We are continuing our Sell rating on Banco Bilbao Vizcaya Argentaria, S.A., or BBVA (BBV), and cutting our target price to $9. Our Sell recommendation largely reflects the grim economic outlook in Spain.

The recent collapse in housing and construction, which propelled economic growth for the last decade, is expected to stall for the next few years. Moreover, the IMF recently forecast that Spain will enter a recession in 2009 (its first since 1993) and believes that Spain will be harder hit than other European countries.

In its 4th quarter report, BBVA posted net earnings before nonrecurring items of ?1.1 billion, down 24% from the ?1.4 billion earned in the comparable 2007 period, and below our estimate due to lower trading revenues and higher-than expected loss provisions. Results reflected 11% growth in net interest income, due to higher volumes and improved margins. Noninterest expense rose 13% year over year, while loan loss provisions jumped 37%, largely due to growing nonperforming loans.

We are reducing our 2009 EPADS estimate to $1.52 from $2.55, largely reflecting lower revenues and increased loss provisions stemming from the economic slowdown and a change in FX (foreign exchange) assumptions due to appreciation of the US$ against the ?. We expect recent operating trends to continue near term.

BBVA is paying the 4th quarter dividend in stock and will be cutting its payout ratio to about 30% from roughly 50% in recent years.