Spanish Business News

MADRID (Dow Jones)--Banco Bilbao Vizcaya Argentaria SA (BBV) Wednesday posted a shock 94% net profit decline, sharply undershooting expectations as it booked hefty loan-loss provisions and write-downs on the value of its U.S. operations.

Spain's second-largest bank by assets behind Banco Santander SA (STD) reported a net profit of EUR31 million in the last three months of 2009 compared with EUR519 million a year earlier. A Dow Jones Newswires survey of nine analysts forecast quarterly net profit at EUR1.07 billion.

The bank set aside EUR1.79 billion to cover mounting loan losses, as non-performing loans rose to 4.3% of total lending in December, up from 3.4% in September and 2.3% a year earlier.

It also booked EUR1.05 billion in charges to adjust the value of its U.S. banking franchise and set aside EUR533 million in provisions to cover commercial real-estate loan losses at its BBVA USA unit. "As we expected, it has been a very difficult year from a macro economy point of view," said BBVA's Chief Executive Officer Angel Cano.

"BBVA ends the year better provisioned, more resistant than a year earlier," Cano told analysts.

BBVA, which owns the biggest bank in Mexico and has the second-biggest banking network in Latin America, has in recent years bought four U.S. banks, building a 650-branch franchise across the Rio Grande.

Having avoided many of the problems hitting the global financial services industry by sticking to basic retail banking, the Spanish bank was able to pick up assets from banks that have fared worse. Last year, it won a U.S. government auction for Guaranty Financial Group Inc., a Texas bank that had been warning for months that it was on the verge of collapse because of swelling losses.

However, BBVA now faces challenging economic conditions in all of its main markets. Its loan-loss provisions also included EUR200 million for properties in Spain, EUR164 million for consumer loans in Spain and Portugal and EUR73 million for credit cards in Mexico.

Like local rival Banco Espanol de Credito SA (BTO.MC), BBVA set aside funds to cover loan losses expected to surface from the troubled real-state sector this year. Total provisions and charges for 2009 amounted to EUR6.57 billion.

Some provisions are in anticipation on an expected challenging environment for 2010 and "take advantage of business opportunities that may arise in different business segments," BBVA said in a press release.

Other charges include EUR90 million linked to Venezuelan operations, which have been hit by high inflation, and EUR300 million in provisions for early retirement programs as it seeks to cut labor costs.

"Stripping away the write-downs, the results were actually of good quality," said David Gualtieri of Madrid-based Ibersecurities brokerage. "The market will probably initially look at the bottom figure and sell off on the back of it. However, don't be surprised if it rebounds, as "the cleaning of the slate" is something that all the Spanish banks will eventually have to do, and being ahead of the curve is always better."

At 0900 GMT, BBVA shares were 5% lower at EUR11.42, leading decliners on Spain's key IBEX-35 index, which was down 2.6%. BBVA shares have lost more than 10% so far this year, also hit by planned reforms in the U.S. banking sector.

BBVA's net interest income rose 16% to EUR3.59 billion from EUR3.09 billion a year earlier, above market expectations of EUR3.36 billion. BBVA said it was able to strengthen key solvency ratios, raising its core capital ratio by 180 basis points from 2008 to 8%.

Source: Wall Street Journal