Letter from the Chairman

“At BBVA we are working to anticipate future changes to the environment in which the financial sector operates. These include regulatory, economic and social changes”

Dear Shareholder:

2009 was another extraordinarily complex year, with the financial sector affected by a serious crisis and the world economy in recession.

The financial sector has continued to experience serious difficulties and governments and central banks have had to take decisive action to come to its assistance; governments, by providing capital and central banks, by moving interest rates down to their lowest ever levels and by massive injections of liquidity into the system. The depth of the crisis in the financial sector and the sector’s key role in the economy has led to a major debate worldwide among different authorities and governments on the need to modify its regulation and supervision.

Today we have a completely different financial system, with a radically new competitive map, made up of public, semi-public and private banks that will be controlled by more demanding regulations and keener supervision.

In this complex environment, only a few groups have demonstrated their ability to continue to generate recurrent earnings. Among them is BBVA, which has not needed any public aid, nor has it had to make capital increases leading to substantial equity dilution for its shareholders.

In 2009, the BBVA Group recorded a net attributable profit excluding one-offs, in other words considering recurrent earnings, of €5,260 million, only 2.8% down on the previous year. If we exclude the impact of foreign exchange rates, the figure would be 2.0% up on 2008. If we include one-off results, profits amounted to €4,210 million, 16.1% down on 2008.

These profits are based on an excellent operating result, with a spectacular rise in operating income of 17.0% (22.3% not taking into account exchange rate variations) to over €12,300 million. This positive performance is a result of improved income, with gross income increasing nearly 9%, and better operating costs, which fell 1.1%.

“We want to concentrate on the future and spend as little time as possible on the management of the crisis”

The combined effect of the positive performance of income and costs means that our cost/income ratio has improved considerably (by over 4 percentage points) and is currently at nearly 40%. This additional improvement is not so easy to achieve bearing in mind the level we were already at. It puts us once more into the leading position for this indicator among the major global banks.

The strength of our operating income has allowed us to anticipate and make extraordinary provisions that mean we can concentrate on the future and dedicate as little time as possible to crisis management. This loss provisioning has focused on very specific aspects: in the United States, the updating of goodwill and additional provisions in the commercial real estate portfolio to increase coverage; in Spain and Portugal, provisions related to the real estate business and consumer finance; and finally, a provision for early retirement linked to the Transformation Plan in our distribution networks.

Looking at 2009 from an overall perspective, we can say that we have closed the year as a better bank in all senses. Today we are an even sounder unit, with a core capital ratio of 8%, far higher than last year; a strengthened balance sheet, thanks to our effort in provisioning; more efficient; more diversified; and with stronger franchises. We have continued to grow significantly in South America; and we are continuing to develop our platform for growth in the United States, with the acquisition of the Guaranty business. We have reinforced our presence in Asia, where we have increased our holding in China Citic Bank and promoted a number of joint ventures with our Chinese partners.

The positive performance of our profits has allowed us to maintain our commitment to our shareholders to pay a cash dividend with a payout of 30% of the net attributable profit (excluding one-offs).

All these facts are ultimately reflected in our continued generation of value for shareholders which is far superior to our competitors. The total shareholder return (measured as the increased price of the shares plus dividend) was 53.7% in 2009, compared with 29.2% for our competitors as a whole.

In short, the BBVA Group has had an excellent year in what was without doubt the worst environment of recent decades. This has not been the result of chance; it is the product of our management ability and the strength of our business model.

The main features of this business model are:

  • The right corporate positioning in businesses and geographical areas. In businesses, we focus on those that are core for us and in which we are experts, with the retail business (which is very recurrent) being particularly important. In geographical areas, together with our leading position in Spain, Mexico and South America, we have an increasing presence in high-growth markets, such as the United States and Asia.
  • Prudent management of the balance sheet, based on stable financing sources (mainly customer deposits), a low level of leverage and total transparency in consolidating positions on the balance sheet.
  • Obsession with efficiency and continuous reduction of costs, which is key in an increasingly competitive environment.
  • A significant allocation of resources to technology, with particular emphasis on projects designed to transform the Bank.
  • And finally, a long-term vision that implies a relationship with the customers based on trust and mutual benefit. For this we have to have a culture of firm principles. This is one of the keys of our strategy and its importance has been demonstrated during the crisis.

“BBVA will once more be one step ahead of its competitors, and well on the way to becoming the best universal bank in the world”

But in addition to our achievements, at BBVA we are working to anticipate future changes in the environment in which the financial sector operates. These include regulatory, economic and social changes.

  • First, the Group is in a perfect position to face the coming changes that will be produced in terms of greater capital and liquidity demands, mitigation of procyclicality and reduction of systemic risk.
  • Second, BBVA is focusing on those regions with the greatest economic growth potential.
  • And finally, for some time now we have anticipated the social changes that will create the new scenario in which the sector will operate and speed up its conversion: new customer demands (a more personal service and more ethical behavior by the entities) and the great possibilities offered by technology to develop new concepts, ideas and business models.

To deal with this new environment, at BBVA we are moving towards a business model that is highly leveraged on technology and with a great management ability, developed by a team (people) of the highest level. These two levers will allow us to offer our customers (people) different solutions, with simpler, faster, broader and more accessible services through a new “physical-virtual” relationship model.

Together with the development of our normal banking activity, in 2009 we continued to make progress in our policy of Corporate Responsibility in order to provide a meaningful response to all our stakeholders. This response took shape in 2009 as the Global Financial Education Plan, El dinero en nuestras vidas (The Money in Our Lives), one of the biggest private financial education plans in the world.

The BBVA Group has had an excellent year in what has been an extraordinarily complex environment. Today we are clearly a better bank. And we have achieved this alone, without any aid. I would like to express my thanks to the more than one hundred thousand men and women who work at BBVA in all the corners of the globe. I want to thank them and encourage them to continue working with the effort and enthusiasm they have shown.

2010 will once more be a very difficult year. There is no doubt about it. But I also have no doubt that thanks to its ability to anticipate, BBVA will once more be one step ahead of its competitors, and well on the way to becoming the best universal bank in the world.

We are doing this for you, dear shareholders, whom I would like to thank for the trust and loyal support you have offered us again this year. This support is a source of pride and serves as a stimulus to continue acting with the same effort and dedication: to continue to work for the good of this great institution, your institution: BBVA.

March 1, 2010

Francisco González Rodríguez

Photography and autograph of Fransisco Gonzalez Rodriguez, CEO of BBVA