6-K 1 u07522e6vk.htm FORM 6-K e6vk
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
October 5, 2009
Commission File Number: 001-10110
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
(Exact name of Registrant as specified in its charter)
BANK BILBAO VIZCAYA ARGENTARIA, S.A.
(Translation of Registrant’s name into English)
Plaza de San Nicolás 4
48005 Bilbao
Spain

(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F þ          Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes o          No þ
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes o          No þ
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes o          No þ
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A.
 
 

 


 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
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Unaudited Interim Consolidated Financial Statements
  F-1
Exhibit I: U.S. GAAP Reconciliation
  E-1
     This Form 6-K is incorporated by reference into BBVA’s Registration Statement on Form F-3 (File No. 333-144784) filed with the Securities and Exchange Commission.

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CERTAIN TERMS AND CONVENTIONS
     The terms below are used as follows throughout this report:
    BBVA”, “Bank” or “Group” means Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires. BBVA was formed by the merger of Banco Bilbao Vizcaya, S.A. (“BBV”) and Argentaria, Caja Postal y Banco Hipotecario, S.A. (“Argentaria”), which was approved by the shareholders of each institution on December 18, 1999.
 
    BBVA Compass” means Compass Bancshares, Inc. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.
 
    Interim Consolidated Financial Statements” means BBVA’s unaudited interim consolidated financial statements as of June 30, 2009 and for the six months ended June 30, 2009 and 2008 prepared in accordance with the International Financial Reporting Standards adopted by the European Union (“EU-IFRS”) required to be applied under the Bank of Spain’s Circular 4/2004 of December 22, 2004 on Public and Confidential Financial Reporting Rules and Formats (the “Circular” or “Circular 4/2004”).
 
    Latin America” refers to Mexico and the countries in which we operate in South America and Central America.
     First person personal pronouns used in this report, such as “we”, “us”, or “our”, mean BBVA.
     In this report, “$”, “U.S. dollars”, and “dollars” refer to United States Dollars and “” and “euro” refer to Euro.
FORWARD-LOOKING STATEMENTS
     This report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as “believe”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this report, including, without limitation, the information under
    “Business Overview”,
 
    “Selected Statistical Information” and
 
    “Operating and Financial Review and Prospects”
identifies important factors that could cause such differences.
     Other important factors that could cause actual results to differ materially from those in forward-looking statements include, among others:
    general political, economic and business conditions in Spain, the European Union (“EU”), Latin America, the United States and other regions, countries or territories in which we operate;
 
    changes in applicable laws and regulations, including taxes;
 
    the monetary, interest rate and other policies of central banks in Spain, the EU, the United States and elsewhere;
 
    changes or volatility in interest rates, foreign exchange rates (including the euro to U.S. dollar exchange rate), asset prices, equity markets, commodity prices, inflation or deflation;
 
    ongoing market adjustments in the real estate sectors in Spain and the United States;
 
    the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation;
 
    changes in consumer spending and savings habits, including changes in government policies which may influence investment decisions;
 
    our ability to hedge certain risks economically;

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    our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that cannot be captured by the statistical models we use; and
 
    force majeure and other events beyond our control.
     Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.
PRESENTATION OF FINANCIAL INFORMATION
Accounting Principles
     Our Interim Consolidated Financial Statements have been prepared in accordance with the International Financial Reporting Standards adopted by the European Union (“EU-IFRS”) required to be applied under the Bank of Spain’s Circular 4/2004. The Interim Consolidated Financial Statements are unaudited and they should be read in conjunction with the consolidated financial statements and related notes (the “Consolidated Financial Statements”) included in BBVA’s 2008 Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the “SEC” or “Commission”) on April 2, 2009 (the “2008 Form 20-F”).
     The financial information included in this Report as of and for the six months ended June 30, 2008 is not directly comparable with the financial information as of and for the six months ended June 30, 2008 included in our Report on Form 6-K as filed with the SEC on November 10, 2008 (the “First Half 2008 6-K”), due to the application of the financial statements formats set forth in Bank of Spain Circular 6/2008 issued in November 2008 (“Circular 6/2008”). The application of the financial statements formats set forth in Circular 6/2008 to the financial statements included in the First Half 2008 6-K would not have affected the amounts recorded under the line items “stockholders’ equity” and “net income” as of and for the six months ended June 30, 2008, respectively. For information on the main differences in our annual consolidated financial statements as a result of the application of the financial statements formats set forth in Circular 6/2008, see Appendix VIII of the Consolidated Financial Statements included in our 2008 Form 20-F.
     The Interim Consolidated Financial Statements have been presented in the same format as that used in the Consolidated Financial Statements included in the 2008 Form 20-F. This format differs from that required by the SEC for the consolidated financial statements of bank holding companies.
     See “Exhibit I: U.S. GAAP Reconciliation” for an unaudited quantitative reconciliation of net income attributed to parent company for the period and shareholders’ equity from EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 to generally accepted accounting principles in the United States (“U.S. GAAP”).
Business Areas
     We have maintained the criteria we applied in 2008 to the composition of our business areas for 2009, with only a few insignificant changes. These changes do not affect the Group-level information and their impact on the figures for our different business units and areas is immaterial. Nonetheless, the 2008 data in this Report has been reformatted to include these marginal changes to ensure like-for-like comparisons.
Factors Affecting the Comparability of Our Results of Operations and Financial Condition
     We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas certain of our subsidiaries keep their accounts in other currencies, principally Mexican pesos, U.S. dollars, Argentine pesos, Chilean pesos, Colombian pesos, Venezuelan bolivars and Peruvian nuevos soles. For example, if Latin American currencies and the U.S. dollar depreciate against the euro, when the results of operations of our subsidiaries in the countries using these currencies are included in our consolidated financial statements, the euro value of their results declines, even if, in local currency terms, their results of operations and financial condition have remained the same or improved relative to the prior period. Accordingly, declining exchange rates may limit the ability of our results of operations, stated in euro, to fully describe the performance in local currency terms of our subsidiaries. By contrast, the appreciation of Latin American currencies and the U.S. dollar against the euro would have a positive impact on the results of operations of our subsidiaries in the countries, using these currencies when their results of operations are included in our consolidated financial statements.

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     The assets and liabilities of our subsidiaries which maintain their accounts in currencies other than the euro have been converted to the euro at the period-end exchange rates for inclusion in our Interim Consolidated Financial Statements. Income statement items have been converted at the average exchange rates for the period. The following table sets forth the exchange rates of several Latin American currencies and the U.S. dollar against the euro, expressed in local currency per €1.00 for the six months ended June 30, 2009 and 2008 and as of June 30, 2009 and December 31, 2008 according to the European Central Bank (“ECB”).
                                 
    Average exchange rates   Period-end exchange rates
    Six Months Ended   Six Months Ended           As of December 31,
Currencies   June 30, 2009   June 30, 2008   As of June 30, 2009   2008
Mexican peso
    18.4481       16.2398       18.5536       19.2334  
U.S. dollar
    1.3328       1.5304       1.4134       1.3917  
Venezuelan bolivar
    2.8619       3.2863       3.0350       2.9884  
Colombian peso
    3,095.9800       2,808.9900       3,048.7800       3,125.0000  
Chilean peso
    781.2500       714.8000       747.9400       885.7400  
New Peruvian Sol
    4.1357       4.3619       4.2572       4.3678  
Argentine peso
    4.9342       4.8667       5.4133       4.9197  
Statistical and Financial Information
     The following principles should be noted in reviewing the statistical and financial information contained herein:
    Average balances, when used, are based on the beginning and the month-end balances during each year. We do not believe that such monthly averages present trends that are materially different from those that would be presented by daily averages.
 
    The book value of BBVA’s ordinary shares held by its consolidated subsidiaries has been deducted from stockholders’ equity.
 
    Unless otherwise stated, any reference to loans refers to both loans and leases.
 
    Interest income figures include interest income on non-accruing loans to the extent that cash payments have been received in the period in which they are due.
 
    Financial information with respect to subsidiaries may not reflect consolidation adjustments.
 
    Certain numerical information in this Report may not sum due to rounding. In addition, percentage data regarding period-to-period changes is based on numbers which have not been rounded.

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SELECTED FINANCIAL DATA
     The historical financial information set forth below has been selected from, and should be read together with, the Interim Consolidated Financial Statements included herein. For information concerning the preparation and presentation of financial information contained herein, see “Presentation of Financial Information”. Also see “Exhibit I: U.S. GAAP Reconciliation” for a presentation of our stockholders’ equity and net income reconciled to U.S. GAAP.
EU-IFRS (*)
                 
    Six months ended June 30,
    2009   2008
    (in millions of euros, except per share/
    ADS data (in euros)
Consolidated income statement data
               
 
               
Interest and similar income
    12,911       14,782  
Interest expense and similar charges
    (6,053 )     (9,227 )
 
               
Net interest income
    6,858       5,555  
Dividend income
    248       241  
Share of profit or loss of entities accounted for using the equity method
    27       173  
Fee and commission income
    2,638       2,778  
Fee and commission expenses
    (457 )     (494 )
Net gains (losses) on financial assets and liabilities
    446       1,018  
Net exchange differences
    352       142  
Other operating income
    1,755       1,931  
Other operating expenses
    (1,487 )     (1,718 )
 
               
Gross income
    10,380       9,626  
Administration costs
    (3,734 )     (3,816 )
Depreciation and amortization
    (354 )     (338 )
Provisions (net)
    (152 )     (612 )
Impairment on financial assets (net)
    (1,945 )     (1,164 )
 
               
Net operating income
    4,195       3,696  
Impairment on other assets (net)
    (271 )     (6 )
Gains (losses) in written off assets not classified as non-current assets held for sale
    9       21  
Gains (losses) in non-current assets held for sale not classified as discontinued operations
    70       779  
 
               
Income before tax
    4,003       4,490  
Income tax
    (961 )     (1,213 )
 
               
Income from ordinary activities
    3,042       3,277  
Income from discontinued operations (net)
           
 
               
Net income
    3,042       3,277  
Net income attributed to parent company
    2,799       3,108  
Profit or loss attributed to minority interest
    243       169  
 
               
Per share/ADS(1) Data
               
Net operating income (2)
    1.12       0.99  
Numbers of shares outstanding (at period end)
    3,747,969,121       3,747,969,121  
Net income attributed to the parent company(2)
    0.75       0.83  
Dividends declared
    0.167       0.444  
 
(*)   EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004.
 
(1)   Each American Depositary Share (“ADS” or “ADSs”) represents the right to receive one ordinary share.
 
(2)   Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period (3,748 million shares for each of the six months ended June 30, 2009 and 2008).

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EU-IFRS (*)
                 
    As of June 30,   As of December 31,
    2009   2008
    (in millions of euros, except %)
Consolidated balance sheet data
               
 
               
Total assets
    542,634       542,650  
Capital stock
    1,837       1,837  
Loans and receivables (net)
    352,905       369,494  
Deposits from customers
    249,096       255,236  
Marketable debt securities and subordinated liabilities
    119,489       121,144  
Minority interest
    1,219       1,049  
Stockholders’ funds (1)
    29,383       26,586  
Stockholders’ equity(1)
    29,901       26,705  
Consolidated ratios
               
Profitability ratios:
               
Net interest income(2)
    2.5 %     2.3 %
Return on average total assets(3)
    1.1 %     1.0 %
Return on average equity(4)
    21.5 %     21.5 %
Credit quality data
               
Loan loss reserve
    7,778       7,506  
Loan loss reserve as a percentage of total loans and receivables (net)
    2.2 %     2.0 %
Substandard loans
    11,625       8,540  
Substandard loans as a percentage of total loans and receivables (net)
    3.2 %     2.3 %
 
(*)   EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004.
 
(1)   As presented in our consolidated balance sheet.
 
(2)   Represents net interest income as a percentage of average total assets.
 
(3   Represents annualized net income for the period, which we calculate as our net income for the period multiplied by two, as a percentage of average total assets for the period.
 
(4)   Represents annualized net income attributed to parent company for the period, which we calculate as our net income attributed to parent company for the period multiplied by two, as a percentage of average stockholders’ funds for the period.
U.S. GAAP Information
                 
    Six months ended June 30,
    2009   2008
    (in millions of euros, except per share/
    ADS data (in euros) or as otherwise indicated)
Consolidated income statement data
               
 
               
Net income(1)
    2,935       2,939  
Net Income attributable to parent company
    2,692       2,770  
Net income attributable to the non controlling interest
    243       169  
Basic earnings per share/ADS(2)(3)
    0.783       0.739  
Diluted earnings per share/ADS(2)(3)
    0.783       0.739  
Dividends per share/ADS (in dollars) (2)(3)(4)
    0.223       0.686  
 
               
Consolidated balance sheet data(5)
               
 
               
Total assets
    549,839       513,017  
Shareholders’ equity(6)
    35,706       32,994  
Total equity(7)
    36,925       34,043  
Basic shareholders’ equity per share/ADS(2)(3)
    9.53       8.80  
Diluted shareholders’ equity per share/ADS(2)(3)
    9.53       8.80  
 
(1)   Includes “Net Income attributable to parent company” and “Net income attributable to the non controlling interest” as required by SFAS 160.
 
(2)   Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period.
 
(3)   Each ADS represents the right to receive one ordinary share.
 
(4)   Dividends per share/ADS are converted into dollars at the average exchange rate for the relevant period, calculated based on the average of the noon buying rates for euro from the Federal Reserve Bank of New York on the last date in respect of which such information is published of each month during the relevant period.
 
(5)   At the end of the reported period.
 
(6)   Under U.S. GAAP “shareholders’ equity” is equivalent to “Total equity” net of “non controlling interest in subsidiaries” as required by SFAS 160.
 
(7)   Under U.S. GAAP “Total equity” is equivalent to “shareholders’ equity” and “non-controlling interests” as required by SFAS 160 (minority interests under EU-IFRS).

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Exchange Rates
     Spain’s currency is the euro. Unless otherwise indicated, the amounts that have been converted to euro in this Report have been done so at the corresponding exchange rate published by the ECB at the end of each relevant period.
     For convenience in the analysis of the information, the following tables describe, for the periods and dates indicated, information concerning the noon buying rate for euro, expressed in dollars per 1.00. The term “noon buying rate” refers to the rate of exchange for euros, expressed in U.S. dollars per euro, in the City of New York for cable transfers payable in foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes.
         
Year ended December 31   Average(1)
2007
    1.3797  
2008
    1.4695  
2009 (through September 25)
    1.3715  
 
(1)   The average of the noon buying rates for the euro on the last published date in respect of which such information is in each month during the relevant period.
                 
Month ended   High   Low
June 30, 2008
    1.5749       1.5368  
July 31, 2008
    1.5923       1.5559  
August 31, 2008
    1.5569       1.4660  
September 30, 2008
    1.4737       1.3939  
October 31, 2008
    1.4058       1.2446  
November 30, 2008
    1.3039       1.2525  
December 31, 2008
    1.4358       1.2634  
January 31, 2009
    1.3946       1.2804  
February 28, 2009
    1.3064       1.2547  
March 31, 2009
    1.3730       1.2549  
April 30, 2009
    1.3458       1.2903  
May 31, 2009
    1.4126       1.3267  
June 30, 2009
    1.4270       1.3784  
July 31, 2009
    1.4279       1.3852  
August 31, 2009
    1.4416       1.4075  
September 25, 2009
    1.4795       1.4235  
     The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per 1.00, on September 25, 2009, was $1.4682.
     As of June 30, 2009, approximately 33% of our assets and approximately 42% of our liabilities were denominated in currencies other than euro. See Note 2.2.4 to our Interim Consolidated Financial Statements.
BUSINESS OVERVIEW
     BBVA is a highly diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. We also have a portfolio of investments in some of Spain’s leading companies.
Business Areas
     The Group focuses its operations on six major business areas, as described below, which are further broken down into business units:
    Spain and Portugal;
 
    Wholesale Banking and Asset Management;
 
    Mexico;
 
    The United States;
 
    South America; and
 
    Corporate Activities
     The foregoing description of our business areas is consistent with our current internal organization. Unless otherwise indicated, the financial information provided below for each business area does not reflect the elimination of transactions between companies within one business area or between different business

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areas, since we consider these transactions to be an integral part of each business area’s activities. For the presentation and discussion of our consolidated operating results in the “Operating and Financial Review and Prospects” section, however, such intra- and inter-business area transactions are eliminated and the eliminations are generally reflected in the operating results of the Corporate Activities business area.
     The following table sets forth information relating to net income attributed to parent company for each of our business areas for the six months ended June 30, 2009 and 2008:
                                 
                    % of Income/(loss)
    Income/(loss) attributed   attributed to parent
    to parent company   company
    (in millions of euros, except %)
    Six months ended June 30,
    2009   2008   2009   2008
     
Spain and Portugal
    1,270       1,292       45 %     42 %
Wholesale Banking and Asset Management
    539       557       19 %     18 %
Mexico
    724       950       26 %     31 %
The United States
    85       164       3 %     5 %
South America
    463       351       17 %     11 %
     
Subtotal
    3,081       3,314       110 %     107 %
     
Corporate Activities
    (282 )     (206 )     (10 )%     (7 )%
     
Net income attributed to parent company
    2,799       3,108       100 %     100 %
     
     The following table sets forth information relating to net interest income for each of our business areas for the six months ended June 30, 2009 and 2008.
                 
    Net interest income
    (in millions of euros)
    Six months ended June 30,
    2009   2008
     
Spain and Portugal
    2,458       2,331  
Wholesale Banking and Asset Management
    573       259  
Mexico
    1,683       1,816  
The United States
    743       634  
South America
    1,210       999  
     
Subtotal
    6,667       6,039  
     
Corporate Activities
    191       (484 )
     
Net interest income
    6,858       5,555  
     
Spain and Portugal
     The Spain and Portugal business area focuses on providing banking services and consumer finance to private individuals and businesses in Spain and Portugal.
The business units included in the Spain and Portugal business area are:
    Spanish Retail Network: manages individual customers, high net-worth individuals and small companies and businesses in the Spanish market;
 
    Corporate and Business Banking: manages business with small and medium enterprises (“SMEs”), large companies, institutions and developers in the Spanish market;
 
    Consumer Finance: manages online banking, consumer finance, credit cards and leasing plans;
 
    European Insurance: manages the insurance business in Spain and Portugal;
 
    BBVA Portugal: manages the banking business in Portugal; and
 
    Dinero Express: specializes in the immigrant segment.
     The principal figures relating to this business area as of June 30, 2009 and December 31, 2008 were:
    Gross customer lending was 206,896 million, as of June 30, 2009 similar to the amount recorded as of December 31, 2008.
 
    Total customer deposits were 97,896 million as of June 30, 2009 compared to 100,893 million as of December 31, 2008, a decrease of 2.9%.

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    Mutual fund assets under management were 31,227 million as of June 30, 2009, a decrease of 0.1% from 31,270 million as of December 31, 2008.
 
    Pension fund assets under management were 9,758 million as of June 30, 2009, an increase of 1.6% from 9,603 million as of December 31, 2008.
Wholesale Banking and Asset Management
     The Wholesale Banking and Asset Management area focuses on providing services to large international companies and investment banking, capital markets and treasury management services to clients.
     The business units included in the Wholesale Banking and Asset Management area are:
    Corporate and Investment Banking: coordinates origination, distribution and management of a complete catalogue of corporate and investment banking products (corporate finance, structured finance, syndicated loans and debt capital markets) and provides global trade finance and global transaction services with coverage of large corporate customers specialized by sector (industry bankers);
 
    Global Markets: handles the origination, structuring, distribution and risk management of market products, which are placed through our trading floors in Europe, Asia and the Americas;
 
    Asset Management: designs and manages the products that are marketed through our different branch networks including traditional asset management, alternative asset management and Valanza (the Group’s private equity unit);
 
    Industrial and Real Estate Holdings: helps to diversify the area’s businesses with the aim of creating medium- and long-term value through active management of a portfolio of industrial holdings and real estate projects (Anida and the Duch Project); and
 
    Asia: represents our increased stakes in CITIC International Financial Holdings Ltd (“CIFH”) in Hong Kong (approximately 30%) and in China CITIC Bank (“CNCB”) (approximately 10%) and our commitment to China as demonstrated by aggregate investments that now exceed 2,000 million.
     The principal figures relating to this business area as of June 30, 2009 and December 31, 2008 were:
    Gross customer lending was 44,814 million, a decrease of 8.6% from 49,059 million as of December 31, 2008.
 
    Total customer deposits were 60,852 million as of June 30, 2009 compared to 62,568 million as of December 31, 2008, a decrease of 2.7%.
 
    Mutual fund assets under management were 3,548 million as of June 30, 2009, a decrease of 11.6% from 4,014 million as of December 31, 2008.
 
    Pension fund assets under management were 6,913 million as of June 30, 2009, an increase of 1.5% from 6,810 million as of December 31, 2008.
Mexico
     The business units included in the Mexico area are:
    Banking Businesses; and
 
    Pensions and Insurance Businesses
     The principal figures relating to this business area as of June 30, 2009 and December 31, 2008 were:
    Gross customer lending was 28,692 million, an increase of 0.2% from 28,644 million as of December 31, 2008.
 
    Total customer deposits were 30,372 million as of June 30, 2009 compared to 29,677 million as of December 31, 2008, an increase of 2.3%.
 
    Mutual fund assets under management were 10,524 million as of June 30, 2009, an increase of 14.6% from 9,180 million as of December 31, 2008.
 
    Pension fund assets under management were 8,659 million as of June 30, 2009, an increase of 20.3% from 7,196 million as of December 31, 2008.

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     The Mexican peso to euro exchange rate as of June 30, 2009 decreased compared to the exchange rate as of December 31, 2008, with a resulting positive impact on our consolidated balance sheet as of June 30, 2009. The average Mexican peso to euro exchange rate for the six months ended June 30, 2009 increased compared to the average exchange rate for the six months ended June 30, 2008, with a resulting negative impact on our consolidated income statement for the six months ended June 30, 2009. See “Presentation of Financial Information—Factors Affecting the Comparability of our Results of Operations and Financial Condition”.
The United States
     The business units included in the United States area are:
    BBVA Compass banking group; and
 
    Other units: BBVA Puerto Rico, BTS and BBVA Bancomer USA
     The principal figures relating to this business area as of June 30, 2009 and December 31, 2008 were:
    Gross customer lending was 30,223 million as of June 30, 2009, a decrease of 4.1% from 31,518 million as of December 31, 2008.
 
    Total customer deposits were 25,377 million as of June 30, 2009 compared to 26,240 million as of December 31, 2008, a decrease of 3.3%.
     The dollar to euro exchange rate as of June 30, 2009 increased compared to the exchange rate as of December 31, 2008, with a resulting negative impact on our consolidated balance sheet as of June 30, 2009. The average dollar to euro exchange rate for the six months ended June 30, 2009 decreased compared to the average exchange rate for the six months ended June 30, 2008, with a resulting positive impact on our consolidated income statement for the six months ended June 30, 2009. See “Presentation of Financial Information—Factors Affecting the Comparability of our Results of Operations and Financial Condition”.
South America
     The South America business area includes the banking, insurance and pension businesses of the Group in South America.
     The business units included in the South America business area are:
    Banking businesses, including banks in Argentina, Chile, Colombia, Panama, Paraguay, Peru, Uruguay and Venezuela;
 
    Pension businesses in Argentina, Bolivia, Chile, Colombia, Ecuador, Peru and the Dominican Republic; and
 
    Insurance businesses in Argentina, Chile, Colombia, the Dominican Republic and Venezuela.
     The principal figures relating to this business area as of June 30, 2009 and December 31, 2008 were:
    Gross customer lending was 25,268 million as of June 30, 2009, an increase of 0.1% from 25,255 million as of December 31, 2008.
 
    Total customer deposits were 30,941 million as of June 30, 2009, an increase of 5.3% from 29,382 million as of December 31, 2008.
 
    Mutual fund assets under management were 1,887 million as of June 30, 2009, an increase of 45.1% from 1,300 million as of December 31, 2008.
 
    Pension fund assets under management were 31,568 million as of June 30, 2009, an increase of 28.7% from 24,531 million as of December 31, 2008.
     Local currencies in South America generally fell against the euro in the six months ended June 30, 2009, with a resulting negative impact on our Interim Consolidated Financial Statements as of and for the six months ended June 30, 2009. See “Presentation of Financial Information—Factors Affecting the Comparability of our Results of Operations and Financial Condition”.
Corporate Activities
     The Corporate Activities area handles the Group’s general management functions. These mainly consist of structural positions for interest rates associated with the euro balance sheet and exchange rates, together with liquidity management and shareholders’ funds.

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     The business units included in the Corporate Activities business area are:
    Financial Planning, carried out by the Group’s Assets and Liabilities Committee (“ALCO”), which administers the Group’s interest- and exchange-rate structure as well as its overall liquidity and shareholders’ funds; and
 
    Holdings in Industrial and Financial Companies: manages the Group’s investment portfolio in industrial and financial companies applying strict criteria for risk control, economic capital consumption and return on investment, with diversification over different industries.

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SELECTED STATISTICAL INFORMATION
     The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our calculation that our foreign operations are significant according to Rule 9-05 of Regulation S-X.
Average Balances and Rates
     The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each year. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages. Interest income figures, when used, include interest income on non-accruing loans to the extent that cash payments have been received. Loan fees are included in the computation of interest revenue.
                                                 
    Average Balance Sheet — Assets and Interest from Earning Assets
    Six months ended June 30, 2009   Six months ended June 30, 2008
    Average           Average   Average           Average
    Balance   Interest   Yield(1)   Balance   Interest   Yield(1)
    (in millions of euros, except percentages)
Assets
                                               
Cash and balances with central banks
    17,760       150       1.71 %     13,130       225       3.45 %
Debt securities, equity instruments and derivatives
    134,238       2,171       3.26 %     114,803       2,426       4.25 %
Loans and receivables
    361,153       10,520       5.87 %     341,252       12,002       7.09 %
Loans and advances to credit institutions
    27,569       440       3.22 %     28,966       690       4.79 %
In euro(2)
    16,466       264       3.23 %     20,446       468       4.61 %
In other currencies(3)
    11,103       176       3.19 %     8,520       222       5.24 %
Loans and advances to customers
    333,584       10,081       6.09 %     312,286       11,312       7.28 %
In euro(2)
    224,373       5,324       4.78 %     216,856       6,323       5.86 %
In other currencies(3)
    109,211       4,757       8.78 %     95,430       4,989       10.51 %
Other financial income
          69                   129        
Non-earning assets
    32,199                   30,273              
                         
Total average assets
    545,350       12,911       4.77 %     499,458       14,782       5.95 %
                         
 
(1)   Rates have been presented on a non-taxable equivalent basis.
 
(2)   Amounts reflected in euro correspond to predominantly domestic activities.
 
(3)   Amounts reflected in other currencies correspond to predominantly foreign activities.
                                                 
    Average Balance Sheet — Liabilities and Interest paid on interest bearing Liabilities  
    Six months ended June 30, 2009     Six months ended June 30, 2008  
    Average             Average     Average             Average  
    Balance     Interest     Yield(1)     Balance     Interest     Yield(1)  
    (in millions of euros, except percentages)  
Liabilities
                                               
Deposits from central banks and credit institutions
    72,081       1,316       3.68 %     73,905       1,883       5.12 %
In euro(2)
    30,854       572       3.74 %     31,528       799       5.10 %
In other currencies(3)
    41,227       744       3.64 %     42,377       1,084       5.14 %
Customer deposits
    248,261       2,546       2.07 %     227,863       3,779       3.34 %
In euro(2)
    116,854       899       1.55 %     114,453       1,699       2.99 %
In other currencies(3)
    131,407       1,647       2.53 %     113,410       2,080       3.69 %
Debt securities and subordinated liabilities
    123,203       1,920       3.14 %     118,548       3,176       5.39 %
In euro(2)
    94,067       1,482       3.18 %     99,078       2,716       5.51 %
In other currencies(3)
    29,136       438       3.02 %     19,470       460       4.75 %
Other financial costs
          271                   389        
Non-interest-bearing liabilities
    73,369                   51,911              
Stockholders’ equity
    28,436                   27,230              
                         
Total average liabilities
    545,350       6,053       2.24 %     499,458       9,227       3.72 %
                         
 
(1)   Rates have been presented on a non-taxable equivalent basis.
 
(2)   Amounts reflected in euro correspond to predominantly domestic activities.
 
(3)   Amounts reflected in other currencies correspond to predominantly foreign activities.

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Changes in Net Interest Income—Volume and Rate Analysis
     The following table allocates changes in our net interest income between changes in volume and changes in rate for the six months ended June 30, 2009 compared to the six months ended June 30, 2008. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from the following table are interest payments on loans which are made in a period other than the period during which they are due. Loan fees were included in the computation of interest income.
                         
    Six months ended June 30, 2009/
    Six months ended June 30, 2008
    Increase (decrease) due to changes in
    Volume (1)   Rate(1) (2)   Net Change
    (in millions of euros)
Interest income
                       
Cash and balances with central bank
    78       (153 )     (75 )
Debt securities, equity instruments and derivatives
    395       (650 )     (255 )
Loans and advances to credit institutions
    (37 )     (214 )     (251 )
In euros
    (93 )     (111 )     (204 )
In other currencies
    66       (112 )     (46 )
Loans and advances to customers
    705       (1,937 )     (1,232 )
In euros
    183       (1,183 )     (1,000 )
In other currencies
    689       (921 )     (232 )
Other financial income
          (59 )     (59 )
 
                       
Total income
    1,270       (3,141 )     (1,871 )
Interest expense
                       
Deposits from central banks and credit institutions
    (57 )     (510 )     (567 )
In euros
    (21 )     (205 )     (227 )
In other currencies
    (35 )     (305 )     (340 )
Customer deposits
    316       (1,550 )     (1,234 )
In euros
    26       (826 )     (800 )
In other currencies
    317       (751 )     (434 )
Debt certificates and subordinated liabilities
    107       (1,363 )     (1,256 )
In euros
    (152 )     (1,083 )     (1,234 )
In other currencies
    225       (248 )     (23 )
Other financial costs
          (118 )     (118 )
 
                       
Total expense
    792       (3,967 )     (3,175 )
 
                       
Net interest income
    478       826       1,303  
 
                       
 
(1)   Variances caused by changes in both volume and rate have been allocated proportionally to volume and rate.
 
(2)   Rates have been presented on a non-taxable equivalent basis.
Interest Earning Assets—Margin and Spread
     The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the periods indicated.
                 
    Six months ended June 30,
    2009(*)   2008(*)
    (in millions of euros, except %)
Average interest earning assets
    513,151       469,185  
Gross yield (1)
    2.47 %     3.10 %
Net yield (2)
    2.32 %     2.91 %
Net interest margin (3)
    1.34 %     1.18 %
Average effective rate paid on all interest-bearing liabilities
    1.11 %     1.85 %
Spread (4)
    1.36 %     1.25 %
 
(*)   Ratios are not annualized.
 
(1)   Gross yield represents total interest income divided by average interest earning assets.
 
(2)   Net yield represents total interest income divided by total average assets.
 
(3)   Net interest margin represents net interest income as percentage of average interest earning assets.
 
(4)   Spread is the difference between gross yield and the average cost of interest-bearing liabilities.

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ASSETS
Interest-Bearing Deposits in Other Banks
     As of June 30, 2009, interbank deposits represented 3.74% of our assets. Of such interbank deposits, 29.47% were held outside of Spain and 70.53% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. Such deposits, however, are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.
Securities Portfolio
     As of June 30, 2009, our securities were carried on our consolidated balance sheet at a book value of 99,752 million, representing 18.38% of our assets compared to 15.74% of our assets as of December 31, 2008. 25,076 million or 25.14% of our securities consisted of Spanish Treasury bonds and Treasury bills. The average yield for the six months ended June 30, 2009 on investment securities that BBVA held was 3.95%, compared to an average yield of approximately 5.87% earned on loans and receivables for the six months ended June 30, 2009. The market or appraised value of our total securities portfolio as of June 30, 2009 was 99,733 million. See Notes 10, 12 and 14 to the Interim Consolidated Financial Statements. For a discussion of our investments in affiliates, see Note 17 to the Interim Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.2.1.a and 8 to the Interim Consolidated Financial Statements. Our holdings of Spanish government debt increased significantly year-on-year as such debt had an attractive risk — return profile in the light of the financial crisis.
     The following table analyzes the book value and market value of our ownership of debt securities and equity securities as of June 30, 2009 and 2008. Trading portfolio and investments in affiliated companies consolidated under the equity method are not included in the tables below because the amortized costs and fair values of these items are the same. See Note 10 to the Interim Consolidated Financial Statements.
                                 
    As of June 30, 2009   As of June 30, 2008
    Amortized           Amortized    
    Cost   Fair Value(1)   Cost   Fair Value(1)
    (in millions of euros)
DEBT SECURITIES —
                               
 
                               
AVAILABLE FOR SALE PORTFOLIO
                               
Domestic—
    20,424       20,557       10,193       10,150  
Spanish Government
    14,520       14,645       4,456       4,457  
Other debt securities
    5,904       5,912       5,737       5,693  
International—
    29,502       29,062       26,969       26,687  
United States —
    7,534       7,262       8,372       8,270  
U.S. Treasury and other U.S. Government agencies
    455       423       81       82  
States and political subdivisions
    415       426       365       365  
Other debt securities
    6,664       6,413       7,926       7,823  
Other countries —
    21,968       21,800       18,597       18,417  
Securities of other foreign Governments
    14,257       14,255       11,026       10,940  
Other debt securities
    7,711       7,545       7,572       7,477  
 
                               
TOTAL AVAILABLE FOR SALE PORTFOLIO
    49,926       49,619       37,162       36,837  
 
                               
HELD TO MATURITY PORTFOLIO
                               
Domestic—
    2,279       2,240       2,374       2,180  
Spanish Government
    1,335       1,339       1,398       1,299  
Other debt securities
    944       901       976       881  
International—
    2,820       2,840       3,028       2,848  
 
                               
TOTAL HELD TO MATURITY PORTFOLIO
    5,099       5,080       5,402       5,028  
 
                               
TOTAL DEBT SECURITIES
    55,025       54,699       42,565       41,865  
 
                               
 
(1)   Fair values for listed securities are determined on the basis of their quoted values at the end of the period. Appraised values are used for unlisted securities based on our estimate or on unaudited financial statements, when available.

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    As of June 30, 2009   As of June 30, 2008
    Amortized           Amortized    
    Cost   Fair Value(1)   Cost   Fair Value(1)
    (in millions of euros)
EQUITY SECURITIES —
                               
AVAILABLE FOR SALE PORTFOLIO
                               
Domestic—
    3,319       4,618       4,119       6,203  
Equity listed
    3,287       4,586       4,076       6,165  
Equity unlisted
    32       32       43       38  
International—
    3,127       3,148       3,127       3,159  
United States—
    603       696       705       692  
Equity listed
    106       89       479       473  
Equity unlisted
    497       607       226       219  
Other countries—
    2,524       2,452       2,422       2,467  
Equity listed
    2,263       2,189       2,302       2,338  
Equity unlisted
    261       263       120       129  
 
                               
TOTAL AVAILABLE FOR SALE PORTFOLIO
    6,446       7,766       7,246       9,363  
 
                               
TOTAL EQUITY SECURITIES
    6,446       7,766       7,246       9,363  
 
                               
TOTAL INVESTMENT SECURITIES
    61,471       62,465       49,811       51,227  
 
                               
 
(1)   Fair values for listed securities are determined on the basis of their quoted values at the end of the period. Appraised values are used for unlisted securities based on our estimate or on unaudited financial statements, when available.
     The following table analyzes the maturities of our debt securities, excluding trading portfolio, by type and geographical area as of June 30, 2009.
                                                                         
    Maturing at one year or   Maturing after one year   Maturing after five   Maturing after ten    
    less   to five years   year to ten years   years    
    Amount   Yield %(1)   Amount   Yield %(1)   Amount   Yield %(1)   Amount   Yield %(1)   Total
    (in millions of euros, except %)
AVAILABLE FOR SALE PORTFOLIO
                                                                       
Domestic:
                                                                       
Spanish government
    119       5.74       6,694       4.24       4,003       4.28       3,829       5.56       14,645  
Other debt securities
    1,067       3.80       3,732       3.71       278       3.38       835       3.74       5,912  
 
                                                                       
Total Domestic
    1,186       3.97       10,426       4.04       4,281       4.21       4,664       5.16       20,557  
 
                                                                       
International:
                                                                       
United States:
    985       4.69       3,083       5.30       1,784       4.62       1,410       1.77       7,262  
U.S. Treasury and other U.S. government securities
    160       3.46       18       5.28                   245       0.96       423  
States and political subdivisions
    70       6.74       145       6.31       159       6.32       52       6.41       426  
Other debt securities
    755       4.85       2,920       5.27       1,625       4.51       1,113       1.82       6,413  
Other countries:
    2,603       3.93       9,799       5.37       5,438       5.40       3,960       4.85       21,800  
Securities of other foreign governments
    666       6.41       7,483       5.90       4,018       5.88       2,088       5.26       14,255  
Other debt securities
    1,937       3.25       2,316       3.67       1,420       4.25       1,872       4.46       7,545  
 
                                                                       
Total International
    3,588       4.16       12,882       5.35       7,222       5.19       5,370       3.80       29,062  
 
                                                                       
Total Available for sale
    4,774       4.10       23,308       4.70       11,503       4.78       10,034       4.44       49,619  
 
                                                                       
HELD TO MATURITY PORTFOLIO
                                                                       
Domestic:
    164       4.59       330       4.68       1,603       3.47       182       3.93       2,279  
Spanish government
    110       5.11       118       5.25       1,053       3.22       54       4.20       1,335  
Other debt securities
    54       3.47       212       4.35       550       3.96       128       3.81       944  
International:
    85       5.27       918       4.00       1,594       4.09       223       3.75       2,820  
 
                                                                       
Total held to maturity
    249       4.82       1,248       4.17       3,197       3.78       405       3.83       5,099  
 
                                                                       
TOTAL DEBT SECURITIES
    5,023       4.14       24,556       4.67       14,700       4.56       10,439       4.42       54,718  
 
                                                                       
 
(1)   Rates have been presented on a non-taxable equivalent basis.

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Loans and Advances to Credit Institutions
     As of June 30, 2009, our total loans and advances to credit institutions amounted to 24,513 million, or 4.52% of total assets compared to 6.21% of total assets as of December 31, 2008. Net of our valuation adjustments, loans and advances to credit institutions amounted to 24,533 million as of June 30, 2009, or 4.52% of our total assets.
Loans and Advances to Customers
     As of June 30, 2009, our total loans and leases amounted to 334,440 million, or 61.63% of total assets compared to 62.90% of total assets as of December 31, 2008. Net of our valuation adjustments, loans and leases amounted to 327,926 million as of June 30, 2009, or 60.43% of our total assets. As of June 30, 2009 our loans in Spain amounted to 206,731 million. Our foreign loans amounted to 127,709 million as of June 30, 2009.
      Loans by Geographic Area
     The following table analyzes, by domicile of the customer, our net loans and leases as of each of the dates indicated:
                         
            As of    
    As of June 30,   December 31,   As of June 30,
    2009   2008   2008
    (in millions of euros)
Domestic
    206,731       208,474       210,968  
Foreign
                       
Western Europe
    26,854       28,546       24,879  
Latin America
    60,693       61,978       58,478  
United States
    34,310       35,498       33,545  
Other
    5,852       6,826       4,871  
Total foreign
    127,709       132,848       121,773  
 
                       
Total loans and leases
    334,440       341,322       332,741  
 
                       
Valuation adjustments
    (6,514 )     (6,062 )     (6,810 )
 
                       
Total net lending
    327,926       335,260       325,931  
 
                       

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     Loans by Type of Customer
     The following table analyzes by domicile and type of customer our net loans and leases as of each of the dates indicated. The analyses by type of customer are based principally on the requirements of the regulatory authorities in each country.
                         
            As of        
    As of June 30,     December 31,     As of June 30,  
    2009     2008     2008  
    (in millions of euros)  
Domestic
                       
Government
    18,951       17,436       17,219  
Agriculture
    1,801       1,898       1,930  
Industrial
    17,613       17,976       18,773  
Real estate and construction
    37,755       38,632       37,440  
Commercial and financial
    18,750       17,165       15,607  
Loans to individuals
    88,454       88,712       92,450  
Lease financing
    7,087       7,702       8,009  
Other
    16,320       18,953       19,540  
 
                 
Total domestic
    206,731       208,474       210,968  
Foreign
                       
Government
    5,101       5,066       5,316  
Agriculture
    1,916       2,211       1,772  
Industrial
    29,184       28,600       24,736  
Real estate and construction
    15,787       15,890       10,872  
Commercial and financial
    26,097       27,720       30,074  
Loans to individuals
    37,332       39,178       37,080  
Lease financing
    1,632       1,683       1,443  
Other
    10,660       12,500       10,480  
 
                 
Total foreign
    127,709       132,848       121,773  
 
                 
Total loans and leases
    334,440       341,322       332,741  
Valuation adjustments
    (6,514 )     (6,062 )     (6,810 )
 
                 
Total net lending
    327,926       335,260       325,931  
 
                 
     The following table sets forth a breakdown, by currency, of our net loan portfolio as of each of the dates indicated:
                         
            As of        
    As of June 30,     December 31,     As of June 30,  
    2009     2008     2008  
    (in millions of euros)  
In euros
    221,901       226,855       227,446  
In other currencies
    106,026       108,405       98,485  
 
                 
Total net lending
    327,926       335,260       325,931  
 
                 
     As of June 30, 2009, loans by BBVA and its subsidiaries to associates and jointly controlled companies amounted to 638 million, compared to 507 million as of December 31, 2008. Loans outstanding to the Spanish government and its agencies amounted to 19,231 million, or 5.75% of our total loans and leases as of June 30, 2009, compared to 17,770 million, or 5.21% of our total loans and leases as of December 31, 2008. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.
     Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our five largest borrowers as of June 30, 2009, excluding government-related loans, amounted to 14,636 million or approximately 4.38% of our total outstanding loans and leases.

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     Maturity and Interest Sensitivity
     The following table sets forth an analysis by maturity of our total loans and leases by domicile of the office that issued the loan and type of customer, disregarding valuation adjustment, as of June 30, 2009. The determination of maturities is based on contract terms.
                                 
    Maturity        
            Due After One              
    Due in One     Year Through     Due After        
    Year or Less     Five Years     Five Years     Total  
    (in millions of euros)  
Domestic:
                               
Government
    7,699       5,271       5,980       18,950  
Agriculture
    721       667       413       1,801  
Industrial
    13,091       3,128       1,394       17,613  
Real estate and construction
    14,628       9,481       13,646       37,755  
Commercial and financial
    10,230       5,365       3,155       18,750  
Loans to individuals
    10,972       16,826       60,656       88,454  
Lease financing
    581       2,860       3,646       7,087  
Other
    10,473       3,380       2,467       16,320  
 
                       
Total domestic
    68,395       46,978       91,357       206,730  
 
                       
Foreign:
                               
Government
    499       2,883       1,719       5,101  
Agriculture
    850       931       135       1,916  
Industrial
    9,673       15,695       3,816       29,184  
Real estate and construction
    7,700       5,323       2,764       15,787  
Commercial and financial
    12,589       9,757       3,750       26,096  
Loans to individuals
    2,657       10,453       24,223       37,333  
Lease financing
    430       1,025       177       1,632  
Other
    4,608       4,479       1,574       10,661  
 
                       
Total foreign
    39,006       50,546       38,158       127,710  
Total loans and leases
    107,401       97,524       129,515       334,440  
 
                       
     The following table sets forth a breakdown of our fixed and variable rate loans which had a maturity of one year or more as of June 30, 2009.
                         
    Interest Sensitivity of  
    Outstanding Loans and Leases  
    Maturing in More Than One  
    Year  
    Domestic     Foreign     Total  
    (in millions of euros)  
Fixed rate
    19,394       50,965       70,359  
Variable rate
    118,942       37,738       156,680  
 
                 
Total loans and leases
    138,336       88,703       227,039  
 
                 
Loan Loss Reserve for Loans and Advances
     For a discussion of loan loss reserves, as of June 30, 2009 and December 31, 2008, see “Item 5. Operating and Financial Review and Prospects—Critical accounting policies—Allowance for loan losses” in our 2008 Form 20-F and Note 2.2.1.b) to the Interim Consolidated Financial Statements included herein.
     The following table provides information, by domicile of customer, regarding our loan loss reserve and movements of loan charge-offs and recoveries for periods indicated.

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    Six months     Year ended     Six months  
    ended June 30     December 31     ended June 30  
    2009     2008     2008  
    (in millions of euros, except %)  
Loan loss reserve at beginning of period:
                       
Domestic
    3,766       3,459       3,459  
Foreign
    3,740       3,685       3,685  
 
                 
Total loan loss reserve at beginning of period
    7,506       7,144       7,144  
 
                 
Loans charged off:
                       
Domestic:
                       
Government and other Agencies
                 
Real estate and loans to individuals
    (323 )     (639 )     (252 )
Commercial and financial
    (9 )     (16 )     (7 )
Other
                 
Total Domestic
    (332 )     (655 )     (259 )
Foreign
    (1,050 )     (1,296 )     (523 )
 
                 
Total loans charged off
    (1,382 )     (1,951 )     (782 )
 
                 
Provision for loan losses:
                       
Domestic
    594       953       425  
Foreign
    1,356       2,035       810  
 
                 
Total provision for loan losses
    1,950       2,988       1,235  
Acquisition and disposition of subsidiaries
                 
Effect of foreign currency translation and other
    (294 )     (676 )     (189 )
 
                 
 
                       
Loan loss reserve at end of period:
                       
Domestic
    3,885       3,766       3,633  
Foreign
    3,893       3,740       3,775  
Total loan loss reserve at end of period
    7,778       7,506       7,408  
Loan loss reserve as a percentage of total loans and leases at end of period
    2.20 %     2.03 %     2.07 %
Net loan charge-offs as a percentage of total loans and leases at end of period
    0.39 %     0.53 %     0.22 %
     As of June 30, 2009, our loan loss reserves as a percentage of total loans and leases increased to 2.20% from 2.03% as of December 31, 2008, principally due to the increase in provisions and a decrease in total loans and leases.
     We do not maintain records allocating the amount of charge-offs and the amount of recoveries by loan category. Also, at the time that a loan is charged off in accordance with Bank of Spain guidelines, it will normally be substantially or fully reserved and, accordingly, such charge-off would have a very limited effect on our net income attributed to parent company or stockholders’ equity. Accordingly, we believe that information relating to domestic reserves and charge-offs by loan category is of less relevance than would be the case for a U.S. bank.
Substandard Loans
     We classify loans as substandard loans in accordance with the requirements under EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 in respect of “impaired loans”. As we described in Note 2.2.1.b) to the Interim Consolidated Financial Statements, loans are considered to be impaired loans, and accrual of the interest thereon is suspended, when there are reasonable doubts that the loans will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed upon, taking into account the guarantees received by the consolidated entities to assure (in part or in full) the performance of transactions. In addition, all loans that are 90 days past due, even if well-collateralized and in the process of being collected are automatically considered non-accrual if they are classified as substandard loans.
     When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.
     Interest on all of our substandard non-accrual loans is not credited to income until actually collected. The aggregated amount of gross interest income that would have been recorded in respect of our substandard loans for the six months ended June 30, 2009 and 2008 under EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 was 1,257 million and 839 million, respectively.

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     Amounts collected in relation to impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the principal not yet repaid. The approximate amount of interest income on our substandard loans to customers which was included in net income attributed to parent company for the six months ended June 30, 2009 and 2008 under EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 was 89 million and 73 million, respectively.
     The following table provides information regarding our substandard loans as of the dates indicated:
                 
    As of June 30,     As of December 31,  
    2009     2008  
    (in millions of euros, except %)  
Substandard loans:
               
Domestic
    8,156       5,700  
Public sector
    61       79  
Other resident sectors
    7,797       5,483  
Non-resident sector
    298       138  
Foreign
    3,469       2,840  
Public sector
    38       22  
Other resident sectors
           
Non-resident sector
    3,431       2,818  
 
           
Total substandard loans
    11,625       8,540  
 
           
Total loan loss reserve
    (7,778 )     (7,505 )
 
           
Substandard loans net of reserves
    3,847       1,035  
Substandard loans as a percentage of total loans and receivables (net)
    3.2 %     2.3 %
Substandard loans (net of reserves) as a percentage of total loans and receivables (net)
    1.1 %     0.3 %
     Our total substandard loans jumped to 11,625 million as of June 30, 2009, compared to 8,540 million as of December 31, 2008, principally due to an increase in substandard loans to customers in Spain generally due to a less favorable macroeconomic environment. As a result of the increase in total substandard loans described above, our substandard loans as a percentage of total loans and receivables (net) increased sharply from 2.3% as of December 31, 2008 to 3.2% as of June 30, 2009. Our loan loss reserves as a percentage of substandard loans as of June 30, 2009 declined to 67% from 88% as of December 31, 2008.
     Substandard loans to other resident sectors in Spain increased as of June 30, 2009 to 8,156 from 5,700 as of December 31, 2008 mainly due to the increase in substandard mortgage loans and real estate and construction loans. Substandard mortgage loans increased sharply to 2,867 million as of June 30, 2009 from 2,033 million as of December 31, 2008 and real estate and construction loans increased sharply to 3,411 million, as of June 30, 2009, from 2,176 million as of December 31, 2008.
     The following table provides information, by domicile and type of customer, regarding our substandard loans and the loan loss reserves to customers taken for each substandard loan category, as of June 30, 2009.
                         
                    Substandard  
                    Loans as a  
            Loan     percentage  
    Substandard     Loss     of Loans in  
    Loans     Reserve     Category  
    (in millions of euros, except %)  
Domestic:
                       
Government
    61       7       0.32 %
Agricultural
    68       23       3.79 %
Industrial
    470       161       2.67 %
Real estate and construction
    3,411       845       9.03 %
Commercial and financial
    653       204       3.48 %
Loans to individuals
    3,021       646       3.42 %
Other
    472       213       2.02 %
 
                   
Total domestic
    8,156       2,099       3.95 %
 
                   
Total foreign
    3,469       2,048       2.72 %
Unllocated reserve
          3,631          
 
                   
Total
    11,625       7,778       3.48 %
 
                   

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Foreign Country Outstandings
     The following tables set forth, as of the dates indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 1% of our total assets as of June 30, 2009 and as of December 31, 2008. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our subsidiaries in South America, Mexico and United States.
                                 
    As of June 30,   As of December 31,
    2009   2008
            % of Total           % of Total
    Amount   Assets   Amount   Assets
    (in millions of euros, except percentages)
OECD
                               
United Kingdom
    6,576       1.21 %     7,542       1.39 %
Mexico
    4,056       0.75 %     4,644       0.86 %
Other OECD
    5,944       1.10 %     6,514       1.20 %
 
                               
Total OECD
    16,576       3.05 %     18,700       3.45 %
Central and South America
    3,606       0.66 %     4,092       0.75 %
Others
    4,960       0.91 %     5,676       1.05 %
 
                               
Total
    25,142       4.63 %     28,468       5.25 %
 
                               
     The following tables set forth the amounts of our cross-border outstandings as of as of June 30, 2009 and December 31, 2008 by type of borrower where outstandings in the borrower’s country exceeded 1% of our total assets.
                                 
            Banks and        
            Other   Commercial,    
            Financial   Industrial    
    Governments   Institutions   and Other   Total
    (in millions of euros)
As of June 30, 2009
                               
Mexico
    4       111       3,941       4,056  
United Kingdom
          4,763       1,813       6,576  
 
                               
Total
    4       4,874       5,754       10,632  
 
                               
 
                               
As of December 31, 2008
                               
Mexico
    4       228       4,412       4,644  
United Kingdom
          5,113       2,429       7,542  
 
                               
Total
    4       5,341       6,841       12,186  
 
                               
     The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.

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     The following table shows the minimum required reserves with respect to each category of country for BBVA’s level of coverage as of June 30, 2009.
         
    Minimum Percentage of
    Coverage (Outstandings
Categories(1)   Within Category)
Countries belonging to the OECD whose currencies are listed in the Spanish foreign exchange market
    0.0  
Countries with transitory difficulties(2)
    10.1  
Doubtful countries(2)
    22.8  
Very doubtful countries(2)(3)
    83.5  
Bankrupt countries(4)
    100.0  
 
(1)   Any outstanding which is guaranteed may be treated, for the purposes of the foregoing, as if it were an obligation of the guarantor.
 
(2)   Coverage for the aggregate of these three categories (countries with transitory difficulties, doubtful countries and very doubtful countries) must equal at least 35% of outstanding loans within the three categories. The Bank of Spain has recommended up to 50% aggregate coverage.
 
(3)   Outstandings to very doubtful countries are treated as substandard under Bank of Spain regulations.
 
(4)   Outstandings to bankrupt countries must be charged off immediately. As a result, no such outstandings are reflected on our consolidated balance sheet. Notwithstanding the foregoing minimum required reserves, certain interbank outstandings with an original maturity of three months or less have minimum required reserves of 50%. We met or exceeded the minimum percentage of required coverage with respect to each of the foregoing categories as of June 30, 2009.
     Our exposure to borrowers in countries with difficulties (the last 4 categories in the foregoing table), excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to 1,562 million and 334 million as of June 30, 2009 and December 31, 2008, respectively, due to the categorization by the Bank of Spain of Brazil as a “country with transitory difficulties”. These figures do not reflect loan loss reserves of 12.02% and 14.07%, respectively, against the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of June 30, 2009 did not in the aggregate exceed 0.29% of our total assets.
LIABILITIES
Deposits
     The principal components of our customer deposits are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits by principal geographic area for the dates indicated.
                                 
    As of June 30, 2009
            Bank of Spain and   Other    
    Customer   Other Central   Credit    
    Deposits   Banks   Institutions   Total
    (in millions of euros)
Total domestic
    96,576       17,644       8,416       122,636  
Foreign:
                               
Western Europe
    26,068       4,847       18,047       48,962  
Latin America
    61,719       831       13,273       75,823  
United States
    60,472       3,241       6,186       69,899  
Other
    3,234       388       3,831       7,453  
 
                               
Total foreign
    151,493       9,307       41,337       202,137  
 
                               
Total
    248,069       26,951       49,753       324,773  
 
                               

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    As of December 31, 2008
            Bank of Spain and   Other    
    Customer   Other Central   Credit    
    Deposits   Banks   Institutions   Total
    (in millions of euros)
Total domestic
    105,146       6,132       6,220       117,498  
Foreign:
                               
Western Europe
    26,341       5,524       20,293       52,158  
Latin America
    57,193       844       10,987       69,024  
United States
    56,185       4,061       9,297       69,543  
Other
    8,860       201       2,776       11,837  
 
                               
Total foreign
    148,579       10,630       43,353       202,562  
 
                               
Total
    253,725       16,762       49,573       320,061  
 
                               
     For an analysis of our deposits, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 22 to the Interim Consolidated Financial Statements.
     As of June 30, 2009, the maturity of our time deposits (excluding interbank deposits) in denominations of $100,000 (approximately 70,751 considering the noon buying rate as of June 30, 2009) or greater was as follows:
                         
    As of June 30, 2009
    Domestic   Foreign   Total
    (in millions of euros)
3 months or under
    8,420       51,116       59,536  
Over 3 to 6 months
    5,458       12,005       17,463  
Over 6 to 12 months
    6,998       3,045       10,043  
Over 12 months
    9,165       3,111       12,276  
 
                       
Total
    30,041       69,277       99,318  
 
                       
     Time deposits from Spanish and foreign financial institutions amounted to 33,432 million as of June 30, 2009, substantially all of which were in excess of $100,000 (approximately 70,751 as of June 30, 2009).
     Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by currency of customer deposits as of June 30, 2009 and December 31, 2008, see Note 22 to the Interim Consolidated Financial Statements.

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Short-term Borrowings
     Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity as of June 30, 2009, December 31, 2008 and June 30, 2008.
                 
    As of June 30, 2009
    Amount   Average rate
    (in millions of euros, except
percentages)
Securities sold under agreements to repurchase (principally Spanish Treasury bills):
               
As of June 30
    26,756       3.23 %
Average during first half year
    24,635       3.37 %
Maximum quarter-end balance
    29,421        
Bank promissory notes:
               
As of June 30
    28,384       1.23 %
Average during first half year
    28,351       1.75 %
Maximum quarter-end balance
    30,919        
Bonds and Subordinated debt:
               
As of June 30
    18,220       2.67 %
Average during first half year
    16,672       2.97 %
Maximum quarter-end balance
    16,186        
Total short-term borrowings as of June 30, 2009
    73,360       2.35 %
                 
    As of December 31, 2008
    Amount   Average rate
    (in millions of euros, except
percentages)
Securities sold under agreements to repurchase (principally Spanish Treasury bills):
               
As of December 31
    28,206       4.66 %
Average during year
    34,729       5.62 %
Maximum quarter-end balance
    34,202        
Bank promissory notes:
               
At December 31
    20,061       3.70 %
Average during year
    15,661       4.57 %
Maximum quarter-end balance
    20,061        
Bonds and Subordinated debt:
               
At December 31
    13,565       4.66 %
Average during year
    12,447       5.18 %
Maximum quarter-end balance
    15,822        
Total short-term borrowings as of December 31, 2008
    61,832       4.35 %
                 
    As of June 30, 2008
    Amount   Average rate
    (in millions of euros, except
percentages)
Securities sold under agreements to repurchase (principally Spanish Treasury bills):
               
As of June 30
    35,918       5.73 %
Average during first half year
    40,448       5.64 %
Maximum quarter-end balance
    35,737        
Bank promissory notes:
               
As of June 30
    15,518       4.63 %
Average during first half year
    10,741       4.50 %
Maximum quarter-end balance
    8,336        
Bonds and Subordinated debt:
               
As of June 30
    11,416       5.61 %
Average during first half year
    13,832       5.11 %
Maximum quarter-end balance
    15,615        
Total short-term borrowings as of June 30, 2008
    62,852       5.44 %

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Return on Equity
     The following table sets out our return on equity ratios:
                         
    As of June 30,   As of December 31,   As of June 30,
    2009   2008   2008
Return on equity (1)
    21.5       21.5       26.0  
Return on assets (2)
    1.12       1.04       1.28  
Equity to assets ratio(3)
    5.41       4.90       5.12  
 
(1)   Represents annualized net income attributed to parent company for the period, which we calculate as our net income attributed to parent company for the period multiplied by two, as a percentage of average stockholders’ funds for the period.
 
(2)   Represents annualized net income for the period, which we calculate as our net income for the period multiplied by two, as a percentage of average total assets for the period.
 
(3)   Represents total stockholders’ funds over total assets
UNRESOLVED STAFF COMMENTS
     As part of a periodic review of our 2008 Form 20-F by the Division of Corporation Finance of the SEC, we received on June 30, 2009 a comment letter from the SEC staff (the “Staff”). We have cooperated fully with the Staff in connection with their review in order to resolve all outstanding comments and provided our responses to the Staff on July, 15, 2009.
     The Staff’s comments focused principally on the level of disclosure in the 2008 Form 20-F related to IFRS 7 and the allowance for loan losses under both IFRS and U.S. GAAP. We believe that we have provided adequate responses to all the Staff’s comments and we have committed to enhance the disclosure regarding these issues in our future filings.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Summary Economic Background to Results of Operations
     The six month period ended June 30, 2009 has been characterized by the continuation of the international economic crisis, which has not yet reached its conclusion. Financial markets have suffered strong disruptions during this period, with general declines in stock market levels in the first half of the period worldwide, which eventually recovered by the end of June 2009 to the levels reached at the end of 2008.
     In the first part of the year the international macroeconomic environment has continued deteriorating and, as mentioned above, financial markets have suffered important disruptions, although liquidity in the markets is recovering gradually. Despite this gradual recovery markets continue to show liquidity tensions and interbank markets are still not functioning normally. Therefore, market interest rates have remained high during the period, in particular in the short term. The period has also been characterized by additional increases in volatility.
     In the United States, where the financial crisis originated, economic indicators showed evidence of a continued slowdown of the economy, although they appeared to have stabilized albeit at very low levels. Real estate market adjustments continue, as reflected by data on home sales (new and existing), consumer confidence and unemployment applications. Moreover, economic indicators such as industrial production (which had decreased for nine consecutive months) and the ISM manufacturing index, reflect the recessionary process that the economy is still facing.
     In the euro area and Spain the latest economic indicators also generally reflected a continuing recession. In Europe economic activity continues falling: activity in industry and the service sector is at historical minimum levels, as reflected by the purchasing managers indices that were below 50 points (40.7 for manufacturing and 44.8 for services) in June, and also by the deterioration of confidence indicators. As is also happening in the United States, unemployment rates are increasing, confirming real gross domestic product, or “GDP”, deterioration. Therefore, the improvement showed by some leading indicators is still not translated into economic indicators.
     This downturn in the outlook for the world economy has resulted in an intensification of the adjustment process in the Spanish economy. The deterioration observed in employment indicators during the last months of 2008 and the first six months of 2009 has continued with unemployment reaching 17.9% at the end of the period, with very negative effects on consumer and business confidence. Moreover, during the first half of 2009 this contraction spread towards segments of the economy which had hitherto remained relatively unaffected by the recession, such as exports. Another factor to be taken into account is that the Spanish

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economy continues to be negatively affected by the shrinking of the real estate and construction sectors. The end of the recession will be relatively slow given the foreseeable long period of de-leveraging, the absence of a sufficiently dynamic environment abroad to boost growth in Spain, and the limited long-term effectiveness of fiscal stimulus packages to sustain economic growth. In addition, uncertainty over policy measures in the short term also pose some concerns in the outlook.
     Thus, governments in the United States and in several countries of the EU have continued implementing specific plans. Measures announced are intended to solve the liquidity and solvency problems of financial institutions, to restore confidence and to recover long-term funding mechanisms, in principle with a limited cost that can be recovered over time. In Spain, public aid has been implemented via the Financial Assets Acquisition Fund auctions (FAAF), a public guarantee for the issuance of securities by financial institutions and the Banking Organizing and Restructuring Fund (FROB).
     By the end of 2008, interest rates in the United States reached historical minimums at 0 to 0.25%. In 2009, the ECB and the Bank of England lowered rates again down to 1 % and 0.5% respectively. In addition, several central banks started implementing non-conventional monetary policy, like asset purchases, although in the case of the ECB in a more gradual way.
     Despite the international environment, the economic situation in Latin America continues to be generally relatively positive, due to internal demand growth and the strengths accumulated before the crisis. The exception is Mexico, which has been affected by three negative factors in the period. First there has been a steep decline in the demand for durable goods in the United States which has historically been the destination for approximately 80% of Mexico’s manufacturing exports. Second, the international financial crisis increased the cost of capital to finance Mexican businesses and the public sector. Finally, the Mexican economy was negatively affected by the public health emergency caused by the H1N1 influenza outbreak in the second quarter of the year, which had a significant negative impact on the tourism industry. Overall, the decline in real GDP in the first half of 2009 has been steeper than the adjustment observed in 1995, albeit this time with no inflation, and no domestic financial or banking crisis.
     In fact, similar to other Latin American countries with a much better economic performance, Mexico has also been able to implement countercyclical policies for the first time in a recession. Most of these countries have obtained generalized decreases in interest rates. In Mexico, for example, the interbank interest rate has decreased during the six months ended June 30, 2009, closing the period slightly above 5%.

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BBVA Group Results of Operations For The Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008
     The changes in the Group’s consolidated income statements for the six months ended June 30, 2009 and 2008 were as follows:
EU-IFRS (*)
                         
    Six months ended June 30,     Change  
    2009   2008   2009/2008
 
    (Millions of euros)   %
Interest and similar income
    12,911       14,782       (12.66 )%
Interest expense and similar charges
    (6,053 )     (9,227 )     (34.40 )%
             
Net interest income
    6,858       5,555       23.46 %
Dividend income
    248       241       2.90 %
Share of profit or loss of entities accounted for using the equity method
    27       173       (84.39 )%
Fee and commission income
    2,638       2,778       (5.04 )%
Fee and commission expenses
    (457 )     (494 )     (7.49 )%
Net gains (losses) on financial assets and liabilities
    446       1,018       (56.19 )%
Net exchange differences
    352       142       147.89 %
Other operating income
    1,755       1,931       (9.11 )%
Other operating expenses
    (1,487 )     (1,718 )     (13.45 )%
             
Gross income
    10,380       9,626       7.83 %
Administration costs
    (3,734 )     (3,816 )     (2.15 )%
Personnel expenses
    (2,291 )     (2,343 )     (2.22 )%
General and administrative expenses
    (1,443 )     (1,473 )     (2.04 )%
Depreciation and amortization
    (354 )     (338 )     4.73 %
Provisions (net)
    (152 )     (612 )     (75.16 )%
Impairment on financial assets (net)
    (1,945 )     (1,164 )     67.08 %
             
Net operating income
    4,195       3,696       13.50 %
Impairment on other assets (net)
    (271 )     (6 )     n.m. (1)
 
                       
Gains (losses) in written off assets not classified as non-current assets held for sale
    9       21       (57.64 )%
 
                       
Gains (losses) in non-current assets held for sale not classified as discontinued operations
    70       779       (91.01 )%
             
Income before tax
    4,003       4,490       (10.85 )%
Income tax
    (961 )     (1,213 )     (20.80 )%
             
Net income
    3,042       3,277       (7.17 )%
Profit or loss attributed to minority interest
    (243 )     (169 )     43.79 %
             
Net income attributed to parent company
    2,799       3,108       (9.95 )%
 
(*)   EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004
 
(1)   Not meaningful
     Period-on-period comparisons of the BBVA Group’s results of operations for the six months ended June 30, 2009 compared to for the six months ended June 30, 2008 are affected by a series of one-off items during the first half of 2008:
  a before-tax credit of 727 million (509 million net of tax) on the sale of the Group’s investment in Bradesco which principally affected gains (losses) in non-current assets held for sale not classified as discontinued operations; and
 
  a before-tax charge of 470 million (329 million net of tax) in connection with a non-recurring early retirement scheme implemented in Spain as part of the Group’s Transformation Plan.
     The net impact in net income attributed to parent company of these items, was the recognition of additional non-recurring income in the amount of 180 million in the first half of 2008.

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     Net interest income
     The following table summarizes the principal components of net interest income for the six months ended June 30, 2009 compared to the six months ended June 30, 2008.
                         
    Six months ended June 30,   Change
    2009   2008   2009/2008
    (millions of euros)   (%)
Interest and similar income
    12,911       14,782       (12.66 )%
Interest expense and similar charges
    (6,053 )     (9,227 )     (34.40 )%
 
                       
Net interest income
    6,858       5,555       23.46 %
 
                       
     Net interest income for the six months ended June 30, 2009 was 6,858 million, a 23.46% increase over the 5,555 million recorded for the six months ended June 30, 2008. This growth, against a backdrop of slowing business volumes and declining interest rates, primarily reflects the widening in customer spreads and active balance sheet management.
     Dividend income
     Dividend income for the six months ended June 30, 2009 was 248 million, in line with the 241 million recorded for the six months ended June 30, 2008, due primarily to dividends received from Telefónica, S.A.
     Share of profit or loss of entities accounted for using the equity method
     Share of profit or loss of entities accounted for using the equity method for the six months ended June 30, 2009 was 27 million, a 84.39% decrease from the 173 million recorded for the six months ended June 30, 2008, due primarily to a significant decrease in the amount contributed by Corporación IBV (16 million for the six months ended June 30, 2009 compared to 145 million for the six months ended June 30, 2008), primarily as a result of our sale of our interest in Gamesa Corporación Tecnológica, S.A. in 2008.
     Fee and commission income
     The breakdown of fee and commission income for the six months ended June 30, 2009 and 2008 is as follows:
                         
    Six months ended June 30,     Change  
    2009   2008   2009/2008
    (millions of euros)   (%)
Commitment fees
    44       28       57.14 %
Contingent Liabilities
    130       118       10.17 %
Documentary credits
    21       21       n.m. (1)
Bank and other guarantees
    109       97       12.37 %
Arising from exchange of foreign currencies and banknotes
    6       11       (45.45 )%
Collection and payment services
    1,268       1,313       (3.43 )%
Securities services
    836       983       (14.95 )%
Counseling on and management of one-off transactions
    2       6       (66.67 )%
Financial and similar counseling services
    11       11       n.m. (1)
Factoring transactions
    6       14       (53.85 )%
Non-banking financial products sales
    46       52       (11.54 )%
Other fees and commissions
    289       242       19.42 %
 
                       
Fee and commission income
    2,638       2,778       (5.04 )%
 
                       
 
(1)   Not meaningful

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     Fee and commission income for the six months ended June 30, 2009 amounted to 2,638 million, a 5.04% decrease from 2,778 million for the six months ended June 30, 2008, due mainly to the decrease in fee and commission income from mutual funds. Fee and commission income from mutual funds, which is recorded under the heading “Securities services”, decreased as a result of a decrease in mutual fund assets under management for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 as a result of the negative performance of equity markets for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 and, in markets such as Spain, the transfer of customer funds out of mutual funds, the value of which decreased by 24.16% as of June 30, 2009 from June 30, 2008, into time deposits.
     Fee and commission expenses
     The breakdown of fee and commission expenses for the six months ended June 30, 2009 and 2008 is as follows:
                         
    Six months ended June 30,   Change
    2009   2008   2009/2008
    (millions of euros)   (%)
Brokerage fees on lending and deposit transactions
    3       5       (40.00 )%
Fees and commissions assigned to third parties
    335       302       10.93 %
Other fees and commissions
    119       187       (36.36 )%
             
Fee and commission expenses
    457       494       (7.49 )%
             
     Fee and commission expenses for the six months ended June 30, 2009 amounted to 457 million, a 7.49% decrease from 494 million for the six months ended June 30, 2008, mainly due to a 36.36% decrease in other fees and commissions to 119 million for the six months ended June 30, 2009 from 187 million for the six months ended June 30, 2008 due to a decrease in insurance fee and commission expenses.
     Net gains (losses) on financial assets and liabilities and exchange differences
     Net gains (losses) on financial assets and liabilities for the six months ended June 30, 2009 amounted to 446 million, a 56.19% decrease from 1,018 million for the six months ended June 30, 2008, due primarily to the lower results generated by the Global Markets unit as a result of lower activity given market volatility. In addition, net gains (losses) on financial assets and liabilities for the six months ended June 30, 2008 included non-recurring gains of 125 million from the receipt of proceeds from Visa Inc.’s equity offering. Net exchange differences amounted to 352 million, an increase of 147.89% from 142 million for the six months ended June 30, 2008.
      Other operating income and expenses
     Other operating income amounted to 1,755 million for the six months ended June 30, 2009, a 9.11% decrease compared with 1,931 million for the six months ended June 30, 2008 primarily due to the lower volume of insurance policies written. Other operating expenses for the six months ended June 30, 2009 amounted to 1,487 million, a 13.45% decrease compared with the 1,718 million recorded for the six months ended June 30, 2008 primarily due to a decrease in commissions payable to sales agents as a result of the decrease in activity described above. As a result of the fact that other operating income decreased at a slower pace than other operating expenses, the net variation in operating income and expenses was a 25.82% increase with respect to the six months ended June 30, 2008.
      Gross income
     As a result of the foregoing, gross income for the six months ended June 30, 2009 was 10,380 million, a 7.83% increase over the 9,626 million recorded for the six months ended June 30, 2008.
     Administration costs
     Administration costs for the six months ended June 30, 2009 were 3,734 million, a 2.15% decrease over 3,816 million recorded for the six months ended June 30, 2008, due primarily to cost controls derived from the transformation and restructuring plans initiated in 2006, which resulted in the number of employees of the Group declining to 103,656 as of June 30, 2009 from 112,059 as of June 30, 2008.

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     The table below provides a breakdown of personnel expenses for the six months ended June 30, 2009 and 2008.
                         
    Six months ended June 30,   Change
    2009   2008   2009/2008
    (millions of euros)   (%)
Wages and salaries
    1,754       1,796       (2.34 )%
Social security costs
    276       288       (4.17 )%
Transfers to internal pension provisions
    22       31       (29.03 )%
Contributions to external pension funds
    34       33       3.03 %
Other personnel expenses
    205       195       5.13 %
 
                       
Personnel expenses
    2,291       2,343       (2.22 )%
 
                       
     The table below provides a breakdown of general and administrative expenses for the six months ended June 30, 2009 and 2008.
                         
    Six months ended June 30,   Change
    2009   2008   2009/2008
    (millions of euros)   (%)
Technology and systems
    279       290       (3.79 )%
Communications
    128       125       2.40 %
Advertising
    127       135       (5.93 )%
Property, fixtures and materials
    309       294       5.10 %
Taxes other than income tax
    129       169       (23.67 )%
Other expenses
    471       460       2.39 %
             
General and administrative expenses
    1,443       1,473       (2.04 )%
             
     Depreciation and amortization
     Depreciation and amortization for the six months ended June 30, 2009 amounted to 354 million, a 4.84% increase over the 338 million recorded for the six months ended June 30, 2008, due primarily to the increase in amortization of software and properties.
     Provisions (net)
     Provisions (net) for the six months ended June 30, 2009 were 152 million, with an important decrease compared with the 612 million recorded for the six months ended June 30, 2008, primarily due to the larger provisions for early retirement recorded in the first half of 2008.
     Impairment on financial assets (net)
     Impairment on financial assets (net) was 1,945 million for the six months ended June 30, 2009, a 67.08% increase over the 1,164 million recorded for the six months ended June 30, 2008, due primarily to an increase in provisions in connection with the significant increase in substandard loans from 8,728 million as of June 30, 2008 to 11,914 million as of June 30, 2009, due primarily to the deterioration of the economic environment. The Group’s non-performing loan ratio increased substantially to 3.2% as of June 30, 2009 from 2.3% as of June 30, 2008. In addition, the Group’s coverage ratio dropped significantly to 68% as of June 30, 2009 from 167% as of June 30, 2008 mainly due to the write-offs made during the six months ended June 30, 2009.
     Net operating income
     As a result of the foregoing, net operating income for the six months ended June 30, 2009 was 4,195 million, a 13.50% increase over the 3,696 million recorded for the six months ended June 30, 2008.
     Impairment on other assets (net)
     Impairment on other assets (net) for the six months ended June 30, 2009 amounted to 271 million, an increase from the 6 million recorded for the six months ended June 30, 2008, due primarily to impairment charges for investments in tangible assets and inventories from our real estate businesses.
     Gains (losses) in written off assets not classified as non-current assets held for sale
     Gains (losses) in written off assets not classified as non-current assets held for sale for the six months ended June 30, 2009 amounted to a gain of 9 million, a decrease from the 21 million gain recorded for the six months ended June 30, 2008.

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     Gains (losses) in non-current assets held for sale not classified as discontinued operations
     Gains (losses) in non-current assets held for sale not classified as discontinued operations for the six months ended June 30, 2009 amounted to a gain of 70 million, a 91.01% decrease from the 779 million gain recorded for the six months ended June 30, 2008. For the six months ended June 30, 2008 the gains (losses) in non-current assets held for sale not classified as discontinued operations, was primarily affected by a gross gain of 727 million from the sale of our stake in Bradesco.
     Income before tax
     As a result of the foregoing, income before tax for the six months ended June 30, 2009 was 4,003 million, a 10.85% decrease from the 4,490 million recorded for the six months ended June 30, 2008.
     Income tax
     Income tax for the six months ended June 30, 2009 amounted to 961 million, a 20.80% decrease from the 1,213 million recorded for the six months ended June 30, 2008, due to lower income before tax and higher income exempt from tax.
     Net income
     As a result of the foregoing net income for the six months ended June 30, 2009 was 3,042 million, a 7.17% decrease from the 3,277 million recorded for the six months ended June 30, 2008.
     Profit or loss attributable to minority interest
     Profit or loss attributable to minority interest for the six months ended June 30, 2009 was 243 million, a 44.05% increase over the 169 million recorded for the six months ended June 30, 2008, due primarily to greater profits obtained by certain of our Latin American subsidiaries, primarily in Venezuela, Peru and Chile, which have minority shareholders.
     Net income attributed to parent company
     Net income attributed to parent company for the six months ended June 30, 2009 was 2,799 million, a 9.95% decrease from the 3,108 million recorded for the six months ended June 30, 2008. Excluding the one-off items in the first half of 2008 described above, the net income attributed to parent company for the six months ended June 30, 2008 was 2,928 million.
Results of Operations by Business Areas for the Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008
      Spain and Portugal
                         
    Six months ended June 30,   Change
    2009   2008   2009/2008
    (in millions of euros)   (%)
NET INTEREST INCOME
    2,458       2,331       5.45 %
Net fees and commissions
    756       825       (8.38 )%
Net gains (losses) on financial assets and liabilities and exchange differences
    110       136       (19.12 )%
Other operating income and expenses (net)
    234       222       5.70 %
GROSS INCOME
    3,558       3,514       1.26 %
Administration costs
    (1,170 )     (1,249 )     (6.33 )%
Depreciation and amortization
    (53 )     (59 )     (9.50 )%
Impairment on financial assets (net)
    (504 )     (351 )     43.30 %
Provisions (net) and other gains (losses)
    (21 )     8       n.m. (1)
INCOME BEFORE TAX
    1,810       1,863       (2.86 )%
Income tax
    (540 )     (571 )     (5.51 )%
NET INCOME
    1,270       1,292       (1.69 )%
Profit or loss attributed to minority interest
                n.m. (1)
NET INCOME ATTRIBUTED TO PARENT COMPANY
    1,270       1,292       (1.69 )%
 
(1)   Not meaningful

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     Net interest income
     Net interest income for the six months ended June 30, 2009 was 2,458 million, a 5.45% increase over the 2,331 million recorded for the six months ended June 30, 2008, due to a successful pricing policy. Interest rate cuts did not prevent the yield on loans to domestic customers in Spain from continuing its upward trend of the last two years. However, this was partially offset by an increase in the costs of deposits, mainly due to structural changes in customer funds, with time deposits playing an ever-increasing role.
     Net fees and commissions
     Net fees and commissions of this business area amounted to 756 million for the six months ended June 30, 2009, a 8.38% decrease from the 825 million recorded for the six months ended June 30, 2008, due primarily to the drop in fees from mutual and pension funds and other market-related products.
     Net gains (losses) on financial assets and liabilities and exchange differences
     Net gains on financial assets and liabilities and exchange differences of this business area for the six months ended June 30, 2009 was 110 million, a 19.12% decrease from the net gains of 136 million for the six months ended June 30, 2008, due primarily to lower activity levels given market volatility.
     Other operating income and expenses (net)
     Other operating income and expenses (net) of this business area for the six months ended June 30, 2009 was 234 million, a 5.70% increase over the 222 million recorded for the six months ended June 30, 2008, mainly due to decreased expenses related to this business area’s insurance businesses.
     Gross income
     As a result of the foregoing, gross income of this business area for the six months ended June 30, 2009 was 3,558 million, a 1.26% increase over the 3,514 million recorded for the six months ended June 30, 2008.
     Administration costs
     Administration costs of this business area for the six months ended June 30, 2009 was 1,170 million, a 6.33% decrease from the 1,249 million recorded for the six months ended June 30, 2008, due primarily to the Group’s transformation plan, which helped to reduce wages and salaries, and thorough continued streamlining of the branch network.
     Impairment on financial assets (net)
     Impairment on financial assets (net) of this business for the six months ended June 30, 2009 was 504 million, a 43.59% increase over the 351 million recorded for the six months ended June 30, 2008, due primarily to the significant increase in substandard loans as a result of the economic downturn. The business area’s non-performing loan ratio increased substantially to 3.7% as of June 30, 2009 from 1.2% as of June 30, 2008.
     Income before tax
     As a result of the foregoing, income before tax of this business area for the six months ended June 30, 2009 was 1,810 million, a 2.86% decrease from the 1,863 million recorded for the six months ended June 30, 2008.
     Income tax
     Income tax of this business area for the six months ended June 30, 2009 was 540 million, a 5.51% decrease from the 571 million recorded for the six months ended June 30, 2008, primarily as a result of the decrease in income before tax.
     Net income attributed to parent company
     As a result of the foregoing, net income attributed to parent company of this business area for the six months ended June 30, 2009 was 1,270 million, a 1.69% decrease from the 1,292 million recorded for the six months ended June 30, 2008.

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     Wholesale Banking and Asset Management
                         
    Six months ended June 30,   Change
    2009   2008   2009/2008
    (in millions of euros)   (%)
NET INTEREST INCOME
    573       259       120.84 %
Net fees and commissions
    262       210       24.45 %
Net gains (losses) on financial assets and liabilities and exchange differences
    49       294       (83.46 )%
Other operating income and expenses (net)
    139       257       (45.94 )%
GROSS INCOME
    1,022       1,020       0.18 %
Administration costs
    (259 )     (246 )     5.28 %
Depreciation and amortization
    (5 )     (4 )     25.00 %
Impairment on financial assets (net)
    (14 )     (78 )     (82.05 )%
Provisions (net) and other gains (losses)
          5       n.m. (1)
INCOME BEFORE TAX
    744       697       6.72 %
Income tax
    (203 )     (138 )     47.70 %
NET INCOME
    541       559       (3.34 )%
Profit or loss attributed to minority interest
    (2 )     (2 )     0.00 %
NET INCOME ATTRIBUTED TO PARENT COMPANY
    539       557       (3.35 )%
 
(1)   Not meaningful.
     Net interest income and net gains (losses) on financial assets and liabilities and exchange differences
     For internal management purposes, “net interest income” and “net gains (losses) on financial assets and liabilities and exchange differences” for this business area are analyzed together. Net interest income includes the cost of funding of the market operations whose revenues are accounted for in the heading “Net gains (losses) on financial assets and liabilities and exchange differences”.
     Net interest income amounted to 573 million for the six months ended June 30, 2009, compared to 259 million for the six months ended June 30, 2008. Net gains (losses) on financial assets and liabilities and exchange differences amounted to 49 million, compared to 294 million for the six months ended June 30, 2008. The sum of these heading for the six months ended June 30, 2009 was 622 million, a 12.48% increase over the 553 million recorded for the six months ended June 30, 2008, due primarily to active price management and an increase in the number of customer transactions.
     Net fees and commissions
     Net fees and commissions of this business area for the six months ended June 30, 2009 was 262 million, a 24.45% increase from 210 million recorded for the six months ended June 30, 2008, mainly due to the fact that the area has increased its strategic focus on customers with the potential to generate high business volumes.
     Other operating income and expenses (net)
     Other operating income and expenses (net) of this business area for the six months ended June 30, 2009 was 139 million, a decrease of 45.94% from the 257 million recorded for the six months ended June 30, 2008, primarily reflecting the gains recognized on the sale of ownership interests in Gamesa in 2008.
     Gross income
     As a result of the foregoing, gross income of this business area for the six months ended June 30, 2009 was 1,022 million, a 0.18% increase from the 1,020 million recorded for the six months ended June 30, 2008.
     Administration costs
     Administration costs of this business area for the six months ended June 30, 2009 were 259 million, a 5.28% increase over the 246 million recorded for the six months ended June 30, 2008, due primarily to an increase in the variable remuneration of the employees during the period in connection with growth of business in the area.
     Impairment on financial assets (net)
     Impairment on financial assets (net) of this business area for the six months ended June 30, 2009 was 14 million, an 82.05% decrease from the 78 million recorded for the six months ended June 30, 2008,

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mainly due to a lower risk profile with a focus on customers with higher credit quality and larger business potential. Despite this focus, the non-performing loan ratio of this business area was 0.7% as of June 30, 2009 compared to 0.0% as of June 30, 2008.
     Income before tax
     As a result of the foregoing, income before tax of this business area for the six months ended June 30, 2009 was 744 million, a 6.72% increase from the 697 million recorded for the six months ended June 30, 2008.
     Net income attributed to parent company
     Net income attributed to parent company of this business area for the six months ended June 30, 2009 was 539 million, a 3.35% decrease from the 557 million recorded for the six months ended June 30, 2008.
     Mexico
                         
    Six months ended June 30,     Change  
    2009     2008     2009/2008  
    (in millions of euros)     (%)  
NET INTEREST INCOME
    1,683       1,816       (7.36 )%
Net fees and commissions
    535       618       (13.44 )%
Net gains (losses) on financial assets and liabilities and exchange differences
    221       247       (10.22 )%
Other operating income and expenses (net)
    64       40       58.85 %
GROSS INCOME
    2,503       2,721       (8.01 )%
Administration costs
    (753 )     (847 )     (11.10 )%
Depreciation and amortization
    (33 )     (40 )     (19.60 )%
Impairment on financial assets (net)
    (740 )     (448 )     65.30 %
Provisions (net) and other gains (losses)
    (15 )     (64 )     (76.40 )%
INCOME BEFORE TAX
    962       1,322       (27.26 )%
Income tax
    (237 )     (372 )     (36.50 )%
NET INCOME
    725       950       (23.64 )%
Profit or loss attributed to minority interest
    (1 )           n.m. (1)
NET INCOME ATTRIBUTED TO PARENT COMPANY
    724       950       (23.70 )%
 
(1)   Not meaningful.
     As discussed above under “Presentation of Financial Information Factors Affecting the Comparability of our Results of Operations and Financial Condition”, the average Mexican peso to euro exchange rate for the six months ended June 30, 2009 increased compared to the average exchange rate for the six months ended June 30, 2008 resulting in a negative exchange rate effect on the income statement for the six months ended June 30, 2009.
     Net interest income
     Net interest income of this business area for the six months ended June 30, 2009 was 1,683 million, a 7.36% decrease from the 1,816 million recorded for the six months ended June 30, 2008. However, at constant exchange rates, net interest income actually climbed 5.2% year-on-year, due primarily to the strong performance in retail banking (where demand deposits and customer loans both registered growth), as well as an active pricing policy. Positive price management has helped the area offset the current product-portfolio’s lower contribution to net interest income. The percentage of higher-margin products held or used by the area’s customers has decreased (namely, consumer credit and cards), which has been partially offset by the increase in lower-margin products (lending to SMEs, corporations and mortgages) held by or used by the area’s customers. Despite the decrease for the six months ended June 30, 2009 compared to the same period in 2008, conditions in Mexico gradually improved as the first half of 2009 progressed. Interbank interest rates continued falling in the second quarter of 2009 (the average Interbank Equilibrium Interest Rate (TIIE) was 5.9%, compared to 8.0% in the first quarter of 2009). This decrease, together with the adjustment in business mix (less weight given to consumer finance and credit cards), was reflected in the yield on loans. The latter fell 88 basis points compared to the first quarter of 2009 and the cost of deposits retreated 74 basis points compared to the first quarter of 2009. This led to a slight narrowing of the customer spread, which was 11.82% in the second quarter of 2009 compared to 11.96% in the first of 2009.

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     Net fees and commissions
     Net fees and commissions of this business area for the six months ended June 30, 2009 was 535 million, a 13.44% decrease from the 618 million recorded for the six months ended June 30, 2008, due primarily to the lower pace of growth in credit cards.
     Net gains (losses) on financial assets and liabilities and exchange differences
     Net gains (losses) on financial assets and liabilities and exchange differences of this business area for the six months ended June 30, 2009 was 221 million, a 10.22% decrease from the 247 million for the six months ended June 30, 2008. The first half of 2008 included non-recurring gains from the sales of shares in the initial public offering of Visa Inc. and there was no comparable transaction in the first half of 2009.
     Other operating income and expenses (net)
     Other operating income and expenses (net) of this business area for the six months ended June 30, 2009 was 64 million a 58.85% increase over the 40 million recorded for the six months ended June 30, 2008, due primarily to an increase in income from the pension and insurance businesses.
     Gross income
     As a result of the foregoing, gross income of this business area for the six months ended June 30, 2009 was 2,503 million, a 8.01% decrease from the 2,721 million recorded for the six months ended June 30, 2008.
     Administration costs
     Administration costs of this business area for the six months ended June 30, 2009 were 753 million, a 11.10% decrease from the 847 million recorded for the six months ended June 30, 2008. In the latter part of 2008 we instituted certain cost-control programs to limit the rate of local currency growth in administration costs in this business area, whose effects began to be felt in the first half of 2009.
     Impairment on financial assets (net)
     Impairment on financial assets (net) of this business area for the six months ended June 30, 2009 was 740 million, a 65.30% increase over the 448 million recorded for the six months ended June 30, 2009 due primarily to increases from the consumer loan and credit card segments due to a general deterioration in economic conditions. As of June 30, 2009, the non-performing loan ratio stood at 3.9%, increasing significantly from 2.3% as of June 30, 2008.
     Income before tax
     As a result of the foregoing, income before tax of this business area for the six months ended June 30, 2009 was 962 million, a 27.26% decrease compared to the 1,322 million recorded for the six months ended June 30, 2008.
     Net income attributed to parent company
     Net income attributed to parent company of this business area for the six months ended June 30, 2009 was 724 million, a 23.70% decrease over the 950 million recorded for the six months ended June 30, 2008.

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United States
                         
    Six months ended June 30,   Change
    2009   2008   2009/2008
    (in millions of euros)   (%)
NET INTEREST INCOME
    743       634       17.21 %
Net fees and commissions
    279       269       3.68 %
Net gains (losses) on financial assets and liabilities and exchange differences
    75       80       (5.83 )%
Other operating income and expenses (net)
    (25 )     15       n.m. (1)
GROSS INCOME
    1,072       998       7.51 %
Administration costs
    (541 )     (518 )     4.44 %
Depreciation and amortization
    (106 )     (118 )     (10.17 )%
Impairment on financial assets (net)
    (277 )     (123 )     n.m. (1)
Provisions (net) and other gains (losses)
    (21 )     5       n.m. (1)
INCOME BEFORE TAX
    127       244       (47.99 )%
Income tax
    (42 )     (80 )     (47.84 )%
NET INCOME
    85       164       (48.06 )%
Profit or loss attributed to minority interest
                n.m. (1)
NET INCOME ATTRIBUTED TO PARENT COMPANY
    85       164       (48.06 )%
 
(1)   Not meaningful.
     As discussed above under “Presentation of Financial Information Factors Affecting the Comparability of our Results of Operations and Financial Condition”, the average dollar to euro exchange rate for the six months ended June 30, 2009 decreased compared to the average exchange rate for the six months ended June 30, 2008 resulting in a positive exchange-rate effect on the income statement for the six months ended June 30, 2009.
     Net interest income
     Net interest income of this business area for the six months ended June 30, 2009 was 743 million, a 17.21% increase (an increase of 2.1% at constant exchange rates) over the 634 million recorded for the six months ended June 30, 2008, due to increased volumes of activity, a lower average dollar/euro, exchange rate and our active pricing policy.
     Net fees and commissions
     Net fees and commissions of this business area for the six months ended June 30, 2009 was 279 million, a 3.68% increase over the 269 million recorded for the six months ended June 30, 2008.
     Net gains (losses) on financial assets and liabilities and exchange differences
     Net gains (losses) on financial assets and liabilities and exchange differences of this business area for the six months ended June 30, 2009 were 75 million, a 5.83% decrease compared to the 80 million recorded for the six months ended June 30, 2008.
     Other operating income and expenses (net)
     Other operating income and expenses (net) of this business area for the six months ended June 30, 2009 was a loss of 25 million, compared to a gain of 15 million recorded for the six months ended June 30, 2008, due primarily to higher contributions to the deposit guarantee fund, as a result of the one-off $28 million contribution made during the second quarter of 2009 to the Federal Deposit Insurance Corporation (FDIC).
     Gross income
     As a result of the foregoing, gross income of this business area for the six months ended June 30, 2009 was 1,072 million, a 7.51% increase over the 998 million recorded for the six months ended June 30, 2008.
     Administration costs
     Administration costs of this business area for the six months ended June 30, 2009 were 541 million, a 4.44% increase over the 518 million recorded for the six months ended June 30, 2008 primarily as a result of the exchange rate effects described above.
     Impairment on financial assets (net)
     Impairment on financial assets (net) for the six months ended June 30, 2009 was 277 million, compared with 123 million recorded for the six months ended June 30, 2008, due to the write off impaired

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assets in light of the country’s economic situation.The non-performing loans ratio was 4.5% as of June 30, 2009, increasing sharply from 2.4% as of June 30, 2008.
     Income before tax
     As a result of the foregoing, the income before tax of this business area for the six months ended June 30, 2009 was 127 million, a 47.99% decrease from the 244 million recorded for the six months ended June 30, 2008.
     Net income attributed to parent company
     Net income attributed to parent company of this business area for the six months ended June 30, 2009 was 85 million, a 48.06% decrease from the 164 million for the six months ended June 30, 2008.
South America
                         
    Six months ended June 30,   Change
    2009   2008   2009/2008
    (in millions of euros)   (%)
NET INTEREST INCOME
    1,210       999       21.18 %
Net fees and commissions
    410       369       11.08 %
Net gains (losses) on financial assets and liabilities and exchange differences
    265       138       92.26 %
Other operating income and expenses (net)
    (9 )     1       n.m. (1)
GROSS INCOME
    1,876       1,507       24.52 %
Administration costs
    (687 )     (622 )     10.45 %
Depreciation and amortization
    (57 )     (48 )     19.70 %
Impairment on financial assets (net)
    (212 )     (144 )     47.00 %
Provisions (net) and other gains (losses)
    (8 )     1       n.m. (1)
INCOME BEFORE TAX
    912       694       31.33 %
Income tax
    (202 )     (169 )     19.22 %
NET INCOME
    710       525       35.23 %
Profit or loss attributed to minority interest
    (247 )     (174 )     41.54 %
NET INCOME ATTRIBUTED TO PARENT COMPANY
    463       351       32.09 %
 
(1)   Not meaningful.
     As discussed above under “Factors Affecting the Comparability of our Results of Operations and Financial Condition”, in 2009, the depreciation of certain of the currencies in the countries in which we operate in South America against the euro negatively affected the results of operations of certain of our Latin American our subsidiaries in euro terms where the appreciation of certain currencies in other countries in which we operate in South America against the euro positively affected the results of operations of certain our Latin American subsidiaries in euro terms.
     Net interest income
     Net interest income of this business area for the six months ended June 30, 2009 was 1,210 million, a 21.18% increase over the 999 million recorded for the six months ended June 30, 2008, due primarily to the larger business volumes (as of June 30, 2009, lending increased 11.5% compared to the loan book as of June 30, 2008) and more favorable customers spreads.
     Net Fees and Commissions
     Net fees and commissions of this business area for the six months ended June 30, 2009 was 410 million, an 11.08% increase over the 369 million recorded for the six months ended June 30, 2009, mainly due to an increase in banking commissions due primarily a larger business volumes.
     Net gains (losses) on financial assets and liabilities and exchange differences
     Net gains (losses) on financial assets and liabilities and exchange differences of this business area for the six months ended June 30, 2009 was 265 million, a 92.26% increase over the 138 million recorded for the six months ended June 30, 2008, due to recovery in the financial markets, which enabled some entities to realize capital gains on their fixed income portfolios as well as higher returns on proprietary trading positions held by the pension fund managers and insurance providers.
     Gross income
     As a result of the foregoing, the gross income of this business area for the six months ended June 30, 2009 was 1,876 million, a 24.52% increase over the 1,507 million recorded for the six months ended June 30, 2008.

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     Administration costs
     Administration costs of this business area for the six months ended June 30, 2009 were 687 million, a 10.45% increase over the 622 million recorded for the six months ended June 30, 2008, due primarily to growth rates that were in line with average inflation in the region.
     Impairment on financial assets (net)
     Impairment on financial assets (net) of this business area for the six months ended June 30, 2009 was 212 million, a 47.00% increase over the 144 million recorded for the six months ended June 30, 2008, mainly due to generic provisions attributable to the rise in lending volume as under Bank of Spain rules recently-made loans require higher generic provisions than older loans in our portfolio. The business area’s non-performing loan ratio was 2.6% as of June 30, 2009 compared to 2.2% as of June 30, 2008.
     Income before tax
     As a result of the foregoing, income before tax of this business area for the six months ended June 30, 2009 was 912 million, a 31.33% increase over the 694 million recorded for the six months ended June 30, 2008.
     Net income attributed to parent company
     Net income attributed to parent company of this business area for the six months ended June 30, 2009 was 463 million, a 32.09% increase over the 351 million for the six months ended June 30, 2008.
Corporate Activities
                         
    Six months ended June 30,   Change
    2009   2008   2009/2008
    (in millions of euros)   (%)
NET INTEREST INCOME
    192       (484 )     n.m. (1)
Net fees and commissions
    (60 )     (7 )     n.m. (1)
Net gains (losses) on financial assets and liabilities and exchange differences
    78       265       (70.34 )%
Other operating income and expenses (net)
    139       93       50.08 %
GROSS INCOME
    349       (133 )     n.m. (1)
Administration costs
    (324 )     (335 )     (3.28 )%
Depreciation and amortization
    (99 )     (69 )     44.10 %
Impairment on financial assets (net)
    (199 )     (18 )     n.m. (1)
Provisions (net) and other gains (losses)
    (280 )     225       n.m. (1)
INCOME BEFORE TAX
    (552 )     (331 )     67.01 %
Income tax
    262       117       123.98 %
NET INCOME
    (290 )     (214 )     35.86 %
Profit or loss attributed to minority interest
    7       9       (16.91 )%
NET INCOME ATTRIBUTED TO PARENT COMPANY
    (283 )     (205 )     38.14 %
 
(1)   Not meaningful.
     Net interest income
     Net interest income of this business area for the six months ended June 30, 2009 was 192 million, compared to a loss of 484 million recorded for the six months ended June 30, 2008, due primarily to the favorable impact of lower interest rates and our strong balance sheet management.
     Net gains (losses) on financial assets and liabilities and exchange differences
     Net gains (losses) on financial assets and liabilities and exchange differences of this business area for the six months ended June 30, 2009 were 78 million, a 70.34% decrease from the 265 million recorded for the six months ended June 30, 2008. The first half of 2008 included 106 million of non-recurring gains from the sale of shares in the initial public offering of Visa Inc. and there was no comparable transaction in the first half of 2009.
     Other operating income and expense (net)
     Other income (net) of this business area for the six months ended June 30, 2009 was 139 million, a 50.08% increase over the 93 million recorded for the six months ended June 30, 2008, due to lower income from non-banking businesses.

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     Gross income
     As a result of the foregoing, gross income of this business area for the six months ended June 30, 2009 was 349 million, compared with a loss of 133 million recorded for the six months ended June 30, 2008.
     Administration costs
     Administration costs of this business area for the six months ended June 30, 2009 were 324 million, a 3.28% decrease from the 335 million recorded for the six months ended June 30, 2008, due to the effectiveness of cost controls derived from the transformation and restructuring plans in Group’s headquarters.
     Impairment on financial assets (net)
     Impairment on financial assets (net) for the six months ended June 30, 2009 came to 199 million, compared with the 18 million recorded in the same period in 2008, due primarily to the increase of country risk provisions related to Brazil due to the reclassification of Brazil as a “country with transitory difficulties” by the Bank of Spain.
     Provisions (net) and other gains (losses)
     Provisions (net) and other gains (losses) of this business area for the six months ended June 30, 2009 was a loss of 280 million, compared with a gain of 225 million recorded for the six months ended June 30, 2008, due primarily to impairments derived from investments in tangible assets and inventories from our real estate businesses in the first half of 2009; whereas, in the first half of 2008 the unit recognized one-off gains and losses relating to the sale of a stake in Bradesco and exceptional early employee retirements.
     Income before tax
     As a result of the foregoing, income before tax of this business area for the six months ended June 30, 2009 was a loss of 552 million, compared with a loss of 331 million recorded for the six months ended June 30, 2008.
     Net income attributed to parent company
     Net income attributed to parent company of this business area for the six months ended June 30, 2009 was a loss of 283 million, compared with a loss of 205 million for the six months ended June 30, 2008. Stripping out the aforementioned non-recurring gains in 2008, the loss for the six months ended June 30, 2008 would have been 385 million.
Material Differences between U.S. GAAP and EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004
     Our Interim Consolidated Financial Statements have been prepared in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004, which differ in certain respects from U.S. GAAP. The tables included in Exhibit I: U.S. GAAP Reconciliation, give the effect that application of U.S. GAAP would have on net income for the period and stockholders’ equity as reported under EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004.
Reconciliation to U.S. GAAP
     As of June 30, 2009, December 31, 2008 and June 30, 2008, shareholders’ equity attributable to parent company under EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 was 28,682 million, 25,656 million and 25,094 million, respectively.
     As of June 30, 2009, December 31, 2008 and June 30, 2008, shareholders’ equity attributable to parent company in accordance with U.S. GAAP was 35,706 million, 32,744 million and 32,994 million, respectively.
     The increase in shareholders’ equity attributable to parent company under U.S. GAAP as of June 30, 2009, December 31, 2008 and June 30, 2008 as compared to shareholders’ equity attributable to parent company under EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 at each of those dates is principally due to the goodwill that arose from the business combinations with Argentaria (2000) and BBVA Bancomer, S.A. de C.V. (2004).
     For the six months ended June 30, 2009, the year ended December 31, 2008 and for the six months ended June 30, 2008, net income attributed to parent company under the EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 was 2,799 million, 5,020 million and 3,108 million, respectively.

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     For the six months ended June 30, 2009, the year ended December 31, 2008 and for the six months ended June 30, 2008, net income under U.S. GAAP was 2,692 million, 4,070 million and 2,770 million, respectively.
     The differences in net income for the six months ended June 30, 2009 under U.S. GAAP as compared with net income attributed to parent company for the six months ended June 30, 2009 under EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 are principally due to the reconciliation item “Valuation of assets”.
     See Exhibit I: U.S. GAAP Reconciliation, for a quantitative reconciliation of net income attributed to parent company and stockholders’ equity from EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 to U.S. GAAP.
Liquidity and Capital Resources
     Our principal source of funds is our customer deposit base, which consists primarily of demand, savings and time deposits. In addition to relying on our customer deposits, we also access the interbank market (overnight and time deposits) and domestic and international capital markets for our additional liquidity requirements. To access the capital markets, we have in place a series of domestic and international programs for the issuance of commercial paper and medium- and long-term debt. We also generally maintain a diversified portfolio of liquid assets and securitized assets. Another source of liquidity is our generation of cash flow. Finally, we supplement our funding requirements, to a very limited extent, with borrowings from the Bank of Spain, mostly short-term and at market interest rates, which is a common practice in Spain.
     The following table shows the balances as of June 30, 2009 and December 31, 2008 of our principal sources of funds (including accrued interest, hedge transactions and issue expenses):
                 
    As of June 30,   As of December 31,
    2009   2008
    (in millions of euros)
Customer deposits
    249,096       255,236  
Due to credit entities
    76,919       66,805  
Debt securities in issue
    119,489       121,144  
Other financial liabilities
    6,985       7,420  
       
Total
    452,489       450,605  
       
     Customer deposits
     Customer deposits amounted to 249,096 million as of June 30, 2009, compared to 255,236 million as of December 31, 2008. Our customer deposits, excluding assets sold under repurchase agreements amounted to 236,792 million as of June 30, 2009, compared to 239,007 million as of December 31, 2008.
     Due to credit entities
     Amounts due to credit entities amounted to 76,919 million as of June 30, 2009 from 66,805 million as of December 31, 2008. The increase was primarily a result of our participation in an auction in the European Central Bank for an amount of 11,000 million.
     Capital markets
     We have increased debt issuances in the domestic and international capital markets in order to finance our activities and as of June 30, 2009 we had 102,486 million of senior debt outstanding, comprising 74,296 million in bonds and debentures and 28,190 million in promissory notes and other securities, compared to 104,157 million, 84,172 million and 19,985 million outstanding as of December 31, 2008, respectively. See Note 22.4 to the Interim Consolidated Financial Statements. In addition, we had a total of 10,826 million in subordinated debt and 5,506 million in preferred stock outstanding as of June 30, 2009, and included in the total of debt securities in issue, compared to 10,785 million and 5,464 million outstanding as of December 31, 2008, respectively. See Note 22.4 to the Interim Consolidated Financial Statements.
     The average maturity of our outstanding debt as of June 30, 2009 was the following:
         
Senior debt
  4.5 years
Subordinated debt (excluding preference shares)
  8.4 years

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     The cost and availability of debt financings are influenced by credit ratings. A reduction in these ratings could increase the cost of, and reduce our access to, debt financing. As of June 30, 2009, our credit ratings were as follows:
                                 
 
  Short   Long   Financial  
 
  Term   Term   Strength   Outlook
Moody’s
    P-1     Aa1     B     Stable
Fitch-IBCA
    F-1+     AA-     A/B     Positive
Standard & Poor’s
    A-1+     AA         Negative
     On July 31, 2009, Moody’s Investor Service lowered BBVA’s senior debt rating to “Aa2” with “negative outlook” from “Aa1” with “stable outlook” and affirmed BBVA’s short-term ratings at “P-1”. On the same date, Moody’s Investor Service also confirmed the ratings of BBVA’s covered bonds (Aaa), senior debt (Aa2) and subordinated debt (Aa3) and lowered the ratings of BBVA’s preferred shares from Aa3 to A2.
     Generation of Cash Flow
     We operate in Spain, Mexico, the United States and over 30 other countries, mainly in Europe and Latin America. Our banking subsidiaries around the world are subject to supervision and regulation by a variety of regulatory bodies relating to, among other things, the satisfaction of minimum capital requirements. The obligation to satisfy such capital requirements may affect the ability of our banking subsidiaries to transfer funds to our parent company in the form of cash dividends, loans or advances, capital repatriation or otherwise. In addition, under the laws of the various jurisdictions where our subsidiaries are incorporated, dividends may only be paid out of funds legally available therefor.
     Even where minimum capital requirements are met and funds are legally available therefor, the relevant regulator could advise against the transfer of funds to us in the form of cash dividends, loans or advances, for prudence reasons or otherwise.
     There is no assurance that in the future other similar restrictions will not be adopted or that, if adopted, they will not negatively affect our liquidity. The geographic diversification of our businesses, however, could help to limit the effect on the Group any restrictions that could be adopted in any given country.
     We believe that our working capital is sufficient for our present requirements and to pursue our planned business strategies.
     Capital
     Under the Bank of Spain’s capital adequacy regulations, as of June 30, 2009 and December 31, 2008, we were required to have a ratio of consolidated stockholders’ equity to risk-weighted assets and off-balance sheet items (net of certain amounts) of not less than 8%. As of June 30, 2009, this ratio was 11.33%, up from 11.17% as of December 31, 2008, and our stockholders’ equity exceeded the minimum level required by 41.6%, up from 39.7% as of December 31, 2008.
     Based on the framework of Basel II and using such additional assumptions as we consider appropriate, we have estimated that as of June 30, 2009 and December 31, 2008 our consolidated Tier I risk-based capital ratio was 8.2% and 7.9%, respectively, and our consolidated total risk-based capital ratio (consisting of both Tier I capital and Tier II capital) was as of each such date 12.2%. Basel II recommends that these ratios be at least 4% and 8%.

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Off-Balance Sheet Arrangements
     In addition to loans, we had outstanding the following contingent liabilities and commitments as of each of the dates indicated:
                 
    As of June 30,   As of December 31,
    2009   2008
    (in millions of euros)
Contingent liabilities:
               
Rediscounts, endorsements and acceptances
    42       81  
Guarantees and other sureties
    27,014       27,649  
Other contingent liabilities
    7,365       8,222  
 
               
Total contingent liabilities
    34,421       35,952  
 
               
Commitments:
               
Balances drawable by third parties:
               
Credit entities
    2,254       2,021  
Public authorities
    3,417       4,221  
Other domestic customers
    33,091       37,529  
Foreign customers
    46,378       48,892  
 
               
Total balances drawable by third parties
    85,140       92,663  
Other commitments
    7,583       6,234  
 
               
Total commitments
    92,723       98,897  
 
               
Total contingent liabilities and commitments
    127,144       134,849  
 
               
     In addition to the contingent liabilities and commitments described above, the following table provides information regarding off-balance-sheet funds managed by us as of June 30, 2009 and December 31, 2008:
                 
            As of
    As of June   December 31,
    30, 2009   2008
    (in millions of euros)
Mutual funds
    38,453       37,076  
Pension funds
    51,291       42,701  
Other managed assets
    25,636       24,582  
 
               
Total
    115,380       104,359  
 
               
     See Note 37 to the Interim Consolidated Financial Statements for additional information with respect to our off-balance sheet arrangements.
MAJOR SHAREHOLDERS
     As of June 30, 2009 to our knowledge, no person, corporation or government owned beneficially, directly or indirectly, five percent or more of BBVA’s shares. BBVA’s major shareholders do not have voting rights which are different from those held by the rest of its shareholders. To the extent known to us, BBVA is not controlled, directly or indirectly, by any other corporation, government or any other natural or legal person. As of June 30, 2009, there were 923,005 registered holders of BBVA’s shares, with 3,747,969,121 shares, of which 207 shareholders with registered addresses in the United States hold a total of 799,073,996 shares (including shares represented by American Depositary Receipts (“ADRs”)). Since certain of such shares and ADRs are held by nominees, the foregoing figures are not representative of the number of beneficial holders. BBVA’s directors and executive officers did not own any ADRs as of June 30, 2009.
SUBSEQUENT EVENTS
     Between July 1, 2009 and the date of this filing Form 6-K, other events have taken place as follows:
  On July 8, 2009, the BBVA Board of Directors approved the distribution, as the first gross interim dividend against 2009 results, of a dividend of 0.09 per issued and outstanding BBVA ordinary share. The dividend was paid on July 10, 2009, according to the regulations applicable to the depositary entities.
  On August 21, 2009, BBVA Compass announced that it acquired the banking operations of Guaranty Bank based in Austin, Texas from the Federal Deposit Insurance Corporation (FDIC), effective immediately. BBVA Compass acquired $12.0 billion of assets and assumed $11.5 billion of deposits and entered into a loss sharing agreement with the FDIC that covers all of the acquired loans, where

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    the FDIC will bear 80% of the first $2.3 billion of losses and 95% of the losses above that threshold. At the date of acquisition, Guaranty Bank operated 105 branches in Texas and 59 branches in California.
The acquisition results in BBVA Compass being the 15th largest U.S. commercial bank in terms of deposits with approximately $49 billion in deposits and operations in seven high growth markets in the Sunbelt: Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. This strategic acquisition significantly strengthens BBVA Compass’ existing presence in Texas, solidifying its ranking as the 4th largest bank in Texas based on its deposit market share, which increased from 4.9% to 6.4% as a result of the acquisition. The acquisition also extends BBVA Compass’ general banking business into the attractive, high growth California market.
The financial statements of the business acquired are not presented seperately because none of the conditions required by Rule 3-05 of Regulations S-X are satisfied.
  On September 25, 2009, BBVA sold 948 fixed assets (mainly branch offices and various individual properties) to a third-party real estate investor. At the same time, BBVA signed a sale and leaseback long-term contract with such investor, which includes an option to repurchase the properties at fair values, exercisable by the Group on the agreed dates (in most cases, the termination date of each lease agreement). The price of sale was 1,154 million, generating capital gains of approximately 830 million.
  On September 29, 2009, the BBVA Board of Directors approved the distribution, as the second gross interim dividend against 2009 results, of a dividend of 0.09 per issued and outstanding BBVA ordinary share. The dividend will be paid as of October 12, 2009, according to the regulations applicable to the depositary entities through which payment will be made.
  On September 29, 2009, the BBVA Board of Directors agreed to appoint D. Ángel Cano Fernández as President and Chief Operating Officer, in substitution of D. José Ignacio Goirigolzarri Tellaeche who leaves the Board.
  On September 30, 2009, BBVA issued bonds in an aggregate principal amount of 2,000 million mandatorily convertible into ordinary shares of BBVA on October 15, 2014. Before this date, the bonds are convertible into ordinary shares at BBVA’s option on the terms set forth in the corresponding prospectus, which was registered with the Spanish National Securities Market Commission on September 17, 2009.

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND
COMPANIES COMPOSING THE BANCO BILBAO VIZCAYA
ARGENTARIA GROUP
Unaudited Interim Consolidated Financial Statements and
Explanatory Notes for the six months ended June 30, 2009

 


Table of Contents

CONTENTS
         
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
       
 
    F-4  
 
    F-7  
 
    F-8  
 
    F-10  
 
    F-11  
 
       
 
    F-13  
 
    F-15  
 
    F-38  
 
    F-41  
 
    F-41  
 
    F-42  
 
    F-44  
 
    F-61  
 
    F-66  
 
    F-67  
 
    F-69  
 
    F-70  
 
    F-71  
 
    F-73  
 
    F-73  
 
    F-75  
 
    F-76  
 
    F-78  
 
    F-79  
 
    F-80  
 
    F-81  
 
    F-82  
 
    F-87  
 
    F-88  
 
    F-88  
 
    F-93  
 
    F-94  
 

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    F-95  
 
    F-95  
 
    F-98  
 
    F-99  
 
    F-99  
 
    F-101  
 
    F-101  
 
    F-101  
 
    F-101  
 
    F-102  
 
    F-103  
 
    F-106  
 
    F-106  
 
    F-106  
 
    F-107  
 
    F-107  
 
    F-108  
 
    F-108  
 
    F-111  
 
    F-111  
 
    F-112  
 
    F-112  
 
    F-112  
 
    F-112  
 
    F-113  
 
    F-114  
 
    F-115  
 
    F-119  
 
    F-119  
 
    F-120  
 

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APPENDIX
       
 
    F-121  
 
    F-130  
 
    F-143  
 
    F-145  
 
    F-146  
 
    F-148  
 
    F-152  
 
    F-153  
 
    F-156  
 

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO
VIZCAYA ARGENTARIA GROUP
UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2009 AND DECEMBER 31, 2008 (Notes 1 to 5)
                         
            Millions of euros
    Note   June-09   December-08(*)
 
ASSETS
                       
CASH AND BALANCES WITH CENTRAL BANKS
    9       23,053       14,659  
             
FINANCIAL ASSETS HELD FOR TRADING
    10       71,064       73,299  
             
Loans and advances to credit institutions
                   
             
Loans and advances to customers
                   
             
Debt securities
            32,618       26,556  
             
Other equity instruments
            4,650       5,797  
             
Trading derivatives
            33,796       40,946  
             
OTHER FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
    11       2,088       1,754  
             
Loans and advances to credit institutions
                   
             
Loans and advances to customers
                   
             
Debt securities
            518       516  
             
Other equity instruments
            1,570       1,238  
             
AVAILABLE-FOR-SALE FINANCIAL ASSETS
    12       57,385       47,780  
             
Debt securities
            49,619       39,831  
             
Other equity instruments
            7,766       7,949  
             
LOANS AND RECEIVABLES
    13       352,905       369,494  
             
Loans and advances to credit institutions
            24,533       33,856  
             
Loans and advances to customers
            327,926       335,260  
             
Debt securities
            446       378  
             
HELD-TO-MATURITY INVESTMENTS
    14       5,099       5,282  
             
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK
                   
             
HEDGING DERIVATIVES
    15       3,804       3,833  
             
NON-CURRENT ASSETS HELD FOR SALE
    16       1,023       444  
             
INVESTMENTS IN ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD
    17       1,407       1,467  
             
Associates
            942       894  
             
Jointly controlled entities
            465       573  
             
INSURANCE CONTRACTS LINKED TO PENSIONS
                   
             
REINSURANCE ASSETS
    18       40       29  
             
TANGIBLE ASSETS
    19       6,502       6,908  
             
Property, plants and equipment
            4,818       5,174  
             
Own use
            4,127       4,442  
             
Other assets leased out under an operating lease
            691       732  
             
Investment properties
            1,684       1,734  
             
INTANGIBLE ASSETS
    20       8,363       8,439  
             
Goodwill
            7,609       7,659  
             
Other intangible assets
            754       780  
             
TAX ASSETS
    32       5,987       6,484  
             
Current
            1,155       1,266  
             
Deferred
            4,832       5,218  
             
OTHER ASSETS
    21       3,914       2,778  
             
Inventories
            1,636       1,066  
             
Other
            2,278       1,712  
             
TOTAL ASSETS
            542,634       542,650  
 
(*)   Presented for comparison purposes only.
The accompanying Notes 1 to 57 and Appendices I to IX are an integral part of the consolidated balance sheet as of June 30, 2009.

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO
VIZCAYA ARGENTARIA GROUP
UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2009 AND DECEMBER 31, 2008 (Notes 1 to 5)
                         
            Millions of euros
    Note   June-09   December-08(*)
 
LIABILITIES AND EQUITY
                       
FINANCIAL LIABILITIES HELD FOR TRADING
    10       37,529       43,009  
             
Deposits from central banks
                   
             
Deposits from credit institutions
                   
             
Deposits from customers
                   
             
Debt certificates
                   
             
Trading derivatives
            35,139       40,309  
             
Short positions
            2,390       2,700  
             
Other financial liabilities
                   
             
OTHER FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
    11       1,295       1,033  
             
Deposits from central banks
                   
             
Deposits from credit institutions
                   
             
Deposits from customers
                   
             
Debt certificates
                   
             
Subordinated liabilities
                   
             
Other financial liabilities
            1,295       1,033  
             
FINANCIAL LIABILITIES AT AMORTISED COST
    22       452,489       450,605  
             
Deposits from central banks
            26,979       16,844  
             
Deposits from credit institutions
            49,940       49,961  
             
Deposits from customers
            249,096       255,236  
             
Debt certificates
            102,486       104,157  
             
Subordinated liabilities
            17,003       16,987  
             
Other financial liabilities
            6,985       7,420  
             
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK
                   
             
HEDGING DERIVATIVES
    15       1,525       1,226  
             
LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE
    16              
             
LIABILITIES UNDER INSURANCE CONTRACTS
    23       6,822       6,571  
             
PROVISIONS
    24       8,588       8,678  
             
Provisions for pensions and similar obligations
            6,296       6,359  
             
Provisions for taxes
            299       263  
             
Provisions for contingent exposures and commitments
            355       421  
             
Other provisions
            1,638       1,635  
             
TAX LIABILITIES
    32       1,726       2,266  
             
Current
            409       984  
             
Deferred
            1,317       1,282  
             
OTHER LIABILITIES
    21       2,759       2,557  
             
TOTAL LIABILITIES
            512,733       515,945  
 
(*)   Presented for comparison purposes only.

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Table of Contents

                         
            Millions of euros
    Note   June-09   December-08(*)
 
LIABILITIES AND EQUITY (Continuation)
                       
STOCKHOLDERS’ FUNDS
            29,383       26,586  
             
Capital
    27       1,837       1,837  
             
Issued
            1,837       1,837  
             
Unpaid and uncalled (-)
                   
             
Share premium
    28       12,453       12,770  
             
Reserves
    29       12,309       9,410  
             
Accumulated reserves (losses)
            11,866       8,801  
             
Reserves (losses) of entities accounted for using the equity method
            443       609  
             
Other equity instruments
            8       89  
             
Equity component of compound financial instruments
            1        
             
Other
            7       89  
             
Less: Treasury shares
    30       (23 )     (720 )
             
Income attributed to the Group
            2,799       5,020  
             
Less: Dividends and remuneration
                  (1,820 )
             
VALUATION ADJUSTMENTS
            (701 )     (930 )
             
Available-for-sale financial assets
    12       1,081       931  
             
Cash flow heges
            285       207  
             
Hedges of net investment in a foreign operations
            180       247  
             
Exchange differences
            (2,179 )     (2,231 )
             
Non-current assets helf for sale
                   
             
Entities accounted for using the equity method
            (68 )     (84 )
             
Other valuation adjustments
                   
             
MINORITY INTERESTS
    26       1,219       1,049  
             
Valuation adjustments
            (144 )     (175 )
             
Other
            1,363       1,224  
             
TOTAL STOCKHOLDERS’ EQUITY
            29,901       26,705  
             
TOTAL LIABILITIES AND EQUITY
            542,634       542,650  
 
                         
    Note   June-09   December-08(*)
 
CONTINGENT EXPOSURES
    33       34,421       35,952  
             
CONTINGENT COMMITMENTS
    33       92,723       98,897  
 
(*)   Presented for comparison purposes only.
The accompanying Notes 1 to 57 and Appendices I to IX are an integral part of the consolidated balance sheet as of June 30, 2009.

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO
VIZCAYA ARGENTARIA GROUP
UNAUDITED CONSOLIDATED INCOME STATEMENTS FOR THE SIX MONTHS PERIODS ENDED JUNE 30, 2009
AND 2008 (Notes 1 to 5)
                         
            Millions of euros
    Notes   June-09   June-08(*)
 
INTEREST AND SIMILAR INCOME
    38       12,911       14,782  
             
INTEREST EXPENSE AND SIMILAR CHARGES
    38       (6,053 )     (9,227 )
             
NET INTEREST INCOME
            6,858       5,555  
             
DIVIDEND INCOME
    39       248       241  
             
SHARE OF PROFIT OR LOSS OF ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD
    40       27       173  
             
FEE AND COMMISSION INCOME
    41       2,638       2,778  
             
FEE AND COMMISSION EXPENSES
    42       (457 )     (494 )
             
NET GAINS (LOSSES) ON FINANCIAL ASSETS AND LIABILITIES
    43       446       1,018  
             
Held for trading
            136       280  
             
Other financial instruments at fair value through profit or loss
            29       17  
             
Other financial instruments not at fair value through profit or loss
            281       721  
             
Other
                   
             
NET EXCHANGE DIFFERENCES
            352       142  
             
OTHER OPERATING INCOME
    44       1,755       1,931  
             
Income on insurance and reinsurance contracts
            1,313       1,518  
             
Financial income from non-financial services
            229       228  
             
Rest of other operating income
            213       185  
             
OTHER OPERATING EXPENSES
    44       (1,487 )     (1,718 )
             
Expenses on insurance and reinsurance contracts
            (936 )     (1,226 )
             
Changes in inventories
            (191 )     (195 )
             
Rest of other operating expenses
            (360 )     (297 )
             
GROSS INCOME
            10,380       9,626  
             
ADMINISTRATION COSTS
    45       (3,734 )     (3,816 )
             
Personnel expenses
            (2,291 )     (2,343 )
             
General and administrative expenses
            (1,443 )     (1,473 )
             
DEPRECIATION AND AMORTIZATION
            (354 )     (338 )
             
PROVISIONS (NET)
    46       (152 )     (612 )
             
IMPAIRMENT ON FINANCIAL ASSETS (NET)
    47       (1,945 )     (1,164 )
             
Loans and receivables
            (1,869 )     (1,141 )
             
Other financial instruments not at fair value through profit or loss
            (76 )     (23 )
             
NET OPERATING INCOME
            4,195       3,696  
             
IMPAIRMENT ON OTHER ASSETS (NET)
    48       (271 )     (6 )
             
Goodwill and other intangible assets
    20              
             
Other assets
            (271 )     (6 )
             
GAINS (LOSSES) IN WRITTEN OFF ASSETS NOT CLASSIFIED AS NON-CURRENT ASSETS HELD FOR SALE
    49       9       21  
             
NEGATIVE GOODWILL
                   
             
GAINS (LOSSES) IN NON-CURRENT ASSETS HELD FOR SALE NOT CLASSIFIED AS DISCONTINUED OPERATIONS
    50       70       779  
             
INCOME BEFORE TAX
            4,003       4,490  
             
INCOME TAX
    32       (961 )     (1,213 )
             
INCOME FROM ORDINARY ACTIVITIES
            3,042       3,277  
             
INCOME FROM DISCONTINUED OPERATIONS (NET)
                   
             
NET INCOME
            3,042       3,277  
             
Net Income attributed to parent company
            2,799       3,108  
             
Profit or loss attributable to minority interest
    26       243       169  
             
                         
            Units of euros
            June-09   June-08 (*)
             
EARNINGS PER SHARE FOR CONTINUING OPERATIONS
    5                  
             
Basic earnings per share
            0.76       0.84  
             
Diluted earnings per share
            0.76       0.84  
 
(*)   Presented for comparison purposes only. Income statement and income statement derived information for the six months ended June 30, 2008 have been restated as mentioned in Note 1.3 to consolidated financial statements.
The accompanying Notes 1 to 57 and Appendices I to IX are an integral part of the consolidated income statement for the six months period ended June 30, 2009.

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO
VIZCAYA ARGENTARIA GROUP
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS PERIODS ENDED
JUNE 30, 2009 AND 2008 (Notes 1 to 5)
                                                                                                         
    Millions of euros
    Total equity attributed to the parent company        
    Stockholders’ funds                        
                    Reserves                                                    
                            Reserves                   Profit for                                
                            (losses           Less:   the   Less:                            
    Share                   entities           Treasur   period   dividends                            
    Capital           Reserves   accoun-ted           y shares   attributed   and   Total                   Minority   Total
    (Note   Share   (acumulated   for equity   Other equity   (Note   to parent   remune-   stockholders   Valuation           interest   Stockholders’
    27)   premium   losses)   method)   instruments   30)   company   rations   funds   adjustments   Total   (Note 26)   equity
 
Balances at January 1, 2009
    1,837       12,770       8,801       609       89       720       5,020       1,820       26,586       (930 )     25,656       1,049       26,705  
Effects of changes in accounting policies
                                                                             
Effect of correction of errors
                                                                             
Adjusted initial balance
    1,837       12,770       8,801       609       89       720       5,020       1,820       26,586       (930 )     25,656       1,049       26,705  
Total income/expense recognized
                                        2,799             2,799       229       3,028       275       3,303  
Other changes in equity
          (317 )     3,065       (166 )     (81 )     (697 )     (5,020 )     (1,820 )     (2 )           (2 )     (105 )     (107 )
Increased of capital
                                                                             
Capital reduction
                                                                             
Conversion of financial liabilities into capital
                                                                             
Increase of other equity instruments
                            6                         6             6             6  
Reclassification of financial liabilities to other equity instruments
                                                                             
Reclassification of other equity instruments to financial liabilities
                                                                             
Dividend distribution
                                                                      (102 )     (102 )
Transactions including treasury shares and other equity instruments (net)
                (305 )                 (697 )                 392             392             392  
Transfers between total equity entries
                3,359       (159 )                 (5,020 )     (1,820 )                              
Increase/Reduction in business combinations
                                                                             
Payments with equity instruments
          (317 )                 (87 )                       (404 )           (404 )           (404 )
Rest of increase/reductions in total equity
                11       (7 )                             4             4       (3 )     1  
     
Balances as of June 30, 2009
    1,837       12,453       11,866       443       8       23       2,799             29,383       (701 )     28,682       1,219       29,901  
 

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    Millions of euros
    Total equity attributed to the parent company        
    Stockholders’ funds            
                    Other           Profit for the            
    Share           equity           year attributed       Minority   Total
    Capital   Share   instru-   Less: Treasury   to parent   Valuation   interest   Stockholders’
    (Note 27)   premium   ments   shares (Note 30)   company   adjustments   (Note 26)   equity
 
Balances at January 1, 2008
    1,837       17,169       68       (389 )     6,126       2,252       880       27,943  
Effects of changes in accounting policies
                                               
Effect of correction of errors
                                               
Adjusted initial balance
    1,837       17,169       68       (389 )     6,126       2,252       880       27,943  
Total income/expense recognized
                            3,108       (3,008 )     115       215  
Other changes in equity
          4,321       19       (283 )     (6,126 )           (119 )     (2,188 )
Increased of capital
                                               
Capital reduction
                                               
Conversion of financial liabilities into capital
                                               
Increase of other equity instruments
                                               
Reclassification of financial liabilities to other equity instruments
                                               
Reclassification of other equity instruments to financial liabilities
                                               
Dividend distribution
          1,041                   (2,663 )           (114 )     (1,736 )
Transactions including treasury shares and other equity instruments (net)
          (129 )     19       (283 )                       (393 )
Transfers between total equity entries
          3,463                   (3,463 )                  
Increase/Reduction in business combinations
          (8 )                             (3 )     (11 )
Payments with equity instruments
                                               
Rest of increase/reductions in total equity
          (46 )                             (2 )     (48 )
     
Balances as of June 30, 2008
    1,837       21,490       87       (672 )     3,108       (756 )     876       25,970  
 
(*)   Presented for comparison purposes only.
The accompanying Notes 1 to 57 and Appendices I to IX are an integral part of the consolidated statement of changes in equity for the six months period ended June 30, 2009.

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
UNAUDITED CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSE FOR THE SIX MONTHS PERIODS ENDED JUNE 30, 2009 AND 2008 (Notes 1 to 5)
                 
    Millions of euros
    June-09   June-08(*)
 
NET INCOME RECOGNISED DIRECTLY IN EQUITY
    3,042       3,277  
     
OTHER RECOGNIZED INCOME (EXPENSES)
    264       (3,062 )
     
Available-for-sale financial assets
    233       (3,117 )
     
Revaluation gains/losses
    478       (1,723 )
     
Amounts removed to income statement
    (245 )     (1,394 )
     
Reclassifications
           
     
Cash flow hedges
    117       (211 )
     
Revaluation gains/losses
    119       (211 )
     
Amounts removed to income statement
    (2 )      
     
Amounts removed to the initial carrying amount of the hedged items
           
     
Reclassifications
           
     
Hedges of net investment in foreign operations
    (64 )     166  
     
Revaluation gains/losses
    (64 )     166  
     
Amounts removed to income statement
           
     
Reclassifications
           
     
Exchange differences
    66       (899 )
     
Translation gains/losses
    66       (899 )
     
Amounts removed to income statement
           
     
Reclassifications
           
     
Non-current assets held for sale
           
     
Revaluation gains
           
     
Amounts removed to income statement
           
     
Reclassifications
           
     
Actuarial gains and losses in post-employment plans
           
     
Entities accounted for using the equity method
    23       3  
     
Valuation gains/losses
    23       3  
     
Amounts removed to income statement
           
     
Reclassifications
           
     
Rest of recognized income and expenses
           
     
Income tax
    (111 )     996  
     
TOTAL RECOGNIZED INCOME/EXPENSES
    3,301       215  
     
Attributed to the parent company
    3,026       100  
     
Attributed to minority interest
    275       115  
 
(*)   Presented for comparison purposes only.
The accompanying Notes 1 to 57 and Appendices I to IX are an integral part of the consolidated statement of recognized income and expenses for the six months period ended June 30, 2009.

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE BANCO BILBAO VIZCAYA ARGENTARIA GROUP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS PERIODS ENDED JUNE 30, 2009 AND JUNE 30, 2008 (Notes 1 to 5)
                 
    Millions of euros
    June-09   June-08(*)
 
CASH FLOW FROM OPERATING ACTIVITIES (1)
    8,530       (8,765 )
     
Consolidated profit for the period
    3,042       3,277  
     
Adjustments to obtain the cash flow from operating activities:
    453       177  
     
Depreciation and amortization
    354       338  
     
Other adjustments
    99       (161 )
     
Net increase/decrease in operating assets
    7,485       (15,394 )
     
Financial assets held for trading
    2,235       3,474  
     
Other financial assets designated at fair value through profit or loss
    (334 )     59  
     
Available-for-sale financial assets
    (9,875 )     2,284  
     
Loans and receivables
    16,297       (19,891 )
     
Other operating assets
    (838 )     (1,320 )
     
Net increase/decrease in operating liabilities
    (3,410 )     1,962  
     
Financial liabilities held for trading
    (5,480 )     4,222  
     
Other financial liabilities designated at fair value through profit or loss
    262        
     
Financial liabilities at amortised cost
    1,885       (2,583 )
     
Other operating liabilities
    (77 )     323  
     
Collection/Payments for income tax
    960       1,213  
     
CASH FLOWS FROM INVESTING ACTIVITIES (2)
    75       1,144  
     
Investment
    (177 )     (194 )
     
Tangible assets
    (16 )      
     
Intangible assets
           
     
Investments
    (4 )     (40 )
     
Subsidiaries and other business units
    (7 )     (12 )
     
Non-current assets held for sale and associated liabilities
    (150 )     (142 )
     
Held-to-maturity investments
           
     
Other payments related to investing activities
           
     
Divestments
    252       1,338  
     
Tangible assets
          116  
     
Intangible assets
    27       101  
     
Investments
    14       65  
     
Subsidiaries and other business units
    27        
     
Non-current assets held for sale and associated liabilities
           
     
Held-to-maturity investments
    184       182  
     
Other collections related to investing activities
          874  
     
CASH FLOWS FROM FINANCING ACTIVITIES (3)
    (177 )     (1,667 )
     
Investment
    (3,583 )     (9,343 )
     
Dividends
    (625 )     (1,553 )
     
Subordinated liabilities
          151  
     
Amortization of own equity instruments
           
     
Acquisition of own equity instruments
    (2,774 )     (7,809 )
     
Other items relating to financing activities
    (184 )     (132 )
     
Divestments
    3,406       7,676  
     
Subordinated liabilities
    16        
     
Issuance of own equity instruments
           
     
Disposal of own equity instruments
    3,338       7,527  
     
Other items relating to financing activities
    52       149  
     
EFFECT OF EXCHANGE RATE CHANGES (4)
    (20 )     (888 )
     
NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (1+2+3+4)
    8,408       (10,176 )
     
CASH OR CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
    14,642       22,561  
     
CASH OR CASH EQUIVALENTS AT END OF THE PERIOD
    23,050       12,385  
 

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    Millions of euros
    June-09   June-08(*)
 
COMPONENTS OF CASH AND EQUIVALENT AT END OF THE PERIOD
               
Cash
    3,069       2,723  
     
Balance of cash equivalent in central banks
    19,981       9,662  
     
Other financial assets
           
     
Less:bank overdraft refundable on demand
           
     
TOTAL CASH OR CASH EQUIVALENTS AT END OF THE PERIOD
    23,050       12,385  
     
Of which:
               
     
held by consolidated subsidiaries but not available for the Group
           
 
(*)   Presented for comparison purposes only. Cash flows and cash flows derived information for the six months ended June 30, 2008 have been restated as mentioned in Note 1.3 to consolidated financial statements.
The accompanying Notes 1 to 57 and Appendices I to IX are an integral part of the consolidated cash flow statement for the six months period ended June 30, 2009.

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND COMPANIES COMPOSING THE
BANCO BILBAO VIZCAYA ARGENTARIA GROUP
EXPLANATORY NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2009
1. INTRODUCTION, BASIS OF PRESENTATION OF THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
1.1. INTRODUCTION
Banco Bilbao Vizcaya Argentaria, S.A. (“the Bank” or “BBVA”) is a private-law entity governed by the rules and regulations applicable to banks operating in Spain. The Bank leads its business through branches and offices located throughout Spain and abroad.
The bylaws of association and other public information on the Bank can be consulted both at its registered office (Plaza San Nicolás, 4, Bilbao) and on its official website, www.bbva.com.
In addition to the operations carried on directly by it, the Bank is the head of a group of subsidiaries, jointly controlled entities and associates that engage in various business activities and which compose, together with the Bank, the Banco Bilbao Vizcaya Argentaria Group (“the Group” or “BBVA Group”). Therefore, the Bank is obliged to prepare, in addition to its own financial statements the Group’s.
As of June 30, 2009 the Group was composed by 336 entities that were fully consolidated, 5 were consolidated by the proportionate method and 74 entities accounted for using the equity method (Notes 3 and 17 and appendix II to VI of the present interim consolidated financial statements).
The Group’s consolidated financial statements as of December 31, 2008 were approved by the shareholders at the Bank’s Annual General Meeting on March 13, 2009.
1.2. BASIS OF PRESENTATION OF THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The Group’s interim consolidated financial statements are presented in accordance with the International Financial Reporting Standards endorsed by the European Union (“IFRS-EU”) applicable at six months ended June 30, 2009, and additionally considering Bank of Spain Circular 4/2004, of December 22, 2004 (and as amended thereafter). These Circular of the Bank of Spain are the legislation that enacts and adapts the IFRS-EU for Spanish banks.
The BBVA Group’s interim consolidated financial statements for the period from January, 1, 2009 and June 30, 2009 were prepared in accordance with the EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004, and by applying the basis of consolidation, accounting policies and measurement bases described in Note 2, so that they present fairly the Group’s equity and financial position as of June 30, 2009 and the consolidated results of its operations, the changes in the consolidated equity, the changes in the consolidated recognized income and expenses and consolidated cash flows arising in the Group for the six months ended June 30, 2009. These interim consolidated financial statements and their explanatory notes were prepared on the basis of the accounting records kept by the Bank and by each of the other Group companies and include the adjustments and reclassifications required to unify the accounting policies and measurement bases used by the Group (Note 2.2).
All accounting policies and measurement bases with a significant effect on the consolidated financial statements were applied in their preparation.
Due to the fact that the numerical information contained in the annual consolidated financial statements is expressed in million of euros, except in certain cases where it is necessary to lower unit, certain captions that do not present any balance in the financial statements may present balance in euros. In addition, information regarding period-to-period changes is based on numbers not rounded.

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1.3. COMPARATIVE INFORMATION
The information contained in the interim consolidated financial statements and its explanatory notes referred to the year ended December 31, 2008 and the six months ended June 30, 2008 are presented solely for comparison purposes with respect to the information relating to the six months ended June 30, 2009.
The main differences between the information included in these consolidated interim financial statements for the six months ended June 30, 2008 and the previously disclosed interim information covering the same six-month period derive from the application of the financial statements formats laid down in Bank of Spain Circular 6/2008 issued in November 2008.
1.4. RESPONSIBILITY FOR THE INFORMATION AND FOR THE ESTIMATES MADE
The information in these BBVA Group consolidated financial statements is the responsibility of the Group’s directors.
In preparing these consolidated financial statements estimates were occasionally made by the Bank and the consolidated companies in order to quantify certain of the assets, liabilities, income, expenses and commitments reported herein. These estimates relate mainly to the following:
    The impairment losses on certain financial assets (Notes 7, 8, 11, 12, 13, 14 and 16).
 
    The assumptions used in the actuarial calculation of the post-employment benefit liabilities and commitments (Note 25).
 
    The useful life of tangible and intangible assets (Notes 19 and 20).
 
    The measurement of goodwill arising on consolidation (Notes 17 and 20).
 
    The fair value of certain unlisted assets (Note 7, 8, 10, 11, 12 and 15).
Although these estimates were made on the basis of the best information available as of June 30, 2009 on the events analysed, events that take place in the future might make it necessary to change these estimates (upwards or downwards) in coming periods.
1.5. ENVIRONMENTAL IMPACT
Given the activities in which the Group companies engage, the Group has no environmental liabilities, expenses, assets, provisions or contingencies that could have a significant effect on its consolidated equity, financial situation or performance. Consequently, there is no heading on the face of the Group’s consolidated interim financial statements at June 30, 2009 that requires disclosure in the environmental report stipulated under the Ministry of Economy Order of October 8, 2001 and the accompanying interim consolidated financial statements and explanatory notes do not include specific disclosures on environmental matters.
1.6. CAPITAL MANAGEMENT AND MINIMUM EQUITY REQUIRED
Capital requirements
Bank of Spain Circular 3/2008, of May 22, on the calculation and control of minimum capital requirements, regulates the minimum capital requirements for Spanish credit institutions –both as individual entities and as consolidated groups– and how to calculate them, as well as the various internal capital adequacy assessment processes they should have in place and the information they should disclose to the market.
This Circular is the final implementation, for credit institutions, of the Spanish legislation on capital and consolidated supervision of financial institutions, and the adaptation of Spanish legislation to corresponding directives of the European Union, based on the Accord adopted by the Basel Committee on Banking Supervision (“Basel II”) about the minimum capital requirements for credit institutions and their consolidable groups.
The minimum capital requirements established by the aforementioned Circular 3/2008 are calculated on the basis of the Group’s exposure to credit risk and dilution risk, to counterparty risk and position and settlement risk in the trading book, to foreign exchange risk and to operational risk.

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Additionally, the Group is subject to compliance with the risk concentration limits established in the aforementioned Circular and with the requirements concerning internal corporate governance, internal capital adequacy assessment, measurement of interest rate risk and information to be disclosed to the market also set forth therein.
With a view to guaranteeing compliance with the aforementioned objectives, the Group performs integrated management of these risks, in accordance with its internal policies (see Note 7).
As of June 30, 2009 and December 31, 2008 the eligible capital of the Group exceeded the minimum required under Circular 3/2008 (Note 31).
Capital management
New Basel Capital Accord — Basel II — Economic Capital
The Group’s capital management is performed at both regulatory and economic level.
Regulatory capital management is based on the analysis of the capital base and the capital ratios using the aforementioned Circular 3/2008 of Bank of Spain criteria (Note 31).
The aim is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors.
The Bank has obtained the approval by Bank of Spain of its internal model of capital estimation (IRB) in 2008 and the first semester 2009 for certain portfolios.
From an economic standpoint, capital management seeks to optimise value creation at the Group and at its different business units.
The Group allocates economic capital commensurate with the risks incurred by each business (CER). This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. These targets are applied at two levels: the first is core equity, which determines the allocated capital. The Bank uses this amount as a basis for calculating the return generated on the equity in each business (ROE). The second level is total capital, which determines the additional allocation in terms of subordinate debt and preference shares. The CER calculation combines lending risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk and fixed asset and technical risks in the case of insurance companies.
Stockholders’ funds, as calculated under current regulation, are an extremely important reference to the entire Group. However, for the purpose of allocating capital to business areas the Bank prefers CeR (Note 6). It is risk-sensitive and thus linked to the management policies for the individual businesses and the business portfolio. This procedure, accord with Basel II rules on capital, provides an equitable basis for assigning capital to businesses according to the risks incurred and makes it easier to compare returns.
1.7. SEASONAL NATURE OF INCOME AND EXPENSES
The nature of the most significant activities and transactions carried out by the Group is mainly related to traditional activities carried out by financial institutions that are not affected by seasonal or cyclical factors.
2. BASIS OF CONSOLIDATION, ACCOUNTING POLICIES AND MEASUREMENT BASES APPLIED AND IFRS RECENT PRONOUNCEMENTS
Glossary (Appendix IX) to the accompanying interim consolidated financial statements includes the definition of financial and economic terms use in this Note 2 and subsequent explanatory notes.
2.1 BASIS OF CONSOLIDATION
The accounting policies and measurement bases used in preparing the Group’s interim consolidated financial statements as of June 30, 2009 may differ from those used by certain Group companies. For this reason, the required adjustments and reclassifications were made on consolidation to unify the policies and

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bases used and to make them compliant with EU-IFRSs required to be applied under the Bank of Spain’s Circular 4/2004.
The interim consolidated financial statements only include the results of companies acquired during the period for the period from the acquisition date until the balance sheet date.
In the Group there are three types of consolidated entities: subsidiaries, jointly controlled entities and associates.
Subsidiaries
The financial statements of the subsidiaries are fully consolidated with those of the Bank.
The share of minority shareholders of the subsidiaries in the Group’s net consolidated equity is presented under the heading “Minority Interests” in the consolidated balance sheet and their share in the profit or loss for the period is presented under the heading “Profit or loss attributed to minority interests” in the consolidated income statement (Note 26).
Note 3 contain information on the most significant investments and divestments in subsidiaries that took place as of June 30, 2009. Appendix II includes the most significant information on these companies.
Jointly controlled entities
Since the implementation of EU-IFRSs, the Group has pursued the following policy in relation to investments in jointly controlled entities:
- Jointly controlled financial entities. Since their corporate purpose is that of a financial entity, management considers that the best way of reflecting their activities within the Group’s consolidated financial statements is using the proportionate method of consolidation.
As of June 30, 2009, the contribution of jointly controlled financial entities to the principal magnitudes of the Group’s interim consolidated financial statements under the proportionate consolidation method and calculated on the basis of the interest held by the Group is depicted in the table below:
         
    Millions of euros
Group’s Asset
    380  
Group’s Liabilities
    255  
Group’s Equity
    26  
Group’s Consolidated profit
    7  
 
Additional disclosure is not provided as these investments are not material.
Appendix IV itemises the jointly controlled entities consolidated by the Group under the proportionate method, listing salient information for these companies.
- Jointly controlled non-financial entities. Management believes that the effect of breaking out the balance sheet and income statement headings of jointly controlled non-financial entities would distort the information provided to investors. For this reason, the equity method is considered the most appropriate way of recognising these investments.
Appendix V lists the main financial magnitudes for jointly controlled entities consolidated using the equity method. Note 17 discloses the impact that application of proportionate consolidation, would have had on the consolidated balance sheet and income statement.
Associates
Associates are companies in which the Group is able to exercise significant influence, without having control. Significant influence is deemed to exist when the Group owns 20% or more of the voting rights of an investee directly or indirectly.
However, certain entities in which the Group owns 20% or more of the voting rights are not included as Group associates, since it is considered that the Group does not have the capacity to exercise significant influence over these entities. The investments in these entities, which do not represent material amounts for the Group, are classified as available-for-sale investments.

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In addition, there are certain investments in entities in which the Group holds less than 20% of the voting rights are accounted for as Group associates based on the judgment that the Group has the power to exercise significant influence over these entities.
Investments in associates are accounted for using the equity method (Note 17). Appendix V includes the most significant information on these companies consolidated using the equity method.
2.2. ACCOUNTING POLICIES AND MEASUREMENT BASES APPLIED
The accounting policies and measurement bases used in preparing these interim consolidated financial statements were as follows:
2.2.1. FINANCIAL INSTRUMENTS
a) Measurement of financial instruments and recognition of changes arising from the measurement
All financial instruments are initially recognized at fair value which, in the absence of evidence to the contrary, shall be the transaction price. These instruments will subsequently be measured on the basis of their classification. The recognition of changes arising subsequent to the initial recognition is described below.
The change produced during the period, except in trading derivatives, arising in the period from the accrual of interests and similar items are recorded under the headings “Interest and Similar Income” or “Interest Expense and Similar Charges”, as appropriate, in the consolidated income statement of that period. The dividends accrued in the period are recorded under the heading “Dividend income” in the consolidated income statement of that period.
The changes in the measurements after the initial recognition, for reasons other than those of the preceding paragraph, are described below according to the categories of financial assets and liabilities:
- “Financial assets held for trading” and “Financial assets and liabilities designated at fair value through profit or loss”
Assets and liabilities recognized in these headings in the accompanying consolidated balance sheets are valued at fair value.
Changes arising from the valuation to fair value (gains or losses) are recognized, net amount, under the heading “Net gains (losses) on financial assets and liabilities” in the accompanying consolidated income statements. On the other hand, Valuation adjustments by changes in foreign exchange rates are recognized under the heading “Net exchange differences” in the accompanying consolidated income statements.
The fair value of the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price in an active market. If, under exceptional circumstances, their quoted price cannot be established on a given date, these derivatives are measured using methods similar to those used to measure over-the-counter (“OTC”) derivatives.
The fair value of OTC derivatives (“present value” or “theoretical close”) is equal to the sum of the future cash flows arising from the instrument, discounted at the measurement date; these derivatives are measured using methods recognized by the financial markets: net present value (NPV) method, option price calculation models, etc. (Note 8)
Financial derivatives that have as their underlying equity instruments, whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments, are measured at adquisition cost.
- “Available-for-Sale Financial Assets”
Assets and liabilities recognized in these headings in the accompanying consolidated balance sheets are valued at fair value.
Changes arising from the valuation to fair value (gains or losses) are recognized temporarily, net amount, under the heading “Valuation Adjustments — Available-for-Sale Financial Assets” in the accompanying consolidated balance sheets.

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Changes arising from non-monetary items by changes in foreign exchange rates are recognized temporarily under the heading “Valuation Adjustments — Exchange Differences” in the accompanying consolidated balance sheet. Valuation adjustments arising from monetary items by changes in foreign exchange rates are recognized under the heading “Net Exchange Differences” in accompanying the consolidated income statements.
The amounts recognized in the headings “Valuation Adjustments — Available-for-Sale Financial Assets” and “Valuation Adjustments — Exchange Differences” remain in the Group’s consolidated equity until the asset is derecognized from the consolidated balance sheet, at which time those amounts are recognized under the headings “Net gains (losses) on financial assets and liabilities” or “Net Exchange Differences” in the consolidated income statement of the period in which the asset is derecognized from the balance sheet.
The gains from sales of other equity instruments considered strategic investments accounted for as “Available-for-sale”, are registered on the heading “Gains (losses) in non-current assets held-for-sale not classified as discontinued operations” (Note 50) in the consolidated income statement, although they had not previously accounted for as non-current assets held-for-sale, as is indicated in Rule 56 of the Circular 4/2004 modified by the Circular 6/2008.
On the other hand, the impairment (net) losses in the available-for-sale financial assets arising in the period are recognized under the heading “Impairment of financial assets (net) – Other financial instruments not at fair value through profit or loss” in the consolidated income statements of that period.
- “Loans and receivables”, “Held-to-maturity investments” and “Financial liabilities at amortised cost”
Assets and liabilities recognized in these headings in the accompanying consolidated balance sheets are measured at “amortized cost” using the “effective interest rate” method, due to the fact that consolidated entities have the intention to hold them to maturity.
Impairment (net) losses in assets of these headings arising in the period are recognized under the headings “Impairment (net) – Loans and receivables” or “Impairment of financial assets (net) – Other financial instruments not at fair value through profit or loss” in the consolidated income statements of that period.
-“Hedging derivatives”
Assets and liabilities recognized in these headings in the accompanying consolidated balance sheets are valued at fair value.
Changes produced subsequent to the designation in the valuation of financial instruments designated as hedged items as well as financial instruments designated as hedging items are recognized based on the following criteria:
  §   In the fair value hedges, the changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized directly in the heading “Net gains (losses) on financial assets and liabilities” in the consolidated income statement.
 
  §   In the cash flow hedges and net investments in a foreign operation hedges, the differences produced in the effective portions of hedging items are recognized temporarily under the heading “Valuation adjustments – Cash flow hedges” and “Valuation adjustments – Hedges of net investments in foreign operations”, respectively. These valuation changes are recognized in the heading “Net gains (losses) on financial assets and liabilities” in the consolidated income statement in the same period or periods during which the hedged instrument affects profit or loss, when forecast transaction occurs or at the maturity date of the item hedged.
Differences in valuation of the hedging item for ineffective portions of cash flow hedges and net investments in a foreign operation hedges are recognized directly in the heading “Net gains (losses) on financial assets and liabilities” in the consolidated income statement.
- “Other financial instruments”
In relation to the aforementioned general criteria, we must highlight the following exceptions:
  §   Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying and are settled by delivery of

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      those instruments are measured at acquisition cost adjusted, where appropriate, by any related impairment loss.
 
  §   Valuation adjustments arising on financial instruments classified at Balance sheet date as non-current assets held for sale are recognized with a balancing entry under the heading “Valuation Adjustments — Non-Current Assets Held for Sale” of the consolidated balance sheet.
b) Impairment financial assets
Definition of impaired financial assets
A financial asset is considered to be impaired – and therefore its carrying amount is adjusted to reflect the effect of its impairment – when there is objective evidence that events have happened which:
  §   In the case of debt instruments (loans and debt securities), give rise to a negative impact on the future cash flows that were estimated at the time the transaction was arranged.
 
  §   In the case of equity instruments, mean that the carrying amount of these instruments cannot be recovered.
As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge to the consolidated income statement of the period in which the impairment becomes known, and the recoveries of previously recognized impairment losses are recognized in the consolidated income statement for the period in which the impairment is reversed or reduced, with the exception that any recovery of previously recognized impairment losses for an investment in an equity instrument classified as available for sale which are not recognized through consolidated profit or loss but recognized under the heading “Valuation Adjustments – Available for sale Financial Assets” in the consolidated balance sheet.
Balances are considered to be impaired when there are reasonable doubts that the balances will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed upon, taking into account the guarantees received by the consolidated entities to assure (in part or in full) the performance of transactions. Amounts collected in relation to impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the principal not yet paid.
When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.
Calculation of impairment on financial assets
The impairment on financial assets is determined by type of instrument and the category in which they are recognized. The BBVA Group recognizes impairment charges directly against the impaired asset when the likelihood of recovery is deemed remote, and uses an offsetting or allowance account when it records non-performing loan provisions.
The amount of impairment losses of debt securities at amortised cost is measured as a function of whether the impairment losses are determined individually or collectively.
Impairment losses determined individually
The quantification of impairment losses on assets classified as impaired is done on an individual basis in connection with customers whose operations are equal to or exceed €1 million.
The amount of the impairment losses incurred on these instruments relates to the positive difference between their respective carrying amounts and the present values of their expected future cash flows.
The following is to be taken into consideration when estimating the future cash flows of debt instruments:
    All the amounts that are expected to be obtained over the residual life of the instrument; including, where appropriate, those which may result from the collaterals and other credit enhancements provided for the instrument (after deducting the costs required for foreclosure and subsequent sale).
 
    The various types of risk to which each instrument is subject.
 
    The circumstances in which collections will foreseeably be made.

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These cash flows are discounted using the original effective interest rate. If a financial instrument has a variable interest rate, the discount rate for measuring any impairment loss is the current effective rate determined under the contract.
As an exception to the rule described above, the market value of quoted debt instruments is deemed to be a fair estimate of the present value of their future cash flows.
Impairment losses determined collectively
The quantification of impairment losses is determined on a collective basis in the following two cases:
    Assets classified as impaired of customers in which the amount of their operations is less than €1 million.
 
    Asset portfolio not impaired currently but which presents an inherent loss.
Inherent loss, calculated using statistical procedures, is deemed equivalent to the portion of losses incurred at the date of preparing the accompanying consolidated financial statements that has yet to be allocated to specific transactions.
The Group realizes the estimate collectively the inherent loss of credit risk corresponding to operations realized by Spanish financial entities of the Group (approximately 58.61% on Loans and receivables of the Group as of June 30, 2009), using the parameters set by Annex IX of the Circular 4/2004 from Bank of Spain on the base of its experience and the Spanish banking sector information.
Notwithstanding the above, the Group can avail of the proprietary historic records used in its internal ratings models, which were approved by the Bank of Spain for some portfolios in the year 2008, albeit only for the purposes of estimating regulatory capital under the new Basel Accord (BIS II). It uses these internal ratings models to calculate the economic capital required in its activities and uses the expected loss concept to quantify the cost of credit risk for incorporation into its calculation of the risk-adjusted return on capital of its operations.
The provisions required under Circular 4/2004 from Bank of Spain standards fall within the range of provisions calculated using the Group’s internal ratings models.
To estimate the collective loss of credit risk corresponding to operations with nonresident in Spain registered in foreign subsidiaries, are applied methods and similar criteria, taking like reference the Bank of Spain parameters but adapting the default’s calendars to the particular circumstances of the country. However, in Mexico for consumer loans, credit cards and mortgages portfolios, as well as for credit investment maintained by the Group in the United States are using internal models for calculating the impairment losses based on historical experience of the Group (approximately 13% of the Loans and Receivables of the Group as of June 30, 2009).
Following is a description of the methodology used to estimate the collective loss of credit risk corresponding to operations with resident in Spain:
1. Portfolio doubtful
The debt instruments, whoever the obligor and whatever the guarantee or collateral, that have past-due amounts with more than three months, taking into account the age of the past-due amounts, the guarantees or collateral provided and the economic situation of the customer and the guarantors.
In the case of unsecured transactions and taking into account the age of the past-due amounts, the allowance percentages are as follow:
         
         Age of the past-due amount   Allowance percentage
 
Up to 6 months
  between 4.5% and 5.3%
Over 6 months and up to 12 months
  between 27.4% and 27.8%
Over 12 months and up to 18 months
  between 60.5% and 65.1%
Over 18 months and up to 24 months
  between 93.3% and 95.8%
Over 24 months
    100 %
 

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In the case of transactions secured by completed houses when the total exposure is equal or inferior 80% of the value of the guarantee or collateral and taking into account the age of the past-due amounts, the allowance percentages are as follow:
         
     Age of the past-due amount   Allowance percentage
 
Less than 3 years
    2 %
Over 3 years and up to 4 years
    25 %
Over 4 years and up to 5 years
    50 %
Over 5 years and up to 6 years
    75 %
Over 6 years
    100 %
 
In the rest of transactions secured by real property in which the entity has began the process to take possession of the pledge and taking into account the age of the past-due amounts, the allowance percentages are as follow:
         
       Age of the past-due amount   Allowance percentage
 
Up to 6 months
  between 3.8% and 4.5%
Over 6 months and up to 12 months
  between 23.3% and 23.6%
Over 12 months and up to 18 months
  between 47.2% and 55.3%
Over 18 months and up to 24 months
  between 79.3% and 81.4%
Over 24 months
    100 %
 
Debt instruments for which, without qualifying as doubtful in terms of criteria for classification as past-due, there is reasonable doubt that they will be recovered on the initially agreed terms are analyzed individually.
2. Portfolio into force
The debt instruments, whoever the obligor and whatever the guarantee or collateral, that do not have individually objective of impairment are collectively assesses, including the assets in a group with similar credit risk characteristics, including sector of activity of the debtor or the type of guarantee.
The allowance percentages of hedge are as follows:
                 
    ALLOWANCE
          RISK   PERCENTAGE
 
Negligible risk   0%
Low risk
    0.06 %     0.75 %
Medium-low risk
    0.15 %     1.88 %
Medium risk
    0.18 %     2.25 %
Medium-high risk
    0.20 %     2.50 %
High risk
    0.25 %     3.13 %
 
3. Country Risk Allowance or Provision
Country risk is understood as the risk associated with customers resident in a specific country due to circumstances other than normal commercial risk. Country risk comprises sovereign risk, transfer risk and other risks arising from international financial activity. On the basis of the economic performance, political situation, regulatory and institutional framework, and payment capacity and record, the Group classifies the transactions in different groups, assigning to each group the provisions for insolvencies percentages, which are derived from those analyses.
However, due to the dimension Group, and to risk-country management, the provision levels are not significant in relation to the balance of the provisions by constituted insolvencies (As of June 30, 2009, this provision represents a 2.3% in the provision for insolvencies of the Group).

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Impairment on other debt instruments
The impairment losses on debt securities included in the “Available-for-sale financial asset” portfolio are equal to the positive difference between their acquisition cost (net of any principal repayment) and their fair value, after deducting any impairment loss previously recognized in the consolidated income statement.
When there is objective evidence that the negative differences arising on measurement of these assets are due to non-temporary impairment, they are no longer considered as “Valuation Adjustments - Available-for-Sale Financial Assets” and are recognized in the consolidated income statement. If all or part of the impairment losses is subsequently recovered, the amount is recognized in the consolidated income statement for the period in which the recovery occurred.
Impairment on equity instruments
The amount of the impairment in the equity instruments is determinated by the category where is recognized:
  Equity instruments measured at fair value: The criteria for quantifying and recognising impairment losses on equity instruments are similar to those for “Other debt instruments”, with the exception that any recovery of previously recognized impairment losses for an investment in an equity instrument classified as available for sale which are not recognized through profit or loss but recognized under the heading “Valuation Adjustments – Available for sale Financial Assets” in the consolidated balance sheet.
 
  Equity instruments measured at cost: The impairment losses on equity instruments measured at acquisition cost are equal to the difference between their carrying amount and the present value of expected future cash flows discounted at the market rate of return for similar securities. These impairment losses are determined taking into account the equity of the investee (except for valuation adjustments due to cash flow hedges) for the last approved (consolidated) balance sheet, adjusted for the unrealised gains at the measurement date.
Impairment losses are recognized in the consolidated income statement for the period in which they arise as a direct reduction of the cost of the instrument. These losses may only be reversed subsequently in the event of the sale of these assets.
2.2.2. RECOGNITION OF INCOME AND EXPENSES
The most significant criteria used by the Group to recognize its income and expenses are summarised as follows:
Interest income and expenses and similar items:
As a general rule, interest income and expenses and similar items are recognized on the basis of their period of accrual using the effective interest rate method. Specifically, the financial fees and commissions that arise on the arrangement of loans, basically origination and analysis fees must be deferred and recognized in the income statement over the expected life of the loan. The direct costs incurred in arranging these transactions can be deducted from the amount thus recognized. Also dividends received from other companies are recognized as income when the consolidated companies’ right to receive them arises.
However, when a debt instrument is deemed to be impaired individually or is included in the category of instruments that are impaired because of amounts more than three months past-due, the recognition of accrued interest in the consolidated income statement is interrupted. This interest is recognized as an income for accounting purposes when it is received, as recovery of impairment losses.
Commissions, fees and similar items:
Income and expenses relating to commissions and similar fees are recognized in the consolidated income statement using criteria that vary according to their nature. The most significant income and expense items in this connection are:
    Those relating to financial assets and liabilities measured at fair value through profit or loss they are recognized when collected.
 
    Those arising from transactions or services that are provided over a period of time. They are recognized over the life of these transactions or services.

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    Those relating to a single act. They are recognized when the single act is carried out.
Non-financial income and expenses:
These are recorded for accounting purposes on an accrual basis.
Deferred collections and payments:
These are recorded for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.
2.2.3. POST-EMPLOYMENT BENEFITS AND OTHER LONG TERM COMMITMENTS TO EMPLOYEES
Following is a description of the most significant accounting criteria relating to the commitments to employees, related to post-employment benefits and other long term commitments, of certain Group companies in Spain and abroad (Note 25).
Commitments valuation: assumptions and gains/losses recognition
The present values of the commitments are quantified on a case-by-case basis. The valuation method used for current employees is the projected unit credit method, which views each year of service as giving rise to an additional unit of benefit entitlement and measures each unit separately.
In adopting the actuarial assumptions, it is taken into account that:
    They are unbiased, in that they are neither imprudent nor excessively conservative.
 
    They are mutually compatible, reflecting the economic relationships between factors such as inflation, rates of salary increase, discount rates and expected return of assets. The expected return of plan assets in the post-employment benefits is estimated taking into account the market expectations and the distribution of such assets in the different portfolios.
 
    The future levels of salaries and benefits are based on market expectations at the balance sheet date for the period over which the obligations are to be settled.
 
    The discount rate used is determined by reference to market yields at the balance sheet date on high quality corporate bonds.
The Group recognizes all actuarial differences under heading “Provisions” in the consolidated income statement for the period in which they arise in connection with commitments assumed by the Group in connection with personnel availing of early retirement schemes, disability benefits awarded as a function of years of employee service in the Group, and other similar concepts.
The Group recognizes the actuarial gains or losses arising on all other defined benefit post-employment commitments directly with charge in the heading ”Reserves” within the Group’s consolidated equity, in accordance with standard 35 of Bank of Spain Circular 4/2004 (as amended by Circular 6/2008).
Consequently, the Group does not apply the option of deferring actuarial gains and losses in equity using the so-called corridor approach in any commitment to employees.
Post-employment benefits
- Pensions
Post-employment benefits include defined contribution and defined obligation commitments.
Defined contribution commitments:
The amounts of these commitments are determined as a percentage of certain remuneration items and/or as a pre-established annual amount. The current contributions made by the Group’s companies for defined contribution retirement commitments, which are recognized with a charge to the heading “Personnel Expenses – Contributions to external pension funds” in the accompanying consolidated income statements (Notes 25 and 45).

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Defined benefit commitments
Certain Group’s companies have defined benefit commitments for permanent disability and death of current employees and early retirees; and defined-benefit retirement commitments applicable only to certain groups of serving employees, or early retired employees and of retired employees. Defined benefit commitments are funded by insurance contracts and internal provisions.
The amount recognized in the heading “Provisions — Funds for Pensions and Similar Obligations” (Note 24) is equal to the difference between the present value of the vested obligations for defined obligation retirement commitments at balance sheet date, adjusted by the prior service cost and the fair value of plan assets, if it the case, which are to be used directly to settle employee benefit obligations.
The provisions for defined obligation retirement commitments were charged to the heading “Provisions (net) – Provisions to pension commitments and similar obligations” in the accompanying consolidated income statements (Note 46).
The current contributions made by the Group’s companies for defined obligation retirement commitments covering current employees are charged to the heading “Personnel Expenses” in the accompanying consolidated income statements.
- Early retirements
During the six months period ended June 30, 2009 and in prior periods, the Group offered certain employees in Spain the possibility of taking early retirement before the age stipulated in the collective labor agreement in force. The corresponding provisions by the Group were recognized with a charge to the heading “Provision Expense (Net) — Transfers to Funds for Pensions and Similar Obligations—Early Retirements” in the accompanying consolidated income statements. The present values are quantified on a case-by-case basis and they are recognized in the heading “Provisions - Provisions for Pensions and Similar Obligations” in the accompanying consolidated balance sheets (Note 24).
The commitments to early retirees in Spain include the compensation and indemnities and contributions to external pension funds payable during the year of early retirement. The commitments relating to this group of employees after they have reached the age of effective retirement are included in the employee welfare system.
- Post-employment welfare benefits
Certain Group companies have welfare benefit commitments the effects of which extend beyond the retirement of the employees entitled to the benefits. These commitments relate to certain current employees and retirees, depending upon the employee group to which they belong.
The present value of the vested obligations for post-employment welfare benefits are quantified on a case-by-case basis. They are recognized in the heading “Provisions — Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets (Note 24) and they are charged to the heading “Personnel expenses – Other personnel expenses” in the accompanying income statements (Note 45).
Other long term commitments to employees
Certain Group companies are obliged to deliver subsidised goods and services. The most significant employee welfare benefits granted, in terms of the type of compensation and the event giving rise to the commitments are: loans to employees, life insurance, study aid and long-service bonuses.
Part of these commitments is quantified on base to actuarial studies. For this reason, the present values of the vested obligations for commitments with personnel are quantified on a case-by-case basis. They are recognized in the heading “Provisions — Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets (Note 24).
The post-employment welfare benefits delivered by the Spanish companies to active employees are recognized in the heading “Personnel expenses – Other personnel expenses” in the accompanying income statements (Note 45).
Other commitments for current employees accrue and are settled on a yearly basis, it is not necessary to record a provision in this connection.

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2.2.4. FOREIGN CURRENCY TRANSACTIONS AND EXCHANGE DIFFERENCES
The Group’s functional currency is the euro. Therefore, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in “foreign currency”. The balances in the financial statements of consolidated entities whose functional currency is not the euro are translated to euros as follows:
    Assets and liabilities: at the average spot exchange rates as of June 30, 2009 and December 31, 2008.
 
    Income and expenses and cash flows: at the average exchange rates of the period.
 
    Equity items: at the historical exchange rates.
The exchange differences arising on the translation of foreign currency balances to the functional currency of the consolidated entities (or entities accounted for equity method) and their branches are generally recorded in the consolidated income statement. Exceptionally, the exchange differences arising on non-monetary items whose fair value is adjusted with a balancing item in equity are recorded under the heading “Valuation Adjustments — Exchange Differences” of the consolidated balance sheet.
The exchange differences arising on the translation to euros of balances in the functional currencies of the consolidated entities (or entities accounted for equity method) whose functional currency is not the euro are recorded under the heading “Valuation Adjustments — Exchange Differences” in the consolidated balance sheet until the item to which they relate is derecognized, at which time they are recorded in the income statement.
The breakdown of the balances in foreign currencies of the consolidated balance sheet as of June 30, 2009 and December 31, 2008, based on the most significant foreign currencies, are set forth in the following table:
                                 
    Millions of euros
            Mexican   Other foreign    
June-09   USD   Pesos   currencies   TOTAL
 
Assets -
    78,811       54,443       45,043       178,297  
Cash and balances with Central Banks
    5,538       4,827       3,653       14,018  
Financial assets held for trading
    2,865       13,140       2,805       18,810  
Available-for-sale financial assets
    8,930       5,563       6,021       20,514  
Loans and receivables
    58,387       27,929       29,191       115,507  
Investments in entities accounted for using the equity method
    5       112       524       641  
Tangible assets
    790       801       503       2,094  
Other
    2,296       2,071       2,346       6,713  
Liabilities-
    115,742       51,556       46,882       214,180  
Financial liabilities held for trading
    868       3,018       1,001       4,887  
Financial liabilities at amortised cost
    113,918       44,433       43,286       201,637  
Other
    956       4,105       2,595       7,656  
 
                                 
    Millions of euros
            Mexican   Other foreign    
December-08   USD   Pesos   currencies   TOTAL
 
Assets -
    86,074       52,819       42,215       181,108  
Cash and balances with Central Banks
    2,788       5,179       3,612       11,579  
Financial assets held for trading
    4,137       13,184       3,003       20,324  
Available-for-sale financial assets
    10,321       5,613       4,846       20,780  
Loans and receivables
    65,928       26,168       28,072       120,168  
Investments in entities accounted for using the equity method
    5       103       481       589  
Tangible assets
    802       729       485       2,016  
Other
    2,093       1,843       1,716       5,652  
Liabilities-
    119,107       50,103       45,719       214,929  
Financial liabilities held for trading
    1,192       3,919       1,057       6,168  
Financial liabilities at amortised cost
    116,910       42,288       42,097       201,295  
Other
    1,005       3,896       2,565       7,466  
 

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2.2.5. ENTITIES AND BRANCHES LOCATED IN COUNTRIES WITH HYPERINFLATIONARY ECONOMIES
None of the functional currencies of the consolidated subsidiaries and associates and their branches located abroad relate to hyperinflationary economies as defined by EU-IFRSs required to be applied under the Bank of Spain’s Circular 4/2004. Accordingly, as of June 30, 2009 and December 31, 2008, it was not necessary to adjust the financial statements of any of the consolidated subsidiaries or associates to correct for the effect of inflation.
2.2.6. NON-CURRENT ASSETS HELD FOR SALE AND LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE
The heading “Non-current Assets Held for Sale” in the accompanying consolidated balance sheets reflects the carrying amount of the assets where an active program to locate a buyer and complete the plan has been initiated and approved at the appropriate level of management and it is highly probable they will be sold in their current condition within one year from the date on which are classified as such. Therefore, the carrying amount of these assets – which can be financial or non-financial but are not included in Group’s operating activities – will foreseeably be recovered through the price obtained on their sale.
Within this heading, a distinction is made between individual assets and groups of assets that are to be disposed of along with related liabilities (“disposal groups”) and disposal groups that form part of a major business unit and are being held for sale as part of a disposal plan (“discontinued operations”).
The individual headings include, the assets received by the consolidated entities from their debtors in full or partial settlement of the debtors’ payment obligations (assets foreclosed or donated in repayment of debt) are treated as non-current assets held for sale, unless the consolidated entities have decided to make continuing use of these assets.
Symmetrically, the heading “Liabilities Associated with Non-current Assets Held for Sale” in the accompanying consolidated balance sheets reflects the balances payable arising on disposal groups and discontinued operations.
Non-current assets held for sale are generally measured at the lower of fair value less costs to sell and their carrying amount upon classification within this category. Non-current assets held for sale are not depreciated while included under this heading.
As a general rule, gains and losses generated on the disposal of assets and liabilities classified as non-current held for sale, and related impairment losses and subsequent recoveries, where pertinent, are recognized in “Gains/(losses) in non-current assets held for sale not classified as discontinued operations” of the accompanying consolidated income statements. The remaining income and expense items associated with these assets and liabilities are classified within the corresponding consolidated income statement headings.
2.2.7. SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES
The heading “Other operating income and expenses — Financial income from non-financial services ” of the accompanying consolidated income statement includes the carrying amount of the sales of assets and income from the services provided by the consolidated Group companies that are not financial institutions. In the case of the Group, these companies are mainly real estate and services companies.
2.2.8. INSURANCE AND REINSURANCE CONTRACTS
In accordance with standard accounting practice in the insurance industry, the consolidated insurance entities credit to the income statement the amounts of the premiums written and charge to income statement the cost of the claims incurred on final settlement thereof. Insurance entities are therefore required to accrue at period-end the unearned revenues credited to their income statements and the accrued costs not charged to income statements.

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The most significant accruals recorded by the consolidated entities in relation to direct insurance contracts arranged by them relate to the following (Note 23):
  Mathematical provisions, which include:
  -   Life insurance provisions: these represent the value of the life insurance obligations of the insurance companies at period-end, net of the obligations of the policyholder.
 
  -   Non-life insurance provisions: provisions for unearned premiums. These provisions are intended for the accrual, at the date of calculation, of the premiums written. Their balance reflects the portion of the premiums accrued in the period that has to be allocated to the period from the reporting date to the end of the policy period.
  Provision for claims: this reflects the total amount of the obligations outstanding arising from claims incurred prior to the reporting date. The insurance companies calculate this provision as the difference between the total estimated or certain cost of the claims not yet reported, settled or paid, and the total amounts already paid in relation to these claims.
 
  Provisions for unexpired risks and other provisions, which include:
  -   Non-life insurance provisions – unexpired risks: the provision for unexpired risks supplements the provision for unearned premiums by the amount by which that provision is not sufficient to reflect the assessed risks and expenses to be covered by the insurance companies in the policy period not elapsed at period-end.
 
  -   Technical provisions for reinsurance ceded: calculated by applying the criteria indicated above for direct insurance, taking account of the cession conditions established in the reinsurance contracts in force.
 
  -   Other technical provisions: the insurance companies have recognized provisions to cover the probable mismatches in the market reinvestment interest rates with respect to those used in the measurement of the technical provisions.
  Provision for bonuses and rebates: this provision includes the amount of the bonuses accruing to policyholders, insurees or beneficiaries and the premiums to be returned to policyholders or insurees, as the case may be, based on the behaviour of the risk insured, to the extent that such amounts have not been individually assigned to each of them.
The Group controls and monitors the exposure of the insurance companies to financial risk and, to this end, uses internal methods and tools that enable it to measure credit risk and market risk and to establish the limits for these risks.
Reinsurance assets and Liabilities under insurance contracts
The heading “Reinsurance Assets” in the accompanying consolidated balance sheets includes the amounts that the consolidated entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recorded by the consolidated insurance entities (Note 18).
The heading “Liabilities under Insurance Contracts” in the accompanying consolidated balance sheets includes the technical reserves of direct insurance and inward reinsurance recorded by the consolidated entities to cover claims arising from insurance contracts in force at period-end (Note 23).
The income or loss reported by the Group’s insurance companies on their insurance activities is recorded, attending to it nature in the corresponding items of the accompanying consolidated income statement.
2.2.9. TANGIBLE ASSETS
Non-current tangible assets for own use
Non-Current Tangible Assets for own use relates to the assets, under ownership or acquired under finance leases, intended to the future or current use by the Group and that it is expected to be held for more than one year. It also includes tangible assets received by the consolidated entities in full or part settlement of

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financial assets representing receivables from third parties and those assets expected to be held for continuing use.
Non-Current tangible assets for own use are presented in the consolidated balance sheets at acquisition cost less any accumulated depreciation and, where appropriate, any estimated impairment losses (net carrying amount higher than fair value).
Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value; the land on which the buildings and other structures stand has an indefinite life and, therefore, is not depreciated.
The period tangible asset depreciation charge is recognized with a balancing entry in the consolidated income statement and is based on the application of the following depreciation rates (determined on the basis of the average years of estimated useful life of the various assets):
         
    Annual Percentage
 
Buildings for own use
  1.33% to 4%
Furniture
  8% to 10%
Fixtures
  6% to 12%
Office supplies and computerisation
  8% to 25%
 
At each close, the entities analyze whether there are internal or external indicators that a tangible asset may be impaired. When there is evidence of impairment, the entity then analyzes whether the indicated impairment actually exists by comparing the asset’s carrying amount with its recoverable amount. When the carrying amount exceeds the recoverable amount, the carrying amount is written down to the recoverable amount and depreciation charges going forward are adjusted to reflect the asset’s remaining useful life.
The BBVA Group’s criteria for determining the recoverable amount of these assets is based on up-to-date independent appraisals, performed within the last 3-5 years at most, absent other indications of impairment.
Similarly, if there is any indication that the value of a tangible asset has been recovered, the consolidated entities will estimate the recoverable amounts of the asset and recognised it in the consolidated income statement, recording the reversal of the impairment loss recorded in previous periods and, consequently, adjust the future depreciation charges. In no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognized in prior periods.
Upkeep and maintenance expenses relating to tangible assets held for continued use are charged to the income statement for the period in which they are incurred.
Other assets leased out under an operating lease
The criteria used to recognize the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to record the impairment losses thereon are the same as those described in relation to tangible assets for continued use.
Investment property
The heading “Tangible assets — Investment Properties” in the consolidated balance sheet reflects the net values of the land, buildings and other structures held either to earn rentals or for capital appreciation at the disposal date and are neither expected to be sold off in the ordinary course of the business nor are destined for own use.
The criteria used by the BBVA Group to determine their recoverable value is based on updated independent appraisals, so that they are older than 1 year, absent other indications of impairment.
2.2.10. BUSINESS COMBINATIONS
A business combination is the bringing together of two or more separate entities or businesses into one single entity or group of entities.
The purchase method accounts for business combinations from the perspective of the acquirer. The acquirer must recognize the assets acquired and the liabilities and contingent liabilities assumed, including those not

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previously recognized by the acquired entity. This method measures the cost of the business combination and the assignation of it, at the date of acquisition, to the identifiable assets, liabilities and contingent liabilities measured at fair value.
In addition, any purchases of minority interests after the date on which the Group obtains control of the acquired are recorded as equity transactions, i.e. the difference between the price paid and the carrying amount of the percentage of minority interests acquired is charged directly to equity.
2.2.11 INTANGIBLE ASSETS
Goodwill
The positive differences between the cost of business combinations and the amount corresponding to the acquired percentage of the net fair value of the assets, liabilities and contingent liabilities of the acquired entity are recorded as goodwill on the asset side of the consolidated balance sheet. Goodwill represents the future economic benefits from assets that cannot be individually identified and separately recognized. Goodwill is not amortized and is subject periodically to an impairment analysis. Any impaired goodwill is written off.
For impairment testing purposes, each item of goodwill is allocated to one or more cash-generating units expected to benefit from the synergies arising from business combinations. The cash-generating units represent the Group’s smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Each unit or group of units to which good the will is allocated shall:
  -   represent the lowest level within the entity at which goodwill is monitored for internal management purposes,
 
  -   not be larger than an operating segment.
The cash-generating units to which goodwill has been allocated are tested for impairment based on the carrying amount of the unit including the allocated goodwill. Such testing is performed at least annually and, always, if there is an indication of impairment.
For the purpose of determining the impairment on a cash-generating unit to which a part of goodwill has been allocated, the carrying amount of that unit, adjusted by the theoretical amount of the goodwill attributable to the minority interest, shall be compared with its recoverable amount. If the carrying amount of the cash generating unit exceed the related recoverable amounts the entity will recognised an impairment loss; the resulting loss shall be apportioned by reducing, firstly, the carrying amount of the goodwill allocated to that unit and, secondly, if there are still impairment losses remaining to be recognized, the carrying amount of the rest of the assets. This shall be done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the unit. It will be taken into account that no impairment on goodwill attributable to the minority interest may be recognized. In any case, impairment losses on goodwill can never be reversed.
Other intangible assets
These assets can have an “indefinite useful life” – when, based on an analysis of all relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for the consolidated entities – or a “finite useful life”, in all other cases.
The Group has not recognized any intangible assets with indefinite useful life.
Intangible assets with finite useful life are amortized over those useful lives using methods similar to those used to depreciate tangible assets.
The consolidated entities recognize any impairment loss on the carrying amount of these assets with charge to the heading “Impairment on other intangible assets (net) – Other assets” in the accompayning consolidated income statement. The criteria used to recognize the impairment losses on these assets and, where applicable, the recovery of impairment losses recognized in prior periods are similar to those used for tangible assets.

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2.2.12. INVENTORIES
The heading “Other assets — Inventories” in the accompanying consolidated balance sheet reflects the land and other properties that Group real estate agencies hold for sale as part of their property development activities (Note 21).
Inventories are measured at the lower of cost and net realisable value, which is the estimated selling price of inventories in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
The amount of any write-down of inventories, such as that reflecting damage, obsolescence, and reduction of the sale price, to net realisable value and any other losses is recognized as an expense in the period in which the write-down or loss occurs. Subsequent reversal of any write-down is recognized in the consolidated income statement for the period in which it occurs.
When inventories are sold, the carrying amount of those inventories is derecognised and recorded as an expense in the period in which the related revenue is recognized. The expense is included in the heading “Other operating expenses – Changes in Inventories” of the accompanying consolidated income statement (Note 44).
2.2.13. TAX ASSETS AND LIABILITIES
The Spanish corporation tax expense and the expense for similar taxes applicable to the consolidated entities abroad are recognized in the consolidated income statement, except when they result from transactions the profits or losses on which are recognized directly in equity, in which case the related tax effect is also recognized in equity.
The current income tax expense is calculated by aggregating the current tax arising from the application of the related tax rate to the taxable profit (or tax loss) for the period (after deducting the tax credits allowable for tax purposes) and the change in deferred tax assets and liabilities recognized in the income statement.
Deferred tax assets and liabilities include temporary differences, measured at the amount expected to be payable or recoverable on future fiscal years for the differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carry forwards. These amounts are measured applying to each temporary difference the tax rates that are expected to apply in the period when the asset is realised or the liability settled (Note 32).
Deferred tax assets are recognized to the extent that it is considered probable that the consolidated entities will have sufficient taxable profits in the future against which the deferred tax assets can be utilized.
The deferred tax assets and liabilities recognized are reassessed by the consolidated entities at each balance sheet date in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analyses performed.
The income and expenses directly recognized in equity that do not increase or decrease taxable income are accounted as temporary differences.
Deferred tax liabilities in relation to taxable temporary differences associated with investments in subsidiaries, associates or jointly controlled entities are recognized as such, except where the Group can control the timing of the reversal of the temporary difference and it is further unlikely that it will reverse in the foreseeable future.
2.2.14. FINANCIAL GUARANTEES
“Financial guarantees” are considered those contracts that oblige their issuer to make specific payments to reimburse the lender for a loss incurred when a specific borrower breaches its payment obligations on the terms — original or as modified – of a debt instrument, irrespective of its instrumentation. These guarantees may take the form of a deposit, financial endorsement, insurance contract or credit derivative.
Financial guarantees, irrespective of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortized cost (Note 2.2.1).

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The provisions made for financial guarantees classified as substandard are recognized under “Provisions — Provisions for Contingent Exposures and Commitments” on the liability side in the accompanying consolidated balance sheet (Note 24). These provisions are recognized and reversed to heading “Provisions Expense” in the accompanying consolidated income statement.
2.2.15. LEASES
Leases are classified as finance from the start of the transaction when they transfer substantially all the risks and rewards incidental to ownership of the asset forming the subject matter of the contract. Leases other than finance leases are classified as operating leases.
When the consolidated entities act as the lessor of an asset in finance leases, the aggregate present values of the lease payments receivable from the lessee plus the guaranteed residual value (normally the exercise price of the lessee’s purchase option on expiration of the lease agreement) are recorded as financing provided to third parties and, therefore, are included under the heading “Loans and Receivables” in the accompanying consolidated balance sheets.
When the consolidated entities act as the lessor of an asset in operating leases, the acquisition cost of the leased assets is recognized in “Tangible assets” in the accompanying consolidated balance sheets. These assets are depreciated in line with the criteria adopted for items of tangible assets for own use, while the income arising from the lease arrangements is recognized in the consolidated income statement on a straight line basis within heading “Other operating income”.
If a fair value sale and leaseback results in an operating lease, the profit or loss generated is recognized at the time of sale. If such a transaction gives rise to a finance lease, the corresponding gains or losses are amortized over the lease period.
Assets provided under operating leases to other Group entities are treated in the interim consolidated financial statements as assets held for continued use.
2.2.16. PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES
The heading “Provisions” of the accompanying consolidated balance sheets include amounts recognized to cover the Group’s current obligations arising as a result of past events, certain in terms of nature but uncertain in terms of amount and/or cancellation date, settlement of which is deemed likely to entail an outflow of resources embodying economic benefits. The obligations may arise in connection with legal or contractual provisions, valid expectations formed by Group companies relative to third parties in relation to the assumption of certain responsibilities or virtually certain developments of particular aspects of applicable regulation, specifically draft legislation to which the Group will certainly be subject.
Provisions are recognized in the balance sheet when each and every one of the following requirements is met: the Group has an existing obligation resulting from a past event and, at the consolidated balance sheet date, it is more likely than not that the obligation will have to be settled; it is probable that to settle the obligation the entity will have to give up resources embodying economic benefits; and a reliable estimate can be made of the amount of the obligation. This heading includes provisions for restructuring charges and litigation, including tax litigation.
Contingent assets are possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by the occurrence or non-occurrence of, events beyond the control of the Group. Contingent assets are not recognized in the balance sheet or in the income statement; however, they are disclosed in the notes to financial statements, provided that it is probable that these assets will give rise to an increase in resources embodying economic benefits.
Contingent liabilities are possible obligations of the Group that arise from past events and whose existence is conditional on the occurrence or non-occurrence of one or more future events beyond the control of the entity. Also, they include the existing obligations of the entity when it is not probable that an outflow of resources embodying economic benefits will be required to settle them or when, in extremely rare cases, their amount cannot be measured with sufficient reliability. Contingent liabilities are recognized neither in the balance sheet nor income statement.

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2.2.17. TRANSFERS OF FINANCIAL ASSETS AND DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES
The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties.
The financial assets are derecognised from the consolidated balance sheet only if their cash flows are extinguished or the risks and rewards associated with the financial assets are subtantially transferred. Similarly, the financial liabilities are derecognised of the consolidated balance sheet only if their obligations are extinguised or acquired (with a view to subsequent cancellation or renewed placement)
If substantially all the risks and rewards associated with the transferred financial asset are transferred to third parties, the transferred financial asset is derecognised from the consolidated balance sheet and, at the same time, any right or obligation retained or created as a result of the transfer is recognized.
The Group is considered to have transferred substantially all the risks and rewards if such risks and rewards account for the majority of the risks and rewards incidental to ownership of the transferred assets.
If substantially all the risks and/or rewards associated with the transferred financial asset are retained:
    The transferred financial asset is not derecognized and continues to be measured using the same criteria as those used before the transfer in the consolidated balance sheet.
 
    A financial liability is recognized in the amount of compensation received, which is subsequently measured at amortized cost and included under the heading “Financial liabilities at amortized cost — Debt certificates” of the accompanying consolidated balance sheet. As these liabilities do not constitute a current obligation, when measuring such a financial liability the Group deducts those financial instruments owned by it which constitute financing for the entity to which the financial assets have been transferred, in so far as these instruments are deemed to specifically finance the assets transferred.
 
    Both the income generated on the transferred (but not derecognized) financial asset and the expenses of the new financial liability are recognized.
Securitizations
In the specific instance of the securitization funds to which the Group entities transfer their loan portfolios, the following indications of the existence of control are considered for the purpose of analyzing the need for consolidation:
    The securitization fund’s activities are undertaken in the name of the entity in accordance with that bank’s specific business requirements with a view to generating benefits or gains from the securitization funds’ operations.
 
    The bank retains decision-making power with a view to securing most of the gains derived from the securitization funds’ activities or has delegated this power in some kind of “auto-pilot” mechanism (the securitization funds are structured so that all the decisions and activities to be performed are pre-defined at their incorporation).
 
    The bank is entitled to receive the bulk of the securitization funds’ profits and is accordingly exposed to the risks inherent in their business activities. The entity retains the bulk of the securitization funds’ residual profit.
 
    The entity retains the bulk of the risk embodied by the assets in the securitization funds and the corresponding asset derecognition rules are applied.
If control is deemed to exist based on the aforementioned indicators, the securitization funds are consolidated within the Group. The Group is deemed to transfer substantially all risks and rewards if its exposure to the potential variation in the future net cash flows of the securitized assets following the transfer is not significative. In this instance, the consolidated Group may derecognize the securitized assets.
The BBVA Group has applied the most stringent prevailing criteria in determining whether or not it retains substantially all the risk and rewards incidental to ownership for all securitizations performed since January 1, 2004. As a result of this analysis, the Group has concluded that none of the securitizations undertaken since

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that date meet the prerequisites for derecognizing the underlying assets from the accompanying consolidated balance sheets (see Note 13.3 and Appendix III) as the Group retains substantially all the risks embodied by expected loan losses or associated with the possible variation in net cash flows, as it retains the subordinated loans extended by the BBVA Group to the same securitization funds.
2.2.18. OWN EQUITY INSTRUMENTS
The balance of the heading “Stockholders’ funds — Treasury Shares” in the accompanying consolidated balance sheets relates mainly to Bank shares held by certain consolidated companies as of June 30, 2009 and December 31, 2008. These shares are carried at acquisition cost, and the gains or losses arising on their disposal are credited or debited, respectively, as appropriate, to the heading “Stockholders’ funds-Reserves” in the accompanying consolidated balance sheets (Note 30).
2.2.19. EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS
Equity-settled share-based payment transactions, when the instruments granted do not vest until the counterparty completes a specified period of service, shall be accounted for those services as they are rendered by the counterparty during the vesting period, with a corresponding increase in equity. The entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, at grant date.
If the performance condition is a market condition, it is not recognized in the income statement as it was already taken into account in the measurement of initial fair value. Vesting conditions other than market conditions shall not be taken into account when estimating the fair value of the shares ath the measurement date. Instead, vesting conditions shall be taken into account when calculating the number of instruments to be granted, with this effect being recognized in the income statement along with the corresponding increase in equity.
2.2.20. TERMINATION BENEFITS
Termination benefits must be recognized when the Group is committed to severing its contractual relationship with its employees and, to this end, has a formal detailed redundancy plan. There were no redundancy plans in the Group entities, so it is not necessary to recognize a provision for this issue.
2.2.21. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the preparation of the consolidated statement of cash flows has been used the indirect method. This method starts from the entity’s consolidated profit or loss and adjusts its amount for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.
For these purposes, in addition to cash on hand, cash equivalents include very short term, highly liquid investments subject to very low risk of impairment.
The composition of component of cash and equivalents respect the headings of consolidated balance sheets is shown in the accompanying consolidated cash flow statements.
For the development of consolidated statement of cash flows is taken into consideration the following concepts:
  §   Cash flows: Inflows and outflows of cash and cash equivalents, the latter being short-term, highly liquid investments subject to a low risk of changes in value, such as balances with central banks, short-term Treasury bills and notes, and demand balances with other credit institutions.
 
  §   Operating activities: The typical activities of credit institutions and other activities that cannot be classified as investing or financing activities.

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  §   Investing activities: The acquisition, sale or other disposal of long-term assets and other investments not included in cash and cash equivalents.
 
  §   Financing activities: Activities that result in changes in the size and composition of equity and of liabilities that do not form part of operating activities
2.2.22. STATEMENT OF CHANGES IN CONSOLIDATED TOTAL EQUITY AND CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE
Statement of changes in total equity that reflects all the movements produced in every period in each of the headings of the consolidated equity included the proceeding ones from transactions realized with the shareholders when they act as such, and the due ones to changes in countable criteria and corrections of errors.
Consolidated statement of recognized income and expense that reflects the income and expenses generated in every period, distinguishing the recognized ones as “results“ in the consolidated income statement of the “other gains (losses) and recognized expenses” straight in equity.
The applicable regulations establish that certain categories of assets and liabilities are recognized by its fair value with charge to total equity. These charges, known as “valuation adjustments”, are included in the consolidated total equity of the Group net of tax effect, which has been recognized depending on the case, as deferred tax assets or liabilities.
Consolidated statement of recognized income and expense presents the changes occurred in the “valuation adjustments” for the period detailed by concepts, as well as earnings of the period plus/minus, if applicable, of the adjustments done by the change in accounting principles or by errors of previous periods. The sum of the changes occurred in the heading “valuation adjustments” of the consolidated total equity and the consolidated income of the period forms the “Incomes and expenses of the period”.
2.3 IFRS RECENT PRONOUNCEMENTS
a) STANDARDS AND INTERPRETATIONS IN EFFECT IN 2009
From January 1, 2009 to June 30, 2009, the following amendments to IFRS or interpretations of existing standards (“IFRIC”) came into effect. Their application by the Group did not have a significative impact on the accompanying consolidated financial statements:
IFRS 8 “Operating Segments”
This new standard replaces IAS 14 “Segment Reporting”. The main novelty is the adoption of an approach to management reporting business segments. The information reported will be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. In the information to present, the segments identified and the criteria used to identify the segments, will be coincide with those used internally by the organization and the direction, but do not meet the criteria IFRS of the financial statements.
IAS 23 Revised “Borrowing Costs”
The revision to IAS 23 removes the option of immediately recognising as an expense borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. A qualifying asset is one that takes a substantial period of time to get ready for use or sale. An entity is, therefore, required to capitalise such borrowing costs as part of the cost of the asset.
IFRIC 13 “Customer Loyalty Programmes”
This IFRIC establishes the accounting procedure for the customer loyalty programmes used by entities to provide customers with incentives to buy their goods or services. If a customer buys goods or services, the entity grants the customer award credits (often described as “points”). The customer can redeem the award credits for awards such as free or discounted goods or services. The entity may operate the customer loyalty programme itself or participate in a programme operated by a third party.

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The interpretation requires entities allocate part of incomes of initial sale to exchangeable bond, recognizing them as income only when they have fulfilled their obligations by providing such awards or paying third parties to do so.
IAS 1 Revised — Presentation of Financial Statements
The main changes from the previous version are to require that an entity must:
The “statement of changes in equity” will present the amounts of transactions with owners in their capacity as owners, such as equity contributions, reacquisition of the entity’s own equity instruments and dividends.
Present all non-owner changes in equity (that is, ‘comprehensive income’) either in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income).
Also, introduce new disclosures requirements when the entity applies an accounting policy retrospectively, makes a restatement or reclassifies headings vis-à-vis the previous Financial Statement. The names of some Financial Statements are change to reflect more clearly its function. (i.e. the Balance Sheet is rename as Statement of Financial Position).
IFRS 2 Revised — Share-based Payment
The amendment to IFRS 2 clarifies that vesting conditions are service conditions and performanc