficient measures ahead of us so that we can act with absolute calm on this point,” said Cano. Managing internal models involves reclassifying risk-weighted assets, said a bank spokesman, who asked not to be named in line with company policy.

Profit from Spain, which accounts for 60 percent of the bank’s lending, fell 49 percent to 265 million euros, BBVA said.

The bank saw no sign in the quarter of any change in asset quality in Spain, said Cano, adding that the increase in the bad-loan ratio to 4.9 percent from 4.7 percent in June partly resulted from an annual 2.2 percent decline in lending in the country.

“We don’t see any change in trend that makes us change the discourse we’ve maintained up to now,” said Cano.

Earnings from Mexico fell to 402 million euros from 445 million euros, BBVA said.

Net income from Eurasia, a unit including BBVA’s arms in Turkey and China and operations in Europe outside Spain, rose to 257 million euros from 147 million euros a year ago. Profit at its U.S. unit fell to 65 million euros from 79 million euros.

Gross lending for the group climbed 2.8 percent from a year ago, while deposits rose 10 percent, BBVA said.

--Editors: Dylan Griffiths, Keith Campbell.

To contact the reporter for this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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