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In year-to-date terms, half-yearly attributable profit was €1,813m, with a year-on-year increase of 20.1%. As the pace of growth in the most recurrent revenues picked up, operating profit reached €3,201m, rising 17.7%. Below the line, there was a significant drop in the amount of loan-loss provisioning, owing to lower specific provision requirements and higher recoveries, plus the neutral impact of other items that tended to cancel one another out.
NET INTEREST INCOME
Net interest income for the second quarter was €1,818m, up 15.0% or 15.9% excluding dividends. This has meant that income obtained to June, ie €3,367m, is 11.1% higher than the previous year’s figure. Net interest income minus dividends has recorded a half-yearly growth of 11.7%, as compared with the 7.4% reported in the first quarter. Meanwhile, dividends totalled €142m, with a year-on-year drop of 1.5%. In business with residents, customer spread in the second quarter was 2.69% (2.70% in the first quarter), the yield on loans lowering slightly to 3.79% and the cost of deposits brought down to 1.10%. In the Americas, the year-on-year performance of spreads continued to be positive, above all due to Mexico, where the spread between yield on loans and the cost of deposits in pesos was 11.55 percentage points, at a similar level to the preceding quarter, as against the 10.52 point spread reported in the second quarter of 2004. The more efficient structure ensuing from faster growth in the most profitable business lines, such as consumer lending, cards and current accounts has contributed to this.
ORDINARY REVENUES
Net fee income was €954m this quarter, a year-on-year increase of 12.5%, while net income deriving from insurance business was €123m (+29.1%). Both grew faster than they had in the first quarter, such that for the six-month period as a whole, the sum of both grew 10.5% (fees up 10.2% and insurance up 13.0%), reaching €2,072m. By business areas, there was an 8.2% increase in Retail Banking in Spain and Portugal, a 13.6% increase in Wholesale and Investment Banking and an 11.6% increase in the Americas. Earnings by the equity method, which basically consist of BNL and Corporación IBV, came to €51m, 15.0% more than the same period in 2004. As a consequence of brisker year-on-year growth in net interest income and in the other revenue lines (fees, insurance policies and earnings by the equity method), core revenues rose 10.9% in the half year, reaching €5,490m. Net trading income contributed €611m over the six-month period, with a year-on-year increase of 20.9%. The Large Industrial Companies unit and the Wholesale Banking area (through its Markets units) and the higher revenues from distributing treasury products to Retail Banking customers all helped boost these results. The positive second-quarter earnings obtained in Mexico offset the losses recorded there in the first quarter. This all led to ordinary revenues of €3,247m in the second quarter (+15.0% up on the same period of 2004) and of €6,100m for the half year. This represented a year-on-year increase of 11.8% which compares favourably with the 8.4% rise reported in the first quarter of this year. If we add the €68m net sales of non-financial companies, which were mainly boosted by the real estate business, the group’s total operating revenues came to €6,168m, 11.9% up on the first half of 2004.
OPERATING PROFIT
General administrative expenses plus depreciation and amortization grew 7.2%. In the set of domestic businesses, this increase was 3.0% and in the Americas area 12.5%, owing to the incorporation of Laredo National Bancshares, Hipotecaria Nacional and Valley Bank within the perimeter. On a like-for-like basis expenses plus depreciation and amortization in the Americas increased 7.7%. The group’s headcount on 30-6-05 showed 91,237 employees, of whom 2,022 worked for Laredo National Bancshares. The new incorporation of Laredo branches, along with the increase in the number of branches in Spain under the Retail Banking expansion plan, gives a total number of 7,113 branches for the group as a whole. Given that the 11.9% rise in operating revenues (ordinary revenues plus non-financial activities) over the six-month period was higher than the 8.5% rise in net operating expenses, the cost-income ratio improved to 43.4%, as against the 44.7% reported in the first half of 2004. Including depreciation and amortization in the calculation, the ratio was 46.7% and the year-on-year improvement was 2.1 percentage points better than the 48.8% from the same period in 2004. The second-quarter operating profit came to €1,769m, rising 20.1%year-on-year. As in the other figures just cited, this reflects a bigger rise than in the first quarter, pushing up half-year growth to 17.7% and total half-year operating profit to €3,201m. All the business areas contributed to this increase with a spurt in their growth rates: a 13.1% rise being reported in Retail Banking in Spain and Portugal, 17.0% in Wholesale and Investment Banking and 27.7% in the Americas, where growth was driven by the 38.9% figure reported in Bancomer. At constant exchange rates, the operating profit showed a 19.5% rise in the group as a whole and a 32.3% rise in the Americas. Using a uniform perimeter, ie, excluding Laredo National Bancshares, Hipotecaria Nacional and Valley Bank, these figures were 17.5% for the group and 27.4% for the Americas.
PROVISIONS AND OTHERS
The group set aside €304m for loan provisioning in the first half of 2005, 26.0% less than the €411m provisioned in the first half of 2004. This was mainly due to the improved quality of lending and higher recoveries of non-performing loans and country-risk provisions. €254m were transferred to provisions in this six-month period, down 50.7% in year-on-year terms. This was due to lower provisioning for early retirements (€145m this semester as against €286m in the same period last year) and the €124m charge effected in 2004 to top up the provisions against the Fobaproa notes in Mexico. The item for Other income/losses totalled €102m in the first half of the year, falling 71.4% year-on-year. Divestment of holdings contributed €16m in the six months from January to June, as compared with €262m in the same period of 2004. The 2004 figure reflected capital gains on the sale of holdings in Banco Atlántico, Direct Seguros and Grubarges. Meanwhile, the sum of €86m was booked under Other items over these six months, down 9.0% on the same period of last year. This drop was due to high one-off results obtained from property divestments during the first half of 2004. All this meant that the lower transfers to provisions were cancelled out by the lower figure for Other income/losses.
ATTRIBUTABLE PROFIT
Pre-tax profit rose to €1,522m in the second quarter and €2,724m in the first semester. After provision for tax, half-year net profit was €1,936m, with an increase of 21.0%. Of this amount, €123m corresponded to minority interests, such that the group’s attributable profit was €1,813m, 20.1% up on the first half of 2004 (21.6% at constant exchange rates). Earnings per share rose to €0.53 over these six months, 18.7% more than in the same period of 2004. Meanwhile, ROE was 35.6% and ROA 1.11%.
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