SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20032006
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number: 1-10110
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
(Exact name of Registrant as specified in its charter)
BANK BILBAO VIZCAYA ARGENTARIA, S.A.
(Translation of Registrant’s name into English)
Kingdom of Spain
(Jurisdiction of incorporation)
Plaza de San Nicolás 4
48005 Bilbao
Spain
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class | Name of Each Exchange on which Registered | |
American Depositary Shares, each representing the right to receive one ordinary share, par value €0.49 per share | New York Stock Exchange | |
Ordinary shares, par value €0.49 per share | New York Stock Exchange* | |
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* | The ordinary shares are not listed for trading, but are listed only in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange. |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
The number of outstanding shares of each class of stock of the Registrant at December 31, 20032006 was:
Ordinary shares, par value €0.49 per share—3,195,852,043
Non-Cumulative Guaranteed Preference Shares, nominal value $25 each, of BBVA Preferred Capital Ltd.—9,600,000
Non-Cumulative Guaranteed Preference Shares, Series D, nominal value $0.01 each, of BBVA Privanza International (Gibraltar) Ltd.—703,551,969,121
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ¨ Item 18 x
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
ITEM 1. | 3 | |||
A. | 3 | |||
B. | ||||
C. | ||||
ITEM 2. | ||||
| 4 | |||
| 4 | |||
| 4 | |||
B. | Capitalization and Indebtedness | |||
C. | 7 | |||
D. | 7 | |||
ITEM 4. | 10 | |||
A. | 10 | |||
B. | 13 | |||
C. | ||||
D. | ||||
E. | ||||
F. | ||||
ITEM | 44 | |||
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | |||
A. | ||||
B. | ||||
C. | ||||
D. | ||||
| 75 | |||
F. | Tabular Disclosure of Contractual Obligations | 76 | ||
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | |||
A. | ||||
B. | 84 | |||
C. | Board Practices | 88 | ||
| 90 | |||
E. | Share Ownership | 91 | ||
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 92 | ||
A. | Major Shareholders | 92 | ||
B. | Related Party Transactions | 92 | ||
C. | Interests of Experts and Counsel | 93 | ||
ITEM 8. | FINANCIAL INFORMATION | 93 | ||
A. | Consolidated Statements and Other Financial Information | 93 | ||
B. | Significant Changes | 95 | ||
ITEM 9. | THE OFFER AND LISTING | 95 | ||
ITEM 10. | ADDITIONAL INFORMATION | 100 | ||
A. | Share Capital | 100 | ||
B. | Memorandum and Articles of Association | 100 | ||
C. | Material Contracts | 103 | ||
D. | Exchange Controls | 103 | ||
E. | Taxation | 105 | ||
F. | Dividends and Paying Agents | 109 | ||
G. | Statement by Experts | 109 | ||
H. | Documents on Display | 109 | ||
I. | Subsidiary Information | 109 |
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ITEM 12. | ||||
PART II | ||||
ITEM 13. | ||||
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ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | |||
ITEM 15. | ||||
ITEM | 132 | |||
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | |||
ITEM 16B. | ||||
ITEM 16C. | ||||
ITEM 16D. | ||||
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED | |||
PART III | ||||
ITEM 17. | ||||
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ITEM 18. | ||||
ITEM 19. |
ii
GLOSSARY
The terms below are used as follows throughout this Annual Report:
“Argentaria” means Argentaria, Caja Postal y Banco Hipotecario, S.A. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.
“BBV” means Banco Bilbao Vizcaya, S.A. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.
“BBVA”, “Bank” or “Group” means Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires. BBVA was formed by the merger of BBV and Argentaria, which was approved by the shareholders of each institution on December 18, 1999.
“Consolidated Financial Statements” means BBVA’s audited consolidated balance sheetsConsolidated Financial Statements as of December 31, 2003, 2002 and 2001 and BBVA’s audited consolidated statements of income for the years ended December 31, 2003, 20022006, 2005 and 2001 included2004 prepared in this Annual Report.accordance with the International Financial Reporting Standards previously adopted by the European Union (“EU-IFRS”).
FORWARD-LOOKING STATEMENTS
This Annual Report contains statements that constitute “forward-looking statements”forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as “believe”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this Annual Report, including, without limitation, the information under
“Item 3. Key Information—Risk Factors”;
“Item 4. Information on the Company”;
“Item 5. Operating and Financial Review and Prospects”; and
“Item 11. Quantitative and Qualitative Disclosures About Market Risk”
identifies important factors that could cause such differences.
Other important factors that could cause actual results to differ materially from those in forward-looking statements include, among others:
general political, economic and business conditions in Spain, the European Union (“EU”), Latin America and other regions, countries or territories in which we operate;
changes in applicable laws and regulations, including taxes;
the monetary, interest rate and other policies of central banks in Spain, the EU, the United States and elsewhere;
changes or volatility in interest rates, foreign exchange rates (including the euro to U.S. dollar exchange rate), asset prices, equity markets, commodity prices, inflation or deflation;
the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation;
changes in consumer spending and savings habits, including changes in government policies which may influence investment decisions;
our ability to hedge certain risks economically;
the ability to obtain regulatory approvals of the proposed transaction to acquire Compass Bancshares, Inc. (“Compass”) on the proposed terms and schedule;
the failure of BBVA or Compass shareholders to approve the capital increase or the proposed transaction, respectively;
the risk that the businesses of BBVA and Compass will not be integrated successfully;
the risk that the cost savings and any other synergies from the proposed transaction to acquire Compass may not be fully realized or may take longer to realize than expected;
disruption from the proposed transaction to acquire Compass making it more difficult to maintain relationships with customers, employers or suppliers;
our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that cannot be captured by the statistical models we use; and
• | force majeure and other events beyond our control. |
Readers are cautioned not to place undue reliance on thosesuch forward-looking statements, which speak only as of the date hereof. BBVA undertakes no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in its business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.
CERTAIN TERMS AND CONVENTIONS
First person personal pronouns used in this report, such as “we”“we”, “us”“us”, or “our”“our”, mean BBVA.
In this report, “$“$”, “U.S. dollars”“U.S. dollars”, and “dollars”“dollars” refer to United States Dollars, “€“€” and “euro”“euro” refer to Euro and “ARP”“Ptas” or “peseta” refer to Spanish Pesetas.
“Latin America” refers to Argentinean Pesos.
the countries in which we operate in South America, Central America and Mexico.
PRESENTATION OF FINANCIAL INFORMATION
Accounting Principles Affecting 2003 and 2002
The merger of BBVUnless otherwise indicated, the financial information included in this Annual Report with respect to 2003 and Argentaria approved by the shareholders of each institution on December 18, 1999, was effected through a merger by absorption of Argentaria2002 has been derived from financial statements that have been prepared in accordance with and into BBV and was accounted for under the purchase method of accounting under generally accepted accounting principles which were in effect during the United States (“U.S. GAAP”) and under the method of “pooling of interests” under generally accepted accounting principlesabove mentioned years for banks in Spain, which include the accounting requirements established by the Bank of Spain (“Spanish GAAP”).
Accounting Principles Affecting 2006, 2005 and 2004
Unless otherwise indicated,Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their Consolidated Financial Statements for the years beginning on or after January 1, 2005 in conformity with EU-IFRS. Therefore, the Group is required to prepare its Consolidated Financial Statements for the year ended December 31, 2006 (together with comparative financial information containedfor the years ended December 31, 2005 and 2004) in this Annual Report has been derivedconformity with the EU-IFRS ratified by the EU at that date. EU-IFRS, as adopted by the EU and applied by us in our Consolidated Financial Statements as of and for the year ended December 31, 2006, does not differ from financial statements that have been preparedIFRS, as published by the International Accounting Standards Board (“IASB”), effective as of December 31, 2006, and therefore, complies in accordancefull with IFRS, as published by the IASB.
EU-IFRS differs in certain significant respects from Spanish GAAP. As a result, our financial information presented under EU-IFRS is not directly comparable to our financial information presented with respect to previous years under Spanish GAAP, and readers should avoid such a comparison. For quantitative information regarding the adjustments required to reconcile our Spanish GAAP financial information to EU-IFRS, see Appendix VI to the Consolidated Financial Statements.
See Note 32.262 to theour Consolidated Financial Statements for a discussionquantitative reconciliation of some respectsprofit for the year and stockholders’ equity from EU-IFRS to generally accepted accounting principles in which Spanishthe United States (“U.S. GAAP differs from U.S. GAAP.
”).
The Consolidated Financial Statements have been presented in the same format as that used in the consolidated financial statementsConsolidated Financial Statements included in BBVA’s annual and interim reports to shareholders. This format differs from that required by the United States Securities and Exchange Commission (the “SEC” or “Commission”) for the consolidated financial statementsConsolidated Financial Statements of bank holding companies. Consolidated balance sheets and summary statements of income that reflect the reclassifications required by the Commission are included in Note 32.262 to the Consolidated Financial Statements.
We manage
The BBVA Group implemented a new organizational structure during 2006, which affects the comparability of financial information included in this Annual Report on Form 20-F. During 2005 and for purposes of the financial statements included in BBVA’s annual report on Form 20-F for the year ended December 31, 2005 filed with the SEC on July 7, 2006 (the “2005 20-F”), BBVA’s organizational structure was divided into the following four business areas (the “2005 Business Segments”): Retail Banking in Spain and Portugal; Wholesale Businesses; the Americas; and Corporate Activities. In December 2005, BBVA’s Board of Directors approved a new organizational structure for the BBVA Group, which has been implemented since the beginning of 2006 and is the basis for the financial statements included herein (the “2006 Business Segments”): Retail Banking in Spain and Portugal; Wholesale Businesses; Mexico and the United States; South America; and Corporate Activities. The transition from the 2005 Business Segments to the 2006 Business Segments has affected principally the business area of the Americas, since in 2006 BBVA separated its business in Mexico and the United States into a segment independent of South America. The financial information for our business areas for 2006, 2005 and 2004 presented in this Annual Report on Form 20-F have been prepared on a uniform basis, consistent with our organizational structure in 2006 in order to provide a year-on-year comparison. Due to the adoption of the new organizational structure, BBVA’s financial information by business area included in this Annual Report on Form 20-F is not directly comparable to its financial information by business area included in the 2005 20-F.
The management of our business during 2006 along fourfive segmental lines which areis discussed in “Item 4. Information on the Company” and whoseeach area’s operating results are described in “Item 5. Operating and Financial Review and Prospects”. In addition, due to the special conditions that have continued to affect our operations in Argentina in 2003, we have elected to provide additional disclosure, as we did in our Annual Report on Form 20-F for 2002, on our Argentinean operations and discuss these operations as if they comprised a separate segment, “Argentina”, and not part of the “Banking in America” business segment, where they were included in our Annual Report on Form 20-F for 2001 and prior years.
Certain numerical information in this Annual Report may not sum due to rounding.
Accelerated Amortization of Goodwill
The Consolidated Financial Statements are In addition, information regarding period-to-period changes is based on the Spanish statutorily approved financial statements included in BBVA’s reports to shareholders. The auditors’ reports for the years ended December 31, 1999 and 2000 were qualified with respect to the early amortization of goodwill arising mainly from the acquisition of our Latin American subsidiaries. In accordance with Spanish GAAP, this goodwill shouldnumbers which have not been capitalized and amortized over 10 years. U.S. securities regulations do not currently allow the use in filings with the Commission of financial statements on which the auditors’ report is qualified with respect to a material departure from generally accepted accounting principles. The financial statements included herein reflect adjustments of the Spanish statutorily approved financial statements solely for purposes of complying with U.S. securities regulations. The adjustments consist of the reversal of the early amortization of goodwill and the amortization of such goodwill over a period of five years, the estimated period of the associated assets’ useful life. The following table reflects these adjustments for the periods presented. This adjustment does not affect the year ended December 31, 2002 and 2003.
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rounded.
Statistical and Financial Information
The following principles should be noted in reviewing the statistical and financial information contained herein:
Average balances, when used, are based on the beginning and the month-end balances during each year. We do not believe that such monthly averages present trends that are materially different from those that would be presented by daily averages.
The book value of BBVA’s ordinary shares held by its consolidated subsidiaries has been deducted from stockholders’ equity.
Unless otherwise stated, any reference to loans refers to both loans and leases.
Financial information with respect to subsidiaries may not reflect consolidation adjustments.
Disclosures in this Annual Report with respect to the amount of “substandard loans” at any date reflect Bank of Spain classifications at such date. See “Item 4. Information on the Company—Selected Statistical Information—Assets—Loan Loss Reserve”, “—Substandard Loans” and “—Foreign Country Outstandings”. These classifications differ from the classifications applied by U.S. banks in reporting loans as non-accrual, past due, restructured and as potential problem loans. One of the most important differences is that under Bank of Spain classifications, in the case of loans which are classified as substandard because any payment of principal or interest is 90 days or more past due, initially only past due payments of principal or interest (to the extent accruing at the time that the relevant loan is classified as substandard) are treated as substandard. If any payment on a loan is past due for more than one year, or if, regardless of the time past due, the aggregate amount of past due principal and interest exceeds 25% of the principal amount of the loan, then the entire principal amount of the loan is required to be classified as substandard.
Translation into Euro Currency
The Consolidated Financial Statements are stated in euro. Financial data as of and for periods prior to December 31, 2001 included elsewhere in this Annual Report have been restated from pesetas into euro using the exchange rate in effect as of January 1, 1999 of Ptas.166.386 = €1.00. Data in pesetas converted to euro at such exchange rates show the same trends as would have been presented if the data had been presented in pesetas.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
A. | Directors and Senior Managers |
Not Applicable.
B. |
Not Applicable.
C. | Auditors |
Not Applicable.
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. | KEY INFORMATION |
Not applicable.
Spanish GAAP Data
A. | Selected Financial Data |
The historical financial information set forth below has been selected from, and should be read together with, the Consolidated Financial Statements included herein. For information concerning the preparation and presentation of financial information contained herein, see “Presentation of Financial Information”. Also see Note 32.262 of the Consolidated Financial Statements for a presentation of our balance sheetstockholders’ equity and net income statement reconciled to U.S. GAAP.
Year ended December 31, | |||||||||||||||
Consolidated statement of income data | 2003 | 2002 | 2001 | 2000 | 1999(1) | ||||||||||
(in millions of euro, except per share/ADS data (in euro) and percentages) | |||||||||||||||
Net interest income | 6,741 | 7,808 | 8,824 | 6,995 | 4,370 | ||||||||||
Net fee income | 3,263 | 3,668 | 4,038 | 3,369 | 2,077 | ||||||||||
Basic margin | 10,004 | 11,476 | 12,862 | 10,364 | 6,447 | ||||||||||
Market operations | 652 | 765 | 490 | 779 | 497 | ||||||||||
Ordinary revenue | 10,656 | 12,241 | 13,352 | 11,143 | 6,944 | ||||||||||
General administrative expenses | (5,031 | ) | (5,772 | ) | (6,725 | ) | (5,937 | ) | (3,834 | ) | |||||
Depreciation and amortization | (511 | ) | (631 | ) | (742 | ) | (653 | ) | (388 | ) | |||||
Other operating revenues and expenses, net | (219 | ) | (261 | ) | (286 | ) | (177 | ) | (143 | ) | |||||
Net operating income | 4,895 | 5,577 | 5,599 | 4,376 | 2,579 | ||||||||||
Net income from companies accounted for by the equity method | 383 | 33 | 393 | 589 | 200 | ||||||||||
Amortization of consolidation goodwill(2) | (639 | ) | (679 | ) | (1,143 | ) | (923 | ) | (482 | ) | |||||
Net income on Group transactions | 553 | 361 | 954 | 1,307 | 1,038 | ||||||||||
Net loan loss provisions | (1,277 | ) | (1,743 | ) | (1,919 | ) | (973 | ) | (694 | ) | |||||
Net securities write-downs | — | 3 | (43 | ) | (7 | ) | (18 | ) | |||||||
Extraordinary items, net | (103 | ) | (433 | ) | (727 | ) | (751 | ) | (357 | ) | |||||
Pre-tax profit(2) | 3,812 | 3,119 | 3,114 | 3,618 | 2,266 | ||||||||||
Corporate income tax and other taxes | (915 | ) | (653 | ) | (625 | ) | (962 | ) | (488 | ) | |||||
Income before minority interests(2) | 2,897 | 2,466 | 2,489 | 2,656 | 1,778 | ||||||||||
Minority interests | (670 | ) | (747 | ) | (646 | ) | (682 | ) | (342 | ) | |||||
Net attributable profit(2) | 2,227 | 1,719 | 1,843 | 1,974 | 1,436 | ||||||||||
Per Share/ADS(3) data | |||||||||||||||
Operating income(4) | 1.53 | 1.75 | 1.75 | 1.44 | 1.24 | ||||||||||
Number of shares | 3,195,852,043 | 3,195,852,043 | 3,195,852,043 | 3,195,852,043 | 2,133,235,006 | ||||||||||
Net attributable profit(4) | 0.70 | 0.54 | 0.58 | 0.65 | 0.69 | ||||||||||
Dividends(4)(5) | 0.38 | 0.35 | 0.38 | 0.36 | 0.28 |
Consolidated balance sheet data Total assets(2) Loans and leases, net Deposits Marketable debt securities and subordinated debt Minority interests Capital and reserves(2) Consolidated ratios Profitability ratios: Net interest margin(6) Return on average total assets(7) Return on average capital and reserves(8) Credit quality data Loan loss reserve Loan loss reserve as a percentage of total loans and leases Substandard loans(9) Non-Performing loans as a percentage of total loans and leases Loan loss reserve as a percentage of substandard loans At December 31, 2003 2002 2001 2000 1999(1) (in millions of euro, except per share/ADS data (in euro)
and percentages) 287,150 279,542 309,062 296,345 157,545 148,827 141,315 150,220 137,467 68,494 141,049 146,560 166,499 154,146 79,155 41,782 34,010 32,986 31,571 16,071 5,426 5,674 6,394 6,304 4,379 11,473 11,842 12,770 13,047 5,516 2.4 % 2.70 % 2.92 % 2.58 % 3.33 % 1.04 % 0.85 % 0.82 % 0.98 % 1.24 % 12.45 % 13.07 % 13.96 % 18.68 % 26.12 % 4,736 5,346 6,320 8,155 2,277 3.09 % 3.65 % 4.05 % 5.71 % 3.23 % 3,126 3,531 2,743 2,862 1,365 1.74 % 2.37 % 1.75 % 2.00 % 1.93 % 151.5 % 151.42 % 230.40 % 284.94 % 166.81 %
Year ended December 31, | |||||||||
2006 | 2005 | 2004 | |||||||
(in millions of euros, except per share/ ADS data (in euro) | |||||||||
Consolidated Statement of Income data | |||||||||
Interest and similar income | 19,210 | 15,848 | 12,352 | ||||||
Interest expense and similar charges | (11,216 | ) | (8,932 | ) | (6,447 | ) | |||
Income from equity instruments | 379 | 292 | 255 | ||||||
Net interest income | 8,374 | 7,208 | 6,160 | ||||||
Share of profit or loss of entities accounted for using the equity method | 308 | 121 | 97 | ||||||
Fee and commission income | 5,119 | 4,669 | 4,057 | ||||||
Fee and commission expenses | (784 | ) | (729 | ) | (644 | ) | |||
Insurance activity income | 650 | 487 | 391 | ||||||
Gains/losses on financial assets and liabilities (net) | 1,656 | 980 | 762 | ||||||
Exchange differences (net) | 378 | 287 | 298 | ||||||
Gross income | 15,700 | 13,023 | 11,121 | ||||||
Sales and income from the provision of non-financial services | 605 | 576 | 468 | ||||||
Cost of sales | (474 | ) | (451 | ) | (342 | ) | |||
Other operating income | 117 | 134 | 22 | ||||||
Personnel expenses | (3,989 | ) | (3,602 | ) | (3,247 | ) | |||
Other administrative expenses | (2,342 | ) | (2,160 | ) | (1,851 | ) | |||
Depreciation and amortization | (472 | ) | (449 | ) | (448 | ) | |||
Other operating expenses | (263 | ) | (249 | ) | (132 | ) | |||
Net operating income | 8,883 | 6,823 | 5,591 | ||||||
Impairment losses (net) | (1,504 | ) | (854 | ) | (958 | ) | |||
Provision expense (net) | (1,338 | ) | (454 | ) | (850 | ) | |||
Finance income from non-financial activities | 58 | 2 | 9 | ||||||
Finance expenses from non-financial activities | (55 | ) | (2 | ) | (5 | ) | |||
Other gains | 1,129 | 285 | 622 | ||||||
Other losses | (142 | ) | (208 | ) | (271 | ) | |||
Income before tax | 7,030 | 5,592 | 4,138 | ||||||
Income tax | (2,059 | ) | (1,521 | ) | (1,029 | ) | |||
Income from continuing operations | 4,971 | 4,071 | 3,109 | ||||||
Income from discontinued operations (net) | — | — | — | ||||||
Consolidated income for the year | 4,971 | 4,071 | 3,109 | ||||||
Income attributed to minority interests | (235 | ) | (265 | ) | (186 | ) | |||
Income attributed to the Group | 4,736 | 3,806 | 2,923 | ||||||
Per share/ADS(1) Data | |||||||||
Net operating income(2) | 2.61 | 2.01 | 1.66 | ||||||
Numbers of shares outstanding (at period end) | 3,551,969,121 | 3,390,852,043 | 3,390,852,043 | ||||||
Income attributed to the Group(2) | 1.39 | 1.12 | 0.87 | ||||||
Dividends declared | 0.637 | 0.531 | 0.442 |
(1) |
Each American Depositary Share (“ADS” or “ADSs”) represents the right to receive one ordinary share. |
(2) | Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period (3,406 million, 3,391 million and 3,369 million shares in 2006, 2005 and 2004, respectively). |
EU-IFRS
Year ended December, 31 | |||||||||||
2006 | 2005 | 2004 | |||||||||
(in millions of euros, except per share/ADS data (in euros) and percentages) | |||||||||||
Consolidated balance sheet data | |||||||||||
Total assets | 411,916 | 392,389 | 329,441 | ||||||||
Capital stock | 1,740 | 1,662 | 1,662 | ||||||||
Loans and receivables (net) | 279,855 | 249,397 | 196,892 | ||||||||
Deposits from other creditors | 192,374 | 183,375 | 150,726 | ||||||||
Marketable debt securities and subordinated liabilities | 91,271 | 76,565 | 57,809 | ||||||||
Minority interests | 768 | 971 | 738 | ||||||||
Stockholders’ equity | 18,210 | 13,034 | 10,961 | ||||||||
Consolidated ratios | |||||||||||
Profitability ratios: | |||||||||||
Net interest margin(3) | 2.12% | 1.98 | % | 1.91% | |||||||
Return on average total assets(4) | 1.26% | 1.12 | % | 0.97% | |||||||
Return on average equity(5) | 37.6% | 37.0 | % | 33.2% | |||||||
Credit quality data | |||||||||||
Loan loss reserve | 6,417 | 5,587 | 4,622 | ||||||||
Loan loss reserve as a percentage of total loans and receivables (net) | 2.29% | 2.19 | % | 2.31% | |||||||
Substandard loans | 2,492 | 2,346 | 2,202 | ||||||||
Substandard loans as a percentage of total loans and receivables (net) | 0.89% | 0.94 | % | 1.12% |
(3) | Represents net interest income as a percentage of average total assets. |
(4) | Represents consolidated income for the year as a percentage of average total assets. |
(5) | Represents income attributed to the Group as a percentage of average stockholders’ equity. |
U.S. GAAP Information
Year ended December 31, | ||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||
(in millions of euros, except per share/ ADS data (in euro) or as otherwise indicated) | ||||||||||
Consolidated statement of income data | ||||||||||
Net income | 4,972 | 2,018 | 3,095 | 1,906 | 1,846 | |||||
Basic earnings per share/ADS(1)(2) | 1.460 | 0.595 | 0.918 | 0.60 | 0.58 | |||||
Diluted earnings per share/ADS(1)(2) | 1.460 | 0.595 | 0.918 | 0.60 | 0.58 | |||||
Dividends per share/ADS (in dollars) (1)(2)(3) | 0.807 | 0.658 | 0.552 | 0.34 | 0.33 | |||||
Consolidated balance sheet data | ||||||||||
Total assets(4) | 420,971 | 401,799 | 314,350 | 287,912 | 290,430 | |||||
Stockholders’ equity(4) | 30,461 | 25,375 | 23,465 | 19,583 | 18,908 | |||||
Basic stockholders’ equity per share/ADS(1)(2) | 8.94 | 7.48 | 6.96 | 6.13 | 5.92 | |||||
Diluted stockholders’ equity per share/ADS(1)(2) | 8.94 | 7.48 | 6.96 | 6.13 | 5.91 |
(1) | Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period. |
(2) |
U.S. GAAP Information
Year ended December 31, | |||||||||||||||
2003 | 2002 | 2001 | Restated 2000(1) | 2000 | Restated (*) 1999(1) | 1999(1) | |||||||||
(in millions of euro, except per share/ADS data (in euro) or as otherwise indicated) | |||||||||||||||
Consolidated statement of income data | |||||||||||||||
Net income(2) | 1,906 | 1,846 | 680 | 1,413 | 1,544 | 1,056 | 1,038 | ||||||||
Basic earnings per share/ADS(3)(4) | 0.60 | 0.58 | 0.21 | 0.47 | 0.51 | 0.51 | 0.50 | ||||||||
Diluted earnings per share/ADS(3)(4) | 0.60 | 0.58 | 0.21 | 0.46 | 0.50 | 0.50 | 0.49 | ||||||||
Dividends per share/ADS (in dollars)(4)(5) | 0.34 | 0.33 | 0.34 | 0.39 | 0.39 | 0.27 | 0.27 | ||||||||
Consolidated balance sheet data as at December 31 | |||||||||||||||
Total assets(6) | 287,912 | 290,430 | 322,612 | 308,644 | (7) | 313,120 | 165,431 | 165,300 | |||||||
Stockholders’ equity(6) | 19,583 | 18,908 | 21,226 | 22,579 | 22,579 | 10,070 | 9,939 | ||||||||
Basic stockholders’ equity per share/ADS(4) | 6.13 | 5.92 | 6.64 | 7.43 | 7.43 | 4.82 | 4.76 | ||||||||
Diluted stockholders’ equity per share/ADS(4) | 6.13 | 5.91 | 6.63 | 7.33 | 7.33 | 4.77 | 4.71 |
Each ADS represents the right to receive one ordinary share. |
(3) | Dividends per share/ADS are translated into dollars |
(4) | At the end of the reported period. |
Exchange Rates
On January 1, 1999,Spain’s currency is the euro was introduced as a new currency in the following 11 European Union (“EU”) member states, forming the European Monetary and Economic Union at such date: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. As of January 2001, the euro was also introduced as the new currency in Greece. The currencies of the participating member states were nondecimal subdivisions of the euro until January 1, 2002 and for up to six months thereafter. The exchange rate at which the peseta has been irrevocably fixed against the euro is Ptas.166.386 = €1.00. Beginning January 1, 2002, the participating member states issued new euro-denominated bills and coins for use in cash transactions. By July 1, 2002, the participating member states withdrew from circulation the bills and coins denominated in their respective currencies, and they are no longer legal tender for any transactions.
The following table sets forth, for the years indicated, the average exchange rate for each year, which reflects the average of the noon buying rates for euro from the Federal Reserve Bank of New York on the last date of each month during the relevant period, for the years ended December 31, 1999 through 2003, and for the year ended December 31, 2004 (through June 30), expressed in dollars per €1.00.
Year ended December 31, | Average | |
1999 | 1.0588 | |
2000 | 0.9207 | |
2001 | 0.8909 | |
2002 | 0.9495 | |
2003 | 1.1411 | |
2004 (through June 25) | 1.2275 |
The following table describes, for the periods and dates indicated, information concerning the noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per €1.00.
Month ended | High | Low | ||
December 31, 2003 | 1.2597 | 1.1956 | ||
January 31, 2004 | 1.2853 | 1.2389 | ||
February 28, 2004 | 1.2848 | 1.2426 | ||
March 31, 2004 | 1.2431 | 1.2088 | ||
April 30, 2004 | 1.2358 | 1.1802 | ||
May 31, 2004 | 1.2274 | 1.1801 | ||
June 30, 2004 (through June 25) | 1.2320 | 1.2006 |
The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per €1.00, on June 25, 2004, was $1.2145.euro. Unless otherwise indicated, the amounts that have been converted to euro in this Annual Report have been done so at the corresponding exchange rate published by the European Central Bank (“ECB”) on December 31 of the relevant year.
For convenience in the analysis of the information, the following tables describe, for the periods and dates indicated, information concerning the noon buying rate for euro, expressed in dollars per €1.00. The term “noon buying rate” refers to the rate of exchange for euros, expressed in U.S. dollars per euro, in the City of New York for cable transfers payable in foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes.
Year ended December 31 | Average (1) | |
2002 | 0.9495 | |
2003 | 1.1411 | |
2004 | 1.2478 | |
2005 | 1.2400 | |
2006 | 1.2661 | |
2007 (through March 28) | 1.3186 |
(1) | The average of the noon buying rates for the euro on the last day of each month during the relevant period. |
At
Month ended | High | Low | ||
October 31, 2006 | 1.2773 | 1.2502 | ||
November 30, 2006 | 1.3261 | 1.2705 | ||
December 29, 2006 | 1.3327 | 1.3073 | ||
January 31, 2007 | 1.3286 | 1.2904 | ||
February 28, 2007 | 1.3246 | 1.2933 | ||
March 31, 2007 (through March 28) | 1.3359 | 1.3094 |
The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per €1.00, on March 28, 2007, was $1.3331.
As of December 31, 2003,2006, approximately 30.8%31% of our assets and approximately 33.2%33% of our liabilities were denominated in currencies other than euro (principally dollars).
For a discussion of our foreign currency exposure, please see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Market Risk Management—Market risk in 2003—Structural Non-Trading Activities in 2006—Exchange Rate Risk”.
B. | Capitalization and Indebtedness |
Not Applicable.
Not applicable.
C. | Reasons for the Offer and Use of Proceeds |
Not applicable.Applicable.
D. | Risk Factors |
Risks Relating to us
Since our loan portfolio is highly concentrated in Spain, adverse changes affecting the Spanish economy could have a material adverse effect on our financial condition.
We historically have developed our lending business in Spain, which continues to be our main place of business. As of December 31, 2003,2006, business activity in Spain accounted for 76.25%70.2% of our loan portfolio. See “Item 4. Information on the Company—Selected Statistical Information—Loans by Geographic Area”. Any adverse changes affecting the Spanish economy are likely to have a significant adverse impact on our loan portfolio and, as a result, on our financial condition and results of operations.
A substantial percentage of our customer base is particularly sensitive to adverse developments in the economy, which renders our lending activities relatively riskier than if we lent primarily to higher-income customer segments.
Medium- and small-size companies and middlemiddle- and lower middlelower-middle- income individuals typically have less financial strength than large companies and high-income individuals and accordingly can be expected to be more negatively affected by adverse developments in the economy. As a result, it is generally accepted that lending to these segments of our existing and targeted customer base represents a relatively higher degree of risk than lending to other groups.
A substantial portion of our loan portfolio consists of residential mortgages and consumer loans to middlemiddle- and lower middle incomelower-middle-income customers and commercial loans to mediummedium- and smallsmall-size companies. Consequently, during periods of slowdown in economic activity we may experience higher levels of past due amounts which could result in higher levels of allowance for loan losses. We cannot assure you that we will not suffer substantial adverse effects on our base loan portfolio to these customer segments in the event of adverse developments in the economy.
Increased exposure to real estate in Spain makes us more vulnerable to developments in this market.
The sound economic growth, the strength of the labor market and a decrease in interest rates in Spain hashave caused an increase in the demand offor mortgage loans in the last few years. This has had repercussions in housing prices, which have also risen significantly. As residential mortgages are one of our main assets, comprising 30%26%, 40%27% and 42%26% of our loan portfolio at December 31, 2001, 20022006, 2005 and 2003,2004, respectively, we are currently highly exposed to developments in real estate markets. AWe expect the worsening financial conditions in Spain to cause a gradual adjustment process in the Spanish real estate sector, after several years of price increases.
In addition, a strong increase in interest rates or unemployment in Spain might have a significant negative impact in mortgage payment delinquency rates. An increase in such delinquency rates could have an adverse effect on our business, financial condition and results of operations.
Highly-indebted households and corporations could endanger our asset quality and future revenues.
Spanish households and firms have reached, in recent years, a high level of indebtedness, level, which represents increased risk for the Spanish banking system. The increase of loans referenced to variable interest rates makemakes debt service on such loans more vulnerable to changes in interest rates than in the past. In fact, the debt burden of the Spanish households on disposable income has increased substantially from 12.5% in 2003 to 16.4% in 2006. The increase in households’ and firms’ indebtedness also limits their ability to incur additional debt, decreasing the number of new products we may otherwise be able to sell them.
A sudden shortage of funds could cause an increase in our costs of funding and an adverse effect on our operating revenues.
Historically, one of our principal sources of funds has been savings and demand deposits. Time deposits represented 36.2%23.3%, 35.0%25.4% and 31.1%27.6% of our total funding at December 31, 2001, 20022006, 2005 and 20032004, respectively. Large-denomination time deposits may, under some circumstances, such as during periods of significant changes in market interest rates for these types of deposit products and resulting increased competition for such funds, be a less stable source of deposits than savings and demand deposits. In addition,
since we rely heavily on short-term deposits for our funding, we cannot assure you that, in the event of a sudden or unexpected shortage of funds in the banking systems or money markets in which we operate, we will be able to maintain our current levels of funding without incurring higher funding costs or having to liquidate certain of our assets.
We face increasing competition in our business lines.
The markets in which we operate are highly competitive. Financial sector reforms in the markets in which we operate have increased competition among both local and foreign financial institutions, and we believe that this trend will continue. For example, the adoption of the euro as the common currency throughout the EU is making it easier for European banks to compete against us in Spain. In addition, the trend towards consolidation in the banking industry has created larger and stronger banks with which we must now compete.
This is particularly the case of the consumer credit market, where foreign entrants are operating in the segment of small credits to subprime households.
We also face competition from non-bank competitors, such as:
department stores (for some credit products);
leasing companies;
factoring companies;
mutual funds;
pension funds; and
insurance companies.
We cannot assure you that this competition will not adversely affect our business, financial condition and results of operations.
Our business is particularly vulnerable to volatility in interest rates.
Our results of operations are substantially dependent upon the level of our net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Interest rates are highly sensitive to many factors beyond our control, including deregulation of the financial sectors in the markets in which we operate, monetary policies pursued by the EU and national governments, domestic and international economic and political conditions and other factors.
Changes in market interest rates could affect the spread between interest rates charged on interest-earning assets and interest rates paid on interest-bearing liabilities and thereby negatively affect our results of operations. For example, an increase in interest rates could cause our interest expense on deposits to increase more significantly and quickly than our interest income from loans, resulting in a reduction in our net interest income.
In addition, income from treasury operations is particularly vulnerable to interest rate volatility. Since 64.30%approximately 75% of our loan portfolio consists of variable interest rate loans maturing in more than one year, rising interest rates may also bring about an increase in the non-performing loan portfolio.
Our financial statements and periodic disclosure under securities laws may not give you the same information as financial statements prepared under U.S. accounting rules and periodic disclosures provided by domestic U.S. issuers.
Publicly available information about public companies in Spain is generally less detailed and not as frequently updated as the information that is regularly published by or about listed companies in the United States. In addition, although we are subject to the periodic reporting requirements of the United States Securities Exchange Act of 1934 (the “Exchange Act”), the periodic disclosure required of foreign issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Finally, we maintain our financial accounts and records and prepare our financial statements in conformity with Spanish GAAP,EU-IFRS, which differs in certain respects from U.S. GAAP, the financial reporting standard to which many investors in the United States may be bettermore accustomed. See Note 62 of the Consolidated Financial Statements for the presentation of our stockholders’ equity and net income reconciled to U.S. GAAP.
BBVA may fail to realize all of the anticipated benefits of the proposed transaction to acquire Compass.
The success of the proposed transaction to acquire Compass will depend, in part, on BBVA’s ability to realize the anticipated benefits from combining the businesses of BBVA and Compass. However, to realize these anticipated benefits, BBVA and Compass must successfully combine their businesses, which are currently principally conducted in different countries by management and employees coming from different cultural backgrounds. If BBVA is not able to achieve these objectives, the anticipated benefits of the transaction may not be realized fully or at all or may take longer to realize than expected.
BBVA and Compass have operated and, until the completion of the proposed transaction, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the ability of BBVA and Compass to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the transaction. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Compass and BBVA during the transition period and on the combined company following completion of the transaction.
See “Item 4. Information on the Company—Business Overview—Mexico and the United States”.
Risks Relating to Latin America
Political events in Mexico could adversely affect our operations, given that approximately 37% of our income attributed to the Group is generated in Mexico.
The devaluationMexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican governmental actions concerning the economy and state-owned enterprises could have a significant effect on Mexican private sector entities in general, and on our Mexican subsidiaries in particular.
Mexico’s presidential elections were held on July 2, 2006. Felipe Calderon’s victory was confirmed by the Federal courts on September 5, 2006, and Calderon took office on December 1, 2006, but the election results were contested by Andres Manuel López Obrador and his party, the Democratic Revolutionary Party, which alleged irregularities in over 30% of the Argentinean peso,country’s polling stations, sought a vote recount, unsuccessfully appealed the adverse macroeconomic conditions prevailing in Argentinaresults of the election and emergency measures adoptedstaged street protests. The uncertainty caused by the Argentineanelection could result in political and economic instability and social unrest, which could adversely affect the business, financial condition and results of operations of our Mexican subsidiaries. Moreover, the new administration could implement significant changes in laws, public policies and government have had, and may continue toprograms, which could have a material adverse effect on ourthe business, financial condition and results of operations.
Argentina’s economic situation deteriorated sharply in late 2001. The beginning of 2002 was marked by the continued movement of capital out of Argentina, the end of convertibility of the peso, devaluation, and the return of inflation. The crisis had a strong impact on the financial system and jeopardized the solvency and liquidity of banks. In 2003, macroeconomic conditions in Latin America and Argentina improved, but significant uncertainty regarding the scope and pace of the recovery remained.
As a result of the measures described in “Item 4. Information on the Company––Business Overview—Business Areas—Argentina”, we have written off our entire investment in Argentina to date. However, despite our provisions and write-downs, the situation in Argentina may continue to have a material adverse effect on our business, financial condition and results of operations.
We cannot assure you that the laws and regulations currently governing the Argentinean economy will not change in the future, or that any changes which may occur will not adversely affect our business, financial condition or resultsoperations of our operations in the country, or the business which we transact with counterparties located in the country.Mexican subsidiaries.
Risks relating to our investments in Argentina in light of the current social and political crises include the potential for: (i) civil unrest, rioting, looting, nationwide protests, widespread social unrest and strikes, (ii) expropriation, nationalization and forced renegotiation or modification of existing contracts, (iii) additional restrictions on repatriation of investments and transfer of funds abroad, (iv) adverse changes to taxation policies, including retroactive tax claims and (v) further changes in laws and policies of Argentina affecting foreign trade and investment.
Our Latin American subsidiaries’ growth, asset quality and profitability may be affected by volatile macroeconomic conditions, including government default on public debt, in the Latin American countries where they operate.
The Latin American countries wherein which we operate have experienced significant economic volatility in recent decades, characterized by slow growth, declining investment and significant inflation. This volatility has resulted in fluctuations in the levels of deposits and in the relative economic strength of various segments of the economies to which we lend. Negative and fluctuating economic conditions, such as a changing interest rate environment, also affect our profitability by causing lending margins to decrease and leading to decreased demand for higher-margin products and services.
The results of several recent electoral processes entail an increased risk of greater state intervention in the domestic economy, especially in Bolivia and Venezuela.
Negative and fluctuating economic conditions in some Latin American countries could result in government defaults on public debt. This could affect us in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default in public debt could cause to the banking system as a whole, particularly since commercial banks’ exposure to government debt is generally high in several Latin American countries in which we operate.
While we seek to mitigate these risks through thewhat we believe to be conservative risk policies, described in “Item 11. Quantitative and Qualitative Disclosures About Market Risk”, no assurance can be given that our Latin American subsidiaries’ growth, asset quality and profitability will not be affected by volatile macroeconomic conditions in the Latin American countries in which we operate.
Latin American economies can be directly and negatively affected by adverse developments in other countries.
Financial and securities markets in Latin American countries in which we operate, are to varying degrees, influenced by economic and market conditions in other countries in Latin America and beyond. Negative developments in the economy or securities markets in one country, particularly in an emerging market, may have a negative impact on other emerging market economies. These developments may adversely affect the business, financial condition and operating results of our subsidiaries in Latin America.
We are exposed to foreign exchange and, in some instances, political risks as well as other risks in the Latin American countries in which we operate, which could cause an adverse impact on our business, financial condition and results of operations.
We operate commercial banks in 10 Latin American countries and our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We are confronted with different legal and regulatory requirements in many of the jurisdictions in which we operate. These include, but are not limited to, different tax regimes and laws relating to the repatriation of funds or nationalization of assets. Our international operations may also expose us to risks and challenges which our local competitors may not be required to face, such as exchange rate risk, difficulty in managing a local entity from abroad, and political risk which may be particular to foreign investors. Our expansion in these markets requires us to respond to rapid changes in market conditions in these countries. We cannot assure you that we will continue to succeed in developing and implementing policies and strategies that are effective in each country in which we operate or that any of the foregoing factors will not have a material adverse effect on our business, financial condition and results of operations.
Regulatory changes in Latin America that are beyond our control may have a material effect on our business, financial condition and results of operations.
A number of banking regulations designed to maintain the safety and soundness of banks and limit their exposure to risk are applicable in certain Latin American countries in which we operate. Local regulations differ in a number of material respects from equivalent regulations in Spain and the United States.
Changes in regulations that are beyond our control may have a material effect on our business and operations.operations, particularly in Venezuela. In addition, since some of the banking laws and regulations have been recently adopted, the manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. No assurance can be given that laws or regulations will be enforced or interpreted in a manner that will not have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to Other Countries
ITEM 4. INFORMATION ON THE COMPANYOur strategic growth in Asia exposes us to increased regulatory, economic and geopolitical risk relating to emerging markets in the region, particularly in China.
Strategic growth in Asia, particularly China, continued in 2006. The BBVA Group formed a strategic alliance with the CITIC Group, in which we committed to invest €501 million to purchase 5% of China Citic Bank (“CNCB”) as well as €488 million to purchase 15% of Citic International Financial Holdings (“CIFH”) as of December 31, 2006. See “Item 4. Information on the Company—Business Overview—Wholesale Businesses”.
As a result of our expansion into Asia, we are exposed to increased risks relating to emerging markets in the region, particularly in China. The Chinese government has exercised, and continues to exercise, significant influence over the Chinese economy. Chinese governmental actions concerning the economy and state-owned enterprises could have a significant effect on Chinese private sector entities in general, and on CNCB or CIFH in particular.
We also are exposed to regulatory uncertainty and geopolitical risk as a result of our investments in Asia. Changes in laws or regulations or in the interpretation of existing laws or regulations, whether caused by a change in government or otherwise, could adversely affect our investments. Moreover, Asian economies can be directly and negatively affected by adverse developments in other countries in the region and beyond.
Any of these developments could have a material adverse effect on our investments in Asia or the business, financial condition and operating results of the Group.
A. Our continued expansion in the United States increases our exposure to the U.S. market.
The Group’s expansion continued in the United States in 2006 with the acquisition of Texas Regional Bancshares, Inc. (“Texas Regional Bancshares”) (for $2,141 million (approximately €1,674 million) in November 2006) and State National Bancshares, Inc. (“State National Bancshares”) (for $484 million (approximately €368 million), which closed in January 2007). These purchases, together with Laredo National Bank, Inc. (“LNB”) (acquired in 2005), have nearly tripled our presence in the United States in the past two years. In addition, we recently announced our proposed acquisition of Compass, which, if consummated, will substantially increase our presence in the United States. See “Item 4. Information on the Company—Business Overview—Mexico and the United States” and “Item 4. Information on the Company—History and Development of the CompanyCompany—Capital Expenditures”.
Our expansion in the United States makes us more vulnerable to developments in this market, particularly the real estate market. The sound economic growth, the strength of the labor market and a decrease in interest rates in the United States have caused an increase in the demand for mortgage loans in the last few years. This has had repercussions in housing prices, which have also risen significantly. As we have acquired entities in the United States, our exposure to the U.S. real estate market has increased, and this will increase further if the proposed acquisition of Compass is consummated. If there were a significant downturn in the U.S. economy in general, or the real estate market in particular, it could have a material adverse effect on our business, financial condition and results of operations.
ITEM 4. | INFORMATION ON THE COMPANY |
A. | History and Development of the Company |
Our legal name is Banco Bilbao Vizcaya Argentaria, S.A. BBVA’s predecessor bank, BBV, was incorporated in Spain as a limited liability company (asociedad anónima or “S.A.“S.A.”) under the Spanish Corporations Law on October 1, 1988. BBVA was formed as the result of a merger by absorption of Argentaria into BBV that was approved by the shareholders of each institution on December 18, 1999 and registered on January 28, 2000. It conducts its
business under the commercial name “BBVA”. BBVA is registered with the Commercial Registry of Vizcaya (Spain). It has its registered office at Plaza de San Nicolás 4, Bilbao, Spain, 48005, telephone number 34-94-420-3001.+34-91-3746201. BBVA’s agent in the U.S. for U.S. federal securities law purposes is Raúl Santoro de Mattos Almeida (BBVA New York, 1345 Avenue of the Americas, 45th floor, NY, New York, 10105)10105, telephone number +1-212-728-1660). BBVA is incorporated for an unlimited term.
Recent Developments
Proposed Transaction to Acquire Compass Bancshares, Inc.
On February 16, 2007 BBVA entered into a definitive agreement to acquire 100% of the shares of Compass for a consideration made up of a combination of ordinary shares of BBVA and cash (the “Agreement”). Pursuant to the Agreement, Compass shareholders can elect to receive 2.8 BBVA ordinary shares or ADSs or $71.82 in cash for each Compass share, subject to proration. Based on BBVA’s closing stock price on Thursday, February 15, 2007, the transaction has an aggregate value of approximately $9.6 billion. See “—Business Overview—Mexico and the United States”.
Capital Expenditures
Our principal investments are financial, in subsidiaries and in affiliates. The main capital expenditures from 20012004 to the date of this Annual Report were the following:
2007
On July 12, 2006, BBVA entered into an agreement to purchase the U.S. banking group, State National Bancshares, which is domiciled and conducts its main business activity in the State of Texas. Upon receipt of the required shareholder approval and other necessary administrative authorizations, the transaction concluded on January 3, 2007. The agreed purchase price was $484 million (approximately €368 million) at this date.
On December 22, 2006, BBVA reached an agreement with the Chinese banking group CITIC Group to develop a strategic alliance in the Chinese market. In accordance with this agreement, BBVA will acquire a 5% ownership interest in CNCB with a call option to acquire 9.9% of its share capital. The price for the initial 5% share capital is approximately €501 million. Additionally BBVA will acquire a 15% ownership interest in the banking entity CIFH, which is headquartered in Hong Kong and is quoted on the Hong Kong Stock Exchange. The price for this 15% share is approximately €488 million. As of the date of the filing of this Annual Report, certain regulatory and other approvals remain pending.
2006
On November 30, 2006 the Group acquired all the shares of the Italian vehicle rental company Maggiore Fleet S.p.A., for €70.2 million, giving rise to goodwill of €35.7 million.
On November 10, 2006, the Group acquired Texas Regional Bancshares through the investment of $2,141 million (€1,674 million). The goodwill recognized as of December 31, 2006 amounted to €1,257 million.
On July 28, 2006, BBVA acquired 100 % ownership of Uno-E Bank, S.A. The process to acquire all of Uno-E Bank S.A.’s shares commenced on January 10, 2003 when Telefónica España, S.A., pursuant to the agreement entered into by Terra Networks, S.A. (subsequently merged into Telefónica España, S.A.) and BBVA, proceeded on January 10, 2003 to start selling to BBVA its 33 % ownership interest in Uno-E Bank, S.A. for an aggregated amount of €148.5 million.
On June 12, 2006, BBVA reached agreements to acquire State National Bancshares, Inc. and Texas Regional Bancshares, each of which are U.S. banking groups domiciled in Texas. The acquisition price agreed for State National Bancshares was approximately $480 million while the acquisition price agreed for Texas Regional Bancshares was approximately $2,164 million. In both cases, the acquisitions were subject to both shareholder and regulatory approvals. The acquisitions closed on January 3, 2007 (State National Bancshares) and in November, 2006 (Texas Regional Bancshares). The acquisition of Texas Regional Bancshares added €3,115 million in lending and €4,651 million in deposits to the Group’s accounts as well as 73 branches and 2,009 employees, in each case at December 31, 2006.
In May 2006, BBVA acquired a 51% ownership interest in Forum, a Chilean company specializing in car purchase financing, through the Chilean entities Forum Distribuidora, S.A. and Forum Servicios Financieros, S.A. (which in turn own all the shares of ECASA, S.A.), giving rise to the incorporation of BBVA Financiamiento Automotriz. The goodwill recognized as of December 31, 2006 amounted to €51 million.
On March 3, 2006, BBVA purchased 0.43% of BBVA Chile’s share capital for 2,318 million Chilean pesos (€3.7 million), increasing BBVA’s share capital in BBVA Chile to 67.05%. As the share capital of BBVA in BBVA Chile is higher than two thirds of BBVA Chile’s total share capital, BBVA, in compliance with Chilean legislation launched a public tender offer for all of BBVA Chile’s share capital. The public tender offer was effective from April 3, 2006 to May 2, 2006. After the acceptance of the public tender offer by 1.13% of BBVA Chile’s outstanding shares, BBVA’s share capital in BBVA Chile increased to 68.18%.
2005
On January 6, 2005, pursuant to the agreement entered into in September 2004 and after obtaining the mandatory authorizations, the Group, through BBVA Bancomer, S.A. de C.V. (“BBVA Bancomer”), acquired all the shares of Hipotecaria Nacional, S.A. de C.V., a Mexican company specializing in the mortgage business. The price paid was 4,121 million Mexican pesos (approximately € 276,048 thousand) and the goodwill recognized amounted to € 259,111 thousand at December 31, 2005.
On April 28, 2005, pursuant to the agreement entered into on September 20, 2004 and after obtaining the mandatory authorizations, BBVA, acquired all the shares of LNB, a bank holding company located in Texas (United States) which operates in the banking business through two independent banks: Laredo National Bank and South Texas National Bank. The price paid was U.S.$ 859.6 million (approximately € 666,110 thousand) and the goodwill recognized amounted to € 473,941 thousand at December 31, 2005.
On October 31, 2005, the Guarantee Fund for Colombian Financial Institutions (“FOGAFIN”), sold by public auction 98.78% of the share capital of Banco Granahorrar, S.A. (a Colombian financial institution) (“Banco Granahorrar”) to the BBVA Group’s subsidiary in Colombia, BBVA Colombia, S.A. The offer made by BBVA Colombia, S.A. for the acquisition of Banco Granahorrar totaled U.S.$ 423.66 million. This transaction was consummated in December 2005 after the required authorizations had been obtained from the supervisory and control bodies. The price paid was 981,572.2 million Colombian pesos, approximately € 364,163 thousand, and the goodwill recognized amounted to € 266,862 thousand at December 31, 2005.
2004
Grupo Financiero BBVA Bancomer, S.A. de C.V (“Bancomer”). On January 30, 2004, our Board of Directors adopted a resolution to launch a tender offer for the approximatedapproximately 40.6% of the shares of Bancomer, our Mexican affiliate, which were not already owned by BBVA. The tender offer was launched on February 19, 2004 and expired on March 19, 2004. As a result of the successful completion of the tender offer and subsequent purchases amounting to 0.56%during 2004 of Bancomer’s capital stock, at MarchDecember 31, 2004, we owned 99.44%99.70% of Bancomer’s outstanding shares. On February 5, 2004, to strengthen our capital ratios and finance a portion of the cost of the Bancomer tender offer, we sold 195,000,000 of our newly-issued ordinary shares to institutional investors in Spain and outside of Spain at the offer price of €10.25 per share.
On March 18, 2004, the Board of Directors of BBVA Banco Francés, S.A. (“Banco Francés”). On March 18, 2004, the Board of Directors of Banco Francés,, our Argentine affiliate, resolved to implement a plan intended to improve Banco Frances’sFrancés’s adjusted stockholders’ equity and enable Banco FrancesFrancés to comply with new minimum capital requirements established by the Argentine Central Bank. TheUnder this plan, provides for:we:
BBVA, as Banco Francés’s largest shareholder, intends to participate in this plan by:
Furthermore, BBVA will acquireacquired from Banco Francés its entire interest in Banco Francés (Cayman) Limited for $238.5 million; and
subscribed to a purchase price of US$238.5 million (€195 million as of March 31, 2004), which is based on the independent valuation ofcapital increase by capitalizing a loan we granted to Banco Francés (Cayman) Limited by two independent valuation experts.in an amount of $78 million.
The two transactions involving Banco FrancesFrancés described above willdid not affect BBVA’s consolidated operating results because (i) in the case of the loan capitalization, BBVA had previously fully provisioned the loan, and (ii) in the case of the purchase of Banco FrancesFrancés (Cayman) Limited, this entity was already fully consolidated by BBVA.
2003
During 2003, BBVAOn October 8, 2004, we acquired 0.176%all the shares of the capital stock of Gas Natural S.D.G, S.A. (“Gas Natural”) for €12.7 million, raising its interest in Gas Natural to 3.241%.
During 2003, BBVA purchased 4.76% of the capital stock of Bancomer forValley Bank, a total of €304 million, raising its interest to 59.43% as of December 31, 2003.
2002
On May 14, 2002, Banco Francés sold its interest in BBVA Uruguay (60.88%) to BBVA for $55 million, after obtaining authorization from the Central Bank of Uruguay. As a result of this transaction, BBVA’s ownership interest in BBVA Uruguay increased from 80.66% to 100%.
On May 15, 2002, Terra Networks, S.A. (“Terra Networks”) and BBVA entered into a preliminary agreement for the integration of Uno-e Bank, S.A. and the individual consumer financing business of Finanzia Banco de Crédito, S.A. (“Finanzia”), BBVA’s wholly-owned subsidiary, whereby Terra Networks’ holding in Uno-e Bank would decrease to 33%. This integration transaction and the percentage of ownership held by Terra Networks were subject to the formalization of final contracts, which were
executed on January 10, 2003, and approved at extraordinary shareholders’ meetings of Finanzia and Uno-e Bank held on April 23, 2003. In connection with the integration transaction, Terra Networks was granted a put option over its sharesbank licensed in the resulting combined entity giving it the right to require BBVA to purchase such shares. For more information relating to this transaction, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Agreement with Terra Networks” and “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Uno-e Bank Agreement”.
On June 8, 2004, the European Commission approved plans by BBVA and Banca Nazionale del Lavore (“BNL”) to form a consumer-finance 50-50 joint venture in Italy. The new company will provide consumer credit products, such as credit cards, personal loans and salary advances.
In two transactions in June and November 2002, BBVA purchased from the Mexican government its 3% and 2.5% interests in Bancomerstate of California, for approximately €240U.S.$16.7 million, and €175 million, respectively. As a result of these transactions,which was BBVA’s ownership interest in Bancomer increased to 54.67% as of December 31, 2002.
2001
In January 2001, BBVA acquired 200 million shares of Bancomer from the Bank of Montreal, representing approximately 2.2% of Bancomer’s capital stock, for approximately $125 million. On April 4, 2001, BBVA reached an agreement with Bank of Montreal to purchase in two tranches 812 million shares of Bancomer for a total of $558 million. The first tranche, consisting of 500 million shares, was acquired in April 2001, and the second tranche, consisting of 312 million shares, in May 2001, raising BBVA’s holding in Bancomer to 48%. Additional purchases of shares of Bancomer amounting to $140 million were made in October and November 2001, increasing BBVA’s stake in Bancomer to 49% as of December 31, 2001.
BBVA acquiredcommercial banking acquisition in the first and last quarters of 2001 a 4.87% interest in BNL for approximately €398 million, increasing its holding in BNL to 14.8% as of December 31, 2001. BBVA increased its holding to 14.9% as of January 31, 2002.United States.
Capital Divestitures
Our principal divestitures are financial, in subsidiaries and in affiliates. The main capital divestitures from 20012004 to the date of this Annual Report were the following:
2006
On June 14, 2006, BBVA sold its 5.04% capital share in Repsol YPF, S.A (“Repsol”). The selling procedure was executed through the closing and settlement of hedging equity swaps previously contracted. This sale gave rise to a gain of €523 million.
On May 19, 2006, BBVA sold its stake in the share capital of Banca Nazionale del Lavoro (“BNL”) to BNP Paribas, for a price of €1,299 million following its adhesion on May 12, 2006, as shareholder of BNL, to the public tender offer launched by BNP Paribas to acquire 100% of BNL’s capital. The sale gave rise to a gain of €568.3 million.
On April 5, 2006, BBVA sold its stake of 51% in the share capital of Banc Internacional d´Andorra, S.A. (“Andorra”) to the rest of the shareholders of said entity, the Andorran founding partners of the bank, for a price of €395.15 million.
2005
There were no significant capital divestures during 2005.
2004
On June 18, 2004 BBVA sold its 5.01% interest in Acerinox, S.A. for €146.6 million, giving rise to a capital gain of €35 million.
In January 2004, BBVA sold 2.2% of the capital stock of Gas Natural.Natural S.D.G., S.A. At the time the transaction closed, BBVA had not completed preparation of its 2003 Consolidated Financial Statements and therefore, in accordance with Spanish GAAP, reflected the amortization of €70 million of consolidation goodwill which resulted from the transaction in such financial statements rather than in its 2004 Consolidated Financial Statements.
2003
On January 13, 2003, BBVA announced its intention to sell its Brazilian affiliate, Banco Bilbao Vizcaya Argentaria Brasil, S.A. (“BBV Brasil”) to Banco Bradesco, S.A. (“Bradesco”). On June 9, 2003, upon completion of due diligence, receipt of authorizations from regulatory authorities and approval by the corresponding corporate bodies, BBVA transferred 100% of BBV Brasil to Bradesco, in consideration for which Bradesco paid 35,481,460,311 of its newly-issued ordinary shares and 34,948,501,563 of its newly-issued preferred shares, totaling 4.44% of Bradesco’s share capital, as well as 1,864 million Brazilian Reais in cash, for a total consideration of approximately 2,626 million Brazilian Reais (approximately $900 million). We were required, under Spanish GAAP, to take an extraordinary charge in 2002 relating to exchange rate differences relating to our investment in BBV Brasil accumulated up to December 31, 2002. Under the transaction agreements with Bradesco, in addition to the cash consideration and equity participation described above, we have been granted the right to nominate one member of Bradesco’s board of directors so long as we maintain, subject to exceptions relating to capital increases where shareholders are not offered preemptive rights, at least a 4.0% interest in Bradesco’s share capital. We have agreed for a period of two years from the closing date or so long as we have a right to nominate one member of Bradesco’s board of directors, whichever is longer, that we will not control and/or manage a financial institution in Brazil. See Note 32.2.D.13 to the Consolidated Financial Statements.
In March 2003, BBVA2004, the Group sold its 25% interest in Metrovacesa Residencial, S.A., resulting in a capital gain of €2.1 million.
On June 5, 2003, BBVA agreed to sell its24.4% holding in Crédit Lyonnais,Banco Atlántico, S.A., to Crédit Agricole, S.A. in exchange for €482 million in cash, representing 67% of consideration, and 16.3 million shares of Crédit Agricole, S.A., representing at the remaining 33% of consideration. BBVA immediately sold the Crédit Agricole shares to institutional investors at a price of €16.64 per share, for a total consideration of €271 million. As a result of this transaction, BBVA liquidated its participation in Crédit Lyonnais and recorded a capital gain of €342 million.
In July 2003, BBVA sold 3% of the capital stock of Gamesa, giving rise to a capital gain of €29.9 million.
In the last quarter of 2003, BBVA sold 2.465% of the capital stock of Repsol-YPF, giving rise to a loss of €73.3 million.
In 2003, a series of purchases and sales of shares of Telefónica de España, S.A., resulting in a 0.57% net reduction of our holding, gave rise to a capital gain of €220 million.
In 2003, a series of purchases and sales of shares of Iberdrola, S.A., resulting in a 1.02% net reduction of our holding, gave rise to a capital gain of €45.3 million.
In December 2003, BBVA sold its entire 9.9% interest in the Moroccan bank Wafabank, S.A. to Omnium Nord Africain, S.A. The total sale price was 529,505,625 dirhams (approximately €48 million) and gave rise to a capital gain of €3.5 million.
In December 2003,established by Banco Sabadell, S.A. launched ain its tender offer for all the shares of Banco Atlántico, S.A. at a price of €71.79 per share. The transaction was completed in March, 2004 and BBVA sold its entire 24.37% interest in Banco Atlántico, whichThis sale gave rise to a capital gain of approximately €218 million.
2002
€217.7 million for the BBVA Group.
In March 2004, the first quarter of 2002, BBVAGroup sold 3.82% of its 50% holding in Metrovacesa,Hilo Direct Seguros y Reaseguros, S.A, which represented all of the Group’s interests. This sale gave rise to a gain of €26 million for the BBVA Group.
In June 2004, the Group sold its 5.0% holding in Acerinox, S.A., which represented all of the Group’s interests. This sale gave rise to a gain of €34.6 million for the BBVA Group.
On September 6, 2004, the Group sold its 17.2% holding in Vidrala, S.A., giving rise to a capital gain of €14€19.3 million. In June 2002, BAMI,
On October 12, 2004, the Group sold the El Salvador welfare business composed of BBVA Crecer AFP and BBVA Seguros, S.A. Inmobiliaria– Seguros de Construcciones y Terrenos agreed to purchase BBVA’s 23.9% interestPersonas – in the capital stockwhich BBVA had ownership interests of Metrovacesa, S.A.62% and 51%, respectively, for €545.4$42.8 million (€36.55 per share).34.76 million), giving rise to a gain of €12.3 million.
In December 2004, the Group sold its 3% holding in Gamesa, S.A., which represented all of the Group’s interests. This transaction closedsale gave rise to a gain of €53.1 million for the BBVA Group.
In the second quarter of 2004, the Group exercised a sale option it had on July 17, 2002. Asits 33.3% holding in Grubarges Inversión Hotelera, S.L., and recognized a resultgain of this sale,€26.3 million on such sale.
During the first six months of 2004, the Group sold its 0.6% holding in Repsol. These sales gave rise to a loss of €6.5 million for the BBVA Group.
During 2004, the Group purchased and sold shares of Telefónica, S.A. without any material variation in its aggregate holding in such company as of December 31, 2002, BBVA had a 0.58% interest in Metrovacesa, S.A. The transaction2003. These sales gave rise to a capital gain of approximately €361€141.7 million.
Public Takeover Offers
2001On June 20, 2005, we launched an exchange offer for the approximately 85.3% of the shares of BNL which we did not already own. Under the terms of the exchange offer, BBVA offered one of its ordinary shares for every five ordinary shares of BNL. We withdrew our offer following a third party’s announcement that it had entered into certain agreements pursuant to which it controlled a 47% stake in BNL.
On March 3, 2006, BBVA purchased 0.43% of BBVA Chile’s share capital for 2,318 million Chilean pesos (€3.7 million), increasing BBVA’s share capital in BBVA Chile to 67.05%. See “—Capital Expenditures”.
In March 2001, BBVA sold its interest in Profuturo GNP, S.A. de C.V. Administradora de Fondos de Pensiones for $190 million.
B. | Business Overview |
BBVA is a highly diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. We also have a portfolio of industrial holdingsinvestments in some of Spain’s leading companies.
Business Areas
Reorganization in 2003
In 2003, we reorganized our business areas with a view to optimizing the earnings and value-creation of each line of business and to more closely alignDuring 2006, our organizational structure withwas divided into the manner in which management has been settingfollowing business strategy and monitoring our operating results. The principal features of the reorganization were the following: (i) our areas:
Retail Banking in Spain and Portugal area now includes retail banking, and asset management and private banking, (which had been included in a separate Asset Management and Private Banking business area in 2002) in Spain and Portugal, (ii) our Banking in America area now includes all of our Latin American operations, including our Mexican operations (which had been a separate business area in 2002) and asset management and private banking in Latin America (but excluding our operations in Argentina, which is a separate business area, and in Brazil, as discussed below) and (iii) as a result of our agreement to sell our entire interest in BBV Brasil in January 2003,Portugal;
Wholesale Businesses;
Mexico and the closing of such sale in June 2003, our Corporate Activities and Other business area included our interest in BBV Brasil for the period January to June 2003, accounted for under the equity method, and for 2002 and 2001, accounted under full consolidation. Due to the special conditions that have affected our operations in Argentina in 2003, we have continued to provide additional disclosure on our Argentinean operations and discuss these operations as if they comprised a separate business area, “Argentina”, and not part of the business area “Banking in America”, where they were included in our Annual Report on Form 20-F for 2001 and prior years. See “Presentation of Financial Information—Accounting Principles”.United States;
The following is a description of our business areas:
South America; and Investment Banking: includes BBVA’s business activities with large companies and institutions through national and international corporate banking and institutional banking. In addition, this business area includes our trading businesses located in Spain, Europe and New York, our equity distribution and origination business and security deposit and custody service business, as well as part of our real estate business.
The foregoing description of our business areas is consistent with our current internal organization. The financial information for our business areas for the years 2003, 20022006, 2005 and 20012004 presented below has been prepared on a uniform basis, to reflect the reorganizationconsistent with our organizational structure in 2006. See “Presentation of our business areas in 2003 described above.Financial Information”. Unless otherwise indicated, the financial information provided below for each business area does not reflect the elimination of transactions between companies within one business area or between different business areas, since we consider these transactions to be an integral part of each business area’s activities. For the presentation and discussion of our consolidated operating results in “Item 5—5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report,, however, such intra- and inter-business area transactions are eliminated and the eliminations are generally reflected in the operating results of the Corporate Activities and Other business area.
In December 2006, the Group adopted a new organizational structure that it expects to implement in 2007, which is designed to streamline the Group’s corporate structure and give greater weight and autonomy to its business units. The Group expects to focus its operations on five major business areas: Spain and Portugal; Wholesale Businesses; South America; Mexico and the United States; and Corporate Activities. As part of the reorganization, the Business Banking, Corporate Banking and Institutional Banking units (“BEC”) will be included in the Spain and Portugal area (as of December 31, 2006 such units had been included in the Wholesale Businesses area) and the Asset Management unit will form part of the Global Business unit in the Wholesale Businesses area.
The following table provides net attributable profitsets forth information relating to income attributed to the Group for each of our business areas for the years ended December 31, 2003, 20022006, 2005 and 2001.2004.
Net Attributable Profit/ (Loss) | % of Subtotal | % of Net Attributable Profit/(Loss) | |||||||||||||||||||||||||
Year ended December 31, | |||||||||||||||||||||||||||
Business Area | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | ||||||||||||||||||
(in millions of euro) | |||||||||||||||||||||||||||
Retail Banking in Spain and Portugal | 1,239 | 1,266 | 1,173 | 51 | % | 53 | % | 47 | % | 56 | % | 73 | % | 63 | % | ||||||||||||
Wholesale and Investment Banking | 468 | 382 | 531 | 19 | % | 16 | % | 21 | % | 21 | % | 22 | % | 29 | % | ||||||||||||
Banking in America | 715 | 736 | 807 | 30 | % | 31 | % | 32 | % | 32 | % | 43 | % | 44 | % | ||||||||||||
Subtotal | 2,422 | 2,384 | 2,511 | 100 | % | 100 | % | 100 | % | 109 | % | 138 | % | 136 | % | ||||||||||||
Corporate Activities and Other | (205 | ) | (656 | ) | (451 | ) | (9 | )% | (38 | )% | (24 | )% | |||||||||||||||
Argentina | 10 | (9 | ) | (217 | ) | — | — | (12 | )% | ||||||||||||||||||
Net attributable profit | 2,227 | 1,719 | 1,843 | 100 | % | 100 | % | 100 | % | ||||||||||||||||||
Year ended December 31, | ||||||||||||||||||||||||
Income/(Loss) Attributed to the Group | % of Subtotal | % of Income/(Loss) Attributed to the Group | ||||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||||
Retail Banking in Spain and Portugal | 1,499 | 1,317 | 1,194 | 30 | % | 33 | % | 40 | % | 32 | % | 35 | % | 41 | % | |||||||||
Wholesale Businesses | 1,282 | 873 | 658 | 25 | % | 22 | % | 22 | % | 27 | % | 23 | % | 23 | % | |||||||||
Mexico and the United States | 1,775 | 1,370 | 891 | 35 | % | 35 | % | 30 | % | 37 | % | 36 | % | 30 | % | |||||||||
South America | 509 | 379 | 229 | 10 | % | 10 | % | 8 | % | 11 | % | 10 | % | 8 | % | |||||||||
Subtotal | 5,065 | 3,939 | 2,973 | 100 | % | 100 | % | 100 | % | 107 | % | 103 | % | 102 | % | |||||||||
Corporate Activities | (329) | (132) | (50) | (7) | % | (3) | % | (2) | % | |||||||||||||||
Income attributed to the Group | 4,736 | 3,807 | 2,923 | 100 | % | 100 | % | 100 | % | |||||||||||||||
In terms of net interest income, the principal markets in which the Group competes, based on the business area which generates the activity, for 2006, 2005 and 2004 were as follows:
Year ended December 31, | |||||||||
Net interest income | |||||||||
2006 | 2005 | 2004 | |||||||
Retail Banking in Spain and Portugal | 2,865 | 2,623 | 2,509 | ||||||
Wholesale Businesses | 1,032 | 1,017 | 947 | ||||||
Mexico and the United States | 3,535 | 2,678 | 1,899 | ||||||
South America | 1,310 | 1,039 | 908 | ||||||
Subtotal | 8,742 | 7,357 | 6,263 | ||||||
Corporate Activities | (368 | ) | (150 | ) | (103 | ) | |||
Net interest income to the Group | 8,374 | 7,207 | 6,160 | ||||||
Retail Banking in Spain and Portugal
LendingRetail Banking in Spain and Portugal focuses on providing banking services and consumer finance to private individuals and small businesses in Spain and Portugal. As of December 31, 2006, this business area asconducted its activities through 3,629 branch offices, of December 31, 2003, was approximately €91,295 million, an increase of 13.9% from €80,152 million as of December 31, 2002, principally due to growthwhich 99 were located in mortgage lending.
The non-performing loan (“NPL”) ratio fell to 0.88% as of December 31, 2003, from 1.00% as of December 31, 2002. The loan coverage ratio rose to 271.1% as of December 31, 2003, from 220.8% as of December 31, 2002.
Customer deposits and marketable debt securities, which were €51,894 million as of December 31, 2003, decreased by 1.3%, principally due toPortugal. During the cancellation of an agreement to manage certain government accounts in January 2003. Mutual and pension funds under management were €49,334 million as of December 31, 2003, an increase of 12.2%, due tofourth quarter the launch ofGroup implemented a new funds during 2003.
The business area’s main lines of activity focused on implementing the Financial Services Plan, including the Personal, Commercial and Special Plans described below, which are the focus of the new business model launched by BBVA at the end of 2002. Significant progress was made in 2003structure in the developmentretail banking branch network. The new structure consists of the three customer approach methods devised by this business area: (i) Personal Financial Services, aimed at residential customers, (ii) Commercial Financial Services, for SMEs and businesses and (iii) Special Financial Services, which are offered through Finanzia and Uno-e Bank.
7 regional departments.
The business units included in the Retail Banking in Spain and Portugal business area are:
Financial Services;
BBVA PortugalPortugal; and
Commercial BankingTotal net lending in Spain
The Commercial Banking in Spain unit makes the biggest contribution to the Retail Banking Spain and Portugalthis business area and accounts for 73% (80% in 2002)as of the business area’s ordinary revenue, 78% (85% in 2002) of customer funds and 71% (72% in 2002) of lending. The Commercial Banking in Spain unit serves the residential, commercial and small business customer segments, providing specialist mortgage banking, personal banking and private banking, among other services.
In 2003, lending by the Commercial Banking in Spain unit increased significantly to €85.2 billion,December 31, 2006 was approximately €118,113 million, an increase of 14.2%18.3% from €74.6 billion€99,804 million as of December 31, 2005, with contributions from all of BBVA’s main products such as mortgage lending, consumer credit cards and loans to small businesses.
The non-performing loan ratio remained low at 0.67% as of December 31, 2006 compared to 0.65% as of December 31, 2005.
Total customer funds (deposits, mutual and pension funds and other brokered products) were €131,989 million as of December 31, 2006 from €120,745 million as of December 31, 2005, an increase of 9.3% as a result of an increase in 2002,deposits collected during the year. Mutual funds under management were €44,824 million as of December 31, 2006 , a decrease of 1.7% from €45,609 million as of December 31, 2005. Pension fund assets under management were €16,583 million as of December 31, 2006, an increase of 8.0% from €15,352 million as of December 31, 2005.
Financial Services
This business unit’s principal activities were focused on the following areas:
Financial Services for Individuals: focused on retail customers and aimed at providing customers with more value from their relationship with us by offering a wide range of products and services at attractive prices, which are made available through different channels, along with solutions tailored to their specific needs.
Financial Services for Small Businesses: focused on small businesses (including professional practices, the self-employed, retailers and farmers) by providing them with customized services, a comprehensive range of products and continuous, quality financial advice.
Consumer Finance: focused on the following lines of business (through Finanzia Bank, our online bank, Uno-e Bank, S.A., Finanzia Autorenting and Finanziamento Portugal): financing of cars, consumer items and equipment; e-banking; bill payment; and car and equipment rental.
Lending by the Financial Services unit increased 18.1% to €112,480 million as of December 31, 2006 from €95,278 million as of December 31, 2005, principally due to strong growth in mortgage products. Mortgages,loans, which increased 20.2% in 2003 to €15,734 million, due to the wide range of mortgage products we offer, which include the first 30-year fixed-rate mortgage in the Spanish market, the Hipoteca Mix Dos Tramos. This product guarantees a fixed rate for the first five years and may include an interest rate cap to protect customers against severe interest rate increases.
Our SME financing business focused in 2003 on increasing leasing activity and, in addition, a significant effort was made to increase point-of-sales (“POS”) to generate increased fee revenue—13,250 new POS terminals (for credit card payments) were installed during the year.
To increase customer funds in 2003, we endeavored to increase the breadth and attractiveness of our products. One example was the Libreta Flexible, a deposit product that combines the simplicity of a traditional passbook account with guaranteed returns. As of16.6% from December 31, 2003,2005.
Customer funds under management by the Libreta Flexible’s deposit balance was €2,353 million.
We also launched several new mutual fund products designedFinancial Services unit increased 9.9% to provide investors with favorable returns in a rising stock market, but also afford them a level of investment protection during market declines. Two versions of our Extra 5 fund, which were launched in September, attracted more than €3.4 billion as of December 31, 2003. In 2003, we also launched a set of pension plan products under the brand name BBVA Protección. These plans are tailored to each customer’s needs and risk profile and attracted more than €800€116,990 million as of December 31, 2003.
By launching several innovative products, such as theTarjeta Diez (Ten card) and theTarjeta Infinite (Infinite card), BBVA was able to issue more than 7 million new credit cards in 2003. BBVA was also active in developing new means of payment, such as BBVA VIA T, for toll road payment, or the Mobipay service, which employs mobile telephony.
BBVA continued to focus on moving customers to alternative channels to accomplish their banking transactions and in 2003 the number of transactions performed at our branches decreased by approximately 20 million with 72% of such transactions being completed through alternative channels. In addition, telephone banking users increased by approximately 15% in 2003 and internet transactions increased by 29.2% to 77.5 million. BBVA was named, for the second consecutive year, the Best Consumer Internet Bank in Europe by Global Finance magazine.
Small and Medium Entities (SME) Banking
SME Banking, the second most significant unit in the Retail Banking in Spain and Portugal business area, in terms of both business volume and contribution to net attributable profit, specializes in the management of the SME segment in Spain. As of December 31, 2003, the SME Banking unit managed a loan portfolio of €20.5 billion and approximately €7 billion of customer deposits, with year-on-year growth of 14.5% and 12.2%, respectively. In addition, in 2003, our leasing, renting and confirming businesses saw year-on-year increases of 22.3%, 30.2% and 34.3%, respectively.
In 2003, we were the leading Spanish bank in issuing SME loans funded by the Instituto de Crédito Oficial (ICO), a Spanish government agency, with a market share of 19.7%, according to ICO statistics.
Regarding customer funds managed, we launched five new mutual funds targeted at SMEs and were successful in increasing funds captured by 40.6% to €7652006 from €106,403 million as of December 31, 2003.2005, principally due to an increase in time deposits. Mutual and pension fund assets managed by the Financial Services unit increased by 10.1%, respectively, as of December 31, 2006 as compared to December 31, 2005.
Financial Services for Individuals
Retail customers were targeted through a series of new products. Housing access was facilitated by making the conditions of theHipoteca Fácil (Easy Mortgage) more flexible and adapting for the youth and immigrant segments. The range of consumer loans was strengthened with thePréstamo Inmediato PIDE (Immediate Loan ASK, available 24 hours a day), the newCrédito Fácil (Easy Loan, approved quickly) andCredinómina (Payroll-loan), an interest-free loan granted immediately and free of commissions tied to the Payroll Campaign. The BlueBBVA Program targeting the youth segment was renewed (with offers such as the Youth Loan carrying zero interest). Marketing of new services such as BBVA health insurance, real estate, travel and hotel reservations services, among others, was initiated as part of the new business model development program.
Fund gathering continued through existing and expanded deposit products, including theQuincenas del Ahorro (Savings Fortnights),Depósitos Crecientes (Growing Deposits),Triple 6 andTriple 10. On the investment fund side, managed fund portfolios and the ongoing renewal of the range of new funds on offer, includingBBVA Consolida Garantizado (BBVA Guaranteed),Garantizado Doble 10, (Double 10 Guaranteed),106 Doble 10 (106 Double 10),Extra 10, 110 Ibex and105 Ibex, remained a focus.
In addition, BBVA was the first entity to be granted a regulatory permit to market certain new products approved in Spain in the fourth-quarter of 2006, including exchange traded funds (“ETFs”) in the Spanish market on the Ibex 35 (theAcción Ibex 35 ETF), the Euro Stoxx 50 and the FTSE Latibex Top (in collaboration with the Wholesale Businesses area) as well as hedge funds (BBVA Codespa Microfinanzas FIL) and venture capital funds (BBVA Capital Privado).
Financial Services for Small Businesses
During 2006, the Financial Services for Small Businesses offered a wider product range targeting small companies, professional practices, the self-employed, retailers and the framing sector, including:
Consistentthe ICO Pymes 2006 small and medium-sized entities (“SME” or “SMEs”) line of financing;
• | thePréstamo Bienvenida (Welcome Loan) for new customers; |
StockPyme, a range of products designed to hedge interest rate risk;
the Diferencial 0% loan or overdraft;
a business mortgage with our strategy to increase use of alternative channelsa balloon payment; and in particular, the Internet, we launched a new product, SIETE net, which along with our prior Internet products, BBVA net c@sh and BBVA net office, had as users over 42,000 companies, which transacted collections and payments worth €58 billion through this electronic channel, in 2003.
• | thePack Negocios (Business Pack), a transactional services package launched in November. |
Asset Management and Private Banking
The Asset Management and Private BankingThis business unit consistsis responsible for the design and management of eight subunits that canproducts to be grouped together, bydistributed through the Retail Banking in Spain and Portugal business activity, in three blocks:
Total funds managed by the Asset Management andInternational Private Banking unit assub-units andBBVA Patrimonios). As of December 31, 2003, were2006, total customer funds (including both mutual and pension funds and assets managed in the private banking units) totaled approximately €18€80 billion, an increase of 11.4% over 2002.
The Pension subunit’s assets under management as3.9% from December 31, 2005. As of December 31, 2003 were €12.2 billion,2006, BBVA’s private banking business in Spain managed assets totaling approximately €11,987 million, an increase of 10.7% over 2002, for more than 1,280,000 participants. More than €6.4 billion of such funds relate to individual pension plans and approximately €5.8 billion to corporate pension and similar plans.
With respect to private banking in Spain, the BBVA Patrimonios and Personal Banking subunits manage total funds of €12,105 million. BBVA Patrimonios focuses on high-net worth individuals (with financial assets of over €2 million) and manages funds of €6,315 million belonging to more than 1,000 customers. Personal Banking provides customized advisory services to our medium-to-high income customers. This subunit has more than 70,000 customers and total funds under management of €5,790 million as of29.2% from December 31, 2003.
2005.
BBVA Portugal
In 2003, the BBVA Portugal unit’s customer loans increased by 7.6%, boosted by a 32.8% increase in mortgage lending, while the non-performing loan ratio fell to 0.65% asAs of December 31, 2003,2006, BBVA Portugal’s customer loans amounted to €4,237 million, an increase of 22% from 0.91% as€3,472 million in 2005. In 2006, mortgage lending was the most dynamic sector, with a 31.5% increase over 2005.
As of December 31, 2002.
The2006, customer funds managed by BBVA Portugal unit’s funds under management increased by 3.9%totaled €2,737 million, representing a 9% increase over €3,037 million in 20032005, principally due to strong growththe increase in mutual fundsand pension fund assets which increasedunder management by 19.8% over 2002. In 2003, we launched three new mutual funds, including the first guaranteed fund to be marketed in Portugal, Extra 5 BBVA. Seven new types of structured deposit products were also launched in 2003.
BBVA Portugal.
Special Financial ServicesEuropean Insurance
The Special Financial Services unit is comprised of Finanzia, our on-line bank Uno-e Bank and Dinero Express. In June 2003, Uno-e Bank was acquired by the consumer finance division of our subsidiary Finanzia. As a result of this transaction, we increased our ownership in Uno-e Bank to 67%.
- Finanzia manages collaboration agreements with distributors, manufacturers and importers in order to finance their sales. Total net lending amounted to €2,169 million at December 31, 2003.
- Uno-e Bank had funds under management of €1,101 million as of December 31, 2003, principally due to growth in mutual funds assets, from €15 million to €52 million.
- Dinero Express provides fast remittance services for immigrants to send money from Spain to their home countries of Ecuador, Colombia, Peru, the Dominican Republic and Argentina, where it has more than 1,000 payment points.
Insurance Business in Europe
This unit engages inOur European insurance activities are conducted through various insurance companies that provide direct insurance, and reinsurance and insurance brokingbrokering services in Spain and Portugal and markets itsmarket products mainlyfor different types of customers (private individuals, SMEs, retailers, professional service firms and providers and self-employed individuals) through BBVA’s branches. In January 2004, BBVA entered into an agreement to sell to AXA Aurora Iberica, S.A. de Seguros y Reaseguros its 50% holding in Hilo Direct, S.A. de Seguros y Reaseguros, although BBVA’s products will still be distributed through the BBVA network until mid 2007.
this unit’s branch offices.
Wholesale and Investment BankingBusinesses
The Wholesale and Investment Banking business areaBusinesses focuses on, large corporate,corporations, governmental, non-governmental organizations and institutional investor clients.
As of December 31, 2006, lending by the Wholesale Businesses area totalled €90,305 million, an increase of 18.6% from €76,129 million as of December 31, 2005. Non-performing loans (“NPL” or “NPLs”) of this business area decreased to an NPL ratio of 0.22% as of December 31, 2006, compared to 0.29% as of December 31, 2005, principally due to an improvement in risk quality. Deposits decreased and mutual funds increased 10.3% and 22.2%, respectively, as of December 31, 2006 from December 31, 2005.
The business units included in this business area are:
Corporate and Business Banking;
Business and Real Estate Projects andProjects.
Global Corporate and Business Banking
The Global Corporate and Business Banking unit was created in 2003 to strengthen BBVA’s relationship with its large Spanish and multi-national customers and take advantage of this customer segment’s high growth potential. The Global Corporate Banking unit is further subdivided into the following four subunits to manage its corporate banking activities: Corporate Banking Iberia, Corporate Banking Europe and Asia, Corporate Banking America and Global and Investment Banking. The Global Corporate Banking unit has branches in New York, London, Paris, Milan and Hong Kong.
Global Corporate Banking also includes the Capital Markets subunit which handles the unit’s syndicated loan and structured finance transaction activities. In 2003, the Capital Markets subunit was particularly active in designing and structuring leveraged finance transactions and project financings. Also in 2003, the Capital Markets subunit, in conjunction with the Global Markets and Distribution unit, acted as joint book runner in more than ten public offerings of fixed-income securities, including a €5 billion offering by the Kingdom of Spain and a €1 billion offering by Repsol, S.A. The Capital Markets subunit also participated in public offerings by John Deere, Altadis, Caminhos de Ferro and Enersis and private placement offerings for Ford Motor Credit, HSH Nordbank and Dexia, as well as over 20 euro medium term note program offerings, including for Volvo, Cadbury Schweppes, Portugal Telecom, Valeo and L’Oréal, for which BBVA acted as one of the dealers.
Global Corporate Banking’s Corporate Finance subunit is responsible for advising on mergers and acquisitions and providing general corporate advisory services.
Institutional Banking
The Institutional Banking unit focuses on governmental and institutional clients, including the Spanish government and the governments of Spain’s autonomous communities and private organizations, associations, foundations and insurance companies. This unit has a network of 42 branches in Spain, Portugal and Belgium.
In 2003, the Institutional Banking unit submitted bids for over 38 public contracts offered by the Spanish government. Among the new contracts awarded to the Institutional Banking unit were management of the Spanish Ministry of Defense’s treasury and payments departments, management of the payrolls of the Spanish Ministries of Justice, Finance and Public Authorities, the National Statistics Institute (INE) and of the National Employment Institute (INEM).
The Institutional Banking unit operates in these markets under the BBVA brand name and through Banco de Crédito Local (BCL), a BBVA subsidiary that specializes in long-term financing. To finance its lending activities, BCL has a euro commercial paper program for up to €1.5 billion and a euro medium-term note program and a fixed-income security program for €4 billion each. In 2003, BCL carried out the first-ever issue of public covered bonds in the euro market with the sale of €1.5 billion aggregate principal amount of fixed-income securities guaranteed by loans and credits granted by the issuer to the public sector.
Global Markets and Distribution
The Global Markets and Distribution unit focuses on a wide range of securities market-oriented activities. This business unit engages in both treasury operations on behalf of BBVA and transactions for third-parties, which, as of December 31, 2003, accounted for approximately 60% of the Global Markets and Distribution unit’s net attributable profit. In 2003, BBVA’s securities brokerage affiliate, BBVA Bolsa, S.A., was merged into the Global Markets and Distribution unit, broadening the range of products available to offer BBVA’s clients through this business unit.
In 2003, weak securities markets encouraged investors to purchase fixed-income and government debt securities. The Global Markets and Distribution unit also experienced strong activity in the securities lending business, foreign exchange transactions and interest rate-related products. In addition, the Global Markets and Distribution unit participates actively in the cross-selling ofGroup’s products and services with otherSMEs (previously reported under Retail Banking In Spain and Portugal), large companies and institutions in the Spanish market, transaction services and product management.
In 2006, a new Corporate Banking business model was introduced to meet the needs of Spanish SMEs, large companies and institutions. The new model marks a simplification of the central structure, the creation of 7 new regional departments and, in November 2006, the addition of 26 new offices to the branch network (6 in corporate and 20 in institutions). This was part of the Blue Net project announced in July and completes the 2006 expansion plan with a total of 272 new branches. Of this number, the SME segment accounted for 209, institutions banking for 52 (extending the network to cover nearly all provinces in Spain) and 11 branches were for corporate banking.
In 2006, the Group led the SME market by marketing the ICO-Pymes line of financing for small businesses. It formalised two new lines with the European Investment Bank (each totalling €200 million to finance SME and regional government investment projects, respectively). It launched the BEC Markets Plan to reinforce the sale of cash management and capital markets products to network clients. The BBVA business areas and units. For example,net cash electronic banking system was also extended to the branch offices abroad.
Global Markets and Distribution unit has made fixed-income and equity security products, as well as mutual funds, available for marketing and sale through BBVA’s retail banking branch network.Businesses
The Global MarketsBusinesses unit includes the global customers unit, investment banking, global markets and Distributiondistribution, treasury management and distribution and Asia and is particularly activeaimed at serving large international companies.
In Global Businesses, the business continues to be increasingly international. The foreign network and international customers made greater overall contributions to this unit’s operations than in previous years. In domestic cash management businesses, the Group was a number of securities and trading markets, including the AIAF fixed-income market,pioneer in the Spanish stock market when it was the Spanish foreign exchange market for euro/U.S. dollar transactionsfirst to launch ETFs on national and international indices. It also led the initial public offering (“IPO”) league tables in Spain due to its role as global coordinator of the Bolsas y Mercados Españoles, Técnicas Reunidas, S.A. and Vocento IPOs. BBVA extended its product range targeted at institutional customers with the addition of hedge funds in Spain due to the creation of Próxima Alfa, which is 51%-owned by BBVA.
As part of the Group’s strategy to increase its presence in Asia, BBVA formed a strategic partnership with the CITIC Group in China and other parts of Asia. This partnership is expected to entail an initial investment of €989 million, none of which had been invested as of year end. BBVA expects the partnership with CITIC Group to open the mainland Chinese markets (through a 5% stake in China Citic Bank (“CNCB”), which is headquartered in Beijing, costing €501 million) and the Spanish government debt securities market.
Hong Kong market (via a 15% stake in Citic International Financial Holdings (“CIFH”) costing €488 million). The combined assets of CNCB and CIFH totaled €71,507 million and together the two entities have more than 15,000 staff and 454 branches, in each case at December 31, 2006. The bank also opened a branch in Singapore and agency offices in Taipei, Seoul and Sydney and struck agreements with banks in China, India and the Philippines to carry emigrant money transfers.
Business and Real Estate Projects
This business area also handles the Group’s the real estate business, though its subsidiary Anida, as well as its private equity business.
During the year the Business Projects unit was transformed into a venture capital manager operating under theValanza brand, and began operations in Mexico.
Mexico and the United States
The BusinessMexico and Real Estate Projects unit managesthe United States business area conducts the Group’s banking, insurance and pension businesses in Mexico and the United States (including Puerto Rico).
Mexico
Mexican GDP increased approximately 4.6% in 2006, mainly due to favorable trends in domestic demand and moderate price increases. Inflation stood at just over 4%, substantially in line with the Bank of Mexico’s long-term goals. The Mexican peso remained strong against the dollar throughout 2006, which limited Mexican exports to the United States, though in 2006 both the Mexican peso and the US dollar weakened against the euro.
BBVA Bancomer’s income attributed to the Group for 2006 increased 30.3% to €1,552 million from €1,191 million in 2005, resulting in a portfolioReturn on Equity (defined as income attributed to the Group divided by average shareholders’ equity) of 127 investments with a book value48.5% compared to 46.0% in 2005.
As of December 31, 2006, lending by BBVA Bancomer totalled €23,480 million, an increase of 30.6% from €17,978 million as of December 31, 2003 of €9922005, while customer funds (deposits, securities sold under agreements to repurchase and mutual funds) increased 14.6% to €45,741 million and unrealized gains amounting to €749 million, which is an increase of €200 million compared to total unrealized gains as of December 31, 2002. Its investment portfolio is diversified among the real estate, capital goods and services sectors.2006 from €39,928 million as of December 31, 2005.
Divestitures from this investment portfolio in 2003 amounted to approximately €230 million, giving rise to capital gains of €100 million. The most significant disposition related to the sale by Corporación IBV, which is 50%-owned by BBVA, of its 6% interest in the capital stock of Gamesa Corporación Tecnológica, giving rise to a capital gain of €30 million. Following this transaction, Corporación IBV’s interest in Gamesa decreased to 31.8%.
In 2003, the Business and Real Estate Projects unit made investments totaling €140 million in 10 real estate development projects with approximately 700,000 m2 of buildable land and sold mature real estate projects with a total of 550,000 m2 of buildable land, giving rise to capital gains of approximately €70 million. As of December 31, 2003,2006, this business unit conducted its activities through 1,977 branch offices and had an aggregate of 32,847 employees.
In Mexico during 2006, the BusinessGroup invested to expand its branch network, ATMs and Real Estate Projects unit’s real estate development portfolio consistedpoint of 2.5sale terminals. Other projects were designed to increase service quality and enabled a reduction in customer waiting time. These factors boosted commercial productivity during 2006.
In retail banking, the Group diversified and expanded the consumer products offered in Mexico, so that approximately 4 million mnew credit cards were issued by BBVA Bancomer and Finanzia during 2006. New credit card products were introduced such as theBancomer Platinum Card, which was marketed to certain valued clients, as well as theTarjeta 40, which was the first prepaid card to be marketed by BBVA to the youth segment. In addition, BBVA Bancomer continued to offer theLibretón passbook to attract low cost funds by rewarding customers’ savings with various gift articles; this product marked its 10-year anniversary in 2006.
2In consumer lending, BBVA Bancomer began to market car loans, theCreditón Nómina(Payroll Loan) and theCrédito Inmediato Bancomer (Bancomer Immediate Loan) at retail establishments in Mexico in 2006.
In mortgage lending, BBVA Bancomer introduced products such as theHipoteca Binacional (Bi-national Mortgage) in collaboration with the LNB in the United States, theHipoteca Cambio de Casa (Change House Mortgage) and two programs in collaboration with the Mexican Institute of buildable landWorkers’Housing Fund.
Investment funds in Mexico performed well, underpinned by distribution through the retail network and 4,000 dwellings underthe design of new products aimed at cash management distributed among 44 projects.and increased finance to companies through derivative instruments.
In the SME business, the number of customers taking out loans increased due to enhanced service and more flexible loan granting by delegating greater approval autonomy to the branch level. The Group continued to raise money for large companies in the fixed income markets (with BBVA Bancomer acting as lead placement agent) and through derivative products.
Global Transaction ServicesUnited States
As of December 31, 2006, this business unit conducted its activities through 207 branch offices and had an aggregate of 3,646 employees.
The Global TransactionIn the United States, the Group is structured into five lines of business:
banking in Texas through LNB, Texas State Bank and State National Bancshares. 2006 was the first full year in which LNB was part of the BBVA Group;
banking in Puerto Rico through BBVA Puerto Rico;
money transfers through Bancomer Transfer Services, unit was createdwhich provides remittance services between the U.S. and Mexico and has extended its services from the U.S. to the rest of Latin America, China, India and the Philippines;
BBVA Bancomer USA, a bank franchise in 2003 to manage BBVA’s corporateCalifornia targeting first and institutional transaction business, which is global in scope and offers a wide rangesecond-generation customers of Latin American origin with basic banking products and services, including domesticand
BBVA Finanzia USA, a business unit specialised in consumer financing and international collectionscredit card issuance.
The Group made progress on its strategy of establishing a franchise in the United States with the incorporation of Texas Regional Bancshares in November and payments, loans, trade bill discounting, factoring, confirming, credit cards, foreign trade, electronicState National Bancshares at the beginning of 2007. The acquisition of Texas Regional Bancshares contributed €3,115 million in lending and €4,651 million in deposits, as well as 73 branches and 2,009 employees, in each case at December 31, 2006.
Proposed Transaction to Acquire Compass Bancshares, Inc.
On February 16, 2007 BBVA entered into a definitive agreement to acquire 100% of the shares of Compass for a consideration made up of a combination of ordinary shares of BBVA and cash (the “Agreement”). Pursuant to the Agreement, Compass shareholders can elect to receive 2.8 BBVA ordinary shares or ADSs or $71.82 in cash for each Compass share, subject to proration. Based on BBVA’s closing stock price on Thursday, February 15, 2007, the transaction has an aggregate value of approximately $9.6 billion.
As of the date this Annual Report was filed with the SEC, the proposed transaction has been approved by the Board of Directors of each of BBVA and Compass but remains subject to regulatory and shareholder approvals. The aggregate consideration is composed of a fixed number of 196 million ordinary shares of BBVA and approximately $4.6 billion in cash.
Upon completion of the proposed transaction, BBVA expects that its business in the United States will contribute approximately 10% of the Group’s earnings and that it will become a regional leader across the U.S. Sunbelt. BBVA’s U.S. business, upon completion of the proposed transaction, is expected to consist of approximately 622 branches and $47 billion in assets.
Established in 1970, and based in Birmingham, Alabama, Compass has a presence in the retail, wholesale and private banking correspondentsegments. Compass shares are traded through the NASDAQ Global Select Market exchange. Compass conducts a general commercial banking and cash pooling systems services.trust business in 415 banking centers, including 164 in Texas, 89 in Alabama, 75 in Arizona, 44 in Florida, 33 in Colorado and 10 in New Mexico, as of December 31, 2006.
For the year ended December 31, 2006, Compass had total assets of $34 billion, and total shareholders’ equity of $2.8 billion. Net interest income was $1.1 billion for the year ended December 31, 2006. Net income was $460 million for the year ended December 31, 2006.
Banking inSouth America
Because political and economic conditions in Argentina in the last several years had a significant negative effect on the entire Argentinean banking sector and have consequently severely affected the operating results of our Argentinean subsidiaries during this period, during 2002 and 2003, management evaluated and managed our Argentinean operations as if they comprised a separate business area and not part of the Banking inThe South America, business area where such operations would otherwise be included. Accordingly, our Argentinean subsidiaries’ operations are discussed underincludes the separatebanking, insurance and pension businesses of the Group in South America. As of December 31, 2006, this business area “Argentina”,conducted its activities through 1,631 branch offices and not as parthad an aggregate of the Banking28,609 employees.
The business units included in Americathis business area.area are:
In addition, as a result of the reorganization of our business areasBanks in 2003, the BankingSouth America, including banks in America business area now includes our Mexican operations, which had been includedArgentina, Chile, Colombia, Panama, Paraguay, Peru, Uruguay and Venezuela; and
Pension Funds and Insurance in a separate business area in 2002, and excludes our Brazilian operations, which were sold in June 2003. In this Annual Report, the operating results of our Brazilian operations have been included in the Corporate Activities and Other business area. See “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of operations by business area”. South America.
Unless otherwise specified, information included below relating to macroeconomic data in the LatinSouth American countries in which we operate, such as GDP or inflation, has been drawnderived from our internal statistical studies based on information published by local governmental or regulatory authorities.
Economic conditions in the Latin Americaregion were favorable in 2006, with an economic upturn in the largest countries in which we operate generally improvedSouth America, reflected in 2003, withan average growth in gross domestic product (GDP), excluding Argentina,GDP of 1.0%, comparedapproximately 5% per year over the last three years. This positive economic climate is a result of a check on inflation — which decreased to 0.2%record lows in 2002, accordingsome countries — and interest rates similar to our internal statistical studies. In addition,2005, though with some relatively important fluctuations over the average rate of inflationyear.
Local currencies in the region declined to 6.3%South America fell against the euro in 2003, compared to 8.0% in 2002, according to2006, with a resulting negative impact on our internal statistical studies. These positive macroeconomic developments, however, were offset by the sharp and widespread decrease in interest rates throughout Latin America and particularly in Mexico. In this context, BBVA sought to take advantageconsolidated financial statements as of rebounding economies by adapting its business strategies to the new interest rate levels, addressing each customer segment with individually tailored products and services, improving efficiency and reducing costs and intensifying overall risk management.
The Banking in America business area includes the banks, pension fund managers and insurance companies managed by BBVA in fourteen Latin American countries as well as our international private banking business, some of whose customers also come from this geographical area.
As of December 31, 2003, this business area had total assets of €73,778 million, which represented 25.7% of BBVA’s total assets, and for the year 2003, net attributable profit of €715 million, which represented 32% of BBVA’s total net attributable profit.
Our Banking in America business activities are carried out through our subsidiaries in Mexico, Colombia, Chile, Panama, Paraguay, Peru, Puerto Rico, Uruguay and Venezuela, which in the aggregate had 2,950 branches in the region and 47,877 employees as ofended December 31, 2003.
Our Mexican operations form2005. See “Item 5. Operating and Financial Review and Prospects— Operating Results—Factors Affecting the coreComparability of our activitiesResults of Operations and Financial Condition”. Nonetheless, in Latin Americamost cases, variations in average exchange rates were more moderate than in 2005, and, they contributed approximately two thirdsas a result, the overall effect on our results of operations for the Banking in America business area’s total assets, operating profit and pre-tax profit as ofyear ended December 31, 2003. The three investment-grade countries in Latin America in which we operate, Mexico, Chile and Puerto Rico, represented approximately 80% and 70% of the Banking in America business area’s assets and net attributable profit, respectively, as of December 31, 2003.
2006 was not significant.
The following is a brief description of our operations and the economic and political factors that most significantly affect such operations, on a country-by-country basis, in the Banking inSouth America business area. The operating results described below refer to each individual unit’s contribution to the Banking inSouth America business area’s operating results, unless otherwise stated.
Banks in South America
MexicoArgentina
In 2006, the Argentinean economy benefited from a GDP growth rate of 8.5%. Banco Francés’s income attributed to the Group for 2006 increased to €136 million from €90 million in 2005.
BBVA Banco Francés reduced its exposure to the public sector in Argentina, focusing its lending activity on the private sector, particularly retail loans.
Chile
The slow recoveryfirst half of the United States economyyear was marked by successive increases in 2003 had a negative impact on Mexico’s GDP, which grew by 1.1% in 2003, compared to 0.7% in 2002. Due to the low rate of inflation of 4.0%, market interest rates by the Chilean Central Bank. There was also remained very low by historical standards and decreased to 5.85%significant competition at the local level. Chilean GDP increased 4% in 2003, compared to 7.11% in 2002. Low prevailing market interest rates resulted in an overall increase in lending in Mexico, though such lower rates reduced margins and therefore decreased Mexican banks’ net interest income2006, while inflation was 2.6% for the year.
BBVA Chile’s income attributed to the Group for 2006 decreased 74% to €7 million from €27 million in 2005.
Our Mexican operations are conducted by Bancomer, which includes a commercial bank, investment bank, capital markets, insurance, pensions and other related operations. On January 30, 2004, our BoardBBVA Chile launched the new 2006-2009 “CxC” strategic plan. Under the framework of Directors adopted a resolution to launch a tender offer forthis plan, the approximated 40.6%bank’s positioning in the consumer lending segment was reinforced with the expansion of the sharesBBVA Express network and the acquisition of Bancomer which were not already owned51% of Forum in May 2006, an entity specializing in car loans.
Colombia
Colombia’s GDP increased approximately 7% in 2006, coupled with a lower inflation rate (4.5%), volatility in interest rates and significant local competition (particularly in the mortgage segment) caused in part by BBVA. The tender offerthe concentration process in the finance system.
BBVA Colombia acquired Banco Granahorrar in December 2005 and the prominent factor this year for BBVA Colombia was launched on February 19, 2004the merger and expired on March 19, 2004. As a resultintegration with Banco Granahorrar. BBVA Colombia’s income attributed to the Group for 2006 increased significantly to €96 million from €47 million in 2005.
In Colombia, the merger between BBVA Colombia and Banco Granahorrar undertaken at the beginning of May and completed at the operating level in November, reinforced the Group’s position in the mortgage market.
Panama
Panama’s GDP increased 7.5% in 2006. BBVA Panama’s income attributed to the Group for 2006 increased 16.3% to €22 million from €19 million in 2005.
Paraguay
Paraguay’s GDP increased 3% in 2006, supported by appreciation of the successful completionguarani against the U.S. dollar. BBVA Paraguay’s income attributed to the Group for 2006 increased 26.7% to €14 million from €10 million in 2005.
Peru
Peru’s GDP increased 7% in 2006. BBVA Banco Continental’s income attributed to the Group for 2006 increased 20.9% to €56 million from €47 million in 2005.
All lines of the tender offerlending experienced growth in 2006 and subsequent purchases amounting to 0.56% of Bancomer’s capital stock, at March 31, 2004, we owned 99.42% of Bancomer’s outstanding shares.
lower cost deposits were achieved.
In 2003, Bancomer focused on improving productivity, reducing costUruguay
Uruguay’s GDP increased 7% in 2006. BBVA Uruguay’s profit attributed to the Group for 2006 increased to €8 million compared to the loss attributable to the Group of €2 million in 2005.
Venezuela
Venezuela’s GDP increased approximately 10% in 2006. BBVA Banco Provincial’s income attributed to the Group for 2006 increased 54.2% to €82 million from €55 million in 2005.
BBVA Banco Provincial experienced a year fraught with political and expandingregulatory uncertainty. The lending portfolio was diversified to prioritize the range ofretail business, particularly consumer lending and credit cards with products and services offered. In addition, an effort was made to decentralize many of the decisions previously made only in Bancomer’s central offices, such as relatingthe Instant Payroll Loan, which was a first consumer finance product of this type offered in Venezuela.
Pension Funds and Insurance in South America
The BBVA Group’s pension fund and insurance companies in South America income attributed to the approval of certain loans. Bancomer’s total lendingGroup for 2006 increased 9.2% to €109 million from €99 million in 2003 increased by 4.8% over 2002, which was sufficient for Bancomer to maintain its position as the Mexican market leader in lending, with a market share of 31.7% as of December 31, 2003, compared to 32.2% for 2002 (source:Sistema de Intercambio de Bancos, December 2003). The fastest growing loan category in 2003 was the consumer loan and credit card segment, which grew by 24.9% over 2002. In addition, the Creditón Nómina consumer loan was also a strong performer in 2003, increasing by approximately 40% over 2002 in terms of total credits granted.
Bancomer also focused on increasing the number of its credit card clients and in 2003 launched several new cards, including the Mini Bancomer card and the Cash Back card. As of December 31, 2003, Bancomer’s clients had opened up approximately 3.5 million credit card accounts, an increase of approximately 900,000 accounts over 2002. Bancomer also launched the Business Card in 2003, which is marketed to small and medium sized corporate clients and allows them to access their credit lines through the Internet, cash dispensers, point of sale terminals in commercial establishments or Bancomer branches.
Bancomer’s growth in lending was accompanied by its development of enhanced risk management mechanisms, such as a new system of credit scoring and fraud control, resulting in an improvement in overall loan quality. Bancomer’s NPL ratio decreased to 3.95% from 4.22% as of December 31, 2003 and December 31, 2002, respectively. As of December 31, 2003 the coverage ratio was 221.8%.
Bancomer is the leader in Mexico in terms of customer deposits, with a market share of 32.7%, compared to 31.8% as of December 31, 2002 (source:Sistema de Intercambio de Bancos,December 2003). To increase customer deposits, Bancomer focused on increasing the volume of lower-cost deposits, such as current accounts and savings accounts, which rose 19.5% despite the relatively low level of economic growth in Mexico. Two specific products were the focus of Bancomer’s drive to increase deposits; the Libretón, a highly successful savings product, and time deposits, which took advantage of the interest rate spread between bank promissory notes and treasury securities. Overall, customer deposits grew 13.7% in 2003, compared to 2002.
Bancomer had nearly 900,000 on-line banking customers who performed an average of more than 22 million transactions per month, and more than 750,000 telephone banking customers who generated more than 3.5 million calls per month in 2003. Bancomer Transfer Services (BTS) performed approximately 15 million money transfer transactions in 2003, an increase of 18.8% over 2002, in the amount of approximately US$6 billion, which was an increase of 16.8% over 2002.2005.
As of December 31, 2003, Bancomer’s2006, the BBVA Group’s pension fund affiliate, Afore BBVA Bancomer, had 4.3 million plan participants and €6,007insurance companies in South America managed €31,872 million in assets under management.
Chile
In 2003, the macroeconomic situation in Chile was generally favorable and the country experienced GDP growth of 3.2%, compared to 3.0% in 2002. Favorable economic growth was due in part to low inflation and interest rates, which were cut by 50 basis points during the year to 2.25% as of December 31, 2003, and an increase in the price of copper, Chile’s main export. In addition, the Chilean government signed free trade agreements with the EU, the United States and South Korea, which reflects Chile’s strong relative economic position compared to that of its Latin American neighbors.
For BBVA Chile, 2003 was the second year of development and implementation of the New Stage strategic plan for the 2002-2005 period. The objective of this plan is to enhance BBVA Chile’s innovation and, consequently, growth in all market segments. Part of this plan calls for BBVA Chile to develop products and services that are tailored to individual customer’s needs, such as with products like BBVA Plus, a new type of time deposit paying monthly interest, the Hipotecón, the first peso-denominated mortgage loan not linked to inflation and the Hipotecón Cien, the first mortgage loan to finance the full value of the purchased property. BBVA Chile was also the first bank in Chile to offer euro-denominated current accounts and time deposits for the corporate customer segment.
In 2003, BBVA Chile experienced lending growth of 15.3%, which increased BBVA Chile’s market share in lending to 7.2%, compared to 6% in 2002 (source: theSupertintendencia Bancariaas of December 31, 2003).
BBVA’s Chilean pension fund manager affiliate, AFP Provida, had funds under management of €12,347 million as of December 31, 2003,assets, an increase of 16.5%, compared to 2002. Provida’s market share in pension fund management was 31.7% as of22.2% over December 31, 2003, according2005.
The BBVA Group’s insurance companies in South Americas’ income attributed to theSuperintendencia de Administradoras de Fondos de Pensiones Group for 2006 increased 16.3% to €41 million.
In the actuarial business, the intense level of Chile, with approximately 3 million pension fund participants. Consistentcompetition in most countries with the trendadvent of new competitors triggered increases in sales forces and downward pressure on income at the pension managers. It was a better year for insurance and progress was made in all business lines, especially in the overall market,bank assurance segment.
Corporate Activities
Our Corporate Activities business area includes the number of demands for payment against Provida increasedAssets and Liabilities Committee (“ALCO”) and activities regarding our interests in 2003, resulting in a significant increase in Provida’s costs. This increase in costs, however, was offset by an increase in fees collectedindustrial and higher returns from funds invested.financial companies.
ColombiaHoldings in Industrial and Financial Companies
The Colombian economy experienced stronger than expected growthHoldings in 2003,Industrial and Financial Companies business unit manages the Group’s holdings in listed industrial companies, principally Telefónica, S.A., Iberdrola, S.A. and until June 2006, Repsol, as well as its financial holdings, which are currently limited to Banco Bradesco S.A. All of these shareholdings are recorded on our consolidated balance sheet prepared in accordance with an increase in GDP of 3.2%, lower inflation and record low interest rates. After several years of economic crisis, in this improved economic environment Colombia’s financial system made major progress both in terms of banking income, overall business activity and credit risk quality.
Our Colombian affiliate, BBVA Banco Ganadero (“Banco Ganadero”) had a strong 2003, due, in part, to the success of Plan Líder, under which Banco Ganadero focused on more profitable customer segments, improved the structure of its loans and deposits, cut back on its marginal low-profit businesses and increased the rate of recovery of past-due loans during the year. In 2003, Banco Ganadero’s deposits grew 21.6%, increasing its market share by 0.48% to 7.7%, while lending also increased 10.1%, which resulted in a 0.30% increase in market share to 7.0%, in each case compared to 2002 (source:Superintendencia Bancaria of Colombia, November 2003)EU-IFRS as “available-for-sale”.
As of December 31, 2003, BBVA’s Colombian pension fund manager affiliate, BBVA Horizonte Pensiones y Cesantías, had2006, the third-highest market share in “compulsory pensions,” which are pensions employers are required to establish for their employees, in termsportfolio of assets under management, with an 18.9% market share, and ranked second in numbershareholdings of plan participants (source:Superintendencia Bancaria of Colombia, December 2003). In January 2003, a pension reform law came into effect in Colombia. Under the law, the fees that Colombian pension fund managers are permitted to charge for managing compulsory pensions dropped from 1.5% to 1% of net asset value. This decrease in feesthis business unit had a corresponding negative effect onmarket value (including equity swaps) of €7,387 million. In 2006, the BBVA Horizonte’sGroup’s holdings in industrial and financial companies generated €257 million in dividends (an increase of 25% over 2005) and net attributable profit, which fell 25.9% compared to 2002.
BBVA has two affiliatestrading income of €333 million, a 11.8% increase over 2005 (excluding the divestitures in Colombia operating in the insurance sector: BBVA Ganadero Vida, which, in 2003, was awarded the contract to provide disabilityBNL and survival insurance policies to BBVA Horizonte’s pension plan participants, and BBVA Ganadero Seguros Generales.
Repsol).
Panama
Panama’s economy recovered in the second half of 2003 after slow start in the first half of the year. For the year, Panamanian GDP grew by approximately 2.7% over 2002. In this economic context, BBVA maintained lending at 2002 levels, but focused on improving its position in the retail banking sector, where it achieved lending growth of 42%, compared to 2002.
BBVA operates in the Panamanian pension fund sector through its 90% interest in BBVA Horizonte and its 25% interest in Progreso, which manages SIACAP’s funds (the Government Employee Pension Capitalization and Savings System).
Paraguay
The most significant development in Paraguay’s economy in 2003 was the reduction in interest rates from 31% to 13%. As a result of this significant interest rate reduction, BBVA Paraguay focused on managing its net interest income, balancing management of its deposits with its lending policies.
BBVA Paraguay continued to focus on lending in the agriculture sector, which is the most significant component of Paraguay’s economy.
Peru
The Peruvian economy continued its steady growth in 2003 with GDP and inflation increasing 4.0% and 2.5%, respectively. In this economic context, our Peruvian affiliate, BBVA Banco Continental (“Banco Continental”) consolidated its position as the second-largest bank in Peru in terms of deposits and loans in 2003, with increases of 3.4% and 1.72% in market share to 23.8% and 17.6% in deposits and loans, respectively (source:Supertintendencia de Banca y Seguros of Peru, November 2003).
In 2003, Banco Continental was honored as the Best Bank in Peru for the second straight year by The Banker magazine, as Bank of the year in Peru by Latin Finance magazine and was ranked as the 16th best bank in Latin America by América Economía magazine.
BBVA operates in the Peruvian pension fund sector through AFP Horizonte, which had assets under management of €1,267 million, representing a 25.4% market share, as of December 31, 2003 (source:Supertintendencia de Banca y Seguros of Peru, December 2003).
Puerto Rico
The Puerto Rican economy, which is strongly tied to the United States economy, experienced sluggish growth in 2003, with GDP increasing only 1.6%. In addition, like in the United States, interest rates remained very low by historical standards.
Our Puerto Rican affiliate, BBVA Puerto Rico had a commercial network of 47 branches and 1,062 employees as of December 31, 2003. Notable developments in BBVA Puerto Rico’s operations in 2003 included a 7.1% increase in automobile financing, 19.2% increase in mortgage lending, due in part to the establishment of the BBVA Mortgage brand in 2002, and the success of the El Libretazo deposit product.
Uruguay
Uruguay experienced a financial crisis in 2002 and during the first quarter of 2003 economic instability persisted as the government negotiated with lenders regarding the terms of its foreign debt. A successful conclusion to this process in mid-2003 marked a decrease in interest rates and improvement in Uruguay’s country-risk rating. In addition, in 2003, Uruguayan international reserves and bank deposits increased compared to 2002, during which a significant reduction in capital and deposits had occurred.
In light of this difficult and uncertain economic climate, BBVA Uruguay refocused its strategy on higher margin sectors, such as wholesale and VIP banking. BBVA Uruguay also reduced its branch network from 17 to 8 and the number of employees by a third to 151. BBVA Uruguay also focused on overall liquidity in 2003, particularly in light of new minimum liquidity ratios required by the Uruguayan Central Bank, increasing deposits by 63.8%, compared to 2002. In an effort to increase fee revenue, BBVA Uruguay expanded the range of its products, such as the launch of Internet banking. BBVA Uruguay’s market share in lending and deposits grew in 2003 by 0.86% and 1.14% to 6.6% and 5.6%, respectively (source:Banco Central of Uruguay, September 2003).
Venezuela
The economic recession in Venezuela that began in 2002 continued in 2003 and GDP decreased during 2003 by 9.6%. One of the significant developments in Venezuela that contributed to economic instability and the lack of growth was the control of the foreign exchange market taken by the government, which resulted in the de facto closure of Venezuelan currency markets. The government’s restrictions on the acquisition of foreign currency resulted in a very significant increase in banking deposits and a 13% reduction in interest rates. With very limited demand for credit as a result of the overall decrease in economic activity, the increased deposits were invested by Venezuelan banks in public debt securities and certificates of deposit offered by the Central Bank.
In this political and economic context, BBVA’s Venezuelan affiliate, Banco Provincial, focused on five principal priorities: strict monitoring and control of risk, maintaining adequate liquidity levels, investing in certificates of deposit of the Central Bank, rather than public debt securities, reducing costs and increasing customer segmentation in order to tailor products and services to individual customer needs.
In 2003, Banco Provincial increased customer funds by 49.4%, increasing its market share by 1.20% to 15.4%, which was second among Venezuelan banks, as of December 31, 2003 (source:Supertintendencia Bancariaof Venezuela, December 2003). Due to the absence of demand for credit, Banco Provincial’s lending decreased in 2003, but the quality of its loan portfolio increased, with the NPL ratio decreasing to 5.02% as of December 31, 2003, compared to 7.44% as of December 31, 2002, and the coverage ratio increasing to 191.7% as of December 31, 2003, compared to 132% as of December 31, 2002.
Other countries
In El Salvador, BBVA operates in the pension fund sector through two affiliates: the pension fund manager BBVA Crecer, which had €584 million of assets under management, a 47.5% market share as of November 30, 2003, according to theSupertintendencia de Administradoras de Fondos de Pensiones of El Salvador, and the life insurance company BBVA Seguros de Personas, which provides life insurance services to clients of BBVA Crecer.
In Bolivia, as of December 31, 2003, the pension fund manager BBVA Previsión de Bolivia had €1,227 million of assets under management.
In 2003, a private pension system was created in the Dominican Republic and contributions were collected for the first time beginning in June. As of December 31, 2003, BBVA Crecer, BBVA’s Dominican Republic affiliate, was ranked third in terms of number of participants. In addition, in the last quarter of 2003, AFP Provida, our Chilean pension fund administrator affiliate, acquired Porvenir, a Dominican pension fund manager, which further strengthened BBVA’s position in the Dominican Republic.
International Private Banking
The International Private Banking unit focuses on providing investment advice and asset management services to high net worth individuals through several offices in Europe and America.
Total funds managed by this unit amounted to approximately €13.5 billion as of December 31, 2003, which was an increase of only 1.3% compared to 2002, principally due to slow growth in customer deposits and the depreciation of the dollar against the euro. In 2003, the International Private Banking unit continued to focus on customer segmentation in order to provide more customized products and services. In addition, during the year a website was launched enabling customers to access their account information on a real-time basis.
Corporate Activities and Other
The Corporate Activities and Other business area includes BBVA’s portfolio of strategic and financial investments, the Assets and Liabilities Management Committee (ALCO) and other BBVA units that cannot be assigned to any other business area. As described above, the operating results of our Corporate Activities and Other business area included the financial results of our interest in BBV Brasil from January 1 to January 9, 2004 and reflect the elimination of intra- and inter-business area transactions.
Assets and Liabilities Management Committee
The ALCOAssets and Liabilities Management Committee manages the BBVA Group’s overall financing needs and interest and exchange rate risks, wholesale financing and overall supervision of BBVA’s capital adequacy requirements. ALCO’s management of exchange rate risk in 2003 was particularly important in light of BBVA’s significant investments in Latin American and the sharp movements of Latin American currencies against the euro. ALCO’s hedging policy permitted BBVA to decrease the negative effect of exchange rate depreciation on reserves by €243 million at a cost of €21 million net of taxes. In addition, ALCO’s hedging policy contributed €42 million, net of taxes, to BBVA’s income from market operations in 2003.
risks. ALCO also actively manages interest rate risk. the BBVA Group’s investments and capital resources in an effort to improve the return on capital for our shareholders.
As of December 31, 2003, BBVA’s2006, ALCO’s portfolio of fixed-income assets, which is held in an effort to reduce the negative effect on BBVA’s net interest income of a fall in interest rates, and denominated in euro, Mexican pesos and U.S. dollars, amounted to €25,116 million. The portfolio generated €327 million of net interest income and €37 million of net trading income in 2003.
Large Industrial Corporations
The Large Industrial Corporations unit manages BBVA’s strategic investments in certain large industrial companies in the Spanish telecommunications and energy sectors. In 2003, this unit undertook €257 million of investments and divestments of €1,433 million, generating aggregate capital gains of €221 million. Most of the divestments in 2003 and early 2004 were intended to generate cash to finance part of the acquisition of the minority interest in Bancomer. The divestments also permitted the release of €615 million of regulatory capital. As of December 31, 2003, the market value of our large industrial corporations portfolio amounted to €4,146 million, with unrealized capital gains of €964 million.
Financial Holdings
The Financial Holdings unit manages BBVA’s financial investments. In the first half of 2003, BBVA sold its interest in Crédit Lyonnais in a tender offer by Crédit Agricole for all of Crédit Lyonnais’s outstanding shares. This transaction gave rise to a capital gain of €342 million. As a result of BBVA’s sale of its entire interest in its Brazilian affiliate, BBV Brasil, BBVA received a 4.44% interest in Bradesco, another Brazilian bank. This interest was subsequently increased to 5.0%. In March, 2004, BBVA sold its 24.4% interest in Banco Atlántico in a tender offer by Banco Sabadell for all of Banco Atlántico’s outstanding shares. The transaction gave rise to a €218 million capital gain.
Argentina
Because the political and economic conditions in Argentina in the last several years had a significant negative effect on the entire Argentinean banking sector and have consequently severely affected the operating results of our Argentinean banking, and, to a lesser extent, pension fund management operations during the period, management in 2003 and 2002 elected to separate the operating results of our Argentinean banking and pension fund management operations from the Banking in America and Asset Management and Private Banking areas, to which they were attributed in past years and manage them as part of a separate business area, Argentina.
Argentinean Financial Crisis
The government measures implemented in Argentina at the end of 2001 and during 2002 in response to the serious economic crisis afflicting the country included freezing public debt payments, ending convertibility between the Argentinean peso and US dollar, imposing cash withdrawal limits on sight and savings accounts (thecorralito) and re-scheduling of term deposit maturities (thecorralón). In addition, the Argentinean government decreed that dollar assets and liabilities would be converted to pesos at different exchange rates (“asymmetrical pessification”). This measure could have a severe impact on the solvency of the Argentinean banking system due to application of a lower exchange rate to certain loans converted to pesos compared with the exchange rate applied to deposits.
The Argentinean government issued public bonds to be used to compensate financial institutions for damage to their balance sheets caused by asymmetric pesification. Nevertheless, asymmetric pesification caused losses that were not fully offset by the government’s bond issuance programs. These losses resulted from, among other causes: (i) the difference between the free exchange rate at which foreign currency deposits were paid in performance of judicial decisions allowing depositors to withdraw their funds in excess of the amounts prescribed by law and the exchange rate at which they were converted into pesos (ARP1.40 = $1.00) and (ii) the application of a lower exchange rate to certain loans converted to pesos than to deposits.
Instead of alleviating banks’ liquidity situation, thecorralito triggered a rush by banking customers to withdraw the maximum amount of money authorized, which caused a continual drain on deposits. The drain began to alleviate in July 2002, enabling partial release in October of term deposits to ARP7,000 (rising to ARP10,000 in some banks such as Banco Francés) and all funds in sight accounts in December 2002. Customers were also given the opportunity to exchange re-scheduled deposits for bonds, an offer taken by 22% of customers (30% for Banco Francés).
In 2003, macroeconomic conditions in Latin America and Argentina improved, but significant uncertainty regarding the scope and pace of the recovery remained.
Measures Taken Regarding Our Investments in Argentina
In 2001, we took substantial provisions and write-downs totaling €1,354 million relating to our investments in, and exposure to, Argentina. This amount included provisions of €617 million relating to our entire investment in Argentina, bad debt provisions of €416 million, additional country risk provisions of €34 million, provisions of €92 million relating to the value of Argentine government bonds held by BBVA, a downward revision of €72 million related to the expected reduction in net income and reduced capital gains arising from companies we carry by the equity method and from our portfolio of financial investments and a write-down of €123 million of goodwill corresponding to our Argentine investments. In addition, in 2001 we took a charge to the reserves at consolidated companies (in retained earnings) line item in our Consolidated Balance Sheets of €683 million to account for the devaluation of the Argentine Peso from ARP1.0 per U.S.$1.00 to ARP1.7 to U.S.$1.00 (the opening rate following the closure of the Argentine foreign exchange market), as of December 31, 2001.
In 2002, we took an additional provision of €131 million in respect of securities issued by Banco Francés and held by us. This amount was charged to our 2002 Consolidated Statement of Income.
In April 2002, as a result of Banco Francés’s liquidity problems, BBVA loaned Banco Francés $79 million and made available to it credit lines of $56 million and $24 million, both of which were fully drawn down. The foregoing loan and credit lines were undertaken in order for BBVA to comply with commitments it had made in 1999 to ensure that Banco Francés continued to meet the Argentinean Central Bank’s liquidity requirements. These three transactions are secured by loans held by Banco Francés and guaranteed by the Argentinean government and by collection rights on syndicated loans and floating rate notes owned by Banco Francés.
In June 2002, Banco Francés agreed with the Argentinean government to increase its capital stock by $209.3 million. BBVA subscribed to Banco Francés’s capital increase in exchange for $130 million in subordinated debt of Banco Francés held by BBVA and the $79 million loan, described above, made to Banco Francés in April 2002. As a result of our additional investment, we received new shares of Banco Francés and recorded €34.7 million in goodwill in consolidation, resulting in an increase in our ownership interest in Banco Francés from 68.25% to 79.61%.
In May 2002, BBVA bought Banco Francés’s 60.88% interest in BBVA Uruguay for $55 million.
In July 2002, BBVA bought Argentinean government debt securities from Banco Francés under a repurchase agreement for €98.8 million.
In 2003, BBVA did not make any additional investments in, or provide any financial assistance to, its subsidiaries in Argentina.
As of December 31, 2003, our entire investment in and exposure to Argentina, including the investments and loans described above, were fully covered by the provisions we took in 2001 and 2002. See Note 3(o) to the Consolidated Financial Statements.
As of the date of filing of this Annual Report, BBVA has no further obligation to make capital available to Banco Francés to ensure that it meets its liquidity requirements or for any other reason.
We continue to carefully monitor the situation in Argentina and, in the event of positive improvements from the current situation, may in the future consider providing further liquidity to our Argentinean subsidiaries.
Evolution of Business
Following four years of recession, the Argentinean economy significantly improved in 2003 with an increase in GDP of approximately 8%, a reduction in inflation from 41.0% to 3.7% and an improvement in liquidity in the banking sector that led to a reduction in interest rates on 30-day deposits from 22% in April to less than 4% as of December 31, 2003. In the banking sector, overall deposits grew 19.6% compared to 2002, but loans to the private sector decreased by 11.4% as a result of continuing institutional and legal uncertainties regarding the direction of political and economic events in the country.€11 billion.
BBVA operates in Argentina through its banking affiliate, Banco Francés, and its pension fund and insurance affiliate, Grupo Consolidar. As a result of the crisis that has afflicted the Argentine banking sector in the past several years, and the resulting affect of such crisis on banks’ deposit and lending businesses, in 2003, Banco Francés’s management focused on increasing fee income. In this regard, Banco Francés sought to increase fee-generating products and services, such as regarding means of payment (particularly electronic means), insurance and credit and debit card transactions. Improving conditions in the second half of 2003 also permitted Banco Francés to modestly increase lending, focusing on very short-term financings, such as account advances, credit/debit card financings, check transfers and foreign trade transactions.
The most significant factor affecting Banco Francés’s operating results in 2003 continued to be a structural mismatch in terms of interest rates—the interest rates on its assets were linked to inflation or peso/dollar conversion rates far below market rates, while interest rates payable on deposits were linked to high market interest rates and market-based peso/dollar conversion rates. Accordingly, for much of 2003 while inflation remained low and deposit interest rates high, Banco Francés experienced a substantial decrease in net interest income. This trend was partially reversed in the second half of 2003 as a result of a decrease in deposit interest rates and an increase in fee income. Banco Francés also continued cutting costs in 2003 and reduced headcount by approximately 10%, or 400 employees. Despite the reduction in costs and an increase in fee income, however, the overall reduction in net interest income resulted in an operating loss, measured in local currency, in 2003. As a result of the provisions we took in 2002 and 2001 with respect to our investments in our subsidiaries in Argentina, however, Banco Francés’s operating loss in 2003 did not affect our consolidated net attributable profit in such year.
BBVA’s affiliate, Consolidar Group, operates in the Argentine pension fund sector and had more than 1.5 million participants and assets under management of €2,551 million, with a market share of 20.5%, as of November 30, 2003 (source:Superintendecia Administradora de Fondos de Jubilaciones y Pensiones, November 2003). For 2003, Consolidar Group’s net attributable profit was €13 million, €4 million of which related to the pension fund business and €9 million to the insurance business.
Supervision and Regulation
The Spanish government traditionally has been closely involved with the Spanish banking system, both as a direct participant through its ownership of theInstituto de Crédito Oficial (“ICO”) and as a regulator retaining an important role in the regulation and supervision of financial institutions.
The Bank of Spain
The Bank of Spain was established in 1962 as a public law entity (entidad de derecho público) that operates as Spain’s autonomous central bank. In addition, it has the ability to function as a private bank. Except in its public functions, the Bank of Spain’s relations with third parties are governed by private law and its actions are subject to the civil and business law codes and regulations.
Until January 1, 1999, the Bank of Spain was also the sole entity responsible for implementing Spanish monetary policy. For a description of monetary policy since the introduction of the euro, see “—Monetary Policy—General” and “—New monetary policy in the EMU”.
Since January 1, 1999, the Bank of Spain has performed the following basic functions attributed to the European System of Central Banks (“ESCB”):
defining and implementing the ESCB’s monetary policy, with the principal aim of maintaining price stability across the euro area;
conducting currency exchange operations consistent with the provisions of Article 109 of the Treaty on European Union (“EU Treaty”), and holding and managing the States’ official currency reserves;
promoting the sound working of payment systems in the euro areaarea; and
issuing legal tender banknotes.
Recognizing the foregoing functions as a fully-fledged member of the Euroystem,Eurosystem, theLey de Autonomía del Banco de España (the Bank of Spain Law of Autonomy) stipulates the performance of the following functions by the Bank of Spain:
holding and managing currency and precious metal reserves not transferred to the European Central Bank (“ECB”);
supervising the solvency and behavior of credit institutions, other entities and financial markets, for which it has been assigned supervisory responsibility, in accordance with the provisions in force;
promoting the sound working and stability of the financial system and, without prejudice to the functions of the ECB, of national payment systems;
placing coins in circulation and the performance, on behalf of the State, of all such other functions entrusted to it in this connection;
preparing and publishing statistics relating to its functions, and assisting the ECB in the compilation of the necessary statistical information;
providing treasury services and acting as financial agent for government debt;
advising the government, preparing the appropriate reports and studies; and
exercising all other powers attributed to it by legislation.
Subject to the rules and regulations issued by the Ministry of Economy, the Bank of Spain has the following supervisory powers over Spanish banks:
conducting periodic inspections of Spanish banks to evaluate a bank’s compliance with current regulations including the preparation of financial statements, account structure and credit policies;
advising a bank’s board of directors and management on its dividend policy;
undertaking extraordinary inspections of banks; and
collaborating with other regulatory entities to impose penalties for infringement or violation of applicable regulations.
Fondo de Garantía de Depósitos
TheFondo de Garantía de Depósitos en Establecimientos Bancarios (“FGD”), which operates under the guidance of the Bank of Spain, guarantees both bank and securities deposits up to €20,000 per customer for each type of deposit, which is the minimum insured amount for all EU member banks. Pursuant to Bank of Spain regulations, the FGD may purchase doubtful loans or may acquire, recapitalize and sell banks that are experiencing difficulties.
The FGD is funded by annual contributions from member banks. The rate of such contributions in 20032006 was 0.06% of the year-end amount of deposits to which the guarantee extended.extended, in accordance with legislation in effect. Nevertheless, once the capital of the FGD exceeds its requirements, the Minister of Economy may reduce the member banks’ contributions and, when the FGD’s funds exceed the capital requirements by one percent or more of the member banks’ deposits, such contributions may be suspended.
In order to safeguard the stability of its members, the FGD may also receive contributions from the Bank of Spain. At December 31, 2003,2006, all of the Spanish banks belonging to the BBVA Group were members of the FGD and thus obligated to make annual contributions to it.
Fondo Garantía Inversores
Royal Decree 948 of August 3, 2001 regulates investor guarantee schemes related to both investment firms and to credit institutions. These schemes are set up through an investment guarantee fund for securities broker and broker-dealer firms and the deposit guarantee funds already in place for credit institutions. A series of specific regulations have also been enacted, defining the system for contributing to the funds.
The General Investment Guarantee Fund Management Company was created in a relatively short period of time and is a business corporation with capital in which all the fund members hold an interest. Member firms must make a joint annual contribution to the fund equal to 0.2% of their capital plus 0.01%0.06% over the 5% of the securities that they hold on their client’s behalf. However, it is foreseen that these contributions may be reduced if the fund reaches a level considered to be sufficient.
Liquidity Ratio
In an effort to implement European monetary policy, effective January 1, 1999, the ECB and the national central banks of the member states of the European Monetary Union (“EMU”) adopted a regulation that requires banks to deposit an amount equal to two percent of their qualifying liabilities, as defined by the regulation, with the central bank of their home country. These deposits will earn an interest rate equal to the average interest rate of the ESCB. Qualifying liabilities for this purpose include:
deposits;
debt securities issued; and
monetary market instruments.
Furthermore, the liquidity ratio is set at zero percent0% instead of two percent2% for those qualifying liabilities that have a maturity over two years and are sold under repurchase agreements.
Investment Ratio
In the past, the government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.
Capital Adequacy Requirements
As part of a program to modernize Spain’s banking regulations, capital adequacy requirements were revised in 1985 and, pursuant to EU directives, amended as of January 1, 1993. The capital adequacy requirements are applicable to BBVA on both a consolidated and individual basis.
The principal characteristics of the capital adequacy requirements pursuant to EU directives are a distinction between “core” and “complementary” capital and the adoption of a ratio of stockholders’ equity to risk-weighted assets. Core capital generally includes:
voting equity;
certain nonvoting equity, including certain nonvoting guaranteed preference shares of subsidiaries;
most reserves and generic allowances;
less participation in other financial institutions; and
treasury stock and financing for the acquisition, by persons other than the issuer’s employees, of the issuer’s shares.
Complementary capital generally includes certain nonvoting equity, revaluation and similar reserves, and subordinated and perpetual debt. The computation of both core and complementary capital is subject to provisions limiting the type of stockholding and the level of control which these stockholdings may give a banking group. The level of non-perpetual subordinated debt taken into account for the calculation of complementary capital may not exceed 50% of core capital. The total amount of complementary capital admissible for computing total capital may not exceed the total amount of core capital.
The consolidated total of core and complementary capital of a banking group calculated in the manner described above may not be less than eight percent of the group’s risk-weighted assets net of specified provisions and amortizations. The calculation of total risk-weighted assets applies minimum multipliers of 0%, 20%, 50% and 100% to the group’s assets. Countries with special loan
arrangements with the International Monetary Fund, which have not renegotiated their foreign debt in the five preceding years, receive a zero percent0% risk weight. Pursuant to Bank of Spain regulations, the following loans also receive a 0% risk weighting:
credits to Spanish governmental autonomous bodies, credits to Social Security, and credits to certain Spanish governmental public entities;
certain debt securities related to the securitization of the Spanish Nuclear Moratorium; and
credits guaranteed by:
(a) | the EU and the Organization for Economic Co-operation and Development (“OECD”) countries’ governments or central banks, |
(b) | governments or central banks of countries with special loan agreements with the International Monetary Fund (provided such countries have not renegotiated their external debt in the five preceding years), or |
(c) | Spanish governmental public entities. Loans to autonomous communities, the EU and the OECD regional and local governments, banks, savings banks, brokerage firms and multilateral development banks receive at least a 20% weighting. Residential mortgage loans receive at least a 50% weighting. |
All other loans are weighted at 100%; however, such weighting may be lower if the loan is guaranteed or secured. Off-balance sheet assets are also included in the calculation of risk-weighted assets.
The computation of core capital is subject to reductions of capital in amounts equivalent to unrealized losses on investment securities that are not charged to income and are accounted for as assets under the caption “Asset Accrual Accounts”. See Note 16 to the Consolidated Financial Statements.
The Basel Committee on Banking Supervision (the “Basel Committee”), which includes the supervisory authorities of twelvethirteen major industrial countries, has adopted an international framework (the “Basel Accord”) for capital measurement and capital standards of banking institutions. The framework provides:
definitions for “Tier 1” (core) capital and “Tier 2” (supplemental) capital;
a system for weighting assets and off balance sheet items according to credit risk; and
a requirement that banks engaged in international operations maintain Tier 1 capital of at least 4% of risk-weighted assets and “total” capital, Tier 1 capital plus up to an equal amount of Tier 2 capital, of at least 8% of risk-weighted assets.
Members of the Bank for International Settlements are preparing a new Basel capital accord (also known as Basel II) which, when finalized, will replace the Basel Accord.
As described above, the capital adequacy of Spanish banks is regulated by EU directives applicable to the Spanish banking system as well as to the banking systems of other EU member states. Certain EU member states are parties to the Basel Accord. Spain joined the Basel Accord on February 1, 2001. Each national authority that is a party to the Basel Accord has implemented it in a significantly different fashion.fashion, mainly in countries outside the EU. The capital requirements imposed by the Basel Accord are in many respects similar to those imposed by EU directives, Spanish law and the Bank of Spain.
The Basel Committee published a new Basel capital accord (also known as Basel II) which has replaced the Basel Accord. A new regulatory framework (Directives 2006/48/EC and 2006/49/EC) was adopted in June and EU countries intend to implement them during 2007 or in January 2008 if advanced risk models are adopted.
The Group expects to enter the final stage of adoption to Basel II by year-end 2007. The Group has opted to use the advanced models for both credit and operational risk (it already has an internal market risk model to calculate capital utilization which has been approved by the Bank of Spain). In accordance with the timetable established by applicable regulators, in 2006 the Group submitted the mandatory documentation on the models for approval. The Group is collaborating with applicable regulatory supervisors, particularly the Bank of Spain and the Securities Commission in Mexico, in order to make consistent and coordinated progress to obtain validation of the advance models in accordance with the timeframe established in the EU.
Banks in EU countries are permitted to net the credit exposure arising from certain interest rate and foreign exchange-related derivative contracts (rather than include the entire notional amount of such contracts) in calculating their total risk-adjusted assets for purposes of calculating their capital adequacy ratios, provided that such derivative contracts are subject to regulatory limitations on total credit exposure and the relevant regulatory authorities approve the inclusion in risk-adjusted assets of such credit risks on a net basis.
Spanish banks are permitted to include the net credit exposure arising from interest rate and foreign exchange transactions related to derivative products provided the following conditions are met:
all derivative related transactions between the parties form a single agreement;
the incumbent bank has implemented the appropriate procedures to revise the treatment of netting if there is an amendment of the regulations in force.
In addition, the Bank of Spain may not accept the accounting treatment of netting if the conditions set forth above are not met or if the Bank of Spain does not concur with the legality or validity of the netting provisions.
Concentration of Risk
The Bank of Spain regulates the concentration of risk. Since January 1, 1999, any exposure to a person or group exceeding 10% of a group’s or bank’s regulatory capital has been deemed a concentration. The total amount of exposure represented by all of such concentrations may not exceed 800% of regulatory capital. Exposure to a single person or group may not exceed 25% (20% in the case of an affiliate) of a bank’s or group’s regulatory capital.
Legal and Other Restricted Reserves
We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Adequacy Requirements”. See Note 2436 to the Consolidated Financial Statements.
Allowance for Possible Loan Losses
For a discussion of the Bank of Spain regulations relating to allowances for possible loan losses and country risk, see “—Selected Statistical Information—Assets—Loan Loss Reserve”.
Regulation of the Disclosure of Fees and Interest Rates
Interest rates on most kinds of loans and deposits are not subject to a maximum limit. Banks must publish their preferential rates, rates applied on overdrafts, and fees and commissions charged in connection with banking transactions. Banking clients must be provided with written disclosure adequate to permit customers to ascertain transaction costs. The foregoing regulations are enforced by the Bank of Spain in response to bank client complaints.
Law 44/2002 concerning measures to reform the Spanish financial system contained a new rule concerning the calculation of variable interest applicable to loans and credit secured by mortgages, bails, pledges or any other equivalent guarantee.
Employee Pension Plans
Under the relevant collective labor agreements, BBVA and some of its subsidiaries provide supplemental pension payments to certain active and retired employees and their beneficiaries. These payments supplement social security benefits from the Spanish state. See Note 3.j.2.2.e and Note 29 to the Consolidated Financial Statements.
Dividends
If a bank meets the Bank of Spain’s minimum capital requirements described above under “—Capital Adequacy Requirements”, it may dedicate all of its net profits to the payment of dividends, although, in practice, banks consult with the Bank of Spain before declaring a dividend. We calculate that as of December 31, 2003,2006, we had approximately €4.4€7.0 billion of unrestricted reserves in excess of applicable capital and reserve requirements available for the payment of dividends. Compliance with such requirements notwithstanding, the Bank of Spain may advise a bank against the payment of dividends on grounds of prudence. In no event may dividends be paid from non-distributable reserves. Banks which fail to comply with the capital adequacy ratio by more than 20% are required to devote all of their net profits to increasing their capital ratios. Banks which fail to meet the required ratio by 20% or less must obtain prior approval of the Bank of Spain to distribute any dividends and must devote at least 50% of net profits to increasing their capital ratios. In addition, banks, and their directors and executive officers that do not comply with the liquidity and investment ratios and capital adequacy requirements may be subject to fines or other sanctions. Compliance with the Bank of Spain’s capital requirements is determined on both a consolidated and individual basis. BBVA’s Spanish subsidiaries are in compliance with these capital adequacy requirements on both a consolidated and individual basis. If a bank has no net profits, the board of directors may propose at the general meeting of the stockholders that a dividend be declared out of retained earnings.
The Bank of Spain recommends that interim dividends not exceed an amount equal to one-half of net attributable profit from the beginning of the corresponding fiscal year. No interim dividend may be declared when a bank does not meet the minimum capital requirements and, according to the recommendations of the Bank of Spain, interim dividends may not be declared until the Bank of Spain has sufficient knowledge with respect to the year’s profits. Although banks are not legally required to seek prior approval from the Bank of Spain before declaring interim dividends, the Bank of Spain has asked that banks consult with it on a voluntary basis before declaring interim dividends.
Limitations on Types of Business
Spanish banks are subject to certain limitations on the types of businesses in which they may engage directly, but they are subject to few limitations on the types of businesses in which they may engage indirectly.
Mortgage Legislation
Spanish law limits the prepayment penalties on floating rate mortgage loans and limits the notarial costs and registration fees charged to borrowers in connection with renegotiation of mortgage terms on fixed and floating rate mortgages.
Mutual Fund Regulation
Mutual funds in Spain are regulated by theDirección General del Tesoro y Política Financiera del Ministerio de Economía(the Ministry of the Economy) and by theComisión Nacional del Mercado de Valores (“CNMV”). All mutual funds and mutual fund management companies are required to be registered with the CNMV. Spanish mutual funds are subject to investment limits with respect to single sectors or companies and overall portfolio diversification minimums. In addition, periodic reports including a review of the fund’s performance and any material events affecting the fund are required to be distributed to the fund’s investors and filed with the CNMV.
U.S. Regulation
Banking Regulation
By virtue of our branch in New York, our agency in Miami and our ownership of a commercial bankbanks in Texas, California and Puerto Rico we are subject to the International BankingU.S. Bank Holding Company Act of 1978,1956, as amended. Our commercial bank in Puerto Rico is insured by the Federal Deposit Insurance Corporation,amended, which is its primary regulator. The International Banking Act imposes certain restrictions on the activities in which BBVA and its subsidiaries may engage in the United States and subjects us to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). In addition, certain of our banking activities in the United States are subject to supervision by state banking authorities. We have two securities subsidiaries operating in New York and Puerto Rico, which are regulated by the SEC and the National Association of Securities Dealers.
On June 12, 2000, BBVA and its Miami and New York offices entered into an agreement (the “Written Agreement”) with the Federal Reserve Board. The Written Agreement required BBVA, on behalf of its U.S. offices, to establish programs designed to identify and report known or suspected criminal activity with respect to money laundering activities and to comply with rules and regulations related to anti-money laundering compliance. BBVA responded to the Written Agreement by enhancing its U.S. internal controls through its Office of the Country Manager, implementing improved compliance policies and procedures, transferring its U.S. private banking activities from its New York branch to its Miami agency, and adopting an enhanced customer due diligence program. These remedial actions were subject to examination by the Federal Reserve Bank of New York and the New York State Banking Department. On February 21, 2003, the Written Agreement was terminated.
U.S. Foreign Corrupt Practices Act
BBVA, as well as all other foreign private issuers with a class of securities registered pursuant to Section 12 of the U.S. Securities Exchange Act, of 1934, is subject to the U.S. Foreign Corrupt Practices Act. This Act generally prohibits such issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls sufficient to provide reasonable assurance that accountability of assets is maintained and accurate financial statements can be prepared. Penalties, fines and imprisonment can be imposed for violations of such Act.
Monetary Policy
General
On May 2, 1998, the EU established the bilateral conversion rates among the member countries that make up the EMU, and on December 31, 1998 the EU established the irrevocable conversion rates between the euro and each of the member countries of the EMU. The exchange rate in Spain was fixed at 166.386 pesetas per euro.
Monetary policy within the 12 members of the euro zone is set by the ECB. The ECB has itself set the objective of containing inflation and will adjust interest rates in line with this policy. It has further declared that it will not set an exchange rate target for new currency.
the euro.
As of January 1, 1999, the euro became the national currency of the Spanish monetary system, replacing the peseta. However, the peseta was used as a unit of account in any judicial/legal instrument as a fraction of the euro and according to the exchange rate during the transitory period (from January 1, 1999 through December 31, 2001).
On January 1, 1999, the monetary system adopted the euro exclusively as a unit of account. From this date through February 28, 2002, the Bank of Spain, commercial banks, savings banks and credit co-operatives exchanged pesetas into euro free of charge but did not exchange euro into pesetas. Beginning July 1, 2002, only the Bank of Spain was able to perform this exchange, as determined by the Ministry of the Economy.
As of January 1, 2002, all legal instruments that were not denominated in euro during the transitory period were understood to be expressed in the euro unit of account, subject to the established conversion and rounding procedure.
New monetary policyMonetary Policy in the EMU
The integration of Spain into the EMU on January 1, 1999 implied the yielding of monetary policy sovereignty to the ESCB. The ESCB is composed of the ECB and the national central banks of the 1213 member countries that form the EMU.
The ESCB determines and executes the single monetary policy of the 1213 member countries of the EMU. The ESCB collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks to be carried out by the ESCB include:
defining and implementing the single monetary policy of the EU;
conducting foreign exchange operations in accordance with the set exchange policy;
holding and managing the official foreign reserves of the member states; and
promoting the smooth operation of the payment systems.
In addition, the EU Treaty establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as in its administrative functions.
Law Reforming the Spanish Financial System
On November 22, 2002, the Spanish government approved theLey de Medidas de Reforma del Sistema Financiero (“Law 44/2002”), which amended, among others, the Spanish Securities Markets Act of 1988 (the “Securities Markets Act”), the Credit Entities Discipline and Intervention Law and Private Insurance law. Law 44/2002 affects the following matters: market transparency (concept of privileged information); accounting practices of companies (in particular, independence and reliability of external audits and creation of audit committees for every listed company); systems and risk coverage (promotion of the integration of various existing entry settlement systems into one); securitization (assignment of credit rights against public administration within a period before the bankruptcy of the companies, mortgage transfer certificates, territorial bonds, etc.); electronic money (definition and issuance); pre-emptive rights; collective investment schemes (merger of collective investments schemes and guarantees and security interest); venture capital (investments in its group companies, etc.); ring-fencing transactions (extending protection against bankruptcy to some special financial master transactions and OTC transactions); savings banks (legal regime ofcuotas participativas, or participating shares) and other rules concerning the disciplinary regime for listed companies.
New Law Reforming the Spanish Financial System
On June 18, 2003, the Spanish Government approved theLey de Transparencia(“Law 26/2003”), modifying both the Spanish Securities Markets Act and Law 22/2003, to reinforce the transparency of information regarding listed Spanish companies. This law adds a new chapter, Title X, to the Securities Markets Act, which (i) requires disclosure of shareholder agreements relating to listed companies, (ii) regulates the operation of the general shareholders’ meetings and of the boards of directors of listed companies, (iii) requires the publication of an annual report of corporate governance and (iv) establishes measures designed to increase the availability of information to shareholders.
In addition, this law amends theLey de Sociedades Anonimas (the “Corporate Law”), and requires: (i) offering to shareholders the possibility of exercising voting rights directly or remotely by delegation, so long as the identity of the person who exercises the vote can be properly guaranteed, (ii) an increase in the information that shareholders have the right to obtain from the company and (iii) that existing regulation of the duties and responsibilities of directors be expanded.
Order on Securities Information
On September 27, 2004, the Order on Securities Information (EHA/3050/2004) was published in theOfficial Gazette.
The order is part of an effort to increase the transparency of companies with securities listed on a public stock exchange, which has been implemented by legislation that includes the Law on Reform of the Financial System (44/2002) and Law 26/2003, which amended the Securities Market Law and the Corporations Law in order to increase the transparency of listed corporations.
The transparency laws imposed new obligations with regard to corporate information (e.g., to publish an annual corporate governance report which, among other matters, must include information on related-party transactions between the company and its shareholders, directors and executives).
The order imposes an obligation on companies issuing securities which are admitted to listing on any official Spanish secondary market (e.g., the stock exchanges, the Association of Financial Asset Brokers (“AIAF”) fixed income market and the financial futures exchange) to include in their biannual information quantified data on all their transactions with related parties.
This obligation is in addition to the obligation to include information on related-party transactions in the annual corporate governance report, as provided by the Corporate Governance Report Order (ECO/3722/2003).
Royal Decree-Law on Measures to Promote Productivity (5/2005)
The Spanish government has published the Royal Decree-Law on Measures to Promote Productivity (5/2005). Among other things, the measures include:
implementation of the EU Prospectus Directive (2003/71/EC) into Spanish law;
reform of the system for securities represented by book entry; and
reform of the system for bonds and other debt securities.
C. Organizational StructureImplementation of the EU Prospectus Directive
The first measure seeks partly to implement the EU Prospectus Directive into Spanish law. The EU Prospectus Directive governs the content of prospectuses that must be delivered when securities are offered to the public or admitted to listing on a regulated market in the EU. The EU Prospectus Directive was required to be implemented by member states by July 1, 2005.
The measure amends Part III of the Securities Market Act, including Articles 25 to 30(2) concerning primary markets.
Securities represented by book entry
The new measures also eliminate the requirement that certain securities represented by book entry must be executed in a public instrument. Under Royal Decree-Law 5/2005, a document delivered by the issuer with the key terms of such securities is sufficient.
Debt securities
Royal Decree 5/2005 adds a new Chapter II to Part III (on primary markets) of the Securities Market Act concerning issues of bonds and other debt securities.
The new Chapter II removes certain requirements imposed by Spanish legislation on certain issues of bonds and other debt securities. The following requirements have been removed:
to execute a public instrument;
to record the issuance in the Commercial Registry; and
• | to publish an announcement in theOfficial Gazette of the Commercial Registry. |
Royal Decree (1310/2005)
The Royal Decree (1310/2005), on the admission of securities to official stock exchanges, listing, tender offers and Prospectuses, modifies the Securities Markets Law. This Royal Decree complements the Royal Decree Law on Measures to Promote Productivity (5/2005) and implements the Directive 2001/34/CE of the European Parliament and of the Council of May 28, 2001 on the admission of securities to official stock exchange listings and on information to be published on those securities.
Royal Decree on Market Abuse (1333/2005)
This Royal Decree develops the Securities Market Act and completes the implementation into the Spanish legal regime of the European Directive regarding insider trading and market manipulation. This Royal Decree
establishes the definitions of insider trading and listing manipulation, regulates activities that could affect market prices and imposes certain disclosure obligations on participants in the market in order to avoid market manipulation.
Law Establishing a European Company with a Corporate Domicile in Spain (19/2005)
This law has amended several provisions of Spanish Company Law with general applicability not only to European companies with a corporate domicile in Spain (sociedades anónimas europeas) but also to all Spanish companies, irrespective of whether such companies are listed on a stock exchange. For instance, one of the most notable amendments to Spanish Company Law is that all Spanish companies are now required to give shareholders at least 30 days’ notice, as opposed to 15 days’ notice previously required, of General Shareholders’ Meetings by publishing a notice in the Official Gazette of the Company Registry and in one daily newspaper.
C. | Organizational Structure |
Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of April 30, 2004.December 31, 2006. An additional 400277 companies are domiciled in the following countries: Germany,Argentina, Belgium, Bolivia, Brazil, Belgium, Costa Rica, Cuba,Cayman Islands, Channel Islands, Chile, Colombia, Ecuador, Bolivia, El Salvador, Spain, France, Netherlands, Ireland, Italy, Luxembourg, Morocco, Mexico, Netherlands, Netherlands Antilles, Panama, Paraguay, Peru, Portugal, Puerto Rico, Spain, United Kingdom, Switzerland, United States Canada, Panama, Paraguay, theof America, Dominican Republic, Uruguay and Uruguay.Venezuela.
Subsidiary | Country of Incorporation | Activity | BBVA Voting Power | BBVA Ownership | Total Assets | ||||||
(percent) | (in millions of euro) | ||||||||||
Administradora de Fondos Para el Retiro-Bancomer, S.A. de C.V. | Mexico | Financial services | 100.00 | 97.068 | 514 | ||||||
Administradora de Fondos de Pensiones Provida | Chile | Financial services | 64.32 | 64.32 | 243 | ||||||
Banc Internacional D’Andorra, S.A. | Andorra | Bank | 51.00 | 51.00 | 2,359 | ||||||
Banco Bilbao Vizcaya Argentaria (Portugal), S.A. | Portugal | Bank | 100.00 | 100.00 | 3,503 | ||||||
Banco Bilbao Vizcaya Argentaria Puerto Rico, S.A. | Puerto Rico | Bank | 100.00 | 100.00 | 4,404 | ||||||
Banco Continental, S.A. | Peru | Bank | 92.04 | 46.02 | 3,123 | ||||||
Banco de Crédito Local, S.A. | Spain | Bank | 100.00 | 100.00 | 11,711 | ||||||
Banco Provincial S.A.—Banco Universal | Venezuela | Bank | 55.60 | 55.60 | 3,004 | ||||||
BBVA Chile, S.A. | Chile | Bank | 66.27 | 66.27 | 4,739 | ||||||
BBVA Banco Francés, S.A. | Argentina | Bank | 79.67 | 79.65 | 3,916 | ||||||
BBVA Banco Ganadero, S.A. | Colombia | Bank | 95.37 | 95.37 | 2,171 | ||||||
Grupo Financiero BBVA Bancomer, S.A. de C.V. | Mexico | Bank | 99.66 | 99.66 | 4,066 | ||||||
BBVA Privanza Bank (Switzerland) Ltd. | Switzerland | Bank | 100.00 | 100.00 | 636 | ||||||
BBVA Privanza Bank (Jersey) Ltd. | Channel Islands | Bank | 100.00 | 100.00 | 285 | ||||||
BBVA Seguros, S.A. | Spain | Insurance | 99.93 | 99.93 | 9,961 | (*) | |||||
Consolidar A.F.J.P., S.A. | Argentina | Financial services | 100.00 | 89.03 | 158 | ||||||
Finanzia, Banco de Credito, S.A. | Spain | Bank | 100.00 | 100.00 | 1,854 | ||||||
Uno-e Bank, S.A. | Spain | Bank | 67.00 | 67.00 | 745 |
Subsidiary | Country of Incorporation | Activity | BBVA Voting Power | BBVA Ownership | Total Assets | |||||
(percentages) | (in millions of euros) | |||||||||
Administradora de Fondos Para el Retiro-Bancomer, S.A. de C.V. | Mexico | Financial services | 100.00 | 97.29 | 204 | |||||
Administradora de Fondos de Pensiones Provida | Chile | Financial services | 64.32 | 64.32 | 410 | |||||
Banco Bilbao Vizcaya Argentaria Panama, S.A. | Panama | Bank | 98.93 | 98.93 | 853 | |||||
Banco Bilbao Vizcaya Argentaria (Portugal), S.A. | Portugal | Bank | 100.00 | 100.00 | 5,286 | |||||
Banco Bilbao Vizcaya Argentaria Puerto Rico, S.A. | Puerto Rico | Bank | 100.00 | 100.00 | 4,797 | |||||
Banco Bilbao Vizcaya Argentaria Uruguay, S.A. | Uruguay | Bank | 100.00 | 100.00 | 354 | |||||
Banco Continental, S.A. | Peru | Bank | 92.08 | 46.04 | 4,427 | |||||
Banco de Crédito Local, S.A. | Spain | Bank | 100.00 | 100.00 | 11,563 | |||||
Banco Provincial S.A.—Banco Universal | Venezuela | Bank | 55.60 | 55.60 | 6,561 | |||||
BBVA Chile, S.A. | Chile | Bank | 67.84 | 67.84 | 6,534 | |||||
BBVA Banco Francés, S.A. | Argentina | Bank | 76.09 | 76.07 | 4,176 | |||||
BBVA Colombia, S.A. | Colombia | Bank | 95.43 | 95.43 | 4,765 | |||||
BBVA Factoring E.F.C., S.A. | Spain | Financial services | 100.00 | 100.00 | 5,468 | |||||
BBVA Renting, S.A. | Spain | Financial services | 100.00 | 99.95 | 575 | |||||
BBVA Ireland Public Limited Company | Ireland | Financial services | 100.00 | 100.00 | 4,347 | |||||
BBVA Paraguay, S.A. | Paraguay | Bank | 99.99 | 99.99 | 330 | |||||
BBVA Bancomer USA (formerly Valley Bank) | U.S.A | Bank | 100.00 | 99.96 | 84 | |||||
BBVA Bancomer, S.A. de C.V. | Mexico | Bank | 100.00 | 99.96 | 54,059 | |||||
Hipotecaria Nacional, S.A. de C.V. | Mexico | Financial services | 100.00 | 99.96 | 721 | |||||
Pensiones Bancomer, S.A. de C.V. | Mexico | Insurance | 100.00 | 99.96 | 1,276 | |||||
Seguros Bancomer S.A. de C.V. | Mexico | Insurance | 100.00 | 99.97 | 912 | |||||
Texas State Bank | U.S.A | Bank | 100.00 | 100.00 | 6,507 | |||||
BBVA Switzerland | Switzerland | Bank | 100.00 | 100.00 | 539 | |||||
BBVA Seguros, S.A. | Spain | Insurance | 99.94 | 99.94 | 12,285 | |||||
Finanzia, Banco de Credito, S.A. | Spain | Bank | 100.00 | 100.00 | 3,573 | |||||
Uno-e Bank, S.A. | Spain | Bank | 100.00 | 100.00 | 1,428 | |||||
Laredo National Bank, Inc. | U.S.A | Bank | 100.00 | 100.00 | 3,389 |
D. Property, Plants and Equipment
We own and rent a substantial network of properties in Spain and abroad, including 3,3713,635 branch offices in Spain and, principally through our various affiliates, 3,5533,950 branch offices abroad at December 31, 2003. Approximately 46%2006. As of
December 31, 2006, approximately 46.9% and 60% of these properties are rented in Spain and abroad, respectively, from third parties pursuant to short-term leases that may be renewed by mutual agreement. The remaining properties, including most of our major branches and our headquarters, are owned by us.
E. Selected Statistical Information
E. | Selected Statistical Information |
The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our calculation that our foreign operations are significant according to Rule 9-05 of Regulation S-X.
Average Balances and Rates
The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each year. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages. Interest income figures, when used, include interest income on non-accruing loans to the extent that cash payments have been received. Loan fees are included in the computation of interest revenue.
Average Balance Sheet—Assets and Interest from Earning Assets | |||||||||||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||||||||||
Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | |||||||||||||||||||
(in millions of euro, except percentages) | |||||||||||||||||||||||||||
Assets | �� | ||||||||||||||||||||||||||
Credit entities | 28,777 | 1,156 | 4.0 | % | 27,220 | 1,429 | 5.3 | % | 38,869 | 2,266 | 5.83 | % | |||||||||||||||
In euro | 10,479 | 222 | 2.1 | % | 9,511 | 256 | 2.7 | % | 18,947 | 634 | 3.34 | % | |||||||||||||||
In other currencies | 18,298 | 934 | 5.1 | % | 17,709 | 1,173 | 6.6 | % | 19,922 | 1,632 | 8.19 | % | |||||||||||||||
Lending | 147,915 | 8,015 | 5.4 | % | 148,074 | 10,956 | 7.4 | % | 145,288 | 11,945 | 8.22 | % | |||||||||||||||
In euro (5) | 114,121 | 5,185 | 4.5 | % | 102,907 | 5,489 | 5.3 | % | 93,973 | 5,752 | 6.12 | % | |||||||||||||||
Government and other agencies | 12,470 | 396 | 3.2 | % | 12,574 | 495 | 3.9 | % | 11,442 | 537 | 4.7 | % | |||||||||||||||
Commercial loans (2) | 7,363 | 336 | 4.6 | % | 6,851 | 379 | 5.5 | % | 6,441 | 426 | 6.6 | % | |||||||||||||||
Secured loans (3) | 48,654 | 2,111 | 4.3 | % | 41,862 | 2,146 | 5.1 | % | 36,751 | 2,134 | 5.8 | % | |||||||||||||||
Others (4) | 45,634 | 2,341 | 5.1 | % | 41,620 | 2,469 | 5.9 | % | 39,366 | 2,655 | 6.7 | % | |||||||||||||||
In other currencies (6) | 33,794 | 2,831 | 8.4 | % | 45,167 | 5,467 | 12.1 | % | 51,315 | 6,193 | 12.07 | % | |||||||||||||||
Secured loans | 9,547 | 599 | 6.3 | % | 12,974 | 878 | 6.8 | % | 15,200 | 1,166 | 7.7 | % | |||||||||||||||
Others | 24,247 | 2,231 | 9.2 | % | 32,193 | 4,589 | 14.3 | % | 36,116 | 5,027 | 13.9 | % | |||||||||||||||
Securities portfolio | 77,852 | 3,788 | 4.9 | % | 85,951 | 5,179 | 6.0 | % | 93,467 | 7,778 | 8.32 | % | |||||||||||||||
Fixed income securities | 68,172 | 3,324 | 4.9 | % | 75,561 | 4,821 | 6.4 | % | 81,820 | 7,283 | 8.91 | % | |||||||||||||||
In euro | 40,220 | 1,321 | 3.3 | % | 40,447 | 1,706 | 4.2 | % | 38,240 | 1,984 | 5.2 | % | |||||||||||||||
In other currencies | 27,952 | 2,002 | 7.2 | % | 35,114 | 3,115 | 8.9 | % | 43,580 | 5,299 | 12.16 | % | |||||||||||||||
Equity securities | 9,680 | 464 | 4.8 | % | 10,3989 | 358 | 3.4 | % | 11,647 | 495 | 4.25 | % | |||||||||||||||
Holdings of companies carried by the equity method | 6,814 | 319 | 4.7 | % | 7,100 | 244 | 3.4 | % | 8,549 | 379 | 4.44 | % | |||||||||||||||
Other holdings | 2,866 | 145 | 5.1 | % | 3,290 | 114 | 3.5 | % | 3,098 | 116 | 3.75 | % | |||||||||||||||
Other financial income | — | 43 | — | — | 27 | — | — | 114 | — | ||||||||||||||||||
Non-earning assets | 24,701 | — | — | 27,468 | — | — | 25,038 | — | — | ||||||||||||||||||
Total average assets | 279,245 | 13,002 | 4.7 | % | 288,712 | 17,591 | 6.1 | % | 302,662 | 22,103 | 7.31 | % | |||||||||||||||
Total euro assets/ total assets | 71.34 | % | 55.65 | % | — | 66.06 | % | 44.39 | % | — | 62.06 | % | 40.11 | % | — |
Assets Cash and balances with central banks Debt securities, equity instruments and derivatives Loans and receivables Loans and advances to credit institutions In euro(2) In other currencies(3) Loans and advances to customers In euro(2) In other currencies(3) Other financial income Non-earning assets Total average assets Average Balance Sheet - Assets and Interest from Earning Assets Year Ended December 31, 2006 Year Ended December 31, 2005 Year Ended December 31, 2004 Average
Balance Interest Average
Yield (1) Average
Balance Interest Average
Yield (1) Average
Balance Interest Average
Yield (1) (in millions of euros, except percentages) 11,903 444 3.73 % 10,494 458 4.37 % 9,089 275 3.03 % 103,387 4,156 4.02 % 116,373 4,328 3.72 % 100,174 3,604 3.60 % 256,463 14,792 5.77 % 213,520 11,171 5.23 % 181,899 8,626 4.74 % 23,671 991 4.19 % 20,600 767 3.72 % 23,144 762 3.80 % 14,090 452 3.21 % 10,653 276 2.59 % 10,144 192 1.89 % 9,581 540 5.63 % 9,947 491 4.94 % 13,000 570 4.38 % 232,792 13,800 5.93 % 192,920 10,404 5.39 % 158,755 7,864 7.80 % 177,331 7,366 4.15 % 150,358 5,699 3.79 % 129,076 5,105 3.96 % 55,461 6,435 11.60 % 42,562 4,705 11.06 % 29,679 2,759 9.30 % — 198 — — 183 — — 103 — 24,198 — — 23,669 — — 30,664 — — 395,950 19,590 4.95 % 364,055 16,140 4.43 % 321,826 12,608 3.92 %
(1) | Rates have been presented on a non-taxable equivalent basis. |
(2) |
Amounts reflected in euro correspond to predominantly domestic activities. |
(3) | Amounts reflected in other currencies correspond to predominantly foreign activities. |
Average Balance Sheet—Liabilities and Interest paid on Interest Bearing Liabilities | |||||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||||
Average Balance | Interest | Average Rate (1) | Average Balance | Interest | Average Rate (1) | Average Balance | Interest | Average Rate (1) | |||||||||||||
(in millions of euro, except percentages) | |||||||||||||||||||||
Liabilities | |||||||||||||||||||||
Credit entities | 55,061 | 1,809 | 3.3 | % | 59,940 | 2,720 | 4.5 | % | 68,320 | 3,775 | 5.53 | % | |||||||||
In euro | 33,407 | 818 | 2.4 | % | 32,824 | 1,146 | 3.5 | % | 35,448 | 1,659 | 4.68 | % | |||||||||
In other currencies | 21,654 | 992 | 4.6 | % | 27,116 | 1,574 | 5.8 | % | 32,872 | 2,116 | 6.44 | % | |||||||||
Customer funds | 181,977 | 4,282 | 2.4 | % | 185,470 | 6,860 | 3.7 | % | 190,505 | 9,201 | 4.83 | % | |||||||||
Customer deposits | 142,279 | 3,068 | 2.2 | % | 151,850 | 5,457 | 3.6 | % | 158,083 | 7,581 | 4.80 | % | |||||||||
In euro (2) | 84,868 | 1,316 | 1.6 | % | 82,115 | 1,802 | 2.2 | % | 76,729 | 2,001 | 2.61 | % | |||||||||
Government and other agencies | 3,459 | 57 | 1.6 | % | 5,911 | 168 | 2.8 | % | 6,171 | 200 | 3.6 | % | |||||||||
Current accounts | 23,079 | 219 | 0.9 | % | 22,248 | 294 | 1.3 | % | 20,064 | 294 | 1.5 | % | |||||||||
Savings accounts | 16,117 | 90 | 0.6 | % | 14,694 | 69 | 0.58 | % | 13,330 | 79 | 0.6 | % | |||||||||
Time accounts | 26,757 | 681 | 2.5 | % | 24,670 | 807 | 3.3 | % | 24,496 | 945 | 3.9 | % | |||||||||
Others | 15,456 | 270 | 1.7 | % | 14,592 | 463 | 3.2 | % | 12,632 | 462 | 3.7 | % | |||||||||
In other currencies (3) | 57,411 | 1,752 | 3.1 | % | 69,735 | 3,655 | 5.2 | % | 81,354 | 5,580 | 6.86 | % | |||||||||
Current accounts | 13,147 | 120 | 0.9 | % | 15,769 | 255 | 1.6 | % | 17,448 | 368 | 2.1 | % | |||||||||
Savings accounts | 6,263 | 96 | 1.5 | % | 7,511 | 122 | 1.6 | % | 7,827 | 192 | 2.4 | % | |||||||||
Time accounts | 32,061 | 1,272 | 4.0 | % | 37,841 | 2,314 | 6.1 | % | 50,169 | 3,986 | 7.9 | % | |||||||||
Others | 5,939 | 263 | 4.4 | % | 8,615 | 964 | 11.2 | % | 5,909 | 1,035 | 17.5 | % | |||||||||
Debt securities and other marketable securities | 39,698 | 1,214 | 3.1 | % | 33,620 | 1,404 | 4.2 | % | 32,422 | 1,620 | 5.00 | % | |||||||||
In euro | 33,864 | 974 | 2.9 | % | 24,341 | 936 | 3.8 | % | 21,410 | 838 | 3.91 | % | |||||||||
In other currencies | 5,834 | 241 | 4.1 | % | 9,279 | 468 | 5.0 | % | 11,012 | 782 | 7.10 | % |
Average Balance Sheet - Liabilities and Interest paid on Interest Bearing Liabilities | |||||||||||||||||||||
Year Ended December 31, 2006 | Year Ended December 31, 2005 | Year Ended December 31, 2004 | |||||||||||||||||||
Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | |||||||||||||
(in millions of euros, except percentages) | |||||||||||||||||||||
Liabilities | |||||||||||||||||||||
Deposits from central banks and credit institutions | 63,730 | 2,420 | 3.80 | % | 64,804 | 2,176 | 3.36 | % | 67,187 | 1,814 | 2.70 | % | |||||||||
In euro | 34,550 | 984 | 2.85 | % | 36,453 | 797 | 2.19 | % | 41,327 | 824 | 1.99 | % | |||||||||
In other currencies | 29,180 | 1,437 | 4.92 | % | 28,352 | 1,379 | 4.86 | % | 25,860 | 989 | 3.83 | % | |||||||||
Customer deposits | 177,927 | 5,392 | 3.03 | % | 159,103 | 4,433 | 2.79 | % | 147,695 | 2,838 | 1.92 | % | |||||||||
In euro(2) | 99,148 | 1,736 | 1.75 | % | 87,418 | 1,078 | 1.23 | % | 87,207 | 1,089 | 1.25 | % | |||||||||
In other currencies(3) | 78,779 | 3,656 | 4.64 | % | 71,685 | 3,355 | 4.68 | % | 60,488 | 1,750 | 2.89 | % | |||||||||
Debt securities and subordinated liabilities | 87,526 | 3,026 | 3.46 | % | 68,925 | 1,886 | 2.74 | % | 51,518 | 1,466 | 2.85 | % | |||||||||
In euro(2) | 77,483 | 2,506 | 3.23 | % | 64,188 | 1,573 | 2.45 | % | 47,455 | 1,254 | 2.64 | % | |||||||||
In other currencies(3) | 10,043 | 520 | 5.18 | % | 4,736 | 313 | 6.61 | % | 4,063 | 211 | 5.20 | % | |||||||||
Other financial costs | — | 377 | — | — | 437 | — | — | 331 | — | ||||||||||||
Non-interest-bearing liabilities | 47,979 | — | — | 55,544 | — | — | 42,688 | — | — | ||||||||||||
Stockholders’ equity | 18,787 | — | — | 15,680 | — | — | 12,739 | — | — | ||||||||||||
Total average liabilities | 395,950 | 11,216 | 2.83 | % | 364,055 | 8,932 | 2.45 | % | 321,827 | 6,448 | 2.00 | % | |||||||||
Other financial costs Non-interest-bearing liabilities Shareholders’ funds Other funds without cost Total average liabilities Total euro liabilities/total liabilities Average Balance Sheet— Liabilities and Interest paid on Interest Bearing Liabilities 2003 2002 2001 Average
Balance Interest Average
Rate (1) Average
Balance Interest Average
Rate (1) Average
Balance Interest Average
Rate (1) (in millions of euro, except percentages) — 168 — — 203 — — 303 — 42,207 — — 43,303 — — 43,837 — — 12,069 — — 12,531 — — 13,201 — — 30,138 — — 30,772 — — 30,636 — — 279,245 6,260 2.2 % 288,712 9,784 3.4 % 302,662 13,279 4.39 % 69.60 % 52.33 % — 63.24 % 41.77 % — 58.62 % 36.15 % —
(1) | Rates have been presented on a non-taxable equivalent basis. |
(2) | Amounts reflected in euro correspond to predominantly domestic activities. |
(3) | Amounts reflected in other currencies correspond to predominantly foreign activities. |
Changes in Net Interest Income-Volume and Rate Analysis
The following table allocates changes in our net interest income between changes in volume and changes in rate for 20032006 compared to 2002,2005, and 20022005 compared to 2001.2004. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from the following table are interest payments on loans which are made in a period other than the period during which they are due. Loan fees were included in the computation of interest income.
2003/2002 | 2002/2001 | |||||||||||||||||
Increase (Decrease) Due to changes in | Increase (Decrease) Due to changes in | |||||||||||||||||
Volume (2) | Rate (1)(2) | Net Change | Volume (2) | Rate (1)(2) | Net Change | |||||||||||||
(in millions of euro) | ||||||||||||||||||
Interest income | ||||||||||||||||||
Credit entities | 65 | (338 | ) | (273 | ) | (497 | ) | (339 | ) | (836 | ) | |||||||
In euro | 26 | (60 | ) | (34 | ) | (316 | ) | (62 | ) | (378 | ) | |||||||
In other currencies | 39 | (278 | ) | (239 | ) | (181 | ) | (277 | ) | (459 | ) | |||||||
Lending | (754 | ) | (2,187 | ) | (2,941 | ) | (186 | ) | (804 | ) | (989 | ) | ||||||
In euro | 610 | (914 | ) | (304 | ) | 531 | (795 | ) | (264 | ) | ||||||||
Government and other Agencies | (4 | ) | (95 | ) | (99 | ) | 53 | (96 | ) | (43 | ) | |||||||
Commercial Loans | 28 | (71 | ) | (42 | ) | 29 | (77 | ) | (48 | ) | ||||||||
Secured loans | 348 | (383 | ) | (35 | ) | 297 | (285 | ) | 12 | |||||||||
Others | 238 | (366 | ) | (128 | ) | 152 | (338 | ) | (185 | ) | ||||||||
In other currencies | (1,365 | ) | (1,272 | ) | (2,637 | ) | (717 | ) | (9 | ) | (725 | ) | ||||||
Secured Loans | (232 | ) | (47 | ) | (279 | ) | (171 | ) | (117 | ) | (287 | ) | ||||||
Other | (1,133 | ) | (1,225 | ) | (2,358 | ) | (546 | ) | 108 | (438 | ) | |||||||
Securities portfolio | (669 | ) | (722 | ) | (1,391 | ) | (972 | ) | (1,628 | ) | (2,600 | ) | ||||||
Fixed income securities | (645 | ) | (852 | ) | (1,497 | ) | (915 | ) | (1,548 | ) | (2,463 | ) | ||||||
In euro | (10 | ) | (375 | ) | (385 | ) | 115 | (393 | ) | (278 | ) | |||||||
In other currencies | (635 | ) | (477 | ) | (1,112 | ) | (1,030 | ) | (1,155 | ) | (2,184 | ) | ||||||
Equity securities | (24 | ) | 131 | 106 | (57 | ) | (80 | ) | (137 | ) | ||||||||
Holdings in companies carried by the equity method | (10 | ) | 85 | 75 | (64 | ) | (71 | ) | (135 | ) | ||||||||
Other holdings | (15 | ) | 46 | 31 | 7 | (10 | ) | (2 | ) | |||||||||
Other assets | (3 | ) | 18 | 16 | 11 | (98 | ) | (87 | ) | |||||||||
Total assets | (1,361 | ) | (3,228 | ) | (4,589 | ) | (1,644 | ) | (2,869 | ) | (4,513 | ) | ||||||
Interest expense | ||||||||||||||||||
Credit entities | (297 | ) | (614 | ) | (911 | ) | (493 | ) | (562 | ) | (1,055 | ) | ||||||
In euro | 20 | (349 | ) | (328 | ) | (123 | ) | (390 | ) | (513 | ) | |||||||
In other currencies | (317 | ) | (266 | ) | (583 | ) | (371 | ) | (171 | ) | (542 | ) | ||||||
Customer funds | (479 | ) | (2,098 | ) | (2,578 | ) | (448 | ) | (1,892 | ) | (2,341 | ) | ||||||
Customer deposits | (672 | ) | (1,717 | ) | (2,389 | ) | (440 | ) | (1,685 | ) | (2,125 | ) | ||||||
In euro | 44 | (529 | ) | (486 | ) | 109 | (308 | ) | (199 | ) | ||||||||
Government and other agencies | (70 | ) | (42 | ) | (111 | ) | (9 | ) | (43 | ) | (52 | ) | ||||||
Current accounts | 11 | (86 | ) | (75 | ) | 32 | (32 | ) | 0 | |||||||||
Savings accounts | 7 | 14 | 21 | 8 | (19 | ) | (10 | ) | ||||||||||
Time accounts | 68 | (195 | ) | (126 | ) | 7 | (144 | ) | (137 | ) | ||||||||
Others | 27 | (221 | ) | (194 | ) | 72 | (71 | ) | 1 | |||||||||
In other currencies | (715 | ) | (1,188 | ) | (1,903 | ) | (549 | ) | (1,376 | ) | (1,925 | ) | ||||||
Current accounts | (42 | ) | (93 | ) | (135 | ) | (35 | ) | (78 | ) | (113 | ) | ||||||
Savings accounts | (20 | ) | (6 | ) | (26 | ) | (8 | ) | (62 | ) | (69 | ) | ||||||
Time accounts | (353 | ) | (688 | ) | (1,042 | ) | (979 | ) | (692 | ) | (1,672 | ) | ||||||
Others | (299 | ) | (401 | ) | (700 | ) | 474 | (545 | ) | (71 | ) | |||||||
Debt securities and other marketable securities | 192 | (381 | ) | (189 | ) | (8 | ) | (208 | ) | (216 | ) | |||||||
In euro | 366 | (328 | ) | 38 | 115 | (16 | ) | 98 | ||||||||||
In other currencies | (174 | ) | (54 | ) | (227 | ) | (123 | ) | (191 | ) | (314 | ) | ||||||
Other liabilities | (5 | ) | (30 | ) | (35 | ) | (4 | ) | (96 | ) | (100 | ) | ||||||
Total liabilities | (781 | ) | (2,743 | ) | (3,524 | ) | (945 | ) | (2,550 | ) | (3,496 | ) | ||||||
Net interest income | (580 | ) | (485 | ) | (1,065 | ) | (698 | ) | (319 | ) | (1,017 | ) | ||||||
2006/2005 | |||||||||
Increase (Decrease) due to changes in | |||||||||
Volume (1) | Rate (1) (2) | Net Change | |||||||
(in millions of euros) | |||||||||
Interest income | |||||||||
Cash and balances with central bank | 61 | (76 | ) | (14 | ) | ||||
Debt securities, equity instruments and derivatives | (483 | ) | 311 | (172 | ) | ||||
Loans and advances to credit institutions | 114 | 110 | 224 | ||||||
In euro | 89 | 86 | 175 | ||||||
In other currencies | (18 | ) | 67 | 49 | |||||
Loans and advances to customers | 2,150 | 1,246 | 3,396 | ||||||
In euro | 1,022 | 644 | 1,667 | ||||||
In other currencies | 1,426 | 303 | 1,729 | ||||||
Other financial income | — | 16 | 16 | ||||||
Total income | 1,414 | 2,036 | 3,449 | ||||||
Interest expense | |||||||||
Deposits from central banks and credit institutions | (36 | ) | 281 | 245 | |||||
In euro | (42 | ) | 228 | 187 | |||||
In other currencies | 40 | 18 | 58 | ||||||
Customer deposits | 524 | 435 | 959 | ||||||
In euro | 145 | 514 | 658 | ||||||
In other currencies | 332 | (32 | ) | 301 | |||||
Debt certificates and subordinated liabilities | 509 | 631 | 1,140 | ||||||
In euro | 326 | 607 | 933 | ||||||
In other currencies | 351 | (144 | ) | 207 | |||||
Other financial costs | — | (60 | ) | (60 | ) | ||||
Total expense | 783 | 1,501 | 2,283 | ||||||
Net interest income | 631 | 535 | 1,166 | ||||||
(1) |
Variances caused by changes in both volume and rate have been allocated proportionally to volume and rate. |
(2) | Rates have been presented on a non-taxable equivalent basis. |
Interest income Cash and balances with central banks Debt securities, equity instruments and derivatives Loans and advances to credit institutions In euro In other currencies Loans and advances to customers In euro In other currencies Other financial income Total income Interest expense Deposits from central banks and credit institutions In euro In other currencies Customer deposits In euro In other currencies Debt certificates and subordinated liabilities In euro In other currencies Other financial costs Total expense Net interest income 2005/2004 Increase (Decrease) due to changes in Volume (1) Rate (1) (2) Net Change (in millions of euros) 42 141 183 583 141 724 (84 ) 90 6 10 75 85 (134 ) 55 (79 ) 1,692 847 2,539 842 (249 ) 593 1,198 749 1,946 — 82 82 1,654 1,880 3,534 (64 ) 427 362 (97 ) 70 (28 ) 95 294 390 219 1,375 1,595 3 (14 ) (11 ) 324 1,282 1,606 495 (75 ) 421 442 (123 ) 319 35 67 102 — 109 109 846 1,640 2,486 808 240 1,048
(1) | Variances caused by changes in both volume and rate have been allocated proportionally to volume and rate. |
(2) | Rates have been presented on a non-taxable equivalent basis. |
Interest Earning Assets—Margin and Spread
The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the years indicated.
Year ended December 31, | December 31, | |||||||||||||||||
2003 | 2002 | 2001 | 2006 | 2005 | 2004 | |||||||||||||
(in millions of euro, except percentages) | (in millions of euros, except percentages) | |||||||||||||||||
Average earning assets | 254,544 | 261,244 | 277,625 | |||||||||||||||
Average interest earning assets | 371,752 | 340,387 | 291,163 | |||||||||||||||
Gross yield(1) | 5.10 | % | 6.73 | % | 7.96 | % | 5.27 | % | 4.74 | % | 4.33 | % | ||||||
Net yield(2) | 2.41 | % | 2.70 | % | 2.92 | % | 4.95 | % | 4.43 | % | 3.92 | % | ||||||
Net interest margin(3) | 2.65 | % | 2.99 | % | 3.18 | % | 2.25 | % | 2.12 | % | 2.12 | % | ||||||
Average effective rate paid on all interest-bearing liabilities | 2.83 | % | 2.45 | % | 2.00 | % | ||||||||||||
Spread(4) | 2.90 | % | 3.33 | % | 3.57 | % | 2.44 | % | 2.29 | % | 2.33 | % |
(1) | Gross yield represents total interest income divided by average interest earning assets. |
(2) | Net yield represents total interest income divided by total average |
(3) | Net interest margin represents net interest income as percentage of average interest earning assets. |
(4) | Spread is the difference between gross yield and the average cost of interest-bearing liabilities. |
ASSETS
Interest-Bearing Deposits in Other Banks
As of December 31, 2003, 7.06%2006, interbank deposits represented 4.00% of our assets were represented by interbank deposits.assets. Of such interbank deposits, 63.06%41.16% were held outside of Spain and 36.94%58.84% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. Such deposits, however, are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.
Securities Portfolio
As of December 31, 2003,2006, our securities (not including investments in affiliates but including equity investments in our industrial portfolio) were carried on our Consolidated Balance Sheetconsolidated balance sheet at a book value of €75€88.59 billion, representing 26.1%21.51% of our assets. €18.9€11.58 billion or 28.3%13.07% of our securities consisted of Spanish Treasury bonds and Treasury bills. The average yield during 20032006 on Treasury bonds and billsinvestment securities that BBVA held was 2.11%4.34%, compared to an average yield of approximately 5.4%5.77% earned on loans and leasesreceivables during 2003. Except for Spanish government securities, we do not hold the securities of any single issuer the book value of which exceeds 10% of our stockholders’ equity.2006. The market or appraised value of our total securities portfolio as of December 31, 20032006 was €75.5€88.44 billion. See Notes 6, 911, 12, 13 and 1015 to the Consolidated Financial Statements. For a discussion of our investments in affiliates, see Notes 11 and 12Note 18 to the Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 3.d.2.1 and 3.e.2.2.b to the Consolidated Financial Statements.
The following table analyzes the book value and market value of our ownership of government debt securities, fixed income securities and equity securities.securities at December 31, 2006, December 31, 2005 and December 31, 2004. Investments in affiliated companies consolidated under the equity method are not included in the table below.
At December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
Book Value | Market or Appraised* | Book Value | Market or Appraised* | Book Value | Market or Appraised* | |||||||
(in millions of euro) | ||||||||||||
Government debt securities | ||||||||||||
Trading securities: | ||||||||||||
Spanish government securities | 5,616 | 5,616 | 7,473 | 7,473 | 2,402 | 2,402 | ||||||
Securities of, or guaranteed by, the Spanish government | — | — | — | — | — | — | ||||||
Investment securities: | ||||||||||||
Bank of Spain certificates of deposit | — | — | — | — | — | — | ||||||
Spanish Treasury bills | 601 | 601 | 1,145 | 1,146 | 6,502 | 6,526 | ||||||
Other fixed interest securities: | ||||||||||||
Securities of, or guaranteed by, the Spanish government | 12,114 | 12,297 | 9,269 | 9,566 | 8,989 | 9,168 | ||||||
Held to maturity securities | 614 | 652 | 1,881 | 1,983 | 2,272 | 2,382 | ||||||
Total government securities | 18,945 | 19,166 | 19,768 | 20,168 | 20,165 | 20,478 | ||||||
Fixed income portfolio | ||||||||||||
Trading securities: | ||||||||||||
Other fixed income securities | 20,015 | 20,015 | 19,697 | 19,697 | 19,249 | 19,249 | ||||||
Investment securities: | ||||||||||||
Other fixed income securities listed in Spain | 3,092 | 3,117 | 3,176 | 3,200 | 3,450 | 3,479 | ||||||
U.S. Treasury securities | 12 | 12 | 26 | 26 | 1,507 | 1,515 | ||||||
Securities of other U.S. government agencies and corporations | 1,515 | 1,510 | — | — | 6 | 6 | ||||||
Securities of other foreign governments | 23,645 | 23,792 | 19,971 | 19,985 | 30,431 | 30,385 | ||||||
Other fixed interest securities listed outside of Spain | 3,586 | 3,596 | 5,163 | 5,210 | 4,949 | 4,929 | ||||||
Other fixed interest securities not listed | 560 | 563 | 578 | 551 | 1,462 | 1,460 | ||||||
Held to maturity securities | 511 | 543 | 522 | 562 | 597 | 648 | ||||||
Total fixed income | 52,936 | 53,148 | 49,133 | 49,231 | 61,651 | 61,671 | ||||||
Equity securities | ||||||||||||
Trading securities: | ||||||||||||
Equity securities | 2,029 | 2,029 | 932 | 932 | 1,032 | 1,032 | ||||||
Investment securities: | ||||||||||||
Equity listed | 501 | 523 | 1,364 | 1,558 | 1,328 | 1,406 | ||||||
Equity unlisted | 562 | 645 | 711 | 643 | 1,314 | 1,375 | ||||||
Total equity securities | 3,092 | 3,196 | 3,007 | 3,133 | 3,674 | 3,813 | ||||||
Total securities portfolio | 74,973 | 75,510 | 71,908 | 72,532 | 85,490 | 85,962 | ||||||
2006 | 2005 | 2004 | ||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||
(Thousands of euros) | ||||||||||||
DEBT SECURITIES - | ||||||||||||
AVAILABLE FOR SALE PORTFOLIO | ||||||||||||
Domestic- | 9,232,907 | 9,505,359 | 15,817,717 | 16,704,883 | 18,221,714 | 19,059,038 | ||||||
Spanish Government | 6,595,500 | 6,858,367 | 13,490,060 | 14,273,482 | 15,601,738 | 16,437,231 | ||||||
Other debt securities | 2,637,407 | 2,646,992 | 2,327,657 | 2,431,401 | 2,619,976 | 2,621,807 | ||||||
International- | 22,004,348 | 22,724,097 | 33,296,372 | 34,267,094 | 25,465,178 | 25,978,189 | ||||||
United States - | 5,513,902 | 5,505,584 | 3,993,296 | 3,989,578 | 1,731,018 | 1,750,192 | ||||||
U.S. Treasury and other U.S. Government agencies | 342,396 | 343,738 | 2,970,831 | 2,958,000 | 1,032,242 | 1,046,061 | ||||||
States and political subdivisions | 309,779 | 309,118 | 51,258 | 51,672 | 55,814 | 56,254 | ||||||
Other debt securities | 4,861,726 | 4,852,728 | 971,207 | 979,906 | 642,962 | 647,877 | ||||||
Other countries - | 16,490,446 | 17,218,513 | 29,303,076 | 30,277,516 | 23,734,160 | 24,227,997 | ||||||
Securities of other foreign Governments | 9,858,095 | 10,385,922 | 20,884,928 | 21,792,844 | 15,927,781 | 16,407,867 | ||||||
Other debt securities | 6,632,351 | 6,832,591 | 8,418,148 | 8,484,672 | 7,806,379 | 7,820,130 | ||||||
TOTAL AVAILABLE FOR SALE PORTFOLIO | 31,237,256 | 32,229,456 | 49,114,089 | 50,971,977 | 43,686,892 | 45,037,227 | ||||||
HELD TO MATURITY PORTFOLIO | ||||||||||||
Domestic- | 2,403,867 | 2,336,588 | 1,205,138 | 1,237,273 | 602,854 | 619,519 | ||||||
Spanish Government | 1,416,607 | 1,377,828 | 363,022 | 374,594 | 337,434 | 346,357 | ||||||
Other debt securities | 987,260 | 958,760 | 842,116 | 862,679 | 265,420 | 273,162 | ||||||
International- | 3,501,769 | 3,420,658 | 2,754,127 | 2,797,975 | 1,618,648 | 1,645,227 | ||||||
TOTAL HELD TO MATURITY PORTFOLIO | 5,905,636 | 5,757,246 | 3,959,265 | 4,035,248 | 2,221,502 | 2,264,746 | ||||||
TOTAL DEBT SECURITIES | 37,142,892 | 37,986,705 | 53,073,354 | 55,007,225 | 45,908,394 | 47,301,973 | ||||||
2006 | 2005 | 2004 | ||||||||||
Amortized Cost | Fair Value(1) | Amortized Cost | Fair Value(1) | Amortized Cost | Fair Value(1) | |||||||
(Thousands of euros) | ||||||||||||
EQUITY SECURITIES - | ||||||||||||
AVAILABLE FOR SALE PORTFOLIO | 6,424,172 | 10,037,322 | 6,118,055 | 9,141,403 | 5,783,440 | 8,034,071 | ||||||
Domestic- | 4,564,255 | 7,381,243 | 5,165,444 | 7,458,601 | 4,975,863 | 7,069,950 | ||||||
Equity listed | 4,524,956 | 7,341,945 | 5,094,126 | 7,324,135 | 4,864,987 | 6,891,320 | ||||||
Equity Unlisted | 39,299 | 39,299 | 71,318 | 134,466 | 110,876 | 178,630 | ||||||
International- | 1,859,917 | 2,656,078 | 952,611 | 1,682,802 | 807,577 | 964,121 | ||||||
United States- | 52,698 | 53,707 | 53,709 | 51,688 | 10,287 | 10,287 | ||||||
Equity listed | 26,476 | 27,485 | 43,560 | 41,539 | 6,518 | 6,518 | ||||||
Equity Unlisted | 26,222 | 26,222 | 10,149 | 10,149 | 3,769 | 3,769 | ||||||
Other countries- | 1,807,219 | 2,602,371 | 898,902 | 1,631,114 | 797,290 | 953,834 | ||||||
Equity listed | 1,702,231 | 2,497,383 | 853,451 | 1,585,663 | 527,155 | 683,699 | ||||||
Equity Unlisted | 104,988 | 104,988 | 45,451 | 45,451 | 270,135 | 270,135 | ||||||
TOTAL AVAILABLE FOR SALE PORTFOLIO | 6,424,172 | 10,037,322 | 6,118,055 | 9,141,403 | 5,783,440 | 8,034,071 | ||||||
TOTAL EQUITY SECURITIES | 6,424,172 | 10,037,322 | 6,118,055 | 9,141,403 | 5,783,440 | 8,034,071 | ||||||
TOTAL INVESTMENT SECURITIES | 43,567,064 | 48,024,027 | 59,191,409 | 64,148,628 | 51,691,834 | 55,336,044 | ||||||
Market values for listed securities are determined on the basis of their quoted values at the end of the year. Appraised values are used for unlisted securities based on our estimate or on unaudited financial statements, when available. |
The following table analyzes the maturities of our debt investment and fixed income securities, excluding trading portfolio, by type and geographical area as of December 31, 2003.2006.
Maturing at one Year or Less | Maturing After One Year to Five Years | Maturing After Five Years to Ten Years | Maturing After Ten Years | Total | ||||||||||||||||||
Amount | Yield (2) | Amount | Yield (2) | Amount | Yield (2) | Amount | Yield (2) | |||||||||||||||
(in millions of euro) | ||||||||||||||||||||||
Government debt securities | ||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||
Spanish Treasury bills | 601 | 2.11 | % | — | — | — | — | — | — | 601 | ||||||||||||
Other Spanish government securities | 1,067 | 4.77 | % | 9,368 | 4.26 | % | 1,396 | 6.15 | % | 283 | 4.64 | % | 12,114 | |||||||||
Held-to-maturity portfolio | — | — | — | — | — | — | 614 | 6.00 | % | 614 | ||||||||||||
Total government debt | 1,668 | 3.81 | % | 9,368 | 4.26 | % | 1,396 | 6.15 | % | 897 | 5.57 | % | 13,329 | |||||||||
Fixed income portfolio | ||||||||||||||||||||||
Foreign | ||||||||||||||||||||||
United States: | ||||||||||||||||||||||
U.S. Treasury securities and other US Government agencies | 254 | 0.99 | % | 277 | 1.83 | % | 374 | 2.01 | % | 621 | 2.23 | % | 1526 | |||||||||
States and political subdivisions | — | — | — | — | — | — | 1 | 5.94 | % | 1 | ||||||||||||
Other securities | 193 | 5.74 | % | 137 | 4.87 | % | 22 | 4.67 | % | 84 | 4.67 | % | 436 | |||||||||
Total United States | 447 | 3.04 | % | 414 | 2.84 | % | 396 | 2.16 | % | 706 | 2.53 | % | 1,963 | |||||||||
Other: | ||||||||||||||||||||||
Governments | 1,996 | 6.91 | % | 12,761 | 5.22 | % | 4,682 | 5.12 | % | 4,236 | 5.82 | % | 23,645 | |||||||||
Other securities | 803 | 2.17 | % | 1,797 | 4.34 | % | 710 | 4.60 | % | 401 | 4.52 | % | 3,711 | |||||||||
Total other | 2,769 | 5.54 | % | 14,558 | 5.11 | % | 5,392 | 5.05 | % | 4,637 | 5.71 | % | 27,356 | |||||||||
Domestic: | ||||||||||||||||||||||
Other securities | 101 | 3.40 | % | 299 | 4.41 | % | 840 | 3.11 | % | 1,852 | 3.25 | % | 3,092 | |||||||||
Total(1) | 3,317 | 4.69 | % | 15,271 | 4.74 | % | 6,627 | 4.90 | % | 7,195 | 4.76 | % | 32,410 | |||||||||
Maturing at one year or less | Maturing after one year to five years | Maturing after five year to ten years | Maturing after ten years | Total | ||||||||||||||
Amount | Yield %(1) | Amount | Yield %(1) | Amount | Yield %(1) | Amount | Yield %(1) | |||||||||||
(Thousands of euros, except percentages) | ||||||||||||||||||
AVAILABLE FOR SALE PORTFOLIO | ||||||||||||||||||
Domestic: | ||||||||||||||||||
Spanish Government | 311,715 | 7.53 | 1,524,000 | 6.73 | 1,683,607 | 4.08 | 3,339,044 | 5.90 | 6,858,367 | |||||||||
Other debt securities | 525,157 | 4.65 | 708,301 | 4.94 | 540,394 | 3.86 | 873,139 | 4.09 | 2,646,992 | |||||||||
Total Domestic | 836,873 | 5.59 | 2,232,301 | 6.14 | 2,224,002 | 4.00 | 4,212,184 | 4.19 | 9,505,359 | |||||||||
International: | ||||||||||||||||||
United States: | ||||||||||||||||||
U.S. Treasury and other U.S. government securities | 30,609 | 4.74 | 8,199 | 4.39 | 304,931 | 2.05 | — | — | 343,738 | |||||||||
States and political subdivisions | 21,037 | 1.53 | 51,695 | 2.74 | 32,410 | 4.08 | 203,976 | 5.05 | 309,118 | |||||||||
Other debt securities | 664,220 | 4.22 | 1,296,577 | 4.64 | 335,578 | 4.64 | 2,556,355 | 4.91 | 4,852,728 | |||||||||
Other countries: | ||||||||||||||||||
Securities of other foreign Governments | 662,591 | 8.26 | 2,998,420 | 4.64 | 3,648,320 | 4.73 | 3,076,591 | 3.14 | 10,385,922 | |||||||||
Other debt securities | 687,071 | 3.83 | 2,025,507 | 4.61 | 1,624,971 | 4.45 | 2,495,042 | 4.87 | 6,832,591 | |||||||||
Total International | 2,065,528 | 4.85 | 6,380,399 | 4.60 | 5,946,211 | 4.55 | 8,331,964 | 5.03 | 22,724,097 | |||||||||
Total Available for sale | 2,902,401 | 5.04 | 8,612,699 | 5.02 | 8,170,212 | 4.17 | 12,544,147 | 4.91 | 32,229,456 | |||||||||
HELD TO MATURITY PORTFOLIO | ||||||||||||||||||
Domestic: | ||||||||||||||||||
Spanish Government | — | — | 261,508 | 4.81 | 1,100,266 | 3.28 | 54,833 | — | 1,416,607 | |||||||||
Other debt securities | — | — | 128,975 | 3.56 | 706,448 | 4.09 | 151,837 | 3.75 | 987,260 | |||||||||
International: | 306,994 | 3.62 | 1,147,021 | 4.80 | 1,760,187 | 4.13 | 287,567 | 4.15 | 3,501,769 | |||||||||
Total Held to maturity | 306,994 | 3.62 | 1,537,504 | 4.73 | 3,566,901 | 3.86 | 494,237 | 4.03 | 5,905,636 | |||||||||
TOTAL DEBT SECURITIES | 3,209,395 | 4.91 | 10,150,203 | 4.97 | 11,737,113 | 4.08 | 13,038,384 | 4.88 | 38,135,092 |
(1) |
Rates have been presented on a non-taxable equivalent basis. |
Loan PortfolioLoans and advances to credit institutions
As of December 31, 2003,2006, our total loans and advanced to credit institutions amounted to €16.99 billion, or 4.12% of total assets. Net of our valuation adjustments, loans and advances to credit institutions amounted to €17.05 billion as of December 31, 2006, or 4.14% of our total assets.
Loans and advances to other debtors
As of December 31, 2006, our total loans and leases amounted to €153.3€262.4 billion, or 53.4%63.70% of total assets. During 2003,Net of our valuation adjustments, loans and leases amounted to €256.6 billion as of December 31, 2006, or 62.29% of our total assets. As of December 31, 2006 our loans in Spain increased by 13.3%18.2% compared to 2002.December 31, 2005, which amounted to €222.0 billion. Our foreign loans decreased by 12.3%,amounted to €79.1 billion at December 31, 2006, an increase of 20.2% compared to 2002,December 31, 2005, as a result of the depreciation of several Latin American currenciesstrong lending growth in themost countries in which we operate againstLatin America (in local currencies the euro. In local currency terms, by contrast, thereincrease was growth in loans of 19.2% in Chile, 5.0% in Peru, 10.1% in Colombia and 7.8%30% in Mexico the latter showing an accelerationand more than 20% in lending throughout the year with notable growth in consumerArgentina, Chile, Colombia, Peru and credit card lending. Net of our loan loss reserve, loans and leases amounted to €148.8 billion.Venezuela). For a discussion of certain mandatory ratios relating to our loan portfolio, see “—
“—Supervision and Regulation—Liquidity Ratio” and “—Investment Ratio”.
Loans by Geographic Area
The following table analyzes, by domicile of the customer, our net loans and leases for each of the years indicated.
At December 31, | ||||||||||
2003 | 2002 | 2001 | 2000 | 1999(1) | ||||||
(in millions of euro) | ||||||||||
Domestic | 113,485 | 101,013 | 97,910 | 91,403 | 44,334 | |||||
Foreign: | ||||||||||
Western Europe | 8,082 | 7,261 | 8,241 | 7,172 | 3,700 | |||||
Central and South America | 23,016 | 28,321 | 36,202 | 32,595 | 16,779 | |||||
United States | 3,118 | 757 | 4,157 | 3,504 | 2,659 | |||||
Other | 1,126 | 3,963 | 3,710 | 2,793 | 1,027 | |||||
Total foreign | 35,342 | 40,302 | 52,310 | 46,064 | 24,160 | |||||
Total net lending | 148,827 | 141,315 | 150,220 | 137,467 | 68,494 | |||||
As of December 31, | |||||||||
2006 | 2005 | 2004 | |||||||
(in millions of euros) | |||||||||
Domestic | 183,231 | 156,127 | 137,687 | ||||||
Foreign | |||||||||
Western Europe | 17,999 | 14,662 | 6,645 | ||||||
Central and South America | 49,158 | 43,490 | 27,099 | ||||||
United States | 9,597 | 6,196 | 3,044 | ||||||
Other | 2,390 | 1,519 | 1,118 | ||||||
Total Foreign | 79,143 | 65,867 | 37,906 | ||||||
Total loans and leases | 262,374 | 221,994 | 175,593 | ||||||
Valuation adjustments | (5,809 | ) | (5,144 | ) | (3,510 | ) | |||
Total net lending | 256,565 | 216,850 | 172,083 | ||||||
Loans by Type of Customer
The following table analyzes by domicile and type of customer our net loans and leases for each of the years indicated. The analyses by type of customer are based principally on the requirements of the regulatory authorities in each country.
At December 31, | As of December 31, | ||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999(1) | 2006 | 2005 | 2004 | ||||||||||||
(in millions of euro) | (in millions of euros) | ||||||||||||||||||
Domestic: | |||||||||||||||||||
Domestic | |||||||||||||||||||
Government | 13,403 | 12,562 | 12,196 | 11,154 | 3,156 | 15,987 | 16,089 | 16,039 | |||||||||||
Agriculture | 1,057 | 698 | 533 | 796 | 609 | 1,818 | 1,550 | 1,272 | |||||||||||
Industrial | 11,991 | 11,970 | 11,378 | 11,661 | 7,858 | 15,965 | 14,774 | 13,216 | |||||||||||
Real estate and construction | 14,823 | 13,652 | 12,767 | 13,304 | 6,948 | 33,803 | 24,937 | 19,952 | |||||||||||
Commercial and financial | 12,742 | 9,336 | 8,677 | 13,784 | 8,345 | 15,231 | 11,736 | 13,998 | |||||||||||
Loans to individuals | 44,160 | 38,515 | 36,105 | 33,383 | 13,469 | 78,190 | 67,964 | 54,725 | |||||||||||
Lease financing | 6,717 | 5,910 | 5,014 | ||||||||||||||||
Other | 15,519 | 13,167 | 13,471 | ||||||||||||||||
Total domestic | 183,231 | 156,127 | 137,687 | ||||||||||||||||
Foreign | |||||||||||||||||||
Government | 5,207 | 6,036 | 2,686 | ||||||||||||||||
Agriculture | 1,315 | 955 | 529 | ||||||||||||||||
Industrial | 8,765 | 3,155 | 9,360 | ||||||||||||||||
Real estate and construction | 7,698 | 11,624 | 4,457 | ||||||||||||||||
Commercial and financial | 23,679 | 24,459 | 8,083 | ||||||||||||||||
Loans to individuals | 25,728 | 14,619 | 9,262 | ||||||||||||||||
Lease financing | 975 | 816 | 352 | ||||||||||||||||
Other | 5,775 | 4,203 | 3,177 | ||||||||||||||||
Total foreign | 79,143 | 65,867 | 37,906 | ||||||||||||||||
Total loans and leases | 262,374 | 221,994 | 175,593 | ||||||||||||||||
Valuation adjustments | (5,809 | ) | (5,144 | ) | (3,510 | ) | |||||||||||||
Total net lending | 256,565 | 216,850 | 172,083 | ||||||||||||||||
Lease financing Other Total domestic Foreign Total loans and leases Loan loss reserve Total net lending At December 31, 2003 2002 2001 2000 1999(1) (in millions of euro) 4,160 3,217 2,685 2,156 1,583 13,333 12,923 10,900 3,153 1,587 115,669 102,873 95,241 89,391 43,555 37,602 43,540 60,907 53,380 27,049 153,271 146,413 156,148 142,771 70,604 (4,444 ) (5,098 ) (5,928 ) (5,304 ) (2,110 ) 148,827 141,315 150,220 137,467 68,494
The following table sets forth a breakdown, by currency, of our net loan portfolio for each of the past five years.2006, 2005 and 2004.
At December 31, | ||||||||||
2003 | 2002 | 2001 | 2000 | 1999(1) | ||||||
(in millions of euro) | ||||||||||
In euro | 120,152 | 106,590 | 98,982 | 91,469 | 44,461 | |||||
In other currencies | 28,675 | 34,725 | 51,238 | 45,998 | 24,033 | |||||
Total | 148,827 | 141,315 | 150,220 | 137,467 | 68,494 | |||||
As of December 31, | ||||||
2006 | 2005 | 2004 | ||||
(in millions of euros) | ||||||
In euro | 193,253 | 164,309 | 140,398 | |||
In other currencies | 63,312 | 52,541 | 31,685 | |||
Total net loans and leases | 256,565 | 216,850 | 172,083 | |||
As of December 31, 2003,2006, loans by BBVA and its subsidiaries to companies we are required to account for by the equity method (for listed companies, if we own over 3% of their voting equity securities,associates and for non-listedjointly controlled companies over 20%) amounted to €3.6 billion.€374.2 million, compared to €267.6 million as of December 31, 2005. Loans outstanding to the Spanish government and its agencies amounted to €13.4€15.9 billion, or 8.7%6.09% of our total loans and leases as of December 31, 2003,2006, compared to €12.6€16.1 billion, or 8.6%7.25% of our total loans and leases as of December 31, 2002.2005. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.
Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our fourfive largest borrowers as of December 31, 2003,2006, excluding government-related loans, amounted to €13.1€17.89 billion, or approximately 8.6%6.82% of our total outstanding loans and leases.
Maturity and Interest Sensitivity
The following table sets forth an analysis by maturity of our total loans and leases by domicile of the office that issued the loan and type of customer as of December 31, 2003.2006. The determination of maturities is based on contract terms.
Maturity | Total | Maturity | ||||||||||||||
Due in One Year | Due After One Year Through | Due After Five Years | Due in One Year or Less | Due After One Year Through Five Years | Due After Five Years | Total | ||||||||||
(in millions of euro) | (in millions of euros) | |||||||||||||||
Domestic: | ||||||||||||||||
Government | 4,866 | 3,825 | 4,712 | 13,403 | 5,126 | 4,012 | 6,849 | 15,987 | ||||||||
Agriculture | 442 | 383 | 232 | 1,057 | 708 | 721 | 389 | 1,818 | ||||||||
Industrial | 9,590 | 1,643 | 758 | 11,991 | 11,688 | 2,959 | 1,317 | 15,965 | ||||||||
Real estate and construction | 6,105 | 3,400 | 5,318 | 14,823 | 15,640 | 7,966 | 10,197 | 33,803 | ||||||||
Commercial and financial | 9,085 | 1,810 | 1,847 | 12,742 | 7,789 | 3,156 | 4,287 | 15,231 | ||||||||
Loans to individuals | 6,378 | 11,574 | 26,208 | 44,160 | 8,914 | 16,800 | 52,476 | 78,190 | ||||||||
Lease financing | 193 | 2,639 | 1,328 | 4,160 | 368 | 3,480 | 2,869 | 6,717 | ||||||||
Other | 8,677 | 2,374 | 2,282 | 13,333 | 8,981 | 2,946 | 3,592 | 15,519 | ||||||||
Total domestic | 45,336 | 27,648 | 42,685 | 115,669 | 59,213 | 42,040 | 81,977 | 183,231 | ||||||||
Foreign | 17,747 | 10,227 | 9,628 | 37,602 | ||||||||||||
Foreign: | ||||||||||||||||
Government | 460 | 4,161 | 586 | 5,207 | ||||||||||||
Agriculture | 614 | 644 | 57 | 1,315 | ||||||||||||
Industrial | 3,116 | 5,312 | 338 | 8,765 | ||||||||||||
Real estate and construction | 1,862 | 2,492 | 3,344 | 7,698 | ||||||||||||
Commercial and financial | 13,631 | 7,642 | 2,406 | 23,679 | ||||||||||||
Loans to individuals | 2,514 | 5,297 | 17,917 | 25,728 | ||||||||||||
Lease financing | 448 | 403 | 124 | 975 | ||||||||||||
Other | 2,297 | 2,735 | 743 | 5,775 | ||||||||||||
Total foreign | 24,941 | 28,686 | 25,516 | 79,143 | ||||||||||||
Total loans and leases | 63,083 | 37,875 | 52,313 | 153,271 | 84,154 | 70,726 | 107,494 | 262,374 | ||||||||
The following table sets forth a breakdown of our fixed and variable rate loans which had a maturity of one year or more as of December 31, 2003.2006.
Interest Sensitivity of Outstanding Loans and Leases Maturing in More Than One Year | ||||||
Domestic | Foreign | Total | ||||
(in millions of euro) | ||||||
Fixed rate | 21,465 | 10,731 | 32,196 | |||
Variable rate | 45,262 | 12,730 | 57,992 | |||
Total | 66,727 | 23,461 | 90,188 | |||
Interest Sensitivity of Outstanding Loans and Leases Year | ||||||
Domestic | Foreign | Total | ||||
(in millions of euros) | ||||||
Fixed rate | 21,070 | 23,329 | 44,399 | |||
Variable rate | 98,392 | 35,428 | 133,821 | |||
Total loans and leases | 119,462 | 58,758 | 178,220 | |||
Loan Loss Reserve
OurFor a discussion of loan loss reserve is intended to cover losses in connection with substandard loans (including risksreserves, see “Item 5. Operating and other losses relating to certain performing loansFinancial Review and operations). TheProspects—Critical accounting policies—Allowance for loan loss reserve is based on our estimates which we make in accordance with Bank of Spain requirements. Our actual losses relating to loans we have issued may vary from our estimates, which are reviewed on a periodic basis. As changes become necessary, we adjust the level of the loan loss reserve,losses” and appropriate provisions are taken in the period in which the necessity to make such adjustment becomes known. We do not expect to use all specific reserves to cover losses on loans with respect to which such reserves have been established. For both Spanish and foreign borrowers, we estimate the loan loss reserve based on an individual analysis of the quality of the exposure to principal borrowers and debtors and on a statistical basis for remaining lending risks. Country risk, as described under “—Foreign Country Outstandings”, is based on an individual country’s degree of difficulty in servicing its debts, which we estimate based on Bank of Spain guidelines. In accordance with current Bank of Spain regulations, the reserve for doubtful guarantees, acceptances and letters of credit is recorded under “—Other Liabilities—Other accounts”. See Notes 3.c. and 8Note 2.2.b.4 to the Consolidated Financial Statements.
Bank of Spain regulations applicable to Spanish banks require that loans on which any payment of principal or interest is 90 days past due must be classified as substandard to the extent described herein (“non-performing substandard loans”) and, so long as they are reflected on the balance sheet, must, except as described in the next paragraph regarding non-performing substandard loans which are fully-secured mortgage loans, be reserved as set forth in the following table. Until the amount of principal and interest past due on a non-performing substandard loan is more than 25% of the outstanding balance of the loan or a payment of principal or interest on such loan is at least six months overdue for consumer loans or 12 months for other loans, the reserve set forth in both of the tables set forth below is a percentage of past due payments of principal and interest to the extent accrued at the time that the loan becomes substandard and with respect to such loans, only such payments and not the entire loan (as in the case of a U.S. bank holding company) are treated as substandard in accordance with Bank of Spain regulations. When the amount of principal and interest past due on a non-performing substandard loan is greater than 25% of the outstanding balance of the loan, or when any payment on such loan is
6 or 12 months overdue (depending on the type of loan), the reserve indicated in both of the tables set forth below is a percentage of the entire amount of the outstanding balance of the loan, and, in accordance with Bank of Spain regulations, the entire principal amount of the loan becomes substandard and is so treated for the purposes of disclosure in this Annual Report.
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Non-performing substandard loans (including leasing agreements) that are considered fully-secured mortgage loans, however, are reserved according to the table set forth below. To be classified as a “fully-secured mortgage loan”, a loan must meet three criteria. First, it must be secured by a mortgage on residential, commercial or mixed-use property or properties or certain rural property or properties. Second, the mortgage must have been placed on the property at the time the loan was originated. Third, total risk exposure must not be greater than 80% of the appraised value of the property (using the original appraised value, if the borrower cannot provide a more current value).
Compliance with these conditions is determined as of the time the loan first becomes a non-performing substandard loan.
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The foregoing requirements apply to reserves with respect to a single loan to a borrower. In some cases, reserves may be required for all loans to a borrower. If the amount of principal and interest past due on non-performing substandard loans to a borrower, whether regarding fully-secured mortgage loans or otherwise, exceeds 25% of the outstanding balance of all of a Spanish bank’s loans to such borrower, then all of the bank’s loans to such borrower, even if otherwise performing, must be declared substandard, and, except in the case of any loan on which no payment of principal or interest is overdue, reserved for as set forth in the preceding two tables. Once a non-performing loan has been declared substandard, application of Bank of Spain requirements generally results in a higher reserve with respect to such loan than would be required by our estimates, which are made independently of such requirements.
If a bank, for reasons relating to the financial condition of the borrower, has a reasonable doubt that a loan will be collected (or if a loan is as described in the third sentence of this paragraph), such loan (an “other substandard loan”) must be classified as substandard, even if payments are past due for less than 90 days or the loan is otherwise performing. We are required to take a provision regarding other substandard loans equal to the percentage of the loan as to which, in our estimate, there is a reasonable doubt as to collectibility, which amount must be at least 10% of the outstanding balance of the loan. If the loan is to a borrower who is experiencing negative net worth, continuing losses, suspension of payments or a general delay in payments, the minimum reserve is 25% of the outstanding balance of the loan.
None of the foregoing Bank of Spain requirements as to reserves applies to any loan, even if classified as substandard, to the extent that such loan is:
In accordance with Bank of Spain regulations, an additional general purpose reserve, representing 1% of the sum of loans, discounts, fixed-income securities (except trading securities), contingent liabilities and certain doubtful assets (other than substandard loans exempted from provisioning as described in the foregoing paragraph), is set aside to cover risks which are not specifically identified but which may arise in the future. This general purpose reserve is limited to 0.5% for fully-secured mortgage loans.
A regulatory change by the Bank of Spain that entered into effect on July 1, 2000 requires the establishment of a supplementary general allowance for credit losses based either on a bank’s internal models of risk coefficients or, as in the case of BBVA, on risk coefficients set by the Bank of Spain which range from 0% to 1.5%. Provisions to this supplemental allowance are made quarterly and the allowance may not exceed three times risk weighted assets. The amount we contributed to such provision in 2003 was €328 million (€232 million in 2002, €251 million in 2001).
Spanish banks, consistent with Bank of Spain guidelines, generally charge off immediately only those loans which they believe will not be repaid at any time or which are outstanding to countries that are considered “bankrupt” under Bank of Spain guidelines. Under those guidelines, a provision for the full amount of such a substandard loan must be made within 18 months after such classification, or six years in the case of fully-secured mortgage loans. Substandard loans may be held on the bank’s balance sheets up to a maximum of three years, or six years in the case of fully-secured mortgage loans, after such classification.
Allowance for Credit Losses
Pursuant to Bank of Spain regulations, once any portion of a loan is classified as non-performing, a specific loan loss allowance is required to be established, with scheduled increases to the allowance based on a calendar of the time elapsed since the first event of nonpayment or for which collection is considered to be doubtful. Based on management’s assessment, banks may elect to record allowances in excess of this minimum requirement. The allowance for credit losses represents management’s estimate of probable losses based upon the following factors:
The following table provides information, by domicile of customer, regarding our loan loss reserve and movements of loan charge-offs and recoveries for the periods indicated.
At December 31, | ||||||||
2002 | 2001 | 2000 | 1999(1) | |||||
(in millions of euro, except percentages) | ||||||||
Loan loss reserve at beginning of period: | ||||||||
Domestic | 1,375 | 1,222 | 698 | 731 | ||||
Foreign | 4,945 | 6,933 | 1,578 | 1,438 | ||||
Merger with Argentaria: | ||||||||
Domestic | 0 | 0 | 356 | 0 | ||||
Foreign | 0 | 0 | 419 | 0 |
Acquisition and disposition of subsidiaries of which due to Bancomer (*) Total Loans written off: Domestic Foreign of which due to FOBAPROA (**) Total Recoveries of loans previously written off: Domestic Foreign Total Net loans written off Provision for possible loan losses: Domestic Foreign Total Effect of foreign currency translation Other Total Loan loss reserve at end of period: Domestic Foreign Total At December 31, 2002 2001 2000 1999(1) (in millions of euro, except percentages) (2 ) 12 5,396 8 5,251 6,318 8,167 8,447 2,177 (337 ) (409 ) (337 ) (192 ) (1,205 ) (4,929 ) (1,359 ) (740 ) (3,259 ) (1,542 ) (5,338 ) (1,696 ) (932 ) 112 124 130 72 96 164 143 105 208 288 273 177 (1,334 ) (5,050 ) (1,423 ) (755 ) 504 464 350 100 1,238 1,455 623 595 1,742 1,919 973 695 (1,441 ) 715 102 165 61 569 56 (5 ) 362 3.203 1.131 855 1,599 1,375 1,222 699 3,747 4,945 6,933 1,578 5,346 6,320 8,155 2,277
Purchase of Bancomer; FOBAPROA AdjustmentsEU-IFRS
Bancomer Purchase
As a result of BBVA’s acquisition of a significant interest in Bancomer in July, 2000, Bancomer was consolidated in BBVA’s 2000 Consolidated Financial Statements. Of the €5,396 million in loan loss reserve reflected in the foregoing table as arising from the Bancomer acquisition, €5,251 million was the amount that had been included by Bancomer on its consolidated balance sheets under the Allowance for Loan Losses caption as of June 30, 2000. Following the Bancomer acquisition, the allowance for loan losses recorded by Bancomer was not adjusted under Spanish GAAP and when included in BBVA’s Consolidated Financial Statements, this balance was combined with BBVA’s existing allowance for loan losses in the same manner as all of Bancomer’s other balance sheet line items were combined with those of BBVA.
FOBAPROA adjustments
The foregoing table indicates that a €3,259 million charge off of loans in 2002 related to FOBAPROA promissory notes. Of this balance, €2,690 million related to a reduction to the provision for possible loan losses and the remaining €569 million related to other items which increased the provision for possible loan losses. As explained in Note 9 to the Consolidated Financial Statements, BBVA’s ownership of the FOBAPROA promissory notes, which were held by Bancomer, arose in connection with measures taken by the Mexican Government during the Mexican economic crisis in 1994 and 1995. Under these measures, Mexican banks, including Bancomer, were allowed to transfer to the Mexican government the right to collect on a portion of their loan portfolio that was experiencing payment difficulties. In exchange, the Mexican government issued to such banks FOBAPROA promissory notes, guaranteed in part by the Mexican government, in an amount equal to the book value (net of provisions) of the loans transferred. The banks, however, remained responsible for 25% of the losses arising from the difference between the amount of the FOBAPROA promissory notes at the time exchanged, plus the accumulated accrued interest on such promissory notes, and the amount the Mexican government was able to recover on the loans transferred to it.
Since the Mexican government only guaranteed up to 75% of the FOBAPROA promissory notes, in 2001 BBVA concluded that the amount not guaranteed by the Mexican government was not collectible. Under Spanish GAAP, this 25% was considered a loss and was written off, with a reduction of assets and of the Allowance for Loan Losses on BBVA’s Consolidated Balance Sheets.
The following table provides information, by domicile of customer, regarding our loan loss reserve and movements of loan charge-offs and recoveries for the year ended December 31, 2003.
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At December 31, | |||||||||
2006 | 2005 | 2004 | |||||||
(in millions of euros, except percentages) | |||||||||
Loan loss reserve at beginning of period: | |||||||||
Domestic | 3,079 | 2,374 | 1,771 | ||||||
Foreign | 2,508 | 2,248 | 3,274 | ||||||
Total loan loss reserve at beginning of period | 5,587 | 4,622 | 5,046 | ||||||
Loans charged off: | |||||||||
Government and other Agencies | 0 | 0 | 0 | ||||||
Real estate and loans to individuals | (255 | ) | (138 | ) | (103 | ) | |||
Commercial and financial | (2 | ) | (76 | ) | (36 | ) | |||
Other | 0 | 0 | 0 | ||||||
Total Domestic | (257 | ) | (215 | ) | (134 | ) | |||
Foreign | (289 | ) | (452 | ) | (579 | ) | |||
Total loans charged off | (546 | ) | (667 | ) | (713 | ) | |||
Provision for loan losses: | |||||||||
Domestic | 883 | 624 | 737 | ||||||
Foreign | 778 | 196 | 408 | ||||||
Total provision for loan losses | 1,661 | 820 | 1,145 | ||||||
Acquisition and disposition of subsidiaries | 69 | 144 | — | ||||||
Effect of foreign currency translation | (332 | ) | 370 | (146 | ) | ||||
Other | (21 | ) | 297 | (708 | ) | ||||
Loan loss reserve at end of period: | |||||||||
Domestic | 3,735 | 3,079 | 2,374 | ||||||
Foreign | 2,683 | 2,508 | 2,248 | ||||||
Total loan loss reserve at end of period | 6,417 | 5,587 | 4,622 | ||||||
Loan loss reserve as a percentage of total loans and leases at end of period | 2.45 | % | 2.52 | % | 2.63 | % | |||
Net loan charge-offs as a percentage of total loans and leases at end of period | 0.21 | % | 0.30 | % | 0.41 | % |
Our loan loss reserves as a percentage of total loans and leases declined from 3.65%2.52% as of December 31, 2002,2005, to 3.09%2.45% as of December 31, 2003,2006, principally due to the significant negative effect of foreign currency translation which resulted in a decrease of €711 millionincrease in the valuevolume of loans granted in euro of our loan loss reserves as of December 31, 2003. This decrease was primarily caused by the devaluation of currencies in Mexico, Venezuela, Colombia and Peru, which caused in the loan loss reserves of our banks in these countries to decline significantly when converted to euro in our Consolidated Financial Statements.
2006.
We do not maintain records allocating the amount of charge-offs and the amount of recoveries by loan category. See “—
“—Substandard Loans” for information as to the breakdown as of December 31, 20032006 by loan category of substandard loans. Also, at the time that a loan is charged off in accordance with Bank of Spain guidelines, it will normally be substantially or fully reserved and, accordingly, such charge-off would have a very limited effect on our net attributable profit or shareholders’stockholders’ equity. Accordingly, we believe that information relating to domestic reserves and charge-offs by loan category is of less relevance than would be the case for a U.S. bank.
Spanish GAAP
At December 31, | ||||||
2003 | 2002 | |||||
(in millions of euros, except percentages) | ||||||
Loan loss reserve at beginning of period: | ||||||
Domestic | 1,599 | 1,375 | ||||
Foreign | 3,747 | 4,945 | ||||
Acquisition and disposition of subsidiaries | — | (2 | ) | |||
Total loan loss reserve at beginning of period | 5,346 | 6,318 | ||||
Loans written off: | ||||||
Domestic | (292 | ) | (337 | ) | ||
Foreign | (931 | ) | (1,205 | ) | ||
Total loans written off | (1,223 | ) | (1,542 | ) | ||
Recoveries of loans previously written off: | ||||||
Domestic | 105 | 112 | ||||
Foreign | 122 | 96 | ||||
Total recoveries of loans previously written off | 227 | 208 | ||||
Net loans written off | (996 | ) | (1,334 | ) | ||
Provision for possible loan losses: | ||||||
Domestic | 468 | 504 | ||||
Foreign | 809 | 1,238 | ||||
Total | 1,277 | 1,742 | ||||
Effect of foreign currency translation | (711 | ) | (1,441 | ) | ||
Other | (179 | ) | 61 | |||
Total provision for possible loan losses | 387 | 362 | ||||
Loan loss reserve at end of period: | ||||||
Domestic | 1,832 | 1,599 | ||||
Foreign | 2,905 | 3,747 | ||||
Total loan loss reserve at end of period | 4,737 | 5,346 | ||||
Substandard Loans
We classify loans as substandard accordingloans in accordance to the regulationsrequirements under EU-IFRS in respect of “impaired loans”. As we described in Note 2.2.b.4 to the Consolidated Financial Statements, loans are
considered to be impaired loans, and accrual of the Bank of Spain (see “—Assets—Loan Loss Reserve”),interest thereon is suspended, when there are reasonable doubts that the loans will be recovered in full and/or the related interest will be collected for the amounts and not inon the manner requireddates initially agreed upon, taking into account the guarantees received by the SEC.consolidated entities to assure (in part or in full) the performance of transactions. In addition, consistent with Bank of Spain regulations, all loans that are 90 days past due, even if well-collateralized and in the process of being collected, are automatically considered non-accrual if they are classified as substandard. Assubstandard loans.
When the recovery of December 31, 2003, all country risk loans, which are loans that are requiredany recognized amount is considered to be classified as substandard, even if paying, dueremote, this amount is removed from the consolidated balance sheet, without prejudice to Bank of Spain regulations correspondingany actions taken by the consolidated entities in order to collect the country of origin of the loans, includedamount until their rights extinguish in the following table were non-accruing.
full through expiry, forgiveness or for other reasons.
Interest on all of our substandard non-accrual loans is not credited to income until actually collected. The amount of gross interest income that would have been recorded regardingin respect of our substandard loans as of December 31, 2001, 20022006, 2005 and 20032004 under EU-IFRS was €1,625.8€1,107 million, €869.0€1,052 million and €766.8€750 million, respectively.
Amounts collected in relation to impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the principal not yet repaid. The approximate amount of interest income on our substandard loans which was included in net attributable profit as of December 31, 2001, 2002 andunder Spanish GAAP in 2003 was €325.7€357.4 million. The approximate amount of interest income on our substandard loans which was included in income attributed to the Group in 2006, 2005 and 2004 under EU-IFRS was €130.7 million, €127.0€148.1 million and €357.4€138.3 million, respectively.
Non-performing loans Public sector Other resident sectors Non-resident sector Country risk Other Other non-performing loans Resident sector Non-resident sector Credit loan loss reserve Other loan loss reserve—Fixed income portfolio Credit entities Substandard loans net of reserves Non-performing loans as a percentage of total loans and leases Non performing loans (net of reserves) as a percentage of total loans Loan loss reserve as a percentage of substandard loans At December 31 2002 2001 2000 1999(1) (in millions of euro, except percentages) Substandard loans: 3,474 2,737 2,854 1,359 508 41 61 6 771 786 805 427 196 27 6 1 1,999 1,883 1,982 925 57 6 8 6 — — — 4 57 6 8 2 Total substandard loans 3,531 2,743 2,862 1,365 5,098 5,928 5,304 2,110 125 253 2,705 * 37 123 139 146 130 Total loan loss reserve 5,346 6,320 8,155 2,277 (1,815 ) (3,577 ) (5,293 ) (912 ) 2.37 % 1.75 % 2.00 % 1.93 % (1.11 )% (2.04 )% (1.71 )% (1.06 )% 151.42 % 230.40 % 284.94 % 166.81 %
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At December 31, | |||||||||
2006 | 2005 | 2004 | |||||||
(in millions of euros, except percentages) | |||||||||
Substandard loans: | |||||||||
Domestic | 1,128 | 849 | 954 | ||||||
Public sector | 151 | 33 | 33 | ||||||
Other resident sectors | 953 | 721 | 832 | ||||||
Non-resident sector | 24 | 96 | 89 | ||||||
Foreign | 1,363 | 1,497 | 1,248 | ||||||
Public sector | 62 | 89 | 74 | ||||||
Other resident sectors | 0 | 73 | 48 | ||||||
Non-resident sector | 1,301 | 1,335 | 1,126 | ||||||
Total substandard loans | 2,492 | 2,346 | 2,202 | ||||||
Total loan loss reserve | 6,417 | 5,587 | 4,622 | ||||||
Substandard loans net of reserves | (3,926 | ) | (3,241 | ) | (2,420 | ) | |||
Substandard loans as a percentage of loans and leases | 0.95 | % | 0.92 | % | 1.10 | % | |||
Substandard loans (net of reserves) as a percentage of loans and leases | (1.50 | )% | (1.27 | )% | (1.21 | )% |
Spanish GAAP
At December 31, | ||||||
2003 | 2002 | |||||
(in millions of euros, except percentages) | ||||||
Substandard loans: | ||||||
Non-performing loans | 2,672 | 3,474 | ||||
Public sector | 535 | 508 | ||||
Other resident sectors | 733 | 771 | ||||
Non-resident sector | ||||||
Country risk | 12 | 196 | ||||
Other | 1,392 | 1,999 | ||||
Other non-performing loans | 454 | 57 | ||||
Resident sector | — | — | ||||
Non-resident sector | 454 | 57 | ||||
Total substandard loans | 3,127 | 3,531 | ||||
Loan loss reserve | ||||||
Credit loan loss reserve | 4,444 | 5,098 | ||||
Other loan loss reserve—Fixed income portfolio | 121 | 125 | ||||
Credit entities | 171 | 123 | ||||
Total loan loss reserve | 4,736 | 5,346 | ||||
Substandard loans net of reserves | (1,609 | ) | (1,815 | ) | ||
Non-performing loans as a percentage of total loans and leases | 1.74 | % | 2.37 | % | ||
Non performing loans (net of reserves) as a percentage of total loans | (1.16 | )% | (1.11 | )% |
Our total substandard loans amounted to €3,126€2,492 million as of December 31, 2003,2006, compared to €3,531€2,346 million as of December 31, 2002,2005, principally due to the higher levelinfluence of substandard loans recordedgrowth in 2002 primarily as a result of a decline in the Bank of Spain’s country risk classification of Argentina, which under Spanish GAAP required us to record a higher percentage of Argentine loans as non-performing regardless of the actual payment history of such loans.lending and period loan writedowns. As a result of the decreaseincrease in loan loss reserves described above under “—Loan Loss Reserve” and the larger decreasesmall increase in total substandard loans described above, our substandard loans as a percentage of total loans decreasedand receivables increased from 2.41%0.92% to 2.04%0.95% and our loan loss reserves as a percentage of substandard loans increased from 151.42%238.15% to 152.26%257.55%, in each case as of December 31, 20022005 and December 31, 2003,2006, respectively.
We experience higher substandard loans in our Latin American operations, as a percentage of total loans, than in our domestic Spanish operations and actively monitor the higher risk profile of the loan portfolios of our Latin American banks.operations.
As of December 31, 2003,2006, we do not believe that there is a material amount of loans not included in the foregoing table where known information about possible credit problems of the borrowers gives rise to serious doubts as to the ability of the borrowers to comply with the currently applicable loan repayment terms.
The following table provides information, by domicile and type of customer, regarding our substandard loans and the loan loss reserves taken for each substandard loan category, as of December 31, 2003.2006.
Substandard Loans | Loan Loss Reserve | Substandard Loans as a percentage of Loans in Category | ||||
(in millions of euro) | ||||||
Domestic: | ||||||
Government | 69.1 | — | 0.51 | |||
Agricultural | 10.3 | 6.4 | 0.95 | |||
Industrial | 94.4 | 62.0 | 0.78 | |||
Real estate and construction | 128.0 | 64.6 | 0.86 | |||
Commercial and financial | 109.2 | 60.9 | 0.85 | |||
Loans to individuals | 355.8 | 184.7 | 0.81 | |||
Other | 109.3 | 39.8 | 0.21 | |||
Total domestic | 876.1 | 418.4 | 0.69 | |||
Foreign: | ||||||
Country risk | 639.6 | 609.2 | — | |||
Other | 1,610.6 | 1,577.9 | — | |||
Total foreign | 2,250.2 | 2,187.1 | 6.18 | |||
General reserve | — | 2,130.3 | — | |||
Total substandard loans | 3,126.3 | 4,735.8 | 2.1 | |||
Substandard Loans | Loan Loss Reserve | Substandard Loans as a percentage of Loans in Category | |||||
(in millions of euros) | |||||||
Domestic: | |||||||
Government | 127 | 66 | 0.80 | % | |||
Agricultural | 18 | 10 | 0.97 | % | |||
Industrial | 120 | 74 | 0.75 | % | |||
Real estate and construction | 151 | 85 | 0.45 | % | |||
Commercial and financial | 129 | 85 | 0.85 | % | |||
Loans to individuals | 511 | 225 | 0.65 | % | |||
Other | 23 | 35 | 0.10 | % | |||
Total domestic | 1,080 | 581 | 0.59 | % | |||
Total foreign | 1,411 | 1,350 | 1.78 | % | |||
General reserve | 4,487 | ||||||
Total substandard loans | 2,492 | 6,417 | 0.95 | % | |||
Foreign Country Outstandings
The following tabletables sets forth, as of the end of the years indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 0.75%1% of our total assets.assets as of December 31, 2006, as of December 31, 2005 and as of December 31, 2004. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are
funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our Latin American subsidiaries.
At December 31, | |||||||||||||||
2003 | 2002 | 2001 | |||||||||||||
Amount | % of Total Assets | Amount | % of Total Assets | Amount | % of Total Assets | ||||||||||
(in millions of euro, except percentages) | |||||||||||||||
O.E.C.D. | |||||||||||||||
United Kingdom | 3,532 | 1.23 | % | 1,185 | 0.41 | % | 1,756 | 0.57 | % | ||||||
Mexico | 6,682 | 2.33 | % | 5,389 | 1.93 | % | 7,370 | 2.38 | % | ||||||
Other O.E.C.D. | 4,335 | 1.51 | % | 5,115 | 1.83 | % | 4,590 | 1.49 | % | ||||||
Total O.E.C.D. | 14,549 | 5.07 | % | 11,689 | 4.18 | % | 13,716 | 4.44 | % | ||||||
Central and South America | 3,595 | 1.25 | % | 4,473 | 1.60 | % | 6,671 | 2.16 | % | ||||||
Other | 1,265 | 0.44 | % | 1,312 | 0.47 | % | 1,401 | 0.45 | % | ||||||
Total | 19,409 | 6.76 | % | 17,474 | 6.25 | % | 21,788 | 7.05 | % | ||||||
OECD United Kingdom Mexico Other OCDE Total OCDE Central and South America Other OCDE Total At December 31, 2006 2005 2004 Amount % of Total
Assets Amount % of Total
Assets Amount % of Total
Assets (in millions of euros, except percentages) 5,612 1.36 5,497 1.4 2,326 0.71 2,337 0.57 5,961 1.52 5,892 1.79 5,460 1.33 5,239 1.34 43,313 1.31 13,409 3.26 16,697 4.26 12,531 3.8 2,725 0.66 3,747 0.95 3,005 0.91 3,460 0.84 1,785 0.45 1,208 0.37 19,594 4.76 22,229 5.67 16,744 5.08
The following table setstables set forth the amounts of our cross-border outstandings as of December 31 of each year indicated by type of borrower where outstandings in the borrower’s country exceeded 0.75%1% of our total assets.
Governments | Banks and Other Financial Institutions | Commercial, Industrial and Other | Total | |||||
(in millions of euro) | ||||||||
2003 | ||||||||
Mexico | 3,662 | 702 | 2,318 | 6,682 | ||||
United Kingdom | — | 2,426 | 1,106 | 3,532 | ||||
Total | 3,662 | 3,128 | 3,424 | 10,214 | ||||
2002 | ||||||||
Mexico | 1,441 | 811 | 3,137 | 5,389 | ||||
United Kingdom | — | 628 | 557 | 1,185 | ||||
Total | 1,441 | 1,439 | 3,694 | 6,574 | ||||
2001 | ||||||||
Mexico | 1,656 | 1,239 | 4,475 | 7,370 | ||||
United Kingdom | — | 867 | 889 | 1,756 | ||||
Total | 1,656 | 2,106 | 5,364 | 9,126 |
Governments | Banks and Other Financial Institutions | Commercial, Industrial and Other | Total | |||||
(in millions of euros) | ||||||||
2006 | ||||||||
Mexico | 4 | 108 | 2,225 | 2,337 | ||||
United Kingdom | — | 3,386 | 2,226 | 5,612 | ||||
Total | 4 | 3,494 | 4,451 | 7,949 | ||||
2005 | ||||||||
Mexico | 2,650 | 739 | 2,572 | 5,961 | ||||
United Kingdom | — | 3,701 | 1,796 | 5,497 | ||||
Total | 2,650 | 4,440 | 4,368 | 11,458 | ||||
2004 | ||||||||
Mexico | 2,494 | 892 | 2,507 | 5,892 | ||||
United Kingdom | — | 1,360 | 966 | 2,326 | ||||
Total | 2,494 | 2,252 | 3,473 | 8,218 | ||||
The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.
The following table shows the minimum required reserves with respect to each category of country. Forcountry for BBVA’s level of coverage as of December 31, 2003, see Note 8 to the Consolidated Financial Statements.2006.
Categories(1) | Minimum Percentage of Coverage (Outstandings Within Category) | |
Countries belonging to the OECD whose currencies are quoted in the Spanish foreign exchange market | 0.0 | |
Countries with transitory difficulties(2) | ||
Doubtful countries(2) | ||
Very doubtful countries(2)(3) | ||
Bankrupt countries(4) | 100.0 |
(1) | Any outstanding which is guaranteed may be treated, for the purposes of the foregoing, as if it were an obligation of the guarantor. |
(2) | Coverage for the aggregate of these three categories (doubtful countries, very doubtful countries, and bankrupt countries) must equal at least 35% of outstanding loans within the three categories. The Bank of Spain has recommended up to 50% aggregate coverage. |
(3) | Outstandings to very doubtful countries are treated as substandard under Bank of Spain regulations. |
(4) | Outstandings to bankrupt countries must be charged off immediately. As a result, no such outstandings are reflected on our |
Our exposure to borrowers in countries with difficulties (the last 4 categories in the foregoing table), excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to €1,405€951 million, €690 million and €378 million as of December 31, 2001, €1,047 million as of December 31, 20022006, 2005 and €927 million as of December 31, 2003.2004, respectively. These figures do not reflect loan loss reserves of 35.2%12.01%, 46.1%11.9% and 66.2%30.0%, respectively, against the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of December 31, 20032006 did not in the aggregate exceed 0.45%0.23% of our total assets.
The country-risk exposures described in the preceding paragraph as of December 31, 20032006, 2005 and 2002,2004 do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, nontransfer, nonconvertibility and, if appropriate, war and political violence. The sums insured as of December 31, 20032006, 2005 and 2002,2004 amounted to $466$59 million, $108 million and $584.5$153 million, respectively (approximately €369€45 million, €91 million and €557.3€113 million, respectively, based on a euro/dollar exchange rate on December 31, 20032006 of $1.00 = €0.79€0.76, on December 31, 2005 of $1.00 = €0.85 and on December 31, 20022004 of $1.00 = €0.95)$1.00=€0.73).
LIABILITIES
Deposits
The principal components of our customer deposits are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits by principal geographic area for the dates indicated.
At December 31, 2003 | At December 31, 2006 | |||||||||||||||
Customer Deposits | Bank of Spain and Other Central Banks | Other Credit Institutions | Total | Customer Deposits | Bank of Spain and Banks | Other Credit | Total | |||||||||
(in millions of euro) | (in thousands of euros) | |||||||||||||||
Domestic | 74,032 | 18,374 | 14,863 | 107,269 | ||||||||||||
Total domestic | 100,789,281 | 12,190,360 | 12,404,658 | 125,384,299 | ||||||||||||
Foreign: | ||||||||||||||||
Western Europe | 10,914 | — | 11,078 | 21,992 | 11,340,441 | 1,175,717 | 12,988,690 | 25,504,848 | ||||||||
Latin America | 44,674 | 2,550 | 9,175 | 56,399 | 60,851,441 | 678,763 | 9,321,829 | 70,852,033 | ||||||||
United States | 3,381 | — | 1,687 | 5,068 | 14,023,901 | 993,113 | 3,559,340 | 18,576,354 | ||||||||
Other | 8,048 | — | 3,842 | 11,890 | 4,072,812 | 153,165 | 4,011,188 | 8,237,165 | ||||||||
Total foreign | 67,017 | 2,550 | 25,782 | 95,349 | 90,288,595 | 3,000,757 | 29,881,047 | 123,170,399 | ||||||||
Total | 141,049 | 20,924 | 40,645 | 202,618 | 191,077,876 | 15,191,117 | 42,285,705 | 248,554,698 | ||||||||
At December 31, 2002 | At December 31, 2005 | |||||||||||||||
Customer Deposits | Bank of Spain and Other Central Banks | Other Credit Institutions | Total | Customer Deposits | Bank of Spain and Banks | Other Credit | Total | |||||||||
(in millions of euro) | (in thousands of euros) | |||||||||||||||
Domestic | ||||||||||||||||
Total domestic | 62,471,990 | 19,652,319 | 8,487,493 | 90,611,802 | ||||||||||||
Foreign: | ||||||||||||||||
Western Europe | 42,986,820 | — | 15,615,660 | 58,602,480 | ||||||||||||
Latin America | 58,155,217 | 1,512,672 | 7,750,921 | �� | 67,418,810 | |||||||||||
United States | 11,867,934 | 2,368 | 5,388,919 | 17,259,221 | ||||||||||||
Other | 5,901,750 | — | 7,725,480 | 13,627,230 | ||||||||||||
Total foreign | 118,911,721 | 1,515,040 | 36,480,980 | 156,907,741 | ||||||||||||
Total | 181,383,711 | 21,167,359 | 44,968,473 | 247,519,543 | ||||||||||||
At December 31, 2004 | ||||||||||||||||
Customer Deposits | Bank of Spain and Banks | Other Credit | Total | |||||||||||||
(in thousands of euros) | ||||||||||||||||
Total domestic | 77,221,614 | 17,907,860 | 13,012,661 | 108,142,135 | ||||||||||||
Foreign: | 73,485 | 7,753 | 14,940 | 96,178 | ||||||||||||
Western Europe | 10,375 | — | 13,104 | 23,479 | 11,937,071 | — | 16,882,647 | 28,819,718 | ||||||||
Latin America | 51,662 | 2,095 | 9,089 | 62,846 | 46,054,545 | 2,228,168 | 7,135,061 | 55,417,774 | ||||||||
United States | 5,220 | — | 3,265 | 8,485 | 7,852,097 | — | 775,779 | 8,627,876 | ||||||||
Other | 5,818 | — | 5,873 | 11,691 | 5,175,346 | — | 5,853,690 | 11,029,036 | ||||||||
Total foreign | 73,075 | 2,095 | 31,331 | 106,501 | 71,019,059 | 2,228,168 | 30,647,177 | 103,894,404 | ||||||||
Total | 146,560 | 9,848 | 46,271 | 202,679 | 148,240,673 | 20,136,028 | 43,659,838 | 212,036,539 | ||||||||
Domestic Foreign: Western Europe Latin America United States Other Total foreign Total At December 31, 2001 Customer
Deposits Bank of
Spain and
Other Central
Banks Other
Credit
Institutions Total (in millions of euro) 72,140 4,680 15,997 92,817 11,277 — 20,319 31,596 73,275 28 13,162 86,465 3,994 — 3,221 7,215 5,813 — 7,181 12,994 94,359 28 43,883 138,270 166,499 4,708 59,880 231,087
For an analysis of our deposits, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Notes 17 and 18Note 26 to the Consolidated Financial Statements.
As of December 31, 2003,2006, the maturity of our time deposits (excluding interbank deposits) in denominations of $100,000 (approximately €79,177€75,775 considering the noon buying rate as of December 31, 2003)2006) or greater was as follows:
At December 31, 2003 | ||||||
Domestic | Foreign | Total | ||||
(in millions of euro) | ||||||
3 months or Under | 7,351 | 25,425 | 32,776 | |||
Over 3 to 6 months | 1,098 | 2,073 | 3,171 | |||
Over 6 to 12 months | 1,098 | 1,882 | 2,980 | |||
Over 12 months | 2,732 | 3,890 | 6,622 | |||
Total | 12,279 | 33,270 | 45,549 | |||
At December 31, 2006 | ||||||
Domestic | Foreign | Total | ||||
(in millions of euros) | ||||||
3 months or under | 17,756 | 24,397 | 42,153 | |||
Over 3 to 6 months | 4,208 | 2,941 | 7,149 | |||
Over 6 to 12 months | 5,563 | 2,430 | 7,993 | |||
Over 12 months | 23,101 | 1,849 | 24,950 | |||
Total | 50,628 | 31,617 | 82,244 | |||
Time deposits from Spanish and foreign financial institutions amounted to €6.5€27.02 billion and €19.8 billion, respectively, as of December 31, 2003,2006, substantially all of which were in excess of $100,000 (approximately €79,177€75,775 as of December 31, 2003)2006).
Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by currency of customer deposits as of December 31, 20032006 and 2002,2005, see Note 1826 to the Consolidated Financial Statements.
Short-term Borrowings
Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity at December 31, 2001, 20022006 and 2003.2005.
At December 31, | At December 31, | ||||||||||||||||||||||||
2002 | 2001 | 2006 | 2005 | 2004 | |||||||||||||||||||||
Amount | Weighted Average Rate | Amount | Weighted Average Rate | Amount | Average rate | Amount | Average rate | Amount | Average rate | ||||||||||||||||
(in millions of euro, except percentages) | (in millions of euro, except percentages) | ||||||||||||||||||||||||
Securities sold under agreements to repurchase (principally Spanish Treasury bills): | |||||||||||||||||||||||||
At December 31 | 39,675 | 4.65 | % | 48,080 | 6.16 | % | 37,098 | 4.27 | % | 48,254 | 3.54 | % | 38,529 | 3.36 | % | ||||||||||
Average during year | 39,814 | 4.72 | % | 45,454 | 6.51 | % | 38,721 | 3.61 | % | 38,467 | 3.52 | % | 43,488 | 3.44 | % | ||||||||||
Maximum quarter-end balance | 44,732 | — | 48,080 | — | 46,449 | — | 48,254 | — | 49,642 | — | |||||||||||||||
Other short-term borrowings (principally bank promissory notes): | |||||||||||||||||||||||||
Bank promissory notes: | |||||||||||||||||||||||||
At December 31 | 7,596 | 3.75 | % | 7,569 | 2.58 | % | 6,255 | 2.20 | % | ||||||||||||||||
Average during year | 8,212 | 3.16 | % | 6,894 | 2.34 | % | 5,675 | 2.08 | % | ||||||||||||||||
Maximum quarter-end balance | 9,036 | — | 7,569 | — | 6,255 | — | |||||||||||||||||||
Bonds and Subordinated debt: | |||||||||||||||||||||||||
At December 31 | 5,101 | 2.85 | % | 4,642 | 4.87 | % | 7,756 | 4.01 | % | 14,273 | 3.54 | % | 7,082 | 2.81 | % | ||||||||||
Average during year | 3,967 | 3.12 | % | 5,844 | 4.11 | % | 8,076 | 3.74 | % | 10,324 | 3.61 | % | 7,628 | 2.39 | % | ||||||||||
Maximum quarter-end balance | 5,101 | — | 5,880 | — | 10,872 | — | 14,273 | — | 9,568 | — | |||||||||||||||
Total short-term borrowings at December 31 | 44,776 | 4.44 | % | 52,722 | 6.05 | % | 52,450 | 4.16 | % | 70,096 | 3.44 | % | 51,866 | 3.14 | % |
Securities sold under agreements to repurchase (principally Spanish Treasury bills): At December 31 Average during year Maximum quarter-end balance Bonds, debentures outstanding and subordinated debt At December 31 Average during year Maximum quarter-end balance Bank promissory notes: At December 31 Average during year Maximum quarter-end balance Total short-term borrowings at December 31 At December 31, 2003 Amount Average Rate (in millions of euro,
except percentages) 38,483 2.81 % 36,759 3.52 % 38,483 — 8,173 3.00 % 7,829 3.09 % 10,764 — 6,087 2.11 % 4,666 2.13 % 6,219 — 52,743 2.76 %
Additionally, as of December 31, 2003, the “short-term borrowings” caption included mortgage bonds amounting to €7,907 million.
Return on Equity
The following table sets out our return on equity ratios:
2003 | 2002 | 2001 | ||||
ROE (net attributable profit/average equity) | 18.4 | 13.7 | 18.0 | |||
ROA (income before minority interests/average total assets) | 1.04 | 0.85 | 0.99 | |||
RORWA (income before minority interests/risk weighted assets) | 1.74 | 1.48 | 1.78 | |||
Dividend pay-out ratio | 55.0 | 64.5 | 51.8 | |||
Equity to assets ratio | 4.32 | 4.33 | 4.32 |
As of or for the year ended December 31, | ||||||
2006 | 2005 | 2004 | ||||
ROE (income attributed to the Group/average equity) | 37.6 | 37.0 | 33.2 | |||
ROA (income before minority interests/average total assets) | 1.26 | 1.12 | 0.97 | |||
RORWA (income before minority interests/risk weighted assets) | 2.12 | 1.91 | 1.62 | |||
Dividend pay-out ratio | 46.9 | 47.3 | 53.4 | |||
Equity to assets ratio | 4.42 | 3.32 | 3.32 |
F. | Competition |
The commercial banking sector in Spain has undergone significant consolidation. In the majority of the markets where we provide financial services, Santander Central Hispano is our strongest competitor.
We face strong competition in all of our principal areas of operation. The deregulation of interest rates on deposits in the past decade has led to increased competition for large demand deposits in Spain and the widespread promotion of interest-bearing demand deposit accounts and mutual funds. The capturing of customer funds in Spain had been characterized for several years by a large shift of deposits into mutual funds. However, last year we experienced a reverse shift of mutual funds into deposits. In 2002 and 2001, the performance of capital markets reversed this trend and our2005, mutual fund assets under management decreased during such period. In 2003, however, mutual fund deposits once again began to increase and grew by 16% over 2002, compared to the 4% decrease we experience12.0% and in 2002 versus 2001. During the same period, the2006 by 3.5%. The trend in deposits has been favorable and our deposits increased 8.5% in 2002 and 10.7% in 2003.
The commercialthe banking sector increased by 27.2% and 24.6% in Spain has undergone significant consolidation. In addition to the merger of Banco de Santander, S.A.2005 and Banco Central Hispano S.A. that formed Santander Central Hispano, S.A., BBV and Argentaria merged in October 1999. In the majority of the markets where we provide financial services, Santander Central Hispano is our strongest competitor.
Foreign banks also have a strong presence in Spain. As of December 31, 2003, approximately 12 foreign banks and 58 subsidiaries operated in Spain and several foreign banks have acquired small and medium-sized Spanish banks. Foreign banks and subsidiaries represented 5.3% of banking assets and 2.5% of financial system assets as of December 31, 2003.
2006, respectively.
Spanish savings banks and money market mutual funds provide strong competition for savings deposits, which form an important part of our deposit base, and, in the case of savings banks, for other retail banking services. Credit cooperatives, which are active principally in rural areas, where they provide savings bank and loan services and related services such as the financing of agricultural machinery and supplies, are also a source of competition.
The entry of on-line banks into the Spanish banking system has increased competition, mainly in customer funds businesses such as deposits and especially in saving and time deposits. Insurance companies and other financial services firms also compete for customer funds. Like the commercial banks, savings banks, insurance companies and other financial services firms are expanding the services offered to consumers in Spain.
We face competition in mortgage loans from saving banks and, to a lesser extent, cooperatives.
The EU Directive on Investment Services took effect on December 31, 1995. The EU Directive permits all brokerage houses authorized to operate in other member states of the EU to carry out investment services in Spain. Although the EU Directive is not specifically addressed to banks, it affects the activities of banks operating in Spain.
Foreign banks also have a strong presence in Spain. As of December 31, 2006, approximately 90 foreign banks, of which 70 were branches, operated in Spain and several foreign banks have acquired small and medium-sized Spanish banks.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
As part of a periodic review of our 2005 20-F by the Division of Corporation Finance of the SEC, we received on December 29, 2006 a comment letter from the SEC staff (the “Staff”). We have cooperated fully with the Staff in connection with their review in order to resolve all outstanding comments and provided our responses to the Staff on February 26, 2007. As of the date of filing this Annual Report, these comments remain unresolved.
The entrySEC Staff’s comments focused principally on:
1. | The presentation of certain performance subtotals in the face of the income statement and the extent of disclosures we made in our 2005 consolidated financial statements prepared under EU-IFRS. Our response to the Staff indicated that our income statement format followed the prescribed mandatory formats issued by the Bank of Spain in connection with the adoption of EU-IFRS in Spain, and also required by the CNMV, in their respective capacities as entities responsible for enforcing the application of EU-IFRS in Spain for Spanish credit institutions. |
2. | Requests for additional explanations of our accounting policies under EU-IFRS, the first time adoption of EU-IFRS and the reconciliation of items from EU-IFRS to U.S. GAAP. We advised the Staff in our response of certain clarifications and expanded disclosures we made in our 2006 IFRS financial statements in response to the Staff’s comments and such disclosures are included in our Consolidated Financial Statements. |
3. | Requests for explanations with respect to certain items included in the reconciliation from EU-IFRS to U.S. GAAP, the most significant of which relates to the use of different methodologies in computing our unallocated loan loss provisions under EU-IFRS and U.S. GAAP, as well as the recognition of the resulting measurement difference in the reconciliation to U.S. GAAP. We advised the Staff that until our internal models are reviewed and approved by the Bank of Spain, we are required by Bank of Spain Circular 4/2004 on EU-IFRS application to follow the methodology developed by the Bank of Spain based on historical statistical data relating to the entire Spanish financial system. However, we advised the Staff that, consistent with our past practice, we have continued to use our internal models for U.S. GAAP purposes as we believe that it would not be appropriate to change our methodology for U.S. GAAP under these circumstances as we believe our internal models provide the best estimate of our inherent loan loss provision. (See page F-120 for additional information on this specific item.) |
We believe that our accounting and disclosure of on-line banksthese transactions was and remains in conformity with International Financial Reporting Standards adopted by the European Union and with generally accepted accounting principles in the Spanish banking system has increased competition, mainly in savings and time deposits. They have captured two percentage points of market share in just three years through a very aggressive offer of high yield deposits. Moreover, changes in the tax treatment of savings products are encouraging competition from the investment fund and the pension fund industries.United States.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Overview
With world growth at approximately 5% in terms of global GDP (according to our internal estimates), 2006 became an extension of the economic boom that started in 2003. Despite the risks (oil prices, adjustments in
asset prices such as the U.S. housing market, increased disparity of trade balances, etc), the world’s economy continued expansion was supported by technical innovation and the emerging economies. This facilitated substantial growth and low inflation and generated a considerable increase in world trade. With long-term interest rates at relatively low levels and buoyant company earnings, share prices enjoyed an excellent year and recovered levels not seen since the recession in 2001.
In the first half of 2003 uncertainty regarding demand and increasing tensionU.S., with the economy slowing gradually in the Middle East resulted in a delay in the hoped for worldwide economic recovery. As a result of these factors and declining employer, consumer and investor confidence in many parts of the world, long-term interest rates remained at historical lows.
The war in Iraq in the Spring of 2003 did not put an end to sluggish worldwide economic growth. Although geopolitical risks decreased, continued slow economic growth sparked increased fears of recession, leadingsecond quarter, the U.S. Federal Reserve Board halted the upward cycle in interest rates at 5.25% in June. From that moment, long-term rates started a decline that led to a negative slope on the yield curve. The 10-year U.S. bond fell below the U.S. Federal Reserve Board’s benchmark rate.
The EU enjoyed solid growth in 2006; as domestic demand recovered and exceeded expectations. The Spanish economy benefited from these conditions and exceeded the forecasts made by the Group at the beginning of the year. Growth in terms of GDP (according to INE) in Spain was around 3.9%, helped by a smaller gap between the positive contributions of domestic demand and the European Central Bank to cut long-termnegative effect of the trade balance. As soon as the momentum in activity was confirmed, the ECB increased the pace at which it increased interest rates furtherbringing them to historical lows of 1.0% and 2.0%, respectively.
In the third quarter of 2003, more positive economic news began3.5% at year-end. This increase was reflected in short-term market rates (one-year Euribor moved up to emerge which led to an increase in optimism, particularly4% by year-end). However, after gaining ground in the business sector, for a number of reasons. First, not only did a recoveryfirst half, long-term rates declined in the second half of 2006 (although not as fast as the U.S. appear likely, but also improved expectations concerningbond). This resulted in a flat yield curve at the Japanese economy and the continued dynamic growthend of the Chinese economy provided additional support for increased worldwide economic growth. Second, indications began to emerge that businesses were looking to increase capital expenditures and low interest rates, a recovery of stock markets and a reduction in corporate debt spreads provided companies with favorable borrowing conditions. Third, optimism began to grow that improved productivity in the U.S., though based in part on a reluctance of companies to hire employees, had some permanence which would continue to sustain business activity in the future. In this more favorable economic context, long-term interest rates began to rise in the third and fourth quarters of 2003.
The U.S. dollar, however, continued to depreciate against the euro and several other major world currencies in 2003. The depreciating U.S. dollar undermined GDP growth in the euro zone, which increased a weak 0.5% and was lower in several major European economies, such as France and Germany. In 2003, as in previous years, Spain’s GDP grew faster than the EU average, achieving growth of approximately 2.4%. Spanish inflation in 2003, however, was also higher than the EU average.
year.
In Latin America, 2006 was also favorable. Growth was around 5% in terms of GDP (according to our own internal estimates) and the economic cycles of the different countries were largely in step. Country risk premiums fell in a context of institutional stability, capital flowed into the region and inflation moderated. The Mexican economy exceeded expectations with growth of 4.6% in terms of GDP (according to our own internal estimates) in 2006. This was supported by domestic demand and foreign trade as well as inflation, which was kept under control despite a modest 1.2%slight rebound at year-end. As a result, the local central bank held rates steady at 7% after a series of declines that ended in 2003, with Mexico’s GDP growing at a rate of 1.1%, due to its strong link toApril.
In 2006, the U.S. economy,dollar depreciated against the euro, dragging most Latin-American currencies with it. This had a negative effect on year-on-year comparisons on the Group’s balance sheet as of December 31, 2006. However, the impact on the income statement, which is determined by the variation in average exchange rates between 2005 and Brazil experiencing zero GDP growth. Argentina had the highest GDP growth, 8%, as it recovered after four years of recession. Latin America’s small increase in GDP was principally due to export growth since domestic demand generally remained depressed. The depreciation of several Latin American currencies and increasing prices for basic goods, for which demand was strong, particularly from China, set favorable conditions for the export market.2006, is only slightly negative.
The high trade surplus in 2003 contributed to current account surpluses in Latin America, which, together with improved capital flows, resulted in growth in reserves. Net private capital flows increased compared to 2002, but remained low by historical standards as a result of low foreign direct investment, which represents a significant part of foreign financing in many Latin American economies.
Critical Accounting Policies
The BBVA Group’s Consolidated Financial Statements as of and for the years ended December 31, 2006 and December 31, 2005 were prepared by the Bank’s directors in accordance with EU-IFRS and by applying the basis of consolidation, accounting policies and measurement bases described in Note 2 to the Consolidated Financial Statements, explainsso that they present fairly the Group’s equity and financial position at December 31, 2006 and December 31, 2005, and the results of its operations, the changes in consolidated equity and the consolidated cash flows in 2006 and 2005. These Consolidated Financial Statements were prepared on the basis of the accounting records kept by the Bank and by each of the other Group companies and include the adjustments and reclassifications required to unify the accounting policies and measurement bases used by the Group (Note 2.2 to the Consolidated Financial Statements).
In preparing the Consolidated Financial Statements are presentedestimates were occasionally made by the Group and the consolidated companies in order to quantify certain of the assets, liabilities, income, expenses and commitments reported herein. These estimates relate mainly to the following:
The impairment losses on certain assets.
The assumptions used in the format required by Bankactuarial calculation of Spain rulesthe post-employment benefit liabilities and commitments.
The useful life of tangible and intangible assets.
The measurement of goodwill arising on consolidation.
The fair value of certain unquoted assets.
Although these estimates were prepared by applyingmade on the generally accepted accounting principles for banksbasis of the best information available at December 31, 2006 on the events analyzed, events that take place in Spain, which include the accounting requirements established by the Bank of Spain (“Spanish GAAP”). future might make it necessary to change these estimates (upwards or downwards) in coming years.
The presentation format used and Spanish GAAP accounting principlesEU-IFRS applied vary in certain respects from generally acceptedthe presentation format and accounting principles in the United States (“rules required to be applied under U.S. GAAP”) and other rules that are applicable to U.S. banks. A description of the most significant valuation and income recognition principles under Spanish and U.S. GAAP applicableThe tables included in Note 62 to theour Consolidated Financial Statements give the effect that application of BBVA is set forth in Note 32.2.A.U.S. GAAP would have on income for the year and stockholders’ equity as reported under EU-IFRS.
Note 32 to the Consolidated Financial Statements contains a summary of our significant accounting policies. We consider certain of these policies to be particularly important due to their effect on the financial reporting of our financial condition and because they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the Consolidated Financial Statements. The nature of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered in conjunction withwhen reviewing our Consolidated Financial Statements and the discussion below. We have identified the following accounting policies as critical to the understanding of our results of operations, since the application of these policies requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change.
Fair value of financial instruments
The fair value of an asset or a liability on a given date is taken to be the amount for which it could be bought or sold on that date by two knowledgeable, independent parties in an arm’s length transaction acting prudently. The most objective and common reference for the fair value of an asset or a liability is the price that would be paid for it on an organized, transparent and deep market (“quoted price” or “market price”).
If there is no market price for a given asset or liability, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, by using mathematical measurement models sufficiently tried and trusted by the international financial community. Such estimates would take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent to the measurement models developed and the possible inaccuracies of the assumptions required by these models may signify that the fair value of an asset or liability thus estimated does not coincide exactly with the price for which the asset or liability could be purchased or sold on the date of its measurement.
Derivatives and other futures transactions
These instruments include unmatured foreign currency purchase and sale transactions, unmatured securities purchase and sale transactions, futures transactions relating to securities, exchange rates or interest rates, forward interest rate agreements, options relating to exchange rates, securities or interest rates and various types of financial swaps.
Macro hedges
These transactionsAll derivatives are carried out for hedgingrecognized in the balance sheet at fair value from the date of arrangement. If the fair value of a derivative is positive, it is recorded as an asset and overall managementif it is negative, it is recorded as a liability. Unless there is evidence to the contrary, it is understood that on the date of arrangement the fair value of the financial risksderivatives is equal to which wethe transaction price. Changes in the fair value of derivatives after the date of arrangement are exposed and aimed at eliminating or significantly reducing currency, interest rate or price risks on asset and liability positions. Similarly, we also treat as hedging transactions certain transactions which, although not specifically assigned to a specific hedged item, form part of global hedges or macro hedges used to reduce the risk to which we are exposed as a consequence of overall management of our assets, liabilities and other transactions. For this reason, the gains or losses arising from these hedging transactions are recorded symmetrically with the revenues and costs of the hedged items, and the collections or payments made in settlement of such hedging transactions are recordedrecognized with a balancing itementry under the “Other Liabilities”heading Gains or Losses on Financial Assets and “Other Assets” captionsLiabilities in the Consolidated Balance Sheets.
As of December 31, 2003 and 2002, we had arranged share price risk and interest rate risk macro hedges consisting of transactions in securities listed on the main international markets and long-term deposit transactions, respectively. The security price macro hedges were valued at a quoted market price or based on other valuation techniques. The settlements relating to the interest rate macro hedge were recorded under the accrual method. Our hedging transactions are subject to an integrated system of risk and earnings measurement, enabling us to continually monitor and assess the financial performance of such transactions. As part of this risk monitoring system, for each macro hedge, we record provisions for credit, market and operating risk in accordance with banking practice for similar transactions. In connection with our macro hedging policy, we make assumptions as to interest rates and exchange rates.
Non-hedging transactions valuation
Non-hedging transactions, which are also known as trading transactions, are valued in accordance with Bank of Spain regulations based on the market on which they are traded:
Although Bank of Spain’s rules provide guidance regarding valuation of OTC derivative financial instruments, we are required to make estimates and assumptions regarding valuations, such as with respect to the futures quotations, maturities and the effects of markets risks.
Theoretical closings are the most reliable measure of fair value for derivative financial instruments. The determination of fair value requires us to make estimates and certain assumptions. If listed market prices are not available, we have to calculatestatement. Specifically, the fair value from commonlyof the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price, If, under exceptional circumstances, their quoted price cannot be established on a given date, these derivatives are measured using methods similar to those used pricing models that consider contractual prices for the underlying financial instruments, yield curves and other relevant factors. Our use of different estimates or assumptions in these pricing models could lead to different amounts being recorded in our Consolidated Financial Statements.
measure over-the-counter (“Provision for the statistical coverage of credit lossesOTC”) derivatives.
The fair value of OTC derivatives is equal to the sum of the future cash flows arising from the instrument, discounted at the measurement date (“present value” or “theoretical close”); these derivatives are measured using methods recognized by the financial markets, including the net present value (“NPV”) method and option price calculation models.
In December 1999, the Bank of Spain introduced a new solvency provision, the so-called statistical or dynamic provision, focusing on the statistical risk embeddedFinancial derivatives that have as their underlying equity instruments, whose fair value cannot be determined in a bank’s unimpaired loan portfolio. This provision went into effect in July 2000. The main idea behind this provision is to try to capture expected losses, which, during the pendencysufficiently objective manner and are settled by delivery of loans,those instruments, are known in a statistical sense but are not yet quantifiable or attributable to specific borrowers. Since the loss risk appearsmeasured at the beginning of the loan, so does the statistical provision requirement.cost.
The amount of the statistical provision is the difference between the measure of latent risk (expected losses) and any specific provisions already taken (covering impaired assets). In a favorable economic climate, specific provisions are low and statistical provisions are positive. However, during an economic slowdown, as impaired assets increase, specific provisions also increase and the statistical provisions become negative. This means that the statistical fund (accumulated in previous years) starts being used and its proceeds (the difference between the latent risk and the specific provisions) are credited to the Net Loan Loss Provisions line item of the Consolidated Statement of Income.
The new Bank of Spain solvency provision offers banks two options for establishing loan loss provisions. First, to use their own internal measurements of the statistical credit risk and second, to use a standard method wherein the Bank of Spain sets the parameters. We use the standard method, dividing our loan portfolio into six groups, according to the relative riskiness of our different assets, or of our off-balance sheet items with credit risk. A vector of coefficients (ranging from 0 to 1.5%) determined by the Bank of Spain is applied to the loans in each of the six groups. The resulting figure is the estimated expected loss for our entire loan portfolio.
We are currently working on developing our own internal method for calculating statistical credit risk, which is intended to be consistent with the principles of the Basel II accords.
Goodwill in consolidation
This line item in our Consolidated Statement of Income includes theThe positive differences between the acquisition cost of shares of consolidated companies or companies carried bybusiness combinations and the equity method and their underlying book value, if such differences cannot be classified as additions to the book value of specific assetsacquired percentage of the acquired companies.
We generally amortize goodwill on a straight-line basis over a maximum period of 10 years (20 years for certain non-financial holdings) based on our assumption that this is the period over which the underlying investments will produce income for us.
If we determine that goodwill will not generate income as expected, we may be required to adjust the amortization period accordingly. For example, in 2001 we wrote off in full the unamortized goodwill resulting from our investments in Argentina. The write-off occurred when we realized that no profits resulting from such investments could be expected in the short-term.
Unrealized losses in investment securities
At the end of every fiscal year, we assess our investment securities to determine whether a decline in their fair value has resulted in unrealized gains or losses. If unrealized losses are characterized as “other than temporary”, such losses would be required to be taken as a charge in our Consolidated Statement of Income. In order to assess whether unrealized gains or losses exist, we must first identify whether there has been a change in the securities’ fair value by applying specific valuation methodologies under Spanish GAAP depending on whether the security is debt or equity and part of our trading portfolio, held-to-maturity portfolio or available-for-sale portfolio.
Determinations of fair value for listed securities are generally based on market prices and for unlisted securities on discounted cash flows (for debt) and book value (for equity). A change in fair value that results in a fair value that is lower than amortized cost will generally give rise to an unrealized loss.
Once an unrealized loss has been identified, it must then be classified as “temporary” or “other than temporary”. Under Spanish GAAP there are no general rules regarding the methodologies and factors that must be used or the period of time needed to consider an unrealized loss as “temporary” or “other than temporary”. BBVA’s management considers that an unrealized loss is “temporary” under Spanish GAAP if it believes that it will collect or recover all of the unrealized loss or when due to market conditions (volatility, interest rate evolution or macroeconomic variables) or future expectations, management considers that all or part of an unrealized loss will be recovered. BBVA’s management considers that an unrealized loss is “other than temporary” if it believes that it will not collect or recover all the unrealized loss (credit risk), or when due to market conditions (volatility, interest rate evolution, macroeconomic variables) or future expectations, management considers that all or part of an unrealized loss will not be recovered (market risk). Based on the foregoing factors, BBVA’s management will conclude that an unrealized loss is “other than temporary” when a demonstrable recovery in thenet fair value of the securityassets, liabilities and contingent liabilities of the acquirees are recorded as goodwill on the asset side of the balance sheet. Goodwill represents the future economic benefits from assets that cannot be individually identified and separately recognized. Goodwill is not amortized but is submitted to impairment analysis. Any impaired goodwill is written off.
Goodwill is allocated to one or more cash-generating units expected to benefit from the synergies arising from business combinations. The cash-generating units represent the Group’s business and/or geographical segments as managed internally by its directors.
The cash-generating units to which goodwill has been allocated are tested for impairment based on the carrying amount of the unit including the allocated goodwill. Such testing is performed at least annually and whenever there is an indication of impairment.
For the purpose of determining the impairment of a cash-generating unit to which goodwill has been allocated, the carrying amount of that unit, adjusted by the theoretical amount of the goodwill attributable to the minority interest, shall be compared with its recoverable amount. The resulting loss shall be apportioned by reducing, firstly, the carrying amount of the goodwill allocated to that unit and, secondly, if there are still impairment losses remaining to be recognized, the carrying amount of the rest of the assets. This shall be done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the near future (one year). BBVA’s management performs this analysis atunit. It will be taken into account that no impairment of goodwill attributable to the end of each reporting period.
As described above, if an unrealized loss is classified as “other-than-temporary” we are required by Bank of Spain regulations to take a charge to our Consolidated Statement of Income under the “net securities write downs” and “market operations” line items.
Our total unrealized losses were €60.3 million, €551.9 million and €116.3 million as of December 31, 2003, 2002 and 2001, respectively.
Charges to our Consolidated Statement of Income as of December 31, 2002 were €282,003 thousand. There were no charges to Consolidated Statement of Income as of December 31, 2003 and 2001.
If management’s assumptions and estimates concerning the probability that we will recover all or part of unrealized losses prove to be inaccurate, or if such assumptions and estimates are modified in light of the evolution of the factors described above, weminority interest may be requiredrecognized, In any case, impairment losses on goodwill can never be reversed.
Pension commitments and other commitments to changeemployees
Pension and post-retirement benefit costs and credits are based on actuarial calculations. Inherent in these calculations are assumptions including discount rates, rate of salary increase and expected return on plan assets. Changes in pension and post-retirement costs may occur in the classificationfuture as a consequence of certain unrealized losses from “temporary”changes in interest rates, expected return on assets or other assumptions. See Note 2.2.e and Note 29 to “other than temporary” and, accordingly, take a corresponding charge to our Consolidated Statement of Income.
International Financial Reporting Standards
We currently prepare ourthe Consolidated Financial Statements, in accordance with Spanish GAAP. In June 2002, the Councilwhich contains a summary of Ministers of the European Union adopted new regulations that would require any listed EU company to apply International Financial Reporting Standards (“our significant accounting policies.
IFRSAllowance for loan losses”) (previously known as International Accounting Standards or “IAS”) in preparing its consolidated financial statements beginning January 1, 2005. The International Accounting Standards Board issued draft IFRSs on June 19, 2003.
On September 29, 2003,Our loan loss reserve is intended to cover losses in connection with substandard loans (including risks and other losses relating to certain performing loans and operations). As we describe in Note 2.2.b.4 to the European Parliament and the Council of Ministers of the European Union adopted all the IFRS/IAS in existence on September 14, 2002 except IAS 32 and IAS 39, which addresses recognition and measurement of financial instruments and will therefore be likely to significantly influence the preparation of our Consolidated Financial Statements, under IFRS. Continuing developments in IFRS are expected between now a loan is considered to be an impaired or substandard loan—and 2005 and, accordingly,therefore its carrying amount is adjusted to reflect the effect of its impairment—when there is uncertainty concerning what IFRSs will be required in 2005, and in particular, about the final version of IAS 39. Consequently, to date, we are unable to estimate the net effectobjective evidence that applying IFRS willevents have on our results of operations or financial condition, or any component thereof. The effect of such differences, however, may be material, individually oroccurred which, in the aggregate,case of loans, give rise to financial items reported in our Consolidated Financial Statements relating, among other things, to the accounting treatment for derivative instruments, financial instruments, intangible assets, deferred costs, business combinations and goodwill. The adoption of IFRS may, as a result, affect the valuation methods used to measure and evaluate our performance and make it more difficult to compare our results of operations and financial condition for periods in respect of which IFRS is applied to our results of operations and financial conditions to periods in respect of which Spanish GAAP is applied.
Events affecting comparability of historical and future results of operations and financial condition
Argentina
Political and economic conditions in Argentina in the last several years have had a significant negative effectimpact on the entire Argentinean banking sector and have consequently severely affectedfuture cash flows that were estimated at the operating resultstime the transaction was arranged.
As a general rule, the carrying amount of our Argentinean banking, and, to a lesser extent, pension fund management operations during the period. Though macroeconomic and political conditions improved in Argentina in 2003, significant instability remained and the extent and scope of any economic and banking recovery are uncertain.
In 2001, we took substantial provisions and write-downs totaling €1,354 million relating to our investments in, and exposure to, Argentina. This amount included provisions of €617 million relating to our entire investment in Argentina, bad debt provisions of €416 million, additional country risk provisions of €34 million, provisions of €92 million relating to the value of Argentine government bonds held by BBVA, a downward revision of €72 million related to the expected reduction in net income and reduced capital gains arising from companies we carry by the equity method and from our portfolio of financial investments and a write-down of €123 million of goodwill corresponding to our Argentine investments. In addition, in 2001 we tookan impaired loan is adjusted with a charge to the reserves at consolidated companies (in retained earnings) line item in our Consolidated Balance Sheets of €683 million to accountincome statement for the devaluationyear in which the impairment becomes known, and the recoveries of previously recognized impairment losses are recognized in the consolidated income statement for the year in which the impairment is reversed or reduced.
The amount of the Argentine Peso from ARP1.0 per U.S.$1.00impairment losses incurred on these instruments relates to ARP1.7the positive difference between their respective carrying amounts and the present values of their expected future cash flows. The following is to U.S.$1.00 (the opening rate followingbe taken into consideration when estimating the closurefuture cash flows:
all the amounts that are expected to be obtained over the residual life of the Argentine foreign exchange market), asinstrument, including, where appropriate, those which may result from the guarantees provided for the instrument (after deducting the costs required for foreclosure and subsequent sale);
the various types of December 31, 2001.risk to which each instrument is subject; and
the circumstances in which collections will foreseeably be made.
These cash flows are subsequently discounted using the instrument’s effective interest rate (if its contractual rate is fixed) or the effective contractual interest rate at the discount date (if it is variable).
The possible impairment losses on these assets are determined:
In 2002, we entered intoindividually, for all significant loans and for those which, although not significant, cannot be classified in homogenous groups of instruments of similar characteristics, i.e., by instrument type, debtor’s industry and geographical location, type of guarantee, age of past-due amounts, etc.; or
collectively, in all other cases.
Criteria for determining impairment losses resulting from materialization of the insolvency risk of the obligors have been established. Under these criteria, a seriesloan is impaired due to insolvency:
when there is evidence of a deterioration of the obligor’s ability to pay, either because it is in arrears or for other reasons; and/or
when country risk materializes; country risk is considered to be the risk associated with debtors resident in a given country due to circumstances other than normal commercial risk.
Similarly, different classifications of transactions with Banco Francéshave been established on the basis of the nature of the obligors, the conditions of the countries in which they reside, transaction status, type of associated guarantees, and made an additional provisiontime in arrears. For each of €131 millionthese risk groups minimum impairment losses (“identified losses”) that must be recognized in respectthe financial statements of securities issuedconsolidated entities are established by Banco Francés and held by us. This amount was charged to our 2002 consolidated statement of income.
BBVA.
In 2003, BBVA didaddition to the recognition of identified losses, provisioning, for the losses inherent in loans not make any additional investmentsmeasured at fair value through profit or loss and in or provide anycontingent risks classified as standard is recognized taking into account the historical experience of impairment and the other circumstances known at the time of the assessment. For these purposes, inherent losses are the losses incurred at the date of the financial assistancestatements, calculated using statistical procedures, that have not been allocated to specific transactions.
The Group has implemented a methodology which complies with EU-IFRS and is consistent with by the Bank of Spain requirements related to the determination of the level of provisions required to cover inherent losses. The aforementioned methodology takes as the first step the classification of portfolios considered as normal risk (debt instruments not valued at their fair value with changes in the income statement, as with contingent risks and contingent commitments). Once the portfolios have been classified in the aforementioned groups, the Bank of Spain, based on its subsidiariesexperience and the information available to it with respect to the Spanish banking sector, has determined the method and amount of the parameters that entities should apply in Argentina.the calculation of the provisions for inherent losses in debt instruments and contingent risks classified as normal risk.
The Group estimates the provisions to be made to create these allowances using models based on our own credit loss experience and management’s estimates of future credit losses. The Group has developed internal risk models, based on historical information available for each country and type of risk (homogenous portfolios). For a discussion of our credit risk management system, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk”. These models produce a range of results that comprises the level of provisions that we arrive at using the model established by the Bank of Spain as explained above. These internal models may be applied in future periods but are subject to local regulatory review (the Bank of Spain). In order for each internal model to be considered valid by the local regulator, the calculation should be methodologically correct, and be supported by historical information which covers at least one complete economic cycle and stored in databases which are consistent with information that has been audited by both the Group’s internal audit function.
The development of the internal model has led to the introduction of databases that can be used to accurately estimate the risk parameters required in the calculation of capital and expected loss, following best practices in the market and the guidelines of the New Capital Accord (Basel II).
Although there should be no substantial difference in the calculation of loan allowances between EU-IFRS and U.S. GAAP, the Bank has included in the reconciliation of stockholders’ equity and net income a difference between EU-IFRS and U.S. GAAP related to the determination of allowance losses not allocated to specific loans. According to U.S. GAAP, the loan loss allowance should represent the best estimate of probable losses in possible scenarios. Under EU-IFRS, the Bank has additionally applied the statistical percentages obtained from historical trends as determined by the Bank of Spain’s guidance. As a result, the loan allowances not allocated to specific loans, as determined by using this method, are higher than those meeting the requirements of U.S. GAAP, being the amounts determined under both generally accepted accounting principles within the range of possible estimated losses calculated internally by the Group.
The estimates of the measures described above, we provisionedportfolio’s inherent risks and overall recovery vary with changes in the economy, individual industries, countries and individual borrowers’ or counterparties’ ability and willingness to repay their obligations. The degree to which any particular assumption affects the allowance for or wrote off our entire investmentcredit losses depends on the severity of the change and its relationship to the other assumptions.
Key judgments used in Argentinadetermining the allowance for loan losses include: (i) risk ratings for pools of commercial loans and leases; (ii) market and collateral values and discount rates for individually evaluated loans; (iii) product type classifications for consumer and commercial loans and leases; (iv) loss rates used for consumer and commercial loans and leases; (v) adjustments made to date. However, despite these provisionsassess current events and write-downs, the situation in Argentina may continue to have a material adverse effect on our financial conditionconditions; (vi) considerations regarding domestic, global and results of operations.individual countries economic uncertainty; and (vii) overall credit conditions.
A. | Operating Results |
Sale of BBV Brasil, S.A.
On January 13, 2003, BBVA announced its intention to sell its Brazilian affiliate, Banco Bilbao Vizcaya Argentaria Brasil, S.A. (“BBV Brasil”) to Banco Bradesco, S.A. (“Bradesco”). On June 9, 2003, upon completion of due diligence, receipt of authorizations from regulatory authorities and approval byFactors Affecting the corresponding corporate bodies, BBVA transferred 100% of BBV Brasil to Bradesco, in consideration for which Bradesco paid 35,481,460,311 of its newly-issued ordinary shares and 34,948,501,563 of its newly-issued preferred shares, totaling 4.44% of Bradesco’s share capital, as well as 1,864 million Brazilian Reais in cash, for a total consideration of approximately 2,626 million Brazilian Reais (approximately $900 million). During the second half of 2003, BBVA increased its interest in Bradesco to 5.0%.
As a resultComparability of our agreementResults of Operations and Financial Condition
We are exposed to sell our entire interest in BBV Brasil, S.A. in January 2003, under Spanish GAAP we accounted for BBV Brasil’s results of operations from January 1, 2003 until June 9, 2003 under the equity method, rather than under full consolidation, which we had applied in 2002 and 2001. In addition, also consistent with Spanish GAAP, for the remainder of 2003 we accounted for our interest in Bradesco under the equity method. Accordingly, whereas in 2002 and 2001 each of the line items in our Consolidated Statement of Income reflected the contribution of BBV Brasil, in 2003 our Brazilian results of operations and investments are reflected only in the “Net income from companies accounted for by the equity method” line item in our Consolidated Statement of Income.
In addition, in connection with our decision to sell BBV Brasil in January 2003, we recorded €189 million of net extraordinary charges, which included an estimated €245 million inforeign exchange rate differences accumulated up to December 31, 2002 relating to BBV Brasil. These provisions were reflectedrisk in that our reporting currency is the “Net income on Group transactions” line itemeuro, whereas certain of our Consolidated Statement of Income.
Other Provisionssubsidiaries keep their accounts in other currencies, principally Mexican pesos, Argentine pesos, Chilean pesos, Colombian pesos, Venezuelan bolivars, Peruvian nuevos soles and Charges
In 2002, we elected to take provisions and extraordinary charges of €129 million of extraordinary goodwill amortization in respect of our investments in subsidiaries located in non-investment grade countries, such as Colombia, Venezuela and Peru. These provisions were based on our assessment of the prospects for economic recovery in these countries, the prolongation of the negative effect on earnings of the depreciation in severalU.S. dollars. For example, if Latin American currencies and the overall likelihood of our recovering the full value of our investments. In 2002, we also took €81 million of special provisions for early retirement expenses.
Effect of the Depreciation of Latin American Currencies
BBVA’s results of operations and financial condition in 2003, 2002 and 2001 were significantly affected by the sharp decline in exchange rates of many of the Latin American currencies in countries in which BBVA operates against the euro. As Latin American currenciesU.S. dollar depreciate against the euro, when the results of operations and financial condition of our Latin American subsidiaries are included in our Consolidated Financial Statements, the euro value of suchtheir results declines, even if, in local currency terms, the Latin American subsidiaries’their results of operations and financial condition have improvedremained the same or remained flatimproved relative to the prior year. The following table sets forth the exchange rates of several Latin American currencies against the euro, expressed in local currency=€1.00 at December 31, 2003 and 2002, according to the European Central Bank.
December 31, 2003 | D% from previous year | December 31, 2002 | D% from previous year | |||||||
Mexican peso | 14.1882 | (22.7 | ) | 10.9700 | (26.4 | ) | ||||
Venezuelan bolivar | 2.020.20 | (28.1 | ) | 1,453.49 | (53.5 | ) | ||||
Colombian peso | 3,508.77 | (14.4 | ) | 3,003.00 | (32.9 | ) | ||||
Chilean peso | 748.50 | 0.9 | 755.29 | (22.9 | ) | |||||
Peruvian new sol | 4.3810 | (15.9 | ) | 3.6867 | (17.7 | ) | ||||
Argentine peso | 3.7195 | (4.8 | ) | 3.5394 | (75.1 | ) | ||||
U.S. dollar | 1.2630 | (17.0 | ) | 1.0487 | (16.0 | ) |
For BBVA, the most significant country that has been adversely affected by declining exchange rates has been Mexico where, as indicated in the foregoing table, the Mexican peso/euro exchange rate has fallen sharply over 2002 and 2003, declining approximately 49% over the two year period. The effect of declining exchange rates in Mexico and in several of the other Latin American countries in which we operate is an important factor that, if this trend were to change and exchange rates improve, may affect the comparability of our historical and future results of operations and financial condition. In addition,Accordingly, declining exchange rates may limit the ability of our results of operations, stated in euro, to fully describe the performance in local currency terms of our Latin American subsidiaries.
Consolidated Statement By contrast, the appreciation of Income
Our Consolidated StatementLatin American currencies and the U.S. dollar against the euro would have a positive impact on the results of Income covering the years ended December 31, 2003, 2002 and 2001 is set out below.
Consolidated Statement of Income
Year ended December 31, | Change | ||||||||||||||
2003 | 2002 | 2001 | 2003/2002 | 2002/2001 | |||||||||||
(in millions of euro) | (in percentages) | ||||||||||||||
Net interest income | 6,741 | 7,808 | 8,824 | (13.7 | ) | (11.5 | ) | ||||||||
Net fee income | 3,263 | 3,668 | 4,038 | (11.0 | ) | (9.1 | ) | ||||||||
Basic margin | 10,004 | 11,476 | 12,862 | (12.8 | ) | (10.8 | ) | ||||||||
Market operations | 652 | 765 | 490 | (14.8 | ) | 56.1 | |||||||||
Ordinary revenue | 10,656 | 12,241 | 13,352 | (12.9 | ) | (8.3 | ) | ||||||||
General administrative expenses | (5,031 | ) | (5,772 | ) | (6,725 | ) | (12.8 | ) | (14.2 | ) | |||||
Personnel costs | (3,263 | ) | (3,698 | ) | (4,243 | ) | (11.8 | ) | (12.9 | ) | |||||
Other administrative expenses | (1,768 | ) | (2,074 | ) | (2,482 | ) | (14.7 | ) | (16.4 | ) | |||||
Depreciation and amortization | (511 | ) | (631 | ) | (742 | ) | (19.0 | ) | (14.9 | ) | |||||
Other operating revenues and expenses, net | (219 | ) | (261 | ) | (286 | ) | (16.1 | ) | (8.7 | ) | |||||
Net operating income | 4,895 | 5,577 | 5,599 | (12.2 | ) | (0.4 | ) | ||||||||
Net income from companies accounted for by the equity method | 383 | 33 | 393 | n.m. | (1) | (91.5 | ) | ||||||||
Amortization of consolidation goodwill | (639 | ) | (679 | ) | (1,143 | ) | (5.9 | ) | (40.6 | ) | |||||
Net income on Group transactions | 553 | 361 | 954 | 53.2 | (62.2 | ) | |||||||||
Net loan loss provisions | (1,277 | ) | (1,743 | ) | (1,919 | ) | (26.7 | ) | (9.2 | ) | |||||
Net securities write-downs | — | 3 | (43 | ) | — | — | |||||||||
Extraordinary items, net | (103 | ) | (433 | ) | (727 | ) | (76.2 | ) | (40.4 | ) | |||||
Pre-tax profit | 3,812 | 3,119 | 3,114 | (22.2 | ) | 0.2 | |||||||||
Corporate income tax and other taxes | (915 | ) | (653 | ) | (625 | ) | 40.1 | 4.4 | |||||||
Income before minority interests | 2,897 | 2,466 | 2,489 | 17.5 | (0.9 | ) | |||||||||
Minority interests | (670 | ) | (747 | ) | (646 | ) | (10.3 | ) | 15.8 | ||||||
Net attributable profit | 2,227 | 1,719 | 1,843 | 29.5 | (6.7 | ) | |||||||||
Results of operations for 2003 compared with 2002
Net interest income
Net interest income for 2003 amounted to €6,741 million, a decrease of 13.7% from €7,808 million in 2002, principally due to the negative effect of converting to euro the net interest income of several of our Latin American subsidiaries, fromwhen their results of operations are included in our Consolidated Financial Statements.
The assets and liabilities of our subsidiaries which keep their accounts in currencies other than the euro have been translated to euro at the period-end exchange rates for inclusion in our Consolidated Financial Statements. Income statement items have been translated at the average exchange rates for the period. The following table sets forth the exchange rates of several Latin American currencies and the U.S. dollar against the euro, expressed in local currency whichper €1.00 at December 31, 2006, 2005 and 2004, respectively, according to the European Central Bank.
As of December 31, | Change | ||||||||||
2006 | 2005 | 2004 | 2006/2005 | 2005/2004 | |||||||
(in percentages) | |||||||||||
Mexican peso | 14.3230 | 12.6357 | 15.1823 | (13.4 | ) | 20.2 | |||||
Venezuelan bolivar | 2,824.86 | 2,531.65 | 2,610.97 | (11.6 | ) | 3.1 | |||||
Colombian peso | 2,941.18 | 2,695.42 | 3,205.13 | (9.1 | ) | 18.9 | |||||
Chilean peso | 703.73 | 606.80 | 759.30 | (16.0 | ) | 25.1 | |||||
Peruvian new sol | 4.2098 | 4.0434 | 4.4745 | (4.1 | ) | 10.7 | |||||
Argentinean peso | 4.0679 | 3.5907 | 4.0488 | (13.3 | ) | 12.8 | |||||
U.S. dollar | 1.3170 | 1.1797 | 1.3621 | (11.6 | ) | 15.5 |
As shown in the table above, in 2006, the main Latin American currencies and the U.S. dollar depreciated against the euro, in 2003, in our Consolidated Statement of Income. The effect of the depreciation of Latin American currencieswhich had a negative impact on our reportedresults of operations for 2006 compared to 2005 and therefore affects the comparability of our historical results of operations for these two years.
For information on the extent to which foreign currency net investments are hedged, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.
BBVA Group Results of Operations for 2006 Compared with 2005
The changes in the Group’s consolidated income statements for 2006 and 2005 were as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Consolidated Statement of Income | |||||||||
Interest and similar income | 19,210 | 15,848 | 21.2 | ||||||
Interest expense and similar charges | (11,216 | ) | (8,932 | ) | 25.6 | ||||
Income from equity instruments | 379 | 292 | 29.7 | ||||||
Net interest income | 8,374 | 7,208 | 16.2 | ||||||
Share of profit or loss of entities accounted for using the equity method | 308 | 121 | 153.2 | ||||||
Fee and commission income | 5,119 | 4,669 | 9.6 | ||||||
Fee and commission expenses | (784 | ) | (729 | ) | 7.5 | ||||
Insurance activity income | 650 | 487 | 33.6 | ||||||
Gains/(losses) on financial assets and liabilities (net) | 1,656 | 980 | 68.9 | ||||||
Exchange differences (net) | 378 | 287 | 31.6 | ||||||
Gross income | 15,701 | 13,023 | 20.6 | ||||||
Sales and income from the provision of non-financial services | 605 | 576 | 5.0 | ||||||
Cost of sales | (474 | ) | (451 | ) | 5.2 | ||||
Other operating income | 117 | 135 | (13.0 | ) | |||||
Personnel expenses | (3,989 | ) | (3,602 | ) | 10.7 | ||||
Other administrative expenses | (2,342 | ) | (2,160 | ) | 8.4 | ||||
Depreciation and amortization | (472 | ) | (449 | ) | 5.2 | ||||
Other operating expenses | (263 | ) | (249 | ) | 5.6 | ||||
Net operating income | 8,883 | 6,823 | 30.2 | ||||||
Impairment losses (net) of which: | (1,504 | ) | (854 | ) | 76.0 | ||||
Loan loss provisions | (1,477 | ) | (813 | ) | 81.6 | ||||
Provision expense (net) | (1,338 | ) | (454 | ) | 194.6 | ||||
Finance income from non-financial activities | 58 | 2 | n.m. | (1) | |||||
Finance expenses from non-financial activities | (55 | ) | (2 | ) | n.m. | (1) | |||
Other gains | 1,129 | 285 | 296.3 | ||||||
Other losses | (142 | ) | (208 | ) | (31.9 | ) | |||
Income before tax | 7,031 | 5,591 | 25.7 | ||||||
Income tax | (2,059 | ) | (1,521 | ) | 35.4 | ||||
Income from continuing operations | 4,971 | 4,070 | 22.1 | ||||||
Income from discontinued operations (net) | — | — | — | ||||||
Consolidated income for the period | 4,971 | 4,070 | 22.1 | ||||||
Income attributed to minority interests | (235 | ) | (264 | ) | (11.0 | ) | |||
Income attributed to the Group | 4,736 | 3,806 | 24.4 | ||||||
(1) | Not meaningful |
Net Interest Income
The following table summarizes the principal components of net interest income more than offset modestfor 2006 compared to 2005.
Year ended December 31, | Change | |||||||
2006 | 2005 | 2006/2005 | ||||||
(in millions of euros) | (in percentages) | |||||||
Interest and similar income | 19,210 | 15,848 | 21.2 | |||||
Interest expense and similar charges | (11,216 | ) | (8,932 | ) | 25.6 | |||
Income from equity instruments | 379 | 292 | 29.7 | |||||
Net interest income | 8,374 | 7,208 | 16.2 | |||||
Net interest income came to €8,374 million, an increase of 16.2% over the €7,208 million obtained in 2005. This increase was due to the growth in our core domestic commercial bankinglending and customer funds in Latin America and Spain, as well as customer spreads.
Spreads in the Spanish private sector maintained an upward trend throughout the year. This is because increases in market rates, which are largely transferred to loan yields, increased at a faster pace than the cost of deposits.
In Mexico, in 2006 average TIIE (Tasa de Interés Interbancaria de Equilibrio – Interbank Interest Rate) was lower than in 2005. Despite this decline in interest rates, BBVA Bancomer improved customer spreads. These improvements in spreads and the increase in business which experienced significant pressure on yield spreadsvolume, especially lending, boosted net interest income 33.7% year-on-year in pesos. The South America area also recorded strong growth in net interest income supported by the higher volume of lending and deposits.
Share of Profit or Loss of Entities Accounted for Using the Equity Method
Our share of profit from entities accounted for using the equity method was €308 million in 2006, compared to €121 million in 2005. The main contributor was Corporación IBV (€251 million), boosted by the sale of part of its investment in Gamesa, S.A. The sale of shares in BNL in May reduced its contribution to €25 million, compared to €73 million in 2005.
Net Fee and Commission Income
Fee and Commission Income
The breakdown of fee and commission income in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||
2006 | 2005 | 2006/2005 | |||||
(millions of euros) | (in percentages) | ||||||
Commitment fees | 56 | 50 | 11.6 | ||||
Contingent liabilities | 204 | 176 | 15.6 | ||||
Documentary credits | 33 | 31 | 6.8 | ||||
Bank and other guarantees | 171 | 145 | 17.4 | ||||
Arising from exchange of foreign currencies and banknotes | 20 | 18 | 12.6 | ||||
Collection and payment services | 2,274 | 2,019 | 12.7 | ||||
Securities services | 2,017 | 1,948 | 3.5 | ||||
Counseling on and management of one-off transactions | 14 | 16 | (12.3 | ) | |||
Financial and similar counseling services | 18 | 11 | 71.2 | ||||
Factoring transactions | 19 | 19 | 3.4 | ||||
Non-banking financial products sales | 79 | 40 | 96.5 | ||||
Other fees and commissions | 416 | 372 | 11.9 | ||||
Fee and commission income | 5,119 | 4,669 | 9.6 | ||||
Fee and commission income for 2006 amounted to €5,119 million, a 9.6% increase from €4,669 million in 2005, mainly due to a 12.7% increase in collection and payment services to €2,274 million in 2006 from €2,019 million in 2005, primarily due to an increase in business volume.
Fee and Commission Expenses
The breakdown of the fee and commission expenses in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Brokerage fees on lending and deposit transactions | (11 | ) | (13 | ) | (15.5 | ) | |||
Fees and commissions assigned to third parties | (560 | ) | (519 | ) | 7.9 | ||||
Other fees and commissions | (213 | ) | (197 | ) | 7.9 | ||||
Fee and commission expenses | (784 | ) | (729 | ) | 7.5 | ||||
Fee and commission expenses for 2006 amounted to €784 million, a 7.5% increase from €729 million in 2005, mainly due to a 7.9% increase in fees and commissions assigned to third parties to €560 million in 2006 from €519 million in 2005, primarily due to an increase in fees paid to intermediary service providers as a result of extremely lowincreased business volumes.
Net Fee and Commission Income
As a result of the foregoing, net fee and commission income for 2006 totaled €4,335 million, a 10.0% increase from €3,940 million in 2005.
Insurance Activity Income
Net insurance activity income for 2006 amounted to €650 million, a 33.6% increase from €487 million in 2005, relating mainly to growth in our insurance business in Spain and Portugal, as well as in South America.
Gains or Losses on Financial Assets and Liabilities (Net) – Exchange Differences (Net)
Gains on financial assets (net) amounted to €1,656 million in 2006, a 68.9% increase from €980 million in 2005. Exchange differences (net) amounted to €378 million, an increase of 31.6% from €287 million in 2005. The increase was mainly due to the Wholesale Businesses area (primarily market operations and the sale of derivatives to customers) and to South America (especially Argentina). Therefore, net trading income in 2006 contributed €2,034 million an increase of 60.5% from €1,267 million in 2005. Of this figure, €523 million were capital gains related to the sale of the Group’s interest in Repsol.
Gross Income
As a result of the foregoing, gross income amounted to €15,701 million in 2006, a 20.6% increase from €13,023 million in 2005.
Personnel Expenses
The breakdown of personnel expenses in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Wages and salaries | (3,012 | ) | (2,744 | ) | 9.8 | ||||
Social security costs | (504 | ) | (472 | ) | 6.8 | ||||
Transfers to internal pension provisions (Note 29) | (74 | ) | (69 | ) | 7.8 | ||||
Contributions to external pension funds (Note 29) | (53 | ) | (56 | ) | (5.7 | ) | |||
Other personnel expenses | (346 | ) | (262 | ) | 32.0 | ||||
Personnel expenses | (3,989 | ) | (3,602 | ) | 10.7 | ||||
Personnel expenses for 2006 amounted to €3,989 million, a 10.7% increase from €3,602 million in 2005, mainly due to a 9.8% increase in wages and salaries to €3,012 million in 2006 from €2,744 million in 2005 as a result of an increase in the average number of employees of the BBVA Group to 95,738 in 2006 from 90,744 in 2005. The increase in the number of employees in 2006 was due mainly to the addition of employees resulting from the acquisition of Texas Regional Bancshares in November 2006.
Other Administrative Expenses
The breakdown of other administrative expenses during in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Technology and systems | (496 | ) | (434 | ) | 14.1 | ||||
Communications | (218 | ) | (203 | ) | 7.5 | ||||
Advertising | (207 | ) | (212 | ) | (2.1 | ) | |||
Property, fixtures and materials | (451 | ) | (415 | ) | 8.5 | ||||
Taxes other than income tax | (203 | ) | (213 | ) | (4.9 | ) | |||
Other expenses | (768 | ) | (683 | ) | 12.4 | ||||
Other administrative expenses | (2,342 | ) | (2,160 | ) | 8.4 | ||||
Other administrative expenses amounted to €2,342 million in 2006, an 8.4% increase from €2,160 million in 2005. This increase was mainly due to technology and systems expenses, property, fixtures and materials expenses and other expenses.
We calculate our efficiency ratio as (i) the sum of gross income, sales and income from the provision of non-financial services and other operating income, divided by (ii) the sum of cost of sales, personnel expenses, other administrative expenses and other operating expenses. Our efficiency ratio was 40.9% in 2006 compared to 43.2% in 2005. Including depreciation and amortization expense, our efficiency ratio was 44.0% in 2006 compared to 46.7% in 2005.
Net Operating Income
Our net operating income for 2006 was €8,883 million, an increase of 30.2% from €6,823 million in 2005.
Impairment Losses (Net)
Impairment losses (net) was €1,504 million in 2006, an increase of 76.0% from 2005. This increase is mainly due to an increase of 81.6% in loan loss provisions (€1,477 million in 2006 compared to €813 million in 2005) which was attributable to a sharp rise in consumer lending (that required allocating €1,051 million to generic provisions compared to €646 million in 2005).
Provision Expense (Net)
Provision expense (net) was €1,338 million in 2006, an increase of 194.6% from €454 million in 2005, due to the higher charges for early retirements including a €777 million non-recurrent charge in the forth quarter for the early retirement program associated with the restructuring of the branch networks in Spain and those derived from the new organizational structure announced in December.
Other Gains and Losses (Net)
The breakdown of other gains and losses during in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net gains on sales of held-to-maturity investments | 93 | 108 | (13.9 | ) | |||||
Net gains on sale of long-term investments | 934 | 40 | n.m. | (1) | |||||
Income from the provision of non-typical services | 4 | 4 | 9.4 | ||||||
Other income | 97 | 133 | (27.0 | ) | |||||
Other gains | 1,129 | 285 | 296.3 | % | |||||
Net losses on fixed assets disposals | (20 | ) | (22 | ) | (10.4 | ) | |||
Net losses on long-term investments due to write-downs | — | (12 | ) | n.m. | (1) | ||||
Other losses | (121 | ) | (174 | ) | (30.2 | ) | |||
Other Losses | (142 | ) | (208 | ) | (31.9 | ) | |||
Other gains (net) | 987 | 77 | n.m. | (1) | |||||
(1) | Not meaningful |
Other gains (net) were €987 million in 2006 compared to €77 million in 2005. In 2006, we sold our holdings in BNL (€568 million) and Andorra (€183 million) in 2006, whereas in 2005 there were no significant disposals.
Income Tax
Income tax expense was €2,059 million in 2006, an increase of 35.4% from €1,521 million in 2005. Our effective tax rate (income tax expense as a percentage of our income before tax) was 29.3% in 2006 compared to 27.2% in 2005, principally reflecting the change in the composition of our pre-tax income. A €457 million provision was made in 2006 due to new corporate tax rules in Spain that will reduce the effective rate in future years but which required the Group to write off its existing tax credits in 2006.
Income Attributed to Minority Interests
Income attributed to minority interests amounted to €235 million in 2006, a decrease of 11.0% from €264 million in 2005.
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group amounted to €4,736 million in 2006, a 24.4% increase from €3,806 million in 2005.
BBVA Group Results of Operations for 2005 Compared with 2004
The changes in the Group’s consolidated income statements for 2005 and 2004 were as follows:
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Consolidated Statement of Income | |||||||||
Interest and similar income | 15,848 | 12,352 | 28.3 | ||||||
Interest expense and similar charges | (8,932 | ) | (6,447 | ) | 38.5 | ||||
Income from equity instruments | 292 | 255 | 14.6 | ||||||
Net interest income | 7,208 | 6,160 | 17.0 | ||||||
Share of profit or loss of entities accounted for using the equity method | 122 | 97 | 25.2 | ||||||
Fee and commission income | 4,669 | 4,057 | 15.1 | ||||||
Fee and commission expenses | (729 | ) | (644 | ) | 13.2 | ||||
Insurance activity income | 487 | 391 | 24.7 | ||||||
Gains/(losses) on financial assets and liabilities (net) | 980 | 762 | 28.7 | ||||||
Exchange differences (net) | 287 | 298 | (3.7 | ) | |||||
Gross income | 13,024 | 11,121 | 17.1 | ||||||
Sales and income from the provision of non-financial services | 576 | 468 | 23.1 | ||||||
Cost of sales | (451 | ) | (342 | ) | 31.9 | ||||
Other operating income | 134 | 22 | n.m. | (1) | |||||
Personnel expenses | (3,602 | ) | (3,247 | ) | 10.9 | ||||
Other administrative expenses | (2,160 | ) | (1,851 | ) | 16.7 | ||||
Depreciation and amortization | (449 | ) | (448 | ) | n.m. | (1) | |||
Other operating expenses | (249 | ) | (132 | ) | 88.7 | ||||
Net operating income | 6,823 | 5,591 | 22.0 | ||||||
Impairment losses (net) of which: | (854 | ) | (958 | ) | (10.8 | ) | |||
Loan loss provisions | (813 | ) | (784 | ) | 3.7 | ||||
Provision expense (net) | (454 | ) | (850 | ) | (46.6 | ) | |||
Finance income from non-financial activities | 2 | 9 | (71.8 | ) | |||||
Finance expenses from non-financial activities | (2 | ) | (5 | ) | (61.2 | ) | |||
Other gains | 285 | 622 | (54.2 | ) | |||||
Other losses | (208 | ) | (271 | ) | (23.2 | ) | |||
Income before tax | 5,592 | 4,138 | 35.2 | ||||||
Income tax | (1,521 | ) | (1,029 | ) | 47.9 | ||||
Income from continuing operations | 4,071 | 3,109 | 31.0 | ||||||
Income from discontinued operations (net) | — | — | — | ||||||
Consolidated income for the period | 4,071 | 3,109 | 31.0 | ||||||
Income attributed to minority interests | (265 | ) | (186 | ) | 42.3 | ||||
Income attributed to the Group | 3,806 | 2,923 | 30.2 | ||||||
(1) | Not meaningful |
Net Interest Income
The following table summarizes the principal components of net interest income for 2005 compared to 2004.
Year ended December 31, | Change | |||||||
2005 | 2004 | 2005/2004 | ||||||
(in millions of euros) | (in percentages) | |||||||
Interest and similar income | 15,848 | 12,352 | 28.3 | |||||
Interest expense and similar charges | (8,932 | ) | (6,447 | ) | 38.5 | |||
Income from equity instruments | 292 | 255 | 14.6 | |||||
Net interest income | 7,208 | 6,160 | 17.0 | |||||
Net interest income for 2005 amounted to €7,208 million, a 17.0% increase from €6,160 million in 2004. This increase is principally due to an increase in the BBVA Group’s overall business volume, which was driven mainly by increases in loans and advances to customers, primarily individuals in Spain and in the commercial and financial and real estate and construction sectors outside of Spain. Low interest rates in Spain in 2003. The low interest ratesduring 2005 reduced the spread between the interest we paid on interest-bearing liabilities, principally deposits, and the interest we earned on our interest-earning assets, principally loans, in our core Spanish market to historically low levels. Our efforts to offset thismarket. This low yield spread was offset by increasing volumes was only partially successfulthe significant increase in business volume in Spain during 2005 and overall growthan increase in both interest rates and business volume in Latin America, most significantly in Mexico, which resulted in a higher yield spread, and an increase in net interest income in Spain was insufficient to offset the strong depreciations of Latin American currencies described above. In addition, net interest income in 2003 was negatively affectedgenerated by the saleoperations in Latin America, most significantly in Mexico.
Share of BBV Brasil, which contributed €304Profit or Loss of Entities Accounted for Using the Equity Method
Our share of profit from entities accounted for using the equity method was €122 million in net interest income in 2002.
The following table summarizes the principal components of net interest income for 20032005 compared to 2002.
Year ended December 31, | Change | ||||||||
2003 | 2002 | 2003/2002 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Financial revenues | 12,537 | 17,234 | (27.3 | ) | |||||
Financial expenses | (6,260 | ) | (9,784 | ) | (36.0 | ) | |||
Income from equities portfolios | 464 | 358 | 29.6 | ||||||
Net interest income | 6,741 | 7,808 | (13.7 | ) |
€97 million in 2004. Our share of profit from entities accounted for using the equity method in 2005 related mainly to our interests in BNL and Corporación IBV.
Net fee incomeFee and Commission Income
Fee and Commission Income
NetThe breakdown of fee and commission income in 20032005 and 2004 is as follows:
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Commitment fees | 50 | 41 | 22.6 | ||||||
Contingent liabilities | 177 | 160 | 10.8 | ||||||
Documentary credits | 31 | 27 | 6.9 | ||||||
Bank and other guarantees | 145 | 133 | 9.6 | ||||||
Arising from exchange of foreign currencies and banknotes | 18 | 17 | 7.0 | ||||||
Collection and payment services | 2,019 | 1,732 | 16.5 | ||||||
Securities services | 1,948 | 1,739 | 12.0 | ||||||
Counseling on and management of one-off transactions | 16 | 15 | 10.2 | ||||||
Financial and similar counseling services | 11 | 6 | 66.5 | ||||||
Factoring transactions | 19 | 17 | 10.4 | ||||||
Non-banking financial products sales | 40 | 46 | (12.9 | ) | |||||
Other fees and commissions | 372 | 284 | 30.9 | ||||||
Fee and commission income | 4,669 | 4,057 | 15.1 | ||||||
Fee and commission income for 2005 amounted to €3,263€4,669 million, a decrease of 11.0%15.1% increase from €3,668€4,057 million in 2002, principally2004, mainly due to:
a 16.5% increase in collection and payment services to €2,019 million in 2005 from €1,732 million in 2004, primarily due to an increase in fees and commissions relating to retail banking services in Latin America, most significantly in Mexico; and
a 12.0% increase in securities services to €1,948 million in 2005 from €1,739 million in 2004, primarily attributable to an increase in brokerage fees as a result of increased trading activity by our customers in 2005 due in part to favorable market conditions.
Fee and Commission Expenses
The breakdown of the depreciationfee and commission expenses in 2005 and 2004 is as follows:
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Brokerage fees on lending and deposit transactions | (13 | ) | (8 | ) | 52.0 | ||||
Fees and commissions assigned to third parties | (519 | ) | (430 | ) | 20.8 | ||||
Other fees and commissions | (197 | ) | (206 | ) | (4.2 | ) | |||
Fee and commission expenses | (729 | ) | (644 | ) | 13.2 | ||||
Fee and commission expenses for 2005 amounted to €729 million, a 13.2% increase from €644 million in 2004, mainly due to a 20.8% increase in fees and commissions assigned to third parties to €519 million in 2005 from €430 million in 2004, primarily due to an increase in fees paid to intermediary service providers as a result of Latin American currenciesincreased business volumes.
Net Fee and market volatility, which depressed our fee income derived from domestic asset management, securities brokerage and trading activities. In addition,Commission Income
As a result of the foregoing, net fee and commission income in 2003 was negatively affected by the sale of BBV Brasil, which contributed €58for 2005 totaled €3,940 million, a 15.4% increase from €3,413 million in net fee income in 2002.2004.
Basic marginInsurance Activity Income
Adding net interestNet insurance activity income and net fee income results infor 2005 amounted to €487 million, a basic margin of €10,00424.7% increase from €391 million in 2003, a decrease of 12.8% from €11,4762004, relating mainly to growth in our insurance business in Spain and Portugal, as well as in South America, Mexico and the United States.
Gains or Losses on Financial Assets and Liabilities (Net)
Gains on financial assets (net) amounted to €980 million in 2002.
2005, a 28.7% increase from €762 million in 2004. The 56.0% decrease in gains from available-for-sale financial assets to €429 million in 2005 from €974 million in 2004, (mainly due to a lower volume of sales of available-for-sale financial assets in 2005 compared to 2004) and the 19.2% decrease in gains from securities held for trading to €898 million in 2005 from €1,111 million in 2004, (mainly due to decreases in the fair value of securities held for trading purposes, principally fixed income public debt securities) where partially offset by the significant 62% decrease in losses on derivatives held for trading purposes to €508 million in 2005 from €1,338 million in 2004, reflecting less volatile market conditions in 2005.
Market operationsGross Income
Income from market operations totaled €652As a result of the foregoing, gross income amounted to €13,024 million in 2003,2005, a decrease of 14.8%17.1% increase from €765€11,120 million in 2002, principally2004.
Personnel Expenses
The breakdown of personnel expenses in 2005 and 2004 is as follows:
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Wages and salaries | (2,743 | ) | (2,460 | ) | 11.6 | ||||
Social security costs | (472 | ) | (437 | ) | 8.0 | ||||
Transfers to internal pension provisions (Note 29) | (69 | ) | (59 | ) | 16.8 | ||||
Contributions to external pension funds (Note 29) | (56 | ) | (57 | ) | (2.8 | ) | |||
Other personnel expenses | (262 | ) | (234 | ) | 11.8 | ||||
Personnel expenses | (3,602 | ) | (3,247 | ) | 10.9 | ||||
Personnel expenses for 2005 amounted to €3,602 million, a 10.9% increase from €3,247 million in 2004, mainly due to adverse market conditions, particularlyan 11.6% increase in wages and salaries to €2,743 million in 2005 from €2,460 million in 2004 as a result of an increase in the second halfaverage number of 2003. Inemployees of the BBVA Group to 90,744 in 2005 from 84,704 in 2004. The increase in the average number of employees in 2005 was due mainly to the addition incomeof employees resulting from market operationsthe acquisition of Hipotecaria Nacional, S.A. de C.V. in 2003 was negatively affected byJanuary 2005, the saleacquisition of BBV Brasil, which contributed €21 million to income from market operationsLNB in 2002.
April 2005 and the acquisition of an approximately 99% interest in Banco Granahorrar in December 2005.
Ordinary revenueOther Administrative Expenses
Adding basic marginThe breakdown of other administrative expenses during in 2005 and income from market operations results in ordinary revenue of €10,656 million in 2003, a decrease of 12.9% from €12,241 million in 2002.2004 is as follows:
Year ended December 31, | Change | |||||||
2005 | 2004 | 2005/2004 | ||||||
(in millions of euros) | (in percentages) | |||||||
Technology and systems | (434 | ) | (411 | ) | 5.5 | |||
Communications | (203 | ) | (183 | ) | 11.0 | |||
Advertising | (212 | ) | (144 | ) | 47.3 | |||
Property, fixtures and materials | (415 | ) | (361 | ) | 15.0 | |||
Taxes other than income tax | (213 | ) | (153 | ) | 39.6 | |||
Other expenses | (683 | ) | (599 | ) | 14.1 | |||
Other administrative expenses | (2,160 | ) | (1,851 | ) | 16.7 | |||
General administrative expenses
GeneralOther administrative expenses amounted to €5,031€2,160 million in 2003,2005, a 16.7% increase from €1,851 million in 2004. This increase was mainly due to increases in other expenses, advertising expenses and taxes other than income tax.
We calculate our efficiency ratio as (i) the sum of gross income, sales and income from the provision of non-financial services and other operating income, divided by (ii) the sum of cost of sales, personnel expenses, other administrative expenses and other operating expenses. Our efficiency ratio was 43.2% in 2005 compared to 44.6% in 2004. Including depreciation and amortization expense, our efficiency ratio was 46.7% in 2005 compared to 48.6% in 2004.
Net Operating Income
Our net operating income for 2005 was €6,823 million, an increase of 22.0% from €5,591 million in 2004.
Impairment Losses (Net)
Impairment losses (net) was €854 million in 2005, a decrease of 12.8%10.8% from €5,772 million in 2002, principally2004. This decrease is mainly due to the depreciation of Latin American currencies and to cost containment measures applied throughout BBVA’s operations. During 2003, we reduced our headcount by nearly 6,896 people (7.4%), particularlyfact that, in Latin America (a reduction of 6,193, or 10.4%, of which 4,610 related2004, impairment losses reflected €145 million that corresponded to the saleimpairment of BBV Brasilgoodwill relating to BNL in January 2003, and significant personnel cuts were also made in Venezuela and Argentina). Since 2000, when we acquired a significant interest in Bancomer, our total headcount has fallen from 108,082 employees asthe fourth quarter of December 31, 2000, to 86,197 as of December 31, 2003, a 20.2% reduction, including a net reduction of approximately 2,600 in Spain and 19,000 in Latin America, principally in Mexico, Venezuela, Argentina, Colombia and Brazil.
2004.
Depreciation and amortizationProvision Expense (Net)
Depreciation and amortization of property and equipment and intangible assets amounted to €511Provision expense (net) was €454 million in 2003,2005, a decrease of 19.0%46.6% from €631€850 million in 2002, principally due to depreciation of Latin American currencies against the euro which decreased the euro value of the property and equipment and intangible assets of our Latin American subsidiaries.
Net operating income
Subtracting, among other items, general administrative expenses and depreciation and amortization from ordinary revenue results in net operating income of €4,895 million in 2003,2004, reflecting a decrease of 12.2% from €5,577 million in 2002.
Net income from companies accounted for by the equity method
As described in the following table, in 2003 net income from companies accounted for by the equity method amounted to €383 million, compared to €33 million in 2002.
Year ended December 31, | Change | ||||||||
2003 | 2002 | 2003/2002 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Income from companies accounted for by the equity method | 702 | 275 | 155.2 | ||||||
Dividend adjustment | (319 | ) | (242 | ) | (31.8 | ) | |||
Net income from companies accounted for by the equity method | 383 | 33 | n.m. | (1) | |||||
(1) Not meaningful. |
The significant increase in net income from companies accounted for by the equity method in 2003 was principally due to a strong improvement in the earnings of our investee companies in 2003 after they experienced sharp declines in operating results in 2002. In addition, as described above, in 2003 we accounted for our interest in BBV Brasil from January 1, 2003 until June 9, 2003 and our interest in Bradesco, following the closing of the BBV Brasil transaction on June 9, 2003, under this line item, whereas in 2002, we had accounted for our interest in BBV Brasil under full consolidation. Our interests in BBV Brasil and Bradesco contributed €34 million and €19 million, respectively, to net income from companies accounted for by the equity method in 2003, compared to zero contribution to this line item in 2002.
Amortization of consolidation goodwill
Amortization of consolidation goodwill charges amounted to €639 million in 2003, a decrease of 5.9% from €679 million in 2002, principally due to our decreased interest in Credit Lyonnais and the €129 million of extraordinary goodwill charges we recorded in 2002 relating to investments in our subsidiaries located in non-investment grade countries.
Net income on Group transactions
Net income on Group transactions amounted to €553 million in 2003, an increase of 53.2% from €361 million in 2002. This increase was principally due to the sale of our stake in Crédit Lyonnais which resulted in a gain of €342 million.
Net loan loss provisions
Net loan loss provisions amounted to €1,277 million in 2003, a decrease of 26.7% from €1,743 million in 2002. The following table sets forth the changes in the principal items comprising our net loan loss provisions in 2003 and 2002.
Year ended December 31, | Change | ||||||||
2003 | 2002 | 2003/2002 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Gross provisions | (1,821 | ) | (2,385 | ) | (23.6 | ) | |||
Reversals | 317 | 434 | (26.9 | ) | |||||
Recoveries | 227 | 208 | 9.1 | ||||||
Net loan loss provisions | (1,277 | ) | (1,743 | ) | (26.7 | ) | |||
The decline in net loan loss provisions in 2003 was principally due to the effect of the depreciation of Latin American currencies which required us to take lower loan loss provisions as the euro value of loans made by our Latin American subsidiaries declined. The decrease in net loan loss provisions caused by depreciating currencies more than offset an increase in the percentage of loans in Latin America for which we took provisions in 2003 as a result of adopting more stringent criteria for classification of doubtful loans than are required under applicable Bank of Spain guidelines. These criteria were adopted as a result of regulatory developments in certain countries in which we operate and our effort to apply loan classification criteria on a uniform basis throughout our operations. Our non-performing loan (“NPL”) ratio in 2003 was 1.74%, which was a return to historical levels (1.71% in 2001) after a sharp increase in 2002 to 2.37% as a result of the crisis in Argentina.
Extraordinary items, net
Net extraordinary items in 2003 amounted to a loss of €103 million.
Extraordinary income amounted to €631 million in 2003, a decrease of 60.7% from 2002, and included the following items: €215 million representing gains relating to the effect of inflation accounting in certain countries in which we operate, €96 million representing gains on disposal of property and equipment and long-term financial investments, €80 million representing the recovery of interest earned in prior years and €240 million in other extraordinary gains principally due to the provision of non-banking services.early retirement plans. See Note 28.g.2.2(e) to the Consolidated Financial Statements.
Other Gains and Losses (Net)
ExtraordinaryThe breakdown of other gains and losses amounted to €734during in 2005 and 2004 is as follows:
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net gains on sales of held-to-maturity investments | 108 | 103 | 4.8 | ||||||
Net gains on sale of long-term investments | 40 | 317 | (87.4 | ) | |||||
Income from the provision of non-typical services | 4 | 5 | (18.6 | ) | |||||
Other income | 133 | 197 | (32.5 | ) | |||||
Other gains | 285 | 622 | (54.2 | ) | |||||
Net losses on fixed assets disposals | (22 | ) | (22 | ) | 0.1 | ||||
Net losses on long-term investments due to write-downs | (12 | ) | (9 | ) | 28.7 | ||||
Other losses | (174 | ) | (240 | ) | (27.4 | ) | |||
Other Losses | (208 | ) | (271 | ) | (23.2 | ) | |||
Other gains (net) | 77 | 351 | (78.2 | ) | |||||
Other gains (net) were €77 million in 2003, a decrease of 64.0% from 2002, and included the following items: €272 million representing losses relating2005 compared to the effect of inflation accounting in certain countries in which we operate, €118 million representing other losses arising from pension commitments, €52 million relating to losses on disposal of property and equipment and long-term financial investments, €87 million relating to provisions for property received in foreclosures and €205€351 million in other extraordinary losses.2004. In 2005, we sold small stakes in various companies compared to more significant sales in 2004 of interests in companies, including Banco Atlántico, Direct Seguros, Grubarges Inversión Hotelera, S.L. and Vidrala, S.A.
Corporate income tax and other taxesIncome Tax
TheIncome tax expense was €1,521 million in 2005, an increase of 47.9% from €1,029 million in 2004. Our effective tax rate for 2003(income tax expense as a percentage of our income before tax) was 24%27.2% in 2005 compared to 20.9% for 2002,24.9% in 2004, principally due toreflecting the change in the composition of our pre-tax profit. The corporate tax reserveincome.
Income Attributed to Minority Interests
Income attributed to minority interests amounted to €915€265 million in 2003,2005, an increase of 40.1%42.3% from €653€186 million in 2002.
2004, mainly due to the increased profit of most of our majority owned subsidiaries and the impact of the appreciation of Latin American currencies when translating the profit of certain of these subsidiaries into euro.
Minority interestsIncome Attributed to the Group
Minority interests amounted to €670 million in 2003, a decrease of 10.3% from €747 million in 2002, principally due to our redemption of three series of our outstanding preferred shares.
Net attributable profit
As a result of the items described above, our net attributable profitforegoing, income attributed to the Group amounted to €2,227€3,806 million in 2003, an2005, a 30.2% increase of 29.5% from €1,719€2,923 million in 2002.
Financial condition
Our total assets amounted to €287 billion as of December 31, 2003, an increase of 2.7% from €280 billion as of December 31, 2002, principally due to an increase in due from credit institutions.
As of December 31, 2003, our customer funds (which include deposits, marketable debt securities, subordinated debt, mutual funds and pension funds) amounted to €296 billion, an increase of 2.3% from €289 billion as of December 31, 2002, principally due to an increase in deposits to our mutual funds and pensions plans.
Stockholders’ equity
As of December 31, 2003, stockholders’ equity amounted to €12.4 billion, a decrease of 0.8% from €12.3 billion as of December 31, 2002.
2004.
Results of operationsOperations by Business Areas for 2002 compared2006 Compared with 20012005
Net interest income
Net interest income for 2002 amounted to €7,808 million, a decrease of 11.5% from €8,824 million in 2001, principally due to the exchange rate effect and a 27.7% decrease in dividends.
The following table summarizes the principal components of net interest income for 2002, as compared to 2001.
Year ended December 31, | Change | ||||||||
2002 | 2001 | 2002/2001 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Financial revenues | 17,234 | 21,608 | (20.2 | ) | |||||
Financial expenses | (9,784 | ) | (13,279 | ) | (26.3 | ) | |||
Income from equities portfolios | 358 | 495 | (27.7 | ) | |||||
Net interest income | 7,808 | 8,824 | (11.5 | ) | |||||
Net fee income
Net fee income in 2002 amounted to €3,668 million, a decrease of 9.1% from €4,038 million in 2001, principally due to exchange rate variations negatively affecting the Banking in America area and market volatility, which depressed fee income derived from our domestic asset management activities.
Basic margin
Adding net interest income and net fee income results in a basic margin of €11,476 million in 2002, a decrease of 10.8% from €12,862 million in 2001.
Market operations
Income from market operations amounted to €765 million in 2002, an increase of 56.1% from €490 million in 2001. Prior to the second quarter of 2002, we charged or credited to our income from market operations exchange rate differences arising from our financings in currencies other than the euro and the investment currency. In the second quarter of 2002, we began to record the financing of our investments in euro such that exchange rate differences no longer affect our income from market operations. See Note 3.b. to the Consolidated Financial Statements.
Ordinary revenue
Adding basic margin and income from market operations results in ordinary revenue of €12,241 million in 2002, a decrease of 8.3% from €13,352 million in 2001.
General administrative expenses
General administrative expenses amounted to €5,772 million in 2002, a decrease of 14.2% from €6,725 million in 2001 principally due to cost containment measures applied throughout BBVA’s operations. During 2002, we reduced our headcount by nearly 5,500 people (5.6%), mostly in Latin America, while in Spain we applied a combined policy of early retirements and recruitment of a large number of young graduates. Over the last two years, our net departures totaled 15,000 employees (13.9%), with approximately 2,000 having taken place in Spain and 13,000 in Latin America, primarily in Mexico, Venezuela, Argentina and Colombia. In addition, in 2002, we cut our number of branch offices by 6.1%, closing 484 (more than 200 in Spain and almost 300 in Latin America). Over the last two years, BBVA has closed a total of 1,442 branch offices (450 in Spain and 979 in Latin America) mainly in Mexico and Argentina.
Depreciation and amortization
Depreciation and amortization of property and equipment and intangible assets amounted to €631 million in 2002, a decrease of 15.0% from €742 million in 2001, principally due to the depreciation of Latin American currencies against the euro during this period.
Net operating income
Subtracting, among other items, general administrative expenses and depreciation and amortization from ordinary revenue results in net operating income of €5,577 million in 2002, a decrease of 0.4% from €5,599 million in 2001.
Net income from companies accounted for by the equity method
As described in the following table, in 2002, net income from companies accounted for by the equity method amounted to €33 million, a decrease of 91.5% from €393 million in 2001.
2002 | 2001 | Change 2002/2001 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Income from companies accounted for by the equity method | 275 | 772 | (64.4 | ) | |||||
Dividend adjustment | (242 | ) | (379 | ) | (36.1 | ) | |||
Net income from companies accounted for by the equity method | 33 | 393 | (91.5 | ) | |||||
The main factors behind this decline were (i) the €104 million charge allocated during the first half of 2002 to restate the income contributed during 2001 by Repsol YPF, BNL and Telefónica, after these companies published their 2001 financial statements, which generally reflected a decline in net income due to the effect of the deteriorating economic situation in Argentina on our investee companies’ operating results and (ii) the downgrading of our 2002 earnings forecasts in respect of such companies due to continued concern over Argentina and other factors, such as in the case of Telefónica its decision to significantly write-down its investments certain UMTS licenses, which reduced our net income from companies accounted for by the equity method by €209 million.
Amortization of consolidation goodwill
Consolidation goodwill amortization charges amounted to €679 million in 2002, a decrease of 40.6% from €1,143 million in 2001, principally due to our increased interests in Bancomer and BNL, and the €129 million of extraordinary goodwill charges we recorded relating to investments in our subsidiaries located in non-investment grade countries.
Net income on Group transactions
In 2002, the sluggish financial markets restricted our ability to generate capital gains through investment rotation, limiting net income on Group transactions to €361 million, a decrease of 62.2% from €954 million in 2001. The decrease was offset in part by the sale of our 27.7% interest in Metrovacesa, which generated a capital gain of €375 million, and the sale of our 7.6% interest in Acerinox, which generated a capital gain of €66 million.
Net loan loss provisions
Net loan loss provisions amounted to €1,743 million in 2002, a decrease of 9.2% from €1,919 million in 2001, principally due to changes in the constituent items set forth below.
2002 | 2001 | Change 2002/2001 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Gross provisions | (2,385 | ) | (2,501 | ) | (4.6 | ) | |||
Reversals | 434 | 294 | 47.6 | ||||||
Recoveries | 208 | 288 | (27.8 | ) | |||||
Net loan loss provisions | (1,743 | ) | (1,919 | ) | (9.2 | ) | |||
Extraordinary items, net
Net extraordinary items in 2002 amounted to a loss of €433 million.
Extraordinary income amounted to €1,607 million in 2002, an increase of 24.1% from 2001, and included the following items: €1,038 million representing gains relating to the effect of inflation accounting in certain countries in which we operate, €261 million representing specific provisions described in Notes 14 and 20 to the Consolidated Financial Statements, €199 million representing gains on disposal of property and equipment and long-term financial investments, €74 million recovery of interest earned in prior years, €4 million representing extraordinary income from pension commitments and €31 million in other extraordinary gains. See Note 28.g. to the Consolidated Financial Statements.
Extraordinary losses amounted to €2,039 million in 2002, an increase of 1% from 2001, and included the following items: €1,034 million representing losses relating to the effect of inflation accounting in certain countries in which we operate, €908 million representing special provisions, €263 million reversal to the specific provision for Argentina, €193 million representing other losses arising from pension commitments, €99 million on losses on disposal of property and equipment and long-term financial investments, €35 million net charge to the theoretical goodwill relating to the sale of BBV Brasil, and €33 million in other extraordinary losses.
Corporate income tax and other taxes
The effective tax rate for 2002 was 20.9% compared to 20.1% for 2001. The corporate tax reserve amounted to €653 million in 2002, an increase of 4.4% from €625 million in 2001.
Minority interests
Minority interests amounted to €747 million in 2002, an increase of 15.8% from €646 million in 2001.
Net attributable profit
As a result of the items described above, our net attributable profit amounted to €1,719 million in 2002, a decrease of 6.7% from €1,843 million in 2001. The decrease was principally due to the declines in net interest income, net fee income and net income on Group transactions.
Financial condition
Our total assets amounted to €280 billion as of December 31, 2002, a decrease of 9.6% from €309 billion as of December 31, 2001, principally due to a reduction in the value of our assets in Latin America.
As of December 31, 2002, our customer funds (which include deposits, marketable debt securities, subordinated debt, mutual funds and pension funds) amounted to €289 billion, a decrease of 10.7% from €324 billion as of December 31, 2001, principally due to adverse market conditions.
Stockholders’ equity
As of December 31, 2002, stockholders’ equity amounted to €12.3 billion, a decrease of 7.2% from €13.3 billion as of December 31, 2001.
Results of operations by business area
As described under “Item 4. Information on the Company—Business Overview,” in 2003 we reorganizedOverview”, our business areas such that (i) our during 2006 were the following:
Retail Banking in Spain and Portugal area now includes retail banking,Portugal;
Wholesale Businesses;
Mexico and asset managementUnited States;
South America; and private banking (which had been included in a separate Asset Management and Private Banking business area in 2002) in Spain and Portugal, (ii) our Banking in America area now includes all
Corporate Activities.
See “Presentation of our Latin American operations, including our Mexican operations (which had been a separate business area in 2002) and asset management and private banking in Latin America (but excluding our operations in Argentina, which is a separate business area, and in Brazil, as discussed below) and (iii) as a result of our agreement to sell our entire interest in BBV Brasil in January 2003, andFinancial Information” for information on the closing of such sale in June 2003, our Corporate Activities and Other business area included our interest in BBV Brasil for the period January to June 2003, accounted for under the equity method, and for 2002 and 2001, accounted under full consolidation. Due to the special conditions that have affected our operations in Argentina in 2003, we have continued to provide additional disclosure on our Argentinean operations and discuss these operations as if they comprised a separate business area, “Argentina”, and not partyear-on-year comparability of the financial information by business area “Banking in America”, where they were included in our Annual Report on Form 20-F for 2001 and prior years.
area.
Retail Banking in Spain and Portugal
Year ended December 31, | Change | ||||||||||||||
2003 | 2002 | 2001 | 2003/2002 | 2002/2001 | |||||||||||
Net interest income | 3,221 | 3,189 | 3,025 | 1.0 | 5.4 | ||||||||||
Net fee income | 1,476 | 1,510 | 1,555 | (2.3 | ) | (2.9 | ) | ||||||||
Basic margin | 4,697 | 4,699 | 4,580 | 0.0 | 2.6 | ||||||||||
Market operations | 44 | 46 | 63 | (3,2 | ) | (27.0 | ) | ||||||||
Ordinary revenue | 4,741 | 4,745 | 4,643 | (0.1 | ) | 2.2 | |||||||||
General administrative expenses | (2,119 | ) | (2,124 | ) | (2,248 | ) | (0.2 | ) | (5.5 | ) | |||||
Personnel costs | (1,391 | ) | (1,386 | ) | (1,465 | ) | 0.4 | (5.4 | ) | ||||||
Other administrative expenses | (728 | ) | (738 | ) | (783 | ) | (1.4 | ) | (5.7 | ) | |||||
Depreciation and amortization | (114 | ) | (123 | ) | (125 | ) | (7.0 | ) | (1.6 | ) | |||||
Other operating revenues and expenses, net | (43 | ) | (51 | ) | (59 | ) | (14.8 | ) | (13.6 | ) | |||||
Net operating income | 2,465 | 2,447 | 2,211 | 0.7 | 10.7 | ||||||||||
Net income from companies accounted for by the equity method | 8 | (6 | ) | 28 | n.m | (1) | n.m. | ||||||||
Amortization of consolidation goodwill | — | 1 | — | — | — | ||||||||||
Net income on Group transactions | (1 | ) | — | — | — | — | |||||||||
Net loan loss provisions | (492 | ) | (433 | ) | (402 | ) | 13.6 | 7.7 | |||||||
Extraordinary items, net | (10 | ) | 5 | 6 | n.m. | (16.7 | ) | ||||||||
Pre-tax profit | 1,970 | 2,014 | 1,843 | (2.2 | ) | 9.3 | |||||||||
Corporate income tax and other taxes | (650 | ) | (666 | ) | (587 | ) | (2.4 | ) | 13.5 | ||||||
Income before minority interests | 1,320 | 1,348 | 1,256 | (2.1 | ) | 7.3 | |||||||||
Minority interests | (81 | ) | (82 | ) | (83 | ) | (1.2 | ) | (1.2 | ) | |||||
Net attributable profit | 1,239 | 1,266 | 1,173 | (2.1 | ) | 7.9 | |||||||||
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 2,865 | 2,623 | 9.2 | ||||||
Share of profit of entities accounted for using the equity method | 1 | 1 | (15.7 | ) | |||||
Net fee and commission income | 1,589 | 1,456 | 9.1 | ||||||
Insurance activity income | 376 | 309 | 21.4 | ||||||
Basic income(1) | 4,830 | 4,390 | 10.0 | ||||||
Gains on financial assets and liabilities (net) | 72 | 55 | 31.8 | ||||||
Gross income | 4,902 | 4,444 | 10.3 | ||||||
Sales and income from the provision of non-financial services | 32 | 26 | 25.5 | ||||||
Personnel expenses and other administrative expenses | (2,193 | ) | (2,092 | ) | 4.9 | ||||
Depreciation and amortization | (102 | ) | (103 | ) | (0.7 | ) | |||
Other operating income and expenses (net) | 14 | 43 | (68.4 | ) | |||||
Net operating income | 2,653 | 2,319 | 14.4 | ||||||
Impairment losses (net) | (356 | ) | (328 | ) | 8.3 | ||||
Net loan loss provisions | (357 | ) | (330 | ) | 8.0 | ||||
Other writedowns | 1 | 2 | (43.5 | ) | |||||
Provision expense (net) | (3 | ) | (2 | ) | 14.7 | ||||
Other gains and losses (net) | 16 | 18 | (11.2 | ) | |||||
Income before tax | 2,311 | 2,007 | 15.1 | ||||||
Income tax | (808 | ) | (686 | ) | 17.9 | ||||
Income from continuing operations | 1,503 | 1,321 | 13.7 | ||||||
Income attributed to minority interests | (4 | ) | (4 | ) | 4.3 | ||||
Income attributed to the Group | 1,498 | 1,317 | 13.8 | ||||||
(1) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method and net fees and commissions. Basic income is not a line item in our Consolidated Financial Statements. |
Net interest incomeInterest Income.
Net interest income of this business area for 20032006 amounted to €3,221€2,865 million, a 1.0%9.2% increase from €3,189€2,623 million in 2002,2005, principally due to growthan increase in business volume and an improvement in customer spreads. The customer spread between the interest we paid on interest-bearing liabilities, principally deposits, and the interest we earned on our loan portfolio and more efficient asset and liability management, which slightly offset narrowing spreads. Our loan portfoliointerest-earning assets, principally loans, in Spain during 2006 increased by €11,143 million, or 13.9%, with particularly strong growth in mortgage loans. In 2002, net interest income amounted to €3,189 million, a 5.4% increase from €3,025 million in 2001, and our loan portfolio increased by €8,057 million, or 11.2%, with particularly strong growth in mortgage loans.
Net fee income(which had grown successively narrower since 2003). Net fee income for 2003 amounted to €1,476 million, a decrease of 2.3% from €1,510 million in 2001, principally due to a decrease in underwriting fees. In 2002, net fee income amounted to €1,510 million, a decrease of 2.9% from €1,555 million in 2001, principally due to a decrease of 6.0% in mutual fund fee income as a result of market instability, which also affected the volume of total funds under management and hindered new fund-capturing efforts.
Basic margin.Income Adding
Basic income of this business area for 2006 amounted to €4,830 million, an increase of 10.0% from €4,390 million in 2005, principally attributable to the increases in net interest income and net fee and commission income resultsand, to a lesser extent, an increase in a basic margin of €4,697insurance activity income. Insurance activity income increased 21.4% to €376 million in 2003, compared to basic margin of €4,6992006 from €309 million in 2002, which increased 2.6% from €4,580 million in 2001.
2005.
Market operationsGross Income. Income from market operations
As a result of the foregoing generally, though principally attributable to increases in net interest income, gross income of this business area for 2006 amounted to €44 million in 2003, compared to income from market operations of €46 million in 2002, which decreased 27.0% from €63 million in 2001, principally due to lower exchange rate gains.
General administrative expenses, depreciation and amortization and net other operating revenues and expenses. Operating expenses in 2003 amounted to €2,276 million, a decrease of 1.0% from €2,298 million in 2002. Most of the savings were achieved through efficiency plans implemented in 2003, which brought down expense items (personnel costs only increased 0.4%, other administrative expenses fell 1.4%, and depreciation and amortization charges decreased 7.3%). In 2002, operating expenses totaled €2,298 million, a decrease of 5.5%.
Net operating income. Subtracting, among other items, general administrative expenses and depreciation and amortization from ordinary revenue results in net operating income of €2,465 million in 2003, an increase of 0.7% from 2002. In 2002, net operating income amounted to €2,447€4,902 million, an increase of 10.7%10.3% from 2001.
€4,444 million in 2005.
Other itemsNet Operating Income.
Personnel and other administrative expenses for 2006 amounted to €2,193 million, an increase of 4.9% compared to €2,092 million in 2005, despite an increase of 80 new branches.
Net operating income of this business area for 2006 amounted to €2,653 million, an increase of 14.4% compared to €2,319 million in 2005, reflecting the Group’s focus on expenses, which remained relatively stable year-on-year.
As a result of the foregoing, the efficiency ratio of this business area decreased to 43.4% in 2006 from 45.1% in 2005 as expenses rose at a slower pace than revenues. Including depreciation and amortization expense of this business area, the efficiency ratio of this business area was 45.4% in 2006 compared to 47.4% in 2005.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2006 was €356 million, a 8.3% increase from €328 million in 2005, mainly due to a 16.3% increase in net loan loss provisions amounted to €492€357 million in 2003, an increase of 13.6%2006 from €433€330 million in 2002,2005. The increase in loan loss provisions was principally due to an increase in the size of our loan portfolio. In 2002, netThe Retail Banking in Spain and Portugal business area’s non-performing loan loss provisions amountedratio was 0.67% as of December 31, 2006 compared to €4330.65% as of December 31, 2005.
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group from this business area for 2006 was €1,498 million, an increase of 7.7%13.8% from €402€1,317 million in 2001.2005.
Wholesale Businesses
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 1,032 | 1,017 | 1.4 | ||||||
Share of profit of entities accounted for using the equity method | 283 | 51 | 454.0 | ||||||
Net fee and commission income | 491 | 425 | 15.7 | ||||||
Insurance activity income | — | — | — | ||||||
Basic income(1) | 1,806 | 1,494 | 20.9 | ||||||
Gains on financial assets and liabilities (net) | 642 | 448 | 43.4 | ||||||
Gross income | 2,448 | 1,941 | 26.1 | ||||||
Sales and income from the provision of non-financial services | 104 | 95 | 9.9 | ||||||
Personnel expenses and other administrative expenses | (644 | ) | (582 | ) | 10.7 | ||||
Depreciation and amortization | (12 | ) | (12 | ) | (2.4 | ) | |||
Other operating income and expenses (net) | 16 | 29 | (45.2 | ) | |||||
Net operating income | 1,912 | 1,471 | 30.0 | ||||||
Impairment losses | (322 | ) | (269 | ) | 19.8 | ||||
Net loan loss provisions | (322 | ) | (269 | ) | 19.8 | ||||
Other writedowns | — | — | — | ||||||
Provision expense (net) | (11 | ) | 5 | n.m. | (2) | ||||
Other gains and losses (net) | 159 | 31 | n.m. | (2) | |||||
Income before tax | 1,738 | 1,238 | 40.4 | ||||||
Income tax | (449 | ) | (361 | ) | 24.4 | ||||
Income from continuing operations | 1,288 | 876 | 47.0 | ||||||
Income attributed to minority interests | (6 | ) | (4 | ) | 54.2 | ||||
Income attributed to the Group | 1,282 | 873 | 47.0 | ||||||
(1) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method and net fees and commissions. Basic income is not a line item in our Consolidated Financial Statements. |
(2) | Not meaningful. |
Net Interest Income
Net interest income of this business area for 2006 amounted to €1,032 million, a 1.4% increase from €1,017 million in 2005.
Basic Income
Basic income of this business area for 2006 increased 20.9% to 1,806 million from €1,494 million in 2005, principally due to the increase in share of profit of entities accounted for using the equity as a result of the sale of our interest in certain entities, including Gamesa, S.A., accounted for by the equity method in 2005. The share of profit of entities accounted for using the equity method increased 454% to €283 million in 2006 from €51 million in 2005.
Gross Income
As a result of the foregoing and adding the increase in gains on financial assets and liabilities (net) (43.4%), gross income of this business area for 2006 amounted to €2,448 million, an increase of 26.1% compared to €1,941 million in 2005.
Net attributable profitOperating Income
Personnel and other administrative expenses of this business area for 2006 amounted to €644 million, an increase of 10.7% compared to €582 million in 2005, mainly due to an increase in the average number of employees in 2006.
Net operating income of this business area for 2006 was €1,912 million, a 30% increase from €1,471 million in 2005, because operating expenses including depreciation increased at a considerably lower pace than ordinary revenues.
As a result of the foregoing, the efficiency ratio of this business area was 24.8% in 2006 compared to 28.0% in 2005. Including depreciation and amortization expense of this business area, the efficiency ratio of this business area was 25.2% in 2006 compared to 28.6% in 2005.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2006 were €322 million, a 19.8% increase from €269 million in 2005, mainly due to higher generic provisions related to increase lending. The Wholesale Businesses area’s non-performing loan ratio fell from 0.29% at the end of 2005 to 0.22% as of December 31, 2006.
Income Attributed to the Group
In addition to the foregoing, divestment in holdings also helped to generate income attributed to the Group . As a result of the items describedforegoing, income attributed to the Group was €1,282 million, a 47% increase from €873 million in 2005.
Mexico and the United States
As discussed above net attributableunder “Factors Affecting the Comparability of our Results of Operations and Financial Condition”, in 2006, the depreciation of the currencies countries (including Mexico, the U.S. and countries in South America) in which we operate against the euro negatively affected the results of operations of our foreign subsidiaries in euro terms. By contrast, in 2005, the appreciation of the currencies of the countries in which we operate against the euro positively affected, to a limited extent, the results of operations of our foreign subsidiaries in euro terms.
In addition, the results of operations of this business area were affected by the acquisition of Texas Regional Bancshares in November 2006 as well as the acquisition of LNB in April 2005 (in that 2006 was the first full year its operations were consolidated with the Group), each of which are consolidated in our Consolidated Financial Statements as from their respective date of acquisition.
Year ended December 31, | Change | |||||||||||
2006 | 2005 | 2006/2005 | 2006/2005(1) | |||||||||
(in millions of euros) | (in percentages) | |||||||||||
Net interest income | 3,535 | 2,678 | 32.0 | 33.3 | ||||||||
Share of profit of entities accounted for using the equity method | (2 | ) | 0 | n.m. | (2) | n.m. | (2) | |||||
Net fee and commission income | 1,390 | 1,212 | 14.7 | 15.8 | ||||||||
Insurance activity income | 305 | 229 | 33.3 | 34.6 | ||||||||
Basic income(3) | 5,227 | 4,119 | 26.9 | 28.2 | ||||||||
Gains on financial assets and liabilities (net) | 196 | 168 | 16.9 | 18.0 | ||||||||
Gross income | 5,423 | 4,287 | 26.5 | 27.8 | ||||||||
Sales and income from the provision of non-financial services | (4 | ) | (3 | ) | 61.0 | 62.6 | ||||||
Personnel expenses and other administrative expenses | (1,946 | ) | (1,737 | ) | 12.0 | 13.1 | ||||||
Depreciation and amortization | (126 | ) | (138 | ) | (8.9 | ) | (8.0 | ) | ||||
Other operating income and expenses (net) | (117 | ) | (106 | ) | 10.8 | 11.9 | ||||||
Net operating income | 3,231 | 2,303 | 40.3 | 41.7 | ||||||||
Impairment losses | (685 | ) | (315 | ) | 117.6 | 119.7 | ||||||
Net loan loss provisions | (672 | ) | (289 | ) | 132.9 | 135.2 | ||||||
Other writedowns | (13 | ) | (26 | ) | (50.1 | ) | (49.6 | ) | ||||
Provision expense (net) | (73 | ) | (51 | ) | 43.5 | 44.9 | ||||||
Other gains and losses (net) | 43 | (8 | ) | n.m. | (2) | n.m. | (2) | |||||
Income before tax | 2,515 | 1,929 | 30.4 | 31.7 | ||||||||
Income tax | (739 | ) | (556 | ) | 32.8 | 34.1 | ||||||
Income fromcontinuing operations | 1,777 | 1,373 | 29.4 | 30.7 | ||||||||
Income attributed to minority interests | (2 | ) | (4 | ) | (43.3 | ) | (42.8 | ) | ||||
Income attributed to the Group | 1,775 | 1,370 | 29.6 | 30.8 | ||||||||
(1) | At constant exchange rates from 2005. |
(2) | Not meaningful. |
(3) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method, net fee and commission income and insurance activity income. Basic income is not a line item in our Consolidated Financial Statements. |
Net Interest Income
Net interest income of this business area for 2006 amounted to €1,239€3,535 million, a 32.0% increase from €2,678 million in 2003, a decrease2005, due to principally to an increase in this business area’s overall business volume, which was driven mainly by increases in loans and advances to customers.
Basic Income
Basic income of 2.1%. In 2002, net attributable profitthis business area for 2006 amounted to €1,266€5,227 million, an increase of 7.9%26.9% from €1,173€4,119 million in 2001.2005, principally attributable to the increases in net interest income and, to a lesser extent, an increase in insurance activity income.
Gross Income
As a result of the foregoing, gross income of this business area for 2006 amounted to €5,423 million, an increase of 27.8% from €4,287 million in 2005.
Net Operating Income
Personnel and other administrative expenses of this business area for 2006 amounted to €1,946 million, an increase of 12.0% compared to €1,737 million in 2005, mainly due to the consolidation of Texas Regional Bancshares in November 2006 as well as a full year consolidation of LNB.
Net operating income of this business area for 2006 was €3,231 million, a 40.3% increase from €2,303 million in 2005, because operating expenses including depreciation increased at a considerably lower pace than ordinary revenues.
As a result of the foregoing, the efficiency ratio of this business area was 35.9% in 2006 compared to 40.5% in 2005. Including depreciation and amortization expense of this business area, the efficiency ratio of this business area was 38.2% in 2006 compared to 43.8% in 2005.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2006 were €685 million, a 117.6% increase from €315 million in 2005, mainly due to higher generic provisions, influenced by those has been provisioning for its consumer and mortgage loan portfolios on the basis of expected losses. The business area’s non-performing loan ratio has fallen from 2.24% at the end of 2005, to 2.19% as of December 31, 2006.
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group from this business area for 2006 was €1,775 million, an increase of 29.6% from €1,370 million in 2005.
Wholesale and Investment BankingSouth America
Year ended December 31, | Change | ||||||||||||||
2003 | 2002 | 2001 | 2003/2002 | 2002/2001 | |||||||||||
Net interest income | 678 | 718 | 744 | (5.6 | ) | (3.5 | ) | ||||||||
Net fee income | 178 | 209 | 225 | (14.8 | ) | (7.1 | ) | ||||||||
Basic margin | 856 | 927 | 969 | (7.7 | ) | (4.3 | ) | ||||||||
Market operations | 123 | (5 | ) | 125 | n.m. | (1) | n.m. | ||||||||
Ordinary revenue | 979 | 922 | 1,094 | 6.2 | (15.7 | ) | |||||||||
General administrative expenses | (310 | ) | (329 | ) | (353 | ) | (5.7 | ) | (6.79 | ) | |||||
Personnel costs | (205 | ) | (212 | ) | (228 | ) | (3.3 | ) | (7.0 | ) | |||||
Other administrative expenses | (105 | ) | (117 | ) | (125 | ) | (10.3 | ) | (6.4 | ) | |||||
Depreciation and amortization | (9 | ) | (12 | ) | (12 | ) | (25.0 | ) | 0.0 | ||||||
Other operating revenues and expenses, net | (6 | ) | (1 | ) | (2 | ) | n.m. | (50.0 | ) | ||||||
Net operating income | 654 | 580 | 727 | 12.8 | (20.2 | ) | |||||||||
Net income from companies accounted for by the equity method | 65 | 21 | 26 | n.m. | (19.2 | ) | |||||||||
Amortization of consolidation goodwill | (2 | ) | (5 | ) | (7 | ) | (60.0 | ) | (28.6 | ) | |||||
Net income on Group transactions | 32 | 88 | 109 | (63.6 | ) | (19.3 | ) | ||||||||
Net loan loss provisions | (143 | ) | (141 | ) | (130 | ) | 1.4 | 8.5 | |||||||
Extraordinary items, net | 38 | 9 | (31 | ) | n.m. | n.m. | |||||||||
Pre-tax profit | 644 | 552 | 694 | 16.7 | (20.5 | ) | |||||||||
Corporate income tax and other taxes | (135 | ) | (124 | ) | (114 | ) | 8.9 | 8.8 | |||||||
Income before minority interests | 509 | 428 | 580 | 18.9 | (26.2 | ) | |||||||||
Minority interests | (41 | ) | (46 | ) | (49 | ) | (10.9 | ) | (6.1 | ) | |||||
Net attributable profit | 468 | 382 | 531 | 22.5 | (28.1 | ) | |||||||||
Net interest income. Net interest income amounted to €678 million in 2003,For a decrease of 5.6% from €718 million in 2002, principally due the fall in interests rates and the weaknessdiscussion of the U.S. dollar againstappreciation/depreciation of South American currencies relative to the euro which negatively affectedaffects the interest income generated fromcomparability of our dollar-denominated assets when converted to euroresults of operations and included in our Consolidated Statement of Income. In 2002, net interest income amounted to €718 million, a decrease of 3.5% from 744 million in 2001, principally due to an 8.3% decrease in lendingfinancial condition in this business area, as a resultsee above under “Factors Affecting the Comparability of sluggishour Results of Operations and uncertain general economic conditions caused by politicalFinancial Condition” and financial crises affecting several Latin American countries“Mexico and the impactUnited States”.
In addition, the results of accounting irregularities at several large international companiesoperations of this business area were affected by the acquisition of Forum in Chile in May 2006 and an approximately 99% interest in Banco Granahorrar in December 2005 in Colombia (in that affected several large companies and certain business sectors.2006 was the first full year its operations were consolidated with the Group), each of which are consolidated in our Consolidated Financial Statements as from their respective date of acquisition.
Year ended December 31, | Change | |||||||||||
2006 | 2005 | 2006/2005 | 2006/2005(1) | |||||||||
(in millions of euros) | (in percentages) | |||||||||||
Net interest income | 1,310 | 1,039 | 26.1 | 28.4 | ||||||||
Share of profit of entities accounted for using the equity method | 3 | (1 | ) | n.m. | (2) | n.m. | (2) | |||||
Net fee and commission income | 815 | 695 | 17.3 | 18.1 | ||||||||
Insurance activity income | (6 | ) | 5 | n.m. | (2) | n.m. | (2) | |||||
Basic income(3) | 2,122 | 1,738 | 22.1 | 24.1 | ||||||||
Gains on financial assets and liabilities (net) | 282 | 157 | 80.3 | 85.5 | ||||||||
Gross income | 2,405 | 1,895 | 26.9 | 29.1 | ||||||||
Sales and income from the provision of non-financial services | 0 | 9 | (99.0 | ) | 99.0 | |||||||
Personnel expenses and other administrative expenses | (1,103 | ) | (933 | ) | 18.3 | 20.4 | ||||||
Depreciation and amortization | (93 | ) | (69 | ) | 34.9 | (36.2 | ) | |||||
Other operating income and expenses (net) | (46 | ) | (40 | ) | 14.2 | 17.3 | ||||||
Net operating income | 1,163 | 861 | 35.0 | 37.4 | ||||||||
Impairment losses | (149 | ) | (80 | ) | 87.6 | 85.4 | ||||||
Net loan loss provisions | (151 | ) | (71 | ) | 114.1 | 111.5 | ||||||
Other writedowns | 2 | (9 | ) | n.m. | (2) | n.m. | (2) | |||||
Provision expense (net) | (59 | ) | (78 | ) | (24.7 | ) | (22.1 | ) | ||||
Other gains and losses (net) | 0 | 14 | (97.8 | ) | (97.8 | ) | ||||||
Income before tax | 955 | 718 | 33.1 | 35.5 | ||||||||
Income tax | (229 | ) | (166 | ) | 38.4 | 41.6 | ||||||
Income from continuing operations | 726 | 552 | 31.5 | 33.7 | ||||||||
Income attributed to minority interests | (217 | ) | (173 | ) | 25.1 | 26.5 | ||||||
Income attributed to the Group | 509 | 379 | 34.4 | 37.0 | ||||||||
(1) | At constant exchange rates from 2005. |
(2) | Not meaningful. |
(3) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method, net fee and commission income and insurance activity income. Basic income is not a line item in our Consolidated Financial Statements. |
Net feeInterest Income
Net interest income. Net fee income of this business area for 2006 amounted to €178€1,310 million, a 26.1% increase from €1,039 million in 2003, a decrease of 14.8% from €209 million in 2002,2005, principally due to a lower level of activity in the equities markets. In 2002, net fee income totaled €209 million, a decrease of 7.1% from €225 million in 2001, as a result of the lower volume of brokering activities by the Investment Banking unit.
higher business volumes.
Basic margin.Income Adding
Basic income of this business area for 2006 amounted to €2,122 million, an increase of 22.1% from €1,738 million in 2005, principally attributable to the increase in net interest income and net fee and commission income.
Gross Income
As a result of the foregoing, gross income results in a basic margin of €856this business area for 2006 amounted to €2,405 million, an increase of 26.9% from €1,895 million in 2003,2005. The stability in the financial markets had a positive impact on gains on financial assets and liabilities.
Net Operating Income
Personnel and other administrative expenses of this business area for 2006 amounted to €1,103 million, an increase of 18.3% compared to €933 million in 2005, mainly due to the consolidation of Forum and Banco Granahorrar in 2006.
Net operating income of this business area for 2006 amounted to €1,163 million, an increase of 35.0% compared to €861 million in 2005, due to a increase in operating expenses (21%) during the year owing to the sharp increase in business at all units and an increase in the pensions sales force. The relatively high inflation in two main countries (Argentina and Venezuela) and the addition of Banco Granahorrar and Forum also contributed to the rise in costs.
Despite this, expenses grew less than revenues and efficiency ratio of this business area improved to 45.9% in 2006 (49% in 2005). Including depreciation and amortization expense of this business area, the efficiency ratio of this business area was 49.7% in 2006 compared to 52.6% in 2005.
Income Attributed to the Group
Impairment losses (net) of this business area for 2006 was €149 million, a 87.6% increase from €80 million in 2005, mainly due to the of generic provisions caused by the sharp rise in business volumes. The business area’s non-performing loan ratio was 2.67% as of December 31, 2006 compared to 3.67% as of December 31, 2005.
As a result of the foregoing, income attributed to the Group from this business area for 2006 was €509 million, an increase of 34.4% from €379 million in 2005.
Corporate Activities
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | (368 | ) | (150 | ) | 145.5 | ||||
Share of profit of entities accounted for using the equity method | 23 | 71 | (67.2 | ) | |||||
Net fee and commission income | 50 | 152 | (67.0 | ) | |||||
Insurance activity loss | (24 | ) | (56 | ) | (57.0 | ) | |||
Basic income/loss(2) | (319 | ) | 16 | n.m. | (2) | ||||
Gains on financial assets and liabilities (net) | 841 | 441 | 90.9 | ||||||
Gross income | 522 | 457 | 14.3 | ||||||
Sales and income from the provision of non-financial services | (1 | ) | (1 | ) | 36.4 | ||||
Personnel expenses and other administrative expenses | (444 | ) | (419 | ) | 5.9 | ||||
Depreciation and amortization | (139 | ) | (127 | ) | 10.1 | ||||
Other operating income and expenses (net) | (12 | ) | (41 | ) | (69.4 | ) | |||
Net operating income | (75 | ) | (131 | ) | (42.5 | ) | |||
Impairment losses | 9 | 138 | (93.3 | ) | |||||
Net loan loss provisions | 26 | 146 | (82.2 | ) | |||||
Other writedowns | (17 | ) | (8 | ) | 114.2 | ||||
Provision expense (net) | (1,193 | ) | (328 | ) | 263.2 | ||||
Other gains and losses (net) | 771 | 22 | n.m. | (2) | |||||
Loss before tax | (488 | ) | (300 | ) | 62.8 | ||||
Income tax | 166 | 247 | (33.0 | ) | |||||
Loss from ordinary activities | (323 | ) | (53 | ) | n.m. | (2) | |||
Income or loss attributed to minority interests | (6 | ) | (79 | ) | (92.1 | ) | |||
Loss attributed to the Group | (329 | ) | (132 | ) | 149.0 | ||||
(1) | Not meaningful. |
(2) | Basic income/(loss) for this business area consists of net interest income/(expense), share of profit/(loss) of entities accounted for using the equity method, net fee and commission income and insurance activity income/(loss). Basic income/(loss) is not a line item in our Consolidated Financial Statements. |
Net Interest Income/(Expense)
Net interest expense of this business area for 2006 amounted to €368 million, a 145.5% increase from €150 million in 2005, due to principally to the negative impact of higher interest rates and the disposal of BNL in May.
Share of Profit of Entities Accounted for Using the Equity Method
Share of profit of entities accounted for using the equity method of this business area for 2006 amounted to €23 million compared to €71 million in 2005, a decrease of 7.7% from €92767.2%, which related principally to our share of the profit in 2005 in BNL, which was sold in 2006.
Basic Income/(Loss)
Basic loss of this business area for 2005 amounted to €319 million compared to basic income of €16 million in 2002. Adding2005. This was principally attributable to decreases in net fee and commission income and the increase in net interest expense.
Gains on Financial Assets and Liabilities (Net)
Gains on financial assets and liabilities (net) of this business area for 2006 amounted to €841 million, an increase of 90.9% from €441 million in 2005. Gains on financial assets and liabilities in 2006 includes €523 million in capital gains from the disposal of our holding in Repsol.
Gross Income
As a result of the foregoing, gross income and net fee incomeof this business area for 2002 results2006 amounted to €522 million, an increase of 14.3% from €457 million in a basic margin2005.
Net Operating Income/Loss
Net operating loss of €927this business area for 2006 was €75 million, a 42.5% decrease of 4.3% from €969€131 million in 2001.2005.
Market operationsProvision Expense (net). Income from market operations
Provision expense (net) amounted to €123€1,193 million in 2003,2006, a 263.2% increase from €328 million in 2005, due to the higher charges for early retirements, which includes a special charge of €777 million for a plan to transform the branch network in Spain and those derived from the changes in the reorganization announced in December 2006.
Other Gains and Losses (Net)
Other gains and losses (net) amounted €771 million in 2006, a significant increase from €22 million in 2005. These included earnings from the sale of holdings in BNL. (€568 million) and Andorra (€183 million) in 2006, whereas in 2005 there were no significant disposals.
Income/(Loss) Attributed to the Group
As a result of the foregoing, the area’s loss attributed to the Group was €329 million in 2006 compared to a loss of €5-€132 million in 2002,2005.
Results of Operations by Business Areas for 2005 Compared with 2004
Retail Banking in Spain and Portugal
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 2,623 | 2,509 | 4.5 | ||||||
Share of profit of entities accounted for using the equity method | 1 | 1 | (10.8 | ) | |||||
Net fee and commission income | 1,456 | 1,341 | 8.6 | ||||||
Insurance activity income | 309 | 257 | 20.4 | ||||||
Basic income(1) | 4,390 | 4,108 | 6.9 | ||||||
Gains on financial assets and liabilities (net) | 55 | 33 | 66.0 | ||||||
Gross income | 4,444 | 4,141 | 7.3 | ||||||
Sales and income from the provision of non-financial services | 26 | 27 | (4.5 | ) | |||||
Personnel expenses and other administrative expenses | (2,092 | ) | (2,003 | ) | 4.4 | ||||
Depreciation and amortization | (103 | ) | (106 | ) | (3.1 | ) | |||
Other operating income and expenses (net) | 43 | 30 | 44.2 | ||||||
Net operating income | 2,319 | 2,089 | 11.0 | ||||||
Impairment losses (net) | (328 | ) | (274 | ) | 19.8 | ||||
Net loan loss provisions | (330 | ) | (274 | ) | 20.5 | ||||
Other writedowns | 2 | — | n.m. | (2) | |||||
Provision expense (net) | (2 | ) | (5 | ) | (54.4 | ) | |||
Other gains and losses (net) | 18 | 8 | 129.4 | ||||||
Income before tax | 2,007 | 1,818 | 10.4 | ||||||
Income tax | (686 | ) | (619 | ) | 10.7 | ||||
Income from continuing operations | 1,321 | 1,199 | 10.2 | ||||||
Income attributed to minority interests | (4 | ) | (4 | ) | 4.9 | ||||
Income attributed to the Group | 1,317 | 1,195 | 10.2 | ||||||
(1) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method and net fees and commissions. Basic income is not a line item in our Consolidated Financial Statements. |
(2) | Not meaningful. |
Net Interest Income
Net interest income of this business area for 2005 amounted to €2,623 million, a 4.5% increase from €2,509 million in 2004, principally due to severe market volatilityan increase in 2002.
banking business related to private individuals, SMEs and small businesses.
General administrative expenses, depreciation and amortization and net other operating revenues and expensesBasic Income. Operating expenses
Basic income of this business area for 2005 amounted to €325 million in 2003, a decrease of 5% from €342 million in 2002. Most of the cost savings were achieved in the capital markets unit. Personnel costs fell €7 million, or 3.3%, other administrative expenses dropped €12 million, or 10.3%, and depreciation and amortization charges fell €3 million, or 25%. In 2002, operating expenses amounted to €342 million, a decrease of 6.8% from €367 million in 2001. Most of the cost savings were achieved in the Global Markets and Distribution unit.
Net operating income. Subtracting, among other items, general administrative expenses and depreciation and amortization from ordinary revenue results in, net operating income of €654 million in 2003, an increase of 12.8% from €580 million in 2002. In 2002, net operating income was €580 million, a decrease of 20.2% from €727 million in 2001.
Other items. In 2003, net income from companies accounted for by the equity method amounted to €65€4,390 million, an increase of 209%6.9% from €21€4,108 million in 2002,2004, reflecting a higher business activity responsible for growth in net fee income. Insurance activity income increased 20.4% to €309 million in 2005 from €257 million in 2004.
Gross Income
As a result of the foregoing generally, gross income of this business area for 2005 amounted to €4,444 million, an increase of 7.3% from €4,141 million in 2004.
Net Operating Income
Personnel and other administrative expenses for 2005 amounted to €2,092 million, an increase of 4.4% compared to €2,003 million in 2004, despite an increase of 80 new branches in our branch network in Spain and Portugal, reflecting continued savings achieved through our efficiency plans.
Net operating income of this business area for 2005 amounted to €2,319 million, an increase of 11.0% compared to €2,089 million in 2004.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 was €328 million, a 19.8% increase from €274 million in 2004, mainly due to a 20.5% increase in net loan loss provisions to €330 million in 2005 from €274 million in 2004. The increase in loan loss provisions was principally due to generic provisioning.
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group from this business area for 2005 was €1,317 million, an increase of 10.2% from €1,195 million in 2004.
Wholesale Businesses
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 1,017 | 947 | 7.4 | ||||||
Share of profit of entities accounted for using the equity method | 51 | 104 | (50.9 | ) | |||||
Net fee and commission income | 425 | 380 | 11.8 | ||||||
Insurance activity income | — | — | — | ||||||
Basic income(1) | 1,494 | 1,431 | 4.4 | ||||||
Gains on financial assets and liabilities (net) | 448 | 225 | 98.9 | ||||||
Gross income | 1,941 | 1,656 | 17.2 | ||||||
Sales and income from the provision of non-financial services | 95 | 81 | 17.1 | ||||||
Personnel expenses and other administrative expenses | (582 | ) | (544 | ) | 6.9 | ||||
Depreciation and amortization | (12 | ) | (12 | ) | 2.3 | ||||
Other operating income and expenses (net) | 29 | 4 | n.m. | (2) | |||||
Net operating income | 1,471 | 1,185 | 24.1 | ||||||
Impairment losses | (269 | ) | (366 | ) | (26.4 | ) | |||
Net loan loss provisions | (269 | ) | (366 | ) | (26.4 | ) | |||
Other writedowns | — | — | — | ||||||
Provision expense (net) | 5 | 6 | (13.7 | ) | |||||
Other gains and losses (net) | 31 | 59 | (47.5 | ) | |||||
Income before tax | 1,238 | 884 | 40.0 | ||||||
Income tax | (361 | ) | (222 | ) | 62.8 | ||||
Income from continuing operations | 876 | 662 | 32.4 | ||||||
Income attributed to minority interests | (4 | ) | (4 | ) | (7.7 | ) | |||
Income attributed to the Group | 873 | 658 | 32.6 | ||||||
(1) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method and net fees and commissions. Basic income is not a line item in our Consolidated Financial Statements. |
(2) | Not meaningful. |
Net Interest Income
Net interest income of this business area for 2005 amounted to €1,017 million, a 7.4% increase from €947 million in 2004, principally due to an increase in this business area’s overall business volume.
Basic Income
Basic income of this business area for 2005 increased 4.4% to €1,494 million from €1,431 million in 2004, principally due to the increase in net fee and commission from Markets and Wholesale Banking, offset in part by the decrease in share of profit of entities accounted for using the equity method.
Gross Income
Gross income of this business area for 2005 amounted to €1,941 million, an increase of 17.2% compared to €1,656 million in 2004, principally due to the increase in gains on financial assets and liabilities, which grew 98.4% from €225 million in 2004 to €448 million in 2005, mainly due to Market activities.
Net Operating Income
Personnel and other administrative expenses of this business area for 2005 amounted to €582 million, an increase of 6.9% compared to €544 million in 2004, mainly due to an increase in the average number of employees in 2005.
Net operating income of this business area for 2005 was €1,471 million, a 24.1% increase from €1,185 million in 2004, mainly due to revenues on non-financial services, which contributed €95 million to the area, most of them from real-estate transactions.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 were €269 million, a 26.4% decrease from €366 million in 2004, mainly due to a reduction in loan-loss provisions due to fewer non-performing loans.
Other Gains and Losses (Net)
Other gains and losses was €31 million, a 47.5% decrease from €59 million. Other gains and losses of this business area for 2004 reflected gains on the sale of our holdings in Grubarges Inversión Hotelera, S.L. (€26.3 million) and Vidrala (€19.3 million).
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group from this business area for 2005 was €873 million, an increase of 32.6% from €658 million in 2004.
Mexico and the United States
As discussed above under “Factors Affecting the Comparability of our Results of Operations and Financial Condition”, in 2005, the appreciation of the currencies countries (including Mexico, the U.S. and countries in South America) in which we operate against the euro positively affected, to a limited extent, the results of operations of our foreign subsidiaries in euro terms. By contrast, in 2004, the depreciation of the currencies of the countries in which we operate against the euro negatively affected the results of operations of our foreign subsidiaries in euro terms.
In addition, the results of operations of this business area were affected by the acquisition of Hipotecaria Nacional, S.A. de C.V. in January 2005 and the acquisition of LNB in April 2005, each of which are consolidated in our Consolidated Financial Statements as from their respective date of acquisition.
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 2,678 | 1,899 | 41.0 | ||||||
Share of profit of entities accounted for using the equity method | — | (2 | ) | (98.8 | ) | ||||
Net fee and commission income | 1,212 | 993 | 22.0 | ||||||
Insurance activity income | 229 | 191 | 19.7 | ||||||
Basic income(2) | 4,119 | 3,081 | 33.7 | ||||||
Gains on financial assets and liabilities (net) | 168 | 141 | 18.9 | ||||||
Gross income | 4,287 | 3,222 | 33.0 | ||||||
Sales and income from the provision of non-financial services | (3 | ) | (1 | ) | 159.5 | ||||
Personnel expenses and other administrative expenses | (1,737 | ) | (1,350 | ) | 28.7 | ||||
Depreciation and amortization | (138 | ) | (124 | ) | 11.5 | ||||
Other operating income and expenses (net) | (106 | ) | (98 | ) | 7.7 | ||||
Net operating income | 2,303 | 1,649 | 39.7 | ||||||
Impairment losses | (315 | ) | (234 | ) | 34.6 | ||||
Net loan loss provisions | (289 | ) | (234 | ) | 23.3 | ||||
Other writedowns | (26 | ) | — | n.m. | (1) | ||||
Provision expense (net) | (51 | ) | (79 | ) | (35.9 | ) | |||
Other gains and losses (net) | (8 | ) | (19 | ) | (57.9 | ) | |||
Income before tax | 1,929 | 1,317 | 46.5 | ||||||
Income tax | (556 | ) | (387 | ) | 43.7 | ||||
Income from continuing operations | 1,373 | 930 | 47.7 | ||||||
Income attributed to minority interests | (4 | ) | (40 | ) | (91.1 | ) | |||
Income attributed to the Group | 1,370 | 890 | 53.9 | ||||||
(1) | Not meaningful. |
(2) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method, net fee and commission income and insurance activity income. Basic income is not a line item in our Consolidated Financial Statements. |
Net Interest Income
Net interest income of this business area for 2005 amounted to €2,678 million, a 41.0% increase from €1,899 million in 2004, due to principally to an increase in this business area’s overall business volume, especially business related to individuals, including consumer finance and credit card products.
Basic Income
Basic income of this business area for 2005 amounted to €4,119 million, an increase of 33.7% from €3,081 million in 2004, principally attributable to the increases in net interest income and, to a lesser extent, an increase in net fee and commission income. Net fee income grew mainly due to the increase in mutual funds, securities and credit cards.
Gross Income
As a result of the foregoing, gross income of this business area for 2005 amounted to €4,287 million, an increase of 33.0% from €3,222 million in 2004.
Net Operating Income
Personnel and other administrative expenses of this business area for 2005 amounted to €1,737 million, an increase of 28.7% compared to €1,350 million in 2004, mainly due to a increased marketing activity.
Net operating income of this business area for 2005 was €2,303 million, a 39.7% increase from €1,649 million in 2004.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 were €315 million, a 34.6% increase from €234 million in 2005, mainly due to a 23.3% increase in net loan loss provisions to €289 million in 2005 from €234 million in 2004. The increase in loan loss provisions was principally due to an increase in the net income of severalsize of our investee companies, particularly in the real estate sector. Net loan loss provisions amounted to €143 million in 2003, an increase of 1.4% from €141 million in 2002, principally due to a moderate 3.6% increase in lending. Net loan loss provisions amounted to €141 million in 2002, an increase of 8.5% from €130 million in 2001, with the Global Corporate Banking unit accounting for the majority of this increase. The Wholesale and Investment Banking business area’s non-performing loan ratio was 0.66% in 2003, compared to 1.24% in 2002 and 0.42% in 2001, principally dueportfolio.
Income Attributed to the improved financial condition of many of our corporate clients.Group
Net attributable profit. As a result of the items described above, net attributable profit amountedforegoing, income attributed to €468the Group from this business area for 2005 was €1,370 million, in 2003, an increase of 22.5%53.9% from €382€890 million in 2002. In 2002, net attributable profit amounted to €382 million, a decrease of 28.1% from €531 million in 2001.
2004.
Banking inSouth America
As described above, in 2003 we reorganized our business areas such that our Banking in America area now includes allFor a discussion of the appreciation/depreciation of South American currencies relative to the euro which affects the comparability of our Latin Americanresults of operations including our Mexican operations (which had been a separateand financial condition in this business area, in 2002) and asset management and private banking in Latin America (which also had been included in a separate business area in 2002), but excludes our operations in Brazil, which we have included in our Corporate Activities and Other business area as a result of our sale of BBV Brasil in 2003. In addition, because the political and economic conditions in Argentina in the last several years had a significant negative affect on the entire banking sector and have consequently severely affected the operating results of our Argentinean subsidiaries during the period, during 2003 and 2002, management evaluated and managed our Argentinean operations as if they comprised a separate business area and not part of the Banking in America business area where such operations would otherwise be included. Accordingly, our Argentinean subsidiaries’ operations are discussed under the separate business area, “Argentina”, and not as part of the Banking in America business area.
As discussedsee above under “—EventsFactors Affecting the Comparability of Historical and Futureour Results of Operations and Financial Condition—Effect ofCondition” and “—Mexico and the Depreciation of Latin American Currencies”, the depreciation of the currencies against the euro in the Latin American countries in which we operate was the most significant factor affecting the results of operations of our Latin American subsidiaries. In local currency terms, our Latin American subsidiaries sought to increase business volumes and fee income in order to offset the effect of historically low interest rates on yield spreads.
Net interest income Net fee income Basic margin Market operations Ordinary revenue General administrative expenses Personnel costs Other administrative expenses Depreciation and amortization Other operating revenues and expenses, net Net operating income Net income from companies accounted for by the equity method Amortization of consolidation goodwill Net income on Group transactions Net loan loss provisions Extraordinary items, net Pre-tax profit Corporate income tax and other taxes Income before minority interests Minority interests Net attributable profit Year ended December 31, Change 2003 2002 2001 2003/2002 2002/2001 2,790 3,391 3,988 (17.7 ) (15.0 ) 1,630 1,889 1,872 (13.7 ) 0.9 4,420 5,280 5,860 (16.3 ) (9.9 ) 196 277 285 (29.2 ) (2.8 ) 4,616 5,557 6,145 (16.9 ) (9.6 ) (2,034 ) (2,559 ) (3,007 ) (20.5 ) (14.9 ) (1,128 ) (1,444 ) (1,637 ) (21.8 ) (11.8 ) (906 ) (1,115 ) (1,370 ) (18.8 ) (18.6 ) (213 ) (282 ) (339 ) (24.5 ) (16.8 ) (139 ) (179 ) (198 ) (22.3 ) (9.6 ) 2,230 2,537 2,601 (12.1 ) (2.5 ) 72 20 8 n.m. (1) 150.0 — — — — — 14 (3 ) 50 n.m. n.m. (495 ) (691 ) (795 ) (28.4 ) (13.1 ) (292 ) (193 ) (21 ) 51.3 n.m. 1,529 1,670 1,843 (8.4 ) (9.4 ) (369 ) (410 ) (448 ) (10.0 ) (8.5 ) 1,160 1,260 1,395 (7.9 ) (9.7 ) (445 ) (524 ) (588 ) (15.1 ) (10.9 ) 715 736 807 (2.9 ) (8.8 )
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 1,039 | 908 | 14.4 | ||||||
Share of profit of entities accounted for using the equity method | (1 | ) | — | n.m. | (1) | ||||
Net fee and commission income | 695 | 596 | 16.6 | ||||||
Insurance activity income | 5 | (20 | ) | n.m. | (1) | ||||
Basic income(2) | 1,738 | 1,484 | 17.1 | ||||||
Gains on financial assets and liabilities (net) | 157 | 95 | 64.8 | ||||||
Gross income | 1,895 | 1,579 | 20.0 | ||||||
Sales and income from the provision of non-financial services | 9 | 5 | 71.8 | ||||||
Personnel expenses and other administrative expenses | (933 | ) | (815 | ) | 14.5 | ||||
Depreciation and amortization | (69 | ) | (85 | ) | (19.1 | ) | |||
Other operating income and expenses (net) | (40 | ) | (33 | ) | 22.4 | ||||
Net operating income | 861 | 651 | 32.3 | ||||||
Impairment losses | (80 | ) | (73 | ) | 9.1 | ||||
Net loan loss provisions | (71 | ) | (73 | ) | (3.2 | ) | |||
Other writedowns | (9 | ) | — | n.m. | (1) | ||||
Provision expense (net) | (78 | ) | (101 | ) | (22.7 | ) | |||
Other gains and losses (net) | 14 | 21 | (32.8 | ) | |||||
Income before tax | 718 | 498 | 44.1 | ||||||
Income tax | (166 | ) | (139 | ) | 19.1 | ||||
Income from continuing operations | 552 | 359 | 53.8 | ||||||
Income attributed to minority interests | (173 | ) | (130 | ) | 33.3 | ||||
Income attributed to the Group | 379 | 229 | 65.5 | ||||||
(1) | Not meaningful. |
(2) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method, net fee and commission income and insurance activity income. Basic income is not a line item in our Consolidated Financial Statements. |
Net interest incomeInterest Income.
Net interest income of this business area for 2005 amounted to €2,790€1,039 million, a 14.4% increase from €908 million in 2003, a decrease of 17.7% from €3,391 million in 2002, principally due to depreciations in Latin American currencies. In 2002, net interest income amounted to €3,391 million, a decrease of 15% from €3,988 million from 2001.
Net fee income. Net fee income totaled €1,630 million in 2003, a decrease of 13.7% from €1,889 million in 2002, principally due to depreciations in Latin American currencies, which more than offset efforts to increase fee and commission income by offering additional services to clients. In 2002, fee income amounted to €1,889 million, an increase of 0.9% from 1,872 million in 2001.
Basic margin.Adding net interest income and net fee income results in a basic margin of €4,420 million in 2003, a decrease of 16.3% from €5,280 million in 2002. In 2002, basic margin was €5,280, a decrease of 0.9% from €5,860 million in 2001.
Market operations. Income from market operations in 2003 amounted to €196 million, a decrease of 29.2% from €277 million in 2002, principally due to the depreciation of the currencies in Venezuela and Uruguay against the euro. In 2002, income from market operations amounted to €277 million, a decrease of 2.8% from €285 million in 2001.
General administrative expenses, depreciation and amortization and net other operating revenues and expenses. Operating expenses amounted to €2,386 million in 2003, a decrease of 21% from €3,020 million in 2002, principally due to the positive effect on costs of the depreciations in Latin American currencies and efficiency measures implemented in 2003, such as the reduction of 1,097 in headcount and the 1.7% decline in the number of branches, to limit costs increases in local currency terms. In 2002, total operating expenses amounted to €3,020 million, a decrease of 14.8% from €3,544 million.
Net operating income. Subtracting, among other items, general administrative expenses and depreciation and amortization from ordinary revenue results in net operating income of €2,230 million for 2003, a decrease of 12.1% from €2,537 million in 2002. In 2002, net operating income amounted to €2,537 million, a decrease of 2.5% from €2,601 million in 2001.
Other items. In 2003, net income from companies accounted for by the equity method amounted to €72 million, compared to €20 million in 2002,2005, principally due to an increase in this business area’s overall business volume, with growth in all lines of business, though particularly the netretail business.
Basic Income
Basic income of several of our investee companies, particularly insurance companies in which our Latin American subsidiaries own significant interests but we are not permitted to consolidate under Spanish GAAP. Net loan loss provisionsthis business area for 2005 amounted to €495€1,738 million, an increase of 17.1% from €1,484 million in 2003,2004, principally attributable to the increase in net fee and income due to greater activity, including a decrease of 28.4% from €691recovery in mutual and pension funds and favorable trends in traditional banking services, and, to a lesser extent, an increase in insurance activity due to higher marketing activity.
Gross Income
Gains on financial assets and liabilities increased 64.8% to €157 million in 2002, principally2005 from €95 million in 2004, due to the effect of depreciations in Latin American currencies on the euro value of our Latin American subsidiaries’ loans and an improvementfavorable conditions in the qualitycapital markets in the second half of such subsidiaries’ loan portfolios. Net loan loss provisions amounted to €691 million in 2002, a decrease of 13.1% from €795 million in 2001. The Banking in America’s NPL ratio was 4.01% in 2003, compared to 3.82% in 2002 and 3.51% in 2001, principally due to the adoption of stricter criteria for classifying loans issued by several of our Latin American subsidiaries as doubtful or non-performing. These criteria were adopted as a result of regulatory developments in certain countries in which we operate and our effort to apply loan classification criteria on a uniform basis throughout our operations. The loan coverage ratio was 169.4% in 2003, compared to 241.6% in 2002 and 242.6% in 2001. Net extraordinary expense amounted to €292 million in 2003, an increase of 51.3% from net extraordinary expense of €193 million in 2002, principally due to the effects of inflation accounting. Net extraordinary expense amounted to €193 million in 2002, compared to €21 million in 2001, principally due to the allocation of special provisions relating to the crisis in Venezuela in 2002.2005.
Net attributable profit. As a result of the items described above, net attributable profitforegoing, gross income of this business area for 2006 amounted to €715 million in 2003, a decrease of 2.9% from €736 million in 2002. In 2002, net attributable profit amounted to €736 million, a decrease of 8.8% from €807 million in 2001.
Corporate Activities and Other
As described above, in January 2003 we agreed to sell our entire interest in BBV Brasil, which we previously included in the Banking in America business area. As a result of such agreement, from January 1, 2003 through June 9, 2003, the date the sale closed, we accounted for BBV Brasil’s business area’s operating results by the equity method. In order to provide a more meaningful presentation of our Banking in America business area’s operating results, we have elected to present the operating results of BBV Brasil—in 2003 carried by the equity method and in 2002 and 2001 under full consolidation—in the Corporate Activities and Other business area rather than in the Banking in America business area.
Year ended December 31, | Change | ||||||||||||||
2003 | 2002 | 2001 | 2003/2002 | 2002/2001 | |||||||||||
Net interest income | 4 | 187 | 403 | (97.9 | ) | (53.6 | ) | ||||||||
Net fee income | (112 | ) | (42 | ) | (49 | ) | 166.7 | (14.3 | ) | ||||||
Basic margin | (108 | ) | 145 | 354 | n.m. | (1) | (59.0 | ) | |||||||
Market operations | 237 | 346 | (22 | ) | (31.5 | ) | n.m. | ||||||||
Ordinary revenue | 129 | 491 | 332 | (73.7 | ) | 47.9 | |||||||||
General administrative expenses | (416 | ) | (588 | ) | (557 | ) | (29.2 | ) | 5.6 | ||||||
Personnel costs | (454 | ) | (565 | ) | (560 | ) | (19.6 | ) | 0.9 | ||||||
Other administrative expenses | 38 | (23 | ) | 3 | n.m. | n.m. | |||||||||
Depreciation and amortization | (154 | ) | (195 | ) | (193 | ) | (21.0 | ) | 1.0 | ||||||
Other operating revenues and expenses, net | (23 | ) | (21 | ) | (11 | ) | 9.5 | 90.9 | |||||||
Net operating expense | (464 | ) | (313 | ) | (429 | ) | 48.2 | (27.0 | ) | ||||||
Net income from companies accounted for by the equity method | 228 | 7 | 319 | n.m. | (97.8 | ) | |||||||||
Amortization of consolidation goodwill | (637 | ) | (675 | ) | (1,136 | ) | (5.6 | ) | (40.6 | ) | |||||
Net income on Group transactions | 508 | 276 | 795 | 84.1 | (65.3 | ) | |||||||||
Net loan loss provisions | 42 | (229 | ) | (60 | ) | n.m. | n.m. | ||||||||
Extraordinary items, net | (76 | ) | (99 | ) | 27 | (23.2 | ) | n.m. | |||||||
Pre-tax profit | (399 | ) | (1,033 | ) | (484 | ) | (61.4 | ) | n.m. | ||||||
Corporate income tax and other taxes | 296 | 458 | 171 | (35.4 | ) | n.m. | |||||||||
Income before minority interests | (103 | ) | (575 | ) | (313 | ) | (82.1 | ) | 83.7 | ||||||
Minority interests | (102 | ) | (81 | ) | (138 | ) | 25.9 | (41.3 | ) | ||||||
Net attributable loss | (205 | ) | (656 | ) | (451 | ) | (68.8 | ) | 45.5 | ||||||
Net interest income. Net interest income amounted to €4 million in 2003, a decrease of 98% from €187 million in 2002, principally due to our sale of BBV Brasil, which accounted for a decrease in net interest income of €301 million, but was partially offset by the higher dividends collected from investee companies, which increased by 82% over 2002. Net interest income in 2002 amounted to €187 million, a decrease of 53.6% from €403 million in 2001, principally due to the lower dividends collected in 2002.
Net fee income. Net fee expense amounted to €112 million in 2003, an increase of 166.7% from net fee expense of €42 million in 2002, principally due to our sale of BBV Brasil, which accounted for an increase in net fee expense of €58 million. Net fee expense in 2002 amounted to €42 million, a decrease of 14.3% from net fee expense of €49 million in 2001.
Basic margin.Adding net interest income and net fee income results in a basic margin of negative €108 million in 2003. Basic margin was €145 in 2002, principally due to the contribution of BBV Brasil, which accounted for €362 million in basic margin.
Market operations. Income from market operations amounted to €237 million in 2003, a decrease of 31.5% from €346 million in 2002, principally due to significant hedging, derivatives and other securities transactions by our Assets and Liabilities Management Committee in 2002. Income from market operations in 2001 was a loss of €22 million.
General administrative expenses, depreciation and amortization and net other operating revenues and expenses. Operating expenses amounted to €593 million in 2003, a decrease of 26.2% from €804 million in 2002, principally due to our sale of BBV Brasil, which accounted for a reduction of €235 million. Operating expenses in 2002 were €804€2,405 million, an increase of 5.7%26.9% from €761€1,895 million in 2001.
2005.
Net operating expense.Operating Income Subtracting, among
Personnel and other items, general administrative expenses and depreciation and amortization from ordinary revenue results in net operating expenses of €464this business area for 2005 amounted to €933 million, in 2003, an increase of 48.2% from €31314.5% compared to €815 million in 2002, principally due to lower operating income as a result of the sale of BBV Brasil, which accounted for a reduction of €146 million. Net operating expense was €313 million in 2002, a decrease of 27.0% from net operating expense of €429 million in 2001.
Net income from companies accounted for by the equity method. Net income from companies accounted for by the equity method amounted to €228 million in 2003, compared to €7 million in 2002, principally2004 mainly due to the changemajor marketing effort undertaken in accounting2005.
Net operating income of the operating results of BBV Brasil during the first half of 2003 and improved operating results of our investee companies. Net income from companies accountedthis business area for by the equity method2005 amounted to €7€861 million, an increase of 32.3% compared to €651 million in 2002, compared to €3192005.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 was €80 million, a 9.1% increase from €73 million in 2001, principally2004, mainly due to the impact of the Argentinean political and economic crisis on the operating results ofincrease in our investee companies with significant operations in Argentina and, in the case of Telefónica, S.A., its decision to significantly write-down its investments in certain UMTS licenses.loan portfolio.
Amortization of consolidation goodwill. Since goodwill arises as a result of transactions undertaken by BBVA that, directly or indirectly, affect all of our business areas, all of our consolidated goodwill is recorded in the Corporate Activities and Other business area. Goodwill amortization charges amounted to €637 million in 2003, a decrease of 5.6% from €675 million in 2002. Goodwill amortization charges amounted to €675 million in 2002, a decrease of 40.6% from €1,143 million in 2001, principally due to unusually high charges in 2001 arising from the incorporation of the goodwill of Bancomer, Banco Francés and Grupo Consolidar.
Net income on Group transactions. Net income on Group transactions amounted to €508 million in 2003, an increase of 84.1% from €276 million in 2002, principally dueIncome Attributed to the recording of a loss of €189 million from our sale of BBV Brasil in 2002. Net income on Group transactions amounted to €276 million in 2002, a decrease of 65.3% from €795 million in 2001, principally due to exchange rate losses generated in advanced of our sale of BBV Brasil.
Net loan loss provisions. Net loan loss recoveries amounted to €42 million in 2003, compared to net loan loss provisions in 2002 of €229 million, principally due to the reclassification in 2002 of Argentina from group 4 to group 5 in country risk rankings set by the Bank of Spain, which required us to increase our loan coverage position. Unlike other loan loss provisions which are recorded by each business area according to the loan portfolio included within the scope of their activities, all of our country risk provisions are recorded in the Corporate Activities and Other business area. Net loan loss provisions in 2001 amounted to €60 million.
Net attributable loss. As a result of the items described above, net attributable loss amountedforegoing, income attributed to €205the Group from this business area for 2005 was €379 million, in 2003, a decrease of 68.8% from €656 million in 2002. Net attributable loss was €656 million in 2002, an increase of 45.5%65.5% from net attributable loss of €451€229 million in 2001.2005.
ArgentinaCorporate Activities
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | (150 | ) | (103 | ) | 45.5 | ||||
Share of profit of entities accounted for using the equity method | 71 | (8 | ) | n.m. | (1) | ||||
Net fee and commission income | 152 | 103 | 47.3 | ||||||
Insurance activity loss | (56 | ) | (38 | ) | 48.6 | ||||
Basic income/loss(2) | 16 | (46 | ) | 136.1 | |||||
Gains on financial assets and liabilities (net) | 441 | 567 | (22.3 | ) | |||||
Gross income | 457 | 521 | (12.5 | ) | |||||
Sales and income from the provision of non-financial services | (1 | ) | 15 | (105.6 | ) | ||||
Personnel expenses and other administrative expenses | (419 | ) | (385 | ) | 8.9 | ||||
Depreciation and amortization | (127 | ) | (121 | ) | 4.7 | ||||
Other operating income and expenses (net) | (41 | ) | (13 | ) | n.m. | (1) | |||
Net operating income | (131 | ) | 17 | n.m. | (1) | ||||
Impairment losses | 138 | (10 | ) | n.m. | (1) | ||||
Net loan loss provisions | 146 | 164 | (11.2 | ) | |||||
Other writedowns | (8 | ) | (174 | ) | (95.5 | ) | |||
Provision expense (net) | (328 | ) | (671 | ) | (51.1 | ) | |||
Other gains and losses (net) | 22 | 286 | (92.4 | ) | |||||
Loss before tax | (300 | ) | (378 | ) | (20.5 | ) | |||
Income tax | 247 | 338 | (26.9 | ) | |||||
Loss from continuing operations | (53 | ) | (40 | ) | 35.1 | ||||
Income or loss attributed to minority interests | (79 | ) | (8 | ) | n.m. | (2) | |||
Loss attributed to the Group | (132 | ) | (48 | ) | 181.0 | ||||
(1) | Not meaningful. |
(2) | Basic income/(loss) for this business area consists of net interest income/(expense), share of profit/(loss) of entities accounted for using the equity method, net fee and commission income and insurance activity income/(loss). Basic income/(loss) is not a line item in our Consolidated Financial Statements. |
Because political and economic conditions in Argentina in the last several years had a significant negative effect on the entire Argentinean banking sector and have consequently severely affected the operating resultsNet Interest Income/(Expense)
Net interest expense of our Argentinean subsidiaries during this period, during 2002 and 2003, management evaluated and managed our Argentinean operations as if they comprised a separate business area and not part offor 2005 amounted to €150 million, a 45.5% increase from €103 million in 2005, due principally to the Bankingincreased costs relating to derivative transactions we entered into to hedge exchange rate risk in America and Asset Management and Private Banking business areas where such operations would otherwise be included.
Year ended December 31, | Change | ||||||||||||||
2003 | 2002 | 2001 | 2003/2002 | 2002/2001 | |||||||||||
Net interest income | 48 | 323 | 664 | (85.1 | ) | (51.4 | ) | ||||||||
Net fee income | 91 | 102 | 435 | (10.8 | ) | (76.6 | ) | ||||||||
Basic margin | 139 | 425 | 1,099 | (67.3 | ) | (61.3 | ) | ||||||||
Market operations | 52 | 101 | 39 | (48.5 | ) | n.m. | (1) | ||||||||
Ordinary revenue | 191 | 526 | 1,138 | (63.7 | ) | (53.8 | ) | ||||||||
General administrative expenses | (152 | ) | (172 | ) | (560 | ) | (11.6 | ) | (69.3 | ) | |||||
Personnel costs | (85 | ) | (91 | ) | (353 | ) | (6.6 | ) | (74.2 | ) | |||||
Other administrative expenses | (67 | ) | (81 | ) | (207 | ) | (17.3 | ) | (60.9 | ) | |||||
Depreciation and amortization | (21 | ) | (19 | ) | (73 | ) | 10.5 | (74.0 | ) | ||||||
Other operating revenues and expenses, net | (8 | ) | (9 | ) | (16 | ) | (11.1 | ) | (43.8 | ) | |||||
Net operating income | 10 | 326 | 489 | (96.9 | ) | (33.3 | ) | ||||||||
Net income from companies accounted for by the equity method | 10 | (9 | ) | 12 | n.m. | (175.0 | ) | ||||||||
Amortization of consolidation goodwill | 0 | 0 | 0 | — | — | ||||||||||
Net income on Group transactions | 0 | 0 | 0 | — | — | ||||||||||
Net loan loss provisions | (189 | ) | (249 | ) | (532 | ) | (24.1 | ) | (53.2 | ) | |||||
Extraordinary items, net | 237 | (152 | ) | (751 | ) | n.m. | (79.8 | ) | |||||||
Pre-tax profit | 68 | (84 | ) | (782 | ) | n.m. | (89.3 | ) | |||||||
Corporate income tax and other taxes | (57 | ) | 89 | 353 | n.m. | (74.8 | ) | ||||||||
Income before minority interests | 11 | 5 | (429 | ) | 120.0 | n.m. | |||||||||
Minority interests | (1 | ) | (14 | ) | 212 | (92.9 | ) | n.m. | |||||||
Net attributable profit (loss) | 10 | (9 | ) | (217 | ) | n.m. | (95.9 | ) | |||||||
Latin America.
Net interest incomeShare of Profit/(Loss) of Entities Accounted for Using the Equity Method. Net interest income
Share of profit of entities accounted for using the equity method of this business area for 2005 amounted to €48€71 million compared to a loss for 2004 of €8 million. Share of profit in entities accounted for using the equity method of this business area for 2005 related principally to our share of BNL, which had losses in 2004.
Basic Income/(Loss)
Basic income of this business area for 2005 amounted to €16 million compared to basic loss of €46 million in 2003, a decrease2004. This was principally attributable to increases in net fee and commission income and share of 85.1% from €323profit of entities accounted for using the equity method, which more than offset increased net interest expense of insurance activity income.
Gross Income
Gains on financial assets and liabilities (net) decreased 22.3% to €441 million in 2002, principally2005 from €567 million in 2004, mainly due to decreasesthe sale of Acerinox in the yield spread and in volumes2004. Gross income of interest-earning assets, which were partially offset by decreases in average interest-bearing liabilities. In 2002, net interest income totaled €323this business area for 2005 amounted to €457 million, a decrease of 51.4%12.5% from €664€521 million in 2001, principally due to the strong depreciation of the Argentine peso against the euro in 2002 as well as the same factors affecting net interest income in 2003.
Net fee income. Net fee income amounted to €91 million in 2003, a decrease of 10.8% from €102 million in 2002, principally due to decreases in the volume and numbers of transactions generating service charges on deposit accounts and in the use of credit cards due to continuing economic instability in Argentina. Net fee income amounted to €102 million in 2002, a decrease of 76.6% from €435 million in 2001, principally due to the same factors affecting net fee income in 2003.
Basic margin.Adding net interest income and net fee income results in a basic margin of €139 million in 2003, a decrease of 67.3% from €425 million in 2001. Basic margin was €425 million in 2002, a decrease of 76.6% from €1,099 million in 2001.
Market operations. Income from market operations amounted to €52 million in 2003, a decrease of 48.5% from €101 million in 2002, principally due to adverse market conditions. Income from market operations in 2002 amounted to €101 million, compared to €39 million in 2001, principally due to gains on foreign exchange derivatives transactions related to the Argentinean Peso.
General administrative expenses, depreciation and amortization and net other operating revenues and expenses. Operating expenses amounted to €181 million in 2003, principally due to decreases in personnel costs, fees and external administrative services, advertising and promotion, business travel and development and other operating expenses. In 2002, total operating expenses amounted to €200 million, a decrease of 69.2% from €649 million in 2001, principally due to strict control of costs and a reduction of 10% in the number of bank personnel.
2005.
Net operating incomeOperating Income/Loss. Subtracting, among other items, general administrative expenses and depreciation and amortization from ordinary revenue results in net operating income of €10 million in 2003, a decrease of 96.9% from €326 million, principally due to the decrease in ordinary revenue. In 2002, net operating income was €326 million, a decrease of 33.3% from €489 million in 2001.
Other items. Net loan loss provisions amounted to €189 million in 2003, a decrease of 24.1% from €249 million in 2002, principally due to increased debt recoveries. Net loan loss provisions amounted to €249 million in 2002, a decrease of 53.2% from €532 million in 2001, principally due to the higher provisions made at the end of 2001 by management against losses arising from Argentina’s economic crisis. Net extraordinary income amounted to €237 million in 2003. In 2002, net extraordinary expense totaled €152 million.
Net attributable profit (loss). As a result of the items described above,foregoing, net attributable profit amountedoperating loss of this business area for 2005 was €131 million, from a net operating income of €17 million in 2004.
Impairment losses (net)
Recoveries of impairment losses in this business area for 2005 was €138 million compared to impairment losses (net) of €10 million in 2003,2004, mainly reflected the amortization of €193 million of goodwill relating to BNL.
Provision expense (net)
Provision expense in this business area for 2005 was €328 million, a decrease of 51.1% compared to €671 million in 2004, reflecting the net attributablereduced early retirements in 2005.
Other Gains and Losses (Net)
Other gains and losses (net) amounted to €22 million in 2005, a significant decrease from €286 million in 2004, due to the fact that the capital gains on Banco Atlantico and Direct Seguros were entered in 2004, whereas in 2005 there were no significant disposals.
Income/(Loss) Attributed to the Group
As a result of the foregoing, the area’s loss attributed to the Group in 2005 totalled €132 million compared with a loss of €9€48 million in 20022004.
Material Differences between U.S. GAAP and EU-IFRS
As of December 31, 2006, 2005 and 2004, our Consolidated Financial Statements have been prepared in accordance with EU-IFRS, which differ in certain respects from U.S. GAAP. The tables included in Note 62 to our Consolidated Financial Statements give the effect that application of U.S. GAAP would have on income for the year and stockholders’ equity as reported under EU-IFRS.
The transition of the Group’s Consolidated Financial Statements to IFRS has been carried out by applying IFRS 1: First-Time Adoption of International Financial Reporting Standards (“IFRS 1”); as January 1, 2004 was the beginning of the earliest period presented for comparative purposes under the new accounting standards. This date is considered as the date of transition to EU-IFRS.
As a general rule, the EU-IFRS in force at December 31, 2006 must be applied retrospectively to prepare an opening balance sheet at the date of transition and all following periods. IFRS 1 provides for certain exemptions from full retrospective application of EU-IFRS in the opening balance sheet. The main exemptions are disclosed in Appendix VI to our Consolidated Financial Statements.
Reconciliation to U.S. GAAP
Stockholders’ equity would have been €30,461 million at December 31, 2006 under U.S. GAAP compared to €21,550 million as of December 31, 2006 under EU-IFRS, while stockholders’ equity would have been €25,375 million as of December 31, 2005 under U.S. GAAP compared to €16,330 million as of December 31, 2005 under EU-IFRS and stockholders’ equity would have been €23,465 million as of December 31, 2004 under U.S. GAAP compared to €13,068 million as of December 31, 2004 under EU-IFRS. The increase in stockholders’ equity under U.S. GAAP as of December 31, 2006, December 31, 2005 and December 31, 2004 as compared with stockholders’ equity under EU-IFRS at each of those dates is principally due to the net attributable loss of €217goodwill that arose from the business combinations with Argentaria (2000) and Bancomer (2004). See Note 62 to our Consolidated Financial Statements.
Net income would have been €4,972 million in 2001.2006 under U.S. GAAP compared to income attributed to the Group for the year of €4,735 million in 2006 under EU-IFRS, while net income would have been €2,018 million in 2005 under U.S. GAAP compared to income attributed to the Group for the year of €3,806 million in 2005 under EU-IFRS, while net income would have been €3,095 million in 2004 under U.S. GAAP compared to income for the year of €2,923 million in 2004 under EU-IFRS. The differences in net income in 2006 under U.S. GAAP as compared with income attributed to the Group for the year in 2006 under EU-IFRS are principally due to the following reconciliation items: “loans adjustments” and “accounting of goodwill.”
The decrease in net income in 2005 under U.S. GAAP as compared with income attributed to the Group for the year in 2005 under EU-IFRS is principally due to the application of IFRS 1 principals for the first-time adoption of EU-IFRS. Pursuant to IFRS-1, we have taken certain charges to stockholders’ equity as of January 1, 2004, while under U.S. GAAP we have taken these charges to stockholders’ equity as of January 1, 2005. See Note 62 to our Consolidated Financial Statements.
See Note 62 to our Consolidated Financial Statements for a quantitative reconciliation of net income and stockholders’ equity from EU-IFRS to U.S. GAAP.
B. Liquidity and Capital Resources
B. | Liquidity and Capital Resources |
Our principal source of funds is our customer deposit base, which consists primarily of demand, savings and time deposits. In addition to relying on our customer deposits, we also access the interbank market (overnight and time deposits) and domestic and international capital markets for our additional liquidity requirements. To access the capital markets, we have in place a series of domestic and international programs for the issuance of commercial paper and medium- and long-term debt. We also generally maintain a diversified portfolio of liquid assets and securitized assets. Another source of liquidity is our generation of cash flow. Finally, we supplement our funding requirements, to a very limited extent, with borrowings from the Bank of Spain, mostly short-term and at market interest rates, which is a common practice in Spain.
The following table shows the balances in 2003, 2002at December 31, 2006, 2005 and 20012004 of our principal sources of funds:
Year ended December 31, | ||||||
2003 | 2002 | 2001 | ||||
(in millions of euro) | ||||||
Customer deposits | 141,049 | 146,560 | 166,499 | |||
Due to credit entities | 61,570 | 56,119 | 64,588 | |||
Debt securities in issue | 45,673 | 38,386 | 37,335 | |||
Total | 248,292 | 241,065 | 268,423 | |||
As of June 30, 2004, BBVA has issued the following:
2006 | 2005 | 2004 | ||||
(in millions of euros) | ||||||
Customer deposits | 192,374 | 182,635 | 149,892 | |||
Due to credit entities | 57,804 | 66,315 | 64,349 | |||
Debt securities in issue | 91,271 | 76,565 | 57,809 | |||
Other financial liabilities | 6,995 | 6,075 | 5,807 | |||
Total | 348,445 | 331,590 | 277,857 | |||
Deposit BaseCustomer deposits
Our total customer funds (customer deposits, excluding assets sold under repurchase agreements, marketable debt securities and subordinated debt)agreements) amounted to €125€173 billion as of December 31, 2003, a decrease2006, an increase of 1.58%7.65% from €127€161 billion as of December 31, 2002.2005. Including assets sold under repurchase agreements, customer funds amounted to €141€192 billion as of December 31, 2003, a decrease2006, an increase of 3.43%5.33% from €146€182 billion as of December 31, 2002.2005. Customer funds decreasedincreased principally due to the impact of the Argentine banking crisis on our banking operationsan increase in Argentinatime deposits and the effect of the devaluation of currenciessavings accounts in Colombia, Peru, Mexico and Venezuela, which caused the value in euro of deposits in these countries recorded on our Consolidated Balance Sheets to decrease.
Spain.
Interbank and Capital Markets
We have increased debt issuances in the domestic and international capital markets in order to finance our activities and as of December 31, 2003,2006, we had €34,383€76,861 million of senior debt outstanding, comprising €28,259€69,305 million in bonds and debentures and €6,124€7,556 million in promissory notes and other securities, compared to €27,523€60,887 million, €22,394€53,469 million and €5,129€7,418 million outstanding as of December 31, 2002,2005 and €44,203 million, €37,830 million and €6,372 million outstanding as of December 31, 2004, respectively. See Note 1926.4 to the Consolidated Financial Statements. A total of €7,399€9,385 million in subordinated debt and €3.9 billion€4,025 million in preferred stock issued or guaranteed by BBVABanco Bilbao Vizcaya Argentaria S.A. was outstanding as of December 31, 2003,2006, compared to €6,487€9,179 million and €4.4 billion€4,128 million outstanding as of December 31, 2002,2005 and €8,100 million and €3,809 million outstanding as of December 31, 2004, respectively. See Notes 21 and 22Note 26.5 to the Consolidated Financial Statements.
The average maturity of our outstanding debt as of December 31, 20032006 was the following:
Senior debt | ||
Subordinated debt |
The cost and availability of debt financings are influenced by credit ratings. A reduction in these ratings could increase the cost of, and reduce our access to, debt financing. As of December 31, 2003,2006, our credit ratings were as follows:
Short Term | Long Term | Financial Strength | ||||||
Moody’s | B+ | |||||||
Fitch—IBCA | AA- | F-1+ | A/B | |||||
Standard & Poor’s | — |
On April 4, 2002, Standard & Poor’s revised its rating outlook for BBVA to negative from stable, based on the potential impact on BBVA of a deterioration of Argentina’s financial system. The main ratings agencies, Moody’s, Fitch-IBCA and Standard & Poor’s, have confirmed a stable outlook for BBVA in 2002. In 2003 our ratings did not change.
In December 2003, BBVA Capital Finance, S.A.U., a wholly-owned subsidiary of BBVA, issued preferred stock amounting to €350 million. In 2003, we redeemed several series of preferred shares issued by our financing subsidiaries: (i) on April 22, 2003, $200 million nominal amount of series Cpreferred shares issued by BBVA Capital Funding Ltd., bearing a 7.20% coupon; (ii) on March 31, 2003, $350 million nominal amount of series A preferred shares issued by BBVA International Limited, bearing a 7.20% coupon, and (iii) on June 30, 2003, $248.25 million nominal of series C preferred shares issued by BBVA International Gibraltar, bearing an 8% coupon.
Generation of Cash Flow
We operate in Spain and over 2030 other countries, mainly in Europe and Latin America. Although at this moment, except forOther than in Argentina and Venezuela, we are not aware of any legal or economic restrictions on the ability of our subsidiaries to transfer funds to our parent company in the form of cash dividends, loans or advances, capital repatriation and other manners, thereor otherwise. There is no assurance that in the future such restrictions will not be adopted or that, if adopted, they will not negatively affect our liquidity. The geographic diversification of our businesses, however, limits the effect of any restrictions that could be adopted in any given country.
We believe that our working capital is sufficient for our present requirements and to pursue our planned business strategies.
Contractual ObligationsCapital
Maturity | ||||||||||
Less Than One Year | One to Three Years | Three to Five Years | Over Five Years | Total | ||||||
(in millions of euro) | ||||||||||
Senior Debt | 14,031 | 6,650 | 4,314 | 9,388 | 34,383 | |||||
Subordinated debt | 267 | 1,033 | 222 | 5,877 | 7,399 | |||||
Capital Lease Obligations | 45 | 64 | 1 | — | 110 | |||||
Operating Lease Obligations | 5 | 8 | 7 | 20 | 40 | |||||
Purchase Obligations | 3 | 0 | 0 | 0 | 3 | |||||
Total | 14,351 | 7,755 | 4,544 | 15,285 | 41,935 | |||||
Other contingent liabilities and commitments
In addition to loans, we had outstanding the following contingent liabilities and commitments at the dates indicated:
At December 31, | ||||||
2003 | 2002 | 2001 | ||||
(in thousands of euro) | ||||||
Contingent liabilities: | ||||||
Rediscounts, endorsements and acceptances | 11,828 | 5,370 | 62,097 | |||
Guarantees and other sureties | 13,588,729 | 15,109,713 | 13,713,924 | |||
Other contingent liabilities | 3,050,954 | 3,041,745 | 2,699,583 | |||
Total contingent liabilities | 16,651,511 | 18,156,828 | 16,475,604 | |||
Commitments: | ||||||
Balances drawable by third parties: | ||||||
Credit entities | 2,723,586 | 2,521,177 | 2,349,633 | |||
Public authorities | 2,591,339 | 4,288,788 | 2,994,873 | |||
Other domestic sectors | 27,578,880 | 25,842,248 | 26,183,898 | |||
Non-domestic sectors | 19,934,934 | 16,101,984 | 21,388,686 | |||
Total balances drawable by third parties | 52,827,939 | 48,754,197 | 52,917,090 | |||
Other commitments | 3,070,468 | 2,865,188 | 2,372,081 | |||
Total commitments | 55,898,407 | 51,619,385 | 55,289,171 | |||
Total contingent liabilities and commitments | 72,549,918 | 69,776,213 | 71,764,775 | |||
See Note 26 to the Consolidated Financial Statements for additional information with respect to our off-balance sheet arrangements.
Off-balance sheet arrangements
In addition to the contingent liabilities and commitments described above, as of December 31, 2003, 2002 and 2001, we had entered into additional transactions which, pursuant to applicable law, are not required to be reflected in our Consolidated Financial Statements. The following table provides information regarding the notional or contractual value of these transactions as of December 31, 2003, 2002 and 2001:
At December 31, | ||||||
2003 | 2002 | 2001 | ||||
(in thousands of euro) | ||||||
Foreign currency purchase and sale transactions and swaps | 56,495,811 | 50,085,387 | 37,905,142 | |||
Foreign currency purchases against euro | 23,376,814 | 19,611,600 | 17,456,059 | |||
Foreign currency purchases against foreign currencies | 18,651,590 | 21,640,807 | 9,896,857 | |||
Foreign currency sales against euro | 14,476,407 | 8,832,980 | 10,552,226 | |||
Financial asset purchase and sale transactions | 1,884,997 | 6,638,876 | 2,751,764 | |||
Purchases | 725,260 | 1,085,452 | 633,455 | |||
Sales | 1,159,737 | 5,553,424 | 2,118,309 | |||
Forward rate agreements (FRA) | 67,325,503 | 22,413,334 | 111,359,842 | |||
Bought | 37,999,751 | 13,759,612 | 57,444,797 | |||
Sold | 29,325,752 | 8,652,722 | 53,915,045 | |||
Interest rate swaps | 533,737,345 | 454,602,653 | 436,403,810 | |||
Securities swaps | 3,973,217 | 6,921,838 | 3,848,898 | |||
Interest rate futures | 50,175,854 | 49,243,706 | 42,078,138 | |||
Bought | 12,768,238 | 13,136,816 | 15,572,963 | |||
Sold | 37,407,616 | 36,106,890 | 26,505,175 | |||
Securities futures | 1,574,930 | 431,910 | 1,057,253 | |||
Bought | 208,991 | 33,051 | 301,546 | |||
Sold | 1,365,939 | 398,859 | 755,707 | |||
Interest rate options | 77,524,792 | 69,366,501 | 69,283,264 | |||
Bought | 42,247,845 | 37,819,076 | 36,721,077 | |||
Sold | 35,276,947 | 31,547,425 | 32,862,187 | |||
Securities options | 30,770,515 | 19,052,486 | 20,363,023 | |||
Bought | 4,934,530 | 4,303,747 | 4,878,950 | |||
Sold | 25,835,985 | 14,748,739 | 15,484,073 | |||
Foreign currency options and futures | 8,860,353 | 8,695,760 | 22,343,262 | |||
Bought | 3,595,772 | 3,949,889 | 10,552,096 | |||
Sold | 5,264,581 | 4,745,871 | 11,791,166 | |||
Other transactions | 788,903 | 1,292,090 | 818,597 | |||
Total | 833,112,220 | 688,744,541 | 775,212,993 | |||
The notional or contractual amounts of these transactions do not necessarily reflect the actual risk assumed by us, since our net position in these financial instruments is often the result of offsetting or combining multiple transactions. This net position, even if it is not deemed a hedge for accounting purposes, is used by us generally to eliminate or significantly reduce interest rate, market or exchange risk. The resulting gains or losses on these transactions are included under the market operations caption in the Consolidated Statement of Income. Any gains or losses on hedging transactions are included as an increase in, or offset of, the results on the positions covered by them.
The following table provides information regarding off-balance-sheet funds managed by us as of December 31, 2003, 2002 and 2001:
December 31, | ||||||
2003 | 2002 | 2001 | ||||
(in thousands of euro) | ||||||
Mutual funds | 45,751,629 | 43,581,299 | 49,900,947 | |||
Pension funds | 40,015,408 | 36,563,294 | 41,248,849 | |||
Assets managed | 27,306,691 | 28,670,233 | 33,345,967 | |||
Total | 113,073,728 | 108,841,826 | 124,495,763 | |||
Our off-balance sheet funds increased in 2003 principally due to the launch of new products and the change in market trends over the course of 2003.
Agreement with Terra Networks
In connection with the agreement by BBVA and Terra Networks to integrate Uno-e Bank and the individual consumer financing business of Finanzia, BBVA has entered into an agreement with Terra Networks which gives Terra Networks a liquidity mechanism over its shares in the combined entity, that replaces a liquidity mechanism signed on May 15, 2002. The liquidity mechanism provides Terra Networks the right to sell its stake to BBVA between April 1, 2005 and September 30, 2007 at a price equal to the higher of (i) the market value of the securities as determined by an investment bank, and (ii) the amount obtained by multiplying (a) the after-tax profits of Uno-e Bank, by (b) BBVA’s price/earnings ratio, by (c) the percentage holding in Uno-e Bank that Terra Networks intends to sell. However, in no event can the sale price under (i) or (ii) above be less than €148.5 million if Uno-e Bank does not achieve certain net ordinary revenue and pre-tax income targets.
Capital
Under the Bank of Spain’s capital adequacy regulations, as of December 31, 20032006, 2005 and December 31, 2002,2004, we were required to have a ratio of consolidated stockholders’ equity to risk-weighted assets and off-balance sheet items (net of certain amounts) of not less than 8%.
As of December 31, 2002, our2004, this ratio of total capital to risk-weighted assets was 11.2%10.67% and our shareholders’stockholders’ equity exceeded the minimum level required by 23.6%33%. As of December 31, 20032005, this ratio was 11.1%9.26% and our shareholders’stockholders’ equity exceeded the minimum
level required by 27.6%16%. As of December 31, 2006, this ratio was 11.23% and our stockholders’ equity exceeded the minimum level required by 40.4%. However, based purely on the framework of the Basel Accord and using such additional assumptions as we consider appropriate, we have estimated that as of December 31, 20022004, 2005 and December 31, 2003,2006 our consolidated Tier I risk-based capital ratio was 8.4%8.1%, 7.5% and 8.5%7.8%, respectively, and our consolidated total risk-based capital ratio (consisting of both Tier I capital and Tier II capital) was 12.5%, 12.0% and 12.7%12.0%, respectively. The Basel Accord recommends that these ratios be at least 4% and 8%, respectively, and under Basel II, the recommended ratios are a minimum of 4% and 8%, respectively.
For qualitative and quantitative information on the principal risks we face, including market, credit, and liquidity operationalrisks as well as information on funding and legal risks,treasury policies and exchange rate risk, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.
C. | Research and Development, Patents and Licenses, etc. |
C. ResearchIn 2006, the BBVA Group continued to foster the use of new technologies as a key component of its global development strategy. It explored new business and Development, Patentsgrowth opportunities, focusing on three major areas: emerging technologies; asset capture/exploitation; and Licenses, etc.the customer as the focal point of its banking business.
TheWe did not incur any significant research and development activity of BBVA has the main objective of improving the productivityexpenses in 2004, 2005 and efficiency of our internal processes and the processes related to our interaction with clients.2006.
With respect to our internal processes, we are actively striving to enhance our efficiency through our corporative Intranet, holding virtual meetings and multi-conferences, the creation of knowledge communities and facilitating the ability of our employees to work remotely.
With respect to client processes, we are working to develop the bank branch of the future which will take advantage of the newest technologies, such as regarding multimedia applications, communications and broadband. In addition, we are working to develop technology to facilitate customer transactions and improve their security.
D. | Trend Information |
The European financial services sector is likely to remain competitive with increasing numbers of providers of financial services and alternative distribution channels. Further consolidation in the sector (through mergers, acquisitions or alliances) is likely as the other major banks look to increase their market share or combine with complementary businesses. It is foreseeable that regulatory changes will take place in the future that will diminish barriers to such consolidation transactions. However, some of hurdles that should be dealt with are the result of local preferences, as, potentially, consumer protection. If there are clear local consumer preferences, leading to specific local consumer protection rules, the same products cannot be sold across all the jurisdictions in which the Group operates, which reduces potential synergies. Certain challenges, such as the Value Added Tax regime for banks, do not however, relate to the interest or preferences of consumers.
The following are the most important trends, uncertainties and events that are reasonably likely to have a material adverse effect on us or that would cause the financial information disclosed herein not to be indicative of our future operating results or financial condition:
uncertainties relating to economic growth expectations and interest rate cycles, especially in the United States, where the high current account deficit of the U.S. economy may translate into an upward adjustment of risk premium and higher global interest rates. In this scenario, the impact they may have overSpanish economy could perform similarly to how it performed during the yield curve and exchange rates;recession at the beginning of the 1990s;
the possibility of experiencing a severe slowdown in the U.S. real estate market, which could have pervasive effects in the North American economy and consequently in the global markets;
a downturn in capital markets or a downturn in investor confidence, linked to factors such as geopolitical risk, particularly given the environment in the Middle East. Continued or new crises in the region could cause an increase in oil prices, generating inflationary pressures that will have a negative effect on interest rates and economic growth;
the effect that an economic slowdown may have over Latin American markets and fluctuations in local interest and exchange rates;
In addition to loans, we had outstanding the following contingent liabilities and commitments at the dates indicated: Contingent liabilities: Rediscounts, endorsements and acceptances Guarantees and other sureties Other contingent liabilities Total contingent liabilities Commitments: Balances drawable by third parties: Credit entities Public authorities Other domestic customers Foreign customers Total balances drawable by third parties Other commitments Total commitments Total contingent liabilities and commitments In addition to the contingent liabilities and commitments described above, the following table provides information regarding off-balance-sheet funds managed by us as of December 31, 2006, 2005 and 2004: Mutual funds Pension funds Other managed assets TotalITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESE. Off-Balance Sheet Arrangements At December 31, 2006 2005 2004 (in millions of euros) 44 42 39 37,002 25,790 17,574 5,235 4,030 3,945 42,281 29,862 21,558 4,356 2,816 2,665 3,122 3,128 1,638 43,730 36,063 29,617 47,018 42,994 26,797 98,226 85,001 60,717 4,995 4,497 6,045 103,221 89,498 66,762 145,502 119,360 88,320 As of December 31, 2006 2005 2004 (in millions of euros) 58,452 59,003 51,040 57,147 53,959 41,491 26,465 30,926 31,968 142,064 143,888 124,499
Our off-balance sheet funds decreased in 2006 principally due to customer preferences for fixed-term deposits.
See Note 44 to the Consolidated Financial Statements for additional information with respect to our off-balance sheet arrangements.
F. | Tabular Disclosure of Contractual Obligations |
Our consolidated contractual obligations as of December 31, 2006 were as follows:
Less Than One Year | One to Five Years | Over Five Years | Total | |||||
(in millions of euros) | ||||||||
Senior debt | 15,244 | 39,994 | 21,622 | 76,861 | ||||
Subordinated debt | 1,191 | 3,435 | 8,785 | 13,410 | ||||
Capital lease obligations | 83 | 2,200 | 5,315 | 7,598 | ||||
Operating lease obligations | 134 | 531 | 502 | 1,167 | ||||
Purchase obligations | 23 | 1 | 0 | 23 | ||||
Total (*) | 16,675 | 46,161 | 36,224 | 99,059 | ||||
(*) | Interest to be paid is not included. The majority of the senior and subordinated debt were issuances at variable rates. The financial cost of such issuances for 2006, 2005 and 2004 is detailed in Note 45.2 to the Consolidated Financial Statements. |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
The BBVA recognizesBoard of Directors is very conscious of the importance of a strong system ofgood corporate governance system to run the structure and operation of its corporate bodies in particular for a large financial institution. In addition, BBVA understands corporate governance to be a dynamic process that must be periodically analyzed and updated in light of our assessmentsthe best interests of the performance of our existing corporate governance structurescompany and evolving regulations, recommendations and market practice in Spain and elsewhere.its shareholders.
Accordingly, to adapt its corporate governance structure to new requirements recently enacted in Spain, BBVA’sThus, the bank’s Board of Directors has approved a series ofis subject to regulations for the Board of Directors that reflect and develop the principles and elements that have shaped and continue to guide BBVA’s system of corporate governance. First,These comprise standards for the Board of Directors approved the Regulationsinternal regime and operation of the Board of Directors, which comprises the standards governing the functions and operations of the Board of Directorsboard and its Committees and
sets forth the duties and responsibilities of directors, which were formerly set forth in the Directors’ Code. Second, on February 28, 2004, BBVA’s shareholders approved the Regulations of the Shareholders’ Meeting, which provides for certain matters related to shareholders’ rights required under Spanish law. BBVA also has a Code of Ethics and Conduct which applies to the Board of Directorscommittees, as well as all BBVA employees.the rights and obligations of directors in pursuit of their duties, which are contained in the directors charter. Shareholders and investors may find these on the company website (www.bbva.com).
The Annual General Meeting has its own set of regulations on issues such as how it operates and what rights shareholders enjoy regarding AGMs. These establish the possibility of exercising or delegating votes over remote communication media.
A descriptionThe board of BBVA’s system of corporate governance, the internal codes described above anddirectors has also approved a report on corporate governance drafted byCorporate Governance for the Board of Directors,year ended December 31, 2006, according to the guidelines laid down in prevailing disclosure regulations for listed companies. It can be found on the BBVA website.
This site was created as an instrument to facilitate information and communication with shareholders. It provides special direct access to all information considered relevant to BBVA’s website at www.bbva.com.corporate governance system, laid out in a clear, readable manner.
A. Directors and Senior Management
A. | Directors and Senior Management |
BBVA is managed by a Board of Directors, which, in accordance with BBVA’s current bylaws (Estatutos), as approved by the General Shareholders Meeting on February 28, 2004 (subject to authorization and registration with the Vizcaya Mercantile Registry, which is still pending), must consist of no less than 9 and no more than 16 members. In accordance with the resolutions approved by the General Shareholders’ Meeting on March 16, 2007, we currently have 14 directors.
Directors are appointed to the Board of Directors by our shareholders. All members of the Board of Directors are elected to serve five-year terms. One-fifth of the members are subject to re-election every year by the shareholders at a general meeting. Directors are appointed to the Board of Directors by our shareholders. Directors must resign at the age of 70. The Chairman of the Board must resign his or her chairmanship upon reaching the age of 65, but may continue to serve as a director thereafter, until reaching the age of 70. The President and Chief Operating Officer and other executive directors must resign from their management positions upon reaching the age of 62, at which point they must also submit their resignation as directors to the Board of Directors. The Board of Directors may nonetheless determine that such executive directors may continue to serve on the board.Board of Directors.
AccordingOne of the characteristic elements of BBVA’s Corporate Governance System is to BBVA’s Regulationshave a majority of independent directors on its governing bodies, especially on the Board of Directors at least two-thirds of the members of the Board of Directors must be independent.and Executive Committee. We consider directors to be independent when they do not hold any other position with BBVA or any of our subsidiaries and they:
do not own, directly or indirectly, over 3% of our shares and have not been appointed by a shareholder holding over 3% of our shares;
are not an entity designated to serve on our Board of Directors, or a representative of any such entity, which holds one or more directorships (an institutional director);
have not served as an executive officer, an executive director or as an employee of BBVA’s external auditor, in each case within the last three years;
do not have a significant relationship with BBVA, directly or as a partner, shareholder, manager or employee of an entity that has such a relationship, where the relationship could be considered to affect such director’s independence;
do not have a family relationship with any director failing to meet the criteria described aboveabove; and
do not possess any other quality or characteristic that, in the judgment of the Board of Directors, might compromise such director’s independence.
An institutional director is an external director designated by virtue of her or his relationship with a person or entity that is a significant shareholder of BBVA. For this purpose we consider a significant shareholder to be a person or entity that owns, directly or indirectly, at least 5% of the share capital or voting rights of BBVA. If a lower percentage of shares or voting rights allows such person or entity to exercise significant influence over BBVA, such person or their designee shall also be considered an institutional director.
Regulations of the Board of Directors
The following discussion provides a brief description of several significant matters covered in the Regulations of the Board of Directors.
Appointment and Re-election of Directors
The Regulations of the Board of Directors provide that the qualifications of the persons proposed for appointment as directors shall be assessed by the Appointments and Compensation Committee of the Board of Directors with due reference to the candidates’ personal and professional attributes, as well as the needs of BBVA’s governing bodies at any time.bodies.
When proposals for re-electing directors are made, the Board of Directors will evaluate the performance of directorship duties of directors proposed for a further term, their dedication, and such other circumstances asconsiderations that may make it advisable to re-elect them or not.affect the advisability of re-electing such directors.
Term of Directorships
Directors shall retire from their directorships at the age of 70 and theexcept our Chairman asand Chief Executive Officer who shall retire from his executive position at the age of 65, continuingbut may continue to sitserve on the Board of Directors thereafter. Their resignationsuntil reaching age 70. Resignation should occur in the first session of the Board of Directors to be held after the General ShareholdersShareholders’ Meeting that approves the accounts for the year in which they reach such ages.
a director reaches age 65 or 70 as the case may be.
Executive directors, other than our Chairman and Chief Executive Officer, are required to retireresign from their management positions at the age of 62, following the same timing rules as established in the paragraph above. When, for this or any other reasons, they cease to beFollowing such resignation, the executive directors, theydirector shall place theirhis or her directorship at the disposal of the Board of Directors, which may agree that they should continue to be directors notwithstanding.
Non-executive directors shall cease to be members of any Committee three years after they are appointed, although the Board of Directors may decide to re-appoint them.
One-fifth of the membersserve as a member of the Board of Directors, shall be elected by the General Shareholders’ Meeting each year. notwithstanding their resignation from their executive position.
Directors may serve an unlimited number of terms.
Performance of Directors’ Duties
The members of the Board of Directors shall carry out the duties inherent in their directorship and membership on any Board Committee in accordance with applicable law, BBVA’s bylaws, the Regulations of the Board of Directors and resolutions adopted by BBVA’s Board of Directors.
Each director will be required to attend the meetings of the Board of Directors and Committees of which he or she forms part,is a member, except in cases duly justified, and participate in the deliberations, discussions and debates thereof with regard to the matters which arise at such meetings.
The directors shall have sufficient information to be able to form opinions on issues raised by the Board of Directors and its Committees, and the information shall be furnished as far in advance as required. Additionally, directors may propose to the Board of Directors that external experts be brought inconsulted to assist the Board to consider matters of special complexity or importance.
Directors shall keep confidential the deliberations of the Board of Directors and the Committees onof which they sit,he or she is a member, and all information to which they may have access in the discharge of their duties, which they shall use exclusively in pursuit of their duties and with due diligence. TheDirectors’ obligation of confidentiality shall remain in force event after they have ceased to hold their posts.
serve on the Board of Directors.
Ethics and Code of Conduct
Directors shall behave ethically in their activities and in good faith, in keepingconsistent with applicable statutory, requirements applicable to those who hold directorships in companies, particularly in financial institutions, according toand the principles comprising BBVA’s values.
The Regulations of the Board of Directors regulate such conflicts asof interest that may arise between, on the one hand, the interests of the directors and/or their family members, and on the other hand, the interests of BBVA and set outforth the instances of incompatibilities preventing them from exercisingcircumstances where a director’s activities may be incompatible with their duties as directors, among other matters.
a member of the Board of Directors.
Directors shall abstain from attending and taking part in matters from which may give rise to a conflict of interest with BBVA may arise.interest.
TheyDirectors shall not be present induring the deliberations of the Board of Directors or Committees onof which they sithe or she is a member when thesesuch deliberations relate to affairsmatters in which they may have a direct or indirect interest, and nor shall they carryinterest. Directors are also prohibited from carrying out personal, professional or commercial transactions with BBVA or its subsidiaries, other than normal banking transactions, unless thesesuch transactions are subject to procuremententered into in connection with transparent and open bidding procedures of guaranteed transparency, with competitive bidding and at market prices.
Directors shall also abstain from having a direct or indirect stake in businesses or companies in which BBVA or its subsidiaries has an interest, unless (i) the stake predates their joining the Board of Directors, or BBVA or its subsidiaries acquires its or their interest, as the interestcase may be, after they join the Board of Directors, or (ii) the companies are listed on a domestic or international stock markets,exchange, or (iii) the director’s stake is authorized by the Board of Directors.
Directors may not use their position with BBVA to obtain, directly or indirectly, a material advantage, nor take advantage of any business opportunitiesopportunity of which they become aware as a result of their membership on the Board of Directors.
Incompatibilities
In pursuit of their duties, directors shall be subject to rules on incompatible activities.
The Regulations of the Board of Directors also establish specific rules regarding director activities that are incompatible withmembership on the performanceBoard of duties inside and outside BBVA,Directors, except for those cases expressly authorized by our Board of Directors.the Board.
In accordance with theseUnder the incompatibility regulations,rules, directors may not: (i) provide professional services or be an employee, manager or director inof companies competing with BBVA or any of BBVA’s subsidiaries; (ii) hold administrative postsa directorship or equivalent position in any of the companiescompany in which BBVA holds an interest or (iii) perform any activity that may in any way adversely affect BBVA’s public image.
As an exception, on our initiative, executive directors may perform on our initiative, management tasks in those subsidiaries directly or indirectly controlled by BBVA with the consent of the Executive Committee, and other companies in which BBVA participates with the consent of the Board of Directors.
The non-executive directors may perform management tasks inserve as directors for companies in which BBVA directly or any of its entities participatesindirectly holds an ownership interest if such position is not held as a result of our participationownership interest and with the prior consent of the Board of Directors. This limitation does not apply where we have acquired a participationan interest in another company in the ordinary course of our asset management, derivatives coverage or other line of business.
similar business lines.
Directors’ Resignation and Dismissal of Directors
InDirectors shall resign their office when the event of breaching the Regulations of the Board of Directors, a director shall place their post at the disposal of the Board of Directors and accept the Board’s decision whether or not they should continue as a director. Should the Board of Directors decide that they should not, they shall tender their resignation in the following cases:
Furthermore, in the following circumstances directors must tender their resignation to the Board and accept its decision regarding their continuity in office:
when they are affected by circumstances of incompatibility or prohibition as defined in current Spanish legislation, in BBVA’s Bylaws or in the Directors’ Charter;
when there is a significant change in their professional status or in the condition that led to their appointment;
in the event of a serious breach of their obligations related to the performance of their duties as a member of the Board of Directors;directors; and
when, through action in their capacity as directors, serious harm has been caused to the corporate assets or when they have occurred for which the director, acting as such, may be responsible, which caused serious damage to BBVA’s assets or
Incompatibility After Severance
Directors who cease to belong to the Board of Directors may not provide services to any other financial institution competing with BBVA or any of its subsidiaries for two years after leaving the Board of Directors, unless the Board of Directors expressly authorizes otherwise. Such authorization may be denied on the ground of BBVA’s best interest.
The Board of Directors
The Board of Directors is currently comprised of 1514 members. The following table sets forth the names of the members of the Board of Directors as of the date of this Annual Report on Form 20-F, their date of appointment and, reelection, if applicable, reelection, their current positions and their present principal outside occupation and five-year employment history.
Name(*) | Birth Year | Current Position | Date Nominated | Date Re-elected |
|
|
| Present Principal Outside Occupation Five-Year Employment History(**) | ||||||||
Francisco González Rodríguez(1) | 1944 | Chairman and Chief Executive Officer | December 18, 1999 | February 26, 2005 | ||||||||||||
José Ignacio Goirigolzarri Tellaeche(1) | 1954 | President and Chief Operating Officer | December 18, 2001 | March 1, 2003 | Director, Telefónica, S.A., April 2000–April 2003; Vice President, Repsol YPF, S.A., | |||||||||||
Tomás Alfaro Drake(2) | 1951 | Independent Director | March 18, 2006 | Director of Business Management and Administration and Business Sciences programs at Universidad Francisco de Vitoria, since 1998. | ||||||||||||
Juan Carlos Álvarez Mezquíriz(1)(3) | 1959 | Independent Director | December 18, 1999 | March 2006 | Managing Director, Grupo Eulen; Director, Bodegas Vega Sicilia, S.A. | |||||||||||
Rafael Bermejo Blanco(2) (4) | 1940 | Independent Director | March 16, 2007 | Technical Secretary General of Banco Popular, 1999–2004. | ||||||||||||
Richard C. Breeden | 1949 | Independent Director | October 29, 2002 | February 28, 2004 | Chairman, Richard C. Breeden & Co. | |||||||||||
Ramón Bustamante y de la Mora(2)(4) | 1948 | Independent Director | December 18, 1999 | February 26, 2005 | Director, Ctra. Inmo. Urba. Vasco-Aragonesa, S.A. | |||||||||||
José Antonio Fernández Rivero(4) | Independent Director | February 28, 2004 |
Name(*) | Birth Year | Current Position | Date Nominated | Date Re-elected | Present Principal Outside Occupation | |||||
Ignacio Ferrero Jordi(1)(3) | 1945 | Independent Director | December 18, 1999 | February 26, 2005 | Chairman, Nutrexpa, S.A. Director | |||||
Román Knörr Borrás(1) | 1939 | Independent Director | May 28, 2002 | March 1, 2003 | Chairman, Carbónicas Alavesas, S.A.; Director, Mediasal 2000, S.A. and President of the Alava Chamber of Commerce; Chairman, Confebask (Basque Business Confederation) from 1999 to 2005; Director of Aguas de San Martín de Veri, S.A. | |||||
Carlos Loring Martínez de Irujo(2)(3) | 1947 | Independent Director | February 28, 2004 | March 18, 2006 |
José Maldonado Ramos(4)(5) | 1952 | Director and General Secretary | December 18, 1999 | February 28, 2004 | Director, Telefónica S.A., February 1999 – April 2003; Secretary of the Board of Directors and Director and General Secretary, Argentaria, May 1997 – 2000; Director and General Secretary, BBVA, since January 2000. |
Name* | Birth Year | Current Position | Date Nominated | Date Re-elected | Present Principal Outside Occupation | |||||
Enrique Medina Fernández(1)(4) | 1942 | Independent Director | December 18, 1999 | February 28, 2004 | Director and Secretary, Sigma Enviro, S.A. | |||||
Susana Rodríguez Vidarte(2)(3) | 1955 | Independent Director | May 28, 2002 | March 2006 | Dean of Deusto “La Comercial” University since 1996. |
(*) | ||||||||
Telefónica de España, S.A. | and Mr. Ricardo Lacasa Suárez each left their respective position on the Board of Directors on March 16, 2007 and March 28, 2007, respectively. |
(**) | Where no date is provided, the position is currently held. |
(1) | Member of the Executive Committee. |
(2) | Member of the Audit and Compliance Committee. |
(3) | Member of the Appointments and Compensation Committee. |
(4) | Member of the Risk Committee. |
(5) | Secretary of the Board of Directors. |
Transactions—Uno-e Bank Agreement.”
Executive Officers (“Comité de Dirección”)
TheOur executive officers of the bank were each appointed for an indefinite term. Their positions as of the date of this Annual Report on Form 20-F are as follows:
Name | Current Position | Present Principal Outside Occupation and Five-Year Employment | ||
Francisco González Rodríguez | Chairman and Chief Executive Officer | |||
José Ignacio Goirigolzarri Tellaeche | President and Chief Operating Officer | Director, Telefónica, S.A. April 2000 | ||
José Maldonado Ramos | Director and General Secretary | Director, Telefónica S.A., February 1999 – April 2003; Director and General Secretary, Argentaria (BBVA since January 2001), since May 1997. | ||
Eduardo Arbizu Lostao | Tax, Audit and Compliance department | |||
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Ángel Cano Fernández | Human Resources and Services | Chief Financial Officer, BBVA, 2001–2002, Controller, BBVA, 2000–2001; Controller, Argentaria, 1998– | ||||
Manuel González Cid | Finance Division |
Name | Current Position | Present Principal Outside Occupation and Five-Year Employment History(*) | ||
José Sevilla Álvarez | ||||
Head of Finance Division, Latin American Banking, BBV, 1998 – December 2001; Head of Business Development, BBVA, December 2001 – January 2003; Head of the Office of the Chairman, with responsibility for accountancy, internal audit and compliance, since January | ||||
Javier Ayuso Canals | Corporate Communications | Head of Information Relations, BBVA, 2000-2001. Corporate Communications Director, BBVA, December 2001. | ||
Javier Bernal Dionis | Business development and innovation – Spain and Portugal | Director of “Doctor Music Networks”, 2000-2004. Innovation and Development Director, BBVA, 2004-2006. Director Iniciativas Residenciales en Internet S.A. (Atrea) since 2005. | ||
José María García Meyer-Dohner | United States | BBVA Business Management and Coordination Manager for Mexico, 2000-2001. Commercial Banking Manager for BBVA Bancomer, 2001-2004. Retail Banking Manager for the U.S., August 2004. | ||
Ignacio Deschamps González | Mexico | Commercial Banking Director for BBVA Bancomer to 2006. General Director of BBVA Bancomer since December 2006. | ||
Jaime Guardiola Romojaro | Spain and Portugal | Chairman BBVA Puerto Rico, 2000-2001. Deputy Chairman and Managing Director BBVA Banco Francés, 2001-2003. Managing Director and Vicepresident BBVA Bancomer Mexico, January 2003-2006. | ||
Juan Asúa Madariaga | Corporate and Business. Spain and Portugal | Global Corporate Banking Director, BBVA, 2000. E-Commerce Director, BBVA, 2000-2001. Corporate Global Banking Director, BBVA, 2001-2005. | ||
Jose Barreiro Hernández | Global Operations | Spanish Markets Director, BBVA, 2000-2001. Head of Global Markets and Distribution, Trading and Equity, BBVA, 2001-2005. | ||
Vicente Rodero Rodero | South America | BBVA Corporate Banking Director for Mexico, 1995-1999. BBVA Personal Banking Director, 1999-2003. BBVA Regional Director for Madrid, 2003-2004. BBVA Commercial Banking Director for Spain, 2004-2006. |
(*) | Where no date is provided, positions are currently held. |
(**) | Mr. Sánchez Asiaín left his position on the Executive Committee in December 2006. |
Compliance with NYSE Listing Standards on Corporate Governance
On November 4, 2003, the SEC approved new rules proposed by the New York Stock Exchange (the “NYSE”) intended to strengthen corporate governance standards for listed companies. In compliance therewith, the following is a summary of the significant differences between our corporate governance practices and those applicable to domestic issuers under the NYSE listing standards. The Group’s website address is www.bbva.com. We include on such website a narrative description in English of corporate governance differences between NYSE rules and home country practice in Spain.
Independence of the Directors on the Board of Directors and Committees
Under the NYSE corporate governance rules, (i) a majority of a U.S. company’s board of directors must be composed of independent directors, (ii) a majority of the audit committee must be composed of independent directors and by July 31, 2005, all members of the audit committee must be independent and (iii) all U.S. companies listed on the NYSE must have a compensation committee and a nominations committee and all members of such committees must be independent. In each case, the independence of directors must be established pursuant to highly detailed rules promulgated by the NYSE and, in the case of the audit committee, the NYSE and the SEC.
Spanish law does not contain any requirement that members of the board of directors or the committees thereof be independent, nor does Spanish law provide any definition of what constitutes independence for the purpose of board or committee membership or otherwise. In addition, Spanish law does not require that a company have a compensation committee or a nominations committee,
thoughcommittee. However, there is a non-binding recommendation for listed companies in Spain to have these committees and for them to be composed of a majority of non-executive directors. In practice, Spanish companies generally have three typesdirectors as well as a definition of directors: executive directors, directorsdominicales appointed by an individual stockholder due to the size of its shareholding and independentwhat constitutes independence for directors.
As described above under “—Directors and Senior Management,” BBVA considers directors to be independent when they do not hold any other position with BBVA or any of our subsidiaries and they:
do not own, directly or indirectly, over 3% of our shares and have not been appointed by a shareholder holding over 3% of our shares;
are not an entity designated to serve on our Board of Directors, or a representative of any such entity, which holds one or more directorships (an institutional director);
have not served as an executive officer, an executive director or as an employee of BBVA’s external auditor, in each case within the last three years;
do not have a significant relationship with BBVA, directly or as a partner, shareholder, manager or employee of an entity that has such a relationship, where the relationship could be considered to affect such director’s independence;
do not have a family relationship with any director failing to meet the criteria described above; and
do not possess any other quality or characteristic that, in the judgment of the Board of Directors, might compromise such director’s independence.
We have not determined whether the members of our Board of Directors or its Committees would be considered independent under NYSE and SEC rules. We note, however, that ourOur Board of Directors has a large majority of non-executive directors and 1011 out of the 1514 members of our Board are independent under the definition of independence described above. In addition, our Audit and Compliance Committee is composed exclusively of independent directors and the committee Chairman is required to have experience in financial management and an understanding of the standards and accounting procedures required by the governmental authorities that regulate the banking sector. In accordance with the non-binding recommendation, BBVA’s Board of Directors has created an Appointments and Compensation Committee which is composed exclusively of independent directors.
Separate Meetings for Independent Directors
In accordance with the NYSE corporate governance rules, independent directors must meet periodically outside of the presence of the executive directors. Under Spanish law, this practice is not contemplated as such. We note, however, that our independent directors meet periodically outside the presence of our executive directors anytime the Audit and Compliance Committee or the Appointments and Compensation Committee meet, since these Committees are comprised solely of independent directors. In addition, our independent directors meet outside the presence of our executive directors as often as they deem fit, and usually prior to meetings of the Board of Directors or its Committees.
Code of Ethics
B. CompensationThe NYSE listing standards require U.S. companies to adopt a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. For information with respect to BBVA’s code of business conduct and ethics see “Item 16B. Code of Ethics”.
B. | Compensation |
Under BBVA’s bylaws, the Board of Directors is permitted to distribute up to four percent of BBVA’s annual net income to its members, but only after provisions of reserves, aslegally required by law,reserve provisions have been made and after distribution of four percent of BBVA’s net income in the form of dividends to its shareholders.
The Board of Directors, at the proposal of the Appointments and Compensation Committee, which is comprised solely of independent directors, approves BBVA’s system for remuneration of members of the Board of Directors. In 2003, this Committee adopted criteria for the compensation of directors and determined that executive directors would be compensated solely pursuant to their employment contracts relating to their executive positions with BBVA. The compensation criteria adopted by the Appointments and Compensation Committee are based on the responsibilities of the members of the Board of Directors, including their service on Board Committees, as well as the limitations service on the Board of Directors and its Committees places on other professional activities that may be pursued by the directors.
This Committee adopted in 2003 criteria for the compensation of directors and determined that executive directors would be compensated solely pursuant to their employment contracts relating to their executive positions with BBVA.
The following table presents information regarding the compensation (in euro) accruedthousands of euros) paid to each member of our Board orof Directors serving during 2003.2006:
Director | Board | Executive | Audit | Appointments | Risks | Chairman | Total | |||||||
Alvarez Mezquiriz, Juan Carlos | 110,000 | 60,000 | 36,000 | 206,000 | ||||||||||
Bustamante y de la Mora, Ramón | 110,000 | 60,000 | 60,000 | 45,000 | 275,000 | |||||||||
Ferrero Jordi, Ignacio | 110,000 | 60,000 | 90,000 | 260,000 | ||||||||||
Marañón y Bertrán de Lis, Gregorio | 110,000 | 36,000 | 60,000 | 206,000 | ||||||||||
Medina Fernández, Enrique | 110,000 | 140,000 | 60,000 | 310,000 | ||||||||||
San Martín Espinós, José María | 110,000 | 140,000 | 36,000 | 286,000 | ||||||||||
Tomás Sabaté, Jaume | 110,000 | 140,000 | 36,000 | 286,000 | ||||||||||
Telefónica de España | 110,000 | 110,000 | ||||||||||||
Lacasa Suárez, Ricardo | 110,000 | 60,000 | 150,000 | 320,000 | ||||||||||
Knörr Borrás, Román | 110,000 | 140,000 | 250,000 | |||||||||||
Rodríguez Vidarte, Susana | 110,000 | 60,000 | 170,000 | |||||||||||
Breeden, Richard C. | 300,000 | 300,000 | ||||||||||||
TOTAL | 1,510,000 | 560,000 | 240,000 | 144,000 | 240,000 | 285,000 | 2,979,000 | |||||||
Director Executive Committee Tomás Alfaro Drake Juan Carlos Álvarez Mezquíriz Richard C. Breeden Ramón Bustamante y de la Mora José Antonio Fernández Rivero (*) Ignacio Ferrero Jordi Román Knörr Borrás Ricardo Lacasa Suárez Carlos Loring Martínez de Irujo Enrique Medina Fernández Susana Rodríguez Vidarte Telefónica de España, S.A. (Mr. Ángel Vilá Boix) Total (**) Board of
Directors Audit and
Compliance
Committee Risk
Committee Appointments
and
Compensation
Committee Total 89 — 43 — — 132 119 152 — — 39 310 324 — — — — 324 119 — 65 97 — 281 119 — — 194 — 313 119 101 22 — 58 300 119 152 — — — 271 119 — 162 97 — 378 119 — 65 — 78 262 119 152 — 97 — 368 119 — 65 — — 184 119 — — — — 119 1,603 557 422 485 175 3,242
(*) | Mr. José Antonio Fernández Rivero, apart from the amounts detailed above, also received a total of €652 thousand during 2006 in early retirement payments as a former member of the BBVA management. |
(**) | Mr. José María San Martín Espinós, who stood down as director at the AGM held on March 18, 2006, received €77 thousand in 2006 in payment of his membership on the Board of Directors. |
Compensation paid to BBVA’s executive directors, which under BBVA’s bylaws must be based solely on their employment contracts relating to their executive positions with BBVA, in 20032006 was as follows (in euro)thousands of euros):
Fixed Pay | Variable Pay | Total | ||||
Chairman of the Board | 1,461,000 | 2,393,000 | 3,854,000 | |||
Chief Operating Officer & President | 1,081,000 | 1,999,000 | 3,080,000 | |||
General Secretary | 491,000 | 607,000 | 1,098,000 |
Chairman and Chief Executive Officer President and Chief Operating Officer Director and General Secretary Fixed
remunerations Variable
Remunerations (*) Total (**) 1,740 2,744 4,484 1,287 2,304 3,591 581 703 1,284
(*) | Figures relating to variable remuneration for 2005 paid in 2006. |
(**) | In addition, the executive directors received remuneration in kind in 2006 totalling €37 thousand, of which €8 thousand relates to Chairman and Chief Executive Officer, €14 thousand relates to President and Chief Operating Officer and €15 thousand to Director and General Secretary. |
In 2003, compensation for
The executive directors also earned variable remuneration during 2006, which was paid to them in the first quarter of 2007. Such amounts earned in 2006 include €3,255 thousand by the Chairman and Chief Executive Officer, €2,730 thousand by the President and Chief Operating Officer and €794 thousand by the Director and General Secretary. Such amounts are recognized under the heading “Accrued Expenses and Deferred Income” in the consolidated balance sheet as of December 31, 2006.
The information given here on the Management Committee covers all members at December 31, 2006, excluding executive officers (excludingdirectors. Remuneration paid to members of the Management Committee in 2006, excluding executive directors) amounteddirectors, came to €3,239,500€5,763 thousand of fixed remuneration, and €6,331,300€11,403 thousand of variable remuneration.remuneration earned in 2005 and received in 2006. In addition, the members of the Management Committee, excluding executive directors, received remuneration in kind totaling €526 thousand in 2006.
The members of the Management Committee also earned variable remuneration totaling €12,689 thousand in 2006, and this amount, which is recognized under the heading “Accrued Expenses and Deferred Income” in the consolidated balance sheet as of December 31, 2006, was paid in the first quarter of 2007.
The following table provides the accrued pension benefitsprovisions recorded at December 31, 2006 for welfare benefit obligations for the non-executiveexecutive directors that are members of the Board of Directors as(in thousands of December 31, 2003:
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In addition, during 2003 a total of €71,000 was paid in medical and accident insurance premiums for the Board of Directors as a whole.
Accrued pension benefits (in euro) for executive directors as of December 31, 2003 were as follows:euros):
Executive Directors | Cumulative amount | |
Chairman | ||
President and Chief Operating Officer | ||
Director and General Secretary | ||
Total | 104,569 | |
Of the aggregate €104,569 thousand, €16,795 thousand was charged to 2006 earnings, in which the majority of such commitments were insured under policies with BBVA as beneficiary that were underwritten by an insurance company belonging to the Group. In accordance with Spanish legal regulations, such insurance policies were matched to financial assets. The internal return recorded at December 31, 2006 on these insurance policies was €3,946 thousand, which partly offset the amount allocated to provisions during the year.
In addition, during 2006 a total of €79 thousand was paid in insurance premiums for the non-executive directors members of the Board of Directors.
As of December 31, 2003, total accrued pension benefits2006, the provisions recorded for allpost-employment welfare commitments for the Management Committee members, excluding executive officers (excluding executive directors)directors, amounted to €21,077,000 million.€39,161 thousand. Of this amount, €11,215 thousand was charged against 2006 earnings. The internal return recorded at December 31, 2006 on these insurance policies was €1,021 thousand, which partly offset the amount allocated to provisions for the year.
Severance Payments to Executive Directors
The contracts of the Bank’s executive directors (Chairman and Chief Executive Officer, President and Chief Operating Officer and Director and General Secretary) recognize each such executive director’s entitlement to be compensated should he leave his post for grounds other than by his own decision, retirement, disablement or serious dereliction of duty. These entitlements amounted to an aggregate compensation of €141,390,000 in respect of such persons as of December 31, 2006.
In order to receive such compensation, the director must place his directorship at the disposal of the Board of Directors, resign from any posts they he may hold as a representative of the Bank in other companies, and waive pre-existing employment agreements with the Bank, including any senior management positions and any right to obtain compensation other than that already indicated.
Upon doing so, the director will be rendered unable to provide services to other financial institutions in competition with the Bank or its subsidiaries for two years, as established in the Board Regulations.
Remuneration System for Non-Executive Directors with Deferred Delivery of Shares
The AGM held on March 18, 2006 resolved to establish a remuneration scheme using deferred delivery of shares to the Bank’s non-executive directors, to substitute the earlier scheme that had covered these directors.
The new plan assigns ‘theoretical’ shares each year to non-executive director beneficiaries equivalent to 20% of the total remuneration paid to each in the previous year, using the average of BBVA stock closing prices from the 60 trading sessions prior to the annual general meetings approving the financial statements for the years covered by the scheme as of 2006. These shares, where applicable, are to be delivered when the beneficiaries cease to be directors on any grounds other than serious dereliction of duties.
This AGM resolution granted non-executive directors who were beneficiaries of the earlier scheme the option to convert the amounts to which they were entitled under the previous scheme into “theoretical shares”. Such entitlements totalled €2,228 thousand as of December 31, 2006. All the non-executive director beneficiaries exercised the option for this conversion. The non-executive directors eligible for the new scheme received the number of theoretical shares indicated in the following table.
Non-Executive Directors | Theoretical Shares | |
Juan Carlos Álvarez Mezquíriz | 16,208 | |
Ramón Bustamante y de la Mora | 16,941 | |
José Antonio Fernández Rivero | 6,595 | |
Ignacio Ferrero Jordi | 16,879 | |
Román Knörr Borrás | 12,720 | |
Ricardo Lacasa Suárez | 16,004 | |
Carlos Loring Martínez de Irujo | 4,906 | |
Enrique Medina Fernández | 24,134 | |
Susana Rodríguez Vidarte | 8,559 |
Long Term Incentive PlansPlan for the Group’s Management Team (Period 2003-2005)
There is no currentThe long-term incentive programplan for the period 2003-2005 was settled in 2006 according to the terms and conditions of such plan. It applied to all members of the management team, including executive directors and senior managers in effect that ismembers of the Management Committee, and was linked to the achievement of certain long-term targets established at the beginning of the plan and to the BBVA Group’s comparative performance in earnings per share, cost-income ratio and ROE against its benchmark peers at the end of BBVA’s shares.
BBVA’s senior management participates in an incentivePursuant to such plan, providing them with possible additional variable non-share based compensation in 2006, if BBVA meets certain specified performance targetsthe executive directors received the following amounts for the applicable period covered by the plan: Chairman and Chief Executive Officer, €5,294 thousand; President and Chief Operating Officer, €4,438 thousand; and Director and General Secretary, €1,351 thousand.
In addition, in 2003, 2004 and 2005.
2006, the members of the Management Committee, excluding the executive directors, received the total sum of €13,026 thousand under the plan for the applicable period.
Advance PaymentsLong Term Incentive Plan for the Group’s Management Team (Period 2006-2008)
At the Annual General Meeting held on March 18, 2006, the Bank’s shareholders approved a long-term share-based remuneration plan for the members of the Group’s management team (the “Plan”). The Plan has a term of three years from January 1, 2006 and Personal Loanswill be settled in the first half of 2009.
Under this Plan the Bank promises to Directors and Executive Officers
The totaldeliver ordinary shares of advance payments and personal loans granted by BBVA and its consolidated subsidiaries to the members of the Board of Directors and outstanding as of December 31, 2003 amounted to €260,500 at interest rates between 4% and 5%, of which €92,000 was granted toGroup’s management team (including executive directors and €168,500Management Committee members). A number of “theoretical shares” will be allocated to independent directors. Asthe beneficiaries based on the annual variable remuneration earned by each member in the last three years and on their level of December 31, 2003, no guarantees had been extended to secure membersresponsibility. This number will serve as the basis for the calculation of the BoardBBVA shares that will be delivered, as the case may be, when the Plan expires. The specific number of Directors’ obligations or commitments.
BBVA shares to be delivered to each beneficiary on expiry of the Plan will be calculated by multiplying the number of “theoretical shares” allocated by a coefficient ranging from 0 to 2. The totalvalue of advance payments and personal loans grantedthe coefficient will be established by BBVA to executive officers (excluding executive directors) and outstanding ascomparing the performance of December 31, 2003 amounted to €1,945,000. Asthe Total Shareholder Return (“TSR”), which is comprised of December 31, 2003, no guarantees had been extended to secure executive officers’ obligations or commitments.
C. Board Practicesshare appreciation plus dividends, of the Bank over the term of the Plan with the performance of the same indicator for 14 leading European banks.
If such financial benchmarks are met, and all other terms and conditions of the Plan that apply are satisfied, settlements will be made in the first half of 2009. The maximum number of BBVA shares approved for delivery to the Group’s management’s team (including executive directors and Management Committee members) in connection with the Plan is 22 million.
C. | Board Practices |
Committees
The Board of Directors has created the Executive Committee, the Audit and Compliance Committee, the Appointments and Compensation Committee and the Risk Committee. All the Board of Directors Committees were formed on June 28, 2002. These Committees are discussed below.
Executive Committee
BBVA’s Board of Directors is assisted in fulfilling its responsibilities by the Executive Committee (Comisión Delegada Permanente) of the Board of Directors which, under BBVA’s Regulations of the Board of Directors, must be comprised of at least half plus one independent director. The Board of Directors delegates all management functions, except those that it must retain due to legal or statutory requirements, to the Executive Committee.
As of May 31, 2004,March 28, 2007, BBVA’s Executive Committee was comprised of two executive directors and four independent directors, as follows.
Chairman and Chief Executive Officer: | Mr. Francisco González Rodriguez | |
President and Chief Operating Officer: | Mr. José Ignacio Goirigolzarri Tellaeche | |
Members: | Mr. Juan Carlos Álvarez Mezquíriz Mr. Ignacio Ferrero Jordi Mr. Román Knörr Borrás Mr. Enrique Medina Fernández
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The Executive Committee is also responsible for the matters delegated to it by the Board of Directors, so long as such matters are also consistent with its authority as set forth in BBVA’s bylaws. Such matters include the management of BBVA and establishment of BBVA’s general policy guidelines, review and authorization of investments by BBVA, approval or rejection of transactions and initiation of internal investigations and audits in any area of BBVA’s business. The Executive Committee generally holds meetings two times a month, but may meet as often as deemed necessary by the Committee chairman or at the request of a majority of the Committee’s members. During 2003,2006, the Executive Committee held a total of 2823 meetings.
The Executive Committee is responsible for evaluating BBVA’s system of corporate governance, which it assesses in the context of ongoing developments generally affecting BBVA and new legislative or regulatory initiatives or recommendations in Spain and elsewhere regarding corporate governance.
Audit and Compliance Committee
The Audit and Compliance Committee supervises preparation of BBVA’s consolidated financial statementsConsolidated Financial Statements and is responsible for the functioning of BBVA’s internal control function. The Audit and Compliance Committee is required under our bylaws to have a minimum of four members, one of whom acts as Chairman, appointed by the Board of Directors. In accordance with The Regulationscommittee Chairman is required to have experience in financial management and an understanding of the Boardstandards and accounting procedures required by the governmental authorities that regulate the banking sector.
As of Directors, the Audit and Compliance Committee must be comprised only of independent directors, who may not also be members of the Executive Committee.
At May 31, 2004,March 28, 2007, the Audit and Compliance Committee members were:
Chairman: | Mr. | |
Members: | Mr. Tomás Alfaro Drake Mr. Ramón Bustamante y de la Mora
Mr. Carlos Loring Martínez de Irujo Mrs. Susana Rodríguez Vidarte |
The Audit and Compliance Committee’s governing charter, which has been approved by the Board of Directors, sets forth its responsibilities and procedures .procedures. The Audit and Compliance Committee is generally responsible for assisting the Board of Directors with preparation of BBVA’s Consolidated Financial Statements and supervising BBVA’s internal control procedures.
In this regard, the Audit and Compliance Committee’s principal responsibilities include:
Supervising the sufficiency, adequacy and effectiveness of BBVA’s internal control systems to ensure the accuracy, reliability, sufficiency and clarity of (i) BBVA’s financial statements contained in annual and quarterly reports and (ii) accounting or financial information which may be requested by the Bank of Spain or other regulators, including regulators in countries outside of Spain where BBVA operates.
Monitoring BBVA’s compliance with applicable domestic and international regulations relating to money laundering, conduct in securities markets, data protection and competition, as well as ensuring that requests for information or remedial action by regulators holding competency in these areas are fulfilled.
Ensuring that the ethical and other codes of conduct applicable to BBVA’s personnel meet regulatory requirements and are otherwise adequate.
Monitoring compliance by BBVA directors with BBVA’s Regulations of the Board of Directors, as well as with regulations applicable to Directors’directors’ conduct in the securities markets.
To ensure the accuracy, reliability, sufficiency and clarity of BBVA’s Consolidated Financial Statements, the Audit and Compliance Committee closely supervises the preparation of such financial statements, holding frequent meetings with BBVA executives responsible for preparation of the Consolidated Financial Statements as well as with BBVA’s external auditor.
The Audit and Compliance Committee is responsible for selecting BBVA’s external auditor, which is appointed at the General ShareholdersShareholders’ Meeting, and supervising the performance by such external auditor of the services it was contracted to perform, in accordance with the terms of the engagement. In particular, the Audit and Compliance Committee’s supervision of the external auditor is aimed at ensuring compliance with regulatory requirements as well as with BBVA’s internal policies.
The Audit and Compliance Committee is responsible for ensuring that BBVA’s external auditor is independent. This duty is discharged by the Audit and Compliance Committee through its monitoring of the external auditor’s activities, including assessing whether any report, opinion or recommendation delivered by the external auditor is conditioned on any other relationship of the external auditor with BBVA and by prohibiting the delivery of consulting and auditing services by the same external auditing firm, other than in special circumstances receiving the Committee’s (or the Chairman’s, if such authority is delegated to him) specific prior approval.
The Audit and Compliance Committee is also responsible for supervising BBVA’s internal audit and reviews and approves BBVA’s internal audit schedule for each fiscal year and monitors the execution of the internal audit through ongoing contact with BBVA’s chief internal audit officer. OverDuring the course of 2003, the chief internal audit officer attended seven meetings of the Audit and Compliance Committee, and met regularly with the Committee Chairman, to report on the progress of the internal audit. In addition, the Audit and Compliance Committee supervises BBVA’s compliance with regulatory requirements and reviews and approves BBVA’s regulatory compliance department’s annual action plan. The Committee is responsible for staying abreast of relevant regulatory developments in Spain, the United States and elsewhere and ensuring that BBVA complies with its regulatory obligations on a timely basis. Over the course of 2003, management staff from the regulatory compliance department attended five meetings of the Audit and Compliance Committee and met regularly with the Committee Chairman.
During 2003,year ended December 31, 2006, the Audit and Compliance Committee held a total of 1315 meetings. BBVA’s external auditor attended 8 such meetings and met on numerous other occasions with the Committee’s Chairman. The Committee may meet as often as deemed necessary in order to discharge its responsibilities.
In order to effectively discharge its duties, the Audit and Compliance Committee may request that BBVA staff from any area of its operations attend its meetings to provide additional information or expertise regarding any topic on the Committee’s agenda. External experts may also be contracted to attend Committee meetings to provide expertise in areas relevant to the Committee’s duties that, due to their technical nature or as a result of conflicts of interest that may exist, cannot be advised upon by internal staff.
Appointments and Compensation Committee
The Appointments and Compensation Committee assists the Board of Directors in selecting candidates proposed to be appointed as members of the Board of Directors and in setting director compensation, though the Board of Directors itself must approve such matters. On behalf of the Board of Directors, this Committee evaluates the qualification of the persons proposed to be appointed as members of the Board of Directors and considers the suitability of the candidates’ personal and professional attributes for such appointment. The Committee also assists the Board of Directors with setting director compensation, taking into account the responsibilities of members of the Board of Directors as well as the limitations service on the Board of Directors places on other professional activities that may be pursued by the directors. The Appointments and Compensation Committee determines the remuneration and other benefits for BBVA’s Chairman and CEO and other executive directors. The Committee also analyzes proposals for multi-annual incentive plans for senior management.
Pursuant to the Regulations of the Board of Directors, the Appointments and Compensation Committee is required to have a minimum of three members, all of which must be independent.
As of May 31, 2004,March 28, 2007, the members of the Appointments and Compensation Committee were:
Chairman: | Mr. | |
Members: | Mr. Juan Carlos Álvarez Mezquíriz | |
Mr.
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Mrs. Susana Rodríguez Vidarte |
During 2003,2006, the Appointments and Compensation Committee held a total of 139 meetings. The Committee may meet as often as deemedit deems necessary in order to discharge its responsibilities.
The Appointments and Compensation Committee may request that BBVA staff from any area of its operations attend its meetings to provide additional information or expertise regarding any topic on the Committee’s agenda. External experts may also be contracted to attend Committee meetings to provide expertise in areas that, due to their technical nature or as a result of conflicts of interest that may exist, cannot be advised upon by internal staff.
Risk Committee
The Risk Committee is responsible for supervising the analysis and periodic monitoring of BBVA’s risk managementthe various risks BBVA faces on behalf of the Board of Directors. Though the Executive Committee is required to approve BBVA’s overall risk strategies and policies, the Risk Committee analyzes these matters and makes recommendations to the Executive Committee relating thereto. The Risk Committee also monitors the overall level of credit, market and other risks BBVA assumes, reviews transactions delegated to it for approval and verifies that BBVA is equipped withhas established the procedures and structures representing the best practices for risk management in the market.
The Committee is required to be comprised of a majority of non-executive directors. At May 31, 2004,March 28, 2007, the members of the Risk Committee were:
Chairman: | Mr. José Antonio Fernández Rivero | |
Members: | Mr. Ramón Bustamante y de la Mora | |
Mr. Rafael Bermejo Blanco | ||
Mr. José Maldonado Ramos | ||
Mr. Enrique Medina Fernández |
The Risk Committee is governed by a charter approved by the Board of Directors. The charter states that the Risk Committee may meet as often as necessary to discharge its responsibilities. During 2003,2006, the RisksRisk Committee held a total of 10681 meetings.
D. | Employees |
As of December 31, 2003,2006, we, through our various affiliates, had 86,19798,553 employees. Approximately 69.80%76% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.
Country | BBVA | Banks | Companies | Total | BBVA | Banks | Companies | Total | ||||||||
Spain | 30,036 | 676 | 383 | 31,095 | 28,601 | 722 | 1,259 | 30,582 | ||||||||
United Kingdom | 116 | — | — | 116 | 127 | — | 7 | 134 | ||||||||
France | 102 | — | — | 102 | 108 | — | — | 108 | ||||||||
Italy | 40 | — | — | 40 | 55 | — | — | 55 | ||||||||
Germany | 6 | — | — | 6 | 4 | — | — | 4 | ||||||||
Switzerland | 2 | 86 | — | 88 | 2 | 108 | — | 110 | ||||||||
Portugal | — | 936 | — | 936 | — | 953 | — | 953 | ||||||||
Belgium | 34 | — | — | 34 | 36 | — | — | 36 | ||||||||
Jersey | — | 33 | — | 33 | — | 3 | — | 3 | ||||||||
Russia | 3 | — | — | 3 | 3 | — | — | 3 | ||||||||
Andorra | — | 225 | — | 225 | — | — | — | — | ||||||||
Ireland | — | 6 | — | 6 | — | 4 | — | 4 | ||||||||
Gibraltar | — | 2 | — | 2 | — | — | — | — | ||||||||
Total Europe | 30,339 | 1,964 | 383 | 32,686 | 28,936 | 1,790 | 1,266 | 31,992 | ||||||||
Securities New York | — | 42 | — | 42 | ||||||||||||
New York | 119 | — | — | 119 | 137 | 20 | — | 157 | ||||||||
Miami | 92 | — | — | 92 | 112 | — | — | 112 | ||||||||
Grand Cayman | 28 | — | — | 28 | 3 | — | — | 3 | ||||||||
U.S.A. | — | 3,646 | — | 3,646 | ||||||||||||
Total North America | 239 | 42 | — | 281 | 252 | 3,666 | — | 3,918 | ||||||||
Panama | — | 228 | — | 228 | — | 266 | — | 266 | ||||||||
Puerto Rico | — | 1,062 | — | 1,062 | — | 1,044 | — | 1,044 | ||||||||
Argentina | 5 | 5,223 | — | 5,228 | — | 7,215 | — | 7,215 | ||||||||
Brazil | 9 | — | — | 9 | 4 | — | — | 4 | ||||||||
Colombia | 5 | 4,483 | — | 4,488 | — | 6,408 | — | 6,408 | ||||||||
Venezuela | 8 | 6,127 | — | 6,135 | — | 5,749 | — | 5,749 | ||||||||
México | 11 | 28,388 | — | 28,399 | ||||||||||||
Mexico | — | 32,847 | — | 32,847 | ||||||||||||
Uruguay | 29 | 151 | — | 180 | 39 | 151 | — | 190 | ||||||||
Paraguay | — | 95 | — | 95 | — | 108 | — | 108 | ||||||||
Bolivia | 2 | — | 175 | 177 | — | — | 188 | 188 | ||||||||
Chile | 5 | 3,414 | — | 3.419 | — | 4,068 | — | 4,068 | ||||||||
El Salvador | — | — | 420 | 420 | ||||||||||||
Dominican Republic | — | — | 339 | 339 | — | — | 97 | 97 | ||||||||
Cuba | 1 | — | — | 1 | 1 | — | — | 1 | ||||||||
Peru | 6 | 2,851 | — | 2,857 | — | 4,191 | — | 4,191 | ||||||||
Ecuador | — | — | 144 | 144 | — | — | 168 | 168 | ||||||||
Total Latin America | 81 | 52,022 | 1,078 | 53,181 | 44 | 62,047 | 453 | 62,544 | ||||||||
Hong Kong | 37 | — | — | 37 | 77 | — | — | 77 | ||||||||
Japan | 5 | — | — | 5 | 9 | — | — | 9 | ||||||||
Iran | 3 | — | — | 3 | ||||||||||||
China | 4 | — | — | 4 | 8 | — | — | 8 | ||||||||
Singapore | 5 | — | — | 5 | ||||||||||||
Total Asia | 49 | — | — | 49 | 99 | — | — | 99 | ||||||||
Total | 30,708 | 54,028 | 1,461 | 86,197 | 29,331 | 67,503 | 1,719 | 98,553 | ||||||||
The terms and conditions of employment in private sector banks in Spain are negotiated with trade unions representing bank employees. Wage negotiations take place on an industry-wide basis. This process has historically produced collective bargaining agreements binding upon all Spanish banks and their employees. The most recent collective bargaining agreement was executed on February 11, 2004 and applies fromin application during 2005 came into effect as of January 1, 20032005 and will apply until December 31, 2004.
2006.
As of December 31, 2003,2006, we had 2,5781,670 temporary employees in our Spanish offices.
E. | Share Ownership |
As of May 18, 2004,March 28, 2007, the members of the Board of Directors owned an aggregate of 37,997,7772,099,713 BBVA shares as shown in the table below:
Name | Directly Owned Shares | Indirectly Owned Shares | Total Shares | % of Capital Stock | Directly Owned Shares | Indirectly Owned Shares | Total Shares | % of Capital Stock | |||||||||
Chairman and Chief Executive Officer: | |||||||||||||||||
Francisco González Rodríguez | 666 | 1,139,626 | 1,140,292 | 0.0336 | 2,336 | 1,376,814 | 1,379,150 | 0.0388 | % | ||||||||
President and Chief Operating Officer: | |||||||||||||||||
José Ignacio Goirigolzarri Tellaeche | 480 | 434,680 | 435,160 | 0.0123 | % | ||||||||||||
Tomás Alfaro Drake | 7,800 | — | 7,800 | 0.0002 | % | ||||||||||||
Juan Carlos Álvarez Mezquiriz | 30,530 | — | 30,530 | 0.0009 | % | ||||||||||||
Rafael Bermejo Blanco | 5,000 | — | 5,000 | 0.0001 | % | ||||||||||||
Richard C. Breeden | 30,000 | — | 30,000 | 0.0008 | % | ||||||||||||
Ramón Bustamante y de la Mora | 10,139 | 2,000 | 12,139 | 0.0003 | % | ||||||||||||
José Antonio Fernández Rivero | 50,000 | — | 50,000 | 0.0014 | % | ||||||||||||
Ignacio Ferrero Jordi | 2,566 | 51,300 | 53,866 | 0.0015 | % | ||||||||||||
Román Knörr Borrás | 26,500 | 6,500 | 33,000 | 0.0009 | % | ||||||||||||
Carlos Loring Martínez De Irujo | 9,149 | — | 9,149 | 0.0003 | % | ||||||||||||
José Maldonado Ramos | 11,537 | — | 11,537 | 0.0003 | % | ||||||||||||
Enrique Medina Fernández | 28,391 | 1,065 | 29,456 | 0.0008 | % | ||||||||||||
Susana Rodríguez Vidarte | 10,838 | 2,088 | 12,926 | 0.0004 | % | ||||||||||||
Total | 225,266 | 1,874,447 | 2,099,713 | 0.0591 | % | ||||||||||||
Name José Ignacio Gorigolzarri Tellaeche Directors: Juan Carlos Álvarez Mezquiriz Richard C. Breeden Ramón Bustamante y de la Mora José Antonio Fernández Rivero Ignacio Ferrero Jordi Román Knörr Borrás Ricardo Lacasa Suárez Carlos Loring Martínez de Irujo José Maldonado Ramos Enrique Medina Fernández Susana Rodríguez Vidarte José María San Martín Espinós Telefónica de España, S.A. Total Directly
Owned Shares Indirectly
Owned Shares Total Shares % of Capital
Stock 117,612 281,819 399,431 0.0118 30,530 0 30,530 0.0009 8,000 0 8,000 0.0002 10,139 710 10,849 0.0003 50,000 0 50,000 0.0015 2,387 7,000 9,387 0.0003 14,616 1,852 16,468 0.0005 8,310 0 8,310 0.0002 9,149 0 9,149 0.0003 11,537 0 11,537 0.0003 26,428 989 27,417 0.0008 9,607 0 9,607 0.0003 18,490 33,087 51,577 0.0015 0 36,215,223 36,215,223 1.0680 317,471 37,680,306 37,997,777 1.1206
No memberAs of March 28, 2007 the Board of Directors,Chairman and Chief Executive Officer held 600,000 put options and 1,200,000 call options over BBVA’s shares as of May 31, 2004, except as explained below in the paragraph on “Two Thousand” program.
shares.
As of March 31, 2004,28, 2007 the executive officers (excluding executive directors) and their families owned 4,801,830314,501 shares. None of our executive officers holds 1% or more of BBVA’s shares.
As of March 28, 2007 a general policy, we do not extend credit tototal of 16,446 employees or third parties for the purpose(excluding executive officers and directors) owned 24,207,229 shares, which represents 0.6815% of acquiring BBVA’s shares.our capital stock.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
As a consequence of the implementation of the extraordinary incentive plans at BBV, we maintained, at December 31, 2003, or currently maintain the following commitments:
A. | Major Shareholders |
The “Two Thousand” program at BBV granted employees the right to acquire shares at the price of €6.01 per share for the 1998 premiums and at the price of €10.65 per share for the 1999 premiums. As of December 31, 2003 there were 7,768,064 shares outstanding under the “Two Thousand” program. As of May 31, 2004, BBVA’s executive officers held options granted under this program as follows:
Granted in 1998 | Granted in 1999 | |||||||||||
Number | Exercise price | Number | Exercise price | Total | ||||||||
José Ignacio Goirigolzarri Tellaeche(1) | 4,166 | € | 6.01 | 4,166 | € | 10.65 | 8,332 | |||||
José María Abril Pérez | 2,719 | € | 6.01 | 2,719 | € | 10.65 | 5,438 | |||||
Julio López Gómez | 2,462 | € | 6.01 | 2,462 | € | 10.65 | 4,924 | |||||
Vitalino Nafría Aznar | 0 | € | 6.01 | 2,416 | € | 10.65 | 2,416 | |||||
Ignacio Sánchez-Asiaín Sanz | 1,864 | € | 6.01 | 1,864 | € | 10.65 | 3,728 | |||||
José Sevilla Álvarez | 560 | € | 6.01 | 560 | € | 10.65 | 1,120 | |||||
Total | 11,771 | 14,187 | 25,958 | |||||||||
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
As of March 31, 2004,2006, no shareholder beneficially held more than five percent of BBVA’s shares. As of that date, Chase Nominees Ltd., as custodian, held 186,163,163 or 5.49%, of BBVA’s shares. To our knowledge, no other person, corporation or government owned beneficially, directly or indirectly, five percent or more of BBVA’s shares. BBVA’s major shareholders do not have voting rights which are different from those held by the rest of its shareholders. To the extent known to us, BBVA is not controlled, directly or indirectly, by any other corporation, government or any other natural or legal person. As of MarchDecember 31, 2004,2006, there were 1,150,391864,226 registered holders of BBVA’s shares, with a total of 814,726,7651,033,296,710 shares held by 391230 shareholders with registered addresses in the United States. Since certain of such shares and American Depositary Receipts (“ADRs”) are held by nominees, the foregoing figures are not representative of the number of beneficial holders. BBVA’s directors and executive officers did not own any ADRs as of December 31, 2003.
B. Related Party Transactions2006.
B. | Related Party Transactions |
Loans to Directors, Executive Officers and Related Parties
The totalAs of advance paymentsDecember 31, 2006, the Group had no amounts outstanding under any loans and personal loans granted by BBVA and its consolidated subsidiarieshad not provided any guarantees to the members of the Board of Directors and outstanding as of BBVA. The loans granted at December 31, 20032006 to the members of the Management Committee, excluding the executive directors, amounted to €260,500 at interest rates of between 4% and 5%, of which €92,000 was granted to executive directors and €168,500 to independent directors.€2,355 thousand. As of December 31, 2003, no2006, guarantees had been extendedprovided on behalf of members of the Management Committee amounted to secure€12 thousand.
As of December 31, 2006, the loans granted to parties related to key personnel (the aforementioned members of the Board of Directors’ obligations or commitments.
The totalDirectors of advance paymentsBanco Bilbao Vizcaya Argentaria, S.A. and personal loans granted by BBVA to executive officers (excluding executive directors) and outstanding as of December 31, 2003 amounted to €1,945,000.the Management Committee) totaled €12,676 thousand. As of December 31, 2003, no guarantees had been extended2006, the other exposure to secure executive officers’ obligations or commitments.
For additional discussion regarding loansparties related to directors, executive officerskey personnel (guarantees, finance leases and related parties, see Note 8commercial loans) amounted to the Consolidated Financial Statements.
Uno-e Bank Agreement
On May 15, 2002, BBVA entered into an agreement with Terra Networks, which is majority-owned by Telefónica, for the integration of Uno-e Bank and the individuals consumer financing business of Finanzia, whereby Terra Networks’ holding in Uno-e
Bank would decrease to 33%. This integration transaction and the percentage of ownership held by Terra Networks were formally executed on January 10, 2003, and approved at extraordinary shareholders’ meetings of Finanzia and Uno-e Bank held on April 23, 2003. Terra Networks has the right to sell its stake to BBVA between April 1, 2005 and September 30, 2007. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Agreement with Terra Networks”.
€14,545 thousand.
Related Party Transactions in the Ordinary Course of Business
Loans extended to related parties were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other unfavorable features.
BBVA subsidiaries engage, on a regular and routine basis, in a number of customary transactions with other BBVA subsidiaries, including:
overnight call deposits;
foreign exchange purchases and sales;
derivative transactions, such as forward purchases and sales;
money market fund transfers;
letters of credit for imports and exports;
and other similar transactions within the scope of the ordinary course of the banking business, such as loans and other banking services to BBVA’s shareholders, to employees of all levels, to the associates and family members of all the above and to other BBVA non-banking subsidiaries or affiliates. All these transactions have been made:
in the ordinary course of business;
on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other personspersons; and
did not involve more than the normal risk of collectibility or present other unfavorable features.
C. | Interests of Experts and Counsel |
Not Applicable.
Not applicable.
ITEM 8. | FINANCIAL INFORMATION |
A. Consolidated Statements and Other Financial Information
A. | Consolidated Statements and Other Financial Information |
Financial Information
See Item 18.
Dividends
The table below sets forth the amount of interim, final and total dividends paid by BBVA (or BBV) on its shares for the years 19992002 to 2003,2006, adjusted to reflect all stock splits. DollarThe rate used to convert euro (€) amounts have been converted from euro atto dollars was the Noon Buying Rate at the end of the relevanteach year.
Per Share 1999(1) 2000 2001 2002 2003 First Interim Second Interim Third Interim Fourth Interim Final Total € $ € $ € $ € $ € $ € $ € 0.0556 $ 0.06 € 0.0556 $ 0.06 € 0.0556 $ 0.06 € 0.1073 $ 0.11 — — € 0.2741 $ 0.29 € 0.060 $ 0.06 € 0.064 $ 0.06 € 0.064 $ 0.06 € 0.064 $ 0.06 € 0.111 $ 0.10 € 0.363 $ 0.34 € 0.085 $ 0.07 € 0.085 $ 0.07 € 0.085 $ 0.07 — — € 0.128 $ 0.11 € 0.383 $ 0.32 € 0.090 $ 0.09 € 0.090 $ 0.09 € 0.090 $ 0.09 — — € 0.078 $ 0.08 € 0.348 $ 0.35 € 0.090 $ 0.11 € 0.090 $ 0.11 € 0.090 $ 0.11 — — € 0.114 $ 0.14 € 0.384 $ 0.48
Per Share | ||||||||||||||||||||||||||||||
First Interim | Second Interim | Third Interim | Final | Total | ||||||||||||||||||||||||||
€ | $ | € | $ | € | $ | € | $ | € | $ | |||||||||||||||||||||
2002 | € | 0.090 | $ | 0.086 | € | 0.090 | $ | 0.086 | € | 0.090 | $ | 0.086 | € | 0.078 | $ | 0.075 | € | 0.348 | $ | 0.333 | ||||||||||
2003 | € | 0.090 | $ | 0.103 | € | 0.090 | $ | 0.103 | € | 0.090 | $ | 0.103 | € | 0.114 | $ | 0.130 | € | 0.384 | $ | 0.439 | ||||||||||
2004 | € | 0.100 | $ | 0.125 | € | 0.100 | $ | 0.125 | € | 0.100 | $ | 0.125 | € | 0.142 | $ | 0.177 | € | 0.442 | $ | 0.552 | ||||||||||
2005 | € | 0.115 | $ | 0.143 | € | 0.115 | $ | 0.143 | € | 0.115 | $ | 0.143 | € | 0.186 | $ | 0.231 | € | 0.531 | $ | 0.660 | ||||||||||
2006 | € | 0.132 | $ | 0.174 | € | 0.132 | $ | 0.174 | € | 0.132 | $ | 0.174 | € | 0.241 | $ | 0.318 | € | 0.637 | $ | 0.841 |
BBVA has paid annual dividends to its shareholders since the date it was founded. Historically, BBVA has paid interim dividends each year. Since 1989, BBVA has paid interim dividends on a quarterly basis. The total dividend for a year has beenis proposed by the Board of Directors usually following the end of the year to which it relates. The unpaid portion of this dividend (the final dividend) is paid after the approval of our financial statements by the shareholders at the General Shareholder’sShareholders’ Meeting. Interim and final dividends are payable to holders of record on the dividend payment date. Unclaimed dividends revert to BBVA five years after declaration.
While BBVA expects to declare and pay dividends on its shares on a quarterly basis in the future, the payment of dividends will depend upon its earnings, financial condition, governmental regulations and policies and other factors.
HoldersSubject to the terms of the deposit agreement, holders of ADRs are entitled to receive dividends attributable to the shares represented by the ADSs evidenced by their ADRs to the same extent as if they were holders of such shares.
For a description of BBVA’s access to the funds necessary to pay dividends on the shares, see “Item 4. Information on the Company—Supervision and Regulation—Dividends”. In addition, BBVA may not pay dividends except out of its unrestricted reserves available for the payment of dividends, after taking into account the Bank of Spain’s capital adequacy requirements. Capital adequacy requirements are applied by the Bank of Spain on both a consolidated and individual basis. See “Item 4. Information on the Company—Supervision and Regulation—Capital Adequacy Requirements” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital”. Under Spain’s capital adequacy requirements, we estimate that as of December 31, 2003,2006, BBVA had approximately €4.4€9.4 billion of reserves in excess of applicable capital and reserve requirements, which were not restricted as to the payment of dividends.
Legal Proceedings
On March 15, 2002, the Bank of Spain announced that it was opening an administrative proceeding against BBVA and certain individuals who have served as members of BBVA’s boardBoard of directorsDirectors or as executive officers. This announcement was the result of BBVA’s voluntary disclosure to the Bank of Spain on January 19, 2001 that BBVA funds then amounting to approximately Ptas. 37,427 million (approximately €225
million) had been held in offshore accounts and not been reflected in its financial statements. These funds had been generated largely as a result of capital gains realized on transactions in BBV and Argentaria shares and were included in our financial statements in 2000. See Note 32.2.B.15 to our consolidated financial statementsConsolidated Financial Statements included in our Annual Report on Form 20-F for the year ended December 31, 2002. The Bank of Spain subsequently conducted a confidential investigation which led to the commencement of its administrative proceeding. The Bank of Spain’s administrative proceeding was suspended upon commencement of the proceeding initiated by the National Criminal Court (discussed below) and has remained suspended pending completion of such proceeding.
At the time the Bank of Spain proceeding was suspended, no formal charges had been made by the Bank of Spain relating to the facts and events under investigation. BBVA is therefore unable to determine what, if any, charges will be made by the Bank of Spain and to what conduct any such charges may relate. However, based on BBVA’s assessment of the probable charges and penalties that could be imposed by the Bank of Spain and that since the initiation of the Bank of Spain proceeding, BBVA has continued to be engaged regularly in extending commercial and other types of credit and accepting demand and other types of deposits, BBVA believes that once the Bank of Spain proceeding is recommenced after the conclusion of the National Criminal Court’scriminal proceeding, resolution of such proceeding would not have a material adverse effect on BBVA or its consolidated financial position or results of operations.
National Criminal Court (Audiencia Nacional)Proceedings
On April 9, 2002, Tribunal No. 5 of Spain’s National Criminal Court presided by Judge Baltasar Garzón(Audiencia Nacional) commenced a criminal proceeding regarding the previously unreported funds and suspended the administrative proceeding initiated by the Bank of Spain. The National Criminal Court proceeding was initially directed at 28 of BBVA’s former directors and executive officers and was subsequently split into two separate proceedings. One proceeding relatesrelating to the use of the unreported funds to create pension accounts.accounts, was in the first instance resolved by the National Criminal Court in 2005, with just one person indicted from the former five people charged. The High Court of Spain (Tribunal Supremo) in November 2006 resolved on this case by acquitting this person of any responsibility and establishing that no criminal offence took place. In thisthe second proceeding, threewhich generally relates to the unreported funds, and is directed at four of our former directors and two former executive officers, have been formally charged. The secondthe National Criminal Court has initially ruled on the 12th of March 2007 that there is no ground to continue with the criminal proceeding, which generally relates toalthough this decision may be appealed by the unreported funds, is still in the investigation phase and is directed at four of our former directors.Prosecutor. None of these directors and executive officers continue to serve as directors on BBVA’s Board of Directors or beare affiliated with BBVA in any other capacity. Under Spanish law, criminal liability may only be imposed on a corporation’s employees and members of its board of directors but not on the corporation itself. Consequently, BBVA does not have any criminal liability under Spanish law and none of its current officers or directors are party to this proceeding. BBVA is cooperating fully with the National Criminal Court proceeding, which commenced more than two years ago and is currently pending.
Spanish National Market Commission (the “CNMV”)
On May 22, 2002, the Spanish securities market regulator, the CNMV, instituted administrative proceedings against BBVA for alleged violations of the Spanish Securities Markets Act of 1988 in connection with the same events being investigated by the Bank of Spain. As with the Bank of Spain proceeding, Judge Garzónthe National Criminal Court requested that the CNMV suspend its proceedings until resolution of the National Criminal Court’s criminal proceedingproceedings described above. The CNMV proceeding was suspended on January 7, 2003 and has remained suspended pending completion of the proceeding initiated by the National Criminal Court.
Based on BBVA’s assessment of the probable charges and penalties that could be imposed by the CNMV, and the fact that since the initiation of the CNMV proceeding the CNMV has not restricted BBVA from continuing to be actively involved in capital markets transactions in Spain, including by conducting offerings of its own debt and equity securities, BBVA believes that once the CNMV proceeding is recommenced after the conclusion of the National Criminal Court’scriminal proceeding, resolution of such proceeding would not have a material adverse effect on BBVA or its consolidated financial position or results of operations.
Internal Control Procedures
As a result of our discovery that BBVA funds had been held in offshore accounts and not been reflected in its financial statements, we have implemented several accounting internal control procedures in order to obtain reasonable assurance that breaches of our internal controls do not occur. For example, BBVA has significantly strengthened its internal audit function. BBVA’s internal audit department is responsible for such matters as verifying accuracy and completeness of BBVA’s financial reporting and ensuring the compliance, appropriateness and effectiveness of BBVA’s internal control systems and procedures. BBVA has also enhanced its internal audit function, including by broadening the scope of its internal audit activities to include all of BBVA’s diverse
operations, both in terms of business area and geographical location. In addition, in 2002, BBVA implemented a “Directors Plan” in respect of fiscal years 2003 and 2004 to further strengthen its internal controls. As part of this plan, BBVA’s internal audit function was further expanded to include review of
information and documentation used by the management of each business unit, review of BBVA’s financial statement consolidation process and review and assessment of BBVA’s compliance with capital adequacy requirements. In addition, the Directors Plan provides for the standardization of internal audit work procedures, from making initial contact with the business area or unit being audited to documenting the results of the audit.
BBVA has also reinforced its internal compliance department. This department, whose functions have been established by the Audit and Compliance Committee of BBVA’s Board of Directors, is responsible for developing and implementing internal norms and procedures to ensure compliance with legal requirements and ethical guidelines established by BBVA, such as BBVA’s Code of Ethics and Conduct. For example, this department is responsible for establishing internal controls and procedures related to matters such as the prevention of money-laundering and trading in BBVA’s securities.
Besides the accounting internal control procedures implemented by BBVA described above, in order to further obtain reasonable assurance that breaches of BBVA’s internal controls do not occur, BBVA has taken a series of steps to strengthen its corporate governance structures in keeping with the most recent trends in this area and new legislation that has taken effect in Spain and the other countries in which BBVA operates. For a description of these corporate governance structures, see “Item 6—6.—Directors, Senior Management and Employees”.
Other Proceedings
Puerto Rico
InThe proceedings, which were described in our Annual Report on Form 20-F for the proceedingsyear ended December 31, 2001, initiated in Spain based on the testimony of a former BBV Puerto Rico employee, mentioned in our 2001 Annual Report on Form 20-F and included inhave been finally closed due to the preliminary proceeding regarding unreported funds described above,fact that there was no person has been accusedevidence of the events.
any wrongdoing.
BBVA Privanza Bank Ltd. (Jersey)
In relation to the alleged cooperation of someA proceeding was initiated alleging that certain employees of BBVA Privanza Bank Ltd. (Jersey) cooperated in the creation of accounts and financial products in Jersey which were allegedly used by Spanish individuals to avoid Spanish tax obligations, andobligations. The proceedings also included an allegedallegation of a tax offenceoffense due to the purported non-consolidation of a fully-owned subsidiary, the investigationsubsidiary. This proceeding is ongoing and charges have not been brought.brought against any BBVA employee or director.
Although the proceedings described above remain in preliminary stages, inIn light of the surrounding events and circumstances, our legal advisers do not expect them tothat the proceedings described above will have a material effect on us.
B. | Significant Changes |
No significant change has occurred since the date of the Consolidated Financial Statements.
ITEM 9. | THE OFFER AND LISTING |
BBVA’s shares are listed on the Spanish Stock Exchangesstock exchanges in Madrid, Bilbao, Barcelona and Valencia (the “Spanish Stock Exchanges”) and quoted on the Automated Quotation Systemcomputerized trading system of the Spanish Stock Exchanges (the “Automated Quotation System”). TheyBBVA’s shares are also listed on the Frankfurt, Milan, Zurich, Mexican and London Lima and New York Stock Exchanges, andstock exchanges as well as quoted on SEAQ International in London. Each ADSs represents one share.
On January 4, 1999,ADSs are quoted on the MadridNew York Stock Exchange began quoting share prices in euro. and are also traded on the Lima (Peru) Stock Exchange, by virtue of an exchange agreement entered into between these two exchanges. Each ADS represent the right to receive one share.
Fluctuations in the exchange rate between the euro and the dollar will affect the dollar equivalent of the euro price of BBVA’s shares on the Spanish Stock Exchanges and the price of BBVA’s ADSs on the New York Stock Exchange. Cash dividends are paid by BBVA in euro, and exchange rate fluctuations between the euro and the dollar will affect the dollar amounts received by holders of American Depositary Receipts (“ADRs”) on conversion by The Bank of New York (acting as depositary) of cash dividends on the shares underlying the ADSs evidenced by such ADRs.
The table below sets forth, for the periods indicated, the high and low sales closing prices for the shares of BBV until January 28, 2000 and BBVA thereafter on the Automated Quotation System. Since January 4, 1999, the Spanish market quotations are stated in euro. Peseta amounts prior to that time have been translated at the fixed exchange rate of Ptas. 166.386 = €1.00.
Fiscal year ended December 31, 1999 Annual Fiscal year ended December 31, 2000 Annual Fiscal year ended December 31, 2001 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended December 31, 2002 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended December 31, 2003 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Month ended December 31, 2003 Fiscal year ended December 31, 2004 First Quarter Month ended January 31, 2004 Month ended February 29, 2004 Month March 31, 2004 Month April 30, 2004 Month May 31, 2004 Month ended June 30, 2004 (through June, 25) Euro per Share(1) High Low 14.85 11.06 17.46 12.27 17.20 9.50 17.20 13.92 16.47 14.75 15.77 9.50 14.80 11.50 14.21 7.24 14.21 12.26 13.90 10.93 11.99 7.42 10.60 7.24 10.95 6.89 10.25 6.89 9.68 7.78 10.10 8.86 10.95 8.91 10.95 10.20 11.28 10.22 11.27 10.71 11.19 10.22 11.28 10.22 11.42 10.90 11.37 10.40 11.21 10.67
Fiscal year ended December 31, 2002 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended December 31, 2003 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended December 31, 2004 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended December 31, 2005 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended December 31, 2006 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Month ended October 31, 2006 Month ended November 30, 2006 Month ended December 31, 2006 Fiscal year ended December 31, 2007 Month ended January 31, 2007 Month ended February 28, 2007 Month ended March 31 (through March 28), 2007 Euro per Share High Low 14.21 7.24 14.21 12.26 13.90 10.93 11.99 7.42 10.60 7.24 10.95 6.89 10.25 6.89 9.68 7.78 10.10 8.86 10.95 8.91 13.09 10.22 11.28 10.22 11.42 10.40 11.39 10.55 13.09 11.36 15.17 11.95 13.38 12.30 12.93 11.95 14.59 12.67 15.17 14.12 19.49 14.91 17.26 15.02 17.60 14.91 18.30 15.76 19.49 18.07 19.24 18.07 19.49 18.12 18.60 18.08 19.35 18.41 20.08 18.43 18.50 17.38
From January 20031, 2006 through December 31, 20032006 the percentage of outstanding shares held by BBVA and its affiliates ranged between 0.153%0.020% and 0.683%0.858% respectively, calculated on a monthly basis. On May 12, 2004,March 21, 2007, the percentage of outstanding shares held by BBVA and its affiliates was 0.710%1.024%.
The table below sets forth the reported high and low sales closing prices for the ADSs of BBV until January 28, 2000 and BBVA thereafter on the New York Stock Exchange for the periods indicated.
Fiscal year ended December 31, 1999 Annual Fiscal year ended December 31, 2000 Annual Fiscal year ended December 31, 2001 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended December 31, 2002 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal year ended December 31, 2003 Annual First Quarter Second Quarter Third Quarter Fourth Quarter Month ended December 31, 2003 Fiscal year ended December 31, 2004 First Quarter Month ended January 31, 2004 Month ended February 29, 2004 Month ended March 31, 2004 Month ended April 30, 2004 Month ended May 31, 2004 Month ended June 30, 2004 (through June, 25) Dollars per ADS(1) High Low 17.50 11.63 15.75 11.94 16.63 8.99 16.63 12.22 14.40 12.65 13.16 8.99 13.44 10.25 12.77 6.93 12.77 10.82 12.50 10.67 11.73 7.14 10.58 6.93 13.85 7.67 10.81 7.67 11.16 8.46 11.16 10.28 13.85 10.54 13.85 12.29 14.45 12.51 14.45 13.41 14.13 12.85 13.94 12.51 13.65 13.09 13.75 12.47 13.70 13.06
Dollars per ADS | ||||
High | Low | |||
Fiscal year ended December 31, 2002 | ||||
Annual | 12.77 | 6.93 | ||
First Quarter | 12.77 | 10.82 | ||
Second Quarter | 12.50 | 10.67 | ||
Third Quarter | 11.73 | 7.14 | ||
Fourth Quarter | 10.58 | 6.93 | ||
Fiscal year ended December 31, 2003 | ||||
Annual | 13.85 | 7.67 | ||
First Quarter | 10.81 | 7.67 | ||
Second Quarter | 11.16 | 8.46 | ||
Third Quarter | 11.16 | 10.28 | ||
Fourth Quarter | 13.85 | 10.54 | ||
Fiscal year ended December 31, 2004 | ||||
Annual | 17.77 | 12.47 | ||
First Quarter | 14.45 | 12.51 | ||
Second Quarter | 13.80 | 12.47 | ||
Third Quarter | 13.96 | 12.82 | ||
Fourth Quarter | 17.77 | 14.12 | ||
Fiscal year ended December 31, 2005 | ||||
Annual | 17.91 | 15.08 | ||
First Quarter | 17.64 | 16.14 | ||
Second Quarter | 16.47 | 15.12 | ||
Third Quarter | 17.64 | 15.08 | ||
Fourth Quarter | 17.91 | 16.85 | ||
Fiscal year ended December 31, 2006 | ||||
Annual | 25.15 | 18.21 | ||
First Quarter | 20.91 | 18.21 | ||
Second Quarter | 22.55 | 18.61 | ||
Third Quarter | 23.39 | 19.83 | ||
Fourth Quarter | 25.15 | 23.11 | ||
Month ended October 31, 2006 | 24.20 | 23.11 | ||
Month ended November 30, 2006 | 25.15 | 23.81 | ||
Month ended December 31, 2006 | 24.40 | 23.87 | ||
Fiscal year ended December 31, 2007 | ||||
Month ended January 31, 2007 | 25.15 | 23.92 | ||
Month ended February 28, 2007 | 26.23 | 24.28 | ||
Month ended March 31, 2007 (through March 28) | 24.67 | 22.79 |
Securities Trading in Spain
The Spanish securities market for equity securities consists of the Automated Quotation System and the four stock exchanges located in Madrid, Bilbao, Barcelona and Valencia. During 2003,2006, the Automated Quotation System accounted for the majority of the total trading volume of equity securities on the Spanish stock exchanges.
Stock Exchanges.
Automated Quotation System. The Automated Quotation System links the four local exchanges, providing those securities listed on it with a uniform continuous market that eliminates certain of the differences among the local exchanges. The principal feature of the system is the computerized matching of buy and sell orders at the time of entry of the order. Each order is executed as soon as a matching order is entered, but can be modified or canceled until executed. The activity of the market can be continuously monitored by investors and brokers. The Automated Quotation System is operated and regulated by Sociedad de Bolsas, S.A. (“Sociedad de Bolsas”), a corporation owned by the companies that manage the local exchanges. All trades on the Automated Quotation System must be placed through a bank, brokerage firm, an official stock broker or a dealer firm member of a Spanish stock exchange directly. Since January 1, 2000, Spanish banks have been allowed to place trades on the Automated Quotation System and have been allowed to become members of the Spanish stock exchanges.Stock Exchanges.
In a pre-opening session held from 8:30 a.m. to 9:00 a.m. each trading day, an opening price is established for each security traded on the Automated Quotation System based on orders placed at that time. The legal regime concerning opening prices was changed by an internal rule issued by theSociedad de Bolsas.Bolsas. The new legal regime sets forth that all references to maximum changes in share prices will be substituted by a definition of prices and creation of static and dynamic ranks for each listed share to be published on a periodic basis by theSociedad de Bolsas.Bolsas. The computerized trading hours are from 9:00 a.m. to 5:30 p.m., during which time the trading price of a security is permitted to vary by up to the stated level. If the quoted price exceeds this limit, trading in the security is suspended until the next day. Between 5:30 p.m. and 5:35 p.m. a closing price is established for each security through an auction system similar to the one held for the pre-opening early in the morning.
Between 5:30 p.m. and 8:00 p.m., trades may occur outside the computerized matching system without prior authorization of theSociedad de Bolsas at a price within the range of 5% above the higher of the average price and closing price for the day and 5% below the lower of the average price and closing price for the day, if, among other things, the trade involves more than €300,000 and more than 20% of the average daily trading volume of the stock during the preceding three months. At any time trades may take place (with the prior authorization of theSociedad de Bolsas)Bolsas) at any price if:
the trade involves more than €1.5 million and more than 40% of the average daily volume of the stock during the preceding three months;
the transaction derives from a merger or spin-off process, or from the reorganization of a group of companies;
the transaction is executed for the purposes of settling a litigation or completing a complex group of contractscontracts; or
the Sociedad de Bolsas finds other justifiable cause.
Information with respect to the computerized trades between 9:00 a.m. and 5:30 p.m. is made public immediately, and information with respect to trades outside the computerized matching system is reported to theSociedad de Bolsas by the end of the trading day and published in theBoletín de Cotizaciónand in the computer system by the beginning of the next trading day.
Clearance and Settlement SystemSystem..
Law 44/2002 and Rule 689/2003 of March 27, 2003 approved by the Spanish Ministry of Economy have promoted the integration of the two main existing book entry settlement systems existing in Spain, the non-gilts settlement systemServicio de Compensación y Liquidación de Valores (“SCLV”) and the gilts settlement systemCentral de Anotaciones en Cuenta, into one system to be known asSociedad de GestionGestión de los Sistemas de Registro Compensación y Liquidación de Valores (the “Iberclear”).
Notwithstanding the above, rules concerning the book entry settlement system enacted before this amendment by the SCLV and the Bank of Spain are still in force, but any reference to the SCLV must be substituted by Iberclear.
Under this new regulation, transactions carried out on the Spanish stock exchangesStock Exchanges are cleared and settled through Iberclear. Only members of Iberclear are entitled to use it, and membership is restricted to authorized members of the Spanish stock exchanges,Stock Exchanges, the Bank of Spain (when an agreement, approved by the Spanish Ministry of Economy and Finance, is reached with Iberclear) and, with the approval of the CNMV, other brokers not members of the Spanish stock exchanges,Stock Exchanges, banks, savings banks and foreign settlement and clearance systems. Iberclear is owned by its members (excluding, if applicable, the Bank of Spain) and by the companies which manage the local exchanges. The clearance and settlement system and its members are responsible for maintaining records of purchases and sales under the book-entry system. Shares of listed Spanish companies are held in book-entry form. Iberclear, which manages the clearance and settlement system, maintains a registry reflecting the number of shares held by each of its member entities (each an “entidad participada”), as well as the amount of such shares held on behalf of beneficial owners. Each member entity, in turn, maintains a registry of the owners of such shares. Spanish law considers the legal owner of the shares to be:
the member entity appearing in the records of Iberclear as holding the relevant shares in its own name, or
the investor appearing in the records of the member entity as holding the shares.
The SCLV has introduced the so-called “D+“D+3 Settlement System”System” by which the settlement of any transactions must be made three working days following the date on which the transaction was carried out.
Obtaining legal title to shares of a company listed on a Spanish stock exchange requires the participation of a Spanish official stockbroker, broker-dealer, bank or other entity authorized under Spanish law to record the transfer of shares. To evidence title to shares, at the owner’s request the relevant member entity must issue a certificate of ownership. In the event the owner is a member entity, Iberclear is in charge of the issuance of the certificate with respect to the shares held in the member entity’s name.
Brokerage commissions are not regulated. Brokers’ fees, to the extent charged, will apply upon transfer of title of our shares from the depositary to a holder of ADRs, and upon any later sale of such shares by such
holder. Transfers of ADSs do not require the participation of an official stockbroker. The deposit agreement provides that holders depositing our shares with the depositary in exchange for ADSs or withdrawing our shares in exchange for ADSs will pay the fees of the official stockbroker or other person or entity authorized under Spanish law applicable both to such holder and to the depositary.
Securities Market Legislation
The Securities Markets Act was enacted in 1988 with the purpose of reforming the organization and supervision of the Spanish securities markets. This legislation and the regulation implementing it:
established an independent regulatory authority, the CNMV, to supervise the securities markets;
established a framework for the regulation of trading practices, tender offers and insider trading;
required stock exchange members to be corporate entities;
required companies listed on a Spanish stock exchange to file annual audited financial statements and to make public quarterly financial information;
established the legal framework for the Automated Quotation System;
exempted the sale of securities from transfer and value added taxes;
deregulated brokerage commissionscommissions; and
provided for transfer of shares by book-entry or by delivery of evidence of title.
On February 14, 1992, Royal Decree No. 116/92 established the clearance and settlement system and the book-entry system, and required that all companies listed on a Spanish stock exchange adopt the book-entry system.
On November 16, 1998, the Securities Markets Act was amended in order to adapt it to Directive 93/22/CEE on investment services (later amended by Directive 95/26/CE and Directive 97/9/CE of the European Parliament and Council on investors indemnity systems).
On November 22, 2002, the Securities Markets Act was amended by Law 44/2002 in order to update Spanish financial law to global financial markets. See “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Monetary Policy—Law Reforming the Spanish Financial System”.
On June 18, 2003, the Spanish Government approved theLey de Transparencia(“Law 26/2003”), modifying both the Securities Markets Act and the Corporate Law, to reinforce the transparency of information available regarding listed Spanish companies. This law adds a new chapter, Title X, to the Securities Markets Act, whichwhich: (i) requires disclosure of shareholdershareholders’ agreements relating to listed companies; (ii) regulates the operation of the general shareholders’ meetings and of boards of directors of listed companies; (iii) requires the publication of an annual report on corporate governancegovernance; and (iv) establishes measures designed to increase the availability of information to shareholders.
As of the date of the filing of this Annual Report, a draft amendment to the Securities Market Act is pending approval of the Spanish authorities. If such legislation is approved, the legal regime in Spain applicable to tender offers as well as the transparency of issuers will be modified and will result in additional disclosure requirements.
Trading by the Bank and its Affiliates in the Shares
Trading by subsidiaries in their parent companies’companies shares is restricted by the Spanish Companies Act.
Neither BBVA nor its affiliates may purchase BBVA’s shares unless the making of such purchases is authorized at a meeting of BBVA’s shareholders by means of a resolution establishing, among other matters, the maximum number of shares to be acquired within a maximum period of 18 months. Restricted reserves equal to the purchase price of any shares that are purchased by BBVA or its subsidiaries must be made by the purchasing entity. The total number of shares held by BBVA and its subsidiaries may not exceed five percent of BBVA’s total capital. It is the practice of Spanish banking groups, including ours, to establish subsidiaries to trade in their parent company’s shares in order to meet imbalances of supply and demand, to provide liquidity (especially for trades by their customers) and to modulate swings in the market price of their parent company’s shares.
Reporting Requirements
Any entity which transfers five percent or any multiple of five percent, of the capital stock of a company listed on a Spanish stock exchange must, within seven days after that transfer, report the transfer to such company, to the stock exchange on which such company is listed and to the CNMV. In addition, any company listed on a Spanish stock exchange must report on a non-public basis any acquisition by such company (or an affiliate) of the company’s own shares if such acquisition, together with any previous one from the date of the last communication, exceeds 1% of its capital stock, regardless of the balance retained. Members of the Board of Directors must report any transfer or acquisition of share capital of a company listed on the Spanish stock exchanges,Stock Exchanges, regardless of the size of the transaction. Additionally, since we are a credit entity, any individual or company which intends to acquire a significant participation in BBVA’s share capital must obtain prior approval from the Bank of Spain in order to carry out the transaction. See “Item 10. Additional Information—Exchange Controls—Restrictions on Acquisitions of Shares”.
Royal Decree 2590/98 has amended Royal Decree 377/91 by incorporating new reporting requirements in connection with any entity acting from a tax haven or a country where no securities regulatory commission exists, in which case the threshold of five percent is reduced to one percent. Furthermore, Royal Decree 2590/98 has extended the meaning of “transfer” to include voting agreements between shareholders.
Each Spanish bank is required to provide to the Bank of Spain a list dated the last day of each quarter of all the bank’s shareholders that are financial institutions and other non-financial institution shareholders owning at least 0.25% of a bank’s total share capital. Furthermore, the banks are required to inform the Bank of Spain, as soon as they become aware, and in any case not later than in 15 days, of each acquisition by a person or a group of at least one percent of such bank’s total share capital.
ITEM 10. | ADDITIONAL INFORMATION |
A. | Share Capital |
Not Applicable.
Not applicable.
B. Memorandum and Articles of Association
B. | Memorandum and Articles of Association |
Spanish law and BBVA’s bylaws are the main sources of regulation affecting the company. All rights and obligations of BBVA’s shareholders are contained in its bylaws and in Spanish law.
On March 1, 2003,February 28, 2004, BBVA’s shareholders adopted a resolution amending its bylaws. The amendments were to: (i) Article 31 in order to cease limiting the exercise of shareholders’ voting rights to 10% of BBVA’s total share capital; (ii) Article 34 in order to change the maximum and minimum number of seats on the Board of Directors to 18 and 9, respectively and (iii) Article 48 in order to comply with Law 44/2002.
On February 28, 2004, BBVA’s shareholders adopted a new resolution amending its bylaws. The amendments are to: (i) Article 24 in order to expand shareholders’ rights to participate in shareholders’ meetings by proxy or representative; (ii) Article 29 in order to enhance shareholders’ ability to obtain information regarding the Company; (iii) Article 31 regarding the procedures for the adoption of shareholder resolutions; (iv) Article 35 regarding the requirements for being a director; (v) Article 38 regarding the chairman and secretary of the Board of Directors; (vi) Article 45 regarding nomination and composition of the Board of Directors; (vii) Article 37 to make a technical amendment required by virtue of the amendment to Article 3535; and (viii) Article 34 to reduce the maximum number of directors from 18 to 16.
On March 18, 2006, BBVA’s shareholders adopted a resolution amending Article 53 of its bylaws in order to contemplate the possibility of remunerating members of the Board of Directors through delivery of shares, share options or remuneration indexed to the share price, according to Article 130 of Spanish Companies Act.
On November 28, 2006, BBVA’s Board of Directors approved a capital increase of BBVA with the issuance by BBVA of 161,117,078 ordinary shares, which also resulted in an amendment to Article 5 of BBVA’s bylaws.
On March 16, 2007, BBVA’s shareholders adopted a resolution amending Article 36 of its bylaws in order to eliminate the annual renewal of one fifth of the Board of Directors seats each year so that the term of office for members of the Board of Directors is five years and members may be reelected one or more times for terms of the same maximum duration. As of the date of this Annual Report, the amendment is pending registration at the Commercial Registry of Vizcaya.
Registry and Company’s Objects and Purposes
BBVA is registered with the Commercial Registry of Vizcaya (Spain). Its registration number at the Commercial Registry of Vizcaya is volume 2,083, book 1,545,Company section 3, folio 1, page 14,741.sheet BI-17-1, 1st entry. Its corporate objects and purposes are to: (i) directly or indirectly conduct all types of activities, transactions, acts, agreements and services relating to the banking business which are permitted or not prohibited by law and all banking
ancillary activities; (ii) acquire, hold and dispose of securitiessecurities; and (iii) make public offers for the acquisition and sale of securities and all types of holdings in any kind of company. BBVA’s objects and purposes are contained in Article 3 of the bylaws.
Certain Powers of the Board of Directors
In general, provisions limiting the powers of BBVA’s directors are not contained in its bylaws. Such limitations, where they exist, often (i) limit a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested; (ii) limit the power to vote on compensation tofor themselves; (iii) limit borrowing powers exercisable by the directors and how such borrowing powers can be variedvaried; or (iv) require retirement of directors at a certain age. The powers of BBVA’s directors in these and other matters, however, are limited by and subject to BBVA’s internal regulations. In addition, BBVA’s Board of Directors is subject to the Regulations of the Board of Directors, which contains a series of ethical standards. See “Item 6. Directors, Senior Management and Employees”.
The provisions of BBVA’s bylaws that relate to compensation of directors are in strict accordance with the relevant provisions of Spanish law. The main provisions of the bylaws that relate to these matters are those that, in accordance with applicable Spanish law, allow the members of the Board of Directors to determine their administrative expenses or agree on such additional benefits they consider appropriate or necessary, up to four percent of our paid-up capital per year, which may only be paid after the minimum yearly dividend of four percent of the paid-in capital has been paid to our shareholders.
As of the date of the filing of this Annual Report, 1011 of the 1514 members of the Board of Directors were independent.
Members of the Board of Directors are elected for a term in office of five years. One-fifth of the Board of Directors is re-elected annually. The members of the Board of Directors may be re-elected for an unlimited number of terms.
See “Item 6. Directors, Senior Management and Employees”.
Certain Provisions Regarding Preferred Shares
The bylaws authorize BBVA to issue ordinary, non-voting, redeemable and preferred shares. As of the date of the filing of this Annual Report, BBVA has no non-voting, redeemable or preferred shares outstanding.
The characteristics of preferred shares must be agreed by the Board of Directors before they are issued.
Only shares that have been issued as redeemable may be redeemed by BBVA. Redemption of shares may only occur according to the terms set forth when they are issued. Redeemable shares must be fully paid-up at the time of their subscription. If the right to redeem redeemable shares is exclusively given to BBVA, it may not be exercised until at least three years after the issue. Redemption of shares must be financed against profits, free reserves or the proceeds of new securities issued especially for financing the redemption of an issue. If financed against profits or free reserves, BBVA must create a reserve for the amount of the par value of the redeemed shares. If the redemption is not financed against profits, free reserves or a new issue, it may only be done in compliance with the requirements of a reduction in share capital by the refund of contributions.
Holders of non-voting shares, if issued, are entitled to a minimum annual dividend, fixed or variable, set out at the time of the issue. The right of non-voting shares to accumulate unpaid dividends whenever funds to pay dividends are not available, any preemptive rights associated with non-voting shares, and the ability of holders of non-voting shares to recover voting rights also must be established at the time of the issue. Non-voting shares are entitled to the dividends to which ordinary shares are entitled in addition to their minimum dividend.
Certain Provisions Regarding Shareholders Rights
As of the date of the filing of this Annual Report, BBVA’s capital is comprised of one class of ordinary shares, all of which have the same rights.
Once all legal reserves and funds have been provided for out of the net profits of any given fiscal year, shareholders have the right to the distribution of an annual dividend of at least four percent of our paid-in capital. Shareholders will participate in the distribution of dividends in proportion to their paid-in capital. The right to collect a dividend lapses after five years as of the date in which it was first available to the shareholders. Shareholders also have the right to participate in proportion to their paid-in capital in any distribution resulting from our liquidation.
Each shareholder present at a General Shareholders’ Meeting is entitled to one vote per each share. However, unpaid shares with respect to which a shareholder is in default of the resolutions of the Board of Directors relating to their payment will not be entitled to vote. The bylaws contain no provisions regarding cumulative voting.
On March 1, 2003, BBVA’s shareholders passed a resolution amending the bylaws to, among other things, remove the provision which stated that no shareholder may cast a number of votes greater than those corresponding to shares representing 10% of BBVA’s share capital.
The bylaws do not contain any provisions relating to sinking funds or potential liability of shareholders to further capital calls by BBVA.
The bylaws do not specify what actions orestablish that special quorums are required to change the rights of shareholders. Under Spanish law, the rights of shareholders may only be changed by an amendment to the bylaws that complies with the requirements explained below under “Shareholders’
“—Shareholders’ Meetings”, plus the affirmative vote of the majority of the shares of the class that will be affected by the amendment.
Shareholders’ Meetings
General meetings may be ordinary or extraordinary. Ordinary general meetings are held within the first six months of each financial year in order to review, among other things, the management of the company, and to approve, if applicable, annual financial statements for the previous fiscal year. Extraordinary general meetings are those meetings that are not ordinary. In any case, the requirements mentioned below for constitution and adoption of resolutions are applicable to both categories of general meetings.
General meetings must be convoked by the Board of Directors, whether by their own decision or upon the request of shareholders holding at least five percent of BBVA’s share capital. General meetings must generally be advertisedadvised at least 15 daysone month in advance by means of an advertisement published in the Official Companies Registry Gazette (Boletín Oficial del Registro MercantileMercantil) (Borme)(“Borme”) and in aone of the widely-circulated newspaper.newspapers.
As of the date of the filing of this Annual Report, shareholders have the right to attend general meetings if they:
own at least 500 shares;
retain the ownership of at least 500 shares until the general meeting takes place.
Additionally, holders of fewer than 500 shares may aggregate their shares to reach at least such number of shares and appoint a shareholder as proxy to attend the general meeting.
General meetings will be validly constituted on first call with the presence of at least 25% of BBVA’s voting capital, either in person or by proxy. No minimum quorum is required to hold a general meeting on second call. In either case, resolutions will be agreed by the majority of the votes. However, a general meeting will only be validly held with the presence of 50% of BBVA’s voting capital on first call or of 25% of the voting capital on second call, in the case of resolutions concerning the following matters:
issuances of debt;
capital increases or decreases;
merger of BBVABBVA; and
any other amendment to the bylaws.
In these cases, resolutions may only be approved by the vote of the majority of the shares if at least 50% of the voting capital is present at the meeting. If the voting capital present at the meeting is less than 50%, then resolutions may only be adopted by two-thirds of the shares present.
Additionally, our bylaws state that, in order to adopt resolutions regarding a change in corporate purpose or the total liquidation or dissolution of BBVA, at least two-thirds of the voting capital must be present at the meeting on first call and at least 60 percent of voting capital must be present on second call.
Restrictions on the Ownership of Shares
Our bylaws do not provide for any restrictions on the ownership of our ordinary shares. Spanish law, however, provides for certain restrictions which are described below under “—Exchange Controls—Restrictions on Acquisitions of Shares”.
Restrictions on Foreign Investments
Spanish stock exchangesStock Exchanges are open to foreign investors. However, the acquisition of 50% or more of the share capital of a Spanish company by a person or entity residing in a tax haven must in certain cases be notified to the Ministry of Economy and Treasury prior to its execution. All other investments in BBVA’s shares by foreign entities or individuals only require the notification of the Spanish authorities through the Spanish intermediary that took part in the investment once it is executed.
Current Spanish regulations provide that once all applicable taxes have been paid, see “—Exchange Controls”, foreign investors may freely transfer out of Spain any amounts of invested capital, capital gains and dividends.
See “—Exchange Controls”.
Change of Control Provisions
In addition to the restrictions on acquisitions of BBVA’s shares discussed above, certain antitrust freeze-out regulations may also delay, defer or prevent a change of control of BBVA or any of its subsidiaries in the event of a merger, acquisition or corporate restructuring. In Spain, the application of both Spanish and European antitrust regulations require that prior notice of domestic or cross-border merger transactions be given in order to obtain a “non-opposition” ruling from antitrust authorities.
Spanish regulation of takeover bids may also delay, defer or prevent a change of control of BBVA or any of its subsidiaries in the event of a merger, acquisition or corporate restructuring. Spanish regulation of takeover bids contained in Royal Decree 1197/1991 was recentlyas amended by Royal Decree 432/2003 dated April 11, 2003. See “—Exchange Controls—Tender Offers”. New regulationsRegulations on public takeover bids require a bid to be launched if the acquisition of the listed company grants control to the purchaser, regardless of whether the acquired stake reaches the 25% threshold. The newThese rules state that it is necessary to launch a tender offer if the bidder intends to acquire less than 25% of the target’s share capital but intends to appoint more than one-third and less than one-half plus one of the target’s directors.
Since BBVA is a credit entity, it is necessary to obtain approval from the Bank of Spain in order to acquire a number of shares considered to be a significant participation by Law 26/1988, of July 29, 1998. See “—Exchange Controls—Restrictions on Acquisitions of Shares”. Also, any agreement that contemplates BBVA’s merger with another credit entity will require the authorization of the Ministry of Economy. This could also delay, defer or prevent a change of control of BBVA or any of its subsidiaries that are credit entities in the event of a merger.
C. | Material Contracts |
During the past two years BBVA was not a party to any contract outside its ordinary course of business that was material to it as a whole.
D. | Exchange Controls |
In 1991, Spain adopted the EU standards for free movement of capital and services. As a result, exchange controls and restrictions on foreign investments have generally been abolished and foreign investors may transfer invested capital, capital gains and dividends out of Spain without limitation as to amount, subject to applicable taxes. See “—Taxation”.
Pursuant to Spanish Law 18/1992 on Foreign Investments(Ley 18/1992, de 1 de julio) and Royal Decree 664/1999 (Real Decreto 664/1999, de 23 de abril), foreign investors may freely invest in shares of Spanish companies, except in the case of certain strategic industries.
Shares in Spanish companies held by foreign investors must be reported to the Spanish Registry of Foreign Investments by the depositary bank or relevant Iberclear member. When a foreign investor acquires shares that are subject to the reporting requirements of the CNMV, notice must be given by the foreign investor directly to the Registry of Foreign Investments in addition to the notices of majority interests that must be sent to the CNMV and the applicable stock exchanges. This notice must be given through a bank or other financial institution duly registered with the Bank of Spain and the CNMV or through bank accounts opened with any branch of such registered entities.
Investment by foreigners domiciled in enumerated tax haven jurisdictions is subject to special reporting requirements under Royal Decree 1080/19971991(Real Decreto 1980/1997,1080/1991, de 5 de julio).
On July 5, 2003, Law 19/2003(Ley sobre el regimen juridico de los movimientos de capitales y de las transacciones economicas con el exterior y sobre determinadas medidas de prevencion del blanqueo de capitalescapitales)), came into effect. effect.This law is an update to other Spanish exchange control and money laundering prevention laws.
Restrictions on Acquisitions of Shares
Spanish law provides that any individual or corporation that intends to acquire, directly or indirectly, a significant participation ((“participación significativa”) in a Spanish bank must obtain the prior approval of the Bank of Spain, including the amount of such participation, the terms and conditions of the acquisition and the period in which it is intended to execute the transaction. A significant participation is considered five percent of the outstanding share capital of a bank or a lower percentage if such holding allows for the exercise of a significant influence.
Any individual or company that intends to increase, directly or indirectly, its significant participation in such a way that its share capital or voting rights after the acquisition reaches or exceeds 10%, 15%, 20%, 25%, 33%, 40%, 50%, 66% or 75% is required to give prior notice to the Bank of Spain of such transaction. Any acquisition without such prior notification, or before three months have elapsed after the date of such notification, or against the objection of the Bank of Spain, will produce the following results:
the acquired shares will have no voting rights; and
if considered appropriate, the target bank may be taken over or its directors replaced and a sanction imposed.
The Bank of Spain has a period of three months to object to a proposed transaction. Such objection may be based on the fact that the Bank of Spain does not consider the acquiring person suitable to guarantee the sound and prudent operation of the target bank.
Any individual or institution that intends to sell its significant participation or reduce the above mentioned percentages, or which, because of such sale, loses control of the entity, must give prior notice to the Bank of Spain, indicating the amount to be sold and the period in which the transaction is to be executed. Non-compliance with this requirement will result in sanctions.
The Ministry of Economy and the Treasury, following a proposal by the Bank of Spain, may, whenever the control by a person with a significant participation may jeopardize the sound and prudent management of a credit institution, adopt any of the following measures as deemed appropriate:
suspend the voting rights corresponding to such shares for up to three years;
take control of the bank or replace the directorsdirectors; or
revoke the bank’s license.
Tender Offers
As stated above, the Spanish legal regime concerning takeover bids was amended by Royal Decree 432/2003 of April 11, 2003, in order to introduce more cases in which it is necessary to launch a takeover in order to acquire a stake of the share capital of a listed company. Subject to certain exceptions, any individual or corporation proposing to acquire shares of a company’s share capital (or other securities that may directly or indirectly give the right to subscribe for such shares), which is fully or partly admitted for trading on a Spanish stock exchange, may not do so without first launching a public tender offer on the terms and conditions laid down in the Royal Decree, if it intends to appoint more than one-third but less than one-half of the directors of the target company.
Legislation is currently pending in Spanish Parliament to adopt Directive 2004/25/EC of the European Parliament and of the Council dated April 21, 2004 into Spanish law. Such legislation will materially amend the current tender offer rules in Spain. Under the currently proposed legislation, anyone who directly or indirectly acquires 30% or more of the voting capital of a listed company, or a smaller stake but appoints more than half of the directors, will have to make a tender offer for all the shares of the company at a fair price. The price will be considered fair if it is at least equal to the highest price that would have been paid by the party obliged to make the offer or by persons acting in concert during a certain period of time before the offer. The wording of the legislation may change during its passage through Spanish Parliament, and the enacted legislation may be different than the description of the proposed legislation described above.
E. TaxationIf the draft amendment to the Securities Market Act is approved, the Spanish legal regime applicable to acquisitions and tender offers will be significantly modified. See “Item 9. The Offer and the Listing—Securities Market Legislation”.
E. | Taxation |
Spanish Tax Considerations
The following is a summary of the material Spanish tax consequences to United StatesU.S. Residents (as defined below) of the acquisition, ownership and disposition of BBVA’s ADSs or ordinary shares.shares as of the date of the filing of this Annual Report. This summary does not address all tax considerations that may be relevant to all categories of potential purchasers, some of whom (such as life insurance companies, tax-exempt entities, dealers in securities or financial institutions) may be subject to special rules. In particular, the summary deals only with the United StatesU.S. Holders (as defined below) that will hold ADSs or ordinary shares as capital assets and who do not at any time own individually, nor are treated as owning, 25% or more of BBVA’s shares, including ADSs.
As used in this particular section, the following terms have the following meanings:
(1) “United States Holder”“U.S. Holder” means a beneficial owner of BBVA’s ADSs or ordinary shares that is:is for U.S. federal income tax purposes:
a citizen or a resident of the United States, for United States federal income tax purposes,
an estate or trust the income of which is subject to United States federal income tax without regard to its source.
(2) “Treaty”“Treaty” means the Convention between the United States and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related Protocol.
(3) “United States Resident”“U.S. Resident” means a United StatesU.S. Holder that is a resident of the United States for the purposes of the Treaty and entitled to the benefits of the Treaty, whose holding is not effectively connected with (1) a permanent establishment in Spain through which such holder carries on or has carried on business, or (2) a fixed base in Spain from which such holder performs or has performed independent personal services.
Holders of ADSs or ordinary shares who are not United States Residents should also consult their own tax advisors, particularly as to the applicability of any tax treaty. The statements regarding Spanish tax laws set out below are based on interpretations of those laws in force as of the date of this Annual Report. Such statements also assume that each obligation in the Deposit Agreement and any related agreement will be performed in full accordance with the terms of those agreements.
Taxation of Dividends
Under Spanish law, dividends paid by BBVA to a holder of ordinary shares or ADSs who is not resident in Spain for tax purposes and does not operate through a permanent establishment in Spain, are subject to Spanish Non-Resident Income Tax, withheld at source, currently at a 15%18% tax rate. For these purposes, upon distribution of the dividend, BBVA or its paying agent will withhold an amount equal to the tax due according to the rules set forth above (i.e., applying the general withholding tax rate of 15%18%), transferring the resulting net amount to the depositary. Under
However, under the Treaty, if you are a United States Resident, you are also entitled to a tax rate of 15%.
To benefit from the Treaty-reduced rate of 15%, if you are a United States Resident, you must provide to the depositary, before the tenth day following the end of the month in which the dividends were payable, a certificate from the IRS stating that, to the best knowledge of the IRS, you are a resident of the United States within the meaning of the Treaty and entitled to its benefits.
Those depositaries providing timely evidence (i.e., by means of the IRS certificate) of your right to apply the Treaty-reduced rate will immediately receive the surplus amount withheld, which will be credited to you. The IRS certificate is valid for a period of one year from issuance.
If the certificate referred to in the above paragraph is not provided to the depositary within said term, you may afterwards obtain a refund of the amount withheld in excess of the rate provided for in the Treaty.
Spanish Refund Procedure
According to Spanish Regulations on Non-Resident Income Tax, approved by Royal Decree 1776/2004 dated July 30, 2004, as amended, a refund for the amount withheld in excess of the Treaty-reduced rate can be obtained from the relevant Spanish tax authorities. To pursue the refund claim, if you are a United States Resident, you are required to file:
the corresponding Spanish tax form,
the certificate referred to in the preceding section, and
evidence of the Spanish Non-Resident Income Tax that was withheld with respect to you.
The refund claim must be filed within four years from the date in which the withheld tax was collected by the Spanish tax authorities.
United States Residents are urged to consult their own tax advisors regarding refund procedures and any U.S. tax implications thereof.
Additionally, under the Spanish law, the first €1,500 of dividends obtained by individuals who are not resident in Spain for tax purposes, and do not operate through a permanent establishment in Spain, will be exempt from taxation in certain circumstances. United States Residents should consult their tax advisors in order to make effective this exemption.
Taxation of Rights
Distribution of preemptive rights to subscribe for new shares made with respect to your shares in BBVA will not be treated as income under Spanish law and, therefore, will not be subject to Spanish Non-Resident Income Tax. The exercise of such preemptive rights is not considered a taxable event under Spanish law and thus is not subject to Spanish tax. Capital gains derived from the disposition of preemptive rights obtained by United StatesU.S. Residents are generally not taxed in Spain provided that certain conditions are met (See “—Taxation of Capital Gains” below).
Taxation of Capital Gains
Under Spanish law, any capital gains derived from securities issued by persons residing in Spain for tax purposes are considered to be Spanish source income and, therefore, are taxable in Spain. For Spanish tax purposes, income obtained by you, if you are a United StatesU.S. Resident, from the sale of BBVA’s ADSs or ordinary shares will be treated as capital gains. Spanish Non-Resident Income Tax is currently levied at a 35%18% tax rate on capital gains obtained by persons nonwho are not residents of Spain for tax purposes, who are not entitled to the benefit of any applicable treaty for the avoidance of double taxation and who do not operate through a fixed base or a permanent establishment in Spain.
Notwithstanding the above, capital gains derived from the transfer of shares inon an official Spanish secondary stock market by any holder who is resident in a country that has entered into a treaty for the avoidance of double taxation with an “exchange of information” clause (the Treaty contains currently such a clause), will be exempt from taxation in Spain. Additionally, capital gains realized by non-residents of Spain who are entitled to the benefit of an applicable treaty for the avoidance of the double taxation will, in the majority of cases, not be taxed in Spain (since most tax treaties provide for taxation only in the taxpayer’s country of residence). If you are a United StatesU.S. Resident, by virtue ofunder the Treaty, capital gains arising from the disposition of ordinary shares or ADSs will not be taxed in Spain. You will be required to establish that you are entitled to this exemption by providing to the relevant Spanish tax authorities an IRS certificate of residence in the United States, together with the corresponding Spanish tax form.
Spanish Wealth Tax
If you do not reside in Spain and you hold shares located in Spain, you are subject to Spanish Wealth Tax (Spanish Law 19/1991), which imposes a tax on property located in Spain on the last day of any year. It is possible that the Spanish tax authorities may contend that all shares of a Spanish corporation and all ADSs representing such shares are located in Spain for Spanish tax purposes. If such a view were to prevail, and you are a non-resident of Spain who held BBVA’s ADRsADSs or ordinary shares on the last day of any year, you would be subject to the Spanish Wealth Tax for such year at marginal rates varying between 0.2% and 2.5% of the average market value of such ordinary shares or ADSs during the last quarter of such year. United StatesU.S. Residents should consult their tax advisors with respect to the applicability of Spanish Wealth Tax.
Spanish Inheritance and Gift Taxes
Transfers of BBVA’s shares or ADRs upon death or by gift are subject to Spanish inheritance and gift taxes (Spanish Law 29/1987), if the transferee is a resident in Spain for tax purposes, or if BBVA’s shares or ADRsADSs are located in Spain, regardless of the residence of the beneficiary. In this regard, the Spanish tax authorities may argue that all shares of a Spanish corporationscorporation and all ADSs representing such shares are located in Spain for Spanish tax purposes. The applicable tax rate, after applying all relevant factors, ranges between 7.65% and 81.6% for individuals, approximately.
Alternatively, corporations that are non-resident inof Spain whothat receive BBVA’s shares or ADSs as a gift are subject to Spanish Non-Resident Income Tax at a 35%18% tax rate on the fair market value of thesuch ordinary shares or ADSs as a capital gain. Hence, ifIf the donee is a United States resident corporation, the exclusions available under the Treaty described in “—Taxation of Capital Gains” above will be applicable.
Spanish Transfer Tax
Transfers of BBVA’s ordinary shares or ADSs will be exempt from Transfer Tax (Impuesto sobre Transmisiones Patrimoniales) or Value-Added Tax. Additionally, no stamp duty will be levied on such transfers.
U.S. Tax Considerations
The following summary describes the material United StatesU.S. federal income tax consequences of the acquisition, ownership and disposition of ADSs or ordinary shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to acquire such securities. The summary applies only to U.S. Holders (as defined under “Spanish Tax Considerations” above) that hold ADSs or ordinary shares as capital assets for tax purposes and does not address all of the tax consequences that may be relevant to holders subject to special classes of holders,rules, such as:
certain financial institutions;
insurance companies;
dealers and traders in securities or foreign currencies;
persons holding ADSs or ordinary shares as part of a hedge, straddle, conversion transaction or conversionother integrated transaction;
persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar;
persons liable for the alternative minimum tax;
tax-exempt organizations;
partnerships or other entities classified as partnerships for U.S. federal income tax purposes orpurposes;
persons who acquired our ADSs or ordinary shares pursuant to the exercise of any employee stock option or otherwise as compensation; or
persons who own or are deemed to own 10% or more of BBVA’sour voting shares.
The summary is based upon the tax laws of the United States including the Internal Revenue Code of 1986, as amended to the date hereof (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, changesregulations, as of the date hereof. These laws are subject to any of which may affect the tax consequences described hereinchange, possibly with retroactive effect. In addition, the summary is based on the Treaty (as defined under “Spanish Tax Considerations” above) and is based in part on representations of BBVA’sthe depositary and assumes that each obligation provided for in or otherwise contemplated by BBVA’s deposit agreement or any other related document will be performed in accordance with its terms. Prospective purchasers of the ADSs or ordinary shares are urged to consult their own tax advisersadvisors as to the United States,U.S., Spanish or other tax consequences of the purchase, ownership and disposition of ADSs or ordinary shares in their particular circumstances, including the effect of any U.S. state or local tax laws.
For United States federal income tax purposes, U.S. Holders of ADSs will generally be treated as the owners of the underlying ordinary shares represented by those ADRs.ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying ordinary shares represented by those ADSs.
The U.S. Treasury has expressed concerns that parties to whom ADSs are releasedpre-released may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders of ADSs. Such actions would
also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain noncorporate U.S. Holders, as described below. Accordingly, the analysis of the creditability of Spanish taxes described below, and the availability of the reduced tax rate for dividends received by certain noncorporate U.S. Holders, could be affected by future actions that may be taken by the parties to whom the ADSs are released.
This discussion assumes that BBVA was not a passive foreign investment company (“PFIC”PFIC”) for 20032006 (as discussed below).
Taxation of Distributions
To the extent paid out of our current or accumulated earnings and profits (as determined in accordance with United States federal income tax principles), distributions,Distributions, before reduction for any Spanish income tax withheld by BBVA or its paying agent, made with respect to ADSs or ordinary shares (other than certain pro rata distributions of BBVA’s capital stock or rights to subscribe for shares of its capital stock) will be includible in the income of a U.S. Holder as ordinary dividend income. Suchincome, to the extent paid out of our current or accumulated earnings and profits as determined in accordance with U.S. federal income tax principles. The amount of such dividends will be treated as foreign source dividend income and not be eligible for the “dividends received deduction” generally allowed to U.S. corporations under the Code. Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury, dividends paid to noncorporate U.S. Holders in taxable years beginning before January 1, 20092011 will be taxable at a maximum tax rate of 15%. Noncorporate U.S. Holders should consult their own tax advisersadvisors to determine the implications of the rules regarding this favorable rate in their particular circumstances. To the extent that a distribution exceeds our current and accumulated earnings and profits, it will be treated as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in the ADSs or ordinary shares, and thereafter as capital gain.
The amount of the distribution will equal the U.S. dollar value of the euro received, calculated by reference to the exchange rate in effect on the date such distribution is received (which, for U.S. Holders of ADSs, will be the date such distribution is received by the depositary), whether or not the depositary or U.S. Holder in fact converts any euro received into U.S. dollars at that time. Any gains or losses resulting fromIf the conversion of eurodividend is converted into U.S. dollars willon the date of receipt, a U.S. Holder generally should not be treated as ordinary incomerequired to recognize foreign currency gain or loss as the case may be,in respect of the dividend income. A U.S. Holder and will bemay have foreign currency gain or loss if such dividend is not converted into U.S. source. Dividends generally will constitute foreign source “passive” or “financial services” income for U.S. foreign tax credit purposes.
dollars on the date of its receipt.
Subject to certain generally applicable limitations that may vary depending upon a U.S. Holder’s circumstances and subject to the discussion above regarding concerns expressed by the U.S. Treasury, a U.S. Holder will be entitled to a credit against its U.S. federal income tax liability, or a deduction in computing its U.S. federal taxable income, for Spanish income taxes withheld by BBVA or its paying agent. A U.S. Holder must satisfy minimum holding period requirements in order to be eligible to claim a foreign tax credit for foreign taxes withheld on dividends. The rules governing foreign tax credits are complex and, therefore, U.S. Holders are urged toshould consult their own tax advisers to determine whether they are subject to any special rules that limit their ability to make effective useregarding the availability of foreign tax credits.
credits in their particular circumstances.
Sale and Other Disposition of ADSs or Shares
Gain or loss realized by a U.S. Holder on (i) the sale or exchange of ADSs or ordinary shares or (ii) the depositary’s sale or exchange of ordinary shares received as distributions on the ADSs, will be subject to United StatesU.S. federal income tax as capital gain or loss in an amount equal to the difference between the U.S. Holder’s tax basis in the ADSs or ordinary shares and the amount realized on the disposition. Such gain or loss will be long-term capital gain or loss if the U.S. Holder held the ordinary shares or ADSs for more than one year. Gain or loss, if any, will generally be U.S. source for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Rules
WeBased upon certain proposed Treasury regulations (“Proposed Regulations”) we believe that we were not a “passive foreign investment company”, or “PFIC”,PFIC for United StatesU.S. federal income tax purposes for theour 2006 taxable year 2003.year. However, since our PFIC status depends upon the composition of our income and assets and the market value of our assets (including, among others, less than 25% owned equity investments) from time to time determined pursuant to certain proposed Treasuryand since there is no guarantee that the Proposed Regulations that are not yetwill be adopted in effect but are generally proposed to become effective for taxable years after December 31, 1994,their current form, there can be no assurance that we will not be considered a PFIC for any taxable year.
Ordinarily, ifIf we were treated as a PFIC for any taxable year during which a U.S. Holder held ADSs or ordinary shares, gain recognized by such U.S. Holder on a sale or other disposition of an ADS or an ordinary share would be allocated ratably over the U.S. Holder’s holding period for the ADS or the ordinary share. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for ordinary income of taxpayers of the U.S. Holder’s type for such taxable year, and an
interest charge would be imposed on the amount allocated to such taxable year. Similar tax rules would apply to any distribution in respect of ADSs or ordinary shares in excess of 125% of the average of the annual distributions on ADSs or ordinary shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter. Additionally, if we were a PFIC for any taxable year during which a U.S. Holder held an ADS or ordinary share, such U.S. Holder would be required to make an annual return on IRS Form 8621 for that year, describing the distributions received from BBVA and any gain realized on the disposition of ADSs or ordinary shares. Certain elections may be available (including a mark to marketmark-to-market election) to United StatesU.S. persons that may amelioratehelp mitigate the adverse consequences resulting from PFIC status.
Information Reporting and Backup Withholding
Information returns may be filed with the Internal Revenue Service in connection with payments of dividends on, and the proceeds from a sale or other disposition of, ADSs or ordinary shares. A U.S. Holder may be subject to United StatesU.S. backup withholding tax on these payments if the United StatesU.S. Holder fails to provide its taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.
F. | Dividends and Paying Agents |
Not Applicable.
G. | Statement by Experts |
Not applicable.Applicable.
H. | Documents on Display |
Not applicable.
The documents concerning BBVA which are referred to in this Annual Report may be inspected at its offices at Plaza de San Nicolás 4, 48005 Bilbao, Spain. In addition, we are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by BBVA with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth100 F Street, N.W.N.E., Washington, D.C. 20549, and at the SEC’s regional offices at The Woolworth Building, 233 Broadway, New York, New York 10279 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.20549. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which BBVA’s ADSs are listed. In addition, the SEC maintains a web site that contains information filed or furnished electronically with the SEC, which can be accessed over the internet athttp://www.sec.gov.www.sec.gov.
I. | Subsidiary Information |
Not Applicable.
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.RISK MANAGEMENT OVERVIEW
Activities involving financial instruments may involve the assumption or transfer of one or more types of risk by financial entities such as BBVA. The risks associated with financial instruments are:
Market risks: these arise as a consequence of holding financial instruments whose value may be affected by changes in market conditions. There are three types of market risk:
Currency risk: arises as a result of changes in the exchange rate between currencies;
Fair value interest rate risk: arises as a result of changes in market interest rates; and
Price risk: arises as a result of changes in market prices, due either to factors specific to the individual instrument or to factors that affect all instruments traded on the market.
Credit risk: this is the risk that one of the parties to the financial instrument agreement will fail to honour its contractual obligations due to the insolvency or incapacity of the individuals or legal entities involved and will cause the other party to incur a financial loss.
Liquidity risk: occasionally referred to as funding risk, this arises either because the entity may be unable to sell a financial asset quickly at an amount close to its fair value, or because the entity may encounter difficulty in finding funds to meet commitments associated with financial instruments.
The Group has developed a global risk management system based on three components: a corporate risk management structure, with segregated functions and responsibilities; a set of tools, circuits and procedures that make up the different risk management systems; and an internal control system.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK IN TRADING PORTFOLIO IN 2006
Risk atIn the BBVA
The assumption Group market areas, credit and market risk are jointly managed through a limits system adapted to the activities performed on each of the trading floors. This system measures the impact of a possible adverse market evolution on positions, both under ordinary circumstances and under situations of risk is inherentfactor stress. The Executive Committee approves global Value-at-Risk (“VaR”) limits for each unit according to financial activity. Effective managementthe specific risks each unit presents, differentiated by type of risk, contributes tobusiness activities undertaken and the reliableunit’s organizational structure. The market risk unit is responsible for maintaining an adequate equilibrium between the limits of the units and sustainable generation of value over timethe global limits as well as the correlation between VaR limits and accordingly, it is important to our shareholders, customers, and employees that BBVA has a sound and consistent risk management model.delta sensitivity.
BBVA believes that its strong risk management is a basic component of its competitive advantage. In order to achieveaccount for profits already obtained in the applicable year, the accrual of negative profits from business units is correlated to the reduction in the VaR limits set. This scheme is complemented by loss limits and warning alerts that automatically trigger procedures designed to alleviate potentially harmful situations that might compromise the business area activities.
The measurement model employed is parametric VaR, which applies a covariance matrix, with a confidence level of 99% and a one-day time horizon. This model also considers basis risk, spread, convexity and other risks associated with embedded options and structured products. The VaR provides a forecast of the expected maximum loss over a fixed time horizon (one-day in the case of BBVA) that portfolios could incur stemming from fluctuations recorded in the equity market and in interest and exchange rates, as well as in credit markets through the credit spread. In the case of the BBVA Group, this advantage,is the maximum expected loss in 99 days out of every 100 days. We have used 2 years of historical data in preparing our measurement model.
In order to assess impacts on less liquid markets or those with a higher probability of transitory nonliquidity, periodical analyses are carried out taking into account the different liquidity conditions affecting the financial markets. These are likewise combined with economic capital and VaR limits in stress situations, considering the impact of past financial crises and foreseeable future scenarios. Finally, the market risk measurement model incorporates back-testing or ex-post comparison, which verifies the accuracy of the risk measurements made, comparing day-on-day management results at different aggregation levels, with the corresponding VaR measurements for those same levels.
We expect the expansion of the new risk measurement platform, which had been implemented in Spain and Mexico as of December 31, 2006, to the BBVA dedicatesGroup’s Latin American business units in 2007 will provide a more accurate and flexible measurement based on VaR calculation by historical and Monte Carlo simulation. The new platform will lead to the resourcesfuture integration of market risk and credit risk for the entire perimeter of the Advanced Internal model for capital cost allocation.
The BBVA Group’s market risk in 2006 (measured as VaR without smoothing) has remained at moderate levels. The increase in the volatility of some Latin American markets in the second quarter of the year (during election periods) indicated recoveries in the VaR with smoothing, which continued to fall in the subsequent months of 2006. The below table shows the evolution of the BBVA Group’s market risk (measured as VaR without smoothing) in 2006.
In 2006, the BBVA Group’s daily market risk stood at an average of €19.6 million (VaR without smoothing). The dispersion of the VaR figures in 2006 is shown below.
By risk factors, the most important was interest rate risk (46% of the total at the close of the year), which includes systematic risk and specific risk linked to spreads. Vega risk and correlation risk account for 18.5% and 11% of the total, respectively, while equity and foreign exchange risks represented 21.5% and 3%, respectively, at December 31, 2006.
Market risk by risk factors in 2006
(Million euros)
Daily VaR | ||||||||||
31-12-06 | Average | Maximum | Minimum | |||||||
Interest(1) | 12.1 | 11.8 | 16.9 | 8.0 | ||||||
Exchange rate(1) | 0.7 | 1.2 | 3.6 | 0.5 | ||||||
Equity(1) | 5.8 | 4.2 | 9.9 | 1.8 | ||||||
Vega and correlation | 5.2 | 5.2 | 7.0 | 4.1 | ||||||
Diversification effect | (3.1 | ) | (2.9 | ) | — | — | ||||
TOTAL | 20.7 | 19.6 | 24.2 | 15.4 | ||||||
(1) | Includes gamma risk of fixed-income, exchange rate and equity options, respectively. Interest risk includes the spread. |
By geographical areas, based on the BBVA entity as to which the risk relates, as of December 31, 2006, 68.3% of the market risk in terms of VaR corresponded to Europe and the United States and 31.7% to the Group’s Latin American banks, of which 21.2 p.p. was concentrated in Mexico. In 2006, the risk profile for developed and emerging countries remained similar to that observed in 2005.
The aggregate daily VaR limit for 2006 was €50.2 million. The average daily VaR limits used by the Group’s main business units reached 39% when calculated without exponential smoothing and 31% with exponential smoothing, for the year ended December 31, 2006.
The back-testing comparison performed with market risk management results for the BBVA S.A. perimeter in 2006, which made a day-on-day comparison between holding earnings and the risk level estimated by the model, confirmed the accurate functioning of the Group’s risk model.
The breakdown of the risk exposure by categories of the instruments within the trading portfolio, as of December 31, 2006, 2005 and 2004 were as follows:
Thousands of euros | ||||||
2006 | 2005 | 2004 | ||||
Loans to Credit institutions | 17,149,744 | 27,470,224 | 16,702,957 | |||
Debt securities | 68,737,919 | 82,009,555 | 83,211,589 | |||
Derivatives | 6,195,150 | 8,525,664 | 7,607,036 | |||
Total | 92,082,813 | 118,005,443 | 107,521,582 |
MARKET RISK IN NON-TRADING ACTIVITIES IN 2006
Interest Rate Risk
The exposure of financial institutions to variations in interest rates is a risk inherent to the banking business. The different terms of maturity and repricing of debtor and creditor positions represent the main source of interest rate risk, by virtue of how they are affected to a greater or lesser degree by interest rate variations. Nevertheless, the effect of changes in the slope or shape of interest rate curves must also be taken into consideration, as must the embedded option of certain products.
In accordance with the recommendations made by the Basel Committee on Banking Supervision, the BBVA Group has a suitable organizational structure to control and manage its structural interest rate risk, which assures the necessary independence in undertaking such functions. ALCO is responsible for management of the asset and liability risk, excluding the Markets or Cash Management areas’ activities, in accordance with the risk profile defined by the Group’s managerial bodies. To comply with its commitments, Financial Management is supported by the measurements taken by the Risk Management area, which, acting as an independent unit, designs the measurement, monitoring, reporting and control systems, as well as the limits policies.
The effects of structural interest rate risk may be analyzed both from the viewpoint of their repercussions on the Group’s income statement, in the short and medium term, and from the viewpoint of their impact on its economic value, taking a longer term view. To this end, the BBVA Group uses several indicators to perform a complementary assessment of the impact that variations in interest rates could have on its net interest income one or two years in the future, and thus on the Group’s economic value.
A gap analysis provides a simplified view of the balance sheet structure and highlights the impact of temporary movements in interest rates. The table included shows the gaps in the BBVA structural balance sheet (expressed in euro) as of December 31, 2006, calculated from the maturity and repricing dates of the main items sensitive to interest rate variations, depending on whether they are fixed or variable rate.
Matrix of maturities and repricing dates of BBVA’s structural balance sheet in euros
(Million euros) | Balance | 1 month | 1-3 months | 3-12 months | 1-2 years | 2-3 years | 3-4 years | 4-5 years | As of 5 years | |||||||||||||||
ASSETS | ||||||||||||||||||||||||
Money market | 29,412 | 14,724 | 8,756 | 4,753 | 573 | 123 | 262 | 7 | 214 | |||||||||||||||
Lending | 157,008 | 36,273 | 39,229 | 63,754 | 6,073 | 2,898 | 1,829 | 2,032 | 4,919 | |||||||||||||||
Securities portfolios | 12,565 | 834 | 865 | 989 | 820 | 1,116 | 295 | 1,368 | 6,279 | |||||||||||||||
Other sensitive assets | 36,113 | 33,694 | 43 | 65 | 922 | 1,039 | 225 | 33 | 93 | |||||||||||||||
Derivatives | 53,905 | 1,326 | 1,547 | 8,526 | 1,970 | 5,947 | 7,280 | 4,812 | 22,496 | |||||||||||||||
TOTAL SENSITIVE ASSETS | 289,003 | 86,851 | 50,440 | 78,087 | 10,358 | 11,123 | 9,981 | 8,252 | 34,001 | |||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Money market | 18,288 | 10,911 | 3,778 | 3,494 | 4 | 3 | 3 | 3 | 93 | |||||||||||||||
Customer funds | 83,010 | 14,747 | 5,846 | 7,705 | 14,684 | 1,961 | 1,212 | 18,757 | 18,098 | |||||||||||||||
Wholesale financing | 79,384 | 14,051 | 23,132 | 3,670 | 484 | 5,256 | 6,061 | 4,578 | 22,152 | |||||||||||||||
Other sensitive liabilities | 51,120 | 27,758 | 8,227 | 6,140 | 1,820 | 739 | 616 | 911 | 4,909 | |||||||||||||||
Derivatives | 63,188 | 23,711 | 32,494 | 5,709 | 422 | 513 | 27 | 52 | 259 | |||||||||||||||
TOTAL SENSITIVE LIABILITIES | 294,990 | 91,178 | 73,477 | 26,717 | 17,415 | 8,473 | 7,919 | 24,300 | 45,512 | |||||||||||||||
GAPS | (5,987 | ) | (4,327 | ) | (23,037 | ) | 51,370 | (7,057 | ) | 2,650 | 1,972 | (16,048 | ) | (11,511 | ) | |||||||||
The Risk Management area also calculates the sensitivities of net interest income and economic value and the impact that parallel shifts in interest rate curves have on them. Although parallel shifts of various magnitudes are assessed, both upwards and downwards, the shift used as the standard benchmark in BBVA is 100 basis points. The graph included shows the structural interest rate risk profile of the Group’s main component institutions, according to their sensitivities as of December 31, 2006.
In addition to sensitivity calculations, BBVA uses interest rate curve simulation models, which also generate and assess movements other than parallel shifts, such as changes in slope and curvature. Estimation of the impacts of such curves enables calculation of the maximum expected losses the Group might incur for a particular confidence level and time horizon in terms of net interest income and economic value. The expected loss for a 99% confidence level represents the economic capital through structural interest rate risk. These measurements are complemented by an assessment of foreseeable and stress scenarios, which are periodically updated in accordance with the evolution of the economic and financial environment.
Throughout 2006, the BBVA Group endeavoured to improve its structural interest rate risk measurement tools to adapt them to the sophisticated and varied range of products and markets in which it operates. It has likewise furthered its analysis of the different structural interest rate risk factors in order to identify the most significant specific exposure factors. Financial Management manages the structural balance sheet and aims to ensure stability and recurrence of net interest income while maximizing value creation. To do so, it takes asset and liability positions and employs a wide range of financial instruments to achieve appropriate coverage. The
measures Financial Management can take in the sphere of structural interest rate risk are constrained by the limits structure, which is approved annually by the Executive Committee and monitored by the Risk Management area. The graph shows the average use of limits in 2006, in which the upward trend in interest rates increased market volatility.
The following tables indicate in millions of euros the average interest rate risk exposure levels of the main financial institutions of the BBVA Group in 2006:
Average Impact on Net Interest Income | ||||||||||
100 Basis-Point Increase | 100 Basis-Point Decrease | |||||||||
ENTITIES | Euro | Dollar | Other | Total | Total | |||||
BBVA | -141 | +15 | -1 | -127 | +144 | |||||
Other Europe | +1 | — | — | +1 | -1 | |||||
BBVA Bancomer | — | +23 | +58 | +81 | -81 | |||||
BBVA Puerto Rico | — | -4 | — | -4 | — | |||||
BBVA Chile | — | -1 | -3 | -4 | +4 | |||||
BBVA Colombia | — | — | +6 | +6 | -6 | |||||
BBVA Banco Continental | — | +1 | +4 | +5 | -6 | |||||
BBVA Banco Provincial | — | +1 | +10 | +11 | -11 | |||||
BBVA Banco Francés | — | — | -2 | -2 | +3 |
Average Impact on Economic Value | ||||||||||
100 Basis-Point Increase | 100 Basis-Point Decrease | |||||||||
ENTITIES | Euro | Dollar | Other | Total | Total | |||||
BBVA | +450 | +3 | -5 | +448 | -490 | |||||
Other Europe | -26 | — | — | -26 | +28 | |||||
BBVA Bancomer | — | +18 | -195 | -177 | +174 | |||||
BBVA Puerto Rico | — | -17 | — | -17 | +3 | |||||
BBVA Chile | — | — | -45 | -45 | +32 | |||||
BBVA Colombia | — | — | -6 | -6 | +7 | |||||
BBVA Banco Continental | — | -12 | — | -12 | +13 | |||||
BBVA Banco Provincial | — | — | +12 | +12 | -12 | |||||
BBVA Banco Francés | — | — | -42 | -42 | +47 |
Exchange Rate Risk
Structural exchange rate risk refers to the effects that variations in exchange rates can have on a banking institution’s strategic or permanent positions. In the BBVA Group, this risk essentially stems from its holdings in institutions in South America, Mexico and the United States. Exchange rate variations affect the value of such investments in euro and impact on the Group’s equity value. Furthermore, the earnings in foreign currencies generated by the holdings in the aforementioned institutions are also exposed to exchange rate variations.
In BBVA, the structural exchange rate risk management and monitoring functions are appropriately segregated, as Financial Management is responsible for the former and the Risk Management area for the latter. The Risk Management area is responsible for measuring the risk, assessing its impact on the Group’s equity value and also on its income statement. To do so, it uses exchange rate simulation models that take into account the historical behaviour of these variables and their foreseeable future evolution, in accordance with market expectations and the possibility of exchange rate crises arising. Such simulations enable calculation of the economic capital through structural exchange rate risk, which means the expected loss that the Group’s equity value would undergo due to an exchange rate variation, given a 99% confidence level. This methodology is also used to estimate possible impacts on the income statement and determine each currency’s independent contribution to the risk assumed, in order to identify the most significant exchange rate risk exposures.
Financial Management manages structural exchange rate risk in order to stabilize income in euro and maximize the Group’s equity value, in accordance with its market expectations and by taking hedging alternatives and their cost into consideration. Financial Management is therefore continually assessing the instruments available on the market to perform hedging operations that prove effective and imply the lowest possible cost. During 2006, a year marked by the strength of the euro versus the dollar and by the generalised depreciation of Latin American currencies, the average coverage of the book value of BBVA Group’s holdings in foreign currency stood at 35%. Financial Management hedged around 70% of the 2006 income in foreign currency as of December 31, 2006 and it has sought to provide coverage of the earnings forecast for 2007.
Financial Management’s activity concerning exchange rate risk is constrained by the economic capital limit set annually by the Executive Committee, in order to maintain exposure within acceptable tolerance levels. The Risk Management area regularly monitors compliance with this limit, whose average use during 2006 was 72% of the limit.
Equity Portfolio Risk
The risks incurredimplicit in the Group’s holdings in industrial and financial companies are managed in order to minimise the potential effect of adverse market fluctuations on the value of these portfolios, as well as to keep maintaining them at levels aligned with the desired, long term, global risk profile of the Group.
In accordance with the corporate governance scheme, the Executive Committee defines the general framework governing the policies and procedures for management of such risks, and it determines the maximum tolerance levels for the main portfolios. The Risk Management area is responsible for identifying, measuring and monitoring the risks inherent in these investments. It is also responsible for keeping executive management informed of these issues and pre-empting, if possible, any deviation with respect to the Group’s previously defined strategy by BBVAapplying a series of risk and income indicators.
The corporate risk model provides conservative estimations of potential losses based on statistical models for the holdings portfolios, including positions held in derivative instruments over the same underlying assets. The market data employed is relevant for the risk profile of the holdings kept in portfolios and reflects an extended sampling period to account to the different phases of the cycle in a manner consistent with the investments’ medium and long term horizon. In order to verify the validity of the estimations, these are compared with the yields actually obtained in the holdings portfolios for the same periods. Stress tests and sensitivity analyses are likewise carried out under different scenarios simulated for the relevant risk factors, over the foundations of forecasts by the Research department and other analysts, which enable greater depth to be attained in risk profile analysis.
Among other measures, the model generates the economic capital assigned to these investments for a one-year horizon with a confidence level at the institution’s objective rating, as a uniform measurement for the Group’s overall risk map. These estimations are also used to assess the equity portfolios through risk-adjusted yield and value creation measurements.
The Group’s level of equity exposure fell considerably in 2006, enhanced by divestments and the increase in the use of hedging strategies with derivative instruments to preserve the capital gains obtained through the
generalized rise in stock market share prices in the course of its various business activities are duly identified, measured, valued and managed.
BBVA manages customers and productsthe year. The aggregate sensitivity of the Group’s equity holdings before a 1% fall in share prices stood at €75 million at the close of year, with 73% concentrated in highly liquid equities in the various businessesEU.
CREDIT RISK MANAGEMENT
Methodologies for credit risk quantification
A credit risk profile can be quantified in two ways: (i) expected loss and geographical areas in which it operates, while also addressing all of the related risks, such as credit or counterparty risk, market risk, operational risk and structural risk for each of those business and geographical areas. BBVA also faces structural risks, including liquidity, interest and exchange rate risks in connection with its operations.
In an ever more globalized and interdependent world, adequate management of all of the different risks associated with our operations requires an integrated risk management strategy.
This is particularly complex, because, in general, credit risks relate to customers, market risks relate to portfolios and products, structural risks to balance-sheet aggregates and operational risks are normally identified within our processes and circuits.
The heterogeneous nature of the areas in which risk needs to be(ii) expected loss measured the variety of types of risk and the interdependence among development of uniform tools and models for managing all of the different risks we face.
Two basic factors are crucial in development of uniform tools and models for managing risk. The first factor, which is quantitative, is the development of a uniform system of risk measurement, enabling the different risks implicit in our processes, products, customers or portfolios to be measured in a uniform way. This uniform measure is economic capital and the expected losses associated with each business activity. Only with a uniform system of risk measurement is it possible to manage risks globally across our disparate activities, including the interactions between different risks.
The second factor, which is qualitative, is the implementation of a uniform risk management model across all of BBVA’s business lines. This means that our risk measurement tools, circuits, procedures, information and monitoring systems, policies and controls must reflect risk management methods and indicators must comprise a uniform risk management model for the entire Group.
BBVA made consistent progress in the implementation of the risk model in 2003, as is explained in the following pages. The steps taken to that end, in terms of botheconomic capital. The Group has implemented numerous tools for loan classification and historic information infrastructures that enable estimation of the developmentinputs necessary to calculate expected loss and usecapital. Such measurements considered together with cost and yield information, provide effective internal risk management, and facilitate compliance with the regulatory requirements set forth within the framework of ratingBasel II.
Group master scale
BBVA has a master scale designed to facilitate homogenous classification of the Group’s various risk portfolios. Two versions of this exist: the narrow version, which classifies outstanding risks into 17 groups, and scoringthe broad version, which breaks them down into 34 degrees.
BBVA master scale
(Long version)
Default probability (in basis points) | ||||||
Master scale rating | Average | Minimum from³ | Maximum to < | |||
AAA | 1 | 0 | 2 | |||
AA+ | 2 | 2 | 3 | |||
AA | 3 | 3 | 4 | |||
AA- | 4 | 4 | 5 | |||
A+ | 5 | 5 | 6 | |||
A | 8 | 6 | 9 | |||
A- | 10 | 9 | 11 | |||
BBB+1 | 12 | 11 | 14 | |||
BBB+2 | 15 | 14 | 17 | |||
BBB1 | 18 | 17 | 20 | |||
BBB2 | 22 | 20 | 24 | |||
BBB-1 | 27 | 24 | 30 | |||
BBB-2 | 34 | 30 | 39 | |||
BB+1 | 44 | 39 | 50 | |||
BB+2 | 58 | 50 | 67 | |||
BB1 | 78 | 67 | 90 | |||
BB2 | 102 | 90 | 116 | |||
BB-1 | 132 | 116 | 150 | |||
BB-2 | 166 | 150 | 194 | |||
B+1 | 204 | 194 | 226 | |||
B+2 | 250 | 226 | 276 | |||
B+3 | 304 | 276 | 335 | |||
B1 | 370 | 335 | 408 | |||
B2 | 450 | 408 | 490 | |||
B3 | 534 | 490 | 581 | |||
B-1 | 633 | 581 | 689 | |||
B-2 | 750 | 689 | 842 | |||
B-3 | 945 | 842 | 1,061 | |||
CCC+ | 1,191 | 1,061 | 1,336 | |||
CCC | 1,500 | 1,336 | 1,684 | |||
CCC- | 1,890 | 1,684 | 2,121 | |||
CC+ | 2,381 | 2,121 | 2,673 | |||
CC | 3,000 | 2,673 | 3,367 | |||
CC- | 3,780 | 3,367 | 4,243 |
Probability of default
BBVA has two classification tools (scorings and ratings) that allow for measuring the creditworthiness of transactions or customers, as applicable, by allocating a score. BBVA also allocates the probability of default by using BBVA’s historical databases to ascertain how this probability varies in terms of the scores allocated by these tools and their useof other potentially relevant factors (e.g. the seasoning of the transaction).
Scorings
These tools classify retail operations (consumer mortgages, credit cards, small businesses, etc.). The accompanying graphs provide a breakdown of the default rates, at one-year intervals, of some of the BBVA Group tools in day-to-day decision-making processes,Spain. As can be seen, there is a correlation between the length of time an entity has been in existence and the increased creditworthiness of a retail operation.
In addition to the scoring metric above (referred to as “reactive scoring”), BBVA analyzes classification tools used to determine the possible approval of new operations based on information that is unrelated to customer behavior (referred to as “behavioral scorings”. Behavioral scorings are the analysis tools used in the creationGroup that account for past behavior (product and customer), using a variety of databases andvariables, such as the uploadingnumber of informationdefault cycles over prior periods or the number of consecutive increases in the customer’s balance. The graph shows an example of behavioral scoring from the BBVA Group in Mexico.
Ratings
The Group has rating tools to enable expected losses, economic capital and other significant measures to be calculated,classify different customer segments. These tools do not classify operations; they classify customers.
For example, the accompanying graphs show the probabilities of default deriving from some of the Group’s rating tools, based on the scores assigned by each tool. These probabilities have been developedcalculated using internal data. For low default segments (sovereign borrowers, financial institutions and implemented in considerationlarge corporate risk), internal information is complemented by benchmarkings from external rating agencies.
The probabilities of default assigned to each score of the rating tool are business cycle-adjusted, to account for the historical rates and how the future regulatory framework, known as Basel II, that will govern financial institutions from the end of 2006 onwards.
New Regulatory Capital Proposal: Basel II
On April 29, 2003, the Basel Committee published the third and final consultative paper which includes a Proposal for a New Capital Accordeconomic cycles are expected to replace the current Accord. BBVA has taken a very active role in the long period of dialog between the Committee, the financial institutions, which will be affected by the Accord, and relevant national supervisory authorities, which will give riseevolve. This probability is then linked to the final draftBBVA Group master scale so that all the Group’s transactions have an internal rating assigned to them.
Loss Given Default
Loss given default (“LGD”) is defined as the percentage of the paper. The definitive version of the paperrisk exposure that is not expected to be publishedrecovered in the first halfevent of 2004.
default. The primary method the BBVA is aware that both from the standpoint of the overall direction pursued by Basel II, and from the approach followed in its implementation, benefits will accrue not onlyGroup uses to the banks directly affected, but also to financial systems as a whole. Pursuant to the Basel II Accord, the sensitivity of regulatory capital to economic risks will be clearly increased, banks’ knowledge of the risks they incur will improve and, in short, financial systems will be more secure, sound and efficient.
One of the aspects, however, in which the Basel II model most needs to be improved is in the recognition of the value of diversification, the benefits of which are only partially taken into account in the Committee’s proposal.
BBVA has performed several studies in an effort to find solutions for modeling diversification in the context of the Basel II model, without losing the simple structure of the current proposal and has submitted specific proposals that would include the benefits of diversification in the Basel II model.
BBVA is convinced that the New Basel Capital Accord will not only affect the capital adequacy ratios required of banks but will also have a significant impact on the way the banks operate, manage risk and assign resources. Accordingly, BBVA has, in a variety of ways, been preparing to use Basel II models in-house from the outset.
BBVA has also created the Internal Risk Control unit, which is responsible for ensuring that our risk management processes are not only effective, but also consistent with best practices in the market and BBVA’s management model. The Internal Control unit intends to implement the Basel Pillar II requirements, and has launched the Contigo Plan to review with our different business areas their main processes and identify any gaps needing improvement.
BBVA has also initiated the Risk-adjusted Return (RAR) Project, which is creating the infrastructure, default andcalculate loss given default is known as “Workout LGD”. It is based on discounting the cash flows of the defaulted exposure that have been collected at different times as a result of the recovery process. In the case of low default rate portfolios, other methods are also used, such as external sources for obtaining market references on LGD rates similar to those of the internal portfolio.
In the course of 2006, the greater depth in its historical databases required for measuring economic capital,has enabled the Group to enhance consistency in its estimations of the LGD parameter. The accompanying graph provides, as an example, the stability of the LGD estimations associated with default on credit card operations in Spain (where LGD is expressed as a percentage of what is not expected loss and RAR to be calculatedrecovered, with respect to an operation’s exposure that still remains in default). The results of such LGD estimations appear to remain stable, as illustrated when the data for BBVA as a whole. This project will enable us to meet the internal model informationprevious periods was analyzed and management requirements envisageddid not produce any substantial changes in the future Basel regulations.conclusions that were previously reached.
Global Risk ManagementAs was the case for the probability calculations, the Group’s historical databases allow it to analyze the characteristics of customers or transactions relevant for LGD assignation, and to thus determine their intrinsic characteristics (such as bimodal distribution, seasoning, etc.).
Economic capitalIn the BBVA Group, different LGD rates are allocated to outstanding receivables (defaulted or non-defaulted), according to a combination of significant factors, such as the features of each product and whether or not there is a basic elementguarantee for such receivable. In addition, these LGD rates are estimated in the calculation, on a properly risk-adjusted basis, of returns and the intrinsic value of our various businesses and operating activities, as well as for calculation of capital adequacy in economic rather than purely regulatory terms. This makes BBVA’s capital assignment process more efficient.
BBVA measures economic capital by segmentation portfolio, which means that aggregates by business unit, product type, country or risk type can be calculated.
Progress was made in the following areas in 2003order to provide BBVA with better measures of economic capital:
First, further progress was made on the RAR (Risk-adjusted Return) Project described above, and at December 31, 2003, an inventory was available with calculations from transaction level ofdetermine expected loss, economic capital and regulatory capital perunder Basel II (for allII. Some of the envisaged options)factors assessed are outlined below:
Seasoning: one of the key factors determining LGD is the period that elapses from contract arrangement to default; the higher a transaction’s seasoning, the lower its LGD.
Time elapsed in default: a further important factor in LGD estimations is the time that a transaction remains in default.
Combination of significant factors: another material analysis is how LGD evolves according to the time that elapses from contract arrangement to customer default and Risk-adjusted Returnthe time the customer is in default. The accompanying graph provides an aggregate representation of this evolution for unsecured loans, credits and receivables. Each line of the Parent Bank’s portfolios. The system is flexible enoughgraph corresponds to include any changesdifferent seasonings.
Loan/value ratio: internal studies show that may be madeLGD increases according to increase in the final versionloan to value (“LTV”) percentage. LTV is the ratio between the amount of the loan and the property value. However, this relationship does not apply to mortgages with an LTV exceeding 85%, given that in such transactions there are usually additional guarantees or guarantors. For example, the accompanying table shows LGDs for mortgages within an LTV range of 65% and 85%, and reflects the combined impact of the significant factors listed herein.
LGD for mortgage loans with LTV between 65% and 85%
Transaction seasoning (years) | ||||||||||
Up to 1 year | From 1 to 2 | From 2 to 3 | As of 3 years | |||||||
Non-defaulted | 7.3% | 5.5% | 4.0% | 2.9% | ||||||
Up to 1 year | 26.4% | 21.8% | 17.4% | 15.7% | ||||||
From 1 to 2 | 45.8% | 40.5% | 36.4% | 29.8% | ||||||
From 2 to 3 | 58.7% | 54.2% | 51.4% | 35.4% | ||||||
From 3 to 4 | 65.0% | 60.3% | 60.3% | 39.6% | ||||||
From 4 to 5 | 68.4% | 61.0% | 61.0% | 45.8% | ||||||
From 5 to 6 | 89.5% | 87.0% | 87.0% | 81.9% | ||||||
As of 6 years | 100.0% | 100.0% | 100.0% | 100.0% |
In order to comply with the requirements of the Basel II Capital Accord.
Second,Banking Supervision Committee under concerning estimation of the “downturn LGD”, the BBVA Group adjusts the LGD of all its portfolio transactions, with respect to our Latin-American subsidiaries, progress was made in 2003some differences depending on the functional design stagetransaction status (defaulted or non-defaulted). The graphs below show the suggested adjustments for defaulted and non-defaulted portfolio transactions. These graphs indicate that the higher the LGD, the lower is the proposed adjustment due to the lower level of volatility experienced by the RAR ProjectLGD when it rises.
Exposure at default
Exposure at default is another fundamental parameter required for calculating expected loss and the construction of regional infrastructure in Mexico that will facilitate the development of the Projecteconomic capital in the countries inGroup’s operations. During 2006, we undertook further studies to estimate conversion factors
required for determining exposure at default, using the same input data structure as that employed for estimating the other risk parameters. We expect these estimations, obtained with internal data, will be incorporated into the historical databases, which we operate.
Third, in 2003, ourexpect to contribute to improving internal estimations of expected loss and economic capital calculation methodology was reviewed and it was decided that economic capital will be calculated usingfor those exposure positions off the methodologies developed internally on the basis of the information available and the Basel II assumptions will only be used when they faithfully reflect the relevant risk.balance sheet.
Some of the material differences between the internal economic capital calculation methodology and the calculations in the advanced internal models in the New Accord are as follows:
BBVA’s objective in maintaining internal measures of economic capital that differ from those required by regulators is to arrive at capital measures that are as closely linked as possible to the risks involved.
Fourth, in 2003, risk-adjusted capital ratios were designed and quantified to facilitate the monitoring of BBVA’s capital level with respect to the consumption of economic capital. These ratios supplement the traditional Basel ratios.
CREDIT RISK IN 2006
The following table set forth below shows the distribution by business area of BBVA’s economic capitalGroup’s maximum exposure to credit risk stood at €495,559 million as of December 31, 2003, in attributable terms –net2006, representing an increase of minority interests.8.8% over year-end 2005. By business areas, Retail Banking in Spain and Portugal represents 35%accounted for 32.9% of economic capital, 51% of which corresponds to the Commercial Banking unit and 27% to Corporate Banking unit. Banking in America accountsexposure, Wholesale Businesses for 24% of economic capital, of which44.6%, Mexico accounts for 45%, Wholesale and Investment Banking represents 17% of economic capital, while Corporate Activities and Other, which is principally comprised of investments in industrial corporations and in financial institutions and the ALCO’s activity, accountsUnited States for the remaining 24%16.8% and South America for 5.8%.
Maximum exposure to credit risk
(Million euros)
By type of risk, as of December 31, 2003, credit risk continued to account for the largest portion (48%) of BBVA’s use of economic capital. At the same date, market risk, which includes the structural balance-sheet risk associated with variations in interest rates and exchange rates and the equities portfolio risk, accounted for 34% of total economic capital, and operational risk accounted for 12%. The remaining 6% includes real estate and the use of economic capital deriving from BBVA’s insurance operations.
Credit Risk Management
Evolution of credit risk exposure and quality
31-12-06 | 31-12-05 | 31-12-04 | |||||||||||||||
Retail Banking Spain and P. | Wholesale and Investment B. | Mexico and USA | South America | Corporate Activities | GROUP TOTAL | GROUP TOTAL | GROUP TOTAL | ||||||||||
GROSS CREDIT RISK (DRAWN) | 122,764 | 128,774 | 36,027 | 19,735 | (2,050 | ) | 305,250 | 252,275 | 198,230 | ||||||||
Loans and receivables | 119,325 | 91,877 | 35,053 | 17,685 | (972 | ) | 262,969 | 222,413 | 176,673 | ||||||||
Contingent liabilities | 3,439 | 36,896 | 975 | 2,050 | (1,079 | ) | 42,281 | 29,862 | 21,558 | ||||||||
TRADING ACTIVITY | 11,529 | 29,869 | 26,598 | 7,838 | 16,250 | 92,083 | 118,005 | 107,534 | |||||||||
Credit entities | 388 | 8,592 | 2,086 | 3,187 | 2,896 | 17,150 | 27,470 | 16,703 | |||||||||
Fixed income | 11,141 | 18,858 | 22,617 | 3,768 | 13,354 | 68,738 | 82,010 | 83,224 | |||||||||
Derivatives | — | 3,418 | 1,895 | 883 | — | 6,195 | 8,526 | 7,607 | |||||||||
THIRD-PARTY LIABILITIES | 28,605 | 62,161 | 20,752 | 1,372 | (14,664 | ) | 98,226 | 85,001 | 60,717 | ||||||||
TOTAL | 162,898 | 220,803 | 83,377 | 28,945 | (464 | ) | 495,559 | 455,282 | 366,4281 | ||||||||
As of December 31, 2003, BBVA’s overall credit risk exposure increased by 1.9% to €321 billion, compared to 2002.
Customer2006, customer lending (48%risks (61.6% of the total)total, including contingent liabilities) and credit lines drawable by third parties (16%party liabilities (accounting for 19.8%) increased by 4.7%21.0% and 8.4%15.6%, respectively, in 2003, whereas the potential exposure to credit risk in market operations (31%activities including potential exposure from derivatives (18.6% of the total) fell by 22.0%.
Risk distribution over the year has been affected by the depreciation of Latin American currencies versus the euro and contingent liabilities (5%the incorporation of Texas State Bank in the United States. Taking both factors into consideration, in addition to organic growth, the Group’s geographic distribution remained stable at the close of December 31, 2006 and 2005. At December 31, 2006 the Group’s operations in Spain (including foreign branches, basically in Europe) accounted for 79.7%, the rest of Europe accounted for 2.0% (spread almost equally between the retail
and wholesale businesses), while exposure in the United States, Mexico and South America (shown in the graph below as “The Americas”) decreased by 3.4% and 8.3%represented 18.3%, respectively.of which the vast majority (75.8%) was concentrated in investment grade countries.
The majority of BBVA’s exposure to customers was in Retail Banking Spain and Portugal, which accounted for 59% of the total exposure, compared to 53%accompanying table, as of December 31, 2002, followed by Wholesale2006, indicates the distribution of customer lending. Lending to the private domestic sector in Spain amounted to €167 billion, and Investment Banking, which accounted for 25%risks were widely spread in both 2003terms of counterparties and 2002.sectors.
Customer lending by sectors
(Million euros)
31-12-06 | 31-12-05 | 31-12-04 | ||||||||
Residents | Non-residents | TOTAL | TOTAL | TOTAL | ||||||
Public sector | 15,987 | 5,207 | 21,194 | 22,125 | 20,345 | |||||
Agriculture | 1,818 | 1,315 | 3,133 | 2,505 | 1,608 | |||||
Industry | 15,965 | 8,765 | 24,731 | 17,930 | 16,715 | |||||
Real estate and development | 33,803 | 7,698 | 41,502 | 36,562 | 25,232 | |||||
Commercial and financial | 15,231 | 23,679 | 38,910 | 36,194 | 17,703 | |||||
Loans to individual customers | 78,190 | 25,728 | 103,918 | 82,583 | 70,613 | |||||
Leasing | 6,717 | 975 | 7,692 | 6,726 | 6,431 | |||||
Others | 15,519 | 5,775 | 21,294 | 17,370 | 17,036 | |||||
SUBTOTAL | 183,231 | 79,143 | 262,374 | 221,995 | 175,593 | |||||
Interest, fees and others | 166 | 429 | 595 | 418 | 1,080 | |||||
TOTAL | 183,397 | 79,572 | 262,969 | 222,413 | 176,673 | |||||
In 2003,Exposure distribution by ratings, which comprises companies, financial entities, institutions and sovereign borrowers, indicated that 63% of the percentageexposure was concentrated on customers with an A rating or above at December 31, 2006.
If sovereign risks were excluded, 57% of total lending madecustomers held an A rating and 76% had a rating equal to or above BBB-.
The distribution by BBVA in Spain (including by our subsidiaries outside of Spain) increased by approximately 4.0% to 81.6%. The percentage of total lending in Europe in 2003 was 2.8%, while the percentageratings is also provided for business segment ratings corresponding to lending in the Latin-American countries in which we operate declined from 20.2% to 15.6%, principally due to the effects of the depreciation of several currencies in Latin America and the sale of our interest in BBV Brasil, S.A. Of this 15.6%, 11.6% was concentrated in investment-grade-rated countries (8.1% in Mexico, 2.0% in Chile and 1.5% in Puerto Rico) and, accordingly, only 4.0% of BBVA’s loans were in countries rated as below investment grade.
The BBVA’s main credit risk quality indicators improved in 2003. As of December 31, 2003, BBVA’s nonperforming loans ratio was 1.74%, compared to 2.37%parent bank as of December 31, 2002. Disregarding Argentina2006.
Expected losses
The expected loss in the non-performing portfolio, expressed in attributed terms and Brazil,adjusted to business cycle average, stood at €2,030 million as of December 2006. The corresponding graph shows the ratio would have been 1.31% (1.70%consumption of attributable expected losses by business areas as of December 31, 2002). Including contingent liabilities and excluding country-risk positions, BBVA’s nonperforming loan2006. Wholesale Businesses, with an exposure accounting for 37.3% of the total, had an expected loss to exposure ratio would have decreased to 1.37%, compared to 1.85% as of December 31, 2002.
The decreases in the foregoing measures of our nonperforming loan ratios was principally due to the reduction in the rate of loans becoming nonperforming from 2.92% to 1.62% as of December 31, 2002 and 2003, respectively. These decreases were also done to an improvement in the loan recovery rate to 27.8% of critical assets, which are comprised or our the nonperforming loan balance plus new nonperforming loans recorded during 2003 from 25.5% as of December 31, 2002.
As a result of these developments, BBVA’s nonperforming loan balance decreased by 23.1% to €2,673 million, 38.1% of which related to loans in Spain, 26.0% to Argentina and 18.3% to Mexico.
BBVA’s improvement in its nonperforming loan ratio was attributable to strong performances across all business areas.0.16%. Retail Banking in Spain and Portugal, reduced its nonperforming loanwith an exposure weight of 36.8%, showed an expected loss to exposure ratio by 12 basis pointsof 0.35%. Mexico and the United States had a weight of 20.2% and a ratio of 1.27%, while South America represented a weight of 5.7% with an expected loss to 0.88% asexposure risk of December 31, 2003, and recorded an all-time low in its new nonperforming loans ratio (0.70% of lending), Wholesale and Investment Banking saw a sharp fall in its nonperforming loan ratio to 0.66% due to the absence of significant new nonperforming loans and to strong recoveries in the doubtful portfolio, while the nonperforming loan ratio for Banking in America, which does not include our Argentinean operations, was 4.01%, after the application of stricter non-performing loan classification criteria in certain countries. In Mexico the ratio fell from 4.22% as of December 31, 2002, to 3.95% at 2003 year-end.1.64%.
The BBVA’s coverage ratio increased in 2003 to 166.3%, 19.5% higher than asprincipal portfolios of December 31, 2002. If Argentina and Brazil were excluded, the coverage ratio would have been 201.1%, compared to 191.1% as of December 31, 2002.
BBVA’s lending to private-sector domestic clientsparent company in Spain amounted to €102 billion, and the risk was spread among financing for individuals (44.0%) and companies (56.0%). Mortgage lending accounted for 31.0%have experienced consumption of the total and had a nonperforming loan ratio of 0.42% (9 basis points lower than as of December 31, 2002).
Financing of companies is distributed among various industries, including real estate (13%), manufacturing (10%), construction (8%), trade, services and repairs (7%).
Credit Risk Profile
Early measurement of credit risk, essentially expected loss and economic capital permits advance monitoringas shown in following table.
Risk statistics for the main BBVA, S.A. portfolios
Exposure (1) | Expected losses | Economic capital | ||||||||||
Million euros | Million euros | % | Million euros | % | ||||||||
Consumer loans | 7,440 | 87 | 1.17 | % | 278 | 3.74 | % | |||||
Mortgage | 60,817 | 93 | 0.15 | % | 1,096 | 1.80 | % | |||||
SMEs | 16,818 | 44 | 0.26 | % | 560 | 3.33 | % | |||||
Corporates | 47,186 | 37 | 0.08 | % | 1,189 | 2.52 | % |
(1) | Includes off-balance-sheet positions to which the corresponding conversion factors are applied. Segmentation according to tool used for rating. |
Concentration
At the close of the portfolio’s risk profile. The two basic components of these measures, which are described below, are probability of default and loss given default followed by certain expected loss indicators relating to BBVA’s various portfolios.
Probability of default. This is determined by in-house measuring tools (rating and scoring) that includeyear, the specific risk factors related to different customer segments and transaction types.
Generally, default is understood to mean a payment delay of more than 90 days measured for a one-year period, which isGroup had 104 company groups (79 in line2005) with the Basel II consultative paper.
Rating and scoring tools provide a measure of the level of risk which, by means of a statistical process known as calibration, is associated with a specific probability of default. This probability of default is then linked to a rating on a master scale, which enables BBVA’s various risk portfolios to be classified uniformly. The narrowest version of the master scale, which is shown below, classifies outstanding risks in 13 categories (the version we use covers 34 risk levels).
Applying this master scale to BBVA’s risks in Spain corresponding to credit exposure to companies, financial institutions, institutions and sovereign borrowers discloses a distribution of ratings, weighted by exposure, in which 62% of the credit risk exposure is concentrated in the A-rated or higher bracket.
Excluding sovereign risks, 49%(consisting of investment and guarantees) exceeding €200 million, which represented 19% of the Group’s overall risk (compared to 15% as of December 31, 2005). 90% of such company groups had an investment grade loan rating. At December 31, 2006, this risk was concentrated as follows: 69% in Spain, 22% from the Bank’s branches abroad, and 9% in Latin America, of which Mexico accounted for 7%. The major sectors in which the credit exposure is still rated A or abovewas concentrated at December 31, 2006 were: real estate and 72% is rated BBB- or higher.construction (27%), institutional (19%), electricity and gas (12%), consumption and services (11%) and telecommunications (10%).
Non-performing Loans
In 2003, BBVA continuedAs of December 31, 2006, the volume of NPLs was at €2,531 million, of which €40 million corresponded to make progress on developing several historical defaultnon-performing contingent liabilities. Despite strong growth in credit activities, NPLs recorded an increase of only 6.3%, which was attained without increasing transfers to write-offs and loss given default databases,the rate of which would enable very precise estimatesfell to be obtained13.9% of the probabilitycritical mass (which is composed of defaultthe existing NPL at the end of 2005 plus the NPL originated during 2006), in comparison with the 15.9% and loss given default inputs required14.2% recorded for 2005 and 2004, respectively.
The movement in non-performing loans between January 1, 2006 and December 31, 2006 for deteriorated credit risk management.
Among other risk management features, these databases assist in identifying howto the term of a loan affects the probability of default. In the retail segment –mortgagescustomer base and consumer loans– this effectnon-performing contingent liabilities is clearly shown in the graphs below, which were prepared by segmenting historical risk information relating to BBVA’s consumer and mortgage loan portfoliofollowing table.
Trend in Spain.NPL
(Million euros)
2006 | 2005 | 2004 | |||||||
BEGINNING BALANCE | 2,382 | 2,248 | 3,028 | ||||||
Entries | 2,742 | 1,943 | 1,988 | ||||||
Recoveries | (1,830 | ) | (1,531 | ) | (1,575 | ) | |||
NET ENTRY | 912 | 412 | 413 | ||||||
Transfers to write-offs | (707 | ) | (667 | ) | (713 | ) | |||
Exchange differences and others | (56 | ) | 389 | (480 | ) | ||||
FINAL BALANCE | 2,531 | 2,382 | 2,248 | ||||||
When analyzed by business areas, NPL trends in 2006 indicate that Wholesale Businesses and in South America had reduced net entries. Mexico has been affected by strong growth in its consumer loan and credit card activity, which while more profitable, were coupled with higher default rates; whereas Retail Banking in Spain and Portugal increased its NPLs due to strong risk growth recorded in all segments and especially the boost in consumer products.
NPL trend by business areas
(Million euros)
Retail Banking Spain and Portugal | Wholesale and Investment Banking | Mexico and USA | South America | |||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||
BEGINNING BALANCE | 672 | 740 | 303 | 370 | 663 | 495 | 631 | 549 | ||||||||||||||||
NET ENTRY | 277 | 76 | 57 | 4 | 512 | 292 | 59 | 32 | ||||||||||||||||
Transfers to write-offs | (129 | ) | (144 | ) | (73 | ) | (77 | ) | (406 | ) | (291 | ) | (99 | ) | (149 | ) | ||||||||
Exchange differences and others | 5 | — | (9 | ) | 6 | 20 | 167 | (65 | ) | 199 | ||||||||||||||
FINAL BALANCE | 825 | 672 | 278 | 303 | 789 | 663 | 526 | 631 | ||||||||||||||||
The two methods used for grouping the information includedGroup’s default rate dropped 11 basis points in the tables were as follows:
The tables demonstrate that loan scoring has a predictive capability regarding loan defaults since the best-scoring loans are shown to have the lowest probability of default,Texas State Bank and the lowest scoring loans had the highest probability of default. For bothstrong growth experienced in consumer loans and mortgagescredit cards, also reduced its default rate by 5 basis points, to stand at 2.19%. Wholesale Businesses, reduced its rate by 7 basis points to a historic low of 0.22%. Despite the change in investment structure, Retail Banking in Spain and Portugal nearly managed to maintain a practically stable default rate.
Provisioning for insolvency risk in the customer lending portfolio increased by 14.8%, to reach €6,905 million. Such increase was due to the growth of generic provisions produced by the strong credit activity. This increase in funds, which was spread across all the scoring groups,business areas, was key in leveraging the tables showBBVA Group coverage rate up to 272.8%, and thus enhancing its capital strength.
LIQUIDITY RISK
Liquidity risk is that which can give rise to the estimated probabilityentity not being able to meet its payment obligations or that which, in order to meet them, implies having to do so on onerous terms.
Liquidity risk measurement and control in BBVA is performed by the Risk Management area and is kept separate from liquidity risk management. Its day-to-day management comes under the Market area, whereas monitoring of default increases untilmedium-term liquidity corresponds to Financial Management, which executes the second year, when there is a changedecisions taken by the ALCO in its monthly meetings.
BBVA’s principal measures for controlling liquidity risk include the daily monitoring of trendshort term liquidity (payments and collections within the cash management activity and the probabilitymost important in the bank as a whole), comprising a time horizon from one to ninety days, and the monthly monitoring of default startsstructural liquidity, which projects the liquidity gaps for the next twelve months, in accordance with the institution’s Financial Forecast.
Measurement, both for the short and medium-term, is performed using a number of quantitative indicators, for which limits and/or alerts are set. These limits vary, covering different factors that are susceptible to decrease.
In addition,control, ranging from liquidity gaps to the tables demonstratecapacity for market access or the concentration degree such capacity exhibits. However, qualitative indicators that the loans’ score ceases to have significant predictive value regarding the probability of default of loans several years old since the probability of default shown in all the curves converge at a single average default rate.
In summary, most of BBVA’s activities subject to credit riskmay influence liquidity are assessed at the initiation of the transaction and each transaction is assigned a probability of default based on application of risk rating or scoring tools applied uniformly throughout BBVA’s operations.
Loss Given Default. Loss given default can be definedalso monitored, such as the percentageperception the market or rating agencies may have of liquidity. The limits structure is approved annually by the Executive Committee.
BBVA has developed a loan thatContingency Plan, the object of which is not recoveredto establishes actions to be taken in the event of a default on a transaction. BBVA is continually working to address loan loss given default in two areas: first to accurately estimate loss given default levelsliquidity crisis and second, to reduce loss given default levels by improving recovery levels.
As stated above, the development of new databases in 2003 resulted in considerable improvements in the accuracy of estimates of loss given default in BBVA’s loan portfolios. These databases allow information relating to loan recoverieswhich allocates responsibilities and provides measures to be analyzed usingtaken should various segmentation methods.
The following tables set forth BBVA’s first estimates for loss given default relating to mortgagestypes of scenarios arise. Liquidity analysis in crisis situations includes the performance of stress analyses, differentiating between specific BBVA and consumer loans. The information contained in these charts, as in the case of the information on loan default rates described above, was obtained from BBVA’s historical records regarding its consumer and mortgage loan portfolio in Spain.
This table shows that more than 80% of mortgages have a recovery rate in excess of 90%.
The following table shows the analysis performed on BBVA’s consumer loan portfolio in Spain. In the retail consumer loan segment the recovery rates are lower than those in the mortgage loan segment and are characterized by two extremes – a large number of defaulted consumer loans on which the recovery rate is very low and an even higher number on which the recovery rate is over 90%.system-wide crises
Expected losses. During 2003,2006, consumption of liquidity indicators has remained below the estimates of BBVA’s expected losses were adjusted in line with the new information, organizedlimits authorised by geographical and by business areas, provided by the historical risk databases.
The breakdown of the BBVA’s expected losses by geographic area, as of December 31, 2003, as a percentage of exposure, shows that banking in Spain accounts for 81% of total exposure and has an expected loss of 0.24% of that exposure, while Mexico and the rest of BBVA had expected losses of 0.68% and 0.88%, respectively.
As shown in the foregoing table, the attributable expected loss in BBVA’s main business areas by exposure — Wholesale and Investment banking which represented 38% of exposure and Retail Banking Spain and Portugal which represented 36% of exposure — was 0.06% and 0.47%, respectively. Banking in America had an expected loss of 1.03% of exposure. The following table sets forth the expected loss rates for BBVA’s main business segments in Spain.
Credit risk in market activities.
Measurement of the credit risk in OTC financial instruments to counterparties is carried out by the daily marking to market of the positions held plus an estimate of the maximum increase in the value of the security that can be expected through maturity.
The equivalent maximum credit risk exposure to counterparties was €14,669 million as of December 31, 2003, a decrease of 24.9% from 2002. This reduction in risk was principally due to the development of OTC financial instrument collateralization agreements.
BBVA continued its policy of signing legally valid netting agreements with each of the jurisdictions in which it operates, which account for a significant share of total exposure.
The net market value of the OTC financial instruments in the portfolio as of December 31, 2003 was €3,876 million, with a mean residual term of 95 months. As of the same date, the average replacement value, measured in gross terms, was €4,915 million.
The following chart shows the distribution by residual term of the equivalent maximum exposure in OTC financial instruments compared to the related data as of December 31, 2002.
The following table sets forth the counterparty risk assumed in OTC financial instrument transactions, which in 89% of the cases, is with entities with credit ratings of A- or higher.
BBVA’s exposure is concentrated with financial institutions (83%), with the remainder (17%) corresponding to corporations and customers, which we consider adequate diversification of exposure.
The foregoing table sets forth the distribution of risk by geographical area, which is concentrated in Europe (82%) and North America (16.6%), representing 98.6% of the total.
In addition, BBVA continued to measure credit risk in terms of expected loss plus economic capital for activities performed with each counterparty and/or issuer using a measurement tool specifically applicable to each transaction type for this purpose, as shown in the graph.
Market Risk Management
The possibility of using internal models for calculating capital requirements, as envisaged in Directive 98/31/EC, amending the CAD (1993 Capital Adequacy Directive) became a reality for Spanish credit institutions with the entry into force of Bank of Spain Circular 3/2003 to Credit Institutions (the “Circular”) amending Bank of Spain Circular 5/1993 on the calculation and control of minimum equity. The Circular sets forth the minimum conditions that must be met by a bank’s internal risk management models, the internal organization of the bank and regarding its internal controls such that, after these factors have been individually assessed, minimum equity requirements for the coverage of various risks can be calculated.
The Global Market Risk Management unit is responsible for the integrated management of market, exchange rate and commodity risk for BBVA. This unit, which is organically separate from and independent of the business areas, is responsible for
adapting and administering risk measurement and control tools and for ensuring that the business areas comply with applicable risk limits and policies. The unit also periodically reports to the Executive Committee the Risk Committee, our management committee and several other risk subcommittees on levels of risk, results and the degree of compliance with such limits, at an individual as well as BBVA-wide level.
In this respect, another of the basic pillars of the BBVA’s market risk management model is the limit structure, which consists of an overall value at risk (“VaR”) limit for each business unit, supplemented by a series of specific sublimits by desk, business line, and risk or product type. Proposals for the overall limits for all the business units and for certain sublimits are approved by the Executive Committee. The business units, together with the risk department, are responsible for distributing these limits by desk, business line or risk type. These VaR limits are supplemented by other limits based on non-statistical measures such as delta sensitivity, nominal exposure or stop-loss limits. In addition to this limit structure, a variety of warning signs are in place which trigger contingency plans to attempt to prevent situations that might adversely affect BBVA’s results.
The purpose of the market risk management and measurement model currently in place at BBVA is to measure both general market risk and specific risks, for which BBVA employs the VaR methodology, which aims to measure the maximum loss that can occur in the value of the portfolio as a result of fluctuations in general conditions of the financial markets, such as changes in interest rates, exchange rates and equity security prices. In addition to these three risk categories, other relevant market risks include basis risk (which arises, for example, when there are debt positions the interest rate risk on which is hedged by swap transactions, generating a risk because there is a variable spread between the interest rate curves relevant for the valuation of these positions), spread risk (associated with corporate securities or credit derivatives on corporate issuers), volatility and convexity risk (for options) and correlation risk.
The VaR model used by BBVA is the covariance matrix which has a confidence level of 99% and a time horizon of one day and has been improved to take into account convexity and other risks associated with option positions and structured derivative products. In addition, periodical supplementary settlement VaR calculations are performed for certain business units, which include adjustments to factor in the specific liquidity of the position, taking into account the liquidity conditions in the financial markets at any given time.
BBVA is also implementing a new risk measurement platform which, in addition to having the advantage of enabling market risk to be integrated with credit risk and thereby providing an overall view of existing risk, makes it possible to calculate market risk using the covariance matrix, the historical simulation and the Monte Carlo simulation methodologies.
The accompanying table shows the distribution of the changes in the value of our portfolio of long-term interest rate options in a set of scenarios generated by the Monte Carlo analysis. The histogram shows the frequency of the various changes in value in the simulation. The 1% percentile of the distribution shows the VaR figure with a one-day time horizon for a confidence level of 99%.
Similarly, the distribution of variations in the value of our long-term interest rate options portfolio in a historical simulation is shown in the table below.
The market risk measurement model includes a back-testing or ex-post contrast program, which to a certain extent guarantees the suitability of the risk measures that are performed. Comparisons are made of the levels of ex-ante risk provided by the model with the ex-post results obtained by our various business units each day to validate the VaR measurement system.
Stress-testing is an essential supplementary tool for market risk management, especially after the recent crises in Argentina and Brazil and the upheaval in the financial markets after the events of September 11, 2001. Accordingly, in order to strengthen risk management and control, BBVA periodically calculates the exposure to losses of each business unit in response to events beyond the predetermined confidence interval for the daily measurement of market risk. This enables senior management to evaluate the level of exposure to losses under these potential scenarios, and to design, on the basis of that exposure, the contingency plans that must be implemented immediately if an unusual situation similar to those examined should arise.
Market risk in 2003. In 2003, the behavior of the markets was marked by recovery, especially so in the case of the emerging markets. Thus, in Latin America the stock markets appreciated considerably, while spreads on sovereign debt in several countries in the region recorded all-time lows during the year. The evolution of market risk in BBVA’s securities markets business lines in 2003 was characterized by a low risk profile in the first few months of the year as a result of a conservative management approach taken due to increasing international uncertainty regarding Iraq, and a gradual increase in risk from May onwards, with a higher level of exposure maintained in the second half of the year, as a result of the expectations of a recovery in the principal world economies.
In 2003, the average risk in BBVA’s business areas that take on market risk, in VaR terms, was €21,985 thousand, with a maximum and minimum of €28,587 thousand and €14,138 thousand, respectively, and a median of €22,766 thousand. The maximum levels were recorded in July, coinciding with a period of increased volatility in the Mexican market. Compared to 2002, there was a reduction both in the average level of risk and, in particular, in the dispersion of risk, as a result of active risk management. Considering a time horizon of ten days, as recommended by the Basel Committee, the estimated average loss in 2003 with a confidence level of 99% was €69,524 thousand.
BBVA’s most significant market risk is interest rate risk (76% of the total as of December 31, 2003), which includes both systemic risk and the specific risk tied to the spreads that are applied to the market curve for corporate issuers based on their credit-worthiness. Significantly less important risks for BBVA are vega risk and correlation risk tied to options and structured derivative products, which represent 8% and 7% of the total, respectively, and stock market and currency risk, which account for 4% each. It should be noted that currency risk relates to the operating exchange positions of BBVA’s business areas that take on market risk.
With regard to the distribution of the BBVA’s risk by geographical area, most of BBVA’s total market risk relates to banking in Europe and the U.S. (principally investment banking), while BBVA’s Latin-American banks in the aggregate represent 39.7% of the total risk in average annual terms, of which 28.7% is concentrated in Mexico.
The following table sets forth the average use of limits and shows the percentage of use by several of BBVA’s main business units. The average use of the limits authorized by the Standing Committee for 2003 was 41%.
The following table sets forth the back-testing carried out for BBVA’s aggregate risk in 2003, which consisted of comparing, for each day, the results of the revaluation of our positions with the risk estimated by the model, and demonstrates the accuracy of the management risk model used by BBVA. The same conclusion was reached from comparisons performed for other representative risk levels lower than BBVA’s aggregate risk.
Structural Interest Risk
Structural interest risk is defined as a company’s exposure to variations in market interest rates arising from mismatches in the maturity and repricing dates (depending on whether the related instruments are tied to a fixed or floating rate, respectively) of the company’s assets and liabilities, including derivatives.
The Basel Committee on Banking Supervision, in the consultative paper “Principles for the Management and Supervision of Interest Rate Risk”, set forth the basic principles for the management, measurement and monitoring of structural interest risk with which banks are required to comply.
BBVA includes these recommendations in its structural interest risk control and management procedures. Accordingly, our organizational structure was defined to establish a separate assignment of functions and responsibilities, maintaining at all times the interest rate risk control and management.times.
The Executive Committee is responsible for approving strategies and policies relating to the management and control of structural interest risk. This committee has delegated responsibility for monitoring this risk to the Risk Committee.
The Asset-Liability Committee (ALCO), is responsible for actively managing BBVA’s balance sheet in order to stabilize net interest income without prejudicing equity. The ALCO for BBVA in Spain coordinates its work with the ALCOs of BBVA’s subsidiaries through a corporate strategy committee. The ALCOs meet at least once a month.
The risk unit of the Corporate Activities and Other business area is responsible for controlling and monitoring structural interest rate risk. This unit periodically measures this risk from two perspectives: first, from the net interest income standpoint and, second, from that of the economic value. In the former case, net interest income is projected for the next 12 months. In the case of the analysis of economic value, a discounted current value is calculated of expected future flows in the balance sheet. The impacts of fluctuations in interest rates on both measures are calculated by using both parallel displacements in interest rate curves and shocks that take into account changes of slope and curvature. Several interest rate curve simulation methodologies have been developed to determine these changes of slope and curvature and these methodologies are used to calculate expected losses in net interest income and in economic value with a confidence level of 99%.
BBVA has established limits and procedures to ensure that exposure to structural interest rate risk remains within levels consistent with internal policies. The limits structure is revised and updated every year so that it is in line with market conditions and BBVA’s business structure. The accompanying table sets forth the average use of BBVA’s limits for 2003.
The following gap table sets forth, as of December 31, 2003, the distribution of maturities or repricing dates (depending on whether the relevant instrument is tied to a fixed or a floating rate, respectively) of the sensitive asset and liability aggregates in the balance sheet in euro, grouped by market type.
Aggregating these volumes determines the on-balance-sheet gap which, together with the off-balance-sheet gap, comprise BBVA’s total balance sheet gap in euro. The maturity or repricing matrices of the other currencies that are significant for BBVA are calculated in a similar way.
The following table sets forth a comparison of levels of risk among BBVA’s main financial institutions, the diversification of which reduces the risk for BBVA as a whole.
Liquidity Risk
Liquidity risk relates to the potential difficulty of resorting to the financial markets in order to meet payment obligations.
The Basel Committee, in the consultative paper “Sound Practices for Managing Liquidity in Banking Organizations”, enumerates a series of basic principles for the monitoring and control of liquidity risk, aimed at increasing awareness on the part of banks of the importance of the proper management of this risk.
BBVA’s Standing Committee is the body responsible for approving strategies and policies relating to the management of liquidity at corporate level, without prejudice to the fact that each of the main Group entities independently manages its own liquidity requirements.
Each entity’s Asset-Liability Committee (ALCO) is responsible for ensuring, at medium-term, that the entity has the required resources to carry on the business. Also, corporate monitoring is performed in respect of the liquidity position of each of the entities composing the Group, and of their projected medium-term liquidity profiles. The so-called Liquidity and Emergency Committees exist to act in the event of anticipated or actual liquidity crises.
Each major Group entity has established a liquidity contingency plan which details the actions and procedures to be followed in the event of an emergency, together with the responsibilities of each of the areas involved in the liquidity risk management and control process.
Liquidity monitoring is performed from two standpoints. On the one hand, a map is prepared daily analyzing the projected collection and payment flows for the next few days, as well as the assets available to meet existing payment commitments. In parallel, every month, liquidity profiles are calculated by business structure and financing type (gap of markets, credit, wholesale financing, equity, rediscountable assets and other), and expected future cash flows are projected for a time horizon of 12 months.
BBVA establishes quantitative and qualitative limits and warning signals that enable it to anticipate possible financing tensions. There is also a policy of diversification of sources of financing: wholesale, equity and the interbank market.
In order to avoid situations of tension and to guarantee BBVA’s liquidity, each entity defines various hypothetical systemic and specific crisis scenarios, and analyzes the various financing needs and alternatives. These scenarios address market factors, assumptions about renewal of financing at maturity, gradual withdrawals of funds, sudden withdrawals of funds, nonrenewal, etc.
Structural Exchange Rate Risk
An entity’s structural exchange rate risk refers to the potential losses in the value of structural positions arising from variations in exchange rates.
BBVA’s exposure to structural exchange rate risk arises mainly from the investments in other entities, insofar as these assets are denominated in currencies other than those in which they are financed.
The Asset and Liability Committee (ALCO) is the body responsible for actively managing structural exchange rate risk based on future exchange rate expectations. The committee meets every month and evaluates hedging decisions to mitigate the adverse impact of possible fluctuations in exchange rates.
The Risk area periodically measures structural exchange rate risk using a statistical simulation model that includes certain exchange rate crisis scenarios to which certain estimated probabilities of occurrence are assigned. Another factor in the model is the projection at one year of the exchange rates of the currencies involved. Every month the total risk is calculated in annual VaR terms with a confidence interval of 99%.
74% of the total exchange risk is concentrated in the Mexican peso, the Venezuelan bolivar and the Brazilian real. Several hedging transactions were arranged during the year to reduce the exposure to losses, thus considerably mitigating the impact of possible depreciations. Due mainly to the hedges arranged, the open structural position was reduced, compared with 2002.
Operational risk
Internally operational risk is defined as that which is neither credit nor market risk. This definition embraces that proposed by the Basel Committee on Banking Supervision (risk which can give rise to losses as a result of human error, inadequate or defective internal processes, systems failures or external causes), in addition to other risks such as strategic or business risk and regulatory risk. The last of these risks would impact BBVA in the event of regulatory changes affecting the income statement or its ability to generate business.
In 2003, BBVA continued to deploy the three basic tools created in-house (Ev-Ro, TransVaR and SIRO), as the main vehicles for identifying, measuring, evaluating and controlling risks of this kind. BBVA considers that proper management of operational risk fosters the creation of value for the shareholders. On the one hand, it improves the income statement by mitigating the risks that give rise to losses or loss of profits and, on the other, it makes it possible to reduce the regulatory capital to the minimum level possible under the new Basel regulations.
Operational risk is managed in two ways at BBVA:
The combination of the quantitative (ex post) and qualitative (ex ante) approaches is present in the tools used by BBVA:
ORX (Operational Risk Exchange)
In order to complete BBVA’s database and, accordingly, to have more information to model risk with, in 2002 BBVA decided to become a founding member of the ORX International Consortium, in which 12 leading banks initially participated. Four information exchanges took place in 2003, with retroactive effect from January 1, 2002. Therefore, at 2003 year-end ORX had two years of operational risk events with more than 6,000 events recorded and classified according to the Basel criteria.
The management model
Operational risk management is incumbent on all business and support areas. Therefore, the corporate tools have been designed to be used in those units as sources of risk information, events and causes, constituting the basis of the mitigation processes.
Each business or support unit where the tools are implemented creates an Operational Risk Manager (generally located in the unit’s own risk or internal control area) and an Operational Risk Committee, which meets periodically to analyze the available information and to determine the most appropriate mitigation plans.
BBVA distinguishes between the following types of operational risk in its tools:
Current situation
BBVA is making good progress in the implementation of the Ev-Ro and/or TransVaR tools. In Spain implementation has been completed in just over 70% of all areas, including the following units: Treasury, Corporate Banking, Capital Markets, Securities Company, Media, Systems, Altura Markets, Uno-e, Finanzia, Depository and Custody Services, Private Banking and Asset Management. In Latin America, the level of implementation currently exceeds 50% in the business and support areas.
In January 2002 and in July 2002, SIRO (the event database) was effectively implemented in Spain and in Latin America, respectively. 2003 saw the development of procedures to enhance the efficiency of the data capture processes.
Reputation risk
Reputation risk involves exposure to earnings uncertainty as a result of events that may negatively influence the perception that stakeholders (interest groups) have of BBVA. Most reputation risk events are caused by factors characteristic of other kinds of risk, such as business or operational risk.
Aware of the importance of reputation risk, and since it is largely endogenous in nature, i.e. it can be managed, BBVA takes it into account in the decision-making process.
In order to facilitate the management of reputation risk, work on the implementation of a new tool called RepTool commenced in Spain at the end of 2003. RepTool is a methodology for the identification and assessment of reputation risk factors, which it relates to the internal causes that may give rise to this risk. As is customary in processes of this kind, assessment is performed on the basis of impact and probability of occurrence. The risk factors detected are classified by order of importance using scales of seriousness, which determine the type of action that must be taken.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
Applicable.
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Not Applicable.
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Not applicable.Applicable.
ITEM 15. | CONTROLS AND PROCEDURES |
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSConclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
As of December 31, 2003,2006, BBVA, under the supervision and with the participation of BBVA’s management, including our chairmanChairman and chief executive officer, presidentChief Executive Officer, President and chief operating officerChief Operating Officer and head of the office of the chairman, whose responsibilities include accountancy, internal audit and compliance,Chief Accounting Officer, performed an evaluation of the effectiveness of BBVA’sthe design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(f) under the Exchange Act). There are, as described below, inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. BBVA’s management necessarily applied its judgment in assessing the costs and benefits of suchAccordingly, even effective disclosure controls and procedures which by their nature can provide only reasonable assurance regarding management’sof achieving their control objectives.
Based on thissuch evaluation, BBVA’s chairmanChairman and chief executive officer, presidentChief Executive Officer, President and chief operating officerChief Operating Officer and head of the office of the chairmanChief Accounting Officer concluded that BBVA’s disclosure controls and procedures arewere effective at the reasonable assurance level for gathering, analyzing and disclosing the information BBVA is required to disclose in the reports it files under the Securities Exchange Act, of 1934, within the time periods specified in the SEC’s rules and forms.
Management’s Report on Internal Control Over Financial Reporting
The management of BBVA is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15 (f) under the Exchange Act. BBVA’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of BBVA;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of BBVA’s management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of BBVA’s management, including our Chairman and Chief Executive Officer, President and Chief Operating Officer and Chief Accounting Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our management concluded that, as of December 31, 2006, our internal control over financial reporting was effective based on those criteria.
Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by Deloitte S.L., an independent registered public accounting firm, as stated in their report which follows below.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Banco Bilbao Vizcaya Argentaria, S.A.:
We have audited management’s assessment, included in the accompanyingManagement’s Annual Report on Internal Control over Financial Reporting, that BANCO BILBAO VIZCAYA ARGENTARIA, S.A. (the “Company”) and subsidiaries composing the BANCO BILBAO VIZCAYA ARGENTARIA Group (the “Group” — Note 4) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Group’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Group maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2006, 2005 and 2004 of the Group and the related consolidated statements of income, changes in equity (recognized income and expense), and cash flows for the years then ended, and our report dated March 30, 2007, expressed an unqualified opinion on those Consolidated Financial Statements and included an explanatory paragraph stating that the EU-IFRS vary in certain significant respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”), that the information relating to the nature and effect of such differences is presented in Note 62 to the Consolidated Financial Statements of the Group and that such Note explains that the Group under U.S. GAAP changed its method of recognition of actuarial gains and losses regarding defined benefit plans from deferral method to immediate recognition in 2005.
DELOITTE, S.L.
Madrid – Spain
March 30, 2007
Changes in Internal Control Over Financial Reporting
There has been no change in BBVA’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this annual reportAnnual Report that has materially affected, or is reasonably likely to materially affect, BBVA’s internal control over financial reporting.
ITEM 16. [RESERVED] |
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
We have not determined whether any particular member of our Audit and Compliance Committee is a “financial expert” and, therefore, have not named any particular member of such Committee as our “Audit Committee Financial Expert” in accordance with SEC rules and regulations. The charter for our Audit and Compliance Committee which was approved by our Board of Directors, however, provides that the Chairman of the Audit and Compliance Committee is required to have experience in financial matters as well as knowledge of the accounting standards and principles required by BBVA’s regulators. In addition, we believe that the remaining members of the Audit and Compliance Committee have an understanding of applicable generally accepted accounting principles, in Spain, experience analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our Consolidated Financial Statements, an understanding of internal controls over financial reporting, and an understanding of audit committee functions. Our Audit and Compliance Committee has experience overseeing and assessing the performance of BBVA and its consolidated subsidiaries and our external auditors with respect to the preparation, auditing and evaluation of our consolidated financial statements.
Consolidated Financial Statements.
BBVA’s Code of Ethics and Conduct applies to its chief executive officer, chief financial officer and chief accounting officer. This code establishes the principles that guide these officers’ respective actions: ethical conduct, professional standards and confidentiality. It also establishes the limitations and defines the conflicts of interest arising from their status as senior executives. We have not waived compliance with, nor made any amendment to, the Code of Ethics and Conduct. BBVA’s Code of Ethics and Conduct can be found on its website at www.bbva.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table provides information on the aggregate fees billed by our principal accountants, Deloitte, & Touche España, S.L., by type of service rendered for the periods indicated.
Year ended December 31, | ||||||||||||
Services Rendered | 2003 | 2002 | Total | 2006 | 2005 | 2004 | ||||||
(thousands of euro) | (thousands of euros) | |||||||||||
Audit Fees (1) | 3,971 | 2,691 | 6,662 | 4,216 | 3,459 | 3,756 | ||||||
Audit-Related Fees (2) | 161 | 748 | 909 | 5,163 | 1,205 | 1,932 | ||||||
Tax Fees (3) | — | — | — | 234 | — | — | ||||||
All Other Fees (4) | 561 | 411 | 972 | 805 | 1,197 | 348 | ||||||
Total | 4,693 | 3,850 | 8,543 | 10,418 | 5,861 | 6,036 |
(1) | Aggregate fees billed for each of the last |
(2) | Aggregate fees billed in each of the last |
(3) | Aggregate fees billed in each of the last |
(4) | Aggregate fees billed in each of the last |
The Audit Andand Compliance Committee’s Pre-Approval Policies Andand Procedures
In order to assist in ensuring the independence of our external auditor, the charter of our Audit and Compliance Committee provides that our external auditor is generally prohibited from providing us with non-audit services, other than under the specific circumstance described below. For this reason, our Audit and Compliance Committee has developed a pre-approval policy regarding the contracting of BBVA’s external auditor, or any affiliate of the external auditor, for professional services. The professional services covered by such policy include audit and non-audit services provided to BBVA or any of its subsidiaries reflected in agreements dated on or after May 6, 2003.
The pre-approval policy is as follows:
1. | The hiring of BBVA’s external auditor or any of its |
2. | In the event that there is no other firm available to provide needed services at a comparable cost and delivering a similar level of quality, the external auditor (or any of its affiliates) may be hired to perform such services, but only with the pre-approval of the Audit and Compliance Committee. |
3. | The Chairman of the Audit and Compliance Committee has been delegated the authority to approve the hiring of BBVA’s external auditor (or any of its affiliates). In such an event, however, the Chairman would be required to inform the Audit and Compliance Committee of such decision at the Committee’s next meeting. |
4. | The hiring of the external auditor for any of BBVA’s subsidiaries must also be pre-approved by the Audit and Compliance Committee. |
5. | Agreements entered into prior to May 6, 2003 between BBVA or any of its subsidiaries and any of their respective external auditors, required the approval of the Audit and Compliance Committee in the event that services provided under such agreements continued after May 6, 2004. |
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONSPURCHASERS
Period of Fiscal Year | (a) Total Number of Ordinary Shares Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||
January 1 to January 31 | 21,561,320 | 15.43 | — | — | ||||
February 1 to February 28 | 31,776,781 | 16.42 | — | — | ||||
March 1 to March 31 | 26,166,736 | 16.91 | — | — | ||||
April 1 to April 30 | 46,850,011 | 16.99 | — | — | ||||
May 1 to May 31 | 37,404,087 | 16.54 | — | — | ||||
June 1 to June 30 | 42,044,668 | 15.47 | — | — | ||||
July 1 to July 31 | 28,954,627 | 16.35 | — | — | ||||
August 1 to August 31 | 16,337,806 | 17.36 | — | — | ||||
September 1 to September 30 | 14,230,660 | 17.96 | — | — | ||||
October 1 to October 31 | 26,093,614 | 18.48 | — | — | ||||
November 1 to November 30 | 15,235,362 | 18.58 | �� | — | ||||
December 1 to December 31 | 31,361,408 | 18.24 | — | — | ||||
Total | 338,017,080 | — | — |
Not yet applicable.
During 2006, we sold a total of 337,319,748 shares for an average price of €16.77 per share.
ITEM 17. | FINANCIAL STATEMENTS |
We have responded to Item 18 in lieu of this item.
ITEM 18. | FINANCIAL STATEMENTS |
Reference is made to Item 19 for a list of all financial statements filed as a part of this Annual Report.
ITEM 19. | EXHIBITS |
(a) Index to Financial Statements
Page | ||
Report of Independent Registered Public | ||
| F-3 | |
Consolidated | F-4 | |
Consolidated Income Statements for the Years Ended December 31, | ||
Statements of Changes in Consolidated Equity for the Years Ended December 31, 2006, 2005 and 2004 | F-10 | |
Consolidated Cash Flow Statements for the Years Ended December 31, 2006, 2005 and 2004 | F-11 | |
Notes to the Consolidated Financial Statements | ||
Appendices to the Consolidated Financial Statements |
(b) Index to Exhibits:
Exhibit Number | Description | |
1.1 | Extracts of Amended and Restated Bylaws (Estatutos) of the Registrant. | |
4.1 | Plan of Merger between Banco Bilbao Vizcaya, S.A. and Argentaria, Caja Postal y Banco Hipotecario, S.A.* | |
4.2 | Master Agreement of Strategic Alliance between Telefónica and BBVA, together with an English translation.** | |
4.3 | Transaction Agreement by and between Banco Bilbao Vizcaya Argentaria, S.A. and Compass Bancshares, Inc. dated as of February 16, 2007. | |
8.1 | Consolidated Companies Composing Registrant. | |
12.1 | Section 302 Chairman and Chief Executive Officer Certification. | |
12.2 | Section 302 President and Chief Operating Officer Certification. | |
12.3 | Section 302 | |
13.1 | Section 906 Certification. |
* | Incorporated by reference to BBVA’s Registration Statement on Form F-4 (File No. 333-11090) filed with the Securities and Exchange Commission on November 4, 1999. |
** | Incorporated by reference to BBVA’s 1999 Annual Report on Form 20-F. |
We will furnish to the Commission, upon request, copies of any unfiled instruments that define the rights of holders of our long-term debt.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and had duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. | ||||
By: | / | |||
Name: | ||||
Title: | ||||
Date: JuneMarch 30, 20042007
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 2006
INDEPENDENT AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Banco Bilbao Vizcaya Argentaria, S.A.:
We have audited the accompanying consolidated balance sheets of BANCO BILBAO VIZCAYA ARGENTARIA, S.A. (the “Company”) and COMPANIES (“The Banco Bilbao Vizcaya Group” or “BBVA”) (see subsidiaries composing the BANCO BILBAO VIZCAYA ARGENTARIA Group (the “Group”—Note 4) as of December 31, 2003, 20022006, 2005 and 2001,2004, and the related consolidated statements of income, changes in equity (recognized income and expense), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the controlling Company’s Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementsstatement presentation. We believe that our audits provide a reasonable basis for our opinion.
As indicated in Note 2-h and 24, in 2003, 2002 and 2001 the Group charged to reserves the estimated cost of indemnities, deferred compensations and future pensions deriving from the early retirements of certain employees who effectively formally took early retirements in that year, amounting to €519 million, €324 and €479 million, net of the related tax effect, for which purpose express authorization was obtained from the Bank of Spain, in accordance with Bank of Spain Circular 4/91, and from the respective Shareholders´ Meetings.
The consolidated financial statements referred to above are based on the Spanish financial statements of the Banco Bilbao Vizcaya Argentaria Group, prepared in accordance with accounting principles generally accepted in Spain (“Spanish GAAP”) by the controlling Company’s Directors. The accompanying consolidated financial statements as of December 31, 2001 reflect an adjustment which has the effect of decreasing net income and increasing retained earnings as reported in the Spanish GAAP consolidated financial statements for the year ended December 31, 2001, by approximately € 520 million, respectively. The mentioned adjustment reverses the early amortization of goodwill recognized in prior years and considers the effect of the amortization over a period of five years which is the minimum amortization period of goodwill permitted under Spanish GAAP (see notes 2.a) and 32.2.B.5).
In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects,respects, the financial position of Banco Bilbao Vizcaya Argentaria,BANCO BILBAO VIZCAYA ARGENTARIA, S.A. and Companiessubsidiaries composing the Banco Bilbao Vizcaya ArgentariaBANCO BILBAO VIZCAYA ARGENTARIA Group as of December 31, 2003, 20022006, 2005 and 2001, and2004, the results of their operations and the funds obtained and applied by themtheir cash flows for the years then ended, in conformity with accounting principles generally accepted in Spain.International Financial Reporting Standards adopted by the European Union (EU-IFRS).
Accounting principles generally accepted in SpainInternational Financial Reporting Standards adopted by European Union vary in certain significant respects from accounting principles generally accepted in the United States of America. The applicationAmerica (U.S. GAAP). Information relating to the nature and effect of such differences is presented in Note 62 to the consolidated financial statements. Such Note explains that the Group under U.S. GAAP changed its method of recognition of actuarial gains and losses regarding defined benefit plans from deferral method to immediate recognition in 2005.
We have also audited, in accordance with the standards of the latter would have affectedPublic Company Accounting Oversight Board (United States), the determination of net income for eacheffectiveness of the three years in the period ended December 31, 2003, 2002 and 2001and the determination of stockholders’ equity andGroup’s internal control over financial positionreporting as of December 31, 2003, 20022006, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and 2001, toour report dated March 30, 2007 expressed an unqualified opinion on management’s assessment of the extent summarized in Note 32.
/s/ DELOITTE & TOUCHE ESPAÑA, S.L.effectiveness of the Group’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.
Deloitte & Touche España,DELOITTE, S.L.
Madrid – Spain February 3, 2004, except for the Note 32 as to which the date is June 29, 2004
March 30, 2007
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING
THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003, 20022006, 2005 AND 2001 (Notes2004
(Notes 1 to 5)9)
ASSETS CASH AND BALANCES WITH CENTRAL BANKS (Note 10) FINANCIAL ASSETS HELD FOR TRADING (Note 11) Loans and advances to credit institutions Money market operations through counterparties Loans and advances to other debtors Debt securities Other equity instruments Trading derivatives OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Note 12) Loans and advances to credit institutions Money market operations through counterparties Loans and advances to other debtors Debt securities Other equity instruments AVAILABLE-FOR-SALE FINANCIAL ASSETS (Note 13) Debt securities Other equity instruments LOANS AND RECEIVABLES (Note 14) Loans and advances to credit institutions Money market operations through counterparties Loans and advances to other debtors Debt securities Other equity instruments HELD-TO-MATURITY INVESTMENTS (Note 15) CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN THE PORTFOLIO HEDGES OF INTEREST RATE RISK HEDGING DERIVATIVES (Note 16) NON-CURRENT ASSETS HELD FOR SALE (Note 17) Loans and advances to credit institutions Loans and advances to other debtors Debt securities Equity instruments Tangible assets Other assets INVESTMENTS (Note 18) Associates Jointly controlled entities INSURANCE CONTRACTS LINKED TO PENSIONS REINSURANCE ASSETS (Note 19) TANGIBLE ASSETS (Note 20) Property, plants and equipment Investment properties Other assets leased out under an operating lease- Thousands of Euros - Thousands of Euros 2006 2005 2004 12,515,122 12,341,317 10,123,090 51,835,109 44,011,781 47,036,060 — — — — — — — �� — 30,470,542 24,503,507 30,396,579 9,948,705 6,245,534 5,690,885 11,415,862 13,262,740 10,948,596 977,114 1,421,253 1,059,490 — — — — — — — — — 55,542 282,916 58,771 921,572 1,138,337 1,000,719 42,266,774 60,033,988 53,003,545 32,229,459 50,971,978 45,037,228 10,037,315 9,062,010 7,966,317 279,855,259 249,396,647 196,892,203 17,049,692 27,470,224 16,702,957 100,052 — 241,999 256,565,376 216,850,480 172,083,072 77,334 2,291,889 5,497,509 6,062,805 2,784,054 2,366,666 5,905,636 3,959,265 2,221,502 — — — 1,963,320 3,912,696 4,273,450 186,062 231,260 159,155 — — — — — — — — — — — — 186,062 231,260 159,155 — — — 888,936 1,472,955 1,399,140 206,259 945,858 910,096 682,677 527,097 489,044 — — — 31,986 235,178 80,268 4,527,006 4,383,389 3,939,636 3,816,309 3,840,520 3,337,728 61,082 76,742 162,649 649,615 466,127 439,259
2003 | 2002 | 2001 | ||||
ASSETS | ||||||
CASH ON HAND AND DEPOSITS AT CENTRAL BANKS: | ||||||
Cash | 1,767,580 | 1,868,358 | 2,402,894 | |||
Bank of Spain | 1,821,301 | 1,081,684 | 1,828,490 | |||
Other central banks | 4,520,994 | 5,100,286 | 5,008,840 | |||
8,109,875 | 8,050,328 | 9,240,224 | ||||
GOVERNMENT DEBT SECURITIES (Note 6) | 18,945,003 | 19,767,776 | 20,165,369 | |||
DUE FROM CREDIT INSTITUTIONS (Note 7): | ||||||
Current accounts | 643,987 | 1,328,749 | 2,629,808 | |||
Other | 20,263,142 | 20,147,530 | 20,568,948 | |||
20,907,129 | 21,476,279 | 23,198,756 | ||||
TOTAL NET LENDING (Note 8) | 148,827,274 | 141,315,012 | 150,219,820 | |||
DEBENTURES AND OTHER DEBT SECURITIES (Note 9) | 52,935,966 | 49,133,179 | 61,650,938 | |||
COMMON STOCKS AND OTHER EQUITY SECURITIES (Note 10) | 3,092,064 | 3,007,492 | 3,673,699 | |||
INVESTMENTS IN NON-GROUP COMPANIES (Note 11) | 5,593,224 | 6,024,175 | 6,641,935 | |||
INVESTMENTS IN GROUP COMPANIES (Note 12) | 1,054,869 | 1,039,688 | 1,114,144 | |||
INTANGIBLE ASSETS (Note 14): | ||||||
Incorporation and start-up expenses | 19,537 | 20,946 | 18,770 | |||
Other deferred charges | 342,491 | 377,691 | 523,313 | |||
362,028 | 398,637 | 542,083 | ||||
CONSOLIDATION GOODWILL (Note 13): | ||||||
Fully and proportionally consolidated companies | 2,650,889 | 2,871,545 | 3,044,907 | |||
Companies accounted for by the equity method | 1,055,524 | 1,385,801 | 1,572,235 | |||
3,706,413 | 4,257,346 | 4,617,142 | ||||
PROPERTY AND EQUIPMENT (Note 14): | ||||||
Land and buildings for own use | 2,100,359 | 1,938,287 | 2,530,935 | |||
Other property | 309,607 | 908,073 | 1,424,146 | |||
Furniture, fixtures and other | 1,380,272 | 1,787,605 | 2,216,809 | |||
3,790,238 | 4,633,965 | 6,171,890 | ||||
CAPITAL STOCK SUBSCRIBED BUT NOT PAID (Note 23) | — | — | — | |||
TREASURY STOCK (Note 23) | 66,059 | 97,671 | 75,944 | |||
OTHER ASSETS (Note 15) | 13,171,480 | 12,298,880 | 12,000,115 | |||
ACCRUAL ACCOUNTS (Note 16) | 2,977,437 | 4,391,562 | 7,049,067 | |||
ACCUMULATED LOSSES AT CONSOLIDATED COMPANIES (Note 24) | 3,610,764 | 3,650,208 | 2,700,955 | |||
TOTAL ASSETS | 287,149,823 | 279,542,198 | 309,062,081 | |||
MEMORANDUM ACCOUNTS (Note 26) | 72,549,918 | 69,776,213 | 71,764,775 | |||
- Thousands of Euros -
2003 | 2002 | 2001 | ||||
LIABILITIES AND EQUITY | ||||||
DUE TO CREDIT INSTITUTIONS (Note 17): | ||||||
Current accounts | 1,542,432 | 1,537,357 | 1,412,818 | |||
Other | 60,027,356 | 54,581,691 | 63,175,177 | |||
61,569,788 | 56,119,048 | 64,587,995 | ||||
DEPOSITS (Note 18): | ||||||
Savings accounts- | ||||||
Current | 65,024,971 | 63,723,745 | 71,012,969 | |||
Time | 55,487,784 | 57,436,352 | 67,512,171 | |||
Other deposits- | ||||||
Current | — | — | — | |||
Time | 20,536,152 | 25,400,268 | 27,974,294 | |||
141,048,907 | 146,560,365 | 166,499,434 | ||||
MARKETABLE DEBT SECURITIES (Note 19): | ||||||
Bonds and debentures outstanding | 28,258,973 | 22,393,876 | 20,639,098 | |||
Promissory notes and other securities | 6,123,679 | 5,129,396 | 4,736,576 | |||
34,382,652 | 27,523,272 | 25,375,674 | ||||
OTHER LIABILITIES (Note 15) | 10,764,514 | 9,735,905 | 9,142,645 | |||
ACCRUAL ACCOUNTS (Note 16) | 3,318,727 | 4,593,777 | 6,665,074 | |||
PROVISIONS FOR CONTINGENCIES AND EXPENSES (Note 20): | ||||||
Pension provision | 3,031,913 | 2,621,907 | 2,358,552 | |||
Provision for taxes | — | — | — | |||
Other provisions | 2,187,672 | 2,221,411 | 2,425,588 | |||
5,219,585 | 4,843,318 | 4,784,140 | ||||
GENERAL RISK ALLOWANCE | — | — | — | |||
NEGATIVE CONSOLIDATION DIFFERENCE (Note 13) | 38,712 | 47,554 | 42,744 | |||
CONSOLIDATED INCOME FOR THE YEAR: | ||||||
Group | 2,226,701 | 1,719,129 | 1,843,070 | |||
Minority interests (Note 22) | 670,463 | 746,919 | 645,223 | |||
2,897,164 | 2,466,048 | 2,488,293 | ||||
SUBORDINATED DEBT (Note 21) | 7,399,613 | 6,486,942 | 7,610,791 | |||
MINORITY INTERESTS (Note 22) | 5,425,918 | 5,674,163 | 6,394,029 | |||
CAPITAL STOCK (Note 23) | 1,565,968 | 1,565,968 | 1,565,968 | |||
ADDITIONAL PAID-IN CAPITAL (Note 24) | 6,273,901 | 6,512,797 | 6,834,941 | |||
RETAINED EARNINGS (Note 24) | 971,477 | 771,484 | 1,419,218 | |||
REVALUATION RESERVES (Note 24) | 176,281 | 176,281 | 176,281 | |||
RESERVES AT CONSOLIDATED COMPANIES (Note 24) | 6,096,616 | 6,465,276 | 5,474,854 | |||
TOTAL LIABILITIES AND EQUITY | 287,149,823 | 279,542,198 | 309,062,081 | |||
Thousands of Euros | ||||||
ASSETS(Continuation) | 2006 | 2005 | 2004 | |||
INTANGIBLE ASSETS (Note 21) | 3,269,265 | 2,070,049 | 821,084 | |||
Goodwill | 2,973,435 | 1,857,854 | 710,493 | |||
Other intangible assets | 295,830 | 212,195 | 110,591 | |||
TAX ASSETS (Note 37) | 5,278,197 | 6,420,745 | 5,990,696 | |||
Current | 386,827 | 254,151 | 165,959 | |||
Deferred | 4,891,370 | 6,166,594 | 5,824,737 | |||
PREPAYMENTS AND ACCRUED INCOME (Note 22) | 673,818 | 557,278 | 717,755 | |||
OTHER ASSETS (Note 23) | 1,742,703 | 1,941,693 | 1,724,082 | |||
Inventories | 470,137 | 339,472 | 279,897 | |||
Other | 1,272,566 | 1,602,221 | 1,444,185 | |||
TOTAL ASSETS | 411,916,307 | 392,389,494 | 329,441,156 | |||
The accompanying Notes 1 to 3162 and ExhibitsAppendices I to IVVI are an integral part of the consolidated balance sheet as of December 31, 2003.2006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING
THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED STATEMENTSBALANCE SHEETS AS OF INCOME FOR THE YEARS ENDEDDECEMBER 31, 2006, 2005 AND 2004
DECEMBER 31, 2003, 2002 AND 2001 (Notes(Notes 1 to 5)9)
Thousands of Euros | ||||||
LIABILITIES AND EQUITY | 2006 | 2005 | 2004 | |||
FINANCIAL LIABILITIES HELD FOR TRADING (Note 11) | 14,923,534 | 16,270,865 | 14,134,413 | |||
Deposits from credit institutions | — | — | — | |||
Money market operations through counterparties | — | — | — | |||
Deposits from other creditors | — | — | — | |||
Debt certificates | — | — | — | |||
Trading derivatives | 13,218,654 | 13,862,644 | 12,802,912 | |||
Short positions | 1,704,880 | 2,408,221 | 1,331,501 | |||
OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Note 24) | 582,537 | 740,088 | 834,350 | |||
Deposits from credit institutions | — | — | — | |||
Deposits from other creditors | 582,537 | 740,088 | 834,350 | |||
Debt certificates | — | — | — | |||
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY (Note 25) | — | — | — | |||
Deposits from credit institutions | — | — | — | |||
Deposits from other creditors | — | — | — | |||
Debt certificates | — | — | — | |||
FINANCIAL LIABILITIES AT AMORTISED COST (Note 26) | 348,444,532 | 331,589,962 | 277,857,075 | |||
Deposits from central banks | 15,237,435 | 21,189,193 | 20,301,105 | |||
Deposits from credit institutions | 42,566,999 | 45,125,943 | 44,048,115 | |||
Money market operations through counterparties | 223,393 | 23,252 | 657,997 | |||
Deposits from other creditors | 192,373,862 | 182,635,181 | 149,891,799 | |||
Debt certificates | 77,674,115 | 62,841,755 | 45,482,121 | |||
Subordinated liabilities | 13,596,803 | 13,723,262 | 12,327,377 | |||
Other financial liabilities | 6,771,925 | 6,051,376 | 5,148,561 | |||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | 183,201 | |||
HEDGING DERIVATIVES (Note 16) | 2,279,740 | 2,870,086 | 3,131,572 | |||
LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE | — | — | — | |||
Deposits from central banks | — | — | — | |||
Deposits from credit institutions | — | — | — | |||
Deposits from other creditors | — | — | — | |||
Debt certificates | — | — | — | |||
Other liabilities | — | — | — | |||
LIABILITIES UNDER INSURANCE CONTRACTS (Note 27) | 10,120,646 | 10,500,567 | 8,114,429 | |||
PROVISIONS (Note 28) | 8,648,834 | 8,701,085 | 8,391,848 | |||
Provisions for pensions and similar obligations | 6,357,820 | 6,239,744 | 6,304,284 | |||
Provisions for taxes | 232,172 | 146,971 | 173,229 | |||
Provisions for contingent exposures and commitments | 501,933 | 452,462 | 348,782 | |||
Other provisions | 1,556,909 | 1,861,908 | 1,565,553 | |||
TAX LIABILITIES (Note 37) | 2,369,166 | 2,100,023 | 1,620,795 | |||
Current | 622,277 | 598,285 | 223,656 | |||
Deferred | 1,746,889 | 1,501,738 | 1,397,139 | |||
ACCRUED EXPENSES AND DEFERRED INCOME (Note 22) | 1,509,573 | 1,709,690 | 1,265,780 | |||
OTHER LIABILITIES (Note 23) | 719,267 | 605,016 | 102,430 | |||
TOTAL LIABILITIES | 389,597,829 | 375,087,382 | 315,635,893 | |||
- Thousands of Euros -
Thousands of Euros | |||||||||
LIABILITIES AND EQUITY (Continuation) | 2006 | 2005 | 2004 | ||||||
MINORITY INTERESTS (Note 30) | 768,162 | 971,490 | 737,539 | ||||||
VALUATION ADJUSTMENTS | 3,340,694 | 3,294,955 | 2,106,914 | ||||||
Available-for-sale financial assets | 3,355,572 | 3,002,784 | 2,320,133 | ||||||
Financial liabilities at fair value through equity | — | — | — | ||||||
Cash flow hedges | 16,859 | (102,538 | ) | (24,776 | ) | ||||
Hedges of net investments in foreign operations | (4,576 | ) | (443,561 | ) | 282,895 | ||||
Exchange differences | (27,161 | ) | 838,270 | (471,338 | ) | ||||
Non-current assets held for sale | — | — | — | ||||||
STOCKHOLDER’S EQUITY | 18,209,622 | 13,035,667 | 10,960,810 | ||||||
Capital (Note 32) | 1,740,465 | 1,661,518 | 1,661,518 | ||||||
Issued | 1,740,465 | 1,661,518 | 1,661,518 | ||||||
Unpaid and uncalled (-) | — | — | — | ||||||
Share premium (Note 33) | 9,579,443 | 6,658,390 | 6,682,603 | ||||||
Reserves (Note 34) | 3,628,984 | 2,172,158 | 745,134 | ||||||
Accumulated reserves (losses) | 3,405,655 | 1,933,243 | 444,193 | ||||||
Retained earnings | — | — | — | ||||||
Reserves (losses) of entities accounted for using the equity method | 223,329 | 238,915 | 300,941 | ||||||
Associates | 38,956 | (60,542 | ) | 8,153 | |||||
Jointly controlled entities | 184,373 | 299,457 | 292,788 | ||||||
Other equity instruments | 34,809 | 141 | — | ||||||
Equity component of compound financial instruments | — | — | — | ||||||
Other (Note 29) | 34,809 | 141 | — | ||||||
Less: Treasury shares (Note 35) | (147,258 | ) | (96,321 | ) | (35,846 | ) | |||
Income attributed to the Group | 4,735,879 | 3,806,425 | 2,922,596 | ||||||
Less: Dividends and remuneration | (1,362,700 | ) | (1,166,644 | ) | (1,015,195 | ) | |||
TOTAL EQUITY (Note 31) | 22,318,478 | 17,302,112 | 13,805,263 | ||||||
TOTAL LIABILITIES AND EQUITY | 411,916,307 | 392,389,494 | 329,441,156 | ||||||
(DEBIT) CREDIT | |||||||||
2003 | 2002 | 2001 | |||||||
FINANCIAL REVENUES (Note 28) | 12,537,465 | 17,232,909 | 21,608,104 | ||||||
Of which: Fixed-income portfolio | 3,323,501 | 4,820,640 | 7,283,233 | ||||||
FINANCIAL EXPENSES (Note 28) | (6,260,058 | ) | (9,783,505 | ) | (13,279,446 | ) | |||
INCOME FROM EQUITIES PORTFOLIO (Note 28): | 464,104 | 358,062 | 495,444 | ||||||
Common stocks and other equity securities | 144,842 | 113,623 | 116,037 | ||||||
Investments in non-Group companies | 188,572 | 93,669 | 177,774 | ||||||
Investments in Group companies | 130,690 | 150,770 | 201,633 | ||||||
NET INTEREST INCOME | 6,741,511 | 7,807,466 | 8,824,102 | ||||||
FEES COLLECTED (Note 28) | 3,882,568 | 4,330,993 | 4,833,617 | ||||||
FEES PAID (Note 28) | (619,761 | ) | (662,612 | ) | (795,994 | ) | |||
MARKET OPERATIONS (Notes 20 and 28) | 651,504 | 765,123 | 490,095 | ||||||
GROSS OPERATING INCOME | 10,655,822 | 12,240,970 | 13,351,820 | ||||||
OTHER OPERATING INCOME (Note 28) | 17,422 | 34,341 | 51,345 | ||||||
GENERAL ADMINISTRATIVE EXPENSES (Note 28): | (5,031,056 | ) | (5,771,725 | ) | (6,724,760 | ) | |||
Personnel costs | (3,262,587 | ) | (3,697,428 | ) | (4,243,374 | ) | |||
Of which: | |||||||||
Wages and salaries | (2,457,658 | ) | (2,743,819 | ) | (3,211,099 | ) | |||
Employee welfare expenses | (571,325 | ) | (624,360 | ) | �� | (652,454 | ) | ||
Of which: Pensions | (134,921 | ) | (132,624 | ) | (122,474 | ) | |||
Other Administrative Expenses | (1,768,469 | ) | (2,074,297 | ) | (2,481,386 | ) | |||
DEPRECIATION AND AMORTIZATION (Note 14) | (510,656 | ) | (631,021 | ) | (741,817 | ) | |||
OTHER OPERATING EXPENSES | (236,733 | ) | (295,821 | ) | (337,763 | ) | |||
NET OPERATING INCOME | 4,894,799 | 5,576,744 | 5,598,825 | ||||||
NET INCOME FROM COMPANIES ACCOUNTED FOR BY THE EQUITY METHOD (Note 28): | 383,312 | 33,244 | 392,671 | ||||||
Share in income of companies accounted for by the equity method | 794,905 | 561,322 | 876,131 | ||||||
Share in losses of companies accounted for by the equity method | (92,467 | ) | (285,726 | ) | (104,306 | ) | |||
Correction for payment of dividends | (319,126 | ) | (242,352 | ) | (379,154 | ) | |||
AMORTIZATION OF CONSOLIDATION GOODWILL (Note 13) | (639,349 | ) | (679,170 | ) | (1,143,377 | ) | |||
INCOME ON GROUP TRANSACTIONS: | 642,144 | 570,934 | 1,004,525 | ||||||
Income on disposal of investments in fully and proportionally consolidated companies | 16,763 | 3,806 | 33,957 | ||||||
Income on disposal of investments accounted for by the equity method (Note 11) | 609,333 | 551,326 | 896,186 | ||||||
Income on transactions involving Parent Company shares and Group financial liabilities | 16,048 | 15,802 | 74,382 | ||||||
Reversal of negative consolidation differences | — | — | — | ||||||
LOSSES ON GROUP TRANSACTIONS: | (88,885 | ) | (209,938 | ) | (50,538 | ) | |||
Losses on disposal of investments in fully or proportionally consolidated companies | (55,237 | ) | (156,290 | ) | (12,699 | ) | |||
Losses on disposal of investments accounted for by the equity method (Note 11) | (14,890 | ) | (29,750 | ) | (5,980 | ) | |||
Losses on transactions involving Parent Company shares and Group financial liabilities | (18,758 | ) | (23,898 | ) | (31,859 | ) | |||
NET LOAN LOSS PROVISIONS (Note 8) | (1,276,946 | ) | (1,743,338 | ) | (1,919,230 | ) | |||
NET SECURITIES WRITEDOWNS (Note 11) | — | 3,366 | (42,792 | ) | |||||
NET CHARGE TO GENERAL RISK ALLOWANCE | — | — | — | ||||||
EXTRAORDINARY INCOME (Note 28) | 630,870 | 1,606,654 | 1,294,983 | ||||||
EXTRAORDINARY LOSSES (Note 28) | (733,805 | ) | (2,039,235 | ) | (2,021,253 | ) | |||
PRE-TAX PROFIT | 3,812,140 | 3,119,261 | 3,113,814 | ||||||
CORPORATE INCOME TAX (Note 25) | (530,587 | ) | (175,567 | ) | (60,462 | ) | |||
OTHER TAXES (Note 25) | (384,389 | ) | (477,646 | ) | (565,059 | ) | |||
NET INCOME | 2,897,164 | 2,466,048 | 2,488,293 | ||||||
MINORITY INTERESTS (Note 22) | 670,463 | 746,919 | 645,223 | ||||||
NET ATTRIBUTABLE PROFIT | 2,226,701 | 1,719,129 | 1,843,070 |
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
MEMORANDUM ITEMS | ||||||
CONTINGENT EXPOSURES (Note 40) | 42,280,698 | 29,861,597 | 21,557,649 | |||
Financial guarantees | 41,448,405 | 29,176,854 | 21,102,311 | |||
Assets encumbered by third-party obligations | — | — | 5,215 | |||
Other contingent exposures | 832,293 | 684,743 | 450,123 | |||
CONTINGENT COMMITMENTS (Note 40) | 103,221,153 | 89,498,392 | 66,762,402 | |||
Drawable by third parties | 98,226,297 | 85,001,452 | 60,716,878 | |||
Other commitments | 4,994,856 | 4,496,940 | 6,045,524 |
The accompanying Notes 1 to 3162 and ExhibitsAppendices I to IVVI are an integral part of the consolidated balance sheet as of December 31, 2006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO
VIZCAYA ARGENTARIA GROUP
CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Notes 1 to 9)
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
INTEREST AND SIMILAR INCOME (Note 45) | 19,210,234 | 15,847,674 | 12,352,338 | ||||||
INTEREST EXPENSE AND SIMILAR CHARGES (Note 45) | (11,215,569 | ) | (8,932,200 | ) | (6,447,944 | ) | |||
Income on equity having the nature of a financial liability | — | — | — | ||||||
Other | (11,215,569 | ) | (8,932,200 | ) | (6,447,944 | ) | |||
INCOME FROM EQUITY INSTRUMENTS (Note 46) | 379,473 | 292,495 | 255,146 | ||||||
NET INTEREST INCOME | 8,374,138 | 7,207,969 | 6,159,540 | ||||||
SHARE OF PROFIT OR LOSS OF ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD | 307,648 | 121,495 | 97,040 | ||||||
Associates | 49,349 | 87,491 | 3,753 | ||||||
Jointly controlled entities | 258,299 | 34,004 | 93,287 | ||||||
FEE AND COMMISSION INCOME (Note 47) | 5,118,682 | 4,669,124 | 4,056,981 | ||||||
FEE AND COMMISSION EXPENSES (Note 48) | (783,802 | ) | (729,128 | ) | (643,959 | ) | |||
INSURANCE ACTIVITY INCOME (Note 49) | 650,431 | 486,923 | 390,618 | ||||||
Insurance and reinsurance premium income | 2,483,999 | 2,916,831 | 2,062,030 | ||||||
Reinsurance premiums paid | (44,167 | ) | (63,403 | ) | (71,931 | ) | |||
Benefits paid and other insurance-related expenses | (1,538,896 | ) | (1,785,514 | ) | (1,704,113 | ) | |||
Reinsurance income | 75,953 | 44,228 | 8,534 | ||||||
Net provisions for insurance contract liabilities | (995,999 | ) | (1,274,283 | ) | (413,744 | ) | |||
Finance income | 968,057 | 904,318 | 708,901 | ||||||
Finance expense | (298,516 | ) | (255,254 | ) | (199,059 | ) | |||
GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES (NET) (Note 50) | 1,655,911 | 980,164 | 761,857 | ||||||
Held for trading | 715,651 | 897,484 | 1,110,551 | ||||||
Other financial instruments at fair value through profit or loss | 62,068 | 33,022 | 1,296 | ||||||
Available-for-sale financial assets | 1,120,591 | 428,560 | 974,412 | ||||||
Loans and receivables | 77,263 | 129,203 | 13,932 | ||||||
Other | (319,662 | ) | (508,105 | ) | (1,338,334 | ) | |||
EXCHANGE DIFFERENCES (NET) | 377,628 | 287,014 | 297,972 | ||||||
GROSS INCOME | 15,700,636 | 13,023,561 | 11,120,049 | ||||||
SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES (Note 51) | 605,227 | 576,373 | 468,236 | ||||||
COST OF SALES (Note 51) | (473,869 | ) | (450,594 | ) | (341,745 | ) | |||
OTHER OPERATING INCOME (Note 52) | 117,070 | 134,559 | 22,306 | ||||||
PERSONNEL EXPENSES (Note 53) | (3,988,585 | ) | (3,602,242 | ) | (3,247,050 | ) | |||
OTHER ADMINISTRATIVE EXPENSES (Note 54) | (2,341,836 | ) | (2,160,478 | ) | (1,850,845 | ) | |||
DEPRECIATION AND AMORTISATION | (472,198 | ) | (448,692 | ) | (448,206 | ) | |||
Tangible assets (Note 20) | (382,890 | ) | (361,042 | ) | (363,312 | ) | |||
Intangible assets (Note 21) | (89,308 | ) | (87,650 | ) | (84,894 | ) | |||
OTHER OPERATING EXPENSES (Note 52) | (263,340 | ) | (249,403 | ) | (132,139 | ) | |||
NET OPERATING INCOME | 8,883,105 | 6,823,084 | 5,590,606 | ||||||
(Continuation) NET OPERATING INCOME IMPAIRMENT LOSSES (NET) Available-for-sale financial assets (Note 13) Loans and receivables (Note 14) Held-to-maturity investments (Note 15) Non-current assets held for sale (Note 17) Investments Tangible assets (Note 20) Goodwill (Notes 18 and 21) Other intangible assets Other assets PROVISION EXPENSE (NET) (Note 28) FINANCE INCOME FROM NON-FINANCIAL ACTIVITIES (Note 55) FINANCE EXPENSES FROM NON-FINANCIAL ACTIVITIES (Note 55) OTHER GAINS (Note 56) Gains on disposal of tangible assets Gains on disposal of investment Other OTHER LOSSES (Note 56) Losses on disposal of tangible assets Losses on disposal of investment Other INCOME BEFORE TAX INCOME TAX (Note 37) INCOME FROM CONTINUING OPERATIONS INCOME FROM DISCONTINUED OPERATIONS (NET) CONSOLIDATED INCOME FOR THE YEAR INCOME ATTRIBUTED TO MINORITY INTEREST (Note 30) INCOME ATTRIBUTED TO THE GROUP EARNINGS PER SHARE FOR CONTINUING OPERATIONS (Note 6) Basic earnings per share Diluted earnings per share Thousands of Euros 2006 2005 2004 8,883,105 6,823,084 5,590,606 (1,503,549 ) (854,327 ) (958,194 ) 19,105 (7,928 ) 55,856 (1,476,666 ) (813,080 ) (783,909 ) 422 (1 ) — (34,783 ) (33,159 ) 4,222 — — (39,508 ) 4,827 (1,589 ) 2,135 (12,322 ) — (196,990 ) — — — (4,132 ) 1,430 — (1,338,205 ) (454,182 ) (850,557 ) 57,602 2,467 8,737 (55,227 ) (1,826 ) (4,712 ) 1,128,628 284,816 622,180 92,902 107,838 102,874 934,469 40,157 317,510 101,257 136,821 201,796 (142,018 ) (208,279 ) (271,220 ) (20,413 ) (22,477 ) (22,450 ) (181 ) (11,751 ) (9,127 ) (121,424 ) (174,051 ) (239,643 ) 7,030,336 5,591,753 4,136,840 (2,059,301 ) (1,521,181 ) (1,028,631 ) 4,971,035 4,070,572 3,108,209 — — — 4,971,035 4,070,572 3,108,209 (235,156 ) (264,147 ) (185,613 ) 4,735,879 3,806,425 2,922,596 1.39 1.12 0.87 1.39 1.12 0.87
The accompanying Notes 1 to 62 and Appendices I to VI are an integral part of the consolidated income statement for the year ended December 31, 2006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO
VIZCAYA ARGENTARIA GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONSOLIDATED STATEMENTS OF
RECOGNIZED INCOME AND EXPENSE FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Notes 1 to 9)
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
NET INCOME RECOGNISED DIRECTLY IN EQUITY | 45,739 | 1,188,041 | 415,589 | ||||||
Available-for-sale financial assets | 352,788 | 682,651 | 642,754 | ||||||
Revaluation gains/losses | 1,294,598 | 1,478,792 | 1,963,264 | ||||||
Amounts removed to income statement | (1,120,591 | ) | (428,560 | ) | (974,412 | ) | |||
Income tax | 178,781 | (367,581 | ) | (346,098 | ) | ||||
Other financial liabilities at fair value | — | — | — | ||||||
Revaluation gains/losses | — | — | — | ||||||
Amounts removed to income statement | — | — | — | ||||||
Income tax | — | — | — | ||||||
Cash flow hedges | 119,397 | (77,762 | ) | (38,722 | ) | ||||
Revaluation gains/losses | 181,835 | (119,634 | ) | (59,572 | ) | ||||
Amounts removed to income statement | — | — | — | ||||||
Amounts removed to the initial carrying amount of the hedged items | — | — | — | ||||||
Income tax | (62,438 | ) | 41,872 | 20,850 | |||||
Hedges of net investment in foreign operations | 438,985 | (726,456 | ) | 282,895 | |||||
Revaluation gains/losses | 675,864 | (1,117,625 | ) | 435,223 | |||||
Amounts removed to income statement | — | — | — | ||||||
Income tax | (236,879 | ) | 391,169 | (152,328 | ) | ||||
Exchange differences | (865,431 | ) | 1,309,608 | (471,338 | ) | ||||
Translation gains/losses | (1,328,448 | ) | 2,014,782 | (725,135 | ) | ||||
Amounts removed to income statement | — | — | — | ||||||
Income tax | 463,017 | (705,174 | ) | 253,797 | |||||
Non-current assets held for sale | — | — | — | ||||||
Revaluation gains | — | — | — | ||||||
Amounts removed to income statement | — | — | — | ||||||
Income tax | — | — | — | ||||||
CONSOLIDATED INCOME FOR THE YEAR | 4,971,035 | 4,070,572 | 3,108,209 | ||||||
Published consolidated income for the year | 4,971,035 | 4,070,572 | 3,108,209 | ||||||
Adjustments due to changes in accounting policy | — | — | — | ||||||
Adjustments made to correct errors | — | — | — | ||||||
TOTAL INCOME AND EXPENSES FOR THE YEAR | 5,016,774 | 5,258,613 | 3,523,798 | ||||||
Parent entity | 4,781,618 | 4,994,466 | 3,338,185 | ||||||
Minority interest | 235,156 | 264,147 | 185,613 | ||||||
MEMORANDUM ITEM: EQUITY ADJUSTMENTS ALLOCABLE TO PRIOR YEARS | — | — | — | ||||||
Due to changes in accounting policies | — | — | — | ||||||
Stockholder’s Equity | — | — | — | ||||||
Valuation adjustments | — | — | — | ||||||
Minority interests | — | — | — | ||||||
Due to errors | — | — | — | ||||||
Stockholder’s Equity | — | — | — | ||||||
Valuation adjustments | — | — | — | ||||||
Minority interests | — | — | — |
The accompanying Notes 1 to 62 and Appendices I to VI are an integral part of the consolidated statement of changes in equity (consolidated statement of recognized income as ofand expense) for the year ended December 31, 20032006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED CASH FLOW STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Notes 1 to 9)
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
CASH FLOW FROM OPERATING ACTIVITIES | |||||||||
Consolidated profit for the year | 4,971,035 | 4,070,572 | 3,108,209 | ||||||
Adjustment to profit: | 4,596,678 | 4,354,633 | 3,251,332 | ||||||
Depreciation of tangible assets (+) | 382,890 | 361,042 | 363,312 | ||||||
Amortisation of intangible assets (+) | 89,308 | 87,650 | 84,894 | ||||||
Impairment losses (net) (+/-) | 1,503,549 | 854,327 | 958,194 | ||||||
Net provisions for insurance contract liabilities (+/-) | 995,999 | 1,274,283 | 413,744 | ||||||
Provision expense (net) (+/-) | 1,338,205 | 454,182 | 850,557 | ||||||
Gains/Losses on disposal of tangible assets (+/-) | (72,489 | ) | (85,361 | ) | (80,424 | ) | |||
Gains/Losses on disposal of investment (+/-) | (934,288 | ) | (28,406 | ) | (308,383 | ) | |||
Share of profit or loss of entities accounted for using the equity method (net of dividends) (+/-) | (307,648 | ) | (121,495 | ) | (97,040 | ) | |||
Taxes (+/-) | 2,059,301 | 1,521,181 | 1,028,631 | ||||||
Other non-monetary items (+/-) | (458,149 | ) | 37,230 | 37,847 | |||||
Adjusted profit | 9,567,713 | 8,425,205 | 6,359,541 | ||||||
Net increase/decrease in operating assets | (20,293,306 | ) | (55,959,375 | ) | (30,388,986 | ) | |||
Financial assets held for trading | (7,823,349 | ) | 3,330,819 | (10,299,383 | ) | ||||
Loans and advances to credit institutions | — | — | — | ||||||
Money market operations through counterparties | — | — | — | ||||||
Loans and advances to other debtors | — | — | — | ||||||
Debt securities | (5,967,035 | ) | 5,893,072 | (1,731,181 | ) | ||||
Other equity instruments | (3,703,192 | ) | (554,470 | ) | (3,661,105 | ) | |||
Trading derivatives | 1,846,878 | (2,007,783 | ) | (4,907,097 | ) | ||||
Other financial assets at fair value through profit or loss | 444,139 | (361,763 | ) | (102,013 | ) | ||||
Loans and advances to credit institutions | — | — | — | ||||||
Money market operations through counterparties | — | — | — | ||||||
Loans and advances to other debtors | — | — | — | ||||||
Debt securities | 227,374 | (224,145 | ) | (58,771 | ) | ||||
Other equity instruments | 216,765 | (137,618 | ) | (43,242 | ) | ||||
Available-for-sale financial assets | 18,345,927 | (4,024,366 | ) | (271,582 | ) | ||||
Debt securities | 19,006,148 | (5,998,254 | ) | 2,280,133 | |||||
Other equity instruments | (660,221 | ) | 1,973,888 | (2,551,715 | ) | ||||
Loans and receivables | (34,041,410 | ) | (54,290,431 | ) | (21,282,492 | ) | |||
Loans and advances to credit institutions | 6,983,780 | (10,773,069 | ) | 4,206,274 | |||||
Money market operations through counterparties | (100,052 | ) | 241,999 | 157,998 | |||||
Loans and advances to other debtors | (40,347,544 | ) | (46,158,632 | ) | (25,208,703 | ) | |||
Debt securities | 2,214,603 | 3,204,972 | 710,578 | ||||||
Other financial assets | (2,792,197 | ) | (805,701 | ) | (1,148,639 | ) | |||
Other operating assets | 2,781,387 | (613,634 | ) | 1,566,484 |
(Continuation) Net increase/decrease in operating liabilities Financial liabilities held for trading Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates Trading derivatives Short positions Other financial liabilities at fair value through profit or loss Deposits from credit institutions Deposits from other creditors Debt certificates Financial liabilities at fair value through equity Deposits from credit institutions Deposits from other creditors Debt certificates Financial liabilities measured at amortised cost Deposits from central banks Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates Other financial liabilities Other operating liabilities Total net cash flows from operating activities (1) CASH FLOWS FROM INVESTING ACTIVITIES Investment (-) Group entities, jointly controlled entities and associates Tangible assets Intangible assets Held-to-maturity investments Other financial assets Other assets Divestments (+) Group entities, jointly controlled entities and associates Tangible assets Intangible assets Held-to-maturity investments Other financial assets Other assets Total net cash flows investing activities (2) CASH FLOWS FROM FINANCING ACTIVITIES Issuance/ Redemption of capital (+/-) Acquisition of own equity instruments (-) Disposal of own equity instruments (+) Issuance/Redemption of other equity instruments (+/-) Issuance/Redemption of subordinated liabilities(+/-) Issuance/Redemption of other long-term liabilities (+/-) Increase/Decrease in minority interest (+/-) Dividends paid (-) Other items relating to financing activities (+/-) Total net cash flows from financing activities (3) EFFECT OF EXCHANGE RATE CHANGES ON CASH OR CASH EQUIVALENTS (4) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (1+2+3+4) Cash or cash equivalents at beginning of year Cash or cash equivalents at end of year Thousands of Euros 2006 2005 2004 13,543,414 53,544,980 27,562,514 (1,347,331 ) 2,136,452 7,786,360 — — — — — — — — — — — — (643,990 ) 1,059,732 7,918,086 (703,341 ) 1,076,720 (131,726 ) (157,551 ) (94,262 ) (123,127 ) — — — (157,551 ) (94,262 ) (123,127 ) — — — — — — — — — — — — — — — 17,799,111 51,218,706 22,047,117 (5,976,242 ) 1,031,331 (723,613 ) (2,682,765 ) 1,308,632 5,552,861 200,000 (634,752 ) 514,759 9,694,138 31,823,914 5,315,333 15,972,773 16,555,131 10,502,918 591,207 1,134,450 884,859 (2,750,815 ) 284,084 (2,147,836 ) 2,817,821 6,010,810 3,533,069 (2,740,766 ) (4,190,926 ) (2,104,591 ) (5,121,070 ) (4,832,207 ) (3,363,952 ) (1,708,382 ) (84,491 ) (403,094 ) (1,214,160 ) (1,487,654 ) (635,335 ) (252,580 ) (1,375,290 ) (99,917 ) (1,945,948 ) (1,884,772 ) (2,225,606 ) — — — — — — 2,380,304 641,281 1,259,361 1,759,082 10,676 488,339 501,264 509,380 644,861 119,958 121,225 126,161 — — — — — — — — — (2,740,766 ) (4,190,926 ) (2,104,591 ) 887,480 (555,819 ) 507,462 2,938,600 — 1,998,750 (5,677,433 ) (3,839,510 ) (3,220,752 ) 5,639,506 3,779,037 3,266,937 (34,668 ) — — 103,970 1,387,248 1,030,243 — — — (168,009 ) 233,951 (1,179,625 ) (1,914,486 ) (1,595,222 ) (1,349,369 ) — (521,323 ) (38,722 ) 887,480 (555,819 ) 507,462 (785,267 ) 929,971 77,273 179,268 2,194,036 2,013,213 12,317,126 10,123,090 8,109,304 12,496,394 12,317,126 10,122,517
The accompanying Notes 1 to 62 and Appendices I to VI are an integral part of the consolidated cash flow statement for the year ended December 31, 2006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE
THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 20032006
1. INTRODUCTION, BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
(1) DESCRIPTION OF THE BANK-1.1. INTRODUCTION
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. The Bank conductsleads its business through branches and offices located throughout Spain and abroad.
The bylaws of association and other public information on the Bank can be consulted both at its registered office (Plaza San Nicolás, 4, Bilbao) and on its official website, www.bbva.com.
On June 1, 1988, the Special Shareholders’ Meetings of Banco de Bilbao, S.A. and Banco de Vizcaya, S.A. resolved, inter alia, to approve the equal-footing merger of the two companies by dissolving them without liquidation and transferring en blocIn addition to the new company, which adopted the name of Banco Bilbao Vizcaya, S.A. (BBV),operations carried on directly by universal succession, the assets and liabilities of the two dissolved companies.
On December 18, 1999, the Special Shareholders’ Meetings of Banco Bilbao Vizcaya, S.A. and Argentaria, Caja Postal y Banco Hipotecario, S.A. approved the merger of the two entities through the absorption of Argentaria by Banco Bilbao Vizcaya, S.A. The Shareholders’ Meetings also approved the audited merger balance sheets of the two entities as of September 30, 1999. After the mandatory time periods had elapsed and the relevant administrative authorizations had been obtained, on January 25, 2000, the related public deed was executed, the registration of which at the Vizcaya Mercantile Registry on January 28, 2000, determined the legal effectiveness of the merger, and simultaneously the corporate name of Banco Bilbao Vizcaya, S.A. was changed to Banco Bilbao Vizcaya Argentaria, S.A.
(2) BASIS OF PRESENTATION AND CONSOLIDATION PRINCIPLES-
a) Basis of presentation-
The consolidated financial statements ofit, the Bank is the head of a group of subsidiaries, jointly controlled entities and companies composingassociates that engage in various business activities and which compose, together with the Bank, the Banco Bilbao Vizcaya Argentaria Group (“the Group”—Note 4) or “BBVA Group”). Therefore, the Bank is obliged to prepare, in addition to its own financial statements, the Group’s consolidated financial statements.
As of December 31, 2006 the Group was composed by 304 entities that were fully consolidated, 6 were consolidated by the proportionate method and 58 entities accounted for using the equity method (Notes 4 and 18 and appendix I to III of the present consolidated financial statements).
The Group’s consolidated financial statements for 2005 were approved by the shareholders at the Bank’s Annual General Meeting on March 18, 2006.
The 2006 consolidated financial statements of the Group and the 2006 financial statements of the Bank and of substantially all the Group companies have not yet been approved by their shareholders at the respective Annual General Meetings. However, the Bank’s Board of Directors considers that the aforementioned financial statements will be approved without any changes.
1.2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
Under Regulation (EC) no 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are presentedadmitted to trading on a regulated market of any Member State must prepare their consolidated financial statements in conformity with the formats stipulatedInternational Financial Reporting Standards previously adopted by the European Union (“EU-IFRSs”). Therefore, the Group is required to prepare its consolidated financial statements for the year ended December 31, 2006 in conformity with EU-IFRSs.
In order to adapt the accounting system of Spanish credit institutions to the new standards, the Bank of Spain issued Circular 4/2004 of December 22, 2004 on Public and Confidential Financial Reporting Rules and Formats.
The BBVA Group’s consolidated financial statements for 2006 were prepared by the Bank’s directors (at the Board Meeting on February 12, 2007) in accordance with EU-IFRSs, taking into account best practices of Bank of Spain Circular 4/19912004, and its subsequent amendmentsby applying the basis of consolidation, accounting policies and accordingly,measurement bases described in Note 2, so that they present a true and fair view offairly the Group’s net worth,equity and financial position at 31 December 2006, and results.the results of its operations, the changes in consolidated equity and the consolidated cash flows in 2006. These consolidated financial statements were prepared fromon the individualbasis of the accounting records of Banco Bilbao Vizcaya Argentaria, S.A.kept by the Bank and ofby each of the other Group companies and include the adjustments and reclassifications required to conformunify the accounting principlespolicies and presentation criteria followedmeasurement bases used by the subsidiariesGroup (Note 2.2).
All accounting policies and measurement bases with those followed bya significant effect on the Bank (Note 3).
The consolidated financial statements as of December 31, 2003, 2002were applied in their preparation.
1.3. COMPARATIVE INFORMATION
The information relating to 2005 and 2001 and for2004 contained in these notes to the three years ended December 31, 2003, 2002 and 2001 are based on the Spanishconsolidated financial statements ofis presented, solely for comparison purposes, with information relating to 2006 and, accordingly, it does not constitute the Banco Bilbao Vizcaya Argentaria Group, prepared in accordance with the generally accepted accounting principles in Spain (“Spanish GAAP”) by the controlling company’s directors.
The individual andGroup’s statutory consolidated financial statements for 2003, 20022005 and 2001 were approved by the Shareholders’ Meetings on February 28, 2004, March 1, 2003, and March 9, 2002, respectively.
2004.
The auditors’ report on the Spanish statutory approved financial statements of the group as of and for the year ended December 31, 2000 was qualified with respect to the early amortization in prior years of certain goodwill arising from the acquisition of Latin American banks and companies. United States securities regulations do not currently allow the filing of financial statements with the Securities Exchange Commission if they contain auditor’s reports that are qualified with respect to a material departure from generally accepted accounting principles. Therefore, in order to avoid a qualification in the auditor’s report, we do not include the early amortization recognized in prior years in the accompanying consolidated financial statements for the year ended December 31, 2000. Accordingly,2005 were the accompanyingfirst to have been prepared in accordance with EU-IFRSs; these standards entail, with respect to the rules in force (Bank of Spain Circular 4/1991) when the Group’s consolidated financial statements for 2004 were prepared, significant changes in the accounting policies, measurement bases and presentation of the financial statements making up the annual financial statements. The main effects of the adaptation to EU-IFRSs and the Bank of Spain Circular 4/2004 are explained in Note 3 and Appendix VI.
1.4. RESPONSIBILITY FOR THE INFORMATION AND FOR THE ESTIMATES MADE
The information in these BBVA Group consolidated financial statements is the responsibility of the Group’s directors. In preparing these consolidated financial statements estimates were occasionally made by the Bank and the consolidated companies in order to quantify certain of the assets, liabilities, income, expenses and commitments reported herein. These estimates relate mainly to the following:
The impairment losses on certain financial assets (Notes 13, 14, 15 y 18).
The assumptions used in the actuarial calculation of the post-employment benefit liabilities and commitments (Note 29).
The useful life of tangible and intangible assets (Notes 20 and 21).
The measurement of goodwill arising on consolidation (Notes 18 and 21).
The fair value of certain unquoted assets (Note 13).
Although these estimates were made on the basis of the best information available as of December 31, 2001 and 2000 and for2006 on the years then ended reflectevents analysed, events that take place in the adjustments madefuture might make it necessary to change these estimates (upwards or downwards) in coming years.
1.5. ENVIRONMENTAL IMPACT
As of December 31, 2006 the Spanish GAAP statutory approvedGroup’s consolidated financial statements did not disclose any item that should be included in the environmental information document envisaged in the related Ministry of the Banco Bilbao Vizcaya Argentaria Group solely for the purposeEconomy Order dated October 8, 2001.
1.6. DETAIL OF AGENTS OF CREDIT INSTITUTIONS
The detail of complying with the United States securities regulations. The adjustments consistBBVA agents required pursuant to Article 22 of Royal Decree 1245/1995 of 14 July of the reversalMinistry of the early amortization of goodwillEconomy and the amortization of them over a period of five years (the estimated minimum period of economic life) which has the effect of decreasing net income as reportedFinance is disclosed in the Spanish statutorily approved consolidatedBBVA financial statements for the year ended December 31, 2001 by approximately €520 million.
b) Accounting policies-1.7. REPORT ON THE ACTIVITY OF THE CUSTOMER CARE DEPARTMENT AND THE CUSTOMER OMBUDSMAN
The report on the activity of the Customer Care Department and the Customer Ombudsman required pursuant to Article 17 of Ministry of Economy and Finance Order ECO/734/2004 of 11 March is included in the management report accompanying these consolidated financial statements were prepared in accordance with the accounting principles generally accepted in Spain described in Note 3. All obligatory accounting principles with a material effect on the consolidated financial statements were applied in preparing them.
statements.
c) Consolidation principles-1.8. CAPITAL RATIOS
In accordance with Law 13/1985 and Bank of Spain Circular 4/1991, the Banco Bilbao Vizcaya Argentaria Group is defined as including all the companies whose line of business is directly related to that of the Bank and which, together with the latter, constitute a single decision-making unit (Note 4). In accordance with this Circular, these companies were fully consolidated and the adjustments and reclassifications required to unify the accounting principles and presentation criteria followed by the subsidiaries were performed, taking into account the comments in Note 3-o. All material intercompany accounts and transactions between the consolidated companies were eliminated in consolidation. This method follows the rules as expressed by ARB 51 and SFAS 94. In accordance with Bank of Spain Circular 4/1991, the consolidated financial statements maintain the provisions for country risk recorded by the Bank and other Group companies for risk-asset and off-balance-sheet risk exposure to Group entities with registered offices in financially-troubled countries. As of December 31, 2003, 2002 and 2001, these provisions amounted to €162,321 thousand, €93,714 thousand and €98,674 thousand, respectively (Notes 7, 8 and 9).
The companies whose line of business is related to that of the Bank, and which are at least 20% owned by the Bank and managed jointly with another shareholder (or shareholders) were consolidated proportionally, which consists of including the assets, rights and obligations, and revenues and expenses of these companies in proportion to the Group’s holding in them. As of December 31, 2003 and 2002, this consolidation method was applied to E-Ventures Capital Internet, S.A, Corporación IBV Participaciones Empresariales, S.A., Altura Markets, A.V., S.A., PSA Finance Argentina Cía. Financiera, S.A. and Corporación IBV Servicios y Tecnologías, S.A. As of December 31, 2001, it was applied to Corporación IBV, S.A., Azeler Automoción, S.A., Altura Markets, A.V., S.A. and Proyectos Industriales Conjuntos, S.A.
Additionally, the long-term holdings in the capital stock of subsidiaries non-consolidated because their line of business is not directly related to that of the Bank and of other unlisted companies in which significant influence is exercised or with which the Bank has a lasting relationship and in which such holdings generally represent 20% or more of the capital stock (3% or more if listed) are valued at the amount of the portion of the investees’ net worth corresponding to such holdings, after deducting the dividends collected from them and other eliminations (equity method). Other holdings in companies (Note 11) which are short term or which do not represent significant influence, or for which futures transactions have been arranged to eliminate the price risk, are valued separately by the methods described in Note 3-e.
The remaining equity investments are presented in the accompanying consolidated balance sheets as described in Note 3-e.
d) Determination of net worth-
In evaluating the net worth of the Group, the balances of the following captions in the accompanying consolidated balance sheets should be taken into consideration:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Capital stock (Note 23) | 1,565,968 | 1,565,968 | 1,565,968 | ||||||
Reserves (Note 24)- | |||||||||
Additional paid-in capital | 6,273,901 | 6,512,797 | 6,834,941 | ||||||
Reserves | 971,477 | 771,484 | 1,419,218 | ||||||
Revaluation reserves | 176,281 | 176,281 | 176,281 | ||||||
Reserves at consolidated companies | 6,096,616 | 6,465,276 | 5,474,854 | ||||||
Accumulated losses at consolidated companies | (3,610,764 | ) | (3,650,208 | ) | (2,700,955 | ) | |||
9,907,511 | 10,275,630 | 11,204,339 | |||||||
Add- | |||||||||
Net income- | |||||||||
Net attributable profit | 2,226,701 | 1,719,129 | 1,843,070 | ||||||
Less- | |||||||||
Interim dividends (Notes 5 and 15)- | |||||||||
Paid | (572,452 | ) | (572,996 | ) | (542,369 | ) | |||
Unpaid | (287,444 | ) | (287,620 | ) | (271,588 | ) | |||
(859,896 | ) | (860,616 | ) | (813,957 | ) | ||||
Treasury stock (Note 23) | (66,059 | ) | (97,671 | ) | (75,944 | ) | |||
Net worth per books | 12,774,225 | 12,602,440 | 13,723,476 | ||||||
Less- | |||||||||
Final dividend (Note 5) | (364,327 | ) | (248,420 | ) | (408,286 | ) | |||
Net worth, after the distribution of income for the year | 12,409,898 | 12,354,020 | 13,315,190 | ||||||
e) Equity-
Law 13/1992 of June 1, 1992 and Bank of Spain Circular 5/1993 and subsequent amendments enactedthereto regulate the regulations governing minimum equitycapital requirements for Spanish credit institutions – both as individual entities at both individual and as consolidated group levels.
groups – and the manner in which these capital requirements are to be calculated.
As of December 31, 2003, 20022006, 2005 and 2001,2004 the Group’s eligible equity amounted to €18,799,128 thousand, €17,840,156 thousand and €19,730,574 thousand, respectively. These amounts exceedqualifying capital exceeded the minimum equity requirements stipulated byrequired under the aforementioned regulations.legislation (Note 36).
f) Detail of risk provisions and coverage-2. BASIS OF CONSOLIDATION, ACCOUNTING POLICIES AND MEASUREMENT BASES APPLIED
2.1. BASIS OF CONSOLIDATION
a) SUBSIDIARIES
The parent company subsidiaries are included in the BBVA Group consolidated financial statements using the full consolidation method. “Subsidiaries” are defined as entities over which the Group has the capacity to exercise control, taken to be the power to govern the financial and operating policies of an entity so as to obtain profits from its activities, is, in general but not exclusively, presumed to exist when the parent company owns directly or indirectly, more than half of the voting power of the investee or, even if this percentage is lower or zero, when, for example, there are agreements with other shareholders of the investee that give the Group control.
In accordance with Bank of Spain regulations, the risk provisions and coveragethis connection, there are presented as assigned to the related assets and/or in specific accounts. The detail of the aggregate risk provisions, coverage and guarantees, disregarding their accounting classification, is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Loan loss provision (Note 3-c) (*) | ||||||
Due from credit institutions (Note 7) | 171,240 | 122,787 | 138,533 | |||
Total net lending (Note 8) | 4,443,539 | 5,097,695 | 5,927,703 | |||
Debentures and other debt securities (Note 9) | 121,106 | 125,401 | 253,772 | |||
Off-balance-sheet risks (Notes 8 and 20) | 209,270 | 271,545 | 185,268 | |||
4,945,155 | 5,617,428 | 6,505,276 | ||||
Security revaluation reserve (Notes 3-d and 3-e) | ||||||
Government debt securities (Note 6) | — | 34 | 6 | |||
Debentures and other debt securities (Note 9) | 73,958 | 2,586 | 3,396 | |||
Common stocks and other equity securities (Note 10) | 71,653 | 240,726 | 153,655 | |||
Investments in non-Group companies (Note 11) | 38 | 82 | 1,791 | |||
145,649 | 243,428 | 158,848 | ||||
Pension provision (Notes 3-j and 20) | ||||||
At Spanish companies | 2,433,374 | 1,981,414 | 1,736,384 | |||
At foreign companies | 598,539 | 640,493 | 622,168 | |||
3,031,913 | 2,621,907 | 2,358,552 | ||||
Provision for property and equipment | 375,016 | 308,518 | 391,463 | |||
Other provisions for contingencies and expenses | 1,978,402 | 1,949,866 | 2,240,320 | |||
TOTAL | 10,476,135 | 10,741,147 | 11,654,459 | |||
(*) Loan loss provisions | ||||||
Provisions for specific risks | 2,053,936 | 3,253,724 | 4,358,160 | |||
General-purpose provision | 1,361,029 | 1,324,441 | 1,469,168 | |||
Country-risk provision | 609,764 | 446,919 | 317,281 | |||
Provision for the statistical coverage of loan losses | 920,426 | 592,344 | 360,667 | |||
g) Comparative information
Argentina
The effects of the crisis in Argentina and the measures adopted by the Government and the Central Bank of the Republic of Argentina as described in Note 3-o gave rise to significant changes in the balance sheetsseveral companies forming part of the BBVA Banco Francés Group.Continental (Peru) Group which, although less than 50% owned by the Group, are fully consolidated because the agreements entered into with the other shareholders give the Group effective control. Similarly, Banco Provincial Overseas, N.V. is fully consolidated since the Group has effective control due to its 48% ownership interest in Inversiones Banpro International Inc. N.V., which it owns 100% of Banco Provincial Overseas N.V.
BBVA Brasil Group
The 2002For the mentioned entities, the percentage of ownership and 2001 consolidated financial statements included the contributionvoting rights of the BBVA Brasil Group although the effects of the sale (Note 4) had been recordedis as follows as of December 31, 2002. In2006:
COMPANY | % Voting Rights | % Ownership | ||
Banco Continental, S.A. | 92.08 | 46.04 | ||
Continental Bolsa, Sociedad Agente de Bolsa, S.A. | 100 | 46.04 | ||
Continental Sociedad Titulizadora, S.A. | 100 | 46.04 | ||
Continental S.A. Sociedad Administradora de Fondos | 100 | 46.04 | ||
Inmuebles y Recuperaciones Continental, S.A. | 100 | 46.04 | ||
Banco Provincial Overseas N.V. | 100 | 48.01 |
The financial statements of the 2003subsidiaries are fully consolidated with those of the Bank. Accordingly, all material balances and effects of the transactions between consolidated companies were eliminated on consolidation. Since the accounting policies and measurement bases used in preparing the Group’s consolidated financial statements as of December 31, 2006 may differ from those used by certain Group companies, the BBVA Group recordedrequired adjustments and reclassifications were made on consolidation to unify the earnings generated bypolicies and bases used and to make them compliant with EU-IFRSs.
The share of third parties in the BBVA Brasil Group throughGroup’s equity is presented under the actualheading “Minority Interests” in the consolidated balance sheet and their share in the profit or loss for the year is presented under the heading “Income Attributed to Minority Interests” in the consolidated income statement (Note 30).
The results of subsidiaries acquired during the year are included in the consolidated income statement from the date of saleacquisition to year-end, similarly, the results of subsidiaries disposed of during the year are included in the consolidated income statement from the beginning of the year to the date of disposal.
Note 4 contains information on the most significant investments and divestments in subsidiaries that took place in 2006, 2005 and 2004.
Appendix I includes the most significant information on these companies.
b) JOINTLYCONTROLLEDENTITIES
A “Jointly controlled entity” is defined as earnings generated companies accountedan entity that, although not been subsidiary, is controlled jointly by two or more unrelated entities (“ventures”) that, following the definition of “joint ventures”, are bound by a contractual agreement to take on an economic activity by sharing the strategic management tasks (both financial and operational) of the “jointly controlled entity” in order to benefit from its operations. All the strategic financial and operating decisions require the unanimous consent of the ventures.
EU-IFRSs envisage two methods for bythe recognition of jointly controlled entities: the equity method and accordingly, comparison with the earningsproportionate consolidation method. Under the proportionate consolidation method, the aggregation of complete prior years shows significant decreasesbalances and subsequent eliminations are only made in most captionsproportion to the Group’s ownership interest in the capital of these entities. The assets and liabilities assigned by the Group to jointly controlled operations and the Group’s share of the 2003 consolidated statement of income.
Depreciation of the Latin American currencies
Additionally, the macroeconomic developmentsjointly controlled assets are recognised in 2003 in most Latin-American countries affected, among other variables, their currencies, which experienced a sharp devaluation against the euro. This devaluation particularly affected the consolidated balance sheetssheet classified according to their specific nature. Similarly, the Group’s share of the income and expenses of joint ventures is recognised in the consolidated income statement on the basis of their nature. As of December 31, 2006 this method was applied to the following entities: Holding de Participaciones Industriales 2000, S.A., PSA Finance Argentina Compañía Financiera, S.A., Ecasa, S.A., Forum Distribuidora, S.A., Darby – BBVA Latin American Investors, Ltd. and Forum Servicios Financieros, S.A.
Since the accounting policies and measurement bases used in preparing the Group’s consolidated financial statements as of December 31, 20032006 may differ from those used by certain Group companies, the required adjustments and 2002, sincereclassifications were made on consolidation to unify the year-end exchange rates werepolicies and bases used and to make them compliant with EU-IFRSs.
Appendix II includes the 2002most significant information on these companies.
The Group opted to value its ownership interests in certain jointly controlled entities using the equity method, since it considered that this better reflected the financial situation of these holdings. The joint ventures that the Group accounted for using the equity method as of December 31, 2006, are listed in Appendix III.
Had these entities been proportionately consolidated, the Group’s total assets as of December 31, 2006, 2005 and 2003 consolidated2004, would have increased by approximately €1,017,007 thousand, €777,699 thousand and €727,679 thousand, respectively; this decision did not have a material economic impact on the items in the consolidates income statements of income, since average exchange rates were applied (Note 3-b).for 2006, 2005 and 2004.
h) Early retirements-c) ASSOCIATES
In 2003, 2002 and 2001“Associates” are defined as entities over which the Group chargedis in a position to reservesexercise significant influence, but not control. Significant influence is presumed to exist when the estimated cost of future indemnities, deferred compensation and future contributions to external pension funds deriving from the early retirement of Group employees in Spain, amounting to €519,620 thousand, €324,465 thousand and €479,241 thousand, respectively, netowns directly or indirectly 20% or more of the related tax effect, which was estimated at €279,796 thousand, €174,712 thousand and €252,502 thousand, respectively. These transactions were authorized by the respective Shareholders’ Meetingsvoting power of the investee.
However, certain entities in which the Group owns 20% or more of the voting rights are not included as Group associates, since it is considered that the Group does not have the capacity to exercise significant influence over these entities. The investments in these entities, which do not represent material amounts for the Group, are classified as available-for-sale investments.
Investments in associates are accounted for using the equity method, i.e. at the Group’s Spanish banksshare of net assets of the investee, after taking into account the dividends received there from and other equity eliminations.
Since the accounting policies and measurement bases used in preparing the Group’s consolidated financial statements as of December 31, 2006 may differ from those used by certain associates, the Bankrequired adjustments and reclassifications were made on consolidation to unify the policies and bases used and to make them compliant with EU-IFRSs.
Appendix III contains significant information on the associates.
d) INFORMATION ABOUT ASSOCIATES AND JOINTLY CONTROLLED ENTITIES BY THE PROPORTIONATE CONSOLIDATION METHOD
The following table provides significant information regarding the most relevant associates and jointly controlled entities (see Note 18 and Appendix III) as of Spain (Notes 3-j, 20December 31, 2006, 2005 and 24).2004:
Thousands of Euros | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
BBVA, S.A. | Total (*) | BBVA, S.A. | Total (*) | BBVA, S.A. | Total (*) | |||||||
Charged to: | ||||||||||||
Unrestricted reserves | 515,044 | 519,620 | 321,101 | 324,465 | 471,780 | 479,241 | ||||||
Prepaid taxes | 277,332 | 279,796 | 172,901 | 174,712 | 248,488 | 252,502 | ||||||
Total | 792,376 | 799,416 | 494,002 | 499,177 | 720,268 | 731,743 | ||||||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Net sales | 276,329 | 762,674 | 199,479 | |||
Operating Income | 317,492 | 158,606 | 331,669 | |||
Net Income | 282,393 | 121,752 | 274,363 | |||
Current Assets | 780,313 | 2,251,259 | 7,446,924 | |||
Non-current Assets | 432,748 | 11,815,458 | 12,557,183 | |||
Current Liabilities | 238,033 | 1,543,243 | 5,742,964 | |||
Non-current Liabilities | 975,029 | 12,523,475 | 14,261,143 |
(*) |
(3)2.2. ACCOUNTING PRINCIPLESPOLICIES AND MEASUREMENT BASES APPLIED
The accounting principlespolicies and valuation standards appliedmeasurement bases used in preparing thethese consolidated financial statements were as follows:
a) Accrual principle-FAIRVALUE
RevenuesThe fair value of an asset or a liability on a given date is taken to be the amount for which it could be bought or sold on that date by two knowledgeable, independent parties in an arm’s length transaction acting prudently. The most objective and expenses are recordedcommon reference for the fair value of an asset or a liability is the price that would be paid for it on an accrual basisorganised, transparent and deep market (“quoted price” or “market price”).
If there is no market price for accounting purposes and the interest methoda given asset or liability, its fair value is applied for transactions whose settlement periods exceed twelve months. However, in accordance with the principle of prudence and with Bank of Spain regulations, the interest earned on nonperforming loans, including interest subject to country risk in countries classified as very doubtful, doubtful or experiencing temporary difficulties, is not recognized until it is collected.
In accordance with banking practice in Spain, transactions are recorded as of the date they are made, which may differ from the value date as of which interest revenues and expenses are calculated.
The consolidated finance companies record the revenues and expenses arising from their regular financing and lease contracts over the accrual period by the interest method. Under this method, these revenues and expenses are recognized over the collection periodestimated on the basis of the principal amount outstanding.price established in recent transactions involving similar instruments and, in the absence thereof, by using mathematical measurement models sufficiently tried and trusted by the international financial community. Such estimates would take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent to the measurement models developed and the possible inaccuracies of the assumptions required by these models may signify that the fair value of an asset or liability that is estimated does not coincide exactly with the price for which the asset or liability could be purchased or sold on the date of its measurement.
b) FINANCIALINSTRUMENTS
b.1) Classification
b) Foreign currency transactions-Financial assets/liabilities held for trading: these include the financial assets and liabilities acquired with the intention of generating a profit from short-term fluctuations in their prices or from differences between their purchase and sale prices.
These headings also include financial derivatives not considered to qualify for hedge accounting and, in the case of financial liabilities held for trading, the financial liabilities arising from the outright sale of financial assets purchased under reverse repurchase agreements or borrowed (“short positions”).
Other financial assets and financial liabilities at fair value through profit or loss: this heading include, among others, those are not held for trading but are:
The breakdowns by currency of several accounts and captions in these notes to consolidated financial statements include under the foreign currencies heading currencies other than the euro.
Assets, liabilities and futures transactions
Assets and liabilities which have the nature of hybrid financial assets and liabilities and contain an embedded derivative whose fair value cannot reliably be determined, or
Financial assets that are managed jointly with “liabilities under insurance contracts” measured at fair value, with financial derivatives whose purpose and effect is to significantly reduce exposure to changes in foreign currencies, includingfair value, or with financial liabilities and derivatives whose purpose is to significantly reduce overall interest rate risk exposure.
Financial instruments involved in this category are permanently subject to an integrated and consistent system of measuring, managing and controlling risks and profits or loss that enables all the financial instruments involved to be monitored and identified and allows effective reduction of risk to be checked.
These headings include both the investment and customer deposits through life insurance policies in which the policyholder assumes the investment risk (named “Unit-links”).
Available-for-sale financial assets: these include debt securities not classified as “held-to-maturity investments” or as “financial assets at fair value through profit or loss”, and equity instruments issued by entities other than subsidiaries, associates and those jointly controlled, provided that such instruments have not been classified as “held for trading” or as “other financial assets at fair value through profit or loss”.
Loans and receivables: this heading relates to the financing granted to third parties, classified on the basis of branchesthe nature thereof, irrespective of the nature of the borrower and subsidiaries abroad,the form of financing granted, and unmatured foreign currency purchasesincludes finance leases in which consolidated companies act as lessors.
The consolidated companies generally intend to hold the loans and sales arranged for hedging purposes have been translated to euros at the average year-end exchange ratescredits granted by them until their final maturity; therefore, they are presented in the Spanish spot foreign exchange market (throughconsolidated balance sheet at their amortised cost (which includes any corrections required to reflect the exchange rateestimated losses on their recovery).
Held-to-maturity investments: this heading includes debt securities for which the Group, from inception and at any subsequent date, has the intention to hold until final maturity, since it has the financial capacity to do so.
Financial liabilities at fair value through equity: these include financial liabilities arising as a result of a transfer of financial assets in which the U.S. dollartransferor retains its control.
Financial liabilities at amortised cost: this heading includes, irrespective of their instrumentation and maturity, the financial liabilities not included in local markets, for currencies not tradedany other heading in the consolidated balance sheet which relate to the typical deposit-taking activities carried on by financial institutions.
b.2) Measurement
All financial instruments are initially recognised at fair value which, in the absence of evidence to the contrary, shall be the transaction price. These instruments will subsequently be measured on the Spanish market),basis of their classification. In the case of quoted financial instruments, fair value will be taken to be their market price. For unquoted financial instruments, fair value will be obtained using the valuation techniques customarily used in the market.
Financial assets:
Financial assets are measured at fair value, except for:
- The reservesLoans and receivables,
Held-to-maturity investments, and
Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying and are settled by delivery of subsidiariesthose instruments.
Loans and receivables and held-to-maturity investments are measured at amortised cost using the effective interest rate method. Amortised cost is understood to be the acquisition cost of a financial asset or liability minus principal repayments, plus or minus the systematic amortisation (as reflected in the income statements) of any difference between the initial cost and the long-termmaturity amount. In the case of financial assets, amortised cost also includes any value adjustments for impairment.
The effective interest rate is the discount rate that exactly equates the carrying amount of a financial instrument to all its estimated cash flows of all kinds during its residual life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and commissions which, because of their nature, can be equated with a rate of interest. In the case of floating rate financial instruments, the effective interest rate coincides with the rate of return prevailing in all connections until the date on which the reference interest rate is to be revised for the first time.
Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying and are settled by delivery of those instruments are measured at acquisition cost adjusted, where appropriate, by any related impairment loss.
Financial liabilities:
Financial liabilities are measured at amortised cost, except for:
Those included under the headings “Financial Liabilities Held for Trading”, “Financial Liabilities at Fair Value through Profit or Loss” and “Financial Liabilities at Fair Value through Equity” and the financial liabilities designated as hedged items in fair value hedges or as hedging instruments, which are all measured at fair value.
Financial derivatives that have as their underlying equity instruments whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments; these derivatives are measured at cost.
Measurement of financial instruments at fair value
In 2006 most of the operations of Global Markets were measured at market value using benchmark prices published by independent market data sources, either by using the actual price of the financial instrument or by applying observable market variables to generate the fair value of the financial instruments (assets, liabilities and derivatives).
In most of the cases in which primary variables observed in the market were used rather than a direct observable price, financial models that are generally accepted and used in the markets were applied. In a limited number of cases, more sophisticated models were used, most of whose variables were objectively observable in the market.
In particular, equity and clearing house product prices, spot exchange rates, mutual funds and most fixed-income securities and credit default swaps, inter alia, can be directly observed and captured, whereas other fixed-income products, swaps, forwards, FRAs, etc. are valued by discounting cash flows using quoted interest rate curves.
Most options (financial instruments) are measured by applying commonly used valuation models, in which the observed volatility is included. The most frequently used models for equity and exchange rate options are the Monte Carlo model, the numerical integration method and the Black-Scholes model, whereas in the case of interest rate options, valuers resort mainly to the Black-Derman-Toy (BDT) model. The models are selected and validated by areas separate from the business.
Lastly, in more exceptional circumstances in which it is necessary to use an indirect market date (e.g. correlation), or in the event of shallow markets, the variable is inferred on the basis of direct market data in most cases, and of models based indirectly on market data in other cases (e.g. the Libor Market Model). However, the estimate is always made by an area separate from the business.
The following table presents the fair value of the principal financial instruments carried at fair value and the valuation methods used to determine it as of December 31, 2006:
Thousands of Euros | ||||||
Quoted market price | Market and non-market observable prices | Total | ||||
Financial assets | ||||||
Financial assets held for trading (Note 11) | 37,508,955 | 14,326,154 | 51,835,109 | |||
Other financial assets at fair value through profit and loss (Note 12) | 654,131 | 322,983 | 977,114 | |||
Available-for-sale financial assets (Note 13) | 30,361,050 | 11,905,724 | 42,266,774 | |||
Hedging derivatives (Note 16) | — | 1,963,320 | 1,963,320 | |||
Financial liabilities | ||||||
Financial liabilities held for trading (Note 11) | 1,774,552 | 13,148,982 | 14,923,534 | |||
Other financial liabilities at fair value through profit or loss (Note 24) | — | 582,537 | 582,537 | |||
Hedging derivatives (Note 16) | 6,342 | 2,273,398 | 2,279,740 |
As of December 31, 2006, the percentage of those financial instruments where the fair values were estimated using valuation techniques which are based in full or in part on assumptions that are not supported by observable market prices over total financial instruments’ fair value is 0.52%.
The potential effect of using reasonably possible alternative assumptions as inputs to valuation models, relying on non market-observable inputs, has been estimated as plus or minus €1.8 million.
b.3) Recognition of changes arising from the measurement of financial assets and liabilities
Based on the classification of financial instruments, any changes in the carrying amounts of the financial assets and liabilities classified as “held for trading” and as “other financial assets and liabilities though profit or loss” are recognised with a balancing entry in the consolidated income statement. A distinction is made between the changes resulting from the accrual of interest and similar items, which are recorded under the headings “Interest and Similar Income” or “Interest Expense and Similar Charges”, as appropriate, and those arising for other reasons, which are recorded at their net amount under the heading “Gains or Losses on Financial Assets and Liabilities” in the consolidated income statement.
Valuation adjustments arising on available-for-sale financial assets are recognised temporarily under the heading “Valuation Adjustments - Available-for-Sale Financial Assets”, unless they relate to exchange differences, in which case they are recognised temporarily under the heading “Valuation Adjustments - Exchange Differences”.
The amounts charged or credited to the headings “Valuation Adjustments - Available-for-Sale Financial Assets” and “Valuation Adjustments - Exchange Differences” remain in the Group’s consolidated equity until the asset giving rise to them is removed from the consolidated balance sheet, whereupon those amounts are charged or credited to the consolidated income statement.
Valuation adjustments arising on non-current assets held for sale and the liabilities associated with them are recognised with a balancing entry under the heading “Valuation Adjustments - Non-Current Assets Held for Sale”.
Valuation adjustments arising on financial liabilities at fair value through equity are recognised with a balancing entry under the heading “Valuation Adjustments - Financial Liabilities at Fair Value through Equity”.
In the specific case of financial instruments designated as hedged items or qualifying for hedge accounting (Note 2.2.d), valuation differences are recognised as follows:
In fair value hedges, the differences arising on both the hedging instruments and the hedged items – with regard to the type of risk being hedged – are recognised directly in the consolidated income statement.
In cash flow hedges and hedges of net investments in securities denominatedforeign operations, the valuation differences relating to the ineffective portion of the hedging transaction are recognised directly in the consolidated income statement.
In cash flow hedges, the valuation differences arising on the effective portion of the hedging instruments are recognised temporarily under the heading “Valuation Adjustments - Cash Flow Hedges”.
In hedges of net investments in foreign currenciesoperations, the valuation differences arising on the effective portion of the hedging instruments are recognised temporarily under the heading “Valuation Adjustments - Hedges of Net Investments in Foreign Operations”.
In the two last-mentioned cases, the valuation differences are not recognised in profit or loss until the gains or losses of the hedged item are recognised in the income statement or until the date of maturity of the hedged item.
In fair value portfolio hedges of interest rate risk, the gains or losses that arise on measuring the hedging instruments are recognised directly in the consolidated income statement, with a balancing entry under the heading “Hedging derivatives” on the assets or liability side of the consolidated balance sheet, whereas the gains or losses due to changes in the fair value of the hedged amount are recorded in the consolidated income statement with a balancing entry under the heading “Changes in the Fair Value of the Hedged Items in Portfolio Hedges of Interest Rate Risk” on the asset or liability side of the balance sheet, as appropriate.
In cash flow portfolio hedges of interest rate risk, the effective portion of the change in value of the hedging instrument is recognised temporarily under the heading “Valuation Adjustments - Cash Flow Hedges” until the forecast transactions are performed, at which time it is recorded in the consolidated income statement. The ineffective portion of the change in value of hedging derivatives is recognised directly in the consolidated income statement.
b.4) Impairment
A financial asset is considered to be impaired – and therefore its carrying amount is adjusted to reflect the effect of its impairment – when there is objective evidence that events have occurred which:
In the case of debt instruments (loans and debt securities), give rise to a negative impact on the future cash flows that were estimated at the time the transaction was arranged.
In the case of equity instruments, mean that the carrying amount of these instruments cannot be recovered.
As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge to the consolidated income statement for the year in which the impairment becomes known, and the recoveries of previously recognised impairment losses are recognised in the consolidated income statement for the year in which the impairment is reversed or reduced, with the exception that any recovery of previously recognised impairment losses for an investment in an equity instrument classified as available for sale which are not recognised through consolidated profit or loss but fundedrecognised under the heading “Valuation Adjustments – Available for sale Financial Assets” in eurosthe consolidated balance sheet.
Balances are considered to be impaired, and accrual of the interest thereon is suspended, when there are reasonable doubts that the balances will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed upon, taking into account the guarantees received by the consolidated entities to assure (in part or in full) the performance of transactions. Amounts collected in relation to impaired loans and receivables are used to recognise the related accrued interest and any excess amount is used to reduce the principal not yet paid.
When the recovery of any recognised amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.
Debt instruments carried at amortised cost:
The amount of the impairment losses incurred on these instruments relates to the positive difference between their respective carrying amounts and the present values of their expected future cash flows. However, the market value of quoted debt instruments is deemed to be a currencyfair estimate of the present value of their future cash flows.
The following is to be taken into consideration when estimating the future cash flows of debt instruments:
All the amounts that are expected to be obtained over the residual life of the instrument; including, where appropriate, those which may result from the guarantees provided for the instrument (after deducting the costs required for foreclosure and subsequent sale).
The various types of risk to which each instrument is subject.
The circumstances in which collections will foreseeable be made.
These cash flows are subsequently discounted using the original effective interest rate. If a financial instrument has a variable interest rate, the discount rate for measuring any impairment loss is the current effective rate determined under the contract.
The possible impairment losses on these assets are determined:
Individually, for all significant debt instruments and for those which, although not significant, cannot be classified in homogenous groups of instruments of similar characteristics, i.e. by instrument type, debtor’s industry and geographical location, type of guarantee, age of past-due amounts, etc.
Collectively, in all other cases.
Criteria for determining impairment losses resulting from materialization of insolvency risk of the obligors have been established. Under these criteria, a debt instrument is impaired due to insolvency:
When there is evidence of a deterioration of the obligor’s ability to pay, either because it is in arrears or for other reasons, and/or
When country risk materialises; country risk is considered to be the risk associated with debtors resident in a given country due to circumstances other than thatnormal commercial risk.
Similarly, different classifications of transactions have been established on the basis of the investment, which have been translated at historical exchange rates.
- The revenue and expense accountsnature of the subsidiaries abroad,obligors, the conditions of the countries in which have been translatedthey reside, transaction status, type of associated guarantees, and age of the arrears, establishing for each of these risk groups the minimum impairment losses (“identified losses”) that must be recognised in the financial statements of consolidated entities.
In addition to the recognition of identified losses, it requires provisioning for the losses inherent to the risks classified as standard risk for the different categories of debt instruments not measured at fair value through profit or loss and in contingent risks classified as standard, taking into account the historical experience of impairment and the other circumstances known at the average exchange rates in each year.
- The unmatured forward foreign currency purchases and sales arranged fortime of the assessment. For these purposes, other than hedginginherent losses are valuedthe losses incurred at the year-end exchange rates indate of the Spanish forward foreign exchange market, whichfinancial statements, calculated using statistical procedures that have not been allocated to specific transactions.
Impairment losses are publishedquantified by applying the parameters established by the Bank of Spain on the basis of its experience and of information on the Spanish banking industry.
Other debt instruments:
The impairment losses on debt securities included in the available-for-sale financial asset portfolio are equal to the positive difference between their acquisition cost (net of any principal repayment) and their fair value after deducting any impairment loss previously recognised in the consolidated income statement.
When there is objective evidence that the negative differences arising on measurement of these assets are due to impairment, they are no longer considered as “Valuation Adjustments - Available-for-Sale Financial Assets” and are recognised in the consolidated income statement. If all or part of the impairment losses are subsequently recovered, the amount is recognised in the consolidated income statement for this purpose.the year in which the recovery occurred.
Similarly, in the case of debt instruments classified as “non-current assets held for sale”, losses previously recorded in equity are considered to be realised – and are recognised in the consolidated income statement – on the date the instruments are so classified.
Equity instruments measured at fair value:
The criteria for quantifying and recognising impairment losses on equity instruments are similar to those for other debt instruments, with the exception that any recovery of previously recognized impairment losses for an investment in an equity instrument classified as available for sale which are not recognised through profit or loss but recognized under the heading “Valuation Adjustments – Available for sale Financial Assets” in the consolidated balance sheet.
Equity instruments measured at cost:
The impairment losses on equity instruments measured at acquisition cost are equal to the difference between their carrying amount and the present value of expected future cash flows discounted at the market rate of return for similar securities. These impairment losses are determined taking into account the equity of the investee (except for valuation adjustments due to cash flow hedges) for the last approved (consolidated) balance sheet, adjusted for the unrealised gains at the measurement date.
Impairment losses are recognised in the consolidated income statement for the year in which they arise as a direct reduction of the cost of the instrument. These losses may only be reversed subsequently in the event of the sale of the assets.
c) RECOGNITIONOFINCOMEANDEXPENSES
The equivalent euro valuemost significant criteria used by the Group to recognise its income and expenses are summarised as follows:
Interest income and expenses and similar items:
As a general rule, interest income and expenses and similar items are recognised on the basis of their year of accrual using the effective interest method. Specifically, the financial fees and commissions that arise on the arrangement of loans, basically origination and analysis fees must be deferred and recognised in the income statement over the life of the loan. The direct costs incurred in arranging these transactions can be deducted from the amount thus recognised. Also dividends received from other companies are recognised as income when the consolidated companies’ right to receive them arises.
However, when a debt instrument is deemed to be impaired individually or is included in the category of instruments that are impaired because of amounts more than three months past-due, the recognition of accrued interest in the consolidated income statement is interrupted. This interest is recognised for accounting purposes when it is received, as a recovery of the impairment loss.
Commissions, fees and similar items:
Income and expenses relating to commissions and similar fees are recognised in the consolidated income statement using criteria that vary according to their nature. The most significant income and expense items in this connection are:
Those relating linked to financial assets and liabilities denominatedmeasured at fair value through profit or loss, which are recognised when collected.
Those arising from transactions or services that are provided over a year of time, which are recognised over the life of these transactions or services.
Those relating to a single act, which are recognised when the single act is carried out.
Non-financial income and expenses:
These are recorded for accounting purposes on an accrual basis.
Deferred collections and payments:
These are recorded for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.
d) FINANCIALDERIVATIVESANDHEDGEACCOUNTING
Financial derivatives are instruments that permit the transfer to third parties of all or part of the credit and/or market risks associated with balances and transactions. The underlying used in foreign currencies was €88,470,097 million and €95,497,298 million, respectively, asthese derivatives can be interest rates, specific indices, the prices of December 31, 2003 (€102,210 million and €107,367 million, respectively, as of December 31, 2002 and €131,115 million and €137,720 million, respectively, as of December 31, 2001).
Exchange differences
certain securities, cross-currency exchange rates or other similar references.
The exchange differences arising from applicationholding of positions in derivatives is the result of the above-mentioned translation methods are recorded as follows:
Structural exchange positions
The Group’s general policy isneed to finance investments in foreign subsidiaries and capital assigned to branches abroad inmanage the same currency as that of the investment, in order to eliminate any future risk of exchange differences arising from these transactions. However, the investments in countries whose currencies do not have a market enabling the Bank to obtain financing that is unlimited, lasting and stable at long term are financed in another currency. Through 2001 this financing was in dollars, but in 2002 and 2003 most of the financing was provided in euros.
Exchange differences arising from financing in currencies other than the euro and the investment currency, net of the amount hedgedrisks incurred by specific derivative transactions, are charged or credited to Group income, whereas those relating to investments are recorded under the “Reserves at Consolidated Companies - Translation Differences” caption in the accompanying consolidated balance sheets. Based on this principle, €2,796 thousand and €32,699 thousand, respectively, were credited to the “Market Operations” caption in the accompanying 2003 and 2002 consolidated statements of income, and €77,753 thousand was charged to the “Market Operations” caption in the accompanying 2001 consolidated statement of income (Note 28-b).
However, since the end of 2002, the exchange risk associated with most of the investments made in Mexico and Chile has been hedged by derivative transactions, and the variations are recorded as adjustments to the “Reserves at Consolidated Companies – Translation Differences” caption in the accompanying consolidated balance sheets.
Inflation
Certain subsidiaries (located in Mexico, Uruguay, Chile, Peru, Bolivia and, through March 2003, Argentina –Note 3-o) are subject to local regulations on adjustments for inflation, and, accordingly, record charges and credits in their statements of income to protect their net worth from the theoretical decline in value arising from inflation. These accounting entries are recorded under the “Extraordinary Income” and “Extraordinary Losses” captions in the accompanying consolidated statements of income (Note 28-g). The detail of the net amount of these items is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Extraordinary income | |||||||||
Mexico | — | 20,454 | 80,247 | ||||||
Argentina (*) | — | 38,456 | — | ||||||
Peru | — | — | 3,414 | ||||||
— | 58,910 | 83,661 | |||||||
Extraordinary losses | |||||||||
Mexico | (36,509 | ) | — | — | |||||
Argentina | (820 | ) | — | — | |||||
Peru | (3,620 | ) | (3,703 | ) | — | ||||
Chile | (3,655 | ) | (9,293 | ) | (10,512 | ) | |||
Uruguay | (12,007 | ) | (41,483 | ) | (3,870 | ) | |||
(56,611 | ) | (54,479 | ) | (14,382 | ) | ||||
(56,611 | ) | 4,431 | 69,279 | ||||||
c) Loan loss provisions (Note 2-f)-
The loan loss provisions are intended to cover the losses, if any, which might arise in the full recovery of all credit and off-balance-sheet risks assumed by the Groupit in the course of its normal business activities. Derivatives represent another of the tools available to the Group, and are necessary for the management of:
Market Risk: Positions taken by the Group mostly in order to satisfy its customers’ needs (franchise model). In most cases the derivatives used are: interest-rate derivatives, to manage the risks arising as a result of long- and short-term variations in interest rates; exchange-rate derivatives, to mitigate exposure to exchange-rate fluctuations; and equity security derivatives, to manage price risks.
Structural Interest-Rate Risk: Structural interest-rate risk is defined as an entity’s exposure to variations in market interest rates arising from mismatches in the maturity and repricing dates of the entity’s assets and liabilities, including derivatives. The Asset and Liability Committee (ALCO) is the body responsible for actively managing BBVA’s balance sheet in order to stabilize net interest income without prejudice to net asset value. Basically, the derivatives used to achieve this goal are interest-rate derivatives.
Structural Exchange-Rate Risk: An entity’s structural exchange-rate risk refers to the potential losses in the value of structural positions arising from variations in exchange rates. The Asset and Liability Committee (ALCO) is the body responsible for managing this risk, for which purpose it uses exchange- and interest-rate derivatives.
Credit Risk in market activities: this is the risk that one of the parties to the financial business (Notes 7, 8instrument over-the-counter (OTC) agreement will fail to honour its contractual obligations due to the insolvency or incapacity of the legal entities involved. Credit default swap are used to manage this risk.
All derivatives are recognized in the balance sheet at fair value from the date of arrangement. If the fair value of a derivative is positive, it is recorded as an asset and 9). For presentation purposes, they areif it is negative, it is recorded as a reductionliability. Unless there is evidence to the contrary, it is understood that on the date of arrangement the fair value of the “Duederivatives is equal to the transaction price. Changes in the fair value of derivatives after the date of arrangement are recognized with a balancing entry under the heading “Gains or Losses on Financial Assets and Liabilities” in the consolidated income statement. Specifically, the fair value of the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price. If, under exceptional circumstances, their quoted price cannot be established on a given date, these derivatives are measured using methods similar to those used to measure over-the-counter (“OTC”) derivatives.
The fair value of OTC derivatives is equal to the sum of the future cash flows arising from Credit Institutions”, “Total the instrument, discounted at the measurement date (“present value” or “theoretical close”); these derivatives are measured using methods recognised by the financial markets, including the net present value (NPV) method and option price calculation models.
Financial derivatives that have as their underlying equity instruments, whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments, are measured at cost.
Hedge accounting
The Group, for risk management purposes, applies fair value hedge accounting, cash flow hedge accounting or hedging of a net investment in a foreign operation as appropriate to the risks being hedged.
A financial derivative may be considered as qualifying for hedge accounting only if it meets the following three conditions:
It is designated as hedging item of one of the three types of hedging relationships (fair value hedge, cash flow hedge or net investment in a foreign operation);
It must effectively eliminate a significant portion of the risk inherent in the hedged item or position over the expected term of the hedge, which means that:
At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”) and,
There is sufficient evidence that the hedge was fully effective during the whole life of the hedged item or position (“retrospective effectiveness”).
Lastly, there must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and the manner in which this hedge is expected to be achieved (provided that this is in line with the Group’s management of own risks).
Fair value hedge
The changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized in earnings. This type of hedging relationships hedge changes in the value of assets and liabilities due to fluctuations in the interest rate and/or exchange rate to which the position or balance to be covered.
The main transactions whose risks are hedged by fair value hedge are:
Available for sale fixed rate debt securities: this risk is hedged using interest-rate derivatives (interest-rate swaps through which the fixed-coupon of the bond is exchanged for a variable return).
Long term fixed rate debt issued: this risk is hedged using interest-rate derivatives (interest-rate swaps which replicate, on the collection leg, the payment resulting from the issue and transform it into a variable cost for the Bank).
Available for sale equity securities: this risk is hedged using equity swaps through which the risk of variation in the price per books of the portfolio is transferred to the counterparty.
Fixed rate loans: this risk is hedged using interest-rate derivatives (interest-rate swaps through which the fixed-coupon of the loans is exchanged for a variable return).
Cash flow hedge
The effective portions of changes in the fair value of the derivative are recorded in “Valuation adjustments-Cash Flow hedges” and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. In a cash flow hedge is hedged the changes in the estimated cash flows arising from financial assets and liabilities and highly probable transactions which an entity plans to carry out.
Most of the hedged items are floating interest rate loans: this risk is hedged using currency and interest rate swaps.
Net Lending”investment in a foreign operation hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. The gain or loss on a hedging derivative instrument that is designated as, and “Debentures and Other Debt Securities” captionsis effective as, an economic hedge of the net investment in a foreign operation is reported in the same way as a translation adjustment to the extent it is effective as a hedge. The ineffective portion of net investment hedges is reported in earnings.
Most of the risks hedged are foreign currency of a net investment in a foreign subsidiary: the risk of a net investment in a foreign operation is exchanged for the currency in which the investment is denominated.
Portfolio hedge of interest rate risk
A portfolio hedge of interest rate risk is that which hedges the interest rate risk exposure of a certain amount of financial assets or financial liabilities forming part of the overall financial instrument portfolio, but not the interest rate risk exposure of specific instruments. Portfolio hedges can take the form of fair value or cash flow hedges.
The gains or losses arising from changes in the fair value of the interest rate risk of effectively financial instruments are charged or credited, as appropriate, to the heading “Changes in the Fair Value of the Hedged Items in Portfolio Hedges of Interest Rate Risk” on the asset side of the accompanying consolidated balance sheets. The provisions to cover any losses on the Group’s off-balance-sheet risks are included under the “Provisions for Contingencies and Expenses - Other Provisions” caption on theor liability side of the accompanying consolidated balance sheets (Note 20).sheet.
The loan loss provisions were determined on the basis of the following criteria:
d) Government debt securities, debentures and other debt securities-
The securities comprising the Group’s fixed-income securities portfolio are classified as follows:
A securities revaluation reserve is recorded for the net difference with respect to the total market value of this portfolio, if lower, based on the year-end closing market prices in the case of listed securities, and on the present value at market interest rates on that date in the case of unlisted securities. The unrealized losses on securities sold to third parties under repurchase agreement are written down for the proportional part of the period from the expected repurchase date to the maturity date.
Also, securities acquired to hedge other transactions at the same term and with fixed interest, which therefore are not exposed to interest rate risk, are recorded at acquisition cost.
The writedown of the listed fixed-income portfolio is charged to asset accrual accounts, which are presented together with the securities written down under the appropriate consolidated balance sheet captions, or to income in the case of permanent losses. As of December 31, 2003,2006 and 2005, the balance of these accounts amounted to €69,687 thousand (Note 9). As of December 31, 2002 and 2001, these accrual accountsGroup had no balance.portfolio hedge of interest rate risk operations.
Note 16 presents additional information relating to hedging derivatives.
e) PENSIONCOMMITMENTSANDOTHERCOMMITMENTSTOEMPLOYEES
Bank of Spain Circular 4/1991 also requires that an additional securities revaluation reserve be recorded for the amountFollowing is a description of the gains on the disposal of fixed-income securities in the available-for-sale portfolio, which is appliedmost significant accounting criteria relating to the asset accrual account describedcommitments to employees, related to post-employment benefits and other commitments, of certain Group companies in the preceding paragraph, up to the balance calculated therefor.
Spain and abroad.
e) Equity securities-Commitments valuation: assumptions and gains/losses recognition.
Securities in the trading portfolio, which includes the portions of the associated companies which are not held at long term, are stated at market price. The net differences arising from price fluctuations are recorded under the “Market Operations” caption in the accompanying consolidated statements of income.
Equity securities representing holdings in subsidiaries not fully consolidable or holdings of generally 20% or more in unlisted companies (3% if listed) which do not meet the conditions for proportional consolidation are accounted for by the equity method as indicated in Note 2-c, except for holdings for which hedging transactions were arranged to eliminate the equity price risk, which are valued at acquisition cost. The investments accounted for by the equity method were valued on the basis of the interim, to date unaudited, financial statements furnished by the companies.
Other equity securities are recorded in the consolidated balance sheets at the lower of cost, revalued where appropriate, or market. The market value of these securities was determined as follows:
The difference between acquisition cost and the amount calculated as indicated in the preceding paragraph, which may be offset by the annual increase in the underlying bookpresent values of the investee over a maximum period of twenty years, need not be written down.
The securities revaluation reserve is recorded to recognize the unrealized losses arising from application of the aforementioned methods, and is presented as a reduction of the balances of the “Common Stocks and Other Equity Securities” and “Investments in Non-Group Companies” captions on the asset side of the accompanying consolidated balance sheets (Notes 2-f, 10 and 11). This reserve is recorded with a charge to the “Market Operations” caption in the accompanying consolidated statements of income.
Equity securities were revalued pursuant to the applicable enabling legislation on account revaluations or by the methods stipulated in the regulations on corporate mergers which were applied at the related merger dates (Note 24).
f) Intangible assets-
This caption in the accompanying consolidated balance sheets includes, among other items, the payments made to acquire computer applications, whichvested obligations are amortized over a maximum period of three years.
This caption also includes incorporation and preopening expenses, expenses of capital increases carried out at the Bank and subsidiaries and the unamortized expenses of bond and other financial instrument issuances. These expenses are amortized in a maximum period of five years, except for the financial instrument issuance expenses, which are amortized over the life of each issue.
g) Consolidation goodwill and negative consolidation difference-
The positive differences between the acquisition cost of shares of subsidiaries or companies accounted for by the equity method (Note 2-c) and their underlying book value are recorded as goodwill, if they cannot be classified as additions to the value of specific assets of the acquired companies.
As these differences are deemed to persist, they are generally amortizedquantified on a straight-line basis over a maximum period of ten years (20 yearscase-by-case basis. The valuation method used for certain basically nonfinancial holdings), since itcurrent employees is considered that this is the period over which the underlying investments will contribute to obtaining income for the Group. In 2002 the Group wrote off in full the goodwill resulting from its holdings in companies located in certain Latin-American countries, mainly BBVA Banco Continental, S.A., AFP Horizonte, S.A. (Perú), BBVA Banco Ganadero, S.A., BBVA Horizonte Pensiones y Cesantías, S.A. (Colombia) and BBVA Uruguay, S.A. In 2001 the Group wrote off in full the unamortized goodwill as of December 31, 2001, resulting from its holdings in Argentine companies (Notes 3-o, 4 and 13).
As described in Note 2-a, the accompanying consolidated financial statements for the year ended December 31, 2001 reflect an adjustment of the Spanish statutorily approved financial statements of the Group consisting of the reversal of the early amortization of goodwill and the amortization of such over its estimated minimum period of economic life (generally, five years), solely for purpose of complying with the United States regulations.
The unrealized gains assigned to specific assets are amortized, if appropriate, on the basis of their disposal or effective decline in value over a maximum period of ten years in the case of operating assets.
When the cost of acquisitions is lower than their underlying book value, a negative consolidation difference arises which is treated as a provision and may not be credited to income unless the investment in the capital stock of these companies is fully or partially disposed of or in the event of the unfavorable evolution of the results of these companies (Note 13).
h) Property and equipment-
Assets for own use-
Property and equipment are carried at cost, revalued where appropriate pursuant to the applicable enabling legislation (Note 24), net of the related accumulated depreciation. The buildings owned by certain of the Group companies which were involved in mergers were stated, pursuant to the applicable legislation, on the basis of the market prices on the related merger dates as determined by independent appraisers.
Depreciation is generally provided at the following depreciation rates:
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Revaluation surpluses are depreciated over the remaining years of useful life of the revalued assets.
Gains or losses on disposal of property and equipment are recorded under the “Extraordinary Income” or “Extraordinary Losses” captions, respectively, in the consolidated statements of income.
Assets received in payment of debts-
These assets are recorded at the lower of the book value of the assets used to acquire them or market value, net, initially, of any provisions covering the assets received, up to 25% of that value. In accordance with Bank of Spain regulations, additional provisions are recorded in the years following foreclosure of the assets based on their age, type of asset and appraisal by independent appraisers.
The provisions recorded with a charge to the “Extraordinary Losses” caption in the accompanying consolidated statements of income are presented as a reduction of the balance of the “Property and Equipment - Other Property” caption in the accompanying consolidated balance sheets (Notes 14 and 28-g).
i) Treasury stock-
The balance of the “Treasury Stock” caption in the accompanying consolidated balance sheets as of December 31, 2003, 2002 and 2001, relates to shares of Banco Bilbao Vizcaya Argentaria, S.A. owned by the Bank and by consolidated subsidiaries (Note 23). These shares are reflected at cost, net, where appropriate, of the provision recorded to write them down to the lower of consolidated underlying book value or market price.
The provision mentioned above is recorded with a charge to the “Losses on Group Transactions” caption in the accompanying consolidated statements of income. Gains or losses arising from the disposal of Bank shares are recorded under the “Income on Group Transactions” or “Losses on Group Transactions” captions respectively, in the accompanying consolidated statements of income.
The treasury stock and shares of Group and associated companies that are acquired as a result of futures hedging transactions related to certain stock market indexes are valued at market price. Valuation differences are recorded under the “Market Operations” caption in the consolidated statement of income.
In accordance with the revised Spanish Corporations Law, a restricted reserve has been recorded for the net book value of the aforementioned treasury stock (Note 24).
The total Bank shares owned by the Bank and consolidated companies represented 0.2343%, 0.3347% and 0.189% of the capital stock issued by the Bank as of December 31, 2003, 2002 and 2001 respectively. The subsidiaries not fully consolidable held 0.0026%, 0.0061% and 0.00187% of the Bank’s capital stock, as of those dates, respectively.
j) Pension commitments and other commitments to employees-
Pension commitments
In 2003, 2002 and 2001 the Group offered certain employees the possibility of taking early retirement before the age stipulated in the current collective labor agreement. 1,944, 1,439 and 1,887 employees availed themselves of this offer in 2003, 2002 and 2001, respectively. The total cost of these agreements was €799,826 thousand in 2003, €575,906 thousand in 2002 and €731,743 thousand in 2001 (Notes 20 and 24), including indemnities, deferred compensation and future contributions to external pension funds. To meet this commitment, the related provisions were recorded, after considering the tax effect, with a charge to the “Additional Paid-In Capital” and “Reserves” captions in the accompanying consolidated balance sheets as of December 31, 2003, 2002 and 2001 (Notes 2-h and 24), and with charges amounting to €410 thousand and €76,729 thousand in 2003 and 2002, respectively, to the “Extraordinary Losses” caption in the accompanying 2003 and 2002 consolidated statements of income based on the authorizations by the related Shareholders’ Meetings and the express authorization of the Bank of Spain, in accordance with Rule 13 of Bank of Spain Circular 4/1991. The commitments to this employee group from their normal retirement age are included in the Employee Welfare System, as described below.
The early retirement payments payable, which include the present value of the compensation and indemnities payable to and of the future contributions to the external pension funds of the personnel who took early retirement in 2003 and prior years, through their normal retirement date, amounted to €2,392,907 thousand (€1,942,975 thousand as of December 31, 2002, and €1,715,218 thousand as of December 31, 2001), net of the payments of €429,168 thousand made in 2003 (€407,153 thousand in 2002 and €346,061 thousand in 2001), and are included under the “Provisions for Contingencies and Expenses - Pension Provision” caption in the accompanying consolidated balance sheets.
In addition to the above, there are other internal pension provisions amounting to €3,009 thousand as of December 31, 2003 (€949 thousand, €1,530 thousand as of December 31, 2002 and 2001, respectively), which are not subject to the externalization process.
Certain Group entities abroad have pension and other commitments to their employees, the accrued liability of which amounted to €598,539 thousand, €640,493 thousand and €622,168 thousand as of December 31, 2003, 2002 and 2001, respectively, and is included under the “Provisions for Contingencies and Expenses - Pension Provision” caption in the accompanying consolidated balance sheets. €552,556 thousand, €570,060 thousand and €555,618 thousand of these amounts as of December 31, 2003, 2002 and 2001, respectively, related to provisions recorded by BBVA Bancomer, S.A. (Notes 4 and 20) to cover accrued defined benefit pension commitments and long-service bonuses at the retirement date and to cover, from 2002, post-retirement occupational obligations regarding medical services. The shortfall for past services as of December 31, 2003, resulting from the recording of the latter commitment amounted to €171,854 thousand (Note 15) and is amortized over the average remaining working life of the employee group. The actuarial studies to evaluate these commitments were performed on an individual basis and quantified using the projected unit credit method, which views each year of service as giving rise to an additional unit of benefit entitlement and measures each unit separately.
As of December 31, 2006, 2005 and 2004, actuarial gains or losses arising from differences between the discount ratesactuarial assumptions and mortality and disability rates authorized by the Mexican National Banking and Securities Commission. In 2003, net charges of €48,338 thousandwhat had actually occurred, were made by BBVA Bancomer, S.A. in this connection and were recorded with a charge to the “General Administrative Expenses - Personnel Costs” captionrecognized in the accompanying 2003 consolidated statement of income.
Pensions.
Under the current collective labor agreement, Spanish banks are required to supplement the social security benefits received by employees or their beneficiary rightholders in the event of retirement (except for those hired after 8 March 8, 1980), permanent disability, death of spouse or death of parent.
Since 2000, by virtueThe employee welfare systems in place at the Group’s Spanish banks supersede and improve the terms and conditions of the collective labor agreement for the banking industry; the commitments envisaged in the event of retirement, death and disability cover all employees, including those hired on or after March 8, 1980.
The Spanish banks of the employee welfare system dated November 14, 2000,Group externalized all thetheir commitments to serving and retired employees pursuant to Royal Decree 1588/1999 of October 15. These commitments are instrumented in Pension Plans, insurance contracts with a non-Group company and insurance contracts with BBVA Seguros, S.A. de Seguros y Reaseguros, which is 99.94% owned by the Banco Bilbao Vizcaya Argentaria Group. The externalized commitments with this insurance company owned by the Group are recognized in the heading “Provisions - Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets. They are measured using the criteria and assumptions as described in this note. Whereas, the balances of the Group’s Spanish banksassets assigned by the insurance company owned by the Group to the funding of commitments are recognized and measured in the accompanying consolidated balance sheets. They are measured using the criteria as described in the note 2.2.b) about “Financial instruments”.
On the other hand, the balances of the aforementioned insurance policies which were contracted with non-related insurance companies were disclosed net of the fair value of the assets assigned to the funding of commitments in the accompanying consolidated balance sheets.
Additionally, certain Group companies and some BBVA branches abroad, have been externalized and instrumented in external pension plans and insurance policies. Thispost-employment benefit commitments to certain current and/or retired employees.
The previous employee welfare system covers all employees, including those hired subsequent to March 8, 1980. The employee welfare system also includes the pension commitments and obligations to former directors of the Bank with executive functions, amounting to €80,387 thousand as of December 31, 2003 and €80,477 thousand as of December 31, 2002.
On December 29, 2003, a collective agreement was entered into whereby, inter alia, the defined-benefit retirement system applicable to certain Pension Plan groups is transformed into a new defined-contribution system. This agreement will come into force on January 1, 2004, and will not give rise to additional provisioning requirements for the Group.
The employee welfare system includessystems include defined contribution and defined obligation commitments.
Defined contribution commitments: the amounts of whichthese commitments are determined, in each caseon a case-by-case basis, as a percentage of certain compensationremuneration items and/or as a presetpre-established annual amount, andamount. The current contributions made by the Group’s companies for defined contribution retirement commitments covering substantially all current employees, which are recognized with a charge to the heading “Personnel Expenses – Contributions to external pension funds” in the accompanying consolidated income statements.
Defined benefit commitments: Certain Group’s companies have defined benefit commitments thatfor permanent disability and death of current employees and early retirees; for death of certain retired employees; and defined-benefit retirement commitments applicable only to certain groups of serving employees (unvested benefits), or early retired employees (vested benefits) and of retired employees (ongoing benefits). Defined benefit commitments are coveredfunded by insurance policies.contracts and internal Group provisions.
The amounts recognized in the heading “Provisions - Funds for Pensions and Similar Obligations” are the differences between the present values of the vested obligations for defined obligation retirement commitments at balance sheet date, adjusted by actuarial gains/losses, the prior service cost and the fair value of assets assigned to the funding of commitments which are to be used directly to settle employee benefit obligations.
The provisions for defined obligation retirement commitments were charged to the heading “Provisions for Pensions and Similar Obligations” in the accompanying consolidated income statements.
The current contributions made by the Group’s companies for defined obligation retirement commitments covering current employees are charged to the heading “Personnel Expenses – Transfers to internal pension provisions” in the accompanying consolidated income statements.
Early retirements.
In 2006, 2005 and 2004, the Group offered certain employees the possibility of taking early retirement before reaching the age stipulated in the collective labor agreement in force. The corresponding provisions by the Group were recognized with a charge to the heading “Provision Expense (Net) - Transfers to Funds for Pensions and Similar Obligations—Early Retirements” in the accompanying consolidated income statements. The present values of the vested obligations are quantified on a case-by-case basis and they are recognized in the heading “Provisions - Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets.
The commitments to early retirees include the compensation and indemnities and contributions to external pension funds payable during the year of early retirement. The commitments relating to this group of employees after they have reached the age of effective retirement are included in the employee welfare system.
Post-employment welfare benefits.
Certain Group companies have welfare benefit commitments the effects of which extend beyond the retirement of the employees entitled to the benefits. These latter commitments asrelate to certain current employees and retirees, depending upon the employee group to which they belong.
The present values of December 31, 2003, 2002the vested obligations for post-employment welfare benefits are quantified on a case-by-case basis. They are recognized in the heading “Provisions - Funds for Pensions and 2001, were valuedSimilar Obligations” in accordance with the externalization contracts entered intoaccompanying consolidated balance sheets and they are charged to the heading “Personnel expenses – Other personnel expenses” in the accompanying income statements.
Other commitments to employees.
Compensation in kind
Certain Spanish Group companies are obliged to deliver partially or fully subsidised goods and services under the collective labour agreements applicable to them and/or the related corporate agreements. The most significant employee welfare benefits granted by the Group’s Spanish banks, in terms of the type of compensation and the event giving rise to the commitment, are loans to employees, life insurance, companies using PEM/F 2000 mortality tables (GRM/F 95study aid and long-service bonuses.
The scope of application of these employee welfare benefits varies from one company to another depending on the specific agreements that govern them. They may also be applied differently to employees of the same company, when different agreements are in force for each of the various employee groups.
Long-service bonuses are a form of long-term compensation, entitlement to which is conditional upon the qualifying beneficiary employees remaining in service for a stipulated number of years (15, 25, 40 or 50 years’ effective service in the case of share-based bonuses and 45 years’ effective service in the case of cash bonuses).
The present values of the vested obligations for long-service cash bonuses, long-service share-based payment and for the insurance policies betweencorresponding were quantified on a case-by-case basis. They are recognized in the external pension plansheading “Provisions –
Other provisions” in the accompanying consolidated balance sheets. The cost of the employee welfare benefits provided by the Group’s Spanish companies to their current employees are charged to the heading “Personnel expenses – Other personnel expenses” in the accompanying income statements.
Since all other employee welfare benefits for current employees accrue and are settled on a yearly basis, it is not necessary to record a provision in this connection.
f) FOREIGNCURRENCYTRANSACTIONSANDEXCHANGEDIFFERENCES
The Group’s functional currency is the insurance companies)euro. Therefore, all balances and discount rates lowertransactions denominated in currencies other than the internal rates of return on the investments assignedeuro are deemed to cover them.be denominated in “foreign currency”. Foreign currency balances are translated to euros in two consecutive stages:
The statusTranslation of foreign currency to the functional currency of the commitments coveredentities and branches, and
Translation to euros of the balances held in the functional currencies of entities whose functional currency is not the euro.
Translation of foreign currency to the functional currency: foreign currency transactions performed by external pension plansthe consolidated entities and their branches are initially recognised in their respective financial statements at the equivalent value in their functional currencies, translated using the exchange rates prevailing at the transaction date. Subsequently, for the purpose of presentation in their separate financial statements, the consolidated entities translate the foreign currency balances to their functional currencies using the average spot exchange rates at the end of the year.
a) | Assets and liabilities monetary items are translated using the average spot exchange rates at the end of the year to which the financial statements refer. |
b) | Non-monetary items measured at amortized cost and fair value, are translated at the exchange rate of the date of acquisition and the date of determination of their fair value, respectively. |
c) | The income and expenses are translated at the exchange rate prevailing at the transaction date, with the possibility of using the average exchange rate of the period for all the transactions carried out during it, unless a significant variation in the exchange rate has occurred during the period. The depreciation will be translated at the exchange rate applied to the corresponding assets. |
Entities whose functional currency is not the euro: the balances in the financial statements of consolidated entities whose functional currency is not the euro are translated to euros as follows:
Assets and liabilities: at the average spot exchange rates as of December 31, 2003, 20022006, 2005 and 2001,2004.
Income and expenses and cash flows: at the average exchange rates for 2006, 2005 and 2004.
Equity items: at the historical exchange rates.
The exchange differences arising on the translation of foreign currency balances to the functional currency of the consolidated entities and their branches are generally recorded in the consolidated income statement. Exceptionally, the exchange differences arising on non-monetary items whose fair value is adjusted with a balancing item in equity are recorded under the heading “Valuation Adjustments - Exchange Differences”.
The exchange differences arising on the translation to euros of balances in the functional currencies of the consolidated entities whose functional currency is not the euro are recorded under the heading “Valuation Adjustments - Exchange Differences” in the consolidated balance sheet until the item to which they relate is derecognised, at which time they are recorded in the income statement.
The breakdown of the main foreign currency balances in the consolidated balance sheet as of December 31, 2006, 2005 and 2004, based on the nature of the related items, is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Pension commitments to retired employees (*) | ||||||
External pension funds | 429,036 | 400,122 | 377,663 | |||
Insurance contracts (mathematical reserves) With insurance companies related to the Group | 1,548,077 | 1,469,260 | 1,342,240 | |||
With unrelated insurance companies | 629,533 | 662,613 | 548,496 | |||
2,606,646 | 2,531,995 | 2,268,399 | ||||
Possible commitments to serving employees | ||||||
External pension funds | ||||||
Employees with full coverage of accrued and unaccrued possible commitments (*) | 470,266 | 487,056 | 506,434 | |||
Other employees (**) | 1,358,415 | 1,252,123 | 1,180,245 | |||
1,828,681 | 1,739,179 | 1,686,679 | ||||
Insurance contracts with insurance companies (mathematical reserves) in the Group (***) | 163,679 | 145,622 | 258,125 | |||
1,992,360 | 1,884,801 | 1,944,804 | ||||
4,599,006 | 4,416,796 | 4,213,203 | ||||
Assets - Cash and balances with Central Banks Financial held for trading Available-for-sale financial assets Loans and receivables Investments Tangible assets Other Liabilities- Financial held for trading Financial liabilities at amortised cost Other Thousands of Euros 2006 2005 2004 126,190,212 117,409,477 86,777,076 8,857,791 9,091,495 6,176,800 22,398,309 17,137,145 15,637,769 14,800,895 15,476,934 10,587,927 71,727,999 66,632,376 47,381,972 66,455 63,267 94,957 1,660,901 1,680,676 1,256,658 6,677,862 7,327,584 5,640,993 135,829,166 127,768,806 98,698,453 1,878,775 1,571,117 2,329,659 128,154,672 118,665,788 91,845,928 5,795,719 7,531,901 4,522,866
The externalization process,
Of the foreign currency balances shown in which new valuation assumptions were used, disclosed differences which represent the discounted present valuetable above, approximately 64% of the contributions yetassets and liabilities relate to be madetransactions in Mexican pesos and US dollars.
g) ENTITIESANDBRANCHESLOCATEDINCOUNTRIESWITHHYPERINFLATIONARYECONOMIES
None of the functional currencies of the consolidated subsidiaries and associates and their branches located abroad relate to the external pension funds for possible pension commitmentshyperinflationary economies as defined by EU-IFRSs. Accordingly, as of December 31, 2000. These amounts were calculated using discount rates2006, 2005 and 2004 it was not necessary to adjust the financial statements of 3.15%any of the consolidated subsidiaries or associates to correct for the insurance contractseffect of inflation.
h) NON-CURRENTASSETSHELDFORSALEANDLIABILITIESASSOCIATEDWITHNON-CURRENTASSETSHELDFORSALE
The heading “Non-current Assets Held for Sale” reflects the carrying amount of the assets – composing a “disposal group” or forming part of a business unit that the Group intends to sell (“discontinued operations”) – which will very probably be sold in their current condition within one year from the date of the consolidated financial statements. Therefore, the carrying amount of these assets – which can be financial or non-financial – will foreseeably be recovered through the price obtained on their sale.
Specifically, the assets received by the consolidated entities from their debtors in full or part settlement of the debtors’ payment obligations (foreclosed assets) are treated as non-current assets held for sale, unless the consolidated entities have decided to make continuing use of these assets.
Symmetrically, the heading “Liabilities Associated with Non-current Assets Held for Sale” reflects the balances payable arising on disposal groups and 5.64% fordiscontinued operations.
i) SALESANDINCOMEFROMTHEPROVISIONOFNON-FINANCIALSERVICES
This heading shows the external pension plans. The initial differencescarrying amount of the sales of assets and income from the services provided by the consolidated Group companies that arose were recorded with a charge to accrual accounts and are being amortized over a maximum period of fourteen years innot financial institutions. In the case of the external pension plans,Group, these companies are mainly real estate and
j) INSURANCEANDREINSURANCECONTRACTS
over nine yearsIn accordance with standard accounting practice in the caseinsurance industry, the consolidated insurance entities credit to the income statement the amounts of the premiums written and charge to income the cost of the claims incurred on final settlement thereof. Insurance entities are therefore required to accrue at year-end the unearned revenues credited to their income statements and the accrued costs not charged to income.
The most significant accruals recorded by the consolidated entities in relation to direct insurance contracts arranged by them relate to the following (Note 27):
Mathematical provisions, which include:
Life insurance provisions: these represent the value of the life insurance obligations of the insurance contracts, startingcompanies at year-end, net of the obligations of the policyholder.
Non-life insurance provisions: provisions for unearned premiums. These provisions are intended for the accrual, at the date of calculation, of the premiums written. Their balance reflects the portion of the premiums accrued in the year that has to be allocated to the period from 2000the reporting date to the end of the policy period.
Provision for claims: this reflects the total amount of the obligations outstanding arising from claims incurred prior to the reporting date. The insurance companies calculate this provision as the difference between the total estimated or certain cost of the claims not yet reported, settled or paid, and the total amounts already paid in accordance withrelation to these claims.
Provisions for unexpired risks and other provisions, which include:
Non-life insurance provisions – unexpired risks: the stipulations of Bank of Spain Circular 5/2000 and as requiredprovision for unexpired risks supplements the provision for unearned premiums by the transition regimeamount by which that provision is not sufficient to reflect the assessed risks and expenses to be covered by the insurance companies in the policy period not elapsed at year-end.
Technical provisions for reinsurance ceded: calculated by applying the criteria indicated above for direct insurance, taking account of the cession conditions established in current regulations. In turn, the initial differences were creditedreinsurance contracts in force.
Other technical provisions: the insurance companies have recognised provisions to cover the probable mismatches in the market reinvestment interest rates with respect to those used in the measurement of the technical provisions.
Provision for bonuses and rebates: this provision includes the amount of the bonuses accruing to policyholders, insureds or beneficiaries and the premiums to be returned to policyholders or insureds, as the case may be, based on the behaviour of the risk insured, to the “Deposits” captionextent that such amounts have not been individually assigned to each of them.
The Group controls and monitors the exposure of the insurance companies to financial risk and, to this end, uses internal methods and tools that enable it to measure credit risk and market risk and to establish the limits for these risks.
Reinsurance assets and Liabilities under insurance contracts -
The heading “Reinsurance Assets” includes the amounts that the consolidated entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recorded by the consolidated insurance entities (Note 19).
The heading “Liabilities under Insurance Contracts” includes the technical reserves of direct insurance and inward reinsurance recorded by the consolidated entities to cover claims arising from insurance contracts in force at year-end (Note 27).
The income or loss reported by the Group’s insurance companies on their insurance activities is recorded under the heading “Insurance Activity Income” in the consolidated income statement (Note 49).
k) TANGIBLEASSETS
Non-Current tangible assets for own use:
The heading Non-Current Tangible Assets for own use relates to the tangible assets intended to be held for continuing use and the tangible assets acquired under finance leases. It also includes tangible assets received by the consolidated entities in full or part settlement of financial assets representing receivables from third parties, tangible assets acquired under finance leases and those assets expected to be held for continuing use. Non-Current tangible assets for own use are presented at acquisition cost less any accumulated depreciation and, where appropriate, any estimated impairment losses (net carrying amount higher than fair value).
For this purpose, the acquisition cost of foreclosed assets held for continued use is equal to the carrying amount of the financial assets delivered in exchange for their foreclosure.
Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value; the land on which the buildings and other structures stand has an indefinite life and, therefore, is not depreciated.
The period tangible asset depreciation charge is recognised with a balancing entry in the consolidated income statement and is based on the application of the following depreciation rates (determined on the basis of the average years of estimated useful life of the various assets):
Annual Percentage | ||
Buildings for own use | 1.33% to 4% | |
Furniture | 8% to 10% | |
Fixtures | 6% to 12% | |
Office supplies and computerisation | 8% to 25% | |
Remodelling of rented offices | 6% |
At each accounting close, the consolidated entities analyse whether there is any internal or external indication that the net carrying amounts of their tangible assets exceed the related recoverable amounts. If there is such an indication, the carrying amount of the asset in question is reduced to its recoverable amount and the future depreciation charges are adjusted in proportion to the asset’s new remaining useful life and / or to its revised carrying amount.
Similarly, if there is any indication that the value of a tangible asset has been recovered, the consolidated entities recognise the reversal of the impairment loss recorded in previous years and, consequently, adjust the future depreciation charges. In no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognised in prior years.
Upkeep and maintenance expenses relating to tangible assets held for continued use are charged to the income statement for the year in which they are incurred.
Investment property and other assets leased out under an operating lease:
The heading “Tangible assets - Investment Property” in the consolidated balance sheet reflects the net values of the land, buildings and other structures held either to earn rentals or for capital appreciation at disposal date.
The criteria used to recognise the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to record the impairment losses thereon are the same as those described in relation to tangible assets for continued use.
l) BUSINESSCOMBINATIONS
A business combination is the bringing together of two or more separate entities or businesses into one single entity or group of entities. As a result of a business combination, which is accounted for using the purchase method, the Group obtains control over one or several entities.
The purchase method accounts for business combinations from the perspective of the acquirer. The acquirer must recognise the assets acquired and the liabilities and contingent liabilities assumed, including those not previously recognised by the acquired entity. This method measures the cost of the business combination and the assignation of it, at the date of acquisition, to the identifiable assets, liabilities and contingent liabilities measured at fair value.
In addition, any purchases of minority interests after the date on which the Group obtains control of the acquired are recorded as equity transactions, i.e. the difference between the price paid and the carrying amount of the percentage of minority interests acquired is charged directly to equity.
m) INTANGIBLEASSETS
Goodwill
The positive differences between the cost of business combinations and the amount corresponding to the acquired percentage of the net fair value of the assets, liabilities and contingent liabilities of the acquired entity are recorded as goodwill on the asset side of the consolidated balance sheet. Goodwill represents the future economic benefits from assets that cannot be individually identified and separately recognised. Goodwill is not amortised and is subject periodically to an impairment analysis. Any impaired goodwill is written off.
Goodwill is allocated to one or more cash-generating units expected to benefit from the synergies arising from business combinations. The cash-generating units represent the Group’s smallest identifiable business and/or geographical segments as managed internally by its directors within the Group.
The cash-generating units to which goodwill has been allocated are tested for impairment based on the carrying amount of the unit including the allocated goodwill. Such testing is performed at least annually and whenever there is an indication of impairment.
For the purpose of determining the impairment of a cash-generating unit to which a part of goodwill has been allocated, the carrying amount of that unit, adjusted by the theoretical amount of the goodwill attributable to the minority interest, shall be compared with its recoverable amount. The resulting loss shall be apportioned by reducing, firstly, the carrying amount of the goodwill allocated to that unit and, secondly, if there are still impairment losses remaining to be recognised, the carrying amount of the rest of the assets. This shall be done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the unit. It will be taken into account that no impairment of goodwill attributable to the minority interest may be recognised. In any case, impairment losses on goodwill can never be reversed.
Other intangible assets
These assets can have an “indefinite useful life” – when, based on an analysis of all relevant factors, it is concluded that there is no foreseeable limit to the year over which the asset is expected to generate net cash flows for the consolidated entities – or a “finite useful life”, in all other cases.
Intangible assets with indefinite useful life are not amortised, but rather at the end of each reporting period the consolidated entities review the remaining useful life of the assets in order to ensure that they continue to be indefinite or, if this is not the case, to classify them as having a finite useful life. The Group has not recognised any intangible assets with indefinite useful life.
Intangible assets with finite useful life are amortised over those useful lives using methods similar to those used to depreciate tangible assets.
In both cases the consolidated entities recognise any impairment loss on the carrying amount of these assets with charge to the heading “Impairment Losses (Net) - Other Intangible Assets” in the consolidated income statement. The criteria used to recognise the impairment losses on these assets and, where applicable, the recovery of impairment losses recognised in prior years are similar to those used for tangible assets.
n) INVENTORIES
Inventories are assets, other than financial instruments, that are held for sale in the ordinary course of business, that are in the process of production, construction or development for such sale, or that are to be consumed in the production process or in the rendering of services. The balance of the heading “Other Assets – Inventories” in the accompanying consolidated balance sheet included the land and other property held for sale in the property development business by the Group’s real state companies (Note 23).
Inventories are measured at the lower of cost and net realisable value, which is the estimated selling price of inventories in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
The amount of any write-down of inventories, such as that reflecting damage, obsolescence, and reduction of the sale price, to net realisable value and any other losses is recognised as an expense in the year in which the write-down or loss occurs. Subsequent reversal of any write-down is recognised in the consolidated income statement for the year in which it occurs.
When inventories are sold, the carrying amount of those inventories is derecognised and recorded as an expense in the year in which the related revenue is recognised. The expense is included under the heading “Cost of Sales” in the accompanying consolidated income statement (Note 51) when it corresponds to activities relating to the provision of non-financial services, or under the heading “Other Operating Expenses” in other cases (Note 52).
o) TAXASSETSANDLIABILITIES
The Spanish corporation tax expense and the expense for similar taxes applicable to the consolidated entities abroad are recognised in the consolidated income statement, except when they result from transactions the profits or losses on which are recognised directly in equity, in which case the related tax effect is also recognised in equity.
The current income tax expense is calculated by aggregating the current tax arising from the application of the related tax rate to the taxable profit (or tax loss) for the year (after deducting the tax credits allowable for tax purposes) and the change in deferred tax assets and liabilities recognised in the income statement.
Deferred tax assets and liabilities include temporary differences, measured at the amount expected to be payable or recoverable on future fiscal years for the differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carry forwards. These amounts are measured applying to each temporary difference the tax rates that are expected to apply in the year when the asset is realised or the liability settled (Note 37).
Deferred tax assets are recognised to the extent that it is considered probable that the consolidated entities will have sufficient taxable profits in the future against which the deferred tax assets can be utilised.
The deferred tax assets and liabilities recognised are reassessed by the consolidated entities at each balance sheet date in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analyses performed.
Income and expenses recognised directly in equity are recorded as temporary differences.
p) FINANCIALGUARANTEES
“Financial guarantees” are defined as contracts whereby the Group undertakes to make specific payments for a third party if the latter does not do so, irrespective of the various legal forms they may have.
Financial guarantees, irrespective of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortised cost, (see section d) of the present Note).
The provisions made for these transactions are recognised under “Provisions - Provisions for Contingent Liabilities and Commitments” on the liability side of the consolidated balance sheets, reducingsheet (Note 28). These provisions are recognised and reversed with a charge or credit, respectively, to “Provisions (Net)” in the consolidated income statement.
q) LEASES
Leases are classified as finance from the start of the transaction leases when they transfer substantially the risks and rewards incidental to ownership of the asset forming the subject matter of the contract. Leases other than finance leases are classified as operating leases.
When the consolidated entities act as the lessor of an asset in finance leases, the aggregate present values of the lease payments receivable from the lessee plus the guaranteed residual value (normally the exercise price of the lessee’s purchase option on expiration of the lease agreement) are recorded as financing provided to third parties and, therefore, are included under the heading “Loans and Receivables” in the accompanying consolidated balance sheets.
Assets provided under operating leases to other Group entities are treated in the consolidated financial statements as assets held for continued use and in the individual financial statements of the owner as other assets leased out under an operating lease or as investment property.
r) PROVISIONS,CONTINGENTASSETSANDCONTINGENTLIABILITIES
Provisions are existing obligations arising from legal or contractual requirements, valid expectations created by Group companies in third parties regarding the assumption of certain types of responsibilities, or virtual certainty as to the future course of regulation in particular respects, especially proposed new legislation that the Group cannot avoid.
Provisions are recognised in the balance sheet when each and every one of the following requirements is met: the Group has an existing obligation resulting from a past event and, at the balance sheet date, it is more likely than not that the obligation will have to be settled; it is probable that to settle the obligation the entity will have to give up resources embodying economic benefits; and a reliable estimate can be made of the amount of the obligation.
Contingent liabilities are possible obligations of the Group that arise from past events and whose existence is conditional on the occurrence or non-occurrence of one or more future events beyond the control of the entity. They include the existing obligations of the entity when it is not probable that an outflow of resources embodying economic benefits will be required to settle them or when, in extremely rare cases, their amount cannot be measured with sufficient reliability.
Contingent assets are possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by the occurrence or non-occurrence of, events beyond the control of the Group. Contingent assets are not recognised in the balance sheet or in the income statement; however, they are disclosed in the notes to financial statements, provided that it is probable that these assets will give rise to an increase in resources embodying economic benefits.
s) TRANSFERSOFFINANCIALASSETSANDDERECOGNITIONOFFINANCIALASSETSANDLIABILITIES
The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties. If substantially all the risks and rewards are transferred to third parties, the transferred financial asset is derecognised and, at the same time, any right or obligation retained or created as a result of the transfer is recognised.
If substantially all the risks and rewards associated with the transferred financial asset are retained, the transferred financial asset is not derecognised and continues to be measured using the same criteria as those used before to the transfer.
Financial assets are only derecognised when the cash flows they generate have extinguished or when substantially all the risks and rewards incidental to them have been transferred. Similarly, financial liabilities are only derecognised when the obligations they generate have extinguished or when they are acquired (with the intention either settle them or re-sell them).
t)OWNEQUITYINSTRUMENTS
The balance of the heading “Stockholders’ Equity - Treasury Shares” in the accompanying consolidated balance sheets relates mainly to Bank shares held by certain consolidated companies as of December 31, 2006, 2005 and 2004. These shares are carried at acquisition cost, and the gains or losses arising on their disposal are credited or debited, as appropriate, to the heading “Stockholders’ Equity-Reserves” in the accompanying consolidated balance sheets (Note 35).
u)EQUITY-SETTLEDSHARE-BASEDPAYMENTTRANSACTIONS
Equity-settled share-based payment transactions, when the instruments granted do not vest until the counterparty completes a specified period of service, shall be accounted for those services as they are rendered by the counterparty during the vesting period, with a corresponding increase in equity. The entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, at grant date.
Market conditions shall be taken into account when estimating the fair value of the equity instruments granted, thus, their evolution will not be reflected on the profit and loss account. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the shares at the measurement date. Instead, vesting conditions shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the payments made. For presentation purposes,equity instruments granted shall be based on the number of equity instruments that eventually vest. As a consequence the effect of vesting conditions other than market conditions, will be recognized on the profit and loss account with the corresponding increase in equity.
v)ACQUIREOFSHARESWITHDISCOUNT
In the last quarter of 2005, certain Group companies implemented a corporate programme for its permanent employees to enable them to acquire, with a 10% discount, shares of Banco Bilbao Vizcaya Argentaria, S.A. The total number of shares acquired in 2005 as part of this programme amounted to 2.5 million at a market price of €14.68 per share. The possibility of financing the acquisition through a personal loan was offered to the employees. The unamortised balance of the financing granted to employees amounted to €23,722 thousand as of December 31, 2006. Additionally, in 2006 a new phase of this corporate programme has been developed, this time without the possibility of financing for the acquisition of the shares. The total number of shares acquired in this second phase amounted to 578.333.
The total cost of this programme is charged to the heading “Personnel expenses” of the consolidated income statement.
w)TERMINATIONBENEFITS
Termination benefits must be recognised when the company is committed to severing its contractual relationship with its employees and, to this end, has a formal detailed redundancy plan. There were no redundancy plans, so it is not necessary to recognise a provision for this issue.
3.RECONCILIATION OF THE CLOSING BALANCES FOR 2003 AND 2004 TO THE OPENING BALANCES FOR 2004 AND 2005
EU-IFRS 1 requires that the first consolidated financial statements prepared in accordance with EU-IFRSs include a reconciliation of the closing balances for the immediately preceding year to the opening balances for the year to which these financial statements refer.
The reconciliation of the balances in the consolidated balance sheets and consolidated income statements is shown in Appendixes VI. The definition of these two itemscertain terms used therein is as follows:
2003 closing: the balances as of December 31, 2003 are includedin accordance with the standards in force at that date (Bank of Spain Circular 4/1991) applying, as a general rule, the net amountbasis of presentation envisaged under the “Other Assets” captionnew standards.
2004 opening: the balances resulting from considering the effect on the closing balances for the preceding year of the adjustments and reclassifications made under the new standards in force since January 1.
2004 closing: the balances as of December 31, 2004 in accordance with Bank of Spain Circular 4/1991 in force at that date applying, as a general rule, the basis of presentation envisaged under the new standards.
2005 opening: the balances resulting from considering the effect on the closing balances for the preceding year of the adjustments and reclassifications made under the new standards in force.
2004 re-stated balances: balances of year 2004 in accordance with new standards.
4. BANCO BILBAO VIZCAYA ARGENTARIA GROUP
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) is the Group’s parent company. Its individual financial statements are prepared on the basis of the accounting policies and methods contained in Bank of Spain Circular 4/2004. (See Note 1.2)
The Bank represented approximately 65% of the Group’s assets and 33% of consolidated profit before tax as of December 31, 2006 (63% and 27%, respectively, as of December 31, 2005 and 63% and 21%, respectively, as of December 31, 2004), after the related consolidation adjustments and eliminations.
Summarized below are the financial statements of Banco Bilbao Vizcaya Argentaria, S.A. as of December 31, 2006, 2005 and 2004:
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
BALANCE SHEETS AS OF DECEMBER 31, 2006, 2005 AND 2004 (SUMMARIZED)
Thousands of Euros | ||||||
ASSETS | 2006 | 2005 | 2004 | |||
CASH AND BALANCES WITH CENTRAL BANKS | 3,264,155 | 2,707,634 | 3,584,389 | |||
FINANCIAL ASSETS HELD FOR TRADING | 35,899,495 | 31,223,865 | 33,786,124 | |||
AVAILABLE-FOR-SALE FINANCIAL ASSETS | 17,535,502 | 32,895,371 | 27,320,242 | |||
LOANS AND RECEIVABLES | 213,027,835 | 183,250,928 | 149,381,995 | |||
HELD-TO-MATURITY INVESTMENTS | 5,905,636 | 3,959,264 | 2,221,502 | |||
HEDGING DERIVATIVES | 1,758,932 | 2,505,102 | 4,033,289 | |||
NON-CURRENT ASSETS HELD FOR SALE | 26,393 | 29,722 | 51,919 | |||
INVESTMENT | 14,159,672 | 13,296,918 | 12,068,994 | |||
INSURANCE CONTRACTS LINKED TO PENSIONS | 2,114,052 | 2,089,985 | 2,097,376 | |||
TANGIBLE ASSET | 2,093,446 | 2,060,765 | 2,034,013 | |||
INTANGIBLE ASSETS | 63,055 | 51,920 | 37,316 | |||
TAX ASSETS | 3,275,977 | 3,939,982 | 3,308,695 | |||
ACCRUED INCOME | 505,276 | 512,377 | 310,954 | |||
OTHER ASSETS | 561,914 | 616,788 | 426,173 | |||
TOTAL ASSETS | 300,191,340 | 279,140,621 | 240,662,981 | |||
Thousands of Euros | |||||||||
TOTAL LIABILITIES AND EQUITY | 2006 | 2005 | 2004 | ||||||
LIABILITIES | |||||||||
FINANCIAL LIABILITIES HELD FOR TRADING | 13,658,091 | 14,579,963 | 11,735,827 | ||||||
FINANCIAL LIABILITIES AT AMORTISED COST | 258,697,166 | 242,037,543 | 206,918,252 | ||||||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | 183,201 | ||||||
HEDGING DERIVATIVES | 2,088,420 | 947,007 | 2,317,121 | ||||||
PROVISIONS | 6,926,134 | 6,376,428 | 6,292,468 | ||||||
TAX LIABILITIES | 1,249,537 | 1,579,989 | 786,274 | ||||||
ACCRUED EXPENSES AND DEFERRED INCOME | 736,057 | 762,477 | 718,074 | ||||||
OTHER LIABILITIES | 104,998 | 7,004 | 1,262 | ||||||
TOTAL LIABILITIES | 283,460,403 | 266,290,411 | 228,952,479 | ||||||
EQUITY | |||||||||
VALUATION ADJUSTMENTS | 2,264,193 | 1,809,782 | 933,037 | ||||||
SHAREHOLDER’S EQUITY | 14,466,744 | 11,040,428 | 10,777,465 | ||||||
Capital | 1,740,465 | 1,661,518 | 1,661,518 | ||||||
Share premium | 9,579,443 | 6,658,390 | 6,682,603 | ||||||
Reserves | 2,085,465 | 2,001,854 | 1,877,718 | ||||||
Other equity instruments | 25,874 | 141 | — | ||||||
Less: Treasury shares | (40,283 | ) | (29,773 | ) | (8,500 | ) | |||
Profit attributed to the Group | 2,439,825 | 1,918,142 | 1,581,382 | ||||||
Less: Dividends and remuneration | (1,364,045 | ) | (1,169,844 | ) | (1,017,256 | ) | |||
TOTAL EQUITY | 16,730,937 | 12,850,210 | 11,710,502 | ||||||
TOTAL EQUITY AND LIABILITIES | 300,191,340 | 279,140,621 | 240,662,981 | ||||||
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 (SUMMARIZED)
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
INTEREST AND SIMILAR INCOME | 9,556,032 | 7,169,319 | 6,382,852 | ||||||
INTEREST EXPENSE AND SIMILAR CHARGES | (6,976,992 | ) | (4,473,854 | ) | (3,701,087 | ) | |||
INCOME FROM EQUITY INSTRUMENTS | 1,528,495 | 1,056,912 | 1,091,478 | ||||||
NET INTEREST INCOME | 4,107,535 | 3,752,377 | 3,773,243 | ||||||
FEE AND COMMISSION INCOME | 2,062,234 | 1,928,985 | 1,689,587 | ||||||
FEE AND COMMISSION EXPENSES | (329,939 | ) | (330,718 | ) | (326,743 | ) | |||
GAINS/LOSSES ON FINANCIAL ASSETS AND LIABILITIES (NET) | 1,246,393 | 529,671 | 189,643 | ||||||
EXCHANGE DIFFERENCES (NET) | 235,899 | 132,573 | 205,341 | ||||||
GROSS INCOME | 7,322,122 | 6,012,888 | 5,531,071 | ||||||
OTHER OPERATING INCOME | 69,826 | 80,690 | 80,326 | ||||||
PERSONNEL EXPENSES | (2,158,072 | ) | (2,014,247 | ) | (1,938,901 | ) | |||
OTHER ADMINISTRATIVE EXPENSES | (849,074 | ) | (804,027 | ) | (757,170 | ) | |||
DEPRECIATION AND AMORTISATION | (200,678 | ) | (196,843 | ) | (207,526 | ) | |||
OTHER OPERATING EXPENSES | (64,906 | ) | (62,807 | ) | (56,649 | ) | |||
NET OPERATING INCOME | 4,119,218 | 3,015,654 | 2,651,151 | ||||||
IMPAIRMENT LOSSES (NET) | (645,101 | ) | (441,825 | ) | (601,981 | ) | |||
PROVISION EXPENSE (NET) | (1,024,593 | ) | (378,539 | ) | (670,962 | ) | |||
OTHER GAINS | 614,950 | 107,872 | 448,368 | ||||||
OTHER LOSSES | (34,922 | ) | (34,985 | ) | (2,472 | ) | |||
INCOME BEFORE TAX | 3,029,552 | 2,268,177 | 1,824,104 | ||||||
INCOME TAX | (589,727 | ) | (350,035 | ) | (242,722 | ) | |||
INCOME FROM CONTINUING OPERATIONS | 2,439,825 | 1,918,142 | 1,581,382 | ||||||
INCOME FROM DISCONTINUED OPERATIONS (NET) | — | — | — | ||||||
INCOME FOR THE YEAR | 2,439,825 | 1,918,142 | 1,581,382 | ||||||
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 (SUMMARIZED)
Thousands of Euros | ||||||||
2006 | 2005 | 2004 | ||||||
NET INCOME RECOGNISED DIRECTLY IN EQUITY | 454,411 | 876,745 | 291,581 | |||||
Available-for-sale financial assets | 453,247 | 992,180 | 279,767 | |||||
Financial liabilities at fair value through equity | — | — | — | |||||
Cash flow hedges | (29,110 | ) | (65,607 | ) | — | |||
Hedges of net investments in foreign operations | — | — | — | |||||
Exchange differences | 30,274 | (49,828 | ) | 11,814 | ||||
Non-current assets held for sale | — | — | — | |||||
INCOME FOR THE YEAR | 2,439,825 | 1,918,142 | 1,581,382 | |||||
TOTAL INCOME AND EXPENSES FOR THE YEAR | 2,894,236 | 2,794,887 | 1,872,963 | |||||
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
CASH FLOW STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 (SUMMARIZED)
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
CASH FLOW FROM OPERATING ACTIVITIES | |||||||||
Profit for the year | 2,439,825 | 1,918,142 | 1,581,382 | ||||||
Adjustment to profit: | 2,035,759 | 1,414,257 | 1,445,596 | ||||||
Adjusted profit | 4,475,584 | 3,332,399 | 3,026,978 | ||||||
Net increase/decrease in operating assets | (17,526,778 | ) | (35,678,851 | ) | (19,824,845 | ) | |||
Financial assets held for trading | (4,675,630 | ) | 2,562,259 | (4,127,044 | ) | ||||
Other financial assets at fair value through profit or loss | 15,574,430 | (4,130,001 | ) | 1,676,829 | |||||
Available-for-sale financial assets | (30,201,808 | ) | (34,133,846 | ) | (18,220,954 | ) | |||
Loans and receivables | 1,776,230 | 22,737 | 846,324 | ||||||
Net increase/decrease in operating liabilities | 15,204,261 | 35,212,225 | 22,358,151 | ||||||
Financial liabilities held for trading | (921,872 | ) | 2,844,136 | 1,036,983 | |||||
Other financial liabilities at fair value through profit or loss | 15,833,182 | 33,983,507 | 21,055,019 | ||||||
Other operating liabilities | 292,951 | (1,615,418 | ) | 266,149 | |||||
Total net cash flows from operating activities (1) | 2,153,067 | 2,865,773 | 5,560,284 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
Investments (-) | (4,455,669 | ) | (2,982,316 | ) | (6,613,831 | ) | |||
Divestments (+) | 1,689,535 | 266,755 | 752,289 | ||||||
Total net cash flows from investing activities (2) | (2,766,134 | ) | (2,715,561 | ) | (5,861,542 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
Issuance/Redemption of capital (+/-) | 2,960,087 | — | 1,998,750 | ||||||
Acquisition of own equity instruments (-) | (4,728,219 | ) | (2,619,475 | ) | (2,228,215 | ) | |||
Disposal of own equity instruments (+) | 4,760,145 | 2,615,499 | 2,280,902 | ||||||
Issuance/Redemption of other equity instruments (+/-) | 25,733 | 141 | — | ||||||
Issuance/Redemption of subordinated liabilities (+/-) | 63,942 | 701,763 | 784,458 | ||||||
Issuance/Redemption of other long-term liabilities (+/-) | — | — | — | ||||||
Dividends paid (-) | (1,915,831 | ) | (1,600,483 | ) | (1,352,353 | ) | |||
Other items relating to financing activities (+/-) | 1,164 | (115,435 | ) | (14,516 | ) | ||||
Total net cash flows from financing activities (3) | 1,167,021 | (1,017,990 | ) | 1,469,026 | |||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH OR CASH EQUIVALENTS (4) | 2,495 | (1,623 | ) | 573 | |||||
NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (1+2+3+4) | 556,449 | (869,401 | ) | 1,168,341 | |||||
Cash or cash equivalents at beginning of year | 2,707,482 | 3,576,883 | 2,408,542 | ||||||
Cash or cash equivalents at end of year | 3,263,931 | 2,707,482 | 3,576,883 | ||||||
The total assets and finance income of the Group’s most significant subsidiaries as of December 31, 2006, 2005 and 2004 are as follows:
Thousands of Euros | ||||||||
2006 | 2005 | 2004 | ||||||
COUNTRY | Total Assets | Total Assets | Total Assets | |||||
Grupo BBVA Bancomer | Mexico | 55,992,005 | 59,219,806 | 47,641,124 | ||||
Grupo BBVA Chile | Chile | 6,415,379 | 6,468,472 | 5,040,878 | ||||
BBVA Puerto Rico | Puerto Rico | 4,731,683 | 5,852,238 | 3,977,188 | ||||
Grupo BBVA Banco Francés | Argentina | 4,594,966 | 4,273,340 | 3,436,801 | ||||
Grupo BBVA Banco Provincial | Venezuela | 6,823,833 | 5,133,080 | 3,620,137 | ||||
Grupo BBVA Continental | Peru | 4,463,740 | 4,555,641 | 3,133,771 | ||||
Grupo BBVA Colombia | Colombia | 4,797,426 | 4,740,948 | 2,331,336 |
COUNTRY Grupo BBVA Bancomer Mexico Grupo BBVA Chile Chile BBVA Puerto Rico Puerto Rico Grupo BBVA Banco Francés Argentina Grupo BBVA Banco Provincial Venezuela Grupo BBVA Continental Peru Grupo BBVA Colombia Colombia Thousands of Euros 2006 2005 2004 Finance Income Finance Income Finance Income 5,886,223 5,495,088 3,498,240 429,156 486,809 323,876 324,647 258,016 196,720 375,889 398,241 285,231 572,615 454,128 393,699 326,212 251,337 174,526 436,789 290,508 220,608
Appendix V includes a detail of the fully consolidated subsidiaries which, based on the information available, were more than 5% owned by non-Group shareholders as of December 31, 2006.
As of December 31, 2006 and 2005, in its capacity as a depository in the ADR programme, Bank of New York, a foreign non-BBVA Group credit institution, held a significant ownership interest in the fully consolidated company A.F.P Próvida.
Additionally, as of December 31, 2004, a non-Group company then, Granahorrar held a significant ownership interest in A.F.P Horizonte Colombia.
The changes in the ownership interests held by the Group in the most significant subsidiaries and the situation of these interests as of December 31, 2006 were as follows:
BBVA BANCOMER GROUP (MEXICO)
Grupo Financiero BBV-Probursa, S.A. de C.V. and the companies in its group, including most notably Banco Bilbao Vizcaya México, S.A., joined the Group in July 1995. In the first half of 2000, it was resolved to merge Grupo Financiero BBV-Probursa, S.A. de C.V. into Grupo Financiero BBVA Bancomer, S.A. de C.V. Following this merger, which was carried out in July 2000, the Group’s ownership interest in Grupo Financiero BBVA Bancomer, S.A. de C.V. was 36.6%.
In the year from 2001 to 2003, the Group acquired various holdings in the share capital of Grupo Financiero BBVA Bancomer, S.A. de C.V., as a result of which its ownership interest was 59.43% as of December 31, 2003.
On March 20, 2004, the BBVA Group completed the tender offer on 40.6% of the share capital of Grupo Financiero BBVA Bancomer, S.A. de C.V. The final number of shares presented in the offer and accepted by BBVA was 3,660,295,210, which represented 39.45% of the share capital of the Mexican entity. Following the acquisition of these shares through the tender offer, the ownership interest held by BBVA in the capital of Grupo Financiero BBVA Bancomer, S.A. de C.V. was 98.88%, which, as a result of the purchase of shares subsisting in the market, increased to 99.70% as of December 31, 2004.
As of December 31, 2006 and 2005, BBVA held an ownership interest of 99.96% in the share capital of Grupo BBVA Financiero Bancomer, S.A.
BBVA BANCO FRANCÉS GROUP (ARGENTINA)
In December 1996, the Group acquired 30% of BBVA Banco Francés, S.A. (formerly Banco Francés Río de la Plata, S.A.) and assumed its management. Further acquisitions and a capital increase prior to December 31, 2003 brought the Group’s ownership interest to 79.6% at that date.
On January 21, 2004, BBVA Banco Francés, S.A. presented the new formulation of the regularization and reorganization plan (which had begun in 2002) requested by the Argentine authorities. The new plan envisaged, mainly, the sale of this company’s subsidiary BBVA Banco Francés (Cayman) Ltd. to BBVA, which was carried out on March 18, 2004, and the conversion into equity of a $78 million loan granted by BBVA to BBVA Banco Francés, S.A.
In compliance with the commitment thus assumed, on April 22, 2004, the Annual General Meeting of BBVA Banco Francés, S.A. authorized a capital increase with a par value of ARP 385 million, which was carried out in October 2004, BBVA subscribed to the capital increase at BBVA Banco Francés, S.A. through the conversion into equity of a $78 million loan it had granted to this investee. On February 23, 2005, the Superintendant of Financial and Exchange Institutions considered that the regularization and reorganization plan had been completed.
The ownership interest held by the Group as of December 31, 2004 and 2005 was 76.11% and 76.08%, respectively.
The ownership interest held by the Group as of December 31, 2006 was 76.07%.
BBVA PUERTO RICO, S.A.
In July 1998 BBV Puerto Rico absorbed PonceBank, an entity with total assets of $1,095 million, through a capital increase of $166 million. Also in 1998, BBV Puerto Rico acquired the assets and liabilities of Chase Manhattan Bank in Puerto Rico for a disbursement of $50 million.
The ownership interest held by the Group as of December 31, 2006 was 100%.
BBVA CHILE GROUP
In September 1998, the Group acquired a 44% holding in Banco BHIF, S.A., currently BBVA Chile, S.A., and assumed the management of the group headed by this Chilean financial institution. In 1999 additional shares were acquired, bringing the Group’s total holding in this entity to 53.3% as of December 31, 1999.
As of December 31, 2004, the ownership interest held in BBVA Chile, S.A. was 66.27%, and additional acquisitions of capital in 2005 brought this figure up to 66.62%.
On March 3, 2006, BBVA purchased 0.43% of BBVA Chile’s share capital for Chilean pesos 2,318 million (€3.7 million), increasing BBVA’s share capital in BBVA Chile to 67.05%. As the share capital of BBVA in BBVA Chile was higher than two thirds of BBVA Chile’s total share capital, BBVA in compliance with Chilean legislation launched a public tender offer for all of BBVA Chile’s share capital. The public tender offer was effective from April 3, 2006 to May 2, 2006. After the acceptance of the public tender offer, BBVA’s share capital in BBVA Chile increased to 68.18%.
The ownership interest held by the Group as of December 31, 2006 was 67.84%.
BBVA BANCO PROVINCIAL GROUP (VENEZUELA)
In March 1997, the Group acquired 40% of the share capital of Banco Provincial, S.A. and higher-percentage holdings in the other Provincial Group companies; consequently, it assumed the management of this group. Further acquisitions made in subsequent years raised the Bank’s holding in the Provincial Group to 55.60% as of December 31, 2006.
BBVA BANCO CONTINENTAL GROUP (PERU)
In April 1995, the Group acquired 50% of the share capital of Banco Continental, S.A. through Holding Continental, S.A. (50%-owned by the Group) and assumed the management of the financial group headed by Banco Continental, S.A. (Note 2.1.a). The ownership interest held by the Group as of December 31, 2006 was 92.08%.
BBVA COLOMBIA GROUP
In August 1996, the Group acquired 40% of the ordinary shares (equal to 35.1% of the total share capital) of Banco Ganadero, S.A. (currently BBVA Colombia, S.A.). Subsequently, additional holdings were acquired, bringing the ownership interest to 95.37% as of December 31, 2003.
On December 31, 2005, BBVA Colombia acquired 98.78% of Banco Granahorrar, S.A., proceeding to merger both entities on May 2006.
The ownership interest held by the Group as of December 31, 2006 was 95.43%.
CHANGES IN THE GROUP IN 2006
The most noteworthy acquisitions and sales of subsidiaries in 2006 were as follows:
On July 28, 2006, Telefónica España, S.A., on behalf of the liquidity mechanism to integrate Uno-E Bank, S.A., as established in the agreement entered into by Terra (subsequently merged into Telefónica España, S.A.) and BBVA, proceeded on January 10, 2003 to start selling to BBVA its 33 % ownership interest in Uno-E Bank, S.A. for an aggregated amount of €148.5 million, reaching BBVA a 100 % ownership of Uno-E Bank, S.A.
In May 2006 BBVA acquired a 51% ownership interest in Forum, a Chilean company specialising in car purchase financing, through the Chilean entities Forum Distribuidora, S.A. and Forum Servicios Financieros, S.A. (which in turn own all the shares of ECASA, S.A.), giving rise to the incorporation of BBVA Financiamiento Automotriz. The goodwill recognised as of December 31, 2006 amounted €51 million.
On April 5, 2006 the Group sold its 51% ownership interest in Banc Internacional d´Andorra, S.A. for €395.15 million, which gave rise to a gain of €184 million.
On November 10, 2006 the Group acquired Texas Regional Bancshares Inc. through the investment of $2,141 million (€1,674 million). The goodwill recognised as of December 31, 2006 amounted €1,257 million.
On November 30, 2006 the Group acquired all the shares of the Italian vehicle rental company Maggiore Fleet S.p.A., for €70.2 million, giving rise to goodwill of €35.7 million.
In January 3, 2007 the acquisition of State National Bancshares Inc. was accomplished (see Note 61).
CHANGES IN THE GROUP IN 2005
The most noteworthy acquisitions of subsidiaries in 2005 were as follows:
On 6 January, pursuant to the agreement entered into in September 2004 and after obtaining the mandatory authorisations, the Group, through BBVA Bancomer, acquired all the shares of Hipotecaria Nacional, S.A. de C.V., a Mexican company specialising in the mortgage business. The price paid was MXP 4,121 million (approximately €276 million) and the goodwill recognised amounted to €259 million as of December 31, 2005.
On 28 April, pursuant to the agreement entered into on September 20, 2004 and after obtaining the mandatory authorisations, BBVA acquired all the shares of Laredo National Bancshares, Inc., a bank holding located in Texas (United States) which operates in the banking business through two independent banks: Laredo National Bank and South Texas National Bank. The price paid was $859.6 million (approximately €666 million) and the goodwill recognised amounted to €474 million as of December 31, 2005.
On October 31, 2005, the Guarantee Fund for Colombian Financial Institutions, FOGAFIN, sold by public auction 98.78% of the share capital of Banco Granahorrar, S.A. (a Colombian financial institution) to the BBVA Group’s subsidiary in Colombia, BBVA Colombia, S.A. The financial offer made by BBVA Colombia for the acquisition of Banco Granahorrar, S.A. totalled $423.66 million. This transaction was performed in December 2005 after authorisation had been obtained from the related supervisory and control bodies. The price paid was Colombian pesos 981,572.2 million, approximately €364 million, and the goodwill recognised amounted to €267 million as of December 31, 2005.
CHANGES IN THE GROUP IN 2004-
The most noteworthy transactions in 2004 were as follows:
On March 31, 2004, Finanzia Renting, S.A. was merged into BBVA Renting, S.A., effective for accounting purposes from January 1, 2004. These two companies were wholly-owned investees of BBVA.
On July 21, 2004, the deed was executed for the merger of Corporación Área Inmobiliaria, S.L. into BBVA Área Inmobiliaria, S.L. through the transfer en bloc of the assets and liabilities of the former to the latter, and the dissolution of the former. On this same date the deed was executed whereby BBVA Área Inmobiliaria, S.L. changed its name to Anida Grupo Inmobiliario, S.L.
On October 8, 2004, the Group completed the purchase of all the shares of Valley Bank, an entity located in California, for $16.7 million (€13,130 thousand). This was BBVA’s first commercial banking transaction in mainland USA.
On October 12, 2004, the Group sold the El Salvador welfare business comprising BBVA Crecer AFP and BBVA Seguros, S.A. – Seguros de Personas—in which BBVA had ownership interests of 62% and 51%, respectively, for $42.8 million (€32,827 thousand), giving rise to a gain of €12,287 thousand.
INVESTMENTS ON COURSE
On November 22, 2006 BBVA reached an agreement with the Chinese banking group CITIC Group to develop a strategic alliance in the Chinese market. In accordance with this agreement, BBVA will acquire a 5% ownership interest in “China Citic Bank” (“CNCB”) with a call option to acquire 9.9% of its sharecapital. The price for the initial 5% sharecapital is of approximately €501 million. Additionally BBVA will acquire al 15% ownership interest in the banking entity “Citic International Financial Holdings” (“CIFH”), which develops its activity in Hong Kong, being quoted as well in the Hong Kong Stock Exchange. The price for this 15% sharecapital is of approximately €488 million. Full effect of this transaction is conditional upon the obtainance of the corresponding approvals and registers supervising organisms.
In 2006 the Board of Directors of Banco Bilbao Vizcaya Argentaria, S.A. resolved to pay the shareholders three interim dividends out of 2006 profit, amounting to a total of €0.396 gross per share. The aggregate amount of the interim dividends declared as of December 31, 2006, net of the amount collected and to be collected by the consolidable Group companies, was €1,362,700 thousand and is recorded under “Equity-Dividends and Remuneration” in the related consolidated balance sheet (Note 31). The last of the aforementioned interim dividends, which amounted to €0.132 gross per share and was paid to the shareholders on January 10, 2007, was recorded under the heading “Financial Liabilities at Amortised Cost – Other Financial Liabilities” in the consolidated balance sheet as of that dateDecember 31, 2006 (Note 15)26).
The variationsprovisional accounting statements prepared in 20032006 by Banco Bilbao Vizcaya Argentaria, S.A. in this connectionaccordance with legal requirements evidencing the existence of sufficient liquidity for the distribution of the interim dividends were as follows:
Thousands of Euros | |||||||||
Pensions Commitments to Retired Employees | Possible Commitments to Serving Employees | Total | |||||||
Other assets - Differences in the pension fund | |||||||||
Balance at January 1, 2003 | |||||||||
External pension plan | — | 536,529 | 536,529 | ||||||
Insurance contracts | 99,493 | 67,442 | 166,935 | ||||||
99,493 | 603,971 | 703,464 | |||||||
Amortization | |||||||||
External pension plan | — | (50,401 | ) | (50,401 | ) | ||||
Insurance contracts | (16,582 | ) | (8,678 | ) | (25,260 | ) | |||
(16,582 | ) | (59,079 | ) | (75,661 | ) | ||||
Other variations | — | (15,379 | ) | (15,379 | ) | ||||
Balance at December 31, 2003 | 82,911 | 529,513 | 612,424 | ||||||
Deposits – Deferred contributions | |||||||||
Balance at January 1, 2003 | (114,341 | ) | (81,619 | ) | (195,960 | ) | |||
Add- | |||||||||
Interest cost allocable: | (2,760 | ) | (1,849 | ) | (4,609 | ) | |||
Less- | |||||||||
Payments made: | 14,944 | 9,106 | 24,050 | ||||||
Reduction due to assignment of investments: | 3,476 | 1,798 | 5,274 | ||||||
18,420 | 10,904 | 29,324 | |||||||
Other variations | — | 27,964 | 27,964 | ||||||
Balance at December 31, 2003 | (98,681 | ) | (44,600 | ) | (143,281 | ) | |||
Net balance at December 31, 2003 (Note 15) | (15,770 | ) | 484,913 | 469,143 | |||||
Thousands of Euros | ||||||||
31-05-2006 Dividend 1 | 31-08-2006 Dividend 2 | 30-11-2006 Dividend 3 | ||||||
Interim dividend - | ||||||||
Profit at each of the dates indicated, after the provision for income tax | 1,535,235 | 2,376,266 | 2,244,779 | |||||
Less - | ||||||||
Estimated provision for Legal Reserve | — | — | (15,789 | ) | ||||
Interim dividends paid | — | (447,592 | ) | (895,184 | ) | |||
Maximum amount distributable | 1,535,235 | 1,928,674 | 1,333,806 | |||||
Amount of proposed interim dividend | 447,592 | 447,592 | 468,861 | |||||
The charges recorded in 2003, 2002Bank’s Board of Directors will propose to the shareholders at the Annual General Meeting that a final dividend of €0.241 per share be paid out of 2006 income. Based on the number of shares representing the share capital as of December 31, 2006 (Note 32), the final dividend would amount to €856,025 thousand and 2001 to cover the aforementioned commitments are summarizedprofit would be distributed as follows:
Thousands of Euros | |||||||
2003 | 2002 | 2001 | |||||
Detail by item- | |||||||
Allocable interest cost of deferred contributions | 4,609 | 9,280 | 39,464 | ||||
Expense of contributions made in the year by Spanish banks in the Group to external pension funds and insurance companies- | |||||||
Accrued in the year | 68,366 | 79,752 | 72,073 | ||||
Extraordinary | 97,462 | 87,342 | 85,885 | ||||
170,437 | 176,374 | 197,422 | |||||
Expense of contributions made by other Group entities | 10,135 | 13,805 | 18,199 | ||||
Net charges by Spanish banks in the Group to in-house pension provisions | 87,526 | 156,910 | 42,378 | ||||
Net charges by other Group companies to in-house pension provisions | 59,653 | 43,824 | 32,749 | ||||
327,751 | 390,913 | 290,748 | |||||
Detail by account- | |||||||
Financial expenses – Customer deposits | 4,609 | 9,280 | 39,464 | ||||
Financial expenses - Cost allocable to the recorded pension provision (Note 20) | 69,893 | 60,041 | 42,480 | ||||
General administrative expenses – Personnel costs- | |||||||
Net charges to in-house pension provisions (Notes 20 and 28-c) | 56,420 | 39,067 | 32,203 | ||||
Contributions to external pension funds (Note 28-c) | 78,501 | 93,557 | 90,272 | ||||
Extraordinary losses- | |||||||
Net extraordinary charges to in-house pension provisions (Note 20) | 2,240 | 3,345 | 445 | ||||
Other losses | 116,088 | 189,501 | 85,884 | ||||
Extraordinary income- | — | (3,878 | ) | — | |||
327,751 | 390,913 | 290,748 | |||||
Thousands of Euros | ||
Net profit for 2006 (Note 4) | 2,439,825 | |
Distribution: | ||
Dividends | ||
- Interim | 1,364,045 | |
- Final | 856,025 | |
Legal reserve | 15,789 | |
Voluntary reserves | 203,966 |
Other commitments to employeesThe distribution of profit per share during 2006, 2005 and 2004 is as follows:
First interim | Second interim | Third interim | Final | Total | ||||||
2004 | 0.100 | 0.100 | 0.100 | 0.142 | 0.442 | |||||
2005 | 0.115 | 0.115 | 0.115 | 0.186 | 0.531 | |||||
2006 | 0.132 | 0.132 | 0.132 | 0.241 | 0.637 |
Basic earnings per share are determined by dividing net profit or losses attributable to the Group in a given period by the weighted average number of shares outstanding during the period.
Diluted earnings per share are determined using a method similar to that used to calculate basic earnings per share; however, the weighted average number of shares outstanding is adjusted to take into account the potential dilutive effect of share options, warrants and convertible debt instruments outstanding at year-end.
The situation“diluted number” of shares linked to warrants outstanding at year-end is determined in two stages: firstly, the hypothetical liquid amount that would be received on the exercise of these warrants is divided by the annual average price of the share and, secondly, the difference between the amount thus quantified and the present number of potential shares is calculated; this represents the theoretical number of shares issued disregarding the dilutive effect. Profit or loss for the year is not adjusted.
Therefore:
EARNINGS PER SHARE FOR CONTINUING OPERATIONS | 2006 | 2005 | 2004 | |||
Numerator for basic earnings per share: | ||||||
Income available to common stockholders (thousands of euros) | 4,735,879 | 3,806,425 | 2,922,596 | |||
Numerator for diluted earnings per share: | ||||||
Income available to common stockholders (thousands of euros) | 4,735,879 | 3,806,425 | 2,922,596 | |||
Denominator for basic earnings per share (millions of shares) | 3,406 | 3,391 | 3,369 | |||
Denominator for diluted earnings per share (millions of shares) | 3,406 | 3,391 | 3,369 | |||
Basic earnings per share (euros) | 1.39 | 1.12 | 0.87 | |||
Diluted earnings per share (euros) | 1.39 | 1.12 | 0.87 | |||
As of December 31, 2006, 2005 and 2004, there were neither instruments nor share based payment to employees that could potentially dilute basic earnings per share.
As of December 31, 2006, 2005 and 2004, there were no discontinued operations that affected the earnings per share calculation for periods presented.
7. BASIS AND METHODOLOGY INFORMATION FOR SEGMENT REPORTING
Information by business area is a fundamental tool for monitoring and managing the Group’s various businesses. Preparation of this information starts at the lowest-level units, and all the accounting data relating to the business managed by these units are recorded. Management classifies and combines data from these units in accordance with a defined structure by the Group to arrive at the picture for the principal units and, finally, for the entire area itself. Likewise, the Group’s individual companies also belong to different business areas according to their type of activity. If a company’s activities do not match a single area, the Group assigns them and its earnings to a number of relevant units.
Once management has defined the composition of each area, it applies the necessary management adjustments inherent in the model. The most relevant of these are:
Stockholders’ equity: the Group allocates economic capital commensurate with the risks incurred by each business (CeR). This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. These targets are applied at two levels: the first is core equity, which determines the allocated capital. The Bank uses this amount as regards performance bonuses payablea basis for calculating the return generated on the equity in shareseach business (ROE). The second level is total capital, which determines the additional allocation in terms of subordinate debt and preference shares. The CeR calculation combines lending risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk and fixed asset and technical risks in the case of insurance companies.
Stockholders’ equity, as calculated under BIS rules, is an extremely important reference to the entire Group. However, for the purpose of allocating capital to business areas the Bank prefers CeR. It is risk-sensitive and thus linked to the management policies for the individual businesses and the business portfolio. This procedure anticipates the approach likely to be adopted by the future Basel II rules on capital. These provide an equitable basis for assigning capital to businesses according to the risks incurred and make it easier to compare returns.
In this note the above method of allocating capital is applied to all business units without exception (in previous years, capital was assigned to most units in the Americas based on book value).
Internal transfer prices: management uses rates adjusted for maturity to calculate the margins for each business. It also revises the interest rates for the different assets and liabilities that make up each unit’s balance sheet.
Assignment of operating expenses: the Bank assigns direct and indirect costs to the business areas except for those where there is no close and defined relationship, i.e., when they are of a clearly corporate or institutional nature for the entire Group.
Cross-business register: in some cases, and for the correct assignment of results, consolidation adjustments are done to eliminate double accounting produced by the incentives given to boost cross-business between units.
Concerning the structure by segments, the main level is set out by type of business.
The secondary basis of segment reporting relates to geographical segments. Information is prepared for the Group companies located in the Americas, detailing the banking, pension and insurance activities carried on in each of the countries.
This segmentation is based on the current internal organisational structure established by the BBVA Group for the management and monitoring of its business activities in 2006; the arrangement of the areas is different to that in 2005 and reflects the new structure of the Group in effect since January 1, 2006.
Thus the present composition of the Group’s main business areas as of December 31, 2006, was as follows:
Retail Banking in Spain and Portugal: this includes the Financial Services unit, i.e., individual customers, small companies and businesses in the domestic market, plus consumer finance provided by Finanzia and Uno-e, mutual and pension fund managers, private banking, the insurance business and BBVA Portugal.
Wholesale Businesses: this area consists of the corporate banking unit, including SMEs (previously reported under Retail Banking), large companies and institutions in the domestic market. Global Businesses covers the global customers unit, investment banking, treasury management and distribution. The area also takes care of business and real estate projects.
Mexico and the United States: this area includes the banking, insurance and pension businesses in Mexico and the United States (including Puerto Rico).
South America: this consists of banking, insurance and pension businesses in South America.
Corporate Activities: This area includes the results of the ALCO unit (the assets and liabilities committee) and Holdings in Industrial and Financial Companies. It also books the costs from central units that have a strictly corporate function and makes allocations to corporate and miscellaneous provisions, e.g., for early retirement. Earnings from the Group’s companies in Andorra were reported under this area until April, when the Group divested its holding there.
The figures corresponding to 2005 and 2004 have been calculated following the same criteria and structure used for 2006, in order that 2006, 2005 and 2004 are homogeneous for comparison.
On December 19, 2006 the Board of Directors approved a new organisational structure for the BBVA Group, which became effective on January 1, 2007.
The summarised income statements and main activity ratios by business area are as follows:
Thousands of Euros | ||||||||||||||||||
Retail Banking Spain and Portugal | Wholesale Businesses | |||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||
NET INTEREST INCOME | 2,865,005 | 2,623,068 | 2,508,950 | 1,031,627 | 1,017,415 | 946,662 | ||||||||||||
Income by the equity method | 752 | 892 | 1,269 | 283,160 | 51,115 | 104,006 | ||||||||||||
Net fee income | 1,588,617 | 1,456,420 | 1,341,146 | 491,491 | 424,980 | 380,078 | ||||||||||||
Income from insurance activities | 375,534 | 309,317 | 257,057 | — | — | — | ||||||||||||
CORE REVENUES | 4,829,908 | 4,389,698 | 4,108,423 | 1,806,278 | 1,493,510 | 1,430,746 | ||||||||||||
Gains and losses on financial assets and liabilities | 72,180 | 54,777 | 32,592 | 641,987 | 447,551 | 225,137 | ||||||||||||
GROSS INCOME | 4,902,088 | 4,444,474 | 4,141,015 | 2,448,265 | 1,941,061 | 1,655,884 | ||||||||||||
Net revenues from non-financial activities | 32,347 | 25,777 | 27,379 | 104,258 | 94,853 | 80,797 | ||||||||||||
Personnel and general administrative expenses | (2,193,474 | ) | (2,091,867 | ) | (2,002,966 | ) | (643,886 | ) | (581,525 | ) | (543,955 | ) | ||||||
Depreciation and amortization | (102,011 | ) | (102,725 | ) | (106,441 | ) | (11,989 | ) | (12,278 | ) | (12,208 | ) | ||||||
Other operating income and expenses | 13,657 | 43,274 | 29,810 | 15,701 | 28,643 | 4,336 | ||||||||||||
OPERATING PROFIT | 2,652,608 | 2,318,933 | 2,088,797 | 1,912,348 | 1,470,755 | 1,184,853 | ||||||||||||
Impairment losses on financial assets | (355,547 | ) | (328,229 | ) | (274,499 | ) | (322,444 | ) | (269,223 | ) | (366,100 | ) | ||||||
– Loan Loss provisions | (356,644 | ) | (330,170 | ) | (274,499 | ) | (322,444 | ) | (269,152 | ) | (366,100 | ) | ||||||
– Other | 1,097 | 1,941 | — | — | (71 | ) | — | |||||||||||
Provisions | (2,617 | ) | (2,281 | ) | (5,285 | ) | (11,272 | ) | 5,177 | 5,868 | ||||||||
Other income/losses | 16,295 | 18,353 | 7,945 | 158,886 | 31,001 | 59,129 | ||||||||||||
PRE-TAX PROFIT | 2,310,740 | 2,006,775 | 1,816,959 | 1,737,519 | 1,237,709 | 883,752 | ||||||||||||
Corporate income tax | (807,891 | ) | (685,515 | ) | (619,395 | ) | (449,417 | ) | (361,334 | ) | (221,610 | ) | ||||||
NET PROFIT | 1,502,849 | 1,321,260 | 1,197,565 | 1,288,103 | 876,374 | 662,141 | ||||||||||||
Minority interests | (4,373 | ) | (4,194 | ) | (3,700 | ) | (5,697 | ) | (3,694 | ) | (4,110 | ) | ||||||
NET ATTRIBUTABLE PROFIT | 1,498,476 | 1,317,066 | 1,193,864 | 1,282,406 | 872,680 | 658,031 |
Thousands of Euros | |||||||||||||||||||||||||||
México and USA | South America | Corporate Activities | |||||||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||
NET INTEREST INCOME | 3,535,013 | 2,678,277 | 1,898,796 | 1,310,464 | 1,039,113 | 908,169 | (367,971 | ) | (149,904 | ) | (103,049 | ) | |||||||||||||||
Income by the equity method | (2,109 | ) | (24 | ) | (1,651 | ) | 2,598 | (1,383 | ) | 485 | 23,247 | 70,895 | (7,069 | ) | |||||||||||||
Net fee income | 1,389,794 | 1,211,898 | 993,231 | 814,943 | 694,942 | 596,081 | 50,035 | 151,755 | 102,556 | ||||||||||||||||||
Income from insurance activities | 304,783 | 228,671 | 191,337 | (5,607 | ) | 5,418 | (20,065 | ) | (24,279 | ) | (56,483 | ) | (37,711 | ) | |||||||||||||
CORE REVENUES | 5,227,481 | 4,118,822 | 3,081,713 | 2,122,398 | 1,738,090 | 1,484,670 | (318,968 | ) | 16,264 | (45,273 | ) | ||||||||||||||||
Gains and losses on financial assets and liabilities | 195,966 | 167,706 | 140,877 | 282,358 | 156,573 | 94,566 | 841,048 | 440,570 | 566,657 | ||||||||||||||||||
GROSS INCOME | 5,423,447 | 4,286,528 | 3,222,590 | 2,404,756 | 1,894,663 | 1,579,236 | 522,080 | 456,835 | 521,384 | ||||||||||||||||||
Net revenues from non-financial activities | (4,178 | ) | (2,595 | ) | (1,385 | ) | 82 | 8,588 | 5,013 | (1,151 | ) | (844 | ) | 14,687 | |||||||||||||
Personnel and general administrative expenses | (1,945,609 | ) | (1,737,009 | ) | (1,350,334 | ) | (1,103,151 | ) | (932,873 | ) | (815,360 | ) | (444,301 | ) | (419,445 | ) | (385,218 | ) | |||||||||
Depreciation and amortization | (125,997 | ) | (138,248 | ) | (123,770 | ) | (92,717 | ) | (68,723 | ) | (85,065 | ) | (139,484 | ) | (126,718 | ) | (120,746 | ) | |||||||||
Other operating income and expenses | (117,008 | ) | (105,586 | ) | (98,154 | ) | (46,133 | ) | (40,395 | ) | (33,054 | ) | (12,487 | ) | (40,780 | ) | (12,771 | ) | |||||||||
OPERATING PROFIT | 3,230,655 | 2,303,089 | 1,648,947 | 1,162,836 | 861,260 | 650,770 | (75,343 | ) | (130,952 | ) | 17,273 | ||||||||||||||||
Impairment losses on financial assets | (685,332 | ) | (314,964 | ) | (233,673 | ) | (149,470 | ) | (79,658 | ) | (73,148 | ) | 9,243 | 137,747 | (10,775 | ) | |||||||||||
– Loan Loss provisions | (672,204 | ) | (288,638 | ) | (233,673 | ) | (151,331 | ) | (70,671 | ) | (73,148 | ) | 25,956 | 145,551 | 163,510 | ||||||||||||
– Other | (13,128 | ) | (26,326 | ) | — | 1,861 | (8,987 | ) | — | (16,713 | ) | (7,804 | ) | (174,285 | ) | ||||||||||||
Provisions | (72,680 | ) | (50,646 | ) | (78,747 | ) | (58,722 | ) | (78,025 | ) | (101,049 | ) | (1,192,914 | ) | (328,406 | ) | (671,345 | ) | |||||||||
Other income/losses | 42,734 | (7,995 | ) | (18,915 | ) | 316 | 14,110 | 21,108 | 770,753 | 21,710 | 285,725 | ||||||||||||||||
PRE-TAX PROFIT | 2,515,378 | 1,929,484 | 1,317,612 | 954,960 | 717,687 | 497,681 | (488,261 | ) | (299,902 | ) | (379,122 | ) | |||||||||||||||
Corporate income tax | (738,578 | ) | (556,044 | ) | (386,521 | ) | (229,135 | ) | (165,519 | ) | (138,918 | ) | 165,720 | 247,231 | 337,813 | ||||||||||||
NET PROFIT | 1,776,799 | 1,373,440 | 931,092 | 725,825 | 552,169 | 358,762 | (322,541 | ) | 52,671 | (41,308 | ) | ||||||||||||||||
Minority interests | (2,026 | ) | (3,574 | ) | (40,021 | ) | (216,756 | ) | (173,276 | ) | (129,571 | ) | (6,304 | ) | (79,409 | ) | (8,210 | ) | |||||||||
NET ATTRIBUTABLE PROFIT | 1,774,773 | 1,369,866 | 891,070 | 509,069 | 378,893 | 229,191 | (328,845 | ) | 132,080 | (49,519 | ) |
Thousands of Euros | ||||||||||||||||||||||||
Retail Banking Spain and Portugal | Wholesale Businesses | Mexico and USA | South America | |||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||
Customer lending (1) | 118,113,013 | 99,804,281 | 83,404,724 | 90,305,179 | 76,128,933 | 65,242,787 | 31,328,586 | 25,185,435 | 13,595,011 | 17,365,538 | 15,018,433 | 10,159,770 | ||||||||||||
Customer deposits (2) | 63,479,068 | 52,701,542 | 47,988,750 | 57,230,341 | 63,789,930 | 55,372,269 | 43,306,970 | 40,969,714 | 30,463,746 | 22,772,734 | 21,022,982 | 14,515,110 | ||||||||||||
Deposits | 63,444,931 | 52,637,971 | 47,955,575 | 46,831,691 | 46,838,587 | 41,500,415 | 36,791,331 | 34,910,483 | 27,765,673 | 21,666,754 | 19,864,273 | 14,050,572 | ||||||||||||
Assets sold under repurchase agreement | 34,138 | 63,571 | 33,175 | 10,398,651 | 16,951,344 | 13,871,853 | 6,515,640 | 6,059,231 | 2,698,073 | 1,105,980 | 1,158,710 | 464,538 | ||||||||||||
Off-balance-sheet funds | 61,407,132 | 60,961,549 | 55,334,658 | 2,248,710 | 2,154,716 | 1,659,717 | 18,477,848 | 16,977,135 | 11,440,099 | 33,446,899 | 30,978,438 | 22,328,831 | ||||||||||||
Mutual funds | 44,824,240 | 45,609,071 | 41,637,056 | 2,181,492 | 2,099,689 | 1,623,221 | 9,852,848 | 8,115,135 | 5,005,099 | 1,574,899 | 1,299,438 | 1,016,831 | ||||||||||||
Pension funds | 16,582,892 | 15,352,478 | 13,697,602 | 67,218 | 55,027 | 36,496 | 8,625,000 | 8,862,000 | 6,435,000 | 31,872,000 | 29,679,000 | 21,312,000 | ||||||||||||
Other placements | 7,137,102 | 7,145,773 | 7,068,019 | — | — | — | 3,293,560 | 2,235,125 | 1,922,806 | — | — | — | ||||||||||||
Customer portfolios | 19,031,860 | 15,588,000 | 13,547,000 | 491,000 | 2,909,000 | 4,525,000 | 6,941,000 | 5,713,000 | 5,785,000 | — | — | 85,000 | ||||||||||||
Total assets (3) | 124,292,144 | 105,383,399 | 88,978,818 | 195,049,807 | 176,939,514 | 154,934,628 | 69,288,564 | 66,983,799 | 47,991,557 | 29,390,918 | 27,349,854 | 18,699,463 | ||||||||||||
ROE (%) | 35.6 | 34.6 | 33.3 | 31.8 | 24.4 | 18.9 | 46.7 | 44.2 | 36.4 | 31.8 | 30.1 | 19.6 | ||||||||||||
Efficiency ratio (%) | 43.4 | 45.1 | 46.3 | 24.8 | 28.0 | 30.7 | 35.9 | 40.5 | 41.9 | 45.9 | 49.0 | 51.5 | ||||||||||||
Efficiency incl. depreciation and amortization (%) | 45.4 | 47.4 | 48.8 | 25.2 | 28.6 | 31.4 | 38.2 | 43.8 | 45.8 | 49.7 | 52.6 | 56.8 | ||||||||||||
NPL ratio (%) | 0.67 | 0.65 | 0.85 | 0.22 | 0.29 | 0.44 | 2.19 | 2.24 | 2.87 | 2.67 | 3.67 | 4.81 | ||||||||||||
Coverage ratio (%) | 264.5 | 275.6 | 219.0 | 707.9 | 561.5 | 406.7 | 248.9 | 251.3 | 245.2 | 132.8 | 109.3 | 104.1 |
(1) | Gross lending excluding NPLs. |
(2) | Includes collection accounts and individual annuities. |
(3) | Excluding insurance. |
8. REMUNERATION OF THE BANK’S DIRECTORS AND SENIOR MANAGEMENT
Remuneration and other provisions for the Board of Directors and members of the Management Committee
• | REMUNERATIONOFNON-EXECUTIVEDIRECTORS |
The remuneration paid to the non-executive members of the Board of Directors during 2006 is indicated below. The figures are given individually for each non-executive director and itemised in thousand euros:
Thousands of Euros | ||||||||||||
Board | Standing Committee | Audit | Risk | Appointments and Compensation | Total | |||||||
Tomás Alfaro Drake | 89 | — | 43 | — | — | 132 | ||||||
Juan Carlos Álvarez Mezquíriz | 119 | 152 | — | — | 39 | 310 | ||||||
Richard C. Breeden | 324 | — | — | — | — | 324 | ||||||
Ramón Bustamante y de la Mora | 119 | — | 65 | 97 | — | 281 | ||||||
José Antonio Fernández Rivero (*) | 119 | — | — | 194 | — | 313 | ||||||
Ignacio Ferrero Jordi | 119 | 101 | 22 | — | 58 | 300 | ||||||
Román Knörr Borrás | 119 | 152 | — | — | — | 271 | ||||||
Ricardo Lacasa Suárez | 119 | — | 162 | 97 | — | 378 | ||||||
Carlos Loring Martínez de Irujo | 119 | — | 65 | — | 78 | 262 | ||||||
Enrique Medina Fernández | 119 | 152 | — | 97 | — | 368 | ||||||
Susana Rodríguez Vidarte | 119 | — | 65 | — | — | 184 | ||||||
Telefónica de España, S.A. (Sr. Vila) | 119 | — | — | — | — | 119 | ||||||
Total (**) | 1,603 | 557 | 422 | 485 | 175 | 3,242 | ||||||
(*) | Mr José Antonio Fernández Rivero, apart from the amounts detailed above, also received a total of €652,000 during 2006 in early retirement payments as a former member of the BBVA management. |
(**) | Mr José María San Martín Espinós, who stood down as director at the AGM, 18th March 2006, received €77,000 in 2006 in payment of his membership of the Board of Directors. |
• | REMUNERATIONOFEXECUTIVEDIRECTORS |
The remuneration paid to the executive members of the Board of Directors during 2006 is indicated below. The figures are given individually for each executive director and itemised:
Thousands of Euros | ||||||
Fixed remunerations | Variable Remunerations (*) | Total (**) | ||||
Chairman | 1,740 | 2,744 | 4,484 | |||
Chief Executive Officer | 1,287 | 2,304 | 3,591 | |||
General Secretary | 581 | 703 | 1,284 | |||
Total | 3,608 | 5,751 | 9,359 | |||
(*) | Figures relating to variable remuneration for 2005 paid in 2006. |
(**) | In addition, the executive directors received remuneration in kind in 2006 totalling €37 thousand, of which €8 thousand relates to Chairman, €14 thousand relates to Chief Executive Officer and €15 thousand to General Secretary. |
The executive directors also earned a variable remuneration during 2006, which will be satisfied to them during 2007. The amount earned by the Chairman was of €3,255 thousand, the Chief Executive Officer earned €2,730 thousand while the General Secretary earned €794 thousand. These amounts are recognised under the heading “Accrued Expenses and Deferred Income” in the consolidated balance sheet as of December 31, 2006.
• | REMUNERATIONOFTHEMEMBERSOFTHEMANAGEMENTCOMMITTEE(*) |
The remuneration paid in 2006 to the members of BBVA’s Management Committee, excluding executive directors, comprised €5,763 thousand of fixed remuneration and €11,403 thousand of variable remuneration earned in 2005 and received in 2006.
In addition, the members of the Management Committee, excluding executive directors, received remuneration in kind totalling €526 thousand in 2006.
The members of the Management Committee earned variable remuneration totalling €12,689 thousand in 2006, and this amount, which is recognised under the heading “Accrued Expenses and Deferred Income” in the consolidated balance sheet as of December 31, 2006, will be paid in 2007.
(*) | The membership of the Management Committee decreased from 18 to 16 in December 2006. This section includes information relating to all the members of the Management Committee as of December 31, 2006, excluding executive directors. |
• | LONG TERMINCENTIVEPLANFORTHEPERIOD 2003-2005 |
The long-term incentive plan for 2003-2005 was settled in 2006. It applied to all the management team, including executive directors and members of the Management committee, and was pegged to the achievement of the long-term targets established at the beginning of the plan (2003) and to the BBVA Group’s comparative performance in earnings per share, cost-income ratio and ROE against their benchmark peers at the end of the plan.
This plan was published in the 2005 Annual Report, estimating the settlement figures on the basis of data from 2003 and 2004 and the variationspublished information for 2005 available at the time of going to press.
Once the final data required to settle the plan were obtained (ie, once the benchmark peers published their earnings per share, cost-income ratio and ROE figures and BBVA’s performance could be ranked against these) the plan was paid out in 20032006. The executive directors received the following amounts for the three years (2003, 2004 and 2005): Chairman and CEO, €5,294 thousand; President and COO, €4,438 thousand and Company Secretary, €1,351 thousand.
Meanwhile, the members of the Management committee, excluding the executive directors, received the total sum of €13,026 thousand from the plan, for all three years covered under the plan.
• | WELFAREBENEFITOBLIGATIONS |
The provisions recorded at 2006 year-end to cater for welfare benefit obligations to executive directors were as follows:
Plans in Force | Nº Shares at 01/01/03 | Options Exercised on Maturity of the Plan | Options Exercised due to Early Retirements and Other (2) | Nº Shares at 12/31/03 | Year Granted | Group | Expiration Date (1) | Exercise Price (Euros) | |||||||||||||
01/01/03 | 12/31/03 | ||||||||||||||||||||
1997 | 3,500.409 | (3,341,379 | ) | (159,030 | ) | — | 1998 | Employees | 02/20/03 | 3.67 | — | ||||||||||
1998(3) | 4,242,866 | (682,591 | ) | (320,014 | ) | 3,240,261 | 1999 | Employees | 06/01/03 - 07/31/04 | 6.01 | 6.01 | ||||||||||
06/01/03 - | |||||||||||||||||||||
1999(3) | 5,103,957 | (554,846 | ) | (21,308 | ) | 4,527,803 | 2000 | Employees | 07/31/04 | 10.65 | 10.65 | ||||||||||
03/31/03 - | |||||||||||||||||||||
2000 | 7,292,410 | — | (45,835 | ) | 7,246,575 | 2001 | Employees | 03/31/04 | 12.02 | 12.02 | |||||||||||
Long-service bonuses | 6,646,957 | (278,460 | ) | (90,136 | ) | 6,278,361 | (4 | ) | Employees | (4) | — | — | |||||||||
Total | 26,786,599 | (4,857,276 | ) | (636,323 | ) | 21,293,000 | 6.73 | 7.27 | |||||||||||||
Thousands of | ||
Chairman | 53,193 | |
Chief Executive Officer | 44,141 | |
General Secretary | 7,235 | |
Total | 104,569 | |
Of this aggregate amount, €16,796 thousand were charged to 2006 earnings. Most of these commitments were insured under policies with BBVA as beneficiary, underwritten by an insurance company belonging to the Group. These insurance policies were matched to financial assets in compliance with Spanish legal regulations. The internal return on the insurance policies associated to said commitments was €3,946 thousand, which partly offset the amount allocated to provisions during the year.
Also, insurance premiums amounting to €79 thousand were paid on behalf of the non-executive directors members of the Board of Directors.
The weighted-average exercise price of options exercised in 2003 before the expiration date, excluding long-service bonuses, was €6.01. The remaining life of options outstandingprovisions charged as of December 31, 2003,2006 for post-employment welfare commitments for the Management committee members, excluding long-service bonuses,executive directors, amounted to €39,161 thousand. Of these, €11,215 thousand were charged against 2006 earnings. The internal return on the insurance policies associated to said commitments was 0.42 years.€1,021 thousand, which partly offset the amount allocated to provisions during the year.
REMUNERATION SYSTEM FOR NON-EXECUTIVE DIRECTORS WITH DEFERRED DELIVERY OF SHARES
The annual general meeting celebrated on March 18, 2006, under agenda item eight, resolved to establish a remuneration scheme using deferred delivery of shares to the Bank’s non-executive directors, to substitute the earlier scheme that had covered these directors.
The new plan assigns ‘theoretical’ shares each year to non-executive director beneficiaries equivalent to 20% of the total remuneration paid to each in the previous year, using the average of BBVA stock closing prices from the trading sessions prior to the annual general meetings approving the financial statements for the years covered by the scheme as of 2006. These shares, where applicable, are to be delivered when the beneficiaries cease to be directors on any grounds other than serious dereliction of duties.
The Annual General Meeting resolution granted the non-executive directors who were beneficiaries of the earlier scheme the possibility of choosing to convert the amounts to which they were entitled under the previous scheme for non-executive directors into “theoretical shares”. These entitlements amounted to a total of €2,228 thousand as of December 31, 2006. All the beneficiaries opted for this conversion.
Consequently, the non-executive directors who were beneficiaries of the new system for deferred delivery of shares, approved by the AGM, received the following number of theoretical shares:
DIRECTORS | Theoretical Shares | |
JUAN CARLOS ALVAREZ MEZQUIRIZ | 16,208 | |
RAMÓN BUSTAMANTEYDELA MORA | 16,941 | |
JOSÉ ANTONIO FERNÁNDEZ RIVERO | 6,595 | |
IGNACIO FERRERO JORDI | 16,879 | |
ROMÁN KNÖRR BORRÁS | 12,720 | |
RICARDO LACASA SUAREZ | 16,004 | |
CARLOS LORING MARTÍNEZDE IRUJO | 4,906 | |
ENRIQUE MEDINA FERNÁNDEZ | 24,134 | |
SUSANA RODRÍGUEZ VIDARTE | 8,559 |
From 2001
SEVERANCE PAYMENTS
The contracts of the Bank’s executive directors (Chairman and CEO, President and COO, and Company Secretary) recognise their entitlement to 2003be compensated should they leave their post for grounds other than their own decision, retirement, disablement or serious dereliction of duty. These entitlements amount to an aggregate compensation of €141,390 thousand.
In order to receive such compensation, directors must place their directorships at the disposal of the board, resign from any posts that they may hold as representatives of the Bank in other companies, and waive pre-existing employment agreements with the Bank, including any senior management positions and any right to obtain compensation other than that already indicated.
On standing down, they will be rendered unable to provide services to other financial institutions in competition with the Bank or its subsidiaries for two years, as established in the board regulations.
Activities concerned with financial instruments may involve the assumption or transfer of one or more types of risk by financial entities. The risks associated with financial instruments are:
Market risks: these arise as a consequence of holding financial instruments whose value may be affected by changes in market conditions; they include three types of risk:
Currency risk: arises as a result of changes in the exchange rate between currencies.
Fair value interest rate risk: arises as a result of changes in market interest rates.
Price risk: arises as a result of changes in market prices, due either to factors specific to the individual instrument or to factors that affect all instruments traded on the market.
Credit risk: this is the risk that one of the parties to the financial instrument agreement will fail to honour its contractual obligations due to the insolvency or incapacity of the individuals or legal entities involved and will cause the other party to incur a financial loss.
Liquidity risk: occasionally referred to as funding risk, this arises either because the entity may be unable to sell a financial asset quickly at an amount close to its fair value, or because the entity may encounter difficulty in finding funds to meet commitments associated with financial instruments.
The Group has developed a global risk management system based on three components: a corporate risk management structure, with segregated functions and responsibilities; a set of tools, circuits and procedures that make up the different risk management systems; and an internal control system. Following is a summary of each of the three components:
1. CORPORATEMANAGEMENTSTRUCTURE
The Board of Directors is the body that determines the Group’s risk policy. It approves, where appropriate, any non-delegated financial transactions or programmes involving credit risk, with no restrictions as to the amount. It also authorises the operating limits and the delegation of powers relating to credit risk, market risk and structural risk.
These tasks are performed by the Standing Committee, which reports to the Board.
The Board has a Lending Committee, a specialized body whose functions include, inter alia: assessment of the Group’s risk management in terms of risk profile and capital map, broken down by business and area of activity; evaluation of the general risk policies and establishment of limits by type of risk or business, and of management resources, procedures and systems, structures and processes; approval of individual or group risks that may affect the Bank’s solvency, in keeping with the established delegation system; analysis and approval, where appropriate, of credit risks in terms of maximum customer or group exposure; monitoring of the Group’s various risks, ensuring they comply with the profile defined by the Group; ensuring compliance with the recommendations of regulatory and supervisory bodies, and implementation of these recommendations in the Group’s risk management model; and analysis of the Group’s risk control systems.
The Asset-Liability Committee (ALCO) is the body responsible for actively managing the Group’s structural liquidity, interest rate and currency risks, and its core capital.
The Internal Risk Committee, which is composed of the persons responsible for Group risk management at corporate level, develops and implements the risk management model at the Group and ensures that the risks assumed by the Group are in line with the target risk profile defined by the governing bodies.
The Technical Transactions Committee analyses and approves, where appropriate, the financial transactions and programmes that are within its level of authorisation, and refers any transactions exceeding the scope of its delegated powers to the Lending Committee.
2. TOOLS,CIRCUITSANDPROCEDURES
The Group has implemented an integral risk management system designed to cater for the needs arising in relation to the various types of risk; this prompted it to equip the management processes for each risk with measurement tools for risk acceptance, assessment and monitoring and to define the appropriate circuits and procedures, which are reflected in manuals that also include management criteria. Specifically, the main risk management activities performed are as follows: calculation of the risk exposures of the various portfolios, considering any related mitigating factors (netting, collateral, etc.); calculation of the probability of default (PD), loss severity and expected loss of each portfolio, and assignment of the PD to the new stocktransactions (ratings and scorings); measurement of the values-at-risk of the portfolios based on various scenarios using historical and Monte Carlo simulations; establishment of limits to the potential losses based on the various risks incurred; determination of the possible impacts of the structural risks on the income statement; setting of limits and alerts to safeguard the Group’s liquidity; identification and quantification of operational risks by business line to enable the mitigation of these risks through corrective measures; and definition of efficient circuits and procedures which contribute to the achievement of the targets set.
3. INTERNALCONTROL –RISKMAPS
The Group has an independent function which, in keeping with the recommendations of the regulators, draws up Risk Maps identifying any gaps in the Group’s risk management and the best practices, and establishes working plans with the various business areas to remedy these gaps.
a) MARKETRISKMANAGEMENT
a.1) Market Risk in market areas
The BBVA Group manages together credit and market risks in the market and treasury areas through their Central Risk Unit.
The detail, by instrument, of the risk exposure as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Credit institutions | 17,149,744 | 27,470,224 | 16,702,957 | |||
Fixed-income securities | 68,737,919 | 82,009,555 | 83,211,589 | |||
Derivatives | 6,195,150 | 8,525,664 | 7,607,036 | |||
Total | 92,082,813 | 118,005,443 | 107,521,582 | |||
In the market areas the Group has legal compensation rights and contractual compensation agreements which give rise to a reduction of €9,142 million in credit risk exposure as of December 31, 2006.
With regard to market risk (including interest rate risk, currency risk and equity price risk), BBVA’s limit structure determines an overall VaR limit for each business unit and specific sublimits by type of risk, activity and desk. The Group also has in place limits on losses and other control mechanisms such as delta sensitivity calculations, which are supplemented by a range of indicators and alerts which automatically activate procedures aimed at addressing any situations that might have a negative effect on the activities of the business area.
The market risk profile as of December 31, 2006, 2005 and 2004 was as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Interest risk | 7,405 | 11,284 | 12,322 | |||
Spread risk | 5,531 | 3,343 | 3,967 | |||
Currency risk | 727 | 1,717 | 1,216 | |||
Stock-market risk | 5,756 | 2,024 | 2,261 | |||
Vega risk | 4,928 | 4,443 | 3,904 | |||
Correlation risk | 2,968 | 1,817 | 1,986 |
a.2) Structural interest rate risk
The aim of on-balance-sheet interest rate risk management is to maintain the BBVA Group’s exposure to market interest rate fluctuations at levels in keeping with its risk strategy and profile. To this end, the ALCO actively manages the balance sheet through transactions intended to optimize the level of risk assumed in relation to the expected results, thus enabling the Group to comply with the tolerable risk limits.
The ALCO bases its activities on the interest rate risk measurements performed by the Risk Area. Acting as an independent unit, the Risk Area periodically quantifies the impact of interest rate fluctuations on the BBVA Group’s net interest income and economic value.
In addition to measuring sensitivity to 100-basis-point changes in market interest rates, the Group performs probabilistic calculations to determine the economic capital for structural interest rate risk in the BBVA Group’s banking activity (excluding the Treasury Area) based on interest rate curve simulation models.
All these risk measurements are subsequently analysed and monitored, and the levels of risk assumed and the degree of compliance with the limits authorised by the Standing Committee are reported to the various managing bodies of the BBVA Group.
Following is a detail in millions of euros of the average interest rate risk exposure levels of the main financial institutions of the BBVA Group in 2006:
Average Impact on Net Interest Income | ||||||||||
100 Basis-Point Increase | 100 Basis-Point Decrease | |||||||||
ENTITIES | Euro | Dollar | Other | Total | Total | |||||
BBVA | -141 | +15 | -1 | -127 | +144 | |||||
Other Europe | +1 | — | — | +1 | -1 | |||||
BBVA Bancomer | — | +23 | +58 | +81 | -81 | |||||
BBVA Puerto Rico | — | -4 | — | -4 | — | |||||
BBVA Chile | — | -1 | -3 | -4 | +4 | |||||
BBVA Colombia | — | — | +6 | +6 | -6 | |||||
BBVA Banco Continental | — | +1 | +4 | +5 | -6 | |||||
BBVA Banco Provincial | — | +1 | +10 | +11 | -11 | |||||
BBVA Banco Francés | — | — | -2 | -2 | +3 | |||||
Average Impact on Economic Value | ||||||||||
100 Basis-Point Increase | 100 Basis-Point Decrease | |||||||||
ENTITIES | Euro | Dollar | Other | Total | Total | |||||
BBVA | +450 | +3 | -5 | +448 | -490 | |||||
Other Europe | -26 | — | — | -26 | +28 | |||||
BBVA Bancomer | — | +18 | -195 | -177 | +174 | |||||
BBVA Puerto Rico | — | -17 | — | -17 | +3 | |||||
BBVA Chile | — | — | -45 | -45 | +32 | |||||
BBVA Colombia | — | — | -6 | -6 | +7 | |||||
BBVA Banco Continental | — | -12 | — | -12 | +13 | |||||
BBVA Banco Provincial | — | — | +12 | +12 | -12 | |||||
BBVA Banco Francés | — | — | -42 | -42 | +47 |
As part of the measurement process, the Group established the assumptions regarding the evolution and behaviour of certain items, such as those relating to products with no explicit or contractual maturity. These assumptions are based on studies that estimate the relationship between the interest rates on these products and market rates and enable specific balances to be classified into trend-based balances maturing at long term and seasonal or volatile balances with short-term residual maturity.
The average annual interest rate of the debt securities included in the “financial assets held for trading” heading during 2006 was of 3.94% (5.29% and 7.02% during 2005 and 2004, respectively).
a.3) Structural currency risk
Structural currency risk derives mainly from exposure to exchange rate fluctuations arising in relation to the Group’s foreign subsidiaries and from the endowment funds of the branches abroad financed in currencies other than the investment currency.
The ALCO is responsible for arranging hedging transactions to limit the net worth impact of fluctuations in exchange rates, based on their projected trend, and to guarantee the equivalent euro value of the foreign currency earnings expected to be obtained from these investments.
Structural currency risk management is based on the measurements performed by the Risk Area. These measurements use an exchange rate scenario simulation model which quantifies possible changes in value with a confidence interval of 99% and a pre-established time horizon. The Standing Committee limits the economic capital or unexpected loss arising from the currency risk of the foreign-currency investments.
As of December 31, 2006, the coverage of structural currency risk exposure stood at 34%.
a.4) Structural equity price risk
The BBVA Group’s exposure to structural equity price risk derives mainly from investments in industrial and financial companies with medium- to long-term investment horizons. It is reduced by the net short positions held in derivative instruments on the same underlyings in order to limit the sensitivity of the portfolio to possible falls in prices. As of December 31, 2006 the aggregate sensitivity of the Group’s equity positions to a 1% fall in the price of the shares amounted to €75 million, 73% of which is concentrated in highly liquid European Union equities. This figure is determined by considering the exposure on shares measured at market price or, in the absence thereof, at fair value, including the net positions in equity swaps and options on the same underlyings in delta equivalent terms. Treasury Area portfolio positions are not included in the calculation.
The Risk Area measures and effectively monitors the structural equity price risk. To this end, it estimates the sensitivity figures and the capital required to cover the possible unexpected losses arising from fluctuations in the value of the companies in the investment portfolio, with a confidence interval equal to the entity’s target rating, taking into account the liquidity of the positions and the statistical behaviour of the assets under consideration. These measurements are supplemented by periodic stress- and back-testing and scenario analyses.
b) CREDITRISKMANAGEMENT
Loans and receivables
The detail, by nature of the related financial instrument, of the carrying amounts of the financial assets included under “Loans and Receivables” in the accompanying consolidated balance sheets as of December 31, 2006, 2005 and 2004, is shown in Note 14.
The detail, by heading, of the Group’s maximum credit risk exposure as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Gross credit risk (amount drawn down) | 305,249,671 | 252,274,622 | 198,230,469 | |||
Loans and receivables | 262,968,973 | 222,413,025 | 176,672,820 | |||
Contingent liabilities | 42,280,698 | 29,861,597 | 21,557,649 | |||
Market activities | 92,082,813 | 118,005,443 | 107,533,914 | |||
Drawable by third parties | 98,226,297 | 85,001,452 | 60,716,878 | |||
Total | 495,558,781 | 455,281,517 | 366,481,261 | |||
The detail, by geographical area, of the Gross credit risk (amount drawn down) of the foregoing detail as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Spain | 243,366,824 | 199,043,387 | 163,821,433 | |||
Other European countries | 6,120,288 | 6,462,795 | 5,721,920 | |||
The Americas | 55,762,559 | 46,768,440 | 28,687,116 | |||
Mexico | 27,728,518 | 24,499,054 | 14,714,176 | |||
Puerto Rico | 3,247,768 | 3,293,317 | 2,484,770 | |||
Chile | 6,263,848 | 5,918,357 | 3,941,860 | |||
USA | 5,050,880 | 1,797,094 | 56,691 | |||
Argentina | 2,203,496 | 2,109,233 | 1,695,668 | |||
Perú | 3,665,819 | 2,846,359 | 1,959,688 | |||
Colombia | 3,310,663 | 2,845,845 | 1,446,183 | |||
Venezuela | 3,139,140 | 2,397,018 | 1,543,935 | |||
Other | 1,152,427 | 1,062,163 | 844,145 | |||
Total | 305,249,671 | 252,274,622 | 198,230,469 | |||
As of December 31, 2006, 104 corporate groups had drawn down loans of more than €200 million, which taken together constitute a total risk exposure of 19% of the total for the Group as of December 31, 2006. 90% of these corporate groups have an investment grade rating. The breakdown, based on the geographical area in which the transaction was originated, is as follows: 69% in Spain, 22% in the Bank’s branches abroad, and 9% in Latin America (7% in Mexico alone). The detail, by sector, is as follows: Institutional (19%), Real Estate and Construction (27%), Electricity and Gas (12%), Consumer Goods and Services (11%), and Telecommunications (10%).
The parent and subsidiaries business activity exposure to the private sector in Spain, is of very high credit quality as evidenced by the fact that as of December 31, 2006, 76.9% of the portfolio is rated BBB- (investment grade) or higher, and 59.3% is rated A or higher, as indicated in the following table as of December 31, 2006:
% of Total Exposure | |||
AAA/AA | 29.5 | % | |
A | 29.8 | % | |
BBB+ | 5.2 | % | |
BBB | 6.6 | % | |
BBB- | 5.8 | % | |
BB+ | 6.3 | % | |
BB | 5.5 | % | |
BB- | 5.2 | % | |
B+ | 3.3 | % | |
B | 2.1 | % | |
B- | 0.7 | % |
Loans and advances to other debtors
The detail, by transaction type, status, sector and geographical area, of the carrying amounts of the financial assets included under “Loans and Advances to Other Debtors” in the accompanying consolidated balance sheets as of December 31, 2006, 2005 and 2004, disregarding the impairment losses, is shown in Note 14.3.
The Group’s lending to the private sector resident in Spain totalled €167 billion. Its risk exposure is highly diversified between financing provided to individuals and businesses, and there are no significant concentrations in the sectors that are more sensitive to the current economic scenario.
Non-performing assets (past-due and overdrawn amounts and overruns) included in “Receivable on Demand and Other” amounted to €1,804 million as of December 31, 2006 (€1,023 million and €946 million as of December 31, 2005 and 2004, respectively).
Impaired assets
The detail, by nature of the related financial instrument, of the carrying amounts of the financial assets included under the heading “Impaired loans and advances to other debtors” in the accompanying consolidated balance sheets as of December 31, 2006, 2005 and 2004 is shown in Note 14.4. Additionally, as of December 31, 2006 the substandard contingent liabilities amounted to €40 million (€36 million and €46 million as of December 31, 2005 and 2004 respectively).
The detail, by geographical area, of the headings “impaired loans and advances to other debtors” and “Substandard contingent liabilities” as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Spain | 1,174,294 | 1,051,072 | 1,169,599 | |||
Other European countries | 42,055 | 37,419 | 33,708 | |||
The Americas | 1,315,061 | 1,293,838 | 1,044,746 | |||
Mexico | 611,986 | 573,004 | 433,314 | |||
Puerto Rico | 66,962 | 71,482 | 62,102 | |||
Chile | 194,366 | 234,513 | 172,190 | |||
USA | 110,128 | 18,576 | — | |||
Argentina | 25,950 | 38,464 | 71,892 | |||
Peru | 76,571 | 82,139 | 66,498 | |||
Colombia | 169,136 | 223,041 | 160,548 | |||
Venezuela | 38,469 | 15,795 | 22,588 | |||
Other | 21,493 | 36,824 | 55,614 | |||
Total | 2,531,410 | 2,382,329 | 2,248,053 | |||
The changes in 2006, 2005 and 2004 in “Impaired loans and advances to other debtors” and “Substandard contingent liabilities” in the foregoing detail are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at the beginning of the period | 2,382,329 | 2,248,053 | 3,028,121 | ||||||
Additions | 2,741,853 | 1,942,774 | 1,987,574 | ||||||
Recoveries | (1,829,894 | ) | (1,531,039 | ) | (1,574,475 | ) | |||
Transfers to write-off | (707,451 | ) | (666,534 | ) | (713,188 | ) | |||
Exchange differences and others | (55,427 | ) | 389,075 | (479,979 | ) | ||||
Balance at the end of the period | 2,531,410 | 2,382,329 | 2,248,053 | ||||||
The changes in 2006, 2005 and 2004 impaired loans and advances to other debtors heading are detailed in Note 14.4.
As of December 31, 2006, 2005 and 2004, the detail of the headings “Impaired loans and advances to other debtors” and “Substandard contingent liabilities” of the various business segments were granted, except long-service bonusesas follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Retail Banking Spain and Portugal | 824,689 | 672,418 | 740,253 | |||
Wholesale and Investment Banking | 277,838 | 303,365 | 369,646 | |||
Mexico and USA | 789,076 | 663,062 | 495,416 | |||
The Americas | 525,985 | 630,776 | 549,330 | |||
Corporate Activities | 113,822 | 112,708 | 93,408 | |||
Total | 2,531,410 | 2,382,329 | 2,248,053 | |||
Impairment losses
The changes in the balance of the provisions for impairment losses on the assets included under the heading “Loans and Receivables” are shown in Note 14.4.
In addition, as of December 31, 2006, the provisions for impairment losses on off-balance-sheet items amounted to €501,993 thousand (€452,462 thousand and €348,782 thousand as of December 31, 2005 and 2004, respectively) (see Note 28).
c) LIQUIDITYRISK
The aim of liquidity risk management and control is to ensure that the Bank’s payment commitments can be met without having to resort to borrowing funds under onerous conditions.
The Group’s liquidity risk is monitored using a dual approach: the short-term approach (90-day time horizon), which focuses basically on the management of payments and collections of Treasury and Markets, ascertains the Bank’s possible liquidity requirements; and the structural, medium- and long-term approach, which focuses on the financial management of the balance sheet as a whole, with a minimum monitoring time frame of one year.
The Risk Area performs a control function and is totally independent of the management areas of each of the approaches and of the Group’s various units. Each of the risk areas, which are independent from each other, complies with the corporative principles of liquidity risk control that are established by the Market Risk Central Unit (UCRAM) – Structural Risks.
For each entity, the management areas request an outline of the quantitative and qualitative limits and alerts for short-, medium- and long-term liquidity risk, which is authorized by the Standing Committee. Also, the Risk Area performs periodic (daily and monthly) risk exposure measurements, develops the related valuation tools and models, conducts periodic stress tests, measures the degree of concentration on interbank counterparties, prepares the policies and procedures manual, and monitors the authorised limits and alerts, which are reviewed al least one time every year.
The liquidity risk data are sent periodically to the Group’s ALCO and to the management areas involved. As established in the Contingency Plan, the Technical Liquidity Group (GTL), in the event of an alert of a possible crisis, conducts an initial analysis of the Bank’s short- and long-term liquidity situation. The GTL comprises personnel from the Short-Term Cash Desk, Financial Management and the Market Area Risk Unit (UCRAM-Structural Risk). If the alert is serious, the GTL reports the matter to the Liquidity Committee, which is composed of the managers of the related areas. The Liquidity Committee is responsible, in situations requiring urgent attention, for calling a meeting of the Crisis Committee chaired by the CEO.
10. CASH AND BALANCES WITH CENTRAL BANKS
The breakdown of the balance of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Cash | 2,756,458 | 2,408,841 | 1,790,632 | |||
Balances at the Bank of Spain | 2,704,792 | 2,381,328 | 3,139,819 | |||
Balances at other central banks | 7,035,144 | 7,526,957 | 5,192,066 | |||
Valuation adjustments (*) | 18,728 | 24,191 | 573 | |||
Total | 12,515,122 | 12,341,317 | 10,123,090 | |||
(*) | Valuation adjustments include accrued interests |
11. FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING
11.1. BREAKDOWNOFTHEBALANCE
The breakdown of the balances of these headings in the consolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Receivable | Payable | Receivable | Payable | Receivable | Payable | |||||||
Debt securities | 30,470,542 | — | 24,503,507 | — | 30,396,579 | — | ||||||
Other equity instruments | 9,948,705 | — | 6,245,534 | — | 5,690,885 | — | ||||||
Trading derivatives | 11,415,862 | 13,218,654 | 13,262,740 | 13,862,644 | 10,948,596 | 12,802,912 | ||||||
Short positions | — | 1,704,880 | — | 2,408,221 | — | 1,331,501 | ||||||
Total | 51,835,109 | 14,923,534 | 44,011,781 | 16,270,865 | 47,036,060 | 14,134,413 | ||||||
11.2. DEBTSECURITIES
The breakdown of the balance of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Issued by central banks | 623,017 | 141,820 | 294,242 | |||
Spanish government bonds | 3,345,024 | 2,501,499 | 6,906,877 | |||
Foreign government bonds | 16,971,034 | 13,132,841 | 14,654,416 | |||
Issued by Spanish financial institutions | 1,572,260 | 923,835 | 747,864 | |||
Issued by foreign financial institutions | 4,779,493 | 5,022,035 | 4,879,106 | |||
Other debt securities | 3,179,714 | 2,780,373 | 2,914,074 | |||
Securities lending | — | 1,104 | — | |||
Total | 30,470,542 | 24,503,507 | 30,396,579 | |||
The detail, by geographical area, of the balance of Debt Securities is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Europe | 10,509,316 | 9,331,740 | 16,795,670 | |||
United States | 3,597,575 | 3,187,479 | 2,394,949 | |||
Latin America | 15,662,674 | 11,518,730 | 10,826,552 | |||
Rest of the world | 700,977 | 465,558 | 379,408 | |||
Total | 30,470,542 | 24,503,507 | 30,396,579 | |||
11.3. OTHEREQUITYINSTRUMENTS
The breakdown of the balance of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Shares of Spanish companies | 5,196,520 | 3,326,259 | 2,998,917 | |||
Credit institutions | 671,594 | 502,968 | 272,833 | |||
Other | 4,524,926 | 2,823,291 | 2,726,084 | |||
Shares of foreign companies | 1,955,920 | 1,273,550 | 1,493,200 | |||
Credit institutions | 526,694 | 140,167 | 86,741 | |||
Other | 1,429,226 | 1,133,383 | 1,406,459 | |||
Share in the net assets of mutual funds | 2,796,265 | 1,645,725 | 1,198,768 | |||
Total | 9,948,705 | 6,245,534 | 5,690,885 | |||
11.4. TRADINGDERIVATIVES
The detail, by transaction type and market, of the balances of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | |||||||||||||||||||||
2006 | Currency Risk | Interest Rate Risk | Equity Price Risk | Commodities Risk | Credit Risk | Other Risks | Total | ||||||||||||||
Organised markets | (747,483 | ) | (11 | ) | 270,441 | 1,587 | — | 878 | (474,588 | ) | |||||||||||
Financial futures | 13,157 | — | 1,162 | — | — | — | 14,319 | ||||||||||||||
Options | (760,640 | ) | (11 | ) | 269,279 | 1,587 | — | 878 | (488,907 | ) | |||||||||||
Other products | — | — | — | — | — | — | — | ||||||||||||||
OTC markets | (239,459 | ) | 586,992 | (1,654,265 | ) | 4,842 | (3,863 | ) | (22,451 | ) | (1,328,204 | ) | |||||||||
Credit institutions | (266,228 | ) | (296,607 | ) | (637,446 | ) | 635 | (8,669 | ) | (22,551 | ) | (1,230,866 | ) | ||||||||
Forward transactions | 8,559 | — | — | 635 | — | — | 9,194 | ||||||||||||||
Future rate agreements (FRAs) | — | 43,791 | — | — | — | — | 43,791 | ||||||||||||||
Swaps | (269,231 | ) | (176,475 | ) | (23,929 | ) | — | — | — | (469,635 | ) | ||||||||||
Options | (5,552 | ) | (164,042 | ) | (613,517 | ) | — | (8,669 | ) | (22,551 | ) | (814,331 | ) | ||||||||
Other products | (4 | ) | 119 | — | — | — | — | 115 | |||||||||||||
Other financial Institutions | (5,094 | ) | 952,973 | (569,798 | ) | — | 3,157 | — | 381,238 | ||||||||||||
Forward transactions | (3,345 | ) | — | — | — | — | — | (3,345 | ) | ||||||||||||
Future rate agreements (FRAs) | — | (9 | ) | — | — | — | — | (9 | ) | ||||||||||||
Swaps | — | 1,045,435 | 7,068 | — | — | — | 1,052,503 | ||||||||||||||
Options | (1,749 | ) | (92,453 | ) | (576,866 | ) | — | 3,157 | — | (667,911 | ) | ||||||||||
Other products | — | — | — | — | — | — | — | ||||||||||||||
Other sectors | 31,863 | (69,374 | ) | (447,021 | ) | 4,207 | 1,649 | 100 | (478,576 | ) | |||||||||||
Forward transactions | 1,576 | — | — | — | — | — | 1,576 | ||||||||||||||
Future rate agreements (FRAs) | — | (133 | ) | — | — | — | — | (133 | ) | ||||||||||||
Swaps | 1 | (346,393 | ) | (395,711 | ) | 4,207 | — | 100 | (737,796 | ) | |||||||||||
Options | 30,286 | 277,440 | (51,310 | ) | — | 1,649 | — | 258,065 | |||||||||||||
Other products | — | (288 | ) | — | — | — | — | (288 | ) | ||||||||||||
Total | (986,942 | ) | 586,981 | (1,383,824 | ) | 6,429 | (3,863 | ) | (21,573 | ) | (1,802,792 | ) | |||||||||
of which: Asset Trading Derivatives | 468,913 | 8,518,060 | 2,262,409 | 34,650 | 81,054 | 50,776 | 11,415,862 | ||||||||||||||
of which: Liability Trading Derivatives | (1,455,855 | ) | (7,931,079 | ) | (3,646,233 | ) | (28,221 | ) | (84,917 | ) | (72,349 | ) | (13,218,654 | ) | |||||||
2005 Organised markets Financial futures Options Other products OTC markets Credit institutions Forward transactions Future rate agreements (FRAs) Swaps Options Other products Other financial Institutions Forward transactions Future rate agreements (FRAs) Swaps Options Other products Other sectors Forward transactions Future rate agreements (FRAs) Swaps Options Other products Total of which: Asset Trading Derivatives of which: Liability Trading Derivatives Thousands of Euros Currency
Risk Interest
Rate Risk Equity Price
Risk Credit
Risk Other
Risks Total 4,069 (5,833 ) (53 ) 39,747 10,724 48,654 (299 ) (279 ) 253,062 — — 252,484 — 593 — — — 593 107,695 128,384 (7,614 ) — — 228,465 — 20 — — — 20 (7,656 ) (78,072 ) 29,639 (1,896 ) — (57,985 ) (92,819 ) 154,547 (189,327 ) — (4,132 ) (131,731 ) (2,276 ) (235,129 ) — — — (237,405 ) (25,389 ) — — — — (25,389 ) — (68 ) — — — (68 ) — (108,432 ) (4,830 ) (592 ) — (113,854 ) (31,527 ) (177,943 ) (40,845 ) — — (250,315 ) (262 ) 54,917 — — — 54,655 (168,653 ) — 214 — — (168,439 ) — 1,736 — — — 1,736 — 421,392 (346,225 ) (1,471 ) — 73,696 (12,434 ) 294,900 (557,431 ) — — (274,965 ) (56 ) — — — — (56 ) (229,607 ) 450,733 (863,410 ) 35,788 6,592 (599,904 ) 1,301,581 9,836,714 1,921,374 98,444 104,627 13,262,740 (1,531,188 ) (9,385,981 ) (2,784,784 ) (62,656 ) (98,035 ) (13,862,644 )
Thousands of Euros | |||||||||||||||
2004 | Currency Risk | Interest Rate Risk | Equity Price Risk | Credit Risk | Total | ||||||||||
Organised markets | |||||||||||||||
Options | 4,434 | (18 | ) | (56,911 | ) | — | (52,495 | ) | |||||||
OTC markets | |||||||||||||||
Credit institutions | |||||||||||||||
Forward transactions | (58,944 | ) | 865 | — | — | (58,079 | ) | ||||||||
Future rate agreements (FRAs) | — | (1,829 | ) | — | — | (1,829 | ) | ||||||||
Swaps | (7,521 | ) | (631,399 | ) | (15,728 | ) | (331 | ) | (654,979 | ) | |||||
Options | 31,208 | (29,367 | ) | (176,823 | ) | — | (174,982 | ) | |||||||
Other financial Institutions | |||||||||||||||
Forward transactions | (110,128 | ) | — | — | — | (110,128 | ) | ||||||||
Future rate agreements (FRAs) | — | (47 | ) | — | — | (47 | ) | ||||||||
Swaps | (14,052 | ) | (382,059 | ) | (5,094 | ) | (287 | ) | (401,492 | ) | |||||
Options | 1,068 | (36,310 | ) | 13,356 | — | (21,886 | ) | ||||||||
Other sectors | |||||||||||||||
Forward transactions | (737,767 | ) | — | — | — | (737,767 | ) | ||||||||
Future rate agreements (FRAs) | — | 677 | — | — | 677 | ||||||||||
Swaps | (94,137 | ) | 530,896 | (15,768 | ) | (721 | ) | 420,270 | |||||||
Options | 36,108 | (25,765 | ) | (71,922 | ) | — | (61,579 | ) | |||||||
Total | (949,731 | ) | (574,356 | ) | (328,890 | ) | (1,339 | ) | (1,854,316 | ) | |||||
of which: Asset Trading Derivatives | 2,030,065 | 8,611,741 | 285,815 | 20,975 | 10,948,596 | ||||||||||
of which: Liability Trading Derivatives | (2,979,796 | ) | (9,186,097 | ) | (614,705 | ) | (22,314 | ) | (12,802,912 | ) | |||||
12. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The detail of the balance of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004, based on the nature of the related transactions, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Debt securities | 55,542 | 282,916 | 58,771 | |||
Unit-Linked products | 55,542 | 282,916 | 58,771 | |||
Other equity instruments | 921,572 | 1,138,337 | 1,000,719 | |||
Other securities | 449,759 | 264,249 | 241,618 | |||
Unit-Linked products | 471,813 | 874,088 | 759,101 | |||
Total | 977,114 | 1,421,253 | 1,059,490 | |||
Life insurance policies where the risk is borne by the policyholder, are policies in which the funds constituting the insurance technical provisions, are invested in the name of the insurer in units in collective investment undertaking and other financial assets selected by the policyholder, who ultimately bears the investment risk.
13. AVAILABLE-FOR-SALE FINANCIAL ASSETS
13.1. BREAKDOWNOFTHEBALANCE
The detail of the balance of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004, based on the nature of the related transactions, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Avaliable-for-sale financial assets | ||||||
Debt securities | 32,229,459 | 50,971,978 | 45,037,228 | |||
Other equity instruments | 10,037,315 | 9,062,010 | 7,966,317 | |||
Total | 42,266,774 | 60,033,988 | 53,003,545 | |||
The detail of the balance of the heading “Debt securities” as of December 31, 2006, 2005 and 2004, based on the nature of the related transactions, is as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Debt securities | |||||||||
Issued by central banks | 189,370 | 514,633 | 450,698 | ||||||
Spanish government bonds | 6,818,343 | 14,277,305 | 16,318,064 | ||||||
Foreign government bonds | 10,955,143 | 21,919,543 | 16,137,449 | ||||||
of which: doubtfully receivable from foreign general government | 2,929 | 3,056 | 346,484 | ||||||
Issued by credit institutions | 9,199,471 | 9,523,871 | 7,149,153 | ||||||
Resident | 1,034,586 | 773,652 | 608,017 | ||||||
Non resident | 8,164,885 | 8,750,219 | 6,541,136 | ||||||
of which: doubtfully receivable from foreign credit institutions | — | 81 | — | ||||||
Other debt securities | 4,916,735 | 4,496,245 | 4,758,913 | ||||||
Resident | 1,480,788 | 1,583,903 | 2,001,701 | ||||||
Non resident | 3,435,947 | 2,912,342 | 2,757,212 | ||||||
of which: doubtfully receivable from non residents | — | — | 1,030 | ||||||
Other | — | — | — | ||||||
Total gross | 32,079,062 | 50,731,597 | 44,814,277 | ||||||
Impairments losses | (31,036 | ) | (64,526 | ) | (99,409 | ) | |||
Accrued expenses and adjustments for hedging derivatives | 181,433 | 304,907 | 322,360 | ||||||
Total net | 32,229,459 | 50,971,978 | 45,037,228 | ||||||
As of December 31, 2006, 2005 and 2004 the amount of gains/losses net from tax recognised in equity from the heading “Debt securities” under Available-for-sale financial assets amounted to €702,139 thousand, €1,056,638 thousand and €893,141 thousand, respectively.
The breakdown of the balance of the heading “Other equity instruments” by nature of the operations as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | |||||||
2006 | 2005 | 2004 | |||||
Other equity instruments | |||||||
Shares of Spanish companies | 3,312,018 | 3,774,323 | 6,080,784 | ||||
Credit institutions | — | 16,587 | 18,803 | ||||
Quoted | — | — | 2,216 | ||||
Unquoted | — | 16,587 | 16,587 | ||||
Other | 3,312,018 | 3,757,736 | 6,061,981 | ||||
Quoted | 3,261,123 | 3,665,876 | 5,969,084 | ||||
Unquoted | 50,895 | 91,860 | 92,897 | ||||
Shares of foreign companies | 686,565 | 730,524 | 1,026,635 | ||||
Credit institutions | 345,084 | 272,256 | 260,399 | ||||
Quoted | 320,455 | 236,847 | 245,747 | ||||
Unquoted | 24,629 | 35,409 | 14,652 | ||||
Other | 341,481 | 458,268 | 766,236 | ||||
Quoted | 284,386 | 391,200 | 487,185 | ||||
Unquoted | 57,095 | 67,068 | 279,051 | ||||
Shares in the net assets of mutual funds | 1,962,589 | 1,480,271 | 875,367 | ||||
Total gross | 5,961,172 | 5,985,118 | 7,982,786 | ||||
Valuation adjustments and adjustments for hedging derivatives | 4,076,143 | 3,076,892 | (16,469 | ) | |||
Total net | 10,037,315 | 9,062,010 | 7,966,317 | ||||
As of December 31, 2006, 2005 and 2004 the amount of gains/losses net from tax recognised in equity from the heading “Other equity instruments” under Available-for-sale financial assets amounted to €2,653,433 thousand, €1,946,146 thousand and €1,426,992 thousand, respectively.
In 2006, 2005 and 2004, €1,120,591 thousand, €428,560 thousand and €974,412 thousand, respectively, were debited to “Valuation Adjustments” and recorded under “Gains/Losses on Financial Assets and Liabilities” in the consolidated income statements for 2006, 2005 and 2004. These amounts correspond to debt securities and other equity instruments (See Note 50)
As of December 31, 2006, most of our unrealised losses of “Available-for-sale assets” registered in equity correspond to “Debt securities”. This unrealised are considered temporary because they have mainly arisen in a period shorter than one year.
The detail, by geographical area, of this heading, disregarding accruals and impairment losses, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Europe | 24,258,081 | 42,174,090 | 41,377,085 | |||
United States | 5,637,656 | 4,129,727 | 1,575,299 | |||
Latin America | 6,677,481 | 9,820,752 | 9,000,123 | |||
Rest of the world | 1,517,669 | 665,919 | 894,549 | |||
Total | 38,090,887 | 56,790,488 | 52,847,056 | |||
13.2. IMPAIRMENTLOSSES
Following is a summary of the changes in 2006, 2005 and 2004 in the impairment losses on available-for-sale financial assets:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 138,299 | 149,402 | 192,797 | ||||||
Increase in impairment losses charged to income | 5,647 | 8,183 | — | ||||||
Decrease in impairment losses credited to income | (24,752 | ) | (27,615 | ) | (68,815 | ) | |||
Elimination of impaired balance due to transfer of | (17,161 | ) | — | ||||||
asset to write-off | (16,641 | ) | |||||||
Transfers | (771 | ) | 1,501 | — | |||||
Exchange differences | (20,093 | ) | 23,989 | 25,420 | |||||
Balance at end of year | 81,689 | 138,299 | 149,402 | ||||||
Of which: | |||||||||
- Determined individually | 56,710 | 83,928 | 85,782 | ||||||
- Determined collectively | 24,979 | 54,371 | 63,620 |
As of December 31, 2006, 2005 and 2004, the balances of the individually determined impairment losses related in full to debt securities from countries belonging to the Latin America geographical area.
14. 1. BREAKDOWNOFTHEBALANCE
The detail of the balance of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004, based on the nature of the related financial instrument, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Loans and advances to credit institutions | 17,049,692 | 27,470,224 | 16,702,957 | |||
Money market operations through counterparties | 100,052 | — | 241,999 | |||
Loans and advances to other debtors | 256,565,376 | 216,850,480 | 172,083,072 | |||
Debt securities | 77,334 | 2,291,889 | 5,497,509 | |||
Other financial assets | 6,062,805 | 2,784,054 | 2,366,666 | |||
Total | 279,855,259 | 249,396,647 | 196,892,203 | |||
14. 2. LOANSANDADVANCESTOCREDITINSTITUTIONS
The detail of the balance of this heading in the consolidated balance sheets as of December 31, 2005 and 2004, based on the nature of the related financial instrument, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Reciprocal accounts | 131,153 | 379,827 | 396,719 | |||
Deposits with agreed maturity | 9,469,423 | 13,202,414 | 9,429,882 | |||
Demand deposits | 438,892 | 540,982 | 342,951 | |||
Other accounts | 1,460,477 | 791,623 | 443,547 | |||
Reverse repurchase agreements | 5,490,240 | 12,459,111 | 5,990,595 | |||
Total gross | 16,990,185 | 27,373,957 | 16,603,694 | |||
Valuation adjustments | 59,507 | 96,267 | 99,263 | |||
Total | 17,049,692 | 27,470,224 | 16,702,957 | |||
14. 3. LOANSANDADVANCESTOOTHERDEBTORS
The detail, by loan type and status, of the balance of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004, disregarding the balance of the impairment losses, is as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Financial paper | 9,084 | 6,566 | 48,540 | ||||||
Commercial credit | 22,453,040 | 20,101,790 | 12,289,969 | ||||||
Secured loans | 116,737,348 | 101,527,208 | 77,221,112 | ||||||
Credit accounts | 21,699,873 | 19,312,007 | 17,028,327 | ||||||
Other loans | 77,748,275 | 61,671,944 | 53,703,804 | ||||||
Reverse repurchase agreements | 1,526,211 | 1,176,327 | 719,798 | ||||||
Receivable on demand and other | 11,658,109 | 8,716,758 | 6,595,709 | ||||||
Finance leases | 8,053,327 | 7,138,174 | 5,784,623 | ||||||
Impaired assets | 2,488,670 | 2,343,812 | 2,201,614 | ||||||
Total gross | 262,373,937 | 221,994,586 | 175,593,496 | ||||||
Valuation adjustments (*) | (5,808,561 | ) | (5,144,106 | ) | (3,510,424 | ) | |||
Total | 256,565,376 | 216,850,480 | 172,083,072 | ||||||
(*) | Includes accrued interests of impaired assets that amounted to €3,020 thousand and €2,260 thousand in 2006 and 2005, respectively. |
Through several of its financial institutions the Group finances the acquisition by its customers of both personal and real property through finance lease contracts which are recorded under this heading. As of December 31, 2006, approximately €4,700 million related to finance lease contracts for personal property and €3,353 million related to finance lease contracts for real property. Of the total finance leases as of December 31, 2006, 90% are floating rate finance leases and the remaining 10% are fixed rate finance leases.
The breakdown, by borrower sector, of the balance of this heading as of December 31, 2006, 2005 and 2004 was as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Public Sector | 21,193,915 | 22,125,331 | 20,345,386 | ||||||
Agriculture | 3,132,919 | 2,504,423 | 1,607,838 | ||||||
Industry | 24,730,676 | 17,929,750 | 16,714,665 | ||||||
Real estate and construction | 41,501,749 | 36,561,531 | 25,232,071 | ||||||
Trade and finance | 38,910,058 | 36,194,157 | 17,703,404 | ||||||
Loans to individuals | 103,918,072 | 82,583,257 | 70,613,169 | ||||||
Leases | 7,692,088 | 6,725,825 | 6,340,870 | ||||||
Other | 21,294,460 | 17,370,312 | 17,036,093 | ||||||
Valuation adjustments | (5,808,561 | ) | (5,144,106 | ) | (3,510,424 | ) | |||
Total | 256,565,376 | 216,850,480 | 172,083,072 | ||||||
The detail, by geographical area, of this heading as of December 31, 2006, 2005 and 2004, disregarding valuation adjustments, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Europe | 201,229,765 | 170,789,741 | 144,332,632 | |||
United States | 9,596,951 | 6,196,086 | 3,043,899 | |||
Latin America | 49,157,570 | 43,490,220 | 27,099,398 | |||
Rest of the world | 2,389,651 | 1,518,539 | 1,117,567 | |||
Total | 262,373,937 | 221,994,586 | 175,593,496 | |||
Of the total balance of “Loans and Advances to Other Debtors”, €9,055,899 thousand, €5,468,142 thousand and €1,972,784 thousand relate to securitised loans as of December 31, 2006, 2005 and 2004, respectively. Since the Group retains the risks and rewards of these loans, they cannot be derecognised unless they meet the requirements to do so. The breakdown of these securitised loans, based on the nature of the related financial instrument and of their status (recognised or derecognised), is as follows (see Note 44):
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Derecognised on the balance sheet | 1,058,132 | 1,587,209 | 2,096,440 | |||
Securitised mortgage assets | 209,368 | 376,180 | 387,855 | |||
Other securitised assets | 848,764 | 1,211,029 | 1,708,585 | |||
Retained on the balance sheet | 9,055,899 | 5,468,142 | 1,972,784 | |||
Securitised mortgage assets | 2,320,363 | 2,249,752 | 579,351 | |||
Other securitised assets | 6,735,536 | 3,218,390 | 1,393,433 | |||
Retained partially on the balance sheet | 65 | — | — | |||
Total | 10,114,096 | 7,055,351 | 4,069,224 | |||
14.4. IMPAIREDASSETSANDIMPAIRMENTLOSSES
The changes in 2006, 2005 and 2004 in the heading “Impaired Assets of Loans and advances to other debtors” of the foregoing detail, are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 2,346,072 | 2,201,614 | 2,923,849 | ||||||
Additions | 2,709,656 | 1,939,737 | 2,004,660 | ||||||
Recoveries | (1,805,252 | ) | (1,527,040 | ) | (1,559,012 | ) | |||
Transfers to writte-off | (707,451 | ) | (666,534 | ) | (713,188 | ) | |||
Exchange differences and other | (51,335 | ) | 398,295 | (454,695 | ) | ||||
Balance at end of year | 2,491,690 | 2,346,072 | 2,201,614 | ||||||
Following is a detail of the financial assets classified as “Loans and receivables to other debtors” and considered to be impaired due to credit risk as of December 31, 2006 and 2005, broken down on the basis of the time elapsed from the due date of the oldest amount outstanding of each transaction or from the date on which the transaction was considered to be impaired:
Thousands of Euros | ||||
2006 | 2005 | |||
Between 3-6 months | 1,101,018 | 961,827 | ||
Between 6-12 months | 352,009 | 256,805 | ||
Between 12-18 months | 320,105 | 106,178 | ||
Between 18-24 months | 94,779 | 89,946 | ||
More than 24 months | 623,779 | 931,315 | ||
Total | 2,491,690 | 2,346,071 | ||
As of 31 December 2006 and 2005, the financial assets classified as loans and receivables which, although not considered to be impaired, had amounts past due at these dates, amounted to €2,021,752 thousand and €893,080 thousand, respectively.
The changes during 2006 in the impaired financial assets derecognised in balance for considering remote its possibility of recovery was as follows:
TOTAL | |||
Balance at the beginning of the year | 6,186,524 | ||
Increase: | 639,034 | ||
Assets of remote collectability | 472,352 | ||
Products overdue not collected | 166,682 | ||
Decrease: | (596,316 | ) | |
Cash recovery | (462,849 | ) | |
Foreclosed assets | (4,736 | ) | |
Other causes | (128,731 | ) | |
Net Exchange differences | (109,712 | ) | |
Balance at the end of the year | 6,119,530 | ||
The changes in the impairment losses during 2006, 2005 and 2004 on the assets included under the heading “Loans and Receivables” are as follow:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 5,586,656 | 4,621,654 | 5,045,608 | ||||||
Increase in impairment losses charged to income | 2,107,162 | 1,418,758 | 1,724,056 | ||||||
Decrease in impairment losses credited to income | (444,839 | ) | (422,554 | ) | (574,998 | ) | |||
Acquisition of subsidiaries in the year | 91,177 | 145,884 | 1,095 | ||||||
Disposal of entities in the year | (22,231 | ) | (2,034 | ) | — | ||||
Recovery of fixed-income security provisions | (1,620 | ) | — | — | |||||
Based on the nature of the asset | (545,823 | ) | (666,534 | ) | (713,188 | ) | |||
Transfers to written-off loans | (1,751 | ) | 2,960 | (21,226 | ) | ||||
Exchange differences | (332,489 | ) | 370,128 | (146,401 | ) | ||||
Other | (18,813 | ) | 118,394 | (693,292 | ) | ||||
Balance at end of year | 6,417,429 | 5,586,656 | 4,621,654 | ||||||
Of which: | |||||||||
- Determined individually | 1,930,254 | 2,041,573 | 1,867,695 | ||||||
- Determined collectively | 4,487,175 | 3,545,083 | 2,753,959 | ||||||
Of which: | |||||||||
Based on the nature of the asset covered: | 6,417,429 | 5,586,656 | 4,621,654 | ||||||
Loans and advances to credit institutions | 6,603 | 17,423 | 31,860 | ||||||
Loans and advances to other debtors | 6,403,597 | 5,562,545 | 4,589,748 | ||||||
Debt securities | 600 | 648 | — | ||||||
Other financial assets | 6,629 | 6,040 | 46 | ||||||
Of which: | |||||||||
By geographical area: | 6,417,429 | 5,586,656 | 4,621,654 | ||||||
Europe | 3,785,061 | 3,179,172 | 2,783,002 | ||||||
United States | 198,570 | 39,444 | 1,169 | ||||||
Latin America | 2,433,282 | 2,350,656 | 1,821,313 | ||||||
Rest of the world | 516 | 17,384 | 16,170 |
Recoveries if assets written off in 2006, 2005 and 2004 amounted to €184,037 thousand, €183,124 thousand and €365,149 thousand, respectively, and are deducted from the balance of the heading “Impairment losses (net) – Loans and receivables” in the accompanying consolidated income statements.
As of December 31, 2006, 2005 and 2004, financial income amounting to €1,106,513 thousand, €1,051,687 thousand and €750,018 thousand had accrued, respectively, but was not recorded in the consolidated income statements because there were doubts regarding its collection.
15. HELD-TO-MATURITY INVESTMENTS
As of December 31, 2006, 2005 and 2004, the detail of the balance of this heading in the consolidated balance sheets was as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Quoted Spanish government bonds | 1,416,607 | 363,022 | 337,435 | ||||||
Quoted foreign government bonds | 3,023,259 | 2,272,187 | 1,297,558 | ||||||
Issued by Spanish credit institutions | 344,186 | 264,150 | 154,065 | ||||||
Issued by foreign credit institutions | 478,508 | 481,940 | 325,191 | ||||||
Debentures and bonds | 647,767 | 583,080 | 111,357 | ||||||
Issued by other resident sectors | 647,767 | 583,080 | 111,357 | ||||||
Total gross | 5,910,327 | 3,964,379 | 2,225,606 | ||||||
Impairment losses | (4,691 | ) | (5,114 | ) | (4,104 | ) | |||
Total | 5,905,636 | 3,959,265 | 2,221,502 | ||||||
All these balances are in Europe.
The gross changes in 2006, 2005 and 2004 in the balance of this heading in the consolidated balance sheets are summarised as follows:
Thousands of Euros | ||||||||
2006 | 2005 | 2004 | ||||||
Balance at beginning of year | 3,964,379 | 2,225,606 | — | |||||
Acquisitions | 2,210,483 | 1,884,773 | 2,225,606 | |||||
Redemptions | (274,000 | ) | (146,000 | ) | — | |||
Other | 9,465 | — | — | |||||
Balance at end of year | 5,910,327 | 3,964,379 | 2,225,606 | |||||
Following is a summary of the gross changes in 2006, 2005 and 2004 in the impairment losses on held-to-maturity investments:
Thousands of Euros | ||||||||
2006 | 2005 | 2004 | ||||||
Balance at beginning of year | 5,114 | 4,104 | — | |||||
Increase in impairment losses charged to income | — | 1,008 | 4,106 | |||||
Decrease in impairment losses credited to income | (422 | ) | — | — | ||||
Other | (1 | ) | 2 | (2 | ) | |||
Balance at end of year | 4,691 | 5,114 | 4,104 | |||||
- Determined collectively | 4,691 | 5,114 | 4,104 |
16. HEDGING DERIVATIVES (RECEIVABLE AND PAYABLE)
The detail of the fair value of the hedging derivatives held by the Group as of December 31, 2006, 2005 and 2004 and recognised in the consolidated balance sheets is as follows:
Thousands of Euros | |||||||||
2006 | Interest Rate Risk | Equity Price Risk | Total | ||||||
Non organised markets | |||||||||
Credit institutions | (381,889 | ) | (115,557 | ) | (497,446 | ) | |||
Fair value micro-hedge | (404,296 | ) | (115,557 | ) | (519,853 | ) | |||
Cash flow micro-hedge | 22,407 | — | 22,407 | ||||||
Micro-hedges of net investments in foreign operations | — | — | — | ||||||
Other financial institutions | 178,127 | (2,909 | ) | 175,218 | |||||
Fair value micro-hedge | 126,340 | (2,909 | ) | 123,431 | |||||
Cash flow micro-hedge | 51,787 | — | 51,787 | ||||||
Other sectors | 9,354 | (3,546 | ) | 5,808 | |||||
Fair value micro-hedge | 9,354 | (3,546 | ) | 5,808 | |||||
Cash flow micro-hedge | — | — | — | ||||||
Micro-hedges of net investments in foreign operations | — | — | — | ||||||
Total | (194,408 | ) | (122,012 | ) | (316,420 | ) | |||
of which: Asset Hedging Derivatives | 1,915,623 | 47,697 | 1,963,320 | ||||||
of which: Liability hedging Derivatives | (2,110,031 | ) | (169,709 | ) | (2,279,740 | ) | |||
As of December 31, 2006, the interest rate risk was hedged in its majority by interest swaps while the equity price risk was hedged in its majority by equity swaps.
Thousands of Euros | ||||||||||||
2005 | Exchange Risk | Interest Rate Risk | Equity Price Risk | Total | ||||||||
Organised Markets | ||||||||||||
Fair value micro-hedge | — | (8,067 | ) | (2,377 | ) | (10,444 | ) | |||||
Non organised markets | ||||||||||||
Credit institutions | ||||||||||||
Fair value micro-hedge | (1,715,271 | ) | 740,877 | 31,370 | (943,024 | ) | ||||||
Cash flow micro-hedge | 1,599,175 | (150,024 | ) | — | 1,449,151 | |||||||
Micro-hedges of net investments in foreign operations | (35 | ) | — | — | (35 | ) | ||||||
Other financial institutions | ||||||||||||
Fair value micro-hedge | — | 194,522 | (307 | ) | 194,215 | |||||||
Other sectors | ||||||||||||
Fair value micro-hedge | — | 355,317 | (2,832 | ) | 352,484 | |||||||
Cash flow micro-hedge | — | 227 | — | 227 | ||||||||
Micro-hedges of net investments in foreign operations | 35 | — | — | 35 | ||||||||
Total | (116,096 | ) | 1,132,851 | 25,854 | 1,042,609 | |||||||
of which: Asset Hedging Derivatives | 1,599,176 | 2,281,663 | 31,857 | 3,912,696 | ||||||||
of which: Liability hedging Derivatives | (1,715,271 | ) | (1,148,812 | ) | (6,003 | ) | (2,870,086 | ) | ||||
Thousands of Euros | |||||||||
2004 | Interest Rate Risk | Equity Price Risk | Total | ||||||
Non organised markets | |||||||||
Credit institutions | |||||||||
Fair value micro-hedge | 761,929 | (235,013 | ) | 526,916 | |||||
Cash flow micro-hedge | (34,210 | ) | — | (34,210 | ) | ||||
Fair value macro-hedge | 118,290 | — | 118,290 | ||||||
Other financial institutions | |||||||||
Fair value micro-hedge | 72,339 | 163 | 72,502 | ||||||
Fair value macro-hedge | 15,369 | — | 15,369 | ||||||
Resto de sectores | |||||||||
Fair value micro-hedge | 391,957 | — | 391,957 | ||||||
Cash flow micro-hedge | 1,512 | — | 1,512 | ||||||
Fair value macro-hedge | 49,542 | — | 49,542 | ||||||
Total | 1,376,728 | (234,850 | ) | 1,141,878 | |||||
of which: Asset Hedging Derivatives | 3,834,083 | 439,367 | 4,273,450 | ||||||
of which: Liability hedging Derivatives | (2,457,355 | ) | (674,217 | ) | (3,131,572 | ) | |||
The Group has hedged the following forecast cash flows. These cash flows are expected to impact the income statement in the following periods:
Thousands of Euros | |||||||||||||||
3 months or less | More than 3 months but less than 1 year | From 1 to 5 years | More than 5 years | Total | |||||||||||
Cash inflows from assets | 76,701 | 197,845 | 316,457 | 46,644 | 637,647 | ||||||||||
Cash outflows from liabilities | (104,609 | ) | (315,111 | ) | (347,330 | ) | (136,855 | ) | (903,905 | ) |
The amounts that were so recognized in equity during the period and the amounts that were removed from equity and included in profit or loss for the period are showed in the “Consolidated Statement of changes in equity- Consolidated Statements of recognized income and expense”.
As of December 31, 2006, 2005 and 2004, there were not amounts that were removed from equity during the periods and included in the initial measurement of the acquisition cost or other carrying amount of a non-financial asset or non-financial liability in a hedged highly probable forecast transaction.
17. NON-CURRENT ASSETS HELD FOR SALE AND LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE
The balance of “Non-Current Assets Held for Sale” relates in full to foreclosed assets.
The changes in 2006, 2005 and 2004 in the balance of this heading in the consolidated balance sheets were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Revalued cost - | |||||||||
Balance beginning of year | 401,283 | 338,860 | 385,620 | ||||||
Additions | 278,947 | 122,438 | 84,968 | ||||||
Retirements | (370,136 | ) | (212,304 | ) | (170,986 | ) | |||
Acquisition of subsidiaries in the year | 16,746 | 90,903 | 7,409 | ||||||
Transfers | 13,153 | 8,431 | 37,630 | ||||||
Exchange difference and other | (72,167 | ) | 52,955 | (5,781 | ) | ||||
Balance at end of year | 267,826 | 401,283 | 338,860 | ||||||
Impairment - | |||||||||
Balance beginning of year | 170,023 | 179,705 | 202,448 | ||||||
Additions | 60,365 | 31,093 | 51,529 | ||||||
Retirements | (104,966 | ) | (51,533 | ) | (61,567 | ) | |||
Acquisition of subsidiaries in the year | 486 | 28,205 | — | ||||||
Transfers | 6,258 | 4,084 | (250 | ) | |||||
Exchange difference and other | (50,402 | ) | (21,531 | ) | (12,455 | ) | |||
Balance at end of year | 81,764 | 170,023 | 179,705 | ||||||
Balance total at end of year | 186,062 | 231,260 | 159,155 | ||||||
As of December 31, 2006, 2005 and 2004, there were no liabilities associated with non-current assets held for sale.
Most of the non-current assets held for sale recorded as assets in the consolidated balance sheets as of December 31, 2006 relate to properties. These properties classified as “non-current assets held for sale” are assets available for sale, which is considered highly probable. The sale of most of these assets is expected to be completed within one year of the date on which they are classified as “non-current assets held for sale”.
The fair value of these items was determined by reference to appraisals performed by companies registered as valuers in each of the geographical areas in which the assets are located.
The independent valuation and appraisal companies entrusted with the appraisal of these assets were Eurovaloraciones, S.A., Valtecnic, S.A., General de Valoraciones, S.A., Krata, S.A., Tinsa, S.A., Alia Tasaciones, S.A., Ibertasa, S.A., Tasvalor, S.A. y Gesvalt, S.A. (these companies are registers in the official register of the Bank of Spain). .
18.1. INVESTMENTSINASSOCIATES
The most significant investment in associates as of 31 December 2006, 2005 and 2004 was that held in Tubos Reunidos, S.A.
The gross changes in 2006, 2005 and 2004 in this heading of the consolidated balance sheets were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 945,858 | 910,096 | 1,186,154 | ||||||
Acquisitions | 28,116 | 9,647 | 212,281 | ||||||
Disposals | (801,521 | ) | (10,676 | ) | (307,505 | ) | |||
Transfers | 33,806 | 36,791 | (180,834 | ) | |||||
Balance at end of year | 206,259 | 945,858 | 910,096 | ||||||
The changes in 2006 include the disposal of the ownership interest in Banca Nazionale del Lavoro, S.p.A. and the disposal of the long-term investment in Técnicas Reunidas, S.A., carrying amounts of which totaled €751,544 thousand and €17,615 thousand, respectively.
18.2.INVESTMENTSINJOINTLYCONTROLLEDENTITIES
As of December 31, 2006, 2005 and 2004, the holdings included under the heading “Investments- Jointly controlled entities” were accounted using the equity method, as described in Note 2.1.b
The most significant entity included in this heading is Corporación IBV Participaciones Empresariales, S.A., which reflects a balance of €564,762 thousand and €251,246 thousand in the heading “Income from equity investments” of the consolidated income statement of 2006.
The most significant changes during 2006 include the acquisition of Telepeaje Electrónico S.A. de C.V. and the recognition of Camarote Golf, S.A., Hestenar, S.L. and Hesteralia Málaga, S.L. as jointly controlled entities (previously recognised as associates).
18.3. NOTIFICATIONSOFTHEACQUISITIONOFINVESTMENTS
Appendix IV lists the Group’s acquisitions and disposals of holdings in associates or jointly controlled entities and the notification dates thereof, in compliance with Article 86 of the Spanish Corporations Law and Article 53 of Securities Market Law 24/1988.
18.4. IMPAIRMENT
During 2006, the goodwill in jointly controlled entities has registered an impairment of €6,162 thousand.
19. | REINSURANCE ASSETS |
The most representative companies composing the insurance business of the consolidated Group are as follows: BBVA Seguros, S.A., Seguros Bancomer, S.A., BBVA Seguros de Vida, S.A. and Consolidar Group’s insurance companies.
As of December 31, 2006, 2005 and 2004, the detail of the balance of this heading in the consolidated balance sheets is as follows:
Thousands of Euros | ||||||
ITEMS | 2006 | 2005 | 2004 | |||
Reinsurance assets | 31,986 | 223,276 | 80,245 | |||
Reinsurer´s share of technical provisions | 31,986 | 223,276 | 80,245 | |||
Debtors arising from insurance and reinsurance operations (*) | — | 11,902 | 23 | |||
Total | 31,986 | 235,178 | 80,268 | |||
(*) | This caption is included in the heading “Loans and Receivables” as of December 31, 2006. |
The detail of the changes in 2006, 2005 and 2004 in this heading in the consolidated balance sheets, based on the nature of the related items, is as follows:
Thousands of Euros | ||||||||||||||||||
Property, plants and equipment | Investment Properties | Assets Leased out under an Operating Lease | Total | |||||||||||||||
2006 | Land and Buildings | Work in Progress | Furniture, Fixtures and Vehicles | |||||||||||||||
Revalued cost - | ||||||||||||||||||
Balance at 1 January 2006 | 3,152,321 | 19,107 | 4,976,346 | 93,151 | 629,922 | 8,870,847 | ||||||||||||
Additions | 57,773 | 31,925 | 436,030 | 775 | 304,124 | 830,627 | ||||||||||||
Retirements | (14,155 | ) | (14,638 | ) | (195,376 | ) | (5,343 | ) | (186,652 | ) | (416,164 | ) | ||||||
Acquisition of subsidiaries in the year | 127,438 | 1,860 | 32,145 | — | 149,602 | 311,045 | ||||||||||||
Disposal of entities in the year | (47,362 | ) | (780 | ) | (36,709 | ) | (249 | ) | — | (85,100 | ) | |||||||
Transfers | (17,635 | ) | (6,680 | ) | 4,841 | (1,466 | ) | — | (20,940 | ) | ||||||||
Exchange difference and other | (170,031 | ) | (6,749 | ) | (243,217 | ) | (11,354 | ) | (16,081 | ) | (447,432 | ) | ||||||
Balance at 31 December 2006 | 3,088,349 | 24,045 | 4,974,060 | 75,514 | 880,915 | 9,042,883 | ||||||||||||
Accumulated depreciation - | ||||||||||||||||||
Balance at 1 January 2006 | (796,955 | ) | — | (3,482,086 | ) | (15,028 | ) | (163,795 | ) | (4,457,864 | ) | |||||||
Additions | (67,535 | ) | — | (266,502 | ) | (1,174 | ) | (47,679 | ) | (382,890 | ) | |||||||
Retirements | 12,930 | — | 160,171 | 1,112 | 12,544 | 186,757 | ||||||||||||
Acquisition of subsidiaries in the year | (638 | ) | — | (9,383 | ) | — | (48,451 | ) | (58,472 | ) | ||||||||
Disposal of entities in the year | 2,992 | — | 34,969 | 94 | — | 38,055 | ||||||||||||
Transfers | 7,230 | — | 1,108 | 321 | — | 8,659 | ||||||||||||
Exchange difference and other | 43,799 | — | 116,708 | 1,329 | 16,081 | 177,917 | ||||||||||||
Balance at 31 December 2006 | (798,177 | ) | — | (3,445,015 | ) | (13,346 | ) | (231,300 | ) | (4,487,838 | ) | |||||||
Impairment - | ||||||||||||||||||
Balance at 1 January 2006 | (28,213 | ) | — | — | (1,381 | ) | — | (29,594 | ) | |||||||||
Additions | (3,563 | ) | — | — | 0 | — | (3,563 | ) | ||||||||||
Retirements | 8,095 | — | — | 295 | — | 8,390 | ||||||||||||
Acquisition of subsidiaries in the year | 16 | — | — | 0 | — | 16 | ||||||||||||
Exchange difference and other | (3,288 | ) | — | — | 0 | — | (3,288 | ) | ||||||||||
Balance at 31 December 2006 | (26,953 | ) | — | — | (1,086 | ) | — | (28,039 | ) | |||||||||
Net tangible assets - | ||||||||||||||||||
Balance at 1 January 2006 | 2,327,153 | 19,107 | 1,494,260 | 76,742 | 466,127 | 4,383,389 | ||||||||||||
Balance at 31 December 2006 | 2,263,219 | 24,045 | 1,529,045 | 61,082 | 649,615 | 4,527,006 | ||||||||||||
2005 Revalued cost - Balance at 1 January 2005 Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at 31 December 2005 Accumulated depreciation - Balance at 1 January 2005 Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at 31 December 2005 Impairment - Balance at 1 January 2005 Additions Retirements Acquisition of subsidiaries in the year Exchange difference and other Balance at 31 December 2005 Net tangible assets - Balance at 1 January 2005 Balance at 31 December 2005 Thousands of Euros Property, plants and equipment Investment
Properties Assets
Leased out
under an
Operating
Lease Total Land and
Buildings Work in
Progress Furniture,
Fixtures and
Vehicles 2,765,508 9,068 4,357,093 194,518 566,386 7,892,573 109,089 19,351 374,831 5,094 239,553 747,918 (148,671 ) (6,758 ) (159,614 ) (38,868 ) (113,749 ) (467,660 ) 158,848 10,102 124,147 — — 293,097 (5,594 ) (462 ) (3,531 ) — — (9,587 ) 2,844 (7,512 ) 6,912 (34,377 ) — (32,133 ) 270,297 (4,682 ) 276,508 (33,216 ) (62,268 ) 446,639 3,152,321 19,107 4,976,346 93,151 629,922 8,870,847 (663,965 ) (897 ) (3,013,054 ) (31,869 ) (127,127 ) (3,836,912 ) (52,348 ) — (218,681 ) (1,389 ) (88,624 ) (361,042 ) 41,417 1,011 142,521 4,294 53,717 242,960 (28,631 ) — (79,702 ) — — (108,333 ) 119 — 2,254 1,083 — 3,456 (10,131 ) — 4,422 5,709 — — (83,416 ) (114 ) (319,846 ) 7,144 (1,761 ) (397,993 ) (796,955 ) — (3,482,086 ) (15,028 ) (163,795 ) (4,457,864 ) (116,025 ) — — — — (116,025 ) (2,176 ) — — (1,375 ) — (3,551 ) 9,515 — — — — 9,515 (1,855 ) — — — — (1,855 ) 82,328 — — (6 ) — 82,322 (28,213 ) — — (1,381 ) — (29,594 ) 1,985,518 8,171 1,344,039 162,649 439,259 3,939,636 2,327,153 19,107 1,494,260 76,742 466,127 4,383,389
2004 Revalued cost - Balance at 1 January 2004 Additions Retirements Transfers Exchange difference and other Balance at 31 December 2004 Accumulated depreciation - Balance at 1 January 2004 Additions Retirements Transfers Exchange difference and other Balance at 31 December 2004 Impairment - Balance at 1 January 2004 Additions Retirements Exchange difference and other Balance at 31 December 2004 Net tangible assets - Balance at 1 January 2004 Balance at 31 December 2004 Thousands of Euros Property, plants and equipment Investment
Properties Assets
Leased out
under an
Operating
Lease Total Land and
Buildings Work in
Progress Furniture,
Fixtures and
Vehicles 2,746,953 11,519 4,511,749 169,293 462,585 7,902,099 60,822 — 356,902 16,645 200,967 635,336 (32,467 ) (2,451 ) (433,427 ) — (37,945 ) (506,290 ) 111 — (15,740 ) 8,580 (21,580 ) (28,629 ) (9,911 ) — (62,391 ) — (37,641 ) (109,943 ) 2,765,508 9,068 4,357,093 194,518 566,386 7,892,573 (643,263 ) — (3,111,237 ) (23,504 ) (157,871 ) (3,935,875 ) (45,869 ) (897 ) (234,195 ) (8,365 ) (73,986 ) (363,312 ) 16,830 — 351,871 — 43,901 412,602 9,004 — (872 ) — 60,829 68,961 (667 ) — (18,621 ) — — (19,288 ) (663,965 ) (897 ) (3,013,054 ) (31,869 ) (127,127 ) (3,836,912 ) (157,970 ) — (9,424 ) — (323 ) (167,717 ) (2,467 ) — (7,393 ) — — (9,860 ) 5,887 — 16,817 — 323 23,027 38,525 — — — — 38,525 (116,025 ) — — — — (116,025 ) 1,945,720 11,519 1,391,088 145,789 304,391 3,798,507 1,985,518 8,171 1,344,039 162,649 439,259 3,939,636
The net tangible asset impairment losses recoveries with credit to the accompanying consolidated income statements for 2006 and 2004 amounted to €4,827 thousand and €2,135 thousand, respectively.
The net tangible asset impairment losses charged to the consolidated income statements for 2005 amounted to €1,589 thousand.
The gains and losses on tangible asset disposals amounted to €92,902 thousand and €20,413 thousand in 2006 (€107,838 thousand and €22,477 thousand, respectively in 2005 and €102,874 thousand and €22,450 thousand, respectively in 2004) and are presented under the headings “Others Gains and Others Losses” the accompanying consolidated income statements (Note 56).
The carrying amount as of December 31, 2006, 2005 and 2004 of the tangible assets relating to foreign subsidiaries was €1,857,383 thousand, €1,825,050 thousand and €1,457,362 thousand, respectively. Also, the amount of the assets held under finance leases on which the purchase option is expected to be exercised is not material as of December 31, 2006, 2005 and 2004.
The main real estate companies forming part of the consolidated Group are as follows: Anida Desarrollos Inmobiliarios, S.L., Montealiaga, S.A. and Desarrollo Urbanístico de Chamartín S.A.
The contribution of these companies to the consolidated income statement is recorded under “Sales and Income from the Provision of Non-Financial Services” (Note 51).
The main consolidated Group companies engaging in operating leases are: Finanzia Autorenting, S.A., Automercantil-Comercio e Aluger de Vehículos Autom., Lda. and Maggiore Fleet, S.p.A.
The Group conducts its business mainly through a branch network, as shown in the following table:
Number of branches | ||||||
2006 | 2005 | 2004 | ||||
Spain | 3,635 | 3,578 | 3,385 | |||
America (*) | 3,797 | 3,658 | 3,303 | |||
Rest of the world | 153 | 174 | 180 | |||
Total | 7,585 | 7,410 | 6,868 | |||
(*) | Includes those related to the BBVA Group’s banking, pensions fund managers and insurance companies in all the American countries in which it is present. |
As of 31 December 2006, 2005 and 2004, 46.9%, 47.9% and 47.2%, respectively, of the branches in Spain were leased from third parties. As of 31 December 2006 and 2005, 60% and 58.69%, respectively, of the branches in America were leased from third parties.
21.1. GOODWILL
The detail, by company, of the changes in 2006, 2005 and 2004 in the balance of this heading in the consolidated balance sheets is as follows:
Thousands of Euros | ||||||||||||||||||
2006 | Balance at beginning of year | Additions | Other | Withdrawals | Exchange Differences | Impairment | Balance at end of year | |||||||||||
Texas Regional Bancshares, Inc. | — | 1,294,351 | — | — | (37,385 | ) | — | 1,256,966 | ||||||||||
Grupo Financiero BBVA Bancomer, S.A. de C.V. | 617,101 | — | — | — | (72,695 | ) | — | 544,406 | ||||||||||
Grupo Laredo | 473,941 | — | (2,783 | ) | — | (49,354 | ) | — | 421,804 | |||||||||
Hipotecaria Nacional, S.A. de C.V. | 259,112 | — | 10,438 | — | (30,306 | ) | — | 239,244 | ||||||||||
Grupo BBVA Colombia | 266,862 | — | (34,984 | ) | — | (19,375 | ) | — | 212,503 | |||||||||
BBVA Pensiones Chile | 104,139 | — | — | — | (14,344 | ) | — | 89,795 | ||||||||||
Forum Servicios Financieros, S.A. | — | 50,814 | — | — | (1,459 | ) | — | 49,355 | ||||||||||
Maggiore Fleet, S.p.A. | — | 35,696 | — | — | — | — | 35,696 | |||||||||||
Banco BHIF | 40,532 | — | — | — | (5,608 | ) | — | 34,924 | ||||||||||
BBVA Puerto Rico, S.A. | 39,034 | — | — | — | (4,068 | ) | — | 34,966 | ||||||||||
AFP Provida | 26,059 | — | — | — | (3,590 | ) | — | 22,469 | ||||||||||
BBVA Portugal, S.A. | 15,914 | — | — | — | — | — | 15,914 | |||||||||||
Finanzia, Banco de Crédito | 5,163 | — | — | — | — | — | 5,163 | |||||||||||
BBVA Bancomer USA (*) | 5,091 | — | — | — | (531 | ) | — | 4,560 | ||||||||||
BBVA Finanzia, S.p.A. | — | 3,804 | — | — | — | — | 3,804 | |||||||||||
Forum Distribuidora, S.A. | — | 1,921 | — | — | (55 | ) | — | 1,866 | ||||||||||
Invesco Management Nº1 | — | 6,160 | — | — | — | (6,160 | ) | — | ||||||||||
Other companies | 4,906 | 3,362 | 1,000 | (9,268 | ) | — | — | — | ||||||||||
TOTAL FULLY CONSOLIDATED COMPANIES | 1,857,854 | 1,396,108 | (26,329 | ) | (9,268 | ) | (238,770 | ) | (6,160 | ) | 2,973,435 | |||||||
(*) | Former Valley Bank. |
Thousands of Euros | |||||||||||
2005 | Balance at beginning of year | Additions | Other | Exchange Differences | Balance at end of year | ||||||
Grupo Financiero BBVA Bancomer, S.A. de C.V. | 513,589 | — | — | 103,513 | 617,102 | ||||||
Grupo Laredo | — | 433,250 | — | 40,691 | 473,941 | ||||||
Grupo BBVA Colombia (*) | — | 266,862 | — | — | 266,862 | ||||||
Hipotecaria Nacional, S.A. de C.V. | — | 223,902 | — | 35,209 | 259,111 | ||||||
Grupo Provida | 104,047 | — | — | 26,151 | 130,198 | ||||||
BBVA Chile, S.A. | 32,349 | — | 195 | 7,988 | 40,532 | ||||||
BBVA Puerto Rico, S.A. | 33,741 | — | — | 5,293 | 39,034 | ||||||
BBVA (Portugal), S.A. | 15,914 | — | — | — | 15,914 | ||||||
Finanzia, Banco de Crédito, S.A. | 5,163 | — | — | — | 5,163 | ||||||
Valley Bank | 5,690 | — | (975 | ) | 376 | 5,091 | |||||
Other companies | — | 4,906 | — | — | 4,906 | ||||||
TOTAL FULLY CONSOLIDATED COMPANIES | 710,493 | 928,920 | (780 | ) | 219,221 | 1,857,854 | |||||
(*) | Goodwill corresponding to purchase of Banco Granahorrar, S.A. (Note 4) |
2004 Grupo Financiero BBVA Bancomer, S.A. de C.V. BBVA Pensiones Chile, S.A. Grupo Provida BBVA Puerto Rico, S.A. BBVA (Portugal), S.A. Finanzia, Banco de Crédito, S.A. Valley Bank Other companies TOTAL FULLY CONSOLIDATED COMPANIES Thousands of Euros Balance at
beginning of
year Additions Other Exchange
Differences Balance
at end of
year 549,574 — — (35,985 ) 513,589 84,423 — — (1,200 ) 83,223 54,144 — — (971 ) 53,173 36,457 — — (2,716 ) 33,741 15,914 — — — 15,914 5,163 — — — 5,163 — 6,085 — (395 ) 5,690 — — — — — 745,675 6,085 — (41,267 ) 710,493
Based on the estimates and projections available to the Bank’s directors, the forecast revenues of these companies attributable to the Group support perfectly the carrying amount of the goodwill recorded.
On November 10, 2006 the Group acquired Texas Regional Bancshares Inc. through the investment of $2,141 million (€1,674 million). The goodwill recognised as of December 31, 2006 amounted €1,257 million.
On October 31, 2005, the Guarantee Fund for Colombian Financial Institutions, FOGAFIN, sold by public auction 98.78% of the share capital of Banco Granahorrar, S.A. (a Colombian financial institution) to the BBVA Group’s subsidiary in Colombia, BBVA Colombia, S.A. The financial offer made by BBVA Colombia for the acquisition of Banco Granahorrar, S.A. totalled $423.66 million. This transaction was performed in December 2005 after authorisation had been obtained from the related supervisory and control bodies. The price paid was Colombian pesos 981,572.2 million, approximately €364 million, and the goodwill recognised amounted to €267 million as of December 31, 2005.
On 28 April, pursuant to the agreement entered into on September 20, 2004 and after obtaining the mandatory authorisations, BBVA acquired all the shares of Laredo National Bancshares, Inc., a bank holding located in Texas (United States) which operates in the banking business through two independent banks: Laredo National Bank and South Texas National Bank. The price paid was $859.6 million (approximately €666 million) and the goodwill recognised amounted to €474 million as of December 31, 2005.
The breakdown of the acquisition cost of the companies foregoing indicated, gross of tax, which, according to the purchase method, has been assigned to the headings financial asset and liabilities, tangible assets and other intangible assets, is as follows:
Thousands of Euros | |||||||
Texas Regional Bancshare | Banco Granahorrar | Laredo National Bancshares | |||||
Financial assets and liabilities | (16,855 | ) | — | — | |||
Tangible assets | 30,039 | — | 33,778 | ||||
Other intangible assets | 73,191 | 31,077 | 42,251 | ||||
Total | 86,375 | 31,077 | 76,029 | ||||
No gains or losses were allocated to assets or liabilities with respect to the other acquisitions made in 2006.
21.2. OTHERINTANGIBLEASSETS
The detail of the balance of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | Average Useful Life (years) | |||||||||
2006 | 2005 | 2004 | ||||||||
Computer software acquisition expense | 56,199 | 44,972 | 23,438 | 5 | ||||||
Other deferred charges | 116,175 | 80,312 | 48,865 | 5 | ||||||
Other intangible assets | 131,437 | 92,011 | 38,287 | 5 | ||||||
Impairment | (7,981 | ) | (5,100 | ) | — | |||||
Total | 295,830 | 212,195 | 110,590 | |||||||
The changes in 2006, 2005 y 2004 in this heading are as follow:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 212,195 | 110,591 | 101,653 | ||||||
Additions | 171,254 | 227,929 | 86,415 | ||||||
Year amortisation | (89,308 | ) | (87,650 | ) | (84,894 | ) | |||
Exchange differences and other | 4,570 | (33,575 | ) | 7,417 | |||||
Impairment | (2,881 | ) | (5,100 | ) | — | ||||
Balance at end of year | 295,830 | 212,195 | 110,591 | ||||||
22. PREPAYMENTS AND ACCRUED INCOME AND ACCRUED EXPENSES AND DEFERRED INCOME
The detail of the balance of these headings in the consolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Assets - | ||||||
Prepaid expenses | 278,778 | 199,111 | 149,532 | |||
Other prepayments and accrued income | 395,040 | 358,167 | 568,223 | |||
Total | 673,818 | 557,278 | 717,755 | |||
Liabilities - | ||||||
Unmatured accrued expenses | 1,168,427 | 1,146,815 | 867,228 | |||
Other accrued expenses and deferred income | 341,146 | 562,875 | 398,552 | |||
Total | 1,509,573 | 1,709,690 | 1,265,780 | |||
23. OTHER ASSETS AND LIABILITIES
The detail of the balances of these headings in the consolidated balance sheets as of December 31, 2006, 2005 and 2004 was as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Assets - | ||||||
Inventories (*) | 470,137 | 339,472 | 279,897 | |||
Transactions in transit | 106,273 | 8,787 | 25,065 | |||
Hacienda Pública | 62,292 | 101,197 | 266,673 | |||
Other | 1,104,001 | 1,492,237 | 1,152,447 | |||
Total | 1,742,703 | 1,941,693 | 1,724,082 | |||
Liabilities - | ||||||
Transactions in transit | 139,904 | 24,211 | 16,019 | |||
Other | 579,363 | 580,805 | 86,411 | |||
Total | 719,267 | 605,016 | 102,430 | |||
(*) | The balance of the heading Inventories in the consolidated financial statements relates basically to the following companies: Anida Desarrollos Inmobiliarios, S.L., Montealiaga, S.A. y Desarrollo Urbanístico Chamartín, S.A. |
24. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
The balance of this heading in the consolidated balance sheet as of December 31, 2006, 2005 and 2004 amounted to €582,537 thousand, €740,088 thousand and €834,350 thousand, respectively, and related to deposits from other creditors through the so-called unit-linked life insurance policies (in which the policyholder bears the risk).
25. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY
As of December 31, 2006, 2005 and 2004 there were no financial liabilities at fair value through equity.
26. FINANCIAL LIABILITIES AT AMORTISED COST
The detail of the items composing the balances of this heading in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Deposits from central banks | 15,237,435 | 21,189,193 | 20,301,105 | |||
Deposits from central banks | 42,566,999 | 45,125,943 | 44,048,115 | |||
Money markets operations | 223,393 | 23,252 | 657,997 | |||
Deposits from other creditors | 192,373,862 | 182,635,181 | 149,891,799 | |||
Debt certificates (including bonds) | 77,674,115 | 62,841,755 | 45,482,121 | |||
Subordinated liabilities | 13,596,803 | 13,723,262 | 12,327,377 | |||
Other financial liabilities (*) | 6,771,925 | 6,051,376 | 5,148,561 | |||
Total | 348,444,532 | 331,589,962 | 277,857,075 | |||
(*) | Includes tax collection accounts that amounted to €2,226,874 thousand, €2,084,712 thousand and €2,273,548 thousand, as of December 31, 2006, 2005 and 2004, respectively. |
26.1. DEPOSITSFROMCENTRALBANKS
The breakdown of the balance of this heading in the consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Bank of Spain | 7,943,687 | 16,139,044 | 15,770,750 | |||
Credit account drawdowns | 4,688,790 | 6,822,123 | 11,066,829 | |||
Other State debt and Treasury bills under repurchase agreement | — | 385,791 | 222,092 | |||
Other assets under repurchase agreement | 3,254,897 | 8,931,130 | 4,481,829 | |||
Other central banks | 7,247,430 | 5,028,315 | 4,365,278 | |||
Valuation adjustments | 46,318 | 21,834 | 165,077 | |||
Total | 15,237,435 | 21,189,193 | 20,301,105 | |||
As of December 31, 2006, 2005 and 2004, the financing limit assigned to the Group by the Bank of Spain and other central banks was €8,136,222 thousand, €10,003,353 thousand and €13,932,391 thousand, respectively, of which €4,535,323 thousand, €6,822,123 thousand and €11,249,454 thousand had been drawn down.
26.2 DEPOSITSFROMCREDITINSTITUTIONS
The breakdown of the balance of this heading in the consolidated balance sheets, based on the nature of the related transactions, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Reciprocal accounts | 77,840 | 271,075 | 62,231 | |||
Deposits with agreed maturity | 27,016,079 | 28,807,457 | 25,958,006 | |||
Demand deposits | 1,781,744 | 1,053,651 | 938,790 | |||
Other accounts | 392,884 | 1,113,102 | 353,452 | |||
Repurchase agreements | 13,017,158 | 13,723,185 | 16,347,359 | |||
Valuation adjustments | 281,294 | 157,473 | 388,277 | |||
Total | 42,566,999 | 45,125,943 | 44,048,115 | |||
The detail, by geographical area, of this heading as of December 31, 2006, 2005 and 2004 disregarding valuation adjustments is as follows:
Thousands of Euros | ||||||||
2006 | Demand Deposits | Deposits with Agree Maturity | Funds Received Under Financial Asset Transfers | Total | ||||
Europe | 1,449,542 | 17,639,571 | 6,304,235 | 25,393,348 | ||||
United States | 109,607 | 2,653,129 | 796,604 | 3,559,340 | ||||
Latin America | 239,202 | 3,166,308 | 5,916,319 | 9,321,829 | ||||
Rest of the world | 61,233 | 3,949,955 | — | 4,011,188 | ||||
Total | 1,859,584 | 27,408,963 | 13,017,158 | 42,285,705 | ||||
Thousands of Euros | ||||||||
2005 | Demand Deposits | Deposits with Agree Maturity | Funds Received Under Financial Asset Transfers | Total | ||||
Europe | 1,033,225 | 14,814,501 | 8,255,127 | 24,102,853 | ||||
United States | 68,568 | 3,670,356 | 1,649,995 | 5,388,919 | ||||
Latin America | 1,289,817 | 2,643,338 | 3,818,063 | 7,751,218 | ||||
Rest of the world | 46,218 | 7,679,262 | — | 7,725,480 | ||||
Total | 2,437,828 | 28,807,457 | 13,723,185 | 44,968,470 | ||||
Thousands of Euros | ||||||||
2004 | Demand Deposits | Deposits with Agree Maturity | Funds Received Under Financial Asset Transfers | Total | ||||
Europe | 888,625 | 17,896,390 | 11,110,293 | 29,895,308 | ||||
United States | 625 | 173,143 | 602,011 | 775,779 | ||||
Latin America | 350,798 | 2,149,208 | 4,635,055 | 7,135,061 | ||||
Rest of the world | 114,425 | 5,739,265 | — | 5,853,690 | ||||
Total | 1,354,473 | 25,958,006 | 16,347,359 | 43,659,838 | ||||
26.3 DEPOSITSFROMOTHERCREDITORS
The breakdown of the balance of this heading in the accompanying consolidated balance sheets, based on the nature of the related transactions, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
General Government(*) | 14,170,556 | 17,673,354 | 11,193,877 | |||
Spanish | 7,123,828 | 9,753,109 | 4,861,198 | |||
Foreign | 7,046,728 | 7,920,245 | 6,332,679 | |||
Other resident sectors | 94,392,548 | 79,754,851 | 74,857,893 | |||
Current accounts | 25,345,848 | 20,644,607 | 21,293,205 | |||
Savings accounts | 22,460,077 | 20,628,845 | 18,235,544 | |||
Fixed-term deposits | 27,681,607 | 20,435,029 | 19,537,882 | |||
Reverse repos | 9,080,811 | 12,029,507 | 12,503,084 | |||
Other accounts | 9,112,210 | 5,381,823 | 2,000,023 | |||
Valuation adjustments | 711,995 | 635,040 | 1,288,155 | |||
Non-resident sectors | 83,810,758 | 85,206,976 | 63,840,029 | |||
Current accounts | 19,043,024 | 18,717,430 | 14,203,508 | |||
Savings accounts | 13,635,966 | 11,370,344 | 7,374,054 | |||
Fixed-term deposits | 40,906,369 | 45,266,207 | 37,894,962 | |||
Repurchase agreements | 9,554,904 | 9,215,471 | 3,981,250 | |||
Other accounts | 110,331 | 76,512 | 23,284 | |||
Valuation adjustments | 560,164 | 561,012 | 362,971 | |||
Total | 192,373,862 | 182,635,181 | 149,891,799 | |||
Of which: | ||||||
In euros | 108,312,891 | 100,623,473 | 88,987,322 | |||
In foreign currency | 84,060,971 | 82,011,708 | 60,904,477 |
(*) | As of December 31, 2006 and 2005, the balance of general government includes valuation adjustments of accrued interests that amounted to €23,827 and € 55,418, respectively. |
The detail, by geographical area, of this heading as of December 31, 2006, 2005 and 2004 disregarding valuation adjustments is as follows:
Thousands of Euros | ||||||||||
2006 | Demand Deposits | Saving Deposits | Deposits with Agreed Maturity | Repos | Total | |||||
Europe | 33,652,676 | 23,574,543 | 44,151,489 | 10,751,014 | 112,129,722 | |||||
United States | 1,419,538 | 2,018,588 | 10,528,592 | 57,183 | 14,023,901 | |||||
Latin America | 17,816,513 | 11,465,943 | 22,504,665 | 9,064,320 | 60,851,441 | |||||
Rest of the world | 794,650 | 402,644 | 2,875,518 | — | 4,072,812 | |||||
Total | 53,683,377 | 37,461,718 | 80,060,264 | 19,872,517 | 191,077,876 | |||||
Thousands of Euros | ||||||||||
2005 | Demand Deposits | Saving Deposits | Deposits with Agreed Maturity | Repos | Total | |||||
Europe | 30,293,574 | 21,676,353 | 36,343,595 | 17,145,239 | 105,458,761 | |||||
United States | 1,007,038 | 354,345 | 10,371,430 | 135,121 | 11,867,934 | |||||
Latin America | 17,040,525 | 10,163,779 | 22,967,518 | 7,983,395 | 58,155,217 | |||||
Rest of the world | 775,467 | 518,216 | 4,608,067 | 49 | 5,901,750 | |||||
Total | 49,116,604 | 32,712,693 | 74,290,610 | 25,263,804 | 181,383,711 | |||||
Thousands of Euros | ||||||||||
2004 | Demand Deposits | Saving Deposits | Deposits with Agreed Maturity | Repos | Total | |||||
Europe | 29,745,644 | 18,560,468 | 27,155,322 | 13,697,251 | 89,158,685 | |||||
United States | 648,658 | 468,762 | 6,734,521 | 156 | 7,852,097 | |||||
Latin America | 13,114,743 | 6,962,493 | 22,137,721 | 3,839,588 | 46,054,545 | |||||
Rest of the world | 197,899 | 43,044 | 4,934,403 | — | 5,175,346 | |||||
Total | 43,706,944 | 26,034,767 | 60,961,967 | 17,536,995 | 148,240,673 | |||||
26.4 DEBTCERTIFICATES (INCLUDINGBONDS)
The breakdown of the balance of this heading in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Promissory notes and bills | 7,555,766 | 7,417,516 | 6,372,310 | |||
Bonds and debentures issued: | 70,118,349 | 55,424,239 | 39,109,811 | |||
Mortgage-backed securities | 36,028,808 | 26,926,995 | 19,036,759 | |||
Other non-convertible securities | 33,276,013 | 26,542,102 | 18,793,732 | |||
Valuation adjustments | 813,528 | 1,955,142 | 1,279,320 | |||
Total | 77,674,115 | 62,841,755 | 45,482,121 | |||
26.4.1. PROMISSORYNOTESANDBILLS:
These promissory notes were issued mainly by Banco de Financiación, S.A., and the detail thereof, by currency, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
In euros | 6,670,764 | 6,724,347 | 5,458,822 | |||
In other currencies | 885,002 | 693,169 | 913,488 | |||
Total | 7,555,766 | 7,417,516 | 6,372,310 | |||
26.4.2. BONDSANDDEBENTURESISSUED:
The detail of the balance of this account in the accompanying consolidated balance sheets, based on the currency in which the bonds and debentures are issued, and of the related interest rates is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
In euros - | ||||||
Non-convertible bonds and debentures at floating interest rates | 18,345,909 | 18,488,246 | 13,732,198 | |||
Non-convertible bonds and debentures | 6,437,879 | 5,213,827 | 4,266,690 | |||
Covered bonds | 35,808,166 | 26,683,165 | 18,811,281 | |||
Valuation adjustments | 734,015 | 1,939,639 | 1,265,560 | |||
In foreign currencies - | ||||||
Non-convertible bonds and debentures at floating interest rates | 7,865,859 | 2,613,766 | 405,956 | |||
Non-convertible bonds and debentures | 626,366 | 226,263 | 388,705 | |||
Covered bonds | 220,642 | 243,830 | 225,661 | |||
Valuation adjustments | 79,513 | 15,503 | 13,760 | |||
Total | 70,118,349 | 55,424,239 | 39,109,811 | |||
As of December 31, 2006, the (weighted average) interest rate relating to fixed and floating rate issues in euros was 3.83% and 3.67%, respectively. The (weighted average) interest rate relating to fixed and floating rate issues in foreign currencies at that date was 5.34% and 5.25%, respectively.
The valuation adjustments caption mainly include adjustments for accrued interest, hedging transactions and issuance fees.
Most of the foreign-currency issues are denominated in U.S. dollars.
The accrued interests on promissory notes, bills and debentures in 2006, 2005 and 2004 amounted to €2,820,536 thousand, €1,898,396 thousand and €1,374,631 thousand, respectively (Note 45.2).
26.5. SUBORDINATEDLIABILITIES
The detail, by employees (to be settled whencompany, of this heading in the employee completes 15, 25, 40 or 50 years’ service atconsolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Subordinated debt | 9,385,347 | 9,178,935 | 8,100,383 | |||
Preference shares | 4,025,002 | 4,127,786 | 3,808,893 | |||
Valuation adjustments | 186,454 | 416,541 | 418,101 | |||
Total | 13,596,803 | 13,723,262 | 12,327,377 | |||
In 2006, 2005 and 2004 the subordinated debt and preference shares bore interest of €567,195 thousand, €556,121 thousand and €539,027 thousand, respectively (see Note 45.2).
26.5.1. SUBORDINATEDDEBT
These issues are non-convertible subordinated debt and, accordingly, for debt seniority purposes, they rank behind ordinary debt.
The detail, disregarding valuation adjustments, of the balance of this heading in the accompanying consolidated balance sheets, based on the related issue currency and interest rate, is as follows:
Thousands of Euros | Prevailing Interest Rate 2006 | Maturity Date | |||||||||||
ISSUER | Currency | 2006 | 2005 | 2004 | |||||||||
ISSUES IN EUROS | |||||||||||||
BBVA | |||||||||||||
July-96 | EUR | — | 79,307 | 84,142 | 9.33 | % | 22-Dec-06 | ||||||
July-96 | EUR | 27,332 | 27,332 | 27,947 | 9.37 | % | 22-Dec-16 | ||||||
February-97 | EUR | 60,101 | 60,101 | 60,101 | 6.97 | % | 18-Dec-07 | ||||||
September-97 | EUR | 36,061 | 36,061 | 36,061 | 6.65 | % | 17-Dec-07 | ||||||
December-01 | EUR | 1,500,000 | 1,500,000 | 1,500,000 | 3.50 | % | 01-Jan-17 | ||||||
July-03 | EUR | 600,390 | 600,390 | 600,000 | 2.54 | % | 17-Jul-13 | ||||||
November-03 | EUR | 749,782 | 749,782 | 750,000 | 4.50 | % | 12-Nov-15 | ||||||
October-04 | EUR | 991,101 | 992,000 | 1,000,000 | 4.37 | % | 20-Oct-19 | ||||||
BBVA CAPITAL FUNDING, LTD. | |||||||||||||
September-95 | EUR | — | — | 13,613 | 3.10 | % | 05-Sep-05 | ||||||
March-97 | EUR | 45,735 | 45,735 | 45,735 | 2.71 | % | 20-Mar-07 | ||||||
October-97 | EUR | 76,694 | 76,694 | 76,694 | 2.38 | % | 08-Oct-07 | ||||||
October-97 | EUR | 228,672 | 228,588 | 228,616 | 6.00 | % | 24-Dec-09 | ||||||
July-99 | EUR | 73,000 | 73,000 | 73,000 | 6.35 | % | 16-Oct-15 | ||||||
February-00 | EUR | 498,668 | 500,002 | 500,000 | 6.38 | % | 25-Feb-10 | ||||||
December-00 | EUR | — | — | 750,000 | 2.71 | % | 04-Dec-10 | ||||||
July-01 | EUR | — | 500,002 | 500,000 | 5.50 | % | 04-Jul-11 | ||||||
October-01 | EUR | 60,000 | 60,000 | 60,000 | 5.73 | % | 10-Oct-11 | ||||||
October-01 | EUR | 40,000 | 40,000 | 40,000 | 6.08 | % | 10-Oct-16 | ||||||
October-01 | EUR | 50,000 | 50,000 | 50,000 | 2.79 | % | 15-Oct-16 | ||||||
November-01 | EUR | 55,000 | 55,000 | 55,000 | 2.96 | % | 02-Nov-16 | ||||||
December-01 | EUR | 56,002 | 56,002 | 56,000 | 3.18 | % | 20-Dec-16 | ||||||
BBVA SUBORDINATED CAPITAL, S.A.U. | |||||||||||||
May-05 | EUR | 496,783 | 480,444 | — | 2.74 | % | 23-May-17 | ||||||
October-05 | EUR | 150,000 | 150,000 | — | 2.49 | % | 13-Oct-20 | ||||||
October-05 | EUR | 250,000 | 250,000 | — | 2.44 | % | 20-Oct-17 | ||||||
October-06 | EUR | 1,000,000 | — | — | 3.82 | % | 24-Oct-16 | ||||||
ISSUES IN FOREIGN CURRENCY | |||||||||||||
BBVA PUERTO RICO, S.A. | |||||||||||||
September-04 | USD | 37,965 | 42,384 | 36,708 | 4.20 | % | 23-Sep-14 | ||||||
September-06 | USD | 28,094 | — | — | 5.76 | % | 29-Sep-16 |
September-06 BBVA BANCO FRANCÉS, S.A. May-05 (*) BBVA GLOBAL FINANCE, LTD. July-95 July-95 December-95 December-95 December-95 BANCO BILBAO VIZCAYA ARGENTARIA, CHILE BBVA BANCOMER, S.A. de C.V. November-98 July-05 September-06 BBVA CAPITAL FUNDING, LTD. August-95 (*) October-95 October-95 February-96 November-96 BBVA BANCOMER CAPITAL TRUST, INC. February-01 LNB CAPITAL TRUST I November-01 LNB STATUTORY TRUST I December-01 BBVA SUBORDINATED CAPITAL, S.A.U. October-05 October-05 March-06 RIVERWAY HOLDING CAPITAL TRUST I March-01 RIVERWAY HOLDING CAPITAL TRUST II July-01 TEXAS REGIONAL STATUTORY TRUST I February-04 BBVA COLOMBIA, S.A. August-06 TOTAL USD 22,779 — — 6.00 % 29-Sep-16 USD — — 4,118 7.07 % 04-Oct-20 USD — — 110,124 6.88 % 01-Jul-05 USD — — 36,708 2.36 % 15-Jan-05 USD 151,860 169,535 146,832 7.00 % 01-Dec-25 USD — 63,575 55,062 4.48 % 09-May-06 USD — — 55,062 2.45 % 11-May-05 CLP 276,496 172,053 93,552 Various Various MNX — 197,853 157,406 9.44 % 28-Sep-06 USD 377,259 420,809 — 7.38 % 22-Jul-15 MNX 174,545 — — 7.62 % 18-Sep-14 JPY — — 21,480 3.45 % 09-Aug-10 USD — — 71,600 5.40 % 26-Oct-05 JPY 63,700 72,000 110,124 6.00 % 26-Oct-15 USD — 211,918 183,540 6.38 % 14-Feb-06 USD — 169,535 146,832 4.89 % 27-Nov-06 USD — 423,837 364,326 10.50 % 16-Feb-11 USD — 17,800 — 6.44 % 08-Dec-31 USD — 25,430 — 6.64 % 18-Dec-31 JPY 127,400 144,000 — 2.75 % 22-Oct-35 GBP 446,760 437,766 — 4.79 % 21-Oct-15 GBP 446,760 — — 5.00 % 31-Mar-16 USD 8,646 — — 10.18 % 08-Jun-31 USD 3,797 — — 9.30 % 25-Jul-31 USD 37,965 — — 8.21 % 17-Mar-34 COP 136,000 — — 9.50 % 28-Aug-11 9,385,347 9,178,935 8,100,383
(*) | Issuances cancelled before their maturity date |
The issues of BBVA Capital Funding, LTD. and BBVA Global Finance, LTD. are guaranteed (secondary liability) by the Bank, and the issue of BBVA Bancomer Capital Trust, Inc. is guaranteed (secondary liability) by BBVA Bancomer, S.A de C.V.
26.5.2. PREFERENCE SHARES
The detail, by company, of this heading in the consolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
BBVA Internacional, Ltd.(1) | 1,000,002 | 1,340,000 | 1,341,230 | |||
BBVA Preferred Capital, Ltd.(2) | — | 203,447 | 176,198 | |||
BBVA Privanza Internacional (Gibraltar), Ltd.(2) | — | 59,339 | 51,646 | |||
BBVA Capital Finance, S.A. | 1,975,000 | 1,975,000 | 1,980,966 | |||
BBVA Capital Funding, Ltd. | — | — | 258,853 | |||
BBVA Internactional Preferred, S.A.U. | 1,050,000 | 550,000 | — | |||
Total | 4,025,002 | 4,127,786 | 3,808,893 | |||
(1) | Listed on the Spanish AIAF market as well as in the stock exchange markets of Luxembourg, Frankfurt and Amsterdam. |
(2) | Listed in New York Stock Exchange |
The foregoing balances include several issues of non-cumulative non-voting preference shares guaranteed by Banco Bilbao Vizcaya Argentaria, S.A.)., the detail being as follows:
2006 | Currency | Amount Issued (Millions) | Fixed Anual Dividend | ||||
BBVA Internacional, Ltd. | |||||||
March 2002 | EUR | 500 | 3.50 | % | |||
December 2002 | EUR | 500 | 3.41 | % | |||
BBVA Capital Finance, S.A. | |||||||
December 2003 | EUR | 350 | 3.41 | % | |||
July 2004 | EUR | 500 | 3.41 | % | |||
December 2004 | EUR | 1,125 | 3.41 | % | |||
BBVA Internactional Preferred, S.A.U. | |||||||
September 2005 | EUR | 550 | 3.80 | % | |||
September 2006 | EUR | 500 | 4.95 | % |
2005 | Currency | Amount Issued (Millions) | Fixed Anual Dividend | ||||
BBVA Privanza Internacional (Gibraltar), Ltd. | |||||||
June 1997 | USD | 70 | 7.76 | % | |||
BBVA Privanza Internacional, Ltd. | |||||||
April 2001 | EUR | 340 | 7.00 | % | |||
March 2002 | EUR | 500 | 3.50 | % | |||
December 2002 | EUR | 500 | 3.25 | % | |||
BBVA Preferred Capital, Ltd. | |||||||
June 2001 | USD | 240 | 7.75 | % | |||
BBVA Capital Finance, S.A. | |||||||
December 2003 | EUR | 350 | 2.75 | % | |||
July 2004 | EUR | 500 | 3.00 | % | |||
December 2004 | EUR | 1,125 | 3.00 | % | |||
BBVA Internactional Preferred, S.A.U. | |||||||
September 2005 | EUR | 550 | 3.80 | % |
2004 | Currency | Amount Issued (Millions) | Fixed Anual Dividend | ||||
BBVA Privanza Internacional (Gibraltar), Ltd. | |||||||
June 1997 | USD | 70 | 7.76 | % | |||
BBVA Internacional, Ltd. | |||||||
April 2001 | EUR | 340 | 7.00 | % | |||
March 2002 | EUR | 500 | 3.50 | % | |||
December 2002 | EUR | 500 | 3.25 | % | |||
BBVA Capital Funding, Ltd. | |||||||
April 1998 | EUR | 256 | 6.36 | % | |||
BBVA Preferred Capital, S.A. | |||||||
June 2001 | USD | 240 | 7.75 | % | |||
BBVA Capital Finance, S.A. | |||||||
December 2003 | EUR | 350 | 2.75 | % | |||
July 2004 | EUR | 500 | 3.00 | % | |||
December 2004 | EUR | 1,125 | 3.00 | % |
The situation as regards performance bonuses payableoption to redeem the preference share issues launched by BBVA Preferred Capital, Ltd. (€203 million), BBVA Privanza Internacional (Gibraltar), Ltd. (€59 million) and BBVA Internacional, Ltd. (€340 million) was exercised in shares2006.
These issues were subscribed by third parties outside the Group and are wholly or partially redeemable at the Company’s option after five or ten years from the issue date, depending on the terms of each issue.
27. LIABILITIES UNDER INSURANCE CONTRACTS
The detail of the balance of this heading in the consolidated balance sheets as of December 31, 2002,2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Technical provisions for: | ||||||
Mathematical reserves | 8,677,303 | 9,023,585 | 7,026,605 | |||
Provision for unpaid claims reported | 655,048 | 419,123 | 125,682 | |||
Other insurance technical provisions | 788,295 | 1,057,859 | 962,142 | |||
Total | 10,120,646 | 10,500,567 | 8,114,429 | |||
The detail of the variationsbalance of this heading in 2002the consolidated balance sheets as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Provisions for pensions and similar obligations (Note 29) | 6,357,820 | 6,239,744 | 6,304,284 | |||
Provisions for taxes | 232,172 | 146,971 | 173,229 | |||
Provisions for contingent exposures and commitments | 501,933 | 452,462 | 348,782 | |||
Other provisions | 1,556,909 | 1,861,908 | 1,565,553 | |||
Total | 8,648,834 | 8,701,085 | 8,391,848 | |||
The changes in 2006, 2005 and 2004 in the balances of this heading in the accompanying consolidated balance sheets were as follows:
Plans in Force | Nº Shares 01/01/02 | Options Exercised on Maturity of the Plan | Options Exercised due to Early Retirements and Other (2) | Nº Shares at 12/31/02 | Year Granted | Group | Expiration Date (1) | Exercise Price (Euros) | |||||||||||||
01/01/02 | 12/31/02 | ||||||||||||||||||||
1996 | 4,200,729 | (4,116,073 | ) | (84,656 | ) | — | 1997 | Employees | 02/20/02 | 2.00 | — | ||||||||||
1997 | 3,509,418 | — | (9,009 | ) | 3,500,409 | 1998 | Employees | 02/20/03 | 3.67 | 3.67 | |||||||||||
1998 | 4,248,031 | — | (5,165 | ) | 4,242,866 | 1999 | Employees | 06/01/03 – 07/31/04 | 6.01 | 6.01 | |||||||||||
1999 | 5,785,077 | — | (681,120 | ) | 5,103,957 | 2000 | Employees | 06/01/03 – 07/31/04 | 10.65 | 10.65 | |||||||||||
2000 | 8,995,381 | — | (1,702,971 | ) | 7,292,410 | 2001 | Employees | 03/31/03 – 03/31/04 | 12.02 | 12.02 | |||||||||||
Long-service bonus | 7,070,618 | (383,040 | ) | (40,621 | ) | 6,646,957 | (3 | ) | Employees | (3) | — | — | |||||||||
Extrabonus AD | 15,476,500 | — | (15,476,500 | ) | — | 2000 | Managers | 12/31/02 | 16.50 | — | |||||||||||
Insurance AD | 5,469,923 | — | (5,469,923 | ) | — | 2000 | Managers | 01/01/01 – 12/31/02 | 15.18 | — | |||||||||||
Total | 54,755,677 | (4,499,113 | ) | (23,469,965 | ) | 26,786,599 | 10.13 | 6.73 | |||||||||||||
Thousands of Euros | |||||||||
Provisions for Pensions and similar obligation | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 6,239,744 | 6,304,284 | 6,481,288 | ||||||
Add - | |||||||||
Year provision with a charge to income for the year | 1,410,275 | 646,948 | 883,638 | ||||||
Transfers and other changes | — | 97,630 | 4,714 | ||||||
Less - | |||||||||
Payments | (1,208,127 | ) | (777,746 | ) | (658,904 | ) | |||
Amount use and other variations | (84,072 | ) | (31,372 | ) | (406,452 | ) | |||
Balance at end of year | 6,357,820 | 6,239,744 | 6,304,284 | ||||||
The year provisions for pensions charged to income in 2006 under the heading “Provisions for pensions and similar obligations” registered as “interest expenses and similar charges”, “personal expenses” and “provision expenses” in the consolidated income statement amounted to €254,548, €74,281 and €1,081,446 thousand. The amount charged in this respect in 2005 was €255,370, €68,893 y €322,685 thousand, respectively. The amount charged in this respect in 2004 was €210,342, €58,982 y €614,314 thousand, respectively (Note 29).
Thousands of Euros | |||||||||
Commitments and contingent risks provisions | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 452,462 | 348,782 | 279,708 | ||||||
Add - | |||||||||
Year provision with a charge to income for the year | 73,487 | 114,028 | 126,173 | ||||||
Transfers and other Changes | 4,726 | 9,566 | 1,412 | ||||||
Less - | |||||||||
Available funds | (16,700 | ) | (12,378 | ) | (12,673 | ) | |||
Payments | — | — | — | ||||||
Amount use and other variations | (11,070 | ) | (7,536 | ) | (45,802 | ) | |||
Transfers | — | — | (36 | ) | |||||
Disposal of subsidiaries | (972 | ) | — | — | |||||
Balance at end of year | 501,933 | 452,462 | 348,782 | ||||||
Thousands of Euros | |||||||||
Provisions for taxes and other provisions | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 2,008,879 | 1,738,782 | 1,874,006 | ||||||
Add - | |||||||||
Year provision with a charge to income for the year | 353,038 | 278,249 | 424,578 | ||||||
Acquisition of subsidiaries | 4,415 | 42,355 | 497 | ||||||
Transfers and other Changes | 100,611 | 317,849 | 330,248 | ||||||
Less - | |||||||||
Available funds | (50,913 | ) | (160,048 | ) | (153,465 | ) | |||
Amount use and other variations | (608,170 | ) | (204,761 | ) | (649,401 | ) | |||
Transfers | — | — | (87,474 | ) | |||||
Disposal of subsidiaries | (18,779 | ) | (3,547 | ) | (207 | ) | |||
Balance at end of year | 1,789,081 | 2,008,879 | 1,738,782 | ||||||
29. COMMITMENTS WITH PERSONNEL
As of December 31, 2006, 2005 and 2004, the commitments to Group employees were as follows:
Thousands of Euros | ||||||||||||||||||
Commitments in Spain (Note 29.1) | Commitments abroad (Note 29.2) | Total | ||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||
Post-employment benefits | 3,386,448 | 3,442,986 | 3,471,738 | 955,582 | 966,125 | 746,893 | 4,342,030 | 4,409,111 | 4,218,631 | |||||||||
Early retirement | 3,185,500 | 2,582,567 | 2,656,743 | — | — | — | 3,185,500 | 2,582,567 | 2,656,743 | |||||||||
Post-employment welfare benefits | 222,688 | 210,610 | 203,893 | 422,302 | 436,434 | 324,043 | 644,990 | 647,044 | 527,936 | |||||||||
Long-service cash bonuses | 31,781 | 30,033 | 31,590 | — | — | — | 31,781 | 30,033 | 31,590 | |||||||||
Long-service share-based bonuses | 48,677 | 45,550 | 32,614 | — | — | — | 48,677 | 45,550 | 32,614 | |||||||||
Total | 6,875,094 | 6,311,746 | 6,396,578 | 1,377,884 | 1,402,559 | 1,070,936 | 8,252,978 | 7,714,305 | 7,467,514 | |||||||||
These commitments were funded as follows:
Thousands of Euros | ||||||||||||||||||
Commitments in Spain (Note 29.1) | Commitments aborad (Note 29.2) | Total | ||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||
Insurance contracts coverage | ||||||||||||||||||
Post-employment benefits | 569,492 | 626,966 | 645,501 | — | — | — | 569,492 | 626,966 | 645,501 | |||||||||
569,492 | 626,966 | 645,501 | — | — | — | 569,492 | 626,966 | 645,501 | ||||||||||
Assets assigned to the funding of commitments | ||||||||||||||||||
Post-employment benefits | — | — | — | 879,176 | 687,039 | 514,835 | 879,176 | 687,039 | 514,835 | |||||||||
Post-employment welfare benefits | — | — | — | 367,927 | 84,973 | 40,122 | 367,927 | 84,973 | 40,122 | |||||||||
— | — | — | 1,247,103 | 772,012 | 554,957 | 1,247,103 | 772,012 | 554,957 | ||||||||||
Internal provisions (Note 28) | ||||||||||||||||||
Funds for Pensions and Similar Obligations | ||||||||||||||||||
Post-employment benefits | 2,816,956 | 2,816,020 | 2,826,237 | 76,406 | 279,086 | 232,058 | 2,893,362 | 3,095,106 | 3,058,295 | |||||||||
Early retirement | 3,185,500 | 2,582,567 | 2,656,743 | — | — | — | 3,185,500 | 2,582,567 | 2,656,743 | |||||||||
Post-employment welfare benefits | 222,688 | 210,610 | 203,893 | 54,375 | 351,461 | 283,921 | 277,063 | 562,071 | 487,814 | |||||||||
6,225,144 | 5,609,197 | 5,686,873 | 130,781 | 630,547 | 515,979 | 6,355,925 | 6,239,744 | 6,202,852 | ||||||||||
Other provisions | ||||||||||||||||||
Long-service cash bonuses | 31,781 | 30,033 | 31,590 | — | — | — | 31,781 | 30,033 | 31,590 | |||||||||
Long-service share-based bonuses | 48,677 | 45,550 | 32,614 | — | — | — | 48,677 | 45,550 | 32,614 | |||||||||
80,458 | 75,583 | 64,204 | — | — | — | 80,458 | 75,583 | 64,204 | ||||||||||
Subtotal | 6,305,602 | 5,684,780 | 5,751,077 | 130,781 | 630,547 | 515,979 | 6,436,383 | 6,315,327 | 6,267,056 | |||||||||
Total | 6,875,094 | 6,311,746 | 6,396,578 | 1,377,884 | 1,402,559 | 1,070,936 | 8,252,978 | 7,714,305 | 7,467,514 | |||||||||
The aforementioned insurance contracts were contracted with non-related insurance companies and the balances of these insurance policies were disclosed net of the balances of the assets assigned to the funding of commitments in the accompanying consolidated balance sheets.
On the other hand, the aforementioned internal provisions includes insurance contracts were contracted with insurance companies owned by the Group (Note 2.2.e) and, therefore, the balances of these insurance policies are disclosed in the heading “Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets. Whereas, the balances of the assets assigned to the funding of commitments are disclosed in the corresponding heading of asset depending on the classification of the financial instruments.
29.1. Companies in Spain
29.1.1. Post-employment benefits
29.1.1.1. Pensions
The most significant actuarial assumptions used to quantify these vested obligations in 2006, 2005 and 2004, were as follows:
Mortality tables | PERM/F 2000P | |
Discount rate (cumulative annual) | 4%/ AA corporate bond yield curve | |
Consumer price index | 1.5% | |
Salary growth rate | at least 2.5% (depending on employee) | |
Retirement ages | First date at which the |
The weighted-average exercise price of options exercised in 2002 before the expiration date, excluding long-service bonuses, was €11.26. The remaining life of options outstandingdefined benefit commitments and their coverage as of December 31, 2002, excluding long-service bonuses, was 0.85 years.2006, 2005 and 2004 were as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Pension commitments to retired employees | 3,186,706 | 3,202,581 | 3,244,431 | |||
Pension contingencies in respect of current employees | 199,742 | 240,405 | 227,307 | |||
3,386,448 | 3,442,986 | 3,471,738 | ||||
Coverage at end of each year: | ||||||
Internal provisions (*) | 2,816,956 | 2,816,020 | 2,826,237 | |||
Insurance contracts with unrelated insurance companies | 569,492 | 626,966 | 645,501 | |||
Total | 3,386,448 | 3,442,986 | 3,471,738 | |||
* | The internal provisions showed above were recognised with a charge to the heading “Provision Expense (Net)—Transfers to Funds for Pensions and Similar Obligations” in the accompanying consolidated income statements, and these provisions are recognised in the heading “Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets (Note 28). |
The situationchanges in 2006, 2005 and 2004 in the present value of the vested obligation for defined benefit commitments covered by the Group’s internal provisions were as regards performance bonuses payablefollows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 2,816,020 | 2,826,237 | 3,240,686 | ||||||
+ Interest cost | 110,021 | 106,926 | 112,988 | ||||||
+ Normal cost for the year (current services costs) | 22,510 | 19,440 | (100 | ) | |||||
- Payments made | (158,938 | ) | (145,347 | ) | (135,676 | ) | |||
+/- Other | 11,142 | 1,635 | (359,041 | ) | |||||
+/- Actuarial losses (gains) | 16,201 | 7,129 | (32,620 | ) | |||||
Present actuarial value at end of the year | 2,816,956 | 2,816,020 | 2,826,237 | ||||||
29.1.1.2. Early retirements
In 2006, 2005 and 2004, the Group offered certain employees the possibility of taking early retirement before reaching the age stipulated in sharesthe collective labour agreement in force. This offer was accepted in 2006, 2005 and 2004 by 1,887, 677 and 1,372 employees, respectively.
The most significant actuarial assumptions used to quantify these vested obligations in 2006, 2005 and 2004, were as follows:
Mortality tables | PERM/F 2000P | |
Discount rate (cumulative annual) | 4%/ AA corporate bond yield curve | |
Consumer price index | 1.5% | |
Retirement ages | Date agreed contractually for each individual employee at which the employee are entitled to retire |
The total cost of these agreements amounts to €1,019,494 thousand, €286,279 thousand and €571,628 thousand as of December 31, 20012006, 2005 and 2004, respectively, and the variationscorresponding provisions were recognised with a charge to the heading “Provision Expense (Net) - Transfers to Funds for Pensions and Similar Obligations - Early Retirements” in 2001the accompanying consolidated income statements, and these provisions are recognised in the heading “Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets statements (Note 28).
The changes in 2006, 2005 and 2004 in the present value of the vested obligation for commitments to early retirees in Spain were as follows:
Plans in Force | Nº Shares at 01/01/01 | Options Exercised on Maturity of the | Options and Other (2) | Nº Shares at 12/31/01 | Year Granted | Group | Expiration Date (1) | Exercise Price (Euros) | |||||||||||||
01/01/01 | 12/31/01 | ||||||||||||||||||||
1995 | 4,716,666 | (4,716,666 | ) | — | — | 1996 | Employees | 02/20/01 | 1.32 | — | |||||||||||
1996 | 3,560,958 | — | 639,771 | 4,200.729 | 1997 | Employees | 02/20/02 | 2.00 | 2.00 | ||||||||||||
1997 | 3,821,454 | — | (312,036 | ) | 3,509,418 | 1998 | Employees | 02/20/03 | 3.67 | 3.67 | |||||||||||
1998 | 4,678,873 | — | (430,842 | ) | 4,248,031 | 1999 | Employees | 06/01/03 – 07/31/04 | 6.01 | 6.01 | |||||||||||
1999 | 5,796,149 | — | (11,072 | ) | 5,785,077 | 2000 | Employees | 06/01/03 – 03/31/04 | 10.65 | 10.65 | |||||||||||
2000 | 10,000,000 | — | (1,004,619 | ) | 8,995,381 | 2001 | Employees | 03/31/03 – 03/31/04 | 12.02 | 12.02 | |||||||||||
Long-service bonus | 7,708,315 | (496,980 | ) | (140,717 | ) | 7,070,618 | (3 | ) | Employees | (3) | — | — | |||||||||
Extrabonus AD | 15,476,500 | — | — | 15,476,500 | 2000 | Managers | 12/31/02 | 16.50 | 16.50 | ||||||||||||
Insurance AD | 5,469,923 | — | — | 5,469,923 | 2000 | Managers | 01/01/01 – 12/31/02 | 15.18 | 15.18 | ||||||||||||
Total | 61,228,838 | (5,213,646 | ) | (1,259,515 | ) | 54,755,677 | 9.40 | 10.13 | |||||||||||||
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 2,582,567 | 2,656,743 | 2,461,263 | ||||||
+ Interest cost | 91,550 | 94,528 | 86,904 | ||||||
+ Early retirements in the year | 1,019,494 | 286,279 | 571,628 | ||||||
- Payments made | (504,857 | ) | (477,197 | ) | (466,413 | ) | |||
+/- Other changes | (2,482 | ) | 5,929 | (3,068 | ) | ||||
+/- Actuarial losses (gains) | (772 | ) | 16,285 | 6,429 | |||||
Present actuarial value at end of the year | 3,185,500 | 2,582,567 | 2,656,743 | ||||||
29.1.1.3. Post-employment welfare benefits
The most significant actuarial assumptions used to quantify these vested obligations in 2006, 2005 and 2004, were as follows:
Mortality tables | PERM/F 2000P | |
Discount rate (cumulative annual) | 4%/ AA corporate bond yield curve | |
Consumer price index | 1.5% | |
Retirement ages | First date at which the |
The weighted-average exercise pricedetail of options exercised in 2001 before the expiration date, excluding long-service bonuses, was €8.39. The remaining life of options outstandingthese commitments as of December 31, 2001, excluding long-service bonuses, was 1.25 years.2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Post-employment welfare benefit commitments to retired employees | 168,710 | 158,889 | 155,786 | |||
Vested post-employment welfare benefit contingencies in respect of current employees | 53,978 | 51,721 | 48,107 | |||
Total: | 222,688 | 210,610 | 203,893 | |||
Coverage at end of each year: | ||||||
Internal provisions | 222,688 | 210,610 | 203,893 | |||
The grant date fairchanges in 2006, 2005 and 2004 in the present value of Plan 2000, Extrabonus ADthe vested obligation for post-employment welfare benefit commitments were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at the beginning of the year | 210,610 | 203,893 | 202,217 | ||||||
+ Interest cost | 8,512 | 8,227 | 7,857 | ||||||
+ Normal cost for the year (current services costs) | 2,405 | 2,165 | 2,051 | ||||||
- Payments made | (13,440 | ) | (12,193 | ) | (11,566 | ) | |||
+/- Other movements | 6,541 | (362 | ) | — | |||||
+/- Actuarial losses (gains) | 8,060 | 8,880 | 3,334 | ||||||
Present actuarial value at the end of the year | 222,688 | 210,610 | 203,893 | ||||||
29.1.1.4. Summary of post-employment compensation commitments in Spanish companies
Following is the impact on profit or loss of the charges recorded in the 2006, 2005 and Insurance AD programs granted2004 consolidated income statements for the post-employment compensation commitments of Group companies in 2000,Spain:
Thousands of Euros | |||||||
2006 | 2005 | 2004 | |||||
Interest expense and similar charges: | |||||||
Interest cost of pension funds | 210,083 | 210,999 | 208,977 | ||||
Personnel expenses: | |||||||
Social attentions | 2,247 | 2,165 | 2,051 | ||||
Transfers to pension plans | 59,318 | 61,019 | 44,286 | ||||
Provision expense (net): | |||||||
Transfers to funds for pensions and similar obligations | |||||||
Pension funds | 23,489 | 33,426 | (29,720 | ) | |||
Early retirement | 1,019,494 | 286,279 | 571,628 | ||||
Total | 1,314,631 | 593,888 | 797,222 | ||||
The current contributions made by the Group’s Spanish companies for defined contribution retirement commitments were approximately €5.17, €2.36charged to the heading “Personnel Expenses - Transfers to Pension Plans” in the accompanying consolidated income statements, amounted to €32,486 thousand, €38,099 thousand and €1.72 per option,€42,503 thousand in 2006, 2005 and 2004, respectively.
As of December 31, 2006, 2005 and 2004 all actuarial gains or losses arising from differences between the actuarial assumptions and what had actually occurred or, where appropriate, from the effects of changes in the actuarial assumptions used, were charged to the heading “Personnel Expenses - Transfers to Pension Plans” in the accompanying consolidated income statements.
29.1.2. Other commitments to employees in Spanish companies:
29.1.2.1. Compensation in kind
The fairpresent values of the vested obligations for long-service cash bonuses and for the gifts relating to long-service share-based bonuses (the treatment applicable to share-based payment is summarised in section below) was quantified on a case-by-case basis using the projected unit credit valuation method. The main actuarial assumptions used in quantifying these obligations are unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in 2006, 2005 and 2004 were as follows:
Mortality tables | PERM/F 2000P | |
Disability tables | IASS - 90 (reflecting the experience of the Spanish Social Security authorities) | |
Discount rate (cumulative annual) | 4%/ AA Corporate bonds | |
Retirement ages | First date at which the employees are entitled to retire |
The changes in 2006, 2005 and 2004 in the present value of each optionthe vested obligation for these commitments were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 30,033 | 31,590 | 30,693 | ||||||
+ Interest cost | 1,265 | 1,318 | 1,228 | ||||||
+ Normal cost for the year (current services costs) | 1,594 | 1,377 | 1,323 | ||||||
- Payments made | (532 | ) | (545 | ) | (735 | ) | |||
- Cash settlements for long-service bonus redemptions due to early retirement | (643 | ) | (2,464 | ) | (570 | ) | |||
+/- Actuarial losses (gains) | 64 | (1,243 | ) | (349 | ) | ||||
Present actuarial value at end of the year | 31,781 | 30,033 | 31,590 | ||||||
Coverage at end of each year: | |||||||||
Internal provisions (*) | 31,781 | 30,033 | 31,590 |
(*) | The internal provisions showed above were recognised in the heading “Provisions—Other provisions” in the accompanying consolidated balance sheets (Note 28). |
Since all other employee welfare benefits for current employees accrue and are settled on a yearly basis, it is estimatednot necessary to record a provision in this connection.
The total cost of the employee welfare benefits provided by the Group’s Spanish companies to their current employees in the 2006, 2005 and 2004 was €33,941 thousand, €29,723 thousand and €34,746 thousand, respectively, and these amounts were recognised with a charge to “Personnel Expenses—Other personnel expenses” in the accompanying consolidated income statements.
29.1.2.2. Bank share-based compensation system
However, as mentioned previously, the Bank is obliged, under the related corporate agreement, to deliver shares of Banco Bilbao Vizcaya Argentaria, S.A. to certain of its employees when they complete a given number of years of effective service:
Number of Shares | ||
15 years | 180 | |
25 years | 360 | |
40 years | 720 | |
50 years | 900 |
The present values of the vested obligation as of December 31, 2006, 2005 and 2004, in terms of the probable number of shares, were quantified on the grant datea case-by-case basis using the Black-Scholes option pricing model withprojected unit credit method. The main actuarial assumptions used in quantifying this obligation are summarised as follows:
Mortality tables | PERM/F 2000P. | |
Disability tables | IASS - 90 (reflecting the experience of the Spanish Social Security authorities) | |
Retirement ages | First date at which the employees are entitled to retire |
The changes in 2006, 2005 and 2004 in the following assumptions: risk-free interest ratespresent value of 5.4%, 5.39% and 5.49%, respectively; expected livesthe vested obligation of 2.5, 2.6 and 2.6 years, respectively; expected volatilitiesthe probable number of 30.5%, 31.31% and 29.27%, respectively and dividend yield of 2%, 2.19% and 2.01%, respectively.
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at the beginning of the year | 6,946,467 | 6,658,067 | 6,932,004 | ||||||
+ Year accrual | 407,487 | 399,753 | 385,661 | ||||||
- Deliveries made | (186,480 | ) | (269,100 | ) | (305,100 | ) | |||
+/- Actuarial losses (gains) | (628,526 | ) | 157,747 | (354,498 | ) | ||||
Present actuarial value at the end of year | 6,538,948 | 6,946,467 | 6,658,067 | ||||||
In March 1999, pursuant to a resolution adopted by the Bank’s Shareholders’shareholders at the Annual General Meeting on February 27, 1999, 32,871,301 new shares were issued at a price of €2.14 per share similar(similar to the average reference price of the bonusshare-based commitments to Group employees existing at that date which theythe new shares were allocatedassigned to cover, which included the bonus commitments for the years 1995 through 1998 and a portion of the accrued commitment relating to long-service bonuses.fund). These shares were subscribed and paid in full by a non-Group company and, simultaneously, the Bank acquired a call option on these shares which can be exercised on any date, at one or several times, prior to December 31, 2011, at an exercise price equal to the share issue price, adjusted on the basis of the related antidilution clauses. On various occasions sinceSince 1999 the call option washas been partially exercised to meet share-based commitments to Group employees, for a total of 24,678,35928,500,236 shares, being purchased. Accordingly, as ofwhich means that on December 31, 2003,2006, the Bank still held an option on a total of 8,192,9424,371,065 shares (12,490,232 and 18,262,345 shares as of December 31, 2002 and 2001, respectively), at a price of €2.09 per share after adjustment of the issue price as a result of the reductions in the par value in July 1999(4,557,545 and April 2000.
Also,4,826,645 shares as of December 31, 2003, the bonuses for 19992005 and 2000, which consist2004). In addition, it had arranged a futures transaction with a non-Group entity on a total of a cash payment tied to the market2,167,883 shares at an exercise price of 4,527,803€18.24 per share (2,388,922 shares at an exercise price of 15.06 per share and 7,246,575 Bank1,831,422 shares respectively (5,103,957 and 7,292,410 shares, respectively, asat an exercise price of December, 2002, and 5,785,077 and 8,995,381 shares, respectively,€12.30 per share as of December 31, 2001)2005 and 2004).
The changes in 2006, 2005 and 2004 in the related internal provisions, which take into account the present value of the vested obligation, at any given date, in terms of the probable number of shares and the instruments assigned to the commitment, were as follows:
Thousands of Euros | |||||||||||
2006 | 2005 | 2004 | |||||||||
Internal provision at beginning of year | 45,550 | 32,614 | 33,692 | ||||||||
+ | Normal cost for the year (current service costs) | 6,787 | 5,879 | 4,389 | |||||||
- | Payments relating to partial exercises of the call option (Settlement of long-service bonuses when they fall due) | (390 | ) | (562 | ) | (638 | ) | ||||
+/- | Collections/(Payments) due to quarterly settlements of futures transactions | (783 | ) | 5,244 | 1,685 | ||||||
+/- | Actuarial losses (gains) | (2,487 | ) | 2,375 | (6,514 | ) | |||||
Internal provision at end of year(*) | 48,677 | 45,550 | 32,614 | ||||||||
(*) | The internal provisions showed above were recognised in the heading “Provisions—Other provisions” in the accompanying consolidated balance sheets (Note 28). |
29.2. Companies abroad
29.2.1. Pension benefit supplement
The main commitments abroad are related to Mexico and Portugal.
Mexico
The main actuarial assumptions used in quantifying the commitments of BBVA Bancomer, S.A. de C.V. as of December 31, 2006,2005 and 2004 are summarised as follows:
2006 | 2005 | 2004 | |||||||
Mortality tables | EMSSA 97 | EMSSA 97 | EMSSA 97 | ||||||
Discount rate (cumulative annual) | 9.0 | % | 9.20 | % | 10.25 | % | |||
Consumer price index | 3.5 | % | 4.00 | % | 5.00 | % | |||
Salary growth rate | 6.0 | % | 6.60 | % | 7.63 | % | |||
Expected rate of return on plan assets | 9.0 | % | 9.20 | % | 10.25 | % | |||
The changes in 2006, 2005 and 2004 in the present value of the vested obligations of Bancomer, S.A. de C.V., and in the other accrued long-service bonusvalue of the assets assigned to fund these commitments (1,325,680 shares, 1,900,000 shares and 1,311,451 shares in 2003, 2002 and 2001, respectively) had been hedged in full with call options and other futures transactions (Note 3-m).(fair value of plan assets) are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 632,783 | 478,478 | 466,516 | ||||||
Value of the assets assigned to funding of commitments (fair value of plan assets) | (465,664 | ) | (330,509 | ) | (324,318 | ) | |||
Balance at beginning of year | 167,119 | 147,969 | 142,198 | ||||||
Present actuarial value at end of year | 623,418 | 632,783 | 478,478 | ||||||
Value of assets assigned to funding of commitments | (623,418 | ) | (465,664 | ) | (330,509 | ) | |||
Balance at end of year | — | 167,119 | 147,969 | ||||||
Additionally, the time period stipulated in the variable compensation program tiedThe aforementioned assets assigned to the BBVA share price for executive directorsfunding of commitments are the assets that are to be used directly to settle employee benefit obligations and senior managerswhich meet the following conditions: they are not owned by the Group entities; they are available only to pay post-employment benefits; and they cannot be returned to the Group entities. The balances of the Bank ended on December 31, 2002. This program was completed withvested obligations related to the granting of loans or credit facilities for the acquisition of BBVA shares on the market and guaranteed a maximum loss in the share value of 5%previously mentioned commitments were disclosed net of the acquisition cost. Since at the time of maturitybalances of the program the share price was below the value set (€15 plus 10%), the program beneficiaries were not entitled to receive any amount under the program.
In 2003 an insurance policy was arranged for €570 thousand to cover the pension commitments to former nonexecutive directors. This amount was recorded under the “Personnel Costs” caption in the 2003 statement of income.
k) Severance costs-
Under current Spanish labor legislation, companies are required to pay severance to employees terminated without just cause. There is no labor force reduction plan which would make it necessary to record a provision in this connection. However, as required by Bank of Spain Circular 5/2000, the Group recorded in-house provisions, with a chargeaforementioned assets assigned to the “Extraordinary Losses” captionfunding of commitments in the accompanying 2003, 2002,consolidated balance sheets.
The changes in 2006, 2005 and 2001 consolidated statements2004, in the balances of income,“Provisions - Provisions for Pensions and Similar Obligations” relating to cover,BBVA Bancomer, S.A. de C.V. are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 167,119 | 147,969 | 142,198 | ||||||
+ Finance expenses | 51,609 | 47,187 | 44,814 | ||||||
- Finance Income | (38,375 | ) | (33,326 | ) | (32,753 | ) | |||
+ Normal cost for the year (current service costs) | 21,295 | 22,711 | 16,327 | ||||||
+/- Payments made and other net variations | (173,645 | ) | (36,569 | ) | (12,077 | ) | |||
+/- Exchange differences | (2,666 | ) | 29,097 | (10,540 | ) | ||||
+/- Actuarial losses (gains) | (25,337 | ) | (9,950 | ) | — | ||||
Balance at end of year | — | 167,119 | 147,969 | ||||||
Portugal
The main actuarial assumptions used in accordance withquantifying the schedule established in that Circular, the contractual severance payments for terminations or dismissals additional to those provided for by current legislation on a general basis. Ascommitments of BBVA Portugal, S.A. as of December 31, 2003, 20022006, 2005 and 2001,2004 are summarised as follows:
2006 | 2005 | 2004 | ||||
Mortality tables | TV 88/90 | TV 88/90 | TV 88/90 | |||
Disability tables | 50% EKV 80 | 50% EKV 80 | 50% EKV 80 | |||
Turnover tables | 50% MSSL employees before 1995 | |||||
Discount rate (cumulative annual) | 4.75% | 4.50% | 4.50% | |||
Consumer price index | 2.00% | 2.00% | 2.00% | |||
Salary growth rate | 3.00% | 3.00% | 3.00% | |||
Expected rate of return on plan assets | 4.50% | 4.50% | 4.50% | |||
The changes in 2006, 2005 and 2004 in the present value of the vested obligations of BBVA Portugal, S.A., and in the value of the assets assigned to fund these commitments (fair value of plan assets) are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 262,153 | 268,415 | 249,438 | ||||||
Value of the assets assigned to funding of commitments (fair value of plan assets) | (221,375 | ) | (184,326 | ) | (175,897 | ) | |||
Balance at beginning of year | 40,778 | 84,089 | 73,541 | ||||||
Present actuarial value at end of year | 295,473 | 262,153 | 268,415 | ||||||
Value of assets assigned to funding of commitments | (255,758 | ) | (221,375 | ) | (184,326 | ) | |||
Balance at end of year | 39,715 | 40,778 | 84,089 | ||||||
The aforementioned assets assigned to the funding of commitments are the assets that are to be used directly to settle employee benefit obligations and which meet the following conditions: they are not owned by the Group entities; they are available only to pay post-employment benefits; and they cannot be returned to the Group entities. The balances of the vested obligations related to the previously mentioned commitments were disclosed net of the balances of the aforementioned assets assigned to the funding of commitments in the accompanying consolidated balance sheets.
The internal provisions amounted to €37,458 thousand, €37,490 thousandshowed above were recognised in the heading “Funds for Pensions and €19,636 thousand, respectively, and were recorded under the “Provisions for Contingencies and Expenses - Pension Provision” captionSimilar Obligations” in the accompanying consolidated balance sheets (Note 20)28). The changes in 2006, 2005 and 2004 in this heading related to BBVA Portugal, S.A., are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 40,778 | 84,089 | 73,541 | ||||||
+ Finance expenses | 11,538 | 8,437 | 10,458 | ||||||
- Finance Income | (11,521 | ) | (9,930 | ) | (9,334 | ) | |||
+ Normal cost for the year (current service costs) | 39,059 | 3,985 | 14,375 | ||||||
+/- Payments made and other net variations | (40,879 | ) | (48,987 | ) | (10,242 | ) | |||
+/- Actuarial losses (gains) | 740 | 3,184 | 5,291 | ||||||
Balance at end of year | 39,715 | 40,778 | 84,089 | ||||||
l) Corporate income tax and other taxes-29.2.2. Post-employment welfare benefits:
These captions in the consolidated statements of income include all the debits or credits arising from Spanish corporate income taxBBVA Bancomer, S.A. de C.V.’s accrued liability for defined benefit commitments to current and those taxes of a similar nature of subsidiaries abroad, including both the amounts relating to the expense accrued in the year and those arising from adjustments to the amounts recorded in prior years (Note 25).
The expense for corporate income tax accrued each year is calculated on the basis of book income before taxes, increased or decreased, as appropriate, by the permanent differences from the income for tax purposes, i.e. differences between the taxable income and book income before taxes that do not reverse in subsequent periods. The tax assets arising from tax losses at subsidiaries (basically Latin-American companies) and prepaid taxes arising from timing differences are only capitalized if they will be recovered within a period of ten years (Note 15).
The tax benefit of tax credits for double taxation, tax relief and tax credits for certain activities or investments is treated as a reductionformer employees, net of the amountspecific assets assigned to fund them, amounted to €54,375 thousand, €351,461 thousand and €283,921 thousand as of corporate income tax for the year in which the tax credits are used. Entitlement to these tax creditsDecember 31, 2006, 2005 and 2004, respectively and is conditional upon compliance with the legally stipulated requirements.
m) Derivatives and other futures transactions-
These instruments include, inter alia, unmatured foreign currency purchase and sale transactions, unmatured securities purchase and sale transactions, financial futures on securities, on exchange rates and on interest rates, forward rate agreements, options on exchange rates, on securities and on interest rates and the various types of financial swaps. These transactions are basically carried out for hedging and overall management of the financial risks to which the Group is exposed.
In accordance with Bank of Spain regulations, transactions involving these products are recorded in memorandum accounts either for the future rights and commitments that might have a net worth effect, or for the balances that might be necessary to reflect the transactions, even if they did not have any effect on the Group’s net worth. Accordingly, the notional and/or contractual value of these products does not express the total credit or market risk assumed by the Group.
Also, the premiums paid and collected for options purchased and sold, respectively, must be recordedincluded under the “Other Assets”heading “Provisions - Provisions for Pensions and “Other Liabilities” captionsSimilar Obligations” in the accompanying consolidated balance sheets as an asset forsheets.
The main actuarial assumptions used to quantify the purchaser and as a liability for the writer (Note 15), until their exercise or maturity date.
Transactions whose objective and effect is to eliminate or significantly reduce currency, interest rate or price risks on asset and liability positions or on other transactions were treated as hedging transactions, provided that the hedged asset and the hedging transactions were identified explicitly from initiationcurrent values of the latter. Similarly, transactions which, although not specifically assigned to a specific hedged item, form part of global or macrohedges used to reducecommitments accrued in connection with the risk to which the Group is exposedaforementioned commitment, as a consequence of overall management of correlated assets, liabilities and other transactions, were also treated as hedging transactions.
As of December 31, 2003, 20022006, 2005 and 2001,2004, are as follows:
2006 | 2005 | 2004 | |||||||
Mortality tables | EMSSA 97 | EMSSA 97 | EMSSA 97 | ||||||
Discount rate (cumulative annual) | 9.0 | % | 9.20 | % | 10.25 | % | |||
Consumer price index | 3.5 | % | 4.00 | % | 5.00 | % | |||
Medical cost trend rates | 6.0 | % | 6.08 | % | 7.10 | % | |||
Expected rate of return on plan assets | 9.0 | % | 9.20 | % | 10.25 | % | |||
The changes in 2006, 2005 and 2004 in the present value of the vested obligations are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 436,434 | 324,043 | 319,885 | ||||||
Value of the assets assigned to funding of commitments (fair value of plan assets) | (84,973 | ) | (40,122 | ) | (22,887 | ) | |||
Balance at beginning of year | 351,461 | 283,921 | 296,998 | ||||||
Present actuarial value at end of year | 422,302 | 436,434 | 324,043 | ||||||
Value of assets assigned to funding of commitments | (367,927 | ) | (84,973 | ) | (40,122 | ) | |||
Balance at end of year | 54,375 | 351,461 | 283,921 | ||||||
The aforementioned assets assigned to the funding of commitments are the assets that are to be used directly to settle employee benefit obligations and which meet the following conditions: they are not owned by the Group had arranged share price riskentities; they are available only to pay post-employment benefits; and interest rate risk macrohedges consisting of securities listed on the main international stock markets and long-term deposit transactions, respectively. The security price macrohedges were valued at market price. The settlements relatingthey cannot be returned to the interest rate macrohedge were recorded byGroup entities. The balances of the accrual method. These transactions are permanently subject to an integrated, prudent and consistent system of risk and earnings measurement, management and control enabling transactions to be monitored and identified. This system involves, for each macrohedge, the recording of provisions for credit, market and operational risk in accordance with banking practice for transactions of this type. As required by current legislation, each macrohedge transaction has been authorized by the Bank of Spain.
The gains or losses arising from these hedging transactions are recorded symmetricallyvested obligations related to the revenues or costspreviously mentioned commitments were disclosed net of the hedged item, andbalances of the collections or payments madeaforementioned assets assigned to the funding of commitments in settlements are recorded with a balancing entry under the accompanying consolidated balance sheets.
The internal provisions showed above were recognised in the heading “Other Assets” and “Other Liabilities” captionsprovisions” in the accompanying consolidated balance sheets (Note 15)28). Forward currency transactions classifiedThe changes in 2006, 2005 and 2004 in this heading related to BBVA Bancomer, S.A. de C.V., are as hedges are recorded for accounting purposes as described in Note 3-b.follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 351,461 | 283,921 | 296,998 | ||||||
+ Finance expenses | 36,436 | 32,953 | 30,288 | ||||||
- Finance Income | (6,862 | ) | (3,896 | ) | (2,692 | ) | |||
+ Normal cost for the year (current service costs) | 11,290 | 9,001 | 1,759 | ||||||
+/- Payments made and other net variations | (312,066 | ) | (40,771 | ) | (22,465 | ) | |||
+/- Exchange differences | (41,373 | ) | 57,925 | (19,967 | ) | ||||
+/- Actuarial losses (gains) | 15,489 | 12,328 | — | ||||||
Balance at end of year | 54,375 | 351,461 | 283,921 | ||||||
Nonhedging transactions, which are also known as trading transactions, are valued in accordance with Bank of Spain regulations, based on the market on which they are arranged:
n) Assets and liabilities acquired or issued at a discount-
Assets and liabilities acquired or issued at a discount, except for marketable securities, are recorded at redemption value. The difference between this value and the amounts paid or received is recorded under the liability and asset “Accrual Accounts” captions in the consolidated balance sheets (Note 16).
o) Investments in Argentina-
Macroeconomic situation
The economic crisis that beset Argentina in late 2001 and in 2002 had repercussions on the solvency and liquidity of companies located in Argentina. This was due to a variety of factors, including most notably:
Thousands of Euros | |||||
1% Increase | 1% Decrease | ||||
Increase/Decrease in Current Services Cost and Interest Cost | 12,827 | (9,694 | ) | ||
Increase/Decrease in defined benefit obligation | 88,960 | (68,537 | ) |
29.2.3. Summary of capital in 2002 were repealed in that same year and unrestricted access to deposits was restored.
Nevertheless, “asymmetrical pessification” had secondary effects on BBVA Group financial statements. Due to government decree dollar liabilities were converted to pesos at exchanges rates fixed by the government instead of free-market exchange rate. Many depositors sued banks and the Argentinean courts forced banks to pay the difference between the dollar free-market exchange rate and exchange rate fixed by government. The losses due to this difference werecharges recorded in the 2006, 2005 and 2004 consolidated income statement and cash flowstatements for the post-employment benefit commitments of our Argentinean subsidiary BBVA Banco Frances.
Although 2003 saw a substantial improvement in the economic situation, certain economic matters still remain to be addressed in order to enable Argentina to return to normality.
BBVA Banco Francés Group
In 2002 BBVA Banco Francés implemented a financial strengthening plan to enable it to meet liquidity requirements. This plan included, inter alia, the following measures:
Additionally, Argentine Government debt securities were sold to BBVA, S.A. under repurchase agreement. The balances outstanding on this transaction as of December 31, 2003 and 2002, were €82,675 companies abroad totalled €139,410 thousand, €110,550 thousand and €98,867€82,787 thousand, respectively.
In 2003 the Bank did not carry out any further investment or financial assistance transactions with respect to its subsidiaries in Argentina.
BBVA Group – Consolidation of the Group companies located in Argentina.
The financial statements of the Group companies located in Argentina were prepared in accordance with the regulations in force in that country and the applicable unification adjustments were made in the accompanying consolidated financial statements on the basis of the information available.
The Group has maintained the accounting policy established in December 2001 of annulling the underlying book value of the Banco Francés Group in the consolidated books. Accordingly, as of December 31, 2001, the Group recorded a provision amounted to €447,435 thousand which has been assigned to covering assets and commitments in accordance with the terms of the preceding paragraph.
As of December 31, 2003, 20022006, 2005 and 2001,2004, all actuarial gains or losses arising from differences between the Group has additionally recorded a specific provision amountingactuarial assumptions and what had actually occurred or, where appropriate, from the effects of changes in the actuarial assumptions used, were charged to €120,380 thousand, €135,606 thousand and €170,201 thousand, respectively, to cover the valueaccompanying consolidated income statements.
The detail, by consolidated company, of the fixed-income securities issued by BBVA Banco Francés that are held bybalance of the Bank and the US$ 80 million loan mentioned above.heading “Minority Interests” is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
BBVA Colombia Group | 18,336 | 16,467 | 14,059 | |||
BBVA Chile Group | 94,829 | 120,998 | 87,615 | |||
BBVA Banco Continental Group | 234,657 | 222,304 | 171,035 | |||
BBVA Banco Provincial Group | 223,546 | 203,860 | 165,485 | |||
Provida Group | 66,220 | 70,544 | 52,921 | |||
Banc Internacional d’Andorra, S.A. | — | 185,713 | 142,677 | |||
Other companies | 130,574 | 151,604 | 103,747 | |||
Total | 768,162 | 971,490 | 737,539 | |||
The aforementioned provisions were recorded underdetail of the “Provisions for Contingencies and Expenses” caption (Note 20). These provisions were not assigned to specific assetschanges in view of their nature and their amount is equalthe foregoing balances, which are due to the Group’s investmentshare of minority interests in income for the year (Note 4), is as follow:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
BBVA Colombia Group | 3,470 | 4,166 | 2,943 | |||
BBVA Chile Group | 2,573 | 13,526 | 4,829 | |||
BBVA Banco Continental Group | 66,989 | 59,689 | 39,721 | |||
BBVA Banco Provincial Group | 68,944 | 47,279 | 65,834 | |||
Provida Group | 24,970 | 18,169 | 8,831 | |||
Banc Internacional d’Andorra, S.A. (*) | 8,306 | 41,607 | 34,264 | |||
Other companies | 59,904 | 79,711 | 29,191 | |||
Total | 235,156 | 264,147 | 185,613 | |||
(*) | Accumulated minority until the date of its sale (See Note 4). |
The changes in equity in the BBVA Banco Francés Group, the lines of financingyears ended December 31, 2006, 2005 and the fixed-income securities issued by that group and subscribed by BBVA.2004 were as follows:
Thousands of Euros | |||||||||||||||||||||||
2006 | Share Capital (Note 32) | Reserves (Note 33 & 34) | Profit for the year | Treasury shares and other equity instruments (Note 35) | Valuation Adjustments (*) | Minority Interest (Note 30) | Interim Dividends (Note 5) | Total Equity | |||||||||||||||
Balance at beginning of year | 1,661,518 | 8,830,548 | 3,806,425 | (96,180 | ) | 3,294,955 | 971,490 | (1,166,644 | ) | 17,302,112 | |||||||||||||
Valuation adjustments | — | — | — | — | 472,185 | (3,185 | ) | — | 469,000 | ||||||||||||||
Distribution of prior Years’ profit | — | 2,010,936 | (2,010,936 | ) | — | — | — | — | — | ||||||||||||||
Dividends | — | — | (1,795,489 | ) | — | — | (16,818 | ) | 1,166,644 | (645,663 | ) | ||||||||||||
Gains or losses on transactions involving treasury | — | 17,131 | — | (16,269 | ) | — | — | — | 862 | ||||||||||||||
shares and other equity instruments | — | — | — | — | — | — | — | — | |||||||||||||||
Increase of capital | 78,947 | 2,921,053 | — | — | — | — | — | 3,000,000 | |||||||||||||||
Profit for the year | — | — | 4,735,879 | — | — | — | (1,362,700 | ) | 3,373,179 | ||||||||||||||
Dividends paid to minority shareholders | — | — | — | — | — | (86,957 | ) | — | (86,957 | ) | |||||||||||||
Changes in the composition of the Group | — | (54,998 | ) | — | — | — | (279,386 | ) | — | (334,384 | ) | ||||||||||||
Exchange differences | — | — | — | — | (426,446 | ) | (62,301 | ) | — | (488,747 | ) | ||||||||||||
Share of minority interests in profit for the year | — | — | — | — | — | 235,156 | — | 235,156 | |||||||||||||||
Other | — | (516,243 | ) | — | — | — | 10,163 | — | (506,080 | ) | |||||||||||||
Balance at end of year | 1,740,465 | 13,208,427 | 4,735,879 | (112,449 | ) | 3,340,694 | 768,162 | (1,362,700 | ) | 22,318,478 | |||||||||||||
The Bank’s directors and their legal advisers believe that these provisions reasonably cover
(*) | See change in net consolidated equity |
Thousands of Euros | ||||||||||||||||||||||
2005 | Share Capital (Note 32) | Reserves (Note 33 y 34) | Profit for the year | Treasury shares and other equity instruments (Note 35) | Valuation Adjustments (*) | Minority Interest (Note 30) | Interim Dividends (Note 5) | Total Equity | ||||||||||||||
Balance at beginning of year | 1,661,518 | 7,427,737 | 2,922,596 | (35,846 | ) | 2,106,914 | 737,539 | (1,015,195 | ) | 13,805,263 | ||||||||||||
Valuation adjustments | — | — | — | — | 604,889 | 2,569 | — | 607,458 | ||||||||||||||
Distribution of prior Years’ profit | — | 1,427,165 | (1,427,165 | ) | — | — | — | — | — | |||||||||||||
Dividends | — | — | (1,495,431 | ) | — | — | (9,312 | ) | 1,015,195 | (489,548 | ) | |||||||||||
Gains or losses on transactions involving treasury shares and other equity instruments | — | 34,093 | — | (60,334 | ) | — | (626 | ) | — | (26,867 | ) | |||||||||||
Profit for the year | — | — | 3,806,425 | — | — | — | (1,166,644 | ) | 2,639,781 | |||||||||||||
Dividends paid to minority shareholders | — | — | — | — | — | (55,010 | ) | — | (55,010 | ) | ||||||||||||
Changes in the composition of the Group | — | — | — | — | — | (7,612 | ) | — | (7,612 | ) | ||||||||||||
Exchange differences | — | — | — | — | 583,152 | 42,750 | — | 625,902 | ||||||||||||||
Share of minority interests in profit for the year | — | — | — | — | — | 264,147 | — | 264,147 | ||||||||||||||
Other | — | (58,447 | ) | — | — | — | (2,955 | ) | — | (61,402 | ) | |||||||||||
Balance at end of year | 1,661,518 | 8,830,548 | 3,806,425 | (96,180 | ) | 3,294,955 | 971,490 | (1,166,644 | ) | 17,302,112 | ||||||||||||
(*) | See change in net consolidated equity |
2004 Balance at beginning of year Valuation adjustments Dsitribution of prior Years’ profit Dividends Gains or losses on transactions involving treasury shares and other equity instruments Profit for the year Capital increases and reductions Dividends paid to minority shareholders Changes in the composition of the Group Exchange differences Share of minority interests in profit for the year Other Balance at end of year Thousands of Euros Share
Capital
(Note 32) Reserves
(Note 33 y
34) Profit for
the year Treasury shares
and other equity
instruments
(Note 35) Valuation
Adjustments
(*) Minority
Interest
(Note 30) Interim
Dividends
(Note 5) Total Equity 1,565,968 5,780,075 2,226,701 (82,001 ) 1,691,325 1,917,164 (859,896 ) 12,239,336 — — — — 604,032 9,154 — 613,186 — 977,264 (977,264 ) — — — — — — — (1,249,437 ) — — (48,621 ) 859,896 (438,162 ) — — — 46,155 — — — 46,155 — — 2,922,596 — — — (1,015,195 ) 1,907,401 95,550 1,903,200 — — — — — 2,010,306 — — ��� — — (63,074 ) — (63,074 ) — (1,375,898 ) — — — (1,224,655 ) — (2,600,553 ) — — — — (188,443 ) 23,716 — (164,727 ) — — — — — 185,613 — 185,613 — 143,096 — — — (61,758 ) — 69,782 1,661,518 7,427,737 2,922,596 (35,846 ) 2,106,914 737,539 (1,015,195 ) 13,805,263
(*) | See change in net consolidated equity |
As of December 31, 2006, the maximum losses which might be incurred by the Group while the situation described above continues and until such time as objective conditionscapital of security and profitability for new potential investments are reestablished.
(4) BANCO BILBAO VIZCAYA ARGENTARIA GROUP
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) isamounted to €1,740,464,869.29, and consisted of 3,551,969,121 fully subscribed and paid registered shares of €0.49 par value each.
All the Group’s parent company. Its individual financial statementsshares of BBVA carry the same voting and dividend rights and no single shareholder enjoys special voting rights.
All the shares represent an interest in the Bank’s capital.
In November 2006 capital was increased through the issuance of 161,117,078 new shares with a par value of €0.49 each and a share premium of €18.13 per share. In 2005 there were no variations in the share capital. In February 2004 capital was increased through the issuance of 195,000,000 shares, with a price per share of €10.25 (consisting of a par value of €0.49 and additional paid-in capital of €9.76).
The shares of Banco Bilbao Vizcaya Argentaria, S.A. are preparedquoted on the basiscomputerized trading system of the accounting principlesSpanish stock exchanges and methods describedon the New York, Frankfurt, London, Zurich, Milan and Mexico stock market.
American Depositary Shares (ADSs) quoted in Note 3, except forNew York are also traded on the valuationLima (Peru) Stock Exchange, by virtue of the Bank’s direct holdings of 20% or more in unlisted companies and of 3% or more in listed companies, which, pursuant to Bank of Spain Circular 4/1991, are recorded at the lower of cost, revalued where appropriate, or market. The market value is deemed to be the underlying book value ofan exchange agreement entered into between these holdings, adjusted by the amount of the unrealized gains disclosed at the time of acquisition and still existing at the valuation date.two markets.
The Bank represented approximately 63.94% of the Group’s assets and 49.5% of pre-tax profitsAlso, as of December 31, 2003 (58.96%2006, the shares of BBVA Banco Continental, S.A., Banco Provincial C,A., BBVA Colombia, S.A., BBVA Chile, S.A., BBVA Banco Francés, S.A. and 49.39%, respectively, asAFP Provida were quoted on their respective local stock markets and, in the case of the last two entities, on the New York Stock Exchange. BBVA Banco Francés, S.A. is listed on the Latin-American market of the Madrid Stock Exchange.
As of December 31, 2002,2006, no individual shareholder owned more than 5% of the capital of the Bank. However, at the date of filing of this registration document, Chase Nominees Ltd. And State Street Bank and 52.82%Trust Co., in their capacity as international depositary banks, held more than 5%.
BBVA is not aware of any direct or indirect interests through which ownership or control of the Bank may be exercised.
BBVA has not been notified of the existence of any side agreements that regulate the exercise of voting rights at the Bank’s General Meetings, or which restrict or place conditions upon the free transferability of BBVA shares. Neither is the Bank aware of any agreement that might result in changes in the control of the issuer.
The BBVA Group has not issued any convertible and/or exchangeable debentures or any warrants on BBVA shares.
At the Annual General Meeting celebrated on February 28, 2004 the shareholders resolved to delegate to the Board of Directors, in accordance with Article 153.1.b) of the Spanish Corporations Law, the power to increase capital, on one or several occasions, by a maximum par value equal to 50% of the Company’s subscribed and 54.08%, respectively, aspaid capital at the date of the resolution, i.e. €830,758,750.54. The legally stipulated year within which the directors can carry out this increase is five years.
In addition to the aforementioned resolutions, at the Annual General Meetings held in February 2005 and in February 2004, the shareholders authorized the Board of Directors, for a year of five years, to issue fixed-income securities of any class or type, up to a maximum of €121,750 million.
As of December 31, 2001)2006, there were no significant capital increases in progress at any of the Group companies.
The balance of this heading in the consolidated balance sheet amounts to €9,579,443 thousand and includes, inter alia, the amounts of the share premiums arising from the capital increases, in particular the capital increase in 2006 for an amount of €2,921,053 thousand (see Note 31), afteras well as the related consolidation adjustmentssurpluses arising from the merger of Banco Bilbao, S.A. and eliminations.Banco Vizcaya, S.A., amounted to €641,142 thousand.
The revised Spanish Corporations Law expressly permits the use of the share premium balance to increase capital and establishes no specific restrictions as to its use.
The breakdown of the balance of this heading in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | |||||||
2006 | 2005 | 2004 | |||||
Legal reserve | 332,303 | 332,303 | 313,194 | ||||
Restricted reserve for retired capital | 87,918 | 87,918 | 87,918 | ||||
Restricted reserve for Parent Company shares | 814,870 | 356,821 | 20,826 | ||||
Restricted reserve for redenomination of capital in euros | 1,861 | 1,861 | 1,861 | ||||
Revaluation Royal Decree-Law 7/1996 | 176,281 | 176,281 | 176,281 | ||||
Voluntary reserves | 672,232 | 1,046,670 | 1,277,638 | ||||
Consolidation reserves attributed to the Bank and dependents companies | 1,543,519 | 170,304 | (1,132,584 | ) | |||
Total | 3,628,984 | 2,172,158 | 745,134 | ||||
Summarized below are34.1. Legal reserve:
Under the revised Corporations Law, 10% of profit for each year must be transferred to the legal reserve until the balance sheets of this reserve reaches 20% of capital. This limit had already been reached by Banco Bilbao Vizcaya Argentaria, S.A. as of December 31, 2003, 2002 and 2001 and2006, after deliberation on the statements of2006 income forapplication proposal (Note 5). The legal reserve can be used to increase capital provided that the years ended December 31, 2003, 2002 and 2001.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
BALANCE SHEETS AS OF DECEMBER 31, 2003, 2002 AND 2001 (SUMMARIZED)
- Thousands of euros -
2003 | 2002 | 2001 | ||||
ASSETS | ||||||
CASH ON HAND AND DEPOSITS AT CENTRAL BANKS | 2,359,883 | 1,671,111 | 2,281,075 | |||
GOVERNMENT DEBT SECURITIES | 18,796,673 | 19,091,299 | 19,273,261 | |||
DUE FROM CREDIT INSTITUTIONS | 19,562,686 | 19,662,904 | 18,728,729 | |||
TOTAL NET LENDING | 110,880,263 | 100,687,471 | 99,509,141 | |||
DEBENTURES AND OTHER DEBT SECURITIES | 24,416,412 | 17,131,192 | 22,505,543 | |||
COMMON STOCKS AND OTHER EQUITY SECURITIES | 2,428,316 | 2,071,348 | 2,164,087 | |||
INVESTMENTS IN NON-GROUP COMPANIES | 3,583,687 | 4,357,296 | 4,306,431 | |||
INVESTMENTS IN GROUP COMPANIES | 7,778,436 | 8,699,420 | 8,814,491 | |||
INTANGIBLE ASSETS | 193,244 | 191,903 | 165,209 | |||
PROPERTY AND EQUIPMENT | 2,108,116 | 2,190,317 | 2,357,723 | |||
TREASURY STOCK | 56,071 | 97,555 | 7 | |||
OTHER ASSETS | 10,724,838 | 8,994,431 | 7,263,368 | |||
ACCRUAL ACCOUNTS | 1,426,032 | 3,314,007 | 5,497,436 | |||
TOTAL ASSETS | 204,314,657 | 188,160,254 | 192,866,501 | |||
MEMORANDUM ACCOUNTS | 81,584,665 | 78,116,151 | 77,512,135 | |||
LIABILITIES AND EQUITY | ||||||
DUE TO CREDIT INSTITUTIONS | 53,929,332 | 47,029,366 | 55,251,331 | |||
DEPOSITS | 101,419,493 | 98,472,990 | 96,615,730 | |||
MARKETABLE DEBT SECURITIES | 13,630,214 | 8,714,150 | 6,073,820 | |||
OTHER LIABILITIES | 9,539,682 | 7,381,866 | 6,029,952 | |||
ACCRUAL ACCOUNTS | 1,654,299 | 3,768,498 | 5,545,639 | |||
PROVISIONS FOR CONTINGENCIES AND EXPENSES | 3,736,487 | 3,064,754 | 2,788,484 | |||
GENERAL RISK ALLOWANCE | — | — | — | |||
INCOME FOR THE YEAR | 1,460,337 | 1,207,096 | 1,311,561 | |||
SUBORDINATED DEBT | 10,442,327 | 9,735,824 | 10,232,345 | |||
CAPITAL STOCK | 1,565,968 | 1,565,968 | 1,565,968 | |||
ADDITIONAL PAID-IN CAPITAL | 6,273,901 | 6,512,797 | 6,834,941 | |||
RESERVES | 486,336 | 530,664 | 440,449 | |||
REVALUATION RESERVES | 176,281 | 176,281 | 176,281 | |||
TOTAL LIABILITIES AND EQUITY | 204,314,657 | 188,160,254 | 192,866,501 | |||
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (SUMMARIZED)
- Thousands of euros -
(DEBIT) / CREDIT | |||||||||
2003 | 2002 | 2001 | |||||||
FINANCIAL REVENUES | 6,551,366 | 7,531,595 | 9,476,865 | ||||||
FINANCIAL EXPENSES | (3,602,152 | ) | (4,627,304 | ) | (6,675,315 | ) | |||
INCOME FROM EQUITIES PORTFOLIO | 667,465 | 1,283,859 | 1,400,194 | ||||||
NET INTEREST INCOME | 3,616,679 | 4,188,150 | 4,201,744 | ||||||
FEES COLLECTED | 1,509,043 | 1,532,072 | 1,386,039 | ||||||
FEES PAID | (275,990 | ) | (275,284 | ) | (290,044 | ) | |||
MARKET OPERATIONS | 366,454 | 362,923 | (71,877 | ) | |||||
GROSS OPERATING INCOME | 5,216,186 | 5,807,861 | 5,225,862 | ||||||
OTHER OPERATING INCOME | 2,127 | 14,673 | 8,306 | ||||||
GENERAL ADMINISTRATIVE EXPENSES | (2,675,825 | ) | (2,625,233 | ) | (2,684,797 | ) | |||
DEPRECIATION AND AMORTIZATION | (247,544 | ) | (257,964 | ) | (270,627 | ) | |||
OTHER OPERATING EXPENSES | (73,379 | ) | (87,795 | ) | (81,321 | ) | |||
NET OPERATING INCOME | 2,221,565 | 2,851,542 | 2,197,423 | ||||||
NET LOAN LOSS PROVISIONS | (548,266 | ) | (631,928 | ) | (531,856 | ) | |||
NET SECURITIES WRITEDOWNS | (369,942 | ) | (1,181,581 | ) | (976,812 | ) | |||
NET CHARGE TO GENERAL RISK ALLOWANCE | — | — | 1,439 | ||||||
EXTRAORDINARY INCOME | 825,743 | 582,816 | 998,855 | ||||||
EXTRAORDINARY LOSSES | (366,754 | ) | (389,544 | ) | (536,053 | ) | |||
PRE-TAX PROFIT | 1,762,346 | 1,231,305 | 1,152,996 | ||||||
CORPORATE INCOME TAX AND OTHER TAXES | (302,009 | ) | (24,209 | ) | 158,565 | ||||
NET INCOME (Note 5) | 1,460,337 | 1,207,096 | 1,311,561 | ||||||
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (SUMMARIZED)
- Thousands of euros -
2003 | 2002 | 2001 | |||||||
APPLICATION OF FUNDS | |||||||||
DIVIDENDS PAID | 1,112,156 | 1,255,970 | 1,102,572 | ||||||
NET PURCHASE OF TREASURY STOCK | — | 97,548 | 3,178 | ||||||
SUBORDINATED DEBT | — | 496,521 | 204,927 | ||||||
FINANCING, NET OF INVESTMENT, AT BANK OF SPAIN AND CREDIT AND SAVINGS INSTITUTIONS | — | 8,608,296 | — | ||||||
TOTAL NET LENDING | 10,756,330 | 1,802,746 | 8,156,795 | ||||||
DEBT SECURITIES | 6,978,027 | — | 5,872,794 | ||||||
SHORT-TERM EQUITY SECURITIES | 324,153 | 62,550 | 458,615 | ||||||
MARKETABLE SECURITIES | — | — | 785,762 | ||||||
ACQUISITION OF LONG-TERM INVESTMENTS - | |||||||||
Purchase of investments in Group and associated companies | 5,474,267 | 6,311,401 | 5,894,598 | ||||||
Additions to property and equipment and intangible assets | 355,522 | 399,968 | 485,799 | ||||||
5,829,789 | 6,711,369 | 6,380,397 | |||||||
TOTAL FUNDS APPLIED | 25,000,455 | 19,035,000 | 22,965,040 | ||||||
SOURCE OF FUNDS | |||||||||
FROM OPERATIONS: | |||||||||
Net income | 1,460,337 | 1,207,096 | 1,311,561 | ||||||
Add- | |||||||||
Depreciation and amortization | 344,338 | 329,335 | 270,627 | ||||||
Net provision for asset writedown and other special provisions | 1,182,798 | 2,404,260 | 1,667,620 | ||||||
Losses on sales of investments and fixed assets | 12,758 | 62,475 | 82,972 | ||||||
Less- | |||||||||
Gains on sales of investments and fixed assets | (668,477 | ) | (390,505 | ) | (821,205 | ) | |||
2,331,754 | 3,612,661 | 2,511,575 | |||||||
CAPITAL INCREASES | 136,880 | — | 104,056 | ||||||
NET SALE OF TREASURY STOCK | 41,484 | — | — | ||||||
SUBORDINATED DEBT | 706,503 | — | 2,626,376 | ||||||
FINANCING, NET OF INVESTMENT, AT BANK OF SPAIN AND CREDIT AND SAVINGS INSTITUTIONS | 6,267,516 | — | 10,306,688 | ||||||
DEPOSITS | 2,946,503 | 1,857,260 | 1,435,466 | ||||||
DEBT SECURITIES | — | 5,656,629 | — | ||||||
MARKETABLE SECURITIES | 4,916,064 | 2,640,330 | — | ||||||
SALE OF LONG-TERM INVESTMENTS- | |||||||||
Sale of investments in Group and associated companies | 7,056,294 | 4,807,104 | 5,166,983 | ||||||
Sale of property and equipment | 114,968 | 305,184 | 553,355 | ||||||
7,171,262 | 5,112,288 | 5,720,338 | |||||||
OTHER LIABILITY ITEMS LESS ASSET ITEMS | 482,489 | 155,832 | 260,541 | ||||||
TOTAL FUNDS OBTAINED | 25,000,455 | 19,035,000 | 22,965,040 | ||||||
The total assets and financial incomeremaining reserve balance does not fall below 10% of the most subsidiariesincreased capital amount.
Except as mentioned above, until the legal reserve exceeds 20% of the Group as of December 31, 2003, 2002 and 2001capital, it can only be used to offset losses, provided that sufficient other reserves are as follows:
COUNTRY | Thousands of Euros | |||||||||||||
2003 | 2002 | 2001 | ||||||||||||
Total Assets | Financial Income | Total Assets | Financial Income | Total Assets | Financial Income | |||||||||
BBVA Bancomer Group | Mexico | 48,239,259 | 3,812,987 | 60,061,343 | 5,070,718 | 71,079,719 | 7,472,793 | |||||||
BBVA Chile Group | Chile | 4,566,384 | 230,695 | 4,309,550 | 300,519 | 4,181,488 | 363,938 | |||||||
BBVA Puerto Rico Group | Puerto Rico | 4,231,283 | 216,615 | 4,802,885 | 289,157 | 5,415,486 | 383,764 | |||||||
BBVA Banco Francés Group | Argentina | 4,203,309 | 278,888 | 5,916,673 | 1,081,248 | 11,333,454 | 1,352,265 | |||||||
Provincial Group | Venezuela | 3,407,683 | 488,796 | 3,627,193 | 746,284 | 6,043,026 | 810,940 | |||||||
Continental Group | Peru | 2,936,889 | 171,985 | 3,510,614 | 204,232 | 3,740,783 | 272,926 | |||||||
BBVA Banco Ganadero Group | Colombia | 1,923,646 | 176,967 | 1,907,398 | 227,215 | 2,983,467 | 292,229 | |||||||
BBVA Brasil Group | Brazil | — | — | 4,020,841 | 1,218,811 | 6,390,255 | 761,669 |
The subsidiaries fully consolidated as of December 31, 2003, 2002 and 2001 which, based on the informationnot available were more than 5% owned by non-Group shareholders, were as follows:
for this purpose.
As of December 31, 2003:34.2. Restricted reserves:
As of December 31, 2002:
As of December 31, 2001:
As of December 31, 2002 and 2001, therePursuant to the Consolidated Spanish Companies Law, the respective restricted reserves were no Spanish or foreign credit institutions outside the Group with significant holdings in fully consolidated companies.
Based on the information available as of December 31, 2003, foreign credit institutions outside the Group held significant investments in the following fully consolidated companies:
The main changes in the consolidated Group and the situation as of December 31, 2003, were as follows:
BBVA-Bancomer Group (Mexico)-
Grupo Financiero BBV-Probursa, S.A. de C.V. and the companies in its group, including most notably Banco Bilbao Vizcaya Mexico, S.A., joined the Group in July 1995.
In the first half of 2000, it was resolved to merge Grupo Financiero BBV-Probursa, S.A. de C.V. and Grupo Financiero BBVA Bancomer, S.A. de C.V. (the holdings of which include most notably 100% of BBVA Bancomer, S.A. and 51% of Administradora de Fondos para el Retiro Bancomer, S.A. de C.V. (AFORE Bancomer). This merger was carried out in July 2000, after the Group subscribed in June to a capital increase of US$ 1,400 million at Grupo Financiero BBV-Probursa, S.A. de C.V.
The Group’s holding in Grupo Financiero BBVA Bancomer, S.A. de C.V. resulting from the merger, following open-market acquisitions of shares amounting to approximately US$ 325 million, stood at 36.6% as of December 31, 2000.
At the end of the year 2000 an agreement was reached with Bank of Montreal to acquire an additional 2.2% of Grupo Financiero BBVA Bancomer, S.A. de C.V. for approximately US$ 125 million, in a transaction which was performed in 2001. Also, on April 4, 2001, the Group reached an agreement with Bank of Montreal to purchase 9% of its holding in Grupo Financiero BBVA Bancomer, S.A. de C.V. (812 million shares) which signified an investment of US$ 558 million. The transaction was performed in two tranches: the first consisting of 500 million shares on April 5, 2001, raised the holding to 45%, and the second, consisting of 312 million shares, raised the holding in Grupo Financiero BBVA Bancomer, S.A. de C.V. to 48%. Also, in 2001 other acquisitions amounting to US$ 140 million were made, leaving the total holding in Grupo Financiero BBVA Bancomer S.A. de C.V. at 48.76% as of December 31, 2001. The increase in the total goodwill recorded in relation to Grupo Financiero BBVA Bancomer S.A. de C.V. in 2001 amounted to €739 million.
As partthe reduction of the placement of Grupo Financiero BBVA Bancomer S.A. de C.V. shares by the Government of Mexico in 2002, BBVA acquired approximately 276 million shares representing 3% of the entity’s capital stock for €240 million. Additionally, in November 2002 the Group acquired a further 2.5% holding in the capital stock of BBVA Bancomer for €175 million, thus raising the Bank’s ownership interest to 54.67% as of December 31, 2002. The increase in goodwill recorded in 2002 was €338,350 thousand (Note 13).
Lastly, in 2003 the Group made additional purchases of 4.76% of the capital stock of BBVA Bancomer for a total of €304 million, leaving the Bank’s holding at 59.43% as of December 31, 2003. The increase in goodwill recorded in 2003 was €160,615 thousand (Note 13).
BBVA Banco Francés (Argentina) (Note 3-o)-
In December 1996, the Group acquired 30% of BBVA Banco Francés, S.A. (formerly Banco Francés Río de la Plata, S.A.) and took on its management. From that date through December 31, 2001, additional acquisitions were made to increase the Group’s holding in this entity to the 68.25% as of December 31, 2001. The total cost of this holding was US$ 1,179 million. As of December 31, 2001, the Group amortized the unamortized goodwill as of that date relating to BBVA Banco Francés, which amounted to €144,405 thousand (Notes 3-g and 13).
On May 30, 2002, BBVA Banco Francés reached an agreement with the Argentine authorities to increase capital, for which BBVA would contribute the subordinated marketable debentures of BBVA Banco Francés held by it amounting to US$ 130 million and a financial loan granted to BBVA Banco Francés amounting to US$ 79 million (Note 3-o). The preemptive subscription period ended on December 26, 2002. In accordance with the issue terms, a total of 158.4 million new shares were issued, which increased the Bank’s capital stock to 368.1 million shares. The Group, as the majority shareholder, increased its ownership interest in the capital of BBVA Banco Francés, S.A. from 68.25% to 79.6% as a result of this capital increase. The resulting goodwill amounted to €34,786 thousand and was written off with a charge to the 2002 consolidated statement of income (Notes 3-o and 13).
As of December 31, 2003, the holding was 79.6%.
Consolidar Group (Argentina) (Note 3-o)-
The Consolidar Group joined the Group in October 1997, when a 63.33% ownership interest was reached through BBVA Banco Francés.
As of December 31, 2001, 2002 and 2003, the Group held all the capital stock of Consolidar Administradora de Fondos de Jubilación y Pensiones (AFJP), S.A., Consolidar Cía de Seguros de Vida, S.A. and Consolidar Seguros de Retiro, S.A. (through Banco Francés, in percentages of between 53.89% and 66.67%). As of December 31, 2001, the Group amortized extraordinarily the unamortized goodwill as of that date relating to Consolidar AFJP, which amounted to €109,030 thousand.
Banco Bilbao Vizcaya Argentaria Puerto Rico, S.A.-
In July 1998 BBV Puerto Rico absorbed PonceBank, an entity with total assets of US$ 1,095 million, through a capital increase of US$ 166 million. Also in 1998, BBV Puerto Rico acquired the assets and liabilities of Chase Manhattan Bank in Puerto Rico for a disbursement of US$ 50 million (Note 13).
In March 2000, Citibank’s automobile loan portfolio in Puerto Rico was acquired for a disbursement of US$ 31 million additional to the adjusted netpar value of the loans.
As of December 31, 2003, the holding was 100%.
BBVA Group (Chile)-
In September 1998, the Group acquired a 44% holdingeach share in BBVA Banco BHIF, S.A., currently BBVA Chile, S.A., and assumed the management of the group headed by this Chilean financial institution. In 1999 additional shares were acquired, bringing the Group’s total holding in this entity to 53.3% as of December 31, 1999. In SeptemberApril 2000, the Group completed the contribution of the capital subscribed in September 1998, with an amount of US$ 108 million, which brought the Group’s holding to 62.6% as of December 2000. As of December 2001, 2002 and 2003, the Group’s holding in BBVA Chile, S.A. was 62.89%, 66.098% and 66.27%, respectively.
AFP Provida, S.A. (Chile)-
On July 1, 1999, the Group acquired a 41.17% holding in, and assumed the management of, Administradora de Fondos de Pensiones Provida, S.A. This acquisition was undertaken through the issue of 19,780,108 newtreasury shares resolved by the Special Shareholders’ Meeting on June 30, 1999. These new shares were exchanged for all the shares of the companies that owned the aforementioned holding in AFP Provida, S.A. (Corp Group Pensions Ltd. and Brookline Investment Ltd.). Also, the Group made further investments in AFP Provida, mainly through the majority subscription to a capital increase carried out by this company in October 1999, which, together with the open-market acquisitions of US$ 11 million in 2001 and US$ 51 million in 2000, brought the Group’s holding as of December 31, 2003, 2002 and 2001, to 64.32%.
Provincial Group (Venezuela)-
In March 1997, the Group acquired 40% of the capital stock of Banco Provincial, S.A. and higher holdings in the other Provincial Group companies, thereby assuming management of the group. Additional acquisitions were made in subsequent years which raised the Bank’s holding in the Provincial Group to 54.98% as of December 31, 2001, 55.53% as of December 31, 2002 and to 55.59% as of December 31, 2003.
Continental Group (Peru)-
In April 1995, the Group acquired a 75% holding in the capital stock of Banco Continental, S.A. through Holding Continental, S.A. Subsequent acquisitions increased the ownership interest in Banco Continental to 81.78% as of December 31, 2001.
On November 26, 2002, BBVA, as the owner of 50% of the capital stock of the Peruvian company Holding Continental, S.A., subscribed to a capital increase at this entity amounting to US$ 10 million. This capital increase will be used to finance the tender offer to acquire the shares of Banco Continental which are not currently held by it (143,713,997 shares) at 1.59 soles per share. On November 27, 2002, Holding Continental, S.A. submitted this transaction to the Lima Stock Exchange and to the related National Companies and Securities Supervisory Commission. The tender offer resulted in the acquisition of 8.84% of the capital stock of Banco Continental. In 2002 Holding Continental and its subsidiaries held 91.51% of the aforementioned Bank. The holding in this company was increased to 92.01% in 2003.
BBVA Banco Ganadero Group (Colombia)-
In August 1996, the Group acquired 40% of the common stock (equal to 35.1% of the total capital) of Banco Ganadero, S.A. (currently BBVA Banco Ganadero, S.A.). In 2000 this entity carried out a major financial restructuring and strengthening process which included a capital increase of approximately US$ 254 million, substantially all of which was subscribed by the Group. This capital increase, together with various additional acquisitions resulting in US$ 14 million of disbursements, raised the Group’s holding in BBVA Banco Ganadero, S.A. to 85.56% as of December 31, 2000. On January 23, 2001, the Bank’s Board of Directors resolved to launch a tender offer to purchase all the shares of BBVA Banco Ganadero, S.A. The tender offer took place on April 9, 2001, and gave rise to a disbursement of US$ 44.4 million and increased the Group’s holding in BBVA Banco Ganadero, S.A. to 95.36%. This percentage of ownership was maintained as of December 31, 2002. As of December 31, 2003, the holding was 95.37%.
BBV Brasil Group-
In August 1998, the Group acquired control of Banco Excel Económico, S.A. (Banco Bilbao Vizcaya Argentaria Brasil, S.A.- BBV Brasil) and acquired substantially all its capital stock by subscribing the full amount of a capital increase carried out by the bank at each year-end, and the customer loans outstanding at those dates that were granted for US$ 853 million.the purchase of, or are secured by, Bank shares.
Pursuant to Law 46/1998 on the introduction of the euro, the respective restricted reserves were recorded in relation to the redenomination of capital in euros.
34.3. REVALUATION ROYAL DECREE-LAW 7/1996 (ASSETREVALUATIONS):
Prior to the merger, Banco de Bilbao, S.A. and Banco de Vizcaya, S.A. availed themselves of the asset revaluation provisions of the applicable enabling legislation. In addition, as part of the capitalization plan agreed upon with the Brazilian authorities, the Group placed a deposit at BBV Brasil amounting to US$ 700 million, convertible into capital in future years. US$ 31 million of this amount were converted in December 2000 and US$ 46 million were converted in 2001. In 2002 the remaining deposit amount (US$ 623 million) was converted into equity.
In 2002 the Group decided to reconsider the business model implemented in Brazil. As a result of the new approach, a strategic agreement was reached in that year with Banco Bradesco, S.A., which was executed on January 13, 2003. The main aspects of the agreement are as follows:
As of December 31, 2002,1996, the Group recordedBank revalued its tangible assets pursuant to Royal Decree-Law 7/1996 by applying the accounting effects of the agreement with a charge of €245,717 thousandmaximum coefficients authorized, up to the “Losses on Disposallimit of Investments in Fully and Proportionally Consolidated Companies” caption in the accompanying consolidated statement of income and a credit to the “Losses at Consolidated Companies Arising from Negative Exchange Differences on Consolidation” caption (Note 24) to eliminate, as required by Bank of Spain regulations, the accumulated negative exchange differences which were recorded against consolidation reserves and arose from the translation of the financial statements of BBV Brasil from the time of its acquisition. The aforementioned entry has no effect on the Group’s net worth. Also, a capital gain of €92,000 thousand was recorded with a credit to the aforementioned caption in the accompanying consolidated statement of income, and a charge to the “Other Assets” caption in the accompanying consolidated balance sheet. Finally, a specific provision of €34,719 thousand was recorded with a charge to the “Extraordinary Losses” caption in the consolidated statement of income (Note 28-g) equal to the theoretical goodwill of the shares of Banco Bradesco, S.A. mentioned above.
Once the related due diligence reviews were completed and the necessary regulators’ approval had been obtained, the agreement was executed on June 9, 2003.
Banco de Crédito Local, S.A.-
At the end of 2000 an agreement was entered into with the Dexia Group to terminate the strategic alliance for the institutional business which Argentaria had with that group. The agreement included the purchase by BBVA of the 40% of Banco de Crédito Local, S.A., owned by the Dexia Group since 1998, which was performed in January 2001 and gave rise to the disbursement of €429,435 thousand, generating goodwill of €298,037 thousand (Note 13).
As of December 31, 2003, the holding was 100%.
Variations in the Group in 2003-
The most significant transactions in 2003 were as follows:
The above mentioned increase of capital integrates the Consumer’s Lending Business in Unoe Bank, S.A. and as a result of the referred capital increase, BBVA Group and TERRA hold stakes in Uno-e Bank S.A. share capital of 67% and 33%, respectively.
BBVA entered into an agreement with Terra Networks which gives Terra Networks a liquidity mechanism over its shares in the merger entity, that replaces the liquidity mechanism signed on May 15, 2002. The liquidity mechanism provides Terra Networks the right to sell its stake to BBVA between April 1, 2005 and September 30, 2007 at a price equal to the higher of (i) the market value ofarising from the securities as determined by an investment bank, and (ii) the amount obtained by multiplying (a) the after-tax profits of Uno-e Bank, by (b) BBVA’s price/earnings ratio, by (c) the percentage holding in Uno-e Bank that Terra Networks intends to sell. However, in no event can the sale price under (i) or (ii) above be less than €148.5 million if Uno-e Bank does not achieve certain net ordinary revenue and pre-tax income targets. Management estimates that this liquidity mechanism will not have a material impact on the earnings of the Group.
Variationsexisting measurements. The resulting increases in the Group in 2002-
The most noteworthy transactions in 2002 were as follows:
Variationscost and accumulated depreciation of tangible assets and, where appropriate, in the Group in 2001-
In 2001 the Group obtained income of €31,319 thousand from the sale of holdings. The most noteworthy of these transactions were as follows:
(5) DISTRIBUTION OF INCOME
In 2003, the Board of Directors of Banco Bilbao Vizcaya Argentaria, S.A. resolved to pay the shareholders three interim dividends out of 2003 income, amounting to a total of €0.27 gross per share. The aggregate amount of the interim dividends declared as of December 31, 2003, net of the amount collected and to be collected by the consolidable Group companies, was €859,896 thousand and is recorded under the “Other Assets” caption in the
related consolidated balance sheet (Note 15). The last of the aforementioned interim dividends, which amounts to €0.09 gross per share, paid to the shareholders on January 12, 2004, and was recorded under the “Other Liabilities – Payment Obligations” caption in the accompanying consolidated balance sheet as of December 31, 2003 (Note 15).
The projected 2003 accounting statements prepared by Banco Bilbao Vizcaya Argentaria, S.A. in accordance with legal requirements, disclosing the existence of sufficient liquidity for distribution of the interim dividends, were as follows:
Thousands of Euros | ||||||||
05-31-03 | 08-31-03 | 11-30-03 | ||||||
First | Second | Third | ||||||
Interim dividend- | ||||||||
Income at each of the stated dates, after the provision for corporate income tax | 463,187 | 1,090,843 | 1,427,397 | |||||
Less- | ||||||||
Interim dividends distributed | — | (287,627 | ) | (575,254 | ) | |||
Maximum amount of possible distribution | 463,187 | 803,216 | 852,143 | |||||
Proposed amount of interim dividend | 287,627 | 287,627 | 287,626 | |||||
The Bank’s Board of Directors will propose to the Shareholders’ Meeting that a final dividend of €0.114 per share be paid out of 2003 income. Based on the number of shares representing the capital stock as of December 31, 2003 (Note 23), the final dividend would amount to €364,327 thousand and income would be distributed as follows:
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Notwithstanding the above, at its meeting on February 3, 2004, at which these consolidated financial statements were prepared, the Board of Directors of BBVA resolved, inter alia, to increase capital by a nominal amount of €95,550,000 through the issuance of 195,000,000 ordinary shares of €0.49 par value each, of the same class and series, traded by the book-entry trading system. Article 161.1 of the Spanish Corporations Law provides for the possibility of the capital increase not being fully subscribed (Note 32).
The new shares will entitle their owners to share in any distribution of dividends paid after the capital increase is registered in Iberclear’s accounting records, and in assets in the event of liquidation. As regards the dividend to be paid out of 2003 income, holders of the new shares will only be entitled to receive the amount of any final dividend, if any, that the Shareholders’ Meeting resolves to declare, if the shares are issued prior to the date of this Shareholders’ Meeting. If the capital increase has been subscribed and paid as of the date of the Shareholders’ Meeting, the proposed distribution of income shown above will be adjusted on the basis of the new shares issued so that the amount earmarked for dividends is increased by the amount necessary for the final 2003 dividend on all the shares issued and subscribed to be €0.114 per share, and that amount, up to a limit of €22,230 thousand, will be subtracted from the amount initially assigned to “Voluntary Reserves”, as shown in the foregoing table, based on the maximum number of shares shown above.
(6) GOVERNMENT DEBT SECURITIES
The balances of this caption in the accompanying consolidated balance sheets are made up as follows:
Thousands of Euros | ||||||||||||||
2003 | 2002 | 2001 | ||||||||||||
Book Value | Market Value | Book Value | Market Value | Book Value | Market Value | |||||||||
Fixed-income portfolio: | ||||||||||||||
Held-to-maturity portfolio- | ||||||||||||||
Listed government debt securities | 613,946 | 652,625 | 1,880,783 | 1,983,010 | 2,271,905 | 2,381,703 | ||||||||
Available-for-sale portfolio- | ||||||||||||||
Treasury bills | 601,300 | 601,101 | 1,145,563 | 1,146,566 | 6,502,073 | 6,526,390 | ||||||||
Other listed book-entry debt securities | 12,092,631 | 12,275,181 | 9,243,858 | 9,538,272 | 8,914,018 | 9,088,884 | ||||||||
Other listed securities | 21,562 | 21,651 | 24,784 | 27,219 | 75,433 | 79,514 | ||||||||
12,715,493 | 12,897,933 | 10,414,205 | 10,712,057 | 15,491,524 | 15,694,788 | |||||||||
Less- | ||||||||||||||
Securities revaluation reserve (Note 2-f) | — | — | (34 | ) | — | (6 | ) | — | ||||||
12,715,493 | 12,897,933 | 10,414,171 | 10,712,057 | 15,491,518 | 15,694,788 | |||||||||
Trading portfolio- | ||||||||||||||
Treasury bills | 4,804,191 | 4,804,191 | 4,697,945 | 4,697,945 | 3,113 | 3,113 | ||||||||
Other book-entry debt securities | 811,373 | 811,373 | 2,774,877 | 2,774,877 | 2,398,833 | 2,398,833 | ||||||||
5,615,564 | 5,615,564 | 7,472,822 | 7,472,822 | 2,401,946 | 2,401,946 | |||||||||
18,945,003 | 19,166,122 | 19,767,776 | 20,167,889 | 20,165,369 | 20,478,437 | |||||||||
In 2003, 2002 and 2001, securities amounting to €717,080 thousand, €1,811,502 thousand and €3,106,078 thousand, respectively, were transferred from the trading portfolio to the available-for-sale portfolio at market prices.
The acquisition cost of equity securities, assigned to the trading portfolio amounted to €5,610,704 thousand, €7,378,856 thousand and €2,403,315 thousand as of December 31, 2003, 2002 and 2001, respectively.
The variations in 2003, 2002 and 2001 in the balance of this caption in the accompanying consolidated balance sheet were allocated as follows:
Thousands of | |||
| |||
| |||
| |||
Cost | 186,692 | ||
Less - | |||
Single revaluation tax (3%) | ( | ) | |
| 181,091 | ||
Adjustment as a result of review by the tax authorities in 2000 | ( | ) | |
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The average annual interest rate on Treasury bills in 2003 was 2.11% (2.82% in 2002 and 4.58% in 2001). AsFollowing the review of December 31, 2003, 2002 and 2001, €5,282,381 thousand, €5,991,369 thousand and €5,316,944 thousand, respectively (effective amount),the balance of these assets and of those acquired under resale agreement from credit institutions (Note 7) and from customers (Note 8) had been sold under repurchase agreementthe account Revaluation Reserve Royal Decree-Law 7/1996 by the Grouptax authorities in 2000, this balance can only be used, free of tax, to other financial intermediaries (Note 17)offset recorded losses and to customers (Note 18).increase capital until January 1, 2007. From that date, the remaining balance of this account can also be taken to unrestricted reserves, provided that the surplus has been depreciated or the revalue assets have been transferred or derecognised. If this balance were used in a manner other than that described above, it would be subject to tax.
The nominal interest rates on listed government debt securities ranged from 10.15% to 3.20% at 2003 year end (from 10.9% to 3.25% at 2002 year end and from 11.37% to 3% at 2001 year end). As of December 31, 2003, 2002 and 2001, €17,980,643 thousand, €15,185,661 thousand and €15,864,021 thousand (effective amount) respectively of these securities and of those acquired under resale agreement from credit institutions (Note 7) and from customers (Note 8) had been sold under repurchase agreement by the Group to the Bank of Spain and other financial intermediaries (Note 17) and to customers (Note 18).
34.4 RESERVESANDLOSSESATCONSOLIDATEDCOMPANIES:
The breakdown, of this caption, by maturity, as of December 31, 2003, 2002 and 2001, disregarding the securities revaluation reserve, is as follows:
Thousands of Euros | ||||||||
Up to 3 Months | 3 Months to 1 Year | 1 to 5 Years | Over 5 Years | |||||
Balances at December 31, 2003- | ||||||||
Fixed-income portfolio: | ||||||||
Held-to-maturity portfolio | — | — | — | 613,946 | ||||
Available-for-sale portfolio | 15,775 | 1,652,458 | 9,367,609 | 1,679,651 | ||||
Trading portfolio | 773,089 | 2,860,267 | 1,571,849 | 410,359 | ||||
788,864 | 4,512,725 | 10,939,458 | 2,703,956 | |||||
Balances at December 31, 2002- | ||||||||
Fixed-income portfolio: | ||||||||
Held-to-maturity portfolio | — | 1,264,802 | — | 615,981 | ||||
Available-for-sale portfolio | 1,492,066 | 2,478,865 | 4,926,042 | 1,517,232 | ||||
Trading portfolio | 520,045 | 3,018,011 | 2,423,940 | 1,510,826 | ||||
2,012,111 | 6,761,678 | 7,349,982 | 3,644,039 | |||||
Balances at December 31, 2001- | ||||||||
Fixed-income portfolio: | ||||||||
Held-to-maturity portfolio | 376,515 | — | 1,277,361 | 618,029 | ||||
Available-for-sale portfolio | 1,329,025 | 3,069,565 | 6,426,546 | 4,666,388 | ||||
Trading portfolio | 581,161 | 184,457 | 634,885 | 1,001,443 | ||||
2,286,701 | 3,254,022 | 8,338,792 | 6,285,860 | |||||
(7) DUE FROM CREDIT INSTITUTIONS
The breakdowncompany or corporate group, of the balances of this caption in the accompanying consolidated balance sheets, by currency and type, is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
By currency: | |||||||||
In euros | 9,002,257 | 6,752,842 | 8,752,036 | ||||||
In foreign currencies | 11,904,872 | 14,723,437 | 14,446,720 | ||||||
20,907,129 | 21,476,279 | 23,198,756 | |||||||
By type: | |||||||||
Current accounts- | |||||||||
Current accounts | 237,564 | 348,420 | 284,784 | ||||||
Other accounts | 406,423 | 1,029,288 | 2,358,426 | ||||||
643,987 | 1,377,708 | 2,643,210 | |||||||
Other- | |||||||||
Deposits at credit and financial institutions | 8,462,098 | 11,169,447 | 9,647,849 | ||||||
Assets acquired under resale agreement (Notes 6, 8, 17 and 18) | 10,659,685 | 8,301,701 | 10,694,548 | ||||||
Other accounts | 1,312,599 | 750,210 | 351,682 | ||||||
20,434,382 | 20,221,358 | 20,694,079 | |||||||
Less- | |||||||||
Loan loss provisions (Notes 2-f, 3-c and 8) | (5,582 | ) | (5,439 | ) | (34,714 | ) | |||
Country-risk provisions (Notes 2-f, 3-c and 8) | (165,658 | ) | (117,348 | ) | (103,819 | ) | |||
20,907,129 | 21,476,279 | 23,198,756 | |||||||
As of December 31, 2003, 2002 and 2001, the foregoing “Country-Risk Provisions” account included €162,321 thousand, €93,322 thousand and €98,548 thousand, respectively, relating to provisions recorded to cover intercompany country-risk positions at credit institutions (Notes 2-c and 3-c).
The detail, by maturity, of the balances of the “Due from Credit Institutions - Other” caption (except for “Other Accounts”) in the accompanying consolidated balance sheets, disregarding the loan loss and country risk provisions, and the average interest rates for each year are as follows:
Thousands of Euros | Average Interest Rate in the Year | ||||||||||
Up to 3 Months | 3 Months to 1 Year | 1 to 5 Years | Over 5 Years | ||||||||
Balances at December 31, 2003- | |||||||||||
Deposits at credit and financial institutions | 7,118,241 | 863,375 | 356,845 | 123,637 | 4.9 | % | |||||
Assets acquired under resale agreement | 10,576,517 | 83,168 | — | — | 4.6 | % | |||||
17,694,758 | 946,543 | 356,845 | 123,637 | ||||||||
Balances at December 31, 2002- | |||||||||||
Deposits at credit and financial institutions | 10,205,195 | 842,615 | 75,910 | 45,727 | 4.2 | % | |||||
Assets acquired under resale agreement | 4,664,761 | 1,623,713 | 2,013,134 | 93 | 6.6 | % | |||||
14,869,956 | 2,466,328 | 2,089,044 | 45,820 | ||||||||
Balances at December 31, 2001- | |||||||||||
Deposits at credit and financial institutions | 7,464,116 | 1,908,679 | 217,918 | 57,136 | 5.3 | % | |||||
Assets acquired under resale agreement | 10,574,970 | 119,578 | — | — | 5.4 | % | |||||
18,039,086 | 2,028,257 | 217,918 | 57,136 | ||||||||
(8) TOTAL NET LENDING
The detail, by currency and borrower sector, of the balances of this captionthese headings in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
By currency: | |||||||||
In euros | 120,152,594 | 106,589,553 | 98,982,084 | ||||||
In foreign currencies | 28,674,680 | 34,725,459 | 51,237,736 | ||||||
148,827,274 | 141,315,012 | 150,219,820 | |||||||
By sector: | |||||||||
Public sector | 13,403,575 | 12,561,840 | 12,195,701 | ||||||
Agriculture | 1,056,589 | 698,161 | 533,339 | ||||||
Industrial | 11,991,104 | 11,970,286 | 11,377,851 | ||||||
Real estate and construction | 14,823,377 | 13,651,669 | 12,767,362 | ||||||
Trade and finance | 12,742,051 | 9,336,199 | 8,676,667 | ||||||
Loans to individuals | 44,159,656 | 38,514,900 | 36,105,108 | ||||||
Lease | 4,159,904 | 3,216,394 | 2,684,525 | ||||||
Other | 13,332,683 | 12,923,030 | 10,899,947 | ||||||
Total resident borrowers | 115,668,939 | 102,872,479 | 95,240,500 | ||||||
Non-resident sector | 37,601,874 | 43,540,228 | 60,907,023 | ||||||
Europe | 8,266,581 | 7,453,873 | 8,636,490 | ||||||
USA | 3,126,236 | 772,262 | 1,052,007 | ||||||
Latin America | 25,070,254 | 31,335,166 | 46,382,514 | ||||||
Other countries | 1,138,803 | 3,978,927 | 4,836,012 | ||||||
Less- | |||||||||
Loan loss provisions (Notes 2-f and 3-c) | (4,001,896 | ) | (4,771,009 | ) | (5,715,979 | ) | |||
Country-risk provisions (Notes 2-f and 3-c) | (441,643 | ) | (326,686 | ) | (211,724 | ) | |||
148,827,274 | 141,315,012 | 150,219,820 | |||||||
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Fully and proportionately consolidated companies | 6,926,696 | 5,382,488 | 4,102,068 | ||||||
Grupo BBVA Bancomer | 2,911,082 | 2,228,304 | 1,752,690 | ||||||
Grupo BBVA Cotinental | 94,727 | 84,936 | 66,868 | ||||||
Grupo Provida | 259,236 | 231,836 | 235,555 | ||||||
Grupo BBVA Colombia | 235,725 | 181,438 | 159,783 | ||||||
Grupo BBVA Banco Francés | 578,527 | 367,701 | 338,750 | ||||||
Grupo BBVA Chile | 3,398 | (2,849 | ) | 1,439 | |||||
Grupo BBVA Banco Provincial | 199,074 | 146,566 | 102,756 | ||||||
Grupo Laredo | (12,971 | ) | — | — | |||||
Grupo BBVA Uruguay, S.A. | (2,615 | ) | (464 | ) | 2,538 | ||||
BBVA International Investment Corporation | (425,719 | ) | (432,772 | ) | (423,816 | ) | |||
Banc Internacional d’Andorra, S.A. | — | 141,733 | 103,257 | ||||||
Ancla Investments S.A. | — | 10,850 | 5,813 | ||||||
Grupo BBVA Portugal, S.A. | (105,362 | ) | (100,472 | ) | (106,397 | ) | |||
Grupo BBVA Puerto Rico | 205,161 | 183,272 | 168,651 | ||||||
BBVA Suiza (BBVA Switzerland) | 171,366 | 145,860 | 121,679 | ||||||
BBVA Seguros, S.A. | 485,794 | 230,428 | 70,024 | ||||||
Banco de Promoción de Negocios | 16,580 | 16,649 | 16,584 | ||||||
Finanzia, Banco de Crédito, S.A. | 105,673 | 71,880 | 61,212 | ||||||
Banco Industrial de Bilbao, S.A. | 31,982 | 87,067 | 85,101 | ||||||
Banco Depositario BBVA | (6,987 | ) | (12,907 | ) | (17,553 | ) | |||
BBVA Trade, S.A. | 19,283 | 14,793 | 6,740 | ||||||
BBVA Gestión, SGIIC., S.A. | (1,777 | ) | 8,223 | 16,137 |
BBVA Privanza Bank (Jersey), Ltd. BBVA Luxinvest, S.A. Cía. de Cartera e Inversiones, S.A. Corporación General Financiera, S.A. Corporación Industrial y Servicios, S.L. Cidessa UNO, S.L. BBVA Ireland, P.L.C. Bilbao Vizcaya América, B.V. BBVA Cartera de Inversiones, S.I.C.A.V., S.A. Anida Grupo Inmobiliario BBVA Pensiones, S.A. Compañía Chilena de Inversiones, S.L. BBVA Puerto Rico Holding Corporation SEAF, Sociedad de Estudios y Análisis Financieros, S.A. BBV América, S.L. Bilbao Vizcaya Holding, S.A. BBVA Renting, S.A. BBVA Factoring E.F.C., S.A. BBVA Patrimonios Gestora, SGIIC,S.A. Almacenes generales de Depósitos, S.A.E. DE Banco de Crédito Local, S.A. BBVA Participaciones Internacional, S.L. Anida Desarrollos Inmobiliarios, S.L. Ibertrade, Ltd. Other For using the equity method: Onexa, S.A. de C.V. Banca Nazionale del Lavoro, S.p.A. Corporación IBV Participaciones Empresariales, S.A. Part. Servired, Sdad. Civil Tubos Reunidos, S.A. Other Total 75,720 66,957 64,787 932,453 699,585 688,489 (34,360 ) 238,309 44,361 605,683 458,307 393,429 1,663 27,948 110,150 213,198 67,362 71,002 73,873 71,071 61,917 (230,645 ) (266,936 ) (217,321 ) 60,239 58,220 56,405 212,688 189,292 184,575 13,157 13,139 (53,619 ) (61,592 ) (61,423 ) (68,710 ) (165,328 ) (165,288 ) (165,264 ) 69,012 59,648 59,129 228,071 247,958 161,748 34,526 24,096 9,269 59,946 49,557 38,715 59,355 44,576 33,441 27,813 19,447 10,609 83,174 82,195 26,175 (269,090 ) (263,601 ) (267,153 ) 46,461 42,829 37,726 56,254 22,427 (37,731 ) (28,767 ) (53,960 ) (41,948 ) 101,015 108,701 134,076 223,329 238,915 300,941 — (324 ) (21,006 ) — (124,882 ) 66,084 176,131 298,098 197,603 8,273 8,308 7,946 54,519 49,653 47,964 (15,594 ) 8,062 2,350 7,150,025 5,621,403 4,403,009
The detail, by maturity, loan typeFor the purpose of allocating the reserves and status, of this caption in the accompanyingaccumulated losses at consolidated balance sheets, disregarding the balance of the “Loan Loss Provisions” and “Country-Risk Provisions” accountscompanies shown in the foregoing detail, istable, the transfers of reserves arising from the dividends paid and the writedowns or transactions between these companies are taken into account in the period in which they took place.
In the individual financial statements of the subsidiaries giving rise to the balances recorded under the “Reserves and Losses at Consolidated Companies—Fully and Proportionately Consolidated Companies” shown in the foregoing table, as follows:of December 31, 2006, 2005 and 2004, €1,743,236 thousand, €1,556,797 thousand and €1,162,989 thousand were treated as restricted reserves, all of which are reflected as restricted reserves for Parent Company shares.
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
By maturity: | ||||||
Up to 3 months | 35,213,097 | 39,559,494 | 45,470,250 | |||
3 months to 1 year | 27,869,528 | 22,308,438 | 25,519,364 | |||
1 to 5 years | 37,875,262 | 37,365,648 | 34,911,609 | |||
Over 5 years | 52,312,926 | 47,179,127 | 50,246,300 | |||
153,270,813 | 146,412,707 | 156,147,523 | ||||
By loan type and status: | ||||||
Commercial bills | 9,649,948 | 9,326,491 | 11,051,537 | |||
Financial bills | 34,261 | 29,154 | 55,931 | |||
Secured loans | 64,008,734 | 57,590,451 | 56,485,533 | |||
Assets acquired under resale agreement (Notes 6, 7, 17 and 18) | 1,826,238 | 318,107 | 406,782 | |||
Other term loans | 64,335,445 | 66,332,030 | 74,465,447 | |||
Demand and other loans | 5,969,772 | 5,303,066 | 7,350,174 | |||
Financial leases | 4,773,894 | 4,040,129 | 3,657,087 | |||
Nonperforming loans | 2,672,521 | 3,473,279 | 2,675,032 | |||
153,270,813 | 146,412,707 | 156,147,523 | ||||
In 2006, 2005 and 2004 the Group companies performed the following transactions involving Bank shares:
Balance as of January 1, 2004 + Purchases - Sales +/- Other - Derivatives over BBVA shares Balance as of December 31, 2004 + Purchases - Sales +/- Other - Derivatives over BBVA shares Balance as of December 31, 2005 + Purchases - Sales +/- Other - Derivatives over BBVA shares Balance as of December 31, 2006 Number of
shares Thousands
of Euros 7,493,411 82,001 277,652,703 3,213,465 (282,272,150 ) (3,266,937 ) — 7,853 — (536 ) 2,873,964 35,846 279,496,037 3,839,510 (274,760,734 ) (3,756,669 ) — (5,976 ) — (16,390 ) 7,609,267 96,321 338,017,080 5,677,431 (337,319,748 ) (5,639,506 ) (394 ) (1,361 ) — 14,373 8,306,205 147,258
The average purchase price of the Bank’s shares in 2006 was €16.80 per share and the average selling price of the Bank’s shares in 2006 was €16.77 per share.
The variationsnet gains or losses on transactions with shares issued by the Bank were recognised in 2003, 2002 and 2001 inequity under the balanceheading “Stockholders’ Equity-Reserves” of the “Nonperforming Loans” caption included under this heading in the accompanying consolidated balance sheets were as follows:
Thousand of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 3,473,279 | 2,675,032 | 2,798,861 | ||||||
Additions | 2,394,975 | 4,275,505 | 3,830,127 | ||||||
Recoveries | (1,632,605 | ) | (1,773,530 | ) | (2,108,562 | ) | |||
Transfers to bad debts | (1,252,221 | ) | (889,913 | ) | (1,845,394 | ) | |||
Exchange differences and other | (310,907 | ) | (813,815 | ) | — | ||||
Ending balance | 2,672,521 | 3,473,279 | 2,675,032 | ||||||
sheet. As of December 31, 2003, 2002 and 2001,2006, the face amount of the assets, basically loans, credits and securities pledged as security for own and third-party obligations,gains on transactions involving treasury shares amounted to €17,367,909 thousand, €18,190,848 thousand€17,131 thousand.
The Bank and €11,200,566 thousand, respectively,certain consolidated instrumentality companies held 8,306,205, 7,609,267 and related basically to the pledge of certain assets as security for financing facilities with the Bank of Spain (Note 17) and to a portion of the assets assigned to mortgage bond issues which, pursuant to the Mortgage Market Law are admitted as security for obligations to third parties.
As of December 31, 2003, 2002 and 2001, there were no loans to customers without fixed maturity dates.
As of December 31, 2003, 2002 and 2001, €2,586,891 thousand, €2,910,899 thousand and €3,328,692 thousand, respectively, of loans were transferred to securitization funds.
Assets under financial lease contracts are reflected in the “Financial Leases” account in the foregoing detail at the principal amount of the unmatured lease payments, plus the residual value applicable for purchase option purposes, excluding financial charges and VAT.
As of December 31, 2003, 2002 and 2001, the outstanding amounts of the loans granted to employees and customers for the acquisition of2,873,964 shares of Banco Bilbao Vizcaya Argentaria S.A. were €13,269 thousand, €17,286 thousand and €107,605 thousand, respectively.
The advances and loans granted to Bank directors as of December 31, 2003, 20022006, 2005 and 2001, totaled € 261 thousand, €1,099 thousand2004, respectively, representing 0.234%, 0.2244% and €6,091 thousand, respectively,0.0848% of share capital outstanding in 2006, 2005 and earned annual interest2004, respectively. The carrying amount of these shares was €147 million, €96 million and €36 million as of December 31, 2006, 2005 and 2004, respectively. In 2006 the Group’s treasury shares ranged between 4%a minimum of 0.020% and 5%a maximum of 0.858% of share capital (between 0.07% and 0.66% in 2005 and between 0.08% and 0.58% in 2004).
DATE | ENTITY | Number of Shares | % CAPITAL | ||||
BBVA | 2,462,171 | 0.069 | % | ||||
Corporación General Financiera | 5,827,394 | 0.164 | % | ||||
Other | 16,640 | 0.000 | % | ||||
December 31, 2006 | Total | 8,306,205 | 0.234 | % | |||
BBVA | 3,099,470 | 0.091 | % | ||||
Corporación General Financiera | 4,420,015 | 0.130 | % | ||||
Other | 89,782 | 0.003 | % | ||||
December 31, 2005 | Total | 7,609,267 | 0.224 | % | |||
BBVA | 654,051 | 0.193 | % | ||||
Corporación General Financiera | 2,208,628 | 0.065 | % | ||||
Other | 11,285 | 0.000 | % | ||||
December 31, 2004 | Total | 2,873,964 | 0.258 | % | |||
Bank of Spain Circular 5/1993, of March 26, as amended by Bank of Spain Circular 2/2006, of June 30, implementing Law 13/1992, of June 1, on the capital and supervision on a consolidated basis of financial institutions, stipulates that consolidable groups of credit institutions must at all times have a capital ratio of no less than 8% of the weighted credit risk of their assets and liabilities, commitments and other memorandum items, and of no less than 8% of the exchange risk exposure of their net global foreign currency positions and of their weighted held-for-trading and derivatives positions.
The amounts used to calculate the capital ratio are as follows:
Millions of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Basic equity | 18,313 | 15,352 | 14,329 | ||||||
Additional equity | 12,344 | 7,520 | 6,726 | ||||||
Other deductions | (1,223 | ) | (2,023 | ) | (940 | ) | |||
Additional Capital due to mixed Group | 980 | 1,048 | 4 | ||||||
Total Equity | 30,414 | 21,897 | 20,119 | ||||||
Minimum equity required | 21,047 | 18,420 | 15,495 | ||||||
A) CONSOLIDATED TAX GROUP
Pursuant to current legislation, the Consolidated Tax Group includes Banco Bilbao Vizcaya Argentaria, S.A., as the Parent company, and the Spanish subsidiaries that meet the requirements provided for in Spanish legislation regulating the taxation of the consolidated income of corporate groups.
The Group’s other banks and subsidiaries file individual tax returns in accordance with the tax legislation in force in each country.
B) YEARSOPENFORREVIEWBYTHETAXAUTHORITIES
As of December 31, 2002, no guarantees2006, 2005 and 2004, the Consolidated Tax Group had 2001 and subsequent years open for review by the tax authorities for the main taxes applicable to it.
In general, the other Spanish consolidated companies, except for those at which the statute-of-limitations year has been providedinterrupted by the commencement of a tax audit, have the last four years open for review by the tax authorities for the main taxes applicable to them. As
In 2005, as a result of December 31,the tax audit conducted by the tax authorities, tax assessments were issued against several Group companies for the years up to and including 2000, some of which were signed on a contested basis. After considering the temporary nature of certain of the items assessed, the amounts, if any, that might arise from these assessments were provisioned in full in at 2006 year-end.
Also, in 2005 and 2006, notification was received of the commencement of tax audits for 2001 to 2003 for the guarantees provided for directors amountedmain taxes to €142 thousand.which the Tax Group is subject. These tax audits had not been completed at 2006 year-end.
In view of the varying interpretations that can be made of the applicable tax legislation, the outcome of the tax audits of the open years that could be conducted by the tax authorities in the future could give rise to contingent tax liabilities which cannot be objectively quantified at the present time. However, the Banks’ Board of Directors and its tax advisers consider that the possibility of these contingent liabilities becoming actual liabilities is remote and, in any case, the tax charge which might arise there from would not materially affect the Group’s consolidated financial statements.
C) RECONCILIATION
The variations in 2003, 2002 and 2001 in the overall balancereconciliation of the “Loan Loss Provisions” and “Country-Risk Provisions” accounts incorporation tax expense resulting from the above detail andapplication of the provisions allocatedstandard tax rate to credit institutions (Note 7) and to fixed-income securities (Note 9) were as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 5,345,883 | 6,320,008 | 8,155,054 | ||||||
Net charge for the year: | |||||||||
Nonperforming loan provision | 1,401,414 | 1,889,927 | 2,216,479 | ||||||
Country-risk provision (Note 2-c) | 258,762 | 286,195 | 77,146 | ||||||
Reversals | (317,130 | ) | (433,964 | ) | (293,588 | ) | |||
1,343,046 | 1,742,158 | 2,000,037 | |||||||
Variations in the consolidable Group (Note 4) | (75,389 | ) | (1,861 | ) | 11,942 | ||||
Transfer from (to) loan writeoffs | (1,062,758 | ) | (1,333,611 | ) | (1,872,345 | ) | |||
Transfer to foreclosed asset provisions (Note 14) | (11,410 | ) | (8,156 | ) | (8,105 | ) | |||
Other variations: | |||||||||
Exchange differences | (710,514 | ) | (1,441,192 | ) | 715,277 | ||||
Use of the specific FOBAPROA promissory note Fund | — | — | (3,259,265 | ) | |||||
Transfer to provision for off-balance-sheet risks (Note 20) | 62,275 | (86,278 | ) | (38,664 | ) | ||||
Provision recorded for the exchange of fixed-income securities for secured loans in Argentina (Note 3-o) (*) | — | — | 434,874 | ||||||
Other | (155,248 | ) | 154,815 | 181,203 | |||||
Ending balance | 4,735,885 | 5,345,883 | 6,320,008 | ||||||
The €227,179 thousand, €207,677 thousand and €287,735 thousand of written-off loans recovered in 2003, 2002 and 2001, respectively are presented net of the balances of the “Net Loan Loss Provisions” caption in the accompanying consolidated statements of income. This caption also includes the write offs of loans classified as bad debts, which amounted to €161,079 thousand in 2003, €208,857 thousand in 2002 and €206,928 thousand in 2001.
The detail of the total risk exposure as of December 31, 2003, 2002 and 2001, to third parties outside the Group in countries experiencing differing degrees of debt-servicing difficulty (country-risk) and of the provisions recorded for coverage thereof, which are included in the loan loss provisions (Note 3-c),corporation tax expense recognised is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Country-risk | 926,700 | 1,046,687 | 1,404,722 | ||||||
Provision recorded (*) | 613,140 | 482,719 | 493,942 | ||||||
% of coverage | 66.2 | % | 46.1 | % | 35.2 | % |
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Corporation tax at 35% | 2,460,618 | 1,957,114 | 1,447,894 | ||||||
Decreases due to permanent differences: | |||||||||
Tax credits and tax relief at consolidated Companies | (352,679 | ) | (360,446 | ) | (501,273 | ) | |||
Other items net | (150,611 | ) | 10,837 | 250,572 | |||||
Net increases (decreases) due to temporary differences | (38,047 | ) | (263,481 | ) | 80,231 | ||||
Charge for income tax and other taxes | 1,919,281 | 1,344,024 | 1,277,424 | ||||||
Deferred tax assets and liabilities recorded (utilised) | 38,047 | 263,481 | (80,231 | ) | |||||
Income tax and other taxes accrued in the year | 1,957,328 | 1,607,505 | 1,197,193 | ||||||
Adjustments to prior years’ income tax and other taxes | 101,973 | (86,324 | ) | (168,562 | ) | ||||
Income tax and other taxes | 2,059,301 | 1,521,181 | 1,028,631 | ||||||
The country-risk amount as of December 31, 2003, 2002 and 2001, does not include assets for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, nontransfer, nonconvertibility and, if appropriate, war and political violence. The sum insured as of December 31, 2003, 2002 and 2001, amounted to US$ 466 million, US$ 584 million and US$ 555 million, respectively (approximately €369 million, €557 million and €629 million).
Also, pursuant to current Bank of Spain regulations, the provision for off-balance-sheet risk losses, recorded under the “Provisions for Contingencies and Expenses - Other Provisions” caption (Notes 2-f and 20) on the liability side of the accompanying consolidated balance sheets amounted to €209,270, €271,545 thousand and €185,268 thousand, respectively, as of December 31, 2003, 2002 and 2001.
(9) DEBENTURES AND OTHER DEBT SECURITIES
The breakdown, by currency, issuer sector, listing status and type, of the balances of this caption in the accompanying consolidated balance sheets,effective tax rate is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
By currency: | |||||||||
In euros | 24,201,930 | 18,785,929 | 22,570,025 | ||||||
In foreign currencies | 28,734,036 | 30,347,250 | 39,080,913 | ||||||
52,935,966 | 49,133,179 | 61,650,938 | |||||||
By type: | |||||||||
Held-to-maturity portfolio | 510,709 | 522,077 | 596,769 | ||||||
Available-for-sale portfolio | 32,410,725 | 28,914,106 | 41,805,296 | ||||||
Trading portfolio | 20,014,532 | 19,696,996 | 19,248,873 | ||||||
52,935,966 | 49,133,179 | 61,650,938 | |||||||
By sector: | |||||||||
Resident public sector | 1,174,997 | 1,436,106 | 1,351,886 | ||||||
Resident credit institutions | 457,427 | 258,027 | 459,373 | ||||||
Other resident sectors | 2,481,168 | 2,441,327 | 2,468,122 | ||||||
Other non-resident sectors | 49,017,438 | 45,125,706 | 57,628,725 | ||||||
Europe | 20,670,609 | 14,629,779 | 18,622,973 | ||||||
USA | 5,161,076 | 2,905,029 | 2,533,603 | ||||||
Latin America | 22,324,498 | 26,765,261 | 35,257,299 | ||||||
Other countries | 861,255 | 825,637 | 1,214,850 | ||||||
Less- | |||||||||
Securities revaluation reserve (Note 2-f) | (73,958 | ) | (2,586 | ) | (3,396 | ) | |||
Loan loss and country-risk provisions (Notes 2-f, 3-c and 8) | (121,106 | ) | (125,401 | ) | (253,772 | ) | |||
52,935,966 | 49,133,179 | 61,650,938 | |||||||
By listing status: | |||||||||
Listed | 46,264,545 | 37,955,161 | 45,144,591 | ||||||
Unlisted | 6,671,421 | 11,178,018 | 16,506,347 | ||||||
52,935,966 | 49,133,179 | 61,650,938 | |||||||
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Consolidated Tax Group | 3,376,315 | 2,771,398 | 2,651,930 | ||||||
Other Spanish entities | 102,236 | 56,277 | 54,593 | ||||||
Foreign entities | 3,551,785 | 2,764,078 | 1,430,317 | ||||||
7,030,336 | 5,591,753 | 4,136,840 | |||||||
Income tax | 2,059,301 | 1,521,181 | 1,028,631 | ||||||
Effective tax rate | 29.29 | % | 27.20 | % | 24.87 | % | |||
D) TAXRECOGNISEDINEQUITY
In addition to the income tax recognised in the consolidated income statements, in 2006, 2005 and 2004 the Group recognised the following amounts in consolidated equity:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Charges to equity | |||||||||
Debt securities | (290,853 | ) | (179,245 | ) | (197,278 | ) | |||
Equity instruments | (1,105,495 | ) | (1,018,056 | ) | (881,992 | ) | |||
Credits to equity | |||||||||
Other | 40,824 | 55,796 | — | ||||||
Total | (1,355,524 | ) | (1,141,505 | ) | (1,079,270 | ) | |||
E) DEFERREDTAXES
The breakdown, by maturity,balance of the heading “Tax Assets” in the consolidated balance sheets includes the tax receivables relating to deferred tax assets; in turn, the balance of the fixed-income portfolio classified as available-for-sale and held-to-maturity inheading “Tax Liabilities” includes the accompanying consolidated balance sheets, disregarding the “Securities Revaluation Reserve” and the “Loan Loss and Country-Risk Provisions” accounts in the foregoing detail in 2003, is as follows:
Thousands of Euros | ||||||
Up to 1 Year | 1 to 5 Years | Over 5 Years | ||||
Balances at December 31, 2003- | ||||||
Fixed-income portfolio: | ||||||
Held-to-maturity portfolio | 10,361 | 442,771 | 57,577 | |||
Available-for-sale portfolio | 3,352,499 | 15,337,545 | 13,915,745 | |||
3,362,860 | 15,780,316 | 13,973,322 | ||||
Balances at December 31, 2002- | ||||||
Fixed-income portfolio: | ||||||
Held-to-maturity portfolio | 10,355 | 432,307 | 79,415 | |||
Available-for-sale portfolio | 4,224,678 | 10,960,229 | 13,729,199 | |||
4,235,033 | 11,392,536 | 13,808,614 | ||||
Balances at December 31, 2001- | ||||||
Fixed-income portfolio: | ||||||
Held-to-maturity portfolio | 74,755 | 355,701 | 166,313 | |||
Available-for-sale portfolio | 9,624,030 | 22,233,218 | 9,948,048 | |||
9,698,785 | 22,588,919 | 10,114,361 | ||||
In 2003 securities in the trading portfolio amounting to €893,242 thousand (€1,054,336 thousand in 2002) were transferredliability relating to the available-for-sale portfolio at market prices.Group’s various deferred tax liabilities.
The acquisition costAs a result of the securities assignedtax reforms enacted in Spain in 2006, including, inter alia, the modification of the standard income tax rate, which was set at 32.5% for 2007 and at 30% for 2008 and subsequent years, Spanish companies have adjusted their deferred tax assets and liabilities on the basis of tax rates that are expected to the trading portfolio was €19,870,277 thousand as of December 31, 2003 (€19,598,881 thousand as of December 31, 2002 and €19,278,581 thousand as of December 31, 2001).
apply when they are recovered or settled.
As of December 31, 2003, 2002 and 2001,2006 the market valueGroup has registered the effects of this regulation with charge to the debentures and other debt securities includedheading “Income tax” (€379,656 thousand) in the available-for-sale portfolio amounted to €32,590,300 thousand, €28,971,860 thousandconsolidated income statement and €41,774,037 thousand, respectively.
The market value of the securities assignedheading “Reserves” (€105,022 thousand) in the consolidated balance sheet and with credit to the held-to-maturity portfolio amounted €542,590 thousand, €561,760 thousand and €648,306 thousand as of December 31, 2003, 2002 and 2001, respectively.
As of December 31, 2003, the face value of the securities which were securing financing lines assigned by the Bank of Spain and other central banks amounted to €12,231,516 thousandheading “Valuation Adjustments” (€7,091,312 thousand as of December 31, 2002).
As of December 31, 2003, 2002 and 2001, a portion of the debt securities on hand had been sold under repurchase agreement basically to private-sector depositors and is recorded under the “Deposits - Other Deposits” caption 200,607 thousand) in the accompanying consolidated balance sheets (Note 18).sheet.
The balance of the “Available-for-Sale Portfolio - Other Nonresident Sectors” caption includes promissory notes issued by the Banking Fund for the Protection of Savings (FOBAPROA) in Mexico, now the Banking Institute for the Protection of Savings (IPAB). These promissory notes arose as part of the measures adopted by the Mexican government as a result of the banking crisis suffered due to the economic situation in Mexico at the end of 1994 and in 1995. Under certain regulations, the banks transferred to the Mexican government a portion of the loan portfolio with payment difficulties. These transactions were structured as a transfer of future rights to the flows generated by the loans. In exchange for these rights, the credit institutions received nontransferable FOBAPROA promissory notes of an amount equal to the net book value (net of the provisions) of the assets subject to the scheme. As of December 31, 2003, 2002 and 2001, these promissory notes amounted to €9,030,338 thousand, €11,173,894 thousand and €15,661,263 thousand, respectively. The promissory notes earn capitalizable interest and are payable through maturity in 2005. The interest on these promissory notes is recorded under the “Financial Revenues” caption in the accompanying consolidated statements of income. In accordance with the terms established in the agreements with FOBAPROA, Grupo Financiero BBVA Bancomer is responsible for 25% of the losses arising from the difference between the amount of the FOBAPROA promissory notes at the commencement of the transaction plus the accumulated accrued interest and the recoveries of the loans subject to the program. This contingency was written off.
The variations in 2003, 2002 and 2001 in the balances of this caption in the accompanying consolidated balance sheets, disregarding the “Securities Revaluation Reserve” and the “Loan Loss Provisions”, were as follows:
Thousands of Euros | �� | ||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 49,261,166 | 61,908,106 | 60,642,296 | ||||||
Purchases | 5,705,603,539 | 6,215,765,285 | 4,995,049,443 | ||||||
Sales and redemptions | (5,685,935,563 | ) | (6,220,035,030 | ) | (4,987,490,780 | ) | |||
Transfers and other | (15,798,112 | ) | (8,377,195 | ) | (6,292,843 | ) | |||
Ending balance | 53,131,030 | 49,261,166 | 61,908,106 | ||||||
The variations in the balance of the “Securities Revaluation Reserve” account in 2003, 2002 and 2001 were as follows:
Thousands of Euros | ||||||||
2003 | 2002 | 2001 | ||||||
Beginning balance | 2,586 | 3,396 | 48,706 | |||||
Provisions with a charge to asset accrual accounts (Note 3-d) | 69,687 | — | — | |||||
Transfers and other | 1,685 | (810 | ) | (45,310 | ) | |||
Ending balance | 73,958 | 2,586 | 3,396 | |||||
(10) COMMON STOCKS AND OTHER EQUITY SECURITIES
This caption in the accompanying consolidated balance sheets includes the shares of companies generally less than 20% owned (less than 3% if listed), and units in mutual funds. The detail of thethese balances of this caption, by currency and listing status, is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
By currency: | |||||||||
In euros | 2,390,882 | 1,986,299 | 2,357,074 | ||||||
In foreign currencies | 701,182 | 1,021,193 | 1,316,625 | ||||||
3,092,064 | 3,007,492 | 3,673,699 | |||||||
By type: | |||||||||
Available-for-sale portfolio | 1,062,650 | 2,075,564 | 2,641,419 | ||||||
Trading portfolio | 2,029,414 | 931,928 | 1,032,280 | ||||||
3,092,064 | 3,007,492 | 3,673,699 | |||||||
By listing status: | |||||||||
Listed | 2,541,383 | 2,447,460 | 2,435,746 | ||||||
Unlisted | 622,334 | 800,758 | 1,391,608 | ||||||
Less- | |||||||||
Securities revaluation reserve (Notes 2-f and 3-e) | (71,653 | ) | (240,726 | ) | (153,655 | ) | |||
3,092,064 | 3,007,492 | 3,673,699 | |||||||
The variations in 2003, 2002 and 2001 in the balances of this caption in the accompanying consolidated balance sheets, disregarding the securities revaluation reserve, were as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 3,248,218 | 3,827,354 | 3,154,171 | ||||||
Purchases | 12,093,943 | 16,582,585 | 15,656,407 | ||||||
Sales | (12,082,488 | ) | (16,336,109 | ) | (15,853,984 | ) | |||
Other | (95,956 | ) | (825,612 | ) | 870,760 | ||||
Ending balance | 3,163,717 | 3,248,218 | 3,827,354 | ||||||
Exhibit IV lists the Group’s direct or indirect acquisitions of holdings in companies, the percentages of ownership acquired net of subsequent sales, and the notification dates thereof, in compliance with the provisions of Article 86 of the Corporations Law and Article 53 of Securities Market Law 24/1988.
As of December 31, 2003, 2002 and 2001, the market value of the shares and other equity securities included under this caption exceeded their book value by €104,680 thousand, €125,789 thousand and €77,645 thousand, respectively.
The acquisition cost of the securities assigned to the trading portfolio amounted to €1,943,149 thousand as of December 31, 2003, and €942,194 thousand as of December 31, 2002. As of December 31, 2001, the book value of the securities in the trading portfolio did not significantly differ from their acquisition cost.
The variations in the balances of the “Securities Revaluation Reserve” account in 2003, 2002 and 2001 were as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 240,726 | 153,655 | 115,472 | ||||||
Net charge for the year | (33,252 | ) | 161,794 | (12,665 | ) | ||||
Amount used | (136,187 | ) | (62,143 | ) | (5,998 | ) | |||
Transfer and other | 366 | (12,580 | ) | 56,846 | |||||
Ending balance | 71,653 | 240,726 | 153,655 | ||||||
Deferred tax assets: Of which: Pensions commitments Securities Loan loss provisions Tax losses and other Deferred tax liabilities: Of which: Free depreciation and other Thousands of Euros 2006 2005 2004 5,278,197 6,420,745 5,590,696 1,639,834 1,645,126 1,289,825 672,289 1,129,248 1,196,557 1,464,314 1,195,382 1,431,655 926,960 1,300,780 1,657,077 2,369,166 2,100,023 1,620,795 (1,769,252 ) (1,218,567 ) (1,170,362 )
(11) INVESTMENTS IN NON-GROUP COMPANIES
This caption in the accompanying consolidated balance sheets reflects the ownership interests in the capital of other companies which, although not constituting a single decision-making unit, have a lasting relationship with the Group pursuant to Article 185.2 of the Corporations Law and Bank of Spain Circular 4/1991, which generally range from 20% (3% if listed) to 50%.
The “Other Investments in Associated Companies” account in the following table includes the holdings in companies acquired by the Group but not intended to be held at long-term and the holdings for which hedging futures transactions have been arranged (Note 2-c).
The detail of the balances of this caption in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
By currency: | |||||||||
In euros | 5,333,309 | 5,891,886 | 6,333,502 | ||||||
In foreign currencies | 259,915 | 132,289 | 308,433 | ||||||
5,593,224 | 6,024,175 | 6,641,935 | |||||||
By listing status: | |||||||||
Listed | 5,172,770 | 5,614,439 | 6,048,381 | ||||||
Unlisted | 420,492 | 409,818 | 595,345 | ||||||
Less- | |||||||||
Securities revaluation reserve (Notes 2-f and 3-e) | (38 | ) | (82 | ) | (1,791 | ) | |||
5,593,224 | 6,024,175 | 6,641,935 | |||||||
By type of investment: | |||||||||
Long-term investments | 4,619,803 | 4,921,149 | 5,605,568 | ||||||
Other investments in associated companies | 973,421 | 1,103,026 | 1,036,367 | ||||||
5,593,224 | 6,024,175 | 6,641,935 | |||||||
€889,243 thousand, €1,024,136 thousand and €1,144,862 thousand of the foregoing balances as of December 31, 2003, 2002 and 2001, respectively, related to investments in credit institutions, basically Banca Nazionale del Lavoro, S.p.A.F) TaxASSESSMENTSISSUEDTO BBVA SEGUROS, Banco Bradesco, S.A. and Banco Atlántico, S.A. in 2003 and Banca Nazionale del Lavoro, S.p.A.AND SENORTE VIDAY PENSIONES, Credit Lyonnais, S.A., Banco Atlántico, S.A. and Wafabank, S.A. in 2002 and 2001. Exhibit II lists the main associated companies, showing the percentages of direct and indirect ownership, the book values of these investments and other relevant information.
The variations in the balances of this caption in the accompanying 2003, 2002 and 2001 consolidated balance sheets, disregarding the securities revaluation reserve, were as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 6,024,257 | 6,643,726 | 7,468,376 | ||||||
Capital increase and purchases | 2,128,197 | 1,707,627 | 1,461,962 | ||||||
Sales | (2,440,890 | ) | (1,824,169 | ) | (2,098,674 | ) | |||
First-time consolidation differences (Note 13), transfers (Note 12) and other | (118,302 | ) | (502,927 | ) | (187,938 | ) | |||
Year-end balance | 5,593,262 | 6,024,257 | 6,643,726 | ||||||
The most notable transactions in 2003, 2002 and 2001 were as follows:
Investments-S.A
2003
2002
2001
Divestments-
2003
Lastly:
2002
2001
The gains and losses obtained on the aforementioned transactions are recorded under the “Income on Group Transactions” and “Losses on Group Transactions” captions, respectively, in the accompanying 2003, 2002 and 2001 consolidated statements of income.
Exhibit IV lists the notifications by the Group in compliance with Article 86 of the Corporations Law and Article 53 of Securities Market Law 24/1988.
As of December 31, 2003, the market price of the shares and other equity securities included in this caption of the accompanying consolidated balance sheets exceeded their net book value by approximately €1,319,748 thousand, after taking into account the related goodwill, negative consolidation differences and hedges of certain holdings. As of December 31, 2002, the market price of the shares and other equity securities included in this caption of the accompanying consolidated balance sheets was lower than their net book value by approximately €159,496 thousand and as of December 31, 2001, the market price of the shares and other equity securities included in this caption of the accompanying consolidated balance sheets was higher than their net book value by approximately €2,009,917 thousand (Note 13).
The variations in the balances of the “Securities Revaluation Reserve” account in 2003, 2002 and 2001 were as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 82 | 1,791 | 15,080 | ||||||
Charge for the year | — | — | 21,300 | ||||||
Reversals | — | (3,366 | ) | (1,695 | ) | ||||
Transfer to common stocks and other equity securities | — | — | (32,396 | ) | |||||
Other variations | (44 | ) | 1,657 | (498 | ) | ||||
Year-end balance | 38 | 82 | 1,791 | ||||||
This caption in the accompanying consolidated balance sheets reflects the investments in subsidiaries, which are generally majority-owned and were not fully consolidated because their business activities are not directly related with those of the Group.
The breakdown, by currency and listing status, of the balances of this caption in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
By currency: | ||||||
In euros | 795,806 | 779,876 | 732,249 | |||
In foreign currencies | 259,063 | 259,812 | 381,895 | |||
1,054,869 | 1,039,688 | 1,114,144 | ||||
By listing status: | ||||||
Listed | — | — | 3,011 | |||
Unlisted | 1,054,869 | 1,039,688 | 1,111,133 | |||
1,054,869 | 1,039,688 | 1,114,144 | ||||
Exhibit III presents relevant information about the companies comprising the balance of this caption in the accompanying consolidated balance sheets.
The variations in 2003, 2002 and 2001 in the balance of this caption in the accompanying consolidated balance sheets were as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 1,039,688 | 1,114,144 | 1,169,684 | ||||||
Capital increases and purchases | 131,324 | 75,332 | 242,899 | ||||||
Sales | (58,997 | ) | (73,490 | ) | (250,075 | ) | |||
Exchange differences | (37,972 | ) | (95,400 | ) | (9,544 | ) | |||
Transfers (Note 11) and other | (19,174 | ) | 19,102 | (38,820 | ) | ||||
Ending balance | 1,054,869 | 1,039,688 | 1,114,144 | ||||||
On December 27, 2002, the Special Shareholders’ Meeting of BBVA Seguros, S.A. de Seguros y Reaseguros resolved to increase its capital stock by €30 million, with additional paid-in capital of €19 million, through the issuance of approximately 5 million shares for €9.82 per share (€6.01 par value each and the remainder as additional paid-in capital). The Group subscribed a total of 4.9 million shares for a total amount of €49,085 thousand.
In 2003 BBVA Desarrollos Inmobiliarios increased capital by €63 million.
As of December 31, 2003, there were no capital increases in progress at nonconsolidable subsidiaries other than the one described above.
In 1990, 1994 and 1995, tax assessments for 1986 to 1990 were issued to the nonconsolidable subsidiaries BBVA Seguros, S.A. (formerly Euroseguros, S.A.) and Senorte Vida y Pensiones, S.A. totalingtotalling €88,066 thousand of principal and €39,072 thousand of late-payment interest, plus €66,057 thousand of penalties, after adjustmentcorrection pursuant to the revised General Tax Law. The companies filed pleadings and appeals against the assessments and several administrative decisions and court rulings were handed down in 1997 through 2000. As a result of application of the criteria set forth in these court rulings, some of which have been appealed against by the Group and by the Spanish tax authorities, the tax debts would be reduced to €50,677 thousand of principal and €19,851 thousand of interest. In order to file these appeals, the Bank provided guarantees totaling €85,193totalling €97,876 thousand to the tax authorities. In 2003 further court rulings were handed down, which have been appealed against and are being analyzed byagainst. However, the Group’sBank’s directors and
legal advisers;advisers consider that, in any case, however, the possible effects of these rulings would not materially affect the accompanying consolidated financial statements since,and, additionally, in accordance with the accounting principle of prudence, adequate provisions have been recorded therefor.
TheA detail, by company,maturity, of the balances of the “Consolidation Goodwill” captioncertain headings in the accompanying consolidated balance sheets as of December 31, 2003, 2002 and 2001, and of the variations therein in 2003, and 2002,2006, disregarding valuation adjustments, is as follows:
Thousands of Euros | |||||||||||||||
Balance at 12/31/02 | Additions (Notes 4 and 11) | Retirements (Notes 4 | Amortization (Note 3-g) | Exchange Differences and Other | Balance at 12/31/03 | ||||||||||
Fully or proportionally consolidated companies (Note 4)- | |||||||||||||||
Grupo Financiero BBVA Bancomer, S.A. de C.V. | 1,955,340 | 160,615 | — | (250,428 | ) | — | 1,865,527 | ||||||||
AFORE Bancomer | 310,727 | — | — | (39,398 | ) | (232 | ) | 271,097 | |||||||
Provida Group | 204,049 | — | — | (40,848 | ) | — | 163,201 | ||||||||
BBVA Chile, S.A. | 66,840 | 1,043 | (337 | ) | (10,601 | ) | — | 56,945 | |||||||
BBVA Puerto Rico, S.A. | 51,648 | — | — | (8,655 | ) | (6,536 | ) | 36,457 | |||||||
Finanzia, Banco de Crédito, S.A. | 6,890 | — | — | (1,728 | ) | — | 5,162 | ||||||||
BBVA (Portugal), S.A. | 19,035 | — | — | (3,120 | ) | — | 15,915 | ||||||||
Banco de Crédito Local, S.A. | 240,907 | — | — | (29,808 | ) | — | 211,099 | ||||||||
AFP Porvenir, S.A. (Dominican Republic) | — | 11,789 | — | (410 | ) | 7 | 11,386 | ||||||||
Other companies | 16,109 | 9,749 | (9,557 | ) | (1,971 | ) | (230 | ) | 14,100 | ||||||
2,871,545 | 183,196 | (9,894 | ) | (386,967 | ) | (6,991 | ) | 2,650,889 | |||||||
Companies accounted for by the equity method (Note 11)- | |||||||||||||||
Telefónica, S.A. | 438,046 | 129,431 | (140,089 | ) | (30,747 | ) | — | 396,641 | |||||||
Repsol YPF, S.A. | 116,609 | — | (33,479 | ) | (7,631 | ) | — | 75,499 | |||||||
Gas Natural, S.D.G. | 189,436 | 5,434 | — | (81,489 | ) | — | 113,381 | ||||||||
Seguros Bancomer, S.A. de C.V. | 162,622 | — | — | (18,946 | ) | (6,997 | ) | 136,679 | |||||||
Banca Nazionale del Lavoro, S.p.A. | 298,796 | — | — | (48,336 | ) | — | 250,460 | ||||||||
Crédit Lyonnais, S.A. | 71,658 | — | (67,288 | ) | (4,370 | ) | — | — | |||||||
Iberia, S.A. | 35,331 | — | — | (2,100 | ) | — | 33,231 | ||||||||
Iberdrola, S.A. | 34,785 | 9,220 | (8,150 | ) | (2,380 | ) | — | 33,475 | |||||||
Acerinox, S.A. | 2,219 | — | — | (168 | ) | — | 2,051 | ||||||||
Wafabank, S.A. | 17,464 | — | (15,001 | ) | (2,463 | ) | — | — | |||||||
Pensiones Bancomer, S.A. de C.V. | 10,506 | — | — | (1,080 | ) | (1,649 | ) | 7,777 | |||||||
Bradesco, S.A. | — | 48,589 | — | (48,589 | ) | — | — | ||||||||
Other companies (Note 3-g) | 8,329 | 2,965 | (1,280 | ) | (4,083 | ) | 399 | 6,330 | |||||||
1,385,801 | 195,639 | (265,287 | ) | (252,382 | ) | (8,247 | ) | 1,055,524 | |||||||
4,257,346 | 378,835 | (275,181 | ) | (639,349 | ) | (15,238 | ) | 3,706,413 | |||||||
Thousands of Euros | ||||||||||||||
2006 | Total | Demand | Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | |||||||
ASSETS - | ||||||||||||||
Cash and balances with central banks | 12,496,394 | 12,445,976 | 49,978 | — | 275 | — | 165 | |||||||
Loans and advances to credit institutions | 16,990,185 | 2,210,723 | 8,622,454 | 1,229,446 | 2,064,912 | 2,241,461 | 621,189 | |||||||
Loans and advances to other debtors | 262,373,937 | 1,816,980 | 22,812,143 | 21,553,498 | 37,291,557 | 71,381,946 | 107,517,813 | |||||||
Money market operations through counterparties | 100,052 | — | 100,052 | — | — | — | — | |||||||
Debt securities | 68,593,407 | 379,463 | 1,273,263 | 16,223,863 | 7,077,518 | 16,482,273 | 27,157,027 | |||||||
Other assets | 6,076,462 | 3,596,968 | 985,798 | 59,721 | 145,530 | 1,282,103 | 6,342 | |||||||
OTC derivatives | 10,300,483 | — | 314,304 | 331,390 | 704,215 | 3,130,358 | 5,820,216 | |||||||
LIABILITIES- | ||||||||||||||
Deposits from central banks | 15,191,117 | 1,802,152 | 11,040,714 | 1,850,162 | 498,089 | — | — | |||||||
Deposits from credit institutions | 42,285,705 | 2,529,383 | 22,017,266 | 5,267,898 | 5,967,747 | 4,460,057 | 2,043,354 | |||||||
Money market operations through counterparties | 223,393 | — | 223,000 | — | — | 393 | — | |||||||
Deposits from other creditors | 191,660,412 | 81,106,847 | 48,362,407 | 12,888,611 | 17,177,776 | 29,354,181 | 2,770,590 | |||||||
Debt certificates (including bonds) | 76,860,587 | 179 | 3,551,101 | 2,469,899 | 9,223,318 | 39,993,783 | 21,622,307 | |||||||
Subordinated liabilities | 13,410,349 | — | — | 559,675 | 631,214 | 3,434,905 | 8,784,555 | |||||||
Other financial liabilities | 6,771,925 | 4,551,644 | 1,596,472 | 262,410 | 210,385 | 146,939 | 4,075 | |||||||
OTC derivatives | 11,628,687 | — | 222,770 | 439,410 | 1,002,044 | 5,468,474 | 4,495,989 | |||||||
39. FAIR VALUE OF ASSETS AND LIABILITIES
Additions and 11) Retirements (Notes 4 Amortization (Note 3-g) Fully or proportionally consolidated companies (Note 4)- Grupo Financiero BBVA Bancomer, S.A. de C.V. AFORE Bancomer Provida Group BBVA Chile, S.A. BBVA Puerto Rico, S.A. BBVA Horizonte Pensiones y Cesantías, S.A. – Colombia AFP Horizonte, S.A. – Peru Midas Group (Portugal) BBVA Banco Francés, S.A. (Note 3-o) Finanzia, Banco de Crédito, S.A. BBVA (Portugal), S.A. Banco de Crédito Local, S.A. BBVA Banco Ganadero, S.A. Other companies Companies accounted for by the equity method (Note 11)- Telefónica, S.A. Repsol YPF, S.A. Gas Natural, S.D.G. Seguros Bancomer, S.A. de C.V. Banca Nazionale del Lavoro, S.p.A. Crédit Lyonnais, S.A. Autopistas Concesionaria Española, S.A. Iberia, S.A. Iberdrola, S.A. Acerinox, S.A. Wafabank, S.A. Pensiones Bancomer, S.A. de C.V. Other companies Thousands of Euros Balance at
12/31/01
(Notes 4
and 11) Exchange
Differences
and Other Balance at
12/31/02 1,861,034 338,350 (8,379 ) (235,659 ) (6 ) 1,955,340 364,387 — — (40,139 ) (13,521 ) 310,727 244,894 — — (40,848 ) 3 204,049 74,988 2,574 (368 ) (10,354 ) — 66,840 73,473 — — (9,085 ) (12,740 ) 51,648 69,183 — — (64,960 ) (4,223 ) — 28,590 — — (28,490 ) (100 ) — 18,001 — (15,459 ) (2,542 ) — — — 34,789 — (34,789 ) — — 8,618 — — (1,728 ) — 6,890 4,700 15,459 (546 ) (578 ) — 19,035 270,715 — — (29,808 ) — 240,907 4,429 19 — (4,448 ) — — 21,895 10,956 — (16,466 ) (276 ) 16,109 3,044,907 402,147 (24,752 ) (519,894 ) (30,863 ) 2,871,545 424,687 41,101 (4,149 ) (23,593 ) — 438,046 124,289 — — (7,680 ) — 116,609 191,753 8,681 — (10,998 ) — 189,436 195,659 — — (20,526 ) (12,511 ) 162,622 338,026 29,853 (11,588 ) (57,495 ) — 298,796 77,391 4,531 — (10,264 ) — 71,658 59,121 — (56,856 ) (2,265 ) — — 37,431 — — (2,100 ) — 35,331 46,717 — (9,954 ) (1,978 ) — 34,785 22,808 — (19,881 ) (708 ) — 2,219 20,152 — — (2,688 ) — 17,464 14,748 — — (1,440 ) (2,802 ) 10,506 19,453 10,837 (3,566 ) (17,541 ) (854 ) 8,329 1,572,235 95,003 (105,994 ) (159,276 ) (16,167 ) 1,385,801 4,617,142 497,150 (130,746 ) (679,170 ) (47,030 ) 4,257,346
€48,589 thousandFollowing is a comparison of the amortization recordedcarrying amounts of the Group’s financial assets and liabilities and their respective fair values at year-end 2006, 2005 and 2004:
Thousands of Euros | ||||
2006 | Book value | Fair value | ||
Assets | ||||
Cash and balances with central banks | 12,515,122 | 12,515,122 | ||
Financial assets held for trading | 51,835,109 | 51,835,109 | ||
Other financial assets at fair value through profit or loss | 977,114 | 977,114 | ||
Available-for-sale financial assets | 42,266,774 | 42,266,774 | ||
Loans and receivables | 279,855,259 | 287,590,187 | ||
Held-to-maturity investments | 5,905,636 | 5,757,246 | ||
Hedging derivatives | 1,963,320 | 1,963,320 | ||
Liabilities | ||||
Financial liabilities held for trading | 14,923,534 | 14,923,534 | ||
Other financial liabilities at fair value through profit or loss | 582,537 | 582,537 | ||
Financial liabilities at amortised cost | 348,444,532 | 347,557,024 | ||
Hedging derivatives | 2,279,740 | 2,279,740 |
2005 Assets Cash and balances with central banks Financial assets held for trading Other financial assets at fair value through profit or loss Available-for-sale financial assets Loans and receivables Held-to-maturity investments Hedging derivatives Liabilities Financial liabilities held for trading Other financial liabilities at fair value through profit or loss Financial liabilities at amortised cost Hedging derivatives Thousands of Euros Book value Fair value 12,341,317 12,341,317 44,011,781 44,011,781 1,421,253 1,421,253 60,033,988 60,033,988 249,396,647 249,514,581 3,959,265 4,035,248 3,912,696 3,912,696 16,270,865 16,270,865 740,088 740,088 329,505,250 323,015,482 2,870,086 2,870,086
Thousands of Euros | ||||
2004 | Book value | Fair value | ||
Assets | ||||
Cash and balances with central banks | 10,123,090 | 10,123,090 | ||
Financial assets held for trading | 47,036,060 | 47,036,060 | ||
Other financial assets at fair value through profit or loss | 1,059,490 | 1,059,490 | ||
Available-for-sale financial assets | 53,003,545 | 53,003,545 | ||
Loans and receivables | 196,892,203 | 197,226,006 | ||
Held-to-maturity investments | 2,221,502 | 2,264,421 | ||
Hedging derivatives | 4,723,450 | 4,723,450 | ||
Liabilities | ||||
Financial liabilities held for trading | 14,134,413 | 14,134,413 | ||
Other financial liabilities at fair value through profit or loss | 834,350 | 834,350 | ||
Financial liabilities at amortised cost | 275,583,527 | 274,821,153 | ||
Hedging derivatives | 3,131,572 | 3,131,572 | ||
The fair value of “Cash and Balances with Central Banks” is the same that the book value because it is short-terms operations. The fair value of the “Held-to-Maturity Investments” corresponds with the quoted market price. The fair value of “Loans and Receivables” and “Financial Liabilities at Amortised Cost” was estimated by discounting the expected cash flows using the markets interest rates at each year-end.
40. | FINANCIAL GUARANTEES AND DRAWABLE BY THIRD PARTIES |
The memorandum items “Contingent Exposures” and “Contingent Commitments” in the 2003 consolidated statementbalance sheets include the amounts that would be payable by the consolidated entities on behalf of income (of which €34,719 thousand had been provisioned asthird parties if the parties originally obliged to pay fail to do so, in connection with the commitments assumed by those entities in the course of December 2002) relate to the early amortizationtheir ordinary business.
The breakdown of the consolidation goodwillbalances of Banco Bradesco, S.A. (Note 4).
Also, €70,045 thousand of consolidation goodwill relating to Gas Natural, S.D.G. were amortized early (Note 11).
Per the information available, the estimated future revenues attributable to the Group from each of the investments generating goodwill in the remaining amortization period of this goodwill exceed the related unamortized balancesthese items as of December 31, 2003, 20022006, 2005 and 2001.2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Contingent exposures - | ||||||
Collateral, bank guarantees and indemnities | 37,001,563 | 25,789,616 | 17,573,555 | |||
Rediscounts, endorsements and acceptances | 43,641 | 41,742 | 38,921 | |||
Other | 5,235,494 | 4,030,239 | 3,945,173 | |||
42,280,698 | 29,861,597 | 21,557,649 | ||||
Contingent commitments - | ||||||
Drawable by third parties: | 98,226,297 | 85,001,452 | 60,716,878 | |||
Credit institutions | 4,355,567 | 2,816,351 | 2,665,031 | |||
General government sector | 3,122,379 | 3,127,773 | 1,637,821 | |||
Other resident sectors | 43,730,259 | 36,062,799 | 29,617,468 | |||
Non-resident sector | 47,018,092 | 42,994,529 | 26,796,558 | |||
Other commitments | 4,994,856 | 4,496,940 | 6,045,524 | |||
103,221,153 | 89,498,392 | 66,762,402 | ||||
The variations in 2003, 2002Since a significant portion of these amounts will reach maturity without any payment obligation materializing for the consolidated companies, the aggregate balance of these commitments cannot be considered as an actual future requirement for financing or liquidity to be provided by the Group to third parties.
Income from the guarantee instruments is recorded under the heading “Fee and 2001Commission Income” in the balancesconsolidated income statement and is calculated by applying the rate established in the related contract to the nominal amount of the “Negative Consolidation Difference”guarantee (see Note 47).
41. ASSETS ASSIGNED TO OTHER OWN AND THIRD-PARTY OBLIGATIONS
As of December 31, 2006, 2005 and 2004, the face amount of the assets owned by the consolidated entities pledged as security for own transactions, amounted to €45,774,143 thousand, €64,440,394 thousand and €52,768,086 thousand, respectively, and related basically to the pledge of certain assets as security for financing liabilities with the Bank of Spain and to a portion of the assets assigned to mortgage bond issues, which pursuant to the Mortgage Market Law are admitted as security for obligation to third parties.
As of December 31, 2006 and 2005, there were no assets assigned to third-party obligations. As of December 31, 2004, the balance of this caption amounted to €5,215 thousand.
As of December 31, 2006, 2005 and 2004, there were no significant contingent assets registered in the consolidated financial statements attached.
43. PURCHASE AND SALE COMMITMENTS
The financial instruments sold with a commitment to subsequently repurchase them are not derecognized from the consolidated balance sheets and the amount received from the sale is considered financing from third parties.
As of December 31, 2006, 2005 and 2004, the consolidated entities had sold financial assets totalling €36,139,119 thousand, €48,311,628 thousand and €37,836,241 thousand, respectively, with a commitment to subsequently repurchase them, and had purchased financial assets totalling €7,017,393 thousand, €13,636,016 thousand and €6,718,828 thousand, respectively, with a commitment to subsequently resell them.
Following is a breakdown of the maturity of future payment obligations from December 31, 2006:
Thousands of Euros | ||||||||||
Up to 1 year | 1 to 3 years | 3 to 5 years | Over 5 years | Total | ||||||
Financial leases | 82,967 | 1,148,436 | 1,051,899 | 5,314,864 | 7,598,166 | |||||
Operational leases | 133,754 | 386,871 | 144,294 | 502,217 | 1,167,136 | |||||
Purchase commitments | 22,518 | 501 | — | — | 23,019 | |||||
Technology and systems projects | 8,499 | — | — | — | 8,499 | |||||
Organizational projects | — | — | — | — | — | |||||
Other projects | 2,260 | — | — | — | 2,260 | |||||
Tangible assets acquisition | 11,759 | 501 | — | — | 12,260 | |||||
Credit institutions | 11,759 | 501 | — | — | 12,260 | |||||
Total | 239,239 | 1,535,808 | 1,196,193 | 5,817,081 | 8,788,321 | |||||
44. TRANSACTIONS FOR THE ACCOUNT OF THIRD PARTIES
As of December 31, 2006, 2005 and 2004, the detail of the most significant items composing this heading is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Financial instruments entrusted by third parties | 524,151,036 | 502,274,442 | 448,515,742 | |||
Asset transfers (see Note 14.3) | 10,114,096 | 7,055,351 | 4,069,224 | |||
Derecognised in full from the balance sheet | 1,058,132 | 1,587,209 | 2,096,440 | |||
Retained in full on the balance sheet | 9,055,899 | 5,468,142 | 1,972,784 | |||
Retained in part on the balance sheet | 65 | — | — | |||
Conditional bills and other securities received for collection | 3,640,337 | 3,765,253 | 3,879,312 | |||
Securities received in credit | 69,747 | — | — | |||
Off-balance-sheet customer funds Managed by the Group | 142,064,178 | 143,888,172 | 124,498,577 | |||
- Investment companies and mutual funds(*) | 58,452,427 | 59,002,787 | 51,040,176 | |||
- Pension funds(*) | 57,147,044 | 53,958,782 | 41,490,401 | |||
- Customer portfolios managed on a discretionary basis | 26,464,707 | 30,926,603 | 31,968,000 | |||
Total | 680,039,394 | 656,983,218 | 580,962,855 | |||
(*) Nearly all of the off balance sheet customer funds correspond to funds commercialised by the Group
45. INTEREST INCOME AND EXPENSE AND SIMILAR ITEMS
45.1. INTERESTANDSIMILARINCOME
The breakdown of the most significant interest and similar income earned by the Group in 2006, 2005 and 2004 is as follows:
Thousands of Euros | |||||||
2006 | 2005 | 2004 | |||||
Central Banks | 444,177 | 458,272 | 275,282 | ||||
Loans and advances to credit institutions | 957,670 | 713,779 | 747,330 | ||||
Loans and advances to other debtors | 13,598,673 | 10,190,534 | 7,809,691 | ||||
General government | 538,818 | 436,905 | 393,969 | ||||
Resident sector | 6,394,199 | 4,852,472 | 4,298,604 | ||||
Non-resident sector | 6,665,656 | 4,901,157 | 3,117,118 | ||||
Debt securities | 3,196,493 | 3,624,304 | 3,310,590 | ||||
Rectification of income as a result of hedging transactions | 684,410 | 530,136 | (31,843 | ) | |||
Other income | 328,811 | 330,649 | 241,288 | ||||
Total | 19,210,234 | 15,847,674 | 12,352,338 | ||||
45.2. INTERESTEXPENSEANDSIMILARCHARGES
The breakdown of the balance of this heading in the accompanying consolidated balance sheets wereincome statements is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 47,554 | 42,744 | 47,828 | ||||||
Additions | 1,507 | 12,269 | 14,131 | ||||||
Retirements | (10,349 | ) | (7,459 | ) | (19,215 | ) | |||
Ending balance | 38,712 | 47,554 | 42,744 | ||||||
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Bank of Spain and other central banks | 299,879 | 288,006 | 287,884 | ||||||
Deposits from credit institutions | 2,343,395 | 1,985,215 | 1,499,735 | ||||||
Deposits from other creditors | 5,038,002 | 4,070,843 | 2,962,928 | ||||||
Debt certificates | 3,387,731 | 2,454,517 | 1,913,658 | ||||||
Promissory notes, bills and debt securities | 2,820,536 | 1,898,396 | 1,374,631 | ||||||
Subordinated liabilities | 567,195 | 556,121 | 539,027 | ||||||
Rectification of expenses as a result of hedging transactions | (230,617 | ) | (303,826 | ) | (546,747 | ) | |||
Cost attributable to pension funds (Note 29) | 254,548 | 255,370 | 210,342 | ||||||
Other charges | 122,631 | 182,075 | 120,144 | ||||||
Total | 11,215,569 | 8,932,200 | 6,447,944 | ||||||
Property and equipment-45.3. AVERAGESRETURNONINVENSTMENTSANDAVERAGEBORROWINGCOST
The variationsdetail of the average return on investments in 20032006 and 2002 in property and equipment accounts in the accompanying consolidated balance sheets were2005 is as follows:
Thousands of Euros | ||||||||||||
Land and Buildings for Own Use | Other Property | Furniture, Fixtures and Other | TOTAL | |||||||||
Revalued cost- | ||||||||||||
Balances at 2001 year-end | 3,456,216 | 1,793,192 | 5,781,159 | 11,030,567 | ||||||||
Additions | 25,500 | 244,981 | 480,546 | 751,027 | ||||||||
Retirements | (111,503 | ) | (544,393 | ) | (290,761 | ) | (946,657 | ) | ||||
Transfers | (136,913 | ) | 158,576 | (21,663 | ) | — | ||||||
Exchange difference and other | (491,711 | ) | (467,296 | ) | (845,944 | ) | (1,804,951 | ) | ||||
Balances at 2002 year-and | 2,741,589 | 1,185,060 | 5,103,337 | 9,029,986 | ||||||||
Additions | 23,593 | 151,328 | 305,999 | 480,920 | ||||||||
Retirements | (71,658 | ) | (236,418 | ) | (477,636 | ) | (785,712 | ) | ||||
Transfers | 299,473 | (223,136 | ) | (76,337 | ) | — | ||||||
Exchange difference and other | (110,693 | ) | (330,184 | ) | (363,736 | ) | (804,613 | ) | ||||
Balances at 2003 year-end | 2,882,304 | 546,650 | 4,491,627 | 7,920,581 | ||||||||
Accumulated depreciation- | ||||||||||||
Balances at 2001 year-end | 885,591 | 27,941 | 3,553,682 | 4,467,214 | ||||||||
Additions | 61,592 | 851 | 444,889 | 507,332 | ||||||||
Retirements | (29,241 | ) | (29,633 | ) | (140,017 | ) | (198,891 | ) | ||||
Transfers | (18,575 | ) | 19,382 | (807 | ) | — | ||||||
Exchange difference and other | (131,674 | ) | (1,671 | ) | (554,807 | ) | (688,152 | ) | ||||
Balances at 2002 year-end | 767,693 | 16,870 | 3,302,940 | 4,087,503 | ||||||||
Additions | 51,127 | 1,373 | 336,467 | 388,967 | ||||||||
Retirements | (18,052 | ) | (8,774 | ) | (317,251 | ) | (344,077 | ) | ||||
Transfers | (41,036 | ) | 11,230 | 29,806 | — | |||||||
Exchange difference and other | (118,710 | ) | 2,805 | (261,161 | ) | (377,066 | ) | |||||
Balances at 2003 year-end | 641,022 | 23,504 | 3,090,801 | 3,755,327 | ||||||||
Provisions for property and equipment (Note 2-f)- | ||||||||||||
Balances at 2001 year-end | 39,690 | 341,105 | 10,668 | 391,463 | ||||||||
Additions | 2,236 | 122,958 | 13,720 | 138,914 | ||||||||
Retirements | (3,172 | ) | (104,076 | ) | (13,471 | ) | (120,719 | ) | ||||
Transfers | 2,718 | (5,566 | ) | 2,848 | — | |||||||
Transfers from loan loss provisions (Note 8) | — | 8,156 | — | 8,156 | ||||||||
Exchange difference and other | (5,863 | ) | (102,460 | ) | (973 | ) | (109,296 | ) | ||||
Balances at 2002 year-end | 35,609 | 260,117 | 12,792 | 308,518 | ||||||||
Additions | — | 92,671 | 11,798 | 104,469 | ||||||||
Retirements | (9,802 | ) | (80,357 | ) | (3,884 | ) | (94,043 | ) | ||||
Transfers | (21 | ) | (754 | ) | 775 | — | ||||||
Transfers from loan loss provisions (Note 8) | — | 11,410 | — | 11,410 | ||||||||
Exchange difference and other | 115,137 | (69,548 | ) | (927 | ) | 44,662 | ||||||
Balances at 2003 year-end | 140,923 | 213,539 | 20,554 | 375,016 | ||||||||
Property and equipment, net- | ||||||||||||
Balance at December 31, 2002 | 1,938,287 | 908,073 | 1,787,605 | 4,633,965 | ||||||||
Balance at December 31, 2003 | 2,100,359 | 309,607 | 1,380,272 | 3,790,238 | ||||||||
ASSETS | Thousands of Euros | |||||||||||
2006 | 2005 | |||||||||||
Average Balances | Income and Expenses | Interest Rates (%) | Average Balances | Income and Expenses | Interest Rates (%) | |||||||
Cash and balances with central banks | 11,902,549 | 444,177 | 3.73 | 10,493,669 | 458,272 | 4.37 | ||||||
Securities portfolio and derivatives | 103,386,608 | 4,155,734 | 4.02 | 116,372,745 | 4,328,062 | 3.72 | ||||||
Loans and advances to credit institutions | 23,671,225 | 991,397 | 4.19 | 20,599,821 | 767,267 | 3.72 | ||||||
Euros | 14,090,224 | 451,660 | 3.21 | 10,652,534 | 276,258 | 2.59 | ||||||
Foreign currency | 9,581,001 | 539,737 | 5.63 | 9,947,287 | 491,009 | 4.94 | ||||||
Loans and advances to customers | 232,791,867 | 13,800,243 | 5.93 | 192,920,262 | 10,404,017 | 5.39 | ||||||
Euros | 177,330,701 | 7,365,539 | 4.15 | 150,358,110 | 5,698,769 | 3.79 | ||||||
Foreign currency | 55,461,166 | 6,434,704 | 11.60 | 42,562,153 | 4,705,248 | 11.06 | ||||||
Other finance income | — | 198,156 | — | — | 182,551 | — | ||||||
Other assets | 24,197,741 | — | — | 23,668,878 | — | — | ||||||
ASSETS/FINANCE INCOME | 395,949,989 | 19,589,707 | 4.95 | 364,055,375 | 16,140,169 | 4.43 | ||||||
In 2001, the variationThe average borrowing cost in the property2006 and equipment provision2005 was due mainly to the cancellation of a Mexican Government support program (FOBA-70), which gave rise to the reversal of €470,960 thousand of provisions for the property assigned to this program.as follows:
LIABILITIES | Thousands of Euros | |||||||||||
2006 | 2005 | |||||||||||
Average Balances | Income and Expenses | Interest Rates (%) | Average Balances | Income and Expenses | Interest Rates (%) | |||||||
Deposits from central banks and credit institutions | 63,730,498 | 2,420,401 | 3.80 | 64,804,285 | 2,175,694 | 3.36 | ||||||
Euros | 34,550,341 | 983,559 | 2.85 | 36,452,664 | 796,742 | 2.19 | ||||||
Foreign currency | 29,180,157 | 1,436,842 | 4.92 | 28,351,621 | 1,378,952 | 4.86 | ||||||
Customer deposits | 177,927,164 | 5,391,797 | 3.03 | 159,103,045 | 4,432,818 | 2.79 | ||||||
Euros | 99,148,191 | 1,736,101 | 1.75 | 87,418,240 | 1,077,653 | 1.23 | ||||||
Foreign currency | 78,778,973 | 3,655,696 | 4.64 | 71,684,805 | 3,355,165 | 4.68 | ||||||
Marketable securities and subordinated liabilities | 87,526,176 | 3,026,192 | 3.46 | 68,924,553 | 1,886,243 | 2.74 | ||||||
Euros | 77,482,812 | 2,506,358 | 3.23 | 64,188,180 | 1,573,252 | 2.45 | ||||||
Foreign currency | 10,043,364 | 519,834 | 5.18 | 4,736,371 | 312,991 | 6.61 | ||||||
Other finance expenses | — | 377,179 | — | — | 437,445 | — | ||||||
Other liabilities | 47,978,991 | — | — | 55,543,874 | — | — | ||||||
Equity | 18,787,160 | — | — | 15,679,619 | — | — | ||||||
LIABILITIES + EQUITY/ FINANCE EXPENSE | 395,949,989 | 11,215,569 | 2.83 | 364,055,375 | 8,932,200 | 2.45 | ||||||
The net propertyyear-on-year changes (2006/2005) resulted from the price effect and equipment provisionsthe effect of €86,340 thousand, €122,508 thousand and €111,127 thousand charged to 2003, 2002 and 2001 income, respectively, to supplement the loan loss provisions transferred when loans were foreclosed (Note 8), arechanges in business volume, as detailed below:
Thousands of Euros | |||||||||
Volume Price-Effect | |||||||||
Volume Effect (1) | Price Effect (2) | Total Effect | |||||||
Cash and balances with central banks | 61,528 | (75,623 | ) | (14,095 | ) | ||||
Securities portfolio and derivatives | (482,972 | ) | 310,644 | (172,328 | ) | ||||
Loans and advances to credit institutions | 114,398 | 109,732 | 224,130 | ||||||
Euros | 89,151 | 86,251 | 175,402 | ||||||
Foreign currency | (18,080 | ) | 66,808 | 48,728 | |||||
Loans and advances to customers | 2,150,240 | 1,245,986 | 3,396,226 | ||||||
Euros | 1,022,296 | 644,474 | 1,666,770 | ||||||
Foreign currency | 1,425,987 | 303,469 | 1,729,456 | ||||||
Other financial income | — | 15,605 | 15,605 | ||||||
FINANCE INCOME | 1,414,028 | 2,035,510 | 3,449,538 | ||||||
Deposits from central banks and credit institutions | (36,051 | ) | 280,758 | 244,707 | |||||
Euros | (41,579 | ) | 228,396 | 186,817 | |||||
Foreign currency | 40,298 | 17,592 | 57,890 | ||||||
Customer deposits | 524,464 | 434,515 | 958,979 | ||||||
Euros | 144,602 | 513,846 | 658,448 | ||||||
Foreign currency | 332,038 | (31,507 | ) | 300,531 | |||||
Marketable securities and subordinated liabilities | 509,067 | 630,882 | 1,139,949 | ||||||
Euros | 325,851 | 607,255 | 933,106 | ||||||
Foreign currency | 350,699 | (143,856 | ) | 206,843 | |||||
Other finance expense | — | (60,266 | ) | (60,266 | ) | ||||
FINANCE EXPENSE | 782,543 | 1,500,826 | 2,283,369 | ||||||
NET INTEREST INCOME | 631,485 | 534,684 | 1,166,169 | ||||||
(1) | The volume effect is calculated by multiplying the interest rate for the first year by the difference between the average balances for the two years. |
(2) | The price effect is calculated by multiplying the average balance for the second year by the difference between the interest rates for the two years. |
46. INCOME FROM EQUITY INSTRUMENTS
The amount recorded under this heading relates in full to dividends from other shares and equity instruments. The breakdown is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Dividends from other shares and other equity instrument | ||||||
Held for investment | 258,584 | 222,217 | 202,507 | |||
Held for trading | 120,889 | 70,278 | 52,639 | |||
Total | 379,473 | 292,495 | 255,146 | |||
The breakdown of the “Extraordinary Losses - Net Special Provisions” captionbalance of this heading in the accompanying consolidated statements of income (Notes 3-h and 28-g).is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Commitment fees | 55,951 | 50,130 | 40,875 | |||
Contingent liabilities | 203,960 | 176,745 | 159,484 | |||
Documentary credits | 33,272 | 31,418 | 26,875 | |||
Bank and other guarantees | 170,688 | 145,327 | 132,609 | |||
Arising from exchange of foreign currencies and banknotes | 19,993 | 17,752 | 16,589 | |||
Collection and payment services | 2,274,436 | 2,018,500 | 1,732,119 | |||
Securities services | 2,016,566 | 1,947,746 | 1,739,055 | |||
Counselling on and management of one-off transactions | 14,410 | 16,423 | 14,906 | |||
Financial and similar counselling services | 18,471 | 10,790 | 6,482 | |||
Factoring transactions | 19,448 | 18,815 | 17,041 | |||
Non-banking financial products sales | 79,426 | 40,424 | 46,388 | |||
Other fees and commissions | 416,021 | 371,799 | 284,042 | |||
Total | 5,118,682 | 4,669,124 | 4,056,981 | |||
48.FEE AND COMMISSION EXPENSES
The gains and losses on property and equipment disposals amounted to €95,884 thousand and €51,636 thousand, respectively, in 2003 (€195,493 thousand and €99,712 thousand, respectively, in 2002 and €325,827 thousand and €70,829 thousand, respectively, in 2001) and are included underbreakdown of the “Extraordinary Income” and “Extraordinary Losses” captionsbalance of this heading in the accompanying consolidated income statements of income (Note 28-g).is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Brokerage fees on lending and deposit transactions | 10,858 | 12,843 | 8,449 | |||
Fees and commissions assigned to third parties | 560,369 | 519,302 | 429,884 | |||
Other fees and commissions | 212,575 | 196,983 | 205,626 | |||
Total | 783,802 | 729,128 | 643,959 | |||
This heading in the accompanying consolidated income statement reflects the contribution of the consolidated insurance and reinsurance companies to the Group’s gross income. The net book valuedetail of the balance of this heading is as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Premium income | 2,483,999 | 2,916,831 | 2,062,030 | ||||||
Reinsurance premiums paid | (44,167 | ) | (63,403 | ) | (71,931 | ) | |||
Benefits paid and other insurance-related expenses | (1,538,896 | ) | (1,785,514 | ) | (1,704,113 | ) | |||
Reinsurance Income | 75,953 | 44,228 | 8,534 | ||||||
Net provisioning expense | (995,999 | ) | (1,274,283 | ) | (413,744 | ) | |||
Finance increase | 968,057 | 904,318 | 708,901 | ||||||
Finance expense | (298,516 | ) | (255,254 | ) | (199,059 | ) | |||
Total | 650,431 | 486,923 | 390,618 | ||||||
Following is a breakdown of the balances of the insurance activity as of December 31, 2003, 20022006, 2005 and 2001, of the property2004, distinguishing between “life” and equipment of foreign subsidiaries was €1,659,530 thousand, €2,383,965 thousand and €3,754,114 thousand, respectively. Also, the amount of leased assets on which the purchase option is expected to be exercised was not material as of December 31, 2003, 2002 and 2001.“non-life” insurance:
Thousands of Euros | ||||||||||||||||||
2006 | 2005 | 2004 | ||||||||||||||||
Life | Non-Life | Total | Life | Non-Life | Total | Life | Non-Life | Total | ||||||||||
Premium income | 1,897,034 | 586,965 | 2,483,999 | 2,047,326 | 869,505 | 2,916,831 | 1,614,189 | 447,841 | 2,062,030 | |||||||||
Intangible assets-50.GAINS/LOSSES ON FINANCIAL ASSETS AND LIABILITIES
The detail of the balance of intangible asset accounts as of December 31, 2003, 2002 and 2001,this heading in the accompanying consolidated income statements is as follows:
Thousands of Euros | Average Amortization Period | |||||||
2003 | 2002 | 2001 | ||||||
Incorporation and preopening expenses | 19,537 | 20,946 | 18,770 | 5 | ||||
Computer software acquisition expenses | 265,874 | 201,187 | 272,851 | 3 | ||||
Other deferred charges | 70,137 | 167,426 | 242,841 | 5 | ||||
Other intangible assets | 6,480 | 9,078 | 7,621 | 5 | ||||
Total | 362,028 | 398,637 | 542,083 | |||||
The variations in 2003 and 2002 in intangible asset accounts were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Financial assets held for trading | 715,651 | 897,484 | 1,110,551 | ||||||
Other financial assets at fair value through profit or loss | 62,068 | 33,022 | 1,296 | ||||||
Available-for-sale financial assets (*) | 1,120,591 | 428,560 | 974,412 | ||||||
Loans and receivables | 77,263 | 129,203 | 13,932 | ||||||
Other | (319,662 | ) | (508,105 | ) | (1,338,334 | ) | |||
Total | 1,655,911 | 980,164 | 761,857 | ||||||
(*) | |||
|
In 2006 it includes €522,287 thousand from the gains obtained in the disposal of | ||
| |||
| |||
| |||
| |||
| |||
| |||
| |||
| |||
| |||
the interest ownership in Repsol-YPF, S.A. |
€66,583 thousand of computer software acquisition costs were amortized in 2003 (€129,475 thousand in 2002) with a charge to the “General Administrative Expenses - Other Administrative Expenses” caption in the consolidated statements of income.
€120,732 thousand, €123,689 thousand and €151,472 thousand of other expenses were amortized in 2003, 2002 and 2001, respectively, and were recorded under the “Depreciation and Amortization” caption in the accompanying consolidated statements of income.
The detail of the balances of these captions in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Other assets- | ||||||
Taxes receivable (Notes 3-l and 25): | ||||||
Prepaid income tax | 2,688,983 | 2,911,123 | 3,574,478 | |||
Tax assets | 1,209,833 | 1,717,407 | 1,821,770 | |||
Interim dividends (Notes 2-d and 5) | 859,896 | 860,616 | 813,957 | |||
Checks drawn on credit institutions | 671,356 | 761,381 | 689,253 | |||
Clearing house | 422,755 | 369,066 | 761,248 | |||
Transactions in transit | 13,376 | 20,182 | 43,808 | |||
Options acquired (Note 3-m) | 740,696 | 665,438 | 879,142 | |||
Exchange differences on forward transactions (Note 3-b) | 362,571 | 663,091 | 471,488 | |||
Items to be adjusted for hedging futures transactions (Note 3-m) | 3,070,899 | 2,274,328 | 1,333,375 | |||
Financial transactions pending settlement | 49,412 | 30,590 | 25,026 | |||
Differences in pension provision less deferred contributions of Group companies in Spain (Note 3-j) | 469,143 | 507,504 | 468,300 | |||
Differences in pension provision of Group companies abroad (Note 3-j) | 171,854 | 187,234 | — | |||
Other | 2,440,706 | 1,330,920 | 1,118,270 | |||
13,171,480 | 12,298,880 | 12,000,115 | ||||
Other liabilities- | ||||||
Tax collection accounts | 1,937,736 | 2,089,075 | 1,867,879 | |||
Special accounts | 794,407 | 862,618 | 708,095 | |||
Payment obligations (Note 5) | 801,216 | 795,677 | 960,820 | |||
Options written (Note 3-m) | 958,040 | 993,126 | 1,251,854 | |||
Transactions in transit | 17,175 | 16,669 | 110,641 | |||
Items to be adjusted for hedging futures transactions (Note 3-m) | 3,013,819 | 1,696,545 | 290,890 | |||
Deferred income tax (Notes 3-l and 25) | 214,796 | 246,918 | 383,836 | |||
Financial transactions pending settlement | 233,517 | 80,797 | 160,422 | |||
Net effect on balance sheet of devaluation of Argentine peso | — | — | 440,235 | |||
Other | 2,793,808 | 2,954,480 | 2,967,973 | |||
10,764,514 | 9,735,905 | 9,142,645 | ||||
The detail of the balances of these asset and liability captions in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Assets: | ||||||
Prepaid interest on funds taken at a discount (Note 3-n) | 290,992 | 308,603 | 418,521 | |||
Accrued interest earned on investments not taken at a Discount | 1,904,578 | 3,313,166 | 4,724,809 | |||
Prepaid expenses | 332,532 | 400,391 | 248,969 | |||
Deferred interest expenses | 121,751 | 50,311 | 57,090 | |||
Other accruals | 327,584 | 319,091 | 1,599,678 | |||
2,977,437 | 4,391,562 | 7,049,067 | ||||
Liabilities: | ||||||
Unearned interest revenues on transactions taken at a discount (Note 3-n) | 131,172 | 110,972 | 169,654 | |||
Accrued costs incurred on funds not taken at a discount | 1,888,083 | 2,926,966 | 4,278,768 | |||
Accrued expenses | 742,317 | 763,308 | 917,126 | |||
Other accruals | 557,155 | 792,531 | 1,299,526 | |||
3,318,727 | 4,593,777 | 6,665,074 | ||||
The breakdown, by currency, type and customer residence sector, of the balances of this caption on the liability side of the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
By currency: | ||||||
In euros | 38,278,736 | 32,482,221 | 36,508,793 | |||
In foreign currencies | 23,291,052 | 23,636,827 | 28,079,202 | |||
61,569,788 | 56,119,048 | 64,587,995 | ||||
By type: | ||||||
Current accounts- | ||||||
Current accounts | 32,275 | 133,796 | 52,240 | |||
Other accounts | 1,510,157 | 1,403,561 | 1,360,578 | |||
1,542,432 | 1,537,357 | 1,412,818 | ||||
Other- | ||||||
Bank of Spain and other central banks: | ||||||
Credit account drawdowns | 13,792,525 | 7,827,204 | 3,021,624 | |||
Assets sold under repurchase agreement (Notes 6, 7 and 8) | 7,131,686 | 2,020,801 | 1,686,789 | |||
Due to credit institutions: | ||||||
Time deposits | 26,462,007 | 26,983,251 | 34,759,980 | |||
Assets sold under repurchase agreement (Notes 6 and 7) | 10,863,009 | 14,598,398 | 20,659,474 | |||
Security payables | 1,463,227 | 2,600,588 | 2,352,866 | |||
Other accounts | 314,902 | 551,449 | 694,444 | |||
60,027,356 | 54,581,691 | 63,175,177 | ||||
61,569,788 | 56,119,048 | 64,587,995 | ||||
By sector | ||||||
Resident sector | 33,237,280 | 22,692,790 | 20,677,483 | |||
Non-resident sector | 28,332,508 | 33,426,258 | 43,910,512 | |||
Europe | 11,078,197 | 13,104,189 | 20,318,646 | |||
United States | 1,686,751 | 3,264,860 | 3,221,272 | |||
Latin America | 11,725,080 | 11,183,869 | 13,190,079 | |||
Other countries | 3,842,480 | 5,873,340 | 7,180,515 | |||
61,569,788 | 56,119,048 | 64,587,995 | ||||
As of December 31, 2003, 2002 and 2001, the Group had assets, mainly loans, credits and securities (see Note 8) securing financing lines assigned by the Bank of Spain and other central banks. As of December, 2003, 2002 and 2001, the financing limit assigned to the Group was €16,622,829 thousand, €11,653,181 thousand and €7,667,197 thousand, respectively, of which it had drawn down €13,981,458 thousand, €7,998,063 thousand and €3,021,624 thousand, respectively.
The detail, by due date, of the balances of the “Due to Credit Institutions—Other” caption in the accompanying consolidated balance sheets, and of the average interest rates for each year, is as follows:
Thousands of Euros | Average Interest Rate in the Year | ||||||||||
Up to 3 Months | 3 Months to 1 Year | 1 to 5 Years | Over 5 Years | ||||||||
Balances at December 31, 2003- | |||||||||||
Bank of Spain and other central banks | 20,373,300 | 26,943 | 296,475 | 227,493 | 2.3 | % | |||||
Due to credit institutions: | |||||||||||
Time deposits | 16,418,886 | 3,803,228 | 4,654,245 | 1,585,650 | 3.0 | % | |||||
Assets sold under repurchase agreement | 10,063,358 | 108,443 | 691,206 | — | 5.4 | % | |||||
Security payables and other accounts | 81,101 | 237,582 | 938,257 | 521,189 | 3.7 | % | |||||
46,936,645 | 4,176,196 | 6,580,183 | 2,334,332 | ||||||||
Balances at December 31, 2002- | |||||||||||
Bank of Spain and other central banks | 9,848,005 | — | — | — | 4.0 | % | |||||
Due to credit institutions: | |||||||||||
Time deposits | 15,097,271 | 5,522,083 | 4,387,679 | 1,976,218 | 4.0 | % | |||||
Assets sold under repurchase agreement | 13,879,667 | 670,678 | 48,053 | — | 5.0 | % | |||||
Security payables and other accounts | 969,629 | 76,311 | 1,306,900 | 799,197 | 1.2 | %. | |||||
39,794,572 | 6,269,072 | 5,742,632 | 2,775,415 | ||||||||
Balances at December 31, 2001- | |||||||||||
Bank of Spain and other central banks | 4,708,413 | — | — | — | 5.7 | % | |||||
Due to credit institutions: | |||||||||||
Time deposits | 22,405,770 | 4,919,780 | 4,634,552 | 2,799,878 | 5.3 | % | |||||
Assets sold under repurchase agreement | 19,016,591 | 1,485,601 | 157,282 | — | 6.2 | % | |||||
Security payables and other accounts | 791,920 | 120,398 | 1,353,075 | 781,917 | 2.7 | % | |||||
46,922,694 | 6,525,779 | 6,144,909 | 3,581,795 | ||||||||
The detail, by type and customer country of residence, of this caption as of December 31, 2003, 2002 and 2001, is as follows:
Demand | Time | Assets Sold with Repurchase Commitment | Total | |||||
2003: | ||||||||
Resident sector | 10,689,304 | 12,468,543 | 10,079,433 | 33,237,280 | ||||
Non-resident sector: | ||||||||
Europe | 1,149,918 | 8,233,250 | 1,695,029 | 11,078,197 | ||||
United States | 212,708 | 5,117,437 | 6,394,935 | 11,725,080 | ||||
Latin-America | 136,255 | 1,550,496 | — | 1,686,751 | ||||
Other | 158,032 | 3,684,448 | — | 3,842,480 | ||||
1,656,913 | 18,585,611 | 8,089,964 | 28,332,508 | |||||
Total | 12,346,217 | 31,054,154 | 18,169,397 | 61,569,788 | ||||
2002: | ||||||||
Resident sector | 6,174,267 | 9,656,445 | 6,862,078 | 22,692,790 | ||||
Non-resident sector: | ||||||||
Europe | 1,011,457 | 9,372,830 | 2,719,902 | 13,104,189 | ||||
United States | 585,166 | 2,178,033 | 501,661 | 6,264,860 | ||||
Latin-America | 2,165,945 | 2,482,366 | 6,535,558 | 11,183,869 | ||||
Other | 96,952 | 5,776,388 | — | 5,873,340 | ||||
3,859,520 | 19,809,617 | 9,757,121 | 33,426,258 | |||||
Total | 10,033,787 | 29,466,062 | 16,619,199 | 56,119,048 | ||||
2001: | ||||||||
Resident sector | 4,001,572 | 9,311,589 | 7,364,322 | 20,677,483 | ||||
Non-resident sector: | ||||||||
Europe | 2,015,085 | 10,770,088 | 7,533,473 | 20,318,646 | ||||
United States | 235,406 | 1,957,011 | 1,028,855 | 3,221,272 | ||||
Latin-America | 245,446 | 6,525,020 | 6,419,613 | 13,190,079 | ||||
Other | 216,264 | 6,964,251 | — | 7,180,515 | ||||
2,712,201 | 26,216,370 | 14,981,941 | 43,910,512 | |||||
Total | 6,713,773 | 35,527,959 | 22,346,263 | 64,587,995 | ||||
(18) DEPOSITS
The breakdown, by currency and sector, of the balances of this caption in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
By currency: | ||||||
In euros | 84,686,645 | 83,469,150 | 80,968,079 | |||
In foreign currencies | 56,362,262 | 63,091,215 | 85,531,355 | |||
141,048,907 | 146,560,365 | 166,499,434 | ||||
By sector: | ||||||
Public sector | 8,114,961 | 9,264,244 | 6,637,674 | |||
Other resident sectors- | ||||||
Current accounts | 37,018,177 | 35,508,915 | 34,653,467 | |||
Time deposits (Note 3-j) | 17,465,890 | 16,943,643 | 17,007,765 | |||
Assets sold under repurchase agreement (Notes 6, 7, 8 and 9) | 11,433,331 | 11,768,772 | 13,841,201 | |||
74,032,359 | 73,485,574 | 72,140,107 | ||||
Non-resident sector | ||||||
Europe | 10,914,154 | 10,375,037 | 11,277,271 | |||
United States | 3,380,749 | 5,220,043 | 3,994,320 | |||
Latin America | 44,673,444 | 51,662,008 | 73,275,468 | |||
Other countries | 8,048,201 | 5,817,703 | 5,812,268 | |||
67,016,548 | 73,074,791 | 94,359,327 | ||||
141,048,907 | 146,560,365 | 166,499,434 | ||||
The detail, by due date, of the balances of the “Savings Accounts - Time” and “Other Deposits - Time” captions in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Savings accounts - Time- | ||||||
Up to 3 months | 26,843,370 | 43,060,188 | 40,081,216 | |||
3 months to 1 year | 10,288,636 | 7,841,440 | 12,770,250 | |||
1 to 5 years | 17,367,542 | 5,338,418 | 10,829,710 | |||
Over 5 years | 988,236 | 1,196,306 | 3,830,995 | |||
55,487,784 | 57,436,352 | 67,512,171 | ||||
Other deposits – Time- | ||||||
Up to 3 months | 20,180,434 | 24,762,519 | 27,593,148 | |||
3 months to 1 year | 316,695 | 622,128 | 380,455 | |||
1 to 5 years | 21,915 | 15,621 | 691 | |||
Over 5 years | 17,108 | — | — | |||
20,536,152 | 25,400,268 | 27,974,294 | ||||
The detail, by type and customer country of residence, of this caption as of December 31, 2003, 2002 and 2001, is as follows:
Thousands of Euros | ||||||||||||
Non- interest | Demand | Savings Accounts | Time | Assets Sold with Repurchase Commitment | Total | |||||||
2003: | ||||||||||||
Resident sector | 29 | 26,830,621 | 17,567,303 | 13,818,180 | 15,816,226 | 74,032,359 | ||||||
Non-resident sector: | ||||||||||||
Other European Countries | 20,556 | 1,293,638 | 37,822 | 9,471,164 | 90,974 | 10,914,154 | ||||||
United States | 2 | 570,411 | 474,513 | 1,692,390 | 643,433 | 3,380,749 | ||||||
Latin America | 44,802 | 12,010,725 | 6,237,289 | 22,541,658 | 3,838,970 | 44,673,444 | ||||||
Other | 138 | 1,844 | 805 | 7,964,392 | 81,022 | 8,048,201 | ||||||
65,498 | 13,876,618 | 6,750,429 | 41,669,604 | 4,654,399 | 67,016,548 | |||||||
Total | 65,527 | 40,707,239 | 24,317,732 | 55,487,784 | 20,470,625 | 141,048,907 | ||||||
2002: | ||||||||||||
Resident sector | 2,287,929 | 23,761,849 | 15,092,160 | 17,168,228 | 15,175,408 | 73,485,574 | ||||||
Non-resident sector: | ||||||||||||
Other European Countries | 23,329 | 2,143,040 | 376,254 | 7,722,321 | 110,093 | 10,375,037 | ||||||
United States | — | 639,256 | 543,490 | 4,035,634 | 1,663 | 5,220,043 | ||||||
Latin America | 81,650 | 12,895,011 | 6,233,544 | 24,731,737 | 7,720,066 | 51,662,008 | ||||||
Other | 1 | 2,030,937 | 8,204 | 3,778,432 | 129 | 5,817,703 | ||||||
104,980 | 17,708,244 | 7,161,492 | 40,268,124 | 7,831,951 | 73,074,791 | |||||||
Total | 2,392,909 | 41,470,093 | 22,253,652 | 57,436,352 | 23,007,359 | 146,560,365 | ||||||
2001: | ||||||||||||
Resident sector | 2,175,146 | 23,520,377 | 14,184,710 | 17,677,110 | 14,582,764 | 72,140,107 | ||||||
Non-resident sector: | ||||||||||||
Other European Countries | 28,805 | 1,412,789 | 340,807 | 8,129,603 | 1,365,267 | 11,277,271 | ||||||
United States | 10,924 | 650,884 | 563,186 | 2,742,938 | 26,388 | 3,994,320 | ||||||
Latin America | 104,213 | 17,501,761 | 10,338,461 | 35,663,467 | 9,667,566 | 73,275,468 | ||||||
Other | 13,195 | 2,488,186 | 11,808 | 3,299,053 | 26 | 5,812,268 | ||||||
157,137 | 22,053,620 | 11,254,262 | 49,835,061 | 11,059,247 | 94,359,327 | |||||||
Total | 2,332,283 | 45,573,997 | 25,438,972 | 67,512,171 | 25,642,011 | 166,499,434 | ||||||
(19) MARKETABLE DEBT SECURITIES
The breakdown, by type, of security and currency, of the balances offinancial instruments that gave rise to the “Marketable Debt Securities - Bonds and Debentures Outstanding” account in the accompanying consolidated balance sheets as of December 31, 2003, 2002 and 2001,above balances is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
In euros- | ||||||
Nonconvertible floating rate bonds and debentures | 11,081,919 | 6,877,013 | 7,883,268 | |||
Nonconvertible bonds and debentures at weighted fixed rate of 4.71% (*) | 3,944,170 | 2,993,778 | 2,238,299 | |||
Convertible debentures | — | 5,387 | 7,879 | |||
Mortgage bonds | 11,359,758 | 8,416,727 | 5,656,161 | |||
26,385,847 | 18,292,905 | 15,785,607 | ||||
In foreign currencies- | ||||||
Nonconvertible floating rate bonds and debentures | 672,068 | 2,202,332 | 2,611,650 | |||
Nonconvertible bonds and debentures at weighted fixed rate of 2.83% (**) | 819,367 | 1,538,140 | 1,815,471 | |||
Floating rate mortgage bonds | 381,691 | 360,499 | 426,370 | |||
1,873,126 | 4,100,971 | 4,853,491 | ||||
28,258,973 | 22,393,876 | 20,639,098 | ||||
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Debt instruments | 79,319 | 48,354 | 346,232 | ||||||
Equity instruments | 2,604,056 | 1,111,223 | 817,505 | ||||||
Loans and advances to other debtors | 113,431 | 193,399 | — | ||||||
Derivatives | (1,178,012 | ) | (415,128 | ) | (455,172 | ) | |||
Deposits from other creditors | — | (318 | ) | — | |||||
Other | 37,117 | 42,634 | 53,292 | ||||||
Total | 1,655,911 | 980,164 | 761,857 | ||||||
51.SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES AND COST OF SALES
The “Mortgage Bonds” account includes various issues with an average weighted interest rate of 4.65%, 4.82% and 5.83% in 2003, 2002 and 2001, respectively, and the final maturityThese headings of the last of them is in 2011. The nominal amount outstanding and the interest on the mortgage bonds are guaranteed, without a registration requirement, by such mortgages as may, at any time, be registered in favor of the Bank (the issuer), without prejudice to its financial liability.
In 2003, 2002 and 2001, BBVA Global Finance Ltd. launched various issues amounting to €4,678,266 thousand, €5,080,695 thousand and €5,594,750 thousand, respectively, within a medium-term foreign currency euro-bond program with a limit of €20,000 million (Note 21). These issues are denominated in euros, U.S. dollars, Japanese yens and various other currencies, have a fixed or variable yield based, in the latter case, on a floating annual return plus a variable issue or redemption premium dependent on certain factors.
The debt securities composing the balance of this caption as of December 31, 2003, are scheduled to mature (disregarding the possibility of the early redemption of certain issues) as follows:
Maturity | Thousands of Euros | |
2004 | 7,906,732 | |
2005 | 5,803,164 | |
2006 | 846,538 | |
2007 | 3,614,484 | |
2008 | 700,119 | |
Subsequent years | 9,387,936 | |
28,258,973 | ||
Following is a breakdown, by due date and currency, of the balance of “Promissory Notes and Other Securities” in the accompanying consolidated balance sheets:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
By due date: | ||||||
Up to 3 months | 4.085.117 | 4,103,111 | 3,253,591 | |||
3 months to 1 year | 2.038.437 | 1,018,879 | 1,189,990 | |||
1 to 5 years | 125 | 7,406 | 292,995 | |||
6.123.679 | 5,129,396 | 4,736,576 | ||||
By currency: | ||||||
In euros | 5.473.789 | 3,379,742 | 3,243,740 | |||
In other currencies | 649.890 | 1,749,654 | 1,492,836 | |||
6.123.679 | 5,129,396 | 4,736,576 | ||||
(20) PROVISIONS FOR CONTINGENCIES AND EXPENSES
The variations in 2003, 2002 and 2001 in the “Provisions for Contingencies and Expenses - Pension Provision” and “Provisions for Contingencies and Expenses - Other Provisions” captions in the accompanying consolidated balance sheets were as follows:
Thousands of Euros | ||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||
Pension Provision | Other Provisions | Pension Provision | Other Provisions | Pension Provision | Other Provisions | |||||||||||||
Beginning balances | 2,621,907 | 2,221,411 | 2,358,552 | 2,425,588 | 1,823,098 | 1,209,736 | ||||||||||||
Add- | ||||||||||||||||||
Provisions charged to income for the year | 147,179 | 575,873 | 200,734 | 948,556 | 79,389 | 1,054,878 | ||||||||||||
Provision charged to reserves (Notes 2-h, 3-j and 24) | 799,416 | — | 499,177 | — | 731,743 | — | ||||||||||||
Inclusion of companies in the Group | — | 1,576 | — | 149 | 220 | 8,685 | ||||||||||||
Transfers of off-balance-sheet risks | — | — | — | 86,278 | — | — | ||||||||||||
Transfers and other variations | 103,621 | 324,052 | 159,927 | — | 81,067 | 429,951 | ||||||||||||
Less- | ||||||||||||||||||
Releases | — | (697,080 | ) | — | (546,724 | ) | (84 | ) | (155,398 | ) | ||||||||
Payments to personnel taking early retirement (Note 3-j) | (429,168 | ) | — | (407,153 | ) | — | (348,473 | ) | — | |||||||||
Amounts used and other variations | (211,042 | ) | (91,250 | ) | (189,330 | ) | (692,193 | ) | (8,408 | ) | (122,264 | ) | ||||||
Transfers to off-balance-sheet risks | — | (62,275 | ) | — | — | — | — | |||||||||||
Exclusion of companies from the Group | — | (84,635 | ) | — | (243 | ) | — | — | ||||||||||
Ending balances (Note 2-f) | 3,031,913 | 2,187,672 | 2,621,907 | 2,221,411 | 2,358,552 | 2,425,588 | ||||||||||||
The provisions out of 2003 income to the “Pension Provision” were charged to the “Financial Expenses” (€69,893 thousand), “General Administrative Expenses” (€56,420 thousand) and “Extraordinary Losses” (€20,866
thousand) captions in the accompanying consolidated statement of income. The amounts charged to these captions in 2002 were €60,041 thousand, €39,067 thousand and €101,626 thousand, respectively. The amounts charged to these captions in 2001 were €42,480 thousand, €32,203 thousand and €4,706 thousand, respectively (Note 28).
The provisions out of 2003 income to “Other Provisions” were mainly charged to the “Market Operations” (€783 thousand) and “Extraordinary Losses” (€575,090 thousand) captions in the accompanying consolidated statement of income. The amounts charged to these captions in 2002 were €141,218 thousand and €785,267 thousand, respectively. The amounts charged to these captions in 2001 were €77,633 thousand and €880,218 thousand, respectively (Note 28). The reversals are recorded mainly in “Extraordinary Income” in the related accompanying consolidated statements of income.income show, respectively, sales of assets and income from the provision of services that constitute the typical activity of non-financial consolidated entities forming part of the Group and the related costs of sales. The main lines of business of these entities are as follows:
Thousands of Euros | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Sales/ Income | Cost of Sales | Sales/ Income | Cost of Sales | Sales/ Income | Cost of Sales | |||||||
Real estate | 333,540 | 230,944 | 285,323 | 214,763 | 226,296 | 132,455 | ||||||
Services and other | 271,687 | 242,925 | 291,050 | 235,831 | 241,940 | 209,290 | ||||||
Total | 605,227 | 473,869 | 576,373 | 450,594 | 468,236 | 341,745 | ||||||
The breakdown of the balances of the “Other Provisions” caption in the accompanying consolidated balance sheets as52.OTHER OPERATING INCOME AND EXPENSES
As of December 31, 2003, 2002 and 2001, is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Provisions for other commitments to employees (Notes 3-j and 3-k): | ||||||
Covered by shares (Note 3-i) | 10,351 | 9,921 | 12,339 | |||
Other commitments | 52,401 | 46,183 | 112,395 | |||
Provisions for contingencies | 909,510 | 877,691 | 624,121 | |||
Provisions for off-balance-sheet risks (Notes 3-c and 8) | 209,270 | 271,545 | 185,268 | |||
Provision for futures transactions (Notes 3-m and 26) | 277,614 | 280,721 | 168,229 | |||
Other provisions (*) | 728,526 | 735,350 | 1,323,236 | |||
2,187,672 | 2,221,411 | 2,425,588 | ||||
Most2006, the balance of the provisions for contingencies areheading “Other Operating Expenses” relates mostly to cover tax contingencies.the contribution to the Deposit Guarantee Fund, amounted to €214,582 thousand. The balance of the heading “Other Operating products” includes among others the rents collected from leases.
The variations in 2003, in the “Other Provisions” caption in the accompanying consolidated balance sheets were as follows:
Provisions for other commitments to employees | Provisions for contingencies | Provisions for off-balance sheet risks | Provisions for futures transactions | Other provisions | Total | |||||||||||||
Beginning Balances | 56,104 | 877,691 | 271,545 | 280,721 | 735,350 | 2,221,411 | ||||||||||||
Add- | ||||||||||||||||||
Provisions charged to income for the year | 13,746 | 45,067 | 2,572 | 14,534 | 499,954 | 575,873 | ||||||||||||
Inclusion of companies in the group | 1,443 | — | — | — | 133 | 1,576 | ||||||||||||
Transfers to off-balance-sheet risks | — | — | — | — | — | — | ||||||||||||
Transfers and other variations | 353 | 230,157 | 29 | — | 93,513 | 324,052 | ||||||||||||
Less- | ||||||||||||||||||
Releases | (4,892 | ) | (323,858 | ) | (59,181 | ) | (11,213 | ) | (297,936 | ) | (697,080 | ) | ||||||
Amounts used and other variations | — | — | — | — | — | — | ||||||||||||
Exclusion of companies from the Group | — | — | — | — | (84,635 | ) | (84,635 | ) | ||||||||||
Transfers and exchanges differencies | (4,002 | ) | 80,453 | (5,695 | ) | (6,428 | ) | (155,578 | ) | (91,250 | ) | |||||||
Transfers to off-balance-sheet risks | — | — | — | (62,275 | ) | (62,275 | ) | |||||||||||
Ending balances | 62,752 | 909,510 | 209,270 | 277,614 | 728,526 | 2,187,672 | ||||||||||||
(21) SUBORDINATED DEBT53.PERSONNEL EXPENSES
The detail of the balancesbalance of the “Subordinated Debt” captionthis heading in the accompanying consolidated balance sheets as of December 31, 2003, 2002 and 2001,income statements is as follows:
ISSUER | Thousands of Euros | Interest Rate at 12/31/03 | Final Maturity Date | ||||||||
2003 | 2002 | 2001 | |||||||||
Issues in euros- | |||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.: | |||||||||||
July 1996 | 84,142 | 84,142 | 84,142 | 9.33 | % | December 2006 | |||||
July 1996 | 27,947 | 27,947 | 27,947 | 9.37 | % | December 2016 | |||||
February 1997 | 60,101 | 60,101 | 60,101 | 6.97 | % | December 2007 | |||||
September 1997 | 36,061 | 36,061 | 36,061 | 6.65 | % | December 2007 | |||||
December 2001 | 1,500,000 | 1,500,000 | 1,500,000 | 3.52 | % | January 2017 | |||||
July 2003 | 600,000 | — | — | 2.53 | % | July 2013 | |||||
November 2003 | 750,000 | — | — | 4.50 | % | November 2015 | |||||
BBVA CAPITAL FUNDING, LTD.: | |||||||||||
September 1995 | 13,613 | 13,613 | 13,613 | 1.57 | % | September 2005 | |||||
March 1997 | 45,735 | 45,735 | 45,735 | 2.36 | % | March 2007 | |||||
October 1997 | 76,694 | 76,694 | 76,694 | 2.33 | % | October 2007 | |||||
October1997 | 228,674 | 228,674 | 228,674 | 6.00 | % | December 2009 | |||||
July 1999 | 73,000 | 73,000 | 73,000 | 6.35 | % | October 2015 | |||||
February 2000 | 500,000 | 500,000 | 500,000 | 6.38 | % | February 2010 | |||||
December 2000 | 750,000 | 750,000 | 750,000 | 2.77 | % | December 2010 | |||||
July 2001 | 500,000 | 500,000 | 500,000 | 5.50 | % | July 2011 | |||||
October 2001 | 60,000 | 60,000 | 60,000 | 5.73 | % | October 2011 | |||||
October 2001 | 40,000 | 40,000 | 40,000 | 6.08 | % | October 2016 | |||||
October 2001 | 50,000 | 50,000 | 50,000 | 2.73 | % | October 2016 | |||||
November 2001 | 55,000 | 55,000 | 55,000 | 2.86 | % | November 2016 | |||||
December 2001 | 56,000 | 56,000 | 56,000 | 4.16 | % | December 2016 | |||||
Issues in foreign currencies- | |||||||||||
BBVA GLOBAL FINANCE, LTD.: | |||||||||||
July 1995 USD | 118,765 | 143,034 | 170,203 | 6.88 | % | July 2005 | |||||
July 1995 USD | 39,588 | 47,678 | 56,734 | 1.61 | % | January 2005 | |||||
December 1995 USD | 59,382 | 71,517 | 85,102 | 1.36 | % | May 2005 | |||||
December 1995 USD | 59,382 | 71,517 | 85,102 | 1.36 | % | May 2006 | |||||
December 1995 USD | 158,353 | 190,712 | 226,937 | 7.00 | % | December 2025 | |||||
BILBAO VIZCAYA INVESTMENTS BV: | |||||||||||
July 1996 | — | — | 601 | — | July 2006 | ||||||
BBVA CHILE, S.A. CLP | 30,359 | 41,714 | 53,083 | Several | Several | ||||||
BBVA BANCO FRANCES, S.A. ARS | 5,294 | 29,473 | 88,601 | Several | Several | ||||||
BBVA CAPITAL FUNDING, LTD.: | |||||||||||
July 1995 USD | 79,177 | 95,356 | 113,469 | 1.57 | % | September 2004 | |||||
August 1995 JPY | 22,214 | 24,117 | 26,013 | 3.45 | % | August 2010 | |||||
September 1995 | — | — | 113,469 | — | September 2007 | ||||||
October 1995 JPY | 74,047 | 80,392 | 86,707 | 5.40 | % | October 2015 | |||||
October 1995 USD | 118,765 | 143,034 | 170,203 | 6.88 | % | October 2005 | |||||
February 1996 USD | 197,942 | 238,391 | 283,672 | 6.38 | % | February 2006 | |||||
November 1996 USD | 158,353 | 190,712 | 226,937 | 1.54 | % | November 2006 | |||||
February 1997 | — | — | 170,203 | — | February 2007 | ||||||
BBVA PUERTO RICO | — | 15,418 | — | 6.25 | % | Several | |||||
BBVA BANCOMER: | |||||||||||
Convertible debentures - Dec. 1996 | — | — | 34,083 | December 2006 | |||||||
Nonconvertible debentures – November 1998 MXN | 176,202 | 232,243 | 309,753 | Several | Several | ||||||
Bancomer Gran Cayman (various) USD | 198,814 | 237,883 | 398,370 | Several | 2004 | ||||||
BBVA Bancomer | — | — | 32,524 | — | Several | ||||||
Bancomer UDIS - December 1996 | — | — | 154,714 | — | March 2002 | ||||||
GRUPO FINANCIERO BBVA BANCOMER: | |||||||||||
BBVA BANCOMER CAPITAL TRUST: | |||||||||||
February 2001 (Note 4) USD | 395,883 | 476,784 | 567,344 | 10.05 | % | February 2011 | |||||
7,399,487 | 6,486,942 | 7,610,791 | |||||||||
These issues are classified as subordinated debt and, accordingly, are deemed to have a lower seniority than all the accounts payable to common creditors.
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Wages and salaries | 3,011,963 | 2,743,684 | 2,459,582 | |||
Social security costs | 503,766 | 471,799 | 436,651 | |||
Transfers to internal pension provisions (Note 29) | 74,281 | 68,893 | 58,982 | |||
Contributions to external pension funds (Note 29) | 52,637 | 55,813 | 57,419 | |||
Other personnel expenses | 345,938 | 262,053 | 234,416 | |||
Total | 3,988,585 | 3,602,242 | 3,247,050 | |||
The detail,average number of employees in the Group in 2006, 2005 and 2004, by due date,professional category and country is as follows:
2006 | 2005 | 2004 | ||||
Spanish banks | ||||||
Executives | 1,104 | 1,087 | 1,054 | |||
Other line personnel | 21,818 | 21,807 | 21,427 | |||
Clerical staff | 7,141 | 7,429 | 7,954 | |||
Abroad branches | 676 | 674 | 662 | |||
30,739 | 30,997 | 31,097 | ||||
Companies abroad | ||||||
Mexico | 25,157 | 24,721 | 24,688 | |||
Venezuela | 5,555 | 5,568 | 5,779 | |||
Argentina | 3,604 | 3,428 | 3,396 | |||
Colombia | 5,155 | 3,487 | 3,327 | |||
Peru | 2,705 | 2,358 | 2,308 | |||
Other | 6,175 | 5,561 | 4,483 | |||
48,351 | 45,123 | 43,981 | ||||
Pension fund managers | 8,297 | 7,078 | 5,415 | |||
Other non-banking companies | 8,351 | 7,546 | 4,211 | |||
Total | 95,738 | 90,744 | 84,704 | |||
Equity-instrument-based employee remuneration -
At the Annual General Meeting held on 18 March 2006, the Bank’s shareholders approved a long-term share-based remuneration plan for the members of the balanceGroup’s management team (“the Plan”). The Plan has a term of three years from 1 January 2006 and will be settled in the first half of 2009.
Under this Plan the Bank promises to deliver ordinary shares of BBVA to the members of the “Subordinated Debt” captionGroup’s management team (including executive directors and management committee members). A number of “theoretical shares” will be allocated to the beneficiaries based on the annual variable remuneration earned by each member in the last three years and on their level of responsibility. This number will serve as the basis for the calculation of the BBVA shares that will be delivered, as the case may be, when the Plan expires. The specific number of BBVA shares to be delivered to each beneficiary on expiry of the Plan will be calculated by multiplying the number of “theoretical shares” allocated by a coefficient ranging from 0 to 2. The value of the coefficient established by comparing the performance of the Total Shareholder Return (TSR) - share appreciation plus dividends - of the Bank over the term of the Plan with the performance of the same indicator for 14 leading European banks. The amount of the obligation that will be registered in the consolidated financial statements will be determined by multiplying the number of the shares by the estimated average price at the moment of the liquidation of the Plan. (€15.02 at the moment of approved the Plan).
Both TSR and estimated average price per share were considered market variations at the moment of calculated the cost of the Plan when the Plan was initiated (Note 2.u). The value of the TSR (0.896) was calculated by Montecarlo simulations. The estimated average price (15.02) was calculated by the future price.
As of December 31, 2006, the estimated number of theoretical shares for the Group as a whole, including executive directors and BBVA’s Management Committee members (see Note 8), was 9,998,202, representing 0.281% of the Bank’s share capital.
As of December 31, 2006, the total accrued amount during the Plan’s life is €134,555 thousand.
As of December 31, 2006, the expense recognized in this period amounted to €44,852 thousand (€3,095 thousand corresponding to executive directors) and was recognised under “Personnel Expenses – Other” in the Group’s consolidated income statement with a charge to “Equity-Other equity instrument-Rest” in the consolidated balance sheet as of December 31, 2003,2006, net of tax.
54.OTHER GENERAL ADMINISTRATIVE EXPENSES
The breakdown of the balance of this heading in the consolidated income statements is as follows:
Maturity | Thousands of Euros | |
2004 | 266,615 | |
2005 | 356,396 | |
2006 | 677,009 | |
2007 | 219,713 | |
2008 | 2,702 | |
Subsequent years | 5,877,052 | |
7,399,487 | ||
The issues of BBVA Capital Funding, Ltd. and BBVA Global Finance, Ltd. are guaranteed (secondary liability) by the Bank.
The issue by Bilbao Vizcaya Investment BV, of US$ 250 million, was redeemed early in January 2002 through conversion of the bonds into shares of the Bank. This exchange was performed at the fixed conversion rate of €3.99 euros per share, which gave rise to the delivery of 377,330 previously-issued shares. In 2001 bonds with a face value of US$ 5.42 million were exchanged for the equivalent of 1,048,787 Bank shares already issued. These transactions did not give rise to material gains. As of December 31, 2001, the bonds outstanding amounted to US$ 2.4 million (face value).
The interest on the subordinated debt amounted to €327,554 thousand in 2003, €405,775 thousand in 2002 and €429,694 thousand in 2001 (Note 28).
(22) MINORITY INTERESTS
The variations in 2003, 2002 and 2001 in the balances of this caption in the accompanying consolidated balance sheets were as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Beginning balance | 5,674,163 | 6,394,029 | 6,304,286 | ||||||
Prior year’s net income | 746,919 | 645,223 | 681,800 | ||||||
6,421,082 | 7,039,252 | 6,986,086 | |||||||
Capital increases and reductions | (88 | ) | 714,451 | 226,731 | |||||
Dividends paid to minority shareholders | (353,283 | ) | (343,029 | ) | (501,779 | ) | |||
Changes in the composition of the Group and changes in the percentages of ownership (Note 4) | (88,372 | ) | (438,191 | ) | (440,247 | ) | |||
Exchange differences (Note 3-b) | (210,754 | ) | (1,364,210 | ) | 172,521 | ||||
Other variations (*) | (342,667 | ) | 65,890 | (49,283 | ) | ||||
Share in income for the year | 670,463 | 746,919 | 645,223 | ||||||
Ending balance | 6,096,381 | 6,421,082 | 7,039,252 | ||||||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Technology and systems | 495,563 | 434,274 | 411,524 | |||
Communications | 217,734 | 202,578 | 182,552 | |||
Advertising | 207,175 | 211,677 | 143,706 | |||
Property, fixtures and materials | 450,814 | 415,421 | 361,368 | |||
Taxes other than income tax | 202,861 | 213,210 | 152,775 | |||
Other expenses | 767,689 | 683,318 | 598,920 | |||
Total | 2,341,836 | 2,160,478 | 1,850,845 | |||
The breakdown, by company,heading “Property, Fixtures and Materials” includes expenses relating to operating leases of buildings amounting to €172,675 thousand, €157,804 thousand and €139,241 thousand in 2006, 2005 and 2004, respectively. The consolidated companies do not expect to terminate the “Minority Interests” caption in the accompanying consolidated balance sheets as of December 31, 2003, 2002 and 2001, is as follows:lease contracts early.
Thousands of Euros | |||||||
2003 | 2002 | 2001 | |||||
Preferred shares- | |||||||
BBVA International, Ltd. (1) | 3,040,000 | 3,216,505 | 2,295,794 | ||||
BBVA Preferred Capital, Ltd. (2) | 190,024 | 198,993 | 523,722 | ||||
BBVA Privanza International (Gibraltar), Ltd. (2) | 55,424 | 266,152 | 663,175 | ||||
BBVA Capital Funding, Ltd. (3) | 255,646 | 418,496 | 550,930 | ||||
BBVA Capital Finance, S.A. | 350,000 | — | — | ||||
3,891,094 | 4,100,146 | 4,033,621 | |||||
By company- | |||||||
BBVA Bancomer Group | 884,710 | 957,149 | 1,079,124 | ||||
BBVA Banco Francés Group | (3,542 | ) | 18,836 | 212,115 | |||
BBVA Banco Ganadero Group | 8,969 | 11,748 | 18,709 | ||||
BBVA Chile Group | 102,103 | 103,295 | 145,511 | ||||
BBVA Banco Continental Group | 104,043 | 104,339 | 159,773 | ||||
BBVA Banco Provincial Group | 109,862 | 117,890 | 271,958 | ||||
Provida Group | 58,631 | 50,636 | 47,558 | ||||
Banc Internacional d’Andorra, S.A. | 133,803 | 91,008 | 69,080 | ||||
Brunara, SIMCAV, S.A. (Note 4) | — | — | 284,212 | ||||
Other companies | 136,245 | 119,116 | 72,368 | ||||
1,534,824 | 1,574,017 | 2,360,408 | |||||
5,425,918 | 5,674,163 | 6,394,029 | |||||
55.FINANCE INCOME AND EXPENSES FROM NON-FINANCIAL ACTIVITIES
The breakdown, by company, of the shareamounts recorded under these headings relates in full to finance income for the years ended December 31, 2003, 2002 and 2001, is as follows:
Thousands of Euros | ||||||||
2003 | 2002 | 2001 | ||||||
Preferred shares- | ||||||||
BBVA International, Ltd. | 165,237 | 167,743 | 146,286 | |||||
BBVA Preferred Capital, Ltd. | 16,295 | 29,862 | 32,280 | |||||
BBVA Privanza International (Gibraltar), Ltd. | 12,516 | 43,925 | 95,074 | |||||
BBVA Capital Funding, Ltd. | 20,113 | 34,099 | 41,542 | |||||
BBVA Capital Finance, S.A. | 288 | — | — | |||||
214,449 | 275,629 | 315,182 | ||||||
By company- | ||||||||
BBVA Bancomer group | 289,779 | 317,813 | 427,812 | |||||
BBVA Banco Francés group | 932 | 14,380 | (212,115 | ) | ||||
BBVA Banco Ganadero group | 2,412 | 1,109 | 535 | |||||
BBVA Chile group | 7,413 | 5,373 | 8,330 | |||||
BBVA Banco Continental group | 27,956 | 30,900 | (15,710 | ) | ||||
BBVA Banco Provincial group | 71,595 | 65,649 | 62,619 | |||||
Provida group | 11,276 | 13,232 | 25,807 | |||||
Banc Internacional d’Andorra, S.A. | 34,992 | 46,498 | 60,973 | |||||
Brunara, SIMCAV, S.A. (Note 4) | — | — | (20,921 | ) | ||||
Other companies | 9,659 | (23,664 | ) | (7,289 | ) | |||
456,014 | 471,290 | 330,041 | ||||||
670,463 | 746,919 | 645,223 | ||||||
The foregoing balances include various issues of noncumulative, nonvoting, preferred stock guaranteed by Banco Bilbao Vizcaya Argentaria, S.A., the detail of which is as follows:
Issued Amount (Millions) | Fixed Annual Dividend | |||||||||||||||||
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | |||||||||||||
BBVA Privanza International (Gibraltar), Ltd.- | ||||||||||||||||||
December 1992 | US$ | — | — | 100 | — | — | 9.00 | % | ||||||||||
June 1993 | US$ | — | 248 | 248 | — | 8.00 | % | 8.00 | % | |||||||||
June 1997 | US$ | 70 | 70 | 70 | 7.76 | % | 7.76 | % | 7.76 | % | ||||||||
June 1997 | US$ | — | — | 250 | — | — | 8.00 | % | ||||||||||
BBVA International, Ltd.- | ||||||||||||||||||
March 1998 | US$ | — | 350 | 350 | — | 7.20 | % | 7.20 | % | |||||||||
November 1998 | € | 700 | 700 | 700 | 6.24 | % | 6.24 | % | 6.24 | % | ||||||||
February 1999 | € | 1,000 | 1,000 | 1,000 | 5.76 | % | 5.76 | % | 5.76 | % | ||||||||
April 2001 | € | 340 | 340 | 340 | 7.01 | % | 7.01 | % | 7.01 | % | ||||||||
March 2002 | € | 500 | 500 | — | 3.50 | % | 3.94 | % | — | |||||||||
December 2002 | € | 500 | 500 | — | 3.25 | % | 3.94 | % | — | |||||||||
BBVA Capital Funding, Ltd.- | ||||||||||||||||||
April 1995 | € | — | — | 500 | — | — | 9.00 | % | ||||||||||
April 1998 | € | 256 | 256 | 256 | 6.35 | % | 6.35 | % | 6.35 | % | ||||||||
April 1998 | US$ | — | 200 | 200 | — | 7.20 | % | 7.20 | % | |||||||||
BBVA Preferred Capital, Ltd.- | ||||||||||||||||||
June 1997 | US$ | — | — | 250 | — | — | 7.80 | % | ||||||||||
June 2001 | US$ | 240 | 240 | 240 | 7.75 | % | 7.75 | % | 7.75 | % | ||||||||
BBVA Capital Finance, S.A. | ||||||||||||||||||
December 2003 | € | 350 | — | — | 3.00 | % | — | — |
These issues were subscribed by third parties outside the Group and are wholly or partially redeemable at the Company’s option after five or ten yearsexpenses from the issue date, depending on the terms of each issue.
(23) CAPITAL STOCK
As of December 31, 2003, 2002Group’s real estate and 2001 the capital stock of Banco Bilbao Vizcaya Argentaria, S.A.renting companies, net amounted to €1,565,967,501.07, and consisted of 3,195,852,043 fully subscribed and paid registered shares of €0.49 par value each.
There were no variations in the Bank’s capital stock in 2003, 2002 and 2001.
The shares of Banco Bilbao Vizcaya Argentaria, S.A. are listed on the computerized trading system of the Spanish stock exchanges and on the New York, Frankfurt, London, Zurich, Milan and Buenos Aires stock markets. Also, as of December 31, 2003, the shares of Grupo Financiero BBVA-Bancomer, S.A., BBVA Banco Continental, S.A., Banco Provincial C.A., BBVA Banco Ganadero, S.A., BBVA Chile, S.A., BBVA Banco Francés, S.A. and AFP Provida were listed on their respective local stock markets and, in the case of the last three entities, on the New York Stock Exchange. In addition, Grupo Financiero BBVA Bancomer, S.A. and BBVA Banco Francés, S.A. are listed on the Latin-American market of the Madrid Stock Exchange.
The variations in 2003, 2002 and 2001 in the “Treasury Stock” caption on the asset side of the accompanying consolidated balance sheets were as follows:
Thousands of Euros | ||||||||||||
Par Value | Remaining Portion up to Cost | Securities Revaluation Reserve (Note 3-i) | TOTAL | |||||||||
Balance at December 31, 2000 | 5,169 | 154,334 | (46,795 | ) | 112,708 | |||||||
Purchases (Note 4) | 110,743 | 3,218,603 | — | 3,329,346 | ||||||||
Sales | (112,925 | ) | (3,291,398 | ) | — | (3,404,323 | ) | |||||
Net release of the securities revaluation reserve (Note 3-i) | — | — | 38,213 | 38,213 | ||||||||
Balance at December 31, 2001 | 2,987 | 81,539 | (8,582 | ) | 75,944 | |||||||
Purchases (Note 4) | 195,077 | 4,251,285 | — | 4,446,362 | ||||||||
Sales | (192,675 | ) | (4,237,173 | ) | — | (4,429,848 | ) | |||||
Net release of the securities revaluation reserve (Note 3-i) | — | — | 7,833 | 7,833 | ||||||||
Other variations | (105 | ) | (2,515 | ) | — | (2,620 | ) | |||||
Balance at December 31, 2002 | 5,284 | 93,136 | (749 | ) | 97,671 | |||||||
Purchases (Note 4) | 200,711 | 3,566,322 | — | 3,767,033 | ||||||||
Sales | (202,332 | ) | (3,795,463 | ) | — | (3,997,795 | ) | |||||
Net charge to the securities revaluation reserve (Note 3-i) | — | — | (15,115 | ) | (15,115 | ) | ||||||
Other variations | 5 | 214,260 | — | 214,265 | ||||||||
Balance at December 31, 2003 | 3,668 | 78,255 | (15,864 | ) | 66,059 | |||||||
Securities revaluation reserves to cover treasury stock were recorded amounting to €15,864€2,375 thousand, €749€641 thousand and €8,582€4,025 thousand as of December 31, 2003, 20022006, 2005 and 2001,2004, respectively.
56.OTHER GAINS AND OTHER LOSSES
The net provisions to/releasesbreakdown of securities revaluation reserves in 2003, 2002 and 2001 due to disposalsthe balances of treasury stock amounted to €2,643 thousand, €1,053 thousand and €40,538 thousand, respectively, and were recorded in 2003 under the “Income on Group Transactions” captions, in 2002 under the “Losses on Group Transactions” caption and in 2001 under the “Income on Group Transactions” caption,these headings in the accompanying consolidated income statements of income.
As of December 31, 2003 and 2002, the Bank held treasury stock with a nominal value of €2,509 thousand and €5,242 thousand, respectively, to cover futures transactions related to the performance of certain stock market indexes. As of December 31, 2001, the Bank held treasury stock with a nominal value of less than €1,000 (Note 26).
From January 2001 through December 31, 2001, the percentage of outstanding shares held by BBVA and its consolidated companies varied from 0.4506% to 0.0470% calculated on a monthly basis. From January 2002 through December 31, 2002, the percentage of outstanding shares held by BBVA and its consolidated companies varied from 0.13% to 0.74% calculated on a monthly basis. From January 2003 through December 31, 2003, the percentage of outstanding shares held by BBVA and its consolidated companies varied from 0.153% to 0.683% calculated on a monthly basis.
The gains and losses on treasury stock transactions, amounting to €16,048 thousand and €18,758 thousand, respectively, in 2003, €15,802 thousand and €23,898 thousand, respectively, in 2002 and €33,843 thousand and €31,859 thousand, respectively, in 2001, are recorded under the “Income on Group Transactions” and “Losses on Group Transactions” captions, respectively, in the accompanying consolidated statements of income.
As of December 31, 2002 and 2001, there were no individual equity investments of over 5% in the Bank’s capital stock. However, as of December 31, 2003, Chase Nominees Ltd., in its capacity as an international custodian bank, owned 5.25% of the Bank’s capital stock. As of December 31, 2003, 2002 and 2001, Fundación Banco Bilbao Vizcaya, a private not-for-profit charitable, educational and cultural institution set up in 1988 with a contribution of €84,142 thousand from the Bank which was charged to the merger surpluses, owned a total of 34,365,852 shares of the Bank.
On March 1, 2003, the Shareholders’ Meeting authorized, in accordance with the stipulations of Article 153.1.a) of the Spanish Corporations Law, a capital increase of €782,983,750 and the delegation to the Board of Directors, for the legally stipulated period of one year, of the required powers to fully or partially execute the aforementioned capital increase, and provided for the possibility of not performing the authorized capital increase. As of December 31, 2003, the Board of Directors had not performed the authorized capital increase. In addition, the aforementioned Shareholders’ Meeting authorized the issuance of up to €6,000 million of debentures convertible to and/or exchangeable for Bank shares. As of December 31, 2003, no issue had been made under this authorization.
As of December 31, 2003, the additional capital stock authorized by the Shareholders’ Meeting on March 9, 2002, amounted to €782,983,750. The legally stipulated period within which the directors can carry out this increase is five years. As of December 31, 2003, the directors had not made use of this authorization. Also, the aforementioned Shareholders’ Meeting in March 2002 authorized the Board of Directors, for a five-year period, to issue up to €20,000 million of bonds of any class or type. As of December 31, 2003, an issue of bonds of up to €10,000 million had been recorded.
Also, the aforementioned Shareholders’ Meeting in March 2002 authorized the Board of Directors to issue, on one or several occasions, warrants on shares of the Company up to a maximum of €1,500 million, fully or partially convertible to or exchangeable for Company shares over a maximum period of five years. None of these securities had been issued as of December 31, 2003.
As of December 31, 2003, 2002 and 2001, there were no capital increases in progress at any of the companies in the Finance Group.
(24) RETAINED EARNINGS
The variations in 2003, 2002 and 2001 in the “Retained earnings” captions in the accompanying consolidated balance sheets were as follows:
Thousands of Euros | ||||||||||||||
Additional Paid-in | Retaines earnings | Revaluation Reserves | Net Reserves and Accumulated Losses at Consolidated Companies | TOTAL | ||||||||||
Balances at January 1, 2001 | 6,873,827 | 1,027,258 | 176,281 | 3,403,778 | 11,481,144 | |||||||||
Prior year’s net income | — | 1,380,574 | — | 593,006 | 1,973,580 | |||||||||
Dividends out of prior year’s net income | — | (1,138,773 | ) | — | 8,193 | (1,130,580 | ) | |||||||
Recording of provisions for early retirement, net of taxes (Notes 2-h, 3-j and 20) | (38,886 | ) | (432,894 | ) | — | (7,461 | ) | (479,241 | ) | |||||
Exchange differences arising from consolidation (Notes 3-b and 4) | — | — | — | (593,860 | ) | (593,860 | ) | |||||||
Transfers and other variations | — | 583,053 | — | (629,757 | ) | (46,704 | ) | |||||||
Balances at December 31, 2001 | 6,834,941 | 1,419,218 | 176,281 | 2,773,899 | 11,204,339 | |||||||||
Prior year’s net income | — | 1,311,561 | — | 531,509 | 1,843,070 | |||||||||
Dividends out of prior year’s net income | — | (1,224,010 | ) | — | 4,398 | (1,219,612 | ) | |||||||
Recording of provisions for early retirement, net of taxes (Notes 2-h, 3-j and 20) | (224,589 | ) | (96,512 | ) | — | (3,364 | ) | (324,465 | ) | |||||
Exchange differences arising from consolidation (Notes 3-b and 4) | — | — | — | (1,246,358 | ) | (1,246,358 | ) | |||||||
Transfers and other variations | (97,555 | ) | (638,773 | ) | — | 754,984 | 18,656 | |||||||
Balances at December 31, 2002 | 6,512,797 | 771,484 | 176,281 | 2,815,068 | 10,275,630 | |||||||||
Prior year’s net income | — | 1,207,096 | — | 512,033 | 1,719,129 | |||||||||
Dividends out of prior year’s net income | — | (1,112,156 | ) | — | 3,120 | (1,109,036 | ) | |||||||
Recording of provisions for early retirement, net of taxes (Notes 2-h, 3-j and 20) | (237,382 | ) | (277,662 | ) | — | (4,576 | ) | (519,620 | ) | |||||
Exchange differences arising from consolidation (Notes 3-b and 4) | — | — | — | (339,284 | ) | (339,284 | ) | |||||||
Transfers and other variations | (1,514 | ) | 382,715 | — | (500,509 | ) | (119,308 | ) | ||||||
Balance at December 31, 2003 | 6,273,901 | 971,477 | 176,281 | 2,485,852 | 9,907,511 | |||||||||
Additional paid-in capital-
This caption in the accompanying consolidated balance sheets includes the surpluses arising from the merger of Banco Bilbao, S.A. and Banco Vizcaya, S.A. (Note 1), the detail of which is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
| ||||||
Gains | ||||||
Gains from tangible assets disposal (Note 20) | 92,902 | 107,838 | 102,874 | |||
Gains on sale of long-term investment (*) | 934,469 | 40,157 | 317,510 | |||
Income from the provision of non-typical services | 4,213 | 3,852 | 4,733 | |||
Other income | 97,044 | 132,969 | 197,063 | |||
1,128,628 | 284,816 | 622,180 | ||||
Losses | ||||||
Losses on fixed asset disposals (Note 20) | 20,413 | 22,477 | 22,450 | |||
Losses on sale of investments | 181 | 11,751 | 9,127 | |||
Other losses | 121,424 | 174,051 | 239,643 | |||
Total | 142,018 | 208,279 | 271,220 | |||
(*) | |||
| |||
| |||
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Banca Nazionale del Lavoro, S.p.A., Banc Internacional d’Andorra and Técnicas Reunidas, S.A. (see Notes 4 and 18). |
57.1. TRANSACTIONSWITH BBVA GROUP
The revised Corporations Law expressly permits the usebalances of the additional paid-in capital balance to increase capital and establishes no specific restrictions as to its use.
Retained earnings and revaluation reserves-
The detail of these captionsmain aggregates in the accompanying consolidated balance sheets, which includefinancial statements arising from the reserves oftransactions carried out by the Group attributed to the Bank, iswith associated and jointly controlled companies (Note 2.1.b-c), which consist of ordinary business and financial transactions carried out on an arm’s-length basis, in 2006, 2005 and 2004 are as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Restricted reserves- | ||||||
Legal reserve | 313,194 | 313,194 | 313,194 | |||
Restricted reserve for retired capital stock | 87,918 | 87,918 | 87,918 | |||
Restricted reserve for Parent Company shares | 76,812 | 121,140 | 30,923 | |||
Restricted reserve for redenomination of capital stock in euros | 1,861 | 1,861 | 1,861 | |||
Revaluation reserves Royal Decree-Law 7/1996 | 176,281 | 176,281 | 176,281 | |||
Unrestricted reserves- | ||||||
Voluntary and other reserves | 6,551 | 6,551 | 6,551 | |||
Consolidation reserves attributed to the Bank | 485,141 | 240,820 | 978,771 | |||
1,147,758 | 947,765 | 1,595,499 | ||||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Assets: | ||||||
Due from credit institutions | — | 4,636 | 594 | |||
Total net lending | 374,156 | 267,654 | 227,206 | |||
Liabilities: | ||||||
Due to credit institutions | — | 1,966 | 134 | |||
Deposits | 82,791 | 19,070 | 47,208 | |||
Debt certificates | 463,249 | 256,881 | 82,363 | |||
Memorandum accounts: | ||||||
Contingent liabilities | 23,316 | 35,218 | 97,694 | |||
Commitments and contingents liabilities | 457,161 | 44,133 | 96,439 | |||
Statement of income: | ||||||
Financial Revenues | 12,484 | 7,745 | 6,230 | |||
Financial Expenses | 13,482 | 5,569 | 1,705 | |||
Legal reserve-
According to the revised Corporations Law, 10% of the income for each year must be transferred to the legal reserve. These amounts must be transferred until the balance of this reserve reaches 20% of capital stock. This limit had already been reached by Banco Bilbao Vizcaya Argentaria, S.A. as of December 31, 2003, 2002 and 2001. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased capital stock amount.
Except as mentioned above, until the legal reserve exceeds 20% of capital stock, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.
Restricted reserves-
According to the revised Corporations Law and to Law 46/1998 on the introduction of the euro, the respective restricted reserves were recorded in relation to treasury stock held by the Group, to customer loans secured by shares of the Bank, to the reduction of the par value of each share in April 2000 and to the redenomination of capital stock in euros.
Asset revaluation reserves (Notes 3-e and 3-h)-
Prior to the merger, Banco de Bilbao, S.A. and Banco de Vizcaya, S.A. availed themselves of the asset revaluation provisions of the applicable enabling legislation. In addition, on December 31, 1996, the Bank revalued its property and equipment pursuant to Royal Decree-Law 7/1996 by applying the maximum coefficients authorized, up to the limit of the market value arising from the existing valuations. The resulting increases in the cost and accumulated depreciation of property and equipment and, where appropriate, in the cost of equity securities, were allocated as follows:
| |||
| |||
| |||
| |||
| |||
| |||
| |||
Subsequent to the review of the balance of the “Revaluation Reserves Royal Decree-Law 7/1996” account by the tax authorities in 2000, it can only be used, free of tax, to offset recorded losses and to increase capital stock through January 1, 2007. From that date, the remaining balance of this account can be taken to unrestricted reserves, provided that the surplus has been depreciated or the revalued assets have been transferred or written off. If this balance were used in a manner other than that provided for in Royal Decree-Law 7/1996, it would be subject to tax.
Reserves and accumulated losses at consolidated companies-
The breakdown, by company, of these captions in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Reserves at consolidated companies- | ||||||
Fully or proportionally consolidated companies: | ||||||
Holding Continental, S.A. | 24,714 | 164,864 | 89,557 | |||
Ancla Investments, S.A. | 89,556 | 83,430 | 78,642 | |||
Banc Internacional d’Andorra, S.A. | 81,080 | 75,145 | 58,527 | |||
BBVA Puerto Rico, S.A. | 169,567 | 158,443 | 160,596 | |||
Banco Industrial de Bilbao, S.A. | 82,649 | 80,459 | 66,790 | |||
Banco Provincial, S.A. | 213,803 | 45,520 | 152,243 | |||
BBVA Privanza Bank (Jersey), Ltd. | 59,128 | 54,781 | 49,175 | |||
Canal International Holding, S.A. | 466,741 | 494,888 | 400,082 | |||
Cía. de Cartera e Inversiones, S.A. | 29,406 | — | 107,094 | |||
Corporación General Financiera, S.A. | 605,536 | 586,490 | 419,464 | |||
BBVA Chile, S.A. | 56,195 | 59,092 | 57,439 | |||
Banco de Crédito Local, S.A. | — | 32,997 | 61,904 | |||
BBVA Cartera de Inversión SIMCAV | 54,783 | 55,311 | 56,627 | |||
Grupo Financiero BBVA Bancomer, S.A. de C.V. | — | — | 4,760 | |||
Cía. Chilena de Inversiones, S.L. | 66,463 | 108,309 | 117,973 | |||
BBVA Bancomer Servicios, S.A. | 291,440 | 230,696 | 197,607 | |||
BBVA Bolsa, S.V., S.A. (Note 4) | — | 90,073 | 75,355 | |||
Sdad. De Estudios y Análisis Financieros, S.A. | 58,316 | 55,185 | 58,268 | |||
BBV América, S.L. | 203,172 | 354,912 | 317,749 | |||
BBVA Privanza Bank (Switzerland) Ltd. | 91,734 | 72,941 | 52,348 | |||
Banco Francés (Cayman) Ltd. | 302,869 | 36,343 | 86,371 | |||
Bilbao Vizcaya Holding, S.A. | 7,854 | 33,744 | 46,404 | |||
Corporación Industrial y de Servicios, S.L. | — | — | 162,472 | |||
Bilbao Vizcaya América B.V. | — | — | 108,284 | |||
Casa de Bolsa BBV Probursa, S.A. de C.V. | 57,655 | 56,030 | 51,753 | |||
Corporación IBV Servicios y Tecnologías, S.A. | 56,142 | 114,304 | 91,005 | |||
BBVA Participaciones Internacionales, S.L. | 32,802 | 28,406 | 54,518 | |||
BBVA Banco Ganadero, S.A. | 40,230 | 48,261 | — | |||
BBVA Banco Francés, S.A. | — | 134,690 | 95,783 | |||
Consolidar A.F.J.P. | 50,203 | 71,801 | 4,063 | |||
Inversora Otar, S.A. | 95,544 | 192,444 | — | |||
BBVA Renting, S.A. | 43,222 | 36,162 | 32,665 | |||
Banco Bilbao Vizcaya Brasil, S.A. (Note 4) | — | 283,815 | 201,687 | |||
Administradora de Fondos de Retiro Bancomer, S.A. | 137,472 | 83,257 | 22,021 | |||
Other companies | 805,558 | 560,465 | 515,824 | |||
4,273,834 | 4,483,258 | 4,055,050 | ||||
Companies accounted for by the equity method: | ||||||
Iberdrola, S.A. | 170,663 | 180,588 | 130,768 | |||
Senorte Vida y Pensiones, S.A. | 33,360 | 33,377 | 33,392 | |||
Telefónica, S.A. | 335,976 | 358,556 | 195,185 | |||
Repsol YPF, S.A. | 274,557 | 397,727 | 232,682 | |||
Banco Atlántico, S.A. | 62,775 | 59,408 | 52,985 | |||
Banca Nazionale del Lavoro, S.p.A. | 17,529 | 138,780 | 12,158 | |||
Acerinox, S.A. | 70,751 | 58,647 | 55,996 | |||
Other companies | 469,663 | 438,664 | 337,605 | |||
1,435,274 | 1,665,747 | 1,050,771 | ||||
Exchange gains: | ||||||
Fully or proportionally consolidated companies: | ||||||
BBVA Banco Continental Group | — | — | 20,386 | |||
BBVA Banco Ganadero Group | — | — | 19,635 | |||
BBVA Bancomer Group | 196,464 | 61,898 | — | |||
BBVA Puerto Rico, S.A. | — | 37,113 | 81,088 | |||
Other companies | 130,992 | 201,030 | 222,117 | |||
327,456 | 300,041 | 343,226 | ||||
Companies accounted for by the equity method: | 60,052 | 16,230 | 25,807 | |||
6,096,616 | 6,465,276 | 5,474,854 | ||||
Accumulated losses at consolidated companies- Fully or proportionally consolidated companies: Inversora Otar, S.A. BBVA Banco Continental, S.A. BBVA Gestión, S.A. SGIIC BBVA Banco Ganadero, S.A. BBVA Portugal, S.A. AFP Horizonte, S.A. BBVA Brasil, S.A. (Note 4) AFP Provida, S.A. BBVA Global Finance, Ltd. BBVA International Investment Corporation BBVA Puerto Rico Holding Corporation BBVA Banco Francés, S.A. Cía. de Cartera e Inversiones, S.A. Corporación Industrial y de Servicios, S.L. Bilbao Vizcaya América B.V. Fideicomiso de Vivienda Bancomer BBVA Bancomer, S.A. BBVA Área Inmobiliaria, S.L. BBVA Pensiones Chile, S.A. Banco de Crédito Local, S.A. Grupo Financiero BBVA Bancomer, S.A. de C.V. Other companies Companies accounted for by the equity method: Exchange losses in consolidation: Fully or proportionally consolidated companies: BBVA Bancomer Group BBVA Banco Ganadero Group Bilbao Vizcaya América, B.V. Provida Group BBVA Brazil Group BBVA Banco Francés Group BBVA Banco Provincial Group BBVA Banco Continental Group BBVA International Investment Corporation Other companies Companies accounted for by the equity method: Thousands of Euros 2003 2002 2001 — — 268,364 28,444 179,108 100,345 — — 77,915 — — 308,728 — 54,045 61,441 — 51,527 40,737 — — — 27,277 47,817 54,663 — 25,620 63,593 — 61,199 69,892 158,454 158,404 155,951 13,359 — — — 87,979 — 199,599 46,474 — 78,682 119,592 — 44,636 47,338 52,601 — 39,293 — — 135,748 — 103,999 93,223 11,978 6,610 — — 11,203 — — 137,272 162,951 215,966 809,535 1,310,318 1,482,174 201,872 151,054 223,541 — — 35,153 65,394 45,130 — 162,078 94,483 — 5,132 45,354 11,774 — 86,001 152,958 613,460 535,832 408,147 289,958 259,480 88,529 4,901 21 — 593,009 337,789 — 193,074 188,594 517 1,927,006 1,592,684 697,078 672,351 596,152 298,162 3,610,764 3,650,208 2,700,955
The exchange differences in consolidation include the net cumulative effect of the differences arising in translation and, accordingly, reflect the effect of the devaluation described in Note 3-o.
For the purpose of allocating the reserves and accumulated losses at the consolidated companies in the preceding table, the transfers of reserves arising from the dividends paid and the writedowns or transactions between these companies are taken into account in the year in which they took place.
The individual financial statements of the subsidiaries which give rise to the balances recorded under the “Reserves” and “Accumulated Losses at Consolidated Companies - Fully and Proportionally Consolidated Companies” captions in the foregoing table as of December 31, 2003, 2002 and 2001, include €3,617,649 thousand, €4,059,581 thousand and €2,249,005 thousand, respectively, of restricted reserves, of which €102,658 thousand, €121,893 thousand and €84,502 thousand, respectively, are restricted reserves for Parent Company shares.
(25) TAX MATTERS
The balance of the “Other Liabilities - Tax Collection Accounts” caption in the accompanying consolidated balance sheets includes the liability for applicable taxes, including the provision for corporate income tax in each year, net of tax withholdings and prepayments in each year, in the case of companies with a net tax liability. The amount of the tax refunds due to Group companies is included under the “Other Assets - Taxes Receivable” caption in the accompanying consolidated balance sheets.
Banco Bilbao Vizcaya Argentaria, S.A. and its tax-consolidable subsidiaries file consolidated tax returns. The subsidiaries of Argentaria, which had been in Tax Group 7/90, were included in Tax Group 2/82 from 2000, since the merger had been carried out under the tax neutrality system provided for in Title VIII, Chapter VIII of Corporate Income Tax Law 43/1995. On December 30, 2002, the Group made the pertinent notification to the Ministry of Economy and Finance to extend its taxation under the consolidated taxation regime indefinitely, in accordance with current legislation. The other Group companies file individual tax returns in accordance with the applicable tax regulations.
As in prior years, in 2003 certain Group entities performed or participated in corporate restructuring transactions under the special tax neutrality system regulated by Law 29/1991 adapting certain tax items to EU directives and regulations and by Title VIII, Chapter VIII of Corporate Income Tax Law 43/1995. The disclosures required under the aforementioned legislation are included in the notes to financial statements of the relevant Group entities for the year in which the transactions took place.
The reconciliation of corporate income tax payable, calculated on the basis of the income per books before taxes, to the provision recorded is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Corporate income tax at the standard rate of 35% | 1,334,249 | 1,091,741 | 1,271,930 | ||||||
Decrease arising from permanent differences: | |||||||||
Tax credits and tax relief at consolidated companies | (279,618 | ) | (203,445 | ) | (302,143 | ) | |||
Effect of allocation of the Group’s share in the net income of associated companies | (124,980 | ) | (7,698 | ) | (190,063 | ) | |||
Other items, net | (42,765 | ) | (270,774 | ) | (75,836 | ) | |||
(447,363 | ) | (481,917 | ) | (568,042 | ) | ||||
Net increase (decrease) arising from timing differences | (48,275 | ) | (249,256 | ) | 595,993 | ||||
Corporate income tax and other taxes payable | 838,611 | 360,568 | 1,299,881 | ||||||
Recording (use) of prepaid or deferred taxes | 48,275 | 249,256 | (595,993 | ) | |||||
Provision for corporate income tax and other taxes accrued in the year | 886,886 | 609,824 | 703,888 | ||||||
Adjustments to the provision for prior years’ corporate income tax and other taxes | 28,090 | 43,389 | (78,367 | ) | |||||
Corporate income tax and other taxes | 914,976 | 653,213 | 625,521 |
As required by Bank of Spain Circular 4/1991 and related regulations, the deferred tax assets that will foreseeably be recovered during the next ten years are included under the “Other Assets” caption in the accompanying consolidated balance sheets (Note 15). The main items for which the Group companies have recorded deferred tax assets are provisions to cover pensions and similar obligations to employees (€989,642 thousand at the Spanish companies) and the loan loss provisions (€779,892 thousand at BBVA Bancomer, S.A. de C.V. and €316,637 thousand at BBVA, S.A.).
The Bank and certain Group companies have opted to defer corporate income tax on the gains on disposals of property and equipment and shares in investee companies more than 5% owned by them, the breakdown of which by year is as follows:
Year | Thousands of Euros | |
1996 | 29,187 | |
1997 | 378,097 | |
1998 | 733,896 | |
1999 | 194,980 | |
2000 | 707,917 | |
2001 | 995,202 |
Pursuant to the regulations in force until December 31, 2001, the amount of the aforementioned gains must be included in equal parts in the taxable income of the seven tax years ending from 2000, 2001, 2002, 2003, 2004 and 2005, respectively. Following inclusion of the portion relating to 2001, the amount of the income not yet included was €2,976,931 thousand, with respect to which the Group companies availed themselves of the provisions of the Third Transitory Provision of Law 24/2001 on Administrative, Tax and Social Security Measures, and practically all of this amount (€2,971,625 thousand) constitutes an addition to the 2001 taxable income for timing differences.
The share acquisitions giving rise to an ownership interest of more than 5%, particularly investments of this kind in Latin America, have been assigned to meet reinvestment commitments assumed in order to apply the above-mentioned tax deferral.
In 2003 the Bank and certain Group companies availed themselves of the corporate income tax credit for reinvestment of extraordinary income obtained on the transfer for consideration of property and of shares in investees more than 5% owned. The income subject to this tax credit amounted to €33,224 thousand. The acquisition in 2002 of shares of Latin American companies, mainly, was included under the group of reinvestment commitments under the aforementioned tax credit.
As of December 31, 2003, 2002 and 2001, certain consolidated companies had tax losses qualifying for carryforward against the taxable income, if any, of the ten years following the year in which they were incurred. As of December 31, 2003, the tax assets recorded for tax loss carryforwards amounted to €759,051 thousand, of which €539,670 thousand relate to BBVA Bancomer, S.A. de C.V. and €151,110 thousand to BBVA Bancomer Servicios, S.A. de C.V. Based on the available financial projections, the income expected to be generated by these two companies will enable these amounts, and the deferred tax assets recorded by them, to be recovered over a period of less than ten years.
As a result of the tax audits by the tax inspection authorities, in 2002 tax assessments were issued to certain Group companies for the years through 1997, some of which were contested. Taking into account the timing nature of certain tax assessment items, and in accordance with the principle of prudence, full provisions had been included in the accompanying consolidated financial statements for the amounts that arose in this connection. The other Group companies generally have 1998 and subsequent years open for review by the tax inspection authorities for the main taxes applicable to them.
The varying interpretations which can be made of the tax regulations applicable to the operations of banks give rise to certain contingent tax liabilities for the open years that cannot be objectively quantified. However, the Bank’s Board of Directors and its tax advisers consider that the possibility of these contingent liabilities materializing in future reviews by the tax authorities is remote and that, in any event, the tax charge which might arise therefrom would not materially affect the consolidated financial statements.
(26) MEMORANDUM ACCOUNTS AND OTHER OFF-BALANCE-SHEET TRANSACTIONS
The detail of the balances of the “Memorandum Accounts” caption in the accompanying consolidated balance sheets as of December 31, 2003, 2002 and 2001, which include the main commitments and contingent liabilities that arose in the normal course of banking business, is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Contingent liabilities- | ||||||
Deposits, guarantees and sureties | 13,588,729 | 15,109,713 | 13,713,924 | |||
Rediscounts, endorsements and acceptances | 11,828 | 5,370 | 62,097 | |||
Other | 3,050,954 | 3,041,745 | 2,699,583 | |||
16,651,511 | 18,156,828 | 16,475,604 | ||||
Commitments- | ||||||
Balances drawable by third parties: | ||||||
Credit institutions | 2,723,586 | 2,521,177 | 2,349,633 | |||
Public sector | 2,591,339 | 4,288,788 | 2,994,873 | |||
Other resident sectors | 27,578,080 | 25,842,248 | 26,183,898 | |||
Non-resident sector | 19,934,934 | 16,101,984 | 21,388,686 | |||
52,827,939 | 48,754,197 | 52,917,090 | ||||
Other commitments | 3,070,468 | 2,865,188 | 2,372,081 | |||
55,898,407 | 51,619,385 | 55,289,171 | ||||
72,549,918 | 69,776,213 | 71,764,775 | ||||
In addition to the above-mentioned contingent liabilities and commitments, at the end of 2003, 2002 and 2001 the Group had other transactions which, pursuant to current legislation, are not reflected in the accompanying consolidated balance sheets, The detail of the notional or contractual value of these transactions as of December 31, 2003, 2002 and 2001, and of the type of market on which they were arranged, is as follows:
Thousands of Euros | ||||||||
Type of Market | 2003 | 2002 | 2001 | |||||
Foreign currency purchase and sale transactions and swaps | ||||||||
- Foreign currency purchases against euros | 23,376,814 | 19,611,600 | 17,456,059 | |||||
- Foreign currency purchases against foreign currencies | 18,651,590 | 21,640,807 | 9,896,857 | |||||
- Foreign currency sales against euros | 14,467,407 | 8,832,980 | 10,552,226 | |||||
Over-the-counter | 56,495,811 | 50,085,387 | 37,905,142 | |||||
Financial asset purchase and sale transactions | ||||||||
- Purchases | 725,260 | 1,085,452 | 633,455 | |||||
- Sales | 1,159,737 | 5,553,424 | 2,118,309 | |||||
Organized | 1,884,997 | 6,638,876 | 2,751,764 | |||||
Forward rate agreements (FRA) | ||||||||
- Bought | 37,999,751 | 13,759,612 | 57,444,797 | |||||
- Sold | 29,325,752 | 8,653,722 | 53,915,045 | |||||
Over-the-counter | 67,325,503 | 22,413,334 | 111,359,842 | |||||
Interest rate swaps | Over-the-counter | 533,737,345 | 454,602,653 | 463,403,810 | ||||
Securities swaps | Over-the-counter | 3,973,217 | 6,921,838 | 3,848,898 | ||||
Interest rate futures | ||||||||
- Bought | 12,768,238 | 13,136,816 | 15,572,963 | |||||
- Sold | 37,407,616 | 36,106,890 | 26,505,175 | |||||
Organized | 50,175,854 | 49,243,706 | 42,078,138 | |||||
Securities futures | ||||||||
- Bought | 208,991 | 33,051 | 301,546 | |||||
- Sold | 1,365,939 | 398,859 | 755,707 | |||||
Organized | 1,574,930 | 431,910 | 1,057,253 | |||||
Interest rate options | ||||||||
- Bought | 42,247,845 | 37,819,076 | 36,721,077 | |||||
- Sold | 35,276,947 | 31,547,425 | 32,562,187 | |||||
77,524,792 | 69,366,501 | 69,283,264 | ||||||
Organized | 8,507,711 | 1,638,260 | 1,517,281 | |||||
Over-the-counter | 69,017,081 | 67,728,241 | 67,765,983 | |||||
Securities options | ||||||||
- Bought | 4,934,530 | 4,303,747 | 4,878,950 | |||||
- Sold | 25,835,985 | 14,748,739 | 15,484,073 | |||||
30,770,515 | 19,052,486 | 20,363,023 | ||||||
Organized | 1,668,877 | 984,495 | 419,495 | |||||
Over-the-counter | 29,101,638 | 18,067,991 | 19,943,528 | |||||
Foreign currency options and futures | ||||||||
- Bought | 3,595,772 | 3,949,889 | 10,552,096 | |||||
- Sold | 5,264,581 | 4,745,871 | 11,791,166 | |||||
Over-the-counter | 8,860,353 | 8,695,760 | 22,343,262 | |||||
Other transactions | 788,903 | 1,292,090 | 818,597 | |||||
833,112,220 | 688,744,541 | 775,212,993 | ||||||
The notional or contractual amounts of these transactions do not necessarily reflect the volume of actual risk assumed by the Group, since the net position in these financial instruments is the result of the offset and/or combination of them, This net position, even if it is not deemed a hedge for accounting purposes, is used by the Group basically to eliminate or significantly reduce interest rate, market or exchange risk, The resulting gains or losses on these transactions are included under the “Market Operations” caption in the consolidated statements of income. Any gains or losses on hedging transactions are included as an increase in, or offset of, the results on the positions covered by them,
For the purposes of calculating the minimum capital requirements established by Bank of Spain Circular 5/1993, credit and counterparty risk arising from OTC interest rate and currency derivative transactions is measured by the original risk method, as of December 31, 2003, 2002 and 2001, the risk-weighted assets amounted to €3,870,801 thousand, €4,387,162 thousand and €4,422,028 thousand, respectively, which entails a minimum capital requirement of €309,664 thousand, €350,973 thousand, and €353,762 thousand, respectively, for transactions of this kind, respectively. The detail, by maturity, of these transactions as of December 31, 2003, 2002 and 2001, is as follows:
Thousands of Euros | ||||||||
Up to 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | |||||
Balances at December 31, 2003- | ||||||||
Interest rate and securities transactions- | ||||||||
Swaps | 369,498,175 | 88,519,328 | 50,619,343 | 29,073,716 | ||||
Forward rate agreements | 67,261,478 | 64,025 | — | — | ||||
Financial futures | 29,626,989 | 22,123,664 | 131 | — | ||||
Unmatured financial asset purchase and sale transactions | 1,884,997 | — | — | — | ||||
Securities and interest rate options | 34,432,983 | 44,313,427 | 19,656,483 | 9,892,414 | ||||
502,704,622 | 155,020,444 | 70,275,957 | 38,966,130 | |||||
Exchange rate transactions- | ||||||||
Forward foreign currency purchase and sale transactions and swaps | 36,891,706 | 7,149,988 | 12,454,117 | — | ||||
Foreign currency options and futures | 1,851,514 | 1,365,049 | 46,801 | 5,596,989 | ||||
Other transactions | 788,903 | — | — | — | ||||
39,532,123 | 8,515,037 | 12,500,918 | 5,596,989 | |||||
542,236,745 | 163,535,481 | 82,776,875 | 44,563,119 | |||||
Balances at December 31, 2002- | ||||||||
Interest rate and securities transactions- | ||||||||
Swaps | 329,331,193 | 70,949,128 | 34,833,180 | 26,410,990 | ||||
Forward rate agreements | 20,656,539 | 1,756,795 | — | — | ||||
Financial futures | 35,503,837 | 14,166,096 | 5,683 | — | ||||
Unmatured financial asset purchase and sale transactions | 6,638,876 | — | — | — | ||||
Securities and interest rate options | 20,384,422 | 36,302,213 | 24,498,414 | 7,233,938 | ||||
412,514,867 | 123,174,232 | 59,337,277 | 33,644,928 | |||||
Exchange rate transactions- | ||||||||
Forward foreign currency purchase and sale transactions and swaps | 47,868,117 | 2,217,270 | — | — | ||||
Foreign currency options and futures | 8,413,004 | 233,176 | 30,987 | 18,593 | ||||
Other transactions | 1,292,090 | — | — | — | ||||
57,573,211 | 2,450,446 | 30,987 | 18,593 | |||||
470,088,078 | 125,624,678 | 59,368,264 | 33,663,521 | |||||
Balances at December 31, 2001- | ||||||||
Interest rate and securities transactions- | ||||||||
Swaps | 364,213,213 | 50,607,244 | 30,695,284 | 21,736,967 | ||||
Forward rate agreements | 103,826,959 | 7,532,883 | — | — | ||||
Financial futures | 36,774,654 | 6,353,789 | 6,948 | — | ||||
Unmatured financial asset purchase and sale transactions | 2,751,764 | — | — | — | ||||
Securities and interest rate options | 31,272,253 | 28,437,416 | 18,751,158 | 11,185,460 | ||||
538,838,843 | 92,931,332 | 49,453,390 | 32,922,427 | |||||
Exchange rate transactions- | ||||||||
Forward foreign currency purchase and sale transactions and swaps | 26,673,787 | 11,231,355 | — | — | ||||
Foreign currency options and futures | 21,498,639 | 844,623 | — | — | ||||
Other transactions | 818,597 | — | — | — | ||||
48,991,023 | 12,075,978 | — | — | |||||
587,829,866 | 105,007,310 | 49,453,390 | 32,922,427 | |||||
The detail, by maturity and currency, of the interest rate swaps and forward rate agreements as of December 31, 2003, 2002 and 2001, stating the interest rates collected and paid, is as follows:
Thousands of Euros (except for percentages) | ||||||||||||
Balances at December 31, 2003 | Up to 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | ||||||||
Swaps- | ||||||||||||
In euros: | ||||||||||||
Collecting fixed interest- | ||||||||||||
Notional value | 146,519,659 | 27,535,800 | 23,685,417 | 11,541,990 | ||||||||
Average interest rate collected | 2.36 | % | 4.71 | % | 5.18 | % | 5.23 | % | ||||
Average interest rate paid | 2.14 | % | 2.38 | % | 2.32 | % | 2.25 | % | ||||
Paying fixed interest- | ||||||||||||
Notional value | 180,944,503 | 24,265,639 | 18,652,431 | 14,238,246 | ||||||||
Average interest rate collected | 2.15 | % | 2.24 | % | 2.52 | % | 2.30 | % | ||||
Average interest rate paid | 3.83 | % | 4.91 | % | 5.43 | % | 5.90 | % | ||||
Floating rate/floating rate- | ||||||||||||
Notional value | 6,199,317 | 4,463,763 | 1,705,715 | 2,166,886 | ||||||||
Average interest rate collected | 1.62 | % | 2.39 | % | 2.95 | % | 2.45 | % | ||||
Average interest rate paid | 1.57 | % | 2.30 | % | 2.46 | % | 2.46 | % | ||||
333,663,479 | 56,265,202 | 44,043,563 | 27,947,122 | |||||||||
In foreign currencies: | ||||||||||||
Collecting fixed interest- | ||||||||||||
Notional value | 26,771,781 | 21,089,552 | 4,323,442 | 330,518 | ||||||||
Average interest rate collected | 1.92 | % | 4.31 | % | 4.91 | % | 5.90 | % | ||||
Average interest rate paid | 1.88 | % | 2.10 | % | 2.17 | % | 2.10 | % | ||||
Paying fixed interest- | ||||||||||||
Notional value | 8,989,789 | 11,106,107 | 2,149,826 | 796,076 | ||||||||
Average interest rate collected | 2.20 | % | 2.16 | % | 2.19 | % | 2.18 | % | ||||
Average interest rate paid | 3.83 | % | 4.63 | % | 4.76 | % | 5.59 | % | ||||
Floating rate/floating rate- | ||||||||||||
Notional value | 73,126 | 58,467 | 102,512 | — | ||||||||
Average interest rate collected | 3.00 | % | 2.18 | % | 2.36 | % | — | |||||
Average interest rate paid | 2.93 | % | 1.93 | % | 2.41 | % | — | |||||
35,834,696 | 32,254,126 | 6,575,780 | 1,126,594 | |||||||||
369,498,175 | 88,519,328 | 50,619,343 | 29,073,716 | |||||||||
Up to 3 Months | 3 to 6 Months | 6 to 12 Months | Over 1 Year | |||||||||
Forward rate agreements- | ||||||||||||
In euros: | ||||||||||||
Collecting fixed interest- | ||||||||||||
Notional value | 19,577,337 | 6,845,572 | 2,523,367 | — | ||||||||
Average interest rate collected | 2.12 | % | 2.41 | % | 2.54 | % | — | |||||
Average interest rate paid | 2.18 | % | 2.18 | % | 2.30 | % | — | |||||
Paying fixed interest- | ||||||||||||
Notional value | 23,274,945 | 11,316,680 | 3,023,045 | — | ||||||||
Average interest rate collected | 2.18 | % | 2.18 | % | 2.30 | % | — | |||||
Average interest rate paid | 2.12 | % | 2.38 | % | 2.69 | % | — | |||||
42,852,282 | 18,162,252 | 5,546,412 | — | |||||||||
In foreign currencies: | ||||||||||||
Collecting fixed interest- | ||||||||||||
Notional value | 328,371 | 31,651 | 24,009 | 64,025 | ||||||||
Average interest rate collected | 1.38 | % | 1.81 | % | — | — | ||||||
Average interest rate paid | 1.15 | % | — | — | — | |||||||
Paying fixed interest- | ||||||||||||
Notional value | 316,501 | — | — | — | ||||||||
Average interest rate collected | 1.15 | % | — | — | — | |||||||
Average interest rate paid | 1.36 | % | — | — | — | |||||||
644,872 | 31,651 | 24,009 | 64,025 | |||||||||
43,497,154 | 18,193,903 | 5,570,421 | 64,025 | |||||||||
Balances at December 31, 2002 Up to 1 Year 1 to 5 Years 5 to 10 Years Over 10 Years Swaps- In euros: Collecting fixed interest- Notional value Average interest rate collected Average interest rate paid Paying fixed interest- Notional value Average interest rate collected Average interest rate paid Floating rate/floating rate- Notional value Average interest rate collected Average interest rate paid In foreign currencies: Collecting fixed interest- Notional value Average interest rate collected Average interest rate paid Paying fixed interest- Notional value Average interest rate collected Average interest rate paid Floating rate/floating rate- Notional value Average interest rate collected Average interest rate paid Up to 3 Months 3 to 6 Months 6 to 12 Months Over 1 Year Forward rate agreements- In euros: Collecting fixed interest- Notional value Average interest rate collected Average interest rate paid Paying fixed interest- Notional value Average interest rate collected Average interest rate paid In foreign currencies: Collecting fixed interest- Notional value Average interest rate collected Average interest rate paid Paying fixed interest- Notional value Average interest rate collected Average interest rate paid Thousands of Euros (except for percentages) 133,273,453 23,353,844 15,876,403 11,780,908 3.20 % 4.91 % 5.38 % 5.73 % 3.43 % 3.34 % 3.65 % 3.86 % 152,123,286 19,621,239 13,030,682 11,261,379 3.42 % 3.24 % 3.65 % 3.37 % 3.21 % 5.19 % 5.23 % 5.96 % 2,309,867 5,966,248 1,038,244 1,435,651 3.64 % 3.60 % 3.25 % 3.62 % 3.71 % 3.59 % 3.23 % 3.58 % 287,706,606 48,941,331 29,945,329 24,477,938 23,417,615 13,973,168 2,238,984 1,055,070 5.47 % 7.59 % 6.00 % 6.61 % 4.05 % 5.35 % 2.89 % 1.68 % 13,034,006 6,915,482 2,126,473 451,839 1.30 % 1.65 % 1.63 % 1.57 % 2.35 % 4.39 % 5.20 % 5.77 % 233,262 85,550 — — 1.22 % 3.64 % — — 2.05 % 2.61 % — — 36,684,883 20,974,200 4,365,457 1,506,909 324,391,489 69,915,531 34,310,786 25,984,847 4,209,934 1,946,625 2,229,355 227,039 3.14 % 2.95 % 2.85 % 3.37 % 3.46 % 2.98 % 2.92 % 4.66 % 5,892,332 2,870,899 2,881,666 564,233 3.50 % 3.40 % 2.99 % 3.64 % 3.09 % 2.93 % 2.86 % 3.15 % 10,102,266 4,817,524 5,111,021 791,272 410,137 12,242 — 482,762 9.33 % 6.59 % — 2.46 % 6.29 % 6.36 % — 4.56 % 123,162 80,187 — 482,761 1.40 % 3.27 % — 4.72 % 1.89 % 2.19 % — 2.46 % 533,299 92,429 — 965,523 10,635,565 4,909,953 5,111,021 1,756,795
Balances at December 31, 2001 Up to 1 Year 1 to 5 Years 5 to 10 Years Over 10 Years Swaps- In euros: Collecting fixed interest- Notional value Average interest rate collected Average interest rate paid Paying fixed interest- Notional value Average interest rate collected Average interest rate paid Floating rate/floating rate- Notional value Average interest rate collected Average interest rate paid In foreign currencies: Collecting fixed interest- Notional value Average interest rate collected Average interest rate paid Paying fixed interest- Notional value Average interest rate collected Average interest rate paid Floating rate/floating rate- Notional value Average interest rate collected Average interest rate paid Up to 3 Months From 3 to 6 Months From 6 to 12 Months Over 1 Year Forward rate agreements- In euros: Collecting fixed interest- Notional value Average interest rate collected Average interest rate paid Paying fixed interest- Notional value Average interest rate collected Average interest rate paid In foreign currencies: Collecting fixed interest- Notional value Average interest rate collected Average interest rate paid Paying fixed interest- Notional value Average interest rate collected Average interest rate paid Thousands of Euros (except for percentages) 113,803,428 12,932,747 12,303,040 7,342,658 3.55 % 4.98 % 5.47 % 5.82 % 3.60 % 3.78 % 3.75 % 3.70 % 131,488,682 10,259,905 7,561,875 5,220,691 3.60 % 3.72 % 3.75 % 3.74 % 3.57 % 5.23 % 5.44 % 6.29 % 126,265 492,581 1,447,795 3,960,440 3.27 % 3.89 % 3.87 % 4.52 % 3.47 % 3.75 % 3.65 % 4.34 % 245,418,375 23,685,233 21,312,710 16,523,789 50,058,494 9,697,465 3,990,606 3,369,965 4.44 % 5.91 % 5.62 % 6.27 % 2.74 % 2.75 % 3.09 % 2.96 % 64,445,162 17,055,201 5,301,302 1,833,307 3.00 % 3.63 % 3.24 % 5.12 % 4.02 % 5.40 % 4.36 % 5.44 % 442,284 169,345 90,666 9,906 4.25 % 5.45 % 4.65 % 4.25 % 2.46 % 2.60 % 4.77 % 4.25 % 114,945,940 26,922,011 9,382,574 5,213,178 360,364,315 50,607,244 30,695,284 21,736,967 30,400,003 15,853,600 99,998 1,019,927 3.27 % 3.16 % 3.31 % 3.38 % 3.33 % 3.12 % 3.38 % 3.80 % 31,899,994 8,550,000 6,200,000 2,399,998 3.27 % 3.19 % 3.17 % 3.90 % 3.33 % 3.31 % 3.07 % 3.48 % 62,299,997 24,403,600 6,299,998 3,419,925 2,583,215 497,616 615,354 2,592,106 4.10 % 6.53 % 3.38 % 4.48 % 3.71 % 5.62 % 3.44 % 3.55 % 4,464,630 2,322,143 340,406 1,520,852 4.10 % 3.95 % 2.46 % 3.85 % 3.84 % 4.14 % 5.80 % 5.02 % 7,047,845 2,819,759 955,760 4,112,958 69,347,842 27,223,359 7,255,758 7,532,883
As of December 31, 2003, 2002 and 2001, the Group had arranged share price risk and interest rate risk macrohedges consisting of securities listed on the main international markets and long-term deposit transactions, respectively (Note 3-m),
The detail of the notional value of hedging and trading futures transactions as of December 31, 2003, 2002 and 2001, is as follows:
Thousands of Euros | ||||||
NOTIONAL AMOUNT | ||||||
HEDGING | TRADING | TOTAL | ||||
Balances at December 31, 2003- | ||||||
Interest rate and securities transactions | 73,367,185 | 693,599,968 | 766,967,153 | |||
Swaps | 37,650,938 | 500,059,624 | 537,710,562 | |||
Forward rate agreements | — | 67,325,503 | 67,325,503 | |||
Options and futures | 35,471,788 | 124,574,303 | 160,046,091 | |||
Unmatured financial asset purchase and sale transactions | 244,459 | 1,640,538 | 1,884,997 | |||
Exchange rate transactions | 16,857,725 | 49,287,342 | 66,145,067 | |||
Forward foreign currency purchase and sale transactions, currency futures and swaps | 15,647,638 | 40,979,629 | 56,627,267 | |||
Foreign currency options | 810,522 | 7,918,375 | 8,728,897 | |||
Other transactions | 399,565 | 389,338 | 788,903 | |||
90,224,910 | 742,887,310 | 833,112,220 | ||||
Balances at December 31, 2002- | ||||||
Interest rate and securities transactions | 67,319,615 | 561,351,689 | 628,671,304 | |||
Swaps | 28,110,825 | 433,413,666 | 461,524,491 | |||
Forward rate agreements | 40,762 | 22,372,572 | 22,413,334 | |||
Options and futures | 38,811,011 | 99,283,592 | 138,094,603 | |||
Unmatured financial asset purchase and sale transactions | 357,017 | 6,281,859 | 6,638,876 | |||
Exchange rate transactions | 17,713,727 | 42,359,510 | 60,073,237 | |||
Forward foreign currency purchase and sale transactions, currency futures and swaps | 15,347,014 | 37,763,263 | 53,110,277 | |||
Foreign currency options | 1,267,696 | 4,403,174 | 5,670,870 | |||
Other transactions | 1,099,017 | 193,073 | 1,292,090 | |||
85,033,342 | 603,711,199 | 688,744,541 | ||||
Balances at December 31, 2001- | ||||||
Interest rate and securities transactions | 54,176,295 | 659,969,697 | 714,145,992 | |||
Swaps | 39,659,881 | 427,592,827 | 467,252,708 | |||
Forward rate agreements | — | 111,359,842 | 111,359,842 | |||
Options and futures | 13,626,874 | 119,154,804 | 132,781,678 | |||
Unmatured financial asset purchase and sale transactions | 889,540 | 1,862,224 | 2,751,764 | |||
Exchange rate transactions | 11,586,284 | 49,480,717 | 61,067,001 | |||
Forward foreign currency purchase and sale transactions, currency futures and swaps | 9,811,197 | 30,960,364 | 40,771,561 | |||
Foreign currency options | 956,490 | 18,520,353 | 19,476,843 | |||
Other transactions | 818,597 | — | 818,957 | |||
65,762,579 | 709,450,414 | 775,212,993 | ||||
Following is a breakdown, by balance-sheet account hedged, of the notional balances of interest rate, securities and exchange rate hedging derivatives as of December 31, 2003, 2002 and 2001:
B/S ACCOUNT HEDGED | Thousands of Euros | |||||||||
AMOUNT | NOTIONAL AMOUNT | |||||||||
SWAPS | FORWARD RATE AGREEMENTS | OPTIONS AND FUTURES | OTHER | |||||||
Balances at December 31, 2003- | ||||||||||
Total net lending | 5,264,629 | 1,341,202 | — | 1,070,084 | 2,853,343 | |||||
Due from credit institutions | 7,372,239 | 2,151,829 | — | 5,220,410 | — | |||||
Securities portfolio | 19,361,815 | 12,987,084 | — | 6,374,731 | — | |||||
Deposits | 9,608,900 | 4,786,229 | — | 792,723 | 4,029,878 | |||||
Other assets and liabilities | 48,617,327 | 16,384,524 | — | 22,824,362 | 9,408,441 | |||||
90,224,910 | 37,650,938 | — | 36,282,310 | 16,291,662 | ||||||
Balances at December 31, 2002- | ||||||||||
Total net lending | 3,665,078 | 2,081,217 | — | 650,638 | 933,223 | |||||
Due from credit institutions | 9,685,367 | 943,038 | — | 223,608 | 8,518,721 | |||||
Securities portfolio | 25,478,487 | 7,642,755 | — | 12,955,835 | 4,879,897 | |||||
Deposits | 10,280,687 | 7,892,260 | — | 2,388,417 | 10 | |||||
Other assets and liabilities | 35,923,723 | 9,551,555 | 40,762 | 24,120,036 | 2,211,370 | |||||
85,033,342 | 28,110,825 | 40,762 | 40,338,534 | 16,543,221 | ||||||
Balances at December 31, 2001- | ||||||||||
Total net lending | 3,786,157 | 2,680,866 | — | 886,849 | 218,442 | |||||
Due from credit institutions | 3,703,965 | 2,771,588 | — | 932,377 | — | |||||
Securities portfolio | 29,924,107 | 20,259,558 | — | 8,137,161 | 1,527,388 | |||||
Deposits | 11,061,791 | 5,326,252 | — | 958,439 | 4,777,100 | |||||
Other assets and liabilities | 17,286,559 | 8,621,617 | — | 3,797,752 | 4,867,190 | |||||
65,762,579 | 39,659,881 | — | 14,712,578 | 11,390,120 | ||||||
The market value of the trading derivatives transactions corresponding to the notional amounts of the underlying assets in the table above as of December 31, 2003, 2002 and 2001, is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Interest rate and securities transactions | |||||||||
Swaps | (367,559 | ) | (727,839 | ) | (169,678 | ) | |||
Forward rate agreements | (1,935 | ) | (5,827 | ) | (13,733 | ) | |||
Options and futures | 145,992 | 268,156 | 148,684 | ||||||
Unmatured financial asset purchase and sale transactions | 1,950 | (13,219 | ) | 9,532 | |||||
(221,552 | ) | (478,729 | ) | (25,195 | ) | ||||
Exchange rate transactions | |||||||||
Forward foreign currency purchase and sale transactions, currency futures and swaps | (369,288 | ) | (71,853 | ) | (85,939 | ) | |||
Foreign currency options | (58,634 | ) | (197 | ) | 16,552 | ||||
Other transactions | — | — | — | ||||||
(427,922 | ) | (72,050 | ) | (69,387 | ) | ||||
As of December 31, 2003, 2002 and 2001, the provisions covering unrealized losses on trading interest rate and securities futures transactions (Notes 3-m and 20) amounted to approximately €277,614 thousand, €280,721 thousand and €168,229 thousand, respectively,
Off-balance-sheet managed funds
The detail of the off-balance-sheet funds managed by the Group as of December 31, 2003, 2002 and 2001, is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Mutual funds | 45,751,629 | 43,581,299 | 49,900,947 | |||
Pension funds | 40,015,408 | 36,563,294 | 41,248,849 | |||
Assets managed | 27,306,691 | 28,670,233 | 33,345,967 | |||
113,073,728 | 108,814,826 | 124,495,763 | ||||
(27) TRANSACTIONS WITH PROPORTIONALLY CONSOLIDATED COMPANIES OR COMPANIES ACCOUNTED FOR BY THE EQUITY METHOD
Following is a detail of the major balances in the accompanying consolidated balance sheets of the Group as of December 31, 2003, 2002 and 2001, with proportionally consolidated companies and companies accounted for by the equity method (Note 2-c). These transactions were made at market prices.
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Assets: | |||||||||
Due from credit institutions | 25,831 | 4,068 | 167,658 | ||||||
Total net lending | 3,547,407 | 3,727,728 | 4,330,815 | ||||||
Debentures and other debt securities | 52,178 | — | 39,006 | ||||||
3,625,416 | 3,731,796 | 4,537,479 | |||||||
Liabilities: | |||||||||
Due to credit institutions | 65,295 | 175,395 | 318,657 | ||||||
Deposits | 2,071,304 | 1,964,815 | 1,651,894 | ||||||
2,136,599 | 2,140,210 | 1,970,551 | |||||||
Memorandum accounts: | |||||||||
Contingent liabilities | 958,066 | 1,345,629 | 1,078,841 | ||||||
Commitments and contingent liabilities | 962,110 | 489,931 | 1,002,488 | ||||||
1,920,176 | 1,835,560 | 2,081,329 | |||||||
Statement of income: | |||||||||
Financial revenues | 137,888 | 98,143 | 105,346 | ||||||
Financial expenses | (136,280 | ) | (142,937 | ) | (84,665 | ) |
There are no other material effects on the financial statements of the Group arising from transactionsdealings with these companies, other than the effects arising from valuing the investments in them byusing the equity method (Notes 2-c and 28-f)(Note 2.1.-c), and from the insurance policies to cover pension andor similar commitments (Note 3-j)29).
TheAs of December 31, 2006, 2005 and 2004, the notional amount of the futures transactions arranged by the Group with the main related companies amountsamounted to approximately €7,021,414€9,112 thousand, (€5,388,845€7,619,019 thousand in 2002).and €5,047,704 thousand, respectively.
In addition, as part of its normal activity, the Group has entered into agreements and commitments of various types with shareholders of subsidiaries and associated companies,associates, which have no material impactseffects on the consolidated financial statements.
(28) INCOME STATEMENT DISCLOSURES
Following is certain relevant information in connection with the accompanying consolidated statements of income:
A. G57.2. TEOGRAPHICALRANSACTIONSBREAKDOWNWITH-KEYENTITYPERSONNEL
The table below showsinformation on the geographical breakdownremuneration of key personnel (members of the main revenue balances in the accompanying consolidated statementsBoard of income, by countryDirectors of locationBBVA and of the Bank branches andManagement Committee) is included in Note 8.
As of December 31, 2006 the Group companies giving risehad not granted any loans or provided any guarantees to them:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Financial revenues- | |||||||||
Spain | 6,549,705 | 7,335,211 | 7,846,238 | ||||||
Other European countries | 363,507 | 633,049 | 1,714,574 | ||||||
United States | 349,807 | 63,872 | 2,777 | ||||||
Latin America | 5,186,443 | 8,289,627 | 11,387,675 | ||||||
Rest of the world | 88,003 | 911,150 | 656,840 | ||||||
12,537,465 | 17,232,909 | 21,608,104 | |||||||
Income from equities portfolio- | |||||||||
Spain | 447,601 | 329,903 | 459,450 | ||||||
Other European countries | 1,662 | 1,709 | 2,140 | ||||||
United States | 239 | 5 | 24 | ||||||
Latin America | 14,602 | 25,848 | 32,569 | ||||||
Rest of the world | — | 597 | 1,261 | ||||||
464,104 | 358,062 | 495,444 | |||||||
Fees collected- | |||||||||
Spain | 1,784,263 | 1,853,326 | 1,920,384 | ||||||
Other European countries | 194,923 | 204,015 | 230,602 | ||||||
United States | 107,429 | 22,997 | 71,556 | ||||||
Latin America | 1,790,566 | 2,217,039 | 2,554,778 | ||||||
Rest of the world | 5,387 | 33,616 | 56,297 | ||||||
3,882,568 | 4,330,993 | 4,833,617 | |||||||
Market operations- | |||||||||
Spain | 375,226 | 319,078 | 179,618 | ||||||
Other European countries | 21,996 | 41,938 | 13,445 | ||||||
United States | 6,721 | (36 | ) | 8,853 | |||||
Latin America | 179,916 | 692,027 | 310,585 | ||||||
Rest of the world | 67,645 | (287,884 | ) | (22,406 | ) | ||||
651,504 | 765,123 | 490,095 | |||||||
Other operating income- | |||||||||
Spain | 4,303 | 4,179 | 14,936 | ||||||
Other European countries | 2,527 | 8,039 | 3,263 | ||||||
United States | 180 | 254 | 937 | ||||||
Latin America | 10,419 | 21,132 | 31,001 | ||||||
Rest of the world | (7 | ) | 737 | 1,208 | |||||
17,422 | 34,341 | 51,345 | |||||||
B. BREAKDOWNBYTYPEOFTRANSACTION-
members of the Board of Directors of BBVA.
The detail, by typeloans granted as of transaction, of certain captions in the accompanying consolidated statements of income is as follows:
Thousands of Euros | ||||||||
2003 | 2002 | 2001 | ||||||
Financial revenues- | ||||||||
Bank of Spain and other central banks | 270,548 | 352,169 | 457,707 | |||||
Due from credit institutions | 885,508 | 1,077,074 | 1,807,592 | |||||
Fixed-income portfolio | 3,323,501 | 4,820,640 | 7,283,233 | |||||
Loans to public authorities | 827,029 | 1,509,262 | 1,053,502 | |||||
Loans to customers | 7,188,105 | 9,446,574 | 10,891,783 | |||||
Other revenues | 42,774 | 27,190 | 114,287 | |||||
12,537,465 | 17,232,909 | 21,608,104 | ||||||
Financial expenses- | ||||||||
Due to Bank of Spain and other central banks | 241,323 | 256,433 | 258,393 | |||||
Due to credit institutions | 1,567,741 | 2,463,730 | 3,516,840 | |||||
Deposits | 3,068,585 | 5,456,666 | 7,592,170 | |||||
Bonds and other marketable debt securities | 886,868 | 997,669 | 1,189,925 | |||||
Subordinated debt (Note 21) | 327,554 | 405,775 | 429,694 | |||||
Cost allocable to the recorded pension provision (Notes 3-j and 20) | 69,893 | 60,041 | 42,480 | |||||
Other interest | 98,094 | 143,191 | 249,944 | |||||
6,260,058 | 9,783,505 | 13,279,446 | ||||||
Fees collected- | ||||||||
Contingent liabilities | 138,715 | 135,595 | 136,052 | |||||
Collection and payment services | 1,713,291 | 1,842,831 | 1,877,845 | |||||
Securities services | 1,627,295 | 1,899,437 | 2,272,090 | |||||
Other transactions | 403,267 | 453,130 | 547,630 | |||||
3,882,568 | 4,330,993 | 4,833,617 | ||||||
Fees paid- | ||||||||
Ceded to other entities and correspondents | 433,608 | 472,780 | 570,968 | |||||
Brokerage on asset and liability transactions | 9,926 | 15,394 | 19,383 | |||||
Other fees | 176,227 | 174,438 | 205,643 | |||||
619,761 | 662,612 | 795,994 | ||||||
Market operations- | ||||||||
Sales and futures transactions on fixed-income securities and on interest rates (Notes 3-m and 26) | 126,982 | 566,453 | 115,749 | |||||
Sales and futures transactions on equity securities and other assets (Notes 10 and 26) | 226,284 | (30,685 | ) | 47,173 | ||||
Writedowns of securities and other | 10,523 | (194,355 | ) | (2,759 | ) | |||
Exchange differences (Note 3-b) | 287,715 | 423,710 | 329,932 | |||||
651,504 | 765,123 | 490,095 | ||||||
C. GENERALADMINISTRATIVEEXPENSES -PERSONNELCOSTS-
The detailDecember 31, 2006, to 16 members of the balancesManagement Committee, excluding the executive directors, amounted to €2,355 thousand. As of this caption inDecember 31, 2006, guarantees provided on behalf of members of the accompanying consolidated statementsManagement Committee amounted to €12 thousand.
As of income is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Wages and salaries | 2,457,658 | 2,743,819 | 3,211,099 | |||
Social security costs | 436,404 | 491,736 | 529,979 | |||
Net charge to in-house pension provisions (Notes 3-j and 20) | 56,420 | 39,067 | 32,203 | |||
Contributions to external pension funds (Note 3-j) | 78,501 | 93,557 | 90,272 | |||
Other expenses | 233,604 | 329,249 | 379,821 | |||
3,262,587 | 3,697,428 | 4,243,374 | ||||
The average total number of employees inDecember 31, 2006, the Group in 2003, 2002 and 2001, by category, was as follows:
Number of Employees | ||||||
2003 | 2002 | 2001 | ||||
Spanish banks- | ||||||
- Executives | 969 | 166 | 172 | |||
- Supervisors | 20,547 | 20,746 | 20,222 | |||
- Clerical staff | 9,309 | 10,779 | 11,767 | |||
- Abroad | 674 | 676 | 678 | |||
31,499 | 32,367 | 32,839 | ||||
Companies abroad | ||||||
- Mexico | 25,249 | 26,304 | 28,936 | |||
- Venezuela | 6,724 | 7,953 | 9,211 | |||
- Argentina | 3,685 | 4,375 | 4,964 | |||
- Colombia | 3,473 | 3,819 | 4,331 | |||
- Peru | 2,373 | 2,323 | 2,219 | |||
- Other | 4,452 | 9,374 | 9,628 | |||
45,956 | 54,148 | 59,289 | ||||
Pension fund managers | 6,181 | 5,863 | 6,656 | |||
Other nonbanking companies | 3,553 | 3,604 | 3,937 | |||
87,189 | 95,982 | 102,721 | ||||
D. DIRECTORS’COMPENSATIONANDOTHERBENEFITS-
In 2003, 2002 and 2001 theloans granted to parties related to key personnel (the aforementioned members of the Board of Directors of BBVA earned in this capacity €3,360 thousand, €6,699 thousand and €9,352 thousand, respectively.
The detail of the compensation earned in 2003, by item, is as follows:
Thousands of Euros | ||||||||||||||
Surname, First Name | Board | Board Committees | TOTAL | |||||||||||
Standing Committee | Audit | Appointments and Compensation | Risk | Committee Chairmanship | ||||||||||
Alvarez Mezquiriz, Juan Carlos | 110 | 60 | 36 | 206 | ||||||||||
Breeden, Richard C. | 300 | 300 | ||||||||||||
Bustamante y de la Mora, Ramón | 110 | 60 | 60 | 45 | 275 | |||||||||
Ferrero Jordi, Ignacio | 110 | 60 | 90 | 260 | ||||||||||
Knörr Borrás, Román | 110 | 140 | 250 | |||||||||||
Lacasa Suárez, Ricardo | 110 | 60 | 150 | 320 | ||||||||||
Marañón y Bertrán de Lis, Gregorio | 110 | 36 | 60 | 206 | ||||||||||
Medina Fernández, Enrique | 110 | 140 | 60 | 310 | ||||||||||
Rodríguez Vidarte, Susana | 110 | 60 | 170 | |||||||||||
San Martín Espinós, José María | 110 | 140 | 36 | 286 | ||||||||||
Telefónica de España, S.A. | 110 | 110 | ||||||||||||
Tomás Sabaté, Jaume | 110 | 140 | 36 | 286 | ||||||||||
TOTAL | 1,510 | 560 | 240 | 144 | 240 | 285 | 2,979 | |||||||
Note: in 2003 Mr. José Mª Caínzos Fernández received a total of €381 thousand in his capacity as a member of the Board.
Bank executive directors earned in this capacity €8,032 thousand, €10,847 thousand and €11,125 thousand, respectively in 2003, 2002 and 2001.
The detail of the compensation received by the executive directors in 2003, by item, is as follows:
Thousands of Euros | ||||||
POST | Fixed Compensation | Variable Compensation | TOTAL | |||
Chairman | 1,461 | 2,393 | 3,854 | |||
Chief Executive Officer | 1,081 | 1,999 | 3,080 | |||
Secretary General | 491 | 607 | 1,098 | |||
TOTAL | 3,033 | 4,999 | 8,032 | |||
Management Committee) totalled €12,676 thousand. As of December 31, 2003,2006, the detailother exposure to parties related to key personnel (guarantees, finance leases and commercial loans) amounted to €14,545 thousand.
The demand and time deposits held on an arm’s length basis as part of BBVA’s ordinary banking business by directors, Management Committee members and their related parties totalled €15,467 thousand as of December 31, 2006.
In addition, BBVA and other Group companies, in the welfare commitments to thenormal course of their business and in their capacity as financial institutions, habitually perform transactions with members of the Board of Directors wereof BBVA and of the Management Committee and their respective related parties. All these transactions, which are scantly material, are conducted on an arm’s-length basis.
57.3. TRANSACTIONSWITHOTHERRELATEDPARTIES
There are no other material transactions with other related parties.
58. ACCOUNTANTS FEES AND SERVICES
The detail of the fees for the services provided to the Group companies by their respective accountants in 2006 is as follows:
Thousands of Euros | ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
6,508 |
As of December 31, 2002, theThe detail of the welfare commitmentsother services provided to the members of the Board of Directors were €1,058 thousand.
Also,various Group companies in 2003 medical and accident insurance premiums amounting to €71 thousand were paid on behalf of members of the Board of Directors.
As of December 31, 2003, the detail of the welfare commitments to executive directors was2006 is as follows:
| Thousands of Euros | |
| ||
| ||
| ||
| ||
As of December 31, 2002, the detail of the welfare commitments to executive directors was €36,376 thousand.
E. GENERALEXPENSES-
The breakdown of the balances of this caption in the accompanying consolidated statements of income is as follows:
Thousands of Euros | ||||||
2003 | 2002 | 2001 | ||||
Technology and systems | 370,125 | 390,541 | 483,394 | |||
Communications | 199,132 | 260,899 | 336,993 | |||
Advertising | 134,645 | 157,891 | 183,429 | |||
Buildings and fixtures | 301,354 | 370,082 | 458,308 | |||
Taxes other than income tax | 148,802 | 165,957 | 227,549 | |||
Other expenses | 614,411 | 728,927 | 791,713 | |||
1,768,469 | 2,074,297 | 2,481,386 | ||||
The balance of the “Other Expenses” account includes the fees paid by the Group companies to their respective auditors, which amounted to €12,972 thousand in 2003 (€15,789 thousand for 2002). Of the 2003 total, €8,282 thousand were incurred in company annual audits performed by firms belonging to the Deloitte & Touche world organization and €1,833 thousand were incurred to other audit firms (€5,784 thousand and €2,453 thousand, respectively, for 2002).
In 2003 the Group engaged these firms to perform non-attest services, the detail of which is as follows:
F. NETINCOMEFROMCOMPANIESACCOUNTEDFORBYTHEEQUITYMETHOD-
The breakdown,services provided by company,our accountants meet the independence requirements established in Law 44/2002, of 22 November, on Measures Reforming the net balances of this captionFinancial System and in the accompanying consolidated statementsSarbanes-Oxley Act of income2002 adopted by the Securities and Exchange Commission (SEC), and accordingly they did not include the performance of any work that is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Share in income and losses of companies accounted for by the equity method, net- | |||||||||
Share in income before taxes of nonconsolidated Group companies (Note 12): | |||||||||
BBVA Seguros, S.A. | 179,491 | 145,910 | 135,769 | ||||||
BBVA Desarrollos Inmobiliarios, S.L. | 29,025 | (5,916 | ) | 12,387 | |||||
Seguros Bancomer, S.A. de C.V. | 49,191 | 44,323 | 33,741 | ||||||
Unitaria Inmobiliaria, S.A. | 5,755 | 13,880 | 18,072 | ||||||
BBVA Seguros Ganadero Cía. de Seguros, S.A. | 1,423 | 1,847 | (18,145 | ) | |||||
BBVA Seguros Ganadero Cía. de Seguros de Vida, S.A. | 2,297 | 1,246 | (15,278 | ) | |||||
Fianzas Probursa, S.A. de C.V. | 3,741 | (2,561 | ) | (9,352 | ) | ||||
Pensiones Bancomer, S.A. de C.V. | 20,146 | 19,669 | 15,488 | ||||||
Other companies, net | 54,284 | 35,203 | 56,105 | ||||||
345,353 | 253,601 | 228,787 | |||||||
Share in net income of associated companies (Note 11): | 357,085 | 21,995 | 543,038 | ||||||
Less- | |||||||||
Correction for payment of dividends- | |||||||||
Final or prior years’ dividends | (194,158 | ) | (111,461 | ) | (171,192 | ) | |||
Interim dividends paid out of income for the year | (124,968 | ) | (130,891 | ) | (207,962 | ) | |||
(319,126 | ) | (242,352 | ) | (379,154 | ) | ||||
383,312 | 33,244 | 392,671 | |||||||
incompatible with the auditing function.
G. EXTRAORDINARYINCOME/LOSSES-
The breakdown of the net balances of these captions in the accompanying consolidated statements of income is as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
Net special provisions (Notes 14 and 20) (*) | 17,951 | (384,200 | ) | (925,775 | ) | ||||
Other losses arising from pension and similar commitments (Notes 3-j and 20) | (118,328 | ) | (192,846 | ) | (86,336 | ) | |||
Other income arising from adjustment of deferred contributions (Note 3-j) | — | 3,878 | — | ||||||
Merger expenses | — | — | (44,325 | ) | |||||
Gains on disposal of property and equipment and long-term investments (Notes 10 and 14) | 44,248 | 99,646 | 252,551 | ||||||
Recovery of interest earned in prior years | 80,043 | 73,864 | 271,856 | ||||||
Adjustment of earnings due to currency redenomination (Note 3-b) | (56,611 | ) | 4,431 | 69,279 | |||||
Net charge to the theoretical goodwill relating to Bradesco (Note 4) | — | (34,719 | ) | — | |||||
Other extraordinary income (losses), net | (70,238 | ) | (2,635 | ) | (263,520 | ) | |||
(102,935 | ) | (432,581 | ) | (726,270 | ) | ||||
The foregoing detail of the “Merger Expenses” account also includes other merger expenses, most notably the accelerated depreciation of nonrecoverable equipment and fixtures in closed branches and the accelerated amortization of computer software which are no longer being used due to the unification of systems.
(29) CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
The 2003, 2002 and 2001 consolidated statements of changes in financial position are as follows:
Thousands of Euros | |||||||||
2003 | 2002 | 2001 | |||||||
APPLICATION OF FUNDS | |||||||||
Dividends paid | 1,108,492 | 1,252,870 | 1,100,240 | ||||||
External capital contributions- | |||||||||
Purchase of own shares, net | — | 21,990 | 3,407 | ||||||
Minority interests, net (Note 22) | 784,410 | 715,330 | 1,025,062 | ||||||
Subordinated debt (Note 21) | — | 505,594 | 474,849 | ||||||
Total net lending | 8,151,501 | — | 15,218,935 | ||||||
Fixed-income securities | 2,973,901 | — | 9,423,564 | ||||||
Equity securities | 51,320 | — | 656,853 | ||||||
Marketable securities | — | — | 1,084,011 | ||||||
Deposits | 5,511,458 | 19,939,069 | — | ||||||
Financing, net of investment, at credit institutions | — | 5,540,828 | — | ||||||
Acquisition of long-term investments- | |||||||||
Purchase of investments in Group and associated companies (Notes 11 and 12) | 2,383,404 | 2,316,991 | 2,718,113 | ||||||
Additions to property and equipment and intangible assets | 1,166,615 | 999,147 | 2,824,121 | ||||||
Other asset items less liability items | 991,993 | 3,403,194 | — | ||||||
TOTAL FUNDS APPLIED | 23,123,094 | 34,695,013 | 34,529,155 | ||||||
SOURCE OF FUNDS | |||||||||
From operations- | |||||||||
Net income | 2,226,701 | 1,719,129 | 2,363,336 | ||||||
Add- | |||||||||
- Depreciation and amortization expense | 1,215,631 | 1,439,666 | 1,641,663 | ||||||
- Net provision for asset writedown and to other special provisions | 1,453,532 | 2,646,688 | 2,490,035 | ||||||
- Losses on sales of treasury stock, investments and fixed assets | 124,841 | 309,651 | 258,434 | ||||||
- Minority interests | 670,463 | 746,919 | 645,223 | ||||||
- Income of companies accounted for by the equity method, net of taxes | — | 49,151 | — | ||||||
Less- | |||||||||
- Income of companies accounted for by the equity method, net of taxes | (253,445 | ) | — | (305,290 | ) | ||||
- Gains on sales of treasury stock, investments and fixed assets | (722,420 | ) | (770,292 | ) | (1,295,853 | ) | |||
4,715,303 | 6,140,912 | 5,797,548 | |||||||
External capital contributions- | |||||||||
Sale of treasury stock | 13,787 | — | — | ||||||
Minority interests, net (Note 22) | — | 714,451 | 260,484 | ||||||
Subordinated debt (Note 21) | 1,334,582 | — | 3,253,057 | ||||||
Financing, net of investment, at credit institutions | 5,911,890 | — | 6,404,308 | ||||||
Deposits | — | — | 12,353,241 | ||||||
Total net lending | — | 8,554,159 | — | ||||||
Fixed-income securities | — | 13,031,268 | — | ||||||
Equity securities | — | 504,413 | — | ||||||
Marketable securities | 6,859,380 | 2,147,598 | — | ||||||
Sale of long-term investments- | |||||||||
Sale of investments in Group and associated companies (Notes 11 and 12) | 3,458,192 | 2,879,384 | 3,603,288 | ||||||
Sale of property and equipment and intangible assets | 829,960 | 722,828 | 2,531,180 | ||||||
Other asset items less liability items | — | — | 326,049 | ||||||
TOTAL FUNDS OBTAINED | 23,123,094 | 34,695,013 | 34,529,155 | ||||||
On March 22, 2002, BBVA notified the supervisory authorities of the stock markets on which its shares are listed that the Bank of Spain had commenced a proceeding against BBVA and 16 of its former directors and executives. These proceedings arose as a result of the existence of funds belonging to BBV that were not included in the entity’s financial statements until they were voluntarily regularized by being recorded in the 2000 consolidated income statement of income as extraordinary income, for which the related corporate incomecorporation tax was recorded and paid. These funds totaledtotalled Ptas. 37,343 million (approximately €225 million) and arose basically from the gains on the sale of shares of Banco de Vizcaya, S.A. and Banco Bilbao Vizcaya, S.A. from 1987 to 1992, and on the purchase and sale by BBV of shares of Argentaria, Caja Postal and Banco Hipotecario, S.A. in 1997 and 1998.
After dissolving the legal vehicles where the unrecorded funds were located and including the funds in its accounting records, BBVA notified the Bank of Spain of these matters on January 19, 2001. The Bank of Spain’s supervisory services commenced an investigation into the origin of the funds, their use and the persons involved, the findings of which were included in the supervisory services’ report dated March 11, 2002. On March 15, 2002, the Bank of Spain notified the Bank of the commencement of a proceeding relating to these events.
On April 9, 2002, the Central Examining Court Number 5 of the National Appellate Court ordered that these events be investigated in preliminary proceedings which are being conducted at the Court. Also, it required the Bank of Spain to stay the conduct of its proceeding until the criminal liability that may arise as a result of these events, if any, is determined.
On May 22, 2002, the Council of the Spanish National Securities Market Commission (CNMV) commenced a proceeding against BBVA S.A. for possible contravention of the Securities Market Law (under Article 99 o)ñ) thereof) owing to the same events as those which gave rise to the Bank of Spain’s proceeding andproceeding.
Since various court proceedings are in progress to determine the legal proceedings. On January 7, 2003,possible criminal liability of the CNMV stated thatpersons involved in the proceedingaforementioned events, the conduct of the two administrative proceedings was stayed until the final court decision on the criminal proceedings is handed down.
As ofAt the date of preparation of these consolidated financial statements, none of the persons party to the proceedings or accused ofprosecuted in relation to the events referred to above iswas a member of the Board of Directors or the Management Committee or holdsheld executive office at BBVA. AlthoughBBVA, BBVA is not party to the stayedcriminal proceedings and no charges or claim for liability have been levelled against the Bank.
The proceedings DP 161/00 initiated in which charges have2000 relating to the alleged participation of certain BBVA Privanza Bank employees in purported tax offences resulting from the marketing of BBVA Privanza Jersey fiduciary products, as well as to the purported tax offence by BBVA for not yet been brought, andincluding in its balance sheet the preliminary proceedingsnet assets of Canal Trust Company (a wholly-owned subsidiary of BBVA Privanza) are still at a very early stage, in view of the events and the surrounding circumstances, theinitial investigative stage.
The Group’s legal advisers do not expect themthe aforementioned administrative and criminal proceedings to have aany material effectimpact on the Bank.
(31)60. DETAIL OF THE DIRECTORS’ HOLDINGS IN COMPANIES WITH SIMILAR BUSINESS ACTIVITIES
PursuantAs of December 31, 2006 pursuant to Article 127 third section of the Spanish Corporations Law, as introduced by Law 262003 modifying26/2003 of 17 July amending Securities Market Law 24/1988 of 28 July, and the revised Corporations Law, forin order to reinforce the purposetransparency of enhancing transparency in listed companies, set forth below is a list ofare the companies engaging in which the Company’s directors have direct or indirect holdings and whose business activities are the same as, oran activity that is identical, similar or supplementarycomplementary to those making upthat which constitutes the corporate purpose of BBVA, S.A.
In no case doin which the members of the Board of Directors have a direct or indirect ownership interest. None of the directors performdischarge executive or management dutiesadministrative functions at these companies.
Investments | |||||||
Surname (s) and First Name |
| ||||||
| Number of Shares | Type of Interest | |||||
Alfaro Drake, Tomás | — | — | — | ||||
Alvarez Mezquiriz, Juan Carlos | |||||||
Breeden, Richard C. | — | — | — | ||||
Bustamante y de la Mora, Ramón | |||||||
Fernández Rivero, José Antonio | — | — | — | ||||
Ferrero Jordi, Ignacio | Santander Central Hispano | 9,940 | Indirect | ||||
Banco Popular Español
| Indirect |
Goirigolzarri Tellaeche, José Ignacio | — | — | — | |||
González | Bancoval | 76,040 | Indirect | |||
Knörr Borrás, Román | ||||||
Lacasa Suárez, Ricardo | Banco Popular Español | Direct | ||||
Loring Martínez de Irujo, Carlos | — | — | — | |||
Maldonado Ramos, José | — | — | — | |||
| Banco Español de Crédito | Indirect | ||||
|
Banco Popular Español
| 863.95 | Indirect | |||
Bankinter | 268.96 | Indirect | ||||
BNP Paribas | 94.96 | Indirect | ||||
Royal Bank of Scotland | Indirect | |||||
| ||||||
| Santander Central Hispano | |||||
Standard Chartered | 245.70 | Indirect | ||||
| — | — | — | |||
Vilá Boix, | Banco Sabadell
| 3,125 | Direct | |||
BNP Paribas | 500 | Direct |
61. SUBSEQUENT EVENTS AND IFRS RECENT PRONOUNCEMENTS
Acquisition of State National Bancshares Inc.
On 12 July, 2006, BBVA entered into an agreement to purchase the US banking group, State National Bancshares, Inc., which is domiciled and conducts its main business activity in the State of Texas. Once the approval of the General Meeting of this company has been obtained together with the necessary administrative authorisations, the transaction was concluded on 3 January 2007. The agreed purchase price was $484 million (approximately €368 million at this date).
Proposed Transaction to Acquire Compass Bancshares, Inc. (“Compass”)
On February 16, 2007 BBVA entered into a definitive agreement to acquire 100% of the shares of Compass for a consideration made up of a combination of ordinary shares of BBVA and cash (the “Agreement”). Pursuant to the Agreement, Compass shareholders can elect to receive 2.8 BBVA ordinary shares or American Depositary Shares (“ADSs”) or $71.82 in cash for each Compass share, subject to proration. Based on BBVA’s closing stock price on Thursday, February 15, 2007, the transaction has an aggregate value of approximately $9.6 billion.
As of the date this Annual Report was filed with the SEC, the proposed transaction has been approved by the Board of Directors of each of BBVA and Compass but remains subject to regulatory and shareholder approvals. The aggregate consideration is composed of a fixed number of 196 million ordinary shares of BBVA and approximately $4.6 billion in cash.
IFRS RECENT PRONOUNCEMENTS
At the date of preparation of the Consolidated Financial Statements new IFRS Standards and Interpretations (IFRICs) have been issued, which are not required to be applied for December 2006 year-ends, although in some cases earlier application is encouraged.
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It will be effective for annual periods beginning on or after 1 January 2007.
IFRS 7 includes all of the disclosure requirements relating to financial instruments and will replace the disclosure section of IAS 32Financial Instruments: Disclosure and Presentation and all of IAS 30Disclosures in the Financial Statements of Banks and Similar Financial Institutions. IAS 32 will then contain only presentation requirements for financial instruments.
The most significant additional disclosure requirements of IFRS 7 (compared to IAS 32 and IAS 30) are as follows:
| Nature and extent of risks |
qualitative risk disclosures are to include information on the processes that an entity uses to manage end measure its risks |
quantitative data about the exposure to each type of risk (including credit risk, liquidity risk and market risk) arising from financial instruments |
- | information about the credit quality of financial assets that are neither past due nor impaired |
- | an analysis of financial assets that are past due or impaired, including a description of collateral held as security and its fair value |
- | a market risk sensitivity analysis which includes the effect of a reasonably possible change in the risk variables, along with the methods and assumptions used in preparing the analysis |
o | Other |
- | A reconciliation of changes in the allowance for credit losses for each class of financial asset |
- | Enhanced income statement and balance sheet disclosures, including separate identification of net gains or losses and the amount of any impairment loss for each category of financial instrument |
- | The criteria for determining when the carrying amount of a impaired financial asset is reduced directly and when an allowance account is used, and when to write off against the asset amounts charged to the allowance account |
- | The gains or losses on the hedging instrument and on the hedged item attributable to the hedged risk of a fair value hedge |
- | The ineffectiveness recognised in profit or loss arising from both cash flow hedges and hedges of net investments in foreign operations |
- | Profits or losses arising on initial recognition of financial instruments (“day 1” profits or losses) that are not recognised in the financial statements and a reconciliation of changes in this unrecognised balance during the period. The accounting policy for determining when unrecognised amounts are recognised in profit or loss must also be disclosed. |
· | Amendment to IAS 1 “Presentation of Financial Statements—Capital disclosures” |
It will be effective for annual periods beginning on or after 1 January 2007.
(32) RECENT DEVELOPMENTS ANDThis amendment to IAS 1Presentation of Financial Statementsrequires entities to disclose information that enables readers to evaluate the entity´s objectives, policies and processes for managing capital. The disclosures are based on information provided internally to key management personnel, and will include:
o | the objectives, procedures and policies used to manage capital |
o | a description of what the entity manages as capital, the nature of any externally imposed capital requirements (if any) and how it meets its objectives for managing capital |
o | quantitative information about what the entity manages as capital and any changes from the prior period |
o | whether the entity complied with externally imposed capital requirements and the consequences of any non-compliance, (if applicable). |
· | IFRS 8 “Operating Segments” |
It will be effective for annual periods beginning on or after 1 January 2009.
IFRS 8 was issued as part of the convergence project with the US Financial Accounting Standards Board. This new standard replaces IAS 14Segment Reporting and adopts a management approach to segment reporting required in the US Standard SFAS 131Disclosures about Segments of an Enterprise and Related Information. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. This information may be different from that reported in the balance sheet and income statement and entities will need to provide explanations and reconciliations of the differences.
· | IFRIC 7 “Applying the Restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economies” |
It will be effective for annual periods beginning on or after 1 March 2006.
IFRIC 7 requires entities to apply IAS 29Financial Reporting in Hyper-inflationary Economies in the reporting period in which an entity first identifies the existence of hyperinflation in the economy of its functional currency as if the economy had always been hyperinflationary.
Therefore:
o | non-monetary items measured at historical cost are restated to reflect the effect of inflation from the date the asset was acquired or liability was incurred until the closing date of the reporting period. |
o | non-monetary items measured at amounts current at dates other than acquisition, are restated to reflect the effect of inflation from the last remeasurement date until the closing date of the reporting period. |
o | deferred tax items in the opening balance sheet (of the reporting period and comparative period) are remeasured in accordance with IAS 12Income Taxes after restatement of the non-monetary items, by applying the measuring unit current at the relevant opening balance sheet date. These remeasured deferred tax items are restated for the change in the measuring unit from the opening balance sheet date to the closing balance sheet date of the relevant period. |
· | IFRIC 8 “Scope of IFRS 2” |
It will be effective for annual periods beginning on or after 1 May 2006, early application is encouraged.
IFRIC 8 clarifies that IFRS 2Share-based Payment will apply to any arrangement when equity instruments are granted or liabilities (based on a value of an entity´s equity instrument) are incurred by an entity, when the identifiable consideration appears to be less then the fair value of the instruments given. It presumes that such cases are an indication that other consideration (ie, unidentifiable goods or services) has been or will be received. The unidentifiable goods or services concerned are to be measured at the grant date as the difference between the fair value of the share-based payment (equity given or liability incurred) and the fair value of any identifiable goods or services received.
For cash-settled transactions, the liability is to be remeasured at each reporting date until is settled, in accordance with IFRS 2.
The Company does not anticipate that adoption of IFRIC 8 will have any effects on its financial position, results of operations or cash flows.
· | IFRIC 9 “Reassessment of Embedded Derivatives” |
It will be effective for annual periods beginning on or after 1 June 2006.
IFRIC 9 requires an entity to assess whether a contract contains an embedded derivative at the date an entity first becomes a party to the contract and prohibits reassessment unless there is a change to the contract that significantly modifies the cash flows.
The Company does not anticipate that adoption of IFRIC 9 will have any effects on its financial position, results of operations or cash flows.
· | IFRIC 10 “Interim Financial Reporting and Impairment” |
It will be effective for annual periods beginning on or after 1 November 2006.
IFRIC 10 addresses an inconsistency between IAS 34Interim Financial Reporting and the impairment requirements relating to goodwill in IAS 36Impairment of Assets and equity instruments classified as available for sale in IAS 39Financial instruments: Recognition and Measurement. The Interpretation states that the specific requirements of IAS 36 and IAS 39 take precedence over the general requirements of IAS 34 and, therefore, any impairment loss recognised for these assets in an interim period may not be reversed in subsequent periods.
The Company does not anticipate that adoption of IFRIC 10 will have any effects on its financial position, results of operations or cash flows.
· | IFRIC 11 “IFRS 2—Group and Treasury Share Transactions” |
It will be effective for annual periods beginning on or after 1 March 2007, early application is permitted.
This interpretation requires arrangements whereby an employee is granted rights to an entity´s equity instruments to be accounted for as an equity-settled scheme by the entity even if:
o | the entity chooses or is required to buy those equity instruments (eg, treasury shares) from another party, or |
o | the shareholder(s) of the entity provide the equity instruments needed. |
The interpretation also extends to the way in which subsidiaries, in their separate financial statements, account for schemes when their employees receive rights to equity instruments of the parent. In particular, it prescribes that:
o | when the parent grants rights to equity instruments to the employees, they will be accounted for as an equity-settled scheme (and as an equity contribution by the parent) when the parent accounts for it this way in the consolidated financial statements. When employees transfer between subsidiaries, each entity recognises compensation expense based on the proportion of the total vesting period for which the employee has worked for that subsidiary, measured at the fair value at the original grant date by the parent. |
o | when the subsidiary grants rights to equity instruments of its parent to its employees, it will be accounted for as a cash-settled scheme. |
The Company does not anticipate that adoption of IFRIC 11 will have any effects on its financial position, results of operations or cash flows.
62. DIFFERENCES BETWEEN SPANISHIFRS AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND OTHER REQUIRED DISCLOSURES.
(32.1) SUBSEQUENT EVENTS
Increase of capital stock
At its meeting on February 3, 2004, at which statutory consolidated financial statements were prepared, the Board of Directors of BBVA resolved, inter alia, to increase capital by a nominal amount of €95,550,000, through the issuance of 195,000,000 ordinary shares of €0.49 par value each, of the same class and series, traded by the book-entry trading system. The aforementioned capital increase, which involved the disapplication of preemptive subscription rights, was performed under the powers granted by the Shareholders’ Meeting on March 9, 2002, in accordance with the stipulations of Article 153.1.b) of the Spanish Corporations Law. Article 161.1 of the Spanish Corporations Law expressly provides for the possibility of the capital increase not being fully subscribed.
In accordance with the stipulations of Article 159.2. of the Spanish Corporations Law, the issue price should be the reasonable value of the shares, which in the case of listed companies is taken to be the market price.
The capital increase was aimed exclusively at Spanish and foreign institutional investors through a placement method known asAccelerated Bookbuilt Offering (ABO) led by an investment bank. For general interest reasons, and in order to enable the shares to be placed among institutional investors using the aforementioned procedure, the powers granted by the Shareholders’ Meeting on March 9, 2002, were exercised and the BBVA shareholders’ and convertible debenture holders’ have no preemptive subscription rights.
The new shares will entitle their owners to share in any distribution of dividends paid after the capital increase is registered in Iberclear’s accounting records, and in assets in the event of liquidation. As regards the dividend to be paid out of 2003 income, holders of the new shares will only be entitled to receive the amount of any final dividend that the Shareholders’ Meeting resolved to declare, if the shares are issued prior to the date of this Shareholders’ Meeting (Note 5).
Tender offer for Bancomer
This capital increase is part of a global operation to attract funds to strengthen the Group’s equity structure and enable it to undertake its expansionary projects, in particular the tender offer for all the shares of Grupo Financiero BBVA BANCOMER, S.A. de C.V., as resolved at the Board meeting that took place on January 30, 2004, ensure the normal growth of its current business and maintain its solvency above the levels stipulated by Bank of Spain regulations (Note 2-e).
As of the date of the beginning of the tender offer, the BBVA Group owned 5,512,708,648 shares of BANCOMER representing 59.4% of its capital stock (Note 4). The offer approved by the Board of Directors is for all the shares not currently owned by BBVA, i.e. 3,763,898,174 BANCOMER shares representing 40.6% of its capital stock.
The tender offer concluded at March 19th, 2004. The amount of total cost of the transactions was €3,254 million. BBVA is performing the intangibles assets identification, purchase price allocation and accounting of goodwill under US GAAP.
As of the date of preparation of these consolidated financial statements, the BBVA Group owned shares of BANCOMER representing 99.66% of its capital stock.
Shareholder’s Meeting
The Shareholders’ Meeting held on February 28, 2004 approved, among other agreements, the following:
Re-election of three members of the Board of Directors in accordance with the provision stated in Article 36 of BBVA’s by-laws and appointment of Mr. José Antonio Fernández Rivero and Mr. Carlos Loring Martínez de Irujo as members of the Board of Directors for a five-year term.
Sale of Banco Atlántico
The transaction mentioned in note 11 in which Banco Sabadell, S.A. launched a tender offer on the shares of Banco Atlántico, S.A. performed in March 2004. That gave rise to a gain of €218 millions in 2004.
BBVA Banco Francés (“Banco Francés”).
On March 18, 2004, the Board of Directors of BBVA Banco Frances, our Argentine affiliate, resolved to implement a plan intended to improve Banco Frances’s adjusted stockholders’ equity and enable Banco Frances to comply with new minimum capital requirements established by the Argentine Central Bank. The plan provides for:
BBVA, as Banco Francés’s largest shareholder, intends to participate in this plan by:
Furthermore, BBVA have acquired from BBVA Banco Francés its entire interest in Banco Francés (Cayman) Limited for a purchase price of US$ 238.5 million (€195 million at exchange rate as of March 31, 2004), which is based on the independent valuation of Banco Francés (Cayman) Limited by two well-recognized valuation experts.
The two transactions involving Banco Frances described above will not affect BBVA’s consolidated operating results because (i) in the case of the loan capitalization, BBVA had previously fully provisioned the loan, and (ii) in the case of the purchase of Banco Frances (Cayman) Limited, this entity was already fully consolidated by BBVA.
De-listing of Buenos Aires Stock Exchange
Because of our investment in Argentine, the listing in Buenos Aires Stock Exchange was required by local authorities in 2000. However, none share have been traded as of nowadays in this stock exchange. Therefore, accordingly with the delegation of authority to request listing or de-listing of Banco Bilbao Vizcaya Argentaria, S.A. shares on foreign Securities Exchanges approved by Shareholders’ meeting mentioned above, on April 1, 2004, BBVA have applied for de-listing of our shares in this stock exchange. On June 15, 2004, de-listing have been approved by Buenos Aires Stock Exchange and National Exchange Commission in Argentine.
Sale of Acerinox
On June 18, 2004, BBVA sold its entire 5.01% interest in Acerinox, S.A. The total sale price was €146.6 million) and gave rise to a capital gain of €35 million.
(32.2) DIFFERENCES BETWEEN SPANISH AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND OTHER REQUIRED DISCLOSURES.
As described in Note 2,1, the accompanying consolidated financial statementsConsolidated Financial Statements of the BBVA Group are presented in the formats stipulated by the Bank of Spain circularsCirculars and were prepared by applying the generally accepted accounting principles for banks in Spain (“Spanish GAAP”)International Financial Reporting Standards (IFRS), largely dictatedadopted by Bankthe European Union pursuant to Regulation (EC) Nº 1606/2002 of Spain.the European Parliament of the Council of 19 July 2002. Such formats and accounting principles vary in certain respects from those generally accepted in the United States (“U.S. GAAP”). Our Consolidated Financial Statements as of December 31, 2006, 2005 and 2004 would not present any difference had the standards issued by the International Accounting Standards Board (IASB) been applied instead of those endorsed by the EU.
Following is a summary of the main differences between SpanishIFRS and U.S. generally accepted accounting principles:
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• Consolidated Financial Statements | ||
• Additional information required by U.S. GAAP |
The preparation of these financial statementsConsolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts and allocations of assets and liabilities and disclosures of contingent assets and liabilities and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimated but any difference should not be material.
(32.2.A) SIGNIFICANT VALUATION AND INCOME RECOGNITION PRINCIPLES UNDER SPANISH AND U.S. GAAP
Following isIFRS 1First-time adoption provides first-time adopters of IFRS with a descriptionnumber of exemptions and exceptions from full retrospective application (see Appendix VI). Net income and stockholders’ equity under IFRS and the most significant valuation and income recognition principles under Spanish andreconciling item to U.S. GAAP applicable to the financial statements of the Banco Bilbao Vizcaya Argentaria Group:shown below would have been different if IFRS had been applied fully retrospectively.
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(32.2.B)A) NET INCOME AND STOCKHOLDERS’ EQUITY RECONCILIATION BETWEEN SPANISHIFRS AND U.S. GAAP.
Accounting practices used by the Bank in preparing the consolidated financial statementsConsolidated Financial Statements conform with Spanish GAAP,to IFRS, but do not conform withto U.S. GAAP. A summarized reconciliation of stockholders’ equity as of December 31, 2003, 20022006, 2005 and 20012004 and net income for the years 2003, 20022006, 2005 and 20012004 to U.S. GAAP is set forth below.
The following tables set forth the adjustments to consolidated net income and to consolidated stockholders’ equity which would be required if U.S. GAAP had been applied to the accompanying consolidated financial statements:Consolidated Financial Statements:
Item # | Increase (Decrease) Year Ended December 31, | ||||||||||
2003 | 2002 | 2001 | |||||||||
(Thousands of Euros, except per share data) | |||||||||||
NET INCOME | |||||||||||
As reported in the annual report to stockholders in the statutory approved financial statements | 2,226,701 | 1,719,129 | 2,363,336 | ||||||||
Reversal of extraordinary amortization of goodwill | (*) | — | — | (520,266 | ) | ||||||
As reported under Spanish GAAP in the accompanying consolidated statements of income | 2,226,701 | 1,719,129 | 1,843,070 | ||||||||
Adjustments to conform to U.S. GAAP: | |||||||||||
Business Combination with Argentaria— | |||||||||||
Amortization of surplus allocated to specific assets and liabilities | 1 | (55,899 | ) | (154,690 | ) | (164,930 | ) | ||||
Amortization of remaining Goodwill Merger Argentaria | 1 | — | — | (231,029 | ) | ||||||
Elimination of over-depreciation relating to restated fixed assets, recognition of additional profits on the sale and disposal of restated items | 2.1 | 49,978 | 68,361 | 78,824 | |||||||
Elimination of the inflation adjustment in non highly inflationary countries | 2.2 | 38,654 | 13,114 | (33,911 | ) | ||||||
Effect of following the equity method of accounting for investments in affiliated companies | 3 | (108,450 | ) | (59,731 | ) | (61,622 | ) | ||||
Pension plan cost and early retirements | 4.1 | (811,451 | ) | (510,954 | ) | (743,610 | ) | ||||
Termination indemnities | 4.2 | 2,083 | (3,276 | ) | (38,685 | ) | |||||
Accounting of goodwill | 5 | 402,429 | 203,229 | (391,210 | ) | ||||||
Gains on transactions with parent company shares and stock options owned by subsidiaries accounted for as income for the year | 6 | 23,363 | 24,585 | (13,865 | ) | ||||||
Effect of recording the allowance for probable loan losses | 7 | 183,759 | 221,616 | 196,199 | |||||||
Valuation of investment securities | 9 | (482,089 | ) | 425,795 | 40,563 | ||||||
Expenses of capital increases | 10 | 22,764 | 21,958 | 32,556 | |||||||
Start up expenses | 10 | 42,894 | 13,120 | (39,074 | ) | ||||||
Derivative instruments and hedging activities (SFAS 133) | 11 | 207,460 | (126,660 | ) | 11,219 | ||||||
Tax effect of above mentioned adjustments | 12 | 161,705 | (22,714 | ) | 182,579 | ||||||
Effect of following SFAS 109 in the accounting for income taxes for each year | 12 | 1,999 | 8,613 | 13,037 | |||||||
BBV Brasil transaction | 13 | — | 4,251 | — | |||||||
Net income in accordance with U.S. GAAP | 1,905,900 | 1,845,746 | 680,111 | ||||||||
Other comprehensive income, (loss) net of tax: | |||||||||||
Foreign currency translation adjustments | (922,506 | ) | (1,864,977 | ) | (593,860 | ) | |||||
Unrealized gains on securities: | |||||||||||
Unrealized holding gains (losses) arising during period, net of tax | 2,133,816 | (969,526 | ) | (234,316 | ) | ||||||
Reclassification adjustment, net of tax | (1,079,792 | ) | (393,139 | ) | (516,432 | ) | |||||
1,054,024 | (1,362,665 | ) | (750,748 | ) | |||||||
Derivative instruments and hedging activities | (44,786 | ) | 72,039 | 12,790 | |||||||
Comprehensive income (losses) in accordance with U.S. GAAP | 14 | 1,992,632 | (1,309,857 | ) | (651,707 | ) | |||||
Net income per share (Euros) | 15 | 0.596 | 0.577 | 0.213 |
Item # | Increase (Decrease) Year Ended December 31, | ||||||||||
2006 | 2005 | 2004 | |||||||||
(Thousands of Euros, except per share data) | |||||||||||
NET INCOME | |||||||||||
Profit for the year under IFRS | 4,971,035 | 4,070,572 | 3,108,209 | ||||||||
Income attributed to the minority interest under IFRS (*) | (235,156 | ) | (264,147 | ) | (185,613 | ) | |||||
Income attributed to the Group under IFRS | 4,735,879 | 3,806,425 | 2,922,596 | ||||||||
Adjustments to conform to U.S. GAAP: | |||||||||||
Business combination with Argentaria | 1 | (22,219 | ) | (33,836 | ) | (18,868 | ) | ||||
Valuation of assets | 2 | (851 | ) | (2,453 | ) | 20,414 | |||||
Valuation of financial instruments | 3 | 74,370 | 26,902 | 247,935 | |||||||
Accounting of goodwill | 4 | (346,596 | ) | (478,450 | ) | (316,215 | ) | ||||
Translation of financial statements in high-inflation countries | 5 | — | — | — | |||||||
Impact of SFAS 133 | 6 | 17,016 | (99,551 | ) | (69,344 | ) | |||||
Loans adjustments | 7 | 445,428 | (303,277 | ) | 196,940 | ||||||
Intangible assets | 8 | — | (147,955 | ) | 93,679 | ||||||
Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS 109 | 9 | 68,665 | 694,230 | 11,908 | |||||||
Net income in accordance with U.S. GAAP before changes in accounting principles | 4,971,692 | 3,462,035 | 3,089,046 |
Item # | Increase (Decrease) Year Ended December 31, | ||||||||||
2006 | 2005 | 2004 | |||||||||
(Thousands of Euros, except per share data) | |||||||||||
Changes in accounting principles | |||||||||||
Pension plan cost | 10 | — | (2,164,038 | ) | 607 | ||||||
Tax effect of Pension plan cost adjustment | 9 | — | 719,691 | 5,690 | |||||||
Net income in accordance with U.S. GAAP | 4,971,692 | 2,017,688 | 3,095,343 | ||||||||
Other comprehensive income, (loss) net of tax: | |||||||||||
Foreign currency translation adjustments | (708,212 | ) | 1,138,449 | (308,751 | ) | ||||||
Unrealized gains on securities: | |||||||||||
Unrealized holding gains (losses) arising during period, net of tax | 110,552 | 882,753 | 874,845 | ||||||||
Reclassification adjustment, net of tax | — | — | (274,599 | ) | |||||||
Derivative instruments and hedging activities | 106,777 | (118,586 | ) | (11,375 | ) | ||||||
Comprehensive income (losses) in accordance with U.S. GAAP | 4,480,809 | 3,920,304 | 3,375,463 | ||||||||
Net income per share (Euros) | 1.46 | 0.59 | 0.92 |
Item # | Increase (Decrease) Year Ended December 31, | ||||||||||
2006 | 2005 | 2004 | |||||||||
(Thousands of Euros) | |||||||||||
STOCKHOLDERS’ EQUITY | |||||||||||
Total Stockholders’ equity under IFRS | 22,318,478 | 17,302,112 | 13,805,263 | ||||||||
Minority interests under IFRS (*) | (768,162 | ) | (971,490 | ) | (737,539 | ) | |||||
Total stockholders’ equity without minority interest under IFRS | 21,550,316 | 16,330,622 | 13,067,724 | ||||||||
Adjustments to conform to U.S. GAAP: | |||||||||||
Business combination with Argentaria | 1 | 5,536,634 | 5,558,853 | 5,587,640 | |||||||
Valuation of assets | 2 | (151,913 | ) | (151,062 | ) | (148,608 | ) | ||||
Valuation of financial instruments | 3 | 110,048 | 67,029 | 205,004 | |||||||
Accounting of goodwill | 4 | 2,842,212 | 3,417,857 | 3,359,281 | |||||||
Translation of financial statements in high-inflation countries | 5 | (239,481 | ) | (267,843 | ) | (224,484 | ) | ||||
Impact of SFAS 133 | 6 | 116,367 | 142,786 | 315,636 | |||||||
Loans adjustments | 7 | 2,115,156 | 1,669,728 | 1,996,335 | |||||||
Intangible assets | 8 | — | — | 195,966 | |||||||
Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS 109 | 9 | (1,418,171 | ) | (1,392,558 | ) | (2,478,293 | ) | ||||
Pension plan cost | 10 | — | — | 1,589,071 | |||||||
Stockholders’ equity in accordance with U.S. GAAP | 30,461,168 | 25,375,412 | 23,465,272 |
(*) |
Item # Increase (Decrease) December 31, STOCKHOLDERS’ EQUITY As reported under Spanish GAAP in the accompanying consolidated balance sheets (Note 2-d) Adjustments to conform to U.S. GAAP: Business Combination with Argentaria Purchase Argentaria Effect Reversal of the net effect of the restatement of fixed assets and equity securities Elimination of the inflation adjustments Effect of adjustments to conform to U.S. GAAP for investments in affiliated companies Pension plan cost and early retirements Termination indemnities Accounting of goodwill (Gains) losses on transactions with parent company shares and stock options owned by subsidiaries accounted for as income for the year Allowance for loan losses Reduction for employee loans issued to purchase shares of capital Stock Valuation of investment securities Expenses of capital increases Start up expenses Derivative instruments and hedging activities (SFAS 133) Tax effect of above mentioned adjustments Effect of following SFAS 109 BBV Brasil transaction Stockholders’ equity in accordance with U.S. GAAP 2003 2002 2001 Thousands of Euros 12,774,225 12,602,440 13,723,476 1 5,622,034 5,677,933 5,733,539 2.1 (316,110 ) (366,088 ) (533,926 ) 2.2 (246,262 ) (158,423 ) (2,115 ) 3 (423,057 ) (276,004 ) (519,701 ) 4.1 134,107 146,142 157,919 4.2 39,573 37,490 45,254 5 (220,925 ) (131,575 ) 417,164 6 28,213 26,752 99,472 7 859,725 675,966 459,341 8 (1,766 ) (2,479 ) (90,789 ) 9 2,246,846 1,105,931 2,700,841 10 (32,302 ) (53,051 ) (96,327 ) 10 (16,750 ) (68,319 ) (80,400 ) 11 150,378 15,067 30,897 12 (956,926 ) (268,278 ) (749,973 ) 12 (57,969 ) (59,968 ) (68,581 ) 13 — 4,251 — 19,583,034 18,907,787 21,226,091
The differences included in the tables above are explained in the following items:
1.1. Business Combination with Argentaria-
As described in Note 1, Banco Bilbao Vizcaya, S.A. and Argentaria, Caja Postal y Banco Hipotecario, S.A. (Argentaria) merged, being January 28, 2000 the date from which such merger was legally effective. The accounting ofAccording to Spanish GAAP at that date, this business combination under Spanish GAAP was accounted for using the method of pooling of interest and therefore no goodwill was accounted. IFRS 1First-time adoption of International Reporting Standards grants an exemption to apply IFRS 3Business Combinationsprospectively and thus not to restate business combinations that occurred before the date of transition to IFRS, which is January 1, 2004. Therefore, this merger has been accounted for.for using the
method of pooling of interest and no goodwill was accounted. Since the transaction did not comply with the requirements of APB 16 for pooling of interest method, under U.S. GAAP this business combination was accounted for using the purchase method. The excess of the fair value of the new shares issued in exchange for the Argentaria shares over the net worth of Argentaria under U.S. GAAP as of the date of the merger, amounted towas approximately €6,315,622 thousand and was calculated considering the necessary adjustments to the net worth of Argentaria as of January 28, 2000 under Spanish GAAP:
(thousands of | |||
Approximate Argentaria net worth as of January 28, 2000 under Spanish GAAP | 3,454,449 | ||
(i) Reversal of the net effect of the restatement of fixed assets and equity securities | (129,338 | ) | |
(ii) Reduction for employees and third party loans issued to purchase shares of capital | (122,606 | ) | |
(iii) Goodwill amortization adjustments | 100,734 | ||
(iv) Up-front premium reversal | |||
(v) Valuation of investment securities | 1,926,143 | ||
(vi) Effect of adjustments to conform to | (87,167 | ) | |
(vii) Tax effect of above mentioned adjustments | (607,916 | ) | |
(viii) Other adjustments | 34,601 | ||
Subtotal | 1,222,339 | ||
Approximate Argentaria net worth as of January 28, 2000 under | 4,676,788 | ||
-i. Revaluation of property and equity securities
Certain of the Spanish and foreign consolidated companies had stepped up (increased) the cost and accumulated depreciation of property and equipment and, where appropriate, the carrying values of their equity investment securities pursuant to the relevant local legislation. Also, the buildings and equity securities owned by certain of the companies in the Group, whose shareholders´shareholders’ meetings adopted merger resolutions in 1991, were stepped up. Under USU.S. GAAP these step ups are not permitted to be reflected in the financial statements.
ii. - Employee and other third party loans
Certain Group banks granted loans to shareholders, employees and customers for the acquisition of Argentaria, Caja Postal y Banco Hipotecario, S.A. shares. Under Spanish GAAP, these loans were recorded in the consolidated financial statementsConsolidated Financial Statements under the caption “Credit, Loans and Discounts”. Under USU.S. GAAP, these loans should be recorded as a reduction of stockholders´stockholders’ equity because the only recourse for collection wasis the shares themselves.
iii. - Goodwill
TheUnder Spanish GAAP, the general policy of the Group was to amortize goodwill over a maximum period of 10 years. However, a different period was used to amortize goodwill in some of the subsidiaries acquired. ForUntil 2001, for purposes of calculating the effect of applying USU.S. GAAP, goodwill arising on acquisitions has beenwas amortized in 10 years.
Since July 2001, as required by SFAS 142, goodwill is no longer amortized.
Additionally, in 1998 and as a result of the merger, goodwill from Banco Exterior de España, S.A. was fully written off for Spanish GAAP purposes. Under USUntil June 2001, under U.S. GAAP thethis goodwill iswas amortized over the estimated economic life as there was no economic or fair value basis for the impairment made under Spanish GAAP.
Since July 2001, as required by SFAS 142, goodwill is no longer amortized.
iv. - Up-front premium reversal
In 1998 the Bank arranged hedging transactions for which it paid a premium, which was recorded under the “Extraordinary Losses” caption in the income statement of income for 1998, to mitigate the adverse effect of the negative spread that arise between the average return on the mortgage loans financed by certain mortgage bonds and the fixed interest rates of such mortgage bonds. Under USU.S. GAAP, the premium was recognized at inception as an asset, amortized over the life of the hedging transaction under FASSFAS 80 and that upon adoption of FASBSFAS 133 the derivative has been recorded at fair value through income, as it does not qualify for hedge accounting under USU.S. GAAP.
v. - Valuation of investment securities
Under SFAS 115, available-for-sale securities must be recorded at market value against stockholders´in stockholders’ equity.
vi. - Investments in affiliated Companies
Under Spanish GAAP, investments in non-consolidated listed affiliated companies owned over 3% and in non-consolidated unlisted affiliated companies owned over 20% arewere recorded by the equity method. Under US
U.S. GAAP investments in affiliated companies over 20% but less than 50% are accounted for by the equity method and those exceeding 50% by the global integration method. Listed investments of less than 20% are accounted for at market value.
The excess of the fair value of the new shares issued in exchange for the Argentaria shares over the net worth of Argentaria, was allocated to the following specific items:
2000 | Thousands of
| ||
Net Lending | 610,785 | ||
Investment Securities-Held to Maturity | 305,903 | ||
Premises and Equipment | 129,338 | ||
Other assets and liabilities | (113,255 | ) | |
Long Term Debt | (172,521 | ) | |
Tax Effect | (220,360 | ) | |
Goodwill | 5,775,732 | ||
6,315,622 | |||
For U.S. GAAP purposes, BBVA amortizes the excess of the fair value assigned to the specific items over their remaining economic life. The amortization of the excess allocated to specific assets and liabilities amounts €55,899was €22,219 thousand (net of tax), €154,690€33,836 thousand (net of tax) and €164,930€18,868 thousand (net of tax) in 2003, 20022006, 2005 and 2001,2004, respectively.
Up toUntil December 31, 2001 BBVA amortized the goodwill on a straight line basis over a period of 25 years. This amortization amounted to € 231,029 thousand in 2001.
FromSince January, 2002 BBVA stopped the amortization of the remaining goodwill pursuant to the SFAS 142 and it has been assigned to different Reporting Units and tested for impairment as described in Item 32.2.B.5.2.2.m. As of December 31, 2006 goodwill was €5,332,924 thousand.
The adjustment to stockholders’ equity, that reflects both effects, was €5,536,634 thousand, €5,558,853 thousand and €5,587,640 as of December 31, 2006, 2005 and 2004, respectively.
2. EliminationValuation of over-depreciation relating to restated fixed assets, recognition of additional profits on the sale and disposal of restated items, and elimination of the inflation adjustment in non highly inflationary countries-assets-
2.1. Revaluation of property and equity securities-This adjustment basically relates to the following:
• | Revaluation of property |
As described in Notes 3-e, 3-h, 14 and 24,Note 34.3, certain of the Spanish and foreign consolidated companies restated the cost and accumulated depreciation of property and equipment and, where appropriate, the carrying values of their equity investment securities pursuant to the relevant legislation. Also, the buildings and equity securities owned by certain of the companies in the Group, whose Shareholders’ Meetings adopted merger resolutions in 1988, were restated on the basis of the principles explained in Note 24. Under U.S. GAAP these revaluations are not permitted to be reflected in the financial statements.
In accordance with Spanish GAAP,IFRS, fixed asset depreciation is computed on the restated value and the total amount charged to income is deductible for corporate income tax purposes. In addition, results on sales or dispositions of both fixed assets and equity investments are determined as the difference between the selling price and the net restated value.
The amounts of the adjustments indicated below have been calculated to reflect the reversal of the additional depreciation on the revalued property and equipment (€9,7578,104 thousand, €10,088€8,984 thousand and €18,945€9,312 thousand in 2003, 2002,as of December 31, 2006, 2005 and 2001,2004, respectively) and the additional income that would have resulted if the Group had not restated the equity securities and fixed assets that have been sold (€11,2482,918 thousand, €58,273€14,026 thousand and €59,879€15,032 thousand in 2003, 2002as of December 31, 2006, 2005 and 2001,2004, respectively). The adjustment to stockholders’ equity reflects the reversal of the unamortized revaluation surplus.
Assets received in paymentssurplus (€286,706 thousand, €297,728 thousand and €320,738 thousand as of debt
Under Spanish GAAP, these assets are recorded at the lower of the book value of the assets used to acquire them or market value, net, initially, of any provisions covering the assets received, up to 25% of that value. In accordance with Bank of Spain regulations, additional provisions are recorded in the years following foreclosure of the assets based on their age, type of assetsDecember 31, 2006, 2005 and appraisal by independent appraisers.
The provisions recorded with a charge to the “Extraordinary Losses” caption in the accompanying consolidated statements of income are presented as a reduction of the balance of the “Property and Equipment Other Property” caption in the accompanying consolidated balance sheets (Notes 14 and 28 g)2004, respectively).
• | Valuation of property |
As described in Appendix VI, in accordance with IFRS 1 First-time adoption of International Financial Reporting Standards, certain property and equipment items were revaluated and, therefore, this value was considered as deemed cost at January 1, 2004 taking into consideration that, at the date of the revaluation, this deemed cost was comparable to fair value.
Under U.S. GAAP, this provision shouldthese adjustments to the deemed cost are not be recorded, thereforepermitted due to the fact that they do not reflect an actual impairment.
As a consequence, there is an adjustment between U.S. GAAP and IFRS in order to netreflect in the income statement the additional depreciation on the revalued property and equipment (€3,226 thousand, €3,079 thousand and €3,079 thousand as of December 31, 2006, 2005 and 2004) and the additional income related to property and equipment with lower book value under U.S. GAAP which have been sold during 2006 (€5,288 thousand as of December 31, 2006). The adjustment to stockholders’ equity reflects the reversal of that provision.
the adjustments to the attributed cost (€112,409 thousand, €146,666 thousand and €149,746 thousand as of December 31, 2006, 2005 and 2004, respectively).
2.2. Translation3. Valuation of financial statements in high-inflation countries-instruments-
Group’s criteria of accounting for such securities are described in Note 2.2.b. As described in Appendix VI, in accordance with IFRS 1First-time adoption of International Financial Reporting Standards, the recognition, measurement and disclosure criteria included in IAS 32 and 39, were applied retrospectively to January 1, 2004 (the date of transition to IFRS).
This adjustment mainly refers to following:
Debt securities
Under IFRS 1, debt securities included in available-for-sale portfolio were recognized at fair value of the date of transition to IFRS (January 1, 2004) through stockholders’ equity.
Under U.S. GAAP, in fiscal years ended prior to January 1, 2004, some unrealized losses regarding certain debt securities were recorded as ‘other-than- temporary’ impairments.
As indicateda consequence, there is an adjustment between U.S. GAAP and IFRS in Note 3-b, certain of the dependent companies record chargesorder to reflect in the income statement the additional income related to debt securities (€3,010 thousand, €17,140 thousand and €203,969 thousand as of income to protect their net worth from the theoretical depreciation arising from inflation.
According to Bank of Spain regulation, inflation accounting adjustments accounted for by subsidiaries under GAAP in their countries can be recorded at consolidated financial statements of the Group. These inflation accounting adjustments are not accepted under US GAAP.
Under US GAAP, the financial statements of operating units in a highly inflationary economy are remeasured as if the functional currency of the operating unit were the same as that of the parent reporting currency. For the purposes of this requirement, a highly inflationary economy is one that has cumulative inflation of approximately 100 percent or more over a 3-year period. None of the countries were BBVA owns subsidiaries are highly inflationary countries
December 31, 2006, 2005 and 2004, respectively). The adjustment to stockholders’ equity reflects the reversal of the theoretical depreciation arising from inflation registeredadjustments to the fair value (increase €61,371 thousand, increase €72,973 thousand and decrease €18,694 thousand as of December 31, 2006, 2005 and 2004, respectively).
Equity securities
Under IFRS 1, equity securities included in dependent companies established in “non highly inflationary economies”.
3. Equity investments-
As indicated in Note 3-e, under Spanish GAAP, investments in non-consolidated listed affiliated companies owned over 3% and in non-consolidated unlisted affiliated companies owned over 20% are recorded byavailable-for-sale portfolio were recognized at fair value of the equity method.
date of transition to IFRS (January 1, 2004) through stockholders’ equity.
Under U.S. GAAP, investments in affiliated companies over 20% but less than 50% are accounted for byfiscal years ended prior to January 1, 2004, some unrealized losses regarding certain equity securities were recorded as “other-than-temporary” impairments.
As of December 31, 2005 and 2004, the equity method and those exceeding 50% are consolidated. Listed investments of less than 20% are accounted for at fair value (Note 32.2.A).
All affiliates in which the Group holds an ownership interest of less than 20% and are accounted for by the equity method according to Spanish GAAP must be accounted for at market value, if the securities have readily determinable market value, according to U.S. GAAP. If the securities do not have readily determinable market value, they are accounted for at cost under U.S. GAAP.
In this adjustment we change the valuation of these holdings (less than 20%) from the equity accounting method to lower of cost or market. The final adjustment to meet SFAS 115 is done together with all other equity securities in the Valuation of Investment securities described in Item 9 below.
This adjustmentand reflects the reversal of effects in net income (increase €10,324 thousand and stockholders´ equity€44,108 thousand as of accounting byDecember 31, 2005 and 2004, respectively) and reflects the equity method holdings in affiliated companies less than 20% and in which the Group does not have significant influence. This adjustment includes:
4.1. Pension plan cost, early retirements -
Pension plan cost-
All personnel employed in Spain are entitled to pension benefits, in addition to Social Security provided by the State.
2004, respectively).
As of December 31, 1988, the total liability for retired and active employees was recorded by a charge to income and to the merger reserves adopted by some companies in 1988.
In 1991, the Group recalculated the actuarial liability, changing certain assumptions and varying certain of the items included in the pensionable basis (wage concepts included to determine the cost of pensions). Gains and losses derived from this recalculation were covered with charges to “Retained earnings and other reserves”. Actuarial gains and losses arising in subsequent years until 1999 were recorded in the statement of income.
In 2000, as a consequence of the externalization process, in which the financing system was modified through the signature of a collective agreement and new valuation assumptions were used, a difference arose which represents the discounted present value of the contributions yet to be made to the external pension funds. In addition, in 2001 the Plan was amended, resulting in increasing benefits granted to the employees.
Because of the mentioned process in year 2000, these obligations are covered through Defined Contribution Pension Plans, and through Insurance Policies adapted to the current regulation in Spain for the externalizing of retirement commitments, which under SFAS No. 87 are treated as annuity contracts for the purpose of that Statement.
Under2006, there is an adjustment between U.S. GAAP SFAS 87 requires unrecognized net gain or loss and unrecognized prior service costIFRS in order to be amortized by charges to incomereflect in a period not exceeding the average remaining service period of active employees or the average remaining life expectancy of retired participants.
These amounts are being amortized over a maximum period of 14 years in the case of external pension plans and 9 years in the case of insurance contracts in accordance with Spanish legislation (under U.S. GAAP maximum period for amortization is higher than under Spanish GAAP both for active employees and inactive participants of the plans). These periods include the year 2000, in which the first installment was paid. The Group has charged to the income statement in 2003 as amortization of these differences the amount of €75,661 thousand (€99,665 thousand and €124,945 thousand in years 2002 and 2001, respectively). After previous years adjustments, unrecognized net gain or loss and unrecognized prior service cost as of December 31, 2003 amount to €746,731 thousand (€849,980 thousand and €1,038,426 thousand in years 2002 and 2001, respectively). As of December 31, 2002 all the amounts corresponding to these obligations of the Pension Plans have already been paid.
For year 2003 contributions made by companies in Spainadditional income related to the defined contribution pension plans amount to €40,123 thousandequity securities that have been sold (€43,037 thousand and €40,567 thousand in years 2002 and 2001, respectively)71,750 thousand). Additionally, costs of annuity contracts charged to income in 2003, amounts to €28,243 thousand (€36,715 thousand and €31,506 thousand in years 2002 and 2001, respectively).
Pension plans of BBVA Bancomer
Obligations for pensions and other postretirement benefits in BBVA Bancomer are covered mainly under defined benefit pension plans, whereas others are covered under defined contribution pension plans. Both types of pension plans are carried out as internal provisions.
The following table is the reconciliation in the defined benefit pension plan of the Projected Benefit Obligation:
Change in benefit obligation : Healthcare benefits Projected benefit obligation (PBO) at the beginning of the year Prior service cost Total service cost at year end Interest cost Benefits paid Gains & losses Settlements Others Foreign currency exchange rate changes Projected benefit obligation (PBO) at the end of the year Thousand of Euros 2003 Pension
Benefits 434,021 241,151 39,769 — 11,194 2,937 20,685 7,719 (26,632 ) (4,067 ) 3,220 6,782 (112 ) — 802 — (97,759 ) (54,436 ) 385,188 200,086
Weighted average actuarial assumptions used in the accounting for the defined benefit pension plan are as follows:
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Those actuarial assumptions were approved by Comisión Nacional Bancaria y de Valores (National Banking and Securities Commission).
A reconciliation of the fair value of plan assets, is as follows:
Thousand of Euros | ||||||
Change in Plan Assets: | 2003 | |||||
Pension Benefits | Healthcare benefits | |||||
Fair Value of Plan Assets at beginning of the year | 367,858 | 16,581 | ||||
Actual return on plan assets | 41,039 | 627 | ||||
Transfer from Other Entities | 3,093 | — | ||||
Settlements | (112 | ) | — | |||
Employer Contribution | 20,850 | 16,811 | ||||
Plan participants’ contribution | — | — | ||||
Benefits paid | (26,632 | ) | (4,067 | ) | ||
Foreign currency exchange rate changes | (83,415 | ) | (3,174 | ) | ||
Fair Value of Plan Assets at the end of the year | 322,681 | 26,778 |
Funded status as of December 31, 2003:
Thousand of Euros | |||||||||
Funded status December 31: | 2003 | ||||||||
Pension Benefits | Healthcare benefits | TOTAL | |||||||
Fair Value of Assets | 322,681 | 26,778 | 349,459 | ||||||
Accumulated Benefit Obligations | 362,250 | 148,940 | 511,190 | ||||||
Overfunded (unfunded) status of ABO | (39,569 | ) | (122,162 | ) | (161,731 | ) | |||
Unrecognized Prior Service Cost | 39,769 | 122,162 | 161,931 | ||||||
Prepaid (Accrued) Benefit Cost | (200 | ) | — | (200 | ) |
Amounting recognized in the financial statements at December 31, 2003 are as follows:
Thousand of Euros | |||||||||
2003 | |||||||||
Pension Benefits | Healthcare benefits | TOTAL | |||||||
Minimum Liability | (39,569 | ) | (122,162 | ) | (161,731 | ) | |||
Intangible Assets | 39,769 | 122,162 | 161,931 | ||||||
Net amount recognized at the end of the year | (200 | ) | — | (200 | ) |
The disclosure of Net Periodic Cost is as follows:
Thousands of Euros | ||||||
2003 | ||||||
Net Periodic Cost (Income) | Pension Benefits | Healthcare benefits | ||||
Prior Service Cost | 3,471 | 6,763 | ||||
Service cost at year end | 11,830 | 2,993 | ||||
Interest cost | 21,644 | 7,754 | ||||
Expected return on Asset | (15,730 | ) | (683 | ) | ||
Net Periodic Cost | 21,215 | 16,827 |
Contribution expected to be paid during the next fiscal year:
Thousands of Euros | ||||||
(*) | ||||||
Net Periodic Cost (Income) | Pension Benefits | Healthcare benefits | ||||
Service cost at year end | 10,656 | 3,430 | ||||
Interest cost | 23,396 | 8,965 | ||||
Expected return on Asset | (17,082 | ) | (1,401 | ) | ||
Other | 5,657 | 7,054 | ||||
Net Periodic Cost | 22,627 | 18,048 |
Plan Assets
Investment strategy
The Company’s policy is to invest the assets in a prudent manner for the exclusive purpose o providing benefits to participants. The Company’s investment strategy is designed to provide a total return on assets that, over the long-term, increases the ratio of assets to liabilities. The investment strategy uses allocation as a principal determinant for establishing the risk/reward profile of the assets. This strategy must follow some requirements established by Mexican legislation.
According to Mexican legislation, the pension commitments can be hedged by:
- Defined benefit pension plan
The Pension Plan asset allocation at December 31, 2003 by asset category is as follows:
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- Long services bonus
The Pension Plan asset allocation at December 31, 2003 by asset category is as follows:
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- Other post-retirement benefits
The Pension Plan asset allocation at December 31, 2003 by asset category is as follows:
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Projected Benefit Payments
Benefit Payments projected to be made from the Pension Benefit Plan and Healthcare Benefit Plan are as follows:
Year | Pension Benefit Plan | Healthcare Benefit Plan | ||
2004 | 29,622.59 | 4,799.39 | ||
2005 | 26,391.12 | 5,447.16 | ||
2006 | 28,270.88 | 6,642.21 | ||
2007 | 30,463.61 | 8,094.10 | ||
2008 | 33,265.79 | 9,880.85 | ||
2009 | 35,336.50 | 11,936.22 | ||
2010 | 37,639.84 | 14,426.36 | ||
2011 | 39,832.88 | 17,404.51 | ||
2012 | 42,459.20 | 21,031.91 | ||
2013 | 45,973.58 | 25,865.67 |
Defined contribution Plan
Also, BBVA Bancomer has an established pension plan denominated “Defined Contribution”, to which defined contributions are made based on a payroll percentage as of March 1, 2001. Over the long term this plan will replace the defined benefits plan, which generates the previous liability, and currently 12,305 employees participate in this plan. Apart from the defined benefit monthly retirement pension, benefits will be paid in the event of early retirement, death, or total permanent disability, through defined contributions to a personal employee fund.
During year 2003, 1,277 employees (2,166 employees and 5,651 employees in year 2002 and 2001, respectively) whose pension obligations were covered under the defined benefit pension plan moved to the defined contribution pension plan. As a consequence of this transfer, provision allocated in the defined benefit pension plan was reallocated in the provision for the defined contribution pension plan. Therefore, from the total increase of the internal provisions for the defined contribution pension plan in year 2003 €112 thousand (€2,412 thousand and €22,600 thousand in years 2002 and 2001, respectively) came from the transfer of provisions from the defined benefit pension plan.
In addition of this transfer, the cost recognized for the defined contribution pension plan in year 2003 amounts to €7,327 thousand (€9,474 thousand in years 2002).
At December 31, 2003 and 2002, the assets of this plan and its obligations are €41,456 thousands (Mexican $588,190 thousand) and €45,627 thousand (Mexican $500,532 thousand), respectively.
4.2. Termination indemnities-
As indicated in Note 3-k, as required by Bank of Spain Circular 5/2000, the Group has recorded an in-house provision to cover the contractual termination benefits for terminations or dismissals additional to those provided for by current legislation on a general basis. In addition, several companies of the Group have recorded additional provisions to cover future reorganization costs (basically termination indemnities). Under US GAAP, an employer that provides contractual termination benefits shall recognize a liability and a loss when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated.
As of December 31, 2003 it is no probable that terminations or dismissals occur. Therefore, under US GAAP these provisions should be reversed. This adjustment gives rise to an increase in net income of €2,083 thousand in 2003 and a decrease in net income of €3,276 and €38,685 thousand in 2002 and 2001, respectively, and an increase in stockholders’ equity of € 39,573 thousand, €37,490 thousand and €45,254 thousand in 2003, 2002 and 2001, respectively.
5.4. Accounting of goodwill-
The disclosurebreakdown of this adjustment is as follows:
Thousand of euros | ||||||||||||
Stockholders’ equity | Net Income | |||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||
Goodwill charged to reserves in 1998 and 1999 | 65,522 | 65,522 | — | — | ||||||||
Different period of amortization of goodwill reversed | 98,948 | 98,948 | — | — | ||||||||
Reversal of amortization under SP GAAP in 2002 | 970,477 | 559,400 | 411,077 | 559,400 | ||||||||
Amortization under Spanish GAAP not reversed under US GAAP | (154,074 | ) | (154,074 | ) | — | (154,074 | ) | |||||
Impairment under US GAAP | — | — | — | (66,917 | ) | |||||||
Exchange differences | (1,240,752 | ) | (748,971 | ) | — | — | ||||||
Sale of BBVA Brasil | — | — | — | (137,812 | ) | |||||||
Others | 242 | 48 | 192 | (44,920 | ) | |||||||
Subtotal | (259,637 | ) | (179,127 | ) | 411,269 | 155,677 | ||||||
Cancellation Negative Goodwill in consolidation | 38,712 | 47,552 | (8,840 | ) | 47,552 | |||||||
Adjustment 5 in reconciliation to US GAAP | (220,925 | ) | (131,575 | ) | 402,429 | 203,229 |
Thousands of euros | ||||||||||||||||||
Stockholders’ equity | Net Income | |||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||
Goodwill charged to reserves in 1998 and 1999 | 65,522 | 65,522 | 65,522 | — | — | — | ||||||||||||
Different period of amortization of goodwill reversed | 98,948 | 98,948 | 98,948 | — | — | — | ||||||||||||
Amortization under Spanish GAAP not reversed under U.S. GAAP | (154,074 | ) | (154,074 | ) | (154,074 | ) | — | — | — | |||||||||
Reversal of amortization | 970,477 | 970,477 | 970,477 | — | — | — | ||||||||||||
Reversal of Step Acquisition | 2,929,909 | 3,203,836 | 2,774,636 | — | — | — | ||||||||||||
Step Acquisition of BBVA Bancomer | (1,105,264 | ) | (788,073 | ) | (363,384 | ) | (344,426 | ) | (458,493 | ) | (316,607 | ) | ||||||
Others | 36,695 | 21,221 | (32,844 | ) | (2,170 | ) | (19,957 | ) | 392 | |||||||||
Adjustment 4 in reconciliation to U.S. GAAP | 2,842,213 | 3,417,857 | 3,359,281 | (346,596 | ) | (478,450 | ) | (316,215 | ) | |||||||||
The mainsmain reasons that causegenerate a difference between SpanishIFRS and U.S. GAAP and US GAAP in the amount of goodwill are the following ones:
following:
Goodwill charged to reserves in 1998 and 1999
Goodwill that arose in 1998 and 1999 as a result of mergers and acquisitions through share exchanges was amortized in full with a charge to reserves, which was not acceptable under USU.S. GAAP. Under USU.S. GAAP the goodwill was amortized until 2001 over a period of ten years except for the goodwill arising in 2000 in the merger of Banca Catalana, S.A., Banco de Comercio, S.A., Banco de Negocios Argentaria, S.A. and Banco de Alicante, S.A. where the economic life was five years. Since 2001, as it is required inby SFAS 142, goodwill is notno longer amortized.
Different period of amortization of goodwill reversed
The general policy of the Group, under Spanish regulation is to amortize goodwill through charges to income over a maximum period of 10 years for financial companies and 20 years for non financial companies. The original estimate life for Latin American banks acquisitions was ten years. This original estimated life under Spanish GAAP was also considered the estimated life under US GAAP.
In 1996 and 1997, BBV Group accounted for the impairment of part of the goodwill relating to investments in Latin America. This impairment was due to a conservative criterion and not based on any economic or fair value of the Latin America reporting units and therefore an impairment under both Spanish and US GAAP did not apply. Since the impairment did not comply with Spanish GAAP the auditor disclosed a qualification in their local auditors’ report. However under US GAAP this impairment was reversed. This adjustment reflects the register of goodwill that under US GAAP should not be impaired in prior years.
Reversal of amortization under SP GAAP
As it is required in SFAS 142, it is necessary to reverse the amortization recorded under Spanish GAAP (€411,077 thousand in 2003 and €559,400 thousand in 2002). In 2002 the amortization of Goodwill related to some reporting units was considered impaired based on the test basis performed and therefore it was not reversed amounting to €154,074 thousand.
Had SFAS 142 been effective January 1, 2001 and accordingly had goodwill not been amortized for US GAAP purposes in 2001, our net income, basic earnings per share and diluted earnings per share would have been as follows:
Thousands of Euros | 2003 | 2002 | 2001 | |||||
Reported net income in accordance with US GAAP | 1,905,900 | (*) | 1,845,746 | (*) | 680,111 | |||
Add back: goodwill amortization | — | — | 753,121 | |||||
Adjusted net income in accordance with US GAAP | 1,905,900 | 1,845,746 | 1,433,232 | |||||
Basic earnings per share | ||||||||
Reported net income | 0.596 | 0.577 | 0.213 | |||||
Add back: goodwill amortization | 0.000 | 0.000 | 0.235 | |||||
Adjusted net income | 0.596 | 0.577 | 0.448 | |||||
Diluted earnings per share | ||||||||
Reported net income | 0.596 | 0.577 | 0.213 | |||||
Add back: goodwill amortization | 0.000 | 0.000 | 0.235 | |||||
Adjusted net income | 0.596 | 0.577 | 0.448 |
Exchanges differences
For Spanish GAAP purposes the goodwill arising on acquisitions, when the parent company is the direct acquirer of companies abroad, is translated to euros at the exchange rates prevailing at the time the goodwill arises. For US GAAP purposes the goodwill is considered as a foreign currency asset and is translated at the year-end exchange rate.
Sale of BBVA Brasil
As of January 2003, the Bank announced its strategic agreement with Bradesco to sell BBV Brasil, S.A. Since BBVA meet the requirement of SFAS 144 for BBV Brasil, S.A. to be reported as an asset held-for-sale and classified as a discontinued operation as of December 31, 2002, BBVA recorded this investment in BBV Brasil, S.A., including the accumulated foreign currency translation adjustment at the lower of cost or fair value, less costs to sale. The estimated fair value, less costs to sale, for BBV Brasil, S.A., was determined based on the announced agreement with Bradesco to sell BBV Brasil, S.A. As a result, under US GAAP, an adjustment to cancel, the remaining goodwill and the accumulated negative exchange differences related to this goodwill was charged to income. These effects suppose a decrease in net income of €137,812 thousand.
Impairment
A discounted cash flow model was selected as the main method to determine the fair value of itsour Reporting Units,Units; although other methodologies such as using quoted market values and market multiples were also used. Cash flow estimates require judgment and the Bank believes that the assumptions used in determining the cash flows are consistent with assumptions marketplace participants would use in their estimates of their fair value.
The principal BBVA Group’s goodwill assigned to each Reporting Unit as of December 31, 20032006, 2005 and 2004 for annual impairment test purposes are the following:
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The definition of the Reporting Units is more specific in relation with the Business activities mainly as a result of the different regulations in Latin America for the banking sector in Banking in America and Asset Management and Private Banking (where the Pensions in America are disclosed).
Millions of Euros | ||||||
2006 | 2005 | 2004 | ||||
Retail Banking in Spain and Portugal | 4,081 | 3,968 | 3,967 | |||
Wholesale Business | 1,681 | 1,674 | 1,679 | |||
Pensions in South America | 270 | 312 | 260 | |||
México | 3,040 | 3,600 | 3,021 | |||
Chile | 126 | 78 | 60 | |||
United States and Puerto Rico | 1,724 | 572 | 79 | |||
Colombia | 213 | 267 | — |
Expected cash flows have been calculated using the “maximum payable dividend” for each period, considering net income and excess of minimum capital required. For financial statements and macroeconomics scenarios, a five year horizon was used to determine fair value. The risk free rate, the market risk premium and the country risk premium (when applicable) were considered to determine the discount rate used for each Reporting Unit.
Year 20022006, 2005 and 2004 analysis
As of December 31, 2002,2006, 2005 and 2004, the BankGroup has performed the required annual impairment tests of goodwill. As a result of Step 1 procedures of the abovementionedabove mentioned impairment test, the carrying amount of the Reporting Unit dodid not exceed its fair value.
Reversal of step acquisition
Under IFRS, investments acquired subsequent to obtaining control over a company (i.e. transactions involving the purchase of equity interests from minority shareholders) were treated as “equity transactions”. The amount of goodwill recorded under prior GAAP, at January 1, 2004, transition date to IFRS, under IFRS was recorded on the transactions performed after control was obtained were charged to “Minority Interests” and the surplus amount were charged to stockholders’ equity.
Under U.S. GAAP, these acquisitions are accounted for using the “purchase method” and, as a consequence, there is an adjustment between IFRS and U.S. GAAP in order to reflect the reversal of goodwill recorded prior to January 1, 2004, and the increase of stockholders’ equity.
Step Acquisition of BBVA Bancomer
As explained in Note 4 on March 20, 2004, BBVA completed the tender offer on 40.6% of the capital stock of Grupo Financiero BBVA Bancomer, S.A. de C.V. (“Bancomer”). The final number of shares presented in the offer and accepted by BBVA was 3,660,295,210, which represent 39.45% of the capital stock of Bancomer. Following the acquisition of these shares through the tender offer, the ownership interest held by BBVA in the capital of Bancomer was 98.88%. Lastly, as of December 31, 2006, as a result of the purchase of shares subsisting in the market, BBVA’s holding in Bancomer increased to 99.96%.
BBVA Bancomer, S.A. de C.V. was consolidated by Group BBVA since July 2000, when the merger of Grupo Financiero BBV-Probursa, S.A. de C.V. (a wholly-owned subsidiary of BBVA) and Grupo Financiero BBVA Bancomer, S.A. de C.V. was carried out.
Since March 20, 2004 the BBVA Group’s income statement reflected a decrease in Minority Interest caption related to the business combination described above while the rest of the income statement’s captions did not change because Bancomer was already a fully consolidated company before the acquisition of minority interest.
The argentineancash paid for the acquired entity was €3,324 million. In connection with this business combination there are no contingent payments, options, or commitments specified in the acquisition agreement.
Under IFRS, the business combination is registered as equity transaction and no amounts were allocated to assets or liabilities of the company acquired. Under U.S. GAAP once the process of allocating the purchase price to all assets and liabilities of the company acquired, the goodwill originatedwas €1,060.2 million. The entire amount of goodwill was allocated to the Mexico reporting unit in 2003the “Mexico and the United States” segment. The reconciliation of the net worth acquired and the fair value of the assets and liabilities acquired for purposes of U.S. GAAP was written-off against income. Management decisionas follows:
Thousand of Euros | |||
Net worth acquired | 1,207,051 | ||
Investment securities | (32,365 | ) | |
Net loans and leases | 621,671 | ||
Premises and equipment | (28,158 | ) | |
Intangible assets | 969,996 | ||
Other Assets | 189,585 | ||
Time Deposits | (124,176 | ) | |
Long term debt | (49,585 | ) | |
Other liabilities | (490,468 | ) | |
Fair value under U.S. GAAP | 2,263,551 | ||
The identified intangible assets are related to “core deposits”, which were calculated according to the purchase method and are amortized over a period of 40 months. Additionally, the allocated amount of net loans and leases are amortized over a weighted-average period of 3 years. Under U.S. GAAP, the adjustment (net of tax) in the income statement was taken considering€344,426 thousand, €458,493 thousand and €316,607 thousand as of December 31, 2006, 2005 and 2004, respectively, mainly related to the additional amortization expenses of assets and liabilities subject to amortization.
The “Other liabilities” caption includes basically temporary differences arising from different accounting and tax values of assets and liabilities allocated in the acquisition. Because the amounts allocated to certain assets are non deductible under Spanish Tax Law, additional goodwill and the corresponding deferred tax liabilities have been considered under U.S. GAAP.
Since Bancomer was consolidated by Group BBVA since July 1, 2000, there are no purchased research and development assets that there were no clear future benefits associated with it.
acquired and written off.
Year 2003 analysis,5. Translation of financial statements in high-inflation countries-
As indicated in Note 2.2.g, after the transition date to IFRS, which is January 1, 2004, none of the functional currencies of the consolidated subsidiaries and associates and their branches located abroad relate to hyperinflationary economies as defined by IFRS. Accordingly, as of December 31, 2006, 2005 and 2004 it was not necessary to adjust the financial statements of any of the consolidated subsidiaries or associates to correct for the effect of inflation.
In accordance to the exemption provided by IFRS 1 First-time Adoption of International Financial Reporting Standards, the cumulative effect of inflation recorded prior to January 1, 2004 (transition date to IFRS) mainly relating to items of property, plant and equipment has not been removed. Therefore, the previous GAAP restated amounts have been used as deemed cost of property, plant and equipment as of the transition date.
However, in prior years, under U.S. GAAP, the financial statements of operating units in a highly inflationary economy were remeasured as if the functional currency of the operating unit were the same as that of the parent reporting currency. For the purposes of this requirement, a highly inflationary economy is one that has cumulative inflation of approximately 100 percent or more over a 3 year period. None of the countries where BBVA owned subsidiaries are highly inflationary countries.
The adjustment reflects the reversal of the charges to stockholders’ equity arising from inflation registered in dependent companies established in “non highly inflationary economies” (€239,481 thousand, €267,843 thousand and €224,484 thousand as of December 31, 2006, 2005 and 2004, respectively).
6. Impact of SFAS 133
As of December 31, 2006, the main differences between IAS 39 and SFAS 133 that have resulted in reconciling items to net income and stockholder’s equity between IFRS and U.S. GAAP were as follows:
Fair value option
IFRS allows for designation of any financial asset or financial liability as held at fair value through the profit or loss if one of the criteria described in IAS 39 is met.
FAS 115 allows designation of financial asset or financial liability as held for trading only if these are acquired and held primarily for resale in the near term to make a profit from short-term movements in market prices.
As of December 31, 2006 and 2005, we maintained certain financial assets and financial liabilities registered at fair value through the profit or loss under IFRS which did not meet the conditions to be designated as financial asset or financial liability held for trading under U.S. GAAP. This difference resulted in a reconciling item to net income (an increase of €72,400 thousand and a decrease of €63,590 as of December 31, 2006 and 2005, respectively) and stockholder’s equity (a decrease of €17,176 thousand and €63,590 thousand as of December 31, 2006 and 2005, respectively) between IFRS and U.S. GAAP.
Retrospective application
As of December 31, 2003, the Bank has performedin accordance with Spanish GAAP certain fair value hedges of fixed income securities and cash flow hedges of exchange rate risk were considered to be speculative in our U.S. GAAP reconciliation adjustment, since the required annual impairment testsdocumentation was not available at the date on which the aforementioned hedges were designated as such.
As of goodwill. January 1, 2004, following the adoption of IFRS, these transactions continued to be designated as hedges, since they met all the IFRS requirements for hedge accounting.
As of December 31, 2004, in accordance with U.S. GAAP the Group maintained the criteria established in prior years and considered these transactions to be speculative, which accounted for a portion of the reconciliation adjustment for derivatives and hedges.
As a resultconsequence, there is an adjustment between U.S. GAAP and IFRS in order to reflect in the net income (a decrease of Step 1 procedures€6,032 thousand, €26,384 thousand and €8,677 thousand as of December 31, 2006, 2005 and 2004, respectively) and in stockholders’ equity (an increase of €128,482 thousand, €147,913 thousand and €248,947 thousand as of December 31, 2006, 2005 and 2004, respectively) the speculative nature of these transactions under U.S. GAAP.
Methods used to assess hedge effectiveness
Even though the methodology to assess the hedge effectiveness is the same under both IFRS and U.S. GAAP, there are certain adjustments made in order to validate the hedge effectiveness that is permitted under IFRS and not under U.S. GAAP.
IFRS 39.F.2.17, “Financial instruments: recognition and measurement”, allows to designate a hedging instrument as hedging only a portion of the abovementionedtime period to maturity, and therefore adjust the effectiveness test to comply with the hedging objective. Under U.S. GAAP such hedges are not allowed.
As a consequence, in 2006 there is an adjustment in order to reverse these partial hedging transactions under U.S. GAAP. This difference resulted in a reconciling item to net income (an increase of €9,111 thousand) and stockholder’s equity (an increase of €5,061 thousand) between IFRS and U.S. GAAP. During 2005 and 2004 there were not these types of hedging transactions.
The fair value of derivatives that afforded hedge accounting treatment under IFRS but did not qualify as hedges under U.S. GAAP as of December 31, 2006, 2005 and 2004 amounted negative to €47,338 thousand, €69,214 thousand and €106,913 thousand, respectively.
The fair value of derivatives that afforded hedge accounting treatment under IFRS and qualify as hedges under U.S. GAAP as of December 31, 2006, 2005 and 2004 amounted negative to €269,082 thousand, €25,988 thousand and positive to €43,968 thousand, respectively.
Additionally to prior explained differences, as of December 31, 2005 and 2004, there was other difference between IAS 39 and SFAS 133 that resulted in a reconciling item to net income and stockholder’s equity between IFRS and U.S. GAAP as follows:
Definition of a derivative
U.S. GAAP sets out requirements similar to those established by IFRS, except that the terms of the derivative contract should require or permit net settlement and have a notional amount. Contracts that do not comply with these requirements should be accounted according to the accounting provisions established for that particular instrument.
For example certain option and forward agreements to buy unlisted equity investments fall within the IFRS definition, not the U.S. GAAP definition, because of the absence of net settlement.
These transactions should be treated as equity securities if they comply with the definition of this type of instruments included in Appendix C to FAS 115: “An equity security is a security representing an ownership interest in an enterprise (for example, common, preferred, or other capital stock) or the right to acquire (for example, warrants, rights, and call options) or dispose of (for example, put options) an ownership interest in an enterprise at fixed or determinable prices. However, the term does not include convertible debt or preferred stock that by its terms either must be redeemed by the issuing enterprise or is redeemable at the option of the investor”.
As of December 31, 2005 and 2004, we maintained an option to buy unlisted equity investments which fell within the IFRS definition of derivatives, but not the U.S. GAAP definition, because of the absence of net settlement. This difference resulted in a reconciling item to net income (€6,023 thousand in 2005) and stockholder’s equity (€58,463 thousand and €64,486 thousand in 2005 and 2004, respectively) between IFRS and U.S.GAAP.
7. Loans adjustments
Under IAS 39, as we described in Note 2.2.b.4 to the Consolidated Financial Statements, a loan is considered to be an impaired loan - and therefore its carrying amount is adjusted to reflect the effect of its impairment test,- when there is objective evidence that events have occurred which, in the case of loans, give rise to a negative impact on the future cash flows that were estimated at the time the transaction was arranged.
As a general rule, the carrying amount of an impaired loan is adjusted with a charge to the Reporting Unitconsolidated income statement for the year in which the impairment becomes known, and the recoveries of previously recognized impairment losses are recognized in the consolidated income statement for the year in which the impairment is reversed or reduced.
The amount of the impairment losses incurred on these instruments relates to the positive difference between their respective carrying amounts and the present values of their expected future cash flows.
The possible impairment losses on these assets are determined as follows:
Individually, for all significant loans and for those which, although not significant, cannot be classified in homogenous groups of instruments of similar characteristics, i.e. by instrument type, debtor’s industry and geographical location, type of guarantee, age of past-due amounts, etc.
Collectively, in all other cases.
The provisions for the losses that are inherent in a group of loans are recognized taking into account the historical experience of impairment and the other circumstances known at the time of the assessment. These provisions that have not been allocated to individual loans are calculated by using statistical procedures.
ForIFRS purposes, we calculate the allowance for incurred losses not yet assigned to specific loans in a portfolio using statistical procedures parameters established by the Bank of Spain. The methodology established by the Bank of Spain in the determination of the level of provisions required to cover inherent losses, is defined in Annex IX of the Circular 4/2004 of Bank of Spain as “losses incurred as at the date of the financial statements, calculated employing statistical methods, which are yet to be assigned to specific operations”. The Bank of Spain has explicitly stated that all the guidance in the Bank of Spain Circular complies with IFRS.
The Bank of Spain Circular requires us and all Spanish financial institutions to use specific credit risk segmentation of our loans portfolios and of “peer group” statistical percentages in determining the incurred losses not yet assigned to specific loans until the time in which our internal risk models have been reviewed and approved by the Bank of Spain.
According to the Bank of Spain Circular, the Bank of Spain, based on its experience of and information on the Spanish banking sector, has determined the method and amount of the parameters entities must use to calculate the amounts needed to cover the impairment losses inherent in debt instruments and contingent exposures classified as standard. The Bank of Spain shall, by means of the appropriate amendment to the Bank of Spain Circular, periodically update the parameters used in the method to reflect changes in the data for the sector.
However,BBVA Group, in recognizing incurred losses not yet assigned to specific loans in debt instruments at amortized cost, has developed internal risk models that take into account our historical experience of impairment adjusted as appropriate for other objective observable data known at the time that each assessment is made.
We have developed our internal risk model, based on historical information available for each country and type of risk (based on homogenous portfolios), adjusted for objective observable data that corroborates that the use of historical information does not represent the best available information.
Our models use the “expected loss” concept to quantify the cost of our credit risk in order to be able to incorporate it in the calculation of the risk adjusted return of our operations. Additionally, the parameters necessary to calculate it are used to calculate the economic capital and in the future, the calculation of the regulatory capital under the internal models of Basle II.
“Expected loss” of a given transaction represents the expected cost, measured as an average within a full economic cycle, of the credit risk of such transaction, considering the profile of the counterparty and the guarantees securing such transaction. The quantification of this expected loss would result out of three factors: “exposure”, “probability of default” and “loss given default”.
Exposure (EAD) is the amount of the risk assumed by default of the counterparty.
Probability of Default (DP) is the probability that the counterpart defaults on its principal and/or interest payments. We also allocate the probability of default by using BBVA’s historical databases to ascertain how this probability varies in terms of the scores allocated by our tools and of other potentially relevant factors (e.g. the seasoning of the transaction).The default probability is linked to the rating/scoring of each customer/transaction. The measurement of DP uses a temporary ceiling of 1 year, meaning that it quantifies that the counterparty defaults within the following year. Default is defined as those amounts not paid within 90 days or more, as well as those outstanding amounts where there is doubt about the solvency of the counterparty (judgmental defaults).
Loss given default (LGD) is the percentage of risk exposure that is not expected to be recovered in the event of default and constitutes one of the key factors in quantitative risk assessment. The method that we mainly use for the calculation of LGD is the “Workout LGD”. This method is based on discounting the cash flows of the defaulted exposure that have been collected at different times of the recovery process. In the case of portfolios with low default rates, which do not exceed its fair value.have enough data to obtain a reliable estimate by means of the Workout LGD method, other methods are used, such as external sources for obtaining market references on LGD rates suited to the internal portfolio.
The calculation of the incurred loss considers, additionally, the adjustment to the full economic cycle of the factors mentioned above, especially the DP and LGD.
6. Result on transactions with parent company shares-
FollowingAs previously mentioned, the Bank of Spain Circular 4/1991, resultexplicitly requires that the internal valuation allowance methodology described above shall be approved by the Bank of sale transactions withSpain prior to being used for financial statements purposes. Currently, the Bank shares owned by subsidiaries must be accounted for as extraordinary profit or losses (Note 3-i).
Under U.S. GAAP, the result on transactions with parent company shares must be accounted for in retained earnings.
7. Allowance for loan losses-
of Spain has not yet verified such internal models. The Bank of Spain regulation requires an allowance destined to cover probable losses on intra-group transactions subject to country-risk, which isthat until such time that our internal models are approved; the models developed by the Bank of Spain must be used.
ForU.S. GAAP purposes, we used our internal risk models developed by dividing the loan portfolio into different segments; each segment contains loans with similar characteristics, such as risk classification, economic environment (i.e. country), type of loan (e.g. mortgage loans or credit card loans), collateral type, and counterparty type (e.g. consumer, commercial or sovereign). We have developed our internal models by considering our own historical experience, appropriately adjusted for observable data information available over the economic environments where we operate.
In our opinion, the use of “peer group” statistical assumptions, as required by the Bank of Spain for our IFRS Consolidated Financial Statements would not necessarybe appropriate under U.S. GAAP. This effect supposeEven when the amount falls within an acceptable range of estimated losses, we believe that amount does not correspond with the best estimate of loan losses.
For that reason, for U.S. GAAP purposes we have used our own appropriately adjusted experience in determining the allowance for loan losses and therefore the loan allowances not allocated to specific loans, as determined by the Bank of Spain’ guidance, result in a higher amount than those determined following the guidance described for U.S. GAAP.
As a consequence, there is an adjustment between U.S. GAAP and IFRS in order to reflect in the net income the reversal of the provision recorded in each year (an increase of €445,428 thousand, a decrease of €303,277 thousand and an increase of €196,940 thousand as of December 31, 2006, 2005 and 2004, respectively) and in net income amounted to €68,607stockholders’ equity the excess of the accumulated allowance for loans losses (an increase of €2,115,156 thousand, in 2003, a decrease in net income amounted to €4,960€1,669,728 thousand and 54,885€1,996,335 thousand as of December 31, 2006, 2005 and 2004, respectively).
8. Intangible assets
Under IFRS intangible assets with finite lives are amortized over those useful lives. At transition date, the estimated useful lives were recalculated. In accordance with IFRS 1 First-time adoption of International Financial Reporting Standards, the previous GAAP restated amounts have been used as deemed cost of certain intangible assets and the differences related to the previous carrying amounts of these intangible assets were accounted for in 2002 and 2001, respectively.stockholders’ equity as of January 1, 2004.
Additionally, as indicated in Note 3-c, Bank of Spain Circular 9/1999 made compulsory to record a provision for the statistical coverage of loan losses to supplement, as required, the specific loans provisions. Under U.S. GAAP, this provision should not be recorded. Thisadjustment is considered a change in accounting estimates and, in accordance with APB 20 Accounting changes, the cumulative effect suppose an increaseof the adjustment is reflected in the current year’s income statement.
9. Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS No. 109-
The previous adjustments to net income amounted to €319,372 thousand, €226,576 thousand and €251,084 thousandstockholders’ equity do not include their related effects on corporate tax (except for the adjustments mentioned in 2003, 2002Item 1, the acquisition of BBVA Bancomer, S.A. de C.V. described in Item 5 and 2001, respectively.
8. Employee loans to purchase Banco Bilbao Vizcaya Argentaria, S.A. shares-
adjustments described in Item 7, which are disclosed under “Tax effect of above mentioned adjustments” item in the respective reconciliation statements.
As described in Note 2.2.o under IFRS deferred tax assets and liabilities include temporary differences measured at the amount expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the year when the asset will be realized or the liability settled.
As a result of the application of Statement of Financial Accounting Standards No. 109 (“SFAS 109”), Accounting for Income Taxes, the timing differences originated by the revaluation of property and equity securities and by certain provision for coverage of loan losses have been reversed.
In the reconciliation to U.S. GAAP, the Group has recorded deferred tax assets of €86,791 thousand, €160,506 thousand and negative €2,166,045 thousand as of December 31, 2006, 2005 and 2004 and deferred tax liabilities of €238,421 thousand, €450,852 thousand and €210,493 thousand as of December 31, 2006, 2005 and 2004, respectively.
SFAS 109 requires providing a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. As of December 31, 2006, 2005 and 2004 the valuation allowance was €45,068 thousand, €278,261 thousand and €344,950 thousand, respectively.
As required by SFAS 109, the effects of the change in Spanish tax laws were included in income (see Note 37.e)
The following is a reconciliation of the income tax provision under IFRS to that under U.S. GAAP:
2006 | 2005 | 2004 | |||||||
Thousands of Euros | |||||||||
Income tax provision under IFRS | 2,059,301 | 1,521,181 | 1,028,631 | ||||||
Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS 109 | (237,882 | ) | (1,668,657 | ) | (158,314 | ) | |||
Of which: Adjustments of deferred tax liability/assets for enacted changes in tax laws of U.S. adjustments | (325,629 | ) | — | — | |||||
Income tax provision under U.S. GAAP | 1,821,419 | (147,476 | ) | 870,317 |
The following is a reconciliation of the deferred tax assets and liabilities recorded under IFRS and those that should be recorded under SFAS 109.
2006 | 2005 | 2004 | ||||||||||||||||
Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | |||||||||||||
Thousands of Euros | ||||||||||||||||||
As reported under IFRS | 4,703,397 | (1,746,889 | ) | 5,553,710 | (1,501,738 | ) | 5,801,891 | (1,397,139 | ) | |||||||||
Less- | ||||||||||||||||||
Timing differences recorded under IFRS and reversed in the reconciliation to U.S. GAAP | (1,355,106 | ) | — | (1,333,337 | ) | — | (345,287 | ) | — | |||||||||
Tax effect of IFRS to U.S. GAAP reconciliation adjustments | (14,604 | ) | — | (15,926 | ) | — | (2,350,060 | ) | 411,456 | |||||||||
Plus- | ||||||||||||||||||
Tax effect of IFRS to U.S. GAAP reconciliation adjustments | 101,395 | (238,421 | ) | 176,432 | (450,852 | ) | 184,015 | (621,949 | ) | |||||||||
As reported under SFAS 109 (gross) | 3,435,082 | (1,985,310 | ) | 4,380,879 | (1,952,590 | ) | 3,290,559 | (1,607,632 | ) | |||||||||
Valuation reserve | (45,068 | ) | — | (278,261 | ) | — | (344,950 | ) | — | |||||||||
As reported under SFAS 109 (net) | 3,390,014 | (1,985,310 | ) | 4,102,618 | (1,952,590 | ) | 2,945,609 | (1,607,632 | ) |
The following is an analysis of deferred tax assets and liabilities as of December 31, 2006, 2005 and 2004 estimated in accordance with U.S. GAAP:
December 31, | |||||||||
2006 | 2005 | 2004 | |||||||
(Thousands of euros) | |||||||||
Deferred Tax assets | |||||||||
Loan loss reserves | 829,767 | 610,977 | 667,315 | ||||||
Unrealized losses on securities pension liability | 1,645,499 | 1,645,126 | 1,098,916 | ||||||
Fixed assets | 86,012 | 135,711 | 70,233 | ||||||
Net operating loss carryforward | 330,178 | 664,447 | 843,567 | ||||||
Investments and derivatives | 35,576 | 444,488 | 246,645 | ||||||
Goodwill | (74,128 | ) | 8,055 | 20,207 | |||||
Other | 582,178 | 872,075 | 343,676 | ||||||
Total deferred tax assets | 3,435,082 | 4,380,879 | 3,290,559 | ||||||
Valuation reserve | (45,068 | ) | (278,261 | ) | (344,950 | ) | |||
Net tax asset | 3,390,014 | 4,102,618 | 2,945,609 | ||||||
Deferred tax liabilities | |||||||||
Unrealized gains on securities pension liability | (1,396 | ) | — | — | |||||
Unrealized gains on investments | (1,449,668 | ) | (1,273,870 | ) | (1,121,963 | ) | |||
Gains on sales of investments | (135,238 | ) | (67,368 | ) | — | ||||
Fixed assets | (98,642 | ) | (160,746 | ) | — | ||||
Goodwill | (147,980 | ) | (346,914 | ) | (485,669 | ) | |||
Other | (152,386 | ) | (103,692 | ) | — | ||||
Total deferred tax liabilities | (1,985,310 | ) | (1,952,590 | ) | (1,607,632 | ) | |||
Valuation reserve | — | — | — | ||||||
Net tax liabilities | (1,985,310 | ) | (1,952,590 | ) | (1,607,632 | ) |
Reconciliation between the federal statutory tax rate and the effective income tax rate is as follows:
2006 | 2005 | 2004 | |||||||
% percentages | |||||||||
Corporate income tax at the standard rate of 35% | 35.00 | 35.00 | 35.00 | ||||||
Decrease arising from permanent differences | (7.16 | ) | (6.25 | ) | (6.06 | ) | |||
Adjustments to the provision for prior years’ corporate income tax and other taxes | 1.45 | (1.54 | ) | (4.07 | ) | ||||
Income tax provision under IFRS | 29.29 | 27.20 | 24.87 | ||||||
Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS 109 | (3.39 | ) | (34.02 | ) | (4.23 | ) | |||
Income tax provision under U.S. GAAP | 25.90 | (6.82 | ) | 20.64 |
10. Pension plan cost-
Until 2004 both under Spanish GAAP and U.S. GAAP, the cumulative actuarial losses and certain losses were amortized in a straight-line method over the average expected years of work of employment.
At January 1, 2005, in accordance with IFRS 1 First-time adoption of International Financial Reporting Standards, all cumulative actuarial losses were accounted for in equity as of January 1, 2004 (see Appendix VI to Consolidated Financial Statements), and from January 1, 2004, actuarial losses have been accounted for in the income statement for the year when these losses have been incurred instead of using the corridor approach.
Under U.S. GAAP, we decided to change this accounting principle from January 1, 2005. Hereinafter, actuarial losses have been accounted for in the income statement for the year when these losses have been incurred.
Paragraph 8 of APB 20 states that a characteristic of a change in accounting principle is that it concerns a choice from among two or more generally accepted accounting principles.
FASB Staff Implementation Guide on SFAS 106, Answer to Question 32 states that an employer should select an amortization method and apply it consistently from period to period as long as the resulting amortization equals or exceeds the minimum amortization specified by paragraph 59.
We believe that this guidance permits election between different amortization methods that in fact are different and acceptable accounting principles and therefore our conclusion is that a change to a preferable amortization method is in accordance with paragraph 16 of APB Opinion No. 20, Accounting Changes, is an accounting change that enters into the definition of paragraph 8 of APB 20 aforementioned.
We have followed the guidance set forth in Statement 87 paragraph 33 that permits any systematic method of amortization of unrecognized gains or losses instead of the minimum specified in paragraph 32 of SFAS 87.
We believe that the change in accounting principle (change to a method of amortization that is permitted) that accelerates recognition is preferable because it accelerates the recognition of events that have occurred and the new approach rapidly directs the recorded liability toward the economic liability providing recognition of events that have occurred.
In accordance with APB 20 Accounting changes, the cumulative effect of the change in accounting principle shall be recognized in the income statement for the year when the change occurred.
As a consequence, there is an adjustment due to the fact that under IFRS we changed the accounting principle retrospectively from January 1, 2004, while under U.S. GAAP we changed the accounting principle from January 1, 2005.
The amounts of pension plan cost adjustments presented in the IFRS to U.S. GAAP Net Income and Stockholders’ reconciliation for the year 2004 were as follows:
elimination of the charge to Retained earnings related to First-time adoption IFRS at January 1, 2004: €1,588,464 thousand;
elimination of the credit to Retained earnings related to tax effect related to prior adjustment: €524,143 thousand;
elimination of the charge to income statement made under IFRS as of December 31, 2004: €607 thousand;
elimination of the charge to income statement related to tax effect related to prior adjustment: €5,590 thousand;
The amounts of pension plan cost adjustments presented in the IFRS to U.S. GAAP Net Income and Stockholders’ Equity reconciliation for the year 2005 were as follows:
charge to income statement related to First-time adoption IFRS at January 1, 2004 and effect for the year 2004 and 2005: €2,164,038 thousand;
credit to income statement related to tax effect related to prior adjustment: €719,691 thousand.
There is no effect in reconciliation to stockholders’ equity for the year 2005, related to the fact that these two adjustments were recognized with counterparties a credit for and a charge to Retained earnings for €2,164,038 thousand and €719,691 thousand, respectively.
Because of prior mentioned change in accounting principles, as of December 31, 2006 and 2005, there was no difference between IFRS and U.S. GAAP pension obligations accounting.
11. Other Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income establishes standards for disclosing information related to comprehensive income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
The accumulated balances of other comprehensive income as of December 31, 2006, 2005 and 2004 were as follows:
Foreign currency translation adjustments | Unrealized gains on securities | Gains on Derivative Instruments | Other Comprehensive income | ||||||||
Thousands of Euros | |||||||||||
Balance as of December 31, 2003 | (3,413,689 | ) | 1,646,529 | 40,043 | (1,727,117 | ) | |||||
Changes in 2004 | (308,751 | ) | 600,246 | (11,375 | ) | 280,120 | |||||
Balance as of December 31, 2004 | (3,722,440 | ) | 2,246,775 | 28,668 | (1,446,997 | ) | |||||
Changes in 2005 | 1,138,449 | 882,753 | (118,586 | ) | 1,902,616 | ||||||
Balance as of December 31, 2005 | (2,583,991 | ) | 3,129,528 | (89,918 | ) | 455,619 | |||||
Changes in 2006 | (708,212 | ) | 110,552 | 106,777 | (490,883 | ) | |||||
Balance as of December 31, 2006 | (3,292,203 | ) | 3,240,080 | 16,859 | (35,264 | ) |
Taxes allocated to each component of other comprehensive income as of December 2006, 2005 and 2004 were as follows:
2006 | 2005 | 2004 | |||||||||||||||||||||||||
Before Tax Amount | Tax expense or benefit | Net of tax amount | Before Tax Amount | Tax expense or benefit | Net of tax amount | Before Tax Amount | Tax expense or benefit | Net of tax amount | |||||||||||||||||||
Thousands of Euros | |||||||||||||||||||||||||||
Foreign currency translations adjustment | (708,212 | ) | — | (708,212 | ) | 1,138,449 | — | 1,138,449 | (308,751 | ) | — | (308,751 | ) | ||||||||||||||
Unrealized gains on securities: | |||||||||||||||||||||||||||
Unrealized holding gains arising during the period | 424,803 | (314,251 | ) | 110,552 | 1,219,434 | (336,681 | ) | 882,753 | 1,245,770 | (370,925 | ) | 874,845 | |||||||||||||||
Reclassification adjustment | — | — | — | — | — | — | (517,549 | ) | 243,050 | (274,599 | ) | ||||||||||||||||
424,803 | (314,251 | ) | 110,552 | 1,219,434 | (336,681 | ) | 882,753 | 728,121 | (127,875 | ) | 600,246 | ||||||||||||||||
Derivatives Instruments and Hedging Activities | 138,810 | (32,033 | ) | 106,777 | (159,600 | ) | 41,014 | (118,586 | ) | (14,252 | ) | 2,877 | (11,375 | ) | |||||||||||||
Other comprehensive income | (144,599 | ) | (346,284 | ) | (490,883 | ) | 2,198,283 | (295,667 | ) | 1,902,616 | 405,118 | (124,998 | ) | 280,120 | |||||||||||||
12. Earnings per share
SFAS No. 128, Earnings per Share, specifies the computation, presentation and disclosure requirements for earnings per share (EPS).
Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator), which may include contingently issuable shares where all necessary conditions for issuance have been satisfied. Diluted earnings per share include the determinants of basic earnings per share and, in addition, give effect to dilutive potential common shares that were outstanding during the period.
As indicated in Notes 62.A.10 of this Annual Report, effective on January 1, 2004, this supposed a change in our accounting policy related to pensions for U.S. GAAP purposes. As described in Appendix VI, upon adoption of IFRS, the cumulative effect of this change as of January 1, 2004 was recognized in stockholders’ equity, in accordance with IFRS 1 First-Time Adoption of International Financial Reporting Standards.
The computation of basis and diluted earnings per share as of December 31, 2006, 2005 and 2004 is presented in the following table:
2006 | 2005 | 2004 | |||||
Thousands of Euros, except per share data | |||||||
Numerator for basic earnings per share: | |||||||
Income available to common stockholders (IFRS) | 4,735,879 | 3,806,425 | 2,922,596 | ||||
Income available to common stockholders (U.S. GAAP): | |||||||
Before cumulative effect of changes in accounting principles | 4,971,692 | 3,462,035 | 3,089,046 | ||||
Cumulative effect of changes in accounting principles | — | (1,444,347 | ) | 6,297 | |||
After cumulative effect of changes in accounting principles | 4,971,692 | 2,017,688 | 3,095,343 | ||||
Numerator for diluted earnings per share: | |||||||
Income available to common stockholders (IFRS) | 4,735,879 | 3,806,425 | 2,922,596 | ||||
Income available to common stockholders (U.S. GAAP): | |||||||
Before cumulative effect of changes in accounting principles | 4,971,692 | 3,462,035 | 3,089,046 | ||||
Cumulative effect of changes in accounting principles | — | (1,444,347 | ) | 6,297 | |||
After cumulative effect of changes in accounting principles | 4,971,692 | 2,017,688 | 3,095,343 | ||||
Denominator for basic earnings per share | 3,405,418,793 | 3,390,852,043 | 3,372,153,413 | ||||
Denominator for diluted earnings per share | 3,405,418,793 | 3,390,852,043 | 3,372,168,559 | ||||
IFRS | |||||||
Basic earnings per share (Euros) | 1.39 | 1.12 | 0.87 | ||||
Diluted earnings per share (Euros) | 1.39 | 1.12 | 0.87 | ||||
U.S. GAAP | |||||||
Before cumulative effect of changes in accounting principles: | |||||||
Basic earnings per share (Euros) | 1.46 | 1.02 | 0.92 | ||||
Diluted earnings per share (Euros) | 1.46 | 1.02 | 0.92 | ||||
After cumulative effect of changes in accounting principles: | |||||||
Basic earnings per share (Euros) | 1.46 | 0.59 | 0.92 | ||||
Diluted earnings per share (Euros) | 1.46 | 0.59 | 0.92 |
13. FIN 46-R
We arranged the issuance of preferred shares using special purpose vehicles (See Note 26.5.2). Our preferred security transactions are based on the following model:
We are the sponsor in the issuance of certain Group banks granteddebentures by special purpose vehicles (SPEs) (the issuer of preference shares) that we incorporated and for which we hold 100% of the common stock and voting rights.
The SPEs issue preferred securities to 3rd party investors. The terms of the preferred securities are issued in perpetuity with fixed dividend coupon and can be called by the SPEs (what are the conditions for calling)
The SPEs lend both the proceeds raised from the preferred securities and the common stock back to us through intercompany loans with fixed maturities and fixed interest rate similar to that the dividend coupon on the preferred securities issued by the SPEs. Consequently, the SPEs use the cash received from interest payments on BBVA loans to employeespay dividends to the preferred securities holders.
We guarantee the dividend payments on the preferred securities.
We consolidated the SPEs under IFRS according to SIC 12 as we controlled them. However, under U.S. GAAP, BBVA does not consolidate the special purpose vehicle (issuer) as we has been concluded that we are not the primary beneficiary as considered by FIN 46-R for the acquisitionreasons described below.
We as sponsor of Banco Bilbao Vizcaya Argentaria, S.A. shares. the issuer of the preference shares neither have a significant residual interest held since our common shares are not viewed as equity at risk as our investment is returned back to us through the intercompany loan, nor the loan payable to the special purpose vehicle would be considered variable interests since they assume variability. Additionally, the fact that BBVA unconditionally guarantees the trust preferred securities is not relevant, since BBVA is guaranteeing its own obligations.
Under SpanishU.S. GAAP thesewe consider the investments in the common stock of this class of special purpose vehicles as equity-method investees according to APB Opinion No. 18.
As a result of the deconsolidation of the SPEs, the loans received from the SPEs are presented as financial liabilities under U.S. GAAP.
Consequently, the deconsolidation of the entities described in Note 26.5 to our Consolidated Financial Statements has no impact on shareholder’s equity or net income under U.S. GAAP. These financial instruments that are presented under IFRS in the caption “Subordinated liabilities - preferences shares” are presented under U.S. GAAP under the caption “Time deposits” (€4,025,002 thousand).
14. Other Accounting Standards
Statements of Financial Accounting Standards No. 123 (Revised 2004): “Share-Based Payment”
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Shared Based Payments (SFAS 123R). This statement eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” to stock compensation awards issued to employees. Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award - the requisite service period (usually the vesting period). SFAS 123R applies to all awards granted after the required effective date, December 15, 2005, and to awards modified, repurchased, or cancelled after that date. SFAS 123R was effective for our fiscal year beginning January 1, 2006. The application of this new accounting standard by BBVA had no impact on its financial position, cash flows or results of operations.
SAB No. 107: “Shared Based Payment”
On March 29, 2005, the SEC released a Staff Accounting Bulletin (SAB) relating to the FASB accounting standard for stock options and other share-based payments. The interpretations in SAB No. 107, “Share-Based Payment,” (SAB 107) express views of the SEC Staff regarding the application of SFAS No. 123 (revised 2004), “Share-Based Payment “(Statement 123R). Among other things, SAB 107 provides interpretive guidance related to the interaction between Statement 123R and certain SEC rules and regulations, as well as provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The application of this new accounting standard by BBVA had no impact on its financial position, cash flows or results of operations.
Statements of Financial Accounting Standards No. 153: “Exchanges of Non-monetary Assets—An Amendment of APB Opinion No. 29”
On December 16, 2004, the FASB issued SFAS No.153, “Exchanges of Non-monetary Assets—an amendment of APB Opinion No. 29”, which amends Accounting Principles Board Opinion No. 29 “Accounting for Nonmonetary Transactions”. This amendment is based on the idea that exchange transactions should be valued in accordance with the value of the exchanged assets. The exception made for similar non-monetary productive assets is eliminated and substituted by a more extensive exception related to non-monetary assets with a non-commercial consideration. APB No. 29 stated that the exchange transaction of a productive asset for a similar one should be recorded at the book value of the exchanged asset.
SFAS No. 153 was applicable for non-monetary asset exchange transactions occurring in fiscal periods beginning after June 15, 2005. The application of this new accounting standard by BBVA had no impact on its financial position, cash flows or results of operations.
EITF 04-1: “Accounting for Preexisting Relationships between the Parties to a Business Combination”
This Issue addresses the accounting for preexisting relationships between the parties to a business combination. The consensuses in this Issue should be applied to business combinations consummated and goodwill impairment tests performed in reporting periods beginning after October 13, 2004. The application of this new accounting literature by BBVA had no impact on its financial position, cash flows or results of operations.
Statement of Financial Accounting Standards No. 154: “Accounting Changes and Error Corrections”
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28”. This statement provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The application of this new accounting standard by BBVA in 2006 had no significant impact on its financial position, cash flows or results of operations.
FASB Interpretation No. 47: “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143”
In March 2005, FASB issued Interpretation No. 47. The Board concluded that asset retirement obligations within the scope of Statement 143 that meet the definition of a liability in Concepts Statement 6 should be recognized as a liability at fair value if fair value can be reasonably estimated. The Board believes that when an existing law, regulation, or contract requires an entity to perform an asset retirement activity, an unambiguous requirement to perform the retirement activity exists, even if that activity can be deferred indefinitely. At some point, deferral is no longer possible, because no tangible asset will last forever, except land. Therefore, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. The use of an expected value technique to measure the fair value of the liability reflects any uncertainty about the amount and timing of future cash outflows. This Interpretation is effective no later than December 31, 2005, for calendar-year enterprises. The application of this new accounting literature by BBVA had no impact on its financial position, cash flows or results of operations.
Statement of Financial Accounting Standards No. FAS 158: “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132”
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R). SFAS No. 158 requires employers to recognize a net liability or asset and an offsetting adjustment to accumulate other comprehensive income to report the funded status of defined benefit pension and other post-retirement benefit plans. Previous standards required employers to disclose the complete funded status of its plans only in the notes to the financial statements. Additionally, SFAS No. 158 requires employers to measure plan assets and obligations at their year-end balance sheet date. Guidance relating to the recognition of the over or under funded status of the plan and additional disclosure requirements was effective for our fiscal year ended December 31, 2006. Under IFRS and U.S. GAAP, actuarial gains or losses (arising from differences between the actuarial assumptions and what had actually occurred) and prior service cost (there are no transition cost), were recordedrecognized in the consolidated income statements (see Note 2.2.e). Therefore, it did not have impact in the results of operations, financial statements underposition or cash flows. Guidance relating to the caption “Loansmeasurement date of the plans is effective for the years ending after December 15, 2008 and Leases”we have no a material impact in our results of operations, financial position or cash flows, due to the fact that measurement date is December 31 for each fiscal year (see Note 29 “Commitments with personnel”).
Financial Staff Position FAS 115-1 and FAS 124-1:”The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”
On November 2, 2005, the FASB issued Financial Staff Position (“FSP”) FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” which nullifies certain requirements of Emerging Issues Task Force (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments” and supersedes EITF Abstracts Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security whose Cost Exceeds Fair Value.” The guidance in this FSP is effective for reporting periods beginning after December 15, 2005. The adoption of this guidance had no a material effect on its financial position, results of operations or cash flows.
SAB 108: “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). Also, Group BanksSAB 108 expresses the SEC Staff’s views regarding the process of quantifying financial statement misstatements. SAB 108 states that in evaluating the materiality of financial statement misstatements, a corporation must quantify the impact of correcting misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. SAB 108 was effective for our fiscal year ended December 31, 2006. The application of SAB 108 did not have granted certain loans secured by Banks’ shares. Under U.S. GAAP, these loans should be recorded as a reductionsignificant impact in our results of stockholders’ equity.
operations, financial position or cash flows.
9. Valuation of investment securities available for sale portfolio-15. New Accounting Standards
FASB Interpretation No. 48: “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”
Group’s criteria ofIn June 2006, FASB issued Interpretation No. 48 that clarifies the accounting for such securities, following Bankuncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. This Interpretation is effective for fiscal years beginning after December 15, 2006.
Statement of Spain Circulars,Financial Accounting Standards No. 155: “Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements No. 133 and 140”
In February 2006 the FASB issued this Statement that amends FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.”
This Statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends Statement 140 to eliminate the prohibition on a qualifying special purpose entity from holding a F-145 derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is describedeffective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Earlier adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period for that fiscal year. The Company does not anticipate that the adoption of this new statement at the required effective date will have a significant effect in Notes 3-dits results of operations, financial position or cash flows.
Statement of Financial Accounting Standards No. 156: “Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140”
In March 2006 the FASB issued this Statement that amends FASB Statements No. 140, “Accounting for Transfers and 3-e. Under SFASServicing of Financial Assets and Extinguishments of Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities.
The new Statement should be adopted as of the beginning of the first fiscal year that begins after September 15, 2006. The Company does not anticipate that the adoption of this new statement at the required effective date will have a significant effect in its results of operations, financial position or cash flows.
Statement of Financial Accounting Standards No. 157: “Fair Value Measurement”
In September 2006, the FASB issued this Statement that defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair
value measurements and does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not anticipate that the adoption of this new statement at the required effective date will have a significant effect in its results of operations, financial position or cash flows.
Statement of Financial Accounting Standards No. 159: “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”
In February 2007 the FASB issued this Statement that includes an amendment of FASB Statements No. 115, Accounting“Accounting for Certain Investments in Debt and Equity Securities, available-for-sale securities (as defined) must be recordedSecurities”. The fair value option established by this Statement permits all entities to choose to measure eligible items at marketfair value with changesat specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value recognized directlyoption in Other Comprehensive Income (See Note 32.2.A-Investment Securities).this Statement is similar, but not identical, to the fair value option in IAS 39, Financial Instruments: Recognition and Measurement. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.
B) CONSOLIDATED FINANCIAL STATEMENTS
1. Differences relating to the financial statements presentation-
In the following paragraphs, the mainaddition to differences between Spanish GAAPIFRS and U.S. GAAP concerningaffecting to net income and/or stockholders’ equity, there are differences relating to the accountingfinancial statements presentation between IFRS and U.S. GAAP presentation following the formatting guidelines in Regulation S-X of the Securities and Exchange Commission of the United States. Although these differences do not cause differences between IFRS and U.S. GAAP reported net income and/or stockholders’ equity.
2. Consolidated Financial Statements under Regulation S-X-
Following are the consolidated balance sheets of the BBVA Group as of December 31, 2006, 2005 and 2004 and the consolidated statement of income for each of the years ended December 31, 2006, 2005 and 2004, in the format for banks and bank holding companies required by Regulation S-X of the Securities and Exchange Commission of the United States of America, and, accordingly, prepared under U.S. GAAP (after reconciliation adjustments described above in Note 62.A)
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2006, 2005 AND 2004
(Currency—Thousands of Euros)
2006 | 2005 | 2004 | |||||||
Assets | |||||||||
Cash and due from banks | 4,779,273 | 4,114,296 | 2,837,318 | ||||||
Interest-bearing deposits in other banks | 19,294,359 | 23,237,556 | 18,544,453 | ||||||
Securities purchased under agreements to resell | 7,117,444 | 13,636,016 | 6,967,755 | ||||||
Trading securities | 52,812,223 | 45,433,034 | 30,470,952 | ||||||
Investments securities | 48,235,947 | 64,048,011 | 53,239,797 | ||||||
Net Loans and leases: | |||||||||
Loans and leases, net of unearned income | 261,862,607 | 224,066,730 | 174,330,506 | ||||||
Less: Allowance for loan losses | (4,288,441 | ) | (3,916,928 | ) | (3,344,681 | ) | |||
Hedging derivatives | 2,010,658 | 3,971,149 | 4,381,045 | ||||||
Premises and equipment, net | 3,905,420 | 3,702,092 | 2,731,828 | ||||||
Investments in affiliated companies | 888,936 | 1,434,573 | 3,757,119 | ||||||
Intangible assets | 465,715 | 706,546 | 978,346 | ||||||
Goodwill in consolidation | 11,142,456 | 10,344,816 | 8,573,433 | ||||||
Accrual accounts | 673,818 | 557,278 | 2,773,476 | ||||||
Others assets | 12,070,898 | 10,463,964 | 8,108,241 | ||||||
Total assets | 420,971,313 | 401,799,133 | 314,349,588 | ||||||
Liabilities and Stockholders’ Equity | |||||||||
Liabilities | |||||||||
Demand deposits | 68,631,647 | 57,973,113 | 46,271,237 | ||||||
Savings deposits | 36,161,105 | 32,722,688 | 26,239,800 | ||||||
Time deposits | 101,634,372 | 103,245,406 | 94,272,031 | ||||||
Due to Bank of Spain | 4,688,790 | 6,822,123 | 11,150,701 |
Trading account liabilities Hedging derivatives Short-term borrowings Long-term debt Taxes payable Accounts payable Accrual accounts Pension allowance Other Provisions Others liabilities Total liabilities Minority interest Stockholders’ equity Capital stock Additional paid-in capital Dividends Other capital instruments Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity 2006 2005 2004 14,923,534 16,270,865 — 2,279,740 2,870,086 3,131,572 52,450,193 70,096,211 51,866,398 78,848,321 55,604,604 38,910,700 2,607,587 2,550,875 152,905 6,771,925 6,123,905 1,168,358 1,509,573 1,709,690 3,521,230 6,357,820 6,239,744 3,275,995 2,291,014 2,461,341 1,729,906 10,791,236 10,995,194 8,611,656 389,946,857 375,685,845 290,302,489 563,288 737,876 581,827 1,740,465 1,661,518 1,661,518 9,579,443 6,658,390 8,177,101 (1,362,700 ) (1,166,644 ) (1,015,195 ) (147,258 ) (96,321 ) (35,846 ) 20,651,218 17,233,146 14,677,694 30,461,168 25,375,412 23,465,272 420,971,313 401,799,133 314,349,588
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 2006, 2005 AND 2004
(Currency—Thousands of Euros)
2006 | 2005 | 2004 | |||||||
Interest Income | |||||||||
Interest and fees on loans and leases | 13,744,456 | 9,892,700 | 7,573,162 | ||||||
Interest on deposits in other banks | 1,109,595 | 970,755 | 721,811 | ||||||
Interest on securities purchased under agreements to resell | 382,658 | 280,703 | 389,421 | ||||||
Interest on investment securities | 4,352,998 | 4,510,024 | 2,414,141 | ||||||
Total interest income | 19,589,707 | 15,654,182 | 11,098,535 | ||||||
Interest Expense | |||||||||
Interest on deposits | (5,974,967 | ) | (4,950,595 | ) | (3,441,055 | ) | |||
Interest on Bank of Spain &Deposit Guarantee Fund | (299,859 | ) | (141,048 | ) | (287,884 | ) | |||
Interest on short-term borrowings | (2,180,500 | ) | (2,411,310 | ) | (1,372,614 | ) | |||
Interest on long term debt | (2,756,502 | ) | (1,415,449 | ) | (1,077,813 | ) | |||
Total interest expense | (11,211,829 | ) | (8,918,402 | ) | (6,179,366 | ) | |||
Net Interest Income | 8,377,878 | 6,735,780 | 4,919,169 | ||||||
Provision for loan losses | (1,031,238 | ) | (943,120 | ) | (662,988 | ) | |||
Net Interest Income after provision for loan losses | 7,346,640 | 5,792,660 | 4,256,181 | ||||||
Non-interest income | |||||||||
Contingent liabilities (collected) | 203,960 | 176,745 | 159,510 | ||||||
Collection and payments services (collected) | 2,274,436 | 2,018,500 | 1,752,683 | ||||||
Securities services (collected) | 2,016,566 | 1,947,746 | 1,758,088 | ||||||
Other transactions (collected) | 623,720 | 526,133 | 489,063 | ||||||
Ceded to other entities and correspondents (paid) | (537,071 | ) | (532,145 | ) | (504,702 | ) | |||
Other transactions (paid) | (246,731 | ) | (196,983 | ) | (275,373 | ) | |||
Gains (losses) from: | |||||||||
Affiliated companies’ securities | 1,293,383 | 149,901 | 965,939 | ||||||
Investment securities | 2,729,328 | 1,199,897 | 3,178,038 | ||||||
Foreign exchange, derivatives and other, net | (902,111 | ) | (108,914 | ) | 312,504 | ||||
Other income | 1,624,489 | 1,444,981 | (947,053 | ) | |||||
Total non-interest income | 9,079,968 | 6,625,861 | 6,888,697 | ||||||
Non-interest expense Salaries and employee benefits Occupancy expense of premise, depreciation and maintenance, net General and administrative expenses Impairment of goodwill Net provision for specific allowances Other expenses Minority shareholder’s interest Total non-interest expense Income Before Income Taxes Income tax expense Income before change of accounting principles Changes in accounting principles: pensions (note 59.A.10) Tax effect of changes in accounting principles Net Consolidated Income for the year 2006 2005 2004 (3,988,585 ) (3,602,242 ) (3,252,101 ) (924,243 ) (844,079 ) (728,605 ) (1,891,022 ) (1,745,057 ) (1,135,679 ) (12,322 ) — — (1,338,205 ) (396,272 ) (244,942 ) (1,238,918 ) (1,499,046 ) (1,451,492 ) (240,203 ) (297,576 ) (250,266 ) (9,633,498 ) (8,384,272 ) (7,062,785 ) 6,793,111 4,034,249 4,082,093 (1,821,419 ) (572,214 ) (986,750 ) 4,971,692 3,462,035 3,095,343 — (2,164,038 ) — — 719,691 — 4,971,692 2,017,688 3,095,343
3. Consolidated Statements of Changes in Stockholders equity -
Composition of stockholders’ equity (considering the final dividend) as of December 31, 2006, 2005 and 2004, is presented in Note 31. The variation in stockholders’ equity under U.S. GAAP as of December 31, 2006, 2005 and 2004 is as follows:
2006 | 2005 | 2004 | |||||||
Thousands of Euros | |||||||||
Balance at the beginning of the year | 25,375,412 | 23,465,272 | 19,583,034 | ||||||
Net income for the year | 4,971,692 | 2,017,688 | 3,095,343 | ||||||
Dividends paid | (1,994,743 | ) | (1,648,145 | ) | (1,379,519 | ) | |||
Capital increase | 3,000,000 | — | 1,998,750 | ||||||
Other comprehensive income | (490,883 | ) | 1,902,616 | 280,120 | |||||
Foreign Currency Translation Adjustment | (708,212 | ) | 1,138,449 | (308,751 | ) | ||||
Unrealized Gains on Securities | 110,552 | 882,753 | 600,246 | ||||||
Derivatives Instruments and Hedging Activities (SFAS 133) | 106,777 | (118,586 | ) | (11,375 | ) | ||||
Other variations | (400,310 | ) | (362,018 | ) | (112,456 | ) | |||
Balance at the end of the year | 30,461,168 | 25,375,412 | 23,465,272 | ||||||
C) MAIN DISCLOSURES REQUIRED BY U.S. ACCOUNTING REGULATIONS FOR BANKS AND ADDITIONAL DISCLOSURES REQUIRED UNDER U.S. GAAP
1. Investment Securities-
The breakdown of the Group’s investment securities portfolio by issuer is as follows:
2006 | 2005 | 2004 | |||||||||||||||||||||||||
Amortized Cost | Fair Value(1) | Unrealized Gains | Unrealized Losses | Amortized Cost | Fair Value(1) | Unrealized Gains | Unrealized Losses | Amortized Cost | Fair Value(1) | Unrealized Gains | Unrealized Losses | ||||||||||||||||
(thousands of euros) | |||||||||||||||||||||||||||
DEBT SECURITIES - | |||||||||||||||||||||||||||
AVAILABLE FOR SALE PORTFOLIO | |||||||||||||||||||||||||||
Domestic- | 9,232,907 | 9,505,362 | 291,142 | (18,688 | ) | 15,817,717 | 16,704,883 | 887,394 | (228 | ) | 18,221,714 | 19,059,038 | 842,245 | (4,921 | ) | ||||||||||||
Spanish Government | 6,595,500 | 6,858,368 | 279,076 | (16,208 | ) | 13,490,060 | 14,273,482 | 783,603 | (181 | ) | 15,601,738 | 16,437,231 | 840,414 | (4,921 | ) | ||||||||||||
Other debt securities | 2,637,407 | 2,646,994 | 12,066 | (2,480 | ) | 2,327,657 | 2,431,401 | 103,791 | (47 | ) | 2,619,976 | 2,621,807 | 1,831 | 0 | |||||||||||||
International- | 22,004,348 | 22,724,097 | 851,993 | (132,244 | ) | 33,296,372 | 34,267,094 | 1,022,929 | (52,208 | ) | 25,465,178 | 25,978,189 | 548,650 | (35,638 | ) | ||||||||||||
United States - | 5,513,902 | 5,505,584 | 13,292 | (21,610 | ) | 3,993,296 | 3,989,578 | 17,084 | (20,803 | ) | 1,731,018 | 1,750,192 | 30,321 | (11,146 | ) | ||||||||||||
U.S. Treasury and other U.S. Government agencies | 342,396 | 343,738 | 2,819 | (1,477 | ) | 2,970,831 | 2,958,000 | 744 | (13,576 | ) | 1,032,242 | 1,046,061 | 19,368 | (5,549 | ) | ||||||||||||
States and political subdivisions | 309,779 | 309,117 | 219 | (880 | ) | 51,258 | 51,672 | 712 | (298 | ) | 55,814 | 56,254 | 440 | — | |||||||||||||
Other debt securities | 4,861,726 | 4,852,728 | 10,255 | (19,252 | ) | 971,207 | 979,906 | 15,628 | (6,929 | ) | 642,962 | 647,877 | 10,513 | (5,597 | ) | ||||||||||||
Other countries - | 16,490,446 | 17,218,513 | 838,701 | (110,634 | ) | 29,303,076 | 30,277,516 | 1,005,845 | (31,405 | ) | 23,734,160 | 24,227,997 | 518,329 | (24,492 | ) | ||||||||||||
Securities of other foreign Governments | 9,858,095 | 10,385,922 | 588,230 | (60,404 | ) | 20,884,928 | 21,792,844 | 935,385 | (27,469 | ) | 15,927,781 | 16,407,867 | 485,894 | (5,808 | ) | ||||||||||||
Other debt securities | 6,632,351 | 6,832,591 | 250,470 | (50,230 | ) | 8,418,148 | 8,484,672 | 70,460 | (3,936 | ) | 7,806,379 | 7,820,130 | 32,435 | (18,684 | ) | ||||||||||||
TOTAL AVAILABLE FOR SALE PORTFOLIO | 31,237,256 | 32,229,459 | 1,143,135 | (150,932 | ) | 49,114,089 | 50,971,977 | 1,910,323 | (52,436 | ) | 43,686,892 | 45,037,227 | 1,390,895 | (40,559 | ) | ||||||||||||
HELD TO MATURITY PORTFOLIO | |||||||||||||||||||||||||||
Domestic- | 2,403,867 | 2,336,588 | 2,153 | (69,432 | ) | 1,205,138 | 1,237,273 | 32,613 | (478 | ) | 602,854 | 619,519 | 16,665 | — | |||||||||||||
Spanish Government | 1,416,607 | 1,377,828 | 1,242 | (40,021 | ) | 363,022 | 374,594 | 11,572 | 0 | 337,434 | 346,357 | 8,923 | — | ||||||||||||||
Other debt securities | 987,260 | 958,760 | 911 | (29,411 | ) | 842,116 | 862,679 | 21,041 | (478 | ) | 265,420 | 273,162 | 7,742 | — | |||||||||||||
International- | 3,501,769 | 3,420,658 | 4,938 | (86,049 | ) | 2,754,127 | 2,797,975 | 44,831 | (983 | ) | 1,618,648 | 1,645,227 | 26,579 | — | |||||||||||||
TOTAL HELD TO MATURITY PORTFOLIO | 5,905,636 | 5,757,246 | 7,091 | (155,481 | ) | 3,959,265 | 4,035,248 | 77,444 | (1,461 | ) | 2,221,502 | 2,264,746 | 43,244 | — | |||||||||||||
TOTAL DEBT SECURITIES | 37,142,892 | 37,986,705 | 1,150,226 | (306,413 | ) | 53,073,354 | 55,007,225 | 1,987,767 | (53,897 | ) | 45,908,394 | 47,301,973 | 1,434,139 | (40,559 | ) |
EQUITY SECURITIES - AVAILABLE FOR SALE PORTFOLIO Domestic- Equity listed Equity Unlisted International- United States- Equity listed Equity Unlisted Other countries- Equity listed Equity Unlisted TOTAL AVAILABLE FOR SALE PORTFOLIO TOTAL EQUITY SECURITIES TOTAL INVESTMENT SECURITIES 2006 2005 2004 Amortized
Cost Fair
Value(1) Unrealized
Gains Unrealized
Losses Amortized
Cost Fair
Value(1) Unrealized
Gains Unrealized
Losses Amortized
Cost Fair
Value(1) Unrealized
Gains Unrealized
Losses (thousands of euros) 4,564,255 7,381,243 2,817,093 (104 ) 5,165,444 7,458,601 2,293,165 (8 ) 4,975,863 7,069,950 2,094,095 (8 ) 4,524,956 7,341,945 2,817,093 (104 ) 5,094,126 7,324,135 2,230,009 — 4,864,987 6,891,320 2,026,333 — 39,299 39,299 — — 71,318 134,466 63,156 (8 ) 110,876 178,630 67,762 (8 ) 1,859,917 2,656,078 810,664 (14,503 ) 952,611 1,682,802 750,325 (20,134 ) 807,577 964,121 156,544 — 52,698 53,707 1,190 (181 ) 53,709 51,688 1,934 (3,955 ) 10,287 10,287 — — 26,476 27,485 1,190 (181 ) 43,560 41,539 1,934 (3,955 ) 6,518 6,518 — — 26,222 26,222 — — 10,149 10,149 — — 3,769 3,769 — — 1,807,219 2,602,371 809,474 (14,322 ) 898,902 1,631,114 748,391 (16,179 ) 797,290 953,834 156,544 — 1,702,231 2,497,383 809,474 (14,322 ) 853,451 1,585,663 748,391 (16,179 ) 527,155 683,699 156,544 — 104,988 104,988 — — 45,451 45,451 — — 270,135 270,135 — — 6,424,172 10,037,322 3,627,757 (14,607 ) 6,118,055 9,141,403 3,043,490 (20,142 ) 5,783,440 8,034,071 2,250,639 (8 ) 6,424,172 10,037,322 3,627,757 (14,607 ) 6,118,055 9,141,403 3,043,490 (20,142 ) 5,783,440 8,034,071 2,250,639 (8 ) 43,567,064 48,024,027 4,777,983 (321,020 ) 59,191,409 64,148,628 5,031,257 (74,039 ) 51,691,834 55,336,044 3,684,778 (40,567 )
(1) | The Fair Values are determined based on year-end quoted market process for listed securities and on management’s estimate for unlisted securities. |
The total amount of unrealized losses amounted to €407,400 thousand, €217,452 thousand and €194,073 thousand as of December 31, 2006, 2005 and 2004, respectively.
Thousand of euros | |||||||||
2006 | 2005 | 2004 | |||||||
Equity securities | (50,653 | ) | (73,773 | ) | (49,993 | ) | |||
Debt securities | (35,727 | ) | (69,640 | ) | (103,513 | ) | |||
(1) Total impairments other-than-temporary (charged to income under both GAAP) | (86,380 | ) | (143,413 | ) | (153,506 | ) | |||
Equity securities | (14,607 | ) | (20,142 | ) | (8 | ) | |||
Debt securities | (306,413 | ) | (53,897 | ) | (40,559 | ) | |||
(2) Total temporary unrealized losses | (321,020 | ) | (74,039 | ) | (40,567 | ) | |||
(1)+(2) Total unrecognized losses | (407,400 | ) | (217,452 | ) | (194,073 | ) | |||
As of December 31, 2006, most of our unrealized losses correspond to other debt securities (both Available-for-Sale and Held-to-Maturity securities). As of December 31, 2005 and 2004, unrealized losses of debt securities and equity securities are described:correspond basically to foreign securities held by Group BBVA.
As of December 31, 2006, the fair value of the debt securities is below its amortized cost. We have evaluated this decline in fair value to determine whether it is other than temporary and we have not recognized any other-than-temporary impairment for these securities for the fiscal year ended December 31, 2006 related to the following reasons:
DebtThey have mainly arisen in a period shorter than one year;
The decline is attributable solely to adverse interest rate movements;
The principal and interest payments have been made as scheduled, and there is no evidence that the debtor will not continue to do so;
The future principal payments will be sufficient to recover the current amortized cost of the security;
We have the intent to hold the security until maturity or at least until the fair value of the security recovers to a level that exceeds the security’s amortized cost.
As of December 31, 2006, 2005 and 2004, there are not unrealized losses correspond to countries with transitory difficulties.
An analysis of the book value of investments, exclusive of valuation reserves, by contractual maturity and fair value of the debt securities portfolio is shown below:
December 31, 2006 | ||||||||||
Book Value | ||||||||||
Due in one year or less | Due after one year to five years | Due after five years to ten years | Due after ten years | Total | ||||||
(thousands of euros) | ||||||||||
AVAILABLE-FOR-SALE PORTFOLIO(*) | ||||||||||
Domestic | ||||||||||
Spanish government | 311,715 | 1,524,000 | 1,683,607 | 3,339,044 | 6,858,367 | |||||
Other debt securities | 525,157 | 708,301 | 540,394 | 873,139 | 2,646,992 | |||||
Total Domestic | 836,873 | 2,232,301 | 2,224,002 | 4,212,184 | 9,505,359 | |||||
International | ||||||||||
United States | 715,866 | 1,356,471 | 672,919 | 2,760,331 | 5,505,587 | |||||
U.S. Treasury and other U.S. government agencies | 30,609 | 8,199 | 304,931 | — | 343,739 | |||||
States and political subdivisions | 21,037 | 51,695 | 32,410 | 203,976 | 309,118 | |||||
Other U.S. securities | 664,220 | 1,296,577 | 335,578 | 2,556,355 | 4,852,730 | |||||
Other countries | 1,349,662 | 5,023,927 | 5,273,292 | 5,571,632 | 17,218,513 | |||||
Securities of other foreign governments | 662,591 | 2,998,420 | 3,648,320 | 3,076,591 | 10,385,922 | |||||
Other debt securities of other countries | 687,071 | 2,025,507 | 1,624,971 | 2,495,042 | 6,832,591 | |||||
Total International | 2,065,528 | 6,380,399 | 5,946,211 | 8,331,964 | 22,724,101 | |||||
TOTAL AVAILABLE-FOR-SALE | 2,902,401 | 8,612,699 | 8,170,212 | 12,544,147 | 32,229,460 | |||||
HELD-TO-MATURITY PORTFOLIO | ||||||||||
Domestic | ||||||||||
Spanish government | — | 261,508 | 1,100,266 | 54,833 | 1,416,607 | |||||
Other debt securities | — | 128,975 | 706,448 | 151,837 | 987,260 | |||||
Total Domestic | — | 390,483 | 1,806,714 | 206,670 | 2,403,867 | |||||
Total International | 306,994 | 1,147,021 | 1,760,187 | 287,567 | 3,501,769 | |||||
TOTAL HELD-TO-MATURITY | 306,994 | 1,537,504 | 3,566,901 | 494,237 | 5,905,636 | |||||
TOTAL DEBT SECURITIES | 3,209,395 | 10,150,203 | 11,737,113 | 13,038,384 | 38,135,096 | |||||
HELD-TO-MATURITY PORTFOLIO Domestic Spanish government Other debt securities Total Domestic Total International TOTAL HELD-TO-MATURITY December 31, 2006 Market Value Due in one
year or less Due after one
year to five
years Due after five
years to ten
years Due after ten
years Total (thousands of euros) — 260,134 1,065,562 52,132 1,377,828 — 125,964 690,666 142,130 958,760 — 386,098 1,756,228 194,262 2,336,588 305,977 1,128,882 1,712,640 273,159 3,420,658 305,977 1,514,980 3,468,868 467,421 5,757,246
December 31, 2005 | ||||||||||
Book Value | ||||||||||
Due in one year or less | Due after one year to five years | Due after five years to ten years | Due after ten years | Total | ||||||
(thousands of euros) | ||||||||||
AVAILABLE-FOR-SALE PORTFOLIO(*) | ||||||||||
Domestic | ||||||||||
Spanish government | 5,467,121 | 3,632,285 | 1,114,428 | 4,059,651 | 14,273,483 | |||||
Other debt securities | 280,842 | 416,792 | 387,665 | 1,346,102 | 2,431,401 | |||||
Total Domestic | 5,747,963 | 4,049,077 | 1,502,093 | 5,405,753 | 16,704,884 | |||||
International | ||||||||||
United States | 533,115 | 1,082,192 | 536,283 | 1,837,990 | 3,989,578 | |||||
U.S. Treasury and other U.S. government agencies | 263,782 | 861,229 | 456,737 | 1,376,203 | 2,957,950 | |||||
States and political subdivisions | 3,534 | 13,393 | 2,058 | 32,738 | 51,723 | |||||
Other U.S. securities | 265,799 | 207,570 | 77,488 | 429,049 | 979,905 | |||||
Other countries | 6,898,289 | 10,480,740 | 6,858,810 | 6,039,678 | 30,277,517 | |||||
Securities of other foreign governments | 5,653,837 | 8,480,822 | 4,451,103 | 3,207,083 | 21,792,845 | |||||
Other debt securities of other countries | 1,244,452 | 1,999,918 | 2,407,707 | 2,832,595 | 8,484,672 | |||||
Total International | 7,431,404 | 11,562,932 | 7,395,093 | 7,877,668 | 34,267,095 | |||||
TOTAL AVAILABLE-FOR-SALE | 13,179,367 | 15,612,009 | 8,897,186 | 13,283,421 | 50,971,979 | |||||
HELD-TO-MATURITY PORTFOLIO | ||||||||||
Domestic | ||||||||||
Spanish government | — | 182,690 | 180,332 | — | 363,022 | |||||
Other debt securities | — | 90,736 | 685,753 | 65,627 | 842,116 | |||||
Total Domestic | — | 273,426 | 866,085 | 65,627 | 1,205,138 | |||||
Total International | 282,874 | 853,031 | 1,546,023 | 72,199 | 2,754,127 | |||||
TOTAL HELD-TO-MATURITY | 282,874 | 1,126,457 | 2,412,108 | 137,826 | 3,959,265 | |||||
TOTAL DEBT SECURITIES | 13,462,241 | 16,738,466 | 11,309,294 | 13,421,247 | 54,931,244 | |||||
HELD-TO-MATURITY PORTFOLIO Domestic Spanish government Other debt securities Total Domestic Total International TOTAL HELD-TO-MATURITY December 31, 2005 Market Value Due in one
year or less Due after one
year to five
years Due after five
years to ten
years Due after ten
years Total (thousands of euros) — 185,002 189,592 — 374,594 — 91,114 703,349 68,216 862,679 — 276,116 892,941 68,216 1,237,273 282,841 858,877 1,578,956 77,301 2,797,975 282,841 1,134,993 2,471,897 145,517 4,035,248
December 31, 2004 | ||||||||||
Book Value | ||||||||||
Due in one year or less | Due after one year to five years | Due after five years to ten years | Due after ten years | Total | ||||||
(thousands of euros) | ||||||||||
AVAILABLE-FOR-SALE PORTFOLIO(*) | ||||||||||
Domestic | ||||||||||
Spanish government | 3,423,654 | 8,775,741 | 1,359,317 | 2,878,519 | 16,437,230 | |||||
Other debt securities | 78,286 | 243,843 | 310,472 | 1,989,205 | 2,621,807 | |||||
Total Domestic | 3,501,940 | 9,019,584 | 1,669,789 | 4,867,724 | 19,059,037 | |||||
International | ||||||||||
United States | 438,609 | 199,920 | 155,861 | 955,803 | 1,750,192 | |||||
U.S. Treasury and other U.S. government agencies | 341,387 | 57,719 | 70,070 | 576,885 | 1,046,061 | |||||
States and political subdivisions | 383 | 12,495 | — | 43,376 | 56,254 | |||||
Other U.S. securities | 96,839 | 129,706 | 85,791 | 335,542 | 647,877 | |||||
Other countries | 5,021,778 | 8,869,956 | 5,658,781 | 4,677,485 | 24,227,999 | |||||
Securities of other foreign governments | 4,217,177 | 6,838,969 | 3,609,275 | 1,742,447 | 16,407,868 | |||||
Other debt securities of other countries | 804,601 | 2,030,987 | 2,049,506 | 2,935,038 | 7,820,131 | |||||
Total International | 5,460,387 | 9,069,876 | 5,814,642 | 5,633,288 | 25,978,191 | |||||
TOTAL AVAILABLE-FOR-SALE | 8,962,327 | 18,089,460 | 7,484,431 | 10,501,012 | 45,037,228 | |||||
HELD-TO-MATURITY PORTFOLIO | ||||||||||
Domestic | ||||||||||
Spanish government | — | 177,793 | 138,296 | 21,345 | 337,434 | |||||
Other debt securities | — | 17,703 | 213,808 | 33,909 | 265,420 | |||||
Total Domestic | — | 195,496 | 352,104 | 55,254 | 602,854 | |||||
Total International | 150,079 | 876,579 | 487,296 | 104,694 | 1,618,648 | |||||
TOTAL HELD-TO-MATURITY | 150,079 | 1,072,075 | 839,400 | 159,948 | 2,221,502 | |||||
TOTAL DEBT SECURITIES | 9,112,406 | 19,161,535 | 8,323,831 | 10,660,960 | 47,258,730 | |||||
HELD-TO-MATURITY PORTFOLIO Domestic Spanish government Other debt securities Total Domestic Total International TOTAL HELD-TO-MATURITY December 31, 2004 Market Value Due in one
year or less Due after one
year to five
years Due after five
years to ten
years Due after ten
years Total (thousands of euros) — 180,537 144,129 21,691 346,357 — 18,158 219,733 35,271 273,162 — 198,695 363,862 56,962 619,519 150,112 882,243 502,535 110,337 1,645,227 150,112 1,080,938 866,397 167,299 2,264,746
* | As we describe in Note 2.2.b the book value and market value are the same for “Trading portfolio” and “Available for sale portfolio” |
Under Spanishboth IFRS and U.S. GAAP, debtthe methodology used to estimate the fair value of non-traded or unlisted securities is as follows (see Note 2.2.b.2):
Debt securities: fair value is considered to be the present value of the cash flows, using market interest rates (discounted cash flows).
Equity securities: in the cases of equity instruments whose fair value cannot be determined in a sufficiently objective manner are categorizedmeasured at acquitision cost. In some cases in which trigger events indicate that a specific investment could be impaired, a specific valuation of fair value is used and all available factors are considered by management to determine the fair value both under three types of portfolios; this classification is similar to the SFAS 115 classification, however, the accounting treatment differs in some aspects between Spanish GAAPIFRS and U.S. GAAP.
1)Trading portfolio: under Spanish GAAP, this category includes If it is available a valuation of the listed securities held for the purposecompany, it is used as a better measure of obtaining gains in the short-term, taking advantage of market price fluctuations. These investments are accounted for at fair value under both IFRS and the variations on fair values are recorded to income.
This portfolio is similar to the trading portfolio under U.S. GAAP. Therefore, following SFAS 115, there is not any difference with respect to Spanish GAAP. Therefore, no adjustment is needed in the reconciliation from Spanish GAAP to U.S. GAAP.
2)Held-to-maturity portfolio: under Spanish GAAP, this portfolio includes the securities that the management has decided to hold until maturity, since it has the financial capacity to do so. The securitiesThese methodologies include an evaluation of this portfolio are recorded at their acquisition cost adjusted by the amount resulting from accrual by the interest method of the positive or negative difference between the redemption value and the acquisition cost over the term to maturity of the security (amortized cost). Any adjustment to the acquisition cost is recorded to income under Spanish GAAP.
This portfolio is similar to the held-to-maturity portfolio under U.S. GAAP. Following SFAS 115, there is not any difference with respect to Spanish GAAP. Therefore, no adjustment is needed in the reconciliation from Spanish GAAP to U.S. GAAP.
Under Spanish GAAP if an other-than-temporary loss arises in this portfolio, the impairment would be charged to income. Therefore, the accounting treatment does not differ with respect to U.S. GAAP. Any impairment was charged to income due to “other-than-temporary” losses in this portfolio.
3)Available-for-sale portfolio: under Spanish GAAP this portfolio includes all other debt securities not classified in either one of the two portfolios described above. Securities classified in this portfolio are individually recorded at the lower of their acquisition cost or their fair value.
Changes in fair value
Db Asset Accrual Account (*)
<Cr> Securities Revaluation Reserve (**)
(*) These Accrual Accounts are presented in the caption “Accrual Account” on the Asset side of the Balance Sheet. (**) This allowance is presented offsetting “Available-for-sale” portfolio in Consolidated Balance Sheet. However it is disclosed in a footnote to the financial statements.
These entries under Spanish GAAP do not affect net income or stockholders’ equity. In the future, if the fair value goes up, the allowance is reduced consequently.
Under U.S. GAAP “temporary” losses are recorded to “Other Comprehensive Income (OCI)”. This difference between Spanish GAAP and U.S. GAAP is adjusted in the adjustment 9 in the reconciliation to U.S. GAAP. This adjustments decreases stockholders’ equity in € 59,233 thousand.
Under Spanish GAAP unrealized losses are classified as “other-than-temporary” when management believes that it will not collect or recover all the amounts due (credit risk), or when due tocredit risk, market conditions (volatility, interest rate evolution, macroeconomic variables, etc.etc…) or future expectations, management considers that all or partexpectations.
2. Loans and Accounting by Creditors for Impairment of unrealized losses will not be recovered (market risk). BBVA performs this analysis at the end of each reporting period.a Loan-
Under Spanish GAAP there are no general rules regarding the methodologies and factors to be used or the period of time needed to consider impairment as other than temporary. BBVA’s management considers that an impairment is other than temporary if, considering the factors explained in the preceding paragraph, the estimated fair valueThe balance of the debt securities does not show a demonstrable recoveryrecorded investment in the near term future (one year).
According to SAB 59, the value of investments in marketable securities may decline for various reasons. The market price may be affected by general market conditions which reflect prospects for the economy as a whole or by specific information pertaining to an industry or an individual company. According to this literature, such declines require further investigation by management. Acting upon the premise that a write-down may be required, management should consider all available evidence to evaluate the realizable value of its investment. SAB 59 gives
the following few examplesimpaired loans (substandard loans) and of the factors which, individually or in combination, indicate that a declinerelated valuation allowance as of December 31, 2006 is other than temporary and that a write-down of the carrying value is required:
a. The length of the time and the extent to which the market value has been less than cost;
b. The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; or
c. The intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
Also according to SAB 59, unless evidence exists to support a realizable value equal to or greater than the carrying value of the investment, a write-down accounted for as a realized loss should be recorded. In accordance with the guidance of paragraph 16 of SFAS 115, such loss should be recognized in the determination of net income of the period in which it occurs. The written down value of the investment in the company becomes the new cost basis of the investment.
BBVA considers that the criteria used for evaluating if an impairment is “other than temporary” under Spanish GAAP is consistent with the U.S. GAAP literature mentioned above and other literature related to this topic, such as SFAS 115 and EITF D –44.
However, under Spanish GAAP, not all unrealized losses in Argentinean debt securities were considered “other-than-temporary”. Under US GAAP, this impairment should be charged to statement of income. This difference between Spanish GAAP and U.S. GAAP is adjusted in the adjustment 9 in the reconciliation to U.S. GAAP. This adjustments decreases net income in €257,933.
· Equity securities
Under Spanish GAAP, equity securities are categorized in different portfolios. This classification is similar to SFAS 115 classification, however, the accounting treatment of some portfolios differs between Spanish GAAP and U.S. GAAP.follows:
This portfolio is consistent with the trading portfolio under U.S. GAAP. Following SFAS 115, there is no difference from Spanish GAAP. Therefore, no adjustment is needed in the reconciliation from Spanish GAAP to U.S. GAAP.
Thousands of euros | ||
Impaired loans requiring no reserve | 61,785 | |
Impaired loans requiring valuation allowance | 2,429,905 | |
Total impaired loans | 2,491,690 | |
Valuation allowance on impaired loans | 1,388,713 | |
UnderThe roll-forward allowance is shown in Note 28 under IFRS. The reconciliation item to U.S. GAAP for unlisted securities, according to APB 18, while practice varies to some extent, the cost method is generally followed for most investments in noncontrolled companies equity investments. For listed securities SFAS 115 literature applies.
Changes in fair value
Listed SecuritiesNote 62.A.7
Db Market Operations (Income Statement)
<Cr> Securities Revaluation Reserve (*)
(*) This allowance is presented offsetting “Available-for-sale” portfolio in Consolidated Balance Sheet. However it is disclosed in a footnote to the financial statements.
of euros | ||
Interest revenue that would have been recorded if | 1,106,513 | |
Net interest revenue recorded | 130,655 |
The criteria used by BBVA Group for considering an impairment as “other-than-temporary” are describe above.
BBVA considers that the criteria used for evaluating if an impairment is “other than temporary” under Spanish GAAP is consistent with the U.S. GAAP literature mentioned above and other literature relatedIndebtedness of and to this topic as SFAS 115 and EITF D –44. No impairment, due to “other-than-tempory” unrealized losses, was registered under Spanish GAAP or US GAAP.
Unlisted SecuritiesAffiliates-
For aggregated summarized financial information with respect to significant affiliated companies under IFRS for the year ended December 31, 2006 see Note 2.2.b) y 2.2.c) and Appendix III for detailed information of investments in associates.
Db Market Operations (Income Statement)
<Cr> Securities Revaluation Reserve (*)
(*) This allowance is presented offsetting “Available-for-sale” portfolio in Consolidated Balance Sheet. However it is disclosed in a footnote toThe following table shows the financial statements.
As explained above, BBVA considers that the criteria used for evaluating if an impairment is “other than temporary” under Spanish GAAP is consistent with the U.S. GAAP literature (SAB 59) mentioned above and other literature related to this topic as APB 18 and EITF D –44. All unrealized losses in unlisted equity securities were considered as “other-than-temporary” due to the bad performancefair value of thequoted investments companies and the very limited liquidity of these securities. These unrealized losses amounted to € 7,995 thousand and they were charged to income statement under Spanish GAAP. Therefore no adjustment is made in the reconciliation to U.S. GAAP.
In addition, in adjustment 9 BBVA Group applies SFAS 115 to all equity investment accounted for byusing the equity method under Spanish GAAP but under US GAAP must be accounted for at fair value (seein the Group:
Thousands of Euros | ||||||||||||
Book value | Fair Value | |||||||||||
Companies | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Banca Nazionale del Lavoro, S.P.A | — | 726,400 | 1,105,832 | — | 1,234,415 | 970,294 | ||||||
Tubos Reunidos, S.A. | 69,284 | 57,775 | 20,493 | 227,912 | 119,921 | 9,942 |
4. Deposits-
The breakdowns of deposits from credit entities and customers as of December 31, 2006, 2005 and 2004, by domicile and type are included in Note 32.2.B.3). The application26.
As of SFAS 115 to these investments increases stockholders` equityDecember 31, 2006, 2005 and 2004, the time deposits, both domestic and international, (other than interbank deposits) in € 2,114,035denominations of €76 thousand due to the recognition of net unrealized gains in “Other Comprehensive Income”.
(approximately US$ 100 thousand) or more were €82.24 billion, €28.8 and €50.1 billion, respectively.
10. Intangible assets-5. Short-Term Borrowings-
As indicatedUnder IFRS, the information about “Short-Term borrowings” is not required as it is under S-X Regulations. Therefore this information is not disclosed in Note 3-f, under Spanish GAAP the expensespreceding pages. The analysis of capital increases carried out at the Bank and dependent companies are amortized under a period of five years. Under U.S. GAAP these expenses should be recordedshort-term borrowings is as incurred by a charge to reserves. This effect supposes an increase in net income and a decrease in Stockholder’s equity in 2003, 2002 and 2001, respectively.follows:
At December 31, | |||||||||||||||
2006 | 2005 | 2004 | |||||||||||||
Amount | Average rate | Amount | Average rate | Amount | Average rate | ||||||||||
(in millions of euro, except percentages) | |||||||||||||||
Securities sold under agreements to repurchase (principally Spanish Treasury bills): | |||||||||||||||
At December 31 | 37,098 | 4.27 | % | 48,254 | 3.54 | % | 38,529 | 3.36 | % | ||||||
Average during year | 38,721 | 3.61 | % | 38,467 | 3.52 | % | 43,488 | 3.44 | % | ||||||
Maximum quarter-end balance | 46,449 | — | 48,254 | — | 49,642 | — | |||||||||
Bank promissory notes: | |||||||||||||||
At December 31 | 7,596 | 3.75 | % | 7,569 | 2.58 | % | 6,255 | 2.20 | % | ||||||
Average during year | 8,212 | 3.16 | % | 6,894 | 2.34 | % | 5,675 | 2.08 | % | ||||||
Maximum quarter-end balance | 9,036 | — | 7,569 | — | 6,255 | — | |||||||||
Bonds and Subordinated debt : | |||||||||||||||
At December 31 | 7,756 | 4.01 | % | 14,273 | 3.54 | % | 7,082 | 2.81 | % | ||||||
Average during year | 8,076 | 3.74 | % | 10,324 | 3.61 | % | 7,628 | 2.39 | % | ||||||
Maximum quarter-end balance | 10,872 | — | 14,273 | — | 9,568 | — | |||||||||
Total short-term borrowings at December 31 | 52,450 | 4.16 | % | 70,096 | 3.44 | % | 51,866 | 3.14 | % |
Also,As of December 31, 2006, 2005 and 2004, short-term borrowings include €16,272,055 thousand, €23,040,106 thousand and €21,050,740 thousand, respectively, of securities sold under agreements to repurchase from Bank of Spain and other Spanish GAAP incorporation and start up expenses are amortized over a period of five years and under U.S. GAAP should be charged to income as incurred. This effect supposes an increase in net income in 2003 and 2002 and a decrease in 2001, respectively, and a decrease in Stockholder’s equity in 2003, 2002 and 2001, respectively.
Definite lived intangible assets are mainly integrated by software expenses. Definite lived intangible assets are amortized over their remaining useful lives and the Bank considers that there is no impairment associated to these assets.
foreign financial institutions.
11.6. Long Term Debt-
See Notes 26 and 36.
7. Derivative Financial Instruments and Hedging ActivitiesActivities-
The breakdown of the Derivative Financial Instruments under IFRS is shown in Notes 11 and 16.
11.1.7.1. Objectives for the holding of positions in derivatives and strategies for the achievement of these objectives
See Note 2.2.d
The holding of positions in derivatives is the result of the Group’s need to manage the risks incurred by it in the course of its normal business activities. Derivatives represent another of the tools available to the Group, and are necessary for the management of:
7.1.1. Risk Management Policies |
Market Risk
Managed by the Central Market Risk Unit, market risk is to be found in the Group’s market or treasury activities, which are characterized by the holding of positions sensitive to fluctuations in market prices. The Market Risk Unit, which is organically separate from and independent of the business units, is responsible for adapting and administering risk measurement and control tools and for regularly monitoring that the business units comply with the risk limits and policies. The Unit also periodically reports to the Standing Committee, the Lending Committee, the Management Committee and the Internal Risk Committee on levels of risk, results and the degree of compliance with such limits in the Group, at individual and aggregate level.
One of the basic pillars of the BBVA Group’s market risk management model is the limit structure, which consists of an overall VaRValue-at-Risk (VaR) limit for each business unit, supplemented by a series of specific sublimits by desk, business line, and risk or product type.
Proposals for the overall limits for all the business units and for certain sublimits are approved by the Standing Committee. The business units, together with the Risk Area, are responsible for distributing these limits by desk, business line or risk type. These VaR limits are supplemented by others based on non-statistical measures such as delta sensitivity, nominal exposure or stop-loss on the results of the markets areas. This limit structure is part of the Group’s general control system, which includes the definition of a variety of prior warning signs which trigger the contingency plans to attempt to prevent situations that might adversely affect the Bank’s results.
The purpose of the market risk management and measurement model currently in place at the BBVA Group is to measure both general market risk and specific risks, for which the Group employs the Value-at-Risk (VaR)VaR methodology, which aims to measure the maximum loss that can occur in the value of the portfolio as a result of fluctuations in general conditions on the financial markets, as shown by changes in interest rates, exchange rates and equity security prices, if the portfolio is maintained for a certain period. To these three major risk factors must be added basis risk (which arises, for example, when there are debt positions the interest-rate risk on which is hedged by swap transactions, generating a risk because there is a variable spread between the interest-rate curves relevant for the valuation of these positions) and spread risk (associated with corporate securities or credit derivatives on corporate issuers), together with, in the case of option positions, volatility and convexity risk and, in certain cases, correlation risk, since all the above are risk factors that might influence the market prices of certain products.
The VaR model used is the covariance matrix, with a confidence level of 99% and a time horizon of one day, improved to take into account convexity and other risks associated with option positions and structured derivative products. In addition, periodical supplementary settlement VaR calculations are performed for certain business units, which include adjustments to factor in the specific liquidity of the position, taking into account the liquidity conditions on the financial markets at any time.
The Group is also implementing ahas continued to implement its new risk measurement platform which, in addition to the advantage of enabling market risk to be integrated with credit risk, thus facilitating an overall view of existing risk, makes it possible to calculate market risk using the covariance matrix, the historical simulation and the Monte Carlo simulation methodologies.
The market risk measurement model includes a back-testing or ex post contrast program, which to a certain extent guarantees the suitability of the risk measures that are performed. In order to validate the VaR measurement system, comparisons are made, inter alia, of the levels of ex ante risk provided by the model with the ex post results obtained by the units each day.
Stress-testing is an essential supplementary tool for market risk management, especially in the wake of the recent crises in Argentina and Brazil and the upheaval in the financial markets after the events of September 11, 2001. Accordingly, in order to strengthen risk management and control, the BBVA Group periodically calculates the exposure to losses of each business unit in response to events beyond the predetermined confidence interval for the daily measurement of market risk. This enables senior management to ascertain whether the level of exposure to losses under these potential scenarios fits in with the Bank’s appetite for risk, and to design, on the basis of that exposure, the contingency plans that must be implemented immediately if an unusual situation similar to those examined should occur.
Structural Interset-rateInterest-rate risk
The responsibility for controlling and monitoring structural interest-rate risk falls on the Risk Area, which periodically measures this risk from a dual perspective: on the one hand, from the net interest income standpoint and, on the other, from that of the economic value. In the former case, net interest income is projected for the next 12 months; and in the case of the analysis of economic value, a discounted current value is calculated of expected future flows in the balance sheet. The impacts of fluctuations in interest rates on both measures are calculated by using both parallel displacements in interest-rate curves and shocks that take into account changes of slope and curvature. Several interest-rate curve simulation methodologies have been developed to determine these changes of slope and curvature and these methodologies are used to calculate expected losses in net interest income and in economic value, with a confidence level of 99%.
Structural Exchange-Rate Risk
The Risk Area periodically measures structural exchange-rate risk using a statistical simulation model that includes certain exchange-rate crisis scenarios to which certain estimated probabilities of occurrence are assigned. Another factor in the model is the projection at one year of the exchange rates of the currencies involved. Every month the total risk is calculated in annual VaR terms with a confidence interval of 99%.
7.1.2. Transactions whose risks are hedged for U.S. GAAP purposes
U.S. GAAP (SFAS 133) is more restrictive than IAS 39, Financial Instruments: recognition and measurement, on the types of risks that may be hedged and therefore certain hedging relationships considered under IFRS have been discontinued under U.S. GAAP.
Paragraph 21.f. of SFAS 133 defines the risks that may be hedged as only one of (or a combination of) the following:
(a) the risk of changes in the overall fair value of the entire hedged item,
(b) the risk of changes in its fair value attributable to changes in the designated benchmark interest rate (referred to as interest rate risk),
(c) the risk of changes in its fair value attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk) and
(d) the risk of changes in its fair value attributable to both changes in the obligor’s creditworthiness and changes in the spread over the benchmark interest rate with respect to the hedged item’s credit sector at inception of the hedge (referred to as credit risk).
The same paragraph states that an entity may not simply designate prepayment risk as the risk being hedged for a financial asset unless it is represented by an embedded option in the hedged instrument.
Transactions whose risks are hedged for U.S. GAAP purposes are:
1. | Available for sale fixed rate debt securities: this risk is hedged using interest-rate derivatives (interest-rate swaps through which the fixed-coupon of the bond is exchanged for a variable return). |
2. | Long term fixed rate debt issued: this risk is hedged using interest-rate derivatives (interest-rate swaps which replicate, on the collection leg, the payment resulting from the issue and transform it into a variable cost for the Bank). |
3. | Foreign currency of a net investment in a foreign subsidiary: the risk of a net investment in a foreign operation is exchanged for the currency in which the investment is denominated. |
4. | Available for sale equity securities: this risk is hedged using equity swaps through which the risk of variation in the price per books of the portfolio is transferred to the counterparty. |
5. | Fixed rate loans: this risk is hedged using interest-rate derivatives (interest-rate swaps through which the fixed-coupon of the loans is exchanged for a variable return). |
Floating interest rate loans in foreign currencies: this risk is hedged using currency swaps. |
Macrohedges are used to facilitate the overall management of the risk to which the Bank is exposed in managing correlated assets, liabilities and other transactions. As of December 31, 2003, the Group had arranged two macrohedges:
Equity Securities
A global equity securities macrohedge designed to encompass the price risk positions of BBVA’s Investment Banking Area. This Area conducts its price risk management operations through the following two business units:
This subunit is responsible for managing the products that arise in relation to trading room customers and which in one way or another are affected by equity volatility. This management is performed through options (plain vanilla, exotic or correlation options).
This subunit is responsible for exploiting the balance (spot positions assumed at the desk) for the benefit of the results thereof.
The businesses of this area are as follows:
Basically, most of the operations of the Equity Securities Desk relate to euro-zone securities and indexes (primarily IBEX 35 and EUROSTOXX 50) and to a lesser extent to other markets (mainly Dow Jones, S & P 500, Nasdaq and Nikkei).
Therefore, the macrohedge includes the operations performed by the Trading Room Equity Securities Desk to manage the price risk of the euro-zone stock market indexes, of the securities listed thereon, and of other indexes and securities which, although not belonging to the euro zone, are managed jointly with those relating to it (securities, options, equity-swaps).
Macrohedge of Euro deposits
This macrohedge includes the operations deriving from the management of the interest-rate risk resulting from the taking by the Bank of long-term (over 12 months) fixed-rate deposits.
This activity exposes the Bank to a long-term interest-rate risk which is managed using correlation through various types of products: basically IRS, futures and bonds, in addition to swaptions in those cases in which it is necessary to hedge existing options on the deposits.
The significant risks relating to these operations are as follows:
Market risks:
Based on the description of the macrohedge set forth above, the macrohedge will include the following products:
These macrohedges maintained by BBVA Group, under Spanish GAAP, do not qualify as hedges under US GAAP.
11.2.7.2. Accounting for Derivative Instruments and Hedging Activities
Under U.S. GAAP the Group adopted, effective January 1, 2001, SFAS No.133 (“SFAS 133”),Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (embedded derivatives) and for hedging activities. This Statement requires that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value.
Under SFAS 133 the accounting for changes in fair value of a derivative instrument depends on its intended use and the resulting designation.
If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized in earnings.
If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in Other Comprehensive Income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.
The gain or loss on a hedging derivative instrument that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is reported in the same way as a translation adjustment to the extent it is effective as a hedge. The ineffective portion of net investment hedges is reported in earnings.
Hedging transactions must be formally documented, designated and the company must describe the way the effectiveness is going to be assessed.
On the other hand when the derivative is designated as a trading transaction the changes in the fair value must be recognized currently in earnings.
11.3.Impact of SFAS 133 Implementation
As mentioned before, under U.S. GAAP, Banco Bilbao Vizcaya Argentaria Group has adopted, effective January 1, 2001 SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities.
Identification of accounting differences:
Regarding derivatives and hedge accounting, the differences between Spanish GAAP and U.S. GAAP are mainly the following:
Hedges
Spanish GAAP hedging requirements:
Bank of Spain regulations on derivatives and hedge accounting refers to the same topics as US GAAP. As in U.S. GAAP, this regulations address the documentation, measurement, control and accounting matters. Both Spanish and U.S. GAAP deal with the same concepts (e.g., the offsetting effect of hedges and their effectiveness), although using different wording and terminology.
The Bank of Spain regulations consider hedging transactions those that meet the following criteria:
a) Transactions aimed at eliminating or significantly reducing the foreign exchange rate risk, the interest rate risk or price risk of balance sheet items or other items provided that, in each case, the hedged item and the hedging transactions are explicitly identified at inception of the hedge.
b) Transactions aimed at reducing the global risk of correlated groups of assets, liabilities and other transactions, if they are managed through an integrated risk measurement and management control system that allow for the follow-up and explicit identification of the transactions. This system requires a favorable opinion of the external auditor to be issued and reported to the Bank of Spain on an annual basis. Such report specifically addresses the reasonableness, quality, and consistency of the integrated risk measurement and management control system (including compliance with specific documentation requirements) as well as the effectiveness of macro-hedges (80% - 120% range) through the performance of independent stress tests of all macro-hedges in place.
In the hedges that meet criteria a), gains or losses of the derivatives are accrued and/or recognized symmetrically to the revenues or expenses arising from the hedged items. This means that whatever impact the hedged item has on net income is offset by the impact recorded in the same line item in the statement of operations under Spanish GAAP for the hedge instrument.
In the hedges that meet criteria a) and b) (“macro-hedges”), all the transactions involved are either accrued or marked to market, net losses are always recorded in the statement of income. For certain types of macro-hedges, net gains would be recorded in statement of income. The income statement treatment for all macro-hedges is determined and documented at the inception of the hedging transaction.
The Group enters into thousands of derivative transactions, most of which are aimed at eliminating or reducing risks, but only a limited amount of these transactions receive hedge accounting treatment under Spanish GAAP due to the strict qualifying requirements of Bank of Spain regulations. Given that US GAAP does not allow certain types of hedges, derivative transactions accounted for as hedges under U.S. GAAP are only a portion of the hedge transactions under Spanish GAAP.
Each type of derivatives accounted for as a hedge under Spanish GAAP is related to a specific type of hedge as classified under U.S. GAAP (fair value or net investment) as follows:
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In order to conform to U.S. GAAP the Group considers certain derivatives as hedging transactions. These hedges are formally documented, are expected to be effective, and the Group designates and assesses periodically the effectiveness of such hedges. The Group considers these operations as qualified hedges under SFAS 133. The Group has qualified all these hedges as fair value hedges. Therefore, under US GAAP, their gains or losses should have been recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. As there is no significant hedge ineffectiveness to be considered, due to the effectiveness of such hedges, no adjustment was made in the reconciliation of net income and shareholders’ equity to US GAAP.
The Bank, under US GAAP, does not have any amounts for cash flow hedges . Therefore there are not any amount for cash flow hedges reported in Other Comprehensive Income.
For all other transactions recognized as Hedging Derivatives under Spanish GAAP that do not meet the requirements of hedge accounting under SFAS 133, the gain or loss on the derivative instrument has been recognized through earnings in the reconciliation to US GAAP as hedge accounting has not been applied under U.S. GAAP.
Macro hedges
The Group uses these instruments to hedge global equity and interest rate risk exposures. These transactions are permanently subject to an integrated, conservative and consistent system of risk management (e.g. estimate value at risk -VaR- of the transactions to check the equity risk is reduced due to the use of derivatives…) that measures, controls and manages the risks and the results of the operations involved.
The bank records provisions to cover future losses (generic provisions) based on VaR calculations.
The Bank has two different kinds of macro-hedges:
Share price risk macro hedge
The objective of this kind of macro hedge is to globally hedge the equity risk exposure arising from a trading portfolio, through trading equity derivatives.
The Group marks all the derivatives and the hedged assets (trading portfolio) to market, recording gains or losses into the income statement. Additionally, generic provisions are recorded to cover up future losses. Under Spanish GAAP, all the derivatives and the hedged assets are marked to market and the gain or losses are recorded in the income statement.
This macro hedge does not qualify as a hedge under US GAAP, thus no adjustment is needed to recognize the fair value of the derivatives because under Spanish GAAP the derivatives are marketed to market with changes in market value reflected in the income statement.
The only adjustment in the reconciliation to US GAAP consists in eliminating the generic provisions. As of December 31, 2003 the elimination of this provision gave rise to a decrease of €1,226 thousand in net income which is include in the effect of adoption of SFAS 133 describe later on.
Interest rate risk macro hedge
The objective of this kind of macro hedge is to globally hedge the interest risk of a portfolio of deposits due to customers.
The Group considers the fair value all the derivatives and the hedged deposits. The net losses are recorded in the income statement, while the net unrealized gains are not recorded into the income statement.
Under U.S. GAAP, this macro hedge cannot qualify as a hedge. The adjustment in the reconciliation to US GAAP consists of:
As of December 31, 2003 the recognition of the fair value of Interest Risk macrohedge and the elimination of the generic provisions gave rise to an increase of €113,353 thousand and €457 thousand in net income, respectively. This adjustment is include in the effect of adoption of SFAS 133 describe later on.
Foreign Currency Hedges
The Group considers certain derivatives as hedging the foreign currency exposure of a net investment in a foreign subsidiary. The derivatives are traded in the same currency of the country in which the foreign subsidiary is located.
Under Spanish GAAP, these gains or losses are recorded with a charge in OCI to offset the differences arising in the translation of the subsidiary financial statements. These operations are qualified as a hedge of the foreign currency exposure of a net investment in a foreign operation under US GAAP. As a consequence, there is no reconciliation adjustment for this operation.
Trading derivatives
Under Spanish GAAP, trading transactions are valued, depending on the market on which they are traded, as follows:
Under U.S. GAAP, the gain or loss on a derivative instrument not designated as a hedging instrument shall be recognized through earnings.
All derivatives recognized as trading transactions under Spanish GAAP are also considered as trading for US GAAP purposes.
The adjustment in the US GAAP reconciliation consists of recognizing the unrealized gains not recognized for Spanish GAAP as described in the preceding paragraphs.
Other derivatives
All material intercompany accounts and transactions between the consolidated companies are eliminated in consolidation. This consolidation principle also applies with respect to intercompany derivative transactions.
The cumulative positive effect arising from the adoption of SFAS 133 amounted to €8,182 thousand as of January 1, 2001. As of December 31, 2003, the application of this method gave rise to a increase of €207,460 thousand in net income and an increase of €58,359 thousand in Other Comprehensive Income. As of December 31, 2002, the application of this method gave rise to a decrease of €126,660 thousand in net income and an increase of €72,039
thousand in Other Comprehensive Income. As of December 31, 2001, the application of this method gave rise to an increase of €11,219 thousand in net income and an increase of €12,790 thousand in Other Comprehensive Income. The effect in Other Comprehensive Income is produced by valuating the derivative instruments hedging the available-for-sale portfolio, that under Spanish GAAP are considered hedged items, and therefore are not marked to market, but under US GAAP are not qualified as a hedge.
11.4.7.3. Additional disclosures required by U.S. GAAP: Fair Value Methods
The methods used by the Group in estimating the fair value of its derivative instruments are as follows:
Forward purchases/sales of foreign currency
Estimated fair value of these financial instruments is based on quoted market prices.
Forward purchases/sales of government debt securities
Estimated fair value of these financial instruments is based on quoted market prices, since they are mostly traded in organized markets.
Options and financial futures
Derivatives traded in organized markets are valued based on quoted market prices.
For options and futures traded in OTC markets, the fair value is estimated based on theoretical year-end closing prices. These year-end closing prices are calculated according to generally accepted models estimating the amounts the Group would receive or pay based upon the yield curve/ volatilities prevailing at year-end or prices.
Forward rate agreements and interest rate swaps
Fair values of these contracts are estimated based on the discounted future cash flows related to the interest rates to be collected or paid, using for this purpose the yield curve prevailing at year-end.
The disclosure of the notional principal amounts of the derivatives of the Group by trading or hedging, under US GAAP, operations is as follows:
2003 | 2002 | 2001 | ||||
Thousands of Euros | ||||||
Trading | ||||||
Interest risk contracts: | ||||||
Forward rate agreements | 67,325,503 | 22,413,334 | 111,359,842 | |||
Interest rate swaps | 515,630,158 | 438,278,729 | 450,249,865 | |||
Options and futures | 113,653,819 | 113,099,981 | 111,361,425 | |||
Foreign exchange contracts: | ||||||
Forward purchase/sale of foreign currency | 44,926,713 | 41,291,191 | 27,175,524 | |||
Currency options | 8,728,897 | 4,067,083 | 19,476,843 | |||
Currency swaps | 8,363,047 | 7,463,306 | 7,402,319 | |||
Derivatives on securities and commodities | 37,360,860 | 32,496,504 | 26,813,840 | |||
795,988,997 | 659,110,128 | 753,839,658 | ||||
Hedging derivatives | ||||||
Interest risk contracts: | ||||||
Interest rate swaps | 18,107,187 | 16,323,924 | 13,153,945 | |||
Options and futures | 14,046,827 | 5,510,226 | — | |||
Foreign exchange contracts: | ||||||
Currency options | — | 1,603,787 | — | |||
Currency swaps | 3,337,507 | 4,355,780 | 6,193,718 | |||
Derivatives on securities and commodities | 1,631,702 | 1,840,696 | 2,025,672 | |||
37,123,223 | 29,634,413 | 21,373,335 | ||||
Total trading and hedging derivatives | 833,112,220 | 688,744,541 | 775,212,993 | |||
The following is a detail of the trading transactions notional amount and their year-end fair value for year 2003, 2002 and 2001 disclosed in each type of instrument.
2003 | 2002 | 2001 | |||||||||||||
Notional Amount | Fair Value | Notional Amount | Fair Value | Notional Amount | Fair Value | ||||||||||
Thousand of euros | |||||||||||||||
Trading | |||||||||||||||
Interest risk contracts: | |||||||||||||||
Forward rate agreements | 67,325,503 | 2,776 | 22,413,334 | (5,766 | ) | 111,359,842 | (13,734 | ) | |||||||
Interest rate swaps | 515,630,158 | (530,909 | ) | 438,278,729 | (774,073 | ) | 450,249,865 | (188,720 | ) | ||||||
Options and futures | 113,653,819 | 121,952 | 113,099,981 | 208,442 | 111,361,425 | 76,815 | |||||||||
Foreign exchange contracts: | |||||||||||||||
Forward purchase/sale of foreign currency | 44,926,713 | (307,781 | ) | 41,291,191 | (434,480 | ) | 27,175,524 | 608,908 | |||||||
Currency options | 8,728,897 | (23,351 | ) | 4,067,083 | 8,999 | 19,476,843 | 112,300 | ||||||||
Currency swaps | 8,363,047 | (178,986 | ) | 7,463,306 | 83,695 | 7,402,319 | (132,904 | ) | |||||||
Derivatives on securities and commodities | 37,360,860 | 177,100 | 32,496,504 | 225,154 | 26,813,840 | 23,790 | |||||||||
795,988,997 | (739,199 | ) | 659,110,128 | (688,029 | ) | 753,839,658 | 486,455 | ||||||||
The reconciliation between the disclosures presented above (under US GAAP) and the disclosures presented in Note 26 (under Spanish GAAP) as of December 31, 2003 is as follows:
The notional amount and the fair value of derivatives that afforded hedge accounting treatment under Spanish GAAP but did not qualify as hedges under U.S. GAAP as of December, 31 2003 are disclosed in the following table:
Hedging derivatives under Spanish Gaap not under US Gaap | |||||
Notional amount | Fair value | ||||
Interest risk contracts: | |||||
Interest rate swaps | 15,702,477 | 96,135 | |||
Options and futures | 3,630,590 | 12,739 | |||
Foreign exchange contracts: | |||||
Forward purchase/sale of foreign currency | 11,259,770 | (29,866 | ) | ||
Currency options | 810,522 | — | |||
Currency swaps | 1,050,361 | (347,835 | ) | ||
Derivatives on securities and commodities | 20,647,967 | (27,937 | ) | ||
TOTAL | 53,101,687 | (296,764 | ) | ||
The notional amount and the fair value of derivatives that afforded hedge accounting treatment under Spanish GAAP and qualify as hedges under U.S. GAAP as of December, 31 2003 are disclosed in the following table:
Hedging derivatives under Spanish & US Gaap | |||||
Notional amount (*) | Fair value (**) | ||||
Interest risk contracts: | |||||
Interest rate swaps | 18,107,187 | 506,091 | |||
Options and futures | 14,046,827 | 431,583 | |||
Foreign exchange contracts: | |||||
Currency swaps | 3,337,507 | 64,763 | |||
Derivatives on securities and commodities | 1,631,702 | (214,218 | ) | ||
TOTAL | 37,123,223 | 788,219 | |||
The reconciliation of the items of Income Statement affected by derivative and hedging accounting between Spanish GAAP and U,S, GAAP is as follows:
Thousand of Euros | ||||||||||||||||||
2003 | 2002 | |||||||||||||||||
Spanish GAAP | Adjustments | U,S, GAAP | Spanish GAAP | Adjustments | U,S, GAAP | |||||||||||||
Interest Income | 12,537,465 | (246,470 | ) | 12,290,995 | 17,232,909 | (168,195 | ) | 17,064,714 | ||||||||||
Interest Expenses | (6,260,058 | ) | 463,021 | (5,797,037 | ) | (9,783,505 | ) | 35,855 | (9,747,650 | ) | ||||||||
Net Interest Income | 6,277,407 | 216,551 | 6,493,958 | 7,449,404 | (132,340 | ) | 7,317,064 | |||||||||||
Gain/losses from foreign Exchange, derivatives and others | 651,504 | (9,091 | ) | 642,413 | 765,123 | 5,680 | 770,803 | |||||||||||
TOTAL | 207,460 | 126,660 |
The columns adjustments includes:
12. Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS No. 109-
The previous adjustments to net income and Stockholders’ equity do not include their related effects on corporate tax, except for the adjustment mentioned in Item 1, which are disclosed under “Tax effect of above mentioned adjustments” item on the reconciliation statements.
As described in Note 3-l under Spanish GAAP only the timing differences which have a specific reversal period of less than ten years have been recorded. As a result of the application of Statement of Financial Accounting Standards No. 109 (“SFAS 109”),Accounting for Income Taxes, the timing differences originated by the provision for the statistical coverage of loan losses (Note 32-2-B-7) and by the allowance assigned to cover probable losses on intra-group transactions subject to country-risk (Note 32-2-B-7) have been reversed.
In the reconciliation to U.S. GAAP, the Group has recorded as of December 31, 2003, deferred tax assets of €93,864 thousand (€226,749 thousand and €251,258 thousand as of December 31, 2002 and 2001, respectively) and deferred tax liabilities of €895,537 thousand (€431,862 thousand and €1,030,558 thousand as of December 31, 2002 and 2001, respectively). Deferred tax liabilities arise mainly from valuation of investment securities adjustments in Spanish GAAP to U.S. GAAP reconciliation.
Under U.S. GAAP, as of December 31, 2003, a deferred tax asset amounting €614,249 thousand (€53,242 thousand and €156,600 thousand as of December 31, 2002 and 2001, respectively) had been recognized.
SFAS 109 requires providing a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. As of December 31, 2003, 2002 and 2001 the valuation allowance amounted to €672,218 thousand, €113,210 thousand and €225,181 thousand, respectively.
The following is a reconciliation of the income tax provision under Spanish GAAP to that under U.S.GAAP:
2003 | 2002 | 2001 | |||||||
Thousands of Euros | |||||||||
Income tax provision under Spanish GAAP | 914,976 | 653,213 | 625,521 | ||||||
Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS 109 | (203,762 | ) | (3,983 | ) | (195,616 | ) | |||
Income tax provision under U.S. GAAP | 711,214 | 649,230 | 429,905 |
Following is a reconciliation of the deferred tax assets and liabilities recorded under Spanish GAAP and those that should be recorded under SFAS 109.
2003 | 2002 | 2001 | |||||||||||||
Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | ||||||||||
Thousands of Euros | |||||||||||||||
As reported under Spanish GAAP | 3,374,195 | 140,957 | 3,838,413 | 155,979 | 4,660,724 | 117,534 | |||||||||
Less- | |||||||||||||||
Timing differences recorded under Spanish GAAP and reversed in the reconciliation to U.S. GAAP | (290,807 | ) | — | (236,451 | ) | — | (171,102 | ) | — | ||||||
Plus- | |||||||||||||||
Tax effect of Spanish to U.S. GAAP reconciliation adjustments | 93,864 | 895,537 | 226,749 | 431,862 | 251,258 | 1,030,558 | |||||||||
Timing differences not recorded under Spanish GAAP and recognized under U.S. GAAP | 614,249 | — | 53,242 | — | 156,600 | — | |||||||||
As reported under SFAS 109 (gross) | 3,791,501 | 1,036,494 | 3,881,953 | 587,841 | 4,897,480 | 1,148,092 | |||||||||
Valuation reserve | (672,218 | ) | — | (113,210 | ) | — | (225,181 | ) | — | ||||||
As reported under SFAS 109 (net) | 3,119,283 | 1,036,494 | 3,768,743 | 587,841 | 4,672,299 | 1,148,092 |
Following is an analysis of deferred tax assets and liabilities as of December 31, 2003, 2002 and 2001 estimated in accordance with U.S. GAAP:
December 31, | |||||||||
2003 | 2002 | 2001 | |||||||
(Thousands of Euros) | |||||||||
Deferred Tax assets | |||||||||
Loan loss reserves | 1,101,208 | 1,231,591 | 1,643,326 | ||||||
Unrealized losses on securities pension liability | 1,058,713 | 879,846 | 703,830 | ||||||
Fixed assets | 136,318 | 156,177 | 264,390 | ||||||
Net operating loss carryforward | 747,045 | 1,157,499 | 1,439,135 | ||||||
Investments and derivatives | 289,297 | 239,948 | 603,916 | ||||||
Allocated liabilities | 17,172 | 22,007 | 27,467 | ||||||
Other | 441,748 | 194,885 | 215,416 | ||||||
Total deferred tax assets | 3,791,501 | 3,881,953 | 4,897,480 | ||||||
Valuation reserve | (672,218 | ) | (113,210 | ) | (225,181 | ) | |||
Net tax asset | 3,119,283 | 3,768,743 | 4,672,299 | ||||||
Deferred tax liabilities | |||||||||
Unrealized gains on investments | 732,466 | 210,966 | 762,120 | ||||||
Gains on sales of investments | — | 17,770 | 58,941 | ||||||
Fixed assets | 130,347 | 122,806 | 73,702 | ||||||
Allocated assets | 173,681 | 207,775 | 243,178 | ||||||
Other | — | 28,524 | 10,151 | ||||||
Total deferred tax liabilities | (1,036,494 | ) | 587,841 | 1,148,092 | |||||
Net deferred tax assets (liabilities) | 2,082,789 | 3,180,902 | 3,524,207 | ||||||
A reconciliation between the federal statutory tax rate and the effective income tax rate follows:
2003 | 2002 | 2001 | |||||||
% percentages | |||||||||
Corporate income tax at the standard rate of 35% | 35.00 | 35.00 | 35.00 | ||||||
Difference arising for the early amortization of goodwill (Note 2-a) | 0.00 | 0.00 | 5.85 | ||||||
Decrease arising from permanent differences | (11.74 | ) | (15.45 | ) | (18.24 | ) | |||
Adjustments to the provision for prior years’ corporate income tax and others taxes | 0.74 | 1.39 | (2.52 | ) | |||||
Income tax provision under Spanish GAAP | 24.00 | 20.94 | 20.09 | ||||||
Tax effect of US GAAP adjustments and deferred taxation under SFAS 109 | (5.54 | ) | (0.13 | ) | (6.28 | ) | |||
Income tax provision under US GAAP | 18.46 | 20.81 | 13.81 |
13. BBV Brasil transaction.
On January 13, 2003, BBVA reached a strategic agreement with Banco Bradesco, S.A., whereby BBVA sold its Brazilian affiliate, BBV Brasil, S.A., to Banco Bradesco, S.A. in exchange for a stake in the latter’s share capital.
The main points of the strategic agreement were as follows:
At measurement date -end of 2002-, the Group, under Spanish GAAP accounted for the expected net losses from the proposed sale, debited the “Losses on disposal of holdings in entities consolidated by global and proportional integration” caption of the consolidated statement of income with the amount of 246 million euros, and credited the same amount to the caption “Losses at consolidated companies arising from negative exchange differences in consolidation” in order to cancel, pursuant to Bank of Spain regulations, the cumulative exchange losses, recorded against consolidation reserves, derived from the conversion of the financial statements of BBV Brasil since its takeover; this accounting transaction had no effect on the Group’s net worth. The Group had also recorded €92 millions of capital gains, which have been credited to the said caption of the consolidated statement of income and charged to the “Other Assets” caption of the consolidated balance sheet. Lastly, a Specific Fund of €35 millions had been allocated under the “Extraordinary Losses” caption of the statement of income to match the theoretical goodwill that arised as a result of the aforementioned registration of the shares of Banco Bradesco, S.A.
As of December 31, 2002, under US GAAP, the remaining goodwill and the accumulated negative exchange differences related to this goodwill must be cancelled, by a charge to income. These effects supposed a decrease in net income of €137,812 thousand in 2002. This goodwill was amortized in prior years under Spanish GAAP (see Note 2.a).
Additionally, under US GAAP the transaction should be measured at fair value. This adjustment gave rise to an increase in net income and stockholders´ equity of €4,251 thousand in 2002.
Under US GAAP, capital gains as of December 31, 2002 amount to:
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The carrying amounts of the mayor classes of assets and liabilities of Group BBVA without Brazil and Group BBV Brazil is disclosed as follows:
2003 | 2002 | 2001 | ||||||||||||
Group BBVA (*) | Group BBVA Brazil | BBV Brasil Group | Total | Group BBVA Brazil | BBV Brasil Group | Total | ||||||||
ASSETS | ||||||||||||||
CASH ON HAND AND DEPOSITS AT CENTRAL BANKS: | ||||||||||||||
Cash | 1,767,580 | 1,857,409 | 10,949 | 1,868,358 | 2,388,638 | 14,256 | 2,402,894 | |||||||
Bank of Spain | 1,821,301 | 1,081,684 | — | 1,081,684 | 1,828,490 | — | 1,828,490 | |||||||
Other central banks | 4,520,994 | 4,913,136 | 187,150 | 5,100,286 | 4,924,806 | 84,034 | 5,008,840 | |||||||
8,109,875 | 7,852,229 | 198,099 | 8,050,328 | 9,141,934 | 98,290 | 9,240,224 | ||||||||
GOVERNMENT DEBT SECURITIES | 18,945,003 | 19,767,776 | — | 19,767,776 | 20,165,369 | — | 20,165,369 | |||||||
DUE FROM CREDIT INSTITUTIONS | ||||||||||||||
Current accounts | 643,987 | 1,326,217 | 2,532 | 1,328,749 | 2,621,899 | 7,909 | 2,629,808 | |||||||
Other | 20,263,142 | 19,218,923 | 928,607 | 20,147,530 | 19,473,898 | 1,095,050 | 20,568,948 | |||||||
20,907,129 | 20,545,140 | 931,139 | 21,476,279 | 22,095,797 | 1,102,959 | 23,198,756 | ||||||||
TOTAL NET LENDING | 148,827,274 | 139,838,025 | 1,476,987 | 141,315,012 | 147,811,649 | 2,408,171 | 150,219,820 | |||||||
DEBENTURES AND OTHER DEBT SECURITIES | 52,935,966 | 48,287,905 | 845,274 | 49,133,179 | 60,352,896 | 1,298,042 | 61,650,938 | |||||||
COMMON STOCKS AND OTHER EQUITY SECURITIES | 3,092,064 | 2,999,235 | 8,257 | 3,007,492 | 3,658,145 | 15,554 | 3,673,699 | |||||||
INVESTMENTS IN NON-GROUP COMPANIES | 5,593,224 | 6,023,975 | 200 | 6,024,175 | 6,641,935 | — | 6,641,935 | |||||||
INVESTMENTS IN GROUP COMPANIES | 1,054,869 | 1,034,403 | 5,285 | 1,039,688 | 1,104,311 | 9,833 | 1,114,144 | |||||||
INTANGIBLE ASSETS: | ||||||||||||||
Incorporation and start-up expenses | 19,537 | 20,671 | 275 | 20,946 | 11,618 | 7,152 | 18,770 | |||||||
Other deferred charges | 342,491 | 377,045 | 646 | 377,691 | 522,436 | 877 | 523,313 | |||||||
362,028 | 397,716 | 921 | 398,637 | 534,054 | 8,029 | 542,083 | ||||||||
CONSOLIDATION GOODWILL: | ||||||||||||||
Fully and proportionally consolidated companies | 2,650,889 | 2,871,545 | — | 2,871,545 | 3,041,235 | 3,672 | 3,044,907 | |||||||
Companies accounted for by the equity method | 1,055,524 | 1,385,801 | — | 1,385,801 | 1,572,235 | — | 1,572,235 | |||||||
3,706,413 | 4,257,346 | — | 4,257,346 | 4,613,470 | 3,672 | 4,617,142 | ||||||||
PROPERTY AND EQUIPMENT: | ||||||||||||||
Land and buildings for own use | 2,100,359 | 1,920,702 | 17,585 | 1,938,287 | 2,497,579 | 33,356 | 2,530,935 | |||||||
Other property | 309,607 | 903,948 | 4,125 | 908,073 | 1,411,014 | 13,132 | 1,424,146 | |||||||
Furniture, fixtures and other | 1,380,272 | 1,698,193 | 89,412 | 1,787,605 | 2,050,924 | 165,885 | 2,216,809 | |||||||
3,790,238 | 4,522,843 | 111,122 | 4,633,965 | 5,959,517 | 212,373 | 6,171,890 | ||||||||
TREASURY STOCK | 66,059 | 97,671 | — | 97,671 | 75,944 | — | 75,944 | |||||||
OTHER ASSETS | 13,171,480 | 12,164,256 | 134,624 | 12,298,880 | 11,793,998 | 206,117 | 12,000,115 | |||||||
ACCRUAL ACCOUNTS | 2,977,437 | 4,293,727 | 97,835 | 4,391,562 | 7,037,690 | 11,377 | 7,049,067 | |||||||
ACCUMULATED LOSSES AT CONSOLIDATED COMPANIES | 3,610,764 | 3,553,923 | 96,285 | 3,650,208 | 2,400,257 | 300,698 | 2,700,955 | |||||||
TOTAL ASSETS | 287,149,823 | 275,636,170 | 3,906,028 | 279,542,198 | 303,386,966 | 5,675,115 | 309,062,081 | |||||||
Group BBVA (*) LIABILITIES AND EQUITY DUE TO CREDIT INSTITUTIONS: Current accounts Other DEPOSITS: Savings accounts- Current Time Other deposits- Time MARKETABLE DEBT SECURITIES: Bonds and debentures outstanding Promissory notes and other securities OTHER LIABILITIES ACCRUAL ACCOUNTS PROVISIONS FOR CONTINGENCIES AND EXPENSES : Pension provision Other provisions NEGATIVE CONSOLIDATION DIFFERENCE CONSOLIDATED INCOME FOR THE YEAR: Group Minority interests SUBORDINATED DEBT MINORITY INTERESTS CAPITAL STOCK ADDITIONAL PAID-IN CAPITAL RESERVES REVALUATION RESERVES RESERVES AT CONSOLIDATED COMPANIES TOTAL LIABILITIES AND EQUITY 2003 2002 2001 Group BBVA
without Brazil BBV Brasil
Group Total Group BBVA
without Brazil BBV Brasil
Group Total 1,542,432 1,537,353 4 1,537,357 1,412,806 12 1,412,818 60,027,356 53,777,622 804,069 54,581,691 61,538,573 1,636,604 63,175,177 61,569,788 55,314,975 804,073 56,119,048 62,951,379 1,636,616 64,587,995 65,024,971 63,488,788 234,957 63,723,745 70,611,301 401,668 71,012,969 55,487,784 55,981,239 1,455,113 57,436,352 65,784,369 1,727,802 67,512,171 20,536,152 25,382,875 17,393 25,400,268 27,943,264 31,030 27,974,294 141,048,907 144,852,902 1,707,463 146,560,365 164,338,934 2,160,500 166,499,434 28,258,973 22,219,143 174,733 22,393,876 20,542,654 96,444 20,639,098 6,123,679 5,129,396 — 5,129,396 4,736,576 — 4,736,576 34,382,652 27,348,539 174,733 27,523,272 25,279,230 96,444 25,375,674 10,764,514 9,656,841 79,064 9,735,905 9,053,112 89,533 9,142,645 3,318,727 4,574,114 19,663 4,593,777 6,638,119 26,955 6,665,074 3,031,913 2,621,907 — 2,621,907 2,358,552 — 2,358,552 2,187,672 2,137,048 84,363 2,221,411 2,353,557 72,031 2,425,588 5,219,585 4,758,955 84,363 4,843,318 4,712,109 72,031 4,784,140 38,712 47,554 — 47,554 42,744 — 42,744 2,226,701 1,915,323 (196,194 ) 1,719,129 2,062,319 (219,249 ) 1,843,070 670,463 746,918 1 746,919 645,223 — 645,223 2,897,164 2,662,241 (196,193 ) 2,466,048 2,707,542 (219,249 ) 2,488,293 7,399,613 6,486,942 — 6,486,942 7,610,791 — 7,610,791 5,425,918 5,674,157 6 5,674,163 6,394,023 6 6,394,029 1,565,968 1,565,968 — 1,565,968 1,565,968 — 1,565,968 6,273,901 6,512,797 — 6,512,797 6,834,941 — 6,834,941 971,477 771,484 — 771,484 1,419,218 — 1,419,218 176,281 176,281 — 176,281 176,281 — 176,281 6,096,616 6,150,595 314,681 6,465,276 5,240,646 234,208 5,474,854 287,149,823 276,554,345 2,987,853 279,542,198 304,965,037 4,097,044 309,062,081
The contribution of BBV Brasil to the Group’s consolidated statement of income based on spanish gaap during 2002 and 2001 is as follow:
NET INCOME (Thousands of Euros) | 2003 | 2002 | 2001 | ||||||||||||||||||
Group BBVA | Group without Brazil | BBV Brasil Group | Total | Group without Brazil | BBV Brasil Group | Total | |||||||||||||||
NET INTEREST INCOME | 6,741,511 | 7,503,489 | 303,977 | 7,807,466 | 8,550,389 | 273,713 | 8,824,102 | ||||||||||||||
NET FEES | 3,262,807 | 3,609,948 | 58,433 | 3,668,381 | 3,981,014 | 56,609 | 4,037,623 | ||||||||||||||
BASIC MARGIN | 10,004,318 | 11,113,437 | 362,410 | 11,475,847 | 12,531,403 | 330,322 | 12,861,725 | ||||||||||||||
MARKET OPERATIONS | 651,504 | 743,402 | 21,721 | 765,123 | 473,808 | 16,287 | 490,095 | ||||||||||||||
ORDINARY REVENUE | 10,655,822 | 11,856,839 | 384,131 | 12,240,970 | 13,005,210 | 346,610 | 13,351,820 | ||||||||||||||
GENERAL ADMINISTRATIVE EXPENSES | (5,031,056 | ) | (5,570,412 | ) | (201,313 | ) | (5,771,725 | ) | (6,482,408 | ) | (242,352 | ) | (6,724,760 | ) | |||||||
Personnel costs | (3,262,587 | ) | (3,579,785 | ) | (117,643 | ) | (3,697,428 | ) | (4,100,105 | ) | (143,269 | ) | (4,243,374 | ) | |||||||
Of which: Pensions | (134,921 | ) | (132,624 | ) | — | (132,624 | ) | (112,474 | ) | — | (112,474 | ) | |||||||||
Other Administrative Expenses | (1,768,469 | ) | (1,990,627 | ) | (83,670 | ) | (2,074,297 | ) | (2,382,303 | ) | (99,083 | ) | (2,481,386 | ) | |||||||
DEPRECIATION AND AMORTIZATION | (510,656 | ) | (598,051 | ) | (32,970 | ) | (631,021 | ) | (709,380 | ) | (32,437 | ) | (741,817 | ) | |||||||
OTHER OPERATING EXPENSES (NET) | (219,311 | ) | (259,976 | ) | (1,504 | ) | (261,480 | ) | (282,055 | ) | (4,363 | ) | (286,418 | ) | |||||||
NET OPERATING INCOME | 4,894,799 | 5,428,400 | 148,344 | 5,576,744 | 5,531,367 | 67,458 | 5,598,825 | ||||||||||||||
NET INCOME FROM COMPANIES ACCOUNTED | 383,312 | 31,061 | 2,183 | 33,244 | 389,293 | 3,378 | 392,671 | ||||||||||||||
FOR BY THE EQUITY METHOD | |||||||||||||||||||||
Share in results of companies accounted for by the equity method | 702,438 | 273,413 | 2,183 | 275,596 | 767,894 | 3,931 | 771,825 | ||||||||||||||
Correction for payment of dividends | (319,126 | ) | (242,352 | ) | — | (242,352 | ) | (378,601 | ) | (553 | ) | (379,154 | ) | ||||||||
AMORTIZATION OF CONSOLIDATION GOODWILL | (639,349 | ) | (675,498 | ) | (3,672 | ) | (679,170 | ) | (922,590 | ) | (220,787 | ) | (1,143,377 | ) | |||||||
NET INCOME ON GROUP TRANSACTIONS | 553,259 | 514,713 | (153,717 | ) | 360,996 | 953,987 | — | 953,987 | |||||||||||||
NET LOAN LOSS PROVISIONS | (1,276,946 | ) | (1,693,720 | ) | (49,618 | ) | (1,743,338 | ) | (1,884,822 | ) | (34,408 | ) | (1,919,230 | ) | |||||||
NET SECURITIES WRITEDOWNS | — | 3,366 | — | 3,366 | (42,792 | ) | — | (42,792 | ) | ||||||||||||
EXTRAORDINARY NET LOSSES | (102,935 | ) | (339,889 | ) | (92,692 | ) | (432,581 | ) | (704,243 | ) | (22,027 | ) | (726,270 | ) | |||||||
PRE-TAX PROFIT | 3,812,140 | 3,268,433 | (149,172 | ) | 3,119,261 | 3,320,201 | (206,387 | ) | 3,113,814 | ||||||||||||
CORPORATE INCOME TAX AND OTHER TAXES | (914,976 | ) | (606,192 | ) | (47,021 | ) | (653,213 | ) | (612,659 | ) | (12,862 | ) | (625,521 | ) | |||||||
NET INCOME | 2,897,164 | 2,662,241 | (196,193 | ) | 2,466,048 | 2,707,542 | (219,249 | ) | 2,488,293 | ||||||||||||
MINORITY INTERESTS | 670,463 | 746,918 | 1 | 746,919 | 645,223 | — | 645,223 | ||||||||||||||
NET ATTRIBUTABLE PROFIT | 2,226,701 | 1,915,323 | (196,194 | ) | 1,719,129 | 2,062,319 | (219,249 | ) | 1,843,070 | ||||||||||||
BBV Brasil Net income has included adjustments of Consolidation.
Operating results under Spanish GAAP of discontinued operations associated with BBV Brasil were as follows:
2003 | 2002 | 2001 | |||||||
(Thousand of euros) | |||||||||
Income (loss) from continuing operations before federal and foreign taxes | 3,812,140 | 3,268,433 | 3,320,201 | ||||||
Provision (benefit) for federal and foreign taxes | (914,976 | ) | (606,192 | ) | (612,659 | ) | |||
Income (loss) from continuing operations | 2,897,164 | 2,662,241 | 2,707,542 | ||||||
Discontinued operations: | |||||||||
Income (loss) from operations of discontinued BBV Brasil, S.A. (including federal and foreign taxes charges of €14,821 thousand and 12,862 thousand in 2002 and 2001, respectively, and federal and foreign taxes gains of €8,018 thousand in 2000) | — | 24,443 | (219,249 | ) | |||||
Loss on disposal of BBV Brasil, S.A. (including federal and foreign tax charges of €32,200 thousand) | — | (220,636 | ) | — | |||||
Income (loss) from discontinued operations | — | (196,193 | ) | (219,249 | ) | ||||
Net income (loss) | 2,897,164 | 2,466,048 | 2,488,293 | ||||||
The losses on disposal under US GAAP of discontinued operations associated with BBV Brasil were €6,877 thousand.
14. Other Comprehensive Income
SFAS No. 130,Reporting comprehensive income establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
The accumulated balances of other comprehensive income for the years ended December 31, 2003, 2002 and 2001, were as follows:
Foreign currency translation adjustments | Unrealized gains on securities | Gains on Derivative Instruments | Other Comprehensive income | |||||||||
Thousands of Euros | ||||||||||||
Balance as of December 31, 2000 | (32,346 | ) | 2,705,918 | — | 2,673,572 | |||||||
Changes in 2001 | (593,860 | ) | (750,748 | ) | 12,790 | (1,331,818 | ) | |||||
Balance as of December 31, 2001 | (626,206 | ) | 1,955,170 | 12,790 | 1,341,754 | |||||||
Changes in 2002 | (1,864,977 | ) | (1,362,665 | ) | 72,039 | (3,155,603 | ) | |||||
Balance as of December 31, 2002 | (2,491,183 | ) | 592,505 | 84,829 | (1,813,849 | ) | ||||||
Changes in 2003 | (922,506 | ) | 1,054,024 | (44,786 | ) | 86,732 | ||||||
Balance as of December 31, 2003 | (3,413,689 | ) | 1,646,529 | 40,043 | (1,727,117 | ) | ||||||
Taxes allocated to each component of other comprehensive income in 2003, 2002 and 2001 were as follows:
2003 2002 2001 Foreign currency translations adjustment Unrealized gains on securities: Total holding gains arising during the period Less: reclassification adjustment for gains included in net income Net unrealized gains Derivatives Instruments and Hedging Activities Other comprehensive income Before
Tax
Amount Tax
expense
or benefit Net of
tax
amount Before
Tax
Amount Tax
expense
or
benefit Net of tax
amount Before
Tax
Amount Tax
expense
or
benefit Net of tax
amount Thousands of Euros (922,506 ) — (922,506 ) (1,864,977 ) — (1,864,977 ) (593,860 ) — (593,860 ) 3,155,883 (1,022,067 ) 2,133,816 (1,316,794 ) 347,268 (969,526 ) (160,049 ) (74,267 ) (234,316 ) 1,522,330 (442,538 ) 1,079,792 604,828 (211,689 ) 393,139 794,513 (278,081 ) 516,432 1,633,553 (579,529 ) 1,054,024 (1,921,622 ) 558,957 (1,362,665 ) (954,562 ) 203,814 (750,748 ) (72,149 ) 27,363 (44,786 ) 110,830 (38,791 ) 72,039 19,678 (6,888 ) 12,790 638,898 (552,166 ) 86,732 (3,675,769 ) 520,166 (3,155,603 ) (1,528,744 ) 196,926 (1,331,818 )
15. Earnings per share
SFAS No. 128,Earnings per Share, specifies the computation, presentation and disclosure requirements for earnings per share (EPS).
Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator), which may include contingently issuable shares where all necessary conditions for issuance have been satisfied. Diluted earnings per share includes the determinants of basic earnings per share and, in addition, gives effect to dilutive potential common shares that were outstanding during the period.
The computation of basis and diluted earnings per share for the years ended December 31, 2003, 2002 and 2001 is presented in the following table:
2003 | 2002 | 2001 | |||||||
Thousands of Euros, except per share data | |||||||||
Spanish GAAP | |||||||||
Consolidated net income for the year | 2,897,164 | 2,466,048 | 2,488,293 | ||||||
Preferred stock dividends | (214,449 | ) | (275,629 | ) | (315,182 | ) | |||
Net income attributed to minority interest | (456,014 | ) | (471,290 | ) | (330,041 | ) | |||
U.S. GAAP | |||||||||
Consolidated net income for the year | 2,480,482 | 2,621,693 | 1,225,938 | ||||||
Preferred stock dividends | (214,161 | ) | (275,629 | ) | (315,182 | ) | |||
Net income attributed to minority interest | (360,421 | ) | (500,318 | ) | (230,645 | ) | |||
Convertible bond interest | — | 2 | 145 | ||||||
Numerator for basic earnings per share | |||||||||
Income available to common stockholders (Spanish GAAP) | 2,226,701 | 1,719,129 | 1,843,070 | ||||||
Continued operations | 2,226,701 | 1,915,323 | 2,062,319 | ||||||
Discontinued operations (Note 32.2.D.13) | — | (196,194 | ) | (219,249 | ) | ||||
Income available to common stockholders (U.S. GAAP) | 1,905,900 | 1,845,746 | 680,111 | ||||||
Continued operations | 1,905,900 | 2,167,000 | 856,128 | ||||||
Discontinued operations (Note 32.2.D.13) | — | (321,254 | ) | (176,017 | ) | ||||
Numerator for diluted earnings per share | |||||||||
Income available to common stockholders (Spanish GAAP) | 2,226,701 | 1,719,131 | 1,843,215 | ||||||
Continued operations | 2,226,701 | 1,915,325 | 2,062,464 | ||||||
Discontinued operations (Note 32.2.D.13) | — | (196,194 | ) | (219,249 | ) | ||||
Income available to common stockholders (U.S. GAAP) | 1,905,900 | 1,845,748 | 680,256 | ||||||
Continued operations | 1,905,900 | 2,167,002 | 856,273 | ||||||
Discontinued operations (Note 32.2.D.13) | — | (321,254 | ) | (176,017 | ) | ||||
Denominator for basic earnings per share | 3,195,852,043 | 3,196,503,149 | 3,199,072,510 | ||||||
Denominator for diluted earnings per share | 3,197,130,013 | 3,196,988,724 | 3,200,402,373 | ||||||
Spanish GAAP | |||||||||
Basic earnings per share (Euros) | 0.697 | 0.538 | 0.576 | ||||||
Continued operations | 0.697 | 0.599 | 0.645 | ||||||
Discontinued operations (Note 32.2.D.13) | 0.000 | (0.061 | ) | (0.069 | ) | ||||
Diluted earnings per share (Euros) | 0.696 | 0.538 | 0.576 | ||||||
Continued operations | 0.696 | 0.599 | 0.645 | ||||||
Discontinued operations (Note 32.2.D.13) | 0.000 | (0.061 | ) | (0.069 | ) | ||||
U.S. GAAP after restatement (2000) | |||||||||
Basic earnings per share (Euros) | 0.596 | 0.577 | 0.213 | ||||||
Continued operations | 0.596 | 0.678 | 0.268 | ||||||
Discontinued operations (Note 32.2.D.13) | 0.000 | (0.101 | ) | (0.055 | ) | ||||
Diluted earnings per share (Euros) | 0.596 | 0.577 | 0.213 | ||||||
Continued operations | 0.596 | 0.678 | 0.268 | ||||||
Discontinued operations (Note 32.2.D.13) | 0.000 | (0.101 | ) | (0.055 | ) | ||||
16. FIN 45
In November 2002, the FASB issued Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). This interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements for periods ending after December 15, 2002.
Note 26 to the financial statements contains disclosures about our contingent liabilities and commitments. According to Spanish GAAP, these amounts are recorded in off balance sheet memorandum accounts. Memorandum accounts under Spanish GAAP are not included in the balance sheet and basically consist of disclosures of maximum potential amounts.
According to Bank of Spain regulations, all outstanding contingent liabilities and commitments that might in the future affect the net worth of the Bank should be recorded in memorandum accounts. These amounts represent the maximum principal which the Bank may be required to disburse and the maximum potential exposure if all such obligations were ultimately to become worthless. These include, principally, commercial and stand-by letters of credit, bankers acceptances, loan commitments and guarantees.
Under Spanish GAAP, if any fees are received at the inception of these guarantees, the total amounts are recorded in the caption “Other Liabilities” and are amortized and recognized into income over the lives of the contracts. Such treatment is consistent with what is required under FIN 45 (par. 9.a.).
In addition, under Spanish GAAP, obligations reflected in memorandum accounts which fall within the scope of FIN 45 are evaluated in terms of credit and country risks, following criteria analogous to those described in Note 9.1 “Impairment – allowance for loan losses”, which substantially meet SFAS 5 provisions, and a liability is recorded accordingly.
When a guarantee is issued by the Bank as part of a transaction with multiple elements with an unrelated party (i.e. embedded in other contracts), the fair value of such guarantee is recorded as a liability at the inception. The fair value is estimated using the net present value of expected future payments.
Based on the discussions above, accounting criteria under Spanish GAAP for treatment of contingent liabilities do not differ significantly from that required by FIN 45 under US GAAP. Therefore, we believe that the adoption of FIN 45 will not have a material impact on the Bank’s financial position or results of operations.
17. New Accounting Standards
In January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities—an interpretation of ARB No. 51 (FIN 46). In December 2003, the FASB issued Interpretation No 46-RConsolidation of Variable Interest Entities. FIN 46 and FIN 46-R clarify the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 and FIN 46–R explain how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. It requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. It also requires certain disclosures by the primary beneficiary of a variable interest entity and by an enterprise that holds significant variable interests in a variable interest entity where the enterprise is not the primary beneficiary.
The mandatory effective dates of FIN 46-R for enterprises with variable interests in variable interest entities created before February 1, 2003, given certain year-end and frequency of reporting assumptions, are basically for periods beginning January 1, 2004 for SPEs and for periods ending December 31, 2004 provided that no interim financial statements reconciled to US GAAP are being filed semi-annually. However, FIN 46-R must be applied to variable interest entities created after February 1, 2003 in the consolidated Financial Statements as of December 31, 2003.
BBVA Group created a variable interest entity, BBVA Capital Finance, S.A.U. in November 2003. Additionally, BBVA Capital Finance, S.A. issued €350,000 thousand of preferred stock (see Note 22). Following the effective rules of FIN 46-R, BBVA applied FIN 46-R to BBVA Capital Finance, S.A.U. As required by FIN-46-R, BBVA does not consolidate Capital Finance, S.A.U because Banco Bilbao Vizcaya Argentaria, S.A. is not the primary beneficiary.
Therefore, €350,000 thousand of preferred stock issued by BBVA Capital Finance, S.A.U. in December 2003 have been reclassified from “Minority Interest” caption in the Primary Financial Statements (see Note 22) to “Long Term Debt” caption in the Consolidated Balance Sheet under US GAAP disclosed in note 32.2.C.2. Additionally, €288 thousand of dividends of preferred stock have been reclassified from “Minority Interest” caption in the Primary Financial Statements (see Note 22) to “Time Deposits” caption in the Consolidated Balance Sheet under US GAAP disclosed in note 32.2.C.2.
In the Statement of Income disclosed in note 32.2.C.2, €288 thousands should be reclassified from “Minority shareholder’s interest” caption in the Primary Financial Statements to “Interest on long term debt” caption.
The Bank is still in process of analyzing the effect, if any, of the application of FIN 46 R to those variable entities created before February 1, 2003. The Bank considers the effective date FIN 46-R for variable interest entities created before February, 1, 2003 as December 31, 2004.
In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Specifically, this Statement requires an issuer to classify the following instruments as liabilities (or assets in some circumstances): (1) a financial instrument issued in the form of shares that is mandatorily redeemable, (2) a financial instrument, other than an outstanding share, that, at inception, embodies an obligation to repurchase the issuer’s equity shares, or is indexed to such an obligation, and that requires or may require the issuer to settle the obligation by transferring assets, (3) a financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares, if, at inception, the monetary value of the obligation is based solely or predominantly on certain specified criteria.
SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before its issuance date and still existing at the beginning of the interim period of adoption. Restatement is not permitted.
FASB Staff Position 150-3“Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150”. FSP 150-3 defers the effective date of Statement 150 for certain mandatorily redeemable noncontrolling interests (of all entities, public and nonpublic) that would not have to be classified as liabilities by the subsidiary, under the “only upon liquidation” exception in paragraph 9 of Statement 150, but would be classified as liabilities by the parent in consolidated financial statements, the classification and measurement provisions of Statement 150 are deferred indefinitely pending further Board action.
The Group, see Note 22, issued various noncumulative, nonvoting, preferred stock guaranteed by Banco Bilbao Vizcaya Argentaria, S.A., the parent company. These issues were subscribed by third parties outside the Group and are wholly or partially redeemable at the Company’s option after five or ten years from the issue date, depending on the terms of each issue. According to SFAS 150, as redemption of preferred stock is required upon liquidation or termination of the issuers (BBVA subsidiaries) this Statement does require the obligation to report preferred stock as a liability in the consolidated financial statements of BBVA Group. However, these preferred stocks are included under the Scope of FSP Staff Position 150-3 and therefore, following FSP 150-3, the Group will defer the application of SFAS 150.
If the Group would have applied SFAS 150 to all preferred stocks or would have applied FIN 46-R to variable interest entities issuers of preferred stock the impact on financial statements would be as follows:
It would mean a reclassification amounting to €3,541,094 thousands in the consolidated balance sheet (see note 32.2.C.2) from “Minority Interest” caption to “Time Deposits” caption. The dividends paid by the preferred stock amounting to €214,161 thousands, should be reclassified in the consolidated balance sheet (see note 32.2.C.2) from “Minority Interest” caption to “Time Deposits” caption
In the Statement of Income (see note 32.2.C.2), €214,161 thousands should be reclassified from “Minority shareholder’s interest” caption to “Interest on Deposits” caption.
The effect of the application of SFAS 150 or FIN 46-R on the “Earnings per Share” (see note 32.2.B.15) as of December 31, 2003, would be as follows:
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Emerging Issue Task Force issued in July 2003 EITF 03-01 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”.The issue is to determine the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity under Statement 115 (including individual securities and investments in mutual funds), and investments accounted for under the cost method or the equity method. The application of EITF 03-01 did not have any impact on the financial statements.
18. Consolidated Statements of Cash-Flows-
The following combined statements of cash flows for 2003, 2002 and 2001, are presented in connection with U.S. Statement of Financial Accounting Standards No. 95 and reflect the adoption of U.S. Statement of Financial Accounting Standards No. 104.
Year ended December 31, | |||||||||
2003 | 2002 | 2001 | |||||||
(Thousands of Euros) | |||||||||
Cash Flows from Operating Activities:(a) | |||||||||
Net income | 1,905,900 | 1,845,746 | 680,111 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Amortization and depreciation | 570,600 | 1,215,117 | 2,833,738 | ||||||
Provision for loan losses and special reserves | 2,799,467 | 2,846,444 | 2,986,843 | ||||||
Net decrease (increase) in trading securities | (1,168,086 | ) | (8,284,485 | ) | (16,424,080 | ) | |||
Gains on sale of premises and equipment | (55,497 | ) | (154,054 | ) | (313,794 | ) | |||
Gains on sale of investment securities and affiliated companies securities | �� | (908,927 | ) | (822,678 | ) | (1,022,101 | ) | ||
Minority interests | 574,582 | 775,947 | 645,223 | ||||||
Increase (Decrease) in taxes payable | (444,677 | ) | (648,204 | ) | 893,165 | ||||
Net decrease (increase) in interest receivable and payable and other accrued income and expenses | (17,083 | ) | 690,734 | (973,759 | ) | ||||
Net cash provided by operating activities | 3,256,279 | (2,535,433 | ) | (10,694,654 | ) | ||||
Cash Flows from Investing Activities: | |||||||||
Net decrease (increase) in interest bearing with banks | 2,676,783 | 40,567 | 8,062,337 | ||||||
Net decrease in securities purchased under agreements to resell | (3,866,116 | ) | 2,481,524 | 2,264,637 | |||||
Purchase of investment securities and affiliated companies | (5,761,158,834 | ) | (6,284,522,879 | ) | (5,076,408,085 | ) | |||
Proceeds from sales of investment securities and affiliated companies | 5,760,759,283 | 6,307,517,713 | 5,085,094,538 | ||||||
Net increase in loans and leases | (6,592,936 | ) | 8,459,773 | (15,371,997 | ) | ||||
Purchase of premises and equipment | (1,086,698 | ) | (1,142,896 | ) | (1,770,975 | ) | |||
Proceeds from sales of premises and equipment | 391,840 | 722,828 | 1,712,577 | ||||||
Other investing activities | 333,844 | 366,532 | (1,632,907 | ) | |||||
Net cash used in investing activities | (8,542,834 | ) | 33,923,162 | 1,950,125 | |||||
Cash Flows from Financing Activities: | |||||||||
Net increase (decrease) in non-interest-bearing deposits | (2,395,593 | ) | 215,151 | 158,305 | |||||
Net increase in demand deposits | (1,959 | ) | (5,589,469 | ) | 450,104 | ||||
Net increase in savings deposits | 2,064,080 | (3,185,322 | ) | 6,735,783 | |||||
Net increase (decrease) in time deposits | (5,156,727 | ) | (15,802,230 | ) | (6,856,641 | ) | |||
Net increase in other Bank of Spain and Deposit Guarantee Fund | 5,965,321 | 4,805,580 | 1,635,748 | ||||||
Net increase in short-term borrowings | 544,841 | (389,711 | ) | 6,317,263 | |||||
Proceeds from issuance of long-term debt | 11,304,197 | — | (3,253,057 | ) | |||||
Repayment of long-term debt | (5,160,119 | ) | (6,249,660 | ) | 5,030,526 | ||||
Other financing activities | (907,090 | ) | (4,793,970 | ) | (90,740 | ) | |||
Dividends paid | (1,108,492 | ) | (1,252,870 | ) | (1,100,240 | ) | |||
Net cash provided by financing activities | 5,148,459 | (32,242,501 | ) | 9,027,051 | |||||
Net increase in cash and due from banks | (138,096 | ) | (854,772 | ) | 282,522 | ||||
Cash and due from banks at beginning of the year(b) | 2,999,817 | 3,854,589 | 3,572,067 | ||||||
Cash and due from banks at end of the year(b) | 2,861,721 | 2,999,817 | 3,854,589 |
2003 | 2002 | 2001 | |||||
Thousands of Euros | |||||||
Interest expense | 6,103,750 | 9,024,465 | 14,005,475 | ||||
Income taxes | 167,155 | (580,991 | ) | 1,202,079 |
During 2003, the most important non-cash transactions made by the Group were the transfers of loans to assets acquired through foreclosure amounting €144,619 thousand, approximately.
During 2002, the most important non-cash transactions made by the Group were the transfers of loans to assets acquired through foreclosure amounting €237,895 thousand, approximately.
During 2001, the most important non-cash transactions made by the Group were the transfers of loans to assets acquired through foreclosure amounting €544,475 thousand, approximately.
19. SFAS 140- Accounting For The Transfers And Servicing Of Financial Assets And Extinguishments Of Liabilities
In September 2000, the Financial Accounting Standards Board issued Statement No. 140 (“SFAS 140”),Accounting For The Transfers And Servicing Of Financial Assets And Extinguishments Of Liabilities, which replaces SFAS 125 (of the same title). SFAS 140 revises certain standards in the accounting for securitizations and other transfers of financial assets and collateral, and requires some disclosures relating to securitization transactions and collateral, but it carries over most of SFAS 125’s provisions. As explained in note 32.2.A the accounting of transfer of Financial Assets under Spanish GAAP does not present significant differences with respect to US GAAP.
Under Spanish GAAP securitizations are accounted for following the “transfer of financial assets” rules. During 2003, 2002 and 2001 the Group transferred loans to securizitation funds (See Note 8).
Securitization funds (the vehicle where securitized loans are transferred) are independent entities, from BBVA Group. These funds, which are managed by the “Sociedad Gestora” (Managing Society), are registered and regulated by the Comisión Nacional del Mercado de Valores (CNMV). “Sociedad Gestora” is responsible for the management of the transferred loans by gathering a fixed fee.
The “Managing society” is usually controlled by BBVA, however control of BBVA over it does not affect control over the transferred assets. It is considered that control over the financial assets has been surrendered since: (1) there is no agreement that both entitles and obligates the transferor to repurchase o redeem them before their maturity and (2) BBVA does not have the ability to unilaterally cause the holder to return specific assets Activities of the securitization funds are limited and specified in the legal document that established the fund.
Securitizations fund may only held:
All the conditions described above allows us to consider securitization funds as Qualified SPE under US GAAP with the exception of the following funds:
These two funds do not meet the conditions of true sale since the bank holds the majority of the beneficial interest issued.
No gains or losses were registered in earnings for all securitizations because the selling price was equal to the book value of transferred loans. Therefore no adjustment was made in reconciliation to US GAAP.
The outstanding balance of the transferred loans as of December 31, 2003 and the total interest accrued during the year 2003 amounts to:
Thousand of Euros | ||||||||
Qualified SPE | Non Qualified SPE | TOTAL | ||||||
Loans | 2,020,887 | 1,263,523 | 3,284,410 | |||||
Allowance for loan losses | (903 | ) | — | (903 | ) | |||
Net loans | 2,019,984 | 1,263,523 | 3,283,507 | |||||
Interest Revenues | 73,604 | 49,358 | 122,962 |
The roll forward of “Allowance for loans losses” in 2003, was as follows:
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(32.2.C) CONSOLIDATED FINANCIAL STATEMENTS
1. Differences relating to the financial statements presentation-
In addition to differences between Spanish and U.S. GAAP, described above in Note 32.2.B, affecting to net income and/or Stockholders’ Equity, there are several differences relating to the financial statements presentation exist between Spanish and U.S. GAAP presentation following the formatting guidelines in Regulation S-X of the Securities and Exchange Commission of the United States. Although these differences do not cause differences between Spanish and U.S. GAAP reported net income and/or Stockholders’ Equity. It may be useful to understand them to better interpret the Group’s financial statements presented in accordance with U.S. GAAP. Following is a summary of the significant classification differences that pertain to the basic financial statements.
Balance Sheet-
Under U.S. GAAP, “Securities purchased under agreement to resell” are presented as a separate item.
Under U.S. GAAP, investments in debt and equity securities (other than investments in affiliated companies) are presented under the caption “Investment securities”.
In this caption the following adjustments due to reconciliation in Note 32.2.B are included:
1. “Elimination of over-depreciation relating to restated fixed assets, recognition of additional profits on the sale and disposal of restated items” (see note 32.2.B.2.1), this adjustment supposes a decrease of these assets amounted to €3,029 thousand, in 2003 and 2002.
2. “Effect of following the equity method of accounting for investments in affiliated companies” (see note 32.2.B.3), this adjustment supposes an increase of these assets amounted to €3,638,685 thousand and €4,867,546 thousand in 2003 and 2002, respectively.
3. “Valuation of investment securities (equity securities)” (see note 32.2.B.9), this adjustment supposes an increase of these assets amounted to €2,135,981 thousand and €754,378 thousand in 2003 and 2002, respectively.
4. “Valuation of investment securities (debt securities)” (see note 32.2.B.9), this adjustment supposes an increase of these assets amounted to €69,160 thousand and €355,606 thousand in 2003 and 2002, respectively.
5. “Derivative instruments and hedging activities (SFAS 133)” (see note 32.2.B.11), this adjustment supposes an increase of these assets amounted to €58,359 thousand and €130,508 thousand in 2003 and 2002, respectively.
6. “Amortization of surplus allocated to specific assets and liabilities” (see note 32.2.B.1), this adjustment supposes an increase of these assets amounted to €29,035 thousand and €71,954 thousand in 2003 and 2002, respectively.
1. “Employee loans issued to purchase shares of capital Stock” (see note 32.2.B.8), this adjustment supposes a decrease of these assets amounted to €1,766 thousand and €2,479 thousand in 2003 and 2002, respectively.
2. “Amortization of surplus allocated to specific assets and liabilities” (see note 32.2.B.1), this adjustment supposes an increase of these assets amounted to €465,642 thousand and €521,699 thousand in 2003 and 2002, respectively.
3. “Allowance for loan losses” (see note 32.2.B.7), this adjustment supposes a decrease of these assets amounted to €303,053 thousand in 2003.
1. “Elimination of over-depreciation relating to restated fixed assets, recognition of additional profits on the sale and disposal of restated items” (see note 32.2.B.2.1), this adjustment supposes a decrease of these assets amounted to €313,082 thousand and €363,059 thousand in 2003 and 2002, respectively.
2. “Elimination of the inflation adjustment in non highly inflationary countries” (see note 32.2.B.2.2), this adjustment supposes a decrease of these assets amounted to €431,496 thousand and €269,039 thousand in 2003 and 2002, respectively.
Under U.S. GAAP, these investments and the goodwill are presented under “Investments in affiliated companies”.
In this caption the following adjustments due to reconciliation in Note 32.2.B are included:
1. “Effect of following the equity method of accounting for investments in affiliated companies” (see note 32.2.B.3), this adjustment supposes a decrease of these assets amounted to €3,157,004 thousand and €3,943,299 thousand in 2003 and 2002, respectively.
2. “Valuation of investment securities (equity securities)” (see note 32.2.B.9), this adjustment supposes a decrease of these assets amounted to €5,892 thousand and €4,053 thousand in 2003 and 2002, respectively.
Under U.S. GAAP, such assets are presented under “Other assets”.
In the caption “Intangible assets” the following adjustments due to reconciliation in Note 32.2.B are included:
1. “Expenses of capital increase” (see note 32.2.B.10), this adjustment supposes a decrease of these assets amounted to €32,302 thousand and €53,051 thousand in 2003 and 2002, respectively.
2. “Start up expenses” (see note 32.2.B.10), this adjustment supposes a decrease of these assets amounted to €19,537 thousand and €98,460 thousand in 2003 and 2002, respectively.
In the caption “Goodwill in consolidation” the following adjustments due to reconciliation in Note 32.2.B are included:
1. “Accounting of Goodwill” (see note 32.2.B.5), this adjustment supposes a decrease of these assets amounted to €259,637 thousand and €179,129 thousand in 2003 and 2002, respectively.
2. “Amortization of remaining Goodwill merger Argentaria” (see note 32.2.B.1), this adjustment supposes an increase of these assets amounted to €5,332,924 thousand in 2003 and 2002, respectively.
In the caption “Others” the following adjustments due to reconciliation in Note 32.2.B are included:
1. “Pensions plan cost and early retirements” (see note 32.2.B.4.1), this adjustment supposes an increase of these assets amounted to €134,307 thousand and €146,516 thousand in 2003 and 2002, respectively.
2. “Effect of following the equity method of accounting for investments in affiliated companies” (see note 32.2.B.3), this adjustment supposes a decrease of these assets amounted to €904,738 thousand and €1,204,344 in 2003 and 2002, respectively.
3. “Tax effect of above mentioned adjustments” and “Effect of following SFAS 109 in the accounting for income taxes for each year” (see note 32.2.B.12), these adjustments suppose a decrease of these assets amounted to €225,077 thousand and €40,396 thousand in 2003 and 2002, respectively.
4. “Amortization of surplus allocated to specific assets and liabilities” (see note 32.2.B.1), this adjustment supposes an increase of these assets amounted to €17,172 thousand and €22,007 thousand in 2003 and 2002, respectively.
5. “Derivative instruments and hedging activities” (SFAS 133) (see note 32.2.B.11), these adjustments suppose an increase of these assets amounted to €90,618 thousand in 2003, and a decrease of these assets amounted to €120,962 thousand in 2002.
6. “ BBV Brasil transaction” (see note 32.2.B.13), this adjustment supposes a decrease of these assets amounted to €56,186 in 2002.
Under U.S. GAAP, such funds are presented under “Deposits” classified by nature, except securities sold under agreements to repurchase and other short-term borrowings, which are presented under the caption “Short term borrowings”.
In the caption “Long term debt”, the adjustment “Amortization of surplus allocated to specific assets and liabilities” (see note 32.2.B.1) is included. This adjustment supposes an increase of these liabilities amounted to €49,058 thousand and €62,873 thousand in 2003 and 2002, respectively.
In the caption “Taxes payable”, the adjustment “Amortization of surplus allocated to specific assets and liabilities” (see note 32.2.B.1) is included. This adjustment supposes an increase of these liabilities amounted to €173,681 thousand and €207,778 thousand in 2003 and 2002, respectively.
In the caption “Accrual accounts”, the adjustment “Application of SFAS No. 150” is included and supposes an increase of these liabilities amounted to €288 thousand in 2003.
In the caption “Pension allowance” the adjustment “Pensions plan cost and early retirements” (see note 32.2.B.4.1) is included. This adjustment supposes an increase of these liabilities amounted to €200 thousand and €374 thousand in 2003 and 2002, respectively.
In the caption “Other provision” the adjustment “Termination indemnities” (see note 32.2.B.4.2) is included. This adjustment supposes a decrease of these liabilities amounted to €39,573 thousand and €37,490 thousand in 2003 and 2002, respectively.
In the caption “Others” of the liabilities the following adjustments due to reconciliation in Note 32.2.B are included:
1. “Accounting of goodwill” (see note 32.2.B.5), this adjustment supposes a decrease of these liabilities amounted to €38,712 thousand and €47,554 thousand in 2003 and 2002, respectively.
2. “Effect of following the equity method of accounting for investments in affiliated companies” (see note 32.2.B.3), this adjustment supposes a decrease of these liabilities amounted to €4,093 thousand in 2002.
3. “Gains on transactions with parent company shares and stock options owned by subsidiaries accounted for as income for the year” (see note 32.2.B.6), this adjustment supposes a decrease of these liabilities amounted to €28,213 thousand and €26,752 thousand in 2003 and 2002, respectively.
4. “Effect of recording the allowance for probable loans and losses” (see note 32.2.B.7), this adjustment supposes a decrease of these liabilities amounted to €1,082,747 thousand and €686,058 thousand in 2003 and 2002, respectively.
5. “Tax effect of above mentioned adjustments” and “Effect of following SFAS 109 in the accounting for income taxes for each year” (see note 32.2.B.11), this adjustment supposes an increase of these liabilities amounted to €768,863 thousand and €275,368 thousand in 2003 and 2002, respectively.
6. “BBV Brasil transaction” (see note 32.2.B.13), this adjustment supposes a decrease of these liabilities amounted to €60,437 thousand in 2002.
In the caption “Minority interest” the adjustments due to reconciliation in Note 32.2.B suppose a decrease of these liabilities amounted to €646,384 thousand and €123,704 thousand in 2003 and 2002, respectively.
In the caption “Retained earnings and other reserves”, the adjustments due to reconciliation in Note 32.2.B suppose an increase of these liabilities amounted to €6,808,809 thousand and €6,305,348 thousand in 2003 and 2002, respectively.
Statement of Income-
Under U.S. GAAP, we separate the main items and then we distinguish each main item between fees received and paid.
Under U.S. GAAP, such gains and losses are disclosed separately under “Gains (losses) from investment securities” and “Other Income”.
1. “Effect of following the equity method of accounting for investments in affiliated companies” (see note 32.2.B.3), this adjustment supposes an increase of income amounted to €163,927 thousand, €73,277 thousand and €151,094 thousand in 2003, 2002 and 2001, respectively.
2. “Valuation of investment securities (equity securities)” (see note 32.2.B.9), this adjustment supposes an decrease of income amounted to €224,155 thousand in 2003, and an increase of income amounted €425,795 thousand and €40,563 thousand in 2002 and 2001, respectively.
3. “Valuation of investment securities (debt securities)” (see note 32.2.B.9), this adjustment supposes a decrease of income amounted to €326,498 thousand in 2003.
4. “Amortization of surplus allocated to specific assets and liabilities” (see note 32.2.B.1), this adjustment supposes a decrease of income amounted to €55,899 thousand, €154,690 thousand and €164,930 thousand in 2003, 2002 and 2001, respectively.
5. “Derivative instruments and hedging activities (SFAS 133)” (see note 32.2.B.11), this adjustment supposes an increase of income amounted to €211,580 thousand in 2003 and a decrease of income amounted to €106,123 thousand and €14,839 in 2002 and 2001 respectively.
1. “Elimination of over-depreciation relating to restated fixed assets, recognition of additional profits on the sale and disposal of restated items” (see note 32.2.B.2.1), this adjustment supposes an increase of income amounted to €49,978 thousand, €68,360 thousand and €78,824 thousand in 2003, 2002 and 2001, respectively.
2. “Elimination of the inflation adjustment in non highly inflationary countries” (see note 32.2.B.2.2), this adjustment supposes an increase of income amounted to €55,406 thousand in 2003 and a decrease of income amounted to €4,780 thousand and 75,265 in 2002, and 2001, respectively
3. “Gains (losses) from affiliated companies’ securities” (see note 32.2.B.6), this adjustment supposes an increase of income amounted to €23,363 thousand and €24,585 thousand in 2003, and 2002, respectively, and a decrease of income amounted to €13,865 thousand in 2001.
4. “BBV Brasil transaction” (see note 32.2.B.13), this adjustment supposes an increase of these gains amounted to €4,251 thousand in 2002.
1. “Effect of following the equity method of accounting for investments in affiliated companies” (see note 32.2.B.3), this adjustment supposes an increase of income amounted to €228,273 thousand, €117,504 thousand and €114,174 thousand in 2003, 2002 and 2001, respectively.
2. “Accounting of goodwill” (see note 32.2.B.5), this adjustment supposes an increase of income amounted to €402,429 thousand and €203,229 thousand in 2003, and 2002, respectively, and a decrease of income amounted to €391,210 thousand in 2001.
3. “Amortization of remaining Goodwill Merger Argentaria” (see note 32.2.B.1), this adjustment supposes a decrease of income amounted to €231,029 thousand in 2001.
1. “Pension plan cost and early retirements” (see note 32.2.B.4.1), this adjustment supposes an increase of provision amounted to €174 thousand, €432 thousand and €342 thousand in 2003, 2002 and 2001, respectively.
2. “Effect of recording the allowance for probable loans and losses” (see note 32.2.B.7), this adjustment supposes an increase of income amounted to €2,083 thousand in 2003, and a decrease of income amounted to €23,079 thousand and €58,196 thousand in 2002 and 2001, respectively.
Under U.S. GAAP, such expenses are included as a part of “Occupancy expenses of premises, depreciation and maintenance”.
Under U.S. GAAP, such amortization is included under “Other expenses”.
In the caption “Other expenses” of the statement of income, the following adjustments due to reconciliation in Note 32.2.B are included:
1. “Expenses of capital increase” (see note 32.2.B.10), this adjustment supposes a decrease of expenses amounted to €22,764 thousand, €21,958 thousand and €32,556 thousand in 2003, 2002 and 2001, respectively.
2. “Start up expenses” (see note 32.2.B.10), this adjustment supposes a decrease of expenses amounted to €67,813 thousand and €26,461 thousand in 2003, and 2002, respectively, and an increase of expenses amounted to €82,795 thousand in 2001.
U.S. GAAP description of Extraordinary Income is more restrictive than the Spanish GAAP description (non-banking results), for this reason the main portion of “Extraordinary income” and “Extraordinary expenses” in the Spanish GAAP captions are presented under the “Other income” and “Other expenses” captions, respectively, for U.S. GAAP purposes.
In the caption “Minority shareholder’”, the adjustments due to reconciliation in Note 32.2.B suppose a decrease of minority income amounted to €95,881 thousand and €10,577 thousand and €99,393 in 2003 and 2002, respectively.
2. Consolidated Financial Statements under Regulation S-X-
Following are the consolidated balance sheets of the BBVA Group as of December 31, 2003, 2002 and 2001 and the consolidated statement of income for each of the years ended December 31, 2003, 2002 and 2001, in the format for banks and bank holding companies required by Regulation S-X of the Securities and Exchange Commission of the United States of America, adjusted for the effects of the extraordinary amortization of goodwill mentioned in Note 2-a, and, accordingly, prepared in accordance with Spanish GAAP (before reconciliation adjustments) and under US GAAP (after reconciliation adjustments described above in Note 32.2.B). The companies consolidated by the proportional method under SP GAAP as described in Note 2-c are not fully consolidated. The effect in the total assets would be less than 1%.
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003, 2002 AND 2001
(Currency—Thousands of Euros)
Year ended December 31, | ||||||||||||||||||
2003 | 2002 | |||||||||||||||||
Before Reconciliation | Adjustments | After Reconciliation | Before Reconciliation | Adjustments | After Reconciliation | |||||||||||||
Assets | ||||||||||||||||||
Cash and due from banks | 2,861,721 | — | 2,861,721 | 2,998,817 | — | 2,999,817 | ||||||||||||
Interest-bearing deposits in other banks | 16,750,009 | — | 16,750,009 | 19,426,792 | — | 19,426,792 | ||||||||||||
Securities purchased under agreements to resell | 12,494,089 | — | 12,494,089 | 8,650,080 | — | 8,650,080 | ||||||||||||
Trading securities | 27,659,510 | 58,359 | 27,717,869 | 28,101,746 | 130,508 | 28,232,254 | ||||||||||||
Available for sale | 46,188,868 | 5,869,832 | 52,058,700 | 41,403,841 | 6,046,455 | 47,450,296 | ||||||||||||
Held to maturity | 1,124,655 | — | 1,124,655 | 2,402,860 | — | 2,402,860 | ||||||||||||
Investments securities(1) (2) | 74,973,033 | 5,928,191 | 80,901,224 | 71,908,447 | 6,176,963 | 78,085,410 | ||||||||||||
Loans and leases, net of unearned income | 151,321,389 | 160,823 | 151,482,212 | 146,031,737 | 519,220 | 146,550,957 | ||||||||||||
Less: Allowance for loan losses | (4,614,779 | ) | — | (4,614,779 | ) | (5,225,291 | ) | — | (5,225,291 | ) | ||||||||
Net loans and leases(1) | 146,706,610 | 160,823 | 146,867,433 | 140,806,446 | 519,220 | 141,325,666 | ||||||||||||
Premises and equipment, net | 3,628,671 | (744,578 | ) | 2,884,093 | 3,750,741 | (632,098 | ) | 3,118,643 | ||||||||||
Investments in affiliated companies | 7,689,021 | (3,162,896 | ) | 4,526,125 | 8,429,925 | (3,947,352 | ) | 4,482,573 | ||||||||||
Intangible assets | 362,028 | (51,839 | ) | 310,189 | 398,637 | (151,511 | ) | 247,126 | ||||||||||
Goodwill in consolidation | 2,650,889 | 5,073,287 | 7,724,176 | 2,871,545 | 5,153,795 | 8,025,340 | ||||||||||||
Accrual accounts | 2,678,279 | — | 2,678,279 | 4,060,846 | — | 4,060,846 | ||||||||||||
Others | 10,802,846 | (887,718 | ) | 9,915,128 | 11,484,522 | (1,253,365 | ) | 10,231,157 | ||||||||||
Total other assets | 16,494,042 | 4,133,730 | 20,627,772 | 18,815,550 | 3,748,919 | 22,564,469 | ||||||||||||
Total assets | 281,597,196 | 6,315,270 | 287,912,466 | 274,787,798 | 5,865,653 | 280,653,451 | ||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||
Liabilities | ||||||||||||||||||
Non-interest deposits | 859,934 | — | 859,934 | 3,255,527 | — | 3,255,527 | ||||||||||||
Interest bearing: | ||||||||||||||||||
Demand deposits | 43,674,718 | — | 43,674,718 | 43,676,677 | — | 43,676,677 | ||||||||||||
Savings deposits | 24,317,731 | — | 24,317,731 | 22,253,652 | — | 22,253,652 | ||||||||||||
Time deposits | 81,833,731 | 350,000 | 82,183,731 | 86,902,413 | — | 86,902,413 | ||||||||||||
Total deposits | 150,686,114 | 350,000 | 151,036,114 | 156,088,269 | — | 156,088,269 | ||||||||||||
Due to Bank of Spain & Deposits Guarantee Fund | 13,792,525 | — | 13,792,525 | 7,827,204 | — | 7,827,204 | ||||||||||||
Short-term borrowings | 52,743,315 | — | 52,743,315 | 52,259,883 | — | 52,259,883 | ||||||||||||
Long-term debt | 27,234,416 | 49,058 | 27,283,474 | 21,527,246 | 62,873 | 21,590,119 | ||||||||||||
Taxes payable | (4,305 | ) | 173,681 | 169,376 | 190,532 | 207,778 | 398,310 | |||||||||||
Accounts payable | 981,925 | — | 981,925 | 1,019,553 | — | 1,019,553 | ||||||||||||
Accrual accounts | 3,169,674 | 288 | 3,169,962 | 4,434,518 | — | 4,434,518 | ||||||||||||
Pension allowance | 3,031,913 | 200 | 3,032,113 | 2,621,906 | 374 | 2,622,280 | ||||||||||||
Other Provisions | 2,187,688 | (39,573 | ) | 2,148,115 | 2,154,460 | (37,490 | ) | 2,116,970 | ||||||||||
Others | 8,903,325 | (380,809 | ) | 8,522,516 | 7,640,705 | (549,526 | ) | 7,091,179 | ||||||||||
Total other liabilities | 18,270,220 | (246,213 | ) | 18,024,007 | 18,061,674 | (378,864 | ) | 17,682,810 | ||||||||||
Total liabilities | 262,726,590 | 152,845 | 262,879,435 | 255,764,276 | (315,991 | ) | 255,448,285 | |||||||||||
Minority interest | 6,096,381 | (646,384 | ) | 5,449,997 | 6,421,082 | (123,704 | ) | 6,297,378 | ||||||||||
Stockholders’ equity | ||||||||||||||||||
Capital stock | 1,565,968 | — | 1,565,968 | 1,565,968 | — | 1,565,968 | ||||||||||||
Additional paid-in capital | 6,273,901 | — | 6,273,901 | 6,512,797 | — | 6,512,797 | ||||||||||||
Other additional capital | (1,322,737 | ) | — | (1,322,737 | ) | (1,003,114 | ) | — | (1,003,114 | ) | ||||||||
Retained earnings | 6,257,093 | 6,808,809 | 13,065,902 | 5,526,789 | 6,305,348 | 11,832,137 | ||||||||||||
Total stockholders’ equity | 12,774,225 | 6,808,809 | 19,583,034 | 12,602,440 | 6,305,348 | 18,907,788 | ||||||||||||
Total liabilities and stockholders’ equity | 281,597,196 | 6,315,270 | 287,912,466 | 274,787,798 | 5,865,653 | 280,653,451 |
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
(Currency—Thousands of Euros)
Year ended December 31, | |||||||||||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||||||||||
Before Reconciliation adjustments | Adjustments | After Reconciliation adjustments | Before Reconciliation adjustments | Adjustments | After Reconciliation adjustments | Before Reconciliation adjustments | Adjustments | After Reconciliation adjustments | |||||||||||||||||||
Interest Income | |||||||||||||||||||||||||||
Interest and fees on loans and leases | 7,973,146 | — | 7,973,146 | 10,931,783 | — | 10,931,783 | 11,911,050 | — | 11,911,050 | ||||||||||||||||||
Interest on deposits in other banks | 679,363 | — | 679,363 | 777,137 | — | 777,137 | 1,375,086 | — | 1,375,086 | ||||||||||||||||||
Interest on securities purchased under agreements to resell | 520,468 | — | 520,468 | 629,917 | — | 629,917 | 823,056 | — | 823,056 | ||||||||||||||||||
Interest on investment securities | 2,055,666 | — | 2,055,666 | 3,031,386 | — | 3,031,386 | 6,767,438 | — | 6,767,438 | ||||||||||||||||||
Total interest income | 11,228,643 | — | 11,228,643 | 15,370,223 | — | 15,370,223 | 20,876,630 | — | 20,876,630 | ||||||||||||||||||
Interest Expense | |||||||||||||||||||||||||||
Interest on deposits | (3,517,158 | ) | (288 | ) | (3,517,446 | ) | (6,069,297 | ) | — | (6,069,297 | ) | (8,477,174 | ) | — | (8,477,174 | ) | |||||||||||
Interest on Bank of Spain & Deposit Guarantee Fund | (241,323 | ) | — | (241,323 | ) | (256,433 | ) | — | (256,433 | ) | (258,393 | ) | — | (258,393 | ) | ||||||||||||
Interest on short-term borrowings | (1,394,721 | ) | — | (1,394,721 | ) | (2,254,921 | ) | — | (2,254,921 | ) | (3,135,372 | ) | — | (3,135,372 | ) | ||||||||||||
Interest on long term debt | (1,038,750 | ) | — | (1,038,750 | ) | (1,096,571 | ) | — | (1,096,571 | ) | (1,264,638 | ) | — | (1,264,638 | ) | ||||||||||||
Total interest expense | (6,191,952 | ) | (288 | ) | (6,192,240 | ) | (9,677,222 | ) | — | (9,677,222 | ) | (13,135,577 | ) | — | (13,135,577 | ) | |||||||||||
Net Interest Income | 5,036,691 | (288 | ) | 5,036,403 | 5,693,001 | — | 5,693,001 | 7,741,053 | — | 7,741,053 | |||||||||||||||||
Provision for loan losses | (1,276,946 | ) | 93,636 | (1,183,310 | ) | (1,743,338 | ) | 226,717 | (1,516,621 | ) | (1,919,230 | ) | 196,199 | (1,723,031 | ) | ||||||||||||
Net Interest Income after provision for loan losses | 3,759,745 | 93,348 | 3,853,093 | 3,949,663 | 226,717 | 4,176,380 | 5,821,823 | 196,199 | 6,018,022 | ||||||||||||||||||
Non-interest income | |||||||||||||||||||||||||||
Contingent liabilities (collected) | 138,715 | — | 138,715 | 135,595 | — | 135,595 | 136,051 | — | 136,051 | ||||||||||||||||||
Collection and payments services (collected) | 1,725,955 | — | 1,725,955 | 1,859,551 | — | 1,859,551 | 1,938,835 | — | 1,938,835 | ||||||||||||||||||
Securities services (collected) | 1,643,692 | — | 1,643,692 | 1,923,083 | — | 1,923,083 | 2,330,821 | — | 2,330,821 | ||||||||||||||||||
Other transactions (collected) | 374,206 | — | 374,206 | 412,764 | — | 412,764 | 427,909 | — | 427,909 | ||||||||||||||||||
Ceded to other entities and correspondents (paid) | (433,608 | ) | — | (433,608 | ) | (472,780 | ) | — | (472,780 | ) | (570,968 | ) | — | (570,968 | ) | ||||||||||||
Other transactions (paid) | (186,153 | ) | — | (186,153 | ) | (189,832 | ) | — | (189,832 | ) | (225,025 | ) | — | (225,025 | ) | ||||||||||||
Gains (losses) from: | |||||||||||||||||||||||||||
Affiliated companies’ securities | 1,003,523 | (500,650 | ) | 502,873 | 486,634 | (250,512 | ) | 236,122 | 1,539,210 | (326,890 | ) | 1,212,320 | |||||||||||||||
Investment securities | 2,739,185 | (231,045 | ) | 2,508,140 | 4,505,711 | 238,259 | 4,743,970 | (687,462 | ) | 11,888 | (675,574 | ) | |||||||||||||||
Foreign exchange, derivatives and other, net | 287,715 | — | 287,715 | 423,710 | — | 423,710 | 329,932 | — | 329,932 | ||||||||||||||||||
Other income | (341,312 | ) | 128,746 | (212,566 | ) | (696,813 | ) | 92,417 | (604,396 | ) | 2,673,200 | (10,306 | ) | 2,662,894 | |||||||||||||
Total non-interest income | 6,951,918 | (602,949 | ) | 6,348,969 | 8,387,623 | 80,164 | 8,467,787 | 7,892,503 | (325,308 | ) | 7,567,195 | ||||||||||||||||
Non-interest expense | |||||||||||||||||||||||||||
Salaries and employee benefits | (3,432,182 | ) | (811,625 | ) | (4,243,807 | ) | (3,851,979 | ) | (511,386 | ) | (4,363,365 | ) | (4,372,189 | ) | (743,952 | ) | (5,116,141 | ) | |||||||||
Occupancy expense of premises, depreciation and maintenance, net | (762,249 | ) | — | (762,249 | ) | (976,651 | ) | — | (976,651 | ) | (1,183,026 | ) | — | (1,183,026 | ) | ||||||||||||
General and administrative expenses | (1,207,759 | ) | — | (1,207,759 | ) | (1,414,896 | ) | — | (1,414,896 | ) | (1,662,574 | ) | — | (1,662,574 | ) | ||||||||||||
Amortization of goodwill | (386,967 | ) | 630,702 | 243,735 | (519,894 | ) | 320,733 | (199,161 | ) | (1,003,449 | ) | (508,065 | ) | (1,511,514 | ) | ||||||||||||
Net provision for specific allowances | 17,951 | 2,257 | 20,208 | (386,476 | ) | (22,647 | ) | (409,123 | ) | (925,775 | ) | (57,854 | ) | (983,629 | ) | ||||||||||||
Other expenses | (1,128,317 | ) | 90,577 | (1,037,740 | ) | (2,068,129 | ) | 48,419 | (2,019,710 | ) | (1,453,500 | ) | (50,239 | ) | (1,503,739 | ) | |||||||||||
Minority shareholder’s interest | (670,463 | ) | 95,881 | (574,582 | ) | (746,919 | ) | 10,577 | (736,342 | ) | (645,223 | ) | 99,393 | (545,830 | ) | ||||||||||||
Total non-interest expense | (7,569,986 | ) | 7,792 | (7,562,194 | ) | (9,964,944 | ) | (154,304 | ) | (10,119,248 | ) | (11,245,736 | ) | (1,260,717 | ) | (12,506,453 | ) | ||||||||||
Income Before Income Taxes | 3,141,677 | (501,809 | ) | 2,639,868 | 2,372,342 | 152,577 | 2,524,919 | 2,468,591 | (1,389,826 | ) | 1,078,764 | ||||||||||||||||
Income tax expense | (914,976 | ) | 181,008 | (733,968 | ) | (653,213 | ) | (25,959 | ) | (679,172 | ) | (625,521 | ) | 226,867 | (398,654 | ) | |||||||||||
Net Consolidated Income for the year | 2,226,701 | (320,801 | ) | 1,905,900 | 1,719,129 | 126,618 | 1,845,746 | 1,843,070 | (1,162,959 | ) | 680,111 | ||||||||||||||||
3. Condensed Financial Statements of Banco Bilbao Vizcaya Argentaria, S.A (Parent Company Only)-
Following are the summarized balance sheets of Banco Bilbao Vizcaya Argentaria, S.A. as of December 31, 2003, 2002 and 2001:
December 31, | ||||||
2003 | 2002 | 2001 | ||||
(Thousands of Euros) | ||||||
CONDENSED BALANCE SHEETS (Parent company only) | ||||||
Assets | ||||||
Cash and due from banks | 16,956,351 | 19,089,296 | 17,176,236 | |||
Investment securities | 52,361,144 | 40,649,146 | 48,208,707 | |||
Investment in subsidiaries and affiliated companies | 11,362,123 | 13,056,716 | 13,120,922 | |||
Loans, net | 109,068,879 | 100,510,331 | 99,012,471 | |||
Premises and equipment | 2,032,261 | 2,100,123 | 2,224,367 | |||
Other assets | 11,292,004 | 11,816,270 | 12,225,911 | |||
Total assets | 203,072,762 | 187,221,882 | 191,968,614 | |||
Liabilities | ||||||
Deposits | 118,593,469 | 117,679,385 | 119,993,544 | |||
Due to Bank of Spain and Deposits Guarantee Fund | 9,442,749 | 4,372,244 | 1,815,628 | |||
Short-term borrowings | 28,820,921 | 23,200,105 | 30,201,367 | |||
Long-term debt | 22,258,205 | 18,369,399 | 16,247,874 | |||
Other liabilities | 14,857,475 | 14,470,823 | 14,195,943 | |||
Total liabilities | 193,972,819 | 78,091,956 | 182,454,356 | |||
Stockholders’ equity | ||||||
Capital stock | 1,565,968 | 1,565,968 | 1,565,968 | |||
Retained earnings and other reserves | 7,533,975 | 7,563,958 | 7,948,290 | |||
Total stockholder’s equity | 9,099,943 | 9,129,926 | 9,514,258 | |||
Total liabilities and stockholder’s equity | 203,072,762 | 187,221,882 | 191,968,614 | |||
Following are the summarized statements of income of Banco Bilbao Vizcaya Argentaria, S.A. as of December 31, 2003, 2002 and 2001:
Year ended December 31, | |||||||||
2003 | 2002 | 2001 | |||||||
(Thousands of Euros) | |||||||||
CONDENSED STATEMENTS OF INCOME (Parent Company only) | |||||||||
Interest income | |||||||||
Interest from earning assets | 6,198,836 | 7,047,212 | 8,607,042 | ||||||
Interest and dividends from subsidiaries | |||||||||
Consolidated | 897,169 | 1,544,594 | 1,993,515 | ||||||
Nonconsolidated | 122,826 | 223,648 | 276,502 | ||||||
7,218,831 | 8,815,454 | 10,877,059 | |||||||
Interest expense | (3,602,152 | ) | (4,627,304 | ) | (6,675,315 | ) | |||
Net interest income | 3,616,679 | 4,188,150 | 4,201,744 | ||||||
Provision for possible loan losses | (548,266 | ) | (631,928 | ) | (531,856 | ) | |||
Net interest income after provisions for possible loan losses | 3,068,413 | 3,556,222 | 3,669,888 | ||||||
Noninterest income | 2,882,654 | 2,760,177 | 2,931,304 | ||||||
Noninterest expense | (4,188,721 | ) | (5,085,094 | ) | (5,448,196 | ) | |||
Income before income taxes | 1,762,346 | 1,231,305 | 1,152,996 | ||||||
Income tax expense | (302,009 | ) | (24,209 | ) | 158,565 | ||||
Net income | 1,460,337 | 1,207,096 | 1,311,561 | ||||||
4. Consolidated Statements of Changes in Stockholders equity (Notes 1,2-d, 23 and 24)-
As of December 31, 2003, 2002 and 2001, there have not been variations in the number of registered shares.
Composition of stockholders’ equity (considering the final dividend) of December 31, 2003, 2002 and 2001, is presented in Note 2-d. The variation in stockholders’ equity as of December 31, 3003, 2002 and 2001 is as follows:
2003 | 2002 | 2001 | |||||||
Thousands of Euros | |||||||||
Balance at the beginning of the year | 18,907,787 | 21,226,091 | 22,579,283 | ||||||
Net income for the year | 1,905,900 | 1,845,746 | 680,111 | ||||||
Dividends paid | (1,108,316 | ) | (1,269,442 | ) | (1,167,863 | ) | |||
(Increase) / decrease in treasury stock | 31,612 | (21,727 | ) | 36,764 | |||||
Other comprehensive income | 86,732 | (3,155,603 | ) | (1,331,818 | ) | ||||
Foreign Currency Translation Adjustment | (922,506 | ) | (1,864,977 | ) | (593,860 | ) | |||
Unrealized Gains on Securities | 1,054,024 | (1,362,665 | ) | (750,748 | ) | ||||
Derivatives Instruments and Hedging Activities (SFAS 133) | (44,786 | ) | 72,039 | 12,790 | |||||
Other variations | (240,681 | ) | 282,722 | 429,614 | |||||
Balance at the end of the year | 19,583,034 | 18,907,787 | 21,226,091 | ||||||
As described in Note 2-e, as of December 31, 2003, 2002 and 2001, the computable equity of the Group was higher than the minimum requirements stipulated by the Spanish regulation.
(32.2.D) MAIN DISCLOSURES REQUIRED BY U.S. ACCOUNTING REGULATIONS FOR BANKS AND ADDITIONAL DISCLOSURES REQUIRED UNDER U.S. GAAP
1. Investment Securities-
The breakdown of the Group’s investment securities portfolio by issuer is as follows:
2003 | 2002 | 2001 | |||||||||||||||||||||||||
Book Value | Fair Value(1) | Unrealized Gains | Unrealized Losses | Book Value | Fair Value(1) | Unrealized Gains | Unrealized Losses | Book Value | Fair Value(1) | Unrealized Gains | Unrealized Losses | ||||||||||||||||
Thousands of Euros | |||||||||||||||||||||||||||
DEBT SECURITIES | |||||||||||||||||||||||||||
TRADING PORTFOLIO | |||||||||||||||||||||||||||
Spanish Government | 5,615,564 | 5,615,564 | — | — | 7,472,822 | 7,472,822 | — | — | 2,401,946 | 2,401,946 | — | — | |||||||||||||||
Other Fixed Interest Securities | 20,014,532 | 20,014,532 | — | — | 19,696,996 | 19,696,996 | — | — | 19,248,873 | 19,248,873 | — | — | |||||||||||||||
25,630,096 | 25,630,096 | — | — | 27,169,818 | 27,169,818 | — | — | 21,650,819 | 21,650,819 | — | — | ||||||||||||||||
AVAILABLE FOR SALE PORTFOLIO | |||||||||||||||||||||||||||
Domestic- | |||||||||||||||||||||||||||
Spanish Government | 12,715,493 | 12,897,933 | 193,297 | (10,857 | ) | 10,414,171 | 10,712,057 | 298,787 | (901 | ) | 15,491,518 | 15,694,788 | 203,276 | (6 | ) | ||||||||||||
Other Spanish public authorities | 585,427 | 589,817 | 5,494 | (1,104 | ) | 654,467 | 657,008 | 4,533 | (1,992 | ) | 5,715 | 5,794 | 79 | — | |||||||||||||
Other domestic issuers | 2,506,271 | 2,526,922 | 20,996 | (345 | ) | 2,521,579 | 2,542,443 | 29,026 | (8,162 | ) | 3,444,778 | 3,473,477 | 29,252 | (553 | ) | ||||||||||||
15,807,191 | 16,014,672 | 219,787 | (12,306 | ) | 13,590,217 | 13,911,508 | 332,346 | (11,055 | ) | 18,942,011 | 19,174,059 | 232,607 | (559 | ) | |||||||||||||
International- | |||||||||||||||||||||||||||
United States- | |||||||||||||||||||||||||||
US Treasury and other US Government agencies | 1,526,121 | 1,521,281 | 54 | (4,894 | ) | 26,099 | 26,101 | 17 | (15 | ) | 1,506,998 | 1,514,629 | 7,631 | — | |||||||||||||
States and political subdivisions | 1,336 | 1,358 | 22 | — | 263 | 303 | 40 | — | 5,848 | 5,848 | — | — | |||||||||||||||
Other securities | 435,873 | 435,615 | 770 | (1,028 | ) | 2,457,42 | 2,454,130 | 10,527 | (14,339 | ) | 1,020,758 | 1,019,899 | 85 | (944 | ) | ||||||||||||
Other countries- | |||||||||||||||||||||||||||
Securities of other foreign Governments | 23,644,808 | 23,792,171 | 179,473 | (32,110 | ) | 19,969,745 | 19,983,762 | 130,548 | (116,531 | ) | 30,357,752 | 30,312,345 | 22,718 | (68,125 | ) | ||||||||||||
Other debt securities outside Spain | 3,710,889 | 3,723,136 | 21,459 | (9,212 | ) | 3,284,011 | 3,308,113 | 55,037 | (30,935 | ) | 5,463,447 | 5,442,045 | 4,622 | (26,024 | ) | ||||||||||||
29,319,027 | 29,473,561 | 201,778 | (47,244 | ) | 25,738,060 | 25,772,409 | 196,169 | (161,820 | ) | 38,354,803 | 38,294,766 | 35,055 | (95,092 | ) | |||||||||||||
45,126,218 | 45,488,233 | 421,565 | (59,550 | ) | 39,328,277 | 39,683,917 | 528,515 | (172,875 | ) | 57,296,814 | 57,468,825 | 267,662 | (95,651 | ) | |||||||||||||
HELD TO MATURITY PORFOLIO | |||||||||||||||||||||||||||
Domestic- | |||||||||||||||||||||||||||
Spanish Government | 613,946 | 652,625 | 38,679 | — | 1,880,783 | 1,983,010 | 102,227 | — | 2,271,905 | 2,381,703 | 109,798 | — | |||||||||||||||
Other domestic issuers | 510,709 | 542,590 | 31,881 | — | 522,077 | 561,760 | 39,683 | — | 596,769 | 648,306 | 51,537 | — | |||||||||||||||
1,124,655 | 1,195,215 | 70,560 | — | 2,402,860 | 2,544,770 | 141,910 | — | 2,868,674 | 3,030,009 | 161,335 | — | ||||||||||||||||
TOTAL DEBT SECURITIES (NET) | 71,880,969 | 72,313,544 | 492,125 | (59,550 | ) | 68,900,955 | 69,398,505 | 670,425 | (172,875 | ) | 81,816,307 | 82,149,653 | 333,346 | — | |||||||||||||
EQUITY SECURITIES | |||||||||||||||||||||||||||
TRADING PORTFOLIO | 2,029,414 | 2,029,414 | — | — | 931,928 | 931,928 | — | — | 1,032,280 | 1,032,280 | — | — | |||||||||||||||
AVAILABLE FOR SALE PORTFOLIO | |||||||||||||||||||||||||||
Domestic | 449,247 | 529,381 | 80,190 | (56 | ) | 1,127,891 | 1,231,388 | 260,200 | (156,703 | ) | 1,230,981 | 1,345,943 | 129,765 | (14,803 | ) | ||||||||||||
International- | |||||||||||||||||||||||||||
United States | 19,530 | 20,429 | 899 | — | 60,217 | 50,286 | 2,606 | (12,537 | ) | 381,649 | 379,611 | 1,929 | (3,967 | ) | |||||||||||||
Other countries | 593,873 | 617,520 | 24,291 | (644 | ) | 887,456 | 919,679 | 241,988 | (209,765 | ) | 1,028,789 | 1,054,874 | 27,984 | (1,899 | ) | ||||||||||||
1,062,650 | 1,167,330 | 105,380 | (700 | ) | 2,075,564 | 2,201,353 | 504,794 | (379,005 | ) | 2,641,419 | 2,780,428 | 159,678 | (20,669 | ) | |||||||||||||
TOTAL EQUITY SECURITIES (NET) | 3,092,064 | 3,196,744 | 105,380 | (700 | ) | 3,007,492 | 3,133,281 | 504,794 | (379,005 | ) | 3,673,699 | 3,812,708 | 159,678 | (20,669 | ) | ||||||||||||
TOTAL INVESTMENT SECURITIES (NET) | 74,973,033 | 75,510,288 | 597,505 | (60,250 | ) | 71,908,447 | 72,531,786 | 1,175,219 | (551,880 | ) | 85,490,006 | 85,962,361 | 588,675 | (116,320 | ) | ||||||||||||
An analysis of the book value of investments, exclusive of valuation reserves, by contractual maturity and fair value of the debt securities portfolio is shown below:
2003 | ||||||||||
BOOK VALUE | ||||||||||
Due in one year or less | Due after one year through | Due after five years through ten years | Due after ten years | Total | ||||||
GOVERNMENT DEBT SECURITIES | ||||||||||
Domestic: | ||||||||||
- Investment securities: | ||||||||||
. Spanish Treasury Bills | 601,300 | — | — | — | 601,300 | |||||
. Other Spanish Government securities | 1,066,933 | 9,367,609 | 1,396,426 | 283,225 | 12,114,193 | |||||
- Held to maturity portfolio | — | — | — | 613,946 | 613,946 | |||||
- Trading Portfolio | 3,633,356 | 1,571,849 | 374,218 | 36,141 | 5,615,564 | |||||
TOTAL | 5,301,589 | 10,939,458 | 1,770,644 | 933,312 | 18,945,003 | |||||
FIXED INCOME PORTFOLIO | ||||||||||
- Investment securities: | ||||||||||
International: | ||||||||||
United States | ||||||||||
. U.S. Treasury Securities and other US Government agencies | 254,510 | 276,563 | 374,291 | 620,757 | 1,526,121 | |||||
. States and political subdivisions | — | — | — | 1,336 | 1,336 | |||||
. Other Securities | 192,899 | 137,375 | 21,493 | 84,106 | 435,873 | |||||
Total United States | 447,409 | 413,938 | 395,784 | 706,199 | 1,963,330 | |||||
Other countries | ||||||||||
. Securities of other foreign Governments | 1,966,160 | 12,760,526 | 4,682,341 | 4,235,781 | 23,644,808 | |||||
. Other debt securities outside Spain | 803,455 | 1,796,998 | 709,437 | 400,999 | 3,710,889 | |||||
Total other countries | 2,769,615 | 14,557,524 | 5,391,778 | 4,636,780 | 27,355,697 | |||||
Total International Inv. Sec. | 3,217,024 | 14,971,462 | 5,787,562 | 5,342,979 | 29,319,027 | |||||
Domestic: | ||||||||||
. Other securities | 101,058 | 299,048 | 839,448 | 1,852,144 | 3,091,698 | |||||
- Held to maturity securities | ||||||||||
International | — | — | — | — | — | |||||
Domestic | 10,361 | 442,771 | 27,526 | 30,051 | 510,709 | |||||
Total International | 3,217,024 | 14,971,462 | 5,787,562 | 5,342,979 | 29,319,027 | |||||
Total Domestic | 111,419 | 741,819 | 866,974 | 1,882,195 | 3,602,407 | |||||
- Trading Portfolio | — | — | — | — | 20,014,532 | |||||
TOTAL | 8,630,032 | 26,652,739 | 8,425,180 | 8,158,486 | 71,880,969 | |||||
GOVERNMENT DEBT SECURITIES Domestic: - Investment securities: . Spanish Treasury Bills . Other Spanish Government securities - Held to maturity portfolio - Trading Portfolio TOTAL FIXED INCOME PORTFOLIO - Investment securities: International: United States . U.S. Treasury Securities and other US Government agencies . States and political subdivisions . Other Securities Total United States Other . Securities of other foreign Governments . Other debt securities outside Spain Total other countries Total International Inv. Sec. Domestic: . Other securities - Held to maturity securities International Domestic Total International Total Domestic - Trading Portfolio TOTAL 2003 MARKET VALUE Due in one
year or less Due after
one year
through five
years Due after
five years
through
ten years Due after
ten years Total 601,101 — — — 601,101 1,081,908 9,508,649 1,420,082 286,193 12,296,832 — — — 652,625 652,652 3,633,356 1,571,849 374,218 36,141 5,615,564 5,316,365 11,080,498 1,794,300 974,959 19,166,122 254,489 274,075 370,520 622,197 1,521,281 — — — 1,358 1,358 192,876 137,693 21,386 83,660 435,615 447,365 411,768 391,906 707,215 1,958,254 1,999,694 12,836,294 4,698,138 4,258,045 23,792,171 809,859 1,803,251 711,222 398,804 3,723,136 2,809,553 14,639,545 5,409,360 4,656,849 27,515,307 3,256,918 15,051,313 5,801,266 5,364,064 29,473,561 101,748 303,007 844,437 1,867,547 3,116,739 — — — — — 11,341 472,279 27,768 31,202 542,590 3,256,918 15,051,313 5,801,266 5,364,064 29,473,561 113,089 775,286 872,205 1,898,749 3,659,329 — — — — — 8,686,372 26,907,097 8,467,771 8,237,772 72,313,544
GOVERNMENT DEBT SECURITIES Domestic: - Investment securities: . Spanish Treasury Bills . Other Spanish Government securities - Held to maturity portfolio - Trading Portfolio TOTAL FIXED INCOME PORTFOLIO - Investment securities: International: United States . U.S. Treasury Securities and other US Government agencies . States and political subdivisions . Other Securities Total United States Other . Securities of other foreign Governments . Other debt securities outside Spain Total other countries Total International Inv. Sec. Domestic: . Other securities - Held to maturity securities International Domestic Total International Total Domestic - Trading Portfolio TOTAL 2002 MARKET VALUE Due in one
year or less Due after one
year through
five years Due after five
years through
ten years Due after
ten years Total 3,985,471 5,049,901 1,195,096 481,589 10,712,057 1,138,504 8,061 — — 1,146,565 2,846,967 5,041,840 1,195,096 481,589 9,565,492 1,328,131 — — 654,879 1,983,010 3,538,056 2,423,940 1,226,987 283,839 7,472,822 8,851,658 7,473,841 2,422,083 1,420,307 20,167,889 4,283,996 10,919,405 4,801,020 8,967,439 28,971,860 25,461 — — 640 26,101 — — — 303 303 671,569 522,210 24,436 1,235,915 2,454,130 697,030 522,210 24,436 1,236,858 2,480,534 1,874,279 9,234,172 3,692,465 5,182,846 19,983,762 1,560,515 901,451 424,521 421,626 3,308,113 3,434,794 10,135,623 4,116,986 5,604,472 23,291,875 4,131,824 10,657,833 4,141,422 6,841,330 25,772,409 152,172 261,572 659,598 2,126,109 3,199,451 11,506 461,374 30,610 58,270 561,760 — — — — — 11,506 461,374 30,610 58,270 561,760 4,131,824 10,657,833 4,141,422 6,841,330 25,772,409 163,678 722,946 690,208 2,184,379 3,761,211 -Not available information- 19,696,996 4,295,502 11,380,779 4,831,630 9,025,709 49,230,616
DEBT SECURITIES Available for Sale and Held to Maturity Portfolio Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Trading portfolio 2001 Book Value Fair Value Thousands of Euros 14,473,884 14,496,706 30,292,826 30,434,338 9,083,024 9,221,766 6,315,754 6,346,024 60,165,488 60,498,834 21,650,819 21,650,819 81,816,307 82,149,653
See also Notes 6, 9 and 10 for other breakdowns of the Group’s investment securities portfolio as of December 31, 2003, 2002 and 2001. As of December 2003, 2002 and 2001, the carrying values of non-traded (unlisted) debt securities portfolio amounted to €6,671,421, €11,178,018 and €16,506,347 thousand respectively. As of December 2003, 2002 and 2001, the carrying values of non-traded (unlisted) equity securities portfolio amounted to €561,457, €800,758 and €1,391,608 thousand, respectively.
Under both Spanish GAAP and U.S. GAAP, the methodology used to estimate the fair value of non-traded or unlisted securities is as follows:
These methodologies include an evaluation of credit risk, market conditions (volatility, interest rate evolution, macroeconomic variables, etc…) or futures expectations.
The breakdown of unrealized losses as of December 31, 2003, 2002 and 200, is as follows:
According to the table, most of unrecognized losses as of December 31, 2002, arose in such year.
The total amount of unrealized losses of 551,880 correspond to the sum of temporary plus other-than-temporary impairments. The following table is presented to clarify this and to make reference on the explanations given in response to your questions:
Unrealized losses | Thousand of Euros | |||||
2003 | 2002 | 2001 | ||||
- Equity Securities | — | 207,176 | — | |||
- Debt Securities | — | 74,827 | — | |||
(1) Total Impairments Other - than- temporary(charged to income under both GAAP) | — | 282,003 | — | |||
- Debt securities | 59,550 | 21,790 | 95,651 | |||
- Equity Securities | 700 | 169,240 | 20,669 | |||
- Other (*) | — | 78,847 | — | |||
(2) Total Temporary Unrealized losses | 60,250 | 269,877 | 116,320 | |||
(1) + (2) Total unrecognized losses | 60,250 | 551,880 | 116,320 |
As of December 2003, most of unrealized losses correspond to debt securities. These unrealized losses arose during last six moths of 2003. Due to the limited length of unrealized losses and the future expectation of management that expects a substantial recovery of them, these unrealized losses were considered as temporary.
The main types of securities or industries regarding unrealized losses in 2002 were as follows:
The caption“Securities of other foreign governments” whose unrealized losses amounted to 116,531 thousand euro, mainly included debt securities owned by our subsidiaries in Latin America and issued by the governments of:
The caption“Equity securities - Domestic” whose unrealized losses amounted to 156,703 thousand of euros, mainly included listed securities issued by Spanish companies held by the parent company. Unrealized losses amounting to 146,190 corresponds to an investment whose market value decreased below carrying value during the second half of 2002 and which had increases in market price during the first semester of 2003. Management considered that the evolution of this quotation in the Spanish market evidenced that an impairment was not necessary. Therefore under Spanish GAAP and US GAAP, this decline was considered as temporary.
The caption“Equity securities - International” whose unrealized losses amounted to 222,302 thousand euro, mainly included the following securities:
In 2001, most of the unrecognized losses related to temporary impairments. These unrecognized losses mainly correspond to debt securities and were recovered in 2002. The remaining amount of unrealized losses in 2001 was not relevant. The Group did not record any relevant other-than-temporary impairments.
2. Loans and Accounting by Creditors for Impairment of a Loan-
The balance of the recorded investment in impaired loans and of the related valuation allowance as of December 31, 2003, 2002 and 2001 is as follows:
2003 | 2002 | 2001 | ||||
Thousands of Euros | ||||||
Impaired loans requiring no reserve | 587,134 | 1,544,711 | 1,445,205 | |||
Impaired loans requiring valuation allowance | 2,949,247 | 3,543,273 | 3,239,614 | |||
Total impaired loans | 3,536,381 | 5,087,984 | 4,684,819 | |||
Valuation allowance on impaired loans | 2,417,274 | 3,437,163 | 3,226,698 | |||
The roll-forward of allowance is shown in Note 8 under Spanish GAAP. The reconciliation item to U.S. GAAP is in Note 32-2-B-7.
The approximate amount of interest collected concerning to substandard loans (and included in income) related to the current year amounted to €278,324 thousand, €73,907 thousand and €97,358 thousand in 2003, 2002 and 2001, respectively and those related to prior years amounted to €79,099 thousand, €53,123 thousand and €228,391 thousand in 2003, 2002 and 2001, respectively.
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3. Investments In And Indebtedness Of And To Affiliates-
See Notes 11 and 12 and Exhibits II and III for detailed information of investments in nonconsolidated Group companies and other affiliates, and Note 27 for transactions of consolidated companies with such affiliates. Aggregated summarized financial information with respect to significant affiliated companies under Spanish GAAP for the years ended December 31, 2003 is presented below:
Percentage of ownership - | 50% or more | Between 3% and 50% | ||||
Thousands of Euros | ||||||
2003 | Equity method | Proportional Method | ||||
Net sales | 859,997 | 7,581 | 5,135,164 | |||
Operating income | 17,287 | 69,351 | 850,585 | |||
Net income | 235,299 | 122,769 | 399,161 | |||
Current assets | 1,678,019 | 526,053 | 15,076,632 | |||
Noncurrent assets | 11,170,477 | 335,653 | 10,035,435 | |||
Current liabilities | 1,186,849 | 138,902 | 13,333,951 | |||
Non-current liabilities | 11,661,648 | 722,804 | 11,778,117 |
4. Deposits-
The breakdowns of deposits from credit entities and customers as of December 31, 2003, 2002 and 2001, by domicile and type are included in Notes 17 and 18.
As of December 31, 2003, 2002 and 2001, the time deposits, both domestic and international, (other than interbank deposits) in denominations of €79 thousand (approximately US$ 100 thousand) or more amounted to €45,548 thousand, €51,059 million and €49,320 million, respectively.
5. Short-Term Borrowings-
Under Spanish format and regulations, the information about “Short-Term borrowings” is not required as it is under S-X Regulations. Therefore this information is not disclosed in the preceding pages. The analysis of short-term borrowings is as follows. Securities sold under agreement to repurchase were secured by investment securities, mainly Spanish Treasury bills and other governmental securities secured securities.
At December 31, | ||||||||||
2002 | 2001 | |||||||||
Amount | Average Rate | Amount | Average Rate | |||||||
(thousand of euro, except percentages) | ||||||||||
Securities sold under agreements to repurchase (principally Spanish Treasury bills): | ||||||||||
At December 31 | 39,675,007 | 4.65 | % | 48,080,073 | 6.16 | % | ||||
Average during year | 39,813,951 | 4.72 | % | 45,454,491 | 6.51 | % | ||||
Maximum quarter-end balance | 44,732,472 | — | 48,080,073 | — | ||||||
Other short-term borrowings (principally bank promissory notes): | ||||||||||
At December 31 | 5,100,885 | 2.85 | % | 4,641,737 | 4.87 | % | ||||
Average during year | 3,967,296 | 3.12 | % | 5,844,301 | 4.11 | % | ||||
Maximum quarter-end balance | 5,100,885 | — | 5,879,900 | — | ||||||
Total short-term borrowings at December 31 | 44,775,892 | 4.44 | % | 52,721,810 | 6.05 | % |
Additionally, as of December 31 2002, the “Short term borrowings” caption includes “Mortgage Bonds” amounting €7,483,991 thousand.
At December 31, | |||||
2003 | |||||
Amount | Average Rate | ||||
(in thousands of euro, except percentages) | |||||
Securities sold under agreements to repurchase (principally Spanish Treasury bills): | |||||
At December 31 | 38,483,355 | 2.81 | % | ||
Average during year | 36,759,455 | 3.52 | % | ||
Maximum quarter-end balance | 38,483,355 | — | |||
Bank promissory notes: | |||||
At December 31 | 6,086,613 | 2.11 | % | ||
Average during year | 4,665,527 | 2.13 | % | ||
Maximum quarter-end balance | 6,218,810 | — | |||
Bonds and subordinated debt | |||||
At December 31 | 8,173,347 | 3.00 | % | ||
Average during year | 7,828,669 | 3.09 | % | ||
Maximum quarter-end balance | 10,763,748 | — | |||
Total short-term borrowings at December 31 | 52,743,315 | 2,76 | % |
At December 31, 2003, 2002 and 2001, short-term borrowings include €17,994,695 thousand, €16,619,199 thousand and €22,346,263 thousand, respectively of securities sold under agreements to repurchase from Bank of Spain and other Spanish and foreign financial Institutions.
Terms of the securities sold under agreements to repurchase that compose the balance at December 31, 2003, are as follows:
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A breakdown of securities sold under agreements to repurchase by type of security at December 31, 2003, 2002 and 2001, is as follows:
December 31, | ||||||
2003 | 2002 | 2001 | ||||
Thousands of Euros | ||||||
Spanish Treasury Bills and Notes | 5,282,381 | 5,991,369 | 5,316,944 | |||
Securities of, or Guaranteed by, the Spanish Government | 17,980,643 | 15,300,871 | 15,864,021 | |||
Other investment securities | 15,220,331 | 18,382,767 | 26,899,108 | |||
38,483,355 | 39,675,007 | 48,080,073 | ||||
6. Long Term Debt-
See Notes 19 and 21.
7. Minority Interest In Consolidated Subsidiaries
The details of minority interest as of December 31, 2003, 2002 and 2001 including preferred stock, and variations for the years then ended are included in Note 22.
In accordance with the Reg S-X.T. Rule 3-10,Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered, BBVA Preferred Capital, Ltd., BBVA Capital Funding Ltd, BBVA International Limited and BBVA Capital
Finance, S.A and BBVA Privanza International (Gibraltar), Ltd.—issuers of registered preference shares guaranteed by BBVA, S.A.—do not file the financial statements required for a registrant by Regulation S-X as:
The other three ones are not listing in United States.
The audited financial statements of BBVA Privanza International (Gibraltar), Ltd., BBVA Preferred Capital Ltd, BBVA Capital Funding, BBVA International Limited and BBVA Capital Finance, S.A. are the following:
CONSOLIDATED BALANCE SHEET as at 31 December 2003
BBVA Privanza International (Gibraltar) Ltd. | BBVA Preferred Capital Ltd. | BBVA Capital Funding Ltd. | BBVA International Limited | BBVA Capital Finance, S.A. | ||||||||||
(Thousands of euros) | ||||||||||||||
Assets | ||||||||||||||
Cash | 5 | 464 | 3,521 | 2,242 | 18 | |||||||||
Loans and advanced to banks | 78,177 | 190,024 | 3,413,320 | 3.052,546 | 350,288 | |||||||||
Loans and advanced to clients | — | — | — | — | — | |||||||||
Securities portfolio | — | — | — | — | — | |||||||||
Tangible fixed assets | 245 | — | — | — | — | |||||||||
Intangible assets | — | — | — | — | 2 | |||||||||
Other assets | — | — | 6,177 | 18,483 | — | |||||||||
Accrual accounts | 50 | — | — | — | — | |||||||||
Total assets | 78,477 | 190,488 | 3,423,018 | 3,073,271 | 350,308 | |||||||||
Liabilities and equity | — | — | — | — | ||||||||||
Amounts owed to banks | — | — | — | — | — | |||||||||
Amounts owed to customers | 109 | 4 | 20 | 7 | 136 | |||||||||
Marketable debt securities | — | — | 3,159,304 | — | — | |||||||||
Accrual and deferred income | 89 | — | 3,432 | — | — | |||||||||
Provisions for contingencies | — | — | — | — | — | |||||||||
Capital stock | 2,838 | 190,025 | 255,646 | 475 | 350,060 | |||||||||
Additional paid-in capital | 60,932 | — | — | 3,039,528 | — | |||||||||
Retained earnings | 15,349 | (14,386 | ) | (15,621 | ) | (132,985 | ) | — | ||||||
Profit and loss account | (840 | ) | 14,845 | 20,237 | 166,246 | 112 | ||||||||
Total liabilities and equity | 78,477 | 190,488 | 3,423,018 | 3,073,271 | 350,308 | |||||||||
Memorandum accounts | — | 573,720 | 6,560,386 | 11,125,809 | — |
INCOME STATEMENT ACCOUNT for the year ended 31 December 2003
BBVA Privanza International (Gibraltar) Ltd. | BBVA Preferred Capital Ltd. | BBVA Capital Funding Ltd. | BBVA International Limited | BBVA Capital Finance, S.A. | |||||||||||
(Thousands of euros) | |||||||||||||||
Interest receivable | 12,575 | — | — | — | — | ||||||||||
Interest payable | -30 | — | — | — | — | ||||||||||
Net interest income | 12,545 | — | — | — | — | ||||||||||
Fees and commissions receivable | 73 | — | — | — | — | ||||||||||
Dealing profits | (1 | ) | — | — | — | — | |||||||||
Operating income | 12,617 | — | — | — | — | ||||||||||
Administrative expenses | (962 | ) | — | — | — | ||||||||||
Depreciation and amortisation | (56 | ) | — | (1 | ) | (66 | ) | — | |||||||
General expenses | — | (60 | ) | (122 | ) | (115 | ) | (115 | ) | ||||||
Provisions | 62 | — | — | — | |||||||||||
Others | — | 16,634 | 22,719 | 185,804 | 287 | ||||||||||
Profit on ordinary activities before tax | 11,661 | 16,574 | 22,596 | 185,623 | 172 | ||||||||||
Taxation | — | — | — | — | (60 | ) | |||||||||
Profit on ordinary activities after tax | 11,661 | 16,574 | 22,596 | 185,623 | 112 | ||||||||||
Extraordinary losses and dividends | (12,516 | ) | — | — | — | — | |||||||||
Profit retained for the financial year | (855 | ) | 16,574 | 22,596 | 185,623 | 112 |
8. Derivative Financial Instruments-
The breakdown of the Derivative Financial Instruments under Spanish GAAP is shown in Note 26. See also Note 32.2-B-11 for the additional disclosures required under SFAS 133.
9. Pension liabilities-
See Note 3-jNotes 2.2.e and 29 for a detail of the pension commitments under Spanish GAAP. Additional disclosures and the reconciliation to U.S. GAAP is shown in Note 32-2-B-4.
IFRS.
10.9. Disclosures Aboutabout Fair Value Ofof Financial Instruments (SFAS 107)-
As required by SFAS No. 107,Disclosures about Fair Value of Financial Instruments,, (“SFAS No. 107”) the Group presents estimate fair value information about financial instruments for which it is practicable to estimate that value.value in Note 37. Fair value of a financial instrument is the amount for which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value is best determined by values quoted through active trading markets. Active trading markets are characterized by numerous transactions of similar financial instruments between willing buyers and willing sellers. Because no active trading market exists for various types of financial instruments, many of the fair values disclosed were derived using present value discounted cash flow or other valuation techniques. As a result, the Group’s ability to actually realize these derived values cannot be assured.
The estimated fair values disclosed under SFAS No. 107 may vary significantly between institutions based on the estimates and assumptions used in the various valuation methodologies. SFAS No. 107 excludes disclosure of goodwill, core deposits, nonfinancialnon-financial assets such as fixed assets as well as certain financial instruments such as investments in affiliated companies.
Accordingly, the aggregate estimate fair values presented do not represent the underlying value of the Group. The actual carrying amounts and estimated fair values of the BBVA Group’s financial instruments as of December 31, 2003, 2002 and 2001, are as follows:
2003 | 2002 | 2001 | ||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||
Thousands of Euros | ||||||||||||
Assets | ||||||||||||
Cash and due from banks | 2,861,721 | 2,861,721 | 2,999,817 | 2,999,817 | 3,854,589 | 3,854,589 | ||||||
Interest-bearing deposits | 16,750,009 | 16,746,092 | 19,426,792 | 19,480,678 | 19,467,359 | 19,488,147 | ||||||
Securities purchased under agreements to resell | 12,494,089 | 12,493,916 | 8,650,080 | 8,650,415 | 11,148,913 | 11,148,829 | ||||||
Trading securities | 27,659,510 | 27,659,510 | 28,101,746 | 28,101,746 | 22,683,099 | 22,683,099 | ||||||
Available for sale and held to maturity investments | 47,313,523 | 47,313,523 | 43,806,701 | 44,430,040 | 62,806,907 | 63,279,262 | ||||||
Net loans | 146,706,610 | 147,049,429 | 140,806,446 | 142,286,928 | 149,496,358 | 151,006,663 | ||||||
Liabilities | ||||||||||||
Noninterest bearing deposits | 859,934 | 859,934 | 3,255,527 | 3,255,527 | 3,040,376 | 3,040,376 | ||||||
Demand deposits | 43,674,718 | 43,674,718 | 43,676,677 | 43,676,677 | 49,266,146 | 49,266,146 | ||||||
Savings deposits | 24,317,731 | 24,317,731 | 22,253,652 | 22,253,652 | 25,438,973 | 25,438,973 | ||||||
Time deposits | 81,833,731 | 81,797,582 | 86,902,414 | 86,963,769 | 102,532,190 | 102,756,793 | ||||||
Short-term borrowings | 52,743,315 | 52,702,210 | 52,259,883 | 52,238,955 | 52,721,810 | 52,729,394 | ||||||
Long-term debt | 27,234,416 | 26,503,958 | 21,527,246 | 21,861,040 | 28,454,780 | 28,610,357 |
The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments for which it is practicable to estimate such value:
a) Cash and due from banks
For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
b) Interest-bearing deposits in other banks and securities purchased under agreement to resell
The fair value represents the present value of estimated future cash flows discounted at the average year-end market rates for each type of instrument.
c) Investment securities
c.1) Fixed income:
(i) Listed securities: at closing market prices as of December 31, 2003, 20022006, 2005 and 2001.
2004.
(ii) Unlisted securities: on the basis of market prices of other listed fixed-income securities of similar interest rate, credit risk and maturity. If no similar listed fixed-income securities can be identified, the fair value is estimated by discounting future cash-flows using year-end rates based on market rates available on securities with similar credit and maturity characteristics.
c.2) Equity securities:
(i) Listed securities with less than 3% ownership:securities: fair values are based on the 2003, 2002December 31, 2006, 2005 and 20012004 closing market price.
(ii) Unlisted securities:securities whose fair value cannot be determined in a sufficiently objective manner: at underlying book value per the December 31, 2003, 20022006, 2005 and 20012004 financial statements of each investee, or otherwise based on the latest financial statements currently available.
d) Loans and leases
The fair value of the Group’s loan portfolio is based on the credit and interest rate characteristics of the individual loans within each sector of the portfolio. The fair value of loans was estimated by discounting scheduled cash flows through the estimated maturity using prevailing market rates at year-end, and is implemented as follows:
d.1) The estimate of the provision for probable loan losses includes consideration of risk premiums applicable to various types of loans based on factors such as the current situation of the economic sector in which each borrower operates, the economic situation of each borrower and guarantees obtained. Accordingly, the allowance for probable loan losses is considered a reasonable estimate of the discount required to reflect the impact of credit risk.
d.2) For fixed and floating-rate loans for which the interest rate was similar to the average rates available for each type of loan (such as commercial or mortgage loans) as of December 31, 2003, 20022006, 2005 and 2001,2004, the carrying amount, net of the related allowance for probable loan losses, is considered a reasonable estimate of fair value.
d.3) For the remaining loans which the Group determined were at rates different to those currently offered, the fair values are estimated as the present value of future cash flows discounted at the average year-end market interest rates at which similar loans are being granted to borrowers with similar credit ratings and remaining maturities.
e) Deposits and Short Term Borrowings
The fair value represents the present value of estimated future cash flows discounted at the average year-end market rates for each type of instrument.
f) Long-Term Debt
The fair value is estimated on the basis of the discounted present value of the cash flows over the remaining term of such debt. The discount rates were determined based on market rates available as of December 31, 2003, 20022006, 2005 and 20012004 on debt with similar credit and maturity characteristics of the Group’s.
g) Commitments and Contingencies
g.1) Guarantees and other sureties provided and documentary credits:
It is estimated that the differential, if any, between the fee charged by the Group for these transactions and the average year-end market fee would not give rise to a material difference.
g.2) Derivative Products:
The fair value of these products as of December 31, 2003, 20022006, 2005 and 2001,2004, considering the related discounted cash-flows and the year-end prevailing rates and market values is presented in Note 26.11.
See Note 2.2.b.2 for more information of fair value of financial instruments.
11.10. Segment Information-
See Note 7 for a detail of the segment information under IFRS.
SFAS 131,11. Business combination in 2006-
The effect on income statement for the year ended December 31,2006 if the business combination of Forum, Maggiore Fleet, S.p.A. and Texas Regional Bancshares, Inc. were realized on January 1, 2006, was an increase of €34,915 thousand in net income (See Note 4).
12. Disclosures about segment of an enterprisePensions plans (SFAS 132-R)-
12.1. México
12.1.2. Plan Assets
12.1.2.1. Pension plan
The Pension Plan asset allocation at December 31, 2006 and related information2005 by asset category is as follows:
Asset Category | Percentage of Plan Assets at December 31, 2006 | Percentage of Plan Assets at December 31, 2005 | ||||
Mexican Federal Government securities | 89.12 | % | 27.55 | % | ||
Other Debt securities | 10.87 | % | 23.82 | % | ||
Equity securities | — | 48.16 | % | |||
Mortgage loans | 0.01 | % | 0.47 | % |
12.1.2.2. Other post-retirement benefits requires some disclosures of
The Pension Plan asset allocation at December 31, 2006, and 2005 by asset category is as follows:
Asset Category | Percentage of Plan Assets at December 31, 2005 | Percentage of Plan Assets at December 31, 2005 | ||||
Mexican Federal Government securities | 100.00 | % | 23.55 | % | ||
Equity securities | — | 76.45 | % |
12.2.1.2. Projected Benefit Payments
Benefit Payments projected to be made from the financial statements relatingPension Benefit Plan and Healthcare Benefit Plan are as follows:
Year | Pension Benefit Thousands of Euros | Healthcare Benefit Thousands of Euros | ||
2007 | 34,395 | 13,353 | ||
2008 | 35,714 | 14,351 | ||
2009 | 37,369 | 15,466 | ||
2010 | 39,057 | 16,721 | ||
2011 | 40,446 | 17,944 | ||
Over 2011 | 252,029 | 118,100 |
12.2. Portugal
12.2.1. Plan Assets -Pension plan
The Pension Plan asset allocation at December 31, 2006 and 2005 by asset category is as follows:
Asset Category | Percentage of Plan Assets at December 31, 2006 | Percentage of Plan Assets at December 31, 2005 | ||||
Debt securities | 75.8 | % | 61.7 | % | ||
Equity securities | 9.3 | % | 6.4 | % | ||
Mortgage loans and others | 0.4 | % | 2.0 | % | ||
Cash | 14.5 | % | 29.9 | % |
12.2.2. Projected Benefit Payments
Benefit Payments projected to operating segments of a public business enterprise.be made from the Pension Benefit Plan are as follows:
Year | Pension Benefit Thousands of Euros | |
2007 | 13,205 | |
2008 | 13,316 | |
2009 | 13,381 | |
2010 | 13,363 | |
2011 | 13,450 | |
Over 2011 | 68,260 |
APPENDIX I
ADDITIONAL INFORMATION ON CONSOLIDATED SUBSIDIARIES
COMPOSING THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
% of Voting Rights | Thousands of Euros ( * ) | ||||||||||||||||||||
Controlled by the Bank | Investee Data | ||||||||||||||||||||
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets as of 31.12.06 | Liabilities as of 31.12.06 | Equity 31.12.06 | Profit (Loss) for the Period ended 31.12.06 | |||||||||||
(ASA) AG.DE SEGUROS DE ARGENTARIA, S.A. | SPAIN | SERVICES | 100.00 | — | 100.00 | 1,368 | 7,600 | 5,375 | 1,949 | 276 | |||||||||||
ADMINISTRAD. DE FONDOS PARA EL RETIRO-BANCOMER, S.A DE C.V. | MEXICO | PENSIONS | 17.50 | 82.50 | 100.00 | 358,061 | 203,769 | 46,748 | 105,890 | 51,131 | |||||||||||
ADMINISTRADORA DE FONDOS DE PENSIONS PROVIDA(AFP PROVIDA) | CHILE | PENSIONS | 12.70 | 51.62 | 64.32 | 204,805 | 410,196 | 117,337 | 226,639 | 66,220 | |||||||||||
AFP GENESIS ADMINISTRADORA DE FONDOS, S.A. | ECUADOR | PENSIONS | — | 100.00 | 100.00 | 1,928 | 3,436 | 1,508 | 616 | 1,312 | |||||||||||
AFP HORIZONTE, S.A. | PERU | PENSIONS | 24.85 | 75.15 | 100.00 | 26,618 | 41,789 | 16,030 | 15,678 | 10,081 | |||||||||||
AFP PREVISION BBV-ADM.DE FONDOS DE PENSIONES S.A. | BOLIVIA | PENSIONS | 75.00 | 5.00 | 80.00 | 2,063 | 9,166 | 3,425 | 2,645 | 3,096 | |||||||||||
ALMACENADORA FINANCIERA PROVINCIAL | VENEZUELA | SERVICES | — | 100.00 | 100.00 | 1,197 | 1,463 | 267 | 877 | 319 | |||||||||||
ALMACENES GENERALES DE DEPOSITO, S.A.E. DE | SPAIN | PORTFOLIO | 83.90 | 16.10 | 100.00 | 12,649 | 100,377 | 3,037 | 94,312 | 3,028 | |||||||||||
ALTITUDE INVESTMENTS LIMITED | UNITED KINGDOM | FINANCIAL SERV. | 51.00 | — | 51.00 | 225 | 1,971 | 1,246 | 721 | 4 | |||||||||||
ALTURA MARKETS, A.V., S.A. | SPAIN | SECURITIES | 50.00 | — | 50.00 | 5,000 | 787,877 | 764,434 | 12,041 | 11,402 | |||||||||||
ANIDA DESARROLLOS INMOBILIARIOS, S.L. | SPAIN | REAL ESTATE | — | 100.00 | 100.00 | 112,477 | 329,735 | 111,694 | 167,426 | 50,615 | |||||||||||
ANIDA GRUPO INMOBILIARIO, S.L. | SPAIN | PORTFOLIO | 100.00 | — | 100.00 | 198,357 | 509,943 | 62,396 | 410,625 | 36,922 | |||||||||||
ANIDA INMOBILIARIA, S.A. DE C.V. | MEXICO | PORTFOLIO | — | 100.00 | 100.00 | 55,199 | 52,615 | 23 | 53,994 | (1,402 | ) | ||||||||||
ANIDA PROYECTOS INMOBILIARIOS, S.A. DE C.V. | MEXICO | REAL EST.INSTR. | — | 100.00 | 100.00 | 51,990 | 52,457 | 467 | 53,029 | (1,039 | ) | ||||||||||
ANIDA SERVICIOS INMOBILIARIOS, S.A. DE C.V. | MEXICO | REAL EST.INSTR. | — | 100.00 | 100.00 | 451 | 1,587 | 1,157 | 833 | (403 | ) | ||||||||||
APLICA SOLUCIONES ARGENTINAS, S.A. | ARGENTINA | SERVICES | — | 100.00 | 100.00 | 1,209 | 1,232 | 61 | 1,232 | (61 | ) | ||||||||||
APLICA TECNOLOGIA AVANZADA | MEXICO | SERVICES | 100.00 | — | 100.00 | 4 | 47,725 | 46,160 | 581 | 984 | |||||||||||
APOYO MERCANTIL S.A. DE C.V. | MEXICO | REAL EST.INSTR. | — | 100.00 | 100.00 | 2,070 | 11,721 | 9,651 | 1,826 | 244 | |||||||||||
ARAGON CAPITAL, S.L. | SPAIN | PORTFOLIO | 99.90 | 0.10 | 100.00 | 37,925 | 30,948 | — | 29,191 | 1,757 | |||||||||||
ARGENTARIA SERVICIOS, S.A. | CHILE | SERVICES | 100.00 | — | 100.00 | 676 | 1,360 | 7 | 1,249 | 104 | |||||||||||
ASERLOCAL, S.A. | SPAIN | SERVICES | — | 100.00 | 100.00 | 32 | 32 | — | 43 | (11 | ) | ||||||||||
ASSUREX, S.A. | ARGENTINA | INSURANCE | 87.50 | 12.50 | 100.00 | 68 | 458 | 392 | 62 | 4 | |||||||||||
ATUEL FIDEICOMISOS, S.A. | ARGENTINA | SERVICES | — | 100.00 | 100.00 | 4,954 | 5,117 | 163 | 3,241 | 1,713 | |||||||||||
AUTOMERCANTIL-COMERCIO E ALUGER DE VEICULOS AUTOM., LDA. | PORTUGAL | FINANCIAL SERV. | — | 100.00 | 100.00 | 17,217 | 67,403 | 57,489 | 9,711 | 203 | |||||||||||
BAHIA SUR RESORT, S.C. | SPAIN | REAL ESTATE | 99.95 | — | 99.95 | 1,436 | 1,438 | 15 | 1,423 | — | |||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA (PANAMA), S.A. | PANAMA | BANKING | 54.12 | 44.81 | 98.93 | 19,464 | 852,708 | 722,400 | 106,770 | 23,538 | |||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA (PORTUGAL), S.A. | PORTUGAL | BANKING | 9.52 | 90.48 | 100.00 | 278,916 | 5,285,506 | 5,052,258 | 264,100 | (30,852 | ) | ||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA CHILE, S.A. | CHILE | BANKING | 60.92 | 6.92 | 67.84 | 273,426 | 6,534,127 | 6,113,769 | 377,009 | 43,349 | |||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA PUERTO RICO | PUERTO RICO | BANKING | — | 100.00 | 100.00 | 105,348 | 4,797,356 | 4,402,685 | 372,231 | 22,440 | |||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY, S.A. | URUGUAY | BANKING | 100.00 | — | 100.00 | 17,049 | 354,457 | 328,550 | 21,261 | 4,646 | |||||||||||
BANCO CONTINENTAL, S.A. | PERU | BANKING | — | 92.08 | 92.08 | 374,183 | 4,426,905 | 4,020,555 | 287,599 | 118,751 |
Company BANCO DE CREDITO LOCAL, S.A. BANCO DE PROMOCION DE NEGOCIOS, S.A. BANCO DEPOSITARIO BBVA, S.A. BANCO INDUSTRIAL DE BILBAO, S.A. BANCO OCCIDENTAL, S.A. BANCO PROVINCIAL OVERSEAS N.V. BANCO PROVINCIAL S.A. - BANCO UNIVERSAL BANCO UNO-E BRASIL, S.A. BANCOMER ASSET MANAGEMENT INC. BANCOMER FINANCIAL SERVICES INC. BANCOMER FOREIGN EXCHANGE INC. BANCOMER PAYMENT SERVICES INC. BANCOMER TRANSFER SERVICES, INC. BANCOMERCIO SEGUROS, S.A. AGENCIA DE SEGUROS BANKERS INVESTMENT SERVICES, INC. BBV AMERICA, S.L. BBV SECURITIES HOLDINGS, S.A. BBVA & PARTNERS ALTERNATIVE INVESTMENT A.V., S.A. BBVA ADMINISTRADORA GENERAL DE FONDOS S.A. BBVA AMERICA FINANCE, S.A. BBVA BANCO DE FINANCIACION S.A. BBVA BANCO FRANCES, S.A. BBVA BANCOMER FINANCIAL HOLDINGS, INC. BBVA BANCOMER GESTION, S.A. DE C.V. BBVA BANCOMER HOLDING CORPORATION BBVA BANCOMER OPERADORA, S.A. DE C.V. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 SPAIN BANKING 100.00 — 100.00 509,597 11,563,355 11,283,023 239,410 40,922 SPAIN BANKING — 99.81 99.81 15,149 32,608 247 31,791 570 SPAIN BANKING — 100.00 100.00 1,595 1,219,922 1,169,201 167 50,554 SPAIN BANKING — 99.93 99.93 97,218 281,609 26,342 176,465 78,802 SPAIN BANKING 49.43 50.57 100.00 15,512 16,667 787 15,345 535 NETHERLANDS
ANTILLES BANKING — 100.00 100.00 30,135 411,944 381,809 23,126 7,009 VENEZUELA BANKING 1.85 53.75 55.60 162,180 6,561,057 6,085,778 330,112 145,167 BRAZIL BANKING 100.00 — 100.00 16,166 31,661 4,523 25,082 2,056 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 2 2 — 2 — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 3,812 4,342 529 4,193 (380 ) UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 3,191 4,136 945 2,451 740 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 11 17 6 16 (5 ) UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 34,013 109,047 75,034 20,908 13,105 SPAIN SERVICES 99.99 0.01 100.00 60 81 1 80 — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 651 693 41 880 (228 ) SPAIN PORTFOLIO 100.00 — 100.00 479,328 472,590 — 491,627 (19,037 ) SPAIN PORTFOLIO 99.86 0.14 100.00 19,550 53,493 33,943 30,561 (11,011 ) SPAIN SECURITIES 70.00 — 70.00 1,331 8,142 5,077 2,399 666 CHILE FINANCIAL
SERV. — 100.00 100.00 16,597 16,949 343 13,910 2,696 SPAIN FINANCIAL
SERV. 100.00 — 100.00 60 52,274 52,221 56 (3 ) SPAIN BANKING — 100.00 100.00 64,200 7,452,455 7,383,045 68,581 829 ARGENTINA BANKING 45.65 30.44 76.09 46,534 4,176,363 3,695,871 434,097 46,395 UNITED
STATES PORTFOLIO — 100.00 100.00 42,554 60,680 17,875 40,541 2,264 MEXICO FINANCIAL
SERV. — 99.99 99.99 19,252 35,796 16,540 6,739 12,517 UNITED
STATES PORTFOLIO — 100.00 100.00 4,876 4,876 — 3,539 1,337 MEXICO SERVICES — 100.00 100.00 2,912 455,026 452,114 1,761 1,151
Company Assets as of 31.12.06 Liabilities as of 31.12.06 Equity 31.12.06 Profit (Loss) for the BBVA BANCOMER SERVICIOS ADMINISTRATIVOS, S.A. DE C.V. BBVA BANCOMER SERVICIOS, S.A. BBVA BANCOMER USA BBVA BANCOMER, S.A. DE C.V. BBVA BROKER, CORREDURIA DE SEGUROS Y REASEGUROS, S.A. BBVA CAPITAL FINANCE, S.A. BBVA CAPITAL FUNDING, LTD. BBVA CARTERA DE INVERSIONES,SICAV,S.A. BBVA COLOMBIA, S.A. BBVA CONSOLIDAR SALUD S.A. BBVA CONSOLIDAR SEGUROS, S.A. BBVA CORREDORA TECNICA DE SEGUROS BHIF LTDA. BBVA CORREDORES DE BOLSA, S.A. BBVA CORREDURIA TECNICA ASEGURADORA, S.A. BBVA CRECER AFP, S.A. BBVA DINERO EXPRESS, S.A.U BBVA E-COMMERCE, S.A. BBVA FACTORING E.F.C., S.A. BBVA FIDUCIARIA , S.A. BBVA FINANCE (DELAWARE) INC. BBVA FINANCE (UK), LTD. BBVA FINANCE SPA. BBVA FINANCIAMIENTO AUTOMOTRIZ, S.A. BBVA FINANZIA, S.P.A BBVA FUNDOS, S.G. DE FUNDOS DE PENSOES, S.A. BBVA GEST, S.G. DE FUNDOS DE INVESTIMENTO MOBILIARIO, S.A. BBVA GESTION,SOCIEDAD ANONIMA, SGIIC BBVA GLOBAL FINANCE LTD. BBVA HORIZONTE PENSIONES Y CESANTIAS, S.A. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount
Period
ended
31.12.06 MEXICO FINANCIAL
SERV. — 100.00 100.00 708 8,917 8,210 462 245 MEXICO BANKING — 100.00 100.00 401,963 417,752 15,788 321,698 80,266 UNITED STATES BANKING — 100.00 100.00 12,833 84,000 71,103 19,695 (6,798 ) MEXICO BANKING — 100.00 100.00 4,889,024 54,058,936 49,166,559 3,583,706 1,308,671 SPAIN SERVICES — 100.00 100.00 337 7,290 1,615 3,281 2,394 SPAIN FINANCIAL
SERV. 100.00 — 100.00 60 1,992,153 1,991,980 145 28 CAYMAN ISLANDS FINANCIAL
SERV. 100.00 — 100.00 — 1,281,682 1,279,763 1,804 115 SPAIN PORTFOLIO 92.25 — 92.25 46,876 119,377 170 115,479 3,728 COLOMBIA BANKING 76.20 19.23 95.43 265,946 4,764,806 4,327,516 353,968 83,322 ARGENTINA INSURANCE 15.35 84.65 100.00 13,361 39,598 26,075 10,479 3,044 ARGENTINA INSURANCE 87.78 12.22 100.00 5,946 24,997 13,047 10,678 1,272 CHILE SERVICES — 100.00 100.00 15,500 16,849 1,342 11,539 3,968 CHILE SECURITIES — 100.00 100.00 20,544 290,060 269,341 19,583 1,136 SPAIN SERVICES 99.94 0.06 100.00 297 16,566 6,040 6,237 4,289 DOMINICAN
REPUBLIC FINANCIAL
SERV. 35.00 35.00 70.00 1,982 7,933 2,518 5,850 (435 ) SPAIN FINANCIAL
SERV. 100.00 — 100.00 2,186 8,064 5,233 2,257 574 SPAIN SERVICES 100.00 — 100.00 30,879 34,420 224 35,429 (1,233 ) SPAIN FINANCIAL
SERV. — 100.00 100.00 126,447 5,467,812 5,262,341 185,802 19,669 COLOMBIA FINANCIAL
SERV. — 99.99 99.99 8,036 8,689 536 6,694 1,459 UNITED STATES FINANCIAL
SERV. 100.00 — 100.00 110 380 — 380 — UNITED KINGDOM FINANCIAL
SERV. — 100.00 100.00 3,324 27,186 13,939 12,936 311 ITALY FINANCIAL
SERV. 100.00 — 100.00 4,648 6,018 1,060 4,946 12 CHILE PORTFOLIO — 100.00 100.00 83,054 83,054 — 76,971 6,083 ITALY FINANCIAL
SERV. 50.00 50.00 100.00 19,214 286,466 271,331 15,858 (723 ) PORTUGAL FINANCIAL
SERV. — 100.00 100.00 998 5,712 483 3,750 1,479 PORTUGAL FINANCIAL
SERV. — 100.00 100.00 998 7,813 621 4,901 2,291 SPAIN FINANCIAL
SERV. 17.00 83.00 100.00 11,436 245,160 154,143 9,659 81,358 CAYMAN ISLANDS FINANCIAL
SERV. 100.00 — 100.00 — 1,750,748 1,746,903 3,612 233 COLOMBIA PENSIONS 78.52 21.43 99.95 35,696 60,193 10,115 36,206 13,872
Company BBVA INMOBILIARIA E INVERSIONES S.A. BBVA INSERVEX, S.A. BBVA INTERNATIONAL INVESTMENT CORPORATION BBVA INTERNATIONAL LIMITED BBVA INTERNATIONAL PREFERRED, S.A.U. BBVA INVESTMENTS, INC. BBVA IRELAND PUBLIC LIMITED COMPANY BBVA LUXINVEST, S.A. BBVA NOMINEES LIMITED BBVA PARAGUAY, S.A. BBVA PARTICIPACIONES INTERNACIONAL, S.L. BBVA PATRIMONIOS GESTORA SGIIC, S.A. BBVA PENSIONES CHILE, S.A. BBVA PENSIONES, SA, ENTIDAD GESTORA DE FONDOS DE PENSIONES BBVA PLANIFICACION PATRIMONIAL, S.L. BBVA PREFERRED CAPITAL, LTD. BBVA PRIVANZA (JERSEY), LTD. BBVA PUERTO RICO HOLDING CORPORATION BBVA RE LIMITED BBVA RENTING, S.A. BBVA RESEARCH, S.A. BBVA SECURITIES HOLDINGS (UK) LIMITED BBVA SECURITIES INC. BBVA SECURITIES LTD. BBVA SECURITIES OF PUERTO RICO, INC. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 CHILE REAL
EST.INSTR. — 68.11 68.11 4,870 24,260 17,110 7,892 (742 ) SPAIN SERVICES 100.00 — 100.00 1,205 3,327 4 2,875 448 PUERTO RICO FINANCIAL
SERV. 100.00 — 100.00 2,769,952 2,265,049 19 1,981,286 283,744 CAYMAN ISLANDS FINANCIAL
SERV. 100.00 — 100.00 1 1,009,727 1,006,220 2,829 678 SPAIN FINANCIAL
SERV. 100.00 — 100.00 60 1,059,300 1,059,228 63 9 UNITED STATES FINANCIAL
SERV. — 100.00 100.00 5,410 6,705 1,293 3,926 1,486 IRELAND FINANCIAL
SERV. 100.00 — 100.00 180,381 4,346,978 4,062,078 272,935 11,965 LUXEMBOURG PORTFOLIO 36.00 64.00 100.00 255,843 1,429,887 50,652 950,890 428,345 UNITED KINGDOM SERVICES 100.00 — 100.00 — 1 — 1 — PARAGUAY BANKING 99.99 — 99.99 22,598 330,011 289,562 28,318 12,131 SPAIN PORTFOLIO 92.69 7.31 100.00 273,366 326,951 1,459 319,702 5,790 SPAIN FINANCIAL
SERV. 99.99 0.01 100.00 3,907 42,630 2,554 31,804 8,272 CHILE PENSIONS 32.23 67.77 100.00 281,182 348,823 4,814 309,071 34,938 SPAIN PENSIONS 100.00 — 100.00 12,922 68,619 30,883 25,938 11,798 SPAIN FINANCIAL
SERV. 80.00 20.00 100.00 1 512 40 455 17 CAYMAN ISLANDS NO
ACTIVITY 100.00 — 100.00 1 1,066 — 941 125 CHANNEL
ISLANDS NO
ACTIVITY — 100.00 100.00 20,610 106,854 489 101,693 4,672 PUERTO RICO PORTFOLIO 100.00 — 100.00 255,804 105,966 6 106,017 (57 ) IRELAND INSURANCE — 100.00 100.00 656 39,127 28,952 7,991 2,184 SPAIN FINANCIAL
SERV. — 100.00 100.00 20,976 574,743 483,232 80,922 10,589 SPAIN FINANCIAL
SERV. 99.99 0.01 100.00 501 3,475 2,713 674 88 UNITED KINGDOM FINANCIAL
SERV. — 100.00 100.00 75 6,307 6,259 364 (316 ) UNITED STATES FINANCIAL
SERV. — 100.00 100.00 31,750 29,407 4,058 27,932 (2,583 ) UNITED KINGDOM FINANCIAL
SERV. — 100.00 100.00 3,315 9,464 2,658 3,548 3,258 PUERTO RICO FINANCIAL
SERV. 100.00 — 100.00 4,726 4,830 396 4,601 (167 )
Company Assets as of 31.12.06 Liabilities as of 31.12.06 Equity 31.12.06 Profit (Loss) for the Period ended 31.12.06 BBVA SEGUROS COLOMBIA COMPAÑIA DE SEGUROS, S.A. BBVA SEGUROS DE VIDA COLOMBIA, S.A. BBVA SEGUROS DE VIDA, S.A. BBVA SEGUROS INC. BBVA SEGUROS, S.A. BBVA SEGUROS, S.A. (DOMINICAN REPUBLIC) BBVA SENIOR FINANCE, S.A.U. BBVA SERVICIOS, S.A. BBVA SOCIEDAD LEASING HABITACIONAL BHIF BBVA SUBORDINATED CAPITAL S.A.U. BBVA SWITZERLAND, S.A. (BBVA SWITZERLAND) BBVA TRADE, S.A. BBVA U.S. SENIOR S.A.U. BBVA USA BANCSHARES OF DELAWARE, INC. BBVA USA BANCSHARES, INC. BBVA USA, INC. BBVA VALORES COLOMBIA, S.A. COMISIONISTA DE BOLSA BBVA,INSTITUIÇAO FINANCEIRA DE CREDITO, S.A. BCL INTERNATIONAL FINANCE, LTD. BCL PARTICIPACIONES, S.L. BEX AMERICA FINANCE INCORPORATED BEXCARTERA, SICAV S.A. BHIF ASESORIAS Y SERVICIOS FINANCIEROS, S.A. BIBJ MANAGEMENT, LTD. BIBJ NOMINEES, LTD. BILBAO VIZCAYA AMERICA B.V. BILBAO VIZCAYA HOLDING, S.A. BILBAO VIZCAYA INVESTMENT ADVISORY COMPANY S.A. BROOKLINE INVESTMENTS, CANAL COMPANY, LTD. CANAL INTERNATIONAL HOLDING (NETHERLANDS) BV. CARTERA E INVERSIONES S.A., CIA DE CASA DE BOLSA BBVA BANCOMER, S.A. DE C.V. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount COLOMBIA INSURANCE 94.00 6.00 100.00 9,174 30,979 20,371 10,500 108 COLOMBIA INSURANCE 94.00 6.00 100.00 13,207 105,066 78,002 20,003 7,061 CHILE INSURANCE — 100.00 100.00 24,832 191,974 167,141 20,772 4,061 PUERTO RICO SERVICES — 100.00 100.00 190 3,377 542 1,858 977 SPAIN INSURANCE 94.30 5.64 99.94 414,519 12,284,726 11,397,656 702,149 184,921 DOMINICAN REPUBLIC INSURANCE — 99.98 99.98 1,556 4,259 2,686 552 1,021 SPAIN FINANCIAL
SERV. 100.00 — 100.00 60 17,911,860 17,911,518 141 201 SPAIN SERVICES — 100.00 100.00 354 1,052 21 956 75 CHILE FINANCIAL
SERV. — 97.48 97.48 8,906 28,943 19,833 8,906 204 SPAIN FINANCIAL
SERV. 100.00 — 100.00 130 2,954,128 2,953,928 73 127 SWITZERLAND BANKING 39.72 60.28 100.00 54,024 538,897 292,537 222,630 23,730 SPAIN SERVICES — 100.00 100.00 6,379 22,162 19,428 17,492 (14,758 ) SPAIN FINANCIAL
SERV. 100.00 — 100.00 132 4,031,854 4,031,813 132 (91 ) UNITED STATES PORTFOLIO — 100.00 100.00 679,265 679,267 — 664,000 15,267 UNITED STATES PORTFOLIO 100.00 — 100.00 695,628 687,402 12,203 661,433 13,766 UNITED STATES SERVICES — 100.00 100.00 4,566 6,705 1,626 8,735 (3,656 ) COLOMBIA FINANCIAL
SERV. — 100.00 100.00 3,208 3,321 109 2,765 447 PORTUGAL FINANCIAL
SERV. — 100.00 100.00 40,417 301,104 269,408 29,213 2,483 CAYMAN ISLANDS FINANCIAL
SERV. — 100.00 100.00 — 160,565 160,537 51 (23 ) SPAIN PORTFOLIO — 100.00 100.00 1,565 1,565 — 1,908 (343 ) UNITED STATES NO ACTIVITY 100.00 — 100.00 — 1 1 — — SPAIN PORTFOLIO — 80.84 80.84 9,341 13,500 64 12,947 489 CHILE FINANCIAL
SERV. — 98.60 98.60 12,548 13,789 1,064 7,807 4,918 CHANNEL ISLANDS NO ACTIVITY — 100.00 100.00 — — — — — CHANNEL ISLANDS NO ACTIVITY — 100.00 100.00 — — — — — NETHERLANDS PORTFOLIO — 100.00 100.00 348,940 348,960 20 331,644 17,296 SPAIN PORTFOLIO 89.00 11.00 100.00 34,771 123,740 534 58,724 64,482 LUXEMBOURG FINANCIAL
SERV. 100.00 — 100.00 77 27,820 1,444 11,144 15,232
S.L. SPAIN PORTFOLIO 100.00 — 100.00 33,969 32,395 475 32,001 (81 ) CHANNEL ISLANDS NO ACTIVITY — 100.00 100.00 37 1,058 20 1,199 (161 ) NETHERLANDS NO ACTIVITY — 100.00 100.00 494 87 22 38 27 SPAIN PORTFOLIO 100.00 — 100.00 60,541 506,982 443,482 (52,122 ) 115,622 MEXICO FINANCIAL
SERV. — 100.00 100.00 49,932 74,777 24,842 23,672 26,263
Company CASA DE CAMBIO MULTIDIVISAS, S.A DE C.V. CIA. GLOBAL DE MANDATOS Y REPRESENTACIONES, S.A. CIDESSA DOS, S.L. CIDESSA UNO, S.L. CIERVANA, S.L. COMPAÑIA CHILENA DE INVERSIONES, S.L. CONSOLIDAR A.F.J.P., S.A. CONSOLIDAR ASEGURADORA DE RIESGOS DEL TRABAJO, S.A. CONSOLIDAR CIA. DE SEGUROS DE RETIRO, S.A. CONSOLIDAR CIA. DE SEGUROS DE VIDA, S.A. CONSOLIDAR COMERCIALIZADORA, S.A. CONSULTORES DE PENSIONES BBV, S.A. CONTINENTAL BOLSA, SDAD. AGENTE DE BOLSA S.A. CONTINENTAL S.A. SOCIEDAD ADMINISTRADORA DE FONDOS CONTINENTAL SOCIEDAD TITULIZADORA, S.A. CONTRATACION DE PERSONAL, S.A. DE C.V. CORPORACION DE ALIMENTACION Y BEBIDAS, S.A. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets
as of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 MEXICO NO ACTIVITY — 100.00 100.00 191 191 1 188 2 URUGUAY NO ACTIVITY — 100.00 100.00 108 190 2 188 — SPAIN PORTFOLIO — 100.00 100.00 11,243 11,435 191 11,183 61 SPAIN PORTFOLIO — 100.00 100.00 4,754 285,293 88,213 68,229 128,851 SPAIN PORTFOLIO 100.00 — 100.00 53,164 54,968 178 54,320 470 SPAIN PORTFOLIO 100.00 — 100.00 232,976 173,294 2,088 171,594 (388 ) ARGENTINA PENSIONS 46.11 53.89 100.00 61,784 94,401 28,112 66,266 23 ARGENTINA INSURANCE 87.50 12.50 100.00 33,490 129,937 87,400 37,089 5,448 ARGENTINA INSURANCE 33.33 66.67 100.00 10,649 459,959 443,989 12,326 3,644 ARGENTINA INSURANCE 34.04 65.96 100.00 21,147 78,082 45,389 20,300 12,393 ARGENTINA SERVICES — 100.00 100.00 298 3,074 2,776 81 217 SPAIN PENSIONS — 100.00 100.00 175 781 — 829 (48 ) PERU SECURITIES — 100.00 100.00 3,023 4,950 1,927 1,967 1,056 PERU FINANCIAL
SERV. — 100.00 100.00 3,236 3,482 245 3,084 153 PERU SERVICES — 100.00 100.00 717 719 2 700 17 MEXICO SERVICES — 100.00 100.00 126 9,757 9,632 5 120 SPAIN PORTFOLIO — 100.00 100.00 138,508 154,585 1,214 150,575 2,796
Company Assets as of 31.12.06 Liabilities as of 31.12.06 CORPORACION GENERAL FINANCIERA, S.A. CORPORACION INDUSTRIAL Y DE SERVICIOS, S.L. CORPORATIVO VITAMEDICA, S.A. DE C.V. DESARROLLADORA Y VENDEDORA DE CASAS, S.A. DE C.V. DESARROLLO URBANISTICO DE CHAMARTIN, S.A. DESITEL TECNOLOGIA Y SISTEMAS, S.A. DE C.V. DEUSTO, S.A. DE INVERSION MOBILIARIA DINERO EXPRESS SERVICES GLOBALES, S.A. EL ENCINAR METROPOLITANO, S.A. EL OASIS DE LAS RAMBLAS, S.L. ELANCHOVE, S.A. EMPRESA INSTANT CREDIT, C.A. ESPANHOLA COMERCIAL E SERVIÇOS, LTDA. ESTACION DE AUTOBUSES CHAMARTIN, S.A. EUROPEA DE TITULIZACION, S.A., SDAD.GEST.DE FDOS.DE TITUL. EURORISK, S.A. EXPLOTACIONES AGROPECUARIAS VALDELAYEGUA, S.A. FIDEICOMISO 29763-0 SOCIO LIQUIDADOR OP.FINAN.POSICION PRO FIDEICOMISO 29764-8 SOCIO LIQUIDADOR POSICION DE TERCEROS FIDEICOMISO 474031 MANEJO DE GARANTIAS FIDEICOMISO BANCO FRANCES FIDEICOMISO CENTRO CORPORATIVO REGIONAL F/47433-8 FIDEICOMISO INGRAL FIDEICOMISO INVEX 228 FIDEICOMISO INVEX 367 FIDEICOMISO INVEX 393 FIDEICOMISO INVEX 411 FINANCEIRA DO COMERCIO EXTERIOR S.A.R. FINANCIERA ESPAÑOLA, S.A. FINANZIA AUTORENTING, S.A. FINANZIA, BANCO DE CREDITO, S.A. FORO LOCAL, S.L. FRANCES ADMINISTRADORA DE INVERSIONES, S.A. G.F.C.INVERS. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 SPAIN PORTFOLIO 100.00 — 100.00 452,431 1,164,306 18,167 894,385 251,754 SPAIN PORTFOLIO — 100.00 100.00 1,251 5,552 806 2,914 1,832 MEXICO SERVICES — 99.98 99.98 197 1,431 1,234 190 7 MEXICO REAL
EST.INSTR. — 100.00 100.00 83 37 1 40 (4 ) SPAIN REAL
ESTATE — 72.50 72.50 30,535 61,743 19,592 42,448 (297 ) MEXICO SERVICES — 100.00 100.00 1,479 1,587 110 1,394 83 SPAIN PORTFOLIO — 100.00 100.00 11,005 11,005 — 11,203 (198 ) SPAIN FINANCIAL
SERV. 100.00 — 100.00 13,138 17,942 4,714 17,987 (4,759 ) SPAIN REAL
ESTATE — 98.76 98.76 5,130 9,269 4,087 6,052 (870 ) SPAIN REAL
ESTATE — 70.00 70.00 140 655 527 (1,182 ) 1,310 SPAIN PORTFOLIO 100.00 — 100.00 1,500 3,853 1,403 2,457 (7 ) VENEZUELA NO
ACTIVITY — 100.00 100.00 — — — — — BRAZIL FINANCIAL
SERV. 100.00 — 100.00 — 671 189 4,399 (3,917 ) SPAIN SERVICES — 51.00 51.00 31 31 — 31 — SPAIN FINANCIAL
SERV. 82.97 — 82.97 1,506 5,654 553 3,096 2,005 SPAIN SERVICES — 100.00 100.00 60 70,679 69,220 1,041 418 SPAIN REAL
ESTATE — 100.00 100.00 10,000 9,989 (6 ) 9,990 5 MEXICO FINANCIAL
SERV. — 100.00 100.00 14,721 14,831 110 12,588 2,133 MEXICO FINANCIAL
SERV. — 100.00 100.00 32,342 32,810 468 28,653 3,689 MEXICO SERVICES — 100.00 100.00 3 3 — 3 — ARGENTINA FINANCIAL
SERV. 100.00 — 100.00 — 1,197 903 497 (203 ) MEXICO SERVICES — 100.00 100.00 21,656 35,042 13,386 13,658 7,998 COLOMBIA SERVICES — 100.00 100.00 — 44 2 813 (771 ) MEXICO FINANCIAL
SERV. — 100.00 100.00 — 49,784 49,783 1 — MEXICO FINANCIAL
SERV. — 100.00 100.00 — 39,964 39,964 — — MEXICO FINANCIAL
SERV. — 100.00 100.00 — 37,390 37,390 — — MEXICO FINANCIAL
SERV. — 100.00 100.00 — 35,460 35,460 — — PORTUGAL SERVICES 100.00 — 100.00 51 45 — 46 (1 ) SPAIN PORTFOLIO 85.85 14.15 100.00 4,522 4,879 — 5,370 (491 ) SPAIN SERVICES — 85.00 85.00 14,369 614,129 585,289 26,820 2,020 SPAIN BANKING — 100.00 100.00 56,203 3,573,146 3,412,676 140,405 20,065 SPAIN SERVICES — 60.13 60.13 2 13 7 6 — ARGENTINA FINANCIAL
SERV. — 100.00 100.00 4,469 8,243 3,773 2,743 1,727
Company FRANCES VALORES SOCIEDAD DE BOLSA, S.A. FUTURO FAMILIAR, S.A. DE C.V. GENERAL DE PARTICIPACIONES EMPRESARIALES, S.L. GENTE BBVA, S.A. GESTION DE PREVISION Y PENSIONS, S.A. GESTION Y ADMINISTRACION DE RECIBOS, S.A. GOBERNALIA GLOBAL NET, S.A. GRAN JORGE JUAN, S.A. GRANFIDUCIARIA GRELAR GALICIA, S.A. GRUPO FINANCIERO BBVA BANCOMER, S.A. DE C.V. HIPOTECARIA NACIONAL MEXICANA INCORPORATED HIPOTECARIA NACIONAL, S.A. DE C.V. HOLDING CONTINENTAL, S.A. HOMEOWNERS LOAN CORPORATION HYDROX HOLDINGS, INC. IBERDROLA SERVICES FINANCIEROS, E.F.C, S.A. IBERNEGOCIO DE TRADE, S.L. INENSUR BRUNETE, S.L. INGENIERIA EMPRESARIAL MULTIBA INICIATIVAS RESIDENCIALES EN INTERNET, S.A. INMOBILIARIA ASUDI, S.A. INMOBILIARIA BILBAO, S.A. INMUEBLES Y RECUPERACIONES CONTINENTAL, S.A. INVERAHORRO, S.L. INVERSIONES ALDAMA, C.A. INVERSIONES BANPRO INTERNATIONAL INC. N.V. INVERSIONES BAPROBA, C.A. INVERSIONES MOBILIARIAS, S.L. INVERSIONES P.H.R.4, C.A. INVERSIONES T, C.A. INVERSORA OTAR, S.A. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 ARGENTINA FINANCIAL
SERV. — 100.00 100.00 1,476 1,835 358 1,750 (273 ) MEXICO INSURANCE — 100.00 100.00 151 307 155 122 30 SPAIN PORTFOLIO 65.68 34.32 100.00 1,215 2,116 — 2,081 35 CHILE FINANCIAL
SERV. — 100.00 100.00 140 1,913 1,772 144 (3 ) SPAIN PENSIONS 60.00 — 60.00 8,830 25,892 2,246 20,551 3,095 SPAIN SERVICES — 100.00 100.00 150 1,069 354 623 92 SPAIN SERVICES — 100.00 100.00 1,335 1,886 549 1,512 (175 ) SPAIN NO
ACTIVITY 100.00 — 100.00 10,115 10,293 175 10,113 5 COLOMBIA FINANCIAL
SERV. — 90.00 90.00 — 321 112 135 74 SPAIN PORTFOLIO — 100.00 100.00 4,329 4,330 — 4,216 114 MEXICO FINANCIAL
SERV. 48.96 51.00 99.96 6,171,072 6,242,893 1,685 4,662,032 1,579,176 UNITED
STATES REAL
EST.INSTR. — 100.00 100.00 126 182 8 169 5 MEXICO FINANCIAL
SERV. — 100.00 100.00 224,503 720,772 496,270 148,947 75,555 PERU PORTFOLIO 50.00 — 50.00 123,019 402,492 10 287,773 114,709 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 5,576 7,809 2,222 15,116 (9,529 ) UNITED
STATES NO
ACTIVITY — 100.00 100.00 — — — — — SPAIN FINANCIAL
SERV. — 84.00 84.00 7,290 9,279 162 9,043 74 SPAIN SERVICES — 100.00 100.00 615 31,139 18,998 9,047 3,094 SPAIN REAL
ESTATE — 100.00 100.00 23,745 82,332 85,283 (2,443 ) (508 ) MEXICO SERVICES — 99.99 99.99 — — — — — SPAIN SERVICES — 100.00 100.00 2 1,156 1,189 1,519 (1,552 ) SPAIN REAL
EST.INSTR. — 100.00 100.00 2,886 2,998 42 2,872 84 SPAIN REAL
EST.INSTR. — 100.00 100.00 3,514 3,551 36 3,438 77 PERU REAL
EST.INSTR. — 100.00 100.00 18,035 18,316 281 13,502 4,533 SPAIN PORTFOLIO 100.00 — 100.00 474 491 2 480 9 VENEZUELA NO
ACTIVITY — 100.00 100.00 — — — — — NETHERLANDS
ANTILLES PORTFOLIO 48.01 — 48.01 11,390 31,996 72 24,829 7,095 VENEZUELA SERVICES 100.00 — 100.00 1,307 1,663 48 1,507 108 SPAIN PORTFOLIO 100.00 — 100.00 660 693 — 674 19 VENEZUELA NO
ACTIVITY — 60.46 60.46 — 53 — 53 — VENEZUELA NO
ACTIVITY — 100.00 100.00 — — — — — ARGENTINA PORTFOLIO — 99.96 99.96 4,077 49,783 4,128 41,295 4,360
Company Assets as of INVESCO MANAGEMENT Nº 1, S.A. INVESCO MANAGEMENT Nº 2, S.A. JARDINES DE SARRIENA, S.L. LAREDO NATIONAL BANK LEASIMO - SOCIEDADE DE LOCACAO FINANCEIRA, S.A. MAGGIORE FLEET, S.P.A. MARQUES DE CUBAS 21, S.L. MEDITERRANIA DE PROMOCIONS I GESTIONS INMOBILIARIES, S.A. MERCURY TRUST LIMITED MILANO GESTIONI, SRL. MIRADOR DE LA CARRASCOSA, S.L. MISAPRE, S.A. DE C.V. MONESTERIO DESARROLLOS, S.L. MONTEALIAGA,S.A. MULTIASISTENCIA, S.A. DE C.V. MULTIVAL, S.A. OCCIVAL, S.A. OPCION VOLCAN, S.A. PARTICIPACIONES ARENAL, S.L. PENSIONES BANCOMER, S.A. DE C.V. PERI 5.1 SOCIEDAD LIMITADA PORT ARTHUR ABSTRACT & TITLE COMPANY PREMEXSA, S.A. DE C.V. PREVENTIS, S.A. PRO-SALUD, C.A. PROMOCION EMPRESARIAL XX, S.A. PROMOTORA DE RECURSOS AGRARIOS, S.A. PROMOTORA RESIDENCIAL GRAN EUROPA, S.L. PROVIDA INTERNACIONAL, S.A. PROVINCIAL DE VALORES CASA DE BOLSA, C.A. PROVINCIAL SDAD.ADMIN.DE ENTIDADES DE INV.COLECTIVA, C.A. PROVIVIENDA, ENTIDAD RECAUDADORA Y ADMIN.DE APORTES, S.A. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 LUXEMBOURG FINANCIAL
SERV. — 99.99 99.99 11,656 16,070 261 15,809 — LUXEMBOURG FINANCIAL
SERV. — 96.88 96.88 31 12,555 23,732 (8,749 ) (2,428 ) SPAIN REAL
ESTATE — 85.00 85.00 255 997 611 (2,342 ) 2,728 UNITED
STATES BANKING — 100.00 100.00 674,695 3,389,411 2,714,544 655,945 18,922 PORTUGAL FINANCIAL
SERV. — 100.00 100.00 11,576 71,960 60,533 10,701 726 ITALY SERVICES — 100.00 100.00 70,191 136,769 102,508 34,495 (234 ) SPAIN REAL
ESTATE 100.00 — 100.00 2,869 7,552 5,223 2,465 (136 ) SPAIN NO
ACTIVITY — 100.00 100.00 726 2,610 1,882 650 78 CAYMAN
ISLANDS FINANCIAL
SERV. — 100.00 100.00 4,019 4,148 105 3,989 54 ITALY REAL
EST.INSTR. — 100.00 100.00 46 4,384 4,012 328 44 SPAIN REAL
ESTATE — 55.90 55.90 9,724 26,467 9,399 17,071 (3 ) MEXICO FINANCIAL
SERV. — 100.00 100.00 8,305 9,586 2 8,541 1,043 SPAIN REAL
ESTATE — 100.00 100.00 19,990 54,432 34,610 19,805 17 SPAIN REAL
ESTATE — 100.00 100.00 21,154 77,331 61,689 9,932 5,710 MEXICO SERVICES — 100.00 100.00 7,364 13,864 5,440 7,182 1,242 SPAIN PORTFOLIO — 100.00 100.00 71 178 107 78 (7 ) SPAIN NO
ACTIVITY 100.00 — 100.00 8,211 9,171 8 8,907 256 MEXICO REAL
EST.INSTR. — 100.00 100.00 57,643 67,114 9,471 52,214 5,429 SPAIN NO
ACTIVITY — 100.00 100.00 6,270 7,451 1,179 6,150 122 MEXICO INSURANCE — 100.00 100.00 87,022 1,276,431 1,189,406 70,085 16,940 SPAIN REAL
ESTATE — 54.99 54.99 1 1 — 1 — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 1,827 2,069 243 1,811 15 MEXICO FINANCIAL
SERV. — 100.00 100.00 507 519 7 541 (29 ) MEXICO INSURANCE — 75.01 75.01 3,541 11,392 6,671 5,508 (787 ) VENEZUELA SERVICES — 58.86 58.86 — — 1 (1 ) — SPAIN FINANCIAL
SERV. 100.00 — 100.00 1,522 2,075 31 1,998 46 SPAIN SERVICES 100.00 — 100.00 139 146 — 148 (2 ) SPAIN REAL
ESTATE — 58.50 58.50 318 1,611 1,068 574 (31 ) CHILE PENSIONS — 100.00 100.00 54,464 54,908 244 48,034 6,630 VENEZUELA FINANCIAL
SERV. — 90.00 90.00 4,437 6,324 851 4,683 790 VENEZUELA FINANCIAL
SERV. — 100.00 100.00 1,553 1,823 276 1,264 283 BOLIVIA PENSIONS — 100.00 100.00 288 1,648 1,345 208 95
Company PROXIMA ALFA INVESTMENTS, SGIIC S.A. PROYECTO MUNDO AGUILON, S.L PROYECTOS EMPRESARIALES CAPITAL RIESGO I,S.C.R.SIMP., S.A. PROYECTOS EMPRESARIALES CAPITAL RIESGO, S.G.E.C.R.,S.A. PROYECTOS INDUSTRIALES CONJUNTOS, S.A. DE RESIDENCIAL CUMBRES DE SANTA FE, S.A. DE C.V. RIVERWAY HOLDINGS CAPITAL TRUST I RIVERWAY HOLDINGS CAPITAL TRUST II S.GESTORA FONDO PUBL.REGUL.MERCADO HIPOTECARIO, S.A. SCALDIS FINANCE, S.A. SEGUROS BANCOMER, S.A. DE C.V. SEGUROS PROVINCIAL, C.A. SERVICES CORPORATIVOS BANCOMER, S.A. DE C.V. SERVICES CORPORATIVOS DE INSURANCE, S.A. DE C.V. SERVICES EXTERNOS DE APOYO EMPRESARIAL, S.A DE C.V. SERVICES TECNOLOGICOS SINGULARES, S.A. SERVICES VITAMEDICA, S.A. DE C.V. SOCIEDAD DE ESTUDIOS Y ANALISIS FINANC.,S.A. SOCIEDAD PARA LA PRESTACION DE SºS ADMINISTRATIVOS, S.A. SOCIETE INMOBILIERE BBV D’ILBARRIZ SOUTHEAST TEXAS INSURANCE SERVICES HOLDINGS, L.L.C. SOUTHEAST TEXAS INSURANCE SERVICES, L.P. SOUTHEAST TEXAS TITLE COMPANY SPORT CLUB 18, S.A. TEXAS INTERNATIONAL SEGUROS GROUP, INC. TEXAS REGIONAL BANCSHARES, INC. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 SPAIN FINANCIAL
SERV. 51.00 — 51.00 5,100 13,301 1,928 10,000 1,373 SPAIN REAL
ESTATE — 100.00 100.00 9,317 32,219 9,621 19,720 2,878 SPAIN FINANCIAL
SERV. 100.00 — 100.00 1,200 11,697 10,510 1,200 (13 ) SPAIN FINANCIAL
SERV. 100.00 — 100.00 1,200 1,345 49 1,195 101 SPAIN PORTFOLIO — 100.00 100.00 3,148 3,484 — 3,481 3 MEXICO REAL
ESTATE — 100.00 100.00 10,265 14,847 5,123 10,283 (559 ) UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 235 7,877 7,640 234 3 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 118 4,076 3,953 121 2 SPAIN FINANCIAL
SERV. 77.20 — 77.20 138 217 67 152 (2 ) BELGIUM PORTFOLIO — 100.00 100.00 3,416 3,625 135 3,486 4 MEXICO INSURANCE 24.99 75.01 100.00 253,739 912,179 775,039 60,174 76,966 VENEZUELA INSURANCE — 100.00 100.00 5,895 21,321 15,396 930 4,995 MEXICO SERVICES — 100.00 100.00 130 9,040 8,910 287 (157 ) MEXICO SERVICES — 100.00 100.00 121 3,698 3,602 105 (9 ) MEXICO SERVICES — 100.00 100.00 1,741 6,575 4,834 1,461 280 SPAIN SERVICES 99.99 0.01 100.00 60 7,329 7,228 95 6 MEXICO SERVICES — 99.98 99.98 116 755 640 47 68 SPAIN PORTFOLIO 100.00 — 100.00 114,518 188,113 65 183,555 4,493 SPAIN SERVICES — 100.00 100.00 100 1,237 961 100 176 FRANCE REAL
ESTATE — 100.00 100.00 91 113 31 155 (73 ) UNITED
STATES NO
ACTIVITY — 100.00 100.00 — — — — — UNITED
STATES INSURANCE — 100.00 100.00 363 358 (5 ) 358 5 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 693 1,051 358 683 10 SPAIN PORTFOLIO 100.00 — 100.00 23,745 41,115 17,844 23,744 (473 ) UNITED
STATES SERVICES — 100.00 100.00 374 385 10 340 35 UNITED
STATES PORTFOLIO 100.00 — 100.00 1,673,906 1,637,086 5,785 1,619,943 11,358
% of Voting Rights Controlled by the Bank Company TEXAS REGIONAL DELAWARE, INC. TEXAS REGIONAL STATUTORY TRUST I TEXAS STATE BANK TRANSITORY CO TSB PROPERTIES, INC. TSB SECURITIES, INC. UNICOM TELECOMUNICACIONES S.DE R.L. DE C.V. UNIDAD DE AVALUOS MEXICO S.A. DE C.V. UNISEAR INMOBILIARIA, S.A. UNITARIA GESTION DE PATRIMONIOS INMOBILIARIA, S.A. UNIVERSALIDAD “E5” UNIVERSALIDAD - BANCO GRANAHORRAR UNO-E BANK, S.A. URBANIZADORA SANT LLORENC, S.A. VALLEY MORTGAGE COMPANY, INC. VISACOM, S.A. DE C.V. VITAMEDICA S.A. DE C.V. Thousands of Euros ( * ) Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 UNITED
STATES PORTFOLIO — 100.00 100.00 1,604,875 1,658,834 53,959 1,593,469 11,406 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 1,175 39,265 38,086 1,165 14 UNITED
STATES BANKING — 100.00 100.00 1,646,080 6,507,464 4,861,385 1,634,320 11,759 PANAMA REAL
EST.INSTR. — 100.00 100.00 216 5,383 5,167 312 (96 ) UNITED
STATES REAL
EST.INSTR. — 100.00 100.00 (1,500 ) 805 2,304 (1,499 ) — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 276 302 26 272 4 MEXICO SERVICES — 99.98 99.98 (12 ) 12 23 (9 ) (2 ) MEXICO FINANCIAL
SERV. — 90.00 90.00 672 1,207 459 631 117 SPAIN REAL
ESTATE — 100.00 100.00 15,626 18,630 703 16,822 1,105 SPAIN SERVICES — 100.00 100.00 2,410 2,471 8 2,421 42 COLOMBIA FINANCIAL
SERV. — 100.00 100.00 — 11,175 11,175 — — COLOMBIA FINANCIAL
SERV. — 100.00 100.00 — 19,689 22,147 (1,875 ) (583 ) SPAIN BANKING 67.35 32.65 100.00 174,751 1,427,998 1,291,599 126,079 10,320 SPAIN REAL
ESTATE 60.60 — 60.60 — 108 — 108 — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 9,692 13,789 4,096 9,494 199 MEXICO SERVICES — 100.00 100.00 352 353 1 591 (239 ) MEXICO INSURANCE — 50.99 50.99 2,914 8,893 3,179 5,777 (63 )
Information on foreign companies at exchange rate on 31-12-06
(*) | Unaudited data |
Retail BankingAPPENDIX II
ADDITIONAL INFORMATION ON JOINTLY CONTROLLED COMPANIES PROPORTIONATELY
CONSOLIDATED IN THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
% of voting rights Controlled by the bank | Thousands of Euros ( * ) | |||||||||||||||||||
Net carrying amount | Investee Data | |||||||||||||||||||
COMPANY | LOCATION | ACTIVITY | Direct | Indirect | Total | Assets 31.12.06 | Liabilities 31.12.06 | Equity 31.12.06 | Profit (loss) for the Period 2006 | |||||||||||
DARBY-BBVA LATIN AMERICAN INVESTORS, LTD | CAYMAN ISLAND | FINANCIAL SERV | 50.00 | — | 50.00 | — | 2,490 | 1,358 | 410 | 722 | ||||||||||
ECASA, S.A. | CHILE | FINANCIAL SERV | — | 51.04 | 51.04 | 1,770 | 3,893 | 359 | 2,304 | 1,230 | ||||||||||
FORUM DISTRIBUIDORA, S,A, | CHILE | SERVICES | — | 51.04 | 51.04 | 5,612 | 32,698 | 25,306 | 6,160 | 1,232 | ||||||||||
FORUM SERVICIOS FINANCIEROS, S.A. | CHILE | FINANCIAL SERV | — | 51.00 | 51.00 | 77,441 | 326,269 | 268,502 | 47,073 | 10,694 | ||||||||||
HOLDING DE PARTICIPACIONES INDUSTRIALES 2000, S.A. | SPAIN | PORTFOLIO | — | 50.00 | 50.00 | 1,518 | 4,180 | — | 4,094 | 86 | ||||||||||
PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA, S.A. | ARGENTINA | FINANCIAL SERV | — | 50.00 | 50.00 | 3,331 | 26,910 | 20,210 | 5,924 | 776 |
Information on foreign companies at exchange rate on 12/3/05
(*) | Unaudited data. |
APPENDIX III
ADDITIONAL INFORMATION ON INVESTMENTS AND JOINTLY CONTROLLED
COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD IN THE
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
(Includes the most significant companies which, taken as a whole, represent 98% of the total investment in Spain and Portugal: formed bythis respect)
% of voting rights Controlled by the bank | Thousands of Euros ( * ) | ||||||||||||||||||||
Investee Data | |||||||||||||||||||||
COMPANY | LOCATION | ACTIVITY | Direct | Indirect | Total | Net Carrying amount | Assets | Liabilities | Equity | Profit (loss) for the | |||||||||||
ADQUIRA ESPAÑA, S.A. | SPAIN | SERVICES | — | 40.00 | 40.00 | 2,669 | 16,041 | 10,260 | 8,134 | (2,353 | ) | ||||||||||
ALMAGRARIO, S.A. | COLOMBIA | SERVICES | — | 35.38 | 35.38 | 5,935 | 21,778 | 4,809 | 16,286 | 683 | |||||||||||
AUREA, S.A. (CUBA) | CUBA | REAL ESTATE | — | 49.00 | 49.00 | 4,339 | 11,924 | 3,049 | 8,665 | 210 | |||||||||||
BBVA ELCANO EMPRESARIAL II, S.C.R., S.A. | SPAIN | SERV.FINANCIER. | 45.00 | — | 45.00 | 29,342 | 3,416 | 2,260 | 1,200 | (44 | ) | ||||||||||
BBVA ELCANO EMPRESARIAL, S.C.R., S.A. | SPAIN | SERV.FINANCIER. | 45.00 | — | 45.00 | 29,347 | 3,928 | 2,772 | 1,200 | (44 | ) | ||||||||||
CAMARATE GOLF, S.A. (*) | SPAIN | REAL ESTATE | — | 26.00 | 26.00 | 4,625 | 66,968 | 49,041 | 17,971 | (44 | ) | ||||||||||
COMPAÑIA ESPAÑOLA DE FINANCIACION DEL DESARROLLO S.A. | SPAIN | SERVICES | 21.82 | 0.00 | 21.82 | 10,673 | 59,574 | 12,455 | 46,048 | 1,071 | |||||||||||
COMPAÑIA MEXICANA DE PROCESAMIENTO, S.A. DE C.V. | MEXICO | SERVICES | — | 50.00 | 50.00 | 3,088 | 7,846 | 1,896 | 9,321 | (3,371 | ) | ||||||||||
CORPORACION IBV PARTICIPACIONES EMPRESARIALES, S.A. (*) | SPAIN | PORTFOLIO | — | 50.00 | 50.00 | 564,762 | 1,236,368 | 303,371 | 869,472 | 63,525 | (1) | ||||||||||
FERROMOVIL 3000, S.L. | SPAIN | SERVICES | — | 20.00 | 20.00 | 6,361 | — | — | — | — | (2) | ||||||||||
FERROMOVIL 9000, S.L. | SPAIN | SERVICES | — | 20.00 | 20.00 | 4,155 | — | — | — | — | (2) | ||||||||||
FIDEICOMISO 70191-2 PUEBLA (*) | MEXICO | REAL ESTATE | — | 25.00 | 25.00 | 12,213 | — | — | — | — | (2) | ||||||||||
GRUPO PROFESIONAL PLANEACION Y PROYECTOS, S.A. DE C.V. (*) | MEXICO | SERVICES | — | 44.39 | 44.39 | 4,406 | 24,490 | 14,937 | 8,616 | 937 | (1) | ||||||||||
HESTENAR, S.L. (*) | SPAIN | REAL ESTATE | — | 43.34 | 43.34 | 7,835 | 26,577 | 20,668 | 5,942 | (33 | ) | ||||||||||
IMOBILIARIA DAS AVENIDAS NOVAS, S.A. | PORTUGAL | REAL ESTATE | — | 49.97 | 49.97 | 2,603 | 5,767 | 450 | 5,560 | (243 | ) | ||||||||||
IMOBILIARIA DUQUE DE AVILA, S.A. (*) | PORTUGAL | REAL ESTATE | — | 50.00 | 50.00 | 4,725 | 26,171 | 16,323 | 7,771 | 2,077 | |||||||||||
INMUEBLES MADARIAGA PROMOCIONES, S.L. (*) | SPAIN | REAL ESTATE | 50.00 | — | 50.00 | 3,123 | 8,072 | 1,745 | 6,354 | (27 | ) | ||||||||||
JARDINES DEL RUBIN, S.A. (*) | SPAIN | REAL ESTATE | — | 50.00 | 50.00 | 2,999 | 36,607 | 32,504 | 3,990 | 113 | |||||||||||
LA ESMERALDA DESARROLLOS, S.L. | SPAIN | REAL ESTATE | — | 45.00 | 45.00 | 8,948 | — | — | — | — | (2) | ||||||||||
LAS PEDRAZAS GOLF, S.L. (*) | SPAIN | REAL ESTATE | — | 50.00 | 50.00 | 15,817 | 73,616 | 41,707 | 31,979 | (70 | ) | ||||||||||
MOBIPAY INTERNATIONAL, S.A. (*) | SPAIN | SERVICES | — | 50.00 | 50.00 | 2,403 | 6,214 | 341 | 8,243 | (2,370 | ) | ||||||||||
MONTEALMENARA GOLF, S.L. (*) | SPAIN | REAL ESTATE | — | 50.00 | 50.00 | 15,893 | 49,326 | 33,720 | 15,663 | (57 | ) | ||||||||||
PARQUE REFORMA SANTA FE, S.A. DE C.V. | MEXICO | REAL ESTATE | — | 30.00 | 30.00 | 4,652 | 30,368 | 11,309 | 19,736 | (678 | ) | ||||||||||
PART. SERVIRED, SDAD. CIVIL | SPAIN | SERVICES | 20.50 | 0.92 | 21.42 | 10,615 | 53,084 | 3,713 | 49,346 | 25 | |||||||||||
PROMOTORA METROVACESA, S.L. (*) | SPAIN | REAL ESTATE | — | 50.00 | 50.00 | 9,067 | 73,644 | 56,091 | 19,007 | (1,454 | )(1) | ||||||||||
ROMBO COMPAÑIA FINANCIERA, S.A. | ARGENTINA | SERV.FINANCIER. | — | 40.00 | 40.00 | 3,285 | 32,736 | 24,314 | 8,481 | (59 | ) | ||||||||||
SERVICIOS ELECTRONICOS GLOBALES, S.A. DE C.V. | MEXICO | SERVICES | — | 45.98 | 45.98 | 4,680 | 21,577 | 10,748 | 10,433 | 397 | |||||||||||
TELEFONICA FACTORING, E.F.C., S.A. | SPAIN | SERV.FINANCIER. | 30.00 | — | 30.00 | 2,839 | 95,422 | 85,761 | 6,905 | 2,756 | |||||||||||
TELEPEAJE ELECTRONICO, S.A. DE C.V. (*) | MEXICO | SERVICES | — | 50.00 | 50.00 | 10,747 | 69,686 | 70,935 | 2,330 | (3,579 | ) | ||||||||||
TUBOS REUNIDOS, S.A. | SPAIN | INDUSTRIAL | 0.01 | 24.26 | 24.27 | 69,284 | 578,059 | 333,518 | 212,419 | 32,122 | (1) | ||||||||||
OTHER COMPANIES | 27,506 | ||||||||||||||||||||
TOTAL | 888,936 | 2,639,260 | 1,148,697 | 1,401,073 | 89,490 |
Data relating to the Group’s retail banking, asset management and private banking businesseslatest financial statements (generally for 2005) approved at the date of preparation of these notes to the consolidated financial statements.
For the companies abroad the exchange rates ruling at the reference date are applied.
(1) | Consolidated data |
(2) | Company incorporated in 2006 |
(*) | Jointly controlled entities accounted for using the equity method |
APPENDIX IV
NOTIFICATION OF ACQUISITION OF INVESTEES
% of Ownership | |||||||||
COMPANY | ACTIVITY | Net% Acquired (Sold) in the Year | % at Year-End | Date of Notification to Investee | |||||
Acquisitions made until December 31, 2005 | |||||||||
FRANQUICIA TEXTURA, S.A. (1) | INDUSTRIAL | 100.00 | — | March 10, 2005 | |||||
INICIATIVAS RESIDENCIALES EN INTERNET, S.A. | SERVICES | 50.00 | 100.00 | March 10, 2005 | |||||
MONTEALIAGA,S.A. | REAL ESTATE | 40.00 | 100.00 | March 10, 2005 | |||||
TEXTIL TEXTURA, S.L. | INDUSTRIAL | 64.50 | 64.50 | March 10, 2005 | |||||
TEXTURA GLOBE, S.A. (1) | INDUSTRIAL | 100.00 | — | March 10, 2005 | |||||
Acquisitions made until December 31, 2006 | |||||||||
BBVA CARTERA DE INVERSIONES SICAV, S.A. | PORTFOLIO | 17.40 | 92.25 | January 9, 2007 | |||||
HESTENAR, S.L. | REAL ESTATE | 3.34 | 43.34 | January 18, 2007 | |||||
INENSUR BRUNETE, S.L. | REAL ESTATE | 50.00 | 100.00 | October 20, 2006 | |||||
TECNICAS REUNIDAS, S.A. | SERVICES | (15.23 | ) | 10.16 | June 26, 2006 | ||||
UNO-E BANK, S.A. | BANKING | 33.00 | 100.00 | August 10, 2006 |
(1) | Company absorbed by Textura Textil, S.L. in December 2005 |
APPENDIX V
SUBSIDIARIES FULLY CONSOLIDATED AS OF DECEMBER 31, 2006
WITH MORE THAN 5% OWNED BY NON-GROUP SHAREHOLDERS
% of voting rights Controlled by the bank | ||||||||||
Company | Activity | Direct | Indirect | Other | Total | |||||
ADMINISTRADORA DE FONDOS DE PENSIONES PROVIDA (AFP PROVIDA) | PENSIONS | 12.70 | 51.62 | — | 64.32 | |||||
AFP PREVISION BBV-ADM.DE FONDOS DE PENSIONES S.A. | PENSIONS | 75.00 | 5.00 | — | 80.00 | |||||
ALTITUDE INVESTMENTS LIMITED | FINANCIAL SERV. | 51.00 | — | — | 51.00 | |||||
ALTURA MARKETS, A.V., S.A. | SECURITIES | 50.00 | — | — | 50.00 | |||||
BANCO BILBAO VIZCAYA ARGENTARIA CHILE, S.A. | BANKING | 60.92 | 6.92 | — | 67.84 | |||||
BANCO PROVINCIAL S.A. - BANCO UNIVERSAL | BANKING | 1.85 | 53.75 | — | 55.60 | |||||
BBVA & PARTNERS ALTERNATIVE INVESTMENT A.V., S.A. | SECURITIES | 70.00 | — | — | 70.00 | |||||
BBVA CARTERA DE INVERSIONES, SICAV, S.A. | PORTFOLIO | 92.25 | — | — | 92.25 | |||||
BBVA CRECER AFP, S.A. | FINANCIAL SERV. | 35.00 | 35.00 | — | 70.00 | |||||
BBVA INMOBILIARIA E INVERSIONES S.A. | REAL ESTATE | — | 68.11 | — | 68.11 | |||||
DESARROLLO URBANISTICO DE CHAMARTIN, S.A. | REAL ESTATE | — | 72.50 | — | 72.50 | |||||
EL OASIS DE LAS RAMBLAS, S.L. | REAL ESTATE | — | 70.00 | — | 70.00 | |||||
ESTACION DE AUTOBUSES CHAMARTIN, S.A. | SERVICES | — | 51.00 | — | 51.00 | |||||
FINANZIA AUTORENTING, S.A. | SERVICES | — | 85.00 | — | 85.00 | |||||
FORO LOCAL, S.L. | SERVICES | — | 60.13 | — | 60.13 | |||||
GESTION DE PREVISION Y PENSIONES, S.A. | PENSIONS | 60.00 | — | — | 60.00 | |||||
HOLDING CONTINENTAL, S.A. | PORTFOLIO | 50.00 | — | — | 50.00 | |||||
IBERDROLA SERVICIOS FINANCIEROS, E.F.C, S.A. | FINANCIAL SERV. | — | 84.00 | — | 84.00 | |||||
INVERSIONES BANPRO INTERNATIONAL INC. N.V. | PORTFOLIO | 48.01 | — | — | 48.01 | |||||
JARDINES DE SARRIENA, S.L. | REAL ESTATE | — | 85.00 | — | 85.00 | |||||
MIRADOR DE LA CARRASCOSA, S.L. | REAL ESTATE | — | 55.90 | — | 55.90 | |||||
PERI 5.1 SOCIEDAD LIMITADA | REAL ESTATE | — | 54.99 | — | 54.99 | |||||
PREVENTIS, S.A. | INSURANCES | — | 75.01 | — | 75.01 | |||||
PRO-SALUD, C.A. | SERVICES | — | 58.86 | — | 58.86 | |||||
PROMOTORA RESIDENCIAL GRAN EUROPA, S.L. | REAL ESTATE | — | 58.50 | — | 58.50 | |||||
PROVINCIAL DE VALORES CASA DE BOLSA | FINANCIAL SERV. | — | 90.00 | — | 90.00 | |||||
PROXIMA ALFA INVESTMENTS, SGIIC S.A. | FINANCIAL SERV. | 51.00 | — | — | 51.00 | |||||
UNIDAD DE AVALUOS MEXICO S.A. DE C.V. | FINANCIAL SERV. | — | 90.00 | — | 90.00 | |||||
VITAMEDICA S.A. DE C.V. | INSURANCES | — | 50.99 | — | 50.99 |
APPENDIX VI. RECONCILIATION OF THE CLOSING BALANCES FOR 2003 AND 2004 TO THE OPENING
BALANCES FOR 2004 AND 2005
EU-IFRS 1 requires that the first consolidated financial statements prepared in Spain and Portugal, coveringaccordance with EU-IFRSs include a reconciliation of the residential customer and small and medium entities (“SME”) segments inclosing balances for the immediately preceding year to the opening balances for the year to which these markets. It also includesfinancial statements refer.
RECONCILIATION OF THE CLOSING BALANCES FOR 2003 TO THE OPENING BALANCES FOR 2004
ASSETS | Closing balances for 2003 | Differences | Opening for 2004 | ||||||
CASH AND BALANCES WITH CENTRAL BANKS | 8,109,875 | — | 8,109,875 | ||||||
FINANCIAL ASSETS HELD FOR TRADING (c) | 27,381,896 | 8,605,568 | 35,987,464 | ||||||
Loans and advances to credit institutions | — | — | — | ||||||
Money market operations through counterparties | — | — | — | ||||||
Loans and advances to other debtors | — | — | — | ||||||
Debt securities | 25,630,096 | 3,035,302 | 28,665,398 | ||||||
Other equity instruments | 2,029,414 | — | 2,029,414 | ||||||
Trading derivatives (g) | (277,614 | ) | 5,570,266 | 5,292,652 | |||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (c) | — | 957,477 | 957,477 | ||||||
Loans and advances to credit institutions | — | — | — | ||||||
Money market operations through counterparties | — | — | — | ||||||
Loans and advances to other debtors | — | — | — | ||||||
Debt securities | — | — | — | ||||||
Other equity instruments | — | 957,477 | 957,477 | ||||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
AVAILABLE-FOR-SALE FINANCIAL ASSETS (c) | 38,605,149 | 14,201,885 | 52,807,034 | ||||||
Debt securities | 37,542,499 | 9,820,921 | 47,363,420 | ||||||
Other equity instruments | 1,062,650 | 4,380,964 | 5,443,614 | ||||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
LOANS AND RECEIVABLES (d) | 180,568,400 | (463,192) | 180,105,208 | ||||||
Loans and advances to credit institutions | 20,907,129 | — | 20,907,129 | ||||||
Money market operations through counterparties | 399,997 | — | 399,997 | ||||||
Loans and advances to other debtors | 150,818,244 | — | 150,818,244 | ||||||
Debt securities | 6,671,421 | (463,192) | 6,208,229 | ||||||
Other financial assets | 1,771,609 | — | 1,771,609 | ||||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
HELD-TO-MATURITY INVESTMENTS (c) | 1,567,535 | (1,567,535) | — | ||||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | — | ||||||
HEDGING DERIVATIVES (g) | — | 5,255,417 | 5,255,417 | ||||||
NON-CURRENT ASSETS HELD FOR SALE | 183,172 | — | 183,172 | ||||||
Loans and advances to credit institutions | — | — | — | ||||||
Loans and advances to other debtors | — | — | — | ||||||
Debt securities | — | — | — | ||||||
Equity instruments | — | — | — | ||||||
Tangible assets | 183,172 | — | 183,172 | ||||||
Other assets | — | — | — |
ASSETS Closing balances for 2003 INVESTMENTS (a) Associates Jointly controlled entities INSURANCE CONTRACTS LINKED TO PENSIONS (f) REINSURANCE ASSETS (a) TANGIBLE ASSETS (i) For own use Investment property Other assets leased out under an operating lease Assigned to welfare projects Memorandum item: Acquired under a finance lease INTANGIBLE ASSETS Goodwill (b) Other intangible assets TAX ASSETS Current Deferred PREPAYMENTS AND ACCRUED INCOME OTHER ASSETS Inventories Other TOTAL ASSETS Differences Opening
balances for
2004 7,703,617 (6,219,232 ) 1,484,385 7,703,617 (6,517,463 ) 1,186,154 — 298,231 298,231 4,629 (4,629 ) — — 21,369 21,369 3,608,109 190,398 3,798,507 3,462,320 (113,993 ) 3,348,327 145,789 — 145,789 — 304,391 304,391 — — — — — — 3,012,917 (2,165,589 ) 847,328 2,650,889 (1,905,214 ) 745,675 362,028 (260,375 ) 101,653 3,558,055 1,636,595 5,194,650 110,021 — 110,021 3,448,034 1,636,595 5,084,629 1,411,919 (715,000 ) 696,919 6,706,528 (3,812,477 ) 2,894,051 3,682 277,000 280,682 6,702,846 (4,089,477 ) 2,613,369 282,421,801 15,921,055 298,342,856
LIABILITIES AND EQUITY LIABILITIES FINANCIAL LIABILITIES HELD FOR TRADING (c) Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates including bonds Trading derivatives (g) Short positions OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (c) Deposits from credit institutions Deposits from other creditors Debt certificates including bonds FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY Deposits from credit institutions Deposits from other creditors Debt certificates including bonds FINANCIAL LIABILITIES AT AMORTISED COST Deposits from central banks Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates (including bonds) Subordinated liabilities (h) Other financial liabilities CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK (g) HEDGING DERIVATIVES (g) LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE Deposits from central banks Deposits from credit institutions Deposits from other creditors Debt certificates including bonds Other liabilities LIABILITIES UNDER INSURANCE CONTRACTS (a) PROVISIONS Provisions for pensions and similar obligations (f) Provisions for taxes Provisions for contingent exposures and commitments Other provisions TAX LIABILITIES Current Deferred ACCRUED EXPENSES AND DEFERRED INCOME OTHER LIABILITIES Welfare fund Other EQUITY HAVING THE NATURE OF A FINANCIAL LIABILITY TOTAL LIABILITIES Closing
balances for
2003 Differences Opening
balances for
2004 1,463,227 4,884,826 6,348,053 — — — — — — — — — — — — — 4,884,826 4,884,826 1,463,227 — 1,463,227 — 957,477 957,477 — — — — — — — 957,477 957,477 — — — — — — — — — — — — 247,096,917 3,776,495 250,873,412 20,924,211 — 20,924,211 39,182,350 — 39,182,350 143,238 — 143,238 142,954,661 (114,599 ) 142,840,062 34,469,312 — 34,469,312 7,399,613 3,891,094 11,290,707 2,023,532 — 2,023,532 — 114,599 114,599 — 3,970,012 3,970,012 — — — — — — — — — — — — — — — — — — — 8,112,411 8,112,411 4,941,987 3,693,015 8,635,002 3,031,913 3,449,375 6,481,288 — 86,645 86,645 209,270 70,438 279,708 1,700,804 86,557 1,787,361 320,512 1,154,225 1,474,737 105,716 — 105,716 214,796 1,154,225 1,369,021 1,299,472 — 1,299,472 8,633,291 (4,314,946 ) 4,318,345 — — — 8,633,291 (4,314,946 ) 4,318,345 — — — 263,755,406 22,348,114 286,103,520
EQUITY MINORITY INTERESTS VALUATION ADJUSTMENTS Available-for-sale financial assets (c) Financial liabilities at fair value through equity Cash flow hedges (g) Hedges of net investments in foreign operations Exchange differences (k) Non-current assets held for sale SHAREHOLDER’S EQUITY Capital Issued Unpaid and uncalled (–) Share premium Reserves Accumulated reserves (losses) Retained earnings Reserves (losses) of entities accounted for using the equity method Associates Jointly controlled entities Other equity instruments Equity component of compound financial instruments Other Treasury shares (l) Income attributed to the Group Dividends and remuneration TOTAL EQUITY TOTAL LIABILITIES AND EQUITY Closing
balances for
2003 Differences Opening
balances for
2004 5,853,458 (3,936,294 ) 1,917,164 (2,211,849 ) 3,903,175 1,691,326 — 1,677,380 1,677,380 — — — — 13,946 13,946 — — — (2,211,849 ) 2,211,849 — — — — 15,024,786 (6,393,940 ) 8,630,846 1,565,968 — 1,565,968 1,565,968 — 1,565,968 — — — 6,273,901 (469,083 ) 5,804,818 5,884,171 (5,908,915 ) (24,744 ) 4,636,173 (5,248,473 ) (612,300 ) — — — 1,247,998 (660,442 ) 587,556 1,247,998 (660,442 ) 587,556 — — — — — — — — — — — — (66,059 ) (15,942 ) (82,001 ) 2,226,701 — 2,226,701 (859,896 ) — (859,896 ) 18,666,395 (6,427,059 ) 12,239,336 282,421,801 15,921,055 298,342,856
RECONCILIATION OF THE CLOSING BALANCES FOR 2004 TO THE OPENING BALANCES FOR 2005
ASSETS | Closing for 2004 | Differences | Opening for 2005 | ||||
CASH AND BALANCES WITH CENTRAL BANKS | 10,122,238 | 852 | 10,123,090 | ||||
FINANCIAL ASSETS HELD FOR TRADING | 30,426,845 | 16,609,215 | 47,036,060 | ||||
Loans and advances to credit institutions | — | — | — | ||||
Money market operations through counterparties | — | — | — | ||||
Loans and advances to other debtors | — | — | — | ||||
Debt securities | 27,498,188 | 2,898,391 | 30,396,579 | ||||
Other equity instruments | 2,928,657 | 2,762,228 | 5,690,885 | ||||
Trading derivatives | — | 10,948,596 | 10,948,596 | ||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS | — | 1,059,490 | 1,059,490 | ||||
Loans and advances to credit institutions | — | — | — | ||||
Money market operations through counterparties | — | — | — | ||||
Loans and advances to other debtors | — | — | — | ||||
Debt securities | — | 58,771 | 58,771 | ||||
Other equity instruments | — | 1,000,719 | 1,000,719 | ||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
AVAILABLE-FOR-SALE FINANCIAL ASSETS | 37,180,593 | 15,822,952 | 53,003,545 | ||||
Debt securities | 33,843,746 | 11,193,482 | 45,037,228 | ||||
Other equity instruments | 3,336,847 | 4,629,470 | 7,966,317 | ||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
LOANS AND RECEIVABLES | 202,396,432 | (5,504,229 | ) | 196,892,203 | |||
Loans and advances to credit institutions | 16,958,178 | (255,221 | ) | 16,702,957 | |||
Money market operations through counterparties | 241,999 | — | 241,999 | ||||
Loans and advances to other debtors | 172,105,016 | (21,944 | ) | 172,083,072 | |||
Debt securities | 5,960,701 | (463,192 | ) | 5,497,509 | |||
Other financial assets | 7,130,538 | (4,763,872 | ) | 2,366,666 | |||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
HELD-TO-MATURITY INVESTMENTS | 3,546,759 | (1,325,257 | ) | 2,221,502 | |||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | — | ||||
HEDGING DERIVATIVES | — | 4,273,450 | 4,273,450 | ||||
NON-CURRENT ASSETS HELD FOR SALE | 164,136 | (4,981 | ) | 159,155 | |||
Loans and advances to credit institutions | — | — | — | ||||
Loans and advances to other debtors | — | — | — | ||||
Debt securities | — | — | — | ||||
Equity instruments | — | — | — | ||||
Tangible assets | 164,136 | (4,981 | ) | 159,155 | |||
Other assets | — | — | — |
ASSETS INVESTMENTS Associates Jointly controlled entities INSURANCE CONTRACTS LINKED TO PENSIONS REINSURANCE ASSETS TANGIBLE ASSETS For own use Investment property Other assets leased out under an operating lease Assigned to welfare projects Memorandum item: Acquired under a finance lease INTANGIBLE ASSETS Goodwill Other intangible assets TAX ASSETS Current Deferred PREPAYMENTS AND ACCRUED INCOME OTHER ASSETS Inventories Other TOTAL ASSETS Closing
balances for
2004 Differences Opening
balances for
2005 7,147,077 (5,747,937 ) 1,399,140 7,147,077 (6,236,981 ) 910,096 — 489,044 489,044 3,852 (3,852 ) — — 80,268 80,268 3,619,223 320,413 3,939,636 3,510,789 (173,061 ) 3,337,728 108,434 54,215 162,649 — 439,259 439,259 — — — — — — 4,806,817 (3,985,733 ) 821,084 4,435,851 (3,725,358 ) 710,493 370,966 (260,375 ) 110,591 3,533,107 2,457,589 5,990,696 85,965 79,994 165,959 3,447,142 2,377,595 5,824,737 1,433,354 (715,599 ) 717,755 2,660,825 (936,743 ) 1,724,082 3,344 276,553 279,897 2,657,481 (1,213,296 ) 1,444,186 307,041,258 22,399,898 329,441,156
Closing for 2004 Opening for 2005 LIABILITIES FINANCIAL LIABILITIES HELD FOR TRADING Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates including bonds Trading derivatives Short positions OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Deposits from credit institutions Deposits from other creditors Debt certificates including bonds FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY Deposits from credit institutions Deposits from other creditors Debt certificates including bonds FINANCIAL LIABILITIES AT AMORTISED COST Deposits from central banks Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates including bonds Subordinated liabilities Other financial liabilities CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK HEDGING DERIVATIVES LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE Deposits from central banks Deposits from credit institutions Deposits from other creditors Debt certificates including bonds Other liabilities LIABILITIES UNDER INSURANCE CONTRACTS PROVISIONS Provisions for pensions and similar obligations Provisions for taxes Provisions for contingent exposures and commitments Other provisions TAX LIABILITIES Current Deferred ACCRUED EXPENSES AND DEFERRED INCOME OTHER LIABILITIES Welfare fund Other EQUITY HAVING THE NATURE OF A FINANCIAL LIABILITY TOTAL LIABILITIESLIABILITIES AND EQUITY
balances Differences
balances 1,331,501 12,802,912 14,134,413 — — — — — — — — — — — — — 12,802,912 12,802,912 1,331,501 — 1,331,501 — 834,350 834,350 — — — — 834,350 834,350 — — — — — — — — — — — — — — — 271,183,419 4,400,108 275,583,527 15,643,831 4,657,274 20,301,105 48,174,366 (4,126,251 ) 44,048,115 657,997 — 657,997 149,460,946 430,853 149,891,799 44,413,762 1,068,359 45,482,121 8,107,752 4,219,625 12,327,377 4,724,765 (1,849,752 ) 2,875,013 — 183,201 183,201 — 3,131,572 3,131,572 — — — — — — — — — — — — — — — — — — — 8,114,429 8,114,429 5,321,141 3,070,707 8,391,848 3,275,995 3,028,289 6,304,284 55,243 117,986 173,229 230,496 118,286 348,782 1,759,407 (193,854 ) 1,565,553 323,200 1,297,595 1,620,795 80,286 143,370 223,656 242,914 1,154,225 1,397,139 1,275,000 (9,220 ) 1,265,780 6,922,278 (4,546,300 ) 2,375,978 — — — 6,922,278 (4,546,300 ) 2,375,978 — — — 286,356,539 29,279,354 315,635,893
EQUITY MINORITY INTERESTS VALUATION ADJUSTMENTS Available-for-sale financial assets Financial liabilities at fair value through equity Cash flow hedges Hedges of net investments in foreign operations Exchange differences Non-current assets held for sale SHAREHOLDER’S EQUITY Capital Issued Unpaid and uncalled (-) Share premium Reserves Accumulated reserves (losses) Retained earnings Reserves (losses) of entities accounted for using the equity method Associates Jointly controlled entities Other equity instruments Equity component of compound financial instruments Other Treasury shares Income attributed to the Group Dividends and remuneration TOTAL EQUITY TOTAL LIABILITIES AND EQUITY MEMORANDUM ITEMS CONTINGENT EXPOSURES Financial guarantees Assets earmarked for third-party obligations Other contingent exposures CONTINGENT COMMITMENTS Drawable by third parties Other commitments Closing
balances for
2004 Differences Opening
balances for
2005 4,609,521 (3,871,982 ) 737,539 (2,308,236 ) 4,415,150 2,106,914 — 2,320,133 2,320,133 — — — — (24,776 ) (24,776 ) — 282,895 282,895 (2,308,236 ) 1,836,898 (471,338 ) — — — 18,383,434 (7,422,624 ) 10,960,810 1,661,518 — 1,661,518 1,661,518 — 1,661,518 — — — 8,177,101 (1,494,498 ) 6,682,603 6,776,473 (6,031,339 ) 745,134 5,800,494 (5,356,301 ) 444,193 — — — 975,979 (675,038 ) 300,941 975,979 (967,826 ) 8,153 — 292,788 292,788 — — — — — — — — — (18,370 ) (17,476 ) (35,846 ) 2,801,904 120,692 2,922,596 (1,015,192 ) (3 ) (1,015,195 ) 20,684,719 (6,879,456 ) 13,805,263 307,041,258 22,399,898 329,441,156 21,652,940 (95,291 ) 21,557,649 21,202,083 (99,772 ) 21,102,311 734 4,481 5,215 450,123 — 450,123 66,884,166 (121,764 ) 66,762,402 60,833,853 (116,975 ) 60,716,878 6,050,313 (4,789 ) 6,045,524
RECONCILIATION OF THE INCOME STATEMENT OF 2004
2004 | Differences | Re-expresed 2004 | |||||||
INTEREST AND SIMILAR INCOME (e) | 12,466,255 | (113,917 | ) | 12,352,338 | |||||
INTEREST EXPENSE AND SIMILAR CHARGES (e) (h) | (6,100,675 | ) | (347,269 | ) | (6,447,944 | ) | |||
Remuneration of capital having the nature of a financial liability | — | — | — | ||||||
Other | (6,100,675 | ) | (347,269 | ) | (6,447,944 | ) | |||
INCOME FROM EQUITY INSTRUMENTS (a) | 703,729 | (448,583 | ) | 255,146 | |||||
A) NET INTEREST INCOME | 7,069,309 | (909,769 | ) | 6,159,540 | |||||
SHARE OF PROFIT OR LOSS OF ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD (c) | 359,992 | (262,952 | ) | 97,047 | |||||
Associates | 359,992 | (356,239 | ) | 3,753 | |||||
Jointly controlled entities | — | 93,287 | 93,287 | ||||||
FEE AND COMMISSION INCOME (e) | 4,159,344 | (102,363 | ) | 4,056,981 | |||||
FEE AND COMMISSION EXPENSES (e) | (780,075 | ) | 136,116 | (643,959 | ) | ||||
INSURANCE ACTIVITY INCOME | (682 | ) | 391,300 | 390,618 | |||||
Insurance and reinsurance premium income | — | 2,062,030 | 2,062,030 | ||||||
Reinsurance premiums paid | — | (71,931 | ) | (71,931 | ) | ||||
Benefits paid and other insurance-related expenses | — | (1,704,113 | ) | (1,704,113 | ) | ||||
Reinsurance income | — | 8,534 | 8,534 | ||||||
Net provisions for insurance contract liabilities | (682 | ) | (413,062 | ) | (413,744 | ) | |||
Finance income | — | 708,901 | 708,901 | ||||||
Finance expense | — | (199,059 | ) | (199,059 | ) | ||||
GAINS/LOSSES ON FINANCIAL ASSETS AND LIABILITIES (NET) | 311,253 | 450,604 | 761,857 | ||||||
Held for trading (g) | 1,295,873 | (185,322 | ) | 1,110,551 | |||||
Other financial instruments at fair value through profit or loss | — | 1,296 | 1,296 | ||||||
Available-for-sale financial assets (c) | 353,502 | 620,910 | 974,412 | ||||||
Loans and receivables | — | 13,932 | 13,932 | ||||||
Other | (1,338,122 | ) | (212 | ) | (1,338,334 | ) | |||
EXCHANGE DIFFERENCES (NET) | 312,504 | (14,532 | ) | 297,972 | |||||
B) GROSS INCOME | 11,431,645 | (311,596 | ) | 11,120,049 | |||||
SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES | — | 468,236 | 468,236 | ||||||
COST OF SALES | — | (341,745 | ) | (341,745 | ) | ||||
OTHER OPERATING INCOME | 18,307 | 3,999 | 22,306 | ||||||
PERSONNEL EXPENSES (f) | (3,184,102 | ) | (62,948 | ) | (3,247,050 | ) | |||
OTHER ADMINISTRATIVE EXPENSES | (1,779,139 | ) | (71,706 | ) | (1,850,845 | ) | |||
DEPRECIATION AND AMORTISATION | (453,436 | ) | 5,230 | (448,206 | ) | ||||
Tangible assets | (361,212 | ) | (2,100 | ) | (363,312 | ) | |||
Intangible assets | (92,224 | ) | 7,330 | (84,894 | ) | ||||
OTHER OPERATING EXPENSES | (215,697 | ) | 83,558 | (132,139 | ) | ||||
NET OPERATING INCOME | 5,817,578 | (226,972 | ) | 5,590,606 | |||||
IMPAIRMENT LOSSES (NET) | (1,518,679 | ) | 560,485 | (958,194 | ) | ||||
Available-for-sale financial assets | (18,713 | ) | 74,569 | 55,856 | |||||
Loans and receivables (d) | (930,727 | ) | 146,818 | (783,909 | ) | ||||
Held-to-maturity investments | — | — | — | ||||||
Non-current assets held for sale | — | 4,222 | 4,222 | ||||||
Investments | — | (39,508 | ) | (39,508 | ) | ||||
Tangible assets | 12,453 | (10,318 | ) | 2,135 | |||||
Goodwill (b) | (581,692 | ) | 384,702 | (196,990 | ) | ||||
Other intangible assets | — | — | — | ||||||
Other assets | — | — | — | ||||||
PROVISION EXPENSE (NET) | (844,336 | ) | (6,221 | ) | (850,557 | ) | |||
FINANCE INCOME FROM NON-FINANCIAL ACTIVITIES | — | 8,737 | 8,737 | ||||||
FINANCE EXPENSES FROM NON-FINANCIAL ACTIVITIES | — | (4,712 | ) | (4,712 | ) | ||||
OTHER GAINS | 1,060,783 | (438,603 | ) | 622,180 | |||||
Gains on disposal of tangible assets | 96,535 | 6,339 | 102,874 | ||||||
Gains on disposal of investments | 625,650 | (308,140 | ) | 317,510 | |||||
Other | 338,598 | (136,802 | ) | 201,796 | |||||
OTHER LOSSES | (365,874 | ) | 94,654 | (271,220 | ) |
Losses on disposal of tangible assets Losses on disposal of investments Other D) INCOME BEFORE TAX INCOME TAX MANDATORY TRANSFER TO WELFARE FUNDS E) INCOME FROM CONTINUING OPERATIONS INCOME OR LOSS FROM DISCONTINUED OPERATIONS (NET) F) CONSOLIDATED INCOME FOR THE PERIOD INCOME ATTRIBUTED TO MINORITY INTERESTS G) INCOME ATTRIBUTED TO THE GROUP (20,571 ) (1,879 ) (22,450 ) (36,254 ) 27,127 (9,127 ) (309,049 ) 69,406 (239,643 ) 4,149,472 (12,632 ) 4,136,840 (957,004 ) (71,627 ) (1,028,631 ) — — — 3,192,468 (84,259 ) 3,108,209 — — — 3,192,468 (84,259 ) 3,108,209 390,564 (204,951 ) 185,613 2,801,904 120,692 2,922,596
MAIN EFFECTS OF ADAPTATION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSS)
The estimated main effects of adaptation to the Finanzia / Uno-e group (which specializesnew standards are as follows:
a) | Basis of consolidation |
The entry into force of EU-IFRSs led to a change in the e-banking business, consumer financing, card product distribution and renting activities), BBVA Portugal, the Private Banking business, mutual and pension fund management and insurance businesses.
The companies over which the Group’sGroup exercises control, regardless of their business activities with largeactivity, were fully consolidated; the greatest economic impact resulting from this change was that relating to insurance companies and institutions through national and international corporate banking and institutional banking. In addition, it also includes the trading room businesses located in Spain, Europe and New York, the equity distribution and origination business and the security deposit and custody service business, as well as the business and real estate project businesses that are not conducted through the Group’s holdings in large corporations.
Certain investments were considered to be available-for-sale assets, since the business of each of our subsidiary banks in Latin America and their investee companies, including pension management companies and insurance companies, as wellGroup could not demonstrate that it exercised significant influence over the investees.
b) | Goodwill |
Under the new standards goodwill is defined as the International Private Banking business. As mentioned above,difference between the cost and the net fair value of the assets, liabilities and contingent liabilities acquired.
The main change is that goodwill is no longer amortised and is tested for impairment at least annually. In addition, goodwill must be stated in local currency, although that arising prior to January 1, 2004 can continue to be expressed in euros. The Group decided to initially recalculate in local currency the goodwill existing at January 1, 2004, the date of transition to EU-IFRSs.
Investments acquired subsequent to the obtainment of control over a company (i.e. transactions involving the purchase of equity interests from minority shareholders) were treated as “equity transactions”. The goodwill recorded on the transactions performed after control was obtained were written off against the heading Minority Interests and the surplus amount against the heading Reserves.
The principal effect in stockholders’ equity was a decrease of €1,923 million.
The principal effect in net income was an increase of €299 million.
c) | Financial instruments |
In accordance with the objectivenew standards, financial assets and liabilities held for trading are measured at fair value through profit or loss. Also, the gains and losses on the available-for-sale securities portfolio are recorded, net of uniformly monitoringtheir tax effect, in the businesses,equity account Valuation Adjustments.
As regards the classification of equity securities portfolios, under IFRSs significant influence is presumed to exist when an ownership interest of 20% is held in an investee. The Group classified Banca Nazionale del Lavoro, S.p.A. (BNL) as an associate, i.e. a company over which significant influence is exercised, since it considered that, although its equity interest is less than 20% (general criterion), the current shareholders’ agreement gives it significant influence over the management of this areaentity. The entities classified as associates under the previous accounting standards and in which the Group has an ownership interest of less than 20% were reclassified to the available-for-sale portfolio (except for BNL), since it is considered that the Group does not include the results of our subsidiaries in Argentina.
Argentina: includes our subsidiaries BBVA Banco Francés and Consolidar AFJP.
This structure of areas is in line with the internal organization established to manage and monitor the businesses in the BBVA Group during the year 2003. The balances for the financial years 2002 and 2001, which are presented for comparative purposes, were drawn up following the same criteria.
The business areas contribution to net attributable profit and total assets are shown in the following tables:
2003 | 2002 | 2001 | |||||||
Millions of Euros | |||||||||
Business Area contribution to net attributable profit | |||||||||
Retail Banking | 1,239 | 1,266 | 1,173 | ||||||
Wholesale and Investment Banking | 468 | 382 | 531 | ||||||
Banking in América | 715 | 736 | 807 | ||||||
Corporate Activities and others | (205 | ) | (656 | ) | (451 | ) | |||
Argentina | 10 | (9 | ) | (217 | ) | ||||
Net Attributable profit | 2,227 | 1,719 | 1,843 | ||||||
2003 | 2002 | 2001 | |||||||
Millions of Euros | |||||||||
Business Area contribution to total assets | |||||||||
Retail Banking | 112,481 | 102,085 | 94,020 | ||||||
Wholesale and investment Banking | 158,644 | 149,290 | 153,806 | ||||||
Banking in America | 73,778 | 83,437 | 102,784 | ||||||
Corporate Activities | 27,667 | 22,884 | 32,573 | ||||||
Argentina | 4,356 | 5,015 | 13,627 | ||||||
Total assets for reportable segments | 376,926 | 362,711 | 396,810 | ||||||
Intearea Positions | (69,472 | ) | (67,233 | ) | (56,444 | ) | |||
Other | (20,304 | ) | (15,936 | ) | (31,304 | ) | |||
Consolidated total assets | 287,150 | 279,542 | 309,062 |
The differences between “Total Assets for Reportable Segments” and “Consolidated Total Assets” are due to the following reasons:
The accounting policies of the segments are principally the same as those described in Note 3. The accounting structure has been adjusted to the management structure, through the corresponding internal adjustments. Operating costs are divided among all the business areasTherefore, in accordance with the scalesnew standards in force, the goodwill of these entities was derecognised, their accumulated prior years’ profits or losses accounted for by the equity method were eliminated from reserves and, in addition, the differences relating from measuring these investments at market value were recorded under the heading Valuation Adjustments.
The recognition, measurement and disclosure criteria included in IASs 32 and 39, were applied retrospectively to January 1, 2004.
January 1, 2004 was considered to be the date of application of the rules on the derecognition of financial instruments, Transactions which on or after that date met the recognition and derecognition requirements included in IASs 32 and 39 were removed from the balance sheet (Note 14.3). However, the securitization funds created subsequent to January 1, 2004 through the transfer of derecognised loans, of which the Group retains certain of the risks or rewards, were included in the consolidated financial statements.
The principal effect in stockholders’ equity was an increase of €739 million.
The effect in net income of change the evaluation of these holdings (less than 20%) from the equity accounting method to lower of cost or market was a decrease of €95 million. There was, in addition, a reclassification of €198 million from share of profit or loss of entities accounted for using the equity method to gains/losses on financial assets and liabilities (net.)
d) | Loan portfolio provisioning |
The BBVA Group estimated the impact of recording the provisions for the loan portfolio using the methods described in Note 2.2.c for estimating the impairment of financial instruments.
The principal effect in stockholders’ equity was a decrease of €158 million.
The effect in net income was a increase of €7 million.
e) | Loan arrangement fees |
As a result of the application of the new accounting treatment for these fees (Note 2.2.d), the BBVA Group estimated the impact of reversing the fees and commissions credited to income in prior years with a charge to equity, using as a balancing entry the item “Accrued Expenses and Deferred Income”. With regard to 2004, the portion of these fees and commissions relating to that year were recognised in the income statement.
The principal effect in stockholders’ equity was a decrease of €194 million.
The effect in net income was a decrease of €46 million.
f) | Pensions |
Under EU-IFRSs the assumptions used to measure defined benefit pension commitments must be unbiased and mutually compatible, and the market interest rate relating to high quality assets must be used for
discounting purposes, IFRSs also stipulate that, for employees subject to Spanish labour legislation, the actuarial assumptions to be used must be based on the applicable Spanish legislation and the actuarial assumptions published by the Directorate-General of Insurance and Pension Funds (DGSFP).
Also noteworthy in this connection is the treatment of the risks insured with Group companies pursuant to Royal Decree 1588/1999 on Externalisation as internal provisions (and their distributionmeasurement as such) in the consolidated financial statements. The assets assigned are measured independently on the basis of their nature.
As a result of the application of these criteria, the Group reviewed all its actuarial assumptions for existing commitments and funded all the deficits relating to externalised commitments existing at January 1, 2004, the date of transition to EU-IFRSs.
All cumulative actuarial losses at January 1, 2004 were recognised with a charge to reserves.
The principal effect in stockholders’ equity was a decrease of €953 million.
g) | Derivatives |
Under EU-IFRSs all derivatives are measured at fair value through profit or loss. Hedging transactions require greater documentation and yearic monitoring of their effectiveness. In fair value hedges, changes in the fair value of the hedged item are recognised in income, and the related carrying amount is adjusted. The BBVA Group’s review of the validity of the transactions classified as hedges demonstrated that most of the hedges were highly effective.
The most significant impacts of EU-IFRSs are the measurement and recognition at fair value of derivatives existing at the date of transition to IFRS, January 1, 2004. The unrealized gains recognized in equity were not allowed to be recognized under previous generally accepted accounting principles.
In the case of transactions that were designated as subject to hedge accounting at January 1, 2004 but which did not comply with the conditions of IAS 39 to be so designated, hedge accounting was discontinued. Net positions designated as hedged items under the previous standards and rules were replaced as hedged items at January 1, 2004 by an amount of assets or liabilities of the net positions.
Transactions initiated before January 1, 2004 were not designated as hedges retrospectively.
The principal effect in stockholders’ equity was an increase of €50 million.
The principal effect in net income for this change was a decrease of €16 million.
h) | Preference shares |
Preference shares that do not comply with Rule Fifty-Four of Bank of Spain Circular 4/2004 are classified under the heading “Subordinated Liability” on the liability side of the balance sheet.
This reclassification has no effect on the calculation of eligible equity for the purposes of Bank of Spain Circular 5/1993, since these preference shares are still included in tier-one capital.
The principal effect in stockholders’ equity was a decrease of €3,522 million.
The principal effect in net income was a reclassification of €190 million from “Income attributed to minority interests” to “interest expense and similar charge”.
i) | Tangible assets |
In the case of tangible assets, the Group used as attributed cost on the revaluation date the amounts revalued prior to January 1, 2004, on the basis of the naturelegislation then in force. In this connection, the revaluations performed under Spanish law and the adjustments for inflation made by subsidiaries in countries with inflation accounting were considered as deemed cost taking in to consideration that, at the dated of the spendingrevaluation, this deemed cost was comparable to fair value.
Also, certain tangible asset items were recognised at fair value and, consumption variables. This is alsotherefore, this value was used as attributed cost at January 1, 2004.
The principal effect in stockholders’ equity was a decrease of €120 million.
The principal effect in net income was a reclassification of €108 million from “Other administrative expenses” to “Depreciation and amortization”.
j) | Equity-instrument-based employee compensation |
As permitted by IFRS 1 and Transitional Provision One of Bank of Spain Circular 4/2004, IFRS 2 were not applied to ordinary corporate cost. The business areas arethe equity instruments granted to employees before 7 November 2002 title to which had not affected by corporate decisions, such as the treatment of goodwill generated in investment or the constitution of extraordinary provisions.
(Millions of Euros)yet passed to these employees on January 1, 2005.
Retail Banking in Spain and Portugal | Wholesale and Investment Banking | America | Corporate Activities (*) | ||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 03-02 D% | 02-01 D% | 2003 | 2002 | 2001 | 03-02 D% | 02-01 D% | 2003 | 2002 | 2001 | 03-02 D% | 02-01 D% | 2003 | 2002 | 2001 | 03-02 D% | 02-01 D% | ||||||||||||||||||||||||||||||||
(Millions of Euros) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Lending | 91,295 | 80,152 | 72,095 | 13.9 | 11.2 | 39,366 | 38,002 | 41,450 | 3.6 | (8.3 | ) | 23,199 | 27,049 | 35,175 | (14.2 | ) | (23.1 | ) | (2,398 | ) | (1,028 | ) | 503 | 133.3 | n.m. | ||||||||||||||||||||||||||
Securities portfolio | 535 | 210 | 753 | 154.8 | (72.1 | ) | 25,364 | 27,416 | 31,897 | (7.5 | ) | (14.0 | ) | 25,313 | 28,283 | 31,972 | (10.5 | ) | (11.5 | ) | 29,367 | 22,284 | 23,729 | 31.8 | (6.1 | ) | |||||||||||||||||||||||||
Liquid assets | 2,048 | 3,718 | 4,123 | (44.9 | ) | (9.8 | ) | 43,835 | 34,767 | 36,178 | 26.1 | (3.9 | ) | 17,100 | 17,870 | 22,958 | (4.3 | ) | (22.2 | ) | (16,021 | ) | (14,267 | ) | (4,986 | ) | 12.3 | 186.1 | |||||||||||||||||||||||
Inter-area positions | 16,975 | 16,565 | 15,447 | 2.5 | 7.2 | 43,857 | 41,502 | 35,944 | 5.7 | 15.5 | 433 | 651 | 119 | (33.5 | ) | 447.1 | 8,205 | 8,402 | 3,949 | (2.3 | ) | 112.8 | |||||||||||||||||||||||||||||
Fixed assets | 659 | 663 | 732 | (0.6 | ) | (9.4 | ) | 45 | 22 | 51 | 104.5 | (56.9 | ) | 1,965 | 2,443 | 3,542 | (19.6 | ) | (31.0 | ) | 1,569 | 1,817 | 1,920 | (13.6 | ) | (5.4 | ) | ||||||||||||||||||||||||
Other assets | 969 | 777 | 870 | 24.7 | (10.7 | ) | 6,177 | 7,581 | 8,286 | (18.5 | ) | (8.5 | ) | 5,768 | 7,141 | 9,018 | (19.2 | ) | (20.8 | ) | 6,945 | 5,676 | 7,458 | 22.4 | (23.9 | ) | |||||||||||||||||||||||||
TOTAL ASSETS | 112,481 | 102,085 | 94,020 | 10.2 | 8.6 | 158,644 | 149,290 | 153,806 | 6.3 | (2.9 | ) | 73,778 | 83,437 | 102,784 | (11.6 | ) | (18.8 | ) | 27,667 | 22,884 | 32,573 | 20.9 | (29.7 | ) | |||||||||||||||||||||||||||
Deposits and debt securities | 51,894 | 52,592 | 51,342 | (1.3 | ) | 2.4 | 54,458 | 47,882 | 44,391 | 13.7 | 7.9 | 46,626 | 55,685 | 73,321 | (16.3 | ) | (24.1 | ) | 22,699 | 18,249 | 25,218 | 24.4 | (27.6 | ) | |||||||||||||||||||||||||||
Income for the period | 1,320 | 1,348 | 1,256 | (2.1 | ) | 7.3 | 509 | 428 | 580 | 18.9 | (26.2 | ) | 1,160 | 1,260 | 1,395 | (7.9 | ) | (9.7 | ) | (92 | ) | (776 | ) | (14 | ) | (88.1 | ) | n.m. | |||||||||||||||||||||||
Equity assigned | 7,130 | 6,792 | 6,295 | 5.0 | 7.9 | 3,450 | 3,253 | 3,673 | 6.1 | (11.4 | ) | 4,323 | 4,565 | 6,457 | (5.3 | ) | (29.3 | ) | 8,260 | 8,661 | 8,300 | (4.6 | ) | 4.3 | |||||||||||||||||||||||||||
• Shareholders’ funds | 4,125 | 3,903 | 3,821 | 5.7 | 2.1 | 2,003 | 1,940 | 2,389 | 3.2 | (18.8 | ) | 2,828 | 3,022 | 3,906 | (6.4 | ) | (22.6 | ) | 2,452 | 3,865 | 2,646 | (36.6 | ) | 46.1 | |||||||||||||||||||||||||||
• Other eligible funds | 3,005 | 2,889 | 2,474 | 4.0 | 16.8 | 1,447 | 1,313 | 1,284 | 10.2 | 2.3 | 1,495 | 1,543 | 2,551 | (3.1 | ) | (39.5 | ) | 5,808 | 4,796 | 5,654 | 21.1 | (15.2 | ) | ||||||||||||||||||||||||||||
Liquid liabilities | 3,477 | 2,701 | 2,712 | 28.7 | (0.4 | ) | 69,376 | 59,321 | 69,516 | 17.0 | (14.7 | ) | 13,056 | 12,444 | 14,375 | 4.9 | (13.4 | ) | — | 1,051 | 3,250 | — | (67.7 | ) | |||||||||||||||||||||||||||
Inter-area positions | 45,257 | 35,593 | 29,191 | 27.2 | 21.9 | 23,486 | 30,850 | 26,718 | (23.9 | ) | 15.5 | 727 | 676 | 527 | 7.5 | 28.3 | — | — | 6 | — | (100.0 | ) | |||||||||||||||||||||||||||||
Other liabilities | 3,403 | 3,059 | 3,224 | 11.2 | (5.1 | ) | 7,365 | 7,556 | 8,928 | (2.5 | ) | (15.4 | ) | 7,886 | 8,807 | 6,709 | (10.5 | ) | 31.3 | (3,200 | ) | (4,301 | ) | (4,187 | ) | (25.6 | ) | 2.7 | |||||||||||||||||||||||
TOTAL | 112,481 | 102,085 | 94,020 | 10.2 | 8.6 | 158,644 | 149,290 | 153,806 | 6.3 | (2.9 | ) | 73,778 | 83,437 | 102,784 | (11.6 | ) | (18.8 | ) | 27,667 | 22,884 | 32,573 | 20.9 | (29.7 | ) |
The cumulative exchange differences at January 1, 2004 of all businesses abroad were definitively charged or credited to reserves. Consequently, the exchange gains or losses arising on the subsequent sale or disposal by other means of businesses abroad relate only to the exchange differences that arose after January 1, 2004.
Lending Securities portfolio Liquid assets Inter-area positions Fixed assets Other assets TOTAL ASSETS Deposits and debt securities Income for the period Equity assigned • Shareholders’ funds • Other eligible funds Liquid liabilities Inter-area positions Other liabilities TOTAL Argentina SUBTOTAL Others TOTAL GROUP 2003 2002 2001 03-02 D% 02-01 D% 2003 2002 2001 03-02 D% 02-01 D% 2003 2002 2001 03-02 D% 02-01 D% 2003 2002 2001 03-02 D% 02-01 D% (Millions of Euros) 2,594 2,714 9,977 (4.4 ) (72.8 ) 154,056 146,889 159,200 4.9 (7.7 ) (5,229 ) (5,574 ) (8,980 ) (6.2 ) (37.9 ) 148,827 141,315 150,220 5.3 (5.9 ) 589 886 479 (33.5 ) 85.0 81,168 79,079 88,830 2.6 (11.0 ) 453 (108 ) 4,415 n.m. (102.4 ) 81,621 78,971 93,245 3.4 (15.3 ) 471 369 2,257 27.6 (83.7 ) 47,433 42,457 60,530 11.7 (29.9 ) (18,416 ) (12,931 ) (28,091 ) 42.4 (54.0 ) 29,017 29,526 32,439 (1.7 ) (9.0 ) 2 16 1 (87.5 ) n.m. 69,472 67,136 55,460 3.5 21.1 (69,472 ) (67,136 ) (55,460 ) 3.5 21.1 — — — — — 163 87 511 87.4 (83.0 ) 4,401 5,032 6,756 (12.5 ) (25.5 ) 3,458 4,258 4,575 (18.8 ) (6.9 ) 7,859 9,290 11,331 (15.4 ) (18.0 ) 537 943 403 (43.1 ) 134.0 20,396 22,118 26,035 (7.8 ) (15.0 ) (570 ) (1,678 ) (4,209 ) (66.1 ) (60.1 ) 19,826 20,440 21,826 (3.0 ) (6.4 ) 4,356 5,015 13,628 (13.1 ) (63.2 ) 376,926 362,711 396,810 3.9 (8.6 ) (89,776 ) (83,169 ) (87,749 ) 7.9 (5.2 ) 287,150 279,542 309,062 2.7 (9.6 ) 2,280 2,089 9,778 9.1 (78.6 ) 177,957 176,497 204,050 0.8 (13.5 ) (12,306 ) (794 ) (10,133 ) n.m. (92.2 ) 165,651 175,703 193,917 (5.7 ) (9.4 ) 11 5 (429 ) 120.0 (101.2 ) 2,908 2,265 2,788 28.4 (18.8 ) (11 ) 201 (299 ) (105.5 ) (167.2 ) 2,897 2,466 2,489 17.5 (0.9 ) 267 315 1,008 (15.2 ) (68.8 ) 23,430 23,586 25,733 (0.7 ) (8.3 ) 14,261 2,448 1,701 n.m. 43.9 37,691 26,034 27,434 44.8 (5.1 ) 267 315 1,014 (15.2 ) (68.9 ) 11,675 13,045 13,776 (10.5 ) (5.3 ) 3,409 2,447 1,695 39.3 44.4 15,084 15,492 15,471 (2.6 ) 0.1 0 0 (6 ) — (100.0 ) 11,755 10,541 11,957 11.5 (11.8 ) 10,852 1 6 n.m. (83.3 ) 22,607 10,542 11,963 114.4 (11.9 ) 1,030 1,179 663 (12.6 ) 77.8 86,939 76,696 90,516 13.4 (15,.3 ) (25,369 ) (20,577 ) (25,928 ) 23.3 (20.6 ) 61,570 56,119 64,588 9.7 (13.1 ) 2 114 2 (98.2 ) n.m. 69,472 67,233 56,444 3.3 19.1 (69,472 ) (67,233 ) (56,444 ) 3.3 19.1 — — — — — 766 1,313 2,606 (41.7 ) (49.6 ) 16,220 16,434 17,279 (1.3 ) (4.9 ) 3,121 2,786 3,355 12.1 (17.0 ) 19,341 19,220 20,634 0.6 (6.9 )
LIABILITIES 4,356 5,015 13,628 (13.1 ) (63.2 ) 376,926 362,711 396,810 3.9 (8.6 ) (89,776 ) (83,169 ) (87,749 ) 7.9 (5.2 ) 287,150 279,542 309,062 2.7 (9.6 )
NET INTEREST INCOME Net fee income BASIC MARGIN Market operations ORDINARY REVENUE Personnel costs General expenses Depreciation and amortization Other operating revenues and expenses OPERATING INCOME Net income from companies carried by the equity method Amortization of Goodwill in consolidation Net income on Group transactions Net loan Loss provisions Extraordinary itmes (net) and other PRE- TAX PROFIT Corporate income tax NET INCOME Minority interests NET ATTRIBUTABLE PROFIT Retail Banking in Spain and Portugal Wholesale and Investment Banking America 2003 2002 2001 03-02 D% 02-01 D% 2003 2002 2001 03-02 D% 02-01 D% 2003 2002 2001 03-02 D% 02-01 D% 3,221 3,189 3,025 1.0 5.4 678 718 744 (5.6 ) (3.5 ) 2,790 3,391 3,988 (17.7 ) (15.0 ) 1,476 1,510 1,555 (2.3 ) (2.9 ) 178 209 225 (14.8 ) (7.1 ) 1,630 1,889 1,872 (13.7 ) 0.9 4,697 4,699 4,580 0.0 2.6 856 927 969 (7.7 ) (4.3 ) 4,420 5,280 5,860 (16.3 ) (9.9 ) 44 46 63 (4,3 ) (27.0 ) 123 (5 ) 125 n.m. n.m. 196 277 285 (29.2 ) (2.8 ) 4,741 4,745 4,643 (0.1 ) 2.2 979 922 1,094 6.2 (15.7 ) 4,616 5,557 6,145 (16.9 ) (9.6 ) (1,391 ) (1,386 ) (1,465 ) 0.4 (5.4 ) (205 ) (212 ) (228 ) (3.3 ) (7.0 ) (1,128 ) (1,444 ) (1,637 ) (21.8 ) (11.8 ) (728 ) (738 ) (783 ) (1.4 ) (5.7 ) (105 ) (117 ) (125 ) (10.3 ) (6.4 ) (906 ) (1,115 ) (1,370 ) (18.8 ) (18.6 ) (114 ) (123 ) (125 ) (7.3 ) (1.6 ) (9 ) (12 ) (12 ) (25.0 ) 0.0 (213 ) (282 ) (339 ) (24.5 ) (16.8 ) (43 ) (51 ) (59 ) (15.7 ) (13.6 ) (6 ) (1 ) (2 ) n.m. (50.0 ) (139 ) (179 ) (198 ) (22.3 ) (9.6 ) 2,465 2,447 2,211 0.7 (10.7 ) 654 580 727 12.8 (20.2 ) 2,230 2,537 2,601 (12.1 ) (2.5 ) 8 (6 ) 28 n.m n.m. 65 21 26 n.m. (19.2 ) 72 20 8 n.m. 150.0 — 1 — — — (2 ) (5 ) (7 ) (60.0 ) (28.6 ) — — — — — (1 ) — — — — 32 88 109 (63.6 ) (19.3 ) 14 (3 ) 50 n.m. n.m. (492 ) (433 ) (402 ) 13.6 7.7 (143 ) (141 ) (130 ) 1.4 8.5 (495 ) (691 ) (795 ) (28.4 ) (13.1 ) (10 ) 5 6 n.m. (16.7 ) 38 9 (31 ) n.m. n.m. (292 ) (193 ) (21 ) 51.3 n.m. 1,970 2,014 1,843 (2.2 ) 9.3 644 552 694 16.7 (20.5 ) 1,529 1,670 1,843 (8.4 ) (9.4 ) (650 ) (666 ) (587 ) (2.4 ) 13.5 (135 ) (124 ) (114 ) 8.9 8.8 (369 ) (410 ) (448 ) (10.0 ) (8.5 ) 1,320 1,348 1,256 (2.1 ) 7.3 509 428 580 18.9 (26.2 ) 1,160 1,260 1,395 (7.9 ) (9.7 ) (81 ) (82 ) (83 ) (1.2 ) (1.2 ) (41 ) (46 ) (49 ) (10.9 ) (6.1 ) (445 ) (524 ) (588 ) (15.1 ) (10.9 ) 1,239 1,266 1,173 (2.1 ) 7.9 468 382 531 22.5 (28.1 ) 715 736 807 (2.9 ) (8.8 )
NET INTEREST INCOME Net fee income BASIC MARGIN Market operations ORDINARY REVENUE Personnel costs General expenses Depreciation and amortization Other operating revenues and expenses OPERATING INCOME Net income from companies carried by the equity method Amortization of Goodwill in consolidation Net income on Group transactions Net loan Loss provisions Extraordinary items (net) and other PRE- TAX PROFIT Corporate income tax NET INCOME Minority interests NET ATTRIBUTABLE PROFIT Argentina Corporate Activities and others TOTAL GROUP 2003 2002 2001 03-02 D% 02-01 D% 2003 2002 2001 03-02 D% 02-01 D% 2003 2002 2001 03-02 D% 02-01 D% (Millions of Euros) 48 323 664 (85.1 ) (51.4 ) 4 187 403 (97.9 ) (53.6 ) 6,741 7,808 8,824 (13.7 ) (11.5 ) 91 102 435 (10.8 ) (76.6 ) (112 ) (42 ) (50 ) (14.3 ) (16.0 ) 3,263 3,668 4,038 (11.0 ) (9.2 ) 139 425 1,099 (67.3 ) (61.3 ) (108 ) 145 354 n.m. (58.9 ) 10,004 11,476 12,862 (12.8 ) (10.8 ) 52 101 39 (48.5 ) 159.0 237 346 (22 ) (31.5 ) n.m. 652 765 490 (14.8 ) 56.1 191 526 1,138 (63.7 ) (53.8 ) 129 491 332 (73.7 ) 47.9 10,656 12,241 13,352 (12.9 ) (8.3 ) (85 ) (91 ) (353 ) (6.6 ) (74.2 ) (454 ) (565 ) (560 ) (19.6 ) 0.9 (3,263 ) (3,698 ) (4,243 ) (11.8 ) (12.8 ) (67 ) (81 ) (207 ) (17.3 ) (60.9 ) 38 (23 ) 3 n.m. n.m. (1,768 ) (2,074 ) (2,482 ) (14.8 ) (16.4 ) (21 ) (19 ) (73 ) 10.5 (74.0 ) (154 ) (195 ) (193 ) (21.0 ) 1.0 (511 ) (631 ) (742 ) (19.0 ) (15.0 ) (8 ) (9 ) (16 ) (11.1 ) (43.8 ) (23 ) (21 ) (11 ) 9.5 90.9 (219 ) (261 ) (286 ) (16.1 ) (8.7 ) 10 326 489 (96.9 ) (33.3 ) (464 ) (313 ) (429 ) 48.2 (27.0 ) 4,895 5,577 5,599 (12.2 ) (0.4 ) 10 (9 ) 12 n.m. n.m. 228 7 319 n.m. (97.8 ) 383 33 393 n.m. (91.6 ) — — — — — (637 ) (675 ) (1,136 ) (5.6 ) (40.6 ) (639 ) (679 ) (1,143 ) (5.9 ) n.m. — — — — — 508 276 795 84.1 (65.3 ) 553 361 954 53.2 (62.2 ) (189 ) (249 ) (532 ) (24.1 ) (53.2 ) 42 (229 ) (60 ) n.m. n.m. (1,277 ) (1,743 ) (1,919 ) (26.7 ) (9.2 ) 237 (152 ) (751 ) n.m. (79.8 ) (76 ) (99 ) 27 (23.2 ) n.m. (103 ) (430 ) (770 ) (76.0 ) (44.2 ) 68 (84 ) (782 ) (181.0 ) (89.3 ) (399 ) (1,033 ) (484 ) (61.4 ) n.m. 3,812 3,119 3,114 22.2 0.2 (57 ) 89 353 (164.0 ) (74.8 ) 296 458 171 (35.4 ) n.m (915 ) (653 ) (625 ) 40.1 4.5 11 5 (429 ) 120.0 n.m. (103 ) (575 ) (313 ) (82.1 ) 83,7 2,897 2,466 2,489 17.5 (0.9 ) (1 ) (14 ) 212 (92.9 ) n.m. (102 ) (81 ) (138 ) 25.9 (41.3 ) (670 ) (747 ) (646 ) (10.3 ) 15.6 10 (9 ) (217 ) (211.1 ) (95.9 ) (205 ) (656 ) (451 ) (68.8 ) 45.5 2,227 1,719 1,843 29.6 (6.7 )
l) | ||
| ||
The gains or losses obtained on transactions involving treasury shares are recognised as changes in equity and these shares continue to be carried at their acquisition cost. Under the previous accounting standards, these gains or losses were recognised in the income statement.
F-172