Banco Bilbao Vizcaya Argentaria SA (BBVA) 2007 Q1 法說會逐字稿

Good morning, everybody. [Inaudible] of all kinds in Spain and internationally. There are an awful lot of things going on. I know that you've got a lot of other things to do but I hope that you'll be interested in hearing what BBVA's been doing, because we've got excellent results to present to you, as Jose Ignacio will now show.

Good morning, everyone. Many thanks for coming here and many thanks for your attention. The presentation of results, as we usually do here, is going to be structured in different parts. We will start by talking to you about the Group results and then go on and look at all the different business areas, with the new organization that we set up at the end of last year. And then, finally, I'll be reaching certain conclusions.

So, first of all, just to give you a snapshot of how we see the results for this first quarter, we want to tell you that we think they're excellent. And we'll be going into more detail later, so you'll be able to see that. We're starting with a strong business growth, which has a big impact on our net interest income.

Our efficiency is improving because of the outcome of our transformation plans, which we started to roll out at the end of last year. We are also going to be recording a record quarter for operating profit, although it's a first quarter. And then you'll see that we've got very consistent performance in all the business areas.

And, finally, I want to just say that these results give us high attributable profit without one-offs, despite the high volatility of exchange rates, which would had an impact of about 8% during the quarter. We've done two operations which you know a lot about, I know. First of all, the agreement with Compass in February, and then the divestment of our holding in Iberdrola.

So that gives us this profile [in attributable] profit. In attributable profit for the first quarter you can see the impact of the disposal of the Iberdrola holdings. Without one-offs, our earnings per share, despite the capital increase we had in the fourth quarter of last year, would be growing at 17.4%.

But probably it's best to analyze what's happening to our attributable profit without one-offs. And here you can see EUR1.2b growing at 23% in current euros, which would be 31.1% if we reported it in constant euros. That's 8% influence by the exchange rate. I referred to that before. As I was saying at the beginning, really this profit starts to be very strong right from the top of our income statement. Our business volumes for the Group as a whole have grown 20.8% year on year. And our net interest income, as you can see, is growing at 14.5%, our ordinary revenues at 12.3%.

Although, when we're analyzing net interest income and ordinary revenues, I think it's better to look at them in each of the different business areas because there are various accounting issues which originated from the market area. If we look at net interest income in all the different business areas, we can see the strong underlying flow of results that we're bringing in here.

So I've already talked about the transformation plans that we've been rolling out over the last few months in the Group. It has obviously improved the cost/income ratio which, as you can see, in the first quarter was at 42.4%. That means that we've grown in operating profit at 21.4%. As you know, traditionally the second and fourth quarters are the ones which are highest operating profit. But here, this is the first quarter. Nonetheless, we're still hitting a record on operating profit in any one quarter in the BBVA Group.

This growth in operating profit is across the board as well, in all the business areas. After the restructuring we did at the end of last year, at the moment we've got four main business areas - first of all Spain and Portugal, then global businesses Mexico and the U.S.A. and, finally, South America. Well, if you look at the operating profit for all those four units, they're all growing above 20%, as I'll explain in greater detail later.

And then risk management. Here you can see our NPL ratio, which is pretty well stable and has stayed there over the last three quarters. And in loan loss provisions you can see that there's been a growth of 25.2% against the first quarter of the previous year but our provisioning levels are very similar to what we had at the end of last year. I think it's important here to highlight that 73.3% of these funds, of our provisions for the Group as a whole, are generic funds.

And then, capital adequacy. Here you can see our core capital, 6.2%. That's a very comfortable ratio and it makes us feel very comfortable about the outlook which we were talking about a few months back with you. So we're talking about high returns, returns on equity that you can see, 30.5%, is obviously impacted by the capital increase in November.

In return on equity, this is probably the worst comparison we'll have throughout the year, because if you analyze the returns on our assets you can see that that's still going up in ROA, where we've reached 1.26%. And in the return on risk-weighted assets we are reporting 2.08%. That's a growth of 23 basis points against the figures that we were reporting a year ago.

Apart from that, you can also see in our documentation that we're beginning to give you information on our economic profit, adjusted for risk and the economic value added. This fits in with the way that we're trying to manage our Group. We've very often told you that a couple of years ago we wanted to start to manage our Group on the basis of value-based accounting, which meant that we had to allocate economic capital and expected losses to the different business units within the Group. That's something that we've done and it's been managed using these kinds of metrics. All the reward systems we have for 2007 are based on these kinds of metrics as well.

So now we want to be able to share the information with you. And so, in our publication, this is the first presentation of it. And at the end of May, or beginning of June, our finance department will hold a meeting with you specifically to discuss this matter, all the new models that we are developing and the way that we're defining our metrics. I think this is a relevant leap forward in the way we're managing the Group and it's important progress towards even greater transparency in the BBVA Group.

So the results are shown here. As I said before, this is impacted by the Iberdrola disposal. Without one-offs, our attributable profit is growing at 23%.

Perhaps it would be relevant here to tell you what the underlying business looks like. We have to measure this in constant euros. And we're seeing here that the Group has a capacity for growth which is impressive, operating profit growing 29%. And as you can see, in pretty well all the different revenue streams we're growing above the cruising speed that we had at the end of last year, which was already a pretty good speed. Anyway, as I said before, when analyzing the different lines on the income statement, it's worthwhile to look at each of the business areas.

So let's start with Spain and Portugal. Spain and Portugal, as you'll see, has had a brilliant first quarter. Its reporting structure is new. And we're presenting the information for Spain and Portugal broken down into Financial Services, which covers retail banking and consumer finance, and then CBB, which covers corporate and business banking at domestic level, including SMEs and institutions.

In Spain and Portugal we're starting with very sound increase in the business volumes. It's been a strong quarter for volumes and for business, especially in lending. We've got an annex with a more -- less aggregated breakdown of all the average growth rates for the last few years. But to sum up, I can say that in consumer and in cards and in small businesses and mortgages we're maintaining the growth figures that we had for December.

I also wanted to tell you that, as part of our policy to raise funds, we've continued to focus, as we did last year, on term deposits. This strong business went hand in hand with excellent price management. I have already been able to talk about this before. Our price policy is always very important, as it is for any bank. But it is especially important when there is any change in the interest rate environment, because then you can really set yourself apart from the rest.

And this slide shows two bits of information of great relevance for you. First of all, our performance in customer spread in Business Banking and in Financial Services, and above all retail banking. You can see there's consistent growth in our customer spread.

If we look at net interest income over average total assets, we can see that in the fourth quarter of last year we were already growing. And in the first quarter of this year we're reporting further growth, reaching 2.14%, as we forecast when we last spoke to you. This business, these volumes, means that our net interest income for Spain and Portugal has grown 13.2%, 13.2% consistently across all the different business units. In Retail Financial Services we're growing at 12.7%, as you can see. And in CBB, that is Corporate and Business Banking, above all in SMEs, we're growing at 15.7%.

If we look at other revenues streams, there we're growing, as you can see, with double-digit growth [that came] at 11.1%. Basically, that's the outcome of our active cross-selling policy in insurance and also in market derivatives. In insurance we're reporting over 20% growth. And in [inaudible], which is the project that we have for selling market derivatives, above all with SMEs, we're seeing 100% growth.

Of special relevance, apart from what's happening to our ordinary revenues, is what's happening in efficiency. Cost/income ratio has gone down further, notably so, with a cost/income ratio of 38.1% now. This is because we're managing to hold back costs, which is something we already talked about three months ago.

So we've now got this big transformation plan which we're rolling out in Spain and Portugal, and it's obviously working. We've said that our retail branch network was going to remain flat in cost growth. If we compare this quarter against the first quarter of last year, you can see that not only is it flat, but we've actually got a drop. Total for Spain and Portugal is growing at 1.4% in expenses, above all for growth projects, growth projects related to our innovation plan. And closely related as well to the performance we're seeing in the market with [deliverance] and in [inaudible].

That's reflected in the operating profit, as you probably expect. And you can see that we're growing in operating profit in Spain and Portugal at very high rates, the figures here, 21.1% for operating profit growth in Spain and Portugal.

And then our asset quality also looks pretty good. There are two things to talk about here, stability in the NPL ratio and the possible changes we're seeing are due to the change in the mix, because the underlying fundamentals are very good. And single-digit growth in provisions, or in allocations to provisions, as I said three months ago. 82.9% of the provisions that we have in Spain and Portugal are generic.

As a consequence of all this, we are seeing growth in attributable profit, which is helped as well by the tax rate, of 26.9% and a return on equity which has also leapt up and is now at 38.7%. At the end of last year we told you that the return on equity was changing its tendency in Spain and Portugal. And we've confirmed this yet again in this first quarter with this enormous surge, which means that we've now reached 38.7%.

So, if you look at the income statement, you've put it here on the screen, basically we're talking about ordinary revenues generating revenues growing at 12.4%. And by keeping back costs, our operating profit has grown 21% and attributable profit 26.9%.

If I had to give you a summary of what Spain and Portugal have done in the first quarter of 2007, I'd like to highlight the following four messages. First of all, strong business activity. Secondly, and this is really important, excellent price management. Thirdly, sound improvement in the cost/income ratio, as we promised last year. And, in summary, it's been an excellent quarter for Retail Financial Services and Corporate and Business Banking and for the area of Spain and Portugal as a whole.

Alongside this excellent performance in Spain and Portugal, we are also reporting good performance in global businesses. Global businesses, as you know, is also going to start with its new reporting structure, which covers our big corporate global customers and investment banking markets, Asia, asset management and private banking, and business and industrial projects. And you've got a breakdown in the documentation of this. Apart from global businesses, we're also showing the performance of our results with global customers and investment banking. Moreover, you've got more details about what's happening in asset management and private banking.

But let's start here with our business, our activity. Here you can see, and this is something we've seen earlier, we've got activity growing fast in global customers. In big customers we're growing at 26%. We are seeing a slowdown in the growth, which is something that we wanted to achieve and we told you that.

In Asia the figures are pretty representative in percentage terms, because we started from a very limited base. And in Asset Management and Private Banking, customer funds growing at 11.5%.

But regardless of the volumes, when we talk about global customers what's important is to look at price policy. Global customers are giving us a performance in ordinary revenues over average total assets which is quite outstanding, apart from the fourth quarter where there were a lot of non-recurrent one-offs. You can see that in general this ratio has been increasing constantly for global customers. This gives us a growth in ordinary revenues of 43.1%.

Behind all of this, or under this growth of 43.1% in ordinary revenues, we've got a growth in our net fee income of 32.6%. So in global businesses, first of all, we've got our global customers, our big customers, who are giving us this kind of earnings. And then we've got markets, markets in Europe.

And markets in Europe are giving us ordinary revenues that are excellent news, ordinary revenues of EUR169m based on relations with customers. Because really, behind these revenues what we're talking about is our customer franchise, our relationship with our franchise, which accounts for about 73.6% of these revenues. Here we're talking about ordinary revenues, because if we analyze the income statement and look at the net interest income, NTI and fee income, there are certain leaps because of the way that they're accounted for in the books. So what really matters is the final outcome, ordinary revenues growing at 29%.

And Asset Management and Private Banking is growing at 15.4%. This enables us to report these kinds of revenues, which then boosts the performance in cost/income ratio, which has improved to 31.4%, despite the fact we are lending a lot and investing a lot in expanding the franchise. In total costs in global businesses, as you can see in the documents, there is a rise of 25% as a consequence of high investment that we're making in the franchise because we are containing costs for all other projects which aren't growth projects. So they're only growing at 4.5%.

If you look at the operating profit now, you can see that that's growing in global businesses at 30.2%. NPL ratio isn't significant at all. We've consistent attributable profit growing at 29.5% and return on equity 33.3%. So as I was saying before, just as in Spain and Portugal we had excellent performance, in global businesses we are also very happy with the first quarter. It was a great quarter after several already strong quarters last year.

So here you've got the income statement. And, once again, I've shown ordinary revenues because I think that's what really matters here. And that gives us growth in the operating profit and attributable profit which are quite outstanding.

So what are the highlights for the global businesses in the first quarter? I would focus here on these four messages which I want you to take home with you. We're continuing to roll out our global franchise and investing strongly in it. We've got consistent growth across all the units in business and in volumes. And, thirdly, our operating profit and net attributable profit continues to grow at very high rates, around 30%.

And, fourthly, we are still rolling out our expansion plan in Asia and right now we are working very hard on our joint venture with CITIC Group. You know that the mainland bank is about to do its IPO. The price was defined last Monday and it will be listed in Hong Kong and Shanghai next Friday. And the prices for the IPO are much higher than the prices that we paid to CITIC Group.

So now we can go to the third business unit, Mexico and the United States. I also think we've got good news here. Starting with the reporting structure, which you've got in your document, for Mexico and the United States we're dividing the reporting structure into two units, first of all Banking businesses and secondly Pensions and Insurance. You've got the breakdown, as I said, in your paper documents.

Let's start with Mexico because, in terms of numbers, at the moment it's still the biggest part of this area. And in activity we've got relevant news. We're growing in lending very strongly. For SMEs we're growing at 40% and our customer base, using our credit products, has grown 4.7% in just two months. Mortgages continue to grow strongly, at 53.6%. And Consumer and Cards, as we've already told you before, in percentage terms had been growing fast for a long time. And in percentage terms we see that this growth is no longer quite as fast as it was, because there's been a change in the lending mix in Mexico in the first quarter for the first time.

The growth of mortgage finances has been higher than on consumer lending, which is something that we had forecast. Because, as we told you before, we were expecting something which is happening already, which is very high growth in the mortgage market because of the high upside it has in Mexico. In customer funds you've got those figures here.

And alongside the strong business growth, if we look at net interest income over ATAs you can see that we've got 6.57%, which is a good figure, at about the same level that we reported in the third or fourth quarter last year and which we think we'll probably manage to maintain throughout 2007.

This growth in volumes, along with the improvement in spread, means that we're seeing our net interest income improve. As you can see, it's now 27.3% in terms of its growth. And the business here as well is surging ahead. In Mexico we're talking about 34.2%, which once again gives us growth in the operating profit which is very strong, 30.6% growth in our operating profit.

And then the quality of our assets, there what you can see in this slide fits in with what we were saying three months back, when we projected the year-end results for 2006. There's a slight surge in the NPL ratio, which will continue throughout the year because of the mix. But we're seeing stabilization in the net interest income over ATAs and in allocations to provisions. The fourth quarter established [the tonic] for 2007. Here you can see that really the volume of provisions for our loan loss provisions is about the same as it was in the fourth quarter and probably about the same as it will be for the next few quarters in Mexico.

And so, in terms of risk management, we continue to hold to the messages from the ideas that we exchanged with you in the past. As a consequence of that, our attributable profit is 21% and our return on equity is already, as you can see, at 56%.

The U.S.A, this is then rather an unusual quarter, since we have the incorporation of the Interstate National Bank and so -- of the State National Bank and so it's hard to compare with what it was like last year, in the first quarter last year. But here you can see, in terms of our results in the U.S., our quarterly attributable profit was EUR38m and that matches our forecast.

Also, moving forward in closing the Compass transaction, we've already presented the EC20 and the EC4. And we're awaiting questions and queries from the Securities and Exchange Commission. We've also presented our application to the SEC for the acquisition. As we explained, we expect by the last quarter of this year to be able to close that transaction.

So this is the result. This is our income statement for Mexico and the U.S., in line with what I was saying earlier. As for the key results, I basically would mention four.

Talking about Mexico, consolidation and the growth of mortgages in consumer finance and especially SMEs. More progress in banking penetration, very strong growth in our customer base. The first three months in Mexico our customer base has grown by almost 300,000. Our pricing policy, I think, is very well adjusted for risk, as you know. And finally, we are focusing and prioritizing the development of our single platform, which we think is an excellent platform, in the U.S.' Sunbelt. So, very good news there as well in terms of our business area for Mexico and the U.S.

And for South America, which is our fourth main business area, after the reorganization, I would like to explain. In the documentation you can see, as well as the income statement for this whole business area, you will be able to see on the one hand a breakdown into our Banking business on the one side and our Pension and Insurance business on the other. And you also have all the details of each of the eight countries where we have banking businesses.

And looking into South America, South America in the first quarter has had very strong business results. In fact, South America from a macroeconomic perspective is going through a wonderful period, as you all know. And this growth in the business has occurred both in lending and in customer funds, with percentage growth that has been very significant, as you can see. And this growth in the business, together with very good cost containment, has enabled us to improve our cost/income ratio yet again, which is currently already at 44.9%. And our operating profit is growing by 22%.

South America has loan loss provisions continuing with the trend that we've already mentioned and shared to you before. Our NPL ratio is basically stable, as we expect that you'll see happen throughout the year. And our loan loss provisions are EUR22m for the quarter. And that of course has the impact of a one-off EUR7m. Actually, the cruising speed is more EUR29m than EUR22m. The EUR29m is going to be the reference level for the next quarters. In any case, here here I should point out that 53% of the provisions in our balance sheet in South America are generic.

As a result, our attributable profit and our ROE have evolved, as you can see. And our income statement shows a very significant profit growth. So for South America, again, a very strong quarter. I'd mostly underline four highlights. First, that we continue to see strong growth rates as a consequence of a very favorable macroeconomic context. Secondly, excellent growth in our revenues which, together with cost containment, has again enabled us to improve our efficiency or our cost/income ratios, whilst very successfully controlling our credit risk and seeing a very positive improvement in our NPL ratio.

And that brings me to the final part of my presentation. I would like to say that we are seeing, I think, the results of a year which is starting very well indeed, with very high levels of lending and customer funds, with very strong growth in our revenues, with an operating profit which really, even though it's the first quarter, has been at a record level. A very strong contribution from all business areas, and with new improvement in all our fundamental parameters.

As a result, we feel very optimistic for the rest of the year. In 2007 we have very clear priorities, which are to develop our franchise in the U.S. and also, mostly, to develop and continue deploying our transformation in the [mission plan], which we are certain will guarantee very strong growth.

Thank you very much for your attention. And now, if you agree, we can move on to the Q&A and Manuel and I will try and answer any query which you might have. Thank you.

Okay. We can start the question and answer session. Any questions from the room? Well, in that case -- no, actually there is a question. Luis, go ahead.

Yes, good morning. My name is [Luis from SG]. I have three questions, the first question for Spain. I've seen that your loan loss provisions, in comparison with the quarterly average last year, is slightly below that average. I don't know whether you've modified the maximum limit for generic provisions down to 1.26 or 1.25, but I wonder if you can quantify the impact that this drop would have had and, for the next quarters, what your expectations are in terms of loan loss provisioning.

My second question is about Mexico. I think the CEO said that the growth in consumer finance is slowing down somewhat, that you're offsetting that with the strong growth in the mortgage business. I don't know whether that's going to have any impact on your margins and your profits for the future, although you said that you expect to maintain your net interest income. I wonder if this change in the mix might have some future impact on Bancomer profit.

And my third question is about the ABN Amro case. I wonder if you could clarify what BBVA's position is with regards to that, whether you're interested, whether you have any desire to become involved in that operation, to try and buy some of the assets that might ensue from its unbundling. I know that there's been some offer presented today by Barclays and Royal Bank of Scotland. I don't know exactly whether you would wish to clarify your position.

Well, if you agree, I'll answer the last two questions and then Manuel can tell you about the provisioning. And I'll start with the third and I'd like to define our Group's position very clearly. I've said this before and I'd like to say it again, we, for 2007, have several very clear priorities. We have to develop our business in the U.S. Remember that we announced that operation just a couple of months ago. It's the biggest operation in this Group's history. And so we are completely focused on that integration in the U.S. and also, naturally, developing our brand and our franchise with CITIC Group. We are also completely focused on developing our innovation transformation plan. And these are our two priorities exclusively.

We are not interested or involved in the ABN Amro operation. We have no non-organic growth operations on our plans. We are completely focused on the three operations I have just mentioned and I want to make that absolutely clear.

And, for the second point, Mexico and the trends in consumer finance and our profit in the future, the deceleration in the growth rate in consumer finance was something that we had already discussed with you in the past. I remember that three years ago we were talking about what the evolution of the different markets in Mexico was going to be. And we said that first it was going to be consumer finance but then SMEs would start growing strongly and that finally, eventually, the mortgage business would be the one to take off and contribute to the growth of our investments in Mexico.

And that is in fact happening. We don't see a real deceleration in consumer finance in absolute figures. But we are seeing a [big] effect and we are seeing a change in the mix because of that strong growth in mortgages, as we had expected.

As for our net interest income, I think the growth rates of our net interest income which we've reported this quarter very clearly show the growth rates that Bancomer can expect for the remaining quarters of the year.

And as for provisioning in Spain, Luis, if you remember when we presented the results for 2006, we said that we expected to see provisions in Spain to grow below the portfolio growth in Spain. And that's exactly what has happened. The reduction in the provisioning rate is completely connected to the generic provisions. And that's for two reasons.

First, because of a reduction in the maximum limit, because we're still provisioning in terms of generic provisioning at the highest rate. And also you have to take into account how generic provisioning works. What matters is the quarterly growth, which is slightly lower than last year, obviously. And that's why the process continues. For the rest of the year we expect provisioning in Spain to grow at one-digit rates, whilst our lending portfolio should grow at two-digit growth rates. Or, in any case, our provisioning -- generic provisioning will grow below our lending portfolio.

Okay. Any more questions from the room? If not, we'll move on to questions from the conference call. We have one question in the conference call from Mr. Arturo de Frias from Dresdner Kleinwort. Go ahead, please.

Okay. This is Arturo de Frias from Dresdner Kleinwort. I have three questions. The first question, as you might well imagine, the dollar. We've seen that the dollar has been falling quite significantly. I think it's probably touched bottom or should be quite close to --

[OPERATOR INSTRUCTIONS].

[Technical difficulty]. 2007, it was relatively well hedged. But I'd like to ask whether you could give us more information or whether you could update your views and give us more information and say what kind of hedging levels you have, what percentage of your profits and results are hedged? And whether you can give us some kind of forecast for 2008 to what extent this fall in the dollar might affect your profits in 2008? That's my first question.

The second is, in the U.S., what do you see in terms of sub prime in the housing market and the demand for mortgages and loans? Is there really any growth or is there only a crisis in the sub prime? Or is there something else, the prime as well? Are you seeing any slowing down in the demand for loans? Can you make some comment on that?

And the third question is I just wanted to ask about M&A, although I actually wanted to ask it from a wider perspective. This consortium concept may of course revolutionize M&A in the banking sector. With a consortium pretty much any offer is possible, you could buy any bank. I suppose that changes matters quite a lot. I suppose you must have given it some thought in the Board and the Executive Committee and so on, in terms of the future and what would be your strategy, because clearly there are new opportunities both as buyers and also potentially [inaudible] as buyees. So I wonder if you could share some of your views or internal strategies.

Okay. Manuel, will you answer those first questions?

Arturo, thank you very much for those questions, all very interesting as always. For hedging, we have said that we've hedged, and that's still the case, around 50% of our expected profits for our American franchises. As you know, for several years now we've had a very active hedging policy which, in terms of our equity invested in Latin America, is an attempt to protect our core tier one capital, which is basically our priority target. And, in terms of profits, what we want is for our shareholders, because we're a European bank reporting in euros, paying out in euros, to profit in euros from the growth we're experiencing in our American franchises, which has been spectacular or at least much higher than what we're seeing in any of the European banks.

So on the basis of that, we have set some profit hedging policies to optimize their costs. And as you can see in the first quarter results, it's the worst quarter in terms of year-on-year comparisons for average exchange rates, as compared to the first quarter of previous years. And yet we're reporting growth rates in euros of over 20%. And as you can see also, our return -- our NTI in corporate activities I think demonstrates how successful those hedging policies have been.

We've already started to define our hedging policies for the first quarter of 2008. We continue to have an active management strategy and we think that the currency effects as the year goes by, since we're hedging average exchange rates for the year and not quarter on quarter, we will see that they will have less and less of an impact. But, in any case, the important thing is to maintain the growth rates that we are reporting in euros, as is in fact the case in this first quarter when there's been extreme volatility in exchange rates.

As for any further drops of the dollar which may happen, we're not currency traders. That's not our business. What we want in some way is to give our shareholders the highest possible growth of profits from the American franchises in euros. And there can be some further slippage of the dollar but we don't think it's substantial. If we think of the dollar at 1.40, we're only talking about a 3% slippage. The important thing is to see how the average exchange rates last year compares with this year's.

As for the U.S. business, we've always said, and that's been our strategy, that the American economy is going through a smooth deceleration because of the very strong growth rates they had. But we're not seeing a drastic drop in growth rates or a potential recession in the American economy. What we're seeing in the housing market supports the scenario that we've been handling and we've been talking about for several years. We've seen slightly weaker results in some segments but they confirm that smooth deceleration hypothesis. And we think that, by the end of this year, we will start to see the American economy recovering. That's our working hypothesis.

In 2008, we expect the American economy to start growing again at a faster rate. And there are some relevant signs in terms of the latest decisions from the [FET]. They do show some concern over inflation rates in the U.S. But we haven't seen the Federal Reserve make any moves that would contradict our expectations that the economy will recover over the following year.

As for the impact on the sub prime market, everyone is familiar with changes in that market. But we're not seeing impact on other lending segments. We have seen a slight slowing down because of that slowing down of the economy as a whole. But we don't see any worsening of our risk levels.

Thank you, fine. Now, also I would say that we -- the experience that we've had in the U.S. is basically in particular Texan market, where you know that the -- that state, that region from the macroeconomic perspective is a lot more lively and happier than the rest of the American economy.

As for the third question you were asking, Arturo, and like Manuelo I want to again thank you for that question because they're always very interesting, your questions. Well, yours too, Luis, of course. But as for your third question about M&A and the consortia and so on, what I believe is that we are now seeing the consortia be established. And in the future we'll see other things. So I'm convinced that the future by definition is uncertain. And people are always trying to come up with new strategies and new approaches and new methods, and I'm sure that that will continue to occur in the future.

But it's important to define one's position. We have a very clear position in the Group. We are extremely confident in our model and our strategy. We are completely focused on value creation and profitability. Our model has been shown to be effective and the results of this year are an excellent example. And, as I have said, we are completely focused on our priorities, which are, again, to develop our franchise in the U.S., to continue developing our joint venture with the CITIC Group and to continue with our internal transformation and innovation plan. Because we're completely convinced that, on the basis of all of that, we will be able to obtain very high organic growth rates. That's our focus. Those are our priorities. And anything else is just rumor. And I'd like to state this very, very clearly.

Can I ask just one more very short question that I forgot to mention earlier? Mortgages in Spain, the real estate market in Spain. There's been a lot of talk in the press about a crash. I'm sure that you'll say that that's not happening because it wasn't overvalued. But I would like you to tell me a bit about your latest views in terms of demand for mortgages in Spain, if you've seen any slowdown, if you expect any slowing down. Do you see any problems with the credit quality? I don't know whether the affordability data are a reason for further concern lately or not.

Well, in this area, I'd also like to be very clear because there's been so much talk that I would like to separate the wheat from the chaff and say that obviously I understand why there's been so much talk, considering what happened yesterday in the stock market and what's still happening. [But let's look at what] happened yesterday with some companies from the real estate market, so to speak. Because what I'd like to say to begin with is two things, really.

One thing is the share price of certain companies and another the health of the real estate market, which are not entirely connected and in this case definitely not connected. Yesterday we saw a reaction across the board which affected several companies, some of which have business models and revenue streams that are very different. And I am convinced the market in the end will gradually distinguish between them and decide what it needs to do.

In terms of the real economy and the real estate market, what's happening on the housing market, what we're seeing and the figures are clear. It is a continuation of the central scenario that we had shared with all of you. What we're seeing now is a deceleration of the prices but very slow and gradual, which I think is very good news. It's true that certain markets in Spain, because Spain is not a single uniform real estate market, Spain has multiple markets. It's extremely fragmented in that sense. And it's true that certain markets may not operate successfully and that there are very clear differences between different markets.

But what I can tell you is that in those markets where we have a presence, which are the first home markets we are seeing demand continue to grow with a slight slowing down, which we were expecting. And I'd like to make it very clear what our position is in this mortgage business, because in the mortgage business I think you have distinguish between the developers and individual home mortgages.

And for developers, as you know, we've had the conservative approach. We've had less growth than the banking sector on average and especially the savings banks. In fact, our market share in the developer's business is 6%. 93% went to other lenders. Our developer loans are for first homes and not for holiday homes and we don't have NPLs in this area.

As for individual home owner mortgages, we have seen in the last two years, I suppose, some slowing down of the growth. And usually this quarter we're reporting growth identical to that we -- to the growth we experienced at the end of December, probably because of certain advertising campaigns we've launched for especially the younger customers in the last few months.

I also would like to remind you of two things which I think relevant. First of all, speaking about individual home owner mortgages, the [inaudible] of our stock is 43.2% and remember that we don't update prices. These are the historical prices. And, secondly, that our NPL ratio for individual mortgages is 0.27%. And in this context, we, this quarter, have not seen any difference or any signs that might indicate a change of scenario. And I want to say that very clearly and that's our case, of course. Everybody's situation might be different but that's just ours.

Great. Thank you very much.

Are there any other questions from the conference call? No? No questions? All right. Okay. In that case, we'll move on to reading the questions coming in through the webcast. I've got a couple of questions, well, three questions, in fact, from JP Morgan.

What percentage of trading income into the corporate sector is to do with currency hedging?

The second question is could we reveal the mix between generic and specific provisioning for this quarter?

And then when will the investment be realized, I'm sorry, will be actually made in China? What kind of time schedule do you have there?

Well, really we don't like to give a disclosure of that but it's an impact which hedges 50% of the exchange rate exposure that we have in the quarter, according to our budget estimates. In trading income, that is.

And for the mix between generic and specific provisions, there we can give you the data. But quite honestly, at the moment we've got Mexico with provisions on the basis of expected loss, adjusted to the cycle. The distinction doesn't make that much sense for the entire Group. But anyway, there's no very relevant change against what we've seen in previous quarters.

And China?

Okay, I'll talk about that. With respect to China, the agreements with CITIC Group -- well, I should remind you about the agreements. There's a distinction between the mainland and Hong Kong.

On the mainland, as you know, we've got a 4.82% holding and we'll have to see what happens after the IPO on Friday. And that's the first tranche. And then there's the second tranche, which is where we have options to have a 5% increase in our holding. That option is there and we may exercise it between 12 and 24 months as of the IPO, that is as of Friday. So we've got between 12 and 24 months to exercise the option. The price is linked to the IPO price, so the investment -- I haven't got the latest figures with the IPO prices but it will be about EUR500m, EUR600m.

And then Hong Kong is a different case. In Hong Kong, what we've got is an agreement. We've got a 15% holding of the bank in Hong Kong, as you know, and an agreement to add to that joint venture, with the wholesale business that we have in Asia. And, as a consequence, we will have to define the final figure for the holding within the shareholding structure for the Hong Kong operation. Probably we reckon that an investment of about EUR500m would be a pretty good proxy.

I've got three questions from [Pablo Beldarrain]. The first is about the slowdown in fee income from retail banking in the States. What are the reasons behind that? What trends do you see?

Also, with reference to Spain, he thinks there is a slowdown in lending. But which segment are we seeing that slowdown in? And what's the underlying tendency?

And then, in Mexico, he asks about what's happening to the NPL ratio, which has gone up over 2%. Could we talk about the trends we're expecting for the year as a whole?

With respect to your first question, the slowdown in net fee income, I think when we analyze fee income in Spain we should see the business as a whole. I say that because one of the key elements in this slowdown in fee income is the fact that we have a very well-defined commercial policy, giving a premium to deposits over funds. So time deposits are going up 35%, whilst the growth of mutual funds is pretty well flat. That has an impact on fee income, and that's pretty clear to see.

But what we have to look at here is not so much net interest income and fee income but revenues as a whole, core revenues and ordinary revenues, because that's where we see what's happening. The main impact on fee income is precisely what's happening with mutual funds. And this isn't news to you, I'm sure, because for the last few quarters we've been saying that we've decided to focus on time deposits for various reasons.

First of all, because we think that that's the best thing we can do to generate liquidity. And, secondly, because we think that in terms of the returns we can get at a time when interest rates are growing, if you've got a strong disciplined network with good pricing policy, it's better to shift the product offering towards time products rather than funds.

And then, the slowdown of lending. Well, actually that's not the case here in Spain for the BBVA. There's an annex, which I haven't shown on the screen because there were too many figures that made for a very busy table. But if you look at page 61 in your documentation, you can see that, in fact, we are recording some growth in the volume of lending. In retail lending, we're growing at the same rate we were reporting in December. In CBB, because of SMEs, we're growing faster than in December.

So although, as you well know, Pablo, we are expecting a slowdown in the rate of growth in lending over the year, nonetheless, in this first quarter, we've been given a very positive surprise and the slowdown hasn't actually occurred. I do think, however, that over the next few quarters we should expect some slowdown. But definitely, in this quarter, we've been very pleased to see that that hasn't been the case.

And then the third question was NPL in Mexico. Yes, that has gone to 2.33, very much in accordance with what we said we were expecting when we presented the year-end results and when we gave you a forecast for 2007. We said that NPL ratio in Mexico would go up because of the change in the mix, because of the kind of growth that we had in the past and how that would change with the change in mix. We said that the NPL ratio would be about 2.80, 2.90 by the end of the year and that this fitted in very well with the provisioning volumes that we had, to remain at the same level as the fourth quarter of 2006.

And that's exactly what we're seeing in the first quarter of 2007. So it does seem to me that the results for the first quarter in Mexico should make you feel pretty comfortable about asset quality in Mexico, because what's happening is exactly what we said would happen.

And in risk-weighted assets, the returns on risk-weighted assets, if we take out the provisioning and we look at the net interest income over ATAs, we're actually doing much better than we were last year, with very sound figures and at least as good as they were in the third or fourth quarter of 2006. So my message to you would be that you should feel quite comfortable with these figures, because what's happening is that asset risk is rolling out as we forecast.

John Raymond from [inaudible] on real estate. I think you've already answered that. I've also got questions from [inaudible] on BBVA's position with respect to consolidation in the banking industry. You answered that too. Also [inaudible], who talks about the net interest income for the Group in the first quarter. He says there's a slight drop against the fourth quarter. Could we say something about that?

Yes. Manuel, you can talk about that because that's really an accounting issue more than anything else.

Net interest income for the Group at global level in current euros is impacted by exchange rate performance and the dis-consolidation of Andorra, which was [EUR10m], which was there in the first quarter of last year but not any more. And the net interest income is very strong in Mexico and in Spain, and it's very strong in South America. Where it's not quite so strong and below last year's figures would be in global businesses, and that's because of what's happening on markets -- on the markets. There are a lot of operations going on. And this quarter the markets have had a lot of trading and that has an impact -- a negative impact on net interest income but a very positive impact on net trading income.

If we analyze the main areas, we can see that net interest income is giving off very good signals in Mexico, South America and in Spain. And it's really only in global businesses where it's having an impact. But if we then look at the net trading income, this would be offset. And so what we have to look at is the ordinary revenues here.

I think it's important to second what Manuel just said, because when you first look at things, you look at the Group figures and you say 'Yes, okay, net interest income might look like that.' So you might come to conclusions. But do take into account what the impact of the way the accounts are being done. Because what you have to look at is the fundamentals. And there I'd say if you look at the figures we've had very sound growth in net interest income for the Group as a whole.

[Inaudible] asked a question about our exposure to [developer] risk. And then he's got another question.

He just wants to talk about ABN in his question. He wants to ask whether the management team is worried about the problems in the ratings [inaudible] growth. Could we give a clear message about our strategy in this area?

I don't think I can do anything more than say it more loudly. I can't say it more clearly than I already have. I've said it three times and now I just have to underline it. We are absolutely focused on what we're doing. As I said before, we're focused on developing our American franchise above all, in strategic terms. That's where we're working very hard. We're trying to integrate the different banks and that's going to be a lot of work. And we think it will generate a lot of value.

We're also developing our joint venture with the CITIC Group. And then we want to get more organic growth through our transformation plan, which we think is very ambitious and will generate enormous organic growth. That's what we're focusing on and I'd like to make that absolutely clear.

We have no kind of operations in mind. We're not involved in the ABN AMRO operation at all. That's all I can say. I just repeat what I've said. Any rumors that you might have heard, and I just -- as I was coming down, I heard someone passing on a rumor. But they are only rumors. And I want to make it very clear that what I'm saying is the fact of the matter.

I've got a couple of questions, one on CITIC and the other on Mexico. I think [Kato] has another question about what's happening in Mexico with deposits. They've grown less than lending. What's the underlying trend here, he asks?

Really, the performance of deposits in Mexico, where we're seeing an increase in current account growth, savings accounts. But it's really following on from the trends we saw last year, and we talked about in one of the presentations we made of our results and in one-to-one meetings.

If you look back and see the kind of growth in deposits over the last three, four years in Mexico, what you see is that, last year, deposits grew abnormally high. Probably that had something to do with the political situation in the country. Because of the elections and everything, people wanted higher liquidity. The kind of growth we're seeing now I would say are probably pretty typical for what will happen for the rest of the year, one decimal point up or one decimal point down.

[Javier Bernat] is asking about the core capital ratio and whether we can confirm the target we gave of 5.5% for the end of 2007.

Yes.

A question from Bloomberg whether we can give comments about the percentage of the payment to the executive managers as to do with share performance.

Well, it depends, really. It depends on each case. But, well, you can imagine that the higher the level within the management team, the higher the percentage. But we're talking about significant figures. Especially for the management committee members, it would be about 30%. And also there's mid-term rewards as well and that is very closely linked to what happens to the share price.

Well, if there aren't any more questions, then I think that's it.

Many thanks.

Speaker statements on this transcript were Interpreted on the conference call by an Interpreter present on the live call. The Interpreter was provided by the Company sponsoring this Event.