Banco Bilbao Vizcaya Argentaria SA's results could be raising a red flag for banks in Texas.
The Madrid company's U.S. unit, BBVA Compass, is one of the biggest players in the state. It also has a presence in other markets, like the Southeast and West, that have suffered much more than Texas has in the recession.
But with more than half of BBVA Compass' branches based in the Lone Star state, the unit's large 2009 loss tied to commercial real estate loans is casting doubt on Texas's immunity to the economy — and bringing into question whether CRE losses might be establishing themselves on the books of others there.
Curtis Carpenter, a managing director at Sheshunoff & Co. Investment Banking in Austin, said BBVA Compass' problems could be a harbinger.
Most of the CRE issues are likely related to retail and office properties, particularly for loans there that were up for renewal, he said. To renew, "you have to order an appraisal," which can impact valuations, he said. "These renewals will be eventful throughout 2010 and 2011."
Carpenter said most of the banks Sheshunoff talks to "don't have a lot of concern about it, because the overall [Texas] economy remains stronger than other parts of the country. We will have to wait and see what happens."
At Sept. 30, CRE loans made up 14% of assets of banking companies based in Texas, versus 8.2% nationally, according to Federal Deposit Insurance Corp. data.
BBVA Compass had 416 branches in Texas and ranked fifth with a 6.29% deposit market share, according to FDIC data released last fall. Those branches make up 53% of the unit's 785 U.S. branches.
The company's earnings report did not break down the CRE portfolio by state. A BBVA Compass spokesman cautioned the CRE review covered its entire portfolio and not just Texas.
BBVA assembled its U.S. franchise in recent years by buying a handful of small Texas banks and later purchasing Compass Bancshares Inc. of Birmingham, Ala., in 2007.
In August, BBVA bought Guaranty Bank of Austin in a deal brokered by the FDIC, which also agreed to cover losses on certain assets.
Carpenter said the FDIC asset backing makes it less likely that any of the CRE issues were tied to the Guaranty purchase.
The loss ended a nice streak for BBVA, which had managed to avoid many of the early pitfalls of the credit crisis and recession. In 2008, for instance, most of its real estate problems had been confined to Jacksonville, Fla. That year the U.S. unit earned $302.4 million.
BBVA Compass posted a full-year loss of $1.9 billion after absorbing hefty charges tied to CRE loans. Nearly half of a $1.7 billion loan-loss provision resulted from a fourth-quarter review of CRE exposure in the U.S., the company said Wednesday.
The parent company, which also took a $1.6 billion noncash goodwill charge in its U.S. unit tied to impaired financial assets, was cautious about its prospects Wednesday.
"The United States is in a better position than Europe, although recovery in both areas is embryonic," it said.
Javier Bernat, an analyst at Caja Madrid, said he believes BBVA will have more credit costs in 2010 but should still be able to hold its own until the U.S. economy recovers. "If BBVA can hold the line on the upper part of its P&L, it will be able to clean up the loan portfolio and bring down nonperforming assets," he said.
Absent the provision and impairment charge, BBVA Compass produced respectable results. Revenue rose 3.3% from a year earlier, to $2.9 billion. Net interest income rose 8% from 2008, to $1.9 billion.
Loans at BBVA Compass rose 10.6% from yearend 2008, to $42.8 billion, as growth in residential mortgage offset efforts to reduce exposure to indirect auto and student lending. Deposits rose 19.5%, to $46.5 billion. (Guaranty accounted for roughly 17% of the loan book and a quarter of the deposit balances.)