BBVA, Spain's second largest bank on Wednesday reported an annual 14-percent fall in its net attributable profit to 3.143 billion euros due to what it described as the "erratic behavior of the markets in the third quarter."
It said excluding net trading income, earnings were down only 4.8 percent. Trading income in the nine months was down 35.3 percent from a year earlier at 1.063 billion euros.
In the third quarter alone net income declined by 29 percent to 804 million euros as it posted a net trading loss of 25 million euros.
"It's really hard going for them at the moment," Bloomberg quoted Neil Smith, an analyst at WestLB in Dusseldorf, as saying. "Earnings are disappointing, well below consensus with a negative trading item which needs some more explaining."
The group's earnings in Spain fell 38 percent to 1.162 billion euros in the period January-September, in part due to BBVA's exposure to the ailing property sector and the anemic economic recovery. The bank's non-performing loan ratio in its Spanish operations rose by a tenth of a percentage point from the end of June to 4.9 percent as of the end of September. The increase reflected a drop in lending as doubtful loans remained at the same levels.
For the group as a whole the default rate was steady compared with a year earlier at 4.1 percent.
The bank made more money in Mexico than in Spain, with earnings from the North American country up 1.6 percent at 1.275 billion euros. Profits from South America climbed 7.9 percent to 754 million euros on the back of strong growth in lending. Earnings from its US business fell 2.5 percent to 218 million euros despite an improvement in the division's default rate to 3.9 percent at the end of the third quarter from 4.2 percent at the end of the second.
The bank's core capital ratio rose to 9.1 percent of risk-weighted assets, up slightly from 9.0 percent at the end of June. In a presentation to analysts, BBVA's chief executive officer, Ángel Cano, said the bank had room to meet the new solvency requirements being imposed on European banks without having to tap the markets for more capital.
Cano said BBVA has the capacity to increase its capital by 4.7 billion euros, basically through generating more earnings between now and June of next year when the European banking Authority (EBA) is due to conduct more stress tests.
He said under the EBA's criteria, BBVA's core capital ratio currently stands at 8 percent. The EBA is expected to require a core ratio of 9 percent in next year's stress tests in which the value of banks' exposure to sovereign debt will be marked to market.
BBVA said the cost of booking its portfolio of Spanish government debt of 23.70 billion euros and 2.5 billion euros in Italian debt at current market prices would be in the order of 400 million euros.
At the same presentation, the group's financial director, Manuel González Cid said BBVA has minimal exposure to debt issued by the three euro-zone member countries that have received bailout packages from the European Union and the IMF. The Spanish bank has no exposure to Irish debt, ¤86 million to Greek government bonds, which has been practically full covered for, and only 14 million euros of Portuguese debt.