Capital: the Group allocates economic risk capital
(ERC) commensurate with the risks incurred by each
business. This is based on the concept of unexpected
loss at a certain level of statistical confidence,
depending on the Group’s solvency targets. These
targets have two levels: the first is core equity, which
determines the allocated capital. The Bank uses this
amount as a basis for calculating the return generated
on the equity in each business (ROE). The second
level is total capital, which determines the additional
allocation in terms of subordinate debt and preference
shares. The ERC calculation combines lending risk,
market risk, and structural risk associated with the
balance sheet and equity positions, operational risk
and fixed-asset risks, and technical risks in the case of
insurance companies. These are calculated using
internal models defined according to the guidelines
and requirements of the Basel 2 Accord, such that
economic criteria prevail over normative criteria.
As ERC is risk-sensitive, it is linked to the
management policies of individual businesses,
providing an equitable basis for assigning capital to
each business in keeping with the risks incurred and
making it easier to compare profitability across units.
Thus, the economic risk capital is calculated on a
standard basis that is applicable to all kinds of risk
and any risk transaction, position or balance. This
makes it possible to assess risk-adjusted returns and
work out an aggregate profitability per customer,
product, segment, business area or unit.
Internal transfer prices: the Bank uses rates adjusted
for maturity to calculate the net interest income for
Operating income and net attributable profit by business area
(Million euros)
Spain and Portugal
Wholesale Banking & Asset
Management
Mexico
The United States
South America
Corporate Activities
BBVA GROUP
BBVA GROUP EXCLUDING
ONE-OFFS
1H09
Operating income
Δ% Δ% at constant
exchange rate 1H08
each business. It also examines the interest rates for
the different assets and liabilities that make up each
unit’s balance sheet. In cases where there are revenue-
generating units as well as distribution units (eg, asset
management products), it divides the earnings at
market prices.
Assignment of operating expenses: the Bank assigns
direct and indirect costs to business areas except
where there is no closely defined relationship, ie,
when they are of a clearly corporate or institutional
nature for the entire Group.
Cross-selling: in some cases consolidation
adjustments are required to eliminate duplicate
accounting entries caused when earnings are booked
to two or more units with the aim of encouraging
cross-selling to straddle business boundaries.
Recurrent economic profit by
business area
(1 st Half 2009. Million euros)
Spain and Portugal
Wholesale Banking &
Asset Management
Mexico
The United States
South America
Corporate Activities
BBVA GROUP
2,335 5.9 5.9 2,206 1,270 (1.7) (1.7) 1,292
758 (1.6) (1.6) 770 539 (3.3) (3.3) 557
1,717 (6.4) 6.4 1,834 724 (23.7) (13.3) 950
425 17.4 2.3 362 85 (48.1) (54.8) 164
1,132 35.2 31.1 837 463 32.1 29.0 351
(74) (86.3) (86.3) (537) (283) 38.1 38.1 (205)
6,293 15.0 18.0 5,472 2,799 (10.0) (7.6) 3,108
6,293 15.0 18.0 5,472 2,799 (4.4) (1.7) 2,928
1H09
Adjusted net
attributable profit
Net attributable profit
2Q09 BUSINESS AREAS
1,219 873
486 293
910 743
170 41
443 299
(557) (565)
2,671 1,684
Δ% Δ% at constant
exchange rate 1H08
Economic
profit (EP)
27
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