Third Quarter Results 2008 BBVA Madrid, October 29 th 2008
Contents Group results for 9M08 Results by business area Spain & Portugal Wholesale Banking & Asset Management Mexico USA South America Conclusions 2
3Q08: one of the most complex quarters for the financial sector in decades Asset quality deteriorates Impact on earnings and capital Loss of confidence Interbank and capital markets dry up Refinancing difficulties 3
BBVA emerges as one of the strongest banks at international level Its strength is based on... Low leveraging Quality of earnings 1 Comfortable liquidity A Recurrent revenues 2 High asset quality B Strict cost control 3 Recognized solvency C Special effort in provisioning leading to high profitability 4
1 BBVA has ample liquidity thanks to customers' deposits Deposits / assets (%, Jun.08) BBVA Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 Peer 12 Peer 13 21.2 19.7 25.8 24.7 23.4 27.2 26.8 34.7 33.0 37.9 37.7 37.0 44.1 48.8 Maturity: wholesale finance ( bn) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 >2018 0.6 2.8 3.1 4.4 5.9 6.2 5.7 Maturities have little impact 9.1 11.3 13.3 13.2 (Average maturity is 5 yrs; 2/3 of debt matures after 2011) Peers: Santander, BNP Paribas, Intesa Sanpaolo, Unicredit, Barclays, Société Générale, HBOS, Crédit Agricole, Lloyds, Deutsche Bank, Credit Suisse, RBS, UBS Internal sources based on published figures. 5
2 NPL ratio rises but less than our European competitors NPL ratio (%) NPL ratio (%, Jun.08) Coverage ratio (%, Jun.08) 2.67 166.0 1.74 * 1.13 0.94 0.83 0.89 0.99 1.15 1.54 1.15 60.0 Dec.03 Dec.04 Dec.05 Dec.06 Dec.07 Mar.08 Jun.08 Sep.08 European Banks BBVA European Banks BBVA Asset quality is better than our competitors in all core markets * Pre-NIIF Internal sources based on published figures. 6
3 BBVA generates important amounts of organic capital Organic creation of core capital (BIS II) +16 bp in 3Q08 +15 bp in 2Q08 +20 bp in 1Q08 Core capital 6.4% Tier I 7.8% +60 bp of core capital and Tier I from excess provisions And latent capital gains 7
The quality of our capital is better than our competitors... RWAs / total assets (%, Jun.08) Peer 1 BBVA Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 Peer 12 Peer 13 53.1 51.7 50.7 48.7 41.8 33.0 31.6 27.9 25.8 24.5 21.9 15.6 15.3 62.0 BBVA Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8 Peer9 Peer10 Peer11 Peer12 Peer13 Tangible equity / assets (%, Jun.08) 3.44 3.40 3.40 3.26 3.18 2.60 2.30 2.15 1.81 1.54 1.52 1.51 1.15 which is acknowledged in our ratings 3.59 Peers: Santander, BNP Paribas, Intesa Sanpaolo, Unicredit, Barclays, Société Générale, HBOS, Crédit Agricole, Lloyds, Deutsche Bank, Credit Suisse, RBS, UBS Internal sources based on published figures. Includes capital increases (already carried-out or announced) 8
The quality of our capital is better than our competitors... (Core equity + excess deficit provisions) / total assets (%, Jun.08) BBVA 3.86 Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8 Peer9 Peer10 Peer11 Peer12 Peer13 3.32 2.88 2.71 2.19 2.05 1.82 1.70 1.67 1.67 1.65 1.48 1.24 0.98 No unexpected consumption of capital No accounting reclassification of portfolios Recurrent earnings Little exposure to falls in housing prices and economic slowdown (20% fall in housing prices = 0 bp in core capital) (30% fall in housing prices = -3 bp in core capital) Peers: Santander, BNP Paribas, Intesa Sanpaolo, Unicredit, Barclays, Société Générale, HBOS, Crédit Agricole, Lloyds, Deutsche Bank, Credit Suisse, RBS, UBS Internal sources based on published figures. Includes capital increases (already carried-out or announced) 9
Conclusion: BBVA is one of the safest banks in the present environment Balance sheet ( m, Jun.08) % Income from Inv Bkg (%, Jun.08) Net attrib. profit ( m, 1H08) Peer 1 BBVA Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 Peer 12 Peer 13 501,510 504,990 Peer 1 627,701 BBVA 740,814 Peer 2 918,332 Peer 3 929,166 Peer 4 1,059,767 Peer 5 1,075,925 Peer 6 1,251,512 Peer 7 1,464,822 Peer 8 1,817,193 1,862,213 Peer 9 1,990,740 Peer 10 2,657,319Peer 11 Internal sources based on published figures. BBVA Research 3.6% 9.8% 11.8% 11.9% 24.6% 29.9% 31.4% 37.1% 38.5% 38.7% 46.0% 52.9% -7,164 Peer 1 Peer 2 BBVA Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10-562 Peer 11-1,904 Peer 12 Peer 13 1,200 968 785 517 2,343 1,740 Internal sources based on published figures. Low leveraging + Retail business model = Recurrent revenues Peers: Santander, BNP Paribas, Intesa Sanpaolo, Unicredit, Barclays, Société Générale, HBOS, Crédit Agricole, Lloyds, Deutsche Bank, Credit Suisse, RBS, UBS 4,730 3,486 3,108 3,105 2,873 10
BBVA emerges as one of the strongest banks at international level Its strength is based on... Low leveraging Quality of earnings 1 Comfortable liquidity A Recurrent revenues 2 High loan quality B Strict cost control 3 Recognized solvency C Special effort in provisioning resulting in high profitability 11
Despite complex conditions, BBVA continues to deliver solid profit growth Net attributable profit (Excluding one-offs, m) +9.1% 4,321 3,962 1,254 1,369 1,339 1,440 1,442 1,486 1,392 Attrib. Profit: 4,321M in constant (+13.7%) 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Quality earnings based on... 12
A Recurrent revenues... Net interest income Quarter-by-quarter ( m) Revenues Cumulative change (%) +25.5% BBVA Group ex-oneoffs Eur os Constant euros 2,233 7,025 2,380 2,411 2,745 2,734 8,818 2,952 3,132 Net Interest Income Core Revenues Ordinary Revenues M25.5% 31.8% M18.5% 24.0% M14.9% 19.9% 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 13
B... strict cost controls Efficiency incl. depreciation (Excluding one-offs and Compass, m) Operating profit (Excluding one-offs, m) +14.1% 41.8-1.6 p.p. 40.2 7,195 8,209 9M07 9M08 9M07 9M08 Efficiency incl. depreciation, excl. one-offs: offs: 42.5% Oper. profit excl. one-offs: offs: +19.0% (constant ) +19.0% 14
C... a special effort in provisioning during the quarter Loan-loss provisions ( m) Generic provisions vs expected loss on performing loans ( m, Sep.08) 51.3% 1,994 5,804 1,318 2,211 9M07 9M08 Generic provisions Expected loss on performing loans 15
Growing and creating value Net attributable profit ( m) Recurrent economic profit: 2.584M 3,962 +9.1% 4,321 EPS excl. one-offs: offs: 1.16 (+4.2%) ROE (excl. one-offs): offs): 24.8% ROA (excl. one-offs): offs): 1.21% 9M07 9M08 Recurrent RARoC: : 30.9% 16
BBVA Group excluding one-offs: 9M08 results ( m) BBVA Group Accum 9M08 Annual Growth Abs. % Net Interest Income Core Revenues Ordinary Revenues 14,536 8,818 + 1,793 25.5% 13,224 + 2,061 18.5% + 1,889 14.9% Operating Profit 8,209 + 1,014 14.1% Pre-Tax Profit 6,041 + 353 Net Profit 4,589 + 401 Net Attributable Profit 4,321 + 359 6.2% 9.6% 9.1% 17
BBVA Group: one-off items One-offs in 9M07 (Before tax) One-offs in 9M08 (Before tax) Iberdrola + 847M Bradesco + 727M Sale of buildings + 273M Early retirements - 470M Microcredits - 200M Net attributable profit 794M Net attributable profit 180M 18
BBVA Group: 9M08 results ( m) BBVA Group Accum 9M08 Annual Growth Abs. % Net Interest Income Core Revenues Ordinary Revenues 15,263 8,818 + 1,793 25.5% 13,224 + 2,061 18.5% + 1,769 13.1% Operating Profit 8,936 + 894 11.1% Pre-Tax Profit 6,298-310 -4.7% Net Profit 4,768-213 -4.3% Net Attributable Profit 4,501-255 -5.4% 19
Contents Group results for 9M08 Results by business area Spain & Portugal Wholesale Banking & Asset Management Mexico USA Conclusions South America 20
Spain and Portugal: key figures for 9M08 Operating profit +11.7% Efficiency incl. depr. 35.3% Net attributable profit +10.2% NPL ratio Spain and Portugal 1.86% NPL ratio Businesses in Spain 1.45% ROE 36.4% Coverage Spain and Portugal 97% Coverage Businesses in Spain 106% 21
Spain & Portugal: 9M08 highlights We continue adjusting to the slowdown in Spain, focusing on: 1 2 3 Appropriate control of the liquidity gap Price management and cross-selling Asset quality better than competitors 22
Appropriate control of the liquidity gap Lending and customer funds Year-on-year growth (% average balances) Lending and customer funds Year-on-year growth (Average balances, m) CBB: +6.1% Mortgages: +5.1% Spain & Portugal Dec.07 Sep.08 Total consumer: +3.4% Lending 23,530 9,497 Total lending: +4.9% On-balance sheet funds 10,222 9,960 Time deposits: +27.6% Liquidity gap -13,309 +464 Total on-balance sheet funds: +11.0% Gaining 229bp of market share in mutual funds in the last year 23
Price management: our first priority Net interest income/atas & NII+Fees ex-mutual funds/atas (%) Net interest income (%) +11.0% NII+Fees ex-mutual funds/atas 2.39 2.39 2.41 2.37 2.40 2.39 3,134 3,477 2.16 2.16 2.19 2.18 2.22 2.23 Net interest income/atas 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 9M07 9M08 24
And emphasis on cross-selling Other income year-on-year (%) Ordinary revenues ( m) Fee income -2.7% excl. mut.. funds +5.2% Insurance business +7.8% 4,920 +7.3% 5,282 Net trading income +13.5% Total other income: : +0.9% (ex funds:: +6.7%) 9M07 9M08 25
Constant attention to transformation leads to new improvements in efficiency General admin expenses Cumulative year-on-year growth (%) Operating profit ( m) +11.7% 1.8 1.8 2.6 2.5 1.6 1.4 3,051 3,410 9M08 3M07 6M07 9M0712M073M08 6M08-0.4 9M07 9M08 Networks in Spain: -1.4% Efficiency incl. deprec: 35.3% (-2.6( points) 26
NPL ratio rises but less than Spanish competitors NPL ratio Businesses in Spain (%) Coverage: 106% 0.55 0.61 0.74 1.02 1.45 Sep.07 Dec.07 Mar.08 Jun.08 Sep.08 Spain & Portugal NPL ratio: 1.86% Provisions: +42.6% Maximum risk premium fenced in Purchase of properties in 2008 for 340m Asset quality advantage over competitors widens 27
Spain & Portugal: net attributable profit and profitability Net attributable profit ( m) ROE (%) +10.2% 1,784 1,966 +0.5 p.p. 35.9 36.4 9M07 9M08 9M07 9M08 Double-digit growth and high returns 28
Spain & Portugal: 9M08 results ( m) Spain & Portugal Net Interest Income Core Revenues Ordinary Revenues Operating Profit Pre-Tax Profit Accum Annual Growth 9M08 Abs. % 3,477 + 343 11.0% 5,069 + 336 7.1% 5,282 + 361 7.3% 3,410 + 358 11.7% 2,801 + 164 6.2% Net Profit 1,966 + 182 10.2% Net Attributable Profit 1,966 + 182 10.2% 29
Contents Group results for 9M08 Results by business area Spain & Portugal Wholesale Banking & Asset Management Mexico USA South America Conclusions 30
Wholesale Banking & Asset Management: key figures in 9M08 Operating profit +20.9% Net attributable profit +14.8% ROE 30.4% Efficiency incl. depr. 25.6% NPL ratio 0.05% Coverage 2,114% 31
Wholesale Banking & Asset Management: 9M08 highlights Leveraging the wholesale banking model based on customers 1 2 3 Taking advantage of opportunities in Corporate & Investment Banking Global Markets: how to generate recurrent business with customers Expanding our franchise in Asia 32
Taking advantage of opportunities in Corporate & Investment Banking Corp. & Investment Bkg* Lending Year-on-year growth (Average balances) Corp. & Investment Bkg RARoC on new business Quarter by quarter 34.9% 33.7% 37.3% 40% 35% 34% 38% 30% 25% 20% 15% 11% 12% 15% 19% 22% 10% 5% 0% Mar.08 Jun.08 Sep.08 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Ordinary revenues: 601M (+33.2%) * Europe + Asia + Investment Bkg 33
With good earnings from Global Markets Global Markets Ordinary revenues ( m) 72% of revenues comes from business with the customer franchise 240 115 139 167 149 154 156 47 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 With a diversified portfolio and less risk than the sector. Average 9M08 VAR is 18.5M (half the sector) 34
Resulting in solid growth of revenue and operating profit in the Area Ordinary revenues Wholesale & Inv Bkg ( m) Operating profit Wholesale & Inv Bkg ( m) +27.3% +20.9% 1,169 1,489 931 1,126 Efficiency incl. deprec: 25.6% (-0.9 points) 9M07 9M08 9M07 9M08 With efficiency improving 35
Growth of attributable profit and high profitability Net attributable profit ( m) +14.8% 646 741 ROE: 30.4% 9M07 9M08 36
Wholesale Banking & Asset Management: 9M08 results ( m) Wholesale Banking & Asset Management Operating Profit Pre-Tax Profit Accum Ordinary Revenues 1,489 917 + 60 7.0% Net Profit 746 + 93 Annual Growth 9M08 Abs. % + 319 27.3% 1,126 + 194 20.9% 14.2% Net Attributable Profit 741 + 95 14.8% 37
Contents Group results for 9M08 Results by business area Spain & Portugal Wholesale Banking & Asset Management Mexico USA Conclusions South America 38
Mexico: key figures for 9M08 Operating profit +19.9% (Constant ) Net attributable profit +16.3% (Constant ) ROE - Efficiency incl. depr. 31.8% NPL ratio 2.75% Coverage 191% 39
Mexico: 9M08 highlights Good earnings thanks to Bancomer s strategy of anticipation 1 Lending still growing (mortgages and SMEs) but consumer finance slows 2 3 Transformation Plan helps to clamp down on expenses Risk premium is substantially lower than peers thanks to provisioning based on expected loss 40
Anticipation is part of Bancomer s business strategy... New-lending mix (%) SMEs+Corporations Mortgages Consumer+Cards 57.7% 38.9% 3.4% 42.5% 40.1% 17.3% 27.0% 37.5% 35.5% 5.6% 56.2% 38.2% 2005 2006 2007 YTD Excl. government Lending: +17.7% Lending and customer funds y-o-y growth - average balances (%) SMEs: +34.6% Mortgages: +23.5% Consumer + cards: + 7.9% Current + Savings Acts: +14.5% Time+MF+Repo+MDD: +9.1% Customer funds: +11.0% 41
... leading to solid growth in net interest income Net interest income / ATAs (%) Net interest income Mexico country Quarter by quarter (Constant m) +15.4% 6.17 6.07 6.30 5.80 6.04 6.15 2,421 794 792 835 887 900 2,794 937 956 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 42
Anticipation in cost management... General admin expenses Mexico country Cumulative year-on-year growth (%) Operating profit Mexico country (Constant m) +19.9% 13.2 12.6 12.3 12.4 2,343 2,809 10.0 9.1 8.5 Efficiency incl. deprec: 31.8% (-2.4 points) 3M07 6M07 9M0712M073M08 6M08 9M08 9M07 9M08... leading to solid growth of operating profit 43
Anticipation through provisions based on expected loss 3.72 NPL ratio Mexico country (%) * 2.94 2.34 2.21 2.15 2.16 2.37 2.75 Risk premium Mexico (%) 3.96 3.92 5.80 3.74 5.17 6.66 5.68 4.06 7.81 6.09 4.74 2.96 2.61 2.95 3.01 3.09 Dec.03 Dec.04 Dec.05 Dec.06 Dec.07 Mar.08 Jun.08 Sep.08 Jun.07 Dec.07 Mar.08 Jun.08 Coverage: 191% Bancomer Peer 1 Peer 2 Peer 3 Internal sources based on published figures & local criteria Provisions in constant : : +32.6% Risk premium is substantially lower than peers * Pre-NIIF 44
Mexico: net attributable profit Net attributable profit Mexico country (Constant m) +16.3% Bancomer BG +15.3% 1,317 1,531 Pensions & Insurance +21.9% 9M07 9M08 45
Mexico: 9M08 results (Constant m) Mexico Accum 9M08 Annual Growth Abs. % Net Interest Income 2,794 Core Revenues 4,004 Ordinary Revenues 4,240 Operating Profit Pre-Tax Profit Net Profit + 373 15.4% + 456 12.8% + 553 15.0% 2,809 + 466 19.9% 2,007 + 195 10.8% 1,532 + 214 Net Attributable Profit 1,531 + 215 16.3% 16.3% 46
Contents Group results for 9M08 Results by business area Spain & Portugal Wholesale Banking & Asset Management Mexico USA South America Conclusions 47
USA: key figures for 9M08 Operating profit* n.a. (Constant ) Net Attributable profit* +104% (Constant ) ROE* 20.1% Efficiency* 56.9% NPL ratio 2.71% Coverage 73% * Without amortisation of intangibles 48
USA: 9M08 highlights Integration process continues as planned but focus remains on business 1 2 3 Increasing business activity continues after the integration of Compass Costs are stable. Synergies generation Special effort in provisioning in a very complex scenario 49
Business continues to grow thanks to Compass BG s vigorous marketing Lending and customer funds Compass BG Year-on-year growth (Average balances) Lending Compass BG Year-on-year growth (Average balances) 4.8% 1.5% 6.6% 3.1% 9.3% 13.3% 4.2% 4.5% APR Sep.08/Sep.07 +19.1% APR Sep.08/Sep.07 +10.2% Individuals SMEs FICO SCORE: 729 vs 712 at Dec.07 Risk grade: 5.6 vs 6.2 at Dec.07 Dec.07* Mar.08* Jun.08* Sep.08 Lending Customer Funds * Includes Compass in continuity 50
... reflected by net interest income and stable costs Net interest income (Constant m) Total expenses excl. amort. of intangibles and excl. merger & integration costs Quarter by quarter (Constant m) 319 319 331 331 275 266 276 270 Efficiency excl. amort. intangibles: 56.9% (-1.9 points) 4Q07 1Q08 2Q08 3Q08 4Q07 1Q08 2Q08 3Q08 Integration of Texas State Bank under the new brand in 3Q08 51
Special effort in provisioning in a very complex scenario Loan-loss provisioning (Constant m) NPL ratio (%) 128 50 1.66 1.77 1.97 2.37 2.71 46 46 67 4Q07 1Q08 2Q08 3Q08 Sep.07 Dec.07 Mar.08 Jun.08 Aug.08 Updating collateral values Coverage: 73% 52
USA: 9M08 results (Constant m excl. amort. of intangibles) USA Accum. Quarter-by-quarter 9M08 3Q08 2Q08 1Q08 4Q07 Net Interest Income 981 331 331 319 319 Core Revenues 1,381 461 467 453 462 Ordinary Revenues 1,481 481 511 489 479 Operating Profit 636 194 223 219 202 Net Attributable Profit 262 45 108 109 103 Net attrib. profit: 184M (incl. amortisation of intangibles) ROE: 20.1% (excl. amort intang.) ROE: 14.2% (incl. amort intang.) 53
Contents Group results for 9M08 Results by business area Conclusions Spain & Portugal Wholesale Banking & Asset Management Mexico USA South America 54
South America: key figures in 9M08 Operating profit +28.1% (Constant ) Net attributable profit +17.7% (Constant ) ROE 37.7% Efficiency incl. depr. 44.0% NPL ratio 2.05% Coverage 146% 55
South America: 9M08 highlights Strong growth in South America 1 2 3 Solid growth of revenue maintained thanks to strong business With new improvements in efficiency NPLs stable at minimum levels 56
Business continues to be strong in South America... % % % % Lending and customer funds Year-on-year growth (Average balances) 22.7% 15.7% Consumer + cards: +32.2% Mortgages: +22.8% Companies: + 20.5% % % Time deposits: +20.9% % Lending Customer Funds Current + savings: +14.0% Good performance in lending and customer funds 57
... resulting in strong growth of recurrent revenues Net interest income (Constant m) Ordinary revenues (Constant m) +34.3% +23.2% 338 1,115 370 406 453 471 1,498 494 533 1,890 614 620 656 730 2,329 764 777 788 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 58
Efficiency continues to improve... Efficiency incl. depreciation (%) Operating profit (Constant m) +28.1% -1.8 p.p. 1,271 45.9 44.0 992 9M07 9M08 9M07 9M08 59
and with a stable NPL ratio, leading to solid profit growth NPL ratio (%) Net attributable profit (Constant m) +17.7% 2.44 2.14 2.42 2.22 2.05 458 539 Sep.07 Dec.07 Mar.08 Jun.08 Sep.08 9M07 9M08 Coverage: 146% ROE: 37.7% 60
South America: 9M08 results (Constant m) South America Accum 9M08 Annual Growth Abs. % Net Interest Income 1,498 + 383 Core Revenues 2,184 + 453 Ordinary Revenues 2,329 + 439 34.3% 26.2% 23.2% Operating Profit 1,271 + 279 28.1% Pre-Tax Profit 1,040 + 220 26.8% Net Profit 794 + 136 Net Attributable Profit 539 + 81 20.6% 17.7% 61
Contents Group results for 9M08 Results by business area Conclusions Spain & Portugal Wholesale Banking & Asset Management Mexico USA South America 62
Conclusions Spain & Portugal Management has a different approach to the slowdown, with focus on pricing, costs and asset quality Wholesale & Inv Bkg Despite the environment, recurrent revenues based on customer activity Mexico Good earnings thanks to Bancomer s strategy of anticipation USA Integration process continues as planned but focus remains on business South America Strong growth in South America 63
The financial sector crisis highlights BBVA s strengths Proven model for retail banking business + Long track-record in efficiency and prudent risk management + A different positioning in capital and liquidity = Sound capital position and steady recurrent earnings 64
Third Quarter Results 2008 BBVA Madrid, October 29th 2008