BBVA - Press Room

• BBVA's operating profit before non-recurrent items in the first half rose 20.2% compared to 2006, to €4.87 billion, thanks to strong growth of recurrent revenues
• The Group’s cost/income ratio recorded an important advance, improving to 41.6%, compared to 44.3% in the first half of 2006
• BBVA continues to lead European banks in terms of profitability, with return on equity (ROE) at 31.5%, and return on assets (ROA) at 1.28%
• Spain & Portugal increased operating profit 20.6% to €2.02 billion and net attributable profit rose 28.3% to €1.17 billion
• Global Businesses recorded strong growth in operating profit, which rose 31.2% to €658m and net attributable profit increased 5.7% to €451m
• In local currencies Mexico & USA increased operating profit 26.5% to €1,783m and net attributable profit climbed 25% to €949m
• South America increased operating profit 25.7% to €699m and net attributable profit rose 22.7% to €326m

In the year to June, BBVA generated €2.62 billion in net attributable profit before non-recurrent items. This was 20.4% higher than the same period last year. A sharp rise in recurrent revenues pushed profit and the Group’s main margins to record highs in the second quarter. In the first half operating profit grew steadily at 20.2% to €4.87 billion. Efficiency (measured by the cost/income ratio) improved from 44.3% to 41.6% and return on equity stands at 31.5%, ahead of other European banks.

At the end on the first half BBVA has once again demonstrated its capacity to generate profitable growth in a recurrent manner. It has just launched an innovation and transformation plan to carry this strategy forward. The plan pursues ambitious goals for 2010, improving productivity 15%, lowering the cost/income ratio to 35% and increasing the customer base by 20% – adding 8.5 million between Spain, Mexico and South America. At the same time, the Group will continue to push ahead with its growth strategies in the USA and Asia.

Halfway through 2007, BBVA has again demonstrated its considerable ability to generate recurrent earnings in all business areas. It has achieved important improvements in key management indicators, boosted organic growth plans through innovation and set ambitious goals in terms of productivity and efficiency.

At the same time, BBVA remains committed to its Asian development plans through the agreement with CITIC Group and the first BBVA board meeting in Beijing in June. Furthermore, it hopes to move the acquisition of Compass Bancshares forward to the third quarter of this year and start integration of its US banks ahead of the initial calendar.

After including extraordinary items net attributable profit in the year to June rose 1.1% to €3.37 billion. However this is not indicative of the outlook for the full year because of considerable profit on non-recurrent operations in the first half of 2006. In the second half last year the impact of non-recurrent items was negative. Therefore the comparison of earnings centres on the figures before non-recurrent items.

In the second quarter of 2007 the business volumes and earnings of the BBVA Group maintained their high cruising speed. Strong marketing at all units resulted in higher volumes of business and sharp growth in recurrent revenues. This further improved the cost/income ratio and was the main driver of operating profit and net attributable profit.

The most relevant financial aspects of the Group’s performance and strategy in the second quarter and first half of 2007 are summarised below:

• The extraordinary general meeting of shareholders, held in Bilbao on 21st June, approved a capital increase by issuing 196 million new ordinary shares to be used for the acquisition of Compass Bancshares Inc. The operation has been authorised by the US Federal Reserve, by the State of Alabama and by the Bank of Spain. Furthermore on 8th August, Compass will hold its annual general meeting at which its board of directors will propose acceptance of BBVA’s offer.
• The BBVA Group announced a strategic innovation and transformation plan. Under the slogan “Something new every day” it plans to create value through innovation, distinguishing the Group from its competitors in all the markets in which it operates. The plan will finish in 2010 and the main goals are expansion of the customer base and improvements in productivity and efficiency.
• China CITIC Bank (CNCB) has been listed on the stock exchange at a price higher than the cost of BBVA’s 4.83% holding. At the end of June, the Group enjoys capital gains of €400 million in its investments in CITIC Group.
• BBVA will own a new corporate headquarters in Madrid. From 2010 onwards it will house 6,500 employees who are presently dispersed in ten separate buildings, improving efficiency. The project entails the sale of four buildings owned by BBVA and the second quarter profit and loss account includes €235m capital gains.
• The quarter’s accounts contain a €200m charge for the promised contributions to the BBVA Microcredit Foundation. Its goal is to promote accesses to credit to the under-developed communities of Latin America.
• The net effect of the non-recurrent items mentioned in the last two points is additional net attributable profit of €54m in the second quarter of 2007. This complements €696m of capital gains from Iberdrola obtained in the first quarter. Furthermore in the second quarter of 2006 capital gains from the sale of holdings in Repsol, BNL and Andorra contributed €1,157m of net attributable profit after tax. The remarks below exclude these one-time operations unless otherwise stated because that provides a better picture of the Group's underlying performance.
• Despite BBVA's active management of structural exchange-rate risk, the effect of variations in exchange rates in the Americas against the euro was negative. However, their impact was less than the first quarter (as foreseen in the previous quarterly report).
• Net attributable profit in the second quarter of 2007 came to €1,369m (excluding non-recurrent items), rising 18.1% over last year’s figure of €1,159m for the same period. The increase would be 20.0% at constant exchange rates. This result is supported by operating profit, which grew 19.2% to €2,522m (up 21.7% at constant rates).
• It should be noted that in the second quarter of 2007 all the main margins and the profit figures on the income statement set new all-time records.
• As a result net attributable profit for the first half came to €2,624m, an increase of 20.4% over last year’s €2,179m for the same period (up 25.0% at constant exchange rates). Earnings per share came to €0.74, a rise of 14.9% compared to €0.64 for the first half of 2006, and ROE stands at 31.5% (lower than the 35.8% in the same period of last year due to the November capital increase). Including non-recurrent items, net attributable profit is €3,374m, earnings per share are €0.95 and ROE is 36.0%.
• The increase in net profit is the result of solid operating profit. In the year to June it grew 20.2% to €4,872m (up 25.1% at constant exchange rates). The impact of items on the lower part of the income statement was negligible.
• Operating profit was supported, in turn, by the growth of recurrent income. Net interest income was up 13.9% (thanks to higher volume and to widening spreads). Net fee income and insurance income rose 7.4% and ordinary revenues increased 13.8%.
• Operating expenses including depreciation grew more slowly, at 7.4%, and therefore the cost/income ratio improved to 41.6% (44.3% in the first half last year). This ratio improved in all business areas.
• The quality of BBVA’s loan portfolio remains high. The non-performing loan ratio stands at 0.86%, compared to 0.82% at the same point last year. The slight rise is due to the greater weight of consumer finance, credit cards and SMEs because this type of lending is more profitable but more susceptible to default. The coverage ratio remains high, at 253.8%. At 30-Jun-07 total coverage funds amount to €7,407m, of which €5,310m are generic provisions (€4,305m a year earlier).
• The Group’s capital base continues to reflect the high level of capital adequacy. Core capital stands at 6.2% (6.2% at 31-Mar-07 and 6.0% at 30-Jun-06), Tier I capital is 7.8% and the BIS ratio is 11.8%.
• On 10th July a first interim dividend of €0.152 per share was paid against 2007 results. This is an increase of 15.2% compared to the first interim dividend paid in 2006.
• In the Spain and Portugal Area lending rose 15.5% and customer funds increased 7.1%. Helped by the improvement in spreads, net interest income increased 13.7%. Other revenues also performed well, the recent innovative products in particular (insurance, derivatives, etc), and expenses remained under control (up 2.1%). This led to a new improvement in the cost/income ratio and operating profit rose 20.6%. Net attributable profit rose 28.3% to €1,172m.
• Earnings in the Global Businesses Area were also based on strong revenues. The figure that best reflects this area’s performance is ordinary revenues, which increased 28.6% year-on-year (with high growth in lending and customer funds). Operating profit rose 31.2%. Net attributable profit came to €451m (up only 5.7% year-on-year due to sale of equity holdings in 2006).
• In the Mexico and USA Area, the dominant factor was net interest income. At constant exchange rates, this grew 29.8%, helped by increases in lending and customer funds (up 39.5% and 21.9%, respectively, in local currencies). The improvement in customer spreads also contributed. After adding other income, ordinary revenues rose 24.2%, outpacing the rise in expenses, and thus the cost/income ratio improved and operating profit increased 26.5%. This offset higher provisions linked to the increase in lending and net attributable profit thus came to €949m for the first half (up 25.0% at constant exchange rates).
• In the South America Area, business grew faster (loans were up 35.2% and customer funds increased 23.1% in local currencies). This helped net interest income to rise 28.3% at constant rates. Aided by net fee and insurance income (up 16.3%), it pushed operating profit up 25.7% and net attributable profit grew 22.7% to €326m.