financial statements 2012

8. Liquidity and finance prospects

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Liquidity and finance management of the BBVA Group’s balance sheet helps to fund the recurrent growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of finance. A core principle in the BBVA Group’s liquidity and finance management is the financial independence of its banking subsidiaries. This aims to ensure that the cost of liquidity is correctly reflected in price formation and that there is sustainable growth in the lending business.

Short-term and long-term wholesale financial markets have been affected by heightened uncertainty in 2012, showing mixed performance. Performance was positive in the first quarter of the year as a result of the exceptional actions taken by the ECB (European Central Bank) with two long-term liquidity auctions, and due to improved risk perception in European countries. However, it has been less favorable from April to the summer months due to doubts regarding the viability of the Spanish economy and the rating downgrades of sovereign debt and financial institutions. Finally, since the end of August and as a result of new actions by the ECB with the OMTs, long-term financial markets have performed better, enabling front-rank banks like BBVA to continue accessing the markets offering both senior debt and mortgage-covered bonds. Short-term markets have been affected by the lack of investor appetite as a result of the rating downgrades, which has only improved somewhat in the last quarter of 2012.

In this context, BBVA has been one of the few banks which have enjoyed market access, as shown by the issues successfully carried out in 2012. During the first quarter, BBVA operated very much on a business as usual basis, issuing senior debt of €2 billion. During the last quarter, the Bank has also operated on the European and US markets, with senior issues of €2.5 billion and USD 2 billion, respectively. Taking advantage of the improvement seen at the end of the year, €2 billion in 5-year mortgage-covered bonds have also been issued. In this environment marked by the contribution of liquidity to the balance sheet and normality in wholesale issues, BBVA has continued to maintain an excess of liquidity over the last months of the year, which will enable it to reduce the funds taken from the ECB by up to 50%.

To sum up, the BBVA Group’s proactive policy in its liquidity management, its retail business model with a significant contribution of liquidity in 2012, and its smaller volume of assets, all give it a comparative advantage compared to its European peers. Moreover, the continued positive proportion of retail deposits on the liability side of the balance sheet in all geographical areas continues to enable the Group to improve its liquidity position, while strengthening its financing structure.

The following is a breakdown of maturities of wholesale issues by the nature of the issues:

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Maturity of wholesale issues Millones de Euros
2013 2014 2015 Posterior a 2015 Total
Senior debt 7,104 4,737 5,475 1,957 19,273
Mortgage-covered bonds 7,550 6,843 4,244 19,904 38,541
Public covered bonds 2,355 1,300 - 1,151 4,806
Regulatory equity instruments (*) 1,238 - 148 3,940 5,326
Other long term financial instruments 67 2 1 877 947
Total 18,314 12,882 9,868 27,829 68,893
(*) Regulatory equity instruments are classified in this table for terms according to their contractual maturity

In addition, within the framework of the policy implemented in recent years to strengthen its net worth position, the BBVA Group will at all times adopt the decisions it deems advisable to maintain a high degree of capital solvency. Specifically, the AGMs held on March 11, 2011 and March 16, 2012 authorized the issue of fixed-income securities and convertible bonds, as detailed in Note 27 to the accompanying consolidated financial statements.