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BBVA Quarterly Profit Misses Estimates on Bad-Loan Charge

BBVA bank branch in Madrid
Signs sit outside a Banco Bilbao Vizcaya Argentaria SA (BBVA) bank branch in Madrid. Photographer: Angel Navarrete/Bloomberg

Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, posted third-quarter profit that missed analysts’ estimates on a bad-loan charge and said it will skip January’s dividend.

BBVA fell 2.3 percent in Madrid trading after reporting net income of 195 million euros ($269.5 million), less than the 614.5 million-euro average estimate in a Bloomberg survey of six analysts. The Bilbao, Spain-based bank booked a 600 million-euro charge for reclassifying 3.86 billion euros of refinanced loans as non-performing.

“The focus still has to be Spain as an ongoing drag on earnings,” Daragh Quinn, an analyst at Nomura International in Madrid, said in a phone interview.

BBVA is still cleaning up its Spanish loan book after a government order to banks last year to speed up recognition of losses on real estate holdings helped drag down 2012 profit by 44 percent. The bank said last week it would record a 2.3 billion-euro charge against 2013 earnings for reducing its stake in China Citic Bank Corp. as it maneuvers to bolster capital.

Euro-area banks are also likely to speed efforts to shore up their finances as the European Central Bank gets ready to scrutinize their health. The ECB will go through the accounts of about 124 of the region’s banks in a three-step process starting next month. Examiners will first identify problematic loans, then review banks’ balance sheets in early 2014 and conduct stress tests before officially taking over as banking regulator a year from now, the central bank said on Oct. 23.

Dividend Plan

BBVA will skip a third 10 cent cash payment against 2013 earnings in January and increase a payout in April to 17 cents from 12 cents originally forecast under its scrip dividend program. It is complying with Bank of Spain guidance to limit distributions to shareholders and good practice recommended by the International Monetary Fund, Chief Operating Officer Angel Cano said on a webcast for analysts today.

BBVA will eventually move to a policy of paying a cash dividend of between 35 percent and 40 percent of earnings from its current practice of paying 42 cents a share in cash and stock, the company said. For 2014, the bank will continue to distribute two dividends in cash and two that allow shareholders to take payment in stock.

“We have to end up moving sooner or later toward a single policy of paying the dividend in cash,” said Cano. The new approach, which the bank will start phasing in next year, is designed to enable the company to finance growth, he said.

Complicated Way

“It was positive because it showed they understand what the Bank of Spain has said and also the market’s concerns,” said Nick Anderson, an analyst at Berenberg in London.

Other analysts were less positive. “It looks like a very complicated way of saying they’re cutting the dividend,” said Neil Smith, an analyst at Bankhaus Lampe in Bielefeld, Germany, in a phone interview.

The shares fell 2.3 percent to 8.85 euros at close in Madrid, trimming the gain this year to 27 percent. Banco Santander SA, Spain’s largest bank, rose 7 percent this year.

BBVA presented “a decent set of results except for provisions, which surprised negatively in Spain,” Stefan Nedialkov, Ronit Ghose and Vikas Sharma, analysts at Citigroup Inc., said in a note published today.

Bad Loans

Net interest income, or the excess revenue from interest earned on assets compared with that paid on deposits, fell 3.5 percent from the second quarter and 8.4 percent from a year earlier to 3.55 billion euros, BBVA reported. Gross lending fell an annual 5.4 percent, the bank said.

Bad loans as a proportion of total loans rose to 6.7 percent from 5.5 percent in June, the bank said. The core capital ratio rose to 11.4 percent from 11.3 percent in the second quarter, based on Basel 2.5 standards.

BBVA will have a core capital ratio under fully-loaded Basel III criteria of at least 9.5 percent at the end of the year, compared with 8.4 percent currently, Cano said. The figure may rise further if the bank is allowed to treat deferred tax assets as capital, he said.

The Spanish banking business posted a 265 million-euro loss in the third quarter compared with a 250 million-euro profit a year before. Net interest income at the division fell 20 percent in the first nine months of the year, hit by a court decision forcing BBVA to remove floors, or minimum interest rates, applied to mortgage contracts.

Profit from Mexico, BBVA’s biggest-earning division, rose to 427 million euros from 401 million euros in the same quarter a year ago. Earnings from South America rose to 338 million euros from 232 million euros a year ago.

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