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BBVA looks to Asia as profits fall

Source: Financial Times - Thu 28th Jan 2010

BBVA, Spain's second biggest listed bank, is the latest European company to pin its hopes on China and the rest of Asia as a source of future growth as it strives to reduce its dependence on a struggling domestic market.

Francisco González, BBVA chairman, yesterday unveiled a 16 per cent fall in 2009 net profits to €4.21bn ($5.9bn) from €5.02bn the previous year. Heavy loan-loss provisions in Spain, Mexico and the US and writedowns on Spanish property and the value of the US business, marred what Mr González called "solid" results.

He said the US and Asia would be important pillars of the bank's operations, in addition to the current leading sources of profit in Spain and Latin America.

In the next three years, BBVA expects the US share of the bank's profits to rise to about 15 per cent from 11 per cent, while Asia's share in the same period is to double to 8 per cent from 4 per cent today.

"I'm very comfortable that at the minimum we will reach that level [of 8 per cent]," Mr González said. "In 10 years, Asia will be a very, very relevant part of BBVA."

BBVA spent €1bn in December to raise its stake in China Citic Bank to 15 per cent and is expanding its corporate banking operations across Asia.

BBVA has been steadily building a franchise in the US since 2004, partly to dilute its exposure to the domestic economy, which plunged into recession in 2008 after the residential property market collapsed.

Among the attractions of the US and Asia for companies such as BBVA are predicted rates of economic growth higher than those of western Europe. Spain was the only large economy forecast to shrink in 2010 in the global estimates this week from the International Monetary Fund.

The bank's lower 2009 profits came after €1.1bn in one-off charges, including a €704m writedown on the value of goodwill booked on a series of acquisitions in the US.

Most of the charges were taken in the fourth quarter, and overall net profits for the final three months fell 94 per cent from the same period in 2008, to €31m.

The full-year results were below expectations, and shares fell 6.3 per cent, to €11.27 on a generally weak Madrid stock exchange.

At BBVA, bad loans as a proportion of total lending rose to 4.3 per cent by the end of 2009, from 2.3 per cent a year earlier.

BBVA set aside €6.57bn, compared with a net €3.6bn in 2008, to cover asset impairment, early retirement and doubtful credits in Spain, the US and Mexico, "following an in-depth examination of the more problematic loan portfolios".

But the bank stressed that its underlying business remained solid, with net profits up 2 per cent at constant exchange rates and after stripping out one-off items.

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