In the fourth quarter of 2005 the group generated net attributable profit of €1,079m. This was 46.0% higher than the €739m obtained in the same period of 2004. Like previous quarters, this growth is explained by the performance of operating profit, which grew 29.3% to €1,878m. Both the net attributable profit and the operating profit are the highest ever recorded by the group.

As a result, the total net attributable profit for 2005 came to €3,806m euros. This is also a new record for the group and 30.2% higher than the €2,923m obtained in 2004. During the year all sources of revenue, without exception, performed positively. This highlights the quality of the results and is the greatest factor contributing to profit growth. Increases in revenue outstripped cost increases and thus the group once again improved in efficiency. Operating profit advanced significantly by 22.0% compared to 2004.

Besides the strength of recurrent revenue, the other feature contributing to the quality of 2005 results was the largely neutral effect of line items on the profit and loss account between operating profit and net profit. The differences between the two years offset each other. In the comparison with 2004, reductions in provisions and other adjustments were offset by lower capital gains on sale of holdings.

Another relevant feature of the group’s 2005 results was their steady climb. The year-on-year increases for all revenues and profit figures are progressively higher when expressed at either current or constant exchange rates. The rate of growth of operating profit accelerated, rising from 14.3% in the first quarter, to 17.1% for the first half, to 19.5% for the first nine months and to the above figure of 22.0% for the full year. Net attributable profit was up 18.0% in March, 20.1% by June, 24.9% in September and 30.2% for the full year.

NET INTEREST INCOME

Net interest income for the fourth quarter came to €1,999m, a year-on-year increase of 24.5%. As a result, the cumulative figure for the year grew 17.0% over 2004 to €7,208m. Excluding dividends, net interest income for the year grew 17.1% (14.5% in the first nine months) to €6,915m. Dividends accounted for €292m, an increase of 14.6%.

In the domestic market, the customer spread in the fourth quarter was 2.56%, which was unchanged from the previous quarter. The higher average cost of deposits (due to a greater amount in time deposits) absorbed the higher yield on loans following a rebound in interest rates. In terms of the whole year, the decline in customer spreads was more than offset by the firm growth in business volume.

Spreads increased in the Americas. This was especially true in Mexico where the difference between the yield on loans and the cost of deposits in pesos grew from 11.22% in the fourth quarter of 2004 and 11.63% in the third quarter of 2005, to 11.87% in the fourth quarter of 2005, despite a drop in the TIIE.

ORDINARY REVENUES

Net fee income in the fourth quarter was €1,065m while insurance business yielded another €138m. The year-on-year increases were 22.2% and 45.0%, respectively. This brought the increases for the whole year to 15.4% for fee income (€3,940m) and 24.7% for insurance (€487m). Together, these items came to €4,427m in 2005, a year-on-year increase of 16.4%: 10.2% in Retail Banking in Spain and Portugal, 19.2% in Wholesale and Investment Banking and 20.5% in The Americas (26.1% in Mexico).

Net income by the equity method (mainly BNL and Corporaciσn IBV) came to €121m, an increase of 25.2% over the €97m obtained in 2004.

Core revenues, which are the aggregate of net interest income, net fee income and net income by the equity method, came to €11,756m for the year. This is a year-on-year increase of 16.9% (14.1% for the first nine months).

Net trading income in 2005 came to €1,267m, an increase of 19.6% over the previous year. The main contributions came from the Markets unit, the Americas (mainly Mexico and Argentina), industrial and financial holdings, and from the retail and wholesale banking areas following greater efforts in the distribution of cash management products.

Core revenues and net trading income make up the ordinary revenues, which come to €3,617m in the fourth quarter, an increase of 25.2% compared to 2004. For the entire year these revenues increased 17.1% to €13,024m. After adding €126m of net sales from non-financial activities (including real estate business), the group’s total revenues came to €13,149m, an increase of 16.9% over 2004.

OPERATING PROFIT

Compared to the increase in ordinary revenues, operating expenses advanced more moderately. Including depreciation, expenses came to €6,211m in 2005, which was 12.0% more than 2004. Personnel costs were up 10.9%, general expenses 16.7% and depreciation 0.1%. Aggregate costs for domestic businesses increased 3.8% despite opening new offices. In the Americas the figure was 22.3% although this falls to 14.2% on a like-for-like basis (ie, excluding Laredo National Bancshares, Hipotecaria Nacional, BBVA Bancomer USA and Granahorrar). If the impact of exchange rates is taken into account, the figure would be 11.1%. This was due to the important increase in marketing activity in all countries.

At the end of the year the group’s staff numbered 94,681. This includes 2,274 employees from Granahorrar (Colombia), who joined the group in the fourth quarter, and 3,215 who came from Hipotecaria Nacional (Mexico) and Laredo National Bancshares (USA) in earlier quarters. The branch network stands at 7,410 offices. Some 3,578 of these are in Spain where there was a net increase of 68 in the fourth quarter and 193 in the entire year due to the expansion of retail banking and Dinero Express. There are 3,658 branches in the Americas (the 135 Granahorrar branches join the 173 contributed by Hipotecaria Nacional and Laredo) and 174 in the rest of the world.

As the 16.9% increase in operating revenues (ordinary revenues plus non-financial activities) exceeds the increase of 13.4% in administrative expenses net of recovered costs, the cost/income ratio improved to 43.2% (44.6% in 2004). Including depreciation (the usual procedure in international comparisons), the increase in costs is 12.3% and the cost/income ratio 46.7%. This is an improvement of 1.9 percentage points over the 2004 ratio of 48.6%. This means BBVA continues to be one of the most efficient large financial groups in the euro zone. It should be noted that in 2005 all the group’s business areas improved their cost/income ratios. 

Operating profit is the result of deducting expenses (including depreciation) and the net cost of other products and charges from ordinary revenues. In the fourth quarter operating profit came to €1,878m and this was a year-on-year increase of 29.3%. In cumulative terms, operating profit for the year came to €6,823m, a rise of 22% compared to 2004 (19.5% for the first nine months). All three business areas recorded notable increases: 13.1% in Retail Banking in Spain and Portugal, 33.9% in Wholesale and Investment Banking and 35.4% in The Americas (46.2% in Mexican banking).

After eliminating the impact of exchange rates, operating profit for the group climbed 20.7% (31.9% in the Americas). On a like-for-like basis (ie, excluding contributions from Laredo National Bancshares, Hipotecaria Nacional, BBVA Bancomer USA and Granahorrar) the increases would be 20.7% for the combined group and 32.3% for the Americas (19.3% and 28.8%, respectively, at constant exchange rates). In all cases growth was substantial, reflecting the considerable strength of BBVA’s recurrent earnings.

PROVISIONS AND OTHERS

For the whole year €813m was set aside for loan provisioning, 3.7% more than 2004. In the domestic market total provisions fell and they now mainly consist of generic provisions. This due to the low level of non-performing loans. Generic provisions continue at the maximum level which was reached at the end 2004. The increase in the Americas was 15.7% (9.8% at constant exchange rates). It rose steadily during the year, commensurate with the high rate of growth in lending. Furthermore, other provisions for asset impairment declined significantly compared to 2004 (when the entire goodwill of €193m associated with BNL was written off in the fourth quarter). Transfers to provisions for the full year were €454m. This was 46.6% less than in 2004 due basically to lower early retirement costs.

Finally the net result of other gains and losses contributed €77m, compared to €355m in 2004. The decrease arises mainly in the sale of holdings. In 2005, which saw no significant sales, this item contributed €29m against the €308m obtained in 2004. The latter figure was generated by capital gains on the sale of the banks interest in Banco Atlantico (€218m), Direct Seguros (€26m), Grubarges (€19m), Vidrala (€20m), the Crecer pension manager and insurance companies in El Salvador (€14m).

ATTRIBUTABLE PROFIT

After deducting provisions and similar items from operating profit, pre-tax profit in the fourth quarter came to €1,461m with a year-on-year increase of 48.2%. For the whole year, pre-tax profit rose 35.2% to €5,592m. After deducting €1,521m for corporate tax, net profit was €4,071m, an increase of 31.0%. Of this amount, €264m corresponds to minority interests and thus the net attributable profit for the group comes to €3,806m, an increase of 30.2% over the €2,923m obtained in 2004.

By business area the net attributable profit for the year was contributed as follows: €1,614m by Retail Banking in Spain and Portugal (up 13.1%), €592m by Wholesale and Investment Banking (up 46.6%) and €1,820m by the Americas (up 52.3%) less a loss of €219m on Corporate Activities (a loss of €102m in 2004).

Earnings per share for 2005 comes to €1.12, a rise of 29.5% over 2004. This level of growth means BBVA maintains its lead among large European banks in terms of this key figure. Return on equity (ROE) for the year improved to 37.0% compared to 33.2% in 2004. The return on total assets (ROA) also improved to 1.12% (0.96% in 2004) and the return on risk-weighted assets (RORWA) was 1.91% (1.62% in 2004).