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 first-half net interest income in Corporate Activities
made a significant contribution to the Group’s figures. It
was positive €192m, compared against the –€498
recorded in the same period of 2008. Its performance
was mainly due to good management of the euro
balance-sheet and the favourable impact of sharply falling
interest rates. This higher net interest income allows to
offset the net trading income, which was down due to the
lower gains realised in the half year. Year-to-date
operating income thus stood at –€74m, which is
considerably less negative than the –€537m from the first
six months of 2008.
Impairment losses on financial assets account for a
€199m charge against the area, mainly due to
country-risk provisions. There was also an increase in
allocations to provisions and other profit/loss items.
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. During the same period of the previous year, this
item included €727m in proceeds from the Bradesco
divestment. Finally, the area´s attributable profit was
–€283m, compared to –€205m in the first half of 2008.
Without one-offs, this amount is less negative than the
January-June figure for the previous year (–€385m).
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 half 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, there has been a favourable evolution of the
liquidity gap which meant it had no relevant presence in
the long-term finance markets. The Group’s liquidity
remains sound because of customer deposits weighting in
the balance sheet structure and the ample collateral
available as a second source of liquidity. 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, 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. 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 half 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 six 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 semester 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
1Q09 BUSINESS AREAS
Corporate Activities
49
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