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At BBVA, quality is not an element of mere improvement, but rather a factor which contributes towards consolidating sustainable competitive advantages. It is not an objective in itself, but rather a commitment to the Group's growth to international expansion and to technological development.
Banco Bilbao Vizcaya Argentaria S.A. (BBVA) was formed from the merger of Banco Bilbao Vizcaya S.A. and Argentaria Caja Postal y Banco Hipotecario S.A. Completed in early 2000, the deal created the second-largest financial institution in Spain and Latin America. BBVA operates in 11 Latin American countries with interests in retail banking, wholesale banking, investment banking, and asset management and private banking, real estate, insurance, and e-business. During 2000, the firm strengthened its market share in Mexico with the purchase of that country's second largest bank, Bancomer S.A.
Originally operating independently, Banco de Bilbao and Banco de Vizcaya shocked the financial world by merging in January 1988 to become one of Spain's largest banks, Banco Bilbao Vizcaya S.A. (BBV). Both banks had grown from their bases in Bilbao, where they financed the railroad, mining, steel, and shipping industries. And both banks had weathered Spain's repeated financial crises and the major economic disruptions of its brutal civil war to emerge as strong, well-managed financial institutions.
When the two banks merged in 1988, they did so to assure continued profitability after the integration of the European Economic Community, or European Union, in 1993. The merger positioned BBV to compete effectively, both domestically and internationally, under the new banking rules that went with EEC membership.
History of Banco de Bilbao
Banco de Bilbao was the older of the two banks. After laws were passed in 1856 allowing the creation of banks and thrift institutions, the Trade Association of Bilbao, a group of businessmen in the developing Basque area, established an office on the Calle de la Estufa in Bilbao to provide financial assistance to businesses. The new bank took over functions formerly filled by the Bilbao consular office, which closed. The Trade Association was also authorized to issue bank notes.
The Trade Association of Bilbao, soon known as Banco de Bilbao, continued to issue notes and business loans until 1878, when the Bank of Spain was named the sole issuer of bank notes for the country. Banco de Bilbao did not acquiesce quietly, but its lobbying efforts against the change failed. As a result, the bank reorganized. Banco de Bilbao continued to specialize in business loans, but in a step unique to Spanish banking, it also established the first savings bank in Spain, the savings association Sociedad Bilbaina General de Credito.
Those new financial activities made Banco de Bilbao a major backer of the industrial development in the north, which turned Bilbao and the neighboring Vizcaya into Spain's industrial center in the last decades of the 19th century and produced the highest per capita income in the country. Banco de Bilbao helped finance the construction of the Port of Bilbao as well as the development of railroad transport and the mining and steel industries.
Banco de Bilbao was able to become involved in these projects because it was virtually the only game in town until the end of the century. Branches of the Bank of Spain, the Caja General de Depositos, and the Banco de Castilla were established in Bilbao, but as the only independent local financial entity, Banco de Bilbao was able to take a leading position in financing heavy industry.
Because of this role in industry, the bank was able not only to weather financial storms that shook Spain in the last half of the 19th century, including the panic of 1896 that caused much of the Spanish banking system to fail, but even to remain profitable.
Banco de Bilbao built on its position of strength with a two-part strategy of expansion--domestic and international--as the new century opened. The bank began its international expansion by establishing a Paris branch in 1902, becoming the first Spanish bank to have a foreign presence. At home, Banco de Bilbao merged with the Banco de Comercio to extend its industrial financing activities.
World War I meant disruption for the Spanish economy and operating problems for Banco de Bilbao's branches in other European centers such as Paris and London. However, because of Banco de Bilbao's continued investments in emerging industries and capital improvements, the war in fact promoted the bank's expansion. It formed subsidiary companies and entered into joint ventures to finance major industrialization projects. The institution was not alone in this enviable financial situation; Banco de Vizcaya and Banco de Bilbao worked together in these years, promoting and financing industrial ventures. Other banks in the north that financed industrialization also emerged from the war in good shape.
The postwar years were marked by economic nationalism in Spain, a policy entrenched under the Second Republic. Under that policy Banco de Bilbao's emphasis on underwriting nascent industrialization again led to profits. However, the stock market crash of 1929 had a major impact in Spain. The financial crisis led to insolvency for such major Spanish financial institutions as Banco de Barcelona and Credito de la Union Minera.
On the heels of the Depression came the Spanish Civil War. The ideological battle between the Loyalists, who were faithful to the liberal constitution of the republic that replaced the monarchy in 1931, and the Nationalists, who campaigned for Spain's identification as a Catholic nation, devastated a country that was still considered underdeveloped and even backward by the standards of the rest of Europe. When Francisco Franco came to power in 1939, the country faced huge material losses at home. Land, neglected during the conflict, was not immediately productive again. Industries found it difficult to obtain raw materials, equipment, and fuel. Then came the isolation imposed by the Allies during World War II. Spaniards called the 1940s "the years of hunger."
Franco's government attempted to meet these economic problems with tight new regulations on banking. Franco's Ministerial Order of May 17, 1940 established a policy of adhering to the banking status quo. To meet this new form of government intervention, Banco de Bilbao expanded into other parts of Spain through acquisition--between 1941 and 1943, it acquired 16 banks--reorganized its internal structure to operate effectively at a national level, and expanded its international presence. The bank gave its London and Paris offices a greater role in company operations, and in 1945 it established a branch specifically to form contacts for cooperative ventures in the United States and South America. While the bank continued to emphasize industrial development, more important after World War II than ever, it also developed commercial activities and provided personal financial services.
The first centennial of the Banco de Bilbao in 1957 coincided with another event that would have a major impact on its future. That was the year the European Economic Community was formed, the first step toward an international economy. While not immediately ready to integrate its economy into the European economy, Spain became a member of the International Monetary Fund, the International Bank for Reconstruction and Development, and the Organization for European Economic Cooperation (OEEC) in 1958 and 1959.
Spain's immediate task was to halt the country's financial decline. Toward this end, Franco's government passed a stabilization plan in 1959 that devalued the peseta, placed a ceiling on government spending and on credit for government agencies (which had been fueling inflation), limited private credit expansion, improved tax collection, abolished price controls, froze wages, established higher bank rates, and encouraged foreign investment. With the stabilization plan and full membership in the OEEC came foreign assistance in redevelopment. The U.S. government, a group of U.S. banks, the OEEC, and the International Monetary Fund jointly pledged $5.75 million in assistance, with promises of more to come.
By 1962, a new government department was created to plan and coordinate economic development, and the Law of Banking and Credit institutionalized the preeminent position of the major Spanish banks. As a result of the changes, Banco de Bilbao reorganized again, becoming a multi-purpose bank at home and creating a subsidiary, the Banco Industrial de Bilbao, to continue its emphasis on developing new industrial companies.
By the end of the 1960s, analysts were talking of a Spanish economic miracle. Centers of industrialization such as Bilbao experienced relative prosperity as factories created jobs and acceptable standards of living for the working class, produced opportunities for commerce for the middle class, and increased the wealth of the owners. The so-called miracle was again profitable for Banco de Bilbao.
In the 1970s, Banco de Bilbao continued to develop into a diversified financial group and into a consumer bank as well. In 1970, the bank began a campaign to attract female customers; in 1971 it began to issue credit cards; and in 1972 it offered "instant credit" to attract customers.
The inflationary pressures of the decade, due especially to skyrocketing oil costs, led to laws that again strengthened the position of the big Spanish banks. A program to combat inflation adopted in 1974 raised the bank rate one percent to make it comparable to international rates. The program also extended access to credit, making business investments easier. And it allowed banks more flexibility by eliminating differences between industrial and commercial banks. The revamping of the banking system encouraged Banco de Bilbao's development into commercial services. The bank was also able to absorb six Spanish banks that were not able to adapt as successfully.
Diversification and expansion continued into the 1980s after Franco's death and the return of the monarchy. By this time, Banco de Bilbao had become a major financial group with 16 banks in Spain and abroad and 50 companies providing banking-related financial services.
Spain's entry into the European Economic Community (EEC) in 1986, with its promise of full integration into the European economy by 1993, and fewer restrictions on competition throughout the European market, prompted Banco de Bilbao to look for the opportunity to grow still larger. Despite the long-term trend toward aggregation of financial services, Spain still had more banks per capita than other European countries, and analysts suggested that the Spanish banking system would be more competitive if it had fewer stronger banks.
To remain competitive by becoming larger, Banco de Bilbao took an unprecedented step in 1987 when it made a hostile takeover bid for its rival, Banco Español de Credito, known as Banesto. Banesto was ranked as Spain's number-two bank while Banco de Bilbao was ranked number three, but a tradition of feuding among the families on Banesto's board made it a takeover target. Banco de Bilbao had to drop its bid when three of the four Spanish stock exchanges that must approve such actions announced they would not allow the takeover--only the Bilbao Exchange had been in favor of Banco de Bilbao's bid. José Angel Sanchez Asiain, the bank's chairman, told the New York Times, "One day someone will have the answer for this historic failure, which halts the modernization of Spain."
Despite the failure of its bid for Banesto, Banco de Bilbao still wanted to grow to meet the new economic realities. On January 27, 1988, Banco de Bilbao merged with its local rival, Banco de Vizcaya. Both banks were considered well-managed organizations in very much the same market. It was "the concern by both banks for efficiency and the capacity to generate income, which made it possible to easily overcome the resistance to losing one's individuality," Asiain said of the merger.
In a speech on the merger, Banco de Vizcaya's chairman, Pedro Toledo Ugarte, alluded to the historical tendency of businessmen in Bilbao to unite to form larger corporations in order to face changes they could not face with their own resources. He saw Spain's entry into the EEC as one of those challenges. "Given the importance of the financial sector, every country wants some of the institutions which compete worldwide to be made up of and managed by its own people," he said. "We all know that this requires management, technologies and, without doubt, a minimum size."
History of Banco de Vizcaya
Banco de Vizcaya had a history very similar to that of its new partner. Founded in 1901 to serve Bilbao merchants, Banco de Vizcaya made commercial loans and took business deposits. From this start, the bank expanded throughout the Basque country and then into the rest of Spain.
Banco de Vizcaya began its expansion by absorbing Banco Vascongado in 1903 and Banca Jacquet e Hijos in 1915. In 1918, it earned a national presence when it absorbed the Banca Luis Roy Sobrino in Madrid and made it into Banco de Vizcaya's first branch in the capital. By the 1920s, its expansion policy had resulted in new branches in San Sebastian, Barcelona, and Valencia. The end of the decade saw a strong network of Banco de Vizcaya branches throughout Spain and the beginnings of a presence in France, with its investment in the Banque Française et Espagnol en Paris.
With such a network in place, Banco de Vizcaya became involved in the same sort of industrial financing in which Banco de Bilbao was specializing at the same time. This emphasis meant that even when the crash of 1929 hit the Spanish economy hard, Banco de Vizcaya generated profits and was still able to pay its shareholders dividends.
By 1935, the bank had 200 offices. Despite the 1940 restrictions on banking, Banco de Vizcaya continued to grow, primarily through acquisitions of banks that were in weaker positions. The bank aggressively promoted business through the next 20 years, especially chemicals, textiles, paper, construction, and real estate.
Besides expanding through absorptions and new branches, Banco de Vizcaya became a more diversified financial-services group in the 1960s. It founded Induban in 1964 as its industrial-banking arm, Finsa in 1965 as its real estate-property investment company, Gesbancaya in 1970 as a personal-investment management company, and Liscaya in 1971 as a leasing company for major corporations. Banco de Vizcaya also developed an insurance company when it became part of Plus-Ultra in 1972. At the same time, the bank expanded internationally into Mexico City, New York, Amsterdam, and London, and became heavily involved in the Eurocurrency markets. In addition, the bank rationalized its own operations by completely automating its services. In 1967, the bank set up regional administration centers with direct links to a central electronic data-processing center.
In 1970, Banco de Vizcaya also began to move in another direction, consumer services. The bank was a pioneer in the introduction of credit cards, automated teller machines, gasoline checks, and other consumer products.
The liberalization of banking regulations in 1974 led to further expansion for Banco de Vizcaya. The bank's 305 offices in 1970 had grown to 904 offices by 1980. In 1979, managers took a step that was not yet common among Spanish banks: calling upon an independent auditing firm to publicly document its position, a move that has had an impact upon Spanish banking ever since.
Banco Bilbao Vizcaya: 1990s
Banco de Bilbao and Banco Vizcaya were both established to serve business; both financed industrial development in Spain; both weathered changing economic conditions by being adaptable to new ways of doing business; and both took every opportunity to expand. The two banks were profitable. Together, they had the scale to continue that profitability in an economic climate that went through dramatic changes when Spain was incorporated into the European Economic Community, or European Union, in 1993.
One key development of the European Union that affected BBV was the implementation of the European Monetary Institute, which was created to help aid in the development of the European Central Bank (ECB). Eventually established in 1998, the ECB created a single monetary policy and interest rate for those participating in the Union. That year, Spain, along with Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, and Portugal cut interest rates in order to promote growth and pave the way for a unified currency. This new currency, the euro, was adopted in 1999 by the aforementioned countries and used for foreign exchange and electronic payments.
After Spain entered the European Union, BBV set it sights on becoming an international leading financial institution. The firm began a new strategy in 1994 entitled the "1,000 Day Program," which was set in place to develop the company as the preferred financial provider not only in Spain but in Latin America as well.
BBV spent the greater part of the 1990s intent on its growth-through-acquisition policy. In 1995, the firm purchased Banco Continental in Peru and increased its holding to 70 percent in Groupo Financiero Probursa in Mexico. The company also acquired Banca Cremi and Banco de Oriento from the Mexican government. In August 1996, it took a 40 percent stake in Banco Ganadero, the largest bank in Columbia.
The following year, BBV began its takeover of the Argentine market with the acquisition of both Banco Credito Argentina and Banco Frances. By this time, BBV had $120 billion in assets and was closing in on its rival Banco Santander, a company that laid claim to $137 billion in assets. Both firms were in fierce competition in Latin America, each vying for the leading position in the industry. Together, both BBV and Santander had spent over $5 billion in acquisitions since 1991 and remained focused on additional purchases. A 1997 Business Week article commented on the recent spending spree of the two companies, claiming that what was driving the Spanish firms were "falling margins at home and the lure of 20 percent return on equity in some Latin countries." The article went on the state that "throughout the region, their rivalry is shaking up banking--nowhere more dramatically that in Argentina."
The Argentaria Merger: 1998
Continuing with its expansion in Argentina, BBV took control of the top Argentine pension fund, Consolidar, in 1999. Later that year, the firm announced that it would merge with Argentaria Caja Postal y Banco Hipotecario S.A., which was formed in 1991 to focus on corporate banking. The new company, entitled Banco Bilbao Vizcaya Argentaria S.A. (BBVA), operated as the second largest financial institution in both Spain and Latin America. Its size gave it considerable means to expand further in Latin America and also laid the groundwork for management's plans to extend its reach into other countries, including France, Italy, and Portugal.
Having purchased banks in ten different countries over the past decade, BBVA made yet another strategic move in 2000 when it made a $2.4 billion purchase of Bancomer S.A., Mexico's second-largest bank. Entitled BBVA-Bancomer, the newly-acquired company controlled nearly 30 percent of Mexico's banking assets with over 2,000 branches. Meanwhile, competitor Santander had purchased Mexico's third-largest bank, Banca Serfin.
Competition in the global banking industry continued in 2001. BBVA focused on developing new technology, and while its e-banking venture, Uno-E, lost money, the company continued to eye the Internet as a potentially lucrative banking avenue. The company also continued with plans to increase its share in Brazil--in 2001, it controlled just one percent of that market.
The Argentine market became increasingly volatile during 2001 because of a monetary crisis, and BBVA stood to register losses due to its strong involvement in Argentina's banking industry. Nevertheless, the company continued to look to the future, determined to increase its market share. Having grown dramatically since its 1988 merger, BBVA appeared to be well positioned for future prosperity.
Principal Subsidiaries: BBVA Group Central Services; Banco de Credito Local; BBVA Finanzia; BBVA Privanza; Uno-e Bank; Banc Internacional d'Andorra-Banca Mora; BBVA Banco Frances (Argentina); BBVA Brazil; BBVA Banco Ganadero (Columbia); BBVA Privanza Bank Jersey Ltd. (Channel Islands); BBVA Banco BHIF (Chile); BBVA Privanza International Gibralter Ltd.; BBVA Maroc (Morocco); BBVA Bancomer (Mexico); BBVA Panama; BBVA Paraguay; BBVA Continental (Peru); BBVA Portugual; BBVA Puerto Rico; BBVA Privanza Bank (Switzerland); BBVA Banco Uruguay; BBVA Banco Provincial (Venezuela).
Principal Competitors: Santander Central Hispano S.A.; Banco Popular Español S.A.; Grupo Financiero Banamex, S.A. de C.V.