This area includes the results of ALCO (the assets and liabilities committee), the large industrial companies unit and the financial shareholdings unit. It also handles certain provisions such as early retirements, provisions at the corporate level and the costs of the headquarters units that have a strictly corporate function.

This area’s net attributable profit in the fourth quarter came to €40m after receiving €79m in dividends from the industrial and financial portfolio and despite an operating loss of €22m. For the full year, there was an operating loss of €277m (a loss of €85m in 2004). The year-on-year decline is similar to the reduction in net trading income. This is mainly explained by the sale of Acerinox in 2004 and the higher cost of forex hedging operations for Latin-American earnings in 2005.

Other items on the income statement include lower provisions compared to 2004. These are mainly due to the amortisation in 2004 of €193m in goodwill associated with BNL. Another item refers to transfers to provisions, which were down on lower charges related to early retirements during the year. Furthermore, other gains and losses fell sharply from the 2004 level, which contained capital gains from the sale of Banco Atlantico and Direct Seguros. As a result the area recorded a net loss of €219m.

ALCO

The assets and liabilities committee (ALCO) administers the group’s interest rate and exchange rate positions, group liquidity and shareholders’ equity. In 2005 it generated net attributable profit of €63m.

The purpose of the committee is to safeguard the group’s reserves and capital ratios and to bring stability to the income statement. It does this by managing the group’s exchange-rate exposure, which is mainly related to its franchises in the Americas. It also monitors and controls the cost of such risk management. At year-end, overall coverage of BBVA’s equity in the Americas stands at 44%. There is 39% of perfect coverage in Mexico, 75% in Chile, 100% in the USA and 29% in Peru. These levels of coverage do not include the long position in US dollars held by some affiliate banks at local level. In 2005, the transfer to reserves following appreciation against the euro of base currencies used by the group’s subsidiaries, came to nearly €700m, while the financial cost of the capital coverage policy was €57m, net of tax. In addition, the coverage policy for earnings in 2005 reduced net trading income by €70m net of tax. This was offset by earnings converted into euros that were higher than the budgeted by the group’s units in the Americas.

ALCO also actively manages the group’s structural interest-rate exposure. It does this with derivatives and other balance sheet instruments. At 31-Dec-05 the committee held a portfolio of fixed interest investments worth €31,249m to compensate or reduce the negative impact on the group’s net interest income, of a decline in interest rates. During the year this portfolio contributed €264m to net interest income and €80m to net trading income. Other ALCO operations contributed €21m to earnings in 2005.

HOLDINGS IN INDUSTRIAL AND FINANCIAL COMPANIES

This item comprises the group’s holdings in listed industrial companies (mainly Telefónica, Iberdrola and Repsol YPF) and in financial entities (currently limited to Bradesco). These holdings are managed according to uniform criteria with the goal of maximising value, following strict principles of return, liquidity, rotation and use of economic capital. All these holdings are currently classified as “available for sale”. In addition and until the Banca Nazionale del Lavoro (BNL) operation is wound up, it continues to be part of the portfolio, although it is booked via the equity method.

At 31-Dec-05 the market value of the holdings portfolio (including equity swaps) stands at €8,811m with latent capital gains of €3,354m before tax.

Industrial and financial holdings generated €183m in dividends and €298m in net trading income. Compared to 2004, these figures reflect an increase of 12.4% and 22.3%, respectively. Net income from companies carried by the equity method (mainly BNL) also increased. Operating profit came to €470m, compared to €328m in 2004. This amount practically carries through to net attributable profit which was €433m (€269m in 2004) because in 2005 there were neither significant provisions (goodwill associated with BNL was written off in 2004) nor capital gains (the group’s interest in Banco Atlantico was sold in 2004).