Banco Bilbao Vizcaya Argentaria SA (BBVA) 2008 Q1 法說會逐字稿

(Interpreted).

Good morning everyone.

As you know, today we're going to be presenting the results for the first quarter of 2008, and as we always do really, Jose Ignacio Goirigolzarri, our chief operating officer, will give a presentation, after which we'll open the floor to questions.

First of all, we'll take questions from here, then over a conference call, and then over the webcast.

And as always, those of you who are physically present can have a physical cup of coffee afterwards.

Okay, you have the floor.

(Interpreted).

Good morning, everyone.

It's a great point of satisfaction for me yet again to be with you here this quarter.

It's another quarter in which we're presenting results which, as you'll see, are very sound at Group level despite the circumstances in which we're operating.

It's also a special point of satisfaction to be here because it's the 25th time I present results.

But anyway, as always, we'll be following the usual order that we've established for these presentations so that it's easier for all of you to see the performance of the Group over time.

This quarter there is a slight change, however.

Normally, we were reporting Mexico and the United States as one single area, but now we're going to be reporting Mexico separately from the United States.

First thing, the results for the Group.

Despite the economic environment in which we are working, they're really sound.

So yet another quarter they're sound, and they originate at the very top of the income statement with the most recurrent business with revenues growing.

Moreover, although in all situations it's important, in this kind of situation it's especially relevant to get the right kind of management efficiency and risk quality, and management of liquidity and capital ratios.

And you'll be seeing during the presentation that our results show that we are a profitable Group that's generating value on a consistent basis over time.

So let's start with item one, what's happening to our attributable profit.

Here, we're talking without one-offs, and without one-offs the attributable profit, as you can see, has grown 14.9%.

In constant euros, or in local currencies, that growth would be, as you can see, 21.4%.

It's actually the highest less attributable profit we've ever presented, and especially significant taking into account that this is the first quarter.

I was saying before that this attributable profit originates at the most recurrent part of our income statement.

Net interest income, core revenues and ordinary revenues are growing, as you can see, very strongly, and that means that the operating profit has grown very similar to attributable profit at 14.9% which, as you can see in local currencies, will be 21.6%.

Basically it depends on the different lines, but the differences between current and constant euros will be about between 6 and 7 points.

I think it's very relevant to point out that this growth in attributable profit and operating profit has come about in all the different business units and areas, as you'll be seeing in the documentation.

I'm not going to go into details about that now because later on we'll be talking about what's happening in each of the different business areas, and we can cover it then.

But this kind of evolution in the income statement shows that we're managing efficiency, that we're managing asset quality, and capital ratios, and liquidity.

In terms of efficiency, as you know, we have a target for the Group as a whole, and we reported it to all of you when we launched our transformation plan.

The target was to get a cost income ratio of 35%, with the perimeter that we had at that time without taking Compass into account, and like-for-like perimeter, this quarter, we're moving towards that target.

Ordinary profit has grown, and our costs have gone down, so consequently, the cost income ratio has made important progress.

You can see that we've gone from 41.9% to 40.6%, which is a figure that indicates that we're on our way to that 35% in 2010.

Incorporating all of our businesses, the Group figure would be 42.9%, but the comparison, as I said before, should be done like-for-like with the constant perimeter.

Secondly, talking about asset quality, there are various messages which I want to put across today.

First of all, you can see, as you would have expected5 I should think, that the NPL ratio has gone up very slightly, but it's also relevant to set that into its historical context, and that's why we show here the different ratios we've been reporting over the last four years so that you get a perspective to understand what that 0.99% figure means.

Secondly, I think it's also very important to say that our loan loss provisions over the last few years have been increasing, and, in this context, in this environment, generic loan loss provisions have increased.

That is to say, in the first quarter, we've continued to make further allocations to the generic provisions.

As a consequence, the coverage for the Group as a whole stands at 200%.

The second aspect -- well, no, the third aspect apart from cost income ratio and asset quality, is managing capital ratios.

Well, here we can tell you what our capital ratios are according to Basel II standards.

According to Basel II accounting and our internal models, these are the positions we're reporting to March 2008, so you see what's happening at the end of the first quarter.

Our core ratio is 6.3%, and we're reporting a Tier 1 of 7.8%.

You should take into account here that there are two elements that aren't included in the calculations but that are important, that also reflect how strong our capital position is in the Group.

First of all, unrealized capital gains, EUR2.9 billion, and secondly, the surplus generic provisioning over expected losses, EUR3.9 billion.

I also think it's important to explain to you that in the first quarter, we've originated capital on an organic basis, and moreover, 13 basis points of new capital, so this has been a very strong quarter in generating capital.

Finally, liquidity was the other thing we were talking about.

I'm not going to talk too much about this because I think you already know that the BBVA Group has a very strong liquidity position.

Nonetheless, we're still working on it to improve it yet further.

At the moment, we've got additional liquidity sources of over EUR50 billion, and we're very strictly managing our liquidity gap.

So if we combine very recurrent results with a very strong capital position and extraordinary liquidity, I think you will have to agree that we've been the only big bank over the last 12 months that's shown an increase in its rating.

It's been upgraded by the rating agencies, and we are showing growth that's not just growth for growth's sake, but we're keeping return on equity very high, and our recurrent economic profit excluding what's happening with unrealized capital gains, economic profit is growing quarter-on-quarter, as you can see.

As a consequence of that, our RARoC, our recurrent RARoC is growing 33%, and our RoE without one-offs 25.2%.

So all-in-all, I was saying before, we're presenting a very sound income income statement.

This is the income statement without one-offs, so that you can see the performance in all the different lines.

In constant currencies, operating profit has gone up 21.6%, and in constant euros, attributable profit has grown 21.4%.

The overall results for the Group, if we add one-offs, would look as they do on this screen here.

There are two one-offs here.

Last year, we divested our Iberdrola holding, and this year, as you know, because we reported it to you, we sold off our holding in Bradesco.

Consequently, these are the overall Group results.

They are very sound, and we're seeing an improvement in all the fundamentals.

Now let's analyze each of the business areas.

First of all, we'll start, as we usually do, with Spain and Portugal.

In Spain and Portugal, we're seeing a generalized slowdown in business volumes, which reflects what's happening in the macroenvironment, and I think we are offsetting the impacts very well in our earnings because of our very strict pricing policy and an improvement in our cost income ratio.

Here you can see what's happening to [listings] at the end of the first quarter, although here there are seasonal impacts which are difficult to measure because of Easter week, but we're at 9.5% growth.

And in customer funds, our growth is being concentrated, as it has been since the middle of 2006, on balance sheet customer funds.

Anyway, the growth in balance sheet customer funds hasn't been the outcome of a negative shift out of mutual funds.

In fact, we are being very careful and showing a lot of respect towards the service that we give to our customers, which means that along with this growth in balance sheet reports -- sorry, we've got 159 basis points market share gain in funds over the last year.

With business volumes behaving like that, one very important element is our pricing policy which has been very strict.

And here you can see the spreads that we've got in SMEs and in individuals here in Spain with growth which is quite outstanding over the last few quarters.

Net interest income over average total assets is also above the average for 2007 this quarter, which is good news, and it also makes it possible for us to make sure that business volumes feed into this interest income directly making it grow 13.9%, as you can see.

Along with other revenues growing at 2.6%, we're getting an ordinary profit of 9.6% in this business area.

I was saying that apart from our pricing policy, it's also very important to discuss efficiency.

Efficiency isn't just a fad.

You improve your efficiency because you've planned it in advance, and you've rolled out a very clear cut plan.

You will remember that in 2006 we reported two issues to you.

First of all, that in terms of our distribution network here in Spain, we thought that we were bringing our expansion plan to an end, and in fact, we've cut back the number of branches in the last few quarters very slightly.

And we also talked about our transformation plan which is very important to reduce the intermediate structures to make sure that we should come -- bring management closer to our customers.

And that explains the performance over time that you can see in cost income ratio.

Our Clima project, which we launched a few months ago, is also going to further improve their cost income ratio, which here in Spain I think is very, very good, especially in the current context.

We've improved, as you can see in the screen, by 2.6 percentage points, and that's made it possible for our operating profit to grow 14%.

In terms of our listings on our loan book, we've got impairment losses growing at 11.2%, and our NPL ratio has been going up very slightly.

To give you a point of reference, when we talk about Spain and Portugal, we're not including Spanish customers that we're giving service to under global businesses.

So here, we're not including our 20 very big customers, including, for example, Telefonica, [Repsol] or Iberdrola.

I think it's of interest for you to be able to compare what's happening compared to our peers, to look at the NPL ratio in domestic businesses, and here you can see that it has gone up slightly but with a very strong level of provisioning against it.

So this is the attributable profit.

We've grown in Spain and Portugal in attributable profit by 18%, and once again, we've improved our return on equity up to 39.1%.

And here are the different items that make up the income statement that you can see here.

Attributable profit, as I said before, is 18%.

So good results here in Spain.

Moreover, I think we've got the right kind of policies established.

We know who's accountable for implementing them, and we can ensure strong, sound growth over the next few quarters, as well.

So I hope you'll now allow me to move on to wholesale banking & asset management.

That's what we used to call our global businesses, which is our relationship with big customers and investment banking, as well as markets and wholesale banking.

This is a division that's really been hit by the difficult international environment, and so it's especially satisfying to say that this first quarter in 2008 in global businesses has given us very good results.

I hope you'll allow me to start with global customers; that is with the big customers and investment banking.

The current situation we think gives us a big opportunity because we've got a very strong balance sheet, and this is a window of opportunity that we must really get the most out of in terms of being selective to improve our positioning with the customers that we want to work with.

We have to think about our future portfolio, and we have to make sure that in the short and medium terms we also boost profits by doing cross-selling with these important customers.

That's why we're getting such high increases in business volumes, which also explains what's happening to our net interest income over average total assets.

As you can see our net interest income is reflecting the high growth in business volumes that we're seeing in this division.

But apart from global customers, I also think it's really significant to talk about what's happening in our global markets as such; what's happening in our markets division.

Once again here, we're seeing a high degree of recurrency.

We've been reporting that to you over the last few quarters, and we've already said that here we were expecting a high degree of recurrency, because all of our activity comes from our sound relationship with our customers.

77% of revenues in the first quarter had to do with customer business.

And that explains why, even in this environment, our ordinary revenues in this division grew 10.6% comparing with the first quarter of the previous year, which as you can see there, was already very good.

Meanwhile, we've controlled risks keeping risk levels at very acceptable levels.

That all feeds into a level of ordinary revenues and improvement in efficiency and a growth in operating profit of 31.4%.

If we incorporate all of this into a matrix to see what's happening in global businesses, not just for Europe and Asia but also for America, then the growth is still very high, 26.4%.

It's our efficiency.

But we've had a one-off transaction within what we call business projects.

We've got a constant flow of revenues that we've talked about to you before.

This first quarter, because of a trading operation, the volume as you can see here on the slide, was EUR129 million coming from this division, which compares against an average for last year of EUR78 million; in the first quarter last year, that is.

This 31.4% operating profit excluding these transactions would be 17.4%.

So the growth of 17.4% in this business under current circumstances is underlying growth, which I think is quite spectacular, which leads into this growth of the attributable profit and of return on equity.

In this division, we don't really have NPLs and all the funds we have, the billion million of assets under management are pretty well all generic.

So we are talking about Spain and Portugal with very strong business, but in global businesses we can say that it was really excellent at all levels and in all the different business units.

I hope you'll allow me now to move on to analyze Mexico.

Mexico, well, the first issue that I'd like to talk about with you is that really over the last few months we've been hearing a lot of comments about the impact of the US economy on the Mexican economy, and there were lots of different opinions about what might happen.

But in the first quarter what we can say now is that the Mexican economy has shown itself to be very strong, and that's been reflected very clearly in market performance, looking at the stock exchange trading and also the strength of the peso.

And the latest news that we have is that the Mexican indices are showing very sound growth.

Obviously, they're managing to not reflect directly in the US at the moment.

It doesn't mean to say that they're not at all impacted by it or won't be, but they're definitely doing very well on their own for the moment.

And that has an impact on our figures.

In the first quarter then we've had powerful returns.

We've done well in lending and in customer funds, and all the different levels of our business, all the different segments, as well have also recorded very good growth as you can see in this slide.

Talking about growth of business volumes in Bancomer, there's something important we've discussed over the last few quarters, which is the gradual change in the mix of our lending portfolio.

And as we've also been telling you, this change in the mix was inevitably going to have an impact on net interest income and provisioning levels.

Here you can see what the structure of growth has been in our loan book over various different periods, starting in 2005, 2006, then '06 to '07, and then '07 to '08.

But the most relevant issue here is to see that consumer and cards, which was the driving force of our growth in 2005 to 2007, is still growing very well, over 20%.

But nonetheless, in terms of its weight, it's been diminishing its percentage of the total pie.

So over the last 12 months, which is the final column of this slide, you can see that business and mortgage business has been really important, and this has had a consequence in customer spread because of the mix, and the net interest income over ATA is again because of the mix.

Last year, as we said, there was a drop in net interest income over ATA as a consequence of the change in mix, and that drop over the next few quarters will no longer be negative and in will, in fact, begin to grow to be positive.

As you can see on the right hand side of this slide, we are comparing against the first quarter of last year when we had the highest ratio.

In the next few quarters, we're expecting this net interest income over ATA ratio to improve, not just because of the stabilization of our mix change, but also because of our pricing policies.

That means that the increase in net interest income in Mexico, which was 13.4% this quarter, will gradually during the year start to increase to even higher figures.

Ordinary revenues in Bancomer grew 19.9%, and the ordinary profit in pensions and insurance is growing at 22.1%.

I should remind you that about 18 months ago we came to a decision in pensions that our pricing policy should be aimed at boosting market share.

We've done that, and the consequences can be seen very clearly here.

In terms of efficiency in Mexico, once again, our cost income ratio has improved.

It's now at 31.2%.

This has meant that we've seen a growth in operating profit of 27%.

Our risk quality is something we're especially satisfied about.

We're very satisfied with the management done and the decision that we reached two years ago to provision against expected loses, because it's meant that we have a much more clear idea about the real risks on our portfolio so that we can avoid stop and go policies.

We're growing then very consistently.

The performance of the provisioning that we have reflects what's happening to net interest income very clearly and shows great consistency.

The NPLs in this first quarter, the ratio that is, is very similar to that of the last quarter last year, which gives us an attributable profit in Mexico which has grown 25.9%.

That's divided between the banking group and pensions and insurance.

But all-in-all in Mexico then we've got a quarter to report with the figures that you've already seen, and our outlook in net interest income for the next few months is that the figures will go up and up, faster and faster, for the reasons that I gave you.

So good results in Mexico as well.

And now we're going to talk about the United States.

This is the first time that one of my presentations, my quarterly presentations, gives the results of say US independently.

In the US, however, for some time and for several quarters, we've been saying that our positioning was very different from that of our competitors.

8% of our business is concentrated in Texas and Alabama.

Texas is a very buoyant economy and very important for us, and so we knew that we were going to outperform averages in the United States as a whole.

Indeed, that's what happened, and the market appreciates that.

So what I wanted to highlight here is that the market distinguishes between Texan banks and the average figures for the United States as a whole in banking.

So if you analyze how the markets reflected the listing of some of the publicly traded banks in Texas and those which are publicly traded on the national exchanges, you can see that there's a big difference in potential to generate future profits in Texas.

In terms of integration, we're continuing to roll out the plan that we established and which we reported to you at investors' day.

We've done the migration of the first bank to our platform.

State National Bank is now on the Compass platform.

We were very successful there and we'll continue to roll out the project.

The next big bank will be incorporated in the third quarter, and as we told you, we'll end up with the migration of Laredo National Bank in December.

In business volumes, we've had the following performance.

What we've done here basically, just so that you understand then can compare things quarter-on-quarter, is to look at the fourth quarter of last year, compare it with the first quarter of this year5 so that we can get like-for-like figures.

And then we've annualized the figures and the growth rates.

So here you can see that the lending and customer funds in Compass, the Compass Grouping Bank which includes all the four banks we have in Texas, they've all been growing very reasonably.

If we look at the income statements, there too we can say that it's responding to our expectations and our budget targets, and the targets that we reported to you at investor's day.

And here, and this is something we'll do in future quarters, we've compared the income statement of the fourth quarter of last year and the income statement for the first quarter of this year.

We've excluded the depreciation of intangibles so that we can see real performance.

The changes are a percentage which shows what's happened quarter-on-quarter, so they're not annualized, they are just quarterly changes, quarter-on-quarter changes.

It's important to see what's happening to total expenses, and especially important to look at what's happening to our loan loss provisions in the kind of environment we're operating in in the US.

They're pretty well flat, which is what we were saying we expected, and what we expect for the next few quarters to come.

So we can see that we've had a good performance in our cost income ratio without depreciation and our return on equity, without the depreciation of intangibles, as I said.

But over the next quarters, we'll get to be reporting it like that because we think that it's the best way to understand the underlying performance of our business.

The NPL ratio is at 1.97%, up from 1.77%, but most important of all is the level of loan loss provisioning, which is the same as we had in the fourth quarter.

And really this figure is a good figure, and it's a good proxy for what we can expect over the next few quarters.

So with this information, we can say that we have a deep understanding of the quality of the loan book that our banking group has in Texas.

Consequently, in the United States, we're presenting good results which stand out against the more gloomy backdrop there.

They're in line with our expectations, objectives in the budget, and the targets we reported to you at investor's day.

South America; well, South America in macroeconomic terms is quite a different case.

South America is going through a time of enormous growth in its macroeconomic indicators, which is reflected by very high business volumes in our banks which are growing in both lending and customer funds.

And that growth is feeding into our income statement.

Our core revenues are growing, as you can see, at over 30%.

Along with that, and this is especially significant I think, we're still working on efficiency and that's no easy task, as in Mexico, I think I said before, when you have very high growth in business volumes, managing costs is not easy, but it's very important to make sure that mid term returns are guaranteed and the cost income ratio in South America has improved significantly again.

And that explains why the operating profit has grown 31.3%.

As to our NPL ratio, as you can see after the ongoing drop that we were reporting, especially in the last quarter of last year, we've come back to the 2.4%s, and we're expecting this to go up further in the future with volume of provisions which make us feel quite comfortable.

Our attributable profit for South America is growing 19.4%, with coverage of 131%.

This then is the income statement for South America, and at the end of the day we're showing that we are getting strong growth in every income line, so South America, even though it's not so badly hit as elsewhere, though indeed it has very buoyant macroeconomy, it's showing very recurrent growth in results.

And here I come to my conclusions.

As I was saying before, yet another quarter we are outperforming our big European peers.

Once again we're reporting very recurrent earnings, very sound growth in the different business units which have very different characteristics and very different markets as well, all showing that we have very clear ideas about how to run our business over the next few quarters.

In Spain, they talked about the generalized slowdown of the economy, which we are managing very carefully.

Nonetheless, we have very clear ideas which are giving us clear cut results with respect to pricing policy, cost income ratio and risk quality.

Our global businesses area is also presenting outstanding results compared to our peers, and we think we have a big opportunity there to improve our positioning in this area over the next few months.

Bancomer yet again has reported very sound earnings, and in the US we're making progress, rolling out the integration plan in compliance with what we reported to you, and presenting the earnings that we had predicted.

And that's good news.

And then in South America, we're managing very strong growth in business volumes, ensuring that our efficiency improves so that in the short, medium and long terms, we can guarantee sound growth in our results.

So I'd like to remind you now with this slide, which is the same slide that I showed you when we presented results in 2007; the slide here is the slide I showed you three months ago, and there were some questions which I'd like to come back to now and ratify what I said then.

We said that we thought that the BBVA Group was starting the year from an excellent position in this rather tricky economic environment for several reasons.

First of all, because our starting point already gave us a competitive edge with a very sound capital base, a very sound balance sheet, and also our liquidity position is quite magnificent.

We are not managing a crisis, because we haven't got a crisis to manage.

We're thinking about the future of the Group, and the future of each of the business units that have no constraints which might trammel their growth.

Secondly, we are a Group that is clearly focused on retail banking and wholesale banking, but based on our customer business, and that's important, because focusing on customers mean you get more recurrent revenues.

Thirdly, we've got a business model that's been tested and showed itself to be true.

Efficiency and our returns make us the most efficient bank in the European league, and our RoE is also amongst the highest of the big European banks.

And as for our risks, they are well measured, they are totally reflected and communicated to all of you.

You know exactly what they are just as well as we do.

And definitely, they're subject to a very strict control.

So this is what we were saying three months ago, and I repeat now, we expect the BBVA Group to continue to see its earnings grow with high recurrency and low volatility, which is a fundamental way of creating shareholder value.

So I think I've finished, and we can now open the floor to questions.

And as always, I will have inestimable help from Manuel Gonzalez Cid.

Thank you very much.

(Interpreted).

Okay, we will continue now with the Q and A.

I will start with those here in the room.

Please could you give your name before you ask your question?

Thank you.

Oh, no questions, no questions here in the room.

In that case, we'll go on to the conference call questions in Spanish.

So the first question in Spanish is from Carlos Garcia from ING.

Please go ahead.

(Interpreted).

Good morning.

I have three questions.

You made a comment, I think it was about five months ago, that perhaps it was time to start growing in Spain again.

Your lending is growing at 9.7%, and are you not growing faster because there isn't demand, or do you feel comfortable the way you are?

Is it a question of pricing?

Could you talk about the situation in Spain please?

My second question is about liquidity.

Are you going to issue any bonds like some of the big Spanish companies have done, or are you not interested in that?

And then, what about capital gains?

Could you give some explanation about that EUR2 billion difference this quarter, and yet you've got EUR3 billion in capital gains; where's the difference there?

Or do you have in liquid assets?

(Interpreted).

Thank you Carlos, for --.

(Technical difficulty).

(OPERATOR INSTRUCTIONS).

(Interpreted).

As I think we've said, the economic, or the slowdown in lending is really something that had been on the horizon for several quarters, even since beginning of last year, so we are growing 9.7%; 9.5% actually.

That growth has also been impacted by Easter.

It's hard to calculate just how much.

Our policy, as I said many times in the past, for lending, is -- it's really been unchanged; our risk policy hasn't changed, but obviously in a more complicated environment, when you apply the same criteria you get different results.

Prices is -- that's prices are very important issue for us.

At times such as these, we believe our network has to manage price, and we believe in maintaining margins, and the growth of margins is absolutely essential.

When you talk of the volume and price mix, it's a very complex equation, plus risk, but we're not giving really priority to the pursuit of volume.

I prefer to talk more about the customer portfolio, and what we aspire to is that after this whole process, our customer portfolio, our current customer portfolio, will be better because we will emerge with a better quality customer portfolio because of our management capacity.

Then liquidity and capital gains, I think that's a probably a question for Manuel.

(Interpreted).

Carlos, you might remember in the first half of 2007 we issued a very, very high volumes; EUR32.4 million I think, and so we have a very comfortable liquidity position.

And I think you can see that EUR15 billion were actually cash securitizations on the market, so we don't actually need to do that right now.

So it's not something -- it's not price related.

We don't know what price will be like in X amount of time, but basically, we are in a very comfortable position.

We have huge margins for additional lines, and we don't need to go to the market in the medium or the long term currently.

I'm not saying that we won't do it at some stage in the year, although it depends on how markets evolve, but basically that's the reason why.

And then, our re-pricing reserves.

If you look at page 13, you can see that the reduction there has -- there's been a EUR2.3 billion drop.

Most of that is due to the reduction in capital gains in the available for sale portfolios, and it's basically because of the sales, for example, of Bradesco.

That's no longer included in those adjustments.

And then the price changes between the first quarter and December 2007, that's the most relevant explanation.

And then the exchange rate on net asset was in the unhedged part, but also of course, we've got goodwill there affected by the exchange rate.

We have EUR139 million in cash flow that's been hedged, so that's a sort of unrealized capital gain which is there for the exchange rate hedging because you only get a quarter of the earnings you make on that every quarter.

So that's one of the explanations for that increase there.

Next question.

(Interpreted).

Jagoba Garcia.

Thank you very much.

I'd like to congratulate you for the great results.

I have a question about the trading gains in Mexico.

Could you explain that please?

And then my second question is about the increase in global, or wholesale banking and asset management.

Are you expecting to -- were you expecting to see that?

(Interpreted).

Thank you for congratulating us, and I'll answer the second question.

And then Manuel can answer about Mexico.

Mainly, it's about what we said before.

When you analyze the evolution of wholesale and global banking, basically we see an increase because of two things.

First of all, as we've already said, for the last three or four years we've been investing a lot in that franchise with a customer focus.

We have a very sound balance sheet there, and so we think it's a great opportunity there for us not to grow in absolute terms, but rather to improve our customer portfolio and to position ourselves better with our highest value customer.

It's an opportunity for our short term profits and an opportunity to increase our long-term profitability.

So it means that we can become really well consolidated with these high value customers that have a high degree of cross-selling.

Throughout this year, the growth that we've seen in January, for example, I think will continue to be good, but not as high as this first quarter.

I think this was really one of the peaks.

And then Mexico and trading, NTI.

(Interpreted).

This quarter was special because of the capital gains from the Visa International IPO.

Mexico has benefited the most from that.

We have to remember that Mexico's NTI has traditionally been low and, in fact, it was always below par for us.

Now it has significant capital gains on its fixed rate portfolios, and we consider that NTI in Mexico should really live up to expectations very soon.

(Interpreted).

Next question, please.

The next question is from Antonio Ramirez.

(Interpreted).

Good morning.

I have a few questions.

The first one is about Spain.

Could you be a bit more explicit about the flexibility you have with costs, because the press have talked about some early retirement campaigns for up to 5,000 people?

Could you tell us something about headcount in Spain and the schedule for early retirements, because I think you do have this transformation innovation plan?

And then really, the follow-up to that question, to one on lending increases, because I sometimes feel that you are better placed in terms of liquidity vis-a-vis your competitors, and that should mean a higher share of the lending market, and yet that hasn't seemed to be the case.

So is that because you don't think it's the right time?

You think things in Spain will maybe get a lot worse?

Or do you feel that the competitive conditions are not what you want them to be?

I have a question about capital and unrealized capital gains and how you'll use them.

You talked about core capital of 6.3%, but I suppose that's provisional, because the Bank of Spain hasn't yet validated the models for Basel II.

But I suppose if you've ventured to publish this it's because you're more or less sure that there won't be big differences with what the Bank of Spain eventually validates.

That gives you a very strong capital base; given unrealized capital gains it would be even stronger.

Wouldn't this be the time to choose an M&A?

And where would you like to use that spare cash?

If there were any opportunities, where would you consider them?

Thank you.

(Interpreted).

Thank you, Antonio.

Okay, your two first questions; especially the first one about Spain.

I think it's important that when we talk about the cost to income ratio and costs in Spain, we shouldn't look at the present time, but we should have a much wider view of what we've been doing for quite some time now.

Because when we talk about anticipating the market, well, I think it's true at the end of 2006, as I reminded you in the presentation, I think we were going in the opposite direction to everyone else.

Our expansion plan had been quite discreet, and we completed it, and we thought we could improve the Bank's efficiency, and so we introduced some measures to reduce intermediate structures where we've seen the results of that this year.

As part of that project, already back in 2006, well, last month, we launched the Clima project, and this is not something to reduce costs.

The main aim is to improve customer relations.

I haven't got time to go into the Clima project.

It's probably not -- here's not the time or the place, but I would like to mention a couple of things.

The Clima plan still has the same aim, to reduce intermediate structures and increase sales capacity in our branches, plus that means that a definition of what we call a commercial banking center, which is a cluster of branches with a very simple aim.

Customers of a similar profile should get the same sort of treatment and be managed in the same way.

If the branches are independent, you often have high value customers in small branches who do not receive the treatment they would have received if they'd been at one of our larger branches.

So with this reorganization, what we believe we will do is improve our attraction to customers, and we'll be able to better manage high value customers, both individual and corporate.

That's the main aim of the Clima plan.

Then for efficiency and the impact this will all have, I think we've talked about this in the past.

We expect for 2008, 2009 and 2010 that our evolution in Spain in cost terms will be basically flat, or at least below 1%; so between 0% to 1%.

If we have a look at the slide that I talked about in the presentation, we grew 0.2% in the first quarter, and that's basically what we want for the next few quarters.

So that's not really anything new.

We're just developing a plan that we had already defined at the end of 2006, and which we're gradually revealing to the market.

Your second question, that's about our lending position.

Well, I think I did already -- have already said this.

We believe that we have a very strong competitive position because of our balance sheet, and that's in our different markets, including Spain.

As I said before, in Spain, we want to capitalize on the three variables, performance, volume and risk.

Volume is not our priority right now, but our priority is to improve positioning with the best customers.

And then capital and capital gains, well, I'll hand over to Manuel for that one.

(Interpreted).

What I would like to say is that, in terms of this Bank's strategic aims, there have been no changes.

We are focused on organic growth; we have really big plans for 2008 for innovation and transformation, and that is -- we're focused on the integration processes, and in delivering results like the ones where sharing with you today as we said we would at investors day.

So basically I think it is all very clear.

With respect to the capital, yes, there has been some comments.

As you know Basel II is now applicable Europe-wide according 4to the directives, and it has been since January 2008 regardless of how Basel II is being adapted to national legislations.

The different regulators are doing it slightly differently and in the second quarter this year we can expect the approval of the new regulations under Basel II for all the different European regulators.

Obviously, the way we calculate things is, I think, quite conservative, and that's for several reasons.

First of all because we don't want to benefit from provisions in our core capital or our Tier 1 capital according to the new definitions under Basel II, and secondly, because we're not including in this calculation the first category customer funds using our latent provisioning potential which is very high, our surplus provisions.

And we're considering risk weighted assets, which are based on our advanced models, which we have for most of our portfolios here in Spain and some in Mexico.

The standard model is being used for other positions, and that really reflects the changes that have been agreed with our regulators about how we do those calculations.

And here we are making a lot of progress.

So I think this is a snapshot that much better reflects the real economic situation of the Group's capital.

We haven't changed any criteria.

Our criteria are very conservative as to how we deal with dividends.

We show dividends not in terms of dividends paid out, but dividends that are accrued.

In every economic period we associate the accrued dividends for that time, and so that means we aren't giving such a good picture right now as we might do if we didn't do that.

But we think that we really are showing the reality of the Group's extraordinary capital situation which is very, very sound.

That's the message we want you to take home by applying Basal II and by recognizing the implicit risk on our portfolios which is very low.

That means we get very good benefits from (inaudible) of risk weighted assets, and as Jose Ignacio said, we're very customer based, both in our retail banking and our wholesale banking arms.

We don't have much exposure to asset management or global training which are more penalized you could say under Basel II, which could offset the very sound position we have on our portfolios.

Next question then.

Next question from Lehman Brothers.

(Interpreted).

Yes, I had three questions.

One has to do with Spain and the growth in NPLs.

Could you give us some more details about what segments are feeding into this?

Is it perhaps mortgages with developers?

And then given the growth, the growth in your stock of NPLs, what kind of impact are you expecting on the cost of risk in your income statement over the next two quarters?

The other question has to do with Mexico.

Looking at the change of mix that you were talking about during your presentation, I don't know if there should been a reduction in the risk premium in this quarter, but they look as though the risk premium seems to have remained stable.

I don't know if you could discuss that.

What's your outlook with respect to risk in Mexico over the rest of the year, above all given what's happening in the United States and the possible impact that might have?

And then the final question has to do with dividends.

Could you perhaps say something about what you're expecting with respect to the first interim dividends of this year?

Thank you.

(Interpreted).

Well, with respect to the first question on Spain, in terms of provisions you've already seen the figures that we've presented for this quarter, and the evolution in terms of growth of provisions over the next few quarters will be very conditioned by the growth in business volumes.

It will reflect the growth in provisions -- sorry, the generic provisions will reflect the growth in business volumes, and there shouldn't be big changes in the risk premium in Spain over the next few quarters given the current provisioning levels that we already have.

And as for the different segments, well, really what we're observing here, and I think it's quite important to explain this, is that if we look at what's happened in NPL ratios or arrears in general, we're being hit by changes in regulations which were brought in in 2004.

The regulations were changed and they are now very strict.

As of 90 days, if a customer hasn't paid something, then automatically their booked as NPLs, and that means that the growth in NPLs is much greater than the real severity of NPLs in the medium to long term, and so the two different concepts [deviate].

Because of these regulations we're not really seeing in SMEs and small companies any significant growth in NPLs.

Mainly, the growth is coming from individuals to a degree in consumer credit, but more significantly from individuals with mortgages with the Bank, but that has to do precisely with the fact that we have to book them almost immediately if they fail to pay a few installments or one installment.

And then in Mexico, in 2006 we had very high growth in provisioning because that was when we decided to do our accounts against expected loss and have provisioning based on expected loss, which meant that there was much -- there's going be much higher growth.

We've already seen in that in 2007 and in 2008.

The risk premium is more or less, I would say, staying at very similar levels because we are provisioning on the basis of expected loss already adjusted to the economic cycle.

So with respect to the next few quarters, basically the growth in provisioning in Mexico expected will really reflect what's happening to a net interest income.

That's expectation, and I would say, our expectations make us feel quite comfortable because of the decision that we took at the right time in the past, which was to provision against expected losses.

And as for the dividend, well, it's rather early to start talking about the dividend, and I'm sure you can imagine that the decision will have to be made at Board level, but if you look at what's happening to the kind of earnings we're reporting, well, they're pretty powerful earnings.

Next question then.

There are no more questions in Spanish so --.

The first question comes from Mr.

John-Paul from Merrill Lynch.

Please go ahead with your question.

Yes, good morning, it's John-Paul Crutchley from Merrill Lynch.

I've got three questions if I can; one on the US non-performing loans, the second on capital, and the third on the numbers.

The first on US non-performing loans, I noticed the non-performing loan ratio went from 1.77% in December to 1.97% at the end of March, and the coverage ratios fell from about 101% to 92%.

That's in contrast to most of the US Banks in Q1 who have been building reserves.

I wonder if you can comment on the prudence of your approach in the US please.

And I'll come back to the second question.

(Interpreted).

Shall I answer in Spanish or in English?

In Spanish, right?

Hello, John.

Well, basically what's happening in the United States is the following.

We have defined NPLs here in -- using the Spanish definition which is more conservative than the US one, so all the watching list loans we have which are really performing but which are on the watch list, so we have to be on top of them to see what happens to them in the future, have to be included under NPLs in the way we do our accounts.

That means that using the consolidated criteria we use, NPLs are going up because of the classification of those loans as non-performing, whereas in provisions, they don't actually require provision in most of the cases.

So our provisions in the budget and with our current estimates are behaving as we were expecting, and what we're doing is to use the [consolid] definition we have such that the loans on the watch list, which really are performing, are accounted under very conservative criteria.

So we're tracking them very specially.

And then Manuel.

(Interpreted).

it's really important to understand things very clearly, and the volume of provisions that we're expecting for the next few quarters, you'll have observed that in the fourth quarter of last year and in the first quarter this year, basically the levels have been very similar.

The volume of provisions we're expecting for the next few quarters we think will be very much at the same level.

(Interpreted).

Next question please.

The second question and the third question was -- firstly on capital, you highlight the benefit you get for moving to Basel II, which looks like about 50 basis points based on the restated Q4 numbers.

I wonder if you can confirm the benefit on the Q1 number is about the same?

And historically, we've always thought about a 6% core Tier 1 number as being the right sort of number to aim for.

That was obviously on the Basel I basis.

I wonder if you could just share what you think the appropriate capital ratios are for the Group on a Basel II basis?

I didn't quite catch exactly what you said.

The benefit for moving from bal one to bal two looks like about 50 basis points based on the restated year-end number.

I wonder if you can confirm that the Q1 number benefited by the same amount, and whether -- and what is the right capital ratio you think for the Group on a Basel II basis in terms of core capital.

(Interpreted).

First of all, the improvement in the first quarter against the second is slightly higher as a consequence of the Bradesco divestment, which means that that goes into Tier 1 and core capital because they were unrealized capital gains last year.

So the impact of Bradesco would be about 16 basis points more in our core capital.

Another thing we've seen in the first quarter was that the rate of organic capital generation, that's recurrent growth in capital, has begun to improve.

We've come back to levels -- I think in this first quarter, we're generating, as Jose Ignacio said, 13 basis points of core capital and that's the other improvement we've seen against Q4.

We were already generating organic capital, but now we're generating more, and we've got organic capital generation now at levels which are similar to the highest levels we've had over the last three, four years.

In terms of target, because I think that's what you're getting at in the second part of your question, as of now using Basel II, we're not going to establish any guidance with respect to core capital, but we're going to talk about Tier 1 objectives under Basel II.

The core capital as a concept is not explicitly regulated.

It's more a convention in the industry rather than a regulatory item which is covered by the circular.

So in terms of our targets, in order to make sure that we get like-for-like comparisons internationally, we're going to establish an objective of a Tier 1 which will be above 7%.

We think that this objective under the Basel II definitions for the kind of business that we have and the kind of bank that we are, is a perfect fit; it's very strong, and the objective will be for Tier 1 over 7% under Basel II as it stands.

Third question?

The third question was on the corporate center; just clarification of two points.

Firstly, the net interest expense was much higher than in previous quarters.

I assume that's Compass funding.

I wonder if you could confirm.

And secondly, loan loss provision was much higher than in previous quarters too.

I wonder if you can just confirm if that's a one-off item.

If I understood correctly, is the net interest income in corporate center and the provision level in corporate center.

Is right, John?

That's right, yes.

(Interpreted).

So the net interest in income financial margin at the corporate center is negative because of the funding of the acquisitions, and so this quarter is negative but it's significantly better than it was in the fourth quarter.

This quarter it's much better, and that is basically because of improved liquidity and management of the Group's financial structure.

That's improving the net interest income in the management side.

Then, of course, interest rates are meaning our funding is more expensive, which also partially explains the negative impact.

And, of course, we have the increase of the three month rate, which is where our wholesale funding is, so that's included there too.

What I think that is important is that in terms of financial management, the negative contribution is very small.

For provisions, for loan loss provisions, the situation is as follows.

For loan loss provisions, what we have is the following effect.

We have a freeing up of generic provisions because of guarantees.

We've been able to reduce them, so we've freed up about EUR36 million I think in generic provisions, and the way it's distributed throughout the Group means that business units have acknowledged that in loan loss provisions, and yet here we have it in pure provisions.

So there's this charge to allocations and then provisions, other provisions.

And for provisions there are about EUR60 million that went on early retirements throughout the quarter.

So really it's just a question of how the different lines are distributed to the different business units.

Thank you.

The next question comes from Paul Tucker from Egerton Capital.

Please go ahead with your question.

Yes, thank you very much.

I had two questions.

Actually, most of mine had been answered, but one of them was I wonder whether you could just say a little bit more about asset quality in Mexico, and specifically, and I hear all of the points and I think they're well made about the fact that you grew earlier and have been less aggressive in some ways, but you're pretty big in credit cards, I think you're the largest this year in the country.

And certainly, if we look at the experience of some of your peers there, including HSBC, Citi, even [Bancomer] recently, and I accept that they maybe came later and were more aggressive, but they've started to see higher charge-offs in credit cards, so I wonder whether you could give us some specific granularity on what you're seeing there and what you expect.

And then secondly, just with respect to the Visa IPO gains, could you just confirm whether you hold any Visa stock, or whether all of that Visa stock was sold down in a public offering?

(Interpreted).

Okay, first question about asset quality in Mexico.

We can talk, based on our own experience, which is there on the slide.

I think we've said this more than once, because I think that one of the things that Bancomer did really well in the past was really be one step ahead of the market.

Bancomer started to grow in credit cards and consumer lending before its competitors.

It started to grow in SMEs before its competitors, and it started to grow in mortgages well before its competitors.

And, of course, we bought the Hipotecaria Nacional to boost that development in the mortgage field.

I think that is really important, because that gave us very big competitive advantages over those that arrived later; that's one thing.

Something else which I think was very positive at the time was that we provisioned for expected losses, and that's not just an accounting term, it has a very good management impact, because right from the beginning the managers are deducting an expected loss which is higher than the one that they actually get.

But the fact that you've included that in your calculations means that managers have a very clear idea of the performance of each business unit.

If you do it differently, because you have experience from that in the past, and you grow and then all of a sudden you realize your provisions are increasing and you stop the activity, that's always a problem.

I think the fact that we got there first, and the fact that we always calculated according to expected losses really are the explanation why Bancomer has done so well in volume and market share with SMEs, mortgages, credit cards.

It's been a very calm and consistent evolution.

There hasn't been any peaks and troughs.

And for future quarters, I can only repeat what I've already said.

What we expect is that given that we're provisioning for expected losses, then the increase in provisions in the next few quarters will be very much in line with net interest income.

Then your second question about Visa, like all Visa's other shareholders, we applied 50% of our portfolio for the IPO, and we kept the other 50%.

And that 50% we're still holding has unrealized capital gains that are not yet on the income statement.

We've only included the capital gains on the shares that were actually sold, the IPO.

There are no more questions.

(Interpreted).

In that case, we can go on to the web cast questions.

There are a couple on margins in Spain.

One is from Sergio Gamez from Merrill Lynch.

Can we give more information about the improvement of margins in Spain?

Can we make a distinction between the increase in spreads and portfolio re-pricing?

Well, when you analyze margins in Spain, you see that there are two things which are in fact quite contradictory.

We have the lending portfolio and then customer funding and term deposits.

I won't talk about the second issue because we've talked about it a lot in the past, but as far as the first issue is concerned the improvement in our spreads is because of our capacity to manage our asset performance.

If you look at, say, the business customers, there's a much bigger improvement in spreads there than, say in individual customers, and that is not because of re-pricing, it's because companies always have a much lower maturity period.

Our increased spreads are not a result of order re-pricing, which really doesn't make much of a contribution, but because of our capacity to manage prices, especially in those segments where lending turnover is quite high.

Okay, we have a question now from Arturo de Frias about NPLs.

We seem to be in line with other Spanish banks, but according to our specific provisions, it would seem to be stable, which is 13%, which is lower than other banks.

Is that -- or could you give more information about that, and can we expect low double-digit growth there in the future?

Well, when we talk about Spain, we are talking about parts of Spain and Portugal, and that also has global customers associated to Spain.

The impact then that I was talking about before when I was answering for -- about freeing up generic provisions because of the changes in contingent risks, well, the provisions in Spain for that are slightly lower than you might have expected.

If you take into account the fact that we freed up provisions that way, that would be about EUR30 million more in allocations than we finally had to book.

And we expect that the allocations over the next few quarters will tend to increase here in Spain by about 15%, 20% approximately over the next few quarters.

Basically, this will be for specific provisioning if you can imagine.

That's really the explanation that you wanted Arturo I'd imagine.

But anyway, what I think is important is to understand the context.

As Jose Ignacio said in his presentation, when we talk about NPLs, it's quite normal for NPLs to go up comparing against times when it had reached record lows.

In the current context it's obviously gone up slightly, and we're talking about levels that's still very low in absolute terms and which are within our comfort zone for management.

So Spain and Portugal for example, new entries into NPLs have been EUR90 million, that's all.

Well, in the Group as a whole and the performance has been very good, as you can see in the figures, we haven't had to consider any of these to be genuine impairments.

They're much lower than they were last year, so the snapshot of the NPL situation here in Spain, including all the customers in Spain and looking at provisioning, would really set us apart from our peers very clearly.

We've got a couple of questions which have to do with this issue, with the differences between the generic and specific provisions in Spain, and we have a question from (inaudible) as to what level of NPLs would lead you to start to actually draw down against your generic provisions.

The answer to that question is very complex because it will depend a lot on the characteristics of each of the institutions and the changes in the levels of lending; well, not just the volume, but also the structure of our loan book.

For the moment definitely, we're a long way under regulations from even starting to think of using our generic provisions, and we could say that in different words and I think it's important to do so.

When we talk about growth in NPLs, and we see this concern about this growth, we're talking about a Group that in this situation is provisioning generic provisions.

We're not using generic provisions, we're allocating more to provisions.

EUR134 million were allocated to generic provisioning this quarter, and I want to make that very clear.

Still talking about Spain, we've got a couple of questions with respect to our information on our exposure to developers and what's the NPL and what's the coverage.

Are they similar to the figures that we gave in January?

Right now, our loan book for developers is 18.8% of the total exposure we have to the mortgage sector.

More than 81% of our loans are to individual home buyers.

The developers' loan book is about EUR16.5 million, and more data.

Let's see.

What can we tell you?

That's 7% of the total loan book.

Everything we've got here, basically, is for real estate development to generate later on mortgages with the home buyers, so we're not working against land which is going to be built up later, or we haven't got a relevant exposure there.

That would only be 2% of our total loan book just to see the profile.

The NPL ratios we have on that loan book continue to be very low.

We're talking about figures of less than 0.20%.

And, well, our market share in developers would be 5.6%; down from the 7.5% we had in 2004, so we've been systematically applying criteria of high quality, and we've lost 190 basis points in our market share over the last three years here.

Our natural share would be 12%, and we're just at 5.6% in this particular loan book for developers.

And we are very active; we're still funding customers and operations that we consider to be bringing high quality transactions.

And our growth profile, as Jose Ignacio said before in Mexico, has been much smoother, much more stable, without all the ups and downs that we've seen in the growth in the sector.

When the sector was going very high, we were below it, and when it moved into troughs, we continued to grow above it, but we had a much flatter kind of curve.

(Interpreted).

You were talking about Mexico.

Did you mean Mexico?

(Interpreted).

Yes.

So let's go on with Mexico then, because we've been asked by JP Morgan about the weaker fee income performance in Bancomer.

Well, really, this is a good point to talk about what's happened in Bancomer.

Its performance in fee income really reflects two matters.

First of all, all the changes in the regulations and standards over last year, when they actually have the impact on the income statement is in the first quarter, and there the good news is that the regulatory changes are already reflected in the results for the first quarter.

And then secondly, just as we did with (inaudible) the insurance business we have there, we thought it was important at the end of last year to have a pricing policy and an interest rate policy and a fee policy that would enable us to go out and attract the very best customers, and that too has had an impact on the results of this first quarter.

Expectations in fee income, with growth way below what we had last year, but as I said, with respect to net interest income, they will grow faster and faster.

(Interpreted).

Fox-Pitt.

The breakdown between generic and specific provisioning in Mexico?

(Interpreted).

Manuel I'm sure we'll know the answer to that one.

(Interpreted).

Let's see if I've got the figures here, otherwise we'll have to send them.

Yes, maybe we can just send them directly.

Okay.

(Interpreted).

And we have several more questions here.

Could we give additional details about the remuneration of senior management plan, and what kind of performance we're expecting for 2008?

Well, I'd imagine that you're referring here to what we call the long term incentives, which are also talked about a lot in all the documentations with all the details.

It started at the beginning of this plan, incorporating 2006, 2007, and then it will end at the end of 2008, this plan.

And this rewards -- reflects total shareholders' return performance, and when compared against our European peers in a list that includes all the big European banks, the 15 biggest European banks, and using the TSR, we establish certain multipliers, which reflect our relative positioning in TSR.

At the moment, we're in the upper TSR, and by the end of the year, we expect -- well, we'll have to see what happens, but that's more or less where we are.

Our rewards and remuneration policies have to do with total shareholder return figures.

We have another question whether we can disaggregate the 50 basis point improvement in core capital; how much is related to Bradesco, how much is ForEx, etc.

Well, the impact of Bradesco, as I said before, would be 16 basis points on our core capital.

Organic generation of capital was 13 basis points in core capital, and that's the main impacts that are the most clear cut ones.

Bradesco obviously isn't recurrent but it's there.

And then in our capital ratios there's another impact as a consequence of the exchange rate performance and the reduction of capital gains in available for sale on our securities portfolio because of the divestment in Bradesco, above all.

So these portfolios are penalized for RWA, and it has a beneficial impact, because it reduces the RWA for the quarter, the risk-weighted assets for the quarter.

But we talk about the organic generation of capital at 0.16%, well, the generation of capital was much higher but we're eliminating these other impacts because of the drops that we're seeing linked to the exchange rate and the way that we book our available for sale portfolios.

A couple of questions related to ForEx hedging.

We're asked for an update on our hedging policy, and how the drop in the dollar could impact the income statement, and then another about where the impact of hedging will impact the accounts; exactly which line.

The results of the hedging are seen in the trading income corporate activities lines that you should recognize.

We only bring on to the income statement one quarter, that is the exact reflections of how we've divided up the year into four different terms because everything else will be in value adjustments in account to order, which will have an impact of the hedging, the real impact at the end of each quarter.

We've got EUR139 million hedging of cash flows which are pending being booked to the income statement over the entire year.

As to our hedging policy, we've talked about this in general terms but we've pretty well had 100% hedging of the dollar, with hedging in Mexico and the rest of South America of about 50%.

In Mexico, yes, it would be about 50%, and in other countries, sometimes over 50% in some countries and below 50% in other countries.

That means that in a way, the changes or the variations in the Group results, because it has an impact on the whole cascade, but below the line, we are moderating or flattening out the impact of the changes in the exchange rate with respect to the euro nominated accounts.

So the dollar you will remember over the last two years, has gone from 125 to 158-159, but nonetheless, below the line, that has hardly had any impact on the euro denominated income statement.

So we weren't too impacted by this volatility.

Another couple of questions about the BBVA agreement with CITIC.

What will be the next steps, do you think?

Well, really, the agreement with CITIC I'd like to remind you a little bit about the framework agreement, the general framework we established with CITIC meant that we --.

Well, you remember, CITIC has got two banks, one on the mainland and the other one in Hong Kong.

And you remember that under the agreement we reached with CITIC, first of all, we would become their strategic partner.

As a consequence of this, we came in with 5% of the mainland bank.

We did that, and we also had an option to go up from 5% to 10% over the next two years, as of April I think the month was, yes.

That was April, this April.

And as a consequence of that agreement, we established various different sections under which we established the possibility of doing joint ventures.

And then in Hong Kong, what we had was 15% holding to start with.

We took that holding out with the idea of going up from 15% to 30%.

So that's the framework that we established with CITIC.

And that's the framework in which we are currently operating.

We are developing joint ventures on the mainland, and the next steps that we should expect would be to consolidate these joint ventures and to get them up and running.

What I can say and here I'm a member of the Board of the mainland bank so I can it on the basis of my own personal experiences, that we have very good relations with CITIC, and you've already seen the economic results of the Group are excellent, magnificent.

So in the next few months, that's what we'll be doing.

We'll be increasing our holding as expected, and we'll see more business done through joint ventures.

Another question from Execution as to whether we should expect a change of management in Mexico.

Oh, actually -- no.

No.

Ah, maybe.

Oh, I get it.

I see.

You're talking about [Hector Rangel].

Right, now I understand.

Right, okay, that makes sense.

Yes, well, given the structure that we had in Mexico, the chairman there was a post that Hector Rangel had, and that was ever since we moved into Mexico into Bancomer, and that's been a non-executive chairmanship always.

And so along with the chairman, there were executive responsibilities that [Naco Ignacio Deschamps] had who was the general manager, using the Mexican terminology.

So what we announced last Friday as that Hector Rangel will cease to have the chairmanship of Bancomer.

He will consider -- continue to sit on the Board there, and we thought that it was the time to bring together the ideas of an non-executive chairman and a general manager, and Ignacio Deschamps we thought could very easily hold both posts.

So we did that for practical purposes, and the impact will be seen in September.

Until then Hector Rangel, who has announced, in agreement of course with all of us that he will be leaving, will continue to the chairman until September.

On September 1, his resignation will take effect.

But in terms of the management team and such like, there's really been no change at all.

And they are doing him fantastically anyway.

Another couple of questions about Mexico.

About interest rate performance and what's most positive for Bancomer, and secondly, [Eval Nandez] asks about lending performance in Mexico this year.

Okay, lending.

In Mexico, I think a lot will depend on how the economy fairs.

However, they did say before the first quarter has had very sound growth.

It may slow down over the next few quarters, but we think our lending portfolios will grow in excess of 20%.

That's for the most relevant activities.

That's mortgages, consumer lending and SMEs.

And the second question, well, I think Manuel can handle that one.

(Interpreted).

I think that question is on everyone's lips right now.

Because of the US economy, I think everyone is thinking about an interest rate cut for the end of the year, but we've seen that the Mexican economy is doing much better than even the government thought.

Then, of course, there's the reform in the energy sector, the public spending and infrastructures.

The government wants to have a special infrastructure plan, plus the pension reforms.

That's been really important for the term long for public sector finance and then the tax reform.

Mexico is undergoing hugely important structural reforms and, of course, it's the rating agencies have acknowledged it's improvement, and as is true of many emerging economies, there are price pressures; food prices, for example, and energy prices as we all know.

So I think there's a bit of a dilemma about interest rates.

Our interest rate hedging in Mexico is very high so we don't really have exposure.

Of course, it's also hard to know what the next step will be.

The Bank of Mexico has been gradually increasing interest rates, but as I said, we have very high hedging so we don't feel too worried about that.

Bancomer's assets will include a lot of fixed rate mortgages, so that reduces Bancomer's traditional exposure which was one of a preference for higher interest rates.

Right now, that positioning has changed because of what -- the kind of mortgages that we grant now and the hedging that we have in place.

We have a question on Compass about the Compass' concentration in the property market.

But in what sense?

Well, nothing specific is mentioned.

I think it's probably the size of real estate entries for Compass' books.

Well, you say you have to consider US reporting standards because it looks like Compass has very high real estate exposure, but they could actually [be linked] to SMEs and corporates that are not linked to a real estate property but with property as a collateral.

But really, what I said about NPLs is similar.

It's the fact that there are these real guarantees, and that is quite an advantage for us.

But the portfolio exposed to the real estate sector in Compass is 22.6%, but individual lending is 27%, and the rest which is in excess of 50% is companies; that is SMEs and corporates.

So Compass' balance sheet structure is not as exposed to property as you would think.

It's because of these mortgage guarantees for loans, and the same is true in consumer lending of mortgage backed loans.

I would just like to add something about risk, quality in Compass.

I think there are three or four things that need to be stressed.

When you look at the evolution in risk quality of different US banks, Compass is different for four reasons.

First of all, and we've said this before, where it's located in Texas in Alabama, and those are states in which economic performance is much, much better.

And then if you try and analyze who is doing their homework better in those two states, then you need to start looking at what sort of activities are involved, and as Manuel has said, the real estate center houses a lot more -- it encompasses a lot more commercial property.

And then what about traditional risk policy?

(Interpreted).

I'd like to share some information with you.

Individual market, or its [cycle] as they call it over there, it's 716.

That's the credit scoring.

It's standardized so every -- this is public information.

For it to be considered subprime, cycle has to be below 600, and in the last six months new individual mortgages have a cycle of 724.

For consumer lending, the cycle is in excess of 700; 704.

So it's the location and risk profile.

And then there's another aspect which has an impact on risk quality and that is channels.

The fact that in the US it's been through branches or through third parties means that there's a big impact in terms of the quality of the source, and in Compass, almost 100% of mortgages came from branch customers.

I think all those aspects together mean that Compass is very different.

There's another question about the US on risk premium which is 66 basis points.

What are we expecting for the next few quarters?

That's Manuel (inaudible) from Santander Investments.

Well, very stable as we've said before.

We think provisions will be about what we gave for the third and fourth quarters, and discreet growth in lending.

And a couple of questions on capital, but I think they've been answered.

(Inaudible).

Then one on [Ibor] Securities about the tax rate.

What do we expect our tax rate to be?

Is the current one sustainable?

Well, basically our tax rate is 26.5%, and that is quite sustainable I think.

It was 30% for the Bradesco capital gains, so 27% I think is quite sustainable, although it's difficult to predict this because there's a cut in corporate tax rate in Spain this year to 30%.

And in Latin America, we have 27.2%, and in some countries we're starting to pay taxes because we've made the most of tax credits that we had -- with the tax yields that we had.

So it's not easy to talk about a standard rate throughout the whole Group.

But just to give you a quick idea, 26.5%, 27%, I think is quite sustainable for the next few quarters.

And that's the end of the questions.

Any that have been left unanswered we'll send the information out to you.

Thank you very much for your attention, and see you next quarter.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an interpreter present on the live call.

The interpreter was provided by the Company sponsoring this Event.