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 incorporated
the newly created Real-Estate Management unit, which
brings together all the Group’s non-international
real-estate business.
The 2009 net interest income in Corporate Activities
made an outstanding contribution to the Group’s
revenues, totalling €516m, compared against the
negative €1,061m recorded in 2008. This performance
was mainly due to successful management of the euro
balance-sheet and the favourable impact of interest rate
hedges. Net trading income also generated significant
revenues, growing 10.8%. Both items more than offset
the negative impact of hyperinflation on the books in
Venezuela, such that gross income reached €940m in
2009 (down €481m on 2008) and absorbed nearly all
the year’s operating expenses. Thus, operating profit
was negative by €8m. This compares very favourably
against an operating loss of €1,269m the previous year.
Losses from impairment on financial assets subtracted
€172m from this figure, mainly due to country-risk
coverage. Allocations to provisions and other earnings
charged a further €743m against the area. These
reflected the application of maximum prudence criteria
in valuing assets adjudicated and acquired and the
real-estate fund’s assets when appraisals are updated to
reflect current prices. The area’s attributable profit in
2009 was negative by €333m, much less so than the
€1,193 loss recorded the previous year, even factoring
out the one-off transactions from 2008 (–€799m).
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 has long been to encourage the financial
independence of its subsidiaries in the Americas. This
aims to ensure that the cost of liquidity is correctly
reflected in price formation. During 2009, thanks to the
decisive role of the central banks, liquidity conditions
on interbank markets improved significantly, with a
large reduction in the Euribor Overnight Index Swap
(OIS) spread. The medium-term markets also saw
marked improvements after the announcement that
central banks would buy covered bonds and that there
would be public guarantee programmes for banks’
issues. BBVA’s position remained especially favourable.
The liquidity gap on its businesses throughout 2009
enabled it to keep a low profile on the long-term
funding markets. The Group’s liquidity position
remained sound, due to the weight of retail customer
deposits within the balance sheet structure and the
ample collateral available as a second source of
liquidity. For 2010, BBVA’s current and potential
sources of liquidity easily surpass expected drainage,
enabling it to remain in this comfortable position.
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). In the third
quarter of 2009, the bank made a €2,000m five-year
mandatory convertible bond issue. This provides
additional flexibility and headroom in capital
management. The transaction also allows BBVA to
anticipate the possibility of future capital regulations
becoming stricter.
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 2009, BBVA maintained a policy of
actively hedging 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.
4Q09 BUSINESS AREAS
Corporate Activities
53
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