“BBVA’s principles of integrity, transparency and prudence set us apart and are a source of value for the societies where we operate”
Dear Shareholder:
2012 was marked once again by diverging forces behind the global economy’s growth. The emerging markets where BBVA operates posted strong growth, 6.5% overall, while the U.S. economy expanded 2.2% and GDP in Europe declined by 0.5%.
2012 has been an extremely difficult year due to the crisis in Europe and, particularly, in Spain. However, major progress has been made.
In Europe, those who one year ago predicted the end of the euro have been proven wrong. They underestimated the political will and the huge economic capacity of the European Union. Now we need to continue moving toward a greater economic and monetary union, and this can only be achieved through further integration.
In Spain, the intense adjustment and reform process undertaken is beginning to bear fruit. A turn for the better can be seen in the perception of our economy, which represents a window of opportunity. If Spain takes advantage of this opportunity, there could soon be an upward revision of our economy’s growth prospects.
But there is still a long way to go. Unemployment is Spain’s main drama. There are businesses and sectors that are already creating jobs, although not in a sufficient number to absorb the employment that is still being destroyed in the construction, financial and public administration sectors.
We must all join forces to reverse this situation. This is precisely what we are doing at BBVA, creating net employment in Spain during the 2010-2012 period and promoting programs as important as “Yo soy Empleo” (I’m Employment), a comprehensive plan to promote the creation of 10,000 new jobs in small and medium-sized enterprises and with the self-employed, which includes training initiatives and an employment intermediation service.
Major progress has also been made in the Spanish financial sector in 2012. The banks that created the problem in the first place have already been taken into government administration. Now, once they have been recapitalized, they need to be privatized as soon as possible.
Bad practices by some institutions have caused considerable damage to the sector’s image. But this crisis has also shown that not all banks are the same, and that BBVA’s principles of integrity, transparency and prudence set us apart and are a source of value for the societies where we operate. Throughout the crisis, BBVA has cost the State zero euros, and we have continued to grow, paying taxes and dividends, creating jobs and investing in social projects.
“Our principles, people and innovation, combined with a diversified business model and very sound fundamentals, place BBVA at the start of a new profit growth cycle in 2013”
BBVA’s earnings in 2012 show that our model, based on balanced diversification and differential management, works.
Gross income, i.e. the Group’s revenue, grew 12.1% in 2012, exceeding that of our peer group. 56% of the revenue was generated in emerging markets and 44% in developed economies. Looking toward the future, we are in a unique position as a result of our presence in regions that are leading global growth, such as Mexico, Turkey, South America and China.
As for expenses, as we have always done, we are prudent in their management, adapting their growth to the needs in each market. In 2012 they rose 10.8%, less than the 12.1% increase in revenue. Of this increase, 2.8% is related to the change in the perimeter, basically owing to the consolidation of Unnim, 3.0% to the exchange-rate effect, and 5.1% to growth in emerging markets, due to our investment and expansion plans. In contrast, in the more developed markets, expenses have been contained and fell by 0.1%.
As a result of the increase in revenue and proper cost control, BBVA maintains a position of leadership in efficiency, with a 48.1% ratio as of 31-Dec-2012, and generated very significant operating income of €11,655m, which is up 13.3% on 2011.
This operating income has enabled us to absorb in full the significant loan-loss and real-estate provisions for 2012, which amounted to €9,518m, without having to sell strategic assets, resort to one-off items or change our business strategy.
Thus, in 2012 the Group generated a net attributable profit of €1,676m in a very difficult environment. This figure highlights that BBVA has a well-balanced business model, with a high capacity for generating recurring revenue and future growth potential.
As regards to risks, they are under control and well hedged. As of December 31, 2012, the Group’s NPA ratio stood at 5.1% and the coverage ratio was up 11 percentage points during the year to 72%, which compares very favorably with our peers.
Liquidity has been no problem for BBVA in 2012, despite the moments of tension seen in the markets. We were able to issue nearly €14,000m and we reduced the liquidity gap by an additional €23,000m on the euro balance sheet, improving even further its structure. In 2013 we were the first to tap the market with several issues, one for 10-year covered bonds, the first one of its kind by a Spanish issuer since 2007.
As for solvency, in 2012 we generated 45 basis points of capital, complying with the new requirements, passing the stress tests, maintaining our dividend and without having to sell strategic assets.
In short, high-quality earnings, above our peer group, in a very difficult environment, and growing revenue that enabled us to comfortably absorb the loan-loss provisions, generate earnings and capital, and protect our dividends, while maintaining risks under control and improving our funding structure.
As you can see, very sound fundamentals which, combined with the improved prospects for Spain and the easing of the uncertainties surrounding the euro, are driving a gradual upward revision of the BBVA share-price targets.
All this is the result of a strategy based around three pillars, i.e. principles, people and innovation, on which the Group has been building its competitive advantage for a long time.
As for our principles of integrity, prudence and transparency, they translate into very specific commitments in terms of regulatory compliance, standards of conduct, responsible commercial practices and effective corporate governance.
People are the most important element because they determine how we carry out our business. At BBVA, we work for a better future for people. In 2012 we have carried out many actions in the social, scientific and cultural areas, including the “Integra Awards” and the “Frontiers of Knowledge Awards”, programs like “Momentum Project”, the Microfinance Foundation and the financial literacy programs in Latin America, the “Ruta Quetzal”, as well as other important initiatives, such as the aforementioned “Yo soy Empleo”, which we are implementing in 2013 and will have a significant social impact. Furthermore, those reassert our constant commitment to the United Nations Global Compact.
Innovation and technology are no doubt the key to the future of the financial sector. Technology is transforming the world. Being competitive in this new environment requires a great deal of transformation, combining the physical and digital worlds, transforming the distribution models and generating new contents, products and services. To do so it is essential to have modern, integrated, modular and flexible technological platforms in place. BBVA is one of the few banks that has embraced this all-around concept. We have one of the most advanced technological banking platforms in the world. It is already operating in Spain, and also in the United States.
Our principles, people and innovation, combined with a diversified business model and very sound fundamentals in terms of capital, risks and capacity to generate earnings, place BBVA at the start of a new profit growth cycle in 2013.
Lastly, I would like to thank the more than 115,000 BBVA employees for their effort, and I encourage them to continue working with the same dedication and enthusiasm that have turned BBVA into a different bank.
And to you, shareholders, thank you very much once again for your support. I assure you that the Group will continue to work hard to improve every day and build the best universal bank in the world.
March 1, 2013
Francisco González Rodríguez
