July 31, 2019 / 8:20 AM / a year ago

UPDATE 4-BBVA profit gets Latin American lift, but spying case weighs on shares

* Q2 net profit 1.28 bln euros vs forecast of 1.21 bln

* Net interest income up 6% to 4.56 bln euros

* Cost of risk guidance in Turkey cut to 250 bps in 2019

* Results partly overshadowed by alleged spying case (Releads, adds background, detail)

By Jesús Aguado

MADRID, July 31 (Reuters) - Latin America and Spain fuelled a 2.6% rise in BBVA's second-quarter net profit and income from lending beat expectations, but the chief executive's comments on an alleged spying case involving the bank overshadowed good results.

Shares in BBVA reversed early gains to fall 1.8% by 1323 GMT after CEO Onur Genc said the bank was reinforcing internal compliance controls and treating an alleged spying case, which he said had damaged its public image, "very seriously".

Spain's High Court placed BBVA under formal investigation on Monday as part of a probe into a case dating back to 2004.

Genc said the case could have an "impact on the long-term thinking of different stakeholders of the bank". BBVA is under investigation as part of an inquiry related to contracts with a jailed ex-police chief, Jose Manuel Villarejo.

The shares were initially boosted by news of a more than 20% rise BBVA's net profit in South America, its third-biggest area after Mexico and Spain, to 211 million euros ($235.05 million) thanks to positive lending trends.

BBVA, like its larger domestic rival Santander, makes most of its profit overseas, a model that has helped it ride out two recessions at home in recent years.

Spain's second-biggest bank reported net profit of 1.28 billion euros for the three months through June, above analysts' average forecast of 1.21 billion euros from a Reuters poll.

Overall BBVA's net interest income (NII), a measure of earnings on loans minus deposit costs, rose 6% to 4.56 billion euros and was up 3% against the previous quarter. Analysts polled by Reuters had forecast NII of 4.4 billion euros.

Brokers welcomed a broadly solid set of results supported by higher financial margins, fees and lower loan loss provisions.

However, Keefe, Bruyette & Woods said it was "concerned about top-down risks in Turkey and our perception of downside risks in Mexico".

In Mexico, where BBVA makes more than 40% of its net profit, the earnings figure rose 4%. NII increased 16% year-on-year in the second quarter but was up just 2.9% compared to the previous quarter amid signs of a slowdown.

BBVA maintained its forecast for growing its NII in Mexico at a high-single digit rate in the near future.


In Turkey, where BBVA makes around 9% of its profits, political instability and economic recession have dented group profitability, leading second-quarter net profit to fall 18% to 140 million euros, the bank said.

The lira has slid 5% this year against the dollar and was down 4% in the second quarter.

BBVA's cost of risk, which reflects the premium for insuring its loan book, fell to 157 basis points from 182 basis points in the previous quarter, thanks to lower provisions.

This prompted the bank to lower its cost of risk guidance in Turkey in 2019 to around 250 basis points, from a previous forecast of 300 basis points.

In the United States, which also accounts for 10% of the bank's earnings, net profit in the second quarter fell 11%.

In Spain, where BBVA makes a quarter of its profit, the figure rose almost 14% in the quarter after it booked a positive impact of 130 million euros from the closing of the sale of a real estate portfolio.

NII was flat year-on-year, though it is expected to decline between 1% and 2% in 2019.

The bank said it ended June with a core Tier 1 capital ratio, a key measure of solvency, of 11.52% compared with 11.35% at the end of March. The bank expects the ratio to hover at around 12% by 2020. ($1 = 0.8977 euros) (Reporting by Jesús Aguado; Editing by Andrei Khalip and Jan Harvey)

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