Banco Bilbao Vizcaya Argentaria - 20-F annual report

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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, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as “believe”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this Annual Report, including, without limitation, the information under:

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 19 July 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 impairment losses is determined on a collective basis in the following two cases:

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 67% of the loans and receivables of the Group as of December 31, 2009) using the parameters set by Annex IX of 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 14% of the loans and receivables of the Group as of December 31, 2009), 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 Circular 4/2004 standards fall within the range of provisions calculated using the Group’s internal ratings models.

For 2007, the provisions required under Bank of Spain’s EU-IFRS required to be applied under Circular 4/2004 standards represented the outermost range of acceptable estimates which were calculated using our historical experience. Therefore, those provisions did not represent the best estimate of allowance for loan losses under U.S. GAAP, which provided a more moderate estimate within the acceptable range. As a consequence, there was an adjustment in the reconciliation to U.S. GAAP in order to reflect in net income the reversal of the difference of estimates of the provisions recorded under both GAAPs in each year and in stockholders’ equity the differences of estimates of the accumulated allowance for loan losses under both GAAPs.

For the years ended December 31, 2009 and 2008, there are no substantial differences in the calculations made under both EU-IFRS required to be applied under 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 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. We included an adjustment in the reconciliation of net income for 2008, and thereinafter, following such adjustment, the amounts of the allowance for loan losses estimated under both GAAPs were similar

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.

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 stockholders’ equity and net income 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 19, 2010, was $1.3530.

As of December 31, 2009, approximately 33% of our assets and approximately 44% 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 2009 — 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, 2009, business activity in Spain accounted for 61% of our loan portfolio. See “Item 4. Information on the Company — Selected Statistical Information — Loans and Advances to Customer — Loans by Geographic Area”. After rapid economic growth of 3.9% and 3.7% in 2006 and 2007, respectively, Spanish gross domestic product grew by 0.9% in 2008 and contracted by 3.8% in 2009. Our Economic Research Department estimates that the Spanish economy, in terms of gross domestic product, will contract by a further 1.2% in 2010. As a result of this continued contraction, it is expected that economic conditions and employment in Spain will continue to deteriorate in 2010. Growth forecasts for the Spanish economy could be further revised downwards due to lower domestic demand and the continued impact of the financial crisis. 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 two weaknesses of the Spanish economy that may interfere with our business. First, the

Our loan portfolio in Spain has been adversely affected by the deterioration of the Spanish economy in 2009 and 2008. For example, substandard loans to other resident sectors in Spain increased in 2009 and 2008 mainly due to the sharp increase in substandard mortgage loans to €3,651 million as of December 31, 2009 from €2,033 million as of December 31, 2008 and €421 million as of December 31, 2007. Substandard loans to real estate and construction customers in Spain also increased substantially in 2009 and 2008 to account for 15.4% and 5.6% of loans in such category as of December 31, 2009 and 2008, respectively. Our total substandard loans to customers in Spain jumped to €11,134 million as of December 31, 2009 from €5,700 million as of December 31, 2008 and €1,590 million as of December 31, 2007, 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 5.5% and 2.7% as of December 31, 2009 and 2008, respectively, from 0.8% as of December 31, 2007. Our loan loss reserves to customers in Spain as a percentage of substandard loans to customers in Spain as of December 31, 2009 and 2008 also declined significantly to 34% and 66%, respectively, from 214% as of December 31, 2007.

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 2010, 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 31%, 25% and 26% of our loan portfolio as of December 31, 2009, 2008 and 2007, 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 2010, 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.

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 14% at the end of 2009. Similarly, the debt burden of Spanish corporations has increased from approximately 16% at the end of 2004 to 29% at the end of 2008, according to the Bank of Spain, before moderating slightly to approximately 26% according to our estimation for 2009. 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 affect 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 31%, 36% and 27% of our total funding as of December 31, 2009, 2008 and 2007, 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. The financial crisis triggered by the U.S. subprime market has turned out to be deeper and more persistent than expected. A global economic recovery is subject to significant uncertainty, and there are limited or no signs of recovery in some countries and areas of the economy. In response to the financial crisis, governments around the world implemented ambitious fiscal expansion programs during 2008 and the first half of 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 have announced plans to begin removing 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 75% of our loan portfolio as of December 31, 2009 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 €2,536 million, €3,309 million and €401 million, respectively, as of December 31, 2009 (€2,638 million, €3,437 million and €284 million, respectively, as of December 31, 2008, and €2,683 million, €2,950 million and €300 million, respectively, as of December 31, 2007). 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

We are substantially dependant on our Mexican operations, with approximately 32% and 39% of our net income attributed to parent company in 2009 and 2008, 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 we expect it to continue at least during the first half of 2010 through a lower growth rate in production and employment. 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 2010 we expect that macro economic recovery will only be maintained if there is a sustained US 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 a 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 2010.

Beginning in 2008 and through 2009, 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 2010, 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. For example, in order to increase competition and to deepen credit, Mexican financial regulators could elect to introduce price distortions not linked to the true risk premium. 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.

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 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, most pension fund management companies (“AFPs” for their Spanish acronym) posted negative results in 2008 as a consequence of the fall in the value of their portfolios, since in several countries they have to keep reserves invested in the same portfolios.

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. After the exercise of this option, which we expect will become effective in April 2010, our stake in CNCB will increase to 15%. 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 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 are under consideration 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 are under consideration. In addition to these actions, various regulatory authorities in member states of the European Union and the United States have taken 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, recent regulatory proposals, in the European Union and the United States, point 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 are proposed or were 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 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 anónimaor “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 José María García Meyer (15 South 20th Street, Birmingham, AL 35233, telephone number + 1(205) 297 -3000 and fax number +1(205)297-3116).

Our principal investments are financial: subsidiaries and affiliates. The main capital expenditures from 2007 to the date of this Annual Report were the following:

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

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.

Regarding our strategic investment in Asia, on December 3, 2009 we announced our intention to exercise a call option for a total of 1,924,343,862 shares, amounting to 4.93% of CNCB’s capital. The acquisition price will be approximately €0.56 per share, which means that the total amount of the investment resulting from the exercise of the option will be approximately €1,000 million. Once this option is exercised, which we expect to take place in April 2010, our investment in CNCB’s capital will be 15%.

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.

On February 16, 2007, BBVA entered into a definitive agreement to acquire 100% of the share capital of Compass Bancshares, Inc. (currently referred to as “BBVA Compass”), an American banking group previously listed on NASDAQ, which conducts its main business activity in Alabama, Texas, Florida, Arizona, Colorado and New Mexico. On September 7, 2007, after obtaining the mandatory authorizations, we acquired 100% of the share capital of Compass Bancshares, Inc. The consideration paid to former Compass Bancshares, Inc. stockholders for the acquisition was $9,115 million (€6,672 million). We paid $4,612 million (€3,385 million) in cash and delivered 196 million newly-issued shares.

In September 2007, we increased our ownership interest in Metropolitan Participations, S.L. to 40.67%, with an investment of €142 million.

On January 3, 2007, pursuant to the agreement entered into on June 12, 2006, and after obtaining the mandatory authorizations, we closed the transaction to purchase State National Bancshares Inc., an American banking group based in Texas, with an investment of $488 million (€378 million).

On December 22, 2006, we reached an agreement with CITIC Group to develop a strategic alliance in the Chinese market. In March 2007, in accordance with this agreement we acquired 4.83% of CNCB with an investment of €719 million. We also acquired a purchase option that permitted us to acquire up to 9.9% of the capital of the bank. Additionally we acquired a 14.58% ownership interest in CIFH. The price for this ownership interest was €483 million.

Our principal divestitures are financial, in subsidiaries and in affiliates. The main capital divestitures from 2007 to the date of this Annual Report were the following:

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. For additional detail on these transactions, see Appendix V to the Consolidated Financial Statements.

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.

In February 2007, we sold our 5.01% capital share in Iberdrola, S.A. This sale gave rise to a gain of €883 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 2009, 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. The financial information for our business areas for 2009, 2008 and 2007 presented below has been prepared on a uniform basis, consistent with our organizational structure in 2009. Unless otherwise indicated, the financial information provided below for each business area does not reflect the elimination of transactions between companies within one business area or between different business areas, since we consider these transactions to be an integral part of each business area’s activities.

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 the International Accounting Standard IAS 21, we considered the Venezuelan economy as hyperinflationary for 2009. The impacts on the

In 2009, the characterization of Venezuela as a hyperinflationary economy, implied a €90 million decrease in our net income attributed to parent company. In order to maintain the comparability of results of operations in our South America area, we have included in the results of operations for the Corporate Activities area as of and for the year ended December 31, 2009, the effects of the classification of Venezuela as a hyperinflationary economy in 2009.

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. 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 we estimate the devaluation will have not 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 a 1% of our consolidated equity as of December 31, 2009.

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, 2009, 2008 and 2007:

The following table sets forth information relating to net interest income for each of our business areas for the years ended December 31, 2009, 2008 and 2007.

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, 2009 and December 31, 2008 were:

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

The Spanish Retail Network unit services the financial and non-financial needs of households, professional practices, retailers and small businesses. This unit has a differentiated business model based on its relationship with customers, prudent risk management, efficient operations and a sound financial and liquidity position. In 2009 we reinforced our commitment to families, companies, the self-employed and public and private institutions within the framework of the current economic situation. To do so, we have increased the range of financial and non-financial solutions we offer adapted to the needs of each of the segments we deal with.

Throughout 2009 we developed a wide number of campaigns. With respect to mortgages for first time home buyers, among the most notable is the Hipoteca Blue Protegida (Protected Blue Mortgage) targeted at young people and the re-launch of theVen a Casa (Come Back Home) campaign. In consumer lending, among the most notable campaigns were theCrédito Nómina (Payslip Loan), a new Internet channel for Crédito Coche (Car Loan) applications and the offer of a free 32 inch LCD television for operations of more than €12,000. In deposits, there were two new Quincenas del Libretón (Passbook Fortnights) campaigns and campaigns to win paycheck and pension deposits, as well as high-income paychecks and a new Jornada de tu Vida(Day of your Life) campaign. In term deposits, the product catalogue has been completed with another edition ofDepósitos Fortaleza (Strength Deposits), with theDepósitos Fortaleza Nómina (Paycheck Strength Deposits), as well as the Multidepósitos(Multi-deposits) and the Depósito Líder(Leader Deposit) aimed at the preserving and winning new deposits.

Our individual customers have also benefited from the launch of a new line of credit cards with two promotions. These are designed to satisfy three objectives: better adaptation to payment preferences, simpler use

BBVA Banca Privada (Private Banking) is the segment within the Spanish Retail Network unit that manages the former personal banking (now Banca Privada) and wealth management segments (BBVA Patrimonios). As of December 31, 2009, funds under management stood at €43,056 million, up 7.8% from December 31, 2008. This increase is primarily the result of our new model for added value management and associated improvements in customer service based on innovation, with a new platform of systems that optimize operational processes. We also attribute this increase to product differentiation during the year, with a range of products adapted to each customer profile, such as managed and guided portfolios, Visa Infinite, assured annuities, Family Office products, guidance with the BBVA Broker service (for insurance) and the Planific@ tool, a pioneering asset planning service, the PROA Plan and optimization of synergies with other Group areas. Finally, in order to offer high quality service in Spain, additional wealth management centers were opened in Malaga, Valladolid and Oviedo in 2009.

The small business and retailer segments (which also includes services and products for the self-employed, rural communities and small companies) within the Spanish Retail Network unit had loans and advances to customers of €13,869 million as of December 31, 2009 (€16,166 million as of December 31, 2008). Key events in these segments in 2009 included, among others, an increase in financing associated with the pre-approved loans campaign, the formalization of €574 million in ICO credit lines, the launch ofPlan Choque Comercios (Retail Special Plan) andFactoría de Clientes (Customer Factory) and the signing of several collaboration agreements with various associations, including, the association for the self-employed (ATA, with more than 430,000 members), taxi drivers (UNALT, with more than 58,000 members) and restaurant owners (FEHR, with more than 270,000 proprietors). Also in 2009, financing agreements were signed in the rural industry with agricultural cooperatives and equipment manufacturers. Agricultural subsidies from the European Union were managed and deposited for 43,000 farmers for a total of €185 million during 2009

The Corporate and Business Banking unit offers a range of services and products to SMEs, large companies, institutions and developers with specialized branch networks for each segment.

Regarding the SME segment, we handled €11,428 million in factoring assignments and €11,668 in confirming advances and extensions in 2009. In terms of medium and long-term financing in 2009, this unit was one of the most active entities in the distribution of various ICO lines, with the signing of 51,592 transactions for an aggregate value of €2,450 million.

As a result of these developments, despite the unfavorable economic conditions present in 2009, loans and advances to customers for this unit as of December 31, 2009, increased to €89,989 million, a 2.7% increase from December 31, 2008. In turn, customers deposits as of December 31, 2009, amounted to €25,970 million compared to €31,292 million as of December 31, 2008. As of December 31, 2009, this unit has more than 60,000 customers in the SME segment

In the large company segment loans and advances to customers as of December 31, 2009, increased 4.7%year-on-yearto €16,568 million and customers deposits remained at €5,237 million, almost the same level as of December 31, 2008. This segment of our Corporate and Business Banking unit assists large companies in maximizing the management of their treasury accounts and offers sophisticated advisory services for the provision of tailor-made solutions and innovative products.

With respect to the institutions segment, loans and advances to customers and customers deposits as of December 31, 2009, stood at €25,380 million and €13,402 million, respectively. Through this segment, our Corporate and Business Banking unit is a leader in the provision of financing to Spanish local and regional authorities as well as to Spanish corporations and their subsidiaries. In 2009, we granted significant loans to AENA (the Spanish Airports and Air Navigation authority) (€300 million), the Government of the Canary Islands (€193 million) and the city of Madrid (€236 million). Through this segment, we have also provided financing to high speed railways projects managed by the Spanish Ministerio de Fomento(Ministry of Public Works), such as: Zaragoza A.V.E. (€70 million) and Barcelona Sagrera A.V.E. (€70 million). Finally, through this segment, the unit

In the real estate developer segment the continued decrease in residential real estate transactions resulted in a 3.5% decline in this unit’s loans and advances to customers as of December 31, 2009 compared to December 31, 2008.

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, 2009, loans and advances to customers of the Consumer Finance unit was €6,387 million an increase of 2.9% from December 31, 2008. In the vehicle renting segment of this unit, new transactions in 2009 decreased by 17.8% compared to 2008. Through this unit, we had equipment financing of €225 million as of December 31, 2009, a decrease of 14.3% from December 31, 2008 primarily as a result of a decrease in business investment during the period. New operations of renting equipments increased by 16.6% from 2008 to €361 million in 2009.

As of December 31, 2009, Uno-e’s loans and advances to customers stood at €1,073 million (up 127.0%year-on-year).Customers deposits rose to €1,246 million as of December 31, 2009, an increase of 1.2% from December 31, 2008.

In Portugal, loans and advances to customers increased 12.5% from December 31, 2008 to €493 million as of December 31, 2009. The co-branded credit card business has been consolidated, with the signing of agreements with Repsol Portugal and Liberty Seguros. In Italy, Finanzia’s loans increased 40.6% from December 31, 2008 to €404 million as of December 31, 2009, with total new loans of €228 million (an increase of 128% from the previous year). Our vehicle renting company in Portugal reached a fleet of 14,477 vehicles as of December 31, 2009, an increase of 16.3% from December 31, 2008.

Our European Insurance unit’s activities are conducted through various insurance companies that provide direct insurance, reinsurance and insurance brokering services in Spain and Portugal and market products for different types of customers (private individuals, SMEs, retailers, professional service firms and providers and self-employed individuals) through this unit’s branch offices. This unit contributed €523 million to our consolidated net income in 2009, €497 million from in-house policies and €26 million from brokerage fees received on the sale of third-party policies.

Premiums received on policies issued during 2009 increased 25.0% from 2008 to €1,367 million, of which €1,111 million (an increase of 27.2% in the year) corresponded to premiums received on individual policies (life and non-life) and €256 million to premiums received on collectives (an increase of 16% in the year). Funds under management in private savings policies reached €8,410 million as of December 31, 2009, of which €3,259 million (an increase of 4.7%year-on-year)corresponded to individual clients and the rest to group savings policies.

In order to become a comprehensive provider of insurance solutions (life and non-life), we have expanded the product offering of this unit to include additional products that adapt to the customers’ needs in terms of price and coverage. We have also implemented a specialized telephone platform and include in-branch consultants to provide customers the best solution. In this regard, the launches targeting individuals in 2009 have included Seguro Coche BBVA Gama Terceros (BBVA Third-Party Range Car Insurance), Seguro Vivienda Plus(Housing Plus Insurance) and Seguros Personales Plus Fidelización (Loyalty Plus Personal Insurance) and for the self-employed segment, the essential range in theMás Cobertura Profesional (More Professional Cover). New unemployment and temporary disability insurance policies have also been developed, such as the policies we distribute through our Consumer Finance unit or which we incorporate,free-of-charge,with the younger-customer directed Hipoteca Blue Protegida

In insured savings, BBVA Seguros is consolidating its position as a leading entity for management of this type of products as in the Individual Systematic Savings Plans, in which we earned premiums of €181 million in 2009 (up 27%year-on-year)and insured individual incomes with €346 million in premiums in the same period (up 233%year-on-year).

BBVA Portugal manages our banking business in Portugal. BBVA Portugal has experienced positive growth in 2009. Loans and advances to customers increased to €6,063 million as of December 31, 2009, an increase of 2.7% compared to December 31, 2008, with a 9.5% increase in residential mortgages over the period primarily as a result of the launch of several new campaigns. These campaigns included the Nos Adaptamos (We Adapt) and Adapte su Crédito(Adjust your Loans) campaigns, both of which allow clients with mortgages to lower their monthly payments or request additional loans. We also expanded the product range for SMEs with a new accounts payable financing service and a range of insurance policies in conjunction with AXA-Vitalplan Corporate and CESCE. Important operations in investment banking in 2009 included financing the purchase by Portucel, GALP, the Jerónimo Martins Group and Emparque for the purchase of Cintra Aparcamientos.

Customer deposits remained relatively stable at €2,542 million as of December 31, 2009 compared to €2,571 million as of December 31, 2008. BBVA Portugal has developed an entire line of products for clients with a conservative risk profile, with deposits including Nos Adaptamos,12-monthEuribor and Depósito Fortaleza.

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, 2009 and December 31, 2008 were:

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

In the Corporate and Investment Banking (“C&IB”) unit, we made several organizational changes in April 2009 in response to the economic situation and to maximize efficiency in the business model for this unit that we have been developing since 2007. The new structure includes a reduced target customer base with a greater focus on strategic customers for whom we can provide higher added value services, as well as the separation between lending and fee products. The main changes in this area have been:

In the Cash Management department of the Global Transactional Services division, we implemented in 2009 in Spain and Portugal the SEPA transfer module and the module of periodic information on balances and movements within our net cash position. Within this division in 2009, we also implemented the PRISMA project, an integral solution for transactional management of the branch network. The Sistema Integral de Tesorería para Dispersión, a system that provides large multinationals, companies and institutions with an easy and secure method of paying suppliers, and another for BBVA Bancomer have been installed in Mexico, both through ahost-to-hostsystem. In Venezuela, the double security factor Token Plus was incorporated into BBVA Cash, and in Peru, the Consolidated Collection System and thee-empresario.comportal were launched.

Our Corporate and Investment Banking unit in South America and the United States continued its progress in implementing a new model of coverage and the customer definition was refined in Colombia, Peru, Venezuela, Argentina and Chile (in addition to the model already implemented in Mexico).

The Global Markets unit in 2009 significantly consolidated its commercial activity, particularly in the two latest offices opened:

In Latin America, the Global Markets unit will continue to consolidate its derivate distribution activity through its hub in Mexico (Regional Derivate Center). The capacity to offer a more global and improved service to major multinationals has also been strengthened, and by providing integrated management for the entire group. A new exchange-traded fund (ETF) called MEXTRAC, based on a portfolio of the 20 stocks on the Dow Jones Mexico Titans 20 Index, was also launched on the Mexican stock exchange.

In 2009 the Asset Management unit’s activity in creating and launching new products continued. In the first half of 2009, when markets were unstable and there was high risk aversion, we continued with the expansion of our conservative product range with the launch of two products: BBVA Bonos Cash (BBVA Cash Bonds), a money market fund for retail customers, andBBVA Bonos Largo Plazo Gobiernos II (BBVA Long-Term Government Bonds), a public-debt fund. In addition, to take advantage of the opportunities presented in corporate fixed income, we launched through this unit additional fixed-income long-term funds, including BBVA Bonos Corporativos 2011and BBVA Bonos 2014, which were preferentially, though not exclusively, sold to HNWI customers. In the period, we also launched the structured funds BBVA Oportunidad Europaand BBVA Selección Empresas. In guaranteed products, 2009 was characterized by many maturities and most of the activity was focused on renewals. In the Commercial Banking segment of this unit in 2009, nine guaranteed equity funds were launched (six of them renewals), eight fixed-income guaranteed funds of the Planes Renta type (all renewals) and eight guaranteed fixed-income Fon-Plazo type funds (seven of them renewals). The Solidez range of four guaranteed fixed-income funds has been introduced for HNWI banking.

This unit devotes itself to diversifying the area’s businesses, as well as to creating value in the medium and long terms through the active management of our portfolio of industrial holdings and holdings in private equity funds and international real estate. Its management fundamentals are profitability, asset turnover, liquidity and optimal use of economic capital.

It currently manages a portfolio of holdings in the industrial sector of more than 50 companies in various sectors, including Corporación IBV, Bolsa y Mercados Españoles (BME), Técnicas Reunidas, Tubos Reunidos and Desarrollo Urbanístico Chamartin (DUCH). As of December 31, 2009 the latent capital gains in the Industrial and Others Holdings unit’s portfolio increased 71%, significantly higher than the increase in the value of the Spanish stock index (IBEX-35) during the same period (29.8%). In 2009, this unit invested approximately €25 million.

In international funds, this unit has invested $120 million in diverse sectors in companies such as: American Gilstone Company (mining sector), Celeritas (communication), Project Health (healthcare), Taco Bueno and Castro Cheese (food products). This unit also managed our holdings in the CITIC Fund real estate funds, with an investment as of December 31, 2009, of approximately $16 million in real estate projects in China.

In 2009, we exercised a purchase option to increase our stake in CNCB from 10% to 15%, which we expect will be effective in April 2010. Our planned increased stake in the CITIC group represents an investment of close to €1,000 million after the execution of a purchase option at a price of HKD 6.45 per share. With this new investment we will continue to strengthen our collaboration with the CITIC group.

Our investments and activities in Asia are expected to represent approximately 8% of our net income attributed to parent company within three years. We are working towards this goal on various fronts, including the recent signing of two joint ventures, one in automobile finance and the other in private banking.

The principal figures relating to this business area as of December 31, 2009 and December 31, 2008 were:

The Mexican peso exchange rate as of December 31, 2009, appreciated against the euro, increasing 1.6% compared to the exchange rate as of December 31, 2008. However, comparing average exchange rates, the Mexican currency depreciated relative to the euro 13.3%year-on-year.The aforementioned changes had a slightly positive impact on the area’s balance sheet and activity and a negative effect on the income statement. 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:

BBVA Bancomer’s business model is based on segmented distribution by customer type, with a philosophy of risk control and a long-term objective of growth and profitability.

Against an unfavorable macroeconomic backdrop in 2009, BBVA Bancomer’s focus was on strengthening its customer base. BBVA Bancomer has made great efforts to retain and secure the loyalty of its top valued customers through personalized service for preferred clients and the development of a specialized SME network to better service the SME segment. At year-end 2009, BBVA Bancomer had a customer base totaling nearly 16 million customers. Our outstanding performance amid this complicated global economic and financial backdrop was recognized by Euromoney, which named BBVA Bancomer Best Bank in Mexico in 2009.

Loans and advances to customers reached €27,293 million as of December, 31 2009, an 0.8% increase from €27,066 million as of December 31, 2008. The composition of the loan book gradually changed over 2009, with the percentage of consumer-credit and card business shrinking while lower-risk products grew their share of the total. The year-end figures show a diversified structure with 39.7% of the lending in the commercial book (which includes loans to large corporations, SMEs, financial institutions and the Mexican government), 30.8% in the housing book (including developers and excluding the old mortgage portfolio) and 20.7% in the consumer-finance book.

The commercial loan-book grew 7.1% comparing December 31, 2009 to December 31, 2008. The fastest growth came from lending to SMEs, which increased 21.7%year-on-yearto €968 million. BBVA Bancomer has developed a specialized network to service this segment, which had more than 300,000 customers as of December 31, 2009. A program (Programa de Liquidez PYME) was launched by BBVA Bancomer to boost liquidity in SMEs, and more than 8,000 SMEs have been beneficiaries of it during the financial crisis. Also noteworthy is the 51.2% increase over 2008 in lending to government bodies. The boost of lending to large corporations through bilateral loans and the placement of bonds and syndicated loans in the local market has been maintained.

BBVA Bancomer launched six new mortgage products for lending to home buyers in 2009. These products included: loans for home improvements, remodeling or additions to homes and financial discount which provides liquidity to construction companies. During 2009, BBVA Bancomer had a significant volume of new mortgages in

Consumer loans in 2009 continued to shrink compared to 2008, down 13.6%, reflecting both the economic downturn and our strict risk acceptance policy. Much of the drop was due to lower credit-card lending. However, over the last two months of the year, credit cards performed better, helped by an improved economic environment and various campaigns to encourage proper use of credit. A more suitable use of credit cards was reflected in the stabilization of the non-performing assets ratio, on this loan book.

The balance of customer funds (bank deposits, repos, funds and investment companies) reached €44,579 million as of December 31, 2009. This was ayear-on-yearincrease of 5.2%. This positive performance was largely due to the launch of innovative products and a stronger distribution network. In this regard, as of December 31, 2009, BBVA Bancomer had more than 6,200 ATMs, 423 more than in 2008. Additionally BBVA Bancomer has been authorized to operate banking correspondents which will enable it to increase by more than 12,000 the points of sale over 2010. Apart from this, a new kind of ATM has been activated (practicajas) to allow customers to place deposits, make transfers, pay for credit cards and services and request loans.

Finally, BBVA Bancomer has continued to actively manage its liquidity and its capital adequacy by making issuances in the local market.

In Mexico, we operate our pensions business through Afore Bancomer, our insurance business through Seguros Bancomer, our annuities business through Pensiones Bancomer and our health insurance business through Preventis. The pension business had a tough year in 2009 due to significant drops in activity and employment rates throughout the country, but was slightly offset by the recovery of financial markets. Nonetheless, Afore Bancomer managed assets totaling €9,519 million as of December 31, 2009, up 30.1%year-on-year.

The insurance business had a less dynamic year in 2009 than in previous years, primarily due to the marked slowdown in banking volumes, which meant lower sales of bancassurance products. The growth in savings products not directly linked to banking activity and products sold through alternative channels accounted for a substantial part of this figure. Therefore, €816 million in premiums were underwritten during 2009 (including sales of savings products), which was 10.4% higher than in 2008.

The principal figures relating to this business area as of December 31, 2009 and December 31, 2008 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:

As of December 31, 2009, loans and advances to customers reached €31,194 million (an increase of 14.5%year-on-year)and customer deposits increased 32.2%year-on-yearto €31,064 million as of December 31, 2008. These increases were primarily due to the aforementioned incorporation of Guaranty. Apart from the purchase of certain of the assets and liabilities of Guaranty, the following new products and services are worth highlighting:

The Retail Banking segment had a loan portfolio of €8,433 million as of December 31, 2009, down 8.8% from December 31, 2008, primarily due to the reduction in the Indirect Auto Dealer and Student Lending businesses. However, the residential real estate loans increased quarter by quarter in 2009, with $1,152 million in new mortgages written in 2009, a significant increase over 2008 levels. Customer deposits totaled €12,469 million as of December 31, 2009, down 7.8% from December 31, 2008, primarily due to lower demand for savings products. During 2009 this unit marketed and sold several new products, the most significant of which are as follows:

As of December 31, 2009, the Corporate and Commercial Group had loans and advances to customers of €14,940 million, a 6.9% decrease from December 31, 2008. Customer deposits reached €8,513 million as of December 31, 2009, up 16.6% since as of December 31, 2008. The customer funds growth was primarily driven by non-interest bearing deposits that have experienced exceptional growth, primarily the result of strong correspondent banking efforts and increases in several large clients assigned to the unit.

The Wealth Management segment of BBVA Compass offers value-added services and products to BBVA Compass’s higher net worth customers. The collaboration between this unit and the BBVA Equity Derivatives and Structured Products department in Madrid has meant continued benefits for BBVA Compass. As of December 31, 2009, the Wealth Management segment of BBVA Compass managed a €1,977 million loan portfolio, an increase of 2.3% from December 31, 2008. As of December 31, 2009, deposits were €3,200 million, an increase of 40.0% from as of December 31, 2008. ThePower CD product linked to the Standard & Poor’s index has generated in excess of $120 million in new deposits since its launch in March 2009. As of December 31, 2009, assets under management were €11,973 million, up 6.1%year-on-year.

The acquisition of certain deposits and liabilities of Guaranty in 2009 significantly strengthened BBVA Compass existing presence in Texas and California.

BBVA Puerto Rico had loans and advances to customers of €2,913 million as of December 31, 2009, down 9.0% from December 31, 2008. Customer deposits were €1,473 million as of December 31, 2009, growing 5.4% from December 31, 2008. Overall contraction in business volumes, especially lending, resulted in a 7.5% decrease in net interest income in 2009 compared to 2008.

BTS has processed 26.6 million transfers in 2009, up 6.3% from 2008. Of these, 21.5 million were for Mexico and 5.1 million for other countries

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, 2009 and December 31, 2008 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:

In the first two quarters of 2009, the Argentine economy suffered a significant slowdown due to the impact of the international financial crisis on income from the foreign sector and conflicts within the agriculture sector. Implementation of countercyclical measures and a less restrictive monetary policy made room for the first signs of recovery in the second half of the year, which was also helped by higher commodity prices.

In 2009, BBVA Banco Francés, S.A (“BBVA Banco Francés”), our banking subsidiary in Argentina, continued concentrating on expanding its lending activity in all business segments. It placed a special emphasis on the retail segment, which has recorded the greatest growth, especially in credit cards. Asset quality was also strong, and the non-performing assets ratio for the entity as of December 31, 2009, at 1.1%, compares very favorably with the rest of the Argentine financial system. The strategy of prioritizing the capture of transactional deposits was maintained in customer deposits, which were up 11.9% as of December 31, 2009 compared to December 31, 2008.

BBVA Banco Francés was ranked best bank in Argentina by Euromoney in 2009. In 2009, BBVA Banco Francés had €116 million of net income attributed to parent company.

The Chilean economy, in terms of gross domestic product, shrunk 1.8% in 2009, primarily because the international crisis produced a drop in inventories and fixed capital expenditures, together with a severe contraction of internal demand. This has also resulted in a negative inflation rate for the year. Countercyclical monetary

Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”), our banking subsidiary in Chile, maintained its strategy of repositioning in the retail business. The Top Oneand Top Sales plans were finalized in 2009, and implied a redefinition of commercial networks, with segmentation in the value offer, greater marketing dynamics and externalization of operative servicing.

In 2009, BBVA Chile was granted the National Prize for Quality by the Chilean Ministry of Economy; the Bicentennial Seal by the Office of the Chilean Prime Minister for the social responsibility program Niños Adelante and the Latin American Award for Quality from the Fundación Iberoamericana para la Gestión de la Calidad (Latin American Foundation for Quality Management) given to the top company in Latin America. BBVA Chile and Forum have generated an aggregate net income attributed to parent company of €73 million in 2009 (up 18.7% compared to 2008).

2009 was a difficult year for the Colombian economy as a result of the complicated international environment. However, the launch of an expansive monetary policy and the increase of public spending on civil works have helped the nation to overcome the situation. Direct foreign investment flows and access to the capital markets were maintained, despite liquidity tensions globally. Against this backdrop, BBVA Colombia, S.A. (“BBVA Colombia”), our banking subsidiary in Colombia, developed several initiatives to improve its service and position in the market in 2009, including the expansion of its commercial and ATM networks. Several consumer finance initiatives were implemented in 2009 in the individual segment, and the credit card section launched the Mujer BBVA (BBVA Woman) and Mastercard Black BBVA cards for VIP clients.

In 2009, BBVA Colombia was recognized as the top Colombian bank in sustainability by Latin Finance magazine and the Management & Excellence consulting firm. BBVA Colombia was also Euromoney’s top choice in Cash Management in 2009. In this complicated year, BBVA Colombia increased net income attributed to parent company to €139 million, an increase of 8.7% from 2008.

Once the liquidity tensions were overcome in the first half of 2009 and the electoral process was finalized, the Panamanian economy successfully emerged from the international financial crisis, especially in the second half of 2009. Banco Bilbao Vizcaya Argentaria Panamá, S.A. (“BBVA Panama”), our banking subsidiary in Panama, closed the year positively with advances in lending and deposits. Moreover, it issued its first corporate bonds in an aggregate principal amount of $25 million in May 2009.

The Paraguayan economy was affected by both the economic crisis in 2009 and the negative effects of a drought on the agriculture sector. The recently announced Economic Reactivation Plan is expected to put the country back on the path to growth as in previous years. At BBVA Paraguay, S.A., our banking subsidiary in Paraguay, lending grew primarily as a result of growth in the retail business with consumer loans. BBVA Paraguay opened two new branches during 2009 and equipped its first customer service center, in addition to increasing its number of ATMs and completing construction on its new headquarters. The entity was recognized for the third consecutive year as the best bank in Paraguay by The Banker and Euromoney.

The effects of the economic crisis on the Peruvian economy were reflected in 2009 in lower levels of private investment and a decrease in exports. However, Peru has been one of the few countries in the region to report GDP growth in 2009, due to fiscal and monetary stimulation policies. Banco Continental, S.A., our banking subsidiary in Peru, has maintained its business expansion strategy in 2009. In the individual segment, new personal loan products (Préstamo 60) were marketed and credit cards have encouraged customer loyalty. The bank also launched the

Within the Corporate and Investment Banking segment, derivatives sales to corporate clients increased in 2009 compared to 2008. Banco Continental was recognized as the best bank in Peru by Global Finance (for the sixth consecutive year), Latin Finance and América Economía. It was also named Best Internet Consumer Bank and received an honorable mention in the Great Place to Work ranking.

The Uruguayan economy was greatly affected by the international financial crisis in 2009, and especially by the contraction of world trade. However, the solid foundation of the local economy prevented significant GDP deterioration. In 2009, Banco Bilbao Vizcaya Argentaria Uruguay, S.A. (“BBVA Uruguay”), our banking subsidiary in Uruguay, carried out several actions to improve the quality of customer service it offers. These efforts included the servicing plan in branches, the installation of self-service terminals, improvement of the BBVANetplatform and the implementation of the Plan Crecer Comercio Exterior (foreign trade program). Consumer finance, credit cards and mortgages were strengthened in the individual segment under the Banking Penetration Plan. Business with SMEs also grew through the Plan Crecer Empresas (SME program).

In the first part of 2009, the Venezuelan economy showed clear signs of recession due to the fall in oil prices, and inflationary pressures, decreased volume of currencies liquidated on the official foreign exchange market and the contraction of central government spending. In order to stimulate demand, monetary policy was adjusted by reducing the cost of financing and enabling the absorption of the debt program in the public sector. Economic conditions appeared to recover somewhat in the fourth quarter of 2009, in line with the rise in oil prices.

In 2009, Banco Provincial, S.A. (“BBVA Banco Provincial”), our banking subsidiary in Venezuela, maintained its strategic objective of transformation and growth, and concentrated on the modernization of the branch network, increased weight of alternative channels and improved service quality. Thus, self-service spaces were created in the branches, the capacity of multi-function ATMs was increased and online and telephone banking were equipped with programming to be able to submit complaints. “Loans and advances to customers” increased 14.1% to €5,911 million as of December 31, 2009 compared to €5,182 million December 31, 2008, despite the slowdown of economic activity. Customer deposits increased 14.6% from €7,947 million as of December 31, 2008 to €9,107 million as of December 31, 2009. The bank was awarded several prizes in 2009, including Best Bank in Venezuela by Global Finance, Euromoney andLatin Finance. The Banker named it the Most Innovative Bank in Information Security in 2009.

The pension fund business in South America also had a very positive year in 2009 due to the recovery of the financial markets and the solid performance of income from fees and commissions and cost austerity. Assets under management as of December 31, 2009, increased 27.6% from December 31, 2008. As of December 31, 2009, customers deposits was 5.9% higher than in 2008, excluding the effect of the Consolidar A.F.J.P., S.A. (Argentina) divestment and despite the scarce progress of employment in the region. We have further consolidated our position as a world leader in private pension systems in 2009, thanks to our collaboration agreements with theInter-AmericanDevelopment Bank (“IDB”) and the Organisation for Economic Co-operation and Development (“OECD”). As of December 31, 2009 assets under management reached €24,552 million, an increase of 26.1% from December 31, 2008. Likewise, AFP Horizonte, S.A., our pension funds management company in Colombia, increased its assets under management by 31.8% as of December 31, 2009 compared to December 31, 2008, and its number of pension-savers by 6.6% over the same period, for a net attributable profit in 2009 of €18 million (€4 million in 2008). AFP Horizonte, S.A. our pension funds management company in Peru, achieved a net attributable profit of €14 million (€2 million in 2008), in a context marked by dynamic business activity, with increases in incomes (up 3.8% for 2009 compared to 2008), number of affiliates (up 5.1% for 2009 compared to 2008) and assets under management (up 40.3% as of December 31, 2009 compared to December 31, 2008).

Our insurance franchise business model in South America has continued to consolidate in 2009, and has extended its range of products and opened new channels for distribution and sales. However, banking networks continue to be the driving force for business, as new business lines have been opened to meet special needs (Plan Empresas, Pymes y Comercios - SME and retail programs). Therefore, the net attributable profit of the group of companies reached €46 million in 2009, €20 million of which corresponded to Grupo Consolidar, our insurance and pension funds management companies in Argentina, €12 million to Seguros Provincial, C.A., our insurances company in Venezuela, €9 million to our Chilean insurance franchise companies and €5 million to our Colombian insurance franchise companies.

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. Also, in order to maintain the comparability of results of operations in our South America area, we have included in the results of operations for the Corporate Activities area as of and for the year ended December 31, 2009, the effects the classification of Venezuela as a hyperinflationary economy in 2009.

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

The Financial Planning unit administers our structural interest and exchange-rate positions as well as our overall liquidity and shareholders’ funds through the ALCO.

Managing structural liquidity helps to fund recurrent growth in the banking business at suitable costs and maturities, using a wide range of instruments that provide access to several alternative sources of finance. A core principle in our liquidity management has long been to encourage the financial independence of our subsidiaries in the Americas. This aims to ensure that the cost of liquidity is correctly reflected in price formation. During 2009, as a result of the decisive role of the central banks, liquidity conditions on interbank markets improved significantly, with a large reduction in the Euribor Overnight Index Swap (“OIS”) spread. The medium-term markets also saw marked improvements after the announcement that central banks would buy covered bonds and that there would be public guarantee programs for banks’ issuances. In our case, the positive movement of the business liquidity gap throughout 2009 enabled us not to materially access the long-term funding markets. Our liquidity position remained sound in 2009, due to the weight of retail customer deposits within our balance sheet structure and the ample collateral available as a second source of liquidity. For 2010, we expect that our current and potential sources of liquidity will be sufficient to meet our needs.

Our capital management pursues two key goals. First, we aim to maintain capital levels appropriate to our business targets in all the countries where we operate. Second, we aim to do this while maximizing returns on shareholder funds through efficient capital allocation to our different areas and units through active management of the balance sheet and proportionate use of the different instruments that comprise our equity (shares, preferred securities and subordinated debt). In September 2009, we issued an aggregate principal amount of €2,000, five-year

We manage our exchange rate exposure on our long-term investments (basically stemming from our franchises in the Americas) to preserve our capital ratios and bring stability to our income statement while controlling impacts on reserves and the cost of this risk management. In 2009, we maintained a policy of actively hedging our investments in Mexico, Chile, Peru and the dollar area. Our aggregate hedging as of December 31, 2009, was close to 50% of non-euro denominated investments. Apart from corporate-level hedging, certain of our subsidiary banks hold dollar positions at the local level. Additionally, at the Group level, we hedge our exchange-rate exposure on expected 2010 earnings from the Americas. During 2009, this hedging mitigated the impact of American currencies’ depreciation against the euro. In 2010, the same policy of prudence and anticipation will be pursued in managing the our exchange-rate exposure at the Group level. This unit also actively manages the structural interest-rate exposure on our consolidated balance sheet. This keeps the performance of short- and medium-term net interest income more uniform by reducing the effects of interest — rate fluctuations.

During 2009, the outcome of this management was highly satisfactory. Hedging has been maintained against a less positive economic scenario in Europe for 2010, while the risk on our U.S. and Mexican balance sheets remains within comfortable parameters. These strategies are managed both with hedging derivatives (caps, floors, swaps, FRA’s, etc) and with balance sheet instruments (mainly government bonds with the highest credit and liquidity ratings). As of December 31, 2009, our asset portfolios were primarily denominated in euros, US dollars and Mexican pesos.

This unit manages its portfolio of shares in companies operating in the telecommunications, media, electricity, oil and gas and finance sectors. Like the Financial Planning unit, this unit reports to the our Finance Department. We manage our investment portfolio using strict requirements regarding risk control procedures, economic capital consumption and return on investment. We also apply dynamic management techniques to holdings through monetization and coverage strategies. In 2009, we invested €353 million and divested €594 million. As of December 31, 2009, the market value of the Holdings in Industrial and Financial Companies portfolio was €4,698 million, with unrealized capital gains of €1,542 million. During the year, management of the industrial and financial holdings generated €247 million in dividends and €107 million in net trading income.

Given the current economic scenario and forecasts as to how it may develop, we have set up a Real Estate Management unit to apply specialized management to real-estate assets from foreclosures,asset-for-debtswaps, purchases of distressed assets and the assets in the BBVA Propiedad real estate fund.

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:

Subject to the rules and regulations issued by the Ministry of Economy, the Bank of Spain has the following supervisory powers over Spanish banks:

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 2009 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

In order to safeguard the stability of its members, the FGD may also receive contributions from the Bank of Spain. As of December 31, 2009, 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

Bank of Spain Circular 3/2008 (“Circular 3/2008”), of 22 May, on the calculation and control of minimum capital requirements, regulates the minimum capital requirements for Spanish credit institutions, on an individual and consolidated groups 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 16 November, amending Law 13/1985, of 25 May, 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, 2009, 2008 and 2007, the eligible capital of the Group exceeded the minimum required under the regulations then in force. See Note 31 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.

Basel Capital Accord — Basel II — Economic Capital

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, 2009, we had approximately €13,121 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.

At the annual general meeting of shareholders on March 13, 2009, BBVA’s shareholders adopted a resolution amending its bylaws to allow for dividends to be paid in cash or in kind as determined by shareholder resolution.

At the same annual general meeting of shareholders, the shareholders resolved to supplement the 2008 cash dividend with a dividend payable in BBVA shares out of treasury stock.

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 25 March on mortgage markets as well as specific provisions of Law 2/1994 of 30 March on the subrogation and modification of mortgage loans and the Mortgage Law of 8 February 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 25 March 1981, on mortgage market regulation and other mortgage and financial system rules, reformed by Law 41/2007. It replaces Royal Decree685/1982 of 17 March 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.

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 those that are “financial in nature” or “incidental” or “complementary” to a financial activity, 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. 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. branches are also subject to supervision and regulation by a variety of other U.S. regulatory agencies. In addition to supervision by the Federal Reserve, BBVA’s New York branch is supervised by the New York State Banking Department. BBVA Compass is a financial holding company within the meaning of the BHC Act and is subject to supervision and regulation by the Federal Reserve. BBVA Compass is state-chartered bank that is member of the Federal Reserve System and is supervised by the Federal Reserve and the State of Alabama Banking Department. BBVA Compass also has branches in Texas, Arizona, Florida, Colorado, and New Mexico, which are supervised by their respective state banking regulators. BBVA Puerto Rico is chartered and supervised by the Oficina del Comisionado de Instituciones Financieras de Puerto Rico. BBVA Compass and BBVA Puerto Rico are also depository institutions insured by, and subject to the regulation of, 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. 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 Banks 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.

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.

Law 3/2009, of 3 April, on structural changes of mercantile companies has implemented Directive 2005/56/EC on cross-border mergers and Directive 2007/63/CE. The most relevant rules that were implemented are (i) an update on the rules on mergers, introducing rules for cross-border and intra-european mergers; (ii) new rules on international transfers on the registered address; and (iii) an update on the rules on treasury stock, increasing the permitted limits of treasury stock held by listed companies from 5% to 10%.

Royal Decree-law 3/2009, of 27 May, on urgent tax, financial an insolvency measures according to the financial evolution introduces the most significant development on the rules governing insolvency proceedings since the implementation of the Spanish Insolvency Act. The most relevant novelties and developments incorporated are (i) new rules on the announcement of the insolvency proceedings, including the constitution of an Insolvency Public Registry; (ii) the implementation of refinancing options through insolvency proceedings to take into account the continued viability of the debtor in the short to medium term; (iii) an update on the recognition and categorization of credits; and (iv) new rules speeding up and reducing the expenses of the litigation procedures and court proceedings associated with insolvency.

As of December 31, 2009, the Group was made up of 334 companies accounted for under the full consolidation method and seven under the proportionate consolidation method. A further 74 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.

Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of December 31, 2009.

We own and rent a substantial network of properties in Spain and abroad, including 3,055 branch offices in Spain and, principally through our various affiliates, 4,411 branch offices abroad as of December 31, 2009. As of December 31, 2009, approximately 77% and 55% of these properties are rented in Spain and abroad, respectively, from third parties pursuant to short-term leases that may be renewed by mutual agreement. The increase in the number of branches leased in Spain is mainly due to the sale and leaseback operation described in Note 16 to the Consolidated Financial Statements. The remaining properties, including most of our major branches and our headquarters, are owned by us.

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, 2009, the accumulated investment for this project amounted to €451 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.