The Spanish Inquisition is About to Begin...

Now, it is time to see if fundamentals return to the market. 

From
Bloomberg: BBVA Fourth-Quarter Profit Plunges 94% to $44 Million on
Asset Writedowns

 Jan. 27 (Bloomberg) -- Banco Bilbao Vizcaya Argentaria
SA said fourth-quarter profit slumped to 31 million euros from 519
million euros a year earlier as the lender wrote down the value of some
assets.

BBVA fell the most in eight months in Madrid trading after
saying net
income fell to 31 million euros ($43.6 million) from
519 million euros a year earlier, the Bilbao, Spain-based bank
said in a filing today. That missed the 1.05 billion-euro median
estimate in a Bloomberg survey of nine analysts as the bank took
a 704 million-euro writedown for its U.S. franchise.

BBVA said it took the
writedowns after analyzing its “most problematic portfolios”
as it prepares for a tough year with recessions in its biggest
markets of Spain and Mexico.

“Whenever there are writedowns like this, there must be a
clear negative message behind that,” said Peter Braendle,
who
oversees about $57 billion at Swisscanto Asset Management in
Zurich and holds BBVA shares. “My concern is that the worst may
not be over, especially in Spain.”

Extra Provisions

The bank took 1.05 billion in charges as it adjusted the
value of its U.S. business. Other writedowns included 200
million euros of provisioning charges for assets acquired in
Spain as it reported additional losses on its Iberian consumer
loan book, BBVA said.

Today’s writedown represents about 15 percent of the
goodwill attached to the U.S. business, according to estimates
by Banco BPI SA. U.S. provisions were 715 million euros higher
than in the third quarter as the bank adjusted the value of
commercial real estate collateral. The bank also took a charge
of 73 million euros on its Mexican cards business and a 90
million-euro charge to account for Venezuelan inflation.

Bad loans as a proportion of total lending climbed to 4.3
percent from 2.3 percent a year ago. “Doubtful risks” on
BBVA’s books leapt to 15.6 billion euros from 12.5 billion euros
in September and 8.6 billion euros a year ago.

Loan Losses

“I don’t think the U.S. goodwill writedown is as important
as all the new non-performing loans,” said Simon Maughan,
an
analyst at MF Global Securities Ltd. in London. “It’s catch-up
time for loan losses. For those people who may have had their
doubts about the Spanish methodology for timely reporting of
NPLs, here is some strong evidence to support their view.” Let it be
known that I issued this warning one year ago! [Reggie]

Profit from Spain and Portugal fell 24 percent to 496
million euros from a year ago, the bank said. Bad loans as a
proportion of total lending almost doubled to 5.1 percent from
2.6 percent as lending shrank 1.2 percent.

Earnings from Mexico dropped 29 percent to 268 million
euros, the bank said. BBVA booked a loss of 122 million euros
from its U.S. business compared with a 21 million-euro gain a
year ago.

Net interest income climbed to 3.59 billion euros from 3.09
billion euros a year ago.

The bank had a core capital ratio of 8 percent compared
with 6.2 percent a year ago. BBVA said it would keep its
commitment to distribute 30 percent of 2009 profit in dividend
payments.

 This was
foreseen nearly one year ago, to date. This bank got caught up in the
bear rally and apparently (like many banks) was not deserving of the
outrageous boost in the share price. Reference the past analysis.

1.

Reggie Middleton on the New Global Macro - the Forensic
Analysis of a Spanish Bank Wednesday, 28 January 2009

Declining
housing and stock prices, and rising unemployment levels are squeezing
consumer wealth globally and are expected to weigh heavily on the
banking system in the form of rising loan defaults. Until very
recently, the global banks have experienced most of the impact in the
form of distressed securities, capital shortages and funding problems,
however the problems have now started to engulf their consumer and
commercial loan portfolios as well.

In
Spain, BBVA, the second largest domestic bank, could see a massive
deterioration in its real estate and consumer loan portfolio. The
Spanish real estate sector is making a high horsepower a U-turn after
years of a massive housing bubble that has burst - culminating in an
unemployment rate that has risen to an outrageous 13.4% level. The
power skid is showing no signs of reaching an inflection point, and we
believe is only in the beginning throes of a sharp downturn.  In
addition, the banks' other key growth areas including Mexico, the
U.S and South America are witnessing a slowdown in economic activity,
restricting BBVA's growth prospectus amid the current turbulent
environment. With increasingly challenging economic conditions in each
of these economies, BBVA's asset quality has deteriorated sharply with
non-performing loans rising to 36% of its tangible equity without
corresponding (equal) increase in provisions.  As the bank deals with
these tough times ahead, we expect BBVA's bottom line growth to remain
subdued due to a slower credit off-take and higher provisions in the
coming quarters.

Key Highlights

Sharp slowdown seen in
Europe - According to the European Commission forecasts,
the European economy is expected to contract 1.9% in 2009 with a
modest recovery in 2010. Spain, in particular, is expected to be one of
the worst hit due to the humbling of its housing sector which had, for
several years, been a significant contributor to the country's economic
growth.  This will impact BBVA by slowing down its credit and loan
growth in addition to significantly deteriorating the credit quality of
its loan portfolio.

BBVA's asset quality is set to deteriorate rapidly as Spain
enters recession - Problems in
Spain are more pronounced than in most of its European counterparts.
The Spain's budgetary deficit has already crossed the 3%
threshold limit set by the European Commission and is expected to cross
6% by 2009, only behind Ireland. The unemployment has reached a
12-year high of 13.4% in November 2008, the highest in the Euro zone,
while the real estate sector bubble (particularly residential vacation
homes purchased by foreigners), the pillar of economic growth engine,
has burst. BBVA, with nearly 40% of its total loan exposure tied to
real estate & construction loans and individual loans in Spain
could see massive deterioration in its asset quality.

Besides Spain
the bank has to deal with other challenging economies including Mexico
and the U.S -  In 3Q2008,
U.S and Mexico contributed nearly 29% and 16% of total revenues,
respectively. The downturn in the U.S economy is showing no signs of
stabilization, with an unabated fall in housing prices and frozen credit
markets continuing to shatter consumer confidence. Recession in the
U.S has also led to a sharp slowdown in Mexico which is highly
dependent on US for exports and remittances. The slowdown in both of
BBVA's key markets will not only impact the pace of
BBVA's growth but also augment the risk profile for the bank as it now
has to deal with vagaries of these economies to navigate itself in
these turbulent times.

BBVA's NPAs have skyrocketed on back of economic slump - Since
January 2008, BBVA's non-performing loans have increased 92% to
€6.5 bn. As at the end of 3Q2008, BBVA's loan losses as a percentage of
tangible equity stood at an astonishing 36%.  Eyles test, a measure of
banks' delinquent loans (net of reserves) as percentage of its tangible
equity, has increased to 12% in 3Q2008 from 4% in 2Q2008.  This sharp
rise in the bank's NPA levels, particularly in context of its lower
equity cushion, could substantially erode shareholders' equity.

Inadequate provisioning to impact BBVA's bottom line -  Owing to deteriorating loan
portfolio, BBVA's NPAs have almost doubled to 2.0% of the total
loans in 3Q2008 from 1.1% in 3Q2007. Despite an increase in NPAs, the
bank's provision has declined to 2.3% of the total loans from 2.4% a
year ago. As loan losses are expected to increase in the wake of
economic slowdown, BBVA will have to increase its provisions
considerably, denting its near-to-medium term net income.

BBVA's valuation at... Register (for free) and download the full
report  Banco Bilbao
Vizcaya Argentaria SA (BBVA) Professional Forensic Analysis 2009-01-28 16:04:04 439.80 Kb

For those who haven't been to
the Spanish coastal areas to see for themselves or are not familiar
with the Spanish situation, I have included random research on Spain
from pundits around the Globe!

1. Spain Facing
   'Exceptional' HardshipEU Observer
2. Spain: Overall analysis ( 369,54 KB ) la Caixa
3. The economy in 2009: out of The Twilight Zone ( 160,73 KB )
4. Spain: Dies Irae; Beyond
   the real estate crisis Société Générale Economic Research
5. The IMF on Spain
6. An adjustment in Spanish
   saving has begun - JP Morgan
7. Economic Survey of Spain
   2008 - OECD
8. Spain: The Worst Is Yet
   to Come - Morgan Stanley
   Global Economic Forum
9. Spain: First GDP
   contraction in 15 years (-0.2% q/q in Q3 2008) - BNP Paribas
10. Quarterly Report On The
    Spanish Economy: Spain's GDP Contracted 0.2% in Q3 Compared to Q2 - The Bank of Spain
11. Inflation Is Dead In
    Spain, Fasten Up Your Seat Belts For A Sharp Dose Of Deflation - A Fistful of Euros
12. Spain: External
    imbalances persist, fiscal surplus disappears - European Commission
    Autumn 2008 Forecast
13. Macro: Construction
    Correction Driving Economy Down -
    Morgan
    Stanley - Global Economic Forum 

Additional
Blog References to BBVA

 The
Spanish Bank Steps in Lockstep

(Reggie Middleton's Boom Bust Blog/MyBlog)

 BBVA Profit
Slumps according to Bloomberg, as I explained to readers a few months
ago - Reggie Middleton on the New Global Macro - the Forensic Analysis
of a Spanish Bank From Bloomberg: Banco

Tuesday, 28 April 2009

 Banking
update, back to the future or fast forward to the past?

(Reggie
Middleton's Boom Bust Blog/MyBlog)

...ite-downs 2008-09-25 00:50:05 841.57 Kb  
 Banco Bilbao Vizcaya Argentaria SA (BBVA)
Professional Forensic Analysis 2009-02-23 09:05:09 439.80 Kb
 Banco Bilbao Vi...

Tuesday, 31 March 2009

4.

Reggie Middleton Releases his PFG Research, another notch in
the belt.

(Reggie Middleton's Boom Bust Blog/MyBlog)

...w caught by surprise by this.
See the macro trade addendum of  Banco Bilbao Vizcaya Argentaria SA (BBVA) Addendum - Pro 2009-01-28 17:48:27
569.55 Kb or the same addendum of the UK insurer on how...

Tuesday, 10 February 2009

5.
The Spanish Banks Start to Unload
(Reggie Middleton's Boom Bust
Blog/MyBlog)

...may update this if the opportunity presents itself.
In Spain, BBVA, the
second largest domestic bank, could see a massive deterioration in its
real estate and...

Wednesday, 30 December 2009

Comments

[Chopshop]

very nice note, Reggie.  good show, sir.

[Eternal Student]

Ditto on the thanks, Reggie. I always appreciate your posts and insights. You write good reference material.

The key question in the U.S. is how much longer do the U.S. Banks have? They (and the stock market) have been floating on what has amounted to $1-2 Trillion a month in being propped up. But that game may be at an end (unless they confiscate retirement funds).

It strikes me that it's mostly down to cash flow for the Banks now. Any wild guesses on how long they might have? I'm thinking 2-3 years max, but I'm no expert whatsoever.

[Reggie Middleton]

It's a guessing game and I choose not to guess. The key factor is that it seems the banks have burned their bridges with the current administration and much of the legislature. That hubris looks like it will cost them.

[SimpleSimon]

Come on, we all know there are only roses in Spanish harlems.

[Anonymous]

I have worked in the financial sector in Spain for the past twenty years. In my humble opinion, if you short BBVA, you will be burned. Spain has had its own ¨Obamaesque¨ Prime Minister since the Socialists won power in the aftermath of the never explained (or thoroughly investigated) Madrid train bombings. The Spanish government and the banking system are one and the same, not just due to the enormous bailouts, but very much due to the fact the Spanish banks are central to financing the political campaigns of the politicians. BBVA, Santander and the rest will be protected to the last dime of the Spanish taxpayers money. The Spanish government controls directly and indirectly the TV stations and the trade unions. There will be no massive protests in Spain, and the banks will be supported.

Anyone who thinks otherwise knows Spain from reading research reports, not from knowing the truth about the enormous collusion in corruption between the current Socialist Spanish government and the banking sector.

[Reggie Middleton]

the same could have been said about the US and the UK banks, and look how profitable those shorts have been. I had a similar discussion with the Headmaster of my son's highschool regarding the Chinese banks. His stance was the same as yours. Just because the government owns/controls banks don't mean they can't lose money or their share prices can't drop. BBVA has already made money for those that are nimble to the downside.

[Daedal]

I guess mid-day siestas really do harm productivity. I better stop napping at work.

[deadhead]

thanks Reggie.

Bove upgraded BBT to buy this a.m.

[TruthHunter]

In the Inquisition, those who refused to recant were burnt at the stake. Those

who did went to prison for life.

Translated to banking terms, Banks that stick to the truth about their assets

go down in flames. Those who lie about valuations get to be Japanese style

zombie banks for the next generation.

[Reggie Middleton]

This has been something that I have been discussing internally with my team for over a year now:

Jan. 27 (Bloomberg) -- New York University Professor Nouriel Roubini said he’s never been more pessimistic about the future of European monetary union, saying Spain poses a looming threat to the euro region holding together.

“Down the line, not this year or two years from now, we could have a breakup of the monetary union,” Roubini said in a Bloomberg Radio interview from the World Economic Forum’s annual meeting in Davos, Switzerland. “It’s a rising risk.”

Roubini’s concern contrasts with the view of European Central Bank President Jean-Claude Trichet who said it’s “absurd” to imagine that the 16-nation euro area could splinter. Speculation of a breakup has mounted in financial markets as Greece struggles to cut the continent’s biggest budget deficit and countries from Spain to Ireland face rising debt burdens.

“The euro zone could drift essentially with a bifurcation, with a strong center and a weaker periphery and eventually some countries might exit the monetary union,” said Roubini, who predicted the recent financial crisis a year before it began. “This is the very first test” of the single currency bloc.

Economies including Spain and Greece are threatened by fiscal imbalances and declining competitiveness, Roubini said. Membership in the euro means they can no longer devalue the currency to export their way out of recession, he said.