4th UPDATE: BBVA 4Q Net Profit -94% On Provisions, US Charges

Banco Bilbao Vizcaya Argentaria SA(BBVA) Wednesday fueled growing fears that Spanish banks face earnings pressure as it shocked markets with much lower-than-expected fourth-quarter results, taking a hit from hefty write-downs and provisions.

BBVA's fourth-quarter net profit plunged 94% to EUR31 million from EUR519 million a year earlier, well below a EUR1.07 billion average forecast from nine analysts polled by Dow Jones Newswires.

Spain's second-largest bank by assets behind Banco Santander SA (STD), set aside EUR1.79 billion in the fourth quarter against non-performing loans that rose to 4.3% of total lending in December, up from 3.4% in September and 2.3% a year earlier.

Revenue rose 16% in the fourth quarter to EUR5.29 billion from EUR4.56 billion a year earlier.

"It was a great opportunity to clean up as much as we could, so management could focus on the bank," BBVA Chairman Francisco Gonzalez told reporters. "We have taken a great step to leave big problems behind."

French bank Societe Generale SA (GLE.FR) set the negative tone for European fourth-quarter bank results when it warned earlier this month it will manage only a slight profit as write-downs and provisions on real-estate linked assets, coupled with a slump in investment banking activity, weighed on earnings.

Spain has been struggling with the worst downturn in decades, fueled by the collapse of its once mighty construction and real-estate sectors. The country has the highest unemployment rate in the euro zone.

Spanish bank shares fell following BBVA's results. At 1320 GMT, BBVA was leading European banks lower, down EUR0.66, or 5.6% at EUR11.37, while chief rival Santander was down 3.3% at EUR10.41.

"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."

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%. Total provisions and charges for 2009 amounted to EUR6.57 billion.

BBVA 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.

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, developing a network of more than 700 branches, mostly across the U.S. southwest.

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 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. 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. Its loan-loss provisions included EUR200 million for properties in Spain, EUR164 million for consumer loans in Spain and Portugal and EUR73 million for credit cards in Mexico.

Local brokerage Eurodeal said in a note to investors that the banking sector "has started the year with a lot of uncertainty, which would imply downward adjustments" for stocks.

Company web site: www.bbva.com

-By Leire Barrera and Santiago Perez, EFE Dow Jones Newswires; (34) 395 8120; djmadrid@dowjones.com

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