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Bankia's shares slide on net interest income fears, CFO predicts Q4 uptick

Shares of Bankia SA fell more than 5% on Oct. 29 after the Spanish lender posted a 5% drop in quarterly net interest income, though the bank's executives remain confident in an upturn in the fourth quarter.

The bank's shares dropped more than 5% shortly after the market opened, recovering slightly in early afternoon trading, but were still down 4.39% at 1444 GMT as investors fretted over the outlook for lending in a competitive Spanish market. Third-quarter net interest income came in at €495 million, a 5% decline from €521 million in the second quarter. First-quarter net interest income was €526 million.

CFO Leopoldo Alvear said the decline was largely due to lower income from the bank's bond portfolio and an €8 million to €9 million impact from problem loans. He said the bank expected to recover some doubtful loans in the fourth quarter, adding that he did not expect a "material negative impact" from the bond portfolio.

"We're optimistic, and we think that (net interest income) in the fourth quarter should be clearly higher than in the third quarter," he told analysts during a presentation of the bank's third-quarter earnings.

On a yearly basis, net interest income for the quarter rose around 4.9% to €495 million, while net profit was up 1.7% to €229 million. Spanish banks are fiercely competing for market share in a low interest environment, which is putting pressure on the European banking sector in general.

Court ruling on mortgages

Bankia's shares, like most of the Spanish banking sector, have also been hit by a ruling from Spain's Supreme Court that suggested banks may may have to pay taxes for the registration of mortgage deeds rather than customers, overturning a previous ruling. The court is due to make a final ruling on Nov. 5, and some analysts have said banks could be on the hook for billions of euros in back taxes.

Both CaixaBank SA and Banco de Sabadell SA said Oct. 26 that they should not be penalized as they had always complied with tax laws.

Bankia CEO José Sevilla said he expected the court either to keep the status quo or to make banks responsible for the taxes on only new mortgages.

"If the law changes, well, logically, it should affect the new mortgages that are subscribed to after the change in standard," he said, declining to say what the impact might be on Bankia until Nov. 5 when the judgement is expected. Bankia devotes more than half of its loan book to mortgages.

Consumer credit

The state-owned bank, rescued with more than €22 billion in public money in 2012, completed its acquisition of another state-owned and bailed-out lender, Banco Mare Nostrum SA, in January 2018.

Spanish consumer lending has been growing steadily, and while Sevilla said he expected the pace to slacken, Bankia's acquisition of BMN had given it potentially an additional 500,000 customers in consumer lending, which would protect it from any slowdown.