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BBVA’s Quarterly Profit Slumps on Spain Real Estate Purge

July 31, 2012

BBVA’s Quarterly Profit Slumps on Real Estate Purge in Spain

BBVA’s presence in growth markets such as Mexico, Colombia and Turkey help it to better withstand plunging earnings in Spain, where lending and deposits are shrinking as the country’s recession deepens. Photographer: Angel Navarrete/Bloomberg

Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-biggest bank, said profit slumped 58 percent in the three months through June as it complied with government orders to take losses on real estate.

Net income dropped to 505 million euros ($619.9 million) from 1.19 billion euros in the year-earlier period, the Bilbao, Spain-based lender said in a filing to regulators today. Earnings missed the 695.5 million-euro average estimate of 15 analysts surveyed by Bloomberg.

BBVA’s presence in growing markets such as Mexico, Colombia and Turkey has helped it withstand declining earnings, lending and deposits in Spain as the recession deepened and corporate clients pulled out 6 billion euros following debt-rating downgrades. The bank, which does 60 percent of its lending at home, said it has now booked 1.43 billion euros of the 4.6 billion euros of provisions ordered by the government to purge the real estate loans that it accumulated during the boom.

“There is a timing issue with the real estate provisioning in Spain but they will get it done,” said Daragh Quinn, an analyst at Nomura International in Madrid, in a phone interview today. “When you take out the effect of provisioning, the results look pretty good with a strong revenue performance and stable asset quality.”

Shares Gain

BBVA fell 4.6 cents, or 0.9 percent, to 5.32 euros in Madrid. The stock is down 19 percent this year. The bank, which earned 6.13 billion euros in profit before provisions in the first half, is on course to earn 12 billion euros by that measure over the whole year, President and Chief Operating Officer Angel Cano said on a webcast for analysts.

Gross lending rose 3.8 percent from a year earlier as deposits fell 1.5 percent, the bank said. The ratio of bad loans to total lending was unchanged in June from March at 4 percent.

Loans newly classified as in default jumped to 3.72 billion euros from 3.09 billion euros in the first quarter. The total of bad loans reached 16.1 billion euros from 15.5 billion euros a year earlier.

Net interest income, or revenue from lending after payments to depositors, rose 16 percent to 3.74 billion euros, the bank said. The bank is in the process of selling 2 billion euros of “damaged assets” of different types, Chief Financial Officer Manuel Gonzalez Cid said on a webcast for analysts today.

Adjusted net income from Spain fell 38 percent to 255 million euros, BBVA said. The bad-loan ratio for the division rose to 5.1 percent from 4.9 percent in March.

Spanish Lending

Spanish lending fell 3.7 percent from a year ago and deposits slid 8.4 percent. The bank lost 3.64 billion euros of Spanish deposits in the second quarter compared with the first quarter, BBVA said.

Earnings from Mexico, the biggest contributor to BBVA’s profits, rose 1.2 percent to 439 million euros. Profit from South America climbed to 330 million euros from 270 million euros a year ago and earnings from Eurasia, a division that pools BBVA’s business in Turkey and China and operations in Europe outside Spain, rose to 277 million euros from 249 million euros.

Earnings from corporate and investment banking fell 9 percent. BBVA will also suffer a 350 million-euro hit to profits through 2013 after Telefonica SA scrapped a 1.5 euro-a-share dividend for 2012, Gonzalez Cid said. The bank has a stake of almost 7 percent in Telefonica.

Banco Santander SA (SAN), Spain’s biggest bank, on July 26 posted a 93 percent slump in second-quarter profit as it purged real estate loans. Its stock has dropped 8.8 percent this year.

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

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


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