Banco Bilbao Viscaya Argentaria S.A. (BBVA)

BBVA 
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Banco Bilbao Vizcaya Argentaria SA (BBVA)

Q3 2012 Earnings Call

October 31, 2012 4:30 AM ET

Executives

Ángel Cano Fernández – President and COO

Tomas Blasco Sánchez – IR

Manolo Rodríguez – President and CEO

Presentation

Operator

(Foreign Language – Spanish) After which, we’ll have a Q&A with Manuel González Cid, who’s the group CFO. As always, any issues that can’t be covered during the webcast will be dealt with by the Investor Relations Team during the rest of today.

So, Ángel, you have the floor.

Ángel Cano Fernández

Good morning, everyone, and welcome to this presentation of the BBVA Group Third Quarter Results for 2012. I’d like to start by highlighting some of the progress made in Europe and in Spain over the last quarter. These are things that we can consider significant. Firstly and most importantly, the firm, unequivocal backing that the EU is giving to the euro.

With the announcement of the quantitative easing here in the EU, there’s been an important step forward, with a sound backing given to the financial markets with an unlimited buying of bonds from European institutions through the new mechanism setup in order to reinvent the situation here. A message has been put out that everything that’s necessary will be done in order to show that the euro is irreversible.

And this message later on was seconded by the main European leaders. The second thing that has happened has been the progress being made towards banking union with the backing of the European Central Bank and this union will be put in place during 2013. And then thirdly, the restructuring of the Spanish financial system, which is rolling out as established in the memorandum of understanding.

Looking at the results of the recent stress tests in Spain, we’ve seen two things. First of all, that we know how much capital is needed in the system, and this is well below the €100 billion that Europe is willing to offer for a financial bailout. And secondly, it’s been possible to establish the perimeter of the entities in the Spanish system that actually have problems.

Having said that, we can’t rest on our laurels or be complacent, because there’s a lot of work yet to do and a lot of challenges. So from now to the end of the year, all the restructuring of the financial system will have to go on as we implement and monitor the restructuring plans of all the entities that are receiving capital from the public sector. And with the ECB, the Bank of Spain and the Troika, decisions will have to be made regarding what’s going to be done with the real estate exposure of those entities that are using capital, public capital.

And in December, the European Council meeting will have to establish a schedule as Europe moves towards the banking and fiscal union. And then thirdly, given the express commitment that Europe has made to Greece and Greece has made to the euro, the Troika and the Greek authorities must reach an agreement in order to clear up any uncertainty regarding Greeks remaining in the Euro. It’s true that a lot of us would like to see things happening quicker, but nonetheless, we are definitely on the right track moving towards a stronger and more integrated Europe.

In this context, BBVA once again is presenting results which are very sound, very well balanced, which confirm, yet again this quarter, just how strong the group is. The earnings show that we’ve got integrated, well balanced management looking at the four basic drivers behind banking business; first of all, earnings, where once again, we’ve got good news.

Growth in our recurring revenues and in our net interest income, growth in the items that are vital to absorb the amount of provisions that we’ve set aside this quarter; again, above all, those that had to be set aside under the new royal decrees. And so, as we announced at the beginning of the year, we’ve already allocated two-thirds of the provisions required under these royal decrees.

Then with respect to risks, I think the hallmark of our business would be continuity, as we rein in the risk indicators, keep everything well under control and focusing on Spain, the performance of all our different portfolios is online with forecast, above all, with respect to exposure to SMEs and real estate. The liquidity position of the bank is very sound.

In four quarters, we’ve been able to raise €7 billion in new capital without having to sell off any strategic assets and being able to incorporate all the activity of Unnim this quarter straight away. So we are well-capitalized, even under the most adverse scenarios established in the latest stress test.

Finally, our capital adequacy is very sound as we’ve seen throughout the quarter, when we’ve been very active issuing on North American, European markets, and markets elsewhere, taking advantage of different windows of opportunity in those markets. As we shored up the key indicators, above all, on the euro balance sheet, where we closed the commercial balance – I’m sorry, the commercial gap by €10 billion. And so, we’ve got very sound financial fundamentals, especially if we look at what’s happening in the international banking industry.

So, when we’re talking about what’s happening, we have to start at the beginning with more than 10% growth in our net interest income, growing at 18.1% year-on-year or 16% year-to-date. In all the different geographical areas, this positive growth can be seen in the recurring gross income and in the total gross income. The recurring gross income, after we’ve taken out net trading income and dividends, has grown again quarter-on-quarter by nearly 16% and the recurring gross income in the first nine months of the year has grown 14%. This growth is very similar, if we look at total gross income as well for the group.

There are two important things here. First of all, with this tendency, by the end of the year, we think we’ll surpass €22 billion in total gross income and easily go beyond €20 billion in recurring gross income. This is the outcome of the excellent diversification we have. And we see then that with the buoyant economies in the emerging markets, which account for 57% of our gross income, this is obviously good for us, whilst what’s happening in Spain and in the U.S.A., it’s contributing slightly less, but it’s still growing.

And were also containing costs which are growing well below income. 2.9% of the drop is due to exchange rate differences, which have a positive impact on all the lines of revenues on the cost – on the P&L. And then another 2.1% or percentage points has to do with perimeter changes, with the incorporation of nine months of guarantee in Turkey. And this quarter we’ve already brought Unnim onto our books, which makes it possible for us to improve our cost income ratio so that we’re still one of the most efficient banks in our peer group.

Moving down from net interest to gross income, we come into the operating income, which has grown over 16% quarter-on-quarter and the – this is up 17.3% year-to-date, which means that all in all, we’re growing 16.1%, with a total level of €2.4 billion in this third quarter, which gives us over €12 billion for the end of the year.

And that’s probably the main reason why we feel very comfortable about being able to allocate all the provisions that we have to do, which – because we’ve already done a lot in the first nine months, where we have been able to allocate the provisions for our real estate exposure with over €6.5 billion, as you can see here on the screen.

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