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The area’s operating profit was almost neutral in the second quarter, at -€35m for the first six months of the year, compared to €17m in the same period last year. Ordinary revenues decreased by €44m, which includes an 11.9% increase in net trading income due to portfolio management by the large industrial companies unit and ALCO activity. Operating costs (including administrative costs, depreciation and others) were similar to last year, at €241m. Provisions, €174m in the six month period, fell by €260m in comparison with the same period of 2004. €141m of this fall is due to lower early-retirement provisions this year and €124m from writing off provisions against Fobaproa notes (Mexico) in the first half of 2004. Finally, attention should be drawn to the fact that that while there have been no recorded earnings from the sale of associated undertakings in the first 6 months, an entry of €242m was booked in 2004 for capital gains (Banco Atlantico and Direct Seguros). All in all, the area shows a negative result of €82m.
ALCO
The assets and liabilities committee (ALCO) administers the group’s interest-rate and exchange-rates positions, group liquidity and shareholders’ funds. In the first quarter of the year, the unit has obtained an attributable profit of €54m. In its active interest-rate risk-management, ALCO keeps a portfolio of fixed-rate assets worth €25,302m at 30-06-05, with a view to offsetting or reducing the negative effect of falling or unchanged interest rates on the group’s net interest income. This portfolio has contributed €132m in net interest income and €56m in net trading income in the year to date at 30-06-05. It also maintains other interest-rate hedging transactions through an options portfolio. These interest-rate risk-management derivatives have generated a net trading income of €27m. By managing the group’s exchange rate exposure, basically stemming from its franchise in Latin America, overall hedging of 48% of BBVA’s equity in the Americas has been attained at the close of the first six months. Perfect hedging has been achieved for 36% of exposure in Mexico, 85% in Chile, 100% in the dollar zone and 35% in Peru. These hedging levels do not include the long positions in dollars held by some affiliate banks at local level. The after-tax cost of this hedging in the first 6 months of the year was €32m. The positive impact of exchange rates on equity was over €600m.
LARGE INDUSTRIAL COMPANIES
This unit includes BBVA’s biggest industrial holdings in listed telecommunications and energy companies, above all in Telefonica, Iberdrola and Repsol YPF. All these holdings are classified as available for sale. At 30th of June 2005, the market value of the portfolio (including equity swaps) was €6,281m, with pre-tax capital gains of €1,946m. Investments of €122m have been made in the second quarter, while €285m were divested; meanwhile operations to reduce financial exposure were made to the value of €169m. Dividends worth €78m were collected and net trading income amounted to €135m, giving an attributable profit of €169m. Hence, an attributable profit of €260m was earned in the first six months, which more than doubles the €128m earned in the same period of 2004, including €79m in dividends and €265m in net trading income booked to the income statement.
FINANCIAL SHAREHOLDINGS
This unit mainly comprises the holdings in Banca Nazionale del Lavoro and in Bradesco. The market value of the portfolio at 30-June-05 was €2,032m, with underlying capital gains of €1,066m. Attributable profits of €37m have been earned in the first 6 months, arising mainly from Bradesco dividends and the BNL results carried by the equity method. In the same period of 2004, profits were €210m, as they included the capital gains arising from the sale of the Banco Atlantico holding.
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