financial statements 2013

6. Operating segment reporting

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Business operating segment reporting represents a basic tool in the oversight and management of the BBVA Group’s various activities. The BBVA Group compiles reporting information on as disaggregated level as possible, and all data relating to the businesses these units manage is recognized in full. These minimum level units are then aggregated in accordance with the organizational structure determined by the BBVA Group management into higher level units and, ultimately, the reporting segments themselves. Similarly, all the entities that make up the BBVA Group are also assigned to the different operating segments according to the geographical areas where they carry out their activity.

Once the composition of each of the operating segments in the BBVA Group has been defined, certain management criteria are applied, noteworthy among which are the following:

  • Internal transfer prices: The calculation of the net interest income of each business is performed by applying the internal transfer rates to both the asset and liability entries. These rates are composed of a market rate that depends on the revision period of the operation, and a liquidity premium that aims to reflect the conditions and outlook of the financial markets. Earnings are distributed across revenue-generating and distribution units (e.g., in asset management products) at market prices.
  • Allocation of operating expenses: Both direct and indirect expenses are allocated to the operating segments, except for those items for which there is no clearly defined or close link with the businesses, as they represent corporate or institutional expenses incurred on behalf of the Group as a whole.
  • Cross-selling: On certain occasions, adjustments are made to eliminate overlap accounted for in the results of two or more units as a result of encouraging cross-selling between businesses.

During 2013, progress was made in the structure of reporting by geography within the different business segments of the BBVA Group. In particular, Spain includes those portfolios, funding and structural positions of the Euro balance sheet that are managed by COAP, which were previously included in Corporate Activities. Additionally, given the peculiarity of its management, assets and income statement information related to the Spanish real estate business are presented separately, both in the case of real estate developers and foreclosed assets, previously included in Corporate Activities. As a result, the composition of the operating segments in 2013 is different from that presented in 2012, and is now as follows:

  • Banking activity in Spain (from now on, Spain) which as in previous years includes).
    • The Retail network, with the segments of individual customers, private banking, and small businesses
    • Corporate and Business Banking (CBB), which handles the SMEs, corporations and public sector in the country.
    • Corporate & Investment Banking (CIB), which includes business with large corporations and multinational groups and the trading floor and distribution business in the same geographical area
    • Other units, among them BBVA Seguros and Asset Management (management of mutual and pension funds in Spain
    • In addition, starting in 2013 it also includes the portfolios, finance and structural interest-rate positions of the euro balance sheet.
  • Real estate activity in Spain

This new operating segment has been set up with the aim of providing specialized and structured management of the assets of the real-estate area accumulated by the Group as a result of the crisis in Spain. It therefore mainly combines loans to real-estate developers (previously reported in Spain) and foreclosed real estate assets (previously reported in Corporate Activities).

  • Eurasia

As in 2012 includes the business carried out in the rest of Europe and Asia, i.e. the retail and wholesale businesses of the BBVA Group in the area. It also includes BBVA’s stakes in the Turkish bank Garanti and the Chinese banks CNCB and CIFH.

  • Mexico

Comprising of the banking and insurance businesses. The banking business includes retail business through its Commercial Banking, Consumer Finance and Corporate and Institutional Banking units; and wholesale banking through CIB.

  • The United States

Encompasses the Group’s businesses in the United States. Historical data in this area has been reconstructed to exclude the business in Puerto Rico, which was sold in December 2012, and include it in the Corporate Center.

  • South America

Includes the banking and insurance businesses that BBVA carries out in the region.

In addition to the above, all the areas include a remainder made up of other businesses and of a supplement that includes deletions and allocations not assigned to the units making up the above areas.

Finally, Corporate Center is an aggregate that contains the remainder of the items that have not been allocated to the operating segments, as it basically corresponds to the Group’s holding function. It groups together the costs of the headquarters that have a corporate function; management of structural exchange-rate positions, carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Group’s global solvency; portfolios and their corresponding results, whose management is not linked to customer relations, such as industrial holdings; certain tax assets and liabilities; funds due to commitments with pensioners; goodwill and other intangibles. Additionally includes the result of certain corporate transactions:

  • The sale of pension business of Mexico, Colombia, Peru and Chile.
  • The sale of BBVA Panama.
  • The signing of a new agreement with the CITIC Group, which includes the sale of 5.1% of CNBC.
  • And BBVA Puerto Rico until its sale in December 2012.

The figures corresponding to 2012 and 2011 have been restated in accordance with the same criteria and the same structure of operating segments as explained above and also in Note 3 (sale of pensions business in Latin America). This will allow for homogeneous year-on-year comparisons.

The breakdown of the BBVA Group’s total assets by operating segments as of December 31, 2013, 2012 and 2011, is as follows:

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Total Assets by Operating Segments Millions of Euros

2013 2012 2011
Spain 315,561 345,362 323,249
Real Estate 20,563 21,923 22,558
Eurasia 41,223 48,324 53,439
Mexico 82,171 81,723 72,156
South America 78,141 77,474 62,651
United States 53,042 53,892 53,090
Subtotal Assets by Operating Segments 590,700 628,698 587,143
Corporate Center and other adjustments (*) (8,125) (7,625) (4,305)
Total Assets BBVA Group 582,575 621,072 582,838
(*) Includes adjustments due to Garanti Group accounted for using the equity method (See Note 2) and other inter-areas adjustments (see Management Report).

The profit and main earning figures in the consolidated income statements for the year ended December 31, 2013, 2012 and 2011 by operating segments are as follows:

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Main Margins and Profits by Operating Segments Millions of Euros
Operating Segments Corporate
Adjustments (**)
Spain Real
Eurasia Mexico South


Net interest income 13,900 3,830 (3) 911 4,484 4,703 1,407 (719) (713)
Gross income 20,958 6,095 (38) 1,721 6,201 5,630 2,101 (314) (439)
Net operating income (*) 10,162 3,081 (190) 987 3,865 3,244 627 (1,419) (34)
Operating profit /(loss) before tax 1,160 222 (1,840) 593 2,362 2,387 534 (1,507) (1,590)
Profit 2,228 583 (1,254) 454 1,805 1,249 390 (999)

Net interest income 14,474 4,748 (20) 851 4,178 4,288 1,551 (473) (648)
Gross income 21,824 6,665 (84) 1,665 5,756 5,360 2,243 288 (68)
Net operating income (*) 11,450 3,778 (211) 886 3,590 3,066 737 (741) 344
Operating profit /(loss) before tax 1,582 1,652 (5,705) 508 2,229 2,271 619 (826) 833
Profit 1,676 1,162 (4,044) 404 1,689 1,199 443 823

Net interest income 12,724 4,248 104 806 3,782 3,159 1,518 (465) (428)
Gross income 19,640 6,246 124 1,467 5,323 4,099 2,182 88 112
Net operating income (*) 10,196 3,408 23 821 3,392 2,215 762 (830) 405
Operating profit /(loss) before tax 3,398 1,515 (1,216) 722 2,153 1,677 (1,053) (852) 452
Profit 3,004 1,075 (809) 563 1,638 898 (713) 351
(*) Gross Income less Administrative Cost and Amortization (**) Includes adjustments due to Garanti Group accounted for using the equity method and other inter-areas adjustments. See Note 2

There is further information in the accompanying Management Report (see Chapter 5) regarding the income statements and the main values of the balance sheet by operating segments indicating also the capital assignment and the main ratios of the year 2013