EARNINGS PREVIEW: Spain's Big Banks' Profits Seen Steady

TAKING THE PULSE: Despite an ongoing recession at home, Spain's two biggest banks are expected to report steady earnings this week, allowing both Banco Santander SA (STD) and Banco Bilbao Vizcaya Argentaria SA (BBVA) to continue to strengthen their balance sheets.

During the last quarterly earnings, BBVA surprised investors by taking hefty write-downs and provisions, while Santander set aside all of the capital gains it had accrued over the last year to tidy up its loan book.

Still, both banks are expected to continue to hoard cash to cover souring loans in coming quarters, particularly in Spain, where the economy has contracted for six straight quarters. Offsetting the weak Spanish outlook is the roaring back of the Latin American economies, and an improved U.S. economy, which analysts expect will support Santander and BBVA's bottom line in coming quarters.

Santander seems to have gained an edge over its smaller rival during the global banking crisis when it comes to acquisitions: It bought more ailing banks on the cheap, giving it a stronger platform for growth thanks to its large footprint in Brazil and the U.K.

However, both banks have recently said they continue on the lookout for acquisition opportunities.

*Banco Bilbao Vizcaya Argentaria SA (BBVA) - Wednesday.

Analysts polled by Dow Jones Newswires forecast net profit to drop 0.8% to EUR1.23 billion on EUR5.09 billion in total revenue. Net interest income is seen up 4% to EUR3.40 billion.

Key Issues: Spain's second-largest bank by assets disappointed investors with its fourth-quarter results, and analysts say BBVA needs to deliver this time for the stock to rebound from its recent weak streak. The focus will be on the bank's outlook for its franchise in Spain, Mexico and the U.S., which were the main laggards in the fourth quarter.

Banco Santander SA (STD) - Thursday.

Analysts expect Santander's net profit to rise 2.8% to EUR2.16 billion, boosted by a 13% increase in its net interest income, to EUR6.85 billion. Revenue is seen up 9% to EUR10.05 billion, backed by its Brazilian and U.K. businesses.

Key Issues: Even with an already strong balance sheet, Santander remains in capital-raising mode, and a key question is what it will use all the excess cash for. Focus will also be on Spain, regarded as Santander's toughest market right now due to its weak economic outlook.

-By Christopher Bjork, Dow Jones Newswires, +34 91 395 81 23, christopher.bjork@dowjones.com

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