2nd UPDATE: BBVA Swings To Loss On Hefty US Goodwill Charge

Spain's Banco Bilbao Vizcaya Argentaria SA (BBVA) said Thursday that it swung to a fourth-quarter loss after taking a EUR1 billion charge on its U.S. operations and setting aside more cash to cover bad loans.

But, unlike cross-town rival Banco Santander SA (STD), BBVA didn't take a big charge on its real estate holdings in the quarter.

BBVA reported a net loss of EUR139 million after a profit of EUR939 million a year earlier. The bank had already announced the charge after writing down goodwill for the U.S. unit. Net interest income rose 11% to EUR3.49 billion.

Some analysts were expecting BBVA to follow Santander's lead and raise its coverage on properties that the bank has foreclosed on since the beginning of the crisis four years ago. It didn't, with BBVA's executives saying they prefer to wait until they know the exactly how much more they have to provision.

Santander earlier this week said it had raised its provisioning on foreclosed properties to 50% from 31% a year earlier, while BBVA said it only raised loss coverage to 34% of the value, from 32% at the end of 2010. BBVA is sitting on some EUR7.7 billion in properties it has foreclosed on since the Spanish downturn started in 2008.

Finance Minister Luis de Guindos later Thursday will present legislation that will force banks to set aside an additional EUR50 billion to cover losses on their exposure to the ailing real estate sector, and the government is expected to approve the bank overhaul Friday.

BBVA did increase the cash it set aside to cover loan losses in the fourth quarter by 24%, to EUR1.34 billion.

Chief Operating Officer Angel Cano said his bank will "easily" meet the new provisioning levels and replenish its buffers to comply with higher capital requirements from European banking regulators, without lowering the dividend or selling strategic assets.

At 1128 GMT, BBVA's shares were up 1.5% at EUR7, while the Spanish market was up 0.4%.

Full-year net profit fell to EUR3 billion from EUR4.61 billion in 2010, BBVA said.

Cano said BBVA expects higher profits at all its divisions next year, helped by healthy growth in Latin America and improved profitability in Spain. BBVA, which owns the biggest bank in Mexico and has a network of banks across Latin America, received 51% of its profits from the region this year. That compares with 25% from Spain, 5% from the U.S. and 19% from its Eurasia division, which includes large equity stakes in a Chinese and a Turkish lender.

BBVA's pool of bad debts stood at EUR15.87 billion or 4% of total loans, up marginally from EUR15.69 billion a year earlier. However the bank also completely wrote off some EUR4.1 billion of loans.

The bank said it had covered all its liquidity needs for this year by borrowing EUR11 billion from the European Central Bank's long-term refinancing operation, or LTRO. The ECB offered the long-term funding in December for the first time in an effort to stem a deepening liquidity crunch in Europe.

The ECB funding is a "liquidity insurance," and doesn't mean the bank won't issue debt this year if market conditions improve, BBVA said.

BBVA also said it had nearly completed the capital raising needed to meet higher solvency requirements from the Europe's banking watchdog the European Banking Authority. It said it had raised EUR5.3 billion out of a shortfall of EUR6.3 billion.

COO Cano added that the bank expected the EBA to allow banks to run down their buffers against sovereign debt losses--BBVA has set aside EUR2.3 billion to cover potential losses on European government debt--potentially allowing BBVA to cover the real estate provisioning needs with these funds.

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

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