BBVA Profit Declines on South America as Gains Not Repeated

Apr 30, 2014 12:15 pm ET

(Closes share price in fifth paragraph.)

April 30 (Bloomberg) -- Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, said first-quarter profit fell 64 percent as weaker South American currencies hit earnings from the region and one-time gains a year earlier weren’t repeated.

First-quarter net income fell to 624 million euros ($861.3 million) from 1.73 billion euros a year earlier, the Bilbao, Spain-based bank said in a filing to regulators today. Earnings were in line with the average forecast in a Bloomberg survey of 13 analysts.

BBVA is among banks counting on a boost to profits in Spain as renewed economic growth unwinds the effects of a real estate crash that led to 184 billion euros of sour loans since the end of 2006. Weaker currencies in emerging markets including Venezuela and Argentina proved a headwind to growth as lending revenue fell even as the bank said its bad loans ratio declined for the first time since 2011.

“Mexico performed well and non-performing loans do seem now to have peaked,” Daragh Quinn, an analyst at Nomura International in Madrid, said in a phone interview today. “The risk is that Venezuela and Argentina continue to be a drag on earnings.”

Shares Decline

BBVA’s shares fell 1.1 percent to 8.85 euros at the close of trading Madrid, valuing the company at 52.1 billion euros. The 43-member Bloomberg Europe Banks & Financial Services Index dropped 0.7 percent.

Net interest income was 3.39 billion euros in the first quarter compared with 3.76 billion euros in the fourth quarter and 3.62 billion euros a year earlier as gross lending fell an annual 6.1 percent, the bank said.

The bank will seek to grant 100 billion euros of new loans to companies and small and medium-sized firms this year, Chief Operating Officer Angel said at a news conference in La Moraleja, near Madrid, today.

“Overall revenue looks very weak although costs also were lower,” Nick Anderson, an analyst at Berenberg Bank in London, said by phone today. “While part of the explanation may come from foreign exchange effects, the underlying trends do look weak.”

Bad loans as a proportion of total loans fell to 6.6 percent from 6.8 percent in December. Fee income fell 6.4 percent from a year earlier to 985 million euros.

Venezuela Impact

South America profit fell 19 percent to 244 million euros, the bank said. Last month, Venezuela allowed the bolivar to plunge on a new currency market in a step that hits foreign companies doing business in the country.

The impact on profit of the new currency rate being applied in Venezuela during the quarter was 44 million euros, said Jaime Saenz de Tejada, the bank’s head of strategy and finance. BBVA earned 369 million euros from Venezuela and 214 million euros from Argentina last year.

BBVA expects the contribution from Venezuela to profit will fall by about a third this year and Argentina’s will fall 20 percent, Saenz de Tejada said. He said the Venezuelan business remained “intact” and he didn’t see the need to take any impairment charge for it.

Profit from Spain fell 33 percent from a year ago to 386 million euros, the bank said. Bad loans as a proportion of total loans at the unit were unchanged from December at 6.4 percent.

Earnings from Mexico, BBVA’s biggest-earning division, rose 5.7 percent to 453 million euros.

BBVA’s earnings a year ago were inflated by the sale of a Mexican pension business and profit from a reinsurance agreement.