September 14, 2007 Spain, stage before the financial turmoil !

Since late July credit spread increase in the wholesale markets, reflecting a rise in risk aversion. This has led to a liquidity problem in financial markets more persistent than expected. This affects the real economy through the re-asse ssment of credit risk, the moderation of confidence and the wealth effect. Altho ugh there are uncertainties, it is likely that the impact of financial turmoil o n the economy is bounded. Of note is the rapid response of central banks, the pr ospects for lower interest rates and, ultimately, limited contagion to emerging markets. In a somewhat less favorable international environment, over the next f ew quarters the Spanish economy will intensify the dynamics of gradual slowdown that was already immersed. Thus, maintaining an expected GDP growth of 3.8% in 2 007 and 2008 is relaxed from 3.1% to 2.8%. It is, in any case bounded reviewed i n line with that carried out for all of EMU. This limited downward revision of g rowth in 2008 in Spain is based on the existence of strengths in the economy, es pecially of a very solid banking system, which is particularly relevant given th e current financial shock. The supports in the housing sector, particularly the potential demand for housing, mean that it will continue in an orderly adjustmen t process. In addition, households have a strong capital position, companies hav e a comfortable position in the public sector benefits and has a comfortable fin ancial position which gives a high degree of performance. Spain: Macroeconomic Scenario (% Yoy) ! ! ! ! ! 2006 3.7 (*) 2007 3.2 -0.1 2008 2.8 -0.1 4.0 4.5 3.5 3.0 2.5 Spain: GDP growth (% yoy) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 HOME BUSINESS Consumer Investment in equipment (*) Export (*) REAL ESTATE Housin g Investment (*) housing starts (thousands) (*) housing price (*) GDP (*) 10.3 4.5 10.8 0.3 4.4 -2.3

4.4 -0.7 4.0 -0.9 6.4 911 10.4 3.9 3.5 -0.3 0.0 -1.0 675 -25 550 -100 2.0 1.5 1.0 5.5 -0.4 1.4 0.0 3.8 0.0 2.8 -0.3 Source: INE, M º SEE Housing and BBVA (*) Difference compared with previous for ecast Source: INE and ESS BBVA Prev Sep-07 Prev Jul-07 Page 1 of 7 ! A re-evaluation of risk and a liquidity problem ... Since late July there has been a strong rebound in risk aversion in financial ma rkets, which were triggered doubts about the quality of individual assets in the credit markets. Since then, financial markets have experienced a process of fli ght to quality by investors, with setbacks in equity markets, widening credit sp reads of corporate and sovereign emerging assets, as well as a marked fall in yi elds. However, there have been recent liquidity problems that have generated mor e uncertainty in the markets. In this regard, in recent weeks tensions have appe ared in major interbank markets have underlined the short-term financing and cau sed the spread of uncertainty to the titles of short-term financing, thereby res tricting the issuance of paper commercial. The rapid reaction of the major centr al banks, with constant injections of liquidity in interbank markets over recent weeks to ensure the normalization of monetary conditions, trying to calm the si tuation. Also contributes to this change in monetary policy expectations. This c ould help in restoring investor confidence and a return to normal markets, which

all seem to be still waiting to have more reliable data on the scope and magnit ude of the effects of the current situation. In the midst of this episode is rem arkable behavior of emerging markets, which have to be highly resistant to infec tion. U.S.: LIBOR Curve 5.9 5.8 5.7 5.6 5.5 5.4 5.3 5.2 5.1 5.0 1M 2M 3M 4M 5M 6M 7M 8M 9M 10M 11M 12M 1 -Officer in June 2007 Actual 5.9 5.8 5.7 5.6 5.5 5.4 5.3 5.2 5.1 5.0 Source: BBVA SEE EMU: EURIBOR Curve 5.0 4.8 4.6 4.4 4.2 4.0 3.8 3.6 1M 2M 3M 4M 5M 6M 7M 8M 9M 10M 11M 12M Official 1-Jun-07 Actual 5.0 4.8 4.6 4.4 4.2 4.0 3.8 3.6 ! ... That lowers global growth outlook limited The perception of greater vulnerability of the financial system has created unce rtainty about the outlook for the global economy. Although it is too early to ha ve evidence of the effects on the real economy€transmission channels are identi fied. First, the lower prices of assets, mainly housing stock and to lead to a p eriod in which the wealth effect will be less intense than in recent years. Seco ndly, it seems reasonable to think that a deterioration, probably slight, of the agents' expectations, resulting in a moderation of demand. And third and finall y, a more appropriate valuation by the agents of the risks taken will result in a lower availability of credit considered so far. But this poses a scenario in w hich the world economy will grow less than provided to date. However, the extent of this downward revision of growth expectations is limited. Thus, provided the greatest impact on the U.S. economy, for which expected growth rates of 1.9% th is year and 2.2% for the next, which means four and six-tenths less growth, resp ectively, of what was forecasting. In Europe, for its part, the review has been lower, reducing by two tenths our previous forecasts. In emerging changes are ve ry limited. Thus, Latin America, with some media much better than in episodes Source: BBVA SEE GDP growth forecasts Current U.S. Latam EMU ex-Mexico Spain China Mexico World Source: BBVA SEE Change (pp) 2007 -0.4 -0.2 0.0 0.0 -0.2 -0.1 -0.2 2008 -0.6 -0.2 -0.3 -0.2 -0 , 5 -0.3 -0.3 2007 1.9% 2.5% 3.8% 5.1% 3.0% 10.9% 4.6% 2008 2.2% 2.2% 2.8% 4.6% 3.4% 9.9% 4.4% Page 2 of 7 earlier downgraded its growth seen in 2008 alone. For its part, China's economy grow even at very high rates, to 10.9% this year and to 9.9% the next. Thus, whi le global growth will slow, keep rates higher than 4.0%. Furthermore, endogenous to this scenario there is a downward revision of our outlook for interest rates both in the U.S. and Europe. In the first, it is expected that the Federal Rese rve cut its benchmark rate to 4.75% this year and keep it off over the next year . Meanwhile in Europe, price stability is anticipated official money in the curr ent 4% for the next two years, resulting in a one-year Euribor rate less than ex pected so far. 2.5 2.0 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep -08

EMU: Euribor 12 months 5.0 4.5 4.0 3.5 3.0 5.0 4.5 4.0 3.5 3.0 2.5 2.0 ! The cyclical downturn in Spain, far more intense Internal dynamics of a slowdown since mid-year With a growth of 4% in the second quarter of 2007, one tenth less than in the pr evious quarter, the Spanish economy was in a cyclical turning point in its growt h, according to BBVA SEE prospects, continue with a slowdown in the remainder of 2007 and January 2008. In July this predicted growth of the Spanish economy was 3.8% in 2007 and 3.1% in 2008. The effects of the current financial turmoil led to an intensification of the slowdown of Spanish GDP in 2008 to grow at a rate of 2.8%, 0.3 points below the previous forecast. However, a review is quite limi ted and that means that the economy will grow at rates close to its potential. T herefore, the Spanish economy closed a very dynamic first half, starting a slow path, according to the latest short-term information, continues in the second ha lf. According to the Synthetic Indicator Activity BBVA, BBVA ISA, prepared by th e Research Service, the trends of the known data point to a consolidation of the slowdown in the second half of 2007. In the case of household spending, retail sales continued in July with its tendency toward moderation and auto sales conti nued to fall in August. With regard to activity, also shows signs of moderation and thus in July Industrial Production Index fell to 1.3%, a rate lower than exp ected and reinforces a trend of slowdown in the coming months. Finally, the admi nistrative records of the labor market, registered unemployment and Social Secur ity affiliation, to August reflected a gradual downshift. Thus, unemployment is rising especially in construction, but declines in the industry is able to compe nsate. However, the short-term information is unavailable prior to the full deve lopment of the episode of financial turbulence. Only indicators of consumer conf idence and the industry are reflected partly in August after the start of the fi nancial turmoil. In Source: BBVA SEE Jul-07 Sep-07 Spain: GDP and ISA % growth 7.5 4.5 4.0 ISA BBVA, Right. 6.0 3.5 GDP, LEFT. 3.0 4.5 3.0 2.5 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 1.5 Source: INE and ESS BBVA

Spain: Short-term Indicators 3Q07 (% yoy) Sales 7.0 m Dwelling corrected (trend) 6.0 IPI general fixed schedule (data and trends) 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 Mar 04 Mar-05 Mar-06 May-04 May-05 May -06 Mar-07 Jun-07 Sep-04 Nov-04 Sep-05 Nov-05 Oct-November 6 to July 6-July 4 to July 5 Jan-06 -04 Jan-05 Jan-06 Jan-July 7-07 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 6.0 7.0 This resulted from the confluence of three elements. First, the reduced flexibil ity of the financial conditions, which would help to moderate household investme nt in housing and consumption. Second, the lower pressure of housing demand by h ouseholds favored the continuation of a process of gradual adjustment of prices and a more nascent, active. Thirdly, to some extent offsetting the above, an ext ernal environment is still very dynamic, especially in EMU and in emerging marke ts bear foreign demand for Spanish goods and services. 1 Source: INE and ESS BBVA Page 3 of 7 this sense, the confidence of the industry have fallen for the third straight mo nth, setting a downward trend consistent with the slowdown in activity. Therefor e, there remains uncertainty about the magnitude of the impact of the new financ ial environment in the real economy, something that will be announced in the com ing weeks as new information is received. A less favorable external environment The financial implications of the episode up on the global scenario of interest rates and growth and the repricing of credit risk leads to an update of forecast s of growth of the Spanish economy. This takes the form of a downward revision o f GDP growth in 2008 from 3.1% to 2.8%. This reduction is derived from a more ma rked moderation in household spending, especially in housing but also on consump tion, and lower expected growth in exports and investment in equipment. In the n ew environment, increases the vulnerability of the economy. However, this review is not a radical change in the previous stage of the Spanish economy, but an ac commodation to the new situation, intensifying pattern of slowing slightly. Spain: Macroeconomic Scenario (% Yoy) 2006 3.7 (*) 2007 3.2 -0.1 2008 2.8 -0.1 HOME BUSINESS Consumer Investment in equipment (*) Export (*) REAL ESTATE Housin g Investment (*) housing starts (thousands) (*) housing price (*) GDP (*) 10.3 4.5 10.8 0.3 4.4

-2.3 4.4 -0.7 4.0 -0.9 6.4 911 10.4 3.9 3.5 -0.3 0.0 -1.0 675 -25 550 -100 Consumption: the financial situation, relevant support of Spanish households Households will continue with a process of moderation of consumer spending somew hat more intense than expected due to the impact of financial turmoil and lower confidence household wealth effect, given the more severe slowdown in the growth of housing prices and a less positive stock market developments. However, the i mpact would be only one tenth above the estimates given that the economic situat ion of Spanish families with relevant media. The evolution of consumer spending ultimately rests on disposable income, and this, in employment. Although the tre nd in employment is highly dependent on the activity (and vice versa), it will b e less dynamic, the largest Spanish labor market flexibility allows adjustment p rospects expect more orderly than in previous stages of a slowdown. Thus, employ ment will continue with rates close to 3% in February 2007 and slightly above 1. 5% in 2008. For its part the expected moderation in the growth of assets will al low the unemployment rate to swing comfortably in the current environment of 8%, the lowest since 1978, and three points lower than five years ago. The main sup portive factor is that families have a strong financial position compared to tha t in force in other economies. It is true that household debt has increased grad ually to reach in the first quarter of 2007 127% of their disposable income, but it should be noted that families have resorted to borrowing to finance increase s primarily equity, which has contributed to maintain a sound financial position . In fact, the ratio of financial debt on net wealth of Spanish households is po sitioned as one of the lowest in the countries of our environment,€as shown in the accompanying graph. This is clearly a strong heritage additional support 2 5.5 -0.4 1.4 0.0 3.8 0.0 2.8 -0.3 Source: INE, M º SEE Housing and BBVA (*) Difference compared with previous for

ecast Leverage familiar 60 50 40 30 20 10 0 Finland Ireland Netherlands New Zealand Australia Germany * Denmark * Spain * USA Canada France United Kingdom Italy * Japan * Sweden (Financial liabilities on net wealth) 1995 2000 2005 * Last data 2004 Source: OECD In fact, in the second quarter 2007 National Accounts employment increased at an annual rate of 3.2%, 0.4 pp above the average of the last five years, which inv olves creating 590 000 jobs annually. Page 4 of 7 where you can support the evolution of household spending in an environment of l ess dynamic generation of income. 4.5 Ratio Profit on financial costs 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Companies: slower growth in external demand, but a healthy financial position an d sectoral and geographically diversified The lower world economic growth directly affects foreign sales of Spanish goods and services and the business investment cycle. It is therefore logical to revis e downwards in 2008 the growth prospects of both components of demand, as shown in the table of forecasts for the Spanish economy. In the equipment, the slowdow n in growth rates is already occurring in the first half of 2007, although rates of change from the double digits. As regards the growth of exports, has also be en revised downwards by 0.7 pp in 2007 (up 4.4%) and almost at a point in 2008 ( to 4.0%). The moderate growth scenario of EMU after a disappointing second quart er has been instrumental in the revision of these figures. Although firms face a lower external momentum in coming quarters, it is clear that, in general, enjoy a healthy profit and loss accounts that allow comfortably meet their evolving f inancial burdens. The rate of increase in corporate debt is manageable given the developments for its recurring benefits, as shown in the accompanying graph. Fu rthermore, another important strength of the Spanish business sector, and theref ore our economy, is the degree of geographical and sectoral diversification (as shown in the accompanying graph) reached in its foreign relations. But beyond tr ade liberalization, about 60% of GDP, the position of Spanish direct investment abroad and in 2005 represented 18% of GDP. The investment growth is aimed at wid e range of activities, among which in order of importance: Financial Intermediat ion, Manufacturing, Transport and Communications, Energy Distribution and Trade. Geographically, the detail is also representative of a large plurality, with 26 % of the stock of capital invested in Latin America, 13% in North America (an ar ea that includes Mexico, Canada and U.S.) or 50% in the EU15 . 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Source: Central Bank of Spain Balances Sectoral composition of Spanish exports (Average 2001-2006) 2% 3% 4% 10% 2% 21%

11% 21% 12% 14% Capital Goods Food Semi-chemical non-energy products Raw Materia ls Chemical Manufacturing Sector automotive consumer durables goods Other goods Source: Ministry of Industry, Tourism and Trade Real estate: will continue with its orderly adjustment process given the long-te rm holders who account The liquidity stress scenario emerged from the August financial turmoil suggests that in addition to brake spending on housing, there could be some moderation i n its offer, linked to the re-evaluation of the risk preference of investors tur n lead to less access to credit. Thus, the gradual adjustment underway in the ho using sector would be more intense, as reflected in the table of estimates of ex penditure on housing and the number of housing starts. Thus, the weight of housi ng expenditure on GDP, currently at 7.6%, gradually converge to levels slightly above 7%, a figure around which has fluctuated in the last growth cycle. However , this adjustment will not be permanent, given the fundamentals of the sector fr om a long-term perspective, and in particular the potential demand for housing b y residents and nonresidents. 8.0 Spain, Investment in housing Weight on GDP volume 8.0 7.0 7.0 6.0 6.0 5.0 5.0 4.0 Source: INE and ESS BBVA 4.0 2008 (p) 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Page 5 of 7 (Thousand units) The average number of households formed in the last two years is about 500 thous and per year, doubling current figures at the beginning of the decade. This is a clear indication of the potential demand for housing also considering the deman d for second homes by residents and holiday home tourist by nonresidents. Demogr aphic prospects in Spain and Europe guarantee a sustained increase in expectatio ns of households living rough in Spain (native and non-natives) and stretches in creased older population in Europe, lead plaintiff of tourist accommodation. 600 Annual net household formation 525

450 375 The Spanish Economy scope has specific strengths and to address the new environm ent In short, the Spanish economy, like the rest of the euro area is in a slowdown p hase, gradual adjustment of spending to levels more consistent with the increase in income, which will be intensified with respect to the previous outlook , but always keeping a positive growth outlook. For 2007 and 2008 remain lower growth prospects, although somewhat more pronounced as a result mainly of the downward revision of the global environment. In addition, the Spanish economy is in rela tively favorable conditions to address this situation, scope and specific streng ths. 300 225 150 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: INE Leeway Public Sector In the scenario described, the strength of the Spanish public accounts is presen ted as one of the pillars of the economy. In the past ten years, governments hav e moved from a deficit in their accounts more than 6% of GDP to a surplus of 1.8 % at end-2006. This process of fiscal consolidation has allowed the outstanding public debt has been reduced in those ten years 63% of GDP to 40%. These figures are far below the European limit established under the Protocol on the Excessiv e Deficit and the average of the EMU countries, with a deficit in 2006 of 1.6% a nd a debt level of 69%. These figures can face the future with a wide margin of action for an anti-cyclical fiscal policy, if this necessary because more than l ikely to a containment of public revenues, governments can maintain their spendi ng program, and even increase it if it demanded economic dynamics. For example, the possible momentum in civil works would have a significant impact on construc tion activity since the house is only half of the total sector. Spain, Deficit (-) / Surplus (+) of the Public Administrations (% Of GDP) 2.5% 1.5% 1.2% 0.5% -0.5% -1.5% -2.5% -3.5% EMU 2007 (p) 2008 (p) 2000 2001 2002 2003 2004 2005 2006 -2.5% -3.5% 0.9% 2.5% 1.5% 0.5% -0.5% -1.5% Financial System: diversified, efficient, reliable and credit quality The current financial uncertainty puts the international banking system vulnerab le. However, the Spanish financial system has a relative strength compared to th eir counterparts in other countries it is important destacar3. Source: BBVA SEE The entities that could be directed in Spain by segments similar to subprime, th e credit institutions, still have less importance in the Spanish market, if only 2.2% of the outstanding amounts of credit for house purchase. Moreover, as in S pain originators and mortgage brokers are the same incentives to lend to relativ ely high risk profile are very small. 3 Page 6 of 7

First, it is noticeable diversification of banking in Spain. The Spanish bank re sponds to the universal banking model, so that four sources of profit are more d iversified, contributing to greater stability of results. Moreover, the anchorin g of Spanish banks is very strong: the deposits fund 78% of funds in the balance of the system. Moreover, geographical diversification is also, as the larger in stitutions have a strong presence in other markets, particularly in emerging cou ntries, which have been less affected by financial turmoil. Secondly, it is note worthy that the Spanish financial system is the most efficient in Europe. If we take the standard measure of efficiency, the ratio of operating expenses and gro ss income, the Spanish financial system, shows a ratio of 48.3% compared to 60.5 % of the European Union. Thirdly,€Spanish banks have a high solvency position, because he has managed to offset the sharp increase in recent years of its asset s to the maintenance of adequate capital. Moreover, the policy of the Bank of Sp ain in this matter has been particularly rigorous. Thus, the status of provision s of the bank is very strong in Spain, since the existing provisions amounted to 250% of nonperforming assets in 2005 and 273% in 2006. In short, before a globa l financial shock like this, the Spanish economy shows a favorable relative posi tion as a result of the strength of its financial system. SPANISH AND EUROPEAN BANKS CosteRatio Income Capital ROE ROA December-06 60.45 1 6.06 0.63 11.38 48.30 19.60 EU * Spain 1.44 11.90 * 2005 Source: ECB and Bank of Spain % 300 250 200 150 100 50 0 Provisions for nonperforming assets, 2005 UK * France Holland Source: IMF * Not reported by NICs Additionally, according to results of the consultation issued by the CNMV, the e xposure of Spanish banks to U.S. sub-prime is minimal. The Spanish bank, unlike other European countries, has no significant concentration of conduits, special investment vehicles that are financed by issuing short term commercial paper and long-term investing in riskier products, sometimes linked to U.S. sub-prime mar ket. 4 Page 7 of 7 Spain