BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP MANAGEMENT REPORT ON THE SIX MONTHS PERIOD ENDED JUNE 30, 2010 1. THE BBVA GROUP Banco Bilbao Vizcaya Argentaria, S.A. (“the Bank” or “BBVA”) is a private-law entity governed by the rules and regulations applicable to banks operating in Spain and is the Parent of the financial group whose object is to engage directly or indirectly in activities, transactions, agreements and services relating to the banking business. The Bank conducts its business through branches and offices located throughout Spain and abroad. The Banco Bilbao Vizcaya Argentaria Group (“the Group” or “the BBVA Group”) is an internationally diversified financial group with a significant presence in traditional retail banking, asset management, private banking and wholesale banking. The financial information included in this management report is presented in accordance with the criteria established by the International Financial Reporting Standards endorsed by the European Union (“IFRS-EU”) and taking into account Bank of Spain Circular 4/2004 and its subsequent amendments. 2. THE ECONOMIC BACKGROUND FOR THE SIX MONTHS ENDED JUNE 30, 2010 The macroeconomic data published for the six months ended June 30, 2010 confirm that although the recovery is underway worldwide, there is still much uncertainty and the risk balance is weighted slightly to the downside. The Greek crisis and its transfer to other European sovereign debt in recent months has increased tension on the money and debt markets. The impact on the real economy, reflected in a moderation in the indices of consumer and business confidence, has yet to be fully felt. In addition, the implementation of fiscal adjustment and budget plans in a number of developed economies with high levels of debt and deficit, and tough monetary programs in emerging areas with problems of high growth levels and price tensions, could have a short-term effect on their capacity to grow and generate employment. In the United States, following quarterly GDP growth of 0.7% in the first quarter of 2010, the indicators of economic activity and, to a lesser extent, those of demand, remain relatively positive. The labor market is still weak, but it is beginning to show signs of recovery, with the unemployment rate falling. Core inflation has been moving down since the end of last year. This gives some room for maneuver to the Federal Reserve, whose tone appears even more cautious as a result of the problems on the European debt markets. In contrast, in Europe the pace of recovery is considerably gentler than in the United States. The slight GDP growth in the euro zone in the first quarter of 2010 confirms a scenario of slower growth than in the American economy. However, the indicators of economic activity, particularly in the industrial sector, were relatively more positive in the second quarter of 2010. The Mexican economy is benefiting from the recovery in external demand in the United States, as this is the main destination of its exports. Growth forecasts for 2010 suggest this positive trend will continue. Finally, economic activity in South America is continuing to strengthen as a result of the increase in foreign and domestic demand. More recently, domestic demand is also rising as a result of notable growth in credit. However, there are some risks, particularly those derived from an excessively high rate of growth and an upturn in prices. This suggests that the central banks in the region, may follow the path of some Asian economies and start a gradual move towards tougher monetary policies to ensure a more sustainable rate of growth, as is already the case in Brazil and Chile. 2
In terms of exchange rates, there has been a general appreciation of all the currencies that affect the Group's financial statements, except in the case of the Venezuelan strong bolivar, which a depreciation at the start of 2010. The appreciation in other currencies can be seen in both the final exchange rates and the average exchange rates (only the average exchange rate of the Argentinean peso against the euro has depreciated in year-on-year terms). Thus the impact is positive, both on the volume of business and balance sheet and on earnings, though less so in the latter case (an effect of around 1.3 percentage points). Average Exchange Rates Year-End Exchange Rates Currency June June June December 2010 2009 2010 2009 Mexican peso 16.8070 18.4481 15.7364 18.9222 U.S.dollar 1.3268 1.3328 1.2271 1.4406 Argentine peso 5.2041 4.9342 4.9084 5.5571 Chilean peso 695.4103 781.2500 666.2225 730.4602 Colombian peso 2,583.9793 3,095.9800 2,352.9412 2,941.1765 Peruvian new sol 3.7760 4.1357 3.4684 4.1626 Venezuelan bolivar 5.5512 2.8619 5.2700 3.0934 3. SUMMARIZED INTERIM CONSOLIDATED INCOME STATEMENTS The Group’s summarized interim consolidated income statements for the six months ended June 30, 2010 and 2009, are as follows: Millions of Euros BBVA Group Interim Consolidated Income Statements June June 2010 2009 % Change NET INTEREST INCOME 6,937 6,858 1.2 Dividend income 257 248 3.4 Share of profit or loss of entities accounted for using the equity method 151 27 n.s. Net fees and commissions 2,272 2,181 4.2 Net gains (losses) on financial assets and liabilities and net exchange differences 1,123 799 40.6 Other operating income and expenses 140 268 (47.9) GROSS INCOME 10,880 10,380 4.8 Operating expenses (4,380) (4,088) 7.1 Personnel expenses (2,364) (2,291) 3.2 General and administrative expenses (1,651) (1,443) 14.4 Depreciation and amortization (365) (354) 3.2 OPERATING INCOME 6,500 6,292 3.3 Impairment losses on financial assets (net) (2,419) (1,945) 24.4 Provisions (net) (270) (153) 76.8 NET OPERATING INCOME 3,811 4,195 (9.1) Other gains (losses) (160) (192) (16.7) INCOME BEFORE TAX 3,651 4,003 (8.8) Income tax (941) (961) (2.1) NET INCOME 2,710 3,042 (10.9) Net income attributed to non-controlling interests 183 243 (24.7) NET INCOME ATTRIBUTED TO PARENT COMPANY 2,527 2,799 (9.7) Memorandum Item One-off operations - - - NET INCOME ATTRIBUTED TO PARENT COMPANY (excluding one-off operatios) 2,527 2,799 (9.7) 3
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BANCO BILBAO VIZCAYA ARGENTARIA, S.
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27. COMMON STOCK...................
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Translation of consolidated financi
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Millions of Euros LIABILITIES AND E
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Millions of Euros June June Notes 2
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BANCO BILBAO VIZCAYA ARGENTARIA, S.
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The BBVA Group ICFR Model is summar
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2.2. ACCOUNTING POLICIES AND VALUAT
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- Other financial instruments The f
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In the case of unsecured transactio
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2.2.2. TRANSFERS AND DERECOGNITION
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The fair value of non-current asset
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2.2.7. BUSINESS COMBINATIONS The re
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insurees, as the case may be, based
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• The discount rate used is deter
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2.2.16. FOREIGN CURRENCY TRANSACTIO
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2.2.22. CONSOLIDATED STATEMENTS OF
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IFRIC 17 - Distributions of non-cas
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The Group’s activity is mainly lo
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Changes in the Group The most signi
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- In the denominator, the average n
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The breakdown of the consolidated n
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Management & Asset Allocation, Risk
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Maximum exposure to credit risk The
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debtors includes mortgages, cash gu
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Policies and procedures for prevent
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December 2009 Less than 6 Months Pa
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7.2 MARKET RISK a) Market Risk Mark
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Below are the average interest rate
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7.4. RISK CONCENTRATIONS Below is p
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Determining the fair value of finan
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Financial Instruments LEVEL 2 Valua
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The changes in the six months ended
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10.2. DEBT SECURITIES The breakdown
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11. OTHER FINANCIAL ASSETS DESIGNAT
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12.3. EQUITY INSTRUMENTS The breakd
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13.2. LOANS AND ADVANCES TO CREDIT
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Millions of Euros December 2009 Amo
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December 2009 Currency Risk Interes
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17.1. ASSOCIATES The following tabl
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17.3. INFORMATION ABOUT ASSOCIATES
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The main activity of the Group is c
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21.3 RECONCILIATION The reconciliat
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23. FINANCIAL LIABILITIES AT AMORTI
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Millions of Euros December 2009 Dem
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The item “Subordinated Liabilitie
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The breakdown of the commitments pe
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June 30, 2010 and December 31, 2009
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Post-employments Benefits in Spain
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Post-Employment Actuarial Hypothesi
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during which to increase the common
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Reserves Assigned to the Consolidat
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Millions of Euros Valuation Adjustm
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on equity (ROE) by each business; a
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39. INTEREST, INCOME AND SIMILAR EX
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39.3. AVERAGE RETURN ON INVESTMENTS
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Page 180 and 181: The United States Millions of Euros
Page 182 and 183: Wholesale Banking and Asset Managem
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Page 186 and 187: Aggregating Tier I and Tier II, as
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