Banco Bilbao Downgraded To Sell

We are reducing our rating on Banco Bilbao Vizcaya Argentaria, S.A. (or BBVA) (BBV) to Sell from Hold, and cutting our target price to $10 due to the deteriorating economic outlook in Spain. In its third quarter report, BBVA posted net earnings before nonrecurring items of EUR1.4 billion, up 4% from the EUR1.3 billion earned in the comparable 2007 period, but below our estimate due to lower trading revenues and higher-than expected loss provisions.

Results reflected solid growth in net interest income (up 30% year over year), due to higher volumes and improved margins. Noninterest expense rose 14% year over year, while loan loss provisions rose 89%, largely due to growing nonperforming loans.

We are reducing our EPADS estimates to $2.30 from $2.45 for 2008 and to $2.55 from $2.75 for 2009, in part due to changing FX assumptions from recent US$ appreciation against the Euro. We expect recent operating trends to continue near term. We believe the dividend is safe.

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