Financial Report 2008 BBVA Group Highlights (Consolidated figures) Excluding results of one-off operations (1) 31-12-08 31-12-07 31-12-06 31-12-08 31-12-07 31-12-06 BALANCE SHEET (million euros) Total assets 542,650 8.2 501,726 411,663 Total lending (gross) 342,671 7.0 320,294 264,720 Customer funds on balance sheet 376,380 11.5 337,518 286,828 Other customer funds 119,017 (21.1) 150,777 142,064 Total customer funds 495,397 1.5 488,295 428,892 Total equity 26,705 (4.4) 27,943 22,318 Shareholders' funds 26,586 7.2 24,811 18,209 INCOME STATEMENT (million euros) Net interest income 11,686 21.4 9,628 8,138 11,686 21.4 9,628 8,138 Gross income 18,978 9.9 17,271 15,143 18,978 9.9 17,271 15,143 Operating income 10,523 11.5 9,441 8,340 10,523 9.1 9,641 8,340 Net operating income 6,151 (15.8) 7,303 5,545 7,442 (2.1) 7,603 6,322 Income before tax 6,926 (18.5) 8,495 7,030 7,490 (2.4) 7,675 6,533 Net attributable profit 5,020 (18.1) 6,126 4,736 5,414 0.2 5,403 4,580 DATA PER SHARE AND SHARE PERFORMANCE RATIOS Share price (euros) 8.66 (48.3) 16.76 18.24 Market capitalisation (million euros) 32,457 (48.3) 62,816 64,788 Net attributable profit per share (euros) 1.35 (20.5) 1.70 1.39 1.46 (2.8) 1.50 1.35 Dividend per share (euros) 0.61 (16.2) 0.73 0.64 Book value per share (euros) 7.09 7.2 6.62 5.13 P/BV (Price/book value; times) 1.2 2.5 3.6 PER (Price/earnings ratio; times) 6.5 10.3 13.7 Yield (Dividend/Price; %) 7.1 4.4 3.5 SIGNIFICANT RATIOS (%) Operating income/Average total assets 2.03 2.05 2.11 2.03 2.09 2.11 ROE (Net attributable profit/Average equity) 21.5 34.2 37.6 23.2 30.2 36.4 ROA (Net income/Average total assets) 1.04 1.39 1.26 1.12 1.23 1.22 Efficiency ratio 40.9 42.0 41.8 40.9 40.8 41.8 Efficiency ratio including depreciation and amortization 44.6 45.3 44.9 44.6 44.2 44.9 NPA ratio 2.12 0.89 0.83 NPA coverage ratio 91 225 273 CAPITAL ADEQUACY RATIOS (BIS II Regulation) (%) Total 12.2 13.0 Core capital 6.2 5.8 Tier I 7.9 7.3 OTHER INFORMATION Number of shares (millions) 3,748 3,748 3,552 Number of shareholders 903,897 889,734 864,226 Number of employees 108,972 111,913 98,553 • Spain 29,070 31,106 30,582 • The Americas 77,928 78,805 66,146 • Rest of the world 1,974 2,002 1,825 Number of branches 7,787 8,028 7,499 • Spain 3,375 3,595 3,635 • The Americas 4,267 4,291 3,742 • Rest of the world 145 142 122 General note: the consolidated accounts of the Bank and the subsidiaries comprising the BBVA Group have been drawn up according to the International Financial Reporting Standards adopted by the European Union and in conformity with Bank of Spain Circular 4/2004, together with the changes introduced therein by Bank of Spain Circular 6/2008. They may not therefore coincide with some of those published in the Quarterly Earnings Report 2008. (1) In 2008, capital gains from Bradesco in the first quarter, provisions for non-recurrent early retirements in the second and fourth quarters and provision for the loss originated by the Madoff fraud in the fourth quarter. In 2007, capital gains from Iberdrola in the first quarter, the endowment for the BBVA Microfinance Foundation in the second quarter, capital gains on the sale of buildings in the second and third quarters and non-recurrent early retirement charges in the fourth quarter. “BBVA has continued to make a difference in 2008. We have a winning business model” FRANCISCO GONZÁLEZ, CHAIRMAN AND CEO Contents FINANCIAL REPORT 2008 2 LETTER FROM THE CHAIRMAN 6 CONTINUING TO MAKE A DIFFERENCE 18 GROUP FINANCIAL INFORMATION 23 Earnings 35 Balance sheet and business activity 43 Capital base 46 The BBVA share 50 RISK MANAGEMENT 82 BUSINESS AREAS 86 Spain and Portugal 99 Wholesale Banking & Asset Management 109 Mexico 117 The United States 123 South America 134 Corporate Activities 138 OTHER AREAS AND ACTIVITIES 148 THE CORPORATE GOVERNANCE SYSTEM 168 CORPORATE RESPONSIBILITY 172 SUPPLEMENTARY INFORMATION LETTER FROM THE CHAIRMAN Financial Report 2008 Letter from the Chairman 2 LETTER FROM THE CHAIRMAN Financial Report 2008 Dear Shareholder 2008 will be remembered as the year with the most unpleasant surprises in many decades for the “In 2009, world’s economy and the financial sector in particular. There has been a profound and historic we shall continue reorganisation of the global banking map. Many competitors have disappeared, others have been to support our partially or fully nationalised, and the majority customers’ needs” have either required public funds or rights issues. Only a handful of groups have revealed their robustness and their ability to continue generating earnings for their shareholders. Amongst these few, BBVA has stood tall. Within such a challenging environment, one that is so extremely unfavourable, BBVA has continued along the path of sustained generation of earnings. In 2008, the Group recorded a net attributable profit without one-offs, that is, considering recurrent earnings, of ⇔5,414m, almost identical (+0.2%) to 2007. Including one-offs, profits amounted to ⇔5,020m, 18.1% down on 2007. Considering their quality and recurrence, these results are excellent in their own right, but even more so when compared to those of our competitors, which have recorded sharp downturns in their profits and even huge losses. Thus, BBVA has ended 2008 as one of the leading banks in Europe and the world in terms of profits. In the worst year for banking since the 1930s, BBVA has managed to uphold high rates of growth in income, strict cost control and outstanding management of both risk and capital. Consequently, BBVA has reinforced its leadership in the global industry in terms of efficiency and return on equity. In short, we have increased our advantage in those variables that measure the solvency, profitability and quality of a group’s management. It is thanks to this that in 2008 we have continued developing our project to build the BBVA of the future, making major inroads. We have successfully accomplished, in record time and with excellent results in synergies, the integration of our four banks in the United States under a single franchise, BBVA Compass. We have reinforced our alliance with CITIC, increasing our investments in CITIC International 3 LETTER FROM THE CHAIRMAN Financial Report 2008 Financial Holdings (Hong Kong), and in China CITIC Bank (Mainland China). Finally, we have made highly significant progress “We shall continue to in the Group’s Innovation and Transformation Plan, which is furnishing us with major improvements in operate with rigour, efficiency. Once again, therefore, BBVA is making the prudence and difference. This has been widely acknowledged by responsibility as we the market in three ways. Firstly, in a year of sharp falls on stock markets, strive to create value” the BBVA share in 2008 has recorded the best performance in its peer group, consisting of Europe’s major financial groups, in terms of total shareholder return (TSR). Over the course of 2008, furthermore, we have been climbing up the ranking of the world’s largest private banks in terms of market capitalisation. BBVA has jumped from 17th position at the onset of the crisis to 7th at year-end 2008. Finally, our good performance has also been acknowledged by credit rating agencies. We were the only major bank in the world to improve its rating in 2008. Moreover, all this has taken place against a backdrop of respect for our responsibilities and our pledges to the societies in which we operate, consistent with our vision “working towards a better future for people”, which reflects the way in which we understand the role our Group has to play in society. For BBVA, and within today’s environment of recession, it is particularly important to stand close to its customers, its families and its businesses, providing new lending. In 2008, our customer lending balance rose 7%. In 2009, we shall continue supporting our customers, just as we have always done. For without lending, there is no business, no profits and no bank. BBVA’s differential performance is not a matter of chance, but instead is driven by our business model, conscientiously built up over many years. It is a winning model, even in times of crisis. This model has its roots deeply embedded in our strategy that, as you are well aware and I have mentioned on other occasions, is based on three pillars: Principles, People and Innovation. These three pillars are crucial, but in times such as these I should like to stress the importance of our Principles. The most important lesson we shall learn LETTER FROM THE CHAIRMAN Financial Report 2008 from this crisis is likely to be that we should uphold the Annual General Meeting the payment of the these Principles in everything we do. final dividend for 2008 in shares (1 share for every In this Group, ethics, transparency and prudence 62), whereby the dividend will be brought in line inform all our actions and decisions, as we with the evolution of the Group’s net attributable understand this to be the only way to forge profit.