BBVA - Press Room

•  “The impact of the crisis on emerging markets economies is, and will continue to be, more limited thanks to their prudence and their solid financial systems”
• “New short and long term measures are needed with a key factor: it is crucial to ensure a level-playing field”
• "BBVA is one of the few institutions with the financial strength to remain  profitable in such a difficult environment; We ended 2008 as the number two bank worldwide in terms of profits thanks to a winning business model even in times of crisis”
• “The USA is a priority market and BBVA Compass will play a vital role in the BBVA of the future”

(Please find below an extract of the speech  by Mr Francisco González. Please note that it can include slight changes in the final version)

As most of you attended the economic sessions presented by our Research Department this morning, I would like to focus on the steps to stabilise the financial markets and to restore confidence in the international financial system.

This task is now more urgent than ever. All the world’s major economies are contracting and the indicators clearly show that this is not a typical recession. The pace of the economic storm has exceeded all forecasts and there are very limited signs of a turnaround.

The downturn in many countries is, in addition, synchronous, a feature that probably highlights how globalization has made our economies more interdependent.

Excess risk taking and huge leveraging primarily took place in developed countries. However, the tidal wave of financial strain and increased risk aversion that confronted the world after the Lehman Brothers´ collapse also rippled through emerging markets.

That said, the impact of the crisis on emerging market economies is, and will continue to be in my view, more limited. The reason is that these countries have been overall more prudent; the exception being some Eastern European countries.

Having learned from their own previous financial crises, they now have sounder financial systems and they did not engage in excessively risky activities. Their leverage ratios are not excessively high. These countries include most Latin American economies, Mexico in particular, and most Asian ones.

In developed countries, prompt action is needed to ensure financial markets return to normal. The situation is grim.

Corporate spreads are now wider than during the days of Lehman Brothers’ collapse. The same applies to banks’ credit-risk premiums. And the losses in stock markets are having a dramatic impact on household wealth.

Financial conditions remain very tense and the situation is still unstable because many market segments and institutions remain vulnerable. Therefore, the possibility of contagion spreading to healthy institutions and further impact on economic activity is still high.

The first stage is a pure financial one, characterized by liquidity problems and losses caused by re-pricing of assets. I believe there are still significant losses on some institutions’ balance sheets but this stage is about to finish.

The second stage has already started and will last for a few years. The economic recession will impact credit quality and default rates worldwide.
Finally, there will be an inescapable third stage in which the financial sector will be restructured. This will be the only way to adjust to the massive technological and social changes of recent decades and to reduce overcapacity in our industry. The banking system of the future will be more efficient. And it will use technology to serve an increasingly demanding customer base.

The financial system originated the crisis and it ought to make a significant contribution to recovery. We must also remember that the financial turbulence is affecting the wider economy.

New measures are needed and they should focus on both the long and the short terms with one important consideration in mind: it is crucial to ensure a level-playing field. Let me start with the long term; it may seem less pressing but it is probably the best scenario for crosschecking the initiatives.

Long-term measures must prevent the excesses that were prevalent in the financial system at the beginning of this crisis. Co-ordinated initiatives such as the supervisory and regulatory proposals for Europe by the De Larosière Group and measures suggested by the G-20 point in the right direction.

These initiatives are primarily aimed at making the financial system more resilient, thus preventing future crises.

Short-term measures must focus on overcoming the current situation and carry us towards the ultimate goals. Priority should be given to the liquidity and solvency problems facing financial entities.

Measures should not aim primarily at preventing bank failures but at achieving a stronger banking system by removing the parts that malfunction. I acknowledge that this task is daunting given the complexity and size of some of the financial institutions concerned. However, the stakes are so high that that there is a compelling need to adopt swift and radical solutions. This is the only way the cost to the taxpayer can be kept within acceptable limits.

An intervention model seems to me the best approach, whereby bank restructuring will be implemented in three distinct phases. The aim should be to turn the bank around as swiftly as possible, ideally looking at a timeframe of months rather than years.

First, when a bank shows critical weakness the authorities must put it under conservatorship. This would involve removing its management team and drastically reducing or writing off shareholders’ participation.

Second, a new management team would take charge of the bank. Its job would be to restructure the business, separating sound assets from toxic. Bad assets would be quarantined in specific publicly managed funds, to recover as much value as possible for the taxpayer.

Third, the cleaned-up bank would be re-privatised through a transparent sale to private agents.

We are seeing a massive reorganization of the global banking system. Compared to a year and a half ago, some top banks have disappeared, some have been partly or totally nationalized, and some are in a precarious situation. Only a few institutions have the financial strength to remain profitable in such a difficult environment.

I am proud to say that BBVA is one of these banks. In 2008 and despite the international financial crisis, the BBVA Group has continued to generate profits in a sustained manner (€5.4 billion in 2008) – unlike most of our competitors, who recorded sharp drops in profit and even losses. We ended the year as number two bank worldwide in terms of profit.

These results are not mere chance. They were generated by a business model built over several years. It is a winning business model, even in times of crisis, with strong foundations.

BBVA is a leading international and diversified financial group, working in 32 countries, with more than 48 million customers and over 108,000 employees (more than 70% of whom are outside Spain).

We have built strong banking franchises worldwide. We are leaders in Spain, Mexico and Latin America and have a growing presence in Asia. In America, we have a considerable footprint, particularly through BBVA Compass, which is one of the leading franchises in the Sunbelt.

Our strategy is based on three pillars: Principles, People and Innovation. All three are essential but I would like to highlight the importance of Principles. Surely, the most valuable lesson we can learn from the crisis is that we must always stand by our principles.

In BBVA ethics, transparency and prudence guide all our actions and decisions. We believe this is the only way to build long-term relationships with customers and shareholders, and to generate earnings in a sustainable fashion. Apart from Risk-adjusted Return we also adjust for profitability based on principles.

These three pillars support our sustainable business model, which combines our focus on retail banking and diversification with our proven abilities in the management of risk, capital, liquidity and cost. Thanks to this we have become one of the industry leaders in terms of profitability and efficiency.

I would now like to say a few words about BBVA in America. Any truly international company must have a presence in the USA, the world’s biggest economy.
For us it is a priority market. And we have grown rapidly here in a very short span.

We began our expansion in the Sunbelt in 2004. Since then, we have acquired a total of 5 banks, the last one being Compass in 2007. Today, BBVA Compass is the result of integrating these banks under one brand and adapting the BBVA banking model to American business practice. BBVA is now positioned among the top 20 banks nationwide.

Our Group has a long-term strategy in the US. There are excellent opportunities for us in this country and I am convinced that BBVA Compass will play (and is already playing) a vital role in the BBVA of the future, for the benefit of our shareholders, our employees and, especially, our customers.

I would like to finish by saying that BBVA never loses sight of the long term. We are transforming the Group in order to deliver maximum value in a new league that will consist of relatively few banks worldwide. And our operations here in America are a key part of this.