Banco Bilbao Vizcaya Argentaria (BBV)

We are continuing our Sell rating on Banco Bilbao Vizcaya Argentaria, S.A. (BBV - Snapshot Report), as well as our $9 target price. In its first quarter report, BBVA posted net earnings before nonrecurring items of EUR1.2 billion, down 14% from the EUR1.4 billion earned in the comparable 2008 period, and above our estimate as both revenues and expenses came in better than expected. Results reflected 20% growth in net interest income, due to higher volumes and improved margins.

While noninterest expense rose 49% year over year, it fell 30% sequentially. Loan loss provisions jumped 65%, largely due to growing nonperforming loans that increased 67% year over year and 22% sequentially. We are increasing our 2009 EPADS estimate to $1.57 from $1.52, principally reflecting the first quarter overage.

We expect recent operating trends to continue near term. Our initial EPADS estimate for 2010 is $1.63. BBVA paid the fourth quarter dividend in stock and will be cutting its payout ratio to about 30% from roughly 50% in recent years.