RELEVANT EVENTS

The financial information included in this report follows the criteria established by Circular 4/2002 of the Bank of Spain and the international financial reporting standards (IFRS) approved by the European Parliament. 

The 2004 numbers are shown using the same criteria and are therefore homogeneous. Nonetheless, the figures are un-audited and may change. 

The most relevant aspects of the BBVA group’s financial status and strategy in the first quarter are summarised below:

· As part of its strategy of profitable growth in recent years, BBVA launched a takeover bid for 100% of the share capital of Banca Nazionale del Lavoro. The Italian bank’s board of directors accepted the bid and Consob and the European Commission have authorised the operation. The main agencies (S&P, Fitch y Moody’s) have confirmed their ratings for the group.

· Net attributable profit in the first quarter of 2005 comes to €815m. This is a 20% increase over the €679m obtained in the same quarter last year. Earnings per share increased 17.4% and return on equity to 30.8%. 

· The higher profit is due to increases in all types of revenue and to the restrained rise in operating expenses. Operating profit was €1.43 billion, a year-on-year increase of 16.3%.

· Net interest income grew 7.2% on important increases in volume in the Spanish market and on the combined effect in Mexico of higher interest rates and significant growth in the more profitable lines of business.

· Ordinary revenues increased 9.0% to €2.85 billion. Apart from net interest income, this figure includes net fee income and insurance (which grew 7.9%) and net trading income (up 27.8%, helped by the markets unit and the large industrial companies unit). In addition €28m was contributed by net sales from non-financial activities (mainly the group's real estate companies). 

· Operating expenses increased 4.7% (3.5% if depreciation and amortization are included).

· The cost/income ratio (an area in which BBVA outshines other large European banks) improved to 45%, compared to 46.9% in the same period of 2004. Including amortisation, the ratio is 48.5% and the year-on-year improvement is 2.7 percentage points.

· The amount of non-performing loans (NPLs) continued to decline despite the sharp growth in customer loans. Thus the NPL ratio improved to 1.06% at 31-Mar-05, compared to 1.46% at 31-Mar-04. Coverage now stands at 228.1% (194.9% in March 2004).

· The group’s capital base remains sound with core capital at 6% and a BIS ratio of 12.3% at 31-Mar-05.

· Following distribution in January of the third interim dividend of €0.10 per share against 2004 earnings and a final dividend of €0.142 in April, the total dividend per share comes to €0.442, an increase of 15.1% over the previous year.

· The high level of growth in the Retail Banking area for Spain and Portugal continued and ordinary revenues increased 6.2% while expenses were practically flat. Operating profit increased 11.5% and net attributable profit 13.2%.

· The Wholesale and Investment Banking area also recorded high levels of activity in its main business units with strong results in the Markets unit activity. Operating profit grew by 12% compared to the same period a year earlier and attributable net income grew even further (22.7%) a consequence of the significant drop in loan provisioning requirements.

· In the Americas business activity grew faster in the quarter, especially in lending to companies as well as individuals. The important increase in net interest income helped operating profit to climb 15% (21.8% at constant exchange rates). Net profit was 37.4% higher than the first quarter of 2004.

· Net interest income at Bancomer performed particularly well, causing operating profit to rise 28.4% year-on-year at constant exchange rates. Net profit grew 50.6% (41.2% excluding Hipotecaria Nacional).

ECONOMIC ENVIRONMENT

The characteristic features of the international financial situation are the increase in long-term interest rates in the US and the increase in raw material prices, especially oil, which set a new record at the end of March. The Federal Reserve lifted interest rates to 2.75% at the end of the quarter. In the context of moderate advances in activity and low inflation in the first quarter, the ECB held rates unchanged at 2.0% in the euro zone.

Following considerable economic growth in most Latin-American countries in 2004, indicators in the first quarter of this year point to slower growth in business activity although growth will remain high. In Mexico interest rates continued to rise and the TIIE now stands at 9.4% for the quarterly average, compared to 8.54% at 31-Dec-04 and 5.90% at 31-Mar-04.

The dollar in March finished slightly higher against the euro, compared to the end of 2004. The increasing gap between interest rates in the US and the euro zone probably had some influence on this. However the average exchange rate in the first quarter recorded a depreciation of 4.8% compared to the same period a year earlier. Likewise and although the Mexican peso has rebounded since the end of December, there was a depreciation of 6.4% compared to the first quarter of 2004. After a 10.7% depreciation against the dollar in March, the bolivar closed the quarter with a 14.5% year-on-year depreciation against the euro.

THE BNL TAKEOVER BID

BBVA announced to the market on the 29th of March that its board of directors had approved an unsolicited takeover bid for all the shares of Banca Nazionale del Lavoro (BNL) it does not already possess. This comes to 85.675% of the authorised capital stock of BNL (85.038% including the risparmio shares). BBVA notified the Commisione Nazionale per la Società (CONSOB) accordingly on 29th March and required the approval of the Bank of Italy and the European Commission.

The bid, which is subject to authorisation, consists of one new ordinary BBVA share for five ordinary BNL shares. Based on the closing price of BBVA on 18th March (at this date, the preventive information was presented to the Bank of Italy complying with Italian regulations), this values the BNL share at €2.52, a premium of 14.3% on the average price in the previous 30 days and 26.6% on the market price six months earlier.

The BBVA board of directors consequently called an extraordinary general shareholders meeting to propose a capital increase in the form of 531m new ordinary shares, excluding pre-emptive rights of purchase, to cover the proposed share swap. The board authorised the chairman and board secretary-director to determine the date, place and time of the EGM once the pertinent approvals are obtained.

This operation will strengthen BBVA’s presence in Italy, one of the most attractive financial markets in Europe. It has great potential for profitable development and BBVA has been present since 1998 as the main shareholder in BNL following its privatisation. During this time BBVA has developed its knowledge of the Italian financial system. This, combined with its operating and marketing experience, will enable BBVA to develop BNL’s growth potential and efficiency.

BNL is the sixth-largest Italian bank in terms of lending and deposits, it is one of the most recognised brands in the country and has a solid customer base among companies and institutions. Its current strategy is focused on reinforcing the domestic position, increasing business with individual customers and SMEs, improving the risk profile and consolidation of its systems.

Features of BBVA's proposed action plan include: reinforcing the BNL branch network, improving marketing efficiency, integration of wholesale banking and continuation of the cost-reduction strategy started by the current BNL management. BBVA also plans to co-ordinate procurement, to make available BBVA’s systems, procedures and skills related to the IT structure and risk management, and to improve recovery systems.

BBVA estimates that the combined effect of these proposed measures will generate gross savings of about €60m in 2005, €201m in 2006 and €282m in 2007. At the end of this period the savings will represent 2.6% of BNL’s revenue base and 10.2% of its operating expense (as estimated by a selection of analysts). The impact on BBVA’s earnings per share will be zero in 2005 and positive from there on.

At a BNL board meeting on 8th April, all those present unanimously approved the offer made by BBVA. They accepted it as advantageous and appropriate and “agreed with the business reasons supporting the offer and the advantages for BNL and its shareholders". They said "the bid ensures continuity of BNL's operational strategy in the service of the domestic economy and Italian customers”.

On 13th April Consob issued a “nulla osta” regarding publication of a leaflet describing the bid. On 27th April the EU Commission issued a favourable verdict, saying the operation was compatible with the European common market.

The proposed tender offer for the BNL shares is not being made directly or indirectly in the United States, Canada, Japan, Australia or any other jurisdiction in which such offer may require the authorisation of the competent authorities or could be against the laws in force in the excluded States. BBVA will not be allowed to attend to any petition coming from any of the previously described jurisdictions.

No offer for purchase or sale of shares will be made directly or indirectly through the electronic mail or any other means (including, but without limitation, the mail, telex, telephone and the internet) of international or intra-state trade in the United States of America, nor the described offer will be able to be accepted through the referred means.

The information is not an offer to sell, or the solicitation of an offer to buy, securities in the United States. The BBVA shares being offered in exchange for BNL shares have not been and will not be registered under the United States Securities Act of 1933 and they will not be offered, sold or delivered directly or indirectly in the United States, except pursuant to an exemption from registration.

The complete information on the offer is detailed in the prospectus surveyed by CONSOB (www.bbva.com).

APPLICATION OF NEW ACCOUNTING STANDARDS

In accordance with European Union directives, 2005 is the first year the BBVA group is presenting its consolidated account in accordance with the new international financial reporting standards (IFRS). The Bank of Spain approved these in Circular 4/2004 on standards for public and reserved financial information and financial statement formats.

The group has applied the new accounting criteria to the first quarter of 2005, the year 2004 and its quarterly figures so all the data is homogeneous. Nevertheless, the figures in question are un-audited and may change.

The main changes derived from the application of the IFRS and the impact on the BBVA group were detailed in the relevant events published on 21st February 2005 (impacts for the group as a whole) and 29th April 2005 (impacts for business areas) as well as in the “Folleto Continuado” registered with the Spanish Securities Exchange Commission (CNMV) on the 22nd April 2005 (section 7.1.1). All these documents are available in the group’s web page (www.bbva.com, investor relations, financial information) and in the Spanish Securities Exchange Commission web page (www.cnmv.es).

CHANGES IN INFORMATION PRESENTATION AND CONTENT

As a result of the IFRS and the group’s desire to increase transparency in its dealings with the market on financial developments, the bank has made some changes in this quarterly report in connection with previous years. There are three main types of change:

· Group financial information: apart from a summary of relevant events in the quarter, the report contains specific sections on results, business activity, risk management, the capital base and the share price.

· Business Areas: in keeping with the group’s financial statements and applying uniform criteria, the bank has adapted the information on business areas to match IFRS. The figures for 2004 have been recalculated based on the new criteria. It has not changed the top-level structure of business areas (Retail Banking in Spain and Portugal, Wholesale and Investment Banking, the Americas and Corporate Activities). However, it has changed the arrangement of some units at the second level. 

· Financial statements: this consists of the balance sheet, income statement, a statement of general changes in shareholders’ equity, and a reconciliation between earnings and equity on the first application of the IFRS.