This area has always combined the results of two units:
Financial Planning and Holdings in Industrial &
Financial Companies. It also books the costs from
central units with strictly corporate functions and
makes allocations to corporate and miscellaneous
provisions, eg, for early retirements. In 2009 it also
includes the newly created Real-Estate Management
unit, which brings together all the Group’s
non-international real-estate business.
Its net interest income for January-March this year
was positive by €2m (whilst it was negative €230m in
the first quarter of 2008). This was due both to the
favourable impact of falling interest rates and BBVA’s
active balance-sheet management. Its good
performance offset the shrinkage in net trading income
stemming from the situation in the markets,
compensated to some extent by monetisation and
coverage strategies. This meant that the operating
income, at –€283m, was less negative than the
–€309m recorded 12 months earlier.
Impairments of financial assets were up €50m due to
the provision of country risk for Brazil that was put in
place this quarter. This resulted in a net attributable
loss of –€318m, as against the net attributable profit
of €244m for the same quarter of 2008. However, the
figure reflected one-off profits from the 2008 sale of
the Bradesco holding, which added €509m, net of tax.
Financial Planning
The Financial Planning unit administers the Group’s
structural interest and exchange-rate positions as well
as its overall liquidity and shareholders’ funds through
the Assets and Liabilities Committee (ALCO).
Managing structural liquidity helps to fund recurrent
growth in the banking business at suitable costs and
maturities, using a wide range of instruments that
provide access to several alternative sources of
finance. A core principle in the BBVA Group’s
liquidity management is to encourage the financial
independence of its subsidiaries in the Americas.
BBVA’s first quarter of the year was characterised by
favourable growth of its businesses’ liquidity gap,
which meant it had no relevant presence in the
long-term finance markets. Despite the current
economic and financial backdrop, the Group’s
liquidity remained sound. It made minimal calls on
the European Central Bank even though it has ample
available collateral. For 2009, the Group’s current
and potential sources of liquidity easily surpass
expected drainage.
The Group’s capital management pursues two key
goals: Firstly, maintaining capital levels appropriate to
the Group’s business targets in all the countries where
it operates. And secondly, at the same time, maximising
returns on shareholder funds through efficient capital
allocation to the different units, active management of
the balance sheet and proportionate use of the different
instruments that comprise the Group’s equity: shares,
preferred securities and subordinate debt. Current
capital levels enable the Group to comply with these
goals.
BBVA manages the exchange-rate exposure on its
long-term investments (basically stemming from its
franchises in the Americas) to preserve its capital ratios
and bring stability to the Group’s income statement
while controlling impacts on reserves and the cost of
this risk management. In the first quarter of 2009,
BBVA continued to pursue an active policy to hedge its
investments in Mexico, Chile, Peru and the dollar area.
Its aggregate hedging was close to 50% and for the
dollar area, close to 100%. Apart from corporate-level
hedging, some subsidiary banks hold dollar positions at
local level. Additionally, the Group hedges its
exchange-rate exposure on expected 2009 and 2010
earnings from the Americas. During the first three
months of this year, this strategy made it possible to
mitigate the impact of the Latam currencies’
depreciation against the euro.
The unit also actively manages the Group’s structural
interest-rate exposure on its balance sheet. This keeps
the performance of short and medium-term net interest
income more uniform by cutting out interest-rate
fluctuations. During the first quarter of 2009, it has
maintained its hedging against a less positive economic
scenario in Europe for 2009-2010, while the risk on its
USA and Mexico balance sheets remains within
comfort parameters. These strategies are managed both
with hedging derivatives (caps, floors, swaps, FRA’s,
etc) and with balance-sheet instruments (mainly
top-rated government bonds). As March 2009 ended,
the Group had asset portfolios denominated in euros,
US dollars and Mexican pesos.
1Q09 BUSINESS AREAS
Corporate Activities
49
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