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

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Financial Instruments LEVEL 2 Valuation techniques Main assumptions Main inputs used JUNE 2010 Fair value (Millions of Euros) • Debt securities Trading portfolio Debt securities 1,128 Equity instruments 181 • Equity instruments Present-value method. Calculation of the present value of financial instruments as the current value of future cash flows (discounted at market interest rates), taking into account: • Estimate of prepayment rates; • Issuer credit risk; and • Current market interest rates. • Net Asset Value (NAV) published recurrently, but not every quarter • Risk premiums. • Observable market interest rates. Other financial assets designated at fair value through profit or loss Debt securities 72 Equity instruments 430 Available-for-sale financial assets Debt securities 13,013 Equity instruments 410 • Derivatives Analytic/Semi-analytic Formulae For share, currency or commodity derivatives: • Monte Carlo simulations. For interest rate derivatives: • Black-Derman-Toy model. • HW 1 factor For credit derivatives: • Diffusion model. For share, currency or commodity derivatives: • Black-Scholes assumptions take possible convexity adjustments into account For interest rate derivatives: • Black-Scholes models apply a lognormal process for forward rates and consider possible convexity adjustments. Local volatility model: assumes a constant diffusion of the underlying asset with the volatility depending on the value of the underlying asset and the term. This model assumes that: • The forward rates in the term structure of the interest rate curve are perfectly correlated. These models assume a constant diffusion of default intensity. For share, currency or commodity derivatives: • Forward structure of the underlying asset. • Volatility of options. • Observable correlations between underlying assets. For interest rate derivatives: • Term structure of the interest rate curve. • Volatility of underlying asset. For credit derivatives: • Credit default swap (CDS) pricing. • Historical CDS volatility Other financial liabilities designated at fair value through profit or loss ASSETS 1,651 Trading derivatives 41,476 Hedging derivatives 4,279 LIABILITIES Trading derivatives 38,384 Hedging derivatives 2,063 66
Financial Instruments LEVEL 3 Valuation techniques Main assumptions Main unobservable inputs JUNE 2010 Fair Value (Millions of Euros) • Debt securities • Present-value method; and • “Time default” model for financial instruments in the collateralized debt obligations (CDOs) family Calculation of the present value of financial instruments as the current value of future cash flows (discounted at market interest rates), taking into account: • Estimate of prepayment rates: • Issuer credit risk; and • Current market interest rates. In the case of valuation of asset-backed securities (ABSs), future prepayments are calculated on the conditional prepayment rates that the issuers themselves provide. The “time-to-default” model is used to measure default probability. One of the main variables used is the correlation of defaults extrapolated from several index tranches (ITRAXX and CDX) with the underlying portfolio of our CDOs. • Prepayment rates. • Default correlation. • Credit spread (1) Trading portfolio Debt securities 502 Equity instruments 166 Available-for-sale financial assets Debt securities 320 • Equity instruments • Derivatives • Present-value method Trading derivatives for interest rate futures and forwards: • Present-value method. • “Libor Market” model. For variable income and foreign exchange options: • Monte Carlo simulations • Numerical integration • Heston • Credit baskets Net asset value (NAV) for hedge funds and for equity instruments listed in thin and less active markets The “Libor Market” model models the complete term structure of the interest rate curve, assuming a CEV (constant elasticity of variance) lognormal process. The CEV lognormal process is used to measure the presence of a volatility shift. The options are valued through generally accepted valuation models, to which the observed implied volatility is added. These models assume a constant diffusion of default intensity. • Credit spread (1) • NAV supplied by the fund manager. • Correlation decay (2). • Vol-of-vol. (3) • Reversion factor. (4) • Volatility Spot Correlation (5) • Defaults correlation. • Historical CDS volatility Equity instruments 209 ASSETS Trading derivatives 245 LIABILITIES Trading derivatives 98 (1) Credit spread: The spread between the interest rate of a risk-free asset (e.g. Treasury securities) and the interest rate of any other security that is identical in every respect except for quality rating. Spreads are considered as Level 3 inputs when referring to illiquid issues. Based on spreads of similar entities. (2) Correlation decay: The constant rate of decay that allows us to calculate how the correlation evolves between the different pairs of forward rates. (3) Vol-of-Vol: Volatility of implicit volatility. This is a statistical measure of the changes of the spot volatility. (4) Reversion Factor: The speed with which volatility reverts to its natural value. (5) Volatility- Spot Correlation: a statistical measure of the linear relationship (correlation) between the spot price of a security and its volatility. 67
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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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Page 18 and 19: The BBVA Group ICFR Model is summar
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Page 44 and 45: Changes in the Group The most signi
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Page 50 and 51: Management & Asset Allocation, Risk
Page 52 and 53: Maximum exposure to credit risk The
Page 54 and 55: debtors includes mortgages, cash gu
Page 56 and 57: Policies and procedures for prevent
Page 58 and 59: December 2009 Less than 6 Months Pa
Page 60 and 61: 7.2 MARKET RISK a) Market Risk Mark
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Page 64 and 65: 7.4. RISK CONCENTRATIONS Below is p
Page 66 and 67: Determining the fair value of finan
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Page 72 and 73: 10.2. DEBT SECURITIES The breakdown
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Page 90 and 91: 21.3 RECONCILIATION The reconciliat
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Page 102 and 103: Post-employments Benefits in Spain
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Page 106 and 107: during which to increase the common
Page 108 and 109: Reserves Assigned to the Consolidat
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Page 112 and 113: on equity (ROE) by each business; a
Page 114 and 115: 39. INTEREST, INCOME AND SIMILAR EX
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41. SHARE OF PROFIT OR LOSS OF ENTI
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45. OTHER OPERATING INCOME AND EXPE
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linked to the movement of the Total
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48. PROVISIONS (NET) The net allowa
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The table below breaks down the mai
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The amount disposed of the loans gr
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BBVA executive team. It is to end o
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Commission (CNMV) announced the lif
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APPENDIX I. FINANCIAL STATEMENTS OF
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Millions of Euros LIABILITIES AND E
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Millions of Euros (Continued) June
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APPENDIX II. Additional information
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APPENDIX III. Additional informatio
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APPENDIX V. Changes and notificatio
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APPENDIX VI. Fully consolidated sub
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APPENDIX VIII. Breakdown of the mos
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Outsanding as of June 30, 2010 of S
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APPENDIX IX. Consolidated balance s
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Diluted earnings per share Early re
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Other financial assets/liabilities
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The explanations of the changes in
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4. SUMMARIZED INTERIM CONSOLIDATED
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Spain and Portugal Millions of Euro
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Mexico Millions of Euros Mexico Jun
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South America Millions of Euros Sou
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The United States Millions of Euros
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Wholesale Banking and Asset Managem
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The changes in the principal headin
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Aggregating Tier I and Tier II, as
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