Banco Bilbao Vizcaya Argentaria - 20-F annual report

The terms below are used as follows throughout this report:

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.

 

This Annual Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the“Securities Act”) Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the“Exchange Act”), 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 Annual Report, including, without limitation, the information under:

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:

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.

 

Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with EU-IFRS. The Bank of Spain issued Circular 4/2004 of December 22, 2004 on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2004”), which requires Spanish credit institutions to adapt their accounting system to the principles derived from the adoption by the European Union of EU-IFRS.

On November 26, 2008, the Bank of Spain issued Circular 6/2008 (“Circular 6/2008”), modifying the presentation format for consolidated financial statements from the format stipulated in Circular 4/2004. Unless otherwise indicated herein, as used hereafter, “Circular 4/2004” refers to Circular 4/2004 as amended or supplemented from time to time, including by Circular 6/2008. The Group prepares its consolidated annual financial information in accordance with EU-IFRS required to be applied under Circular 4/2004.

As we describe in Note 2.2.1.b to the Consolidated Financial Statements, a loan is considered to be an impaired loan and, therefore, its carrying amount is adjusted to reflect the effect of its impairment when there is objective evidence that events have occurred which, in the case of loans, give rise to a negative impact on the future cash flows that were estimated at the time the transaction was arranged. The potential impairment of these assets is determined individually or collectively.

The quantification of losses inherent in deterioration is calculated collectively, both in the case of assets classified as impaired and for the portfolio of current assets that are not currently impaired but for which an imminent loss is expected.

Inherent loss, calculated using statistical procedures, is deemed equivalent to the portion of losses incurred on the date that the accompanying consolidated financial statements are prepared that has yet to be allocated to specific transactions.

The Group estimates collective inherent loss of credit risk corresponding to operations realized by Spanish financial entities of the Group (approximately 68.7% of the loans and receivables of the Group as of December 31, 2010) using the parameters set by Annex IX of the Bank of Spain’s Circular 4/2004 on the basis of its experience and

the Spanish banking sector information regarding the quantification of impairment losses and provisions for insolvencies for credit risk.

Notwithstanding the above, the Group has historic statistical data which it used in its internal ratings models (“IRBs”) that were approved by the Bank of Spain for some portfolios in 2009, albeit only for the purpose of estimating regulatory capital under the new Basel Accord (BIS II). It uses these internal 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 in its calculation of the risk-adjusted return on capital of its operations.

To estimate the collective loss of credit risk corresponding to operations with non-Spanish residents registered in foreign subsidiaries of the Group, the Group applies similar methods and criteria, using the Bank of Spain’s parameters but adapting the default calendars to the particular circumstances of the country. Additionally, in Mexico for consumer loans, credit cards and mortgages portfolios, as well as for credit investment maintained by the Group in the United States (which in the aggregate represent approximately 13.9% of the loans and receivables of the Group as of December 31, 2010), internal models are used to calculate impairment losses based on the historical experience of the Group. In both of these cases, the provisions required under the Bank of Spain’s Circular 4/2004 standards fall within the range of provisions calculated using the Group’s internal ratings models.

For the years ended December 31, 2010, 2009 and 2008, there are no substantial differences in the calculations made under both EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and U.S. GAAP because the allowance for loan losses for such years calculated under EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 are similar to the best estimates of allowance for loan losses under U.S. GAAP, which is the central scenario determined using internal risk models based on our historical experience.

Note 60 to our Consolidated Financial Statements provides additional information about this reconciliation.

The following principles should be noted in reviewing the statistical and financial information contained herein:

Not Applicable.

Not Applicable.

The historical financial information set forth below has been selected from, and should be read together with, the Consolidated Financial Statements included herein. For information concerning the preparation and presentation of financial information contained herein, see “Presentation of Financial Information”. Also see Note 60 of the Consolidated Financial Statements for a presentation of our shareholders’ equity and net income attributed to parent company reconciled to U.S. GAAP.

 

Spain’s currency is the euro. Unless otherwise indicated, the amounts that have been converted to euro in this Annual Report have been done so at the corresponding exchange rate published by the ECB on December 31 of the relevant year.

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.

The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per €1.00, on March 25, 2011, was $1.4144.

As of December 31, 2010, approximately 36% of our assets and approximately 39% of our liabilities were denominated in currencies other than euro. See Note 2.2.16 to our Consolidated Financial Statements.

For a discussion of our foreign currency exposure, please see “Item 11. Quantitative and Qualitative Disclosures About Market Risk — Market Risk in Non-Trading Activities in 2010 — Structural Exchange Rate Risk”.

Not Applicable.

Not Applicable.

We have historically developed our lending business in Spain, which continues to be our main place of business. As of December 31, 2010, business activity in Spain accounted for 58% of our loan portfolio. See “Item 4. Information on the Company — Selected Statistical Information — ASSETS — Loans and Advances to Customers — Loans by Geographic Area”. After rapid economic growth until 2007, Spanish gross domestic product grew by 0.9% in 2008 and contracted by 3.8% and 0.2% in 2009 and in 2010, respectively. Our Economic Research Department estimates that the Spanish economy, will not recover a strong path of growth in terms of gross domestic product in 2011, growing at an estimated pace of 0.9%. It is estimated, however, that — given the current rate of growth of active population in Spain- the economy will need to grow by around 2.0% for jobs to be created and attain a sustained recovery. The persistence of high unemployment rates in Spain could have a negative influence on our non-performing loan ratio.

After a relatively good performance in the subprime and liquidity crises in 2009, the Spanish economy has suffered the consequences of the peripheral sovereign crisis in 2010. The Greek and Irish rescue programs and the possibility of a Portuguese rescue program have spread doubts about the Spanish economy. Financial stress in Europe has increased the cost of financing of governments and financial institutions which, in some cases, have lost the access to international funding. As a result of this continued contraction, it is expected that economic conditions and employment in Spain will continue to deteriorate in 2011. Growth forecasts for the Spanish economy could be further revised downwards if measures adopted in response to the economic crisis, are not as effective as expected.

After making a relatively broad and effective use of expansionary fiscal policies in the most acute period of the financial crisis, the Spanish government launched in 2010 an ambitious program of fiscal consolidation and structural reforms, partly in response to the rise of international financial tensions following the first quarter of

2010. As a result, domestic demand in 2010 was heavily impacted by fiscal policy: directly, through the progressive contraction on public sector demand (as a result, among other reasons, of tighter fiscal targets), and indirectly, through the impact of these reforms on the consumption and investment decisions of private agents. The effects of these measures are expected to continue having a negative effect on domestic demand in 2011, including as a result of the tight fiscal targets of regional governments for 2011. In addition, the pace of recovery in private domestic demand in the short and medium terms are expected to continue to be hampered by weak economic fundamentals and the effects of the final phase of certain adjustments in the private sector (such as private deleveraging and adjustments in the residential construction sector).

The Spanish economy has also been affected by the slowdown in global growth and is particularly sensitive to economic conditions in the rest of the Euro area, the primary market for Spanish goods and services exports. In addition, the effects of the financial crisis have been particularly pronounced in Spain given Spain’s heightened need for foreign financing as reflected by its high current account and public deficits. Real or perceived difficulties in making the payments associated with these deficits can further damage Spain’s economic situation and increase the costs of financing its public deficit.

Moreover, there are three factors affecting the Spanish economy that may interfere with our business. First, the adjustment in the real estate sector, which we expect will continue in the coming years. Residential investment contracted by approximately 17.7% in 2010. In addition, demand for property could decrease in 2011 as a result of the rise in the value added tax rate applicable to real estate transactions in mid-2010 and the elimination of government tax breaks for home purchases, as from January 2011, which partly incentivized demand for property last year. Second, the restructuring process in which the Spanish’s financial sector is immersed (which needs to be completed by September 2011 in accordance with the instruction of Bank of Spain). Such restructuring process seeks, among other things, to improve the solvency of the system, to achieve greater transparency in the balance sheets of institutions and a reduction of branch and labor overcapacity and will result in a more concentrated financial sector, with fewer incumbent institutions which will be more competitive. The recently announced Financial Sector Reinforcement Plan imposes a new minimum capital to Spanish banking institutions, above the minimum levels required in other countries. Thus, stricter requirements could affect Spanish institutions vis à vis other institutions in Europe. Third, the possibility of decoupling in the Euro area could lead to increased interest rates before the Spanish economy is able to resume its previous path of growth.

Our loan portfolio in Spain has been adversely affected by the deterioration of the Spanish economy in 2010, 2009 and 2008. For example, substandard loans to other resident sectors in Spain increased in 2010, 2009 and 2008 mainly due to the sharp increase in substandard mortgage loans to €4,425 million as of December 31, 2010, from €3,651 million as of December 31, 2009 and €2,033 million as of December 31, 2008. Substandard loans to real estate and construction customers in Spain also increased substantially in 2010, 2009 and 2008 to account for 16.8%, 15.4% and 5.6% of loans in such category as of December 31, 2010, 2009 and 2008, respectively. Our total substandard loans to customers in Spain jumped to €10,954 million and €10,973 million as of December 31, 2010 and 2009, respectively, from €5,562 million as of December 31, 2008, principally due to an increase in substandard loans to customers in Spain generally as a result of the deterioration in the macroeconomic environment. As a result of the increase in total substandard loans to customers in Spain described above, our total substandard loans to customers in Spain as a percentage of total loans and receivables to customers in Spain increased sharply to 5.2% and 5.4% as of December 31, 2010 and 2009, respectively, from 2.7% as of December 31, 2008. Our loan loss reserves to customers in Spain as a percentage of substandard loans to customers in Spain as of December 31, 2010 and 2009 also declined significantly to 45% and 44%, respectively, from 67% as of December 31, 2008.

Given the concentration of our loan portfolio in Spain, any adverse changes affecting the Spanish economy are likely to have a significant adverse impact on our loan portfolio and, as a result, on our financial condition, results of operations and cash flows.

Medium- and small-sized companies and middle- and lower- middle- income individuals typically have less financial strength than large companies and high-income individuals and, accordingly, can be expected to be more negatively affected by adverse developments in the economy. As a result, it is generally accepted that lending to these segments of our existing and targeted customer base represents a relatively higher degree of risk than lending to other groups.

A substantial portion of our loan portfolio consists of residential mortgages and consumer loans to middle- and lower middle-income customers and commercial loans to medium- and small-sized companies. Consequently, during periods of slowdown in economic activity we may experience higher levels of past due amounts, which could result in higher levels of allowance for loan losses. We cannot assure you that we will not suffer substantial adverse effects on our loan portfolio to these customer segments in the event of additional adverse developments in the economy.

In the years prior to 2008, economic growth, strong labor markets and low interest rates in Spain caused an increase in the demand for housing, which resulted in an increase in demand for mortgage loans. This increased demand and the widespread availability of mortgage loans affected housing prices, which rose significantly. After this buoyant period, demand began to adjust in mid-2006. Since the last quarter of 2008, the supply of new homes has been adjusting sharply downward in the residential market in Spain, but a significant excess of unsold homes still exists in the market. In 2011, we expect housing supply and demand to adjust further, in particular if current adverse economic conditions continue. As Spanish residential mortgages are one of our main assets, comprising 32%, 31% and 25% of our loan portfolio as of December 31, 2010, 2009 and 2008, respectively, we are currently highly exposed to developments in the residential real estate market in Spain. We expect the current problems in the financial markets and the deterioration of economic conditions in Spain to continue in the near future. As a result, we expect housing prices in Spain to decline further in 2011, which along with other adverse changes in the Spanish real estate sector could have a significant adverse impact on our loan portfolio and, as a result, on our financial condition, results of operations and cash flows.

Our exposure to the real estate sector represented 8.9% of our private individuals loan portfolio as of December 31, 2010 which is below the average in the Spanish financial sector according to the Bank of Spain. Our non-performing loans represented 21.3% of our real estate portfolio as of such date. Our substandard real estate loan portfolio comprised of non-performing loans and potential problem loans represented 35.6% of our real estate loan portfolio as of December 31, 2010.

Spanish households and businesses have reached, in recent years, a high level of indebtedness, which represents increased risk for the Spanish banking system. The high proportion of loans referenced to variable interest rates makes debt service on such loans more vulnerable to changes in interest rates than in the past. In fact, the average debt burden of Spanish households as a proportion of disposable income has increased substantially from approximately 12% at the end of 2003 to approximately 16% at the end of 2008, before moderating slightly to approximately 13% at the end of 2010. The deleveraging process, is taking more time than we had originally forecasted.

Highly indebted households and businesses are less likely to be able to service debt obligations as a result of adverse economic events, which could have an adverse effect on our loan portfolio and, as a result, on our financial condition and results of operations. In addition, the increase in households’ and businesses’ indebtedness also limits their ability to incur additional debt, decreasing the number of new products we may otherwise be able to sell them and limiting our ability to attract new customers in Spain satisfying our credit standards, which could have an adverse effect on our ability to achieve our growth plans.

 

 

Historically, one of our principal sources of funds has been savings and demand deposits. Time deposits represented 28%, 32% and 34% of our total funding as of December 31, 2010, 2009 and 2008, respectively. Large-denomination time deposits may, under some circumstances, such as during periods of significant interest rate-based competition for these types of deposits, be a less stable source of deposits than savings and demand deposits. Moreover, since we rely heavily on short-term deposits for our funding, we cannot assure you that, in the event of a sudden or unexpected shortage of funds in the banking systems or money markets in which we operate, we will be able to maintain our current levels of funding without incurring higher funding costs or having to liquidate certain of our assets. In addition, the financial crisis triggered by the U.S. subprime market turned out to be deeper and more persistent than expected. In response to the financial crisis, governments around the world implemented ambitious fiscal expansion programs during 2008 and 2009, trying to limit economic deterioration and boost their economies. However, concerns expressed during 2009 over the effectiveness of fiscal stimulus programs have given way to concerns over the sustainability of public deficits, and governments announced plans to remove the extraordinary fiscal and monetary measures implemented to confront the financial crisis. As public sources of liquidity, such as ECB extraordinary measures, and expansionary economic policies are removed from the market, we cannot assure you that we will be able to continue funding our business or, if so, maintain our current levels of funding without incurring higher funding costs or having to liquidate certain of our assets.

 

 

The markets in which we operate are highly competitive. Financial sector reforms in the markets in which we operate have increased competition among both local and foreign financial institutions, and we believe that this trend will continue. In addition, the trend towards consolidation in the banking industry has created larger and stronger banks with which we must now compete, some of which have recently received public capital.

 

We also face competition from non-bank competitors, such as:

 

 

We cannot assure you that this competition will not adversely affect our business, financial condition, cash flows and results of operations.

 

 

Our results of operations are substantially dependent upon the level of our net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Interest rates are highly sensitive to many factors beyond our control, including deregulation of the financial sectors in the markets in which we operate, monetary policies pursued by the EU and national governments, domestic and international economic and political conditions and other factors. In Spain, competition distortions in the term deposits market have intensified, and this situation is expected to continue due to the liquidity needs of certain financial institutions, which are offering high interest rates to attract additional deposits.

 

Changes in market interest rates could affect the spread between interest rates charged on interest-earning assets and interest rates paid on interest-bearing liabilities and thereby negatively affect our results of operations. For example, an increase in interest rates could cause our interest expense on deposits to increase more significantly and quickly than our interest income from loans, resulting in a reduction in our net interest income.

 

Since approximately 74% of our loan portfolio as of December 31, 2010 consisted of variable interest rate loans maturing in more than one year, our business is particularly vulnerable to volatility in interest rates.

 

Publicly available information about public companies in Spain is generally less detailed and not as frequently updated as the information that is regularly published by or about listed companies in the United States. In addition, although we are subject to the periodic reporting requirements of the United States Securities Exchange Act of 1934 (the “Exchange Act”), the periodic disclosure required of foreign issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Finally, we maintain our financial accounts and records and prepare our financial statements in conformity EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004, which differs in certain respects from U.S. GAAP, the financial reporting standard to which many investors in the United States may be more accustomed. See Note 60 of the Consolidated Financial Statements for the presentation of our stockholders’ equity and net income reconciled to U.S. GAAP.

 

 

Our commitments with personnel which are considered to be wholly unfunded are recognized under the heading “Provisions — Funds for Pensions and Similar Obligations” in the accompanying consolidated balance sheets. These amounts include “Post-employment benefits”, “Early Retirements” and “Post-employment welfare benefits”, which amounted to €2,497 million, €3,106 million and €377 million, respectively, as of December 31, 2010, €2,536 million, €3,309 million and €401 million, respectively, as of December 31, 2009 and €2,638 million, €3,437 million and €284 million, respectively, as of December 31, 2008. These amounts are considered wholly unfunded due to the absence of qualifying plan assets.

 

We face liquidity risk in connection with our ability to make payments on these unfunded amounts which we seek to mitigate, with respect to “Post-employment benefits”, by maintaining insurance contracts which were contracted with insurance companies owned by the Group. The insurance companies have recorded in their balance sheets specific assets (fixed interest deposit and bonds) assigned to the funding of these commitments. The insurance companies also manage derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. We seek to mitigate liquidity risk with respect to “Early Retirements” and “Post-employment welfare benefits” through oversight by the Group’s Assets and Liabilities Committee (“ALCO”). The Group’s ALCO manages a specific asset portfolio to mitigate the liquidity risk regarding the payments of these commitments. These assets are government and cover bonds (AAA/AA rated) which are issued at fixed interest rates with maturities matching the aforementioned commitments. The Group’s ALCO also manages derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. Should we fail to adequately manage liquidity risk and interest rate risk either as described above or otherwise, it could have a material adverse effect on our business, financial condition, cash flows and results of operations.

 

 

We are a Spanish banking company and conduct substantial business activities in Spain. Like other banks operating in Spain and Europe, our performance and liquidity may be affected by economic conditions affecting Spain and other EU member states. There has been improvement in some macroeconomic indicators during 2010. Nevertheless, certain countries in Europe, including Spain, have relatively large sovereign debts or fiscal deficits, or both, which has led to tensions in the international debt capital markets and interbank lending market and euro exchange rate volatility during the year.

 

The situation in Portugal is particularly challenging. The resignation of the Prime Minister on March 24, 2011 has triggered a political crisis which outcome is difficult to predict. Opposition parties rejected government’s latest austerity measures, forcing him to resign and most likely to lead a government with limited powers until elections. In this context, the possibility of a deepening of Portuguese economic problems, triggering the need to resort to a European rescue package cannot be ruled out. The exposure of BBVA to Portugal accounted for arround 1% of our total assets and 2% of the Group’s outstanding credit as of December 31, 2010.

The publication in July 2010 of the 2010 EU-wide stress test exercise coordinated by the Committee of European Banking Supervisors (CEBS), in cooperation with the European Central Bank (ECB), in the euro area partially alleviated pressures and helped restore confidence in the Spanish and European banking sector. However, new and stricter European stress tests are expected to be published in June or July of 2011, and the results of such tests may place additional pressure on the Spanish and European banking sector. Economic conditions remains uncertain in Spain and the European Union and may deteriorate in the future, which could adversely affect the cost and availability of funding available to Spanish and European banks, including BBVA, or otherwise adversely affect BBVA’s business, financial condition and results of operations.

The new Basel III capital standards will be phased in from January 1, 2013 until January 1, 2019. The European transposition of these standards will be done through the CRD IV after the summer of 2011 but the Spanish Government has anticipated Basel III with the Royal-Decree Law 2/2011, of February 18 (RD-L 2/2011), as part of a wider plan of the Spanish Government for the strengthening of the financial sector. See “Item 4. Information on the Company — Supervision and Regulation — Capital Requirements.” There can be no assurance that implementation of these new standards, or any other new regulation, will not adversely affect our ability to pay dividends, or require us to issue securities that qualify as regulatory capital or to liquidate assets or curtail business, which may have adverse effects on our business, financial condition and results of operations.

This unexpected plan of the Spanish government is good news for the Spanish financial sector because it provides a clear roadmap for the continuation of the financial system restructuring, encouraging private capital participation and conversion into banks. It will also contribute to dispels market fears about the solvency of the Spanish financial market. Moreover new RD-L 2/2011 also paves the way for a good performance in the next EU stress tests (June) as well as compliance with Basel III, at least Basel III-2013 even if it requires as core capital a milder definition of what is considered in Basel III as common equity.

In addition, our operations may also be affected by other recent regulatory reforms in response to the financial crisis, including the enactment in the United States in July 2010 of the Dodd-Frank Act. Among other changes, beginning five years after enactment of the Dodd-Frank Act, the Federal Reserve Board will apply minimum capital requirements to U.S. intermediate bank holding company subsidiaries ofnon-U.S. banks.Although there remains uncertainty as to how regulatory implementation of this law will occur, various elements of the new law may cause changes that impact the profitability of our business activities and require that we change certain of our business practices, and could expose us to additional costs (including increased compliance costs). These changes may also cause us to invest significant management attention and resources to make any necessary changes.

We are substantially dependant on our Mexican operations, with approximately 37% and 32% of our net income attributed to parent company in 2010 and 2009, respectively, being generated in Mexico. We face several types of risks in Mexico which could adversely affect our banking operations in Mexico or the Group as a whole. Given the internationalization of the financial crisis, the Mexican economy felt the effects of the global financial crisis and the adjustment process that was underway is accelerating. This process has intensified since the end of the third quarter of 2008 and has continued to intensify due to the high dependence on the U.S. economy. The initial effects are in manufacturing and in those areas with a greater degree of exposure to the international environment, although internal demand is also showing clear signs of moderation. In 2011 we expect that macro economic recovery will only be maintained if there is a sustained U.S. recovery resulting in higher exports and foreign investment. Domestic demand will not recover unless there is a gradual recovery of confidence and employment, interest rates remain low and an expansionary fiscal policy is in place. We cannot rule out the possibility that in a more unfavorable environment for the global economy, and particularly in United States or otherwise growth in Mexico will be negative in 2011.

Beginning in 2008 and through 2009 and 2010, our mortgage and especially our consumer loan portfolio in Mexico started showing higher delinquency rates. If there is a persistent increase in unemployment rates, which could arise if there is a more pronounced or prolonged slowdown in the United States, it is likely that such rates will further increase. In addition, although the Bank of Mexico (“Banxico”) is expected to maintain its current monetary stance throughout 2011, any tightening of monetary policy could make it more difficult for new customers of our mortgage and consumer loan products in Mexico to service their debts, which could have a material adverse effect on the business, financial condition, cash flows and results of operations of our Mexican subsidiary or the Group as a whole. In addition, price regulation and competition could squeeze the profitability of our Mexican subsidiary. If this were to occur, the market share of our Mexican subsidiary could decrease given its risk management standards.

Finally, political instability or social unrest could weigh on the economic outlook, which could increase economic uncertainty and capital outflows. Additionally, if the approval of certain structural reforms is delayed, this could make it more difficult to reach potential growth rates in the Mexican economy.

Any of these risks or other adverse developments in laws, regulations, public policies or otherwise in Mexico may adversely affect the business, financial condition, operating results and cash flows of our Mexican subsidiary or the Group as a whole.

The Latin American countries in which we operate have experienced significant economic volatility in recent decades, characterized by recessions, foreign exchange crises and significant inflation. This volatility has resulted in fluctuations in the levels of deposits and in the relative economic strength of various segments of the economies to which we lend. Negative and fluctuating economic conditions, such as a changing interest rate environment, also affect our profitability by causing lending margins to decrease and leading to decreased demand for higher-margin products and services. In addition, significant inflation can negatively affect our results of operations as was the case in the year ended December 31, 2009, when as a result of the characterization of Venezuela as a hyperinflationary economy, we recorded a €90 million decrease in our net income attributed to parent company.

In spite of good inflation results in recent months, medium-term concerns are growing due to high domestic demand growth rates in almost every country. Argentina, Brazil, Peru and possibly Chile are getting close to eliminating excess production capacity, which means they will need to curb growth in demand over the coming months to avoid inflation pressures. Countries that are pursuing inflation targets have accordingly adjusted inflation rates. Although rates are not yet close to neutral levels, central banks have stopped or reduced the pace of interest rate increases earlier than we had expected.

Negative and fluctuating economic conditions in some Latin American countries could result in government defaults on public debt. This could affect us in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default in public debt could cause to the banking system as a whole, particularly since commercial banks’ exposure to government debt is generally high in several Latin American countries in which we operate.

While we seek to mitigate these risks through what we believe to be conservative risk policies, no assurance can be given that our Latin American subsidiaries’ growth, asset quality and profitability will not be further affected by volatile macroeconomic conditions in the Latin American countries in which we operate.

Financial and securities markets in Latin American countries in which we operate are, to varying degrees, influenced by economic and market conditions in other countries in Latin America and beyond. Negative developments in the economy or securities markets in one country may have a negative impact on other emerging market economies. These developments may adversely affect the business, financial condition, operating results and cash flows of our subsidiaries in Latin America. These economies are also vulnerable to conditions in global financial markets and especially to commodities price fluctuations, and these vulnerabilities usually reflect

adversely in financial market conditions through exchange rate fluctuations, interest rate volatility and deposits volatility. For example, at the beginning of the financial crisis these economies were hit by a simultaneous drop in commodity export prices, a collapse in demand for non-commodity exports and a sudden halting of foreign bank loans. Even though most of these countries withstood the triple shock rather well, with limited damage to their financial sectors, we have seen non performing loan ratios rise as well as contraction in bank deposits and loans. As a global economic recovery remains fragile, there are risks of a relapse. If the global financial crisis continues and, in particular, if the effects on the Chinese and U.S. economies intensify the business, financial condition, operating results and cash flows of our subsidiaries in Latin America are likely to be materially adversely affected.

We operate commercial banks in ten Latin American countries and our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We are confronted with different legal and regulatory requirements in many of the jurisdictions in which we operate. These include, but are not limited to, different tax regimes and laws relating to the repatriation of funds or nationalization or expropriation of assets. Our international operations may also expose us to risks and challenges which our local competitors may not be required to face, such as exchange rate risk, difficulty in managing a local entity from abroad, and political risk which may be particular to foreign investors. For example, on January 8, 2010, the Venezuelan monetary authorities decided to devalue the Bolivar fuerte by 50% from a fixed exchange rate of 2.15 per U.S. dollar since its creation to 4.30 per U.S. dollar. Our presence in Latin American markets also requires us to respond to rapid changes in market conditions in these countries. We cannot assure you that we will continue to succeed in developing and implementing policies and strategies that are effective in each country in which we operate or that any of the foregoing factors will not have a material adverse effect on our business, financial condition and results of operations.

We are also a major player in the private pension sector in place in most of these countries and are, therefore, affected by changes in the value of pension fund portfolios under management, as well as general financial conditions and the evolution of wages and employment. For example, while recovering in 2009 and 2010, most pension fund management companies (“AFPs” for their Spanish acronym) experienced a sharp contraction and posted negative results in 2008 as a consequence of the fall in the value of their portfolios, showing the vulnerability of the sector.

A number of banking regulations designed to maintain the safety and soundness of banks and limit their exposure to risk are applicable in certain Latin American countries in which we operate. Local regulations differ in a number of material respects from equivalent regulations in Spain and the United States.

Changes in regulations that are beyond our control may have a material effect on our business and operations, particularly in Venezuela and Argentina. In addition, since some of the banking laws and regulations have been recently adopted, the manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. No assurance can be given that laws or regulations will be enforced or interpreted in a manner that will not have a material adverse effect on our business, financial condition, results of operations and cash flows.

Private pension management companies are heavily regulated and are exposed to major risks concerning changes in those regulations in areas such as reserve requirements, fees and competitive conditions. They are also exposed to political risks. For example, at the end of 2008 the government of Argentina passed a law transferring pension funds, including those managed by our subsidiary in Argentina, from private managers to the government entity managing the remainder of the formerly public pension system.

In 2008 and 2009, we further increased our ownership interest in members of the CITIC Group, a Chinese banking group, by increasing our stake in CITIC International Financial Holdings Ltd (“CIFH”) to 29.7% and China CITIC Bank (“CNCB”) to 10.07%. CIFH is a banking entity headquartered in Hong Kong and CNCB is a banking entity headquartered in China. On December 3, 2009, we announced the exercise of the option to purchase 1,924,343,862 additional shares of CNCB. Furthermore, on April 1, 2010, after obtaining the corresponding authorizations, the purchase of an additional 4.93% of CNCB’s capital was finalized for €1,197 million. See “Item 4. Information on the Company — Business Overview — Wholesale Banking and Asset Management”.

As a result of our expansion into Asia, we are exposed to increased risks relating to emerging markets in the region, particularly in China. The Chinese government has exercised, and continues to exercise, significant influence over the Chinese economy. Chinese governmental actions concerning the economy and state-owned enterprises could have a significant effect on Chinese private sector entities in general, and on CIFH or CNCB in particular.

We also are exposed to regulatory uncertainty and geopolitical risk as a result of our investments in Asia. Changes in laws or regulations or in the interpretation of existing laws or regulations, whether caused by a change in government or otherwise, could adversely affect our investments. Moreover, Asian economies can be directly and negatively affected by adverse developments in other countries in the region and beyond.

Any of these developments could have a material adverse effect on our investments in Asia or the business, financial condition, results of operations and cash flows of the Group.

Our expansion in the United States makes us more vulnerable to developments in this market, particularly the real estate market. During the summer of 2007, the difficulties experienced by the subprime mortgage market triggered a real estate and financial crisis, which has had significant effects on the real economy and which has resulted in significant volatility and uncertainty in markets and economies around the world. As we have acquired entities or assets in the United States, particularly BBVA Compass and certain deposits and liabilities of Guaranty Bank (“Guaranty”), our exposure to the U.S. market has increased. Adverse changes to the U.S. economy in general, and the U.S. real estate market in particular, resulted in our determination to write down goodwill related to our acquisition of BBVA Compass and record additional loan loss provisions in the year ended December 31, 2009 in the aggregate amount of €1,050 million (net of taxes). Similar or worsening economic conditions in the United States could have a material adverse effect on the business, financial condition, results of operations and cash flows of our subsidiary BBVA Compass, or the Group as a whole, and could require us to provide BBVA Compass with additional capital.

As of March 22, 2011, we have acquired a 24.89% interest in Türkiye Garanti Bankası A.Ş. (“Garanti”) (the “Garanti acquisition”). In preparing the terms of the Garanti acquisition, we relied on certain information regarding Garanti which may be inexact, incomplete or outdated. Furthermore, we made various assumptions regarding the future operations, profitability, asset quality and other matters relating to Garanti which may prove to be incorrect.

Garanti’s performance under International Financial Reporting Standards or Accounting Practice Regulations as promulgated by the Banking Regulation and Supervision Agency of Turkey (“BRSA”) may differ materially from our expectations or the expectations of research analysts, which could result in a decline in the market value of Garanti shares and the value of our proposed investment in Garanti.

In addition, we may be exposed to unknown risks relating to such acquisition that could significantly affect the value of our investment in Garanti. Furthermore, a variety of factors that are partially or entirely beyond our and

Garanti’s control, such as negative market developments, increased competition, governmental responses to the global financial crisis and regulatory changes, could have a material adverse effect on Garanti’s business, financial condition and results of operations, which could result in a decline in the market value of Garanti shares and the value of our proposed investment in Garanti.

Most of Garanti’s operations are conducted, and most of its customers are located, in Turkey.

Accordingly, Garanti’s ability to recover on loans, its liquidity and financial condition and its results of operations are substantially dependent upon the political, economic, financial and geopolitical conditions prevailing in or that otherwise affect Turkey. If the Turkish economy is adversely affected by, among other factors, a reduction in the level of economic activity, continuing inflationary pressures, devaluation or depreciation of the Turkish Lira, a natural disaster or an increase in domestic interest rates, then a greater portion of Garanti’s customers may not be able to repay loans when due or meet their other debt service requirements to Garanti, which would increase Garanti’s past due loan portfolio and could materially reduce its net income and capital levels. Furthermore, political uncertainty or instability within Turkey and in some of its neighboring countries has historically been one of the potential risks associated with investments in Turkish companies. In addition, a further deterioration in the EU accession process may negatively affect Turkey. Any of these risks could have a material adverse effect on Garanti’s business, financial condition and results of operations and the value of our proposed investment in Garanti.

Despite Turkey’s increased political and economic stability in recent years and the implementation of institutional reforms to conform to international standards, Turkey is an emerging market and it is subject to greater risks than more developed markets. Financial turmoil in any emerging market could negatively affect other emerging markets, including Turkey, or the global economy in general. Moreover, financial turmoil in emerging markets tends to adversely affect stock prices and debt securities prices of other emerging markets as investors move their money to more stable and developed markets, and may reduce liquidity to companies located in the affected markets. An increase in the perceived risks associated with investing in emerging economies in general, or Turkey in particular, could dampen capital flows to Turkey and adversely affect the Turkish economy and, as a result, Garanti’s business, financial condition and results of operations and the value of our proposed investment in Garanti.

As a result of the consummation of the Garanti acquisition, we will be exposed to foreign exchange, political and other risks relating to Turkey. For example, currency restrictions and other restraints on transfer of funds may be imposed by the Turkish government, Turkish government regulation or administrative polices may change unexpectedly or otherwise negatively affect Garanti, the Turkish government may increase its participation in the economy, including through expropriations or nationalizations of assets, or the Turkish government may impose burdensome taxes or tariffs. The occurrence of any or all of the above risks could have a material adverse effect on Garanti’s business, financial condition and results of operations and the value of our proposed investment in Garanti.

In addition, a significant majority of Garanti’s total securities portfolio is invested in securities issued by the Turkish government. In addition to any direct losses that Garanti might incur, a default, or the perception of increased risk of default, by the Turkish government in making payments on its securities or the possible downgrade in Turkey’s credit rating would likely have a significant negative impact on the value of the government securities held in Garanti’s securities portfolio and the Turkish banking system generally and make such government securities difficult to sell, and may have a material adverse effect on Garanti’s business, financial condition and results of operations and the value of our proposed investment in Garanti.

We have entered into a shareholders’ agreement with Doğuş in connection with the Garanti acquisition. Pursuant to the shareholders’ agreement, we and Doğuş have agreed to manage Garanti through the appointment of board members and senior management Doğuş is one of the largest Turkish conglomerates and has business interests in the financial services, construction, tourism and automotive sectors. Any financial reversal, negative publicity or other adverse circumstance relating to Doğuş could adversely affect Garanti or BBVA. Furthermore, we must successfully cooperate with Doğuş in order to manage Garanti and grow its business. It is possible that we and Doğuş will be unable to agree on the management or operational strategies to be followed by Garanti, which could adversely affect Garanti’s business, financial condition and results of operations and the value of our proposed investment and lead to our failure to achieve the expected benefits from the Garanti acquisition.

In response to the global financial crisis, legislators and financial regulators have taken a number of steps to stabilize the financial markets. These steps have included various fiscal stimulus programs and the provision of direct and indirect assistance to distressed financial institutions, assistance by banking authorities in arranging acquisitions of weakened banks and broker/dealers, implementation of various programs by regulatory authorities to provide liquidity to various credit markets and temporary prohibitions on short sales of certain financial institution securities. Additional legislative and regulatory measures were adopted in various countries around the world, including, for example in the United States, where measures with respect to modifications of residential mortgages and an overhaul of the financial regulatory framework were adopted. In addition to these actions, various regulatory authorities in member states of the European Union and the United States took regulatory steps to support financial institutions, to guarantee deposits and to seek to stabilize the financial markets. Premature removal of such support measures as a result of perceived improvement in the financial markets and concerns over the sustainability of public deficits, could result in a prolonged economic downturn and further instability in the financial markets.

In addition, regulatory proposals in the European Union and the United States, have pointed at splitting wholesale and retail activities, increasing minimum capital requirements, establishing a tax for systemic or relevant financial institutions, among other proposals. While these and previous measures have been proposed or taken to support the markets, they may have certain consequences on the global financial system or our businesses, including reducing competition, increasing the general level of uncertainty in the markets or favoring or disfavoring certain lines of business, institutions or depositors. We cannot predict the effect of any other regulatory changes resulting from the global financial crisis and any such changes can have a material adverse effect on our business, financial condition, results of operations, cash flow and business plans. Some of the most significant concerns are related to new liquidity standards, an increase of the minimum capital ratio or the regulation of systemic institutions, which may seriously affect our business model.

Our legal name is Banco Bilbao Vizcaya Argentaria, S.A. BBVA’s predecessor bank, (BBV), was incorporated in Spain as a limited liability company (a “sociedad anónima” or “S.A.”) under the Spanish Corporations Law on October 1, 1988. BBVA is incorporated for an unlimited term. The Company conducts its business under the commercial name “BBVA”. BBVA is registered with the Commercial Registry of Vizcaya (Spain). It has its registered office at Plaza de San Nicolás 4, Bilbao, 48005, Spain, telephone number +34 91 3746201. BBVA’s agent in the U.S. for U.S. federal securities law purposes is Emilio Juan de las Heras Muela (1345 Avenue of the Americas, 45th Floor New York, NY 10105, telephone number +1(212) 728-1660).

Our principal investments are financial: subsidiaries and affiliates. The main capital expenditures from 2008 to the date of this Annual Report were the following:

On April 1, 2010, after obtaining the corresponding authorizations, the purchase of an additional 4.93% of CNCB’s capital was finalized for €1,197 million. As of December 31, 2010, BBVA had a 29.68% holding in CIFH and a 15% holding in CNCB.

In May 2010, the Group announced that it had reached an agreement to acquire the Credit Uruguay Banco, from a French financial group, through its subsidiary BBVA Uruguay. On January 18, 2011, after obtaining the corresponding authorizations, the purchase of Credit Uruguay Banco was completed for approximately €78 million.

In November 2010, BBVA signed an agreement with the Doǧus group and the General Electric group, the primary shareholders of Garanti, a Turkish bank, concerning the acquisition of a 24.89% holding of the common stock of Garanti, for a total price of $5,838 million, which is equivalent to a payment of approximately €4,195 million (considering the exchange rate as of October 29, 2010 at $/€ 1.3916).

The agreement with Doǧus group includes an agreement for the joint management of Garanti and the appointment of some of the members of its board of directors. In addition, BBVA has an option to purchase an additional 1% of Garanti during the five years following the completion of the acquisition.

As of March 22, 2011 after having obtained the necessary authorizations, BBVA has completed the acquisition of 24.8902% of the total issued share capital of Garanti.

On August 21, 2009, through our subsidiary BBVA Compass, we acquired certain assets and liabilities of Guaranty from the U.S. Federal Deposit Insurance Corporation (the “FDIC”) through a public auction for qualified investors. BBVA Compass acquired assets, mostly loans, for $11,441 million (approximately €8,016 million) and assumed liabilities, mostly customer deposits, for $12,854 million (approximately €9,006 million). These acquired assets and liabilities represented 1.5% and 1.8% of our total assets and liabilities on the acquisition date.

In addition, the purchase included a loss-sharing agreement with the FDIC under which the latter undertook to assume 80% of the losses on up to the first $2,285 million of the loans purchased by us and up to 95% of the losses, if any, on the loans exceeding this amount. This commitment has a maximum term of either five or ten years, depending on the portfolios.

During 2008, there were no significant changes in the Group, except for the merger of our banking subsidiaries in Texas (Laredo National Bank, Inc., Texas National Bank, Inc., and State National Bank, Inc.) into BBVA Compass.

In 2008, we further increased our ownership interest in members of the CITIC Group, a Chinese banking group, by increasing our stake in CIFH up to 29.7% and CNCB up to 10.07%. CIFH is a banking entity headquartered in Hong Kong and previously listed on the Hong Kong stock exchange. Pursuant to an agreement between us and Gloryshare Investments Limited (the controlling shareholder of CIFH), CIFH’s shares were delisted from the Hong Kong Stock Exchange on November 5, 2008.

Our principal divestitures are financial, in subsidiaries and in affiliates. The main capital divestitures from 2008 to the date of this Annual Report were the following:

During 2010, we sold our participations in certain non-strategic associates and also we have concluded the liquidation and merger of several issuers, financial services and real estate affiliates. Additional information on these transactions is included in Appendix V to the Consolidated Financial Statements.

During 2009, we sold our participations in certain non-strategic associates (including our 22.9% stake in Air Miles España, S.A.) which gave rise to no significant gains.

As a part of the reorganization process in the United States and Mexico, we concluded the liquidation and merger of several affiliates of BBVA Compass and of BBVA Bancomer.

In March, 2008, we sold our 5.01% interest in the Brazilian bank, Banco Bradesco, S.A. (“Bradesco”) to Bradesco’s principal shareholders, Cidade de Deus — Companhia Comercial de Participaçoes and Fundaçao Bradesco, for a market price of €863 million. This sale gave rise to a gain of €727 million.

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 investments in some of Spain’s leading companies.

In 2010, we focused our operations on six major business areas, which are further broken down into business units, as described below:

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 of the Group within one business area or between different business areas, since we consider these transactions to be an integral part of each business area’s activities. For purposes of the presentation and discussion of our consolidated operating results in “Item 5. Operating and Financial Review and Prospects”, 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.

In 2010, certain changes were made in respect of the criteria followed in 2009 to reflect the composition of our business areas. These changes affected:

In addition, we have modified the allocation of certain costs relating mainly to rent expenses and, to a lesser extent, sales of IT services from the corporate headquarters to the business areas. As a result of this modification, data for the years 2009 and 2008 has been revised to ensure that the information provided for the different periods is comparable.

The financial information for our business areas for 2009 and 2008 presented below has been prepared on a uniform basis, consistent with our organizational structure in 2010.

During 2009, several factors occurred with respect to the Venezuelan economy that made us reconsider the accounting treatment we applied in the translation of the financial statements of our subsidiaries in that country: the inflation index reached in 2009, the cumulative inflation index over the last three years and restrictions in the official foreign exchange market. Consequently, according to the requirements of International Accounting Standard IAS 21, we considered the Venezuelan economy as hyperinflationary for 2009. In 2009, the characterization of Venezuela as a hyperinflationary economy, implied a €90 million decrease in our net income attributed to parent company.

On January 8, 2010, the Venezuelan monetary authorities decided to devaluate the Bolivar fuerte by 50% from a fixed exchange rate of 2.15 per U.S. dollar since its creation to 4.30 per U.S. dollar. On January 19, 2010 the Venezuelan authorities announced that they would grant a preferential rate of 2.60 Bolivar fuerte per dollar for new items, among which payment of dividends is included, as long as the request for Authorization of Acquisition of Foreign Exchange was filed before January 8, 2010.

Despite the uncertainty related to the final exchange rate of Venezuelan currency (Bolivar fuerte) compared to euro, the devaluation has had no significant impact on our consolidated financial statements in 2010 due to the fact that our investments in Venezuela represent approximately 2% of our consolidated assets and 1% of our consolidated equity as of December 31, 2010.

The following table sets forth information relating to net income attributed to parent company for each of our business areas for the years ended December 31, 2010, 2009 and 2008:

The following table sets forth information relating to net interest income for each of our business areas for the years ended December 31, 2010, 2009 and 2008

The Spain and Portugal business area focuses on providing banking services and consumer finance to private individuals, enterprises and institutions in Spain and Portugal.

The principal figures relating to this business area as of December 31, 2010 and December 31, 2009 were:

The main business units included in the Spain and Portugal area are:

The area’s business activity in 2010 took place within the framework of the launch of the “Plan Uno”, which involves a new banking distribution model that seeks to achieve sustainable business growth, under the premise that “BBVA only wins when the customer benefits”. The implementation of this plan has been based on the capabilities of a leading-edge technological platform that has made it possible, on the one hand, to generate customized commercial products with extra benefits based on the degree of loyalty, and on the other hand to integrate “physical” and “virtual” banking. Customer focus has been aimed at launching various asset and deposit products which have improved the area’s positioning.

In investment, the increase in mortgage demand by individual customers reflects the positive acceptance of the products “Sí, damos hipotecas” (Yes, we do give mortgages), “Ven a Casa” (Come home) and“Hipoteca On Line BBVA” (BBVA on-line mortgage). In the consumer finance segment,“Crédito Coche+Seguro gratis” (Car loan+free insurance) and the home improvements line have been launched. New consumer and mortgage payment protection insurance products have also been designed. In on-balance sheet funds, loyalty has increased and new deposits have been attracted from the transactional schemes “Ventajas Uno”(Benefits One) and “Cuenta Uno” (Account One), which have resulted in over 3 million individual customers and self-employed people being exempt from paying fees and commissions; the two new “Quincenas del Libretón” (Passbook Fortnights); a new“La Jornada de tu Vida” (Day of your Life) promotion and stable saving products, such as: a new edition of the “Depósitos Fortaleza” (Strength Deposits) “Depósito BBVA Uno” (BBVA One Deposit) and “Depósito Líder” (Leader Deposit). In off-balance sheet funds, the most significant products are the guaranteed mutual funds “BBVA Acción Europa” (BBVA Europe Share), “BBVA Ranking”, “BBVA 4x3”, “BBVA Gama Solidez” (BBVA Soundness Range) and “Planes Renta” (Income Plans). “BBVA Tranquilidad 14B” (BBVA Peace of Mind 14B), “BBVA Tranquilidad 14C” (BBVA Peace of Mind 14C) and“BBVA Tranquilidad 16” (BBVA Peace of Mind 16) have been added to the pension fund range.

Various campaigns have been launched in order to boost product contracting over the Internet such as a new edition of“Crédito Coche” (Car Loan),“Depósito BBVA Uno Online” (BBVA One Deposit On-line), “Compra de Vivienda con Garantía Hipotecaria” (Home Purchase with Secured Loan) and“Venta de Activos” (Sale of Assets). A dynamic microsite has also been developed for offering commercial products to companies and institutions. In this latter segment, BBVA has been awarded public contracts by CIEMAT (Research Center for Energy, Environment and Technology), BOE (Official Gazette), State Council, General Treasury of the Social Security, Madrid Regional Government, AECID (Spanish Agency for International Cooperation) and Spanish Fleet of Official Cars.

Specific segments of individual customers, such as the young and over 59s, have benefited from the use of social networks and the promotional campaign “59+ Program”, with financial and non-financial products tailored to their needs.

The management model of BBVA Patrimonios, based on principles of guidance, closeness to the customer, differentiation and innovation, is focused on winning new customers. To this end,we have implemented “Planifica” (Plan), a tax advice tool, along with the new “Centro de Soluciones de Inversión” (Investment Solutions Center), which have enabled 1,600 new guided portfolios to be opened.

In businesses, “Plan Convenios” (Agreement Plan) has been put in place with three different management models: “Plan Asociaciones” (Association Plan) aimed at the primary representative associations of self-employed workers (National Association of Self-employed Workers, Professional and Self-employed Worker Union, Hotel and Restaurant Trade Federation, Cab Driver Association, Tobacco Dealer Association and Lottery Ticket Seller Association),“Plan Colegios Profesionales” (Professional Association Plan) (Pharmacists, Dentists, Architects, Attorneys, Lawyers and Tax Accountants) and the “Plan Franquicias” (Franchise Plan).

BBVA has confirmed its leading role in the distribution of lines of credit under preferential conditions with the signing of the ICO-2010 agreement, with the lines “Inversión Nacional” (National Investment),“Inversión Internacional” (International Investment), “Emprendedores” (Entrepreneurs),“ICO liquidez” (ICO Liquidity), “ICO-FuturE”, “ICO-Economía Sostenible” (ICO-Sustainable Economy) and those intended for the manufacturing

sector, foreign and domestic trade, and tourism, among others. In addition, BBVA was one of the two awardees of the“ICO Directo” (ICO Direct) line for SMEs and self-employed workers. It has also expanded its range of products, which include: “Límite No Comprometido” (Uncommitted Limit), “Cuenta de Crédito Flexible” (Flexible Charge Account),“Bonos TPV BEC” (TPV BEC Bonds),“Depósito BEC Plus” (BEC Plus Deposit),“Cuenta de Crédito Vinculación”(Loyalty Charge Account) and “Cuenta de Crédito Tipo Cero” (Zero Rate Charge Account). Finally, the insurance offer (“D&O” and “Environmental Responsibility”) and non-financial services (principally “Training”, “General Expenses”, “Vehicles” and “Security”) improved once again in 2010. Agreements have also been signed with the European Investment Bank (EIB) to help companies carry out their business activity, with the new lines “PYMES”(SMEs) and “Energías Renovables”(Renewable Energy).

The Consumer Finance unit manages consumer finance and on-line banking, via Uno-e, BBVA Finanzia S.p.A. (“Finanzia”) and other subsidiaries in Spain, Portugal and Italy.

As of December 31, 2010, loans and advances to customers of the Consumer Finance Unit in Spain was €5,546 million, a decrease of 1.5% from December 31, 2009. The car loan unit, through prescription, was able to respond to the market’s needs with the “Cero Pelotero”campaign that facilitated the purchase of automobiles after the withdrawal of the relevant government aid program. At the same time, it was able to increase cross-selling mainly as a result of its high level of assurance.

As of December 31, 2010, total loans and advances to customers in BBVA Portugal rose to €7,448 million (an increase of 22.8%year-on-year),boosted by the increase in mortgages (an increase of 26.0%year-on-year)and corporate lending (an increase of 16.2%year-on-year)as a result of the various campaigns launched throughout the year, such as Hipoteca Blue BBVA and Nos Adaptamos. Customer funds in 2010 closed with an increase of 10.7%, due to the increased demand for customer deposits under management (an increase of 16.7%year-on-year).In Italy, loans and advances to customers reached €663 million as of December 31, 2010 (an increase of 41.3%year-on-year).

This unit manages an extensive range of insurances through direct insurance, brokerage and reassurance, using different networks.

A total of €1,084 million was written in premiums over 2010, of which €900 million corresponds to the individual business (life and non-life) and €184 million to groups. The life and accident insurance business remained positive, contributing €365 million in premiums (an increase of 9.1%year-on-year),boosted by the activity in payment protection products. BBVA Seguros is the market leader in individual life and accident insurance policies. In non-life policies, the €186 million (an increase of 1.7%year-on-year)from multi-risk home and fire insurance stand out. The volume of funds under management in private savings policies reached €8,140 million, of which €3,115 million correspond to individual clients and the rest to company insurance schemes. Moreover, BBVA has brokered premiums of €180 million in 2010.

The principal figures relating to this business area as of December 31, 2010 and December 31, 2009 were:

The Mexican peso exchange rate as of December 31, 2010, appreciated against the euro, increasing 14.4% compared to the exchange rate as of December 31, 2009. Comparing average exchange rates, the Mexican currency also increased to the euro 12.3%year-on-year.The aforementioned changes had a positive impact on the area’s financial statements and activity. See “Item 5. Operating and Financial Review and Prospects — Operating Results — Factors Affecting the Comparability of our Results of Operations and Financial Condition”. To provide a better picture of how the business has evolved the comments below will refer toyear-on-yearchange at constant exchange rates unless otherwise indicated.

The business units included in the Mexico area are: Retail and Corporate banking, and Pensions and Insurance.

In 2010, BBVA Bancomer put in place the“2010-2012Growth Plan”, the overriding goals of which are: the customer being the focus of the business, improved product distribution and the attainment of greater process efficiency. Technology and innovation are an integral part of this plan. The Bank launched the “Bancomer Express account”, the first cell phone account in Mexico linked to the customer’s cell phone and debit card, which offers the option of making transfers between accounts, withdrawing money, checking balances and buying in stores. This account gives new customers access to financial services for the low-income segment, as it charges no fees or commissions for account administration and maintenance, and requires no minimum balances. Another example of technological innovation was the launch of the “Bancomer Cell Phone” product, which has promoted the use of virtual channels.

As for the distribution network, BBVA Bancomer had 6,760 ATMs as of December 31, 2010, 523 more than as of December 31, 2009. The productivity of the branch network has increased by 17%year-on-year.One of the reasons for this is the introduction ofpracticajas (a new kind of ATM), which reduce the volume of operations in branches and increase the sale of products. The following mortgage products were launched: “Ahorra y Estrena” (Save and Move In), a mortgage loan for people with variable income that enables them to finance their home with monthly installments equivalent to the balances of their monthly savings; and the “Alia2 Plus” loan in partnership with Fovissste (Housing Fund of the Security and Social Services Institute for State Workers), which allows affiliates to increase the amount of their loan and buy a home at a fixed interest rate with set repayment amounts. The Bank also launched the product “Bancomer Cofinavit AG”in similar conditions, this time in partnership with Infonavit (National Housing Fund for Workers Institute). In 2010, for the third year in a row, BBVA Bancomer was awarded the 2009 National Housing Prize. This time the award was granted for offering a variety of solutions as a response to the crisis, supporting more than 50,000 affected customers.

In the business segment, the unit specializing in micro-enterprises and small businesses launched the“Micro-Business Card”, with lines of credit from 20,000 to 180,000 Mexican pesos, designed to finance mainly their working capital. This product is backed by guarantees from Nacional Financiera. The risk is therefore shared with the Federal Government.

In customer deposits, there was a new edition of the“Quincena del Ahorro” (Two Weeks of Saving) campaign, through which 1 million prizes were given out for the first time, more than €572 million of funds were attracted and over 300,000 new accounts were opened. We should also note the “Equipa tu Negocio” (Equip your Business) campaign for attracting demand deposits in the SMEs segment, pursuant to which more than 37,800 clients were awarded prizes.

In exchange-traded funds (ETF), BBVA Bancomer launched an ETF called “BRTRAC” which invests in Brazil’s top 15 companies. It also launched “BBVANDQ”, which offers customers the opportunity to invest in a fund that replicates the NASDAQ in the United States. In addition, the Bank launched the “Fondo Triple Líquido”(Triple Liquidity Fund), offering capital protection, monthly reinvestment of interest and money availability every 28 days. Five new international funds were launched, expanding the range available to include new regions and

countries (in particular, Asia not including Japan, Latin America, and other emerging countries), technological companies and dollar-denominated government debt. We believe BBVA Bancomer has the most comprehensive international fund portfolio on the market.

In 2010, Seguros BBVA Bancomer continued with its model focused on offering products differentiated by segment and sales channel which have enabled it to uphold its leadership within the bancassurance segment, with a 41% market share as of September 30, 2010 (source: AMIS). Similarly, it became the country’s fourth largest insurance company, of the 67 companies operating in the country, and the number two in terms of net profit, generating 19.5% of the sector’s earnings in Mexico.

In 2010, the sales network issued 1,078,069 policies, the highest figure since 2003. This growth is based primarily on car insurance products and on “VidaSegura Preferente” (Preferential SecureLife) and“HogarSeguro” (SecureHome).

Outside the branch network, alternative channels continued to grow and reached an all-time sales record with approximately 64,000 policies in force as of December 31, 2010.

The South America business area includes our banking, insurance and pension businesses in South America.

The principal figures relating to this business area as of December 31, 2010 and December 31, 2009 were:

The following is a brief description of our operations on acountry-by-countrybasis in the South America business area. The operating results described below refer to each individual unit’s contribution to the South America business area’s operating results, unless otherwise stated.

The business units included in the South America business area are:

The Argentinean economy performed well in 2010, with GDP growth of 8%, boosted by the good performance of both the foreign sector and domestic demand, as well as a relatively stable political climate. Inflation, however, remains high.

In 2010, BBVA Banco Francés has implemented important initiatives to improve relations with its customers, both individuals (through the alliance with the entertainment producer Time for Fun, the agreement with LAN, the Francés GO campaign and the launch of the first car leasing scheme) and companies (through the launch of credit

lines for SMEs, greater range of products for the agricultural segment and an agreement with the BMW Group). In funds under management, variable-interest deposits were launched (linked, respectively, to commodity prices, stock market indices and currency trading rates).

Theyear-on-yeargrowth in lending was 43.0% as of December 31, 2010, There were notable increases in consumer finance (with an increase of 88 basis points) and credit cards (with an increase of 79 basis points),and no deterioration in asset quality (while the NPA ratio continued to be lower than the average NPA of our peers in Argentina, according to our estimates). Customer funds increased by 22.7% and were highly concentrated in transactional accounts (which increased by 22.2% year-on -year).

The net interest income of BBVA Banco Frances, which grewyear-on-yearby 16.5% in 2010, while net fees and commissions increased by 15.6%. Operating expenses increased by 28.5% in 2010, affected by the upturn in inflation and the expansion projects launched by the unit. The high asset quality has enabled loan-loss provisioning to remain at similar levels to 2009. The net attributable profit of this unit in 2010 was €111 million.

The Chilean economy grew by over 5% in 2010, mainly as a result of the strength of domestic demand and the favorable impact of high commodity prices, particularly copper. Inflation as of December 31, 2010 was less than 3%, within the Central Bank’s target. The Central Bank has gradually reduced its monetary incentives over 2010 and raised the interest rate by 300 basis points to 3.5%. In this environment BBVA Chile has strengthened its positioning in the retail businesses by transforming its branch network and the virtual channels, as well as the commercial and distribution models. As a result, the sales volume has doubled, the product range has grown and customer satisfaction levels have improved.

The loan book grew by 12.2% in2010 year-on-year.There was a notable increase in credit cards (which increased by 80.4%year-on-year)through new products (“Signature and MasterCard”), as well as associations with other brands (“Enjoy”) and stores. Increased lending led to an increase in market share in 2010 of 46 basis points in consumer finance and credit cards and 17 basis points in mortgages, according to our estimates. The consumer finance unit Forum strengthened its leading position and extended its product range and penetration in its different brands. Finance experienced an increase of 31% in2010 year-on-year,without any deterioration in risk indicators (the NPA ratio was 1.9% as of December 31, 2010). In customer funds, current accounts were up by 22.1%, a gain of 13 basis points in market share of transactional deposits, according to our estimates. Long — term bonds were issued in an aggregate amount of over €300 million.

BBVA Chile and Forum contributed a net attributable profit of €115 million in 2010 (an increase of 41.9%year-on-year).This increase was mainly attributable to the increase in net interest income (which increased by 12.1%year-on-year)and net fees and commissions (an increase of 27.6%), even though net trading income was below 2009 levels, which included high capital gains from the sale of equity holdings. Expenses increased 7.4% in 2010,year-on-year.In addition, loan-loss provisions decreased by 39.4%year-on-yeardue to the improved asset quality.

Colombia also experienced an improvement of its economy, particularly in the second half of 2010, due to a significant increase in public and private investment, as well as a notable recovery in exports and the maintenance of interest rates at all-time lows. As a result, GDP grew by 5% in 2010.

Under the guidelines set out by the Plan Unidos (“United Plan”) and the “New Model of Customer Service”, BBVA Colombia has performed well, in both lending and funds. This has led to ayear-on-yeargain in market share of 17 basis points in 2010, according to our estimates. Mortgage loans and corporate lending played a significant role in this respect, with increases in the market share of 78 and 16 basis points, respectively. In business with individual customers the product range was extended (in cards, real estate leasing and payroll bank accounts and others), while in the corporate segment the Bank’s presence in the agroindustrial sector was strengthened and the Cash Net tool was consolidated as a method of customer cash management.

In customer funds, there was ayear-on-yeargrowth of 22.3% in current and savings accounts. In 2010, BBVA Colombia was recognized as the “Bank of the Year” in the country by The Banker. It also received an award as the best Colombian bank for good corporate governance practices, social responsibility and ethics from Latin Finance.

The remarkable fall in interest rates over the year had a negative effect on the results in the sector in 2010. BBVA Colombia has offset much of this impact by greater growth in lending and by applying a strategy of strict defense of spreads, which has limited the decrease in net interest income (which decreased by 4.9% year-on year). Expenses remained in check, with a slight increase of 1.4%. There was a significant limitation of loan-loss provisions (which decreased by 32.4%year-on-year),which benefited from the reduction in non-performing assets (which decreased by 26.6%year-on-year).As a result, the net attributable profit in 2010 amounted to €184 million, an increase of 12.0% from the previous year.

The Panamanian economy has improved over the year, boosted by the recovery in international trade, higher liquidity and its achievement of an investment grade rating. BBVA Panamá has focused its strategy on improving its recognition in the market through various sponsorship deals (including the Panamanian Soccer League) that have supported the product range for individuals, helped by the opening of a new branch. In the corporate segment, efforts have been aimed at the agricultural sector and the Free Zone, with improvements in COMEX and insurance products.

Lending increased in 2010 by 6.8% over the year and customer funds increased by 5.8% over the same period. In 2010, BBVA Panama had a net attributable profit of €31 million, with a positive performance in both income and expenses.

The Paraguayan economy performed very well in 2010, boosted by the strong agricultural sector and the reactivation plans implemented by the country’s economic authorities. In 2010, BBVA Paraguay showed commercial strength, with the launch of numerous commercial campaigns, in both the corporate and institutions and retail businesses. Two highlights were the strategic alliance with John Deere, in corporate and institutions, and the launch of the VIP segment in retail banking. Eight new branches were opened over the year as part of an expansion plan which will continue in 2011.

The foregoing has enabled ayear-on-yeargrowth in lending of 45.2% in 2010 and an increase in customer funds of 24.3%, without any deterioration of the NPA ratio, which continues at minimum levels, or profitability.

BBVA Paraguay had a net attributable profit of €39 million in 2010, an increase of 21.7%year-on-year.Euromoney named it the “Best Bank” in the country for the fourth year in a row.

In 2010, the Peruvian economy grew almost by 10%, mainly as a result of the recovery in private consumption, high levels of business confidence and favorable financing conditions. This recovery has led the economic authorities to start a cycle of rises in policy rates with the aim of keeping inflationary pressures in check.

BBVA Banco Continental undertook numerous commercial initiatives in all segments in 2010 and increased its sales capacity with an 8% increase in its branch network, a 23% increase in the number of ATMs and a 184% increase in its “express” agent network. As a result, lending portfolio increased by 19.5%year-on-yearand customer funds by 20.6%. There was a particularly notable increase in consumer finance (35 basis points) and corporate lending (46 basis points). Our market share in customer funds increased by 203 basis points according to our estimates. In the private individuals segment, mainly as a result of the “Mundo Sueldo” product, the number of customers who deposit their payroll into their accounts increased in 2010 by 23%year-on-year,and the number of companies making salary payments directly increased by 38%year-on-year.The VIP individuals segment saw the launch of the“Black” card in partnership with MasterCard. In Corporate and Investment Banking, the aim was to create closer links with customers, with improved financial advice and a broader range of products. A number of hedging derivatives were launched for corporate customers for this purpose.

In 2010, the bank was recognized as the Best Bank in Peru by Global Finance and the Best Foreign Trade Bank in Peru by Trade Finance. It also ranked third as Best Bank in Latin America in the ranking prepared by América Economía, and ranked third in the sustainability ranking drawn up by Management & Excellence and Latin Finance.

In 2010, BBVA Banco Continental had a net attributable profit of €134 million (an increase of 6.5%year-on-year),mainly as a result of the effect of improved economic activity on revenues. Net interest income grew by 4.8% in 2010, despite the downward pressure on spreads, and net fees and commissions were up by 12.7%year-on-year,with a high recurrent component. Expenses were up by 9.7%, a moderate rate given the expansion in the commercial network, while the efficiency ratio remained low (30.6%). The NPA ratio as of December 31, 2010 remained low (1.9%), with no pressure on the volume of loan-loss provisioning.

The positive performance of the foreign sector, particularly due to agricultural and livestock production, has contributed to GDP growth of 9% in 2010. The most important event of the year for BBVA Uruguay was the agreement to purchase Crédit Uruguay. The deal has converted the unit in the second biggest financial institution in the country. Within its organic business, BBVA Uruguay has shown commercial strength in 2010, in both the individuals and corporate segments. In the corporate segment, the bank has focused its efforts on the agricultural and livestock business, with the launch of new products such as leasing, the “Cuenta Pymes” (SME account) and special financing lines.

In 2010, the banking business benefited from the recovery in economic growth, although it continued to suffer from an environment of low interest rates. In this context BBVA Banco Uruguay generated a net attributable profit of €3 million.

Despite high oil prices in 2010, the Venezuelan economy posted a negative growth, due mainly to the limitation on currency flows settled on the official exchange market, a deteriorating business environment, restrictions on electricity in the first half of 2010 and sluggish private demand.

Despite this situation, BBVA Banco Provincial has continued to invest in improving infrastructures with the aim of guaranteeing security, adapting spaces for the preferential treatment of customers with disabilities, and carrying on with the extension of the “express” zones. In addition, it launched the “BBVA Provinet” and“Provinet Móvil” portals to provide customers easier access to accounts. Of particular importance in the individuals segment were the credit card initiatives, with the launch of numerous promotions in partnership with VISA and MasterCard, as well as the re-launch of the Crédit Autoproduct in partnership with General Motors and Chrysler. A new fund called “Nómina Estándar” was launched aimed at low-income individuals. It introduces a “popular card” as a way of payment adapted to the financial needs of this customer segment.

The loan book increased over the year 2010 by 41.0%. Customer funds increased in 2010 by 46.6%year-on-year.In 2010 BBVA Banco Provincial generated a net attributable profit of €115 million (an increase of 23.0%year-on-year),based on the excellent performance of business and positive handling of spreads, which has been reflected in the progress of net interest income (an increase of 28.9%year-on-year).As a result of the positive performance of other revenues and a moderate increase in expenses (below the rate of inflation), the efficiency ratio has improved to 48.0%. In 2010, BBVA Banco Provincial was once again named Best Bank in Venezuela by three prestigious publications: Euromoney (for the fourth year in a row), Global Finance (also for the fourth year in a row) and The Banker.

In 2010 the Pensions and Insurance unit contributed with a net attributable profit of €191 million, 28.4% more than in the previous year. There was positive progress in the pension-fund business (€126 million, an increase of 19.3% year-on year) and the insurance business (€64 million, an increase of 50.9%year-on-year).

The year was positive for the pension fund business, despite the more moderate performance of the financial markets compared to 2009. The recovery of the labor markets in the region has improved the volume of fund revenues, which has in turn boosted net fee income in the sector. This has been in an environment in which the impact of regulatory changes in some countries has been negative. At the close of the year, assets under management by all fund managers amounted to €48,800 million (an increase of 17.1%year-on-year),while the funds attracted over the year were up by 16.6% from 2009. BBVA thus remains the biggest pension business group in the region according to our estimates.

In 2010, AFP Provida in Chile transformed its customer relationship models, with particular focus on pension advice and building customer loyalty, strengthening links with the highest-income segments and providing a range of new voluntary pension savings products. It generated a profit of €89 million, 20.8% more than in the previous year, mainly as a result of increased fund revenues (an increase of 9.9%year-on-year)and its positive effect on the institution’s net fee income (an increase of 21.5%year-on-year).Funds under management increased by 14.0% in 2010. AFP Horizonte in Colombia increased its assets by 24.3%, its number of pension-savers by 3.8%, and its fund revenues by 32.9%.Profit in 2010 was €26 million. Finally, AFP Horizonte in Peru had a profit of €16 million, and also increased its fund revenues (an increase of 9.0%year-on-year),number of pension savers (an increase of 5.3%year-on-year)and assets under management (an increase of 25.8%year-on-year).

The insurance business also had a very positive year. The BBVA companies were very buoyant commercially with the launch of new products and their new distribution and sales channels were consolidated. Thanks to this, the volume of written premiums by all the companies (excluding those in Colombia, which decreased for strategic reasons) increased by 28.2% over the year. Combined with the moderate levels of claims and expenses, the result was a net attributable profit of €64 million, of which €26 million were from the Grupo Consolidar in Argentina, €17 million from the Group’s companies in Chile, €13 million from the Colombian companies and €8 million from Seguros Provincial in Venezuela.

The principal figures relating to this business area as of December 31, 2010 and December 31, 2009 were:

On August 21, 2009, through our subsidiary BBVA Compass, we acquired certain assets and liabilities of Guaranty from the FDIC through a public auction for qualified investors. BBVA Compass acquired assets, mostly loans, for $11,441 million (approximately €8,016 million) and assumed liabilities, mostly customer deposits, for $12,854 million (approximately €9,006 million). These acquired assets and liabilities represented 1.5% and 1.8% of our total assets and liabilities on the acquisition date. The agreement with the FDIC limits the credit risk associated with the acquisition. The purchase included a loss-sharing agreement with the FDIC under which the latter undertook to assume 80% of the losses, if any, on up to the first $2,285 million of the loans purchased by us and up to 95% of the losses on the loans exceeding this amount. This commitment has a maximum term of either five or ten years, depending on the type of portfolio. This investment, which included 164 branches and 300,000 customers in Texas and California, offers us an opportunity to strengthen our United States’ banking franchise in the retail market, while limiting our investment risk.

The business units included in the United States area are:

BBVA Compass represents approximately 74% of the area’s total assets and garners the retail and corporate banking business in the United States (excluding Puerto Rico).

As of December 31, 2010 the loan portfolio was down 7.1%year-on-yearto €31,256 million. The fall in lending is the result of reduced finance for real estate construction and the planned run-off in consumer finance for car dealerships and students. This drop has in part been offset by the increase in residential real estate, which was up 34.7% over the year; and to a lesser extent, by commercial loans, which were up by 11.2%year-on-year.It is worth noting that $3,294 million in new residential mortgages was generated during the year, 22.3% up from the previous year. In all, the residential real estate portfolio accounted for 20.8% of total lending in BBVA Compass as of December 31, 2010, compared to 14.8% in 2009, and commercial loans accounted for 29.7% (25.7% the previous year). In contrast, real estate construction was down 8.1 percentage points to 12.6% and consumer finance was down 2.2 percentage points to 16.3%.

Customer deposits decreased from €33,105 million as of December 31, 2009 to €32,493 million as of December 31, 2010 (a decrease of 1.8% year-on year at constant exchange rates) as a results of the fall in term deposits (a decrease of 21%year-on-year).However, lower-cost funds, as current accounts, increased by 7.7%, and as of December 31, 2010 represented 73.4% of all the unit’s funds compared to 66.9% as of December 31, 2009. This change in the deposit mix, has resulted in a reduction of the average cost of deposits from 1.03% in 2009 to 0.65% in 2010.

The mix in the loan portfolio and deposits has led to an increase in customer spread of 16 basis points over the year. This is because the interest rates accrued on customer deposits have fallen more than the yield on loans (despite the change in the mix towards items with lower risk and spread). As a result, the net interest income of €1,566 million is 7.1% up from 2009, while net fees and commissions have increased by 1.0% over the same period. Although both net trading income and the other gains (losses) item were down, gross income ended the year at €2,168 million, 2.7% up from 2009. However, the increased operating expenses, due to the process of integrating Guaranty, led to a 1.7% fall in the operating income over the previous year to €816 million. Impairment on financial assets improved significantly, reflecting the exceptional measures taken in 2009 and the risk control mechanisms implemented over 2010. As a result, the net attributable profit increased to €149 million (compared to a loss of €1,063 million in 2009, or a loss of €42 million without one-off charges, at constant exchange rates).

Below are the highlights of each of the units making up BBVA Compass:

As of December 2010, Commercial Banking, the unit that handles business with SMEs, managed a loan portfolio of €15,927 million (down 13.9%year-on-year)and customer deposits of €8,789 million (an increase of 7.2%year-on-year).This is the result of a reduction in finance for real-estate developers (a decrease of 45.2%year-on-year),which was partly offset by a notable effort made by BBVA Compass with respect to SMEs. A number of products have been launched aimed at SMEs, such as “Integrated Payables”, which offer a way of combining payments into a single file and route them using the lowest cost method, and allow the updating of the “Controlled Disbursement Account”, which provides customers with the “CDA Perfect Presentation” reports notifying them of all the checks entering their accounts each day and thus enabling companies to maximize their liquidity management.

Corporate Banking, specialized in large corporations, has increased its loan portfolio by 3.2%, with a major rise in deposits (up 80.5%year-on-year).

Retail Banking has a volume of loans of €10,730 million (up 4.3%year-on-year).The reduction in the auto dealer and student loan portfolios was more than offset by an increase in the residential real estate portfolio. Customer funds fell by 6.8%, due to the 9.0% reduction in higher-cost funds, while more liquid funds increased by 2.8%. BBVA Compass and SmartyPig concluded a strategic alliance in 2010 through which BBVA Compass will act as a depositary for SmartyPig customers in the United States. “Compass for your Cause”, a program designed for NGOs and launched at the end of 2009, has not only tripled the number of organizations involved, but increased the number of donors to NGOs by more than 700% as of December 31, 2010. Finally, in the health sector, joint teams have been formed by representatives from the Retail, Commercial, Wealth Management and Insurance units. They offer a wide variety of products, including a new service that allows payments to be collected from patients at medical consultations.

The Wealth Management unit had a total loan portfolio of €2,047 million, deposits of €3,686 million and assets under management of €13,188 million as of December 31, 2010. In 2010 it launched the fixed-income product “Fixed Annuity”, which has attracted €350 million in similar assets from other banks throughout 2010. The “Managed Money plan”offers customers who do not meet the typical Wealth Management profile the chance to have an investment account managed by professionals.

Finally, the business in the New York branch followed the same pattern as the rest of the WB&AM units in the Group: a focus on higher added-value and more loyal customers, price management and the promotion of cross-selling. As a result, the loan portfolio was down by 31.4% in 2010, while gross income fell by 17.9%. Non-performing assets (“NPA”) remain low, and the greater loan-loss provisions compared to 2009 have resulted in increased coverage.

As of December 31, 2010, BBVA Puerto Rico managed a loan portfolio of €2,850 million, down 9.3% from the previous year. Customer deposits amounted to €1,588 million, at similar levels to the close of 2009. The operating income fell over the year by 10.0% to €70 million, but the reduced impairment losses on financial assets (which experienced ayear-on-yearfall of 64.1%) resulted in a net attributable profit of over €1 million, compared to a loss of €71 million in the previous year.

Finally, BTS reported a net attributable profit of €11 million, €1.7 million down from the previous year. Revenues dropped by 9.5% as the number of transactions declined by 4.0%.

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 principal figures relating to this business area as of December 31, 2010 and December 31, 2009 were:

The business units included in the Wholesale Banking and Asset Management area are:

A number of organizational changes in the Mexico business were made in Corporate and Investment Banking (C&IB), with a separation of customer and product activity in investment banking. A global unit of investment products has been created covering business with these products in all geographical areas. With these changes, C&IB is making progress in the separation of responsibilities associated with the management of balance-sheet products and fees, and is strengthening its global management model, both in relation to customer spread and product range.

The following changes were also made in 2010:

The area of Debt Capital Markets launched a global dollar distribution platform to provide a comprehensive debt service to clients. The origination teams in the main offices in Europe, Asia and the Americas have also been reinforced. In Europe, a group providing debt advice and ratings has been created to help the origination of business in the different product areas, and to offer a variety of high-added-value services to customers.

The Structured Trade Finance area has consolidated the operation of its units in Mexico and Frankfurt, and reinforced its teams there. It has also gained market recognition with the signing of a significant number of transactions. As a result of the agreement signed with CITIC, our partner in China, the first operation ever with Sinosure coverage (ECA China) has been signed in favor of a Spanish company. Customer relations have continued to be strengthened in the BIBEC (Investment Banking for Companies and Corporations) segment by extending the regional teams in Spain and Portugal.

In the Global Transaction Services unit, the first global connection channel for companies and corporations via SWIFT andHost-to-Hostwas launched in the International Cash Management department. This enables information to be sent between the bank and the customer. BBVA Net Cash, the electronic banking channel, has increased its product range with new products and services for customers in the United Kingdom and France, and a new Securities Depositary model. A security device called Token Plus has been incorporated to enable BBVA customers with a visual disability to validate operations through this channel. In the United States, Compasse-Access,the unique-use validation code for electronic banking was incorporated, offering an alternative to the use of security tokens. The float pricing system used to assign the availability of check funds deposited by customers in the Bank was also updated.

The area of C&IB in the U.S. and South America has completed the implementation of Master Plans to consolidate the new model of coverage and segmentation of the customer base.

The Global Markets (“GM”) unit is undertaking significant investments to reinforce its Distribution teamin the main international financial centers, Hong Kong and London, with the recruitment of senior teams. At the same time, investment is being undertaken to improve access technology to Latin American stock exchanges. GM has integrated BBVA Bancomer into the BBVA global equity platform. This means a move from having local operational capacity in Mexico to more global functions for the management of equity orders.

In 2010, product innovation was consolidated in Latin America with the launch, in collaboration with the Asset Managementunit, of a new Exchange Traded Fund (ETF) called BRTRAC that aims to hold all the common stocks of the BMV Brasil 15 index (the first index constructed by the Mexican Stock Exchange with foreign securities).

In 2010, Asset Management’s activity in new products has continued to be focused on responding to customer needs, as well as on innovation. In the first half of 2010, at a time of major concerns about the situation in peripheral countries and high risk aversion, we reinforced our conservative product range with the launch of a Fixed Income fund whose portfolio is made up exclusively of government bonds from “core countries” in the euro zone, the BBVA Bonos Core. The product catalog was also strengthened with the launch of two new funds: BBVA Bolsa España Dividendo, an equity fund whose management is focused on companies with high dividend payments; and BBVA Bonos Corporativos Flotantes, a fixed-income fund that aims to benefit from the opportunities currently offered by the credit market. A range of dynamic asset distribution management funds was launched in the second half of the year: the Gama Evolucion (V5 and V10).

In guaranteed products, 2010 has again been a year with many maturities and most of the activity was focused on renewals. Thus, in Commercial Banking eight guaranteed equity funds were launched (seven of which were renewed from 2009), nine guaranteed fixed-income funds of the Planes Renta type (all of which were renewed from 2009) and nine guaranteed fixed-income Fon-Plazo type funds (four of which were renewed from 2009). In addition, four guaranteed fixed-income funds in the Gama Solidez have again been launched by HNWI, continuing with the success this range had the previous year. In Quality Funds, three new products began to be sold as funds of funds. All three have a very dynamic management philosophy through international fund managers.

The activity of Pensions in 2010 has included the incorporation of new plans into the unit and strengthened BBVA’s position in pensions in Spain.

This unit diversifies the area’s businesses with the aim of creating value in the medium and long terms through the active management of a portfolio of industrial holdings and private equity, international and real estate funds. The management fundamentals are profitability, asset turnover, liquidity and optimal use of economic capital.

Currently, it manages a portfolio of holdings in more than 50 companies from a wide variety of sectors. Among them are Corporación IBV, Bolsas y Mercados Españoles (BME), Técnicas Reunidas, Tubos Reunidos, Desarrollo Urbanístico Chamartín, the international funds Darby Latin American Private Equity Fund L.P., Palladium Equity Partners III L.L.C. and CITIC Capital China Real Estates Fund III.

Investments were made in equity holdings for €47 million in 2010, and sales of minor stakes of portfolio holdings for approximately €30 million.

The wholesale business in Asia performed very well in 2010 and continues to be the basis for organic growth in the region. The loan portfolio was up 13.8% from December 31, 2009, with customer funds increasing by 74.1%, attributable in part to GM Asia. The accumulated net attributable profit increased by 95.6%. Over the year, BBVA has strengthened its trading capacity in the zone, with the opening of trading floor in Singapore and Tokyo.

In addition, the acquisition of an additional 4.93% stake in CNCB was made effective in April 2010 for approximately €1,000 million, increasing the Group’s holding in the entity to its current 15%. BBVA is one of the few strategic international investors that has not only maintained but actually increased its position in the Chinese banking sector during the crisis. CNCB carried out a capital increase in 2010 (at a ratio of 2.2 new shares for 10 existing shares). The Board of the Chinese bank approved this increase to support the development and high rate of growth of its banking business. The bank closed an excellent year in 2010, with strong growth rates in practically all its lines of business. Profit generation was above market expectations, with the accumulated figure to September 2010 up 47.6%year-on-year.In 2010 the collaboration agreement for pensions was also concluded with CNCB. Its aim is to take advantage of BBVA’s capacity and CNCB’s local presence to develop pension plans in China.

In India, another of the strategic markets in the Asian continent and in the sphere of retail banking, BBVA and the Bank of Baroda entered into an agreement in December to create a joint company for credit cards. Once approval from the regulatory authorities has been obtained, the Group will be able to acquire a 51% interest in the

credit card unit of the Bank of Baroda, BobCards. BBVA will invest €34 million in this transaction, which will also give it a strategic position in India through a leading bank that has a network of 3,100 branches and 36 million customers.

The Corporate Activities area handles our 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.

This area also books the costs from central units that have a strictly corporate function and makes allocations to corporate and miscellaneous provisions, such as early retirement and others of a corporate nature. In 2009 it also incorporated the newly created Real-Estate Management unit, which brings together our Spanish real-estate business.

The business units included in the Corporate Activities business area are:

The Asset/Liability Management is responsible for actively managing structural interest-rate and foreign exchange positions, as well as the Group’s overall liquidity and shareholders’ funds.

Liquidity management aims to fund the growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of finance. A core principle in the BBVA Group’s liquidity management is to encourage the financial independence of its banking subsidiaries in the Americas. This aims to ensure that the cost of liquidity is correctly reflected in price formation and the sustainable growth in the lending business.

The Group’s capital management has a twofold aim: to maintain the levels of capitalization appropriate to the business targets in all the countries in which it operates; and, at the same time, to maximize the return on shareholders’ funds through efficient allocation of capital to different units, good management of the balance sheet and proportionate use of the various instruments that comprise the Group’s equity: stock, preferred stock and subordinate debt. In the last quarter of 2010, BBVA has successfully executed a capital increase after the announcement of its purchase of 24.9% of the Turkish bank Garanti.

Foreign exchange risk management of BBVA’s long-term investments, basically stemming from its franchises in the Americas and soon also its business in Turkey, aims to preserve the Group’s capital ratios and ensure stability of its income statement, while controlling the impact on reserves and the costs of this management. In 2010, BBVA has maintained a policy of actively hedging its investments in Mexico, Chile, Peru and the dollar area. Its aggregate hedging was close to 30%. In addition to this corporate-level hedging, dollar positions are held at a local level by some of the subsidiary banks. The Group also hedges its foreign exchange exposure on expected 2011 results in the Americas. In 2010, the favorable performance of most of the currencies in the Americas has had a positive effect on the Group’s equity and income statement. For 2011, the same policy will be pursued in managing the Group’s foreign exchange risk from the perspective of its effect on capital ratios and on the income statement.

The unit also actively manages the structural interest-rate exposure on the Group’s balance sheet. This aims to keep the performance of short and medium-term net interest income more uniform by cutting out interest-rate fluctuations. In 2010, the results of this management have been satisfactory. Strategies were implemented to provide

a hedge against a less positive economic outlook in Europe for the whole of 2010 and 2011, with relatively limited risk on the balance sheets in the United States and Mexico. These strategies are managed both with hedging derivatives (caps, floors, swaps, FRAs) and with balance-sheet instruments (mainly government bonds with the highest credit and liquidity ratings). At the close of the year, the Group held asset portfolios denominated in euros, U.S. dollars and Mexican pesos.

This unit manages the portfolio of industrial and financial investments in companies operating in the telecommunications, media, electricity, oil, gas and financial sectors. Like Asset/Liability Management, this unit lies within the Group’s Finance Division.

BBVA applies strict requirements to this portfolio in terms of risk-control procedures, use of economic capital and return on investment, diversifying investments across different sectors. It also applies dynamic hedging and monetization management strategies to holdings. In 2010, investments were made totaling €434 million and divestitures amounted to €409 million.

On December 31, 2010, the market value of the Holdings in Industrial & Financial Companies portfolio was €4,168 million, with unrealized capital gains of €993 million.

In 2010, the management of the industrial and financial holdings generated €317 million in dividends and €142 million in trading income, giving a net attributable profit of € 404 million.

The Group has always counted with expert teams for the management of the real estate and developer sector. Thus, theReal Estate Management unit’s focus is to provide specialized management of the real estate assets it has acquired from foreclosures, repossessions, purchases from distressed customers and the assets in BBVA Propiedad, the real estate fund. In 2010, the Group has continued to make an important effort to provision for these assets (€657 million) with the aim to maintain their coverage above 30%, taking as reference updated appraisals.

The Spanish government traditionally has been closely involved with the Spanish banking system, both as a direct participant through its ownership of ICO and as a regulator retaining an important role in the regulation and supervision of financial institutions.

The Bank of Spain was established in 1962 as a public law entity (entidad de derecho público) that operates as Spain’s autonomous central bank. In addition, it has the ability to function as a private bank. Except in its public functions, the Bank of Spain’s relations with third parties are governed by private law and its actions are subject to the civil and business law codes and regulations.

Until January 1, 1999, the Bank of Spain was also the sole entity responsible for implementing Spanish monetary policy. For a description of monetary policy since the introduction of the euro, see “— Monetary Policy”.

Since January 1, 1999, the Bank of Spain has performed the following basic functions attributed to the European System of Central Banks (“ESCB”):

Recognizing the foregoing functions as a fully-fledged member of the Eurosystem, the Ley de Autonomía del Banco de España (the Bank of Spain Law of Autonomy) stipulates the performance of the following functions by the Bank of Spain:

The Fondo de Garantía de Depósitos en Establecimientos Bancarios (“FGD”) (the Guaranteed Bank Deposits Fund), which operates under the guidance of the Bank of Spain, guarantees both bank and securities deposits up to €100,000 per customer for each type of deposit, which is the minimum insured amount for all EU member banks. Pursuant to Bank of Spain regulations, the FGD may purchase doubtful loans or may acquire, recapitalize and sell banks that are experiencing difficulties.

The FGD is funded by annual contributions from member banks. The rate of such contributions in 2010 was 0.06% of the year-end amount of bank deposits to which the guarantee extended and 0.06% over the 5% of the securities held on clients behalf, in accordance with legislation in effect. Nevertheless, once the capital of the FGD exceeds its requirements, the Minister of Economy may reduce the member banks’ contributions and, when the FGD’s funds exceed the capital requirements by one percent or more of the member banks’ deposits, such contributions may be suspended.

In order to safeguard the stability of its members, the FGD may also receive contributions from the Bank of Spain. As of December 31, 2010, all of the Spanish banks belonging to the BBVA Group were members of the FGD and thus obligated to make annual contributions to it.

Royal Decree 948 of August 3, 2001 regulates investor guarantee schemes related to both investment firms and to credit institutions. These schemes are set up through an investment guarantee fund for securities broker and

broker-dealer firms and the deposit guarantee funds already in place for credit institutions. A series of specific regulations have also been enacted, defining the system for contributing to the funds.

The General Investment Guarantee Fund Management Company was created in a relatively short period of time and is a business corporation with capital in which all the fund members hold an interest. Member firms must make a joint annual contribution to the fund equal to 0.06% over the 5% of the securities that they hold on their client’s behalf. However, it is foreseen that these contributions may be reduced if the fund reaches a level considered to be sufficient.

In an effort to implement European Union monetary policy, effective January 1, 1999, the ECB and the national central banks of the member states of the European Monetary Union (“EMU”) adopted a regulation that requires banks to deposit an amount equal to two percent of their qualifying liabilities, as defined by the regulation, with the central bank of their home country. These deposits will earn an interest rate equal to the average interest rate of the ESCB. Qualifying liabilities for this purpose include:

Furthermore, the liquidity ratio is set at 0% instead of 2% for those qualifying liabilities that have a maturity over two years and are sold under repurchase agreements.

In the past, the government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.

The crisis that has affected the financial markets since 2007 obliged the Spanish authorities to create the Ordered Banking Restructuring Fund (FROB) by Decree-Law 9/2009 of June 26, 2009. Its purpose is to help the restructuring processes undertaken by credit institutions and strengthen their capital positions subject to certain conditions. The FROB will support the restructuring strategy of those institutions that require assistance, in three distinct stages:

The FROB has to act in what is an absolutely exceptional situation that is closely linked to the development of the financial crisis. In order to comply with its objectives, FROB will be funded jointly from the Spanish national budget and the deposit guarantee funds of credit institutions. The FROB will be able to raise funds on securities markets through the issue of debt securities, lending and engaging in any other debt transaction necessary to fulfill its objects.

Bank of Spain Circular 3/2008 (“Circular 3/2008”), of May 22, on the calculation and control of minimum capital requirements, regulates the minimum capital requirements for Spanish credit institutions, on an individual and consolidated group basis, and sets forth how to calculate capital meeting such requirements, as well as the

various internal capital adequacy assessment processes credit institutions should have in place and the information they should disclose to the market.

Circular 3/2008 is the final implementation, for credit institutions, of the legislation on capital and consolidated supervision of financial institutions, which was contained in Law 36/2007, of November 16, amending Law 13/1985, of May 25, on the investment ratios, capital and reporting requirements of financial intermediaries, and other financial regulations, which also includes Royal Decree 216/2008, of 15 February, on the capital of financial institutions. Circular 3/2008 also conforms Spanish legislation to Directive 2006/48/EC of the European Parliament and of the Council, of June 14, 2006, and Directive 2006/49/EC of the European Parliament and of the Council, of 14 June 2006. The minimum capital requirements for credit institutions and their consolidated groups were thoroughly revised in both EC directives based on the new Capital Accord adopted by the Basel Committee on Banking Supervision (“Basel II”).

The minimum capital requirements established by Circular 3/2008 are calculated on the basis of the Group’s exposure to (i) credit risk and dilution risk (on the basis of the assets, obligations and contingent exposures and commitments that present these risks, depending on their amounts, characteristics, counterparties, guarantees, etc.); (ii) to counterparty risk and position and settlement risk in the trading book; (iii) to foreign exchange risk (on the basis of the overall net foreign currency position); and (iv) to operational risk. Additionally, the Group is subject to compliance with the risk concentration limits established in Circular 3/2008 and with the requirements related to corporate governance, internal capital adequacy assessment, measurement of interest rate risk and certain additional public disclosure obligations 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 to the Consolidated Financial Statements.

As of December 31, 2010, 2009 and 2008, the eligible capital of the Group exceeded the minimum required under the regulations then in force. See Note 33 to the Consolidated Financial Statements.

Under Basel II calculation of the minimum regulatory capital requirements under the new standards, referred to as “Pillar 1”, is supplemented with an internal capital adequacy assessment and supervisory review process, referred to as “Pillar 2”. The Group’s internal capital adequacy assessment process is based on the internal model for the quantification of the economic capital required on the basis of the Group’s overall risk profile. Finally, Basel II standards establish, through what is referred to as “Pillar 3”, strict transparency requirements regarding the information on risks to be disclosed to the market.

Circular 3/2008 has been recently modified by Circular 9/2010, of December 22, in order to proceed with the implementation in Spain of part of the changes to the solvency framework approved at a European level (Directives 2009/111/EC, 2009/83/EC and 2009/27/EC).

The main changes considered in these directives are:

As part of a wider plan of the Spanish Government for the strengthening of the financial sector, the Royal Decree- Law 2/2011, of February 18, has established higher minimum capital requirements for Spanish credit

institutions, with a new core capital requirement for all credit institutions of up to a minimum of 8%. This ratio will be of 10% for those institutions that are not listed on a Spanish Stock Exchange, which have a small presence of private investors, and are dependent upon wholesale funding markets for over 20% of their assets, since they have more limited access to the capital markets.

The Group’s capital management is performed at both the regulatory and economic levels.

Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using Basel (“BIS”) and Bank of Spain criteria. See Note 33 to the Consolidated Financial Statements.

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. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments.

The Bank has obtained the approval of its internal model of capital estimation (“IRB”) in 2009 and 2008 for certain portfolios.

From an economic standpoint, capital management seeks to optimize value creation at the Group and at its different business units.

The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. 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 Group uses this amount as a basis for calculating the return generated on the equity (“ROE”) in each business. The second level is total capital, which determines the additional allocation in terms of subordinated 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’ equity, as calculated under BIS rules, is an important metric for the Group. However, for the purpose of allocating capital to business areas the Group prefers CER. It is risk-sensitive and thus better reflects management policies for the individual businesses and the business portfolio. These provide an equitable basis for assigning capital to businesses according to the risks incurred and make it easier to compare returns.

To internal effects of management and pursuit of the business areas, the Group realizes a capital allocation to each business area.

The Bank of Spain regulates the concentration of risk. Since January 1, 1999, any exposure to a person or group exceeding 10% of a group’s or bank’s regulatory capital has been deemed a concentration. The total amount of exposure represented by all of such concentrations may not exceed 800% of regulatory capital. Exposure to a single person or group may not exceed 25% (20% in the case of non-consolidated companies of the economic group) of a bank’s or group’s regulatory capital.

We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “— Capital Requirements”.

For a discussion of the Bank of Spain regulations relating to allowances for loan losses and country risk, see Note 2.2.1.b) to the Consolidated Financial Statements.

Interest rates on most kinds of loans and deposits are not subject to a maximum limit. Banks must publish their preferential rates, rates applied on overdrafts, and fees and commissions charged in connection with banking transactions. Banking clients must be provided with written disclosure adequate to permit customers to ascertain transaction costs. The foregoing regulations are enforced by the Bank of Spain in response to bank client complaints.

Law 44/2002 concerning measures to reform the Spanish financial system contained a rule concerning the calculation of variable interest applicable to loans and credit secured by mortgages, bails, pledges or any other equivalent guarantee.

Under the relevant collective labor agreements, BBVA and some of its subsidiaries provide supplemental pension payments to certain active and retired employees and their beneficiaries. These payments supplement social security benefits from the Spanish state. See Note 2.2.12 and Note 26 to the Consolidated Financial Statements.

If a bank meets the Bank of Spain’s minimum capital requirements described above under “— Capital Requirements”, it may dedicate all of its net profits to the payment of dividends, although, in practice, banks consult with the Bank of Spain before declaring a dividend. We calculate that as of December 31, 2010, we had approximately €11,241 million of unrestricted reserves in excess of applicable capital and reserve requirements available for the payment of dividends. Compliance with such requirements notwithstanding, the Bank of Spain may advise a bank against the payment of dividends on grounds of prudence. In no event may dividends be paid from non-distributable reserves. Banks which fail to comply with the capital adequacy ratio by more than 20% are required to devote all of their net profits to increasing their capital ratios. Banks which fail to meet the required ratio by 20% or less must obtain prior approval of the Bank of Spain to distribute any dividends and must devote at least 50% of net profits to increasing their capital ratios. In addition, banks, and their directors and executive officers that do not comply with the liquidity and investment ratios and capital adequacy requirements may be subject to fines or other sanctions. Compliance with the Bank of Spain’s capital requirements is determined on both a consolidated and individual basis. Our Spanish subsidiaries are in compliance with these capital adequacy requirements on both a consolidated and individual basis. If a bank has no net profits, the board of directors may propose at the general meeting of the stockholders that a dividend be declared out of retained earnings.

The Bank of Spain recommends that interim dividends not exceed an amount equal to one-half of net income attributed to parent company from the beginning of the corresponding fiscal year. No interim dividend may be declared when a bank does not meet the minimum capital requirements and, according to the recommendations of the Bank of Spain, interim dividends may not be declared until the Bank of Spain has sufficient knowledge with respect to the year’s profits. Although banks are not legally required to seek prior approval from the Bank of Spain before declaring interim dividends, the Bank of Spain had asked that banks consult with it on a voluntary basis before declaring interim dividends. It should be noted that the Bank of Spain recommended in 2008 to Spanish banks general moderation on the distribution of dividends, to increase their voluntary reserves in order to strengthen their financial situation and to distribute any dividends in treasury stock.

Our bylaws allow for dividends to be paid in cash or in kind as determined by shareholder resolution.

At the BBVA Annual General Meeting held on March 11, 2011, the shareholders passed a resolution adopting a scrip dividend scheme called “Dividendo Opción”. This is an alternative remuneration scheme for BBVA shareholders, who may now opt to receive an amount equivalent to one of the interim dividends of 2011 and the final dividend corresponding to 2010 in cash or new shares to be issued in twofree-of-chargecapital increases. The aim of this new remuneration scheme is to provide BBVA shareholders with a flexible and tax efficient instrument and to

offer BBVA shareholders the option to receive newly-issued shares of the Bank, without altering BBVA’s policy of cash remuneration, in line with more efficient, flexible remuneration policies followed by other international banks.

Consequently, shareholders will have the “Dividendo Opción” available to them on the dates when the final dividend of 2010 and one of the interim dividends of 2011 are typically paid out. They may then decide which option suits them best at the time, whilst always continuing to be able to receive all their remuneration in cash if they wish.

Each capital increase is independent of the other, such that one or the other may be made on different dates and one or the other may not be made.

Spanish banks are subject to certain limitations on the types of businesses in which they may engage directly, but they are subject to few limitations on the types of businesses in which they may engage indirectly.

Law 41/2007 reformed an important part of Law 2/1981 of March 25, on mortgage markets as well as specific provisions of Law 2/1994 of March 30, on the subrogation and modification of mortgage loans and the Mortgage Law of February 8, 1946 all with the purpose of providing the Spanish mortgage market with greater flexibility, sophistication and efficiency. A number of reforms have been introduced relating to (i) asset or financing transactions carried out by credit institutions and (ii) liability transactions, i.e., those of moving of mortgage loans and credits that credit institutions carry out as refinancing mechanisms.

Royal Decree 716/2009, implements several aspects of Law 2/1981, of March 25, 1981, on mortgage market regulation and other mortgage and financial system rules, reformed by Law 41/2007. It replaces Royal Decree685/1982 of March 17, 1982 which also implemented several aspects of Law 2/1981 and which is thus repealed. The most significant developments introduced are (i) the modification on theloan-to-valueratio requirement intending to improve the quality of Spanish mortgage-backed securities; (ii) the elimination of many of the administrative requirements for the issuance of covered bonds and mortgage bonds; and (iii) the implementation of a special accounting record of the loans and credit facilities used to back issuances of covered bonds and mortgage-backed bonds.

Mutual funds in Spain are regulated by the Dirección General del Tesoro y Política Financiera del Ministerio de Economía (the Ministry of the Economy) and by theComisión Nacional del Mercado de Valores(“CNMV”). All mutual funds and mutual fund management companies are required to be registered with the CNMV. Spanish mutual funds may be subject to investment limits with respect to single sectors or companies and overall portfolio diversification minimums. In addition, periodic reports including a review of the fund’s performance and any material events affecting the fund are required to be distributed to the fund’s investors and filed with the CNMV.

The consolidated text of the Spanish Capital Companies Act, adopted under Legislative Royal Decree 1/2010, of July 2, has repealed the former Companies Act, adopted under Legislative Royal Decree 1564/1989, of December 22. This royal legislative decree stems from the authorization set out in the Law 3/2009, of April 3, on structural changes in companies, enabling the Government to proceed to consolidate the legislation for joint stock (“sociedades anónimas”) and limited liability (“sociedades de responsabilidad limitada”) in a single text, bringing together the contents of the two aforementioned acts, as well, the part of the Securities Exchange Act that regulates the most purely corporate-related aspects of joint stock companies whose securities are traded on an official secondary market. The consolidated text also includes the articles of the Commercial Code that address limited partnerships, a derivative corporate device that is barely used in practice.

Law 12/2010, of June 30, amends Law 19/1988, of July 12, on Account Audits, Law 24/1988, of July 28, on Securities Exchanges and the consolidated text of the former Companies Act adopted by Legislative Royal Decree 1564/1989, of December 22 (currently, the Capital Companies Act), for its adaptation to EU regulations. This new law transposes Directive EU/2006/43 which regulates aspects, among others, related to: authorization and registry of auditors and auditing companies, confidentiality and professional secrecy which the auditors may observe, rules on independency and liability as well as certain rules on the composition and functions of the auditing committee.

BBVA is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHC Act”). As such it is subject to the regulation and supervision of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Among other things, the Group’s direct and indirect activities and investments in the United States are limited to retail and commercial banking and other activities that are “closely related to banking”, as determined by the Federal Reserve. BBVA is also required to obtain the prior approval of the Federal Reserve before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting stock of any U.S. bank or bank holding company.

Under current Federal Reserve policy, BBVA is required to act as a source of financial strength for its U.S. bank subsidiaries and U.S. branch. Among other things, this source of strength obligation may result in a requirement for BBVA, as sole shareholder, to inject capital into any of its U.S. bank subsidiaries.

The Group’s U.S. bank subsidiaries and BBVA’s U.S. branch are also subject to supervision and regulation by a variety of other U.S. regulatory agencies. BBVA’s New York Branch is licensed by the New York State Banking Department (the “NYSBD”) and is supervised by both the NYSBD and the Federal Reserve. BBVA’s wholly-owned direct U.S. subsidiary, BBVA USA Bancshares, Inc., and its wholly-owned subsidiary, Compass Bancshares, Inc., are both bank holding companies within the meaning of the BHC Act and are subject to supervision and regulation by the Federal Reserve. BBVA Compass, wholly-owned by Compass Bancshares, Inc., is a state-chartered bank that is a member of the Federal Reserve System and therefore is supervised by the Federal Reserve and the State of Alabama Banking Department. BBVA Compass has branches in Alabama, Texas, Arizona, Florida, Colorado, California, and New Mexico. BBVA Compass is a depository institution insured by, and subject to the regulation of, the Federal Deposit Insurance Corporation. BBVAPR Holding Corporation, wholly-owned by BBVA, is a bank holding company within the meaning of the BHC Act and is subject to supervision and regulation by the Federal Reserve. Banco Bilbao Vizcaya Argentaria Puerto Rico, wholly-owned by BBVAPR Holding Corporation, is a state non-member bank chartered and supervised by the Oficina del Comisionado de Instituciones Financieras de Puerto Rico and its primary federal regulator is the Federal Deposit Insurance Corporation

Bancomer Transfer Services is an affiliate of BBVA, which is licensed as a money transmitter by the State of California Department of Financial Institutions and as a money services business by the Texas Department of Banking and certain other state regulators. Bancomer Transfer Services is also registered as a money services business with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury.

A major focus of U.S. governmental policy relating to financial institutions in recent years has been aimed at fighting money laundering and terrorist financing. Regulations applicable to BBVA and its affiliates impose obligations to maintain appropriate policies, procedures, and controls to detect, prevent, and report money laundering. In particular, Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), as amended, requires financial institutions operating in the United States to (i) give special attention to correspondent and payable-through bank accounts, (ii) implement enhanced reporting due diligence, and “know your customer” standards for private banking and correspondent banking relationships, (iii) scrutinize the beneficial ownership and activity of certainnon-U.S. andprivate banking customers (especially for so-called politically exposed persons), and (iv) develop new anti-money laundering programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement any existing compliance programs for

purposes of requirements under the Bank Secrecy Act and the Office of Foreign Assets Control regulations. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution.

The Group’s U.S. broker-dealers are subject to the regulation and supervision of the SEC and the Financial Industry Regulatory Authority (FINRA) with respect to their securities activities.

On July 21, 2010, the United States enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, which we refer to as the Dodd-Frank Act, which provides a broad framework for significant regulatory changes that will extend to almost every area of U.S. financial regulation. The Dodd-Frank Act addresses, among other issues, systemic risk oversight, bank capital standards, the liquidation of failing systemically significant U.S. financial institutions,over-the-counterderivatives, the ability of banking entities to engage in proprietary trading activities and invest in hedge funds and private equity funds (known as the “Volcker Rule”), consumer and investor protection, hedge fund registration, securitization, investment advisors and the role of credit-rating agencies.

Implementation of the Dodd-Frank Act will require detailed rulemaking over multiple years by various regulators and could result in additional costs or limit or restrict the way we conduct our business, although uncertainty remains about the final details, impact and timing of the rules.

Among other changes, beginning five years after enactment of the Dodd-Frank Act, the Federal Reserve Board will apply minimum capital requirements to U.S. intermediate bank holding company subsidiaries ofnon-U.S. bankholding companies (such as BBVA USA Bancshares, Inc., Compass Bancshares, Inc. and BBVAPR Holding Corporation). The exact requirements that will apply to such U.S. intermediate bank holding companies are currently unknown; however, the Federal Reserve Board is expected to require a minimum tier 1 risk-based capital ratio of at least 4% and a total risk-based capital ratio of at least 8%. The Dodd-Frank Act also provides regulators with tools to impose greater capital, leverage and liquidity requirements and other prudential standards, particularly for financial institutions that pose significant systemic risk and bank holding companies with greater than $50 billion in assets. In imposing such heightened prudential standards onnon-U.S. bankholding companies such as BBVA, the Federal Reserve Board is directed to take into account the principle of national treatment and equality of competitive opportunity, and the extent to which the foreign bank holding company is subject to comparable home country standards.

The Dodd-Frank Act also limits the ability of banking entities, except solely outside the United States in the case ofnon-U.S. bankingentities, to sponsor or invest in private equity or hedge funds (including an aggregate investment limit of 3% of tier 1 capital in funds that are sponsored by the bank holding company) and to engage in certain types of proprietary trading unrelated to serving clients. The Dodd-Frank Act also changes the Federal Deposit Insurance Corporation (FDIC) deposit insurance assessment framework (the amounts paid by FDIC-insured institutions into the deposit insurance fund of the FDIC), primarily by basing assessments on an FDIC-insured institution’s total assets less tangible equity rather than U.S. domestic deposits, which is expected to shift a greater portion of the aggregate assessments to large banks (such as BBVA Compass).

Under the so-called swap “push-out” provisions of the Dodd-Frank Act, the derivatives activities of U.S. banks (such as BBVA Compass) and U.S. branch offices of foreign banks (such as BBVA’s New York branch) will be restricted, which may necessitate changes to how we conduct our derivatives activities. Entities that are swap dealers, security-based swap dealers, major swap participants or major security-based swap participants will be required to register with the SEC or the U.S. Commodity Futures Trading Commission, or both, and will become subject to the requirements as to capital, margin, business conduct, recordkeeping and other requirements applicable to such entities.

There are various qualitative and quantitative restrictions on the extent to which we and our nonbank subsidiaries can borrow or otherwise obtain credit from our U.S. banking subsidiaries or engage in certain other transactions involving those subsidiaries. When permissible, these transactions must be on terms that would

ordinarily be offered to unaffiliated entities, must be secured by designated amounts of specified collateral in most cases and are subject to volume limitations. These restrictions also apply to certain transactions of our New York Branch with our New York broker-dealer and certain of our other affiliates. Effective in July 2012, Dodd-Frank subjects credit exposure arising from derivative transactions, securities borrowing and lending transactions, and repurchase/reverse repurchase agreements to these collateral and volume transactionslimitations.

Regulations which the Financial Stability Oversight Council or the Consumer Financial Protection Bureau established under the Dodd-Frank Act may adopt could affect the nature of the activities that a bank (including BBVA Compass ) may conduct, and may impose restrictions and limitations on the conduct of such activities.

Furthermore, the Dodd-Frank Act requires issuers with listed securities, which may include foreign private issuers such as BBVA, to establish a “clawback” policy to recoup previously awarded compensation in the event of an accounting restatement. The Dodd-Frank Act also grants the SEC discretionary rule-making authority to impose a new fiduciary standard on brokers, dealers and investment advisers, and expands the extraterritorial jurisdiction of U.S. courts over actions brought by the SEC or the United States with respect to violations of the antifraud provisions in the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

The integration of Spain into the EMU on January 1, 1999 implied the yielding of monetary policy sovereignty to the ESCB. The ESCB is composed of the ECB and the national central banks of the 16 member countries that form the EMU (Slovakia joined the EMU on January 1, 2009).

The ESCB determines and executes the single monetary policy of the 16 member countries of the EMU. The ESCB collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks to be carried out by the ESCB include:

In addition, the EU Treaty establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as in its administrative functions.

As of December 31, 2010, the Group was made up of 302 companies accounted for under the full consolidation method and 7 under the proportionate consolidation method. A further 68 companies are accounted for by the equity method.

The companies are principally domiciled in the following countries: Argentina, Belgium, Bolivia, Brazil, Cayman Islands, Chile, Colombia, Ecuador, France, Germany, Ireland, Italy, Luxembourg, Mexico, Netherlands, Netherlands Antilles, Panama, Peru, Portugal, Puerto Rico, Spain, Switzerland, United Kingdom, United States of America, Uruguay and Venezuela. The Group has an active presence in Asia.

Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of December 31, 2010.

We own and rent a substantial network of properties in Spain and abroad, including 3,024 branch offices in Spain and, principally through our various affiliates, 4,337 branch offices abroad as of December 31, 2010. As of December 31, 2010, approximately 83% of our branches in Spain and 57% of our branches abroad were rented from third parties pursuant to short-term leases that may be renewed by mutual agreement. The number of branches leased in Spain has increased in 2009 and 2010 as a result of the sale and leaseback operation described in Note 16 to the Consolidated Financial Statements.

We purchased through a real estate company of the Group theParque Empresarial Foresta located in a development area in the north of Madrid from Group Gmp pursuant to an agreement executed on June 19, 2007. The BBVA Group will construct its new corporate headquarters at this location. As of December 31, 2010, the accumulated investment for this project amounted to €484 million.

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 toRule 9-05ofRegulation S-X.

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.