January-June 2013

Asset/Liability Management

The Assets and Liabilities Management unit is responsible for managing structural interest-rate and foreign-exchange positions, as well as the Group’s overall liquidity and shareholders’ funds.

Earnings from the management of liquidity and the structural interest-rate positions in each balance sheet are registered in the corresponding areas.

With respect to the management of exchange-rate risk of BBVA’s long-term investments, their earnings are included in the Corporate Center and explained in detail in the section on Risk Management, in the sub-section on “Structural Risks”.

The Bank’s capital management has a twofold aim: to maintain levels of capitalization appropriate to the business targets in all the countries in which it operates and, at the same time, to maximize return on shareholders’ funds through the efficient allocation of capital to the various units, good management of the balance sheet and proportionate use of the various instruments that comprise the Group’s equity: common stock, preferred shares and subordinated debt.

The highlights as regards capital management in the second quarter of 2013 are summarized below:

  • In April, BBVA paid the final dividend through the remuneration scheme known as the “Dividend Option”, which has enabled shareholders a wider range of remuneration alternatives for their shares. Owners of 85.7% of the free allotment rights opted to receive new BBVA ordinary shares. The number of BBVA ordinary shares issued in the free-of-charge capital increase was 83,393,714. This has resulted in capital savings of 16 basis points.
  • On June 30, the maturity date of the subordinated mandatory convertible bonds, BBVA carried out the mandatory conversion of the last tranche of the outstanding bonds. As a result, 192,083,232 new ordinary shares were issued (3.4% of the Group’s total number of shares). These bonds were issued in December 2011 as an exchange product of the preferred shares held by retail investors.
  • The Bank successfully completed an issue of contingent convertible securities into ordinary shares for a total of USD 1,500m, with final demand exceeding USD 9,000m. BBVA has thus become the first European issuer of the new generation of Tier I instruments that will be eligible as additional Tier I capital under Basel III and as core capital for the Bank of Spain.
  • Lastly, BBVA materialized the capital gains from the closing of the sale of its pension businesses in Colombia and Peru. This will have a very positive effect on the Group’s capital (14 basis points).

In conclusion, the current levels of capitalization enable the Bank to fulfill all of its capital objectives.