SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20052006
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number: 1-10110
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
(Exact name of Registrant as specified in its charter)
BANK BILBAO VIZCAYA ARGENTARIA, S.A.
(Translation of Registrant’s name into English)
Kingdom of Spain
(Jurisdiction of incorporation)
Plaza de San Nicolás 4
48005 Bilbao
Spain
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class | Name of Each Exchange on which Registered | |
American Depositary Shares, each representing the right to receive one ordinary share, par value €0.49 per share | New York Stock Exchange | |
Ordinary shares, par value €0.49 per share | New York Stock Exchange* | |
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* | The ordinary shares are not listed for trading, but are listed only in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange. |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
The number of outstanding shares of each class of stock of the Registrant at December 31, 20052006 was:
Ordinary shares, par value €0.49 per share—3,390,852,043
Non-Cumulative Guaranteed Preference Shares, Series B, nominal value $25 each, of BBVA Preferred Capital Ltd.—9,600,0003,551,969,121
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17¨ Item 18x
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
PART I | ||||
ITEM 1. | 3 | |||
A. | 3 | |||
B. | ||||
C. | ||||
ITEM 2. | ||||
ITEM 3. | ||||
A. | ||||
B. | 6 | |||
C. | ||||
| 7 | |||
| 7 | |||
ITEM 4. | INFORMATION ON THE COMPANY | 10 | ||
A. | 10 | |||
B. | ||||
C. | 29 | |||
D. | 29 | |||
E. | Selected Statistical Information | 30 | ||
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ITEM 5. | ||||
A. | ||||
B. | ||||
C. | ||||
D. | ||||
E. | ||||
F. | ||||
ITEM 6. | ||||
A. | ||||
B. | 84 | |||
C. | ||||
D. | 90 | |||
E. | 91 | |||
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 92 | ||
A. | Major Shareholders | 92 | ||
B. | Related Party Transactions | 92 | ||
C. | Interests of Experts and Counsel | 93 | ||
ITEM 8. | FINANCIAL INFORMATION | 93 | ||
A. | Consolidated Statements and Other Financial Information | 93 | ||
B. | Significant Changes | 95 | ||
ITEM 9. | THE OFFER AND LISTING | 95 | ||
ITEM 10. | ADDITIONAL INFORMATION | 100 | ||
A. | Share Capital | 100 | ||
B. | Memorandum and Articles of Association | 100 | ||
C. | Material Contracts | 103 | ||
D. | Exchange Controls | 103 | ||
E. | Taxation | 105 | ||
F. | Dividends and Paying Agents | 109 | ||
G. | Statement by Experts | 109 | ||
H. | Documents on Display | 109 | ||
I. | Subsidiary Information | 109 |
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ITEM 12. | ||||
ITEM 13. | ||||
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | |||
ITEM 15. | ||||
ITEM 16. | ||||
ITEM 16A. | ||||
ITEM 16B. | ||||
ITEM 16C. | ||||
ITEM 16D. | ||||
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED | |||
ITEM 17. | ||||
ITEM 18. | ||||
ITEM 19. |
ii
GLOSSARY
The terms below are used as follows throughout this Annual Report:
“Argentaria” means Argentaria, Caja Postal y Banco Hipotecario, S.A. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.
“BBV” means Banco Bilbao Vizcaya, S.A. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.
“BBVA”, “Bank” or “Group” means Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires. BBVA was formed by the merger of BBV and Argentaria, which was approved by the shareholders of each institution on December 18, 1999.
“Consolidated Financial Statements” means BBVA’s audited consolidated financial statementsConsolidated Financial Statements as of and for the years ended December 31, 2006, 2005 and 2004 prepared in accordance with the International Financial Reporting Standards previously adopted by the European Union (“EU-IFRS”EU-IFRS”).
FORWARD-LOOKING STATEMENTS
This Annual Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as “believe”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this Annual Report, including, without limitation, the information under
“Item 3. Key Information—Risk Factors”;
“Item 4. Information on the Company”;
“Item 5. Operating and Financial Review and Prospects”; and
“Item 11. Quantitative and Qualitative Disclosures About Market Risk”
identifies important factors that could cause such differences.
Other important factors that could cause actual results to differ materially from those in forward-looking statements include, among others:
general political, economic and business conditions in Spain, the European Union (“EU”), Latin America and other regions, countries or territories in which we operate;
changes in applicable laws and regulations, including taxes;
the monetary, interest rate and other policies of central banks in Spain, the European Union,EU, the United States and elsewhere;
changes or volatility in interest rates, foreign exchange rates (including the euro to U.S. dollar exchange rate), asset prices, equity markets, commodity prices, inflation or deflation;
the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation;
changes in consumer spending and savings habits, including changes in government policies which may influence investment decisions;
our ability to hedge certain risks economically;
the ability to obtain regulatory approvals of the proposed transaction to acquire Compass Bancshares, Inc. (“Compass”) on the proposed terms and schedule;
the failure of BBVA or Compass shareholders to approve the capital increase or the proposed transaction, respectively;
the risk that the businesses of BBVA and Compass will not be integrated successfully;
the risk that the cost savings and any other synergies from the proposed transaction to acquire Compass may not be fully realized or may take longer to realize than expected;
disruption from the proposed transaction to acquire Compass making it more difficult to maintain relationships with customers, employers or suppliers;
our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that cannot be captured by the statistical models we use; and
• | force majeure and other events beyond our control. |
Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. BBVA undertakes no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in its business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.
CERTAIN TERMS AND CONVENTIONS
First person personal pronouns used in this report, such as “we”“we”, “us”“us”, or “our”“our”, mean BBVA.
In this report, “$“$”, “U.S. dollars”“U.S. dollars”, and “dollars”“dollars” refer to United States Dollars, “€“€” and “euro”“euro” refer to Euro.Euro and “Ptas” or “peseta” refer to Spanish Pesetas.
“Latin America” refers to the countries in which we operate in South America, Central America and Mexico.
PRESENTATION OF FINANCIAL INFORMATION
Accounting Principles Affecting 2003 2002 and 20012002
Unless otherwise indicated, the financial information included in this Annual Report with respect to 2003 2002 and 20012002 has been derived from financial statements that have been prepared in accordance with generally accepted accounting principles which were in effect during the above mentioned years for banks in Spain, which include the accounting requirements established by the Bank of Spain (“Spanish GAAP”GAAP”).
Accounting Principles Affecting 2006, 2005 and 2004
Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statementsConsolidated Financial Statements for the years beginning on or after January 1, 2005 in conformity with EU-IFRS. Therefore, the Group is required to prepare its consolidated financial statementsConsolidated Financial Statements for the year ended December 31, 20052006 (together with comparative financial information for the yearyears ended December 31, 2005 and 2004) in conformity with the EU-IFRSsEU-IFRS ratified by the European UnionEU at that date. EU-IFRS, as adopted by the European UnionEU and applied by us in our consolidated financial statementsConsolidated Financial Statements as of and for the year ended December 31, 2005,2006, does not differ from IFRS, as published by the International Accounting Standards Board (IASB)(“IASB”), effective as of December 31, 2005,2006, and therefore, complies in full with IFRS, as published by the IASB.
EU-IFRS differs in certain significant respects from Spanish GAAP. As a result, our financial information presented under EU-IFRS is not directly comparable to our financial information presented with respect to previous years under Spanish GAAP, and readers should avoid such a comparison. For quantitative information regarding the adjustments required to reconcile our Spanish GAAP financial information to EU-IFRS, see Note 3Appendix VI to the Consolidated Financial Statements.
See Note 5962 to our Consolidated Financial Statements for a quantitative reconciliation of profit for the year and shareholders’stockholders’ equity from IFRSEU-IFRS to generally accepted accounting principles in the United States (“U.S. GAAP.
The Consolidated Financial Statements have been presented in the same format as that used in the consolidated financial statementsConsolidated Financial Statements included in BBVA’s annual and interim reports to shareholders. This format differs from that required by the United States Securities and Exchange Commission (the “SEC”“SEC” or “Commission”“Commission”) for the consolidated financial statementsConsolidated Financial Statements of bank holding companies. Consolidated balance sheets and summary statements of income that reflect the reclassifications required by the Commission are included in Note 5962 to the Consolidated Financial Statements.
We managed
The BBVA Group implemented a new organizational structure during 2006, which affects the comparability of financial information included in this Annual Report on Form 20-F. During 2005 and for purposes of the financial statements included in BBVA’s annual report on Form 20-F for the year ended December 31, 2005 filed with the SEC on July 7, 2006 (the “2005 20-F”), BBVA’s organizational structure was divided into the following four business areas (the “2005 Business Segments”): Retail Banking in Spain and Portugal; Wholesale Businesses; the Americas; and Corporate Activities. In December 2005, BBVA’s Board of Directors approved a new organizational structure for the BBVA Group, which has been implemented since the beginning of 2006 and is the basis for the financial statements included herein (the “2006 Business Segments”): Retail Banking in Spain and Portugal; Wholesale Businesses; Mexico and the United States; South America; and Corporate Activities. The transition from the 2005 Business Segments to the 2006 Business Segments has affected principally the business area of the Americas, since in 2006 BBVA separated its business in Mexico and the United States into a segment independent of South America. The financial information for our business areas for 2006, 2005 and 2004 presented in this Annual Report on Form 20-F have been prepared on a uniform basis, consistent with our organizational structure in 2006 in order to provide a year-on-year comparison. Due to the adoption of the new organizational structure, BBVA’s financial information by business area included in this Annual Report on Form 20-F is not directly comparable to its financial information by business area included in the 2005 20-F.
The management of our business during 20052006 along fourfive segmental lines which areis discussed in “Item 4. Information on the Company” and whoseeach area’s operating results are described in “Item 5. Operating and Financial Review and Prospects”.
Certain numerical information in this Annual Report may not sum due to rounding. In addition, information regarding period-to-period changes is based on numbers which have not been rounded.
Statistical and Financial Information
The following principles should be noted in reviewing the statistical and financial information contained herein:
Average balances, when used, are based on the beginning and the month-end balances during each year. We do not believe that such monthly averages present trends that are materially different from those that would be presented by daily averages.
The book value of BBVA’s ordinary shares held by its consolidated subsidiaries has been deducted from stockholders’ equity.
Unless otherwise stated, any reference to loans refers to both loans and leases.
Interest income figures include interest income on non-accruing loans to the extent that cash payments have been received in the period in which they are due.
Financial information with respect to subsidiaries may not reflect consolidation adjustments.
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
A. | Directors and Senior Managers |
Not Applicable.
B. | Advisers |
Not Applicable.
C. | Auditors |
Not Applicable.
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.Applicable.
ITEM 3. | KEY INFORMATION |
A. | Selected Financial Data |
The historical financial information set forth below has been selected from, and should be read together with, the Consolidated Financial Statements included herein. For information concerning the preparation and presentation of financial information contained herein, see “Presentation of Financial Information”. Also see Note 5962 of the Consolidated Financial Statements for a presentation of our shareholders’stockholders’ equity and net income reconciled to U.S. GAAP.
EU-IFRS
Year ended December 31, | Year ended December 31, | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
(in millions of euro, except per share / ADS data (in euro) and percentages) | (in millions of euros, except per share/ ADS data (in euro) | ||||||||||||||
Consolidated Statement of Income data | |||||||||||||||
Interest and similar income | 15,848 | 12,352 | 19,210 | 15,848 | 12,352 | ||||||||||
Interest expense and similar charges | (8,932 | ) | (6,447 | ) | (11,216 | ) | (8,932 | ) | (6,447 | ) | |||||
Income from equity instruments | 292 | 255 | 379 | 292 | 255 | ||||||||||
Net interest income | 7,208 | 6,160 | 8,374 | 7,208 | 6,160 | ||||||||||
Share of profit or loss of entities accounted for using the equity method | 121 | 97 | 308 | 121 | 97 | ||||||||||
Fee and commission income | 4,669 | 4,057 | 5,119 | 4,669 | 4,057 | ||||||||||
Fee and commission expenses | (729 | ) | (644 | ) | (784 | ) | (729 | ) | (644 | ) | |||||
Insurance activity income | 487 | 391 | 650 | 487 | 391 | ||||||||||
Gains/losses on financial assets and liabilities (net) | 980 | 762 | 1,656 | 980 | 762 | ||||||||||
Exchange differences (net) | 287 | 298 | 378 | 287 | 298 | ||||||||||
Gross income | 13,023 | 11,121 | 15,700 | 13,023 | 11,121 | ||||||||||
Sales and income from the provision of non-financial services | 576 | 468 | 605 | 576 | 468 | ||||||||||
Cost of sales | (451 | ) | (342 | ) | (474 | ) | (451 | ) | (342 | ) | |||||
Other operating income | 134 | 22 | 117 | 134 | 22 | ||||||||||
Personnel expenses | (3,602 | ) | (3,247 | ) | (3,989 | ) | (3,602 | ) | (3,247 | ) | |||||
Other administrative expenses | (2,160 | ) | (1,851 | ) | (2,342 | ) | (2,160 | ) | (1,851 | ) | |||||
Depreciation and amortization | (449 | ) | (448 | ) | (472 | ) | (449 | ) | (448 | ) | |||||
Other operating expenses | (249 | ) | (132 | ) | (263 | ) | (249 | ) | (132 | ) | |||||
Net operating income | 6,823 | 5,591 | 8,883 | 6,823 | 5,591 | ||||||||||
Impairment losses (net) | (854 | ) | (958 | ) | (1,504 | ) | (854 | ) | (958 | ) | |||||
Provision expense (net) | (454 | ) | (850 | ) | (1,338 | ) | (454 | ) | (850 | ) | |||||
Finance income from non-financial activities | 2 | 9 | 58 | 2 | 9 | ||||||||||
Finance expenses from non-financial activities | (2 | ) | (5 | ) | (55 | ) | (2 | ) | (5 | ) | |||||
Other gains | 285 | 622 | 1,129 | 285 | 622 | ||||||||||
Other losses | (208 | ) | (271 | ) | (142 | ) | (208 | ) | (271 | ) | |||||
Income before tax | 5,592 | 4,138 | 7,030 | 5,592 | 4,138 | ||||||||||
Income tax | (1,521 | ) | (1,029 | ) | (2,059 | ) | (1,521 | ) | (1,029 | ) | |||||
Income from ordinary activities | 4,071 | 3,109 | |||||||||||||
Income from continuing operations | 4,971 | 4,071 | 3,109 | ||||||||||||
Income from discontinued operations (net) | — | — | — | — | — | ||||||||||
Consolidated income for the year | 4,071 | 3,109 | 4,971 | 4,071 | 3,109 | ||||||||||
Income attributed to minority interests | (265 | ) | (186 | ) | (235 | ) | (265 | ) | (186 | ) | |||||
Income attributed to the Group | 3,806 | 2,923 | 4,736 | 3,806 | 2,923 | ||||||||||
Per Share/ADS(1) Data | |||||||||||||||
Per share/ADS(1) Data | |||||||||||||||
Net operating income(2) | 2.02 | 1.66 | 2.61 | 2.01 | 1.66 | ||||||||||
Numbers of shares | 3,390,852,043 | 3,390,852,043 | |||||||||||||
Numbers of shares outstanding (at period end) | 3,551,969,121 | 3,390,852,043 | 3,390,852,043 | ||||||||||||
Income attributed to the Group(2) | 1.12 | 0.87 | 1.39 | 1.12 | 0.87 | ||||||||||
Dividends(2) (3) | 0.53 | 0.44 | |||||||||||||
Dividends declared | 0.637 | 0.531 | 0.442 |
(1) | Each American Depositary Share (“ADS” or “ADSs”) represents the right to receive one ordinary share. |
(2) | Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period |
EU-IFRS
At December 31, | Year ended December, 31 | ||||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||
(in millions of euro, except per share / ADS data (in euro) and percentages) | (in millions of euros, except per share/ADS data (in euros) and percentages) | ||||||||||||||||
Consolidated balance sheet data | |||||||||||||||||
Total assets | 392,389 | 329,441 | 411,916 | 392,389 | 329,441 | ||||||||||||
Capital stock | 1,740 | 1,662 | 1,662 | ||||||||||||||
Loans and receivables (net) | 249,397 | 196,892 | 279,855 | 249,397 | 196,892 | ||||||||||||
Deposits from other creditors | 183,375 | 150,726 | 192,374 | 183,375 | 150,726 | ||||||||||||
Marketable debt securities and subordinated liabilities | 76,565 | 57,809 | 91,271 | 76,565 | 57,809 | ||||||||||||
Minority interests | 971 | 738 | 768 | 971 | 738 | ||||||||||||
Shareholders’ equity | 13,034 | 10,961 | |||||||||||||||
Stockholders’ equity | 18,210 | 13,034 | 10,961 | ||||||||||||||
Consolidated ratios | |||||||||||||||||
Profitability ratios: | |||||||||||||||||
Net interest margin(4) | 1.98 | % | 1.91 | % | |||||||||||||
Return on average total assets(5) | 1.12 | % | 0.97 | % | |||||||||||||
Return on average equity(6) | 37.0 | % | 33.2 | % | |||||||||||||
Net interest margin(3) | 2.12% | 1.98 | % | 1.91% | |||||||||||||
Return on average total assets(4) | 1.26% | 1.12 | % | 0.97% | |||||||||||||
Return on average equity(5) | 37.6% | 37.0 | % | 33.2% | |||||||||||||
Credit quality data | |||||||||||||||||
Loan loss reserve | 5,587 | 4,622 | 6,417 | 5,587 | 4,622 | ||||||||||||
Loan loss reserve as a percentage of total loans and receivables | 2.19 | % | 2.29 | % | |||||||||||||
Loan loss reserve as a percentage of total loans and receivables (net) | 2.29% | 2.19 | % | 2.31% | |||||||||||||
Substandard loans | 2,346 | 2,202 | 2,492 | 2,346 | 2,202 | ||||||||||||
Substandard loans as a percentage of total loans and receivables | 0.92 | % | 1.10 | % | |||||||||||||
Substandard loans as a percentage of total loans and receivables (net) | 0.89% | 0.94 | % | 1.12% |
(3) |
|
Represents net interest income as a percentage of average total assets. |
(4) | Represents consolidated income |
(5) | Represents |
U.S. GAAP Information
Year ended December 31, | Year ended December 31, | |||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||
(in millions of euro, except per share/ ADS data (in euro) or as otherwise indicated) | (in millions of euros, except per share/ ADS data (in euro) or as otherwise indicated) | |||||||||||||||||||
Consolidated statement of income data | ||||||||||||||||||||
Net income | 2,018 | 3,095 | 1,906 | 1,846 | 680 | 4,972 | 2,018 | 3,095 | 1,906 | 1,846 | ||||||||||
Basic earnings per share/ADS | 0.595 | 0.918 | 0.60 | 0.58 | 0.21 | 1.460 | 0.595 | 0.918 | 0.60 | 0.58 | ||||||||||
Diluted earnings per share/ADS | 0.595 | 0.918 | 0.60 | 0.58 | 0.21 | 1.460 | 0.595 | 0.918 | 0.60 | 0.58 | ||||||||||
Dividends per share/ADS (in dollars) | 0.658 | 0.552 | 0.34 | 0.33 | 0.34 | 0.807 | 0.658 | 0.552 | 0.34 | 0.33 | ||||||||||
Consolidated balance sheet data | ||||||||||||||||||||
Total assets | 401,799 | 314,350 | 287,912 | 290,430 | 322,612 | 420,971 | 401,799 | 314,350 | 287,912 | 290,430 | ||||||||||
Stockholders’ equity | 25,375 | 23,465 | 19,583 | 18,908 | 21,226 | 30,461 | 25,375 | 23,465 | 19,583 | 18,908 | ||||||||||
Basic stockholders’ equity per share/ADS | 7.48 | 6.96 | 6.13 | 5.92 | 6.64 | 8.94 | 7.48 | 6.96 | 6.13 | 5.92 | ||||||||||
Diluted stockholders’ equity per share/ADS | 7.48 | 6.96 | 6.13 | 5.91 | 6.63 | 8.94 | 7.48 | 6.96 | 6.13 | 5.91 |
(1) |
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Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period. |
(2) | Each ADS represents the right to receive one ordinary share. |
(3) | Dividends per share/ADS are translated into dollars |
(4) | At the end of the reported period. |
Exchange Rates
Spain’s currency is the euro. Unless otherwise indicated, the amounts that have been converted to euro in this Annual Report have been done so at the corresponding exchange rate published by the European Central Bank (“ECB”) on December 31 of the relevant year.
For convenience in the analysis of the information, the following tables describe, for the periods and dates indicated, information concerning the noon buying rate for euro, expressed in dollars per €1.00. The term “noon“noon buying rate”rate” refers to the rate of exchange for euros, expressed in U.S. dollars per euro, in the City of New York for cable transfers payable in foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes.
Year ended December 31 | Average (1) | Average (1) | ||
2001 | 0.8909 | |||
2002 | 0.9495 | 0.9495 | ||
2003 | 1.1411 | 1.1411 | ||
2004 | 1.2478 | 1.2478 | ||
2005 | 1.2400 | 1.2400 | ||
2006 (through June 30) | 1.2410 | |||
2006 | 1.2661 | |||
2007 (through March 28) | 1.3186 |
(1) | The average of the noon buying rates for the euro on the last day of each month during the relevant period. |
Month ended | High | Low | ||
December 31, 2005 | 1.2041 | 1.1699 | ||
January 31, 2006 | 1.2287 | 1.1980 | ||
February 28, 2006 | 1.2100 | 1.1860 | ||
March 31, 2006 | 1.2197 | 1.1886 | ||
April 30, 2006 | 1.2624 | 1.2091 | ||
May 31, 2006 | 1.2888 | 1.2607 | ||
June 30, 2006 | 1.2522 | 1.2953 |
Month ended | High | Low | ||
October 31, 2006 | 1.2773 | 1.2502 | ||
November 30, 2006 | 1.3261 | 1.2705 | ||
December 29, 2006 | 1.3327 | 1.3073 | ||
January 31, 2007 | 1.3286 | 1.2904 | ||
February 28, 2007 | 1.3246 | 1.2933 | ||
March 31, 2007 (through March 28) | 1.3359 | 1.3094 |
The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per €1.00, on July 6, 2006,March 28, 2007, was $1.2757.$1.3331.
AtAs of December 31, 2005,2006, approximately 29.9%31% of our assets and approximately 32.6%33% of our liabilities were denominated in currencies other than euro (principally dollars).
For a discussion of our foreign currency exposure, please see “Item 11. Quantitative and Qualitative Disclosures About Market Risk— StructuralMarket Risk —Structural in Non-Trading Activities in 2006—Exchange Rate Risk”.
B. | Capitalization and Indebtedness |
Not applicable.Applicable.
C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
D. | Risk Factors |
Risks Relating to us
Since our loan portfolio is highly concentrated in Spain, adverse changes affecting the Spanish economy could have a material adverse effect on our financial condition.
We historically have developed our lending business in Spain, which continues to be our main place of business. As of December 31, 2005,2006, business activity in Spain accounted for 70.3%70.2% of our loan portfolio. See “Item 4. Information on the Company—Selected Statistical Information—Loans by Geographic Area”. Any adverse changes affecting the Spanish economy are likely to have a significant adverse impact on our loan portfolio and, as a result, on our financial condition and results of operations.
A substantial percentage of our customer base is particularly sensitive to adverse developments in the economy, which renders our lending activities relatively riskier than if we lent primarily to higher-income customer segments.
Medium- and small-size companies and middlemiddle- and lower middlelower-middle- income individuals typically have less financial strength than large companies and high-income individuals and accordingly can be expected to be more negatively affected by adverse developments in the economy. As a result, it is generally accepted that lending to these segments of our existing and targeted customer base represents a relatively higher degree of risk than lending to other groups.
A substantial portion of our loan portfolio consists of residential mortgages and consumer loans to middlemiddle- and lower middle incomelower-middle-income customers and commercial loans to medium- and small -sizesmall-size companies. Consequently, during periods of slowdown in economic activity we may experience higher levels of past due amounts which could result in higher levels of allowance for loan losses. We cannot assure you that we will not suffer substantial adverse effects on our base loan portfolio to these customer segments in the event of adverse developments in the economy.
Increased exposure to real estate in Spain makes us more vulnerable to developments in this market.
The sound economic growth, the strength of the labor market and a decrease in interest rates in Spain have caused an increase in the demand for mortgage loans in the last few years. This has had repercussions in housing prices, which have also risen significantly. As residential mortgages are one of our main assets, comprising 44%26%, 27% and 46%26% of our loan portfolio at December 31, 20042006, 2005 and 2005,2004, respectively, we are currently highly exposed to developments in real estate markets. AWe expect the worsening financial conditions in Spain to cause a gradual adjustment process in the Spanish real estate sector, after several years of price increases.
In addition, a strong increase in interest rates or unemployment in Spain might have a significant negative impact in mortgage payment delinquency rates. An increase in such delinquency rates could have an adverse effect on our business, financial condition and results of operations.
Highly-indebted households and corporations could endanger our asset quality and future revenues.
Spanish households and firms have reached, in recent years, a high level of indebtedness, which represents increased risk for the Spanish banking system. The increase of loans referenced to variable interest rates makes debt service on such loans more vulnerable to changes in interest rates than in the past. In fact, the debt burden of the Spanish households on disposable income has increased substantially from 12.5% in 2003 to 16.4% in 2006. The increase in households’ and firms’ indebtedness also limits their ability to incur additional debt, decreasing the number of new products we may otherwise be able to sell them.
A sudden shortage of funds could cause an increase in our costs of funding and an adverse effect on our operating revenues.
Historically, one of our principal sources of funds has been savings and demand deposits. Time deposits represented 29.8%23.3%, 25.4% and 29.1%27.6% of our total funding at December 31, 20042006, 2005 and 2005,2004, respectively. Large-denomination time deposits may, under some circumstances, such as during periods of significant changes in market interest rates for these types of deposit products and resulting increased competition for such funds, be a less stable source of deposits than savings and demand deposits. In addition,
since we rely heavily on short-term deposits for our funding, we cannot assure you that, in the event of a sudden or unexpected shortage of funds in
the banking systems or money markets in which we operate, we will be able to maintain our current levels of funding without incurring higher funding costs or having to liquidate certain of our assets.
We face increasing competition in our business lines.
The markets in which we operate are highly competitive. Financial sector reforms in the markets in which we operate have increased competition among both local and foreign financial institutions, and we believe that this trend will continue. For example, the adoption of the euro as the common currency throughout the European Union (“EU”)EU is making it easier for European banks to compete against us in Spain. In addition, the trend towards consolidation in the banking industry has created larger and stronger banks with which we must now compete. This is particularly the case of the consumer credit market, where foreign entrants are operating in the segment of small credits to subprime households.
We also face competition from non-bank competitors, such as:
department stores (for some credit products);
leasing companies;
factoring companies;
mutual funds;
pension funds; and
insurance companies.
We cannot assure you that this competition will not adversely affect our business, financial condition and results of operations.
Our business is particularly vulnerable to volatility in interest rates.
Our results of operations are substantially dependent upon the level of our net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Interest rates are highly sensitive to many factors beyond our control, including deregulation of the financial sectors in the markets in which we operate, monetary policies pursued by the European UnionEU and national governments, domestic and international economic and political conditions and other factors.
Changes in market interest rates could affect the spread between interest rates charged on interest-earning assets and interest rates paid on interest-bearing liabilities and thereby negatively affect our results of operations. For example, an increase in interest rates could cause our interest expense on deposits to increase more significantly and quickly than our interest income from loans, resulting in a reduction in our net interest income.
In addition, income from treasury operations is particularly vulnerable to interest rate volatility. Since approximately 64%75% of our loan portfolio consists of variable interest rate loans maturing in more than one year, rising interest rates may also bring about an increase in the non-performing loan portfolio.
Our financial statements and periodic disclosure under securities laws may not give you the same information as financial statements prepared under U.S. accounting rules and periodic disclosures provided by domestic U.S. issuers.
Publicly available information about public companies in Spain is generally less detailed and not as frequently updated as the information that is regularly published by or about listed companies in the United States. In addition, although we are subject to the periodic reporting requirements of the United States Securities Exchange Act of 1934 (the “Exchange Act”), the periodic disclosure required of foreign issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Finally, we maintain our financial accounts and records and prepare our financial statements in conformity EU-IFRS, which differs in certain respects from U.S. GAAP, the financial reporting standard to which many investors in the United States may be more accustomed. See Note 62 of the Consolidated Financial Statements for the presentation of our stockholders’ equity and net income reconciled to U.S. GAAP.
BBVA may fail to realize all of the anticipated benefits of the proposed transaction to acquire Compass.
The success of the proposed transaction to acquire Compass will depend, in part, on BBVA’s ability to realize the anticipated benefits from combining the businesses of BBVA and Compass. However, to realize these anticipated benefits, BBVA and Compass must successfully combine their businesses, which are currently principally conducted in different countries by management and employees coming from different cultural backgrounds. If BBVA is not able to achieve these objectives, the anticipated benefits of the transaction may not be realized fully or at all or may take longer to realize than expected.
BBVA and Compass have operated and, until the completion of the proposed transaction, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the ability of BBVA and Compass to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the transaction. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Compass and BBVA during the transition period and on the combined company following completion of the transaction.
See “Item 4. Information on the Company—Business Overview—Mexico and the United States”.
Risks Relating to Latin America
Political events in Mexico could adversely affect our operations.operations, given that approximately 37% of our income attributed to the Group is generated in Mexico.
The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican governmental actions concerning the economy and state-owned enterprises could have a significant effect on Mexican private sector entities in general, and on our Mexican subsidiaries in particular.
Mexico’s presidential elections were held on July 2, 2006. AsFelipe Calderon’s victory was confirmed by the Federal courts on September 5, 2006, and Calderon took office on December 1, 2006, but the election results were contested by Andres Manuel López Obrador and his party, the Democratic Revolutionary Party, which alleged irregularities in over 30% of the date of this annual report, the outcome of the election is unknown. Acountry’s polling stations, sought a vote recount, is currently underway, andunsuccessfully appealed the results of the election could be contested.and staged street protests. The uncertainty over the results ofcaused by the election could result in political and economic instability and social unrest, which could adversely affect the business, financial condition and results of operations of our Mexican subsidiaries. Moreover, anythe new administration could implement significant changes in laws, public policies and government programs, which could have a material adverse effect on the business, financial condition and results of operations of our Mexican subsidiaries.
The devaluation of the Argentine peso, high inflation and other adverse macroeconomic conditions in Argentina and related emergency measures adopted by the Argentine Government in 2001 and 2002 have had, and may continue to have, a material adverse effect on our business, financial condition and results of operations.
The Argentine economy experienced a severe crisis in 2001 and 2002, marked by the continued movement of capital out of Argentina, the end of convertibility of the Argentine peso, devaluation, and the return of inflation. The crisis had a strong impact on the financial system and jeopardized the solvency and liquidity of banks. In 2004 and 2005, the Argentine economy stabilized and experienced significant growth, but uncertainty regarding the scope, sustainability and pace of the recovery remained. The Argentine economic and social situation has quickly deteriorated in the past and may quickly deteriorate in the future and we cannot assure you that the Argentine economy will continue to experience sustained growth.
The emergency measures adopted by the Argentine government in response to the economic crisis at the end of 2001 and during 2002 that affected our results of operations included: freezing public debt payments, ending convertibility between the Argentinean peso and the dollar, imposing cash withdrawal limits on savings accounts, re-scheduling of term deposit maturities and converting dollar assets and liabilities to Argentine pesos at different exchange rates.
As a result of the emergency measures described above, we have written off our entire investment in Argentina to date. However, despite our provisions and write-downs, a deterioration in the Argentine economy or further emergency measures adopted by the government in Argentina could have a material adverse effect on our business, financial condition and results of operations.
We cannot assure you that the laws and regulations currently governing the Argentinean economy will not change in the future, or that any changes which may occur will not adversely affect our business, financial condition or results of our operations in the country, or the business which we transact with counterparties located in the country.
Our Latin American subsidiaries’ growth, asset quality and profitability may be affected by volatile macroeconomic conditions, including government default on public debt, in the Latin American countries where they operate.
The Latin American countries in which we operate have experienced significant economic volatility in recent decades, characterized by slow growth, declining investment and significant inflation. This volatility has resulted in fluctuations in the levels of deposits and in the relative economic strength of various segments of the
economies to which we lend. Negative and fluctuating economic conditions, such as a changing interest rate environment, also affect our profitability by causing lending margins to decrease and leading to decreased demand for higher-margin products and services. The results of several recent electoral processes entail an increased risk of greater state intervention in the domestic economy, especially in Bolivia and Venezuela.
Negative and fluctuating economic conditions in some Latin American countries could result in government defaults on public debt. This could affect us in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default in public debt could cause to the banking system as a whole, particularly since commercial banks’ exposure to government debt is generally high in several Latin American countries in which we operate.
While we seek to mitigate these risks through what we believe to be conservative risk policies, no assurance can be given that our Latin American subsidiaries’ growth, asset quality and profitability will not be affected by volatile macroeconomic conditions in the Latin American countries in which we operate.
Latin American economies can be directly and negatively affected by adverse developments in other countries.
Financial and securities markets in Latin American countries in which we operate, are to varying degrees, influenced by economic and market conditions in other countries in Latin America and beyond. Negative developments in the economy or securities markets in one country, particularly in an emerging market, may have a negative impact on other emerging market economies. These developments may adversely affect the business, financial condition and operating results of our subsidiaries in Latin America.
We are exposed to foreign exchange and, in some instances, political risks as well as other risks in the Latin American countries in which we operate, which could cause an adverse impact on our business, financial condition and results of operations.
We operate commercial banks in 10 Latin American countries and our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We are confronted with different legal and regulatory requirements in many of the jurisdictions in which we operate. These include, but are not limited to, different tax regimes and laws relating to the repatriation of funds or nationalization of assets. Our international operations may also expose us to risks and challenges which our local competitors may not be required to face, such as exchange rate risk, difficulty in managing a local entity from abroad, and political risk which may be particular to foreign investors. Our expansion in these markets requires us to respond to rapid changes in market conditions in these countries. We cannot assure you that we will continue to succeed in developing and implementing policies and strategies that are effective in each country in which we operate or that any of the foregoing factors will not have a material adverse effect on our business, financial condition and results of operations.
Regulatory changes in Latin America that are beyond our control may have a material effect on our business, financial condition and results of operations.
A number of banking regulations designed to maintain the safety and soundness of banks and limit their exposure to risk are applicable in certain Latin American countries in which we operate. Local regulations differ in a number of material respects from equivalent regulations in Spain and the United States.
Changes in regulations that are beyond our control may have a material effect on our business and operations.operations, particularly in Venezuela. In addition, since some of the banking laws and regulations have been recently adopted, the manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. No assurance can be given that laws or regulations will be enforced or interpreted in a manner that will not have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to Other Countries
Our strategic growth in Asia exposes us to increased regulatory, economic and geopolitical risk relating to emerging markets in the region, particularly in China.
Strategic growth in Asia, particularly China, continued in 2006. The BBVA Group formed a strategic alliance with the CITIC Group, in which we committed to invest €501 million to purchase 5% of China Citic Bank (“CNCB”) as well as €488 million to purchase 15% of Citic International Financial Holdings (“CIFH”) as of December 31, 2006. See “Item 4. Information on the Company—Business Overview—Wholesale Businesses”.
As a result of our expansion into Asia, we are exposed to increased risks relating to emerging markets in the region, particularly in China. The Chinese government has exercised, and continues to exercise, significant influence over the Chinese economy. Chinese governmental actions concerning the economy and state-owned enterprises could have a significant effect on Chinese private sector entities in general, and on CNCB or CIFH in particular.
We also are exposed to regulatory uncertainty and geopolitical risk as a result of our investments in Asia. Changes in laws or regulations or in the interpretation of existing laws or regulations, whether caused by a change in government or otherwise, could adversely affect our investments. Moreover, Asian economies can be directly and negatively affected by adverse developments in other countries in the region and beyond.
Any of these developments could have a material adverse effect on our investments in Asia or the business, financial condition and operating results of the Group.
Our continued expansion in the United States increases our exposure to the U.S. market.
The Group’s expansion continued in the United States in 2006 with the acquisition of Texas Regional Bancshares, Inc. (“Texas Regional Bancshares”) (for $2,141 million (approximately €1,674 million) in November 2006) and State National Bancshares, Inc. (“State National Bancshares”) (for $484 million (approximately €368 million), which closed in January 2007). These purchases, together with Laredo National Bank, Inc. (“LNB”) (acquired in 2005), have nearly tripled our presence in the United States in the past two years. In addition, we recently announced our proposed acquisition of Compass, which, if consummated, will substantially increase our presence in the United States. See “Item 4. Information on the Company—Business Overview—Mexico and the United States” and “Item 4. Information on the Company—History and Development of the Company—Capital Expenditures”.
Our expansion in the United States makes us more vulnerable to developments in this market, particularly the real estate market. The sound economic growth, the strength of the labor market and a decrease in interest rates in the United States have caused an increase in the demand for mortgage loans in the last few years. This has had repercussions in housing prices, which have also risen significantly. As we have acquired entities in the United States, our exposure to the U.S. real estate market has increased, and this will increase further if the proposed acquisition of Compass is consummated. If there were a significant downturn in the U.S. economy in general, or the real estate market in particular, it could have a material adverse effect on our business, financial condition and results of operations.
ITEM 4. | INFORMATION ON THE COMPANY |
A. History and Development of the Company
A. | History and Development of the Company |
Our legal name is Banco Bilbao Vizcaya Argentaria, S.A. BBVA’s predecessor bank, BBV, was incorporated in Spain as a limited liability company (asociedad anónima or “S.A.“S.A.”) under the Spanish Corporations Law on October 1, 1988. BBVA was formed as the result of a merger by absorption of Argentaria into BBV that was approved by the shareholders of each institution on December 18, 1999 and registered on January 28, 2000. It conducts its business under the commercial name “BBVA”. BBVA is
registered with the Commercial Registry of Vizcaya (Spain). It has its registered office at Plaza de San Nicolás 4, Bilbao, Spain, 48005, telephone number 34-94-420-3001.+34-91-3746201. BBVA’s agent in the U.S. for U.S. federal securities law purposes is Raúl Santoro de Mattos Almeida (BBVA New York, 1345 Avenue of the Americas, 45th floor, New York, 10105)10105, telephone number +1-212-728-1660). BBVA is incorporated for an unlimited term.
Recent Developments
Proposed Transaction to Acquire Compass Bancshares, Inc.
On February 16, 2007 BBVA entered into a definitive agreement to acquire 100% of the shares of Compass for a consideration made up of a combination of ordinary shares of BBVA and cash (the “Agreement”). Pursuant to the Agreement, Compass shareholders can elect to receive 2.8 BBVA ordinary shares or ADSs or $71.82 in cash for each Compass share, subject to proration. Based on BBVA’s closing stock price on Thursday, February 15, 2007, the transaction has an aggregate value of approximately $9.6 billion. See “—Business Overview—Mexico and the United States”.
Capital Expenditures
Our principal investments are financial, in subsidiaries and in affiliates. The main capital expenditures from 20032004 to the date of this Annual Report were the following:
2007
On July 12, 2006, BBVA entered into an agreement to purchase the U.S. banking group, State National Bancshares, which is domiciled and conducts its main business activity in the State of Texas. Upon receipt of the required shareholder approval and other necessary administrative authorizations, the transaction concluded on January 3, 2007. The agreed purchase price was $484 million (approximately €368 million) at this date.
On December 22, 2006, BBVA reached an agreement with the Chinese banking group CITIC Group to develop a strategic alliance in the Chinese market. In accordance with this agreement, BBVA will acquire a 5% ownership interest in CNCB with a call option to acquire 9.9% of its share capital. The price for the initial 5% share capital is approximately €501 million. Additionally BBVA will acquire a 15% ownership interest in the banking entity CIFH, which is headquartered in Hong Kong and is quoted on the Hong Kong Stock Exchange. The price for this 15% share is approximately €488 million. As of the date of the filing of this Annual Report, certain regulatory and other approvals remain pending.
2006
On November 30, 2006 the Group acquired all the shares of the Italian vehicle rental company Maggiore Fleet S.p.A., for €70.2 million, giving rise to goodwill of €35.7 million.
On November 10, 2006, the Group acquired Texas Regional Bancshares through the investment of $2,141 million (€1,674 million). The goodwill recognized as of December 31, 2006 amounted to €1,257 million.
On July 28, 2006, BBVA acquired 100 % ownership of Uno-E Bank, S.A. The process to acquire all of Uno-E Bank S.A.’s shares commenced on January 10, 2003 when Telefónica España, S.A., pursuant to the agreement entered into by Terra Networks, S.A. (subsequently merged into Telefónica España, S.A.) and BBVA, proceeded on January 10, 2003 to start selling to BBVA its 33 % ownership interest in Uno-E Bank, S.A. for an aggregated amount of €148.5 million.
On June 12, 2006, BBVA reached agreements to acquire State National Bancshares, Inc. and Texas Regional Bancshares, Inc., each of which are U.S. banking groups domiciled in Texas. The acquisition price agreed for State National Bancshares Inc. iswas approximately $480 million while the acquisition price agreed for Texas Regional Bancshares Inc. iswas approximately $2,164 million. In both cases, the acquisitions arewere subject to both shareholder and regulatory approvals. The acquisitions closed on January 3, 2007 (State National Bancshares) and in November, 2006 (Texas Regional Bancshares). The acquisition of Texas Regional Bancshares added €3,115 million in lending and €4,651 million in deposits to the Group’s accounts as well as 73 branches and 2,009 employees, in each case at December 31, 2006.
In May 2006, BBVA acquired a 51% ownership interest in Forum, a Chilean company specializing in car purchase financing, through the Chilean entities Forum Distribuidora, S.A. and Forum Servicios Financieros, S.A. (which in turn own all the shares of ECASA, S.A.), giving rise to the incorporation of BBVA Financiamiento Automotriz. The goodwill recognized as of December 31, 2006 amounted to €51 million.
On March 3, 2006, BBVA purchased 0.43% of BBVA Chile’s share capital for 2,318 million Chilean pesos (€3.7 million), increasing BBVA’s share capital in BBVA Chile to 67.05%. As the share capital of BBVA in BBVA Chile is higher than two thirds of BBVA Chile’s total share capital, BBVA, in compliance with Chilean legislation launched a public tender offer for all of BBVA Chile’s share capital. The public tender offer was effective from April 3, 2006 to May 2, 2006. After the acceptance of the public tender offer by 1.13% of BBVA Chile’s outstanding shares, BBVA’s share capital in BBVA Chile increased to 68.18%.
2005
On January 6, 2005, pursuant to the agreement entered into in September 2004 and after obtaining the mandatory authorizations, the Group, through BBVA Bancomer, S.A. de C.V. (“BBVA Bancomer”), acquired all the shares of Hipotecaria Nacional, S.A. de C.V., a Mexican company specializing in the mortgage business. The price paid was 4,121 million Mexican pesos (approximately € 276,048 thousand) and the goodwill recognized amounted to € 259,111 thousand at December 31, 2005.
On April 28, 2005, pursuant to the agreement entered into on September 20, 2004 and after obtaining the mandatory authorizations, BBVA, acquired all the shares of Laredo National Bancshares, Inc.,LNB, a bank holding company located in Texas (United States) which operates in the banking business through two independent banks: Laredo National Bank and South Texas National Bank. The price paid was US$U.S.$ 859.6 million (approximately € 666,110 thousand) and the goodwill recognized amounted to € 473,941 thousand at December 31, 2005.
On October 31, 2005, the Guarantee Fund for Colombian Financial Institutions (“FOGAFIN”), sold by public auction 98.78% of the share capital of Banco Granahorrar, S.A. (a Colombian financial institution) (“Banco Granahorrar”) to the BBVA Group’s subsidiary in Colombia, BBVA Colombia, S.A. The offer made by BBVA Colombia, S.A. for the acquisition of Banco Granahorrar S.A. totalled US$totaled U.S.$ 423.66 million. This transaction was consummated in December 2005 after the required authorizations had been obtained from the supervisory and control bodies. The price paid was 981,572.2 million Colombian pesos, approximately € 364,163 thousand, and the goodwill recognized amounted to € 266,862 thousand at December 31, 2005.
2004
On January 30, 2004, our Board of Directors adopted a resolution to launch a tender offer for the approximately 40.6% of the shares of Bancomer, our Mexican affiliate, which were not already owned by BBVA. The tender offer was launched on February 19, 2004 and expired on March 19, 2004. As a result of the successful completion of the tender offer and subsequent purchases during 2004 of Bancomer’s capital stock, at December 31, 2004, we owned 99.70% of Bancomer’s outstanding shares.
On March 18, 2004, the Board of Directors of BBVA Banco Francés, S.A. (“Banco Francés”s”), our Argentine affiliate, resolved to implement a plan intended to improve Banco Francés’s adjusted stockholders’ equity and enable Banco Francés to comply with new minimum capital requirements established by the Argentine Central Bank. Under this plan, we:
acquired from Banco Francés its entire interest in Banco Francés (Cayman) Limited for $238.5 million; and
subscribed to a capital increase by capitalizing a loan we granted to Banco Francés in an amount of $78 million.
The transactions involving Banco Francés described above did not affect BBVA’s consolidated operating results because (i) in the case of the loan capitalization, BBVA had previously fully provisioned the loan, and (ii) in the case of the purchase of Banco Francés (Cayman) Limited, this entity was already fully consolidated by BBVA.
On October 8, 2004, we acquired all the shares of Valley Bank, a bank licensed in the state of California, for U.S.$16.7 million, which was BBVA’s first commercial banking acquisition in the United States.
2003
During 2003, BBVA acquired 0.176% of the capital stock of Gas Natural S.D.G, S.A. (“Gas Natural”) for €12.7 million, raising its interest in Gas Natural to 3.241% as of December 31, 2003.
During 2003, BBVA purchased 4.76% of the capital stock of Bancomer for a total of €304 million, raising its interest to 59.43% as of December 31, 2003.
Capital Divestitures
Our principal divestitures are financial, in subsidiaries and in affiliates. The main capital divestitures from 20032004 to the date of this Annual Report were the following:
2006
On June 14, 2006, BBVA sold its 5.04% capital share in Repsol YPF, S.A.S.A (“Repsol”). The selling procedure was executed through the closing and settlement of hedging equity swaps previously contracted. This sale gave rise to a gain of €523 million.
On May 19, 2006, BBVA sold its stake in the share capital of Banca Nazionale del Lavoro (BNL)(“BNL”) to BNP Paribas, for a price of €1,299 million following it’sits adhesion on May 12, 2006, as shareholder of BNL, to the public tender offer launched by BNP Paribas to acquire 100% of BNL’s capital. The sale gave rise to a gain of €568.3 million.
On April 5, 2006, BBVA sold its stake of 51% in the share capital of Banc Internacional d´Andorra, S.A. (“Andorra”) to the rest of the shareholders of said entity, the Andorran founding partners of the bank, for a price of €395.15 million.
2005
There were no significant capital divestures during 2005.
2004
In January 2004, BBVA sold 2.2% of the capital stock of Gas Natural S.D.G., S.A. At the time the transaction closed, BBVA had not completed preparation of its 2003 Consolidated Financial Statements and therefore, in accordance with Spanish GAAP, reflected the amortization of €70 million of consolidation goodwill which resulted from the transaction in such financial statements rather than in its 2004 Consolidated Financial Statements.
In March 2004, the Group sold its 24.4% holding in Banco Atlántico, S.A. at the price established by Banco Sabadell, S.A. in its tender offer for all the shares of Banco Atlántico, S.A. This sale gave rise to a gain of €217.7 million for the BBVA Group.
In March 2004, the Group sold its 50% holding in Hilo Direct Seguros y Reaseguros, S.A, which represented all of the Group’s interests. This sale gave rise to a gain of €26 million for the BBVA Group.
In June 2004, the Group sold its 5.0% holding in Acerinox, S.A., which represented all of the Group’s interests. This sale gave rise to a gain of €34.6 million for the BBVA Group.
On September 6, 2004, the Group sold its 17.2% holding in Vidrala, S.A., giving rise to a gain of €19.3 million.
On October 12, 2004, the Group sold the El Salvador welfare business composed of BBVA Crecer AFP and BBVA Seguros, S.A. – Seguros de Personas – in which BBVA had ownership interests of 62% and 51%, respectively, for $42.8 million (€34.76 million), giving rise to a gain of €12.3 million.
In December 2004, the Group sold its 3% holding in Gamesa, S.A., which represented all of the Group’s interests. This sale gave rise to a gain of €53.1 million for the BBVA Group.
In the second quarter of 2004, the Group exercised a sale option it had on its 33.3% holding in Grubarges Inversión Hotelera, S.L., and recognized a gain of €26.3 million on such sale.
During the first six months of 2004, the Group sold its 0.6% holding in Repsol YPF, S.A.Repsol. These sales gave rise to a loss of €6.5 million for the BBVA Group.
During 2004, the Group purchased and sold shares of Telefónica, S.A. without any material variation in its aggregate holding in such company as of December 31, 2003. These sales gave rise to a gain of €141.7 million.
2003
On January 13, 2003, BBVA announced its intention to sell its Brazilian affiliate, Banco Bilbao Vizcaya Argentaria Brasil, S.A. (“BBV Brasil”) to Banco Bradesco, S.A. (“Bradesco”). On June 9, 2003, upon completion of due diligence, receipt of authorizations from regulatory authorities and approval by the corresponding corporate bodies, BBVA transferred 100% of BBV Brasil to Bradesco, in consideration for which Bradesco paid 35,481,460,311 of its newly-issued ordinary shares and 34,948,501,563 of its newly-issued preferred shares, totaling 4.44% of Bradesco’s share capital, as well as 1,864 million Brazilian Reais in cash, for a total consideration of approximately 2,626 million Brazilian Reais (approximately $900 million). We were required, under Spanish GAAP, to take an extraordinary charge in 2002 relating to exchange rate differences relating to our investment in BBV Brasil accumulated up to December 31, 2002. Under the transaction agreements with Bradesco, in addition to the cash consideration and equity participation described above, we have been granted the right to nominate one member of Bradesco’s board of directors so long as we maintain, subject to exceptions relating to capital increases where shareholders are not offered preemptive rights, at least a 4.0% interest in Bradesco’s share capital. We have agreed for a period of two years from the closing date or so long as we have a right to nominate one member of Bradesco’s board of directors, whichever is longer, that we will not control and/or manage a financial institution in Brazil.
In March 2003, BBVA sold its 25% interest in Metrovacesa Residencial, S.A., resulting in a capital gain of €2.1 million.
On June 5, 2003, BBVA agreed to sell its holding in Crédit Lyonnais, S.A., to Crédit Agricole, S.A. in exchange for €482 million in cash, representing 67% of the total consideration, and 16.3 million shares of Crédit Agricole, S.A., representing the remaining 33% of the total consideration. BBVA immediately sold the Crédit Agricole shares to institutional investors at a price of €16.64 per share, for a total consideration of €271 million. As a result of this transaction, BBVA liquidated its participation in Crédit Lyonnais and recorded a capital gain of €342 million.
In July 2003, BBVA sold 3% of the capital stock of Gamesa,S.A., giving rise to a capital gain of €29.9 million.
In the last quarter of 2003, BBVA sold 2.465% of the capital stock of Repsol-YPF, S.A. giving rise to a loss of €73.3 million.
In 2003, a series of purchases and sales of shares of Telefónica, S.A., resulting in a 0.57% net reduction of our holding, gave rise to a capital gain of €220 million.
In 2003, a series of purchases and sales of shares of Iberdrola, S.A., resulting in a 1.02% net reduction of our holding, gave rise to a capital gain of €45.3 million.
In December 2003, BBVA sold its entire 9.9% interest in the Moroccan bank Wafabank, S.A. to Omnium Nord Africain, S.A. The total sale price was 529,505,625 dirhams (approximately €48 million) and gave rise to a capital gain of €3.5 million.
Public Takeover Offers
On June 20, 2005, we launched an exchange offer for the approximately 85.3% of the shares of Banco Nacionale del Lavoro, S.p.A. (“BNL”)BNL which we did not already own (the “BNL Exchange Offer”).own. Under the terms of the BNL Exchange Offer,exchange offer, BBVA offered one of its ordinary shares for every five ordinary shares of BNL. The final day on which acceptances would be accepted, pursuant to the BNL Exchange Offer’s terms, was July 22, 2005. Prior to the expiration of the acceptance period, the Italian insurance group Unipol Assicurazioni S.p.A. (“Unipol”) announcedWe withdrew our offer following a third party’s announcement that it had entered into sidecertain agreements with certain entities, as a result of which they controlled 46.95% of BNL’s capital. In light of this and the fact that we did not expect to obtain more than 50% of BNL’s capital pursuant to the BNL Exchange Offer we withdrew our tender offer.
On April 26, 2006, we announced our decision to abandon without effect the shareholders’ agreement executed on April 28, 2004,which it controlled a 47% stake in relation to BNL.
On May 12, 2006, we reported, as shareholder of BNL, that we adhered to the tender offer launched by BNP Paribas to acquire 100% of BNL´s capital. With the price offered by BNP, the value of BBVA´s stake in the capital of BNL was approximately €1,299 million. The acceptance of the offer gave rise to a capital gain to BBVA of €567 million.
On May 19,March 3, 2006, BBVA sold its stake in thepurchased 0.43% of BBVA Chile’s share capital of Banca Nazionale del Lavoro (BNL)for 2,318 million Chilean pesos (€3.7 million), increasing BBVA’s share capital in BBVA Chile to BNP Paribas, for a price of €1,299 million.67.05%. See “—Capital Expenditures”.
B. | Business Overview |
BBVA is a highly diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. We also have a portfolio of investments in some of Spain’s leading companies.
Business Areas
During 2005,2006, our organizational structure was divided into the following business areas:
Retail Banking in Spain and Portugal;
Wholesale and Investment Banking;Businesses;
Mexico and the United States;
In December 2005, our Board of Directors approved a new organizational structure for the BBVA Group, which has been implemented since the beginning of 2006:South America; and
For purposesThe foregoing description of the discussion below, we present our business along the historical business lines existing in 2004 and 2005.areas is consistent with our current internal organization. The financial information for our business areas for 2006, 2005 and 2004 presented below havehas been prepared on a uniform basis, consistent with our organizationorganizational structure in 2005.2006. See “Presentation of Financial Information”. Unless otherwise indicated, the financial information provided below for each business area does not reflect the elimination of transactions between companies within one business area or between different business areas, since we consider these transactions to be an integral part of each business area’s activities. For the presentation and discussion of our consolidated operating results in “Item 5. Operating and Financial Review and Prospects”, however, such intra- and inter-business area transactions are eliminated and the eliminations are generally reflected in the operating results of the Corporate Activities business area.
In December 2006, the Group adopted a new organizational structure that it expects to implement in 2007, which is designed to streamline the Group’s corporate structure and give greater weight and autonomy to its business units. The Group expects to focus its operations on five major business areas: Spain and Portugal; Wholesale Businesses; South America; Mexico and the United States; and Corporate Activities. As part of the reorganization, the Business Banking, Corporate Banking and Institutional Banking units (“BEC”) will be included in the Spain and Portugal area (as of December 31, 2006 such units had been included in the Wholesale Businesses area) and the Asset Management unit will form part of the Global Business unit in the Wholesale Businesses area.
The following table sets forth information relating to income attributed to the groupGroup for each of our business areas for the years ended December 31, 2006, 2005 and 2004.
Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||
Income/(Loss) Attributed to the Group (*) | % of Subtotal | % of Income/Loss Attributed to the Group (*) | Year ended December 31, | |||||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | Income/(Loss) Attributed to the Group | % of Subtotal | % of Income/(Loss) Attributed to the Group | ||||||||||||||||||||||||||||||||||
(in millions of euro) | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||||||||||
Retail Banking in Spain and Portugal | 1,613 | 1,426 | 40 | % | 47 | % | 42 | % | 49 | % | 1,499 | 1,317 | 1,194 | 30 | % | 33 | % | 40 | % | 32 | % | 35 | % | 41 | % | |||||||||||||||||
Wholesale and Investment Banking | 592 | 404 | 15 | % | 13 | % | 16 | % | 14 | % | ||||||||||||||||||||||||||||||||
The Americas | 1,819 | 1,194 | 45 | % | 40 | % | 48 | % | 40 | % | ||||||||||||||||||||||||||||||||
Wholesale Businesses | 1,282 | 873 | 658 | 25 | % | 22 | % | 22 | % | 27 | % | 23 | % | 23 | % | |||||||||||||||||||||||||||
Mexico and the United States | 1,775 | 1,370 | 891 | 35 | % | 35 | % | 30 | % | 37 | % | 36 | % | 30 | % | |||||||||||||||||||||||||||
South America | 509 | 379 | 229 | 10 | % | 10 | % | 8 | % | 11 | % | 10 | % | 8 | % | |||||||||||||||||||||||||||
Subtotal | 4,024 | 3,024 | 100 | % | 100 | % | 106 | % | 103 | % | 5,065 | 3,939 | 2,973 | 100 | % | 100 | % | 100 | % | 107 | % | 103 | % | 102 | % | |||||||||||||||||
Corporate Activities | (218 | ) | (102 | ) | (6 | )% | (3 | )% | (329) | (132) | (50) | (7) | % | (3) | % | (2) | % | |||||||||||||||||||||||||
Income attributed to the Group(*) | 3,806 | 2,922 | 100 | % | 100 | % | ||||||||||||||||||||||||||||||||||||
Income attributed to the Group | 4,736 | 3,807 | 2,923 | 100 | % | 100 | % | 100 | % | |||||||||||||||||||||||||||||||||
In terms of net interest income, the principal markets in which the Group competes, based on the business area which generates the activity, for 2006, 2005 and 2004 were as follows:
Year ended December 31, | |||||||||
Net interest income | |||||||||
2006 | 2005 | 2004 | |||||||
Retail Banking in Spain and Portugal | 2,865 | 2,623 | 2,509 | ||||||
Wholesale Businesses | 1,032 | 1,017 | 947 | ||||||
Mexico and the United States | 3,535 | 2,678 | 1,899 | ||||||
South America | 1,310 | 1,039 | 908 | ||||||
Subtotal | 8,742 | 7,357 | 6,263 | ||||||
Corporate Activities | (368 | ) | (150 | ) | (103 | ) | |||
Net interest income to the Group | 8,374 | 7,207 | 6,160 | ||||||
Retail Banking in Spain and Portugal
The Retail Banking in Spain and Portugal area’s main lines of activity focusedfocuses on providing banking services and consumer finance to private individuals retailers and small businesses in Spain and medium-sized entities.Portugal. As of December 31, 2005,2006, this business area conducted its activities through 3,5583,629 branch offices.offices, of which 99 were located in Portugal. During the fourth quarter the Group implemented a new structure in the retail banking branch network. The new structure consists of 7 regional departments.
The business units included in the Retail Banking in Spain and Portugal business area are:
Financial Services, which include:Services;
BBVA Portugal; and
Insurance Business in Europe.
Total net lending in this business area as of December 31, 2005,2006 was approximately €127,959€118,113 million, an increase of 20.1%18.3% from €106,510€99,804 million as of December 31, 2004, due to growth in2005, with contributions from all of BBVA’s main products such as mortgage lending, consumer credit cards and personal loans.loans to small businesses.
The non-performing loan (“NPL”) ratio decreased to 0.62%remained low at 0.67% as of December 31, 2005 from 0.82%2006 compared to 0.65% as of December 31, 2004.2005.
Total customer funds (deposits, mutual and pension funds and other brokered products) were €126,947€131,989 million as of December 31, 2006 from €120,745 million as of December 31, 2005, an increase of 10.0% from €115,391 million as of December 31, 20049.3% as a result of an increase in deposits collected during the year. Mutual funds under management were €46,232€44,824 million as of December 31, 2005, an increase2006 , a decrease of 10.1%1.7% from €41,988€45,609 million as of December 31, 2004.2005. Pension fund assets under management were €15,405€16,583 million as of December 31, 2005,2006, an increase of 12.2%8.0% from €13,731€15,352 million as of December 31, 2004.2005.
Financial servicesServices
This business unit’s principal activities were focused on the development of the Financial Services Plan (our business model for this business unit), including:following areas:
Financial Services:Services for Individuals: focused on retail customers and aimed at providing customers with more value from their relationship with us by offering a wide range of products and services at attractive prices, which are made available through different channels, along with solutions tailored to their specific needs.
Financial Services:Services for Small Businesses: focused on professionals,small businesses (including professional practices, the self-employed, retailers and small- and medium-sized enterprises (“SMEs”)farmers) by providing them with customized services, a comprehensive range of products and continuous, quality financial advice.
Consumer Finance: focused on the following lines of business (through Finanzia Bank, and our online bank, Uno-e Bank, S.A.), Finanzia Autorenting and Finanziamento Portugal): financing of cars, consumer items and equipment; e-banking; bill payment; and car and equipment rental.
Lending by the Financial Services unit increased 20.0%18.1% to €123,210€112,480 million as of December 31, 20052006 from €102,672€95,278 million as of December 31, 2004,2005, principally due to strong growth in mortgage loans, which increased 22.9%16.6% from December 31, 2004.2005.
Customer funds under management by the Financial Services unit increased 10.6%9.9% to €54,957€116,990 million as of December 31, 20052006 from €49,671€106,403 million as of December 31, 2004,2005, principally due to an increase in time deposits. Mutual and pension fund assets managed by the Financial Services unit increased by 9.2% and 14.9%10.1%, respectively, as of December 31, 20052006 as compared to December 31, 2004.2005.
Financial Services for Individuals
Retail customers were targeted through a series of new products. Housing access was facilitated by making the conditions of theHipoteca Fácil (Easy Mortgage) more flexible and adapting for the youth and immigrant segments. The range of consumer loans was strengthened with thePréstamo Inmediato PIDE (Immediate Loan ASK, available 24 hours a day), the newCrédito Fácil (Easy Loan, approved quickly) andCredinómina (Payroll-loan), an interest-free loan granted immediately and free of commissions tied to the Payroll Campaign. The BlueBBVA Program targeting the youth segment was renewed (with offers such as the Youth Loan carrying zero interest). Marketing of new services such as BBVA health insurance, real estate, travel and hotel reservations services, among others, was initiated as part of the new business model development program.
Fund gathering continued through existing and expanded deposit products, including theQuincenas del Ahorro (Savings Fortnights),Depósitos Crecientes (Growing Deposits),Triple 6 andTriple 10. On the investment fund side, managed fund portfolios and the ongoing renewal of the range of new funds on offer, includingBBVA Consolida Garantizado (BBVA Guaranteed),Garantizado Doble 10, (Double 10 Guaranteed),106 Doble 10 (106 Double 10),Extra 10, 110 Ibex and105 Ibex, remained a focus.
In 2005, we launchedaddition, BBVA was the “Cuentas Claras” campaign, featuringfirst entity to be granted a reductionregulatory permit to market certain new products approved in Spain in the pricefourth-quarter of various types of services,2006, including financial services, legal assistanceexchange traded funds (“ETFs”) in the Spanish market on the Ibex 35 (theAcción Ibex 35 ETF), the Euro Stoxx 50 and household services. In 2005, we also introduced a rapid cash delivery service, “Dinero Express”, geared towards foreign residents in Spain, alongthe FTSE Latibex Top (in collaboration with the “Crédito Fácil” service. In 2005, this “Dinero Express” service conducted approximately 200,000 remittances, totaling approximately €80 million.
In 2005, our Internet banking service, BBVAnet, recorded a 54.8% increase in the number of transactions (totaling approximately €134 million)Wholesale Businesses area) as well as hedge funds (BBVA Codespa Microfinanzas FIL) and venture capital funds (BBVA Capital Privado). In addition, we introduced a special platform to improve the security of our Internet services.
Financial Services for Small Businesses
During 2006, the Financial Services for Small Businesses offered a wider product range targeting small companies, professional practices, the self-employed, retailers and the framing sector, including:
the ICO Pymes 2006 small and medium-sized entities (“SME” or “SMEs”) line of financing;
• | thePréstamo Bienvenida (Welcome Loan) for new customers; |
StockPyme, a range of products designed to hedge interest rate risk;
the Diferencial 0% loan or overdraft;
a business mortgage with a balloon payment; and
• | thePack Negocios (Business Pack), a transactional services package launched in November. |
Asset Management and Private Banking
This business unit is responsible for the design and management of products to be distributed through the Retail Banking in Spain and Portugal business area’s different networks, as well as for the direct management of our private banking services (through the Personal Banking sub-unit and International Private Banking sub-units andBBVA Patrimonios)Patrimonios). As of December 31,
2005, 2006, total customer funds (including both mutual and pension funds and assets managed in the private banking units) totaled approximately €80 billion, an increase of 3.9% from December 31, 2005. As of December 31, 2006, BBVA’s private banking business in Spain managed assets totaling approximately €73.1 billion,€11,987 million, an increase of 12.3%29.2% from December 31, 2004.2005.
BBVA Portugal
As of December 31, 2005,2006, BBVA Portugal’s customer loans amounted to €3,695€4,237 million, an increase of 17.3%22% from 2004.€3,472 million in 2005. In 2005,2006, mortgage lending was the most dynamic sector, with a 40.2%31.5% increase over 2004.2005.
As of December 31, 2005,2006, customer funds managed by BBVA Portugal totaled €3,375€2,737 million, representing a 21.9%9% increase over 2004,€3,037 million in 2005, principally due to the increase in mutual and pension fund assets under management by BBVA Portugal.
European Insurance
Our European insurance activities are conducted through various insurance companies that provide direct insurance, reinsurance and insurance brokering services in Spain and Portugal and market products for different types of customers (private individuals, SMEs, retailers, professional service firms and providers and self-employed individuals) through this unit’s branch offices.
Wholesale and Investment BankingBusinesses
The Wholesale and Investment Banking business areaBusinesses focuses on, large corporations, governmental, and non-governmental organizations finance companies and institutional investor clients.
As of December 31, 2006, lending by the Wholesale Businesses area totalled €90,305 million, an increase of 18.6% from €76,129 million as of December 31, 2005. Non-performing loans (“NPL” or “NPLs”) of this business area decreased to an NPL ratio of 0.22% as of December 31, 2006, compared to 0.29% as of December 31, 2005, principally due to an improvement in risk quality. Deposits decreased and mutual funds increased 10.3% and 22.2%, respectively, as of December 31, 2006 from December 31, 2005.
The business units included in this business area are:
Corporate and Business Banking;
Global Corporate Banking;Businesses; and
Corporate and Business Banking
As of December 31, 2005, lending byThe Corporate and Business Banking unit includes the WholesaleGroup’s products and Investmentservices with SMEs (previously reported under Retail Banking In Spain and Portugal), large companies and institutions in the Spanish market, transaction services and product management.
In 2006, a new Corporate Banking business area totaled €46,896model was introduced to meet the needs of Spanish SMEs, large companies and institutions. The new model marks a simplification of the central structure, the creation of 7 new regional departments and, in November 2006, the addition of 26 new offices to the branch network (6 in corporate and 20 in institutions). This was part of the Blue Net project announced in July and completes the 2006 expansion plan with a total of 272 new branches. Of this number, the SME segment accounted for 209, institutions banking for 52 (extending the network to cover nearly all provinces in Spain) and 11 branches were for corporate banking.
In 2006, the Group led the SME market by marketing the ICO-Pymes line of financing for small businesses. It formalised two new lines with the European Investment Bank (each totalling €200 million an increaseto finance SME and regional government investment projects, respectively). It launched the BEC Markets Plan to reinforce the sale of 14.0% from €41,124 million as of December 31, 2004. Non-performing loans of this business area decreased 27.6%cash management and capital markets products to an NPL ratio of 0.18% as of December 31, 2005, comparednetwork clients. The BBVA net cash electronic banking system was also extended to 0.30% as of December 31, 2004, principally due to an improvement in risk quality. Deposits and mutual funds increased 13.4% and 7.1%, respectively, as of December 31, 2005 from December 31, 2004.the branch offices abroad.
Global Corporate BankingBusinesses
The Global Corporate BankingBusinesses unit includes the global customers unit, investment banking, global markets and distribution, treasury management and distribution and Asia and is aimed at serving large international companies.
In Global Businesses, the business unit provides servicescontinues to largebe increasingly international. The foreign network and international customers made greater overall contributions to this unit’s operations than in previous years. In domestic cash management businesses, the Group was a pioneer in the Spanish market when it was the first to launch ETFs on national and foreign corporations.international indices. It also led the initial public offering (“IPO”) league tables in Spain due to its role as global coordinator of the Bolsas y Mercados Españoles, Técnicas Reunidas, S.A. and Vocento IPOs. BBVA extended its product range targeted at institutional customers with the addition of hedge funds in Spain due to the creation of Próxima Alfa, which is 51%-owned by BBVA.
As part of the Group’s strategy to increase its presence in Asia, BBVA formed a strategic partnership with the CITIC Group in China and other parts of Asia. This partnership is expected to entail an initial investment of €989 million, none of which had been invested as of year end. BBVA expects the partnership with CITIC Group to open the mainland Chinese markets (through a 5% stake in China Citic Bank (“CNCB”), which is headquartered in Beijing, costing €501 million) and the Hong Kong market (via a 15% stake in Citic International Financial Holdings (“CIFH”) costing €488 million). The Global Corporate Banking business unit is present in 15 countries on four continents with its customercombined assets of CNCB and product units: GlobalCIFH totaled €71,507 million and Investment Banking, catering to over 250 large corporate clients in 2005together the two entities have more than 15,000 staff and grouping together syndicated loan, fixed-income origination, project finance and corporate finance product units; Corporate Banking Iberica, with454 branches, in Madrid, Bilbao, Barcelona, Palma de Mallorca, Lisboneach case at December 31, 2006. The bank also opened a branch in Singapore and Porto; Corporate Banking Europe, catering to the European markets from itsagency offices in Milan, Paris, LondonTaipei, Seoul and Frankfurt; Corporate Banking Asia,Sydney and struck agreements with branches in Hong Kong and Tokyo and representation offices in Beijing and Shanghai; and Corporate Banking in the Americas, which, from its New York branch, manages the wholesale banking business in the United States and that of the BBVA Group’s banks in Latin America.
Institutional Banking
The Institutional Banking business unit provides servicesChina, India and the Philippines to public and private sector institutions in Spain, Portugal and Belgium. The BBVA Group operates in these markets under the BBVA brand name and through
Banco de Crédito Local (BCL), an institution specializing in the long-term financing of regional public administrations through capital markets transactions.
Global Markets and Distributioncarry emigrant money transfers.
The Global Markets and Distribution business unit has trading floors located in Europe and New York and is responsible for the distribution of fixed-income and equity securities and our custodial services business.
Business and Real Estate Projects
This business area also handles the Group’s the real estate business, though its subsidiary Anida, as well as its private equity business.
During the year the Business Projects unit was transformed into a venture capital manager operating under theValanza brand, and began operations in Mexico.
Mexico and the United States
The Mexico and the United States business area conducts the Group’s banking, insurance and pension businesses in Mexico and the United States (including Puerto Rico).
Mexico
Mexican GDP increased approximately 4.6% in 2006, mainly due to favorable trends in domestic demand and moderate price increases. Inflation stood at just over 4%, substantially in line with the Bank of Mexico’s long-term goals. The Mexican peso remained strong against the dollar throughout 2006, which limited Mexican exports to the United States, though in 2006 both the Mexican peso and the US dollar weakened against the euro.
BBVA Bancomer’s income attributed to the Group for 2006 increased 30.3% to €1,552 million from €1,191 million in 2005, resulting in a Return on Equity (defined as income attributed to the Group divided by average shareholders’ equity) of 48.5% compared to 46.0% in 2005.
As of December 31, 2005, the Business and Real Estate Projects business unit managed a portfolio2006, lending by BBVA Bancomer totalled €23,480 million, an increase of investments in 89 companies, highly diversified across different sectors (industrial, services, utilities and real estate), with an aggregate book value30.6% from €17,978 million as of December 31, 2005, of €1,188while customer funds (deposits, securities sold under agreements to repurchase and mutual funds) increased 14.6% to €45,741 million and unrealized capital gains as of December 31, 20052006 from €39,928 million as of €1,027 million, an increase of €168 million in unrealized capital gains compared to December 31, 2004. 2005.
As of December 31, 2005,2006, this business unit’s main investmentsunit conducted its activities through 1,977 branch offices and had an aggregate of 32,847 employees.
In Mexico during 2006, the Group invested to expand its branch network, ATMs and point of sale terminals. Other projects were designed to increase service quality and enabled a reduction in Cementos Lemona, Corporación IBV, Duch, Grupo Anida, Iberia, Técnicas Reunidas and Tubos Reunidos.customer waiting time. These factors boosted commercial productivity during 2006.
Global Transactional Services
The Global Transactional Services business unit supportsIn retail banking, the other business areasGroup diversified and units ofexpanded the consumer products offered in Mexico, so that approximately 4 million new credit cards were issued by BBVA Group by providing specialized corporateBancomer and institutional business transactional services for corporate and institutional customers, including servicesFinanzia during 2006. New credit card products were introduced such as on-line banking, payment intermediation, factoring and confirming and trade finance.
The Americas
The Americas business area conducts all the activities of the BBVA Group’s banks in North and South America,Bancomer Platinum Card, which was marketed to certain valued clients, as well as theTarjeta 40, which was the first prepaid card to be marketed by BBVA Group’s International Private Banking Servicesto the youth segment. In addition, BBVA Bancomer continued to offer theLibretón passbook to attract low cost funds by rewarding customers’ savings with various gift articles; this product marked its 10-year anniversary in 2006.
In consumer lending, BBVA Bancomer began to market car loans, theCreditón Nómina(Payroll Loan) and theCrédito Inmediato Bancomer (Bancomer Immediate Loan) at retail establishments in Mexico in 2006.
In mortgage lending, BBVA Bancomer introduced products such as theHipoteca Binacional (Bi-national Mortgage) in collaboration with the LNB in the region. United States, theHipoteca Cambio de Casa (Change House Mortgage) and two programs in collaboration with the Mexican Institute of Workers’Housing Fund.
Investment funds in Mexico performed well, underpinned by distribution through the retail network and the design of new products aimed at cash management and increased finance to companies through derivative instruments.
In the SME business, the number of customers taking out loans increased due to enhanced service and more flexible loan granting by delegating greater approval autonomy to the branch level. The Group continued to raise money for large companies in the fixed income markets (with BBVA Bancomer acting as lead placement agent) and through derivative products.
United States
As of December 31, 2005,2006, this business unit conducted its activities through 207 branch offices and had an aggregate of 3,646 employees.
In the United States, the Group is structured into five lines of business:
banking in Texas through LNB, Texas State Bank and State National Bancshares. 2006 was the first full year in which LNB was part of the BBVA Group;
banking in Puerto Rico through BBVA Puerto Rico;
money transfers through Bancomer Transfer Services, which provides remittance services between the U.S. and Mexico and has extended its services from the U.S. to the rest of Latin America, China, India and the Philippines;
BBVA Bancomer USA, a bank franchise in California targeting first and second-generation customers of Latin American origin with basic banking products and services, and
BBVA Finanzia USA, a business unit specialised in consumer financing and credit card issuance.
The Group made progress on its strategy of establishing a franchise in the United States with the incorporation of Texas Regional Bancshares in November and State National Bancshares at the beginning of 2007. The acquisition of Texas Regional Bancshares contributed €3,115 million in lending and €4,651 million in deposits, as well as 73 branches and 2,009 employees, in each case at December 31, 2006.
Proposed Transaction to Acquire Compass Bancshares, Inc.
On February 16, 2007 BBVA entered into a definitive agreement to acquire 100% of the shares of Compass for a consideration made up of a combination of ordinary shares of BBVA and cash (the “Agreement”). Pursuant to the Agreement, Compass shareholders can elect to receive 2.8 BBVA ordinary shares or ADSs or $71.82 in cash for each Compass share, subject to proration. Based on BBVA’s closing stock price on Thursday, February 15, 2007, the transaction has an aggregate value of approximately $9.6 billion.
As of the date this Annual Report was filed with the SEC, the proposed transaction has been approved by the Board of Directors of each of BBVA and Compass but remains subject to regulatory and shareholder approvals. The aggregate consideration is composed of a fixed number of 196 million ordinary shares of BBVA and approximately $4.6 billion in cash.
Upon completion of the proposed transaction, BBVA expects that its business in the United States will contribute approximately 10% of the Group’s earnings and that it will become a regional leader across the U.S. Sunbelt. BBVA’s U.S. business, upon completion of the proposed transaction, is expected to consist of approximately 622 branches and $47 billion in assets.
Established in 1970, and based in Birmingham, Alabama, Compass has a presence in the retail, wholesale and private banking segments. Compass shares are traded through the NASDAQ Global Select Market exchange. Compass conducts a general commercial banking and trust business in 415 banking centers, including 164 in Texas, 89 in Alabama, 75 in Arizona, 44 in Florida, 33 in Colorado and 10 in New Mexico, as of December 31, 2006.
For the year ended December 31, 2006, Compass had total assets of $34 billion, and total shareholders’ equity of $2.8 billion. Net interest income was $1.1 billion for the year ended December 31, 2006. Net income was $460 million for the year ended December 31, 2006.
South America
The South America, business area includes the banking, insurance and pension businesses of the Group in South America. As of December 31, 2006, this business area conducted its activities through 3,6581,631 branch offices and had an aggregate of 61,60428,609 employees.
The business units included in this business area are:
Banks in the Americas,South America, including banks in Mexico and other countries (including Argentina, Chile, Colombia, the United States, Panama, Paraguay, Peru, Uruguay and Venezuela);Venezuela; and
Pension Funds and Insurance in the Americas; and
South America.
Unless otherwise specified, information included below relating to macroeconomic data in the LatinSouth American countries in which we operate, such as GDP or inflation, has been derived from our internal statistical studies based on information published by local governmental or regulatory authorities.
Economic conditions in the region were favorable in 2005,2006, with an economic upturn in the largest countries in LatinSouth America, reflected in an average growth in GDP of approximately 4%.5% per year over the last three years. This positive economic climate is a result of a check on inflation — which decreased to record lows in some countries — and interest rates similar to 2004,2005, though with some relatively important fluctuations over the year, especially in Mexico.year.
Unlike recent years, localLocal currencies in the Americas appreciatedSouth America fell against the euro in 2005,2006, with a resulting positivenegative impact on our consolidated financial statements as of and for the year ended December 31, 2005. See “Item 5. Operating and Financial Review and Prospects —Prospects— Operating Results — Results—Factors Affecting the Comparability of our Results of Operations and Financial Condition”. Nonetheless, in most cases, variations in average exchange rates were more moderate than in 2004,2005, and, as a result, the overall effect on our results of operations for the year ended December 31, 20052006 was not significant.
The following is a brief description of our operations and the economic and political factors that most significantly affect such operations, on a country-by-country basis, in the AmericasSouth America business area. The operating
results described below refer to each individual unit’s contribution to the AmericasSouth America business area’s operating results, unless otherwise stated.
Banks in the AmericasSouth America
Mexico
Mexican GDP increased approximately 3% in 2005, mainly due to favorable trends in domestic demand and moderate price increases. Inflation stood at just over 3%, substantially in line with the Bank of Mexico’s long-term goals. The Mexican peso remained strong against the dollar throughout 2005, which limited Mexican exports to the United States.
BBVA Bancomer’s income attributed to the Group for 2005 increased 63.1% to €1,191 million from €730 million in 2004, resulting in a Return on Equity (defined as income attributed to the group divided by average shareholders’ equity) of 39.4% compared to 30.8% in 2004. BBVA Bancomer’s income attributed to the Group in 2005 included €77 million from Hipotecaria Nacional, S.A. de C.V., which we acquired in January 2005.
As of December 31, 2005, lending by BBVA Bancomer totaled €20,378 million, an increase of 80.5% from €11,292 million as of December 31, 2004, while customer funds (deposits, securities sold under agreements to repurchase and mutual funds) increased 32.1% to €43,024 million as of December 31, 2005 from €32,576 million as of December 31, 2004.
Argentina
In 2005,2006, the Argentinean economy benefited from the government’s successful debt exchange, with a GDP growth rate of 9%8.5%. This resulted in some pressure on prices, and at year-end 2005 inflation stood at 12.3% for the year.
Banco Francés’s income attributed to the Group for 20052006 increased to €136 million from €90 million from €14 million in 2004.2005.
BBVA Banco Francés reduced its exposure to the public sector in Argentina, focusing its lending activity on the private sector, particularly retail loans.
Chile
The first half of the year 2005 was marked by successive increases in interest rates by the Chilean Central Bank (increasing 2.25 percentage points to 4.5% as of December 31, 2005).Bank. There was also significant competition at the local level. Chilean GDP increased 6%4% in 2005,2006, while inflation was 3.7%2.6% for the year.
BBVA Chile’s income attributed to the Group for 2005 increased 13.3%2006 decreased 74% to €7 million from €27 million from €24 million in 2004.2005.
BBVA Chile launched the new 2006-2009 “CxC” strategic plan. Under the framework of this plan, the bank’s positioning in the consumer lending segment was reinforced with the expansion of the BBVA Express network and the acquisition of 51% of Forum in May 2006, an entity specializing in car loans.
Colombia
Colombia’s GDP increased approximately 5%7% in 2005,2006, coupled with a lowlower inflation rate (4.5%), volatility in interest rates at record lows, high levels of disposable cash, upwards trendsand significant local competition (particularly in Colombia’s capital markets and a gradual declinethe mortgage segment) caused in unemployment.part by the concentration process in the finance system.
In December 2005, BBVA Colombia acquired Banco Granahorrar in December 2005 and the prominent factor this year for €364 million pursuant to an auction process.BBVA Colombia was the merger and integration with Banco Granahorrar. BBVA Colombia’s income attributed to the Group for 20052006 increased 181.3%significantly to €96 million from €47 million from €17 million in 2004.2005.
In Colombia, the merger between BBVA Colombia and Banco Granahorrar undertaken at the beginning of May and completed at the operating level in November, reinforced the Group’s position in the mortgage market.
Panama
Panama’s GDP increased 6%7.5% in 2005.2006. BBVA Panama’s income attributed to the Group for 20052006 increased 6.8%16.3% to €22 million from €19 million from €18 million in 2004.2005.
Paraguay
Paraguay’s GDP increased 2.7%3% in 2005,2006, supported by growth inappreciation of the agricultural industry.guarani against the U.S. dollar. BBVA Paraguay’s income attributed to the Group for 20052006 increased 21.5%26.7% to €14 million from €10 million from €9 million in 2004.2005.
Peru
Peru’s GDP increased 6%7% in 2005.2006. BBVA Banco Continental’s income attributed to the Group for 20052006 increased 114.4%20.9% to €56 million from €47 million from €22 million in 2004.
United States of America
BBVA’s U.S. business unit, which was created in 2005, includes BBVA Puerto Rico, Laredo National Bancshares, BBVA Bancomer USA (former Valley Bank) and Bancomer Transfer Services (BTS). BBVA’s U.S. business unit’s income attributed to the Group was €26 million in 2005.
All lines of lending experienced growth in 2006 and lower cost deposits were achieved.
Uruguay
Uruguay’s GDP increased 6%7% in 2005.2006. BBVA Uruguay’s lossprofit attributed to the Group for 2005 decreased 33.0%2006 increased to €8 million compared to the loss attributable to the Group of €2 million from €3 million in 2004.2005.
Venezuela
Venezuela’s GDP increased 9.4%approximately 10% in 2005.2006. BBVA Banco Provincial’s income attributed to the Group for 2005 decreased 34.5%2006 increased 54.2% to €82 million from €55 million from €84 million in 2004.2005.
BBVA Banco Provincial experienced a year fraught with political and regulatory uncertainty. The lending portfolio was diversified to prioritize the retail business, particularly consumer lending and credit cards with products such as the Instant Payroll Loan, which was a first consumer finance product of this type offered in Venezuela.
Pension Funds and Insurance in the AmericasSouth America
The BBVA Group’s pension fund and insurance companies in the Americas’South America income attributed to the Group for 20052006 increased 29.6%9.2% to €260 million.€109 million from €99 million in 2005.
As of December 31, 2005,2006, the BBVA Group’s pension fund and insurance companies in the AmericasSouth America managed €38,541€31,872 million in pension fund assets, an increase of 14.7%22.2% over December 31, 2004.2005.
The BBVA Group’s insurance companies in theSouth Americas’ income attributed to the Group for 20052006 increased 31.8%16.3% to €115€41 million.
International Private Banking
The International Private BankingIn the actuarial business, unit provides investment advicethe intense level of competition in most countries with the advent of new competitors triggered increases in sales forces and managesdownward pressure on income at the assets of high-income international customers. In 2005, thispension managers. It was a better year for insurance and progress was made in all business unit completedlines, especially in the process of concentrating its operations in three centers: Andorra; Switzerland; and Miami (Florida, United States).
Customer funds managed by this business unit increased 3.4% to €14,921 million as of December 31, 2005. The International Private Banking business unit’s income attributed to the Group for 2005 increased 4.8% to €73 million.bank assurance segment.
Corporate Activities and Other
TheOur Corporate Activities business area includes BBVA’s portfolio of strategic and financial investments and the activities of the Assets and Liabilities Management Committee.Committee (“ALCO”) and activities regarding our interests in industrial and financial companies.
The business units included in this business area are:
Holdings in Industrial and Financial Companies
The Holdings in Industrial and Financial Companies business unit manages the Group’s holdings in listed industrial companies, principally Telefónica, S.A., Iberdrola, S.A. and until June 2006, Repsol, YPF, S.A., as well as its financial holdings, which are currently limited to Banco Bradesco S.A. All of these shareholdings are recorded on our consolidated balance sheet prepared in accordance with EU-IFRS as “available-for-sale”. As of
December 31, 2005,2006, the portfolio of shareholdings of this business unit had a market value (including equity swaps) of €8,811€7,387 million. In 2005,2006, the BBVA Group’s holdings in industrial and financial companies generated €183€257 million in dividends (an increase of 12.4%25% over 2004)2005) and net trading income of €298€333 million, a 22.3%11.8% increase over 2004.2005 (excluding the divestitures in BNL and Repsol).
Assets and Liabilities Management Committee
The Assets and Liabilities Management Committee (“ALCO”) manages the BBVA Group’s overall financing needs and interest and exchange rate risks. ALCO also manages the BBVA Group’s investments and capital resources in an effort to improve the return on capital for our shareholders.
As of December 31, 2005,2006, ALCO’s portfolio of fixed-income assets, which is held in an effort to reduce the negative effect on BBVA’s net interest income of a fall in interest rates, and denominated in euro, Mexican pesos and U.S. dollars, amounted to €31,249 million. ALCO’s income attributed to the Group for 2005 increased to €63 million.approximately €11 billion.
Supervision and Regulation
The Spanish government traditionally has been closely involved with the Spanish banking system, both as a direct participant through its ownership of theInstituto de Crédito Oficial (“ICO”ICO”) and as a regulator retaining an important role in the regulation and supervision of financial institutions.
The Bank of Spain
The Bank of Spain was established in 1962 as a public law entity (entidad de derecho público) that operates as Spain’s autonomous central bank. In addition, it has the ability to function as a private bank. Except in its public functions, the Bank of Spain’s relations with third parties are governed by private law and its actions are subject to the civil and business law codes and regulations.
Until January 1, 1999, the Bank of Spain was also the sole entity responsible for implementing Spanish monetary policy. For a description of monetary policy since the introduction of the euro, see “—Monetary Policy—General”.
Since January 1, 1999, the Bank of Spain has performed the following basic functions attributed to the European System of Central Banks (“ESCB”):
defining and implementing the ESCB’s monetary policy, with the principal aim of maintaining price stability across the euro area;
conducting currency exchange operations consistent with the provisions of Article 109 of the Treaty on European Union (“EU Treaty”), and holding and managing the States’ official currency reserves;
promoting the sound working of payment systems in the euro areaarea; and
issuing legal tender banknotes.
Recognizing the foregoing functions as a fully-fledged member of the Eurosystem, theLey de Autonomía del Banco de España (the Bank of Spain Law of Autonomy) stipulates the performance of the following functions by the Bank of Spain:
holding and managing currency and precious metal reserves not transferred to the European Central Bank (“ECB”);
supervising the solvency and behavior of credit institutions, other entities and financial markets, for which it has been assigned supervisory responsibility, in accordance with the provisions in force;
promoting the sound working and stability of the financial system and, without prejudice to the functions of the ECB, of national payment systems;
preparing and publishing statistics relating to its functions, and assisting the ECB in the compilation of the necessary statistical information;
providing treasury services and acting as financial agent for government debt;
advising the government, preparing the appropriate reports and studies; and
exercising all other powers attributed to it by legislation.
Subject to the rules and regulations issued by the Ministry of Economy, the Bank of Spain has the following supervisory powers over Spanish banks:
conducting periodic inspections of Spanish banks to evaluate a bank’s compliance with current regulations including the preparation of financial statements, account structure and credit policies;
advising a bank’s board of directors and management on its dividend policy;
undertaking extraordinary inspections of banks; and
collaborating with other regulatory entities to impose penalties for infringement or violation of applicable regulations.
Fondo de Garantía de Depósitos
TheFondo de Garantía de Depósitos en Establecimientos Bancarios (“FGD”), which operates under the guidance of the Bank of Spain, guarantees both bank and securities deposits up to €20,000 per customer for each type of deposit, which is the minimum insured amount for all EU member banks. Pursuant to Bank of Spain regulations, the FGD may purchase doubtful loans or may acquire, recapitalize and sell banks that are experiencing difficulties.
The FGD is funded by annual contributions from member banks. The rate of such contributions in 20052006 was 0.06% of the year-end amount of deposits to which the guarantee extended, in accordance with legislation in effect. Nevertheless, once the capital of the FGD exceeds its requirements, the Minister of Economy may reduce the member banks’ contributions and, when the FGD’s funds exceed the capital requirements by one percent or more of the member banks’ deposits, such contributions may be suspended.
In order to safeguard the stability of its members, the FGD may also receive contributions from the Bank of Spain. At December 31, 2005,2006, all of the Spanish banks belonging to the BBVA Group were members of the FGD and thus obligated to make annual contributions to it.
Fondo Garantía Inversores
Royal Decree 948 of August 3, 2001 regulates investor guarantee schemes related to both investment firms and to credit institutions. These schemes are set up through an investment guarantee fund for securities broker and broker-dealer firms and the deposit guarantee funds already in place for credit institutions. A series of specific regulations have also been enacted, defining the system for contributing to the funds.
The General Investment Guarantee Fund Management Company was created in a relatively short period of time and is a business corporation with capital in which all the fund members hold an interest. Member firms must make a joint annual contribution to the fund equal to 0.06% over the 5% of the securities that they hold on their client’s behalf. However, it is foreseen that these contributions may be reduced if the fund reaches a level considered to be sufficient.
Liquidity Ratio
In an effort to implement European monetary policy, effective January 1, 1999, the ECB and the national central banks of the member states of the European Monetary Union (“EMU”) adopted a regulation that requires
banks to deposit an amount equal to two percent of their qualifying liabilities, as defined by the regulation, with the central bank of their home country. These deposits will earn an interest rate equal to the average interest rate of the ESCB. Qualifying liabilities for this purpose include:
deposits;
debt securities issued; and
monetary market instruments.
Furthermore, the liquidity ratio is set at 0% instead of 2% for those qualifying liabilities that have a maturity over two years and are sold under repurchase agreements.
Investment Ratio
In the past, the government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.
Capital Adequacy Requirements
As part of a program to modernize Spain’s banking regulations, capital adequacy requirements were revised in 1985 and, pursuant to EU directives, amended as of January 1, 1993. The capital adequacy requirements are applicable to BBVA on both a consolidated and individual basis.
The principal characteristics of the capital adequacy requirements pursuant to EU directives are a distinction between “core” and “complementary” capital and the adoption of a ratio of stockholders’ equity to risk-weighted assets. Core capital generally includes:
voting equity;
certain nonvoting equity, including certain nonvoting guaranteed preference shares of subsidiaries;
most reserves and generic allowances;
less participation in other financial institutions; and
treasury stock and financing for the acquisition, by persons other than the issuer’s employees, of the issuer’s shares.
Complementary capital generally includes certain nonvoting equity, revaluation and similar reserves, and subordinated and perpetual debt. The computation of both core and complementary capital is subject to provisions limiting the type of stockholding and the level of control which these stockholdings may give a banking group. The level of non-perpetual subordinated debt taken into account for the calculation of complementary capital may not exceed 50% of core capital. The total amount of complementary capital admissible for computing total capital may not exceed the total amount of core capital.
The consolidated total of core and complementary capital of a banking group calculated in the manner described above may not be less than eight percent of the group’s risk-weighted assets net of specified provisions and amortizations. The calculation of total risk-weighted assets applies minimum multipliers of 0%, 20%, 50% and 100% to the group’s assets. Countries with special loan arrangements with the International Monetary Fund, which have not renegotiated their foreign debt in the five preceding years, receive a 0% risk weight. Pursuant to Bank of Spain regulations, the following loans also receive a 0% risk weighting:
credits to Spanish governmental autonomous bodies, credits to Social Security, and credits to certain Spanish governmental public entities;
certain debt securities related to the securitization of the Spanish Nuclear Moratorium; and
(a) | the EU and the Organization for Economic Co-operation and Development (“OECD”) countries’ governments or central banks, |
(b) | governments or central banks of countries with special loan agreements with the International Monetary Fund (provided such countries have not renegotiated their external debt in the five preceding years), or |
(c) | Spanish governmental public entities. Loans to autonomous communities, the EU and the OECD regional and local governments, banks, savings banks, brokerage firms and multilateral development banks receive at least a 20% weighting. Residential mortgage loans receive at least a 50% weighting. |
All other loans are weighted at 100%; however, such weighting may be lower if the loan is guaranteed or secured. Off-balance sheet assets are also included in the calculation of risk-weighted assets.
The computation of core capital is subject to reductions of capital in amounts equivalent to unrealized losses on investment securities that are not charged to income and are accounted for as assets under the caption “Asset Accrual Accounts”.
The Basel Committee on Banking Supervision (the “Basel Committee”), which includes the supervisory authorities of thirteen major industrial countries, has adopted an international framework (the “Basel Accord”) for capital measurement and capital standards of banking institutions. The framework provides:
definitions for “Tier 1” (core) capital and “Tier 2” (supplemental) capital;
a system for weighting assets and off balance sheet items according to credit risk; and
a requirement that banks engaged in international operations maintain Tier 1 capital of at least 4% of risk-weighted assets and “total” capital, Tier 1 capital plus up to an equal amount of Tier 2 capital, of at least 8% of risk-weighted assets.
The Basel Committee on Banking Supervision published a new Basel capital accord (also known as Basel II) which, when finalized, will replace the Basel Accord, and will come into effect in December, 2006. EU countries intend to implement the new regulatory framework in January 2007 or January 2008 if advanced risk models are adopted.
As described above, the capital adequacy of Spanish banks is regulated by EU directives applicable to the Spanish banking system as well as to the banking systems of other EU member states. Certain EU member states are parties to the Basel Accord. Spain joined the Basel Accord on February 1, 2001. Each national authority that is a party to the Basel Accord has implemented it in a significantly different fashion.fashion, mainly in countries outside the EU. The capital requirements imposed by the Basel Accord are in many respects similar to those imposed by EU directives, Spanish law and the Bank of Spain.
The Basel Committee published a new Basel capital accord (also known as Basel II) which has replaced the Basel Accord. A new regulatory framework (Directives 2006/48/EC and 2006/49/EC) was adopted in June and EU countries intend to implement them during 2007 or in January 2008 if advanced risk models are adopted.
The Group expects to enter the final stage of adoption to Basel II by year-end 2007. The Group has opted to use the advanced models for both credit and operational risk (it already has an internal market risk model to calculate capital utilization which has been approved by the Bank of Spain). In accordance with the timetable established by applicable regulators, in 2006 the Group submitted the mandatory documentation on the models for approval. The Group is collaborating with applicable regulatory supervisors, particularly the Bank of Spain and the Securities Commission in Mexico, in order to make consistent and coordinated progress to obtain validation of the advance models in accordance with the timeframe established in the EU.
Banks in EU countries are permitted to net the credit exposure arising from certain interest rate and foreign exchange-related derivative contracts (rather than include the entire notional amount of such contracts) in calculating their total risk-adjusted assets for purposes of calculating their capital adequacy ratios, provided that such derivative contracts are subject to regulatory limitations on total credit exposure and the relevant regulatory authorities approve the inclusion in risk-adjusted assets of such credit risks on a net basis.
Spanish banks are permitted to include the net credit exposure arising from interest rate and foreign exchange transactions related to derivative products provided the following conditions are met:
all derivative related transactions between the parties form a single agreement;
the incumbent bank has submitted to the Bank of Spain two legal opinions with regard to the validity of the netting provisions; and
the incumbent bank has implemented the appropriate procedures to revise the treatment of netting if there is an amendment of the regulations in force.
In addition, the Bank of Spain may not accept the accounting treatment of netting if the conditions set forth above are not met or if the Bank of Spain does not concur with the legality or validity of the netting provisions.
Concentration of Risk
The Bank of Spain regulates the concentration of risk. Since January 1, 1999, any exposure to a person or group exceeding 10% of a group’s or bank’s regulatory capital has been deemed a concentration. The total amount of exposure represented by all of such concentrations may not exceed 800% of regulatory capital. Exposure to a single person or group may not exceed 25% (20% in the case of an affiliate) of a bank’s or group’s regulatory capital.
Legal and Other Restricted Reserves
We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Adequacy Requirements”. See Note 3336 to the Consolidated Financial Statements.
Allowance for Loan Losses
For a discussion of the Bank of Spain regulations relating to allowances for loan losses and country risk, see “—Selected Statistical Information—Assets—Loan Loss Reserve”.
Regulation of the Disclosure of Fees and Interest Rates
Interest rates on most kinds of loans and deposits are not subject to a maximum limit. Banks must publish their preferential rates, rates applied on overdrafts, and fees and commissions charged in connection with banking transactions. Banking clients must be provided with written disclosure adequate to permit customers to ascertain transaction costs. The foregoing regulations are enforced by the Bank of Spain in response to bank client complaints.
Law 44/2002 concerning measures to reform the Spanish financial system contained a rule concerning the calculation of variable interest applicable to loans and credit secured by mortgages, bails, pledges or any other equivalent guarantee.
Employee Pension Plans
Under the relevant collective labor agreements, BBVA and some of its subsidiaries provide supplemental pension payments to certain active and retired employees and their beneficiaries. These payments supplement social security benefits from the Spanish state. See Note 2.2.f2.2.e and Note 29 to the Consolidated Financial Statements.
Dividends
If a bank meets the Bank of Spain’s minimum capital requirements described above under “—Capital Adequacy Requirements”, it may dedicate all of its net profits to the payment of dividends, although, in practice, banks consult with the Bank of Spain before declaring a dividend. We calculate that as of December 31, 2005,2006, we had approximately €2.07€7.0 billion of unrestricted reserves in excess of applicable capital and reserve requirements available for the payment of dividends. Compliance with such requirements notwithstanding, the Bank of Spain may advise a bank against the payment of dividends on grounds of prudence. In no event may dividends be paid from non-distributable reserves. Banks which fail to comply with the capital adequacy ratio by more than 20% are required to devote all of their net profits to increasing their capital ratios. Banks which fail to meet the required ratio by 20% or less must obtain prior approval of the Bank of Spain to distribute any dividends and must devote at least 50% of net profits to increasing their capital ratios. In addition, banks, and their directors and executive officers that do not comply with the liquidity and investment ratios and capital adequacy requirements may be subject to fines or other sanctions. Compliance with the Bank of Spain’s capital requirements is determined on both a consolidated and individual basis. BBVA’s Spanish subsidiaries are in compliance with these capital adequacy requirements on both a consolidated and individual basis. If a bank has no net profits, the board of directors may propose at the general meeting of the stockholders that a dividend be declared out of retained earnings.
The Bank of Spain recommends that interim dividends not exceed an amount equal to one-half of net attributable profit from the beginning of the corresponding fiscal year. No interim dividend may be declared when a bank does not meet the minimum capital requirements and, according to the recommendations of the Bank of Spain, interim dividends may not be declared until the Bank of Spain has sufficient knowledge with respect to the year’s profits. Although banks are not legally required to seek prior approval from the Bank of Spain before declaring interim dividends, the Bank of Spain has asked that banks consult with it on a voluntary basis before declaring interim dividends.
Limitations on Types of Business
Spanish banks are subject to certain limitations on the types of businesses in which they may engage directly, but they are subject to few limitations on the types of businesses in which they may engage indirectly.
Mortgage Legislation
Spanish law limits the prepayment penalties on floating rate mortgage loans and limits the notarial costs and registration fees charged to borrowers in connection with renegotiation of mortgage terms on fixed and floating rate mortgages.
Mutual Fund Regulation
Mutual funds in Spain are regulated by theDirección General del Tesoro y Política Financiera del Ministerio de Economía(the Ministry of the Economy) and by theComisión Nacional del Mercado de Valores (“CNMV”). All mutual funds and mutual fund management companies are required to be registered with the CNMV. Spanish mutual funds are subject to investment limits with respect to single sectors or companies and overall portfolio diversification minimums. In addition, periodic reports including a review of the fund’s performance and any material events affecting the fund are required to be distributed to the fund’s investors and filed with the CNMV.
U.S. Regulation
Banking Regulation
By virtue of our branch in New York, our agency in Miami and our ownership of commercial banks in Texas, California and Puerto Rico we are subject to the U.S. Bank Holding Company Act of 1956, as amended, which imposes certain restrictions on the activities in which BBVA and its subsidiaries may engage in the United States and subjects us to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). In addition, certain of our banking activities in the United States are subject to supervision by state banking authorities. We have two securities subsidiaries operating in New York and Puerto Rico, which are regulated by the SEC and the National Association of Securities Dealers.
On June 12, 2000, BBVA and its Miami and New York offices entered into an agreement (the “Written Agreement”) with the Federal Reserve Board. The Written Agreement required BBVA, on behalf of its U.S. offices, to establish programs designed to identify and report known or suspected criminal activity with respect to money laundering and to comply with rules and regulations related to anti-money laundering compliance. BBVA responded to the Written Agreement by enhancing its U.S. internal controls through its Office of the Country Manager, implementing improved compliance policies and procedures, transferring its U.S. private banking activities from its New York branch to its Miami agency, and adopting an enhanced customer due diligence program. These remedial actions were subject to examination by the Federal Reserve Bank of New York and the New York State Banking Department. On February 21, 2003, the Written Agreement was terminated.
U.S. Foreign Corrupt Practices Act
BBVA, as well as all other foreign private issuers with a class of securities registered pursuant to Section 12 of the U.S. Securities Exchange Act, of 1934, is subject to the U.S. Foreign Corrupt Practices Act. This Act generally prohibits such issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls
sufficient to provide reasonable assurance that accountability of assets is maintained and accurate financial statements can be prepared. Penalties, fines and imprisonment can be imposed for violations of such Act.
Monetary Policy
General
On May 2, 1998, the EU established the bilateral conversion rates among the member countries that make up the EMU, and on December 31, 1998 the EU established the irrevocable conversion rates between the euro and each of the member countries of the EMU. The exchange rate in Spain was fixed at 166.386 pesetas per euro.
Monetary policy within the 12 members of the euro zone is set by the ECB. The ECB has itself set the objective of containing inflation and will adjust interest rates in line with this policy. It has further declared that it will not set an exchange rate target for the euro.
As of January 1, 1999, the euro became the national currency of the Spanish monetary system, replacing the peseta. However, the peseta was used as a unit of account in any judicial/legal instrument as a fraction of the euro and according to the exchange rate during the transitory period (from January 1, 1999 through December 31, 2001).
On January 1, 1999, the monetary system adopted the euro exclusively as a unit of account. From this date through February 28, 2002, the Bank of Spain, commercial banks, savings banks and credit co-operatives exchanged pesetas into euro free of charge but did not exchange euro into pesetas. Beginning July 1, 2002, only the Bank of Spain was able to perform this exchange, as determined by the Ministry of the Economy.
As of January 1, 2002, all legal instruments that were not denominated in euro during the transitory period were understood to be expressed in the euro unit of account, subject to the established conversion and rounding procedure.
Monetary Policy in the EMU
The integration of Spain into the EMU on January 1, 1999 implied the yielding of monetary policy sovereignty to the ESCB. The ESCB is composed of the ECB and the national central banks of the 1213 member countries that form the EMU.
The ESCB determines and executes the single monetary policy of the 1213 member countries of the EMU. The ESCB collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks to be carried out by the ESCB include:
defining and implementing the single monetary policy of the EU;
conducting foreign exchange operations in accordance with the set exchange policy;
holding and managing the official foreign reserves of the member states; and
promoting the smooth operation of the payment systems.
In addition, the EU Treaty establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as in its administrative functions.
Law Reforming the Spanish Financial System
On November 22, 2002, the Spanish government approved theLey de Medidas de Reforma del Sistema Financiero (“Law 44/2002”), which amended, among others, the Spanish Securities Markets Act of 1988 (the “Securities Markets Act”), the Credit Entities Discipline and Intervention Law and Private Insurance law. Law 44/2002 affects the following matters: market transparency (concept of privileged information); accounting practices of companies (in particular, independence and reliability of external audits and creation of audit committees for every listed company); systems and risk coverage (promotion of the integration of various existing entry settlement systems into one); securitization (assignment of credit rights against public administration within a period before the bankruptcy of the companies, mortgage transfer certificates, territorial
bonds, etc.); electronic money (definition and issuance); pre-emptive rights; collective investment schemes (merger of collective investments schemes and guarantees and security interest); venture capital (investments in its group companies, etc.); ring-fencing transactions (extending protection against bankruptcy to some special financial master transactions and OTC transactions); savings banks (legal regime ofcuotas participativas, or participating shares) and other rules concerning the disciplinary regime for listed companies.
On June 18, 2003, the Spanish Government approved theLey de Transparencia(“Law 26/2003”), modifying both the Spanish Securities Markets Act and Law 22/2003, to reinforce the transparency of information regarding listed Spanish companies. This law adds a new chapter, Title X, to the Securities Markets Act, which (i) requires disclosure of shareholder agreements relating to listed companies, (ii) regulates the operation of the general shareholders’ meetings and of the boards of directors of listed companies, (iii) requires the publication of an annual report of corporate governance and (iv) establishes measures designed to increase the availability of information to shareholders.
In addition, this law amends theLey de Sociedades Anonimas (the “Corporate Law”), and requires: (i) offering to shareholders the possibility of exercising voting rights directly or remotely by delegation, so long as the identity of the person who exercises the vote can be properly guaranteed, (ii) an increase in the information that shareholders have the right to obtain from the company and (iii) that existing regulation of the duties and responsibilities of directors be expanded.
Order on Securities Information
On September 27, 2004, the Order on Securities Information (EHA/3050/2004) was published in theOfficial Gazette.
The order is part of an effort to increase the transparency of companies with securities listed on a public stock exchange, which has been implemented by legislation that includes the Law on Reform of the Financial System (44/2002) and Law 26/2003, which amended the Securities Market Law and the Corporations Law in order to increase the transparency of listed corporations.
The transparency laws imposed new obligations with regard to corporate information (e.g., to publish an annual corporate governance report which, among other matters, must include information on related-party transactions between the company and its shareholders, directors and executives).
The order imposes an obligation on companies issuing securities which are admitted to listing on any official Spanish secondary market (e.g., the stock exchanges, the Association of Financial Asset Brokers (AIAF)(“AIAF”) fixed income market and the financial futures exchange) to include in their biannual information quantified data on all their transactions with related parties.
This obligation is in addition to the obligation to include information on related-party transactions in the annual corporate governance report, as provided by the Corporate Governance Report Order (ECO/3722/2003).
Royal Decree-Law on Measures to Promote Productivity (5/2005)
The Spanish government has published the Royal Decree-Law on Measures to Promote Productivity (5/2005). Among other things, the measures include:
implementation of the EU Prospectus Directive (2003/71/EC) into Spanish law;
reform of the system for securities represented by book entry; and
reform of the system for bonds and other debt securities.
Implementation of the EU Prospectus Directive
The first measure seeks partly to implement the EU Prospectus Directive into Spanish law. The EU Prospectus Directive governs the content of prospectuses that must be delivered when securities are offered to the public or admitted to listing on a regulated market in the EU. The EU Prospectus Directive was required to be implemented by member states by July 1, 2005.
The measure amends Part III of the Securities Market Act, including Articles 25 to 30(2) concerning primary markets.
Securities represented by book entry
The new measures also eliminate the requirement that certain securities represented by book entry must be executed in a public instrument. Under Royal Decree-Law 5/2005, a document delivered by the issuer with the key terms of such securities is sufficient.
Debt securities
Royal Decree 5/2005 adds a new Chapter II to Part III (on primary markets) of the Securities Market Act concerning issues of bonds and other debt securities.
The new Chapter II removes certain requirements imposed by Spanish legislation on certain issues of bonds and other debt securities. The following requirements have been removed:
to execute a public instrument;
to record the issuance in the Commercial Registry; and
• | to publish an announcement in theOfficial Gazette of the Commercial Registry. |
Royal Decree (1310/2005)
The Royal Decree (1310/2005), on the admission of securities to official stock exchanges, listing, tender offers and Prospectuses, modifies the Securities Markets Law. This Royal Decree complements the Royal Decree Law on Measures to Promote Productivity (5/2005) and implements the Directive 2001/34/CE of the European Parliament and of the Council of May 28, 2001 on the admission of securities to official stock exchange listings and on information to be published on those securities.
Royal Decree on Market Abuse (1333/2005)
This Royal Decree develops the Securities Market Act and completes the implementation into the Spanish legal regime of the European Directive regarding insider trading and market manipulation. This Royal Decree
establishes the definitions of insider trading and listing manipulation, regulates activities that could affect market prices and imposes certain disclosure obligations on participants in the market in order to avoid market manipulation.
Law Establishing a European Company with a Corporate Domicile in Spain (19/2005)
This law has amended several provisions of Spanish Company Law with general applicability not only to European companies with a corporate domicile in Spain (sociedades anónimas europeas) but also to all Spanish companies, irrespective of whether such companies are listed on a stock exchange. For instance, one of the most notable amendments to Spanish Company Law is that all Spanish companies are now required to give shareholders at least 30 days’ notice, as opposed to 15 days’ notice previously required, of General Shareholders’ Meetings by publishing a notice in the Official Gazette of the Company Registry and in one daily newspaper.
C. | Organizational Structure |
Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of MarchDecember 31, 2006. An additional 282277 companies are domiciled in the following countries: Andorra, Argentina, Belgium, Bolivia, Brazil, Cayman Islands, Channel Islands, Chile, Colombia, Ecuador, France, Gibraltar, Ireland, ,Cayman Islands, Italy, Jersey, Luxembourg, Morocco, Mexico, Netherlands, Netherlands Antilles, Panama, Paraguay, Peru, Portugal, Puerto Rico, Spain, United Kingdom, United States of America, Dominican Republic, Uruguay and Venezuela.
Subsidiary | Country of Incorporation | Activity | BBVA Voting Power | BBVA Ownership | Total Assets | Country of Incorporation | Activity | BBVA Voting Power | BBVA Ownership | Total Assets | ||||||||||
(percent) | (in millions of euro) | (percentages) | (in millions of euros) | |||||||||||||||||
Administradora de Fondos Para el Retiro-Bancomer, S.A. de C.V. | Mexico | Financial services | 100.00 | 97.29 | 114 | Mexico | Financial services | 100.00 | 97.29 | 204 | ||||||||||
Administradora de Fondos de Pensiones Provida | Chile | Financial services | 64.32 | 64.32 | 318 | Chile | Financial services | 64.32 | 64.32 | 410 | ||||||||||
Banco Bilbao Vizcaya Argentaria Panama, S.A. | Panama | Bank | 98.93 | 98.93 | 853 | |||||||||||||||
Banco Bilbao Vizcaya Argentaria (Portugal), S.A. | Portugal | Bank | 100.00 | 100.00 | 4,379 | Portugal | Bank | 100.00 | 100.00 | 5,286 | ||||||||||
Banco Bilbao Vizcaya Argentaria Puerto Rico, S.A. | Puerto Rico | Bank | 100.00 | 100.00 | 5,541 | Puerto Rico | Bank | 100.00 | 100.00 | 4,797 | ||||||||||
Banco Bilbao Vizcaya Argentaria Uruguay, S.A. | Uruguay | Bank | 100.00 | 100.00 | 354 | |||||||||||||||
Banco Continental, S.A. | Peru | Bank | 92.08 | 46.04 | 4,806 | Peru | Bank | 92.08 | 46.04 | 4,427 | ||||||||||
Banco de Crédito Local, S.A. | Spain | Bank | 100.00 | 100.00 | 11,759 | Spain | Bank | 100.00 | 100.00 | 11,563 | ||||||||||
Banco Provincial S.A.—Banco Universal | Venezuela | Bank | 55.60 | 55.60 | 4,937 | Venezuela | Bank | 55.60 | 55.60 | 6,561 | ||||||||||
BBVA Chile, S.A. | Chile | Bank | 67.05 | 67.05 | 6,189 | Chile | Bank | 67.84 | 67.84 | 6,534 | ||||||||||
BBVA Banco Francés, S.A. | Argentina | Bank | 76.09 | 76.07 | 4,176 | |||||||||||||||
BBVA Colombia, S.A. | Colombia | Bank | 95.43 | 95.43 | 4,765 | |||||||||||||||
BBVA Factoring E.F.C., S.A. | Spain | Financial services | 100.00 | 100.00 | 5,468 | |||||||||||||||
BBVA Renting, S.A. | Spain | Financial services | 100.00 | 99.95 | 575 | |||||||||||||||
BBVA Ireland Public Limited Company | Ireland | Financial services | 100.00 | 100.00 | 4,347 | |||||||||||||||
BBVA Paraguay, S.A. | Paraguay | Bank | 99.99 | 99.99 | 330 | |||||||||||||||
BBVA Bancomer USA (formerly Valley Bank) | U.S.A | Bank | 100.00 | 99.96 | 84 | |||||||||||||||
BBVA Bancomer, S.A. de C.V. | Mexico | Bank | 100.00 | 99.96 | 54,059 | |||||||||||||||
Hipotecaria Nacional, S.A. de C.V. | Mexico | Financial services | 100.00 | 99.96 | 721 | |||||||||||||||
Pensiones Bancomer, S.A. de C.V. | Mexico | Insurance | 100.00 | 99.96 | 1,276 | |||||||||||||||
Seguros Bancomer S.A. de C.V. | Mexico | Insurance | 100.00 | 99.97 | 912 | |||||||||||||||
Texas State Bank | U.S.A | Bank | 100.00 | 100.00 | 6,507 | |||||||||||||||
BBVA Switzerland | Switzerland | Bank | 100.00 | 100.00 | 539 | |||||||||||||||
BBVA Seguros, S.A. | Spain | Insurance | 99.94 | 99.94 | 12,285 | |||||||||||||||
Finanzia, Banco de Credito, S.A. | Spain | Bank | 100.00 | 100.00 | 3,573 | |||||||||||||||
Uno-e Bank, S.A. | Spain | Bank | 100.00 | 100.00 | 1,428 | |||||||||||||||
Laredo National Bank, Inc. | U.S.A | Bank | 100.00 | 100.00 | 3,389 |
BBVA Banco Francés, S.A. BBVA Colombia, S.A. Banco Granahorrar, S.A. BBVA Factoring E.F.C., S.A. BBVA Renting, S.A. BBVA Ireland Public Limited Company BBVA Paraguay, S.A. BBVA Bancomer, S.A. de C.V. Hipotecaria Nacional, S.A. de C.V. Pensiones Bancomer, S.A. de C.V. Seguros Bancomer BBVA Switzerland BBVA Privanza Bank (Jersey) Ltd. BBVA Seguros, S.A. Finanzia, Banco de Credito, S.A. Uno-e Bank, S.A. Laredo National Bancshares Inc. Argentina Bank 76.10 76.08 3,609 Colombia Bank 95.37 95.37 3,081 Colombia Bank 98.78 94.21 1,447 Spain Financial services 100.00 100.00 4,417 Spain Financial services 100.00 99.95 462 Ireland Financial services 100.00 100.00 2,662 Paraguay Bank 99.99 99.99 266 Mexico Bank 100.00 99.96 49,583 Mexico Financial services 100.00 99.96 931 Mexico Insurance 100.00 99.95 1,491 Mexico Insurance 100.00 99.97 675 Switzerland Bank 100.00 100.00 525 Jersey Bank 100.00 100.00 399 Spain Insurance 99.94 99.94 12,562 Spain Bank 100.00 100.00 2,081 Spain Bank 67.00 67.00 1,320 U.S.A Bank 100.00 100.00 45
D. Property, Plants and Equipment
D. | Property, Plants and Equipment |
We own and rent a substantial network of properties in Spain and abroad, including 3,5783,635 branch offices in Spain and, principally through our various affiliates, 3,8323,950 branch offices abroad at December 31, 2005. Approximately 47.9%2006. As of
December 31, 2006, approximately 46.9% and 60% of these properties are rented in Spain and abroad, respectively, from third parties pursuant to short-term leases that may be renewed by mutual agreement. The remaining properties, including most of our major branches and our headquarters, are owned by us.
E. Selected Statistical Information
E. | Selected Statistical Information |
The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our calculation that our foreign operations are significant according to Rule 9-05 of Regulation S-X.
Average Balances and Rates
The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each year. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages. Interest income figures, when used, include interest income on non-accruing loans to the extent that cash payments have been received. Loan fees are included in the computation of interest revenue.
EU-IFRS
Average Balance Sheet - Assets and Interest from Earning Assets | |||||||||||||||||||||
Year Ended December 31, 2006 | Year Ended December 31, 2005 | Year Ended December 31, 2004 | |||||||||||||||||||
Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | |||||||||||||
(in millions of euros, except percentages) | |||||||||||||||||||||
Assets | |||||||||||||||||||||
Cash and balances with central banks | 11,903 | 444 | 3.73 | % | 10,494 | 458 | 4.37 | % | 9,089 | 275 | 3.03 | % | |||||||||
Debt securities, equity instruments and derivatives | 103,387 | 4,156 | 4.02 | % | 116,373 | 4,328 | 3.72 | % | 100,174 | 3,604 | 3.60 | % | |||||||||
Loans and receivables | 256,463 | 14,792 | 5.77 | % | 213,520 | 11,171 | 5.23 | % | 181,899 | 8,626 | 4.74 | % | |||||||||
Loans and advances to credit institutions | 23,671 | 991 | 4.19 | % | 20,600 | 767 | 3.72 | % | 23,144 | 762 | 3.80 | % | |||||||||
In euro(2) | 14,090 | 452 | 3.21 | % | 10,653 | 276 | 2.59 | % | 10,144 | 192 | 1.89 | % | |||||||||
In other currencies(3) | 9,581 | 540 | 5.63 | % | 9,947 | 491 | 4.94 | % | 13,000 | 570 | 4.38 | % | |||||||||
Loans and advances to customers | 232,792 | 13,800 | 5.93 | % | 192,920 | 10,404 | 5.39 | % | 158,755 | 7,864 | 7.80 | % | |||||||||
In euro(2) | 177,331 | 7,366 | 4.15 | % | 150,358 | 5,699 | 3.79 | % | 129,076 | 5,105 | 3.96 | % | |||||||||
In other currencies(3) | 55,461 | 6,435 | 11.60 | % | 42,562 | 4,705 | 11.06 | % | 29,679 | 2,759 | 9.30 | % | |||||||||
Other financial income | — | 198 | — | — | 183 | — | — | 103 | — | ||||||||||||
Non-earning assets | 24,198 | — | — | 23,669 | — | — | 30,664 | — | — | ||||||||||||
Total average assets | 395,950 | 19,590 | 4.95 | % | 364,055 | 16,140 | 4.43 | % | 321,826 | 12,608 | 3.92 | % | |||||||||
(1) | Rates have been presented on a non-taxable equivalent basis. |
(2) | Amounts reflected in euro correspond to predominantly domestic activities. |
(3) | Amounts reflected in other currencies correspond to predominantly foreign activities. |
Average Balance Sheet—Assets and Interest from Earning Assets | ||||||||||||||
2005 | 2004 | |||||||||||||
Average Balance | Interest | Average Yield(1) | Average Balance | Interest | Average Yield(1) | |||||||||
(in millions of euro, except percentages) | ||||||||||||||
Assets | ||||||||||||||
Cash and Balances with central banks | 10,494 | 458 | 4.37 | % | 9,089 | 275 | 3.03 | % | ||||||
Debt securities, equity instruments and derivatives | 116,373 | 4,328 | 3.72 | % | 100,174 | 3,604 | 3.60 | % | ||||||
Loans and receivables | 213,520 | 11,170 | 5.23 | % | 181,899 | 8,626 | 4.74 | % | ||||||
In euro (2) | 161,011 | 5,974 | 3.71 | % | 139,220 | 5,297 | 3.80 | % | ||||||
Loans and advances to credit institutions | 10,653 | 276 | 2.59 | % | 10,144 | 192 | 1.89 | % |
Average Balance Sheet - Liabilities and Interest paid on Interest Bearing Liabilities | |||||||||||||||||||||
Year Ended December 31, 2006 | Year Ended December 31, 2005 | Year Ended December 31, 2004 | |||||||||||||||||||
Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | |||||||||||||
(in millions of euros, except percentages) | |||||||||||||||||||||
Liabilities | |||||||||||||||||||||
Deposits from central banks and credit institutions | 63,730 | 2,420 | 3.80 | % | 64,804 | 2,176 | 3.36 | % | 67,187 | 1,814 | 2.70 | % | |||||||||
In euro | 34,550 | 984 | 2.85 | % | 36,453 | 797 | 2.19 | % | 41,327 | 824 | 1.99 | % | |||||||||
In other currencies | 29,180 | 1,437 | 4.92 | % | 28,352 | 1,379 | 4.86 | % | 25,860 | 989 | 3.83 | % | |||||||||
Customer deposits | 177,927 | 5,392 | 3.03 | % | 159,103 | 4,433 | 2.79 | % | 147,695 | 2,838 | 1.92 | % | |||||||||
In euro(2) | 99,148 | 1,736 | 1.75 | % | 87,418 | 1,078 | 1.23 | % | 87,207 | 1,089 | 1.25 | % | |||||||||
In other currencies(3) | 78,779 | 3,656 | 4.64 | % | 71,685 | 3,355 | 4.68 | % | 60,488 | 1,750 | 2.89 | % | |||||||||
Debt securities and subordinated liabilities | 87,526 | 3,026 | 3.46 | % | 68,925 | 1,886 | 2.74 | % | 51,518 | 1,466 | 2.85 | % | |||||||||
In euro(2) | 77,483 | 2,506 | 3.23 | % | 64,188 | 1,573 | 2.45 | % | 47,455 | 1,254 | 2.64 | % | |||||||||
In other currencies(3) | 10,043 | 520 | 5.18 | % | 4,736 | 313 | 6.61 | % | 4,063 | 211 | 5.20 | % | |||||||||
Other financial costs | — | 377 | — | — | 437 | — | — | 331 | — | ||||||||||||
Non-interest-bearing liabilities | 47,979 | — | — | 55,544 | — | — | 42,688 | — | — | ||||||||||||
Stockholders’ equity | 18,787 | — | — | 15,680 | — | — | 12,739 | — | — | ||||||||||||
Total average liabilities | 395,950 | 11,216 | 2.83 | % | 364,055 | 8,932 | 2.45 | % | 321,827 | 6,448 | 2.00 | % | |||||||||
EU-IFRS
Average Balance Sheet—Assets and Interest from Earning Assets | ||||||||||||||
2005 | 2004 | |||||||||||||
Average Balance | Interest | Average Yield(1) | Average Balance | Interest | Average Yield(1) | |||||||||
(in millions of euro, except percentages) | ||||||||||||||
Loans and advances to customers | 150,358 | 5,698 | 3.79 | % | 129,076 | 5,105 | 3.96 | % | ||||||
In other currencies (3) | 52,509 | 5,196 | 9.89 | % | 42,679 | 3,329 | 7.80 | % | ||||||
Loans and advances to credit institutions | 9,947 | 491 | 3.79 | % | 13,000 | 570 | 4.38 | % | ||||||
Loans and advances to customers | 42,562 | 4,705 | 11.06 | % | 29,679 | 2,759 | 9.30 | % | ||||||
Other financial income | — | 186 | — | — | 103 | — | ||||||||
Non-earning assets | 23,668 | — | — | 30,664 | — | — | ||||||||
Total average assets | 364,055 | 16,142 | 4.43 | % | 321,826 | 12,608 | 3.92 | % | ||||||
(1) | Rates have been presented on a non-taxable equivalent basis. |
(2) | Amounts reflected in euro correspond to predominantly domestic activities. |
Spanish GAAP
Average Balance Sheet—Assets and Interest from Earning Assets | |||||||||
2003 | |||||||||
Average Balance | Interest | Average Yield (1) | |||||||
(in millions of euro, except percentages) | |||||||||
Assets | |||||||||
Credit entities | 28,777 | 1,156 | 4.0 | % | |||||
In euro | 10,479 | 222 | 2.1 | % | |||||
In other currencies | 18,298 | 934 | 5.1 | % | |||||
Lending | 147,915 | 8,015 | 5.4 | % | |||||
In euro (5) | 114,121 | 5,185 | 4.5 | % | |||||
Government and other agencies | 12,470 | 396 | 3.2 | % | |||||
Commercial loans (2) | 7,363 | 336 | 4.6 | % | |||||
Secured loans (3) | 48,654 | 2,111 | 4.3 | % | |||||
Others (4) | 45,634 | 2,341 | 5.1 | % | |||||
In other currencies (6) | 33,794 | 2,831 | 8.4 | % | |||||
Secured loans | 9,547 | 599 | 6.3 | % | |||||
Others | 24,247 | 2,231 | 9.2 | % | |||||
Securities portfolio | 77,852 | 3,788 | 4.9 | % | |||||
Fixed income securities | 68,172 | 3,324 | 4.9 | % | |||||
In euro | 40,220 | 1,321 | 3.3 | % | |||||
In other currencies | 27,952 | 2,002 | 7.2 | % | |||||
Equity securities | 9,680 | 464 | 4.8 | % | |||||
Holdings of companies carried by the equity method | 6,814 | 319 | 4.7 | % | |||||
Other holdings | 2,866 | 145 | 5.1 | % | |||||
Other financial income | — | 43 | — | ||||||
Non-earning assets | 24,701 | — | — | ||||||
Total average assets | 279,245 | 13,002 | 4.7 | % | |||||
Total euro assets/total assets | 71.34 | % | 55.65 | % | — |
EU-IFRS
Average Balance Sheet—Liabilities and Interest from Interest- bearing Liabilities | ||||||||||||||
2005 | 2004 | |||||||||||||
Average Balance | Interest | Average Rate(1) | Average Balance | Interest | Average Rate(1) | |||||||||
(in millions of euro, except percentages) | ||||||||||||||
Liabilities | ||||||||||||||
Deposits from central banks and credit institutions | 64,804 | 2,176 | 3.36 | % | 67,187 | 1,814 | 2.70 | % | ||||||
In euro | 36,453 | 797 | 2.19 | % | 41,327 | 824 | 1.99 | % | ||||||
In other currencies | 28,352 | 1,379 | 4.86 | % | 25,860 | 989 | 3.83 | % | ||||||
Customer deposits | 159,103 | 4,433 | 2.79 | % | 147,695 | 2,838 | 1.92 | % | ||||||
In euro (2) | 87,418 | 1,078 | 1.23 | % | 87,207 | 1,089 | 1.25 | % | ||||||
In other currencies(3) | 71,685 | 3,355 | 4.68 | % | 60,488 | 1,750 | 2.89 | % | ||||||
Debt certificates and subordinated liabilities | 68,924 | 1,886 | 2.74 | % | 51,518 | 1,466 | 2.85 | % | ||||||
In euro | 64,188 | 1,573 | 2.45 | % | 47,455 | 1,254 | 2.64 | % | ||||||
In other currencies | 4,736 | 313 | 6.61 | % | 4,063 | 211 | 5.20 | % | ||||||
Other financial costs | 0 | 439 | — | — | 331 | — | ||||||||
Non-interest-bearing liabilities | 55,544 | — | — | 42,688 | — | — | ||||||||
Shareholder’s equity | 15,680 | — | — | 12,739 | — | — | ||||||||
Total average liabilities | 364,055 | 8,934 | 2.45 | % | 321,827 | 6,448 | 2.00 | % | ||||||
Spanish GAAP
Average Balance Sheet—Liabilities and Interest paid on Interest Bearing Liabilities | |||||||||
2003 | |||||||||
Average Balance | Interest | Average Rate(1) | |||||||
(in millions of euro, except percentages) | |||||||||
Liabilities | |||||||||
Credit entities | 55,061 | 1,809 | 3.3 | % | |||||
In euro | 33,407 | 818 | 2.4 | % | |||||
In other currencies | 21,654 | 992 | 4.6 | % | |||||
Customer funds | 181,977 | 4,282 | 2.4 | % | |||||
Customer deposits | 142,279 | 3,068 | 2.2 | % | |||||
In euro (2) | 84,868 | 1,316 | 1.6 | % | |||||
Government and other agencies | 3,459 | 57 | 1.6 | % | |||||
Current accounts | 23,079 | 219 | 0.9 | % | |||||
Savings accounts | 16,117 | 90 | 0.6 | % | |||||
Time accounts | 26,757 | 681 | 2.5 | % | |||||
Others | 15,456 | 270 | 1.7 | % | |||||
In other currencies (3) | 57,411 | 1,752 | 3.1 | % | |||||
Current accounts | 13,147 | 120 | 0.9 | % | |||||
Savings accounts | 6,263 | 96 | 1.5 | % | |||||
Time accounts | 32,061 | 1,272 | 4.0 | % | |||||
Others | 5,939 | 263 | 4.4 | % | |||||
Debt securities and other marketable securities | 39,698 | 1,214 | 3.1 | % | |||||
In euro | 33,864 | 974 | 2.9 | % | |||||
In other currencies | 5,834 | 241 | 4.1 | % | |||||
Other financial costs | — | 168 | — | ||||||
Non-interest-bearing liabilities | 42,207 | — | — | ||||||
Shareholders’ funds | 12,069 | — | — | ||||||
Other funds without cost | 30,138 | — | — | ||||||
Total average liabilities | 279,245 | 6,260 | 2.2 | % | |||||
Total euro liabilities/total liabilities | 69.60 | % | 52.33 | % | — |
(3) | Amounts reflected in other currencies correspond to predominantly foreign activities. |
Changes in Net Interest Income-Volume and Rate Analysis
The following table allocates changes in our net interest income between changes in volume and changes in rate for 2006 compared to 2005, and 2005 compared to 2004. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from the following table are interest payments on loans which are made in a period other than the period during which they are due. Loan fees were included in the computation of interest income.
2005/2004 | |||||||||
Increase (Decrease) Due to changes in | |||||||||
Volume(1) | Rate(1)(2) | Net Change | |||||||
(in millions of euro) | |||||||||
Interest income | |||||||||
Cash and balances with central banks | 42 | 141 | 183 | ||||||
Debt securities, equity instruments and derivatives | 583 | 141 | 724 | ||||||
Loans and advances to credit institutions | (84 | ) | 90 | 6 | |||||
In euro (2) | 10 | 75 | 85 | ||||||
In other currencies | (134 | ) | 55 | (79 | ) | ||||
Loans and advances to customers | 1,692 | 847 | 2,539 | ||||||
In euro (2) | 842 | (249 | ) | 593 | |||||
In other currencies | 1,198 | 749 | 1,946 | ||||||
Other financial income | — | 82 | 82 | ||||||
Total income | 1,654 | 1,880 | 3,534 |
2005/2004 | 2006/2005 | |||||||||||||||||
Increase (Decrease) Due to changes in | Increase (Decrease) due to changes in | |||||||||||||||||
Volume(1) | Rate(1)(2) | Net Change | Volume (1) | Rate (1) (2) | Net Change | |||||||||||||
(in millions of euro) | (in millions of euros) | |||||||||||||||||
Interest income | ||||||||||||||||||
Cash and balances with central bank | 61 | (76 | ) | (14 | ) | |||||||||||||
Debt securities, equity instruments and derivatives | (483 | ) | 311 | (172 | ) | |||||||||||||
Loans and advances to credit institutions | 114 | 110 | 224 | |||||||||||||||
In euro | 89 | 86 | 175 | |||||||||||||||
In other currencies | (18 | ) | 67 | 49 | ||||||||||||||
Loans and advances to customers | 2,150 | 1,246 | 3,396 | |||||||||||||||
In euro | 1,022 | 644 | 1,667 | |||||||||||||||
In other currencies | 1,426 | 303 | 1,729 | |||||||||||||||
Other financial income | — | 16 | 16 | |||||||||||||||
Total income | 1,414 | 2,036 | 3,449 | |||||||||||||||
Interest expense | ||||||||||||||||||
Deposits from central banks and credit institutions | (64 | ) | 427 | 362 | (36 | ) | 281 | 245 | ||||||||||
In euro | (97 | ) | 70 | (28 | ) | (42 | ) | 228 | 187 | |||||||||
In other currencies | 95 | 294 | 390 | 40 | 18 | 58 | ||||||||||||
Customer deposits | 219 | 1,375 | 1,595 | 524 | 435 | 959 | ||||||||||||
In euro | 3 | (14 | ) | (11 | ) | 145 | 514 | 658 | ||||||||||
In other currencies | 324 | 1,282 | 1,606 | 332 | (32 | ) | 301 | |||||||||||
Debt certificates and subordinated liabilities | 495 | (75 | ) | 421 | 509 | 631 | 1,140 | |||||||||||
In euro | 442 | (123 | ) | 319 | 326 | 607 | 933 | |||||||||||
In other currencies | 35 | 67 | 102 | 351 | (144 | ) | 207 | |||||||||||
Other financial costs | — | 109 | 109 | — | (60 | ) | (60 | ) | ||||||||||
Total expense | 846 | 1,640 | 2,486 | 783 | 1,501 | 2,283 | ||||||||||||
Net interest income | 808 | 240 | 1,048 | 631 | 535 | 1,166 | ||||||||||||
(1) | Variances caused by changes in both volume and rate have been allocated proportionally to volume and rate. |
(2) | Rates have been presented on a non-taxable equivalent basis. |
The following table allocates changes in our net interest income between changes in volume and changes in rate for 2004 compared to 2003 in accordance with generally accepted accounting principles which were in effect during the mentioned years for banks in Spain:
2004/2003 | |||||||||
Increase (Decrease) Due to changes in | |||||||||
Volume(2) | Rate(1)(2) | Net Change | |||||||
(in millions of euro) | |||||||||
Interest income | |||||||||
Credit entities | (23 | ) | (34 | ) | (58 | ) | |||
In euro | 24 | (11 | ) | 13 | |||||
In other currencies | (87 | ) | 17 | (71 | ) | ||||
Lending | 880 | (937 | ) | (57 | ) | ||||
In euro | 787 | (751 | ) | 37 | |||||
Government and other Agencies | 53 | (55 | ) | (2 | ) | ||||
Commercial Loans | 31 | (43 | ) | (12 | ) | ||||
Secured loans | 447 | (420 | ) | 27 | |||||
Others | 241 | (217 | ) | 24 | |||||
In other currencies | (92 | ) | (2 | ) | (94 | ) | |||
Secured Loans | 23 | (26 | ) | (3 | ) | ||||
Other | (135 | ) | 44 | (91 | ) | ||||
Securities portfolio | 305 | (76 | ) | 229 | |||||
Fixed income securities | 263 | (273 | ) | (10 | ) |
In euro In other currencies Equity securities Holdings in companies carried by the equity method Other holdings Other assets Total assets Interest expense Credit entities In euro In other currencies Customer funds Customer deposits In euro Government and other agencies Current accounts Savings accounts Time accounts Others In other currencies Current accounts Savings accounts Time accounts Others Debt securities and other marketable securities In euro In other currencies Other liabilities Total liabilities Net interest income 207 (133 ) 73 (65 ) (19 ) (84 ) 42 198 240 (37 ) 155 118 84 38 122 4 51 54 1,118 (949 ) 168 366 (360 ) 6 168 (161 ) 7 197 (197 ) (1 ) 244 (445 ) (201 ) 90 (343 ) (253 ) 23 (249 ) (226 ) 7 1 7 8 (53 ) (45 ) 10 (19 ) (9 ) (102 ) (40 ) (142 ) 43 (80 ) (37 ) 82 (109 ) (27 ) 10 (3 ) 7 8 (9 ) (1 ) 80 (151 ) (71 ) (39 ) 77 39 190 (138 ) 52 229 (131 ) 99 (73 ) 27 (47 ) 10 26 36 538 (697 ) (159 ) 580 (252 ) 327
2005/2004 | |||||||||
Increase (Decrease) due to changes in | |||||||||
Volume (1) | Rate (1) (2) | Net Change | |||||||
(in millions of euros) | |||||||||
Interest income | |||||||||
Cash and balances with central banks | 42 | 141 | 183 | ||||||
Debt securities, equity instruments and derivatives | 583 | 141 | 724 | ||||||
Loans and advances to credit institutions | (84 | ) | 90 | 6 | |||||
In euro | 10 | 75 | 85 | ||||||
In other currencies | (134 | ) | 55 | (79 | ) | ||||
Loans and advances to customers | 1,692 | 847 | 2,539 | ||||||
In euro | 842 | (249 | ) | 593 | |||||
In other currencies | 1,198 | 749 | 1,946 | ||||||
Other financial income | — | 82 | 82 | ||||||
Total income | 1,654 | 1,880 | 3,534 | ||||||
Interest expense | |||||||||
Deposits from central banks and credit institutions | (64 | ) | 427 | 362 | |||||
In euro | (97 | ) | 70 | (28 | ) | ||||
In other currencies | 95 | 294 | 390 | ||||||
Customer deposits | 219 | 1,375 | 1,595 | ||||||
In euro | 3 | (14 | ) | (11 | ) | ||||
In other currencies | 324 | 1,282 | 1,606 | ||||||
Debt certificates and subordinated liabilities | 495 | (75 | ) | 421 | |||||
In euro | 442 | (123 | ) | 319 | |||||
In other currencies | 35 | 67 | 102 | ||||||
Other financial costs | — | 109 | 109 | ||||||
Total expense | 846 | 1,640 | 2,486 | ||||||
Net interest income | 808 | 240 | 1,048 | ||||||
(1) |
Variances caused by changes in both volume and rate have been allocated proportionally to volume and rate. |
(2) | Rates have been presented on a non-taxable equivalent basis. |
Interest Earning Assets—Margin and Spread
The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the years indicated.
EU-IFRS
Year ended December 31, | ||||||
2005 | 2004 | |||||
(in millions of euro, except percentages) | ||||||
Average interest earning assets | 340,387 | 291,163 | ||||
Gross yield(1) | 4.74 | % | 4.33 | % | ||
Net yield(2) | 4.43 | % | 3.92 | % | ||
Net interest margin(3) | 2.12 | % | 2.12 | % | ||
Average effective rate paid on all interest-bearing liabilities | 2.45 | % | 2.00 | % | ||
Spread(4) | 2.29 | % | 2.33 | % |
Spanish GAAP
December 31, | |||||||||
2006 | 2005 | 2004 | |||||||
(in millions of euros, except percentages) | |||||||||
Average interest earning assets | 371,752 | 340,387 | 291,163 | ||||||
Gross yield(1) | 5.27 | % | 4.74 | % | 4.33 | % | |||
Net yield(2) | 4.95 | % | 4.43 | % | 3.92 | % | |||
Net interest margin(3) | 2.25 | % | 2.12 | % | 2.12 | % | |||
Average effective rate paid on all interest-bearing liabilities | 2.83 | % | 2.45 | % | 2.00 | % | |||
Spread(4) | 2.44 | % | 2.29 | % | 2.33 | % |
| |||
| |||
| |||
| |||
| |||
|
Gross yield represents total interest income divided by average interest earning assets. |
(2) | Net yield represents total interest income divided by total average assets. |
(3) | Net interest margin represents net interest income as percentage of average interest earning assets. |
(4) | Spread is the difference between gross yield and the average cost of interest-bearing liabilities. |
ASSETS
Interest-Bearing Deposits in Other Banks
As of December 31, 2005,2006, interbank deposits represented 6.77%4.00% of our assets. Of such interbank deposits, 47.43%41.16% were held outside of Spain and 52.57%58.84% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. Such deposits, however, are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.
Securities Portfolio
As of December 31, 2005,2006, our securities were carried on our Consolidated Balance Sheetconsolidated balance sheet at a book value of €94.74€88.59 billion, representing 24.14%21.51% of our assets. €17.23€11.58 billion or 18.19%13.07% of our securities consisted of Spanish Treasury bonds and Treasury bills. The average yield during 20052006 on Treasury bonds and Treasury billsinvestment securities that BBVA held was 4.63%4.34%, compared to an average yield of approximately 5.23%5.77% earned on loans and leasesreceivables during 2005.2006. The market or appraised value of our total securities portfolio as of December 31, 20052006 was €94.90€88.44 billion. See Notes 11, 12, 13 and 15 to the Consolidated Financial Statements. For a discussion of our investments in affiliates, see Note 18 to the Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.1 and 2.2.c2.2.b to the Consolidated Financial Statements.
The following table analyzes the book value and market value of our ownership of debt securities and equity securities at December 31, 20042006, December 31, 2005 and December 31, 2005.2004. Investments in affiliated companies consolidated under the equity method are not included in the table below.
EU-IFRS
2006 | 2005 | 2004 | ||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||
(Thousands of euros) | ||||||||||||
DEBT SECURITIES - | ||||||||||||
AVAILABLE FOR SALE PORTFOLIO | ||||||||||||
Domestic- | 9,232,907 | 9,505,359 | 15,817,717 | 16,704,883 | 18,221,714 | 19,059,038 | ||||||
Spanish Government | 6,595,500 | 6,858,367 | 13,490,060 | 14,273,482 | 15,601,738 | 16,437,231 | ||||||
Other debt securities | 2,637,407 | 2,646,992 | 2,327,657 | 2,431,401 | 2,619,976 | 2,621,807 | ||||||
International- | 22,004,348 | 22,724,097 | 33,296,372 | 34,267,094 | 25,465,178 | 25,978,189 | ||||||
United States - | 5,513,902 | 5,505,584 | 3,993,296 | 3,989,578 | 1,731,018 | 1,750,192 | ||||||
U.S. Treasury and other U.S. Government agencies | 342,396 | 343,738 | 2,970,831 | 2,958,000 | 1,032,242 | 1,046,061 | ||||||
States and political subdivisions | 309,779 | 309,118 | 51,258 | 51,672 | 55,814 | 56,254 | ||||||
Other debt securities | 4,861,726 | 4,852,728 | 971,207 | 979,906 | 642,962 | 647,877 | ||||||
Other countries - | 16,490,446 | 17,218,513 | 29,303,076 | 30,277,516 | 23,734,160 | 24,227,997 | ||||||
Securities of other foreign Governments | 9,858,095 | 10,385,922 | 20,884,928 | 21,792,844 | 15,927,781 | 16,407,867 | ||||||
Other debt securities | 6,632,351 | 6,832,591 | 8,418,148 | 8,484,672 | 7,806,379 | 7,820,130 | ||||||
TOTAL AVAILABLE FOR SALE PORTFOLIO | 31,237,256 | 32,229,456 | 49,114,089 | 50,971,977 | 43,686,892 | 45,037,227 | ||||||
HELD TO MATURITY PORTFOLIO | ||||||||||||
Domestic- | 2,403,867 | 2,336,588 | 1,205,138 | 1,237,273 | 602,854 | 619,519 | ||||||
Spanish Government | 1,416,607 | 1,377,828 | 363,022 | 374,594 | 337,434 | 346,357 | ||||||
Other debt securities | 987,260 | 958,760 | 842,116 | 862,679 | 265,420 | 273,162 | ||||||
International- | 3,501,769 | 3,420,658 | 2,754,127 | 2,797,975 | 1,618,648 | 1,645,227 | ||||||
TOTAL HELD TO MATURITY PORTFOLIO | 5,905,636 | 5,757,246 | 3,959,265 | 4,035,248 | 2,221,502 | 2,264,746 | ||||||
TOTAL DEBT SECURITIES | 37,142,892 | 37,986,705 | 53,073,354 | 55,007,225 | 45,908,394 | 47,301,973 | ||||||
2005 | 2004 | |||||||
Book Value | Market or appraised | Book Value | Market or appraised | |||||
Thousands of Euros | ||||||||
DEBT SECURITIES | ||||||||
TRADING PORTFOLIO | ||||||||
Domestic: | ||||||||
Spanish Government Securities | 2,344,643 | 2,344,643 | 6,776,570 | 6,776,570 | ||||
Securities of, or guaranteed by, the Spanish government | 257,041 | 257,041 | 448,492 | 448,492 | ||||
Other debt securities | 1,495,321 | 1,495,321 | 1,059,904 | 1,059,904 | ||||
Total Domestic | 4,097,005 | 4,097,005 | 8,284,966 | 8,284,966 | ||||
Total International | 20,406,502 | 20,406,502 | 22,111,613 | 22,111,613 | ||||
TOTAL TRADING PORTFOLIO | 24,503,507 | 24,503,507 | 30,396,579 | 30,396,579 | ||||
2006 | 2005 | 2004 | ||||||||||
Amortized Cost | Fair Value(1) | Amortized Cost | Fair Value(1) | Amortized Cost | Fair Value(1) | |||||||
(Thousands of euros) | ||||||||||||
EQUITY SECURITIES - | ||||||||||||
AVAILABLE FOR SALE PORTFOLIO | 6,424,172 | 10,037,322 | 6,118,055 | 9,141,403 | 5,783,440 | 8,034,071 | ||||||
Domestic- | 4,564,255 | 7,381,243 | 5,165,444 | 7,458,601 | 4,975,863 | 7,069,950 | ||||||
Equity listed | 4,524,956 | 7,341,945 | 5,094,126 | 7,324,135 | 4,864,987 | 6,891,320 | ||||||
Equity Unlisted | 39,299 | 39,299 | 71,318 | 134,466 | 110,876 | 178,630 | ||||||
International- | 1,859,917 | 2,656,078 | 952,611 | 1,682,802 | 807,577 | 964,121 | ||||||
United States- | 52,698 | 53,707 | 53,709 | 51,688 | 10,287 | 10,287 | ||||||
Equity listed | 26,476 | 27,485 | 43,560 | 41,539 | 6,518 | 6,518 | ||||||
Equity Unlisted | 26,222 | 26,222 | 10,149 | 10,149 | 3,769 | 3,769 | ||||||
Other countries- | 1,807,219 | 2,602,371 | 898,902 | 1,631,114 | 797,290 | 953,834 | ||||||
Equity listed | 1,702,231 | 2,497,383 | 853,451 | 1,585,663 | 527,155 | 683,699 | ||||||
Equity Unlisted | 104,988 | 104,988 | 45,451 | 45,451 | 270,135 | 270,135 | ||||||
TOTAL AVAILABLE FOR SALE PORTFOLIO | 6,424,172 | 10,037,322 | 6,118,055 | 9,141,403 | 5,783,440 | 8,034,071 | ||||||
TOTAL EQUITY SECURITIES | 6,424,172 | 10,037,322 | 6,118,055 | 9,141,403 | 5,783,440 | 8,034,071 | ||||||
TOTAL INVESTMENT SECURITIES | 43,567,064 | 48,024,027 | 59,191,409 | 64,148,628 | 51,691,834 | 55,336,044 | ||||||
AVAILABLE FOR SALE PORTFOLIO Domestic: Spanish Government Securities Other Spanish Government securities Securities of, or guaranteed by, the Spanish government Other securities of the Spanish government Other debt securities Total Domestic International: United States: US Treasury Other US Government agencies States and political subdivisions Other government securities Other US securities Other countries: Securities of other foreign Governments Other debt securities outside Spain Total International TOTAL AVAILABLE FOR SALE HELD TO MATURITY PORTFOLIO Domestic: Spanish Government Other debt securities Total Domestic Total International TOTAL HELD TO MATURITY TOTAL DEBT SECURITIES EQUITY SECURITIES TRADING PORTFOLIO AVAILABLE FOR SALE PORTFOLIO Domestic: Equity listed Equity unlisted Other equities Total Domestic International: United States: Equity listed Equity unlisted Other equities Other countries: Equity listed Equity unlisted Other equities Total International TOTAL AVAILABLE FOR SALE TOTAL EQUITY SECURITIES TOTAL INVESTMENT SECURITIES 13,006,983 13,006,983 14,776,179 14,776,179 1,173,493 1,173,493 1,561,653 1,561,653 2,902 2,902 5,983 5,983 90,104 90,104 93,416 93,416 2,431,401 2,431,401 2,621,807 2,621,807 16,704,883 16,704,883 19,059,038 19,059,038 252,011 252,011 14,486 14,486 2,705,939 2,705,939 1,031,575 1,031,575 51,672 51,672 56,254 56,254 50 50 0 0 979,906 979,906 647,877 647,877 21,792,844 21,792,844 16,407,867 16,407,867 8,484,673 8,484,673 7,820,130 7,820,130 34,267,094 34,267,094 25,978,189 25,978,189 50,971,977 50,971,977 45,037,227 45,037,227 363,022 374,594 337,434 346,357 842,116 862,679 265,420 273,162 1,205,138 1,237,273 602,854 619,519 2,754,127 2,797,975 1,618,648 1,645,227 3,959,265 4,035,248 2,221,502 2,264,746 79,434,749 79,510,732 77,655,308 77,698,552 6,245,534 6,245,534 5,690,885 5,690,885 6,190,118 6,190,118 6,683,561 6,683,561 71,318 134,466 110,876 178,630 1,134,017 1,134,017 207,759 207,759 7,395,453 7,458,601 7,002,196 7,069,950 15,580 15,580 41 41 10,149 10,149 3,769 3,769 24,025 25,959 6,477 6,477 1,312,564 1,312,564 623,213 623,213 45,451 45,451 270,135 270,135 258,788 273,099 60,486 60,486 1,666,557 1,682,802 964,121 964,121 9,062,010 9,141,403 7,966,317 8,034,071 15,307,544 15,386,937 13,657,202 13,724,956 94,742,293 94,897,662 91,312,510 91,423,508
The following table analyzes the book value and market value of our ownership of debt and equity securities at December 31, 2003. Investments in affiliated companies consolidated under the equity method are not included in the table below.
Spanish GAAP
At December 31, 2003 | ||||
Book Value | Market or Appraised* | |||
Million of Euros | ||||
Government debt securities | ||||
Trading portfolio: | ||||
Spanish government securities | 5,616 | 5,616 | ||
Securities of, or guaranteed by, the Spanish government | — | — | ||
Available-for-sale portfolio: | ||||
Bank of Spain certificates of deposit | — | — | ||
Spanish Treasury bills | 601 | 601 | ||
Other fixed interest securities: | ||||
Securities of, or guaranteed by, the Spanish government | 12,114 | 12,297 | ||
Held to maturity securities | 614 | 652 | ||
Total government securities | 18,945 | 19,166 | ||
Debentures and other debt securities | ||||
Trading portfolio: | ||||
Other fixed income securities | 20,015 | 20,015 | ||
Available-for-sale portfolio: | ||||
Other fixed income securities listed in Spain | 3,092 | 3,117 | ||
U.S. Treasury securities | 12 | 12 | ||
Securities of other U.S. government agencies and corporations | 1,515 | 1,510 | ||
Securities of other foreign governments | 23,645 | 23,792 | ||
Other fixed interest securities listed outside of Spain | 3,586 | 3,596 | ||
Other fixed interest securities not listed | 560 | 563 | ||
Held to maturity portfolio | 511 | 543 | ||
Total debentures and other debt securities | 52,936 | 53,148 | ||
Equity securities | ||||
Trading securities: | ||||
Equity securities | 2,029 | 2,029 | ||
Investment securities: | ||||
Equity listed | 501 | 523 | ||
Equity unlisted | 562 | 645 | ||
Total equity securities | 3,092 | 3,196 | ||
Total securities portfolio | 74,973 | 75,510 | ||
Market values for listed securities are determined on the basis of their quoted values at the end of the year. Appraised values are used for unlisted securities based on our estimate or on unaudited financial statements, when available. |
The following table analyzes the maturities of our debt investment and fixed income securities, excluding trading portfolio, by type and geographical area as of December 31, 2005.2006.
Maturing at one year or less | Maturing after one year to five years | Maturing after five year to ten years | Maturing after ten years | Total | ||||||||||||||||||
Amount | Yield % | Amount | Yield % | Amount | Yield % | Amount | Yield % | |||||||||||||||
(millions of euros, except percentages) | ||||||||||||||||||||||
DEBT SECURITIES AVAILABLE FOR SALE PORTFOLIO | ||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||
Spanish Government | 5,071,719 | 4.18 | % | 3,228,527 | 5.49 | % | 872,908 | 4.84 | % | 3,833,830 | 4.92 | % | 13,006,984 | |||||||||
Other Spanish Government securities | 387,476 | 5.09 | % | 400,953 | 5.62 | % | 241,520 | 6.68 | % | 143,544 | 6.00 | % | 1,173,493 | |||||||||
Securities of, or guaranteed by, the Spanish government | 2,902 | 0.10 | % | — | — | — | — | — | — | 2,902 | ||||||||||||
Other securities of the Spanish government | 5,023 | 0.00 | % | 2,805 | 10.87 | % | — | — | 82,277 | 11.48 | % | 90,104 | ||||||||||
Other debt securities | 280,842 | 3.36 | % | 416,792 | 5.43 | % | 387,665 | 4.15 | % | 1,346,102 | 2.14 | % | 2,431,401 | |||||||||
Total Domestic | 5,747,962 | 4.20 | % | 4,049,077 | 5.50 | % | 1,502,092 | 4.96 | % | 5,405,753 | 4.36 | % | 16,704,883 | |||||||||
International: | ||||||||||||||||||||||
United States: | ||||||||||||||||||||||
US Treasury | 27,136 | 3.22 | % | 50 | 3.90 | % | 224,770 | 1.97 | % | 56 | 3.36 | % | 252,011 | |||||||||
Other US Government agencies | 236,646 | 3.38 | % | 861,179 | 3.97 | % | 231,967 | 4.56 | % | 1,376,147 | 4.24 | % | 2,705,939 | |||||||||
States and political subdivisions | 3,534 | 5.10 | % | 13,343 | 4.02 | % | 2,058 | 4.91 | % | 32,738 | 4.77 | % | 51,673 | |||||||||
Other government securities | — | — | 50 | — | — | — | — | — | 50 | |||||||||||||
Other US securities | 265,799 | 4.13 | % | 207,570 | 4.11 | % | 77,488 | 5.60 | % | 429,049 | 6.82 | % | 979,905 | |||||||||
Other countries: | ||||||||||||||||||||||
Securities of other foreign Governments | 5,653,837 | 4.92 | % | 8,480,822 | 5.68 | % | 4,451,103 | 6.66 | % | 3,207,083 | 8.08 | % | 21,792,845 | |||||||||
Other debt securities outside Spain | 1,244,452 | 4.18 | % | 1,999,918 | 4.17 | % | 2,407,707 | 4.34 | % | 2,832,595 | 4.70 | % | 8,484,672 | |||||||||
Total International | 7,431,404 | 4.71 | % | 11,562,932 | 5.26 | % | 7,395,092 | 5.68 | % | 7,877,667 | 6.11 | % | 34,267,094 | |||||||||
Total Available for sale | 13,179,366 | 4.49 | % | 15,612,009 | 5.32 | % | 8,897,184 | 5.56 | % | 13,283,419 | 5.39 | % | 50,971,977 | |||||||||
HELD TO MATURITY PORTFOLIO | ||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||
Spanish Government | — | — | 182,690 | 4.59 | % | 180,332 | 4.99 | % | — | — | 363,022 | |||||||||||
Other debt securities | — | — | 90,736 | 3.53 | % | 685,753 | 4.02 | % | 65,627 | 4.53 | % | 842,116 | ||||||||||
International: | 282,874 | 5.12 | % | 853,031 | 4.01 | % | 1,546,023 | 4.29 | % | 72,199 | 5.27 | % | 2,754,127 | |||||||||
Total Held to maturity | 282,874 | 5.12 | % | 1,126,457 | 4.07 | % | 2,412,108 | 4.27 | % | 137,826 | 4.92 | % | 3,959,265 | |||||||||
TOTAL DEBT SECURITIES | 13,462,240 | 4.50 | % | 16,738,466 | 5.24 | % | 11,309,291 | 5.28 | % | 13,473,945 | 5.39 | % | 54,931,242 |
Maturing at one year or less | Maturing after one year to five years | Maturing after five year to ten years | Maturing after ten years | Total | ||||||||||||||
Amount | Yield %(1) | Amount | Yield %(1) | Amount | Yield %(1) | Amount | Yield %(1) | |||||||||||
(Thousands of euros, except percentages) | ||||||||||||||||||
AVAILABLE FOR SALE PORTFOLIO | ||||||||||||||||||
Domestic: | ||||||||||||||||||
Spanish Government | 311,715 | 7.53 | 1,524,000 | 6.73 | 1,683,607 | 4.08 | 3,339,044 | 5.90 | 6,858,367 | |||||||||
Other debt securities | 525,157 | 4.65 | 708,301 | 4.94 | 540,394 | 3.86 | 873,139 | 4.09 | 2,646,992 | |||||||||
Total Domestic | 836,873 | 5.59 | 2,232,301 | 6.14 | 2,224,002 | 4.00 | 4,212,184 | 4.19 | 9,505,359 | |||||||||
International: | ||||||||||||||||||
United States: | ||||||||||||||||||
U.S. Treasury and other U.S. government securities | 30,609 | 4.74 | 8,199 | 4.39 | 304,931 | 2.05 | — | — | 343,738 | |||||||||
States and political subdivisions | 21,037 | 1.53 | 51,695 | 2.74 | 32,410 | 4.08 | 203,976 | 5.05 | 309,118 | |||||||||
Other debt securities | 664,220 | 4.22 | 1,296,577 | 4.64 | 335,578 | 4.64 | 2,556,355 | 4.91 | 4,852,728 | |||||||||
Other countries: | ||||||||||||||||||
Securities of other foreign Governments | 662,591 | 8.26 | 2,998,420 | 4.64 | 3,648,320 | 4.73 | 3,076,591 | 3.14 | 10,385,922 | |||||||||
Other debt securities | 687,071 | 3.83 | 2,025,507 | 4.61 | 1,624,971 | 4.45 | 2,495,042 | 4.87 | 6,832,591 | |||||||||
Total International | 2,065,528 | 4.85 | 6,380,399 | 4.60 | 5,946,211 | 4.55 | 8,331,964 | 5.03 | 22,724,097 | |||||||||
Total Available for sale | 2,902,401 | 5.04 | 8,612,699 | 5.02 | 8,170,212 | 4.17 | 12,544,147 | 4.91 | 32,229,456 | |||||||||
HELD TO MATURITY PORTFOLIO | ||||||||||||||||||
Domestic: | ||||||||||||||||||
Spanish Government | — | — | 261,508 | 4.81 | 1,100,266 | 3.28 | 54,833 | — | 1,416,607 | |||||||||
Other debt securities | — | — | 128,975 | 3.56 | 706,448 | 4.09 | 151,837 | 3.75 | 987,260 | |||||||||
International: | 306,994 | 3.62 | 1,147,021 | 4.80 | 1,760,187 | 4.13 | 287,567 | 4.15 | 3,501,769 | |||||||||
Total Held to maturity | 306,994 | 3.62 | 1,537,504 | 4.73 | 3,566,901 | 3.86 | 494,237 | 4.03 | 5,905,636 | |||||||||
TOTAL DEBT SECURITIES | 3,209,395 | 4.91 | 10,150,203 | 4.97 | 11,737,113 | 4.08 | 13,038,384 | 4.88 | 38,135,092 |
(1) | Rates have been presented on a non-taxable equivalent basis. |
Loan PortfolioLoans and advances to credit institutions
As of December 31, 2005,2006, our total loans and advanced to credit institutions amounted to €16.99 billion, or 4.12% of total assets. Net of our valuation adjustments, loans and advances to credit institutions amounted to €17.05 billion as of December 31, 2006, or 4.14% of our total assets.
Loans and advances to other debtors
As of December 31, 2006, our total loans and leases amounted to €222.0€262.4 billion, or 56.6%63.70% of total assets. During 2005,Net of our valuation adjustments, loans and leases amounted to €256.6 billion as of December 31, 2006, or 62.29% of our total assets. As of December 31, 2006 our loans in Spain increased by 18.0%18.2% compared to 2004.December 31, 2005, which amounted to €222.0 billion. Our foreign loans increased by 60.4%,amounted to €79.1 billion at December 31, 2006, an increase of 20.2% compared to 2004,December 31, 2005, as a result of the strong lending growth in lendingmost countries in Latin America (in local currencies the Latin American countries where we operate. In local currency terms, the most significant growthincrease was 30% in loans were of 18.2%Mexico and more than 20% in Argentina, Chile, 34.3% inColombia, Peru 21.0% in Colombia, 62.7% in Venezuela and 36.4% in Mexico. Net of our loan loss reserve, loans and leases amounted to €216.9 billion as of December 31, 2005.Venezuela). For a discussion of certain mandatory ratios relating to our loan portfolio, see “—
“—Supervision and Regulation—Liquidity Ratio” and “—Investment Ratio”.
Loans by Geographic Area
The following table analyzes, by domicile of the customer, our net loans and leases for each of the years indicated.
At December 31, | ||||||
EU-IFRS | 2005 | 2004 | ||||
(in millions of euro) | ||||||
Domestic | 156,127 | 137,687 | ||||
Foreign: | ||||||
Western Europe | 14,662 | 6,645 | ||||
Central and South America | 43,490 | 27,099 | ||||
United States | 6,196 | 3,044 | ||||
Other | 1,519 | 1,118 | ||||
Total foreign | 65,867 | 37,906 | ||||
Total lending | 221,994 | 175,593 | ||||
Valuation adjustments | (5,144 | ) | (3,510 | ) | ||
Total net lending | 216,850 | 172,083 | ||||
At December 31, | As of December 31, | ||||||||||||||
Spanish GAAP | 2003 | 2002 | 2001 | ||||||||||||
2006 | 2005 | 2004 | |||||||||||||
(in millions of euro) | (in millions of euros) | ||||||||||||||
Domestic | 113,485 | 101,013 | 97,910 | 183,231 | 156,127 | 137,687 | |||||||||
Foreign: | |||||||||||||||
Foreign | |||||||||||||||
Western Europe | 8,082 | 7,261 | 8,241 | 17,999 | 14,662 | 6,645 | |||||||||
Central and South America | 23,016 | 28,321 | 36,202 | 49,158 | 43,490 | 27,099 | |||||||||
United States | 3,118 | 757 | 4,157 | 9,597 | 6,196 | 3,044 | |||||||||
Other | 1,126 | 3,963 | 3,710 | 2,390 | 1,519 | 1,118 | |||||||||
Total Foreign | 79,143 | 65,867 | 37,906 | ||||||||||||
Total foreign | 35,342 | 40,302 | 52,310 | ||||||||||||
Total loans and leases | 262,374 | 221,994 | 175,593 | ||||||||||||
Valuation adjustments | (5,809 | ) | (5,144 | ) | (3,510 | ) | |||||||||
Total net lending | 148,827 | 141,315 | 150,220 | 256,565 | 216,850 | 172,083 | |||||||||
Loans by Type of Customer
The following table analyzes by domicile and type of customer our net loans and leases for each of the years indicated. The analyses by type of customer are based principally on the requirements of the regulatory authorities in each country.
At December 31, | As of December 31, | ||||||||||||
EU-IFRS | 2005 | 2004 | |||||||||||
(in millions of euro) | 2006 | 2005 | 2004 | ||||||||||
Domestic: | |||||||||||||
(in millions of euros) | |||||||||||||
Domestic | |||||||||||||
Government | 16,089 | 16,039 | 15,987 | 16,089 | 16,039 | ||||||||
Agriculture | 1,550 | 1,272 | 1,818 | 1,550 | 1,272 | ||||||||
Industrial | 14,774 | 13,216 | 15,965 | 14,774 | 13,216 | ||||||||
Real estate and construction | 24,937 | 19,952 | 33,803 | 24,937 | 19,952 | ||||||||
Commercial and financial | 11,736 | 13,998 | 15,231 | 11,736 | 13,998 | ||||||||
Loans to individuals | 67,964 | 54,725 | 78,190 | 67,964 | 54,725 | ||||||||
Lease financing | 5,910 | 5,014 | 6,717 | 5,910 | 5,014 | ||||||||
Other | 13,167 | 13,471 | 15,519 | 13,167 | 13,471 | ||||||||
Total domestic | 156,127 | 137,687 | 183,231 | 156,127 | 137,687 | ||||||||
Foreign | |||||||||||||
Government | 5,207 | 6,036 | 2,686 | ||||||||||
Agriculture | 1,315 | 955 | 529 | ||||||||||
Industrial | 8,765 | 3,155 | 9,360 | ||||||||||
Real estate and construction | 7,698 | 11,624 | 4,457 | ||||||||||
Commercial and financial | 23,679 | 24,459 | 8,083 | ||||||||||
Loans to individuals | 25,728 | 14,619 | 9,262 | ||||||||||
Lease financing | 975 | 816 | 352 | ||||||||||
Other | 5,775 | 4,203 | 3,177 | ||||||||||
Total foreign | 79,143 | 65,867 | 37,906 | ||||||||||
Total loans and leases | 262,374 | 221,994 | 175,593 | ||||||||||
Valuation adjustments | (5,809 | ) | (5,144 | ) | (3,510 | ) | |||||||
Total net lending | 256,565 | 216,850 | 172,083 | ||||||||||
Foreign: Government Agriculture Industrial Real estate and construction Commercial and financial Loans to individuals Lease financing Other Total foreign Total loans and leases Loan loss reserve Total net lending 6,036 2,686 955 529 3,155 9,360 11,624 4,457 24,459 8,083 14,619 9,262 816 352 4,203 3,177 65,867 37,906 221,994 175,593 (5,144 ) (3,510 ) 216,850 172,083
At December 31, | |||||||||
Spanish GAAP | 2003 | 2002 | 2001 | ||||||
(in millions of euro) | |||||||||
Domestic: | |||||||||
Government | 13,403 | 12,562 | 12,196 | ||||||
Agriculture | 1,057 | 698 | 533 | ||||||
Industrial | 11,991 | 11,970 | 11,378 | ||||||
Real estate and construction | 14,823 | 13,652 | 12,767 | ||||||
Commercial and financial | 12,742 | 9,336 | 8,677 | ||||||
Loans to individuals | 44,160 | 38,515 | 36,105 | ||||||
Lease financing | 4,160 | 3,217 | 2,685 | ||||||
Other | 13,333 | 12,923 | 10,900 | ||||||
Total domestic | 115,669 | 102,873 | 95,241 | ||||||
Foreign | 37,602 | 43,540 | 60,907 | ||||||
Total loans and leases | 153,271 | 146,413 | 156,148 | ||||||
Loan loss reserve | (4,444 | ) | (5,098 | ) | (5,928 | ) | |||
Total net lending | 148,827 | 141,315 | 150,220 | ||||||
The following table sets forth a breakdown, by currency, of our net loan portfolio for 20042006, 2005 and 2005.2004.
At December 31, | ||||
EU-IFRS | 2005 | 2004 | ||
(in millions of euro) | ||||
In euro | 164,309 | 140,398 | ||
In other currencies | 52,541 | 31,685 | ||
Total | 216,850 | 172,083 | ||
At December 31, | As of December 31, | |||||||||||
Spanish GAAP | 2003 | 2002 | 2001 | |||||||||
2006 | 2005 | 2004 | ||||||||||
(in millions of euro) | (in millions of euros) | |||||||||||
In euro | 120,152 | 106,590 | 98,982 | 193,253 | 164,309 | 140,398 | ||||||
In other currencies | 28,675 | 34,725 | 51,238 | 63,312 | 52,541 | 31,685 | ||||||
Total | 148,827 | 141,315 | 150,220 | |||||||||
Total net loans and leases | 256,565 | 216,850 | 172,083 | |||||||||
As of December 31, 2005,2006, loans by BBVA and its subsidiaries to associates and jointly controlled companies we are required to account for by the equity method amounted to €267.6€374.2 million, compared to €227.2€267.6 million as of December 31, 2004.2005. Loans outstanding to the Spanish government and its agencies amounted to €22.13€15.9 billion, or 9.97%6.09% of our total loans and leases as of December 31, 2005,2006, compared to €20.35€16.1 billion, or 11.59%7.25% of our total loans and leases as of December 31, 2004.2005. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.
Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our five largest borrowers as of December 31, 2005,2006, excluding government-related loans, amounted to €8.48€17.89 billion, or approximately 3.82%6.82% of our total outstanding loans and leases.
Maturity and Interest Sensitivity
The following table sets forth an analysis by maturity of our total loans and leases by domicile of the office that issued the loan and type of customer as of December 31, 2005.2006. The determination of maturities is based on contract terms.
EU-IFRS | Maturity | |||||||||||||||
Maturity | ||||||||||||||||
Due in One Year or Less | Due After One Year Through Five Years | Due After Five Years | Total | Due in One Year or Less | Due After One Year Through Five Years | Due After Five Years | Total | |||||||||
(in millions of euros) | (in millions of euros) | |||||||||||||||
Domestic: | ||||||||||||||||
Government | 5,247 | 2,676 | 8,166 | 16,089 | 5,126 | 4,012 | 6,849 | 15,987 | ||||||||
Agriculture | 953 | 444 | 153 | 1,550 | 708 | 721 | 389 | 1,818 | ||||||||
Industrial | 6,124 | 3,445 | 5,205 | 14,774 | 11,688 | 2,959 | 1,317 | 15,965 | ||||||||
Real estate and construction | 3,237 | 5,756 | 15,944 | 24,937 | 15,640 | 7,966 | 10,197 | 33,803 | ||||||||
Commercial and financial | 10,340 | 1,001 | 395 | 11,736 | 7,789 | 3,156 | 4,287 | 15,231 | ||||||||
Loans to individuals | 14,432 | 17,779 | 35,753 | 67,964 | 8,914 | 16,800 | 52,476 | 78,190 | ||||||||
Lease financing | 176 | 3,098 | 2,636 | 5,910 | 368 | 3,480 | 2,869 | 6,717 | ||||||||
Other | 8,557 | 2,686 | 1,924 | 13,167 | 8,981 | 2,946 | 3,592 | 15,519 | ||||||||
Total domestic | 49,066 | 36,885 | 70,176 | 156,127 | 59,213 | 42,040 | 81,977 | 183,231 | ||||||||
Foreign: | ||||||||||||||||
Government | 671 | 1,263 | 4,102 | 6,036 | 460 | 4,161 | 586 | 5,207 | ||||||||
Agriculture | 513 | 311 | 131 | 955 | 614 | 644 | 57 | 1,315 | ||||||||
Industrial | 1,708 | 731 | 716 | 3,155 | 3,116 | 5,312 | 338 | 8,765 | ||||||||
Real estate and construction | 2,163 | 3,236 | 6,225 | 11,624 | 1,862 | 2,492 | 3,344 | 7,698 | ||||||||
Commercial and financial | 11,408 | 10,059 | 2,992 | 24,459 | 13,631 | 7,642 | 2,406 | 23,679 | ||||||||
Loans to individuals | 2,319 | 8,132 | 4,168 | 14,619 | 2,514 | 5,297 | 17,917 | 25,728 | ||||||||
Lease financing | 480 | 200 | 136 | 816 | 448 | 403 | 124 | 975 | ||||||||
Other | 1,897 | 1,251 | 1,055 | 4,203 | 2,297 | 2,735 | 743 | 5,775 | ||||||||
Total foreign | 21,159 | 25,183 | 19,525 | 65,867 | 24,941 | 28,686 | 25,516 | 79,143 | ||||||||
Total loans and leases | 70,225 | 62,068 | 89,701 | 221,994 | 84,154 | 70,726 | 107,494 | 262,374 | ||||||||
The following table sets forth a breakdown of our fixed and variable rate loans which had a maturity of one year or more as of December 31, 2005.2006.
Interest Sensitivity of Outstanding Loans and Leases Maturing in More Than One Year | Interest Sensitivity of Outstanding Loans and Leases Year | |||||||||||
Domestic | Foreign | Total | Domestic | Foreign | Total | |||||||
(in millions of euro) | (in millions of euros) | |||||||||||
Fixed rate | 33,727 | 21,135 | 54,862 | 21,070 | 23,329 | 44,399 | ||||||
Variable rate | 73,332 | 23,575 | 96,907 | 98,392 | 35,428 | 133,821 | ||||||
Total | 107,059 | 44,710 | 151,769 | |||||||||
Total loans and leases | 119,462 | 58,758 | 178,220 | |||||||||
Loan Loss Reserve
For a discussion of loan loss reserves, see “Item 5. Operating and Financial Review and Prospects—Critical accounting policies—Allowance for loan losses” and Note 2.2.c.4)2.2.b.4 to the Consolidated Financial Statements.
The following table provides information, by domicile of customer, regarding our loan loss reserve and movements of loan charge-offs and recoveries for periods indicated.
EU-IFRS
At December 31, | ||||||
EU-IFRS | 2005 | 2004 | ||||
(in millions of euro, except percentages) | ||||||
Loan loss reserve at beginning of period: | ||||||
Domestic | 2,374 | 1,771 | ||||
Foreign | 2,248 | 3,274 | ||||
Total loan loss reserve at beginning of period | 4,622 | 5,046 | ||||
Loans charged off: | ||||||
Government and other Agencies | 0 | 0 | ||||
Real estate and loans to individuals | (138 | ) | (103 | ) | ||
Commercial and financial | (76 | ) | (36 | ) | ||
Other | 0 | 0 | ||||
Total Domestic | (215 | ) | (134 | ) | ||
Foreign | (452 | ) | (579 | ) | ||
Total loans charged off | (667 | ) | (713 | ) | ||
Provision for loan losses: | ||||||
Domestic | 624 | 737 | ||||
Foreign | 196 | 408 | ||||
Total provision for loan losses | 820 | 1,145 | ||||
Acquisition and disposition of subsidiaries | 144 | — | ||||
Effect of foreign currency translation | 370 | (146 | ) | |||
Other | 297 | (708 | ) | |||
Loan loss reserve at end of period: | ||||||
Domestic | 3,079 | 2,374 | ||||
Foreign | 2,507 | 2,248 | ||||
Total loan loss reserve at end of period | 5,587 | 4,622 | ||||
Loan loss reserve as a percentage of total loans and leases at end of period | 2.52 | % | 2.63 | % | ||
Net loan charge-offs as a percentage of total loans and leases at end of period | 0.30 | % | 0.41 | % |
At December 31, | |||||||||
2006 | 2005 | 2004 | |||||||
(in millions of euros, except percentages) | |||||||||
Loan loss reserve at beginning of period: | |||||||||
Domestic | 3,079 | 2,374 | 1,771 | ||||||
Foreign | 2,508 | 2,248 | 3,274 | ||||||
Total loan loss reserve at beginning of period | 5,587 | 4,622 | 5,046 | ||||||
Loans charged off: | |||||||||
Government and other Agencies | 0 | 0 | 0 | ||||||
Real estate and loans to individuals | (255 | ) | (138 | ) | (103 | ) | |||
Commercial and financial | (2 | ) | (76 | ) | (36 | ) | |||
Other | 0 | 0 | 0 | ||||||
Total Domestic | (257 | ) | (215 | ) | (134 | ) | |||
Foreign | (289 | ) | (452 | ) | (579 | ) | |||
Total loans charged off | (546 | ) | (667 | ) | (713 | ) | |||
Provision for loan losses: | |||||||||
Domestic | 883 | 624 | 737 | ||||||
Foreign | 778 | 196 | 408 | ||||||
Total provision for loan losses | 1,661 | 820 | 1,145 | ||||||
Acquisition and disposition of subsidiaries | 69 | 144 | — | ||||||
Effect of foreign currency translation | (332 | ) | 370 | (146 | ) | ||||
Other | (21 | ) | 297 | (708 | ) | ||||
Loan loss reserve at end of period: | |||||||||
Domestic | 3,735 | 3,079 | 2,374 | ||||||
Foreign | 2,683 | 2,508 | 2,248 | ||||||
Total loan loss reserve at end of period | 6,417 | 5,587 | 4,622 | ||||||
Loan loss reserve as a percentage of total loans and leases at end of period | 2.45 | % | 2.52 | % | 2.63 | % | |||
Net loan charge-offs as a percentage of total loans and leases at end of period | 0.21 | % | 0.30 | % | 0.41 | % |
Our loan loss reserves as a percentage of total loans and leases declined from 2.63% as of December 31, 2004, to 2.52% as of December 31, 2005, to 2.45% as of December 31, 2006, principally due to the increase in the volume of loans granted in 2005.2006.
We do not maintain records allocating the amount of charge-offs and the amount of recoveries by loan category. See “—
“—Substandard Loans” for information as to the breakdown as of December 31, 20052006 by loan category of substandard loans. Also, at the time that a loan is charged off in accordance with Bank of Spain guidelines, it will normally be substantially or fully reserved and, accordingly, such charge-off would have a very limited effect on our net attributable profit or shareholders’stockholders’ equity. Accordingly, we believe that information relating to domestic reserves and charge-offs by loan category is of less relevance than would be the case for a U.S. bank.
At December 31, | |||||||||
Spanish GAAP | 2003 | 2002 | 2001 | ||||||
(in millions of euro, except percentages) | |||||||||
Loan loss reserve at beginning of period: | |||||||||
Domestic | 1,599 | 1,375 | 1,222 | ||||||
Foreign | 3,747 | 4,945 | 6,933 | ||||||
Acquisition and disposition of subsidiaries | — | (2 | ) | 12 | |||||
Total loan loss reserve at beginning of period | 5,346 | 6,318 | 8,167 | ||||||
Loans written off: | |||||||||
Domestic | (292 | ) | (337 | ) | (409 | ) | |||
Foreign | (931 | ) | (1,205 | ) | (4,929 | ) | |||
of which due to FOBAPROA(*) | (3,259 | ) | |||||||
Total loans written off | (1,223 | ) | (1,542 | ) | (5,338 | ) | |||
Recoveries of loans previously written off: | |||||||||
Domestic | 105 | 112 | 124 | ||||||
Foreign | 122 | 96 | 164 | ||||||
Total recoveries of loans previously written off | 227 | 208 | 288 | ||||||
Net loans written off | (996 | ) | (1,334 | ) | (5,050 | ) | |||
Provision for possible loan losses: | |||||||||
Domestic | 468 | 504 | 464 | ||||||
Foreign | 809 | 1,238 | 1,455 | ||||||
Total | 1,277 | 1,742 | 1,919 | ||||||
Effect of foreign currency translation | (711 | ) | (1,441 | ) | 715 | ||||
Other | (179 | ) | 61 | 569 | |||||
Total provision for possible loan losses | 387 | 362 | 3,203 | ||||||
Loan loss reserve at end of period: | |||||||||
Domestic | 1,832 | 1,599 | 1,375 | ||||||
Foreign | 2,905 | 3,747 | 4,945 | ||||||
Total loan loss reserve at end of period | 4,737 | 5,346 | 6,320 | ||||||
FOBAPROA adjustmentsSpanish GAAP
The foregoing table indicates that a €3,259 million charge off of loans in 2002 related to FOBAPROA promissory notes. Of this balance, €2,690 million related to a reduction to the provision for possible loan losses and the remaining €569 million related to other items which increased the provision for possible loan losses. BBVA’s ownership of the FOBAPROA promissory notes, which were held by Bancomer, arose in connection with measures taken by the Mexican Government during the Mexican economic crisis in 1994 and 1995. Under these measures, Mexican banks, including Bancomer, were allowed to transfer to the Mexican government the right to collect on a portion of their loan portfolio that was experiencing payment difficulties. In exchange, the Mexican government issued to such banks FOBAPROA promissory notes, guaranteed in part by the Mexican government, in an amount equal to the book value (net of provisions) of the loans transferred. The banks, however, remained responsible for 25% of the losses arising from the difference between the amount of the FOBAPROA promissory notes at the time exchanged, plus the accumulated accrued interest on such promissory notes, and the amount the Mexican government was able to recover on the loans transferred to it.
Since the Mexican government only guaranteed up to 75% of the FOBAPROA promissory notes, in 2001 BBVA concluded that the amount not guaranteed by the Mexican government was not collectible. Under Spanish GAAP, this 25% was considered a loss and was written off, with a reduction of assets and of the Allowance for Loan Losses on BBVA’s Consolidated Balance Sheets.
At December 31, | ||||||
2003 | 2002 | |||||
(in millions of euros, except percentages) | ||||||
Loan loss reserve at beginning of period: | ||||||
Domestic | 1,599 | 1,375 | ||||
Foreign | 3,747 | 4,945 | ||||
Acquisition and disposition of subsidiaries | — | (2 | ) | |||
Total loan loss reserve at beginning of period | 5,346 | 6,318 | ||||
Loans written off: | ||||||
Domestic | (292 | ) | (337 | ) | ||
Foreign | (931 | ) | (1,205 | ) | ||
Total loans written off | (1,223 | ) | (1,542 | ) | ||
Recoveries of loans previously written off: | ||||||
Domestic | 105 | 112 | ||||
Foreign | 122 | 96 | ||||
Total recoveries of loans previously written off | 227 | 208 | ||||
Net loans written off | (996 | ) | (1,334 | ) | ||
Provision for possible loan losses: | ||||||
Domestic | 468 | 504 | ||||
Foreign | 809 | 1,238 | ||||
Total | 1,277 | 1,742 | ||||
Effect of foreign currency translation | (711 | ) | (1,441 | ) | ||
Other | (179 | ) | 61 | |||
Total provision for possible loan losses | 387 | 362 | ||||
Loan loss reserve at end of period: | ||||||
Domestic | 1,832 | 1,599 | ||||
Foreign | 2,905 | 3,747 | ||||
Total loan loss reserve at end of period | 4,737 | 5,346 | ||||
Substandard Loans
We classify loans as substandard loans in accordance to the requirements under IFRSEU-IFRS in respect of “impaired loans”. As we described in Note 2.2.c.42.2.b.4 to the Consolidated Financial Statements, loans are
considered to be impaired loans, and accrual of the interest thereon is suspended, when there are reasonable doubts that the loans will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed upon, taking into account the guarantees received by the consolidated entities to assure (in part or in full) the performance of transactions. In addition, all loans that are 90 days past due, even if well-collateralized and in the process of being collected, are automatically considered non-accrual if they are classified as substandard loans.
When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.
Interest on all of our substandard non-accrual loans is not credited to income until actually collected. The amount of gross interest income that would have been recorded in respect of our substandard loans as of December 31, 20042006, 2005 and 20052004 under EU-IFRS was €750€1,107 million, €1,052 million and €1,052€750 million, respectively.
Amounts collected in relation to impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the principal not yet repaid. The approximate amount of interest income on our substandard loans which was included in net attributable profit under Spanish GAAP in 2003 was €357.4 million. The approximate amount of interest income on our substandard loans which was included in income attributed to the Group in 20042006, 2005 and 20052004 under EU-IFRS was €130.7 million, €148.1 million and €138.3 million, and 148.1 million, respectively
The following table provides information by domicile of customer, regarding our substandard loans for periods indicated.
EU-IFRS
At December 31, | At December 31, | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
(in millions of euro, except percentages) | (in millions of euros, except percentages) | ||||||||||||||
Substandard loans: | |||||||||||||||
Domestic | 849 | 954 | 1,128 | 849 | 954 | ||||||||||
Public sector | 33 | 33 | 151 | 33 | 33 | ||||||||||
Other resident sectors | 721 | 832 | 953 | 721 | 832 | ||||||||||
Non-resident sector | 96 | 89 | 24 | 96 | 89 | ||||||||||
Country risk | 5 | 7 | |||||||||||||
Other | 90 | 82 | |||||||||||||
Foreign | 1,497 | 1,248 | 1,363 | 1,497 | 1,248 | ||||||||||
Public sector | 89 | 74 | 62 | 89 | 74 | ||||||||||
Other resident sectors | 73 | 48 | 0 | 73 | 48 | ||||||||||
Non-resident sector | 1,335 | 1,126 | 1,301 | 1,335 | 1,126 | ||||||||||
Country risk | 1 | 3 | |||||||||||||
Other | 1,334 | 1,123 | |||||||||||||
Total substandard loans | 2,346 | 2,202 | 2,492 | 2,346 | 2,202 | ||||||||||
Total loan loss reserve | 5,587 | 4,622 | 6,417 | 5,587 | 4,622 | ||||||||||
Substandard loans net of reserves | (3,241 | ) | (2,420 | ) | (3,926 | ) | (3,241 | ) | (2,420 | ) | |||||
Substandard loans as a percentage of loans and receivables | 0.92 | % | 1.10 | % | |||||||||||
Substandard loans (net of reserves) as a percentage of loans and receivables | (1.27 | %) | (1.21 | )% | |||||||||||
Substandard loans as a percentage of loans and leases | 0.95 | % | 0.92 | % | 1.10 | % | |||||||||
Substandard loans (net of reserves) as a percentage of loans and leases | (1.50 | )% | (1.27 | )% | (1.21 | )% |
Spanish GAAP
At December 31, | At December 31, | ||||||||||||||
2003 | 2002 | 2001 | 2003 | 2002 | |||||||||||
(in millions of euro, except percentages) | (in millions of euros, except percentages) | ||||||||||||||
Substandard loans: | |||||||||||||||
Non-performing loans | 2,672 | 3,474 | 2,737 | 2,672 | 3,474 | ||||||||||
Public sector | 535 | 508 | 41 | 535 | 508 | ||||||||||
Other resident sectors | 733 | 771 | 786 | 733 | 771 | ||||||||||
Non-resident sector | |||||||||||||||
Country risk | 12 | 196 | 27 | 12 | 196 | ||||||||||
Other | 1,392 | 1,999 | 1,883 | 1,392 | 1,999 | ||||||||||
Other non-performing loans | 454 | 57 | 6 | 454 | 57 | ||||||||||
Resident sector | — | — | — | — | — | ||||||||||
Non-resident sector | 454 | 57 | 6 | 454 | 57 | ||||||||||
Total substandard loans | 3,127 | 3,531 | 2,743 | 3,127 | 3,531 | ||||||||||
Loan loss reserve | |||||||||||||||
Credit loan loss reserve | 4,444 | 5,098 | 5,928 | 4,444 | 5,098 | ||||||||||
Other loan loss reserve—Fixed income portfolio | 121 | 125 | 253 | 121 | 125 | ||||||||||
Credit entities | 171 | 123 | 139 | 171 | 123 | ||||||||||
Total loan loss reserve | 4,736 | 5,346 | 6,320 | 4,736 | 5,346 | ||||||||||
Substandard loans net of reserves | (1,609 | ) | (1,815 | ) | (3,577 | ) | (1,609 | ) | (1,815 | ) | |||||
Non-performing loans as a percentage of total loans and leases | 1.74 | % | 2.37 | % | 1.75 | % | 1.74 | % | 2.37 | % | |||||
Non performing loans (net of reserves) as a percentage of total loans | (1.16 | )% | (1.11 | )% | (2.04 | )% | (1.16 | )% | (1.11 | )% |
Our total substandard loans amounted to €2,492 million as of December 31, 2006, compared to €2,346 million as of December 31, 2005, compared to €2,202 million as of December 31, 2004, principally due to the consolidationinfluence of the companies acquired during 2005,growth in lending and the effect of the appreciation of Latin American currencies with respect to the euro.period loan writedowns. As a result of the increase in loan loss reserves described above under “—Loan Loss Reserve” and the small increase in total substandard loans described above, our substandard loans as a percentage of total loans and receivables decreasedincreased from 1.10%0.92% to 0.92%0.95% and our loan loss reserves as a percentage of substandard loans increased from 209.90%238.15% to 238.15%257.55%, in each case as of December 31, 20042005 and December 31, 2005,2006, respectively.
We experience higher substandard loans in our Latin American operations, as a percentage of total loans, than in our Spanish operations and actively monitor the higher risk profile of the loan portfolios of our Latin American operations.
As of December 31, 2005,2006, we do not believe that there is a material amount of loans not included in the foregoing table where known information about possible credit problems of the borrowers gives rise to serious doubts as to the ability of the borrowers to comply with the currently applicable loan repayment terms.
The following table provides information, by domicile and type of customer, regarding our substandard loans and the loan loss reserves taken for each substandard loan category, as of December 31, 2005.
EU-IFRS2006.
Substandard Loans | Loan Loss Reserve | Substandard Loans as a percentage of Loans in Category | Substandard Loans | Loan Loss Reserve | Substandard Loans as a percentage of Loans in Category | |||||||||
(in millions of euro) | (in millions of euros) | |||||||||||||
Domestic: | ||||||||||||||
Government | 33 | 66 | 0.21 | % | 127 | 66 | 0.80 | % | ||||||
Agricultural | 10 | 7 | 0.65 | % | 18 | 10 | 0.97 | % | ||||||
Industrial | 84 | 53 | 0.57 | % | 120 | 74 | 0.75 | % | ||||||
Real estate and construction | 120 | 78 | 0.48 | % | 151 | 85 | 0.45 | % | ||||||
Commercial and financial | 119 | 85 | 1.01 | % | 129 | 85 | 0.85 | % | ||||||
Loans to individuals | 410 | 200 | 0.60 | % | 511 | 225 | 0.65 | % | ||||||
Other | 73 | 53 | 0.40 | % | 23 | 35 | 0.10 | % | ||||||
Total domestic | 849 | 542 | 0.55 | % | 1,080 | 581 | 0.59 | % | ||||||
Foreign: | ||||||||||||||
Country risk | 20 | 88 | ||||||||||||
Other | 1,477 | 1,404 | ||||||||||||
Total foreign | 1,497 | 1,492 | 2.28 | % | 1,411 | 1,350 | 1.78 | % | ||||||
General reserve | 3,553 | 4,487 | ||||||||||||
Total substandard loans | 2,346 | 5,587 | 1.06 | % | 2,492 | 6,417 | 0.95 | % | ||||||
Foreign Country Outstandings
The following tables sets forth, as of the end of the years indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 1% of our total assets atas of December 31, 2006, as of December 31, 2005
and atas of December 31, 2004. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are
funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our Latin American subsidiaries.
EU-IFRS
At December 31, | ||||||||||
2005 | 2004 | |||||||||
Amount | % of Total Assets | Amount | % of Total Assets | |||||||
(in millions of euro, except percentages) | ||||||||||
O.E.C.D. | ||||||||||
United Kingdom | 5,497 | 1.40 | % | 2,326 | 0.71 | % | ||||
Mexico | 5,961 | 1.52 | % | 5,892 | 1.79 | % | ||||
Other O.E.C.D. | 5,239 | 1.34 | % | 4,313 | 1.31 | % | ||||
Total O.E.C.D. | 16,697 | 4.26 | % | 12,531 | 3.80 | % | ||||
Central and South America | 3,747 | 0.95 | % | 3,005 | 0.91 | % | ||||
Other | 1,785 | 0.45 | % | 1,208 | 0.37 | % | ||||
Total | 22,229 | 5.67 | % | 16,744 | 5.08 | % | ||||
Spanish GAAP
At December 31, | |||||
2003 | |||||
Amount | % of Total Assets | ||||
(in millions of euro, except percentages) | |||||
O.E.C.D. | |||||
United Kingdom | 3,532 | 1.23 | % | ||
Mexico | 6,682 | 2.33 | % | ||
Other O.E.C.D. | 4,335 | 1.51 | % | ||
Total O.E.C.D. | 14,549 | 5.07 | % | ||
Central and South America | 3,595 | 1.25 | % | ||
Other | 1,265 | 0.44 | % | ||
Total | 19,409 | 6.76 | % | ||
OECD United Kingdom Mexico Other OCDE Total OCDE Central and South America Other OCDE Total At December 31, 2006 2005 2004 Amount % of Total
Assets Amount % of Total
Assets Amount % of Total
Assets (in millions of euros, except percentages) 5,612 1.36 5,497 1.4 2,326 0.71 2,337 0.57 5,961 1.52 5,892 1.79 5,460 1.33 5,239 1.34 43,313 1.31 13,409 3.26 16,697 4.26 12,531 3.8 2,725 0.66 3,747 0.95 3,005 0.91 3,460 0.84 1,785 0.45 1,208 0.37 19,594 4.76 22,229 5.67 16,744 5.08
The following tables setsset forth the amounts of our cross-border outstandings as of December 31 of each year indicated by type of borrower where outstandings in the borrower’s country exceeded 1% of our total assets.
EU-IFRS
Governments | Banks and Other Financial Institutions | Commercial, Industrial and Other | Total | |||||
(in millions of euro) | ||||||||
2005 | ||||||||
Mexico | 2,650 | 739 | 2,572 | 5,961 | ||||
United Kingdom | — | 3,701 | 1,796 | 5,497 | ||||
Total | 2,650 | 4,440 | 4,368 | 11,458 | ||||
2004 | ||||||||
Mexico | 2,494 | 892 | 2,507 | 5,892 | ||||
United Kingdom | — | 1,360 | 966 | 2,326 | ||||
Total | 2,494 | 2,252 | 3,473 | 8,218 | ||||
Spanish GAAP
Governments | Banks and Other Financial Institutions | Commercial, Industrial and Other | Total | Governments | Banks and Other Financial Institutions | Commercial, Industrial and Other | Total | |||||||||
(in millions of euro) | (in millions of euros) | |||||||||||||||
2003 | ||||||||||||||||
2006 | ||||||||||||||||
Mexico | 3,662 | 702 | 2,318 | 6,682 | 4 | 108 | 2,225 | 2,337 | ||||||||
United Kingdom | — | 2,426 | 1,106 | 3,532 | — | 3,386 | 2,226 | 5,612 | ||||||||
Total | 3,662 | 3,128 | 3,424 | 10,214 | 4 | 3,494 | 4,451 | 7,949 | ||||||||
2005 | ||||||||||||||||
Mexico | 2,650 | 739 | 2,572 | 5,961 | ||||||||||||
United Kingdom | — | 3,701 | 1,796 | 5,497 | ||||||||||||
Total | 2,650 | 4,440 | 4,368 | 11,458 | ||||||||||||
2004 | ||||||||||||||||
Mexico | 2,494 | 892 | 2,507 | 5,892 | ||||||||||||
United Kingdom | — | 1,360 | 966 | 2,326 | ||||||||||||
Total | 2,494 | 2,252 | 3,473 | 8,218 | ||||||||||||
The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.
The following table shows the minimum required reserves with respect to each category of country. Forcountry for BBVA’s level of coverage as of December 31, 2005.2006.
Categories(1) | Minimum Percentage of Coverage (Outstandings Within Category) | |
Countries belonging to the OECD whose currencies are quoted in the Spanish foreign exchange market | 0.0 | |
Countries with transitory difficulties(2) | 10.1 | |
Doubtful countries(2) | 22.8 | |
Very doubtful countries(2)(3) | 83.5 | |
Bankrupt countries(4) | 100.0 |
(1) | Any outstanding which is guaranteed may be treated, for the purposes of the foregoing, as if it were an obligation of the guarantor. |
(2) | Coverage for the aggregate of these three categories (doubtful countries, very doubtful countries, and bankrupt countries) must equal at least 35% of outstanding loans within the three categories. The Bank of Spain has recommended up to 50% aggregate coverage. |
(3) | Outstandings to very doubtful countries are treated as substandard under Bank of Spain regulations. |
(4) | Outstandings to bankrupt countries must be charged off immediately. As a result, no such outstandings are reflected on our consolidated balance sheet. Notwithstanding the foregoing minimum required reserves, certain interbank outstandings with an original maturity of three months or less have minimum required reserves of 50%. We met or exceeded the minimum percentage of required coverage with respect to each of the foregoing categories. |
Our exposure to borrowers in countries with difficulties (the last 4 categories in the foregoing table), excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to €927€951 million, €378€690 million and €690€378 million as of December 31, 2003,2006, 2005 and 2004, and 2005, respectively. These figures do not reflect loan loss reserves of 66.2%12.01%, 30.0%11.9% and 11.9%30.0%, respectively, against the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of December 31, 20052006 did not in the aggregate exceed 0.18%0.23% of our total assets.
The country-risk exposures described in the preceding paragraph as of December 31, 2006, 2005 2004 and 20032004 do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, nontransfer, nonconvertibility and, if appropriate, war and political violence. The sums insured as of December 31, 2006, 2005 2004 and 2003,2004 amounted to $59 million, $108 million $153 million and $466$153 million, respectively (approximately €45 million, €91 million €113 million and €369€113 million, respectively, based on a euro/dollar exchange rate on December 31, 2006 of $1.00 = €0.76, on December 31, 2005 of $1.00 = €0.85 and on December 31, 2004 of $1.00=€0.73 and on December 31, 2003 of $1.00 = €0.79)0.73).
LIABILITIES
Deposits
The principal components of our customer deposits are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits by principal geographic area for the dates indicated.
EU-IFRS
At December 31, 2006 | ||||||||
Customer Deposits | Bank of Spain and Banks | Other Credit | Total | |||||
(in thousands of euros) | ||||||||
Total domestic | 100,789,281 | 12,190,360 | 12,404,658 | 125,384,299 | ||||
Foreign: | ||||||||
Western Europe | 11,340,441 | 1,175,717 | 12,988,690 | 25,504,848 | ||||
Latin America | 60,851,441 | 678,763 | 9,321,829 | 70,852,033 | ||||
United States | 14,023,901 | 993,113 | 3,559,340 | 18,576,354 | ||||
Other | 4,072,812 | 153,165 | 4,011,188 | 8,237,165 | ||||
Total foreign | 90,288,595 | 3,000,757 | 29,881,047 | 123,170,399 | ||||
Total | 191,077,876 | 15,191,117 | 42,285,705 | 248,554,698 | ||||
At December 31, 2005 | ||||||||
Customer Deposits | Bank of Spain and Banks | Other Credit | Total | |||||
(in thousands of euros) | ||||||||
Total domestic | 62,471,990 | 19,652,319 | 8,487,493 | 90,611,802 | ||||
Foreign: | ||||||||
Western Europe | 42,986,820 | — | 15,615,660 | 58,602,480 | ||||
Latin America | 58,155,217 | 1,512,672 | 7,750,921 | �� | 67,418,810 | |||
United States | 11,867,934 | 2,368 | 5,388,919 | 17,259,221 | ||||
Other | 5,901,750 | — | 7,725,480 | 13,627,230 | ||||
Total foreign | 118,911,721 | 1,515,040 | 36,480,980 | 156,907,741 | ||||
Total | 181,383,711 | 21,167,359 | 44,968,473 | 247,519,543 | ||||
At December 31, 2004 | ||||||||
Customer Deposits | Bank of Spain and Banks | Other Credit | Total | |||||
(in thousands of euros) | ||||||||
Total domestic | 77,221,614 | 17,907,860 | 13,012,661 | 108,142,135 | ||||
Foreign: | ||||||||
Western Europe | 11,937,071 | — | 16,882,647 | 28,819,718 | ||||
Latin America | 46,054,545 | 2,228,168 | 7,135,061 | 55,417,774 | ||||
United States | 7,852,097 | — | 775,779 | 8,627,876 | ||||
Other | 5,175,346 | — | 5,853,690 | 11,029,036 | ||||
Total foreign | 71,019,059 | 2,228,168 | 30,647,177 | 103,894,404 | ||||
Total | 148,240,673 | 20,136,028 | 43,659,838 | 212,036,539 | ||||
At December 31, 2005 | ||||||||
Customer Deposits | Bank of Spain and Banks | Other Credit | Total | |||||
(in millions of euro) | ||||||||
Domestic | 62,471,990 | 19,652,319 | 8,487,493 | 90,611,802 | ||||
Foreign: | ||||||||
Western Europe | 43,018,989 | — | 15,615,660 | 58,634,649 | ||||
Latin America | 11,871,560 | 1,512,672 | 7,750,921 | 21,135,153 | ||||
United States | 58,172,985 | 2,368 | 5,388,919 | 63,564,272 | ||||
Other | 5,903,602 | — | 7,725,480 | 13,629,082 | ||||
Total foreign | 118,967,136 | 1,515,040 | 36,480,980 | 156,963,156 | ||||
Total | 181,439,126 | 21,167,359 | 44,968,473 | 247,574,958 | ||||
At December 31, 2004 | ||||||||
Customer Deposits | Bank of Spain and Other Central | Other Credit | Total | |||||
(in millions of euro) | ||||||||
Domestic | 77,221,614 | 17,907,860 | 13,012,661 | 108,142,135 | ||||
Foreign: | ||||||||
Western Europe | 11,937,071 | — | 16,882,647 | 28,819,718 | ||||
Latin America | 46,054,545 | 2,228,168 | 7,135,061 | 55,417,774 | ||||
United States | 7,852,097 | — | 775,779 | 8,627,876 | ||||
Other | 5,175,346 | — | 5,853,690 | 11,029,036 | ||||
Total foreign | 71,019,059 | 2,228,168 | 30,647,177 | 103,894,404 | ||||
Total | 148,240,673 | 20,136,028 | 43,659,838 | 212,036,539 | ||||
Spanish GAAP
At December 31, 2003 | ||||||||
Customer Deposits | Bank of Spain and Other Central Banks | Other Credit Institutions | Total | |||||
(in millions of euro) | ||||||||
Domestic | 74,032 | 18,374 | 14,863 | 107,269 | ||||
Foreign: | ||||||||
Western Europe | 10,914 | — | 11,078 | 21,992 | ||||
Latin America | 44,674 | 2,550 | 9,175 | 56,399 | ||||
United States | 3,381 | — | 1,687 | 5,068 | ||||
Other | 8,048 | — | 3,842 | 11,890 | ||||
Total foreign | 67,017 | 2,550 | 25,782 | 95,349 | ||||
Total | 141,049 | 20,924 | 40,645 | 202,618 | ||||
For an analysis of our deposits, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 26 to the Consolidated Financial Statements.
As of December 31, 2005,2006, the maturity of our time deposits (excluding interbank deposits) in denominations of $100,000 (approximately €80,645€75,775 considering the noon buying rate as of December 31, 2005)2006) or greater was as follows:
At December 31, 2005 | At December 31, 2006 | |||||||||||
Domestic | Foreign | Total | Domestic | Foreign | Total | |||||||
(in millions of euro) | (in millions of euros) | |||||||||||
3 months or Under | 7,038 | 36,779 | 43,817 | |||||||||
3 months or under | 17,756 | 24,397 | 42,153 | |||||||||
Over 3 to 6 months | 1,221 | 4,507 | 5,728 | 4,208 | 2,941 | 7,149 | ||||||
Over 6 to 12 months | 592 | 2,458 | 3,050 | 5,563 | 2,430 | 7,993 | ||||||
Over 12 months | 4,271 | 291 | 4,562 | 23,101 | 1,849 | 24,950 | ||||||
Total | 13,122 | 44,035 | 57,157 | 50,628 | 31,617 | 82,244 | ||||||
Time deposits from Spanish and foreign financial institutions amounted to €28.8€27.02 billion as of December 31, 2005,2006, substantially all of which were in excess of $100,000 (approximately €80,645€75,775 as of December 31, 2005)2006).
Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by currency of customer deposits as of December 31, 20052006 and 2004,2005, see Note 26 to the Consolidated Financial Statements.
Short-term Borrowings
Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity at December 31, 20042006 and 2005.
EU-IFRS
At December 31, | |||||||||||||||
2006 | 2005 | 2004 | |||||||||||||
Amount | Average rate | Amount | Average rate | Amount | Average rate | ||||||||||
(in millions of euro, except percentages) | |||||||||||||||
Securities sold under agreements to repurchase (principally Spanish Treasury bills): | |||||||||||||||
At December 31 | 37,098 | 4.27 | % | 48,254 | 3.54 | % | 38,529 | 3.36 | % | ||||||
Average during year | 38,721 | 3.61 | % | 38,467 | 3.52 | % | 43,488 | 3.44 | % | ||||||
Maximum quarter-end balance | 46,449 | — | 48,254 | — | 49,642 | — | |||||||||
Bank promissory notes: | |||||||||||||||
At December 31 | 7,596 | 3.75 | % | 7,569 | 2.58 | % | 6,255 | 2.20 | % | ||||||
Average during year | 8,212 | 3.16 | % | 6,894 | 2.34 | % | 5,675 | 2.08 | % | ||||||
Maximum quarter-end balance | 9,036 | — | 7,569 | — | 6,255 | — | |||||||||
Bonds and Subordinated debt: | |||||||||||||||
At December 31 | 7,756 | 4.01 | % | 14,273 | 3.54 | % | 7,082 | 2.81 | % | ||||||
Average during year | 8,076 | 3.74 | % | 10,324 | 3.61 | % | 7,628 | 2.39 | % | ||||||
Maximum quarter-end balance | 10,872 | — | 14,273 | — | 9,568 | — | |||||||||
Total short-term borrowings at December 31 | 52,450 | 4.16 | % | 70,096 | 3.44 | % | 51,866 | 3.14 | % |
At December 31, | ||||||||||
2005 | 2004 | |||||||||
Amount | Average Rate | Amount | Average Rate | |||||||
(in millions of euro, except percentages) | ||||||||||
Securities sold under agreements to repurchase | ||||||||||
At December 31 | 48,254 | 3.54 | % | 38,529 | 3.36 | % | ||||
Average during year | 38,467 | 3.52 | % | 43,488 | 3.44 | % | ||||
Maximum quarter-end balance | 48,254 | — | 49,642 | — | ||||||
Bonds, debentures outstanding and subordinated debt | ||||||||||
At December 31 | 14,273 | 3.54 | % | 7,082 | 2.81 | % | ||||
Average during year | 10,324 | 3.61 | % | 7,628 | 2.39 | % | ||||
Maximum quarter-end balance | 14,273 | — | 9,568 | — | ||||||
Bank promissory notes: | ||||||||||
At December 31 | 7,569 | 2.58 | % | 6,255 | 2.20 | % | ||||
Average during year | 6,894 | 2.34 | % | 5,675 | 2.08 | % | ||||
Maximum quarter-end balance | 7,569 | — | 6,255 | — | ||||||
Total short-term borrowings at December 31 | 70,096 | 3.44 | % | 51,866 | 3.14 | % |
Spanish GAAP
At December 31, | |||||
2003 | |||||
Amount | Average Rate | ||||
(in millions of euro, except percentages) | |||||
Securities sold under agreements to repurchase (principally Spanish Treasury bills): | |||||
At December 31 | 38,483 | 2.81 | % | ||
Average during year | 36,759 | 3.52 | % | ||
Maximum quarter-end balance | 38,483 | — | |||
Bonds, debentures outstanding and subordinated debt | |||||
At December 31 | 8,173 | 3.00 | % | ||
Average during year | 7,829 | 3.09 | % | ||
Maximum quarter-end balance | 10,764 | — | |||
Bank promissory notes: | |||||
At December 31 | 6,087 | 2.11 | % | ||
Average during year | 4,666 | 2.13 | % | ||
Maximum quarter-end balance | 6,219 | — | |||
Total short-term borrowings at December 31 | 52,743 | 2.76 | % |
Return on Equity
The following table sets out our return on equity ratios:
EU-IFRS
As of or for the year ended December 31, | ||||
2005 | 2004 | |||
ROE (income attributed to the group/average equity) | 37.0 | 33.2 | ||
ROA (income before minority interests/average total assets) | 1.12 | 0.97 | ||
RORWA (income before minority interests/risk weighted assets) | 1.91 | 1.62 | ||
Dividend pay-out ratio | 47.3 | 53.4 | ||
Equity to assets ratio | 3.32 | 3.32 |
Spanish GAAP
As of or for the year ended December 31, | ||||||
2006 | 2005 | 2004 | ||||
ROE (income attributed to the Group/average equity) | 37.6 | 37.0 | 33.2 | |||
ROA (income before minority interests/average total assets) | 1.26 | 1.12 | 0.97 | |||
RORWA (income before minority interests/risk weighted assets) | 2.12 | 1.91 | 1.62 | |||
Dividend pay-out ratio | 46.9 | 47.3 | 53.4 | |||
Equity to assets ratio | 4.42 | 3.32 | 3.32 |
The commercial banking sector in Spain has undergone significant consolidation. In the majority of the markets where we provide financial services, Santander Central Hispano is our strongest competitor.
We face strong competition in all of our principal areas of operation. The deregulation of interest rates on deposits in the past decade has led to increased competition for large demand deposits in Spain and the widespread promotion of interest-bearing demand deposit accounts and mutual funds. The capturing of customer funds in Spain had been characterized for several years by a large shift of deposits into mutual funds. However, in recent years both typeslast year we experienced a reverse shift of assets have recorded substantial growth.mutual funds into deposits. In 2004,2005, mutual fund assets under management grew by 12.0% and in 20052006 by 12,9%3.5%. The trend in deposits has been favorable and deposits in the banking sector increased by 14.3%27.2% and 26.8%24.6% in 20042005 and 2005,in 2006, respectively.
Spanish savings banks and money market mutual funds provide strong competition for savings deposits, which form an important part of our deposit base, and, in the case of savings banks, for other retail banking services. Credit cooperatives, which are active principally in rural areas, where they provide savings bank and loan services and related services such as the financing of agricultural machinery and supplies, are also a source of competition.
The entry of on-line banks into the Spanish banking system has increased competition, mainly in customer funds businesses such as deposits and especially in saving and time deposits. Insurance companies and other financial services firms also compete for customer funds. Like the commercial banks, savings banks, insurance companies and other financial services firms are expanding the services offered to consumers in Spain. We face competition in mortgage loans from saving banks and, to a lesser extent, cooperatives.
The EU Directive on Investment Services took effect on December 31, 1995. The EU Directive permits all brokerage houses authorized to operate in other member states of the EU to carry out investment services in Spain. Although the EU Directive is not specifically addressed to banks, it affects the activities of banks operating in Spain.
Foreign banks also have a strong presence in Spain. As of December 31, 2005,2006, approximately 8590 foreign banks, of which 6570 were branches, operated in Spain and several foreign banks have acquired small and medium-sized Spanish banks.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
Not applicable.As part of a periodic review of our 2005 20-F by the Division of Corporation Finance of the SEC, we received on December 29, 2006 a comment letter from the SEC staff (the “Staff”). We have cooperated fully with the Staff in connection with their review in order to resolve all outstanding comments and provided our responses to the Staff on February 26, 2007. As of the date of filing this Annual Report, these comments remain unresolved.
The SEC Staff’s comments focused principally on:
1. | The presentation of certain performance subtotals in the face of the income statement and the extent of disclosures we made in our 2005 consolidated financial statements prepared under EU-IFRS. Our response to the Staff indicated that our income statement format followed the prescribed mandatory formats issued by the Bank of Spain in connection with the adoption of EU-IFRS in Spain, and also required by the CNMV, in their respective capacities as entities responsible for enforcing the application of EU-IFRS in Spain for Spanish credit institutions. |
2. | Requests for additional explanations of our accounting policies under EU-IFRS, the first time adoption of EU-IFRS and the reconciliation of items from EU-IFRS to U.S. GAAP. We advised the Staff in our response of certain clarifications and expanded disclosures we made in our 2006 IFRS financial statements in response to the Staff’s comments and such disclosures are included in our Consolidated Financial Statements. |
3. | Requests for explanations with respect to certain items included in the reconciliation from EU-IFRS to U.S. GAAP, the most significant of which relates to the use of different methodologies in computing our unallocated loan loss provisions under EU-IFRS and U.S. GAAP, as well as the recognition of the resulting measurement difference in the reconciliation to U.S. GAAP. We advised the Staff that until our internal models are reviewed and approved by the Bank of Spain, we are required by Bank of Spain Circular 4/2004 on EU-IFRS application to follow the methodology developed by the Bank of Spain based on historical statistical data relating to the entire Spanish financial system. However, we advised the Staff that, consistent with our past practice, we have continued to use our internal models for U.S. GAAP purposes as we believe that it would not be appropriate to change our methodology for U.S. GAAP under these circumstances as we believe our internal models provide the best estimate of our inherent loan loss provision. (See page F-120 for additional information on this specific item.) |
We believe that our accounting and disclosure of these transactions was and remains in conformity with International Financial Reporting Standards adopted by the European Union and with generally accepted accounting principles in the United States.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Overview
2005 witnessed the continued expansion of theWith world economy which, with growth of over 4%at approximately 5% in terms of global GDP (according to our internal estimates), notably withstood2006 became an extension of the pressure exertedeconomic boom that started in 2003. Despite the risks (oil prices, adjustments in
asset prices such as the U.S. housing market, increased disparity of trade balances, etc), the world’s economy continued expansion was supported by rising oil prices. As economictechnical innovation and the emerging economies. This facilitated substantial growth gathered momentum and low inflation risk rose,and generated a considerable increase in world trade. With long-term interest rates at relatively low levels and buoyant company earnings, share prices enjoyed an excellent year and recovered levels not seen since the recession in 2001.
In the U.S., with the economy slowing gradually in the second quarter, the U.S. Federal Reserve gradually increased its official interest rates from 1% in June 2004 to 4.25% at year-end 2005, in spite of which long-term interest rates remained very low (on average, in 2005,Board halted the 10 year rate was the same as in 2004), resulting in a flattening of the rate curve.
On December 1, 2005, the European Central Bank signaled an imminent riseupward cycle in interest rates when it set its official rate at 2.25%5.25% in June. From that moment, long-term rates started a decline that led to a negative slope on the yield curve. The 10-year U.S. bond fell below the U.S. Federal Reserve Board’s benchmark rate.
The EU enjoyed solid growth in 2006; as domestic demand recovered and exceeded expectations. The Spanish economy benefited from these conditions and exceeded the forecasts made by the Group at the beginning of the year. Growth in terms of GDP (according to INE) in Spain was around 3.9%, following two-and-a-half yearshelped by a smaller gap between the positive contributions of domestic demand and the negative effect of the trade balance. As soon as the momentum in activity was confirmed, the ECB increased the pace at which it had stoodincreased interest rates bringing them to 3.5% at 2.00%year-end. This increase was reflected in short-term market rates (one-year Euribor moved up to 4% by year-end). Although this triggered an upswing in EuriborHowever, after gaining ground in the fourth quarterfirst half, long-term rates declined in the second half of 2005,2006 (although not as fast as the U.S. bond). This resulted in 2005, 10-year interest rates were lower, on average, than in 2004. In 2005,a flat yield curve at the European economy grew at a slower rate than in 2004. However, according to the Spanish National Institute of Statistics (Instituto Nacional de Estadística) the Spanish economy reported 3.4% growth, up
from 3.1% in 2004, fuelled by burgeoning domestic consumer demand and household and corporate investment; this growth figure also reflects the adverse contributionend of the foreign sector and rising inflation.year.
In Latin America, one of the regions benefiting from the international economic climate, achieved growth in 2005 of more than 4%2006 was also favorable. Growth was around 5% in terms of GDP (according to our own internal estimates). In what proved to be the third consecutive year of significant expansion, and the economic performance of this region was characterized by the fact that mostcycles of the Latin Americandifferent countries experienced economicwere largely in step. Country risk premiums fell in a context of institutional stability, capital flowed into the region and inflation moderated. The Mexican economy exceeded expectations with growth of 4.6% in 2005. The increaseterms of GDP (according to our own internal estimates) in raw materials prices, the appreciation of the nominal exchange rate of2006. This was supported by domestic demand and foreign trade as well as inflation, which was kept under control despite a slight rebound at year-end. As a result, the local central bank held rates steady at 7% after a series of declines that ended in April.
In 2006, the U.S. dollar depreciated against the euro, dragging most Latin-American currencies and the reduction in risk premiums allwith it. This had a favorablenegative effect on year-on-year comparisons on the Group’s balance sheet as of December 31, 2006. However, the impact on the region. Interestincome statement, which is determined by the variation in average exchange rates in Mexico, which peaked in Maybetween 2005 began to fall back at the end of August of that year; this, combined with the appreciation of the Mexican peso against the U.S. dollar, helped to keep inflation at an all-time low.and 2006, is only slightly negative.
Critical Accounting Policies
The BBVA Group’s consolidated financial statementsConsolidated Financial Statements as of and for the years ended December 31, 20052006 and December 31, 20042005 were prepared by the Bank’s directors in accordance with EU-IFRS and by applying the basis of consolidation, accounting policies and measurement bases described in Note 2 to the Consolidated Financial Statements, so that they present fairly the Group’s equity and financial position at December 31, 20052006 and December 31, 2004,2005, and the results of its operations, the changes in consolidated equity and the consolidated cash flows in 20052006 and 2004.2005. These consolidated financial statementsConsolidated Financial Statements were prepared on the basis of the accounting records kept by the Bank and by each of the other Group companies and include the adjustments and reclassifications required to unify the accounting policies and measurement bases used by the Group (Note 2.2 to the Consolidated Financial Statements).
In preparing the consolidated financial statementsConsolidated Financial Statements estimates were occasionally made by the Group and the consolidated companies in order to quantify certain of the assets, liabilities, income, expenses and commitments reported herein. These estimates relate mainly to the following:
The impairment losses on certain assets.
The assumptions used in the actuarial calculation of the post-employment benefit liabilities and commitments.
The useful life of tangible and intangible assets.
The measurement of goodwill arising on consolidation.
The fair value of certain unquoted assets.
Although these estimates were made on the basis of the best information available at December 31, 20052006 on the events analyzed, events that take place in the future might make it necessary to change these estimates (upwards or downwards) in coming years.
The presentation format used and EU-IFRS applied vary in certain respects from the presentation format and accounting rules required to be applied under generally accepted accounting principles in the United States (“U.S. GAAP”)GAAP and other rules that are applicable to U.S. banks. The tables included in Note 5962 to our Consolidated Financial Statements give the effect that application of U.S. GAAP would have on income for the year and shareholders’stockholders’ equity as reported under EU-IFRS.
Note 2 to the Consolidated Financial Statements contains a summary of our significant accounting policies. We consider certain of these policies to be particularly important due to their effect on the financial reporting of our financial condition and because they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the Consolidated Financial Statements. The nature of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our Consolidated Financial Statements and the discussion below. We have identified the following accounting policies as critical to the understanding of our results of operations, since the application of these policies requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change.
Fair value of financial instruments
The fair value of an asset or a liability on a given date is taken to be the amount for which it could be bought or sold on that date by two knowledgeable, independent parties in an arm’s length transaction acting prudently. The most objective and common reference for the fair value of an asset or a liability is the price that would be paid for it on an organized, transparent and deep market (“quoted price”price” or “market price”“market price”).
If there is no market price for a given asset or liability, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, by using mathematical measurement models sufficiently tried and trusted by the international financial community. Such estimates would take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent to the
measurement models developed and the possible inaccuracies of the assumptions required by these models may signify that the fair value of an asset or liability thus estimated does not coincide exactly with the price for which the asset or liability could be purchased or sold on the date of its measurement.
Derivatives and other futures transactions
These instruments include unmatured foreign currency purchase and sale transactions, unmatured securities purchase and sale transactions, futures transactions relating to securities, exchange rates or interest rates, forward interest rate agreements, options relating to exchange rates, securities or interest rates and various types of financial swaps.
All derivatives are recognized in the balance sheet at fair value from the date of arrangement. If the fair value of a derivative is positive, it is recorded as an asset and if it is negative, it is recorded as a liability. Unless there is evidence to the contrary, it is understood that on the date of arrangement the fair value of the derivatives is equal to the transaction price. Changes in the fair value of derivatives after the date of arrangement are recognized with a balancing entry under the heading Gains or Losses on Financial Assets and Liabilities in the consolidated income statement. Specifically, the fair value of the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price, If, under exceptional circumstances, their quoted price cannot be established on a given date, these derivatives are measured using methods similar to those used to measure over-the-counter (“OTC”OTC”) derivatives.
The fair value of OTC derivatives is equal to the sum of the future cash flows arising from the instrument, discounted at the measurement date (“present value” or “theoretical close”); these derivatives are measured using methods recognized by the financial markets, including the net present value (NPV)(“NPV”) method and option price calculation models.
Financial derivatives that have as their underlying equity instruments, whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments, are measured at cost.
Goodwill in consolidation
The positive differences between the cost of business combinations and the acquired percentage of the net fair value of the assets, liabilities and contingent liabilities of the acquirees are recorded as goodwill on the asset side of the balance sheet. Goodwill represents the future economic benefits from assets that cannot be individually identified and separately recognized. Goodwill is not amortized but is submitted to impairment analysis. Any impaired goodwill is written off.
Goodwill is allocated to one or more cash-generating units expected to benefit from the synergies arising from business combinations. The cash-generating units represent the Group’s business and/or geographical segments as managed internally by its directors.
The cash-generating units to which goodwill has been allocated are tested for impairment based on the carrying amount of the unit including the allocated goodwill. Such testing is performed at least annually and whenever there is an indication of impairment.
For the purpose of determining the impairment of a cash-generating unit to which goodwill has been allocated, the carrying amount of that unit, adjusted by the theoretical amount of the goodwill attributable to the minority interest, shall be compared with its recoverable amount. The resulting loss shall be apportioned by reducing, firstly, the carrying amount of the goodwill allocated to that unit and, secondly, if there are still impairment losses remaining to be recognized, the carrying amount of the rest of the assets. This shall be done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the unit. It will be taken into account that no impairment of goodwill attributable to the minority interest may be recognized, In any case, impairment losses on goodwill can never be reversed.
Pension commitments and other commitments to employees
Pension and post-retirement benefit costs and credits are based on actuarial calculations. Inherent in these calculations are assumptions including discount rates, rate of salary increase and expected return on plan assets. Changes in pension and post-retirement costs may occur in the future as a consequence of changes in interest rates, expected return on assets or other assumptions. See Note 2.2.f)2.2.e and Note 29 to the Consolidated Financial Statements, which contains a summary of our significant accounting policies and the actuarial Assumptions used.policies.
Allowance for loan losses
Our loan loss reserve is intended to cover losses in connection with substandard loans (including risks and other losses relating to certain performing loans and operations). As we describe in Note 2.2.c.4)2.2.b.4 to the Consolidated Financial Statements, a loan is considered to be an impaired or substandard loan—and therefore its carrying amount is adjusted to reflect the effect of its impairment—when there is objective evidence that events have occurred which, in the case of loans, give rise to a negative impact on the future cash flows that were estimated at the time the transaction was arranged.
As a general rule, the carrying amount of an impaired loan is adjusted with a charge to the consolidated income statement for the year in which the impairment becomes known, and the recoveries of previously recognized impairment losses are recognized in the consolidated income statement for the year in which the impairment is reversed or reduced.
The amount of the impairment losses incurred on these instruments relates to the positive difference between their respective carrying amounts and the present values of their expected future cash flows. The following is to be taken into consideration when estimating the future cash flows:
all the amounts that are expected to be obtained over the residual life of the instrument, including, where appropriate, those which may result from the guarantees provided for the instrument (after deducting the costs required for foreclosure and subsequent sale);
the various types of risk to which each instrument is subject; and
the circumstances in which collections will foreseeably be made.
These cash flows are subsequently discounted using the instrument’s effective interest rate (if its contractual rate is fixed) or the effective contractual interest rate at the discount date (if it is variable).
The possible impairment losses on these assets are determined:
individually, for all significant loans and for those which, although not significant, cannot be classified in homogenous groups of instruments of similar characteristics, i.e., by instrument type, debtor’s industry and geographical location, type of guarantee, age of past-due amounts, etc.; or
collectively, in all other cases.
Criteria for determining impairment losses resulting from materialization of the insolvency risk of the obligors have been established. Under these criteria, a loan is impaired due to insolvency:
when there is evidence of a deterioration of the obligor’s ability to pay, either because it is in arrears or for other reasons,reasons; and/or
when country risk materializes; country risk is considered to be the risk associated with debtors resident in a given country due to circumstances other than normal commercial risk.
Similarly, different classifications of transactions have been established on the basis of the nature of the obligors, the conditions of the countries in which they reside, transaction status, type of associated guarantees, and time in arrears. For each of these risk groups minimum impairment losses (“identified losses”losses”) that must be recognized in the financial statements of consolidated entities are established by BBVA.
In addition to the recognition of identified losses, provisioning, for the losses inherent in loans not measured at fair value through profit or loss and in contingent risks classified as standard is recognized taking into account the historical experience of impairment and the other circumstances known at the time of the assessment. For these purposes, inherent losses are the losses incurred at the date of the financial statements, calculated using statistical procedures, that have not been allocated to specific transactions.
The Group has implemented a methodology which complies with IFRSEU-IFRS and is consistent with by the Bank of Spain requirements related to the determination of the level of provisions required to cover inherent losses. The aforementioned methodology takes as the first step the classification of portfolios considered as normal risk (debt instruments not valued at their fair value with changes in the income statement, as with contingent risks and contingent commitments). Once the portfolios have been classified in the aforementioned groups, the Bank of Spain, based on its experience and the information available to it with respect to
the Spanish banking sector, has determined the method and amount of the parameters that entities should apply in the calculation of the provisions for inherent losses in debt instruments and contingent risks classified as normal risk.
The Group estimates the provisions to be made to create these allowances using models based on our own credit loss experience and management’s estimates of future credit losses. The Group has developed internal risk models, based on historical information available for each country and type of risk (homogenous portfolios). For a discussion of our credit risk management system, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk”. These models produce a range of results that comprises the level of provisions that we arrive at using the model established by the Bank of Spain as explained above. These internal models may be applied in future periods but are subject to local regulatory review (the Bank of Spain). In order for each internal model to be considered valid by the local regulator, the calculation should be methodologically correct, and be supported by historical information which covers at least one complete economic cycle and stored in databases which are consistent with information that has been audited by both the Group’s internal audit function and external auditors.function.
The development of the internal model has led to the introduction of databases that can be used to accurately estimate the risk parameters required in the calculation of capital and expected loss, following best practices in the market and the guidelines of the New Capital Accord (Basel II).
Although there should be no substantial difference in the calculation of loan allowances between IFRSEU-IFRS and U.S. GAAP, the Bank has included in the reconciliation of stockholders’ equity and net income a difference between IFRSEU-IFRS and U.S. GAAP related to the determination of allowance losses not allocated to specific loans. According to U.S. GAAP, the loan loss allowance should represent the best estimate of probable losses in possible scenarios. Under IFRS,EU-IFRS, the Bank has additionally applied the statistical percentages obtained from historical trends as determined by the Bank of Spain’s guidance. As a result, the loan allowances not allocated to specific loans, as determined by using this method, are higher than those meeting the requirements of U.S. GAAP, being the amounts determined under both generally accepted accounting principles within the range of possible estimated losses calculated internally by the Group.
The estimates of the portfolio’s inherent risks and overall recovery vary with changes in the economy, individual industries, countries and individual borrowers’ or counterparties’ ability and willingness to repay their obligations. The degree to which any particular assumption affects the allowance for credit losses depends on the severity of the change and its relationship to the other assumptions.
Key judgments used in determining the allowance for loan losses include: (i) risk ratings for pools of commercial loans and leases; (ii) market and collateral values and discount rates for individually evaluated loans; (iii) product type classifications for consumer and commercial loans and leases; (iv) loss rates used for consumer and commercial loans and leases; (v) adjustments made to assess current events and conditions; (vi) considerations regarding domestic, global and individual countries economic uncertainty; and (vii) overall credit conditions.
A. | Operating Results |
Factors Affecting the Comparability of our Results of Operations and Financial Condition
We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas certain of our subsidiaries keep their accounts in other currencies, principally Mexican pesos, Argentine pesos, Chilean pesos, and Colombian pesos, Venezuelan bolivars, Peruvian nuevos soles and U.S. dollars. For example, if Latin American currencies and the U.S. dollar depreciate against the euro, when the results of operations of our Latin American subsidiaries are included in our Consolidated Financial Statements, the euro value of their results declines, even if, in local currency terms, their results of operations and financial condition have remained the same or improved relative to the prior year. Accordingly, declining exchange rates may limit the ability of our results of operations, stated in euro, to fully describe the performance in local currency terms of our Latin American subsidiaries. By contrast, the appreciation of Latin American currencies and the U.S. dollar against the euro would have a positive impact on the results of operations of our Latin American subsidiaries, when their results of operations are included in our Consolidated Financial Statements.
The assets and liabilities of our subsidiaries which keep their accounts in currencies other than the euro have been translated to euro at the period-end exchange rates for inclusion in our Consolidated Financial Statements. Income statement items have been translated at the average exchange rates for the period. The following table sets forth the exchange rates of several Latin American currencies and the U.S. dollar against the euro, expressed in local currency per €1.00 at December 31, 2006, 2005 and 2004, respectively, according to the European Central Bank.
As of December 31, | Change | |||||||||||||||||
As of December 31, | Change | 2006 | 2005 | 2004 | 2006/2005 | 2005/2004 | ||||||||||||
2005 | 2004 | 2005/2004 | (in percentages) | |||||||||||||||
Mexican peso | 12.6357 | 15.1823 | 16.8 | % | 14.3230 | 12.6357 | 15.1823 | (13.4 | ) | 20.2 | ||||||||
Venezuelan bolivar | 2,531.65 | 2,610.97 | 3.0 | % | 2,824.86 | 2,531.65 | 2,610.97 | (11.6 | ) | 3.1 | ||||||||
Colombian peso | 2,695.42 | 3,205.13 | 15.9 | % | 2,941.18 | 2,695.42 | 3,205.13 | (9.1 | ) | 18.9 | ||||||||
Chilean peso | 606.80 | 759.30 | 20.1 | % | 703.73 | 606.80 | 759.30 | (16.0 | ) | 25.1 | ||||||||
Peruvian new sol | 4.0434 | 4.4745 | 9.6 | % | 4.2098 | 4.0434 | 4.4745 | (4.1 | ) | 10.7 | ||||||||
Argentinean peso | 3.5907 | 4.0488 | 11.3 | % | 4.0679 | 3.5907 | 4.0488 | (13.3 | ) | 12.8 | ||||||||
U.S. dollar | 1.1797 | 1.3621 | 13.4 | % | 1.3170 | 1.1797 | 1.3621 | (11.6 | ) | 15.5 |
As shown in the table above, in 2005,2006, the main Latin American currencies and the U.S. dollar appreciateddepreciated against the euro, which had a positivenegative impact on our results of operations for 20052006 compared to 20042005 and therefore affects the comparability of our historical results of operations for these two years.
For information on the extent to which foreign currency net investments are hedged, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.
BBVA Group Results of Operations for 2006 Compared with 2005
The changes in the Group’s consolidated income statements for 2006 and 2005 were as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Consolidated Statement of Income | |||||||||
Interest and similar income | 19,210 | 15,848 | 21.2 | ||||||
Interest expense and similar charges | (11,216 | ) | (8,932 | ) | 25.6 | ||||
Income from equity instruments | 379 | 292 | 29.7 | ||||||
Net interest income | 8,374 | 7,208 | 16.2 | ||||||
Share of profit or loss of entities accounted for using the equity method | 308 | 121 | 153.2 | ||||||
Fee and commission income | 5,119 | 4,669 | 9.6 | ||||||
Fee and commission expenses | (784 | ) | (729 | ) | 7.5 | ||||
Insurance activity income | 650 | 487 | 33.6 | ||||||
Gains/(losses) on financial assets and liabilities (net) | 1,656 | 980 | 68.9 | ||||||
Exchange differences (net) | 378 | 287 | 31.6 | ||||||
Gross income | 15,701 | 13,023 | 20.6 | ||||||
Sales and income from the provision of non-financial services | 605 | 576 | 5.0 | ||||||
Cost of sales | (474 | ) | (451 | ) | 5.2 | ||||
Other operating income | 117 | 135 | (13.0 | ) | |||||
Personnel expenses | (3,989 | ) | (3,602 | ) | 10.7 | ||||
Other administrative expenses | (2,342 | ) | (2,160 | ) | 8.4 | ||||
Depreciation and amortization | (472 | ) | (449 | ) | 5.2 | ||||
Other operating expenses | (263 | ) | (249 | ) | 5.6 | ||||
Net operating income | 8,883 | 6,823 | 30.2 | ||||||
Impairment losses (net) of which: | (1,504 | ) | (854 | ) | 76.0 | ||||
Loan loss provisions | (1,477 | ) | (813 | ) | 81.6 | ||||
Provision expense (net) | (1,338 | ) | (454 | ) | 194.6 | ||||
Finance income from non-financial activities | 58 | 2 | n.m. | (1) | |||||
Finance expenses from non-financial activities | (55 | ) | (2 | ) | n.m. | (1) | |||
Other gains | 1,129 | 285 | 296.3 | ||||||
Other losses | (142 | ) | (208 | ) | (31.9 | ) | |||
Income before tax | 7,031 | 5,591 | 25.7 | ||||||
Income tax | (2,059 | ) | (1,521 | ) | 35.4 | ||||
Income from continuing operations | 4,971 | 4,070 | 22.1 | ||||||
Income from discontinued operations (net) | — | — | — | ||||||
Consolidated income for the period | 4,971 | 4,070 | 22.1 | ||||||
Income attributed to minority interests | (235 | ) | (264 | ) | (11.0 | ) | |||
Income attributed to the Group | 4,736 | 3,806 | 24.4 | ||||||
(1) | Not meaningful |
Net Interest Income
The following table summarizes the principal components of net interest income for 2006 compared to 2005.
Year ended December 31, | Change | |||||||
2006 | 2005 | 2006/2005 | ||||||
(in millions of euros) | (in percentages) | |||||||
Interest and similar income | 19,210 | 15,848 | 21.2 | |||||
Interest expense and similar charges | (11,216 | ) | (8,932 | ) | 25.6 | |||
Income from equity instruments | 379 | 292 | 29.7 | |||||
Net interest income | 8,374 | 7,208 | 16.2 | |||||
Net interest income came to €8,374 million, an increase of 16.2% over the €7,208 million obtained in 2005. This increase was due to the growth in lending and customer funds in Latin America and Spain, as well as customer spreads.
Spreads in the Spanish private sector maintained an upward trend throughout the year. This is because increases in market rates, which are largely transferred to loan yields, increased at a faster pace than the cost of deposits.
In Mexico, in 2006 average TIIE (Tasa de Interés Interbancaria de Equilibrio – Interbank Interest Rate) was lower than in 2005. Despite this decline in interest rates, BBVA Bancomer improved customer spreads. These improvements in spreads and the increase in business volume, especially lending, boosted net interest income 33.7% year-on-year in pesos. The South America area also recorded strong growth in net interest income supported by the higher volume of lending and deposits.
Share of Profit or Loss of Entities Accounted for Using the Equity Method
Our share of profit from entities accounted for using the equity method was €308 million in 2006, compared to €121 million in 2005. The main contributor was Corporación IBV (€251 million), boosted by the sale of part of its investment in Gamesa, S.A. The sale of shares in BNL in May reduced its contribution to €25 million, compared to €73 million in 2005.
Net Fee and Commission Income
Fee and Commission Income
The breakdown of fee and commission income in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||
2006 | 2005 | 2006/2005 | |||||
(millions of euros) | (in percentages) | ||||||
Commitment fees | 56 | 50 | 11.6 | ||||
Contingent liabilities | 204 | 176 | 15.6 | ||||
Documentary credits | 33 | 31 | 6.8 | ||||
Bank and other guarantees | 171 | 145 | 17.4 | ||||
Arising from exchange of foreign currencies and banknotes | 20 | 18 | 12.6 | ||||
Collection and payment services | 2,274 | 2,019 | 12.7 | ||||
Securities services | 2,017 | 1,948 | 3.5 | ||||
Counseling on and management of one-off transactions | 14 | 16 | (12.3 | ) | |||
Financial and similar counseling services | 18 | 11 | 71.2 | ||||
Factoring transactions | 19 | 19 | 3.4 | ||||
Non-banking financial products sales | 79 | 40 | 96.5 | ||||
Other fees and commissions | 416 | 372 | 11.9 | ||||
Fee and commission income | 5,119 | 4,669 | 9.6 | ||||
Fee and commission income for 2006 amounted to €5,119 million, a 9.6% increase from €4,669 million in 2005, mainly due to a 12.7% increase in collection and payment services to €2,274 million in 2006 from €2,019 million in 2005, primarily due to an increase in business volume.
Fee and Commission Expenses
The breakdown of the fee and commission expenses in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Brokerage fees on lending and deposit transactions | (11 | ) | (13 | ) | (15.5 | ) | |||
Fees and commissions assigned to third parties | (560 | ) | (519 | ) | 7.9 | ||||
Other fees and commissions | (213 | ) | (197 | ) | 7.9 | ||||
Fee and commission expenses | (784 | ) | (729 | ) | 7.5 | ||||
Fee and commission expenses for 2006 amounted to €784 million, a 7.5% increase from €729 million in 2005, mainly due to a 7.9% increase in fees and commissions assigned to third parties to €560 million in 2006 from €519 million in 2005, primarily due to an increase in fees paid to intermediary service providers as a result of increased business volumes.
Net Fee and Commission Income
As a result of the foregoing, net fee and commission income for 2006 totaled €4,335 million, a 10.0% increase from €3,940 million in 2005.
Insurance Activity Income
Net insurance activity income for 2006 amounted to €650 million, a 33.6% increase from €487 million in 2005, relating mainly to growth in our insurance business in Spain and Portugal, as well as in South America.
Gains or Losses on Financial Assets and Liabilities (Net) – Exchange Differences (Net)
Gains on financial assets (net) amounted to €1,656 million in 2006, a 68.9% increase from €980 million in 2005. Exchange differences (net) amounted to €378 million, an increase of 31.6% from €287 million in 2005. The increase was mainly due to the Wholesale Businesses area (primarily market operations and the sale of derivatives to customers) and to South America (especially Argentina). Therefore, net trading income in 2006 contributed €2,034 million an increase of 60.5% from €1,267 million in 2005. Of this figure, €523 million were capital gains related to the sale of the Group’s interest in Repsol.
Gross Income
As a result of the foregoing, gross income amounted to €15,701 million in 2006, a 20.6% increase from €13,023 million in 2005.
Personnel Expenses
The breakdown of personnel expenses in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Wages and salaries | (3,012 | ) | (2,744 | ) | 9.8 | ||||
Social security costs | (504 | ) | (472 | ) | 6.8 | ||||
Transfers to internal pension provisions (Note 29) | (74 | ) | (69 | ) | 7.8 | ||||
Contributions to external pension funds (Note 29) | (53 | ) | (56 | ) | (5.7 | ) | |||
Other personnel expenses | (346 | ) | (262 | ) | 32.0 | ||||
Personnel expenses | (3,989 | ) | (3,602 | ) | 10.7 | ||||
Personnel expenses for 2006 amounted to €3,989 million, a 10.7% increase from €3,602 million in 2005, mainly due to a 9.8% increase in wages and salaries to €3,012 million in 2006 from €2,744 million in 2005 as a result of an increase in the average number of employees of the BBVA Group to 95,738 in 2006 from 90,744 in 2005. The increase in the number of employees in 2006 was due mainly to the addition of employees resulting from the acquisition of Texas Regional Bancshares in November 2006.
Other Administrative Expenses
The breakdown of other administrative expenses during in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Technology and systems | (496 | ) | (434 | ) | 14.1 | ||||
Communications | (218 | ) | (203 | ) | 7.5 | ||||
Advertising | (207 | ) | (212 | ) | (2.1 | ) | |||
Property, fixtures and materials | (451 | ) | (415 | ) | 8.5 | ||||
Taxes other than income tax | (203 | ) | (213 | ) | (4.9 | ) | |||
Other expenses | (768 | ) | (683 | ) | 12.4 | ||||
Other administrative expenses | (2,342 | ) | (2,160 | ) | 8.4 | ||||
Other administrative expenses amounted to €2,342 million in 2006, an 8.4% increase from €2,160 million in 2005. This increase was mainly due to technology and systems expenses, property, fixtures and materials expenses and other expenses.
We calculate our efficiency ratio as (i) the sum of gross income, sales and income from the provision of non-financial services and other operating income, divided by (ii) the sum of cost of sales, personnel expenses, other administrative expenses and other operating expenses. Our efficiency ratio was 40.9% in 2006 compared to 43.2% in 2005. Including depreciation and amortization expense, our efficiency ratio was 44.0% in 2006 compared to 46.7% in 2005.
Net Operating Income
Our net operating income for 2006 was €8,883 million, an increase of 30.2% from €6,823 million in 2005.
Impairment Losses (Net)
Impairment losses (net) was €1,504 million in 2006, an increase of 76.0% from 2005. This increase is mainly due to an increase of 81.6% in loan loss provisions (€1,477 million in 2006 compared to €813 million in 2005) which was attributable to a sharp rise in consumer lending (that required allocating €1,051 million to generic provisions compared to €646 million in 2005).
Provision Expense (Net)
Provision expense (net) was €1,338 million in 2006, an increase of 194.6% from €454 million in 2005, due to the higher charges for early retirements including a €777 million non-recurrent charge in the forth quarter for the early retirement program associated with the restructuring of the branch networks in Spain and those derived from the new organizational structure announced in December.
Other Gains and Losses (Net)
The breakdown of other gains and losses during in 2006 and 2005 is as follows:
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net gains on sales of held-to-maturity investments | 93 | 108 | (13.9 | ) | |||||
Net gains on sale of long-term investments | 934 | 40 | n.m. | (1) | |||||
Income from the provision of non-typical services | 4 | 4 | 9.4 | ||||||
Other income | 97 | 133 | (27.0 | ) | |||||
Other gains | 1,129 | 285 | 296.3 | % | |||||
Net losses on fixed assets disposals | (20 | ) | (22 | ) | (10.4 | ) | |||
Net losses on long-term investments due to write-downs | — | (12 | ) | n.m. | (1) | ||||
Other losses | (121 | ) | (174 | ) | (30.2 | ) | |||
Other Losses | (142 | ) | (208 | ) | (31.9 | ) | |||
Other gains (net) | 987 | 77 | n.m. | (1) | |||||
(1) | Not meaningful |
Other gains (net) were €987 million in 2006 compared to €77 million in 2005. In 2006, we sold our holdings in BNL (€568 million) and Andorra (€183 million) in 2006, whereas in 2005 there were no significant disposals.
Income Tax
Income tax expense was €2,059 million in 2006, an increase of 35.4% from €1,521 million in 2005. Our effective tax rate (income tax expense as a percentage of our income before tax) was 29.3% in 2006 compared to 27.2% in 2005, principally reflecting the change in the composition of our pre-tax income. A €457 million provision was made in 2006 due to new corporate tax rules in Spain that will reduce the effective rate in future years but which required the Group to write off its existing tax credits in 2006.
Income Attributed to Minority Interests
Income attributed to minority interests amounted to €235 million in 2006, a decrease of 11.0% from €264 million in 2005.
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group amounted to €4,736 million in 2006, a 24.4% increase from €3,806 million in 2005.
BBVA Group Results of Operations for 2005 Compared with 2004
The changes in the Group’s consolidated income statements for 2005 and 2004 were as follows:
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euro) | (in percentages) | ||||||||
Consolidated Statement of Income | |||||||||
Interest and similar income | 15,848 | 12,352 | 28.3 | ||||||
Interest expense and similar charges | (8,932 | ) | (6,447 | ) | 38.5 | ||||
Income from equity instruments | 292 | 255 | 14.6 | ||||||
Net interest income | 7,208 | 6,160 | 17.0 | ||||||
Share of profit or loss of entities accounted for using the equity method | 122 | 97 | 25.2 | ||||||
Fee and commission income | 4,669 | 4,057 | 15.1 | ||||||
Fee and commission expenses | (729 | ) | (644 | ) | 13.2 | ||||
Insurance activity income | 487 | 391 | 24.7 | ||||||
Gains/(losses) on financial assets and liabilities (net) | 980 | 762 | 28.7 | ||||||
Exchange differences (net) | 287 | 298 | (3.7 | ) | |||||
Gross income | 13,024 | 11,121 | 17.1 | ||||||
Sales and income from the provision of non-financial services | 576 | 468 | 23.1 | ||||||
Cost of sales | (451 | ) | (342 | ) | 31.9 | ||||
Other operating income | 134 | 22 | n.m. | (1) | |||||
Personnel expenses | (3,602 | ) | (3,247 | ) | 10.9 | ||||
Other administrative expenses | (2,160 | ) | (1,851 | ) | 16.7 | ||||
Depreciation and amortization | (449 | ) | (448 | ) | n.m. | (1) | |||
Other operating expenses | (249 | ) | (132 | ) | 88.7 | ||||
Net operating income | 6,823 | 5,591 | 22.0 | ||||||
Impairment losses (net) of which: | (854 | ) | (958 | ) | (10.8 | ) | |||
Loan loss provisions | (813 | ) | (784 | ) | 3.7 | ||||
Provisioning expense (net) | (454 | ) | (850 | ) | (46.6 | ) | |||
Finance income from non-financial activities | 2 | 9 | (71.8 | ) | |||||
Finance expenses from non-financial activities | (2 | ) | (5 | ) | (61.2 | ) | |||
Other gains | 285 | 622 | (54.2 | ) | |||||
Other losses | (208 | ) | (271 | ) | (23.2 | ) | |||
Income before tax | 5,592 | 4,138 | 35.2 | ||||||
Income tax | (1,521 | ) | (1,029 | ) | 47.9 | ||||
Income from ordinary activities | 4,071 | 3,109 | 31.0 | ||||||
Profit or loss from discontinued operations (net) | — | — | — | ||||||
Consolidated income for the period | 4,071 | 3,109 | 31.0 | ||||||
Income attributed to minority interests | (265 | ) | (186 | ) | 42.3 | ||||
Income attributed to the group | 3,806 | 2,923 | 30.2 | ||||||
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Consolidated Statement of Income | |||||||||
Interest and similar income | 15,848 | 12,352 | 28.3 | ||||||
Interest expense and similar charges | (8,932 | ) | (6,447 | ) | 38.5 | ||||
Income from equity instruments | 292 | 255 | 14.6 | ||||||
Net interest income | 7,208 | 6,160 | 17.0 | ||||||
Share of profit or loss of entities accounted for using the equity method | 122 | 97 | 25.2 | ||||||
Fee and commission income | 4,669 | 4,057 | 15.1 | ||||||
Fee and commission expenses | (729 | ) | (644 | ) | 13.2 | ||||
Insurance activity income | 487 | 391 | 24.7 | ||||||
Gains/(losses) on financial assets and liabilities (net) | 980 | 762 | 28.7 | ||||||
Exchange differences (net) | 287 | 298 | (3.7 | ) | |||||
Gross income | 13,024 | 11,121 | 17.1 | ||||||
Sales and income from the provision of non-financial services | 576 | 468 | 23.1 | ||||||
Cost of sales | (451 | ) | (342 | ) | 31.9 | ||||
Other operating income | 134 | 22 | n.m. | (1) | |||||
Personnel expenses | (3,602 | ) | (3,247 | ) | 10.9 | ||||
Other administrative expenses | (2,160 | ) | (1,851 | ) | 16.7 | ||||
Depreciation and amortization | (449 | ) | (448 | ) | n.m. | (1) | |||
Other operating expenses | (249 | ) | (132 | ) | 88.7 | ||||
Net operating income | 6,823 | 5,591 | 22.0 | ||||||
Impairment losses (net) of which: | (854 | ) | (958 | ) | (10.8 | ) | |||
Loan loss provisions | (813 | ) | (784 | ) | 3.7 | ||||
Provision expense (net) | (454 | ) | (850 | ) | (46.6 | ) | |||
Finance income from non-financial activities | 2 | 9 | (71.8 | ) | |||||
Finance expenses from non-financial activities | (2 | ) | (5 | ) | (61.2 | ) | |||
Other gains | 285 | 622 | (54.2 | ) | |||||
Other losses | (208 | ) | (271 | ) | (23.2 | ) | |||
Income before tax | 5,592 | 4,138 | 35.2 | ||||||
Income tax | (1,521 | ) | (1,029 | ) | 47.9 | ||||
Income from continuing operations | 4,071 | 3,109 | 31.0 | ||||||
Income from discontinued operations (net) | — | — | — | ||||||
Consolidated income for the period | 4,071 | 3,109 | 31.0 | ||||||
Income attributed to minority interests | (265 | ) | (186 | ) | 42.3 | ||||
Income attributed to the Group | 3,806 | 2,923 | 30.2 | ||||||
(1) | Not meaningful |
Net interest incomeInterest Income
The following table summarizes the principal components of net interest income for 2005 compared to 2004.
Year ended December 31, | Change | |||||||
2005 | 2004 | 2005/2004 | ||||||
(in millions of euros) | (in percentages) | |||||||
Interest and similar income | 15,848 | 12,352 | 28.3 | |||||
Interest expense and similar charges | (8,932 | ) | (6,447 | ) | 38.5 | |||
Income from equity instruments | 292 | 255 | 14.6 | |||||
Net interest income | 7,208 | 6,160 | 17.0 | |||||
Interest and similar income Interest expense and similar charges Income from equity instruments Net interest income Year ended December 31, Change 2005 2004 2005/2004 (in millions of euros) (in percentages) 15,848 12,352 28.3 (8,932 ) (6,447 ) 38.5 292 255 14.6 7,208 6,160 17.0
Net interest income for 2005 amounted to €7,208 million, a 17.0% increase from €6,160 million in 2004. This increase is principally due to an increase in the BBVA Group’s overall business volume, which was driven mainly by increases in loans and advances to customers, primarily individuals in Spain and in the commercial and financial and real estate and construction sectors outside of Spain. Low interest rates in Spain during 2005 reduced the spread between the interest we paid on interest-bearing liabilities, principally deposits, and the interest we earned on our interest-earning assets, principally loans, in our core Spanish market. This low yield spread was offset by the significant increase in business volume in Spain during 2005 and an increase in both interest rates and business volume in Latin America, most significantly in Mexico, which resulted in a higher yield spread, and an increase in net interest income generated by the Americas business area,operations in Latin America, most significantly in Mexico.
Share of Profit or Loss of Entities Accounted for Using the Equity Method
Our share of profit from entities accounted for using the equity method was €122 million in 2005 compared to €97 million in 2004. Our share of profit from entities accounted for using the equity method in 2005 related mainly to our interests in Banca Nazionale del Lavoro S.p.A.BNL and Corporación IBV.
Net Fee and Commission Income
Fee and Commission Income
The breakdown of fee and commission income in 2005 and 2004 is as follows:
Year ended December 31, | Change | Year ended December 31, | Change | |||||||||||||
2005 | 2004 | 2005/2004 | 2005 | 2004 | 2005/2004 | |||||||||||
(in millions of euros) | (in percentages) | (in millions of euros) | (in percentages) | |||||||||||||
Commitment fees | 50 | 41 | 22.6 | Commitment fees | 50 | 41 | 22.6 | |||||||||
Contingent liabilities | 177 | 160 | 10.8 | Contingent liabilities | 177 | 160 | 10.8 | |||||||||
Documentary credits | 31 | 27 | 6.9 | Documentary credits | 31 | 27 | 6.9 | |||||||||
Bank and other guarantees | 145 | 133 | 9.6 | Bank and other guarantees | 145 | 133 | 9.6 | |||||||||
Arising from exchange of foreign currencies and banknotes | 18 | 17 | 7.0 | Arising from exchange of foreign currencies and banknotes | 18 | 17 | 7.0 | |||||||||
Collection and payment services | 2,019 | 1,732 | 16.5 | Collection and payment services | 2,019 | 1,732 | 16.5 | |||||||||
Securities services | 1,948 | 1,739 | 12.0 | Securities services | 1,948 | 1,739 | 12.0 | |||||||||
Counselling on and management of one-off transactions | 16 | 15 | 10.2 | |||||||||||||
Financial and similar counselling services | 11 | 6 | 66.5 | |||||||||||||
Counseling on and management of one-off transactions | Counseling on and management of one-off transactions | 16 | 15 | 10.2 | ||||||||||||
Financial and similar counseling services | Financial and similar counseling services | 11 | 6 | 66.5 | ||||||||||||
Factoring transactions | 19 | 17 | 10.4 | Factoring transactions | 19 | 17 | 10.4 | |||||||||
Non-banking financial products sales | 40 | 46 | (12.9 | ) | Non-banking financial products sales | 40 | 46 | (12.9 | ) | |||||||
Other fees and commissions | 372 | 284 | 30.9 | Other fees and commissions | 372 | 284 | 30.9 | |||||||||
Other fees and commissions | Other fees and commissions | |||||||||||||||
4,669 | 4,057 | 15.1 | 4,669 | 4,057 | 15.1 | |||||||||||
Fee and commission income for 2005 amounted to €4,669 million, a 15.1% increase from €4,057 million in 2004, mainly due to:
a 16.5% increase in collection and payment services to €2,019 million in 2005 from €1,732 million in 2004, primarily due to an increase in fees and commissions relating to retail banking services in Latin America, most significantly in Mexico; and
a 12.0% increase in securities services to €1,948 million in 2005 from €1,739 million in 2004, primarily attributable to an increase in brokerage fees as a result of increased trading activity by our customers in 2005 due in part to favorable market conditions.
Fee and Commission Expenses
The breakdown of the fee and commission expenses in 2005 and 2004 is as follows:
Year ended December 31, | Change | Year ended December 31, | Change | |||||||||||||
2005 | 2004 | 2005/2004 | 2005 | 2004 | 2005/2004 | |||||||||||
(in millions of euro) | (in percentages) | (in millions of euro) | (in percentages) | |||||||||||||
Brokerage fees on lending and deposit transactions | 13 | 8 | 52.0 | (13 | ) | (8 | ) | 52.0 | ||||||||
Fees and commissions assigned to third parties | 519 | 430 | 20.8 | (519 | ) | (430 | ) | 20.8 | ||||||||
Other fees and commissions | 197 | 206 | (4.2 | ) | (197 | ) | (206 | ) | (4.2 | ) | ||||||
Fee and commission expenses | 729 | 644 | 13.2 | (729 | ) | (644 | ) | 13.2 | ||||||||
Fee and commission expenses for 2005 amounted to €729 million, a 13.2% increase from €644 million in 2004, mainly due to a 20.8% increase in fees and commissions assigned to third parties to €519 million in 2005 from €430 million in 2004, primarily due to an increase in fees paid to intermediary service providers as a result of increased business volumes.
Net Fee and Commission Income
As a result of the foregoing, net fee and commission income for 2005 totaled €3,940 million, a 15.4% increase from €3,413 million in 2004.
Insurance Activity Income
Net insurance activity income for 2005 amounted to €487 million, a 24.7% increase from €391 million in 2004, relating mainly to growth in our insurance business in Spain and Portugal, as well as in South America, Mexico and the Americas.United States.
Gains or Losses on Financial Assets and Liabilities (Net)
Gains on financial assets (net) amounted to €980 million in 2005, a 28.7% increase from €762 million in 2004. The 56.0% decrease in gains from available-for-sale financial assets to €429 million in 2005 from €974 million in 2004, (mainly due to a lower volume of sales of available-for-sale financial assets in 2005 compared to 2004) and the 19.2% decrease in gains from securities held for trading to €898 million in 2005 from €1,111 million in 2004, (mainly due to decreases in the fair value of securities held for trading purposes, principally fixed income public debt securities) where partially offset by the significant 62% decrease in losses on derivatives held for trading purposes to €508 million in 2005 from €1,338 million in 2004, reflecting less volatile market conditions in 2005;2005.
Gross Income
As a result of the foregoing, gross income amounted to €13,024 million in 2005, a 17.1% increase from €11,120 million in 2004.
Personnel Expenses
The breakdown of personnel expenses in 2005 and 2004 is as follows:
Year ended December 31, | Change | Year ended December 31, | Change | |||||||||||||
2005 | 2004 | 2005/2004 | 2005 | 2004 | 2005/2004 | |||||||||||
(in millions of euro) | (in percentages) | (in millions of euro) | (in percentages) | |||||||||||||
Wages and salaries | 2,743 | 2,460 | 11.6 | (2,743 | ) | (2,460 | ) | 11.6 | ||||||||
Social security costs | 472 | 437 | 8.0 | (472 | ) | (437 | ) | 8.0 | ||||||||
Transfers to internal pension provisions (Note 2.2.f) | 69 | 59 | 16.8 | |||||||||||||
Contributions to external pension funds (Note 2.2.f) | 56 | 57 | (2.8 | ) | ||||||||||||
Transfers to internal pension provisions (Note 29) | (69 | ) | (59 | ) | 16.8 | |||||||||||
Contributions to external pension funds (Note 29) | (56 | ) | (57 | ) | (2.8 | ) | ||||||||||
Other personnel expenses | 262 | 234 | 11.8 | (262 | ) | (234 | ) | 11.8 | ||||||||
Personnel expenses | 3,602 | 3,247 | 10.9 | (3,602 | ) | (3,247 | ) | 10.9 | ||||||||
Personnel expenses for 2005 amounted to €3,602 million, a 10.9% increase from €3,247 million in 2004, mainly due to an 11.6% increase in wages and salaries to €2,743 million in 2005 from €2,460 million in 2004 as a result of an increase in the average number of employees of the BBVA Group to 90,744 in 2005 from 84,704 in 2004. The increase in the average number of employees in 2005 was due mainly to the addition of employees resulting from the acquisition of Hipotecaria Nacional, S.A. de C.V. in January 2005, the acquisition of Laredo National Bancshares, Inc.LNB in April 2005 and the acquisition of an approximately 99% interest in Banco Granahorrar S.A. in December 2005.
Other Administrative Expenses
The breakdown of other administrative expenses during in 2005 and 2004 is as follows:
Year ended December 31, | Change | Year ended December 31, | Change | |||||||||||
2005 | 2004 | 2005/2004 | 2005 | 2004 | 2005/2004 | |||||||||
(in millions of euros) | (in percentages) | (in millions of euros) | (in percentages) | |||||||||||
Technology and systems | 434 | 411 | 5.5 | (434 | ) | (411 | ) | 5.5 | ||||||
Communications | 203 | 183 | 11.0 | (203 | ) | (183 | ) | 11.0 | ||||||
Advertising | 212 | 144 | 47.3 | (212 | ) | (144 | ) | 47.3 | ||||||
Property, fixtures and materials | 415 | 361 | 15.0 | (415 | ) | (361 | ) | 15.0 | ||||||
Taxes other than income tax | 213 | 153 | 39.6 | (213 | ) | (153 | ) | 39.6 | ||||||
Other expenses | 683 | 599 | 14.1 | (683 | ) | (599 | ) | 14.1 | ||||||
Other administrative expenses | 2,160 | 1,851 | 16.7 | (2,160 | ) | (1,851 | ) | 16.7 | ||||||
Other administrative expenses amounted to €2,160 million in 2005, a 16.7% increase from €1,851 million in 2004. This increase was mainly due to increases in other expenses, advertising expenses and taxes other than income tax.
We calculate our efficiency ratio as (i) the sum of gross income, sales and income from the provision of non-financial services and other operating income, divided by (ii) the sum of cost of sales, personnel expenses, other administrative expenses and other operating expenses. Our efficiency ratio was 43.2% in 2005 compared to 44.6% in 2004. Including depreciation and amortization expense, our efficiency ratio was 46.7% in 2005 compared to 48.6% in 2004.
Net Operating Income
Our net operating income for 2005 was €6,823 million, an increase of 22.0% from €5,591 million in 2004.
Impairment Losses (Net)
Impairment losses (net) was €854 million in 2005, a decrease of 10.8% from 2004. This decrease is mainly due to the fact that, in 2004, impairment losses reflected €145 million that corresponded to the impairment of goodwill relating to Banca Nazionale del Lavoro, S.p.A.BNL in the fourth quarter of 2004.
Provision Expense (Net)
Provision expense (net) was €454 million in 2005, a decrease of 46.6% from €850 million in 2004, reflecting a decrease in charges relating to early retirement plans. See Note 2.2(f)1.1.22.2(e) to the Consolidated Financial Statements.
Other Gains and Losses (Net)
The breakdown of other gains and losses during in 2005 and 2004 is as follows:
Year ended December 31, | Change | Year ended December 31, | Change | |||||||||||||
2005 | 2004 | 2005/2004 | 2005 | 2004 | 2005/2004 | |||||||||||
(in millions of euros) | (in percentages) | (in millions of euros) | (in percentages) | |||||||||||||
Net gains on sales of held-to-maturity investments | 108 | 103 | 4.8 | 108 | 103 | 4.8 | ||||||||||
Net gains on sale of long-term investments | 40 | 317 | (87.4 | ) | 40 | 317 | (87.4 | ) | ||||||||
Income from the provision of non-typical services | 4 | 5 | (18.6 | ) | 4 | 5 | (18.6 | ) | ||||||||
Other income | 133 | 197 | (32.5 | ) | 133 | 197 | (32.5 | ) | ||||||||
Other gains | 285 | 622 | (54.2 | ) | 285 | 622 | (54.2 | ) | ||||||||
Net losses on fixed assets disposals | 22 | 22 | 0.1 | (22 | ) | (22 | ) | 0.1 | ||||||||
Net losses on long-term investments due to write-downs | 12 | 9 | 28.7 | (12 | ) | (9 | ) | 28.7 | ||||||||
Other losses | 174 | 240 | (27.4 | ) | (174 | ) | (240 | ) | (27.4 | ) | ||||||
Other Losses | 208 | 271 | (23.2 | ) | (208 | ) | (271 | ) | (23.2 | ) | ||||||
Other gains (net) | 77 | 351 | (78.2 | ) | 77 | 351 | (78.2 | ) | ||||||||
Other gains (net) waswere €77 million in 2005 compared to €351 million in 2004. In 2005, we sold small stakes in various companies compared to more significant sales in 2004 of interests in companies, including Banco Atlántico, Direct Seguros, Grubarges Inversión Hotelera, S.L. and Vidrala, S.A.
Income Tax
Income tax expense was €1,521 million in 2005, an increase of 47.9% from €1,029 million in 2004. Our effective tax rate (income tax expense as a percentage of our income before tax) was 27.2% in 2005 compared to 24.9% in 2004, principally reflecting the change in the composition of our pre-tax income.
Income Attributed to Minority Interests
Income attributed to minority interests amounted to €265 million in 2005, an increase of 42.3% from €186 million in 2004, mainly due to the increased profit of most of our majority owned subsidiaries and the impact of the appreciation of Latin American currencies when translating the profit of certain of these subsidiaries into euro.
Income Attributed to the Group
As a result of the foregoing, income attributed to the groupGroup amounted to €3,806 million in 2005, a 30.2% increase from €2,923 million in 2004.
Results of Operations by Business Areas for 2006 Compared with 2005
As described under “Item 4. Information on the Company- Company—Business Overview”, our business areas during 20052006 were the following:
Retail Banking in Spain and Portugal;
Wholesale Businesses;
Mexico and United States;
South America; and
Corporate Activities.
See “Presentation of Financial Information” for information on the year-on-year comparability of the financial information by business area.
Retail Banking in Spain and Portugal
Year ended December 31, | Change | Year ended December 31, | Change | |||||||||||||||
2005 | 2004 | 2005/2004 | 2006 | 2005 | 2006/2005 | |||||||||||||
(in millions of euros) | (in percentages) | (in millions of euros) | (in percentages) | |||||||||||||||
Net interest income | 3,182 | 3,015 | 5.6 | 2,865 | 2,623 | 9.2 | ||||||||||||
Share of profit of entities accounted for using the equity method | 1 | 1 | (29.7 | ) | 1 | 1 | (15.7 | ) | ||||||||||
Net fee and commission income | 1,602 | 1,477 | 8.5 | 1,589 | 1,456 | 9.1 | ||||||||||||
Insurance activity income | 309 | 257 | 20.3 | 376 | 309 | 21.4 | ||||||||||||
Basic income(1) | 5,094 | 4,750 | 7.2 | 4,830 | 4,390 | 10.0 | ||||||||||||
Gains on financial assets and liabilities (net) | 108 | 55 | 96.3 | 72 | 55 | 31.8 | ||||||||||||
Gross income | 5,203 | 4,805 | 8.3 | 4,902 | 4,444 | 10.3 | ||||||||||||
Sales and income from the provision of non-financial services | 23 | 27 | (16.2 | ) | 32 | 26 | 25.5 | |||||||||||
Personnel expenses and other administrative expenses | (2,250 | ) | (2,179 | ) | 3.2 | (2,193 | ) | (2,092 | ) | 4.9 | ||||||||
Depreciation and amortization | (103 | ) | (107 | ) | (3.9 | ) | (102 | ) | (103 | ) | (0.7 | ) | ||||||
Other operating income and expenses (net) | 49 | 36 | 35.6 | 14 | 43 | (68.4 | ) | |||||||||||
Net operating income | 2,922 | 2,583 | 13.1 | 2,653 | 2,319 | 14.4 | ||||||||||||
Impairment losses (net) | (474 | ) | (409 | ) | 15.9 | (356 | ) | (328 | ) | 8.3 | ||||||||
Net loan loss provisions | (476 | ) | (409 | ) | 16.3 | (357 | ) | (330 | ) | 8.0 | ||||||||
Other writedowns | 2 | — | n.m. | (2) | 1 | 2 | (43.5 | ) | ||||||||||
Provision expense (net) | — | (4 | ) | n.m. | (2) | (3 | ) | (2 | ) | 14.7 | ||||||||
Other gains and losses (net) | 21 | 12 | 80.4 | 16 | 18 | (11.2 | ) | |||||||||||
Gains on disposals of investments | 11 | 3 | n.m. | (2) | ||||||||||||||
Other | 10 | 9 | 14.5 | |||||||||||||||
Income before tax | 2,469 | 2,181 | 13.2 | 2,311 | 2,007 | 15.1 | ||||||||||||
Income tax | (852 | ) | (751 | ) | 13.4 | (808 | ) | (686 | ) | 17.9 | ||||||||
Income from ordinary activities | 1,618 | 1,430 | 13.1 | |||||||||||||||
Income from continuing operations | 1,503 | 1,321 | 13.7 | |||||||||||||||
Income attributed to minority interests | (4 | ) | (4 | ) | 13.1 | (4 | ) | (4 | ) | 4.3 | ||||||||
Income attributed to the group | 1,614 | 1,427 | 13.1 | |||||||||||||||
Income attributed to the Group | 1,498 | 1,317 | 13.8 | |||||||||||||||
(1) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method and net fees and commissions. Basic income is not a line item in our Consolidated Financial Statements. |
Net Interest Income
Net interest income of this business area for 20052006 amounted to €3,182€2,865 million, for 2005, a 5.6%9.2% increase from €3,015€2,623 million in 2004,2005, principally due to an increase in this business area’s overall business volume which was driven mainly by increasesand an improvement in loans and advances to customers, primarily individuals and in the real estate
and construction sectors. Low interest rates in Spain during 2005 reduced thecustomer spreads. The customer spread between the interest we paid on interest-bearing liabilities, principally deposits, and the interest we earned on our interest-earning assets, principally loans, in Spain. This low yield spread was offset by the significant increase in business volume in Spain during 2005.
Net Fee and Commission Income
Net fee and commission income of this business area for 2005 amounted to €1,602 million, an increase of 8.5% from €1,477 million in 2004, principally attributable to a 12.1% increase in fee and commission income for banking services to €922 million in 2005 from €822 million in 2004 due to2006 increased transaction volumes, a 3.9% increase in fee and commission income from mutual and pension fund management to €680 million in 2005 from €654 million in 2004 due to an increase in funds under management and a 20.3% increase in fee and commission income from the development and distribution of insurance products to €309 million in 2005 from €257 million in 2004 as a result of our cross-selling efforts to our retail banking customers.(which had grown successively narrower since 2003).
Basic Income
Basic income of this business area for 20052006 amounted to €5,094€4,830 million, an increase of 7.2%10.0% from €4,750€4,390 million in 2004,2005, principally attributable to the increases in net interest income and net fee and commission income and, to a lesser extent, an increase in insurance activity income. Insurance activity income increased 21.4% to €376 million in 2006 from €309 million in 2005.
Gross Income
As a result of the foregoing generally, though principally attributable to increases in net interest income, gross income of this business area for 20052006 amounted to €5,203€4,902 million, an increase of 8.3% compared to €4,80510.3% from €4,444 million in 2004.2005.
Personnel and Other Administrative ExpensesNet Operating Income
Personnel and other administrative expenses for 2006 amounted to €2,193 million, an increase of 4.9% compared to €2,092 million in 2005, despite an increase of 80 new branches.
Net operating income of this business area for 20052006 amounted to €2,250€2,653 million, an increase of 3.2%14.4% compared to €2,179€2,319 million in 2004, despite an increase of 161 branches in our branch network in Spain and Portugal in 2005, reflecting continued savings achieved through our efficiency plans.the Group’s focus on expenses, which remained relatively stable year-on-year.
As a result of the foregoing, the efficiency ratio of this business area was 41.4% in 2005 compareddecreased to 43.4% in 2004.2006 from 45.1% in 2005 as expenses rose at a slower pace than revenues. Including depreciation and amortization expense of this business area, the efficiency ratio of this business area was 43.3%45.4% in 20052006 compared to 45.6%47.4% in 2004.2005.
Net Operating Income
Net operating income of this business area for 2005 was €2,922 million, a 13.1% increase from €2,583 million in 2004.
Impairment Losses (Net)
Impairment losses (net) of this business area for 20052006 was €474€356 million, a 15.9%8.3% increase from €409€328 million in 2004,2005, mainly due to a 16.3% increase in net loan loss provisions to €476€357 million in 20052006 from €409€330 million in 2004.2005. The increase in loan loss provisions was principally due to an increase in the size of our loan portfolio. The Retail Banking in Spain and Portugal business area’s non-performing loan ratio was 0.62% at0.67% as of December 31, 20052006 compared to 0.82% at0.65% as of December 31, 2004.2005.
Income Attributed to the Group
As a result of the foregoing, income attributed to the groupGroup from this business area for 20052006 was €1,614€1,498 million, an increase of 13.1%13.8% from €1,427€1,317 million in 2004.2005.
Wholesale and Investment BankingBusinesses
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 440 | 423 | 4.1 | ||||||
Share of profit of entities accounted for using the equity method | 51 | 104 | (50.9 | ) | |||||
Net fee and commission income | 227 | 190 | 19.2 | ||||||
Insurance activity income | — | — | — | ||||||
Basic income(1) | 718 | 717 | 0.1 | ||||||
Gains on financial assets and liabilities (net) | 418 | 196 | 113.0 | ||||||
Gross income | 1,136 | 914 | 24.4 | ||||||
Sales and income from the provision of non-financial services | 95 | 81 | 17.4 | ||||||
Personnel expenses and other administrative expenses | (360 | ) | (324 | ) | 11.1 | ||||
Depreciation and amortization | (7 | ) | (7 | ) | 5.4 | ||||
Other operating income and expenses (net) | 22 | (2 | ) | n.m. | (2) | ||||
Net operating income | 886 | 662 | 33.9 | ||||||
Impairment losses | (115 | ) | (233 | ) | (50.8 | ) | |||
Net loan loss provisions | (114 | ) | (233 | ) | (50.8 | ) | |||
Other writedowns | — | — | n.m. | (2) | |||||
Provision expense (net) | 5 | 6 | (18.1 | ) | |||||
Other gains and losses (net) | 29 | 57 | (49.1 | ) | |||||
Gains on disposals of investments | 16 | 41 | (60.3 | ) | |||||
Other | 13 | 16 | (19.5 | ) | |||||
Income before tax | 806 | 493 | 63.7 | ||||||
Income tax | (211 | ) | (85 | ) | 148.7 | ||||
Income from ordinary activities | 596 | 408 | 46.0 | ||||||
Income attributed to minority interests | (4 | ) | (4 | ) | (10.1 | ) | |||
Income attributed to the group | 592 | 404 | 46.6 | ||||||
Year ended December 31, | Change | ||||||||
2006 | 2005 | 2006/2005 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 1,032 | 1,017 | 1.4 | ||||||
Share of profit of entities accounted for using the equity method | 283 | 51 | 454.0 | ||||||
Net fee and commission income | 491 | 425 | 15.7 | ||||||
Insurance activity income | — | — | — | ||||||
Basic income(1) | 1,806 | 1,494 | 20.9 | ||||||
Gains on financial assets and liabilities (net) | 642 | 448 | 43.4 | ||||||
Gross income | 2,448 | 1,941 | 26.1 | ||||||
Sales and income from the provision of non-financial services | 104 | 95 | 9.9 | ||||||
Personnel expenses and other administrative expenses | (644 | ) | (582 | ) | 10.7 | ||||
Depreciation and amortization | (12 | ) | (12 | ) | (2.4 | ) | |||
Other operating income and expenses (net) | 16 | 29 | (45.2 | ) | |||||
Net operating income | 1,912 | 1,471 | 30.0 | ||||||
Impairment losses | (322 | ) | (269 | ) | 19.8 | ||||
Net loan loss provisions | (322 | ) | (269 | ) | 19.8 | ||||
Other writedowns | — | — | — | ||||||
Provision expense (net) | (11 | ) | 5 | n.m. | (2) | ||||
Other gains and losses (net) | 159 | 31 | n.m. | (2) | |||||
Income before tax | 1,738 | 1,238 | 40.4 | ||||||
Income tax | (449 | ) | (361 | ) | 24.4 | ||||
Income from continuing operations | 1,288 | 876 | 47.0 | ||||||
Income attributed to minority interests | (6 | ) | (4 | ) | 54.2 | ||||
Income attributed to the Group | 1,282 | 873 | 47.0 | ||||||
(1) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method and net fees and commissions. Basic income is not a line item in our Consolidated Financial Statements. |
(2) | Not meaningful. |
Net Interest Income
Net interest income of this business area for 20052006 amounted to €440€1,032 million, for 2005, a 4.1%1.4% increase from €423€1,017 million in 2004, principally due to an increase in lending to corporate customers.
Net Fee and Commission Income
Net fee and commission income of this business area for 2005 amounted to €227 million, an increase of 19.2% from €190 million in 2004, principally due to an increase in underwriting fees and commissions and fee income from wholesale banking services.2005.
Basic Income
Basic income of this business area for 2005 remained stable at €7182006 increased 20.9% to 1,806 million compared to €717from €1,494 million in 2004,2005, principally attributabledue to the increases in net interest income and net fee and commission income, offset in
part by a decreaseincrease in share of profit of entities accounted for using the equity as a result of the sale of our interestsinterest in certain entities, including Gamesa, S.A., accounted for by the equity method in 2004.
Gains on Financial Assets and Liabilities (Net)
Gains on financial assets and liabilities (net)2005. The share of this business areaprofit of entities accounted for 2005 amountedusing the equity method increased 454% to €418 million, an increase of 113.0% from €196€283 million in 2004, mainly attributable to gains on derivatives held for trading purposes.2006 from €51 million in 2005.
Gross Income
As a result of the foregoing and adding the increase in gains on financial assets and liabilities (net) (43.4%), gross income of this business area for 20052006 amounted to €1,136€2,448 million, an increase of 24.4%26.1% compared to €914€1,941 million in 2004.2005.
Personnel and Other Administrative ExpensesNet Operating Income
Personnel and other administrative expenses of this business area for 20052006 amounted to €360€644 million, an increase of 11.1%10.7% compared to €324€582 million in 2004,2005, mainly due to an increase in business activity and an increase in the average number of employees in 2005.2006.
Net operating income of this business area for 2006 was €1,912 million, a 30% increase from €1,471 million in 2005, because operating expenses including depreciation increased at a considerably lower pace than ordinary revenues.
As a result of the foregoing, the efficiency ratio of this business area was 29.2%24.8% in 20052006 compared to 32.5%28.0% in 2004.2005. Including depreciation and amortization expense of this business area, the efficiency ratio of this business area was 29.7%25.2% in 20052006 compared to 33.2%28.6% in 2004.
Net Operating Income
Net operating income of this business area for 2005 was €886 million, a 33.9% increase from €662 million in 2004.2005.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 was €1152006 were €322 million, a 50.8% decrease19.8% increase from €233€269 million in 2004,2005, mainly due to the lower level of defaults in 2005.higher generic provisions related to increase lending. The Wholesale and Investment Banking businessBusinesses area’s non-performing loan ratio was 0.18%fell from 0.29% at the end of 2005 to 0.22% as of December 31, 2005 compared to 0.30% at December 31, 2004.
Other Gains and Losses (Net)
Other gains (net) of this business area for 2005 was €16 million, a 60.3% decrease from €41 million in 2004. Other gains (net) of this business area for 2004 reflected gains on the sale of our holdings in Grubarges Inversión Hotelera, S.L. (€26.3 million) and Vidrala, S.A. (€19.3 million).2006.
Income Attributed to the Group
In addition to the foregoing, divestment in holdings also helped to generate income attributed to the Group . As a result of the foregoing, income attributed to the groupGroup was €1,282 million, a 47% increase from this business area for 2005 was €592 million, an increase of 46.6% from €404€873 million in 2004.2005.
The AmericasMexico and the United States
As discussed above under “—Factors“Factors Affecting the Comparability of our Results of Operations and Financial Condition”, in 2006, the depreciation of the currencies countries (including Mexico, the U.S. and countries in South America) in which we operate against the euro negatively affected the results of operations of our foreign subsidiaries in euro terms. By contrast, in 2005, the appreciation of the currencies of the Latin American countries in which we operate against the euro positively affected, to a limited extent, the results of operations of our Latin American subsidiaries in euro terms. By contrast, in 2004, the depreciation of the currencies of the Latin American countries in which we operate against the euro negatively affected the results of operations of our Latin Americanforeign subsidiaries in euro terms.
In addition, the results of operations of this business area were impactedaffected by the acquisition of Hipotecaria Nacional, S.A. de C.V.Texas Regional Bancshares in January 2005,November 2006 as well as the acquisition of Laredo National Bancshares, Inc.LNB in April 2005 and(in that 2006 was the acquisition of an approximately 99% interest in Banco Granahorrar, S.A. in December 2005,first full year its operations were consolidated with the Group), each of which are consolidated in our Consolidated Financial Statements as from their respective date of acquisition.
Net interest income Share of profit of entities accounted for using the equity method Net fee and commission income Insurance activity income Basic income(3) Gains on financial assets and liabilities (net) Gross income Sales and income from the provision of non-financial services Personnel expenses and other administrative expenses Depreciation and amortization Other operating income and expenses (net) Net operating income Impairment losses Net loan loss provisions Other writedowns Provision expense (net) Other gains and losses (net) Gains on disposals of investments Other Income before tax Income tax Income from ordinary activities Income attributed to minority interests Income attributed to the group Year ended
December 31, Change 2005 2004 2005/2004 2005/2004(1) (in millions of euro) (in percentages) 3,797 2,865 32.6 29.4 (1 ) — n.m. (2) n.m. (2) 2,056 1,735 18.5 15.1 241 171 40.7 35.0 6,092 4,771 27.7 24.3 349 248 40.7 37.9 6,441 5,019 28.3 25.0 6 4 65.2 59.1 (2,767 ) (2,221 ) 24.6 21.4 (226 ) (226 ) (0.1 ) (3.6 ) (163 ) (144 ) 13.3 10.5 3,291 2,431 35.4 31.9 (394 ) (310 ) 27.2 20.7 (359 ) (310 ) 15.7 9.8 (36 ) — n.m. (2) n.m. (2) (132 ) (187 ) (29.5 ) (30.8 ) 3 2 69.4 n.m. (2) 2 16 (87.7 ) (88.0 ) 1 (14 ) n.m. (2) n.m. (2) 2,768 1,936 43.0 39.9 (725 ) (534 ) 36.0 31.8 2,043 1,402 45.7 43.0 (223 ) (208 ) 7.5 9.1 1,820 1,195 52.3 48.7
Year ended December 31, | Change | |||||||||||
2006 | 2005 | 2006/2005 | 2006/2005(1) | |||||||||
(in millions of euros) | (in percentages) | |||||||||||
Net interest income | 3,535 | 2,678 | 32.0 | 33.3 | ||||||||
Share of profit of entities accounted for using the equity method | (2 | ) | 0 | n.m. | (2) | n.m. | (2) | |||||
Net fee and commission income | 1,390 | 1,212 | 14.7 | 15.8 | ||||||||
Insurance activity income | 305 | 229 | 33.3 | 34.6 | ||||||||
Basic income(3) | 5,227 | 4,119 | 26.9 | 28.2 | ||||||||
Gains on financial assets and liabilities (net) | 196 | 168 | 16.9 | 18.0 | ||||||||
Gross income | 5,423 | 4,287 | 26.5 | 27.8 | ||||||||
Sales and income from the provision of non-financial services | (4 | ) | (3 | ) | 61.0 | 62.6 | ||||||
Personnel expenses and other administrative expenses | (1,946 | ) | (1,737 | ) | 12.0 | 13.1 | ||||||
Depreciation and amortization | (126 | ) | (138 | ) | (8.9 | ) | (8.0 | ) | ||||
Other operating income and expenses (net) | (117 | ) | (106 | ) | 10.8 | 11.9 | ||||||
Net operating income | 3,231 | 2,303 | 40.3 | 41.7 | ||||||||
Impairment losses | (685 | ) | (315 | ) | 117.6 | 119.7 | ||||||
Net loan loss provisions | (672 | ) | (289 | ) | 132.9 | 135.2 | ||||||
Other writedowns | (13 | ) | (26 | ) | (50.1 | ) | (49.6 | ) | ||||
Provision expense (net) | (73 | ) | (51 | ) | 43.5 | 44.9 | ||||||
Other gains and losses (net) | 43 | (8 | ) | n.m. | (2) | n.m. | (2) | |||||
Income before tax | 2,515 | 1,929 | 30.4 | 31.7 | ||||||||
Income tax | (739 | ) | (556 | ) | 32.8 | 34.1 | ||||||
Income fromcontinuing operations | 1,777 | 1,373 | 29.4 | 30.7 | ||||||||
Income attributed to minority interests | (2 | ) | (4 | ) | (43.3 | ) | (42.8 | ) | ||||
Income attributed to the Group | 1,775 | 1,370 | 29.6 | 30.8 | ||||||||
(1) | At constant exchange rates from |
(2) | Not meaningful. |
(3) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method, net fee and commission income and insurance activity income. Basic income is not a line item in our Consolidated Financial Statements. |
Net Interest Income
Net interest income of this business area for 20052006 amounted to €3,797€3,535 million, for 2005, a 32.6%32.0% increase from €2,865€2,678 million in 2004,2005, due to principally due to an increase in both interest rates andthis business area’s overall business volume, which was driven mainly by increases in Latin America, most significantly in Mexico, which resulted in a higher yield spread.
Net Feeloans and Commission Income
Net fee and commission income of this business area for 2005 amountedadvances to €2,056 million, an increase of 18.5% from €1,735 million in 2004, principally due to an increase in fee and commission income from mutual and pension fund management and an increase in fee income from retail banking services.
Insurance Activity Income
Insurance activity income of this business area for 2005 was €241 million, an increase of 40.7% from €171 million in 2004, principally due to an growth in our insurance business.customers.
Basic Income
Basic income of this business area for 20052006 amounted to €6,092€5,227 million, an increase of 27.7%26.9% from €4,771€4,119 million in 2004,2005, principally attributable to the increases in net interest income and net fee and commission income and, to a lesser extent, an increase in insurance activity income.
Gains on Financial Assets and Liabilities (Net)
Gains on financial assets and liabilities (net) of this business area for 2005 amounted to €349 million, an increase of 40.7% from €248 million in 2004, mainly as a result of gains on derivatives held for trading purposes, gains from available-for-sale financial assets and gains from securities held for trading purposes attributable to favorable conditions in the capital markets in the second half of 2005.
Gross Income
As a result of the foregoing, gross income of this business area for 20052006 amounted to €6,441€5,423 million, an increase of 28.3% compared to €5,01927.8% from €4,287 million in 2004.2005.
Personnel and Other Administrative ExpensesNet Operating Income
Personnel and other administrative expenses of this business area for 20052006 amounted to €2,767€1,946 million, an increase of 24.6%12.0% compared to €2,221€1,737 million in 2004,2005, mainly due to increased business activity as well and the consolidation of Hipotecaria Nacional, S.A. de C.V., Laredo NationalTexas Regional Bancshares Inc. and Banco Granahorrar, S.A. in 2005.November 2006 as well as a full year consolidation of LNB.
Net operating income of this business area for 2006 was €3,231 million, a 40.3% increase from €2,303 million in 2005, because operating expenses including depreciation increased at a considerably lower pace than ordinary revenues.
As a result of the foregoing, the efficiency ratio of this business area was 42.9%35.9% in 20052006 compared to 44.2%40.5% in 2004.2005. Including depreciation and amortization expense of this business area, the efficiency ratio of this business area was 46.4%38.2% in 20052006 compared to 48.7%43.8% in 2004.
Net Operating Income
Net operating income of this business area for 2005 was €3,291 million, a 35.4% increase from €2,431 million in 2004.2005.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 was €3942006 were €685 million, a 27.2%117.6% increase from €310€315 million in 2004,2005, mainly due to a 15.7% increase in nethigher generic provisions, influenced by those has been provisioning for its consumer and mortgage loan loss provisions to €359 million in 2005 from €310 million in 2004.portfolios on the basis of expected losses. The increase in loan loss provisions was principally due to an increase in the size of our loan portfolio, though the rate of growth of net loan loss provisions for this business area in 2005 was less than the rate of growth of the loan portfolio of this business area in that year. The Americas business area’s non-performing loan ratio was 2.67% inhas fallen from 2.24% at the end of 2005, compared to 3.44% in 2004.2.19% as of December 31, 2006.
Income Attributed to the Group
As a result of the foregoing, income attributed to the groupGroup from this business area for 20052006 was €1,820€1,775 million, an increase of 52.3%29.6% from €1,195€1,370 million in 2004.2005.
South America
For a discussion of the appreciation/depreciation of South American currencies relative to the euro which affects the comparability of our results of operations and financial condition in this business area, see above under “Factors Affecting the Comparability of our Results of Operations and Financial Condition” and “Mexico and the United States”.
In addition, the results of operations of this business area were affected by the acquisition of Forum in Chile in May 2006 and an approximately 99% interest in Banco Granahorrar in December 2005 in Colombia (in that 2006 was the first full year its operations were consolidated with the Group), each of which are consolidated in our Consolidated Financial Statements as from their respective date of acquisition.
Year ended December 31, | Change | |||||||||||
2006 | 2005 | 2006/2005 | 2006/2005(1) | |||||||||
(in millions of euros) | (in percentages) | |||||||||||
Net interest income | 1,310 | 1,039 | 26.1 | 28.4 | ||||||||
Share of profit of entities accounted for using the equity method | 3 | (1 | ) | n.m. | (2) | n.m. | (2) | |||||
Net fee and commission income | 815 | 695 | 17.3 | 18.1 | ||||||||
Insurance activity income | (6 | ) | 5 | n.m. | (2) | n.m. | (2) | |||||
Basic income(3) | 2,122 | 1,738 | 22.1 | 24.1 | ||||||||
Gains on financial assets and liabilities (net) | 282 | 157 | 80.3 | 85.5 | ||||||||
Gross income | 2,405 | 1,895 | 26.9 | 29.1 | ||||||||
Sales and income from the provision of non-financial services | 0 | 9 | (99.0 | ) | 99.0 | |||||||
Personnel expenses and other administrative expenses | (1,103 | ) | (933 | ) | 18.3 | 20.4 | ||||||
Depreciation and amortization | (93 | ) | (69 | ) | 34.9 | (36.2 | ) | |||||
Other operating income and expenses (net) | (46 | ) | (40 | ) | 14.2 | 17.3 | ||||||
Net operating income | 1,163 | 861 | 35.0 | 37.4 | ||||||||
Impairment losses | (149 | ) | (80 | ) | 87.6 | 85.4 | ||||||
Net loan loss provisions | (151 | ) | (71 | ) | 114.1 | 111.5 | ||||||
Other writedowns | 2 | (9 | ) | n.m. | (2) | n.m. | (2) | |||||
Provision expense (net) | (59 | ) | (78 | ) | (24.7 | ) | (22.1 | ) | ||||
Other gains and losses (net) | 0 | 14 | (97.8 | ) | (97.8 | ) | ||||||
Income before tax | 955 | 718 | 33.1 | 35.5 | ||||||||
Income tax | (229 | ) | (166 | ) | 38.4 | 41.6 | ||||||
Income from continuing operations | 726 | 552 | 31.5 | 33.7 | ||||||||
Income attributed to minority interests | (217 | ) | (173 | ) | 25.1 | 26.5 | ||||||
Income attributed to the Group | 509 | 379 | 34.4 | 37.0 | ||||||||
(1) | At constant exchange rates from 2005. |
(2) | Not meaningful. |
(3) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method, net fee and commission income and insurance activity income. Basic income is not a line item in our Consolidated Financial Statements. |
Net Interest Income
Net interest income of this business area for 2006 amounted to €1,310 million, a 26.1% increase from €1,039 million in 2005, principally due to the higher business volumes.
Basic Income
Basic income of this business area for 2006 amounted to €2,122 million, an increase of 22.1% from €1,738 million in 2005, principally attributable to the increase in net interest income and net fee and commission income.
Gross Income
As a result of the foregoing, gross income of this business area for 2006 amounted to €2,405 million, an increase of 26.9% from €1,895 million in 2005. The stability in the financial markets had a positive impact on gains on financial assets and liabilities.
Net Operating Income
Personnel and other administrative expenses of this business area for 2006 amounted to €1,103 million, an increase of 18.3% compared to €933 million in 2005, mainly due to the consolidation of Forum and Banco Granahorrar in 2006.
Net operating income of this business area for 2006 amounted to €1,163 million, an increase of 35.0% compared to €861 million in 2005, due to a increase in operating expenses (21%) during the year owing to the sharp increase in business at all units and an increase in the pensions sales force. The relatively high inflation in two main countries (Argentina and Venezuela) and the addition of Banco Granahorrar and Forum also contributed to the rise in costs.
Despite this, expenses grew less than revenues and efficiency ratio of this business area improved to 45.9% in 2006 (49% in 2005). Including depreciation and amortization expense of this business area, the efficiency ratio of this business area was 49.7% in 2006 compared to 52.6% in 2005.
Income Attributed to the Group
Impairment losses (net) of this business area for 2006 was €149 million, a 87.6% increase from €80 million in 2005, mainly due to the of generic provisions caused by the sharp rise in business volumes. The business area’s non-performing loan ratio was 2.67% as of December 31, 2006 compared to 3.67% as of December 31, 2005.
As a result of the foregoing, income attributed to the Group from this business area for 2006 was €509 million, an increase of 34.4% from €379 million in 2005.
Corporate Activities
Year ended December 31, | Change | Year ended December 31, | Change | |||||||||||||||
2005 | 2004 | 2005/2004 | 2006 | 2005 | 2006/2005 | |||||||||||||
(in millions of euros) | (in percentages) | (in millions of euros) | (in percentages) | |||||||||||||||
Net interest income | (212 | ) | (143 | ) | 47.8 | (368 | ) | (150 | ) | 145.5 | ||||||||
Share of profit of entities accounted for using the equity method | 71 | (8 | ) | n.m. | (1) | 23 | 71 | (67.2 | ) | |||||||||
Net fee and commission income | 56 | 11 | n.m. | (1) | 50 | 152 | (67.0 | ) | ||||||||||
Insurance activity loss | (63 | ) | (38 | ) | 68.0 | (24 | ) | (56 | ) | (57.0 | ) | |||||||
Basic loss(2) | (148 | ) | (178 | ) | (16.7 | ) | ||||||||||||
Basic income/loss(2) | (319 | ) | 16 | n.m. | (2) | |||||||||||||
Gains on financial assets and liabilities (net) | 391 | 560 | (30.1 | ) | 841 | 441 | 90.9 | |||||||||||
Gross income | 243 | 382 | (36.4 | ) | 522 | 457 | 14.3 | |||||||||||
Sales and income from the provision of non-financial services | 2 | 15 | (86.5 | ) | (1 | ) | (1 | ) | 36.4 | |||||||||
Personnel expenses and other administrative expenses | (386 | ) | (374 | ) | 3.3 | (444 | ) | (419 | ) | 5.9 | ||||||||
Depreciation and amortization | (113 | ) | (108 | ) | 4.1 | (139 | ) | (127 | ) | 10.1 | ||||||||
Other operating income and expenses (net) | (23 | ) | — | n.m. | (1) | (12 | ) | (41 | ) | (69.4 | ) | |||||||
Net operating loss | (277 | ) | (85 | ) | 224.7 | |||||||||||||
Net operating income | (75 | ) | (131 | ) | (42.5 | ) | ||||||||||||
Impairment losses | 129 | (6 | ) | n.m. | (1) | 9 | 138 | (93.3 | ) | |||||||||
Net loan loss provisions | 136 | 168 | (19.0 | ) | 26 | 146 | (82.2 | ) | ||||||||||
Other writedowns | (7 | ) | (174 | ) | (95.8 | ) | (17 | ) | (8 | ) | 114.2 | |||||||
Provision expense (net) | (328 | ) | (666 | ) | (50.8 | ) | (1,193 | ) | (328 | ) | 263.2 | |||||||
Other gains and losses (net) | 24 | 285 | (91.6 | ) | 771 | 22 | n.m. | (2) | ||||||||||
Gains on disposals of investments | — | 249 | n.m. | (1) | ||||||||||||||
Other | 24 | 36 | (31.6 | ) | ||||||||||||||
Loss before tax | (452 | ) | (472 | ) | (4.4 | ) | (488 | ) | (300 | ) | 62.8 | |||||||
Income tax | 266 | 340 | (21.7 | ) | 166 | 247 | (33.0 | ) | ||||||||||
Loss from ordinary activities | (185 | ) | (132 | ) | 40.2 | (323 | ) | (53 | ) | n.m. | (2) | |||||||
Income or loss attributed to minority interests | (33 | ) | 30 | n.m. | (1) | (6 | ) | (79 | ) | (92.1 | ) | |||||||
Loss attributed to the group | (219 | ) | (102 | ) | 113.3 | |||||||||||||
Loss attributed to the Group | (329 | ) | (132 | ) | 149.0 | |||||||||||||
(1) | Not meaningful. |
(2) | Basic income/(loss) for this business area consists of net interest income/(expense), share of profit/(loss) of entities accounted for using the equity method, net fee and commission income and insurance activity income/(loss). Basic income/(loss) is not a line item in our Consolidated Financial Statements. |
Net Interest Income/(Expense)
Net interest expense of this business area for 2006 amounted to €368 million, a 145.5% increase from €150 million in 2005, due to principally to the negative impact of higher interest rates and the disposal of BNL in May.
Share of Profit of Entities Accounted for Using the Equity Method
Share of profit of entities accounted for using the equity method of this business area for 2006 amounted to €23 million compared to €71 million in 2005, a decrease of 67.2%, which related principally to our share of the profit in 2005 in BNL, which was sold in 2006.
Basic Income/(Loss)
Basic loss of this business area for 2005 amounted to €319 million compared to basic income of €16 million in 2005. This was principally attributable to decreases in net fee and commission income and the increase in net interest expense.
Gains on Financial Assets and Liabilities (Net)
Gains on financial assets and liabilities (net) of this business area for 2006 amounted to €841 million, an increase of 90.9% from €441 million in 2005. Gains on financial assets and liabilities in 2006 includes €523 million in capital gains from the disposal of our holding in Repsol.
Gross Income
As a result of the foregoing, gross income of this business area for 2006 amounted to €522 million, an increase of 14.3% from €457 million in 2005.
Net Operating Income/Loss
Net operating loss of this business area for 2006 was €75 million, a 42.5% decrease from €131 million in 2005.
Provision Expense (net)
Provision expense (net) amounted to €1,193 million in 2006, a 263.2% increase from €328 million in 2005, due to the higher charges for early retirements, which includes a special charge of €777 million for a plan to transform the branch network in Spain and those derived from the changes in the reorganization announced in December 2006.
Other Gains and Losses (Net)
Other gains and losses (net) amounted €771 million in 2006, a significant increase from €22 million in 2005. These included earnings from the sale of holdings in BNL. (€568 million) and Andorra (€183 million) in 2006, whereas in 2005 there were no significant disposals.
Income/(Loss) Attributed to the Group
As a result of the foregoing, the area’s loss attributed to the Group was €329 million in 2006 compared to a loss of -€132 million in 2005.
Results of Operations by Business Areas for 2005 Compared with 2004
Retail Banking in Spain and Portugal
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 2,623 | 2,509 | 4.5 | ||||||
Share of profit of entities accounted for using the equity method | 1 | 1 | (10.8 | ) | |||||
Net fee and commission income | 1,456 | 1,341 | 8.6 | ||||||
Insurance activity income | 309 | 257 | 20.4 | ||||||
Basic income(1) | 4,390 | 4,108 | 6.9 | ||||||
Gains on financial assets and liabilities (net) | 55 | 33 | 66.0 | ||||||
Gross income | 4,444 | 4,141 | 7.3 | ||||||
Sales and income from the provision of non-financial services | 26 | 27 | (4.5 | ) | |||||
Personnel expenses and other administrative expenses | (2,092 | ) | (2,003 | ) | 4.4 | ||||
Depreciation and amortization | (103 | ) | (106 | ) | (3.1 | ) | |||
Other operating income and expenses (net) | 43 | 30 | 44.2 | ||||||
Net operating income | 2,319 | 2,089 | 11.0 | ||||||
Impairment losses (net) | (328 | ) | (274 | ) | 19.8 | ||||
Net loan loss provisions | (330 | ) | (274 | ) | 20.5 | ||||
Other writedowns | 2 | — | n.m. | (2) | |||||
Provision expense (net) | (2 | ) | (5 | ) | (54.4 | ) | |||
Other gains and losses (net) | 18 | 8 | 129.4 | ||||||
Income before tax | 2,007 | 1,818 | 10.4 | ||||||
Income tax | (686 | ) | (619 | ) | 10.7 | ||||
Income from continuing operations | 1,321 | 1,199 | 10.2 | ||||||
Income attributed to minority interests | (4 | ) | (4 | ) | 4.9 | ||||
Income attributed to the Group | 1,317 | 1,195 | 10.2 | ||||||
(1) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method and net fees and commissions. Basic income is not a line item in our Consolidated Financial Statements. |
(2) | Not meaningful. |
Net Interest Income
Net interest income of this business area for 2005 amounted to €2,623 million, a 4.5% increase from €2,509 million in 2004, principally due to an increase in banking business related to private individuals, SMEs and small businesses.
Basic Income
Basic income of this business area for 2005 amounted to €4,390 million, an increase of 6.9% from €4,108 million in 2004, reflecting a higher business activity responsible for growth in net fee income. Insurance activity income increased 20.4% to €309 million in 2005 from €257 million in 2004.
Gross Income
As a result of the foregoing generally, gross income of this business area for 2005 amounted to €4,444 million, an increase of 7.3% from €4,141 million in 2004.
Net Operating Income
Personnel and other administrative expenses for 2005 amounted to €2,092 million, an increase of 4.4% compared to €2,003 million in 2004, despite an increase of 80 new branches in our branch network in Spain and Portugal, reflecting continued savings achieved through our efficiency plans.
Net operating income of this business area for 2005 amounted to €2,319 million, an increase of 11.0% compared to €2,089 million in 2004.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 was €328 million, a 19.8% increase from €274 million in 2004, mainly due to a 20.5% increase in net loan loss provisions to €330 million in 2005 from €274 million in 2004. The increase in loan loss provisions was principally due to generic provisioning.
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group from this business area for 2005 was €1,317 million, an increase of 10.2% from €1,195 million in 2004.
Wholesale Businesses
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 1,017 | 947 | 7.4 | ||||||
Share of profit of entities accounted for using the equity method | 51 | 104 | (50.9 | ) | |||||
Net fee and commission income | 425 | 380 | 11.8 | ||||||
Insurance activity income | — | — | — | ||||||
Basic income(1) | 1,494 | 1,431 | 4.4 | ||||||
Gains on financial assets and liabilities (net) | 448 | 225 | 98.9 | ||||||
Gross income | 1,941 | 1,656 | 17.2 | ||||||
Sales and income from the provision of non-financial services | 95 | 81 | 17.1 | ||||||
Personnel expenses and other administrative expenses | (582 | ) | (544 | ) | 6.9 | ||||
Depreciation and amortization | (12 | ) | (12 | ) | 2.3 | ||||
Other operating income and expenses (net) | 29 | 4 | n.m. | (2) | |||||
Net operating income | 1,471 | 1,185 | 24.1 | ||||||
Impairment losses | (269 | ) | (366 | ) | (26.4 | ) | |||
Net loan loss provisions | (269 | ) | (366 | ) | (26.4 | ) | |||
Other writedowns | — | — | — | ||||||
Provision expense (net) | 5 | 6 | (13.7 | ) | |||||
Other gains and losses (net) | 31 | 59 | (47.5 | ) | |||||
Income before tax | 1,238 | 884 | 40.0 | ||||||
Income tax | (361 | ) | (222 | ) | 62.8 | ||||
Income from continuing operations | 876 | 662 | 32.4 | ||||||
Income attributed to minority interests | (4 | ) | (4 | ) | (7.7 | ) | |||
Income attributed to the Group | 873 | 658 | 32.6 | ||||||
(1) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method and net fees and commissions. Basic income is not a line item in our Consolidated Financial Statements. |
(2) | Not meaningful. |
Net Interest Income
Net interest income of this business area for 2005 amounted to €1,017 million, a 7.4% increase from €947 million in 2004, principally due to an increase in this business area’s overall business volume.
Basic Income
Basic income of this business area for 2005 increased 4.4% to €1,494 million from €1,431 million in 2004, principally due to the increase in net fee and commission from Markets and Wholesale Banking, offset in part by the decrease in share of profit of entities accounted for using the equity method.
Gross Income
Gross income of this business area for 2005 amounted to €1,941 million, an increase of 17.2% compared to €1,656 million in 2004, principally due to the increase in gains on financial assets and liabilities, which grew 98.4% from €225 million in 2004 to €448 million in 2005, mainly due to Market activities.
Net Operating Income
Personnel and other administrative expenses of this business area for 2005 amounted to €582 million, an increase of 6.9% compared to €544 million in 2004, mainly due to an increase in the average number of employees in 2005.
Net operating income of this business area for 2005 was €1,471 million, a 24.1% increase from €1,185 million in 2004, mainly due to revenues on non-financial services, which contributed €95 million to the area, most of them from real-estate transactions.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 were €269 million, a 26.4% decrease from €366 million in 2004, mainly due to a reduction in loan-loss provisions due to fewer non-performing loans.
Other Gains and Losses (Net)
Other gains and losses was €31 million, a 47.5% decrease from €59 million. Other gains and losses of this business area for 2004 reflected gains on the sale of our holdings in Grubarges Inversión Hotelera, S.L. (€26.3 million) and Vidrala (€19.3 million).
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group from this business area for 2005 was €873 million, an increase of 32.6% from €658 million in 2004.
Mexico and the United States
As discussed above under “Factors Affecting the Comparability of our Results of Operations and Financial Condition”, in 2005, the appreciation of the currencies countries (including Mexico, the U.S. and countries in South America) in which we operate against the euro positively affected, to a limited extent, the results of operations of our foreign subsidiaries in euro terms. By contrast, in 2004, the depreciation of the currencies of the countries in which we operate against the euro negatively affected the results of operations of our foreign subsidiaries in euro terms.
In addition, the results of operations of this business area were affected by the acquisition of Hipotecaria Nacional, S.A. de C.V. in January 2005 and the acquisition of LNB in April 2005, each of which are consolidated in our Consolidated Financial Statements as from their respective date of acquisition.
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 2,678 | 1,899 | 41.0 | ||||||
Share of profit of entities accounted for using the equity method | — | (2 | ) | (98.8 | ) | ||||
Net fee and commission income | 1,212 | 993 | 22.0 | ||||||
Insurance activity income | 229 | 191 | 19.7 | ||||||
Basic income(2) | 4,119 | 3,081 | 33.7 | ||||||
Gains on financial assets and liabilities (net) | 168 | 141 | 18.9 | ||||||
Gross income | 4,287 | 3,222 | 33.0 | ||||||
Sales and income from the provision of non-financial services | (3 | ) | (1 | ) | 159.5 | ||||
Personnel expenses and other administrative expenses | (1,737 | ) | (1,350 | ) | 28.7 | ||||
Depreciation and amortization | (138 | ) | (124 | ) | 11.5 | ||||
Other operating income and expenses (net) | (106 | ) | (98 | ) | 7.7 | ||||
Net operating income | 2,303 | 1,649 | 39.7 | ||||||
Impairment losses | (315 | ) | (234 | ) | 34.6 | ||||
Net loan loss provisions | (289 | ) | (234 | ) | 23.3 | ||||
Other writedowns | (26 | ) | — | n.m. | (1) | ||||
Provision expense (net) | (51 | ) | (79 | ) | (35.9 | ) | |||
Other gains and losses (net) | (8 | ) | (19 | ) | (57.9 | ) | |||
Income before tax | 1,929 | 1,317 | 46.5 | ||||||
Income tax | (556 | ) | (387 | ) | 43.7 | ||||
Income from continuing operations | 1,373 | 930 | 47.7 | ||||||
Income attributed to minority interests | (4 | ) | (40 | ) | (91.1 | ) | |||
Income attributed to the Group | 1,370 | 890 | 53.9 | ||||||
(1) | Not meaningful. |
(2) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method, net fee and commission income and insurance activity income. Basic income is not a line item in our Consolidated Financial Statements. |
Net Interest Income
Net interest income of this business area for 2005 amounted to €2,678 million, a 41.0% increase from €1,899 million in 2004, due to principally to an increase in this business area’s overall business volume, especially business related to individuals, including consumer finance and credit card products.
Basic Income
Basic income of this business area for 2005 amounted to €4,119 million, an increase of 33.7% from €3,081 million in 2004, principally attributable to the increases in net interest income and, to a lesser extent, an increase in net fee and commission income. Net fee income grew mainly due to the increase in mutual funds, securities and credit cards.
Gross Income
As a result of the foregoing, gross income of this business area for 2005 amounted to €4,287 million, an increase of 33.0% from €3,222 million in 2004.
Net Operating Income
Personnel and other administrative expenses of this business area for 2005 amounted to €1,737 million, an increase of 28.7% compared to €1,350 million in 2004, mainly due to a increased marketing activity.
Net operating income of this business area for 2005 was €2,303 million, a 39.7% increase from €1,649 million in 2004.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 were €315 million, a 34.6% increase from €234 million in 2005, mainly due to a 23.3% increase in net loan loss provisions to €289 million in 2005 from €234 million in 2004. The increase in loan loss provisions was principally due to an increase in the size of our loan portfolio.
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group from this business area for 2005 was €1,370 million, an increase of 53.9% from €890 million in 2004.
South America
For a discussion of the appreciation/depreciation of South American currencies relative to the euro which affects the comparability of our results of operations and financial condition in this business area, see above under “—Factors Affecting the Comparability of our Results of Operations and Financial Condition” and “—Mexico and the United States”.
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | 1,039 | 908 | 14.4 | ||||||
Share of profit of entities accounted for using the equity method | (1 | ) | — | n.m. | (1) | ||||
Net fee and commission income | 695 | 596 | 16.6 | ||||||
Insurance activity income | 5 | (20 | ) | n.m. | (1) | ||||
Basic income(2) | 1,738 | 1,484 | 17.1 | ||||||
Gains on financial assets and liabilities (net) | 157 | 95 | 64.8 | ||||||
Gross income | 1,895 | 1,579 | 20.0 | ||||||
Sales and income from the provision of non-financial services | 9 | 5 | 71.8 | ||||||
Personnel expenses and other administrative expenses | (933 | ) | (815 | ) | 14.5 | ||||
Depreciation and amortization | (69 | ) | (85 | ) | (19.1 | ) | |||
Other operating income and expenses (net) | (40 | ) | (33 | ) | 22.4 | ||||
Net operating income | 861 | 651 | 32.3 | ||||||
Impairment losses | (80 | ) | (73 | ) | 9.1 | ||||
Net loan loss provisions | (71 | ) | (73 | ) | (3.2 | ) | |||
Other writedowns | (9 | ) | — | n.m. | (1) | ||||
Provision expense (net) | (78 | ) | (101 | ) | (22.7 | ) | |||
Other gains and losses (net) | 14 | 21 | (32.8 | ) | |||||
Income before tax | 718 | 498 | 44.1 | ||||||
Income tax | (166 | ) | (139 | ) | 19.1 | ||||
Income from continuing operations | 552 | 359 | 53.8 | ||||||
Income attributed to minority interests | (173 | ) | (130 | ) | 33.3 | ||||
Income attributed to the Group | 379 | 229 | 65.5 | ||||||
(1) | Not meaningful. |
(2) | Basic income for this business area consists of net interest income, share of profit of entities accounted for using the equity method, net fee and commission income and insurance activity income. Basic income is not a line item in our Consolidated Financial Statements. |
Net Interest Income
Net interest income of this business area for 2005 amounted to €1,039 million, a 14.4% increase from €908 million in 2005, principally due to an increase in this business area’s overall business volume, with growth in all lines of business, though particularly the retail business.
Basic Income
Basic income of this business area for 2005 amounted to €1,738 million, an increase of 17.1% from €1,484 million in 2004, principally attributable to the increase in net fee and income due to greater activity, including a recovery in mutual and pension funds and favorable trends in traditional banking services, and, to a lesser extent, an increase in insurance activity due to higher marketing activity.
Gross Income
Gains on financial assets and liabilities increased 64.8% to €157 million in 2005 from €95 million in 2004, due to the favorable conditions in the capital markets in the second half of 2005.
As a result of the foregoing, gross income of this business area for 2006 amounted to €2,405 million, an increase of 26.9% from €1,895 million in 2005.
Net Operating Income
Personnel and other administrative expenses of this business area for 2005 amounted to €933 million, an increase of 14.5% compared to €815 million in 2004 mainly due to the major marketing effort undertaken in 2005.
Net operating income of this business area for 2005 amounted to €861 million, an increase of 32.3% compared to €651 million in 2005.
Impairment Losses (Net)
Impairment losses (net) of this business area for 2005 was €80 million, a 9.1% increase from €73 million in 2004, mainly due to the increase in our loan portfolio.
Income Attributed to the Group
As a result of the foregoing, income attributed to the Group from this business area for 2005 was €379 million, an increase of 65.5% from €229 million in 2005.
Corporate Activities
Year ended December 31, | Change | ||||||||
2005 | 2004 | 2005/2004 | |||||||
(in millions of euros) | (in percentages) | ||||||||
Net interest income | (150 | ) | (103 | ) | 45.5 | ||||
Share of profit of entities accounted for using the equity method | 71 | (8 | ) | n.m. | (1) | ||||
Net fee and commission income | 152 | 103 | 47.3 | ||||||
Insurance activity loss | (56 | ) | (38 | ) | 48.6 | ||||
Basic income/loss(2) | 16 | (46 | ) | 136.1 | |||||
Gains on financial assets and liabilities (net) | 441 | 567 | (22.3 | ) | |||||
Gross income | 457 | 521 | (12.5 | ) | |||||
Sales and income from the provision of non-financial services | (1 | ) | 15 | (105.6 | ) | ||||
Personnel expenses and other administrative expenses | (419 | ) | (385 | ) | 8.9 | ||||
Depreciation and amortization | (127 | ) | (121 | ) | 4.7 | ||||
Other operating income and expenses (net) | (41 | ) | (13 | ) | n.m. | (1) | |||
Net operating income | (131 | ) | 17 | n.m. | (1) | ||||
Impairment losses | 138 | (10 | ) | n.m. | (1) | ||||
Net loan loss provisions | 146 | 164 | (11.2 | ) | |||||
Other writedowns | (8 | ) | (174 | ) | (95.5 | ) | |||
Provision expense (net) | (328 | ) | (671 | ) | (51.1 | ) | |||
Other gains and losses (net) | 22 | 286 | (92.4 | ) | |||||
Loss before tax | (300 | ) | (378 | ) | (20.5 | ) | |||
Income tax | 247 | 338 | (26.9 | ) | |||||
Loss from continuing operations | (53 | ) | (40 | ) | 35.1 | ||||
Income or loss attributed to minority interests | (79 | ) | (8 | ) | n.m. | (2) | |||
Loss attributed to the Group | (132 | ) | (48 | ) | 181.0 | ||||
(1) | Not meaningful. |
(2) | Basic income/(loss) for this business area consists of net interest income/(expense), share of profit/(loss) of entities accounted for using the equity method, net fee and commission income and insurance activity income/(loss). Basic income/(loss) is not a line item in our Consolidated Financial Statements. |
Net Interest Income/(Expense)
Net interest expense of this business area for 2005 amounted to €212€150 million, for 2005, a 47.8%45.5% increase from €143€103 million in 2004,2005, due principally due to the increased costs relating to derivativesderivative transactions we enterentered into to hedge exchange rate risk in Latin America.
Share of Profit/(Loss) of Entities Accounted for Using the Equity Method
Share of profit of entities accounted for using the equity method of this business area for 2005 amounted to €71 million compared to share ofa loss of entities accounted for using the equity method of this business area for 2004 of €8 million. Share of profit ofin entities accounted for using the equity method of this business area for 2005 related principally to our share of the profit in 2005 of Banca Nazionale del Lavoro, S.p.A.,BNL, which had losses in 2004.
Basic Income/(Loss)
Basic lossincome of this business area for 2005 amounted to €148€16 million a decreasecompared to basic loss of 16.7% from €178€46 million in 2004,2004. This was principally attributable to increases in net fee and commission income and share of profit of entities accounted for using the equity method, and an increase in net fee and commission income,which more than offset in part by an increase inincreased net interest expense.expense of insurance activity income.
Gains on Financial Assets and Liabilities (Net)Gross Income
Gains on financial assets and liabilities (net) of this business area for 2005 amounteddecreased 22.3% to €391 million, a decrease of 30.1% from €560€441 million in 2004. Gains on financial assets and liabilities (net)2005 from €567 million in 2004, reflected gains onmainly due to the sale of shares of Acerinox S.A
in 2004. Gross Income
As a result of the foregoing, gross income of this business area for 2005 amounted to €243€457 million, a decrease of 36.4% compared to €38212.5% from €521 million in 2004.2005.
Net Operating Income/(Loss)Loss
NetAs a result of the foregoing, net operating loss of this business area for 2005 was €277€131 million, from a 224.7% increase from €85net operating income of €17 million in 2004.
Impairment Losses (Net)losses (net)
Recoveries of impairment losses in this business area for 2005 was €129€138 million compared to impairment losses (net) of €6€10 million in 2004. Impairment losses (net) in 2004, mainly reflected the amortization of €193 million of goodwill relating to Banca Nazionale del Lavoro, S.p.A., €145BNL.
Provision expense (net)
Provision expense in this business area for 2005 was €328 million, a decrease of which corresponded51.1% compared to €671 million in 2004, reflecting the reduced early amortization of goodwill relating to this entityretirements in the fourth quarter of 2004.2005.
Other Gains and Losses (Net)
Other gains and losses (net) of this business area foramounted to €22 million in 2005, was €24 million, a 91.6%significant decrease from €285€286 million in 2004. Other2004, due to the fact that the capital gains (net) of this business areaon Banco Atlantico and Direct Seguros were entered in 2004, mainly reflected gains relating to the sale of shares of Banco Atlántico and Direct Seguros.whereas in 2005 there were no significant disposals.
Income/(Loss) Attributed to the Group
As a result of the foregoing, the area’s loss attributed to the group from this business area forGroup in 2005 was €219totalled €132 million an increasecompared with a loss of 113.3% from €102€48 million in 2004.
Material Differences between U.S. GAAP and EU-IFRS
As of December 31, 2006, 2005 and 2004, our Consolidated Financial Statements have been prepared in accordance with EU-IFRS, which differ in certain respects from U.S. GAAP. The tables included in Note 5962 to our Consolidated Financial Statements give the effect that application of U.S. GAAP would have on income for the year and shareholders’stockholders’ equity as reported under IFRS.EU-IFRS.
The transition of the Group’s consolidated financial statementsConsolidated Financial Statements to IFRS has been carried out by applying IFRS 1: First-Time Adoption of International Financial Reporting Standards being(“IFRS 1”); as January 1, 2004 was the beginning of the earliest period presented for comparative purposes under the new accounting standards. This date is considered as the date of transition to IFRS.EU-IFRS.
As a general rule, the IFRSEU-IFRS in force at December 31, 20052006 must be applied retrospectively to prepare an opening balance sheet at the date of transition and all following periods. IFRS 1 provides for certain exemptions from full retrospective application of IFRSEU-IFRS in the opening balance sheet. The main exemptions are disclosed in Note 3Appendix VI to our Consolidated Financial Statements.
Reconciliation to U.S. GAAP
Shareholders’Stockholders’ equity would have been €30,461 million at December 31, 2006 under U.S. GAAP compared to €21,550 million as of December 31, 2006 under EU-IFRS, while stockholders’ equity would have been €25,375 million atas of December 31, 2005 under U.S. GAAP compared to €16,330 million atas of December 31, 2005 under IFRS, while shareholders’EU-IFRS and stockholders’ equity would have been €23,465 million atas of December 31, 2004 under U.S. GAAP compared to €13,068 million atas of December 31, 2004 under IFRS.EU-IFRS. The increase in shareholders’stockholders’ equity under U.S. GAAP atas of December 31, 2006, December 31, 2005 and December 31, 2004 as compared with shareholders’stockholders’ equity under IFRSEU-IFRS at each of those dates is principally due to the goodwill that arose from the business combinations with Argentaria (2000) and Bancomer (2004). See Note 5962 to our Consolidated Financial Statements.
Net income would have been €4,972 million in 2006 under U.S. GAAP compared to income attributed to the Group for the year of €4,735 million in 2006 under EU-IFRS, while net income would have been €2,018 million in 2005 under U.S. GAAP compared to income attributed to the Group for the year of €3,086€3,806 million in 2005 under IFRS,EU-IFRS, while net income would have been €3,095 million in 2004 under U.S. GAAP compared to income for the year of €2,923 million in 2004 under IFRS. EU-IFRS. The differences in net income in 2006 under U.S. GAAP as compared with income attributed to the Group for the year in 2006 under EU-IFRS are principally due to the following reconciliation items: “loans adjustments” and “accounting of goodwill.”
The decrease in net income in 2005 under U.S. GAAP as compared with income attributed to the Group for the year in 2005 under IFRSEU-IFRS is principally due to the application of IFRS-1IFRS 1 principals for the first-time adoption of IFRS.EU-IFRS. Pursuant to IFRS-1, we have taken certain charges to shareholders’stockholders’ equity as of January 1, 2004, while under U.S. GAAP we have taken these charges to shareholders’stockholders’ equity as of January 1, 2005. See note 59.Note 62 to our Consolidated Financial Statements.
See note 59Note 62 to our Consolidated Financial Statements for a quantitative reconciliation of net income and shareholders’stockholders’ equity from IFRSEU-IFRS to U.S. GAAP.
B. Liquidity and Capital Resources
B. | Liquidity and Capital Resources |
Our principal source of funds is our customer deposit base, which consists primarily of demand, savings and time deposits. In addition to relying on our customer deposits, we also access the interbank market (overnight and time deposits) and domestic and international capital markets for our additional liquidity requirements. To access the capital markets, we have in place a series of domestic and international programs for the issuance of commercial paper and medium- and long-term debt. We also generally maintain a diversified portfolio of liquid assets and securitized assets. Another source of liquidity is our generation of cash flow. Finally, we supplement our funding requirements, to a very limited extent, with borrowings from the Bank of Spain, mostly short-term and at market interest rates, which is a common practice in Spain.
The following table shows the balances at December 31, 2006, 2005 and 2004 of our principal sources of funds:
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
(in millions of euro) | (in millions of euros) | |||||||||
Customer deposits | 182,179 | 149,075 | 192,374 | 182,635 | 149,892 | |||||
Due to credit entities | 66,315 | 64,349 | 57,804 | 66,315 | 64,349 | |||||
Debt securities in issue | 76,565 | 57,810 | 91,271 | 76,565 | 57,809 | |||||
Other financial liabilities | 6,995 | 6,075 | 5,807 | |||||||
Total | 325,059 | 271,234 | 348,445 | 331,590 | 277,857 | |||||
Deposit BaseCustomer deposits
Our total customer funds (customer deposits, excluding assets sold under repurchase agreements, marketable debt securities and subordinated debt)agreements) amounted to €160€173 billion as of December 31, 2005,2006, an increase of 21.6%7.65% from €132€161 billion as of December 31, 2004.2005. Including assets sold under repurchase agreements, customer funds amounted to €192 billion as of December 31, 2006, an increase of 5.33% from €182 billion as of December 31, 2005, an increase of 22.2% from €149 billion as of December 31, 2004.2005. Customer funds increased principally due to an increase in time deposits and savings accounts from customers outsidein Spain.
Interbank and Capital Markets
We have increased debt issuances in the domestic and international capital markets in order to finance our activities and as of December 31, 2005,2006, we had €60,887€76,861 million of senior debt outstanding, comprising €53,469€69,305 million in bonds and debentures and €7,418€7,556 million in promissory notes and other securities, compared to €60,887 million, €53,469 million and €7,418 million outstanding as of December 31, 2005 and €44,203 million, €37,830 million and €6,372 million outstanding as of December 31, 2004, respectively. See Note 26.4 to the Consolidated Financial Statements. A total of €9,179€9,385 million in subordinated debt and €4,127€4,025 million in preferred stock issued or guaranteed by Banco Bilbao Vizcaya Argentaria S.A. was outstanding as of December 31,
2005, 2006, compared to €9,179 million and €4,128 million outstanding as of December 31, 2005 and €8,100 million and €3,809 million outstanding as of December 31, 2004, respectively. See Note 26.5 to the Consolidated Financial Statements.
The average maturity of our outstanding debt as of December 31, 20052006 was the following:
Senior debt | ||
Subordinated debt | 8 years |
The cost and availability of debt financings are influenced by credit ratings. A reduction in these ratings could increase the cost of, and reduce our access to, debt financing. As of December 31, 2005,2006, our credit ratings were as follows:
Short Term | Long Term | Financial Strength | ||||||
Moody’s | B+ | |||||||
Fitch—IBCA | AA- | F-1+ | A/B | |||||
Standard & Poor’s | — |
Generation of Cash Flow
We operate in Spain and over 2030 other countries, mainly in Europe and Latin America. Other than in Argentina and Venezuela, we are not aware of any legal or economic restrictions on the ability of our subsidiaries to transfer funds to our parent company in the form of cash dividends, loans or advances, capital repatriation or otherwise. There is no assurance that in the future such restrictions will not be adopted or that, if adopted, they will not negatively affect our liquidity. The geographic diversification of our businesses, however, limits the effect of any restrictions that could be adopted in any given country.
We believe that our working capital is sufficient for our present requirements and to pursue our planned business strategies.
Capital
Under the Bank of Spain’s capital adequacy regulations, as of December 31, 2006, 2005 and 2004, we were required to have a ratio of consolidated stockholders’ equity to risk-weighted assets and off-balance sheet items (net of certain amounts) of not less than 8%.
As of December 31, 2004, this ratio was 10.67% and our shareholders’stockholders’ equity exceeded the minimum level required by 33%. As of December 31, 2005, this ratio was 9.26% and our shareholders’stockholders’ equity exceeded the minimum level required by 16%. As of December 31, 2006, this ratio was 11.23% and our stockholders’ equity exceeded the minimum level required by 40.4%. However, based purely on the framework of the Basel Accord and using such additional assumptions as we consider appropriate, we have estimated that as of December 31, 2004, 2005 and 20052006 our consolidated Tier I risk-based capital ratio was 8.1%, 7.5% and 7.5%7.8%, respectively, and our consolidated total risk-based capital ratio (consisting of both Tier I capital and Tier II capital) was 12.5%, 12.0% and 12.0%, respectively. The Basel Accord recommends that these ratios be at least 4% and 8%, respectively, and under Basel II, the recommended ratios are a minimum of 4% and 8%, respectively.
For qualitative and quantitative information on the principal risks we face, including market, credit, and liquidity operationalrisks as well as information on funding and legal risks,treasury policies and exchange rate risk, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.
C. Research and Development, Patents and Licenses, etc.
C. | Research and Development, Patents and Licenses, etc. |
In 2005,2006, the BBVA Group continued to foster the use of new technologies as a key component of its global development strategy. It explored new business and growth opportunities, focusing on three major areas: emerging technologies; asset capture/exploitation; and the customer as the focal point of its banking business.
We did not incur inany significant research and development expenses in 2003, 2004, 2005 and 2005.
D. | Trend Information |
The European financial services sector is likely to remain competitive with increasing numbers of providers of financial services and alternative distribution channels. Further consolidation in the sector (through mergers, acquisitions or alliances) is likely as the other major banks look to increase their market share or combine with complementary businesses. It is foreseeable that regulatory changes will take place in the future that will diminish barriers to such consolidation transactions. However, some of hurdles that should be dealt with are the result of local preferences, as, potentially, consumer protection. If there are clear local consumer preferences, leading to specific local consumer protection rules, the same products cannot be sold across all the jurisdictions in which the Group operates, which reduces potential synergies. Certain challenges, such as the Value Added Tax regime for banks, do not however, relate to the interest or preferences of consumers.
The following are the most important trends, uncertainties and events that are reasonably likely to have a material adverse effect on us or that would cause the financial information disclosed herein not to be indicative of our future operating results or financial condition:
uncertainties relating to economic growth expectations and interest rate cycles, especially in the United States, where the high current account deficit of the U.SU.S. economy may translate into an upward adjustment of risk premium and higher global interest rates, and the impact they may have over the yield curve and exchange rates. In this scenario, the Spanish economy could perform similarly to how it performed during the recession at the beginning of the 1990s;
the possibility of experiencing a severe slowdown in the U.S. real estate market, which could have pervasive effects in the North American economy and consequently in the global markets;
a downturn in capital markets or a downturn in investor confidence, linked to factors such as geopolitical risk, particularly given the environment in the Middle East. Continued or new crises in the region could cause an increase in oil prices, generating inflationary pressures that will have a negative effect on interest rates and economic growth;
the effect that an economic slowdown may have over Latin American markets and fluctuations in local interest and exchange rates;
E. Off-Balance Sheet Arrangements
E. | Off-Balance Sheet Arrangements |
In addition to loans, we had outstanding the following contingent liabilities and commitments at the dates indicated:
At December 31, | ||||
2005 | 2004 | |||
(in millions of euro) | ||||
Contingent liabilities: | ||||
Rediscounts, endorsements and acceptances | 42 | 39 | ||
Guarantees and other sureties | 25,790 | 17,574 | ||
Other contingent liabilities | 4,030 | 3,945 | ||
Total contingent liabilities | 29,862 | 21,558 | ||
Commitments: | ||||
Balances drawable by third parties: | ||||
Credit entities | 2,816 | 2,665 | ||
Public authorities | 3,128 | 1,638 | ||
Other domestic customers | 36,063 | 29,617 | ||
Foreign customers | 42,994 | 26,797 | ||
Total balances drawable by third parties | 85,001 | 60,717 | ||
Other commitments | 4,497 | 6,045 | ||
Total commitments | 89,498 | 66,762 | ||
Total contingent liabilities and commitments | 119,360 | 88,320 | ||
Contingent liabilities: Rediscounts, endorsements and acceptances Guarantees and other sureties Other contingent liabilities Total contingent liabilities Commitments: Balances drawable by third parties: Credit entities Public authorities Other domestic customers Foreign customers Total balances drawable by third parties Other commitments Total commitments Total contingent liabilities and commitments At December 31, 2006 2005 2004 (in millions of euros) 44 42 39 37,002 25,790 17,574 5,235 4,030 3,945 42,281 29,862 21,558 4,356 2,816 2,665 3,122 3,128 1,638 43,730 36,063 29,617 47,018 42,994 26,797 98,226 85,001 60,717 4,995 4,497 6,045 103,221 89,498 66,762 145,502 119,360 88,320
In addition to the contingent liabilities and commitments described above, the following table provides information regarding off-balance-sheet funds managed by us as of December 31, 2006, 2005 and 2004:
As of December 31, | As of December 31, | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
(in millions of euro) | (in millions of euros) | |||||||||
Mutual funds | 59,003 | 51,040 | 58,452 | 59,003 | 51,040 | |||||
Pension funds | 53,959 | 41,491 | 57,147 | 53,959 | 41,491 | |||||
Other managed assets | 30,926 | 31,968 | 26,465 | 30,926 | 31,968 | |||||
Total | 143,888 | 124,499 | 142,064 | 143,888 | 124,499 | |||||
Our off-balance sheet funds increaseddecreased in 20052006 principally due to the launch of new products and the positive change in market trends over the course of 2005.customer preferences for fixed-term deposits.
See Note 4244 to the Consolidated Financial Statements for additional information with respect to our off-balance sheet arrangements.
Agreement with Terra Networks
In connection with the agreement by Banco Bilbao Vizcaya Argentaria, S.A. and Terra Networks (subsequently merged into Telefónica, S.A.) to integrate Uno-e Bank and the individual consumer financing business of Finanzia (part of the Retail Banking in Spain and Portugal business area), Banco Bilbao Vizcaya Argentaria, S.A. entered into an agreement with Terra Networks which gives Terra Networks (or its successor) a liquidity mechanism over its shares in the combined entity and that replaces a previous liquidity mechanism entered into on May 15, 2002. The current liquidity mechanism provides Terra Networks (or its successor) the right to sell its stake in Uno-e Bank to Banco Bilbao Vizcaya Argentaria, S.A. between April 1, 2005 and September 30, 2007 at a price equal to the higher of (i) the market value of the securities as determined by an investment bank, and (ii) the amount obtained by multiplying (a) the after-tax profits of Uno-e Bank times (b) Banco Bilbao Vizcaya Argentaria, S.A. price/earnings ratio times (c) the percentage holding in Uno-e Bank that Terra Networks (or its successor) intends to sell. However, in no event can the sale price under (i) or (ii) above be less than €148.5 million if Uno-e Bank does not achieve certain net ordinary revenue and pre-tax income targets.
F. Tabular Disclosure of Contractual Obligations
F. | Tabular Disclosure of Contractual Obligations |
Our consolidated contractual obligations as of December 31, 2005 are2006 were as follows:
Less Than One Year | One to Five Years | Over Five Years | Total | |||||
(in millions of euro) | ||||||||
Senior debt | 37,803 | 16,326 | 8,713 | 62,842 | ||||
Subordinated debt | 1,139 | 947 | 11,637 | 13,723 | ||||
Capital lease obligations | — | — | — | — | ||||
Operating lease obligations | 86 | 9 | 27 | 122 | ||||
Purchase obligations | 21 | 170 | — | 191 | ||||
Total (*) | 39,049 | 17,452 | 20,377 | 76,878 | ||||
Less Than One Year | One to Five Years | Over Five Years | Total | |||||
(in millions of euros) | ||||||||
Senior debt | 15,244 | 39,994 | 21,622 | 76,861 | ||||
Subordinated debt | 1,191 | 3,435 | 8,785 | 13,410 | ||||
Capital lease obligations | 83 | 2,200 | 5,315 | 7,598 | ||||
Operating lease obligations | 134 | 531 | 502 | 1,167 | ||||
Purchase obligations | 23 | 1 | 0 | 23 | ||||
Total (*) | 16,675 | 46,161 | 36,224 | 99,059 | ||||
(*) | Interest to be paid |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
The BBVA boardBoard of directorsDirectors is very conscious of the importance of a good corporate governance system to run the structure and operation of its corporate bodies in the best interests of the company and its shareholders.
Thus, the bank’s boardBoard of directorsDirectors is subject to regulations that reflect and develop the principles and elements that have shaped BBVA’s system of corporate governance. These comprise standards for the internal regime and operation of the board and its committees, as well as the rights and obligations of directors in pursuit of their duties, which are contained in the directors charter. Shareholders and investors may find these on the company website (www.bbva.com).
The Annual General Meeting has its own set of regulations on issues such as how it operates and what rights shareholders enjoy regarding AGMs. These establish the possibility of exercising or delegating votes over remote communication media.
The board of directors has also approved a report on Corporate Governance for the year ended December 31, 2005,2006, according to the guidelines laid down in prevailing disclosure regulations for listed companies. It can be found on the BBVA website.
This site was created as an instrument to facilitate information and communication with shareholders. It provides special direct access to all information considered relevant to BBVA’s corporate governance system, laid out in a clear, readable manner.
A. Directors and Senior Management
A. | Directors and Senior Management |
BBVA is managed by a Board of Directors, which, in accordance with BBVA’s current bylaws (Estatutos), must consist of no less than 9 and no more than 16 members. In accordance with the resolutions approved by the General Shareholders’ Meeting on March 18, 2006,16, 2007, we currently have 1514 directors.
Directors are appointed to the Board of Directors by our shareholders. All members of the Board of Directors are elected to serve five-year terms. One-fifth of the members are subject to re-election every year by the shareholders at a general meeting. Directors must resign at the age of 70. The Chairman of the Board must resign his or her chairmanship upon reaching the age of 65, but may continue to serve as a director thereafter, until reaching the age of 70. The President and Chief Operating Officer and other executive directors must resign from their management positions upon reaching the age of 62, at which point they must also submit their resignation as directors to the Board of Directors. The Board of Directors may nonetheless determine that such executive directors may continue to serve on the Board of Directors.
One of the characteristic elements of BBVA’s Corporate Governance System is to have a majority of independent directors on its governing bodies, especially on the Board of Directors.Directors and Executive Committee. We consider directors to be independent when they do not hold any other position with BBVA or any of our subsidiaries and they:
do not own, directly or indirectly, over 3% of our shares and have not been appointed by a shareholder holding over 3% of our shares;
are not an entity designated to serve on our Board of Directors, or a representative of any such entity, which holds one or more directorships (an institutional director);
have not served as an executive officer, an executive director or as an employee of BBVA’s external auditor, in each case within the last three years;
do not have a significant relationship with BBVA, directly or as a partner, shareholder, manager or employee of an entity that has such a relationship, where the relationship could be considered to affect such director’s independence;
do not possess any other quality or characteristic that, in the judgment of the Board of Directors, might compromise such director’s independence.
An institutional director is an external director designated by virtue of her or his relationship with a person or entity that is a significant shareholder of BBVA. For this purpose we consider a significant shareholder to be a person or entity that owns, directly or indirectly, at least 5% of the share capital or voting rights of BBVA. If a lower percentage of shares or voting rights allows such person or entity to exercise significant influence over BBVA, such person or their designee shall also be considered an institutional director.
Regulations of the Board of Directors
The following discussion provides a brief description of several significant matters covered in the Regulations of the Board of Directors.
Appointment and Re-election of Directors
The Regulations of the Board of Directors provide that the qualifications of the persons proposed for appointment as directors shall be assessed by the Appointments and Compensation Committee of the Board of Directors with due reference to the candidates’ personal and professional attributes, as well as the needs of BBVA’s governing bodies.
When proposals for re-electing directors are made, the Board of Directors will evaluate the performance of directors proposed for a further term, their dedication, and such other considerations that may affect the advisability of reelectingre-electing such directors.
Term of Directorships
Directors shall retire from their directorships at the age of 70 except our Chairman and Chief Executive Officer who shall retire from his executive position at the age of 65, but may continue to serve on the Board of Directors until reaching age 70. Resignation should occur in the first session of the Board of Directors to be held after the General Shareholders’ Meeting that approves the accounts for the year in which a director reaches age 65 or 70 as the case may be.
Executive directors, other than our Chairman and Chief Executive Officer, are required to resign from their management positions at the age of 62, following the same timing rules as established in the paragraph above. Following such resignation, the executive director shall place his or her directorship at the disposal of the Board of Directors, which may agree that they should continue to serve as a member of the Board of Directors, notwithstanding their resignation from their executive position.
One-fifth of the members of the Board of Directors shall be elected by the General Shareholders’ Meeting each year. Directors may serve an unlimited number of terms.
Performance of Directors’ Duties
The members of the Board of Directors shall carry out the duties inherent in their directorship and membership on any Board Committee in accordance with applicable law, BBVA’s bylaws, the Regulations of the Board of Directors and resolutions adopted by BBVA’s Board of Directors.
Each director will be required to attend the meetings of the Board of Directors and Committees of which he or she is a member, except in cases duly justified, and participate in the deliberations, discussions and debates thereof with regard to the matters which arise at such meetings.
The directors shall have sufficient information to be able to form opinions on issues raised by the Board of Directors and its Committees, and the information shall be furnished as far in advance as required. Additionally, directors may propose to the Board of Directors that external experts be consulted to assist the Board to consider matters of special complexity or importance.
Directors shall keep confidential the deliberations of the Board of Directors and the Committees of which he or she is a member, and all information to which they may have access in the discharge of their duties, which they shall use exclusively in pursuit of their duties and with due diligence. Directors’ obligation of confidentiality shall remain in force after they have ceased to serve on the Board of Directors.
Ethics and Code of Conduct
Directors shall behave ethically in their activities and in good faith, consistent with applicable statutory, requirements and the principles comprising BBVA’s values.
The Regulations of the Board of Directors regulate conflicts of interest that may arise between, the interests of the directors and/or their family members, and the interests of BBVA and set forth the circumstances where a director’s activities may be incompatible with their duties as a member of the Board of Directors.
Directors shall abstain from attending and taking part in matters which may give rise to a conflict of interest.
Directors shall not be present during the deliberations of the Board of Directors or Committees of which he or she is a member when such deliberations relate to matters in which they may have a direct or indirect interest. Directors are also prohibited from carrying out personal, professional or commercial transactions with BBVA or its subsidiaries, other than normal banking transactions, unless such transactions are entered into in connection with transparent and open bidding procedures and at market prices.
Directors shall also abstain from having a direct or indirect stake in businesses or companies in which BBVA or its subsidiaries has an interest, unless (i) the stake predates their joining the Board of Directors, or BBVA or its subsidiaries acquires its or their interest, as the case may be, after they join the Board of Directors, or (ii) the companies are listed on a domestic or international stock exchange, or (iii) the director’s stake is authorized by the Board of Directors.
Directors may not use their position with BBVA to obtain, directly or indirectly, a material advantage, nor take advantage of any business opportunity of which they become aware as a result of their membership on the Board of Directors.
Incompatibilities
In pursuit of their duties, directors shall be subject to rules on incompatible activities.
The Regulations of the Board of Directors establish specific rules regarding director activities that are incompatible membership on the Board of Directors, except for those cases expressly authorized by the Board.
Under the incompatibility rules, directors may not: (i) provide professional services or be an employee, manager or director of companies competing with BBVA or any of BBVA’s subsidiaries; (ii) hold a directorship or equivalent position in any company in which BBVA holds an interest or (iii) perform any activity that may in any way adversely affect BBVA’s public image.
As an exception, on our initiative, executive directors may perform management tasks in subsidiaries directly or indirectly controlled by BBVA with the consent of the Executive Committee, and other companies in which BBVA participates with the consent of the Board of Directors.
The non-executive directors may serve as directors for companies in which BBVA directly or indirectly holds an ownership interest if such position is not held as a result of our ownership interest and with the prior consent
of the Board of Directors. This limitation does not apply where we have acquired an interest in another company in the ordinary course of our asset management, derivatives coverage or other similar business lines.
Directors’ Resignation and Dismissal
Directors shall resign their office when the term for which they were appointed has expired, unless they are re-elected.
Furthermore, in the following circumstances directors must tender their resignation to the Board and accept its decision regarding their continuity in office:
when they are affected by circumstances of incompatibility or prohibition as defined in current Spanish legislation, in BBVA’s Bylaws or in the Directors’ Charter;
when there is a significant change in their professional status or in the condition that led to their appointment;
in the event of a serious breach of their obligations related to the performance of their duties as directors; and
when, through action in their capacity as directors, serious harm has been caused to the corporate assets or when they have lost the commercial and professional reputation required for the office of director of the Bank.
Incompatibility After Severance
Directors who cease to belong to the Board of Directors may not provide services to any other financial institution competing with BBVA or any of its subsidiaries for two years after leaving the Board of Directors, unless the Board of Directors expressly authorizes otherwise. Such authorization may be denied on the ground of BBVA’s best interest.
The Board of Directors
The Board of Directors is currently comprised of 1514 members. The following table sets forth the names of the members of the Board of Directors as of the date of this Annual Report on Form 20-F, their date of appointment and, if applicable, reelection, their current positions and their present principal outside occupation and five-year employment history.
Name(*) | Birth Year | Current Position | Date Nominated | Date | Present Principal Outside Occupation | |||||
Francisco González Rodríguez(1) | 1944 | Chairman and Chief Executive Officer | December 18, 1999 | February 26, 2005 | Chairman, Argentaria, May | |||||
José Ignacio Goirigolzarri Tellaeche(1) | 1954 | President and Chief Operating Officer | December 18, 2001 | March 1, 2003 | Director, Telefónica, S.A., April 2000–April 2003; Vice President, Repsol YPF, S.A., 2002–2003; | |||||
Tomás Alfaro Drake(2) | 1951 | Independent Director | March 18, 2006 | Director of Business Management and Administration and Business Sciences programs at Universidad Francisco de Vitoria, since 1998. | ||||||
Juan Carlos Álvarez Mezquíriz(1)(3) | 1959 | Independent Director | December 18, 1999 | March 18, 2006 | Managing Director, Grupo Eulen; Director, Bodegas Vega Sicilia, S.A. | |||||
Rafael Bermejo Blanco(2) (4) | 1940 | Independent Director | March 16, 2007 | Technical Secretary General of Banco Popular, 1999–2004. | ||||||
Richard C. Breeden | 1949 | Independent Director | October 29, 2002 | February 28, 2004 | Chairman, Richard C. Breeden & Co. | |||||
Ramón Bustamante y de la Mora(2)(4) | 1948 | Independent Director | December 18, 1999 | February 26, 2005 | Director, Ctra. Inmo. Urba. Vasco-Aragonesa, S.A. |
José Antonio Fernández Rivero(4) | 1949 | Independent Director | February 28, 2004 | Appointed Group General Manager, |
Name(*) | Birth Year | Current Position | Date Nominated | Date Re-elected | Present Principal Outside Occupation | |||||
Ignacio Ferrero Jordi(1)(3) | 1945 | Independent Director | December 18, 1999 | February 26, 2005 | Chairman, Nutrexpa, S.A. Director La Piara S.A.; Director Lladró Comercial S.A. | |||||
Román Knörr Borrás(1) | 1939 | Independent Director | May 28, 2002 | March 1, 2003 | Chairman, Carbónicas Alavesas, S.A.; Director, Mediasal 2000, S.A. and President of the Alava Chamber of Commerce; Chairman, Confebask (Basque Business Confederation) from 1999 to 2005; Director of Aguas de San Martín de Veri, S.A. until January 2006. Plenary member and Chairman of the Training Committee of the Supreme Council of Chambers of Commerce. | |||||
Carlos Loring Martínez de Irujo(2)(3) | 1947 | Independent Director | February 28, 2004 | March 18, 2006 | He was a partner of J&A Garrigues, from 1977 until 2004; Director of the Department of Mergers and Acquisitions, of Banking and Capital Markets, Member of the Management Committee since 1985. | |||||
José Maldonado Ramos(4)(5) | 1952 | Director and General Secretary | December 18, 1999 | February 28, 2004 | Director, Telefónica S.A., February 1999 – April 2003; Secretary of the Board of Directors and Director and General Secretary, Argentaria, May 1997 – 2000; Director and General Secretary, BBVA, since January 2000. |
Name* | Birth Year | Current Position | Date Nominated | Date Re-elected | Present Principal Outside Occupation | |||||
Enrique Medina Fernández(1)(4) | 1942 | Independent Director | December 18, 1999 | February 28, 2004 | Director and Secretary, Sigma Enviro, S.A. | |||||
Susana Rodríguez Vidarte(2)(3) | 1955 | Independent Director | May 28, 2002 | March 18, 2006 | Dean of Deusto “La Comercial” University since 1996. | |||||
(*) | Telefónica de España, S.A. and Mr. Ricardo Lacasa Suárez each left their respective position on the Board of Directors on March 16, 2007 and March 28, 2007, respectively. |
(**) | Where no date is provided, the position is currently held. |
(1) | Member of the Executive Committee. |
(2) | Member of the Audit and Compliance Committee. |
(3) | Member of the Appointments and Compensation Committee. |
(4) | Member of the Risk Committee. |
(5) | Secretary of the Board of Directors. |
Executive Officers (“Comité de Dirección”)
Our executive officers were each appointed for an indefinite term. In December 2005 our Executive Committee was enlarged from 12 members to 18, theirTheir positions as of the date of this Annual Report on Form 20-F are as follows:
Name | Current Position | Present Principal Outside Occupation and Five-Year Employment History(*) | ||
Francisco González Rodríguez | Chairman and
| Chairman, Argentaria, May 1996 – January 2000; Chairman, BBVA, since January 2000. Director of BBVA Bancomer Servicios, S.A; Grupo Financiero BBVA Bancomer, S.A. C.V. and BBVA Bancomer S.A. | ||
José Ignacio Goirigolzarri Tellaeche | President and
| Director, Telefónica, S.A. April 2000 – April 2003; Vice President, Repsol YPF, S.A., April 2002 – April 2003; Director, BBVA Bancomer Servicios, S.A., Grupo Financiero BBVA Bancomer and BBVA Bancomer, S.A. | ||
José Maldonado Ramos | Director and General Secretary | Director, Telefónica S.A., February 1999 – April 2003; Director and General Secretary, Argentaria (BBVA since January 2001), since May 1997. | ||
Eduardo Arbizu Lostao | Head of Legal, Tax, Audit and Compliance department | Head of Legal department of BBVA, since 2002; Chief Executive Officer, Barclays Bank Spain, 1997 – 2002. | ||
Ángel Cano Fernández | Human Resources and Services | Chief Financial Officer, BBVA, 2001–2002, Controller, BBVA, 2000–2001; Controller, Argentaria, 1998–2000. | ||
Manuel González Cid | Finance Division | Deputy General Manager, BBVA – Head of the Merger Office, 1999 – 2001; Head of Corporate Development, BBVA, 2001 – 2002. Director and |
Name | Current Position | Present Principal Outside Occupation and Five-Year Employment History(*) | ||
José Sevilla Álvarez | ||||
Head of Finance Division, Latin American Banking, BBV, 1998 – December 2001; Head of Business Development, BBVA, December 2001 – January 2003; Head of the Office of the Chairman, with responsibility for accountancy, internal audit and compliance, since January | ||||
Javier Ayuso Canals | Corporate Communications | Head of Information Relations, BBVA, 2000-2001. Corporate Communications Director, BBVA, December 2001. | ||
Javier Bernal Dionis | Business development
| Director of “Doctor Music Networks”, 2000-2004. Innovation and Development Director, BBVA, 2004-2006. Director Iniciativas Residenciales en Internet S.A. (Atrea) since 2005. | ||
José María García Meyer-Dohner | United States | BBVA Business Management and Coordination Manager for Mexico, 2000-2001. Commercial Banking Manager for BBVA Bancomer, 2001-2004. Retail Banking Manager for | ||
Ignacio Deschamps González | Mexico | Commercial Banking Director for BBVA Bancomer to 2006. General Director of BBVA Bancomer since December 2006. | ||
Jaime Guardiola Romojaro | Spain and Portugal | Chairman BBVA Puerto Rico, 2000-2001. Deputy Chairman and Managing Director BBVA Banco Francés, 2001-2003. Managing Director and Vicepresident BBVA Bancomer Mexico, January |
Juan Asúa Madariaga | Business. Spain and Portugal | Global Corporate Banking Director, BBVA, 2000. E-Commerce Director, BBVA, 2000-2001. Corporate Global Banking Director, BBVA, 2001-2005. | ||||
Jose Barreiro Hernández | Global Operations | Spanish Markets Director, BBVA, 2000-2001. Head of Global Markets and Distribution, Trading and Equity, BBVA, 2001-2005. | ||||
Vicente Rodero Rodero | BBVA Corporate Banking Director for Mexico, 1995-1999. BBVA Personal Banking Director, 1999-2003. BBVA Regional Director for Madrid, 2003-2004. BBVA Commercial Banking Director for Spain, |
(*) | Where no date is provided, positions are currently held. |
(**) | Mr. Sánchez Asiaín left his position on the Executive Committee in December 2006. |
Compliance with NYSE Listing Standards on Corporate Governance
On November 4, 2003, the SEC approved new rules proposed by the New York Stock Exchange (the “NYSE”) intended to strengthen corporate governance standards for listed companies. In compliance therewith, the following is a summary of the significant differences between our corporate governance practices and those applicable to domestic issuers under the NYSE listing standards. The Group’s website address is www.bbva.com. We include on such website a narrative description in English of corporate governance differences between NYSE rules and home country practice in Spain.
Independence of the Directors on the Board of Directors and Committees
Under the NYSE corporate governance rules, (i) a majority of a U.S. company’s board of directors must be composed of independent directors, (ii) a majority of the audit committee must be composed of independent directors and by July 31, 2005, all members of the audit committee must be independent and (iii) all U.S. companies listed on the NYSE must have a compensation committee and a nominations committee and all members of such committees must be independent. In each case, the independence of directors must be established pursuant to highly detailed rules promulgated by the NYSE and, in the case of the audit committee, the NYSE and the SEC.
Spanish law does not contain any requirement that members of the board of directors or the committees thereof be independent, nor does Spanish law provide any definition of what constitutes independence for the purpose of board or committee membership or otherwise. In addition, Spanish law does not require that a company have a compensation committee or a nominations committee, althoughcommittee. However, there is a non-binding recommendation for listed companies in Spain to have these committees and for them to be composed of a majority of non-executive directors as well as a definition of what constitutes independence for directors.
As described above under “—Directors and Senior Management,” BBVA considers directors to be independent when they do not hold any other position with BBVA or any of our subsidiaries and they:
do not own, directly or indirectly, over 3% of our shares and have not been appointed by a shareholder holding over 3% of our shares;
are not an entity designated to serve on our Board of Directors, or a representative of any such entity, which holds one or more directorships (an institutional director);
have not served as an executive officer, an executive director or as an employee of BBVA’s external auditor, in each case within the last three years;
do not have a significant relationship with BBVA, directly or as a partner, shareholder, manager or employee of an entity that has such a relationship, where the relationship could be considered to affect such director’s independence;
do not have a family relationship with any director failing to meet the criteria described above; and
Our Board of Directors has a large majority of non-executive directors and 11 out of the 1514 members of our Board are independent under the definition of independence described above. In addition, our Audit and Compliance Committee is composed exclusively of independent directors and the committee Chairman is required to have experience in financial management and an understanding of the standards and accounting procedures required by the governmental authorities that regulate the banking sector. In accordance with the non-binding recommendation, BBVA’s Board of Directors has created an Appointments and Compensation Committee which is composed exclusively of independent directors.
Separate Meetings for Independent Directors
In accordance with the NYSE corporate governance rules, independent directors must meet periodically outside of the presence of the executive directors. Under Spanish law, this practice is not contemplated as such. We note, however, that our independent directors meet periodically outside the presence of our executive directors anytime the Audit and Compliance Committee or the Appointments and Compensation Committee meet, since these Committees are comprised solely of independent directors. In addition, our independent directors meet outside the presence of our executive directors as often as they deem fit, and usually prior to meetings of the Board of Directors or its Committees.
Code of Ethics
The NYSE listing standards require U.S. companies to adopt a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. For information with respect to BBVA’s code of business conduct and ethics see “Item 16B. Code of Ethics”.
B. | Compensation |
Under BBVA’s bylaws, the Board of Directors is permitted to distribute up to four percent of BBVA’s annual net income to its members, but only after legally required reserve provisions have been made and after distribution of four percent of BBVA’s net income in the form of dividends to its shareholders.
The Board of Directors, at the proposal of the Appointments and Compensation Committee, which is comprised solely of independent directors, approves BBVA’s system for remuneration of members of the Board of Directors. The compensation criteria adopted by the Appointments and Compensation Committee are based on the responsibilities of the members of the Board of Directors, including their service on Board Committees, as well as the limitations service on the Board of Directors and its Committees places on other professional activities that may be pursued by the directors. This Committee adopted in 2003 criteria for the compensation of directors and determined that executive directors would be compensated solely pursuant to their employment contracts relating to their executive positions with BBVA.
The following table presents information regarding the compensation (in thousands of euro)euros) paid to each member of our Board of Directors serving during 2005.2006:
Director | Board of Directors | Executive Committee | Audit Committee | Appointments Committee | Risks Committee | Chairman of a Committee | Total | |||||||
Alvarez Mezquiriz, Juan Carlos | 115 | 146 | 37 | 298 | ||||||||||
Breeden, Richard C. | 312 | 312 | ||||||||||||
Bustamante y de la Mora, Ramón | 115 | 62 | 94 | 271 | ||||||||||
Fernández Rivero, José A.(1) | 115 | 187 | 302 | |||||||||||
Ferrero Jordi, Ignacio | 115 | 62 | 94 | 271 | ||||||||||
Knörr Borrás, Román | 115 | 146 | 261 | |||||||||||
Lacasa Suárez, Ricardo | 115 | 94 | 156 | 365 | ||||||||||
Loring Martínez Irujo, Carlos | 115 | 62 | 37 | 214 | ||||||||||
Medina Fernández, Enrique | 115 | 146 | 94 | 355 | ||||||||||
Rodríguez Vidarte, Susana | 115 | 62 | 177 | |||||||||||
San Martín Espinós, José María | 115 | 146 | 37 | 298 | ||||||||||
Telefónica | 115 | 115 | ||||||||||||
TOTAL | 1,577 | 584 | 248 | 111 | 282 | 437 | 3,239 | |||||||
Director | Board of Directors | Executive Committee | Audit and Compliance Committee | Risk Committee | Appointments and Compensation Committee | Total | ||||||
Tomás Alfaro Drake | 89 | — | 43 | — | — | 132 | ||||||
Juan Carlos Álvarez Mezquíriz | 119 | 152 | — | — | 39 | 310 | ||||||
Richard C. Breeden | 324 | — | — | — | — | 324 | ||||||
Ramón Bustamante y de la Mora | 119 | — | 65 | 97 | — | 281 | ||||||
José Antonio Fernández Rivero (*) | 119 | — | — | 194 | — | 313 | ||||||
Ignacio Ferrero Jordi | 119 | 101 | 22 | — | 58 | 300 | ||||||
Román Knörr Borrás | 119 | 152 | — | — | — | 271 | ||||||
Ricardo Lacasa Suárez | 119 | — | 162 | 97 | — | 378 | ||||||
Carlos Loring Martínez de Irujo | 119 | — | 65 | — | 78 | 262 | ||||||
Enrique Medina Fernández | 119 | 152 | — | 97 | — | 368 | ||||||
Susana Rodríguez Vidarte | 119 | — | 65 | — | — | 184 | ||||||
Telefónica de España, S.A. (Mr. Ángel Vilá Boix) | 119 | — | — | — | — | 119 | ||||||
Total (**) | 1,603 | 557 | 422 | 485 | 175 | 3,242 | ||||||
(**) | Mr. José María San Martín Espinós, who stood down as director at the AGM held on March 18, 2006, received €77 thousand in 2006 in payment of his membership on the Board of Directors. |
Compensation paid to BBVA’s executive directors, which under BBVA’s bylaws must be based solely on their employment contracts relating to their executive positions with BBVA, in 20052006 was as follows (in thousands of euro)euros):
Fixed Pay | Variable Pay | Total* | ||||
Chairman of the Board | 1,649 | 2,486 | 4,135 | |||
Chief Operating Officer & President | 1,220 | 2,097 | 3,317 | |||
General Secretary | 544 | 645 | 1,189 |
Fixed remunerations | Variable Remunerations (*) | Total (**) | ||||
Chairman and Chief Executive Officer | 1,740 | 2,744 | 4,484 | |||
President and Chief Operating Officer | 1,287 | 2,304 | 3,591 | |||
Director and General Secretary | 581 | 703 | 1,284 |
(*) | Figures relating to variable remuneration for 2005 paid in 2006. |
(**) | In |
The executive directors also earned variable remuneration during 2006, which was paid to them in the first quarter of 2007. Such amounts earned in 2006 include €3,255 thousand by the Chairman and Chief Executive Officer, €2,730 thousand by the President and Chief Operating Officer and €794 thousand by the Director and General Secretary. Such amounts are recognized under the heading “Accrued Expenses and Deferred Income” in the consolidated balance sheet as of December 31, 2006.
The information given here on the Management Committee covers all members at December 31, 2006, excluding executive directors. Remuneration paid to members of the Management Committee in 2005,2006, excluding executive directors, came to €6,730€5,763 thousand of fixed remuneration, and €15,751€11,403 thousand of variable remuneration. The number ofremuneration earned in 2005 and received in 2006. In addition, the members of the management committee grew from 12 to 18Management Committee, excluding executive directors, received remuneration in December 2005. kind totaling €526 thousand in 2006.
The information given here covers all members atof the Management Committee also earned variable remuneration totaling €12,689 thousand in 2006, and this amount, which is recognized under the heading “Accrued Expenses and Deferred Income” in the consolidated balance sheet as of December 31, 2005, excluding executive directors.2006, was paid in the first quarter of 2007.
The following table provides the provisions recorded at December 31, 2005 for welfare benefit obligations for the non-executive members of the Board of Directors (in thousands of euro):
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In addition, during 2005 a total of €70,000 was paid in insurance premiums for the non executive members of the Board of Directors.
The following table provides the provisions recorded at December 31, 20052006 for welfare benefit obligations for the executive directors that are members of the Board of Directors (in thousands of euro)euros):
Executive Directors | Cumulative | |
Chairman | ||
President and Chief Operating Officer | ||
Director and General Secretary | ||
Total | 104,569 | |
BBVA’s bylaws,Of the aggregate €104,569 thousand, €16,795 thousand was charged to 2006 earnings, in article 50 bis, grantwhich the majority of such commitments were insured under policies with BBVA as beneficiary that were underwritten by an insurance company belonging to the Group. In accordance with Spanish legal regulations, such insurance policies were matched to financial assets. The internal return recorded at December 31, 2006 on these insurance policies was €3,946 thousand, which partly offset the amount allocated to provisions during the year.
In addition, during 2006 a total of €79 thousand was paid in insurance premiums for the non-executive directors members of the Board of Directors.
As of December 31, 2006, the provisions recorded for post-employment welfare commitments for the Management Committee members, excluding executive directors, amounted to €39,161 thousand. Of this amount, €11,215 thousand was charged against 2006 earnings. The internal return recorded at December 31, 2006 on these insurance policies was €1,021 thousand, which partly offset the amount allocated to provisions for the year.
Severance Payments to Executive Directors
The contracts of the Bank’s executive directors (Chairman COO and CompanyChief Executive Officer, President and Chief Operating Officer and Director and General Secretary) rights to compensation in the event of severance. This is reflected in the contracts that BBVA, duly represented by the independent directors members of the Appointments and Remuneration Committee by virtue of the authority delegated to them by the Board of Directors, entered into with the Chairman and the Company Secretary in 2001 and the COO in 2002. The Board of Directors was informed of the same. Each of these contracts specifies how these rights arerecognize each such executive director’s entitlement to be applied, under the terms and conditions laid out below.
In the case of termination of employmentcompensated should he leave his post for causesgrounds other than voluntary termination,by his own decision, retirement, disabilitydisablement or gross negligenceserious dereliction of duty. These entitlements amounted to perform their duties, BBVA will pay an indemnity consistent with the amount that results from the multiplication by fiveaggregate compensation of the executive director’s gross compensation (fixed and ordinary variable compensation)€141,390,000 in respect of the year prior to the termination.
In addition, the terminated indemnified director shall also be entitled to receive an amount equal to the cumulative valuesuch persons as of pension benefits accrued on behalf of such director in accordance with actuarial studies and regulations governing pension benefits currently in force.December 31, 2006.
In order to receive these indemnity payments,such compensation, the executive director must place his directorship at the disposal of the Board of Directors, resign from any posts they he may hold as a representative of the Bank in other companies, and waive pre-existing employment agreements with the Bank, including any senior management positions and any right to obtain compensation other than that already indicated.
Upon doing so, the director and executive officer of BBVA and renounce anywill be rendered unable to provide services to other entitlements to indemnity payments they may havefinancial institutions in addition tocompetition with the payments described above. In addition, the terminated indemnified executive director shall be prohibited from working for companies that compete with BBVABank or its affiliatessubsidiaries for two years, following such director’s termination.as established in the Board Regulations.
Incentive PlansRemuneration System for Non-Executive Directors with Deferred Delivery of Shares
At BBVA’s General Shareholders’ MeetingThe AGM held on March 18, 2006 resolved to establish a remuneration scheme using deferred delivery of shares to the Bank’s non-executive directors, to substitute the earlier scheme that had covered these directors.
The new plan assigns ‘theoretical’ shares each year to non-executive director beneficiaries equivalent to 20% of the total remuneration paid to each in the previous year, using the average of BBVA stock closing prices from the 60 trading sessions prior to the annual general meetings approving the financial statements for the years covered by the scheme as of 2006. These shares, where applicable, are to be delivered when the beneficiaries cease to be directors on any grounds other than serious dereliction of duties.
This AGM resolution granted non-executive directors who were beneficiaries of the earlier scheme the option to convert the amounts to which they were entitled under the previous scheme into “theoretical shares”. Such entitlements totalled €2,228 thousand as of December 31, 2006. All the non-executive director beneficiaries exercised the option for this conversion. The non-executive directors eligible for the new scheme received the number of theoretical shares indicated in the following table.
Non-Executive Directors | Theoretical Shares | |
Juan Carlos Álvarez Mezquíriz | 16,208 | |
Ramón Bustamante y de la Mora | 16,941 | |
José Antonio Fernández Rivero | 6,595 | |
Ignacio Ferrero Jordi | 16,879 | |
Román Knörr Borrás | 12,720 | |
Ricardo Lacasa Suárez | 16,004 | |
Carlos Loring Martínez de Irujo | 4,906 | |
Enrique Medina Fernández | 24,134 | |
Susana Rodríguez Vidarte | 8,559 |
Long Term Incentive Plan for the Group’s Management Team (Period 2003-2005)
The long-term remunerationincentive plan (the “Plan”) that remunerates participants with BBVA sharesfor the period 2003-2005 was approved forsettled in 2006 according to the terms and conditions of such plan. It applied to all members of BBVA’s seniorthe management team, including executive directors and members of the management committee. The PlanManagement Committee, and was approved with a viewlinked to aligning senior managers’ interests with shareholders’ interests.
The Plan allocates a numberthe achievement of “theoretical shares” to Plan participants as a function of a Plan participant’s annual variable pay over the preceding three years and their level of responsibility within the Group. Whether a Plan participant will receive the number of “theoretical shares” that were allocated to him or hercertain long-term targets established at the beginning of the plan and to the BBVA Group’s comparative performance in earnings per share, cost-income ratio and ROE against its benchmark peers at the end of the period.
Pursuant to such plan, in 2006, the executive directors received the following amounts for the applicable period covered by the plan: Chairman and Chief Executive Officer, €5,294 thousand; President and Chief Operating Officer, €4,438 thousand; and Director and General Secretary, €1,351 thousand.
In addition, in 2006, the members of the Management Committee, excluding the executive directors, received the total sum of €13,026 thousand under the plan for the applicable period.
Long Term Incentive Plan will dependfor the Group’s Management Team (Period 2006-2008)
At the Annual General Meeting held on whether BBVA achieves certain financial benchmarks (based on total shareholders’ return, or “TSR”, defined as gain in listed value plus dividends) as compared to other European peer banks betweenMarch 18, 2006, the Bank’s shareholders approved a long-term share-based remuneration plan for the members of the Group’s management team (the “Plan”). The Plan has a term of three years from January 1, 2006 and December 31, 2008.will be settled in the first half of 2009.
Under this Plan the Bank promises to deliver ordinary shares of BBVA to the members of the Group’s management team (including executive directors and Management Committee members). A number of “theoretical shares” will be allocated to the beneficiaries based on the annual variable remuneration earned by each member in the last three years and on their level of responsibility. This number will serve as the basis for the calculation of the BBVA shares that will be delivered, as the case may be, when the Plan expires. The specific number of BBVA shares to be delivered to each beneficiary on expiry of the Plan when it concludes, should the terms and conditions it establisheswill be met, shall equal the result ofcalculated by multiplying the number of “theoretical shares” allocated by a coefficient ranging from 0 to 2. The value of between
0 and 2, whichthe coefficient will be calculated as a functionestablished by comparing the performance of the spread between BBVA’s Total Shareholder Return (“TSR during”), which is comprised of share appreciation plus dividends, of the Bank over the term of the Plan andwith the TSR performance of the same indicator for 14 leading European peer banks.
If such financial benchmarks are met, and all other terms and conditions of the Plan that apply are satisfied, settlements will be made in the first half of 2009. The maximum number of BBVA shares approved for delivery to the Group’s management’s team (including executive directors and Management Committee members) in connection with the Plan is 22 million, representing 0.65% of BBVA’s share capital at April 25, 2006.million.
In addition, at such General Shareholders’ Meeting, a remuneration plan for non-executive directors (the “Non-Executive Director Plan”), which replaces the prior benefit scheme for non-executive directors, was also approved. The Non-Executive Director Plan allocates a number of “theoretical shares” to non-executive directors each year that they serve on BBVA’s Board of Directors, instead of recording provisions for the welfare benefit obligations of such non-executive directors. The number of theoretical shares granted will be equivalent in value to 20% of the total remuneration paid to such non-executive director during his or her previous year of service, and the shares will be delivered to a participating non-executive director upon such a non-executive director ceasing to be a non-executive director, so long as such non-executive director has not ceased to be a non-executive director as a result of a serious breach of his or her duties as a director.
In addition, the multi-year remuneration plan for the management team, including executive directors and the Management Committee, for the years 2003 to 2005, will be settled in the first half of 2006 according to the terms and conditions of the plan.
Advance Payments and Personal Loans to Directors and Executive Officers
The total of advance payments and personal loans granted by BBVA and its consolidated subsidiaries to the members of the Board of Directors and outstanding as of December 31, 2005 amounted to €698 thousand euros. As of December 31, 2005, no guarantees had been extended to secure obligations or commitments of members of the Board of Directors.
The total of advance payments and personal loans granted by BBVA to executive officers (excluding executive directors) and outstanding as of December 31, 2005 amounted to €4,249 thousand euros. This figure includes information concerning current members of our Executive Committee excluding executives directors (15 members). As of December 31, 2005, no guarantees had been extended to secure executive officers’ obligations or commitments. For information with respect to advance payments and personal loans to executive directors see “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.”
C. | Board Practices |
Committees
The Board of Directors has created the Executive Committee, the Audit and Compliance Committee, the Appointments and Compensation Committee and the Risk Committee. These Committees are discussed below.
Executive Committee
BBVA’s Board of Directors is assisted in fulfilling its responsibilities by the Executive Committee (Comisión Delegada Permanente) of the Board of Directors The Board of Directors delegates all management functions, except those that it must retain due to legal or statutory requirements, to the Executive Committee.
As of May, 2006,March 28, 2007, BBVA’s Executive Committee was comprised of two executive directors and four independent directors, as follows.
Chairman and Chief Executive Officer: | Mr. Francisco González Rodriguez | |
President and Chief Operating Officer: | Mr. José Ignacio Goirigolzarri Tellaeche | |
Members: | Mr. Juan Carlos Álvarez Mezquíriz Mr. Ignacio Ferrero Jordi Mr. Román Knörr Borrás Mr. Enrique Medina Fernández |
The Executive Committee is also responsible for the matters delegated to it by the Board of Directors, so long as such matters are also consistent with its authority as set forth in BBVA’s bylaws. Such matters include the management of BBVA and establishment of BBVA’s general policy guidelines, review and authorization of investments by BBVA, approval or rejection of transactions and initiation of internal investigations and audits in any area of BBVA’s business. The Executive Committee generally holds meetings two times a month, but may meet as often as deemed necessary by the Committee chairman or at the request of a majority of the Committee’s members. During 2005,2006, the Executive Committee held a total of 2223 meetings.
Audit and Compliance Committee
The Audit and Compliance Committee supervises preparation of BBVA’s consolidated financial statementsConsolidated Financial Statements and is responsible for the functioning of BBVA’s internal control function. The Audit and Compliance Committee is required under our bylaws to have a minimum of four members, one of whom acts as Chairman, appointed by the Board of Directors. The committee Chairman is required to have experience in financial management and an understanding of the standards and accounting procedures required by the governmental authorities that regulate the banking sector.
At May, 2006,As of March 28, 2007, the Audit and Compliance Committee members were:
Chairman: | Mr. | |
Members: | Mr. Tomás Alfaro Drake Mr. Ramón Bustamante y de la Mora Mr. Carlos Loring Martínez de Irujo Mrs. Susana Rodríguez Vidarte |
The Audit and Compliance Committee’s governing charter, which has been approved by the Board of Directors, sets forth its responsibilities and procedures. The Audit and Compliance Committee is generally responsible for assisting the Board of Directors with preparation of BBVA’s Consolidated Financial Statements and supervising BBVA’s internal control procedures.
In this regard, the Audit and Compliance Committee’s principal responsibilities include:
Supervising the sufficiency, adequacy and effectiveness of BBVA’s internal control systems to ensure the accuracy, reliability, sufficiency and clarity of (i) BBVA’s financial statements contained in annual and quarterly reports and (ii) accounting or financial information which may be requested by the Bank of Spain or other regulators, including regulators in countries outside of Spain where BBVA operates.
Monitoring BBVA’s compliance with applicable domestic and international regulations relating to money laundering, conduct in securities markets, data protection and competition, as well as ensuring that requests for information or remedial action by regulators holding competency in these areas are fulfilled.
Monitoring compliance by BBVA directors with BBVA’s Regulations of the Board of Directors, as well as with regulations applicable to directors’ conduct in the securities markets.
To ensure the accuracy, reliability, sufficiency and clarity of BBVA’s Consolidated Financial Statements, the Audit and Compliance Committee closely supervises the preparation of such financial statements, holding frequent meetings with BBVA executives responsible for preparation of the Consolidated Financial Statements as well as with BBVA’s external auditor.
The Audit and Compliance Committee is responsible for selecting BBVA’s external auditor, which is appointed at the General Shareholders’ Meeting, and supervising the performance by such external auditor of the services it was contracted to perform, in accordance with the terms of the engagement. In particular, the Audit and Compliance Committee’s supervision of the external auditor is aimed at ensuring compliance with regulatory requirements as well as with BBVA’s internal policies.
The Audit and Compliance Committee is responsible for ensuring that BBVA’s external auditor is independent. This duty is discharged by the Audit and Compliance Committee through its monitoring of the external auditor’s activities, including assessing whether any report, opinion or recommendation delivered by the external auditor is conditioned on any other relationship of the external auditor with BBVA and by prohibiting the delivery of consulting and auditing services by the same external auditing firm, other than in special circumstances receiving the Committee’s (or the Chairman’s, if such authority is delegated to him) specific prior approval.
The Audit and Compliance Committee is also responsible for supervising BBVA’s internal audit and reviews and approves BBVA’s internal audit schedule for each fiscal year and monitors the execution of the internal audit through ongoing contact with BBVA’s chief internal audit officer. During the year ended December 31, 2005,2006, the Audit and Compliance Committee held a total of 1315 meetings.
In order to effectively discharge its duties, the Audit and Compliance Committee may request that BBVA staff from any area of its operations attend its meetings to provide additional information or expertise regarding any topic on the Committee’s agenda. External experts may also be contracted to attend Committee meetings to provide expertise in areas relevant to the Committee’s duties that, due to their technical nature or as a result of conflicts of interest that may exist, cannot be advised upon by internal staff.
Appointments and Compensation Committee
The Appointments and Compensation Committee assists the Board of Directors in selecting candidates proposed to be appointed as members of the Board of Directors and in setting director compensation, though the Board of Directors itself must approve such matters. On behalf of the Board of Directors, this Committee evaluates the qualification of the persons proposed to be appointed as members of the Board of Directors and considers the suitability of the candidates’ personal and professional attributes for such appointment. The Committee also assists the Board of Directors with setting director compensation, taking into account the responsibilities of members of the Board of Directors as well as the limitations service on the Board of Directors places on other professional activities that may be pursued by the directors. The Appointments and Compensation Committee determines the remuneration and other benefits for BBVA’s Chairman and CEO and other executive directors. The Committee also analyzes proposals for multi-annual incentive plans for senior management.
As of May, 2006,March 28, 2007, the members of the Appointments and Compensation Committee were:
Chairman: | Mr. Carlos Loring Martínez de Irujo | |
Members: | Mr. Juan Carlos Álvarez Mezquíriz | |
Mr. Ignacio Ferrero Jordi | ||
Mrs. Susana Rodríguez Vidarte |
During 2005,2006, the Appointments and Compensation Committee held a total of 59 meetings. The Committee may meet as often as it deems necessary in order to discharge its responsibilities.
The Appointments and Compensation Committee may request that BBVA staff from any area of its operations attend its meetings to provide additional information or expertise regarding any topic on the Committee’s agenda. External experts may also be contracted to attend Committee meetings to provide expertise in areas that, due to their technical nature or as a result of conflicts of interest that may exist, cannot be advised upon by internal staff.
Risk Committee
The Risk Committee is responsible for supervising the analysis and periodic monitoring of the various risks BBVA faces on behalf of the Board of Directors. Though the Executive Committee is required to approve BBVA’s overall risk strategies and policies, the Risk Committee analyzes these matters and makes recommendations to the Executive Committee relating thereto. The Risk Committee also monitors the overall level of credit, market and other risks BBVA assumes, reviews transactions delegated to it for approval and verifies that BBVA has established the procedures and structures representing the best practices for risk management in the market.
The Committee is required to be comprised of a majority of non-executive directors. At May, 2006,March 28, 2007, the members of the Risk Committee were:
Chairman: | Mr. José Antonio Fernández Rivero | |
Members: | Mr. Ramón Bustamante y de la Mora | |
Mr. Rafael Bermejo Blanco | ||
Mr. José Maldonado Ramos | ||
Mr. Enrique Medina Fernández |
The Risk Committee is governed by a charter approved by the Board of Directors. The charter states that the Risk Committee may meet as often as necessary to discharge its responsibilities. During 2005,2006, the RisksRisk Committee held a total of 8281 meetings.
D. | Employees |
As of December 31, 2005,2006, we, through our various affiliates, had 94,68198,553 employees. Approximately 75.50%76% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.
Country | BBVA | Banks | Companies | Total | BBVA | Banks | Companies | Total | ||||||||
Spain | 29,569 | 681 | 900 | 31,150 | 28,601 | 722 | 1,259 | 30,582 | ||||||||
United Kingdom | 127 | — | 4 | 131 | 127 | — | 7 | 134 | ||||||||
France | 111 | — | — | 111 | 108 | — | — | 108 | ||||||||
Italy | 49 | — | — | 49 | 55 | — | — | 55 | ||||||||
Germany | 6 | — | — | 6 | 4 | — | — | 4 | ||||||||
Switzerland | 2 | 86 | — | 88 | 2 | 108 | — | 110 | ||||||||
Portugal | — | 891 | — | 891 | — | 953 | — | 953 | ||||||||
Belgium | 35 | — | — | 35 | 36 | — | — | 36 | ||||||||
Jersey | — | 22 | — | 22 | — | 3 | — | 3 | ||||||||
Russia | 3 | — | — | 3 | 3 | — | — | 3 | ||||||||
Andorra | — | 238 | — | 238 | — | — | — | — | ||||||||
Ireland | — | 6 | — | 6 | — | 4 | — | 4 | ||||||||
Gibraltar | — | 2 | — | 2 | — | — | — | — | ||||||||
Total Europe | 28,936 | 1,790 | 1,266 | 31,992 | ||||||||||||
New York | 137 | 20 | — | 157 | ||||||||||||
Miami | 112 | — | — | 112 | ||||||||||||
Grand Cayman | 3 | — | — | 3 | ||||||||||||
U.S.A. | — | 3,646 | — | 3,646 | ||||||||||||
Total North America | 252 | 3,666 | — | 3,918 | ||||||||||||
Panama | — | 266 | — | 266 | ||||||||||||
Puerto Rico | — | 1,044 | — | 1,044 | ||||||||||||
Argentina | — | 7,215 | — | 7,215 | ||||||||||||
Brazil | 4 | — | — | 4 | ||||||||||||
Colombia | — | 6,408 | — | 6,408 | ||||||||||||
Venezuela | — | 5,749 | — | 5,749 | ||||||||||||
Mexico | — | 32,847 | — | 32,847 | ||||||||||||
Uruguay | 39 | 151 | — | 190 | ||||||||||||
Paraguay | — | 108 | — | 108 | ||||||||||||
Bolivia | — | — | 188 | 188 | ||||||||||||
Chile | — | 4,068 | — | 4,068 | ||||||||||||
Dominican Republic | — | — | 97 | 97 | ||||||||||||
Cuba | 1 | — | — | 1 | ||||||||||||
Peru | — | 4,191 | — | 4,191 | ||||||||||||
Ecuador | — | — | 168 | 168 | ||||||||||||
Total Latin America | 44 | 62,047 | 453 | 62,544 | ||||||||||||
Hong Kong | 77 | — | — | 77 | ||||||||||||
Japan | 9 | — | — | 9 | ||||||||||||
China | 8 | — | — | 8 | ||||||||||||
Singapore | 5 | — | — | 5 | ||||||||||||
Total Asia | 99 | — | — | 99 | ||||||||||||
Total | 29,331 | 67,503 | 1,719 | 98,553 | ||||||||||||
Total Europe New York Miami Grand Cayman EEUU Total North America Panama Puerto Rico Argentina Brazil Colombia Venezuela México Uruguay Paraguay Bolivia Chile El Salvador Dominican Republic Cuba Peru Ecuador Total Latin America Hong Kong Japan Iran China Total Asia Total 29,902 1,926 904 32,732 121 23 — 144 99 — — 99 5 — — 5 — 2,066 — 2,066 225 2,089 — 2,314 — 245 — 245 — 1,120 — 1,120 — 6,851 — 6,851 5 — — 5 — 6,849 — 6,849 — 5,653 — 5,653 — 31,146 — 31,146 28 145 — 173 — 99 — 99 — — 187 187 — 3,630 — 3,630 — — — — — — 91 91 1 — — 1 — 3,377 — 3,377 — — 145 145 34 59,115 423 59,572 47 — — 47 9 — — 9 2 — — 2 5 — — 5 63 — — 63 30,224 63,130 1,327 94,681
The terms and conditions of employment in private sector banks in Spain are negotiated with trade unions representing bank employees. Wage negotiations take place on an industry-wide basis. This process has historically produced collective bargaining agreements binding upon all Spanish banks and their employees. The collective bargaining agreement in application during 2005 came into effect as of January 1, 2005 and will apply until December 31, 2006.
As of December 31, 2005,2006, we had 2.3591,670 temporary employees in our Spanish offices.
E. | Share Ownership |
As of December 31, 2006March 28, 2007, the members of the Board of Directors owned an aggregate of 38,089,2962,099,713 BBVA shares as shown in the table below:
Name | Directly Owned Shares | Indirectly Owned Shares | Total Shares | % of Capital Stock | Directly Owned Shares | Indirectly Owned Shares | Total Shares | % of Capital Stock | ||||||||||
Francisco González Rodríguez | 698 | 1,155,208 | 1,155,906 | 0.0341 | % | 2,336 | 1,376,814 | 1,379,150 | 0.0388 | % | ||||||||
José Ignacio Goirigolzarri Tellaeche | 466 | 420,241 | 420,707 | 0.0124 | % | 480 | 434,680 | 435,160 | 0.0123 | % | ||||||||
Tomás Alfaro Drake | 7,800 | — | 7,800 | 0.0002 | % | |||||||||||||
Juan Carlos Álvarez Mezquiriz | 30,530 | — | 30,530 | 0.0009 | % | 30,530 | — | 30,530 | 0.0009 | % | ||||||||
Rafael Bermejo Blanco | 5,000 | — | 5,000 | 0.0001 | % | |||||||||||||
Richard C. Breeden | 8,000 | — | 8,000 | 0.0002 | % | 30,000 | — | 30,000 | 0.0008 | % | ||||||||
Ramón Bustamante y de la Mora | 10,139 | — | 10,139 | 0.0003 | % | 10,139 | 2,000 | 12,139 | 0.0003 | % | ||||||||
José Antonio Fernández Rivero | 50,000 | — | 50,000 | 0.0015 | % | 50,000 | — | 50,000 | 0.0014 | % | ||||||||
Ignacio Ferrero Jordi | 2,462 | 51,300 | 53,762 | 0.0016 | % | 2,566 | 51,300 | 53,866 | 0.0015 | % | ||||||||
Román Knörr Borrás | 20,767 | 1,964 | 22,731 | 0.0007 | % | 26,500 | 6,500 | 33,000 | 0.0009 | % | ||||||||
Ricardo Lacasa Suárez | 8,688 | — | 8,688 | 0.0003 | % | |||||||||||||
Carlos Loring Martínez De Irujo | 9,149 | — | 9,149 | 0.0003 | % | 9,149 | — | 9,149 | 0.0003 | % | ||||||||
José Maldonado Ramos | 11,537 | — | 11,537 | 0.0003 | % | 11,537 | — | 11,537 | 0.0003 | % | ||||||||
Enrique Medina Fernández | 27,629 | 1,036 | 28,665 | 0.0008 | % | 28,391 | 1,065 | 29,456 | 0.0008 | % | ||||||||
Susana Rodríguez Vidarte | 10,547 | 2,028 | 12,575 | 0.0004 | % | 10,838 | 2,088 | 12,926 | 0.0004 | % | ||||||||
José María San Martín Espinós | 18,490 | 33,087 | 51,577 | 0.0015 | % | |||||||||||||
Teléfonica de España, S.A. | 0 | 36,215,330 | 36,215,330 | 1.0680 | % | |||||||||||||
Total | 209,102 | 37,880,194 | 38,089,296 | 1.1233 | % | 225,266 | 1,874,447 | 2,099,713 | 0.0591 | % | ||||||||
No memberAs of March 28, 2007 the Board of Directors or any executive officersChairman and Chief Executive Officer held 600,000 put options and 1,200,000 call options over BBVA’s shares as of December 31, 2005.shares.
As of December 31, 2005March 28, 2007 the executive officers (excluding executive directors) and their families owned 7,072,945314,501 shares. None of our executive officers holds 1% or more of BBVA’s shares.
As of December 31, 2005March 28, 2007 a total of 17,62516,446 employees (excluding executive officers and directors) owned 158,972,88624,207,229 shares, which represents 0.5595%0.6815% of our capital stock.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | Major Shareholders |
As of MarchDecember 31, 2006, no shareholder beneficially held more than five percent of BBVA’s shares. To our knowledge, no other person, corporation or government owned beneficially, directly or indirectly, five percent or more of BBVA’s shares. BBVA’s major shareholders do not have voting rights which are different from those held by the rest of its shareholders. To the extent known to us, BBVA is not controlled, directly or indirectly, by any other corporation, government or any other natural or legal person. As of MarchDecember 31, 2006, there were 940,542864,226 registered holders of BBVA’s shares, with a total of 758,382,5021,033,296,710 shares held by 67230 shareholders with registered addresses in the United States. Since certain of such shares and American Depositary Receipts (“ADRs”) are held by nominees, the foregoing figures are not representative of the number of beneficial holders. BBVA’s directors and executive officers did not own any ADRs as of MarchDecember 31, 2006.
B. | Related Party Transactions |
Loans to Directors, Executive Officers and Related Parties.Parties
The loans granted atAs of December 31, 2005,2006, the Group had no amounts outstanding under any loans and had not provided any guarantees to members of the Board of Directors of Banco Bilbao Vizcaya Argentaria, S.A. totalled €698 thousand. At December 31, 2005, no guarantees had been provided on their behalf.BBVA. The loans granted at December 31, 2005,2006 to 18the members of the Management Committee, excluding the executive directors, amounted to €4,249€2,355 thousand. AtAs of December 31, 2005, no2006, guarantees had been provided on behalf of members of the Management Committee.Committee amounted to €12 thousand.
AtAs of December 31, 2005,2006, the loans granted to parties related to key personnel (the aforementioned members of the Board of Directors of Banco Bilbao Vizcaya Argentaria, S.A. and of the Management Committee) totalled €10,324totaled €12,676 thousand. AtAs of December 31, 2005,2006, the other exposure to parties related to key personnel (guarantees, finance leases and commercial loans) amounted to €22,712€14,545 thousand.
Related Party Transactions in the Ordinary Course of Business.Business
Loans extended to related parties were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other unfavorable features.
BBVA subsidiaries engage, on a regular and routine basis, in a number of customary transactions with other BBVA subsidiaries, including:
overnight call deposits;
foreign exchange purchases and sales;
money market fund transfers;
letters of credit for imports and exports;
and other similar transactions within the scope of the ordinary course of the banking business, such as loans and other banking services to BBVA’s shareholders, to employees of all levels, to the associates and family members of all the above and to other BBVA non-banking subsidiaries or affiliates. All these transactions have been made:
in the ordinary course of business;
on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other personspersons; and
did not involve more than the normal risk of collectibility or present other unfavorable features.
C. Interests of Experts and Counsel
C. | Interests of Experts and Counsel |
Not applicable.Applicable.
ITEM 8. | FINANCIAL INFORMATION |
A. Consolidated Statements and Other Financial Information
A. | Consolidated Statements and Other Financial Information |
Financial Information
See Item 18.
Dividends
The table below sets forth the amount of interim, final and total dividends paid by BBVA on its shares for the years 20012002 to 2005,2006, adjusted to reflect all stock splits. The rate used to convert Euroeuro (€) amounts to Dollarsdollars was the Noon Buying Rate at the end of each year.
Per Share | Per Share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
First Interim | Second Interim | Third Interim | Final | Total | First Interim | Second Interim | Third Interim | Final | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
€ | $ | € | $ | € | $ | € | $ | € | $ | € | $ | € | $ | € | $ | € | $ | € | $ | |||||||||||||||||||||||||||||||||||||||||
2001 | € | 0.085 | $ | 0.076 | € | 0.085 | $ | 0.076 | € | 0.085 | $ | 0.076 | € | 0.128 | $ | 0.114 | € | 0.383 | $ | 0.341 | ||||||||||||||||||||||||||||||||||||||||
2002 | € | 0.090 | $ | 0.086 | € | 0.090 | $ | 0.086 | € | 0.090 | $ | 0.086 | € | 0.078 | $ | 0.075 | € | 0.348 | $ | 0.334 | € | 0.090 | $ | 0.086 | € | 0.090 | $ | 0.086 | € | 0.090 | $ | 0.086 | € | 0.078 | $ | 0.075 | € | 0.348 | $ | 0.333 | ||||||||||||||||||||
2003 | € | 0.090 | $ | 0.103 | € | 0.090 | $ | 0.103 | € | 0.090 | $ | 0.103 | € | 0.114 | $ | 0.130 | € | 0.384 | $ | 0.438 | € | 0.090 | $ | 0.103 | € | 0.090 | $ | 0.103 | € | 0.090 | $ | 0.103 | € | 0.114 | $ | 0.130 | € | 0.384 | $ | 0.439 | ||||||||||||||||||||
2004 | € | 0.100 | $ | 0.125 | € | 0.100 | $ | 0.125 | € | 0.100 | $ | 0.125 | € | 0.142 | $ | 0.177 | € | 0.442 | $ | 0.552 | € | 0.100 | $ | 0.125 | € | 0.100 | $ | 0.125 | € | 0.100 | $ | 0.125 | € | 0.142 | $ | 0.177 | € | 0.442 | $ | 0.552 | ||||||||||||||||||||
2005 | € | 0.115 | $ | 0.143 | € | 0.115 | $ | 0.143 | € | 0.115 | $ | 0.143 | € | 0.186 | $ | 0.231 | € | 0.531 | $ | 0.658 | € | 0.115 | $ | 0.143 | € | 0.115 | $ | 0.143 | € | 0.115 | $ | 0.143 | € | 0.186 | $ | 0.231 | € | 0.531 | $ | 0.660 | ||||||||||||||||||||
2006 | € | 0.132 | $ | 0.174 | € | 0.132 | $ | 0.174 | € | 0.132 | $ | 0.174 | € | 0.241 | $ | 0.318 | € | 0.637 | $ | 0.841 |
BBVA has paid annual dividends to its shareholders since the date it was founded. Historically, BBVA has paid interim dividends each year. The total dividend for a year is proposed by the Board of Directors following the end of the year to which it relates. The unpaid portion of this dividend (the final dividend) is paid after the approval of our financial statements by the shareholders at the General Shareholders’ Meeting. Interim and final dividends are payable to holders of record on the dividend payment date. Unclaimed dividends revert to BBVA five years after declaration.
While BBVA expects to declare and pay dividends on its shares on a quarterly basis in the future, the payment of dividends will depend upon its earnings, financial condition, governmental regulations and policies and other factors.
Subject to the terms of the deposit agreement, holders of ADRs are entitled to receive dividends attributable to the shares represented by the ADSs evidenced by their ADRs to the same extent as if they were holders of such shares.
For a description of BBVA’s access to the funds necessary to pay dividends on the shares, see “Item 4. Information on the Company—Supervision and Regulation—Dividends”. In addition, BBVA may not pay dividends except out of its unrestricted reserves available for the payment of dividends, after taking into account the Bank of Spain’s capital adequacy requirements. Capital adequacy requirements are applied by the Bank of Spain on both a consolidated and individual basis. See “Item 4. Information on the Company—Supervision and Regulation—Capital Adequacy Requirements” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital”. Under Spain’s capital adequacy requirements, we estimate that as of December 31, 2005,2006, BBVA had approximately €2.8€9.4 billion of reserves in excess of applicable capital and reserve requirements, which were not restricted as to the payment of dividends.
Legal Proceedings
On March 15, 2002, the Bank of Spain announced that it was opening an administrative proceeding against BBVA and certain individuals who have served as members of BBVA’s boardBoard of directorsDirectors or as executive officers. This announcement was the result of BBVA’s voluntary disclosure to the Bank of Spain on January 19, 2001 that BBVA funds then amounting to approximately Ptas. 37,427 million (approximately €225
million) had been held in offshore accounts and not been reflected in its financial statements. These funds had been generated largely as a result of capital gains realized on transactions in BBV and Argentaria shares and were included in our financial statements in 2000. See Note 32.2.B.15 to our consolidated financial statementsConsolidated Financial Statements included in our Annual Report on Form 20-F for the year ended December 31, 2002. The Bank of Spain subsequently conducted a confidential investigation which led to the commencement of its administrative proceeding. The Bank of Spain’s administrative proceeding was suspended upon commencement of the proceeding initiated by the National Criminal Court (discussed below) and has remained suspended pending completion of such proceeding.
At the time the Bank of Spain proceeding was suspended, no formal charges had been made by the Bank of Spain relating to the facts and events under investigation. BBVA is therefore unable to determine what, if any, charges will be made by the Bank of Spain and to what conduct any such charges may relate. However, based on BBVA’s assessment of the probable charges and penalties that could be imposed by the Bank of Spain and that since the initiation of the Bank of Spain proceeding, BBVA has continued to be engaged regularly in extending commercial and other types of credit and accepting demand and other types of deposits, BBVA believes that once the Bank of Spain proceeding is recommenced after the conclusion of the National Criminal Court’scriminal proceeding, resolution of such proceeding would not have a material adverse effect on BBVA or its consolidated financial position or results of operations.
National Criminal Court (Audiencia Nacional)Proceedings
On April 9, 2002, Tribunal No. 5 of Spain’s National Criminal Court presided by Judge Baltasar Garzón(Audiencia Nacional) commenced a criminal proceeding regarding the previously unreported funds and suspended the administrative proceeding initiated by the Bank of Spain. The National Criminal Court proceeding was initially directed at 28 of BBVA’s former directors and executive officers and was subsequently split into two separate proceedings. One proceeding relating to the use of the unreported funds to create pension accounts, has beenwas in the first instance resolved by the National Criminal Court in 2005, with just one person indicted from the former five people charged .charged. The High Court of Spain (Tribunal Supremo) in November 2006 resolved on this case by acquitting this person of any responsibility and establishing that no criminal offence took place. In the second proceeding, which generally relates to the unreported funds, is still in the investigation phase and is directed at four of our former directors and two former executive officers.officers, the National Criminal Court has initially ruled on the 12th of March 2007 that there is no ground to continue with the criminal proceeding, although this decision may be appealed by the Prosecutor. None of these directors and executive officers continue to serve as directors on BBVA’s Board of Directors or are affiliated with BBVA in any other capacity.
Spanish National Market Commission (the “CNMV”)
On May 22, 2002, the Spanish securities market regulator, the CNMV, instituted administrative proceedings against BBVA for alleged violations of the Spanish Securities Markets Act of 1988 in connection with the same events being investigated by the Bank of Spain. As with the Bank of Spain proceeding, the National Criminal Court requested that the CNMV suspend its proceedings until resolution of the National Criminal Court’s criminal proceedingproceedings described above. The CNMV proceeding was suspended on January 7, 2003 and has remained suspended pending completion of the proceeding initiated by the National Criminal Court.
Based on BBVA’s assessment of the probable charges and penalties that could be imposed by the CNMV, and the fact that since the initiation of the CNMV proceeding the CNMV has not restricted BBVA from continuing to be actively involved in capital markets transactions in Spain, including by conducting offerings of its own debt and equity securities, BBVA believes that once the CNMV proceeding is recommenced after the conclusion of the National Criminal Court’scriminal proceeding, resolution of such proceeding would not have a material adverse effect on BBVA or its consolidated financial position or results of operations.
Internal Control Procedures
As a result of our discovery that BBVA funds had been held in offshore accounts and not been reflected in its financial statements, we have implemented several accounting internal control procedures in order to obtain reasonable assurance that breaches of our internal controls do not occur. For example, BBVA has significantly strengthened its internal audit function. BBVA’s internal audit department is responsible for such matters as verifying accuracy and completeness of BBVA’s financial reporting and ensuring the compliance, appropriateness and effectiveness of BBVA’s internal control systems and procedures. BBVA has also enhanced its internal audit function, including by broadening the scope of its internal audit activities to include all of BBVA’s diverse operations, both in terms of business area and geographical location. In addition, in 2002, BBVA implemented a “Directors Plan” in respect of fiscal years 2003 and 2004 to further strengthen its internal controls. As part of this plan, BBVA’s internal audit function was further expanded to include review of
information and documentation used by the management of each business unit, review of BBVA’s financial statement consolidation process and review and assessment of BBVA’s compliance with capital adequacy requirements. In addition, the Directors Plan provides for the standardization of internal audit work procedures, from making initial contact with the business area or unit being audited to documenting the results of the audit.
BBVA has also reinforced its internal compliance department. This department, whose functions have been established by the Audit and Compliance Committee of BBVA’s Board of Directors, is responsible for developing and implementing internal norms and procedures to ensure compliance with legal requirements and ethical guidelines established by BBVA, such as BBVA’s Code of Ethics and Conduct. For example, this department is responsible for establishing internal controls and procedures related to matters such as the prevention of money-laundering and trading in BBVA’s securities.
Besides the accounting internal control procedures implemented by BBVA described above, in order to further obtain reasonable assurance that breaches of BBVA’s internal controls do not occur, BBVA has taken a series of steps to strengthen its corporate governance structures in keeping with the most recent trends in this area and new legislation that has taken effect in Spain and the other countries in which BBVA operates. For a description of these corporate governance structures, see “Item 6—6.—Directors, Senior Management and Employees”.
Other Proceedings
Puerto Rico
TwoThe proceedings, which were described in our 2001 Annual Report on Form 20-F werefor the year ended December 31, 2001, initiated in Spain based on the testimony of a former BBV Puerto Rico employee. One of these proceedings, related to allegations of money laundering hasemployee, have been definitivelyfinally closed by the judge during 2005 due to the fact that there was no evidence of any wrongdoing. The other proceeding is based on allegations of bribery against BBVA and certain of its employees. To date, however, no person has been charged with any wrongdoing or named as a defendant in connection with this proceeding.
BBVA Privanza Bank Ltd. (Jersey)
A proceeding was initiated alleging that certain employees of BBVA Privanza Bank Ltd. (Jersey) cooperated in the creation of accounts and financial products in Jersey which were allegedly used by Spanish individuals to avoid Spanish tax obligations. The proceedings also included an allegation of a tax offense due to the purported non-consolidation of a fully-owned subsidiary. This proceeding is ongoing and charges have not been brought against any BBVA employee or director.
In light of the surrounding events and circumstances, our legal advisers do not expect that the proceedings described above will have a material effect on us.
B. | Significant Changes |
No significant change has occurred since the date of the Consolidated Financial Statements.
ITEM 9. | THE OFFER AND LISTING |
BBVA’s shares are listed on the Spanish Stock Exchangesstock exchanges in Madrid, Bilbao, Barcelona and Valencia (the “Spanish Stock Exchanges”) and quoted on the Automated Quotation Systemcomputerized trading system of the Spanish Stock Exchanges (the “Automated“Automated Quotation System”System”). On August 19, 2005 BBVA´s Shares were admitted for listing on the Mexican stock market. TheyBBVA’s shares are also listed on the Frankfurt, Milan, Zurich, Mexican and London stock exchanges as well as been quoted on SEAQ International in London. Our
ADSs are listedquoted on the New York Stock Exchange.Exchange and are also traded on the Lima (Peru) Stock Exchange, by virtue of an exchange agreement entered into between these two exchanges. Each ADS represent the right to receive one share.
Fluctuations in the exchange rate between the euro and the dollar will affect the dollar equivalent of the euro price of BBVA’s shares on the Spanish Stock Exchanges and the price of BBVA’s ADSs on the New York Stock Exchange. Cash dividends are paid by BBVA in euro, and exchange rate fluctuations between the euro and the dollar will affect the dollar amounts received by holders of American Depositary Receipts (“ADRs”) on conversion by The Bank of New York (acting as depositary) of cash dividends on the shares underlying the ADSs evidenced by such ADRs.
The table below sets forth, for the periods indicated, the high and low sales closing prices for the shares of BBVA on the Automated Quotation System.
Euro per Share | ||||
High | Low | |||
Fiscal year ended December 31, 2001 | ||||
Annual | 17.20 | 9.50 | ||
First Quarter | 17.20 | 13.92 | ||
Second Quarter | 16.47 | 14.75 | ||
Third Quarter | 15.77 | 9.50 | ||
Fourth Quarter | 14.80 | 11.50 | ||
Fiscal year ended December 31, 2002 | ||||
Annual | 14.21 | 7.24 | ||
First Quarter | 14.21 | 12.26 | ||
Second Quarter | 13.90 | 10.93 | ||
Third Quarter | 11.99 | 7.42 | ||
Fourth Quarter | 10.60 | 7.24 | ||
Fiscal year ended December 31, 2003 | ||||
Annual | 10.95 | 6.89 | ||
First Quarter | 10.25 | 6.89 | ||
Second Quarter | 9.68 | 7.78 | ||
Third Quarter | 10.10 | 8.86 | ||
Fourth Quarter | 10.95 | 8.91 | ||
Fiscal year ended December 31, 2004 | ||||
Annual | 13.09 | 10.22 | ||
First Quarter | 11.28 | 10.22 | ||
Second Quarter | 11.42 | 10.40 | ||
Third Quarter | 11.39 | 10.55 | ||
Fourth Quarter | 13.09 | 11.36 |
Euro per Share | ||||||||
High | Low | |||||||
Fiscal year ended December 31, 2002 | ||||||||
Annual | 14.21 | 7.24 | ||||||
First Quarter | 14.21 | 12.26 | ||||||
Second Quarter | 13.90 | 10.93 | ||||||
Third Quarter | 11.99 | 7.42 | ||||||
Fourth Quarter | 10.60 | 7.24 | ||||||
Fiscal year ended December 31, 2003 | ||||||||
Annual | 10.95 | 6.89 | ||||||
First Quarter | 10.25 | 6.89 | ||||||
Second Quarter | 9.68 | 7.78 | ||||||
Third Quarter | 10.10 | 8.86 | ||||||
Fourth Quarter | 10.95 | 8.91 | ||||||
Fiscal year ended December 31, 2004 | ||||||||
Annual | 13.09 | 10.22 | ||||||
First Quarter | 11.28 | 10.22 | ||||||
Second Quarter | 11.42 | 10.40 | ||||||
Third Quarter | 11.39 | 10.55 | ||||||
Fourth Quarter | 13.09 | 11.36 | ||||||
Fiscal year ended December 31, 2005 | ||||||||
Annual | 15.17 | 11.95 | 15.17 | 11.95 | ||||
First Quarter | 13.38 | 12.30 | 13.38 | 12.30 | ||||
Second Quarter | 12.93 | 11.95 | 12.93 | 11.95 | ||||
Third Quarter | 14.59 | 12.67 | 14.59 | 12.67 | ||||
Fourth Quarter | 15.17 | 14.12 | 15.17 | 14.12 | ||||
Fiscal year ended December 31, 2006 | ||||||||
Annual | 19.49 | 14.91 | ||||||
First Quarter | 17.26 | 15.02 | 17.26 | 15.02 | ||||
Month ended January 31, 2006 | 16.62 | 15.02 | ||||||
Month ended February 28, 2006 | 17.26 | 16.22 | ||||||
Month ended March 31, 2006 | 17.25 | 16.66 | ||||||
Month ended April 30, 2006 | 17.51 | 16.61 | ||||||
Month ended May 31, 2006 | 17.60 | 15.84 | ||||||
Month ended June 30, 2006 (through June 20) | 16.24 | 14.91 | ||||||
Second Quarter | 17.60 | 14.91 | ||||||
Third Quarter | 18.30 | 15.76 | ||||||
Fourth Quarter | 19.49 | 18.07 | ||||||
Month ended October 31, 2006 | 19.24 | 18.07 | ||||||
Month ended November 30, 2006 | 19.49 | 18.12 | ||||||
Month ended December 31, 2006 | 18.60 | 18.08 | ||||||
Fiscal year ended December 31, 2007 | ||||||||
Month ended January 31, 2007 | 19.35 | 18.41 | ||||||
Month ended February 28, 2007 | 20.08 | 18.43 | ||||||
Month ended March 31 (through March 28), 2007 | 18.50 | 17.38 |
From January 1, 20052006 through December 31, 20052006 the percentage of outstanding shares held by BBVA and its affiliates ranged between 0.0706%0.020% and 0.6590%0.858% respectively, calculated on a monthly basis. On May 12, 2006,March 21, 2007, the percentage of outstanding shares held by BBVA and its affiliates was 0.166%1.024%.
The table below sets forth the reported high and low sales closing prices for the ADSs of BBVA on the New York Stock Exchange for the periods indicated.
Dollars per ADS | Dollars per ADS | |||||||
High | Low | High | Low | |||||
Fiscal year ended December 31, 2001 | ||||||||
Annual | 16.63 | 8.99 | ||||||
First Quarter | 16.63 | 12.22 | ||||||
Second Quarter | 14.40 | 12.65 | ||||||
Third Quarter | 13.16 | 8.99 | ||||||
Fourth Quarter | 13.44 | 10.25 | ||||||
Fiscal year ended December 31, 2002 | ||||||||
Annual | 12.77 | 6.93 | 12.77 | 6.93 | ||||
First Quarter | 12.77 | 10.82 | 12.77 | 10.82 | ||||
Second Quarter | 12.50 | 10.67 | 12.50 | 10.67 | ||||
Third Quarter | 11.73 | 7.14 | 11.73 | 7.14 | ||||
Fourth Quarter | 10.58 | 6.93 | 10.58 | 6.93 | ||||
Fiscal year ended December 31, 2003 | ||||||||
Annual | 13.85 | 7.67 | 13.85 | 7.67 | ||||
First Quarter | 10.81 | 7.67 | 10.81 | 7.67 | ||||
Second Quarter | 11.16 | 8.46 | 11.16 | 8.46 | ||||
Third Quarter | 11.16 | 10.28 | 11.16 | 10.28 | ||||
Fourth Quarter | 13.85 | 10.54 | 13.85 | 10.54 | ||||
Fiscal year ended December 31, 2004 | ||||||||
Annual | 17.77 | 12.47 | 17.77 | 12.47 | ||||
First Quarter | 14.45 | 12.51 | 14.45 | 12.51 | ||||
Second Quarter | 13.80 | 12.47 | 13.80 | 12.47 | ||||
Third Quarter | 13.96 | 12.82 | 13.96 | 12.82 | ||||
Fourth Quarter | 17.77 | 14.12 | 17.77 | 14.12 | ||||
Fiscal year ended December 31, 2005 | ||||||||
Annual | 17.91 | 15.08 | 17.91 | 15.08 | ||||
First Quarter | 17.64 | 16.14 | 17.64 | 16.14 | ||||
Second Quarter | 16.47 | 15.12 | 16.47 | 15.12 | ||||
Third Quarter | 17.64 | 15.08 | 17.64 | 15.08 | ||||
Fourth Quarter | 17.91 | 16.85 | 17.91 | 16.85 | ||||
Fiscal year ended December 31, 2006 | ||||||||
Annual | 25.15 | 18.21 | ||||||
First Quarter | 20.91 | 18.21 | 20.91 | 18.21 | ||||
Month ended January 31, 2006 | 20.24 | 18.21 | ||||||
Month ended February 28, 2006 | 20.44 | 19.34 | ||||||
Month ended March 31, 2006 | 20.91 | 19.91 | ||||||
Month ended April 30, 2006 | 22.06 | 20.22 | ||||||
Month ended May 31, 2006 | 22.55 | 20.36 | ||||||
Month ended June 30, 2006 (through June 20) | 21.03 | 18.61 | ||||||
Second Quarter | 22.55 | 18.61 | ||||||
Third Quarter | 23.39 | 19.83 | ||||||
Fourth Quarter | 25.15 | 23.11 | ||||||
Month ended October 31, 2006 | 24.20 | 23.11 | ||||||
Month ended November 30, 2006 | 25.15 | 23.81 | ||||||
Month ended December 31, 2006 | 24.40 | 23.87 | ||||||
Fiscal year ended December 31, 2007 | ||||||||
Month ended January 31, 2007 | 25.15 | 23.92 | ||||||
Month ended February 28, 2007 | 26.23 | 24.28 | ||||||
Month ended March 31, 2007 (through March 28) | 24.67 | 22.79 |
Securities Trading in Spain
The Spanish securities market for equity securities consists of the Automated Quotation System and the four stock exchanges located in Madrid, Bilbao, Barcelona and Valencia. During 2005,2006, the Automated Quotation System accounted for the majority of the total trading volume of equity securities on the Spanish stock exchanges.Stock Exchanges.
Automated Quotation System. The Automated Quotation System links the four local exchanges, providing those securities listed on it with a uniform continuous market that eliminates certain of the differences among the local exchanges. The principal feature of the system is the computerized matching of buy and sell orders at the time of entry of the order. Each order is executed as soon as a matching order is entered, but can be modified or
canceled until executed. The activity of the market can be continuously monitored by investors and brokers. The Automated Quotation System is operated and regulated by Sociedad de Bolsas, S.A. (“Sociedad de Bolsas”), a corporation owned by the companies that manage the local exchanges. All trades on the Automated Quotation System must be placed through a bank, brokerage firm, an official stock broker or a dealer firm member of a Spanish stock exchange directly. Since January 1, 2000, Spanish banks have been allowed to place trades on the Automated Quotation System and have been allowed to become members of the Spanish stock exchanges.Stock Exchanges.
In a pre-opening session held from 8:30 a.m. to 9:00 a.m. each trading day, an opening price is established for each security traded on the Automated Quotation System based on orders placed at that time. The legal regime concerning opening prices was changed by an internal rule issued by theSociedad de Bolsas.Bolsas. The new legal regime sets forth that all references to maximum changes in share prices will be substituted by a definition of prices and creation of static and dynamic ranks for each listed share to be published on a periodic basis by theSociedad de Bolsas.Bolsas. The computerized trading hours are from 9:00 a.m. to 5:30 p.m., during which time the trading price of a security is permitted to vary by up to the stated level. If the quoted price exceeds this limit, trading in the security is suspended until the next day. Between 5:30 p.m. and 5:35 p.m. a closing price is established for each security through an auction system similar to the one held for the pre-opening early in the morning.
Between 5:30 p.m. and 8:00 p.m., trades may occur outside the computerized matching system without prior authorization of theSociedad de Bolsas at a price within the range of 5% above the higher of the average price and closing price for the day and 5% below the lower of the average price and closing price for the day, if, among other things, the trade involves more than €300,000 and more than 20% of the average daily trading volume of the stock during the preceding three months. At any time trades may take place (with the prior authorization of theSociedad de Bolsas)Bolsas) at any price if:
the trade involves more than €1.5 million and more than 40% of the average daily volume of the stock during the preceding three months;
the transaction derives from a merger or spin-off process, or from the reorganization of a group of companies;
the transaction is executed for the purposes of settling a litigation or completing a complex group of contractscontracts; or
the Sociedad de Bolsas finds other justifiable cause.
Information with respect to the computerized trades between 9:00 a.m. and 5:30 p.m. is made public immediately, and information with respect to trades outside the computerized matching system is reported to theSociedad de Bolsas by the end of the trading day and published in theBoletín de Cotizaciónand in the computer system by the beginning of the next trading day.
Clearance and Settlement System.
Law 44/2002 and Rule 689/2003 of March 27, 2003 approved by the Spanish Ministry of Economy have promoted the integration of the two main existing book entry settlement systems existing in Spain, the non-gilts settlement systemServicio de Compensación y Liquidación de Valores (“SCLV”) and the gilts settlement systemCentral de Anotaciones en Cuenta, into one system to be known asSociedad de Gestión de los Sistemas de Registro Compensación y Liquidación de Valores (the “Iberclear”).
Notwithstanding the above, rules concerning the book entry settlement system enacted before this amendment by the SCLV and the Bank of Spain are still in force, but any reference to the SCLV must be substituted by Iberclear.
Under this new regulation, transactions carried out on the Spanish stock exchangesStock Exchanges are cleared and settled through Iberclear. Only members of Iberclear are entitled to use it, and membership is restricted to authorized members of the Spanish stock exchanges,Stock Exchanges, the Bank of Spain (when an agreement, approved by the Spanish Ministry of Economy and Finance, is reached with Iberclear) and, with the approval of the CNMV, other brokers not members of the Spanish stock exchanges,Stock Exchanges, banks, savings banks and foreign settlement and clearance systems. The clearance and settlement system and its members are responsible for maintaining records of
purchases and sales under the book-entry system. Shares of listed Spanish companies are held in book-entry form. Iberclear, which manages the clearance and settlement system, maintains a registry reflecting the number of shares held by each of its member entities (each an “entidad participada”), as well as the amount of such shares held on behalf of beneficial owners. Each member entity, in turn, maintains a registry of the owners of such shares. Spanish law considers the legal owner of the shares to be:
the member entity appearing in the records of Iberclear as holding the relevant shares in its own name, or
the investor appearing in the records of the member entity as holding the shares.
The SCLV has introduced the so-called “D+“D+3 Settlement System”System” by which the settlement of any transactions must be made three working days following the date on which the transaction was carried out.
Obtaining legal title to shares of a company listed on a Spanish stock exchange requires the participation of a Spanish official stockbroker, broker-dealer, bank or other entity authorized under Spanish law to record the transfer of shares. To evidence title to shares, at the owner’s request the relevant member entity must issue a certificate of ownership. In the event the owner is a member entity, Iberclear is in charge of the issuance of the certificate with respect to the shares held in the member entity’s name.
Brokerage commissions are not regulated. Brokers’ fees, to the extent charged, will apply upon transfer of title of our shares from the depositary to a holder of ADRs, and upon any later sale of such shares by such
holder. Transfers of ADSs do not require the participation of an official stockbroker. The deposit agreement provides that holders depositing our shares with the depositary in exchange for ADSs or withdrawing our shares in exchange for ADSs will pay the fees of the official stockbroker or other person or entity authorized under Spanish law applicable both to such holder and to the depositary.
Securities Market Legislation
The Securities Markets Act was enacted in 1988 with the purpose of reforming the organization and supervision of the Spanish securities markets. This legislation and the regulation implementing it:
established an independent regulatory authority, the CNMV, to supervise the securities markets;
established a framework for the regulation of trading practices, tender offers and insider trading;
required stock exchange members to be corporate entities;
required companies listed on a Spanish stock exchange to file annual audited financial statements and to make public quarterly financial information;
established the legal framework for the Automated Quotation System;
exempted the sale of securities from transfer and value added taxes;
deregulated brokerage commissionscommissions; and
provided for transfer of shares by book-entry or by delivery of evidence of title.
On February 14, 1992, Royal Decree No. 116/92 established the clearance and settlement system and the book-entry system, and required that all companies listed on a Spanish stock exchange adopt the book-entry system.
On November 16, 1998, the Securities Markets Act was amended in order to adapt it to Directive 93/22/CEE on investment services (later amended by Directive 95/26/CE and Directive 97/9/CE of the European Parliament and Council on investors indemnity systems).
On November 22, 2002, the Securities Markets Act was amended by Law 44/2002 in order to update Spanish financial law to global financial markets. See “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Monetary Policy—Law Reforming the Spanish Financial System”.
On June 18, 2003, the Spanish Government approved theLey de Transparencia(“Law 26/2003”), modifying both the Securities Markets Act and the Corporate Law, to reinforce the transparency of information available regarding listed Spanish companies. This law adds a new chapter, Title X, to the Securities Markets Act, whichwhich: (i) requires disclosure of shareholders’ agreements relating to listed companies; (ii) regulates the operation of the general shareholders’ meetings and of boards of directors of listed companies; (iii) requires the publication of an annual report on corporate governancegovernance; and (iv) establishes measures designed to increase the availability of information to shareholders.
As of the date of the filing of this Annual Report, a draft amendment to the Securities Market Act is pending approval of the Spanish authorities. If such legislation is approved, the legal regime in Spain applicable to tender offers as well as the transparency of issuers will be modified and will result in additional disclosure requirements.
Trading by the Bank and its Affiliates in the Shares
Trading by subsidiaries in their parent companies shares is restricted by the Spanish Companies Act.
Neither BBVA nor its affiliates may purchase BBVA’s shares unless the making of such purchases is authorized at a meeting of BBVA’s shareholders by means of a resolution establishing, among other matters, the maximum number of shares to be acquired within a maximum period of 18 months. Restricted reserves equal to the purchase price of any shares that are purchased by BBVA or its subsidiaries must be made by the purchasing entity. The total number of shares held by BBVA and its subsidiaries may not exceed five percent of BBVA’s total capital. It is the practice of Spanish banking groups, including ours, to establish subsidiaries to trade in their parent company’s shares in order to meet imbalances of supply and demand, to provide liquidity (especially for trades by their customers) and to modulate swings in the market price of their parent company’s shares.
Reporting Requirements
Any entity which transfers five percent or any multiple of five percent, of the capital stock of a company listed on a Spanish stock exchange must, within seven days after that transfer, report the transfer to such company, to the stock exchange on which such company is listed and to the CNMV. In addition, any company listed on a Spanish stock exchange must report on a non-public basis any acquisition by such company (or an affiliate) of the company’s own shares if such acquisition, together with any previous one from the date of the last communication, exceeds 1% of its capital stock, regardless of the balance retained. Members of the Board of Directors must report any transfer or acquisition of share capital of a company listed on the Spanish stock exchanges,Stock Exchanges, regardless of the size of the transaction. Additionally, since we are a credit entity, any individual or company which intends to acquire a significant participation in BBVA’s share capital must obtain prior approval from the Bank of Spain in order to carry out the transaction. See “Item 10. Additional Information—Exchange Controls—Restrictions on Acquisitions of Shares”.
Royal Decree 2590/98 has amended Royal Decree 377/91 by incorporating new reporting requirements in connection with any entity acting from a tax haven or a country where no securities regulatory commission exists, in which case the threshold of five percent is reduced to one percent. Furthermore, Royal Decree 2590/98 has extended the meaning of “transfer” to include voting agreements between shareholders.
Each Spanish bank is required to provide to the Bank of Spain a list dated the last day of each quarter of all the bank’s shareholders that are financial institutions and other non-financial institution shareholders owning at least 0.25% of a bank’s total share capital. Furthermore, the banks are required to inform the Bank of Spain, as soon as they become aware, and in any case not later than in 15 days, of each acquisition by a person or a group of at least one percent of such bank’s total share capital.
ITEM 10. | ADDITIONAL INFORMATION |
A. | Share Capital |
Not applicable.Applicable.
B. Memorandum and Articles of Association
B. | Memorandum and Articles of Association |
Spanish law and BBVA’s bylaws are the main sources of regulation affecting the company. All rights and obligations of BBVA’s shareholders are contained in its bylaws and in Spanish law.
On March 1, 2003, BBVA’s shareholders adopted a resolution amending its bylaws. The amendments were to: (i) Article 31 in order to cease limiting the exercise of shareholders’ voting rights to 10% of BBVA’s total share
capital; (ii) Article 34 in order to change the maximum and minimum number of seats on the Board of Directors to 18 and 9, respectively and (iii) Article 48 in order to comply with Law 44/2002.
On February 28, 2004, BBVA’s shareholders adopted a resolution amending its bylaws. The amendments were to: (i) Article 24 in order to expand shareholders’ rights to participate in shareholders’ meetings by proxy or representative; (ii) Article 29 in order to enhance shareholders’ ability to obtain information regarding the Company; (iii) Article 31 regarding the procedures for the adoption of shareholder resolutions; (iv) Article 35 regarding the requirements for being a director; (v) Article 38 regarding the chairman and secretary of the Board of Directors; (vi) Article 45 regarding nomination and composition of the Board of Directors; (vii) Article 37 to make a technical amendment required by virtue of the amendment to Article 3535; and (viii) Article 34 to reduce the maximum number of directors from 18 to 16.
On March 18, 2006, BBVA´sBBVA’s shareholders adopted a resolution amending articleArticle 53 of its by-lawsbylaws in order to contemplate the possibility of remunerating members of the boardBoard of directorsDirectors through delivery of shares, share options or remuneration indexed to the share price, according to articleArticle 130 of Spanish Companies Act,.Act.
On November 28, 2006, BBVA’s Board of Directors approved a capital increase of BBVA with the issuance by BBVA of 161,117,078 ordinary shares, which also resulted in an amendment to Article 5 of BBVA’s bylaws.
On March 16, 2007, BBVA’s shareholders adopted a resolution amending Article 36 of its bylaws in order to eliminate the annual renewal of one fifth of the Board of Directors seats each year so that the term of office for members of the Board of Directors is five years and members may be reelected one or more times for terms of the same maximum duration. As of the date of this Annual Report, the amendment is pending registration at the Commercial Registry of Vizcaya.
Registry and Company’s Objects and Purposes
BBVA is registered with the Commercial Registry of Vizcaya (Spain). Its registration number at the Commercial Registry of Vizcaya is volume 2,083, Company section folio 1, sheet BI-17-1, 1st entry. Its corporate objects and purposes are to: (i) directly or indirectly conduct all types of activities, transactions, acts, agreements and services relating to the banking business which are permitted or not prohibited by law and all banking
ancillary activities; (ii) acquire, hold and dispose of securitiessecurities; and (iii) make public offers for the acquisition and sale of securities and all types of holdings in any kind of company. BBVA’s objects and purposes are contained in Article 3 of the bylaws.
Certain Powers of the Board of Directors
In general, provisions limiting the powers of BBVA’s directors are not contained in its bylaws. Such limitations, where they exist, often (i) limit a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested; (ii) limit the power to vote on compensation tofor themselves; (iii) limit borrowing powers exercisable by the directors and how such borrowing powers can be variedvaried; or (iv) require retirement of directors at a certain age. The powers of BBVA’s directors in these and other matters, however, are limited by and subject to BBVA’s internal regulations. In addition, BBVA’s Board of Directors is subject to the Regulations of the Board of Directors, which contains a series of ethical standards. See “Item 6. Directors, Senior Management and Employees”.
The provisions of BBVA’s bylaws that relate to compensation of directors are in strict accordance with the relevant provisions of Spanish law. The main provisions of the bylaws that relate to these matters are those that, in accordance with applicable Spanish law, allow the members of the Board of Directors to determine their administrative expenses or agree on such additional benefits they consider appropriate or necessary, up to four percent of our paid-up capital per year, which may only be paid after the minimum yearly dividend of four percent of the paid-in capital has been paid to our shareholders.
As of the date of the filing of this Annual Report, 11 of the 1514 members of the Board of Directors were independent.
Members of the Board of Directors are elected for a term in office of five years. One-fifth of the Board of Directors is re-elected annually. The members of the Board of Directors may be re-elected for an unlimited number of terms. See “Item 6. Directors, Senior Management and Employees”.
Certain Provisions Regarding Preferred Shares
The bylaws authorize BBVA to issue ordinary, non-voting, redeemable and preferred shares. As of the date of the filing of this Annual Report, BBVA has no non-voting, redeemable or preferred shares outstanding.
The characteristics of preferred shares must be agreed by the Board of Directors before they are issued.
Only shares that have been issued as redeemable may be redeemed by BBVA. Redemption of shares may only occur according to the terms set forth when they are issued. Redeemable shares must be fully paid-up at the
time of their subscription. If the right to redeem redeemable shares is exclusively given to BBVA, it may not be exercised until at least three years after the issue. Redemption of shares must be financed against profits, free reserves or the proceeds of new securities issued especially for financing the redemption of an issue. If financed against profits or free reserves, BBVA must create a reserve for the amount of the par value of the redeemed shares. If the redemption is not financed against profits, free reserves or a new issue, it may only be done in compliance with the requirements of a reduction in share capital by the refund of contributions.
Holders of non-voting shares, if issued, are entitled to a minimum annual dividend, fixed or variable, set out at the time of the issue. The right of non-voting shares to accumulate unpaid dividends whenever funds to pay dividends are not available, any preemptive rights associated with non-voting shares, and the ability of holders of non-voting shares to recover voting rights also must be established at the time of the issue. Non-voting shares are entitled to the dividends to which ordinary shares are entitled in addition to their minimum dividend.
Certain Provisions Regarding Shareholders Rights
As of the date of the filing of this Annual Report, BBVA’s capital is comprised of one class of ordinary shares, all of which have the same rights.
Once all legal reserves and funds have been provided for out of the net profits of any given fiscal year, shareholders have the right to the distribution of an annual dividend of at least four percent of our paid-in capital. Shareholders will participate in the distribution of dividends in proportion to their paid-in capital. The right to collect a dividend lapses after five years as of the date in which it was first available to the shareholders. Shareholders also have the right to participate in proportion to their paid-in capital in any distribution resulting from our liquidation.
Each shareholder present at a General Shareholders’ Meeting is entitled to one vote per each share. However, unpaid shares with respect to which a shareholder is in default of the resolutions of the Board of Directors relating to their payment will not be entitled to vote. The bylaws contain no provisions regarding cumulative voting.
On March 1, 2003, BBVA’s shareholders passed a resolution amending the bylaws to, among other things, remove the provision which stated that no shareholder may cast a number of votes greater than those corresponding to shares representing 10% of BBVA’s share capital.
The bylaws do not contain any provisions relating to sinking funds or potential liability of shareholders to further capital calls by BBVA.
The bylaws do not specify what actions orestablish that special quorums are required to change the rights of shareholders. Under Spanish law, the rights of shareholders may only be changed by an amendment to the bylaws that complies with the requirements explained below under “—
“—Shareholders’ Meetings”, plus the affirmative vote of the majority of the shares of the class that will be affected by the amendment.
Shareholders’ Meetings
General meetings may be ordinary or extraordinary. Ordinary general meetings are held within the first six months of each financial year in order to review, among other things, the management of the company, and to approve, if applicable, annual financial statements for the previous fiscal year. Extraordinary general meetings are those meetings that are not ordinary. In any case, the requirements mentioned below for constitution and adoption of resolutions are applicable to both categories of general meetings.
General meetings must be convoked by the Board of Directors, whether by their own decision or upon the request of shareholders holding at least five percent of BBVA’s share capital. General meetings must generally be advised according to Spanish recent regulation, at least one month in advance by means of an advertisement published in the Official Companies Registry Gazette (Boletí(Boletín Oficial del Registro Mercantil) (Borme)Mercantil) (“Borme”) and in one of the widely-circulated newspapers.
As of the date of the filing of this Annual Report, shareholders have the right to attend general meetings if they:
own at least 500 shares;
retain the ownership of at least 500 shares until the general meeting takes place.
Additionally, holders of fewer than 500 shares may aggregate their shares to reach at least such number of shares and appoint a shareholder as proxy to attend the general meeting.
General meetings will be validly constituted on first call with the presence of at least 25% of BBVA’s voting capital, either in person or by proxy. No minimum quorum is required to hold a general meeting on second call. In either case, resolutions will be agreed by the majority of the votes. However, a general meeting will only be validly held with the presence of 50% of BBVA’s voting capital on first call or of 25% of the voting capital on second call, in the case of resolutions concerning the following matters:
issuances of debt;
capital increases or decreases;
merger of BBVABBVA; and
any other amendment to the bylaws.
In these cases, resolutions may only be approved by the vote of the majority of the shares if at least 50% of the voting capital is present at the meeting. If the voting capital present at the meeting is less than 50%, then resolutions may only be adopted by two-thirds of the shares present.
Additionally, our bylaws state that, in order to adopt resolutions regarding a change in corporate purpose or the total liquidation or dissolution of BBVA, at least two-thirds of the voting capital must be present at the meeting on first call and at least 60 percent of voting capital must be present on second call.
Restrictions on the Ownership of Shares
Our bylaws do not provide for any restrictions on the ownership of our ordinary shares. Spanish law, however, provides for certain restrictions which are described below under “—Exchange Controls—Restrictions on Acquisitions of Shares”.
Restrictions on Foreign Investments
Spanish stock exchangesStock Exchanges are open to foreign investors. However, the acquisition of 50% or more of the share capital of a Spanish company by a person or entity residing in a tax haven must in certain cases be notified to the Ministry of Economy and Treasury prior to its execution. All other investments in BBVA’s shares by foreign entities or individuals only require the notification of the Spanish authorities through the Spanish intermediary that took part in the investment once it is executed.
Current Spanish regulations provide that once all applicable taxes have been paid, see “—Exchange Controls”, foreign investors may freely transfer out of Spain any amounts of invested capital, capital gains and dividends.
Change of Control Provisions
In addition to the restrictions on acquisitions of BBVA’s shares discussed above, certain antitrust freeze-out regulations may also delay, defer or prevent a change of control of BBVA or any of its subsidiaries in the event of a merger, acquisition or corporate restructuring. In Spain, the application of both Spanish and European antitrust regulations require that prior notice of domestic or cross-border merger transactions be given in order to obtain a “non-opposition” ruling from antitrust authorities.
Spanish regulation of takeover bids may also delay, defer or prevent a change of control of BBVA or any of its subsidiaries in the event of a merger, acquisition or corporate restructuring. Spanish regulation of takeover bids contained in Royal Decree 1197/1991 was as amended by Royal Decree 432/2003 dated April 11, 2003. See “—Exchange Controls—Tender Offers”. Regulations on public takeover bids require a bid to be launched if the
acquisition of the listed company grants control to the purchaser, regardless of whether the acquired stake reaches the 25% threshold. The newThese rules state that it is necessary to launch a tender offer if the bidder intends to acquire less than 25% of the target’s share capital but intends to appoint more than one-third and less than one-half plus one of the target’s directors.
Since BBVA is a credit entity, it is necessary to obtain approval from the Bank of Spain in order to acquire a number of shares considered to be a significant participation by Law 26/1988, of July 29, 1998. See “—Exchange Controls—Restrictions on Acquisitions of Shares”. Also, any agreement that contemplates BBVA’s merger with another credit entity will require the authorization of the Ministry of Economy. This could also delay, defer or prevent a change of control of BBVA or any of its subsidiaries that are credit entities in the event of a merger.
C. | Material Contracts |
During the past two years BBVA was not a party to any contract outside its ordinary course of business that was material to it as a whole.
D. | Exchange Controls |
In 1991, Spain adopted the EU standards for free movement of capital and services. As a result, exchange controls and restrictions on foreign investments have generally been abolished and foreign investors may transfer invested capital, capital gains and dividends out of Spain without limitation as to amount, subject to applicable taxes. See “—Taxation”.
Pursuant to Spanish Law 18/1992 on Foreign Investments(Ley 18/1992, de 1 de julio) and Royal Decree 664/1999 (Real Decreto 664/1999, de 23 de abril), foreign investors may freely invest in shares of Spanish companies, except in the case of certain strategic industries.
Shares in Spanish companies held by foreign investors must be reported to the Spanish Registry of Foreign Investments by the depositary bank or relevant Iberclear member. When a foreign investor acquires shares that are subject to the reporting requirements of the CNMV, notice must be given by the foreign investor directly to the Registry of Foreign Investments in addition to the notices of majority interests that must be sent to the CNMV and the applicable stock exchanges. This notice must be given through a bank or other financial institution duly registered with the Bank of Spain and the CNMV or through bank accounts opened with any branch of such registered entities.
Investment by foreigners domiciled in enumerated tax haven jurisdictions is subject to special reporting requirements under Royal Decree 1080/19971991(Real Decreto 1980/1997,1080/1991, de 5 de julio).
On July 5, 2003, Law 19/2003(Ley sobre el regimen juridico de los movimientos de capitales y de las transacciones economicas con el exterior y sobre determinadas medidas de prevencion del blanqueo de capitales), came into effect. effect.This law is an update to other Spanish exchange control and money laundering prevention laws.
Restrictions on Acquisitions of Shares
Spanish law provides that any individual or corporation that intends to acquire, directly or indirectly, a significant participation ((“participación significativa”) in a Spanish bank must obtain the prior approval of the Bank of Spain, including the amount of such participation, the terms and conditions of the acquisition and the period in which it is intended to execute the transaction. A significant participation is considered five percent of the outstanding share capital of a bank or a lower percentage if such holding allows for the exercise of a significant influence.
Any individual or company that intends to increase, directly or indirectly, its significant participation in such a way that its share capital or voting rights after the acquisition reaches or exceeds 10%, 15%, 20%, 25%, 33%, 40%, 50%, 66% or 75% is required to give prior notice to the Bank of Spain of such transaction. Any acquisition without such prior notification, or before three months have elapsed after the date of such notification, or against the objection of the Bank of Spain, will produce the following results:
the acquired shares will have no voting rights; and
The Bank of Spain has a period of three months to object to a proposed transaction. Such objection may be based on the fact that the Bank of Spain does not consider the acquiring person suitable to guarantee the sound and prudent operation of the target bank.
Any individual or institution that intends to sell its significant participation or reduce the above mentioned percentages, or which, because of such sale, loses control of the entity, must give prior notice to the Bank of Spain, indicating the amount to be sold and the period in which the transaction is to be executed. Non-compliance with this requirement will result in sanctions.
The Ministry of Economy and the Treasury, following a proposal by the Bank of Spain, may, whenever the control by a person with a significant participation may jeopardize the sound and prudent management of a credit institution, adopt any of the following measures as deemed appropriate:
suspend the voting rights corresponding to such shares for up to three years;
take control of the bank or replace the directorsdirectors; or
revoke the bank’s license.
Tender Offers
As stated above, the Spanish legal regime concerning takeover bids was amended by Royal Decree 432/2003 of April 11, 2003, in order to introduce more cases in which it is necessary to launch a takeover in order to acquire a stake of the share capital of a listed company. Subject to certain exceptions, any individual or corporation proposing to acquire shares of a company’s share capital (or other securities that may directly or indirectly give the right to subscribe for such shares), which is fully or partly admitted for trading on a Spanish stock exchange, may not do so without first launching a public tender offer on the terms and conditions laid down in the Royal Decree, if it intends to appoint more than one-third but less than one-half of the directors of the target company.
E. TaxationLegislation is currently pending in Spanish Parliament to adopt Directive 2004/25/EC of the European Parliament and of the Council dated April 21, 2004 into Spanish law. Such legislation will materially amend the current tender offer rules in Spain. Under the currently proposed legislation, anyone who directly or indirectly acquires 30% or more of the voting capital of a listed company, or a smaller stake but appoints more than half of the directors, will have to make a tender offer for all the shares of the company at a fair price. The price will be considered fair if it is at least equal to the highest price that would have been paid by the party obliged to make the offer or by persons acting in concert during a certain period of time before the offer. The wording of the legislation may change during its passage through Spanish Parliament, and the enacted legislation may be different than the description of the proposed legislation described above.
If the draft amendment to the Securities Market Act is approved, the Spanish legal regime applicable to acquisitions and tender offers will be significantly modified. See “Item 9. The Offer and the Listing—Securities Market Legislation”.
E. | Taxation |
Spanish Tax Considerations
The following is a summary of the material Spanish tax consequences to U.S. Residents (as defined below) of the acquisition, ownership and disposition of BBVA’s ADSs or ordinary shares.shares as of the date of the filing of this Annual Report. This summary does not address all tax considerations that may be relevant to all categories of potential purchasers, some of whom (such as life insurance companies, tax-exempt entities, dealers in securities or financial institutions) may be subject to special rules. In particular, the summary deals only with the U.S. Holders (as defined below) that will hold ADSs or ordinary shares as capital assets and who do not at any time own individually, nor are treated as owning, 25% or more of BBVA’s shares, including ADSs.
As used in this particular section, the following terms have the following meanings:
(1) “U.S. Holder”“U.S. Holder” means a beneficial owner of BBVA’s ADSs or ordinary shares that is for U.S. federal income tax purposes:
a citizen or a resident of the United States,
a corporation or other entity treated as a corporation, created or organized under the laws of the United States or any political subdivision thereof, or
an estate or trust the income of which is subject to United States federal income tax without regard to its source.
(2) “Treaty”“Treaty” means the Convention between the United States and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related Protocol.
(3) “U.S. Resident”“U.S. Resident” means a U.S. Holder that is a resident of the United States for the purposes of the Treaty and entitled to the benefits of the Treaty, whose holding is not effectively connected with (1) a permanent establishment in Spain through which such holder carries on or has carried on business, or (2) a fixed base in Spain from which such holder performs or has performed independent personal services.
Holders of ADSs or ordinary shares should consult their tax advisors, particularly as to the applicability of any tax treaty. The statements regarding Spanish tax laws set out below are based on interpretations of those laws in force as of the date of this Annual Report. Such statements also assume that each obligation in the Deposit Agreement and any related agreement will be performed in full accordance with the terms of those agreements.
Taxation of Dividends
Under Spanish law, dividends paid by BBVA to a holder of ordinary shares or ADSs who is not resident in Spain for tax purposes and does not operate through a permanent establishment in Spain, are subject to Spanish Non-Resident Income Tax, withheld at source, currently at a 15%18% tax rate. For these purposes, upon distribution of the dividend, BBVA or its paying agent will withhold an amount equal to the tax due according to the rules set forth above (i.e., applying the general withholding tax rate of 15%18%), transferring the resulting net amount to the depositary. Under
However, under the Treaty, if you are a U.S.United States Resident, you are also entitled to a tax rate of 15%. This tax
To benefit from the Treaty-reduced rate is expectedof 15%, if you are a United States Resident, you must provide to change with the approval of bill 121/000080 onIncome taxdepositary, before the tenth day following the end of the Natural persons and of partial modificationmonth in which the dividends were payable, a certificate from the IRS stating that, to the best knowledge of the LawsIRS, you are a resident of the Taxes on Societies, onUnited States within the Revenuemeaning of Not residentsthe Treaty and onentitled to its benefits.
Those depositaries providing timely evidence (i.e., by means of the Patrimony,IRS certificate) of your right to apply the Treaty-reduced rate will immediately receive the surplus amount withheld, which will be credited to you. The IRS certificate is atvalid for a period of one year from issuance.
If the present in it’s approval procedurecertificate referred to in the Spanish Congress. This bill, intended to become effective on January 1, 2007, would increase the tax rate on dividends to an 18%. For more information on these reform please referabove paragraph is not provided to the depositary within said term, you may afterwards obtain a refund of the amount withheld in excess of the rate provided for in the Treaty.
Spanish Congress web page www.congreso.es .Refund Procedure
According to Spanish Regulations on Non-Resident Income Tax, approved by Royal Decree 1776/2004 dated July 30, 2004, as amended, a refund for the amount withheld in excess of the Treaty-reduced rate can be obtained from the relevant Spanish tax authorities. To pursue the refund claim, if you are a United States Resident, you are required to file:
the corresponding Spanish tax form,
the certificate referred to in the preceding section, and
evidence of the Spanish Non-Resident Income Tax that was withheld with respect to you.
The refund claim must be filed within four years from the date in which the withheld tax was collected by the Spanish tax authorities.
United States Residents are urged to consult their own tax advisors regarding refund procedures and any U.S. tax implications thereof.
Additionally, under the Spanish law, the first €1,500 of dividends obtained by individuals who are not resident in Spain for tax purposes, and do not operate through a permanent establishment in Spain, will be exempt from taxation in certain circumstances. United States Residents should consult their tax advisors in order to make effective this exemption.
Taxation of Rights
Distribution of preemptive rights to subscribe for new shares made with respect to your shares in BBVA will not be treated as income under Spanish law and, therefore, will not be subject to Spanish Non-Resident Income Tax. The exercise of such preemptive rights is not considered a taxable event under Spanish law and thus is not subject to Spanish tax. Capital gains derived from the disposition of preemptive rights obtained by U.S. Residents are generally not taxed in Spain provided that certain conditions are met (See “—Taxation of Capital Gains” below).
Taxation of Capital Gains
Under Spanish law, any capital gains derived from securities issued by persons residing in Spain for tax purposes are considered to be Spanish source income and, therefore, are taxable in Spain. For Spanish tax purposes, income obtained by you, if you are a U.S. Resident, from the sale of BBVA’s ADSs or ordinary shares will be treated as capital gains. Spanish Non-Resident Income Tax is currently levied at a 35%18% tax rate on capital gains obtained by persons who are not residents of Spain for tax purposes, who are not entitled to the benefit of any applicable treaty for the avoidance of double taxation and who do not operate through a fixed base or a permanent establishment in Spain.
Notwithstanding the above, capital gains derived from the transfer of shares on an official Spanish secondary stock market by any holder who is resident in a country that has entered into a treaty for the avoidance of double taxation with an “exchange of information” clause (the Treaty contains such a clause) will be exempt from taxation in Spain. Additionally, capital gains realized by non-residents of Spain who are entitled to the benefit of an applicable treaty for the avoidance of double taxation will, in the majority of cases, not be taxed in Spain (since most tax treaties provide for taxation only in the taxpayer’s country of residence). If you are a U.S. Resident, under of the Treaty, capital gains arising from the disposition of ordinary shares or ADSs will not be taxed in Spain. You will be required to establish that you are entitled to this exemption by providing to the
relevant Spanish tax authorities an IRS certificate of residence in the United States, together with the corresponding Spanish tax form.
Spanish Wealth Tax
If you do not reside in Spain and you hold shares located in Spain, you are subject to Spanish Wealth Tax (Spanish Law 19/1991), which imposes a tax on property located in Spain on the last day of any year. It is possible that the Spanish tax authorities may contend that all shares of a Spanish corporation and all ADSs representing such shares are located in Spain for Spanish tax purposes. If such a view were to prevail, and you are a non-resident of Spain who held BBVA’s ADSs or ordinary shares on the last day of any year, you would be subject to the Spanish Wealth Tax for such year at marginal rates varying between 0.2% and 2.5% of the average market value of such ordinary shares or ADSs during the last quarter of such year. U.S. Residents should consult their tax advisors with respect to the applicability of Spanish Wealth Tax.
Spanish Inheritance and Gift Taxes
Transfers of BBVA’s shares or ADRs upon death or by gift are subject to Spanish inheritance and gift taxes (Spanish Law 29/1987), if the transferee is a resident in Spain for tax purposes, or if BBVA’s shares or ADSs are located in Spain, regardless of the residence of the beneficiary. In this regard, the Spanish tax authorities may argue that all shares of a Spanish corporation and all ADSs representing such shares are located in Spain for Spanish tax purposes. The applicable tax rate, after applying all relevant factors, ranges between 7.65% and 81.6% for individuals, approximately.
Alternatively, corporations that are non-resident of Spain that receive BBVA’s shares or ADSs as a gift are subject to Spanish Non-Resident Income Tax at a 35%18% tax rate on the fair market value of such ordinary shares or ADSs as a capital gain. If the donee is a United States resident corporation, the exclusions available under the Treaty described in “—Taxation of Capital Gains” above will be applicable.
Spanish Transfer Tax
Transfers of BBVA’s ordinary shares or ADSs will be exempt from Transfer Tax (Impuesto sobre Transmisiones Patrimoniales) or Value-Added Tax. Additionally, no stamp duty will be levied on such transfers.
U.S. Tax Considerations
The following summary describes the material U.S. federal income tax consequences of the acquisition, ownership and disposition of ADSs or ordinary shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to acquire such securities. The summary applies only to U.S. Holders (as defined under “Spanish Tax Considerations” above) that hold ADSs or ordinary shares as capital assets for tax purposes and does not address all of the tax consequences that may be relevant to holders subject to special rules, such as:
certain financial institutions;
insurance companies;
dealers and traders in securities or foreign currencies;
persons holding ADSs or ordinary shares as part of a hedge, straddle, conversion transaction or other integrated transaction;
persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar;
persons liable for the alternative minimum tax;
tax-exempt organizations;
partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
persons who acquired our ADSs or ordinary shares pursuant to the exercise of any employee stock option or otherwise as compensation; or
The summary is based upon the tax laws of the United States including the Internal Revenue Code of 1986, as amended to the date hereof (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, as of the date hereof. These laws are subject to change, possibly with retroactive effect. In addition, the summary is based on the Treaty (as defined under “Spanish Tax Considerations” above) and is based in part on representations of the depositary and assumes that each obligation provided for in or otherwise contemplated by BBVA’s deposit agreement or any other related document will be performed in accordance with its terms. Prospective purchasers of the ADSs or ordinary shares are urged to consult their tax advisors as to the U.S., Spanish or other tax consequences of the purchase, ownership and disposition of ADSs or ordinary shares in their particular circumstances, including the effect of any U.S. state or local tax laws.
For United States federal income tax purposes, U.S. Holders of ADSs will generally be treated as the owners of the underlying ordinary shares represented by those ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying ordinary shares represented by those ADSs.
The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders of ADSs. Such actions would
also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain noncorporate U.S. Holders, as described below. Accordingly, the analysis of the creditability of Spanish taxes described below, and the availability of the reduced tax rate for dividends received by certain noncorporate U.S. Holders, could be affected by future actions that may be taken by the parties to whom the ADSs are released.
This discussion assumes that BBVA was not a passive foreign investment company (“PFIC”PFIC”) for 20052006 (as discussed below).
Taxation of Distributions
Distributions, before reduction for any Spanish income tax withheld by BBVA or its paying agent, made with respect to ADSs or ordinary shares (other than certain pro rata distributions of BBVA’s capital stock or rights to subscribe for shares of its capital stock) will be includible in the income of a U.S. Holder as ordinary dividend income, to the extent paid out of our current or accumulated earnings and profits (asas determined in accordance with U.S. federal income tax principles).principles. The amount of such dividends will be treated as foreign source dividend income and not be eligible for the “dividends received deduction” generally allowed to U.S. corporations under the Code. Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury, dividends paid to noncorporate U.S. Holders in taxable years beginning before January 1, 20092011 will be taxable at a maximum tax rate of 15%. Noncorporate U.S. Holders should consult their own tax advisors to determine the implications of the rules regarding this favorable rate in their particular circumstances.
The amount of the distribution will equal the U.S. dollar value of the euro received, calculated by reference to the exchange rate in effect on the date such distribution is received (which, for U.S. Holders of ADSs, will be the date such distribution is received by the depositary), whether or not the depositary or U.S. Holder in fact converts any euro received into U.S. dollars at that time. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if such dividend is not converted into U.S. dollars on the date of its receipt.
Subject to applicable limitations that may vary depending upon a U.S. Holder’s circumstances and subject to the discussion above regarding concerns expressed by the U.S. Treasury, a U.S. Holder will be entitled to a credit against its U.S. federal income tax liability, or a deduction in computing its U.S. federal taxable income, for Spanish income taxes withheld by BBVA or its paying agent. A U.S. Holder must satisfy minimum holding period requirements in order to be eligible to claim a foreign tax credit for foreign taxes withheld on dividends. The rules governing foreign tax credits are complex and, therefore, U.S. Holders should consult their tax advisers regarding the availability of foreign tax credits in their particular circumstances.
Sale and Other Disposition of ADSs or Shares
Gain or loss realized by a U.S. Holder on (i) the sale or exchange of ADSs or ordinary shares or (ii) the depositary’s sale or exchange of ordinary shares received as distributions on the ADSs, will be subject to U.S. federal income tax as capital gain or loss in an amount equal to the difference between the U.S. Holder’s tax basis in the ADSs or ordinary shares and the amount realized on the disposition. Such gain or loss will be long-term capital gain or loss if the U.S. Holder held the ordinary shares or ADSs for more than one year. Gain or loss, if any, will generally be U.S. source for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Rules
Based upon certain proposed Treasury regulations (“Proposed Regulations”Regulations”) we believe that we were not a “passive foreign investment company”, or “PFIC”,PFIC for U.S. federal income tax purposes for our 2006 taxable year. However, since our PFIC status depends upon the composition of our income and assets and the market value of our assets (including, among others, less than 25% owned equity investments) from time to time and since there is no guarantee that the Proposed Regulations will be adopted in their current form, there can be no assurance that we will not be considered a PFIC for any taxable year.
If we were treated as a PFIC for any taxable year during which a U.S. Holder held ADSs or ordinary shares, gain recognized by such U.S. Holder on a sale or other disposition of an ADS or an ordinary share would be allocated ratably over the U.S. Holder’s holding period for the ADS or the ordinary share. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for ordinary income of taxpayers of the U.S. Holder’s type for such taxable year, and an
interest charge would be imposed on the amount allocated to such taxable year. Similar tax rules would apply to any distribution in respect of ADSs or ordinary shares in excess of 125% of the average of the annual distributions on ADSs or ordinary shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter. Additionally, if we were a PFIC for any taxable year during which a U.S. Holder held an ADS or ordinary share, such U.S. Holder would be required to make an annual return on IRS Form 8621 for that year, describing the distributions received from BBVA and any gain realized on the disposition of ADSs or ordinary shares. Certain elections may be available (including a mark-to-market election) to U.S. persons that may help mitigate the adverse consequences resulting from PFIC status.
Information Reporting and Backup Withholding
Information returns may be filed with the Internal Revenue Service in connection with payments of dividends on, and the proceeds from a sale or other disposition of, ADSs or ordinary shares. A U.S. Holder may be subject to U.S. backup withholding on these payments if the U.S. Holder fails to provide its taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.
F. Dividends and Paying Agents
F. | Dividends and Paying Agents |
Not applicable.Applicable.
G. | Statement by Experts |
Not applicable.Applicable.
H. | Documents on Display |
The documents concerning BBVA which are referred to in this Annual Report may be inspected at its offices at Plaza de San Nicolás 4, 48005 Bilbao, Spain. In addition, we are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by BBVA with the SEC may
be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which BBVA’s ADSs are listed. In addition, the SEC maintains a web site that contains information filed or furnished electronically with the SEC, which can be accessed over the internet at http://www.sec.gov.
I. | Subsidiary Information |
Not applicable.
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
RISK MANAGEMENT OVERVIEW
BBVA’s different typesActivities involving financial instruments may involve the assumption or transfer of business activities involve manyone or more types of risk which requireby financial entities such as BBVA. The risks associated with financial instruments are:
Market risks: these arise as a singleconsequence of holding financial instruments whose value may be affected by changes in market conditions. There are three types of market risk:
Currency risk: arises as a result of changes in the exchange rate between currencies;
Fair value interest rate risk: arises as a result of changes in market interest rates; and
Price risk: arises as a result of changes in market prices, due either to factors specific to the individual instrument or to factors that affect all instruments traded on the market.
Credit risk: this is the risk that one of the parties to the financial instrument agreement will fail to honour its contractual obligations due to the insolvency or incapacity of the individuals or legal entities involved and will cause the other party to incur a financial loss.
Liquidity risk: occasionally referred to as funding risk, this arises either because the entity may be unable to sell a financial asset quickly at an amount close to its fair value, or because the entity may encounter difficulty in finding funds to meet commitments associated with financial instruments.
The Group has developed a global risk management system for the entire organization. The BBVA Group has developed its own overall management system for the proper identification, measurement and evaluation of risk.
This system’s main features are the following:
To that end, the Group’s risk-management system incorporates three types of elements:
MARKET RISK IN TRADING PORTFOLIO IN 2006
In the BBVA Group market areas, credit and market risk policies that ensure the management model is integrated into the day-to-day decision-making process from the most basic levelare jointly managed through a limits system adapted to the highest ones such as the Risk Committeeactivities performed on each of the boardtrading floors. This system measures the impact of directorsa possible adverse market evolution on positions, both under ordinary circumstances and under situations of risk factor stress. The Executive Committee approves global Value-at-Risk (“VaR”) limits for each unit according to the board itself.
Proper integration of these components enables an overall risk profile to be drawn up and monitored per businessspecific risks each unit andpresents, differentiated by type of risk, quantified in terms of economic capitalbusiness activities undertaken and expected losses.
Under this general framework and in line with its business strategy, the Group determines and applies risk policies in its day-to-day business, setting maximum values of credit risk exposure for counterparties or groups, establishing limits for maximum exposure to market and structural risks and analyzing operational risks incurred in its various activities in order to mitigate their impact.
BBVA is working to meet the Basel II Capital Accord which will enable capital consumption to be determined on the basis of internal models as from 2008.unit’s organizational structure. The group is in the process of validating its advanced internal models (IRB Advanced) for credit risk measurement. In the short term, within the framework of current regulations, the Bank has began using its own internal market risk model (after obtaining proper authorization) to calculate capital.
OVERALL RISK MAP
As of December 31, 2005,unit is responsible for maintaining an adequate equilibrium between the Group’s consumption of economic capital was €15,701 million, a 23% increase as compared to December 31, 2004. Economic capital is a measurelimits of the maximum losses that can be incurred with a set confidence level (99.9%) consistent with a target level of solvency. Measurements of economic capital fit into management accounting by business units and their intrinsic valuation.the global limits as well as the correlation between VaR limits and delta sensitivity.
By type of risk, credit risk continuedIn order to account for profits already obtained in the largest portion (60%)applicable year, the accrual of negative profits from business units is correlated to the Group’s usereduction in the VaR limits set. This scheme is complemented by loss limits and warning alerts that automatically trigger procedures designed to alleviate potentially harmful situations that might compromise the business area activities.
The measurement model employed is parametric VaR, which applies a covariance matrix, with a confidence level of economic capital at December 31, 2005. At the same date, market99% and a one-day time horizon. This model also considers basis risk, which includes structural balance sheetspread, convexity and other risks associated with variationsembedded options and structured products. The VaR provides a forecast of the expected maximum loss over a fixed time horizon (one-day in the case of BBVA) that portfolios could incur stemming from fluctuations recorded in the equity market and in interest and exchange rates, and equities portfolio risk, accounted for 25%as well as in credit markets through the credit spread. In the case of total
In order to assess impacts on less liquid markets or those with a higher probability of transitory nonliquidity, periodical analyses are carried out taking into account the different liquidity conditions affecting the financial markets. These are likewise combined with economic capital and operationalVaR limits in stress situations, considering the impact of past financial crises and foreseeable future scenarios. Finally, the market risk accounted for 11% of total economic capital. Non-banking activities accounted formeasurement model incorporates back-testing or ex-post comparison, which verifies the remaining 4% of total economic capital.
The accompanying graph shows the distribution of economic capitalaccuracy of the Group, by business arearisk measurements made, comparing day-on-day management results at different aggregation levels, with the corresponding VaR measurements for those same levels.
We expect the expansion of the new risk measurement platform, which had been implemented in Spain and Mexico as of December 31, 2005.2006, to the BBVA Group’s Latin American business units in 2007 will provide a more accurate and flexible measurement based on VaR calculation by historical and Monte Carlo simulation. The new platform will lead to the future integration of market risk and credit risk for the entire perimeter of the Advanced Internal model for capital cost allocation.
The distributionBBVA Group’s market risk in 2006 (measured as VaR without smoothing) has remained at moderate levels. The increase in the volatility of economic capitalsome Latin American markets in the second quarter of the year (during election periods) indicated recoveries in the VaR with smoothing, which continued to fall in the subsequent months of 2006. The below table shows the evolution of the BBVA Group’s market risk (measured as VaR without smoothing) in 2006.
In 2006, the BBVA Group’s daily market risk stood at an average of €19.6 million (VaR without smoothing). The dispersion of the VaR figures in 2006 is shown below.
By risk factors, the most important was interest rate risk (46% of the total at the close of the year), which includes systematic risk and specific risk linked to spreads. Vega risk and correlation risk account for 18.5% and 11% of the total, respectively, while equity and foreign exchange risks represented 21.5% and 3%, respectively, at December 31, 2006.
Market risk by risk factors in 2006
(Million euros)
Daily VaR | ||||||||||
31-12-06 | Average | Maximum | Minimum | |||||||
Interest(1) | 12.1 | 11.8 | 16.9 | 8.0 | ||||||
Exchange rate(1) | 0.7 | 1.2 | 3.6 | 0.5 | ||||||
Equity(1) | 5.8 | 4.2 | 9.9 | 1.8 | ||||||
Vega and correlation | 5.2 | 5.2 | 7.0 | 4.1 | ||||||
Diversification effect | (3.1 | ) | (2.9 | ) | — | — | ||||
TOTAL | 20.7 | 19.6 | 24.2 | 15.4 | ||||||
(1) | Includes gamma risk of fixed-income, exchange rate and equity options, respectively. Interest risk includes the spread. |
By geographical areas, based on the BBVA entity as to which the risk relates, as of December 31, 2006, 68.3% of the market risk in terms of VaR corresponded to Europe and the United States and 31.7% to the Group’s Latin American banks, of which 21.2 p.p. was concentrated in Mexico. In 2006, the risk profile for developed and emerging countries remained similar to that observed in 2005.
The aggregate daily VaR limit for 2006 was €50.2 million. The average daily VaR limits used by the Group’s main business units reached 39% when calculated without exponential smoothing and 31% with exponential smoothing, for the year ended December 31, 2006.
The back-testing comparison performed with market risk management results for the BBVA S.A. perimeter in 2006, which made a day-on-day comparison between holding earnings and the risk level estimated by the model, confirmed the accurate functioning of the Group’s risk model.
The breakdown of the risk exposure by categories of the instruments within the trading portfolio, as of December 31, 2006, 2005 isand 2004 were as follows: 34%
Thousands of euros | ||||||
2006 | 2005 | 2004 | ||||
Loans to Credit institutions | 17,149,744 | 27,470,224 | 16,702,957 | |||
Debt securities | 68,737,919 | 82,009,555 | 83,211,589 | |||
Derivatives | 6,195,150 | 8,525,664 | 7,607,036 | |||
Total | 92,082,813 | 118,005,443 | 107,521,582 |
MARKET RISK IN NON-TRADING ACTIVITIES IN 2006
Interest Rate Risk
The exposure of financial institutions to variations in interest rates is a risk inherent to the banking business. The different terms of maturity and repricing of debtor and creditor positions represent the main source of interest rate risk, by virtue of how they are affected to a greater or lesser degree by interest rate variations. Nevertheless, the effect of changes in the slope or shape of interest rate curves must also be taken into consideration, as must the embedded option of certain products.
In accordance with the recommendations made by the Basel Committee on Banking Supervision, the BBVA Group has a suitable organizational structure to control and manage its structural interest rate risk, which assures the necessary independence in undertaking such functions. ALCO is responsible for management of the asset and liability risk, excluding the Markets or Cash Management areas’ activities, in accordance with the risk profile defined by the Group’s managerial bodies. To comply with its commitments, Financial Management is supported by the measurements taken by the Risk Management area, which, acting as an independent unit, designs the measurement, monitoring, reporting and control systems, as well as the limits policies.
The effects of structural interest rate risk may be analyzed both from the viewpoint of their repercussions on the Group’s income statement, in the short and medium term, and from the viewpoint of their impact on its economic value, taking a longer term view. To this end, the BBVA Group uses several indicators to perform a complementary assessment of the impact that variations in interest rates could have on its net interest income one or two years in the future, and thus on the Group’s economic value.
A gap analysis provides a simplified view of the balance sheet structure and highlights the impact of temporary movements in interest rates. The table included shows the gaps in the BBVA structural balance sheet (expressed in euro) as of December 31, 2006, calculated from the maturity and repricing dates of the main items sensitive to interest rate variations, depending on whether they are fixed or variable rate.
Matrix of maturities and repricing dates of BBVA’s structural balance sheet in euros
(Million euros) | Balance | 1 month | 1-3 months | 3-12 months | 1-2 years | 2-3 years | 3-4 years | 4-5 years | As of 5 years | |||||||||||||||
ASSETS | ||||||||||||||||||||||||
Money market | 29,412 | 14,724 | 8,756 | 4,753 | 573 | 123 | 262 | 7 | 214 | |||||||||||||||
Lending | 157,008 | 36,273 | 39,229 | 63,754 | 6,073 | 2,898 | 1,829 | 2,032 | 4,919 | |||||||||||||||
Securities portfolios | 12,565 | 834 | 865 | 989 | 820 | 1,116 | 295 | 1,368 | 6,279 | |||||||||||||||
Other sensitive assets | 36,113 | 33,694 | 43 | 65 | 922 | 1,039 | 225 | 33 | 93 | |||||||||||||||
Derivatives | 53,905 | 1,326 | 1,547 | 8,526 | 1,970 | 5,947 | 7,280 | 4,812 | 22,496 | |||||||||||||||
TOTAL SENSITIVE ASSETS | 289,003 | 86,851 | 50,440 | 78,087 | 10,358 | 11,123 | 9,981 | 8,252 | 34,001 | |||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Money market | 18,288 | 10,911 | 3,778 | 3,494 | 4 | 3 | 3 | 3 | 93 | |||||||||||||||
Customer funds | 83,010 | 14,747 | 5,846 | 7,705 | 14,684 | 1,961 | 1,212 | 18,757 | 18,098 | |||||||||||||||
Wholesale financing | 79,384 | 14,051 | 23,132 | 3,670 | 484 | 5,256 | 6,061 | 4,578 | 22,152 | |||||||||||||||
Other sensitive liabilities | 51,120 | 27,758 | 8,227 | 6,140 | 1,820 | 739 | 616 | 911 | 4,909 | |||||||||||||||
Derivatives | 63,188 | 23,711 | 32,494 | 5,709 | 422 | 513 | 27 | 52 | 259 | |||||||||||||||
TOTAL SENSITIVE LIABILITIES | 294,990 | 91,178 | 73,477 | 26,717 | 17,415 | 8,473 | 7,919 | 24,300 | 45,512 | |||||||||||||||
GAPS | (5,987 | ) | (4,327 | ) | (23,037 | ) | 51,370 | (7,057 | ) | 2,650 | 1,972 | (16,048 | ) | (11,511 | ) | |||||||||
The Risk Management area also calculates the sensitivities of net interest income and economic value and the impact that parallel shifts in interest rate curves have on them. Although parallel shifts of various magnitudes are assessed, both upwards and downwards, the shift used as the standard benchmark in BBVA is 100 basis points. The graph included shows the structural interest rate risk profile of the Group’s main component institutions, according to their sensitivities as of December 31, 2006.
In addition to sensitivity calculations, BBVA uses interest rate curve simulation models, which also generate and assess movements other than parallel shifts, such as changes in slope and curvature. Estimation of the impacts of such curves enables calculation of the maximum expected losses the Group might incur for a particular confidence level and time horizon in terms of net interest income and economic value. The expected loss for a 99% confidence level represents the economic capital through structural interest rate risk. These measurements are complemented by an assessment of foreseeable and stress scenarios, which are periodically updated in accordance with the evolution of the economic and financial environment.
Throughout 2006, the BBVA Group endeavoured to improve its structural interest rate risk measurement tools to adapt them to the sophisticated and varied range of products and markets in which it operates. It has likewise furthered its analysis of the different structural interest rate risk factors in order to identify the most significant specific exposure factors. Financial Management manages the structural balance sheet and aims to ensure stability and recurrence of net interest income while maximizing value creation. To do so, it takes asset and liability positions and employs a wide range of financial instruments to achieve appropriate coverage. The
measures Financial Management can take in the sphere of structural interest rate risk are constrained by the limits structure, which is approved annually by the Executive Committee and monitored by the Risk Management area. The graph shows the average use of limits in 2006, in which the upward trend in interest rates increased market volatility.
The following tables indicate in millions of euros the average interest rate risk exposure levels of the main financial institutions of the BBVA Group in 2006:
Average Impact on Net Interest Income | ||||||||||
100 Basis-Point Increase | 100 Basis-Point Decrease | |||||||||
ENTITIES | Euro | Dollar | Other | Total | Total | |||||
BBVA | -141 | +15 | -1 | -127 | +144 | |||||
Other Europe | +1 | — | — | +1 | -1 | |||||
BBVA Bancomer | — | +23 | +58 | +81 | -81 | |||||
BBVA Puerto Rico | — | -4 | — | -4 | — | |||||
BBVA Chile | — | -1 | -3 | -4 | +4 | |||||
BBVA Colombia | — | — | +6 | +6 | -6 | |||||
BBVA Banco Continental | — | +1 | +4 | +5 | -6 | |||||
BBVA Banco Provincial | — | +1 | +10 | +11 | -11 | |||||
BBVA Banco Francés | — | — | -2 | -2 | +3 |
Average Impact on Economic Value | ||||||||||
100 Basis-Point Increase | 100 Basis-Point Decrease | |||||||||
ENTITIES | Euro | Dollar | Other | Total | Total | |||||
BBVA | +450 | +3 | -5 | +448 | -490 | |||||
Other Europe | -26 | — | — | -26 | +28 | |||||
BBVA Bancomer | — | +18 | -195 | -177 | +174 | |||||
BBVA Puerto Rico | — | -17 | — | -17 | +3 | |||||
BBVA Chile | — | — | -45 | -45 | +32 | |||||
BBVA Colombia | — | — | -6 | -6 | +7 | |||||
BBVA Banco Continental | — | -12 | — | -12 | +13 | |||||
BBVA Banco Provincial | — | — | +12 | +12 | -12 | |||||
BBVA Banco Francés | — | — | -42 | -42 | +47 |
Exchange Rate Risk
Structural exchange rate risk refers to the effects that variations in exchange rates can have on a banking institution’s strategic or permanent positions. In the BBVA Group, this risk essentially stems from its holdings in institutions in South America, Mexico and the United States. Exchange rate variations affect the value of such investments in euro and impact on the Group’s equity value. Furthermore, the earnings in foreign currencies generated by the holdings in the aforementioned institutions are also exposed to exchange rate variations.
In BBVA, the structural exchange rate risk management and monitoring functions are appropriately segregated, as Financial Management is responsible for the former and the Risk Management area for the latter. The Risk Management area is responsible for measuring the risk, assessing its impact on the Group’s equity value and also on its income statement. To do so, it uses exchange rate simulation models that take into account the historical behaviour of these variables and their foreseeable future evolution, in accordance with market expectations and the possibility of exchange rate crises arising. Such simulations enable calculation of the economic capital correspondsthrough structural exchange rate risk, which means the expected loss that the Group’s equity value would undergo due to Retail Banking in Spainan exchange rate variation, given a 99% confidence level. This methodology is also used to estimate possible impacts on the income statement and Portugal, 34%determine each currency’s independent contribution to the Americasrisk assumed, in order to identify the most significant exchange rate risk exposures.
Financial Management manages structural exchange rate risk in order to stabilize income in euro and maximize the Group’s equity value, in accordance with its market expectations and by taking hedging alternatives and their cost into consideration. Financial Management is therefore continually assessing the instruments available on the market to perform hedging operations that prove effective and imply the lowest possible cost. During 2006, a year marked by the strength of the euro versus the dollar and by the generalised depreciation of Latin American currencies, the average coverage of the book value of BBVA Group’s holdings in foreign currency stood at 35%. Financial Management hedged around 70% of the 2006 income in foreign currency as of December 31, 2006 and it has sought to provide coverage of the earnings forecast for 2007.
Financial Management’s activity concerning exchange rate risk is constrained by the economic capital limit set annually by the Executive Committee, in order to maintain exposure within acceptable tolerance levels. The Risk Management area 15% to Wholesale and Investment Banking and 17% to Corporate Activities.regularly monitors compliance with this limit, whose average use during 2006 was 72% of the limit.
Equity Portfolio Risk
The average yield adjustedrisks implicit in the Group’s holdings in industrial and financial companies are managed in order to minimise the potential effect of adverse market fluctuations on the value of these portfolios, as well as to keep maintaining them at levels aligned with the desired, long term, global risk profile of the Group.
In accordance with the corporate governance scheme, the Executive Committee defines the general framework governing the policies and procedures for management of such risks, by businessand it determines the maximum tolerance levels for the main portfolios. The Risk Management area is responsible for identifying, measuring and monitoring the following:risks inherent in these investments. It is also responsible for keeping executive management informed of these issues and pre-empting, if possible, any deviation with respect to the Group’s previously defined strategy by applying a series of risk and income indicators.
Economic capital distribution by countryThe corporate risk model provides conservative estimations of potential losses based on statistical models for the holdings portfolios, including positions held in derivative instruments over the same underlying assets. The market data employed is relevant for the following at December 31, 2005: 53%risk profile of the holdings kept in Spain, 22%portfolios and reflects an extended sampling period to account to the different phases of the cycle in Mexico, 5% in other investment grade countriesa manner consistent with the investments’ medium and territorieslong term horizon. In order to verify the validity of the estimations, these are compared with the yields actually obtained in the Americas, such as Mexico, Chileholdings portfolios for the same periods. Stress tests and Puerto
Rico, and 7% in non-investment grade countries and territories inAmong other measures, the Americas. The remaining 14% ofmodel generates the economic capital is distributed inassigned to these investments for a one-year horizon with a confidence level at the different countries whereinstitution’s objective rating, as a uniform measurement for the corporate activities business areaGroup’s overall risk map. These estimations are also used to assess the equity portfolios through risk-adjusted yield and our other businesses operate.
Map of the BBVA Group’s economical capital
Geographical distribution
value creation measurements.
The Group’s financial solvency level is controlledof equity exposure fell considerably in 2006, enhanced by divestments and the monitoringincrease in the use of two ratios that relatehedging strategies with derivative instruments to preserve the risk weighted assetscapital gains obtained through the
generalized rise in stock market share prices in the course of the Group to core capital (level 0) and total capital (level 1). Total capital (level 1) includesyear. The aggregate sensitivity of the Group’s equity holdings before a 1% fall in share prices stood at €75 million at the close of year, with 73% concentrated in highly liquid equities in the calculation preferred shares and eligible subordinated debt, which are not included in the core capital (le vel 0) calculation. As of December 31, 2005, the ratios were 8.8% and 14.7%, respectively, for level 0 and level 1, better than the 8% and 12.5% medium and long-term benchmark ratios that have been established by BBVA in accordance with BBVA’s current rating levels.
EU.
CREDIT RISK MANAGEMENT
Methodologies for credit risk quantification
A credit risk profile is drawn upcan be quantified in two ways: (i) expected loss and (ii) expected loss measured in terms of economic capital, which relates to unexpected loss.capital. The Group has implemented numerous tools for loan classification (ratings and scorings) and an infrastructure for keeping records of past risk to allow for anhistoric information infrastructures that enable estimation of the inputs necessary inputs (probability of default, loss in the event of default and exposure upon default) for calculatingto calculate expected loss and economic capital. These techniques, in turn, play a key role on two levels:Such measurements considered together with cost and yield information, provide effective internal risk management, and facilitate compliance with the regulatory requirements.
We believe these tools are an essential component of our risk management framework. Their use alongside data on costs and returns allows up to apply measures in order to assess how risk and return are
combined. Such measures have a wide range of possible applications, from decision-making on business strategy to decisions-making on individual transactions.
The development ofrequirements set forth within the internal Risk-Adjusted Return (RAR) information system (supporting the internal risk model) has led to the introduction of databases that can be used to estimate the risk parameters required in the calculation of economic capital and expected loss, following best practices in the market and the guidelinesframework of Basel II.
BBVA continues to develop its RAR project in order to create the historical default database and the economic capital, expected loss and RAR calculations at the transaction level. During 2005, our subsidiaries in Mexico, Colombia and Peru concluded their credit risk calculations. With these countries and the banks in Spain, more than 80% of the risk is already covered. In 2006, our subsidiaries in Argentina, Chile, Venezuela and Puerto Rico are expected to finish their credit risk calculations.II.
BBVA Master ScaleGroup master scale
BBVA has a master scale designed for the homogeneousto facilitate homogenous classification of the Group’s differentvarious risk portfolios. Two versions of this scale exist: the narrow one,version, which classifies outstanding risks into 17 groups, and the broad one,version, which breaks them down into 34 categories.degrees.
BBVA MASTER SCALEmaster scale
(NarrowLong version)
Master scale rating | Default probability (in basis points) | |||||
Average | Minimum From > - | Maximum to < | ||||
AAA | 1 | 0 | 2 | |||
AA+ | 2 | 2 | 3 | |||
AA | 3 | 3 | 4 | |||
AA- | 4 | 4 | 5 | |||
A+ | 5 | 5 | 6 | |||
A | 8 | 6 | 9 | |||
A- | 10 | 9 | 11 | |||
BBB+ | 14 | 11 | 17 | |||
BBB | 20 | 17 | 24 | |||
BBB- | 31 | 24 | 39 | |||
BB+ | 51 | 39 | 67 | |||
BB | 88 | 67 | 116 | |||
BB- | 150 | 116 | 194 | |||
B+ | 255 | 194 | 335 | |||
B | 441 | 335 | 581 | |||
B- | 785 | 581 | 1,061 | |||
C | 2,122 | 1,061 | 4,243 |
Default probability (in basis points) | ||||||
Master scale rating | Average | Minimum from³ | Maximum to < | |||
AAA | 1 | 0 | 2 | |||
AA+ | 2 | 2 | 3 | |||
AA | 3 | 3 | 4 | |||
AA- | 4 | 4 | 5 | |||
A+ | 5 | 5 | 6 | |||
A | 8 | 6 | 9 | |||
A- | 10 | 9 | 11 | |||
BBB+1 | 12 | 11 | 14 | |||
BBB+2 | 15 | 14 | 17 | |||
BBB1 | 18 | 17 | 20 | |||
BBB2 | 22 | 20 | 24 | |||
BBB-1 | 27 | 24 | 30 | |||
BBB-2 | 34 | 30 | 39 | |||
BB+1 | 44 | 39 | 50 | |||
BB+2 | 58 | 50 | 67 | |||
BB1 | 78 | 67 | 90 | |||
BB2 | 102 | 90 | 116 | |||
BB-1 | 132 | 116 | 150 | |||
BB-2 | 166 | 150 | 194 | |||
B+1 | 204 | 194 | 226 | |||
B+2 | 250 | 226 | 276 | |||
B+3 | 304 | 276 | 335 | |||
B1 | 370 | 335 | 408 | |||
B2 | 450 | 408 | 490 | |||
B3 | 534 | 490 | 581 | |||
B-1 | 633 | 581 | 689 | |||
B-2 | 750 | 689 | 842 | |||
B-3 | 945 | 842 | 1,061 | |||
CCC+ | 1,191 | 1,061 | 1,336 | |||
CCC | 1,500 | 1,336 | 1,684 | |||
CCC- | 1,890 | 1,684 | 2,121 | |||
CC+ | 2,381 | 2,121 | 2,673 | |||
CC | 3,000 | 2,673 | 3,367 | |||
CC- | 3,780 | 3,367 | 4,243 |
Probability of default
BBVA has two classification tools (scorings and ratings) that allow for measuring the creditworthiness of transactions or customers, as applicable, by allocating a score. BBVA also allocates the probability of default by using BBVA’s historical databases to ascertain how this probability varies in terms of the scores allocated by these tools and of other potentially relevant factors (e.g. the seasoning of the transaction).
Scorings
These are the tools used to scoreclassify retail transactionsoperations (consumer loans, mortgages, credit cards, retailers,small businesses, etc.). The accompanying graphs showprovide a breakdown of the default rates, at one-year intervals, of some of the BBVA Group tools in Spain. As can be seen, there is a correlation between the length of time an entity has been in existence and the increased creditworthiness of a retail operation.
In addition to the scoring metric above (referred to as “reactive scoring”), BBVA analyzes classification tools used to determine the possible approval of new operations based on information that is unrelated to customer behavior (referred to as “behavioral scorings”. Behavioral scorings are the analysis tools used in the Group that account for past behavior (product and customer), using a variety of variables, such as the number of default cycles over prior periods or the number of consecutive increases in the customer’s balance. The graph shows an example of behavioral scoring from the BBVA Group in Mexico.
Ratings
The Group has rating tools to classify different customer segments. These tools do not classify operations; they classify customers.
For example, the accompanying graphs show the probabilities of default deriving from some of the Group’s tools. The time at which the maximum probability of default is reached is called peak seasoning. The default rates are shown for consumer and mortgage tools at one-year intervals in terms of the contracts’ seasoning in years. Given that the seasoning process is very fast, the default rates for credit card tools are shown on a monthly basis.
Ratings
Rating tools classify customers (not retail-type transactions). The Group has different rating tools, for classifying different customer segments.
The following graph showsbased on the adjustedscores assigned by each tool. These probabilities ofhave been calculated using internal data. For low default for the tool for rating small- and medium sized business (“SMEs”) (firms with turnover between €5 million and €150 million) against the historical record of defaults.
In those wholesale portfolios in which the default rate is very low (e.g., sovereignsegments (sovereign borrowers, financial institutions and large corporate)corporate risk), internal information is complemented by benchmarkings from external data on defaults provided by rating agencies.
Once the probability
The probabilities of default has been obtainedassigned to each score of the rating tool are business cycle-adjusted, to account for transactions/customersthe historical rates and adjustedhow the future economic cycles are expected to the business cycle, thisevolve. This probability is then linked to the BBVA Group master scale.scale so that all the Group’s transactions have an internal rating assigned to them.
LGD (Loss given default)
In 2005, the BBVA Group continued to further its knowledge and analysis of Loss Given Default
Loss given default (“LGD”LGD”) rates in its portfolios, both at the facility level (retail) and the obligor level (for non-retail exposures). Definedis defined as the percentage of risk exposure that is not expected to be recovered in the event of default, LGD constitutes one of the key factors in quantitative risk assessment.
default. The primary method the BBVA Group mainly uses for the calculation of LGDto calculate loss given default is theknown as “Workout LGD”. This methodIt is based on discounting the cash flows of the defaulted exposure that have been collected at different times as a result of the recovery process. In the case of portfolios with low default rates, which do not have enough data to obtain a reliable estimate by means of the Workout LGD method,rate portfolios, other methods are also used, such as external sources for obtaining market references on LGD rates suitedsimilar to those of the internal portfolio.
The graph provided below showsIn the course of 2006, the greater depth in its historical databases has enabled the Group to enhance consistency in its estimations of the LGD rate distribution for BBVA’s mortgage portfolioparameter. The accompanying graph provides, as an example, the stability of the LGD estimations associated with default on credit card operations in Spain. This bimodalSpain (where LGD pattern is also repeated in other operating areas. It may be noted that in an extremely highexpressed as a percentage of cases (90%) involving mortgages, almost allwhat is not expected to be recovered, with respect to an operation’s exposure that still remains in default). The results of such LGD estimations appear to remain stable, as illustrated when the outstanding debt is recovered, whereas small recoveries are observed onlydata for previous periods was analyzed and did not produce any substantial changes in few cases.the conclusions that were previously reached.
As inwas the case offor the calculation of probabilities,probability calculations, the Group’s historical databases built in the RAR project are usedallow it to analyze the link betweencharacteristics of customers or transactions relevant for LGD assignation, and to thus determine their intrinsic characteristics (such as bimodal distribution, seasoning, etc.).
In the BBVA Group, different LGD rates are allocated to outstanding receivables (defaulted or non-defaulted), according to a combination of significant factors, such as the features of each product and the naturewhether or not there is a guarantee for such receivable. In addition, these LGD rates are estimated in order to determine expected loss, economic capital and regulatory capital under Basel II. Some of the transactions or customers.factors assessed are outlined below:
For illustrative purposes, a number of analyses carried out on the BBVA portfolio in Spain are shown below.
a) Seasoning
One: one of the key factors for determining LGD is the period elapsed betweenthat elapses from contract arrangement and default. The graph shows thatto default; the longer thehigher a transaction’s seasoning, of the contract, the lower its LGD.
Time elapsed in default: a further important factor in LGD estimations is the time that a transaction remains in default.
Combination of significant factors: another material analysis is how LGD evolves according to the time that elapses from contract arrangement to customer default and the time the customer is in default. The axis onaccompanying graph provides an aggregate representation of this evolution for unsecured loans, credits and receivables. Each line of the leftgraph corresponds to averagedifferent seasonings.
Loan/value ratio: internal studies show that LGD whileincreases according to increase in the axis onloan to value (“LTV”) percentage. LTV is the rightratio between the amount of the loan and the property value. However, this relationship does not apply to mortgages with an LTV exceeding 85%, given that in such transactions there are usually additional guarantees or guarantors. For example, the accompanying table shows LGDs for mortgages within an LTV range of 65% and 85%, and reflects the percentagecombined impact of cases for each portfolio time period.
b) Loan/value ratiothe significant factors listed herein.
c) Time elapsed in default
LGD FOR MORTGAGE LOANS WITHfor mortgage loans with LTV BETWEENbetween 65% ANDand 85%
Time in NPL status (in years) | |||||||||||||||||||||
Transaction seasoning | Not in NPL status (period - 0) | Upto 1 | Between 1 and 2 | Between 2 and 3 | Between 3 and 4 | Between 4 and 5 | As of 6 | ||||||||||||||
Upto 1 year | 7.3 | % | 27.9 | % | 50.4 | % | 65.1 | % | 71.8 | % | 75.2 | % | 100 | % | |||||||
Between 1 and 2 years | 5.7 | % | 23.0 | % | 45.3 | % | 57.8 | % | 63.0 | % | 65.2 | % | 100 | % | |||||||
Between 2 and 3 years | 4.2 | % | 17.4 | % | 33.7 | % | 54.9 | % | 59.5 | % | 61.5 | % | 100 | % | |||||||
Between 3 and 4 years | 3.4 | % | 17.4 | % | 33.7 | % | 38.3 | % | 41.3 | % | 50.7 | % | 100 | % | |||||||
As of 4 years | 3.1 | % | 17.4 | % | 33.7 | % | 38.3 | % | 41.3 | % | 50.7 | % | 100 | % | |||||||
Transaction seasoning (years) | ||||||||||
Up to 1 year | From 1 to 2 | From 2 to 3 | As of 3 years | |||||||
Non-defaulted | 7.3% | 5.5% | 4.0% | 2.9% | ||||||
Up to 1 year | 26.4% | 21.8% | 17.4% | 15.7% | ||||||
From 1 to 2 | 45.8% | 40.5% | 36.4% | 29.8% | ||||||
From 2 to 3 | 58.7% | 54.2% | 51.4% | 35.4% | ||||||
From 3 to 4 | 65.0% | 60.3% | 60.3% | 39.6% | ||||||
From 4 to 5 | 68.4% | 61.0% | 61.0% | 45.8% | ||||||
From 5 to 6 | 89.5% | 87.0% | 87.0% | 81.9% | ||||||
As of 6 years | 100.0% | 100.0% | 100.0% | 100.0% |
In order to comply with the requirements of the Basel Banking Supervision Committee under concerning estimation of the “downturn LGD”, the BBVA Group adjusts the LGD of all its portfolio transactions, with some differences depending on the transaction status (defaulted or non-defaulted). The graphs below show the suggested adjustments for defaulted and non-defaulted portfolio transactions. These graphs indicate that the higher the LGD, the lower is the proposed adjustment due to the lower level of volatility experienced by the LGD when it rises.
Exposure at default
Exposure at default is another fundamental parameter required for calculating expected loss and economic capital in the Group’s operations. During 2006, we undertook further studies to estimate conversion factors
required for determining exposure at default, using the same input data structure as that employed for estimating the other risk parameters. We expect these estimations, obtained with internal data, will be incorporated into the historical databases, which we expect to contribute to improving internal estimations of expected loss and economic capital for those exposure positions off the balance sheet.
CREDIT RISK IN 20052006
The Group’s maximum exposure to credit risk stood at €455,282€495,559 million at year-end 2005, a year-on-yearas of December 31, 2006, representing an increase of 24.2%.8.8% over year-end 2005. By business areas, Retail Banking in Spain and Portugal accounted for 40.1%32.9% of the exposure, Wholesale and Investment BankingBusinesses for 32.2%44.6%, Mexico and the AmericasUnited States for 24.2%16.8% and South America for 5.8%.
MAXIMUM EXPOSURE TO CREDIT RISKMaximum exposure to credit risk
(Million euros. 31-12-05)euros)
31-12-06 | 31-12-05 | 31-12-04 | ||||||||||||||||||||||||||
GROUP TOTAL | Retail Banking | Wholesale Banking | The Americas | Others | Retail Banking Spain and P. | Wholesale and Investment B. | Mexico and USA | South America | Corporate Activities | GROUP TOTAL | GROUP TOTAL | GROUP TOTAL | ||||||||||||||||
GROSS CREDIT RISK (DRAWN) | 252,275 | 137,914 | 69,412 | 48,522 | (3,573 | ) | 122,764 | 128,774 | 36,027 | 19,735 | (2,050 | ) | 305,250 | 252,275 | 198,230 | |||||||||||||
Loans and receivables | 222,413 | 131,114 | 47,724 | 45,720 | (2,145 | ) | 119,325 | 91,877 | 35,053 | 17,685 | (972 | ) | 262,969 | 222,413 | 176,673 | |||||||||||||
Contingent liabilities | 29,862 | 6,800 | 21,688 | 2,802 | (1,428 | ) | 3,439 | 36,896 | 975 | 2,050 | (1,079 | ) | 42,281 | 29,862 | 21,558 | |||||||||||||
TRADING ACTIVITY | 11,529 | 29,869 | 26,598 | 7,838 | 16,250 | 92,083 | 118,005 | 107,534 | ||||||||||||||||||||
TRADING ACTIVITIES | 118,005 | 11,411 | 35,136 | 40,132 | 31,327 | |||||||||||||||||||||||
Credit entities | 27,470 | 282 | 13,400 | 10,431 | 3,357 | 388 | 8,592 | 2,086 | 3,187 | 2,896 | 17,150 | 27,470 | 16,703 | |||||||||||||||
Fixed income | 82,010 | 11,129 | 16,708 | 26,202 | 27,970 | 11,141 | 18,858 | 22,617 | 3,768 | 13,354 | 68,738 | 82,010 | 83,224 | |||||||||||||||
Derivatives | 8,526 | — | 5,028 | 3,498 | — | — | 3,418 | 1,895 | 883 | — | 6,195 | 8,526 | 7,607 | |||||||||||||||
THIRD-PARTY LIABILITIES | 85,001 | 33,263 | 41,845 | 21,410 | (11,571 | ) | 28,605 | 62,161 | 20,752 | 1,372 | (14,664 | ) | 98,226 | 85,001 | 60,717 | |||||||||||||
TOTAL | 455,282 | 182,588 | 146,393 | 110,063 | 16,236 | 162,898 | 220,803 | 83,377 | 28,945 | (464 | ) | 495,559 | 455,282 | 366,4281 | ||||||||||||||
All items recorded significant increases atAs of December 31, 2005 compared to December 31, 2004:2006, customer lending risks (55%(61.6% of the total, including contingent liabilities) rose by 27.3%, third-partyand third party liabilities (accounting for 19%19.8%) roseincreased by 40.0%21.0% and 15.6%, respectively, whereas the potential exposure to lendingcredit risk in market activities including potential exposure forfrom derivatives (26%(18.6% of the total) rosefell by 9.7%22.0%. These significant increases were principally due to increases
Risk distribution over the year has been affected by the depreciation of Latin American currencies versus the euro and the incorporation of Texas State Bank in the United States. Taking both factors into consideration, in addition to organic growth, the Group’s lending activities.geographic distribution remained stable at the close of December 31, 2006 and 2005. At December 31, 2006 the Group’s operations in Spain (including foreign branches, basically in Europe) accounted for 79.7%, the rest of Europe accounted for 2.0% (spread almost equally between the retail
Insofar as lending risk is concerned, the acquisition in 2005 of Laredo National Bancshares, Hipotecaria Nacional and Granahorrar, as well as the strengthening of currencieswholesale businesses), while exposure in the Americas againstUnited States, Mexico and South America (shown in the euro, alteredgraph below as “The Americas”) represented 18.3%, of which the vast majority (75.8%) was concentrated in investment grade countries.
The accompanying table, as of December 31, 2006, indicates the distribution of customer lending. Lending to the private domestic sector in Spain amounted to €167 billion, and risks were widely spread in terms of counterparties and sectors.
Customer lending by sectors
(Million euros)
31-12-06 | 31-12-05 | 31-12-04 | ||||||||
Residents | Non-residents | TOTAL | TOTAL | TOTAL | ||||||
Public sector | 15,987 | 5,207 | 21,194 | 22,125 | 20,345 | |||||
Agriculture | 1,818 | 1,315 | 3,133 | 2,505 | 1,608 | |||||
Industry | 15,965 | 8,765 | 24,731 | 17,930 | 16,715 | |||||
Real estate and development | 33,803 | 7,698 | 41,502 | 36,562 | 25,232 | |||||
Commercial and financial | 15,231 | 23,679 | 38,910 | 36,194 | 17,703 | |||||
Loans to individual customers | 78,190 | 25,728 | 103,918 | 82,583 | 70,613 | |||||
Leasing | 6,717 | 975 | 7,692 | 6,726 | 6,431 | |||||
Others | 15,519 | 5,775 | 21,294 | 17,370 | 17,036 | |||||
SUBTOTAL | 183,231 | 79,143 | 262,374 | 221,995 | 175,593 | |||||
Interest, fees and others | 166 | 429 | 595 | 418 | 1,080 | |||||
TOTAL | 183,397 | 79,572 | 262,969 | 222,413 | 176,673 | |||||
Exposure distribution by ratings, which comprises companies, financial entities, institutions and sovereign borrowers, indicated that 63% of the exposure was concentrated on customers with an A rating or above at December 31, 2006.
If sovereign risks were excluded, 57% of customers held an A rating and 76% had a rating equal to or above BBB-.
The distribution by ratings is also provided for business segment ratings corresponding to the parent bank as of December 31, 2006.
Expected losses
The expected loss in the non-performing portfolio, expressed in attributed terms and adjusted to business cycle average, stood at €2,030 million as of December 2006. The corresponding graph shows the consumption of attributable expected losses by business and geographical areas. 2005 thus witnessedareas as of December 31, 2006. Wholesale Businesses, with an increase in the relative weightexposure accounting for 37.3% of the Americas and a fall off intotal, had an expected loss to exposure ratio of 0.16%. Retail Banking in Spain and Portugal, by 3.3 percentage points (now accounting for 53.9%with an exposure weight of 36.8%, showed an expected loss to exposure ratio of 0.35%. Mexico and the United States had a weight of 20.2% and a ratio of 1.27%, while South America represented a weight of 5.7% with an expected loss to exposure risk of 1.64%.
The principal portfolios of the Group’s total risk) and by 0.5 percentage points in Wholesale and Investment Banking, down to 27.1% of the total.
By geographical area, the Groupparent company in Spain (including branches abroad, largely in Europe) accounts for 78.9%have experienced consumption of gross credit risk, the rest of Europe accounts for 2.6% of gross credit riskexpected loss and exposure in the Americas accounts for 18.5% (14.5% in 2004) of gross credit risk. The vast majority of gross credit risk exposure in the Americas at December 31, 2005 (75.9%, as opposed to 73.9% at December 31, 2004) is concentrated in investment grade countries.
The accompanying table provides a breakdown of customer lending distribution by sector at year-end 2005. Lending to the resident private sector in Spain amounted to €140 billion, with risks being equally divided between lending to private individuals (50%) and business activities (50%), without significant concentrations in sectors more sensitive to the current economic climate.
CUSTOMER LENDING BY SECTORS
(Million euros. 31-12-05)
Total | Residents | Non-residents | ||||
Public Sector | 22,125 | 16,089 | 6,036 | |||
Agriculture | 2,504 | 1,550 | 955 | |||
Industry | 17,930 | 14,774 | 3,155 | |||
Real estate and development | 36,562 | 24,937 | 11,624 | |||
Commercial and financial | 36,194 | 11,736 | 24,459 | |||
Loans to individual customers | 82,583 | 67,964 | 14,619 | |||
Leasing | 6,726 | 5,910 | 816 | |||
Others | 17,370 | 13,167 | 4,203 | |||
SUBTOTAL | 221,995 | 156,128 | 65,866 | |||
Interest, fees and others | 418 | 109 | 309 | |||
TOTAL | 222,413 | 156,237 | 66,176 | |||
The distribution of the exposure by ratings, including companies, financial entities, institutions and sovereign obligors, reveals that over 59% of the exposure to lending risk is concentrated in customers with an “A” rating or higher,capital as shown in following graph.
If sovereign risks are excluded, 52% of our exposure is still rated “A” or higher and 77% of the exposure has a rating equal to or better than “BBB-”.
The distribution of the exposure by ratings of companies is the following:
table.
Expected losses
In accordance withRisk statistics for the above ratings distribution, the Group’s expected losses (adjusted upwards in line with the business cycle) are estimated to be €1,664 million at December 31, 2005.
As seen in the following graph, at December 31, 2005 attributable expected losses by main business areas according to their exposure – Retail Banking in Spain and Portugal accounts for 41% of the exposure and Wholesale and Investment Banking accounts for 30% – stand at 0.42% and 0.08%, respectively, with the expected loss in Mexico being 0.99% and expected losses in the rest of the Americas being 1.17%.
RISK STATISTICS FOR THE MAIN BBVA, S.A. PORTFOLIOSportfolios
(31-12-05)
Portfolios | Expense(1) | Expected losses | Economic capital | |||||||
Million euros | Million euros | % | Million euros | % | ||||||
Consumer loans | 6,278 | 62 | 0.99 | 285 | 4.54 | |||||
Mortgage | 56,826 | 98 | 0.17 | 978 | 1.72 | |||||
SMEs | 15,952 | 63 | 0.40 | 571 | 3.58 | |||||
Corporates | 39,273 | 28 | 0.07 | 803 | 2.04 |
Exposure (1) | Expected losses | Economic capital | ||||||||||
Million euros | Million euros | % | Million euros | % | ||||||||
Consumer loans | 7,440 | 87 | 1.17 | % | 278 | 3.74 | % | |||||
Mortgage | 60,817 | 93 | 0.15 | % | 1,096 | 1.80 | % | |||||
SMEs | 16,818 | 44 | 0.26 | % | 560 | 3.33 | % | |||||
Corporates | 47,186 | 37 | 0.08 | % | 1,189 | 2.52 | % |
(1) | Includes |
Segmentation according to |
Concentration
The BBVAAt the close of the year, the Group hashad 104 company groups (79 in 2005) with credit risk exposure (investment(consisting of investment and guarantees) to 79 groups of companies that exceedsexceeding €200 million, amounting to a total risk of €37,151 million at December 31, 2005 — 14.7%which represented 19% of the Group’s overall risk (compared to 15% as of which 95% hasDecember 31, 2005). 90% of such company groups had an investment grade loan rating. From the perspective of transaction source, at
At December 31, 2005, 67% is2006, this risk was concentrated as follows: 69% in Spain, 21% in22% from the foreign networkBank’s branches abroad, and 12%9% in Latin America, (9% in Mexico)of which Mexico accounted for 7%. The major sectors in which the credit exposure iswas concentrated are: institutional (30%), real-estate and development (17%), telecommunications (10%) and utilities (10%).
Non-performing loans (NPL)
Over the course of 2005, BBVA has continued its trend of improvement in credit risk quality indicators. The value of NPL (customer lending and contingent liabilities) stood at €2,382 million at year-end 2005, as compared to €2,248 million at December 31, 2004. Nonetheless, adjusting for the impact2006 were: real estate and construction (27%), institutional (19%), electricity and gas (12%), consumption and services (11%) and telecommunications (10%).
Non-performing Loans
As of changes in consolidation in Mexico, the United States and Colombia resulting from acquisitions of Hipotecaria Nacional, S.A. de C.V. de México, Laredo National Bancshares, Inc. and Fondo de Garantías de Instituciones Financieras de Colombia, FOGAFIN, respectively, and of exchange rate variations, NPL went down by €189 million at December 31, 2005 compared2006, the volume of NPLs was at €2,531 million, of which €40 million corresponded to December 31, 2004.
This decrease is duenon-performing contingent liabilities. Despite strong growth in credit activities, NPLs recorded an increase of only 6.3%, which was attained without increasing transfers to a new reduction inwrite-offs and the non-performing loans ratio over credit risk, despite the more stringent criteria for NPL accounting, falling from 1.08% at December 31, 2004rate of which fell to 0.86% at December 31, 2005, and to a better recovery rate rising to 36.5%13.9% of the critical mass (which is composed of the existing NPL at the end of 20042005 plus the NPL originated during 2005)2006), as opposed to 31.4%in comparison with the 15.9% and 14.2% recorded for 2004.2005 and 2004, respectively.
The accompanying table provides a breakdown of movementsmovement in non-performing loans between January 1, 2006 and December 31, 2006 for deteriorated credit to the customer base and non-performing contingent liabilities is shown in 2005 and 2004.the following table.
TREND INTrend in NPL
(Million euros)
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
BEGINNING BALANCE | 2,248 | 3,028 | 2,382 | 2,248 | 3,028 | ||||||||||
Entries | 1,943 | 1,988 | 2,742 | 1,943 | 1,988 | ||||||||||
Recoveries | (1,531 | ) | (1,575 | ) | (1,830 | ) | (1,531 | ) | (1,575 | ) | |||||
NET ENTRY | 412 | 413 | 912 | 412 | 413 | ||||||||||
Transfers to write-offs | (667 | ) | (713 | ) | (707 | ) | (667 | ) | (713 | ) | |||||
Exchange differences and others | 389 | (480 | ) | (56 | ) | 389 | (480 | ) | |||||||
FINAL BALANCE | 2,382 | 2,248 | 2,531 | 2,382 | 2,248 | ||||||||||
AllWhen analyzed by business areas, recorded a good performanceNPL trends in 2005, based on the trend2006 indicate that Wholesale Businesses and in South America had reduced net entries, as shown in the table provided.
NPL TREND BY BUSINESS AREAS
(million euros)
Retail Banking | Wholesale Banking | The Americas | Others | ||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||
BEGINNING BALANCE | 940 | 1,040 | 169 | 255 | 1,046 | 1,687 | 93 | 46 | |||||||||||||||
NET ENTRY | 121 | 170 | (39 | ) | (44 | ) | 326 | 260 | 4 | 27 | |||||||||||||
Transfers to write-offs | (205 | ) | (219 | ) | (15 | ) | (36 | ) | (443 | ) | (458 | ) | (4 | ) | — | ||||||||
Exchange differences and others | (3 | ) | (51 | ) | 8 | (6 | ) | 367 | (443 | ) | 17 | 20 | |||||||||||
FINAL BALANCE | 853 | 940 | 123 | 169 | 1,296 | 1,046 | 110 | 93 | |||||||||||||||
As a result ofentries. Mexico has been affected by strong growth in lendingits consumer loan and the containment of past-due balances, there was a further reduction in the Group’s NPL ratio of 19 basis points, down to 0.94% at year-end 2005, as opposed to 1.13% at year-end 2004.
All business areas reduced their NPL ratio at December 31, 2005 compared to December 31, 2004:credit card activity, which while more profitable, were coupled with higher default rates; whereas Retail Banking in Spain and Portugal increased its NPLs due to strong risk growth recorded in all segments and especially the boost in consumer products.
NPL trend by 20business areas
(Million euros)
Retail Banking Spain and Portugal | Wholesale and Investment Banking | Mexico and USA | South America | |||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||
BEGINNING BALANCE | 672 | 740 | 303 | 370 | 663 | 495 | 631 | 549 | ||||||||||||||||
NET ENTRY | 277 | 76 | 57 | 4 | 512 | 292 | 59 | 32 | ||||||||||||||||
Transfers to write-offs | (129 | ) | (144 | ) | (73 | ) | (77 | ) | (406 | ) | (291 | ) | (99 | ) | (149 | ) | ||||||||
Exchange differences and others | 5 | — | (9 | ) | 6 | 20 | 167 | (65 | ) | 199 | ||||||||||||||
FINAL BALANCE | 825 | 672 | 278 | 303 | 789 | 663 | 526 | 631 | ||||||||||||||||
The Group’s default rate dropped 11 basis points in the course of the year to 0.62%; Wholesalereach 0.83%, which was the result of high credit growth and Investment Banking by 12 basis points to 0.18%; and the Americas by 77containment of non-performing balances. The default rate in South America dropped 100 basis points to 2.67%. The Mexico and United States area, affected by the incorporation of the Texas State Bank and the strong growth experienced in consumer loans and credit cards, also reduced its default rate by 5 basis points, to stand at 2.19%. Wholesale Businesses, reduced its rate by 7 basis points to a historic low of 0.22%. Despite the change in investment structure, Retail Banking in Spain and Portugal nearly managed to maintain a practically stable default rate.
Given that provisioningProvisioning for creditinsolvency risk in the customer lending portfolio roseincreased by 21.8%14.8%, to €6,015 million at December 31, 2005,reach €6,905 million. Such increase was due to the BBVA Group’s NPL coverage rate increased to 252.5% at year-end 2005 (219.7% at year-end 2004), thereby reinforcinggrowth of generic provisions produced by the Group’s solvency.strong credit activity. This performance has been recordedincrease in funds, which was spread across all the board in all business areas, rising to 315.7%was key in Retail Banking, 728.7% in Wholesale Banking and 183.8% in the Americas.
RISK MANAGEMENT IN MARKET AREAS
The BBVA Group manages jointly credit and market risk in trading activity, within a limits system framework approved by the Executive Committee and adapted to the nature of the business.
The most widely used measurement model is Value-at-Risk, or VaR (the maximum loss that could be incurred by the portfolios for a given confidence level, as a result of adverse fluctuations in market variables), with a confidence level of 99%, and a one-day horizon. This measurement includes basis risk, spread, convexity and other risks associated with embedded options and structured products.
The structure for market risk limits has been supplemented and reinforced in 2005. It includes an overall VaR per business unit and involves specific sub-limits according to the type of risk, business activity and trading unit.
Risk monitoring in terms of VaR is undertaken using two complementary and dynamic methods. Priority is given to the use of limits based on the measuring of 1-day VaR with equally weighted observations of the daily information on the past year’s market (VaR without smoothing), and monitoring is also made of the VaR that gives greatest importance to the immediate past (with exponential smoothing). Limits are likewise established for economic capital and VaR stress situations, considering the impact of past financial crises and potential and foreseeable future scenarios.
The dynamic nature of the limits allows for linking authorized risk levels for market business units to their performance over the year, reducing the limits in the event of negative aggregate results. In order to foresee and mitigate the effects of these situations, loss limits and other control measures, such as delta sensitivities, are also introduced. The proactive management of this limits structure is accompanied by a broad range of indicators and warning alerts that immediately trigger procedures designed to cope with those situations that might possibly compromise the activities of the business area.
MARKET RISK 2005
MARKET RISK BY RISK FACTORS IN 2005
(Thousands euros)
Daily VaR | ||||||||||
31-12-05 | Average | Maximum | Minimum | |||||||
Interest(1) | 14,232 | 12,150 | 20,178 | 7,005 | ||||||
Exchange rate(1) | 1,717 | 1,646 | 5,692 | 475 | ||||||
Equity(1) | 2,024 | 2,113 | 4,751 | 1,026 | ||||||
Vega and correlation | 5,009 | 5,487 | 6,985 | 4,243 | ||||||
Diversification effect | (2,559 | ) | (2,357 | ) | — | — | ||||
TOTAL | 20,424 | 19,040 | 28,314 | 12,918 | ||||||
Regarding the limit system framework, the average use of limits by the Group’s main business units, as calculated without exponential smoothing, at December 31, 2005, amounted to 23% for trading activities in developed markets, 66% for Bancomer trading activities and 50% for the remaining Latin American trading activities.
The following graph shows the back-testing comparison in 2005, which makes a day-to-day comparison between recent management results (profits and losses) and risks level estimated by the model (Daily Var).
CREDIT RISK IN MARKET ACTIVITIES
Our system for measuring credit risk in OTC transactions is based on Monte Carlo simulation for all transactions. Our system:
The net market value of the instruments in our OTC portfolio at December 31, 2005 was €1,254 million, with a 75 month average residual term, whereas the portfolio’s gross replacement value was €12,951 million at December 31, 2005.
OTC DERIVATIVES. EQUIVALENT MAXIMUM EXPOSURE
(Million euros)
OTC financial instruments | Gross replacement value | Net replacement value | Equivalent maximum exposure | Weighted average term | ||||||
IRS | 10,032 | 1,715 | 12,120 | 68 | ||||||
FRAs | 24 | 13 | 31 | 12 | ||||||
Interest rate options | 509 | (154 | ) | 606 | 56 | |||||
OTC interest rate diversification | (25 | ) | ||||||||
TOTAL OTC INTEREST RATE | 10,565 | 1,575 | 12,732 | 68 | ||||||
Forward FX | 633 | 42 | 1,308 | 31 | ||||||
Currency swaps | 419 | 58 | 788 | 66 | ||||||
Currency options | 102 | (92 | ) | 92 | 23 | |||||
OTC exchange rate diversification | (309 | ) | ||||||||
TOTAL OTC EXCHANGE RATE | 1,155 | 8 | 1,879 | 58 | ||||||
OTC equity | 623 | [588 | ] | 728 | 31 | |||||
Fixed income and others | 609 | 260 | 986 | 121 | ||||||
OTC equity and others diversification | (146 | ) | ||||||||
TOTAL OTC EQUITY AND OTHERS | 1,231 | (328 | ) | 1,569 | 110 | |||||
TOTAL DIVERSIFICATION | (404 | ) | ||||||||
TOTAL | 12,951 | 1,254 | 15,777 | 75 | ||||||
DISTRIBUTION BY MATURITIES. MAXIMUM EXPOSURE IN OTC FINANCIAL INSTRUMENTS
(Million euros)
2005 | ||||||||||||||||||
Type of product | Upto 6 months | Upto 1 year | Upto 3 years | Upto 5 years | Upto 10 years | Upto 15 years | Upto 25 years | As of 15 years | ||||||||||
OTC interest rate | 12,732 | 12,540 | 11,171 | 6,802 | 4,098 | 1,071 | 718 | 185 | ||||||||||
OTC exchange rate | 1,879 | 1,202 | 798 | 438 | 248 | 79 | 58 | 1 | ||||||||||
OTC equity and others | 1,522 | 1,569 | 1,527 | 1,071 | 734 | 543 | 425 | 91 | ||||||||||
Total diversification | (358 | ) | (1 | ) | ||||||||||||||
TOTAL | 15,777 | 15,312 | 13,496 | 8,311 | 5,080 | 1,692 | 1,201 | 277 | ||||||||||
The counterparty risk assumed in this activity involves entities with a high credit rating, equal to or higher than “A-” in 90% of cases. The exposure at December 31, 2005 is mainly concentrated in financial entities (89%) while the remaining 11% exposure is due to corporations and other clients.
At December 31, 2005, as categorized by geographic areas, the greater exposure lies in Europe (74%) and North America (21%), which together accounted for 95% of our total exposure.
STRUCTURAL RISKS
STRUCTURAL RISK MANAGEMENT
The BBVA Group’s exposure to variations in market interest rates is one of the financial risks inherent to banking. Both the parallel movements of yield curves and the change in their slope, as well as the embedded options sensitivity present in certain banking operations, are taken into account when assessing risk.
The Assets and Liabilities Committee (ALCO) actively manages the BBVA Group’s asset and liability risk, excluding trading activity, in accordance with the exposure profile established by the BBVA Group. Decision-making explicitly considers interest rate risk measures, whose monitoring and supervision are carried out by the Risk Area, as an independent unit responsible for this assessment, as well as the design of systems for measuring, monitoring, reporting and supervising limits policies. The increasing sophistication of financial products and the strategies designed by the ALCO, as well as risk assessment models, have led toleveraging the BBVA Group including new measurement tools in 2005 in ordercoverage rate up to further enlarge upon272.8%, and thus enhancing its scope for calculation and analysis.capital strength.
The following table of gaps shows the different asset and liability items at December 31, 2005 distributed by time periods in accordance with their date of maturity or repricing, depending on whether they are fixed or variable rate.
MATRIX OF MATURITIES OR REPRICING DATES ON THE CONSOLIDATED BALANCE SHEET IN EUROS. EX TRADING ACTIVITY
(Thousand euros)
Balance | 1 month | 1-3 months | 3-12 months | 1-2 years | 2-3 years | 3-4 years | 4-5 years | As of 5 years | |||||||||||||||
ASSETS | |||||||||||||||||||||||
Money market | 22,152,972 | 11,371,856 | 6,368,653 | 2,998,655 | 53,257 | 107,798 | 430,407 | 613,376 | 208,969 | ||||||||||||||
Lending | 151,893,957 | 26,451,775 | 38,874,654 | 70,207,121 | 4,563,639 | 3,365,508 | 2,083,676 | 1,384,401 | 4,963,182 | ||||||||||||||
Securities portfolio | 31,892,613 | 5,904,803 | 1,544,025 | 8,305,483 | 4,554,387 | 2,467,314 | 2,397,515 | 570,977 | 5,148,109 | ||||||||||||||
Other sensitive assets | 15,020,680 | 12,685,504 | 48,275 | 185,190 | 49,118 | 807,053 | 892,497 | 203,784 | 169,2 68 | ||||||||||||||
Derivatives | 59,138,298 | 5,939,477 | 6,213,714 | 3,702,912 | 7,224,242 | 3,052,961 | 6,919,629 | 8,832,821 | 17,252,542 | ||||||||||||||
TOTAL SENSITIVE ASSETS | 280,098,530 | 62,333,416 | 53,049,322 | 85,399,351 | 16,444,644 | 9,800,644 | 12,723,723 | 11,605,350 | 28,742,071 | ||||||||||||||
LIABILITIES | |||||||||||||||||||||||
Money market | 11,889,969 | 8,579,119 | 2,638,078 | 603,658 | — | — | — | — | 68,114 | ||||||||||||||
Customer funds | 78,986,774 | 16,906,164 | 6,087,826 | 6,517,900 | 589,579 | 11,164,717 | 1,169,648 | 18 ,568,199 | 17,981,740 | ||||||||||||||
Wholesale financing | 70,514,749 | 7,202,093 | 28,074,446 | 2,547,345 | 3,50,734 | 536,475 | 5,287,789 | 7,588,348 | 15,777,519 | ||||||||||||||
Other sensitive liabilities | 53,614,098 | 36,098,031 | 4,861,219 | 5,724,512 | 1,303,269 | 963,372 | 619,97 4 | 487,765 | 3,565,957 | ||||||||||||||
Derivatives | 62,016,353 | 19,350,156 | 29,744,088 | 7,718,755 | 588,303 | 613,016 | 677,039 | 323,511 | 3,001,495 | ||||||||||||||
TOTAL SENSITIVE LIABILITIES | 277,021,944 | 88,135,562 | 71,405,658 | 23,112,169 | 5,981,885 | 13,267,581 | 7,754,450 | 26,988,822 | 40,395,816 | ||||||||||||||
GAPS | 3,076,587 | (25,802,146 | ) | (18,356,336 | ) | 62,287,182 | 10,462,759 | (3,466,937 | ) | 4,969,273 | (15,363,463 | ) | (11,653,745 | ) | |||||||||
This characterization of the balance sheet leads to an initial approach to repricing, complemented by the subsequent quantification of the impact on net interest income and the economic value of the BBVA Group in the light of changes in market interest rates. The following graph shows the interest rate risk profile for the BBVA Group’s main entities at December 31, 2005.
Bearing in mind that sensitivity measures do not contain all sources of interest rate risk, an in-depth analysis was carried out in 2005 on foreseeable scenarios and risk measurements on the basis of curve simulation processes, thereby enabling an assessment of different changes in slope, curvature and parallel movements to be made. These simulations provide statistical distributions of impact on net interest income and economic value, thereby specifying the maximum negative variations for a predetermined confidence level.
The limit structure for asset and liability interest rate risk was expanded in 2005 to include an economic capital limit for asset and liability interest rate risk, in addition to sensitivity limits for net interest income and economic value, which implies setting a 99% confidence level for unexpected economic losses through interest rate risk. This limit structure, which is approved annually by the Executive Committee, is one of the main tools the BBVA Group has for the risk supervision of asset and liability interest rate risk. The graph provided shows the average use of limits in 2005, in which interest rate risk has shown an upward trend within a context of rising interest rates.
In 2005, the ALCO adopted a hands-on approach to asset and liability interest rate risk, with both hedging derivatives and balance-sheet instruments. At year-end 2005, there was a fixed interest rate asset portfolio of €31,249 million, with a view to offsetting or reducing the negative effect of the decline in interest rates on the Group’s net interest income. In 2005, the portfolio generated €264 million in net interest income and €80 million in net trading income.
STRUCTURAL EXCHANGE RATE RISK
The measurement of structural exchange rate risk quantifies the exposure to losses in the value of the BBVA Group’s strategic investments as a result of exchange rate variations. Investments in Latin America, which account for a long position in foreign currencies, are the main source of structural exchange rate risk in the BBVA Group.
The Risk Area makes regular assessments on the basis of a 99% value-at-risk model based on stochastic simulations that also consider the possibility of exchange rate crises, adjusted to the specific characteristics of exchange rate markets and to the nature of structural exchange rate positions. The horizon is adjusted for each currency depending on market liquidity and existing management possibilities. This measurement constitutes the economic capital or unexpected loss through structural exchange rate risk, providing an individual breakdown of the contribution each currency makes to risk.
This calculation procedure is applied both to the net positions derived from the investment’s net asset value, and to the results forecast, taking into account possible hedges of the exchange rate position by the ALCO.
Exchange rate risk management was undertaken in 2005 with the strengthening of Latin American currencies against the dollar, as well as of the dollar against the euro. The net exposure of investment has increased over this period by the increased value of the investments. Accordingly, the risk level has followed an upward trend, always within the limit for economic capital authorized by the Executive Committee and which, on average, has consumed 64% in 2005.
At year-end 2005, BBVA maintained a 44% global coverage of the BBVA balance sheet in the Americas, with levels of perfect hedge of 39% in Mexico, 100% in the United States, 75% in Chile and 29% in Peru. These coverage levels do not consider long positions in dollars held by certain affiliate banks at the local level. In 2005, the transfer to reserves resulting from the strengthening of Group affiliate banks’ base currencies against the euro rose to almost €700 million, whereas the financial cost of the capital hedge was €57 million net of tax. In addition, BBVA’s results hedging policy in 2005 reduced the results of financial transactions by €70 million net of taxes, a sum that has been offset by the higher than expected results, expressed in euros, that the Group’s units in the Americas recorded.
LIQUIDITY RISK
The ultimate goal of liquidityLiquidity risk management and monitoring inis that which can give rise to the BBVA Group isentity not being able to ensure that each unit meetsmeet its payment obligations withoutor that which, in order to meet them, implies having to obtain fundsdo so on burdensomeonerous terms.
TheLiquidity risk measurement and control in BBVA is performed by the Risk Area assessesManagement area and monitorsis kept separate from liquidity risk management. Its day-to-day management comes under the Market area, whereas monitoring of medium-term liquidity corresponds to Financial Management, which executes the decisions taken by the ALCO in a very different manner toits monthly meetings.
BBVA’s principal measures for controlling liquidity risk include the way it is managed. Accordingly, it permanently monitors quantitativedaily monitoring of short term liquidity (payments and qualitative indicators that reflectcollections within the overall positioning in terms of liquidity, anticipating possible stresses bothcash management activity and the most important in the short term, basically upbank as a whole), comprising a time horizon from one to 90ninety days, as inand the medium term, and within a twelve-month horizon, as well as inmonthly monitoring of structural liquidity, which projects the liquidity profile foreseeablegaps for the coming years.next twelve months, in accordance with the institution’s Financial Forecast.
TheMeasurement, both for the short and medium-term, is performed using a number of quantitative indicators, for which limits structure authorized by the Executive Committee and reported and monitored by the Board’s Risk Committee is one of the key components of BBVA’s policy onand/or alerts are set. These limits vary, covering different factors that are susceptible to control, ranging from liquidity management and supervision. It encompasses such aspects as, for example, the concentration degree,gaps to the capacity for market access or the future repercussions ofconcentration degree such capacity exhibits. However, qualitative indicators that may influence liquidity are also monitored, such as the business model and different qualitative elements that underpinperception the market situation andor rating agencies may have of liquidity. The limits structure is approved annually by the perception itExecutive Committee.
BBVA has of the entity.
In addition, analyses are made of stress scenarios and payment and collection flow simulations in order to assess the impact of hypothetical scenarios on both assets and liabilities and profits and losses. These analyses are part of the crisis situation liquidity monitoring model as outlined in thedeveloped a Contingency Plan, the object of which sets forth responsibilities andis to establishes actions to be taken in the event of a liquidity crisis and which allocates responsibilities and provides measures to be taken should various types of scenarios arise. Liquidity analysis in crisis situations includes the performance of stress analyses, differentiating between specific BBVA and system-wide stress or that specific to liquidity.crises
Generally speaking, there were no liquidity stress situations in 2005. Accordingly, the
During 2006, consumption of authorizedliquidity indicators has remained below the limits in BBVA has been moderate, with levels averaging between 40% and 65% in the main parameters.
STRUCTURAL RISK MANAGEMENT IN THE EQUITY PORTFOLIO
The BBVA Group’s exposure to structural risk in the equity portfolio stems largely from holdings held in industrial and financial companies with medium/long-term investment horizons, reducedauthorised by the net short positions held in derivative instruments over the same underlying assets in order to limit the portfolio’s sensitivity in the event of possible decreases in share prices or stock market indices.
Regarding the internal structural risk management of the equity portfolio, the Executive Committee sets out the risk policies for the business units and approves the maximum limits for the risk assumed in positions of this nature. The Risks Area effectively monitors the levels of risk assumed, assessing it and ensuring compliance with prevailing limits and policies. Regarding discretional positions, and in addition to stop-loss limits established by strategy and by portfolio, BBVA has established an early warning system for results (loss-triggers) which forestall the possible exceeding of those limits.
The internal model for measuring economic capital attributed to the Group’s positions in structural risk in the equity portfolio is based on a statistical analysis of assets, for a horizon determined by the liquidity of the positions and with the confidence level corresponding to the entity’s objective rating.
The average consumption of the main economic capital limits stood at 53% at December 31, 2005. The favorable trend in stock market prices in 2005 has involved a moderate increase in the sensitivity of the Group’s positions in structural risk in the equity portfolio on a year-on-year basis, which has been partially offset by the divestments effected and by hands-on management through derivative instruments. The aggregate sensitivity figure for the Group’s equity positions in the event of a 1% drop in share prices amounts, at year-end 2005, to €84 million, with 75% concentrated in highly liquid equity securities in the European Union.
OPERATIONAL RISK
Management model
BBVA is a pioneering bank in the formulation of a process management model that considers operational risk as a form of risk that is different from credit and market risk. This is reflected in the in-house definition the Group uses: operational risk applies to anything that is not credit or market risk.
This is a highly complex type of risk, due both to the causes that give rise to it and to its consequences. In fact, all the processes that take place in the Group have, to a greater or lesser extent, operational risk.
Given that operational risk is present in all Group processes, it is held responsible when the final outcome of a process does not turn out as planned, if this deviation cannot be attributed to credit or market risk. This definition provides a better meaning of operational risk, as long as it is located within its natural setting, namely, in processes.
In order to facilitate its management, operational risk needs to be identified, measured, assessed and mitigated. A set of tools has been designed accordingly to help raise awareness of operational risk and which enables it to be gauged over time. These tools are divided into two groups: qualitative and quantitative. The former are used to identify and measure operational risk without there being a need for events to occur. On the other hand, quantitative tools measure operational risk once the events have occurred.
BBVA classifies operational risk into eight major categories:
1) Processes: human error and mistakes in operating procedures
2) External fraud: criminal activities committed by persons unrelated to BBVA
3) Internal fraud: criminal activities committed by Group staff and unauthorized activities
4) Technology: computer failures (hardware and software) or breakdowns in communications
5) Human resources: failures in human resources policy. Health and safety at work
6) Commercial practices: poor sales practices and defective products
7) Disasters: damages to assets caused naturally or intentionally
8) Suppliers: non-fulfilment of services arranged.
Operational risk management in business and support areas is arranged through an Operational Risk Committee in each area, consisting of those people responsible for process management and with decision-making powers for changing them. Each area has someone in the position ofOperational Risk Manager to coordinate these tasks. Based on the information available in the different corporate tools implemented in each unit, the Operational Risk Committee meets regularly at the request of theOperational Risk Manager and takes the necessary decisions on mitigation, bearing in mind their cost.
Implementation of the tools
In 2005, the Group has pursued a far-reaching implementation scheme with a view to completing the risk map. Following are details of the situation at year-end 2005:
Ev-Ro: This is the basic qualitative tool for the identification and valuation of operational risk factors by business or shared resources areas. The collated data are used to draw up risk maps (distribution by types of risk and support areas). This Group tool identifies risk factors that lead to losses, as well as other factors leading to losses of future revenues.
Among those risk factors that have been identified so far, 20% are deemed to be high priority. These risk factors are not all different, as it is quite often the case that some of them are repeated in different areas. At year-end 2005, the implementation degree in the Group stood at 98% (94% completed and 4% underway), as is shown in the accompanying graph.
The following graphs show a display of risk factor distribution, by types of risk, in both Spain and Latin America at December 31, 2005. The quantification of operational risk factors facilitates the development and implementation of measures for mitigating each risk.
TransVaR: This is an operational risk management tool that uses indicators. It is a hybrid tool, as it has both qualitative and quantitative aspects. The data input takes place within the units that manage the processes by gathering basic indicators that provide data on 22 generic indicators common to the entire Group. It has been noted that the level of operational risk clearly diminishes in those units that have implemented this tool. Its implementation degree at the end of 2005 stood at 86%, as shown in the following graph.
SIRO: It is a corporate database that contains all those operational risk events, since January 2002, that constitute a heavy loss or cost for the organization. Events are classified by types of risk and business lines. There is a local Siro in each country that uploads its data each month into a Global Siro, where they are consolidated.
External databases are also used in the Group. Thus, BBVA is one of the founding members of the world’s first database created for such purposes: Operational Risk Exchange (ORX), a non-profit organization located in Zurich whose purpose is to disclose, on an anonymous basis, operational risk events exceeding €20,000. This information serves a dual purpose: on the one hand, it completes the data held when calculating capital and, on the other, it is used as a benchmark. ORX was set up in 2002 with 12 members, and it currently consists of 23 of the world’s major banks.
Reputational risk
RepTool is the tool for the qualitative management of reputational risk in the Group. Corporate reputation is an intangible asset that each company projects onto its investors, customers and employees (both current and
potential), resulting in attraction, rejection or indifference. BBVA understands reputational risk to be what exposes us to uncertainty as a result of the perception that different groups may have of our entity. The stakeholders most affected are customers, shareholders and employees. Reputational risk is a consequence of the materialization of other kinds of risk, mainly operational risk.
The scheme for implementing RepTool continued in 2005, and by year-end 2005 it had been completed in the following units: Global Markets and Distribution, International Private Banking, Global Corporate Banking, Products and Businesses and Special Financial Services. A total of 334 factors have been identified for reputational risks, which are circumstances that have the potential to become reputational events. RepTool classifies these risk functions in terms of the type of action required to mitigate them. The following graph shows risk distribution in terms of action plan.
Basel II
The BBVA Group has informed the Bank of Spain of its intention to rate operational risk in AMA (advanced management approaches). This is the most demanding methodology in terms of information gathering and management. Accordingly, successful completion requires a two-year transition period, beginning in January 2006. During this time, implementation is to be made of qualitative and quantitative tools, risk capital is to be calculated and the Group is to prove it has management mechanisms capable of mitigating risk, wherever this is important.
Operational risk capital
The first estimates were made in 2005 for operational risk capital on the basis of AMA models. Within the range of possible approaches, use has been made of the LDA (Loss Distribution Approach) method, which estimates the distribution of losses in accordance with the operational events an entity has to face, by adjusting accordingly two factors that, in turn, determine it: the frequency of events and their impact.
The calculations made use of SIRO as their main source of information. In order to enrich the data provided by this in-house database and consider the impact of possible events not yet included in it, use has been made of the ORX external database and scenario simulation has also been included, with information provided by the Ev-Ro tool.
RISK MANAGEMENT IN NON-BANKING ACTIVITIES
Insurance
BBVA operates in the insurance sector in different countries and with multiple products. Given that the main business of insurance companies is to provide risk coverage for third parties, risk management serves a threefold purpose:
1) To continuously improve risk assessment and management techniques in order to ensure that current products are increasingly competitive and, therefore, generate more value for both customers and company alike.
2) To permit the launch of products that cover new risks, with a joint perspective of risk control and value creation.
3) To introduce those controls and metrics that at all times ensure companies uphold the solvency the Group requires.times.
In the insurance business, and in addition to credit and market risk companies are exposed to, there are technical risks, such as those related to the performance of risks they insure for third parties. Concerning technical risks, an analysis is made of: a) mortality rates, which affect life assurance and accident insurance; b) life-expectancy rates, which affect endowment policies and annuities; and c) other technical risks involving “general risks” (cars, homes, etc.).
Furthermore, operational risk control is very important, as several processes coexist in the company: a) investment management, in which the business activity is akin to an asset management firm; b) customer management, due to product marketing through the Group’s networks or those pertaining to its companies or third parties; and c) claim management, through the treatment of events that had been previously covered by the company.
An analysis was undertaken in 2005 of our insurance companies’ core products and a review has been made of the calculation of economic capital, fine-tuning methodologies in accordance with central BBVA criteria.
The following graphs show the distribution of economic capital in BBVA’s insurance business in Europe and in the Americas.
Insofar as new products, each launch involves an analysis of the embedded value and its risk-adjusted return, as well as the economic capital consumed.
Limits have likewise been laid down for credit and market risk as approved by the Group’s Executive Committee and supervised by Risk units (both centrally and in each business area).
Asset Management
BBVA is present in various facets of the asset management business: mutual funds, pension funds, UDI trusts ( UDI stands for “Unidad de Inversión”, a currency unit introduced in Mexico during the 1990’s), investment companies and discretionary portfolios.
The Group has entities dedicated to third-party asset management (trust management) in numerous countries, whose aim, in return for a fee, is to manage risks for the account of third parties with two possible investment mandates: maximize returns for an expected level of risk or optimize risk for an expected level of returns.
Therefore, from the perspective of risks, the duty of trusteeship undertaken with the customer involves the following: use of the finest technology available in order to assess how risk and returns are best combined for each investor profile and remit; ensure the ability to identify, measure and assess the risks assumed by the investor; identify and address possible conflicts of interest that might arise; and inform the investor in a clear manner about the risks assumed and the returns obtained.
In view of the fact that, generally speaking, it is the customer who assumes the credit and market risks, the most important risk for BBVA is the operational one, which stems from two basic sources (through selection, performance of transactions, monitoring, etc.) and customer management (through the process of calculation and assessment, information, subscriptions and reimbursements, etc.).
The Group is currently developing the process of adapting customers to their risk profile, as well as providing clear information on the results obtained in terms of risk and returns. The inclusion of, for instance, volatility metrics, index-backed returns and value at risk, have yet to become standard practice in the market, and the focus is on reporting what best suits each type of product and what the investor more readily understands.
Regarding guaranteed funds, the provision of the guarantee is assessed and monitored by the Bank, in terms of embedded options and taking into account both market and credit risk. This assessment is complemented by an admission procedure for each new guaranteed fund.
Credit and market risk limits have been introduced for the investment in equity approved by the Group’s Executive Committee and supervized by Risk units.
The following graph shows the distribution of economic capital in BBVA’s asset management and private banking business in Spain and Portugal.
The following graph shows the distribution of economic capital in BBVA’s pension business in the Americas.
The management model
The Group has two aims in risk management in the Insurance and Asset Management units: a) the use of homogenous methods and processes applying a company-wide standard; and b) assessment through the risk departments in each company.
The achievement of this dual objective implies a two-tier organization:
This arrangement allows for centralized supervision with decentralized assessment, thereby streamlining the process.
A key component in the risk management model in these areas is the New Products Committee where, convened by Risk units in the business areas, all departments adopt a multidisciplinary approach to the review and validation of the new products to be offered to customers, new assets for portfolios and new activities to be undertaken.
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.Applicable.
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Not applicable.
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Not applicable.Applicable.
ITEM 15. | CONTROLS AND PROCEDURES |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of December 31, 2005,2006, BBVA, under the supervision and with the participation of BBVA’s management, including our chairmanChairman and chief executive officer, presidentChief Executive Officer, President and chief operating officerChief Operating Officer and head of the office of the chairman, whose responsibilities include accountancy, internal audit and compliance,Chief Accounting Officer, performed an evaluation of the effectiveness of BBVA’sthe design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(f) under the Exchange Act). There are, as described below, inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. BBVA’s management necessarily applied its judgment in assessing the costs and benefits of suchAccordingly, even effective disclosure controls and procedures which by their nature can provide only reasonable assurance regarding management’sof achieving their control objectives.
Based on thissuch evaluation, BBVA’s chairmanChairman and chief executive officer, presidentChief Executive Officer, President and chief operating officerChief Operating Officer and head of the office of the chairmanChief Accounting Officer concluded that BBVA’s disclosure controls and procedures arewere effective at the reasonable assurance level for gathering, analyzing and disclosing the information BBVA is required to disclose in the reports it files under the Securities Exchange Act, of 1934, within the time periods specified in the SEC’s rules and forms.
Management’s Report on Internal Control Over Financial Reporting
The management of BBVA is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15 (f) under the Exchange Act. BBVA’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of BBVA;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of BBVA’s management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of BBVA’s management, including our Chairman and Chief Executive Officer, President and Chief Operating Officer and Chief Accounting Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our management concluded that, as of December 31, 2006, our internal control over financial reporting was effective based on those criteria.
Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by Deloitte S.L., an independent registered public accounting firm, as stated in their report which follows below.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Banco Bilbao Vizcaya Argentaria, S.A.:
We have audited management’s assessment, included in the accompanyingManagement’s Annual Report on Internal Control over Financial Reporting, that BANCO BILBAO VIZCAYA ARGENTARIA, S.A. (the “Company”) and subsidiaries composing the BANCO BILBAO VIZCAYA ARGENTARIA Group (the “Group” — Note 4) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Group’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Group maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2006, 2005 and 2004 of the Group and the related consolidated statements of income, changes in equity (recognized income and expense), and cash flows for the years then ended, and our report dated March 30, 2007, expressed an unqualified opinion on those Consolidated Financial Statements and included an explanatory paragraph stating that the EU-IFRS vary in certain significant respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”), that the information relating to the nature and effect of such differences is presented in Note 62 to the Consolidated Financial Statements of the Group and that such Note explains that the Group under U.S. GAAP changed its method of recognition of actuarial gains and losses regarding defined benefit plans from deferral method to immediate recognition in 2005.
DELOITTE, S.L.
Madrid – Spain
March 30, 2007
Changes in Internal Control Over Financial Reporting
There has been no change in BBVA’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this annual reportAnnual Report that has materially affected, or is reasonably likely to materially affect, BBVA’s internal control over financial reporting.
ITEM 16. [RESERVED] |
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
We have not determined whether any particular member of our Audit and Compliance Committee is a “financial expert” and, therefore, have not named any particular member of such Committee as our “Audit Committee Financial Expert” in accordance with SEC rules and regulations. The charter for our Audit and Compliance Committee which was approved by our Board of Directors, however, provides that the Chairman of the Audit and Compliance Committee is required to have experience in financial matters as well as knowledge of the accounting standards and principles required by BBVA’s regulators. In addition, we believe that the remaining members of the Audit and Compliance Committee have an understanding of applicable generally accepted accounting principles, experience analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our Consolidated Financial Statements, an understanding of internal controls over financial reporting, and an understanding of audit committee functions. Our Audit and Compliance Committee has experience overseeing and assessing the performance of BBVA and its consolidated subsidiaries and our external auditors with respect to the preparation, auditing and evaluation of our consolidated financial statements.Consolidated Financial Statements.
BBVA’s Code of Ethics and Conduct applies to its chief executive officer, chief financial officer and chief accounting officer. This code establishes the principles that guide these officers’ respective actions: ethical conduct, professional standards and confidentiality. It also establishes the limitations and defines the conflicts of interest arising from their status as senior executives. We have not waived compliance with, nor made any amendment to, the Code of Ethics and Conduct. BBVA’s Code of Ethics and Conduct can be found on its website at www.bbva.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table provides information on the aggregate fees billed by our principal accountants, Deloitte, S.L., by type of service rendered for the periods indicated.
Year ended December 31, | Year ended December 31, | |||||||||||
Services Rendered | 2005 | 2004 | 2003 | 2006 | 2005 | 2004 | ||||||
(thousands of euro) | (thousands of euros) | |||||||||||
Audit Fees (1) | 3,459 | 3,756 | 3,971 | 4,216 | 3,459 | 3,756 | ||||||
Audit-Related Fees (2) | 1,205 | 1,932 | 161 | 5,163 | 1,205 | 1,932 | ||||||
Tax Fees (3) | — | — | — | 234 | — | — | ||||||
All Other Fees (4) | 1,197 | 348 | 561 | 805 | 1,197 | 348 | ||||||
Total | 5,861 | 6,036 | 4,693 | 10,418 | 5,861 | 6,036 |
(1) | Aggregate fees billed for each of the last three fiscal years for professional services rendered by Deloitte, S.L. for the audit of BBVA’s annual financial statements or services that are normally provided by Deloitte, S.L. in connection with statutory and regulatory filings or engagements for those fiscal years. Total audit fees billed by Deloitte, S.L. and its worldwide affiliates, were €9,051 thousand, €7,660 thousand and €6,766 thousand in 2006, 2005 and |
(2) | Aggregate fees billed in each of the last three fiscal years for assurance and related services by Deloitte, S.L. that are reasonably related to the performance of the audit or review of BBVA’s financial statements and are not reported under (1) above. |
(3) | Aggregate fees billed in each of the last three fiscal years for professional services rendered by Deloitte, S.L. for tax compliance, tax advice, and tax planning. |
(4) | Aggregate fees billed in each of the last three fiscal years for products and services provided by Deloitte, S.L. other than the services reported in (1), (2) and (3) above. Services in this category consisted primarily of employee education courses and verification of the security of information systems. |
The Audit Andand Compliance Committee’s Pre-Approval Policies Andand Procedures
In order to assist in ensuring the independence of our external auditor, the charter of our Audit and Compliance Committee provides that our external auditor is generally prohibited from providing us with non-audit services, other than under the specific circumstance described below. For this reason, our Audit and Compliance Committee has developed a pre-approval policy regarding the contracting of BBVA’s external auditor, or any affiliate of the external auditor, for professional services. The professional services covered by such policy include audit and non-audit services provided to BBVA or any of its subsidiaries reflected in agreements dated on or after May 6, 2003.
The pre-approval policy is as follows:
1. | The hiring of BBVA’s external auditor or any of its affiliates is prohibited, unless there is no other firm available to provide the needed services at a comparable cost and that could deliver a similar level of quality. |
2. | In the event that there is no other firm available to provide needed services at a comparable cost and delivering a similar level of quality, the external auditor (or any of its affiliates) may be hired to perform such services, but only with the pre-approval of the Audit and Compliance Committee. |
3. | The Chairman of the Audit and Compliance Committee has been delegated the authority to approve the hiring of BBVA’s external auditor (or any of its affiliates). In such an event, however, the Chairman would be required to inform the Audit and Compliance Committee of such decision at the Committee’s next meeting. |
4. | The hiring of the external auditor for any of BBVA’s subsidiaries must also be pre-approved by the Audit and Compliance Committee. |
5. | Agreements entered into prior to May 6, 2003 between BBVA or any of its subsidiaries and any of their respective external auditors, required the approval of the Audit and Compliance Committee in the event that services provided under such agreements continued after May 6, 2004. |
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.Applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Period of Fiscal Year | (a) Total Number of Ordinary Shares Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||
January 1 to January 31 | 15,884,036 | 12.73 | — | — | ||||
February 1 to February 28 | 29,300,184 | 13.08 | — | — | ||||
March 1 to March 31 | 29,686,831 | 12.81 | — | — | ||||
April 1 to April 30 | 22,480,738 | 12.38 | 6,782,248 | 118,679,822 | ||||
May 1 to May 31 | 11,223,456 | 12.46 | 3,868,449 | 118,679,822 | ||||
June 1 to June 30 | 32,898,864 | 12.71 | 14,591,436 | 118,679,822 | ||||
July 1 to July 31 | 34,987,195 | 13.01 | 3,043,795 | 118,679,822 | ||||
August 1 to August 31 | 33,656,730 | 13.76 | 8,937,822 | 118,679,822 | ||||
September 1 to September 30 | 8,592,198 | 13.99 | 83,187 | 118,679,822 | ||||
October 1 to October 31 | 25,793,704 | 14.24 | — | — | ||||
November 1 to November 30 | 15,371,807 | 14.88 | — | — | ||||
December 1 to December 31 | 19,620,294 | 14.82 | — | — | ||||
Total | 279,496,037 | 37,306,937 | 118,679,822 |
On March 29, 2005, we announced that our Board of Directors had resolved to launch a share buy-back program of our own shares subject to the following conditions: (i) the number of such shares to be purchased shall not exceed 3.5% of our share capital; (ii) the purchase price shall not be higher than €14.5 per share and (iii) the period of the share buy-back program shall expire on September 30, 2005. Between April 18 and September 30, 2005, we purchased an aggregate of 37,306,937 of our ordinary shares pursuant to the share buy-back program, representing 1.10% of our capital stock. By September 30, 2005, all the shares bought under the share buy-back program had been sold.
Period of Fiscal Year | (a) Total Number of Ordinary Shares Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||
January 1 to January 31 | 21,561,320 | 15.43 | — | — | ||||
February 1 to February 28 | 31,776,781 | 16.42 | — | — | ||||
March 1 to March 31 | 26,166,736 | 16.91 | — | — | ||||
April 1 to April 30 | 46,850,011 | 16.99 | — | — | ||||
May 1 to May 31 | 37,404,087 | 16.54 | — | — | ||||
June 1 to June 30 | 42,044,668 | 15.47 | — | — | ||||
July 1 to July 31 | 28,954,627 | 16.35 | — | — | ||||
August 1 to August 31 | 16,337,806 | 17.36 | — | — | ||||
September 1 to September 30 | 14,230,660 | 17.96 | — | — | ||||
October 1 to October 31 | 26,093,614 | 18.48 | — | — | ||||
November 1 to November 30 | 15,235,362 | 18.58 | �� | — | ||||
December 1 to December 31 | 31,361,408 | 18.24 | — | — | ||||
Total | 338,017,080 | — | — |
During 2005,2006, we sold a total of 274,760,734337,319,748 shares (including those purchased under the share buy back program) for an average price of €13.80€16.77 per share.
ITEM 17. | FINANCIAL STATEMENTS |
We have responded to Item 18 in lieu of this item.
ITEM 18. | FINANCIAL STATEMENTS |
Reference is made to Item 19 for a list of all financial statements filed as a part of this Annual Report.
ITEM 19. | EXHIBITS |
(a) Index to Financial Statements
Page | ||
| F-3 | |
Consolidated Balance Sheets as of December 31, 2006, 2005 and 2004 | F-4 | |
Consolidated Income Statements for the Years Ended December 31, 2006, 2005 and 2004 | ||
Statements of Changes in Consolidated Equity for the Years Ended December 31, 2006, 2005 and 2004 | ||
Consolidated Cash Flow Statements for the Years Ended December 31, 2006, 2005 and 2004 | ||
Notes to the Consolidated Financial Statements | ||
|
(b) Index to Exhibits:
Exhibit Number | Description | |
1.1 | Extracts of Amended and Restated Bylaws (Estatutos) of the Registrant. | |
4.1 | Plan of Merger between Banco Bilbao Vizcaya, S.A. and Argentaria, Caja Postal y Banco Hipotecario, S.A.* | |
4.2 | Master Agreement of Strategic Alliance between Telefónica and BBVA, together with an English translation.** | |
4.3 | Transaction Agreement by and between Banco Bilbao Vizcaya Argentaria, S.A. and Compass Bancshares, Inc. dated as of February 16, 2007. | |
8.1 | Consolidated Companies Composing Registrant. | |
12.1 | Section 302 Chairman and Chief Executive Officer Certification. | |
12.2 | Section 302 President and Chief Operating Officer Certification. | |
12.3 | Section 302 | |
13.1 | Section 906 Certification. |
* | Incorporated by reference to BBVA’s Registration Statement on Form F-4 (File No. 333-11090) filed with the Securities and Exchange Commission on November 4, 1999. |
** | Incorporated by reference to BBVA’s 1999 Annual Report on Form 20-F. |
We will furnish to the Commission, upon request, copies of any unfiled instruments that define the rights of holders of our long-term debt.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and had duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. | ||
By: | /s/ | |
Name: |
| |
Title: |
Date: July 7, 2006March 30, 2007
Item 5. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 20052006
AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Banco Bilbao Vizcaya Argentaria, S.A.:
We have audited the accompanying consolidated balance sheets of BANCO BILBAO VIZCAYA ARGENTARIA, S.A. (“the Company”(the “Company”) and subsidiaries composing the BANCO BILBAO VIZCAYA ARGENTARIA Group (“the Group”(the “Group”—Note 4) as of December 31, 2006, 2005 and 2004, and the related consolidated statements of income, cash flows and consolidated statements of changes in equity (recognized income and expense), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the controlling Company’s Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementsstatement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects,respects, the financial position of Banco Bilbao Vizcaya Argentaria,BANCO BILBAO VIZCAYA ARGENTARIA, S.A. and Companiessubsidiaries composing the Banco Bilbao Vizcaya ArgentariaBANCO BILBAO VIZCAYA ARGENTARIA Group as of December 31, 2006, 2005 and 2004, the results of their operations and their cash flows for the years then ended, in conformity with International Financial Reporting Standards adopted by the European Union (EU-IFRSs)(EU-IFRS).
The consolidated financial statements referred to above, the consolidated financial statements for 2005 are the first that the Group has prepared in accordance with International Financial Reporting Standards adopted by the European Union (EU-IFRSs), which require, in general, that the consolidated financial statements present comparative information. In this regard, as required by EU-IFRS 1, First Time Adoption of International Financial Reporting Standards, for comparison purposes the Parent’s directors present, in addition to the consolidated figures for 2005 for each item in the consolidated balance sheet, consolidated income statement, consolidated cash flow statement, consolidated statement of changes in equity and notes to the consolidated financial statements, the figures for 2004, which were obtained by applying the EU-IFRS in force at December 31, 2005. Accordingly, the figures for 2004 differ from those contained in the approved consolidated financial statements for 2004, which were prepared in accordance with the accounting principles generally accepted in Spain in force in that year. The differences arising from the application of EU-IFRS to the consolidated equity at January, 1 and December, 31 2004, and to the Group’s consolidated net income for 2004 are detailed in Note 3 to the consolidated financial statements referred to above.
International Financial Reporting Standards adopted by European Union vary in certain significant respects from accounting principles generally accepted in the United States of America (U.S. GAAP). Information relating to the nature and effect of such differences is presented in Note 5962 to the consolidated financial statements. Such Note explains that the Group under U.S. GAAP changed its method of recognition of actuarial gains and losses regarding defined benefit plans from deferral method to immediate recognition in 2005.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Group’s internal control over financial reporting as of December 31, 2006, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Group’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.
DELOITTE, S.L.
Madrid – Spain February 13, 2006, except for the Note 59 as to which the date is July 7, 2006.
March 30, 2007
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2006, 2005 AND 2004
(Notes 1 to 9)
Thousands of Euros | ||||||
ASSETS | 2006 | 2005 | 2004 | |||
CASH AND BALANCES WITH CENTRAL BANKS (Note 10) | 12,515,122 | 12,341,317 | 10,123,090 | |||
FINANCIAL ASSETS HELD FOR TRADING (Note 11) | 51,835,109 | 44,011,781 | 47,036,060 | |||
Loans and advances to credit institutions | — | — | — | |||
Money market operations through counterparties | — | — | — | |||
Loans and advances to other debtors | — | �� | — | |||
Debt securities | 30,470,542 | 24,503,507 | 30,396,579 | |||
Other equity instruments | 9,948,705 | 6,245,534 | 5,690,885 | |||
Trading derivatives | 11,415,862 | 13,262,740 | 10,948,596 | |||
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Note 12) | 977,114 | 1,421,253 | 1,059,490 | |||
Loans and advances to credit institutions | — | — | — | |||
Money market operations through counterparties | — | — | — | |||
Loans and advances to other debtors | — | — | — | |||
Debt securities | 55,542 | 282,916 | 58,771 | |||
Other equity instruments | 921,572 | 1,138,337 | 1,000,719 | |||
AVAILABLE-FOR-SALE FINANCIAL ASSETS (Note 13) | 42,266,774 | 60,033,988 | 53,003,545 | |||
Debt securities | 32,229,459 | 50,971,978 | 45,037,228 | |||
Other equity instruments | 10,037,315 | 9,062,010 | 7,966,317 | |||
LOANS AND RECEIVABLES (Note 14) | 279,855,259 | 249,396,647 | 196,892,203 | |||
Loans and advances to credit institutions | 17,049,692 | 27,470,224 | 16,702,957 | |||
Money market operations through counterparties | 100,052 | — | 241,999 | |||
Loans and advances to other debtors | 256,565,376 | 216,850,480 | 172,083,072 | |||
Debt securities | 77,334 | 2,291,889 | 5,497,509 | |||
Other equity instruments | 6,062,805 | 2,784,054 | 2,366,666 | |||
HELD-TO-MATURITY INVESTMENTS (Note 15) | 5,905,636 | 3,959,265 | 2,221,502 | |||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN THE PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | — | |||
HEDGING DERIVATIVES (Note 16) | 1,963,320 | 3,912,696 | 4,273,450 | |||
NON-CURRENT ASSETS HELD FOR SALE (Note 17) | 186,062 | 231,260 | 159,155 | |||
Loans and advances to credit institutions | — | — | — | |||
Loans and advances to other debtors | — | — | — | |||
Debt securities | — | — | — | |||
Equity instruments | — | — | — | |||
Tangible assets | 186,062 | 231,260 | 159,155 | |||
Other assets | — | — | — | |||
INVESTMENTS (Note 18) | 888,936 | 1,472,955 | 1,399,140 | |||
Associates | 206,259 | 945,858 | 910,096 | |||
Jointly controlled entities | 682,677 | 527,097 | 489,044 | |||
INSURANCE CONTRACTS LINKED TO PENSIONS | — | — | — | |||
REINSURANCE ASSETS (Note 19) | 31,986 | 235,178 | 80,268 | |||
TANGIBLE ASSETS (Note 20) | 4,527,006 | 4,383,389 | 3,939,636 | |||
Property, plants and equipment | 3,816,309 | 3,840,520 | 3,337,728 | |||
Investment properties | 61,082 | 76,742 | 162,649 | |||
Other assets leased out under an operating lease | 649,615 | 466,127 | 439,259 |
ASSETS(Continuation) INTANGIBLE ASSETS (Note 21) Goodwill Other intangible assets TAX ASSETS (Note 37) Current Deferred PREPAYMENTS AND ACCRUED INCOME (Note 22) OTHER ASSETS (Note 23) Inventories Other TOTAL ASSETS Thousands of Euros 2006 2005 2004 3,269,265 2,070,049 821,084 2,973,435 1,857,854 710,493 295,830 212,195 110,591 5,278,197 6,420,745 5,990,696 386,827 254,151 165,959 4,891,370 6,166,594 5,824,737 673,818 557,278 717,755 1,742,703 1,941,693 1,724,082 470,137 339,472 279,897 1,272,566 1,602,221 1,444,185 411,916,307 392,389,494 329,441,156
The accompanying Notes 1 to 62 and Appendices I to VI are an integral part of the consolidated balance sheet as of December 31, 2006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2006, 2005 AND 2004
(Notes 1 to 5)
- Thousands of Euros -9)
2005 | 2004 | |||
ASSETS | ||||
CASH AND BALANCES WITH CENTRAL BANKS (Note 10) | 12,341,317 | 10,123,090 | ||
FINANCIAL ASSETS HELD FOR TRADING (Note 11) | 44,011,781 | 47,036,060 | ||
Loans and advances to credit institutions | — | — | ||
Money market operations through counterparties | — | — | ||
Loans and advances to other debtors | — | — | ||
Debt securities | 24,503,507 | 30,396,579 | ||
Other equity instruments | 6,245,534 | 5,690,885 | ||
Trading derivatives | 13,262,740 | 10,948,596 | ||
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Note 12) | 1,421,253 | 1,059,490 | ||
Loans and advances to credit institutions | — | — | ||
Money market operations through counterparties | — | — | ||
Loans and advances to other debtors | — | — | ||
Debt securities | 282,916 | 58,771 | ||
Other equity instruments | 1,138,337 | 1,000,719 | ||
AVAILABLE-FOR-SALE FINANCIAL ASSETS (Note 13) | 60,033,988 | 53,003,545 | ||
Debt securities | 50,971,978 | 45,037,228 | ||
Other equity instruments | 9,062,010 | 7,966,317 | ||
LOANS AND RECEIVABLES (Note 14) | 249,396,647 | 196,892,203 | ||
Loans and advances to credit institutions | 27,470,224 | 16,702,957 | ||
Money market operations through counterparties | — | 241,999 | ||
Loans and advances to other debtors | 216,850,480 | 172,083,072 | ||
Debt securities | 2,291,889 | 5,497,509 | ||
Other financial assets | 2,784,054 | 2,366,666 | ||
HELD-TO-MATURITY INVESTMENTS (Note 15) | 3,959,265 | 2,221,502 | ||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | ||
HEDGING DERIVATIVES (Note 16) | 3,912,696 | 4,273,450 | ||
NON-CURRENT ASSETS HELD FOR SALE (Note 17) | 231,260 | 159,155 | ||
Loans and advances to credit institutions | — | — | ||
Loans and advances to other debtors | — | — | ||
Debt securities | — | — | ||
Equity instruments | — | — | ||
Tangible assets | 231,260 | 159,155 | ||
Other assets | — | — | ||
INVESTMENTS (Note 18) | 1,472,955 | 1,399,140 | ||
Associates | 945,858 | 910,096 | ||
Jointly controlled entities | 527,097 | 489,044 | ||
INSURANCE CONTRACTS LINKED TO PENSIONS | — | — | ||
REINSURANCE ASSETS (Note 19) | 235,178 | 80,268 | ||
TANGIBLE ASSETS (Note 20) | 4,383,389 | 3,939,636 | ||
Property, plants and equipment | 3,840,520 | 3,337,728 | ||
Investment properties | 76,742 | 162,649 | ||
Other assets leased out under an operating lease | 466,127 | 439,259 | ||
INTANGIBLE ASSETS (Note 21) | 2,070,049 | 821,084 | ||
Goodwill | 1,857,854 | 710,493 |
Thousands of Euros | ||||||
LIABILITIES AND EQUITY | 2006 | 2005 | 2004 | |||
FINANCIAL LIABILITIES HELD FOR TRADING (Note 11) | 14,923,534 | 16,270,865 | 14,134,413 | |||
Deposits from credit institutions | — | — | — | |||
Money market operations through counterparties | — | — | — | |||
Deposits from other creditors | — | — | — | |||
Debt certificates | — | — | — | |||
Trading derivatives | 13,218,654 | 13,862,644 | 12,802,912 | |||
Short positions | 1,704,880 | 2,408,221 | 1,331,501 | |||
OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Note 24) | 582,537 | 740,088 | 834,350 | |||
Deposits from credit institutions | — | — | — | |||
Deposits from other creditors | 582,537 | 740,088 | 834,350 | |||
Debt certificates | — | — | — | |||
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY (Note 25) | — | — | — | |||
Deposits from credit institutions | — | — | — | |||
Deposits from other creditors | — | — | — | |||
Debt certificates | — | — | — | |||
FINANCIAL LIABILITIES AT AMORTISED COST (Note 26) | 348,444,532 | 331,589,962 | 277,857,075 | |||
Deposits from central banks | 15,237,435 | 21,189,193 | 20,301,105 | |||
Deposits from credit institutions | 42,566,999 | 45,125,943 | 44,048,115 | |||
Money market operations through counterparties | 223,393 | 23,252 | 657,997 | |||
Deposits from other creditors | 192,373,862 | 182,635,181 | 149,891,799 | |||
Debt certificates | 77,674,115 | 62,841,755 | 45,482,121 | |||
Subordinated liabilities | 13,596,803 | 13,723,262 | 12,327,377 | |||
Other financial liabilities | 6,771,925 | 6,051,376 | 5,148,561 | |||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | 183,201 | |||
HEDGING DERIVATIVES (Note 16) | 2,279,740 | 2,870,086 | 3,131,572 | |||
LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE | — | — | — | |||
Deposits from central banks | — | — | — | |||
Deposits from credit institutions | — | — | — | |||
Deposits from other creditors | — | — | — | |||
Debt certificates | — | — | — | |||
Other liabilities | — | — | — | |||
LIABILITIES UNDER INSURANCE CONTRACTS (Note 27) | 10,120,646 | 10,500,567 | 8,114,429 | |||
PROVISIONS (Note 28) | 8,648,834 | 8,701,085 | 8,391,848 | |||
Provisions for pensions and similar obligations | 6,357,820 | 6,239,744 | 6,304,284 | |||
Provisions for taxes | 232,172 | 146,971 | 173,229 | |||
Provisions for contingent exposures and commitments | 501,933 | 452,462 | 348,782 | |||
Other provisions | 1,556,909 | 1,861,908 | 1,565,553 | |||
TAX LIABILITIES (Note 37) | 2,369,166 | 2,100,023 | 1,620,795 | |||
Current | 622,277 | 598,285 | 223,656 | |||
Deferred | 1,746,889 | 1,501,738 | 1,397,139 | |||
ACCRUED EXPENSES AND DEFERRED INCOME (Note 22) | 1,509,573 | 1,709,690 | 1,265,780 | |||
OTHER LIABILITIES (Note 23) | 719,267 | 605,016 | 102,430 | |||
TOTAL LIABILITIES | 389,597,829 | 375,087,382 | 315,635,893 | |||
Other intangible assets TAX ASSETS (Note 35) Current Deferred PREPAYMENTS AND ACCRUED INCOME (Note 22) OTHER ASSETS (Note 23) Inventories Other TOTAL ASSETS LIABILITIES AND EQUITY (Continuation) MINORITY INTERESTS (Note 30) VALUATION ADJUSTMENTS Available-for-sale financial assets Financial liabilities at fair value through equity Cash flow hedges Hedges of net investments in foreign operations Exchange differences Non-current assets held for sale STOCKHOLDER’S EQUITY Capital (Note 32) Issued Unpaid and uncalled (-) Share premium (Note 33) Reserves (Note 34) Accumulated reserves (losses) Retained earnings Reserves (losses) of entities accounted for using the equity method Associates Jointly controlled entities Other equity instruments Equity component of compound financial instruments Other (Note 29) Less: Treasury shares (Note 35) Income attributed to the Group Less: Dividends and remuneration TOTAL EQUITY (Note 31) TOTAL LIABILITIES AND EQUITY 2005 2004 ASSETS 212,195 110,591 6,420,745 5,990,696 254,151 165,959 6,166,594 5,824,737 557,278 717,755 1,941,693 1,724,082 339,472 279,897 1,602,221 1,444,185 392,389,494 329,441,156 Thousands of Euros 2006 2005 2004 768,162 971,490 737,539 3,340,694 3,294,955 2,106,914 3,355,572 3,002,784 2,320,133 — — — 16,859 (102,538 ) (24,776 ) (4,576 ) (443,561 ) 282,895 (27,161 ) 838,270 (471,338 ) — — — 18,209,622 13,035,667 10,960,810 1,740,465 1,661,518 1,661,518 1,740,465 1,661,518 1,661,518 — — — 9,579,443 6,658,390 6,682,603 3,628,984 2,172,158 745,134 3,405,655 1,933,243 444,193 — — — 223,329 238,915 300,941 38,956 (60,542 ) 8,153 184,373 299,457 292,788 34,809 141 — — — — 34,809 141 — (147,258 ) (96,321 ) (35,846 ) 4,735,879 3,806,425 2,922,596 (1,362,700 ) (1,166,644 ) (1,015,195 ) 22,318,478 17,302,112 13,805,263 411,916,307 392,389,494 329,441,156
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
MEMORANDUM ITEMS | ||||||
CONTINGENT EXPOSURES (Note 40) | 42,280,698 | 29,861,597 | 21,557,649 | |||
Financial guarantees | 41,448,405 | 29,176,854 | 21,102,311 | |||
Assets encumbered by third-party obligations | — | — | 5,215 | |||
Other contingent exposures | 832,293 | 684,743 | 450,123 | |||
CONTINGENT COMMITMENTS (Note 40) | 103,221,153 | 89,498,392 | 66,762,402 | |||
Drawable by third parties | 98,226,297 | 85,001,452 | 60,716,878 | |||
Other commitments | 4,994,856 | 4,496,940 | 6,045,524 |
The accompanying Notes 1 to 5962 and Exhibit 8.1Appendices I to VI are an integral part of the consolidated balance sheet atas of December 31, 2005.
- Thousands of Euros -
2005 | 2004 | |||
LIABILITIES AND EQUITY | ||||
FINANCIAL LIABILITIES HELD FOR TRADING (Note 11) | 16,270,865 | 14,134,413 | ||
Deposits from credit institutions | — | — | ||
Money market operations through counterparties | — | — | ||
Deposits from other creditors | — | — | ||
Debt certificates (including bonds) | — | — | ||
Trading derivatives | 13,862,644 | 12,802,912 | ||
Short positions | 2,408,221 | 1,331,501 | ||
OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Note 24) | 740,088 | 834,350 | ||
Deposits from credit institutions | — | — | ||
Deposits from other creditors | 740,088 | 834,350 | ||
Debt certificates (including bonds) | — | — | ||
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY (Note 25) | — | — | ||
Deposits from credit institutions | — | — | ||
Deposits from other creditors | — | — | ||
Debt certificates (including bonds) | — | — | ||
FINANCIAL LIABILITIES AT AMORTISED COST (Note 26) | 329,505,250 | 275,583,527 | ||
Deposits from central banks | 21,189,193 | 23,301,105 | ||
Deposits from credit institutions | 45,125,943 | 44,048,115 | ||
Money market operations through counterparties | 23,252 | 657,997 | ||
Deposits from other creditors | 182,635,181 | 149,891,799 | ||
Debt certificates (including bonds) | 62,841,755 | 45,482,121 | ||
Subordinated liabilities | 13,723,262 | 12,327,377 | ||
Other financial liabilities | 3,966,664 | 2,875,013 | ||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | 183,201 | ||
HEDGING DERIVATIVES (Note 16) | 2,870,086 | 3,131,572 | ||
LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE | — | — | ||
Deposits from central banks | — | — | ||
Deposits from credit institutions | — | — | ||
Deposits from other creditors | — | — | ||
Debt certificates (including bonds) | — | — | ||
Other liabilities | — | — | ||
LIABILITIES UNDER INSURANCE CONTRACTS (Note 27) | 10,500,567 | 8,114,429 | ||
PROVISIONS (Note 28) | 8,701,085 | 8,391,848 | ||
Provisions for pensions and similar obligations | 6,239,744 | 6,304,284 | ||
Provisions for taxes | 146,971 | 173,229 | ||
Provisions for contingent exposures and commitments | 452,462 | 348,782 | ||
Other provisions | 1,861,908 | 1,565,553 | ||
TAX LIABILITIES (Note 35) | 2,100,023 | 1,620,795 | ||
Current | 598,285 | 223,656 | ||
Deferred | 1,501,738 | 1,397,139 | ||
ACCRUED EXPENSES AND DEFERRED INCOME (Note 22) | 1,709,690 | 1,265,780 | ||
OTHER LIABILITIES (Note 23) | 2,689,728 | 2,375,978 | ||
EQUITY HAVING THE NATURE OF FINANCIAL LIABILITY | — | — | ||
TOTAL LIABILITIES | 375,087,382 | 315,635,893 | ||
The accompanying Notes 1 to 59 and Exhibit 8.1 are an integral part of the consolidated balance sheet at 31 December 2005.
MINORITY INTERESTS (Note 29) VALUATION ADJUSTMENTS Available-for-sale financial assets Financial liabilities at fair value through equity Cash flow hedges Hedges of net investments in foreign operations Exchange differences Non-current assets held for sale SHAREHOLDERS’ EQUITY Capital (Note 31) Issued Unpaid and uncalled (-) Share premium (Note 32) Reserves (Note 33) Accumulated reserves (losses) Retained earnings Reserves (losses) of entities accounted for using the equity method Associates Jointly controlled entities Other equity instruments Equity component of compound financial instruments Other Less: Treasury shares (Note 34) Income attributed to the Group Less: Dividends and remuneration TOTAL EQUITY TOTAL LIABILITIES AND EQUITY CONTINGENT EXPOSURES (Note 38) Financial guarantees Assets earmarked for third-party obligations Other contingent exposures CONTINGENT COMMITMENTS (Note 38) Drawable by third parties Other commitments 2005 2004 EQUITY 971,490 737,539 3,294,955 2,106,914 3,002,784 2,320,133 — — (102,538 ) (24,776 ) (443,561 ) 282,895 838,270 (471,338 ) — — 13,035,667 10,960,810 1,661,518 1,661,518 1,661,518 1,661,518 — — 6,658,390 6,682,603 2,172,158 745,134 1,933,243 444,193 — — 238,915 300,941 (60,542 ) 8,153 299,457 292,788 141 — — — 141 — (96,321 ) (35,846 ) 3,806,425 2,922,596 (1,166,644 ) (1,015,195 ) 17,302,112 13,805,263 392,389,494 329,441,156 2005 2004 (*) MEMORANDUM ITEMS 29,861,597 21,557,649 29,176,854 21,102,311 — 5,215 684,743 450,123 89,498,392 66,762,402 85,001,452 60,716,878 4,496,940 6,045,524
The accompanying Notes 1 to 59 and Exhibit 8.1 are an integral part of the consolidated balance sheet at December 31, 2005.2006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Notes 1 to 5)
- Thousands of Euros -9)
2005 | 2004 | Thousands of Euros | |||||||||||||
INTEREST AND SIMILAR INCOME (Note 43) | 15,847,674 | 12,352,338 | |||||||||||||
INTEREST EXPENSE AND SIMILAR CHARGES (Note 44) | (8,932,200 | ) | (6,447,944 | ) | |||||||||||
2006 | 2005 | 2004 | |||||||||||||
INTEREST AND SIMILAR INCOME (Note 45) | 19,210,234 | 15,847,674 | 12,352,338 | ||||||||||||
INTEREST EXPENSE AND SIMILAR CHARGES (Note 45) | (11,215,569 | ) | (8,932,200 | ) | (6,447,944 | ) | |||||||||
Income on equity having the nature of a financial liability | — | — | — | — | — | ||||||||||
Other | (8,932,200 | ) | (6,447,944 | ) | (11,215,569 | ) | (8,932,200 | ) | (6,447,944 | ) | |||||
INCOME FROM EQUITY INSTRUMENTS (Note 45) | 292,495 | 255,146 | |||||||||||||
INCOME FROM EQUITY INSTRUMENTS (Note 46) | 379,473 | 292,495 | 255,146 | ||||||||||||
NET INTEREST INCOME | 7,207,969 | 6,159,540 | 8,374,138 | 7,207,969 | 6,159,540 | ||||||||||
SHARE OF PROFIT OR LOSS OF ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD | 121,495 | 97,040 | 307,648 | 121,495 | 97,040 | ||||||||||
Associates | 87,491 | 3,753 | 49,349 | 87,491 | 3,753 | ||||||||||
Jointly controlled entities | 34,004 | 93,287 | 258,299 | 34,004 | 93,287 | ||||||||||
FEE AND COMMISSION INCOME (Note 46) | 4,669,124 | 4,056,981 | |||||||||||||
FEE AND COMMISSION EXPENSES (Note 47) | (729,128 | ) | (643,959 | ) | |||||||||||
INSURANCE ACTIVITY INCOME (Note 48) | 486,923 | 390,618 | |||||||||||||
FEE AND COMMISSION INCOME (Note 47) | 5,118,682 | 4,669,124 | 4,056,981 | ||||||||||||
FEE AND COMMISSION EXPENSES (Note 48) | (783,802 | ) | (729,128 | ) | (643,959 | ) | |||||||||
INSURANCE ACTIVITY INCOME (Note 49) | 650,431 | 486,923 | 390,618 | ||||||||||||
Insurance and reinsurance premium income | 2,916,831 | 2,062,030 | 2,483,999 | 2,916,831 | 2,062,030 | ||||||||||
Reinsurance premiums paid | (63,403 | ) | (71,931 | ) | (44,167 | ) | (63,403 | ) | (71,931 | ) | |||||
Benefits paid and other insurance-related expenses | (1,785,514 | ) | (1,704,113 | ) | (1,538,896 | ) | (1,785,514 | ) | (1,704,113 | ) | |||||
Reinsurance income | 44,228 | 8,534 | 75,953 | 44,228 | 8,534 | ||||||||||
Net provisions for insurance contract liabilities | (1,274,283 | ) | (413,744 | ) | (995,999 | ) | (1,274,283 | ) | (413,744 | ) | |||||
Finance income | 904,318 | 708,901 | 968,057 | 904,318 | 708,901 | ||||||||||
Finance expense | (255,254 | ) | (199,059 | ) | (298,516 | ) | (255,254 | ) | (199,059 | ) | |||||
GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES (NET) (Note 49) | 980,164 | 761,857 | |||||||||||||
GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES (NET) (Note 50) | 1,655,911 | 980,164 | 761,857 | ||||||||||||
Held for trading | 897,484 | 1,110,551 | 715,651 | 897,484 | 1,110,551 | ||||||||||
Other financial instruments at fair value through profit or loss | 33,022 | 1,296 | 62,068 | 33,022 | 1,296 | ||||||||||
Available-for-sale financial assets | 428,560 | 974,412 | 1,120,591 | 428,560 | 974,412 | ||||||||||
Loans and receivables | 129,203 | 13,932 | 77,263 | 129,203 | 13,932 | ||||||||||
Other | (508,105 | ) | (1,338,334 | ) | (319,662 | ) | (508,105 | ) | (1,338,334 | ) | |||||
EXCHANGE DIFFERENCES (NET) | 287,014 | 297,972 | 377,628 | 287,014 | 297,972 | ||||||||||
GROSS INCOME | 13,023,561 | 11,120,049 | 15,700,636 | 13,023,561 | 11,120,049 | ||||||||||
SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES (Note 50) | 576,373 | 468,236 | |||||||||||||
COST OF SALES (Note 50) | (450,594 | ) | (341,745 | ) | |||||||||||
OTHER OPERATING INCOME | 134,559 | 22,306 | |||||||||||||
PERSONNEL EXPENSES (Note 51) | (3,602,242 | ) | (3,247,050 | ) | |||||||||||
OTHER ADMINISTRATIVE EXPENSES (Note 52) | (2,160,478 | ) | (1,850,845 | ) | |||||||||||
SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES (Note 51) | 605,227 | 576,373 | 468,236 | ||||||||||||
COST OF SALES (Note 51) | (473,869 | ) | (450,594 | ) | (341,745 | ) | |||||||||
OTHER OPERATING INCOME (Note 52) | 117,070 | 134,559 | 22,306 | ||||||||||||
PERSONNEL EXPENSES (Note 53) | (3,988,585 | ) | (3,602,242 | ) | (3,247,050 | ) | |||||||||
OTHER ADMINISTRATIVE EXPENSES (Note 54) | (2,341,836 | ) | (2,160,478 | ) | (1,850,845 | ) | |||||||||
DEPRECIATION AND AMORTISATION | (448,692 | ) | (448,206 | ) | (472,198 | ) | (448,692 | ) | (448,206 | ) | |||||
Tangible assets (Note 20) | (361,042 | ) | (363,312 | ) | (382,890 | ) | (361,042 | ) | (363,312 | ) | |||||
Intangible assets (Note 21) | (87,650 | ) | (84,894 | ) | (89,308 | ) | (87,650 | ) | (84,894 | ) | |||||
OTHER OPERATING EXPENSES | (249,403 | ) | (132,139 | ) | |||||||||||
OTHER OPERATING EXPENSES (Note 52) | (263,340 | ) | (249,403 | ) | (132,139 | ) | |||||||||
NET OPERATING INCOME | 6,823,084 | 5,590,606 | 8,883,105 | 6,823,084 | 5,590,606 | ||||||||||
IMPAIRMENT LOSSES (NET) | (854,327 | ) | (958,194 | ) | |||||||||||
Available-for-sale financial assets | (7,928 | ) | 55,856 | ||||||||||||
Loans and receivables | (813,080 | ) | (783,909 | ) | |||||||||||
Held-to-maturity investments | (1 | ) | — | ||||||||||||
Non-current assets held for sale | (33,159 | ) | 4,222 | ||||||||||||
Investments | — | (39,508 | ) | ||||||||||||
Tangible assets | (1,589 | ) | 2,135 | ||||||||||||
Goodwill | — | (196,990 | ) |
2005 | 2004 | Thousands of Euros | |||||||||||||
(Continuation) | 2006 | 2005 | 2004 | ||||||||||||
NET OPERATING INCOME | 8,883,105 | 6,823,084 | 5,590,606 | ||||||||||||
IMPAIRMENT LOSSES (NET) | (1,503,549 | ) | (854,327 | ) | (958,194 | ) | |||||||||
Available-for-sale financial assets (Note 13) | 19,105 | (7,928 | ) | 55,856 | |||||||||||
Loans and receivables (Note 14) | (1,476,666 | ) | (813,080 | ) | (783,909 | ) | |||||||||
Held-to-maturity investments (Note 15) | 422 | (1 | ) | — | |||||||||||
Non-current assets held for sale (Note 17) | (34,783 | ) | (33,159 | ) | 4,222 | ||||||||||
Investments | — | — | (39,508 | ) | |||||||||||
Tangible assets (Note 20) | 4,827 | (1,589 | ) | 2,135 | |||||||||||
Goodwill (Notes 18 and 21) | (12,322 | ) | — | (196,990 | ) | ||||||||||
Other intangible assets | — | — | — | — | — | ||||||||||
Other assets | 1,430 | — | (4,132 | ) | 1,430 | — | |||||||||
PROVISION EXPENSE (NET) | (454,182 | ) | (850,557 | ) | |||||||||||
FINANCE INCOME FROM NON-FINANCIAL ACTIVITIES (Note 53) | 2,467 | 8,737 | |||||||||||||
FINANCE EXPENSES FROM NON-FINANCIAL ACTIVITIES (Note 53) | (1,826 | ) | (4,712 | ) | |||||||||||
OTHER GAINS (Note 54) | 284,816 | 622,180 | |||||||||||||
PROVISION EXPENSE (NET) (Note 28) | (1,338,205 | ) | (454,182 | ) | (850,557 | ) | |||||||||
FINANCE INCOME FROM NON-FINANCIAL ACTIVITIES (Note 55) | 57,602 | 2,467 | 8,737 | ||||||||||||
FINANCE EXPENSES FROM NON-FINANCIAL ACTIVITIES (Note 55) | (55,227 | ) | (1,826 | ) | (4,712 | ) | |||||||||
OTHER GAINS (Note 56) | 1,128,628 | 284,816 | 622,180 | ||||||||||||
Gains on disposal of tangible assets | 107,838 | 102,874 | 92,902 | 107,838 | 102,874 | ||||||||||
Gains on disposal of investments | 40,157 | 317,510 | |||||||||||||
Gains on disposal of investment | 934,469 | 40,157 | 317,510 | ||||||||||||
Other | 136,821 | 201,796 | 101,257 | 136,821 | 201,796 | ||||||||||
OTHER LOSSES (Note 54) | (208,279 | ) | (271,220 | ) | |||||||||||
OTHER LOSSES (Note 56) | (142,018 | ) | (208,279 | ) | (271,220 | ) | |||||||||
Losses on disposal of tangible assets | (22,477 | ) | (22,450 | ) | (20,413 | ) | (22,477 | ) | (22,450 | ) | |||||
Losses on disposal of investments | (11,751 | ) | (9,127 | ) | |||||||||||
Losses on disposal of investment | (181 | ) | (11,751 | ) | (9,127 | ) | |||||||||
Other | (174,051 | ) | (239,643 | ) | (121,424 | ) | (174,051 | ) | (239,643 | ) | |||||
INCOME BEFORE TAX | 5,591,753 | 4,136,840 | 7,030,336 | 5,591,753 | 4,136,840 | ||||||||||
INCOME TAX (Note 35) | (1,521,181 | ) | (1,028,631 | ) | |||||||||||
INCOME FROM ORDINARY ACTIVITIES | 4,070,572 | 3,108,209 | |||||||||||||
INCOME TAX (Note 37) | (2,059,301 | ) | (1,521,181 | ) | (1,028,631 | ) | |||||||||
INCOME FROM CONTINUING OPERATIONS | 4,971,035 | 4,070,572 | 3,108,209 | ||||||||||||
INCOME FROM DISCONTINUED OPERATIONS (NET) | — | — | — | — | — | ||||||||||
CONSOLIDATED INCOME FOR THE YEAR | 4,070,572 | 3,108,209 | 4,971,035 | 4,070,572 | 3,108,209 | ||||||||||
INCOME ATTRIBUTED TO MINORITY INTERESTS (Note 29) | (264,147 | ) | (185,613 | ) | |||||||||||
INCOME ATTRIBUTED TO MINORITY INTEREST (Note 30) | (235,156 | ) | (264,147 | ) | (185,613 | ) | |||||||||
INCOME ATTRIBUTED TO THE GROUP | 3,806,425 | 2,922,596 | 4,735,879 | 3,806,425 | 2,922,596 | ||||||||||
EARNINGS PER SHARE FOR CONTINUING OPERATIONS (Note 6) | |||||||||||||||
Basic earnings per share | 1.39 | 1.12 | 0.87 | ||||||||||||
Diluted earnings per share | 1.39 | 1.12 | 0.87 |
The accompanying Notes 1 to 5962 and Exhibit 8.1Appendices I to VI are an integral part of the consolidated income statement for 2005.the year ended December 31, 2006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONSOLIDATED EQUITYSTATEMENTS OF
RECOGNIZED INCOME AND EXPENSE FOR THE YEARS ENDED
DECEMBER 31, 2006, 2005 AND 2004 (Notes
(Notes 1 to 5) - Thousands of Euros -9)
Thousands of Euros | |||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
NET INCOME RECOGNISED DIRECTLY IN EQUITY | 1,188,041 | 415,589 | 45,739 | 1,188,041 | 415,589 | ||||||||||
Available-for-sale financial assets | 682,651 | 642,754 | 352,788 | 682,651 | 642,754 | ||||||||||
Revaluation gains/losses | 1,478,792 | 1,963,264 | 1,294,598 | 1,478,792 | 1,963,264 | ||||||||||
Amounts transferred to income statement | (428,560 | ) | (974,412 | ) | |||||||||||
Amounts removed to income statement | (1,120,591 | ) | (428,560 | ) | (974,412 | ) | |||||||||
Income tax | (367,581 | ) | (346,098 | ) | 178,781 | (367,581 | ) | (346,098 | ) | ||||||
Reclassifications | — | — | |||||||||||||
Other financial liabilities at fair value | — | — | — | — | — | ||||||||||
Revaluation gains/losses | — | — | — | — | — | ||||||||||
Amounts transferred to income statement | — | — | |||||||||||||
Amounts removed to income statement | — | — | — | ||||||||||||
Income tax | — | — | — | — | — | ||||||||||
Reclassifications | — | — | |||||||||||||
Cash flow hedges | (77,762 | ) | (38,722 | ) | 119,397 | (77,762 | ) | (38,722 | ) | ||||||
Revaluation gains/losses | (119,634 | ) | (59,572 | ) | 181,835 | (119,634 | ) | (59,572 | ) | ||||||
Amounts transferred to income statement | — | — | |||||||||||||
Amounts transferred to the initial carrying amount of the hedged items | — | — | |||||||||||||
Amounts removed to income statement | — | — | — | ||||||||||||
Amounts removed to the initial carrying amount of the hedged items | — | — | — | ||||||||||||
Income tax | 41,872 | 20,850 | (62,438 | ) | 41,872 | 20,850 | |||||||||
Reclassifications | — | — | |||||||||||||
Hedges of net investments in foreign operations | (726,456 | ) | 282,895 | ||||||||||||
Hedges of net investment in foreign operations | 438,985 | (726,456 | ) | 282,895 | |||||||||||
Revaluation gains/losses | (1,117,625 | ) | 435,223 | 675,864 | (1,117,625 | ) | 435,223 | ||||||||
Amounts transferred to income statement | — | — | |||||||||||||
Amounts removed to income statement | — | — | — | ||||||||||||
Income tax | 391,169 | (152,328 | ) | (236,879 | ) | 391,169 | (152,328 | ) | |||||||
Reclassifications | — | — | |||||||||||||
Exchange differences | 1,309,608 | (471,338 | ) | (865,431 | ) | 1,309,608 | (471,338 | ) | |||||||
Translation gains/losses | 2,014,782 | (725,135 | ) | (1,328,448 | ) | 2,014,782 | (725,135 | ) | |||||||
Amounts transferred to income statement | — | — | |||||||||||||
Amounts removed to income statement | — | — | — | ||||||||||||
Income tax | (705,174 | ) | 253,797 | 463,017 | (705,174 | ) | 253,797 | ||||||||
Reclassifications | — | — | |||||||||||||
Non-current assets held for sale | — | — | — | — | — | ||||||||||
Revaluation gains | — | — | — | — | — | ||||||||||
Amounts transferred to income statement | — | — | |||||||||||||
Amounts removed to income statement | — | — | — | ||||||||||||
Income tax | — | — | — | — | — | ||||||||||
Reclassifications | — | — | |||||||||||||
CONSOLIDATED INCOME FOR THE YEAR | 4,070,572 | 3,108,209 | 4,971,035 | 4,070,572 | 3,108,209 | ||||||||||
Published consolidated income for the year | 4,070,572 | 3,108,209 | 4,971,035 | 4,070,572 | 3,108,209 | ||||||||||
Adjustments due to changes in accounting policy (*) | — | — | |||||||||||||
Adjustments made to correct errors (*) | — | — | |||||||||||||
Adjustments due to changes in accounting policy | — | — | — | ||||||||||||
Adjustments made to correct errors | — | — | — | ||||||||||||
TOTAL INCOME AND EXPENSES FOR THE YEAR | 5,258,613 | 3,523,798 | 5,016,774 | 5,258,613 | 3,523,798 | ||||||||||
Parent | 4,994,466 | 3,338,185 | |||||||||||||
Minority interests | 264,147 | 185,613 | |||||||||||||
Parent entity | 4,781,618 | 4,994,466 | 3,338,185 | ||||||||||||
Minority interest | 235,156 | 264,147 | 185,613 | ||||||||||||
MEMORANDUM ITEM: EQUITY ADJUSTMENTS ALLOCABLE TO PRIOR YEARS | — | — | — | — | — | ||||||||||
Due to changes in accounting policies | — | — | — | — | — | ||||||||||
• Shareholder’s Equity | — | — | |||||||||||||
• Valuation adjustments | — | — | |||||||||||||
• Minority interests | — | — | |||||||||||||
Stockholder’s Equity | — | — | — | ||||||||||||
Valuation adjustments | — | — | — | ||||||||||||
Minority interests | — | — | — | ||||||||||||
Due to errors | — | — | — | — | — | ||||||||||
• Shareholder’s Equity | — | — | |||||||||||||
• Valuation adjustments | — | — | |||||||||||||
• Minority interests | — | — | |||||||||||||
Stockholder’s Equity | — | — | — | ||||||||||||
Valuation adjustments | — | — | — | ||||||||||||
Minority interests | — | — | — |
The accompanying Notes 1 to 5962 and Exhibit 8.1Appendices I to VI are an integral part of the consolidated statement of changes in
consolidated equity (consolidated statement of recognized income and expense) for the year ended December 31, 2005.2006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED CASH FLOW STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 2006, 2005 AND 2004 (Notes
(Notes 1 to 5)
- Thousands of Euros -9)
2005 | 2004 | Thousands of Euros | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||
2006 | 2005 | 2004 | |||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES | |||||||||||||||
Consolidated profit for the year | 4,070,572 | 3,108,209 | 4,971,035 | 4,070,572 | 3,108,209 | ||||||||||
Adjustment to profit: | 4,354,633 | 3,251,332 | 4,596,678 | 4,354,633 | 3,251,332 | ||||||||||
Depreciation of tangible assets (+) | 361,042 | 363,312 | 382,890 | 361,042 | 363,312 | ||||||||||
Amortisation of intangible assets (+) | 87,650 | 84,894 | 89,308 | 87,650 | 84,894 | ||||||||||
Impairment losses (net) (+/-) | 854,327 | 958,194 | 1,503,549 | 854,327 | 958,194 | ||||||||||
Net provisions for insurance contract liabilities (+/-) | 1,274,283 | 413,744 | 995,999 | 1,274,283 | 413,744 | ||||||||||
Provision expense (net) (+/-) | 454,182 | 850,557 | 1,338,205 | 454,182 | 850,557 | ||||||||||
Gains/Losses on disposal of tangible assets (+/-) | (85,361 | ) | (80,424 | ) | (72,489 | ) | (85,361 | ) | (80,424 | ) | |||||
Gains/Losses on disposal of investments (+/-) | (28,406 | ) | (308,383 | ) | |||||||||||
Gains/Losses on disposal of investment (+/-) | (934,288 | ) | (28,406 | ) | (308,383 | ) | |||||||||
Share of profit or loss of entities accounted for using the equity method (net of dividends) (+/-) | (121,495 | ) | (97,040 | ) | (307,648 | ) | (121,495 | ) | (97,040 | ) | |||||
Taxes (+/-) | 1,521,181 | 1,028,631 | 2,059,301 | 1,521,181 | 1,028,631 | ||||||||||
Other non-monetary items (+/-) | 37,230 | 37,847 | (458,149 | ) | 37,230 | 37,847 | |||||||||
Adjusted profit | 8,425,205 | 6,359,541 | 9,567,713 | 8,425,205 | 6,359,541 | ||||||||||
Net increase/decrease in operating assets | (55,959,375 | ) | (30,388,985 | ) | (20,293,306 | ) | (55,959,375 | ) | (30,388,986 | ) | |||||
Financial assets held for trading | 3,330,819 | (10,299,383 | ) | (7,823,349 | ) | 3,330,819 | (10,299,383 | ) | |||||||
Loans and advances to credit institutions | — | — | — | — | — | ||||||||||
Money market operations through counterparties | — | — | — | — | — | ||||||||||
Loans and advances to other debtors | — | — | — | — | — | ||||||||||
Debt securities | 5,893,072 | (1,731,181 | ) | (5,967,035 | ) | 5,893,072 | (1,731,181 | ) | |||||||
Other equity instruments | (554,470 | ) | (3,661,105 | ) | (3,703,192 | ) | (554,470 | ) | (3,661,105 | ) | |||||
Trading derivatives | (2,007,783 | ) | (4,907,097 | ) | 1,846,878 | (2,007,783 | ) | (4,907,097 | ) | ||||||
Other financial assets at fair value through profit or loss | (361,763 | ) | (102,013 | ) | 444,139 | (361,763 | ) | (102,013 | ) | ||||||
Loans and advances to credit institutions | — | — | — | — | — | ||||||||||
Money market operations through counterparties | — | — | — | — | — | ||||||||||
Loans and advances to other debtors | — | — | — | — | — | ||||||||||
Debt securities | (224,145 | ) | (58,771 | ) | 227,374 | (224,145 | ) | (58,771 | ) | ||||||
Other equity instruments | (137,618 | ) | (43,242 | ) | 216,765 | (137,618 | ) | (43,242 | ) | ||||||
Available-for-sale financial assets | (4,024,366 | ) | (271,581 | ) | 18,345,927 | (4,024,366 | ) | (271,582 | ) | ||||||
Debt securities | (5,998,254 | ) | 2,280,133 | 19,006,148 | (5,998,254 | ) | 2,280,133 | ||||||||
Other equity instruments | 1,973,888 | (2,551,715 | ) | (660,221 | ) | 1,973,888 | (2,551,715 | ) | |||||||
Loans and receivables | (54,290,431 | ) | (21,282,492 | ) | (34,041,410 | ) | (54,290,431 | ) | (21,282,492 | ) | |||||
Loans and advances to credit institutions | (10,773,069 | ) | 4,206,274 | 6,983,780 | (10,773,069 | ) | 4,206,274 | ||||||||
Money market operations through counterparties | 241,999 | 157,998 | (100,052 | ) | 241,999 | 157,998 | |||||||||
Loans and advances to other debtors | (46,158,632 | ) | (25,208,703 | ) | (40,347,544 | ) | (46,158,632 | ) | (25,208,703 | ) | |||||
Debt securities | 3,204,972 | 710,578 | 2,214,603 | 3,204,972 | 710,578 | ||||||||||
Other financial assets | (805,701 | ) | (1,148,639 | ) | (2,792,197 | ) | (805,701 | ) | (1,148,639 | ) | |||||
Other operating assets | (613,634 | ) | 1,566,484 | 2,781,387 | (613,634 | ) | 1,566,484 | ||||||||
Net increase/decrease in operating liabilities | 53,544,980 | 27,562,514 | |||||||||||||
Financial liabilities held for trading | 2,136,452 | 7,786,360 | |||||||||||||
Deposits from credit institutions | — | — | |||||||||||||
Money market operations through counterparties | — | — | |||||||||||||
Deposits from other creditors | — | — | |||||||||||||
Debt certificates (including bonds) | — | — | |||||||||||||
Trading derivatives | 1.059.732 | 7.918.086 | |||||||||||||
Short positions | 1,076,720 | (131,726 | ) |
2005 | 2004 | Thousands of Euros | |||||||||||||||
(Continuation) | 2006 | 2005 | 2004 | ||||||||||||||
Net increase/decrease in operating liabilities | 13,543,414 | 53,544,980 | 27,562,514 | ||||||||||||||
Financial liabilities held for trading | (1,347,331 | ) | 2,136,452 | 7,786,360 | |||||||||||||
Deposits from credit institutions | — | — | — | ||||||||||||||
Money market operations through counterparties | — | — | — | ||||||||||||||
Deposits from other creditors | — | — | — | ||||||||||||||
Debt certificates | — | — | — | ||||||||||||||
Trading derivatives | (643,990 | ) | 1,059,732 | 7,918,086 | |||||||||||||
Short positions | (703,341 | ) | 1,076,720 | (131,726 | ) | ||||||||||||
Other financial liabilities at fair value through profit or loss | (94,262) | (123,127 | ) | (157,551 | ) | (94,262 | ) | (123,127 | ) | ||||||||
Deposits from credit institutions | — | — | — | — | — | ||||||||||||
Deposits from other creditors | (94,262) | (123,127 | ) | (157,551 | ) | (94,262 | ) | (123,127 | ) | ||||||||
Debt certificates (including bonds) | — | — | |||||||||||||||
Debt certificates | — | — | — | ||||||||||||||
Financial liabilities at fair value through equity | — | — | — | — | — | ||||||||||||
Deposits from credit institutions | — | — | — | — | — | ||||||||||||
Deposits from other creditors | — | — | — | — | — | ||||||||||||
Debt certificates (including bonds) | — | — | |||||||||||||||
Debt certificates | — | — | — | ||||||||||||||
Financial liabilities measured at amortised cost | 51,218,706 | 22,047,117 | 17,799,111 | 51,218,706 | 22,047,117 | ||||||||||||
Deposits from central banks | Deposits from central banks | 1,031,331 | (723,613 | ) | (5,976,242 | ) | 1,031,331 | (723,613 | ) | ||||||||
Deposits from credit institutions | Deposits from credit institutions | 1,308,632 | 5,552,861 | (2,682,765 | ) | 1,308,632 | 5,552,861 | ||||||||||
Money market operations through counterparties | Money market operations through counterparties | (634,752 | ) | 514,759 | 200,000 | (634,752 | ) | 514,759 | |||||||||
Deposits from other creditors | Deposits from other creditors | 31,823,914 | 5,315,333 | 9,694,138 | 31,823,914 | 5,315,333 | |||||||||||
Debt certificates (including bonds) | 16,555,131 | 10,502,918 | |||||||||||||||
Debt certificates | 15,972,773 | 16,555,131 | 10,502,918 | ||||||||||||||
Other financial liabilities | Other financial liabilities | 1,134,450 | 884,859 | 591,207 | 1,134,450 | 884,859 | |||||||||||
Other operating liabilities | Other operating liabilities | 284,084 | (2,147,836 | ) | (2,750,815 | ) | 284,084 | (2,147,836 | ) | ||||||||
Total net cash flows from operating activities (1) | 6,010,810 | 3,533,071 | 2,817,821 | 6,010,810 | 3,533,069 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | (4,190,926) | (2,104,591 | ) | (2,740,766 | ) | (4,190,926 | ) | (2,104,591 | ) | ||||||||
Investments (-) | (4,832,207) | (3,363,952 | ) | ||||||||||||||
Investment (-) | (5,121,070 | ) | (4,832,207 | ) | (3,363,952 | ) | |||||||||||
Group entities, jointly controlled entities and associates | (84,491) | (403,094 | ) | (1,708,382 | ) | (84,491 | ) | (403,094 | ) | ||||||||
Tangible assets | (1,487,654) | (635,335 | ) | (1,214,160 | ) | (1,487,654 | ) | (635,335 | ) | ||||||||
Intangible assets | (1,375,290) | (99,917 | ) | (252,580 | ) | (1,375,290 | ) | (99,917 | ) | ||||||||
Held-to-maturity investments | (1,884,772) | (2,225,606 | ) | (1,945,948 | ) | (1,884,772 | ) | (2,225,606 | ) | ||||||||
Other financial assets | — | — | — | — | — | ||||||||||||
Other assets | — | — | — | — | — | ||||||||||||
Divestments (+) | 641,281 | 1,259,361 | 2,380,304 | 641,281 | 1,259,361 | ||||||||||||
Group entities, jointly controlled entities and associates | 10,676 | 488,339 | 1,759,082 | 10,676 | 488,339 | ||||||||||||
Tangible assets | 509,380 | 644,861 | 501,264 | 509,380 | 644,861 | ||||||||||||
Intangible assets | 121,225 | 126,161 | 119,958 | 121,225 | 126,161 | ||||||||||||
Held-to-maturity investments | — | — | — | — | — | ||||||||||||
Other financial assets | — | — | — | — | — | ||||||||||||
Other assets | — | — | — | — | — | ||||||||||||
Total net cash flows from investing activities (2) | (4,190,926) | (2,104,591 | ) | ||||||||||||||
Total net cash flows investing activities (2) | (2,740,766 | ) | (4,190,926 | ) | (2,104,591 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | (555,819) | 507,462 | 887,480 | (555,819 | ) | 507,462 | |||||||||||
Issuance/Redemption of capital (+/-) | — | 1,998,750 | |||||||||||||||
Issuance/ Redemption of capital (+/-) | 2,938,600 | — | 1,998,750 | ||||||||||||||
Acquisition of own equity instruments (-) | (3,839,510) | (3,220,752 | ) | (5,677,433 | ) | (3,839,510 | ) | (3,220,752 | ) | ||||||||
Disposal of own equity instruments (+) | 3,779,037 | 3,266,937 | 5,639,506 | 3,779,037 | 3,266,937 | ||||||||||||
Issuance/Redemption of non-voting equity units (+/-) | — | — | |||||||||||||||
Issuance/Redemption of other equity instruments (+/-) | — | — | (34,668 | ) | — | — | |||||||||||
Issuance/Redemption of capital having the nature of a financial liability (+/-) | — | — | |||||||||||||||
Issuance/Redemption of subordinated liabilities (+/-) | 1,387,248 | 1,030,243 | |||||||||||||||
Issuance/Redemption of subordinated liabilities(+/-) | 103,970 | 1,387,248 | 1,030,243 | ||||||||||||||
Issuance/Redemption of other long-term liabilities (+/-) | — | — | — | — | — | ||||||||||||
Increase/Decrease in minority interests (+/-) | 233,951 | (1,179,625 | ) | ||||||||||||||
Dividends/Interest paid (-) | (1,595,222) | (1,349,369 | ) | ||||||||||||||
Increase/Decrease in minority interest (+/-) | (168,009 | ) | 233,951 | (1,179,625 | ) | ||||||||||||
Dividends paid (-) | (1,914,486 | ) | (1,595,222 | ) | (1,349,369 | ) | |||||||||||
Other items relating to financing activities (+/-) | (521,323) | (38,722 | ) | — | (521,323 | ) | (38,722 | ) | |||||||||
Total net cash flows from financing activities (3) | (555,819) | 507,462 | 887,480 | (555,819 | ) | 507,462 | |||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH OR CASH EQUIVALENTS (4) | 929,971 | 77,273 | (785,267 | ) | 929,971 | 77,273 | |||||||||||
NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (1+2+3+4) | 2,194,036 | 2,013,215 | 179,268 | 2,194,036 | 2,013,213 | ||||||||||||
Cash or cash equivalents at beginning of year | 10,123,090 | 8,109,875 | 12,317,126 | 10,123,090 | 8,109,304 | ||||||||||||
Cash or cash equivalents at end of year | 12,317,126 | 10,123,090 | 12,496,394 | 12,317,126 | 10,122,517 | ||||||||||||
The accompanying Notes 1 to 5962 and Exhibit 8.1Appendices I to VI are an integral part of the consolidated cash flow statement for the year ended December 31, 2005.2006.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 20052006
1. Introduction, basis of presentation of the consolidated financial statements at December 31, 2005 and other informationINTRODUCTION, BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
1.1. IntroductionINTRODUCTION
Banco Bilbao Vizcaya Argentaria, S.A. (“the Bank” or “BBVA”) is a private-law entity governed by the rules and regulations applicable to banks operating in Spain. The Bank conductsleads its business through branches and offices located throughout Spain and abroad.
The articlesbylaws of association and other public information on the Bank can be consulted both at its registered office (Plaza San Nicolás, 4, Bilbao) and on its official website, www.bbva.com.
In addition to the operations carried on directly by it, the Bank is the head of a group of subsidiaries, jointly controlled entities and associates that engage in various business activities and which compose, together with the Bank, the Banco Bilbao Vizcaya Argentaria Group (“the Group” or “BBVA Group”). Therefore, the Bank is obliged to prepare, in addition to its own financial statements, the Group’s consolidated financial statements.
As of December 31, 2006 the Group was composed by 304 entities that were fully consolidated, 6 were consolidated by the proportionate method and 58 entities accounted for using the equity method (Notes 4 and 18 and appendix I to III of the present consolidated financial statements).
The Group’s consolidated financial statements for 20042005 were approved by the shareholders at the Bank’s Annual General Meeting on February 26, 2005. March 18, 2006.
The 20052006 consolidated financial statements of the Group and the 20052006 financial statements of the Bank and of substantially all the Group companies have not yet been approved by their shareholders at the respective Annual General Meetings. However, the Bank’s Board of Directors considers that the aforementioned financial statements will be approved without any changes.
1.2. Basis of presentation of the consolidated financial statementsBASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
Under Regulation (EC) no 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with the International Financial Reporting Standards previously adopted by the European Union (“EU-IFRSs”). Therefore, the Group is required to prepare its consolidated financial statements for the year endingended December 31, 20052006 in conformity with the EU-IFRSs ratified by the European Union at that date.EU-IFRSs.
In order to adapt the accounting system of Spanish credit institutions to the new standards, the Bank of Spain issued Circular 4/2004 of December 22, December 2004 on Public and Confidential Financial Reporting Rules and Formats.
The BBVA Group’s consolidated financial statements of 2005for 2006 were prepared by the Bank’s directors (at the Board Meeting on February 10, 2006)12, 2007) in accordance with EU-IFRSs, taking into account best practices of Bank of Spain Circular 4/2004, and by applying the basis of consolidation, accounting policies and measurement bases described in Note 2, so that they present fairly the Group’s equity and financial position at 31 December 2005,2006, and the results of its operations, the changes in consolidated equity and the consolidated cash flows in 2005.2006. These consolidated financial statements were prepared on the basis of the accounting records kept by the Bank and by each of the other Group companies and include the adjustments and reclassifications required to unify the accounting policies and measurement bases used by the Group (Note 2.2).
All accounting policies and measurement bases with a significant effect on the consolidated financial statements were applied in their preparation.
1.3. ComparativeCOMPARATIVE INFORMATION
The information relating to 2005 and 2004 contained in these notes to the consolidated financial statements is presented, solely for comparison purposes, with information relating to 2006 and, accordingly, it does not constitute the Group’s statutory consolidated financial statements for 2005 and 2004.
The consolidated financial statements for the year ended December 31, 2005 arewere the first to have been prepared in accordance with EU-IFRSs; these standards entail, with respect to the rules in force (Bank of Spain Circular 4/1991) when the
Group’s consolidated financial statements for 2004 were prepared, significant changes in the accounting policies, measurement bases and presentation of the financial statements making up the annual financial statements. The main effects of the adaptation to EU-IFRSs and the Bank of Spain Circular 4/2004 are explained in Note 3.
The information relating to 2004 contained in these notes to the consolidated financial statements is presented, solely for comparison purposes, with information relating to 20053 and accordingly, it does not constitute the Group’s statutory consolidated financial statements for 2004.Appendix VI.
1.4. Responsibility for the information and for the estimates madeRESPONSIBILITY FOR THE INFORMATION AND FOR THE ESTIMATES MADE
The information in these BBVA Group consolidated financial statements is the responsibility of the Group’s directors. In preparing these consolidated financial statements estimates were occasionally made by the GroupBank and the consolidated companies in order to quantify certain of the assets, liabilities, income, expenses and commitments reported herein. These estimates relate mainly to the following:
The impairment losses on certain assets.financial assets (Notes 13, 14, 15 y 18).
The assumptions used in the actuarial calculation of the post-employment benefit liabilities and commitments (Note 2.2.f)29).
The useful life of tangible and intangible assets.assets (Notes 20 and 21).
The measurement of goodwill arising on consolidation (Note(Notes 18 and 21).
The fair value of certain unquoted assets.assets (Note 13).
Although these estimates were made on the basis of the best information available atas of December 31, 20052006 on the events analysed, events that take place in the future might make it necessary to change these estimates (upwards or downwards) in coming years.
1.5. Environmental impactENVIRONMENTAL IMPACT
AtAs of December 31, 20052006 the Group’s consolidated financial statements did not disclose any item that should be included in the environmental information document envisaged in the related Ministry of the Economy Order dated October 8, 2001.
1.6. Detail of agents of credit institutionsDETAIL OF AGENTS OF CREDIT INSTITUTIONS
The detail of BBVA agents de BBVA required pursuant to Article 22 of Royal Decree 1245/1995 of 14 July of the Ministry of Economy and Finance is includeddisclosed in the BBVA financial statements offor the Bank.year ended December 31, 2006.
1.7. Report on the activity of the Customer Care Department and the Customer OmbudsmanREPORT ON THE ACTIVITY OF THE CUSTOMER CARE DEPARTMENT AND THE CUSTOMER OMBUDSMAN
The report on the activity of the Customer Care Department and the Customer Ombudsman required pursuant to Article 17 of Ministry of Economy and Finance Order ECO/734/2004 of 11 March is included in the management report of the Group.accompanying these consolidated financial statements.
1.8. Minimum capitalCAPITAL RATIOS
Law 13/1992 of June 1, 1992 and Bank of Spain Circular 5/1993 and subsequent amendments thereto regulate the minimum capital requirements for Spanish credit institutions – both as individual entities and as consolidated groups – and the manner in which these capital requirements are to be calculated.
AtAs of December 31, 2006, 2005 and 2004 the Group’s qualifying capital exceeded the minimum required under the aforementioned legislation.legislation (Note 36).
2. Basis of consolidation, accounting policies and measurement bases appliedBASIS OF CONSOLIDATION, ACCOUNTING POLICIES AND MEASUREMENT BASES APPLIED
2.1. Basis of consolidationBASIS OF CONSOLIDATION
a) SubsidiariesSUBSIDIARIES
The Parent’sparent company subsidiaries are included in the BBVA Group consolidated financial statements using the full consolidation method. “Subsidiaries” are defined as entities over which the Group has the capacity to exercise control, taken to be the power to govern the financial and operating policies of an entity so as to obtain benefitsprofits from its activities, is, in general but not exclusively, presumed to exist when the Parentparent company owns directly or indirectly, ofmore than half or more of the voting power of the investee or, even if this percentage is lower or zero, when, for example, there are agreements with other shareholders of the investee that give the Group control.
In this connection, there are several companies forming part of the BBVA Banco Continental (Peru) Group which, although less than 50% owned by the Group, are fully consolidated because the agreements entered into with the other shareholders give the Group effective control. These companies are Banco Continental, S.A. (parent), Continental Bolsa, S.A.B., Continental, S.A. Sociedad Administradora de Fondos, Continental Sociedad Titulizadora and Inmuebles y Recuperaciones Continental. Similarly, Banco Provincial Overseas, N,V,N.V. is fully consolidated since the Group has effective control due to theits 48% ownership of Group of 48% overinterest in Inversiones Banpro International Inc. N.V., which it owns 100% of this bank.Banco Provincial Overseas N.V.
For the mentioned entities, the percentage of ownership and voting rights of the Group is as follows as of December 31, 2006:
COMPANY | % Voting Rights | % Ownership | ||
Banco Continental, S.A. | 92.08 | 46.04 | ||
Continental Bolsa, Sociedad Agente de Bolsa, S.A. | 100 | 46.04 | ||
Continental Sociedad Titulizadora, S.A. | 100 | 46.04 | ||
Continental S.A. Sociedad Administradora de Fondos | 100 | 46.04 | ||
Inmuebles y Recuperaciones Continental, S.A. | 100 | 46.04 | ||
Banco Provincial Overseas N.V. | 100 | 48.01 |
The financial statements of the subsidiaries are fully consolidated with those of the Bank. Accordingly, all material balances and effects of the transactions between consolidated companies were eliminated on consolidation. Since the accounting policies and measurement bases used in preparing the Group’s consolidated financial statements atas of December 31, 20052006 may differ from those used by certain Group companies, the required adjustments and reclassifications were made on consolidation to unify the policies and bases used and to make them compliant with EU-IFRSs.
The share of third parties in the Group’s equity is presented under the heading Minority Interests“Minority Interests” in the consolidated balance sheet and their share in the profit or loss for the year is presented under the heading Income“Income Attributed to Minority InterestsInterests” in the consolidated income statement (Note 29)30).
The results of subsidiaries acquired during the year are included in the consolidated income statement from the date of acquisition to year-end, similarly, the results of subsidiaries disposed of during the year are included in the consolidated income statement from the beginning of the year to the date of disposal.
Note 4 contains information on the most significant investments and divestments in subsidiaries that took place in 2006, 2005 and 2004.
Appendix I includes the salientmost significant information on these companies.
b) Jointly controlled entitiesJOINTLYCONTROLLEDENTITIES
“JointlyA “Jointly controlled entities” areentity” is defined as entitiesan entity that, arealthough not subsidiaries but which arebeen subsidiary, is controlled jointly by two or more unrelated entities; they form part ofentities (“ventures”) that, following the definition of “joint ventures”, which are deemed to exist when two or more entities (“venturers”) are bound by a contractual agreement that establishes joint control.to take on an economic activity by sharing the strategic management tasks (both financial and operational) of the “jointly controlled entity” in order to benefit from its operations. All the strategic financial and operating decisions require the unanimous consent of the ventures.
EU-IFRSs envisage two methods for the recognition of jointly controlled entities: the equity method and the proportionate consolidation method. Under the proportionate consolidation method, the aggregation of balances and subsequent eliminations are only made in proportion to the Group’s ownership interest in the capital of these entities. The assets and liabilities assigned by the Group to jointly controlled operations and the Group’s share of the jointly controlled assets are recognised in the consolidated balance sheet classified according to their specific nature. Similarly, the Group’s share of the income and expenses of joint ventures is recognised in the consolidated income statement on the basis of their nature. ThisAs of December 31, 2006 this method was applied to the following entities: Advera, S.A., Holding de Participaciones Industriales 2000, S.A. and, PSA Finance Argentina Compañía Financiera, S.A., Ecasa, S.A., Forum Distribuidora, S.A., Darby – BBVA Latin American Investors, Ltd. and Forum Servicios Financieros, S.A.
Since the accounting policies and measurement bases used in preparing the Group’s consolidated financial statements atas of December 31, 20052006 may differ from those used by certain Group companies, the required adjustments and reclassifications were made on consolidation to unify the policies and bases used and to make them compliant with EU-IFRSs.
Appendix II includes the salientmost significant information on these companies.
The Group opted to value its ownership interests in certain jointly controlled entities using the equity method, since it considered that this better reflected the financial situation of these holdings; this decision did not have a material economic impact on the margins in the consolidated income statement in 2005 and 2004.
holdings. The joint ventures that the Group accounted for using the equity method atas of December 31, 2005,2006, are listed in Appendix III.
Had these entities been proportionately consolidated, by the proportionate consolidation method, the Group’s total assets atas of December 31, 2006, 2005 and 2004, would have increased by approximately EUR 779,776€1,017,007 thousand, €777,699 thousand and EUR 747,802€727,679 thousand, respectively.
At December 31, 2004, in addition torespectively; this decision did not have a material economic impact on the companies referred toitems in the preceding paragraph, the joint ventures Azeler Automoción, S.A.consolidates income statements for 2006, 2005 and Iniciativas Residenciales en Internet, S.A. were recognised as joint ventures that were accounted for using the equity method (Note 18.2).
c) AssociatesASSOCIATES
“Associates” are defined as entities over which the Group is in a position to exercise significant influence, but not control. Significant influence is presumed to exist when the Group owns directly or indirectly 20% or more of the voting power of the investee.
However, certain entities in which the Group owns 20% or more of the voting rights are not included as Group associates, since it is considered that the Group does not have the capacity to exercise significant influence over these entities. The investments in these entities, which do not represent material amounts for the Group, are classified as available-for-sale investments.
Banca Nazionale del Lavoro, S.p.A., the Italian entity in which the Group held a 14.427% ownership interest at December 31, 2005 and a 14.639% ownership interest at December 31, 2004, was considered to be an associate because the Group has the capacity to exercise a significant influence over this entity, basically as a result of the related shareholders’ agreement (Note 18.1).
Investments in associates are accounted for using the equity method, i.e. at the Group’s share of net assets of the investee, after taking into account the dividends received therefromthere from and other equity eliminations.
Since the accounting policies and measurement bases used in preparing the Group’s consolidated financial statements atas of December 31, 20052006 may differ from those used by certain associates, the required adjustments and reclassifications were made on consolidation to unify the policies and bases used and to make them compliant with EU-IFRSs.
Appendix III contains the salientsignificant information on the associates.
d) INFORMATION ABOUT ASSOCIATES AND JOINTLY CONTROLLED ENTITIES BY THE PROPORTIONATE CONSOLIDATION METHOD
The following table provides significant information regarding the most relevant associates and jointly controlled entities (see Note 18 and Appendix III) as of December 31, 2006, 2005 and 2004:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Net sales | 276,329 | 762,674 | 199,479 | |||
Operating Income | 317,492 | 158,606 | 331,669 | |||
Net Income | 282,393 | 121,752 | 274,363 | |||
Current Assets | 780,313 | 2,251,259 | 7,446,924 | |||
Non-current Assets | 432,748 | 11,815,458 | 12,557,183 | |||
Current Liabilities | 238,033 | 1,543,243 | 5,742,964 | |||
Non-current Liabilities | 975,029 | 12,523,475 | 14,261,143 |
(*) | Non audited information |
2.2. Accounting policies and measurement bases appliedACCOUNTING POLICIES AND MEASUREMENT BASES APPLIED
The accounting policies and measurement bases used in preparing these consolidated financial statements were as follows:
a) First-time adoption of International Financial Reporting Standards
IFRS-EU 1 sets forth the criteria that must be adopted when implementing EU-IFRSs for the first time. These criteria are contained in Transitional Provision One of Bank of Spain Circular 4/2004.
In accordance with these standards, companies are required to prepare an opening EU-IFRS balance sheet at January 1, 2004. The accounting policies used in the opening balance sheet may differ from those applied in accordance with the previous accounting rules, and the adjustments resulting from these differences in criteria will, as a general rule, be recognised directly in reserves (retained earnings).
Additionally, IFRS-EU 1 describes the exemptions from the general accounting criteria contained in the EU-IFRSs for the preparation of the opening balance sheet. The main criteria used by the Group in preparing the opening balance sheet are indicated in Note 3 in the section entitled “Main effects of adaptation to International Financial Reporting Standards (IFRSs)”.
b) Fair valueFAIRVALUE
The fair value of an asset or a liability on a given date is taken to be the amount for which it could be bought or sold on that date by two knowledgeable, independent parties in an arm’s length transaction acting prudently. The most objective and common reference for the fair value of an asset or a liability is the price that would be paid for it on an organised, transparent and deep market (“quoted price” or “market price”).
If there is no market price for a given asset or liability, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, by using mathematical measurement models sufficiently tried and trusted by the international financial community. Such estimates would take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent to the measurement models developed and the possible inaccuracies of the assumptions required by these models may signify that the fair value of an asset or liability thusthat is estimated does not coincide exactly with the price for which the asset or liability could be purchased or sold on the date of its measurement.
c) Financial instrumentsb) FINANCIALINSTRUMENTS
c.1)b.1) Classification
Financial assets/liabilities held for trading:trading: these include the financial assets and liabilities acquired with the intention of generating a profit from short-term fluctuations in their prices or from differences between their purchase and sale prices.
These headings also include financial derivatives not considered to qualify for hedge accounting and, in the case of financial liabilities held for trading, the financial liabilities arising from the outright sale of financial assets purchased under reverse repurchase agreements or borrowed (“short positions”).
Other financial assets and financial liabilities at fair value through profit or loss:loss the: this heading Other Financial Assets at Fair Value through Profit or Loss includes the financial assetsinclude, among others, those are not held for trading that:but are:
Assets and liabilities which have the nature of hybrid financial assets and liabilities and contain an embedded derivative whose fair value cannot reliably be determined, or
Financial assets that are managed jointly with “liabilities under insurance contracts” measured at fair value, with financial derivatives whose purpose and effect is to significantly reduce exposure to changes in fair value, or with financial liabilities and derivatives whose purpose is to significantly reduce overall interest rate risk exposure,exposure.
The heading Other Financial Liabilities at Fair Value through Profit or Loss includes the financial liabilities not held for trading that are hybrid financial liabilities and contain an embedded derivative whose fair value cannot be reliably estimated.
Financial instruments involved in this category are permanently subject to an integrated and consistent system of measuring, managing and controlling risks and profitprofits or loss that enables all the financial instruments involved to be monitored and identified and allows the effective reduction of risk to be checked.
These headings include both the investment and customer deposits through unit-linked life insurance policies (inin which the policyholder assumes the investment risk)risk (named “Unit-links”).
Available-for-sale financial assets:assets: these include debt securities not classified as held-to-maturity investments“held-to-maturity investments” or as financial“financial assets at fair value through profit or loss,loss”, and equity instruments issued by entities other than subsidiaries, associates and those jointly controlled, provided that such instruments have not been classified as held“held for tradingtrading” or as other“other financial assets at fair value through profit or loss.loss”.
Loans and receivables:receivables: this heading relates to the financing granted to third parties, classified on the basis of the nature thereof, irrespective of the nature of the borrower and the form of financing granted, and includes finance leases in which consolidated companies act as lessors.
The consolidated companies generally intend to hold the loans and credits granted by them until their final maturity; therefore, they are presented in the consolidated balance sheet at their amortised cost (which includes any corrections required to reflect the estimated losses on their recovery).
Held-to-maturity investments:investments: this heading includes debt securities for which the Group, from inception and at any subsequent date, has the intention to hold until final maturity, since it has the financial capacity to do so.
Financial liabilities at fair value through equity:equity: these include financial liabilities associated with available-for-sale financial assets arising as a result of a transfer of financial assets in which the transferor neither transfers nor retains substantially all the risks and rewards of ownership of the assets.its control.
Financial liabilities at amortised cost:cost: this heading includes, irrespective of their instrumentation and maturity, the financial liabilities not included in any other heading in the consolidated balance sheet which relate to the typical deposit-taking activities carried on by financial institutions.
Equity having the nature of a financial liability: this heading includes the liabilities issued by the consolidated entities which, although capital for legal purposes, do not meet the requirements for classification as equity. It also includes equity instruments issued by the consolidated entities that do not carry any voting rights.
c.2)b.2) Measurement
All financial instruments are initially recognised at fair value which, in the absence of evidence to the contrary, shall be the transaction price. These instruments will subsequently be measured on the basis of their classification. In the case of quoted financial instruments, fair value will be taken to be their market price. For unquoted financial instruments, fair value will be obtained using the valuation techniques customarily used in the market.
Financial assets:
Financial assets are measured at fair value, except for:
Loans and receivables,
Held-to-maturity investments, and
Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying and are settled by delivery of those instruments.
Loans and receivables and held-to-maturity investments are measured at amortised cost using the effective interest rate method. Amortised cost is understood to be the acquisition cost of a financial asset or liability minus principal repayments, plus or minus the systematic amortisation (as reflected in the income statements) of any difference between the initial cost and the maturity amount,amount. In the case of financial assets, amortised cost also includes any value adjustments for impairment.
The effective interest rate is the discount rate that exactly equates the carrying amount of a financial instrument to all its estimated cash flows of all kinds during its residual life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and commissions which, because of their nature, can be equated with a rate of interest. In the case of floating rate financial instruments, the effective interest rate coincides with the rate of return prevailing in all connections until the date on which the reference interest rate is to be revised for the first time.
Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying and are settled by delivery of those instruments are measured at acquisition cost adjusted, where appropriate, by any related impairment loss.
Financial liabilities:
Financial liabilities are measured at amortised cost, except for:
Those included under the headings Financial“Financial Liabilities Held for Trading, FinancialTrading”, “Financial Liabilities at Fair Value through Profit or LossLoss” and Financial“Financial Liabilities at Fair Value through EquityEquity” and the financial liabilities designated as hedged items in fair value hedges or as hedging instruments, which are all measured at fair value, andvalue.
Financial derivatives that have as their underlying equity instruments whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments; these derivatives are measured at cost.
c.3)Measurement of financial instruments at fair value
In 2006 most of the operations of Global Markets were measured at market value using benchmark prices published by independent market data sources, either by using the actual price of the financial instrument or by applying observable market variables to generate the fair value of the financial instruments (assets, liabilities and derivatives).
In most of the cases in which primary variables observed in the market were used rather than a direct observable price, financial models that are generally accepted and used in the markets were applied. In a limited number of cases, more sophisticated models were used, most of whose variables were objectively observable in the market.
In particular, equity and clearing house product prices, spot exchange rates, mutual funds and most fixed-income securities and credit default swaps, inter alia, can be directly observed and captured, whereas other fixed-income products, swaps, forwards, FRAs, etc. are valued by discounting cash flows using quoted interest rate curves.
Most options (financial instruments) are measured by applying commonly used valuation models, in which the observed volatility is included. The most frequently used models for equity and exchange rate options are the Monte Carlo model, the numerical integration method and the Black-Scholes model, whereas in the case of interest rate options, valuers resort mainly to the Black-Derman-Toy (BDT) model. The models are selected and validated by areas separate from the business.
Lastly, in more exceptional circumstances in which it is necessary to use an indirect market date (e.g. correlation), or in the event of shallow markets, the variable is inferred on the basis of direct market data in most cases, and of models based indirectly on market data in other cases (e.g. the Libor Market Model). However, the estimate is always made by an area separate from the business.
The following table presents the fair value of the principal financial instruments carried at fair value and the valuation methods used to determine it as of December 31, 2006:
Thousands of Euros | ||||||
Quoted market price | Market and non-market observable prices | Total | ||||
Financial assets | ||||||
Financial assets held for trading (Note 11) | 37,508,955 | 14,326,154 | 51,835,109 | |||
Other financial assets at fair value through profit and loss (Note 12) | 654,131 | 322,983 | 977,114 | |||
Available-for-sale financial assets (Note 13) | 30,361,050 | 11,905,724 | 42,266,774 | |||
Hedging derivatives (Note 16) | — | 1,963,320 | 1,963,320 | |||
Financial liabilities | ||||||
Financial liabilities held for trading (Note 11) | 1,774,552 | 13,148,982 | 14,923,534 | |||
Other financial liabilities at fair value through profit or loss (Note 24) | — | 582,537 | 582,537 | |||
Hedging derivatives (Note 16) | 6,342 | 2,273,398 | 2,279,740 |
As of December 31, 2006, the percentage of those financial instruments where the fair values were estimated using valuation techniques which are based in full or in part on assumptions that are not supported by observable market prices over total financial instruments’ fair value is 0.52%.
The potential effect of using reasonably possible alternative assumptions as inputs to valuation models, relying on non market-observable inputs, has been estimated as plus or minus €1.8 million.
b.3) Recognition of changes inarising from the measurement of financial assets and liabilities
Based on the classification of financial instruments, any changes in the carrying amounts of the financial assets and liabilities classified as held“held for tradingtrading” and as other“other financial assets and liabilities though profit or lossloss” are recognised with a balancing entry in the consolidated income statement. A distinction is made between the changes resulting from the accrual of interest and similar items, which are recorded under the headings Interest“Interest and Similar IncomeIncome” or Interest“Interest Expense and Similar Charges,Charges”, as appropriate, and those arising for other reasons, which are recorded at their net amount under the heading Gains“Gains or Losses on Financial Assets and LiabilitiesLiabilities” in the consolidated income statement.
Valuation adjustments arising on available-for-sale non-monetary financial assets are recognised temporarily under the heading Valuation“Valuation Adjustments - Available-for-Sale Financial Assets,Assets”, unless they relate to exchange differences, in which case they are recognised temporarily under the heading Valuation“Valuation Adjustments - Exchange Differences.Differences”.
ItemsThe amounts charged or credited to the headings Valuation“Valuation Adjustments - Available-for-Sale Financial AssetsAssets” and Valuation“Valuation Adjustments - Exchange DifferencesDifferences” remain in the Group’s consolidated equity until the asset giving rise to them is removed from the consolidated balance sheet, whereupon theythose amounts are charged or credited to the consolidated income statement.
Valuation adjustments arising on non-current assets held for sale and the liabilities associated with them are recognised with a balancing entry under the heading Valuation“Valuation Adjustments - Non-Current Assets Held for Sale.Sale”.
Valuation adjustments arising on financial liabilities at fair value through equity are recognised with a balancing entry under the heading Valuation“Valuation Adjustments - Financial Liabilities at Fair Value through Equity.Equity”.
In the specific case of financial instruments designated as hedged items or qualifying for hedge accounting (Note 2.2.e)2.2.d), valuation differences are recognised as follows:
In fair value hedges, the differences arising on both the hedging instruments and the hedged items – with regard to the type of risk being hedged – are recognised directly in the consolidated income statement.
In cash flow hedges and hedges of net investments in foreign operations, the valuation differences relating to the ineffective portion of the hedging transaction are recognised directly in the consolidated income statement.
In cash flow hedges, the valuation differences arising on the effective portion of the hedging instruments are recognised temporarily under the heading Valuation“Valuation Adjustments - Cash Flow Hedges.Hedges”.
In hedges of net investments in foreign operations, the valuation differences arising on the effective portion of the hedging instruments are recognised temporarily under the heading Valuation“Valuation Adjustments - Hedges of Net Investments in Foreign Operations.Operations”.
In the two last-mentioned cases, the valuation differences are not recognised in profit or loss until the gains or losses of the hedged item are recognised in the income statement or until the date of maturity of the hedged item.
In fair value portfolio hedges of interest rate risk, the gains or losses that arise on measuring the hedging instruments are recognised directly in the consolidated income statement, with a balancing entry under the heading “Hedging derivatives” on the assets or liability side of the consolidated balance sheet, whereas the gains or losses due to changes in the fair value of the hedged amount are recorded in the consolidated income statement with a balancing entry under the heading Changes“Changes in the Fair Value of the Hedged Items in Portfolio Hedges of Interest Rate RiskRisk” on the asset or liability side of the balance sheet, as appropriate.
In cash flow portfolio hedges of interest rate risk, the effective portion of the change in value of the hedging instrument is recognised temporarily under the heading Valuation“Valuation Adjustments - Cash Flow HedgesHedges” until the forecast transactions are performed, at which time it is recorded in the consolidated income statement. The ineffective portion of the change in value of hedging derivatives is recognised directly in the consolidated income statement.
c.4)b.4) Impairment
A financial asset is considered to be impaired – and therefore its carrying amount is adjusted to reflect the effect of its impairment – when there is objective evidence that events have occurred which:
In the case of debt instruments (loans and debt securities), give rise to a negative impact on the future cash flows that were estimated at the time the transaction was arranged.
In the case of equity instruments, mean that the carrying amount of these instruments cannot be recovered.
As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge to the consolidated income statement for the year in which the impairment becomes known, and the recoveries of previously recognised impairment losses are recognised in the consolidated income statement for the year in which the impairment is reversed or reduced.reduced, with the exception that any recovery of previously recognised impairment losses for an investment in an equity instrument classified as available for sale which are not recognised through consolidated profit or loss but recognised under the heading “Valuation Adjustments – Available for sale Financial Assets” in the consolidated balance sheet.
Balances are considered to be impaired, and accrual of the interest thereon is suspended, when there are reasonable doubts that the balances will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed upon, taking into account the guarantees received by the consolidated entities to assure (in part or in full) the performance of transactions. Amounts collected in relation to impaired loans and receivables are used to recognise the related accrued interest and any excess amount is used to reduce the principal not yet repaid.paid.
When the recovery of any recognised amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.
Debt instruments carried at amortised cost:
The amount of the impairment losses incurred on these instruments relates to the positive difference between their respective carrying amounts and the present values of their expected future cash flows. However, the market value of quoted debt instruments is deemed to be a fair estimate of the present value of their future cash flows.
The following is to be taken into consideration when estimating the future cash flows of debt instruments:
All the amounts that are expected to be obtained over the residual life of the instrument; including, where appropriate, those which may result from the guarantees provided for the instrument (after deducting the costs required for foreclosure and subsequent sale),.
The various types of risk to which each instrument is subject, andsubject.
The circumstances in which collections will foreseeablyforeseeable be made.
These cash flows are subsequently discounted using the instrument’soriginal effective interest rate (if its contractual rate is fixed) or the effective contractualrate. If a financial instrument has a variable interest rate, at the discount date (if itrate for measuring any impairment loss is variable).the current effective rate determined under the contract.
The possible impairment losses on these assets are determined:
Individually, for all significant debt instruments and for those which, although not significant, cannot be classified in homogenous groups of instruments of similar characteristics, i.e. by instrument type, debtor’s industry and geographical location, type of guarantee, age of past-due amounts, etc.
Collectively, in all other cases.
Criteria for determining impairment losses resulting from materialization of the insolvency risk of the obligors have been established. Under these criteria, a debt instrument is impaired due to insolvency:
When there is evidence of a deterioration of the obligor’s ability to pay, either because it is in arrears or for other reasons, and/or
When country risk materialises; country risk is considered to be the risk associated with debtors resident in a given country due to circumstances other than normal commercial risk.
Similarly, different classifications of transactions hashave been established on the basis of the nature of the obligors, the conditions of the countries in which they reside, transaction status, type of associated guarantees, and time inage of the arrears, establishing for each of these risk groups it establishes the minimum impairment losses (“identified losses”) that must be recognised in the financial statements of consolidated entities.
In addition to the recognition of identified losses, it requires provisioning for the losses inherent into the risks classified as standard risk for the different categories of debt instruments not measured at fair value through profit or loss and in contingent risks classified as standard, taking into account the historical experience of impairment and the other circumstances known at the time of the assessment. For these purposes, inherent losses are the losses incurred at the date of the financial statements, calculated using statistical procedures that have not been allocated to specific transactions.
InherentImpairment losses are quantified by applying the parameters established by the Bank of Spain on the basis of its experience and of information on the Spanish banking industry.
Other debt instruments:
The impairment losses on debt securities included in the available-for-sale financial asset portfolio are equal to the positive difference between their acquisition cost (net of any principal repayment) and their fair value after deducting any impairment loss previously recognised in the consolidated income statement.
When there is objective evidence that the negative differences arising on measurement of these assets are due to impairment, they are no longer considered as Valuation“Valuation Adjustments - Available-for-Sale Financial AssetsAssets” and are recognised in the consolidated income statement. If all or part of the impairment losses are subsequently recovered, the amount is recognised in the consolidated income statement for the year in which the recovery occurred.
Similarly, in the case of debt instruments classified as non-current“non-current assets held for sale,sale”, losses previously recorded in equity are considered to be realised – and are recognised in the consolidated income statement – on the date the instruments are so classified.
Equity instruments measured at fair value:
The criteria for quantifying and recognising impairment losses on theseequity instruments are similar to those for other debt instruments, with the exception that any recovery of thesepreviously recognized impairment losses for an investment in an equity instrument classified as available for sale which are not recognised isthrough profit or loss but recognized under the heading Valuation Adjustments—Available-for-Sale“Valuation Adjustments – Available for sale Financial Assets.Assets” in the consolidated balance sheet.
Equity instruments measured at cost:
The impairment losses on equity instruments measured at acquisition cost are equal to the difference between their carrying amount and the present value of expected future cash flows discounted at the market rate of return for similar securities. These impairment losses are determined taking into account the equity of the investee (except for valuation adjustments due to cash flow hedges) perfor the last approved (consolidated) balance sheet, adjusted for the unrealised gains at the measurement date.
Impairment losses are recognised in the consolidated income statement for the year in which they arise as a direct reduction of the cost of the instrument. These losses may only be reversed subsequently in the event of the sale of the assets.
d) Recognition of income and expensesc) RECOGNITIONOFINCOMEANDEXPENSES
The most significant criteria used by the Group to recognise its income and expenses are summarised as follows:
Interest income and expenses and similar items:
As a general rule, interest income and expenses and similar items are recognised on the basis of their year of accrual using the effective interest method. Specifically, dividends received from other companies are recognised as income when the consolidated companies’ right to receive them arises.
However, when a debt instrument is deemed to be impaired individually or is included in a group of instruments that are impaired because of amounts more than three months past-due, the recognition of accrued interest in the consolidated income statement is interrupted. This interest is recognised for accounting purposes when it is received, as a recovery of the impairment loss.
Commissions, fees and similar items:
Income and expenses relating to commissions and similar fees are recognised in the consolidated income statement using criteria that vary according to their nature. The most significant income and expense items in this connection are:
Non-financial income and expenses:
These are recorded for accounting purposes on an accrual basis.
Deferred collections and payments:
These are recorded for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.
Loan arrangement fees and commissions:
The financial fees and commissions that arise on the arrangement of loans, basically origination and analysis fees must be deferred and recognised in the income statement over the life of the loan. The direct costs incurred in arranging these transactions can be deducted from the amount thus recognised. Also dividends received from other companies are recognised as income when the consolidated companies’ right to receive them arises.
However, when a debt instrument is deemed to be impaired individually or is included in the category of instruments that are impaired because of amounts more than three months past-due, the recognition of accrued interest in the consolidated income statement is interrupted. This interest is recognised for accounting purposes when it is received, as a recovery of the impairment loss.
e) Financial derivativesCommissions, fees and hedgesimilar items:
Income and expenses relating to commissions and similar fees are recognised in the consolidated income statement using criteria that vary according to their nature. The most significant income and expense items in this connection are:
Those relating linked to financial assets and liabilities measured at fair value through profit or loss, which are recognised when collected.
Those arising from transactions or services that are provided over a year of time, which are recognised over the life of these transactions or services.
Those relating to a single act, which are recognised when the single act is carried out.
Non-financial income and expenses:
These are recorded for accounting purposes on an accrual basis.
Deferred collections and payments:
These are recorded for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.
d) FINANCIALDERIVATIVESANDHEDGEACCOUNTING
Financial derivatives are instruments that permit the transfer to third parties of all or part of the credit and/or market risks associated with balances and transactions. The underlyingsunderlying used in these derivatives can be interest rates, specific indices, the prices of certain securities, cross-currency exchange rates or other similar references.
The holding of positions in derivatives is the result of the Group’s need to manage the risks incurred by it in the course of its normal business activities. Derivatives represent another of the tools available to the Group, and are necessary for the management of:
Market Risk: Positions taken by the Group mostly in order to satisfy its customers’ needs (franchise model). In most cases the derivatives used are: interest-rate derivatives, to manage the risks arising as a result of long- and short-term variations in interest rates; exchange-rate derivatives, to mitigate exposure to exchange-rate fluctuations; and equity security derivatives, to manage price risks.
Structural Interest-Rate Risk: Structural interest-rate risk is defined as an entity’s exposure to variations in market interest rates arising from mismatches in the maturity and repricing dates of the entity’s assets and liabilities, including derivatives. The Asset and Liability Committee (ALCO) is the body responsible for actively managing BBVA’s balance sheet in order to stabilize net interest income without prejudice to net asset value. Basically, the derivatives used to achieve this goal are interest-rate derivatives.
Structural Exchange-Rate Risk: An entity’s structural exchange-rate risk refers to the potential losses in the value of structural positions arising from variations in exchange rates. The Asset and Liability Committee (ALCO) is the body responsible for managing this risk, for which purpose it uses exchange- and interest-rate derivatives.
Credit Risk in market activities: this is the risk that one of the parties to the financial instrument over-the-counter (OTC) agreement will fail to honour its contractual obligations due to the insolvency or incapacity of the legal entities involved. Credit default swap are used to manage this risk.
All derivatives are recognisedrecognized in the balance sheet at fair value from the date of arrangement. If the fair value of a derivative is positive, it is recorded as an asset and if it is negative, it is recorded as a liability. Unless there is evidence to the contrary, it is understood that on the date of arrangement the fair value of the derivatives is equal to the transaction price. Changes in the fair value of derivatives after the date of arrangement are recognisedrecognized with a balancing entry under the heading “Gains or Losses on Financial Assets and Liabilities” in the consolidated income statement. Specifically, the fair value of the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price. If, under exceptional circumstances, their quoted price cannot be established on a given date, these derivatives are measured using methods similar to those used to measure over-the-counter (“OTC”) derivatives.
The fair value of OTC derivatives is equal to the sum of the future cash flows arising from the instrument, discounted at the measurement date (“present value” or “theoretical close”); these derivatives are measured using methods recognised by the financial markets, including the net present value (NPV) method and option price calculation models.
Financial derivatives that have as their underlying equity instruments, whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments, are measured at cost.
Hedge accounting
The Group, for risk management purposes, applies fair value hedge accounting, cash flow hedge accounting or hedging of a net investment in a foreign operation as appropriate to the risks being hedged.
A financial derivative may be considered as qualifying for hedge accounting only if it meets the following three conditions:
-
It must hedgeis designated as hedging item of one of the following three types of risk:
-
It must effectively eliminate a significant portion of the risk inherent in the hedged item or position over the expected term of the hedge, which means that:
At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”). and,
There is sufficient evidence that the hedge was fully effective during the whole life of the hedged item or position (“retrospective effectiveness”).
-
Lastly, there must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and the manner in which this hedge is expected to be achieved (provided that this is in line with the Group’s management of own risks).
Fair value hedge
The changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized in earnings. This type of hedging relationships hedge changes in the value of assets and liabilities due to fluctuations in the interest rate and/or exchange rate to which the position or balance to be covered.
The main transactions whose risks are hedged by fair value hedge are:
Available for sale fixed rate debt securities: this risk is hedged using interest-rate derivatives (interest-rate swaps through which the fixed-coupon of the bond is exchanged for a variable return).
Long term fixed rate debt issued: this risk is hedged using interest-rate derivatives (interest-rate swaps which replicate, on the collection leg, the payment resulting from the issue and transform it into a variable cost for the Bank).
Available for sale equity securities: this risk is hedged using equity swaps through which the risk of variation in the price per books of the portfolio is transferred to the counterparty.
Fixed rate loans: this risk is hedged using interest-rate derivatives (interest-rate swaps through which the fixed-coupon of the loans is exchanged for a variable return).
Cash flow hedge
The effective portions of changes in the fair value of the derivative are recorded in “Valuation adjustments-Cash Flow hedges” and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. In a cash flow hedge is hedged the changes in the estimated cash flows arising from financial assets and liabilities and highly probable transactions which an entity plans to carry out.
Most of the hedged items are floating interest rate loans: this risk is hedged using currency and interest rate swaps.
Net investment in a foreign operation hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. The gain or loss on a hedging derivative instrument that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is reported in the same way as a translation adjustment to the extent it is effective as a hedge. The ineffective portion of net investment hedges arranged byis reported in earnings.
Most of the Grouprisks hedged are fair value hedges.foreign currency of a net investment in a foreign subsidiary: the risk of a net investment in a foreign operation is exchanged for the currency in which the investment is denominated.
Portfolio hedge of interest rate risk
A portfolio hedge of interest rate risk is that which hedges the interest rate risk exposure of a certain amount of financial assets or financial liabilities forming part of the overall financial instrument portfolio, but not the interest rate risk exposure of specific instruments. Portfolio hedges can take the form of fair value or cash flow hedges.
The gains or losses arising from changes in the fair value of the interest rate risk of effectively financial instruments are charged or credited, as appropriate, to the heading Changes“Changes in the Fair Value of the Hedged Items in Portfolio Hedges of Interest Rate RiskRisk” on the asset or liability side of the consolidated balance sheet.
AtAs of December 31, 2006 and 2005, the Group had no portfolio hedge of interest rate risk operations.
f) Pension commitments and other commitmentsNote 16 presents additional information relating to employeeshedging derivatives.
1. Companies in Spain
1.1. Post-employment benefits:e) PENSIONCOMMITMENTSANDOTHERCOMMITMENTSTOEMPLOYEES
Following is a description of the most significant accounting criteria and the salient data relating to the commitments to employees, related to post-employment benefitbenefits and other commitments, of certain Group companies in Spain. These commitments includeSpain and abroad.
Commitments valuation: assumptions and gains/losses recognition.
The present values of the undertakingvested obligations are quantified on a case-by-case basis. The valuation method used for current employees is the projected unit credit method, which views each year of service as giving rise to supplementan additional unit of benefit entitlement and measures each unit separately.
As of December 31, 2006, 2005 and 2004, actuarial gains or losses arising from differences between the public social security benefitsactuarial assumptions and what had actually occurred, were recognized in the event of retirement, permanent disability or death; compensation and indemnities payable; and contributions to employee welfare systems for early retirees and post-employment welfare benefits.consolidated income statements. The Group did not use the corridor approach.
1.1.1. Public social security system benefit supplementPost-employment benefits.
Pensions.
Under the collective labourlabor agreement, in force, Spanish banks are required to supplement the social security benefits received by employees or their beneficiary rightholders in the event of retirement (except for those hired after 8 March 8, 1980), permanent disability, death of spouse or death of parent.
The employee welfare systems in place at the Group’s Spanish banks supersede and improve the terms and conditions of the collective labourlabor agreement for the banking industry; the commitments envisaged in the event of retirement, death and disability cover all employees, including those hired on or after March 8, 1980.
The Group’s Spanish banks externalisedof the Group externalized all their commitments to serving and retired employees pursuant to Royal Decree 1588/1999 of 15 October.October 15. These commitments are instrumented in Pension Plans, insurance contracts with a non-Group company and insurance contracts with BBVA Seguros, S.A. de Seguros y Reaseguros, which is 99.93%99.94% owned by the Banco Bilbao Vizcaya Argentaria Group. TheseThe externalized commitments with this insurance company owned by the Group are recognized in the heading “Provisions - Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets. They are measured using the criteria and assumptions as described in this note. Whereas, the balances of the assets assigned by the insurance company owned by the Group to the funding of commitments are recognized and measured in the accompanying consolidated balance sheets. They are measured using the criteria as described in the note 2.2.b) about “Financial instruments”.
On the other hand, the balances of the aforementioned insurance policies which were contracted with non-related insurance companies were disclosed net of the fair value of the assets assigned to the funding of commitments in the accompanying consolidated balance sheets.
Additionally, certain Group companies and some BBVA branches abroad, have post-employment benefit commitments to certain current and/or retired employees.
The previous employee welfare systems include defined contribution and defined obligation commitments.
Defined contribution commitments: the amounts of whichthese commitments are determined, on a case-by-case basis, as a percentage of certain remuneration items and/or as a pre-established annual amount. Defined benefit commitments are funded by insurance contracts and internal Group provisions.
Defined contribution commitments: theThe current contributions made by the Group’s Spanish companies for defined contribution retirement commitments covering substantially all current employees, which are recognisedrecognized with a charge to the heading Personnel“Personnel Expenses – TransfersContributions to Pension Plansexternal pension funds” in the accompanying consolidated income statements, amounted to EUR 38,099 thousand and EUR 42,503 thousand in 2005 and 2004, respectively.statements.
Defined benefit commitments:commitments The: Certain Group’s Spanish companies have defined benefit commitments for permanent disability and death of current employees and early retirees; for death of certain retired employees; and defined-benefit retirement commitments applicable only to certain groups of serving employees (unvested benefits), or early retired employees (vested benefits) and of retired employees (ongoing benefits). Defined benefit commitments are funded by insurance contracts and internal Group provisions.
The amounts recognized in the heading “Provisions - Funds for Pensions and Similar Obligations” are the differences between the present values of the vested obligations for defined obligation retirement commitments at balance sheet date, adjusted by actuarial gains/losses, the prior service cost and the fair value of assets assigned to the funding of commitments which are to be used directly to settle employee benefit obligations.
The provisions for defined obligation retirement commitments were charged to the heading “Provisions for Pensions and Similar Obligations” in the accompanying consolidated income statements.
The current contributions made by the Group’s companies for defined obligation retirement commitments covering current employees are charged to the heading “Personnel Expenses – Transfers to internal pension provisions” in the accompanying consolidated income statements.
Early retirements.
In 2006, 2005 and 2004, the Group offered certain employees the possibility of taking early retirement before reaching the age stipulated in the collective labor agreement in force. The corresponding provisions by the Group were recognized with a charge to the heading “Provision Expense (Net) - Transfers to Funds for Pensions and Similar Obligations—Early Retirements” in the accompanying consolidated income statements. The present values of the vested obligations are quantified on a case-by-case basis. The valuation method used for current employees is the projected unit credit method, which views each year of service as giving rise to an additional unit of benefit entitlementbasis and measures each unit separately. The actuarial assumptions used in quantifying these obligationsthey are unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in 2005 and 2004 were as follows:
The defined benefit commitments at December 31, 2005 and 2004 were as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Pension commitments to retired employees | 3,202,581 | 3,244,431 | ||
Pension contingencies in respect of current employees | 240,405 | 227,307 | ||
3,442,986 | 3,471,738 | |||
Coverage at end of each year: | ||||
Internal provisions | 2,816,020 | 2,826,237 | ||
Insurance contracts with unrelated insurance companies | 626,966 | 645,501 | ||
Total | 3,442,986 | 3,471,738 | ||
The changes in 2005 and 2004recognized in the present value ofheading “Provisions - Funds for Pensions and Similar Obligations” in the vested obligation for defined benefit commitments covered by the Group’s internal provisions were as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Present actuarial value at beginning of the year | 2,826,237 | 3,240,686 | ||||
+ Interest cost | 106,926 | 112,988 | ||||
+ Normal cost for the year | 19,440 | (100 | ) | |||
- Payments made | (145,347 | ) | (135,676 | ) | ||
+/- Other | 1,635 | (359,041 | ) | |||
+/- Past service cost and actuarial losses (gains). | 7,129 | (32,620 | ) | |||
Present actuarial value at end of the year | 2,816,020 | 2,826,237 | ||||
The present actuarial value of the vested obligation for defined benefit commitments covered by insurance contracts with a non-Group company amounted to EUR 626,966 thousand and EUR 645,501 thousand at December 31, 2005 and 2004, respectively.
1.1.2. Early retirementsaccompanying consolidated balance sheets.
The commitments to early retirees include the compensation and indemnities and contributions to external pension funds payable during the year of early retirement. The commitments relating to this group of employees after they have reached the age of effective retirement are included in the employee welfare system.
In 2005 and 2004, the Group offered certain employees the possibility of taking early retirement before reaching the age stipulated in the collective labour agreement in force. This offer was accepted by 677 and 1,372 employees, The total cost of these agreements amounts to EUR 286,279 thousand and EUR 571,628 thousand at December 31, 2005 and 2004, respectively (EUR 186,081 thousand and EUR 371,558 thousand, net of the related tax effect, respectively) and the corresponding provisions were recognised with a charge to the heading Provision Expense (Net) - Transfers to Funds for Pensions and Similar Obligations - Early Retirements in the accompanying consolidated income statement for 2005,
The present values of the vested obligations are quantified on a case-by-case basis. The actuarial assumptions used in quantifying these obligations are unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in 2005 and 2004 were as follows:
The changes in 2005 and 2004 in the present value of the vested obligation for commitments to early retirees in Spain were as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Present actuarial value at beginning of the year | 2,656,743 | 2,461,263 | ||||
+ Interest cost | 94,528 | 86,904 | ||||
+ Early retirements in the year | 286,279 | 571,628 | ||||
- Payments made | (477,197 | ) | (466,413 | ) | ||
+/- Other changes | 5,929 | (3,068 | ) | |||
+/- Actuarial losses (gains) | 16,285 | 6,429 | ||||
Present actuarial value at end of the year | 2,582,567 | 2,656,743 | ||||
1.1.3. Post-employment welfare benefitsbenefits.
Certain Spanish Group companies have welfare benefit commitments the effects of which extend beyond the retirement of the employees entitled to the benefits. These commitments relate to certain current employees and retirees, depending upon the employee group to which they belong.
The present values of the vested obligations for post-employment welfare benefits are quantified on a case-by-case basis. The valuation method usedThey are recognized in the heading “Provisions - Funds for current employees isPensions and Similar Obligations” in the projected unit credit method. The actuarial assumptions used in quantifying these obligationsaccompanying consolidated balance sheets and they are unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in 2005 and 2004 were as follows:
The detail of these commitments at December 31, 2005 and 2004 is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Post-employment welfare benefit commitments to retired employees | 158,889 | 155,786 | ||
Vested post-employment welfare benefit contingencies in respect of current employees | 51,721 | 48,107 | ||
Total | 210,610 | 203,893 | ||
Coverage at end of each year: | ||||
Internal provisions (*) | 210,610 | 203,893 |
The changes in 2005 and 2004heading “Personnel expenses – Other personnel expenses” in the present value of the vested obligation for post-employment welfare benefit commitments were as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Present actuarial value at the beginning of the year | 203,893 | 202,217 | ||||
+ Interest cost | 8,227 | 7,857 | ||||
+ Normal cost for the year | 2,165 | 2,051 | ||||
- Payments made | (12,193 | ) | (11,566 | ) | ||
+/- Other movements | (362 | ) | — | |||
+/- Actuarial losses (gains) | 8,880 | 3,334 | ||||
Present actuarial value at end of the year | 210,610 | 203,893 | ||||
1.1.4. Summary
Following is a summary of the charges recorded in the 2005 and 2004 consolidatedaccompanying income statements for the post-employment compensation commitments of Group companies in Spain:
Thousands of Euros | |||||
2005 | 2004 | ||||
Interest expense and similar charges: | |||||
Interest cost of pension funds | 210,999 | 208,977 | |||
Personnel expenses: | |||||
Socials attentions | 2,165 | 2,051 | |||
Transfers to pension plans | 61,019 | 44,286 | |||
Provision expense (net): | |||||
Transfers to funds for pensions and similar obligations | |||||
Pension funds | 33,426 | (29,720 | ) | ||
Early retirement | 286,279 | 571,628 | |||
Total | 593,888 | 797,222 | |||
At December 31, 2005 and 2004 there were no unrecognized actuarial gains or losses arising from differences between the actuarial assumptions and what had actually occurred or, where appropriate, from the effects of changes in the actuarial assumptions used.statements.
1.2. Other commitments to employees:employees.
1.2.1. Compensation in kind
Certain Spanish Group companies are obliged to deliver partially or fully subsidised goods and services under the collective labour agreements applicable to them and/or the related corporate agreements. The most significant employee welfare benefits granted by the Group’s Spanish banks, in terms of the type of compensation and the event giving rise to the commitment, are loans to employees, life insurance, study aid and long-service bonuses.
The scope of application of these employee welfare benefits varies from one company to another depending on the specific agreements that govern them. They may also be applied differently to employees of the same company, when different agreements are in force for each of the various employee groups.
Long-service bonuses are a form of long-term compensation, entitlement to which is conditional upon the qualifying beneficiary employees remaining in service for a stipulated number of years (15, 25, 40 or 50 years’ effective service in the case of share-based bonuses and 45 years’ effective service in the case of cash bonuses).
The present values of the vested obligations for long-service cash bonuses, long-service share-based payment and for the gifts relating to long-service share-based bonuses (the treatment applicable to share-based payment is summarised in section 1.2.2 below) wascorresponding were quantified on a case-by-case basis usingbasis. They are recognized in the projected unit credit valuation method.heading “Provisions –
Other provisions” in the accompanying consolidated balance sheets. The main actuarial assumptions used in quantifying these obligations are unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in 2005 and 2004 were as follows:
The changes in 2005 and 2004heading “Personnel expenses – Other personnel expenses” in the present value of the vested obligation for these commitments were as follows:accompanying income statements.
Thousands of Euros | ||||||
2005 | 2004 | |||||
Present actuarial value at beginning of the year | 31,590 | 30,693 | ||||
+ Interest cost | 1,318 | 1,228 | ||||
+ Normal cost for the year | 1,377 | 1,323 | ||||
- Payments made | (545 | ) | (735 | ) | ||
- Cash settlements for long-service bonus redemptions due to early retirement | (2,464 | ) | (570 | ) | ||
+/- Actuarial losses (gains) | (1,243 | ) | (349 | ) | ||
Present actuarial value at end of year Coverage at end of each year: | 30,033 | 31,590 | ||||
Internal provisions | 30,033 | 31,590 |
Since all other employee welfare benefits for current employees accrue and are settled on a yearly basis, it is not necessary to record a provision in this connection.
The total cost of the employee welfare benefits provided by the Group’s Spanish companies to their current employees in the 2005 and 2004 was EUR 29,723 thousand and EUR 34,746 thousand, respectively, and these amounts were recognised with a charge to Personnel Expenses - Other in the accompanying consolidated income statements.
1.2.2. Bank share-based compensation system
In 2005 and 2004 the Bank had no target-based compensation plans involving the delivery of stock options or shares of Banco Bilbao Vizcaya Argentaria, S.A.
However, the Bank is obliged, under the related corporate agreement, to deliver shares of Banco Bilbao Vizcaya Argentaria, S.A. to certain of its employees when they complete a given number of years of effective service:
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The present values of the vested obligation at December 31, 2005 and 2004, in terms of the probable number of shares, were quantified on a case-by-case basis using the projected unit credit method. The main actuarial assumptions used in quantifying this obligation are summarised as follows:
The changes in 2005 and 2004 in the present value of the vested obligation, in terms of the probable number of shares, for share-based long-service bonuses were as follows:
Number of Shares | ||||||
2005 | 2004 | |||||
Present actuarial value at the beginning of the year | 6,658,067 | 6,932,004 | ||||
+ Year accrual | 399,753 | 385,661 | ||||
- Deliveries made | (269,100 | ) | (305,100 | ) | ||
+/- Actuarial losses (gains) | 157,747 | (354,498 | ) | |||
Present actuarial value at the end of year | 6,946,467 | 6,658,067 | ||||
In March 1999, pursuant to a resolution adopted by the Bank’s shareholders at the Annual General Meeting on February 27, 1999, 32,871,301 new shares were issued at a price of EUR 2.14 per share (similar to the average reference price of the share-based commitments to Group employees existing at that date which the new shares were assigned to fund), These shares were subscribed and paid by a non-Group company and, simultaneously, the Bank acquired a call option on these shares which can be exercised on any date, at one or several times, prior to December 31, 2011, at an exercise price equal to the share issue price, adjusted on the basis of the related antidilution clauses. On several occasions since 1999 the call option was partially exercised to meet share-based commitments to Group employees. At December 31, 2004, the Bank still held an option on a total of 4,826,645 shares at a price of EUR 2.09 per share, which were assigned in full to share-based long-service bonuses. In 2005 the option was exercised on a total of 269,100 shares to settle long-service bonuses when they fell due (305,100 shares in 2004),
At December 31, 2005, the Bank still held an option on a total of 4,557,545 shares (4,826,645 shares at December 31, 2004) and, in addition, it had arranged a futures transaction with a non-Group entity on a total of 2,388,922 shares at an exercise price of EUR 15.06 per share (1,831,422 shares at an exercise price of EUR 12.30 per share at December 31, 2004).
The changes in 2005 and 2004 in the related internal provisions, which take into account the present value of the vested obligation, at any given date, in terms of the probable number of shares and the instruments assigned to the commitment, were as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Internal provision at beginning of year | 32,614 | 33,692 | ||||
+ Normal cost for the year | 5,879 | 4,389 | ||||
- Payments relating to partial exercises of the call option (Settlement of long-service bonuses when they fall due) | (562 | ) | (638 | ) | ||
+/- Collections / (Payments) due to quarterly settlements of futures transactions | 5,244 | 1,685 | ||||
+/- Actuarial losses (gains) | 2,375 | (6,514 | ) | |||
Internal provision at end of year | 45,550 | 32,614 | ||||
In the last quarter of 2005, certain Group companies implemented a corporate programme for its permanent employees to enable them to acquire, at a discount, shares of Banco Bilbao Vizcaya Argentaria, S.A. with a possibility of financing the first phase through a personal loan. The conditions of the first phase of the programme comprise an initial discount of 4% of the employees’ initial investment, subject to the shares being held for a period of two years and to the delivery in shares of 3% of the initial investment after three and five years, respectively, if the initially acquired shares are held for that long. The total number of shares acquired as part of this programme amounted to 2.5 million at a market price of EUR 14.68 per share. The unamortized balance of the financing granted to employees amounts to EUR 30,064 thousand at December 31, 2005.
2. Companies abroad
2.1. Pension benefit supplement
Certain Group companies abroad and part of the Foreign Network of Banco Bilbao Vizcaya Argentaria, S.A., have post-employment benefit commitments to certain current and/or retired employees. The aggregate data, broken down by type of commitment, are as follows:
Defined contribution commitments in group companies abroad: the current contributions made by Group companies abroad for defined contribution commitments to current employees, which amounted to EUR 17,714 thousand and EUR 14,916 thousand in 2005 and 2004, respectively, are recognised with a charge to Personnel Expenses - Transfers to Pension Plans in the accompanying consolidated income statements.
Defined benefit commitments recovered in internal funds: the accrued liability for defined benefit commitments to current and/or retired employees, net, where appropriate, of the specific assets assigned to fund them, amounted to EUR 279,086 thousand and EUR 288,677 thousand at December 31, 2005 and 2004, respectively, and is included under Provisions – Provisions for Pensions and Similar Obligations in the accompanying consolidated balance sheets. Of these amounts, EUR 167,119 thousand and EUR 147,969 thousand relate to BBVA Bancomer, S.A. for the funding of vested commitments for pension supplements, long-service bonuses, and post-retirement medical services and life insurance, and EUR 40,778 thousand and EUR 84,089 thousand relate to BBVA Portugal, S.A. for the funding of vested commitments for pension supplements.
The aforementioned assets assigned to the funding of commitments are the assets that are to be used directly to settle employee benefit obligations and which meet the following conditions: they are not owned by the Group entities; they are available only to pay post-employment benefits; and they cannot be returned to the Group entities.
The present values of the vested obligations of Group companies abroad are quantified on a case-by-case basis, and the projected unit credit valuation method is used for current employees. As a general rule, the actuarial assumptions used are as follows: the discount rate is the AA corporate bond yield curve; the mortality tables are those applicable in each local market when an insurance contract is arranged; and the inflation and salary growth rates are those applicable in each local market. These assumptions should be prudent and mutually compatible.
The main actuarial assumptions used in quantifying the commitments of BBVA Bancomer, S.A. at December 31, 2005 and 2004 are summarised as follows:
The changes in 2005 and 2004 in the present value of the vested obligations of Bancomer, S.A., in the value of the assets assigned to fund these commitments and in the balances of Provisions – Provisions for Pensions and Similar Obligations relating to Bancomer, S.A. were as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Present actuarial value at beginning of year | 478,478 | 466,516 | ||||
Value of the assets assigned to funding of commitments | (330,509 | ) | (324,318 | ) | ||
Balance at begining of year | 147,969 | 142,198 | ||||
Present actuarial value at end of year | 632,783 | 478,478 | ||||
Value of assets assigned to funding of commitments | (465,664 | ) | (330,509 | ) | ||
Balance at end of year | 167,119 | 147,969 | ||||
Thousands of Euros | ||||||
2005 | 2004 | |||||
Balance at begining of year | 147,969 | 142,198 | ||||
+Finance Expenses | 47,187 | 44,814 | ||||
- Finance Income | (33,326 | ) | (32,753 | ) | ||
+ Normal cost for the year | 22,711 | 16,327 | ||||
+/- Payments made and other net variations | (36,569 | ) | (12,077 | ) | ||
+/- Exchange differences | 29,097 | (10,540 | ) | |||
+/- Actuarial losses (gains) | (9,950 | ) | — | |||
Balance at end of year | 167,119 | 147,969 |
The main actuarial assumptions used in quantifying the commitments of BBVA Portugal, S.A. at December 31, 2005 and 2004 are summarised as follows:
The changes in 2005 and 2004 in the present value of the vested obligations of BBVA Portugal, S.A., in the value of the assets assigned to fund these commitments and in the balances of Provisions – Provisions for Pensions and Similar Obligations relating to BBVA Portugal, S.A. were as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Present actuarial value at beginning of year | 268,415 | 249,438 | ||||
Value of the assets assigned to funding of commitments | (184,326 | ) | (175,897 | ) | ||
Balance at beginning of year | 84,089 | 73,541 | ||||
Present actuarial value at end of year | 262,153 | 268,415 | ||||
Value of assets assigned to funding of commitments | (221,375 | ) | (184,326 | ) | ||
Balance at end of year | 40,778 | 84,089 | ||||
Thousands of Euros | ||||||
2005 | 2004 | |||||
Balance at beginning of year | 84,089 | 73,541 | ||||
+Finance Expenses | 8,437 | 10,458 | ||||
- Finance Income | (9,930 | ) | (9,334 | ) | ||
+ Normal cost for the year | 3,985 | 14,375 | ||||
+/- Payments made and other net variations | (48,987 | ) | (10,242 | ) | ||
+/- Actuarial losses (gains) | 3,184 | 5,291 | ||||
Balance at end of year | 40,778 | 84,089 |
2.2. Post-employment welfare benefits:
BBVA Bancomer, S.A.’s accrued liability for defined benefit commitments to current and former employees, net of the specific assets assigned to fund them, amounted to EUR 351,461 thousand and EUR 283,921 thousand at December 31, 2005 and 2004, respectively and is included under the heading Provisions – Provisions for Pensions and Similar Obligations in the accompanying consolidated balance sheets.
The main actuarial assumptions used to quantify the current values of the commitments accrued in connection with the aforementioned agreement, at December 31, 2005 and 2004, are as follows:
The changes in 2005 and 2004 were as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Present actuarial value at beginning of year | 324,043 | 319,885 | ||||
Value of the assets assigned to funding of commitments | (40,122 | ) | (22,887 | ) | ||
Balance at beginning of year | 283,921 | 296,998 | ||||
Present actuarial value at end of year | 436,434 | 324,043 | ||||
Value of assets assigned to funding of commitments | (84,973 | ) | (40,122 | ) | ||
Balance at end of year | 351,461 | 283,921 | ||||
Thousands of Euros | ||||||
2005 | 2004 | |||||
Balance at beginning of year | 283,921 | 296,998 | ||||
+Finance Expenses | 32,953 | 30,288 | ||||
- Finance Income | (3,896 | ) | (2,692 | ) | ||
+ Normal cost for the year | 9,001 | 1,759 | ||||
+/- Payments made and other net variations | (40,771 | ) | (22,465 | ) | ||
+/- Actuarial losses (gains) | 57,925 | (19,967 | ) | |||
+/- Exchange differences | 12,328 | — | ||||
Balance at end of year | 351,461 | 283,921 | ||||
2.3. Summary:
The charges recorded in the 2005 and 2004 consolidated income statements for the post-employment benefit commitments of Group companies abroad totalled EUR 110,550 thousand and EUR 82,787 thousand, respectively.
At December 31, 2005 and 2004 there were no unrecognized actuarial gains or losses arising from differences between the actuarial assumptions and what had actually occurred or, where appropriate, from the effects of changes in the actuarial assumptions used.
3. Termination benefits
Termination benefits must be recognised when the company is committed to severing its contractual relationship with its employees and, to this end, has a formal detailed redundancy plan. There are currently no redundancy plans making it necessary to record a provision in this connection.
g) Exchange differences
The Group’s functional currency is the euro. Therefore, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in “foreign currency”. Foreign currency balances are translated to euros in two consecutive stages:
Translation of foreign currency to the functional currency of the entities and branches, and
Translation to euros of the balances held in the functional currencies of entities whose functional currency is not the euro.
Translation of foreign currency to the functional currency:currency: foreign currency transactions performed by the consolidated entities and their branches are initially recognised in their respective financial statements at the equivalent value in their functional currencies, translated using the exchange rates prevailing at the transaction date. Subsequently, for the purpose of presentation in their separate financial statements, the consolidated entities translate the foreign currency balances to their functional currencies using the average spot exchange rates at year-end.the end of the year.
a) | Assets and liabilities monetary items are translated using the average spot exchange rates at the end of the year to which the financial statements refer. |
b) | Non-monetary items measured at amortized cost and fair value, are translated at the exchange rate of the date of acquisition and the date of determination of their fair value, respectively. |
c) | The income and expenses are translated at the exchange rate prevailing at the transaction date, with the possibility of using the average exchange rate of the period for all the transactions carried out during it, unless a significant variation in the exchange rate has occurred during the period. The depreciation will be translated at the exchange rate applied to the corresponding assets. |
Entities whose functional currency is not the euro:euro: the balances in the financial statements of consolidated entities whose functional currency is not the euro are translated to euros as follows:
Assets and liabilities: |
Income and expenses and cash flows: at the average exchange rates for 2006, 2005 and 2004.
Equity items: at the historical exchange rates.
The exchange differences arising on the translation of foreign currency balances to the functional currency of the consolidated entities and their branches are generally recorded in the consolidated income statement. Exceptionally, the exchange differences arising on non-monetary items whose fair value is adjusted with a balancing item in equity are recorded under the heading Valuation“Valuation Adjustments - Exchange Differences.Differences”.
The exchange differences arising on the translation to euros of balances in the functional currencies of the consolidated entities whose functional currency is not the euro are recorded under the heading Valuation“Valuation Adjustments - Exchange DifferencesDifferences” in the consolidated balance sheet until the item to which they relate is derecognised, at which time they are recorded in the income statement.
The breakdown of the main foreign currency balances in the consolidated balance sheet atas of December 31, 2006, 2005 and 2004, based on the nature of the related items, is as follows:
Equivalent Value in Thousands of Euros | Thousands of Euros | |||||||||
Assets | Liabilities | 2006 | 2005 | 2004 | ||||||
2005 | ||||||||||
Assets - | 126,190,212 | 117,409,477 | 86,777,076 | |||||||
Cash and balances with Central Banks | 9,091,495 | — | 8,857,791 | 9,091,495 | 6,176,800 | |||||
Financial assets/liabilities held for trading | 17,137,145 | 1,571,117 | ||||||||
Financial held for trading | 22,398,309 | 17,137,145 | 15,637,769 | |||||||
Available-for-sale financial assets | 15,476,934 | — | 14,800,895 | 15,476,934 | 10,587,927 | |||||
Loans and receivables | 66,632,376 | — | 71,727,999 | 66,632,376 | 47,381,972 | |||||
Investments | 63,267 | — | 66,455 | 63,267 | 94,957 | |||||
Tangible assets | 1,680,676 | 1,660,901 | 1,680,676 | 1,256,658 | ||||||
Other | 6,677,862 | 7,327,584 | 5,640,993 | |||||||
Liabilities- | 135,829,166 | 127,768,806 | 98,698,453 | |||||||
Financial held for trading | 1,878,775 | 1,571,117 | 2,329,659 | |||||||
Financial liabilities at amortised cost | — | 118,665,788 | 128,154,672 | 118,665,788 | 91,845,928 | |||||
Other | 7,327,584 | 7,531,901 | 5,795,719 | 7,531,901 | 4,522,866 | |||||
Total | 117,409,477 | 127,768,806 | ||||||||
Of the foreign currency balances shown in the table above, approximately 64% of the assets and liabilities relate to transactions in Mexican pesos and US dollars.
Equivalent Value in Thousands of Euros | ||||
Assets | Liabilities | |||
2004 | ||||
Cash and balances with Central Banks | 6,176,800 | — | ||
Financial assets/liabilities held for trading | 15,637,769 | 2,329,659 | ||
Available-for-sale financial assets | 10,587,927 | — | ||
Loans and receivables | 47,381,972 | — | ||
Investments | 94,957 | — | ||
Tangible assets | 1,256,658 | — | ||
Financial liabilities at amortised cost | — | 91,845,928 | ||
Other | 5,640,993 | 4,522,866 | ||
Total | 86,777,076 | 98,698,453 | ||
h) Entities and branches located in hyperinflationary economicsg) ENTITIESANDBRANCHESLOCATEDINCOUNTRIESWITHHYPERINFLATIONARYECONOMIES
None of the functional currencies of the consolidated subsidiaries and associates and their branches located abroad relate to hyperinflationary economies as defined by IFRSs.EU-IFRSs. Accordingly, atas of December 31, 2006, 2005 and 2004 it was not necessary to adjust the financial statements of any of the consolidated subsidiaries or associates to correct for the effect of inflation.
i) Non-current assets held for sale and liabilities associated with non-current assets held for saleh) NON-CURRENTASSETSHELDFORSALEANDLIABILITIESASSOCIATEDWITHNON-CURRENTASSETSHELDFORSALE
The heading Non-current“Non-current Assets Held for SaleSale” reflects the carrying amount of the assets – composing a “disposal group” or forming part of a business unit that the Group intends to sell (“discontinued operations”) – which will very probably be sold in their current condition within one year from the date of the consolidated financial statements. Therefore, the carrying amount of these assets – which can be financial or non-financial – will foreseeably be recovered through the price obtained on their sale.
Specifically, the assets received by the consolidated entities from their debtors in full or part settlement of the debtors’ payment obligations (foreclosed assets) are treated as non-current assets held for sale, (foreclosed assets), unless the consolidated entities have decided to make continuing use of these assets.
Symmetrically, the heading Liabilities“Liabilities Associated with Non-current Assets Held for SaleSale” reflects the balances payable arising on disposal groups and discontinued operations.
j) Sales and income from the provision of non-financial servicesi) SALESANDINCOMEFROMTHEPROVISIONOFNON-FINANCIALSERVICES
This heading shows the carrying amount of the sales of assets and income from the services provided by the consolidated Group companies that are not financial institutions. In the case of the Group, these companies are mainly real estate and services companies.
k) Insurance and reinsurance contractsj) INSURANCEANDREINSURANCECONTRACTS
In accordance with standard accounting practice in the insurance sector,industry, the consolidated insurance entities credit to the income statement the amounts of the premiums they writewritten and expensecharge to income the cost of the claims incurred on final settlement thereof. Insurance entities are therefore required to accrue at year-end the amount unearned at that daterevenues credited to their income statements and the incurredaccrued costs not charged to income.
The most significant accruals recorded by the consolidated entities in relation to direct insurance contracts arranged by them are:relate to the following (Note 27):
Mathematical provisions, which include:
Life insurance provisions: these represent the value of the life insurance obligations of the insurance companies at year-end, net of the obligations of the policyholder.
Non-life insurance provisions: provisions for unearned premiums. These provisions are intended for the accrual, at the date of calculation, of the premiums written. Their balance reflects the portion of the premiums accrued in the year that has to be allocated to the period from the reporting date to the end of the policy period.
Provision for claims: this reflects the total amount of the obligations outstanding arising from claims incurred prior to the reporting date. The insurance companies calculate this provision as the difference between the total estimated or certain cost of the claims not yet reported, settled or paid, and the total amounts already paid in relation to these claims.
Provisions for unexpired risks and other provisions, which include:
Non-life insurance provisions – unexpired risks: the provision for unexpired risks supplements the provision for unearned premiums unexpired risks, claims, mathematical reserves, life insurance policies in which the investment risk is borne by the policyholder,amount by which that provision is not sufficient to reflect the assessed risks and bonuses (profit-sharing) and rebates.expenses to be covered by the insurance companies in the policy period not elapsed at year-end.
The technical
Technical provisions for inward reinsurance are determined usingceded: calculated by applying the criteria similar to those applied for direct insurance; these provisions are generally calculated on the basis of the information provided by the cedants. The technical provisionsindicated above for direct insurance, and inward reinsurance are presentedtaking account of the cession conditions established in the consolidated balance sheet under the heading Liabilities under Insurance Contracts (Note 27).
The technical provisions for reinsurance ceded – which are calculated on the basis of the reinsurance contracts entered into and by applyingin force.
Other technical provisions: the same criteria asinsurance companies have recognised provisions to cover the probable mismatches in the market reinvestment interest rates with respect to those used for direct insurance - are presented in the consolidated balance sheet undermeasurement of the heading Reinsurance Assets (Note 19).technical provisions.
Provision for bonuses and rebates: this provision includes the amount of the bonuses accruing to policyholders, insureds or beneficiaries and the premiums to be returned to policyholders or insureds, as the case may be, based on the behaviour of the risk insured, to the extent that such amounts have not been individually assigned to each of them.
The Group controls and monitors the exposure of the insurance companies to financial risk and, to this end, uses internal methods and tools that enable it to measure credit risk and market risk and to establish the limits for these risks.
Reinsurance assets and Liabilities under insurance contracts-
The heading Reinsurance Assets“Reinsurance Assets” includes the amounts that the consolidated entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recorded by the consolidated insurance entities.entities (Note 19).
The heading Liabilities“Liabilities under Insurance ContractsContracts” includes the technical reserves of direct insurance and inward reinsurance recorded by the consolidated entities to cover claims arising from insurance contracts in force at year-end.year-end (Note 27).
The profitincome or loss reported by the Group’s insurance companies on their insurance activities areis recorded under the heading Insurance activity income“Insurance Activity Income” in the consolidated income statement (Note 48)49).
l) Tangible assetsk) TANGIBLEASSETS
Non-currentNon-Current tangible assets for own use:
Functional non-current assets, including bothThe heading Non-Current Tangible Assets for own use relates to the tangible assets intended to be held for continuing use and the tangible assets acquired under finance leases. It also includes tangible assets received by the consolidated entities in full or part settlement of financial assets representing receivables from third parties, and tangible assets acquired under finance leases –and those assets expected to be held for continuing use. Non-Current tangible assets for own use are presented at acquisition cost less any accumulated depreciation and, where appropriate, any estimated impairment losses (net carrying amount higher than fair value).
For this purpose, the acquisition cost of foreclosed assets held for owncontinued use is equal to the carrying amount of the financial assets delivered in exchange for their foreclosure.
Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value; the land on which the buildings and other structures stand has an indefinite life and, therefore, is not depreciated.
The yearperiod tangible asset depreciation charge is recognised with a balancing entry in the consolidated income statement and is based on the application of the following depreciation rates (determined on the basis of the average years of estimated useful life of the various assets):
Annual Percentage | ||
Buildings for own use | ||
Furniture | 8% to 10% | |
Fixtures | 6% to 12% | |
Office supplies and computerisation | 8% to 25% | |
Remodelling of rented offices | 6% |
At each accounting close, the consolidated entities analyse whether there is any internal or external indication that the net carrying amounts of their tangible assets exceed the related recoverable amounts. If there is such an indication, the carrying amount of the asset in question is reduced to its recoverable amount and the future depreciation charges are adjusted in proportion to the asset’s new remaining useful life and / or to its revised carrying amount.
Similarly, if there is any indication that the value of a tangible asset has been recovered, the consolidated entities recognise the reversal of the impairment loss recorded in priorprevious years and, consequently, adjust the future depreciation charges. In no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognised in prior years.
Upkeep and maintenance expenses relating to tangible assets held for owncontinued use isare charged to the income statement for the year in which they are incurred.
Investments propertiesInvestment property and other assets leased out under an operating lease:
The heading “Tangible assets - Investment PropertiesProperty” in the consolidated balance sheet reflects the net values of the land, buildings and other structures held either to earn rentals or for capital appreciation.appreciation at disposal date.
The criteria used to recognise the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to record the impairment losses thereon are the same as those described in relation to functional tangible assets.assets for continued use.
m) Business combinationsl) BUSINESSCOMBINATIONS
A business combination is the bringing together of two or more separate entities or businesses into one single entity or group of entities. As a result of a business combination, which is accounted for using the purchase method, the Group obtains control over one or several entities.
The purchase method addressesaccounts for business combinations from the perspective of the acquirer. The acquirer must recognise the assets acquired and the liabilities and contingent liabilities assumed, including those not previously recognised by the acquiree.
acquired entity. This method involves measuringmeasures the cost of the business combination and assigningthe assignation of it, at the date of acquisition, to the identifiable assets, liabilities and contingent liabilities measured at fair value.
In addition, any purchases of minority interests after the date on which the Group obtains control of the acquireeacquired are recorded as equity transactions, i.e. the difference between the price paid and the carrying amount of the percentage of minority interests acquired is charged directly to equity.
n) Intangible assetsm) INTANGIBLEASSETS
Goodwill
The positive differences between the cost of business combinations and the amount corresponding to the acquired percentage of the net fair value of the assets, liabilities and contingent liabilities of the acquireesacquired entity are recorded as goodwill on the asset side of the consolidated balance sheet. In other words, goodwillGoodwill represents the future economic benefits from assets that cannot be individually identified and separately recognised. Goodwill is not amortised butand is subject periodically to an impairment analysis. Any impaired goodwill is written off.
Goodwill is allocated to one or more cash-generating units expected to benefit from the synergies arising from business combinations. The cash-generating units represent the Group’s smallest identifiable business and/or geographical segments as managed internally by its directors.directors within the Group.
The cash-generating units to which goodwill has been allocated are tested for impairment based on the carrying amount of the unit including the allocated goodwill. Such testing is performed at least annually and whenever there is an indication of impairment.
For the purpose of determining the impairment of a cash-generating unit to which a part of goodwill has been allocated, the carrying amount of that unit, adjusted by the theoretical amount of the goodwill attributable to the minority interest, shall be compared with its recoverable amount. The resulting loss shall be apportioned by reducing, firstly, the carrying amount of the goodwill allocated to that unit and, secondly, if there are still impairment losses remaining to be recognised, the carrying amount of the rest of the assets. This shall be done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the unit. It will be taken into account that no impairment of goodwill attributable to the minority interest may be recognised. In any case, impairment losses on goodwill can never be reversed.
Other intangible assets
These assets can have an indefinite“indefinite useful lifelife” – when, based on an analysis of all relevant factors, it is concluded that there is no foreseeable limit to the year over which the asset is expected to generate net cash flows for the consolidated entities – or a finite“finite useful life,life”, in all other cases.
Intangible assets with indefinite useful liveslife are not amortised, but rather at the end of each reporting yearperiod the consolidated entities review the remaining useful liveslife of the assets in order to ensure that they continue to be indefinite or, if this is not the case, to take the appropriate steps.classify them as having a finite useful life. The Group has not recognised any intangible assets with indefinite useful lives.life.
Intangible assets with finite livesuseful life are amortised over those useful lives using methods similar to those used to depreciate tangible assets.
In both cases the consolidated entities recognise any impairment loss on the carrying amount of these assets with charge to the heading Impairment“Impairment Losses (Net) - Other Intangible AssetsAssets” in the consolidated income statement. The criteria used to recognise the impairment losses on these assets and, where applicable, the recovery of impairment losses recognised in prior years are similar to those used for tangible assets.
o) Inventoriesn) INVENTORIES
Inventories are assets, other than financial instruments, that are held for sale in the ordinary course of business, that are in the process of production, construction or development for such sale, or that are to be consumed in the production process or in the rendering of services. The balance of the heading Other“Other Assets - Inventories– Inventories” in the accompanying consolidated balance sheet included the land and other property held for sale in the property development business by the Group’s real state companies (Note 23).
Inventories are measured at the lower of cost and net realisable value, which is the estimated selling price of inventories in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
The amount of any write-down of inventories, such as that reflecting damage, obsolescence, and reduction of the sale price, to net realisable value and any other losses is recognised as an expense in the year in which the write-down or loss occurs. Subsequent reversal of any write-down is recognised in the consolidated income statement for the year in which it occurs.
When inventories are sold, the carrying amount of those inventories is derecognised and recorded as an expense in the year in which the related revenue is recognised. The expense is included under the heading Cost“Cost of SalesSales” in the accompanying consolidated income statement (Note 50)51) when it relatescorresponds to activities that do not form partrelating to the provision of the consolidated Group,non-financial services, or under the heading Other“Other Operating ExpensesExpenses” in other cases.cases (Note 52).
p) Tax assets and liabilitieso) TAXASSETSANDLIABILITIES
The Spanish corporation tax expense and the expense for similar taxes applicable to the consolidated entities abroad are recognised in the consolidated income statement, except when they result from transactions the gainsprofits or losses on which are recognised directly in equity, in which case the related tax effect is also recognised in equity.
The current income tax expense is calculated by aggregating the current tax arising from the application of the related tax rate to the taxable profit (or tax loss) for the year (after deducting the tax credits allowable for tax purposes) and the change in deferred tax assets and liabilities recognised in the income statement.
Deferred tax assets and liabilities include temporary differences, measured at the amount expected to be payable or recoverable on future fiscal years for the differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards.carry forwards. These amounts are measured atapplying to each temporary difference the tax rates that are expected to apply in the year when the asset is realised or the liability settled.settled (Note 37).
Deferred tax assets are recognised to the extent that it is considered probable that the consolidated entities will have sufficient taxable profits in the future against which the deferred tax assets can be utilised.
The deferred tax assets and liabilities recognised are reassessed by the consolidated entities at each balance sheet date in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analyses performed.
Income and expenses recognised directly in equity are recorded as temporary differences.
q) Financial guaranteesp) FINANCIALGUARANTEES
“Financial guarantees” are defined as contracts whereby an entitythe Group undertakes to make specific payments for a third party if the latter does not do so, irrespective of the various legal forms they may have.
Financial guarantees, irrespective of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at fair value which, on initial recognition and in the absenceamortised cost, (see section d) of evidence to the contrary, is the present value of the cash flows to be received, using an interest rate similar to that of the financial assets granted by the entity with a similar term and risk. Simultaneously, the present value of the future cash flows receivable, calculated using the aforementioned interest rate, isNote).
The provisions made for these transactions are recognised under the heading Other Financial Assets.
Subsequent to initial recognition, contracts are treated as follows:
r) Leasesq) LEASES
Leases are classified as finance from the start of the transaction leases when they transfer substantially the risks and rewards incidental to ownership of the asset forming the subject matter of the contract. Leases other than finance leases are classified as operating leases.
When the consolidated entities act as the lessor of an asset in finance leases, the aggregate present values of the lease payments receivable from the lessee plus the guaranteed residual value (normally the exercise price of the lessee’s purchase option on expiration of the lease agreement) are recorded as financing provided to third parties and, therefore, are included under the heading Loans“Loans and ReceivablesReceivables” in the accompanying consolidated balance sheet.sheets.
Leases other than finance leases are classified as operating leases, Assets provided under operating leases to other Group entities are treated in the consolidated financial statements as assets held for owncontinued use and in the individual financial statements of the owner as other assets leased out under an operating lease or as investment property.
s) Provisions and contingent liabilitiesr) PROVISIONS,CONTINGENTASSETSANDCONTINGENTLIABILITIES
Provisions are presentexisting obligations arising from legal or contractual requirements, valid expectations created by Group companies in third parties regarding the assumption of certain types of responsibilities, or virtual certainty as to the future course of regulation in particular respects, especially proposed new legislation that the Group cannot avoid.
Provisions are recognised in the balance sheet when each and every one of the following requirements is met: the Group has a presentan existing obligation resulting from a past event and, at the balance sheet date, it is more likely than not that the obligation will have to be settled; it is probable that to settle the obligation the entity will have to give up resources embodying economic benefits; and a reliable estimate can be made of the amount of the obligation.
Contingent liabilities are possible obligations of the entityGroup that arise from past events and whose existence is conditional on the occurrence or non-occurrence of one or more future events beyond the control of the entity. They include the presentexisting obligations of the entity when it is not probable that an outflow of resources embodying economic benefits will be required to settle them or when, in extremely rare cases, their amount cannot be measured with sufficient reliability.
Contingent assets are possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by the occurrence or non-occurrence of, events beyond the control of the entity,Group. Contingent assets are not recognised in the balance sheet or in the income statement; however, they are disclosed in the notes to financial statements, provided that it is probable that these assets will give rise to an increase in resources embodying economic benefits.
t) Transfers of financial assets and derecognition of financial assets and liabilitiess) TRANSFERSOFFINANCIALASSETSANDDERECOGNITIONOFFINANCIALASSETSANDLIABILITIES
The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties. If substantially all the risks and rewards are transferred to third parties, the transferred financial asset is derecognised and, at the same time, any right or obligation retained or created as a result of the transfer is recognised.
If substantially all the risks and rewards associated with the transferred financial asset are retained, the transferred financial asset is not derecognised and continues to be measured using the same criteria as those used priorbefore to the transfer.
Financial assets are only derecognised when the cash flows they generate have extinguished or when substantially all the risks and rewards incidental to them have been transferred. Similarly, financial liabilities are only derecognised when the obligations they generate have extinguished or when they are acquired (with the intention either settle them or re-sell them).
u) Other equity instrumentst)OWNEQUITYINSTRUMENTS
The balance of the heading Shareholder’s“Stockholders’ Equity - Treasury SharesShares” in the accompanying consolidated balance sheetsheets relates mainly to Bank shares held by certain consolidated companies atas of December 31, 2006, 2005 and 2004. These shares are carried at acquisition cost, and the gains or losses arising on their disposal are credited or debited, as appropriate, to the heading Shareholder’s Equity—Other Equity Instruments“Stockholders’ Equity-Reserves” in the accompanying consolidated balance sheetsheets (Note 34).
All the shares of the Bank held by consolidated entities at December 31, 2005 and 2004 represented 0.22% and 0.08%, respectively, of the issued share capital at those dates (the transactions involving treasury shares in the years from January 1, to December 31, 2005 and 2004 are summarised in Note 34)35).
3.Reconciliationu)EQUITY-SETTLEDSHARE-BASEDPAYMENTTRANSACTIONS
Equity-settled share-based payment transactions, when the instruments granted do not vest until the counterparty completes a specified period of service, shall be accounted for those services as they are rendered by the counterparty during the vesting period, with a corresponding increase in equity. The entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the closing balances for 2003goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and 2004the corresponding increase in equity, indirectly, by reference to the opening balancesfair value of the equity instruments granted, at grant date.
Market conditions shall be taken into account when estimating the fair value of the equity instruments granted, thus, their evolution will not be reflected on the profit and loss account. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the shares at the measurement date. Instead, vesting conditions shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. As a consequence the effect of vesting conditions other than market conditions, will be recognized on the profit and loss account with the corresponding increase in equity.
v)ACQUIREOFSHARESWITHDISCOUNT
In the last quarter of 2005, certain Group companies implemented a corporate programme for its permanent employees to enable them to acquire, with a 10% discount, shares of Banco Bilbao Vizcaya Argentaria, S.A. The total number of shares acquired in 2005 as part of this programme amounted to 2.5 million at a market price of €14.68 per share. The possibility of financing the acquisition through a personal loan was offered to the employees. The unamortised balance of the financing granted to employees amounted to €23,722 thousand as of December 31, 2006. Additionally, in 2006 a new phase of this corporate programme has been developed, this time without the possibility of financing for the acquisition of the shares. The total number of shares acquired in this second phase amounted to 578.333.
The total cost of this programme is charged to the heading “Personnel expenses” of the consolidated income statement.
w)TERMINATIONBENEFITS
Termination benefits must be recognised when the company is committed to severing its contractual relationship with its employees and, to this end, has a formal detailed redundancy plan. There were no redundancy plans, so it is not necessary to recognise a provision for this issue.
3.RECONCILIATION OF THE CLOSING BALANCES FOR 2003 AND 2004 andTO THE OPENING BALANCES FOR 2004 AND 2005
EU-IFRS 1 requires that the first consolidated financial statements prepared in accordance with EU-IFRSs include a reconciliation of the closing balances for the immediately preceding year to the opening balances for the year to which these financial statements refer.
The reconciliation of the balances in the consolidated balance sheets and consolidated income statements is shown in Appendixes VI, VII and VIII, and the reconciliation adjustments to equity are shown in Appendix IX.VI. The definition of certain terms used therein is as follows:
Main effects of adaptation to International Financial Reporting Standards (IFRSs)
The estimated main effects of adaptation to the new standards are as follows:
a)Basis of consolidation
The entry into force of EU-IFRSs led to a change in the basis of consolidation for certain companies (Note 2.1). The effects of this change were as follows:
b)Goodwill
Under the new standards goodwill is defined as the difference between the cost and the net fair value of the assets, liabilities and contingent liabilities acquired.
The main change is that goodwill is no longer amortised and is tested for impairment at least annually. In addition, goodwill must be stated in local currency, although that arising prior to January 1, 2004 can continue to be expressed in euros. The Group decided to initially recalculate in local currency the goodwill existing at January 1, 2004, the date of transition to EU-IFRSs.
Investments acquired subsequent to the obtainment of control over a company (i.e. transactions involving the purchase of equity interests from minority shareholders) were treated as “equity transactions”. The goodwill recorded on the transactions performed after control was obtained were written off against the heading Minority Interests and the surplus amount against the heading Reserves.
c)Financial instruments
In accordance with the new standards, financial assets and liabilities held for trading are measured at fair value through profit or loss. Also, the gains and losses on the available-for-sale securities portfolio are recorded, net of their tax effect, in the equity account Valuation Adjustments.
As regards the classification of equity securities portfolios, under IFRSs significant influence is presumed to exist when an ownership interest of 20% is held in an investee. The Group classified Banca Nazionale del Lavoro, S.p.A. (BNL) as an associate, i.e. a company over which significant influence is exercised, since it considered that, although its equity interest is less than 20% (general criterion), the current shareholders’ agreement gives it significant influence over the management of this entity. The entities classified as associates under the previous accounting standards and in which the Group has an ownership interest of less than 20% were reclassified to the available-for-sale portfolio (except for BNL), since it is considered that the Group does not exercise significant influence over them (Note 2.1). Therefore, in accordance with the new standards in force, the goodwill of these entities was derecognised, their accumulated prior years’ profits or losses accounted for by the equity method were eliminated from reserves and, in addition, the differences relating from measuring these investments at market value were recorded under the heading Valuation Adjustments.
The recognition, measurement and disclosure criteria included in IASs 32 and 39, were applied retrospectively to January 1, 2004.
January 1, 2004 was considered to be the date of application of the rules on the derecognition of financial instruments. Transactions which on or after that date met the recognition and derecognition requirements included in IASs 32 and 39 were removed from the balance sheet (Note 14.3). However, the securitization funds created subsequent to January 1, 2004 through the transfer of derecognised loans, of which the Group retains certain of the risks or rewards, were included in the consolidated financial statements.
d)Loan portfolio provisioning
The BBVA Group estimated the impact of recording the provisions for the loan portfolio using the methods described in Note 2.2.c for estimating the impairment of financial instruments.
e)Loan arrangement fees
As a result of the application of the new accounting treatment for these fees (Note 2.2.d), the BBVA Group estimated the impact of reversing the fees and commissions credited to income in prior years with a charge to equity, using as a balancing entry the item “Accrued Expenses and Deferred Income”. With regard to 2004, the portion of these fees and commissions relating to that year were recognised in the income statement.
f)Pensions
Under EU-IFRSs the assumptions used to measure defined benefit pension commitments must be unbiased and mutually compatible, and the market interest rate relating to high quality assets must be used for discounting purposes, IFRSs also stipulate that, for employees subject to Spanish labour legislation, the actuarial assumptions to be used must be based on the applicable Spanish legislation and the actuarial assumptions published by the Directorate-General of Insurance and Pension Funds (DGSFP).
Also noteworthy in this connection is the treatment of the risks insured with Group companies pursuant to Royal Decree 1588/1999 on Externalisation as internal provisions (and their measurement as such) in the consolidated financial statements. The assets assigned are measured independently on the basis of their nature.
As a result of the application of these criteria, the Group reviewed all its actuarial assumptions for existing commitments and recognized all the deficits relating to externalised commitments existing at January 1, 2004, the date of transition to EU-IFRSs.
All cumulative unrecognized actuarial losses at January 1, 2004 were recognised with a charge to reserves.
g)Derivatives
Under EU-IFRSs all derivatives are measured at fair value through profit or loss. Hedging transactions require greater documentation and yearic monitoring of their effectiveness. In fair value hedges, changes in the fair value of the hedged item are recognised in income, and the related carrying amount is adjusted. The BBVA Group’s review of the validity of the transactions classified as hedges demonstrated that most of the hedges were highly effective.
The most significant impacts of EU-IFRSs are the recognition in reserves of the unrealised gains existing at the date of transition (January 1, 2004) and the recognition in profit or loss of the changes in the unrealised gains or losses for the year.
In the case of transactions that were designated as subject to hedge accounting at January 1, 2004 but which did not comply with the conditions of IAS 39 to be so designated, hedge accounting was discontinued. Net positions designated as hedged items under the previous standards and rules were replaced as hedged items at January 1, 2004 by an amount of assets or liabilities of the net positions.
Transactions initiated before January 1, 2004 were not designated as hedges retrospectively.
h)Preference shares
Preference shares that do not comply with Rule Fifty-Four of Bank of Spain Circular 4/2004 are classified under the heading Equity Having the Nature of a Financial Liability on the liability side of the balance sheet.
This reclassification has no effect on the calculation of eligible equity for the purposes of Bank of Spain Circular 5/1993, since these preference shares are still included in tier-one capital.
i)Tangible assets
In the case of tangible assets, the Group used as attributed cost on the revaluation date the amounts revalued prior to January 1, 2004, on the basis of the legislation then in force. In this connection, the revaluations performed under Spanish law and the adjustments for inflation made by subsidiaries in countries with inflation accounting were considered to be valid.
Also, certain tangible asset items were recognised at fair value and, therefore, this value was used as attributed cost at January 1, 2004.
j)Equity-instrument-based employee compensation
As permitted by IFRS 1 and Transitional Provision One of Bank of Spain Circular 4/2004, IFRS 2 were not applied to the equity instruments granted to employees before November 7, 2002 title to which had not yet passed to these employees on January 1, 2005.
k)Cumulative exchange differences
The cumulative exchange differences at January 1, 2004 of all businesses abroad were definitively charged or credited to reserves. Consequently, the exchange gains or losses arising on the subsequent sale or disposal by other means of businesses abroad relate only to the exchange differences that arose after January 1, 2004.
l)Transactions involving own equity instruments
The gains or losses obtained on transactions involving treasury shares are recognised as changes in equity and these shares continue to be carried at their acquisition cost. Under the previous accounting standards, these gains or losses were recognised in the income statement.
4. Banco Bilbao Vizcaya Argentaria GroupBANCO BILBAO VIZCAYA ARGENTARIA GROUP
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) is the Group’s parent company. Its individual financial statements are prepared on the basis of the accounting policies and methods contained in Bank of Spain Circular 4/2004. (See Note 1.2)
The Bank represented approximately 63.01%65% of the Group’s assets and 26.60%33% of consolidated profit before tax atas of December 31, 2006 (63% and 27%, respectively, as of December 31, 2005 (63.47% and 21.2%63% and 21%, respectively, atas of December 31, 2004), after the related consolidation adjustments and eliminations.
SummarisedSummarized below are the financial statements of Banco Bilbao Vizcaya Argentaria, S.A. atas of December 31, 2006, 2005 and 2004:
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
BALANCE SHEETS ATAS OF DECEMBER 31, 2006, 2005 AND 2004 (SUMMARIZED)
- Thousands of Euros –
2005 | 2004 | |||||
ASSETS | ||||||
CASH AND BALANCES WITH CENTRAL BANKS | 2,707,634 | 3,584,389 | ||||
FINANCIAL ASSETS HELD FOR TRADING | 31,223,865 | 33,786,124 | ||||
AVAILABLE-FOR-SALE FINANCIAL ASSETS | 32,895,371 | 27,320,242 | ||||
LOANS AND RECEIVABLES | 183,250,928 | 149,381,995 | ||||
HELD-TO-MATURITY INVESTMENTS | 3,959,264 | 2,221,502 | ||||
HEDGING DERIVATIVES | 2,505,102 | 4,033,289 | ||||
NON-CURRENT ASSETS HELD FOR SALE | 29,722 | 51,919 | ||||
INVESTMENTS | 13,296,918 | 12,068,994 | ||||
INSURANCE CONTRACTS LINKED TO PENSIONS | 2,089,985 | 2,097,376 | ||||
TANGIBLE ASSETS | 2,060,765 | 2,034,013 | ||||
INTANGIBLE ASSETS | 51,920 | 37,316 | ||||
TAX ASSETS | 3,939,982 | 3,308,695 | ||||
PREPAYMENTS AND ACCRUED INCOME | 512,377 | 310,954 | ||||
OTHER ASSETS | 616,788 | 426,173 | ||||
TOTAL ASSETS | 279,140,621 | 240,662,981 | ||||
2005 | 2004(*) | |||||
TOTAL LIABILITIES AND EQUITY | ||||||
LIABILITIES | ||||||
FINANCIAL LIABILITIES HELD FOR TRADING | 14,579,963 | 11,735,827 | ||||
FINANCIAL LIABILITIES AT AMORTISED COST | 242,037,543 | 206,918,252 | ||||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | 183,201 | ||||
HEDGING DERIVATIVES | 947,007 | 2,317,121 | ||||
PROVISIONS | 6,376,428 | 6,292,468 | ||||
TAX LIABILITIES | 1,579,989 | 786,274 | ||||
ACCRUED EXPENSES AND DEFERRED INCOME | 762,477 | 718,074 | ||||
OTHER LIABILITIES | 7,004 | 1,262 | ||||
EQUITY HAVING THE NATURE OF A FINANCIAL LIABILITY | — | — | ||||
TOTAL LIABILITIES | 266,290,411 | 228,952,479 | ||||
EQUITY | ||||||
VALUATION ADJUSTMENTS | 1,809,782 | 933,037 | ||||
SHAREHOLDERS’ EQUITY | 11,040,428 | 10,777,465 | ||||
Capital | 1,661,518 | 1,661,518 | ||||
Share premium | 6,658,390 | 6,682,603 | ||||
Reserves | 2,001,854 | 1,877,718 | ||||
Other equity instruments | 141 | — | ||||
Less: Treasury shares | (29,773 | ) | (8,500 | ) | ||
Profit attributed to the Group | 1,918,142 | 1,581,382 | ||||
Less: Dividends and remuneration | (1,169,844 | ) | (1,017,256 | ) | ||
TOTAL EQUITY | 12,850,210 | 11,710,502 | ||||
TOTAL EQUITY AND LIABILITIES | 279,140,621 | 240,662,981 | ||||
Thousands of Euros | ||||||
ASSETS | 2006 | 2005 | 2004 | |||
CASH AND BALANCES WITH CENTRAL BANKS | 3,264,155 | 2,707,634 | 3,584,389 | |||
FINANCIAL ASSETS HELD FOR TRADING | 35,899,495 | 31,223,865 | 33,786,124 | |||
AVAILABLE-FOR-SALE FINANCIAL ASSETS | 17,535,502 | 32,895,371 | 27,320,242 | |||
LOANS AND RECEIVABLES | 213,027,835 | 183,250,928 | 149,381,995 | |||
HELD-TO-MATURITY INVESTMENTS | 5,905,636 | 3,959,264 | 2,221,502 | |||
HEDGING DERIVATIVES | 1,758,932 | 2,505,102 | 4,033,289 | |||
NON-CURRENT ASSETS HELD FOR SALE | 26,393 | 29,722 | 51,919 | |||
INVESTMENT | 14,159,672 | 13,296,918 | 12,068,994 | |||
INSURANCE CONTRACTS LINKED TO PENSIONS | 2,114,052 | 2,089,985 | 2,097,376 | |||
TANGIBLE ASSET | 2,093,446 | 2,060,765 | 2,034,013 | |||
INTANGIBLE ASSETS | 63,055 | 51,920 | 37,316 | |||
TAX ASSETS | 3,275,977 | 3,939,982 | 3,308,695 | |||
ACCRUED INCOME | 505,276 | 512,377 | 310,954 | |||
OTHER ASSETS | 561,914 | 616,788 | 426,173 | |||
TOTAL ASSETS | 300,191,340 | 279,140,621 | 240,662,981 | |||
Thousands of Euros | |||||||||
TOTAL LIABILITIES AND EQUITY | 2006 | 2005 | 2004 | ||||||
LIABILITIES | |||||||||
FINANCIAL LIABILITIES HELD FOR TRADING | 13,658,091 | 14,579,963 | 11,735,827 | ||||||
FINANCIAL LIABILITIES AT AMORTISED COST | 258,697,166 | 242,037,543 | 206,918,252 | ||||||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | 183,201 | ||||||
HEDGING DERIVATIVES | 2,088,420 | 947,007 | 2,317,121 | ||||||
PROVISIONS | 6,926,134 | 6,376,428 | 6,292,468 | ||||||
TAX LIABILITIES | 1,249,537 | 1,579,989 | 786,274 | ||||||
ACCRUED EXPENSES AND DEFERRED INCOME | 736,057 | 762,477 | 718,074 | ||||||
OTHER LIABILITIES | 104,998 | 7,004 | 1,262 | ||||||
TOTAL LIABILITIES | 283,460,403 | 266,290,411 | 228,952,479 | ||||||
EQUITY | |||||||||
VALUATION ADJUSTMENTS | 2,264,193 | 1,809,782 | 933,037 | ||||||
SHAREHOLDER’S EQUITY | 14,466,744 | 11,040,428 | 10,777,465 | ||||||
Capital | 1,740,465 | 1,661,518 | 1,661,518 | ||||||
Share premium | 9,579,443 | 6,658,390 | 6,682,603 | ||||||
Reserves | 2,085,465 | 2,001,854 | 1,877,718 | ||||||
Other equity instruments | 25,874 | 141 | — | ||||||
Less: Treasury shares | (40,283 | ) | (29,773 | ) | (8,500 | ) | |||
Profit attributed to the Group | 2,439,825 | 1,918,142 | 1,581,382 | ||||||
Less: Dividends and remuneration | (1,364,045 | ) | (1,169,844 | ) | (1,017,256 | ) | |||
TOTAL EQUITY | 16,730,937 | 12,850,210 | 11,710,502 | ||||||
TOTAL EQUITY AND LIABILITIES | 300,191,340 | 279,140,621 | 240,662,981 | ||||||
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 (SUMMARIZED)
- Thousands of Euros –
Thousands of Euros | |||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
INTEREST AND SIMILAR INCOME | 7,169,319 | 6,382,852 | 9,556,032 | 7,169,319 | 6,382,852 | ||||||||||
INTEREST EXPENSE AND SIMILAR CHARGES | (4,473,854 | ) | (3,701,087 | ) | (6,976,992 | ) | (4,473,854 | ) | (3,701,087 | ) | |||||
INCOME FROM EQUITY INSTRUMENTS | 1,056,912 | 1,091,478 | 1,528,495 | 1,056,912 | 1,091,478 | ||||||||||
NET INTEREST INCOME | 3,752,377 | 3,773,243 | 4,107,535 | 3,752,377 | 3,773,243 | ||||||||||
FEE AND COMMISSION INCOME | 1,928,985 | 1,689,587 | 2,062,234 | 1,928,985 | 1,689,587 | ||||||||||
FEE AND COMMISSION EXPENSES | (330,718 | ) | (326,743 | ) | (329,939 | ) | (330,718 | ) | (326,743 | ) | |||||
GAINS/LOSSES ON FINANCIAL ASSETS AND LIABILITIES (NET) | 529,671 | 189,643 | 1,246,393 | 529,671 | 189,643 | ||||||||||
EXCHANGE DIFFERENCES (NET) | 132,573 | 205,341 | 235,899 | 132,573 | 205,341 | ||||||||||
GROSS INCOME | 6,012,888 | 5,531,071 | 7,322,122 | 6,012,888 | 5,531,071 | ||||||||||
OTHER OPERATING INCOME | 80,690 | 80,326 | 69,826 | 80,690 | 80,326 | ||||||||||
PERSONNEL EXPENSES | (2,014,427 | ) | (1,938,901 | ) | (2,158,072 | ) | (2,014,247 | ) | (1,938,901 | ) | |||||
OTHER ADMINISTRATIVE EXPENSES | (804,027 | ) | (757,170 | ) | (849,074 | ) | (804,027 | ) | (757,170 | ) | |||||
DEPRECIATION AND AMORTISATION | (196,843 | ) | (207,526 | ) | (200,678 | ) | (196,843 | ) | (207,526 | ) | |||||
OTHER OPERATING EXPENSES | (62,807 | ) | (56,649 | ) | (64,906 | ) | (62,807 | ) | (56,649 | ) | |||||
NET OPERATING INCOME | 3,015,654 | 2,651,151 | 4,119,218 | 3,015,654 | 2,651,151 | ||||||||||
IMPAIRMENT LOSSES (NET) | (441,825 | ) | (601,981 | ) | (645,101 | ) | (441,825 | ) | (601,981 | ) | |||||
PROVISION EXPENSE (NET) | (378,539 | ) | (670,962 | ) | (1,024,593 | ) | (378,539 | ) | (670,962 | ) | |||||
OTHER GAINS | 107,872 | 448,368 | 614,950 | 107,872 | 448,368 | ||||||||||
OTHER LOSSES | (34,985 | ) | (2,472 | ) | (34,922 | ) | (34,985 | ) | (2,472 | ) | |||||
INCOME BEFORE TAX | 2,268,177 | 1,824,104 | 3,029,552 | 2,268,177 | 1,824,104 | ||||||||||
INCOME TAX | (350,035 | ) | (242,722 | ) | (589,727 | ) | (350,035 | ) | (242,722 | ) | |||||
INCOME FROM ORDINARY ACTIVITIES | 1,918,142 | 1,581,382 | |||||||||||||
INCOME FROM CONTINUING OPERATIONS | 2,439,825 | 1,918,142 | 1,581,382 | ||||||||||||
INCOME FROM DISCONTINUED OPERATIONS (NET) | — | — | — | — | — | ||||||||||
INCOME FOR THE YEAR | 1,918,142 | 1,581,382 | 2,439,825 | 1,918,142 | 1,581,382 | ||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2006, 2005
AND 2004 (SUMMARIZED)
- Thousands of Euros–
Thousands of Euros | |||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||
NET INCOME RECOGNISED DIRECTLY IN EQUITY | 876,745 | 291,581 | 454,411 | 876,745 | 291,581 | ||||||||
Available-for-sale financial assets | 992,180 | 279,767 | 453,247 | 992,180 | 279,767 | ||||||||
Financial liabilities at fair value through equity | — | — | — | — | — | ||||||||
Cash flow hedges | (65,607 | ) | — | (29,110 | ) | (65,607 | ) | — | |||||
Hedges of net investments in foreign operations | — | — | — | — | — | ||||||||
Exchange differences | (49,828 | ) | 11,814 | 30,274 | (49,828 | ) | 11,814 | ||||||
Non-current assets held for sale | — | — | — | — | — | ||||||||
INCOME FOR THE YEAR | 1,918,142 | 1,581,382 | 2,439,825 | 1,918,142 | 1,581,382 | ||||||||
TOTAL INCOME AND EXPENSES FOR THE YEAR | 2,794,887 | 1,872,963 | 2,894,236 | 2,794,887 | 1,872,963 | ||||||||
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
CASH FLOW STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(SUMMARIZED)
- Thousands of Euros –
2005 | 2004 | Thousands of Euros | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||
Consolidated profit for the year | 1,918,142 | 1,581,382 | |||||||||||||
2006 | 2005 | 2004 | |||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES | |||||||||||||||
Profit for the year | 2,439,825 | 1,918,142 | 1,581,382 | ||||||||||||
Adjustment to profit: | 1,414,257 | 1,445,596 | 2,035,759 | 1,414,257 | 1,445,596 | ||||||||||
Adjusted profit | 3,332,399 | 3,026,978 | 4,475,584 | 3,332,399 | 3,026,978 | ||||||||||
Net increase/decrease in operating assets | (35,678,851 | ) | (19,824,845 | ) | (17,526,778 | ) | (35,678,851 | ) | (19,824,845 | ) | |||||
Financial assets held for trading | 2,562,259 | (4,127,044 | ) | (4,675,630 | ) | 2,562,259 | (4,127,044 | ) | |||||||
Other financial assets at fair value through profit or loss | 15,574,430 | (4,130,001 | ) | 1,676,829 | |||||||||||
Available-for-sale financial assets | (4,130,001 | ) | 1,676,829 | (30,201,808 | ) | (34,133,846 | ) | (18,220,954 | ) | ||||||
Loans and receivables | (34,133,846 | ) | (18,220,954 | ) | 1,776,230 | 22,737 | 846,324 | ||||||||
Other operating assets | 22,737 | 846,324 | |||||||||||||
Net increase/decrease in operating liabilities | 35,212,225 | 22,358,151 | 15,204,261 | 35,212,225 | 22,358,151 | ||||||||||
Financial liabilities held for trading | 2,844,136 | 1,036,983 | (921,872 | ) | 2,844,136 | 1,036,983 | |||||||||
Financial liabilities measured at amortised cost | 33,983,507 | 21,055,019 | |||||||||||||
Other financial liabilities at fair value through profit or loss | 15,833,182 | 33,983,507 | 21,055,019 | ||||||||||||
Other operating liabilities | (1,615,418 | ) | 266,149 | 292,951 | (1,615,418 | ) | 266,149 | ||||||||
Total net cash flows from operating activities (1) | 2,865,773 | 5,560,284 | 2,153,067 | 2,865,773 | 5,560,284 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||||||
Investments (-) | 2,982,316 | 6,613,831 | (4,455,669 | ) | (2,982,316 | ) | (6,613,831 | ) | |||||||
Divestments (+) | 266,755 | 752,289 | 1,689,535 | 266,755 | 752,289 | ||||||||||
Total net cash flows from investing activities (2) | (2,715,561 | ) | (5,861,542 | ) | (2,766,134 | ) | (2,715,561 | ) | (5,861,542 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||||||
Issuance/Redemption of capital (+/-) | — | 1,998,750 | 2,960,087 | — | 1,998,750 | ||||||||||
Acquisition of own equity instruments (-) | 2,619,475 | 2,228,215 | (4,728,219 | ) | (2,619,475 | ) | (2,228,215 | ) | |||||||
Disposal of own equity instruments (+) | 2,615,499 | 2,280,902 | 4,760,145 | 2,615,499 | 2,280,902 | ||||||||||
Issuance/Redemption of non-voting equity units (+/-) | — | — | |||||||||||||
Issuance/Redemption of other equity instruments (+/-) | 141 | — | 25,733 | 141 | — | ||||||||||
Issuance/Redemption of capital having the nature of a financial liability (+/-) | — | — | |||||||||||||
Issuance/Redemption of subordinated liabilities (+/-) | 701,763 | 784,458 | 63,942 | 701,763 | 784,458 | ||||||||||
Issuance/Redemption of other long-term liabilities (+/-) | — | — | — | — | — | ||||||||||
Dividends/Interest paid (-) | 1,600,483 | 1,352,353 | |||||||||||||
Dividends paid (-) | (1,915,831 | ) | (1,600,483 | ) | (1,352,353 | ) | |||||||||
Other items relating to financing activities (+/-) | (115,435 | ) | (14,516 | ) | 1,164 | (115,435 | ) | (14,516 | ) | ||||||
Total net cash flows from financing activities (3) | (1,017,990 | ) | 1,469,026 | 1,167,021 | (1,017,990 | ) | 1,469,026 | ||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH OR CASH EQUIVALENTS (4) | (1,623 | ) | 573 | 2,495 | (1,623 | ) | 573 | ||||||||
NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (1+2+3+4) | (869,401 | ) | 1,168,341 | 556,449 | (869,401 | ) | 1,168,341 | ||||||||
Cash or cash equivalents at beginning of year | 3,576,883 | 2,408,542 | 2,707,482 | 3,576,883 | 2,408,542 | ||||||||||
Cash or cash equivalents at end of year | 2,707,482 | 3,576,883 | 3,263,931 | 2,707,482 | 3,576,883 | ||||||||||
The total assets and finance income of the Group’s most significant subsidiaries atas of December 31, 2006, 2005 and 2004 are as follows:
Thousands of Euros | ||||||||||
2005 | 2004 | |||||||||
COUNTRY | Total Assets | Interest and Similar Income | Total Assets | Interest and Similar Income | ||||||
BBVA Bancomer Group | Mexico | 59,219,806 | 5,495,088 | 47,641,124 | 3,498,240 | |||||
BBVA Chile Group | Chile | 6,468,472 | 486,809 | 5,040,878 | 323,876 | |||||
BBVA Puerto Rico | Puerto Rico | 5,852,238 | 258,016 | 3,977,188 | 196,720 | |||||
BBVA Banco Francés Group | Argentina | 4,273,340 | 398,241 | 3,436,801 | 285,231 | |||||
BBVA Banco Provincial Group | Venezuela | 5,133,080 | 454,128 | 3,620,137 | 393,699 | |||||
BVA Continental Group | Peru | 4,555,641 | 251,337 | 3,133,771 | 174,526 | |||||
BBVA Colombia Group | Colombia | 4,740,948 | 290,508 | 2,331,336 | 220,608 |
Thousands of Euros | ||||||||
2006 | 2005 | 2004 | ||||||
COUNTRY | Total Assets | Total Assets | Total Assets | |||||
Grupo BBVA Bancomer | Mexico | 55,992,005 | 59,219,806 | 47,641,124 | ||||
Grupo BBVA Chile | Chile | 6,415,379 | 6,468,472 | 5,040,878 | ||||
BBVA Puerto Rico | Puerto Rico | 4,731,683 | 5,852,238 | 3,977,188 | ||||
Grupo BBVA Banco Francés | Argentina | 4,594,966 | 4,273,340 | 3,436,801 | ||||
Grupo BBVA Banco Provincial | Venezuela | 6,823,833 | 5,133,080 | 3,620,137 | ||||
Grupo BBVA Continental | Peru | 4,463,740 | 4,555,641 | 3,133,771 | ||||
Grupo BBVA Colombia | Colombia | 4,797,426 | 4,740,948 | 2,331,336 |
COUNTRY Grupo BBVA Bancomer Mexico Grupo BBVA Chile Chile BBVA Puerto Rico Puerto Rico Grupo BBVA Banco Francés Argentina Grupo BBVA Banco Provincial Venezuela Grupo BBVA Continental Peru Grupo BBVA Colombia Colombia Thousands of Euros 2006 2005 2004 Finance Income Finance Income Finance Income 5,886,223 5,495,088 3,498,240 429,156 486,809 323,876 324,647 258,016 196,720 375,889 398,241 285,231 572,615 454,128 393,699 326,212 251,337 174,526 436,789 290,508 220,608
Appendix V includes a detail of the fully consolidated subsidiaries which, based on the information available, were more than 5% owned by non-Group shareholders atas of December 31, 2005.2006.
AtAs of December 31, 2006 and 2005, and 2004, certainin its capacity as a depository in the ADR programme, Bank of New York, a foreign non-BBVA Group credit institutionsinstitution, held a significant ownership interestsinterest in the following fully consolidated companies:company A.F.P Próvida.
2005
2004
Colombia.
The changes in the ownership interests held by the Group in the most significant subsidiaries and the situation of these interests atas of December 31, 20052006 were as follows:
BBVA-Bancomer Group (Mexico)-BBVA BANCOMER GROUP (MEXICO)
Grupo Financiero BBV-Probursa, S.A. de C.V. and the companies in its group, including most notably Banco Bilbao Vizcaya México, S.A., joined the Group in July 1995. In the first half of 2000, it was resolved to merge Grupo Financiero BBV-Probursa, S.A. de C.V. into Grupo Financiero BBVA Bancomer, S.A. de C.V. Following this merger, which was carried out in July 2000, the Group’s ownership interest in Grupo Financiero BBVA Bancomer, S.A. de C.V. was 36.6%.
In the year from 2001 to 2003, the Group acquired various holdings in the share capital of Grupo Financiero BBVA Bancomer, S.A. de C.V., as a result of which its ownership interest was 59.43% atas of December 31, 2003.
On March 20, 2004, the BBVA Group completed the tender offer on 40.6% of the share capital of Grupo Financiero BBVA Bancomer, S.A. de C.V. The final number of shares presented in the offer and accepted by BBVA was 3,660,295,210, which represented 39.45% of the share capital of the Mexican entity. Following the acquisition of these shares through the tender offer, the ownership interest held by BBVA in the capital of Grupo Financiero BBVA Bancomer, S.A. de C.V. was 98.88%, which, as a result of the purchase of shares subsisting in the market, increased to 99.70% atas of December 31, 2004.
AtAs of December 31, 2006 and 2005, following the purchase of shares subsisting in the market, BBVA held an ownership interest of 99.96% in the share capital of Grupo BBVA Financiero Bancomer, S.A.
BBVA Banco Francés (Argentina)-BANCO FRANCÉS GROUP (ARGENTINA)
In December 1996, the Group acquired 30% of BBVA Banco Francés, S.A. (formerly Banco Francés Río de la Plata, S.A.) and assumed its management. Further acquisitions and a capital increase prior to December 31, 2003 brought the Group’s ownership interest to 79.6% at that date.
On January 21, 2004, BBVA Banco Francés, S.A. presented the new formulation of the regularization and reorganization plan (which had begun in 2002) requested by the Argentine authorities. The new plan envisaged, mainly, the sale of this company’s subsidiary BBVA Banco Francés (Cayman) Ltd. to BBVA, S.A., which was carried out on March 18, 2004, and the conversion into equity of a USD 78$78 million loan granted by BBVA S.A. to BBVA Banco Francés, S.A.
In compliance with the commitment thus assumed, on April 22, 2004, the Annual General Meeting of BBVA Banco Francés, S.A. authorized a capital increase with a par value of ARP 385 million, which was carried out in October 2004, BBVA subscribed to the capital increase at BBVA Banco Francés, S.A. through the conversion into equity of a USD 78$78 million loan it had granted to this investee. On February 23, 2005, the Superintendant of Financial and Exchange Institutions considered that the regularization and reorganization plan had been completed.
At
The ownership interest held by the Group as of December 31, 2004 and 2005 the ownership interest held in this company was 76.14%76.11% and 76.08%, respectively.
Consolidar Group (Argentina)-
The Consolidar Group joinedownership interest held by the Group in October 1997, when a 63.33% ownership interest was reached through BBVA Banco Francés.
Atas of December 31, 2004 and 2005, the Group held ownership interests of 53.89%, 65.96% and 66.67% in Consolidar Administradora de Fondos de Jubilación y Pensiones (AFJP), S.A., Consolidar Cía. de Seguros de Vida, S.A. and Consolidar Seguros de Retiro, S.A., respectively, through Banco Francés.2006 was 76.07%.
Banco Bilbao Vizcaya Argentaria Puerto Rico, S.A.-BBVA PUERTO RICO, S.A.
In July 1998 BBV Puerto Rico absorbed PonceBank, an entity with total assets of USD 1,095$1,095 million, through a capital increase of USD 166$166 million. Also in 1998, BBV Puerto Rico acquired the assets and liabilities of Chase Manhattan Bank in Puerto Rico for a disbursement of USD 50$50 million.
At December 31, 2004 and 2005, theThe ownership interest held in this companyby the Group as of December 31, 2006 was 100%.
BBVA Chile Group-CHILE GROUP
In September 1998, the Group acquired a 44% holding in Banco BHIF, S.A., currently BBVA Chile, S.A., and assumed the management of the group headed by this Chilean financial institution. In 1999 additional shares were acquired, bringing the Group’s total holding in this entity to 53.3% atas of December 31, 1999.
AtAs of December 31, 2004, the ownership interest held in BBVA Chile, S.A. was 66.27%, and additional acquisitions of capital in 2005 brought this figure up to 66.62%.
A.F.P. Provida, S.A. (Chile)-
On July 1, 1999,March 3, 2006, BBVA purchased 0.43% of BBVA Chile’s share capital for Chilean pesos 2,318 million (€3.7 million), increasing BBVA’s share capital in BBVA Chile to 67.05%. As the Group acquiredshare capital of BBVA in BBVA Chile was higher than two thirds of BBVA Chile’s total share capital, BBVA in compliance with Chilean legislation launched a 41.17% holdingpublic tender offer for all of BBVA Chile’s share capital. The public tender offer was effective from April 3, 2006 to May 2, 2006. After the acceptance of the public tender offer, BBVA’s share capital in and assumed the management of, Administradora de Fondos de Pensiones Provida, S.A. Subsequent investments brought the holdingBBVA Chile increased to 64.32% in December 2004.68.18%.
The ownership interest held by the Group atas of December 31, 20052006 was 64.32%67.84%.
BBVA Banco Provincial Group (Venezuela)-BANCO PROVINCIAL GROUP (VENEZUELA)
In March 1997, the Group acquired 40% of the share capital of Banco Provincial, S.A. and higher-percentage holdings in the other Provincial Group companies; consequently, it assumed the management of this group. Further acquisitions made in subsequent years raised the Bank’s holding in the Provincial Group to 55.60% atas of December 31, 2004 and 2005.
BBVA Banco Continental Group (Peru)-BANCO CONTINENTAL GROUP (PERU)
In April 1995, the Group acquired 75%50% of the share capital of Banco Continental, S.A. through Holding Continental, S.A. (50%-owned by the Group) and assumed the management of the financial group headed by Banco Continental, S.A. Subsequently, in 2004 Holding Continental, S.A. increased its(Note 2.1.a). The ownership interest in Banco Continental, S.A. to 92.04%, and this percentage remained unchanged in 2005.held by the Group as of December 31, 2006 was 92.08%.
BBVA Colombia Group-COLOMBIA GROUP
In August 1996, the Group acquired 40% of the ordinary shares (equal to 35.1% of the total share capital) of Banco Ganadero, S.A. (currently BBVA Colombia, S.A.). Subsequently, additional holdings were acquired, bringing the ownership interest to 95.37% atas of December 31, 2003.
AtOn December 31, 2005, and 2004, theBBVA Colombia acquired 98.78% of Banco Granahorrar, S.A., proceeding to merger both entities on May 2006.
The ownership interest held by the Group as of December 31, 2006 was 95.37%95.43%.
ChangesCHANGES IN THE GROUP IN 2006
The most noteworthy acquisitions and sales of subsidiaries in 2006 were as follows:
On July 28, 2006, Telefónica España, S.A., on behalf of the liquidity mechanism to integrate Uno-E Bank, S.A., as established in the agreement entered into by Terra (subsequently merged into Telefónica España, S.A.) and BBVA, proceeded on January 10, 2003 to start selling to BBVA its 33 % ownership interest in Uno-E Bank, S.A. for an aggregated amount of €148.5 million, reaching BBVA a 100 % ownership of Uno-E Bank, S.A.
In May 2006 BBVA acquired a 51% ownership interest in Forum, a Chilean company specialising in car purchase financing, through the Chilean entities Forum Distribuidora, S.A. and Forum Servicios Financieros, S.A. (which in turn own all the shares of ECASA, S.A.), giving rise to the incorporation of BBVA Financiamiento Automotriz. The goodwill recognised as of December 31, 2006 amounted €51 million.
On April 5, 2006 the Group sold its 51% ownership interest in Banc Internacional d´Andorra, S.A. for €395.15 million, which gave rise to a gain of €184 million.
On November 10, 2006 the Group acquired Texas Regional Bancshares Inc. through the investment of $2,141 million (€1,674 million). The goodwill recognised as of December 31, 2006 amounted €1,257 million.
On November 30, 2006 the Group acquired all the shares of the Italian vehicle rental company Maggiore Fleet S.p.A., for €70.2 million, giving rise to goodwill of €35.7 million.
In January 3, 2007 the acquisition of State National Bancshares Inc. was accomplished (see Note 61).
CHANGES IN THE GROUP IN 2005-
The most noteworthy acquisitions of subsidiaries in 2005 were as follows:
On 6 January, pursuant to the agreement entered into in September 2004 and after obtaining the mandatory authorisations, the Group, through BBVA Bancomer, acquired all the shares of Hipotecaria Nacional, S.A. de C.V., a Mexican company specialising in the mortgage business. The price paid was MXP 4,121 million (approximately EUR 276,048 thousands)€276 million) and the goodwill recognised amounted to EUR 259,111 thousands at€259 million as of December 31, 2005.
On 28 April, pursuant to the agreement entered into on September 20, 2004 and after obtaining the mandatory authorisations, BBVA S.A. acquired all the shares of Laredo National Bancshares, Inc., a bank holding located in Texas (United States) which operates in the banking business through two independent banks: Laredo National Bank and South Texas National Bank. The price paid was USD 859.6$859.6 million (approximately EUR 666,110 thousands)€666 million) and the goodwill recognised amounted to EUR 473,941 thousands at€474 million as of December 31, 2005.
On October 31, 2005, the Guarantee Fund for Colombian Financial Institutions, FOGAFIN, sold by public auction 98.78% of the share capital of Banco Granahorrar, S.A. (a Colombian financial institution) to the BBVA Group’s subsidiary in Colombia, BBVA Colombia, S.A. The financial offer made by BBVA Colombia for the acquisition of Banco Granahorrar, S.A. totalled USD 423.66$423.66 million. This transaction was performed in December 2005 after authorisation had been obtained from the related supervisory and control bodies. The price paid was Colombian pesos 981,572.2 million, approximately EUR 364,163 thousands,€364 million, and the goodwill recognised amounted to EUR 266,862 thousands at€267 million as of December 31, 2005.
Changes in the Group inCHANGES IN THE GROUP IN 2004-
The most noteworthy transactions in 2004 were as follows:
On March 31, 2004, Finanzia Renting, S.A. was merged into BBVA Renting, S.A., effective for accounting purposes from January 1, 2004. These two companies were wholly-owned investees of BBVA.
On July 21, 2004, the deed was executed for the merger of Corporación Área Inmobiliaria, S.L. into BBVA Área Inmobiliaria, S.L. through the transfer en bloc of the assets and liabilities of the former to the latter, and the dissolution of the former. On this same date the deed was executed whereby BBVA Área Inmobiliaria, S.L. changed its name to Anida Grupo Inmobiliario, S.L.
On October 8, 2004, the Group completed the purchase of all the shares of Valley Bank, an entity located in California, for USD 16.7$16.7 million (EUR 13.13 million)(€13,130 thousand). This was BBVA’s first commercial banking transaction in mainland USA.
On October 12, 2004, the Group sold the El Salvador welfare business comprising BBVA Crecer AFP and BBVA Seguros, S.A. – Seguros de Personas - Personas—in which BBVA had ownership interests of 62% and 51%, respectively, for USD 42.8$42.8 million (EUR 32.83 million)(€32,827 thousand), giving rise to a gain of EUR 12.3€12,287 thousand.
INVESTMENTS ON COURSE
On November 22, 2006 BBVA reached an agreement with the Chinese banking group CITIC Group to develop a strategic alliance in the Chinese market. In accordance with this agreement, BBVA will acquire a 5% ownership interest in “China Citic Bank” (“CNCB”) with a call option to acquire 9.9% of its sharecapital. The price for the initial 5% sharecapital is of approximately €501 million.
5. Distribution of profitDISTRIBUTION OF PROFIT
In 20052006 the Board of Directors of Banco Bilbao Vizcaya Argentaria, S.A. resolved to pay the shareholders three interim dividends out of 20052006 profit, amounting to a total of EUR 0.345€0.396 gross per share. The aggregate amount of the interim dividends declared atas of December 31, 2005,2006, net of the amount collected and to be collected by the consolidable Group companies, was EUR 1,166,644€1,362,700 thousand and is recorded under Dividends“Equity-Dividends and RemunerationRemuneration” in the related consolidated balance sheet (Note 23)31). The last of the aforementioned interim dividends, which amounted to EUR 0.115€0.132 gross per share and was paid to the shareholders on January 10, 2006,2007, was recorded under the heading Financial“Financial Liabilities at Amortised Cost – Other Financial LiabilitiesLiabilities” in the consolidated balance sheet atas of December 31, 20052006 (Note 26).
The provisional accounting statements prepared in 20052006 by Banco Bilbao Vizcaya Argentaria, S.A. in accordance with legal requirements evidencing the existence of sufficient liquidity for the distribution of the interim dividends were as follows:
Thousands of Euros | Thousands of Euros | |||||||||||||||
31/05/05 Dividend 1 | 31/08/05 Dividend 2 | 30/11/05 Dividend 3 | 31-05-2006 Dividend 1 | 31-08-2006 Dividend 2 | 30-11-2006 Dividend 3 | |||||||||||
Interim dividend- | ||||||||||||||||
Interim dividend - | ||||||||||||||||
Profit at each of the dates indicated, after the provision for income tax | 502,337 | 1,156,526 | 1,630,026 | 1,535,235 | 2,376,266 | 2,244,779 | ||||||||||
Less- | ||||||||||||||||
Less - | ||||||||||||||||
Estimated provision for Legal Reserve | — | — | (15,789 | ) | ||||||||||||
Interim dividends paid | — | (389,948 | ) | (779,896 | ) | — | (447,592 | ) | (895,184 | ) | ||||||
Maximum amount distributable | 502,337 | 766,578 | 850,130 | 1,535,235 | 1,928,674 | 1,333,806 | ||||||||||
Amount of proposed interim dividend | 389,948 | 389,948 | 389,948 | 447,592 | 447,592 | 468,861 | ||||||||||
The Bank’s Board of Directors will propose to the shareholders at the Annual General Meeting that a final dividend of EUR 0.0186€0.241 per share be paid out of 20052006 income. Based on the number of shares representing the share capital atas of December 31, 20052006 (Note 32), the final dividend would amount to EUR 630,698€856,025 thousand and profit would be distributed as follows:
Thousands of
| ||
Net profit for | ||
2,439,825 | ||
Distribution: | ||
Dividends | ||
- Interim | ||
- Final | ||
| 15,789 | |
Voluntary reserves |
The distribution of profit per share during 2006, 2005 and 2004 is as follows:
First interim | Second interim | Third interim | Final | Total | ||||||
2004 | 0.100 | 0.100 | 0.100 | 0.142 | 0.442 | |||||
2005 | 0.115 | 0.115 | 0.115 | 0.186 | 0.531 | |||||
2006 | 0.132 | 0.132 | 0.132 | 0.241 | 0.637 |
6. Earnings per shareEARNINGS PER SHARE
Basic earnings per share are determined by dividing net profit or losses attributable to the Group in a given yearperiod by the weighted average number of shares outstanding during the year, excluding the average number of treasury shares held.period.
Diluted earnings per share are determined using a method similar to that used to calculate basic earnings per share; however, the weighted average number of shares outstanding is adjusted to take into account the potential dilutive effect of share options, warrants and convertible debt instruments outstanding at year-end.
The “diluted number” of shares linked to warrants outstanding at year-end is determined in two stages: firstly, the hypothetical liquid amount that would be received on the exercise of these warrants is divided by the annual average price of the share and, secondly, the difference between the amount thus quantified and the present number of potential shares is calculated; this represents the theoretical number of shares issued disregarding the dilutive effect. Profit or loss for the year is not adjusted.
Therefore:
EARNINGS PER SHARE FOR CONTINUING OPERATIONS | 2006 | 2005 | 2004 | |||||||
Numerator for basic earnings per share: | ||||||||||
Income available to common stockholders (thousands of euros) | 4,735,879 | 3,806,425 | 2,922,596 | |||||||
Numerator for diluted earnings per share: | ||||||||||
Income available to common stockholders (thousands of euros) | 4,735,879 | 3,806,425 | 2,922,596 | |||||||
Denominator for basic earnings per share (millions of shares) | 3,406 | 3,391 | 3,369 | |||||||
Denominator for diluted earnings per share (millions of shares) | 3,406 | 3,391 | 3,369 | |||||||
Thousands of Euros | ||||||||||
Basic earnings per share (euros) | 1.39 | 1.12 | 0.87 | |||||||
2005 | 2004 | |||||||||
Net profit for the year (thousands of euros) | 3,806,425 | 2,922,596 | ||||||||
Weighted average number of shares outstanding (millions of shares) | 3,384 | 3,369 | ||||||||
Basic earnings per share (euros) | 1.12 | 0.87 | ||||||||
Diluted earnings per share (euros) | 1.12 | 0.87 | 1.39 | 1.12 | 0.87 | |||||
As of December 31, 2006, 2005 and 2004, there were neither instruments nor share based payment to employees that could potentially dilute basic earnings per share.
As of December 31, 2006, 2005 and 2004, there were no discontinued operations that affected the earnings per share calculation for periods presented.
7. Basis and methodology for segment reportingBASIS AND METHODOLOGY INFORMATION FOR SEGMENT REPORTING
Segment informationInformation by business area is a fundamental tool for monitoring and managing the Group’s various businesses. Preparation of this information starts at the lowest-level units, and all the accounting data relating to the business managed by these units are recorded. Subsequently, on the basis of its established organisational structure, the GroupManagement classifies and combines thedata from these units to form the various segments. Also, the legal-entity companies composingin accordance with a defined structure by the Group are assigned to arrive at the various businesses.picture for the principal units and, finally, for the entire area itself. Likewise, the Group’s individual companies also belong to different business areas according to their type of activity. If a company’s activities do not match a single area, the diversityGroup assigns them and its earnings to a number of a given company’s business so requires, its activity and results are assigned to variousrelevant units.
After definingOnce management has defined the composition of each business segment,area, it applies the Group applies thenecessary management adjustments inherent toin the model. The most significant adjustments are as follows:relevant of these are:
Stockholders’ equity: the Group allocates economic capital commensurate with the risks incurred by each business (CeR). This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. These targets are applied at 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 CeR calculation combines lending risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk and fixed asset and technical risks in the case of insurance companies.
The primary basis of segment reporting relatesStockholders’ equity, as calculated under BIS rules, is an extremely important reference to the Group’sentire Group. However, for the purpose of allocating capital to business segments: Retail Banking Spainareas the Bank prefers CeR. It is risk-sensitive and Portugal, Wholesalethus linked to the management policies for the individual businesses and Investment Bankingthe business portfolio. This procedure anticipates the approach likely to be adopted by the future Basel II rules on capital. These provide an equitable basis for assigning capital to businesses according to the risks incurred and Businessmake it easier to compare returns.
In this note the above method of allocating capital is applied to all business units without exception (in previous years, capital was assigned to most units in the Americas which relatebased on book value).
Internal transfer prices: management uses rates adjusted for maturity to calculate the margins for each business. It also revises the interest rates for the different assets and liabilities that make up each unit’s balance sheet.
Assignment of operating expenses: the Bank assigns direct and indirect costs to the Group’s highestbusiness areas except for those where there is no close and defined relationship, i.e., when they are of a clearly corporate or institutional nature for the entire Group.
Cross-business register: in some cases, and for the correct assignment of results, consolidation adjustments are done to eliminate double accounting produced by the incentives given to boost cross-business between units.
Concerning the structure by segments, the main level is set out by type of management.business.
The Corporate Activities area handles the Group’s general management functions. These consist basically of managing BBVA’s structural interest and exchange rate positions, liquidity and own funds. This area also includes the unit responsible for managing the industrial portfolio and investments.
The secondary basis of segment reporting relates to geographical segments. Information is prepared for the Group companies located in the Americas, detailing the banking, pension and insurance activities carried on in each of the countries.
Accordingly, the current composition of the Group’s main business segments is as follows:
This segmentation is based on the current internal organisational structure established by the BBVA Group for the management and monitoring of its business activities in 2005. 2006; the arrangement of the areas is different to that in 2005 and reflects the new structure of the Group in effect since January 1, 2006.
Thus the present composition of the Group’s main business areas as of December 31, 2006, was as follows:
Retail Banking in Spain and Portugal: this includes the Financial Services unit, i.e., individual customers, small companies and businesses in the domestic market, plus consumer finance provided by Finanzia and Uno-e, mutual and pension fund managers, private banking, the insurance business and BBVA Portugal.
Wholesale Businesses: this area consists of the corporate banking unit, including SMEs (previously reported under Retail Banking), large companies and institutions in the domestic market. Global Businesses covers the global customers unit, investment banking, treasury management and distribution. The area also takes care of business and real estate projects.
Mexico and the United States: this area includes the banking, insurance and pension businesses in Mexico and the United States (including Puerto Rico).
South America: this consists of banking, insurance and pension businesses in South America.
Corporate Activities: This area includes the results of the ALCO unit (the assets and liabilities committee) and Holdings in Industrial and Financial Companies. It also books the costs from central units that have a strictly corporate function and makes allocations to corporate and miscellaneous provisions, e.g., for early retirement. Earnings from the Group’s companies in Andorra were reported under this area until April, when the Group divested its holding there.
The figures corresponding to 2005 and 2004 have been calculated following the same criteria and structure used for 2006, in order that 2006, 2005 and 2004 are homogeneous for comparison.
On December 20, 200519, 2006 the Board of Directors approved a new organisational structure for the BBVA Group.Group, which became effective on January 1, 2007.
The detail of the contribution to attributedsummarised income of each of the aforementioned segments,statements and of their efficiencymain activity ratios and ROEs for the year from January 1 to December 31, 2005 isby business area are as follows:
BUSINESS SEGMENTS 2005 | TOTAL of Euros) | % TOTAL ASSETS / GROUP ASSETS | ATTRIBUTED (Thousands of Euros) | % ATTRIB, INCOME / GROUP PROFIT | Efficiency Ratio Incl, Amortisation/ Depreciation | Efficiency Ratio Excl, Amortisation/ Depreciation | % ROE | ||||||||||||||
Retail Banking Spain and Portugal | 145,722,691 | 37.14 | % | 1,613,578 | 42.4 | % | 43.3 | % | 41.4 | % | 32.1 | % | |||||||||
Wholesale and Investment Banking | 164,730,390 | 41.98 | % | 591,811 | 15.5 | % | 29.7 | % | 29.2 | % | 25.9 | % | |||||||||
The Americas | 104,711,649 | 26.69 | % | 1,819,565 | 47.8 | % | 46.4 | % | 42.9 | % | 33.8 | % | |||||||||
Corporate Activities | 35,903,646 | 9.15 | % | (218,529 | ) | (5.7 | )% | — | — | — | |||||||||||
Inter-segment positions (1) | (58,678,882 | ) | (14.96 | )% | — | — | — | — | — | ||||||||||||
Total | 392,389,494 | 100.0 | % | 3,806,425 | 100.0 | % | 46.7 | % | 43.2 | % | 37.0 | % | |||||||||
BUSINESS SEGMENTS 2004 | TOTAL of Euros) | % TOTAL ASSETS / GROUP ASSETS | ATTRIBUTED (Thousands of Euros) | % ATTRIB, INCOME / GROUP PROFIT | Efficiency Ratio Incl, Amortisation/ Depreciation | Efficiency Ratio Excl, Amortisation/ Depreciation | % ROE | ||||||||||||||
Retail Banking Spain and Portugal | 127,347,238 | 38.66 | % | 1,426,517 | 48.8 | % | 45.6 | % | 43.4 | % | 32.5 | % | |||||||||
Wholesale and Investment Banking | 147,280,601 | 44.71 | % | 403,739 | 13.8 | % | 33.2 | % | 32.5 | % | 17.7 | % | |||||||||
The Americas | 74,845,022 | 22.72 | % | 1,194,821 | 40.9 | % | 48.7 | % | 44.2 | % | 26.1 | % | |||||||||
Corporate Activities | 20,266,295 | 6.15 | % | (102,439 | ) | (3.5 | )% | — | — | — | |||||||||||
Inter-segment positions (1) | (40,298,000 | ) | (12.23 | )% | — | — | — | — | — | ||||||||||||
Total | 329,441,156 | 100.0 | % | 2,922,638 | 100.0 | % | 48.6 | % | 44.6 | % | 44.67 | % | |||||||||
Thousands of Euros | ||||||||||||||||||
Retail Banking Spain and Portugal | Wholesale Businesses | |||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||
NET INTEREST INCOME | 2,865,005 | 2,623,068 | 2,508,950 | 1,031,627 | 1,017,415 | 946,662 | ||||||||||||
Income by the equity method | 752 | 892 | 1,269 | 283,160 | 51,115 | 104,006 | ||||||||||||
Net fee income | 1,588,617 | 1,456,420 | 1,341,146 | 491,491 | 424,980 | 380,078 | ||||||||||||
Income from insurance activities | 375,534 | 309,317 | 257,057 | — | — | — | ||||||||||||
CORE REVENUES | 4,829,908 | 4,389,698 | 4,108,423 | 1,806,278 | 1,493,510 | 1,430,746 | ||||||||||||
Gains and losses on financial assets and liabilities | 72,180 | 54,777 | 32,592 | 641,987 | 447,551 | 225,137 | ||||||||||||
GROSS INCOME | 4,902,088 | 4,444,474 | 4,141,015 | 2,448,265 | 1,941,061 | 1,655,884 | ||||||||||||
Net revenues from non-financial activities | 32,347 | 25,777 | 27,379 | 104,258 | 94,853 | 80,797 | ||||||||||||
Personnel and general administrative expenses | (2,193,474 | ) | (2,091,867 | ) | (2,002,966 | ) | (643,886 | ) | (581,525 | ) | (543,955 | ) | ||||||
Depreciation and amortization | (102,011 | ) | (102,725 | ) | (106,441 | ) | (11,989 | ) | (12,278 | ) | (12,208 | ) | ||||||
Other operating income and expenses | 13,657 | 43,274 | 29,810 | 15,701 | 28,643 | 4,336 | ||||||||||||
OPERATING PROFIT | 2,652,608 | 2,318,933 | 2,088,797 | 1,912,348 | 1,470,755 | 1,184,853 | ||||||||||||
Impairment losses on financial assets | (355,547 | ) | (328,229 | ) | (274,499 | ) | (322,444 | ) | (269,223 | ) | (366,100 | ) | ||||||
– Loan Loss provisions | (356,644 | ) | (330,170 | ) | (274,499 | ) | (322,444 | ) | (269,152 | ) | (366,100 | ) | ||||||
– Other | 1,097 | 1,941 | — | — | (71 | ) | — | |||||||||||
Provisions | (2,617 | ) | (2,281 | ) | (5,285 | ) | (11,272 | ) | 5,177 | 5,868 | ||||||||
Other income/losses | 16,295 | 18,353 | 7,945 | 158,886 | 31,001 | 59,129 | ||||||||||||
PRE-TAX PROFIT | 2,310,740 | 2,006,775 | 1,816,959 | 1,737,519 | 1,237,709 | 883,752 | ||||||||||||
Corporate income tax | (807,891 | ) | (685,515 | ) | (619,395 | ) | (449,417 | ) | (361,334 | ) | (221,610 | ) | ||||||
NET PROFIT | 1,502,849 | 1,321,260 | 1,197,565 | 1,288,103 | 876,374 | 662,141 | ||||||||||||
Minority interests | (4,373 | ) | (4,194 | ) | (3,700 | ) | (5,697 | ) | (3,694 | ) | (4,110 | ) | ||||||
NET ATTRIBUTABLE PROFIT | 1,498,476 | 1,317,066 | 1,193,864 | 1,282,406 | 872,680 | 658,031 |
Thousands of Euros | |||||||||||||||||||||||||||
México and USA | South America | Corporate Activities | |||||||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||
NET INTEREST INCOME | 3,535,013 | 2,678,277 | 1,898,796 | 1,310,464 | 1,039,113 | 908,169 | (367,971 | ) | (149,904 | ) | (103,049 | ) | |||||||||||||||
Income by the equity method | (2,109 | ) | (24 | ) | (1,651 | ) | 2,598 | (1,383 | ) | 485 | 23,247 | 70,895 | (7,069 | ) | |||||||||||||
Net fee income | 1,389,794 | 1,211,898 | 993,231 | 814,943 | 694,942 | 596,081 | 50,035 | 151,755 | 102,556 | ||||||||||||||||||
Income from insurance activities | 304,783 | 228,671 | 191,337 | (5,607 | ) | 5,418 | (20,065 | ) | (24,279 | ) | (56,483 | ) | (37,711 | ) | |||||||||||||
CORE REVENUES | 5,227,481 | 4,118,822 | 3,081,713 | 2,122,398 | 1,738,090 | 1,484,670 | (318,968 | ) | 16,264 | (45,273 | ) | ||||||||||||||||
Gains and losses on financial assets and liabilities | 195,966 | 167,706 | 140,877 | 282,358 | 156,573 | 94,566 | 841,048 | 440,570 | 566,657 | ||||||||||||||||||
GROSS INCOME | 5,423,447 | 4,286,528 | 3,222,590 | 2,404,756 | 1,894,663 | 1,579,236 | 522,080 | 456,835 | 521,384 | ||||||||||||||||||
Net revenues from non-financial activities | (4,178 | ) | (2,595 | ) | (1,385 | ) | 82 | 8,588 | 5,013 | (1,151 | ) | (844 | ) | 14,687 | |||||||||||||
Personnel and general administrative expenses | (1,945,609 | ) | (1,737,009 | ) | (1,350,334 | ) | (1,103,151 | ) | (932,873 | ) | (815,360 | ) | (444,301 | ) | (419,445 | ) | (385,218 | ) | |||||||||
Depreciation and amortization | (125,997 | ) | (138,248 | ) | (123,770 | ) | (92,717 | ) | (68,723 | ) | (85,065 | ) | (139,484 | ) | (126,718 | ) | (120,746 | ) | |||||||||
Other operating income and expenses | (117,008 | ) | (105,586 | ) | (98,154 | ) | (46,133 | ) | (40,395 | ) | (33,054 | ) | (12,487 | ) | (40,780 | ) | (12,771 | ) | |||||||||
OPERATING PROFIT | 3,230,655 | 2,303,089 | 1,648,947 | 1,162,836 | 861,260 | 650,770 | (75,343 | ) | (130,952 | ) | 17,273 | ||||||||||||||||
Impairment losses on financial assets | (685,332 | ) | (314,964 | ) | (233,673 | ) | (149,470 | ) | (79,658 | ) | (73,148 | ) | 9,243 | 137,747 | (10,775 | ) | |||||||||||
– Loan Loss provisions | (672,204 | ) | (288,638 | ) | (233,673 | ) | (151,331 | ) | (70,671 | ) | (73,148 | ) | 25,956 | 145,551 | 163,510 | ||||||||||||
– Other | (13,128 | ) | (26,326 | ) | — | 1,861 | (8,987 | ) | — | (16,713 | ) | (7,804 | ) | (174,285 | ) | ||||||||||||
Provisions | (72,680 | ) | (50,646 | ) | (78,747 | ) | (58,722 | ) | (78,025 | ) | (101,049 | ) | (1,192,914 | ) | (328,406 | ) | (671,345 | ) | |||||||||
Other income/losses | 42,734 | (7,995 | ) | (18,915 | ) | 316 | 14,110 | 21,108 | 770,753 | 21,710 | 285,725 | ||||||||||||||||
PRE-TAX PROFIT | 2,515,378 | 1,929,484 | 1,317,612 | 954,960 | 717,687 | 497,681 | (488,261 | ) | (299,902 | ) | (379,122 | ) | |||||||||||||||
Corporate income tax | (738,578 | ) | (556,044 | ) | (386,521 | ) | (229,135 | ) | (165,519 | ) | (138,918 | ) | 165,720 | 247,231 | 337,813 | ||||||||||||
NET PROFIT | 1,776,799 | 1,373,440 | 931,092 | 725,825 | 552,169 | 358,762 | (322,541 | ) | 52,671 | (41,308 | ) | ||||||||||||||||
Minority interests | (2,026 | ) | (3,574 | ) | (40,021 | ) | (216,756 | ) | (173,276 | ) | (129,571 | ) | (6,304 | ) | (79,409 | ) | (8,210 | ) | |||||||||
NET ATTRIBUTABLE PROFIT | 1,774,773 | 1,369,866 | 891,070 | 509,069 | 378,893 | 229,191 | (328,845 | ) | 132,080 | (49,519 | ) |
Thousands of Euros | ||||||||||||||||||||||||
Retail Banking Spain and Portugal | Wholesale Businesses | Mexico and USA | South America | |||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||
Customer lending (1) | 118,113,013 | 99,804,281 | 83,404,724 | 90,305,179 | 76,128,933 | 65,242,787 | 31,328,586 | 25,185,435 | 13,595,011 | 17,365,538 | 15,018,433 | 10,159,770 | ||||||||||||
Customer deposits (2) | 63,479,068 | 52,701,542 | 47,988,750 | 57,230,341 | 63,789,930 | 55,372,269 | 43,306,970 | 40,969,714 | 30,463,746 | 22,772,734 | 21,022,982 | 14,515,110 | ||||||||||||
Deposits | 63,444,931 | 52,637,971 | 47,955,575 | 46,831,691 | 46,838,587 | 41,500,415 | 36,791,331 | 34,910,483 | 27,765,673 | 21,666,754 | 19,864,273 | 14,050,572 | ||||||||||||
Assets sold under repurchase agreement | 34,138 | 63,571 | 33,175 | 10,398,651 | 16,951,344 | 13,871,853 | 6,515,640 | 6,059,231 | 2,698,073 | 1,105,980 | 1,158,710 | 464,538 | ||||||||||||
Off-balance-sheet funds | 61,407,132 | 60,961,549 | 55,334,658 | 2,248,710 | 2,154,716 | 1,659,717 | 18,477,848 | 16,977,135 | 11,440,099 | 33,446,899 | 30,978,438 | 22,328,831 | ||||||||||||
Mutual funds | 44,824,240 | 45,609,071 | 41,637,056 | 2,181,492 | 2,099,689 | 1,623,221 | 9,852,848 | 8,115,135 | 5,005,099 | 1,574,899 | 1,299,438 | 1,016,831 | ||||||||||||
Pension funds | 16,582,892 | 15,352,478 | 13,697,602 | 67,218 | 55,027 | 36,496 | 8,625,000 | 8,862,000 | 6,435,000 | 31,872,000 | 29,679,000 | 21,312,000 | ||||||||||||
Other placements | 7,137,102 | 7,145,773 | 7,068,019 | — | — | — | 3,293,560 | 2,235,125 | 1,922,806 | — | — | — | ||||||||||||
Customer portfolios | 19,031,860 | 15,588,000 | 13,547,000 | 491,000 | 2,909,000 | 4,525,000 | 6,941,000 | 5,713,000 | 5,785,000 | — | — | 85,000 | ||||||||||||
Total assets (3) | 124,292,144 | 105,383,399 | 88,978,818 | 195,049,807 | 176,939,514 | 154,934,628 | 69,288,564 | 66,983,799 | 47,991,557 | 29,390,918 | 27,349,854 | 18,699,463 | ||||||||||||
ROE (%) | 35.6 | 34.6 | 33.3 | 31.8 | 24.4 | 18.9 | 46.7 | 44.2 | 36.4 | 31.8 | 30.1 | 19.6 | ||||||||||||
Efficiency ratio (%) | 43.4 | 45.1 | 46.3 | 24.8 | 28.0 | 30.7 | 35.9 | 40.5 | 41.9 | 45.9 | 49.0 | 51.5 | ||||||||||||
Efficiency incl. depreciation and amortization (%) | 45.4 | 47.4 | 48.8 | 25.2 | 28.6 | 31.4 | 38.2 | 43.8 | 45.8 | 49.7 | 52.6 | 56.8 | ||||||||||||
NPL ratio (%) | 0.67 | 0.65 | 0.85 | 0.22 | 0.29 | 0.44 | 2.19 | 2.24 | 2.87 | 2.67 | 3.67 | 4.81 | ||||||||||||
Coverage ratio (%) | 264.5 | 275.6 | 219.0 | 707.9 | 561.5 | 406.7 | 248.9 | 251.3 | 245.2 | 132.8 | 109.3 | 104.1 |
(1) |
(2) | Includes collection accounts and individual annuities. |
(3) | Excluding insurance. |
8. Remuneration of the Bank’s directors and senior managementREMUNERATION OF THE BANK’S DIRECTORS AND SENIOR MANAGEMENT
Remuneration and other benefits paid to directorsprovisions for the Board of Directors and to members of the Management Committee
• | REMUNERATIONOFNON-EXECUTIVEDIRECTORS |
The detail, by item, of the remuneration paid to the non-executive members of the Board of Directors during 2006 is indicated below. The figures are given individually for each non-executive director and itemised in 2005 is as follows:thousand euros:
Thousands of euros | ||||||||||||||
BOARD | STANDING COMMITTEE | AUDIT | APPOINMENTS AND COMPENSATION | RISK | COMMITTEE CHAIRMANSHIP | TOTAL | ||||||||
JUAN CARLOS ALVAREZ MEZQUIRIZ | 115 | 146 | — | 37 | — | — | 298 | |||||||
RICHARD C. BREEDEN | 312 | — | — | — | — | — | 312 | |||||||
RAMON BUSTAMANTE Y DE LA MORA | 115 | — | 62 | — | 94 | — | 271 | |||||||
JOSE ANTONIO FERNANDEZ RIVERO (*) | 115 | — | — | — | — | 187 | 302 | |||||||
IGNACIO FERRERO JORDI | 115 | — | 62 | — | — | 94 | 271 | |||||||
ROMAN KNÖRR BORRAS | 115 | 146 | — | — | — | — | 261 | |||||||
RICARDO LACASA SUAREZ | 115 | — | — | — | 94 | 156 | 365 | |||||||
CARLOS LORING MARTINEZ DE IRUJO | 115 | — | 62 | 37 | — | — | 214 | |||||||
ENRIQUE MEDINA FERNANDEZ | 115 | 146 | — | — | 94 | — | 355 | |||||||
SUSANA RODRIGUEZ VIDARTE | 115 | — | 62 | — | — | — | 177 | |||||||
JOSE MARIA SAN MARTIN ESPINOS | 115 | 146 | — | 37 | — | — | 298 | |||||||
TELEFONICA ESPAÑA, S.A. | 115 | — | — | — | — | — | 115 | |||||||
TOTAL | 1,577 | 584 | 248 | 111 | 282 | 437 | 3,239 | |||||||
Thousands of Euros | ||||||||||||
Board | Standing Committee | Audit | Risk | Appointments and Compensation | Total | |||||||
Tomás Alfaro Drake | 89 | — | 43 | — | — | 132 | ||||||
Juan Carlos Álvarez Mezquíriz | 119 | 152 | — | — | 39 | 310 | ||||||
Richard C. Breeden | 324 | — | — | — | — | 324 | ||||||
Ramón Bustamante y de la Mora | 119 | — | 65 | 97 | — | 281 | ||||||
José Antonio Fernández Rivero (*) | 119 | — | — | 194 | — | 313 | ||||||
Ignacio Ferrero Jordi | 119 | 101 | 22 | — | 58 | 300 | ||||||
Román Knörr Borrás | 119 | 152 | — | — | — | 271 | ||||||
Ricardo Lacasa Suárez | 119 | — | 162 | 97 | — | 378 | ||||||
Carlos Loring Martínez de Irujo | 119 | — | 65 | — | 78 | 262 | ||||||
Enrique Medina Fernández | 119 | 152 | — | 97 | — | 368 | ||||||
Susana Rodríguez Vidarte | 119 | — | 65 | — | — | 184 | ||||||
Telefónica de España, S.A. (Sr. Vila) | 119 | — | — | — | — | 119 | ||||||
Total (**) | 1,603 | 557 | 422 | 485 | 175 | 3,242 | ||||||
(*) |
The detail, by item,
(**) | Mr José María San Martín Espinós, who stood down as director at the AGM, 18th March 2006, received €77,000 in 2006 in payment of his membership of the Board of Directors. |
• | REMUNERATIONOFEXECUTIVEDIRECTORS |
The remuneration paid to the executive directors in 2005members of the Board of Directors during 2006 is as follows:indicated below. The figures are given individually for each executive director and itemised:
Thousands of Euros | ||||||
FIXED REMUNERATIONS | VARIABLE REMUNERATION (*) | TOTAL (**) | ||||
CHAIRMAN | 1,649 | 2,486 | 4,135 | |||
CHIEF EXECUTIVE OFFICER | 1,220 | 2,097 | 3,317 | |||
GENERAL SECRETARY | 544 | 645 | 1,189 | |||
TOTAL | 3,413 | 5,228 | 8,641 |
Thousands of Euros | ||||||
Fixed remunerations | Variable Remunerations (*) | Total (**) | ||||
Chairman | 1,740 | 2,744 | 4,484 | |||
Chief Executive Officer | 1,287 | 2,304 | 3,591 | |||
General Secretary | 581 | 703 | 1,284 | |||
Total | 3,608 | 5,751 | 9,359 | |||
Figures relating to variable remuneration for |
(** | In addition, the executive directors received remuneration in kind in 2006 totalling |
The executive directors also earned the following amounts ofa variable remuneration in 2005, and theseduring 2006, which will be satisfied to them during 2007. The amount earned by the Chairman was of €3,255 thousand, the Chief Executive Officer earned €2,730 thousand while the General Secretary earned €794 thousand. These amounts which are recognised under the heading Accrued“Accrued Expenses and Deferred IncomeIncome” in the financial statements, will be paid in the first quarterconsolidated balance sheet as of 2006:December 31, 2006.
• |
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The remuneration paid in 20052006 to the members of BBVA’s Management Committee, excluding executive directors, comprised EUR 6,730€5,763 thousand of fixed remuneration and EUR 15,751€11,403 thousand of variable remuneration earned in 20042005 and received in 2005.2006.
In addition, the members of the Management Committee, excluding executive directors, received remuneration in kind totalling EUR 521€526 thousand in 2005.2006.
The members of the Management Committee earned variable remuneration totalling EUR 14,012€12,689 thousand in 2005,2006, and this amount, which is recognised under the heading Accrued“Accrued Expenses and Deferred IncomeIncome” in the financial statements,consolidated balance sheet as of December 31, 2006, will be paid in the first quarter of 2006.
The membership of the Management Committee increased from 12 to 18 in December 2005. This section includes information relating to all the members of the Management Committee at December 31, 2005, excluding executive directors.2007.
(*) | The membership of the Management Committee decreased from 18 to 16 in December 2006. This section includes information relating to all the members of the Management Committee as of December 31, 2006, excluding executive directors. |
• | LONG TERMINCENTIVEPLANFORTHEPERIOD 2003-2005 |
The long-term incentive plan for 20032003-2005 was settled in 2006. It applied to 2005
The multi-year remuneration plan forall the management team, including executive directors and members of the Management Committee, forcommittee, and was pegged to the years from 2003achievement of the long-term targets established at the beginning of the plan (2003) and to 2005, will be settled in the first half of 2006. This plan established certain long-term (2003/2005) objectives taking into consideration the BBVA Group’s position regardingcomparative performance in earnings per share, efficiencycost-income ratio and ROE in comparison to itsagainst their benchmark competitors. Under the plan, a sliding scale would be applied to the ordinary variable remuneration received by beneficiaries over its three-year term.
Atpeers at the end of the 2003/plan.
This plan was published in the 2005 period, following publication byAnnual Report, estimating the benchmark entitiessettlement figures on the basis of their final data the average earnings per share, efficiency and ROE figures for the three-year period will be calculated.
Taking into account thefrom 2003 and 2004 data and the published information for 2005 it is estimated thatavailable at the amountstime of going to press.
Once the final data required to settle the plan were obtained (ie, once the benchmark peers published their earnings per share, cost-income ratio and ROE figures and BBVA’s performance could be ranked against these) the plan was paid to theout in 2006. The executive directors whenreceived the multi-year remuneration plan is settled will be as follows:following amounts for the three years (2003, 2004 and 2005): Chairman EUR 4,812and CEO, €5,294 thousand; the Chief Executive Officer, EUR 4,034President and COO, €4,438 thousand and the Director-GeneralCompany Secretary, EUR 1,229€1,351 thousand.
These amounts were recorded under the heading Accrued Expenses and Deferred Income with a charge to Personnel Expenses in 2003, 2004 and 2005, respectively.
Also, it is considered that the amounts to be paid toMeanwhile, the members of the Management Committee in settlementcommittee, excluding the executive directors, received the total sum of €13,026 thousand from the multi-year remuneration plan, will total EUR 16,939 thousand were recordedfor all three years covered under the heading Accrued Expenses and Deferred Income with a charge to Personnel Expenses in 2003, 2004 and 2005, respectively.plan.
The implementation of the long-term incentive plan does not entail the granting to the beneficiaries of BBVA shares or share options.
• | WELFAREBENEFITOBLIGATIONS |
The provisions recorded at December 31, 2005 to cater for welfare benefit obligations to non-executive members of the Board of Directors were as follows:
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Of this cumulative total, EUR 623 thousand were recorded with a charge to income in 2005.
The provisions recorded at 20052006 year-end to cater for welfare benefit obligations to executive directors were as follows:
of Euros | ||
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Total | ||
Of this cumulative total, EUR 14,272aggregate amount, €16,796 thousand were charged to 2006 earnings. Most of these commitments were insured under policies with BBVA as beneficiary, underwritten by an insurance company belonging to the Group. These insurance policies were matched to financial assets in compliance with Spanish legal regulations. The internal return on the insurance policies associated to said commitments was recorded with a charge€3,946 thousand, which partly offset the amount allocated to income in 2005.provisions during the year.
Also, insurance premiums amounting to EUR 70€79 thousand were paid on behalf of the non-executive directors members of the Board of Directors.
The provisions charged as of December 31, 2006 for post-employment welfare commitments for the Management committee members, excluding executive directors, amounted to €39,161 thousand. Of these, €11,215 thousand were charged against 2006 earnings. The internal return on the insurance policies associated to said commitments was €1,021 thousand, which partly offset the amount allocated to provisions during the year.
REMUNERATION SYSTEM FOR NON-EXECUTIVE DIRECTORS WITH DEFERRED DELIVERY OF SHARES
The annual general meeting celebrated on March 18, 2006, under agenda item eight, resolved to establish a remuneration scheme using deferred delivery of shares to the Bank’s non-executive directors, to substitute the earlier scheme that had covered these directors.
The new plan assigns ‘theoretical’ shares each year to non-executive director beneficiaries equivalent to 20% of the total remuneration paid to each in the previous year, using the average of BBVA stock closing prices from the trading sessions prior to the annual general meetings approving the financial statements for the years covered by the scheme as of 2006. These shares, where applicable, are to be delivered when the beneficiaries cease to be directors on any grounds other than serious dereliction of duties.
The Annual General Meeting resolution granted the non-executive directors who were beneficiaries of the earlier scheme the possibility of choosing to convert the amounts to which they were entitled under the previous scheme for non-executive directors into “theoretical shares”. These entitlements amounted to a total of €2,228 thousand as of December 31, 2006. All the beneficiaries opted for this conversion.
Consequently, the non-executive directors who were beneficiaries of the new system for deferred delivery of shares, approved by the AGM, received the following number of theoretical shares:
DIRECTORS | Theoretical Shares | |
JUAN CARLOS ALVAREZ MEZQUIRIZ | 16,208 | |
RAMÓN BUSTAMANTEYDELA MORA | 16,941 | |
JOSÉ ANTONIO FERNÁNDEZ RIVERO | 6,595 | |
IGNACIO FERRERO JORDI | 16,879 | |
ROMÁN KNÖRR BORRÁS | 12,720 | |
RICARDO LACASA SUAREZ | 16,004 | |
CARLOS LORING MARTÍNEZDE IRUJO | 4,906 | |
ENRIQUE MEDINA FERNÁNDEZ | 24,134 | |
SUSANA RODRÍGUEZ VIDARTE | 8,559 |
SEVERANCE PAYMENTS
As stipulated in theirThe contracts of the Bank’s executive directors (Chairman Chief Executive Officer and Director-GeneralCEO, President and COO, and Company Secretary) are entitledrecognise their entitlement to receive termination benefits in the event thatbe compensated should they are terminatedleave their post for a reasongrounds other than their own free will,decision, retirement, disabilitydisablement or serious breachdereliction of their duties.
Per the termsduty. These entitlements amount to an aggregate compensation of their respective contracts, the termination benefits payable to these executive directors in the event of their termination as such in 2006 would be: EUR 122,568€141,390 thousand.
EntitlementIn order to receive these termination benefits is conditional upon these directors’ handing insuch compensation, directors must place their notice as such, resigningdirectorships at the disposal of the board, resign from any posts that they may hold at other entities in representationas representatives of the Bank relinquishing theirin other companies, and waive pre-existing labour relationsemployment agreements with the Bank, (including that ofincluding any senior management)management positions and waiving any termination benefitsright to obtain compensation other than those specified.that already indicated.
From the termination date, the individual concernedOn standing down, they will be barred, for a period of two years, from providingrendered unable to provide services to other financial institutions that competein competition with the Bank or its subsidiaries for two years, as stipulated by Boardestablished in the board regulations.
Activities concerned with financial instruments may involve the assumption or transfer of one or more types of risk by financial entities. The risks associated with financial instruments are:
Market risks: these arise as a consequence of holding financial instruments whose value may be affected by changes in market conditions; they include three types of risk:
Currency risk, whichrisk: arises as a result of changes in the exchange rate between currencies.
Fair value interest rate risk, whichrisk: arises as a result of changes in market interest rates.
Price risk, whichrisk: arises as a result of changes in market prices, due either to factors specific to the individual instrument or to factors that affect all instruments traded on the market.
Credit risk: this is the risk that one of the parties to the financial instrument agreement will fail to honour its contractual obligations due to the insolvency or incapacity of the individuals or legal entities involved and will cause the other party to incur a financial loss.
Liquidity risk: occasionally referred to as funding risk, this arises either because the entity may be unable to sell a financial asset quickly at an amount close to its fair value, or because the entity may encounter difficulty in finding funds to meet commitments associated with financial instruments.
The Group has developed a global risk management system based on three components: a corporate risk management structure, with segregated functions and responsibilities; a set of tools, circuits and procedures that make up the different risk management systems; and an internal control system. Following is a summary of each of the three components:
- Corporate risk management structure1. CORPORATEMANAGEMENTSTRUCTURE
The Board of Directors is the body that determines the Group’s risk policy. It approves, where appropriate, any non-delegated financial transactions or programmes involving credit risk, with no restrictions as to the amount. It also authorises the operating limits and the delegation of powers relating to credit risk, market risk and structural risk.
These tasks are performed by the Standing Committee, which reports to the Board.
The Board has a Lending Committee, a specialized body whose functions include, inter alia: assessment of the Group’s risk management in terms of risk profile and capital map, broken down by business and area of activity; evaluation of the general risk policies and establishment of limits by type of risk or business, and of management resources, procedures and systems, structures and processes; approval of individual or group risks that may affect the Bank’s solvency, in keeping with the established delegation system; analysis and approval, where appropriate, of credit risks in terms of maximum customer or group exposure; monitoring of the Group’s various risks, ensuring they comply with the profile defined by the Group; ensuring compliance with the recommendations of regulatory and supervisory bodies, and implementation of these recommendations in the Group’s risk management model; and analysis of the Group’s risk control systems.
The Asset-Liability Committee (ALCO) is the body responsible for actively managing the Group’s structural liquidity, interest rate and currency risks, and its core capital.
The Internal Risk Committee, which is composed of the persons responsible for Group risk management at corporate level, develops and implements the risk management model at BBVAthe Group and ensures that the risks assumed by the Group are in line with the target risk profile defined by the governing bodies.
The Technical Transactions Committee analyses and approves, where appropriate, the financial transactions and programmes that are within its level of authorisation, and refers any transactions exceeding the scope of its delegated powers to the Lending Committee.
- Tools, circuits and procedures2. TOOLS,CIRCUITSANDPROCEDURES
The Group has implemented an integral risk management system designed to cater for the needs arising in relation to the various types of risk; this prompted it to equip the management processes for each risk with measurement tools for risk acceptance, assessment and monitoring and to define the appropriate circuits and procedures, which are reflected in manuals that also include management criteria. Specifically, the main risk management activities performed are as follows: calculation of the risk exposures of the various portfolios, considering any related mitigating factors (netting, collateral, etc.); calculation of the probability of default (PD), loss severity and expected loss of each portfolio, and assignment of the PD to the new transactions (ratings and scorings); measurement of the values-at-risk of the portfolios based on various scenarios using historical and Monte Carlo simulations; establishment of limits to the potential losses based on the various risks incurred; determination of the possible impacts of the structural risks on the income statement; setting of limits and alerts to safeguard the Group’s liquidity; identification and quantification of operational risks by business line to enable the mitigation of these risks through corrective measures; and definition of efficient circuits and procedures which contribute to the achievement of the targets set.
Internal control3. INTERNALCONTROL – risk mapsRISKMAPS
The Group has an independent function which, in keeping with the recommendations of the regulators, draws up Risk Maps identifying any gaps in the Group’s risk management and the best practices, and establishes working plans with the various business areas to remedy these gaps.
a) MARKETRISKMANAGEMENT
a.1) Market risk management
a.1) Risk management in market areas
The BBVA Group manages together credit and market risks in the market and treasury areas through their Central Risk Unit.
The detail, by instrument, of the risk exposure atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Credit institutions | 27,470,224 | 16,702,957 | ||
Fixed-income securities | 82,009,555 | 83,211,589 | ||
Derivatives | 8,525,664 | 7,607,036 | ||
Total | 118,005,443 | 107,521,582 | ||
The BBVA Group manages together credit and market risks in the market and treasury areas through their Central Risk Unit.
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Credit institutions | 17,149,744 | 27,470,224 | 16,702,957 | |||
Fixed-income securities | 68,737,919 | 82,009,555 | 83,211,589 | |||
Derivatives | 6,195,150 | 8,525,664 | 7,607,036 | |||
Total | 92,082,813 | 118,005,443 | 107,521,582 | |||
In the market areas the Group has legal compensation rights and contractual compensation agreements which give rise to a reduction of EUR 10,749€9,142 million in credit risk exposure atas of December 31, 2005.2006.
With regard to market risk (including interest rate risk, currency risk and equity price risk), BBVA’s limit structure determines an overall VaR limit for each business unit and specific sublimits by type of risk, activity and desk. The BankGroup also has in place limits on losses and other control mechanisms such as delta sensitivity calculations, which are supplemented by a range of indicators and alerts which automatically activate procedures aimed at addressing any situations that might have a negative effect on the activities of the business area.
The market risk profile atas of December 31, 2006, 2005 and 2004 was as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Interest risk | 11,284 | 12,322 | 7,405 | 11,284 | 12,322 | |||||
Spread risk | 3,343 | 3,967 | 5,531 | 3,343 | 3,967 | |||||
Currency risk | 1,717 | 1,216 | 727 | 1,717 | 1,216 | |||||
Stock-market risk | 2,024 | 2,261 | 5,756 | 2,024 | 2,261 | |||||
Vega risk | 4,443 | 3,904 | 4,928 | 4,443 | 3,904 | |||||
Correlation risk | 1,817 | 1,986 | 2,968 | 1,817 | 1,986 |
a.2) Structural interest rate risk
The aim of on-balance-sheet interest rate risk management is to maintain the BBVA Group’s exposure to market interest rate fluctuations at levels in keeping with its risk strategy and profile. To this end, the ALCO actively manages the balance sheet through transactions intended to optimize the level of risk assumed in relation to the expected results, thus enabling the Group to comply with the tolerable risk limits.
The ALCO bases its activities on the interest rate risk measurements performed by the Risk Area. Acting as an independent unit, the Risk Area periodically quantifies the impact of interest rate fluctuations on the BBVA Group’s net interest income and economic value.
In addition to measuring sensitivity to 100-basis-point changes in market interest rates, the Group performs probabilistic calculations to determine the economic capital for structural interest rate risk in the BBVA Group’s banking activity (excluding the Treasury Area) based on interest rate curve simulation models.
All these risk measurements are subsequently analysed and monitored, and the levels of risk assumed and the degree of compliance with the limits authorised by the Standing Committee are reported to the various managing bodies of the BBVA Group.
Following is a detail in millions of euros of the average interest rate risk exposure levels of the main financial institutions of the BBVA Group in 2005:2006:
Average Impact on Net Interest Income | ||||||||||
100 Basis-Point Increase | 100 Basis-Point Decrease | |||||||||
Entities | EURO | DOLLAR | OTHER | TOTAL | TOTAL | |||||
BBVA | -156 | -8 | -4 | -166 | +168 | |||||
Other Europe | +2 | -0 | -0 | +2 | -3 | |||||
BBVA Bancomer | — | +19 | +90 | +109 | -108 | |||||
BBVA Chile | — | +0 | -4 | -4 | +4 | |||||
BBVA Colombia | — | -0 | +7 | +7 | -7 | |||||
BBVA Banco Continental | — | +3 | -2 | +1 | -1 | |||||
BBVA Banco Provincial | — | +1 | +7 | +8 | -7 | |||||
BBVA Puerto Rico | — | -3 | — | -3 | +0 |
Average Impact on Economic Value | ||||||||||
100 Basis-Point Increase | 100 Basis-Point | |||||||||
Entities | EURO | DOLLAR | OTHER | TOTAL | TOTAL | |||||
BBVA | +483 | +28 | -3 | +508 | -580 | |||||
Other Europe | -20 | -0 | -0 | -20 | +21 | |||||
BBVA Bancomer | — | +7 | -4 | +3 | +5 | |||||
BBVA Chile | — | +1 | -47 | -46 | +50 | |||||
BBVA Colombia | — | -1 | +4 | +3 | -3 | |||||
BBVA Banco Continental | — | -16 | -7 | -23 | +25 | |||||
BBVA Banco Provincial | — | +0 | +7 | +7 | -7 | |||||
BBVA Puerto Rico | — | +0 | — | +0 | -12 |
Average Impact on Net Interest Income | ||||||||||
100 Basis-Point Increase | 100 Basis-Point Decrease | |||||||||
ENTITIES | Euro | Dollar | Other | Total | Total | |||||
BBVA | -141 | +15 | -1 | -127 | +144 | |||||
Other Europe | +1 | — | — | +1 | -1 | |||||
BBVA Bancomer | — | +23 | +58 | +81 | -81 | |||||
BBVA Puerto Rico | — | -4 | — | -4 | — | |||||
BBVA Chile | — | -1 | -3 | -4 | +4 | |||||
BBVA Colombia | — | — | +6 | +6 | -6 | |||||
BBVA Banco Continental | — | +1 | +4 | +5 | -6 | |||||
BBVA Banco Provincial | — | +1 | +10 | +11 | -11 | |||||
BBVA Banco Francés | — | — | -2 | -2 | +3 | |||||
Average Impact on Economic Value | ||||||||||
100 Basis-Point Increase | 100 Basis-Point Decrease | |||||||||
ENTITIES | Euro | Dollar | Other | Total | Total | |||||
BBVA | +450 | +3 | -5 | +448 | -490 | |||||
Other Europe | -26 | — | — | -26 | +28 | |||||
BBVA Bancomer | — | +18 | -195 | -177 | +174 | |||||
BBVA Puerto Rico | — | -17 | — | -17 | +3 | |||||
BBVA Chile | — | — | -45 | -45 | +32 | |||||
BBVA Colombia | — | — | -6 | -6 | +7 | |||||
BBVA Banco Continental | — | -12 | — | -12 | +13 | |||||
BBVA Banco Provincial | — | — | +12 | +12 | -12 | |||||
BBVA Banco Francés | — | — | -42 | -42 | +47 |
As part of the measurement process, the Group established the assumptions regarding the evolution and behaviour of certain items, such as those relating to products with no explicit or contractual maturity. These assumptions are based on studies that estimate the relationship between the interest rates on these products and market rates and enable specific balances to be classified into trend-based balances maturing at long term and seasonal or volatile balances with short-term residual maturity.
The average annual interest rate of the debt securities included in the “financial assets held for trading” heading during 2006 was of 3.94% (5.29% and 7.02% during 2005 and 2004, respectively).
a.3) Structural currency risk
Structural currency risk derives mainly from exposure to exchange rate fluctuations arising in relation to the Group’s foreign subsidiaries and from the endowment funds of the branches abroad financed in currencies other than the investment currency.
The ALCO is responsible for arranging hedging transactions to limit the net worth impact of fluctuations in exchange rates, based on their projected trend, and to guarantee the equivalent euro value of the foreign currency earnings expected to be obtained from these investments.
Structural currency risk management is based on the measurements performed by the Risk Area. These measurements use an exchange rate scenario simulation model which quantifies possible changes in value with a confidence interval of 99% and a pre-established time horizon. The Standing Committee limits the economic capital or unexpected loss arising from the currency risk of the foreign-currency investments.
AtAs of December 31, 2005,2006, the coverage of structural currency risk exposure stood at 44%34%.
a.4) Structural equity price risk
The BBVA Group’s exposure to structural equity price risk derives mainly from investments in industrial and financial companies with medium- to long-term investment horizons. It is reduced by the net short positions held in derivative instruments on the same underlyings in order to limit the sensitivity of the portfolio to possible falls in prices. AtAs of December 31, 2005,2006 the aggregate sensitivity of the Group’s equity positions to a 1% fall in the price of the shares amounted to EUR 84€75 million, 75%73% of which is concentrated in highly liquid European Union equities. This figure is determined by considering the exposure on shares measured at market price or, in the absence thereof, at fair value, including the net positions in equity swaps and options on the same underlyings in delta equivalent terms. Treasury Area portfolio positions are not included in the calculation.
The Risk Area measures and effectively monitors the structural equity price risk. To this end, it estimates the sensitivity figures and the capital required to cover the possible unexpected losses arising from fluctuations in the value of the companies in the investment portfolio, with a confidence interval equal to the entity’s target rating, taking into account the liquidity of the positions and the statistical behaviour of the assets under consideration. These measurements are supplemented by periodic stress- and back-testing and scenario analyses.
b) Credit risk managementCREDITRISKMANAGEMENT
Loans and receivables –
The detail, by nature of the related financial instrument, of the carrying amounts of the financial assets included under Loans“Loans and ReceivablesReceivables” in the accompanying consolidated balance sheets atas of December 31, 2006, 2005 and 2004, is shown in Note 14.
The detail, by heading, of the Group’s maximum credit risk exposure atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Gross credit risk (amount drawn down) | 252,274,622 | 198,230,469 | 305,249,671 | 252,274,622 | 198,230,469 | |||||
Loans and receivables | 222,413,025 | 176,672,820 | 262,968,973 | 222,413,025 | 176,672,820 | |||||
Contingent liabilities | 29,861,597 | 21,557,649 | 42,280,698 | 29,861,597 | 21,557,649 | |||||
Market activities | 118,005,443 | 107,533,914 | 92,082,813 | 118,005,443 | 107,533,914 | |||||
Drawable by third parties | 85,001,452 | 60,716,878 | 98,226,297 | 85,001,452 | 60,716,878 | |||||
Total | 455,281,517 | 366,481,261 | 495,558,781 | 455,281,517 | 366,481,261 | |||||
The detail, by geographical area, of the aforementioned balance atGross credit risk (amount drawn down) of the foregoing detail as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Gross credit risk (amount drawn down) | 252,274,622 | 198,230,469 | ||||||||
Spain | 199,043,387 | 163,821,433 | 243,366,824 | 199,043,387 | 163,821,433 | |||||
Other European countries | 6,462,795 | 5,721,920 | 6,120,288 | 6,462,795 | 5,721,920 | |||||
The Americas | 46,768,440 | 28,687,116 | 55,762,559 | 46,768,440 | 28,687,116 | |||||
Mexico | 24,499,054 | 14,714,176 | 27,728,518 | 24,499,054 | 14,714,176 | |||||
Puerto Rico | 3,293,317 | 2,484,770 | 3,247,768 | 3,293,317 | 2,484,770 | |||||
Chile | 5,918,357 | 3,941,860 | 6,263,848 | 5,918,357 | 3,941,860 | |||||
USA | 1,797,094 | 56,691 | 5,050,880 | 1,797,094 | 56,691 | |||||
Argentina | 2,109,233 | 1,695,668 | 2,203,496 | 2,109,233 | 1,695,668 | |||||
Peru | 2,846,359 | 1,959,688 | ||||||||
Perú | 3,665,819 | 2,846,359 | 1,959,688 | |||||||
Colombia | 2,845,845 | 1,446,183 | 3,310,663 | 2,845,845 | 1,446,183 | |||||
Venezuela | 2,397,018 | 1,543,935 | 3,139,140 | 2,397,018 | 1,543,935 | |||||
Other | 1,062,163 | 844,145 | 1,152,427 | 1,062,163 | 844,145 | |||||
Total | 252,274,622 | 198,230,469 | 305,249,671 | 252,274,622 | 198,230,469 | |||||
AtAs of December 31, 2005, 792006, 104 corporate groups had drawn down loans of more than EUR 200€200 million, which taken together constitute a total risk exposure of EUR 37,151 million, 14.7%19% of the total for the Group atas of December 31, 2005. 95%2006. 90% of these corporate groups have an investment grade rating. The breakdown, based on the geographical area in which the transaction was originated, is as follows: 67%69% in Spain, 21%22% in the Bank’s branches abroad, and 12%9% in Latin America (9%(7% in Mexico alone). The detail, by sector, is as follows: Institutional (30%(19%), Real Estate and Construction (17%(27%), Telecommunications (10%Electricity and Gas (12%), Consumer Goods and Services (10%(11%), and Electricity and GasTelecommunications (10%).
The parent and subsidiaries business activity exposure to the business activity on the private sector in Spain, is of the Spanish companies showsvery high credit quality; 80.7%quality as evidenced by the fact that as of December 31, 2006, 76.9% of the portfolio has a rating equal or high than BBBis rated BBB- (investment grade) or higher, and 59.159.3% is focused in therated A level or higher, as indicated in next chart:the following table as of December 31, 2006:
| % | ||
AAA/AA | % | ||
A | % | ||
BBB+ | % | ||
BBB | % | ||
BBB- | % | ||
BB+ | % | ||
BB | % | ||
BB- | % | ||
B+ | % | ||
B | % | ||
B- | 0.7 | ||
| |||
| |||
% |
Loans and advances to other debtors –
The detail, by transaction type, status, sector and geographical area, of the carrying amounts of the financial assets included under Loans“Loans and Advances to Other DebtorsDebtors” in the accompanying consolidated balance sheets atas of December 31, 2006, 2005 and 2004, disregarding the impairment losses, is shown in Note 14.3.
The Group’s lending to the private sector resident in Spain totalled EUR 140€167 billion. Its risk exposure is highly diversified between financing provided to individuals and businesses, and there are no significant concentrations in the sectors that are more sensitive to the current economic scenario.
Past-dueNon-performing assets (past-due and overdrawn customer loansamounts and overruns) included in Receivable“Receivable on Demand and OtherOther” amounted to EUR €1,804 million as of December 31, 2006 (€1,023 million atand €946 million as of December 31, 2005 (EUR 946 million at December 31, 2004)and 2004, respectively).
Impaired assets –
The detail, by nature of the related financial instrument, of the carrying amounts of the financial assets included under the heading Impaired Assets“Impaired loans and advances to other debtors” in the accompanying consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is shown in Note 14.4. Additionally, as of December 31, 2006 the substandard contingent liabilities amounted to €40 million (€36 million and €46 million as of December 31, 2005 and 2004 respectively).
The detail, by geographical area, of the impaired assets atheadings “impaired loans and advances to other debtors” and “Substandard contingent liabilities” as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Spain | 1,051,072 | 1,169,599 | 1,174,294 | 1,051,072 | 1,169,599 | |||||
Other European countries | 37,419 | 33,708 | 42,055 | 37,419 | 33,708 | |||||
The Americas | 1,293,838 | 1,044,746 | 1,315,061 | 1,293,838 | 1,044,746 | |||||
Mexico | 573,004 | 433,314 | 611,986 | 573,004 | 433,314 | |||||
Puerto Rico | 71,482 | 62,102 | 66,962 | 71,482 | 62,102 | |||||
Chile | 234,513 | 172,190 | 194,366 | 234,513 | 172,190 | |||||
USA | 18,576 | 0 | 110,128 | 18,576 | — | |||||
Argentina | 25,950 | 38,464 | 71,892 | |||||||
Peru | 82,139 | 66,498 | 76,571 | 82,139 | 66,498 | |||||
Argentina | 38,464 | 71,892 | ||||||||
Colombia | 223,041 | 160,548 | 169,136 | 223,041 | 160,548 | |||||
Venezuela | 15,795 | 22,588 | 38,469 | 15,795 | 22,588 | |||||
Other | 36,824 | 55,614 | 21,493 | 36,824 | 55,614 | |||||
Total | 2,382,329 | 2,248,053 | 2,531,410 | 2,382,329 | 2,248,053 | |||||
The changes in 2006, 2005 and 2004 in “Impaired loans and advances to other debtors” and “Substandard contingent liabilities” in the period from January 1,foregoing detail are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at the beginning of the period | 2,382,329 | 2,248,053 | 3,028,121 | ||||||
Additions | 2,741,853 | 1,942,774 | 1,987,574 | ||||||
Recoveries | (1,829,894 | ) | (1,531,039 | ) | (1,574,475 | ) | |||
Transfers to write-off | (707,451 | ) | (666,534 | ) | (713,188 | ) | |||
Exchange differences and others | (55,427 | ) | 389,075 | (479,979 | ) | ||||
Balance at the end of the period | 2,531,410 | 2,382,329 | 2,248,053 | ||||||
The changes in 2006, 2005 to December 31, 2005 inand 2004 impaired loans and advances to other debtors in the foregoing detailheading are detailed in Note 14.4.
AtAs of December 31, 2006, 2005 and 2004, the doubtful balancesdetail of the headings “Impaired loans and advances to other debtors” and “Substandard contingent liabilities” of the various business segments were as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Retail Banking Spain and Portugal | 852,844 | 940,215 | ||
Wholesale and Investment Banking | 122,769 | 169,476 | ||
The Americas | 1,295,765 | 1,046,136 | ||
Corporate Activities | 110,951 | 92,226 | ||
Total (*) | 2,382,329 | 2,248,053 | ||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Retail Banking Spain and Portugal | 824,689 | 672,418 | 740,253 | |||
Wholesale and Investment Banking | 277,838 | 303,365 | 369,646 | |||
Mexico and USA | 789,076 | 663,062 | 495,416 | |||
The Americas | 525,985 | 630,776 | 549,330 | |||
Corporate Activities | 113,822 | 112,708 | 93,408 | |||
Total | 2,531,410 | 2,382,329 | 2,248,053 | |||
Impairment losses –
The changes in the balance of the provisions for impairment losses on the assets included under Loansthe heading “Loans and ReceivablesReceivables” are shown in Note 14.4.
In addition, atas of December 31, 2005,2006, the provisions for impairment losses on off-balance-sheet items amounted to EUR 452 million (EUR 349 million at€501,993 thousand (€452,462 thousand and €348,782 thousand as of December 31, 2004) (Note2005 and 2004, respectively) (see Note 28).
c) Liquidity riskLIQUIDITYRISK
The aim of liquidity risk management and control is to ensure that the Bank’s payment commitments can be met without having to resort to borrowing funds under onerous conditions.
The Group’s liquidity risk is monitored using a dual approach: the short-term approach (90-day time horizon), which focuses basically on the management of payments and collections of Treasury and Markets, ascertains the Bank’s possible liquidity requirements; and the structural, medium- and long-term approach, which focuses on the financial management of the balance sheet as a whole.whole, with a minimum monitoring time frame of one year.
The Risk Area performs a control function and is totally independent of the management areas of each of the approaches and of the Group’s various units. Each of the risk areas, which are independent from each other, complies with the corporative principles of liquidity risk control that are established by the Market Risk Central Unit (UCRAM) – Structural Risks.
For each entity, the management areas request an outline of the quantitative and qualitative limits and alerts for short-, medium- and long-term liquidity risk, which is authorized by the Standing Committee. Also, the Risk Area performs periodic (daily and monthly) risk exposure measurements, develops the related valuation tools and models, conducts periodic stress tests, measures the degree of concentration on interbank counterparties, prepares the policies and procedures manual, and monitors the authorised limits and alerts.alerts, which are reviewed al least one time every year.
The liquidity risk data are sent periodically to the Group’s ALCO and to the management areas involved. As established in the Contingency Plan, the Technical Liquidity Group (GTL), in the event of an alert of a possible crisis, conducts an initial analysis of the Bank’s short- and long-term liquidity situation. The GTL comprises personnel from the Short-Term Cash Desk, Financial Management and the Market Area Risk Central Unity on Markets Areas-Structural Risk.Unit (UCRAM-Structural Risk). If the alert is serious, the GTL reports the matter to the Liquidity Committee, which is composed of the managers of the related areas. The Liquidity Committee is responsible, in situations requiring urgent attention, for calling a meeting of the Crisis Committee chaired by the CEO.
10. Cash and balances with central banksCASH AND BALANCES WITH CENTRAL BANKS
The breakdown of the balance of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Cash | 2,408,841 | �� | 1,790,632 | |
Balances at the Bank of Spain | 2,387,142 | 3,140,392 | ||
Balances at other central banks | 7,545,334 | 5,192,066 | ||
Total(*) | 12,341,317 | 10,123,090 | ||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Cash | 2,756,458 | 2,408,841 | 1,790,632 | |||
Balances at the Bank of Spain | 2,704,792 | 2,381,328 | 3,139,819 | |||
Balances at other central banks | 7,035,144 | 7,526,957 | 5,192,066 | |||
Valuation adjustments (*) | 18,728 | 24,191 | 573 | |||
Total | 12,515,122 | 12,341,317 | 10,123,090 | |||
(*) |
11. Financial assets and liabilities held for tradingFINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING
11.1. Breakdown of the balanceBREAKDOWNOFTHEBALANCE
The breakdown of the balances of these headings in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | Thousands of Euros | |||||||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||||
Receivable | Payable | Receivable | Payable | Receivable | Payable | Receivable | Payable | Receivable | Payable | |||||||||||
Debt securities | 24,503,507 | — | 30,396,579 | — | 30,470,542 | — | 24,503,507 | — | 30,396,579 | — | ||||||||||
Other equity instruments | 6,245,534 | — | 5,690,885 | — | 9,948,705 | — | 6,245,534 | — | 5,690,885 | — | ||||||||||
Trading derivatives | 13,262,740 | 13,862,644 | 10,948,596 | 12,802,912 | 11,415,862 | 13,218,654 | 13,262,740 | 13,862,644 | 10,948,596 | 12,802,912 | ||||||||||
Short positions | — | 2,408,221 | — | 1,331,501 | — | 1,704,880 | — | 2,408,221 | — | 1,331,501 | ||||||||||
Total | 44,011,781 | 16,270,865 | 47,036,060 | 14,134,413 | 51,835,109 | 14,923,534 | 44,011,781 | 16,270,865 | 47,036,060 | 14,134,413 | ||||||||||
11.2. Debt securitiesDEBTSECURITIES
The breakdown of the balance of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Issued by central banks | 141,820 | 294,242 | ||
Spanish government bonds | 2,501,499 | 6,906,877 | ||
Foreign government bonds | 13,132,841 | 14,654,416 | ||
Issued by Spanish financial institutions | 923,835 | 747,864 | ||
Issued by foreign financial institutions | 5,022,035 | 4,879,106 | ||
Other debt securities | 2,780,373 | 2,914,074 | ||
Securities lending | 1,104 | — | ||
Total | 24,503,507 | 30,396,579 | ||
The debt securities included under Financial Assets Held for Trading earned average annual interest of 5.29% in 2005 (7.02% in 2004).
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Issued by central banks | 623,017 | 141,820 | 294,242 | |||
Spanish government bonds | 3,345,024 | 2,501,499 | 6,906,877 | |||
Foreign government bonds | 16,971,034 | 13,132,841 | 14,654,416 | |||
Issued by Spanish financial institutions | 1,572,260 | 923,835 | 747,864 | |||
Issued by foreign financial institutions | 4,779,493 | 5,022,035 | 4,879,106 | |||
Other debt securities | 3,179,714 | 2,780,373 | 2,914,074 | |||
Securities lending | — | 1,104 | — | |||
Total | 30,470,542 | 24,503,507 | 30,396,579 | |||
The detail, by geographical area, of the balance of Debt Securities is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Europe | 9,331,740 | 16,795,670 | 10,509,316 | 9,331,740 | 16,795,670 | |||||
United States | 3,187,479 | 2,394,949 | 3,597,575 | 3,187,479 | 2,394,949 | |||||
Latin America | 11,518,730 | 10,826,552 | 15,662,674 | 11,518,730 | 10,826,552 | |||||
Rest of the world | 465,558 | 379,408 | 700,977 | 465,558 | 379,408 | |||||
Total | 24,503,507 | 30,396,579 | 30,470,542 | 24,503,507 | 30,396,579 | |||||
11.3. Other equity instrumentsOTHEREQUITYINSTRUMENTS
The breakdown of the balance of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Shares of Spanish companies | 3,326,259 | 2,998,917 | ||
Credit institutions | 502,968 | 272,833 | ||
Other | 2,823,291 | 2,726,084 | ||
Shares of foreign companies | 1,273,550 | 1,493,200 | ||
Credit institutions | 140,167 | 86,741 | ||
Other | 1,133,383 | 1,406,459 | ||
Share in the net assets of mutual funds | 1,645,725 | 1,198,768 | ||
Total | 6,245,534 | 5,690,885 | ||
Shares of Spanish companies Credit institutions Other Shares of foreign companies Credit institutions Other Share in the net assets of mutual funds Total Thousands of Euros 2006 2005 2004 5,196,520 3,326,259 2,998,917 671,594 502,968 272,833 4,524,926 2,823,291 2,726,084 1,955,920 1,273,550 1,493,200 526,694 140,167 86,741 1,429,226 1,133,383 1,406,459 2,796,265 1,645,725 1,198,768 9,948,705 6,245,534 5,690,885
11.4. Trading derivativesTRADINGDERIVATIVES
The detail, by transaction type and market, of the balances of this heading in the consolidated balance sheet atsheets as of December 31, 2006, 2005 and 2004 is as follows:
2005 Thousands of Euros | Currency Risk | Interest Rate Risk | Equity Price Risk | Credit Risk | Other Risks | Total | |||||||||||||||||||||||||||||||||
Thousands of Euros | |||||||||||||||||||||||||||||||||||||||
2006 | Currency Risk | Interest Rate Risk | Equity Price Risk | Commodities Risk | Credit Risk | Other Risks | Total | ||||||||||||||||||||||||||||||||
Organised markets | (747,483 | ) | (11 | ) | 270,441 | 1,587 | — | 878 | (474,588 | ) | |||||||||||||||||||||||||||||
Financial futures | 4,069 | (5,833 | ) | (53 | ) | 39,747 | 10,724 | 48,654 | 13,157 | — | 1,162 | — | — | — | 14,319 | ||||||||||||||||||||||||
Options | (299 | ) | (279 | ) | 253,062 | — | — | 252,484 | (760,640 | ) | (11 | ) | 269,279 | 1,587 | — | 878 | (488,907 | ) | |||||||||||||||||||||
Other products | — | 593 | — | — | — | 593 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
OTC markets | (239,459 | ) | 586,992 | (1,654,265 | ) | 4,842 | (3,863 | ) | (22,451 | ) | (1,328,204 | ) | |||||||||||||||||||||||||||
Credit institutions | (266,228 | ) | (296,607 | ) | (637,446 | ) | 635 | (8,669 | ) | (22,551 | ) | (1,230,866 | ) | ||||||||||||||||||||||||||
Forward transactions | 107,695 | 128,384 | (7,614 | ) | — | — | 228,465 | 8,559 | — | — | 635 | — | — | 9,194 | |||||||||||||||||||||||||
Future rate agreements (FRAs) | — | 20 | — | — | — | 20 | — | 43,791 | — | — | — | — | 43,791 | ||||||||||||||||||||||||||
Swaps | (7,656 | ) | (78,072 | ) | 29,639 | (1,896 | ) | (57,985 | ) | (269,231 | ) | (176,475 | ) | (23,929 | ) | — | — | — | (469,635 | ) | |||||||||||||||||||
Options | (92,819 | ) | 154,547 | (189,327 | ) | — | (4,132 | ) | (131,731 | ) | (5,552 | ) | (164,042 | ) | (613,517 | ) | — | (8,669 | ) | (22,551 | ) | (814,331 | ) | ||||||||||||||||
Other products | (2,276 | ) | (235,129 | ) | — | — | — | (237,405 | ) | (4 | ) | 119 | — | — | — | — | 115 | ||||||||||||||||||||||
Other financial Institutions | (5,094 | ) | 952,973 | (569,798 | ) | — | 3,157 | — | 381,238 | ||||||||||||||||||||||||||||||
Forward transactions | (25,389 | ) | — | — | — | — | (25,389 | ) | (3,345 | ) | — | — | — | — | — | (3,345 | ) | ||||||||||||||||||||||
Future rate agreements (FRAs) | — | (68 | ) | — | — | — | (68 | ) | — | (9 | ) | — | — | — | — | (9 | ) | ||||||||||||||||||||||
Swaps | — | (108,432 | ) | (4,830 | ) | (592 | ) | — | (113,854 | ) | — | 1,045,435 | 7,068 | — | — | — | 1,052,503 | ||||||||||||||||||||||
Options | (31,527 | ) | (177,943 | ) | (40,845 | ) | — | — | (250,315 | ) | (1,749 | ) | (92,453 | ) | (576,866 | ) | — | 3,157 | — | (667,911 | ) | ||||||||||||||||||
Other products | (262 | ) | 54,917 | — | — | — | 54,655 | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Other sectors | 31,863 | (69,374 | ) | (447,021 | ) | 4,207 | 1,649 | 100 | (478,576 | ) | |||||||||||||||||||||||||||||
Forward transactions | (168,653 | ) | — | 214 | — | — | (168,439 | ) | 1,576 | — | — | — | — | — | 1,576 | ||||||||||||||||||||||||
Future rate agreements (FRAs) | — | 1,736 | — | — | — | 1,736 | — | (133 | ) | — | — | — | — | (133 | ) | ||||||||||||||||||||||||
Swaps | 421,392 | (346,225 | ) | (1,471 | ) | — | 73,696 | 1 | (346,393 | ) | (395,711 | ) | 4,207 | — | 100 | (737,796 | ) | ||||||||||||||||||||||
Options | (12,434 | ) | 294,900 | (557,431 | ) | — | — | (274,965 | ) | 30,286 | 277,440 | (51,310 | ) | — | 1,649 | — | 258,065 | ||||||||||||||||||||||
Other products | (56 | ) | — | — | — | (56 | ) | — | (288 | ) | — | — | — | — | (288 | ) | |||||||||||||||||||||||
Total | (229,607 | ) | 450,733 | (863,410 | ) | 35,788 | 6,592 | (599,904 | ) | (986,942 | ) | 586,981 | (1,383,824 | ) | 6,429 | (3,863 | ) | (21,573 | ) | (1,802,792 | ) | ||||||||||||||||||
of which: Asset Trading Derivatives | 1,301,581 | 9,836,714 | 1,921,374 | 98,444 | 104,627 | 13,262,740 | 468,913 | 8,518,060 | 2,262,409 | 34,650 | 81,054 | 50,776 | 11,415,862 | ||||||||||||||||||||||||||
of which: Liability Trading Derivatives | (1,531,188 | ) | (9,385,981 | ) | (2,784,784 | ) | (62,656 | ) | (98,035 | ) | (13,862,644 | ) | (1,455,855 | ) | (7,931,079 | ) | (3,646,233 | ) | (28,221 | ) | (84,917 | ) | (72,349 | ) | (13,218,654 | ) | |||||||||||||
2004 Thousands of Euros | Currency Risk | Interest Rate Risk | Equity Price Risk | Credit Risk | Total | ||||||||||||||||||||||||||||
Thousands of Euros | |||||||||||||||||||||||||||||||||
2005 | Currency Risk | Interest Rate Risk | Equity Price Risk | Credit Risk | Other Risks | Total | |||||||||||||||||||||||||||
Organised markets | |||||||||||||||||||||||||||||||||
Financial futures | 4,069 | (5,833 | ) | (53 | ) | 39,747 | 10,724 | 48,654 | |||||||||||||||||||||||||
Options | 4,434 | (18 | ) | (56,911 | ) | — | (52,495 | ) | (299 | ) | (279 | ) | 253,062 | — | — | 252,484 | |||||||||||||||||
Other products | — | 593 | — | — | — | 593 | |||||||||||||||||||||||||||
OTC markets | |||||||||||||||||||||||||||||||||
Credit institutions | |||||||||||||||||||||||||||||||||
Forward transactions | (58,944 | ) | 865 | — | — | (58,079 | ) | 107,695 | 128,384 | (7,614 | ) | — | — | 228,465 | |||||||||||||||||||
Future rate agreements (FRAs) | — | (1,829 | ) | — | — | (1,829 | ) | — | 20 | — | — | — | 20 | ||||||||||||||||||||
Swaps | (7,521 | ) | (631,399 | ) | (15,728 | ) | (331 | ) | (654,979 | ) | (7,656 | ) | (78,072 | ) | 29,639 | (1,896 | ) | — | (57,985 | ) | |||||||||||||
Options | 31,208 | (29,367 | ) | (176,823 | ) | (174,982 | ) | (92,819 | ) | 154,547 | (189,327 | ) | — | (4,132 | ) | (131,731 | ) | ||||||||||||||||
Other products | (2,276 | ) | (235,129 | ) | — | — | — | (237,405 | ) | ||||||||||||||||||||||||
Other financial Institutions | |||||||||||||||||||||||||||||||||
Forward transactions | (110,128 | ) | — | — | — | (110,128 | ) | (25,389 | ) | — | — | — | — | (25,389 | ) | ||||||||||||||||||
Future rate agreements (FRAs) | — | (47 | ) | — | — | (47 | ) | — | (68 | ) | — | — | — | (68 | ) | ||||||||||||||||||
Swaps | (14,052 | ) | (382,059 | ) | (5,094 | ) | (287 | ) | (401,492 | ) | — | (108,432 | ) | (4,830 | ) | (592 | ) | — | (113,854 | ) | |||||||||||||
Options | 1,068 | (36,310 | ) | 13,356 | (21,886 | ) | (31,527 | ) | (177,943 | ) | (40,845 | ) | — | — | (250,315 | ) | |||||||||||||||||
Other products | (262 | ) | 54,917 | — | — | — | 54,655 | ||||||||||||||||||||||||||
Other sectors | |||||||||||||||||||||||||||||||||
Forward transactions | (737,767 | ) | — | — | — | (737,767 | ) | (168,653 | ) | — | 214 | — | — | (168,439 | ) | ||||||||||||||||||
Future rate agreements (FRAs) | — | 677 | — | — | 677 | — | 1,736 | — | — | — | 1,736 | ||||||||||||||||||||||
Swaps | (94,137 | ) | 530,896 | (15,768 | ) | (721 | ) | 420,270 | — | 421,392 | (346,225 | ) | (1,471 | ) | — | 73,696 | |||||||||||||||||
Options | 36,108 | (25,765 | ) | (71,922 | ) | — | (61,579 | ) | (12,434 | ) | 294,900 | (557,431 | ) | — | — | (274,965 | ) | ||||||||||||||||
Other products | (56 | ) | — | — | — | — | (56 | ) | |||||||||||||||||||||||||
Total | (949,731 | ) | (574,356 | ) | (328,890 | ) | (1,338 | ) | (1,854,316 | ) | (229,607 | ) | 450,733 | (863,410 | ) | 35,788 | 6,592 | (599,904 | ) | ||||||||||||||
of which: Asset Trading Derivatives | 2,030,065 | 8,611,741 | 285,815 | 20,975 | 10,948,596 | 1,301,581 | 9,836,714 | 1,921,374 | 98,444 | 104,627 | 13,262,740 | ||||||||||||||||||||||
of which: Liability Trading Derivatives | (2,979,796 | ) | (9,186,097 | ) | (614,705 | ) | (22,314 | ) | (12,802,912 | ) | (1,531,188 | ) | (9,385,981 | ) | (2,784,784 | ) | (62,656 | ) | (98,035 | ) | (13,862,644 | ) | |||||||||||
Thousands of Euros | |||||||||||||||
2004 | Currency Risk | Interest Rate Risk | Equity Price Risk | Credit Risk | Total | ||||||||||
Organised markets | |||||||||||||||
Options | 4,434 | (18 | ) | (56,911 | ) | — | (52,495 | ) | |||||||
OTC markets | |||||||||||||||
Credit institutions | |||||||||||||||
Forward transactions | (58,944 | ) | 865 | — | — | (58,079 | ) | ||||||||
Future rate agreements (FRAs) | — | (1,829 | ) | — | — | (1,829 | ) | ||||||||
Swaps | (7,521 | ) | (631,399 | ) | (15,728 | ) | (331 | ) | (654,979 | ) | |||||
Options | 31,208 | (29,367 | ) | (176,823 | ) | — | (174,982 | ) | |||||||
Other financial Institutions | |||||||||||||||
Forward transactions | (110,128 | ) | — | — | — | (110,128 | ) | ||||||||
Future rate agreements (FRAs) | — | (47 | ) | — | — | (47 | ) | ||||||||
Swaps | (14,052 | ) | (382,059 | ) | (5,094 | ) | (287 | ) | (401,492 | ) | |||||
Options | 1,068 | (36,310 | ) | 13,356 | — | (21,886 | ) | ||||||||
Other sectors | |||||||||||||||
Forward transactions | (737,767 | ) | — | — | — | (737,767 | ) | ||||||||
Future rate agreements (FRAs) | — | 677 | — | — | 677 | ||||||||||
Swaps | (94,137 | ) | 530,896 | (15,768 | ) | (721 | ) | 420,270 | |||||||
Options | 36,108 | (25,765 | ) | (71,922 | ) | — | (61,579 | ) | |||||||
Total | (949,731 | ) | (574,356 | ) | (328,890 | ) | (1,339 | ) | (1,854,316 | ) | |||||
of which: Asset Trading Derivatives | 2,030,065 | 8,611,741 | 285,815 | 20,975 | 10,948,596 | ||||||||||
of which: Liability Trading Derivatives | (2,979,796 | ) | (9,186,097 | ) | (614,705 | ) | (22,314 | ) | (12,802,912 | ) | |||||
12. Other financial assets at fair value through profit or lossOTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The detail of the balance of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004, based on the nature of the related transactions, is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Debt securities | 282,916 | 58,771 | 55,542 | 282,916 | 58,771 | |||||
Unit-linked products | 282,916 | 58,771 | ||||||||
Unit-Linked products | 55,542 | 282,916 | 58,771 | |||||||
Other equity instruments | 1,138,337 | 1,000,719 | 921,572 | 1,138,337 | 1,000,719 | |||||
Other securities | 264,249 | 241,618 | 449,759 | 264,249 | 241,618 | |||||
Unit-linked products | 874,088 | 759,101 | ||||||||
Unit-Linked products | 471,813 | 874,088 | 759,101 | |||||||
Total | 1,421,253 | 1,059,490 | 977,114 | 1,421,253 | 1,059,490 | |||||
Life insurance policies where the risk is borne by the policyholder, are policies in which the funds constituting the insurance technical provisions, are invested in the name of the insurer in units in collective investment undertaking and other financial assets selected by the policyholder, who ultimately bears the investment risk.
13. Available-for-sale financial assetsAVAILABLE-FOR-SALE FINANCIAL ASSETS
13.1. Breakdown of the balanceBREAKDOWNOFTHEBALANCE
The detail of the balance of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004, based on the nature of the related transactions, is as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Debt securities | 50,731,597 | 44,814,277 | ||||
Issued by central banks | 514,633 | 450,698 | ||||
Spanish government bonds | 14,277,305 | 16,318,064 | ||||
Foreign government bonds | 21,919,543 | 16,137,449 | ||||
of which: doubtfully receivable from foreign general government | 3,056 | 346,484 | ||||
Issued by credit institutions | 9,523,871 | 7,149,153 | ||||
Resident | 773,652 | 608,017 | ||||
Nonresident | 8,750,219 | 6,541,136 | ||||
of which: doubtfully receivable from foreign credit institutions | 81 | — | ||||
Other debt securities | 4,496,245 | 4,758,913 | ||||
Resident | 1,583,903 | 2,001,701 | ||||
Nonresident | 2,912,342 | 2,757,212 | ||||
of which: doubtfully receivable from nonresidents | — | 1,030 | ||||
Other (Securities lending) | — | — | ||||
Other equity instruments | 6,058,891 | 8,032,779 | ||||
Shares of Spanish companies | 3,840,320 | 6,124,453 | ||||
Credit institutions | 16,587 | 18,803 | ||||
Quoted | — | 2,216 | ||||
Unquoted | 16,587 | 16,587 | ||||
Other | 3,823,733 | 6,105,650 | ||||
Quoted | 3,731,873 | 6,012,753 | ||||
Unquoted | 91,860 | 92,897 | ||||
Shares of foreign companies | 738,300 | 1,032,959 | ||||
Credit institutions | 272,256 | 260,399 | ||||
Quoted | 236,847 | 245,747 | ||||
Unquoted | 35,409 | 14,652 | ||||
Other | 466,044 | 772,560 | ||||
Quoted | 398,976 | 493,509 | ||||
Unquoted | 67,068 | 279,051 | ||||
Shares in the net assets of mutual funds | 1,480,271 | 875,367 | ||||
Total gross | 56,790,488 | 52,847,056 | ||||
Prepayments and accrued income and adjustments for hedging derivatives | 3,381,799 | 305,891 | ||||
Impairment losses | (138,299 | ) | (149,402 | ) | ||
Total net | 60,033,988 | 53,003,545 | ||||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Avaliable-for-sale financial assets | ||||||
Debt securities | 32,229,459 | 50,971,978 | 45,037,228 | |||
Other equity instruments | 10,037,315 | 9,062,010 | 7,966,317 | |||
Total | 42,266,774 | 60,033,988 | 53,003,545 | |||
InThe detail of the balance of the heading “Debt securities” as of December 31, 2006, 2005 and 2004, EUR 428,560based on the nature of the related transactions, is as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Debt securities | |||||||||
Issued by central banks | 189,370 | 514,633 | 450,698 | ||||||
Spanish government bonds | 6,818,343 | 14,277,305 | 16,318,064 | ||||||
Foreign government bonds | 10,955,143 | 21,919,543 | 16,137,449 | ||||||
of which: doubtfully receivable from foreign general government | 2,929 | 3,056 | 346,484 | ||||||
Issued by credit institutions | 9,199,471 | 9,523,871 | 7,149,153 | ||||||
Resident | 1,034,586 | 773,652 | 608,017 | ||||||
Non resident | 8,164,885 | 8,750,219 | 6,541,136 | ||||||
of which: doubtfully receivable from foreign credit institutions | — | 81 | — | ||||||
Other debt securities | 4,916,735 | 4,496,245 | 4,758,913 | ||||||
Resident | 1,480,788 | 1,583,903 | 2,001,701 | ||||||
Non resident | 3,435,947 | 2,912,342 | 2,757,212 | ||||||
of which: doubtfully receivable from non residents | — | — | 1,030 | ||||||
Other | — | — | — | ||||||
Total gross | 32,079,062 | 50,731,597 | 44,814,277 | ||||||
Impairments losses | (31,036 | ) | (64,526 | ) | (99,409 | ) | |||
Accrued expenses and adjustments for hedging derivatives | 181,433 | 304,907 | 322,360 | ||||||
Total net | 32,229,459 | 50,971,978 | 45,037,228 | ||||||
As of December 31, 2006, 2005 and 2004 the amount of gains/losses net from tax recognised in equity from the heading “Debt securities” under Available-for-sale financial assets amounted to €702,139 thousand, €1,056,638 thousand and EUR 974,412€893,141 thousand, respectively.
The breakdown of the balance of the heading “Other equity instruments” by nature of the operations as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | |||||||
2006 | 2005 | 2004 | |||||
Other equity instruments | |||||||
Shares of Spanish companies | 3,312,018 | 3,774,323 | 6,080,784 | ||||
Credit institutions | — | 16,587 | 18,803 | ||||
Quoted | — | — | 2,216 | ||||
Unquoted | — | 16,587 | 16,587 | ||||
Other | 3,312,018 | 3,757,736 | 6,061,981 | ||||
Quoted | 3,261,123 | 3,665,876 | 5,969,084 | ||||
Unquoted | 50,895 | 91,860 | 92,897 | ||||
Shares of foreign companies | 686,565 | 730,524 | 1,026,635 | ||||
Credit institutions | 345,084 | 272,256 | 260,399 | ||||
Quoted | 320,455 | 236,847 | 245,747 | ||||
Unquoted | 24,629 | 35,409 | 14,652 | ||||
Other | 341,481 | 458,268 | 766,236 | ||||
Quoted | 284,386 | 391,200 | 487,185 | ||||
Unquoted | 57,095 | 67,068 | 279,051 | ||||
Shares in the net assets of mutual funds | 1,962,589 | 1,480,271 | 875,367 | ||||
Total gross | 5,961,172 | 5,985,118 | 7,982,786 | ||||
Valuation adjustments and adjustments for hedging derivatives | 4,076,143 | 3,076,892 | (16,469 | ) | |||
Total net | 10,037,315 | 9,062,010 | 7,966,317 | ||||
As of December 31, 2006, 2005 and 2004 the amount of gains/losses net from tax recognised in equity from the heading “Other equity instruments” under Available-for-sale financial assets amounted to €2,653,433 thousand, €1,946,146 thousand and €1,426,992 thousand, respectively.
In 2006, 2005 and 2004, €1,120,591 thousand, €428,560 thousand and €974,412 thousand, respectively, were debited to Valuation Adjustments“Valuation Adjustments” and recorded under Gains/“Gains/Losses on Financial Assets and LiabilitiesLiabilities” in the consolidated income statements for 2006, 2005 and 2004. These amounts correspond to debt securities and other equity instruments (See Note 50)
As of December 31, 2006, most of our unrealised losses of “Available-for-sale assets” registered in equity correspond to “Debt securities”. This unrealised are considered temporary because they have mainly arisen in a period shorter than one year.
The detail, by geographical area, of the debt securities and other equity instruments included under this heading, disregarding accruals and impairment losses:losses, is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Europe | 42,174,090 | 41,377,085 | 24,258,081 | 42,174,090 | 41,377,085 | |||||
United States | 4,129,727 | 1,575,299 | 5,637,656 | 4,129,727 | 1,575,299 | |||||
Latin America | 9,820,752 | 9,000,123 | 6,677,481 | 9,820,752 | 9,000,123 | |||||
Rest of the world | 665,919 | 894,549 | 1,517,669 | 665,919 | 894,549 | |||||
Total | 56,790,488 | 52,847,056 | 38,090,887 | 56,790,488 | 52,847,056 | |||||
13.2. Impairment lossesIMPAIRMENTLOSSES
Following is a summary of the changes in 2006, 2005 and 2004 in the impairment losses on available-for-sale financial assets:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Balance at beginning of year | 149,402 | 192,797 | 138,299 | 149,402 | 192,797 | ||||||||||
Increase in impairment losses charged to income | 8,183 | — | 5,647 | 8,183 | — | ||||||||||
Decrease in impairment losses credited to income | (27,615 | ) | (68,815 | ) | (24,752 | ) | (27,615 | ) | (68,815 | ) | |||||
Elimination of impaired balance due to transfer of asset to write-off | (17,161 | ) | — | ||||||||||||
Elimination of impaired balance due to transfer of | (17,161 | ) | — | ||||||||||||
asset to write-off | (16,641 | ) | |||||||||||||
Transfers | 1,501 | — | (771 | ) | 1,501 | — | |||||||||
Exchange differences | 23,989 | 25,420 | (20,093 | ) | 23,989 | 25,420 | |||||||||
Balance at end of year | 138,299 | 149,402 | 81,689 | 138,299 | 149,402 | ||||||||||
Of which: | |||||||||||||||
-Determined individually | 83,928 | 85,782 | |||||||||||||
-Determined collectively | 54,371 | 63,620 | |||||||||||||
- Determined individually | 56,710 | 83,928 | 85,782 | ||||||||||||
- Determined collectively | 24,979 | 54,371 | 63,620 |
AtAs of December 31, 2006, 2005 and 2004, the balances of the individually determined impairment losses related in full to debt securities from countries belonging to the Latin America geographical area.
14. Loans and receivablesLOANS AND RECEIVABLES
14. 1. Breakdown of the balanceBREAKDOWNOFTHEBALANCE
The detail of the balance of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004, based on the nature of the related financial instrument, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Loans and advances to credit institutions | 17,049,692 | 27,470,224 | 16,702,957 | |||
Money market operations through counterparties | 100,052 | — | 241,999 | |||
Loans and advances to other debtors | 256,565,376 | 216,850,480 | 172,083,072 | |||
Debt securities | 77,334 | 2,291,889 | 5,497,509 | |||
Other financial assets | 6,062,805 | 2,784,054 | 2,366,666 | |||
Total | 279,855,259 | 249,396,647 | 196,892,203 | |||
14. 2. LOANSANDADVANCESTOCREDITINSTITUTIONS
The detail of the balance of this heading in the consolidated balance sheets as of December 31, 2005 and 2004, based on the nature of the related financial instrument, is as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Loans and advances to credit institutions | 27,373,957 | 16,603,694 | ||||
Money market operations through counterparties | — | 241,999 | ||||
Loans and advances to other debtors | 221,994,586 | 175,593,496 | ||||
Debt securities | 2,292,537 | 5,497,509 | ||||
Other financial assets | 2,784,054 | 2,366,666 | ||||
Total gross | 254,445,134 | 200,303,364 | ||||
Less: valuation adjustments (*) | (5,048,487 | ) | (3,411,161 | ) | ||
Total net | 249,396,647 | 196,892,203 | ||||
Reciprocal accounts Deposits with agreed maturity Demand deposits Other accounts Reverse repurchase agreements Total gross Valuation adjustments Total Thousands of Euros 2006 2005 2004 131,153 379,827 396,719 9,469,423 13,202,414 9,429,882 438,892 540,982 342,951 1,460,477 791,623 443,547 5,490,240 12,459,111 5,990,595 16,990,185 27,373,957 16,603,694 59,507 96,267 99,263 17,049,692 27,470,224 16,702,957
14. 2. Loans and advances to credit institutions3. LOANSANDADVANCESTOOTHERDEBTORS
The detail, by loan type and status, of the balance of this heading in the consolidated balance sheets atas of December 31, 2005 and 2004, based on the nature of the related financial instrument, is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Reciprocal accounts | 379,827 | 396,719 | ||
Deposits with agreed maturity | 13,202,414 | 9,429,882 | ||
Demand deposits | 540,982 | 342,951 | ||
Other accounts | 791,623 | 443,547 | ||
Reverse repurchase agreements | 12,459,111 | 5,990,595 | ||
Total, gross | 27,373,957 | 16,603,694 | ||
Less: valuation adjustments | 96,267 | 99,263 | ||
Total, net | 27,470,224 | 16,702,957 | ||
14. 3. Loans and advances to other debtors
The detail, by loan type, status, sector and geographical area, of the balance of this heading in the consolidated balance sheets at December 31,2006, 2005 and 2004, disregarding the balance of the impairment losses, is as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
By loan type and status - | ||||||
Financial paper | 6,566 | 48,540 | ||||
Commercial credit | 20,101,790 | 12,289,969 | ||||
Secured loans | 101,527,208 | 77,221,108 | ||||
Credit accounts | 19,312,007 | 17,028,327 | ||||
Other loans | 61,671,944 | 53,703,804 | ||||
Reverse repurchase agreements | 1,176,327 | 719,798 | ||||
Receivable on demand and other | 8,716,758 | 6,595,709 | ||||
Finance leases | 7,138,174 | 5,784,623 | ||||
Impaired assets (*) | 2,343,812 | 2,201,614 | ||||
Total gross | 221,994,586 | 175,593,492 | ||||
Valuation adjustments | (5,144,106 | ) | (3,510,420 | ) | ||
Total net | 216,850,480 | 172,083,072 | ||||
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Financial paper | 9,084 | 6,566 | 48,540 | ||||||
Commercial credit | 22,453,040 | 20,101,790 | 12,289,969 | ||||||
Secured loans | 116,737,348 | 101,527,208 | 77,221,112 | ||||||
Credit accounts | 21,699,873 | 19,312,007 | 17,028,327 | ||||||
Other loans | 77,748,275 | 61,671,944 | 53,703,804 | ||||||
Reverse repurchase agreements | 1,526,211 | 1,176,327 | 719,798 | ||||||
Receivable on demand and other | 11,658,109 | 8,716,758 | 6,595,709 | ||||||
Finance leases | 8,053,327 | 7,138,174 | 5,784,623 | ||||||
Impaired assets | 2,488,670 | 2,343,812 | 2,201,614 | ||||||
Total gross | 262,373,937 | 221,994,586 | 175,593,496 | ||||||
Valuation adjustments (*) | (5,808,561 | ) | (5,144,106 | ) | (3,510,424 | ) | |||
Total | 256,565,376 | 216,850,480 | 172,083,072 | ||||||
(*) |
Through several of its financial institutions the Group provides financing tofinances the acquisition by its customers to enable them to acquireof both personal and real property through finance lease contracts which are recorded under this heading. As of December 31, 2006, approximately €4,700 million related to finance lease contracts for personal property and €3,353 million related to finance lease contracts for real property. Of the total finance leases as of December 31, 2006, 90% are floating rate finance leases and the remaining 10% are fixed rate finance leases.
The breakdown, by borrower sector, of the balance of this heading atas of December 31, 2006, 2005 and 2004 iswas as follows:
Thousands of Euros | 2005 | 2004 | |||||||||||
Public sector | 22,125,331 | 20,345,386 | |||||||||||
Thousands of Euros | |||||||||||||
2006 | 2005 | 2004 | |||||||||||
Public Sector | 21,193,915 | 22,125,331 | 20,345,386 | ||||||||||
Agriculture | 2,504,423 | 1,607,838 | 3,132,919 | 2,504,423 | 1,607,838 | ||||||||
Industry | 17,929,750 | 16,714,665 | 24,730,676 | 17,929,750 | 16,714,665 | ||||||||
Real estate and construction | 36,561,531 | 25,232,071 | 41,501,749 | 36,561,531 | 25,232,071 | ||||||||
Trade and finance | 36,194,157 | 17,703,404 | 38,910,058 | 36,194,157 | 17,703,404 | ||||||||
Loans to individuals | 82,583,257 | 70,613,165 | 103,918,072 | 82,583,257 | 70,613,169 | ||||||||
Leases | 6,725,825 | 6,340,870 | 7,692,088 | 6,725,825 | 6,340,870 | ||||||||
Other | 17,370,312 | 17,036,093 | 21,294,460 | 17,370,312 | 17,036,093 | ||||||||
Valuation adjustments | (5,808,561 | ) | (5,144,106 | ) | (3,510,424 | ) | |||||||
Total | 221,994,586 | 175,593,496 | 256,565,376 | 216,850,480 | 172,083,072 | ||||||||
The detail, by geographical area, of the balancethis heading as of Loans and Advances to Other Debtors at December 31, 2006, 2005 and 2004, disregarding valuation adjustments, is as follows:
Thousands of Euros | 2005 | 2004 | ||||||||
Thousands of Euros | ||||||||||
2006 | 2005 | 2004 | ||||||||
Europe | 170,789,741 | 144,332,632 | 201,229,765 | 170,789,741 | 144,332,632 | |||||
United States | 6,196,086 | 3,043,899 | 9,596,951 | 6,196,086 | 3,043,899 | |||||
Latin America | 43,490,220 | 27,099,398 | 49,157,570 | 43,490,220 | 27,099,398 | |||||
Rest of the world | 1,518,539 | 1,117,567 | 2,389,651 | 1,518,539 | 1,117,567 | |||||
Total | 221,994,586 | 175,593,496 | 262,373,937 | 221,994,586 | 175,593,496 | |||||
Of the total balance of Loans“Loans and Advances to Other Debtors, EUR 5,468,142Debtors”, €9,055,899 thousand, €5,468,142 thousand and EUR 1,972,784€1,972,784 thousand relate to securitised loans securitised through three securitisation funds created by the Group atas of December 31, 2006, 2005 and 2004, respectively; sincerespectively. Since the Group retains the risks and rewards of these loans, they cannot be derecognised.derecognised unless they meet the requirements to do so. The detailbreakdown of these securitised loans, based on the nature of the related financial instrument and of their status (recognised or derecognised), is as follows (see Notes 2.2.t, 3.c and 42)Note 44):
Thousands of Euros | ||||
SECURITISATIONS | 2005 | 2004 | ||
Derecognised on the balance sheet | 1,587,209 | 2,096,440 | ||
Securitised mortgage assets | 376,180 | 387,855 | ||
Other securitised assets | 1,211,029 | 1,708,585 | ||
Retained on the balance sheet | 5,468,142 | 1,972,784 | ||
Securitised mortgage assets | 2,249,752 | 579,351 | ||
Other securitised assets | 3,218,390 | 1,393,433 | ||
Total | 7,055,351 | 4,069,224 | ||
Derecognised on the balance sheet Securitised mortgage assets Other securitised assets Retained on the balance sheet Securitised mortgage assets Other securitised assets Retained partially on the balance sheet Total Thousands of Euros 2006 2005 2004 1,058,132 1,587,209 2,096,440 209,368 376,180 387,855 848,764 1,211,029 1,708,585 9,055,899 5,468,142 1,972,784 2,320,363 2,249,752 579,351 6,735,536 3,218,390 1,393,433 65 — — 10,114,096 7,055,351 4,069,224
14.4. Impaired assets and impairment lossesIMPAIREDASSETSANDIMPAIRMENTLOSSES
The changes in 2006, 2005 and 2004 in the Impairedheading “Impaired Assets balance wereof Loans and advances to other debtors” of the foregoing detail, are as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Balance at beginning of year | 2,201,614 | 2,923,849 | 2,346,072 | 2,201,614 | 2,923,849 | ||||||||||
Additions | 1,939,737 | 2,004,660 | 2,709,656 | 1,939,737 | 2,004,660 | ||||||||||
Recoveries | (1,527,040 | ) | (1,559,012 | ) | (1,805,252 | ) | (1,527,040 | ) | (1,559,012 | ) | |||||
Transfers to write-off | (666,534 | ) | (713,188 | ) | |||||||||||
Transfers to writte-off | (707,451 | ) | (666,534 | ) | (713,188 | ) | |||||||||
Exchange differences and other | 398,295 | (454,695 | ) | (51,335 | ) | 398,295 | (454,695 | ) | |||||||
Balance at end of year | 2,346,072 | 2,201,614 | 2,491,690 | 2,346,072 | 2,201,614 | ||||||||||
Following is a detail of the financial assets classified as “Loans and receivables to other debtors” and considered to be impaired due to credit risk as of December 31, 2006 and 2005, broken down on the basis of the time elapsed from the due date of the oldest amount outstanding of each transaction or from the date on which the transaction was considered to be impaired:
Thousands of Euros | ||||
2006 | 2005 | |||
Between 3-6 months | 1,101,018 | 961,827 | ||
Between 6-12 months | 352,009 | 256,805 | ||
Between 12-18 months | 320,105 | 106,178 | ||
Between 18-24 months | 94,779 | 89,946 | ||
More than 24 months | 623,779 | 931,315 | ||
Total | 2,491,690 | 2,346,071 | ||
As of 31 December 2006 and 2005, the financial assets classified as loans and receivables which, although not considered to be impaired, had amounts past due at these dates, amounted to €2,021,752 thousand and €893,080 thousand, respectively.
The changes during 2006 in the impaired financial assets derecognised in balance for considering remote its possibility of recovery was as follows:
TOTAL | |||
Balance at the beginning of the year | 6,186,524 | ||
Increase: | 639,034 | ||
Assets of remote collectability | 472,352 | ||
Products overdue not collected | 166,682 | ||
Decrease: | (596,316 | ) | |
Cash recovery | (462,849 | ) | |
Foreclosed assets | (4,736 | ) | |
Other causes | (128,731 | ) | |
Net Exchange differences | (109,712 | ) | |
Balance at the end of the year | 6,119,530 | ||
The changes in the balance of the provisions covering the impairment losses during 2006, 2005 and 2004 on the assets included under Loansthe heading “Loans and Receivables wereReceivables” are as follows:follow:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Balance at beginning of year | 4,621,654 | 5,045,608 | 5,586,656 | 4,621,654 | 5,045,608 | ||||||||||
Increase in impairment losses charged to income | 1,418,758 | 1,718,549 | 2,107,162 | 1,418,758 | 1,724,056 | ||||||||||
Decrease in impairment losses credited to income | (597,704 | ) | (574,755 | ) | (444,839 | ) | (422,554 | ) | (574,998 | ) | |||||
Acquisition of subsidiaries in the year | 145,884 | 1,095 | 91,177 | 145,884 | 1,095 | ||||||||||
Disposal of entities in the year | (2,034 | ) | — | (22,231 | ) | (2,034 | ) | — | |||||||
Recovery of fixed-income security provisions | — | 14,067 | (1,620 | ) | — | — | |||||||||
Elimination of impaired balance due to transfer of asset to write-off | (666,534 | ) | (713,188 | ) | |||||||||||
Based on the nature of the asset | (545,823 | ) | (666,534 | ) | (713,188 | ) | |||||||||
Transfers to written-off loans | 2,960 | (21,226 | ) | (1,751 | ) | 2,960 | (21,226 | ) | |||||||
Exchange differences | 370,128 | (146,401 | ) | (332,489 | ) | 370,128 | (146,401 | ) | |||||||
Other | 293,544 | (702,095 | ) | (18,813 | ) | 118,394 | (693,292 | ) | |||||||
Balance at end of year | 5,586,656 | 4,621,654 | 6,417,429 | 5,586,656 | 4,621,654 | ||||||||||
Of which: | |||||||||||||||
-Determined individually | 2,041,573 | 1,867,695 | |||||||||||||
-Determined collectively | 3,545,083 | 2,753,959 | |||||||||||||
- Determined individually | 1,930,254 | 2,041,573 | 1,867,695 | ||||||||||||
- Determined collectively | 4,487,175 | 3,545,083 | 2,753,959 | ||||||||||||
Of which: | |||||||||||||||
Based on the nature of the asset covered: | 5,586,656 | 4,621,654 | 6,417,429 | 5,586,656 | 4,621,654 | ||||||||||
Loans and advances to credit institutions | 17,423 | 31,860 | 6,603 | 17,423 | 31,860 | ||||||||||
Loans and advances to other debtors | 5,562,545 | 4,589,748 | 6,403,597 | 5,562,545 | 4,589,748 | ||||||||||
Debt securities | 648 | — | 600 | 648 | — | ||||||||||
Other financial assets | 6,040 | 46 | 6,629 | 6,040 | 46 | ||||||||||
Of which: | |||||||||||||||
By geographical area: | 5,586,656 | 4,621,654 | 6,417,429 | 5,586,656 | 4,621,654 | ||||||||||
Europe | 3,179,172 | 2,783,002 | 3,785,061 | 3,179,172 | 2,783,002 | ||||||||||
United States | 39,444 | 1,169 | 198,570 | 39,444 | 1,169 | ||||||||||
Latin America | 2,350,656 | 1,821,313 | 2,433,282 | 2,350,656 | 1,821,313 | ||||||||||
Rest of the world | 17,384 | 16,170 | 516 | 17,384 | 16,170 |
EUR 666,534 thousand and EUR 713,188 thousand of financialRecoveries if assets were derecognisedwritten off in 2006, 2005 and 2004 becauseamounted to €184,037 thousand, €183,124 thousand and €365,149 thousand, respectively, and are deducted from the probabilitybalance of recovering them was considered to be remote.the heading “Impairment losses (net) – Loans and receivables” in the accompanying consolidated income statements.
AtAs of December 31, 2006, 2005 and 2004, financial income amounting to EUR 1,051,687€1,106,513 thousand, €1,051,687 thousand and EUR 750,018€750,018 thousand had accrued, respectively, but was not recorded in the consolidated income statementstatements because there were doubts regarding its collectability.collection.
15. Held-to-maturity investmentsHELD-TO-MATURITY INVESTMENTS
AtAs of December 31, 2006, 2005 and 2004, the detail of the balance of this heading in the consolidated balance sheets was as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Quoted Spanish government bonds | 363,022 | 337,435 | 1,416,607 | 363,022 | 337,435 | ||||||||||
Quoted foreign government bonds | 2,272,187 | 1,297,558 | 3,023,259 | 2,272,187 | 1,297,558 | ||||||||||
Issued by Spanish credit institutions | 264,150 | 154,065 | 344,186 | 264,150 | 154,065 | ||||||||||
Issued by foreign credit institutions | 481,940 | 325,191 | 478,508 | 481,940 | 325,191 | ||||||||||
Debentures and bonds | 583,080 | 111,357 | 647,767 | 583,080 | 111,357 | ||||||||||
Issued by other resident sectors | 583,080 | 111,357 | 647,767 | 583,080 | 111,357 | ||||||||||
Total, gross | 3,964,379 | 2,225,606 | |||||||||||||
Total gross | 5,910,327 | 3,964,379 | 2,225,606 | ||||||||||||
Impairment losses | (5,114 | ) | (4,104 | ) | (4,691 | ) | (5,114 | ) | (4,104 | ) | |||||
Total, net | 3,959,265 | 2,221,502 | |||||||||||||
Total | 5,905,636 | 3,959,265 | 2,221,502 | ||||||||||||
All these balances are in Europe.
The gross changes in 2006, 2005 and 2004 in the balance of this heading in the consolidated balance sheets are summarised as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||
Balance at beginning of year | 2,225,606 | — | 3,964,379 | 2,225,606 | — | ||||||||
Acquisitions | 1,884,773 | 2,225,606 | 2,210,483 | 1,884,773 | 2,225,606 | ||||||||
Redemptions | (146,000 | ) | — | (274,000 | ) | (146,000 | ) | — | |||||
Other | 9,465 | — | — | ||||||||||
Balance at end of year | 3,964,379 | 2,225,606 | 5,910,327 | 3,964,379 | 2,225,606 | ||||||||
Following is a summary of the gross changes in 2006, 2005 and 2004 in the impairment losses on held-to-maturity investments:
Thousands of Euros | Thousands of Euros | ||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||
Balance at beginning of year | 4,104 | — | 5,114 | 4,104 | — | ||||||||
Increase in impairment losses charged to income | 1,008 | 4,106 | — | 1,008 | 4,106 | ||||||||
Decrease in impairment losses credited to income | (422 | ) | — | — | |||||||||
Other | 2 | (2 | ) | (1 | ) | 2 | (2 | ) | |||||
Balance at end of year | 5,114 | 4,104 | 4,691 | 5,114 | 4,104 | ||||||||
-Determined collectively | 5,114 | 4,104 | |||||||||||
- Determined collectively | 4,691 | 5,114 | 4,104 |
16. Hedging derivatives (receivable and payable)HEDGING DERIVATIVES (RECEIVABLE AND PAYABLE)
The detail of the fair value of the hedging derivatives held by the Group atas of December 31, 2006, 2005 and 2004 and recognised in the consolidated balance sheets is as follows:
2005 Thousands of Euros | Exchange Risk | Interest Rate Risk | Equity Price Risk | Total | ||||||||
Organised Markets | ||||||||||||
Fair value hedge | — | (8,067 | ) | (2,377 | ) | (10,444 | ) | |||||
Credit institutions | ||||||||||||
Fair value hedge | (1,715,271 | ) | 740,877 | 31,370 | (943,024 | ) | ||||||
Cash flow hedge | 1,599,175 | (150,024 | ) | — | 1,449,151 | |||||||
Hedges of net investments in foreign operations | (35 | ) | — | (35 | ) | |||||||
Other financial institutions | ||||||||||||
Fair value hedge | — | 194,522 | (307 | ) | 194,215 | |||||||
Other sectors | ||||||||||||
Fair value hedge | — | 355,317 | (2,832 | ) | 352,484 | |||||||
Cash flow hedge | — | 227 | — | 227 | ||||||||
Hedges of net investments in foreign operations | 35 | — | 35 | |||||||||
Total | (116,096 | ) | 1,132,851 | 25,854 | 1,042,609 | |||||||
of which: Asset Hedging Derivatives | 1,599,176 | 2,281,663 | 31,857 | 3,912,696 | ||||||||
of which: Liability Hedging Derivatives | (1,715,271 | ) | (1,148,812 | ) | (6,003 | ) | (2,870,086 | ) | ||||
Thousands of Euros | |||||||||
2006 | Interest Rate Risk | Equity Price Risk | Total | ||||||
Non organised markets | |||||||||
Credit institutions | (381,889 | ) | (115,557 | ) | (497,446 | ) | |||
Fair value micro-hedge | (404,296 | ) | (115,557 | ) | (519,853 | ) | |||
Cash flow micro-hedge | 22,407 | — | 22,407 | ||||||
Micro-hedges of net investments in foreign operations | — | — | — | ||||||
Other financial institutions | 178,127 | (2,909 | ) | 175,218 | |||||
Fair value micro-hedge | 126,340 | (2,909 | ) | 123,431 | |||||
Cash flow micro-hedge | 51,787 | — | 51,787 | ||||||
Other sectors | 9,354 | (3,546 | ) | 5,808 | |||||
Fair value micro-hedge | 9,354 | (3,546 | ) | 5,808 | |||||
Cash flow micro-hedge | — | — | — | ||||||
Micro-hedges of net investments in foreign operations | — | — | — | ||||||
Total | (194,408 | ) | (122,012 | ) | (316,420 | ) | |||
of which: Asset Hedging Derivatives | 1,915,623 | 47,697 | 1,963,320 | ||||||
of which: Liability hedging Derivatives | (2,110,031 | ) | (169,709 | ) | (2,279,740 | ) | |||
As of December 31, 2006, the interest rate risk was hedged in its majority by interest swaps while the equity price risk was hedged in its majority by equity swaps.
2004 Thousands of Euros | Interest Rate Risk | Equity Price Risk | Total | ||||||
Credit institutions | |||||||||
Fair value hedge | 761,929 | (235,013 | ) | 526,916 | |||||
Cash flow hedge | (34,210 | ) | — | (34,210 | ) | ||||
Fair value macro-hedge | 118,290 | — | 118,290 | ||||||
Other financial Institutions | |||||||||
Fair value hedge | 72,339 | 163 | 72,502 | ||||||
Fair value macro-hedge | 15,369 | — | 15,369 | ||||||
Other sectors | |||||||||
Fair value hedge | 391,957 | — | 391,957 | ||||||
Cash flow hedge | 1,512 | — | 1,512 | ||||||
Fair value macro-hedge | 49,542 | 49,542 | |||||||
Total | 1,376,728 | (234,850 | ) | 1,141,877 | |||||
of which: Asset Hedging Derivatives | 3,834,083 | 439,367 | 4,273,450 | ||||||
of which: Liability Hedging Derivatives | (2,457,355 | ) | (674,217 | ) | (3,131,572 | ) | |||
Thousands of Euros | ||||||||||||
2005 | Exchange Risk | Interest Rate Risk | Equity Price Risk | Total | ||||||||
Organised Markets | ||||||||||||
Fair value micro-hedge | — | (8,067 | ) | (2,377 | ) | (10,444 | ) | |||||
Non organised markets | ||||||||||||
Credit institutions | ||||||||||||
Fair value micro-hedge | (1,715,271 | ) | 740,877 | 31,370 | (943,024 | ) | ||||||
Cash flow micro-hedge | 1,599,175 | (150,024 | ) | — | 1,449,151 | |||||||
Micro-hedges of net investments in foreign operations | (35 | ) | — | — | (35 | ) | ||||||
Other financial institutions | ||||||||||||
Fair value micro-hedge | — | 194,522 | (307 | ) | 194,215 | |||||||
Other sectors | ||||||||||||
Fair value micro-hedge | — | 355,317 | (2,832 | ) | 352,484 | |||||||
Cash flow micro-hedge | — | 227 | — | 227 | ||||||||
Micro-hedges of net investments in foreign operations | 35 | — | — | 35 | ||||||||
Total | (116,096 | ) | 1,132,851 | 25,854 | 1,042,609 | |||||||
of which: Asset Hedging Derivatives | 1,599,176 | 2,281,663 | 31,857 | 3,912,696 | ||||||||
of which: Liability hedging Derivatives | (1,715,271 | ) | (1,148,812 | ) | (6,003 | ) | (2,870,086 | ) | ||||
Thousands of Euros | |||||||||
2004 | Interest Rate Risk | Equity Price Risk | Total | ||||||
Non organised markets | |||||||||
Credit institutions | |||||||||
Fair value micro-hedge | 761,929 | (235,013 | ) | 526,916 | |||||
Cash flow micro-hedge | (34,210 | ) | — | (34,210 | ) | ||||
Fair value macro-hedge | 118,290 | — | 118,290 | ||||||
Other financial institutions | |||||||||
Fair value micro-hedge | 72,339 | 163 | 72,502 | ||||||
Fair value macro-hedge | 15,369 | — | 15,369 | ||||||
Resto de sectores | |||||||||
Fair value micro-hedge | 391,957 | — | 391,957 | ||||||
Cash flow micro-hedge | 1,512 | — | 1,512 | ||||||
Fair value macro-hedge | 49,542 | — | 49,542 | ||||||
Total | 1,376,728 | (234,850 | ) | 1,141,878 | |||||
of which: Asset Hedging Derivatives | 3,834,083 | 439,367 | 4,273,450 | ||||||
of which: Liability hedging Derivatives | (2,457,355 | ) | (674,217 | ) | (3,131,572 | ) | |||
The Group has hedged the following forecast cash flows. These cash flows are expected to impact the income statement in the following periods:
Thousands of Euros | |||||||||||||||
3 months or less | More than 3 months but less than 1 year | From 1 to 5 years | More than 5 years | Total | |||||||||||
Cash inflows from assets | 76,701 | 197,845 | 316,457 | 46,644 | 637,647 | ||||||||||
Cash outflows from liabilities | (104,609 | ) | (315,111 | ) | (347,330 | ) | (136,855 | ) | (903,905 | ) |
The amounts that were so recognized in equity during the period and the amounts that were removed from equity and included in profit or loss for the period are showed in the “Consolidated Statement of changes in equity- Consolidated Statements of recognized income and expense”.
As of December 31, 2006, 2005 and 2004, there were not amounts that were removed from equity during the periods and included in the initial measurement of the acquisition cost or other carrying amount of a non-financial asset or non-financial liability in a hedged highly probable forecast transaction.
17. Non-current assets held for sale and liabilities associated with non-current assets held for saleNON-CURRENT ASSETS HELD FOR SALE AND LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE
The balance of Non-Current“Non-Current Assets Held for SaleSale” relates in full to foreclosed assets.
The changes in 2006, 2005 and 2004 in the balance of this heading in the consolidated balance sheets were as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Revalued cost- | |||||||||||||||
Balances beginning at 2004 | 338,860 | 385,620 | |||||||||||||
Revalued cost - | |||||||||||||||
Balance beginning of year | 401,283 | 338,860 | 385,620 | ||||||||||||
Additions | 122,438 | 84,968 | 278,947 | 122,438 | 84,968 | ||||||||||
Retirements | (212,304 | ) | (170,986 | ) | (370,136 | ) | (212,304 | ) | (170,986 | ) | |||||
Acquisition of subsidiaries in the year | 90,903 | 7,409 | 16,746 | 90,903 | 7,409 | ||||||||||
Transfers | 8,431 | 37,630 | 13,153 | 8,431 | 37,630 | ||||||||||
Exchange difference and other | 52,955 | (5,781 | ) | (72,167 | ) | 52,955 | (5,781 | ) | |||||||
Balance at December 31, 2005 | 401,283 | 338,860 | |||||||||||||
Impairment- | |||||||||||||||
Balances beginning at 2004 | 179,705 | 202,448 | |||||||||||||
Balance at end of year | 267,826 | 401,283 | 338,860 | ||||||||||||
Impairment - | |||||||||||||||
Balance beginning of year | 170,023 | 179,705 | 202,448 | ||||||||||||
Additions | 31,093 | 51,529 | 60,365 | 31,093 | 51,529 | ||||||||||
Retirements | (51,533 | ) | (61,567 | ) | (104,966 | ) | (51,533 | ) | (61,567 | ) | |||||
Acquisition of subsidiaries in the year | 28,205 | — | 486 | 28,205 | — | ||||||||||
Transfers | 4,084 | (250 | ) | 6,258 | 4,084 | (250 | ) | ||||||||
Exchange difference and other | (21,531 | ) | (12,455 | ) | (50,402 | ) | (21,531 | ) | (12,455 | ) | |||||
Balance at December 31, 2005 | 170,023 | 179,705 | |||||||||||||
Balance at end of year | 231,260 | 159,155 | 81,764 | 170,023 | 179,705 | ||||||||||
Balance total at end of year | 186,062 | 231,260 | 159,155 | ||||||||||||
AtAs of December 31, 2006, 2005 and 2004, there were no liabilities associated with non-current assets held for sale.
The fair value of these items was determined by reference to appraisals performed by companies registered as valuers in each of the geographical areas in which the assets are located.
Most of the non-current assets held for sale recorded as assets in the consolidated balance sheets atas of December 31, 2005 and 20042006 relate to properties. These properties classified as “non-current assets held for sale” are assets available for sale, which is considered highly probable. The sale of most of these assets is expected to be completed within one year of the date on which they are classified as “non-current assets held for sale”.
The fair value of these items was determined by reference to appraisals performed by companies registered as valuers in each of the geographical areas in which the assets are located.
The independent valuation and appraisal companies entrusted with the appraisal of these assets were Eurovaloraciones, S.A., Valtecnic, S.A., General de Valoraciones, S.A., Krata, S.A., Tinsa, S.A., Alia Tasaciones, S.A., Ibertasa, S.A., Tasvalor, S.A. y Gesvalt, S.A. (these companies are registers in the official register of the Bank of Spain). .
18.1. Investments in associatesINVESTMENTSINASSOCIATES
The most significant investment in associates atas of 31 December 31,2006, 2005 and 2004 was that held in Banca Nazionale del Lavoro S.p.A. (“BNL”), in which the Group owned 14.427% and 14.639% of the share capital respectively.
On March 28, 2005, the Bank’s Board of Directors resolved to launch a tender offer for the voluntary exchange of all the ordinary shares of BNL. Once the relevant authorisations had been obtained from the competent bodies, the shareholders approved the details of the transaction at the Special General Meeting held on June 13, 2005.
Prior to the expiration of the acceptance period of BBVA’s offer (22 July), the Italian insurance group Unipol Assicurazioni S.p.A. (“Unipol”) announced that it had entered into side agreements with certain entities, as a result of which they controlled 46.95% of BNL’s capital. In view of this situation, and since it did not expect to obtain more than 50% of BNL’s capital, the Group withdrew its tender offer for the voluntary exchange of shares.
As permitted by Italian legislation, in August Unipol presented a tender offer for all the shares of BNL, subject to obtainment of the relevant authorisation. However, on February 3, 2006, the Bank of Italy ultimately refused to grant Unipol authorisation to launch the offer. On that same day, Unipol announced that it had reached an agreement with the French entity BNP Paribas (“BNP”) for the sale of the BNL shares held by it, and notified BNP of its intention to launch a tender offer on all BNL’s capital.
At the date of preparation of these financial statements, the transactions described in the preceding paragraph had not been performed since the related authorisation had not been obtained. Accordingly, the shareholders’ agreement under which the Group has significant influence over the Board of Directors of BNL (Note 2.1-c) remains in force, and the Group’s investment in BNL is recorded under the heading “Investments - Associates” in the accompanying balance sheet.Tubos Reunidos, S.A.
The gross changes in 2006, 2005 and 2004 in Investments - Associates inthis heading of the consolidated balance sheets were as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Balance at beginning of year | 910,096 | 1,186,154 | 945,858 | 910,096 | 1,186,154 | ||||||||||
Acquisitions | 9,647 | 212,281 | 28,116 | 9,647 | 212,281 | ||||||||||
Disposals | (10,676 | ) | (307,505 | ) | (801,521 | ) | (10,676 | ) | (307,505 | ) | |||||
Transfers | 36,791 | (180,834 | ) | 33,806 | 36,791 | (180,834 | ) | ||||||||
Balance at end of year | 945,858 | 910,096 | 206,259 | 945,858 | 910,096 | ||||||||||
The changes in 2006 include the disposal of the ownership interest in Banca Nazionale del Lavoro, S.p.A. and the disposal of the long-term investment in Técnicas Reunidas, S.A., carrying amounts of which totaled €751,544 thousand and €17,615 thousand, respectively.
18.2. InvestmentsINVESTMENTSINJOINTLYCONTROLLEDENTITIES
As of December 31, 2006, 2005 and 2004, the holdings included under the heading “Investments- Jointly controlled entities” were accounted using the equity method, as described in Note 2.1.b
The most significant entity included in this heading is Corporación IBV Participaciones Empresariales, S.A., which reflects a balance of €564,762 thousand and €251,246 thousand in the heading “Income from equity investments” of the consolidated income statement of 2006.
The most significant changes during 2006 include the acquisition of Telepeaje Electrónico S.A. de C.V. and the recognition of Camarote Golf, S.A., Hestenar, S.L. and Hesteralia Málaga, S.L. as jointly controlled entities
At December 31, 2005 and 2004, all these investments are consolidated by the equity method (see Note 2.1.b) (previously recognised as associates).
The changes relating to 2005 reflect the sale of Azeler Automoción, S.A. and to the consolidation of Iniciativas Residenciales en Internet, S.A. by the full consolidation method.
18.3. Notifications of the acquisition of investmentsNOTIFICATIONSOFTHEACQUISITIONOFINVESTMENTS
Appendix IV lists the Group’s acquisitions and disposals of holdings in associates or jointly controlled entities and the notification dates thereof, in compliance with Article 86 of the Spanish Corporations Law and Article 53 of Securities Market Law 24/1988.
18.4. ImpairmentIMPAIRMENT
No evidence of impairment was disclosedDuring 2006, the goodwill in respect of the Group’s investments in associates and jointly controlled entities.entities has registered an impairment of €6,162 thousand.
19. | REINSURANCE ASSETS |
The most representative companies composing the insurance business of the consolidated Group are as follows: BBVA Seguros, S.A., Assegurances Principat, S.A., Seguros Bancomer, S.A., BBVA Seguros de Vida, S.A. and Consolidar Group’s insurance companies.
At
As of December 31, 2006, 2005 and 2004, the detail of the balance of this heading in the consolidated balance sheets wasis as follows:
Thousands of Euros | |||||
2005 | 2004 | ||||
Reinsurance assets | 223,276 | 80,245 | |||
Reinsurer’s share of technical provisions | 223,276 | 80,245 | |||
Debtors arising from insurance and reinsurance operations | 11,902 | 23 | |||
Debtors arising from reinsurance operations | 11,917 | — | |||
Deposits received for outward reinsurance | (15 | ) | 23 | ||
Total | 235,178 | 80,268 | |||
Thousands of Euros | ||||||
ITEMS | 2006 | 2005 | 2004 | |||
Reinsurance assets | 31,986 | 223,276 | 80,245 | |||
Reinsurer´s share of technical provisions | 31,986 | 223,276 | 80,245 | |||
Debtors arising from insurance and reinsurance operations (*) | — | 11,902 | 23 | |||
Total | 31,986 | 235,178 | 80,268 | |||
(*) | This caption is included in the heading “Loans and Receivables” as of December 31, 2006. |
20. Tangible assetsTANGIBLE ASSETS
The detail of the changes in 2006, 2005 and 2004 in this heading in the consolidated balance sheets, based on the nature of the related items, is as follows:
Thousands of Euros | Thousands of Euros | |||||||||||||||||||||||||||||||||||
2005 | Property, plants and equipment | Investment Properties | Assets Leased out under an Operating Lease | Total | ||||||||||||||||||||||||||||||||
Land and Buildings | Work in Progress | Furniture, Fixtures and Vehicles | ||||||||||||||||||||||||||||||||||
Deemed cost- | ||||||||||||||||||||||||||||||||||||
Balances at January 1, 2005 | 2,765,508 | 9,068 | 4,357,093 | 194,518 | 566,386 | 7,892,573 | ||||||||||||||||||||||||||||||
Property, plants and equipment | Investment Properties | Assets Leased out under an Operating Lease | Total | |||||||||||||||||||||||||||||||||
2006 | Land and Buildings | Work in Progress | Furniture, Fixtures and Vehicles | |||||||||||||||||||||||||||||||||
Revalued cost - | ||||||||||||||||||||||||||||||||||||
Balance at 1 January 2006 | 3,152,321 | 19,107 | 4,976,346 | 93,151 | 629,922 | 8,870,847 | ||||||||||||||||||||||||||||||
Additions | 109,089 | 19,351 | 374,831 | 5,094 | 239,553 | 747,918 | 57,773 | 31,925 | 436,030 | 775 | 304,124 | 830,627 | ||||||||||||||||||||||||
Retirements | (148,671 | ) | (6,758 | ) | (159,614 | ) | (38,868 | ) | (113,749 | ) | (467,660 | ) | (14,155 | ) | (14,638 | ) | (195,376 | ) | (5,343 | ) | (186,652 | ) | (416,164 | ) | ||||||||||||
Acquisition of subsidiaries in the year | 158,848 | 10,102 | 124,147 | — | — | 293,097 | 127,438 | 1,860 | 32,145 | — | 149,602 | 311,045 | ||||||||||||||||||||||||
Disposal of entities in the year | (5,594 | ) | (462 | ) | (3,531 | ) | — | — | (9,587 | ) | (47,362 | ) | (780 | ) | (36,709 | ) | (249 | ) | — | (85,100 | ) | |||||||||||||||
Transfers | 2,844 | (7,512 | ) | 6,912 | (34,377 | ) | — | (32,133 | ) | (17,635 | ) | (6,680 | ) | 4,841 | (1,466 | ) | — | (20,940 | ) | |||||||||||||||||
Exchange difference and other | 270,297 | (4,682 | ) | 276,508 | (33,216 | ) | (62,268 | ) | 446,639 | (170,031 | ) | (6,749 | ) | (243,217 | ) | (11,354 | ) | (16,081 | ) | (447,432 | ) | |||||||||||||||
Balance at December 31, 2005 | 3,152,321 | 19,107 | 4,976,346 | 93,151 | 629,922 | 8,870,847 | ||||||||||||||||||||||||||||||
Accumulated depreciation- | ||||||||||||||||||||||||||||||||||||
Balances at January 1, 2005 | (663,965 | ) | (897 | ) | (3,013,054 | ) | (31,869 | ) | (127,127 | ) | (3,836,912 | ) | ||||||||||||||||||||||||
Balance at 31 December 2006 | 3,088,349 | 24,045 | 4,974,060 | 75,514 | 880,915 | 9,042,883 | ||||||||||||||||||||||||||||||
Accumulated depreciation - | ||||||||||||||||||||||||||||||||||||
Balance at 1 January 2006 | (796,955 | ) | — | (3,482,086 | ) | (15,028 | ) | (163,795 | ) | (4,457,864 | ) | |||||||||||||||||||||||||
Additions | (52,348 | ) | — | (218,681 | ) | (1,389 | ) | (88,624 | ) | (361,042 | ) | (67,535 | ) | — | (266,502 | ) | (1,174 | ) | (47,679 | ) | (382,890 | ) | ||||||||||||||
Retirements | 41,417 | 1,011 | 142,521 | 4,294 | 53,717 | 242,960 | 12,930 | — | 160,171 | 1,112 | 12,544 | 186,757 | ||||||||||||||||||||||||
Acquisition of subsidiaries in the year | (28,631 | ) | — | (79,702 | ) | — | — | (108,333 | ) | (638 | ) | — | (9,383 | ) | — | (48,451 | ) | (58,472 | ) | |||||||||||||||||
Disposal of entities in the year | 119 | — | 2,254 | 1,083 | — | 3,456 | 2,992 | — | 34,969 | 94 | — | 38,055 | ||||||||||||||||||||||||
Transfers | (10,131 | ) | — | 4,422 | 5,709 | — | — | 7,230 | — | 1,108 | 321 | — | 8,659 | |||||||||||||||||||||||
Exchange difference and other | (83,416 | ) | (114 | ) | (319,846 | ) | 7,144 | (1,761 | ) | (397,993 | ) | 43,799 | — | 116,708 | 1,329 | 16,081 | 177,917 | |||||||||||||||||||
Balance at December 31, 2005 | (796,955 | ) | — | (3,482,086 | ) | (15,028 | ) | (163,795 | ) | (4,457,864 | ) | |||||||||||||||||||||||||
Impairment- | ||||||||||||||||||||||||||||||||||||
Balances at January 1, 2005 | (116,025 | ) | — | — | — | — | (116,025 | ) | ||||||||||||||||||||||||||||
Balance at 31 December 2006 | (798,177 | ) | — | (3,445,015 | ) | (13,346 | ) | (231,300 | ) | (4,487,838 | ) | |||||||||||||||||||||||||
Impairment - | ||||||||||||||||||||||||||||||||||||
Balance at 1 January 2006 | (28,213 | ) | — | — | (1,381 | ) | — | (29,594 | ) | |||||||||||||||||||||||||||
Additions | (2,176 | ) | — | — | (1,375 | ) | — | (3,551 | ) | (3,563 | ) | — | — | 0 | — | (3,563 | ) | |||||||||||||||||||
Retirements | 9,515 | — | — | — | — | 9,515 | 8,095 | — | — | 295 | — | 8,390 | ||||||||||||||||||||||||
Acquisition of subsidiaries in the year | (1,855 | ) | — | — | — | — | (1,855 | ) | 16 | — | — | 0 | — | 16 | ||||||||||||||||||||||
Exchange difference and other | 82,328 | — | — | (6 | ) | — | 82,322 | (3,288 | ) | — | — | 0 | — | (3,288 | ) | |||||||||||||||||||||
Balance at December 31, 2005 | (28,213 | ) | — | — | (1,381 | ) | — | (29,594 | ) | |||||||||||||||||||||||||||
Balance at 31 December 2006 | (26,953 | ) | — | — | (1,086 | ) | — | (28,039 | ) | |||||||||||||||||||||||||||
Net tangible assets- | ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2005 | 1,985,518 | 8,171 | 1,344,039 | 162,649 | 439,259 | 3,939,636 | ||||||||||||||||||||||||||||||
Balance at 1 January 2006 | 2,327,153 | 19,107 | 1,494,260 | 76,742 | 466,127 | 4,383,389 | ||||||||||||||||||||||||||||||
Balance at December 31, 2005 | 2,327,153 | 19,107 | 1,494,260 | 76,742 | 466,127 | 4,383,389 | ||||||||||||||||||||||||||||||
Balance at 31 December 2006 | 2,263,219 | 24,045 | 1,529,045 | 61,082 | 649,615 | 4,527,006 | ||||||||||||||||||||||||||||||
2004 Investment Properties Assets Leased out under an Operating Lease Land and Buildings Work in Progress Furniture, Fixtures and Vehicles Deemed cost- Balances at January 1, 2004 Additions Retirements Transfers Exchange difference and other Balance at December 31, 2004 Accumulated depreciation- Balances at January 1, 2004 Additions Retirements Transfers Exchange difference and other Balance at December 31, 2004 Impairment- Balances at January 1, 2004 Additions Retirements Exchange difference and other Balance at December 31, 2004 Net tangible assets- Balances at January 1, 2004 Balances at December 31, 2004 2005 Revalued cost - Balance at 1 January 2005 Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at 31 December 2005 Accumulated depreciation - Balance at 1 January 2005 Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at 31 December 2005 Impairment - Balance at 1 January 2005 Additions Retirements Acquisition of subsidiaries in the year Exchange difference and other Balance at 31 December 2005 Net tangible assets - Balance at 1 January 2005 Balance at 31 December 2005 Thousands of Euros Property, plants and equipment Total 2,746,953 11,519 4,511,749 169,293 462,585 7,902,099 60,822 — 356,902 16,645 200,967 635,336 (32,467 ) (2,451 ) (433,427 ) — (37,945 ) (506,290 ) 111 — (15,740 ) 8,580 (21,580 ) (28,629 ) (9,911 ) — (62,391 ) — (37,641 ) (109,943 ) 2,765,508 9,068 4,357,093 194,518 566,386 7,892,573 (643,263 ) — (3,111,237 ) (23,504 ) (157,871 ) (3,935,875 ) (45,869 ) (897 ) (234,195 ) (8,365 ) (73,986 ) (363,312 ) 16,830 — 351,871 — 43,901 412,602 9,004 — (872 ) — — 68,961 (667 ) — (18,621 ) — 60,829 (19,288 ) (663,965 ) (897 ) (3,013,054 ) (31,869 ) (127,127 ) (3,836,912 ) (157,970 ) — (9,424 ) — (323 ) (167,717 ) (2,467 ) — (7,393 ) — — (9,860 ) 5,887 — 16,817 — 323 23,027 38,525 — — — — 38,525 (116,025 ) — — — — (116,025 ) 1,945,720 11,519 1,391,088 145,789 304,391 3,798,507 1,985,518 8,171 1,344,039 162,649 439,259 3,939,636 Thousands of Euros Property, plants and equipment Investment
Properties Assets
Leased out
under an
Operating
Lease Total Land and
Buildings Work in
Progress Furniture,
Fixtures and
Vehicles 2,765,508 9,068 4,357,093 194,518 566,386 7,892,573 109,089 19,351 374,831 5,094 239,553 747,918 (148,671 ) (6,758 ) (159,614 ) (38,868 ) (113,749 ) (467,660 ) 158,848 10,102 124,147 — — 293,097 (5,594 ) (462 ) (3,531 ) — — (9,587 ) 2,844 (7,512 ) 6,912 (34,377 ) — (32,133 ) 270,297 (4,682 ) 276,508 (33,216 ) (62,268 ) 446,639 3,152,321 19,107 4,976,346 93,151 629,922 8,870,847 (663,965 ) (897 ) (3,013,054 ) (31,869 ) (127,127 ) (3,836,912 ) (52,348 ) — (218,681 ) (1,389 ) (88,624 ) (361,042 ) 41,417 1,011 142,521 4,294 53,717 242,960 (28,631 ) — (79,702 ) — — (108,333 ) 119 — 2,254 1,083 — 3,456 (10,131 ) — 4,422 5,709 — — (83,416 ) (114 ) (319,846 ) 7,144 (1,761 ) (397,993 ) (796,955 ) — (3,482,086 ) (15,028 ) (163,795 ) (4,457,864 ) (116,025 ) — — — — (116,025 ) (2,176 ) — — (1,375 ) — (3,551 ) 9,515 — — — — 9,515 (1,855 ) — — — — (1,855 ) 82,328 — — (6 ) — 82,322 (28,213 ) — — (1,381 ) — (29,594 ) 1,985,518 8,171 1,344,039 162,649 439,259 3,939,636 2,327,153 19,107 1,494,260 76,742 466,127 4,383,389
2004 Revalued cost - Balance at 1 January 2004 Additions Retirements Transfers Exchange difference and other Balance at 31 December 2004 Accumulated depreciation - Balance at 1 January 2004 Additions Retirements Transfers Exchange difference and other Balance at 31 December 2004 Impairment - Balance at 1 January 2004 Additions Retirements Exchange difference and other Balance at 31 December 2004 Net tangible assets - Balance at 1 January 2004 Balance at 31 December 2004 Thousands of Euros Property, plants and equipment Investment
Properties Assets
Leased out
under an
Operating
Lease Total Land and
Buildings Work in
Progress Furniture,
Fixtures and
Vehicles 2,746,953 11,519 4,511,749 169,293 462,585 7,902,099 60,822 — 356,902 16,645 200,967 635,336 (32,467 ) (2,451 ) (433,427 ) — (37,945 ) (506,290 ) 111 — (15,740 ) 8,580 (21,580 ) (28,629 ) (9,911 ) — (62,391 ) — (37,641 ) (109,943 ) 2,765,508 9,068 4,357,093 194,518 566,386 7,892,573 (643,263 ) — (3,111,237 ) (23,504 ) (157,871 ) (3,935,875 ) (45,869 ) (897 ) (234,195 ) (8,365 ) (73,986 ) (363,312 ) 16,830 — 351,871 — 43,901 412,602 9,004 — (872 ) — 60,829 68,961 (667 ) — (18,621 ) — — (19,288 ) (663,965 ) (897 ) (3,013,054 ) (31,869 ) (127,127 ) (3,836,912 ) (157,970 ) — (9,424 ) — (323 ) (167,717 ) (2,467 ) — (7,393 ) — — (9,860 ) 5,887 — 16,817 — 323 23,027 38,525 — — — — 38,525 (116,025 ) — — — — (116,025 ) 1,945,720 11,519 1,391,088 145,789 304,391 3,798,507 1,985,518 8,171 1,344,039 162,649 439,259 3,939,636
The net tangible asset impairment losses recoveries with credit to the accompanying consolidated income statements for 2006 and 2004 amounted to €4,827 thousand and €2,135 thousand, respectively.
The net tangible asset impairment losses charged to the accompanying consolidated income statements for 2005 and 2004 amounted to EUR 1,589 thousand and EUR 2,135 thousand, respectively.€1,589 thousand.
The gains and losses on tangible asset disposals amounted to EUR €92,902 thousand and €20,413 thousand in 2006 (€107,838 thousand and EUR 22,477€22,477 thousand, respectively in 2005 (EUR 102,874and €102,874 thousand and EUR 22,450€22,450 thousand, respectively in 2004) and are presented under the headings Others“Others Gains and Others LossesLosses” the accompanying consolidated income statements (Note 54)56).
The carrying amount atas of December 31, 2006, 2005 and 2004 of the tangible assets relating to foreign subsidiaries was EUR 1,825,050€1,857,383 thousand, €1,825,050 thousand and EUR 1,457,362€1,457,362 thousand, respectively. Also, the amount of the assets held under finance leases on which the purchase option is expected to be exercised wasis not material atas of December 31, 2006, 2005 and 2004.
The main real estate companies forming part of the consolidated Group are as follows: Anida Desarrollos Inmobiliarios, S.L., Montealiaga, S.A. and Desarrollo Urbanístico de Chamartín S.A.
The contribution of these companies to the consolidated income statement is recorded under Sales“Sales and Income from the Provision of Non-Financial ServicesServices” (Note 50)51).
The main consolidated Group companies engaging in operating leases are: Finanzia Autorenting, S.A. and, Automercantil-Comercio e Aluger de Vehículos Autom., Lda. and Maggiore Fleet, S.p.A.
The Group conducts its business mainly through a branch network, as shown in the following table:
Number of branches | ||||||
2006 | 2005 | 2004 | ||||
Spain | 3,635 | 3,578 | 3,385 | |||
America (*) | 3,797 | 3,658 | 3,303 | |||
Rest of the world | 153 | 174 | 180 | |||
Total | 7,585 | 7,410 | 6,868 | |||
(*) | Includes those related to the BBVA Group’s banking, pensions fund managers and insurance companies in all the American countries in which it is present. |
As of 31 December 2006, 2005 and 2004, 46.9%, 47.9% and 47.2%, respectively, of the branches in Spain were leased from third parties. As of 31 December 2006 and 2005, 60% and 58.69%, respectively, of the branches in America were leased from third parties.
21. Intangible assetsINTANGIBLE ASSETS
21.1. GoodwillGOODWILL
The detail, by company, of the changes in 2006, 2005 and 2004 in the balance of this heading in the consolidated balance sheets is as follows:
Thousands of Euros | ||||||||||||
2005 | Balance at beginning of year | Additions | Other | Exchange Differences | Balance at end of year | |||||||
Grupo Financiero BBVA Bancomer, S.A. de C.V. | 513,589 | — | — | 103,513 | 617,102 | |||||||
Laredo Group | — | 433,250 | — | 40,691 | 473,941 | |||||||
Granahorrar Bank, S.A. | — | 266,862 | — | — | 266,862 | |||||||
Hipotecaria Nacional, S.A. de C.V. | — | 223,902 | — | 35,209 | 259,111 | |||||||
Provida Group | 104,047 | — | — | 26,151 | 130,198 | |||||||
BBVA Chile, S.A. | 32,349 | — | 195 | 7,988 | 40,532 | |||||||
BBVA Puerto Rico, S.A. | 33,741 | — | — | 5,293 | 39,034 | |||||||
BBVA (Portugal), S.A. | 15,914 | — | — | — | 15,914 | |||||||
Finanzia, Banco de Crédito, S.A. | 5,163 | — | — | — | 5,163 | |||||||
Valley Bank | 5,690 | — | (975 | ) | 376 | 5,091 | ||||||
Other companies | — | 4,906 | — | — | 4,906 | |||||||
TOTAL FULLY CONSOLIDATED COMPANIES | 710,493 | 928,920 | (780 | ) | 219,221 | 1,857,854 | ||||||
Thousands of Euros | ||||||||||||
2004 | Balance at beginning of year | Additions | Other | Exchange Differences | Balance at end of year | |||||||
FULLY CONSOLIDATED COMPANIES | ||||||||||||
Grupo Financiero BBVA Bancomer, S.A. de C.V. | 549,574 | — | — | (35,985 | ) | 513,589 | ||||||
BBVA Pensiones Chile | 84,423 | — | — | (1,200 | ) | 83,223 | ||||||
Provida Group | 54,144 | — | — | (971 | ) | 53,173 | ||||||
BBVA Puerto Rico, S.A. | 36,457 | — | — | (2,716 | ) | 33,741 | ||||||
BBVA (Portugal), S.A. | 15,914 | — | — | — | 15,914 | |||||||
Finanzia, Banco de Crédito, S.A. | 5,163 | — | — | — | 5,163 | |||||||
Valley Bank | — | 6,085 | — | (395 | ) | 5,690 | ||||||
Other companies | ||||||||||||
TOTAL FULLY CONSOLIDATED COMPANIES | 745,675 | 6,085 | — | (41,267 | ) | 710,493 | ||||||
COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD | ||||||||||||
Banca Nazionale del Lavoro, S.p.A. | 250,460 | — | (250,460 | ) | — | — | ||||||
TOTAL COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD | 996,135 | 6,085 | (250,460 | ) | (41,267 | ) | 710,493 | |||||
Thousands of Euros | ||||||||||||||||||
2006 | Balance at beginning of year | Additions | Other | Withdrawals | Exchange Differences | Impairment | Balance at end of year | |||||||||||
Texas Regional Bancshares, Inc. | — | 1,294,351 | — | — | (37,385 | ) | — | 1,256,966 | ||||||||||
Grupo Financiero BBVA Bancomer, S.A. de C.V. | 617,101 | — | — | — | (72,695 | ) | — | 544,406 | ||||||||||
Grupo Laredo | 473,941 | — | (2,783 | ) | — | (49,354 | ) | — | 421,804 | |||||||||
Hipotecaria Nacional, S.A. de C.V. | 259,112 | — | 10,438 | — | (30,306 | ) | — | 239,244 | ||||||||||
Grupo BBVA Colombia | 266,862 | — | (34,984 | ) | — | (19,375 | ) | — | 212,503 | |||||||||
BBVA Pensiones Chile | 104,139 | — | — | — | (14,344 | ) | — | 89,795 | ||||||||||
Forum Servicios Financieros, S.A. | — | 50,814 | — | — | (1,459 | ) | — | 49,355 | ||||||||||
Maggiore Fleet, S.p.A. | — | 35,696 | — | — | — | — | 35,696 | |||||||||||
Banco BHIF | 40,532 | — | — | — | (5,608 | ) | — | 34,924 | ||||||||||
BBVA Puerto Rico, S.A. | 39,034 | — | — | — | (4,068 | ) | — | 34,966 | ||||||||||
AFP Provida | 26,059 | — | — | — | (3,590 | ) | — | 22,469 | ||||||||||
BBVA Portugal, S.A. | 15,914 | — | — | — | — | — | 15,914 | |||||||||||
Finanzia, Banco de Crédito | 5,163 | — | — | — | — | — | 5,163 | |||||||||||
BBVA Bancomer USA (*) | 5,091 | — | — | — | (531 | ) | — | 4,560 | ||||||||||
BBVA Finanzia, S.p.A. | — | 3,804 | — | — | — | — | 3,804 | |||||||||||
Forum Distribuidora, S.A. | — | 1,921 | — | — | (55 | ) | — | 1,866 | ||||||||||
Invesco Management Nº1 | — | 6,160 | — | — | — | (6,160 | ) | — | ||||||||||
Other companies | 4,906 | 3,362 | 1,000 | (9,268 | ) | — | — | — | ||||||||||
TOTAL FULLY CONSOLIDATED COMPANIES | 1,857,854 | 1,396,108 | (26,329 | ) | (9,268 | ) | (238,770 | ) | (6,160 | ) | 2,973,435 | |||||||
(*) | Former Valley Bank. |
Thousands of Euros | |||||||||||
2005 | Balance at beginning of year | Additions | Other | Exchange Differences | Balance at end of year | ||||||
Grupo Financiero BBVA Bancomer, S.A. de C.V. | 513,589 | — | — | 103,513 | 617,102 | ||||||
Grupo Laredo | — | 433,250 | — | 40,691 | 473,941 | ||||||
Grupo BBVA Colombia (*) | — | 266,862 | — | — | 266,862 | ||||||
Hipotecaria Nacional, S.A. de C.V. | — | 223,902 | — | 35,209 | 259,111 | ||||||
Grupo Provida | 104,047 | — | — | 26,151 | 130,198 | ||||||
BBVA Chile, S.A. | 32,349 | — | 195 | 7,988 | 40,532 | ||||||
BBVA Puerto Rico, S.A. | 33,741 | — | — | 5,293 | 39,034 | ||||||
BBVA (Portugal), S.A. | 15,914 | — | — | — | 15,914 | ||||||
Finanzia, Banco de Crédito, S.A. | 5,163 | — | — | — | 5,163 | ||||||
Valley Bank | 5,690 | — | (975 | ) | 376 | 5,091 | |||||
Other companies | — | 4,906 | — | — | 4,906 | ||||||
TOTAL FULLY CONSOLIDATED COMPANIES | 710,493 | 928,920 | (780 | ) | 219,221 | 1,857,854 | |||||
(*) | Goodwill corresponding to purchase of Banco Granahorrar, S.A. (Note 4) |
2004 Grupo Financiero BBVA Bancomer, S.A. de C.V. BBVA Pensiones Chile, S.A. Grupo Provida BBVA Puerto Rico, S.A. BBVA (Portugal), S.A. Finanzia, Banco de Crédito, S.A. Valley Bank Other companies TOTAL FULLY CONSOLIDATED COMPANIES Thousands of Euros Balance at
beginning of
year Additions Other Exchange
Differences Balance
at end of
year 549,574 — — (35,985 ) 513,589 84,423 — — (1,200 ) 83,223 54,144 — — (971 ) 53,173 36,457 — — (2,716 ) 33,741 15,914 — — — 15,914 5,163 — — — 5,163 — 6,085 — (395 ) 5,690 — — — — — 745,675 6,085 — (41,267 ) 710,493
Based on the estimates and projections available to the Bank’s directors, the forecast revenues of these companies attributable to the Group support perfectly the carrying amount of the goodwill recorded.
With regardOn November 10, 2006 the Group acquired Texas Regional Bancshares Inc. through the investment of $2,141 million (€1,674 million). The goodwill recognised as of December 31, 2006 amounted €1,257 million.
On October 31, 2005, the Guarantee Fund for Colombian Financial Institutions, FOGAFIN, sold by public auction 98.78% of the share capital of Banco Granahorrar, S.A. (a Colombian financial institution) to the BBVA Group’s subsidiary in Colombia, BBVA Colombia, S.A. The financial offer made by BBVA Colombia for the acquisition of Banco Granahorrar, S.A. totalled $423.66 million. This transaction was performed in December 2005 after authorisation had been obtained from the related supervisory and control bodies. The price paid was Colombian pesos 981,572.2 million, approximately €364 million, and the goodwill recognised amounted to €267 million as of December 31, 2005.
On 28 April, pursuant to the agreement entered into on September 20, 2004 and after obtaining the mandatory authorisations, BBVA acquired all the shares of Laredo National Bancshares, Inc., a bank holding located in Texas (United States) which operates in the banking business through two independent banks: Laredo National Bank and South Texas National Bank. The price paid was $859.6 million (approximately €666 million) and the goodwill recognised amounted to €474 million as of December 31, 2005.
The breakdown of the acquisition cost of the companies foregoing indicated, gross of tax, which, according to the purchase method, has been assigned to the headings financial asset and liabilities, tangible assets and other intangible assets, is as follows:
Thousands of Euros | |||||||
Texas Regional Bancshare | Banco Granahorrar | Laredo National Bancshares | |||||
Financial assets and liabilities | (16,855 | ) | — | — | |||
Tangible assets | 30,039 | — | 33,778 | ||||
Other intangible assets | 73,191 | 31,077 | 42,251 | ||||
Total | 86,375 | 31,077 | 76,029 | ||||
No gains or losses were allocated to assets or liabilities with respect to the other acquisitions made in the year, the assignment of intangible assets EUR 50,200 thousands.
Once the impairment analysis was performed as described in Note 2.2.m) no impairment of goodwill was recorded at December 31, 2005.2006.
21.2. Other intangible assetsOTHERINTANGIBLEASSETS
The detail of the balance of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | Average Useful Life | Thousands of Euros | Average Useful Life (years) | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||
Computer software acquisition expense | 44,972 | 23,438 | 5 | 56,199 | 44,972 | 23,438 | 5 | ||||||||||
Other deferred charges | 80,312 | 48,865 | 5 | 116,175 | 80,312 | 48,865 | 5 | ||||||||||
Other intangible assets | 92,011 | 38,287 | 5 | 131,437 | 92,011 | 38,287 | 5 | ||||||||||
Impairment | (5,100 | ) | — | (7,981 | ) | (5,100 | ) | — | |||||||||
Total | 212,195 | 110,591 | 295,830 | 212,195 | 110,590 | ||||||||||||
The changes in 2006, 2005 y 2004 and 2005 in the balance of Intangible Assets werethis heading are as follows:follow:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Balance at beginning of year | 110,591 | 101,653 | 212,195 | 110,591 | 101,653 | ||||||||||
Additions | 227,929 | 86,415 | 171,254 | 227,929 | 86,415 | ||||||||||
Year amortisation | (87,650 | ) | (84,894 | ) | (89,308 | ) | (87,650 | ) | (84,894 | ) | |||||
Exchange differences and other | (33,575 | ) | 7,417 | 4,570 | (33,575 | ) | 7,417 | ||||||||
Impairment | (5,100 | ) | — | (2,881 | ) | (5,100 | ) | — | |||||||
Balance at end of year | 212,195 | 110,591 | 295,830 | 212,195 | 110,591 | ||||||||||
22. Prepayments and accrued income and accrued expenses and deferred incomePREPAYMENTS AND ACCRUED INCOME AND ACCRUED EXPENSES AND DEFERRED INCOME
The detail of the balance of these headings in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Assets - | ||||
Prepaid expenses | 199,111 | 149,532 | ||
Other prepayments and accrued income | 14,013 | 256,126 | ||
Other accrual accounts | 344,154 | 312,097 | ||
Total | 557,278 | 717,755 | ||
Liabilities - | ||||
Unmatured accrued expenses | 1,146,815 | 867,228 | ||
Other accrued expenses and deferred income | 562,875 | 398,552 | ||
Total | 1,709,690 | 1,265,780 | ||
Assets - Prepaid expenses Other prepayments and accrued income Total Liabilities - Unmatured accrued expenses Other accrued expenses and deferred income Total Thousands of Euros 2006 2005 2004 278,778 199,111 149,532 395,040 358,167 568,223 673,818 557,278 717,755 1,168,427 1,146,815 867,228 341,146 562,875 398,552 1,509,573 1,709,690 1,265,780
23. Other assets and liabilitiesOTHER ASSETS AND LIABILITIES
The detail of the balances of these headings in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 was as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Assets | ||||
Inventories (*) | 339,472 | 279,897 | ||
Transactions in transit | 8,787 | 25,065 | ||
Taxes receivable | 101,197 | 266,673 | ||
Other | 1,492,237 | 1,152,447 | ||
Total | 1,941,693 | 1,724,082 | ||
Liabilities | ||||
Transactions in transit | 24,211 | 16,019 | ||
Tax collection accounts | 2,084,712 | 2,273,548 | ||
Other | 580,805 | 86,411 | ||
Total | 2,689,728 | 2,375,978 | ||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Assets - | ||||||
Inventories (*) | 470,137 | 339,472 | 279,897 | |||
Transactions in transit | 106,273 | 8,787 | 25,065 | |||
Hacienda Pública | 62,292 | 101,197 | 266,673 | |||
Other | 1,104,001 | 1,492,237 | 1,152,447 | |||
Total | 1,742,703 | 1,941,693 | 1,724,082 | |||
Liabilities - | ||||||
Transactions in transit | 139,904 | 24,211 | 16,019 | |||
Other | 579,363 | 580,805 | 86,411 | |||
Total | 719,267 | 605,016 | 102,430 | |||
(*) | The balance of the heading Inventories in the consolidated financial statements relates basically to the following companies: Anida Desarrollos Inmobiliarios, S.L., Montealiaga, S.A. y Desarrollo Urbanístico Chamartín, S.A. |
24 Other financial liabilities at fair value through profit or loss24. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
The balance of this heading in the consolidated balance sheet atas of December 31, 2006, 2005 and 2004 amounted to EUR 740,088€582,537 thousand, €740,088 thousand and EUR 834,350€834,350 thousand, respectively, and related to deposits from other creditors through the so-called unit-linked life insurance policies (in which the policyholder bears the risk).
25 Financial liabilities at fair value through equity25. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY
AtAs of December 31, 2006, 2005 and 2004 there were no financial liabilities at fair value through equity.
26 Financial liabilities at amortised cost26. FINANCIAL LIABILITIES AT AMORTISED COST
The detail of the items composing the balances of this heading in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Deposits from central banks | 21,189,193 | 20,301,105 | ||
Deposits from credit institutions | 45,125,943 | 44,048,115 | ||
Money markets operations | 23,252 | 657,997 | ||
Deposits from other creditors | 182,635,181 | 149,891,799 | ||
Debt certificates (including bonds) | 62,841,755 | 45,482,121 | ||
Subordinated liabilities | 13,723,262 | 12,327,377 | ||
Other financial liabilities | 3,966,664 | 2,875,013 | ||
Total | 329,505,250 | 275,583,527 | ||
Deposits from central banks Deposits from central banks Money markets operations Deposits from other creditors Debt certificates (including bonds) Subordinated liabilities Other financial liabilities (*) Total Thousands of Euros 2006 2005 2004 15,237,435 21,189,193 20,301,105 42,566,999 45,125,943 44,048,115 223,393 23,252 657,997 192,373,862 182,635,181 149,891,799 77,674,115 62,841,755 45,482,121 13,596,803 13,723,262 12,327,377 6,771,925 6,051,376 5,148,561 348,444,532 331,589,962 277,857,075
(*) | Includes tax collection accounts that amounted to €2,226,874 thousand, €2,084,712 thousand and €2,273,548 thousand, as of December 31, 2006, 2005 and 2004, respectively. |
26.1. Deposits from central banksDEPOSITSFROMCENTRALBANKS
The breakdown of the balance of this heading in the consolidated balance sheets is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Banco de España | ||||||||||
Bank of Spain | 7,943,687 | 16,139,044 | 15,770,750 | |||||||
Credit account drawdowns | 6,822,123 | 11,066,829 | 4,688,790 | 6,822,123 | 11,066,829 | |||||
Other State debt and Treasury bills under repurchase agreement | 385,791 | 222,092 | — | 385,791 | 222,092 | |||||
Other assets under repurchase agreement | 8,931,130 | 4,481,829 | 3,254,897 | 8,931,130 | 4,481,829 | |||||
Other central banks | 5,028,315 | 4,365,278 | 7,247,430 | 5,028,315 | 4,365,278 | |||||
Valuation adjustments | 21,834 | 165,077 | 46,318 | 21,834 | 165,077 | |||||
Total | 21,189,193 | 20,301,105 | 15,237,435 | 21,189,193 | 20,301,105 | |||||
AtAs of December 31, 2006, 2005 and 2004, the financing limit assigned to the Group by the Bank of Spain and other central banks was EUR 10,003,353€8,136,222 thousand, €10,003,353 thousand and EUR 13,932,391€13,932,391 thousand, respectively, of which EUR 6,822,123€4,535,323 thousand, €6,822,123 thousand and EUR 11,249,454€11,249,454 thousand had been drawn down.
26.2 Deposits from credit institutionsDEPOSITSFROMCREDITINSTITUTIONS
The breakdown of the balance of this heading in the consolidated balance sheets, based on the nature of the related transactions, is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Reciprocal accounts | 271,075 | 62,231 | ||
Deposits with agreed maturity | 28,807,457 | 25,958,006 | ||
Demand deposits | 1,053,651 | 938,790 | ||
Other accounts | 1,113,102 | 353,452 | ||
Repurchase agreements | 13,723,185 | 16,347,359 | ||
Valuation adjustments | 157,473 | 388,277 | ||
Total | 45,125,943 | 44,048,115 | ||
The detail, by geographical area, of this heading at December 31, 2005 is as follows:
Thousands of Euros | ||||||||
Demand Deposits | Deposits with Agreed Maturity | Funds Received Under Financial Asset Transfers | TOTAL | |||||
Europe | 1,033,225 | 14,814,501 | 8,255,127 | 24,102,853 | ||||
United States | 68,568 | 3,670,356 | 1,649,995 | 5,388,919 | ||||
Latin America | 1,289,817 | 2,643,338 | 3,818,063 | 7,751,218 | ||||
Rest of the world | 46,218 | 7,679,262 | — | 7,725,480 | ||||
Total | 2,437,828 | 28,807,457 | 13,723,185 | 44,968,470 | ||||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Reciprocal accounts | 77,840 | 271,075 | 62,231 | |||
Deposits with agreed maturity | 27,016,079 | 28,807,457 | 25,958,006 | |||
Demand deposits | 1,781,744 | 1,053,651 | 938,790 | |||
Other accounts | 392,884 | 1,113,102 | 353,452 | |||
Repurchase agreements | 13,017,158 | 13,723,185 | 16,347,359 | |||
Valuation adjustments | 281,294 | 157,473 | 388,277 | |||
Total | 42,566,999 | 45,125,943 | 44,048,115 | |||
The detail, by geographical area, of this heading atas of December 31, 2006, 2005 and 2004 disregarding valuation adjustments is as follows:
Thousands of Euros | Thousands of Euros | |||||||||||||||
Demand Deposits | Deposits with Agreed Maturity | Funds Received Under Financial Asset Transfers | TOTAL | |||||||||||||
2006 | Demand Deposits | Deposits with Agree Maturity | Funds Received Under Financial Asset Transfers | Total | ||||||||||||
Europe | 888,625 | 17,896,390 | 11,110,293 | 29,895,308 | 1,449,542 | 17,639,571 | 6,304,235 | 25,393,348 | ||||||||
United States | 625 | 173,143 | 602,011 | 775,779 | 109,607 | 2,653,129 | 796,604 | 3,559,340 | ||||||||
Latin America | 350,798 | 2,149,208 | 4,635,055 | 7,135,061 | 239,202 | 3,166,308 | 5,916,319 | 9,321,829 | ||||||||
Rest of the world | 114,425 | 5,739,265 | — | 5,853,690 | 61,233 | 3,949,955 | — | 4,011,188 | ||||||||
Total | 1,354,473 | 25,958,006 | 16,347,359 | 43,659,838 | 1,859,584 | 27,408,963 | 13,017,158 | 42,285,705 | ||||||||
Thousands of Euros | ||||||||
2005 | Demand Deposits | Deposits with Agree Maturity | Funds Received Under Financial Asset Transfers | Total | ||||
Europe | 1,033,225 | 14,814,501 | 8,255,127 | 24,102,853 | ||||
United States | 68,568 | 3,670,356 | 1,649,995 | 5,388,919 | ||||
Latin America | 1,289,817 | 2,643,338 | 3,818,063 | 7,751,218 | ||||
Rest of the world | 46,218 | 7,679,262 | — | 7,725,480 | ||||
Total | 2,437,828 | 28,807,457 | 13,723,185 | 44,968,470 | ||||
Thousands of Euros | ||||||||
2004 | Demand Deposits | Deposits with Agree Maturity | Funds Received Under Financial Asset Transfers | Total | ||||
Europe | 888,625 | 17,896,390 | 11,110,293 | 29,895,308 | ||||
United States | 625 | 173,143 | 602,011 | 775,779 | ||||
Latin America | 350,798 | 2,149,208 | 4,635,055 | 7,135,061 | ||||
Rest of the world | 114,425 | 5,739,265 | — | 5,853,690 | ||||
Total | 1,354,473 | 25,958,006 | 16,347,359 | 43,659,838 | ||||
26.3 Deposits from other creditorsDEPOSITSFROMOTHERCREDITORS
The breakdown of the balance of this heading in the accompanying consolidated balance sheets, based on the nature of the related transactions, is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
General government | 17,673,354 | 11,193,877 | ||||||||
General Government(*) | 14,170,556 | 17,673,354 | 11,193,877 | |||||||
Spanish | 9,753,109 | 4,861,198 | 7,123,828 | 9,753,109 | 4,861,198 | |||||
Foreign | 7,920,245 | 6,332,679 | 7,046,728 | 7,920,245 | 6,332,679 | |||||
Other resident sectors - | 79,754,851 | 74,857,893 | ||||||||
Other resident sectors | 94,392,548 | 79,754,851 | 74,857,893 | |||||||
Current accounts | 20,644,607 | 21,293,205 | 25,345,848 | 20,644,607 | 21,293,205 | |||||
Savings accounts | 20,628,845 | 18,235,544 | 22,460,077 | 20,628,845 | 18,235,544 | |||||
Fixed-term deposits | 20,435,029 | 19,537,882 | 27,681,607 | 20,435,029 | 19,537,882 | |||||
Reverse repos | 12,029,507 | 12,503,084 | 9,080,811 | 12,029,507 | 12,503,084 | |||||
Other accounts | 5,381,823 | 2,000,023 | 9,112,210 | 5,381,823 | 2,000,023 | |||||
Valuation adjustments | 635,040 | 1,288,155 | 711,995 | 635,040 | 1,288,155 | |||||
Non-resident sectors | 85,206,976 | 63,840,029 | 83,810,758 | 85,206,976 | 63,840,029 | |||||
Current accounts | 18,717,430 | 14,203,508 | 19,043,024 | 18,717,430 | 14,203,508 | |||||
Savings accounts | 11,370,344 | 7,374,054 | 13,635,966 | 11,370,344 | 7,374,054 | |||||
Fixed-term deposits | 45,266,207 | 37,894,962 | 40,906,369 | 45,266,207 | 37,894,962 | |||||
Repurchase agreements | 9,215,471 | 3,981,250 | 9,554,904 | 9,215,471 | 3,981,250 | |||||
Other accounts | 76,512 | 23,284 | 110,331 | 76,512 | 23,284 | |||||
Valuation adjustments | 561,012 | 362,971 | 560,164 | 561,012 | 362,971 | |||||
Total | 182,635,181 | 149,891,799 | 192,373,862 | 182,635,181 | 149,891,799 | |||||
Of which: | ||||||||||
In euros | 100,623,473 | 88,987,322 | 108,312,891 | 100,623,473 | 88,987,322 | |||||
In foreign currency | 82,011,708 | 60,904,477 | 84,060,971 | 82,011,708 | 60,904,477 |
(*) | As of December 31, 2006 and 2005, the balance of general government includes valuation adjustments of accrued interests that amounted to €23,827 and € 55,418, respectively. |
The detail, by geographical area, of this heading atas of December 31, 2006, 2005 and 2004 disregarding valuation adjustments is as follows:
Thousands of Euros | ||||||||||
Demand Deposits | Savings Deposits | Deposits with Agreed Maturity | Repos | TOTAL | ||||||
Europe | 30,302,830 | 21,682,976 | 36,354,699 | 17,150,477 | 105,490,982 | |||||
United States | 17,045,731 | 10,166,885 | 22,974,535 | 7,985,834 | 58,172,985 | |||||
Latin America | 1,007,346 | 354,453 | 10,374,599 | 135,162 | 11,871,560 | |||||
Rest of the world | 775,704 | 518,374 | 4,609,475 | 49 | 5,903,602 | |||||
Total | 49,131,611 | 32,722,688 | 74,313,308 | 25,271,522 | 181,439,129 | |||||
The detail, by geographical area, of this heading at December 31, 2004 is as follows:
Thousands of Euros | ||||||||||
2006 | Demand Deposits | Saving Deposits | Deposits with Agreed Maturity | Repos | Total | |||||
Europe | 33,652,676 | 23,574,543 | 44,151,489 | 10,751,014 | 112,129,722 | |||||
United States | 1,419,538 | 2,018,588 | 10,528,592 | 57,183 | 14,023,901 | |||||
Latin America | 17,816,513 | 11,465,943 | 22,504,665 | 9,064,320 | 60,851,441 | |||||
Rest of the world | 794,650 | 402,644 | 2,875,518 | — | 4,072,812 | |||||
Total | 53,683,377 | 37,461,718 | 80,060,264 | 19,872,517 | 191,077,876 | |||||
Thousands of Euros | Thousands of Euros | |||||||||||||||||||
Demand Deposits | Savings Deposits | Deposits with Agreed Maturity | Repos | TOTAL | ||||||||||||||||
2005 | Demand Deposits | Saving Deposits | Deposits with Agreed Maturity | Repos | Total | |||||||||||||||
Europe | 29,745,644 | 18,560,468 | 27,155,322 | 13,697,251 | 89,158,685 | 30,293,574 | 21,676,353 | 36,343,595 | 17,145,239 | 105,458,761 | ||||||||||
United States | 648,658 | 468,762 | 6,734,521 | 156 | 7,852,097 | 1,007,038 | 354,345 | 10,371,430 | 135,121 | 11,867,934 | ||||||||||
Latin America | 13,114,743 | 6,962,493 | 22,137,721 | 3,839,588 | 46,054,545 | 17,040,525 | 10,163,779 | 22,967,518 | 7,983,395 | 58,155,217 | ||||||||||
Rest of the world | 197,899 | 43,044 | 4,934,403 | — | 5,175,346 | 775,467 | 518,216 | 4,608,067 | 49 | 5,901,750 | ||||||||||
Total | 43,706,944 | 26,034,767 | 60,961,967 | 17,536,995 | 148,240,673 | 49,116,604 | 32,712,693 | 74,290,610 | 25,263,804 | 181,383,711 | ||||||||||
Thousands of Euros | ||||||||||
2004 | Demand Deposits | Saving Deposits | Deposits with Agreed Maturity | Repos | Total | |||||
Europe | 29,745,644 | 18,560,468 | 27,155,322 | 13,697,251 | 89,158,685 | |||||
United States | 648,658 | 468,762 | 6,734,521 | 156 | 7,852,097 | |||||
Latin America | 13,114,743 | 6,962,493 | 22,137,721 | 3,839,588 | 46,054,545 | |||||
Rest of the world | 197,899 | 43,044 | 4,934,403 | — | 5,175,346 | |||||
Total | 43,706,944 | 26,034,767 | 60,961,967 | 17,536,995 | 148,240,673 | |||||
26.4 Debt certificates (including bonds)DEBTCERTIFICATES (INCLUDINGBONDS)
The breakdown of the balance of this heading in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
Promissory notes and bills | 7,417,516 | 6,372,310 | ||
Bonds and debentures issued: | 55,424,239 | 39,109,811 | ||
Mortgage-backed securities | 26,926,995 | 19,036,759 | ||
Other non-convertible securities | 26,542,102 | 18,793,732 | ||
Valuation adjustments | 1,955,142 | 1,279,320 | ||
Total | 62,841,755 | 45,482,121 | ||
Promissory notes and bills Bonds and debentures issued: Mortgage-backed securities Other non-convertible securities Valuation adjustments Total Thousands of Euros 2006 2005 2004 7,555,766 7,417,516 6,372,310 70,118,349 55,424,239 39,109,811 36,028,808 26,926,995 19,036,759 33,276,013 26,542,102 18,793,732 813,528 1,955,142 1,279,320 77,674,115 62,841,755 45,482,121
26.4.1. BondsPROMISSORYNOTESANDBILLS:
These promissory notes were issued mainly by Banco de Financiación, S.A., and debentures issued:the detail thereof, by currency, is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
In euros | 6,670,764 | 6,724,347 | 5,458,822 | |||
In other currencies | 885,002 | 693,169 | 913,488 | |||
Total | 7,555,766 | 7,417,516 | 6,372,310 | |||
26.4.2. BONDSANDDEBENTURESISSUED:
The detail disregarding valuation adjustments, of the balance of this account in the accompanying consolidated balance sheets, based on the currency in which the bonds and debentures are issued, and of the related interest rates is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
In euros- | ||||
Non-convertible bonds and debentures at floating interest rates | 18,488,246 | 13,732,198 | ||
Non-convertible bonds and debentures at a weighted fixed interest rate of 4.16% | 5,213,827 | 4,266,690 | ||
Mortgaged bonds | 26,683,165 | 18,811,281 | ||
Valuation adjustments | 1,939,639 | 1,265,560 | ||
In foreign currencies- | ||||
Non-convertible bonds and debentures at floating interest rates | 2,613,766 | 405,956 | ||
Non-convertible bonds and debentures at a weighted fixed interest rate of 5.40% | 226,263 | 388,705 | ||
Mortgaged bonds | 243,830 | 225,661 | ||
Valuation adjustments | 15,503 | 13,760 | ||
Total | 55,424,239 | 39,109,811 | ||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
In euros - | ||||||
Non-convertible bonds and debentures at floating interest rates | 18,345,909 | 18,488,246 | 13,732,198 | |||
Non-convertible bonds and debentures | 6,437,879 | 5,213,827 | 4,266,690 | |||
Covered bonds | 35,808,166 | 26,683,165 | 18,811,281 | |||
Valuation adjustments | 734,015 | 1,939,639 | 1,265,560 | |||
In foreign currencies - | ||||||
Non-convertible bonds and debentures at floating interest rates | 7,865,859 | 2,613,766 | 405,956 | |||
Non-convertible bonds and debentures | 626,366 | 226,263 | 388,705 | |||
Covered bonds | 220,642 | 243,830 | 225,661 | |||
Valuation adjustments | 79,513 | 15,503 | 13,760 | |||
Total | 70,118,349 | 55,424,239 | 39,109,811 | |||
As of December 31, 2006, the (weighted average) interest rate relating to fixed and floating rate issues in euros was 3.83% and 3.67%, respectively. The (weighted average) interest rate relating to fixed and floating rate issues in foreign currencies at that date was 5.34% and 5.25%, respectively.
The valuation adjustments caption mainly include mostly adjustments for accrued interest, hedging transactions and issuance fees.
Most of the foreign-currency issues are denominated in U.S. dollars.
26.4.2. Promissory notes and bills:
TheseThe accrued interests on promissory notes, were issued mainly by Banco de Financiación, S.A.,bills and the detail thereof, by termdebentures in 2006, 2005 and currency, disregarding valuation adjustments, is as follows:2004 amounted to €2,820,536 thousand, €1,898,396 thousand and €1,374,631 thousand, respectively (Note 45.2).
Thousands of Euros | ||||
2005 | 2004 | |||
BY CURRENCY | ||||
In euros | 6,724,347 | 5,458,822 | ||
In other currencies | 693,169 | 913,488 | ||
Total | 7,417,516 | 6,372,310 | ||
26.5. Subordinated liabilitiesSUBORDINATEDLIABILITIES
The detail, by company, of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||||||
Thousand of euros | 2006 | 2005 | 2004 | |||||||
2005 | 2004 | |||||||||
Subordinated debt | 9,178,935 | 8,100,383 | 9,385,347 | 9,178,935 | 8,100,383 | |||||
Preference shares | 4,127,786 | 3,808,893 | 4,025,002 | 4,127,786 | 3,808,893 | |||||
Valuation adjustments | 416,541 | 418,101 | 186,454 | 416,541 | 418,101 | |||||
Total | 13,723,262 | 12,327,377 | 13,596,803 | 13,723,262 | 12,327,377 | |||||
In 2006, 2005 and 2004 the subordinated debt and preference shares bore interest of EUR 556,121€567,195 thousand, €556,121 thousand and EUR 539,027€539,027 thousand, respectively (Note 44)(see Note 45.2).
26.5.1. Subordinated debtSUBORDINATEDDEBT
These issues are non-convertible subordinated debt and, accordingly, for debt seniority purposes, they rank behind ordinary debt.
The detail, disregarding valuation adjustments, of the balance of this heading in the accompanying consolidated balance sheets, based on the related issue currency and interest rate, is as follows:
ISSUER | Currency | Thousands of Euros | Prevailing Interest Rate 2005 | Maturity Date | ||||||
2005 | 2004 | |||||||||
ISSUES IN EUROS | ||||||||||
BBVA | ||||||||||
July -96 | EUR | 79,307 | 84,142 | 9.33 | 22-dec-2006 | |||||
July -96 | EUR | 27,332 | 27,947 | 9.37 | 22-dec-2016 | |||||
February -97 | EUR | 60,101 | 60,101 | 6.97 | 18-dec-2007 | |||||
September -97 | EUR | 36,061 | 36,061 | 6.65 | 17-dec-2007 | |||||
December -01 | EUR | 1,500,000 | 1,500,000 | 3.50 | 1-jan-2017 | |||||
July -03 | EUR | 600,390 | 600,000 | 2.54 | 17-jul-2013 | |||||
November -03 | EUR | 749,782 | 750,000 | 4.50 | 12-nov-2015 | |||||
October -04 | EUR | 992,000 | 1,000,000 | 4.37 | 20-oct-2019 | |||||
BBVA CAPITAL FUNDING, LTD | ||||||||||
September -95 | EUR | — | 13,613 | 3.10 | 5-sep-2005 | |||||
March -97 | EUR | 45,735 | 45,735 | 2.71 | 20-mar-2007 | |||||
October -97 | EUR | 76,694 | 76,694 | 2.38 | 8-oct-2007 | |||||
October -97 | EUR | 228,588 | 228,616 | 6.00 | 24-dec-2009 | |||||
July -99 | EUR | 73,000 | 73,000 | 6.35 | 16-oct-2015 | |||||
February -00 | EUR | 500,002 | 500,000 | 6.38 | 25-feb-2010 | |||||
December -00 | EUR | — | 750,000 | 2.71 | 4-dec-2010 | |||||
July -01 | EUR | 500,002 | 500,000 | 5.50 | 4-jul-2011 | |||||
October -01 | EUR | 60,000 | 60,000 | 5.73 | 10-oct-2011 | |||||
October-01 | EUR | 40,000 | 40,000 | 6.08 | 10-oct-2016 | |||||
October -01 | EUR | 50,000 | 50,000 | 2.79 | 15-oct-2016 | |||||
November -01 | EUR | 55,000 | 55,000 | 2.96 | 2-nov-2016 | |||||
December -01 | EUR | 56,002 | 56,000 | 3.18 | 20-dec-2016 | |||||
BBVA SUBORDINATED CAPITAL S.A.U, | ||||||||||
May -05 | EUR | 480,444 | — | 2.74 | 23-may-2017 | |||||
October -05 | EUR | 150,000 | — | 2.49 | 13-oct-2020 | |||||
October -05 | EUR | 250,000 | — | 2.44 | 20-oct-2017 | |||||
ISSUES IN FOREIGN CURRENCIES | ||||||||||
BBVA PUERTO RICO S.A. | ||||||||||
September -04 | USD | 42,384 | 36,708 | 4.20 | 23-sep-2014 | |||||
BBVA BANCO FRANCES S.A. | ||||||||||
March-98 | USD | — | 4,118 | 7.07 | 31-mar-2005 | |||||
BBVA GLOBAL FINANCE LTD. | ||||||||||
July -95 | USD | — | 110,124 | 6.88 | 1-jul-2005 | |||||
July -95 | USD | — | 36,708 | 2.36 | 15-jan-2005 | |||||
December -95 | USD | 169,535 | 146,832 | 7.00 | 1-dec-2025 | |||||
December -95 | USD | 63,575 | 55,062 | 4.48 | 9-may-2006 | |||||
December -95 | USD | — | 55,062 | 2.45 | 11-may-2005 | |||||
BANCO BILBAO VIZCAYA ARGENTARIA , CHILE | ||||||||||
CLP | 172,053 | 93,552 | Various | Various | ||||||
BBVA BANCOMER S.A. | ||||||||||
November -98 | MNX | 197,853 | 157,406 | 9.44 | 28-sep-2006 | |||||
July -05 | USD | 420,809 | 5.38 | 22-jul-2015 | ||||||
BBVA CAPITAL FUNDING, LTD | ||||||||||
August -95 | JPY | — | 21,480 | 3.45 | 9-aug-2010 | |||||
October -95 | USD | — | 71,600 | 5.40 | 26-oct-2015 | |||||
October -95 | JPY | 72,000 | 110,124 | 6.00 | 26-oct-2015 | |||||
February -96 | USD | 211,918 | 183,540 | 6.38 | 14-feb-2006 | |||||
November -96 | USD | 169,535 | 146,832 | 4.89 | 27-nov-2006 | |||||
BBVA BANCOMER CAPITAL TRUST INC | ||||||||||
February -01 | USD | 423,837 | 364,326 | 10.50 | 16-feb-2011 | |||||
LNB CAPITAL TRUST I | ||||||||||
November -01 | USD | 17,800 | — | 6.44 | 8-dec-2031 | |||||
LNB STATUTORY TRUST I | ||||||||||
December -01 | USD | 25,430 | — | 6.64 | 18-dec-2031 | |||||
BBVA SUBORDINATED CAPITAL S.A.U, | ||||||||||
October -05 | JPY | 144,000 | — | 2.75 | 22-oct-2035 | |||||
October -05 | GBP | 437,766 | — | 4.79 | 21-oct-2015 | |||||
Total | 9,178,935 | 8,100,383 | — | — | ||||||
Thousands of Euros | Prevailing Interest Rate 2006 | Maturity Date | |||||||||||
ISSUER | Currency | 2006 | 2005 | 2004 | |||||||||
ISSUES IN EUROS | |||||||||||||
BBVA | |||||||||||||
July-96 | EUR | — | 79,307 | 84,142 | 9.33 | % | 22-Dec-06 | ||||||
July-96 | EUR | 27,332 | 27,332 | 27,947 | 9.37 | % | 22-Dec-16 | ||||||
February-97 | EUR | 60,101 | 60,101 | 60,101 | 6.97 | % | 18-Dec-07 | ||||||
September-97 | EUR | 36,061 | 36,061 | 36,061 | 6.65 | % | 17-Dec-07 | ||||||
December-01 | EUR | 1,500,000 | 1,500,000 | 1,500,000 | 3.50 | % | 01-Jan-17 | ||||||
July-03 | EUR | 600,390 | 600,390 | 600,000 | 2.54 | % | 17-Jul-13 | ||||||
November-03 | EUR | 749,782 | 749,782 | 750,000 | 4.50 | % | 12-Nov-15 | ||||||
October-04 | EUR | 991,101 | 992,000 | 1,000,000 | 4.37 | % | 20-Oct-19 | ||||||
BBVA CAPITAL FUNDING, LTD. | |||||||||||||
September-95 | EUR | — | — | 13,613 | 3.10 | % | 05-Sep-05 | ||||||
March-97 | EUR | 45,735 | 45,735 | 45,735 | 2.71 | % | 20-Mar-07 | ||||||
October-97 | EUR | 76,694 | 76,694 | 76,694 | 2.38 | % | 08-Oct-07 | ||||||
October-97 | EUR | 228,672 | 228,588 | 228,616 | 6.00 | % | 24-Dec-09 | ||||||
July-99 | EUR | 73,000 | 73,000 | 73,000 | 6.35 | % | 16-Oct-15 | ||||||
February-00 | EUR | 498,668 | 500,002 | 500,000 | 6.38 | % | 25-Feb-10 | ||||||
December-00 | EUR | — | — | 750,000 | 2.71 | % | 04-Dec-10 | ||||||
July-01 | EUR | — | 500,002 | 500,000 | 5.50 | % | 04-Jul-11 | ||||||
October-01 | EUR | 60,000 | 60,000 | 60,000 | 5.73 | % | 10-Oct-11 | ||||||
October-01 | EUR | 40,000 | 40,000 | 40,000 | 6.08 | % | 10-Oct-16 | ||||||
October-01 | EUR | 50,000 | 50,000 | 50,000 | 2.79 | % | 15-Oct-16 | ||||||
November-01 | EUR | 55,000 | 55,000 | 55,000 | 2.96 | % | 02-Nov-16 | ||||||
December-01 | EUR | 56,002 | 56,002 | 56,000 | 3.18 | % | 20-Dec-16 | ||||||
BBVA SUBORDINATED CAPITAL, S.A.U. | |||||||||||||
May-05 | EUR | 496,783 | 480,444 | — | 2.74 | % | 23-May-17 | ||||||
October-05 | EUR | 150,000 | 150,000 | — | 2.49 | % | 13-Oct-20 | ||||||
October-05 | EUR | 250,000 | 250,000 | — | 2.44 | % | 20-Oct-17 | ||||||
October-06 | EUR | 1,000,000 | — | — | 3.82 | % | 24-Oct-16 | ||||||
ISSUES IN FOREIGN CURRENCY | |||||||||||||
BBVA PUERTO RICO, S.A. | |||||||||||||
September-04 | USD | 37,965 | 42,384 | 36,708 | 4.20 | % | 23-Sep-14 | ||||||
September-06 | USD | 28,094 | — | — | 5.76 | % | 29-Sep-16 |
September-06 BBVA BANCO FRANCÉS, S.A. May-05 (*) BBVA GLOBAL FINANCE, LTD. July-95 July-95 December-95 December-95 December-95 BANCO BILBAO VIZCAYA ARGENTARIA, CHILE BBVA BANCOMER, S.A. de C.V. November-98 July-05 September-06 BBVA CAPITAL FUNDING, LTD. August-95 (*) October-95 October-95 February-96 November-96 BBVA BANCOMER CAPITAL TRUST, INC. February-01 LNB CAPITAL TRUST I November-01 LNB STATUTORY TRUST I December-01 BBVA SUBORDINATED CAPITAL, S.A.U. October-05 October-05 March-06 RIVERWAY HOLDING CAPITAL TRUST I March-01 RIVERWAY HOLDING CAPITAL TRUST II July-01 TEXAS REGIONAL STATUTORY TRUST I February-04 BBVA COLOMBIA, S.A. August-06 TOTAL USD 22,779 — — 6.00 % 29-Sep-16 USD — — 4,118 7.07 % 04-Oct-20 USD — — 110,124 6.88 % 01-Jul-05 USD — — 36,708 2.36 % 15-Jan-05 USD 151,860 169,535 146,832 7.00 % 01-Dec-25 USD — 63,575 55,062 4.48 % 09-May-06 USD — — 55,062 2.45 % 11-May-05 CLP 276,496 172,053 93,552 Various Various MNX — 197,853 157,406 9.44 % 28-Sep-06 USD 377,259 420,809 — 7.38 % 22-Jul-15 MNX 174,545 — — 7.62 % 18-Sep-14 JPY — — 21,480 3.45 % 09-Aug-10 USD — — 71,600 5.40 % 26-Oct-05 JPY 63,700 72,000 110,124 6.00 % 26-Oct-15 USD — 211,918 183,540 6.38 % 14-Feb-06 USD — 169,535 146,832 4.89 % 27-Nov-06 USD — 423,837 364,326 10.50 % 16-Feb-11 USD — 17,800 — 6.44 % 08-Dec-31 USD — 25,430 — 6.64 % 18-Dec-31 JPY 127,400 144,000 — 2.75 % 22-Oct-35 GBP 446,760 437,766 — 4.79 % 21-Oct-15 GBP 446,760 — — 5.00 % 31-Mar-16 USD 8,646 — — 10.18 % 08-Jun-31 USD 3,797 — — 9.30 % 25-Jul-31 USD 37,965 — — 8.21 % 17-Mar-34 COP 136,000 — — 9.50 % 28-Aug-11 9,385,347 9,178,935 8,100,383
In 2005 and 2004 there were no early redemptions of these issues.
(*) | Issuances cancelled before their maturity date |
The issues of BBVA Capital Funding, LTD. and BBVA Global Finance, LTD. are guaranteed (secondary liability) by the Bank, and the issue of BBVA Bancomer Capital Trust, Inc. is guaranteed (secondary liability) by BBVA Bancomer. The issues of LNB Capital Trust 1 and LNB Statutory Trust 1 are guaranteed (secondary liability) by Laredo National BankBancomer, S.A de C.V.
26.5.2. Preference SharesPREFERENCE SHARES
The detail, by company, of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||
2005 | 2004 | |||
BBVA International, LTD. (1) | 1,340,000 | 1,341,230 | ||
BBVA Preferred Capital, LTD. (2) | 203,447 | 176,198 | ||
BBVA Privanza International (Gibraltar), LTD. (2) | 59,339 | 51,646 | ||
BBVA Capital Finance, S.A. | 1,975,000 | 1,980,966 | ||
BBVA Capital Funding | — | 258,853 | ||
BBVA International Preferred, S.A.U. | 550,000 | — | ||
Total | 4,127,786 | 3,808,893 | ||
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
BBVA Internacional, Ltd.(1) | 1,000,002 | 1,340,000 | 1,341,230 | |||
BBVA Preferred Capital, Ltd.(2) | — | 203,447 | 176,198 | |||
BBVA Privanza Internacional (Gibraltar), Ltd.(2) | — | 59,339 | 51,646 | |||
BBVA Capital Finance, S.A. | 1,975,000 | 1,975,000 | 1,980,966 | |||
BBVA Capital Funding, Ltd. | — | — | 258,853 | |||
BBVA Internactional Preferred, S.A.U. | 1,050,000 | 550,000 | — | |||
Total | 4,025,002 | 4,127,786 | 3,808,893 | |||
(1) | Listed on the Spanish AIAF |
(2) | Listed |
The foregoing balances include several issues of non-cumulative non-voting preference shares guaranteed by Banco Bilbao Vizcaya Argentaria, S.A., the detail being as follows:
2005 | Currency | Amount Issued (Millions) | Fixed Annual Dividend | ||||
BBVA Privanza International (Gibraltar), LTD.- | |||||||
June -97 | USD | 70 | 7.76 | % | |||
BBVA International, LTD.- | |||||||
April -01 | EUR | 340 | 7.00 | % | |||
March -02 | EUR | 500 | 3.50 | % | |||
December -02 | EUR | 500 | 3.25 | ||||
BBVA Preferred Capital, LTD.- | |||||||
June -01 | USD | 240 | 7.75 | % | |||
BBVA Capital Finance, S.A. | |||||||
December -03 | EUR | 350 | 2.75 | % | |||
July -04 | EUR | 500 | 3.00 | % | |||
December -04 | EUR | 1,125 | 3.00 | % | |||
BBVA International Preferred, S.A.U. | |||||||
September-05 | EUR | 550 | 3.80 | % | |||
2004 | Currency | Amount Issued (Millions) | Fixed Annual Dividend | ||||
BBVA Privanza International (Gibraltar), LTD.- | |||||||
June -97 | USD | 70 | 7.76 | % | |||
BBVA International, LTD.- | |||||||
April -01 | EUR | 340 | 7.00 | % | |||
March -02 | EUR | 500 | 3.50 | % | |||
December -02 | EUR | 500 | 3.25 | % | |||
BBVA Capital Funding, LTD.- | |||||||
April -98 | EUR | 256 | 6.36 | % | |||
BBVA Preferred Capital, LTD.- | |||||||
June -01 | USD | 240 | 7.75 | % | |||
BBVA Capital Finance, S.A. | |||||||
December -03 | EUR | 350 | 2.75 | % | |||
July -04 | EUR | 500 | 3.00 | % | |||
December -04 | EUR | 1,125 | 3.00 | % |
2006 | Currency | Amount Issued (Millions) | Fixed Anual Dividend | ||||
BBVA Internacional, Ltd. | |||||||
March 2002 | EUR | 500 | 3.50 | % | |||
December 2002 | EUR | 500 | 3.41 | % | |||
BBVA Capital Finance, S.A. | |||||||
December 2003 | EUR | 350 | 3.41 | % | |||
July 2004 | EUR | 500 | 3.41 | % | |||
December 2004 | EUR | 1,125 | 3.41 | % | |||
BBVA Internactional Preferred, S.A.U. | |||||||
September 2005 | EUR | 550 | 3.80 | % | |||
September 2006 | EUR | 500 | 4.95 | % |
During 2005,
2005 | Currency | Amount Issued (Millions) | Fixed Anual Dividend | ||||
BBVA Privanza Internacional (Gibraltar), Ltd. | |||||||
June 1997 | USD | 70 | 7.76 | % | |||
BBVA Privanza Internacional, Ltd. | |||||||
April 2001 | EUR | 340 | 7.00 | % | |||
March 2002 | EUR | 500 | 3.50 | % | |||
December 2002 | EUR | 500 | 3.25 | % | |||
BBVA Preferred Capital, Ltd. | |||||||
June 2001 | USD | 240 | 7.75 | % | |||
BBVA Capital Finance, S.A. | |||||||
December 2003 | EUR | 350 | 2.75 | % | |||
July 2004 | EUR | 500 | 3.00 | % | |||
December 2004 | EUR | 1,125 | 3.00 | % | |||
BBVA Internactional Preferred, S.A.U. | |||||||
September 2005 | EUR | 550 | 3.80 | % |
2004 | Currency | Amount Issued (Millions) | Fixed Anual Dividend | ||||
BBVA Privanza Internacional (Gibraltar), Ltd. | |||||||
June 1997 | USD | 70 | 7.76 | % | |||
BBVA Internacional, Ltd. | |||||||
April 2001 | EUR | 340 | 7.00 | % | |||
March 2002 | EUR | 500 | 3.50 | % | |||
December 2002 | EUR | 500 | 3.25 | % | |||
BBVA Capital Funding, Ltd. | |||||||
April 1998 | EUR | 256 | 6.36 | % | |||
BBVA Preferred Capital, S.A. | |||||||
June 2001 | USD | 240 | 7.75 | % | |||
BBVA Capital Finance, S.A. | |||||||
December 2003 | EUR | 350 | 2.75 | % | |||
July 2004 | EUR | 500 | 3.00 | % | |||
December 2004 | EUR | 1,125 | 3.00 | % |
The option to redeem the EUR 256 millions issued redemption optionpreference share issues launched by BBVA Preferred Capital, Ltd. (€203 million), BBVA Privanza Internacional (Gibraltar), Ltd. (€59 million) and BBVA Internacional, Ltd. (€340 million) was exercised BBVA Capital Funding, LTD.in 2006.
These issues were subscribed by third parties outside the Group and are wholly or partially redeemable at the Company’s option after five or ten years from the issue date, depending on the terms of each issue.
27. Liabilities under insurance contractsLIABILITIES UNDER INSURANCE CONTRACTS
The detail of the balance of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Technical provisions for: | ||||||||||
Mathematical reserves | 9,023,585 | 7,026,605 | 8,677,303 | 9,023,585 | 7,026,605 | |||||
Provision for unpaid claims reported | 419,123 | 125,682 | 655,048 | 419,123 | 125,682 | |||||
Other insurance technical provisions | 1,057,859 | 962,142 | 788,295 | 1,057,859 | 962,142 | |||||
Total | 10,500,567 | 8,114,429 | 10,120,646 | 10,500,567 | 8,114,429 | |||||
The detail of the balance of this heading in the consolidated balance sheets atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Provisions for pensions and similar obligations | 6,239,744 | 6,304,284 | ||||||||
Provisions for pensions and similar obligations (Note 29) | 6,357,820 | 6,239,744 | 6,304,284 | |||||||
Provisions for taxes | 146,971 | 173,229 | 232,172 | 146,971 | 173,229 | |||||
Provisions for contingent exposures and commitments | 452,462 | 348,782 | 501,933 | 452,462 | 348,782 | |||||
Other provisions | 1,861,908 | 1,565,553 | 1,556,909 | 1,861,908 | 1,565,553 | |||||
Total | 8,701,085 | 8,391,848 | 8,648,834 | 8,701,085 | 8,391,848 | |||||
The changes in 2006, 2005 and 2004 in the balances of the headings Provisions – Provisions for Pensions and Provisions – Other Provisionsthis heading in the accompanying consolidated balance sheets were as follows:
2005 | 2004 | |||||||||||||||||
Thousand of Euros | Provision for Pensions and similar obligation | Commitments and contingent risks provisions | Provisions for taxes and other provisions | Provision for Pensions and similar obligation | Commitments and contingent risks provisions | Provisions for taxes and other provisions | ||||||||||||
Balance at beginning of year | 6,304,284 | 348,782 | 1,738,782 | 6,481,288 | 279,708 | 1,874,006 | ||||||||||||
Add- | ||||||||||||||||||
Year provision with a charge to income for the year | 646,948 | 114,028 | 278,249 | 883,638 | 126,173 | 424,578 | ||||||||||||
Acquisition of subsidiaries | — | — | 42,355 | — | — | 497 | ||||||||||||
Transfers and other Changes | 97,630 | 9,566 | 317,849 | 4,714 | 1,412 | 330,248 | ||||||||||||
Less- | ||||||||||||||||||
Available funds | — | (12,378 | ) | (160,048 | ) | — | (12,673 | ) | (153,465 | ) | ||||||||
Payments to early Retirees (Note 2.2.f) | (777,746 | ) | — | — | (658,904 | ) | — | — | ||||||||||
Provisions used and other changes | (31,372 | ) | (7,536 | ) | (204,761 | ) | (406,452 | ) | (45,802 | ) | (649,401 | ) | ||||||
Transfer | — | — | — | — | (36 | ) | (87,474 | ) | ||||||||||
Disposal of subsidiaries | — | — | (3,547 | ) | — | — | (207 | ) | ||||||||||
Balances at end of Year | 6,239,744 | 452,462 | 2,008,879 | 6,304,284 | 348,782 | 1,738,782 | ||||||||||||
Thousands of Euros | |||||||||
Provisions for Pensions and similar obligation | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 6,239,744 | 6,304,284 | 6,481,288 | ||||||
Add - | |||||||||
Year provision with a charge to income for the year | 1,410,275 | 646,948 | 883,638 | ||||||
Transfers and other changes | — | 97,630 | 4,714 | ||||||
Less - | |||||||||
Payments | (1,208,127 | ) | (777,746 | ) | (658,904 | ) | |||
Amount use and other variations | (84,072 | ) | (31,372 | ) | (406,452 | ) | |||
Balance at end of year | 6,357,820 | 6,239,744 | 6,304,284 | ||||||
The year provisions for pensions charged to income in 20052006 under the headingsheading “Provisions for pensions and similar obligations” registered as “interest expenses and similar charges”, “personal expenses” and “provision expenses” in the consolidated income statement amounted to EUR 255,370, 68,893€254,548, €74,281 and 322,685€1,081,446 thousand. The amount charged in this respect in 2005 was €255,370, €68,893 y €322,685 thousand, respectively. The amount charged in this respect in 2004 was EUR 210,342, 58,982€210,342, €58,982 y 614,314€614,314 thousand, respectively (Note 2.2.f)29).
Also, year
Thousands of Euros | |||||||||
Commitments and contingent risks provisions | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 452,462 | 348,782 | 279,708 | ||||||
Add - | |||||||||
Year provision with a charge to income for the year | 73,487 | 114,028 | 126,173 | ||||||
Transfers and other Changes | 4,726 | 9,566 | 1,412 | ||||||
Less - | |||||||||
Available funds | (16,700 | ) | (12,378 | ) | (12,673 | ) | |||
Payments | — | — | — | ||||||
Amount use and other variations | (11,070 | ) | (7,536 | ) | (45,802 | ) | |||
Transfers | — | — | (36 | ) | |||||
Disposal of subsidiaries | (972 | ) | — | — | |||||
Balance at end of year | 501,933 | 452,462 | 348,782 | ||||||
Thousands of Euros | |||||||||
Provisions for taxes and other provisions | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 2,008,879 | 1,738,782 | 1,874,006 | ||||||
Add - | |||||||||
Year provision with a charge to income for the year | 353,038 | 278,249 | 424,578 | ||||||
Acquisition of subsidiaries | 4,415 | 42,355 | 497 | ||||||
Transfers and other Changes | 100,611 | 317,849 | 330,248 | ||||||
Less - | |||||||||
Available funds | (50,913 | ) | (160,048 | ) | (153,465 | ) | |||
Amount use and other variations | (608,170 | ) | (204,761 | ) | (649,401 | ) | |||
Transfers | — | — | (87,474 | ) | |||||
Disposal of subsidiaries | (18,779 | ) | (3,547 | ) | (207 | ) | |||
Balance at end of year | 1,789,081 | 2,008,879 | 1,738,782 | ||||||
29. COMMITMENTS WITH PERSONNEL
As of December 31, 2006, 2005 and 2004, the commitments to Group employees were as follows:
Thousands of Euros | ||||||||||||||||||
Commitments in Spain (Note 29.1) | Commitments abroad (Note 29.2) | Total | ||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||
Post-employment benefits | 3,386,448 | 3,442,986 | 3,471,738 | 955,582 | 966,125 | 746,893 | 4,342,030 | 4,409,111 | 4,218,631 | |||||||||
Early retirement | 3,185,500 | 2,582,567 | 2,656,743 | — | — | — | 3,185,500 | 2,582,567 | 2,656,743 | |||||||||
Post-employment welfare benefits | 222,688 | 210,610 | 203,893 | 422,302 | 436,434 | 324,043 | 644,990 | 647,044 | 527,936 | |||||||||
Long-service cash bonuses | 31,781 | 30,033 | 31,590 | — | — | — | 31,781 | 30,033 | 31,590 | |||||||||
Long-service share-based bonuses | 48,677 | 45,550 | 32,614 | — | — | — | 48,677 | 45,550 | 32,614 | |||||||||
Total | 6,875,094 | 6,311,746 | 6,396,578 | 1,377,884 | 1,402,559 | 1,070,936 | 8,252,978 | 7,714,305 | 7,467,514 | |||||||||
These commitments were funded as follows:
Thousands of Euros | ||||||||||||||||||
Commitments in Spain (Note 29.1) | Commitments aborad (Note 29.2) | Total | ||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||
Insurance contracts coverage | ||||||||||||||||||
Post-employment benefits | 569,492 | 626,966 | 645,501 | — | — | — | 569,492 | 626,966 | 645,501 | |||||||||
569,492 | 626,966 | 645,501 | — | — | — | 569,492 | 626,966 | 645,501 | ||||||||||
Assets assigned to the funding of commitments | ||||||||||||||||||
Post-employment benefits | — | — | — | 879,176 | 687,039 | 514,835 | 879,176 | 687,039 | 514,835 | |||||||||
Post-employment welfare benefits | — | — | — | 367,927 | 84,973 | 40,122 | 367,927 | 84,973 | 40,122 | |||||||||
— | — | — | 1,247,103 | 772,012 | 554,957 | 1,247,103 | 772,012 | 554,957 | ||||||||||
Internal provisions (Note 28) | ||||||||||||||||||
Funds for Pensions and Similar Obligations | ||||||||||||||||||
Post-employment benefits | 2,816,956 | 2,816,020 | 2,826,237 | 76,406 | 279,086 | 232,058 | 2,893,362 | 3,095,106 | 3,058,295 | |||||||||
Early retirement | 3,185,500 | 2,582,567 | 2,656,743 | — | — | — | 3,185,500 | 2,582,567 | 2,656,743 | |||||||||
Post-employment welfare benefits | 222,688 | 210,610 | 203,893 | 54,375 | 351,461 | 283,921 | 277,063 | 562,071 | 487,814 | |||||||||
6,225,144 | 5,609,197 | 5,686,873 | 130,781 | 630,547 | 515,979 | 6,355,925 | 6,239,744 | 6,202,852 | ||||||||||
Other provisions | ||||||||||||||||||
Long-service cash bonuses | 31,781 | 30,033 | 31,590 | — | — | — | 31,781 | 30,033 | 31,590 | |||||||||
Long-service share-based bonuses | 48,677 | 45,550 | 32,614 | — | — | — | 48,677 | 45,550 | 32,614 | |||||||||
80,458 | 75,583 | 64,204 | — | — | — | 80,458 | 75,583 | 64,204 | ||||||||||
Subtotal | 6,305,602 | 5,684,780 | 5,751,077 | 130,781 | 630,547 | 515,979 | 6,436,383 | 6,315,327 | 6,267,056 | |||||||||
Total | 6,875,094 | 6,311,746 | 6,396,578 | 1,377,884 | 1,402,559 | 1,070,936 | 8,252,978 | 7,714,305 | 7,467,514 | |||||||||
The aforementioned insurance contracts were contracted with non-related insurance companies and the balances of these insurance policies were disclosed net of the balances of the assets assigned to the funding of commitments in the accompanying consolidated balance sheets.
On the other hand, the aforementioned internal provisions totalling EUR 278,249includes insurance contracts were contracted with insurance companies owned by the Group (Note 2.2.e) and, therefore, the balances of these insurance policies are disclosed in the heading “Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets. Whereas, the balances of the assets assigned to the funding of commitments are disclosed in the corresponding heading of asset depending on the classification of the financial instruments.
29.1. Companies in Spain
29.1.1. Post-employment benefits
29.1.1.1. Pensions
The most significant actuarial assumptions used to quantify these vested obligations in 2006, 2005 and 2004, were as follows:
Mortality tables | PERM/F 2000P | |
Discount rate (cumulative annual) | 4%/ AA corporate bond yield curve | |
Consumer price index | 1.5% | |
Salary growth rate | at least 2.5% (depending on employee) | |
Retirement ages | First date at which the employees are entitled to retire |
The defined benefit commitments and their coverage as of December 31, 2006, 2005 and 2004 were as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Pension commitments to retired employees | 3,186,706 | 3,202,581 | 3,244,431 | |||
Pension contingencies in respect of current employees | 199,742 | 240,405 | 227,307 | |||
3,386,448 | 3,442,986 | 3,471,738 | ||||
Coverage at end of each year: | ||||||
Internal provisions (*) | 2,816,956 | 2,816,020 | 2,826,237 | |||
Insurance contracts with unrelated insurance companies | 569,492 | 626,966 | 645,501 | |||
Total | 3,386,448 | 3,442,986 | 3,471,738 | |||
* | The internal provisions showed above were recognised with a charge to the heading “Provision Expense (Net)—Transfers to Funds for Pensions and Similar Obligations” in the accompanying consolidated income statements, and these provisions are recognised in the heading “Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets (Note 28). |
The changes in 2006, 2005 and 2004 in the present value of the vested obligation for defined benefit commitments covered by the Group’s internal provisions were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 2,816,020 | 2,826,237 | 3,240,686 | ||||||
+ Interest cost | 110,021 | 106,926 | 112,988 | ||||||
+ Normal cost for the year (current services costs) | 22,510 | 19,440 | (100 | ) | |||||
- Payments made | (158,938 | ) | (145,347 | ) | (135,676 | ) | |||
+/- Other | 11,142 | 1,635 | (359,041 | ) | |||||
+/- Actuarial losses (gains) | 16,201 | 7,129 | (32,620 | ) | |||||
Present actuarial value at end of the year | 2,816,956 | 2,816,020 | 2,826,237 | ||||||
29.1.1.2. Early retirements
In 2006, 2005 and 2004, the Group offered certain employees the possibility of taking early retirement before reaching the age stipulated in the collective labour agreement in force. This offer was accepted in 2006, 2005 and 2004 by 1,887, 677 and 1,372 employees, respectively.
The most significant actuarial assumptions used to quantify these vested obligations in 2006, 2005 and 2004, were as follows:
Mortality tables | PERM/F 2000P | |
Discount rate (cumulative annual) | 4%/ AA corporate bond yield curve | |
Consumer price index | 1.5% | |
Retirement ages | Date agreed contractually for each individual employee at which the employee are entitled to retire |
The total cost of these agreements amounts to €1,019,494 thousand, relating€286,279 thousand and €571,628 thousand as of December 31, 2006, 2005 and 2004, respectively, and the corresponding provisions were recognised with a charge to the heading Provisions—Other Provisions were recorded in 2005“Provision Expense (Net) - Transfers to Funds for Pensions and Similar Obligations - Early Retirements” in the accompanying consolidated income statement. statements, and these provisions are recognised in the heading “Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets statements (Note 28).
The amountchanges in 2006, 2005 and 2004 in the present value of the vested obligation for commitments to early retirees in Spain were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 2,582,567 | 2,656,743 | 2,461,263 | ||||||
+ Interest cost | 91,550 | 94,528 | 86,904 | ||||||
+ Early retirements in the year | 1,019,494 | 286,279 | 571,628 | ||||||
- Payments made | (504,857 | ) | (477,197 | ) | (466,413 | ) | |||
+/- Other changes | (2,482 | ) | 5,929 | (3,068 | ) | ||||
+/- Actuarial losses (gains) | (772 | ) | 16,285 | 6,429 | |||||
Present actuarial value at end of the year | 3,185,500 | 2,582,567 | 2,656,743 | ||||||
29.1.1.3. Post-employment welfare benefits
The most significant actuarial assumptions used to quantify these vested obligations in 2006, 2005 and 2004, were as follows:
Mortality tables | PERM/F 2000P | |
Discount rate (cumulative annual) | 4%/ AA corporate bond yield curve | |
Consumer price index | 1.5% | |
Retirement ages | First date at which the employees are entitled to retire |
The detail of these commitments as of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Post-employment welfare benefit commitments to retired employees | 168,710 | 158,889 | 155,786 | |||
Vested post-employment welfare benefit contingencies in respect of current employees | 53,978 | 51,721 | 48,107 | |||
Total: | 222,688 | 210,610 | 203,893 | |||
Coverage at end of each year: | ||||||
Internal provisions | 222,688 | 210,610 | 203,893 | |||
The changes in 2006, 2005 and 2004 in the present value of the vested obligation for post-employment welfare benefit commitments were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at the beginning of the year | 210,610 | 203,893 | 202,217 | ||||||
+ Interest cost | 8,512 | 8,227 | 7,857 | ||||||
+ Normal cost for the year (current services costs) | 2,405 | 2,165 | 2,051 | ||||||
- Payments made | (13,440 | ) | (12,193 | ) | (11,566 | ) | |||
+/- Other movements | 6,541 | (362 | ) | — | |||||
+/- Actuarial losses (gains) | 8,060 | 8,880 | 3,334 | ||||||
Present actuarial value at the end of the year | 222,688 | 210,610 | 203,893 | ||||||
29.1.1.4. Summary of post-employment compensation commitments in Spanish companies
Following is the impact on profit or loss of the charges recorded in the 2006, 2005 and 2004 consolidated income statements for the post-employment compensation commitments of Group companies in Spain:
Thousands of Euros | |||||||
2006 | 2005 | 2004 | |||||
Interest expense and similar charges: | |||||||
Interest cost of pension funds | 210,083 | 210,999 | 208,977 | ||||
Personnel expenses: | |||||||
Social attentions | 2,247 | 2,165 | 2,051 | ||||
Transfers to pension plans | 59,318 | 61,019 | 44,286 | ||||
Provision expense (net): | |||||||
Transfers to funds for pensions and similar obligations | |||||||
Pension funds | 23,489 | 33,426 | (29,720 | ) | |||
Early retirement | 1,019,494 | 286,279 | 571,628 | ||||
Total | 1,314,631 | 593,888 | 797,222 | ||||
The current contributions made by the Group’s Spanish companies for defined contribution retirement commitments were charged to the heading “Personnel Expenses - Transfers to Pension Plans” in the accompanying consolidated income statements, amounted to €32,486 thousand, €38,099 thousand and €42,503 thousand in 2006, 2005 and 2004, respectively.
As of December 31, 2006, 2005 and 2004 all actuarial gains or losses arising from differences between the actuarial assumptions and what had actually occurred or, where appropriate, from the effects of changes in the actuarial assumptions used, were charged to the heading “Personnel Expenses - Transfers to Pension Plans” in the accompanying consolidated income statements.
29.1.2. Other commitments to employees in Spanish companies:
29.1.2.1. Compensation in kind
The present values of the vested obligations for long-service cash bonuses and for the gifts relating to long-service share-based bonuses (the treatment applicable to share-based payment is summarised in section below) was quantified on a case-by-case basis using the projected unit credit valuation method. The main actuarial assumptions used in quantifying these obligations are unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in 2006, 2005 and 2004 were as follows:
Mortality tables | PERM/F 2000P | |
Disability tables | IASS - 90 (reflecting the experience of the Spanish Social Security authorities) | |
Discount rate (cumulative annual) | 4%/ AA Corporate bonds | |
Retirement ages | First date at which the employees are entitled to retire |
The changes in 2006, 2005 and 2004 in the present value of the vested obligation for these commitments were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 30,033 | 31,590 | 30,693 | ||||||
+ Interest cost | 1,265 | 1,318 | 1,228 | ||||||
+ Normal cost for the year (current services costs) | 1,594 | 1,377 | 1,323 | ||||||
- Payments made | (532 | ) | (545 | ) | (735 | ) | |||
- Cash settlements for long-service bonus redemptions due to early retirement | (643 | ) | (2,464 | ) | (570 | ) | |||
+/- Actuarial losses (gains) | 64 | (1,243 | ) | (349 | ) | ||||
Present actuarial value at end of the year | 31,781 | 30,033 | 31,590 | ||||||
Coverage at end of each year: | |||||||||
Internal provisions (*) | 31,781 | 30,033 | 31,590 |
(*) | The internal provisions showed above were recognised in the heading “Provisions—Other provisions” in the accompanying consolidated balance sheets (Note 28). |
Since all other employee welfare benefits for current employees accrue and are settled on a yearly basis, it is not necessary to record a provision in this respectconnection.
The total cost of the employee welfare benefits provided by the Group’s Spanish companies to their current employees in the 2006, 2005 and 2004 was EUR 424,578 thousand.€33,941 thousand, €29,723 thousand and €34,746 thousand, respectively, and these amounts were recognised with a charge to “Personnel Expenses—Other personnel expenses” in the accompanying consolidated income statements.
29.1.2.2. Bank share-based compensation system
However, as mentioned previously, the Bank is obliged, under the related corporate agreement, to deliver shares of Banco Bilbao Vizcaya Argentaria, S.A. to certain of its employees when they complete a given number of years of effective service:
Number of Shares | ||
15 years | 180 | |
25 years | 360 | |
40 years | 720 | |
50 years | 900 |
The present values of the vested obligation as of December 31, 2006, 2005 and 2004, in terms of the probable number of shares, were quantified on a case-by-case basis using the projected unit credit method. The main actuarial assumptions used in quantifying this obligation are summarised as follows:
Mortality tables | PERM/F 2000P. | |
Disability tables | IASS - 90 (reflecting the experience of the Spanish Social Security authorities) | |
Retirement ages | First date at which the employees are entitled to retire |
The changes in 2006, 2005 and 2004 in the present value of the vested obligation of the probable number of shares due to the no-target-based compensation plans were as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at the beginning of the year | 6,946,467 | 6,658,067 | 6,932,004 | ||||||
+ Year accrual | 407,487 | 399,753 | 385,661 | ||||||
- Deliveries made | (186,480 | ) | (269,100 | ) | (305,100 | ) | |||
+/- Actuarial losses (gains) | (628,526 | ) | 157,747 | (354,498 | ) | ||||
Present actuarial value at the end of year | 6,538,948 | 6,946,467 | 6,658,067 | ||||||
In March 1999, pursuant to a resolution adopted by the Bank’s shareholders at the Annual General Meeting on February 27, 1999, 32,871,301 new shares were issued at a price of €2.14 per share (similar to the average reference price of the share-based commitments to Group employees existing at that date which the new shares were assigned to fund). These shares were subscribed and paid by a non-Group company and, simultaneously, the Bank acquired a call option on these shares which can be exercised on any date, at one or several times, prior to December 31, 2011, at an exercise price equal to the share issue price, adjusted on the basis of the related antidilution clauses. Since 1999 the call option has been partially exercised to meet share-based commitments to Group employees, for a total of 28,500,236 shares, which means that on December 31, 2006, the Bank still held an option on a total of 4,371,065 shares at a price of €2.09 per share (4,557,545 and 4,826,645 shares as of December 31, 2005 and 2004). In addition, it had arranged a futures transaction with a non-Group entity on a total of 2,167,883 shares at an exercise price of €18.24 per share (2,388,922 shares at an exercise price of 15.06 per share and 1,831,422 shares at an exercise price of €12.30 per share as of December 31, 2005 and 2004).
The changes in 2006, 2005 and 2004 in the related internal provisions, which take into account the present value of the vested obligation, at any given date, in terms of the probable number of shares and the instruments assigned to the commitment, were as follows:
Thousands of Euros | |||||||||||
2006 | 2005 | 2004 | |||||||||
Internal provision at beginning of year | 45,550 | 32,614 | 33,692 | ||||||||
+ | Normal cost for the year (current service costs) | 6,787 | 5,879 | 4,389 | |||||||
- | Payments relating to partial exercises of the call option (Settlement of long-service bonuses when they fall due) | (390 | ) | (562 | ) | (638 | ) | ||||
+/- | Collections/(Payments) due to quarterly settlements of futures transactions | (783 | ) | 5,244 | 1,685 | ||||||
+/- | Actuarial losses (gains) | (2,487 | ) | 2,375 | (6,514 | ) | |||||
Internal provision at end of year(*) | 48,677 | 45,550 | 32,614 | ||||||||
(*) | The internal provisions showed above were recognised in the heading “Provisions—Other provisions” in the accompanying consolidated balance sheets (Note 28). |
29.2. Companies abroad
29.2.1. Pension benefit supplement
The main commitments abroad are related to Mexico and Portugal.
Mexico
The main actuarial assumptions used in quantifying the commitments of BBVA Bancomer, S.A. de C.V. as of December 31, 2006,2005 and 2004 are summarised as follows:
2006 | 2005 | 2004 | |||||||
Mortality tables | EMSSA 97 | EMSSA 97 | EMSSA 97 | ||||||
Discount rate (cumulative annual) | 9.0 | % | 9.20 | % | 10.25 | % | |||
Consumer price index | 3.5 | % | 4.00 | % | 5.00 | % | |||
Salary growth rate | 6.0 | % | 6.60 | % | 7.63 | % | |||
Expected rate of return on plan assets | 9.0 | % | 9.20 | % | 10.25 | % | |||
The changes in 2006, 2005 and 2004 in the present value of the vested obligations of Bancomer, S.A. de C.V., and in the value of the assets assigned to fund these commitments (fair value of plan assets) are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 632,783 | 478,478 | 466,516 | ||||||
Value of the assets assigned to funding of commitments (fair value of plan assets) | (465,664 | ) | (330,509 | ) | (324,318 | ) | |||
Balance at beginning of year | 167,119 | 147,969 | 142,198 | ||||||
Present actuarial value at end of year | 623,418 | 632,783 | 478,478 | ||||||
Value of assets assigned to funding of commitments | (623,418 | ) | (465,664 | ) | (330,509 | ) | |||
Balance at end of year | — | 167,119 | 147,969 | ||||||
The aforementioned assets assigned to the funding of commitments are the assets that are to be used directly to settle employee benefit obligations and which meet the following conditions: they are not owned by the Group entities; they are available only to pay post-employment benefits; and they cannot be returned to the Group entities. The balances of the vested obligations related to the previously mentioned commitments were disclosed net of the balances of the aforementioned assets assigned to the funding of commitments in the accompanying consolidated balance sheets.
The changes in 2006, 2005 and 2004, in the balances of “Provisions - Provisions for Pensions and Similar Obligations” relating to BBVA Bancomer, S.A. de C.V. are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 167,119 | 147,969 | 142,198 | ||||||
+ Finance expenses | 51,609 | 47,187 | 44,814 | ||||||
- Finance Income | (38,375 | ) | (33,326 | ) | (32,753 | ) | |||
+ Normal cost for the year (current service costs) | 21,295 | 22,711 | 16,327 | ||||||
+/- Payments made and other net variations | (173,645 | ) | (36,569 | ) | (12,077 | ) | |||
+/- Exchange differences | (2,666 | ) | 29,097 | (10,540 | ) | ||||
+/- Actuarial losses (gains) | (25,337 | ) | (9,950 | ) | — | ||||
Balance at end of year | — | 167,119 | 147,969 | ||||||
Portugal
The main actuarial assumptions used in quantifying the commitments of BBVA Portugal, S.A. as of December 31, 2006, 2005 and 2004 are summarised as follows:
2006 | 2005 | 2004 | ||||
Mortality tables | TV 88/90 | TV 88/90 | TV 88/90 | |||
Disability tables | 50% EKV 80 | 50% EKV 80 | 50% EKV 80 | |||
Turnover tables | 50% MSSL employees before 1995 | |||||
Discount rate (cumulative annual) | 4.75% | 4.50% | 4.50% | |||
Consumer price index | 2.00% | 2.00% | 2.00% | |||
Salary growth rate | 3.00% | 3.00% | 3.00% | |||
Expected rate of return on plan assets | 4.50% | 4.50% | 4.50% | |||
The changes in 2006, 2005 and 2004 in the present value of the vested obligations of BBVA Portugal, S.A., and in the value of the assets assigned to fund these commitments (fair value of plan assets) are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 262,153 | 268,415 | 249,438 | ||||||
Value of the assets assigned to funding of commitments (fair value of plan assets) | (221,375 | ) | (184,326 | ) | (175,897 | ) | |||
Balance at beginning of year | 40,778 | 84,089 | 73,541 | ||||||
Present actuarial value at end of year | 295,473 | 262,153 | 268,415 | ||||||
Value of assets assigned to funding of commitments | (255,758 | ) | (221,375 | ) | (184,326 | ) | |||
Balance at end of year | 39,715 | 40,778 | 84,089 | ||||||
The aforementioned assets assigned to the funding of commitments are the assets that are to be used directly to settle employee benefit obligations and which meet the following conditions: they are not owned by the Group entities; they are available only to pay post-employment benefits; and they cannot be returned to the Group entities. The balances of the vested obligations related to the previously mentioned commitments were disclosed net of the balances of the aforementioned assets assigned to the funding of commitments in the accompanying consolidated balance sheets.
The internal provisions showed above were recognised in the heading “Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets (Note 28). The changes in 2006, 2005 and 2004 in this heading related to BBVA Portugal, S.A., are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 40,778 | 84,089 | 73,541 | ||||||
+ Finance expenses | 11,538 | 8,437 | 10,458 | ||||||
- Finance Income | (11,521 | ) | (9,930 | ) | (9,334 | ) | |||
+ Normal cost for the year (current service costs) | 39,059 | 3,985 | 14,375 | ||||||
+/- Payments made and other net variations | (40,879 | ) | (48,987 | ) | (10,242 | ) | |||
+/- Actuarial losses (gains) | 740 | 3,184 | 5,291 | ||||||
Balance at end of year | 39,715 | 40,778 | 84,089 | ||||||
29.2.2. Post-employment welfare benefits:
BBVA Bancomer, S.A. de C.V.’s accrued liability for defined benefit commitments to current and former employees, net of the specific assets assigned to fund them, amounted to €54,375 thousand, €351,461 thousand and €283,921 thousand as of December 31, 2006, 2005 and 2004, respectively and is included under the heading “Provisions - Provisions for Pensions and Similar Obligations” in the accompanying consolidated balance sheets.
The main actuarial assumptions used to quantify the current values of the commitments accrued in connection with the aforementioned commitment, as of December 31, 2006, 2005 and 2004, are as follows:
2006 | 2005 | 2004 | |||||||
Mortality tables | EMSSA 97 | EMSSA 97 | EMSSA 97 | ||||||
Discount rate (cumulative annual) | 9.0 | % | 9.20 | % | 10.25 | % | |||
Consumer price index | 3.5 | % | 4.00 | % | 5.00 | % | |||
Medical cost trend rates | 6.0 | % | 6.08 | % | 7.10 | % | |||
Expected rate of return on plan assets | 9.0 | % | 9.20 | % | 10.25 | % | |||
The changes in 2006, 2005 and 2004 in the present value of the vested obligations are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Present actuarial value at beginning of the year | 436,434 | 324,043 | 319,885 | ||||||
Value of the assets assigned to funding of commitments (fair value of plan assets) | (84,973 | ) | (40,122 | ) | (22,887 | ) | |||
Balance at beginning of year | 351,461 | 283,921 | 296,998 | ||||||
Present actuarial value at end of year | 422,302 | 436,434 | 324,043 | ||||||
Value of assets assigned to funding of commitments | (367,927 | ) | (84,973 | ) | (40,122 | ) | |||
Balance at end of year | 54,375 | 351,461 | 283,921 | ||||||
The aforementioned assets assigned to the funding of commitments are the assets that are to be used directly to settle employee benefit obligations and which meet the following conditions: they are not owned by the Group entities; they are available only to pay post-employment benefits; and they cannot be returned to the Group entities. The balances of the vested obligations related to the previously mentioned commitments were disclosed net of the balances of the aforementioned assets assigned to the funding of commitments in the accompanying consolidated balance sheets.
The internal provisions showed above were recognised in the heading “Other provisions” in the accompanying consolidated balance sheets (Note 28). The changes in 2006, 2005 and 2004 in this heading related to BBVA Bancomer, S.A. de C.V., are as follows:
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Balance at beginning of year | 351,461 | 283,921 | 296,998 | ||||||
+ Finance expenses | 36,436 | 32,953 | 30,288 | ||||||
- Finance Income | (6,862 | ) | (3,896 | ) | (2,692 | ) | |||
+ Normal cost for the year (current service costs) | 11,290 | 9,001 | 1,759 | ||||||
+/- Payments made and other net variations | (312,066 | ) | (40,771 | ) | (22,465 | ) | |||
+/- Exchange differences | (41,373 | ) | 57,925 | (19,967 | ) | ||||
+/- Actuarial losses (gains) | 15,489 | 12,328 | — | ||||||
Balance at end of year | 54,375 | 351,461 | 283,921 | ||||||
As of December 31, 2006, the sensitivity analysis for changes in assumed medical cost trend rates of BBVA Bancomer S.A. de C.V. is as follow:
Thousands of Euros | |||||
1% Increase | 1% Decrease | ||||
Increase/Decrease in Current Services Cost and Interest Cost | 12,827 | (9,694 | ) | ||
Increase/Decrease in defined benefit obligation | 88,960 | (68,537 | ) |
29.2.3. Summary of impact on profit or loss of post-employment benefit commitments of group companies abroad:
The charges recorded in the 2006, 2005 and 2004 consolidated income statements for the post-employment benefit commitments of Group companies abroad totalled €139,410 thousand, €110,550 thousand and €82,787 thousand, respectively.
As of December 31, 2006, 2005 and 2004, all actuarial gains or losses arising from differences between the actuarial assumptions and what had actually occurred or, where appropriate, from the effects of changes in the actuarial assumptions used, were charged to the accompanying consolidated income statements.
29. Minority interests30.MINORITY INTERESTS
The detail, by consolidated company, of the balance of the heading Minority Interests“Minority Interests” is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
By company- | ||||||||||
BBVA Colombia Group | 16,467 | 14,059 | 18,336 | 16,467 | 14,059 | |||||
BBVA Chile Group | 120,998 | 87,615 | 94,829 | 120,998 | 87,615 | |||||
BBVA Banco Continental Group | 222,304 | 171,035 | 234,657 | 222,304 | 171,035 | |||||
BBVA Banco Provincial Group | 203,860 | 165,485 | 223,546 | 203,860 | 165,485 | |||||
Provida Group | 70,544 | 52,921 | 66,220 | 70,544 | 52,921 | |||||
Banc Internacional d’Andorra, S.A. | 185,713 | 142,677 | — | 185,713 | 142,677 | |||||
Other companies | 151,604 | 103,747 | 130,574 | 151,604 | 103,747 | |||||
Total | 971,490 | 737,539 | 768,162 | 971,490 | 737,539 | |||||
The detail by consolidated company, of the balancechanges in the foregoing balances, which are due to the share of minority interests in income for the heading Income Attributed to Minority Interestsyear (Note 4), is as follows:follow:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
By company- | ||||||||||
BBVA Colombia Group | 4,166 | 2,943 | 3,470 | 4,166 | 2,943 | |||||
BBVA Chile Group | 13,526 | 4,829 | 2,573 | 13,526 | 4,829 | |||||
BBVA Banco Continental Group | 59,689 | 39,721 | 66,989 | 59,689 | 39,721 | |||||
BBVA Banco Provincial Group | 47,279 | 65,834 | 68,944 | 47,279 | 65,834 | |||||
Provida Group | 18,169 | 8,831 | 24,970 | 18,169 | 8,831 | |||||
Banc Internacional d’Andorra, S.A. | 41,607 | 34,264 | ||||||||
Banc Internacional d’Andorra, S.A. (*) | 8,306 | 41,607 | 34,264 | |||||||
Other companies | 79,711 | 29,191 | 59,904 | 79,711 | 29,191 | |||||
Total | 264,147 | 185,613 | 235,156 | 264,147 | 185,613 | |||||
(*) | Accumulated minority until the date of its sale (See Note 4). |
30. Changes in total equity31.CHANGES IN TOTAL EQUITY
The changes in equity in the years ended December 31, 2006, 2005 and 2004 were as follows:
Thousands of euros | Thousands of Euros | ||||||||||||||||||||||||||||||||||||||||||||
2005 | Share Capital | Reserves | Profit for the Year | Treasury Shares and Other Equity Instruments | Valuation Adjustments | Minority Interests | Interim Dividends | Total Equity | |||||||||||||||||||||||||||||||||||||
Balances at January 1, 2005 | 1,661,518 | 7,427,737 | 2,922,596 | (35,846 | ) | 2,106,914 | 737,539 | (1,015,195 | ) | 13,805,263 | |||||||||||||||||||||||||||||||||||
2006 | Share Capital (Note 32) | Reserves (Note 33 & 34) | Profit for the year | Treasury shares and other equity instruments (Note 35) | Valuation Adjustments (*) | Minority Interest (Note 30) | Interim Dividends (Note 5) | Total Equity | |||||||||||||||||||||||||||||||||||||
Balance at beginning of year | 1,661,518 | 8,830,548 | 3,806,425 | (96,180 | ) | 3,294,955 | 971,490 | (1,166,644 | ) | 17,302,112 | |||||||||||||||||||||||||||||||||||
Valuation adjustments | — | — | — | — | 604,889 | 2,569 | — | 607,458 | — | — | — | — | 472,185 | (3,185 | ) | — | 469,000 | ||||||||||||||||||||||||||||
Distribution of prior Years’ profit | — | 1,427,165 | (1,427,165 | ) | — | — | — | — | — | 2,010,936 | (2,010,936 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||
Dividends | — | — | (1,495,431 | ) | — | — | (9,312 | ) | 1,015,195 | (489,548 | ) | — | — | (1,795,489 | ) | — | — | (16,818 | ) | 1,166,644 | (645,663 | ) | |||||||||||||||||||||||
Gains or losses on transactions involving treasury shares and other Equity instruments | — | 34,093 | — | (60,334 | ) | — | (626 | ) | — | (26,867 | ) | ||||||||||||||||||||||||||||||||||
Gains or losses on transactions involving treasury | — | 17,131 | — | (16,269 | ) | — | — | — | 862 | ||||||||||||||||||||||||||||||||||||
shares and other equity instruments | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Increase of capital | 78,947 | 2,921,053 | — | — | — | — | — | 3,000,000 | |||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | 3,806,425 | — | — | (1,166,644 | ) | 2,639,781 | — | — | 4,735,879 | — | — | — | (1,362,700 | ) | 3,373,179 | ||||||||||||||||||||||||||||
Dividends paid to minority shareholders | — | — | — | — | — | (55,010 | ) | — | (55,010 | ) | — | — | — | — | — | (86,957 | ) | — | (86,957 | ) | |||||||||||||||||||||||||
Changes in the composition of the Group | — | — | — | — | — | (7,612 | ) | — | (7,612 | ) | — | (54,998 | ) | — | — | — | (279,386 | ) | — | (334,384 | ) | ||||||||||||||||||||||||
Exchange differences | — | — | — | — | 583,152 | 42,750 | — | 625,902 | — | — | — | — | (426,446 | ) | (62,301 | ) | — | (488,747 | ) | ||||||||||||||||||||||||||
Share of minority interests in profit for the year | — | — | — | — | — | 264,147 | — | 264,147 | — | — | — | — | — | 235,156 | — | 235,156 | |||||||||||||||||||||||||||||
Other | — | (58,447 | ) | — | — | — | (2,955 | ) | — | (61,402 | ) | — | (516,243 | ) | — | — | — | 10,163 | — | (506,080 | ) | ||||||||||||||||||||||||
Balances at 31 December 2005 | 1,661,518 | 8,830,548 | 3,806,425 | (96,180 | ) | 3,294,955 | 971,490 | (1,166,644 | ) | 17,302,112 | |||||||||||||||||||||||||||||||||||
Balance at end of year | 1,740,465 | 13,208,427 | 4,735,879 | (112,449 | ) | 3,340,694 | 768,162 | (1,362,700 | ) | 22,318,478 | |||||||||||||||||||||||||||||||||||
(*) | See change in net consolidated equity |
Thousands of Euros | ||||||||||||||||||||||
2005 | Share Capital (Note 32) | Reserves (Note 33 y 34) | Profit for the year | Treasury shares and other equity instruments (Note 35) | Valuation Adjustments (*) | Minority Interest (Note 30) | Interim Dividends (Note 5) | Total Equity | ||||||||||||||
Balance at beginning of year | 1,661,518 | 7,427,737 | 2,922,596 | (35,846 | ) | 2,106,914 | 737,539 | (1,015,195 | ) | 13,805,263 | ||||||||||||
Valuation adjustments | — | — | — | — | 604,889 | 2,569 | — | 607,458 | ||||||||||||||
Distribution of prior Years’ profit | — | 1,427,165 | (1,427,165 | ) | — | — | — | — | — | |||||||||||||
Dividends | — | — | (1,495,431 | ) | — | — | (9,312 | ) | 1,015,195 | (489,548 | ) | |||||||||||
Gains or losses on transactions involving treasury shares and other equity instruments | — | 34,093 | — | (60,334 | ) | — | (626 | ) | — | (26,867 | ) | |||||||||||
Profit for the year | — | — | 3,806,425 | — | — | — | (1,166,644 | ) | 2,639,781 | |||||||||||||
Dividends paid to minority shareholders | — | — | — | — | — | (55,010 | ) | — | (55,010 | ) | ||||||||||||
Changes in the composition of the Group | — | — | — | — | — | (7,612 | ) | — | (7,612 | ) | ||||||||||||
Exchange differences | — | — | — | — | 583,152 | 42,750 | — | 625,902 | ||||||||||||||
Share of minority interests in profit for the year | — | — | — | — | — | 264,147 | — | 264,147 | ||||||||||||||
Other | — | (58,447 | ) | — | — | — | (2,955 | ) | — | (61,402 | ) | |||||||||||
Balance at end of year | 1,661,518 | 8,830,548 | 3,806,425 | (96,180 | ) | 3,294,955 | 971,490 | (1,166,644 | ) | 17,302,112 | ||||||||||||
(*) | See change in net consolidated equity |
Thousands of euros | Thousands of Euros | |||||||||||||||||||||||||||||||||||||||||||||
2004 | Share Capital | Reserves | Profit for the Year | Treasury Shares and Other Equity Instruments | Valuation Adjustments | Minority Interests | Interim Dividends | Total Equity | Share Capital (Note 32) | Reserves (Note 33 y 34) | Profit for the year | Treasury shares and other equity instruments (Note 35) | Valuation Adjustments (*) | Minority Interest (Note 30) | Interim Dividends (Note 5) | Total Equity | ||||||||||||||||||||||||||||||
Balances at January 1, 2004 | 1,565,968 | 5,780,075 | 2,226,701 | (82,001 | ) | 1,691,325 | 1,917,164 | (859,896 | ) | 12,239,336 | ||||||||||||||||||||||||||||||||||||
Balance at beginning of year | 1,565,968 | 5,780,075 | 2,226,701 | (82,001 | ) | 1,691,325 | 1,917,164 | (859,896 | ) | 12,239,336 | ||||||||||||||||||||||||||||||||||||
Valuation adjustments | — | — | — | — | 604,032 | 9,154 | — | 613,186 | — | — | — | — | 604,032 | 9,154 | — | 613,186 | ||||||||||||||||||||||||||||||
Distribution of prior years’ profit | — | 977,264 | (977,264 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Dsitribution of prior Years’ profit | — | 977,264 | (977,264 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Dividends | — | — | (1,249,437 | ) | — | — | (48,621 | ) | 859,896 | (438,162 | ) | — | — | (1,249,437 | ) | — | — | (48,621 | ) | 859,896 | (438,162 | ) | ||||||||||||||||||||||||
Gains or losses on transactions involving treasury shares and other equity instruments | — | — | — | 46,155 | — | — | — | 46,155 | — | — | — | 46,155 | — | — | — | 46,155 | ||||||||||||||||||||||||||||||
Profit for the year | — | — | 2,922,596 | — | — | — | (1,015,195 | ) | 1,907,401 | — | — | 2,922,596 | — | — | — | (1,015,195 | ) | 1,907,401 | ||||||||||||||||||||||||||||
Capital increases and reductions | 95,550 | 1,903,200 | — | — | — | 11,556 | — | 2,010,306 | 95,550 | 1,903,200 | — | — | — | — | — | 2,010,306 | ||||||||||||||||||||||||||||||
Dividends paid to minority shareholders | — | — | — | — | — | (63,074 | ) | — | (63,074 | ) | — | — | ��� | — | — | (63,074 | ) | — | (63,074 | ) | ||||||||||||||||||||||||||
Changes in the composition of the Group | — | (1,375,898 | ) | — | — | — | (1,224,655 | ) | — | (2,600,553 | ) | — | (1,375,898 | ) | — | — | — | (1,224,655 | ) | — | (2,600,553 | ) | ||||||||||||||||||||||||
Exchange differences | — | — | — | — | (188,443 | ) | 23,716 | — | (164,727 | ) | — | — | — | — | (188,443 | ) | 23,716 | — | (164,727 | ) | ||||||||||||||||||||||||||
Share of minority interests in profit for the year | — | — | — | — | — | 185,613 | — | 185,613 | — | — | — | — | — | 185,613 | — | 185,613 | ||||||||||||||||||||||||||||||
Other | — | 143,096 | — | — | — | (73,314 | ) | — | 69,782 | — | 143,096 | — | — | — | (61,758 | ) | — | 69,782 | ||||||||||||||||||||||||||||
Balances at 31 December 2004 | 1,661,518 | 7,427,737 | 2,922,596 | (35,846 | ) | 2,106,914 | 737,539 | (1,015,195 | ) | 13,805,263 | ||||||||||||||||||||||||||||||||||||
Balance at end of year | 1,661,518 | 7,427,737 | 2,922,596 | (35,846 | ) | 2,106,914 | 737,539 | (1,015,195 | ) | 13,805,263 | ||||||||||||||||||||||||||||||||||||
(*) | See change in net consolidated equity |
31. Capital stock32.CAPITAL STOCK
AtAs of December 31, 2005,2006, the capital of Banco Bilbao Vizcaya Argentaria, S.A. amounted to EUR 1,661,517,501.07,€1,740,464,869.29, and consisted of 3,390,852,0433,551,969,121 fully subscribed and paid registered shares of EUR 0.49€0.49 par value each.
ThereAll the shares of BBVA carry the same voting and dividend rights and no single shareholder enjoys special voting rights.
All the shares represent an interest in the Bank’s capital.
In November 2006 capital was increased through the issuance of 161,117,078 new shares with a par value of €0.49 each and a share premium of €18.13 per share. In 2005 there were no variations in capital in the year from January 1 and December 31, 2005.share capital. In February 2004 as a result of the tender offer launched on 40.6% of the capital stock of BBVA Bancomer, S.A., capital was increased through the issuance of 195,000,000 shares, with a price per share of €10.25 (consisting of a par value of €0.49 and additional paid-in capital of €9.76).
The shares of Banco Bilbao Vizcaya Argentaria, S.A. are quoted on the computerized trading system of the Spanish stock exchanges and on the New York, Frankfurt, London, Zurich, Milan and MilanMexico stock markets, and on 19 August 2005 were admitted for listingmarket.
American Depositary Shares (ADSs) quoted in New York are also traded on the Mexican stock market.Lima (Peru) Stock Exchange, by virtue of an exchange agreement entered into between these two markets.
Also, atas of December 31, 2005,2006, the shares of BBVA Banco Continental, S.A., Banco Provincial C,A,A., BBVA Colombia, S.A., BBVA Chile, S.A., BBVA Banco Francés, S.A. and AFP Provida were quoted on their respective local stock markets and, in the case of the last two entities, on the New York Stock Exchange.
In addition, BBVA Banco Francés, S.A. is quotedlisted on the Latin-American market of the Madrid Stock Exchange.
On May 16, 2005, the BoardAs of Directors of BBVA Chile resolved to delist BBVA Chile from the New York Stock Exchange
At December 31, 2005,2006, no individual shareholder owned more than 5% of the capital of the Bank. However, at the date of filing of this registration document, Chase Nominees Ltd. And State Street Bank and Trust Co., in their capacity as international depositary banks, held more than 5%.
BBVA is not aware of any direct or indirect interests through which ownership or control of the Bank may be exercised.
BBVA has not been notified of the existence of any side agreements that regulate the exercise of voting rights at the Bank’s General Meetings, or which restrict or place conditions upon the free transferability of BBVA shares. Neither is the Bank aware of any agreement that might result in changes in the control of the issuer.
The BBVA Group has not issued any convertible and/or exchangeable debentures or any warrants on BBVA shares.
At the Annual General Meeting celebrated on February 28, 2004 the shareholders resolved to delegate to the Board of Directors, in accordance with Article 153.1.b) of the Spanish Corporations Law, the power to increase capital, on one or several occasions, by a maximum par value equal to 50% of the Company’s subscribed and paid capital at the date of the resolution, i.e. EUR 830,758,750.54.€830,758,750.54. The legally stipulated year within which the directors can carry out this increase is five years. At December 31, 2005, the Board of Directors had not made use of this power.
At December 31, 2005, the resolutions adopted by the shareholders at the Annual General Meetings on March 1, 2003 and March 9, 2002 were still in force. These resolutions authorized the issuance of up to EUR 6,000 million of debentures convertible to and/or exchangeable for Bank shares and empowered the Board of Directors to issue, on one or several occasions, warrants on shares of the Company up to a maximum of EUR 1,500 million, fully or partially convertible to or exchangeable for Company shares. At December 31, 2005, no issues had been made under these authorisations.
At the BBVA Special General Meeting held on June 14, 2005 the shareholders resolved to increase the Bank’s capital by a par value of EUR 260,254,745.17 to cater for the consideration established in the tender offer for the acquisition of up to 2,655,660,664 ordinary shares of Banca Nazionale del Lavoro S.p.A. and delegated to the Board of Directors the power to carry out the capital increase within a maximum year of one year from the date of the resolution. At December 31, 2005, this capital increase had not taken place.
In addition to the aforementioned resolutions, at the Annual General Meetings held in February 20042005 and in February 2005,2004, the shareholders authorized the Board of Directors, for a year of five years, to issue fixed-income securities of any class or type, up to a maximum of EUR 121,750€121,750 million.
AtAs of December 31, 2005,2006, there were no significant capital increases in progress at any of the Group companies.
32. Share premium33.SHARE PREMIUM
The balance of this heading in the consolidated balance sheet amounts to EUR 6,658,390€9,579,443 thousand and includes, inter alia, the amounts of the share premiums arising from the capital increases, andin particular the capital increase in 2006 for an amount of €2,921,053 thousand (see Note 31), as well as the surpluses arising from the merger of Banco Bilbao, S.A. and Banco Vizcaya, S.A., amounted to EUR 641,142 thousands.€641,142 thousand.
The revised Spanish Corporations Law expressly permits the use of the share premium balance to increase capital and establishes no specific restrictions as to its use.
The breakdown of the balance of this heading in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | |||||
2005 | 2004 | ||||
Legal reserve | 332,303 | 313,194 | |||
Restricted reserve for retired capital | 87,918 | 87,918 | |||
Restricted reserve for Parent Company shares | 356,821 | 20,826 | |||
Restricted reserve for redenomination of capital in euros | 1,861 | 1,861 | |||
Revaluation Royal Decree-Law 7/1996 | 176,281 | 176,281 | |||
Voluntary reserves | 1,046,670 | 1,277,638 | |||
Consolidation reserves attributed to the Bank and dependents companies | 170,163 | (1,132,584 | ) | ||
Total | 2,172,158 | 745,134 | |||
Legal reserve Restricted reserve for retired capital Restricted reserve for Parent Company shares Restricted reserve for redenomination of capital in euros Revaluation Royal Decree-Law 7/1996 Voluntary reserves Consolidation reserves attributed to the Bank and dependents companies Total Thousands of Euros 2006 2005 2004 332,303 332,303 313,194 87,918 87,918 87,918 814,870 356,821 20,826 1,861 1,861 1,861 176,281 176,281 176,281 672,232 1,046,670 1,277,638 1,543,519 170,304 (1,132,584 ) 3,628,984 2,172,158 745,134
33.1.34.1. Legal reserve:
Under the revised Corporations Law, 10% of profit for each year must be transferred to the legal reserve until the balance of this reserve reaches 20% of capital. This limit had already been reached by Banco Bilbao Vizcaya Argentaria, S.A. atas of December 31, 2005.2006, after deliberation on the 2006 income application proposal (Note 5). The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased capital amount.
Except as mentioned above, until the legal reserve exceeds 20% of capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.
33.2.34.2. Restricted reserves:
Pursuant to the revised CorporationsConsolidated Spanish Companies Law, the respective restricted reserves were recorded in relation to the reduction of the par value of each share in April 2000, the treasury shares held by the bank at each year-end, and the customer loans outstanding at those dates that were granted for the purchase of, or are secured by, Bank shares.
Pursuant to Law 46/1998 on the introduction of the euro, the respective restricted reserves were recorded in relation to treasury shares held by the Group, customer loans secured by Bank shares, the reduction of the par value of each share in April 2000 and the redenomination of capital in euros.
33.3. Revaluation Royal Decree-Law34.3. REVALUATION ROYAL DECREE-LAW 7/1996 (Asset revaluations)(ASSETREVALUATIONS):
Prior to the merger, Banco de Bilbao, S.A. and Banco de Vizcaya, S.A. availed themselves of the asset revaluation provisions of the applicable enabling legislation. In addition, on December 31, 1996, the Bank revalued its tangible assets pursuant to Royal Decree-Law 7/1996 by applying the maximum coefficients authorized, up to the limit of the market value arising from the existing measurements. The resulting increases in the cost and accumulated depreciation of tangible assets and, where appropriate, in the cost of equity securities, were allocated as follows:
Thousands of | |||
| |||
Legal revaluations of tangible assets: | |||
Cost | 186,692 | ||
Less - | |||
Single revaluation tax (3%) | (5,601 | ) | |
Balance | 181,091 | ||
Adjustment as a result of review by the tax authorities in 2000 | (4,810 | ) | |
Total | 176,281 | ||
Following the review of the balance of the account Revaluation Reserve Royal Decree-Law 7/1996 by the tax authorities in 2000, this balance can only be used, free of tax, to offset recorded losses and to increase capital throughuntil January 1, 2007. From that date, the remaining balance of this account can also be taken to unrestricted reserves, provided that the surplus has been depreciated or the revaluedrevalue assets have been transferred or derecognised. If this balance were used in a manner other than that described above, it would be subject to tax.
33.4 Reserves and losses at consolidated companies:34.4 RESERVESANDLOSSESATCONSOLIDATEDCOMPANIES:
The breakdown, by company or corporate group, of the balances of these headings in the accompanying consolidated balance sheets is as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Fully and proportionately consolidated companies: | 5,382,488 | 4,102,068 | ||||
BBVA Bancomer Group | 2,228,304 | 1,752,690 | ||||
BBVA Continental Group | 84,936 | 66,868 | ||||
Provida Group | 231,836 | 235,555 | ||||
BBVA Colombia Group | 181,438 | 159,783 | ||||
BBVA Banco Francés Group | 367,701 | 338,750 | ||||
BBVA Chile Group | (2,849 | ) | 1,439 | |||
BBVA Banco Provincial Group | 146,566 | 102,756 | ||||
Banco Bilbao Vizcaya Argentaria Uruguay, S.A. | (464 | ) | 2,538 | |||
BBVA International Investment Corporation | (432,772 | ) | (423,816 | ) | ||
Banc International D’Andorra, S.A. | 141,733 | 103,257 | ||||
Banco Bilbao Vizcaya Argentaria (Portugal), S.A. | (100,472 | ) | (106,397 | ) | ||
Banco Bilbao Vizcaya Argentaria Puerto Rico | 183,272 | 168,651 | ||||
BBVA Suiza (BBVA Switzerland) | 145,860 | 121,679 | ||||
BBVA Seguros, S.A. | 230,428 | 70,024 | ||||
Finanzia, Banco de Crédito, S.A. | 71,880 | 61,212 | ||||
Banco Industrial de Bilbao, S.A. | 87,067 | 85,101 | ||||
BBVA Privanza Bank (Jersey), Ltd. | 66,957 | 64,787 | ||||
BBVA Luxinvest, S,A | 699,585 | 688,489 | ||||
Cartera e Inversiones S.A., Cia, De | 238,309 | 44,361 | ||||
Corporación General Financiera, S.A. | 458,307 | 393,429 | ||||
Corporación Industrial y Servicios, S.L. | 27,948 | 110,150 | ||||
Cidessa UNO, S.L. | 67,362 | 71,002 | ||||
BBVA Ireland, P.L.C. | 71,071 | 61,917 | ||||
Bilbao Vizcaya América B,V, | (266,936 | ) | (217,321 | ) | ||
BBVA Cartera de Inversiones | 58,220 | 56,405 | ||||
Anida Grupo Inmobiliario | 189,292 | 184,575 | ||||
BBVA Pensiones Chile, S.A. | 13,139 | (53,619 | ) | |||
Compañía Chilena de Inversiones | (61,423 | ) | (68,710 | ) | ||
BBVA Puerto Rico Holding Corporation | (165,288 | ) | (165,264 | ) | ||
SEAF, Sociedad de Estudios y Análisis Financieros S,A | 59,648 | 59,129 | ||||
BBV América,S.L. | 247,958 | 161,748 | ||||
Bilbao Vizcaya Holding, S.A. | 24,096 | 9,269 | ||||
BBVA Renting, S.A. | 49,557 | 38,715 | ||||
Corporación Alimentación y Bebidas, S.A. | 18,532 | 10,470 | ||||
BBVA Factoring E,F,C, S.A. | 44,576 | 33,441 | ||||
BBVA Patrimonios Gestora, SGIIC, S.A. | 19,447 | 10,609 | ||||
Almacenes Generales de Depósitos, S.A.E, DE | 82,195 | 26,175 | ||||
Banco,de Crédito Local, S.A. | (263,601 | ) | (267,153 | ) | ||
BBVA Participaciones Internacional, S.L. | 42,829 | 37,726 | ||||
Anida Desarrollos Inmobilarios ,S.L. | 22,427 | (37,731 | ) | |||
Ibertrade, LTD. | (53,960 | ) | (41,948 | ) | ||
Other | 127,777 | 151,327 | ||||
Companies accounted for using the equity method: | 238,915 | 300,941 | ||||
Onexa, S.A. De C.V. | (324 | ) | (21,006 | ) | ||
Banca Nazionale de Lavoro, S.p.A. | (124,882 | ) | 66,084 | |||
Corporación IBV Participaciones Empresariales, S.A. | 298,098 | 197,603 | ||||
Tubos Reunidos, S.A. | 49,653 | 47,964 | ||||
Other | 16,370 | 10,296 | ||||
Total | 5,621,403 | 4,403,009 | ||||
Thousands of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Fully and proportionately consolidated companies | 6,926,696 | 5,382,488 | 4,102,068 | ||||||
Grupo BBVA Bancomer | 2,911,082 | 2,228,304 | 1,752,690 | ||||||
Grupo BBVA Cotinental | 94,727 | 84,936 | 66,868 | ||||||
Grupo Provida | 259,236 | 231,836 | 235,555 | ||||||
Grupo BBVA Colombia | 235,725 | 181,438 | 159,783 | ||||||
Grupo BBVA Banco Francés | 578,527 | 367,701 | 338,750 | ||||||
Grupo BBVA Chile | 3,398 | (2,849 | ) | 1,439 | |||||
Grupo BBVA Banco Provincial | 199,074 | 146,566 | 102,756 | ||||||
Grupo Laredo | (12,971 | ) | — | — | |||||
Grupo BBVA Uruguay, S.A. | (2,615 | ) | (464 | ) | 2,538 | ||||
BBVA International Investment Corporation | (425,719 | ) | (432,772 | ) | (423,816 | ) | |||
Banc Internacional d’Andorra, S.A. | — | 141,733 | 103,257 | ||||||
Ancla Investments S.A. | — | 10,850 | 5,813 | ||||||
Grupo BBVA Portugal, S.A. | (105,362 | ) | (100,472 | ) | (106,397 | ) | |||
Grupo BBVA Puerto Rico | 205,161 | 183,272 | 168,651 | ||||||
BBVA Suiza (BBVA Switzerland) | 171,366 | 145,860 | 121,679 | ||||||
BBVA Seguros, S.A. | 485,794 | 230,428 | 70,024 | ||||||
Banco de Promoción de Negocios | 16,580 | 16,649 | 16,584 | ||||||
Finanzia, Banco de Crédito, S.A. | 105,673 | 71,880 | 61,212 | ||||||
Banco Industrial de Bilbao, S.A. | 31,982 | 87,067 | 85,101 | ||||||
Banco Depositario BBVA | (6,987 | ) | (12,907 | ) | (17,553 | ) | |||
BBVA Trade, S.A. | 19,283 | 14,793 | 6,740 | ||||||
BBVA Gestión, SGIIC., S.A. | (1,777 | ) | 8,223 | 16,137 |
BBVA Privanza Bank (Jersey), Ltd. BBVA Luxinvest, S.A. Cía. de Cartera e Inversiones, S.A. Corporación General Financiera, S.A. Corporación Industrial y Servicios, S.L. Cidessa UNO, S.L. BBVA Ireland, P.L.C. Bilbao Vizcaya América, B.V. BBVA Cartera de Inversiones, S.I.C.A.V., S.A. Anida Grupo Inmobiliario BBVA Pensiones, S.A. Compañía Chilena de Inversiones, S.L. BBVA Puerto Rico Holding Corporation SEAF, Sociedad de Estudios y Análisis Financieros, S.A. BBV América, S.L. Bilbao Vizcaya Holding, S.A. BBVA Renting, S.A. BBVA Factoring E.F.C., S.A. BBVA Patrimonios Gestora, SGIIC,S.A. Almacenes generales de Depósitos, S.A.E. DE Banco de Crédito Local, S.A. BBVA Participaciones Internacional, S.L. Anida Desarrollos Inmobiliarios, S.L. Ibertrade, Ltd. Other For using the equity method: Onexa, S.A. de C.V. Banca Nazionale del Lavoro, S.p.A. Corporación IBV Participaciones Empresariales, S.A. Part. Servired, Sdad. Civil Tubos Reunidos, S.A. Other Total 75,720 66,957 64,787 932,453 699,585 688,489 (34,360 ) 238,309 44,361 605,683 458,307 393,429 1,663 27,948 110,150 213,198 67,362 71,002 73,873 71,071 61,917 (230,645 ) (266,936 ) (217,321 ) 60,239 58,220 56,405 212,688 189,292 184,575 13,157 13,139 (53,619 ) (61,592 ) (61,423 ) (68,710 ) (165,328 ) (165,288 ) (165,264 ) 69,012 59,648 59,129 228,071 247,958 161,748 34,526 24,096 9,269 59,946 49,557 38,715 59,355 44,576 33,441 27,813 19,447 10,609 83,174 82,195 26,175 (269,090 ) (263,601 ) (267,153 ) 46,461 42,829 37,726 56,254 22,427 (37,731 ) (28,767 ) (53,960 ) (41,948 ) 101,015 108,701 134,076 223,329 238,915 300,941 — (324 ) (21,006 ) — (124,882 ) 66,084 176,131 298,098 197,603 8,273 8,308 7,946 54,519 49,653 47,964 (15,594 ) 8,062 2,350 7,150,025 5,621,403 4,403,009
For the purpose of allocating the reserves and accumulated losses at consolidated companies shown in the foregoing table, the transfers of reserves arising from the dividends paid and the writedowns or transactions between these companies are taken into account in the yearperiod in which they took place.
In the individual financial statements of the subsidiaries giving rise to the balances recorded under the heading Reserves“Reserves and Losses at Consolidated Companies—Fully and Proportionately Consolidated Companies” shown in the foregoing table, atas of December 31, 2006, 2005 and 2004, EUR 1,556,797€1,743,236 thousand, €1,556,797 thousand and EUR 1,162,989€1,162,989 thousand were treated as restricted reserves, all of which are reflected as restricted reserves for Parent Company shares.
34. Treasury shares35.TREASURY SHARES
In 2006, 2005 and 2004 the Group companies performed the following transactions involving Bank shares:
Number of Shares | Thousand of Euros | |||||
Balance at December 31, 2003 | 7,493,411 | 82,001 | ||||
+ Purchases | 277,652,703 | 3,213,465 | ||||
- Sales | (282,272,150 | ) | (3,266,937 | ) | ||
+/- Other | 7,317 | |||||
Balance at December 31, 2004 | 2,873,964 | 35,846 | ||||
+ Purchases | 279,496,037 | 3,839,510 | ||||
- Sales | (274,760,734 | ) | (3,756,669 | ) | ||
+/- Other | (5,976 | ) | ||||
Balance at December 31, 2005 | 7,609,267 | 112,711 | ||||
Balance of options sold on BBVA shares |
| (16,390 | ) | |||
TOTAL |
| 96,321 | ||||
Number of shares | Thousands of Euros | |||||
Balance as of January 1, 2004 | 7,493,411 | 82,001 | ||||
+ Purchases | 277,652,703 | 3,213,465 | ||||
- Sales | (282,272,150 | ) | (3,266,937 | ) | ||
+/- Other | — | 7,853 | ||||
- Derivatives over BBVA shares | — | (536 | ) | |||
Balance as of December 31, 2004 | 2,873,964 | 35,846 | ||||
+ Purchases | 279,496,037 | 3,839,510 | ||||
- Sales | (274,760,734 | ) | (3,756,669 | ) | ||
+/- Other | — | (5,976 | ) | |||
- Derivatives over BBVA shares | — | (16,390 | ) | |||
Balance as of December 31, 2005 | 7,609,267 | 96,321 | ||||
+ Purchases | 338,017,080 | 5,677,431 | ||||
- Sales | (337,319,748 | ) | (5,639,506 | ) | ||
+/- Other | (394 | ) | (1,361 | ) | ||
- Derivatives over BBVA shares | — | 14,373 | ||||
Balance as of December 31, 2006 | 8,306,205 | 147,258 | ||||
The average purchase price of the Bank’s shares in 20052006 was EUR 13.74€16.80 per share and the average selling price of the Bank’s shares in 20052006 was EUR 13.80€16.77 per share.
The net gains or losses on transactions with shares issued by the Bank were recognised in equity under the heading Reserves. At“Stockholders’ Equity-Reserves” of the consolidated balance sheet. As of December 31, 2005,2006, the gains on transactions involving treasury shares amounted to EUR 34,234€17,131 thousand.
The Bank and certain consolidated instrumentality companies held 8,306,205, 7,609,267 and 2,873,964 shares of Banco Bilbao Vizcaya Argentaria S.A. as of December 31, 2006, 2005 and 2004, respectively, representing 0.234%, 0.2244% and 0.0848% of share capital outstanding in 2006, 2005 and 2004, respectively. The carrying amount of these shares was €147 million, €96 million and €36 million as of December 31, 2006, 2005 and 2004, respectively. In 2006 the Group’s treasury shares ranged between a minimum of 0.020% and a maximum of 0.858% of share capital (between 0.07% and 0.66% in 2005 and between 0.08% and 0.58% in 2004).
DATE | ENTITY | Number of Shares | % CAPITAL | ||||
BBVA | 2,462,171 | 0.069 | % | ||||
Corporación General Financiera | 5,827,394 | 0.164 | % | ||||
Other | 16,640 | 0.000 | % | ||||
December 31, 2006 | Total | 8,306,205 | 0.234 | % | |||
BBVA | 3,099,470 | 0.091 | % | ||||
Corporación General Financiera | 4,420,015 | 0.130 | % | ||||
Other | 89,782 | 0.003 | % | ||||
December 31, 2005 | Total | 7,609,267 | 0.224 | % | |||
BBVA | 654,051 | 0.193 | % | ||||
Corporación General Financiera | 2,208,628 | 0.065 | % | ||||
Other | 11,285 | 0.000 | % | ||||
December 31, 2004 | Total | 2,873,964 | 0.258 | % | |||
35. Tax matters36.CAPITAL RATIO
Bank of Spain Circular 5/1993, of March 26, as amended by Bank of Spain Circular 2/2006, of June 30, implementing Law 13/1992, of June 1, on the capital and supervision on a consolidated basis of financial institutions, stipulates that consolidable groups of credit institutions must at all times have a capital ratio of no less than 8% of the weighted credit risk of their assets and liabilities, commitments and other memorandum items, and of no less than 8% of the exchange risk exposure of their net global foreign currency positions and of their weighted held-for-trading and derivatives positions.
The amounts used to calculate the capital ratio are as follows:
Millions of Euros | |||||||||
2006 | 2005 | 2004 | |||||||
Basic equity | 18,313 | 15,352 | 14,329 | ||||||
Additional equity | 12,344 | 7,520 | 6,726 | ||||||
Other deductions | (1,223 | ) | (2,023 | ) | (940 | ) | |||
Additional Capital due to mixed Group | 980 | 1,048 | 4 | ||||||
Total Equity | 30,414 | 21,897 | 20,119 | ||||||
Minimum equity required | 21,047 | 18,420 | 15,495 | ||||||
A) CONSOLIDATED TAX GROUP
Pursuant to current legislation, the Consolidated Tax Group includes Banco Bilbao Vizcaya Argentaria, S.A., as the Parent company, and the Spanish subsidiaries that meet the requirements provided for in Spanish legislation regulating the taxation of the consolidated profitsincome of corporate groups.
The Group’s other banks and subsidiaries file individual tax returns in accordance with the tax legislation in force in each country.
B) YEARSOPENFORREVIEWBYTHETAXAUTHORITIES
AtAs of December 31, 2006, 2005 and 2004, the Consolidated Tax Group had 2001 and subsequent years open for review by the tax authorities for the main taxes applicable to it.
In general, the other Spanish consolidated companies, except for those at which the statute-of-limitations year has been interrupted by the commencement of a tax audit, have the last four years open for review by the tax authorities for the main taxes applicable to them.
In 2005, as a result of the tax audit conducted by the tax authorities, tax assessments were issued against several Group companies for the years up to and including 2000, some of which were signed on a contested basis. After considering the temporary nature of certain of the items assessed, the amounts, if any, that might arise from these assessments were provisioned in full in at 2006 year-end.
Also, in 2005 and 2006, notification was received of the commencement of tax audits for 2001 to 2003 for the main taxes to which the Tax Group is subject. These tax audits had not been completed at 2006 year-end.
In view of the varying interpretations that can be made of the applicable tax legislation, the outcome of the tax audits of the open years that could be conducted by the tax authorities in the future could give rise to contingent tax liabilities which cannot be objectively quantified at the present time. However, the Banks’ Board of Directors and its tax advisers consider that the possibility of these contingent liabilities becoming actual liabilities is remote and, in any case, the tax charge which might arise therefromthere from would not materially affect the Group’s consolidated financial statements.
C) RECONCILIATION
The reconciliation of the corporation tax expense resulting from the application of the standard tax rate to the corporation tax expense recognised is as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Corporation tax at 35% | 1,957,114 | 1,447,894 | 2,460,618 | 1,957,114 | 1,447,894 | ||||||||||
Decreases due to permanent differences: | |||||||||||||||
Tax credits and tax relief at consolidated Companies | (360,446 | ) | (501,273 | ) | (352,679 | ) | (360,446 | ) | (501,273 | ) | |||||
Other items, net | 10,837 | 250,572 | |||||||||||||
Other items net | (150,611 | ) | 10,837 | 250,572 | |||||||||||
Net increases (decreases) due to temporary differences | (263,481 | ) | 80,231 | (38,047 | ) | (263,481 | ) | 80,231 | |||||||
Charge for income tax and other taxes | 1,344,024 | 1,277,424 | 1,919,281 | 1,344,024 | 1,277,424 | ||||||||||
Deferred tax assets and liabilities recorded (utilised) | 263,481 | (80,231 | ) | 38,047 | 263,481 | (80,231 | ) | ||||||||
Income tax and other taxes accrued in the year | 1,607,505 | 1,197,193 | 1,957,328 | 1,607,505 | 1,197,193 | ||||||||||
Adjustments to prior years’ income tax and other Taxes | (86,324 | ) | (168,562 | ) | |||||||||||
Adjustments to prior years’ income tax and other taxes | 101,973 | (86,324 | ) | (168,562 | ) | ||||||||||
Income tax and other taxes | 1,521,181 | 1,028,631 | 2,059,301 | 1,521,181 | 1,028,631 | ||||||||||
The effective tax rate is as follows:
Thousands of Euros | ||||||
2005 | 2004 | |||||
Consolidated Tax Group | 2,771,398 | 2,651,930 | ||||
Other Spanish entities | 56,277 | 54,593 | ||||
Foreign entities | 2,764,078 | 1,430,317 | ||||
5,591,753 | 4,136,840 | |||||
Income tax | 1,521,181 | 1,028,631 | ||||
Effective tax rate | 27,20 | % | 24,87 | % | ||
Consolidated Tax Group Other Spanish entities Foreign entities Income tax Effective tax rate Thousands of Euros 2006 2005 2004 3,376,315 2,771,398 2,651,930 102,236 56,277 54,593 3,551,785 2,764,078 1,430,317 7,030,336 5,591,753 4,136,840 2,059,301 1,521,181 1,028,631 29.29 % 27.20 % 24.87 %
d) Tax recognised in equityD) TAXRECOGNISEDINEQUITY
In addition to the income tax recognised in the consolidated income statements, in 2006, 2005 and 2004 the Group recognised the following amounts in consolidated equity:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Charges to equity | |||||||||||||||
Fixed-income portfolio | (179,245 | ) | (197,278 | ) | |||||||||||
Equity portfolio | (1,018,056 | ) | (881,992 | ) | |||||||||||
Debt securities | (290,853 | ) | (179,245 | ) | (197,278 | ) | |||||||||
Equity instruments | (1,105,495 | ) | (1,018,056 | ) | (881,992 | ) | |||||||||
Credits to equity | |||||||||||||||
Other | 55,796 | — | 40,824 | 55,796 | — | ||||||||||
Total | (1,141,505 | ) | (1,079,270 | ) | (1,355,524 | ) | (1,141,505 | ) | (1,079,270 | ) | |||||
e) Deferred taxesE) DEFERREDTAXES
The balance of the heading Tax Assets“Tax Assets” in the consolidated balance sheets includes the tax receivables relating to deferred tax assets; in turn, the balance of the heading Tax Liabilities“Tax Liabilities” includes the liability relating to the Group’s various deferred tax liabilities.
As a result of the tax reforms enacted in Spain in 2006, including, inter alia, the modification of the standard income tax rate, which was set at 32.5% for 2007 and at 30% for 2008 and subsequent years, Spanish companies have adjusted their deferred tax assets and liabilities on the basis of tax rates that are expected to apply when they are recovered or settled.
As of December 31, 2006 the Group has registered the effects of this regulation with charge to the heading “Income tax” (€379,656 thousand) in the consolidated income statement and the heading “Reserves” (€105,022 thousand) in the consolidated balance sheet and with credit to the heading “Valuation Adjustments” (€ 200,607 thousand) in the consolidated balance sheet.
The detail of these balances is as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Deferred tax assets: | 6,420,745 | 5,590,696 | 5,278,197 | 6,420,745 | 5,590,696 | ||||||||||
Of which: | |||||||||||||||
Pensions commitments | 1,645,126 | 1,289,825 | 1,639,834 | 1,645,126 | 1,289,825 | ||||||||||
Portfolio | 1,129,248 | 1,196,557 | |||||||||||||
Securities | 672,289 | 1,129,248 | 1,196,557 | ||||||||||||
Loan loss provisions | 1,195,382 | 1,431,655 | 1,464,314 | 1,195,382 | 1,431,655 | ||||||||||
Tax losses and other | 1,300,780 | 1,657,077 | 926,960 | 1,300,780 | 1,657,077 | ||||||||||
Deferred tax liabilities: | 2,100,023 | 1,620,795 | 2,369,166 | 2,100,023 | 1,620,795 | ||||||||||
Of which: | |||||||||||||||
Free depreciation and other | (1,218,567 | ) | (1,170,362 | ) | (1,769,252 | ) | (1,218,567 | ) | (1,170,362 | ) | |||||
f)F) Tax assessments issued toASSESSMENTSISSUEDTO BBVA Seguros,SEGUROS, S.A. and Senorte Vida y Pensiones,AND SENORTE VIDAY PENSIONES, S.A
In 1990, 1994 and 1995, tax assessments for 1986 to 1990 were issued to BBVA Seguros, S.A. (formerly Euroseguros, S.A.) and Senorte Vida y Pensiones, S.A. totalling EUR 88,066€88,066 thousand of principal and EUR 39,072€39,072 thousand of late-payment interest, plus EUR 66,057€66,057 thousand of penalties, after correction pursuant to the revised General Tax Law. The companies filed pleadings and appeals against the assessments and several administrative decisions and court rulings were handed down in 1997 through 2000. As a result of application of the criteria set forth in these court rulings, some of which have been appealed against by the Group and by the Spanish tax authorities, the tax debts would be reduced to EUR 50,677€50,677 thousand of principal and EUR 19,851€19,851 thousand of interest. In order to file these appeals, the Bank provided guarantees totalling EUR 97,876€97,876 thousand to the tax authorities. In 2003 further court rulings were handed down, which have been appealed against. However, the Bank’s directors and
legal advisers consider that, in any case, the possible effects of these rulings would not materially affect the consolidated financial statements and, additionally, in accordance with the accounting principle of prudence, adequate provisions have been recorded therefor.therefore. Lastly, in 2005 the check relating to Senorte Vida y Pensiones was completed with no material effect on the Group.
36. Residual maturity of transactions38. RESIDUAL MATURITY OF TRANSACTIONS
Following is aA detail, by maturity, of the balances of certain headings in the consolidated balance sheets atas of December 31, 2005:2006, disregarding valuation adjustments, is as follows:
Thousand of euros | ||||||||||||||
Total | Demand | Up to 1 Month | 1 to 3 3 Months | 3 to 12 Months | 1 to 5 Years | Over 5 Years | ||||||||
ASSETS - | ||||||||||||||
Cash and balances with central banks | 12,341,317 | 2,408,841 | 9,932,476 | — | — | — | — | |||||||
Loans and receivables: | ||||||||||||||
Of Which: | ||||||||||||||
Loans and advances to credit Institutions | 27,470,224 | 920,809 | 14,406,234 | 7,074,788 | 3,600,686 | 1,255,227 | 212,480 | |||||||
Loans and advances to other debtors | 216,850,480 | 1,957,316 | 20,319,977 | 19,169,107 | 32,436,869 | 56,711,286 | 86,255,924 | |||||||
Other financial assets | 2,784,054 | 2,784,054 | — | — | — | — | — | |||||||
Fixed income portfolio | 81,726,639 | — | 2,630,394 | 5,260,788 | 18,341,691 | 32,144,671 | 23,349,094 | |||||||
LIABILITIES - | ||||||||||||||
Financial liabilities at amortised cost: | ||||||||||||||
Deposits from central banks | 21,189,193 | 11,872,272 | 9,316,921 | — | — | — | — | |||||||
Deposits from credit institutions | 45,125,943 | 5,095,717 | 25,207,663 | 9,072,826 | 3,280,331 | 1,959,966 | 509,441 | |||||||
Money market operations through Counterparties | 23,252 | — | 23,252 | — | — | — | — | |||||||
Deposits from other creditors | 182,635,181 | 83,166,800 | 34,282,998 | 8,893,767 | 9,625,098 | 46,127,859 | 538,659 | |||||||
Debt certificates including bonds | 62,841,755 | — | 5,977,138 | 29,117,419 | 2,708,442 | 16,326,244 | 8,712,512 | |||||||
Subordinated liabilities | 13,723,232 | — | — | 628,459 | 510,270 | 947,181 | 11,637,352 | |||||||
Other financial liabilities | 3,966,664 | 3,966,664 | — | — | — | — | — |
Thousands of Euros | ||||||||||||||
2006 | Total | Demand | Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | |||||||
ASSETS - | ||||||||||||||
Cash and balances with central banks | 12,496,394 | 12,445,976 | 49,978 | — | 275 | — | 165 | |||||||
Loans and advances to credit institutions | 16,990,185 | 2,210,723 | 8,622,454 | 1,229,446 | 2,064,912 | 2,241,461 | 621,189 | |||||||
Loans and advances to other debtors | 262,373,937 | 1,816,980 | 22,812,143 | 21,553,498 | 37,291,557 | 71,381,946 | 107,517,813 | |||||||
Money market operations through counterparties | 100,052 | — | 100,052 | — | — | — | — | |||||||
Debt securities | 68,593,407 | 379,463 | 1,273,263 | 16,223,863 | 7,077,518 | 16,482,273 | 27,157,027 | |||||||
Other assets | 6,076,462 | 3,596,968 | 985,798 | 59,721 | 145,530 | 1,282,103 | 6,342 | |||||||
OTC derivatives | 10,300,483 | — | 314,304 | 331,390 | 704,215 | 3,130,358 | 5,820,216 | |||||||
LIABILITIES- | ||||||||||||||
Deposits from central banks | 15,191,117 | 1,802,152 | 11,040,714 | 1,850,162 | 498,089 | — | — | |||||||
Deposits from credit institutions | 42,285,705 | 2,529,383 | 22,017,266 | 5,267,898 | 5,967,747 | 4,460,057 | 2,043,354 | |||||||
Money market operations through counterparties | 223,393 | — | 223,000 | — | — | 393 | — | |||||||
Deposits from other creditors | 191,660,412 | 81,106,847 | 48,362,407 | 12,888,611 | 17,177,776 | 29,354,181 | 2,770,590 | |||||||
Debt certificates (including bonds) | 76,860,587 | 179 | 3,551,101 | 2,469,899 | 9,223,318 | 39,993,783 | 21,622,307 | |||||||
Subordinated liabilities | 13,410,349 | — | — | 559,675 | 631,214 | 3,434,905 | 8,784,555 | |||||||
Other financial liabilities | 6,771,925 | 4,551,644 | 1,596,472 | 262,410 | 210,385 | 146,939 | 4,075 | |||||||
OTC derivatives | 11,628,687 | — | 222,770 | 439,410 | 1,002,044 | 5,468,474 | 4,495,989 | |||||||
37. Fair value of assets and liabilities39. FAIR VALUE OF ASSETS AND LIABILITIES
Following is a comparison of the carrying amounts of the Group’s financial assets and liabilities and their respective fair values at year-end:year-end 2006, 2005 and 2004:
2005 Thousand of euros | Book value | Fair Value | ||
Assets | ||||
CASH AND BALANCES WITH CENTRAL BANKS | 12,341,317 | 12,341,317 | ||
FINANCIAL ASSETS HELD FOR TRADING | 44,011,781 | 44,011,781 | ||
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS | 1,421,253 | 1,421,253 | ||
AVAILABLE-FOR-SALE FINANCIAL ASSETS | 60,033,988 | 60,033,988 | ||
LOANS AND RECEIVABLES | 249,396,647 | 249,514,581 | ||
HELD-TO-MATURITY INVESTMENTS | 3,959,265 | 4,035,248 | ||
HEDGING DERIVATIVES | 3,912,696 | 3,912,696 | ||
Liabilities | ||||
FINANCIAL LIABILITIES HELD FOR TRADING | 16,270,865 | 16,270,865 | ||
OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | 740,088 | 740,088 | ||
FINANCIAL LIABILITIES AT AMORTISED COST | 329,505,250 | 323,015,482 | ||
HEDGING DERIVATIVES | 2,870,086 | 2,870,086 |
Thousands of Euros | ||||
2006 | Book value | Fair value | ||
Assets | ||||
Cash and balances with central banks | 12,515,122 | 12,515,122 | ||
Financial assets held for trading | 51,835,109 | 51,835,109 | ||
Other financial assets at fair value through profit or loss | 977,114 | 977,114 | ||
Available-for-sale financial assets | 42,266,774 | 42,266,774 | ||
Loans and receivables | 279,855,259 | 287,590,187 | ||
Held-to-maturity investments | 5,905,636 | 5,757,246 | ||
Hedging derivatives | 1,963,320 | 1,963,320 | ||
Liabilities | ||||
Financial liabilities held for trading | 14,923,534 | 14,923,534 | ||
Other financial liabilities at fair value through profit or loss | 582,537 | 582,537 | ||
Financial liabilities at amortised cost | 348,444,532 | 347,557,024 | ||
Hedging derivatives | 2,279,740 | 2,279,740 |
2004 Thousand of euros Assets CASH AND BALANCES WITH CENTRAL BANKS FINANCIAL ASSETS HELD FOR TRADING OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS AVAILABLE-FOR-SALE FINANCIAL ASSETS LOANS AND RECEIVABLES HELD-TO-MATURITY INVESTMENTS HEDGING DERIVATIVES Liabilities FINANCIAL LIABILITIES HELD FOR TRADING OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS FINANCIAL LIABILITIES AT AMORTISED COST HEDGING DERIVATIVES 2005 Assets Cash and balances with central banks Financial assets held for trading Other financial assets at fair value through profit or loss Available-for-sale financial assets Loans and receivables Held-to-maturity investments Hedging derivatives Liabilities Financial liabilities held for trading Other financial liabilities at fair value through profit or loss Financial liabilities at amortised cost Hedging derivatives Book value Fair Value 10,123,090 10,123,090 47,036,060 47,036,060 1,059,490 1,059,490 53,003,545 53,003,545 196,892,203 197,226,006 2,221,502 2,264,421 4,723,450 4,723,450 14,134,413 16,270,865 834,350 740,088 275,583,527 274,821,153 3,131,572 3,131,572 Thousands of Euros Book value Fair value 12,341,317 12,341,317 44,011,781 44,011,781 1,421,253 1,421,253 60,033,988 60,033,988 249,396,647 249,514,581 3,959,265 4,035,248 3,912,696 3,912,696 16,270,865 16,270,865 740,088 740,088 329,505,250 323,015,482 2,870,086 2,870,086
Thousands of Euros | ||||
2004 | Book value | Fair value | ||
Assets | ||||
Cash and balances with central banks | 10,123,090 | 10,123,090 | ||
Financial assets held for trading | 47,036,060 | 47,036,060 | ||
Other financial assets at fair value through profit or loss | 1,059,490 | 1,059,490 | ||
Available-for-sale financial assets | 53,003,545 | 53,003,545 | ||
Loans and receivables | 196,892,203 | 197,226,006 | ||
Held-to-maturity investments | 2,221,502 | 2,264,421 | ||
Hedging derivatives | 4,723,450 | 4,723,450 | ||
Liabilities | ||||
Financial liabilities held for trading | 14,134,413 | 14,134,413 | ||
Other financial liabilities at fair value through profit or loss | 834,350 | 834,350 | ||
Financial liabilities at amortised cost | 275,583,527 | 274,821,153 | ||
Hedging derivatives | 3,131,572 | 3,131,572 | ||
The fair value of “Cash and drawableBalances with Central Banks” is the same that the book value because it is short-terms operations. The fair value of the “Held-to-Maturity Investments” corresponds with the quoted market price. The fair value of “Loans and Receivables” and “Financial Liabilities at Amortised Cost” was estimated by third partiesdiscounting the expected cash flows using the markets interest rates at each year-end.
40. | FINANCIAL GUARANTEES AND DRAWABLE BY THIRD PARTIES |
The memorandum items Contingent Exposures“Contingent Exposures” and Contingent Commitments“Contingent Commitments” in the consolidated balance sheets include the amounts that would be payable by the consolidated entities on behalf of third parties if the parties originally obliged to pay fail to do so, in connection with the commitments assumed by those entities in the course of their ordinary business.
The breakdown of the balances of these items atas of December 31, 2006, 2005 and 2004 is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Contingent exposures- | 29,861,597 | 21,557,649 | ||||||||
Contingent exposures - | ||||||||||
Collateral, bank guarantees and indemnities | 25,789,616 | 17,573,555 | 37,001,563 | 25,789,616 | 17,573,555 | |||||
Rediscounts, endorsements and acceptances | 41,742 | 38,921 | 43,641 | 41,742 | 38,921 | |||||
Other | 4,030,239 | 3,945,173 | 5,235,494 | 4,030,239 | 3,945,173 | |||||
Contingent Commitments- | 89,498,392 | 66,762,402 | ||||||||
42,280,698 | 29,861,597 | 21,557,649 | ||||||||
Contingent commitments - | ||||||||||
Drawable by third parties: | 85,001,452 | 60,716,878 | 98,226,297 | 85,001,452 | 60,716,878 | |||||
Credit institutions | 2,816,351 | 2,665,031 | 4,355,567 | 2,816,351 | 2,665,031 | |||||
General government sector | 3,127,773 | 1,637,821 | 3,122,379 | 3,127,773 | 1,637,821 | |||||
Other resident sectors | 36,062,799 | 29,617,468 | 43,730,259 | 36,062,799 | 29,617,468 | |||||
Non-resident sector | 42,994,529 | 26,796,558 | 47,018,092 | 42,994,529 | 26,796,558 | |||||
Other commitments | 4,496,940 | 6,045,524 | 4,994,856 | 4,496,940 | 6,045,524 | |||||
Total | 119,359,989 | 88,320,051 | ||||||||
103,221,153 | 89,498,392 | 66,762,402 | ||||||||
Since a significant portion of these amounts will reach maturity without any payment obligation materializing for the consolidated companies, the aggregate balance of these commitments cannot be considered as an actual future requirement for financing or liquidity to be provided by the Group to third parties.
Income from the guarantee instruments is recorded under the heading Fee“Fee and Commission IncomeIncome” in the consolidated income statement and is calculated by applying the rate established in the related contract to the nominal amount of the guarantee.guarantee (see Note 47).
39. Assets assigned to other own and third-party obligations41. ASSETS ASSIGNED TO OTHER OWN AND THIRD-PARTY OBLIGATIONS
AtAs of December 31, 2006, 2005 and 2004, the face amount of the assets owned by the consolidated entities pledged as security for own transactions, amounted to €45,774,143 thousand, €64,440,394 thousand and €52,768,086 thousand, respectively, and related basically to the pledge of certain assets as security for financing liabilities with the Bank of Spain and to a portion of the assets asignedassigned to mortgage bond issues, which pursuant to the Mortgage Market Law are admitted as security for obligation to third parties.
AtAs of December 31, 2006 and 2005, there arewere no assets assigned to third-party obligations. AtAs of December 31, 2004, the balance of this caption amounted to €5,215 thosand.thousand.
40. Other contingent assets42. OTHER CONTINGENT ASSETS
As of December 31, 2006, 2005 and 2004, there are notwere no significant contingent assets registered in the consolidated financial statements attached.
41 Purchase and sale commitments43. PURCHASE AND SALE COMMITMENTS
The financial instruments sold with a commitment to subsequently repurchase them are not derecognized from the consolidated balance sheets and the amount received from the sale is considered financing from third parties.
AtAs of December 31, 2006, 2005 and 2004, the consolidated entities had sold financial assets totalling EUR 48,311,628€36,139,119 thousand, €48,311,628 thousand and EUR 37,836,241€37,836,241 thousand, respectively, with a commitment to subsequently repurchase them, and had purchased financial assets totalling EUR 13,636,016€7,017,393 thousand, €13,636,016 thousand and EUR 6,718,828€6,718,828 thousand, respectively, with a commitment to subsequently resell them.
Following is a breakdown of the maturity of future payment obligations from December 31, 2006:
Thousands of Euros | ||||||||||
Up to 1 year | 1 to 3 years | 3 to 5 years | Over 5 years | Total | ||||||
Financial leases | 82,967 | 1,148,436 | 1,051,899 | 5,314,864 | 7,598,166 | |||||
Operational leases | 133,754 | 386,871 | 144,294 | 502,217 | 1,167,136 | |||||
Purchase commitments | 22,518 | 501 | — | — | 23,019 | |||||
Technology and systems projects | 8,499 | — | — | — | 8,499 | |||||
Organizational projects | — | — | — | — | — | |||||
Other projects | 2,260 | — | — | — | 2,260 | |||||
Tangible assets acquisition | 11,759 | 501 | — | — | 12,260 | |||||
Credit institutions | 11,759 | 501 | — | — | 12,260 | |||||
Total | 239,239 | 1,535,808 | 1,196,193 | 5,817,081 | 8,788,321 | |||||
42. Transactions for the account of third parties44. TRANSACTIONS FOR THE ACCOUNT OF THIRD PARTIES
TheAs of December 31, 2006, 2005 and 2004, the detail of the most significant items composing this heading is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Financial instruments entrusted by third parties | 502,274,442 | 448,515,742 | 524,151,036 | 502,274,442 | 448,515,742 | |||||
Asset transfers | 7,055,351 | 4,069,224 | ||||||||
Asset transfers (see Note 14.3) | 10,114,096 | 7,055,351 | 4,069,224 | |||||||
Derecognised in full from the balance sheet | 1,587,209 | 2,096,440 | 1,058,132 | 1,587,209 | 2,096,440 | |||||
Retained in full on the balance sheet | 5,468,142 | 1,972,784 | 9,055,899 | 5,468,142 | 1,972,784 | |||||
Retained in part on the balance sheet | 65 | — | — | |||||||
Conditional bills and other securities received for collection | 3,765,253 | 3,879,312 | 3,640,337 | 3,765,253 | 3,879,312 | |||||
Off-balance-sheet customer funds | ||||||||||
Managed by the Group | 143,888,172 | 124,498,577 | ||||||||
- Investment companies and mutual funds | 59,002,787 | 51,040,176 | ||||||||
- Pension funds | 53,958,782 | 41,490,401 | ||||||||
Securities received in credit | 69,747 | — | — | |||||||
Off-balance-sheet customer funds Managed by the Group | 142,064,178 | 143,888,172 | 124,498,577 | |||||||
- Investment companies and mutual funds(*) | 58,452,427 | 59,002,787 | 51,040,176 | |||||||
- Pension funds(*) | 57,147,044 | 53,958,782 | 41,490,401 | |||||||
- Customer portfolios managed on a discretionary basis | 30,926,603 | 31,968,000 | 26,464,707 | 30,926,603 | 31,968,000 | |||||
Total | 656,983,218 | 581,227,053 | 680,039,394 | 656,983,218 | 580,962,855 | |||||
(*) Nearly all of the off balance sheet customer funds correspond to funds commercialised by the Group
43. Interest and similar income45. INTEREST INCOME AND EXPENSE AND SIMILAR ITEMS
45.1. INTERESTANDSIMILARINCOME
The breakdown of the most significant interest and similar income earned by the Group in 2006, 2005 and 2004 is as follows:
Thousands of Euros | |||||
2005 | 2004 | ||||
Central banks | 458,272 | 275,282 | |||
Loans and advances to credit institutions | 713,779 | 747,330 | |||
Loans and advances to other debtors: | 10,190,534 | 7,809,691 | |||
General government | 436,905 | 393,969 | |||
Resident sector | 4,852,472 | 4,298,604 | |||
Non-resident sector | 4,901,157 | 3,117,118 | |||
Debt securities | 3,624,304 | 3,310,590 | |||
Rectification of income as a result of hedging transactions | 530,136 | (31,843 | ) | ||
Other income | 330,649 | 241,288 | |||
Total | 15,847,674 | 12,352,338 | |||
Central Banks Loans and advances to credit institutions Loans and advances to other debtors General government Resident sector Non-resident sector Debt securities Rectification of income as a result of hedging transactions Other income Total Thousands of Euros 2006 2005 2004 444,177 458,272 275,282 957,670 713,779 747,330 13,598,673 10,190,534 7,809,691 538,818 436,905 393,969 6,394,199 4,852,472 4,298,604 6,665,656 4,901,157 3,117,118 3,196,493 3,624,304 3,310,590 684,410 530,136 (31,843 ) 328,811 330,649 241,288 19,210,234 15,847,674 12,352,338
44 Interest expense and similar charges45.2. INTERESTEXPENSEANDSIMILARCHARGES
The breakdown of the balance of this heading in the accompanying consolidated income statements is as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Bank of Spain and other central banks | 288,006 | 287,884 | 299,879 | 288,006 | 287,884 | ||||||||||
Deposits from credit institutions | 1,985,215 | 1,499,735 | 2,343,395 | 1,985,215 | 1,499,735 | ||||||||||
Deposits from other creditors | 4,070,843 | 2,962,928 | 5,038,002 | 4,070,843 | 2,962,928 | ||||||||||
Debt certificates (including bonds) | 2,454,517 | 1,913,658 | |||||||||||||
Debt certificates | 3,387,731 | 2,454,517 | 1,913,658 | ||||||||||||
Promissory notes, bills and debt securities | 1,898,396 | 1,374,631 | 2,820,536 | 1,898,396 | 1,374,631 | ||||||||||
Subordinated liabilities | 556,121 | 539,027 | 567,195 | 556,121 | 539,027 | ||||||||||
Rectification of expenses as a result of hedging transactions | (303,826 | ) | (546,747 | ) | (230,617 | ) | (303,826 | ) | (546,747 | ) | |||||
Cost attributable to pension funds (Note 2.f) | 255,370 | 210,342 | |||||||||||||
Cost attributable to pension funds (Note 29) | 254,548 | 255,370 | 210,342 | ||||||||||||
Other charges | 182,075 | 120,144 | 122,631 | 182,075 | 120,144 | ||||||||||
Total | 8,932,200 | 6,447,944 | 11,215,569 | 8,932,200 | 6,447,944 | ||||||||||
45.3. AVERAGESRETURNONINVENSTMENTSANDAVERAGEBORROWINGCOST
The detail of the average return on investments in 2006 and 2005 is as follows:
ASSETS | Thousands of Euros | |||||||||||
2006 | 2005 | |||||||||||
Average Balances | Income and Expenses | Interest Rates (%) | Average Balances | Income and Expenses | Interest Rates (%) | |||||||
Cash and balances with central banks | 11,902,549 | 444,177 | 3.73 | 10,493,669 | 458,272 | 4.37 | ||||||
Securities portfolio and derivatives | 103,386,608 | 4,155,734 | 4.02 | 116,372,745 | 4,328,062 | 3.72 | ||||||
Loans and advances to credit institutions | 23,671,225 | 991,397 | 4.19 | 20,599,821 | 767,267 | 3.72 | ||||||
Euros | 14,090,224 | 451,660 | 3.21 | 10,652,534 | 276,258 | 2.59 | ||||||
Foreign currency | 9,581,001 | 539,737 | 5.63 | 9,947,287 | 491,009 | 4.94 | ||||||
Loans and advances to customers | 232,791,867 | 13,800,243 | 5.93 | 192,920,262 | 10,404,017 | 5.39 | ||||||
Euros | 177,330,701 | 7,365,539 | 4.15 | 150,358,110 | 5,698,769 | 3.79 | ||||||
Foreign currency | 55,461,166 | 6,434,704 | 11.60 | 42,562,153 | 4,705,248 | 11.06 | ||||||
Other finance income | — | 198,156 | — | — | 182,551 | — | ||||||
Other assets | 24,197,741 | — | — | 23,668,878 | — | — | ||||||
ASSETS/FINANCE INCOME | 395,949,989 | 19,589,707 | 4.95 | 364,055,375 | 16,140,169 | 4.43 | ||||||
The average borrowing cost in 2006 and 2005 was as follows:
LIABILITIES | Thousands of Euros | |||||||||||
2006 | 2005 | |||||||||||
Average Balances | Income and Expenses | Interest Rates (%) | Average Balances | Income and Expenses | Interest Rates (%) | |||||||
Deposits from central banks and credit institutions | 63,730,498 | 2,420,401 | 3.80 | 64,804,285 | 2,175,694 | 3.36 | ||||||
Euros | 34,550,341 | 983,559 | 2.85 | 36,452,664 | 796,742 | 2.19 | ||||||
Foreign currency | 29,180,157 | 1,436,842 | 4.92 | 28,351,621 | 1,378,952 | 4.86 | ||||||
Customer deposits | 177,927,164 | 5,391,797 | 3.03 | 159,103,045 | 4,432,818 | 2.79 | ||||||
Euros | 99,148,191 | 1,736,101 | 1.75 | 87,418,240 | 1,077,653 | 1.23 | ||||||
Foreign currency | 78,778,973 | 3,655,696 | 4.64 | 71,684,805 | 3,355,165 | 4.68 | ||||||
Marketable securities and subordinated liabilities | 87,526,176 | 3,026,192 | 3.46 | 68,924,553 | 1,886,243 | 2.74 | ||||||
Euros | 77,482,812 | 2,506,358 | 3.23 | 64,188,180 | 1,573,252 | 2.45 | ||||||
Foreign currency | 10,043,364 | 519,834 | 5.18 | 4,736,371 | 312,991 | 6.61 | ||||||
Other finance expenses | — | 377,179 | — | — | 437,445 | — | ||||||
Other liabilities | 47,978,991 | — | — | 55,543,874 | — | — | ||||||
Equity | 18,787,160 | — | — | 15,679,619 | — | — | ||||||
LIABILITIES + EQUITY/ FINANCE EXPENSE | 395,949,989 | 11,215,569 | 2.83 | 364,055,375 | 8,932,200 | 2.45 | ||||||
The year-on-year changes (2006/2005) resulted from the price effect and the effect of the changes in business volume, as detailed below:
Thousands of Euros | |||||||||
Volume Price-Effect | |||||||||
Volume Effect (1) | Price Effect (2) | Total Effect | |||||||
Cash and balances with central banks | 61,528 | (75,623 | ) | (14,095 | ) | ||||
Securities portfolio and derivatives | (482,972 | ) | 310,644 | (172,328 | ) | ||||
Loans and advances to credit institutions | 114,398 | 109,732 | 224,130 | ||||||
Euros | 89,151 | 86,251 | 175,402 | ||||||
Foreign currency | (18,080 | ) | 66,808 | 48,728 | |||||
Loans and advances to customers | 2,150,240 | 1,245,986 | 3,396,226 | ||||||
Euros | 1,022,296 | 644,474 | 1,666,770 | ||||||
Foreign currency | 1,425,987 | 303,469 | 1,729,456 | ||||||
Other financial income | — | 15,605 | 15,605 | ||||||
FINANCE INCOME | 1,414,028 | 2,035,510 | 3,449,538 | ||||||
Deposits from central banks and credit institutions | (36,051 | ) | 280,758 | 244,707 | |||||
Euros | (41,579 | ) | 228,396 | 186,817 | |||||
Foreign currency | 40,298 | 17,592 | 57,890 | ||||||
Customer deposits | 524,464 | 434,515 | 958,979 | ||||||
Euros | 144,602 | 513,846 | 658,448 | ||||||
Foreign currency | 332,038 | (31,507 | ) | 300,531 | |||||
Marketable securities and subordinated liabilities | 509,067 | 630,882 | 1,139,949 | ||||||
Euros | 325,851 | 607,255 | 933,106 | ||||||
Foreign currency | 350,699 | (143,856 | ) | 206,843 | |||||
Other finance expense | — | (60,266 | ) | (60,266 | ) | ||||
FINANCE EXPENSE | 782,543 | 1,500,826 | 2,283,369 | ||||||
NET INTEREST INCOME | 631,485 | 534,684 | 1,166,169 | ||||||
(1) | The volume effect is calculated by multiplying the interest rate for the first year by the difference between the average balances for the two years. |
(2) | The price effect is calculated by multiplying the average balance for the second year by the difference between the interest rates for the two years. |
45. Income from equity instruments46. INCOME FROM EQUITY INSTRUMENTS
The amount recorded under this heading relates in full to dividends from other shares and equity instruments, which amounted to EUR 292,495 thousand at December 31, 2005 and EUR 255,146 thousand at December 31, 2004.instruments. The breakdown is as follows:
Thousands of Euros | ||||||
2006 | 2005 | 2004 | ||||
Dividends from other shares and other equity instrument | ||||||
Held for investment | 258,584 | 222,217 | 202,507 | |||
Held for trading | 120,889 | 70,278 | 52,639 | |||
Total | 379,473 | 292,495 | 255,146 | |||
46. Fee and commission income47.FEE AND COMMISSION INCOME
The breakdown of the balance of this heading in the accompanying consolidated statements of income is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Commitment fees | 50,130 | 40,875 | 55,951 | 50,130 | 40,875 | |||||
Contingent liabilities | 176,745 | 159,484 | 203,960 | 176,745 | 159,484 | |||||
Documentary credits | 31,418 | 26,875 | 33,272 | 31,418 | 26,875 | |||||
Bank and other guarantees | 145,327 | 132,609 | 170,688 | 145,327 | 132,609 | |||||
Arising from exchange of foreign currencies and banknotes | 17,752 | 16,589 | 19,993 | 17,752 | 16,589 | |||||
Collection and payment services | 2,018,500 | 1,732,119 | 2,274,436 | 2,018,500 | 1,732,119 | |||||
Securities services | 1,947,746 | 1,739,055 | 2,016,566 | 1,947,746 | 1,739,055 | |||||
Counselling on and management of one-off transactions | 16,423 | 14,906 | 14,410 | 16,423 | 14,906 | |||||
Financial and similar counselling services | 10,790 | 6,482 | 18,471 | 10,790 | 6,482 | |||||
Factoring transactions | 18,815 | 17,041 | 19,448 | 18,815 | 17,041 | |||||
Non-banking financial products sales | 40,424 | 46,388 | 79,426 | 40,424 | 46,388 | |||||
Other fees and commissions | 371,799 | 284,042 | 416,021 | 371,799 | 284,042 | |||||
Total | 4,669,124 | 4,056,981 | 5,118,682 | 4,669,124 | 4,056,981 | |||||
47 Fee and commission expenses48.FEE AND COMMISSION EXPENSES
The breakdown of the balance of this heading in the accompanying consolidated income statements is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Brokerage fees on lending and deposit transactions | 12,843 | 8,449 | 10,858 | 12,843 | 8,449 | |||||
Fees and commissions assigned to third parties | 519,302 | 429,884 | 560,369 | 519,302 | 429,884 | |||||
Other fees and commissions | 196,983 | 205,626 | 212,575 | 196,983 | 205,626 | |||||
Total | 729,128 | 643,959 | 783,802 | 729,128 | 643,959 | |||||
48 Insurance activity income49.INSURANCE ACTIVITY INCOME
This heading in the accompanying consolidated income statement reflects the contribution of the consolidated insurance and reinsurance companies to the Group’s gross income. The detail of the balance of this heading is as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Premium income | 2,916,831 | 2,062,030 | 2,483,999 | 2,916,831 | 2,062,030 | ||||||||||
Finance income | 904,318 | 708,901 | |||||||||||||
Reinsurance premiums paid | (63,403 | ) | (71,931 | ) | (44,167 | ) | (63,403 | ) | (71,931 | ) | |||||
Benefits paid and other insurance-related expenses | (1,785,514 | ) | (1,704,113 | ) | (1,538,896 | ) | (1,785,514 | ) | (1,704,113 | ) | |||||
Reinsurance Income | 75,953 | 44,228 | 8,534 | ||||||||||||
Net provisioning expense | (995,999 | ) | (1,274,283 | ) | (413,744 | ) | |||||||||
Finance increase | 968,057 | 904,318 | 708,901 | ||||||||||||
Finance expense | (255,254 | ) | (199,059 | ) | (298,516 | ) | (255,254 | ) | (199,059 | ) | |||||
Net provisioning expense | (1,274,283 | ) | (413,744 | ) | |||||||||||
Recoveries of insurance expenses and other revenues | 44,228 | 8,534 | |||||||||||||
Total | 486,923 | 390,618 | 650,431 | 486,923 | 390,618 | ||||||||||
Following is a breakdown of the balances of the insurance activity as of December 31, 2006, 2005 and 2004, distinguishing between “life” and “non-life” insurance:
Thousands of Euros | ||||||||||||||||||
2006 | 2005 | 2004 | ||||||||||||||||
Life | Non-Life | Total | Life | Non-Life | Total | Life | Non-Life | Total | ||||||||||
Premium income | 1,897,034 | 586,965 | 2,483,999 | 2,047,326 | 869,505 | 2,916,831 | 1,614,189 | 447,841 | 2,062,030 | |||||||||
49. Gains/Losses on financial assets and liabilities50.GAINS/LOSSES ON FINANCIAL ASSETS AND LIABILITIES
The detail of the balance of this heading in the accompanying consolidated income statements is as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Financial assets held for trading | 897,484 | 1,110,551 | 715,651 | 897,484 | 1,110,551 | ||||||||||
Financial assets at fair value through profit or loss | 33,022 | 1,296 | |||||||||||||
Available-for-sale financial assets | 428,560 | 974,412 | |||||||||||||
Other financial assets at fair value through profit or loss | 62,068 | 33,022 | 1,296 | ||||||||||||
Available-for-sale financial assets (*) | 1,120,591 | 428,560 | 974,412 | ||||||||||||
Loans and receivables | 129,203 | 13,932 | 77,263 | 129,203 | 13,932 | ||||||||||
Other operating assets | (508,105 | ) | (1,338,334 | ) | |||||||||||
Other | (319,662 | ) | (508,105 | ) | (1,338,334 | ) | |||||||||
Total | 980,164 | 761,857 | 1,655,911 | 980,164 | 761,857 | ||||||||||
(*) | In 2006 it includes €522,287 thousand from the gains obtained in the disposal of the interest ownership in Repsol-YPF, S.A. |
The breakdown, by type, of the financial instruments whichthat gave rise to the above balances is as follows:
Thousands of Euros | Thousands of Euros | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Debt instruments | 48,354 | 346,232 | 79,319 | 48,354 | 346,232 | ||||||||||
Equity instruments | 1,111,223 | 817,505 | 2,604,056 | 1,111,223 | 817,505 | ||||||||||
Loans and advances to other debtors | 193,399 | — | 113,431 | 193,399 | — | ||||||||||
Derivatives | (415,128 | ) | (455,172 | ) | (1,178,012 | ) | (415,128 | ) | (455,172 | ) | |||||
Deposits from other creditors | (318 | ) | — | — | (318 | ) | — | ||||||||
Other | 42,634 | 53,292 | 37,117 | 42,634 | 53,292 | ||||||||||
Total | 980,164 | 761,857 | 1,655,911 | 980,164 | 761,857 | ||||||||||
50. Sales and income from the provision of non-financial services and cost of sales51.SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES AND COST OF SALES
These headings of the accompanying consolidated statements of income show, respectively, sales of assets and income from the provision of services that constitute the typical activity of non-financial consolidated entities forming part of the Group and the related costs of sales. The main lines of business of these entities are as follows:
Thousands of Euros | Thousands of Euros | |||||||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||||
Sales/ Income | Cost of Sales | Sales/ Income | Cost of Sales | Sales/ Income | Cost of Sales | Sales/ Income | Cost of Sales | Sales/ Income | Cost of Sales | |||||||||||
Real estate | 285,323 | 214,763 | 226,296 | 132,455 | 333,540 | 230,944 | 285,323 | 214,763 | 226,296 | 132,455 | ||||||||||
Services and other | 291,050 | 235,831 | 241,940 | 209,290 | 271,687 | 242,925 | 291,050 | 235,831 | 241,940 | 209,290 | ||||||||||
Total | 576,373 | 450,594 | 468,236 | 341,745 | 605,227 | 473,869 | 576,373 | 450,594 | 468,236 | 341,745 | ||||||||||
51. Personnel expenses52.OTHER OPERATING INCOME AND EXPENSES
As of December 31, 2006, the balance of the heading “Other Operating Expenses” relates mostly to the contribution to the Deposit Guarantee Fund, amounted to €214,582 thousand. The balance of the heading “Other Operating products” includes among others the rents collected from leases.
The detail of the balance of this heading in the accompanying consolidated income statements is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Wages and salaries | 2,743,684 | 2,459,582 | 3,011,963 | 2,743,684 | 2,459,582 | |||||
Social security costs | 471,799 | 436,651 | 503,766 | 471,799 | 436,651 | |||||
Transfers to internal pension provisions (Note 2.2.f) | 68,893 | 58,982 | ||||||||
Contributions to external pension funds (Note 2.2.f) | 55,813 | 57,419 | ||||||||
Transfers to internal pension provisions (Note 29) | 74,281 | 68,893 | 58,982 | |||||||
Contributions to external pension funds (Note 29) | 52,637 | 55,813 | 57,419 | |||||||
Other personnel expenses | 262,053 | 234,416 | 345,938 | 262,053 | 234,416 | |||||
Total | 3,602,242 | 3,247,050 | 3,988,585 | 3,602,242 | 3,247,050 | |||||
The average number of employees in the Group in 2006, 2005 and 2004, by professional category and country wasis as follows:
2005 | 2004 | |||
Spanish banks | ||||
- Executives | 1,087 | 1,054 | ||
- Other line personnel | 21,807 | 21,427 | ||
- Clerical staff | 7,429 | 7,954 | ||
- Abroad | 674 | 662 | ||
30,997 | 31,097 | |||
Companies abroad | ||||
- Mexico | 24,721 | 24,688 | ||
- Venezuela | 5,568 | 5,779 | ||
- Argentina | 3,428 | 3,396 | ||
- Colombia | 3,487 | 3,327 | ||
- Peru | 2,358 | 2,308 | ||
- Other | 5,561 | 4,483 | ||
45,123 | 43,981 | |||
Pension fund managers | 7,078 | 5,415 | ||
Other non-banking companies | 7,546 | 4,211 | ||
Total | 90,744 | 84,704 | ||
2006 | 2005 | 2004 | ||||
Spanish banks | ||||||
Executives | 1,104 | 1,087 | 1,054 | |||
Other line personnel | 21,818 | 21,807 | 21,427 | |||
Clerical staff | 7,141 | 7,429 | 7,954 | |||
Abroad branches | 676 | 674 | 662 | |||
30,739 | 30,997 | 31,097 | ||||
Companies abroad | ||||||
Mexico | 25,157 | 24,721 | 24,688 | |||
Venezuela | 5,555 | 5,568 | 5,779 | |||
Argentina | 3,604 | 3,428 | 3,396 | |||
Colombia | 5,155 | 3,487 | 3,327 | |||
Peru | 2,705 | 2,358 | 2,308 | |||
Other | 6,175 | 5,561 | 4,483 | |||
48,351 | 45,123 | 43,981 | ||||
Pension fund managers | 8,297 | 7,078 | 5,415 | |||
Other non-banking companies | 8,351 | 7,546 | 4,211 | |||
Total | 95,738 | 90,744 | 84,704 | |||
Equity-instrument-based employee remuneration -
At the Annual General Meeting held on 18 March 2006, the Bank’s shareholders approved a long-term share-based remuneration plan for the members of the Group’s management team (“the Plan”). The Plan has a term of three years from 1 January 2006 and will be settled in the first half of 2009.
Under this Plan the Bank promises to deliver ordinary shares of BBVA to the members of the Group’s management team (including executive directors and management committee members). A number of “theoretical shares” will be allocated to the beneficiaries based on the annual variable remuneration earned by each member in the last three years and on their level of responsibility. This number will serve as the basis for the calculation of the BBVA shares that will be delivered, as the case may be, when the Plan expires. The specific number of BBVA shares to be delivered to each beneficiary on expiry of the Plan will be calculated by multiplying the number of “theoretical shares” allocated by a coefficient ranging from 0 to 2. The value of the coefficient established by comparing the performance of the Total Shareholder Return (TSR) - share appreciation plus dividends - of the Bank over the term of the Plan with the performance of the same indicator for 14 leading European banks. The amount of the obligation that will be registered in the consolidated financial statements will be determined by multiplying the number of the shares by the estimated average price at the moment of the liquidation of the Plan. (€15.02 at the moment of approved the Plan).
Both TSR and estimated average price per share were considered market variations at the moment of calculated the cost of the Plan when the Plan was initiated (Note 2.u). The value of the TSR (0.896) was calculated by Montecarlo simulations. The estimated average price (15.02) was calculated by the future price.
As of December 31, 2006, the estimated number of theoretical shares for the Group as a whole, including executive directors and BBVA’s Management Committee members (see Note 8), was 9,998,202, representing 0.281% of the Bank’s share capital.
As of December 31, 2006, the total accrued amount during the Plan’s life is €134,555 thousand.
As of December 31, 2006, the expense recognized in this period amounted to €44,852 thousand (€3,095 thousand corresponding to executive directors) and was recognised under “Personnel Expenses – Other” in the Group’s consolidated income statement with a charge to “Equity-Other equity instrument-Rest” in the consolidated balance sheet as of December 31, 2006, net of tax.
52. Other administrative expenses54.OTHER GENERAL ADMINISTRATIVE EXPENSES
The breakdown of the balance of this heading in the consolidated income statements is as follows:
Thousands of Euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Technology and systems | 434,274 | 411,524 | 495,563 | 434,274 | 411,524 | |||||
Communications | 202,578 | 182,552 | 217,734 | 202,578 | 182,552 | |||||
Advertising | 211,677 | 143,706 | 207,175 | 211,677 | 143,706 | |||||
Property, fixtures and materials | 415,421 | 361,368 | 450,814 | 415,421 | 361,368 | |||||
Taxes other than income tax | 213,210 | 152,775 | 202,861 | 213,210 | 152,775 | |||||
Other expenses | 683,318 | 598,920 | 767,689 | 683,318 | 598,920 | |||||
Total | 2,160,478 | 1,850,845 | 2,341,836 | 2,160,478 | 1,850,845 | |||||
The heading Property,“Property, Fixtures and MaterialsMaterials” includes expenses relating to operating leases of buildings amounting to EUR 157,804€172,675 thousand, €157,804 thousand and EUR 139,241€139,241 thousand in 2006, 2005 and 2004, respectively. The consolidated companies do not expect to terminate the lease contracts early.
The balance of the heading Other Administrative Expenses in the foregoing table includes the audit fees paid by the Group companies to their respective auditors, the detail for 2005 being as follows:
| ||
| ||
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The detail of the other services provided to the various Group companies in 2005 is as follows:
| ||
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53. Finance income and expenses from non-financial activities55.FINANCE INCOME AND EXPENSES FROM NON-FINANCIAL ACTIVITIES
The amountamounts recorded under these headings relates in full to finance income and expenses from the Group’s real estate and renting companies, andnet amounted to revision of services that constitute the typical activity of non-financial consolidated entities forming part of the Group and amounted to EUR 641€2,375 thousand, €641 thousand and EUR 4,025€4,025 thousand atas of December 31, 2006, 2005 and 2004, respectively.
54. Other gains and other losses56.OTHER GAINS AND OTHER LOSSES
The breakdown of the balances of these headings in the accompanying consolidated income statements is as follows:
Thousands of Euros | ||||||||||
2006 | 2005 | 2004 | ||||||||
| ||||||||||
Gains | ||||||||||
Gains from tangible assets disposal (Note 20) | 92,902 | 107,838 | 102,874 | |||||||
Gains on sale of long-term investment (*) | 934,469 | 40,157 | 317,510 | |||||||
Income from the provision of non-typical services | 4,213 | 3,852 | 4,733 | |||||||
Other income | 97,044 | 132,969 | 197,063 | |||||||
Thousands of Euros | 1,128,628 | 284,816 | 622,180 | |||||||
2005 | 2004 | |||||||||
Losses | 208,279 | 271,220 | ||||||||
Net losses on fixed asset disposals | 22,477 | 22,450 | ||||||||
Net losses on sales long-term investments due to write-downs | 11,751 | 9,127 | ||||||||
Losses on fixed asset disposals (Note 20) | 20,413 | 22,477 | 22,450 | |||||||
Losses on sale of investments | 181 | 11,751 | 9,127 | |||||||
Other losses | 174,051 | 239,643 | 121,424 | 174,051 | 239,643 | |||||
Income | 284,816 | 622,180 | ||||||||
Net gains on fixed asset disposals | 107,838 | 102,874 | ||||||||
Net gains on sales of long-term investments | 40,157 | 317,510 | ||||||||
Income from the provision of non-typical services | 3,852 | 4,733 | ||||||||
Other income | 132,969 | 197,063 | ||||||||
Total | 76,537 | 350,960 | 142,018 | 208,279 | 271,220 | |||||
(*) | The balance in 2006 corresponds mainly to the gains obtained in the sale of the ownership interest in Banca Nazionale del Lavoro, S.p.A., Banc Internacional d’Andorra and Técnicas Reunidas, S.A. (see Notes 4 and 18). |
55. Transactions with non-consolidated associates and jointly controlled entities57.RELATED PARTY TRANSACTIONS
55.1. Transactions with57.1. TRANSACTIONSWITH BBVA GroupGROUP
The balances of the main aggregates in the consolidated financial statements arising from the transactions carried out by the Group with associated and jointly controlled companies (Note 2.1-b and c)2.1.b-c), which consist of ordinary business and financial transactions carried out on an arm’s-length basis, in 2006, 2005 and 2004 are as follows:
Thousands of euros | Thousands of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Assets: | ||||||||||
Due from credit institutions | 4,636 | 594 | — | 4,636 | 594 | |||||
Total net lending | 267,654 | 227,206 | 374,156 | 267,654 | 227,206 | |||||
Liabilities: | ||||||||||
Due to credit institutions | 1,966 | 134 | — | 1,966 | 134 | |||||
Deposits | 19,070 | 47,208 | 82,791 | 19,070 | 47,208 | |||||
Debt certificates (including bonds) | 256,881 | 82,363 | ||||||||
Debt certificates | 463,249 | 256,881 | 82,363 | |||||||
Memorandum accounts: | ||||||||||
Contingent liabilities | 35,218 | 97,694 | 23,316 | 35,218 | 97,694 | |||||
Commitments and contingents liabilities | 44,133 | 96,439 | 457,161 | 44,133 | 96,439 | |||||
Statement of income: | ||||||||||
Financial Revenues | 7,745 | 6,230 | 12,484 | 7,745 | 6,230 | |||||
Financial Expenses | 5,569 | 1,705 | 13,482 | 5,569 | 1,705 | |||||
There are no other material effects on the financial statements of the Group arising from dealings with these companies, other than the effects arising from using the equity method (Note 2.1-c)2.1.-c), and from the insurance policies to cover pension or similar commitments (Note 2.2-f)29).
AtAs of December 31, 2006, 2005 and 2004, the notional amount of the futures transactions arranged by the Group with the main related companies amounted to approximately EUR 7,619,019€9,112 thousand, €7,619,019 thousand and EUR 5,047,704€5,047,704 thousand, respectively.
In addition, as part of its normal activity, the Group has entered into agreements and commitments of various types with shareholders of subsidiaries and associates, which have no material effects on the consolidated financial statements.
55.2. Transactions with key entity personnel57.2. TRANSACTIONSWITHKEYENTITYPERSONNEL
The information on the remuneration of key personnel (members of the Board of Directors of BBVA S.A. and of the Management Committee) is included in Note 8.
The loans granted atAs of December 31, 2005,2006 the Group had not granted any loans or provided any guarantees to members of the Board of Directors of BBVA, S.A. totalled EUR 698 thousand. At December 31, 2005, no guarantees had been provided on their behalf.BBVA.
The loans granted atas of December 31, 2005,2006, to 1816 members of the Management Committee, excluding the executive directors, amounted to EUR 4,249€2,355 thousand. AtAs of December 31, 2005, no2006, guarantees had been provided on behalf of members of the Management Committee.Committee amounted to €12 thousand.
AtAs of December 31, 2005,2006, the loans granted to parties related to key personnel (the aforementioned members of the Board of Directors of BBVA S.A. and of the Management Committee) totalled EUR 10,324€12,676 thousand. AtAs of December 31, 2005,2006, the other exposure to parties related to key personnel (guarantees, finance leases and commercial loans) amounted to EUR 22,712€14,545 thousand.
The demand and time deposits held on an arm’s length basis as part of BBVA’s ordinary banking business by directors, Management Committee members and their related parties totalled EUR 6,838€15,467 thousand atas of December 31, 2005.2006.
In addition, BBVA and other Group companies, in the normal course of their business and in their capacity as financial institutions, habitually perform transactions with members of the Board of Directors of BBVA S.A. and of the Management Committee and their respective related parties. All these transactions, which are scantly material, are conducted on an arm’s lengtharm’s-length basis.
The provisions recorded at December 31, 2005 to cover post-employment benefit obligations to the members of the Management Committee, excluding the executive directors, amounted to EUR 50,292 thousand, of which EUR 12,538 thousand were charged to 2005 income.
55.3. Transactions with other related parties57.3. TRANSACTIONSWITHOTHERRELATEDPARTIES
There are no other material transactions with other related parties.
56. Other information58. ACCOUNTANTS FEES AND SERVICES
The detail of the fees for the services provided to the Group companies by their respective accountants in 2006 is as follows:
Thousands of Euros | ||
Audits of the companies audited by firms belonging to the Deloitte worldwide organisation | 9,051 | |
Fees for audits conducted by other firms | 2,539 | |
Other reports required pursuant to applicable legislation and tax regulations issued by the national supervisory bodies of the countries in which the Group operates, reviewed by firms belonging to the Deloitte worldwide organisation | 6,508 |
The detail of the other services provided to the various Group companies in 2006 is as follows:
Thousands of Euros | ||
Firms belonging to the Deloitte worldwide organisation | 2,624 | |
Other firms | 2,699 |
The services provided by our accountants meet the independence requirements established in Law 44/2002, of 22 November, on Measures Reforming the Financial System and in the Sarbanes-Oxley Act of 2002 adopted by the Securities and Exchange Commission (SEC), and accordingly they did not include the performance of any work that is incompatible with the auditing function.
On March 22, 2002, BBVA notified the supervisory authorities of the stock markets on which its shares are listed that the Bank of Spain had commenced a proceeding against BBVA and 16 of its former directors and executives. These proceedings arose as a result of the existence of funds belonging to BBV that were not included in the entity’s financial statements until they were voluntarily regularized by being recorded in the 2000 consolidated income statement as extraordinary income, for which the related corporation tax was recorded and paid. These funds totalled Ptas. 37,343 million (approximately EUR 225€225 million) and arose basically from the gains on the sale of shares of Banco de Vizcaya, S.A. and Banco Bilbao Vizcaya, S.A. from 1987 to 1992, and on the purchase and sale by BBV of shares of Argentaria, Caja Postal and Banco Hipotecario, S.A. in 1997 and 1998.
After dissolving the legal vehicles where the unrecorded funds were located and including the funds in its accounting records, BBVA notified the Bank of Spain of these matters on January 19, 2001. The Bank of Spain’s supervisory services commenced an investigation into the origin of the funds, their use and the persons involved, the findings of which were included in the supervisory services’ report dated March 11, 2002. On March 15, 2002, the Bank of Spain notified the Bank of the commencement of a proceeding relating to these events.
On May 22, 2002, the Council of the Spanish National Securities Market Commission (CNMV) commenced a proceeding against BBVA for possible contravention of the Securities Market Law (under Article 99 ñ) thereof) owing to the same events as those which gave rise to the Bank of Spain’s proceeding.
Since various court proceedings are in progress to determine the possible criminal liability of the persons involved in the aforementioned events, the conduct of the two administrative proceedings was stayed until the final court decision is handed down.
At the date of preparation of these consolidated financial statements, none of the persons party to the proceedings or prosecuted in relation to the events referred to above was a member of the Board of Directors or the Management Committee or held executive office at BBVA, BBVA is not party to the criminal proceedings and no charges or claim for liability have been levelled against the Bank.
The proceedings DP 161/00 initiated in 2000 relating to the alleged participation of certain BBVA Privanza Bank employees in purported tax offences resulting from the marketing of BBVA Privanza Jersey fiduciary products, as well as to the purported tax offence by BBVA S.A. for not including in its balance sheet the net assets of Canal Trust Company (a wholly-owned subsidiary of BBVA Privanza) are still at the initial investigative stage.
The Group’s legal advisers do not expect the aforementioned administrative and criminal proceedings to have any material impact on the Bank.
57. Detail of the Directors’ holdings in companies with similar business activities60. DETAIL OF THE DIRECTORS’ HOLDINGS IN COMPANIES WITH SIMILAR BUSINESS ACTIVITIES
PursuantAs of December 31, 2006 pursuant to Article 127 ter.third section of the Spanish Corporations Law, introduced by Law 26/2003 of 17 July amending Securities Market Law 24/1988 of 28 July, and the revised Corporations Law, in order to reinforce the transparency of listed companies, set forth below are the companies engaging in an activity that is identical, similar or complementary to that which constitutes the corporate purpose of BBVA, in which the members of the Board of Directors have a direct or indirect ownership interest.
| ||||||||
| Company | Number of Shares | Type of Ownership Interest | |||||
| — | — | — | |||||
Alvarez Mezquiriz, Juan Carlos | — | — | — | |||||
Breeden, Richard C. | — | — | — | |||||
Bustamante y de la Mora, Ramón | — | — | — | |||||
Fernández Rivero, José Antonio | — | — | — | |||||
Ferrero Jordi, Ignacio | Santander Central Hispano | Indirect | ||||||
Banco Popular Español | Indirect |
Goirigolzarri Tellaeche, José Ignacio | — | — | — | |||
González Rodríguez, Francisco | Bancoval | 76,040 | Indirect | |||
Knörr Borrás, Román | ||||||
Lacasa Suárez, Ricardo | Banco Popular Español | 91,440 | Direct | |||
Loring Martínez de Irujo, Carlos | — | — | — | |||
Maldonado Ramos, José | — | — | — | |||
Medina Fernández, Enrique | Banco Español de Crédito | 482.88 | Indirect | |||
Banco Popular Español | Indirect | |||||
Bankinter | 268.96 | Indirect | ||||
BNP Paribas | 94.96 | Indirect | ||||
Royal Bank of Scotland | Indirect | |||||
Santander Central Hispano | Indirect | |||||
Standard Chartered | 245.70 | Indirect | ||||
| — | — | — | |||
| ||||||
Vilá Boix, | Banco Sabadell | 3,125 | Direct | |||
BNP Paribas | 500 | Direct |
58. Subsequent events61. SUBSEQUENT EVENTS AND IFRS RECENT PRONOUNCEMENTS
Acquisition of State National Bancshares Inc. and Texas Regional Bancshares Inc.
On June 12 July, 2006, BBVA reached agreementsentered into an agreement to acquirepurchase the US banking group, State National Bancshares, Inc., which is domiciled and Texas Regional Bancshares Inc., both US banking groups domiciledconducts its main business activity in the State of Texas. The acquisition price agreed for State National Bancshares Inc is of approximately $480 million while the acquisition price agreed for Texas Regional Bancshares Inc. is of approximately $2,164 million. In both cases, the acquisitions accomplishment is subject toOnce the approval of the transaction by 2/3General Meeting of the capital represented in the general shareholders’ meetings of each entity as provided by the applicable legislation, as well as obtainingthis company has been obtained together with the necessary administrative authorizations.authorisations, the transaction was concluded on 3 January 2007. The agreed purchase price was $484 million (approximately €368 million at this date).
These acquisitions will be funded by own sources and the gains obtained by the sales described below:Proposed Transaction to Acquire Compass Bancshares, Inc. (“Compass”)
As of the date this Annual Report was filed with the SEC, the proposed transaction has been approved by the Board of Directors of each of BBVA and Compass but remains subject to regulatory and shareholder approvals. The aggregate consideration is composed of a fixed number of 196 million ordinary shares of BBVA and approximately $4.6 billion in cash.
IFRS RECENT PRONOUNCEMENTS
At the date of preparation of the Consolidated Financial Statements new IFRS Standards and Interpretations (IFRICs) have been issued, which are not required to be applied for December 2006 year-ends, although in some cases earlier application is encouraged.
· | IFRS 7 “Financial Instruments: Disclosures” |
It will be effective for annual periods beginning on or after 1 January 2007.
IFRS 7 includes all of the disclosure requirements relating to financial instruments and will replace the disclosure section of IAS 32Financial Instruments: Disclosure and Presentation and all of IAS 30Disclosures in the Financial Statements of Banks and Similar Financial Institutions. IAS 32 will then contain only presentation requirements for financial instruments.
The most significant additional disclosure requirements of IFRS 7 (compared to IAS 32 and IAS 30) are as follows:
o | Nature and extent of risks |
- | qualitative risk disclosures are to include information on the processes that an entity uses to manage end measure its risks |
- | quantitative data about the exposure to each type of risk (including credit risk, liquidity risk and market risk) arising from financial instruments |
- | information about the credit quality of financial assets that are neither past due nor impaired |
- | an analysis of financial assets that are past due or impaired, including a description of collateral held as security and its fair value |
- | a market risk sensitivity analysis which includes the effect of a reasonably possible change in the risk variables, along with the methods and assumptions used in preparing the analysis |
o | Other |
- | A reconciliation of changes in the allowance for credit losses for each class of financial asset |
- | Enhanced income statement and balance sheet disclosures, including separate identification of net gains or losses and the amount of any impairment loss for each category of financial instrument |
- | The criteria for determining when the carrying amount of a impaired financial asset is reduced directly and when an allowance account is used, and when to write off against the asset amounts charged to the allowance account |
- | The gains or losses on the hedging instrument and on the hedged item attributable to the hedged risk of a fair value hedge |
- | The ineffectiveness recognised in profit or loss arising from both cash flow hedges and hedges of net investments in foreign operations |
- | Profits or losses arising on initial recognition of financial instruments (“day 1” profits or losses) that are not recognised in the financial statements and a reconciliation of changes in this unrecognised balance during the period. The accounting policy for determining when unrecognised amounts are recognised in profit or loss must also be disclosed. |
· | Amendment to IAS 1 “Presentation of Financial Statements—Capital disclosures” |
It will be effective for annual periods beginning on or after 1 January 2007.
This amendment to IAS 1Presentation of Financial Statementsrequires entities to disclose information that enables readers to evaluate the entity´s objectives, policies and processes for managing capital. The sale gave risedisclosures are based on information provided internally to a gain of €568.3 million.
o | the objectives, procedures and policies used to manage capital |
o | a description of what the entity manages as capital, the nature of any externally imposed capital requirements (if any) and how it meets its objectives for managing capital |
o | quantitative information about what the entity manages as capital and any changes from the prior period |
o | whether the entity complied with externally imposed capital requirements and the consequences of any non-compliance, (if applicable). |
· | IFRS 8 “Operating Segments” |
It will be effective for annual periods beginning on or after 1 January 2009.
IFRS 8 was executed through the closing and settlement of hedging equity swaps previously contracted. This sale gave rise to a gain of €523 million.
Other events
On March 3, 2006, BBVA purchased 0.43% of BBVA Chile capital share for 2,318 million Chilean pesos (approximately €3.7 million), increasing BBVA’s capital share on BBVA Chile up to 67.05%. As the capital share of BBVA in BBVA Chile is higher than the two thirdsissued as part of the total capital share, BBVA in complianceconvergence project with the Chilean legislation launchedUS Financial Accounting Standards Board. This new standard replaces IAS 14Segment Reporting and adopts a public offermanagement approach to segment reporting required in the US Standard SFAS 131Disclosures about Segments of an Enterprise and Related Information. The information reported would be that which management uses internally for allevaluating the performance of BBVA Chile capital share. The public offer was effectiveoperating segments and allocating resources to those segments. This information may be different from April 3, 2006 until May 2, 2006. Afterthat reported in the acceptancebalance sheet and income statement and entities will need to provide explanations and reconciliations of the public offer by 1.13% of BBVA Chile capital share, BBVA’s capital sharedifferences.
· | IFRIC 7 “Applying the Restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economies” |
It will be effective for annual periods beginning on BBVA Chile increased upor after 1 March 2006.
IFRIC 7 requires entities to 68.18%.
On April 5, 2006, BBVA sold its stake of 51%apply IAS 29Financial Reporting in Hyper-inflationary Economies in the share capitalreporting period in which an entity first identifies the existence of Banc Internacional d´Andorra, S.A.hyperinflation in the economy of its functional currency as if the economy had always been hyperinflationary.
Therefore:
o | non-monetary items measured at historical cost are restated to reflect the effect of inflation from the date the asset was acquired or liability was incurred until the closing date of the reporting period. |
o | non-monetary items measured at amounts current at dates other than acquisition, are restated to reflect the effect of inflation from the last remeasurement date until the closing date of the reporting period. |
o | deferred tax items in the opening balance sheet (of the reporting period and comparative period) are remeasured in accordance with IAS 12Income Taxes after restatement of the non-monetary items, by applying the measuring unit current at the relevant opening balance sheet date. These remeasured deferred tax items are restated for the change in the measuring unit from the opening balance sheet date to the closing balance sheet date of the relevant period. |
· | IFRIC 8 “Scope of IFRS 2” |
It will be effective for annual periods beginning on or after 1 May 2006, early application is encouraged.
IFRIC 8 clarifies that IFRS 2Share-based Payment will apply to any arrangement when equity instruments are granted or liabilities (based on a value of an entity´s equity instrument) are incurred by an entity, when the identifiable consideration appears to be less then the fair value of the instruments given. It presumes that such cases are an indication that other consideration (ie, unidentifiable goods or services) has been or will be received. The unidentifiable goods or services concerned are to be measured at the grant date as the difference between the fair value of the share-based payment (equity given or liability incurred) and the fair value of any identifiable goods or services received.
For cash-settled transactions, the liability is to be remeasured at each reporting date until is settled, in accordance with IFRS 2.
The Company does not anticipate that adoption of IFRIC 8 will have any effects on its financial position, results of operations or cash flows.
· | IFRIC 9 “Reassessment of Embedded Derivatives” |
It will be effective for annual periods beginning on or after 1 June 2006.
IFRIC 9 requires an entity to assess whether a contract contains an embedded derivative at the date an entity first becomes a party to the restcontract and prohibits reassessment unless there is a change to the contract that significantly modifies the cash flows.
The Company does not anticipate that adoption of IFRIC 9 will have any effects on its financial position, results of operations or cash flows.
· | IFRIC 10 “Interim Financial Reporting and Impairment” |
It will be effective for annual periods beginning on or after 1 November 2006.
IFRIC 10 addresses an inconsistency between IAS 34Interim Financial Reporting and the impairment requirements relating to goodwill in IAS 36Impairment of Assets and equity instruments classified as available for sale in IAS 39Financial instruments: Recognition and Measurement. The Interpretation states that the specific requirements of IAS 36 and IAS 39 take precedence over the general requirements of IAS 34 and, therefore, any impairment loss recognised for these assets in an interim period may not be reversed in subsequent periods.
The Company does not anticipate that adoption of IFRIC 10 will have any effects on its financial position, results of operations or cash flows.
· | IFRIC 11 “IFRS 2—Group and Treasury Share Transactions” |
It will be effective for annual periods beginning on or after 1 March 2007, early application is permitted.
This interpretation requires arrangements whereby an employee is granted rights to an entity´s equity instruments to be accounted for as an equity-settled scheme by the entity even if:
o | the entity chooses or is required to buy those equity instruments (eg, treasury shares) from another party, or |
o | the shareholder(s) of the entity provide the equity instruments needed. |
The interpretation also extends to the way in which subsidiaries, in their separate financial statements, account for schemes when their employees receive rights to equity instruments of the shareholdersparent. In particular, it prescribes that:
o | when the parent grants rights to equity instruments to the employees, they will be accounted for as an equity-settled scheme (and as an equity contribution by the parent) when the parent accounts for it this way in the consolidated financial statements. When employees transfer between subsidiaries, each entity recognises compensation expense based on the proportion of the total vesting period for which the employee has worked for that subsidiary, measured at the fair value at the original grant date by the parent. |
o | when the subsidiary grants rights to equity instruments of its parent to its employees, it will be accounted for as a cash-settled scheme. |
The Company does not anticipate that adoption of said entity, the Andorran founding partnersIFRIC 11 will have any effects on its financial position, results of this bank, for a price of €395.15 million. This sale gave rise to a gain of €184.0 million.operations or cash flows.
59.62. DIFFERENCES BETWEEN IFRS AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND OTHER REQUIRED DISCLOSURES.
As described in Note 1, the accompanying consolidated financial statementsConsolidated Financial Statements of the BBVA Group are presented in the formats stipulated by the Bank of Spain Circulars and were prepared by applying the generally accepted accounting principles for International Financial Reporting Standards (IFRSs)(IFRS), endorsedadopted by the European Union pursuant to Regulation (EC) Nº 1606/2002 of the European Parliament of the Council of 19 July 2002. Such formats and accounting principles vary in certain respects from those generally accepted in the United States (“U.S. GAAP”). Our consolidated financial statementsConsolidated Financial Statements as of December 31, 2006, 2005 and 2004 would not present any difference had the standards issued by the International Accounting Standards Board (IASB) been applied instead of those endorsed by the EU.
Following is a summary of the main differences between IFRS and U.S. generally accepted accounting principles:
• Net income and Stockholders’ Equity reconciliation between IFRS and U.S. GAAP | A | |
• Consolidated Financial Statements | B | |
• Additional information required by U.S. GAAP | C |
The preparation of these financial statementsConsolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts and allocations of assets and liabilities and disclosures of contingent assets and liabilities and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimated but any difference should not be material.
IFRS 1First-time adoption provides first-time adopters of IFRS with a number of exemptions and exceptions from full retrospective application (see Note 3)Appendix VI). Net income and stockholders’ equity under IFRSsIFRS and the reconciling item to U.S. GAAP shown below would have been different if IFRSsIFRS had been applied fully retrospectively.
(59.A)A) NET INCOME AND STOCKHOLDERS’ EQUITY RECONCILIATION BETWEEN IFRS AND U.S. GAAP.
Accounting practices used by the Bank in preparing the consolidated financial statementsConsolidated Financial Statements conform withto IFRS, but do not conform withto U.S. GAAP. A summarized reconciliation of stockholders’ equity as of December 31, 2006, 2005 and 2004 and net income for the years 2006, 2005 and 2004 to U.S. GAAP is set forth below.
The following tables set forth the adjustments to consolidated net income and to consolidated stockholders’ equity which would be required if U.S. GAAP had been applied to the accompanying consolidated financial statements:Consolidated Financial Statements:
Item # | Increase (Decrease) Year Ended December 31, | Item # | Increase (Decrease) Year Ended December 31, | ||||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||
(Thousands of Euros, except per share data) | (Thousands of Euros, except per share data) | ||||||||||||||||||
NET INCOME | |||||||||||||||||||
Profit for the year under IFRS | 4,070,572 | 3,108,209 | 4,971,035 | 4,070,572 | 3,108,209 | ||||||||||||||
Income attributed to the minority interest under IFRS (*) | (264,147 | ) | (185,613 | ) | (235,156 | ) | (264,147 | ) | (185,613 | ) | |||||||||
Income attributed to the Group under IFRS | 3,806,425 | 2,922,596 | 4,735,879 | 3,806,425 | 2,922,596 | ||||||||||||||
Adjustments to conform to U.S. GAAP: | |||||||||||||||||||
Business combination with Argentaria | 1 | (33,836 | ) | (18,868 | ) | 1 | (22,219 | ) | (33,836 | ) | (18,868 | ) | |||||||
Valuation of assets | 2 | (2,453 | ) | 20,414 | 2 | (851 | ) | (2,453 | ) | 20,414 | |||||||||
Valuation of financial instruments | 3 | 26,902 | 247,935 | 3 | 74,370 | 26,902 | 247,935 | ||||||||||||
Accounting of goodwill | �� | 4 | (478,450 | ) | (316,215 | ) | 4 | (346,596 | ) | (478,450 | ) | (316,215 | ) | ||||||
Translation of financial statements in high-inflation countries | 5 | — | — | 5 | — | — | — | ||||||||||||
Impact of SFAS 133 | 6 | (99,551 | ) | (69,344 | ) | 6 | 17,016 | (99,551 | ) | (69,344 | ) | ||||||||
Loans adjustments | 7 | (303,277 | ) | 196,940 | 7 | 445,428 | (303,277 | ) | 196,940 | ||||||||||
Intangible assets | 8 | (147,955 | ) | 93,679 | 8 | — | (147,955 | ) | 93,679 | ||||||||||
Tax effect of US GAAP adjustments and deferred taxation under SFAS 109 | 9 | 694,230 | 11,908 | ||||||||||||||||
Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS 109 | 9 | 68,665 | 694,230 | 11,908 | |||||||||||||||
Net income in accordance with U.S. GAAP before changes in accounting principles | 3,462,035 | 3,089,046 | 4,971,692 | 3,462,035 | 3,089,046 | ||||||||||||||
Changes in accounting principles | |||||||||||||||||||
Pension plan cost | 10 | (2,164,038 | ) | 607 | |||||||||||||||
Tax effect of Pension plan cost adjustment | 9 | 719,691 | 5,590 | ||||||||||||||||
Net income in accordance with U.S. GAAP | 2,017,688 | 3,095,343 | |||||||||||||||||
Other comprehensive income, (loss) net of tax: | |||||||||||||||||||
Foreign currency translation adjustments | 1,138,449 | (308,751 | ) | ||||||||||||||||
Unrealized gains on securities: | |||||||||||||||||||
Unrealized holding gains (losses) arising during period, net of tax | 882,753 | 874,845 | |||||||||||||||||
Reclassification adjustment, net of tax | — | (274,599 | ) | ||||||||||||||||
Derivative instruments and hedging activities | (118,586 | ) | (11,375 | ) | |||||||||||||||
Comprehensive income (losses) in accordance with U.S. GAAP | 3,920,304 | 3,375,463 | |||||||||||||||||
Net income per share (Euros) | 0.595 | 0.918 |
STOCKHOLDERS’ EQUITY Total Stockholders’ equity under IFRS Minority interests under IFRS (*) Total stockholders’ equity without minority interest under IFRS Adjustments to conform to U.S. GAAP: Business combination with Argentaria Valuation of assets Valuation of financial instruments Accounting of goodwill Translation of financial statements in high-inflation countries Impact of SFAS 133 Loans adjustments Intangible assets Stockholders’ equity in accordance with U.S. GAAP before changes in accounting principles Changes in accounting principles Pension plan cost Tax effect of Pension plan cost adjustment Stockholders’ equity in accordance with U.S. GAAP Changes in accounting principles Pension plan cost Tax effect of Pension plan cost adjustment Net income in accordance with U.S. GAAP Other comprehensive income, (loss) net of tax: Foreign currency translation adjustments Unrealized gains on securities: Unrealized holding gains (losses) arising during period, net of tax Reclassification adjustment, net of tax Derivative instruments and hedging activities Comprehensive income (losses) in accordance with U.S. GAAP Net income per share (Euros) Item # Increase (Decrease) Year
Ended December 31, 2005 2004 (Thousands of Euros) 17,302,112 13,805,263 (971,490 ) (737,539 ) 16,330,622 13,067,724 1 5,558,853 5,587,640 2 (151,062 ) (148,608 ) 3 67,029 205,004 4 3,417,857 3,359,281 5 (267,843 ) (224,484 ) 6 142,786 315,636 7 1,669,728 1,996,335 8 — 195,966 Tax effect of US GAAP adjustments and deferred taxation under SFAS 109 9 (1,392,558 ) (1,959,840 ) 25,375,412 22,394,654 10 — 1,589,071 9 — (518,453 ) 25,375,412 23,465,272 Item # Increase (Decrease) Year
Ended December 31, 2006 2005 2004 (Thousands of Euros,
except per share data) 10 — (2,164,038 ) 607 9 — 719,691 5,690 4,971,692 2,017,688 3,095,343 (708,212 ) 1,138,449 (308,751 ) 110,552 882,753 874,845 — — (274,599 ) 106,777 (118,586 ) (11,375 ) 4,480,809 3,920,304 3,375,463 1.46 0.59 0.92
Item # | Increase (Decrease) Year Ended December 31, | ||||||||||
2006 | 2005 | 2004 | |||||||||
(Thousands of Euros) | |||||||||||
STOCKHOLDERS’ EQUITY | |||||||||||
Total Stockholders’ equity under IFRS | 22,318,478 | 17,302,112 | 13,805,263 | ||||||||
Minority interests under IFRS (*) | (768,162 | ) | (971,490 | ) | (737,539 | ) | |||||
Total stockholders’ equity without minority interest under IFRS | 21,550,316 | 16,330,622 | 13,067,724 | ||||||||
Adjustments to conform to U.S. GAAP: | |||||||||||
Business combination with Argentaria | 1 | 5,536,634 | 5,558,853 | 5,587,640 | |||||||
Valuation of assets | 2 | (151,913 | ) | (151,062 | ) | (148,608 | ) | ||||
Valuation of financial instruments | 3 | 110,048 | 67,029 | 205,004 | |||||||
Accounting of goodwill | 4 | 2,842,212 | 3,417,857 | 3,359,281 | |||||||
Translation of financial statements in high-inflation countries | 5 | (239,481 | ) | (267,843 | ) | (224,484 | ) | ||||
Impact of SFAS 133 | 6 | 116,367 | 142,786 | 315,636 | |||||||
Loans adjustments | 7 | 2,115,156 | 1,669,728 | 1,996,335 | |||||||
Intangible assets | 8 | — | — | 195,966 | |||||||
Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS 109 | 9 | (1,418,171 | ) | (1,392,558 | ) | (2,478,293 | ) | ||||
Pension plan cost | 10 | — | — | 1,589,071 | |||||||
Stockholders’ equity in accordance with U.S. GAAP | 30,461,168 | 25,375,412 | 23,465,272 |
(*) | Under IFRS stockholders’ equity and net income includes the equity and net income corresponding to the |
The differences included in the tables above are explained in the following items:
1.Business Combination with Argentaria-
Banco Bilbao Vizcaya, S.A. and Argentaria, Caja Postal y Banco Hipotecario, S.A. (Argentaria) merged, being January 28, 2000 the date from which such merger was legally effective. According to Spanish GAAP at that date, this business combination was accounted for using the method of pooling of interest and therefore no goodwill was accounted. IFRS 1First-time adoption of International Reporting Standards grants an exemption to apply IFRS 3Business Combinationsprospectively and thus not to restate business combinations that occurred before the date of transition to IFRSs,IFRS, which is January 1, 2004. Therefore, this merger has been accounted for using the
method of pooling of interest and no goodwill was accounted. Since the transaction did not comply with the requirements of APB 16 for pooling of interest method, under U.S. GAAP this business combination was accounted for using the purchase method. The excess of the fair value of the new shares issued in exchange for the Argentaria shares over the net worth of Argentaria under U.S. GAAP as of the date of the merger, amounted towas approximately €6,315,622 thousand and was calculated considering the necessary adjustments to the net worth of Argentaria as of January 28, 2000 under Spanish GAAP, as described below:
(thousands of | |||
Approximate Argentaria net worth as of January 28, 2000 under Spanish GAAP | 3,454,449 | ||
(i) Reversal of the net effect of the restatement of fixed assets and equity securities | (129,338 | ) | |
(ii) Reduction for employees and third party loans issued to purchase shares of capital stock | (122,606 | ) | |
(iii) Goodwill amortization adjustments | 100,734 | ||
(iv) Up-front premium reversal | 107,888 | ||
(v) Valuation of investment securities | 1,926,143 | ||
(vi) Effect of adjustments to conform to U.S. GAAP for investments in affiliated Companies | (87,167 | ) | |
(vii) Tax effect of above mentioned adjustments | (607,916 | ) | |
(viii) Other adjustments | 34,601 | ||
Subtotal | 1,222,339 | ||
Approximate Argentaria net worth as of January 28, 2000 under U.S. GAAP | 4,676,788 |
i. Revaluation of property and equity securities
Certain of the Spanish and foreign consolidated companies had stepped up (increased) the cost and accumulated depreciation of property and equipment and, where appropriate, the carrying values of their equity investment securities pursuant to the relevant local legislation. Also, the buildings and equity securities owned by certain of the companies in the Group, whose shareholders’ meetings adopted merger resolutions in 1991, were stepped up. Under U.S. GAAP these step ups are not permitted to be reflected in the financial statements.
ii. - Employee and other third party loans
Certain Group banks granted loans to shareholders, employees and customers for the acquisition of Argentaria, Caja Postal y Banco Hipotecario, S.A. shares. Under Spanish GAAP, these loans were recorded in the consolidated financial statementsConsolidated Financial Statements under the caption “Credit, Loans and Discounts”. Under U.S. GAAP, these loans should be recorded as a reduction of stockholders’ equity because the only recourse for collection wasis the shares themselves.
iii. - Goodwill
Under Spanish GAAP, the general policy of the Group was to amortize goodwill over a maximum period of 10 years. However, a different period was used to amortize goodwill in some of the subsidiaries acquired. Until 2001, for purposes of calculating the effect of applying U.S. GAAP, goodwill arising on acquisitions was amortized in 10 years. Since July 2001, as it is required inby SFAS 142, goodwill is notno longer amortized.
Additionally, in 1998 and as a result of the merger, goodwill from Banco Exterior de España, S.A. was fully written off for Spanish GAAP purposes. Until June 2001, under U.S. GAAP this goodwill was amortized over the estimated economic life as there was no economic or fair value basis for the impairment made under Spanish GAAP. Since July 2001, as it is required inby SFAS 142, goodwill is notno longer amortized.
iv. - Up-front premium reversal
In 1998 the Bank arranged hedging transactions for which it paid a premium, which was recorded under the “Extraordinary Losses” caption in the income statement of income for 1998, to mitigate the adverse effect of the negative spread that arise between the average return on the mortgage loans financed by certain mortgage bonds and the fixed interest rates of such mortgage bonds. Under U.S. GAAP, the premium was recognized at inception as an asset, amortized over the life of the hedging transaction under SFAS 80 and that upon adoption of SFAS 133 the derivative has been recorded at fair value through income, as it does not qualify for hedge accounting under U.S. GAAP.
v. - Valuation of investment securities
Under SFAS 115, available-for-sale securities must be recorded at market value againstin stockholders’ equity.
vi. - Investments in affiliated Companies
Under Spanish GAAP, investments in non-consolidated listed affiliated companies owned over 3% and in non-consolidated unlisted affiliated companies owned over 20% were recorded by the equity method. Under U.S. GAAP investments in affiliated companies over 20% but less than 50% are accounted for by the equity method and those exceeding 50% by the global integration method. Listed investments of less than 20% are accounted for at market value.
The excess of the fair value of the new shares issued in exchange for the Argentaria shares over the net worth of Argentaria, was allocated to the following specific items:
2000 | Thousands of | ||
Net Lending | 610,785 | ||
Investment Securities-Held to Maturity | 305,903 | ||
Premises and Equipment | 129,338 | ||
Other assets and liabilities | (113,255 | ) | |
Long Term Debt | (172,521 | ) | |
Tax Effect | (220,360 | ) | |
Goodwill | 5,775,732 | ||
6,315,622 | |||
For U.S. GAAP purposes, BBVA amortizes the excess of the fair value assigned to the specific items over their remaining economic life. The amortization of the excess allocated to specific assets and liabilities amounts towas €22,219 thousand (net of tax), €33,836 thousand (net of tax) and €18,868 thousand (net of tax) in 2006, 2005 and 2004, respectively. Up to
Until December 31, 2001 BBVA amortized the goodwill on a straight line basis over a period of 25 years. FromSince January, 2002 BBVA stopped the amortization of the remaining goodwill pursuant to the SFAS 142 and it has been assigned to different Reporting Units and tested for impairment as described in Item 2.2.n.2.2.m. As of December 31, 20052006 goodwill amounted towas €5,332,924 thousand.
The adjustment to stockholders’ equity, that reflects both effects, was €5,536,634 thousand, €5,558,853 thousand and €5,587,640 as of December 31, 2006, 2005 and 2004, respectively.
2. Valuation of assets-
This adjustment basically relates to the following:
This adjustment basically refers to following:
- Revaluation of property and equity securities
As described in Note 33.3,34.3, certain of the Spanish and foreign consolidated companies restated the cost and accumulated depreciation of property and equipment pursuant to the relevant legislation. Also, equity securities were revalued pursuant to the applicable enabling legislation on account revaluations. Under U.S. GAAP these revaluations are not permitted to be reflected in the financial statements.
In accordance with IFRSs,IFRS, fixed asset depreciation is computed on the restated value and the total amount charged to income is deductible for corporate income tax purposes. In addition, results on sales or dispositions of both fixed assets and equity investments are determined as the difference between the selling price and the net restated value.
The amounts of the adjustments indicated below have been calculated to reflect the reversal of the additional depreciation on the revalued property and equipment (€8,9848,104 thousand, €8,984 thousand and €9,312 thousand inas of December 31, 2006, 2005 and 2004, respectively) and the additional income that would have resulted if the Group had not restated the equity securities and fixed assets that have been sold (€14,0262,918 thousand, €14,026 thousand and €15,032 thousand inas of December 31, 2006, 2005 and 2004, respectively). The adjustment to stockholders’ equity reflects the reversal of the unamortized revaluation surplus (€297,728286,706 thousand, €297,728 thousand and €320,738 thousand inas of December 31, 2006, 2005 and 2004, respectively).
- Valuation of property
• | Valuation of property |
As described in Note 3.i),Appendix VI, in accordance with IFRS 1First-time adoption of International Financial Reporting Standards,, certain property and equipment items were recognized at fair valuerevaluated and, therefore, this lower value was usedconsidered as deemed cost at January 1, 2004.2004 taking into consideration that, at the date of the revaluation, this deemed cost was comparable to fair value.
Under U.S. GAAP, these adjustments to the deemed cost are not permitted due to the fact that they do not reflect an actual impairment.
As a consequence, there is an adjustment between U.S. GAAP and IFRSsIFRS in order to reflect in the income statement the additional depreciation on the revalued property and equipment (€3,0793,226 thousand, in both€3,079 thousand and €3,079 thousand as of December 31, 2006, 2005 and 2004) and the additional income related to property and equipment with lower book value under U.S. GAAP which have been sold during 2006 (€5,288 thousand as of December 31, 2006). The adjustment to stockholders’ equity reflects the reversal of the adjustments to the attributed cost (€146,666112,409 thousand, €146,666 thousand and €149,746 thousand inas of December 31, 2006, 2005 and 2004, respectively).
3. Valuation of financial instruments-
Group’s criteria of accounting for such securities are described in Note 2.2.c.2.2.b. As described in Note 3.c),Appendix VI, in accordance with IFRS 1First-time adoption of International Financial Reporting Standards, the recognition, measurement and disclosure criteria included in IASsIAS 32 and 39, were applied retrospectively to January 1, 2004 (the date of transition to IFRSs)IFRS).
This adjustment mainly refers to following:
Debt securities
Under IFRS 1, debt securities included in available-for-sale portfolio were recognized at fair value of the date of transition to IFRSsIFRS (January 1, 2004) through shareholders’stockholders’ equity.
Under U.S. GAAP, in fiscal years ended beforeprior to January 1, 2004, some unrealized losses regarding certain debt securities were recorded likeas ‘other-than- temporary’ impairments.
As a consequence, there is an adjustment between U.S. GAAP and IFRSsIFRS in order to reflect in the income statement the additional income duerelated to debt securities that have been sold (€17,1403,010 thousand, €17,140 thousand and €203,969 thousand inas of December 31, 2006, 2005 and 2004, respectively). The adjustment to stockholders’ equity reflects the reversal of the adjustments to the fair value (increase €61,371 thousand, increase €72,973 thousand and decrease €18,694 thousand inas of December 31, 2006, 2005 and 2004, respectively).
Equity securities
Under IFRS 1, equity securities included in available-for-sale portfolio were recognized at fair value of the date of transition to IFRSsIFRS (January 1, 2004) through shareholders’stockholders’ equity.
Under U.S. GAAP, in fiscal years beforeended prior to January 1, 2004, some unrealized losses regarding certain equity securities were recorded likeas “other-than-temporary” impairments.
TheAs of December 31, 2005 and 2004, the final adjustment is done with other equity securities and reflects the reversal of effects in net income (increase €10,324 thousand and €44,108 thousand inas of December 31, 2005 and 2004, respectively) and reflects the record of the fair value of equity securities through stockholders’ equity (decrease €51,447 thousand in 2005 and increase €208,182 thousand in 2004)as of December 31, 2005 and 2004, respectively).
As of December 31, 2006, there is an adjustment between U.S. GAAP and IFRS in order to reflect in the income statement the additional income related to the equity securities that have been sold (€71,750 thousand).
4. Accounting of goodwill-
The breakdown of this adjustment is as follows:
Thousand of euros | Thousands of euros | |||||||||||||||||||||||||||||
Stockholders’ equity | Net Income | Stockholders’ equity | Net Income | |||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||||
Goodwill charged to reserves in 1998 and 1999 | 65,522 | 65,522 | — | — | 65,522 | 65,522 | 65,522 | — | — | — | ||||||||||||||||||||
Different period of amortization of goodwill reversed | 98,948 | 98,948 | — | — | 98,948 | 98,948 | 98,948 | — | — | — | ||||||||||||||||||||
Amortization under Spanish GAAP not reversed under U.S. GAAP | (154,074 | ) | (154,074 | ) | — | — | (154,074 | ) | (154,074 | ) | (154,074 | ) | — | — | — | |||||||||||||||
Reversal of amortization | 970,477 | 970,477 | — | — | 970,477 | 970,477 | 970,477 | — | — | — | ||||||||||||||||||||
Reversal of Step Acquisition | 3,203,836 | 2,774,636 | — | — | 2,929,909 | 3,203,836 | 2,774,636 | — | — | — | ||||||||||||||||||||
Step Acquisition of BBVA Bancomer | (788,073 | ) | (363,384 | ) | (458,493 | ) | (316,607 | ) | (1,105,264 | ) | (788,073 | ) | (363,384 | ) | (344,426 | ) | (458,493 | ) | (316,607 | ) | ||||||||||
Others | 21,221 | (32,844 | ) | (19,957 | ) | 392 | 36,695 | 21,221 | (32,844 | ) | (2,170 | ) | (19,957 | ) | 392 | |||||||||||||||
Adjustment 4 in reconciliation to U.S. GAAP | 3,417,857 | 3,359,281 | (478,450 | ) | (316,215 | ) | 2,842,213 | 3,417,857 | 3,359,281 | (346,596 | ) | (478,450 | ) | (316,215 | ) | |||||||||||||||
The mainsmain reasons that causegenerate a difference between IFRSsIFRS and U.S. GAAP in the amount of goodwill are the following ones:following:
Goodwill charged to reserves in 1998 and 1999
Goodwill that arose in 1998 and 1999 as a result of mergers and acquisitions through share exchanges was amortized in full with a charge to reserves, which was not acceptable under U.S. GAAP. Under U.S. GAAP the goodwill was amortized until 2001 over a period of ten years except for the goodwill arising in 2000 in the merger of Banca Catalana, S.A., Banco de Comercio, S.A., Banco de Negocios Argentaria, S.A. and Banco de Alicante, S.A. where the economic life was five years. Since 2001, as it is required inby SFAS 142, goodwill is notno longer amortized.
Impairment
A discounted cash flow model was selected as the main method to determine the fair value of itsour Reporting Units,Units; although other methodologies such as using quoted market values and market multiples were also used. Cash flow estimates require judgment and the Bank believes that the assumptions used in determining the cash flows are consistent with assumptions marketplace participants would use in their estimates of their fair value.
The principal BBVA Group’s goodwill assigned to each Reporting Unit as of December 31, 2006, 2005 and 2004 for annual impairment test purposes are the following:
Millions of Euros | Millions of Euros | |||||||||
2005 | 2004 | 2006 | 2005 | 2004 | ||||||
Retail Banking in Spain and Portugal | 3,968 | 3,967 | 4,081 | 3,968 | 3,967 | |||||
Wholesale and Investment Banking | 1,674 | 1,679 | ||||||||
Pensions in America | 312 | 260 | ||||||||
Wholesale Business | 1,681 | 1,674 | 1,679 | |||||||
Pensions in South America | 270 | 312 | 260 | |||||||
México | 3,600 | 3,021 | 3,040 | 3,600 | 3,021 | |||||
Chile | 78 | 60 | 126 | 78 | 60 | |||||
United States | 481 | — | ||||||||
United States and Puerto Rico | 1,724 | 572 | 79 | |||||||
Colombia | 267 | — | 213 | 267 | — | |||||
Puerto Rico | 91 | 79 |
Expected cash flows have been calculated using the “maximum payable dividend” for each period, considering net income and excess of minimum capital required. For financial statements and macroeconomics scenarios, a five year horizon was used to determine fair value. The risk free rate, the market risk premium and the country risk premium (when applicable) were considered to determine the discount rate used for each Reporting Unit.
Year 2006, 2005 and 2004 analysis
As of December 31, 2006, 2005 and 2004, the Group has performed the required annual impairment tests of goodwill. As a result of Step 1 procedures of the above mentioned impairment test, the carrying amount of the Reporting Unit did not exceed its fair value.
Reversal of step acquisition
Under IFRS, investments acquired subsequent to obtaining control over a company (i.e. transactions involving the purchase of equity interests from minority shareholders) were treated as “equity transactions”. The amount of goodwill recorded under prior GAAP, at January 1, 2004, transition date to IFRSs,IFRS, under IFRSsIFRS was recorded on the transactions performed after control was obtained were charged to Minority Interests“Minority Interests” and the surplus amount were charged to shareholders’stockholders’ equity.
Under U.S. GAAP, these acquisitions are accounted for by using the “purchase method” and, as a consequence, there is an adjustment between IFRS and U.S. GAAP in order to reflect the reversal of goodwill recorded prior to January 1, 2004, and the increase of shareholders’stockholders’ equity.
Step Acquisition of BBVA Bancomer
As it is explained in Note 4 on March 20, 2004, BBVA completed the tender offer on 40.6% of the capital stock of Grupo Financiero BBVA Bancomer, S.A. de C.V. (“Bancomer”). The final number of shares presented in the offer and accepted by BBVA was 3,660,295,210, which represent 39.45% of the capital stock of Bancomer. Following the acquisition of these shares through the tender offer, the ownership interest held by BBVA in the capital of Bancomer was 98.88%. Lastly, as of December 31, 2004,2006, as a result of the purchase of shares subsisting in the market, BBVA’s holding in Bancomer increased to 99.70%99.96%.
BBVA Bancomer, S.A. de C.V. was consolidated by Group BBVA since July 2000, when the merger of Grupo Financiero BBV-Probursa, S.A. de C.V. (a wholly-owned subsidiary of BBVA) and Grupo Financiero BBVA Bancomer, S.A. de C.V. was carried out.
Since March 20, 2004 the BBVA Group’s income statement reflected a decrease in Minority Interest caption duerelated to the business combination described above while the rest of the income statement’s captions did not changedchange because Bancomer was already was a fully consolidated company before the acquisition of minority interest.
The cash paid for the acquired entity was €3,324 million. In connection with this business combination there are no contingent payments, options, or commitments specified in the acquisition agreement.
Under IFRSs,IFRS, the business combination is registered as equity transaction and no amounts were allocated to assets or liabilities of the company acquired. Under U.S. GAAP once the process of allocating the acquisitionpurchase price to all assets and liabilities of the company acquired, the goodwill amounted towas €1,060.2 million. The wholeentire amount of goodwill iswas allocated to the Mexico reporting unit in the Banking in America“Mexico and the United States” segment.
The conciliationreconciliation of the net worth acquired and the fair value of the assets and liabilities acquired for purposes of U.S. GAAP was as follows:
Thousand of Euros | |||
Net worth acquired | 1,207,051 | ||
Investment securities | (32,365 | ) | |
Net loans and leases | 621,671 | ||
Premises and equipment | (28,158 | ) | |
Intangible assets | 969,996 | ||
Other Assets | 189,585 | ||
Time Deposits | (124,176 | ) | |
Long term debt | (49,585 | ) | |
Other liabilities | (490,468 | ) | |
Fair value under U.S. GAAP | 2,263,551 | ||
The identified intangible assets are related to ‘core deposits’“core deposits”, which were calculated according to the purchase method and are amortized inover a period of 40 months. Additionally, the allocated amount of net loans and leases are amortized inover a weighted-average period of 3 years. Under U.S. GAAP, the adjustment (net of tax) in the income statement amounted towas €344,426 thousand, €458,493 thousand and €316,607 thousand inas of December 31, 2006, 2005 and 2004, respectively, mainly duerelated to the additional amortization expenses of assets and liabilities subject to amortization.
The “Other liabilities” caption includes basically temporary differences arising formfrom different accounting and tax values of assets and liabilities allocated in the acquisition. Because the amounts allocated to certain assets are non deductible under Spanish Tax Law, additional goodwill and the corresponding deferred tax liabilities have been considered under U.S. GAAP.
The following unaudited proforma information presents a summary of the effect in the BBVA Group’s consolidated results of operations as if the acquisitions described above had occurred on January 1, 2004.
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These unaudited proforma results have been prepared for comparative purposes only. They do not purport to be indicative of the results of operations that actually would have resulted had these operations occurred at January 1, 2004, or future results of operations of the company acquired.
Since Bancomer was consolidated by Group BBVA since July 1, 2000, there are notno purchased research and development assets that were acquired and written off.
There are not series5. Translation of individually immaterial business combinations completed during the period and materialfinancial statements in the aggregate.high-inflation countries-
As indicated in Note 2.h),2.2.g, after the transition date to IFRSs,IFRS, which is January 1, 2004, none of the functional currencies of the consolidated subsidiaries and associates and their branches located abroad relate to hyperinflationary economies as defined by IFRSs.IFRS. Accordingly, atas of December 31, December2006, 2005 and 2004 it was not necessary to adjust the financial statements of any of the consolidated subsidiaries or associates to correct for the effect of inflation.
In accordance to the exemption provided by IFRS 1 First-time Adoption of International Financial Reporting Standards, the cumulative effect of inflation recorded prior to January 1, 2004 (transition date to IFRS) mainly relating to items of property, plant and equipment has not been removed. Therefore, the previous GAAP restated amounts have been used as deemed cost of property, plant and equipment as of the transition date.
However, in prior years, under U.S. GAAP, the financial statements of operating units in a highly inflationary economy were remeasured as if the functional currency of the operating unit were the same as that of the parent reporting currency. For the purposes of this requirement, a highly inflationary economy is one that has cumulative inflation of approximately 100 percent or more over a 3-year3 year period. None of the countries werewhere BBVA ownsowned subsidiaries are highly inflationary countries.
The adjustment reflects the reversal of the charges to shareholders’stockholders’ equity arising from inflation registered in dependent companies established in “non highly inflationary economies” (€267,843239,481 thousand, €267,843 thousand and €224,484 thousand inas of December 31, 2006, 2005 and 2004, respectively).
6. Impact of SFAS 133
As of December 31, 2006, the main differences between IAS 39 and SFAS 133 that have resulted in reconciling items to net income and stockholder’s equity between IFRS and U.S. GAAP were as follows:
InFair value option
IFRS allows for designation of any financial asset or financial liability as held at fair value through the profit or loss if one of the criteria described in IAS 39 is met.
FAS 115 allows designation of financial asset or financial liability as held for trading only if these are acquired and held primarily for resale in the near term to make a profit from short-term movements in market prices.
As of December 31, 2006 and 2005, we maintained certain financial assets and financial liabilities registered at fair value through the profit or loss under IFRS which did not meet the conditions to be designated as financial asset or financial liability held for trading under U.S. GAAP. This difference resulted in a reconciling item to net income (an increase of €72,400 thousand and a decrease of €63,590 as of December 31, 2006 and 2005, respectively) and stockholder’s equity (a decrease of €17,176 thousand and €63,590 thousand as of December 31, 2006 and 2005, respectively) between IFRS and U.S. GAAP.
Retrospective application
As of December 31, 2003, in accordance with IFRS 1First-time adoptionSpanish GAAP certain fair value hedges of International Financial Reporting Standards, we designed certain derivative instrumentsfixed income securities and cash flow hedges of exchange rate risk were considered to be speculative in our U.S. GAAP reconciliation adjustment, since the required documentation was not available at the date on which the aforementioned hedges were designated as hedging instruments assuch.
As of January 1, 2004, following the adoption of IFRS, these transactions continued to be designated as hedges, since they met all the IFRS requirements for hedge accounting.
As of December 31, 2004, in accordance with U.S. GAAP the Group maintained the criteria established in prior years and all cumulative effectsconsidered these transactions to be speculative, which accounted for a portion of the change were accountedreconciliation adjustment for in equity as of January 1, 2004.
However, under U.S. GAAP, such derivatives do not qualify for hedge accounting, since they were not designated and documented as hedging instruments at the inception of the hedging relationship.hedges.
As a consequence, there is an adjustment between U.S. GAAP and IFRSsIFRS in order to reflect in the charge to shareholders’ equity amounted to €63,590net income (a decrease of €6,032 thousand, €26,384 thousand and €12,136€8,677 thousand inas of December 31, 2006, 2005 and 2004, respectively. The chargesrespectively) and in income statement due to this adjustment amounted to €53,446stockholders’ equity (an increase of €128,482 thousand, €147,913 thousand and €79,581€248,947 thousand inas of December 31, 2006, 2005 and 2004, respectively.respectively) the speculative nature of these transactions under U.S. GAAP.
Hedges of interest rate risk portfoliosMethods used to assess hedge effectiveness
At December 31, 2004,Even though the methodology to assess the hedge effectiveness is the same under IFRSsboth IFRS and U.S. GAAP, there are certain adjustments made in order to validate the Group had designed hedge of portfolioseffectiveness that is permitted under IFRS and not under U.S. GAAP.
IFRS 39.F.2.17, “Financial instruments: recognition and measurement”, allows to hedge global interest rate risk exposures. These transactions were permanently subject to an integrated and consistent system of risk management (e.g. estimate value at risk -VaR-designate a hedging instrument as hedging only a portion of the transactionstime period to checkmaturity, and therefore adjust the equity risk is reduced dueeffectiveness test to comply with the use of derivatives…) that measures, controls and manages the risks and the results of the operations involved. The Group considered the fair value all the derivatives and the hedged deposits. The net gains and losses were recorded in the income statement.
At December 31, 2005 the Group had no portfolio hedge of interest rate risk operations.
hedging objective. Under U.S. GAAP this hedge cannot qualify as a hedge. such hedges are not allowed.
As a consequence, in 2006 there is an adjustment in order to reverse these partial hedging transactions under U.S. GAAP. This difference resulted in a reconciling item to net income (an increase of €9,111 thousand) and stockholder’s equity (an increase of €5,061 thousand) between IFRS and U.S. GAAP and IFRSs which effect in income statement amounted to decrease €36,528 thousand and increase €70,904 thousand inGAAP. During 2005 and 2004 respectively. The effect in shareholders’ equity amounted €147,913 thousand and €184,441 thousand in 2005 and 2004, respectively.
Other derivatives
All material intercompany accounts and transactions between the consolidated companies are eliminated in consolidation. This consolidation principle also applies with respect to intercompany derivativethere were not these types of hedging transactions.
As of December 31, 2005, the application of SFAS 133 gave rise to a decrease of €6,023 thousand in net income and an increase of €58,463 thousand in shareholders’ equity. As of December 31, 2004, the application of this method gave rise to an increase of €141,128 thousand in shareholders’ equity.
The effect in Other Comprehensive Income is produced basically by valuating the derivative instruments hedging the available-for-sale portfolio, which under IFRSs are considered hedged items, and therefore are not marked to market, but under U.S. GAAP are not qualified as a hedge.
The effect in Income Statement is registered basically in the item “gains or losses on financial assets and liabilities”.
The fair value of derivatives that afforded hedge accounting treatment under IFRSsIFRS but did not qualify as hedges under U.S. GAAP as of December 31, 2006, 2005 and 2004 amounted negative to €47,338 thousand, €69,214 thousand and negative to €106,913 thousand, respectively.
The fair value of derivatives that afforded hedge accounting treatment under IFRSsIFRS and qualify as hedges under U.S. GAAP as of December 31, 2006, 2005 and 2004 amounted negative to €269,082 thousand, €25,988 thousand and positive to €43,968 thousand, respectively.
Additionally to prior explained differences, as of December 31, 2005 and 2004, there was other difference between IAS 39 and SFAS 133 that resulted in a reconciling item to net income and stockholder’s equity between IFRS and U.S. GAAP as follows:
Definition of a derivative
U.S. GAAP sets out requirements similar to those established by IFRS, except that the terms of the derivative contract should require or permit net settlement and have a notional amount. Contracts that do not comply with these requirements should be accounted according to the accounting provisions established for that particular instrument.
For example certain option and forward agreements to buy unlisted equity investments fall within the IFRS definition, not the U.S. GAAP definition, because of the absence of net settlement.
These transactions should be treated as equity securities if they comply with the definition of this type of instruments included in Appendix C to FAS 115: “An equity security is a security representing an ownership interest in an enterprise (for example, common, preferred, or other capital stock) or the right to acquire (for example, warrants, rights, and call options) or dispose of (for example, put options) an ownership interest in an enterprise at fixed or determinable prices. However, the term does not include convertible debt or preferred stock that by its terms either must be redeemed by the issuing enterprise or is redeemable at the option of the investor”.
As of December 31, 2005 and 2004, we maintained an option to buy unlisted equity investments which fell within the IFRS definition of derivatives, but not the U.S. GAAP definition, because of the absence of net settlement. This difference resulted in a reconciling item to net income (€6,023 thousand in 2005) and stockholder’s equity (€58,463 thousand and €64,486 thousand in 2005 and 2004, respectively) between IFRS and U.S.GAAP.
7. Loans adjustments
Under IAS 39, as we described in Note 2.2.c.4)2.2.b.4 to the Consolidated Financial Statements, a loan is considered to be an impaired loan –- and therefore its carrying amount is adjusted to reflect the effect of its impairment –- when there is objective evidence that events have occurred which, in the case of loans, give rise to a negative impact on the future cash flows that were estimated at the time the transaction was arranged.
As a general rule, the carrying amount of an impaired loan is adjusted with a charge to the consolidated income statement for the year in which the impairment becomes known, and the recoveries of previously recognized impairment losses are recognized in the consolidated income statement for the year in which the impairment is reversed or reduced.
The amount of the impairment losses incurred on these instruments relates to the positive difference between their respective carrying amounts and the present values of their expected future cash flows.
The possible impairment losses on these assets are determined:determined as follows:
Individually, for all significant loans and for those which, although not significant, cannot be classified in homogenous groups of instruments of similar characteristics, i.e. by instrument type, debtor’s industry and geographical location, type of guarantee, age of past-due amounts, etc.
Collectively, in all other cases.
The provisions for the losses that are inherent in a group of loans are recognized taking into account the historical experience of impairment and the other circumstances known at the time of the assessment. These provisions that have not been allocated to individual loans are calculated by using statistical procedures.
Although there shouldForIFRS purposes, we calculate the allowance for incurred losses not yet assigned to specific loans in a portfolio using statistical procedures parameters established by the Bank of Spain. The methodology established by the Bank of Spain in the determination of the level of provisions required to cover inherent losses, is defined in Annex IX of the Circular 4/2004 of Bank of Spain as “losses incurred as at the date of the financial statements, calculated employing statistical methods, which are yet to be no substantial differenceassigned to specific operations”. The Bank of Spain has explicitly stated that all the guidance in the Bank of Spain Circular complies with IFRS.
The Bank of Spain Circular requires us and all Spanish financial institutions to use specific credit risk segmentation of our loans portfolios and of “peer group” statistical percentages in determining the incurred losses not yet assigned to specific loans until the time in which our internal risk models have been reviewed and approved by the Bank of Spain.
According to the Bank of Spain Circular, the Bank of Spain, based on its experience of and information on the Spanish banking sector, has determined the method and amount of the parameters entities must use to calculate the amounts needed to cover the impairment losses inherent in debt instruments and contingent exposures classified as standard. The Bank of Spain shall, by means of the appropriate amendment to the Bank of Spain Circular, periodically update the parameters used in the method to reflect changes in the data for the sector.
However,BBVA Group, in recognizing incurred losses not yet assigned to specific loans in debt instruments at amortized cost, has developed internal risk models that take into account our historical experience of impairment adjusted as appropriate for other objective observable data known at the time that each assessment is made.
We have developed our internal risk model, based on historical information available for each country and type of risk (based on homogenous portfolios), adjusted for objective observable data that corroborates that the use of historical information does not represent the best available information.
Our models use the “expected loss” concept to quantify the cost of our credit risk in order to be able to incorporate it in the calculation of loan allowances between IFRSthe risk adjusted return of our operations. Additionally, the parameters necessary to calculate it are used to calculate the economic capital and in the future, the calculation of the regulatory capital under the internal models of Basle II.
“Expected loss” of a given transaction represents the expected cost, measured as an average within a full economic cycle, of the credit risk of such transaction, considering the profile of the counterparty and the guarantees securing such transaction. The quantification of this expected loss would result out of three factors: “exposure”, “probability of default” and “loss given default”.
Exposure (EAD) is the amount of the risk assumed by default of the counterparty.
Probability of Default (DP) is the probability that the counterpart defaults on its principal and/or interest payments. We also allocate the probability of default by using BBVA’s historical databases to ascertain how this probability varies in terms of the scores allocated by our tools and of other potentially relevant factors (e.g. the seasoning of the transaction).The default probability is linked to the rating/scoring of each customer/transaction. The measurement of DP uses a temporary ceiling of 1 year, meaning that it quantifies that the counterparty defaults within the following year. Default is defined as those amounts not paid within 90 days or more, as well as those outstanding amounts where there is doubt about the solvency of the counterparty (judgmental defaults).
Loss given default (LGD) is the percentage of risk exposure that is not expected to be recovered in the event of default and constitutes one of the key factors in quantitative risk assessment. The method that we mainly use for the calculation of LGD is the “Workout LGD”. This method is based on discounting the cash flows of the defaulted exposure that have been collected at different times of the recovery process. In the case of portfolios with low default rates, which do not have enough data to obtain a reliable estimate by means of the Workout LGD method, other methods are used, such as external sources for obtaining market references on LGD rates suited to the internal portfolio.
The calculation of the incurred loss considers, additionally, the adjustment to the full economic cycle of the factors mentioned above, especially the DP and LGD.
As previously mentioned, the Bank of Spain Circular explicitly requires that the internal valuation allowance methodology described above shall be approved by the Bank of Spain prior to being used for financial statements purposes. Currently, the Bank of Spain has not yet verified such internal models. The Bank of Spain regulation requires that until such time that our internal models are approved; the models developed by the Bank of Spain must be used.
ForU.S. GAAP however,purposes, we used our internal risk models developed by dividing the loan portfolio into different segments; each segment contains loans with similar characteristics, such as risk classification, economic environment (i.e. country), type of loan (e.g. mortgage loans or credit card loans), collateral type, and counterparty type (e.g. consumer, commercial or sovereign). We have developed our internal models by considering our own historical experience, appropriately adjusted for observable data information available over the economic environments where we operate.
In our opinion, the use of “peer group” statistical assumptions, as required by the Bank has included inof Spain for our IFRS Consolidated Financial Statements would not be appropriate under U.S. GAAP. Even when the reconciliationamount falls within an acceptable range of stockholders equity and net income a difference between IFRS and U.S. GAAP related to the determination of allowanceestimated losses, we believe that amount does not allocated to specific loans. According to U.S. GAAP, the loan loss allowance should representcorrespond with the best estimate of probableloan losses.
For that reason, for U.S. GAAP purposes we have used our own appropriately adjusted experience in determining the allowance for loan losses in possible scenarios. Under IFRS, the Bank has additionally applied the statistical percentages obtained from historical trends as determined by the Bank of Spain’s guidance. As a result,and therefore the loan allowances not allocated to specific loans, as determined by using this method, arethe Bank of Spain’ guidance, result in a higher amount than those meetingdetermined following the requirements ofguidance described for U.S. GAAP.
As a consequence, there is an adjustment between U.S. GAAP beingand IFRS in order to reflect in the amounts determined under both GAAP withinnet income the rangereversal of possible estimatedthe provision recorded in each year (an increase of €445,428 thousand, a decrease of €303,277 thousand and an increase of €196,940 thousand as of December 31, 2006, 2005 and 2004, respectively) and in stockholders’ equity the excess of the accumulated allowance for loans losses calculated internally by the Group.(an increase of €2,115,156 thousand, €1,669,728 thousand and €1,996,335 thousand as of December 31, 2006, 2005 and 2004, respectively).
8. Intangible assets
Under IFRSsIFRS intangible assets with finite lives are amortisedamortized over those useful lives. At transition date, the estimated useful lives were reviewed.recalculated. In accordance with IFRS 1First-time adoption of International Financial Reporting Standards,, the previous GAAP restated amounts have been used as deemed cost of certain intangible assets and the differences respectrelated to the previous carrying amounts of these intangible assets were accounted for in shareholders’stockholders’ equity as of January 1, 2004.
Under U.S. GAAP, this adjustment is considered a change in accounting estimates and, in accordance with APB 20Accounting changes,changes, the cumulative effect of the adjustment is reflected in the current year’s income statement.
On a pro-forma basis, had the recognition in income statement9. Tax effect of this adjustment been adopted at the beginning of the earliest period presented, the effect in the Group’s net income for 2004 under U.S. GAAP would have been negative in €105 million (the effect in basicadjustments and diluted earnings per share would have been negative in 0.031).deferred taxation under SFAS No. 109-
The previous adjustments to net income and stockholders’ equity do not include their related effects on corporate tax (except for the adjustments mentioned in Item 1, the acquisition of BBVA Bancomer, S.A. de C.V. described in Item 5 and loans adjustments described in Item 7, which are disclosed under “Tax effect of above mentioned adjustments” item onin the respective reconciliation statements.
As described in Note 2.p)2.2.o under IFRSsIFRS deferred tax assets and liabilities include temporary differences measured at the amount expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the year when the asset iswill be realized or the liability settled.
As a result of the application of Statement of Financial Accounting Standards No. 109 (“SFAS 109”),Accounting for Income Taxes,, the timing differences originated by the revaluation of property and equity securities and by certain provision for coverage of loan losses have been reversed.
In the reconciliation to U.S. GAAP, the Group has recorded as of December 31, 2005, deferred tax assets of €86,791 thousand, €160,506 thousand (negativeand negative €2,166,045 thousand as of December 31, 2004)2006, 2005 and 2004 and deferred tax liabilities of €238,421 thousand, €450,852 thousand (€210,493and €210,493 thousand as of December 31, 2004).2006, 2005 and 2004, respectively.
SFAS 109 requires providing a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. As of December 31, 2006, 2005 and 2004 the valuation allowance amounted towas €45,068 thousand, €278,261 thousand and €344,950 thousand, respectively.
As required by SFAS 109, the effects of the change in Spanish tax laws were included in income (see Note 37.e)
The following is a reconciliation of the income tax provision under IFRSsIFRS to that under U.S.GAAP:U.S. GAAP:
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Thousands of Euros | Thousands of Euros | ||||||||||||||
Income tax provision under IFRSs | 1,521,181 | 1,028,631 | |||||||||||||
Income tax provision under IFRS | 2,059,301 | 1,521,181 | 1,028,631 | ||||||||||||
Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS 109 | (1,668,657 | ) | (158,314 | ) | (237,882 | ) | (1,668,657 | ) | (158,314 | ) | |||||
Of which: Adjustments of deferred tax liability/assets for enacted changes in tax laws of U.S. adjustments | (325,629 | ) | — | — | |||||||||||
Income tax provision under U.S. GAAP | (147,476 | ) | 870,317 | 1,821,419 | (147,476 | ) | 870,317 |
FollowingThe following is a reconciliation of the deferred tax assets and liabilities recorded under IFRSsIFRS and those that should be recorded under SFAS 109.
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||
Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | ||||||||||||||||||||
Thousands of Euros | Thousands of Euros | ||||||||||||||||||||||||||||
As reported under IFRSs | 5,553,710 | 1,501,738 | 5,801,891 | 1,397,139 | |||||||||||||||||||||||||
As reported under IFRS | 4,703,397 | (1,746,889 | ) | 5,553,710 | (1,501,738 | ) | 5,801,891 | (1,397,139 | ) | ||||||||||||||||||||
Less- | |||||||||||||||||||||||||||||
Timing differences recorded under IFRSs and reversed in the reconciliation to U.S. GAAP | (1,333,337 | ) | — | (345,287 | ) | — | |||||||||||||||||||||||
Tax effect of IFRSs to U.S. GAAP reconciliation adjustments | (15,926 | ) | — | (2,350,060 | ) | (411,456 | ) | ||||||||||||||||||||||
Timing differences recorded under IFRS and reversed in the reconciliation to U.S. GAAP | (1,355,106 | ) | — | (1,333,337 | ) | — | (345,287 | ) | — | ||||||||||||||||||||
Tax effect of IFRS to U.S. GAAP reconciliation adjustments | (14,604 | ) | — | (15,926 | ) | — | (2,350,060 | ) | 411,456 | ||||||||||||||||||||
Plus- | |||||||||||||||||||||||||||||
Tax effect of IFRSs to U.S. GAAP reconciliation adjustments | 176,432 | 450,852 | 184,015 | 621,949 | |||||||||||||||||||||||||
Tax effect of IFRS to U.S. GAAP reconciliation adjustments | 101,395 | (238,421 | ) | 176,432 | (450,852 | ) | 184,015 | (621,949 | ) | ||||||||||||||||||||
As reported under SFAS 109 (gross) | 4,380,879 | 1,952,590 | 3,290,559 | 1,607,632 | 3,435,082 | (1,985,310 | ) | 4,380,879 | (1,952,590 | ) | 3,290,559 | (1,607,632 | ) | ||||||||||||||||
Valuation reserve | (278,261 | ) | — | (344,950 | ) | — | (45,068 | ) | — | (278,261 | ) | — | (344,950 | ) | — | ||||||||||||||
As reported under SFAS 109 (net) | 4,102,618 | 1,952,590 | 2,945,609 | 1,607,632 | 3,390,014 | (1,985,310 | ) | 4,102,618 | (1,952,590 | ) | 2,945,609 | (1,607,632 | ) |
FollowingThe following is an analysis of deferred tax assets and liabilities as of December 31, 2006, 2005 and 2004 estimated in accordance with U.S. GAAP:
December 31, | December 31, | ||||||||||||||
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
(Thousands of Euros) | (Thousands of euros) | ||||||||||||||
Deferred Tax assets | |||||||||||||||
Loan loss reserves | 610,977 | 667,315 | 829,767 | 610,977 | 667,315 | ||||||||||
Unrealized losses on securities pension liability | 1,645,126 | 1,098,916 | 1,645,499 | 1,645,126 | 1,098,916 | ||||||||||
Fixed assets | 135,711 | 70,233 | 86,012 | 135,711 | 70,233 | ||||||||||
Net operating loss carryforward | 664,447 | 843,567 | 330,178 | 664,447 | 843,567 | ||||||||||
Investments and derivatives | 444,488 | 246,645 | 35,576 | 444,488 | 246,645 | ||||||||||
Goodwill | 8,055 | 20,207 | (74,128 | ) | 8,055 | 20,207 | |||||||||
Other | 872,075 | 343,676 | 582,178 | 872,075 | 343,676 | ||||||||||
Total deferred tax assets | 4,380,879 | 3,290,559 | 3,435,082 | 4,380,879 | 3,290,559 | ||||||||||
Valuation reserve | (278,261 | ) | (344,950 | ) | (45,068 | ) | (278,261 | ) | (344,950 | ) | |||||
Net tax asset | 4,102,618 | 2,945,609 | 3,390,014 | 4,102,618 | 2,945,609 | ||||||||||
Deferred tax liabilities | |||||||||||||||
Unrealized gains on securities pension liability | (1,396 | ) | — | — | |||||||||||
Unrealized gains on investments | (1,273,870 | ) | (1,121,963 | ) | (1,449,668 | ) | (1,273,870 | ) | (1,121,963 | ) | |||||
Gains on sales of investments | (67,368 | ) | — | (135,238 | ) | (67,368 | ) | — | |||||||
Fixed assets | (160,746 | ) | — | (98,642 | ) | (160,746 | ) | — | |||||||
Goodwill | (346,914 | ) | (485,669 | ) | (147,980 | ) | (346,914 | ) | (485,669 | ) | |||||
Other | (103,692 | ) | — | (152,386 | ) | (103,692 | ) | — | |||||||
Total deferred tax liabilities | (1,952,590 | ) | (1,607,632 | ) | (1,985,310 | ) | (1,952,590 | ) | (1,607,632 | ) | |||||
Valuation reserve | — | — | — | — | — | ||||||||||
Net tax liabilities | (1,952,590 | ) | (1,607,632 | ) | (1,985,310 | ) | (1,952,590 | ) | (1,607,632 | ) |
Reconciliation between the federal statutory tax rate and the effective income tax rate is as follows:
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
% percentages | % percentages | ||||||||||||||
Corporate income tax at the standard rate of 35% | 35.00 | 35.00 | 35.00 | 35.00 | 35.00 | ||||||||||
Decrease arising from permanent differences | (6.25 | ) | (6.06 | ) | (7.16 | ) | (6.25 | ) | (6.06 | ) | |||||
Adjustments to the provision for prior years’ corporate income tax and others taxes | (1.54 | ) | (4.07 | ) | |||||||||||
Income tax provision under IFRSs | 27.20 | 24.87 | |||||||||||||
Adjustments to the provision for prior years’ corporate income tax and other taxes | 1.45 | (1.54 | ) | (4.07 | ) | ||||||||||
Income tax provision under IFRS | 29.29 | 27.20 | 24.87 | ||||||||||||
Tax effect of U.S. GAAP adjustments and deferred taxation under SFAS 109 | (77.13 | ) | (3.76 | ) | (3.39 | ) | (34.02 | ) | (4.23 | ) | |||||
Income tax provision under U.S. GAAP | (6.82 | ) | 20.64 | 25.90 | (6.82 | ) | 20.64 |
10. Pension plan cost-
Prior yearsUntil 2004 both under Spanish GAAP and U.S. GAAP, the cumulative actuarial losses and certain losses were amortized in a straight-line method over the average expected years of work of employees.employment.
InAt January 1, 2005, in accordance with IFRS 1 First-time adoption of International Financial Reporting Standards, all cumulative actuarial losses were accounted for in equity as of January 1, 2004 (see Note 3Appendix VI to Consolidated Financial Statements), and in future years all cumulativefrom January 1, 2004, actuarial losses will behave been accounted for in the income statement for the year when these losses have been incurred instead of useusing the corridor basis.approach.
Under U.S. GAAP, both methods are available in accordance to SFAS 87. Therefore, we decided to change this accounting principle from January 1, 2005 and in future years all cumulative2005. Hereinafter, actuarial losses will behave been accounted for in the income statement.statement for the year when these losses have been incurred.
Under U.S. GAAP,Paragraph 8 of APB 20 states that a characteristic of a change in accounting principle is that it concerns a choice from among two or more generally accepted accounting principles.
FASB Staff Implementation Guide on SFAS 106, Answer to Question 32 states that an employer should select an amortization method and apply it consistently from period to period as long as the resulting amortization equals or exceeds the minimum amortization specified by paragraph 59.
We believe that this guidance permits election between different amortization methods that in fact are different and acceptable accounting principles and therefore our conclusion is that a change to a preferable amortization method is in accordance with paragraph 16 of APB Opinion No. 20, Accounting Changes, is an accounting change that enters into the definition of paragraph 8 of APB 20 aforementioned.
We have followed the guidance set forth in Statement 87 paragraph 33 that permits any systematic method of amortization of unrecognized gains or losses instead of the minimum specified in paragraph 32 of SFAS 87.
We believe that the change in accounting principle (change to a method of amortization that is permitted) that accelerates recognition is preferable because it accelerates the recognition of events that have occurred and the new approach rapidly directs the recorded liability toward the economic liability providing recognition of events that have occurred.
In accordance with APB 20 Accounting changes, the cumulative effect of the change is reflectedin accounting principle shall be recognized in the current year’s income statement.statement for the year when the change occurred.
As a consequence, there is an adjustment between U.S. GAAP and IFRSs in orderdue to reflect the reversal offact that under IFRS we changed the charges to shareholders’ equity as ofaccounting principle retrospectively from January 1, 2004, (€1,589,071 thousand). Additionally,while under U.S. GAAP we changed the accounting principle from January 1, 2005.
The amounts of pension plan cost adjustments presented in 2005 the charges inIFRS to U.S. GAAP Net Income and Stockholders’ reconciliation for the year 2004 were as follows:
elimination of the charge to Retained earnings related to First-time adoption IFRS at January 1, 2004: €1,588,464 thousand;
elimination of the credit to Retained earnings related to tax effect related to prior adjustment: €524,143 thousand;
elimination of the charge to income statement due to this adjustment amounted to €2,164,038 thousand. Shareholders’ equitymade under IFRS as of December 31, 2004: €607 thousand;
elimination of the charge to income statement related to tax effect related to prior adjustment: €5,590 thousand;
The amounts of pension plan cost adjustments presented in the IFRS to U.S. GAAP Net Income and Stockholders’ Equity reconciliation for the year 2005 were as follows:
charge to income statement related to First-time adoption IFRS at January 1, 2004 and effect for the year 2004 and 2005: €2,164,038 thousand;
credit to income statement related to tax effect related to prior adjustment: €719,691 thousand.
There is no effect in reconciliation to stockholders’ equity for the same under bothyear 2005, related to the fact that these two adjustments were recognized with counterparties a credit for and a charge to Retained earnings for €2,164,038 thousand and €719,691 thousand, respectively.
Because of prior mentioned change in accounting principles, as of December 31, 2006 and 2005, there was no difference between IFRS and U.S. GAAP.GAAP pension obligations accounting.
We consider that the recognition in income statement is preferable due to it reflects better the financial position and results of the company.11. Other Comprehensive Income
On a pro-forma basis, had the recognition in income statement of all cumulative actuarial losses been adopted at the beginning of the earliest period presented, the effect net of tax in the Group’s net income for 2004 under U.S. GAAP would have been negative in €1,444,347 thousand (the effect in basic and diluted earnings per share would have been negative in 0.428).
SFAS No. 130,Reporting comprehensive incomeComprehensive Income establishes standards for reporting and display ofdisclosing information related to comprehensive income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonownernon-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
The accumulated balances of other comprehensive income for the years endedas of December 31, 2006, 2005 and 2004 were as follows:
Foreign currency translation adjustments | Unrealized gains on securities | Gains on Derivative Instruments | Other Comprehensive income | ||||||||
Thousands of Euros | |||||||||||
Balance as of December 31, 2003 | (3,413,689 | ) | 1,646,529 | 40,043 | (1,727,117 | ) | |||||
Changes in 2004 | (308,751 | ) | 600,246 | (11,375 | ) | 280,120 | |||||
Balance as of December 31, 2004 | (3,722,440 | ) | 2,246,775 | 28,668 | (1,446,997 | ) | |||||
Changes in 2005 | 1,138,449 | 882,753 | (118,586 | ) | 1,902,616 | ||||||
Balance as of December 31, 2005 | (2,583,991 | ) | 3,129,528 | (89,918 | ) | 455,619 |
Balance as of December 31, 2003 Changes in 2004 Balance as of December 31, 2004 Changes in 2005 Balance as of December 31, 2005 Changes in 2006 Balance as of December 31, 2006 Foreign
currency
translation
adjustments Unrealized
gains on
securities Gains on
Derivative
Instruments Other
Comprehensive
income Thousands of Euros (3,413,689 ) 1,646,529 40,043 (1,727,117 ) (308,751 ) 600,246 (11,375 ) 280,120 (3,722,440 ) 2,246,775 28,668 (1,446,997 ) 1,138,449 882,753 (118,586 ) 1,902,616 (2,583,991 ) 3,129,528 (89,918 ) 455,619 (708,212 ) 110,552 106,777 (490,883 ) (3,292,203 ) 3,240,080 16,859 (35,264 )
Taxes allocated to each component of other comprehensive income inas of December 2006, 2005 and 2004 were as follows:
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||||||||||||||||||
Before Tax Amount | Tax expense or benefit | Net of tax amount | Before Tax Amount | Tax expense or benefit | Net of tax amount | Before Tax Amount | Tax expense or benefit | Net of tax amount | Before Tax Amount | Tax expense or benefit | Net of tax amount | Before Tax Amount | Tax expense or benefit | Net of tax amount | |||||||||||||||||||||||||||||||
Thousands of Euros | Thousands of Euros | ||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translations adjustment | 1,138,449 | — | 1,138,449 | (308,751 | ) | — | (308,751 | ) | (708,212 | ) | — | (708,212 | ) | 1,138,449 | — | 1,138,449 | (308,751 | ) | — | (308,751 | ) | ||||||||||||||||||||||||
Unrealized gains on securities: | |||||||||||||||||||||||||||||||||||||||||||||
Unrealized holding gains arising during the period | 1,219,434 | (336,681 | ) | 882,753 | 1,245,770 | (370,925 | ) | 874,845 | 424,803 | (314,251 | ) | 110,552 | 1,219,434 | (336,681 | ) | 882,753 | 1,245,770 | (370,925 | ) | 874,845 | |||||||||||||||||||||||||
Reclassification adjustment | — | — | — | (517,549 | ) | 243,050 | (274,599 | ) | — | — | — | — | — | — | (517,549 | ) | 243,050 | (274,599 | ) | ||||||||||||||||||||||||||
1,219,434 | (336,681 | ) | 882,753 | 728,121 | (127,875 | ) | 600,246 | 424,803 | (314,251 | ) | 110,552 | 1,219,434 | (336,681 | ) | 882,753 | 728,121 | (127,875 | ) | 600,246 | ||||||||||||||||||||||||||
Derivatives Instruments and Hedging Activities | (159,600 | ) | 41,014 | (118,586 | ) | (14,252 | ) | 2,877 | (11,375 | ) | 138,810 | (32,033 | ) | 106,777 | (159,600 | ) | 41,014 | (118,586 | ) | (14,252 | ) | 2,877 | (11,375 | ) | |||||||||||||||||||||
Other comprehensive income | 2,198,283 | (295,667 | ) | 1,902,616 | 405,118 | (124,998 | ) | 280,120 | (144,599 | ) | (346,284 | ) | (490,883 | ) | 2,198,283 | (295,667 | ) | 1,902,616 | 405,118 | (124,998 | ) | 280,120 | |||||||||||||||||||||||
12. Earnings per share
SFAS No. 128,Earnings per Share,, specifies the computation, presentation and disclosure requirements for earnings per share (EPS).
Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator), which may include contingently issuable shares where all necessary conditions for issuance have been satisfied. Diluted earnings per share include the determinants of basic earnings per share and, in addition, give effect to dilutive potential common shares that were outstanding during the period.
As indicated in Notes 59.1062.A.10 of this Annual Report, effective on January 1, 2004, whichthis supposed a change in our accounting policy related to pensions for U.S. GAAP purposes. As described in Note 3,Appendix VI, upon adoption of IFRS, the cumulative effect of this change as of January 1, 2004 was recognized in shareholders’stockholders’ equity, in accordance with IFRS 1 First-Time Adoption of International Financial Reporting Standards.
The computation of basis and diluted earnings per share for the years endedas of December 31, 2006, 2005 and 2004 is presented in the following table:
2005 | 2004 | 2006 | 2005 | 2004 | ||||||||
Thousands of Euros, except per share data | Thousands of Euros, except per share data | |||||||||||
Numerator for basic earnings per share: | ||||||||||||
Income available to common stockholders (IFRS). | 3,806,425 | 2,922,596 | ||||||||||
Income available to common stockholders (IFRS) | 4,735,879 | 3,806,425 | 2,922,596 | |||||||||
Income available to common stockholders (U.S. GAAP): | ||||||||||||
Before cumulative effect of changes in accounting principles | 3,462,035 | 3,095,343 | 4,971,692 | 3,462,035 | 3,089,046 | |||||||
Cumulative effect of changes in accounting principles | (1,444,347 | ) | — | — | (1,444,347 | ) | 6,297 | |||||
After cumulative effect of changes in accounting principles | 2,017,688 | 3,095,343 | 4,971,692 | 2,017,688 | 3,095,343 | |||||||
Numerator for diluted earnings per share: | ||||||||||||
Income available to common stockholders (IFRS) | 3,806,425 | 2,922,596 | 4,735,879 | 3,806,425 | 2,922,596 | |||||||
Income available to common stockholders (U.S. GAAP): | ||||||||||||
Before cumulative effect of changes in accounting principles | 3,462,035 | 3,095,343 | 4,971,692 | 3,462,035 | 3,089,046 | |||||||
Cumulative effect of changes in accounting principles | (1,444,347 | ) | — | — | (1,444,347 | ) | 6,297 | |||||
After cumulative effect of changes in accounting principles | 2,017,688 | 3,095,343 | 4,971,692 | 2,017,688 | 3,095,343 | |||||||
Denominator for basic earnings per share | 3,390,852,043 | 3,372,153,413 | 3,405,418,793 | 3,390,852,043 | 3,372,153,413 | |||||||
Denominator for diluted earnings per share | 3,390,852,043 | 3,372,168,559 | 3,405,418,793 | 3,390,852,043 | 3,372,168,559 | |||||||
IFRS | ||||||||||||
Basic earnings per share (Euros) | 1.123 | 0.867 | 1.39 | 1.12 | 0.87 | |||||||
Diluted earnings per share (Euros) | 1.123 | 0.867 | 1.39 | 1.12 | 0.87 | |||||||
U.S. GAAP | ||||||||||||
Before cumulative effect of changes in accounting principles: | ||||||||||||
Basic earnings per share (Euros) | 1.021 | 0.918 | 1.46 | 1.02 | 0.92 | |||||||
Diluted earnings per share (Euros) | 1.021 | 0.918 | 1.46 | 1.02 | 0.92 | |||||||
After cumulative effect of changes in accounting principles: | ||||||||||||
Basic earnings per share (Euros) | 0.595 | 0.918 | 1.46 | 0.59 | 0.92 | |||||||
Diluted earnings per share (Euros) | 0.595 | 0.918 | 1.46 | 0.59 | 0.92 |
13. FIN 46-R
In November 2002,We arranged the FASB issued Interpretation No. 45,Guarantor’s Accountingissuance of preferred shares using special purpose vehicles (See Note 26.5.2). Our preferred security transactions are based on the following model:
We are the sponsor in the issuance of certain debentures by special purpose vehicles (SPEs) (the issuer of preference shares) that we incorporated and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). This interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair valuewhich we hold 100% of the obligation undertaken in issuing the guarantee.
Under IFRSs, financial guarantees are measured at fair value which, on initial recognitioncommon stock and in the absence of evidencevoting rights.
The SPEs issue preferred securities to the contrary, is the present value3rd party investors. The terms of the cash flowspreferred securities are issued in perpetuity with fixed dividend coupon and can be called by the SPEs (what are the conditions for calling)
The SPEs lend both the proceeds raised from the preferred securities and the common stock back to be received, using anus through intercompany loans with fixed maturities and fixed interest rate similar to that of the financial assets granted by the entity with a similar term and risk. Simultaneously, the present value of the future cash flows receivable, calculated using the aforementioned interest rate, is recognized under the heading Other Financial Assets.
Subsequent to initial recognition, contracts are treated as follows:
According to IFRSs, all outstanding contingent liabilities and commitments that might in the future affect the net worth of the Bank should be recorded in memorandum accounts. These amounts represent the maximum principal which the Bank may be required to disburse and the maximum potential exposure if all such obligations were ultimately to become worthless. These include, principally, commercial and stand-by letters of credit, bankers acceptances, loan commitments and guarantees. Note 38 to the financial statements contain disclosures about our contingent liabilities and commitments.
In addition, under IFRSs, obligations reflected in memorandum accounts which fall within the scope of FIN 45 are evaluated in terms of credit risk, following criteria analogous to those described in Note 2.c.4), which substantially meet SFAS 5 provisions, and a liability is recorded accordingly.
When a guarantee ispreferred securities issued by the Bank as part of a transaction with multiple elements with an unrelated party (i.e. embedded in other contracts),SPEs. Consequently, the fair value of suchSPEs use the cash received from interest payments on BBVA loans to pay dividends to the preferred securities holders.
We guarantee is recorded as a liability at the inception. The fair value is estimated using the net present value of expected future payments.
Baseddividend payments on the discussions above, accounting criteriapreferred securities.
We consolidated the SPEs under IFRSs for treatment of contingent liabilities doIFRS according to SIC 12 as we controlled them. However, under U.S. GAAP, BBVA does not differ significantly fromconsolidate the special purpose vehicle (issuer) as we has been concluded that requiredwe are not the primary beneficiary as considered by FIN 45 under U.S. GAAP. Therefore, we believe that46-R for the adoptionreasons described below.
We as sponsor of FIN 45 does notthe issuer of the preference shares neither have a material impact onsignificant residual interest held since our common shares are not viewed as equity at risk as our investment is returned back to us through the Bank’s financial position or results of operations.
The Group issued various noncumulative, nonvoting,intercompany loan, nor the loan payable to the special purpose vehicle would be considered variable interests since they assume variability. Additionally, the fact that BBVA unconditionally guarantees the trust preferred stock guaranteed by Banco Bilbao Vizcaya Argentaria, S.A., the parent company (see Note 26.5). These issues were subscribed by third parties outside the Group and are wholly or partially redeemable at the Company’s option after five or ten years from the issue date, depending on the terms of each issue.
Under IFRSs, as of December 31, 2005 and 2004, all preferred stocks to variable interest entities issuers of preferred stock are classified as liabilities.securities is not relevant, since BBVA is guaranteeing its own obligations.
Under U.S. GAAP we consider the investments in the common stock of this classification is consistent withclass of special purpose vehicles as equity-method investees according to APB Opinion No. 18.
As a result of the requirement by FIN 46-R.deconsolidation of the SPEs, the loans received from the SPEs are presented as financial liabilities under U.S. GAAP.
Consequently, the deconsolidation of the entities described in Note 26.5 to our Consolidated Financial Statements has no impact on shareholder’s equity or net income under U.S. GAAP. These financial instruments that are presented under IFRS in the caption “Subordinated liabilities - preferences shares” are presented under U.S. GAAP under the caption “Time deposits” (€4,025,002 thousand).
In September 2000, the Financial14. Other Accounting Standards Board issued Statement No. 140 (“SFAS 140”),Accounting For The Transfers And Servicing Of Financial Assets And Extinguishments Of Liabilities, which replaces SFAS 125 (of the same title). SFAS 140 revises certain standards in the accounting for securitizations and other transfers of financial assets and collateral, and requires some disclosures relating to securitization transactions and collateral, but it carries over most of SFAS 125’s provisions.
As explained in Note 2.t) the accounting of transfer of Financial Assets under IFRSs does not present significant differences with respect to U.S. GAAP. During 2005 and 2004 the Group transferred loans to securizitation funds (See Note 14.3).
Statements of Financial Accounting Standards No. 123 (Revised 2004): Share-Based Payment“Share-Based Payment”
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Shared Based Payments (SFAS 123R). This statement eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” to stock compensation awards issued to employees. Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award—award - the requisite service period (usually the vesting period). SFAS 123R applies to all awards granted after the required effective date, December 15, 2005, and to awards modified, repurchased, or cancelled after that date. SFAS 123R will bewas effective for our fiscal year beginning January 1, 2006. The Company does not anticipate that adoptionapplication of this Standard will have a material effectnew accounting standard by BBVA had no impact on its financial position, cash flows or results of operations, or cash flows.operations.
SAB No. 107: Shared“Shared Based PaymentPayment”
On March 29, 2005, the SEC released a Staff Accounting Bulletin (SAB) relating to the FASB accounting standard for stock options and other share-based payments. The interpretations in SAB No. 107, “Share-Based Payment,” (SAB 107) express views of the SEC Staff regarding the application of SFAS No. 123 (revised 2004), “Share-Based Payment “(Statement 123R). Among other things, SAB 107 provides interpretive guidance related to the interaction between Statement 123R and certain SEC rules and regulations, as well as provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The Company does not anticipate that adoptionapplication of SAB 107 will have any effectthis new accounting standard by BBVA had no impact on its financial position, cash flows or results of operations or cash flows.operations.
Statements of Financial Accounting Standards No. 153: Exchanges“Exchanges of Non-monetary Assets—An Amendment of APB Opinion No. 2929”
On December 16, 2004, the FASB issued SFAS No.153, “Exchanges of Non-monetary Assets—an amendment of APB Opinion No. 29”, which amends Accounting Principles Board Opinion No. 29 “Accounting for Nonmonetary Transactions”. This amendment is based on the idea that exchange transactions should be valued in accordance with the value of the exchanged assets. The exception made for similar non-monetary productive assets is eliminated and substituted by a more extensive exception related to non-monetary assets with a non-commercial consideration. APB No. 29 stated that the exchange transaction of a productive asset for a similar one should be recorded at the book value of the exchanged asset.
SFAS No. 153 will bewas applicable for non-monetary asset exchange transactions occurring in fiscal periods beginning after June 15, 2005. The Company does not anticipate that adoptionapplication of SFAS No. 153 will have any effectthis new accounting standard by BBVA had no impact on its financial position, cash flows or results of operations or cash flows.operations.
EITF 04-1: Accounting“Accounting for Preexisting Relationships between the Parties to a Business CombinationCombination”
This Issue addresses the accounting for preexisting relationships between the parties to a business combination. The consensuses in this Issue should be applied to business combinations consummated and goodwill impairment tests performed in reporting periods beginning after October 13, 2004. The application of this new accounting literature by BBVA had no impact on its financial position, cash flows or results of Operations.operations.
SFASStatement of Financial Accounting Standards No. 154,154: “Accounting Changes and Error Corrections”
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28”. This statement provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Bank will apply these requirements to anyapplication of this new accounting changes after the implementation date.standard by BBVA in 2006 had no significant impact on its financial position, cash flows or results of operations.
FASB Interpretation No. 47: Accounting“Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143143”
OnIn March 2005, FASB issued Interpretation No. 47. The Board concluded that asset retirement obligations within the scope of Statement 143 that meet the definition of a liability in Concepts Statement 6 should be recognized as a liability at fair value if
fair value can be reasonably estimated. The Board believes that when an existing law, regulation, or contract requires an entity to perform an asset retirement activity, an unambiguous requirement to perform the retirement activity exists, even if that activity can be deferred indefinitely. At some point, deferral is no longer possible, because no tangible asset will last forever, except land. Therefore, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. The use of an expected value technique to measure the fair value of the liability reflects any uncertainty about the amount and timing of future cash outflows. This Interpretation is effective no later than December 31, 2005, for calendar-year enterprises. The application of this new accounting literature by BBVA had no impact on its financial position, cash flows or results of Operations.operations.
Statement of Financial Accounting Standards No. 155FAS 158: “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132”
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R). SFAS No. 158 requires employers to recognize a net liability or asset and an offsetting adjustment to accumulate other comprehensive income to report the funded status of defined benefit pension and other post-retirement benefit plans. Previous standards required employers to disclose the complete funded status of its plans only in the notes to the financial statements. Additionally, SFAS No. 158 requires employers to measure plan assets and obligations at their year-end balance sheet date. Guidance relating to the recognition of the over or under funded status of the plan and additional disclosure requirements was effective for our fiscal year ended December 31, 2006. Under IFRS and U.S. GAAP, actuarial gains or losses (arising from differences between the actuarial assumptions and what had actually occurred) and prior service cost (there are no transition cost), were recognized in the consolidated income statements (see Note 2.2.e). Therefore, it did not have impact in the results of operations, financial position or cash flows. Guidance relating to the measurement date of the plans is effective for the years ending after December 15, 2008 and we have no a material impact in our results of operations, financial position or cash flows, due to the fact that measurement date is December 31 for each fiscal year (see Note 29 “Commitments with personnel”).
Financial Staff Position FAS 115-1 and FAS 124-1:”The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”
On November 2, 2005, the FASB issued Financial Staff Position (“FSP”) FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” which nullifies certain requirements of Emerging Issues Task Force (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments” and supersedes EITF Abstracts Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security whose Cost Exceeds Fair Value.” The guidance in this FSP is effective for reporting periods beginning after December 15, 2005. The adoption of this guidance had no a material effect on its financial position, results of operations or cash flows.
SAB 108: “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 expresses the SEC Staff’s views regarding the process of quantifying financial statement misstatements. SAB 108 states that in evaluating the materiality of financial statement misstatements, a corporation must quantify the impact of correcting misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. SAB 108 was effective for our fiscal year ended December 31, 2006. The application of SAB 108 did not have a significant impact in our results of operations, financial position or cash flows.
15. New Accounting Standards
FASB Interpretation No. 48: “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”
In June 2006, FASB issued Interpretation No. 48 that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. This Interpretation is effective for fiscal years beginning after December 15, 2006.
Statement of Financial Accounting Standards No. 155: “Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements No. 133 and 140140”
OnIn February 2006 the FASB issued this Statement that amends FASB Statements No. 133, Accounting“Accounting for Derivative Instruments and Hedging Activities,Activities”, and No. 140, Accounting“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.Liabilities”. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.”
This Statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends Statement 140 to eliminate the prohibition on a qualifying special purpose entity from holding a F-145 derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Earlier adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period for that fiscal year. The Company does not anticipate that the adoption of this new statement at the required effective date will have a significant effect in its results of operations, financial position or cash flows.
Statement of Financial Accounting Standards No. 156 Accounting156: “Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140140”
OnIn March 2006 the FASB issued this Statement that amends FASB Statements No. 140, Accounting“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities.
The new Statement should be adopted as of the beginning of the first fiscal year that begins after September 15, 2006. The Company does not anticipate that the adoption of this new statement at the required effective date will have a significant effect in its results of operations, financial position or cash flows.
The MeaningStatement of Other-Than-Temporary Impairment and Its Application to Certain InvestmentsFinancial Accounting Standards No. 157: “Fair Value Measurement”
On November 2, 2005,In September 2006, the FASB issued Financial Staff Position (“FSP”) FAS 115-1this Statement that defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and FAS 124-1, “The Meaning of Other-Than-Temporary Impairmentexpands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair
value measurements and Its Application to Certain Investments,” which nullifies certain requirements of Emerging Issues Task Force (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” and supersedes EITF Abstracts Topic No. D-44, “Recognition of Other-Than-Temporary Impairment Upon the Planned Sale of a Security whose Cost Exceeds Fair Value.” The guidance in this FSP will be applied to reporting periodsdoes not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after DecemberNovember 15, 2005.2007, and interim periods within those fiscal years. The Company does not expectanticipate that the adoption of this guidancenew statement at the required effective date will have a materialsignificant effect onin its financial position, results of operations, financial position or cash flows.
(59.B)Statement of Financial Accounting Standards No. 159: “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”
In February 2007 the FASB issued this Statement that includes an amendment of FASB Statements No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option in this Statement is similar, but not identical, to the fair value option in IAS 39, Financial Instruments: Recognition and Measurement. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.
B) CONSOLIDATED FINANCIAL STATEMENTS
1. Differences relating to the financial statements presentation-
In addition to differences between IFRSsIFRS and U.S. GAAP affecting to net income and/or stockholders’ equity, there are differences relating to the financial statements presentation exist between IFRSsIFRS and U.S. GAAP presentation following the formatting guidelines in Regulation S-X of the Securities and Exchange Commission of the United States. Although these differences do not cause differences between IFRSsIFRS and U.S. GAAP reported net income and/or stockholders’ equity.
2. Consolidated Financial Statements under Regulation S-X-
Following are the consolidated balance sheets of the BBVA Group as of December 31, 2006, 2005 and 2004 and the consolidated statement of income for each of the years ended December 31, 2006, 2005 and 2004, in the format for banks and bank holding companies required by Regulation S-X of the Securities and Exchange Commission of the United States of America, and, accordingly, prepared under U.S. GAAP (after reconciliation adjustments described above in Note 59.a).62.A)
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2006, 2005 AND 2004
(Currency—Thousands of Euros)
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Assets | |||||||||||||||
Cash and due from banks | 4,114,296 | 2,837,318 | 4,779,273 | 4,114,296 | 2,837,318 | ||||||||||
Interest-bearing deposits in other banks | 23,237,556 | 18,544,453 | 19,294,359 | 23,237,556 | 18,544,453 | ||||||||||
Securities purchased under agreements to resell | 13,636,016 | 6,967,755 | 7,117,444 | 13,636,016 | 6,967,755 | ||||||||||
Trading securities | 45,433,034 | 30,470,952 | 52,812,223 | 45,433,034 | 30,470,952 | ||||||||||
Investments securities | 64,048,011 | 53,239,797 | 48,235,947 | 64,048,011 | 53,239,797 | ||||||||||
Net Loans and leases: | |||||||||||||||
Loans and leases, net of unearned income | 224,066,730 | 174,330,506 | 261,862,607 | 224,066,730 | 174,330,506 | ||||||||||
Less: Allowance for loan losses | (3,916,928 | ) | (3,344,681 | ) | (4,288,441 | ) | (3,916,928 | ) | (3,344,681 | ) | |||||
Hedging derivatives | 3,971,149 | 4,381,045 | 2,010,658 | 3,971,149 | 4,381,045 | ||||||||||
Premises and equipment, net | 3,702,092 | 2,731,828 | 3,905,420 | 3,702,092 | 2,731,828 | ||||||||||
Investments in affiliated companies | 1,434,573 | 3,757,119 | 888,936 | 1,434,573 | 3,757,119 | ||||||||||
Intangible assets | 706,546 | 978,346 | 465,715 | 706,546 | 978,346 | ||||||||||
Goodwill in consolidation | 10,344,816 | 8,573,433 | 11,142,456 | 10,344,816 | 8,573,433 | ||||||||||
Accrual accounts | 557,278 | 2,773,476 | 673,818 | 557,278 | 2,773,476 | ||||||||||
Others assets | 10,463,964 | 8,108,241 | 12,070,898 | 10,463,964 | 8,108,241 | ||||||||||
Total assets | 401,799,133 | 314,349,588 | 420,971,313 | 401,799,133 | 314,349,588 | ||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||
Liabilities | |||||||||||||||
Demand deposits | 57,973,113 | 46,271,237 | 68,631,647 | 57,973,113 | 46,271,237 | ||||||||||
Savings deposits | 32,722,688 | 26,239,800 | 36,161,105 | 32,722,688 | 26,239,800 | ||||||||||
Time deposits | 103,245,406 | 94,272,031 | 101,634,372 | 103,245,406 | 94,272,031 | ||||||||||
Due to Bank of Spain | 6,822,123 | 11,150,701 | 4,688,790 | 6,822,123 | 11,150,701 | ||||||||||
Trading account liabilities | 16,270,865 | — | |||||||||||||
Hedging derivatives | 2,870,086 | 3,131,572 | |||||||||||||
Short-term borrowings | 70,096,211 | 51,866,398 | |||||||||||||
Long-term debt | 55,604,604 | 38,910,700 | |||||||||||||
Taxes payable | 2,550,875 | 152,905 | |||||||||||||
Accounts payable | 6,123,905 | 1,168,358 | |||||||||||||
Accrual accounts | 1,709,690 | 3,521,230 | |||||||||||||
Pension allowance | 6,239,744 | 3,275,995 | |||||||||||||
Other Provisions | 2,461,341 | 1,729,906 | |||||||||||||
Others liabilities | 10,995,194 | 8,611,656 | |||||||||||||
Total liabilities | 375,685,845 | 290,302,489 | |||||||||||||
Stockholders’ equity | |||||||||||||||
Capital stock | 1,661,518 | 1,661,518 | |||||||||||||
Additional paid-in capital | 6,658,390 | 8,177,101 | |||||||||||||
Dividends | (1,166,644 | ) | (1,015,195 | ) | |||||||||||
Other capital instruments | (96,321 | ) | (35,846 | ) | |||||||||||
Retained earnings | 17,233,146 | 14,677,694 | |||||||||||||
Total stockholders’ equity excluding minority interest | 25,375,412 | 23,465,272 | |||||||||||||
Minority interest | 737,876 | 581,827 | |||||||||||||
Total liabilities and stockholders’ equity | 401,799,133 | 314,349,588 |
Trading account liabilities Hedging derivatives Short-term borrowings Long-term debt Taxes payable Accounts payable Accrual accounts Pension allowance Other Provisions Others liabilities Total liabilities Minority interest Stockholders’ equity Capital stock Additional paid-in capital Dividends Other capital instruments Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity 2006 2005 2004 14,923,534 16,270,865 — 2,279,740 2,870,086 3,131,572 52,450,193 70,096,211 51,866,398 78,848,321 55,604,604 38,910,700 2,607,587 2,550,875 152,905 6,771,925 6,123,905 1,168,358 1,509,573 1,709,690 3,521,230 6,357,820 6,239,744 3,275,995 2,291,014 2,461,341 1,729,906 10,791,236 10,995,194 8,611,656 389,946,857 375,685,845 290,302,489 563,288 737,876 581,827 1,740,465 1,661,518 1,661,518 9,579,443 6,658,390 8,177,101 (1,362,700 ) (1,166,644 ) (1,015,195 ) (147,258 ) (96,321 ) (35,846 ) 20,651,218 17,233,146 14,677,694 30,461,168 25,375,412 23,465,272 420,971,313 401,799,133 314,349,588
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 2006, 2005 AND 2004
(Currency—Thousands of Euros)
2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||
Interest Income | |||||||||||||||
Interest and fees on loans and leases | 9,892,700 | 7,573,162 | 13,744,456 | 9,892,700 | 7,573,162 | ||||||||||
Interest on deposits in other banks | 970,755 | 721,811 | 1,109,595 | 970,755 | 721,811 | ||||||||||
Interest on securities purchased under agreements to resell | 280,703 | 389,421 | 382,658 | 280,703 | 389,421 | ||||||||||
Interest on investment securities | 4,510,024 | 2,414,141 | 4,352,998 | 4,510,024 | 2,414,141 | ||||||||||
Total interest income | 15,654,182 | 11,098,535 | 19,589,707 | 15,654,182 | 11,098,535 | ||||||||||
Interest Expense | |||||||||||||||
Interest on deposits | (4,950,595 | ) | (3,441,055 | ) | (5,974,967 | ) | (4,950,595 | ) | (3,441,055 | ) | |||||
Interest on Bank of Spain &Deposit Guarantee Fund | (141,048 | ) | (287,884 | ) | (299,859 | ) | (141,048 | ) | (287,884 | ) | |||||
Interest on short-term borrowings | (2,411,310 | ) | (1,372,614 | ) | (2,180,500 | ) | (2,411,310 | ) | (1,372,614 | ) | |||||
Interest on long term debt | (1,415,449 | ) | (1,077,813 | ) | (2,756,502 | ) | (1,415,449 | ) | (1,077,813 | ) | |||||
Total interest expense | (8,918,402 | ) | (6,179,366 | ) | (11,211,829 | ) | (8,918,402 | ) | (6,179,366 | ) | |||||
Net Interest Income | 6,735,780 | 4,919,169 | 8,377,878 | 6,735,780 | 4,919,169 | ||||||||||
Provision for loan losses | (943,120 | ) | (662,988 | ) | (1,031,238 | ) | (943,120 | ) | (662,988 | ) | |||||
Net Interest Income after provision for loan losses | 5,792,660 | 4,256,181 | 7,346,640 | 5,792,660 | 4,256,181 | ||||||||||
Non-interest income | |||||||||||||||
Contingent liabilities (collected) | 176,745 | 159,510 | 203,960 | 176,745 | 159,510 | ||||||||||
Collection and payments services (collected) | 2,018,500 | 1,752,683 | 2,274,436 | 2,018,500 | 1,752,683 | ||||||||||
Securities services (collected) | 1,947,746 | 1,758,088 | 2,016,566 | 1,947,746 | 1,758,088 | ||||||||||
Other transactions (collected) | 526,133 | 489,063 | 623,720 | 526,133 | 489,063 | ||||||||||
Ceded to other entities and correspondents (paid) | (532,145 | ) | (504,702 | ) | (537,071 | ) | (532,145 | ) | (504,702 | ) | |||||
Other transactions (paid) | (196,983 | ) | (275,373 | ) | (246,731 | ) | (196,983 | ) | (275,373 | ) | |||||
Gains (losses) from: | |||||||||||||||
Affiliated companies’ securities | 149,901 | 965,939 | 1,293,383 | 149,901 | 965,939 | ||||||||||
Investment securities | 1,199,897 | 3,178,038 | 2,729,328 | 1,199,897 | 3,178,038 | ||||||||||
Foreign exchange, derivatives and other, net | (108,914 | ) | 312,504 | (902,111 | ) | (108,914 | ) | 312,504 | |||||||
Other income | 1,444,981 | (947,053 | ) | 1,624,489 | 1,444,981 | (947,053 | ) | ||||||||
Total non-interest income | 6,625,861 | 6,888,697 | 9,079,968 | 6,625,861 | 6,888,697 | ||||||||||
Non-interest expense | |||||||||||||||
Salaries and employee benefits | (3,602,242 | ) | (3,252,101 | ) | |||||||||||
Occupancy expense of premise, depreciation and maintenance, net | (844,079 | ) | (728,605 | ) | |||||||||||
General and administrative expenses | (1,745,057 | ) | (1,135,679 | ) | |||||||||||
Amortization of goodwill | — | — | |||||||||||||
Net provision for specific allowances | (396,272 | ) | (244,942 | ) | |||||||||||
Other expenses | (1,499,046 | ) | (1,451,492 | ) | |||||||||||
Minority shareholder’s interest | (297,576 | ) | (250,266 | ) | |||||||||||
Total non-interest expense | (8,384,272 | ) | (7,062,785 | ) | |||||||||||
Income Before Income Taxes | 4,034,249 | 4,082,093 | |||||||||||||
Income tax expense | (572,214 | ) | (986,750 | ) | |||||||||||
Income before change of accounting principles | 3,462,035 | 3,095,343 | |||||||||||||
Changes in accounting principles: pensions (note 59.A.10) | (2,164,038 | ) | — | ||||||||||||
Tax effect of changes in accounting principles | 719,691 | — | |||||||||||||
Net Consolidated Income for the year | 2,017,688 | 3,095,343 | |||||||||||||
Non-interest expense Salaries and employee benefits Occupancy expense of premise, depreciation and maintenance, net General and administrative expenses Impairment of goodwill Net provision for specific allowances Other expenses Minority shareholder’s interest Total non-interest expense Income Before Income Taxes Income tax expense Income before change of accounting principles Changes in accounting principles: pensions (note 59.A.10) Tax effect of changes in accounting principles Net Consolidated Income for the year 2006 2005 2004 (3,988,585 ) (3,602,242 ) (3,252,101 ) (924,243 ) (844,079 ) (728,605 ) (1,891,022 ) (1,745,057 ) (1,135,679 ) (12,322 ) — — (1,338,205 ) (396,272 ) (244,942 ) (1,238,918 ) (1,499,046 ) (1,451,492 ) (240,203 ) (297,576 ) (250,266 ) (9,633,498 ) (8,384,272 ) (7,062,785 ) 6,793,111 4,034,249 4,082,093 (1,821,419 ) (572,214 ) (986,750 ) 4,971,692 3,462,035 3,095,343 — (2,164,038 ) — — 719,691 — 4,971,692 2,017,688 3,095,343
3. Consolidated Statements of Changes in Stockholders equity -
Composition of stockholders’ equity (considering the final dividend) as of December 31, 2006, 2005 and 2004, is presented in Note 30,31. The variation in stockholders’ equity under U.S. GAAP as of December 31, 2006, 2005 and 2004 is as follows:
2006 | 2005 | 2004 | |||||||
Thousands of Euros | |||||||||
Balance at the beginning of the year | 25,375,412 | 23,465,272 | 19,583,034 | ||||||
Net income for the year | 4,971,692 | 2,017,688 | 3,095,343 | ||||||
Dividends paid | (1,994,743 | ) | (1,648,145 | ) | (1,379,519 | ) | |||
Capital increase | 3,000,000 | — | 1,998,750 | ||||||
Other comprehensive income | (490,883 | ) | 1,902,616 | 280,120 | |||||
Foreign Currency Translation Adjustment | (708,212 | ) | 1,138,449 | (308,751 | ) | ||||
Unrealized Gains on Securities | 110,552 | 882,753 | 600,246 | ||||||
Derivatives Instruments and Hedging Activities (SFAS 133) | 106,777 | (118,586 | ) | (11,375 | ) | ||||
Other variations | (400,310 | ) | (362,018 | ) | (112,456 | ) | |||
Balance at the end of the year | 30,461,168 | 25,375,412 | 23,465,272 | ||||||
Balance at the beginning of the year Net income for the year Dividends paid Capital increase Other comprehensive income Foreign Currency Translation Adjustment Unrealized Gains on Securities Derivatives Instruments and Hedging Activities (SFAS 133) Other variations Balance at the end of the year 2005 2004 Thousands of Euros 23,465,272 19,583,034 2,017,688 3,095,343 (1,648,145 ) (1,379,519 ) — 1,998,750 1,902,616 280,120 1,138,449 (308,751 ) 882,753 600,246 (118,586 ) (11,375 ) (362,018 ) (112,456 ) 25,375,412 23,465,272
(59.C)C) MAIN DISCLOSURES REQUIRED BY U.S. ACCOUNTING REGULATIONS FOR BANKS AND ADDITIONAL DISCLOSURES REQUIRED UNDER U.S. GAAP
1. Investment Securities-
The breakdown of the Group’s investment securities portfolio by issuer is as follows:
2005 | 2004 | |||||||||||||||||
Book Value | Fair Value(1) | Unrealized Gains | Unrealized Losses | Book Value | Fair Value(1) | Unrealized Gains | Unrealized Losses | |||||||||||
Thousands of Euros | ||||||||||||||||||
DEBT SECURITIES- | ||||||||||||||||||
TRADING PORTFOLIO(*) | ||||||||||||||||||
Domestic- | 4,097,005 | 4,097,005 | — | — | 8,284,966 | 8,284,966 | — | — | ||||||||||
Spanish Government | 2,344,643 | 2,344,643 | — | — | 6,776,570 | 6,776,570 | — | — | ||||||||||
Securities of, or guaranteed by, the Spanish government | 257,041 | 257,041 | — | — | 448,492 | 448,492 | — | — | ||||||||||
Other debt securities | 1,495,321 | 1,495,321 | — | — | 1,059,904 | 1,059,904 | — | — | ||||||||||
International | 20,406,502 | 20,406,502 | — | — | 22,111,613 | 22,111,613 | — | — | ||||||||||
TOTAL TRADING | 24,503,507 | 24,503,507 | — | — | 30,396,579 | 30,396,579 | — | — | ||||||||||
AVAILABLE FOR SALE PORTFOLIO (*) | ||||||||||||||||||
Domestic- | 16,704,883 | 16,704,883 | 887,394 | (228 | ) | 19,059,038 | 19,059,038 | 842,245 | (4,921 | ) | ||||||||
Spanish Government | 13,006,983 | 13,006,983 | 632,852 | — | 14,776,179 | 14,776,179 | 813,361 | (4,921 | ) | |||||||||
Other Spanish Government securities | 1,173,493 | 1,173,493 | 117,982 | (181 | ) | 1,561,653 | 1,561,653 | 2,083 | — | |||||||||
Securities of, or guaranteed by, the Spanish government | 2,902 | 2,902 | — | — | 5,983 | 5,983 | — | — | ||||||||||
Other securities of the Spanish government | 90,104 | 90,104 | 32,769 | — | 93,416 | 93,416 | 24,970 | — | ||||||||||
Other debt securities | 2,431,401 | 2,431,401 | 103,791 | (47 | ) | 2,621,807 | 2,621,807 | 1,831 | — | |||||||||
International- | 34,267,095 | 34,267,095 | 1,022,929 | (52,208 | ) | 25,978,189 | 25,978,189 | 548,650 | (35,638 | ) | ||||||||
United States- | ||||||||||||||||||
US Treasury | 252,011 | 252,011 | — | — | 14,486 | 14,486 | 398 | — | ||||||||||
Other US Government agencies | 2,705,939 | 2,705,939 | 744 | (13,576 | ) | 1,031,575 | 1,031,575 | 18,970 | (5,549 | ) | ||||||||
States and political subdivisions | 51,672 | 51,672 | 712 | (298 | ) | 56,254 | 56,254 | 440 | — | |||||||||
Other government securities | 50 | 50 | — | — | — | — | — | — | ||||||||||
Other US securities | 979,906 | 979,906 | 15,628 | (6,929 | ) | 647,877 | 647,877 | 10,513 | (5,597 | ) | ||||||||
Other countries- | ||||||||||||||||||
Securities of other foreign Governments | 21,792,844 | 21,792,844 | 935,385 | (27,469 | ) | 16,407,867 | 16,407,867 | 485,894 | (5,808 | ) | ||||||||
Other debt securities | 8,484,672 | 8,484,672 | 70,460 | (3,936 | ) | 7,820,130 | 7,820,130 | 32,435 | (18,684 | ) | ||||||||
TOTAL AVAILABLE FOR SALE | 50,971,978 | 50,971,978 | 1,910,323 | (52,436 | ) | 45,037,227 | 45,037,227 | 1,390,895 | (40,559 | ) | ||||||||
HELD TO MATURITY PORTFOLIO | ||||||||||||||||||
Domestic- | 1,205,138 | 1,237,273 | 32,613 | (478 | ) | 602,854 | 619,519 | 16,665 | — | |||||||||
Spanish Government | 363,022 | 374,594 | 11,572 | — | 337,434 | 346,357 | 8,923 | — | ||||||||||
Other debt securities | 842,116 | 852,679 | 21,041 | (478 | ) | 265,420 | 273,162 | 7,742 | — | |||||||||
International | 2,754,127 | 2,797,975 | 44,831 | (983 | ) | 1,618,648 | 1,645,227 | 26,579 | — | |||||||||
TOTAL HELD TO MATURITY | 3,959,265 | 4,035,248 | 77,444 | (1,461 | ) | 2,221,502 | 2,264,746 | 43,244 | — | |||||||||
TOTAL DEBT SECURITIES | 79,434,750 | 79,510,733 | 1,987,767 | (53,897 | ) | 77,655,308 | 77,698,552 | 1,434,139 | (40,559 | ) | ||||||||
2006 | 2005 | 2004 | |||||||||||||||||||||||||
Amortized Cost | Fair Value(1) | Unrealized Gains | Unrealized Losses | Amortized Cost | Fair Value(1) | Unrealized Gains | Unrealized Losses | Amortized Cost | Fair Value(1) | Unrealized Gains | Unrealized Losses | ||||||||||||||||
(thousands of euros) | |||||||||||||||||||||||||||
DEBT SECURITIES - | |||||||||||||||||||||||||||
AVAILABLE FOR SALE PORTFOLIO | |||||||||||||||||||||||||||
Domestic- | 9,232,907 | 9,505,362 | 291,142 | (18,688 | ) | 15,817,717 | 16,704,883 | 887,394 | (228 | ) | 18,221,714 | 19,059,038 | 842,245 | (4,921 | ) | ||||||||||||
Spanish Government | 6,595,500 | 6,858,368 | 279,076 | (16,208 | ) | 13,490,060 | 14,273,482 | 783,603 | (181 | ) | 15,601,738 | 16,437,231 | 840,414 | (4,921 | ) | ||||||||||||
Other debt securities | 2,637,407 | 2,646,994 | 12,066 | (2,480 | ) | 2,327,657 | 2,431,401 | 103,791 | (47 | ) | 2,619,976 | 2,621,807 | 1,831 | 0 | |||||||||||||
International- | 22,004,348 | 22,724,097 | 851,993 | (132,244 | ) | 33,296,372 | 34,267,094 | 1,022,929 | (52,208 | ) | 25,465,178 | 25,978,189 | 548,650 | (35,638 | ) | ||||||||||||
United States - | 5,513,902 | 5,505,584 | 13,292 | (21,610 | ) | 3,993,296 | 3,989,578 | 17,084 | (20,803 | ) | 1,731,018 | 1,750,192 | 30,321 | (11,146 | ) | ||||||||||||
U.S. Treasury and other U.S. Government agencies | 342,396 | 343,738 | 2,819 | (1,477 | ) | 2,970,831 | 2,958,000 | 744 | (13,576 | ) | 1,032,242 | 1,046,061 | 19,368 | (5,549 | ) | ||||||||||||
States and political subdivisions | 309,779 | 309,117 | 219 | (880 | ) | 51,258 | 51,672 | 712 | (298 | ) | 55,814 | 56,254 | 440 | — | |||||||||||||
Other debt securities | 4,861,726 | 4,852,728 | 10,255 | (19,252 | ) | 971,207 | 979,906 | 15,628 | (6,929 | ) | 642,962 | 647,877 | 10,513 | (5,597 | ) | ||||||||||||
Other countries - | 16,490,446 | 17,218,513 | 838,701 | (110,634 | ) | 29,303,076 | 30,277,516 | 1,005,845 | (31,405 | ) | 23,734,160 | 24,227,997 | 518,329 | (24,492 | ) | ||||||||||||
Securities of other foreign Governments | 9,858,095 | 10,385,922 | 588,230 | (60,404 | ) | 20,884,928 | 21,792,844 | 935,385 | (27,469 | ) | 15,927,781 | 16,407,867 | 485,894 | (5,808 | ) | ||||||||||||
Other debt securities | 6,632,351 | 6,832,591 | 250,470 | (50,230 | ) | 8,418,148 | 8,484,672 | 70,460 | (3,936 | ) | 7,806,379 | 7,820,130 | 32,435 | (18,684 | ) | ||||||||||||
TOTAL AVAILABLE FOR SALE PORTFOLIO | 31,237,256 | 32,229,459 | 1,143,135 | (150,932 | ) | 49,114,089 | 50,971,977 | 1,910,323 | (52,436 | ) | 43,686,892 | 45,037,227 | 1,390,895 | (40,559 | ) | ||||||||||||
HELD TO MATURITY PORTFOLIO | |||||||||||||||||||||||||||
Domestic- | 2,403,867 | 2,336,588 | 2,153 | (69,432 | ) | 1,205,138 | 1,237,273 | 32,613 | (478 | ) | 602,854 | 619,519 | 16,665 | — | |||||||||||||
Spanish Government | 1,416,607 | 1,377,828 | 1,242 | (40,021 | ) | 363,022 | 374,594 | 11,572 | 0 | 337,434 | 346,357 | 8,923 | — | ||||||||||||||
Other debt securities | 987,260 | 958,760 | 911 | (29,411 | ) | 842,116 | 862,679 | 21,041 | (478 | ) | 265,420 | 273,162 | 7,742 | — | |||||||||||||
International- | 3,501,769 | 3,420,658 | 4,938 | (86,049 | ) | 2,754,127 | 2,797,975 | 44,831 | (983 | ) | 1,618,648 | 1,645,227 | 26,579 | — | |||||||||||||
TOTAL HELD TO MATURITY PORTFOLIO | 5,905,636 | 5,757,246 | 7,091 | (155,481 | ) | 3,959,265 | 4,035,248 | 77,444 | (1,461 | ) | 2,221,502 | 2,264,746 | 43,244 | — | |||||||||||||
TOTAL DEBT SECURITIES | 37,142,892 | 37,986,705 | 1,150,226 | (306,413 | ) | 53,073,354 | 55,007,225 | 1,987,767 | (53,897 | ) | 45,908,394 | 47,301,973 | 1,434,139 | (40,559 | ) |
Book Value Fair Value(1) Book Value EQUITY SECURITIES TRADING PORTFOLIO(*) AVAILABLE FOR SALE PORTFOLIO(*) Domestic- Equity listed Equity unlisted Other equities International- United States- Equity listed Equity unlisted Other equities Other countries- Equity listed Equity unlisted Other equities TOTAL AVAILABLE FOR SALE TOTAL EQUITY SECURITIES TOTAL INVESTMENT SECURITIES EQUITY SECURITIES - AVAILABLE FOR SALE PORTFOLIO Domestic- Equity listed Equity Unlisted International- United States- Equity listed Equity Unlisted Other countries- Equity listed Equity Unlisted TOTAL AVAILABLE FOR SALE PORTFOLIO TOTAL EQUITY SECURITIES TOTAL INVESTMENT SECURITIES 2005 2004 Unrealized
Gains Unrealized
Losses Fair
Value(1) Unrealized
Gains Unrealized
Losses Thousands of Euros 6,245,534 6,245,534 — — 5,690,885 5,690,885 — — 7,395,453 7,458,601 2,293,165 (8 ) 7,002,196 7,069,950 2,094,095 (8 ) 6,190,118 6,190,118 2,137,737 — 6,683,561 6,683,561 2,024,634 — 71,318 134,466 63,156 (8 ) 110,876 178,630 67,762 (8 ) 1,134,017 1,134,017 92,272 — 207,759 207,759 1,699 — 1,666,557 1,682,802 750,325 (20,134 ) 964,121 964,121 155,575 — 15,580 15,580 — (3,955 ) 41 41 — — 10,149 10,149 — — 3,769 3,769 — — 24,025 25,959 1,934 — 6,477 6,477 — — 1,312,564 1,312,564 734,080 (16,179 ) 623,213 623,213 156,544 — 45,451 45,451 — — 270,135 270,135 — — 258,788 273,099 14,311 — 60,486 60,486 — — 9,062,010 9,141,403 3,043,490 (20,142 ) 7,966,317 8,034,071 2,250,639 (8 ) 15,307,544 15,386,937 3,043,490 (20,142 ) 13,657,202 13,724,956 2,250,639 (8 ) 94,742,293 94,897,662 5,031,257 (74,039 ) 91,312,510 91,423,508 3,684,778 (40,567 ) 2006 2005 2004 Amortized
Cost Fair
Value(1) Unrealized
Gains Unrealized
Losses Amortized
Cost Fair
Value(1) Unrealized
Gains Unrealized
Losses Amortized
Cost Fair
Value(1) Unrealized
Gains Unrealized
Losses (thousands of euros) 4,564,255 7,381,243 2,817,093 (104 ) 5,165,444 7,458,601 2,293,165 (8 ) 4,975,863 7,069,950 2,094,095 (8 ) 4,524,956 7,341,945 2,817,093 (104 ) 5,094,126 7,324,135 2,230,009 — 4,864,987 6,891,320 2,026,333 — 39,299 39,299 — — 71,318 134,466 63,156 (8 ) 110,876 178,630 67,762 (8 ) 1,859,917 2,656,078 810,664 (14,503 ) 952,611 1,682,802 750,325 (20,134 ) 807,577 964,121 156,544 — 52,698 53,707 1,190 (181 ) 53,709 51,688 1,934 (3,955 ) 10,287 10,287 — — 26,476 27,485 1,190 (181 ) 43,560 41,539 1,934 (3,955 ) 6,518 6,518 — — 26,222 26,222 — — 10,149 10,149 — — 3,769 3,769 — — 1,807,219 2,602,371 809,474 (14,322 ) 898,902 1,631,114 748,391 (16,179 ) 797,290 953,834 156,544 — 1,702,231 2,497,383 809,474 (14,322 ) 853,451 1,585,663 748,391 (16,179 ) 527,155 683,699 156,544 — 104,988 104,988 — — 45,451 45,451 — — 270,135 270,135 — — 6,424,172 10,037,322 3,627,757 (14,607 ) 6,118,055 9,141,403 3,043,490 (20,142 ) 5,783,440 8,034,071 2,250,639 (8 ) 6,424,172 10,037,322 3,627,757 (14,607 ) 6,118,055 9,141,403 3,043,490 (20,142 ) 5,783,440 8,034,071 2,250,639 (8 ) 43,567,064 48,024,027 4,777,983 (321,020 ) 59,191,409 64,148,628 5,031,257 (74,039 ) 51,691,834 55,336,044 3,684,778 (40,567 )
(1) | The Fair Values are determined based on year-end quoted market process for listed securities and on management’s estimate for unlisted securities. |
The total amount of unrealized losses amounted to €407,400 thousand, €217,452 thousand and €194,073 thousand as of December 31, 2006, 2005 and 2004, respectively.
Thousand of euros | |||||||||
2006 | 2005 | 2004 | |||||||
Equity securities | (50,653 | ) | (73,773 | ) | (49,993 | ) | |||
Debt securities | (35,727 | ) | (69,640 | ) | (103,513 | ) | |||
(1) Total impairments other-than-temporary (charged to income under both GAAP) | (86,380 | ) | (143,413 | ) | (153,506 | ) | |||
Equity securities | (14,607 | ) | (20,142 | ) | (8 | ) | |||
Debt securities | (306,413 | ) | (53,897 | ) | (40,559 | ) | |||
(2) Total temporary unrealized losses | (321,020 | ) | (74,039 | ) | (40,567 | ) | |||
(1)+(2) Total unrecognized losses | (407,400 | ) | (217,452 | ) | (194,073 | ) | |||
As of December 31, 2006, most of our unrealized losses correspond to other debt securities (both Available-for-Sale and Held-to-Maturity securities). As of December 31, 2005 and 2004, unrealized losses of debt securities and equity securities correspond basically to foreign securities held by Group BBVA.
As of December 31, 2006, the fair value of the debt securities is below its amortized cost. We have evaluated this decline in fair value to determine whether it is other than temporary and we have not recognized any other-than-temporary impairment for these securities for the fiscal year ended December 31, 2006 related to the following reasons:
They have mainly arisen in a period shorter than one year;
The decline is attributable solely to adverse interest rate movements;
The principal and interest payments have been made as scheduled, and there is no evidence that the debtor will not continue to do so;
The future principal payments will be sufficient to recover the current amortized cost of the security;
We have the intent to hold the security until maturity or at least until the fair value of the security recovers to a level that exceeds the security’s amortized cost.
As of December 31, 2006, 2005 and 2004, there are not unrealized losses that are not deemedcorrespond to be other-than-temporarily impaired greater of twelve months.countries with transitory difficulties.
An analysis of the book value of investments, exclusive of valuation reserves, by contractual maturity and fair value of the debt securities portfolio is shown below:
2005 | ||||||||||
BOOK VALUE | ||||||||||
Due in one year or less | Due after one year through five years | Due after five years through ten years | Due after ten years | Total | ||||||
Thousand of euros | ||||||||||
TRADING PORTFOLIO* | ||||||||||
Domestic- | 1,790,632 | 1,231,242 | 648,132 | 427,000 | 4,097,006 | |||||
Spanish Government | 1,365,593 | 571,111 | 349,175 | 58,764 | 2,344,643 | |||||
Securities of, or guaranteed by, the Spanish government | 143,115 | 39,733 | 68,697 | 5,496 | 257,041 | |||||
Other debt securities | 281,924 | 620,398 | 230,260 | 362,740 | 1,495,322 | |||||
International | 7,895,074 | 9,552,771 | 2,524,532 | 434,124 | 20,406,501 | |||||
TOTAL TRADING PORTFOLIO | 9,865,706 | 10,784,013 | 3,172,664 | 861,124 | 24,503,507 | |||||
AVAILABLE FOR SALE PORTFOLIO* | ||||||||||
Domestic- | 5,747,962 | 4,049,077 | 1,502,092 | 5,405,753 | 16,704,885 | |||||
Spanish Government | 5,071,720 | 3,228,527 | 872,908 | 3,833,830 | 13,006,984 | |||||
Other Spanish Government securities | 387,476 | 400,953 | 241,520 | 143,544 | 1,173,493 | |||||
Securities of, or guaranteed by, the Spanish government | 2,902 | — | — | — | 2,902 | |||||
Other securities of the Spanish government | 5,023 | 2,805 | — | 82,277 | 90,104 | |||||
Other debt securities | 280,842 | 416,792 | 387,665 | 1,346,102 | 2,431,401 | |||||
International- | 7,431,404 | 11,562,932 | 7,395,092 | 7,877,667 | 34,267,094 | |||||
United States- | ||||||||||
US Treasury | 27,136 | 50 | 224,770 | 56 | 252,011 | |||||
Other US Government agencies | 236,646 | 861,179 | 231,967 | 1,376,147 | 2,705,939 | |||||
States and political subdivisions | 3,534 | 13,343 | 2,058 | 32,738 | 51,673 | |||||
Other government securities | — | 50 | — | — | 50 | |||||
Other US securities | 265,799 | 207,570 | 77,488 | 429,049 | 979,905 | |||||
Other countries- | ||||||||||
Securities of other foreign Governments | 5,653,837 | 8,480,822 | 4,451,103 | 3,207,083 | 21,792,845 | |||||
Other debt securities outside Spain | 1,244,452 | 1,999,918 | 2,407,707 | 2,832,595 | 8,484,672 | |||||
TOTAL AVAILABLE FOR SALE | 13,179,366 | 15,612,009 | 8,897,184 | 13,283,419 | 50,971,979 | |||||
HELD TO MATURITY PORTFOLIO | ||||||||||
Domestic- | — | 273,426 | 866,085 | 65,627 | 1,205,138 | |||||
Spanish Government | — | 182,690 | 180,332 | — | 363,022 | |||||
Other debt securities | — | 90,736 | 685,753 | 65,627 | 842,116 | |||||
International - | 282,874 | 853,031 | 1,546,023 | 72,199 | 2,754,127 | |||||
TOTAL HELD TO MATURITY | 282,874 | 1,126,457 | 2,412,108 | 137,826 | 3,959,265 | |||||
TOTAL | 23,147,946 | 27,522,479 | 14,481,956 | 14,290,061 | 79,434,751 |
December 31, 2006 | ||||||||||
Book Value | ||||||||||
Due in one year or less | Due after one year to five years | Due after five years to ten years | Due after ten years | Total | ||||||
(thousands of euros) | ||||||||||
AVAILABLE-FOR-SALE PORTFOLIO(*) | ||||||||||
Domestic | ||||||||||
Spanish government | 311,715 | 1,524,000 | 1,683,607 | 3,339,044 | 6,858,367 | |||||
Other debt securities | 525,157 | 708,301 | 540,394 | 873,139 | 2,646,992 | |||||
Total Domestic | 836,873 | 2,232,301 | 2,224,002 | 4,212,184 | 9,505,359 | |||||
International | ||||||||||
United States | 715,866 | 1,356,471 | 672,919 | 2,760,331 | 5,505,587 | |||||
U.S. Treasury and other U.S. government agencies | 30,609 | 8,199 | 304,931 | — | 343,739 | |||||
States and political subdivisions | 21,037 | 51,695 | 32,410 | 203,976 | 309,118 | |||||
Other U.S. securities | 664,220 | 1,296,577 | 335,578 | 2,556,355 | 4,852,730 | |||||
Other countries | 1,349,662 | 5,023,927 | 5,273,292 | 5,571,632 | 17,218,513 | |||||
Securities of other foreign governments | 662,591 | 2,998,420 | 3,648,320 | 3,076,591 | 10,385,922 | |||||
Other debt securities of other countries | 687,071 | 2,025,507 | 1,624,971 | 2,495,042 | 6,832,591 | |||||
Total International | 2,065,528 | 6,380,399 | 5,946,211 | 8,331,964 | 22,724,101 | |||||
TOTAL AVAILABLE-FOR-SALE | 2,902,401 | 8,612,699 | 8,170,212 | 12,544,147 | 32,229,460 | |||||
HELD-TO-MATURITY PORTFOLIO | ||||||||||
Domestic | ||||||||||
Spanish government | — | 261,508 | 1,100,266 | 54,833 | 1,416,607 | |||||
Other debt securities | — | 128,975 | 706,448 | 151,837 | 987,260 | |||||
Total Domestic | — | 390,483 | 1,806,714 | 206,670 | 2,403,867 | |||||
Total International | 306,994 | 1,147,021 | 1,760,187 | 287,567 | 3,501,769 | |||||
TOTAL HELD-TO-MATURITY | 306,994 | 1,537,504 | 3,566,901 | 494,237 | 5,905,636 | |||||
TOTAL DEBT SECURITIES | 3,209,395 | 10,150,203 | 11,737,113 | 13,038,384 | 38,135,096 | |||||
HELD-TO-MATURITY PORTFOLIO Domestic Spanish government Other debt securities Total Domestic Total International TOTAL HELD-TO-MATURITY December 31, 2006 Market Value Due in one
year or less Due after one
year to five
years Due after five
years to ten
years Due after ten
years Total (thousands of euros) — 260,134 1,065,562 52,132 1,377,828 — 125,964 690,666 142,130 958,760 — 386,098 1,756,228 194,262 2,336,588 305,977 1,128,882 1,712,640 273,159 3,420,658 305,977 1,514,980 3,468,868 467,421 5,757,246
December 31, 2005 | ||||||||||
Book Value | ||||||||||
Due in one year or less | Due after one year to five years | Due after five years to ten years | Due after ten years | Total | ||||||
(thousands of euros) | ||||||||||
AVAILABLE-FOR-SALE PORTFOLIO(*) | ||||||||||
Domestic | ||||||||||
Spanish government | 5,467,121 | 3,632,285 | 1,114,428 | 4,059,651 | 14,273,483 | |||||
Other debt securities | 280,842 | 416,792 | 387,665 | 1,346,102 | 2,431,401 | |||||
Total Domestic | 5,747,963 | 4,049,077 | 1,502,093 | 5,405,753 | 16,704,884 | |||||
International | ||||||||||
United States | 533,115 | 1,082,192 | 536,283 | 1,837,990 | 3,989,578 | |||||
U.S. Treasury and other U.S. government agencies | 263,782 | 861,229 | 456,737 | 1,376,203 | 2,957,950 | |||||
States and political subdivisions | 3,534 | 13,393 | 2,058 | 32,738 | 51,723 | |||||
Other U.S. securities | 265,799 | 207,570 | 77,488 | 429,049 | 979,905 | |||||
Other countries | 6,898,289 | 10,480,740 | 6,858,810 | 6,039,678 | 30,277,517 | |||||
Securities of other foreign governments | 5,653,837 | 8,480,822 | 4,451,103 | 3,207,083 | 21,792,845 | |||||
Other debt securities of other countries | 1,244,452 | 1,999,918 | 2,407,707 | 2,832,595 | 8,484,672 | |||||
Total International | 7,431,404 | 11,562,932 | 7,395,093 | 7,877,668 | 34,267,095 | |||||
TOTAL AVAILABLE-FOR-SALE | 13,179,367 | 15,612,009 | 8,897,186 | 13,283,421 | 50,971,979 | |||||
HELD-TO-MATURITY PORTFOLIO | ||||||||||
Domestic | ||||||||||
Spanish government | — | 182,690 | 180,332 | — | 363,022 | |||||
Other debt securities | — | 90,736 | 685,753 | 65,627 | 842,116 | |||||
Total Domestic | — | 273,426 | 866,085 | 65,627 | 1,205,138 | |||||
Total International | 282,874 | 853,031 | 1,546,023 | 72,199 | 2,754,127 | |||||
TOTAL HELD-TO-MATURITY | 282,874 | 1,126,457 | 2,412,108 | 137,826 | 3,959,265 | |||||
TOTAL DEBT SECURITIES | 13,462,241 | 16,738,466 | 11,309,294 | 13,421,247 | 54,931,244 | |||||
HELD-TO-MATURITY PORTFOLIO Domestic Spanish government Other debt securities Total Domestic Total International TOTAL HELD-TO-MATURITY December 31, 2005 Market Value Due in one
year or less Due after one
year to five
years Due after five
years to ten
years Due after ten
years Total (thousands of euros) — 185,002 189,592 — 374,594 — 91,114 703,349 68,216 862,679 — 276,116 892,941 68,216 1,237,273 282,841 858,877 1,578,956 77,301 2,797,975 282,841 1,134,993 2,471,897 145,517 4,035,248
December 31, 2004 | ||||||||||
Book Value | ||||||||||
Due in one year or less | Due after one year to five years | Due after five years to ten years | Due after ten years | Total | ||||||
(thousands of euros) | ||||||||||
AVAILABLE-FOR-SALE PORTFOLIO(*) | ||||||||||
Domestic | ||||||||||
Spanish government | 3,423,654 | 8,775,741 | 1,359,317 | 2,878,519 | 16,437,230 | |||||
Other debt securities | 78,286 | 243,843 | 310,472 | 1,989,205 | 2,621,807 | |||||
Total Domestic | 3,501,940 | 9,019,584 | 1,669,789 | 4,867,724 | 19,059,037 | |||||
International | ||||||||||
United States | 438,609 | 199,920 | 155,861 | 955,803 | 1,750,192 | |||||
U.S. Treasury and other U.S. government agencies | 341,387 | 57,719 | 70,070 | 576,885 | 1,046,061 | |||||
States and political subdivisions | 383 | 12,495 | — | 43,376 | 56,254 | |||||
Other U.S. securities | 96,839 | 129,706 | 85,791 | 335,542 | 647,877 | |||||
Other countries | 5,021,778 | 8,869,956 | 5,658,781 | 4,677,485 | 24,227,999 | |||||
Securities of other foreign governments | 4,217,177 | 6,838,969 | 3,609,275 | 1,742,447 | 16,407,868 | |||||
Other debt securities of other countries | 804,601 | 2,030,987 | 2,049,506 | 2,935,038 | 7,820,131 | |||||
Total International | 5,460,387 | 9,069,876 | 5,814,642 | 5,633,288 | 25,978,191 | |||||
TOTAL AVAILABLE-FOR-SALE | 8,962,327 | 18,089,460 | 7,484,431 | 10,501,012 | 45,037,228 | |||||
HELD-TO-MATURITY PORTFOLIO | ||||||||||
Domestic | ||||||||||
Spanish government | — | 177,793 | 138,296 | 21,345 | 337,434 | |||||
Other debt securities | — | 17,703 | 213,808 | 33,909 | 265,420 | |||||
Total Domestic | — | 195,496 | 352,104 | 55,254 | 602,854 | |||||
Total International | 150,079 | 876,579 | 487,296 | 104,694 | 1,618,648 | |||||
TOTAL HELD-TO-MATURITY | 150,079 | 1,072,075 | 839,400 | 159,948 | 2,221,502 | |||||
TOTAL DEBT SECURITIES | 9,112,406 | 19,161,535 | 8,323,831 | 10,660,960 | 47,258,730 | |||||
HELD-TO-MATURITY PORTFOLIO Domestic Spanish government Other debt securities Total Domestic Total International TOTAL HELD-TO-MATURITY December 31, 2004 Market Value Due in one
year or less Due after one
year to five
years Due after five
years to ten
years Due after ten
years Total (thousands of euros) — 180,537 144,129 21,691 346,357 — 18,158 219,733 35,271 273,162 — 198,695 363,862 56,962 619,519 150,112 882,243 502,535 110,337 1,645,227 150,112 1,080,938 866,397 167,299 2,264,746
* | As we describe in Note |
HELD TO MATURITY PORTFOLIO Domestic- Spanish Government Other debt securities International - TOTAL HELD TO MATURITY 2005 MARKET VALUE Due in
one year
or less Due after one
year through
five years Due after five
years through
ten years Due after
ten years Total Thousand of euros — 276,116 892,941 68,216 1,237,273 — 185,002 189,592 — 374,594 — 91,114 703,349 68,216 862,679 282,841 858,877 1,578,956 77,301 2,797,975 282,841 1,134,993 2,471,897 137,826 4,035,248
2004 | ||||||||||
BOOK VALUE | ||||||||||
Due in one year or less | Due after one year through five years | Due after five years through ten years | Due after ten years | Total | ||||||
Thousand of euros | ||||||||||
TRADING PORTFOLIO* | ||||||||||
Domestic- | 3,995,951 | 2,819,838 | 580,275 | 888,901 | 8,284,966 | |||||
Spanish Government | 3,325,192 | 2,294,645 | 402,924 | 753,808 | 6,776,570 | |||||
Securities of, or guaranteed by, the Spanish government | 311,020 | 137,472 | — | — | 448,492 | |||||
Other debt securities | 359,738 | 387,721 | 177,351 | 135,093 | 1,059,904 | |||||
International | 7,541,491 | 9,865,558 | 4,258,965 | 444,076 | 22,111,613 | |||||
TOTAL TRADING PORTFOLIO | 11,537,443 | 12,685,396 | 4,839,240 | 1,334,500 | 30,396,579 | |||||
AVAILABLE FOR SALE PORTFOLIO* | ||||||||||
Domestic- | 3,501,940 | 9,019,584 | 1,669,789 | 4,867,724 | 19,059,037 | |||||
Spanish Government | 2,812,608 | 8,294,746 | 1,068,639 | 2,600,186 | 14,776,179 | |||||
Other Spanish Government securities | 601,778 | 469,323 | 276,610 | 213,942 | 1,561,652 | |||||
Securities of, or guaranteed by, the Spanish government | 5,983 | — | — | — | 5,983 | |||||
Other securities of the Spanish government | 3,285 | 11,672 | 14,068 | 64,391 | 93,416 | |||||
Other debt securities | 78,286 | 243,843 | 310,472 | 1,989,205 | 2,621,807 |
International- United States- US Treasury Other US Government agencies States and political subdivisions Other government securities Other US securities Other countries- Securities of other foreign Governments Other debt securities outside Spain TOTAL AVAILABLE FOR SALE HELD TO MATURITY PORTFOLIO Domestic- Spanish Government Other debt securities International - TOTAL HELD TO MATURITY TOTAL 2004 BOOK VALUE Due in one
year or less Due after one
year through
five years Due after five
years through
ten years Due after ten
years Total Thousand of euros 5,460,387 9,069,876 5,814,641 5,633,288 25,978,191 14,245 34 41 166 14,486 327,142 57,685 70,029 576,719 1,031,575 383 12,495 — 43,376 56,254 — — — — — 96,839 129,706 85,791 335,542 647,877 4,217,177 6,838,969 3,609,275 1,742,447 16,407,868 804,601 2,030,987 2,049,506 2,935,038 7,820,131 8,962,326 18,089,460 7,484,430 10,501,012 45,037,228 — 195,496 352,104 55,254 602,854 — 177,793 138,296 21,345 337,434 — 17,703 213,808 33,909 265,420 150,079 876,579 487,296 104,694 1,618,648 150,079 1,072,075 839,400 159,948 2,221,502 20,649,848 31,846,931 13,163,070 11,995,459 77,655,309
2004 | ||||||||||
MARKET VALUE | ||||||||||
Due in one year or less | Due after one year through five years | Due after five years through ten years | Due after ten years | Total | ||||||
Thousand of euros | ||||||||||
HELD TO MATURITY PORTFOLIO | ||||||||||
Domestic- | — | 198,695 | 363,862 | 56,962 | 619,519 | |||||
Spanish Government | — | 180,537 | 144,129 | 21,691 | 346,357 | |||||
Other debt securities | — | 18,158 | 219,733 | 35,271 | 273,162 | |||||
International - | 150,112 | 882,243 | 502,535 | 110,337 | 1,645,227 | |||||
TOTAL HELD TO MATURITY | 150,112 | 1,080,938 | 866,397 | 167,299 | 2,264,746 |
As of December 2005 and 2004, the carrying values of non-traded (unlisted) equity securities available for sale portfolio amounted to €210,924 and €403,187 thousand, respectively.
Under both IFRS and U.S. GAAP, the methodology used to estimate the fair value of non-traded or unlisted securities is as follows:follows (see Note 2.2.b.2):
Debt securities: fair value is considered to be the present value of the cash flows, using market interest rates (discounted cash flows).
Equity securities: underlying book value is the general rule under Spanish GAAP. As previously explained in the general comments,cases of equity instruments whose fair value cannot be determined in a sufficiently objective manner are measured at acquitision cost. In some cases in which trigger events indicate that a specific investment could be impaired, a specific valuation of fair value is used and all available factors are considered by management to determine the fair value both under SpanishIFRS and U.S. GAAP. If it is available a valuation of the company, it is used as a better measure of fair value under both SpanishIFRS and U.S. GAAP.
These methodologies include an evaluation of credit risk, market conditions (volatility, interest rate evolution, macroeconomic variables, etc…) or futuresfuture expectations.
As of December 2004, unrealized losses of debt securities and equity securities correspond basically to Latinamerican securities not listed held by Group BBVA, respectively.
2. Loans and Accounting by Creditors for Impairment of a Loan-
The balance of the recorded investment in impaired loans (substandard loans) and of the related valuation allowance as of December 31, 2005 and 20042006 is as follows:
Thousands of | ||
Impaired loans requiring no reserve | ||
Impaired loans requiring valuation allowance | ||
Total impaired loans | ||
Valuation allowance on impaired loans | ||
The roll-forward of allowance is shown in Note 28 under IFRSs.IFRS. The reconciliation item to U.S. GAAP is in Note 59.A.762.A.7
Thousands of | ||
Interest revenue that would have been recorded if accruing | ||
Net interest revenue recorded |
3. Investments In Andin and Indebtedness Of And Toof and to Affiliates-
See Note 18 and Exhibit 8.1 for detailed information of investments in associates. AggregatedFor aggregated summarized financial information with respect to significant affiliated companies under IFRS for the year ended December 31, 2005 is presented below:2006 see Note 2.2.b) y 2.2.c) and Appendix III for detailed information of investments in associates.
Thousands of Euros | |||||
2005 | Equity method | Proportional Method | |||
Net sales | 762,674 | 2,562 | |||
Operating income | 158,606 | (617 | ) | ||
Net income | 121,752 | (978 | ) | ||
Current assets | 2,251,259 | 2,111 | |||
Noncurrent assets | 11,815,458 | 72,897 | |||
Current liabilities | 1,543,243 | 432 | |||
Non-current liabilities | 12,523,475 | 74,576 |
The following table shows the book value and fair value of quoted investments companies accounted for using the equity method in the Group:
Thousands of Euros | Thousands of Euros | |||||||||||||||||||
Book value | Fair value | Book value | Fair Value | |||||||||||||||||
Companies- | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||
Companies | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||
Banca Nazionale del Lavoro, S.P.A | 726,400 | 1,105,832 | 1,234,415 | 970,294 | — | 726,400 | 1,105,832 | — | 1,234,415 | 970,294 | ||||||||||
Tubos Reunidos, S.A. | 57,775 | 20,493 | 119,921 | 9,942 | 69,284 | 57,775 | 20,493 | 227,912 | 119,921 | 9,942 |
4. Deposits-
The breakdowns of deposits from credit entities and customers as of December 31, 2006, 2005 and 2004, by domicile and type are included in Note 26.
As of December 31, 2006, 2005 and 2004, the time deposits, both domestic and international, (other than interbank deposits) in denominations of €80€76 thousand (approximately US$ 100 thousand) or more amounted towere €82.24 billion, €28.8 billion and €50.1 billion, respectively.
5. Short-Term Borrowings-
Under IFRS, the information about “Short-Term borrowings” is not required as it is under S-X Regulations. Therefore this information is not disclosed in the preceding pages. The analysis of short-term borrowings is as follows:
At December 31, | |||||||||||||||||||||||||
At December 31, 2005 | At December 31, 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||||
Amount | Average Rate | Amount | Average Rate | Amount | Average rate | Amount | Average rate | Amount | Average rate | ||||||||||||||||
(in thousands of euro, except percentages) | (in millions of euro, except percentages) | ||||||||||||||||||||||||
Securities sold under agreements to repurchase (principally Spanish Treasury bills): | |||||||||||||||||||||||||
At December 31 | 48,254 | 3.54 | % | 38,529 | 3.36 | % | 37,098 | 4.27 | % | 48,254 | 3.54 | % | 38,529 | 3.36 | % | ||||||||||
Average during year | 38,467 | 3.52 | % | 43,488 | 3.44 | % | 38,721 | 3.61 | % | 38,467 | 3.52 | % | 43,488 | 3.44 | % | ||||||||||
Maximum quarter-end balance | 48,254 | — | 49,642 | — | 46,449 | — | 48,254 | — | 49,642 | — | |||||||||||||||
Bank promissory notes: | |||||||||||||||||||||||||
At December 31 | 7,569 | 2.58 | % | 6,255 | 2.20 | % | 7,596 | 3.75 | % | 7,569 | 2.58 | % | 6,255 | 2.20 | % | ||||||||||
Average during year | 6,894 | 2.34 | % | 5,675 | 2.08 | % | 8,212 | 3.16 | % | 6,894 | 2.34 | % | 5,675 | 2.08 | % | ||||||||||
Maximum quarter-end balance | 7,569 | — | 6,255 | — | 9,036 | — | 7,569 | — | 6,255 | — | |||||||||||||||
Bonds and subordinated debt | |||||||||||||||||||||||||
Bonds and Subordinated debt : | |||||||||||||||||||||||||
At December 31 | 14,273 | 3.54 | % | 7,082 | 2.81 | % | 7,756 | 4.01 | % | 14,273 | 3.54 | % | 7,082 | 2.81 | % | ||||||||||
Average during year | 10,324 | 3.61 | % | 7,628 | 2.39 | % | 8,076 | 3.74 | % | 10,324 | 3.61 | % | 7,628 | 2.39 | % | ||||||||||
Maximum quarter-end balance | 14,273 | — | 9,568 | — | 10,872 | — | 14,273 | — | 9,568 | — | |||||||||||||||
Total short-term borrowings at December 31 | 70,096 | 3.44 | % | 51,866 | 3.14 | % | 52,450 | 4.16 | % | 70,096 | 3.44 | % | 51,866 | 3.14 | % |
AtAs of December 31, 2006, 2005 and 2004, short-term borrowings include €16,272,055 thousand, €23,040,106 thousand and €21,050,740 thousand, respectively, of securities sold under agreements to repurchase from Bank of Spain and other Spanish and foreign financial Institutions.institutions.
6. Long Term Debt-
See Notes 26 and 36.
7. Derivative Financial Instruments and Hedging Activities-
The breakdown of the Derivative Financial Instruments under IFRS is shown in Notes 11 and 16.
7.1. Objectives for the holding of positions in derivatives and strategies for the achievement of these objectives
The holding of positions in derivatives is the result of the Group’s need to manage the risks incurred by it in the course of its normal business activities. Derivatives represent another of the tools available to the Group, and are necessary for the management of:See Note 2.2.d
7.1.1. Risk Management Policies
Market Risk
Managed by the Central Market Risk Unit, market risk is to be found in the Group’s market or treasury activities, which are characterized by the holding of positions sensitive to fluctuations in market prices. The Market Risk Unit, which is organically separate from and independent of the business units, is responsible for adapting and administering risk measurement and control tools and for regularly monitoring that the business units comply with the risk limits and policies. The Unit also periodically reports to the Standing Committee, the Lending Committee, the Management Committee and the Internal Risk Committee on levels of risk, results and the degree of compliance with such limits in the Group, at individual and aggregate level.
One of the basic pillars of the BBVA Group’s market risk management model is the limit structure, which consists of an overall VaRValue-at-Risk (VaR) limit for each business unit, supplemented by a series of specific sublimits by desk, business line, and risk or product type.
Proposals for the overall limits for all the business units and for certain sublimits are approved by the Standing Committee. The business units, together with the Risk Area, are responsible for distributing these limits by desk, business line or risk type. These VaR limits are supplemented by others based on non-statistical measures such as delta sensitivity, nominal exposure or stop-loss on the results of the markets areas. This limit structure is part of the Group’s general control system, which includes the definition of a variety of prior warning signs which trigger the contingency plans to attempt to prevent situations that might adversely affect the Bank’s results.
The purpose of the market risk management and measurement model currently in place at the BBVA Group is to measure both general market risk and specific risks, for which the Group employs the Value-at-Risk (VaR)VaR methodology, which aims to measure the maximum loss that can occur in the value of the portfolio as a result of fluctuations in general conditions on the financial markets, as shown by changes in interest rates, exchange rates and equity security prices, if the portfolio is maintained for a certain period. To these three major risk factors must be added basis risk (which arises, for example, when there are debt positions the interest-rate risk on which is hedged by swap transactions, generating a risk because there is a variable spread between the interest-rate curves relevant for the valuation of these positions) and spread risk (associated with corporate securities or credit derivatives on corporate issuers), together with, in the case of option positions, volatility and convexity risk and, in certain cases, correlation risk, since all the above are risk factors that might influence the market prices of certain products.
The VaR model used is the covariance matrix, with a confidence level of 99% and a time horizon of one day, improved to take into account convexity and other risks associated with option positions and structured derivative products. In addition, periodical supplementary settlement VaR calculations are performed for certain business units, which include adjustments to factor in the specific liquidity of the position, taking into account the liquidity conditions on the financial markets at any time.
The Group has continued to implement its new risk measurement platform which, in addition to the advantage of enabling market risk to be integrated with credit risk, thus facilitating an overall view of existing risk, makes it possible to calculate market risk using the covariance matrix, the historical simulation and the Monte Carlo simulation methodologies.
The market risk measurement model includes a back-testing or ex post contrast program, which to a certain extent guarantees the suitability of the risk measures that are performed. In order to validate the VaR measurement system, comparisons are made, inter alia, of the levels of ex ante risk provided by the model with the ex post results obtained by the units each day.
Stress-testing is an essential supplementary tool for market risk management, especially in the wake of the recent crises in Argentina and Brazil and the upheaval in the financial markets after the events of September 11, 2001. Accordingly, in order to strengthen risk management and control, the BBVA Group periodically calculates the exposure to losses of each business unit in response to events beyond the predetermined confidence interval for the daily measurement of market risk. This enables senior management to ascertain whether the level of exposure to losses under these potential scenarios fits in with the Bank’s appetite for risk, and to design, on the basis of that exposure, the contingency plans that must be implemented immediately if an unusual situation similar to those examined should occur.
Structural Interset-rateInterest-rate risk
The responsibility for controlling and monitoring structural interest-rate risk falls on the Risk Area, which periodically measures this risk from a dual perspective: on the one hand, from the net interest income standpoint and, on the other, from that of the economic value. In the former case, net interest income is projected for the next 12 months; and in the case of the analysis of economic value, a discounted current value is calculated of expected future flows in the balance sheet. The impacts of fluctuations in interest rates on both measures are calculated by using both parallel displacements in interest-rate curves and shocks that take into account changes of slope and curvature. Several interest-rate curve simulation methodologies have been developed to determine these changes of slope and curvature and these methodologies are used to calculate expected losses in net interest income and in economic value, with a confidence level of 99%.
Structural Exchange-Rate Risk
The Risk Area periodically measures structural exchange-rate risk using a statistical simulation model that includes certain exchange-rate crisis scenarios to which certain estimated probabilities of occurrence are assigned. Another factor in the model is the projection at one year of the exchange rates of the currencies involved. Every month the total risk is calculated in annual VaR terms with a confidence interval of 99%.
7.1.2. Transactions whose risks are hedged for U.S. GAAP purposes
U.S. GAAP (SFAS 133) is more restrictive than IAS 39, Financial Instruments: recognition and measurement, on the types of risks that may be hedged and therefore certain hedging relationships considered under IFRS have been discontinued under U.S. GAAP.
Paragraph 21.f. of SFAS 133 defines the risks that may be hedged as only one of (or a combination of) the following:
(a) the risk of changes in the overall fair value of the entire hedged item,
(b) the risk of changes in its fair value attributable to changes in the designated benchmark interest rate (referred to as interest rate risk),
(c) the risk of changes in its fair value attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk) and
(d) the risk of changes in its fair value attributable to both changes in the obligor’s creditworthiness and changes in the spread over the benchmark interest rate with respect to the hedged item’s credit sector at inception of the hedge (referred to as credit risk).
The same paragraph states that an entity may not simply designate prepayment risk as the risk being hedged for a financial asset unless it is represented by an embedded option in the hedged instrument.
Transactions whose risks are hedged for U.S. GAAP purposes are:
1. | Available for sale fixed rate debt securities: this risk is hedged using interest-rate derivatives (interest-rate swaps through which the fixed-coupon of the bond is exchanged for a variable return). |
2. | Long term fixed rate debt issued: this risk is hedged using interest-rate derivatives (interest-rate swaps which replicate, on the collection leg, the payment resulting from the issue and transform it into a variable cost for the Bank). |
3. | Foreign currency of a net investment in a foreign subsidiary: the risk of a net investment in a foreign operation is exchanged for the currency in which the investment is denominated. |
4. | Available for sale equity securities: this risk is hedged using equity swaps through which the risk of variation in the price per books of the portfolio is transferred to the counterparty. |
5. | Fixed rate loans: this risk is hedged using interest-rate derivatives (interest-rate swaps through which the fixed-coupon of the loans is exchanged for a variable return). |
6. | Floating interest rate loans in foreign currencies: this risk is hedged using currency swaps. |
7.2. Accounting for Derivative Instruments and Hedging Activities
Under SFAS 133 the accounting for changes in fair value of a derivative instrument depends on its intended use and the resulting designation.
If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized in earnings.
If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in Other Comprehensive Income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.
The gain or loss on a hedging derivative instrument that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is reported in the same way as a translation adjustment to the extent it is effective as a hedge. The ineffective portion of net investment hedges is reported in earnings.
Hedging transactions must be formally documented, designated and the company must describe the way the effectiveness is going to be assessed.
On the other hand when the derivative is designated as a trading transaction the changes in the fair value must be recognized currently in earnings.
7.3. Additional disclosures required by U.S. GAAP: Fair Value Methods
The methods used by the Group in estimating the fair value of its derivative instruments are as follows:
Forward purchases/sales of foreign currency
Estimated fair value of these financial instruments is based on quoted market prices.
Forward purchases/sales of government debt securities
Estimated fair value of these financial instruments is based on quoted market prices, since they are mostly traded in organized markets.
Options and financial futures
Derivatives traded in organized markets are valued based on quoted market prices.
For options and futures traded in OTC markets, the fair value is estimated based on theoretical year-end closing prices. These year-end closing prices are calculated according to generally accepted models estimating the amounts the Group would receive or pay based upon the yield curve/ volatilities prevailing at year-end or prices.
Forward rate agreements and interest rate swaps
Fair values of these contracts are estimated based on the discounted future cash flows related to the interest rates to be collected or paid, using for this purpose the yield curve prevailing at year-end.
8. Pension liabilities-
See Note 2.2.fNotes 2.2.e and 29 for a detail of the pension commitments under IFRS.
9. Disclosures Aboutabout Fair Value Ofof Financial Instruments (SFAS 107)-
As required by SFAS No. 107,Disclosures about Fair Value of Financial Instruments,, (“SFAS No. 107”) the Group presents estimate fair value information about financial instruments for which it is practicable to estimate that value in Note 37. Fair value of a financial instrument is the amount for which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value is best determined by values quoted through active trading markets. Active trading markets are characterized by numerous transactions of similar financial instruments between willing buyers and willing sellers. Because no active trading market exists for various types of financial instruments, many of the fair values disclosed were derived using present value discounted cash flow or other valuation techniques. As a result, the Group’s ability to actually realize these derived values cannot be assured.
The estimated fair values disclosed under SFAS No. 107 may vary significantly between institutions based on the estimates and assumptions used in the various valuation methodologies. SFAS No. 107 excludes disclosure of goodwill, core deposits, nonfinancialnon-financial assets such as fixed assets as well as certain financial instruments such as investments in affiliated companies.
Accordingly, the aggregate estimate fair values presented do not represent the underlying value of the Group.
The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments for which it is practicable to estimate such value:
a) Cash and due from banks
For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
b) Interest-bearing deposits in other banks and securities purchased under agreement to resell
The fair value represents the present value of estimated future cash flows discounted at the average year-end market rates for each type of instrument.
c) Investment securities
c.1) Fixed income:
(i) Listed securities: at closing market prices as of December 31, 2006, 2005 and 2004.
(ii) Unlisted securities: on the basis of market prices of other listed fixed-income securities of similar interest rate, credit risk and maturity. If no similar listed fixed-income securities can be identified, the fair value is estimated by discounting future cash-flows using year-end rates based on market rates available on securities with similar credit and maturity characteristics.
c.2) Equity securities:
(i) Listed securities with less than 3% ownership:securities: fair values are based on the December 31, 2006, 2005 and 2004 closing market price.
(ii) Unlisted securities:securities whose fair value cannot be determined in a sufficiently objective manner: at underlying book value per the December 31, 2006, 2005 and 2004 financial statements of each investee, or otherwise based on the latest financial statements currently available.
d) Loans and leases
The fair value of the Group’s loan portfolio is based on the credit and interest rate characteristics of the individual loans within each sector of the portfolio. The fair value of loans was estimated by discounting scheduled cash flows through the estimated maturity using prevailing market rates at year-end, and is implemented as follows:
d.1) The estimate of the provision for probable loan losses includes consideration of risk premiums applicable to various types of loans based on factors such as the current situation of the economic sector in which each borrower operates,
the economic situation of each borrower and guarantees obtained. Accordingly, the allowance for probable loan losses is considered a reasonable estimate of the discount required to reflect the impact of credit risk.
d.2) For fixed and floating-rate loans for which the interest rate was similar to the average rates available for each type of loan (such as commercial or mortgage loans) as of December 31, 2006, 2005 and 2004, the carrying amount, net of the related allowance for probable loan losses, is considered a reasonable estimate of fair value.
d.3) For the remaining loans which the Group determined were at rates different to those currently offered, the fair values are estimated as the present value of future cash flows discounted at the average year-end market interest rates at which similar loans are being granted to borrowers with similar credit ratings and remaining maturities.
e) Deposits and Short Term Borrowings
The fair value represents the present value of estimated future cash flows discounted at the average year-end market rates for each type of instrument.
f) Long-Term Debt
The fair value is estimated on the basis of the discounted present value of the cash flows over the remaining term of such debt. The discount rates were determined based on market rates available as of December 31, 2006, 2005 and 2004 on debt with similar credit and maturity characteristics of the Group’s.
g) Commitments and Contingencies
g.1) Guarantees and other sureties provided and documentary credits:
It is estimated that the differential, if any, between the fee charged by the Group for these transactions and the average year-end market fee would not give rise to a material difference.
g.2) Derivative Products:
The fair value of these products as of December 31, 2006, 2005 and 2004, considering the related discounted cash-flows and the year-end prevailing rates and market values is presented in Note 11.
See Note 2.2.b.2 for more information of fair value of financial instruments.
10. Segment Information-
In addition toSee Note 7 providefor a detail of the following disclosuressegment information under IFRS.
11. Business combination in 2006-
The effect on income statement for the year ended December 31,2006 if the business combination of Forum, Maggiore Fleet, S.p.A. and Texas Regional Bancshares, Inc. were realized on January 1, 2006, was an increase of €34,915 thousand in net income (See Note 4).
12. Disclosures about segment information:Pensions plans (SFAS 132-R)-
12.1. México
12.1.2. Plan Assets
12.1.2.1. Pension plan
The Pension Plan asset allocation at December 31, 2006 and 2005 by asset category is as follows:
Asset Category | Percentage of Plan Assets at December 31, 2006 | Percentage of Plan Assets at December 31, 2005 | ||||
Mexican Federal Government securities | 89.12 | % | 27.55 | % | ||
Other Debt securities | 10.87 | % | 23.82 | % | ||
Equity securities | — | 48.16 | % | |||
Mortgage loans | 0.01 | % | 0.47 | % |
Retail Banking in Spain12.1.2.2. Other post-retirement benefits
The Pension Plan asset allocation at December 31, 2006, and Portugal: formed2005 by BBVA’s retail banking, asset management and private banking businesses in Spain and Portugal, covering the residential customer and small and medium entities (“SME”) segments in these markets. This area also includes the Finanzia / Uno-e group (which specializes in the e-banking business, consumer financing and card product distribution), BBVA Portugal, our private banking businesses, our mutual and pension fund management and insurance businesses.
Asset Category | Percentage of Plan Assets at December 31, 2005 | Percentage of Plan Assets at December 31, 2005 | ||||
Mexican Federal Government securities | 100.00 | % | 23.55 | % | ||
Equity securities | — | 76.45 | % |
Wholesale12.2.1.2. Projected Benefit Payments
Benefit Payments projected to be made from the Pension Benefit Plan and Investment Banking: includes BBVA’s business activities with large companies and institutions through national and international corporate banking and institutional banking. In addition, this business area includes our trading businesses located in Spain, Europe and New York, our equity distribution and origination business and security deposit and custody service business,Healthcare Benefit Plan are as well as the real estate business which is not developed by the group through interests in large corporations.
Year | Pension Benefit Thousands of Euros | Healthcare Benefit Thousands of Euros | ||
2007 | 34,395 | 13,353 | ||
2008 | 35,714 | 14,351 | ||
2009 | 37,369 | 15,466 | ||
2010 | 39,057 | 16,721 | ||
2011 | 40,446 | 17,944 | ||
Over 2011 | 252,029 | 118,100 |
Banking in America12.2. Portugal: includes the operations of each of our subsidiary banks in Latin America
12.2.1. Plan Assets -Pension plan
The Pension Plan asset allocation at December 31, 2006 and their investee companies, including pension management companies and insurance companies,2005 by asset category is as well as our international private banking business.
Asset Category | Percentage of Plan Assets at December 31, 2006 | Percentage of Plan Assets at December 31, 2005 | ||||
Debt securities | 75.8 | % | 61.7 | % | ||
Equity securities | 9.3 | % | 6.4 | % | ||
Mortgage loans and others | 0.4 | % | 2.0 | % | ||
Cash | 14.5 | % | 29.9 | % |
Corporate Activities and Other: includes our holdings12.2.2. Projected Benefit Payments
Benefit Payments projected to be made from the Pension Benefit Plan are as follows:
Year | Pension Benefit Thousands of Euros | |
2007 | 13,205 | |
2008 | 13,316 | |
2009 | 13,381 | |
2010 | 13,363 | |
2011 | 13,450 | |
Over 2011 | 68,260 |
APPENDIX I
ADDITIONAL INFORMATION ON CONSOLIDATED SUBSIDIARIES
COMPOSING THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
% of Voting Rights | Thousands of Euros ( * ) | ||||||||||||||||||||
Controlled by the Bank | Investee Data | ||||||||||||||||||||
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets as of 31.12.06 | Liabilities as of 31.12.06 | Equity 31.12.06 | Profit (Loss) for the Period ended 31.12.06 | |||||||||||
(ASA) AG.DE SEGUROS DE ARGENTARIA, S.A. | SPAIN | SERVICES | 100.00 | — | 100.00 | 1,368 | 7,600 | 5,375 | 1,949 | 276 | |||||||||||
ADMINISTRAD. DE FONDOS PARA EL RETIRO-BANCOMER, S.A DE C.V. | MEXICO | PENSIONS | 17.50 | 82.50 | 100.00 | 358,061 | 203,769 | 46,748 | 105,890 | 51,131 | |||||||||||
ADMINISTRADORA DE FONDOS DE PENSIONS PROVIDA(AFP PROVIDA) | CHILE | PENSIONS | 12.70 | 51.62 | 64.32 | 204,805 | 410,196 | 117,337 | 226,639 | 66,220 | |||||||||||
AFP GENESIS ADMINISTRADORA DE FONDOS, S.A. | ECUADOR | PENSIONS | — | 100.00 | 100.00 | 1,928 | 3,436 | 1,508 | 616 | 1,312 | |||||||||||
AFP HORIZONTE, S.A. | PERU | PENSIONS | 24.85 | 75.15 | 100.00 | 26,618 | 41,789 | 16,030 | 15,678 | 10,081 | |||||||||||
AFP PREVISION BBV-ADM.DE FONDOS DE PENSIONES S.A. | BOLIVIA | PENSIONS | 75.00 | 5.00 | 80.00 | 2,063 | 9,166 | 3,425 | 2,645 | 3,096 | |||||||||||
ALMACENADORA FINANCIERA PROVINCIAL | VENEZUELA | SERVICES | — | 100.00 | 100.00 | 1,197 | 1,463 | 267 | 877 | 319 | |||||||||||
ALMACENES GENERALES DE DEPOSITO, S.A.E. DE | SPAIN | PORTFOLIO | 83.90 | 16.10 | 100.00 | 12,649 | 100,377 | 3,037 | 94,312 | 3,028 | |||||||||||
ALTITUDE INVESTMENTS LIMITED | UNITED KINGDOM | FINANCIAL SERV. | 51.00 | — | 51.00 | 225 | 1,971 | 1,246 | 721 | 4 | |||||||||||
ALTURA MARKETS, A.V., S.A. | SPAIN | SECURITIES | 50.00 | — | 50.00 | 5,000 | 787,877 | 764,434 | 12,041 | 11,402 | |||||||||||
ANIDA DESARROLLOS INMOBILIARIOS, S.L. | SPAIN | REAL ESTATE | — | 100.00 | 100.00 | 112,477 | 329,735 | 111,694 | 167,426 | 50,615 | |||||||||||
ANIDA GRUPO INMOBILIARIO, S.L. | SPAIN | PORTFOLIO | 100.00 | — | 100.00 | 198,357 | 509,943 | 62,396 | 410,625 | 36,922 | |||||||||||
ANIDA INMOBILIARIA, S.A. DE C.V. | MEXICO | PORTFOLIO | — | 100.00 | 100.00 | 55,199 | 52,615 | 23 | 53,994 | (1,402 | ) | ||||||||||
ANIDA PROYECTOS INMOBILIARIOS, S.A. DE C.V. | MEXICO | REAL EST.INSTR. | — | 100.00 | 100.00 | 51,990 | 52,457 | 467 | 53,029 | (1,039 | ) | ||||||||||
ANIDA SERVICIOS INMOBILIARIOS, S.A. DE C.V. | MEXICO | REAL EST.INSTR. | — | 100.00 | 100.00 | 451 | 1,587 | 1,157 | 833 | (403 | ) | ||||||||||
APLICA SOLUCIONES ARGENTINAS, S.A. | ARGENTINA | SERVICES | — | 100.00 | 100.00 | 1,209 | 1,232 | 61 | 1,232 | (61 | ) | ||||||||||
APLICA TECNOLOGIA AVANZADA | MEXICO | SERVICES | 100.00 | — | 100.00 | 4 | 47,725 | 46,160 | 581 | 984 | |||||||||||
APOYO MERCANTIL S.A. DE C.V. | MEXICO | REAL EST.INSTR. | — | 100.00 | 100.00 | 2,070 | 11,721 | 9,651 | 1,826 | 244 | |||||||||||
ARAGON CAPITAL, S.L. | SPAIN | PORTFOLIO | 99.90 | 0.10 | 100.00 | 37,925 | 30,948 | — | 29,191 | 1,757 | |||||||||||
ARGENTARIA SERVICIOS, S.A. | CHILE | SERVICES | 100.00 | — | 100.00 | 676 | 1,360 | 7 | 1,249 | 104 | |||||||||||
ASERLOCAL, S.A. | SPAIN | SERVICES | — | 100.00 | 100.00 | 32 | 32 | — | 43 | (11 | ) | ||||||||||
ASSUREX, S.A. | ARGENTINA | INSURANCE | 87.50 | 12.50 | 100.00 | 68 | 458 | 392 | 62 | 4 | |||||||||||
ATUEL FIDEICOMISOS, S.A. | ARGENTINA | SERVICES | — | 100.00 | 100.00 | 4,954 | 5,117 | 163 | 3,241 | 1,713 | |||||||||||
AUTOMERCANTIL-COMERCIO E ALUGER DE VEICULOS AUTOM., LDA. | PORTUGAL | FINANCIAL SERV. | — | 100.00 | 100.00 | 17,217 | 67,403 | 57,489 | 9,711 | 203 | |||||||||||
BAHIA SUR RESORT, S.C. | SPAIN | REAL ESTATE | 99.95 | — | 99.95 | 1,436 | 1,438 | 15 | 1,423 | — | |||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA (PANAMA), S.A. | PANAMA | BANKING | 54.12 | 44.81 | 98.93 | 19,464 | 852,708 | 722,400 | 106,770 | 23,538 | |||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA (PORTUGAL), S.A. | PORTUGAL | BANKING | 9.52 | 90.48 | 100.00 | 278,916 | 5,285,506 | 5,052,258 | 264,100 | (30,852 | ) | ||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA CHILE, S.A. | CHILE | BANKING | 60.92 | 6.92 | 67.84 | 273,426 | 6,534,127 | 6,113,769 | 377,009 | 43,349 | |||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA PUERTO RICO | PUERTO RICO | BANKING | — | 100.00 | 100.00 | 105,348 | 4,797,356 | 4,402,685 | 372,231 | 22,440 | |||||||||||
BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY, S.A. | URUGUAY | BANKING | 100.00 | — | 100.00 | 17,049 | 354,457 | 328,550 | 21,261 | 4,646 | |||||||||||
BANCO CONTINENTAL, S.A. | PERU | BANKING | — | 92.08 | 92.08 | 374,183 | 4,426,905 | 4,020,555 | 287,599 | 118,751 |
Company BANCO DE CREDITO LOCAL, S.A. BANCO DE PROMOCION DE NEGOCIOS, S.A. BANCO DEPOSITARIO BBVA, S.A. BANCO INDUSTRIAL DE BILBAO, S.A. BANCO OCCIDENTAL, S.A. BANCO PROVINCIAL OVERSEAS N.V. BANCO PROVINCIAL S.A. - BANCO UNIVERSAL BANCO UNO-E BRASIL, S.A. BANCOMER ASSET MANAGEMENT INC. BANCOMER FINANCIAL SERVICES INC. BANCOMER FOREIGN EXCHANGE INC. BANCOMER PAYMENT SERVICES INC. BANCOMER TRANSFER SERVICES, INC. BANCOMERCIO SEGUROS, S.A. AGENCIA DE SEGUROS BANKERS INVESTMENT SERVICES, INC. BBV AMERICA, S.L. BBV SECURITIES HOLDINGS, S.A. BBVA & PARTNERS ALTERNATIVE INVESTMENT A.V., S.A. BBVA ADMINISTRADORA GENERAL DE FONDOS S.A. BBVA AMERICA FINANCE, S.A. BBVA BANCO DE FINANCIACION S.A. BBVA BANCO FRANCES, S.A. BBVA BANCOMER FINANCIAL HOLDINGS, INC. BBVA BANCOMER GESTION, S.A. DE C.V. BBVA BANCOMER HOLDING CORPORATION BBVA BANCOMER OPERADORA, S.A. DE C.V. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 SPAIN BANKING 100.00 — 100.00 509,597 11,563,355 11,283,023 239,410 40,922 SPAIN BANKING — 99.81 99.81 15,149 32,608 247 31,791 570 SPAIN BANKING — 100.00 100.00 1,595 1,219,922 1,169,201 167 50,554 SPAIN BANKING — 99.93 99.93 97,218 281,609 26,342 176,465 78,802 SPAIN BANKING 49.43 50.57 100.00 15,512 16,667 787 15,345 535 NETHERLANDS
ANTILLES BANKING — 100.00 100.00 30,135 411,944 381,809 23,126 7,009 VENEZUELA BANKING 1.85 53.75 55.60 162,180 6,561,057 6,085,778 330,112 145,167 BRAZIL BANKING 100.00 — 100.00 16,166 31,661 4,523 25,082 2,056 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 2 2 — 2 — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 3,812 4,342 529 4,193 (380 ) UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 3,191 4,136 945 2,451 740 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 11 17 6 16 (5 ) UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 34,013 109,047 75,034 20,908 13,105 SPAIN SERVICES 99.99 0.01 100.00 60 81 1 80 — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 651 693 41 880 (228 ) SPAIN PORTFOLIO 100.00 — 100.00 479,328 472,590 — 491,627 (19,037 ) SPAIN PORTFOLIO 99.86 0.14 100.00 19,550 53,493 33,943 30,561 (11,011 ) SPAIN SECURITIES 70.00 — 70.00 1,331 8,142 5,077 2,399 666 CHILE FINANCIAL
SERV. — 100.00 100.00 16,597 16,949 343 13,910 2,696 SPAIN FINANCIAL
SERV. 100.00 — 100.00 60 52,274 52,221 56 (3 ) SPAIN BANKING — 100.00 100.00 64,200 7,452,455 7,383,045 68,581 829 ARGENTINA BANKING 45.65 30.44 76.09 46,534 4,176,363 3,695,871 434,097 46,395 UNITED
STATES PORTFOLIO — 100.00 100.00 42,554 60,680 17,875 40,541 2,264 MEXICO FINANCIAL
SERV. — 99.99 99.99 19,252 35,796 16,540 6,739 12,517 UNITED
STATES PORTFOLIO — 100.00 100.00 4,876 4,876 — 3,539 1,337 MEXICO SERVICES — 100.00 100.00 2,912 455,026 452,114 1,761 1,151
Company Assets as of 31.12.06 Liabilities as of 31.12.06 Equity 31.12.06 Profit (Loss) for the BBVA BANCOMER SERVICIOS ADMINISTRATIVOS, S.A. DE C.V. BBVA BANCOMER SERVICIOS, S.A. BBVA BANCOMER USA BBVA BANCOMER, S.A. DE C.V. BBVA BROKER, CORREDURIA DE SEGUROS Y REASEGUROS, S.A. BBVA CAPITAL FINANCE, S.A. BBVA CAPITAL FUNDING, LTD. BBVA CARTERA DE INVERSIONES,SICAV,S.A. BBVA COLOMBIA, S.A. BBVA CONSOLIDAR SALUD S.A. BBVA CONSOLIDAR SEGUROS, S.A. BBVA CORREDORA TECNICA DE SEGUROS BHIF LTDA. BBVA CORREDORES DE BOLSA, S.A. BBVA CORREDURIA TECNICA ASEGURADORA, S.A. BBVA CRECER AFP, S.A. BBVA DINERO EXPRESS, S.A.U BBVA E-COMMERCE, S.A. BBVA FACTORING E.F.C., S.A. BBVA FIDUCIARIA , S.A. BBVA FINANCE (DELAWARE) INC. BBVA FINANCE (UK), LTD. BBVA FINANCE SPA. BBVA FINANCIAMIENTO AUTOMOTRIZ, S.A. BBVA FINANZIA, S.P.A BBVA FUNDOS, S.G. DE FUNDOS DE PENSOES, S.A. BBVA GEST, S.G. DE FUNDOS DE INVESTIMENTO MOBILIARIO, S.A. BBVA GESTION,SOCIEDAD ANONIMA, SGIIC BBVA GLOBAL FINANCE LTD. BBVA HORIZONTE PENSIONES Y CESANTIAS, S.A. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount
Period
ended
31.12.06 MEXICO FINANCIAL
SERV. — 100.00 100.00 708 8,917 8,210 462 245 MEXICO BANKING — 100.00 100.00 401,963 417,752 15,788 321,698 80,266 UNITED STATES BANKING — 100.00 100.00 12,833 84,000 71,103 19,695 (6,798 ) MEXICO BANKING — 100.00 100.00 4,889,024 54,058,936 49,166,559 3,583,706 1,308,671 SPAIN SERVICES — 100.00 100.00 337 7,290 1,615 3,281 2,394 SPAIN FINANCIAL
SERV. 100.00 — 100.00 60 1,992,153 1,991,980 145 28 CAYMAN ISLANDS FINANCIAL
SERV. 100.00 — 100.00 — 1,281,682 1,279,763 1,804 115 SPAIN PORTFOLIO 92.25 — 92.25 46,876 119,377 170 115,479 3,728 COLOMBIA BANKING 76.20 19.23 95.43 265,946 4,764,806 4,327,516 353,968 83,322 ARGENTINA INSURANCE 15.35 84.65 100.00 13,361 39,598 26,075 10,479 3,044 ARGENTINA INSURANCE 87.78 12.22 100.00 5,946 24,997 13,047 10,678 1,272 CHILE SERVICES — 100.00 100.00 15,500 16,849 1,342 11,539 3,968 CHILE SECURITIES — 100.00 100.00 20,544 290,060 269,341 19,583 1,136 SPAIN SERVICES 99.94 0.06 100.00 297 16,566 6,040 6,237 4,289 DOMINICAN
REPUBLIC FINANCIAL
SERV. 35.00 35.00 70.00 1,982 7,933 2,518 5,850 (435 ) SPAIN FINANCIAL
SERV. 100.00 — 100.00 2,186 8,064 5,233 2,257 574 SPAIN SERVICES 100.00 — 100.00 30,879 34,420 224 35,429 (1,233 ) SPAIN FINANCIAL
SERV. — 100.00 100.00 126,447 5,467,812 5,262,341 185,802 19,669 COLOMBIA FINANCIAL
SERV. — 99.99 99.99 8,036 8,689 536 6,694 1,459 UNITED STATES FINANCIAL
SERV. 100.00 — 100.00 110 380 — 380 — UNITED KINGDOM FINANCIAL
SERV. — 100.00 100.00 3,324 27,186 13,939 12,936 311 ITALY FINANCIAL
SERV. 100.00 — 100.00 4,648 6,018 1,060 4,946 12 CHILE PORTFOLIO — 100.00 100.00 83,054 83,054 — 76,971 6,083 ITALY FINANCIAL
SERV. 50.00 50.00 100.00 19,214 286,466 271,331 15,858 (723 ) PORTUGAL FINANCIAL
SERV. — 100.00 100.00 998 5,712 483 3,750 1,479 PORTUGAL FINANCIAL
SERV. — 100.00 100.00 998 7,813 621 4,901 2,291 SPAIN FINANCIAL
SERV. 17.00 83.00 100.00 11,436 245,160 154,143 9,659 81,358 CAYMAN ISLANDS FINANCIAL
SERV. 100.00 — 100.00 — 1,750,748 1,746,903 3,612 233 COLOMBIA PENSIONS 78.52 21.43 99.95 35,696 60,193 10,115 36,206 13,872
Company BBVA INMOBILIARIA E INVERSIONES S.A. BBVA INSERVEX, S.A. BBVA INTERNATIONAL INVESTMENT CORPORATION BBVA INTERNATIONAL LIMITED BBVA INTERNATIONAL PREFERRED, S.A.U. BBVA INVESTMENTS, INC. BBVA IRELAND PUBLIC LIMITED COMPANY BBVA LUXINVEST, S.A. BBVA NOMINEES LIMITED BBVA PARAGUAY, S.A. BBVA PARTICIPACIONES INTERNACIONAL, S.L. BBVA PATRIMONIOS GESTORA SGIIC, S.A. BBVA PENSIONES CHILE, S.A. BBVA PENSIONES, SA, ENTIDAD GESTORA DE FONDOS DE PENSIONES BBVA PLANIFICACION PATRIMONIAL, S.L. BBVA PREFERRED CAPITAL, LTD. BBVA PRIVANZA (JERSEY), LTD. BBVA PUERTO RICO HOLDING CORPORATION BBVA RE LIMITED BBVA RENTING, S.A. BBVA RESEARCH, S.A. BBVA SECURITIES HOLDINGS (UK) LIMITED BBVA SECURITIES INC. BBVA SECURITIES LTD. BBVA SECURITIES OF PUERTO RICO, INC. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 CHILE REAL
EST.INSTR. — 68.11 68.11 4,870 24,260 17,110 7,892 (742 ) SPAIN SERVICES 100.00 — 100.00 1,205 3,327 4 2,875 448 PUERTO RICO FINANCIAL
SERV. 100.00 — 100.00 2,769,952 2,265,049 19 1,981,286 283,744 CAYMAN ISLANDS FINANCIAL
SERV. 100.00 — 100.00 1 1,009,727 1,006,220 2,829 678 SPAIN FINANCIAL
SERV. 100.00 — 100.00 60 1,059,300 1,059,228 63 9 UNITED STATES FINANCIAL
SERV. — 100.00 100.00 5,410 6,705 1,293 3,926 1,486 IRELAND FINANCIAL
SERV. 100.00 — 100.00 180,381 4,346,978 4,062,078 272,935 11,965 LUXEMBOURG PORTFOLIO 36.00 64.00 100.00 255,843 1,429,887 50,652 950,890 428,345 UNITED KINGDOM SERVICES 100.00 — 100.00 — 1 — 1 — PARAGUAY BANKING 99.99 — 99.99 22,598 330,011 289,562 28,318 12,131 SPAIN PORTFOLIO 92.69 7.31 100.00 273,366 326,951 1,459 319,702 5,790 SPAIN FINANCIAL
SERV. 99.99 0.01 100.00 3,907 42,630 2,554 31,804 8,272 CHILE PENSIONS 32.23 67.77 100.00 281,182 348,823 4,814 309,071 34,938 SPAIN PENSIONS 100.00 — 100.00 12,922 68,619 30,883 25,938 11,798 SPAIN FINANCIAL
SERV. 80.00 20.00 100.00 1 512 40 455 17 CAYMAN ISLANDS NO
ACTIVITY 100.00 — 100.00 1 1,066 — 941 125 CHANNEL
ISLANDS NO
ACTIVITY — 100.00 100.00 20,610 106,854 489 101,693 4,672 PUERTO RICO PORTFOLIO 100.00 — 100.00 255,804 105,966 6 106,017 (57 ) IRELAND INSURANCE — 100.00 100.00 656 39,127 28,952 7,991 2,184 SPAIN FINANCIAL
SERV. — 100.00 100.00 20,976 574,743 483,232 80,922 10,589 SPAIN FINANCIAL
SERV. 99.99 0.01 100.00 501 3,475 2,713 674 88 UNITED KINGDOM FINANCIAL
SERV. — 100.00 100.00 75 6,307 6,259 364 (316 ) UNITED STATES FINANCIAL
SERV. — 100.00 100.00 31,750 29,407 4,058 27,932 (2,583 ) UNITED KINGDOM FINANCIAL
SERV. — 100.00 100.00 3,315 9,464 2,658 3,548 3,258 PUERTO RICO FINANCIAL
SERV. 100.00 — 100.00 4,726 4,830 396 4,601 (167 )
Company Assets as of 31.12.06 Liabilities as of 31.12.06 Equity 31.12.06 Profit (Loss) for the Period ended 31.12.06 BBVA SEGUROS COLOMBIA COMPAÑIA DE SEGUROS, S.A. BBVA SEGUROS DE VIDA COLOMBIA, S.A. BBVA SEGUROS DE VIDA, S.A. BBVA SEGUROS INC. BBVA SEGUROS, S.A. BBVA SEGUROS, S.A. (DOMINICAN REPUBLIC) BBVA SENIOR FINANCE, S.A.U. BBVA SERVICIOS, S.A. BBVA SOCIEDAD LEASING HABITACIONAL BHIF BBVA SUBORDINATED CAPITAL S.A.U. BBVA SWITZERLAND, S.A. (BBVA SWITZERLAND) BBVA TRADE, S.A. BBVA U.S. SENIOR S.A.U. BBVA USA BANCSHARES OF DELAWARE, INC. BBVA USA BANCSHARES, INC. BBVA USA, INC. BBVA VALORES COLOMBIA, S.A. COMISIONISTA DE BOLSA BBVA,INSTITUIÇAO FINANCEIRA DE CREDITO, S.A. BCL INTERNATIONAL FINANCE, LTD. BCL PARTICIPACIONES, S.L. BEX AMERICA FINANCE INCORPORATED BEXCARTERA, SICAV S.A. BHIF ASESORIAS Y SERVICIOS FINANCIEROS, S.A. BIBJ MANAGEMENT, LTD. BIBJ NOMINEES, LTD. BILBAO VIZCAYA AMERICA B.V. BILBAO VIZCAYA HOLDING, S.A. BILBAO VIZCAYA INVESTMENT ADVISORY COMPANY S.A. BROOKLINE INVESTMENTS, CANAL COMPANY, LTD. CANAL INTERNATIONAL HOLDING (NETHERLANDS) BV. CARTERA E INVERSIONES S.A., CIA DE CASA DE BOLSA BBVA BANCOMER, S.A. DE C.V. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount COLOMBIA INSURANCE 94.00 6.00 100.00 9,174 30,979 20,371 10,500 108 COLOMBIA INSURANCE 94.00 6.00 100.00 13,207 105,066 78,002 20,003 7,061 CHILE INSURANCE — 100.00 100.00 24,832 191,974 167,141 20,772 4,061 PUERTO RICO SERVICES — 100.00 100.00 190 3,377 542 1,858 977 SPAIN INSURANCE 94.30 5.64 99.94 414,519 12,284,726 11,397,656 702,149 184,921 DOMINICAN REPUBLIC INSURANCE — 99.98 99.98 1,556 4,259 2,686 552 1,021 SPAIN FINANCIAL
SERV. 100.00 — 100.00 60 17,911,860 17,911,518 141 201 SPAIN SERVICES — 100.00 100.00 354 1,052 21 956 75 CHILE FINANCIAL
SERV. — 97.48 97.48 8,906 28,943 19,833 8,906 204 SPAIN FINANCIAL
SERV. 100.00 — 100.00 130 2,954,128 2,953,928 73 127 SWITZERLAND BANKING 39.72 60.28 100.00 54,024 538,897 292,537 222,630 23,730 SPAIN SERVICES — 100.00 100.00 6,379 22,162 19,428 17,492 (14,758 ) SPAIN FINANCIAL
SERV. 100.00 — 100.00 132 4,031,854 4,031,813 132 (91 ) UNITED STATES PORTFOLIO — 100.00 100.00 679,265 679,267 — 664,000 15,267 UNITED STATES PORTFOLIO 100.00 — 100.00 695,628 687,402 12,203 661,433 13,766 UNITED STATES SERVICES — 100.00 100.00 4,566 6,705 1,626 8,735 (3,656 ) COLOMBIA FINANCIAL
SERV. — 100.00 100.00 3,208 3,321 109 2,765 447 PORTUGAL FINANCIAL
SERV. — 100.00 100.00 40,417 301,104 269,408 29,213 2,483 CAYMAN ISLANDS FINANCIAL
SERV. — 100.00 100.00 — 160,565 160,537 51 (23 ) SPAIN PORTFOLIO — 100.00 100.00 1,565 1,565 — 1,908 (343 ) UNITED STATES NO ACTIVITY 100.00 — 100.00 — 1 1 — — SPAIN PORTFOLIO — 80.84 80.84 9,341 13,500 64 12,947 489 CHILE FINANCIAL
SERV. — 98.60 98.60 12,548 13,789 1,064 7,807 4,918 CHANNEL ISLANDS NO ACTIVITY — 100.00 100.00 — — — — — CHANNEL ISLANDS NO ACTIVITY — 100.00 100.00 — — — — — NETHERLANDS PORTFOLIO — 100.00 100.00 348,940 348,960 20 331,644 17,296 SPAIN PORTFOLIO 89.00 11.00 100.00 34,771 123,740 534 58,724 64,482 LUXEMBOURG FINANCIAL
SERV. 100.00 — 100.00 77 27,820 1,444 11,144 15,232
S.L. SPAIN PORTFOLIO 100.00 — 100.00 33,969 32,395 475 32,001 (81 ) CHANNEL ISLANDS NO ACTIVITY — 100.00 100.00 37 1,058 20 1,199 (161 ) NETHERLANDS NO ACTIVITY — 100.00 100.00 494 87 22 38 27 SPAIN PORTFOLIO 100.00 — 100.00 60,541 506,982 443,482 (52,122 ) 115,622 MEXICO FINANCIAL
SERV. — 100.00 100.00 49,932 74,777 24,842 23,672 26,263
Company CASA DE CAMBIO MULTIDIVISAS, S.A DE C.V. CIA. GLOBAL DE MANDATOS Y REPRESENTACIONES, S.A. CIDESSA DOS, S.L. CIDESSA UNO, S.L. CIERVANA, S.L. COMPAÑIA CHILENA DE INVERSIONES, S.L. CONSOLIDAR A.F.J.P., S.A. CONSOLIDAR ASEGURADORA DE RIESGOS DEL TRABAJO, S.A. CONSOLIDAR CIA. DE SEGUROS DE RETIRO, S.A. CONSOLIDAR CIA. DE SEGUROS DE VIDA, S.A. CONSOLIDAR COMERCIALIZADORA, S.A. CONSULTORES DE PENSIONES BBV, S.A. CONTINENTAL BOLSA, SDAD. AGENTE DE BOLSA S.A. CONTINENTAL S.A. SOCIEDAD ADMINISTRADORA DE FONDOS CONTINENTAL SOCIEDAD TITULIZADORA, S.A. CONTRATACION DE PERSONAL, S.A. DE C.V. CORPORACION DE ALIMENTACION Y BEBIDAS, S.A. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets
as of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 MEXICO NO ACTIVITY — 100.00 100.00 191 191 1 188 2 URUGUAY NO ACTIVITY — 100.00 100.00 108 190 2 188 — SPAIN PORTFOLIO — 100.00 100.00 11,243 11,435 191 11,183 61 SPAIN PORTFOLIO — 100.00 100.00 4,754 285,293 88,213 68,229 128,851 SPAIN PORTFOLIO 100.00 — 100.00 53,164 54,968 178 54,320 470 SPAIN PORTFOLIO 100.00 — 100.00 232,976 173,294 2,088 171,594 (388 ) ARGENTINA PENSIONS 46.11 53.89 100.00 61,784 94,401 28,112 66,266 23 ARGENTINA INSURANCE 87.50 12.50 100.00 33,490 129,937 87,400 37,089 5,448 ARGENTINA INSURANCE 33.33 66.67 100.00 10,649 459,959 443,989 12,326 3,644 ARGENTINA INSURANCE 34.04 65.96 100.00 21,147 78,082 45,389 20,300 12,393 ARGENTINA SERVICES — 100.00 100.00 298 3,074 2,776 81 217 SPAIN PENSIONS — 100.00 100.00 175 781 — 829 (48 ) PERU SECURITIES — 100.00 100.00 3,023 4,950 1,927 1,967 1,056 PERU FINANCIAL
SERV. — 100.00 100.00 3,236 3,482 245 3,084 153 PERU SERVICES — 100.00 100.00 717 719 2 700 17 MEXICO SERVICES — 100.00 100.00 126 9,757 9,632 5 120 SPAIN PORTFOLIO — 100.00 100.00 138,508 154,585 1,214 150,575 2,796
Company Assets as of 31.12.06 Liabilities as of 31.12.06 CORPORACION GENERAL FINANCIERA, S.A. CORPORACION INDUSTRIAL Y DE SERVICIOS, S.L. CORPORATIVO VITAMEDICA, S.A. DE C.V. DESARROLLADORA Y VENDEDORA DE CASAS, S.A. DE C.V. DESARROLLO URBANISTICO DE CHAMARTIN, S.A. DESITEL TECNOLOGIA Y SISTEMAS, S.A. DE C.V. DEUSTO, S.A. DE INVERSION MOBILIARIA DINERO EXPRESS SERVICES GLOBALES, S.A. EL ENCINAR METROPOLITANO, S.A. EL OASIS DE LAS RAMBLAS, S.L. ELANCHOVE, S.A. EMPRESA INSTANT CREDIT, C.A. ESPANHOLA COMERCIAL E SERVIÇOS, LTDA. ESTACION DE AUTOBUSES CHAMARTIN, S.A. EUROPEA DE TITULIZACION, S.A., SDAD.GEST.DE FDOS.DE TITUL. EURORISK, S.A. EXPLOTACIONES AGROPECUARIAS VALDELAYEGUA, S.A. FIDEICOMISO 29763-0 SOCIO LIQUIDADOR OP.FINAN.POSICION PRO FIDEICOMISO 29764-8 SOCIO LIQUIDADOR POSICION DE TERCEROS FIDEICOMISO 474031 MANEJO DE GARANTIAS FIDEICOMISO BANCO FRANCES FIDEICOMISO CENTRO CORPORATIVO REGIONAL F/47433-8 FIDEICOMISO INGRAL FIDEICOMISO INVEX 228 FIDEICOMISO INVEX 367 FIDEICOMISO INVEX 393 FIDEICOMISO INVEX 411 FINANCEIRA DO COMERCIO EXTERIOR S.A.R. FINANCIERA ESPAÑOLA, S.A. FINANZIA AUTORENTING, S.A. FINANZIA, BANCO DE CREDITO, S.A. FORO LOCAL, S.L. FRANCES ADMINISTRADORA DE INVERSIONES, S.A. G.F.C.INVERS. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 SPAIN PORTFOLIO 100.00 — 100.00 452,431 1,164,306 18,167 894,385 251,754 SPAIN PORTFOLIO — 100.00 100.00 1,251 5,552 806 2,914 1,832 MEXICO SERVICES — 99.98 99.98 197 1,431 1,234 190 7 MEXICO REAL
EST.INSTR. — 100.00 100.00 83 37 1 40 (4 ) SPAIN REAL
ESTATE — 72.50 72.50 30,535 61,743 19,592 42,448 (297 ) MEXICO SERVICES — 100.00 100.00 1,479 1,587 110 1,394 83 SPAIN PORTFOLIO — 100.00 100.00 11,005 11,005 — 11,203 (198 ) SPAIN FINANCIAL
SERV. 100.00 — 100.00 13,138 17,942 4,714 17,987 (4,759 ) SPAIN REAL
ESTATE — 98.76 98.76 5,130 9,269 4,087 6,052 (870 ) SPAIN REAL
ESTATE — 70.00 70.00 140 655 527 (1,182 ) 1,310 SPAIN PORTFOLIO 100.00 — 100.00 1,500 3,853 1,403 2,457 (7 ) VENEZUELA NO
ACTIVITY — 100.00 100.00 — — — — — BRAZIL FINANCIAL
SERV. 100.00 — 100.00 — 671 189 4,399 (3,917 ) SPAIN SERVICES — 51.00 51.00 31 31 — 31 — SPAIN FINANCIAL
SERV. 82.97 — 82.97 1,506 5,654 553 3,096 2,005 SPAIN SERVICES — 100.00 100.00 60 70,679 69,220 1,041 418 SPAIN REAL
ESTATE — 100.00 100.00 10,000 9,989 (6 ) 9,990 5 MEXICO FINANCIAL
SERV. — 100.00 100.00 14,721 14,831 110 12,588 2,133 MEXICO FINANCIAL
SERV. — 100.00 100.00 32,342 32,810 468 28,653 3,689 MEXICO SERVICES — 100.00 100.00 3 3 — 3 — ARGENTINA FINANCIAL
SERV. 100.00 — 100.00 — 1,197 903 497 (203 ) MEXICO SERVICES — 100.00 100.00 21,656 35,042 13,386 13,658 7,998 COLOMBIA SERVICES — 100.00 100.00 — 44 2 813 (771 ) MEXICO FINANCIAL
SERV. — 100.00 100.00 — 49,784 49,783 1 — MEXICO FINANCIAL
SERV. — 100.00 100.00 — 39,964 39,964 — — MEXICO FINANCIAL
SERV. — 100.00 100.00 — 37,390 37,390 — — MEXICO FINANCIAL
SERV. — 100.00 100.00 — 35,460 35,460 — — PORTUGAL SERVICES 100.00 — 100.00 51 45 — 46 (1 ) SPAIN PORTFOLIO 85.85 14.15 100.00 4,522 4,879 — 5,370 (491 ) SPAIN SERVICES — 85.00 85.00 14,369 614,129 585,289 26,820 2,020 SPAIN BANKING — 100.00 100.00 56,203 3,573,146 3,412,676 140,405 20,065 SPAIN SERVICES — 60.13 60.13 2 13 7 6 — ARGENTINA FINANCIAL
SERV. — 100.00 100.00 4,469 8,243 3,773 2,743 1,727
Company FRANCES VALORES SOCIEDAD DE BOLSA, S.A. FUTURO FAMILIAR, S.A. DE C.V. GENERAL DE PARTICIPACIONES EMPRESARIALES, S.L. GENTE BBVA, S.A. GESTION DE PREVISION Y PENSIONS, S.A. GESTION Y ADMINISTRACION DE RECIBOS, S.A. GOBERNALIA GLOBAL NET, S.A. GRAN JORGE JUAN, S.A. GRANFIDUCIARIA GRELAR GALICIA, S.A. GRUPO FINANCIERO BBVA BANCOMER, S.A. DE C.V. HIPOTECARIA NACIONAL MEXICANA INCORPORATED HIPOTECARIA NACIONAL, S.A. DE C.V. HOLDING CONTINENTAL, S.A. HOMEOWNERS LOAN CORPORATION HYDROX HOLDINGS, INC. IBERDROLA SERVICES FINANCIEROS, E.F.C, S.A. IBERNEGOCIO DE TRADE, S.L. INENSUR BRUNETE, S.L. INGENIERIA EMPRESARIAL MULTIBA INICIATIVAS RESIDENCIALES EN INTERNET, S.A. INMOBILIARIA ASUDI, S.A. INMOBILIARIA BILBAO, S.A. INMUEBLES Y RECUPERACIONES CONTINENTAL, S.A. INVERAHORRO, S.L. INVERSIONES ALDAMA, C.A. INVERSIONES BANPRO INTERNATIONAL INC. N.V. INVERSIONES BAPROBA, C.A. INVERSIONES MOBILIARIAS, S.L. INVERSIONES P.H.R.4, C.A. INVERSIONES T, C.A. INVERSORA OTAR, S.A. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 ARGENTINA FINANCIAL
SERV. — 100.00 100.00 1,476 1,835 358 1,750 (273 ) MEXICO INSURANCE — 100.00 100.00 151 307 155 122 30 SPAIN PORTFOLIO 65.68 34.32 100.00 1,215 2,116 — 2,081 35 CHILE FINANCIAL
SERV. — 100.00 100.00 140 1,913 1,772 144 (3 ) SPAIN PENSIONS 60.00 — 60.00 8,830 25,892 2,246 20,551 3,095 SPAIN SERVICES — 100.00 100.00 150 1,069 354 623 92 SPAIN SERVICES — 100.00 100.00 1,335 1,886 549 1,512 (175 ) SPAIN NO
ACTIVITY 100.00 — 100.00 10,115 10,293 175 10,113 5 COLOMBIA FINANCIAL
SERV. — 90.00 90.00 — 321 112 135 74 SPAIN PORTFOLIO — 100.00 100.00 4,329 4,330 — 4,216 114 MEXICO FINANCIAL
SERV. 48.96 51.00 99.96 6,171,072 6,242,893 1,685 4,662,032 1,579,176 UNITED
STATES REAL
EST.INSTR. — 100.00 100.00 126 182 8 169 5 MEXICO FINANCIAL
SERV. — 100.00 100.00 224,503 720,772 496,270 148,947 75,555 PERU PORTFOLIO 50.00 — 50.00 123,019 402,492 10 287,773 114,709 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 5,576 7,809 2,222 15,116 (9,529 ) UNITED
STATES NO
ACTIVITY — 100.00 100.00 — — — — — SPAIN FINANCIAL
SERV. — 84.00 84.00 7,290 9,279 162 9,043 74 SPAIN SERVICES — 100.00 100.00 615 31,139 18,998 9,047 3,094 SPAIN REAL
ESTATE — 100.00 100.00 23,745 82,332 85,283 (2,443 ) (508 ) MEXICO SERVICES — 99.99 99.99 — — — — — SPAIN SERVICES — 100.00 100.00 2 1,156 1,189 1,519 (1,552 ) SPAIN REAL
EST.INSTR. — 100.00 100.00 2,886 2,998 42 2,872 84 SPAIN REAL
EST.INSTR. — 100.00 100.00 3,514 3,551 36 3,438 77 PERU REAL
EST.INSTR. — 100.00 100.00 18,035 18,316 281 13,502 4,533 SPAIN PORTFOLIO 100.00 — 100.00 474 491 2 480 9 VENEZUELA NO
ACTIVITY — 100.00 100.00 — — — — — NETHERLANDS
ANTILLES PORTFOLIO 48.01 — 48.01 11,390 31,996 72 24,829 7,095 VENEZUELA SERVICES 100.00 — 100.00 1,307 1,663 48 1,507 108 SPAIN PORTFOLIO 100.00 — 100.00 660 693 — 674 19 VENEZUELA NO
ACTIVITY — 60.46 60.46 — 53 — 53 — VENEZUELA NO
ACTIVITY — 100.00 100.00 — — — — — ARGENTINA PORTFOLIO — 99.96 99.96 4,077 49,783 4,128 41,295 4,360
Company Assets as of INVESCO MANAGEMENT Nº 1, S.A. INVESCO MANAGEMENT Nº 2, S.A. JARDINES DE SARRIENA, S.L. LAREDO NATIONAL BANK LEASIMO - SOCIEDADE DE LOCACAO FINANCEIRA, S.A. MAGGIORE FLEET, S.P.A. MARQUES DE CUBAS 21, S.L. MEDITERRANIA DE PROMOCIONS I GESTIONS INMOBILIARIES, S.A. MERCURY TRUST LIMITED MILANO GESTIONI, SRL. MIRADOR DE LA CARRASCOSA, S.L. MISAPRE, S.A. DE C.V. MONESTERIO DESARROLLOS, S.L. MONTEALIAGA,S.A. MULTIASISTENCIA, S.A. DE C.V. MULTIVAL, S.A. OCCIVAL, S.A. OPCION VOLCAN, S.A. PARTICIPACIONES ARENAL, S.L. PENSIONES BANCOMER, S.A. DE C.V. PERI 5.1 SOCIEDAD LIMITADA PORT ARTHUR ABSTRACT & TITLE COMPANY PREMEXSA, S.A. DE C.V. PREVENTIS, S.A. PRO-SALUD, C.A. PROMOCION EMPRESARIAL XX, S.A. PROMOTORA DE RECURSOS AGRARIOS, S.A. PROMOTORA RESIDENCIAL GRAN EUROPA, S.L. PROVIDA INTERNACIONAL, S.A. PROVINCIAL DE VALORES CASA DE BOLSA, C.A. PROVINCIAL SDAD.ADMIN.DE ENTIDADES DE INV.COLECTIVA, C.A. PROVIVIENDA, ENTIDAD RECAUDADORA Y ADMIN.DE APORTES, S.A. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 LUXEMBOURG FINANCIAL
SERV. — 99.99 99.99 11,656 16,070 261 15,809 — LUXEMBOURG FINANCIAL
SERV. — 96.88 96.88 31 12,555 23,732 (8,749 ) (2,428 ) SPAIN REAL
ESTATE — 85.00 85.00 255 997 611 (2,342 ) 2,728 UNITED
STATES BANKING — 100.00 100.00 674,695 3,389,411 2,714,544 655,945 18,922 PORTUGAL FINANCIAL
SERV. — 100.00 100.00 11,576 71,960 60,533 10,701 726 ITALY SERVICES — 100.00 100.00 70,191 136,769 102,508 34,495 (234 ) SPAIN REAL
ESTATE 100.00 — 100.00 2,869 7,552 5,223 2,465 (136 ) SPAIN NO
ACTIVITY — 100.00 100.00 726 2,610 1,882 650 78 CAYMAN
ISLANDS FINANCIAL
SERV. — 100.00 100.00 4,019 4,148 105 3,989 54 ITALY REAL
EST.INSTR. — 100.00 100.00 46 4,384 4,012 328 44 SPAIN REAL
ESTATE — 55.90 55.90 9,724 26,467 9,399 17,071 (3 ) MEXICO FINANCIAL
SERV. — 100.00 100.00 8,305 9,586 2 8,541 1,043 SPAIN REAL
ESTATE — 100.00 100.00 19,990 54,432 34,610 19,805 17 SPAIN REAL
ESTATE — 100.00 100.00 21,154 77,331 61,689 9,932 5,710 MEXICO SERVICES — 100.00 100.00 7,364 13,864 5,440 7,182 1,242 SPAIN PORTFOLIO — 100.00 100.00 71 178 107 78 (7 ) SPAIN NO
ACTIVITY 100.00 — 100.00 8,211 9,171 8 8,907 256 MEXICO REAL
EST.INSTR. — 100.00 100.00 57,643 67,114 9,471 52,214 5,429 SPAIN NO
ACTIVITY — 100.00 100.00 6,270 7,451 1,179 6,150 122 MEXICO INSURANCE — 100.00 100.00 87,022 1,276,431 1,189,406 70,085 16,940 SPAIN REAL
ESTATE — 54.99 54.99 1 1 — 1 — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 1,827 2,069 243 1,811 15 MEXICO FINANCIAL
SERV. — 100.00 100.00 507 519 7 541 (29 ) MEXICO INSURANCE — 75.01 75.01 3,541 11,392 6,671 5,508 (787 ) VENEZUELA SERVICES — 58.86 58.86 — — 1 (1 ) — SPAIN FINANCIAL
SERV. 100.00 — 100.00 1,522 2,075 31 1,998 46 SPAIN SERVICES 100.00 — 100.00 139 146 — 148 (2 ) SPAIN REAL
ESTATE — 58.50 58.50 318 1,611 1,068 574 (31 ) CHILE PENSIONS — 100.00 100.00 54,464 54,908 244 48,034 6,630 VENEZUELA FINANCIAL
SERV. — 90.00 90.00 4,437 6,324 851 4,683 790 VENEZUELA FINANCIAL
SERV. — 100.00 100.00 1,553 1,823 276 1,264 283 BOLIVIA PENSIONS — 100.00 100.00 288 1,648 1,345 208 95
Company PROXIMA ALFA INVESTMENTS, SGIIC S.A. PROYECTO MUNDO AGUILON, S.L PROYECTOS EMPRESARIALES CAPITAL RIESGO I,S.C.R.SIMP., S.A. PROYECTOS EMPRESARIALES CAPITAL RIESGO, S.G.E.C.R.,S.A. PROYECTOS INDUSTRIALES CONJUNTOS, S.A. DE RESIDENCIAL CUMBRES DE SANTA FE, S.A. DE C.V. RIVERWAY HOLDINGS CAPITAL TRUST I RIVERWAY HOLDINGS CAPITAL TRUST II S.GESTORA FONDO PUBL.REGUL.MERCADO HIPOTECARIO, S.A. SCALDIS FINANCE, S.A. SEGUROS BANCOMER, S.A. DE C.V. SEGUROS PROVINCIAL, C.A. SERVICES CORPORATIVOS BANCOMER, S.A. DE C.V. SERVICES CORPORATIVOS DE INSURANCE, S.A. DE C.V. SERVICES EXTERNOS DE APOYO EMPRESARIAL, S.A DE C.V. SERVICES TECNOLOGICOS SINGULARES, S.A. SERVICES VITAMEDICA, S.A. DE C.V. SOCIEDAD DE ESTUDIOS Y ANALISIS FINANC.,S.A. SOCIEDAD PARA LA PRESTACION DE SºS ADMINISTRATIVOS, S.A. SOCIETE INMOBILIERE BBV D’ILBARRIZ SOUTHEAST TEXAS INSURANCE SERVICES HOLDINGS, L.L.C. SOUTHEAST TEXAS INSURANCE SERVICES, L.P. SOUTHEAST TEXAS TITLE COMPANY SPORT CLUB 18, S.A. TEXAS INTERNATIONAL SEGUROS GROUP, INC. TEXAS REGIONAL BANCSHARES, INC. % of Voting Rights Thousands of Euros ( * ) Controlled by the Bank Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 SPAIN FINANCIAL
SERV. 51.00 — 51.00 5,100 13,301 1,928 10,000 1,373 SPAIN REAL
ESTATE — 100.00 100.00 9,317 32,219 9,621 19,720 2,878 SPAIN FINANCIAL
SERV. 100.00 — 100.00 1,200 11,697 10,510 1,200 (13 ) SPAIN FINANCIAL
SERV. 100.00 — 100.00 1,200 1,345 49 1,195 101 SPAIN PORTFOLIO — 100.00 100.00 3,148 3,484 — 3,481 3 MEXICO REAL
ESTATE — 100.00 100.00 10,265 14,847 5,123 10,283 (559 ) UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 235 7,877 7,640 234 3 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 118 4,076 3,953 121 2 SPAIN FINANCIAL
SERV. 77.20 — 77.20 138 217 67 152 (2 ) BELGIUM PORTFOLIO — 100.00 100.00 3,416 3,625 135 3,486 4 MEXICO INSURANCE 24.99 75.01 100.00 253,739 912,179 775,039 60,174 76,966 VENEZUELA INSURANCE — 100.00 100.00 5,895 21,321 15,396 930 4,995 MEXICO SERVICES — 100.00 100.00 130 9,040 8,910 287 (157 ) MEXICO SERVICES — 100.00 100.00 121 3,698 3,602 105 (9 ) MEXICO SERVICES — 100.00 100.00 1,741 6,575 4,834 1,461 280 SPAIN SERVICES 99.99 0.01 100.00 60 7,329 7,228 95 6 MEXICO SERVICES — 99.98 99.98 116 755 640 47 68 SPAIN PORTFOLIO 100.00 — 100.00 114,518 188,113 65 183,555 4,493 SPAIN SERVICES — 100.00 100.00 100 1,237 961 100 176 FRANCE REAL
ESTATE — 100.00 100.00 91 113 31 155 (73 ) UNITED
STATES NO
ACTIVITY — 100.00 100.00 — — — — — UNITED
STATES INSURANCE — 100.00 100.00 363 358 (5 ) 358 5 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 693 1,051 358 683 10 SPAIN PORTFOLIO 100.00 — 100.00 23,745 41,115 17,844 23,744 (473 ) UNITED
STATES SERVICES — 100.00 100.00 374 385 10 340 35 UNITED
STATES PORTFOLIO 100.00 — 100.00 1,673,906 1,637,086 5,785 1,619,943 11,358
% of Voting Rights Controlled by the Bank Company TEXAS REGIONAL DELAWARE, INC. TEXAS REGIONAL STATUTORY TRUST I TEXAS STATE BANK TRANSITORY CO TSB PROPERTIES, INC. TSB SECURITIES, INC. UNICOM TELECOMUNICACIONES S.DE R.L. DE C.V. UNIDAD DE AVALUOS MEXICO S.A. DE C.V. UNISEAR INMOBILIARIA, S.A. UNITARIA GESTION DE PATRIMONIOS INMOBILIARIA, S.A. UNIVERSALIDAD “E5” UNIVERSALIDAD - BANCO GRANAHORRAR UNO-E BANK, S.A. URBANIZADORA SANT LLORENC, S.A. VALLEY MORTGAGE COMPANY, INC. VISACOM, S.A. DE C.V. VITAMEDICA S.A. DE C.V. Thousands of Euros ( * ) Investee Data Location Activity Direct Indirect Total Net
Carrying
Amount Assets as
of
31.12.06 Liabilities
as of
31.12.06 Equity
31.12.06 Profit (Loss)
for the Period
ended 31.12.06 UNITED
STATES PORTFOLIO — 100.00 100.00 1,604,875 1,658,834 53,959 1,593,469 11,406 UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 1,175 39,265 38,086 1,165 14 UNITED
STATES BANKING — 100.00 100.00 1,646,080 6,507,464 4,861,385 1,634,320 11,759 PANAMA REAL
EST.INSTR. — 100.00 100.00 216 5,383 5,167 312 (96 ) UNITED
STATES REAL
EST.INSTR. — 100.00 100.00 (1,500 ) 805 2,304 (1,499 ) — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 276 302 26 272 4 MEXICO SERVICES — 99.98 99.98 (12 ) 12 23 (9 ) (2 ) MEXICO FINANCIAL
SERV. — 90.00 90.00 672 1,207 459 631 117 SPAIN REAL
ESTATE — 100.00 100.00 15,626 18,630 703 16,822 1,105 SPAIN SERVICES — 100.00 100.00 2,410 2,471 8 2,421 42 COLOMBIA FINANCIAL
SERV. — 100.00 100.00 — 11,175 11,175 — — COLOMBIA FINANCIAL
SERV. — 100.00 100.00 — 19,689 22,147 (1,875 ) (583 ) SPAIN BANKING 67.35 32.65 100.00 174,751 1,427,998 1,291,599 126,079 10,320 SPAIN REAL
ESTATE 60.60 — 60.60 — 108 — 108 — UNITED
STATES FINANCIAL
SERV. — 100.00 100.00 9,692 13,789 4,096 9,494 199 MEXICO SERVICES — 100.00 100.00 352 353 1 591 (239 ) MEXICO INSURANCE — 50.99 50.99 2,914 8,893 3,179 5,777 (63 )
Information on foreign companies at exchange rate on 31-12-06
(*) | Unaudited data |
APPENDIX II
ADDITIONAL INFORMATION ON JOINTLY CONTROLLED COMPANIES PROPORTIONATELY
CONSOLIDATED IN THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
% of voting rights Controlled by the bank | Thousands of Euros ( * ) | |||||||||||||||||||
Net carrying amount | Investee Data | |||||||||||||||||||
COMPANY | LOCATION | ACTIVITY | Direct | Indirect | Total | Assets 31.12.06 | Liabilities 31.12.06 | Equity 31.12.06 | Profit (loss) for the Period 2006 | |||||||||||
DARBY-BBVA LATIN AMERICAN INVESTORS, LTD | CAYMAN ISLAND | FINANCIAL SERV | 50.00 | — | 50.00 | — | 2,490 | 1,358 | 410 | 722 | ||||||||||
ECASA, S.A. | CHILE | FINANCIAL SERV | — | 51.04 | 51.04 | 1,770 | 3,893 | 359 | 2,304 | 1,230 | ||||||||||
FORUM DISTRIBUIDORA, S,A, | CHILE | SERVICES | — | 51.04 | 51.04 | 5,612 | 32,698 | 25,306 | 6,160 | 1,232 | ||||||||||
FORUM SERVICIOS FINANCIEROS, S.A. | CHILE | FINANCIAL SERV | — | 51.00 | 51.00 | 77,441 | 326,269 | 268,502 | 47,073 | 10,694 | ||||||||||
HOLDING DE PARTICIPACIONES INDUSTRIALES 2000, S.A. | SPAIN | PORTFOLIO | — | 50.00 | 50.00 | 1,518 | 4,180 | — | 4,094 | 86 | ||||||||||
PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA, S.A. | ARGENTINA | FINANCIAL SERV | — | 50.00 | 50.00 | 3,331 | 26,910 | 20,210 | 5,924 | 776 |
Information on foreign companies at exchange rate on 12/3/05
(*) | Unaudited data. |
APPENDIX III
ADDITIONAL INFORMATION ON INVESTMENTS AND JOINTLY CONTROLLED
COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD IN THE
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
(Includes the most significant companies which, taken as a whole, represent 98% of the total investment in large industrial corporations and in financial entities, as well as the activities and results of our support units, such as the Assets and Liabilities Management Committee (ALCO). In addition, this business area includes our other operations or activities that, by their nature, cannot be assigned to another business area, such as country risk provisions and amortization of goodwill (except for thoserespect)
% of voting rights Controlled by the bank | Thousands of Euros ( * ) | ||||||||||||||||||||
Investee Data | |||||||||||||||||||||
COMPANY | LOCATION | ACTIVITY | Direct | Indirect | Total | Net Carrying amount | Assets | Liabilities | Equity | Profit (loss) for the | |||||||||||
ADQUIRA ESPAÑA, S.A. | SPAIN | SERVICES | — | 40.00 | 40.00 | 2,669 | 16,041 | 10,260 | 8,134 | (2,353 | ) | ||||||||||
ALMAGRARIO, S.A. | COLOMBIA | SERVICES | — | 35.38 | 35.38 | 5,935 | 21,778 | 4,809 | 16,286 | 683 | |||||||||||
AUREA, S.A. (CUBA) | CUBA | REAL ESTATE | — | 49.00 | 49.00 | 4,339 | 11,924 | 3,049 | 8,665 | 210 | |||||||||||
BBVA ELCANO EMPRESARIAL II, S.C.R., S.A. | SPAIN | SERV.FINANCIER. | 45.00 | — | 45.00 | 29,342 | 3,416 | 2,260 | 1,200 | (44 | ) | ||||||||||
BBVA ELCANO EMPRESARIAL, S.C.R., S.A. | SPAIN | SERV.FINANCIER. | 45.00 | — | 45.00 | 29,347 | 3,928 | 2,772 | 1,200 | (44 | ) | ||||||||||
CAMARATE GOLF, S.A. (*) | SPAIN | REAL ESTATE | — | 26.00 | 26.00 | 4,625 | 66,968 | 49,041 | 17,971 | (44 | ) | ||||||||||
COMPAÑIA ESPAÑOLA DE FINANCIACION DEL DESARROLLO S.A. | SPAIN | SERVICES | 21.82 | 0.00 | 21.82 | 10,673 | 59,574 | 12,455 | 46,048 | 1,071 | |||||||||||
COMPAÑIA MEXICANA DE PROCESAMIENTO, S.A. DE C.V. | MEXICO | SERVICES | — | 50.00 | 50.00 | 3,088 | 7,846 | 1,896 | 9,321 | (3,371 | ) | ||||||||||
CORPORACION IBV PARTICIPACIONES EMPRESARIALES, S.A. (*) | SPAIN | PORTFOLIO | — | 50.00 | 50.00 | 564,762 | 1,236,368 | 303,371 | 869,472 | 63,525 | (1) | ||||||||||
FERROMOVIL 3000, S.L. | SPAIN | SERVICES | — | 20.00 | 20.00 | 6,361 | — | — | — | — | (2) | ||||||||||
FERROMOVIL 9000, S.L. | SPAIN | SERVICES | — | 20.00 | 20.00 | 4,155 | — | — | — | — | (2) | ||||||||||
FIDEICOMISO 70191-2 PUEBLA (*) | MEXICO | REAL ESTATE | — | 25.00 | 25.00 | 12,213 | — | — | — | — | (2) | ||||||||||
GRUPO PROFESIONAL PLANEACION Y PROYECTOS, S.A. DE C.V. (*) | MEXICO | SERVICES | — | 44.39 | 44.39 | 4,406 | 24,490 | 14,937 | 8,616 | 937 | (1) | ||||||||||
HESTENAR, S.L. (*) | SPAIN | REAL ESTATE | — | 43.34 | 43.34 | 7,835 | 26,577 | 20,668 | 5,942 | (33 | ) | ||||||||||
IMOBILIARIA DAS AVENIDAS NOVAS, S.A. | PORTUGAL | REAL ESTATE | — | 49.97 | 49.97 | 2,603 | 5,767 | 450 | 5,560 | (243 | ) | ||||||||||
IMOBILIARIA DUQUE DE AVILA, S.A. (*) | PORTUGAL | REAL ESTATE | — | 50.00 | 50.00 | 4,725 | 26,171 | 16,323 | 7,771 | 2,077 | |||||||||||
INMUEBLES MADARIAGA PROMOCIONES, S.L. (*) | SPAIN | REAL ESTATE | 50.00 | — | 50.00 | 3,123 | 8,072 | 1,745 | 6,354 | (27 | ) | ||||||||||
JARDINES DEL RUBIN, S.A. (*) | SPAIN | REAL ESTATE | — | 50.00 | 50.00 | 2,999 | 36,607 | 32,504 | 3,990 | 113 | |||||||||||
LA ESMERALDA DESARROLLOS, S.L. | SPAIN | REAL ESTATE | — | 45.00 | 45.00 | 8,948 | — | — | — | — | (2) | ||||||||||
LAS PEDRAZAS GOLF, S.L. (*) | SPAIN | REAL ESTATE | — | 50.00 | 50.00 | 15,817 | 73,616 | 41,707 | 31,979 | (70 | ) | ||||||||||
MOBIPAY INTERNATIONAL, S.A. (*) | SPAIN | SERVICES | — | 50.00 | 50.00 | 2,403 | 6,214 | 341 | 8,243 | (2,370 | ) | ||||||||||
MONTEALMENARA GOLF, S.L. (*) | SPAIN | REAL ESTATE | — | 50.00 | 50.00 | 15,893 | 49,326 | 33,720 | 15,663 | (57 | ) | ||||||||||
PARQUE REFORMA SANTA FE, S.A. DE C.V. | MEXICO | REAL ESTATE | — | 30.00 | 30.00 | 4,652 | 30,368 | 11,309 | 19,736 | (678 | ) | ||||||||||
PART. SERVIRED, SDAD. CIVIL | SPAIN | SERVICES | 20.50 | 0.92 | 21.42 | 10,615 | 53,084 | 3,713 | 49,346 | 25 | |||||||||||
PROMOTORA METROVACESA, S.L. (*) | SPAIN | REAL ESTATE | — | 50.00 | 50.00 | 9,067 | 73,644 | 56,091 | 19,007 | (1,454 | )(1) | ||||||||||
ROMBO COMPAÑIA FINANCIERA, S.A. | ARGENTINA | SERV.FINANCIER. | — | 40.00 | 40.00 | 3,285 | 32,736 | 24,314 | 8,481 | (59 | ) | ||||||||||
SERVICIOS ELECTRONICOS GLOBALES, S.A. DE C.V. | MEXICO | SERVICES | — | 45.98 | 45.98 | 4,680 | 21,577 | 10,748 | 10,433 | 397 | |||||||||||
TELEFONICA FACTORING, E.F.C., S.A. | SPAIN | SERV.FINANCIER. | 30.00 | — | 30.00 | 2,839 | 95,422 | 85,761 | 6,905 | 2,756 | |||||||||||
TELEPEAJE ELECTRONICO, S.A. DE C.V. (*) | MEXICO | SERVICES | — | 50.00 | 50.00 | 10,747 | 69,686 | 70,935 | 2,330 | (3,579 | ) | ||||||||||
TUBOS REUNIDOS, S.A. | SPAIN | INDUSTRIAL | 0.01 | 24.26 | 24.27 | 69,284 | 578,059 | 333,518 | 212,419 | 32,122 | (1) | ||||||||||
OTHER COMPANIES | 27,506 | ||||||||||||||||||||
TOTAL | 888,936 | 2,639,260 | 1,148,697 | 1,401,073 | 89,490 |
Data relating to the holdings owned bylatest financial statements (generally for 2005) approved at the Business and Real Estate Projects unit,date of preparation of these notes to the consolidated financial statements.
For the companies abroad the exchange rates ruling at the reference date are applied.
(1) | Consolidated data |
(2) | Company incorporated in 2006 |
(*) | Jointly controlled entities accounted for using the equity method |
APPENDIX IV
NOTIFICATION OF ACQUISITION OF INVESTEES
% of Ownership | |||||||||
COMPANY | ACTIVITY | Net% Acquired (Sold) in the Year | % at Year-End | Date of Notification to Investee | |||||
Acquisitions made until December 31, 2005 | |||||||||
FRANQUICIA TEXTURA, S.A. (1) | INDUSTRIAL | 100.00 | — | March 10, 2005 | |||||
INICIATIVAS RESIDENCIALES EN INTERNET, S.A. | SERVICES | 50.00 | 100.00 | March 10, 2005 | |||||
MONTEALIAGA,S.A. | REAL ESTATE | 40.00 | 100.00 | March 10, 2005 | |||||
TEXTIL TEXTURA, S.L. | INDUSTRIAL | 64.50 | 64.50 | March 10, 2005 | |||||
TEXTURA GLOBE, S.A. (1) | INDUSTRIAL | 100.00 | — | March 10, 2005 | |||||
Acquisitions made until December 31, 2006 | |||||||||
BBVA CARTERA DE INVERSIONES SICAV, S.A. | PORTFOLIO | 17.40 | 92.25 | January 9, 2007 | |||||
HESTENAR, S.L. | REAL ESTATE | 3.34 | 43.34 | January 18, 2007 | |||||
INENSUR BRUNETE, S.L. | REAL ESTATE | 50.00 | 100.00 | October 20, 2006 | |||||
TECNICAS REUNIDAS, S.A. | SERVICES | (15.23 | ) | 10.16 | June 26, 2006 | ||||
UNO-E BANK, S.A. | BANKING | 33.00 | 100.00 | August 10, 2006 |
(1) | Company absorbed by Textura Textil, S.L. in December 2005 |
APPENDIX V
SUBSIDIARIES FULLY CONSOLIDATED AS OF DECEMBER 31, 2006
WITH MORE THAN 5% OWNED BY NON-GROUP SHAREHOLDERS
% of voting rights Controlled by the bank | ||||||||||
Company | Activity | Direct | Indirect | Other | Total | |||||
ADMINISTRADORA DE FONDOS DE PENSIONES PROVIDA (AFP PROVIDA) | PENSIONS | 12.70 | 51.62 | — | 64.32 | |||||
AFP PREVISION BBV-ADM.DE FONDOS DE PENSIONES S.A. | PENSIONS | 75.00 | 5.00 | — | 80.00 | |||||
ALTITUDE INVESTMENTS LIMITED | FINANCIAL SERV. | 51.00 | — | — | 51.00 | |||||
ALTURA MARKETS, A.V., S.A. | SECURITIES | 50.00 | — | — | 50.00 | |||||
BANCO BILBAO VIZCAYA ARGENTARIA CHILE, S.A. | BANKING | 60.92 | 6.92 | — | 67.84 | |||||
BANCO PROVINCIAL S.A. - BANCO UNIVERSAL | BANKING | 1.85 | 53.75 | — | 55.60 | |||||
BBVA & PARTNERS ALTERNATIVE INVESTMENT A.V., S.A. | SECURITIES | 70.00 | — | — | 70.00 | |||||
BBVA CARTERA DE INVERSIONES, SICAV, S.A. | PORTFOLIO | 92.25 | — | — | 92.25 | |||||
BBVA CRECER AFP, S.A. | FINANCIAL SERV. | 35.00 | 35.00 | — | 70.00 | |||||
BBVA INMOBILIARIA E INVERSIONES S.A. | REAL ESTATE | — | 68.11 | — | 68.11 | |||||
DESARROLLO URBANISTICO DE CHAMARTIN, S.A. | REAL ESTATE | — | 72.50 | — | 72.50 | |||||
EL OASIS DE LAS RAMBLAS, S.L. | REAL ESTATE | — | 70.00 | — | 70.00 | |||||
ESTACION DE AUTOBUSES CHAMARTIN, S.A. | SERVICES | — | 51.00 | — | 51.00 | |||||
FINANZIA AUTORENTING, S.A. | SERVICES | — | 85.00 | — | 85.00 | |||||
FORO LOCAL, S.L. | SERVICES | — | 60.13 | — | 60.13 | |||||
GESTION DE PREVISION Y PENSIONES, S.A. | PENSIONS | 60.00 | — | — | 60.00 | |||||
HOLDING CONTINENTAL, S.A. | PORTFOLIO | 50.00 | — | — | 50.00 | |||||
IBERDROLA SERVICIOS FINANCIEROS, E.F.C, S.A. | FINANCIAL SERV. | — | 84.00 | — | 84.00 | |||||
INVERSIONES BANPRO INTERNATIONAL INC. N.V. | PORTFOLIO | 48.01 | — | — | 48.01 | |||||
JARDINES DE SARRIENA, S.L. | REAL ESTATE | — | 85.00 | — | 85.00 | |||||
MIRADOR DE LA CARRASCOSA, S.L. | REAL ESTATE | — | 55.90 | — | 55.90 | |||||
PERI 5.1 SOCIEDAD LIMITADA | REAL ESTATE | — | 54.99 | — | 54.99 | |||||
PREVENTIS, S.A. | INSURANCES | — | 75.01 | — | 75.01 | |||||
PRO-SALUD, C.A. | SERVICES | — | 58.86 | — | 58.86 | |||||
PROMOTORA RESIDENCIAL GRAN EUROPA, S.L. | REAL ESTATE | — | 58.50 | — | 58.50 | |||||
PROVINCIAL DE VALORES CASA DE BOLSA | FINANCIAL SERV. | — | 90.00 | — | 90.00 | |||||
PROXIMA ALFA INVESTMENTS, SGIIC S.A. | FINANCIAL SERV. | 51.00 | — | — | 51.00 | |||||
UNIDAD DE AVALUOS MEXICO S.A. DE C.V. | FINANCIAL SERV. | — | 90.00 | — | 90.00 | |||||
VITAMEDICA S.A. DE C.V. | INSURANCES | — | 50.99 | — | 50.99 |
APPENDIX VI. RECONCILIATION OF THE CLOSING BALANCES FOR 2003 AND 2004 TO THE OPENING
BALANCES FOR 2004 AND 2005
EU-IFRS 1 requires that the first consolidated financial statements prepared in accordance with EU-IFRSs include a reconciliation of the closing balances for the immediately preceding year to the opening balances for the year to which is includedthese financial statements refer.
RECONCILIATION OF THE CLOSING BALANCES FOR 2003 TO THE OPENING BALANCES FOR 2004
ASSETS | Closing balances for 2003 | Differences | Opening for 2004 | ||||||
CASH AND BALANCES WITH CENTRAL BANKS | 8,109,875 | — | 8,109,875 | ||||||
FINANCIAL ASSETS HELD FOR TRADING (c) | 27,381,896 | 8,605,568 | 35,987,464 | ||||||
Loans and advances to credit institutions | — | — | — | ||||||
Money market operations through counterparties | — | — | — | ||||||
Loans and advances to other debtors | — | — | — | ||||||
Debt securities | 25,630,096 | 3,035,302 | 28,665,398 | ||||||
Other equity instruments | 2,029,414 | — | 2,029,414 | ||||||
Trading derivatives (g) | (277,614 | ) | 5,570,266 | 5,292,652 | |||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (c) | — | 957,477 | 957,477 | ||||||
Loans and advances to credit institutions | — | — | — | ||||||
Money market operations through counterparties | — | — | — | ||||||
Loans and advances to other debtors | — | — | — | ||||||
Debt securities | — | — | — | ||||||
Other equity instruments | — | 957,477 | 957,477 | ||||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
AVAILABLE-FOR-SALE FINANCIAL ASSETS (c) | 38,605,149 | 14,201,885 | 52,807,034 | ||||||
Debt securities | 37,542,499 | 9,820,921 | 47,363,420 | ||||||
Other equity instruments | 1,062,650 | 4,380,964 | 5,443,614 | ||||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
LOANS AND RECEIVABLES (d) | 180,568,400 | (463,192) | 180,105,208 | ||||||
Loans and advances to credit institutions | 20,907,129 | — | 20,907,129 | ||||||
Money market operations through counterparties | 399,997 | — | 399,997 | ||||||
Loans and advances to other debtors | 150,818,244 | — | 150,818,244 | ||||||
Debt securities | 6,671,421 | (463,192) | 6,208,229 | ||||||
Other financial assets | 1,771,609 | — | 1,771,609 | ||||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
HELD-TO-MATURITY INVESTMENTS (c) | 1,567,535 | (1,567,535) | — | ||||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | — | ||||||
HEDGING DERIVATIVES (g) | — | 5,255,417 | 5,255,417 | ||||||
NON-CURRENT ASSETS HELD FOR SALE | 183,172 | — | 183,172 | ||||||
Loans and advances to credit institutions | — | — | — | ||||||
Loans and advances to other debtors | — | — | — | ||||||
Debt securities | — | — | — | ||||||
Equity instruments | — | — | — | ||||||
Tangible assets | 183,172 | — | 183,172 | ||||||
Other assets | — | — | — |
ASSETS Closing balances for 2003 INVESTMENTS (a) Associates Jointly controlled entities INSURANCE CONTRACTS LINKED TO PENSIONS (f) REINSURANCE ASSETS (a) TANGIBLE ASSETS (i) For own use Investment property Other assets leased out under an operating lease Assigned to welfare projects Memorandum item: Acquired under a finance lease INTANGIBLE ASSETS Goodwill (b) Other intangible assets TAX ASSETS Current Deferred PREPAYMENTS AND ACCRUED INCOME OTHER ASSETS Inventories Other TOTAL ASSETS Differences Opening
balances for
2004 7,703,617 (6,219,232 ) 1,484,385 7,703,617 (6,517,463 ) 1,186,154 — 298,231 298,231 4,629 (4,629 ) — — 21,369 21,369 3,608,109 190,398 3,798,507 3,462,320 (113,993 ) 3,348,327 145,789 — 145,789 — 304,391 304,391 — — — — — — 3,012,917 (2,165,589 ) 847,328 2,650,889 (1,905,214 ) 745,675 362,028 (260,375 ) 101,653 3,558,055 1,636,595 5,194,650 110,021 — 110,021 3,448,034 1,636,595 5,084,629 1,411,919 (715,000 ) 696,919 6,706,528 (3,812,477 ) 2,894,051 3,682 277,000 280,682 6,702,846 (4,089,477 ) 2,613,369 282,421,801 15,921,055 298,342,856
LIABILITIES AND EQUITY LIABILITIES FINANCIAL LIABILITIES HELD FOR TRADING (c) Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates including bonds Trading derivatives (g) Short positions OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (c) Deposits from credit institutions Deposits from other creditors Debt certificates including bonds FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY Deposits from credit institutions Deposits from other creditors Debt certificates including bonds FINANCIAL LIABILITIES AT AMORTISED COST Deposits from central banks Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates (including bonds) Subordinated liabilities (h) Other financial liabilities CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK (g) HEDGING DERIVATIVES (g) LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE Deposits from central banks Deposits from credit institutions Deposits from other creditors Debt certificates including bonds Other liabilities LIABILITIES UNDER INSURANCE CONTRACTS (a) PROVISIONS Provisions for pensions and similar obligations (f) Provisions for taxes Provisions for contingent exposures and commitments Other provisions TAX LIABILITIES Current Deferred ACCRUED EXPENSES AND DEFERRED INCOME OTHER LIABILITIES Welfare fund Other EQUITY HAVING THE NATURE OF A FINANCIAL LIABILITY TOTAL LIABILITIES Closing
balances for
2003 Differences Opening
balances for
2004 1,463,227 4,884,826 6,348,053 — — — — — — — — — — — — — 4,884,826 4,884,826 1,463,227 — 1,463,227 — 957,477 957,477 — — — — — — — 957,477 957,477 — — — — — — — — — — — — 247,096,917 3,776,495 250,873,412 20,924,211 — 20,924,211 39,182,350 — 39,182,350 143,238 — 143,238 142,954,661 (114,599 ) 142,840,062 34,469,312 — 34,469,312 7,399,613 3,891,094 11,290,707 2,023,532 — 2,023,532 — 114,599 114,599 — 3,970,012 3,970,012 — — — — — — — — — — — — — — — — — — — 8,112,411 8,112,411 4,941,987 3,693,015 8,635,002 3,031,913 3,449,375 6,481,288 — 86,645 86,645 209,270 70,438 279,708 1,700,804 86,557 1,787,361 320,512 1,154,225 1,474,737 105,716 — 105,716 214,796 1,154,225 1,369,021 1,299,472 — 1,299,472 8,633,291 (4,314,946 ) 4,318,345 — — — 8,633,291 (4,314,946 ) 4,318,345 — — — 263,755,406 22,348,114 286,103,520
EQUITY MINORITY INTERESTS VALUATION ADJUSTMENTS Available-for-sale financial assets (c) Financial liabilities at fair value through equity Cash flow hedges (g) Hedges of net investments in foreign operations Exchange differences (k) Non-current assets held for sale SHAREHOLDER’S EQUITY Capital Issued Unpaid and uncalled (–) Share premium Reserves Accumulated reserves (losses) Retained earnings Reserves (losses) of entities accounted for using the equity method Associates Jointly controlled entities Other equity instruments Equity component of compound financial instruments Other Treasury shares (l) Income attributed to the Group Dividends and remuneration TOTAL EQUITY TOTAL LIABILITIES AND EQUITY Closing
balances for
2003 Differences Opening
balances for
2004 5,853,458 (3,936,294 ) 1,917,164 (2,211,849 ) 3,903,175 1,691,326 — 1,677,380 1,677,380 — — — — 13,946 13,946 — — — (2,211,849 ) 2,211,849 — — — — 15,024,786 (6,393,940 ) 8,630,846 1,565,968 — 1,565,968 1,565,968 — 1,565,968 — — — 6,273,901 (469,083 ) 5,804,818 5,884,171 (5,908,915 ) (24,744 ) 4,636,173 (5,248,473 ) (612,300 ) — — — 1,247,998 (660,442 ) 587,556 1,247,998 (660,442 ) 587,556 — — — — — — — — — — — — (66,059 ) (15,942 ) (82,001 ) 2,226,701 — 2,226,701 (859,896 ) — (859,896 ) 18,666,395 (6,427,059 ) 12,239,336 282,421,801 15,921,055 298,342,856
RECONCILIATION OF THE CLOSING BALANCES FOR 2004 TO THE OPENING BALANCES FOR 2005
ASSETS | Closing for 2004 | Differences | Opening for 2005 | ||||
CASH AND BALANCES WITH CENTRAL BANKS | 10,122,238 | 852 | 10,123,090 | ||||
FINANCIAL ASSETS HELD FOR TRADING | 30,426,845 | 16,609,215 | 47,036,060 | ||||
Loans and advances to credit institutions | — | — | — | ||||
Money market operations through counterparties | — | — | — | ||||
Loans and advances to other debtors | — | — | — | ||||
Debt securities | 27,498,188 | 2,898,391 | 30,396,579 | ||||
Other equity instruments | 2,928,657 | 2,762,228 | 5,690,885 | ||||
Trading derivatives | — | 10,948,596 | 10,948,596 | ||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS | — | 1,059,490 | 1,059,490 | ||||
Loans and advances to credit institutions | — | — | — | ||||
Money market operations through counterparties | — | — | — | ||||
Loans and advances to other debtors | — | — | — | ||||
Debt securities | — | 58,771 | 58,771 | ||||
Other equity instruments | — | 1,000,719 | 1,000,719 | ||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
AVAILABLE-FOR-SALE FINANCIAL ASSETS | 37,180,593 | 15,822,952 | 53,003,545 | ||||
Debt securities | 33,843,746 | 11,193,482 | 45,037,228 | ||||
Other equity instruments | 3,336,847 | 4,629,470 | 7,966,317 | ||||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
LOANS AND RECEIVABLES | 202,396,432 | (5,504,229 | ) | 196,892,203 | |||
Loans and advances to credit institutions | 16,958,178 | (255,221 | ) | 16,702,957 | |||
Money market operations through counterparties | 241,999 | — | 241,999 | ||||
Loans and advances to other debtors | 172,105,016 | (21,944 | ) | 172,083,072 | |||
Debt securities | 5,960,701 | (463,192 | ) | 5,497,509 | |||
Other financial assets | 7,130,538 | (4,763,872 | ) | 2,366,666 | |||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
HELD-TO-MATURITY INVESTMENTS | 3,546,759 | (1,325,257 | ) | 2,221,502 | |||
Memorandum item: Loaned or advanced as collateral | — | — | — | ||||
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | — | — | — | ||||
HEDGING DERIVATIVES | — | 4,273,450 | 4,273,450 | ||||
NON-CURRENT ASSETS HELD FOR SALE | 164,136 | (4,981 | ) | 159,155 | |||
Loans and advances to credit institutions | — | — | — | ||||
Loans and advances to other debtors | — | — | — | ||||
Debt securities | — | — | — | ||||
Equity instruments | — | — | — | ||||
Tangible assets | 164,136 | (4,981 | ) | 159,155 | |||
Other assets | — | — | — |
ASSETS INVESTMENTS Associates Jointly controlled entities INSURANCE CONTRACTS LINKED TO PENSIONS REINSURANCE ASSETS TANGIBLE ASSETS For own use Investment property Other assets leased out under an operating lease Assigned to welfare projects Memorandum item: Acquired under a finance lease INTANGIBLE ASSETS Goodwill Other intangible assets TAX ASSETS Current Deferred PREPAYMENTS AND ACCRUED INCOME OTHER ASSETS Inventories Other TOTAL ASSETS Closing
balances for
2004 Differences Opening
balances for
2005 7,147,077 (5,747,937 ) 1,399,140 7,147,077 (6,236,981 ) 910,096 — 489,044 489,044 3,852 (3,852 ) — — 80,268 80,268 3,619,223 320,413 3,939,636 3,510,789 (173,061 ) 3,337,728 108,434 54,215 162,649 — 439,259 439,259 — — — — — — 4,806,817 (3,985,733 ) 821,084 4,435,851 (3,725,358 ) 710,493 370,966 (260,375 ) 110,591 3,533,107 2,457,589 5,990,696 85,965 79,994 165,959 3,447,142 2,377,595 5,824,737 1,433,354 (715,599 ) 717,755 2,660,825 (936,743 ) 1,724,082 3,344 276,553 279,897 2,657,481 (1,213,296 ) 1,444,186 307,041,258 22,399,898 329,441,156
Closing for 2004 Opening for 2005 LIABILITIES FINANCIAL LIABILITIES HELD FOR TRADING Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates including bonds Trading derivatives Short positions OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Deposits from credit institutions Deposits from other creditors Debt certificates including bonds FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY Deposits from credit institutions Deposits from other creditors Debt certificates including bonds FINANCIAL LIABILITIES AT AMORTISED COST Deposits from central banks Deposits from credit institutions Money market operations through counterparties Deposits from other creditors Debt certificates including bonds Subordinated liabilities Other financial liabilities CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK HEDGING DERIVATIVES LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE Deposits from central banks Deposits from credit institutions Deposits from other creditors Debt certificates including bonds Other liabilities LIABILITIES UNDER INSURANCE CONTRACTS PROVISIONS Provisions for pensions and similar obligations Provisions for taxes Provisions for contingent exposures and commitments Other provisions TAX LIABILITIES Current Deferred ACCRUED EXPENSES AND DEFERRED INCOME OTHER LIABILITIES Welfare fund Other EQUITY HAVING THE NATURE OF A FINANCIAL LIABILITY TOTAL LIABILITIESLIABILITIES AND EQUITY
balances Differences
balances 1,331,501 12,802,912 14,134,413 — — — — — — — — — — — — — 12,802,912 12,802,912 1,331,501 — 1,331,501 — 834,350 834,350 — — — — 834,350 834,350 — — — — — — — — — — — — — — — 271,183,419 4,400,108 275,583,527 15,643,831 4,657,274 20,301,105 48,174,366 (4,126,251 ) 44,048,115 657,997 — 657,997 149,460,946 430,853 149,891,799 44,413,762 1,068,359 45,482,121 8,107,752 4,219,625 12,327,377 4,724,765 (1,849,752 ) 2,875,013 — 183,201 183,201 — 3,131,572 3,131,572 — — — — — — — — — — — — — — — — — — — 8,114,429 8,114,429 5,321,141 3,070,707 8,391,848 3,275,995 3,028,289 6,304,284 55,243 117,986 173,229 230,496 118,286 348,782 1,759,407 (193,854 ) 1,565,553 323,200 1,297,595 1,620,795 80,286 143,370 223,656 242,914 1,154,225 1,397,139 1,275,000 (9,220 ) 1,265,780 6,922,278 (4,546,300 ) 2,375,978 — — — 6,922,278 (4,546,300 ) 2,375,978 — — — 286,356,539 29,279,354 315,635,893
EQUITY MINORITY INTERESTS VALUATION ADJUSTMENTS Available-for-sale financial assets Financial liabilities at fair value through equity Cash flow hedges Hedges of net investments in foreign operations Exchange differences Non-current assets held for sale SHAREHOLDER’S EQUITY Capital Issued Unpaid and uncalled (-) Share premium Reserves Accumulated reserves (losses) Retained earnings Reserves (losses) of entities accounted for using the equity method Associates Jointly controlled entities Other equity instruments Equity component of compound financial instruments Other Treasury shares Income attributed to the Group Dividends and remuneration TOTAL EQUITY TOTAL LIABILITIES AND EQUITY MEMORANDUM ITEMS CONTINGENT EXPOSURES Financial guarantees Assets earmarked for third-party obligations Other contingent exposures CONTINGENT COMMITMENTS Drawable by third parties Other commitments Closing
balances for
2004 Differences Opening
balances for
2005 4,609,521 (3,871,982 ) 737,539 (2,308,236 ) 4,415,150 2,106,914 — 2,320,133 2,320,133 — — — — (24,776 ) (24,776 ) — 282,895 282,895 (2,308,236 ) 1,836,898 (471,338 ) — — — 18,383,434 (7,422,624 ) 10,960,810 1,661,518 — 1,661,518 1,661,518 — 1,661,518 — — — 8,177,101 (1,494,498 ) 6,682,603 6,776,473 (6,031,339 ) 745,134 5,800,494 (5,356,301 ) 444,193 — — — 975,979 (675,038 ) 300,941 975,979 (967,826 ) 8,153 — 292,788 292,788 — — — — — — — — — (18,370 ) (17,476 ) (35,846 ) 2,801,904 120,692 2,922,596 (1,015,192 ) (3 ) (1,015,195 ) 20,684,719 (6,879,456 ) 13,805,263 307,041,258 22,399,898 329,441,156 21,652,940 (95,291 ) 21,557,649 21,202,083 (99,772 ) 21,102,311 734 4,481 5,215 450,123 — 450,123 66,884,166 (121,764 ) 66,762,402 60,833,853 (116,975 ) 60,716,878 6,050,313 (4,789 ) 6,045,524
RECONCILIATION OF THE INCOME STATEMENT OF 2004
2004 | Differences | Re-expresed 2004 | |||||||
INTEREST AND SIMILAR INCOME (e) | 12,466,255 | (113,917 | ) | 12,352,338 | |||||
INTEREST EXPENSE AND SIMILAR CHARGES (e) (h) | (6,100,675 | ) | (347,269 | ) | (6,447,944 | ) | |||
Remuneration of capital having the nature of a financial liability | — | — | — | ||||||
Other | (6,100,675 | ) | (347,269 | ) | (6,447,944 | ) | |||
INCOME FROM EQUITY INSTRUMENTS (a) | 703,729 | (448,583 | ) | 255,146 | |||||
A) NET INTEREST INCOME | 7,069,309 | (909,769 | ) | 6,159,540 | |||||
SHARE OF PROFIT OR LOSS OF ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD (c) | 359,992 | (262,952 | ) | 97,047 | |||||
Associates | 359,992 | (356,239 | ) | 3,753 | |||||
Jointly controlled entities | — | 93,287 | 93,287 | ||||||
FEE AND COMMISSION INCOME (e) | 4,159,344 | (102,363 | ) | 4,056,981 | |||||
FEE AND COMMISSION EXPENSES (e) | (780,075 | ) | 136,116 | (643,959 | ) | ||||
INSURANCE ACTIVITY INCOME | (682 | ) | 391,300 | 390,618 | |||||
Insurance and reinsurance premium income | — | 2,062,030 | 2,062,030 | ||||||
Reinsurance premiums paid | — | (71,931 | ) | (71,931 | ) | ||||
Benefits paid and other insurance-related expenses | — | (1,704,113 | ) | (1,704,113 | ) | ||||
Reinsurance income | — | 8,534 | 8,534 | ||||||
Net provisions for insurance contract liabilities | (682 | ) | (413,062 | ) | (413,744 | ) | |||
Finance income | — | 708,901 | 708,901 | ||||||
Finance expense | — | (199,059 | ) | (199,059 | ) | ||||
GAINS/LOSSES ON FINANCIAL ASSETS AND LIABILITIES (NET) | 311,253 | 450,604 | 761,857 | ||||||
Held for trading (g) | 1,295,873 | (185,322 | ) | 1,110,551 | |||||
Other financial instruments at fair value through profit or loss | — | 1,296 | 1,296 | ||||||
Available-for-sale financial assets (c) | 353,502 | 620,910 | 974,412 | ||||||
Loans and receivables | — | 13,932 | 13,932 | ||||||
Other | (1,338,122 | ) | (212 | ) | (1,338,334 | ) | |||
EXCHANGE DIFFERENCES (NET) | 312,504 | (14,532 | ) | 297,972 | |||||
B) GROSS INCOME | 11,431,645 | (311,596 | ) | 11,120,049 | |||||
SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES | — | 468,236 | 468,236 | ||||||
COST OF SALES | — | (341,745 | ) | (341,745 | ) | ||||
OTHER OPERATING INCOME | 18,307 | 3,999 | 22,306 | ||||||
PERSONNEL EXPENSES (f) | (3,184,102 | ) | (62,948 | ) | (3,247,050 | ) | |||
OTHER ADMINISTRATIVE EXPENSES | (1,779,139 | ) | (71,706 | ) | (1,850,845 | ) | |||
DEPRECIATION AND AMORTISATION | (453,436 | ) | 5,230 | (448,206 | ) | ||||
Tangible assets | (361,212 | ) | (2,100 | ) | (363,312 | ) | |||
Intangible assets | (92,224 | ) | 7,330 | (84,894 | ) | ||||
OTHER OPERATING EXPENSES | (215,697 | ) | 83,558 | (132,139 | ) | ||||
NET OPERATING INCOME | 5,817,578 | (226,972 | ) | 5,590,606 | |||||
IMPAIRMENT LOSSES (NET) | (1,518,679 | ) | 560,485 | (958,194 | ) | ||||
Available-for-sale financial assets | (18,713 | ) | 74,569 | 55,856 | |||||
Loans and receivables (d) | (930,727 | ) | 146,818 | (783,909 | ) | ||||
Held-to-maturity investments | — | — | — | ||||||
Non-current assets held for sale | — | 4,222 | 4,222 | ||||||
Investments | — | (39,508 | ) | (39,508 | ) | ||||
Tangible assets | 12,453 | (10,318 | ) | 2,135 | |||||
Goodwill (b) | (581,692 | ) | 384,702 | (196,990 | ) | ||||
Other intangible assets | — | — | — | ||||||
Other assets | — | — | — | ||||||
PROVISION EXPENSE (NET) | (844,336 | ) | (6,221 | ) | (850,557 | ) | |||
FINANCE INCOME FROM NON-FINANCIAL ACTIVITIES | — | 8,737 | 8,737 | ||||||
FINANCE EXPENSES FROM NON-FINANCIAL ACTIVITIES | — | (4,712 | ) | (4,712 | ) | ||||
OTHER GAINS | 1,060,783 | (438,603 | ) | 622,180 | |||||
Gains on disposal of tangible assets | 96,535 | 6,339 | 102,874 | ||||||
Gains on disposal of investments | 625,650 | (308,140 | ) | 317,510 | |||||
Other | 338,598 | (136,802 | ) | 201,796 | |||||
OTHER LOSSES | (365,874 | ) | 94,654 | (271,220 | ) |
Losses on disposal of tangible assets Losses on disposal of investments Other D) INCOME BEFORE TAX INCOME TAX MANDATORY TRANSFER TO WELFARE FUNDS E) INCOME FROM CONTINUING OPERATIONS INCOME OR LOSS FROM DISCONTINUED OPERATIONS (NET) F) CONSOLIDATED INCOME FOR THE PERIOD INCOME ATTRIBUTED TO MINORITY INTERESTS G) INCOME ATTRIBUTED TO THE GROUP (20,571 ) (1,879 ) (22,450 ) (36,254 ) 27,127 (9,127 ) (309,049 ) 69,406 (239,643 ) 4,149,472 (12,632 ) 4,136,840 (957,004 ) (71,627 ) (1,028,631 ) — — — 3,192,468 (84,259 ) 3,108,209 — — — 3,192,468 (84,259 ) 3,108,209 390,564 (204,951 ) 185,613 2,801,904 120,692 2,922,596
MAIN EFFECTS OF ADAPTATION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSS)
The estimated main effects of adaptation to the new standards are as follows:
a) | Basis of consolidation |
The entry into force of EU-IFRSs led to a change in the Wholesalebasis of consolidation for certain companies (Note 2.1). The effects of this change were as follows:
The companies over which the Group exercises control, regardless of their business activity, were fully consolidated; the greatest economic impact resulting from this change was that relating to insurance companies and Investment Banking business area).real estate companies, and
This structure
Certain investments were considered to be available-for-sale assets, since the Group could not demonstrate that it exercised significant influence over the investees.
b) | Goodwill |
Under the new standards goodwill is defined as the difference between the cost and the net fair value of areasthe assets, liabilities and contingent liabilities acquired.
The main change is that goodwill is no longer amortised and is tested for impairment at least annually. In addition, goodwill must be stated in linelocal currency, although that arising prior to January 1, 2004 can continue to be expressed in euros. The Group decided to initially recalculate in local currency the goodwill existing at January 1, 2004, the date of transition to EU-IFRSs.
Investments acquired subsequent to the obtainment of control over a company (i.e. transactions involving the purchase of equity interests from minority shareholders) were treated as “equity transactions”. The goodwill recorded on the transactions performed after control was obtained were written off against the heading Minority Interests and the surplus amount against the heading Reserves.
The principal effect in stockholders’ equity was a decrease of €1,923 million.
The principal effect in net income was an increase of €299 million.
c) | Financial instruments |
In accordance with the internal organization established to managenew standards, financial assets and monitorliabilities held for trading are measured at fair value through profit or loss. Also, the businessesgains and losses on the available-for-sale securities portfolio are recorded, net of their tax effect, in the BBVAequity account Valuation Adjustments.
As regards the classification of equity securities portfolios, under IFRSs significant influence is presumed to exist when an ownership interest of 20% is held in an investee. The Group duringclassified Banca Nazionale del Lavoro, S.p.A. (BNL) as an associate, i.e. a company over which significant influence is exercised, since it considered that, although its equity interest is less than 20% (general criterion), the year 2005.current shareholders’ agreement gives it significant influence over the management of this entity. The balance forentities classified as associates under the financial year 2004,previous accounting standards and in which the Group has an ownership interest of less than 20% were drawn up following the same criteria.
The business areas contribution to net attributable profit and total assets are shown in the following tables:
2005 | 2004 | |||||
Millions of Euros | ||||||
Business Area contribution to net attributable profit | ||||||
Retail Banking | 1,614 | 1,426 | ||||
Wholesale and Investment Banking | 592 | 404 | ||||
Banking in América | 1,819 | 1,195 | ||||
Corporate Activities and others | (219 | ) | (102 | ) | ||
Net Attributable profit | 3,806 | 2,923 | ||||
2005 | 2004 | |||||
Millions of Euros | ||||||
Business Area contribution to total assets | ||||||
Retail Banking | 145,723 | 127,347 | ||||
Wholesale and investment Banking | 164,730 | 147,281 | ||||
Banking in America | 104,712 | 74,845 | ||||
Corporate Activities | 35,903 | 20,266 | ||||
Total assets for reportable segments | 451,068 | 369,739 | ||||
Intearea Positions | (58,679 | ) | (40,298 | ) | ||
Consolidated total assets | 392,389 | 329,441 |
The differences between “Total Assets for Reportable Segments” and “Consolidated Total Assets” are duereclassified to the following reasons:
The accounting policies of the segments are principally the same as those described in Note 2. The accounting structure has been adjusted to the management structure, through the corresponding internal adjustments. Operating costs are divided among all the business areas Therefore, in accordance with the scalesnew standards in force, the goodwill of these entities was derecognised, their accumulated prior years’ profits or losses accounted for by the equity method were eliminated from reserves and, in addition, the differences relating from measuring these investments at market value were recorded under the heading Valuation Adjustments.
The recognition, measurement and disclosure criteria included in IASs 32 and 39, were applied retrospectively to January 1, 2004.
January 1, 2004 was considered to be the date of application of the rules on the derecognition of financial instruments, Transactions which on or after that date met the recognition and derecognition requirements included in IASs 32 and 39 were removed from the balance sheet (Note 14.3). However, the securitization funds created subsequent to January 1, 2004 through the transfer of derecognised loans, of which the Group retains certain of the risks or rewards, were included in the consolidated financial statements.
The principal effect in stockholders’ equity was an increase of €739 million.
The effect in net income of change the evaluation of these holdings (less than 20%) from the equity accounting method to lower of cost or market was a decrease of €95 million. There was, in addition, a reclassification of €198 million from share of profit or loss of entities accounted for using the equity method to gains/losses on financial assets and liabilities (net.)
d) | Loan portfolio provisioning |
The BBVA Group estimated the impact of recording the provisions for the loan portfolio using the methods described in Note 2.2.c for estimating the impairment of financial instruments.
The principal effect in stockholders’ equity was a decrease of €158 million.
The effect in net income was a increase of €7 million.
e) | Loan arrangement fees |
As a result of the application of the new accounting treatment for these fees (Note 2.2.d), the BBVA Group estimated the impact of reversing the fees and commissions credited to income in prior years with a charge to equity, using as a balancing entry the item “Accrued Expenses and Deferred Income”. With regard to 2004, the portion of these fees and commissions relating to that year were recognised in the income statement.
The principal effect in stockholders’ equity was a decrease of €194 million.
The effect in net income was a decrease of €46 million.
f) | Pensions |
Under EU-IFRSs the assumptions used to measure defined benefit pension commitments must be unbiased and mutually compatible, and the market interest rate relating to high quality assets must be used for
discounting purposes, IFRSs also stipulate that, for employees subject to Spanish labour legislation, the actuarial assumptions to be used must be based on the applicable Spanish legislation and the actuarial assumptions published by the Directorate-General of Insurance and Pension Funds (DGSFP).
Also noteworthy in this connection is the treatment of the risks insured with Group companies pursuant to Royal Decree 1588/1999 on Externalisation as internal provisions (and their distributionmeasurement as such) in the consolidated financial statements. The assets assigned are measured independently on the basis of their nature.
As a result of the application of these criteria, the Group reviewed all its actuarial assumptions for existing commitments and funded all the deficits relating to externalised commitments existing at January 1, 2004, the date of transition to EU-IFRSs.
All cumulative actuarial losses at January 1, 2004 were recognised with a charge to reserves.
The principal effect in stockholders’ equity was a decrease of €953 million.
g) | Derivatives |
Under EU-IFRSs all derivatives are measured at fair value through profit or loss. Hedging transactions require greater documentation and yearic monitoring of their effectiveness. In fair value hedges, changes in the fair value of the hedged item are recognised in income, and the related carrying amount is adjusted. The BBVA Group’s review of the validity of the transactions classified as hedges demonstrated that most of the hedges were highly effective.
The most significant impacts of EU-IFRSs are the measurement and recognition at fair value of derivatives existing at the date of transition to IFRS, January 1, 2004. The unrealized gains recognized in equity were not allowed to be recognized under previous generally accepted accounting principles.
In the case of transactions that were designated as subject to hedge accounting at January 1, 2004 but which did not comply with the conditions of IAS 39 to be so designated, hedge accounting was discontinued. Net positions designated as hedged items under the previous standards and rules were replaced as hedged items at January 1, 2004 by an amount of assets or liabilities of the net positions.
Transactions initiated before January 1, 2004 were not designated as hedges retrospectively.
The principal effect in stockholders’ equity was an increase of €50 million.
The principal effect in net income for this change was a decrease of €16 million.
h) | Preference shares |
Preference shares that do not comply with Rule Fifty-Four of Bank of Spain Circular 4/2004 are classified under the heading “Subordinated Liability” on the liability side of the balance sheet.
This reclassification has no effect on the calculation of eligible equity for the purposes of Bank of Spain Circular 5/1993, since these preference shares are still included in tier-one capital.
The principal effect in stockholders’ equity was a decrease of €3,522 million.
The principal effect in net income was a reclassification of €190 million from “Income attributed to minority interests” to “interest expense and similar charge”.
i) | Tangible assets |
In the case of tangible assets, the Group used as attributed cost on the revaluation date the amounts revalued prior to January 1, 2004, on the basis of the naturelegislation then in force. In this connection, the revaluations performed under Spanish law and the adjustments for inflation made by subsidiaries in countries with inflation accounting were considered as deemed cost taking in to consideration that, at the dated of the spendingrevaluation, this deemed cost was comparable to fair value.
Also, certain tangible asset items were recognised at fair value and, consumption variables. This is alsotherefore, this value was used as attributed cost at January 1, 2004.
The principal effect in stockholders’ equity was a decrease of €120 million.
The principal effect in net income was a reclassification of €108 million from “Other administrative expenses” to “Depreciation and amortization”.
j) | Equity-instrument-based employee compensation |
As permitted by IFRS 1 and Transitional Provision One of Bank of Spain Circular 4/2004, IFRS 2 were not applied to ordinary corporate cost. The business areas arethe equity instruments granted to employees before 7 November 2002 title to which had not affected by corporate decisions, such as the treatment of goodwill generated in investment or the constitution of extraordinary provisions.yet passed to these employees on January 1, 2005.
(Millions of Euros) | Retail Banking in Spain and Portugal | Wholesale and Investment Banking | America | ||||||||||||||||||||||||
2005 | 2004 | 05-04 % | 2005 | 2004 | 05-04 % | 2005 | 2004 | 05-04 % | |||||||||||||||||||
NET INTEREST INCOME | 3,182 | 3,015 | 5.6 | 440 | 423 | 4.1 | 3,797 | 2,865 | 32.6 | ||||||||||||||||||
Net fee income | 1 | 1 | (29.7 | ) | 51 | 104 | (50.9 | ) | (1 | ) | 0 | n.m. | |||||||||||||||
Net income by the equity method | 1,602 | 1,477 | 8.5 | 227 | 190 | 19.2 | 2,056 | 1,735 | 18.5 | ||||||||||||||||||
Income from Insurance activities | 309 | 257 | 20.3 | — | — | — | 241 | 171 | 40.7 | ||||||||||||||||||
BASIC MARGIN | 5,094 | 4,750 | 7.2 | 718 | 717 | 0.1 | 6,092 | 4,771 | 27.7 | ||||||||||||||||||
Net trading income | 108 | 55 | 96.3 | 418 | 196 | 113.0 | 349 | 248 | 40.7 | ||||||||||||||||||
ORDINARY REVENUES | 5,203 | 4,805 | 8.3 | 1,136 | 662 | 24.4 | 6,441 | 5,019 | 28.3 | ||||||||||||||||||
Net revenues from non-financial activities | 23 | 27 | (16.2 | ) | 95 | (233 | ) | 17.4 | 6 | 4 | 65.2 | ||||||||||||||||
Personnel and general administrative expenses | (2,250 | ) | (2,179 | ) | 3.2 | (360 | ) | (233 | ) | 11.1 | (2,767 | ) | (2,221 | ) | 24.6 | ||||||||||||
Depreciation and amortization | (103 | ) | (107 | ) | (3.9 | ) | (7 | ) | (0 | ) | 5.4 | (226 | ) | (226 | ) | (0.1 | ) | ||||||||||
Other operating income and expenses (net) | 49 | 36 | 35.6 | 22 | 6 | n.m. | (163 | ) | (144 | ) | 13.3 | ||||||||||||||||
OPERATING PROFIT | 2,922 | 2,583 | 13.1 | 886 | 662 | 33.9 | 3,291 | 2,431 | 35.4 | ||||||||||||||||||
Impairment losses on financial assets (net) | (474 | ) | (409 | ) | 15.9 | (115 | ) | (233 | ) | (50.8 | ) | (394 | ) | (310 | ) | 27.2 | |||||||||||
. Loan loss provisions | (476 | ) | (409 | ) | 16.3 | (114 | ) | (233 | ) | (50.8 | ) | (359 | ) | (310 | ) | 15.7 | |||||||||||
. Other | 2 | (0 | ) | n.m. | (0 | ) | (0 | ) | n.m. | (36 | ) | 0 | n.m. | ||||||||||||||
Provisions (net) | 0 | (4 | ) | n.m. | 5 | 6 | (18.1 | ) | (132 | ) | (187 | ) | (29.5 | ) | |||||||||||||
Other income/losses (net) | 21 | 12 | 80.4 | 29 | 57 | (49.1 | ) | 3 | 2 | 69.4 | |||||||||||||||||
. From disposal of equity holdings | 11 | 3 | n.m. | 16 | 41 | (60.3 | ) | 2 | 16 | (87.7 | ) | ||||||||||||||||
. Other | 10 | 9 | 14.5 | 13 | 16 | (19.5 | ) | 1 | (14 | ) | n.m. | ||||||||||||||||
PRE - TAX PROFIT | 2,469 | 2,181 | 13.2 | 806 | 493 | 63.7 | 2,768 | 1,936 | 43.0 | ||||||||||||||||||
Corporate income tax | (852 | ) | (751 | ) | 13.4 | (211 | ) | (85 | ) | 148.7 | (725 | ) | (534 | ) | 36.0 | ||||||||||||
NET INCOME | 1,618 | 1,430 | 13.1 | 596 | 408 | 46.0 | 2,043 | 1,402 | 45.7 | ||||||||||||||||||
Minority interests | (4 | ) | (4 | ) | 13.1 | (4 | ) | (4 | ) | (10.1 | ) | (223 | ) | (208 | ) | 7.5 | |||||||||||
NET ATTRIBUTABLE PROFIT | 1,614 | 1,427 | 13.1 | 592 | 404 | 46.6 | 1,820 | 1,195 | 52.3 |
k) | Cumulative exchange differences |
The cumulative exchange differences at January 1, 2004 of all businesses abroad were definitively charged or credited to reserves. Consequently, the exchange gains or losses arising on the subsequent sale or disposal by other means of businesses abroad relate only to the exchange differences that arose after January 1, 2004.
(Millions of Euros) NET INTEREST INCOME Net fee income Net income by the equity method Net fee income BASIC MARGIN Net trading income ORDINARY REVENUES Net revenues from non-financial activities Personnel and general administrative expenses Depreciation and amortization Other operating income and expenses (net) OPERATING PROFIT Impairment losses on financial assets (net) . Loan loss provisions . Other Provisions (net) Other income/losses (net) . From disposal of equity holdings . Other PRE - TAX PROFIT Corporate income tax NET INCOME Minority interests NET ATTRIBUTABLE PROFIT Corporate activities and others Total Group 2005 2004 05-04 % 2005 2004 05-04 % (212 ) (143 ) 47.8 7,208 6,160 17.0 71 (8 ) n.m. 121 97 25.2 56 11 n.m. 3,940 3,413 15.4 (63 ) (38 ) 68.0 487 391 24.7 (148 ) (178 ) (16.7 ) 11,756 10,060 16.9 391 560 (30.1 ) 1,267 1,060 19.6 243 382 (36.4 ) 13,024 11,120 17.1 2 15 (86.5 ) 126 126 (0.6 ) (386 ) (374 ) 3.3 (5,762 ) (5,098 ) 13.0 (113 ) (108 ) 4.1 (449 ) (448 ) 0.1 (23 ) (0 ) n.m. (115 ) (110 ) 4.6 (277 ) (85 ) 224.7 6,823 5,591 22.0 129 (6 ) n.m. (854 ) (958 ) (10.8 ) 136 168 (19.0 ) (813 ) (784 ) 3.7 (7 ) (174 ) (95.8 ) (41 ) (174 ) (76.3 ) (328 ) (666 ) (50.8 ) (454 ) (851 ) (46.6 ) 24 285 (91.6 ) 77 355 (78.3 ) (0 ) 249 n.m. 29 308 (90.7 ) 24 36 (31.6 ) 49 47 4.4 (452 ) (472 ) (4.4 ) 5,592 4,137 35.2 266 340 (21.7 ) (1,521 ) (1,029 ) 47.9 (185 ) (132 ) 40.2 4,071 3,108 31.0 (33 ) 30 n.m. (264 ) (186 ) 42.3 (219 ) (102 ) 113.3 3,806 2,923 30.2
l) | Transactions involving own equity instruments |
The gains or losses obtained on transactions involving treasury shares are recognised as changes in equity and these shares continue to be carried at their acquisition cost. Under the previous accounting standards, these gains or losses were recognised in the income statement.
F-133F-172