Manuel González Cid. Chief Financial Officer. Best among peers: top investment choice

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Transcription:

Manuel González Cid Chief Financial Officer Best among peers: top investment choice 2

Disclaimer This document is only provided for information purposes and does not constitute, nor must it be interpreted as, an offer to sell or exchange or acquire, or an invitation for offers to buy securities issued by any of the aforementioned companies. Any decision to buy or invest in securities in relation to a specific issue must be made solely and exclusively on the basis of the information set out in the pertinent prospectus filed by the company in relation to such specific issue. Nobody who becomes aware of the information contained in this report must regard it as definitive, because it is subject to changes and modifications. This document contains or may contain forward looking statements (in the usual meaning and within the meaning of the US Private Securities Litigation Act of 1995) regarding intentions, expectations or projections of BBVA or of its management on the date thereof, that refer to miscellaneous aspects, including projections about the future earnings of the business. The statements contained herein are based on our current projections, although the said earnings may be substantially modified in the future by certain risks, uncertainty and others factors relevant that may cause the results or final decisions to differ from such intentions, projections or estimates. These factors include, without limitation, (1) the market situation, macroeconomic factors, regulatory, political or government guidelines, (2) domestic and international stock market movements, exchange rates and interest rates, (3) competitive pressures, (4) technological changes, (5) alterations in the financial situation, creditworthiness or solvency of our customers, debtors or counterparts. These factors could condition and result in actual events differing from the information and intentions stated, projected or forecast in this document and other past or future documents. BBVA does not undertake to publicly revise the contents of this or any other document, either if the events are not exactly as described herein, or if such events lead to changes in the stated strategies and intentions. The contents of this statement must be taken into account by any persons or entities that may have to make decisions or prepare or disseminate opinions about securities issued by BBVA and, in particular, by the analysts who handle this document. This document may contain summarised information or information that has not been audited, and its recipients are invited to consult the documentation and public information filed by BBVA with stock market supervisory bodies, in particular, the prospectuses and periodical information filed with the Spanish Securities Exchange Commission (CNMV) and the Annual Report on form 20-F and information on form 6-K that are disclosed to the US Securities and Exchange Commission. Distribution of this document in other jurisdictions may be prohibited, and recipients into whose possession this document comes shall be solely responsible for informing themselves about, and observing any such restrictions. By accepting this document you agree to be bound by the foregoing Restrictions. 3

Index Where are we coming from?. The starting point Active Balance Sheet management: paying off in the new environment Best among peers: top investment choice 4

BBVA has delivered an excellent growth track record of business volumes and operating income Total Business Volume (1) billion Operating profit billion CAGR 04-06 16% +22% (2) 803 CAGR 04-06 26% +22% 506 624 689 5.6 6.8 8.9 6.7 8.0 2004 2005 2006 9M 07 2004 2005 2006 9M 06 9M 07 With consistent growth in all business areas (1) Loans and customer funds (2) YoY growth 5

BBVA has outperformed its peer group in terms of profitability, efficiency and operating profit growth ROE, Efficiency & Attributable profit Bubble s size: Attributable profit European banks 2006 Operating profit Δ CAGR 2006 / 2004 (%) 47 42 BBVA 26.1 23.8 ROE (%) 37 32 27 22 17 Peer 3 Peer 8 Peer 11 Peer 6 Peer 12 Peer 7 Peer 10 Peer 4 Peer 14 Peer 13 Peer 5 Peer 15 Peer 2 Peer 1 Peer 18 Peer 17 Peer 16 Peer 9 12 70 60 Efficiency (%) 50 Better 40 BBVA Peers avg 6

Particularly in its main home markets: Spain and Portugal ROE, Efficiency & Attributable profit Bubble s size: Attributable profit Spanish banks 2006 (excluding the one-offs operations) Operating profit Δ CAGR 2006 / 2004 (%) 38 34 BBVA 12.9 12.6 ROE (%) 30 26 22 18 Peer 2 Peer 1 Peer 5 Peer 7 Peer 3 Peer 4 14 Peer 8 Peer 6 10 56 52 48 44 Efficiency (%) 40 36 Better 32 BBVA Spain & Portugal Peer 1 7

As well as in Mexico ROE, Efficiency & Attributable profit 2006 Bubble s size: Attributable profit Mexican banks 2006 Operating profit Δ CAGR 2006 / 2004 (%) ROE (%) 31 29 27 25 23 21 Peer 4 Peer 3 Peer 1 Bancomer Peer 2 19 17 15 65 60 55 50 45 Efficiency (%) 40 Better 35 Bancomer Peer 1 8

BBVA s growth profile is based on recurrent profits coming from multi-local retail operations Units contribution to net profit increase 1H07/1H06 (%) BBVA European Average 52% 61% 36% 8% 14% 18% 16% 2% Domestic Retail International Retail AM&PB Wholesale Rest -2% Domestic Retail International Retail AM&PB Wholesale Rest - 8% More than 75% of BBVA s value (1) is coming from multi-local retail operations Our average European peer, in turn, has the larger part of its value placed in wholesale and global businesses Note: Estimated from the information of each Group. BBVA s data has been prepared for comparative effects. (1) Analysts consensus as of Sept. 07 9

Additionally, in its non organic expansion, BBVA has executed profitable options of growth Consolidating our position in Mexico Reinforcing high potential businesses Building up a powerful franchise in the Sunbelt Creating medium term options in new high growth markets Buyout of BBVA Bancomer minorities Hip. Nacional (Mex) Granahorrar (Col) Forum (Chile) Laredo Texas Regional State National Compass Asia Plan Citic Group alliance 10

which have positioned BBVA in countries with higher potential growth & profitability 12,0% 10,0% China BBVA s positioning 8,0% PIB Potencial Potential GDP 6,0% 4,0% Germany 2,0% United Kingdom Reino Unido Alemania Holland Francia Holanda France USA (Sunbelt) EEUU (SunBelt) Spain España Italy Italia Mexico Bubble s size GDP ( Mn) 0,0% -5,0% 0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0% 40,0% 45,0% 50,0% Profitability adjusted RAR-k to risk 11

But the world out there has changed Current situation points towards a lower growth environment Monetary policy should be adapted, despite short term inflation risks Emerging markets, decoupling from developed economies New environment challenging Capital, Liquidity and Balance Sheet management in the financial sector 12

A new world: Financial Sector Before After Liquidity Market provided No limitation in amount available Low cost Own customer deposits strategic Only available for best credits High cost Capital Risk Management Competition Market provided Outsourcing of Balance Sheets High dividend growth Credit risk pass-trough to the market Focus on origination High number of competitors: wholesale institutions, monoliners, retailers, and others with a distribution network Pressure on regulatory capital Unexpected capital consumption: writedowns Tighter regulatory environment? Dividend policy reconsidered Stronger credit requirements Credit risk monitoring and control on origination Balance sheet risk management as a key competitive advantage Too big to fail banks prevail Lower balance sheet availability Small an medium size institutions, subject to liquidity and capital constraints Higher barriers to access retail banking operations STRONG OPPORTUNITY FOR BBVA 13

Index Where are we coming from?. The starting point Active Balance Sheet management: paying off in the new environment Strength of BBVA in Capital, Liquidity an other Balance Sheet structural risks Best among peers: top investment choice 14

Balance sheet Management: strategy Interest rate Liquidity To preserve current and future income from the business lines, while maximizing shareholder value and meeting the Company s objectives for growth Currency Risk Capital Base Retail commercial banking focus of our business, not trading 15

Liquidity crisis - relative positioning Vulnerability of financial institutions Wholesale banks Subprime + structured credit YES Leverage Finance exposure YES Hedge Funds Prime Brokerage YES Liquidity lines for Conduits & SIV YES Monoline business without deposit base YES Rating actions Likely BBVA NO NO NO NO NO Two positive outlooks BBVA, not vulnerable in the new environment of liquidity shortage Go retail when liquidity is tight 16

Liquidity risk active management (In 2006 / 2007) Others were: Disregarding liquidity risk Leveraging capital base to the limit Developing strong monoline businesses BBVA was actively: Managing liquidity profile Lowering credit exposure Maximizing deposit base Reinforcing capital structure Wholesale funding ( Bn) +80% 32.4 18.0 Jan-Jul 06 Jan-Jul 07 32,4 Bn of medium and long term funding from January to July 07 17

Liquidity risk active management (In 2006 / 2007) Securitization ( Bn) Prefered shares & Sub debt* ( Bn) +900% 15.0 +725% 3.6 1.5 Jan-Jul 06 Jan-Jul 07 0.4 Jan-Jul 06 Jan-Jul 07 Covered Bonds ( Bn) Short term commercial paper ( Bn) -50% -26% 6.4 7.0 5.2 3.2 Jan-Jul 06 Jan-Jul 07 Jan-Jul 06 Jan-Jul 07 And accelerating term customer deposit base (+39% 9m06/07 in Spain and Portugal) * Bancomer 950 mn included 18

Improved maturity profile Without any high concentration of maturities Bn 20 18 16 14 12 10 8 6 4 2 0 13.4 13.3 10.9 9.0 2008 2009 2010 2011 2012 2013 2014 2015 >2015 No significant maturities until 2Q08 BBVA is prepared to remain outside the market well into 2009 if needed Subordinated debt, at first call date. Preference shares considered in >2015 19

Active Management of Capital Since 2004 BBVA has implemented an active policy aiming to maximize the return on equity through the different stages of the life of each asset: Asset Rotation vs. Asset Accumulation After origination and full documentation of the loan, it is available for sale in the open market. At each point in time and for each asset class, the keep or sell decision is made depending on potential ROE enhancement through available alternatives. Until June 2007 Current Situation ROE Avg ROE ROE repricing of assets Avg ROE t Origination Period Hold-to-maturity Period Competition Origination Period Hold-to-maturity Period t Competition Distribution networks with IT & structuring capabilities. Regulatory Capital needed Liquidity is key Big commercial banks 20

Active Management of Capital II 2006 and 2007 have resulted in significant activity at the Group s level Capital Markets Tier I true perpetual, new currencies ($, ) Sub debt. public & private placements M 3,000 2,000 1,000 0 +30% TIER II TIER I 2006 2007 YTD Capital increase Nov-06 Compass acquisition financing: -51% cash - 49% equity New asset classes RMBS Leasing Biggest RMBS BBVA RMBS 2 5.000 Mn M 20,000 16,000 12,000 8,000 4,000 0 Securitization +210% 2006 2007 YTD Capital Base Sep-07 Tier II Tier I Core capital 10.8 4.0 6.8 5.4 + Basel II 21

Active Management of Capital III BBVA additional internal sources of Capital Gross Capital Gains Available for sale M 4,000 3,000 2,000 (Corporate Portfolios) +30% M 6.000 5.000 Generic Loan Loss Provisions +19% 1,000 September 2006 September 2007* * After Sale of Iberdrola ( 847 Mn result) 4.000 September 2006 September 2007 Active management of the business portfolio Assets disposals 2003-YTD* Acquisitions 2003 YTD* 8.5 Bn 14.5 Bn * Most relevant transactions 22

Active Management of Capital IV Subsidiaries level Leveraging the capital base structure Optimization of the cost of capital Increasing dividend flow from subsidiaries to parent Reduction of FX exposure of the shareholders capital Subsidiaries TIER I & II Issues M 1,200 1,000 800 600 400 200 0 +160% 2005 2006 2007 YTD Significant new issuance from subsidiaries in Bancomer, Peru, Chile, Venezuela, Colombia, Puerto Rico: 1,335 M Implementation of the capital management model through secutitizations Transactions to come in 4Q07 in Bancomer, Perú, Colombia 23

Active interest rate risk management Three main exposures: Euro, Mexico, USA Euro Mexico USA Very limited interest rate risk: NII sensitivity +0.5% Government bonds as hedge of DDA Mortgage portfolio (Eur 12 months) vs wholesale funding (Eur 3 months) positive impact 2008 vs 2007 (repricing lag in mortgages) NII sensitivity +100 bp: +1% Government bond as hedge of non-sensible liabilities Growth in fixed assets is reducing the risk Very limited NII sensitivity year 1 Convexity increases NII sensitivity year 2 (active management of prepayment risk) Interest rate risk management focus in hedging customer exposure not in P&L contribution Investment portfolio management tool, not P&L tool 24

Interest rate hedges evolution 140 4.50 Euro Significant decrease in Net Interest Income hedges since 2005, anticipating ECB rates hikes 120 100 80 60 40 20 0 ECB rate Dec-04 Dec-05 Dec-06 Mar-07 Jun-07 Sep-07 4.00 3.50 3.00 2.50 2.00 1.50 Net interest income hedges (100 Dec 04) b 5 ñ MXN 350 9.0 Significant increase in Net Interest Income hedges since 2005, anticipating Banxico rates decrease 300 250 200 150 100 50 TIIE 8.5 8.0 7.5 7.0 6.5 0 Dec-04 Dec-05 Dec-06 Mar-07 Jun-07 Sep-07 6.0 Net interest income hedges (100 Dec 04) TIIE 25

Active FX hedging Main Objectives Foreign Capital Investment: stability in Capital Ratios Subsidiaries P&L: to guarantee the growth at Group level Management of Capital Investment FX hedge at portfolio level: 50% (100% $ exposure) Hedging of FX stress scenarios (Mexico) Minimum effects in Core Capital Ratio ($/ 1,50: 4 pb; $/ 1,60: 7 pb) Management of Subsidiaries P&L 2 Year hedging horizon Hedge with 1st class banks No carry hedges : only FX risks. Ready for stress scenarios $/ We aren t FX traders. Target is minimizing earnings / capital ratios volatility 26

FX hedging evolution 250 200 150 100 50 0 Dec-05 Dec-06 Mar-07 Jun-07 Sep-07 16.00 15.00 14.00 13.00 12.00 11.00 10.00 Currency hedges (100 Dec 04) MXN/ 100% increase in FX hedges during the last 3 years, anticipating currency depreciation 27

Index Where are we coming from?. The starting point Active Balance Sheet management: paying off in the new environment Best among peers: top investment choice 28

Best among Peers: top investment choice I II III BBVA s Starting point + BBVA s Resources + BBVA s Strategy Earnings momentum Corporate positioning Culture of performance Management track record Strong liquidity position Sound regulatory capital Track record of discipline in the management of the main balance sheet risks Focus on our current business Customer insight, driver of our new business models Deep transformation plan Innovation as a growth engine Management team strongly commited with value creation 29

Best among Peers: top investment choice Revenues Costs Risk Premium Balance Sheet 30

Best among Peers: top investment choice Revenues BBVA Peer Group Retail and customer oriented business Higher growth in home markets: Spain, Mexico, Latam, Texas, Sunbelt Strength and critical mass of the different franchises New set of business models, segments and products through innovation Capability of repricing and gaining of market share Mortgages only means 9.5% of total ordinary revenues in Spain&Portugal (9M07) Lower beta with higher alpha generation Strong weight of wholesale business Lower growth in home markets Lack of scale in international retail business and complexity Monoliners business lines Constraints on Balance Sheet availability Pressure of monoline businesses in liquidity and asset quality Higher beta in peer group 31

Best among Peers: top investment choice Costs BBVA Peer Group Track record of efficiency management and anticipation Critical transformation project to take efficiency levels to 35% Group level, at one year and half under execution Higher productivity gains and in depth reengineering of our distribution, commercial and operational structure Very limited expansion plans of physical networks in the last few years Lack of sufficient investments in IT platforms over the last few years Restructuring in most affected business lines that will consume time and additional capital Lack of critical mass in some business lines puts under pressure IT costs Very aggressive expansion plans in physical networks Technology and reengineering, driven efficiency gains Only consolidation can deliver efficiency gains 32

Best among Peers: top investment choice Risk premium BBVA Peer Group No extraordinary writedowns needed 5.5 Bn generic available provisions as an important buffer to compensate any deterioration of asset quality Writedowns of credit porfolio increasingly common Substantial increases of risk premiums from very low current level on asset quality deterioration Integrated risk model from admission to administration recovery, also in the securitized portfolio Non integrated risk function, not to be rebuilt easily Stable risk premium Writedowns: risk premium up 33

Best among Peers: top investment choice Balance Sheet BBVA Peer Group Strong liquidity and capital position Organic growth to be our key driver Liquidity and regulatory capital under pressure and limiting growth Need for additional consolidation and M&A to survive? Asset disposals Full availability of Balance Sheet Constraint of resources, limiting growth 34

Best among Peers: top investment choice I II III Starting point + Resources + Strategy Ahead of peers Fully available A plan for sustain growth Big Opportunity to BBVA Best among peers: top investment choice 35