Banco Bilbao Vizcaya Argentaria SA (BBVA) 2008 Q3 法說會逐字稿

Good morning.

We're going to present the third quarter results here for the BBVA.

So we'll start with the presentation here and then we will open up the floor to questions.

As always, we'll have questions in the room, questions across the video conference and then, finally, the questions that come to us over the Web.

And then, when we've finished, the people who are actually here are invited to have a coffee with us.

So, without further ado, I give the floor to the Chief Operating Officer, Mr.

Goirigolzarri.

Good morning, everyone.

First of all, many thanks for being here, whether you're here or whether you're listening to us over the webcast.

I'd like to thank you for being here.

And this third quarter of 2008 is a quarter that we'll remember for many years hence as the most complex quarter lived in the financial sector.

I'm sure you know better than I do all the awful things that have been happening.

But I wanted to start talking about the backdrop to what's going on because it's a point of enormous satisfaction for me to be able to present these results, which are such good results, against such a negative backdrop in the international industry.

So I'm going to make a slightly different kind of presentation from what we usually do, with a slightly different format.

Normally, I present the income statement first of all.

But now I want to use the first part of my presentation to have a look at the structure of the balance sheet and the situation of the BBVA in terms of its liquidity, its asset quality and its solvency.

And then I'll go on to do as I always do.

And in this way we compare very well against our international peers.

So in this and the next few screens that we'll be looking at we're comparing BBVA against the big European banking groups.

And you can see very clearly here that if we analyze the ratio between deposits and total assets, as I said before, we can see that we are more than a commercial franchise.

We are the Banking Group with the biggest percentage in this ratio of deposits to assets.

But at the same time, talking about liquidity, I think it's really important to see how we've structured the maturities on our wholesale funding, which is what you can see on the right of this graph.

On the right of the graph you can see that really this year we've hardly got any maturities.

And over the next few years the maturities are well spread out.

They're very well structured.

Two-thirds of the debt that we have is going to mature after the year 2011, which means that we have a very comfortable liquidity position, quite different from that of our peers.

In terms of asset quality, of course, we are noticing what's going on.

And later on we'll talk about that in greater depth when we talk about what's happening in the different business units.

There is a deterioration in our NPL ratios which reflects what's going on in the real economy.

But when we compare ourselves against our peers again, we are doing much better both in terms of our NPL ratio and when we look at our coverage ratio as well.

Talking about core capital, I think that it's great news to be able to say that, despite the current environment, we're still organically generating core capital.

We did that in the first quarter.

We did it again in the second quarter and, once again, in the third quarter.

Over these three quarters -- and here we've discounted the impact of the dividends we've already announced.

In these three quarters the BBVA Group has been able to generate 51 basis points in core capital.

That core capital then hits the ratio of 6.4%.

And that core capital doesn't take into account our surplus provisions.

If the Group took the surplus provisions into account, then we'd be talking about 60 basis points more in core capital and in Tier I.

And moreover, as you well know, we've got a portfolio with a lot of unrealized capital gains.

So, apart from that, which is a static snapshot of the BBVA, I'd also like to compare ourselves against our most direct competitors.

First of all, on the left of this screen you can see how our risk weighted assets compare to our total assets.

And from this viewpoint we have a very high ratio.

There's a strong correlation between the write downs that we've been seeing in other banks over the last few months and a lower risk weighted assets to total assets ratio.

This might sound a little bit like a technicality and you might like to have something a bit more basic, so perhaps a clearer ratio would be that of tangible equity divided by total assets.

If we then compare BBVA against the rest of our peers, you can see where we stand.

That's what our capital situation is like.

And if we add to that the surplus or the shortfall in provisions, we look even better still.

Our business model is giving us highly recurrent earnings and highly recurrent core capital generation, as we've already seen in the previous screens.

And another thing that I think is really important is that we have a capital that's very well able to come out unscathed if there are drops in property prices.

For example, if they went down 20%, then our core capital wouldn't even be impacted by housing prices.

We don't have unexpected consumption of capital coming up in any way, which means that the value of our core capital is even greater.

So, all in all, BBVA -- and with this I'm going to end this brief introduction -- is one of the safest Banks with the most recurrent revenues, very low leverage because our model is very focused on retail banking and customers.

And, as a consequence of that, we have very recurrent earnings, which is what I am now going to go on to analyze.

I was saying that after this initial part of my presentation I wanted to give you the analysis that I give every quarter.

And I was saying that, first of all, we're going to analyze the Group and then we would go on to analyze each of the business units.

You'll see that our earnings without one-offs are earnings that are characterized by three main issues.

First of all, we've got very strong recurrent earnings.

Secondly, we've got a clear improvement in our cost income ratio.

And, thirdly, we are seeing excellent risk management.

So let's start with the overall view of the Bank and how our attributable profit is doing.

We're growing, as you can see here, year on year at 9.1%.

Were we to measure that in local currencies, it would be 13.7% growth.

The exchange rate impact on the different lines on the account has an impact of between 4 and 5 points, depending on which line we're analyzing.

So I'm saying that 9.1% growth is based on the very recurrent revenues that we have.

If we look at the net interest income, that's growing significantly at 25.5%.

The different margins that reflect the different kinds of revenues coming in can be seen on the right of the screen.

They're growing very strongly in current euros and especially so in the local currencies.

And with recurrent revenues increasing we're controlling costs very strictly, which means that we improved our efficiency yet again.

And that's the basic lever to ensure that our operating profit can grow at 14.1%.

In terms of provisioning, this is something that we will analyze more when we talk about the different business units.

But here we're talking about endowments to provisions this quarter which pushes them up a further 51.3%.

Our loan loss provisions are EUR5.8b and expected loss, as you can see, is EUR2.2b.

So we've got a very big gap there between our generic loan loss provisions and our expected loss on performing loans.

And so the attributable profit has grown 9.1%, as I've already said.

In this environment, which is really very complex this quarter, we are still generating economic profit.

On a recurrent basis we're generating more than EUR2.58b of economic profit.

The different ratios showing our returns show that our return on equity is 24.8% and our return on assets is 1.2%.

And, all in all, our income statement for the BBVA without one-offs is what you can see here.

As I was saying before, a very strong growth in net interest income, operating profit growing around 14% and attributable profit growing at 9.1%.

Moreover this year, and the same thing happened last year, we've had various one-off operations, although there haven't been any this particular quarter.

But the one-offs that we had in the first nine months of last year needs to be compared with the one-off operations that we've had in the first nine months of this year.

Last year we had an attributable profit of EUR794m from our one-off operations.

And this year that figure is EUR180m.

And that difference is behind the changes that we see in the cascade of the income statement for BBVA without one-offs, and the figures that we give here for the Group as a whole with one-offs.

So that's the overall view of the Group.

And now I'll go on to analyze each of the different business areas to see what our performance has been like in this third quarter.

And, as always, we'll start with Spain and Portugal.

In Spain and Portugal, as you well know, and this is something we've been reporting to you for several quarters, we have had an across-the-board slowdown in the economy and especially in lending that can be seen.

It's a reality we have to deal with, with our pricing management, our cost control and very careful risk management, which is what you'll be seeing later.

If we look at what's happening to our business volumes, we can see that total lendings over the first three quarters of this year have been growing at 4.9%.

Our balance sheet customer funds are growing 11%.

If we compare this situation now -- the dynamic situation in terms of liquidity in Spain and Portugal now and what we had nine months back, you can see here that really lending -- the growth of lending, which is what you can see on the right of the screen, we're comparing 12 months against 12 months, really reflects a slowdown.

Balance sheet, cost of our funds are pretty well constant and that means that at the moment in Spain we're generating liquidity.

And this is consistent with the fact that we are gaining market share significantly in mutual funds.

Over the last year we've grown 229 basis points in mutual funds.

With respect to our pricing policy we usually tell you what the basic ratio is to understand the pricing policy.

And that is normally the net interest income over average total assets.

That's what you see on the left of this screen.

But on this occasion we wanted to do a more acid test, because some funds are shifting lesser in the BBVA than elsewhere in the other banks because of the way that our market share is developing.

But there's a shift from mutual funds to the balance sheet funds in all banks.

So we thought it was more significant to look at the net interest income plus fund commissions -- net fund commissions over ATAs.

And there too we're showing how very resistant we are to the slowdown because this ratio is performing very well.

And that means that, despite the slowdown in business volume growth which I talked about, we're increasing our net interest income by 11%.

Apart from the pure banking products, we're also doing cross-selling.

And here you can see what's behind our development.

Revenues are going up at 6.7% really, but the evolution of fees on funds means that the total revenues would be just 1%.

But we have recurrent clout because of our cross-selling and that is doing very well indeed.

As a consequence of that, our ordinary revenues are growing at 7.3%.

Moreover, and I think that this is very significant, in all the business units that we're going to be analyzing, but especially in Spain, all the plans that we've been reporting to you over time, the transformation plan, our Clima project wasn't just words.

Now we're seeing the tangible results of what we announced.

So here in Spain and Portugal we now have general costs that, over the first nine months of this year, are lower than they were in the first nine months of last year.

So if we add together the general and administration expenses, we've got a drop of 0.4%.

And in our branch network in Spain that will be a drop of 1.4%.

And that's a really important lever to ensure that our operating profit continues to grow at 11.7%.

And it's been absolutely vital in improving our cost income ratio, as you can see on the right of this screen, which is at 2.6% below where it was in the same period last year, at 35.3%.

Looking at NPLs here on the left, you can see what's happened to NPLs in Spain.

For several quarters now we've been tracking this ratio with you.

And here we're incorporating, not just the businesses in Spain and Portugal, or Spain really more specifically, but also the customers that we've got in our global businesses which would be considered Spanish customers.

And, there, we're seeing an increase in NPL ratio, but it's still a much better ratio than our peers.

Our coverage of our businesses in Spain stands at 106%.

And I think it's really important to say here that the purchase of real estate in 2008 accounts for only EUR3.8m (sic - see presentation).

And I think it's really important to say as I said -- sorry, that's EUR340m not EUR380m.

It's important to say that our maximum risk premium is capped very clearly for the next few quarters.

All in all, the attributable profit for Spain and Portugal has been growing at 10.2%.

And our return on equity in Spain and Portugal, despite the market conditions, once again has increased and now stands at 36.4%.

All in all, we can say that the income statement for Spain and Portugal looks pretty good.

You can see it here.

And I've left it up there on the screen because it's worthwhile looking at it.

It really does look good.

So with all of that, you can see that Spain and Portugal is in a situation which proves that we are managing the slowdown very well, generating revenues and definitely we are improving our efficiency as our cost income ratio stands out against those of other peers.

And that's not the outcome of an overnight decision that we've suddenly come to.

It's the outcome of plans that we've been reporting to you for some time now which are now giving results and will continue to give results, that's the most important thing, over the next few quarters as well.

So now we can go on to the next big unit, which is Wholesale Banking and Asset Management, where we're incorporating our corporate customers, our investment banking business and our markets area.

In terms of our global customers in investment banking, for us, we think that this situation is a great opportunity, a great opportunity to improve our presence with the kind of customers that we really consider to have value for us in the future, the customers who've got a footprint very similar to our own footprint and the customer that we can invest in because we know that we will generate further cross-selling.

And we're already generating more fees and will continue to do so.

So this is a performance of our investment, our lending to global customers which is based on very strict price management.

And on the right you can see what's happening to the RARoC on the lending that we've had over the last few quarters.

The market conditions make it possible to improve our RARoC, which is really significant.

And that explains that 33% growth that we've got on our ordinary revenues.

In markets -- and this is a point of great satisfaction as well.

Despite the current conditions in the market, once again we're reporting another recurrent quarter.

And that's because of our business model in markets, which is something we've talked about with you in the past.

72% of our revenues in markets come from our business with our customer franchise.

And that is what explains what's happened and why we get such consistent results, despite the adverse market conditions.

So bringing together all the divisions in this area, we've seen growth of 27.3% in ordinary revenues.

And our operating profit is growing at nearly 21%, and our attributable profit at 15%.

Our attributable profit is dragged down somewhat by the growth of generic provisions that we have to have in this area, because of the growth in lending that I was referring to before.

So, all in all, this is the income statement that we have to sum up what's been happening in the first nine months of 2008 in Wholesale Banking and Asset Management.

It's been an excellent quarter again, despite the rather complex backdrop to these businesses.

So, with that, we'll move on to the third major business unit in which our organization is divided; Mexico.

The performance in Mexico is something I would like to explain by the different lines.

First of all, the growth in lending in Mexico is around 18% and also the total customer funds, as you can see, is 11%.

But one very important thing, in my opinion, is to emphasize the structure of the origination of our lending in Mexico in recent years.

We've explained this to you on more than one occasion saying that Bancomer was a pioneer in developing the different markets.

It was a pioneer in 2004, 2003 in consumer credit.

It was also in mortgages.

And, apart from that, we also add the purchase of Hipotecaria Nacional and also in SMEs when we launched a different branch structure for SMEs.

And this has enabled us, despite the significant slowdown in consumer credit and credit cards, but this is being offset by the efforts we're making in SMEs and mortgages.

And this can be clearly seen in the structure of the lending that we're originating in Mexico which offers us significant growth, despite the slowdown in consumer lending and credit cards.

And this gives us a net interest income growth of 15.4%.

And if we do this over assets, this is quite stable.

Normally we see a drop in the third quarter because it's traditionally -- is a bad quarter -- a poor quarter in Mexico, which you'll see from last year's results but -- therefore, we are holding up the growth in our net interest income in Mexico.

Also in Mexico, another thing we have explained to you and, that is, the fact that we're developing a range of plans to improve our cost income ratio and efficiency.

And these are highly complex plans in a unit that is growing -- showing powerful growth in the number of customers and also in business volumes.

But we can clearly see this in the performance of our expenses.

And this is something that will be ongoing in future quarters.

And, therefore, the operating profit is growing, as we can see here, at a rate of 19.9% in Mexico, giving us a new improvement in efficiency in Bancomer.

Turning to the risk quality performance now, we can see how the NPL ratio has performed.

There's been a spike between the second and third quarter, as we can see on the left here.

And the third quarter in Mexico, especially in the world of credit cards and consumer finance, seasonally is a very poor quarter with regard to NPL ratio because of holidays, people going back to school.

And Bancomer is usually very sensitive to this in the third quarter.

But, in any event, there are two things I'd like to highlight here.

Our coverage is 191%.

And the second point, our risk premium is totally different from that of our peers, which we can see on the right here.

On the right, we're talking about a risk premium that is not the same as the one that we're offering because this is based on local criteria.

So the only way we can compare with our peers is by using the same system that they do, i.e., Mexican regulators.

And from this point of view we can clearly see the difference, not just in the absolute situation in risk premium, but also the trend between Bancomer and our peers.

We're opening the gap.

Endowments are growing in line with what we've seen in previous quarters, about 30%.

So the attributable profit in Mexico is 16.4% -- 16.3% sorry.

And this is strong growth, both in Bancomer and also in our Pensions and Insurance group.

Here we have the income statement for Mexico; the operating profit is growing at almost 20%, attributable profit growing at over 16%.

So let's move on to the United States now.

In the United States, as you know, we are highly focused on the integration program that is ongoing there.

But at the same time we are making an effort to attain commercial clout and retail clout with Compass.

And, here, we're benefiting from the complicated situation and the situation of some of our peers who are moving out of this market, which enables us to obtain good performance here.

It means that we have an increase in lending, as we can see, of 13.3%.

And with clearly -- with a line that's clearly going up.

And with excellent risk quality on the right, we can see the comparison between the risk of the first nine months of the year in comparison with the Compass balance sheet which already had high quality risk.

And this is applicable, both to individuals and to business banking.

If you analyze this trend, you won't be surprised to see the net interest income is the way it is here.

As of next quarter, we'll probably -- we can start talking about year-on-year comparisons.

Until then, we can't.

So we're just -- what we do is we compare different quarters.

So if we look at expenses now, integration is in line with our forecast.

So we are generating the synergies that we had factored in.

At the moment, last month in fact, we established the definition of the BBVA Compass brand, and this is now being rolled out.

If we now look at credit quality on the right, we can see the creep in the NPL ratio.

Obviously, it is creeping up.

But one thing I'd like to highlight is that we need to compare this creep with the creep that's being suffered by their peers in their results that they're presenting in the United States.

If we look at provisions now, it's been a high amount of endowments to provisions.

And the reason why it's been especially high in provisions this quarter is due to the revalue -- re-pricing of collaterals.

We've explained to you how we have a permanent audit of our portfolios, but the re-pricing of the collaterals we're doing in line with the landmarks laid down in American legislation.

And because of this, the quarter has been higher in our endowment to loan loss provisions.

And this is an intermediate quarter with regard to provisions between the second and this third quarter.

But I would insist this third quarter is a special quarter, for the reasons I've just explained.

So, here, we have the earnings for the United States during the third quarter which, as you can see in the attributable profit, has been impacted by the surplus provisions that I've just mentioned.

So in the United States we're continuing -- we are moving our integration process forwards.

We're using market positions to reposition ourselves in customers.

And we're also feeling the impact of the environment and events over there.

And this takes us to the fifth main business area that our organization is divided into, South America.

In the third quarter, once again, we're seeing excellent business volumes.

We're seeing major growth, both in customer funds as we can see, and also in lending.

And this has meant that the net interest income in South America has shown strong growth.

As we can see here, we're seeing growth in local currency at 34% in our net interest income.

In the ordinary revenues, these are also growing significantly; 23.2% growth here.

And the improvement in efficiency is also continuing.

At the moment we're 44% in our cost income ratio.

And this is the lever that has enabled us in the first nine months in South America to show growth in the operating profit of 28.1%.

From the point of view of the quality of risk, this has been an excellent quarter, this third quarter.

In fact, the NPL ratio in the third quarter has dropped in comparison with the second quarter.

As I have said to you in recent meetings, we are expecting, and this is something we'll see in the future, a pick up in the NPL ratio due to the growth and the structure of the growth that we're seeing in South America.

But, once again, South America, from the point of view of the NPL ratio, is giving us good news.

The attributable profit is 17.7%.

And if you would like to get an overview of this, here, we have the income statement so, in short, strong growth in all lines.

And very strong growth also in attributable profit.

And this brings me onto the conclusions now.

I think we can say that, as was said at the beginning, the results that we're presenting in a very, very highly complex quarter, the most complex that I can remember in all my time in banking, with regards to the international situation and the financial system.

And this, of course, means that the real economy is also more complex with less growth.

This is a situation that we're well aware of and it is impacting us, but we are managing this.

In Spain and Portugal the management has been focused on the three points that we have to focus on; the world of prices, efficiency and better credit quality than our peers in Wholesale and Investment Banking and Asset Management.

I mentioned that we have recurrent business revenues here.

This is no mere theory.

This is the real situation which translates into the stress test; the most complex one that this division has ever seen.

In Mexico, Bancomer is -- the strategy they are using is to anticipate the market, which is bearing fruit.

In the United States, we're continuing -- we're moving the integration process forwards and, of course, the environment is more complex.

But from the point of view of business volumes, this environment improves our positioning.

And in South America we are witnessing strong growth, which is also true of the third quarter.

So, in short and to wrap up, I would like to repeat three issues that we've been discussing with you in the past too.

And I am insisting so much on the fact that we've explained to this, because I think consistency or coherence is very important to BBVA's strategy.

The facts and figures, the trends that we're seeing are all the consequence of plans, ideas, projects that we have explained to you in the past, and these are now bearing fruit.

We have a well-proved model of Retail Banking.

And also in Hotel Banking the model is totally focused on customers.

We have an excellent track record in efficiency and cautious risk management, which is clear if we compare our performance with our peers in each and every one of the markets that we operate in.

Moreover, from the point of view of the balance sheet, a structural point of view, we stand head and shoulders above our peers in terms of liquidity and capital.

And that's why we -- of course, we are fully aware of the situation in the real economy, which is going to be very complicated in the future.

And we continue to insist that BBVA, from the point of view of solvency, stands head and shoulders above its peers, as it does in terms of our recurrent earnings.

We are totally convinced of this.

So thank you very much for your attentions.

So now we can move onto the Q&A sessions.

(Operator Instructions).

Good morning.

Let's move onto the Q&A session which we'll start with any questions from the floor.

Good morning, everybody.

I have several questions to ask.

The first one -- Irma Garrido from Ahorro Corporacion to identify myself.

First of all, maybe you could tell us a little bit more of the trends in customer deposits in the national market in resident trends.

Looking at your peers, maybe you can compare this?

Can you tell us how business is going, because it seems to have flattened off if we compare this with more significant growth that we've seen from your peers?

So my question is, with regard to -- is this trading income adjustments or exchange rates, or cover.

And my third question concerns the Board's opinion on the fact that you've made very few property asset purchases in comparison with your peers.

So how would you explain this?

And what's your view of the business?

Do you consider this as a more efficient management of your capital, or because of property prices?

Maybe you could cast some light on this issue.

I would certainly be grateful for it.

With regard to corrections to your core capital in your third quarter alone, or let's say that the third quarter you have less core capital than you saw in June, maybe you could classify this into unrealized capital losses in fixed income and variable income.

And where will you expect to see expenses by the end of the year because the year to date is still above 10% in light of the slowdown in income.

So what's your growth objective?

Obviously, I would imagine that you would want to contain the cost?

Thank you very much.

Thank you very much.

Well, I think I'll answer about the domestic businesses and the purchases of real estate and costs.

And then maybe, Manuel, you can cover the other two questions.

Okay, then, let's start with our domestic businesses.

Here, really, the performance that we are reporting and the market share that is evolving over time -- we've only got market shares to August, but in July and August we've seen an increase in our market share in deposits and in mutual funds here in Spain.

And if we analyze what's happened to deposits, there, we're increasing market share in transaction deposits.

And in term deposits we are maintaining our market share, basically, probably because we're going up a lot in mutual funds.

So, in terms of what's happening to our deposits, the third quarter has been a good quarter.

Moreover, for me, it seems that what's happening to deposits in Spain looks as though it's going to continue to do well in next quarter and the following ones as well.

Anyway -- and this is something I want to insist upon.

There's a very important issue for us.

We look at what's happening to our market shares all the time, but that's not our main priority.

Our top priority is to optimize our net interest income.

Consequently, our pricing policy is very prudent, and that's our main priority.

And we've made that -- this in this third quarter, with an increase in market shares, which is what I referred to before.

And as to real estate purchases, I don't want to make comparisons, but I can talk about our situation in this area.

Our policy is very prudent.

We're cautious because we think that any property purchases that we make have to bring in value in the short, medium and long term.

And there, taking into account what's happening on the real estate market, we have to make our decisions in order to ensure that we bring in value.

And if you look at adjudications -- well, if you look at the purchases, you can see what we've done.

We think that we are managing this issue very prudently to guarantee our earnings in the short and medium and long term.

And, for us, property acquisition is always going to be based on very strict criteria.

As for costs, now, if we analyze our costs for the Group as a whole, I think what's most relevant is to look at each of the business units.

Because the evolution of costs at Group level is very much impacted by the mix we have between the different countries.

For example, the fact that we are in Venezuela and Argentina, with very high inflation and with the exchange rates doing what they're doing, means that the aesthetic impact of costs in the consolidated accounts looks quite high.

So it's much better to analyze each business unit one by one.

And if we do that, we can start with Spain and Portugal, and there I think the evolution of our costs is really excellent.

We stand out against our peers, as I've said before, because we've got a drop in costs in Spain and Portugal in year-on-year terms.

And, as I said before, this is going to continue over the next few quarters.

Now in terms of Wholesale Banking and Asset Management, there, containing costs isn't a target that we have because the process we're going through now is to take advantage of any opportunities that come up.

But, having said that, next year we are expecting to see costs -- cost growth slow down.

And Mexico, I've already said this, that in Mexico, and really Bancomer has done very well given the growth it's seeing in its business volumes, we've got plans which we've already launched, which are already bearing fruit.

The rate of growth in expenses in Mexico is going down.

We're improving our cost income ratio and it will continue to go down over the next few quarters.

In the United States maybe it was easier to do because we're going through a process of integration, so we're generating synergies now, so the whole issue of costs is a priority one for us.

And we will continue to generate the synergies that we have already announced.

Then in South America what we expect is that next year, although of course we have to take into account the inflation rates in all the different countries, but nonetheless we expect to see a flattening of growth in costs.

Because we're working in South America and elsewhere in our business units, such that all the people in charge of those business units are aware that they have to place priority on improving the cost income ratio.

So if we think there's a likelihood that there will be slower activity, slower growth in business volumes, that means that we then have to work on costs.

So in global terms I think the performance of our costs is very positive in all the different business units.

And, moreover, the momentum is to slow down.

Not because all of a sudden we've taken a gut -- knee-jerk reaction to what's going on and decided to tackle costs, but because we've already had plans for some time that have been afoot and are now bearing fruit.

And then, with respect to your other two questions on core capital, there, there is no special adjustment in this quarter, as you can see in the documentation on page 18.

We're presenting all our capital ratios with adjustments and there's nothing relevant in the adjustment of core capital.

And it's about EUR1b maybe generated over this quarter, so that's fine.

The only issue might be the goodwill.

And when we've got the insurance companies or other companies which we're booking under the equity method, there, there are deductions in Tier 2 more than anywhere else.

And then, with respect to the exchange rate impact, there, I wanted to say that -- well, coverage there is doing quite well -- is performing quite well.

And in terms of assets under management, we've been able to generate approximately two basis points this year in core capital as a consequence of the exchange rates and their performance.

And that obviously is bringing in not an awful lot, because obviously there are whole lot of effects which come into playing this, but they are leading to organic generation of capital.

And then in earnings we are protecting our budget.

And the exchange rates have behaved a little bit worse than we were expecting in our budget and our coverage -- our hedging strategy is to always protect the stream of revenues we're expecting from our foreign businesses outside Spain.

And so the impact of worse exchange rates is almost completely offset by the hedging that we have on the exchange rate, the hedging that we've established in order to protect the revenue stream that we had in the budget.

If we look ahead to 2009, I can say that right now we've already got -- and I think at good levels, we've already got hedging for slightly less than 50% of our expected earnings for 2009.

Basically, these are concentrated in Mexican pesos and the US dollar.

And we are expecting that over the next few weeks or months we'll increase the level of hedging so that we'll be at over 50%.

I think that's pretty well everything that you asked.

That's fine.

Okay.

More questions?

Yes, Luis Pena, and I've got three questions.

The first one is whether you can say something about the level of capitalization of the Group?

You've talked about the solvency in BBVA and that you stood apart from your peers.

And at a time of greater solvency in all the banking businesses, I'd like to know whether you think that the level of capitalization is sufficient, and what you think will be happening over the next year?

So that's the first question.

The second has to do with your plans -- sorry, with the plans that have come out from the government with respect to liquidity.

Are you going to take the government up on any offers that they've made?

And how could that impact your spreads when you're making issues on the capital markets?

And then, thirdly, you talked about provisions in the United States.

I think you've updated the values of collateral there, but could you give us more information about what's happening to housing prices in the areas where the BBVA is operating?

And what do you expect to happen in the next quarter and next year?

Thank you, Luis.

I'll answer the first two questions, if you like.

And then, Manuel, maybe you can come in for the third one, because Manuel's got all the details on this.

So I can just pass it off to him.

So, let's start with the capital issue, or the capital question and how we feel about our capital position.

To tell you the truth, I think that our capital position, and this is something that I've mentioned before, clearly, we are clearly very strong in terms of capital.

And we are clearly strong for several reasons that I'd like to go into.

But, first of all, I would like to say that I am surprised when people say that all the banks should have the same core capital, irrespective of their business volumes.

When I think about statements like that, I think I must have missed that class at university, because I thought capital had something to do with the implicit risk -- the risks implicit in the assets.

Having said that, what is capital related to and, more specifically, what is it related to in the case of the BBVA?

I think first of all, very clearly, is the business model, because there are business models that are highly recurrent in their earnings and there are others that are highly volatile.

So the capital is there for unexpected losses, and our business model is the totally recurrent earnings model in generating revenues.

What's more, I would imagine, of three quarters of this year, this is the most complex stress test that you could apply to any business model.

And in this stress test, this concept of recurrent earnings has been translated into generating -- or into organic generation of capital.

In the first three quarters we've generated 51 basis points of capital, having discounted the dividend that we paid out from there.

And basically, as I say, these earnings are recurrent earnings and this is what we're going to see in the coming quarters, in line with what -- with your question.

So in short, in this context, our core capital is the core capital that we're very comfortable with, at 6.4%.

But we will go a step further than that.

Let's suppose that the situation in the future is going to be adverse in -- from the point of view of the real economy.

And in the face of an adverse situation with a deterioration asset quality, we don't have to resort to capital.

We have something else which is called provisions, the generic provisions that I mentioned before.

And these generic provisions, if we add this to our capital, there will be an extra 60 basis points of Tier 1 core capital.

Moreover, our capital is not very sensitive to deteriorations in the cycle.

I gave you the example of housing because I was surprised by a presentation made by one of your colleagues when he analyzed what was going on in the UK.

In our case, as I've mentioned before, we are not sensitive -- or our core capital is not sensitive to fall in house prices.

And I gave you these examples because they struck me as being highly representative; 20% fall in house prices but this does not affect our core capital.

And, finally, the cherry on the cake if you like, and that is the case of the unrealized capital gains that I mentioned before.

And if we put all this together, then, quite honestly, humbly, I would say that our capital position is excellent and certainly very different.

It's based on our business model, very different from our peers.

With regard to your second question, the whole issue of the government's liquidity plans, the first thing that I would like to say is that the government's liquidity plans are a step in the right direction, in my opinion.

I think the system needs certainty with regards to liquidity and also with regards to terms.

So, as I say, it's a step in the right direction.

Having said that, we have no details, we don't have the regulations in front of us and, therefore, we really have to wait to see what the details are going to be.

As you know, and as I said, we're having a strong capital position.

We're also strong in liquidity but, having said that, as managers we are obliged to analyze all the different options.

When we know what the details are, we will take the relevant decisions.

With regards to the third issue, Manuel?

Yes.

Luis, with regards to the US provisions, what we're seeing in the US is more or less as follows.

In terms of real estate prices and the housing market in the United States, Texas as in terms of economic growth is a very different case.

We're even seeing increases in house prices in the major built up areas of Texas, which is probably one of the few States where this is happening in the US at the moment.

If we look at the economic conditions, then we are quite comfortable with this situation in Texas, of course, but also in Colorado, New Mexico and Alabama where things are more or less in line with the average for the American economy as a whole or even better.

And then there are some places where there haven't been price bubbles in the property markets or in commercial real estate that we've seen in other states.

Conditions are getting worse, on the other hand, in Florida and also in Arizona where, obviously, we are seeing falls in house prices and a deterioration in credit quality, basically, in construction and real estate.

And this is where we're seeing a creep up in the NPL ratio, with a major weight in Jacksonville which justifies a substantial part of the NPL.

This is the north of Florida, as you know, where we have excellent quality properties but these are losing value in this context.

And that's why we've review -- re-priced our collaterals and increased our provisions.

The good news is that, first of all, the real estate and the NPL is ahead of the situation that we're seeing in the rest of the world.

So we do not think that this is an indefinite period where these trends are going to be ongoing.

This is the million dollar question of when housing prices are going to bottom out.

But we do think that this will happen in the first half of 2009, especially in some States.

And, secondly, and these are probably not very significant issues in terms of volumes, but we are seeing recoveries in adjudicated assets, i.e., assets that we've sold which are slightly better than what we're seeing on the balance sheet.

So we feel quite comfortable from the point of view that we do have the real realizable value on our balance sheet of the assets.

The assets are well priced and then we're seeing a pickup in new lending and new business that's being generated, as we heard from Jose Ignacio's presentation.

And this is -- we're changing our risk mix for the better.

So all our real estate and construction real estate portfolios which, traditionally, had enormous weight in American banks, their relative weight is being reduced significantly.

And everything to do with SME portfolios and individual portfolios, the retail portfolios are also improving significantly, and this explains the growth.

But, moreover, this is done with improvements in our rating indicators, or risk indicators that we're seeing in the new lending, even on stock.

So we're growing in non-real estate lending with better risk quality and with better margins than we had in stock.

So that's the other good news coming out of the US.

Fine.

Questions from the floor?

Further questions from the floor?

In that case, we can move onto the Spanish conference call questions.

Good morning.

My question in Spanish comes from Arturo de Frias from Dresdner.

Please go ahead.

(Interpreted) Good morning.

Thank you for your ideas on capital.

I fully agree with you, but I also have a question about the dividends and the ramifications that the growth in dividends could have on your capital.

Right now, you're presenting slight falls in EPS without one-offs.

And I think if one-off -- Q3 over Q3 it goes in terms of EPS is falling slightly, but your dividend is increasing by 10%, which is good news.

But the macro environment supposedly is going to be -- might even deteriorate further in the coming years, so it's not -- I'm sure your earnings per share should clearly grow at less than 10%.

I don't expect you to give me a forecast or a guidance, but my question is whether you intend to grow the dividend over EPS if EPS does not grow.

This 10% dividend, is this going to be the minimum figure that you're going to have in mind?

That's one question.

Next question, in the area of Wholesale Banking and Asset Management you're growing your assets under management significantly, as you pointed out yourself.

But I was somewhat surprised.

Once again, in an environment with a shortage of capital, do you think this is the best way to invest your capital to grow Wholesale?

Do you intend to continue to grow the assets under management so significantly in the future?

And a further question is CITIC; maybe you could tell us a little bit about how things are going in CITIC?

We've certainly heard a lot of noise about whether you did hold -- you did have exposure to sub-prime or not.

Maybe you could tell us how things are there?

And the final question about Mexico.

The Mexican economy, despite the shocks in the market, remains stable in comparison with the United States, for instance.

Do you still think that there's not going to be a total transfer of the increasingly clear recession in the US to Mexico?

Fine.

Well, many thanks, Arturo.

Many thanks.

If you wish, Manuel, I'll talk about capital and corporates in Mexico, and then you can talk about CITIC.

So, starting talking about the outlook for capital, I'm really delighted that you agree with me about the strength of our capital situation.

And moving on to what you said about the dividends, I would like to put forward three ideas.

Firstly, our payout policy is going to be maintained and we have sufficient margin to be able to hold it up.

And then, secondly, I'd like to say that our earnings per share without one-offs, which is what's giving us the currency in business, without the one-offs we're growing at 9.1%, [like I said].

And then, thirdly, I wanted to share the facts with you, so that you know the facts.

In the Board in September, the Board meeting resolved to define the second interim dividend and that was paid out a few days ago.

And I don't see any reason why we should change our payout policy.

And as for your second question about the corporates, I think that we have to see this within a context of strategic opportunities for this business.

And that's how we've understood things in the year 2008.

We've spotted a very big opportunity to really consolidate our presence with those corporate customers that perhaps, in the past, wouldn't have counted on us for a lot of their business.

And so we saw this opportunity to work with the corporate customers that we thought would bring in real value to our business portfolio, in the customer portfolio that we have for the BBVA Group as a whole.

And another important issue is to understand the trend of our strategy, which is a strategy we established some three years back and we're rolling out now.

Our corporate model for our corporate customers is based much more on generating fees and generating cross-selling.

Really on the basis of this model, which was first of all a theoretical model but which we are already rolling out in the practice, we're now in a situation in which we can take a lot of leaps forward and implement the model faster than we thought would be possible, getting customers that we consider to have a lot of potential within our model.

As I said, customers that are able to generate cross-selling, and that normally means that they are customers that are going to have the same geographical footprint that we have.

So we've taken advantage of the opportunities with good yields and good returns on the capital.

And, as to future growth, well, obviously growth can't go on that fast.

There's going to be a significant percentage drop over the next few quarters because what we have to do is to consolidate the kind of exposure that we've already got, digest it and then make sure that we boost our returns on our customers.

But I think that we've done well to take advantage of these opportunities.

And, as for the results, we'll be seeing them in the next few quarters and I hope that they'll be very good results.

Now as to Mexico, indeed, as you say the Mexican economy, regardless of the more financial volatility that we've been seeing rather the real volatility over the last few days, the economy as such is showing itself to be very resilient.

Without a doubt, however, as we've said on several occasions the influence of the United States is important.

And if the United States' economy is in a complex situation and remains in that complex situation for a long time, that does have an impact on Mexico.

Three, four months back we were talking about growth rates for next year of about 4% or 5% for the Mexican economy.

Well, probably next year growth will be below that.

Nonetheless, having said that, what I think is really important is to realize that the performance of the Mexican economy is going to be better than it has been in previous times and better than that of the US economy, because it's much more resilient in terms of GDP growth than the US economy is.

So will there be an impact of the United States?

Well, obviously, if the recession is there and continues, it will have an impact on the Mexican economy.

But I think that the Mexican economy has growth in its own domestic demand that will mean that its GDP will continue to grow, and that will be more important than the impact of its neighbor's economy.

Okay, Arturo, with respect to what you asked about CITIC, I'd like to thank you for the question because it enables us to clear up some things because there's a lot of noise in the market.

CITIC Group is a partner that we have and a very big institution in Asia -- China but also in Asia, with a lot of businesses, a lot of investments in many different places.

So there's a constant flow of news.

So I imagine when you talk about noise it's what you've been reading about CITIC Pacific.

That's a company in which there's a 29% holding in the hands of CITIC Group.

And it came out in the international press as having some problems because of losses on ForEx transactions in Australia associated to foreign trade offset in commodities where CITIC Group is quite active as an importer in China.

But this is a group -- Pacific is a very big group with holdings in a whole lot of different companies, from aviation to communications, telecommunications, media, etc.

CITIC Group has a 29% holding and it's nothing to do with our business, either on mainland China or our holding in the business in Hong Kong.

There's no connection between the different businesses.

In fact, and I'd like to take advantage of the occasion to tell you that the performance of CITIC, our bank in China, CNCB, is quite spectacular to June.

And I'd imagine that you know this, but I'd like to remind you we obtained earnings of about EUR900m in the first half of the year, with a growth in net interest income of 60 something percent and fee income going up over 100%.

And we're keeping NPLs stable and the earnings are much better than those obtained throughout the entire year of 2007.

So we know that the Chinese authorities want to maintain the growth rate for their economy and, consequently, in the current context they want to keep up the level of growth in domestic demand.

And they're working on liquidity ratios and interest rates in order to make it possible for there to be a positive performance of a bank like CNCB in mainland China.

And that's going to also have benefits for our subsidiary in Hong Kong where, as you know, because of all the transactions we're involved in, the whole process of organization is going to improve because the Chinese bank and the Hong Kong bank are going to be closer connected with one another.

So we'll get a lot of synergies by improving the organizational set up.

And then, with respect to the current transaction, the timeline which you already know is as follows.

On October 16 we had the AGM for shareholders in CITIC International Financial Holding, which had to approve the delisting and the takeover of the CITIC Group.

And that AGM voted in favor of that operation.

And we're expecting that on November 4 the high court hearing will give their ruling, because they have to give the legal go ahead to that decision made by the shareholders on November 5.

In principle, if the judge authorizes the operation, and we think they will, then we'll have the delisting of CSH and we are expecting to increase our holding in CITIC International Financial Holding in November at the same time as we do the same with CNCB.

So that's the time line that we expect to stick to.

Yes, if you'll allow me, I have a question about Mexico, as well.

I was calculating the risk premium in the provisions for the third quarter, about 400 basis points.

Do you think that this is a reasonable level for next year, or do you think that it could even move up a little bit more?

Well, the premium that I get -- well, of course it depends on the numbers, if you're looking at averages or what, but I get 370.

Obviously, this isn't a benchmark, as I've said before.

Really what's happened, this is very seasonal in Mexico.

And in the third quarter in banking with individuals, above all, with consumer and card business, NPLs tend to rise in September and, consequently, we get specific provisions or we have to set aside specific provisions, and those always go up.

And it's true that we're expecting the situation to be more complex in Mexico than it has been so far, and so that would mean that the risk premium could rise above the average for the last three quarters slightly, but 370 isn't a representative figure, I would say.

Okay.

More questions in Spanish?

The next question is from Jagoba Garcia from Fox-Pitt Cochran.

Go ahead, yes.

I've got various questions.

First of all, with respect to the adjustments in your valuations, there's an improvement in the quarter and I'd like to know why?

The second question is coming back to Mexico.

Your tax rate's quite low this quarter.

Can you explain why?

And then the third question has to do with hedging.

Could you remind us of the impact of hedging on your net trading income for your corporate center in the third quarter?

Thank you.

Manuel?

Okay, I'll take that.

The adjustments in the valuations of the third quarter, basically, this is minus EUR246m which, in comparison with the previous quarter, is an improvement of EUR510m.

EUR258m of this is because of the position of interest rate risk of financial management, i.e., the positions that we've taken within a scenario of interest rates that we're looking at, which things are going pretty well.

Then got about EUR800 odd million because of exchange rates because of the improvement in the exchange rates that I mentioned before.

And the difference, this improvement in EUR500 odd million, is because of the reduction of capital gains from share income.

With regard to the low tax rate in the quarter in Mexico, as you know, the provisions can only be deducted at 2%.

So if you sell your portfolios, as we have this year, then obviously you get the tax profit all at once of everything above that 2% so that we have this effect.

And the other is a liberation of a tax provision as a contingency for direct taxes which did not occur, and that explains that.

With regard to your third question on the hedging for exchange rates, I think we've answered that already, so I will consider that to be answered.

If you have any other doubts or if you didn't hear the answer, you have the recording.

Or, if not, I'm sure in [External] Relations they can give you the answer to that question.

Are there any further questions in Spanish?

No?

There are no further questions in Spanish.

Do we have any questions in English?

It would appear that there are no further questions so we can move on to the questions that have come in through the webcast.

So we'll start with a question from Antonio Ramirez from Keefe Bruyette, who asks for your assessment of the competitive environment of Europe after the financing and the bailout plans that have been implemented by the different governments.

How does this affect the difference between good banks and bad banks, and how does it reduce the competitive edge that the better banks have?

That's a very good question.

However, talking about Europe's quite impossible because really we'd have to talk about the different countries and the different sets of measures taken in the different countries with the different banks and entities, because really what we're seeing is some measures that have been announced.

But you not only have to announce what you're going to do, you also have to put it into the official gazettes.

But on the basis of the announcements that have been made, it seems that they're going to be strengthening the system.

And there are other measures that are more like bailouts, not just shoring up the system, but bailing out specific entities.

These are things that we have to analyze and we have to analyze them over time and realize what their impact over time will be.

What I think is very important is to say that, Europe-wide, it's important to ensure that there is a level playing field for all the entities and for all the different countries.

Right now, with the information that we have I don't think that the competitive environment has changed for BBVA, taking into account the measures that have been announced so far.

But having said that, it is really important to point out that in Europe, and not in each of the countries, but in Europe as a whole we have to ensure that competitive dynamics mean that we're all playing on a level playing field and that the rules are the same for everyone.

And we have to track that.

And we have to defend ourselves, as well, because it's not only good for the BBVA that that be the case.

It's good for all good competitors in Europe which, at the end of the day, is good for the consumers.

Another question which we've got from seven different analysts about capital, but I think you've already answered the question.

And we're asked about how we see the possibility of selling off assets to shore up our capital situation.

I don't know if you'd like to say anything about that?

I think this whole issue of selling assets, I think any manager has to constantly analyze his business portfolio.

And any manager has to do this constantly, especially if they have an -- to check that they have an optimum portfolio or to see where they have unrealized capital gains or hidden capital, if you like, that would be worth bringing out in order to reinvest it, if I may put it that way, in his -- the business, to plow it back into the business.

This is something that we constantly do, we constantly think about and, obviously, this will depend on what moment we're talking about in the market.

From this point of view we consistently maintain the businesses that we consider to be core business.

And, on the other hand, actions on generating hidden capital gains that are not related to core business then, obviously, this does make sense depending on market conditions, which have to be analyzed.

And then we could drive measures of that kind if it makes sense, but it has nothing to do with the core business.

And, for us, the concept of core business is quite a broad one.

We have another question concerning valuation adjustments from Antonio Ramirez and Santiago Lopez Diaz and Giovanni [Carriere], which has been answered already.

And then we have a question from Mario Lodos concerning the growth that's occurred in revenue for dividends in the third quarter.

Why?

Why is the dividend higher than usual?

That's for Manuel to answer.

Yes.

Well, basically, that growth in dividend revenues has to do with the Telefonica dividend which is going to be received in November.

It's been approved.

It was approved at the end of September and, consequently, we have to book it as revenue that we have in the third quarter, and that's what's pushed up that dividend revenue.

A question from Francisco Riquel about your policy with respect to exchange rates.

We've answered that.

But they also ask about interest rate hedging and sensitivity to possible drops in interest rates?

To tell you the truth, our position is quite good.

I think we've done our homework with regard to the changes that are occurring on interest rates.

As you know, the sensitivity will vary depending on the balance, and the euro balance will have a positive sensitivity to falls in interest rates.

At the moment with the positions that we have taken for managing this balance risk it's an enormous interest rate risk because of the assets we have and because of the position.

But just to give you an idea about the sensitivity at this moment, a parallel movement of the interest rates, a drop in 100 basis points, would improve our net trading income of EUR124m.

If the drop was staggered, if you have 100 basis points drop with staggered falls, then the effect would be EUR117m.

And if it happened with an increase on the forwards, on the short part of about 25 basis points, which is where we find greater sensitivity, then it would have a positive effect of EUR178m.

So our position is a very good one with regards to our euro balance in a scenario with lower euro interest rates in the short terms.

In the Mexican balance the sensitivity is totally opposite.

If there's a fall in interest rates, then we lose money on the income statement.

This is practically neutralized down to zero.

So if there was a fall -- a 100 basis point fall in interest rates, the reference weight of the Mexican Central Bank, this would hardly have any impact on our trading income.

From the point of view of the United States, there's very little sensitivity.

With 100 basis points fall of interest rates it would have very little impact on our trading income.

We're talking about $8m, which is nothing.

And in Latin America the sensitivity is generally very low.

It's neutral, except in Chile, in Venezuela, where there would be a positive sensitivity to falling interest rates.

So that's the sensitivity on the different balances.

Antonio Ramirez has asked us about the NPL ratio in Spain.

And he says that some of our competitors are talking about NPL ratios reaching [93] 7%.

How do you consider the industry and when do you think BBVA is going to stand out from its peers?

Sorry, could you repeat the figures?

I didn't hear them.

Some of our competitors are talking about NPL ratio is going to get back to the same as it was in 1993 with about 7% for the sector.

And Antonio's question is what are the prospects for the sector and when is BBVA going to stand out from its rivals?

Quite honestly, it's not that I don't want to answer the question about the industry as a whole, but if you look at NPLs and what might happen to the ratio in the industry as a whole, it's something that I think is very difficult to foresee.

And I come back to what I've said before on several occasions, the NPL ratio today has nothing to do with the ratio in 1993 because of the changes in the regulations in the Bank of Spain, which means that the NPL ratios are over-weighted.

Things are booked as NPL much earlier than they were in '93, especially with respect to the mortgage book.

So we haven't got enough experience to be able to say if the ratio is going to be the same or different.

But what is true and very clear is that -- well, you would expect it, wouldn't you?

Given what's happening in the real economy, things are more complex.

And so, ahead of us we can see that the next few quarters, for the industry as a whole, and we've seen that over the last three quarters already, will see significant rises in the NPL ratio.

What's important in this kind of context, however, is to talk about BBVA.

And from BBVA's viewpoint, three months ago I said that I thought that we were going to end the year with an NPL ratio in our businesses in Spain, defined as I defined them in the presentation, below 2%.

And I maintain that figure.

And another thing is to look at the big difference in the way the NPLs have performed in BBVA and how NPL has performed in other banks.

We've got information up to August -- well, to September actually.

There are some peers who've already given their earnings.

And if we look at things in consolidated terms, over the nine months we have outperformed our peers in an extraordinarily significant manner, if you compare what the banking sector has seen happening without BBVA, and especially what's happened to the savings banks.

So I think that probably that tendency will continue.

We'll open up the difference between us and the other banks and the savings banks, and I'm convinced that that will happen.

Alejandro Ruyra from Kepler asks about Spain and Portugal and when we think there will be a convergence in the growth rate for net interest income and lending?

There's no reason why the growth rate should converge with the credit.

It depends on the financing mix.

What is true, if you look at the dynamics and if you look at the net interest income over average total assets, or the one we've also presented, the net interest income plus funds divided between total average assets, then, quite honestly, you have a combination of two elements; the volume and the net interest income.

From the point of view of volumes, we're seeing this creep and this will have a greater impact next year, for arithmetic reasons if you look at the average of growth for 2008 and compare it with growth average in 2009.

On the other hand, I think the net interest income over average total assets, which is showing a slight but consistent growth, I think this slight but consistent growth will continue in the upcoming quarters.

Therefore, in conclusion, we're going to see a slowdown in the growth of the net interest income obviously, but I don't think this will necessarily -- this fall in the net interest income will be of parallel or identical to the fall in credit lending.

We have another question now concerning the credit quality that's already been answered.

But he has another question concerning the performance or the use of generic provisions.

Because we've increased 55% in NPL loans, so has there been an increase in the generic (technical difficulty).

In Spain and Portugal we've been releasing generic provisions, about EUR50m only, so pretty well.

We haven't used generic provisions in this quarter.

We are expecting to use generic provisions more consistently in the fourth quarter, but this quarter we've only got that EUR50m.

Alfonso Gomez from Citigroup asks how much more the coverage ratio might go down in Spain, and if we're comfortable with a coverage ratio below 50?

No.

But I don't think we're ever going to see a coverage ratio below 50 in line with the regulations, in order to see a coverage rate of 50%, not with the forecast, but also the mathematical models that we use.

With regard to the performance of generic provisions, a 50 coverage rate would be attained if the generic funds would really reach the point where no release could be made.

So the bottom -- the minimum in accordance with the regulations where you cannot release generic provisions, then the coverage ratio would supposedly be above 50%.

And from there on, the provisions would come in terms of incurred losses.

But we're not seeing that trend and they're certainly not on my radar.

Having said that, our generic funds, when we analyze stress situations of high stress and we see the capacity we have to resist this with regard to release of generic provisions, we can see that we have resilience right the way through, well into 2011.

One point that I consider to be important is the structure of the portfolio.

We have a weight on individual mortgages for buying homes, a cost of value of below 80%.

We have up to a large amount so the calendar of specific provisions for this asset, which is the top quality one, and this is specifically recognized, which means that we don't need as much specific provisions as if we were talking about other kinds of assets.

So we need to be careful when we're comparing coverages, because lower coverage ratios with better asset quality is much better than higher coverage with lower quality assets.

And also from this point of view I think we can say, yes, we are comfortable, totally comfortable.

We have a question from Execution about the behavior of trading incomes in Wholesale Banking and Asset Management which have been poor this week.

Is this due -- Have there been any losses in any specific product?

Well, we've talked about this in other presentations but maybe not in the last two quarters.

I usually say that when analyzing wholesale businesses and asset management you have to look at ordinary revenues because, depending on the kind of deal, things are shifted between the net interest income and the net trading income.

And if you look at ordinary revenues, which is what you should be looking at, then the ordinary revenues in markets have been magnificent.

You can see that in the documents and I also presented that figure in a screen.

And we have a question about WBAM.

Why have provisions gone up so much this quarter, and what do we expect in provisions in the next few quarters?

Well, if you analyze what's happened in Wholesale Banking and Asset Management there are two major factors here, as I said, with regard to provisions.

That is, first of all, there's been a growth in corporate customers and because of this growth in corporate customers we've had to make enormous endowments to generic provisions.

And, secondly, there's a charge with regard to WaMu and Lehman Brothers, where we've provisioned 92% and WaMu is 73%, and these are one-offs which we will not see again.

And the rest of this is associated with a growth in lending in corporates in the US.

We're also asked about Wholesale Banking, about the EUR90m that we have this quarter concerning with the sale of Gamesa.

Do we expect further sales here in Gamesa?

And also the capital gains in industrial holdings.

Are these to do with Telefonica, or what's the weight of Telefonica in these capital gains?

As to the structure of capital gains, Manuel can answer about that.

And, as to Gamesa, well, Gamesa or any other securities we have on our portfolios, normally we make our decisions on an opportunistic basis depending on what's happening in the market.

Right now, we're not expecting to have any further disposals and, if we did, we wouldn't tell you anyway, would we?

When we talk about the capital gains figure, basically, we're referring to the end of September, the EUR1.9b.

And we're incorporating a lot of things there, including Telefonica, but also our portfolios for global businesses which include our industrial and real estate holdings that have significant capital gains.

And we're also incorporating all the capital gains we get in listed markets.

But we don't include capital gains from our own holdings in unlisted companies.

Because of the size of the capital gains in Telefonica, Telefonica is an important chunk, but it's not the only part of it.

We're also asked if we've got exposure in Mexico to any of the companies that have reported losses in trading with derivatives over recent weeks.

I'm not quite sure which are the ones he's talking about.

What I can say is the famous one that has been mentioned, which is Commercial Mexicana, because all the other operations are more related to their normal activities and hedgings.

And the unusual thing has been the operation with Commercial Mexicana.

With Commercial Mexicana, which is an excellent retail, which is doing a good job, we do have exposure to their traditional business.

We do not have any exposure to their derivative business or their positions with regards to their trading in dollar/pesos.

We have a couple of questions as to whether you can explain a little bit more about the 7% tax rate in the third quarter.

Basically, if you look at the second quarter it was very high there, as well.

And in the third it came down a bit.

If you look at it for the year as a whole, we expect that the tax rate will be about 25% by the end of the year.

And in the quarter the tax rate is slightly low, apart from because of Mexico of Spain, because of dividends or available for sale results which have very low tax rates or are tax exempt sometimes.

That's why we've got this lower tax rate.

But what's really important is that by the end of the year it'll probably be about 25%.

With respect to US, although you've already talked about this, he asks about the main drivers of the higher provisions in the US.

And we're asked what we expect in the future.

Will current provisioning levels be recurrent in the next few quarters in 2009?

Concerning the provisions in the US, I think Manuel has explained that in detail.

If you'd like to add anything to that?

I think they've left you speechless.

There's not much more to say on that.

If we look at the provisions in the third quarter, as I said in the presentation, yes, there is a large amount of provisioning.

There's been a lot of provisioning because of several elements.

On the one hand, the deterioration of the economic environment but, above all and secondly, the most important factor has been the re-pricing of collaterals.

As I said before, and this is a one-off, and looking forward we do not expect the fourth quarter to have a similar amount of provisions.

But I also said that, looking forward, I think we need to be cautious in our forecasts.

So I think the best thing to do is to expect risk premiums of around 1% and provisions of something between the second and the third quarter.

We have another question concerning the US, concerning our view of the possibility of new takeovers in this environment where we are still working on integrating TriStar and Compass in this year.

Are there new investment opportunities, given the price of assets in the US?

I think that, here, nothing's really changed with respect to the position that we reported last quarter.

Right now, we're focusing very clearly on the integration.

There's not that much more we have to do.

Really the integration of our technology platform, which is what really matters most, is going to be finished in November.

The third bank, Laredo National Bank, will be on the common platform by November.

And so, there, we're focusing on integration and getting synergies out of that integration, and that's our position at the moment.

Of course, the environment in the banking industry in the United States is seeing a lot of movement, and we have to understand these things within the context of time.

And in the short term our objectives are the same as they were in the last few quarters.

And in the medium term, well, we'll have to see what happens.

We've often said that when we can show that we're able to create value in the United States then, obviously, we will have to channel possible opportunities.

But in the short term, we are where we are.

Ignacio Cerezo asks us whether we can give some comments about the possible risk of impairment to the goodwill in our subsidiaries in the US.

Yes, I can give you a little bit about that.

Basically the answer is, no, we don't think there's any risk of impairment in Compass or our US subsidiaries.

Basically, at the moment don't forget that this is done based on the long-term forecasts and projections of the Bank's results.

We're generating a lot of earnings and the account does have the amortization of the tangible assets.

For instance, in the year to September we have EUR150m here, which is quite a lot of money.

So at the moment I don't think there's any risk of this happening.

I think either all the other questions have been answered or specific details that we can -- I think our Investor Relations department can answer that, so I think we can close the session there.

In that case, thank you again -- once again, for your attention.

Thank you for your interest and thank you for your questions.

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.