BBVA in 2012

Furthermore, as usual in the case of The Americas, both constant and current exchange rateshave been applied when calculating year-on-year variations.The Group compiles reporting information by areas on a level as disaggregated as possible, andall data relating to the businesses these units manage is recorded in full. These basic units arethen aggregated in accordance with the organizational structure established by the Group athigher-level units and, finally, the business areas themselves. Similarly, all the companies makingup the Group are also assigned to the different units according to the geographical area of theiractivity.Once the composition of each business area has been defined, certain management criteria areapplied, of which the following are particularly important:• Capital: Capital is allocated to each business according to economic risk capital (ERC) criteria.This is based on the concept of unexpected loss at a specific confidence level, depending onthe Group’s capital adequacy targets. These targets have two levels: the first is core equity,which determines the capital allocated. This amount is used as a basis for calculating theprofitability of each business. The second level is total capital, which determines the additionalallocation in terms of subordinate debt and preferred securities. The calculation of the ERCcombines credit risk, market risk, structural balance-sheet risk, equity positions, operationalrisk and fixed asset and technical risks in the case of insurance companies. These calculationsare carried out using internal models that have been defined following the guidelines andrequirements established under the Basel II capital accord, with economic criteria prevailingover regulatory ones.ERC is risk-sensitive and thus linked to the management policies of the businesses themselves.It standardizes capital allocation between them in accordance with the risks incurred andmakes it easier to compare profitability across units. In other words, it is calculated in a way thatis standard and integrated for all kinds of risks and for each operation, balance or risk position,allowing its risk-adjusted return to be assessed and an aggregate to be calculated for theprofitability by client, product, segment, unit or business area.• Internal transfer prices: Internal transfer rates are applied to calculate the net interest incomeof each business, on both the assets and liabilities. These rates are composed of a market ratethat depends on the revision period of the operation, and a liquidity premium that reflects theconditions and prospects of the financial markets in this area. Earnings are distributed acrossrevenue-generating and distribution units (e.g., in asset management products) at marketprices.• Assignment of operating expenses: Both direct and indirect costs are assigned to the businessareas, except where there is no clearly defined relationship with the businesses, i.e. when theyare of a clearly corporate or institutional nature for the Group as a whole.• Cross selling: in some cases, consolidation adjustments are required to eliminate shadowaccounting entries in the results of two or more units as a result of cross-selling incentives.Recurrent economic profit by business area(January-December 2012. Million euros)Adjusted net attributable profitEconomic profit (EP)Spain 1,840 619Eurasia 984 378Mexico 1,853 1,245South America 1,081 684The United States 283 (36)Corporate Activities (864) (884)BBVA Group 5,177 2,006Business areas133