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BBVA May Say Quarterly Profit Fell Amid Spain Slump, Higher Funding Costs
Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, may report lower second-quarter profit after Spain’s worst recession in 60 years dented credit demand and drove up lenders’ funding costs.
Net income probably fell to 1.23 billion euros ($1.6 billion) from 1.56 billion euros a year earlier, according to the average estimate in a Bloomberg survey of eight analysts. Bilbao, Spain-based BBVA will report results tomorrow before the stock market opens.
The lender may benefit from an improved economic outlook in Mexico, its second-biggest market, as the aftermath of the recession hurts lending and revenue at home, Carlos Berastain, a Deutsche Bank AG analyst, said in a report.
BBVA, led by Chairman Francisco Gonzalez, last week passed a stress test of European banks with its Tier 1 capital ratio, a measure of the ability to absorb losses, dropping to 9.3 percent in the most adverse scenario from 9.4 percent at the end of 2009.
Investors are looking for signs BBVA, which allowed Spanish deposits to shrink 6.9 percent in the first quarter, will take steps to shore up its retail funding base amid concern over financing costs, said Daragh Quinn, an analyst at Nomura International in Madrid.
The lender earlier this month sold 2 billion euros of covered bonds to yield 195 basis points more than the swap rate. That yield compared with a sale of covered bonds by La Caixa, Spain’s biggest savings bank, in April priced to yield 72 basis points more than swaps.
Balance Sheet
“Investors want to see balance-sheet strength,” Quinn, who rates BBVA “neutral,” said in a phone interview. “They need to show they have at least maintained their deposit base in Spain or people are going to ask some questions.”
The 21 percent decline in the bank’s shares this year values the company at about 38 billion euros and compares with a 2.3 percent drop in the 54-member Bloomberg Europe Banks and Financial Services Index.
Profit from Spain and Portugal may fall 9 percent to 532 million euros, according to an estimate from Carlos Joaquim Peixoto, an analyst at Banco BPI SA.
Profit from Mexico and the U.S. may have gained 7.6 percent to 468 million euros, while earnings from South America may have dropped 12 percent to 190 million euros, according to Nomura’s Quinn. Mexico’s gross domestic product will expand 4.4 percent this year, according to a Banco de Mexico survey.
Earnings from wholesale banking may have declined 3.3 percent, Quinn said. Gross non-performing loans as a proportion of total lending may rise to 4.5 percent from 4.2 percent in March, he said. BBVA reclassified 1.8 billion euros of good loans as doubtful in the fourth quarter as the bank anticipated future losses.
To contact the reporter for this story: Charles Penty in Madrid at cpenty@bloomberg.net
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