BBVA blames 4Q ’11 losses on US poor economic performance

According to a statement made to the Spanish regulator CMNV, BBVA will proceed to make an extraordinary adjustment to the value of its goodwill in the U.S. which will have a negative impact in the amount of €1bn (net after tax). BBVA justifies this decision on the poor long term prospects in the country, in contrast with the positive performance of the division.

Banco Sabadell analysts explain that this adjustment would imply that BBVA present losses in the 4Q’11.

“According to our estimates that do not take into account the positive fiscal effects that could be derived from this situation, this adjustment will have a positive impact on the core tier I (as we understand it due to fiscal benefits) of €400mn, or 12 bp of core tier I (vs. 9.8% in 3Q’11).”

BBVA says this impact will not suppose changes in the scheduled payment of dividends (0.42 euros/share BS(e) DPA’11(e) vs. 0.42 euros/share of the consensus).

In this note, Banco Sabadell indicates that this will be the second adjustment to the goodwill that BBVA will carry out in its division in the U.S.

“The first was of €998mn (before tax) in 4Q’09 and with this second impact the goodwill would end up at €4.4bn as we confirmed with the company. We believe that most of the losses can be explained by the investment in Compass for which it paid €7.4bn, 19X PER and 4.6X P/BV in 2007.”