Banco Bilbao Vizcaya Argentaria SA (BBVA) 2005 Q2 法說會逐字稿

Good morning, everyone. We are going to start the presentation of the results from the first half of 2005. As always, we will follow the same format. Jose Ignacio will give us a presentation, as COO, after which we will open the floor to questions. Well, first of all, we will take questions from the floor and then we will take questions over the webcast related to the presentation. And then, as before, as we did last time, we will have a conference call for some more questions. And then, we will finish this event. And those of you who are actually here in the room, you can come and have a cup of coffee with us. So many thanks, and I give the floor to Jose Ignacio.

Well, good morning, everyone. Thank you very much for coming here today, those of you who are here in the room. And many thanks for your attention, those of you who are following us over the webcast. As you very well know, today we are going to be presenting the results for the second quarter of 2005, and we will follow the contents you can see on the screen. As we always do, I would like to start by talking about the most relevant aspects of the second quarter at Group level.

And then, I will give you a more in depth analysis of all the different business areas.

Thirdly, I would like to share some news with you about what's been happening with the BNL transaction, what the state of the art is at the moment. And then I will end with some conclusions.

So the main highlights of the first half are that it has been an excellent half year for the BBVA Group, for various reasons. Firstly because, as you will see, we are getting record profits. Record profits in all of the business areas, moreover.

And secondly because these record profits are really pushing forward with more and more recurrent earnings, which are based on very strong revenue growth. And then because all of that, as you will see later, means that we are obviously improving our fundamentals, which makes it possible to boost up the dividend.

So let us start with the profits. Here, you can see the year on year comparison of the first half of last year and the first half of this year. And we are reporting attributable profit of €1.813b, which is a growth of 20.1%. And then you can see the quarter on quarter comparison, and you can see that the cruising speed that we have attained is being maintained. And also, we are seeing that over all the different business areas. In Retail Banking - we will talk about that later - where we have got double digit growth. Also in Wholesale and Investment Banking, with a growth of 29%. And also in the Americas, where we have grown 62.7%, or a growth in net profit of 49.6%.

So I said that that was record figures. And these record profits are based on recurrent earnings, more than anything else. You can see that in this slide, that shows the performance of the operating profit. So we are reporting a growth of 17.7%, year on year - 1 half year to another, that is. But on the right of the slide, more important still, you can see how we have moved up 1 rung on the growth ladder, with €1.769b operating profit and a growth of over 17%, in year to date terms, and a growth of 20.1% in quarter on corresponding quarter terms. And more important still, we are seeing that in all business areas, with Retail Banking growing 13.1%, Wholesale Banking at 17% and the Americas growing, in current euros, at 27.7%. In fact, if we look below the line, we can see that actually it is subtracting from the final levels, as the growth of attributable profit is €303m, as against an operating profit of €482m.

So I was saying that it is really significant that we are getting so many recurrent earnings, which are being boosted by our strong revenue growth. And the 17.7% growth in operating profit is based on revenues going up, in the item of ordinary revenues, at 11.8%.

All of this means that we can improve our fundamentals. It makes it possible to go on making more progress in risks, where our NPL ratio, at the moment, is 1.01% and our coverage is 240.5% and where our NPL balance is performing in a very satisfactory manner.

And that is what we are doing in risks, but we have also got good news in terms of efficiency. As you can see, the cost income ratio, with depreciation included, as we began to report last quarter, has gone down to 46.7%. And more important still, that improvement in the cost income ratio can be seen in all of the different business areas - in Retail Banking, in Wholesale and Investment Banking and in the Americas, as you can see on the table on the right of the screen.

What is more, BBVA is still a highly profitable and very solvent bank, and we boosted our returns this half year. Our return on equity, at the moment, is 35.6%, as you can see here. And that means our BIS ratio is at 12.2%. Our core capital at 5.8%, which would be 6% had it not been for the incorporation of Laredo, and that has made the change from 5.8 to 6.1%. And that was signed, as you know, in April.

And all of that has made it possible for us to go on increasing our dividends consistently. You remember the first interim dividend entailed a growth of 15%, against the same interim dividend from the year 2004. So our income statement shows, as you can see here, that we are making progress in all the different items. Just as a point of reference, we first of all give you the absolute figures and secondly the year on year changes that we are reporting.

And so that you have the possibility of understanding what has been going on from 1 year to another, we also give you the report that we gave to the market in the last presentation. And there you can see that all the items are evolving very positively. And our growth is quite outstanding, both in terms of our net interest income and our ordinary revenues and our operating profit, pre tax profit and net attributable profit.

So those are the main points that I wanted to highlight for the Group as a whole. All in all, what we are presenting is a quarter - well, indeed, a half year - with excellent results for the BBVA Group as a whole. And, as you will see, I think that we have also got excellent results to report in all the business areas.

If we start with Retail Banking, here you can see what has been happening in the P&L for that business area. And here, as we did for the Group, you can see the relationship between the third and fourth columns. And you can see that we are growing at 6.5% in core revenues. We were talking about 6.1% last time we were here. And in ordinary revenue, 7.5%. Operating profit has gone up 13.1%, pre tax profit 12.5% and net attributable profit at 12.5%.

How come we are growing so fast? Well, basically, there are 2 reasons. First of all, because when we are generating business volumes, we are definitely on the upward curve that we started out on some quarters back. In absolute terms, we are comparing the growth in customer funds and lending that we have been reporting to the market in the first half of last year, in the second half of last year and in the first half of this year. As you can see, we are continuing to move up volumes. And if, instead of absolute figures, we give percentages and we talk about lending and customer funds, you can see the following figures.

Our lending has been growing 20.2%, basically at the same level as we reported in March, that is to say 3 months ago. And, quite honestly, we feel very comfortable with this kind of growth. We feel that it is a comfortable level of growth because, really, we have a structure that is well balanced in terms of lending growth, as you can see on the right of this slide. Mortgages are growing at 24%, basically at the same level that we have been maintaining for the last few quarters now.

Consumer lending and cards has grown 13%. SMEs and businesses - there, once again, we are reporting year on year growth, which is accelerating 22.2% this year, which is higher than the growth we presented last quarter. So the strategy that we started to follow some years back - 2 years back - is now giving us results in terms of business volume, which you can see here.

As for customer funds, it has really been a good quarter and a good half year. We are growing at 10.2% in customer funds, as you can see. And perhaps what makes this rather different from other year halves is term deposits, where you can see that the term deposits are growing at 18.2%. And that is because of the commercial strategy of the Retail Banking area that we have in the BBVA in Spain and Portugal. So we have got high growth and spreads are looking good too.

Here, you can see, to get a perspective on things, what is happening to our returns on investment and loans. And you can see that we have gone down from 4.07 to 4.01, in terms of yields on lending, since the third quarter of 2004 until now. And the customer spread has gone down 1 basis point, it is true, but if you look at the balance in euros, if you look at Retail Banking, you can see that the drop is 3 basis points, which coincides with what we said at the last quarter.

And that means that the net interest income without dividends has been growing 5.6%. And, quarter on quarter, the performance is very satisfactory, as shown in the table on the right. And also, other revenues are growing very well in -- with double digit growth, as you can see. 10.8% growth, all in all, with trading income going up 101%, fee income going up 7.1% and insurance at 14.1%. And we are getting a growing contribution from [indiscernible], which is for small and medium sized enterprises.

So our activity is doing very well, the spreads are doing very well and other revenues are doing very well. And consequently, we can report very good efficiency levels. The margins are growing at 7.5% in ordinary profit. Our control of costs is being very strict. And we have to take into account, this year, that between June last year and this year we have opened more than 70 new branches. But nonetheless, we have still kept strict control of costs, so that our cost income ratio has gone down to 44.4%, down from the 47.1% that we reported in the first half of last year.

Consequently, because of everything that I have been talking about, our operating profit has performed as follows. I would not only look at the year to date growth of 13.1%, or the 14.8% of quarter against quarter. Rather, I think what is really significant, as I see it, is the quarterly changes. And you can see that the second quarter has really moved up a rung, in terms of how we are growing on the ladder of growth. And the control of risk is also very tight, with our coverage of over 300% and our NPL ratio going down to 0.67%.

As I see it, Retail Banking is doing an excellent job. And that is not just what it has been doing this quarter. Rather, it has defined the plan for personalized financial services and the commercial personalized services some years back, and it has been rolling it out ever since. I think that Retail Banking - and we have a very big Retail Banking area - what is really important is to have a clear cut strategy, a clear plan, and to know what you are doing. And that is something that BBVA has done well. We got this very clear definition of our plan, 2.5 years ago, and it covered things from the layout of the branches so that they would look different and be more attractive to our customers, providing more advisory services, having a more personal relationship with our customers.

And this year, we have launched some new products, which we think are really innovative. They are not just 1 off promotions, they are things that make us really different. We started off in January with a personalized mortgage. And then, in February, we set up the personalized BBVA net. And it is not just us who say that is innovative - also the analysts who look at the different possibilities of doing internet banking say that the BBVA is definitely 1 of the best. And then, in March, we launched our new portfolio management. And then, in May, our Cuentas Claras plan, clear accounts, which I think is really a new way of approaching the relationship with our customers.

So we have had an excellent quarter in Retail Banking, an excellent semester. And that is not the outcome of 1 off successes - rather, it is a matter of reaping the benefits of the good work that we started 2.5 years back, with a clear cut plan. Because these things cannot be improvised, they have to be based on sound foundations.

In Wholesale and Investment Banking, as well, we have got good news. Here, you can see what has been happening on the income statement for Wholesale and Investment Banking. I would like to highlight the ordinary revenues, because, as you know, the other items -- or as you can see, they have done very well. But, as a consequence of the market operations, they tend to move up and down rather more. But in ordinary revenues, we are getting nearly a 10% growth. Operating profit is growing at 17%, which is more than we reported to the market last quarter. Pre tax profit is going up 32.7%. And net attributable profit at 29.1%, because of lower provisioning requirements in Wholesale and Investment Banking, and this will continue to be the case throughout the rest of the year.

Let us have a look at what happened to ordinary revenues, which, as I said, were very important. Apart from this 10% growth, I want just to look at the quarterly comparison. For us, the second quarter of 2004 was an absolutely record quarter, and so it was quite a challenge to better the record profits that we reported last year. But we did manage it, with a quarterly comparison of second quarters of 10.7% growth. This is very important in Wholesale Banking, where we have got a 9% increase in lending and our activity is increasing, both in lending and in customer funds. And, as I say, here you can see the lending and the customer funds, and I think that the people in Wholesale Banking are keeping a very strict control on prices.

If you look at the ratio between net interest income and ATAs, you can see the performance on this slide. And personally, I think that this performance is very satisfactory. As a consequence, we are seeing cost income ratio going down from 31.3% to 30.9%. And our NPL ratio and coverage figures are wonderful - 0.26% NPL ratio and a coverage ratio which will probably hit 500% in the next quarter, because we are already at 488%. And that kind of performance means that our operating profit is doing very well - in year on year terms, 17%. But if we compare this excellent quarter with the same quarter of 2004, we have got an inter quarter growth of 18.5%.

And I think that Wholesale Banking, therefore, as I said with Retail Banking before, is reporting excellent results, which are also the outcome of the set of plans that have been launched by its different units 18 months back, some of which we have reported to the market. What we have been doing in Corporate Banking and Para Instituciones plans and the expansion of our franchise to Latin America in corporate trading and treasury.

And now we come on to the Americas. And there, too, we have got good news, as you can observe. Excuse me a moment, but 1 has to wet one's throat from time to time. As you can see -- well, that was just a trick so that you could have a good look at the excellent results. So here, you can see that the Americas is giving us very good figures and making significant contributions to our bottom line. And again, let us compare the fourth column with the third column. And you can see that, in the first quarter of last year -- no, the first quarter of this year, we gave a presentation of results, which was very upbeat, with growth of 14.2% in operating profit. This quarter, however, we are presenting even better results, with a growth in operating profit of 27.7%. And here, we are talking about current euros.

When we talk about the Americas, I think it is worthwhile highlighting that, although Mexico is doing well, also the rest of the Americas are too. Here, you can see the structure of our main business units in the Americas. And Mexico, as you can see here, is doing very well, in operating profit and in terms of net attributable profit, with year on year growth surging ahead. But I would also like to draw your attention to the absolute figures and the year on year changes for the other units.

In Latin American banks, we are getting year on year growth of 19% in our operating profit and of 61% in net attributable profit. In pensions, we are obviously expanding. And in insurance in the Americas, as well, we are doing extraordinarily well, expanding, with the attributable profit going up 8%. International private banking is showing more moderate growth, but nonetheless is very upbeat.

If we analyze what lies behind these kind of results in the Americas, the first thing we have to say is that revenues are the driving force of our profits. Our core revenues, in local currency, are growing at 23.8%, which would be 19.7% in current euros, semester against semester. And because -- well, we have to say 4% is because of the parity between dollars and euros. So that knocks off 4%, really. That's a rule that seems to work for this quarter.

But, as I said before, I do not only want to talk about year on year growth. I think it is also worthwhile to understand the core part of the business by looking at the quarter by quarter comparison that we show on the right hand side of the slide. And in the Americas, we are growing in business volumes very soundly, as we have been reporting for the last few quarters, in both lending and in customer funds.

And that means that our revenues are going up, which, with reasonable cost control, can boost up our cost income ratio. In the first half, it has gone down to 46.9%, which compares very well against the 49.8% that we had achieved a year ago. The NPL ratio continues to move down, to 2.79%, whilst our coverage has gone up to 182.4%, which gives us this kind of profile for our operating profit growth. We are talking about record operating profit of €1.454b, and that means that we have grown 42.9% quarter against quarter. And, as shown on the right hand side of the slide, which shows again that we have really surged in our growth levels.

So we are doing very positively in all of Latin America, but Mexico has done especially well, and it is also a significant chunk of our business there, where we have been reporting excellent results in ordinary revenues, which has grown 27.8%, operating profit at 38.9% and net profit 55.7%. These results are due to the fact that, in Mexico, we are still growing very fast, both in lending and customer funds. In lending, which is the main driver of the returns that we get in Bancomer, we are seeing growth rates of 32.9%, without incorporating Hipotecaria Nacional. And in terms of customer funds, we are reporting growth of 11%. As a consequence of that, we are seeing growth in core revenues, in constant euros, of 32.7%.

Improvement in our fundamentals is an obvious consequence of everything I have been saying. Cost income ratio in Mexico has gone down to 42.8%. The NPL ratio is going down, to 2.38%, despite the increased growth in their business volumes. And also, our coverage is excellent, which means excellent operating profit, both in year on year terms and quarter on quarter terms.

Once again, we can say that we have moved up a rung in terms of the quality of our growth. So, just as I was saying in Retail Banking and also in Wholesale Banking, we can say that, in the Americas, our quarter has been absolutely excellent in all the different business areas in the Americas and in Mexico.

So I can now move on to the third part of my presentation. This quarter, apart from the results we have just given, we have had our BNL all share offer. And I reported that to all of you in a special presentation. But now, I want to tell you about what has been happening there, what the current state of things is and the reasons behind what we have been doing. Many of the things I am going to say I said 3 months ago, and I think that is especially relevant. We could say that what we said 3 months ago was coherent with everything that we have done since.

Really, I remind you of this because many of you, in these kinds of meetings and in 1 on 1 meetings, have asked us what we were going to be doing in BNL. And I remember, a year ago, at the beginning of last year, everyone was asking about what we were expecting to do. And we thought that there were 2 things that we had to do in BNL. First of all, we had to deal with issues that were related to BNL as such, as a business. And then, we had to do things which were related to the positioning of BBVA and BNL.

At the beginning of last year, there were 2 absolute priorities in BNL. First of all, we really needed to refocus our strategy. We reported this to the market. And we launched a new focus, with the agreement of our partners, and we changed the management in the second quarter last year. And as a consequence of that, we launched a BNL industrial plan in the third quarter of last year.

BNL had another problem, as well - which we also reported to the market and which we tackled immediately - that it was very weak in financial terms. And there, with the agreement of the management and our partners on the Board, we decided to increase the capital. So we recapitalized BNL at the end of last year, beginning of this year.

So in terms of BNL as such, the 2 weak points it had were detected by the BBVA, reported by the BBVA to the market and then we started to deal with them and overcome the problems. And then, as I said, we had to look at the role of BBVA in BNL. There, there were 2 very relevant aspects. First of all, we thought that BNL had a very low market value. And secondly, and more important, perhaps, we thought that BBVA - and we reported this to you on many occasions - did not want to view BNL as a financial investment.

As I said at the beginning of last year, in the middle of last year, at the end of last year and the beginning of this year, I said that we did not think that BBVA, at the end of 2005, would be in the same situation in BNL as it was then. We were investing and we wanted to have control of the management and, if we did not, then we would leave. That is what we said and that has been what has guided all of our decisions ever since.

If you look at what has changed in the shareholding structure of BNL, you can see that there was quite a lot of confusion there. And so, what we wanted to do was either to get control of the BNL management or, to get maximum value out of our investment there, we thought the best thing was to be very transparent and put things out on the table, making an all share bid for all the shareholders of BNL. And in price terms, we made an offer that complied with the requirements for the BBVA shareholders and also very, very good for the BNL shareholders. It was a transparent offer and it was not going to treat different shareholders in a different way.

So that is what we said we would do, to you, and that is what we did. So that was 3 months ago. So we launched our offer and, during the take up period, we maintained very high transparency, disclosing all events to the market. As the take up period was coming to an end - 3 or 4 days were left - a new offer appeared on the scene, although not all the details have been cleared up, at a price of 270. And that offer, de facto, was made by parties that pretty well had 50% of BNL.

We wanted to be very coherent in our policy, so we have looked at the value of our holding in BNL and there, we come to a second decision. The first decision - or the first alternative, rather - was to control the management in BNL and if we cannot, we said, then we wanted to leave, which would mean selling off our holding. So here, you can see the share price of BNL over the last year and a half. And, at the moment, we have got latent capital gains which make it worthwhile having made the investment, although we have not managed to get control of the management. And the second option was -- the second alternative that we established when we actually launched our public bid.

So I think that the decisions that the Group has come to - to launch the bid, first of all, and now to put our holding onto the market, which we are talking about now - are coherent with the principle of transparency and coherence and the defense of our shareholders, and all in all coherent with a latent capital gain that you can observe there, of €520m. So that has been the underlying rationale of all of our decisions, all of our behavior so far. And so we are where we are at the moment, as I have said. There is an offer. This offer is made by parties that basically have the control of BNL. So we have made our holding open to the market.

And now we can move on to the general conclusions, having said enough about that. And here, there are 2 things I wanted to talk about. First of all, the usual conclusions that are always given at the end of this kind of presentation. And then there is a second part, which has to do with the equity story of BBVA, which I think it is important for everybody to understand.

So the first part of the conclusions is a matter of repeating what I said at the beginning. We have had an excellent first half, with very recurrent earnings based on strong revenue generation, all the different areas showing higher business volumes. And this is not just a consequence of a sudden good idea that occurred to someone somewhere. It is the outcome of rolling out a strategy that we established first of all at Group level, then at business area level and that we are now following up on. And here, I want to put out a few thoughts.

In 2002, we defined a management model, or a new way of understanding the Group, and we said that we wanted to take advantage of 3 levers of value creation. We wanted to have a Group with a high level of returns, based on very special management skills, that would make us more profitable. We wanted to be very solvent, with strict capital discipline. And we said that we did not just want to be profitable and solvent, but that we also wanted to grow fast and strongly, which meant growing not just in attributable profit but rather in terms of earnings per share as well, or above all earnings per share. In terms of returns, we can now say that we have the highest profitability among European banks, because of leveraging our management skills.

We say that there are 3 key skills that we are working on. First of all, our management of our distribution networks. Secondly, the management of the cost income ratio. And thirdly, the management of risk. In terms of our distribution network management, which is where we generate revenues, we have done a lot of work, although there is a lot of work ahead too. And I think we are definitely moving down the right path, worldwide.

Worldwide, in Retail and Wholesale, but especially in Retail, you can say that what we are talking about is the productivity of our sales force. And there, we are making important strides forward. If we measure the commercial productivity in terms of the number of products sold by each of the members of our sales force, we can say that, over the last 6 months, the BBVA Group in Spain has grown 32.5% in Retail. A year ago, we were selling 19.3 products a month and now, 25.6 products per month, for each member of the sales force. And in Mexico, the growth has been even stronger.

In terms of managing efficiency, we have got the best cost income ratio in Europe at 46.7%. And I remind you that, in the first quarter last year, this ratio was 48.8%. Moreover, we can present good cost income ratios in all of the different areas, business areas.

And then, the other skill that we are proud of is our risk management. In lending, we have got the lowest NPL ratio in Europe, but that is not just on lending that we should talk about. We have also made spectacular improvements in our structural risks. So first issue is profitability based on the management skills and there we have got some of the best figures in Europe.

Then, secondly, we have a capital management strategy which allows for self financing and growth. And that is really relevant. We have told the market that we have got 2 policies. For core capital, our target level is about 6%. And then, in payout, we are always telling the market that our policy is to be at about 50%.

Well, the results that we have got recently and that we expect to go on getting in the future, with strong discipline on our capital management, have enabled us to meet both of our targets. We have got a self financing, sustainable model, which means we can keep core capital at around about 6%, as we have done over the last 3 years and as we will continue to do in the future. And that is compatible with high remuneration of our shareholders, with the dividend per share growing fast. It was 10.3 from 2002 to 2003, then last year 15.1%, and the first interim dividend this year was 16%. So we have got sustainable, self financing growth that is compatible with significant growth in the payout policy for our shareholders.

But that is not all. We have also got a growth model that can be measured, as we should measure these things, on the basis of earnings per share. And here, you can see the past, the present and the future. In the past, we have got a clear cut track record. If we look at what has been happening in earnings per share since 2002, when we launched the plan that we talked about before, the growth in EPS has been 24.2%. And now, we are presenting some results that mean a growth in EPS in the first half of this year of 18.7%.

And let us look at the future. What is the outlook for the future? And it is not just me saying this - this is the interpretation of what the market, what you, are saying. You are saying that we have a capacity to grow and to outperform other European banks, with an expected growth of 16%, whilst you are expecting other European banks to grow at 10.2%. I hope that in the future we will do what we have done in the past, which is to outperform the expectations of the market.

And BBVA's positioning means that we can expect to get long term growth figures being as buoyant as they have been in the past and with even more upside for all of BBVA, because we are in Spain, which is growing, Mexico is growing very, very fast. The rest of Latin America, where we are highly diversified, is also a growing market. And we have also got some fantastic opportunities in the United States, with our U.S. medium term policy. And this capacity for organic growth is validated and made compatible with the capacity for non organic growth.

We have our very own vision of things. It is based on a clear strategic focus and an understanding that we must always generate value. And that was the rationale behind the investments we made last year, with excellent results, which are very clear, I think, in this first half. And also, we are determined, as we have shown in BNL, to be very transparent in everything we do in a situation when we make a bid and also in a situation when we withdraw from the offer in order to benefit our shareholders.

So we think, at the moment, our equity story is very attractive, with high profitability, with a good risk profile and clear cut growth in earnings per share - the best amongst all our peers. So that is what I wanted to share with you, apart from sharing the excellent results of the first half of this year.

Many thanks for your attention, and now, perhaps, we can move on to the questions, as Manuel said we would do before.

Okay, we will take questions from the room first, and please give your name and where you are from.

[Nato Bermejo] from UBS. I wanted to ask you a question that I am sure is on everyone's lips. What next? Because with BNL, then your European strategy, now you have freed up capital, so where are you setting your sights now? And the share buyback plan - initially, you said you would keep it, but what exactly is going to happen there now? Thank you.

Well, I will start with your second question. That is the easiest. The buyback program -- the second question about the buyback program, would be in force until September 30. And that was linked to the BNL bid, so we will maintain it to September 30, which is when we think the whole operation will have finished anyway. And we will cancel it. The Board will not keep the program, because it was linked to the whole BNL bid.

And strategy for the future. I would like to make some things very clear. I remember perfectly well, 3 months ago, when we talked about launching the BNL operation, or the bid, we said that BNL was an opportunity, but that this Group had no need, had no psychological stress, to change the perimeter or offset risks. We are very comfortable with our risk profile and we believe in the growth capacity of the Group itself. We said that 3 months ago and we are sticking to that now. The Group can provide EPS growth, still the highest in Europe, so there is organic growth potential. I would like to reassure you about that. Earnings per share growth far above that of our European peers.

And so we have not set our sights on anything. We do not believe in having a plan b. We think we have to analyze possible investments individually. And we need to analyze operations when the opportunity arises. So we are under no pressure to launch any kind of bid for anything, although of course if an opportunity does come up, we will analyze it. If we can generate value for our shareholders and make the most of our competitive advantages, then we will go for it. But I would like to make it very clear that this Group has incredibly big earnings per share potential. And, if an opportunity comes up, then we will duly analyze it. And we have not set our sights on anything.

And now what about capital? Independently of the capital gains, which of course we have not got yet, I would like to make the Group's stand clear, because I think that is very important information. We have been extremely transparent with the market at all times. Our base line in our capital strategy is to be extremely strict.

We want our core capital to stand at around 6%, with a payout of about 50%. Secondly, we analyze investment opportunities independently of our capital position. We analyze them in terms of whether they create value for shareholders or not. And thirdly, whenever we have gone below 6%, we have always explained why to you, and when we will be going back to 6%. And fourthly, if we have made the most of our organic growth opportunities and our core capital is in excess of 6%, then we will start considering making the most of that capital.

Those are our guiding principles. I do not think I could be any clearer than that. Arturo?

Good morning. Arturo de Frias from Dresdner. I just want to try and add to [Nato]'s questions. When you say that the Board will probably cancel the plan in September, so you will not amortize any of the shares that you will buy from now until September, I suppose that is what is you mean.

And long term growth acquisitions, I completely agree with you. You do not need that right now. Your EPS growth is going to be very high for the next 2 years. Your results are brilliant. But you cannot keep that up. I mean, Spain is in a bonanza, Mexico is in a bonanza, but maybe in 5 years' time things will not be exactly the same. So I suppose you are considering other things.

You have mentioned the United States on 1 slide, so my actual question is what about your medium to long term growth opportunities? So I am not asking for acquisitions in the next 6 months, but what about medium and long term? Will it all be United States, or other European countries? Well, European countries or elsewhere in the world?

And then a couple of questions about detail. Are you not concerned that the financing of the UniPol bid is, well, as yet undefined? That is a bit of an understatement. Do you not think there might be some sort of negative surprise in September about that?

And then about provisions in Spain. There is a certain amount of volatility in provisions from the first quarter to the second quarter. I know we have got IFRS, with an increase in volumes, but presuming that that increase in volume will be maintained, what kind of provision ratio can we expect for the next 4 to 6 quarters? Thank you.

Okay. So I will start with the share buyback program. Well, in fact, no. We really do not know what could happen in the next 5 years, but this Group has to study all alternatives, because lots of things will change in the next 5 years. I think that Europe legislation will have changed dramatically in the next 5 years. But in the short term, we believe, and I am sure you will agree, that if you analyze European consolidation on a short term, it is pretty complicated. But in the medium and long term, that will have to change. I think Europe will become very different, although this Group will too.

Our aim, our essential aim, is that we have to be a force to be reckoned with in the medium term. And we want our share to have the best possible multipliers. And that means creating value. And that is the aim of this Group. Creating value is wonderful in the short, medium and long term. It is great for shareholders and it is great for the Group's strategic positioning, which, in 5 years' time, as I said, has to be a force to be reckoned with. And we will make the most of all opportunities.

The United States, we defined a strategy and I think we are implementing it at the right speed. From now until the end of the year, well, we hope to be able to share with the market what the result of our work has been there. There are some great opportunities. And we need to maintain a long term view there. I have said this over and over again. I think I said this about Peru too. And the United States will maybe not be as important as Latin America for us, but it will be extremely important and we have to be eminently practical. And I think that from now to the end of the year, we will be talking to you about what our next steps will be, what we are learning there, the acid tests we have been through and our future growth plans there.

What about non organic growth possibilities? We do not have any right now, but we will analyze any opportunities that crop up, and the United States is a great opportunity. And UniPol, well, if it does not materialize in anything, I think that would be a wholesale scandal. I prefer not to think about it.

Provisions in Spain, especially in Retail Banking -- these are split between Retail Banking and Wholesale Banking. For the whole of the year in Wholesale Banking, provisions will have fallen by 50% from 2005. And then Retail Banking, I said this the last quarter. Last quarter was abnormally low. The provisions that we have made this quarter are cruise speed. We believe that Retail Banking, for the whole year, will have a risk premium of 30 basis points. So I think that is more or less what we will be maintaining throughout the year.

And then the share buyback plan. As Jose Ignacio said, that program was approved by the Board when we launched the BNL bid. And it was to contribute to the management of the flow back by those BNL shareholders who would want to sell their BBVA shares resulting from a swap. That program was meant to be valid until September 30, although the Board could decide to amortize it prior to that or to extend the program. So it was purely linked to the BNL bid. August in Italy, especially the 2 middle weeks, is fairly stationary, and the operation was due to end on September 30. And of course, if we close it, then we have to amortize those shares that we have bought back or that we have repurchased. But actually we have [not used those] 7m shares, which is 0.2% of the share capital, when the original program would have included up to 3.5% of total share capital. So any amortization will be immaterial. Any more questions?

Good morning. Javier Bernat from Caja Madrid Bolsa. I would like to come back to BNL. I think there has been this feeling that - and not just with -- this is not just BBVA but also ABN Amro - that maybe you were being over optimistic about the Italian market. I get the feeling that it is best to be outside the Italian market. I think that BNL would have been a millstone around your neck, rather than something that created value. But I guess that is a strategic question about BNL, Italy and Europe.

And my other question --

So you are over the moon about the BNL operation, then.

Yes. Yes, I am.

Well, I am glad about that. Sorry for that interruption.

I now have a question about Mexico, or Latin America. The P&L account for Latin America exceeds that of Spanish Retail Banking. So, in the next few quarters or the next few years, that means growth of 60%. That means Latin America is going to be your biggest growth area. So will you not be sending some members of top management out there?

Well, we have already sent a couple.

And then, about the second half of the year, what do you think the trend will be? Will you be above budget? Just give us some idea.

Thank you for your questions. So first things first. Independently of your opinion, which I appreciate, I do not think we were over optimistic about Italy or the operation itself. I have got peace of mind. We assessed the opportunity, which we shared with you. Some people said we were over estimating possible synergies and that there is a difference between the real world and the PowerPoint world, but we always have our feet firmly in the real world. The price was right, in the positive sense of the word, in my opinion.

And I do not think we were over optimistic when we launched the bid, because, as I have tried to explain before, we had to do something. Either we took over the helm or we got out. And I think -- well, I feel very proud of that decision. Okay, we have not managed to get the control of BNL, so we are going to get out. And we have capital gains of €523m. So I do not think we were optimistic. I think we were very realistic, in fact. And we have been coherent throughout the whole process.

Now Mexico, if you analyze the situation of the P&L in Latin America the growth is spectacular. And for this only, I think that that will continue to be the case for the next couple of years, and especially when I see the base for that growth, which is Mexico and the rest of Latin America. I think we all agree that in Mexico there is fantastic growth potential, because of the country's GDP growth, the fact that the Bank penetration rate is so low. There's huge lending demand. I think we're to see excellent performance, growth in profits.

But if we exclude Mexico, and analyze the rest of Latin America in terms of business unit and profits, but if we look at it in terms of different countries we have a very diversified structure. And I think that is very important. Apart from Mexico, if we analyze the other individual countries then I think we can all feel reassured.

And barring organizational charge, well Vida has [vigilant]. We still have -- well, we have a lot of people over there. They spend their lives on the plane. And we're not going to change that and Vida, and everyone else in operations, they are based in Mexico, can testify to that.

The first quarter and the second quarter, I think, are showing the Group's cruise speed. And I think this first half year is witness to that. So, I think the second half year will be the same as the first half. I think the first half is cruise speed.

Any more questions from here in the room, yes, there at the back.

I have a question about Argentina. I think the second quarter has been pretty good, was this exceptional, or do you think this will be maintained, because it's at quite decent figures now, because not many people have really paid much attention to Argentina recently?

I think that in general Argentina has been doing well for the last three quarters. And I think that we're at cruise speed there now too. From now until the end of the year I don't think that Argentina will vary greatly, from this first half year, so basically we'll stay the same.

Okay then, let's go on to the conference call.

We have one question from Mr. Rizzo. Mr. Rizzo you can speak now.

Hello, this is Fred Rizzo from Citigroup. I've got two questions, both operational questions. The first one relates to Latin American operations, Mexico and the rest of Latin American banking had very strong net interest income in Q2. Two questions related to that. First off, is there any one offs in that number -- in those numbers?

The second question is could you give us an outlook for the second half of 2005 in terms of revenue development for Latin America. That's my first question.

Second question relates to your domestic Spanish business. In particular, you had a very high provision from loan loss charges in Q2. I'm just wondering if you could put -- shed a little color on that in terms of what particular is driving that in terms of -- and also give us some outlook on what your expectations are for the rest of the year there.

So, the first question was about Latin America and Mexico, and other Latin American operations. And then the second question -- the first question was still about high net interest income, and whether this will continue? Whether there was any one off's involved there, and what the outlook would be for the second semester of 2005.

And then the next question was about Retail Banking in Spain, high level of provisions in the second quarter. Well, some explanations for that and comments on trend.

In America I can say that there is not any one off, and -- no, no one off at all. So, that is -- well, it's a normal growth if you wish to play that. And our forecast for the rest of the year is, I believe, that we are going to maintain -- to keep basically the same levels of growth rate in our revenue in our Latin America corporation.

And talking about Spain, well, this is the answer that I give before to Arturo de Frias. Basically, our cruise speed in terms of provision in our Retail Banking operation is going to be in the first [half and the first quarter], basing a [laterally] second -- to a second quarter.

I remember that 3 months ago in our -- in the presentation of -- for the first quarter, I said that the provision in our Retail Banking corporation in the first quarter was abnormally low. The second quarter is the average speed you can expect for the rest of the year.

There is no more question on the English Conference Call.

Okay then let's go on to the conference call in Spanish then as there are no more questions in English. No? No questions. Okay then, let's have a look at the e-mail questions.

Ignacio Cerezo, and he's from JP Morgan, and Alejandro Ruyra from Kepler Securities, what about the contribution of Laredo National Bank in revenues, costs and net profit for the year half?

Okay. We did expect that question so we have got the information. We have 2 months of Laredo, €9m to operating profit. And in terms of costs, I don't have that actually, but about €20m. That's approximate.

And then again from JP Morgan, what about domestic customer spread for the second half of the year, do we expect pressure on the cost of liabilities, because we're focusing on increasing those resources?

Well, when we analyze the evolution of customer spread and then the second half of the year, I would like to get back to the beginning of the year. And at the beginning of the year we said that customer spread in the fourth quarter 2004 compared to expected fourth quarter 2005, we expected a drop of about 15 basis points bearing in mind the interest rate scenario.

And in fact now, we think it's worse, because the one year Euribor, which is very relevant for us and the difference between the 3 months rate and the 1 year rate, because of mortgage financing is worse than a year ago. It's flatter. And the 1 year Euribor has fallen over the last month. I hope that will not happen throughout the rest of the year, but we're in the worst case scenario right now for the 1 year Euribor, and the flattening of the curve between the 3 year and the 1 year rate.

If this worse case scenario continues until the end of the year then that drop in 15 basis points could be 20 basis points. That's the idea we have, although we said at the beginning of the year if we estimated 15 basis points. But because of the way the interest rate has gone, we think spread could fall up to 20 -- up 22 basis points. Although, the customer spreads are seasonal, so you shouldn't be unduly worried. You could get worried in the first quarter, and then I said that there's a big seasonal influence there. Now, you should feel quite reassured. So, please don't worry too much. You have to remember that the seasonal impact on customer spreads and not be unduly stressed.

There was another question about the cost of liabilities.

Well, as you will have seen from the presentation, we're growing more in term deposits than usual. That's due to two things. One, which affects, well, the term and deposits, because of the fact we launched the personal financial services campaign and the personal commercial services campaign. We need time to mature that. And I hope it will be even more mature in the future. And that means that there's greater capacity to offer product. It's not focused on just one product. We have several funds right now and we have a term deposit range which is very good.

So, we're diversifying sales as well, which I think is a relevant factor. And then term deposits, well, we're not bothered about liquidity. But, in euro terms we're paying more importance to liabilities.

I also think -- and we've talked about this in the past when we've talked about mortgages and mortgage competition. We said that, of course, there's also competition in terms. There have been material changes in customer spread in our term deposits and convertible bonds, but I don't think there'll be great variation in the next few months.

I have several questions now from Morgan Stanley. Pablo would like to know about provisions, and it's generic and specific in the first of the year, and what about the rest of the year?

And then, what about opening up branch offices in Spain? What -- where's this plan right now, and then about fees in Bancomer in terms of basis points of our portfolio? And one last question about the Bank's capital position at the end of 2005 given the big increase in risk weighted assets in Spain and in Mexico.

Okay, let's see who's going to answer what. Well, opening branches in Spain, as I said before, we've opened 70 new ones in the last 12 months, mainly in Madrid. And from now until the end of the year, it actually depends on the availability of the right kind of premises. But I think we'll be opening another 40. That's the opening plan.

And it's very much concentrated in Madrid and the Mediterranean patch, so venturing out of Madrid. These branches are opened up in new population areas, breakeven is very quick, because they usually actually start off with very high -- well, with a lot of business, especially mortgage.

The risk premium for Bancomer is 80 basis points.

And our capital position, I would like to make some comments here, because when we look at risk weighted assets for the second quarter there are some accounting issues there. I think it would be better if you organized -- sorry, if you analyzed the first year half, not just the second quarter. So, look at the figures for the two quarters. And I also think you should bear in mind the euro dollar impact. And I think that means that our growth in risk weighted assets is 10 to 11%.

Okay, to give you some details for provisions, we've €137m in this quarter. That's for -- those are loan loss provisions. €124m are specific and €146m generic. And we've freed up €26m for country risk, and we have recovered a certain amount. In Spain -- well, what we mean ex. America, €129m, €51m specific, €132m generic. We are concentrated on generic and keeping it at a maximum level in all business units.

And our capital ratio by the end of the year you should think that this quarter we've generated 65 points of core capital, basically through results. And then you have to subtract capital consumed, because of high growth in risk weighted assets. But we can fund our own growth. We've consumed, say, 40 basis points. So, for the whole of the first half year, we've generated 25 basis points. That's recurrent. So that's non distributed profit versus capital absorbed by our own activities between 10 to 12 basis points per quarter, and 25 for the semester.

If you bear in mind Laredo, Laredo has consumed 27 basis points. That gives us, well, 586 up to 5 -- well 584, because there's been different -- exchange differences, etc. That's, I think, a way of indicating what our capital ratio will be at that the end of the year, probably 6.2 by the end of the year, 6.2%.

Okay, then I have a question from Alejandro Ruyra from Kepler Securities. And he asks about the strong quarterly growth of costs in Bancomer, and what about the contribution of Hipotecaria Nationale to attributable profit and operating profit?

Well, the quarter on quarter growth of costs in Bancomer is a fact, but part of that is due to, well, €7m due to software enhancement, and then €15m of that -- and €8m for a VAT adjustment. And we're investing a lot in Bancomer's operations and a lot in commercial cost to maintain growth. But actually evolution is -- the underlying evolution is better than those figures would indicate, because the growth in local currency would be between 11 and 12% for Bancomer in terms of costs.

And then a question from [Rubio Cho Lee] from Frontline Analysts. Given the high spread in your Mexican business do you think that is sustainable, or in -- what about competition in the country?

As I said in the past the customer spread in Bancomer is not a really significant variable given the impact of customers on the balance sheet. And then there's something else we have to take into consideration, because independently of the evolution of customer spread, because we have much more productive assets. We think that that is something that increases profits. Does one thing offset the other? Probably not.

In the medium term the falling customer spread will probably exceed the improvement in the structuring of the balance sheet. But this won't happen brusquely. It will happen over time, and we think it -- we'll be able to assimilate it given the increase in volumes.

And one last question from George Karamanos. And it's about net interest income in Mexico, and what about interest rate sensitivity of net interest income? And have interest rates been the growth engine in Mexico? And what about Texas, any more plans to grow there? And what about the recent sale of Amergy?

Okay, let's start with Bancomer. We've said this before in the past, the sensitivity of net interest income in Bancomer, 100 basis points up or down means €80m a year. So, if you analyze what has happened between the first quarter last year and the first quarter this year, the growth in net interest income was €325m, €57m due from Hipotecaria Nationale, the rest so, €270m one third of 36% are from increases in interest rates, and the rest is a combination of increased volumes and improved structures. That's the situation as it stands.

Sensitivity, those €80m -- well, that's what we've -- the figure we've used for some time now in percentage terms. As Manuel has said, in absolute terms it's those €80m for 100 basis points.

Our strategy in Texas, well, it's what I said before. Our strategy in the Americas is very clearly defined. We've talked about our strategic lines, remittances, cross selling to first generations, and trying to meet the needs of second and third generation Hispanics, SMEs and that third strategic rector. Well, that was really the basis of the Laredo operation. And we are digesting the Laredo operation that will still take some time. And, as I have said before, we will share our projects with you from now until the end of the year.

We are in a position to be able to consider different possibilities of non organic growth in Texas. And we won't do anything without analyzing it in detail. And if we've even got our prices then it's because we've calculated them.

Thank you very much. And I'll wish you some -- a very pleasant holidays and a nice coffee break with Columbian coffee.