The sharp increase in provisions in emerging markets drags down profits, and Banco Bilbao Vizcaya Argentaria (BBVA.US) faces scrutiny over its failed acquisition and subsequent growth.

Spain's second largest bank, Bilbao Vizcaya Argentaria (BBVA.US), announced fourth-quarter profits in line with analysts' estimates, despite an increase in revenue. However, the increase in provisions in major markets such as Turkey and Mexico partially offset this positive impact. The financial report shows that the bank's net profit increased by 4.1% to 2.53 billion euros (equivalent to 2.98 billion US dollars). Analysts had previously estimated 2.54 billion euros. Adjusted earnings per share were 1.78 euros, higher than 1.68 euros in the same period last year. Net interest income was 26.28 billion euros, up 4.0% year-on-year. Provisions increased by 19% compared to the same period last year, and a capital strength indicator did not reach the estimated level. After the failed acquisition of the smaller competitor Sabadell Bank that Chairman Carlos Torres and CEO Onur Gen had worked on for over a year and that had planned to complete in October last year, BBVA is now focusing on developing its existing business. The bank subsequently announced a 3.96 billion euro share buyback plan aimed at returning excess capital to investors. Since the failed acquisition in mid-October last year, BBVA's stock price has risen by approximately 40%, as investors prefer dividends rather than uncertain transactions with significant government-imposed conditions. The bank also announced on Thursday the payment of a year-end dividend of 0.60 euros per share for 2025 earnings. Analyst Benjamin Thomas of Royal Bank of Canada wrote: "We expect that further price increases for the bank may be much more difficult. Although it is difficult to have a negative view on a bank with such attractive financial conditions, in our opinion, this is already largely reflected in prevailing expectations." The failed acquisition of Sabadell Bank has rekindled concerns in the market about BBVA's exposure to emerging markets. The bank has subsidiaries in countries like Venezuela in South America as well as in Turkey and Mexico. BBVA said that the latter two countries were the main drivers of the increase in provisions. The Spanish bank stated that the return on equity, which measures profitability, is expected to increase to around 20% this year. This ratio was 19.3% last year. Thomas from the Royal Bank of Canada mentioned that this outlook includes guidance on Spanish costs for this year, which is "significantly higher" than analysts' current expectations. He wrote, "We expect that the focus of today's conference call will be on costs in Spain." For this Spanish bank, one lever to increase profitability and capital is to use significant risk transfer, which allows the bank to free up resources to underwrite more new business or increase dividends. Sources previously stated that BBVA plans to issue two such transactions involving around 7 billion euros in assets. Although investors welcomed the failure of the Sabadell Bank acquisition plan, it marks a painful setback for BBVA's CEO and Chairman. Their failure contrasts with the series of deals reached by the larger competitor Banco Santander S.A. Sponsored ADR. Banco Santander S.A. Sponsored ADR announced this week that it has agreed to acquire Webster Financial Corporation in the US for $12 billion. Just six months ago, this largest Spanish bank announced the acquisition of TSB Bank in the UK from Sabadell Bank. Banco Santander S.A. Sponsored ADR also disclosed better-than-expected fourth-quarter profits and announced a 5 billion euro share buyback plan.