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BUSINESS AREAS 3Q09
Corporate Activities
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.
The third quarter net interest income in Corporate
Activities continues making a positive contribution and
amounted to €302m in the first nine months of 2009,
compared against the –€769 recorded in the same period
of last year. This good performance was mainly due to
adequate management of the euro balance-sheet and the
favourable impact of sharply falling interest rates. The
higher net interest income allows to offset the reduction
of other revenues, such as net trading income, which was
down due to the lower gains realised. Gross income thus
was also positive, reaching €540m and compares very
favourably with the figure obtained in January-September
of 2008 (–€260m). The moderate increase in personnel
expenses (+7.9%) brought operating income to –€109m,
which is considerably less negative than the –€861m
from the same period of last year.
Impairment losses on financial assets account for a
€257m charge against the area, mainly due to
country-risk provisions. The allocations to provisions
and other profit/loss items charge another €380m.
These items basically reflected the application of
maximum prudence criteria when valuing assets whose
appraisals are updated to reflect current prices when
they are adjudicated, acquired or form part of the
real-estate fund. Finally, the area´s attributable profit
was –€361m, compared to –€413m in the same period
of the previous year (–€592m excluding one-offs).
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. The first nine months
of the year was characterised by the opening of the long
term finance markets, a consequence of the easing of
fears of a systemic collapse of the international financial
system. In BBVA’s case, the favourable evolution of the
liquidity gap continues for all the businesses over the
whole of 2009, which means it has not had a relevant
presence in the long-term finance markets. The Group’s
liquidity remains sound because of retail customer
deposits weighting in the balance sheet structure and the
ample collateral available as a second source of
liquidity. For the last quarter of 2009 and the coming
2010, 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, good management of
the balance sheet and proportionate use of the different
instruments that comprise the Group’s equity: shares,
preferred securities and subordinate debt. In September
the bank placed a €2,000m five year mandatory
convertible bond issue which provides additional
flexibility and manoeuvring room in capital
management.
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 nine months 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%. 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 third
quarter of this year, this strategy made it possible to
mitigate the impact of the American currencies’
depreciation against the euro, and at the same time the
hedging for 2010 has been extended.
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