UPDATE: BBVA Profit Jumps On Lower Provisions; Boosts Capital

Banco Bilbao Vizcaya Argentaria SA (BBVA) Wednesday said net profit jumped in the fourth quarter as it recovered from the hefty write-downs it took a year earlier, as robust growth in Mexico and South America offset weakness in Spain.

The bank, Spain's second-biggest by assets behind Banco Santander SA (STD), said net profit was EUR939 million in the quarter, up from EUR31 million in the fourth quarter a year earlier. At the end of 2009, BBVA cleaned up its books by front-loading charges on part of the loan book that it deemed problematic, even if it was still performing.

That move allowed the bank to report a decline in bad loans at the end of the year. Its non-performing loans equalled 4.1% of total loans, down from 4.3% a year earlier.

However, like other Spanish banks, lending margins came under pressure due to higher funding costs and still sluggish demand for loans in Spain. Net interest income in the quarter fell 13% to EUR3.14 billion, the bank said.

A Dow Jones Newswires survey of 10 analyst on average estimated net profit at EUR934 million, and net interest income at EUR3.15 billion.

For the full year, BBVA said net profit was EUR4.61 billion, up from EUR4.21 billion in 2009.

BBVA also boosted its buffer for potential losses significantly, raising core capital to 9.6% from 8% a year earlier. The lender in the fourth quarter issued new shares to pay for a 24.9% stake in Turkish bank Turkiye Garanti Bankasi AS (GARAN.IS). Once that transaction is completed, BBVA's capital ratios would fall back to 8.6%, it said.

The bank, which earlier in the crisis cut its dividend to preserve capital, indicated that it remains in capital raising mode. BBVA said Wednesday it plans to offer two of its four dividend payments in new shares from this year, a so-called scrip dividend.

"That's going to be interpreted as a negative, that they still see a need to preserve capital," said Andrew Lim, head of financials research at London based brokerage Matrix.

The sluggish environment at home led to a drop in earnings in Spain and Portugal, where net profit fell 9% in 2010 to EUR2.1 billion.

Profit was up in all the bank's other divisions. In Mexico, profit rose 12% to EUR1.7 billion as demand for loans grew after the local economy roared back to life. And in South America, credit grew by 22% and deposits by 19%, underpinning a 17% rise in net profit to EUR889 million.

In the U.S. the group swung to a profit of EUR236 million from a EUR950 million loss in 2009. That year, the bank took a hit when it wrote down the value of its commercial real-estate loans.

BBVA's wholesale banking unit reported an 11% rise in net profit to EUR950 million, as investment banking revenue rose.

BBVA's shares rose in early trade Wednesday, and at 0834 GMT, the stock was up 0.5%, to EUR9.36.

The stock has gained 23% since the beginning of the year. Fears that Spain would have to be bailed out by stronger European Union countries have abated in recent weeks, pushing down the yields on Spanish sovereign debt and sparking a rally in the banking sector.

-By Christopher Bjork, Dow Jones Newswires; +34913958123; christopher.bjork@dowjones.com

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