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

- In the denominator, the average number of shares in circulation is increased by the estimated
number of shares after the conversion if done that day, generating the so-called "Average adjusted
number of shares” in the table above.
As of June 30, 2010 and 2009, except for the aforementioned convertible bonds, there were no other
financial instruments, share option commitments with employees or discontinued transactions that could
potentially affect the calculation of the basic earnings per share.
6. BASIS AND METHODOLOGY FOR SEGMENT REPORTING
Segment reporting represents a basic tool in the oversight and management of the Group’s various
businesses. The Group compiles reporting information on as disaggregated a level as possible, and all data
relating to the businesses these units manage is recognized in full. These disaggregated units are then
amalgamated in accordance with the organizational structure preordained by the Group into higher level
units and, ultimately, the business segments themselves. Similarly, all the companies making up the Group
are also assigned to the different segments according to their activity.
Once the composition of each business segment has been defined, certain management criteria are applied,
noteworthy among which are the following:
• Economic capital: Capital is allocated to each business based on capital at risk (CaR) criteria, in
turn predicated on unexpected loss at a specific confidence level, determined as a function of the
Group’s target capital ratio. This target level is applied at two levels: the first is adjusted core capital,
which determines the allocated capital. The Bank uses this amount as a basis for calculating the
return generated on the equity in each business (ROE). The second level is total capital, which
determines the additional allocation in terms of subordinate debt and preferred securities. The
calculation of the CaR combines credit risk, market risk, structural risk associated with the balance
sheet equity positions, operational risk, fixed assets and technical risks in the case of insurance
companies. These calculations are carried out using internal models that have been defined
following the guidelines and requirements established under the Basel II Capital Accord, with
economic criteria prevailing over regulatory ones.
Due to its sensitivity to risk, CaR is an element linked to management policies in the businesses
themselves. It standardizes capital allocation between them in accordance with the risks incurred
and makes it easier to compare profitability. In other words, it is calculated in a way that is standard
and integrated for all kinds of risks and for each operation, balance or risk position, allowing its riskadjusted
return to be assessed and an aggregate to be calculated for the return by client, product,
segment, unit or business area.
• Internal transfer prices: the calculation of the net interest income of each business is performed
using rates adjusted for the maturities and rate reset clauses in effect on the various assets and
liabilities making up each unit’s balance sheet. The allocation of profits across business units is
performed at market prices.
• Allocation of operating expenses: Both direct and indirect expenses are allocated to the
segments, except for those items for which there is no clearly defined or close link with the
businesses, as they represent corporate/institutional expenses incurred.
• Cross selling: On certain occasions, consolidation adjustments are made to eliminate overlap
accounted for in the results of one or more units as result of cross-selling focus.
Description of the Group’s business segments
The business areas described below are considered the Group's business segments. The composition of the
Group's business areas as of June 30, 2010 was as follows:
• Spain and Portugal, which includes: the Retail Banking network in Spain, including the segments of
individual customers, private banking and small business and retailer banking in the domestic
market; Corporate and Business Banking, which encompasses the segments of SMEs, corporations,
institutions and developers in the domestic market; and all other units, among which are Consumer
Finance, BBVA Seguros and BBVA Portugal.
• Mexico: includes the banking, pensions and insurance businesses in the country.
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