Dear friend,
“BBVA is once again in a leading position among its peers in terms of profitability and efficiency”
From a macroeconomic standpoint, 2011 was again a mixed and complex year. Growth in the different regions around the world was uneven and the year was marked by the sovereign debt crisis in Europe.
The global gross domestic product in 2011 increased by 3.9%, boosted by the strength of emerging economies, where BBVA generated 65% of its recurrent net attributable profit. These economies posted an overall sound growth rate of 6.4%. Specifically, the GDP grew by 8.5% in Turkey, 7.4% in Asia (excluding Japan), 6.6% in the main South American countries in which BBVA operates and 3.9% in Mexico. The United States grew by only 1.7% and the European Union by 1.5%, with the EU’s growth expectations for 2012 declining as the year advanced.
Europe’s sovereign debt crisis had very significant implications, not only due to the difficulties it created for corporations and governments regarding the access to markets, but also because of the debate it generated about the viability of the euro zone and its impact on growth expectations for the world economy.
However, we did see some positive changes in Europe in 2011. First, the adoption of important agreements to strengthen fiscal discipline was reached. Second, countries that went through the biggest difficulties now have new governments. The new administrations are committed to fiscal adjustment and prepared to implement the structural reforms required to ensure future growth.
The European Central Bank´s recent actions to inject long-term liquidity into the system have so far helped reduce risk premiums and have contributed to greater stability in the financial markets.
At the same time, the European financial sector is tackling a deleveraging process - which was necessary for several reasons - in response to the new capital recommendations from the European Banking Authority (EBA).
Against this difficult background, BBVA once more demonstrated its capacity to generate recurrent earnings under any scenario and presented a recurrent net attributable profit of €4,015m in 2011, a 12.8% decline versus net attributable profit in 2010. Including the goodwill impairment in relation to our operation in the United States, BBVA’s net attributable profit amounted to €3,004m.
In terms of revenues, our diversified position both by business and regions combined with superior management, are behind the growth in net interest income and gross income throughout the year. Overall, revenues exceeded €20,000m for the third year in a row.
Expenses increased by 11% as a result of our strategy of anticipating the new growth cycle. Most of the increase can be explained by the impact of acquisitions in Turkey, Uruguay and Chile, our investment in technology and because of our growth plans in people and branches.
All included, BBVA is once again in a leading position among its peers in terms of profitability and efficiency, with return on equity (ROE) at 10.6%, return on assets (ROA) at 0.8% and an efficiency ratio of 48.4%.
Another important milestone in 2011 was BBVA’s excellent management of other aspects greatly affected by the crisis: capital, risk and funding.
“As of December 31, 2011, BBVA had practically achieved the European Banking Authority’s new capital recommendations without receiving any public aid and without altering its dividend policy or selling strategic assets”
BBVA ended 2011 with a capital ratio of 10.3%, calculated according to current regulations. Thus, as of December 31, 2011 it had practically achieved the European Banking Authority’s new capital recommendations. Of the €6,300m capital buffer requirement estimated by the EBA for June 2012, BBVA generated €5,300m in the last quarter of 2011, without receiving any public aid, and without altering its dividend policy or selling strategic assets.
Risk indicators remained stable for the eighth quarter in a row. The Group’s NPA ratio improved to 4% at the close of 2011 and its coverage ratio stood above 60%, while the risk premium fell again to 1.2%.
Thanks to BBVA´s soundness and capacity to generate earnings, the new provisions derived from the Spanish Royal Decree on the financial sector restructuring will be comfortably absorbed in 2012. We estimate their net final impact on our income statement will be around €1.4 billion.
Funding and liquidity were two other key factors in 2011, as the turbulence on the financial markets affected many banks. Nevertheless, and despite the rating downgrades of Spanish sovereign debt, BBVA maintained its access to the markets and ended the year in a comfortable position for 2012.
BBVA also continued to expand in 2011. We completed our investment in Turkey and we are already working closely with Garanti Bank. We also concluded the acquisition of Crédit Uruguay and are now the second biggest bank in Uruguay. Additionally, our stake in Forum was increased to 75.5% thus strengthening our position in Chile´s leading vehicle financing company.
Likewise, important steps were taken in the construction of BBVA’s new technological platform in Spain, the United States and for the wholesale business. We also inaugurated a new Data Processing Center in Madrid, which has the highest security specifications, as well as a technology-focused office in San Francisco. In addition, BBVA already has several innovation centers in Mexico, Houston and Madrid.
To sum up, in 2011 BBVA once more demonstrated an outstanding capacity to generate earnings that are both recurrent and sustainable, thanks to a strategy based on diversification, prudent risk management and a proactive vision of technology and innovation.
Accordingly, the Board of Directors will submit a total remuneration proposal of €0.42 per share to the Annual General Meeting, the same amount as in 2010. In 2012 we expect to maintain a payment scheme that combines dividends in cash with the “dividend option” in shares.
“At BBVA we are ‘working for a better future for people’, and our banking activity follows the principles of integrity, prudence and transparency, based on good practices and with a long-term approach”
In 2011 there was intense public debate about the behavior of the banking industry and financial activity in society. At BBVA we are “working for a better future for people” and our banking activity follows the principles of integrity, prudence and transparency, based on good practices and with a long-term approach. This is how value generation can be shared with society.
As part of the ongoing process of integrating corporate responsibility into all our activities, in 2011, the Group’s Management Committee was entrusted with the functions of supervising and monitoring corporate responsibility policies and plans.
At the same time, we have reaffirmed our commitment to the United Nations Global Compact, in particular to the Millennium Development Goals, as part of our ongoing efforts to integrate corporate responsibility information, which is included in the Annual Report this year.
BBVA Microfinance Foundation continued to expand its activity in 2011. It granted microcredits for an average amount of €1,052 to nearly a million people in Latin America, a 53% increase from the previous year. Over 60% of the beneficiaries are women, and 43% are people on an income of less than 10 dollars per day.
In our commitment to financial literacy, we have already reached 1.3 million beneficiaries through programs in Spain, Latin America and the United States.
In 2011, we also launched the Momentum Project, a new initiative for social entrepreneurs in Spain, helping them to grow through training, mentoring and access to funding sources.
At the BBVA Foundation we continue to be committed to knowledge and innovation, rewarding and supporting projects that improve the well-being of societies in which BBVA develops its business activity.
On top of existing agreements and awards, some with immense importance such as the Frontiers of Knowledge Awards (in their third edition in 2011), new lines of action are also being developed. Among these I would like to highlight the BBVA Foundation program to boost collaboration between the Massachusetts General Hospital Cancer Center and the Vall d’Hebron Hospital on research into tumor biomarkers, a key element in cancer research.
2012 will once again be a year of challenges. We expect high growth rates in emerging markets and a steady economic recovery in the United States. In Europe, although there are positive signs on the horizon, we cannot let our guards down. The affected countries, such as Spain, must reinforce their commitment to austerity and to structural reforms that can ensure a return to a path of sustainable growth and job creation.
“I am sure that BBVA will perform outstandingly in 2012, thanks to the more than 100,000 men and women who work in the Group across the world, making it a different kind of Bank”
I am sure that BBVA will perform outstandingly in 2012, thanks to the more than 100,000 men and women who work in the Group across the world, making of it a different kind of Bank. I want to take this opportunity to thank them and encourage them to continue working with the same enthusiasm and dedication they have always shown.
I want to end by thanking all our shareholders for the support and trust they have offered us and tell them that, in these difficult times, they are our motivation to continue working with the greatest possible enthusiasm and effort to construct the best universal bank in the world.
March 2, 2012
Francisco González Rodríguez
