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Internationalisation in Latin America: stepping stone to global expansion

BBVA case study
Intelligent growth
Internationalisation
Contents
Presentation 3 Executive Summary 4 1.2. Second stage and current situation 1.3.Overall view 44 46
Introduction 6 Part One: International expansion of Spanish companies in Latin America 9 1. Outlook for the world economy 2. Outlook for the Latin American economy 3. International banking expansion: structural context 4. Deployment of Spains international investments 10 13 20 22
2. Benefits of the expansion in Latin America and the leap to the United States, China and Asia 2.1. Benefits in Latin America 2.2.United States 2.3.China 2.4.Asia 2.5. Growing bond between Asia and Latin America 3. BBVA: Global consolidation 3.1. South America 3.2.Mexico 3.3.United States 3.4. Key success factors in internationalisation 4. A final reflection 4.1. BBVA: Coming from the past, looking to the future 4.2. BBVA: A global bank
47 47 47 50 53 55 56 56 57 58 58 59 59 59
5. Internationalisation of Spanish companies in Latin America 24 6. Spanish bankings international expansion 28 6.1. The importance of the financial system and the role of banks 28 6.2. A look at the international banking sector 30 6.3. A look at the banking sector in Latin America 31 6.4. Internationalisation of Spanish banking in Latin America 33
Third part: Conclusions, annex, bibliography, acknowledgements and contacts 61 Conclusions 62 Annex: The world economy in 2050 68
Part Two: BBVA, a success story in Latin Bibliography 72 America 35 Acknowledgements 74 1. Going International: A vocational endeavour 36 1.1. BBVA: First stage, growth in Latin America 38 Contacts 75
Author: Ramn Casilda Bjar1 rcasilda@cadmoweb.com

1
ecturer on the official masters programme: Contemporary Latin America and its Relations with the European Union. A Strategic Union. Institute of Latin American L Studies (IELAT). University of Alcal de Henares. Lecturer on the inter-university masters programme: Diplomacy and International Relations; Diplomatic School of Madrid; Ministry of Foreign Affairs and Cooperation. International business consultant.
Presentation
The social and economic circumstances we now face pose a challenge that requires us to rethink our economic model and explore new ways of doing business. At PwC Spain we have drawn up what we call the Intelligent Growth programme which, led by Jordi Sevilla, will accompany our clients throughout the process. In this new economic model internationalisation is key. Overseas expansion is one of the best recipes for growth. Not only does it offer new markets in order to diversify risk; it also significantly raises the level of entrepreneurial expertise by facilitating access to new talent and new technologies. As the internationalisation process gets under way, companies come up against a number of internal and external barriers that, to a varying degree, hamper the process and must be addressed: lack of familiarity with outlying markets; the need to invest and cater for high initial costs; our ability to empower existing human capital. In this brochure, which begins a series of analyses of successful international expansions, we take a close look at the way BBVA coped with these difficulties, how it overcame them, and the benefits it obtained from going international. Here at PwC we believe that this series will provide adequate evidence of our key finding: going international does not depend on the size of the company. If the concept, product or service is sufficiently differentiated to provide a competitive advantage, the size of the company is irrelevant. It is our hope that the following case studies will persuade other companies that have yet to begin this process to look on internationalisation not as a remote hypothesis, but as a practical means of stimulating meaningful growth.
Carlos Mas Chairman of PwC Spain
Executive Summary
The overseas expansion of Spains leading banks in Latin America began in the 1990s when the domestic, European and international markets were undergoing major changes and Latin America offered a good opportunity to win new business. Spains entry in 1986 into the European Economic Community (Treaty of Rome, 1957) initiated a gradual liberalisation and deregulation of the domestic banking sector, which accelerated following approval of the Single European Act (SEA, 1993) and Economic Monetary Union (EMU, 1993), two moves that prepared the ground for adoption of the single currency the euro within the European Union (EU, 1993). These legislative initiatives had a major effect on the strategies and approaches adopted by Spains largest banks. The banks found themselves obliged to transcend national boundaries in search of new markets as a means of increasing their competitiveness, diversifying risk, keeping their identity and protecting themselves from potential takeover bids by foreign competitors. The first steps in
international expansion took place in France, Morocco, Portugal and, in particular, Latin America. The encouragement this move received from investors in terms of the speed and volume of their response surprised not only the financial community but, more importantly, the Latin American society2. In general terms, Latin American banking was in the process of being deregulated but the level of foreign penetration was still low. Potential margins, on the other hand, were high and the standards of regulation and supervision were improving rapidly. There was a significant shortage of capital resources and of appropriate products to meet the rising demand for banking services. In this context, of the Spanish banks involved the case of Banco Bilbao Vizcaya Argentaria (BBVA) stands out. In less than a decade it moved from being a Spain-only operator to becoming a recognised world player, a position in which, given the experience obtained and skills learnt, it now enjoys a sound reputation, being regarded as a plus factor in all the countries it
For details and an in-depth analysis see Casilda, 1992, 1999 and Caldern & Casilda, 1999 and 2000.
4 Internationalisation in Latin America: stepping stone to global expansion
operates in, providing customers with greater opportunities both to save and to obtain credit. This case study takes a close look at BBVAs international expansion in Latin America as a stepping stone to global growth. To be effective the bank had to create a new organisation, management team and technology, as well as adapt its global financial services to the specific needs of local markets. As the task progressed, greater guarantees, transparency, quality and security had to be built in. In short, BBVA gained widespread acceptance as a banking ally capable of providing improved services for retail and corporate customers, particularly small and medium-sized companies, while still contributing to the economic growth and progress of the host countries through its customised model of global and retail banking.
Key words: Latin America penetration and availability of banking services, BBVA value creation, trade demographics, efficiency companies, strategy expansion, globalisation language, foreign direct investment, innovation internationalisation, banking business, emerging countries risk, technology.
Executive Summary5
Introduction
against capital flows among the member states of the EU and instituted the freedom to set up and provide banking services throughout the continent. The process was further advanced by the introduction of the euro (1/1/1999), which accelerated change and cut timetables to an extent that radically revised European banking strategies, particularly in Spain, where the banks faced a major difficulty. Given their low market capitalisation, they were in danger of being bought out by European or international majors, notably those that (a) had cash and (b) were under intense pressure in their home markets mature markets with scant room for growth to cut costs and compensate the reduction in margins. For such banks international expansion was the obvious answer. For this reason it was no surprise that the internationalisation campaign by Spanish banks began in the 1990s and focused in the main on the Latin American countries, which at that time were regarded from an economic standpoint as emerging nations6. The banks assessment of the move was based on a number of factors: a favourable international economic climate, plus the increasing democratisation and stability of the regions political systems; the wideranging structural reforms introduced in the wake of the Washington Consensus (1989)7; low labour costs; the removal of obstacles to foreign direct
At the end of the 1960s the Spanish government subjected the banking industry to an intensive programme of regulation. By the mid 1970s, a new phase had begun. The authorities began tentative moves to liberalise the financial sector3 in an effort to improve the level of efficiency. On the whole the process mirrored the programmes being introduced in most European countries. It extended into the early 1990s, bringing Spanish banking up to speed with its counterparts in the developed countries4. On Spains entry into the European Economic Community in 1986 the progress of the Spanish banking system speeded up considerably, with new technologies, new products and new services. At the same time banks intermediation5 declined, prompting new awareness and initiatives on the part of its customers. This development was accelerated by the creation of the single European market, which removed the barriers
apital flows and interest rates were allowed greater latitude and the rules on new market entrants, domestic and foreign, were relaxed. At the same time existing C players were permitted to expand. For details, see Casilda, 1997 and 1999. 5 This is the process whereby the role of the banks, traditionally the intermediaries par excellence, was gradually assumed by direct exchanges between the holders of funds and those requiring them for investment or purchases. One of the reasons behind this trend was the growth in public-sector funding requirements, which resulted in the issue of debt eligible for subscription by members of the public. For more details, see Casilda, 1997 and 1999. 6 Moodys, the rating agency, upgraded Mexican long-term debt to investment level (Baa) in March 2000. At that time Chile, Panama, El Salvador and Uruguay enjoyed that status. Subsequently things changed. At present the debt of Mexico, Brazil, Chile, Panama, Peru and Colombia is investment grade. 7 For details see Consenso de Washington: Una nueva poltica econmica, (Washington Consensus: a new economic policy), Casilda, 2002.
3 4
investment8; and the deregulatory 9 and privatisation10 policies introduced and the regional integration agreements reached, including the creation of the Common Market of the South (MERCOSUR)11. Another plus was the increasing effectiveness of NAFTA (North American Free Trade Agreement) and APEC (Asia Pacific Economic Cooperation Council, of which Chile and Mexico are members), making the return of foreign direct investment (FDI) to the region a feasible option. Consequently, in the early 1990s Spanish banks were presented with a unique opportunity to take on new business. The decision to go ahead resulted in even more investment which, given the size of the positions obtained, and the speed at which they were reached, took the international banking community, Latin Americans particularly, by surprise. Spains direct overseas investments accelerated from 1996 to their peak in 2000, when they topped 60.2 billion euros (10% of GDP), confirming Latin America as the preferred target of major investment outflows by banks and corporates12. This huge investment effort slackened between 2001 and 2004, only to revive again, albeit on a smaller scale, once the crisis that shook the region, particularly Argentina13, resolved itself. The internationalisation of Spanish companies in Latin America allowed
8 9
them within a relatively short period of time to achieve the status of genuine multinationals and, more importantly, key world players in their respective leagues. In the banking sector it is worth noting that BBVA14 moved from being a bank whose business was confined to Spain to becoming a worldwide operator whose initiatives were scrutinised in all quarters of the globe. Now, the two Spanish banking majors, Santander and BBVA, having succeeded in obtaining leadership positions in the different countries of Latin America, face the task of upgrading the profile and scope of banking expertise and penetration15 in the region. There are large swathes of the population in Latin America without access to basic financial services. The banks must also direct their attention to the large pockets of what is known locally as the informal economy, i.e., the myriad of small or micro companies that operate entirely outside the system. Bringing these two communities into the formal financial framework is a major challenge BBVA and Santander now face. Coordinated action on this front benefits households and speeds up the emergence of a broad-based middle class. At the same time it makes for efficient resource allocation within the existing economic and corporate framework, thus contributing to economic growth and social welfare. Spains two banking majors, together with the leading companies of the region,
The internationalisation of Spanish companies in Latin America allowed them within a relatively short period of time to achieve the status of genuine multinationals.
Point 7 of the Washington Consensus. Point 9 of the Washington Consensus. 10 Point 8 of the Washington Consensus. 11 Set up in 1991 by the Treaty of Asuncin and incorporating the four founder members: Argentina, Brazil, Paraquay and Uruguay. Bolivia and Venezuela are currently applying for membership. Chile, Colombia, Ecuador and Peru have associate status. 12 For further details and an in-depth analysis, see Caldern and Casilda 1999 and 2000; Casilda 2002 and 2008. 13 Argentina: The First Economic Crisis of the 21st Century. Lessons in Global Economy, Casilda and Sotelsek, in Casilda, 2002. 14 BBVA arose out of the merger of Banco Bilbao with Banco Vizcaya in January 1988, resulting in Banco Bilbao Vizcaya (BBV). Subsequently, in October 1999 BBV merged with the state-owned bank Argentaria to form Banco Bilbao Vizcaya Argentaria (BBVA). BBVA started with a market capitalisation of 37.7 billion euros, overtaking what was then the largest bank in Spain in terms of quoted stock, BSCH, with 33.8 billion euros. 15 This can be expressed in a number of ways, such as volume of current and savings accounts per head of adult population or total borrowings as a percentage of GDP.
Introduction7
have successfully positioned themselves in the key sectors of finance, telecommunications, energy, infrastructures and concessions. Overall the positive effects can already be seen in terms of increased security, efficiency and diversity, with cheaper prices and improved services in the markets concerned. This has a direct impact on raising the living standards of populations and the competitiveness of countries industrial capabilities, thanks in the main to the spillover effect on productivity. That said, the activity undertaken and the attention obtained have also raised, at least temporarily, doubts among the general public, regional institutions and central governments. For this reason it is of prime importance to reinforce the Made in Spain image to a level at which it vies with peoples association of, for example, Made in Germany with Mercedes Benz motor cars. Obtaining the greatest possible leverage from a positive correlation between the image of Spain and its leading brands is crucial to the medium-term success of Spanish companies16. In this case study we look at the internationalisation route taken by BBVA in Latin America and how it used its experience, skill and learning capacity to make it a stepping stone to expansion in other developed and emerging markets such as the United States and Asia, consolidating a global presence on the basis of reliability, innovation, transparency, competitiveness and commitment to the host countries. In Latin America BBVAs presence has helped to reinforce local banking systems, introducing new financial
products and services, together with innovative funding methods and technological advances designed to broaden the banking presence while ensuring a safer and more productive custody of savings. At the same time it has facilitated access to credit for households and small and medium-sized companies, thereby promoting a broader understanding of financial techniques and initiatives. Its effectiveness is evidenced by the clear improvements it has obtained in security lower prices and in making available new financial products and services adapted to the specific conditions of host markets, encouraging transparency and building confidence. By these means BBVA has won a reputation for reliability, sound advice and proximity to its customers, becoming in the process a trusted partner in the drive for economic growth and improved living standards.
16
Espaa y la Marca Pas como ventaja competitiva (Spain and the Spain brand as competitive advantage): Casilda 2002 and 2011.
Part One: International expansion of Spanish companies in Latin America
Nombre seccin9
1. Outlook for the world economy

Before examining BBVAs expansion in Latin America as a springboard to global growth, it is worth taking a brief look at world economic conditions17, where we see that despite the present crisis, Latin America still offers opportunities for FDI thanks to its improved resilience to temporary setbacks. Also, it is in a position to bounce back faster than other regions, particularly in comparison with developed countries such as Spain. The World Bank (WB) estimates that world economic growth in 2010 was 3.9%, but reduces this in 2011 to 3.3%, moving up to 3.6% in 2012. These growth rates fall into two categories: the developing world grew at a rate of 7.0% in 2010 and will maintain a pace of 6.0% in 2011 and 6.1% in 2012. At this speed it will continue to outstrip the growth of the developed world, which achieved 2.8% in 2010, with 2.4% forecast for 2011 and 2.7% for 2012 (Table 1)18. These figures show that most developing countries, including those of Latin America, have recovered quickly and are expected to achieve sustained growth throughout 2011 and 2012. On the other hand, the recovery of a number of emerging economies in Europe and Central Asia and in some developed economies is uncertain in the absence of structurally corrective domestic policy changes, the probable outcome being high levels of unemployment and household debt, combined with weakness in the construction industry, particularly the housing industry, and banking that will stall recovery. The International Labour Organization (ILO) predicts that unemployment will remain high in 2011 and that, with the exception of some emerging economies, the level of employment achieved in 2008 will not return until 2015 when, even then, job security will be low19. A positive note is the marked increase in domestic demand in developing
Table 1. World Growth Forecasts by Region World Bank: 2010-2012 (in percentages)
2010 World Developed countries Developing countries Developing countries excl. China and India East Asia and Pacific Europe and Central Asia Latin American and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa 3.9 2.8 7.0 5.2 9.3 4.7 5.7 3.3 8.7 4.7 2011 3.3 2.4 6.0 4.3 8.0 4.0 4.0 4.3 7.7 5.3 2012 3.6 2.7 6.1 4.5 7.8 4.2 4.0 4.4 8.1 5.5
Source: World Bank (2011): Global Economic Prospects: Navigating Strong Currents.
or the latest figures see IMF: World Economic Outlook (September 2011). F For the latest figures see World Bank: Economic Forecast (September 2011). 19 For the latest analysis see World Bank, Global Economic Prospects <www.worldbank.org>
17 18
countries, which is driving the world economy, although the persistent problems of the financial sector in many developed countries pose a threat to growth and need to be addressed immediately20, as is the case in Spain, which recently introduced its Financial Reinforcement Programme. Another favourable sign comes from the majority of the developing countries, which made good progress in trade in 2010 and whose GDP rose overall by 5.3% in that year. The increase was driven by a rise in the price of commodities and, to a lesser extent, by workers remittances and tourism21. As a result, experts are confident that the outlook for these countries in 2011 and 2012 will be positive (Tables 1 and 2). An important factor is the net inflow of international funding in the developing countries, which increased in 2010, rising by 42%, in particular in nine countries that received the bulk of these funds. Foreign direct investment, on the other hand, rose more slowly, 16% in 2010, reaching 410 billion dollars, having fallen by 40% in 2009. A good part of the increase was the result of greater investment within the southern hemisphere, in particular that originating in Asia. This surge in the influx of international funds fuelled the recovery in most developing countries. That said, these large influxes of capital in a number of medium-sized economies may include risk factors that could threaten medium-term recovery, particularly where inflation sets in or asset bubbles develop22.
For its part, the International Monetary Fund (IMF) has revised its forecasts of world economic growth for 2011. The revision was upward, from the original 4.2% given in October 2010 to 4.4% in January 2011. It maintains its forecast of 4.5% for 2012. The upbeat review responds on one hand to the greater growth forecast in the second half of 2010 and, on the other, to the positive effect of the new stimulation measures introduced in the United States, which of all the economies examined was awarded the highest upward revision. Of particular note is the performance of the developed economies, which fared better than expected in 2010, although the IMF considers that growth is still too weak to reduce the current level of unemployment. Also, tension in the European debt market constitutes another risk in the current scenario23. More recently, political developments in the Arab world and the resulting increase in the price of oil undoubtedly add to the risks threatening the uncertain recovery of some developed countries, such as Spain, while placing the stability of others in jeopardy. In 2011 the US economy will achieve growth of 3%, an increase of 0.7 percentage points, thanks to the approval at the end of 2010 of an additional fiscal programme. However, the forecasts are that the withdrawal of a number of stimulus packages as from 2012 will have a significant impact on the economy, a perception that has led the IMF to revise downwards (-0.3%) its forecast for 2010, to 2.7% (Table 2).
Francesc Granell: The International Economic System in 2010, BICE No. 3005, Ministry of Industry, Tourism and Trade, Madrid, January 2011. ustin Yifu Lin, senior vice-president for Economic Development at the World Bank (2011). J Hans Timmer, director of the Development Prospects Analysis Group at the World Bank (2011) 23 Multinacionales espaolas. En un mundo global y multipolar (Spanish Multinationals in a Global Mulltipolar World), Casilda, 2011.
20 21 22
International expansion of Spanish companies in Latin America 11
Following the first ever downgrade of the USs sovereign debt by the ratings agency Standard & Poors from AAA to AA+, these forecasts, and those of other
international organisations, may be revised downwards, alongside those of other developed countries, notably those of the eurozone.
Table 2. World Economic Outlook As at January 2011 (in percentages)

Enero de 2011 2009 World GDP Developed economies USA Japan Eurozone Germany Spain United Kingdom Emerging economies Russia China India Brasil Mexico World trade Price of oil (US$/b) Inflation Developed economies Emerging economies 0.1 5.2 1.5 6.3 1.6 6.0 1.6 4.8 1.3 5.2 1.5 4.5 -0.6 -3.4 -2.6 -6.3 -4.1 -4.7 -3.7 -4.9 2.6 -7.9 9.2 5.7 -0.6 -6.1 -10.7 2010 5.0 3.0 2.8 4.3 1.8 3.6 -0.2 1.7 7.1 3.7 10.3 9.7 7.5 5.2 12.0 78.9 2011 4.4 2.5 3.0 1.6 1.5 2.2 0.6 2.0 6.5 4.5 9.6 8.4 4.5 4.2 7.1 89.5 2012 4.5 2.5 2.7 1.8 1.7 2.0 1.5 2.3 6.5 4.4 9.5 8.0 4.1 4.8 6.8 89.8 Octubre de 2010 2011 4.2 2.2 2.3 1.5 1.5 2.0 0.7 2.0 6.4 4.3 9.6 8.4 4.1 3.9 7.0 76.1 2012 4.5 2.6 3.0 2.0 1.8 2.0 1.8 2.3 6.5 4.4 9.5 8.0 4.1 5.0 6.6 89.5
Source: International Monetary Fund (January 2011).
2. Outlook for the Latin American economy

According to the Preliminary Overview of the Economies of Latin America conducted by Cepal in 2010, the region, following a contraction of -1.9% in GDP per capita in 2009, will consolidate the recovery begun in the second half of that year. According to these estimates, in 2010 Latin American and Caribbean countries will have achieved an average growth in GDP of 6%, which works out at an increase of 4.8% per head of population, although, broken down by sub-region, performance will show wide variations. Whereas the economies of South America grew by 6.6%, Mexicos increased by 5.3%, Central Americas by 3.5% and those of the countries of the Caribbean by only 0.5%. Over the same period the economies of Venezuela and Haiti shrank by -1.6 percent and -7.0 percent respectively (Image 1).
Image 1. Latin America and the Caribbean: GDP growth in 2010

Paraguay Uruguay Per Argentina Brazil Dominican Republic South America (10 countries) Panama Latin America and the Caribbean Chile Mexico Costa Rica Colombia Bolivia Central America (9 countries) Ecuador Nicaragua Honduras Guatemala Cuba El Salvador Caribbean -1,6 Venezuela -7,0 -8,0 -6,0 -6,0 -4,0 -2,0 Haiti 0,0 2,0 4,0 6,0 8,0 10,0 12,0 0,5 1,0 1,9 2,5 2,5 3,0 3,5 3,5 4,0 4,0 3,8 5,3 5,3 6,0 6,3 7,0 6,6 7,7 8,4 9,0 8,6 9,7
Annual growth rate (%)

Source: CEPAL (2010)
This growth in 2010 confirmed the recovery made by most Latin American economies in the second half of 2009, driven by counter-cyclical factors and by the upturn in the world economy. It had a positive effect on employment, with jobless totals declining by -7.6%. More importantly, it improved the quality of the jobs on offer. There was a modest increase in inflation, which moved up from 4.7% in 2009 to 6.2% in 2010, due to hikes in the international traded prices of several basic commodities. The rise in demand was the result of the tighter labour market, the increase in credit and the improved outlook, which fuelled additional private spending and greater investment in tools and machinery. External prices varied depending on how countries were
positioned. Exporters of basic commodities obtained greater value for their goods, whereas the countries of Central America and the Caribbean again suffered net losses. However, a number of factors combined in the second half of 2010 to paint a less rosy picture of the international economy which, together with the hike in public spending and the relative absence of slack in the production capacity available, pointed to a gradual slowdown in the economies of Latin America and the Caribbean in 2011, with forecasts averaging at 4.2%, equivalent to a GDP growth per capita of 3.0% (Image 2).
Image 2. Latin America and the Caribbean: GDP growth in 2011

Haiti Panama Chile Peru Uruguay Dominican Republic Argentina Brazil South America (10 countries) Bolivia Latin America and the Caribbean Paraguay Colombia Central America (9 countries) Mexico Ecuador Costa Rica Guatemala Cuba Nicaragua Caribbean Venezuela Honduras El Salvador 0,0 2,2 2,0 2,0 2,0 2,0 4,0 6,0 8,0 10,0 3,0 3,0 3,0 3,0 3,5 3,5 4,0 4,0 3,9 4,6 4,5 4,5 4,2 5,0 5,0 4,8 6,0 6,0 7,5 9,0
Annual growth rate, in %

Source: CEPAL (2010)
USD billions
As stated, 2010 saw an overall recovery, though there were marked differences among countries and sub-regions. The highest growth was achieved in the grouping known as South America, with the notable circumstance that this time round the country with the largest economy, Brazil, came top of the list, followed by Uruguay, Paraguay, Argentina24, and Peru. Another feature of 2010, notable for the rapid bounceback from a crisis of major proportions, was the widespread success of government policy. The economic stability of most of the Latin American and Caribbean countries in the years leading up to the international crisis marked a notable departure from the problems the region had been accustomed to in times of difficulty. It enabled the majority of countries to fend off the worst effects of the downturn. In general, countries took full advantage of the boom. Regional GDP rose significantly between 2001 and 2009, enabling the gross regional product to more than double. This was mainly due to the strong growth of Brazil, which is now the economic driver of the region, having taken over the reins from Mexico (Image 3). Also, more or less throughout the region currency earnings were used to balance public accounts, reduce and improve the debt position and build up reserves. Thus, for example, public debt, both that of the central government and of the public sector as a whole, fell from 60% of GDP in 2002 to 30% in 2009, i.e., 30 basis points in just seven years (Image 4). In the same way, external debt, though it rose from USD 740 billion in 2001 to USD 800 billion in 2009, fell from 40% of GDP in 2001 and 2002 to 20% in 2009 (Image 5). The region also achieved a significant increase in international reserves (Image 6), which moved up from USD 163 billion (8% of
Image 3. Latin America and the Caribbean: GDP growth 2001-2009

4.500,00 4.000,00 3.500,00 3.000,00 2.500,00 2.000,00 1.500,00 1.000,00 500,00 2001 2002 2003 2004 2005 2006 2007 2008 2009
Brazil Colombia
Source: CEPAL (2010a).
Mexico Chile
Argentina Peru
Venezuela Rest
Image 4. Latin America and Caribbean: government debt, 2001-2009

70 60 In percentage of GDP 50 40 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009
Central government debt Non-financial public-sector debt

Source: CEPAL (2010a).
24
These four countries comprise MERCOSUR.
regional GDP) in 2001 to USD 576 billion in 2009 (14% of GDP)25. All this made funds available for public-sector initiatives, which were many and varied, aimed at counteracting the negative effects of the international downturn and permitting the start of a regional recovery in the second half of 2009. The introduction of fiscal and monetary stimuli, in a context of growing confidence, relative stability in the money markets and increased access to credit, laid the foundations for a gradual pick-up in
economic output as the year advanced, which consolidated in 2010 thanks to the sharp increase in private-sector consumption, investment and, to a lesser degree, exports. The World Bank, on the other hand, estimates that Latin America will achieve sustained growth in 2011, albeit at a reduced pace (Table 1). In line with local economic observatories it considers that the region has emerged relatively unscathed from the crisis, in contrast to both its own past experience and to the rate of recovery of other regions. After a
Image 5. Latin America and the Caribbean (excluding Cuba): external debt 2001-2009
900 850 800 USD billions 750 700 650 600 550 500 450 2001 2002 2003 2004 2005 2006 2007 2008 2009[b] 45.0 40.0 Percentage of GDP Percentage of GDP 35.0 30.0 25.0 20.0 15.0 10.0 5.0 -
Total gross external debt (left axis) [a] Total gross external debt (right axis) [b]
Source: CEPAL (2010a) Notes: [a] includes the debt due to the International Monetary Fund; [b] Provisional figures
Image 6. Latin America and the Caribbean: international reserves 2001-2009

600 500 400 USD billions 300 200 100 2001 2002 2003 2004 2005 2006 2007 2008 2009[a] 15,0 13,8 12,5 11,3 10,0 8,8 7,5
Source: CEPAL (2010a) Notes: [a] Preliminary figures.

25
International reserves (left axis) International reserves (right axis)
According to CEPAL (2010c) international reserves reached USD 563 billion in the second quarter of 2010.
contraction of -2.2% in 2009, regional GDP rose by 5.7% in 2010, similar to the average growth recorded in the boom years of 2004 to 2007. According to the World Bank report, Global Economic Prospects 2011, there will be a moderate deceleration in growth leading up to 2012, caused in the main by the slowdown of the advanced economies and, in particular, that of China. A number of countries in the region have been subjected to the potentially destabilising effects of capital inflows, which resulted in strong upward pressure on exchange rates, particularly in Brazil and Colombia. The forecasts are for the world economy to move from an upward trend in the wake of the crisis to a more stable but slower rate of growth. It should be pointed out that although the recovery was reasonably swift, thanks on the whole to the internal strengths countries have achieved, question marks remain with respect to the world economy, which may well impinge on regional performance in the medium term. One example is the crisis now affecting some European economies, aggravated by the sudden effect of rising oil prices as the result of political turmoil in the Arab world. These effects could have an impact on the international outlook, although possibly not immediately. At present they are depressing volumes and export prices, together with the remittances received by some Latin American and Caribbean countries. Also, although the region performed well overall in the crisis, differences from one country to another are still wide and concern remains about, for example, some of the Caribbean economies, whose high foreign debt levels render them vulnerable. As for State spending, this will be affected by the need to cater for countercyclical measures as the world economy
slows in 2011 and liquidity increases. Looking further ahead, question marks appear as to whether the present swift recovery will provide a basis for sustained growth, given that the world as a whole is still undecided on the strength of the advanced economies. In the meantime, the resurgence of the emerging economies, particularly of some countries of the region, has attracted capital inflows towards Latin America and the Caribbean, a development that in itself generates risk. The situation has resulted in the appreciation of some currencies, although this is not the first time that influxes of speculative money have temporarily jolted exchange rates, with negative, not to say destabilising, consequences. The medium-term effects, however, could be dire. The risk is that the money is used to intensify the production and export of raw materials, thus exposing the economies even more to external turbulence and internal economic volatility. Also, growth accompanied by a steady decline in foreign currency reserves would leave local economies increasingly dependent on external savings, precisely the opposite of what occurred in the period 2003-2008. As documented in other studies26, several countries have introduced or strengthened mechanisms to control the influx of short-term capital although, given the volumes concerned, they may prove inadequate, as was seen for example in Brazil. Some central banks have opted to accumulate reserves in an effort to avoid or moderate the inflationary effect on their currencies. Such measures should be complemented with counter-cyclical strategies focused on both the fiscal and financial fronts to try to reduce the pressure on domestic demand and fend off a dangerous increase in the availability of credit. There are also good grounds for
26
Multinacionales espaolas. Compitiendo en un mundo global y multipolar (Spanish Multinationals: Competing in a Global and Multipolar World), Casilda, 2011.
introducing measures to increase the margins for producers of marketable goods. Notwithstanding, it is doubtful in present conditions whether these problems will resolve themselves without greater coordination at the international level to reduce global imbalances, a possibility that, as things stand, looks remote. In terms of economic management the challenge facing the region is to restore its ability to introduce counter-cyclical measures while maintaining the conditions for productive development that is not over-reliant on the export of commodities27. To this end it will be necessary to reach a new fiscal consensus on how to gradually adapt the needs for development to the pace and structure of the taxes required to fund spending programmes. In this context, it is worth noting the important role reserved for fiscal policy in offsetting the dangers of external conditions of high global liquidity, magnified by the shortfall in domestic savings and the as yet underdeveloped banking facilities. It will thus be essential to raise the level of domestic savings, thereby strengthening the medium-term balance and containing public debt, while lifting the capacity to generate domestic
savings to fund investment28. To increase their capacity for growth and the competitiveness of their economies the countries of the region must significantly raise their level of investment in infrastructures, equipment and industrial goods. Despite the progress made, the countries of Latin America and the Caribbean still trail a long way behind the levels of investment achieved in the 1970s. To regain them they must ensure that such investment relies to a much greater extent on domestic savings in order to better defend exchange rates and nurture a specialisation model that meets the development needs of the region and, at last, achieves the level of industrialisation necessary to modernise on the basis of improved levels of international competitiveness. Lastly, in Box 1 we show how Latin America is riding out the present crisis better than other more developed regions.
27 28
rimary goods traded internationally: for example, grain, minerals, energy products (oil, coal, gas) and the so-called softs, such as coffee, cotton, sugar, etc. P For a broad analysis of the present situation and the measures required to encourage credit while expanding and stabilising the regions banking institutions, see Unlocking Credit: the Quest for Deep and Stable Bank Lending; 2005 Annual Report on Economic and Social Progress in Latin America, Inter-American Development Bank (IDB), 2004.
Box 1. Latin America weathers the crisis
In the first half of 2010 economic recovery in Latin America consolidated faster than expected as a result of the strength of domestic demand in most countries. There were few exceptions to this rule, though Venezuela remained in recession, and Mexico recovered more slowly than the rest. Price performance was also reasonably encouraging. Average inflation tended to stabilise at just over 6% following a surge at the start of 2010 to 6.6%. Although these figures obscure multiple differences between countries, it is safe to say that inflation has headed towards target in those countries that actively try to control it, despite the narrowing of gaps in levels of production. This moderation also extended to forecasts, though in varying degrees from country to country. This resilience helps to explain why the turbulence resulting from the fiscal and sovereign debt crisis in some countries of the eurozone between April and June and the subsequent fears of a further slowdown in the United States failed to have a lasting impact on Latin American financial markets or dent the growth forecasts for 2010 and 2011. In fact, the reverse occurred. Growth forecasts have continued to trend upwards, underlining the resilience of a region which, among other factors, has benefited from increasing trade with Asia, due to the strong demand in that region for raw materials. As a result the credit ratings of five countries (Chile, Colombia, Uruguay, Ecuador and Argentina) moved up. In this optimistic environment, with positive interest-rate differentials vis vis the industrialised economies and the prospect of an extraordinary and ongoing monetary stimulus in the United States, the influx of investment capital (mostly portfolio investment) has surged in recent weeks and is beginning to cause concern among managers of the economy in a number of countries, principally due to its impact on exchange rates, domestic liquidity and monetary policy. At present these pressures are being relieved in the main by accumulating reserves, although some countries have taken administrative steps to restrict the flow. The outlook for Latin America is thus on the whole positive, although a slowdown is expected in the second half of 2010 due, in part, to a moderate tightening of monetary policy. External conditions, notably the long-lasting lax monetary policy maintained by the United States and the strong growth in Asia, point to a broad expansion in the region, which domestic policies should try to temper by introducing more restrictive measures. In fact the main risk at present would appear to be that political leaders fail to react appropriately and adopt pro-cyclical policies. Governments face the option of adopting more restrictive measures to protect themselves against a slump in the world economy or sitting back, at least on the monetary front, an approach that may trigger even larger capital inflows.
Source: Banco de Espaa (2010): Informe de economa latinoamericana. Segundo semestre de 2010 (Report on the Latin American Economy: Second Half 2010). Boletn Econmico, Madrid, October 2010. For an updated analysis, see Global Economic Prospects <www.worldbank.org/globaloutlook and www.cepal.org>
3. International banking expansion: structural context

As stated above, at the beginning of the 1990s Latin America was the region that in terms of structure offered the best prospects for the expansion of the banking sector, among other reasons for the opportunities it presented: a shortage of banking penetration29 and a rapidly expanding population30. To give readers an idea, the banking presence in Spain is over 95%: in Latin America, using the same yardstick, it is estimated at 35%. The room for growth is clear. Other reasons for banks going abroad are the decline in interest rates in the home market, the differential between deposits and loans, the saturation of conventional banking services and the general decline in prices31. Surveys revealed that in Latin America 450 million people were being served by banking groups presenting a low level of development and efficiency, unproductive structures and outdated technology. The presence of international banking organisations in these countries was minimal. In addition, the consolidation moves introduced in the European Community fostered this investment drive. The establishment of the eurozone in 199932 had a particularly dramatic effect on a medium-sized economy such as that of Spain33. These two factors proved a powerful lever for expansion of the domestic banking sector into new markets, not only in the eurozone but also in the US and Asia. In short, Spanish membership of the eurozone acted as a powerful lever for the international expansion of the countrys major banks, thanks to the removal of trade barriers and the improved efficiency of the Spanish economic and financial structure, itself the result of deregulation and greater competition in a context of falling interest rates, relative economic stability and other factors that galvanised and modernised the Spanish economy, coinciding with a major capital influx resulting from the interregional cohesion policies of the renamed European Union. Opening up the Spanish economy proved the main driver of economic liberalisation and the expansion of market forces that succeeded in pushing aside the backlog of regulatory rigidity. That liberalisation has continued to progress, driven in the main from outside, in the form of bringing local laws into line with European rules and by virtue of the local reaction to foreign competition. This explains why the process was jerky and uneven, making good progress in the area of crossborder tradable goods and financial services but relatively ineffective in the markets for goods and services less exposed to foreign competition34. Thanks to the impetus provided by competition and the opening up of
n banking in Latin America, see Remesas y Bancarizacin. Servicios financieros que ofrecen bancos y cajas de ahorros a los inmigrantes latinoamericanos en O Espaa (Remittances and Banking Services: What Banks and Savings Banks offer Latin American immigrants in Spain), Cuadernos SEGIB, No. 3; Secretara General Iberoamericana, Casilda, 2008; Remesas y bancarizacin en Iberoamrica, Documentos de Trabajo IELAT No. 2; Instituto de Estudios Latinoamericanos (IELAT); Alcal University, 2008 30 In Spain the growth in population by 2050 was forecast at 800,000 (not including immigrants). For Latin America for the same year the predicted increase was 200 million. (IDB, 2000) 31 For further details, see Casilda 2002a and 2002b. 32 It was precisely on 15 January 1999 that Banco Santander merged with Banco Central Hispano to form Banco Santander Central Hispano (BSCH), by far the largest Spanish bank. (That move anticipated by several months the merger of BBV and Argentaria on 19 October 1999.) By the end of the 20th century the Spanish banking industry was gearing up for major achievements. 33 At that time, 2000, Spain had a GDP of around 600 billion euros, compared with over a trillion in 2010. 34 Jos Luis Malo de Molina: Diez aos de la economa espaola, (Ten years of the Spanish Economy), AB Asesores, Madrid 2004; quoted in Ciento cincuenta aos, ciento cincuenta bancos, (One Hundred and Fifty Years: One Hundred and Fifty Banks) Gonzlez (ed.), Aries y Mendoza 2007.
29
markets, Spanish companies began to look abroad in search of clearer growth opportunities than those available at home, in order to provide stable funding at low rates of interest. Companies were also conscious that they had to gain size to avoid hostile takeover bids by international and European majors and, in particular, as one of the conditions of performing successfully in competitive international markets. In this structural context Latin America appeared as an historic opportunity that amply justified its promise, given that the region was growing at a fast pace in the period 2003-2008, 4% plus on
average, higher than more developed economies such as Spain, which was moving up at 2.8%, or the rest of Europe, just above 2.0%. As noted, the population figures, a key factor for the banking business, were an added attraction, given the predicted growth to 205035. And in terms of the business itself, the low penetration of banking services in the region and the high net interest income available made the idea look very attractive. To this should be added the key factors of cultural36 and linguistic37 proximity as determining the speed of the investment, the high level of mutual
understanding, the fast adaptation and roll-out of financial products and services, and the technological platforms and business techniques that enabled huge strides to be made both in efficiency and in transferring knowledge and skills in a manner that was fast, simple and inexpensive, both within organisations and between these and their business counterparts.
he increase in the population of Latin America by 2050 is estimated at 200 million. T For details consult among others the works of Arturo Galindo, Alejandro Izquierdo and Liliana Rojas, which analyse in depth the key factors determining the success of banks overseas expansion, noting that cultural factors (especially the common language) played a key role. <http://wwwadmin/res/publications/pubfiles/ publDB-WP-116.pdf> 37 On the importance of language in internationalisation and investment in Latin America, see Casilda, 2001.
35 36
4. Deployment of Spains international investments

Although this huge direct Spanish investment in Latin America began in the early 1990s, there was almost no reference to it on corporate balance sheets, as FDI was practically unheard of. Spains customary position was that of a net recipient of foreign investment, due either to legal impediments or the practical impossibility of undertaking investments abroad, given that the degree of economic development of its companies and banks militated against accumulating sufficient funds. Moreover, the domestic economy was noted for its reluctance to engage in economic and commercial exchange, a circumstance that severely curtailed its potential as an overseas investor. Spains presence as a major FDI player in Latin America ended an era of protectionist measures (that spanned nearly half a century) to ward off foreign competitors. That trend also resulted in the dismantling of monopolies, thus creating a genuinely competitive market based on a gradual liberalisation of the Spanish economy, laying the groundwork for a proactive European market equipped to compete at the world level. From that moment on, Latin America became the preferred target of Spanish companies38. The transatlantic crossing was led by Telefnica and Iberia, which started bidding in privatisations of regional operators. By about the middle of the decade, the flow of FDI had risen significantly thanks to the active presence in the region of the powergens
38 39 40
Endesa and Iberdrola, together with the oil major Repsol. The pattern extended still further in 199539 as a consequence of the acquisition strategies rolled out by Spains two largest banks, BBVA and Santander. In aggregate terms the banking sector is a net foreign investor, outranked only by the telecoms and powergens. The stake taken by Telefnica in the privatised Sistema Telebras (Brazil) in mid 1998 and the control assumed by Repsol and Endesa over the two largest private energy companies of Argentina and Chile, Yacimientos Petrolferos Fiscales (YPF) and Enersis at the start of 1999, were the largest ever non-financial corporate transactions at the time. As for the two banks, they took full advantage of the opportunity to obtain a size sufficient to compete more efficiently in international financial markets and, at the same time, fend off threatened takeover bids, particularly by their European rivals. This all-in commitment to Latin America, conducted swiftly and decisively, means that in the current crisis, considered likely to produce an adjustment to the international banking map that has bankers throughout the world sweating nervously, the two Spanish banks have succeeded in pulling off international mergers and alliances in Latin America40, the United States and Asia, as we shall see below in the case of BBVA. A notable feature of the investment drive in Latin America is the speed at
For more details from an analysis conducted by the companies themselves, see Casilda, 2008. P See Caldern and Casilda, 1999 and 2000. This refers to the specific case of Santander in its acquisition, in partnership with Royal Bank of Scotland and Fortis, of ABN Amro. Santander also acquired the Banco Real (Brazil), obtaining a leading position in the Brazilian market given that, by merging it with Banespa (2011) it became the third-largest independent bank in Brazil in terms of deposits, with a network of 1,900 branches and 13 million customers.
which it unfolded, chiefly the result of the linguistic and cultural affinities, two factors that proved decisive in laying down efficient organisational structures for managing and monitoring local subsidiaries, by means of central oversight and standardised procedures. The term centralisation refers to the degree in which decisions on matters such as the introduction of new products, changes in design or modifications of processing systems are worked out at head office. As for formalisation, this relates to the presence of a set of well-defined rules and procedures that govern the duties assumed and the approaches adopted in different situations. These mechanisms limit the autonomy of local offices but they also free head office from having to interfere too much in their day-to-day operations, precise rules and procedures achieving the same end as a physical presence. On the other hand, where there is a wide cultural difference between head office and local staff, such organisational procedures rarely operate well, as they are seen as a straitjacket designed to prevent the local staff from getting to grips with the complexities of the market they are in. At a practical level also, the greater the cultural distance between head office and local office, the higher the cost of executives, as a much greater proportion of ex-pats is required. At the same time, the success of the investments undertaken to date has highlighted the importance of a shared language in implementing these
decisions quickly and effectively, aside from reducing the number of Spanish executives having to take charge of Latin American overseas offices, almost none in fact. On the contrary, there are increasing numbers of Latin Americans now working in the head offices of the banks in Spain.
5. Internationalisation of Spanish companies in Latin America

The degree of permeability of a country to foreign trade and internationalisation can be measured in various ways, one being the sum of exports and imports as a percentage of its GDP. At the start of the 1960s this figure accounted for no more than 10.5% of Spains gross domestic product. By the 80s it had moved up to approximately 30% and by the end of the 90s had reached 60%. At present Spain represents one of the most open economies in the world, with the value of incoming and outgoing goods and services representing approximately 64% of GDP. With respect to Spains foreign direct investment, the figures speak for themselves. In the course of the last two decades the flows of FDI, incomings and outgoings, have described a steady upward curve. Whereas in 1980 only 0.9% of GDP was invested abroad, at the start of the 1990s total direct investment made and received was 1.5% and 3.0% of GDP. In the first five years of the 1990s, the flows of FDI originating in Spain accounted for 6% of total foreign investment in Latin America, while those originating in the United States made up 71%. However, in the second half of the decade Spain contributed 30% of FDI whereas the United States reduced its contribution to 39%. In the early years of the new century, there was a radical shift in these flows, as total Spanish foreign investment reached 17% of GDP, with Latin America alone accounting for 10% of its gross receipts. The Spanish economy, in its bid for internationalisation, passed a significant milestone in 1995 when for the first time the FDI undertaken topped EUR 5.59 billion, more than that received, EUR 5.39 billion. And the trend continued. In 1997, outflows surpassed EUR 10.52 billion, compared with inflows of EUR 6.82 billion. As from 2000, the accumulated volume of Spanish FDI amply exceeded the sum received. It reached EUR 60.15 billion, making Spain the sixth-largest foreign investor in the world, according to UNCTAD41 figures. This made Spain a net investor, thus attaining the most advanced stage in the internationalisation of a countrys economy. In this investment quest, the establishment of the Single European Market42 marked a major turning point in the internationalisation of Spanish companies, which learned to appreciate that they operated in a very demanding arena where, given their relatively low market capitalisation, as noted above, they had to protect themselves against hostile takeovers from major corporations or international financial conglomerates. As a result, by means of their internationalisation strategy, the Spanish banks Santander, BBVA43 and SCH were responding on one hand to the need to defend themselves and, on the other, to having to compete on equal terms in international markets, to which end they actively sought sufficient size and international presence, necessary
nited Nations Conference on Trade and Development. This world organisation coordinates the integrated treatment of development and related subjects in the U areas of trade, finance, investment and sustainable development. It stipulates, broadly speaking, the free movement of capital and the end of restrictions on foreign banks. 43 As with its peers, BBVAs market capitalisation was relatively low, making it an attractive target for European and international financial conglomerates.
41 42
but not sufficient requirements to ward off the big players. In essence the purpose of a defensive strategy is to keep providing financial services to local customers who also internationalise their activities in order to deter them from establishing contacts with local service providers in the target market, which reduces your business volume. The goal of an offensive strategy, on the other hand, is to build an initial owned platform of local operators and operations to obtain a solid footing in a given market. Normal practice is to start off with the initial defensive strategy and, having established a bridgehead, move onto the offensive. Initially, the Spanish banks, given the speed and success of their establishment and positioning, quickly attracted the attention of their competitors, plus the authorities and the local and international media, such as, for example, the Washington Post44, which called the Spanish investors The New Conquistadors.
At roughly the same time, taking advantage of or even defying certain risk factors, a select group of recently privatised Spanish companies such as the power generator Endesa, the oil and gas company Repsol, with others awaiting privatisation, such as the airline Iberia and the telecom Telefnica, and in cooperation with the independent banks Santander and BBVA45, gambled openly on a directinvestment strategy in the region that would make them major players in their respective areas of activity. They were followed by other large companies that joined the hard-core investors, such as powergens Iberdrola and Gas Natural and the water company and engineer Aguas de Barcelona. The leadership they achieved in their respective sectors was sufficient to see them through a succession of regional crises, such as the Asian crisis of 1997-1998 (Asian flu), the Russian crisis of August 1998 (vodka effect), and the worst of the three, the Argentinian default of 2001-2003 (tango effect), regarded by some as
44 45
Washington, 12 February 2000. n Spain there was a period of intense competition between the two banking majors, Santander and BBVA, successively rolling out new products such as the super I deposits, super accounts and super savings accounts. For further details, see Casilda, 1997.
the most serious since 1914, graver even than the Depression of the 1930s46. The returns on these investments were quick to come in and the relative weighting of the overseas assets, together with the profits earned, rose apace, generating figures previously unknown. For Endesa they represented 40% of its total assets, for Telefnica, 30%, and about 30% also for Santander and what was then the Bilbao Vizcaya47. The arrival of these companies in Latin America came at a critical time for the region as it was undergoing structural reform under the aegis of the Washington Consensus (1989), designed to extend business activities and facilitate the access of overseas investors by means of a range of measures, including privatisations, liberalisation, commercial deregulation, greater protection of property rights and certain conditions of economic stability, modelled on the economies of the OECD. As evidenced by the reams written on the subject, the initiatives taken by the Spanish companies, recreating themselves as full-blown multinationals, formed no part of any pre-arranged scheme with the government. On the contrary, the idea was attributed to what onlookers termed the private impulse, impulso privado. Certainly, the international expansion had produced good, even spectacular, bottom-line results by the end of the 1990s and turn of the new century, only to suffer temporarily in the fraught period
2001-2003, before bouncing back strongly right up until the present crisis. The intense investment activity in Latin America saw some losers, as is the case of the airline Iberia, which failed to capitalise on its acquisitions in Venezuela (Viasa) and Argentina (Aerolneas Argentinas). Another interesting fact concerning the internationalisation of Spanish companies is that, according to the various rankings, it made Spain one of the top ten countries in terms of the number and turnover of its multinationals. Thus the US magazine Fortune 500, which ranks the top 500 world companies, in 2006 carried no fewer than seven Spanish companies in terms of market capitalisation. The Global 500 of the Financial Times currently includes ten Spanish multinationals among its big caps. Not many years ago such prominence would have been unthinkable48. The sudden surge had a major impact on the Spanish economy, taking it to the front of the field as the tenth world power (2008), as indicated by several international rankings49. On top of this, mention should be made of another 30 multinational companies that could rub shoulders in terms of quality and competitiveness with the best in the world in sectors such as ceramics, automobile parts, civil engineering, wind- and solar-driven renewable energy sources, machine tools and capital goods, plus IT and communications systems, i.e., a growing diversification in Spanish FDI
and increasing access to the select rank of key international players by a broad spectrum of Spanish technological companies, a development that injected considerable added value into the investment made and strongly influenced Spains forward strategy, first in Latin America, then worldwide (Box 2)50. In June 2011 for example, the Ibex 35 companies generated 59.4% of their turnover abroad, while that earned in the home market was 40.6%. The year before local sales had accounted for 42.5%. Of all the companies in the index there are no fewer than 20 that currently invoice a greater sum abroad than at home. The above is no more than a brief introduction to the complexities of FDI and what going international entails for Spanish companies, both in Latin America and, by extension, globally. For Spain FDI has been extremely beneficial as it has taught its entrepreneurs that they can follow the paths trodden by the most advanced and prosperous economies in the world, noted for their commitment to free trade and their willingness to adopt a scaled development approach, as recommended in the model drawn up by J.H. Dunning and R. Narula51. According to the so-called theory of the itinerary of foreign direct investment arrived at by these two authors, there is a link between the level of economic development of a country and its international position with respect to FDI; that is, with respect to the FDI
For an in-depth analysis, consult Casilda and Sotelsek, 2002. or an in-depth analysis, consult Casilda and Sotelsek, 2002. F 48 Casilda, 2011. 49 Casilda, 2011. 50 Casilda, 2011. 51 J. H. Dunning y R. Narula (eds.): Foreig Direct Investment and Governments, 1996.
46 47
received and the FDI made. When the difference is positive, the country is a net importer of capital. When it is negative, it is a net exporter of capital, which implies a more or less advanced state of economic development, driven by the investment capacity of its companies. The theory says that the development process has five stages: Stage 1 is creating various infrastructures and the initial inflows of FDI, together with the resurgence of the consumer goods market, which leads on to stage II, industrialisation.
In stage III, FDI continues to arrive but at a slower rate than before, while the first outflows begin to leave the country in the form of foreign direct investment. When outflows of FDI surpass inflows, stage IV commences. Finally, stage V is reached, when the country has achieved a significant level of economic development and there is a balance between inflows and outflows of FDI. At this stage the net position of the country versus the outside world varies, being sometimes positive, sometimes negative.
Box 2. Forward strategies for Spanish investment in Latin America
Scenario I IInvestment in geographic locations Invest in other developed regions: EU, US. Invest in other developing regions: Eastern Europe and Asia. Invest in other emerging markets: Turkey, Indonesia, South Africa, Vietnam.
Scenario II IInvest - Disinvest - Continue investing in Latin America - Start disinvesting. - Consolidate regional areas. - Adopt joint strategies with third countries: EE.UU., Canada, China?
Scenario III New opportunities - Abandon traditional and mature businesses. - Focus on new privatisations. - Concentrate on new businesses: renewable energies, Internet, high-speed transport, infrastructures, concessions. - New mergers and local, regional and international alliances. - New partners outside the region.
Scenario IV Structural changes - Contribute to social development and the strengthening of institutions. - Contribute to the development of banking and regulatory compliance. - Contribute to educational and environmental progress. - Contribute to the introduction and development of social responsibility and corporate governance.
Source: own formulation.
6. Spanish bankings international expansion

6.1. The importance of the financial system and the role of banks The importance of a financial system for the growth and prosperity of a country has long been recognised by economics practitioners. Banks play a key role within the institutions that comprise the financial system, hence their influence on the economic activity of countries. Although financial systems vary from country to country, they have numerous things in common. They differ for a variety of reasons, such as size, complexity, the technology available, as well as on account of the political, cultural and historical circumstances in which they arose. They also change with the passage of time. Though institutions may be broadly similar, the jobs they do can differ considerably (Merton and Bodie, 1989)52. Banks carry out a very specific task in the economy, which is to act as intermediaries between lenders and borrowers of money. At the same time, they have the ability to stimulate and absorb the savings of a society and distribute them among the companies and sectors that require funds in order to conduct their economic activities. The majority of banks operations are related to the efficient distribution of the resources they capture, an essential task for the smooth operation of a productive economy and, thus, for economic progress itself. In fact, there is a close correlation between bank credit, GDP and per capita income. Countries with small banking sectors suffer low levels of development. This strong correlation is a sure sign of the link between financial and economic development53. By means of this process of financial intermediation, the banking sector can determine and alter the trajectory of economic progress, particularly in countries that lack alternative sources of finance, such as developed capital markets. Thus it is true to say that a country is more or less developed depending on the sources of finance available to its financial system. The duty of banks to act as financial intermediaries also extends to the efficient distribution and allocation of credit, the payment system and the protection of savings in all their forms. In this way banking becomes the cornerstone of a countrys economic prosperity. In this process of intermediation the banks finance the majority of their loans by means of the deposits they receive, thus avoiding high levels of leverage. The nature of this operation requires banks to move their assets around in such a way that they all run the same risks at the same time. When a bank makes a loan it faces what is known as credit risk (the risk of not recovering the amount lent), liquidity risk (resulting from the different due dates of assets and liabilities) and interest-rate risk (caused by, among other things, fluctuations in underlying prices such as the exchange rate). The combination of these risks makes banking an intrinsically hazardous enterprise, carrying a risk that is exacerbated by global economic imbalances (such as, for example, the present crisis.)
52 53
evelopment Report on Financial Systems and Development, World Bank, Washington, 1989. D Inter-American Development Bank (BID) report: Economic and Social Progress in Latin America, 2005. Unchaining Credit, Washington, 2004.
To recap, we can say that the ultimate duty of a financial system is to adjust the performance of the savings and investment variables by intervening in the decisions taken by savers and investors. In this way banks can make sure that channelling funds either way takes place without causing tensions and inefficiencies while, at the same time, facilitating the payments and exchanges that occur within a given economic system. Thus, a financial system is a structured whole, comprising a variety of institutions, assets, liabilities and markets together with specific techniques, the main purpose of which is to channel savings from economic units having a surplus to those having a shortage. Lastly, we can define a bank more simply as an institution of financial mediation, whose main activity is that of receiving deposits from savers, i.e. households, companies and institutions, and lending money or granting credit to borrowers, who in turn are households, companies and institutions54.
54
For more details, see Casilda, 1992, 1997 and 1999.
6.2. A look at the international banking sector The decade of the eighties and the first half of the nineties of the twentieth century saw major structural changes in the world economy, particularly in Latin America, where things moved on from the so-called lost decade of the 1980s, with its financial and banking crises that in many cases resulted in banks being nationalised. At the start of the 1990s, with adoption of the Washington Consensus55, which included budgetary discipline among its points, changes in public spending priorities, agreement on the need to open economies up to foreign direct investment, on privatisations and on the right to hold property, all aided a recovery of the banking industry. It was further strengthened by a string of privatisations of previously nationalised and/or publicly owned banks. These far-reaching reforms in the international banking sector over the last few decades have had major consequences for both banks and other financial intermediaries. Globalisation of markets, the appearance of regional economic groupings such as the European Union, NAFTA and MERCOSUR, the emergence of the Asian and Latin American countries, along with the unstoppable progress achieved by means of the new information and communication technologies (ICT) in the design, production and marketing of financial products and services have led to new methods of organising and running banking enterprises, a foretaste of the new international financial structure and organisation. A constant for the banking sector and, by extension, for other sectors of the world economy, is that to a greater or lesser degree the above developments
have made irreversible changes in the way agents compete, with market participants moving from a relatively stable traditional context, to one that is much more dynamic, bearing the DNA of a broad and deep competitiveness, with declining margins and constant pressure to reduce prices, devote greater attention to customers, offer a broader range of products, despite the fact that they have a shorter life-cycle and thus cost more to develop, as well as carrying the risk of being copied, as there is no way to patent a financial product. Banking is one of the sectors to suffer most from these irrevocable changes, fuelled by deregulation, disintermediation and the globalisation of financial markets. The net result of this transformation is the continual appearance of new competitors, the constant application of new information and communication technologies that transform and revolutionise bank management and organisation, resulting in relentless competition that, by hook or by crook, always acts directly on net interest income. As a result, we have embarked on an unknown period, characterised by relentless competition that obliges bankers to radically revise their traditional modus operandi and, as the jargon puts it, reinvent themselves. More and more, banking is conditioned by global forces, with scant room for differentiation between domestic and international markets. It is a market in which major groups offer worldwide services with just a handful of specialist offices to cater for specific corporate or high-net-wealth services. Internationalisation is by no means an isolated incident. It is an ongoing symptom of globalisation, in which Spanish banking, far from being outclassed, has come into its own.
The response of Spanish banks can be broken down into five strategic decision categories: The search for size and competitiveness, obtained in the main by means of mergers and acquisitions; Entrance in expanding markets, to the detriment of mature markets (as that of Spain is fast becoming). The search for initiatives leading to diversification outside traditional banking activities. The ability to use resources and organisational and management capacities globally, using seamless worldwide computerisation. Fast relentless international expansion, making the necessary adjustments to the architecture of the banks organisational, control and management systems accordingly.
55
Casilda, 2002.
6.3. A look at the banking sector in Latin America It is clear that Latin American banking is operating in an environment that has altered radically since the 1980s and 1990s. In that period and subsequently all countries introduced changes in their banking regulations, in most cases significant changes, though the search for reliable financial and banking systems was by no means a new goal for Latin American governments. In fact, it goes back to the 20s and 30s, when Professor Kemmerer recommended the introduction of new legislation to set up or revamp central banks in various countries of the region56. By and large it can be said that that the reforms have produced a reaction against the successive crises or grave problems of the banking systems or, looked at the other way round, the crises have helped push the reforms. Although it should be noted that the existence of banking crises is not exclusive to the region, it is true that the need to respond to and prevent such problems is the main reason for the reforms implemented to date. One of the important facets of this process of reform and adaptation of the banking systems is the overall reduction in the amount of state property, giving greater scope to the action of the private sector at both the local and the international level. Such was the case in Mexico, where there was a move from an almost totally state-run economy to a much more open system dominated by securities markets, thanks to major reforms of financial legislation in 1984 leading, among other things, to the return of banks to the private sector in 1985. With the exception of the so-called Development Bank, all Mexican banks
were privatised to pave the way for a gradual influx of foreign capital57, a circumstance that BBVA took advantage of to gain control of Bancomer58 (July 2000), when the shareholders of the Bancomer financial group agreed to merge it with the BBVA-Probursa group, at the time BBVAs Mexican subsidiary. It is true to say that the last few decades were a period of more or less constant instability as the entire banking sector of Latin America and the Caribbean (LAC) was transformed. If we go back to 1970, most of the financial system was in the public sector and the government played a dominant role in banking activity. Within the next ten years, after a brief period of liberalisation and some privatisations, the banks were again in difficulties and the government had to intervene, particularly after the debt crisis of 1982. By the end of the 1980s there was widespread concern about bank regulation and supervision throughout the world but especially in the LAC area. This triggered a fresh bout of privatisations and reform of the sector, in a context of greater regulation and prudential control. In Latin America, as elsewhere in the developing world, bank credit is the main source of corporate funding. Unfortunately, a characteristic of the region is that this credit was scarce, costly and volatile. Lacking the presence of a stable resourceful money market, it was extremely difficult for the region to achieve the strong levels of growth needed to fight poverty effectively (IDB, 2005)59. By the mid 1990s, with a new wave of privatisations in full stride, bank credit began to expand at record rates following a major influx of foreign capital. Notwithstanding, at the end of the decade at the turn of the century,
many countries suffered crises that tested the strength of their banking systems, which stood their ground, although credit conditions became extremely tight. With these difficulties resolved, including the effects and after-effects of the Argentinian debt crisis, credit conditions eased again, resulting in a swift recovery with, atypically, no banks affected. This confirmed the solvency of the Latin American banking sector which now, with some notable exceptions, is entirely denationalised and dominated by foreign companies, BBVA enjoying a leading position in the countries it operates in. Thus, the banking sector was able to keep pace with the strong growth experienced in the region in the period 2003 to 2008 and which, fortunately, has continued once the present crisis was overcome.
etween 1923 and 1931 Edwin Walter Kemmerer, professor of economics and finance at the University of Princeton and international economic consultant, led a B number of missions resulting in major reforms of fiscal, monetary and banking legislation in Bolivia, Chile, Colombia, Ecuador and Peru. Kemmerer, known locally as Doctor Dinero, also had a big hand in restructuring the financial systems of Mexico and Guatemala. See Liliana Rojas-Surez (ed.) Safe and Sound Financial Systems: What Works for Latin America?, IDB, Washington. 57 The law allowing foreign banks to invest in Mexico was aimed at recapitalising local institutions, as well as encouraging new technologies and a closer involvement in international markets. 58 The bank had been nationalised, like most Mexican banks, under Presidential decree of 1 September 2008, signed by President Jos Lpez Portillo. 59 Inter-American Development Bank (BID) report: Economic and Social Progress in Latin America, 2005. Unchaining Credit, Washington, 2004
56
This manifest strength and security has settled once and for all the debate on who should own the banks. As noted above, in the last twenty or thirty years opinions on this topic veered back and forth from one extreme to the other, both at the level of practical politics and on an intellectual plane. The banks of Latin American and the Caribbean have been tossed in and out of State ownership a number of times but, now, with the arrival of foreign independent banks, the debate appears settled, now that the interlopers have shown that they are the most effective guarantors of the financial and banking system of the LAC economic area, conferring on it a hitherto unknown degree of reliability, consistency, transparency and innovation.
Equally, doubts over the presence of foreign banks and their ability to put an effective end to the see-sawing instability and accompanying handicaps suffered by users have now been settled favourably. This encouraging result, with a greater degree of continuity and many more facilities for borrowers has more than a little to do with BBVAs presence in the region, given its regional and international leadership, plus its promising future as a global bank, a subject we enter into in greater detail below.
6.4. La internacionalizacin de la banca espaola en Amrica Latina We can perhaps best define the process of financial internationalisation as that in which the agents and institutions that make up the financial system of one country find themselves obliged, if they want to defend and extend their competitive position, to transcend national boundaries and establish a market on a world scale. The process is intimately related with what has come to be known as the globalisation60 of financial markets. In fact, the decision by Spanish banks to take an active part in the international banking system was more or less inevitable once the Spanish economy itself opened up to world trade. This internationalisation, therefore, is in no way a one-off. On the contrary, it is a logical consequence of the globalisation of markets, industries and financial services that Spain has no option but to take part in. Recent developments in the financial sector point to a scenario of global markets in which the traditional distinction between what is national (domestic) and international (foreign)61 no longer conveys meaning. As a result of these altered circumstances, BBVA62 has had to take on board major changes on both the domestic and the international stages. As noted above, the liberalisation and deregulation of the Spanish market, the new configuration of the single European Market, the process of monetary and economic union and the launch of the euro all affected the structure and strategies of Spanish
banks. They were compelled to cross national boundaries to compete in demanding international markets in order to grow in size, diversify risks, maintain their identity and defend themselves from potentially hostile takeover bids. For these and other reasons Latin America presented the best opportunities. The option of nearby markets in European countries had less to offer as these were, in general, mature markets, with fewer acquisition possibilities and higher prices63. On the other hand the LACs financial services were in the process of being deregulated; the levels of availability and use of banking facilities64 were as yet extremely low; margins were attractive; and the standards of supervision and regulation had improved considerably. Also, as noted above, there was a dearth of funds and products to cope with the rising demand for access to banking services65. Demographic conditions made it a region offering room for growth, the average age of the population being 26, compared with 39 in Spain. There was the additional advantage of a mismatch between the economic cycle of Latin America and that of Spain, making it a good means of diversifying risk, a factor that hands-on experience has shown to be of major importance66. And, to make things better still, the response from the Latin American banks and regulators was positive, as the entry of foreign investors and partners was seen as a means of overcoming existing savings and funding limitations and thus helping to modernise and strengthen the regions financial systems.
So, on this basis, the motives for Spanish banks to embark on an internationalisation campaign in LAC countries can be ranked as follows: Language67 and cultural affinities, a handicap in other regions, but a boon in Latin America, favouring speed not only in transferring capital but also in terms of products, services, technology and basic management capabilities. Creation of a single currency, which would fuel competition in the domestic business and alter the configuration of European markets, removing many of the national boundaries. Market structure and the demographic potential, a particularly relevant factor. Counter economic cycle or correlation, combined with the strengthening, deregulating and liberalising of the financial services industry in the region. Low level of usage of financial services with limited access to banking facilities for large sectors of the population, with major variations between customer types and country. The maturity of traditional business and the narrowing of margins obtainable from Spanish banking business. High net interest margins in Latin America. The FDI being undertaken by other Spanish sectors and the volume of
he terms are used in financial jargon as synonyms. Globalisation is derived from globe or sphere, the form approximating to that the Earth. The French T expression is mondialisation. Casilda, 1997 and 2002. 62 For a study of the leading players, see Casilda (ed.) La gran apuesta. Globalizacin y multinacionales espaolas en Amrica Latina. Anlisis de sus protagonistas (Globalisation and Spanish Multinationals in Latin America) 63 The most reasonably priced, those of the countries of Central and Eastern Europe, were not a viable option for Spanish banks as, despite their physical proximity, on the same continent, the language and cultural barriers were seen as too high. For details, see article in The Banker, July 1999. 64 The percentage of adults having regular access to banking facilities in Mexico was estimated at 25%; in Colombia, 40%; Brazil 30%; United States 90%; Spain 98%. 65 For more details, See Caldern y Casilda, 1999; Casilda, 2002 and 2008. 66 Whereas the Spanish economy is slowing as a result of the present crisis, Latin America is growing much faster (Images 1 and 2). 67 Casilda, 2001, El Espaol en el mundo; Anuario del Instituto Cervantes,
60 61
trade between Spain and Latin America, scheduled to grow. Strategic importance of the region in terms of establishing alliances or working agreements with European, US and even, as time has shown in BBVAs case, Chinese banks (see Part Two, point 2.3). Keeping an eye out for the investments of leading Spanish companies, several of which BBVA is a major shareholder. Scant investor competition, particularly on the part of the US banks, thereby making prices much more accessible. For these and other reasons Latin America was the natural target for the internationalisation of the Spanish banking industry. That said, although the above list reads like sweetness and light, it should not be forgotten that LAC has its pitfalls, a circumstance that counsels caution given its longstanding economic vulnerability, high incidence of financial crisis, weakness of the rule of law, recurrent social and political instability and, on past performance at least, a high level of financial volatility depending on world economic conditions68. That said, it is equally true that the region has enjoyed an exceptional period of economic growth (2003-2008) following the recovery from the Argentinian crisis (2001-2003) and currently, having overcome the slowdown in business in general (2009), the increasing returns obtained by BBVA and other companies mean that margins have not deteriorated to the extent they have in Spain.
These positive conditions have undoubtedly favoured a broader use of retail banking services (households and small and medium-sized companies), which is BBVAs speciality. They have also allowed the bank to position itself very well in a segment that promises extraordinary potential, the mortgage business. As yet this segment is underdeveloped, despite having grown at an average annual rate of 8% since 2004, supported by the population growth, the increased security of banking systems and affordable monthly payments made feasible by the relative economic stability of the region. Thanks to these and other arguments based on the prospects of growth, Latin America has become a key market, one that represents a great deal in terms of international expansion for Spanish banking which, from the outset, has taken up the challenge of becoming a global financial player, as the BBVA case amply demonstrates.
68
For more details, see Casilda, 2008 and 2011.
Part Two BBVA, a success story in Latin America
Nombre seccin35
1. Going international: A vocational endeavour

A mind that is stretched by a new experience can never go back to its old dimensions.
Oliver Wendell Holmes (1809-1894).
Some figures may help convey the level of the BBVA Groups commitment to international expansion: a hands-on presence in 31 countries of 106,976 staff, over 7,400 offices, 48 million customers, 16,995 cash machines and nearly 900,000 shareholders across four continents (2010). Its bid for overseas development peaked in the second half of the 1990s, but the inspiration behind it goes back much further.69 The various banks comprising todays Banco Bilbao Vizcaya Argentaria Group began their international expansion more than a century previously, when what was then the Banco de Bilbao became the first Spanish bank to venture abroad, opening a branch in Paris in 1902 (a first for a European bank) and another in London in 1918 (a first for a Spanish bank), initiating its expansion in Latin America in 1968 by opening an agency in Panama. In the 1970s the Banco de Bilbao (BB), the Banco de Vizcaya (BV) and the Banco Exterior de Espaa (BEX)70 started to organise themselves as international operators, establishing agencies in the major cities of Europe, the Americas and Asia. In that period the Banco de Bilbao acquired the Banco Internacional de Andorra and set up subsidiaries in Jersey (US), Panama, Germany and Switzerland. For its part, in 1920 Banco de Vizcaya had already taken with other Spanish banks in establishing in Paris the Banco Francs and the Banco Espaol. Subsequently, it began a process of internationalisation, acquiring both the business and the equity of Banco Occidental. In Puerto Rico it bought the Banco Comercial de Mayagez, and in Belgium, Gesbanque. These acquisitions were complemented by means of the branches set up in cities such as Milan and New York. Meanwhile, BEX had focused its attention in its early years (1929-1935) on those parts of Africa where there was still a strong Spanish influence. As from 1940 it assumed the role of financial representative of the Spanish State in its international operations, acquiring the branches of the central bank, the Bank of Spain, called Banco Espaol, in Paris and London and, following the independence of Morocco in 1956, the Casablanca branch of Banco Espaol in Paris also. BEXs presence in the United States dates from 1946, when it set up the subsidiary Interchange Commercial Corporation. In 1977 it expanded its presence by acquiring, at auction, the Century National Bank & Trust Company and, in 1980, constituting EXTEBANK in New York. BEX completed its presence in the Americas by setting up new banks in Panama and Paraguay (1967), Nicaragua (1977), Chile and Ecuador (1978), Argentina (1980) and Uruguay (1981). Three decades after the Spanish financial system had embarked on the modernisation and liberalisation programme initiated by the reform of Fuentes Quintana (1977)71, which introduced a series of measures with respect to the banking system as part of a general overhaul of the Spanish economy, struggling at the time under a
rancisco Gonzlez, quoted in: Las empresas multinacionales espaoles: El caso de BBVA en Latinoamrica (Spains multinationals: the case of BBVA in Latin F America), Ramn Casilda Bejar (coordinator), Revista Informacin Comercial Espaa No. 799, Ministerio de Economa, Madrid, April-May 2002. 70 Member of the Argentaria Group. 71 For an in-depth analysis of this period and the reform of the Spanish financial system, see Casilda Bjar, 1992 and 1997.
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balance-of-payments deficit and inflation plus, to a lesser extent, the problem of unemployment. It is worth noting that in 1977, the growing consensus in favour of liberalisation of the banking sector that had begun at the start of the decade was then near its peak, with widespread calls for modernisation. Following a piecemeal attempt to open up the market by means of laws introduced in 1974, 1977 and 1981 to let foreign banks set up shop under certain conditions in Spain in 1978, the sector began to respond,
renovating its range of products (especially corporate products), financial services (wholesale business) and private banking initiatives (specialist high-netwealth consultancy)72. With the solvency and competitive strength of the Spanish banking sector confirmed, and following full membership of the European Union, international expansion was the next major item on the agenda. BBVA at this time was still very much focused on the domestic market, which was expanding rapidly thanks to a broader use of
banking products and services among the Spanish population. As a result it was not until 1995 that the Group began in earnest its plans for international diversification, with Latin America and its 450 million Spanish speakers as the prime target.
72
Casilda 1992 and 1997.
BBVA, a success story in Latin America 37
1.1. BBVA: First stage, growth in Latin America BBVAs initial forays into Latin America extended from the mid 1990s to the year 2000 (Image 7). Previously, though it had considerable experience abroad, as noted above, it had been a good few years earlier and by the latter half of the 90s the bulk of its business was being conducted in or monitored from Spain. The bank was now increasingly aware that its home market was getting crowded, with growing competition for customers, whose numbers had, for some time, stopped growing. Spain had become a classic mature competitive market with the result that, in terms of retail banking services, the time had come to embark on geographic diversification, i.e., full-on international expansion. It was this thinking that drove BBVAs international expansion in Latin America, begun in 1995 when the group acquired Banco Continental de Per, founded in 1951 and nationalised in 1970. In 1992, as part of its privatisation drive, the Peruvian government had decided to float it. Thus in a public auction in April of 1992, BBV and Grupo Brescia outbid their rivals to obtain a majority holding in Banco Continental. To be precise, the company Holding Continental, of which the two buyers each owned 50% but which the BBV Group managed, acquired 75.14% of the shares in the bank for the sum of USD 254 million. The Continental is Perus second largest bank, having at that time a loan portfolio equivalent to EUR 4.87 billion versus deposits of EUR 7.31 billion. Chronologically, the second acquisition was that of Banco Ganadero de Colombia, founded in 1956, which went international in 1986 in partnership with the Banco Ganadero de Panam and an Agency in Miami, being the first Colombian bank to be quoted on Wall Street. In August 1996 the BBVA Group
bought 40% of the ordinary shares (35.1% of the total equity) of Banco Ganadero, thereby obtaining control of the bank and its various subsidiaries (among them the Banco Ganadero de Panam) for an outlay of USD 330 million. In the course of the next few years the Group made further equity purchases, for a total sum of USD 58 million, to obtain a total holding of 95.4% by the end of 2003. In April 2004 the bank changed its name to BBVA Colombia as it was recognised as matching the trading profile of the parent bank in all business activities in Colombia. In December 1996 the Group acquired 30% of Banco Francs de Argentina, previously Banco Francs del Ro de la Plata, founded in 1886 and quoted on the stock exchange of Buenos Aires since 1888. As soon as the holding was purchased, BBVA assumed management of the bank, underlining that this would continue to provide universal banking services. The initial investment cost the Group USD 375 million. In August of the following year, Banco Francs acquired 71.8% of Banco de Crdito Argentino, at a price of EUR 402 million, an outlay funded in part by a capital increase by BBVA itself for the equivalent amount. After a number of share purchases in the years that followed the Groups holding in the equity of BBVA Banco Francs now stands at 76.01%. BBVA Banco Francs is Argentinas second-largest independent bank in terms of deposits, ranking third in terms of its loan portfolio. Next, in March 1997, the Group implemented the terms of the agreements signed in December of the previous year with the main shareholders of Banco Provincial de Venezuela (established in 1952) and the other entities comprising the Grupo Provincial, as a result of which it acquired 40% of the equity of Banco Provincial (together with similar stakes in the rest of the Group banks),
assuming responsibility for management. Subsequent acquisitions took its holding in the Group to 44.5% by the end of 1997, for a total outlay of USD 425 million. Next, as Venezuelas largest bank, in 2000 it merged with Banco Lara (acquired in 1956 by the Provincial). As a result of this operation, aimed at extending the organisation and scope of the bank to cover all market segments, BBVA Banco Provincial controlled 18.6% of the market in terms of total assets, having invested more than USD 700 million. Today it is one of the largest operators in the Venezuelan financial market. Its loan portfolio now stands at close to EUR 7.17 billion, with deposits of more than EUR 9.10 billion. In September 1998 the Group took a 44% stake in the equity of the Chilean bank BHIF, licensed in 1883 in Valparaso as Banco Hipotecario. From the moment of purchase, as largest shareholder BBVA took over management of the bank, giving rise to an entity offering a new banking dimension in the Chilean market, having adopted the name BBVA Banco BHIF. In 1999 it took further positions in the equity of the bank, reaching a total of 53.3% by the end of that year for an aggregate outlay of USD 350 million. Its holding currently stands at 68.18%. BBVA Chile had originally been a bank focused almost exclusively on the mortgage market, with scant activity in the Chilean financial market. However, in the last few years it has grown considerably, winning a much larger market share. In the process it has evolved as a full-service operator, obtaining a significant customer base among Chiles leading corporates. In the pension-fund management segment, AFP Provida is the largest manager not only in Chile but in the whole of Latin America. In Mexico73 BBVA had been present since 1991 when, given its doubts about the
Mexican banking sector, it bought a miserly 1% of Mercantil Probursa. BBVA was not alone in its misgivings. Mexico was then emerging from the grim 1980s, dubbed by the CEPAL Latin Americas lost decade. Notwithstanding, in BBVAs major plans for Latin America, it had already earmarked Mexico as one of its main planks. This explains why by 1993 it had already built its stake in Probursa to 20%. In the crisis of 1995, the famous tequilazo, it lost most of that investment and had a mind to pull out. Fortunately, it stuck to its guns, going ahead with its original plans and ending up with a 70% stake in Mercantil Probursa. From then on its growth was unstoppable, and in 1996 it acquired Banco de Oriente and Banca Cremi. These acquisitions formed part of its project to accelerate expansion in the Mexican market on the basis of a strengthened Probursa. It paid off handsomely. In July 2000 Grupo Financiero BBV Probursa merged with Grupo Financiero Bancomer. At a price of USD 1.4 billion, BBVA obtained 56.6% of the group, renamed Grupo Financiero BBVA Bancomer, obtaining full operational control. Finally, after having made a series of share purchases between 2001 and 2003 for a total sum of USD 868 million, in 2004 the BBVA Group offered to buy the shares of Grupo Financiero BBVA Bancomer that it did not own for the sum of EUR 3.3 billion. At present it heads the Mexican banking sector: mortgage market (32.6%), consumer credit (22.2%), insurance (34.5%), and boasts the largest branch network (1985). This risk-fraught episode of strategy and counter-strategy has a story to it, confirming that no amount of planning and plotting intricate manoeuvres beats having the prior conviction that the prize is worth the trouble. When Francisco Gonzlez assumed chairmanship of BBVA he found there was a general consensus that the bank would benefit from having a firm foothold in the Mexican economy.
73
La banca espaola en Mxico (Spanish banking in Mexico), Casilda, 2002.
Attending a meeting of the International Monetary Fund in Washington in 1997, two years after the crisis of 1995, he heard from a respected Spanish colleague the following: Its been the dream of my life to buy Bancomer. That remark, recalled Gonzlez years later, stuck in my mind. At the beginning of 2002, in conversation with the chairman and leading shareholders of Bancomer the words that kept going through my head were: Bancomer, best in Mexico. Result? A done deal ... a once-in-a-lifetime opportunity. Bancomer is totally embedded in Mexican society, its capillaries extending into the farthest corners of the country74. With respect to the strategy adopted by BBVA in positioning itself in Latin America, it is based on agreements with high-ranking local partners, by means of controlling stakes that guarantee the Group management but allow it to continue to rely on the know-how and experience of its fellow shareholders. In obedience to this strategy, which inspired the BBVA Groups international expansion in Latin America when building the franchise was in its initial stages, creating adequate infrastructures was made one of the main priorities in each country, followed by the drive for uniformity as a guarantee of maintaining corporate Group identity, based on four key points: business model financial management technology personnel policy The process was implemented by means of various initiatives aimed at adapting all the banks acquired to the BBVA Groups business model. In 2000, at the time of implementation of its Integration Plan, BBVA management put the finishing touches to its new strategic plan, implementing what it dubbed the Proyecto Cre@ de Banca Amrica,
(Project Cre@ for American Banking), a series of 40 continent-wide work plans that were over and above the Cre@ projects implemented by each bank on an individual basis, setting high standards of improvement in profitability and efficiency. In the year 2000 companies were set three key targets throughout the continent: a) improve the quality of risk by continuing implementation of the mechanisms for risk detection, to which end the Group was busy implementing its Unified Systems Platform; b) control costs, for which it employed the Efyco (efficiency and costs) programme implemented throughout the Groups Latin American banks, achieving cost savings of between 2% and 3% within the year; c) improve fee income, setting in motion its programme Results Improvement Plan (RIP), with the specific objective of raising each successive year the percentage contribution of fee income to earnings. Additional measures were also taken to rationalise structures, in terms of branches and staffing levels, given that overall, at the time of becoming part of the Group, inefficiency was rife. A full-on training programme was also implemented, involving almost all staff, top to bottom. In terms of IT, a new universal systems platform was introduced, together with an online banking platform. Thanks to these upgrades, by the year 2000 in Latin America the BBVA Group was well positioned to obtain maximum leverage on the investments made, being solvent, organised and technologically up to speed with the BBVA Group at world level. In particular, it now had a reliable, accessible multichannel distribution platform, one of the hallmarks of the Group. The strategy paid off. Most countries showed significant business growth,
74
BBVA. Ciento cincuenta aos, ciento cincuenta bancos, (BBVA, a hundred and fifty years, a hundred and fifty banks), Gonzlez, Anes y Mendoza, 2007.
with Argentina, Colombia, Peru and Venezuela taking the lead. Aside from Mexico, net interest income rose by 12.5% to near EUR 2.1 billion. Operating profit rose by 11.4% as the new owners wrote off dud deals, laying the ground for good forward results. In this context, the incorporation of Bancomer within the Group gave BBVAs business a new dimension, both quantitatively and qualitatively. Margins rose above the levels of all other business with the result that attributable profit climbed by more than 43% and return on equity topped 15%. Mexican operations accounted for a large chunk of BBVAs business. In 2001 they contributed 17% of total Group earnings. It was precisely in the year 2001 when one of the main projects set in train was Efyco, the efficiency and cost management programme that proved invaluable. Efficiency rose by 620 basis points to reach a ratio of 51.4%. Risk management also made progress, as the Group succeeded in all countries to outstrip the banking-system average. The volume of non-performing loans also fell that year by 91 basis points, tallying a figure of 3.73% by the end of the 12-month period.
In this initial period of expansion, it is worth mentioning BBVAs attempts to enter the Brazilian market75, which did not achieve the desired results. It is Brazil, in fact, that distinguishes BBVA from Santander in their respective expansion programmes both in Latin America and elsewhere. For BBVA, Brazil remains at present a pending item. In August 1998 the Group acquired control of the bank ExcelEconmico, obtaining what amounted to ownership status as sole subscriber of a capital increase of USD 853 million. Excel was primarily a wholesale bank, with limited activities in Brazils retail market, where its competitive position was weak. It therefore worked out a plan of radical transformation. Also, as part of the plan agreed with the Brazilian regulators to capitalise the bank, BBVA funded a deposit of USD 700 million convertible into shares in coming years. USD 31 million of this deposit was accordingly converted in December 2000. In the course of 2001, USD 46 million was also converted into capital. In 2002, another USD 623 million was converted, thus completing the capitalisation agreed at the time of making the deposit. At that time the Group took the decision to radically review the business model then being followed in Brazil. It should be remembered that 2002 was the year noted for a high level of market volatility. The Brazilian economy suffered the impact of the uncertainty generated by the elections, together with the knock-on effects of the Argentinian crisis. These circumstances had a dramatic effect on the general perception of the country risk posed by Brazil, leading to a depreciation of the Brazilian real of -44.8% in the course of the year. Excel redefined its business strategy in 2002, paying greater attention to its customer base. The outcome of this redefinition was a strategic agreement with
Bradesco (Brazils largest independent bank). The agreement contained two main points: handing over all BBVAs banking and insurance business in Brazil to Bradesco by means of the transfer of all its shares. In return for the transfer of these shares, BBVA received ordinary and preference shares of a new equity increase by Bradesco. The new shares were the equivalent of 4.5% of Bradescos total equity. In addition, BBVA was to receive a cash payment of BRL 1.87 billion. This agreement, following due diligence and on approval by the various regulatory authorities, became firm on 9 June 2003. Subsequently, BBVA bought additional Bradesco shares to reach as at 31 December 2003 a holding of 5%. Thereafter BBVA has continued to work in the country on an independent basis in wholesale, investment, and private banking, with the result that it is intimately acquainted with the market and ready to take its opportunities in Brazil when the occasion arises. To complete this picture of its first period of expansion in LAC, we should add that BBVA is also present in Paraguay, where in April of 2000 it partnered with Banco Exterior de Paraguay, belonging to Argentaria, to form BBVA Paraguay. A similar operation was carried out in Panama, where in 2000, BBVA Panam and Banco Exterior Panam merged, giving rise to BBVA Panam. In Uruguay, after acquiring Banco Francs de Argentina, BBVA took over Banco Francs de Uruguay, which it then merged with Banco Exterior de Amrica (an Argentaria bank) to create BBVA Uruguay (2000). In Puerto Rico, though its presence there was not the consequence of a strategic decision, BBVA Puerto Rico holds a leading position. By these highly successful means the excellent results of BBVAs first stage of
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razil is the worlds fifth-largest country in terms of population (191.5 million inhabitants in 2010) and surface area (8,547,400 km2) and the eighth-largest economic B power with USD 1,612 trillion dollars (2008). As the leading country of Latin America, accounting for 45% of regional GDP, and having the greatest international influence and presence aside from being a leading member of the so-called BRIC group of countries (Brazil, Russia, India and China) it represented for BBVA a strategic gap that it had no choice but to fill, as its absence would have detracted in no small measure from the impact of the banks regional and global presence.
expansion in Latin America (Chart 7) was duly reported in the Groups annual report for 2000, in which it noted, the excellent conditions for obtaining a high yield from the investments undertaken in the last few years. A sound financial base, an established business model and an improved infrastructure using a single IT system were the main benefits of this new strategy. Seen as a whole, they make for considerable competitive advantages for the Groups banks and
promise to generate solid earnings growth in the years to come, driven by the Cre@ project. This new situation put the finishing touches to an initial stage, in which the image of the BBVA Group had changed radically. Whereas at the start of this period (1995) only 7% of staff and 6% of branches were deployed outside of Spain, in 2000 those proportions had risen to 70% and 60% respectively.
Image 7. BBVA. First stage of its expansion in Latin America

Poncebank (Puerto Rico) Banco Excel (Brasil) Banco BHIF (Chile) BBVA (Uruguay)
Banco Ganadero (Colombia) Banco Cremi y Oriente (Mxico) Banco Francs (Argentina)
1995
1996
1997
1998
1999
2000
Banco Continental (Per) Banco Provincial (Venezuela) B. C. Argentina (Argentina)
Provida (Chile) Consolidar (Argentina)
Source: BBVA Note: BBV and Argentaria merged in 1999. Please see note 14 in page 7.
1.2. Second stage and current situation The first stage now completed, the second began, coinciding with external and internal factors that conditioned the strategy to be adopted. The external factors included economic conditions of the day such as the fall in interest rates, the result of Spains convergence with the single European monetary area which, as has been shown in a number of studies, had a major impact on the way banking was conducted in the domestic market following the financial crises of 1998 and 2001 and the implosion of the technology bubble, factors that fuelled market volatility and, with it, the aversion to risk. With respect to internal factors, BBVA came under considerable strain as it had to assimilate the major internationalisation programme then underway with the parallel process of merging BBV with the previously State-owned bank Argentaria76 to create the BBVA Group77 (1999). It was thus a consolidation period, noted for selective investments as a means of fine-tuning the business model to strengthen its vaunted emphasis on the creation of value. In 2002 a new stage began for the whole of the BBVA Group and the Latin American markets, with their different businesses and levels of activity, could not be excluded from the core objectives: profitable growth; managed diversity; and the contribution of value. Also, given its special relevance, BBVA Bancomer, together with its subsidiaries, in particular the pension-fund manager Afore Bancomer and the insurance companies, had to be brought fully on board. As from 2003, with the return of confidence in the markets, a new
76
process of reactivating investment in the region was begun. This began with the acquisition of 100 percent of Bancomers equity for EUR 3.3 billion and of Hipotecaria Nacional (Mexico, 2004) for an approximate price of USD 375 million, an operation that made BBVA the leading Mexican bank. This was followed by the purchase of the State-owned Colombian bank Granahorrar78, which cost the Group USD 424 million. This transaction was of considerable significance for BBVA Colombia as, in merging with Granahorrar, it became the largest mortgage bank and the second-largest bank in Colombia. This second investment drive lasted until relatively recently, with the acquisition of the vehicle leasing specialist, Forum (Chile, 2006) for USD 104 million. In fact, the most recent example of the process was the purchase in 2010 of Crdit Uruguay Banco79, thereby reinforcing the Groups presence in Uruguay and fulfilling the two main purposes of its growth drive: create value for shareholders from the word go and make sound strategic sense. In this way BBVA Uruguay becomes the second-largest independent bank in the country, with market share in terms of loan investment of 24%80. Since then the commitment to Latin America has not ceased to grow81. The best evidence of this was the crisis in Argentina, where BBVAs unshakeable will to remain in the country was put to the test. In general foreign banks fared badly, in the sense that their business declined much faster than that of the local banks, with the exception of the Spanish contingent, certainly BBVA. This result is significant, given the volume of literature criticising the international banking community on the grounds that it pulled out at the time of the crisis, thereby worsening the
rgentaria had been set up in 1991 to bring together all the State-owned banks that had arisen since the end of the 19th and beginning of the 20th century under one A roof, including Banco Exterior de Espaa, Banco Hipotecario and Caja Postal de Ahorros. It was privatised in 1998. 77 See note 4. 78 Nationalised in 1998. 79 BBVA Uruguay closed the deal on 18 January 2011. 80 BBVA Uruguay succeeded in growing its loan portfolio by 19% and its customer deposits by 15%. 81 For more details, see Arturo J. Galindo, Alejandro Izquierdo and Liliana Rojas-Surez (2010), Financial Integration and Foreign Banks in Latin America: How Do They Impact the Transmission of External Financial Shocks?, Banco Interamericano de Desarrollo (BID). <http://www.admin/res/publications/pubfiles/pubIDB-WP-116.pdf>
effect on national financial systems of external shocks. However, this argument does not apply to Spanish banks, given their commitment to remain, as is the case with BBVA. Both for BBVA and the other Spanish banks that have invested in the region, this brief but intensive period of expansion82, which has proved very fruitful in many ways, aside from economically, provides important
lessons and experience on how to manage foreign direct investment and, particularly, intangibles, i.e. brand, image, standing, institutionalisation and corporate relations with other social bodies, political parties, regional administrations and local and central governments83. The presence today of the BBVA Group in Latin America and the Caribbean is shown in Image 8.
Image 8. BBVA. Presence in Latin America and the Caribbean (excl. Cuba) 2010
Fuente: BBVA.
82 83
For an analysis and assessment of this period, see Casilda, 2002 and 2008. Casilda, 2008.
1.3.Overview An overview of the BBVA Group shows that it is present in most Latin American countries with the important exception of Brazil, i.e.: Mexico, Argentina, Chile, Venezuela, Peru, Colombia, Panama, Uruguay and Puerto Rico, both as a banker and in insurance and pensions. By virtue of its acquisitions on the continent, which amount to a total of approximately USD 13 billion, the BBVA Group has established a unique franchise, with leading positions in all markets. Thus BBVA enjoys the position of leader in each of the markets it operates in and in all cases it is among the top five companies in the country (Table 3). In the case of Mexico, it occupies a particularly relevant position. BBVA Bancomer is the head-and-shoulders leader in all its business areas, with market shares of more than 25% in most segments, accounting in 2010 for more than 26% of Group profits and showing every sign of continuing to be the main source of profits in 2011.
With respect to the pension market, the Groups continuing market penetration is of particular interest, having taken it to the top of the league table, a position it has consolidated following the sale by Santander of its pension business. BBVA is now the leading pension fund manager in Latin America, administering the pensions of 13 million people (2010 figures) by means of the administrators it has in six countries, which give it a market share of 18% of all fund subscribers. The funds managed total USD 54.76 billion (2010), equivalent to 23.2% of the total resources of the Latin American pension system. Also of note is its major presence in Mexico, with a market share of 15.8%, served via Bancomer. Other countries are Colombia, with 15.2% via Horizonte; Peru with another 23.5%, also via Horizonte; Bolivia, with 52.8% through Previsin; and Ecuador, where with 79.8% it ranks top, as it does in Bolivia and Chile. Another area in which BBVA has consolidated its leadership position is in wholesale banking and institutional banking services in South America, managing 20% of total resources (2010). This position allows it to play a very active part in increasing the flows of trade and capital between the emerging countries of Asia such as China and India, as well as with Europe and the United States. In 2009 BBVA was given front-page treatment by the financial weekly Euromoney, winning the annual prize awarded to the financial industry for being the best Latin American bank. The jury recognised its leadership in the region and the good results obtained in a difficult region, complicated by the international crisis. It was also recognised individually as best bank in Mexico, Argentina, Venezuela and Paraguay.
Table 3. BBVA Group. Market shares in Latin America and Mexico (2010) Bancos
Country Argentina Bolivia Chile Colombia Ecuador Mexico Panama Paraguay Peru Uruguay Venezuela
Source: BBVA.
Credits
Ranking 3
rd
Deposits
Ranking 2
nd
Pension
Ranking 1st Share (%) 52.8% 30.3% 16.2% 69.3% 18.2%
Share (%) 7.1% 7.6% 9.3% 26.5% 7.8% 17.3% 22.9% 11.4% 12.1%
Share (%) 8.4% 7.0% 9.5% 25.5% 5.9% 15.4% 22.0% 10.0% 11.5%
th
th
1 1
st
4th 1st 4th 2nd 2nd 4

th
4th 1st 4th 2nd 2nd 4

th
3rd
st
2nd
3rd
23.5%
3rd
4th
2. Benefits of the Latin American foothold as stepping stone to the United States, China and Asia
2.1. Benefits in Latin America The benefits obtained in Latin America have proved many and varied. To start with, BBVA has consolidated its presence in the region, has obtained access to other markets of even greater growth, which is no mean achievement. Countless studies have shown that it in order to obtain a better-than-average combination of profitability and risk it is essential to be well positioned geographically and do business in markets having a growth potential above the average for the sector. At the same time it has acquired handson knowledge and experience of managing the foreign direct investment that first allowed this international expansion and, secondly, obtained a geographic diversity of earnings that, combined with the asymmetric correlation between the Latin American and Spanish business cycles, confers on the Group the additional advantage of managing cyclical risk. BBVA, as the second-largest Latin American banking Group, has also gained leverage in the world banking and financial community. For these reasons, BBVA is aiming its expansion strategy from the countries comprising its existing base, i.e., Spain, Mexico and South America, towards those where it sees new complementary opportunities likely to improve the creation of value. At present, its main strategic focus is on increasing its presence in those areas offering the highest level of growth: the United States and Asia, with special attention on China, where it has already achieved solid progress.
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To sum up, having and maintaining an extraordinarily solid franchise in Latin America is an advantage that allows the Group to tackle the promising expansion in the United States, Asia and, within that continent, China, prospects formerly beyond its reach that will finally enable it to become not just a multi-location Group but a genuinely global operator. 2.2. United States A fact that escapes no one, for its intrinsic importance, is that economic relations between Spain and the United States have yet to achieve the relevance due to the tenth and the first economic powers in the world. Foreign direct investment between the two to date is highly asymmetric. Whereas the US has traditionally been a major investor in Spain and of late the leading investor, Spanish investment in the US economy has been testimonial to date and only now is beginning to show substance. BBVAs presence in the United States dates back to the 1980s, when branches of BBV and Argentaria were opened in New York and Miami. But it was not until 2004 that BBVA decided to begin a second phase of expansion, on the basis of establishing a universal banking model as the logical extension of its successful deployment in Latin America. In this new venture, in order to cover the initial steps in building a franchise in the United States, the strategy was worked out to take advantage of the excellent route provided by the attractive Spanishspeaking or Hispanic market84. To this
n the main Mexicans and Central Americans make up 60% of the immigrants that arrive each year in the United States. In 2007 the Hispanic population become the I largest minority, and the wealthiest, surpassing the Afro-Americans. This was accompanied by a significant increase in the number of Hispanic entrepreneurs and company directors working for 100% American companies. In the United States BBVA is present in more than 35,000 third-party points of sale across all States. In Mexico it has 2,000 points of sale.
end it chose to maximise the synergies resulting from its leadership position in Mexico via Bancomer. It should be noted that the economic cycles of the United States and Mexico are closely linked and that Mexico is the second largest trading partner of the US. At the same time, two thirds of the Spanish-speaking residents of the United States are of Mexican origin, with the result that Mexico is the leading recipient of private funds remitted from the US. The expansion move was able to count on a number of synergies such as the remittance segment itself, which prompted the bank to set up a strong franchise, Bancomer Transfer Services, which rapidly became the market leader with 40% of the business. Then, having confirmed the evident advantage accruing from this base, the Group took the obvious next step, to acquire two local banks. The first was in California, the Valley Bank, and shortly afterwards, in Texas, the Laredo National Bank, which offered the opportunity of obtaining a key position in the voluminous frontier trade between Texas85 and Mexico. This move was reinforced with the acquisition of three Texan banks: Texas Regional Bancshares (2006), Texas State Bank (2006) and State National Bank (2007). The acquisition campaign in the frontier region between Texas and Mexico gave the Group considerable muscle in the area, making it the leading regional bank of the state, a circumstance that aided it considerably in its acquisition of Compass (2007) a bank that has a
strong position in the Sun Belt (the name given the strip of the US between California and Florida), the most attractive area for growth, with almost 100 million inhabitants, forecast to rise to 130 million by 203086. In 2009 BBVA acquired the assets of the Guaranty Bank from FDIC (Federal Deposit Insurance Company), thereby gaining a further 300,000 new customers, mainly in Texas and California. In this way BBVA-USA began building a unique network in the Sun Belt of the United States. By this time it
had a network of 784 branches in eight different States, from Florida to California, with a growth potential way higher than that of the average for the United States. As an indication, the estimated rate of growth of the population within the zone in the period 2005-2015 is 10.4%, versus a national average of 6.0%. With this operation BBVA-USA consolidated its unique US platform, greatly strengthening the Group as a whole in one of the main growth areas of the United States (Table 4).
Table 4. BBVA-USA. Main figures (2009)

Compass Bancshares (1) Assets Loans Deposits Employees Branches 71.3 43.5 47.2 13.9 784 Puerto Rico 6.6 4.2 3.0 1.1 53 BFH (2) 0.3 0.04 0.1 0.3 32 BBVA-USA 78.2 47.7 50.3 15.3 869
Leading franchise in the Sun Belt (3)

(1) The figures of Compass Bancshares are proforma consolidated and include those of Compass Bank Laredo National Bank, State National bank, Texas State Bank and subsidiaries. (2) Bancomer Financial Holdings (BHF) includes the former Valley in California and Bancomer Transfer Services (BTS) (3) Region of the United States comprising the Southern and South-Western States. Source: BBVA.
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86
Laredo is the fourth largest dry port in the United States and provides an excellent location from which to take advantages of the opportunities relating to the trade with Mexico, Texas being Mexicos largest trading partner. BBVA. Huellas y perspectivas. Amrica Latina, (Tracks and Targets. Latin America), in La Gran apuesta: Globalizacin y multinacionales espaolas en Amrica Latina. Anlisis de los protagonistas. (The Great Gamble: Globalisation and Spanish multinationals in Latin America: Analysis of the Key Players).
In less than four years from inauguration BBVA-USA has become the largest financial institution in the Sun Belt. It is the regional leader in the main metropolitan areas of Texas, third in the State of Alabama, fifth in Arizona and eighth in New Mexico, with a significant presence also in Florida and Colorado. The new BBVA-USA, to which we should add Puerto Rico, with nearly 14,000 employees and USD 6.6 billion in assets, required a total investment of USD 12.63 billion (Table 5). The main aim of the BBVA Group in the United States is to integrate its different franchises. To this end in the initial phase it integrated the three franchises comprising the Tristar Group in Compass, completing the process by incorporating Compass with BBVA-USA (Image 9). After all these operations, BBVA-USA is now among the top 20 banks by asset volume in the largest financial market in the world. This great achievement will help BBVA become a powerful organisation in the US and drive its future growth forward by mirroring BBVAs global approach. The BBVA Group, consolidated and fully operational, has taken a significant stride forward in terms of positioning by becoming the Official Bank of the NBA87, sponsoring the worlds top basketball league.
Table 5. BBVA-USA. Total investment in the United States (2010) United States
Valley Bank Laredo National Bank Texas Regional Bank State National Bank Compass Bank Total investment
Source: BBVA.
Total investment (USD M)

17 850 2,164 484 9,115 12,630
Image 9. BBVA-USA. Geographical location
Compass Bank Texas State Bank Laredo National Bank

Source: BBVA.
State National Bank BBVA Puerto Rico BBVA Bancomer USA
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t made its official presentation on Christmas Day 2010, coinciding with its first NBA-oriented advertising campaign, Team, Works. The spot ran in the nationwide I rebroadcasts on TV channels ABC and ESPN of five basketball matches on one of the days that recorded the most spectators.
2.3.China BBVAs presence in China dates back to 1985, when it opened a representative office in Beijing and its Hong Kong branch. Subsequently, in 2005, under the Groups Asia Plan, it opened another branch in Shanghai. In the course of the decade 2000-2010 China multiplied by a factor of four the size of its economy, which is now the worlds second largest with a GDP of USD 5.7 trillion, first in line behind the United States, with USD 14.6 trillion. One of the benefits obtained from this major growth is reflected in Latin America, where BBVAs leadership in project finance and trade finance provide it with the opportunity to triangulate transactions as trade relations between Latin America and China begin to gather pace (Image 10).
China has displaced the United States and is now the leading recipient of FDI and one of the main investors on the planet. It remains the worlds largest exporter and the most populated country, ahead of India in terms of potential economic growth, having recorded rates of nearly 10% over the last 25 years. This has allowed it to progress steadily from the fourth position in the world ranking to second place, a figure confirmed in the second quarter of 2010, when it edged past Japan. The Chinese market is so important to BBVAs expansion programme that in order to establish a base there it decided to take full advantage of the experience it had gained in Latin America, where it had established partnerships with top-ranking local players. Its first task therefore was to find a partner of these characteristics, with a distribution network, a customer base, the experience and the prestige that BBVA sought. The partner that met the bill was the CITIC Group (November 2006), the leading investment conglomerate in the Popular Republic of China and the countrys sixth-largest bank. BBVA signed a strategic agreement that covered two facets, China and Hong Kong, for a total initial outlay of EUR 989 million. BBVAs Chinese investment was carried out by buying a stake of 4.83% of China National Citic Bank (CNBC)88 for the sum of EUR 458 million and a purchase option of a further 10%. For Hong Kong, it acquired a holding of 14.58% in Citic International Financial Holding (CIFH)89 at a price of EUR 472 million, with the option of raising its stake to 30%.
Image 10. Latin American exports to China (in billions of dollars)

70 60 50 40 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: ITC based on COMTRADE
88
89
his Group is the investment vehicle of the government of the Popular Republic of China and is considered by the Council of State as the largest company in China. T This is the vehicle for international expansion of financial services. It is quoted on the Hong Kong stock exchange and has its headquarters there. It also operates in Shanghai, Beijing, Macao, New York and Tokyo.
The objective of the partnership with CITIC Group was both strategic and financial. In terms of strategy, BBVA obtained an agreement on exclusivity in developing business in different areas of the retail and wholesale banking markets. This agreement constituted the largest investment of a Spanish company in China and also positioned BBVA as the sole Spanish and Latin American bank with total operating capacity in the country. At the same time it provided it with important strengths from which to meet the challenge of growth in the financial services industry in Asia as a whole (Image 11). The strategy undertaken in partnership with CITIC Group is already bearing fruit. The positive results to date have allowed BBVA to gradually extend its positions in China. In 2008 it increased, as agreed, its presence in CNBC and CIFH to 10% and 30% respectively. It also reserved the option of buying an additional 5% of CNBC, a transaction that took place a year later, allowing the Group to reach a holding of 15% of equity. With these investments it is expected that within a period of three years Asia will contribute as much as 8% of total Group net profit. For CITIC Group, the alliance meant the backing of a front-ranked international operator such as BBVA, which greatly strengthened its ability to tackle the challenges posed by the growth and deregulation of the Chinese banking system. And for BBVA, it meant obtaining a broad presence in a very wide and important market, based on the confidence of a leading partner.
Thanks to these links, further cooperation has been developed by entering into new agreements and setting up new joint ventures. The first one will provide car loan services (BBVA will hold a 35% stake). This market grows at a 10% annual rate, with almost 11 million cars sold in 2010. The second joint venture will deliver private banking and pension services (BBVA will hold a 20% stake). BBVA has also forged alliances to deliver financial consultancy services, mainly targeting companies seeking to capitalise on increased trading flows between China and Latin America (Image 10). BBVAs long-standing experience and expertise in this area will enable it to provide its clients with financial services through local experts
Image 11. Presence of CITIC Group in China (2010)
Heilongjiang
Jilin Liaoning Xinjiang Gansu Inner Mongolia Hebei Ningxia Qinghai Shaanxi Tibet Sichuan Hubei Hunan Guizhou Yunnan Guangxi Fujian Henan Hangsu Anhui Jiangxi Zhejiang Shanxi Shandong
Guangdong
Hainan Source: Company Reports
To build on these measures BBVA has pressed ahead in further consolidating its presence in the Chinese market by signing an agreement with the CDB, the China Development Bank. This took place in the course of the visit to Spain by Chinese vice-premier Li Keqiang90. The purpose was further cooperation with a view to the Latin American market, to begin with corporate banking projects, foreign trade deals and other financial operations. This agreement is the first between a Spanish bank and a Chinese public bank under the direct jurisdiction of the government. CDB is one of the leading banks in terms of assets, having a significant international presence. It is also Chinas leading supplier of international finance, engaged in major operations with Argentina, Brazil and Venezuela, as well as an increasing involvement in Africa. By this means BBVA has reinforced its strategic bid for greater involvement in China and the whole of Asia, which in the course of just one year have practically doubled their contribution to Group earnings (China 75% and Asia 25%). The twin objective for both China and the United States is to boost as quickly as possible the Groups level of international business with a view to accelerating and diversifying foreigncurrency transactions to a point where they account for over 50% of turnover. At present, the Groups diversification strategy implies that an increasing
percentage of earnings will derive from emerging economies (Image 14). Aside from China, the Asia-Pacific area offers a wealth of opportunities for BBVA, from project finance in Australia to the possibilities in India or with Latin American clients having a presence in Asia. Finally, the main aim of BBVA in Asia is to make this its third source of growth. We end with the reflection voiced by BBVA chairman Francisco Gonzlez91: What does China offer a financial group such as BBVA? It is a question that challenges the thinking behind conventional answers. For a financial group, an abundance of low-paid workers is not, today, a source of competitive advantage, much as it may be for manufacturers. Nor is such a huge domestic market necessarily an attraction, given that in order to sell financial services there it will be necessary to win the confidence of potential customers, be able to communicate fluently with them, understanding fully the ways and manners of local culture. Thus, in order to respond to the question one needs to step outside the conventional answers and seek deeper reasons, reasons that one way or another take us to a vision of a global world in the 21st century 92.
he ceremony took place at the Spanish prime ministers residence, the Moncloa Palace, with the chairman of BBVA, Francisco Gonzlez, and the Vice-Governor, T Zheng Zhijie, affixing their signatures. 91 CIDOB. Anuario Asia-Pacfico, 2006. Barcelona. 92 For more detail, see Casilda, Multinacionales Espaolas. En un mundo global y multipolar. op.cit.
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2.4.Asia In recent times Asia has become one of the main drivers of world economic growth, accounting for 25% of GDP, a huge proportion when we compare it with other parts of the world BBVA is present in, such as Spain, Portugal and Latin America, that together make up 10%. The Asian economy is moving ahead very quickly, rising in 2009 by 8.3% and in 201093 by 8.2%. Asia accounts for 26% of world trade and is, moreover, the United States main creditor. This favourable economic position has given BBVA good reasons for expanding its wholesale banking franchise to the Asian region, where the countries leading the field are Japan, Indonesia, Singapore and India. BBVA, though it has been nominally present in the region for 30 years, began its Asian expansion programme in earnest in 2005, aware that no global banking strategy worth its salt could overlook the worlds fastest growing economy, largest landmass and greatest population (60% of the world total) and the two most populated countries in the world, China and India. The Group is now the leading investor in Asia and the second in Europe after HSBC, with operations in all the main Asian markets. To this end it now has five branches in the region: Singapore, Hong Kong, Tokyo, Seoul and Taipei. It is due shortly to open another branch in Sydney, as well as a representational office in Abu Dhabi, thus consolidating the regional network (Image 15). These branches offer wholesale banking and asset management (WB&AM) in all
business segments: Global Lending, Global Markets, Corporate Finance and Global Transactions. To keep pace it is taking steps to strengthen the teams manning these offices, taking on a significant number of new staff and other necessary resources. Asia as one of the banks major commitments is beginning to gain weight in the WB&AM sphere, with plans for high growth to be achieved by giving BBVAs global banking model greater depth and range. The Groups WB&AM branches in Asia are front-office units responsible almost exclusively for sales, back office being located in Hong Kong, which serves all Asian operations (save those that the local regulator requires be carried out on the branch site). Simultaneously, a separate team has been set up in Madrid to support these activities, given the significance of WB&AM business, which in 2010 obtained a profit of EUR 950 million (+11.4%). The Groups major Asiatic presence is in China, thanks to its strategic alliance with CITIC Group, China National Citic Bank, Citic International Financial Holding and Banco de Desarrollo de China. BBVA is one of the most active operators in trade and infrastructure finance in Asia. Also, it recently became the first Spanish bank able to offer its corporate customers transactions in renminbi. The business areas Trade Finance and Project Finance have allowed the Group to make good headway throughout the Asian continent. It has also put to good use its experience and capabilities in the area of retail banking. In this sense, remittance services play a major role, given that two-way immigration between Asia and Latin America is becoming more and more fluid and
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Banco Asitico de Desarrollo (2011).
BBVA, via Bancomer Transfer Services, based in Texas, handles all this traffic. Beginning in 2011, BBVA extended the range of its world footprint by establishing a base in India, using the experience gained in Latin America. This was achieved by means of a joint venture with one of Indias most prestigious banking groups, Bank of Baroda, the fifth-ranked bank of the country with 3,100 branches and 36 million customers. Cooperation began by developing the credit-card business. To this end BBVA acquired for EUR 34 million 51% of the Bank of Barodas credit-card division, Bobcards. Through Bobcards, BBVA plans to become one of the leading credit-card operates in the Indian market, issuing more than five million cards over the coming eight years, using its leading technology together with the most advanced risk-management tools and models.
Thanks to these agreements, BBVA is gaining ground as the second-largest European bank in Asia after HSBC. Aside from its agreements with CITIC Group, it is also developing its own wholesale banking business, thereby raising the total business volume in Asia to over USD 6 billion. Since 2005 the bank has doubled its activities in the area no fewer than three times and its earnings by eight times over, given that its strategy is not just to increase financial investment but to obtain greater growth, as a key component of its global banking strategy. It is also important to note that assets acquired and the partnership in China with CITIC Group represent two distinguishing characteristics on which BBVA has based its approach to the region. According to Plan Asia II, which provides for strengthening the regional base, the Group also plans to obtain greater leverage in investment banking: from 3.7% to 10%-12% in 2012. There can be no doubt that BBVA plans to have a dynamic in-depth presence in the Asian region (Image 12), with important ties to Latin America, as explained overleaf.
Image 12. BBVA Group. Presence in Asia (June 2011)
Pekn Shangai
Sel Tokio
Abu Dhabi
Hong Kong Mumbai
Taipei
Singapur
O cinas de representacin O cinas WB&AM
Sidney
Source: BBVA
2.5. Growing bond between Asia and Latin America The first decade of the 21st century saw a strengthening of economic relations between Latin America and Asia in both trade and investment. This was largely the work of China, a country that has assumed a leading role in the world economy and, in particular, in Latin America. In 2010, 35% of Latin American imports were Chinese, compared with 28% in the year 2000. Latin American exports to Asia also rose substantially in the last ten years, moving up from 20% in 2000 to over 30% in 200994. All the signs are that this trend will increase. A key component of this strong trade link between the regions is the complementary nature of the items exchanged. Latin Americas abundance of raw materials (agricultural produce, minerals and energy) matches Chinas need to secure the supply of such items to fuel its fast growing economy. The economic exchange has therefore done nothing but accelerate Latin Americas specialisation in providing primary products, i.e. commodities. Notwithstanding, the potential posed by this inter-regional trade extends beyond the present exchange. The growing trade relation between the two regions is bound to generate initiatives of an economic nature, such as the proliferation of free trade agreements or the liberalisation of the flow of FDI from Asia to Latin America. This will be just one plank of a system whereby Latin America can achieve its long-held ambition to diversify its exports by developing its own industrial and manufacturing base, seen as the key to modernising both local economies and,
by extension, Latin America as a continent. Aware of this, BBVAs international strategy, far from ignoring it, has taken full cognizance of the strength of relations between Asia and Latin America. What is more, BBVA has made this circumstance the cornerstone of its plan to build a key position in Latin America from which to foster and fortify increasing relations between the two regions, placing its financial know-how at the service of the endeavour. With this purpose in mind, BBVAs presence in Asia, which dates back to the end of the 1970s, has strengthened considerably in the first decade of this century. As stated above, BBVAs participation in the CITIC Group makes it the leading Ibero-American bank on the Asian continent. It also has a broad network of branches and representational offices in the region (Image 12). In many cases this network is accompanied by operating units that allow the Group to broaden its range of financial services to Asian customers by means of trade finance, project finance, treasury management, etc. These activities outside the realm of Latin America will be amply strengthened by the agreement with the China Development Bank (CDB), now fully focused on Latin America. The CDB is fully aware that BBVA, as the leading bank in Latin America, is also the bank that has invested most in China and India, making it of the utmost importance in valuing the fruit of this strategy to take into account the position of China in the region, now on a clear upward curve as major investor in Latin America, alongside Spain and the United States, the former protagonist.
Table 6. BBVA Group. Internationalisation and acquisitions outside Latin America 2006-2010 China
2006 2008 2009 CITIC Group Extension of the strategic agreement with CITIC Extension of the strategic agreement with CITIC Valley Bank, Laredo National Bank State National Bank, Texas State Bank Compass Guaranty Bank Garanti Bank Bank of Baroda
USA
2004 2006 2007 2009
Turkey
2009-2010
India
2010
Source: BBVA
BBVA is making a strong investment effort in all the emerging markets it is present in. Its outgoings in such regions are rising by an average 14.4% per cent per annum, compared with just 2.5% in the developed world. To give readers an idea, BBVAs headcount climbed to 106,975 in 2010, most of the increase being deployed in the emerging nations (+4.7%).
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IMF figures (2010)
3. BBVA: Global consolidation

To provide an overview of BBVAs consolidation as a world-leading international franchise, with all the signs of a truly remarkable process of international development, below we set out by region and country the results of the last six financial years (2004-2010), which show the steady increase in earnings, together with other management indicators of the business areas concerned. The tables also give the annual average growth rate (AAGR) for each item per region. Before doing this, however, by way of illustration to give readers an idea of the breadth of the Groups international consolidation, we devote a few lines to a significant acquisition undertaken in Turkey 95 in November 2010. Turkey is Europes gateway to Asia. It has one of the largest and youngest populations in Europe, 75 million, of whom 50% are less than 30 years of age. In 2010 Turkeys GDP rose by 8.9% and average earnings topped USD 10,080. The rate of unemployment was 11.9% and inflation 6.4%. Turkey has a strong financial system ripe for development, thanks among other reasons to the countrys demographics, the low level of borrowing and high recurrent earnings. Last year BBVA acquired a holding of 24.9% in the Garanti Bank96, technologically one of the worlds most advanced banks (the other is the independent Indian bank ICICI, ranked third in terms of deposits after the State-owned banks Ziraat and Isbank, but first in assets (EUR 60.0 billion) and credit cards). Garantis customers number 9.5 million, attended by an 863-strong branch network and blessed with a business acumen that makes it a perfect complement to BBVA in the way it sees the future of banking, with the emphasis on innovation and technology it has the best in Turkey and is already Turkeys head-and-shoulders leader in on-line business. Turkey is now negotiating its entry to the European Union and its financial system has the potential to provide all the benefits of an emerging market. The agreed price was EUR 4.19 billion and to raise it BBVA undertook an equity increase of EUR 5.0 billion97. This significant capital increase was welcomed by the markets and the banks own shareholders at a particularly delicate point in time, which evidenced the confidence in the strength and business acumen of the bank in undertaking an exercise that will contribute in no small way to the strength of BBVAs geographical diversification. 3.1. South America First it should be said that the successful track record of the last few years in different countries has earned BBVA a number of financial and banking awards, given by, among others, Global Finance, which recognised the Continental bank as Perus best banking house and the Provincial as the number one bank in Venezuela. BBVA Colombia received the same distinction from The Banker and, with respect to its corporate governance, social responsibility and ethical standards, on behalf of Latin Finance. Euromoney, meanwhile, singled out BBVA Paraguay as its recommendation, for the fourth consecutive year. According to the main management indicators of the Groups balance sheet over the period under consideration, 2004-2010, asset volume and earnings showed continuous growth in this region, as a consequence of the ongoing programme of consolidation of the different businesses undertaken by the Group (Table 7). The continuous rise in profits in the main countries in which the Group operates can be seen in Table 9. Colombia is outstanding, with an increase from 2004 to 2005 of 70.67% due, among other factors, to the acquisition of the Granahorrar Bank, which made BBVA the national leader in mortgage lending. In terms of management indicators, we highlight the noticeable improvement in the efficiency ratio98 and default containment, which demonstrates the banks risk management capability, succeeding in containing costs even in a major downturn (Table 8). Despite its efforts, in 2010 the bank noted a slowdown in profits due to the negative effect of changes in exchange rates, particularly the devaluation of the strong Venezuelan bolivar. In South America, 2010 was noted for the sizeable increase in business volume (+21.5% in investment and +19.2% in resources), which translated into gains in market share and strong P&L figures. Attributable profit in the region improved by 16.5% to EUR 989 m. The delinquency ratio also improved, coming in at just 2.5%, with cover of 130%. Pensions and Insurance America had a very busy time on the institutional front with multilateral organisations (OCDE, IDB, World Bank), regulators and government. One of the fruits of these encounters was the arrangement hammered out in the last few years to work on various reform programmes for pension systems in Latin America and specialist reports such as Evaluating the Financial Performance of Pension
In 2010, Spain was Turkeys eighth-largest customer (EUR 3.06 billion) and eighth-largest supplier (EUR 3.75 billion). Recommended best bank in Turkey in 2010 by the magazine Euromoney for the tenth time. 97 The capital increase was a success. A third was taken up by BBVAs own customers and the other two thirds went to institutional investors. 98 Percentage of income absorbed by costs. The lower the ratio, the greater the efficiency of the bank (and the greater its stability in times of crisis). It will also have greater capacity to increase profits subsequently.
95 96
Table 7. South America. Business Indicators (I) 2010

Total assets Net profit Net interest income Net margin 51,663 1,273 2,495 2,129
2009
44,378 1,172 2,566 2,058
2008
41,600 1,078 2,149 1,170
2007
34,678 905 1,746 1,427
2006
30,496 726 1,310 1,163
2005
28,248 552 1,039 861
2004
23,485 373 1,013 612
TAMI
14.04% 22.70% 16.21% 23.09%
Funds, Balance y proyecciones de la experiencia en infraestructura de los fondos de pensiones en Latinoamrica (Outcome and Projection on the experience of the Structure of Pension Funds in Latin America) or The Challenge to Extend Pension System Coverage. These studies were all conducted internally in the Pensions and Insurance America Unit, in cooperation with a multi-disciplinary team headed by BBVA Research. The know-how gained in such exercises is now being applied in the development of pension provision in China, where a task force has been assigned to develop the project, one of the most important ever undertaken by the Group in terms of size and scope. 3.2. Mexico In a manner similar to the case of South America, business in Mexico showed good forward progress. As the figures indicate there was a surge in balancesheet and management figures between 2004 and 2005. This was due, among other factors, to the incorporation of Hipotecaria Nacional in January 2005. (See Tables 10 and 11.) In 2010 Mexico showed an increase in attributable profit of 11.9%, EUR 1.70 billion, with a growth in business activity that accelerated from quarter to quarter in both investment and customer resources. The franchise gained market share in the main business segments corporate business, government business and credit cards outperforming its rivals. The delinquency ratio improved by more than a whole percentage point to end at 3.2%, while coverage improved to 152%.
Figures in EUR m. Source: BBVA Annual Reports 2010-2004.
Table 8. South America. Business Indicators (I) 2010

Customer deposits Delinquency ratio % Customer loans Efficiency ratio 36,070 2.5 31,512 43.9
2009
31,528 2.7 26,223 43.4
2008
29,374 2.1 25,224 44.5
2007
22,434 2.1 22,434 47.2
2006
21,667 2.7 17,366 45.9
2005
19,864 3.7 15,018 49.0
2004
17,408 4.2 12,456 49.3
TAMI
12.91% N/A 16.72% N/A
Table 9. South America. Earnings in the main countries 2010

Colombia Peru Venezuela Argentina Chile 369 480 376 252 235
2009
365 412 491 258 214
2008
336 336 541 227 165
2007
257 257 428 270 213
2006
165 209 222 353 186
2005
128 194 120 250 158
2004
75 133 155 163 115
TAMI
30,41% 23,85% 20,97% 7,53% 12,65%
Table 10. Mexico. Business indicators (I) 2010

Total activo Beneficio neto Margen de intereses Margen neto 75.152 1.711 3.688 3.597
2009
62.857 1.361 3.307 3.319
2008
60.704 1.939 3.716 2.634
2007
65.578 1.882 3.505 3.397
2006
53.170 1.713 3.252 3.102
2005
56.819 1.388 2.462 2.218
2004
45.957 862 1.766 1.581
TAMI
8,54% 12,10% 13,06% 14,68%
Table 11. Mexico. Business indicators (II) 2010

Customer deposits Delinquency ratio % Customer loans Efficiency ratio 38,051 3.2 36,526 34.6
2009
31,252 4.3 28,996 31.9
2008
29,677 3.2 28,664 33.1
2007
31,218 2.1 29,878 35.1
2006
32,595 2.21 23,480 34.0
2005
34,909 2.34 20,378 40.6
2004
27,571 2.94 11,292 44.3
TAMI
5.52% N/A 21.61% N/A
3.3. United States Thanks to the growth in business volume in this market in 2007 (year of the acquisition of Compass) the United States became the Groups third largest market after Mexico and Spain. At present this area includes the business that the Group conducts in the United States, Puerto Rico and the BBVA branch in New York (Table 12). In 2009 as a consequence of the banking crisis in the US, BBVA conducted an extraordinary audit of goodwill and its loan portfolio, which resulted in a fall in profits and a rise in the delinquency ratio in that year (Table 13). However, the above figures reflect once again the high capability of the banks cost and risk management team, as there was an ongoing improvement in margin, accompanied, over the last two years, by a 260-point reduction of the efficiency ratio. In the United States in 2010 management attention remained focused on customer loyalty, credit quality, driving cross sales and customer
profitability. Investment increased in the low-risk, loyalising lending formats, thus favouring an improved mix in the loan portfolio overall. This policy resulted in a decline in loan write-offs of 51.8%. The delinquency ratio was 4.4%, with coverage of 61%. The net attributable profit obtained in the region was EUR 236 million, compared with the EUR 100 million earned in 2009, with no atypicals. 3.4. Key success factors in internationalisation As stated above, it is clear that among the key factors of the success of the BBVA Groups internationalisation lies continuous development, i.e., transforming and adapting the organisation to new management processes and the prevailing economic climate. On this basis, multidisciplinary work teams can be located in different regions, making for seamless management know-how across all the banks that comprise the BBVA Group. Another of the factors is that BBVA adopted a conservative and prudent strategy that allowed it to anticipate
correctly the complex situation arising from the world economic crisis affecting the national and international financial system, making it imperative to maintain the risk-benefit balance. Other looser, risk-prone strategies may throw up significant profits but can equally give rise to major consumptions of capital and increase the risks assumed, which in times of instability can unbalance the risk-benefit equation. To which end, in this new period of consolidation the target aimed at is that of increasing and broadening the Groups global penetration on the basis of strengthening its key offices and branches, which comprise a triangular framework formed by London (main European bond market and currency transactions), followed by New York and Hong Kong. These measures are all designed to provide the best and most effective attention both to the needs of current and prospective global customers, and also to achieve new sources of business, a goal that requires viewing the business as one would a transaction, in a broader, more global context. At the end of the day this international growth strategy is the logical way forward to extending and expanding the recognition afforded to BBVA as a global bank, while at the same time compensating the difficulties of obtaining earnings on domestic operations where the slowdown in the Spanish economy makes this problematic.
Table 12. United States. Management Indicators (I) 2010

Total assets Net income Net interest income Net margin 57,613 236 1,794 1,029
2009
77,896 -950 1,679 1,048
2008
74,124 308 1,471 843
TAMI
-11.84% N/A 10.43% 10.48%
Figures in EUR billions. Source: BBVA Annual Reports 2010-2004.
Table 13. United States. Management Indicators (II) 2010

Customer deposits Delinquency ratio Customer loans Efficiency ratio
Figures in EUR billions. Source: BBVA Annual Reports 2010-2004.
2009
60,963 4.2 41,122 56.6 4.4
2008
50,517 2.5 41,574 62.2
TAMI
-9.52% N/A -2.44% N/A
41,354 39,570 59.6
4. A final reflection
4.1. BBVA: coming from the past, looking to the future Regardless of the curiosity, agreement or disagreement this case study arouses, I wish to state my acknowledgement and conviction that an understanding of the background has advantages of immediate application. History, witness to the past, may also be our lesson for the future. This may well be true in the case of BBVA and this account of its internationalisation in Latin America as a first step towards global expansion. Indeed history, faithful reflection of the past, is also a reference point for the future, bearing in mind that engaging in international banking requires large doses of prudence with respect to new markets, above all because it requires an idea of permanence and thus of commitment. It is a long-term exercise, to the detriment of the short-term thinking that plagues domestic markets. It is history and tradition that introduced prudence in the banking profession, the quality that constitutes, as Bagehot held, bankings saving grace. When prudence fails, turbulence of one kind or another steps in and, with it, more often than not, discredit. On this point it would be true to say that whereas men pass like shadows, many of the tasks they undertake collectively survive, allowing them to transcend their temporal limits. Hence, the inherited tradition of a company acts as a counterweight, instilling a sense of decency, that refusal to scatter to the winds of time the few essential things that constitute the soul of institutions99. This is the case of the BBVA, which looks to the future from the vantage point of its long history and from this heritage of firmly held business and human values that make it a banking and financial byword in Spain and in the world. In this respect, the awards and recognitions are legion, both in Spain and internationally. In 2011 the financial weekly Actualidad Econmica awarded the bank, as it had in 2007, the title of best bank, the bank most people wanted to work for. It won on a score of 920 points out of 1,000. BBVA combines the most competitive salaries of the banks reviewed with one of the most valued working environments. The points given were as follows: talent 200, pay and conditions 195; working atmosphere 195; corporate governance 50; training 210; employees valuation 70. 4.2. BBVA: A global bank Only a few years ago it was true to say, based on reliable studies100, that the worlds 500 largest multinationals, i.e., companies that produce and/or distribute products and/or services beyond their national borders, in reality were no such thing. The truth is that of these multinationals, hailed as forerunners and drivers of globalisation, very few are genuinely global companies, i.e. companies that practise or exercise a global strategy, however much they claim the title, on the basis of being able to sell the same products and services throughout the world. In reality, most of these 500 companies are based in their region. They are firms that are very active internationally within the markets of their own region, but not across different regions.
99
100
Jos A. Snchez Asian, chairman of Banco de Bilbao. Alan M. Rugman: Regional Multinationals, Editorial Akal, Madrid, 2007 (Spanish translation)
Image 13. BBVA Group. Global presence (2010) North America Asia
China Japan Korea USA Taiwan Australia
India Mxico Spain Singapore
Interestingly, of the 40 most internationalised banks listed in 2002, not one was a global bank as such. All were focused on their region of origin, from which, obviously, most of their income derives. The average percentage income achieved within the region of origin of these 40 banks was 78.3%. In this respect BBVA was the odd one out. It obtained from its host region, Latin America, 50% of its turnover, with a clear prospect of this proportion increasing over time. One of the conclusions reached by Rugman101 is that the distribution of income from outside the region of origin of these 40 banks, whose higher proportion of income ex-region of origin is associated with higher earnings, indicates that a greater volume of resources is required to obtain meaningful access to other regions. This is the case with BBVA, whose proportion of income from outside its region of origin is greater than that of all other European and US banks in Latin America. Thus I leave for reflection the following question: Has the position of multinational companies changed, as Rugman claims? Has globalisation genuinely made companies more active outside their region of origin, to the point where they are truly global, with a global strategy, as is the so-called BBVA case study (Image 13), whose international income accounts for 57% of total income (CNMV 1st quarter results 2011)?
South America
Panama Colombia Ecuador Peru Bolivia Chile Puerto Rico Cuba Venezuela Brazil Paraguay Uruguay Belgium UK France
Europe
Russia Germany Switzerland
Portugal Italy Turkey
Argentina Source: BBVA Note: The BBVA Group has a global presence across the four continents: 48 million customers, 7,400 branches and 106,976 staff.
101
Rugman, 2005.
Part Three: Conclusions, annex, bibliography, acknowledgements and contacts
Nombre seccin61
Conclusions
In less than a decade, BBVA has changed from being a bank operating exclusively in Spain to becoming a leading worldwide franchise operating in 31 countries, with nearly 48 million customers distributed over four continents, over 7,400 offices and a staff of 106,976 (2010)102, the majority located in Latin America (65,000), where its presence extends to 14 countries accounting for 49% of total profit (2010). BBVA began its geographic diversification move in response to the increasing maturity and saturation of the Spanish market. In this context, the first phase of expansion took place in South America and Mexico, regions that offered the best prospects thanks to the cultural affinity, scant banking development, high net interest income, growing population and the untapped potential of local economies. In the second stage of its expansion up to the present, BBVA has practised a strategy in which its internationalisation process is oriented more towards high-yield markets. Hence, having consolidated its leadership position in Mexico and South America, it considers that, to a large extent, its model can now be applied in those areas of the world presenting greater opportunities for creating value. Throughout the entire expansion stage the bank has completed a successful process of internationalisation, carried out in two phases: the expansion phase conducted in Latin America and, subsequently, geographic diversification, taking it to the United States and Asia, thereby converting it into a global bank based on a act local, operate global model. BBVA has as its priorities the North American and Asian markets, where China stands out as the part of the world now achieving huge progress. In the United States, after an initial approximation phase, supported by the leadership position of Bancomer in Mexico and focused on the broad-based Hispanic market, it has achieved another step in its strategy of extending its universal banking model across the entire southern flank of the country by establishing BBVA-USA, which, aside from putting it within the 20 leading US banks, makes it the top bank in the Sun Belt, economically the most attractive and fastest-growing area of the United States. BBVA entered the Asian market at just the right time, when the Chinese financial system was opening up in a period of maximum economic growth. Its strategy, which has been open and transparent at all times, is based on setting up branches in the main financial centres and, in the case of China, in partnership with a local bank of the size and standing of the CITIC Group. This partnership makes BBVA one of the global banks best positioned in the region, being the second-largest European bank and one of the only six banks in the world to have formed a strategic alliance with a top Chinese bank. As its chairman, Francisco Gonzlez, said, BBVA has its sights set on expanding in the United States and Asia, not forgetting Latin America, the market it knows very well103.
102 103
hese figures do not include the Garanti Bank in Turkey. T Francisco Gonzlez, speaking on a visit to Bogot, Colombia, on 14 September 2010.
BBVA holds that the development of banking is the key component in achieving future progress for the people and for the wealth of nations. Its effectiveness necessarily requires a substantial reduction in prices and new financial products and services adapted to the circumstances of each of the regions and countries it operates in. For example, in Mexico it is estimated that the potential for banking penetration exceeds 30 million people, the majority of whom at the present time comprise the segment of the population with the lowest per capita income. BBVA understands that the development of the sector means incorporating new business models, based in the main on electronic transactions (new technologies), relegating over-thecounter operations, the nuts and bolts of conventional banking, to a secondary role. BBVA conducts a broad range of financial training activities as part of its ongoing effort to improve the level of its corporate governance standards. Specifically, under the heading Global Financial Education Plan, in Spain, Portugal, Latin America and the United States it has set in train an activity that has benefited more than a million persons. The plan has two programmes, focused in the main on banking development in Latin America and on contributing to education of children in the competences and values associated with the use of money. Its focus is based on the corporate vision and culture of the Group and enjoys the backing of the worlds leading international organisations and authorities.
In 2007 the BBVA set up, as part of its corporate governance policy, the BBVA Microfinance Foundation, a non-profit making institution whose aim is to foster economic and social development among the least favoured members of society by means of productive microfinancial techniques and components. To this end the foundation is building a network of microfinance operators in Latin America either by integrating and/or strengthening them as corporate subsidiaries of existing banks or as stand-alone entities in which the foundation takes a majority stake in all cases, assuming responsibility for their management. The purpose of this process is to establish fully integrated coherent organisations sharing a common goal: to extend as widely as possible the benefits of microfinance among the lowest paid. At present the foundation is active in Puerto Rico, Panama, Colombia, Peru, Chile and Argentina, with 4,400 staff and 435 offices, that have funded microloans of EUR 805 million of an average amount of EUR 700 to 950,000 borrowers, having an aggregate social impact on 3.5 million persons (June 2011). This initiative is regarded as just one more example of the Groups globalisation and its commitment to social progress. BBVA has also committed itself to continue to foster education in Latin America by means of the broadest alliance yet entered into between a private company and an international organisation, in this case, the Organization of Ibero-American States (OEI), as part of this bodys project Metas Educativas 2021 (Educational Targets 2021).
BBVA is very conscious that this will contribute to strengthening and defending Latin American banking and financial institutions, which play a key role in safeguarding and stimulating the activities and competitiveness of companies and households, improving incomes and achieving greater economic stability, together with a more favourable environment for foreign investment and trade, all of which will eventually result in greater economic development and long-term wellbeing, i.e., a self-contained self-fulfilling virtuous circle. BBVA consolidates its strategy of integrating its Latin American, US, Asian and European banks by means of a flexible integrated personnel policy. Focused on a talent management strategy comprising comparable selection criteria, performance and on-the-job assessment that uses such training tools as Proyecto Conoce, with the concept of e-learning as the shared criterion throughout the Group, the underlying idea is to integrate culture and competence in a Group-wide process of transformation and innovation extending to all persons working for BBVA. One of the reasons behind the success of the Groups internationalisation process is its ability to quickly adapt management processes to local conditions. This allows the bank to set up multidisciplinary workgroups in different geographic locations, thus facilitating shared knowledge management among the different Group banks. In the first phase BBVA was able to maximise its competitive strengths and advantages to establish its strong
Conclusions63
foothold in Latin America and, subsequently, extend its presence to the United States and Asia, making it a global, structurally innovative enterprise employing banking techniques designed to transform the business to meet the demands of a forward-looking global concept while fully respecting local conditions and customer demands as an intrinsic part of its quality service and operational capacity. On the basis of this corporate strategy and values, the bank intends to establish itself as a world leader able to see ahead to cater for new customer demands and preferences from an innovative valueadding perspective while continuing to nourish local loyalties. In 2010 the Group, as part of its strategy to establish itself in the countries of maximum growth, identified the group known as the EAGLES (Emergent and Growth-Leading Economies) whose contributions to world growth over the next decade is calculated to surpass that of the G-7 countries. Today it is present in two of them, Mexico and China, and thanks to its investment in Garanti it has also secured a place in Europes lone EAGLE, Turkey. BBVA is one of the pioneers. For the last five years it has been working continuously on upgrading the flexibility of the worlds financial system. The challenge it faces is to adapt itself rapidly to the conditions prevailing among the new league of international financial players, noted for their intensive use of new technologies. Over
the last five years104 BBVA has invested EUR 1.5 billion in IT. By means of this technological upgrade it has set its sights on radically improving the banking facilities available to the largest possible number of inhabitants. With respect to the regulation of central banks and the bank regulatory authorities of 27 countries, known as Basel III105, focused in the main on solvency, liquidity and leverage in their joint effort to strengthen the international financial system, BBVA meets in full all conditions, surpassing many of them. Its core capital is at present (2010) EUR 30.1 billion, giving a core ratio of 9.6% (2010). In terms of capitalisation BBVA is one worlds most capitalised banks thanks to its ability to generate capital organically (70 basis points in 2010 alone) and to the successful capital increase undertaken at the end of last year, only part of which was used to offset the acquisition of its stake in the Turkish bank Garanti. In consequence it ended 2010 with a core capital of 9.6% (8.0% in 2009), a circumstance that gives it a notable advantage in meeting the latest requirements of Basel III. Its tier-one capital ratio now stands at 10.5% while its BIS ratio is 13.7%. BBVA stands by its commitment to Latin America by means not only of a major economic outlay but also in social terms, as demonstrated, for example, by its many initiatives of a social and humanitarian nature, such as its grant programme to support disadvantaged children, teenagers and their families in Mexico by helping to counter drug abuse
through close cooperation with the Foundation for Help against Drug Abuse or the Parrot project, directed at improving reading abilities and the ground rules of responsibility, self-help, dialogue and teamwork. The schemes are aimed at Venezuelan infants of school age living in one of the most deprived areas of Callao, home to 120,000 people deprived of even the most basic social amenities106. In Peru it supports the Pachactec Labour University, located in one of the most problematic areas of central Lima. There, too, it facilities access training courses to enable young persons to enter the labour market, as well as providing the opportunity for mothers and young persons to set up small businesses. It continues to support the Ruta Quetzal, one of the best known and most appreciated initiatives of the bank. From a position of management strength in depth and secure competitive intuition, BBVA is ready to meet the Zeitgeist or spirit of the new times marked by entry in the new century beginning, unhappily, with one of the worst financial crises on record. However, taking heart from Schumpeters creative whirlwinds, BBVAs corporate energies are geared to setting in train a new global multipolar economic geography, that of the 21st century. BBVA aims at a better future for people. Its watchword is adelante go ahead which synthesises both what it does and what it wants to do as one of the leading world banks of the new century: a great in both senses of the word
rancisco Gonzlez; see <http://www.infolatam.com/2010/09/15/> F All these measures include a period of adaptation, beginning in 2013 and ending in 2018. 106 See <http://www.diocesisdelcallao.org/content/view/45/>
104 105
service distribution company offering a better life for people and for companies107. The Group has become a major financial services company whose secret resides, as always, in its known ability to respond positively to changing conditions. It continues to run before the wind thanks to its capacity to make and materialise its many competitive advantages: a safe hand on the administrative tiller, the nous to spot opportunities, and the skill to respond to change. It also has an excellent record in personnel management and, thanks to its honest reporting, the ability to get all stakeholders, i.e., investors, staff and customers, fully on board. As a result, it has the confidence to speak to the world at large, whose prosperity it is confident of furthering, frankly and openly108. BBVA is one of the four Spanish corporates invited to join the new platform of the World Pact, an initiative of UN Secretary General, Ban Ki-moon. 54 companies signed up to the groundbreaking project formally adopted at Davos 2011 to establish the ambitious Sustainability Roadmap and thus demonstrate their leadership abilities in tackling the worlds greatest challenges, among them climate change, poverty and humanitarian emergencies. This platform, sponsored by the United Nations Fund, represents a new reference point in corporate sustainability. BBVA continues to strengthen its social commitment with the aim of obtaining a brighter future for all peoples. Progress
has been achieved in incorporating a high level of corporate governance throughout the Groups value chain. At the same time it has reaffirmed its commitment to the UNs World Pact, in particular, its Millennium Development Goals. It has also included for the first time in its annual report, as an integral component, the information on corporate governance, thus anticipating the innovations adopted at world level by means of the Global Reporting Initiative. In the course of 2010 BBVA obtained a net profit of EUR 4.60 billion, an increase over 2009 (EUR 4.21 billion) of 9.4%. Net interest income rose to EUR 20.91 billion. The result was an historic high, supported by adequate diversification by the Group in terms of geography and business lines, moves that will allow it a high level of recurrent earnings, and in terms of a successful strategy with respect to investments and provisions. Geographically, 58.1% of gross interest income was obtained in Asia and America, compared with 53% in 2009, thereby offsetting the smaller proportion from Spain (EUR 2.07 billion, 9%), allowing the bank to take advantage of the difference in performance among its various geographical areas. In terms of solvency BBVA is the leading European bank. Its resilience under the stress tests conducted by the European Banking Authority (EBA) confirmed that of the continents major banks BBVA is the most solid and the most solvent. The results showed that even under the
worst-case scenario its solvency, i.e. its Tier-1 core capital ratio, would rise to 9.2%. If we add to this the share issue carried out in July 2011 and generic provisions, its core capital would reach 10.2%*. BBVA chairman Francisco Gonzlez said on 15 July 1011, the day the results were announced: We have shown once again that we are one of the most solid banks in the world. We have passed the stress tests with flying colours for three reasons: we are present in more than 30 countries; we are cautious in terms of risk; and we have made a large investment in technology and innovation. BBVA, in the opinion of the ratings agency Standard & Poors, is standing up to the crisis well and out of the 50 largest European banks it ranks No. 3, with a rating of AA (September 2011). The only banks it has yet to catch up with are the Dutch bank Rabbobank (AAA) and the UKs HSBC (AA). I conclude by saying that bankers at the end of the 20th century were obliged to expand their vision of the world and those of the 21st century will have to expand it a great deal further. In doing so, in no way do they differ from their forebears of Florence, Genova or Amsterdam. Risk will continue to be their business and confidence their raw material, the same raw material that always has been and always will be what banking is all about. As for the information on customers and markets, technology will place us in even better shape to cater for risk. Our new IT and communications
ee Francisco Gonzlez, BBVA presentation: BBVA. Ciento cincuenta aos, ciento cincuenta bancos (A Hundred and Fifty Years, a Hundred and Fifty Banks), S Madrid, 2007. 108 See Manuel Jess Gonzlez, Rafael Anes, Isabel Mendoza: BBVA. Ciento cincuenta aos, ciento cincuenta bancos (A Hundred and Fifty Years, a Hundred and Fifty Banks), Madrid, 2007 * For detail see : Las pruebas de resistencia a la banca europea 2011. Informe del Centro del Sector Financiero de PwC e IE Business School. Madrid, 2011.
107
Conclusions65
Image 14. BBVA, a highly diversified Group (1st half 2011)

South America 20% Spain and Portugal 33%
United States 11%
systems will continue to mould the nature of banking in new ways, to the point at which the business as we understand it today will be radically different, as technology alters its whole appearance. Banking as we now know it will be replaced in much the same way as coins were replaced, first by paper, today by electronic money.
Mexico 27%
Eurasia 8%
Source: CNMV 1st half 2011. Note: Profit: Emerging 53% Developed 47%
Image 15. BBVA Group, world presence
Banks
Argentina China Chile Colombia USA Spain India Mexico Panama Paraguay Peru Portugal Puerto Rico Turkey Uruguay Venezuela Source: BBVA
Pension fund managers

Bolivia Chile Colombia Ecuador Mexico Peru
Branches
Brussels (Belgium) Frankfurt (Germany) Hong Kong (China) Milan (Italy) London (UK) Miami (USA) New York (USA) Paris (France) Singapore (Singapore) Tokyo (Japan)
Representational Offices
Abu Dhabi (Abu Dhabi) Beijing (China) Geneva (Switzerland) Mumbai (India) Moscow (Russia) So Paulo (Brazil) Seoul (South Korea)* Shanghai (China) Sydney (Australia) Singapore (Singapore) Taipei (Taiwan)* *Pending conversion into branches.
Image 16. Sun Belt strategy fits in perfectly with development in high potential markets (2010)
Sun Belt
Spain
Mexico
Economic weighting
Percentage of world GDP
8.1%
2.7%
1.8%
Potential GDP Population

(m) 2006
3.0%
2.8%
3.6
97.5
45.5
106.3
Population growth
Average population growth 2006-2030
1.8%
0.6%
0.6%
Per Capita Income
Per Capital income, 2006
38.150%
32.090%
9.717
Fuente: BBVA.
Image 17. BBVA-USA. Sun Belt Franchise (2010) Colorado

BBVA Compass Bank USA Bank BBVA Bancomer USA
36 branches 77 branches 92 branches
Arizona
Alabama
California
84 branches
411 branches
Texas
New Mxico
22 branches
45 branches
Florida
State
Texas Alabama Arizona Florida
Fuente: BBVA.
Deposit Mkt Share

6,4% 9,9% 3,8% 0,6%
State Rank
4th 3rd 5th 23rd
State
Colorado New Mxico California
Deposit Mkt Share

1,2% 2,8% 0,3%
State Rank
19th 8rd 28th
Conclusions67
Annex: T he world economy in 2050109

One of the most significant changes at the start of the 20th century was when the United States overtook Britain as the worlds largest economy. Similarly, one of the most important changes at the beginning of the 21st century was when China became the worlds second largest economy. In absolute GDP terms (measured at market prices) China is scheduled to become the leading world economy in 2032, pushing the United States into second place. India, by about 2045, will also overtake the United States (measured in PPP) achieving an economy 14% larger. India at that stage will presumably become the worlds strongest economy, growing at an average annual rate of 8.1% thanks in the main to the youth of the population, which is now growing at a rate that outstrips China. But the world will not only dance to the rhythm of Bollywood films the Brazilian samba will also get a look-in. Brazil is due to overtake the United Kingdom in 2014 and Germany in 2025. In 2050 it will be the worlds fourth-largest economy. Over the next 40 years this upward drive by the emerging nations means that China will overtake the United States in 2018 and become the strongest economy in the world (measured in purchasing power parity (PPP)). Thus, by 2020 the sum of the economies of the seven leading emerging nations, i.e., China, India, Brazil, Russia, Mexico, Indonesia and Turkey, will outpace that of the G7, i.e., United States, Japan, Germany, United Kingdom, France, Italy and Canada. By 2050 their GDPs will be 64% larger than the combined GDPs of the present world powers. Spain will presumably follow the downward trend of the rest of the European nations. Although its growth over the next 40 years is forecast to be 1.9%, higher than that of France, Germany and Italy, it will still slip down the scale. If measured at market prices, it will move from 12th place in 2009 to 18th in 2050, overtaken by Indonesia, Canada, South Korea, Turkey, Nigeria and Vietnam having lost its position in the worlds top ten in 2012, being overtaken by India and Russia. The European Union will only retain its significant role in the world economy if it acts as a single entity. The size of the economies of its 27 present members110 will match the scale of the three largest economic powers in 2050: China, the United States and India, and will generate almost half the economic activity of the planet, compared with the 40% they accounted for in 2010. China, once the worlds first power, will lose its growth drive. This will gradually slow down as the population ages, result of the one-child-only policy that has been in place now for more than 30 years. It will also have to pay a temporary toll in terms of growth if it replaces its present industrial policy of imitation by one of development and innovation. India, the other winning country, whose GDP in 2009 was equivalent to 2% of the world economy, could reach 13% in 2050 if the forecasts prove correct. To take full advantage of this growth
109 110
Note based on the report, The World in 2050, PwC, London 2011. stonia, country number 28 of the EU, officially joined on 1 January 2011, with the result that this study did not register it. E
potential it should maintain its present conservative budgetary policy, open its borders to foreign investment and international trade, significantly increase its investment in transport and energy infrastructure and improve all its educational standards, particularly those relating to women and the rural population. This world dominion of the two Asian nations presupposes a return to the times prior to the industrial revolution of the 18th century, which shifted the economic power base westwards. Thus, the new economic geography of the 21st century indicates that economic power will head to the south, which finally comes into its own. Thus the forecasts show, according to the realignment of countries rankings, that some very interesting changes will take place over the next 40 years. Brazil and Russia will overtake Germany and Mexico, as they will be among the top ten economies of the planet, outpacing even Germany and the United Kingdom. Meanwhile Indonesia could become the worlds tenth-largest power, ahead of France and Russia, thus taking its place at the top table, overtaking Germany and the United Kingdom. Neither Argentina nor South Africa will be among the top 20 world economies, whereas Nigeria and Vietnam will. Vietnam, in fact, is the country that shows the highest average growth rate over the next four decades: 8.8%. The pace of growth of the developed nations will be much slower: Australia, Canada and the United States will grow at a rate of between 2.0% and 2.4% per annum, while countries with the most elderly populations such as Germany, Italy or Japan, will see growth rates of between 1.0% and 1.9% of their GDP. That said, despite having substantial sustained growth rates, by 2050 the
emerging countries are not expected to have attained the living standards of the present developed world, whose consumers will continue to benefit from the low import prices. Although the gap will have narrowed, the average wage in China will even then be less than half what it is now in the United States. In India it will be a quarter of what the average US citizen takes home. Moreover, while it is undeniable that economic power poses multiple challenges for the developed economies and their companies, it also offers major opportunities, many of which are already surfacing. This is the scenario depicted in the book, Multinacionales espaolas. En un mundo global y multipolar111 (Spanish Multinationals: in a Global Multipolar World), wherein the increasing competence of the multinationals of the emerging economies will raise the level of their added value in both goods and services. This process, combined with a rapid increase in their middle classes, will extend existing opportunities and open new ones for western companies, particularly those that have established subsidiaries in the emerging countries. Their operations will be conducted in a more competitive climate and will require having established a long-term presence. That said, if they remain focused entirely on North America and Europe, they will be relegated to the lower ranks of history. Lastly, the report reminds us that the rapid growth of China, India and the other emerging countries will prove a major drain on natural resources such as water and fuel supplies. The price of raw materials will thus remain high, favouring exporters Brazil, Russia, Indonesia and the Middle East to the detriment of importers.
111
Casilda, 2011.
Annex69
Table 1. Rank of the largest economies 2009 v.2050 (GDP in Purchasing Power Parity) Ranking 2009
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Country
USA China Japan India Germany Russia UK France Brazil Italy Mexico Spain South Korea Canada Turkey Indonesia Australia Saudi Arabia Argentina South Africa
GDP at PPP (USD billions as at 2009)

14,256 8,888 4,138 3,752 2,984 2,687 2,257 2,172 2,020 1,922 1,540 1,496 1,324 1,280 1,040 967 853 595 586 508
Ranking 2050
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Country
China India USA Brazil Japan Russia Mexico Indonesia Germany UK France Turkey Nigeria Vietnam Italy Canada South Korea Spain Saudi Arabia Argentina
GDP at PPP (USD billions as at 2050)

59,475 43,180 37,876 9,762 7,664 7,559 6,682 6,205 5,707 5,628 5,344 5,298 4,530 3,989 3,798 3,322 3,195 3,195 3,039 2,549
Source: PwC, PricewaterhouseCoopers (2011): The World in 2050: the accelerating shift of global economic power: challenges and opportunities, London. http://www.pwc.com/en_GX/gx/world-2050/pdf/world-in-2050-jan-2011.pdf Note: the GDP figures shown for 2009 are those of the World Bank; those of 2050 are PwC estimates.
Image 1. Ranking of the largest economies 2009 (GDP expressed in Purchasing Power Parity)
USA China Japan India Germany Russia United Kingdom France Brazil Italy Mexico Spain South Korea Canada Turkey Indonesia Australia Saudi Arabia Argentina South Africa 2.687 2.257 2.172 2.020 1.922 1.540 1.496 1.324 1.280 1.040 967 858 595 586 508 2.000 4.000 6.000 8.000 10.000 12.000 14.000 16.000 2.984 4.138 3.752 8.888 14.256
Image 2. Ranking of the largest economies 2050 (GDP expressed in Purchasing Power Parity)
China India USA Brazil Japan Russia Mexico Indonesia Germany United Kingdom France Turkey Nigeria Vietnam Italy Canada South Korea Spain Saudi Arabia Argentina 9.762 7.664 7.559 6.682 6.205 5.707 5.628 5.344 5.298 4.530 3.939 3.798 3.322 3.258 3.195 3.039 2.549 20.000 40.000 60.000 43.180 37.876 59.475
Source: PwC, PricewaterhouseCoopers (2011): The World in 2050. The accelerating shift of global economic power: challenges and opportunities. London. <http://www.pwc.com/en_GX/gx/world-2050/pdf/world-in-2050-jan-2011.pdf> Note: the GDP figures shown for 2009 are those of the World Bank; those of 2050 are PwC estimates.
Annex71
Bibliography
lvarez, R; Andreu, J.M. y Servicio de Estudios del Banco Bilbao (1986): Una historia de la banca privada en Espaa (History of Private Banking in Spain), Bilbao. BBVA: Memorias anuales varias (Assorted Annual Reports), Madrid. World Bank (1989): World Development Report. Financial Systems. Washington World Bank (2011): Global Economic Prospects: Navigating Strong Currents. Washington Caldern Hoffman, A. and Casilda Bjar, R. (1999): Grupos financieros espaoles en Amrica Latina: Una estrategia audaz en un difcil y cambiente entorno europeo (Spanish financial Groups in Latin America: An audacious strategy in a difficult and changing European context). Serie Desarrollo Productivo, 59. CEPAL. Santiago de Chile. Caldern Bjar, R. (1992): Sistema financiero espaol. Banca y cajas de ahorro ante un entorno competitivo. (Spanish Financial System. Banks and Savings Banks in a Competitive Environment). Alianza Editorial, Madrid. Casilda Bjar, R. (coordinator) (1996): Economa de Amrica Latina (Latin American Economy), Revista Situacin, No. 1, Banco Bilbao Vizcaya. Casilda Bjar, R.: La banca espaola. Anlisis y evolucin. (Spanish Banking: Analysis and Progress), Ediciones Pirmide, Madrid. Casilda Bjar, R. co-author (1999): La banca y los mercados financieros (Banking and the Financial Markets). Chapter 13. Alianza Editorial, Madrid. Casilda Bjar, R. (2001): Una dcada de inversiones espaolas en Iberoamrica (1990-2000), (A decade of Spanish investment in Ibero-America), Anuario del Instituto Cervantes. El espaol en el mundo, Instituto Cervantes, Madrid. Casilda Bjar, R. (2002): La dcada dorada. Economa e inversiones espaolas en Amrica Latina 19902000. (The Golden Age: Spanish Economy and Investment in Latin America 1990-2000), Ediciones de la Universidad de Alcal, Madrid. Casilda Bjar, R. (2007), Internacionalizacin de la banca espaola en Amrica Latina. El caso BBVA (Internationalisation of Spanish banking in Latin America. The case of BBVA), Revista vasca de economa Ekonomiaz, No. 66, Vitoria. Casilda Bjar, R. (editor) (2008), La gran apuesta. Globalizacin y multinacionales espaolas en Amrica Latina. Anlisis de los protagonistas (The Great Challenge. Globalisation and Spanish multinationals in Latin America. Analysis of the Key Players), Ediciones Granica, Barcelona. Grupo Editorial Norma, Bogot. Casilda Bjar, R. (2011), Multinacionales espaolas. En un mundo global y multipolar. (Spanish Multinationals. In a Global and Multipolar World), ESIC. Editorial, Madrid.
CEPAL (2010a): Anuario estadstica de Amrica Latina y el Caribe 2009 (Latin American and Caribbean Year Book), Santiage de Chile. Dunning, J.H. and Narula, R (editors) (1996): Foreign Direct Investment and Governments, London and New York. IMF (2010): World Economic Outlook, October 2010, Washington. IMF (2011): World Economic Outlook, January 2011, Washington. Gonzlez, F. (2002): Las empresas multinacionales espaolas: El caso de BBVA en Latinoamrica (Spanish Multinational Companies: the Case of BBVA in Latin America), in Casilda Bjar, R (coordinator) Empresas Multinacionales Espaolas (Spanish Multinational Companies), Revista Informacin Comercial Espaola, No. 799, pp. 127-132. Ministerio de Economa y Hacienda, Madrid. Gonzlez, M. J. (ed.): Anes, R. and Mendoza, I. (2007), BBVA. Ciento cincuenta aos, ciento cincuenta bancos (BBVA, A Hundred and Fifty Years, a Hundred and Fifty Banks), Madrid. Merton, C.R. and Bodie, Z. (1989), Informe sobre desarrollo mundial. Sistemas financieros. (Report on World Development. Financial Systems), World Bank, Washington. Norton, J and Aguirre, E. (1998), Sistemas bancarios latinoamericanos. Reformas recientes y perspectivas. (Latin American Banking Systems.
Recent Reforms and Outlook), SELA, Caracas. Rojas, L. (ed.) (1998): Cmo lograr sistemas slidas y seguros en Amrica Latina (How to Achieve Safe Solid Financial Systems in Latin America), IDB, Washington. Rugman, M.A. (2007), Las multinacionales regionales (Regional Multinationals), Ediciones Akal, Madrid.
Bibliography73
Acknowledgements
I would like to express my appreciation to all the staff at BBVA who offered their help in obtaining pertinent information and, in particular, those in the Financial Area of Study Services and Human Resources and Services. BBVA Financial Area : Manuel Gonzlez Cid (Manager) Pedro Egea Victoria del Castillo Marchese Iratxe Ojembarrena Gmez BBVA Research Services: Jos Luis Escriv (Head Economist)* Sonsoles del Castillo Delgado Jos Ramn Perea BBVA Human Resources and Services: Juan Ignacio Apoita (Manager) Alfonso Zulaica
Author: Ramn Casilda Bjar1 rcasilda@cadmoweb.com
* 1
Currently head of the global business department Governments and Multilateral Organisations. ecturer on the official masters programme: Contemporary Latin America and its Relations with the European Union. A Strategic Union. Institute of Latin American L Studies (IELAT). University of Alcal de Henares. Lecturer on the inter-university masters programme: Diplomacy and International Relations; Diplomatic School of Madrid; Ministry of Foreign Affairs and Cooperation. International business consultant.
Contacts
Alejandro Esnal PwC lead global partner with BBVA Phone: 915 684 066 (Madrid) Email: a.esnal@es.pwc.com Jose Luis Lpez Rodrguez PwC lead partner for consultancy work within the banking sector Phone: 915 684 445 Email: jose.luis.lopez.rodriguez@es.pwc.com Justo Alcocer PwC lead partner for the financial sector Phone: 915 684 044 Email: justo.alcocer@es.pwc.com
This report was drawn up by PwC Spain as part of its programme Intelligent Growth which the firm has set in train to support companies and public bodies in their transition towards a new sustainable business model based on innovation, quality, talent and added value, a new growth model based on five principles: internationalisation, innovation, a low-carbon economy, economy of knowledge, and the modernisation of public administration. The project is coordinated by Jordi Sevilla, senior adviser to PwC. For more information, visit www.pwc.com/es
PwC firms help organisations and individuals create the value theyre looking for. Were a network of firms with 169,000 people in more than 158 countries who are committed to deliver quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com 2012 PricewaterhouseCoopers S.L. All rights reserved. PwC refers to the PricewaterhouseCoopers S.L member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc. com/structure for further details.

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Internationalisation in Latin America: stepping stone to global expansion

Author: Ramn Casilda Bjar1 rcasilda@cadmoweb.com

Carlos Mas Chairman of PwC Spain

4 Internationalisation in Latin America: stepping stone to global expansion

6 Internationalisation in Latin America: stepping stone to global expansion

8 Internationalisation in Latin America: stepping stone to global expansion

Part One: International expansion of Spanish companies in Latin America

1.  Outlook for the world economy

10 Internationalisation in Latin America: stepping stone to global expansion

International expansion of Spanish companies in Latin America 11

Table 2. World Economic Outlook As at January 2011 (in percentages)

Source: International Monetary Fund (January 2011).

12 Internationalisation in Latin America: stepping stone to global expansion

2.  Outlook for the Latin American economy

Image 1. Latin America and the Caribbean: GDP growth in 2010

Annual growth rate (%)

International expansion of Spanish companies in Latin America 13

Image 2. Latin America and the Caribbean: GDP growth in 2011

Annual growth rate, in %

14 Internationalisation in Latin America: stepping stone to global expansion

Image 3. Latin America and the Caribbean: GDP growth 2001-2009

Image 4. Latin America and Caribbean: government debt, 2001-2009

Central government debt Non-financial public-sector debt

These four countries comprise MERCOSUR. 

International expansion of Spanish companies in Latin America 15

Image 6. Latin America and the Caribbean: international reserves 2001-2009

Source: CEPAL (2010a) Notes: [a] Preliminary figures.

International reserves (left axis) International reserves (right axis)

16 Internationalisation in Latin America: stepping stone to global expansion

International expansion of Spanish companies in Latin America 17

18 Internationalisation in Latin America: stepping stone to global expansion

Box 1. Latin America weathers the crisis

International expansion of Spanish companies in Latin America 19

3.  International banking expansion: structural context

20 Internationalisation in Latin America: stepping stone to global expansion

International expansion of Spanish companies in Latin America 21

4.  Deployment of Spains international investments

22 Internationalisation in Latin America: stepping stone to global expansion

International expansion of Spanish companies in Latin America 23

5.  Internationalisation of Spanish companies in Latin America

24 Internationalisation in Latin America: stepping stone to global expansion

International expansion of Spanish companies in Latin America 25

26 Internationalisation in Latin America: stepping stone to global expansion

Box 2. Forward strategies for Spanish investment in Latin America

Source: own formulation.

International expansion of Spanish companies in Latin America 27

6.  Spanish bankings international expansion

28 Internationalisation in Latin America: stepping stone to global expansion

For more details, see Casilda, 1992, 1997 and 1999.

International expansion of Spanish companies in Latin America 29

30 Internationalisation in Latin America: stepping stone to global expansion

International expansion of Spanish companies in Latin America 31

32 Internationalisation in Latin America: stepping stone to global expansion

International expansion of Spanish companies in Latin America 33

For more details, see Casilda, 2008 and 2011. 

34 Internationalisation in Latin America: stepping stone to global expansion

Part Two BBVA, a success story in Latin America

1. Going international: A vocational endeavour

36 Internationalisation in Latin America: stepping stone to global expansion

Casilda 1992 and 1997. 

BBVA, a success story in Latin America 37

38 Internationalisation in Latin America: stepping stone to global expansion

La banca espaola en Mxico (Spanish banking in Mexico), Casilda, 2002. 

1. Outlook for the world economy

2. Outlook for the Latin American economy

These four countries comprise MERCOSUR.

3. International banking expansion: structural context

4. Deployment of Spains international investments

5. Internationalisation of Spanish companies in Latin America

6. Spanish bankings international expansion

For more details, see Casilda, 2008 and 2011.

1. Going international: A vocational endeavour

Casilda 1992 and 1997.

La banca espaola en Mxico (Spanish banking in Mexico), Casilda, 2002.

Banco Asitico de Desarrollo (2011).

IMF figures (2010)

3. BBVA: Global consolidation