The Americas Area consists of all the activities conducted by the BBVA group’s banks, pension managers and various insurance companies on that continent, plus international private banking. During the year the area added Hipotecaria Nacional (January), Laredo National Bancshares (May) and Granahorrar in Colombia (December), strengthening the bank’s position in the Colombian mortgage segment.

In 2005 the economic environment in the region was favourable with improvements in the main countries. On average, GDP grew at around 4% with moderate inflation and interest rates that were similar to those of 2004. However, there were relatively significant variations during the year, especially in Mexico. Unlike previous years, currencies in the Americas appreciated against the euro compared to 2004 with corresponding impacts on the group’s balance sheet. Nonetheless, fluctuation on the average exchange rates in 2005 was more moderate and therefore the overall impact on contributions to consolidated earnings was not significant. The attached financial statements include columns showing the year-on-year changes calculated at constant exchange rates. Unless otherwise indicated, the following comments refer to these figures as they are more relevant when examining performance.

Substantial increases in business volume led to a sharp rise in recurrent revenues and in the area’s profit. Thus in 2005 net attributable profit came to €1,820m, an increase of 48.7% over 2004 (52.3% in current euros).

Net interest income rose 29.4% to €3,797m. A large part of this increase was due to greater business volume as a consequence of greater marketing efforts boosting lending by 41.2% year-on-year (excluding Bancomer's old mortgage portfolio and non-performing assets). On a like-for-like basis (ie, excluding acquisitions), the increase was 19.9%. The biggest growth was recorded in retail segments (credit cards, consumer finance and mortgages). Moreover, customer funds (traditional fund gathering, repos placed through the branch network and mutual funds) grew 17.2% (11.5% on a like-for-like basis), particularly those of lower cost (current and savings accounts) and mutual funds.

Net fee income grew 15.1% against 2004 to €2,056m. It also benefited from the higher level of activity, including a recovery in mutual and pension funds and the favourable performance of revenues from traditional banking services. Marketing activity by the group's insurance companies was reflected in their revenue stream, which grew 35.0% during the year to €241m. Net trading income was up 37.9% over 2004, to €349m on positive market developments during the second half of the year. These offset lower performance at the beginning of the year. As a result, ordinary revenues came to €6,441m, a year-on-year rise of 25.0%.

The considerable marketing effort was also the main cause of the increase in expenses. Including depreciation, they rose 19.1% or 11.1% if recent acquisitions are excluded (Hipotecaria Nacional, Laredo, BBVA Bancomer USA and Granahorrar). In any event, the increase in expenses was lower than the increase in revenues and therefore the cost/income ratio for the area improved once again. It now stands at 46.4% (including depreciation). This is an improvement of 2.3 percentage points over 2004 (48.7%).

As a result of the above, operating profit rose 31.9% to €3,291m. Loan loss provisions increased moderately (up 9.8%). The rise was significantly lower than the increase in lending although the evolution of provision charges accelerated quarter on quarter. At constant exchange rates non-performing loans fell year-on-year despite the addition of new business units and increased activity. Thus the non-performing loan ratio continued to fall, reaching 2.67% at the end of 2005. This compares to 3.44% recorded at 31-Dec-04. Coverage rose to 183.8% (173.5% at December 2004).

The foregoing developments were reflected in the area's net attributable profit (up 48.7%) and in the profitability. ROE was 33.8% in 2005, compared to 26.1% in 2004.

BANKS IN THE AMERICAS

Net attributable profit generated by the groups banking businesses in the Americas in 2005 came to €1,511m. This was 54.4% more than 2004, due mainly to higher levels of activity at practically all banks. Details for each one are given below.

Mexico

The Mexican economy developed positively in 2005 with sound advances in domestic demand and moderate inflation. At the beginning of the year interest rates rose until May and then they stabilised until August. Since then, they have been falling rapidly and finished the year slightly below the initial level. In this context, BBVA Bancomer’s net attributable profit for the year rose 57.5% to €1,191m (up 63.1% in current euros). This brought the ROE to 39.4% (30.8% in 2004). The above mentioned profit included €77m from Hipotecaria Nacional.

The results were mainly due to intense marketing efforts expanded throughout the year. These led to a sharp increase in customer business and especially in lending, which rose 50.2% year-on-year to close in December at €20.4 billion (an increase of 21.8% without Hipotecaria Nacional). All types of business grew, especially those related to individuals. This includes consumer finance and credit cards (up 79.1%) as well as housing loans. The latter increased 61.5% on a like-for-like basis (ie, including Hipotecaria Nacional’s portfolio in 2004). Customer funds (the aggregate of deposits, repos placed through the branch network and mutual funds) increased 9.9% year-on-year to €43.0 billion at 31-Dec-05. By type, lower-cost funds (ie, current and savings accounts) grew 15.7% and mutual funds were up 34.9%.

The considerable growth in business volume together with appropriate price management resulted in an important increase in the more recurrent revenues. Net interest income came to €2,463m (up 34.9%) and net fee income rose 21.8% to €978m on a significant rebound in mutual funds, securities and credit cards. Income from traditional banking activities also continued to grow strongly. In addition, net trading income contributed €161m (up 23.0%).

Marketing activity and the addition of Hipotecaria Nacional also contributed to the increase in operating expenses, which rose 19.8% (after including depreciation). This was lower than the increase in ordinary revenues (up 30.6%). This meant the cost/income ratio, including depreciation, improved further from 44.3% in 2004 to 40.6%. Operating profit thus came to €2,015m, an advance of 41.2% over 2004.

Loan loss provisions increased 18%, which was less than the increase in lending but which show the increased charges, particularly in the second half of the year. This led to an improvement in the non-performing loan ratio, which fell to 2.34% (2.94% a year earlier). Coverage rose to 269.0% (267.5% in 2004).

Other countries

BBVA Banco Francés (Argentina) finished 2005 with net attributable profit of €90m (€15m in 2004) thanks to the favourable economic environment. The income statement reveals the positive performance of net interest income, helped by containing the cost of fund-gathering activities in the face of interest rate pressures. The improvement was also aided by higher returns on inflation-linked assets because inflation increased during the year. Lending activity increased in the private sector, which increased its share of the overall portfolio to 55% by the end of 2005 (30% in 2004). At the same time the bank reduced its holdings of public sector assets and used these funds to pay off the financial assistance received from the central bank during the liquidity crisis. Customer funds rose 18.5%, coming mainly from the retail segment and the longer average duration of deposits. Greater activity in transactional business (payment channels, insurance, cards, etc) also contributed to operating profit, which came to €211m (up 58.8%).

BBVA Chile: in a context of sharp rises in interest rates, falling spreads and intense competition, this bank generated net attributable profit of €27m, an increase of 4.2%. This result was supported by careful management of net interest income, a 12.9% increase in net fee income and by the better quality of the loan portfolio (which led to lower provisioning). The loan portfolio grew 19.2% with increases in credit cards, consumer finance, mortgages and lending to small enterprises.

BBVA Colombia ended the year with net attributable profit of €49m compared to €19m in 2004. The increase can be attributed to a higher level of banking business (without Granahorrar, lending was up 21.8%, spread evenly among the different types, and customer funds rose 23.2%). Other factors include good price management against a background of falling rates, improvements in other revenue streams such as fees and trading income, cost control and lower provisioning. The acquisition of Banco Granahorrar for €348m (in an auction), effective from the month of December, will allow BBVA Colombia to improve its positioning in the mortgage sector (where it is already marketing a wide range of products and services).

United States of America: in 2005 the four units in this country contributed €72m in operating profit and €26m in net attributable profit. BBVA Puerto Rico embarked on intense marketing activity with 18.5% growth in the loan portfolio (especially car loans, consumer finance and mortgages). This led to a 5.4% rise in net interest income (despite the negative effect of higher interest rates) which was compatible with the moderate advance in operating expenses. The bank generated €22m in net attributable profit. Laredo National Bancshares continued to follow its new business plan, re-organising the workforce and extending the branch network in order to strengthen its presence along the border between Texas and Mexico. From May to December LNB contributed €10m in operating profit and generated €4m in net attributable profit. BBVA Bancomer USA, the new name for Valley Bank, expanded its branch network by incorporating BTS’ branches in California and by opening new branches. Despite the mentioned transfer of branches, Bancomer Transfer Services (BTS), which handles money transfers from the US to Mexico maintained its leadership status.

BBVA Banco Continental (Peru) converted the higher level of business activity (loans grew 33.2% and customer funds 25.0%) into a 30.2% increase in net interest income. Together with cost controls, this boosted operating profit by 47.8%. Together with lower loan provisions following improvements in the loan portfolio, this brought net attributable profit to €47m – more than double the figure for 2004.

BBVA Banco Provincial (Venezuela) increased funds under management by 40.9% (46.6% the transactional deposits). It also increased lending by 64.1%. These achievements offset the negative impact of interest-rate controls and led to a 2.7% rise in net interest income. Net fee income rose 29.0% and net attributable profit came to €55m.

Referring to the rest of banks, net attributable profit in Panama came to €19m (up 6.8%) and in Paraguay it was €10m (up 21.5%). Uruguay managed to reduce its losses to €2m.

PENSION FUNDS AND INSURANCE

The pension fund managers and insurance companies in BBVA America contributed net attributable profit of €260m in 2005. This was a year-on-year increase of 24.9%. Operating profit was €408m (up 18.7%).

Pensions

At the end of 2005 the group managed €38.5 billion in pension funds. This figure was 14.7% higher than a year earlier. Provida (Chile) accounted for the lion’s share with €19.5 billion and Bancomer with €8.9 billion. In terms of earnings, the increase in business activity at all companies lifted net fee income to €422m, a rise of 6.6% on 2004, generated mainly by Argentina, Chile and Colombia. Operating profit was €248m (up 18.6%) and net attributable profit came to €145m (up 19.9%). Of the latter amount, €83m was contributed by Afore Bancomer, €31m by Provida, €12m by Horizonte Peru, €10m by Horizonte Colombia and €7m by Consolidar.

Insurance

The aggregate of premiums written and brokered by the companies concerned came to €834m, a year-on-year increase of 17%. This was supported by a sharp rise in bancassurance in all countries, with advances in Mexico (50%), Venezuela (57%), Argentina (28%) and Peru (27%). They were helped by life and incapacity insurance. The greater level of activity, the decline in claims and the higher financial revenues helped net attributable profit for the combined companies to grow 31.8% to €115m, including €77m from the Mexican companies.

INTERNATIONAL PRIVATE BANKING

In 2005 this unit completed the consolidation of its operations in Andorra, Switzerland and Miami. Customer funds under management increased 5.4% to €6,151m at 31-Dec-05. As a result, core revenues increased by 5.3% over 2004. This growth carries over to the bottom line on the income statement and thus operating profit came to €130m (up 3.1%) and net attributable profit came to €73m (up 4.8%).