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| 1Q10 | BBVA Group highlights | Group information | Risk and economic capital management | Business areas | Corporate responsibility |
slow the recovery of the labor market and, in turn, income
growth and consumption.
Inflation expectations are well anchored and even though
the improvement in economic activity has eased downward
price pressures, the economy is emerging from levels so low
that there is still significant underutilization of resources.
Consequently, we maintain our forecast of a low fed funds
rate for a prolonged period of time. The Federal Reserve’s
(Fed) primary challenge in 2010 will be to reduce the level
of excess reserves using tools that will allow it to maintain
control of monetary policy. Demand for the fed funds
market has diminished due to the number of excess
reserves, so the Fed has proposed new monetary policy
tools such as paying interest on reserves, reverse repurchase
agreements and term deposits. The Fed is expected to be
transparent in its communication of the exit strategy, but it
has yet to specify exact timing due to the uncertainty
surrounding the pace of the economic recovery.
The final dollar exchange rate against the euro has gone
down 1.3% in the last twelve months, ending March 31,
2010 at US$1.35 to the euro. The average exchange rate
declined 5.8% year-on-year, to US$1.38 per euro. The
aforementioned had a negative impact on the evolution of
the area’s financial statements and activity. However, unless
otherwise indicated, all comments below refer to changes
at a constant exchange rate.
In the first quarter of 2010, the integration and change of
brand of 164 Guaranty offices in Texas and California was
successfully completed within the strict timelines
established. With this integration, all branches of Guaranty
now display the new image of the BBVA Compass brand
and work with its operating system and product platform.
Thus, customers from the former institution are given
access to the range of products and services constituting
the Group’s offering. Compass has thus proven to be a
solid foundation for growth for the BBVA franchise’s
subsequent construction in the United States. Expenses
stemming from the integration have continued to be
recorded in this quarter and cost synergies remain pending.
However, six months after the acquisition, it is safe to say
that it has been very positive for the value of the franchise.
Once said integration of Guaranty is finalized, the next
step in the area will be its adaptation to the model in place
in the rest of the Group’s franchises. Thus, all businesses
managed in the country will be unified under single
Spain and Portugal
Mexico
South America
The United States
Wholesale Banking & Asset Management
Corporate Activities
management, with a Country Manager at its head, and
codependently with the WB&AM area for those falling
within its scope. The objectives of unification include
revenue synergies, though a greater capacity for entries and
cross-selling to customers, as well as more efficient and
better coordinated management of the different risks,
relationships with supervisors and access to financial
markets.
As of March 31, 2010 BBVA USA’s activity progressed
favorably with the acquisition of Guaranty transactions, a
loan-book balance that is growing slightly, by 0.5%
year-on-year to €42,406m, and customer deposits
increasing by 18.9% to €65,866m. Loan growth has been
a challenge primarily due to the economic landscape,
alternative funding sources (i.e. bond market) and tighter
credit quality.
It is worth highlighting the improvement in asset quality
ratios, as both the NPA ratio (4.4% as of 31-Mar-2010)
and coverage (56%) remain at levels that are very similar
to those as of December 31, 2009 (4.2% and 58%,
respectively).
The good performance of activity has had a positive impact
on operating income in the United States, as the gross
income rose 6.4% year-on-year to €609m, thanks to the
positive development of the most recurrent items (net
interest income and fees and commissions). This growth
occurred despite the lower net trading income and other
net income, a heading that is affected by the increase of
contributions to the Federal Deposit Insurance Corporation
(FDIC).
In terms of operating expenses, their 6.4% increase is due
primarily to the efforts for Guaranty’s integration into the
BBVA USA franchise and the amortization of intangibles
caused by said incorporation, as shown by the increase of
other general and administrative expenses, as those of
personnel continue to fall (down 0.7%). Excluding
Guaranty, operating expenses would have declined by
6.4%. Thus, operating income for the first three months
increased 6.4% year-on-year to €252m, and the efficiency
ratio remained at 58.7%, similar to the first quarter of
2009.
We should also note the clear slowdown of year-on-year
growth of impairment losses on financial assets, which
grew 27.8% year-on-year to €161m. This figure is €27m
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