financial statements 2012

6. Bases and methodology for business segment reporting

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

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

  • Capital base: Capital is allocated to each business based on capital at risk (CaR) criteria, which is in turn quantified based on an unexpected loss at a specific confidence level, according to the Group’s target solvency level.

The calculation of the CaR combines credit risk, market risk, structural risk associated with the balance sheet, equity positions, operational risk, fixed assets risks and technical risks in the case of insurance companies. Internal models were used that have been defined following the guidelines and requirements established under the Basel II Capital Accord, with economic criteria prevailing over regulatory ones.

  • 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 business areas, 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.
Description of the BBVA Group’s business segments

In 2012, minor changes were made to the business segments in the BBVA Group with respect to the structure in place in 2011 and 2010, although they do not have any significant impact on the consolidated income statements or the information by business segments. Thus the composition of the business segments in 2012 is very similar to last year’s:

  • Spain: This one includes:
    • Retail Network, including the segments of individual customers, private banking, small companies and businesses in the domestic market.
    • Corporate and Business Banking (CBB), which manages the SME, companies and corporations, public institutions and developer segments in the country.
    • Corporate & Investment Banking (CIB), which includes the activity carried out with large corporations and multinational groups and the business of markets and distribution in Spain.
    • Other units, including BBVA Seguros and Asset Management (AM), which manages Spanish mutual funds and pension funds.
  • Eurasia: This one includes the activity in the rest of Europe and Asia. For these purposes, Europe is composed of Turkey (including the stake in Garanti), BBVA Portugal, Consumer Finance Italy and Portugal, the retail businesses of the branches in Paris, London and Brussels and wholesale activity carried out in the region (except Spain). Asia includes all the wholesale and retail businesses carried out on the continent and the stake in CNCB and CIFH.
  • Mexico: Includes the banking, pensions and insurance businesses in the country.
  • United States: Includes the BBVA Group’s business in the United States.
  • South America: Includes the banking, pensions and insurance businesses in South America.

Finally, the aggregate of Corporate Activities segment includes the rest of items that are not allocated to the business areas, as in previous years. These basically include the costs of the head offices with a strictly corporate function, certain allocations to provisions such as early retirement, and others also of a corporate nature. Corporate Activities also performs financial management functions for the Group as a whole, essentially management of asset and liability positions for interest rates in the euro-denominated balance sheet and for exchange rates, as well as liquidity and capital management functions. The management of asset and liability interest-rate risk in currencies other than the euro is registered in the corresponding business areas. Finally, it includes certain portfolios and assets, with their corresponding earnings or costs, whose management is not linked to relations with customers, such as Holdings in Industrial & Financial Companies and the Group’s real-estate assets in Spain, corresponding to holding services, resulting from purchases, or received as payment of debt.

The breakdown of the BBVA Group’s total assets by business segments as of December 31, 2012, 2011 and 2010 is as follows:

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Millions of Euros
2012 2011 2010
Spain 317,151 311,987 299,186
Eurasia 48,282 53,354 45,980
Mexico 82,432 72,488 73,321
South America 78,419 63,444 51,671
The United States 53,850 57,207 59,173
Subtotal Assets by Business Areas 580,134 558,480 529,331
Corporate Activities 57,652 39,208 23,407
Total Assets BBVA Group 637,786 597,688 552,738

The net income and main earning figures in the consolidated income statements for 2012, 2011 and 2010 by business segments are as follows:

Millions of Euros
BBVA Group Business Areas Corporate Activities
Spain Eurasia Mexico South America United States

Net interest income 15,122 4,836 847 4,164 4,291 1,682 (697)
Gross income 22,441 6,784 2,210 5,758 5,363 2,395 (69)
Net operating income (*) 11,655 3,967 1,432 3,586 3,035 812 (1,176)
Income before tax 1,659 (1,841) 1,054 2,225 2,240 667 (2,686)
Net income 1,676 (1,267) 950 1,821 1,347 475 (1,649)

Net interest income 13,152 4,391 802 3,776 3,161 1,635 (614)
Gross income 20,028 6,328 1,961 5,321 4,101 2,324 (8)
Net operating income (*) 10,290 3,541 1,313 3,385 2,208 827 (984)
Income before tax 3,446 1,897 1,176 2,146 1,671 (1,020) (2,425)
Net income 3,004 1,352 1,031 1,711 1,007 (691) (1,405)

Net interest income 13,316 4,898 333 3,648 2,494 1,825 117
Gross income 20,333 7,072 1,060 5,278 3,402 2,583 939
Net operating income (*) 11,572 4,211 769 3,452 1,877 1,061 202
Income before tax 6,059 3,127 660 2,137 1,424 336 (1,625)
Net income 4,606 2,210 575 1,683 889 260 (1,011)
(*) Gross Income less Administrative Cost and Amortization

The accompanying Management Report (see Chapter 5) presents the income statement in more detail, as well as the main figures in the balance sheet by business segment, and also indicates the capital assigned and the basic ratios for 2012.