BBVA in 2012

held by retail investors. The conversion was taken up by 27.84% of the issue (€3,430m), and as aresult 158 million new shares were issued.• Subsequently, on June 30, 2012 BBVA carried out a mandatory partial conversion of theoutstanding convertible bonds through a reduction of 50% in their nominal value. In order tocarry out this conversion, BBVA issued 239 million new shares.• The acquisition of Unnim was completed in the third quarter of 2012. This deal has enabledBBVA to double its presence in Catalonia. This acquisition consumed around 10 basis pointsof core capital. In the fourth quarter there was the tender offer to repurchase 15 issues ofpreferred securities and subordinated bonds distributed through Unnim’s retail network(T1, UT2 and LT2) at 95% of their nominal value for €490m, in exchange for the Bank’streasury stock. BBVA has thus offered a solution to Unnim customers and provided themwith liquidity. In addition, the deal has protected the interests of BBVA shareholders, sincethis exchange is not dilutive, and has had a positive impact on the Group’s generation ofcore capital. BBVA’s offer was accepted by 99.3% of the preferred securities and 82.0% ofthe subordinated bonds. In exchange, they received 64,229,358 ordinary BBVA shares fromits treasury stock. To sum up, the Unnim deal has therefore been practically neutral in termsof capital consumption, as the effect in capital consumption has been offset by the tenderoffer mentioned above.• The Bank also conducted two additional liability management exercises. First, in the secondquarter of 2012 BBVA repurchased €638m of securitization bonds and generated €250m ofcapital gains that have been used to strengthen the Group’s provisions. It also repurchased LT2subordinated debt, resulting in capital gains of €194m and improving the quality of its capitalwith only a limited impact on liquidity. These operations have generated capital for BBVA thanksto active and efficient liability management.Finally, the analysis conducted by Oliver Wyman has confirmed BBVA’s sound capital positionthat places it in Group 0 (banks with no capital requirements). The EBA has confirmed that BBVAfulfilled its capital recommendations in June, according to the schedule set for this purpose.In conclusion, the current levels of capitalization enable the Bank to fulfill all of its capitalobjectives.Foreign-exchange risk management of BBVA’s long-term investments, basically stemming fromits franchises in the Americas, aims to preserve the Group’s capital adequacy ratios and ensurethe stability of its income statement. In 2012, BBVA maintained a policy of actively hedging itsinvestments in Mexico, Chile, Peru and the dollar area, with aggregate hedging of close to 50%.In addition to this corporate-level hedging, dollar positions are held at a local level by some of thesubsidiary banks. The foreign-exchange risk of the earnings expected in the Americas for 2012is also strictly managed. In 2012, hedging generated negative impacts recognized in CorporateActivities, which have been more than offset by the positive effects that the appreciation ofthe foreign currencies against the euro has generated in the income statements of the variouscountries. For 2013, the same prudent and proactive policy will be pursued in managing theGroup’s foreign-exchange risk from the standpoint of its effect on capital ratios and on the incomestatement.The unit also actively manages the structural interest-rate exposure on the Group’s balancesheet. This aims to maintain a steady growth in net interest income in the short and mediumterm, regardless of interest-rate fluctuations. In 2012, the results of this management havebeen very satisfactory, with extremely limited risk strategies in Europe, the United States andMexico. These strategies are managed both with hedging derivatives (caps, floors, swaps,FRAs) and with balance-sheet instruments (mainly government bonds with the highest creditand liquidity ratings).Corporate Activities199