Banco Bilbao Vizcaya Argentaria SA (BBVA) 2008 Q4 法說會逐字稿

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  • Manuel Gonzalez Cid - CFO

  • (Interpreted) Good morning, everyone.

  • Many thanks for being here with us today.

  • As you know, we are going to be presenting the results for the year 2008 and the fourth quarter of 2008.

  • And, as always, Jose Ignacio Goirigolzarri, our President and COO, will be making the presentation first of all, after which we will open the floor to Q&A, first of all here from the floor, then we will go through the conference call and the webcast.

  • And Carmen will give us the questions that come over the webcast later.

  • We normally take about an hour and a half for this event, and we are going to have to be quite strict with the timing today because we've got a press conference later, so we we've got to finish at 11.

  • But, as always, all of you who are here in the room today are invited to a coffee here in the next door room, so many thanks.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Right then.

  • Good morning, everyone, and many thanks for being here; and many thanks for your attention if you're not actually here, and you're just following us over the webcast.

  • If you are here, as Manuel just said, you will be entitled to a coffee after the presentation, which I am sure you're delighted about, and this has now become traditional every quarter.

  • I am going to structure my presentation over two main areas.

  • First of all, I will be analyzing the Group results for the year as a whole, and then I'll be analyzing each of the business areas.

  • So starting with the Group results for 2008, I really hardly have to say what you know better than I do, that 2008 really has been a time of record problems in the economy and in the international financial system.

  • So I think it's a point of great satisfaction for us to say that in 2008, we are now presenting some earnings which really are very sound, and they are based on four aspects that are common to the entire Group across the board, so I am going to talk about them now.

  • First of all, our earnings are based on the recurrency of our revenues, because of our relationship with our customers, because they're revenues from our franchise, they're based on very strict cost control, and then, thirdly, on risk management based on anticipation and prudence.

  • And, finally, I'd like to discuss how strong our capital base is.

  • The recurrent earnings have shown the performance that you can see in this screen.

  • That is to say that in 2008, this time of enormous complexity, as you know, we are managing to keep up our attributable profit without one-offs.

  • Attributable profit without one-offs is higher than what we were presenting here 12 months ago, so the attributable profit without one-offs was EUR5.41 billion.

  • However, during the year, as you know, and this was the case last year too, we've had to make various charges and some credits for one-offs.

  • Last year, the one-offs were greater than the charges and gave us an attributable profit, as you can see on the screen, of EUR724 million.

  • This year, in 2008, we've got three one-offs; Bradesco divestment, which we reported at the beginning of the year, and then secondly, the provisions for early retirements which were EUR602 million for the year as a whole and, in the fourth quarter, we had a one-off charge of EUR273 million, and then, of course, we have the Madoff case where we had a charge of EUR302 million.

  • So here, the one-offs this year, unlike last year, subtract EUR395 million -- sorry, subtract the amount from our attributable profit, which leaves it at EUR5.02 billion.

  • I was saying that these figures are based on four very important elements; first of all, our revenues.

  • On a recurrent basis, even in economically tough times like we had in 2008, we're still generating revenues.

  • Our core revenues, excluding dividends, which is the most recurrent item on our income statement, has gone up 14.3%, and it's very significant to look at the performance that we've shown over the last two quarters, which is excellent.

  • In each of the business units, we'll be analyzing this figure, but we think that what has made us stand out is our pricing policy, increasing our spreads in the different business units, and that's really what's behind this increase in our recurrent core revenues.

  • Secondly, a strict cost management.

  • This has made it possible against the difficult backdrop we had to improve our efficiency, as you can see in the cost income ratio show on the right of this screen.

  • On the left, you can see how, quarter by quarter, we've seen a drop in the growth in our general and administration expenses, and we're talking about a lot of expenses which are incurred in countries with high inflation rates, and we think that will continue to be the case in 2009 as well.

  • In 2009, in fact, we're expecting to see nominal growth of expenses at around 0% flat.

  • Looking at costs then, we can see that we have continued to apply our transformation plan, and that transformation plan, as I said, will continue to give us good results in 2009.

  • And then risk management's important too.

  • Earlier on I was talking about anticipation and prudence, and we've seen that, in the last quarter, we made an exhaustive analysis of our portfolios, and we tried to provision our substandard assets, which are risks that are totally up to date in their payment but that we think should be included on a watch list and provisioned for specifically.

  • And so here you can see it at a Group level, and this is important, there have been changes in our generic provisions.

  • Our generic provisions at the end of the third quarter have changed compared to what we have at the end of the year.

  • And you can see that this prudent provisioning policy I was talking about has meant a change in transfers of EUR552 million to provision sub-standard variations, and an exchange rate variation provision of EUR182 million; a business and risk changes variation of EUR223 million and also a EUR300 million transfer to specific provisions.

  • So our generic provisions now are for over EUR5 billion.

  • But now, talking about doubtful assets, I want to give you the kind of analysis that we don't normally give to you in this presentation but I think really sheds a lot of light on the situation because really, when we analyze what our non-performing assets are on our balance sheet, we add together the total non-performing assets in the Group, including property; the properties that we've bought, because in economic terms, for us, they're really the same thing.

  • And this is the position we had in December.

  • Our doubtful assets were EUR8.56 billion, and then property for EUR629 million.

  • That's basically in Spain.

  • Well, if we analyze which the specific provisions are, we can see that, for these doubtful assets, we've got EUR2.73 billion in provisions, so net doubtful assets are EUR5.83 billion plus the value of the property that we've acquired.

  • So if we add the net doubtful assets and the property, we are talking about EUR6.467 billion.

  • Now how does that compare against our collateral?

  • Well, it compares as you can see here.

  • The amount of the collateral that we have allocated to these doubtful assets is EUR8.42 billion.

  • And then we have the value of the property which is EUR629 million as I said.

  • Consequently, the surplus collateral over our net doubtful assets, as you can see, is EUR2.58 billion.

  • You can look at this how you like, but it's very clear that we have a high coverage of our doubtful assets with specific provisions and with collateral too.

  • With a surplus of over EUR2.58 million which -- to which we have to add the additional EUR5 billion of generic and sub-standard provisions which really sets us apart from our other international peers.

  • So I've talked about revenues, I've talked about expenses, and I've talked about our risk management.

  • And earlier on I was saying that the fourth item was our capital.

  • And here too, the BBVA Group continues to have a policy of prudence, something that's always been characteristic for us against a very complex backdrop.

  • This has led us to propose the following capital policy decisions.

  • We've decided, and we've already implemented this, to have an additional generation of Tier 1 worth EUR1 billion which we placed in December.

  • Secondly, talking about the 2008 dividend, as you know, we'd handed out three interim payments already.

  • The decision we are reaching now is that the final dividend is going to be handed over in shares.

  • The [alt] shares do not dilute the value, and that's also good in tax terms.

  • We're talking about 60.5 million shares, which is shares for every 62 that the shareholders already have.

  • So the estimated value of these shares is EUR0.11 according to the closing price yesterday.

  • And that means, at the end of day, if we add to that EUR0.50 that we've already paid out for in cash, the equivalent value of these shares would be EUR0.61, so we're talking about a payout in cash of 37% and a total payout of 46%.

  • And this decision is the decision we reached, which leads us to the following capital situation.

  • In 2007, we ended with a Tier 1 of 7.3% and a core capital of 5.8%.

  • In December 2008, we had a Tier 1 of 7.9% and a core capital of 6.2%.

  • I think it's important to look at what's on the left of this screen though.

  • Here you can see how we've been generating capital throughout the year and in the fourth quarter.

  • And it's especially significant, I think, to talk about the organic generation of capital.

  • This Group is one of the few groups worldwide that can say that we really are generating capital organically in times as difficult as they were last year.

  • So in 2008, we've generated 66 basis points of capital and, in the fourth quarter, 15 basis points.

  • The difference of 6.4 to 6.2 is the consequence of a situation in the exchange rate market which was quite exceptional, and because of the one-off charges that I was referring to before.

  • But I'd like to qualify the core capital that we have.

  • I'd like to describe what it consists of from various viewpoints, first of all comparing it against the capital of our international peers.

  • In Europe, as you know, we have a peer group that we always use to see our performance.

  • So on the left you can see how, with comparing different ratios against our peers, taking into account our core equity and the surplus or shortfall of provisions against the total assets.

  • And I think it's especially important to focus on two things here.

  • First of all, how do we calculate our core capital?

  • We calculate our core capital according to the Bank of Spain criteria, which means that we have a capital which is cycle adjusted and our business model doesn't have unexpected capital consumption.

  • And you should take something else into account which is the surplus provisions we have.

  • I talked about that before.

  • And another aspect which we don't normally talk about very much, but I think that at the moment it is important to talk about it, that's our pension funds and our pension obligations.

  • Our total obligations are EUR6.47 billion and these pension obligations are absolutely covered.

  • We don't have any biometric risk.

  • We have very few defined benefits in our schemes, and we have very little equity on our pension portfolios, which means that we have really been unscathed by the enormous volatility of 2008.

  • We've covered our pension funds then 100% and we're not getting any advantage from the possible corridor effect which we could get, which would be another 10%.

  • So our capital is absolutely robust.

  • And, in fact, if we compare our current capital with the regulatory requirements, which are very strict here in Spain, our capital has a 40% surplus.

  • That's our core equity over the regulatory requirements of the Bank of Spain.

  • Having said that, we are facing 2009 and it's going to be a complex year because of what's happening in the real economy.

  • And here too we've adopted various measures aimed at being as prudent as we can.

  • So one of these is to announce that the 2009 dividend will be based on a policy of a 30% payout in cash, but it will be 30%.

  • Here in 2009, we will continue to generate capital organically at probably about 80 basis points of core capital.

  • So far we've been generating core capital like that, but we also have ourselves one-off sources that we could have used, but we haven't, which come from the unrealized capital gains on our equity portfolios, the unrealized capital gains in our ordinary investment in fixed income, and also the capital gains we could get on our own premises, our real estate.

  • So with all of that, we get our overall situation in December 2008 with a core capital of 6.2%.

  • Our pension funds, after tax, just considering the corridor impact, that 10%, would be 14 basis points more.

  • And then our surplus provisions, as you know, would have an impact of 33 basis points on our core capital.

  • The organic generation of capital in 2009 should be about 80 basis points.

  • Moreover we have additional sources in terms of capital gains we could get on our equities of 30 basis points, and also we have the possibility of selling off our own premises, our own real estate.

  • So we think that we're one of the most highly capitalized Banks in Europe and we think that we are in a situation in which we can feel very comfortable about our capital.

  • Feeling comfortable about our capital fits in with the possibility of reporting very high returns, excellent returns; our returns on equity are over 23%, so that's what I wanted to say.

  • That's the income statement without one-offs and this is with one-offs, and you can see the differences that I referred to before in the figures.

  • So all in all, that was the introduction that I wanted to make for you, make it very clear that in 2008 our earnings are very sound and they're based on recurrent earnings, recurrent revenues.

  • Our risk management is tremendously prudent.

  • Our costs are definitely under control, and above all, perhaps the most important thing is that we have a bank which is very highly capitalized.

  • And so knowing that, I think you will allow to go a little bit more quickly over the different business units, and I'll start with Spain and Portugal.

  • In Spain and Portugal, as you know, as a consequence of what's been happening to the real economy, we've been seeing a slow down in growth in lending.

  • We've been seeing that quarter-by-quarter, but we're offsetting that, as you'll see in the next screen, with a pricing policy that, as you can see, is giving us very good results.

  • Our net interest income over ATAs has gone up a lot in the fourth quarter, and perhaps the key test is the net interest income plus net fees on mutual funds over ATAs.

  • That's gone up too in the fourth quarter, and that reflects the higher value of the last five quarters as a whole.

  • So this pricing policy is giving us 10.1% growth in our net interest income, and in the fourth quarter has given an especially excellent figure.

  • Ordinary revenues, because of the fees on mutual funds, have gone up 6.6%.

  • But apart from generating revenues in Spain, we should also focus on what we're doing with expenses.

  • In all the business units in the Group this is true, but in Spain it's especially marked, and you can see what's happened to costs over time.

  • Last year, they were growing at 2.5% but this year at the end of the year, there's been a drop of 1.1%.

  • And that makes it possible for us, despite the difficult times, to significantly improve our efficiency in Spain and Portugal.

  • And that's why we can report an operating profit growing at 10.8%.

  • In terms of risk now, something that's characteristic of Spain and Portugal is something that you'll see in the other units too.

  • First of all, we're seeing that NPLs, or NPAs rather are creeping up, but also we're increasing our out performance over our peers.

  • So the NPA ratio in domestic businesses is a good benchmark to compare us against other domestic banks.

  • And on the right, you can see the difference in our NPA ratio from the sector as a whole.

  • Earlier on, I was talking about NPAs going up, creeping up, and I was talking about the fact that quarter-by-quarter we are increasingly doing better than our peers, taking into account something that's really important, that the purchase of property over the year was only EUR629 million.

  • And I think that that's a very significant issue when evaluating what's happening in NPAs.

  • And as we've been saying, and as you can probably imagine given the generic provisions that we've got, our risk premium is very well within our comfort zone.

  • So in Spain and Portugal, we've seen a 10.2% in our net attributable profit, and our return on equity has increased such that it's now 36.2%.

  • If you look at the income statement for Spain and Portugal, you can see what changes I've already referred to, and there are two elements that I think are especially important; operating profit growing 10.8% and net attributable profit growing 10.2%.

  • And now moving on to Wholesale Banking and Asset Management, there've been some units which have had quite a tricky year in 2008, and that's really the case for Wholesale Banking and Asset Management.

  • Nonetheless, it's still reporting very high profits, EUR155 million, with a variation in the performance between the different units.

  • And I would like to highlight three of these units.

  • First of all, Corporate and Investment Banking.

  • As you know, 2008 has been a year for seeking opportunities in order to enhance our relations with our customers based on our liquidity and our capital potential.

  • And that has led us to a growth in lending, as we can see here, a growth in the lending that's been based on originating this with magnificent prices, and you can see how this has performed.

  • And this means that in Wholesale and Asset Management, it means that our profit -- our operating profit and our net attributable profits are growing significantly.

  • The growth in the operating profit has been 33.1%.

  • And the second division that makes up this business unit is Global Markets.

  • And in such a complex year as this, they've had an operating profit that's grown by 11.4%.

  • And I think this is highly significant.

  • The fourth quarter, which has been a fantastic one, although very complex, we still have an ordinary positive -- positive ordinary revenues.

  • And this is due to the fact, as we've said many times, is that our activity in this area is fundamental to our relations with customers.

  • In asset management, there's been quite a shocking phenomenon.

  • On the one hand, our market share in mutual funds in Spain has grown systematically, and in fact, we've finished the year as the market leader in Spain with the highest market share.

  • But at the same time, this has been compatible in a fall in wealth that's led to a fall in the ordinary revenues.

  • So I would say that in Wholesale Banking and Asset Management, and especially in Corporate and Investment Banking, it's been an excellent year, and it's a year that's set the foundations for future developments.

  • And secondly, in global markets, we've shown just how resistant we are to a complex environment.

  • And asset management has been relatively good, although we have followed market trends.

  • Moving on to Mexico now, which is the third major business unit, our business volumes in activity, although they've slowed down with regard to lending, but it's still -- they're still strong, we're growing the lending as we can see here by 13.7%, and customer funds has also grown.

  • And here, we're seeing a slowdown, but it's still 11.2% growth.

  • But I [don't] think it's important to analyze the structure of this lending.

  • We've shared our views on the level of consumption and cards that has dropped throughout the year, and we've also shared with you the fact that as we're strong in SMEs and mortgages, acted as a lever for us for our balance sheet.

  • And this is exactly what's happened throughout the year.

  • The growth in our business volumes have translated into net interest income which, as you can see, is growing by 13.7%, and ordinary revenues is basically positive but flat.

  • In Mexico, as I said, which is also true of Spain, from the point of view of costs, we are -- we have strict controls.

  • The growth in our costs is slowing down as we can see, and we're expecting this growth to be around 0% in 2009.

  • And this means that we've improved our cost efficiency ratios significantly, and there's a growth in the operating profit of 16%.

  • From the point of view of the performance of NPAs and provisions, we've done the same as we have here in Spain.

  • Of course, we have been affected by the economic situation, but we have still outperformed our rivals.

  • For instance, if we start with a 3.21 for the NPA ratio, and this is impacted by Commercial Mexicana, which I'm sure you all have heard of, which has had an impact of 30 basis points.

  • But if we compare our performance with that of our competitors in the system with regard to the difference in risk premium, we can see that in October 2007, there was a difference of 28 basis points, and now we have a difference of 213 basis points.

  • One of the reasons for this is probably the fact that the most sensitive part, which is consumer finance and cards, in BBVA, we are doing much better than our competitors.

  • The NPA in consumer and cards was -- we had an advantage of 15 basis points in October 2007, and as you can see, now we have an advantage of 167 basis points.

  • So Mexico too has obviously been a form -- affected by the quality of the risk, affected by the economic situation, but we are -- we continue to outperform our competitors.

  • And Mexico has shown results that we have operating profit of 16% and net attributable profit of 12.1%, both of which is in terms of growth.

  • So from there, we can move on to the next business unit, which is the United States.

  • Obviously, despite the fact that the areas that we operate in, the situation is different from the average situation, there's still a difficult economic situation.

  • So in this context, the net interest income, i.e.

  • the revenues from Compass, have grown by 3%.

  • For us, 2008 was a very important year.

  • In Compass, 2008 was the year of integration, the integration of the four banks, and we've shared the information with you each quarter.

  • The integration has generated excellent synergies.

  • We've already shared with you the idea that we have a generating synergy, both in revenues and in costs, basically in costs, of some $112 million, and we have achieved synergies of $161 million.

  • And this has led us to notable cost controls and an enormous increase in the cost efficiency ration in Compass, despite the complicated environment.

  • But what's even more important is that we have completed the integration process, and in 2008, we've worked on two issues, first of all, in completing the integration, and secondly, we have prepared Compass to adapt to all the procedures and models used by the BBVA Group.

  • And because of this work, we can now tell you that we can -- that we will be able to reduce our costs.

  • In the first quarter of 2009, we have a reduction of 10% of the staff in Compass which will once again give us room for maneuver in improving our efficiency ratios.

  • If we look at the NPA ratio performance and loan loss provisioning, we can see this on the right hand and the left respectively, in the fourth quarter for the loan loss provisions, it's on average between the second and third quarter, and this is due to what we mentioned last quarter.

  • And because of this, here we have the income statement for the US as a whole within the BBVA Group.

  • We have a net attributable profit of EUR317 million.

  • And then if we include intangibles and amortization, you get EUR211 million.

  • So the US is fulfilling all the integration.

  • It is generating the synergies that we forecast.

  • And this brings us finally to South America.

  • From a macro point of view, South America is the area that's probably been least affected of the different markets that we operate in.

  • South America maintains significant growth in its business volumes, both in lending and in customer funds.

  • In fact, South America, as you can see, is translating these activities in business volumes into revenues, with net interest income increased by 31% and ordinary revenues by 23%.

  • The fourth quarter was especially positive, and this has enabled us to improve our efficiency, and you can see the 28.8% growth in operating profit.

  • In fact, still in South America, we are seeing that the NPA ratio is performing very flat.

  • We have kept you informed that we were expecting a spike in the NPA ratio, but we haven't seen it yet, but it must come some time in the future.

  • But in 2008, at least, the NPA results are very positive, and all of this means that the net attributable profit from South America has increased by 22.7%, with an income statement that is growing fast in all its lines as you can see.

  • And this brings me to the conclusions, if I may.

  • We've analyzed the results of the Group.

  • We've analyzed the results of each of the business areas.

  • And what I'd like to share with you now are three slides.

  • The first, if I may, is a flashback.

  • This is the slide that we put up here a year ago when we said that, even at that time, we could see the clouds on the horizon, but we said that we had a magnificent starting point.

  • And we said that because we had a strong position in liquidity.

  • And as I told you then, we felt very comfortable.

  • We also said that our capital ratios were very sound, and moreover, they were based on a market approach, basically based on the customer franchise.

  • And because of this, we forecast that our revenues were going to be recurring.

  • And if you analyze the results that we've just delivered for 2008, I think quite honestly, the results, as I said at the beginning, have -- are very sound, and they've been sound because from the point of view of revenues, we've based this on our franchise, and also, we've made -- taken advantage of an excellent pricing policy.

  • If we look at cost control now, as you will have seen, the transformation plan is generating results quarter-after-quarter, and moreover for this year, i.e.

  • 2009, it will continue to generate further results.

  • And from the point of view of risk management, I think we have shown that we have outperformed our main rivals in all the markets that we operate in.

  • So we are closing 2008 with recurrent results that are consistent throughout our areas of business, and throughout the balance sheet.

  • If you think of 2009, we think these strong points can be carried forward and even enhanced because of the decisions that we've taken in -- to shore up our capital, although our capital is very high quality capital anyway.

  • And based on the decisions that I've already mentioned, we will also generate organic capital in 2009.

  • As I said before, we end up in a very comfortable capital position, and we are convinced that we are one of the most highly capitalized banks in Europe.

  • At the same time, we are reasonably optimistic about 2009 because we believe that we have the levers to maintain our results.

  • Our customer franchise is very strong, our costs, as we have seen in the past and we will continue to demonstrate, because of our transformation plan, are well under control.

  • And the risks are based on basically prudent management on the one hand, but also because they're based on strong generic provisions and strong collateral provisions as I mentioned before.

  • So with this reasonable optimism, we're looking forward to a year that will undoubtedly be a highly complex one, but we are convinced that once again in 2009 we will show that the BBVA is one of the soundest financial institutions in the world.

  • Thank you very much for your attention, and we can now move on to the Q&A session.

  • Operator

  • (Interpreted) (Operator Instructions).

  • Good morning, everybody.

  • We'll continue with the Q&A session, and as always, we'll start with questions from the floor.

  • Daragh Quinn - Analyst

  • (Interpreted) Good morning.

  • Daragh Quinn from Nomura.

  • I have three questions.

  • First of all, the first question is about Mexico with regards to the outlook for GDP in 2009, which is -- because growth forecasts for 2009 are negative.

  • How do you think their lending book and provisions will perform given the profile of the Mexican economy?

  • The second question concerns consolidation in Spain.

  • Obviously, we would think there would be a certain amount of consolidation, maybe more in the savings banks than in banks themselves.

  • But how do you see BBVA's role in a process of consolidation in Spain and in the US given the steps that have been taken

  • And the banks that you have taken over there, do you have any further ambitions to increasing your portfolio in the USA with new acquisitions?

  • And maybe you could give us a brief comment on the article that came out in the Portuguese press yesterday.

  • And a final question about capital.

  • Spain is one of the few countries in which the government has not announced any bail out plans that include Tier 1 capital that has been compulsory in other countries.

  • And given the outlook for Spain, do you think that the government will set additional minimum requirements, additionals over and above the regulations?

  • And how will this affect BBVA if this is the case?

  • Thank you very much.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Thank you.

  • Well, then, starting with the first question with respect to Mexico; indeed, yesterday, [Bank CITIC] made a statement and, indeed, as a consequence of what is happening in the United States, the forecasts for 2009 in Mexico for its macroeconomy are giving us a slightly negative growth in GDP.

  • When we analyze that from the viewpoint of what we want to do in Bancomer, there are some elements that we must take into account.

  • First of all, as I said before, if we analyze the structure of the loan book in Bancomer and its position in the market, we realize that we are dependent on consumer and cards business, but not as much as our peers, and we are very strong in mortgages and SMEs.

  • So that means our situation in terms of our business volumes is quite different from that of our peers.

  • Secondly, as I said before too, with our Group transformation plan, Mexico is going to be able to keep a check on its expense growth next year.

  • And then you ask what that might mean for our provisions and our NPA ratio.

  • Well, it's true that we are in a more complex environment than we were expecting, but in that environment it's only natural to think that we could see NPAs creeping up, and we could also expect our risk premium to creep up.

  • The risk premium that we will have in the second half in Mexico -- oh sorry, that we did have in Mexico, is a pretty good proxy for 2009.

  • And then secondly, talking about consolidation; right now, we are focusing on our work and we are focusing on rolling out our plans, and really at the end of the day, non-organic growth is no priority for us.

  • And we're not going to talk about BCP, that's just rumors and we don't comment on rumors, as you know.

  • In the United States, as I said before, we are bringing the integration process to an end; well, we already have ended it and we are now implementing the Group procedures there, so now is not the time to get involved in further M&As.

  • And as to capital, well, I think the situation of Spain and other European countries, that is when we are talking about the financial system in Spain and elsewhere in Europe, there are enormous differences because the regulations are enormously different.

  • We have a regulator that has proven that capital requirements had been measured properly to keep them in a comfort zone, and the Bank of Spain, our regulator, I think is highly respected by everyone and no one wants to have any regulations apart from Spanish regulations now.

  • So our capital situation, as I said before, is absolutely comfortable, and in fact on the basis of the strict Bank of Spain regulations, we have surplus provisioning of 40% over and above what we have to have.

  • That's talking about the percentage of our own shareholder equity.

  • Are there any other questions in the room?

  • Irma Garrido - Analyst

  • (Interpreted) Good morning; Irma Garrido from Ahorro Corporacion.

  • I was a bit surprised by the increase in constant terms in the loan book in Mexico; 24% I think at the end of the year, although it was lower in September.

  • Can you give us a breakdown perhaps, itemizing the different segments and the weight of cards and SMEs?

  • I'm concerned about that because they might be more sensitive to any macroeconomic downturn in the country.

  • I'm doing a quick calculation of organic capital generation for 2009.

  • According to our estimations and my calculations as well the risk weighted assets are going up 6% it seems in 2009.

  • Then we're talking about generating earnings of about EUR3.5 billion, and that's the figures you were giving us.

  • Now is that the average scenario, or is it the most conservative scenario that you're giving us?

  • Should we expect high provisioning?

  • It would seem that that's the case because of deterioration of the environment and worse NPAs which gives us that bottom line.

  • Or did I do my calculation wrongly?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Well, maybe we can bring in Manuel with anything to do with Mexico, and I'll move straight on to the second question.

  • If we are talking about core capital movement, this is always a complex issue because it involves a lot of variables that would have an impact on core capital.

  • As you know, we don't give guidance, profit guidelines.

  • But either we've done our calculations differently, or something just doesn't fit, because our profits for 2009, I really don't see them at the levels that you're talking about.

  • I've got a far more optimistic view.

  • They are going to be a lot higher than that.

  • Would you like to come in on the question of Mexico?

  • Manuel Gonzalez Cid - CFO

  • (Interpreted) With regard to your question on growth in lending, as we said in the presentation, in Mexico was 13.7% at constant exchange rates.

  • If we look at the distribution, as you can see from the presentation, all the lines of lending have grown significantly; the mortgages 21%, and the only line that has been flat or slightly negative has been consumer finance and cards.

  • And in fact, consumer finance and cards has [lessened] about 5 points in the lending book of Bancomer since -- from the beginning of 2007 to now.

  • So we are talking about 25% of the portfolio of Bancomer is associated with consumer finance and cards when mortgages account for about 35%, and SMEs are around 30%.

  • So our policy since 2005 has been to moderate the growth in consumer finance and cards, especially on the card side, and to sell businesses with third parties portfolios of cards, and to focus [originate it] in the Bancomer network rather than other networks, is now bearing fruit as we can see in the difference in risk premiums and the NPA ratio if we compare them with all our competitors in Mexico.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Any other questions?

  • Luis Pena - Analyst

  • Good morning, Luis Pena.

  • I have just one question, or a clarification if you like.

  • You announced a 30% payout in cash.

  • Do you have any plans at the moment to complement this with a dividend in shares, and if so, would they be old shares or new shares or what?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) No, our policy and our forecast are the ones that we showed you in the presentation with a 35% payout in cash -- a 30% payout in cash, sorry.

  • That's a 30% payout in cash.

  • Arturo de Frias - Analyst

  • (Interpreted) Good morning, Arturo de Frias.

  • I have a couple of questions, philosophical questions almost, and then some more precise ones.

  • In terms of possible M&As, you said that you don't answer any rumors which strikes me as fine, but I have a more general question for you.

  • In recent months, we have seen that all banks that have reached the conclusion that this was a good time to buy and have bought, have really got themselves into major problems, and there are two or three major cases in the US, in the UK and some other European countries.

  • So I imagine that it is very complex to buy in this environment but it must be very tempting with prices so low.

  • So how do you think on this?

  • Are you going to wait for the situation, for the macroeconomic situation to clear a bit, or do you feel tempted to do something now?

  • Or are you rather -- you're going to try not to burn your fingers as others have?

  • That's my first question.

  • The second question also has to do with M&As, but in this case here in Spain.

  • Knowing how the Bank of Spain thinks and acts from previous crises, then maybe we could consider that if a small bank found itself in difficulties, maybe the first reaction of the Bank of Spain would be to ask the major banks to take it over and look after it.

  • I know it's a complex question.

  • If this came about how would you consider that situation?

  • Would you like the Bank of Spain to invite you take over a bank or bail it out?

  • Would you only take over customer funds and network or branches as we've seen in other countries?

  • How would the Deposit Guarantee Fund act?

  • What do you think of this situation?

  • And then dividends, you talked about 2009.

  • I'm going to ask you to look a little bit further forward.

  • I suppose this 30% payout is because you want to maintain your Tier 1 and you're doing this rather than any capital increase.

  • But after 2009, if you rebuild the Tier 1 to 701 would you return to a payout of 50 as you have in the past?

  • And another question, sub-standard risks.

  • How much sub-standard risk do you face and what cover do you have for these risks with the provisions that you have with the transfer from generic funds?

  • Thank you.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Well, then, starting with the first matter you brought up regarding consolidation; consolidation and our strategy with respect to possible further consolidation.

  • Our philosophy and our strategy has not changed vis-a-vis what we have reported on other occasions in other quarterly presentations.

  • We think that given the current situation, we are in a situation in which our economy is complex, and the levels of uncertainty are tremendously high.

  • Consequently, it's very difficult to valuate assets.

  • We've been very prudent in the past and that's definitely paying off now, and we haven't changed our strategy, and we maintain the same position.

  • There's no visibility.

  • We think that we have certain plans in transformation, innovation and such like.

  • The relationship between the franchise and the customers will ensure that we have high and recurrent revenues, quite different situation than from our peers, so we are not thinking of doing M&As.

  • And that's applicable for all the markets where we are operating.

  • We don't feel the temptation, to answer your question.

  • And then the second issue had to do with the Bank of Spain.

  • These are questions you really ought to ask of the Bank of Spain.

  • Would we like that to happen?

  • Well, obviously, we wouldn't, because it would mean that there was some bank with problems and we are sure -- well, I'd like to be sure, no, I am sure that that's not going to happen.

  • And when we're talking about dividends, what we might do in 2010, we'll have to see when we're further into 2009, because we're talking about levels of uncertainty that are very high.

  • But what I think we have demonstrated in the past, and this is a very clear-cut norm in the BBVA, is that we are prudent.

  • We have reached our decisions that we've reached because we think we have to be prudent despite the fact, as I said before, that we have capital at the end of 2008 which is tremendously robust.

  • But nonetheless we are still being prudent and we are working with a change in the payout policy.

  • What's going to happen in 2010?

  • That's hard to foresee because of the high levels of uncertainty, but we can be certain that prudence will be the guidelines for us.

  • And as for covering our sub-standard book, well, it will depend on each case, but we could be talking about coverage levels of between 15% and 20%.

  • Do we have any more questions here in the room?

  • I don't think we've got any questions over the conference call either.

  • That is the case, isn't it?

  • Yes, there are no questions over the conference call.

  • In that case, let's take the questions that have come over the webcast.

  • Unidentified Company Representative

  • (Interpreted) We've got a couple of questions related to the issue of the dividend policy with the payout in shares.

  • I think you've already answered those.

  • We've got some other questions related to getting more details on the figure we reported for the additional capital because of our pension schemes.

  • How did we reach the figures that we reported?

  • What are we comparing ourselves against here when we talk about pension funds?

  • Would you like to do this?

  • Manuel Gonzalez Cid - CFO

  • (Interpreted) Well, notwithstanding any corrections, I think we are being highly conservative.

  • We're comparing with a very simple thing.

  • What are our commitments to pensions at the moment?

  • About EUR6 billion odd, as I said before.

  • we're using the corridor that we can use for -- are we using the corridor?

  • No.

  • How big is the corridor?

  • 10%.

  • So we translate this 10% to the EUR6 billion after tax, and those are the basis points that we are putting in there.

  • So if the calculation is conservative, or if it can be conservative, this is the most conservative calculation you could make, and that's exactly what we're doing.

  • I think it's the most conservative possible calculation you could make bearing in mind the situation of our international competitors.

  • Ignacio Cerezo - Analyst

  • (Interpreted) Ignacio Cerezo, JP Morgan.

  • Can we explain the corrections that we've made?

  • And what about our holding in Telefonica and the rate of growth of risk-weighted assets that we're talking about when we're talking about the 80 basis points of organic capital generation?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Valuation adjustments in the quarter, there's a negative movement of EUR670 something million approximately, which reflects changes in the exchange rate.

  • And that's all, because the impacts on fixed income and equity and interest rates are all positive in the impact.

  • So that brings up something that impacts our capital and our risk-weighted assets as well, which you know.

  • On the balance sheet, you can say what we have to value is the euros at the fixing rates, whilst on the balance sheet we are using average exchange rates over the year.

  • So between the third quarter and the fourth quarter, there has been an enormous difference in the value of some currencies, especially the Mexico peso which has gone down 19.5% in its value over the quarter.

  • And these are the variations which led to the adjustments in the valuation.

  • These are adjustments that have led to a drop in reserves of about EUR700 million with coverage of 40% which we had in hedging.

  • But, of course, there is a lot of variability that we have in our hedging policy which gives us the possibility of accepting these kinds of levels which we don't think are likely to occur again.

  • So those are the adjustments in valuation.

  • Then the changes in our holding in Telefonica; well, none.

  • And then growth in RWAs, there was underlying this year, without taking into account the exchange rates of 8.4%, we're seeing growth in RWAs this year, in risk-weighted assets that is, total RWAs including the positive exchange rate impact which will be beneficial this year, and that will be 5.4%.

  • And for 2008, we're estimating growth in RWAs slightly below 8%, so along these lines.

  • Obviously, the context we're operating in is one in which business volumes in general are flattening out slightly.

  • There was another thing, excuse me.

  • I was answering a bit facetiously perhaps, but as Manuel has said, we're working on these hypothesis regarding RWAs.

  • And when we're talking about generating core capital, we're talking using conservative criteria.

  • And the joke I made before is no joke at all.

  • We honestly don't think that it's likely that we're going to see profit going down anywhere in the Group.

  • Unidentified Company Representative

  • I've got a couple of questions which have to do with the exchange rate.

  • Antonio Ramirez and (inaudible) are asking whether we could give an update about hedging of exchange rates and results in capital -- sorry, and of earnings and capital, and earnings in different countries.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Looking at the exchange rate situation first of all, we continue to focus our hedging policies on earnings in 2009; i.e.

  • the current coverage is just under 50% focused very highly in Mexico, and in the coming months the idea is to continue to hedge, depending on market movements right way up to about 50% or 60%.

  • That's the aim we have for this year.

  • We maintain our hedging policy at book value, looking for the maximum neutralization of exchange rate movements on the Group's capital figures, and at the moment we're around 50%.

  • This includes both dollar positions, Asian currency positions, positions of course in Mexican peso and some other Latin American currencies.

  • At the moment the sensitivity we would have if we assume an exchange rate of around 20 between the Mexican peso and the euro, and if we can maintain this exchange rate throughout the year, then this would have a negative impact of approximately 4 basis points of core capital.

  • And this negative effect on our equity would be a further 10 basis points, because any other 10% additional on top of that would be covered by our foreign currency.

  • So that's the scenario we're facing at the moment and that's what we're using to set our hedging policies.

  • From the point of view of earnings, the measures that have been taken mean that we're quite comfortable, even in some highly contingent scenarios.

  • For instance, if the average exchange rate between the Mexican peso and the euro was dollar throughout -- was 20 throughout the year, which would have a highly negative effect because the average last year was 16/40, so you're talking about almost a worst case scenario, then the sensitivity on our earnings in the region of the European balance sheet would be about 7%.

  • So that shows you the sensitivity figures that we're using for our hedging policy.

  • And as always, we're very active in this area.

  • In fact, I would like to mention that the exchange rate effect, this year 2008, it was EUR197 million, and we've generated earnings of EUR137 million.

  • So we're -- we've covered 70% of the impact on our earnings of the movements in exchange rates, and it has been a very interesting year you could say with regard to exchange rate movements.

  • Unidentified Company Representative

  • (Interpreted) We have another question for the property that we have bought in Spain in the fourth quarter.

  • And he also asks about the outlook for generating doubtful assets and provisions for 2009.

  • And Ronit Ghose from Citigroup asked about the performance of the NPA ratio in Mexico, Spain and USA in 2009.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Total property for the year as a whole was EUR629 million.

  • In the third quarter we had EUR340 million, so you can just see what the difference is.

  • It's not even EUR300 million.

  • And then with respect to your second question, I'm sorry, but could you repeat it, about NPAs?

  • Unidentified Company Representative

  • (Interpreted) About NPAs in general and provisions.

  • And more specifically in Spain, the United States and Mexico.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Right, let's see.

  • What I think is that, if we look at NPA levels, we have to expect that they will creep up in all three markets, well in general, in all the markets of the world.

  • If we look at it not so much in terms of non-performing assets but talk about provisions, which I think is the way to see it -- the correct way to see it, then the situation is different in each of the markets.

  • Earlier on, I was talking about Mexico and I was saying that the situation there -- well, our macroeconomic outlook for Mexico for 2009, was not very positive.

  • So we were saying that, indeed, in the second quarter we've seen some deterioration with a risk premium, which as I said before, is a good proxy for 2009 as a whole.

  • As for the United States, there quite honestly the first thing I'd like to say is that if we analyze what's happening to us in Compass -- well, Compass as the franchise for all of the banks that have been integrated, and we compare our performance against our peers operating not just in the US but in the same markets as we are, it's important to see that we are easily outperforming them.

  • And I think that's very significant.

  • And outperformance here is going to be maintained in 2009 as well, I'm convinced.

  • And then the risk premium that we're expecting for 2009, I think the fourth quarter, more or less, is giving us an idea of what kind of risk premium we should expect in 2009.

  • And then Spain, in Spain the situation is different in terms of provisions because of the compensations we have in generic provisioning, so we expect that the risk premium will be pretty stable in 2009.

  • Antonio Ramirez - Analyst

  • (Interpreted) Given the strength of BBVA in Spain at what time will we stand out clearly in growth of business volumes?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) I think that growing our business volumes in recent months, if you analyze the market share, I think we're performing fairly well.

  • I also think that our policy has been a prudent one in recent times with the basic reference as pricing policies, i.e.

  • net interest income as our basic reference point, both from the point of view of assets and liabilities.

  • And if we look forward to 2009, I don't think our priorities will change, although I am convinced that in the second half of 2009 we will see a growth in our market share, although this is not one of our specific targets, but I do think we will see it.

  • Unidentified Company Representative

  • (Interpreted) We have another question, with regard to loan-to-value.

  • How often do we value the assets and the collaterals that we take as our reference points?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) I'm sure you know this better than I do, but for home buyers we don't review them.

  • And that means, I think -- yes, of course, I think that should give us a high degree of comfort because we're talking about values which were appraised at the moment of purchase.

  • So by way of reference, loan-to-value on our doubtful assets with original properties would be 66% here in Spain.

  • Unidentified Company Representative

  • (Interpreted) And then the rest of the collaterals?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Every year we are reviewing those, yes.

  • And if there's any exceptional case, then if you can imagine, we will update the value when we see that happen.

  • But every year we are reviewing it all.

  • Unidentified Company Representative

  • (Interpreted) And with respect to the situation in NPAs in Mexico, can you give a breakdown of the main loan books of business and mortgage and consumer finance?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Okay, we can send the information to him if you can't find it now.

  • Basically, the NPA ratio in private household is 2.89%.

  • In consumer finance and cards it's 7%, and in business it's 0.7%, and developer finance is 1.2%.

  • Those are our NPA ratios that we have in the different portfolios.

  • Unidentified Company Representative

  • (Interpreted) We have three questions concerning whether we can give our opinion on an eventual goodwill generated by the purchase of Compass.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) As you can imagine, at the end of the year, we looked at the goodwill generated by the Compass deal throughout the Group, and basically we didn't see that there was any need for an impairment.

  • In IFRS, or under IFRS, the price of the purchase or the calculation of the goodwill is established because we paid it in shares at the time when you execute the operation.

  • So it's the -- not the price of the share when we announced the deal but when we executed it.

  • And so it's evaluated on the basis of cash flow.

  • And on the basis of that valuation we didn't see any need to report any impairment in the US given the kind of future cash flows that we're expecting.

  • Unidentified Company Representative

  • (Interpreted) We've got a couple of questions from Giovanni Carriere from Execution.

  • One has to do with whether we see it possible to realize capital gains in equity investments in the current market.

  • And can we give more details about how quickly we're using, or going to be using, [up-to-note] provisions over the next few quarters.

  • Do we know how many million on average per quarter we might be consuming?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) So you're asking if we can make a realized [lease] on realized gains without any losses or discounts?

  • Then there wouldn't be capital gains if there weren't any discounts or losses.

  • Obviously, we can; of course we can.

  • And we have done in the past in fact.

  • Obviously, the market situation at the moment is a very difficult one and there's less liquidity than there usually is, but we certainly have the capacity to -- and the decision-making capacity, to do what we have to do in the moment that we have to do them.

  • Of course we do.

  • And the second question?

  • Unidentified Company Representative

  • (Interpreted) The rate we're using our generic provisions, can we give any estimate of how many millions we use on average per quarter?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) I think that what has been made perfectly clear, and this is very important, is that for the Group as a whole we can see how we've modified the generic provisions and how we've seen -- and we have EUR300 million in this last quarter.

  • That's the first aspect.

  • The second aspect, with the generic provisions that we have, and as we've told you, quite honestly, although we're optimistic about the real economy in the different markets we operate in, especially [spend], but obviously generic provisions are a safety net for us that's very important and it will be a lasting one.

  • And obviously, generic provisions can offset specific needs for quite a long time.

  • Unidentified Company Representative

  • (Interpreted) Carlos Berastain is asking whether our position in the United States in the terms of critical mass and contribution to profits is sufficient.

  • Maybe you could give us your position.

  • Should it be above 10%?

  • And are we going to M&A -- are we going to buy anything else in the US?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) Well, I think that our strategy in the US is what I was saying before really.

  • We don't think that now is the moment to start getting involved in M&As in the United States.

  • But for us, in terms of going out on a spending spree, I said before that we think that it's really important to have some visibility on things, and right now we don't really have visibility.

  • And as to what might happen in Compass and its critical mass?

  • Well, I think that Compass does have the right critical mass, especially if you analyze how fragmented the market is in the United States, it's important to have critical mass in the markets that you're selling.

  • And the markets that we're servicing, we do have critical mass in -- above all, with our customers, but also in our operational support.

  • And as I said before, in terms of operating support, and I think this is really important, in 2008 we've been able to integrate all four banks and to deliver on the promised synergies.

  • And I think it's really important to say that in 2008, we were also able to establish plans such that in 2009 we can apply the BBVA model in order to significantly reduce costs.

  • And I talked about the headcount reductions we're expecting in the beginnings of 2009.

  • Unidentified Company Representative

  • (Interpreted) We've got a couple of questions about Wholesale Banking and Asset Management.

  • We're asked about the losses in trading in Wholesale Banking over the quarter.

  • And Sergio Gamez from Merrill Lynch asks us for an outlook for this area in 2009.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) The first question first.

  • I think the important thing is to look at our ordinary revenues, because Wholesale Banking and Asset Management, if we look at this over the last three years, depending on the operations or the tradings at any -- there are permanent changes between -- significant differences between net interest income and net trading income.

  • But they're basically book differences.

  • So what we need to look at are ordinary revenues and quite honestly, if you compare the ordinary revenues with other quarters, the results haven't been brilliant but at least they're positive.

  • And if you factor in the market situation over the last quarter, and bearing in mind the results we're seeing in our peers, I think the very fact that we have positive results in Wholesale Banking and Asset Management is good news quite honestly.

  • Outlook for Wholesale Banking and Asset Management; in the Corporate and Investment Banking I think we're seeing a certain slowdown in business volume and lendings if we compare this with the early point of 2008.

  • And the rest of the markets have suffered the same.

  • There have been opportunities; we've taken the opportunity in terms of us establishing relations with customers.

  • That previously was very difficult for us because of the position of our peers.

  • But because of the weakness of our peers in terms either liquidity or capital, we've now been able to get into this.

  • That's where we're making an investment for the future in that what we're really seeking is not a single investment but rather to forge tighter bonds with our customers in order to generate revenues in cross-selling and fees.

  • And I'm sure that 2009 will bear the fruit of this policy together, obviously, with growth in lending that will be a lot less than what we've seen in 2008.

  • Unidentified Company Representative

  • (Interpreted) We have four questions, three of which have been answered.

  • So that last one is, could we tell her something about the sensitivity of the income statement in Spain with regard to the fall in interest rates?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) It seems I have to bring a whole lot of numbers out, but right now, sensitivity of net interest income on the euro balance sheet, which is how we measure it with all the positions, not just Spain and Portugal's position, that we have on the euro balance sheet then which are associated to the forward curve that we have at the moment, that would give us EUR850 million more net interest income, minus dividends, compared against the previous year.

  • So if that forward curve is right, we will be able to generate EUR850 million more in financial margin, which confirms what's happening to our assets and liabilities with these changes.

  • But it also shows the fruit of our policy to make ourselves less sensitive to changes in interest rates on our balance sheet in euros.

  • Unidentified Company Representative

  • (Interpreted) We have a question about the purchase of assets.

  • What are our in-house policies for property purchases, and do we have a special budget for that, or an upper limit established for 2009?

  • So can you shed some light on your policy?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) First of all, the figures we're talking about, especially here in Spain, are very small figures, as you know, if we compare these with our peers.

  • And quite honestly, our form of managing this, as I said at the beginning of my presentation, and that's why I put the doubtful assets together with the property from the value point of view, is all the same.

  • Whenever we're working on concepts of this kind, or items of this kind, we're not talking about the immediate impact it might have on the NPA ratio; we're talking about the general impact it will have based on a policy of prudence and generation of -- value generation in the mid to long-term.

  • So all our property acquisitions have been made because, from the point of view of value management, we considered it to make more sense to buy the property, which is not worth that much money anyway.

  • And this is the way we'll see it in the future.

  • Buying properties is guided solely and exclusively by the overview we have of value generation, and that's why we've added this to the doubtful assets in order to give an overview, and we're going to continue that.

  • So we do not have any short-term provisions.

  • It doesn't affect any book entries; it only affects us in the mid to long-term.

  • Unidentified Company Representative

  • (Interpreted) We have a question from Javier Bernat with regard to the taxes in 2009, the tax rate.

  • And can we talk about the tax rate in Spain and Mexico?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) The tax rate, as you can see, is slightly lower than it has been in 2008 because of various things going together.

  • You will remember that the tax rate has been going down in Spain from 32% to 30% in company tax, as you know.

  • And then we have the impact of selling off the bad book in Mexico, which meant that there was a tax yield which occurs at the moment that you transfer the book.

  • So we've been selling off some MXN4.5 million, and that has an impact on our tax rate too.

  • And you also have a part of the earnings associated to dividends and things that we book under the equity method and such like, which aren't subject to any kind of tax.

  • And so in the final quarter, the tax impact has to do with the one-offs, which have a tax deduction of 30%, and so that brings the overall rate down.

  • But that's because of the one-offs which are looked at in terms of tax in the final quarter.

  • We are also asked whether the CITIC Holding is being booked under the equity method; what its impact on core capital is and what kind of profits we expect to get from it.

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) As you know, the answers at the close of the year are CITIC Holding.

  • We have two holdings.

  • One is a CIFH, which is the Hong Kong Holding, which is eligible -- which is done by 30% at the end of December by the equity method.

  • And because of this, our holding at the end of year of CNCB, which is the bank in China, is less than 10% because of the delay in the operation.

  • The additional part that we bought that will go over the 10% will take place in January, so CNCB will be -- is up for sale.

  • So we have the equity method for the end of the Hong Kong holding and then available for sale in January.

  • So what we're doing at the moment is we're asking the supervisors for permission to consolidate once we go over a 10% holding, to consolidate our position in CNCB.

  • And in this first quarter I'm sure we'll have news on this.

  • The effect it has on core capital that we have, the one-offs that we have in the core slide that we showed you, this is the phase two of China which up until December would be approximately 4 basis points in core capital.

  • That's the impact.

  • Carlos Peixoto - Analyst

  • (Interpreted) Regarding [Nosar], how exposed are we to Nosar and what comment would you like to make on this?

  • Jose Ignacio Goirigolzarri - President and COO

  • (Interpreted) I'm sorry, but our position with our customers is something that we don't like to discuss.

  • And with respect, yes, exactly, it's a policy that we will pursue and will apply in this case.

  • Well, I think that we've now answered all the questions.

  • There are some more detailed ones which we will answer directly from Investor Relations.

  • So I think that's it.

  • In that case, many thanks to all of you.

  • Editor

  • Statements in English on this transcript were spoken by an interpreter present on the live call.

  • The interpreter was provided by the Company sponsoring this Event.