Banco Bilbao Vizcaya Argentaria SA (BBVA) 2009 Q1 法說會逐字稿

(Interpreted).

Good morning, everyone.

We are now going to be giving the Group results for the first quarter of 2009.

And as we usually do our COO, Jose Ignacio Goirigolzarri, will give the presentation and then we'll have Q&A, starting with questions from the room here.

And then we'll take questions over the conference call.

And then finally we'll take questions from the Webcast.

And for those of you who have actually come here physically to be present, we've prepared coffee for you afterwards so we would be delighted to have a cup of coffee with you after the presentation.

(Interpreted).

A very good morning to everyone and many thanks for your attention and many thanks for your presence as well, those of you who are actually here in the room.

Yet again this quarter, we are giving you an analysis of our P&L and, as we usually do, we are going to divide the presentation up into three main parts.

First of all, we'll talk about the main features of the Group's results and I'd like to direct your attention to them because they are quite interesting.

And then we'll give you an evaluation of the most important highlights of the different business areas that comprise our organization.

And then finally we'll end up with our conclusions, as always.

Quite honestly, if I had to find a way of describing what BBVA's model really is, I think there are two characteristics that set us apart and form part of our DNA.

Namely recurrency and sustainability, and that's been true over the last six years, as you can see in the slides.

And it was also very true last year.

Right from the beginning of the financial crisis you can see that that was the case and it continues to be the case as we live through the impact of that financial crisis on the real economy in the first quarter of 2009.

We've been undergoing a very important test but recurrency and sustainability have been two very clear-cut features of our business.

Our gross income compares against the 2.3% of last year, 2.5% of last year and it compares if we look as well at the growth of 7.2% that we've had.

That compares very well against the end of last year.

And our operating income, which is really our capacity to generate cash flow, compares against the fourth quarter of last year with a growth of 19.7%.

So all in all we are presenting some earnings this quarter with net attributable profit of EUR1.23b, which compares very favorably against the attributable profit that we were reporting in the fourth quarter of last year.

Compared against the first quarter of 2008 there has been a drop as a consequence of provisions but I can tell you right now that the provisions are beginning to flatten out.

Over the last three quarters we've seen them at very similar levels.

So what's behind all of these results?

How come we can report these kinds of recurrent earnings?

Well, first of all, operating income, which is the key management indicator, is showing itself to be very recurrent.

Indeed we are presenting the highest operating income we have ever had in this Group, despite the market situation.

And I think you know more about that than I do.

In constant euros we are growing, as you can see here, at more than 8%.

We compare very well against the fourth quarter.

And what's feeding into that growth in operating income?

Well, there are two reasons.

First of all, we've got very recurrent revenues but we are also very strictly controlling expenses.

So I want to explain these two elements a bit more to you.

We can start by talking about revenues and the first line of course is to look at the net interest income.

And the Group's net interest income has been growing year on year, as you can see, at over 20%.

That isn't the outcome of higher business volumes only, because these are actually going down.

But it's the outcome of strict pricing and applying our pricing policy very strictly in order to increase our net interest income over ATAs.

And you can see that that is growing very clearly and the comparison of the figure for this quarter compares very well with previous quarters.

And that growth in net interest income is, at the end of the day, what is really driving forward the growth of our gross income.

Because gross income too is reporting the record level it's ever had here.

And that's true both against last year and also very positive growth against the last quarter of last year.

And there are two issues I want to highlight here.

First of all, the quality of our gross income.

As you can see, the most recurrent part of it, which is net interest income plus fees and commission, is over 80% of the total gross income, which compares very well against last year.

Because this growth in gross income, comparing it against the first quarter of last year, is absorbing two one-off transactions that were booked to the first quarter of 2008.

First of all Gamesa, with capital gains of EUR131m, and then also the first part of the VISA IPO, with EUR125m booked to the first quarter.

So, despite that, these figures still show how well we can absorb those EUR2.056b of non-recurrent income that we booked to the first quarter of last year.

And that's the case because all the business units really are pushing forward the higher gross income.

First of all, Spain and Portugal.

And here there is a fundamental factor which is that they are focusing on pricing in Spain and Portugal very clearly and are implementing a very strict policy.

You can see what's been happening to business volumes but you can also see the spreads on our front book and what's happened over the last few months.

And that's what's meant that with only reasonable business volume growth we've still got a 5.6% net interest income in Spain and Portugal.

I'll give you more details about that later.

But as you know in Spain and Portugal we remove the impact of interest risk rate because that goes to the ALCO portfolio.

Here just talking about the whole euro area, there would be a growth in net interest income of 31.9% in the euro balance sheet.

In Mexico the net interest income is doing very well.

It's behaving differently from in Spain though.

Our business volumes as you can see are very strong in Mexico still.

It's true they are falling off, 6% in fact in credit cards and consumer credit portfolios.

Which means we've really changed the mix of our products; but what we're doing with SMEs and with the whole mortgage business is giving us a lot of good news and is really driving growth forward.

That change in the mix in the short term has an impact on the net interest income over ATAs and in the long term it will affect our risk quality, our asset quality, very positively.

But what's important to highlight here is that in Mexico, despite the change in the mix, the net interest income over ATAs as a consequence as well of a brilliant pricing policy, is very well contained.

So excluding the VISA IPO impact we're saying that in Mexico we're growing in gross income at close to 9%.

That performance can be seen in the other areas as well.

And above all I wanted to highlight what's happening in wholesale banking and asset management.

Here, with this growth in gross income we are incorporating the absorption of the Gamesa capital gains, which we booked to last year as I already explained.

The first part of operating income, which is net interest income, is showing very high recurrence and is very, very sustainable as well.

But what's the second part?

Well, that has to do with costs.

Very often I say that efficiency in the cost/income ratio can't just be flavor of the month.

You can't just say this quarter let's do something about our cost/income ratio.

No, you have to look at the structural reasons behind the cost/income ratio and in BBVA that is part of our strategy, namely efficient distribution.

So I'd like to give you some information for us.

We always thought it was very important to compare the market share that we have in branches with the market share that we have in business volumes in each of our markets.

Because in retail banking most of the costs come from distribution and you can see here that in structural terms we've got a competitive edge over our peers.

Not just in Spain, but in Mexico and also in South America.

But this structural advantage needs to be supported and we do that by anticipating market trends.

And you remember that in 2007 we launched a transformation plan.

We began to roll it out and we are now seeing the fruits.

Last year we already got some benefits from the efforts we had made to transform our structure and then last year we explained that our percentage of growth, like for like, was actually going down.

And that like for like perimeter would have been very negative this year however.

And I think it's very important that you should understand that this Group in the first quarter of this year has been able to report expenses going down 0.7% against what they did in the final quarter of last year.

And that, as I said, isn't something that just happened from one day to the next or in just one area.

It happened everywhere.

We started our transformation plan in Spain and Portugal and therefore it's in Spain and Portugal that we're seeing the most obvious results because it's progressed further here.

And look at the drop in the expenses quarter on quarter.

6.5% drop.

But you can see the same thing happening in all the other business units.

You have seen this slowdown in growth in Mexico and in the United States.

In the United States, for example, there is a drop of nearly 7% in expenses.

As a consequence of what's happening to expenses and as a consequence of what's happening in what we are earning, even in the complex environment that we currently have, we've been able to improve our efficiency.

Our cost/income ratio, with depreciation but excluding one-offs, is much better than last year and, and I think this is very important, it's improved in nearly all the different business units that comprise our organization.

Consequently, as I was saying, operating income for this quarter is the highest we have ever had in this Group.

And, as I said, the operating income is the outcome of resistant performance in earnings and magnificent cost control.

So now we move on to the second part of this overall view of the Group and now I want to talk about risk.

When we talk about our prudent risk management we are really talking about five points I want to share with you.

I'd like to talk about our lower entries in arrears, which have gone down 15% this quarter at Group level, compared to the final quarter of last year.

I'd also like to talk about how we've been able to maintain provisioning, very much in line with the second half of 2008 and also talk about how we are managing to preserve our generic provisions, releasing much less than what we had to release in the fourth quarter of last year.

And then finally, I will be talking about the information we have on coverage and collateral in the Group.

I hope you will allow me to start with the reduction in the entries into the NPA book.

Here you can see what is happening at Group level.

There's a reduction of 15% against the fourth quarter of last year.

Moreover we are seeing a tendency, which is very clear throughout all the business units, to improve the recoveries.

This is a consequence of the plans that we implemented at the end of last year.

But although it is important to look at net entries at Group level, I am sure that one of the issues that you'll be asking about is what's happening in Spain and Portugal.

And there too you can see that we are showing a clear cut drop against the fourth quarter of last year and, at the moment, we stand at similar levels to the levels that we recorded in the third quarter last year.

And I think that that's especially significant, given the current environment.

But we shouldn't only talk about the entries.

I also said before that we've been able to stabilize our provisioning.

We already saw that in the fourth quarter of last year but now, as we get a longer time frame, we can see that although it was going up in the past for the last three quarters, it's flattened out and the first quarter is very much in line with the second half of last year.

I also think it's important, although I'm not going to talk about this for too much, I think it is important to highlight that risk premiums in the different business units coincide with the commitments that we have made to you in the previous results presentations.

So we've got entries, we've got provisioning and I was also talking about the release of our generic provisions.

This is what's been happening to our generic provisions for the Group as a whole.

And what I want to really emphasize is that we are releasing EUR216m in this quarter as opposed to EUR300m in the fourth quarter of 2008.

And I think that's good news.

I also think it's good news to analyze how we've covered our NPAs.

We're not just talking just about generic provisions then, but also about the NPAs and doubtful loans.

We always add to the doubtful loans all the property that we've bought.

And in economic terms it seems that they should be booked to the same item.

So in the Group these are the kinds of volumes we have in doubtful loans and property.

Taking into account that the doubtful loans have specific provisions, as does our property portfolio and the net doubtful loans are standing at EUR7.53b and we have to add EUR899m from property.

That's the net value of our property portfolio.

So we're talking about EUR8.43b after specific provisioning.

That compares against the collateral very well.

Look at the volume of collateral.

At the end of last year it was, as you can see here, EUR11.17b.

So we now have a surplus, if you will allow me to put it that way.

If we compare the value of the collateral with the total doubtful loans of EUR2.74b, the value of the collateral that we are showing here is the value that we believe we really should put there.

You might be a bit skeptical and you might want to give it a haircut.

You can cut the hairs however you wish but we are very clear about this.

This is a good cushion and we've got EUR4.99b as well in generic and substandard provisions.

Apart from that, I think we should also have a more strategic vision of things.

Earlier on I was talking about the importance of what we used to call the net operating income, which has now been redefined.

And I think that it's very important when you're looking at management of a bank at any time, but especially at the moment, to understand exactly what you mean by operating income.

Because it's not only a generator of cash flow it's also a buffer.

It's a cushion when you are seeing asset quality being impaired.

And if we compare ourselves against our international peers you can see the structural difference which is really important.

Let's make the comparison that we have in the first column.

Here we are looking at the risk premiums of our international peer group.

Here are the big European banks and look where BBVA is.

Secondly, we are analyzing the maximum cost of risk and the operating profit of this peer group.

So that is the maximum risk premium that the operating profit can bear without going into loss.

And here you can see again where BBVA is.

Then thirdly, in the third column we do something very simple.

We subtract the second bit of information from the first.

So how much is the cushion we have because of having this bigger risk premium?

And as you can see the situation for the BBVA Group is absolutely outstanding.

So with all of that, after having analyzed the operating income and the risks, we can now move on to the third part of our presentation and talk a little bit about sustainability and organic generation of capital.

The profits that we are presenting here, and here you see the comparison against last year, the first and the fourth quarter, without one-offs and with as well.

But what we have here is proof that we are delivering on our promises of organic generation of capital, which is very important in the first quarter.

Because first quarters always find it a bit difficult to generate capital in general and we're generating capital organically for 20 basis points.

Our core capital has gone up from 6.2% to 6.4% and that's compatible with maintaining some very high returns.

Our return on equity, as you can see, is 19.4% and our return on total equity, people talk a lot about that now, is 26.7%.

Our return on assets and return on risk-weighted assets are also shown on this slide.

So all in all, as I said at the beginning, we are talking at Group level about a very good start with a lot of recurrency in operating income, good expense control and organic generation of capital.

So I can now give you a very brief summary of all the different business areas.

What I aim to do here is just to give you the most important highlights, starting with Spain.

There are three points that I think, that I consider to be important.

I've already mentioned these but I would like to highlight them.

First of all, a pricing policy which is much better.

Before we were talking about the spreads of the entries, the front book, now we're talking about customer spreads.

Secondly, we have decrease in expenses which is fantastic and third, lower entries to NPAs which are much better than our peers.

As I said before when we were talking about the Group, when we were talking about the net interest income performance in Spain and Portugal though we've excluded the ALCO portfolio.

And I said how we added these by analyzing the performance of the net interest income on the euro balance, the numbers are excellent.

The net interest income on the euro balance, as you can see, grows year on year by 31.9% and I'm making this comparison because I think it is an important one to do in order to compare ourselves with our peers.

Which because all our peers are either in the Eurozone or in Spain.

And you can see the leap in the net interest income over ATAs which -- and this is a result of our policies which as you already know has always been active but conservative in hedging interest rate risks.

Spain and Portugal in short we can see on the balance sheet the income statement.

What I think is especially important here is that we are maintaining the return on equity in a current situation, the current economic climate.

Second, if I may I will talk about wholesale banking and asset management.

And here too I think the news is good.

First of all, in corporate and investment banking we've been making investments here.

For several quarters now we have been specifically investing in the customers that we believe that in the future will generate commissions.

We are reducing our growth in lending but because of the re-pricing we're showing net income growth of 25%.

The share has been good in market share as well, much better than the fourth quarter which was a terrible one.

But above average for the gross income that we generated throughout last year.

And in asset management in Spain we continue to increase our market share for mutual funds.

I know this might not seem important now but in a few quarters' time, if interest rates remain where they are, this will be of strategic importance.

So in short wholesale banking and asset management shows an excellent quarter.

And I would like to remind you that the net attributable profit is also offsetting Gamesa Mexico.

There's an aesthetic point here if you look at the growth and that is the VISA operation, the first part of the VISA operation that I mentioned before.

If you look at the numbers here in the presentation you see that the growth in the operating income is 0.4%; but if you bear in mind the VISA operation, which was booked in the first quarter of last year, we're talking about a net income growth of 11.7%.

An excellent behavior quarter to quarter if we compare the fourth quarter of last year with the first quarter of this year.

Moreover in Mexico there are three other issues I would like to highlight.

First of all, the good business volumes and the change of our mix.

Second, cost control, which should take us to zero growth in the course of the year.

And thirdly, contained risk premiums which are in line with the fourth quarter.

In fact, the net entries in NPAs in Mexico in the first quarter of this year are lower than in 4Q and 3Q of last year and the net attributable profit, without VISA, had fallen slightly by 2.4%.

And you can see the results on the income statement for Mexico here.

In the US there are some key issues that I would like to address.

The world changed in 2007, in 2007 in the banking and the financial industry, but in the real economy it changed last summer.

So from this point of view, in Compass Group, our franchise in the US, we have managed to maintain our revenues.

But what is important is that we are especially active in controlling our expenses, as you can see here.

In fact, as I said before, in inter annual terms there's a fall of 7%, that's year on year, despite the higher turnover.

And the consequence of this is that the net, the operating profit is stabilized because of the provisioning that I mentioned before, i.e.

the first quarter of this year -- or this year in general if you like -- is going to be somewhere between the third and fourth quarters of last year.

In any event there is a stabilization of the attributable, net attributable [problems], which is comparable with the last two quarters of last year.

Here we have the income statement for Mexico, which is very different interpretation if you compare quarters, rather than year on year.

With regard to South America there's good news from South America.

There's a certain slowdown in lending in South America, that's true.

But there's a pickup in activity in customer funds.

But dynamic revenues with a growth of gross income of nearly 20%.

The control of expenses despite the inflation in South America is also something that we can see.

And we are containing the risk premiums too.

The return on equity in South America continues to grow and, as you can see, this is now 40.3%.

And this brings me to my conclusions.

I was saying that if we had to define BBVA's business model, I think there are two varied features that set us above, the recurrence and sustainability.

And from this point of view I think what we're doing this quarter is to deliver on our promises to the market, from the point of view of recurrence.

And also from the point of view of sustainability.

If we start with recurrency, first of all, I will remind you that we are presenting the largest net income in the history of the BBVA Group and this operating income can be seen in the income statement, with a grow in the net interest income, which in year on year terms has increased by 20.1%, with a reduction in costs of 0.7%.

And therefore this has improved our cost/income ratio from 43.7 to 42.3, i.e.

we've improved our cost/income ratio by 1.4 points.

Moreover, we're also delivering better risk management with a 15% drop in the entries into NPA in comparison with the fourth quarter.

And a stabilization of provisions and a release of generic funds which is less than in the fourth quarter of last year.

Moreover, we are moving away from our peers.

And this leads to sustainable profits which, in short, means EUR1.238b in the first quarter and 20 basis points in organic core capital generation.

So now we can move on to questions.

If you do have a question please press zero one on your touch pad.

And thank you very much for listening to my presentation.

(Interpreted) Good morning, everybody.

So we'll move on with the Q&A session and we'll start with any questions from the floor.

It would appear that there are no questions from the floor.

In that case we can move on to the questions that have been asked in Spanish from the conference call.

There are no questions from the conference calls.

We are doing well, so we can carry on with the questions from the --.

We have one question from Carlo Digrandi from HSBC.

Please go ahead with your question.

Yes.

Good morning, everyone.

This is Carlo Digrandi from HSBC.

Actually I have two questions if I may.

The first one is on non-performing assets.

You really clarify how the new flow went down roughly 15%, 16%.

You gave us a net flow so I was wondering if this is mostly due to high recoveries as you pointed out in the slides and the gross flow is still on the way up or it's actually a combination of the two?

And if also you can provide some colors on where this non-performing loans new flow has been declining mostly?

You give some data also on Mexico already but so if we can do an [escusos] by divisions as well and if you think that this will be sustainable, given the fact that unemployment in Spain is frankly raising at alarming rates?

Second question is on net interest margins.

You did say that the increase in spreads was mostly due to the hedging of the interest rates.

We really do not have much visibility here so the idea is if you can give us a little bit more colorful onto this one and eventually telling us what are your expectations during the course of the year.

Given the fact that I guess consensus and that includes me, we are all expecting those spreads will mostly be down during the course of 2009.

Thank you very much.

(Interpreted).

Thank you, Carlo.

In terms of reducing the flows of new entries into NPAs, quite honestly that is a combination of both things, yes.

It's a combination of lower gross entries.

I think that's very positive in itself.

But it is also the outcome of an increase in recoveries.

I think that it's twofold good news.

We've been talking last year about the measures that we were taking in different units within the Group in order to get a very close management of new entries into arrears and to boost recoveries.

Obviously these measures are now bearing fruit.

If we look at this process in the different business units I think it is pretty wide spread.

We can see it especially clearly in Spain.

Well, you saw that in the presentation.

But we are also seeing the same thing happening in Mexico where the new entries gross figures went down against the fourth quarter and are below where they were in the third quarter of 2008 for example.

Just to give you the series EUR650m and then EUR688m and EUR543m in the first quarter.

So that's a clear time series.

We should also point out that we are in the situation in which this is happening across the board.

In the case of the United States we are talking about EUR559m in the fourth quarter, EUR507m in the first quarter.

So that's gross entries.

And then your second question regarding what we could call the financial margin, it's really the net interest income and the hedging of interest rates.

There I think results show two very positive things.

First of all, there is a re-pricing impact which is really significant in the network in Spain and Portugal.

I think that's very important and it's very worthy of praise because we have been establishing quite different policies from our peers.

But obviously we've got a very strong balance sheet and high liquidity which has enabled us to have highly responsible strategies in order for pricing the liabilities, customer funds.

But when we've done re-pricing as well we have made a big effort to defend customer spread.

And then in the last presentation, if you remember, we pointed out that we have been actively managing our interest rate risk on the euro balance sheet, well also on the Mexican balance sheet and the US balance sheet as well.

And we have a track record of many years now.

So when there are very volatile situations in interest rates, because you'll remember just three quarters back interest rates were still going up.

But evidently that does enable us to generate much more consistent results.

And here the contribution of the financial management portfolios to what's been happening to our net interest income has been EUR133m, that's quarter on quarter.

And at the moment our portfolio is about EUR25b, so that's not exactly an enormous figure given the size of our euro balance and the size of the Group.

These portfolios have average maturities of 2.5 years, so we are not taking on very much risk there either.

Evidently these impacts as we move ahead this year will be moderating, waning out in year on year terms, comparative terms.

But in 2009 the net interest income will be very strong, not growing at 30-something like it did this quarter.

Obviously, the growth won't be quite so high but because of the re-pricing of our commercial activities and our management of the balance sheet in terms of hedging against interest rates, will mean that our net interest income will look very healthy at the end of the year.

Next question in English.

The next question comes from Mr.

Ronit Ghose from Citigroup.

Please go ahead with your question.

Great, thank you.

I just wanted to follow up on Carlo's question on bad debts and asset quality.

We can see the very clear data you've given us on the new additions to NPLs coming down across the board.

Could you comment a little bit about what you think is driving this?

Obviously interest rates, short term interest rates came down across most geographies.

Has this been a key driver?

Are there any other factors driving it?

Because obviously the underlying, if you like, the real economy if you look at GDP or unemployment still seem to be worsening across the board.

And specifically on Mexico.

Could you comment in terms of where you think you are in the cycle for NPLs?

We've had a lot of problems in the other banks and credit cards, less so at Bancomer.

Do you think you are past the worst on the credit card problem and do you see any worries going forward for the SME sector?

Thank you.

(Interpreted).

First of all, NPAs.

When we analyze the first quarter and if we compare this with the fourth quarter of last year, there's a seasonal point.

And this is the first issue that I would like to highlight.

Normally there's a clear seasonal effect.

The fourth quarter usually gives more entries growth in NPAs, rather than -- over and above the third quarter or the first quarter.

So when we analyze the performance of entries into NPAs in the different business areas I think it is better to compare the third quarter of last year with the first quarter of this year, rather than making the comparison between Q4 and Q1.

Because this will show the real cruise speed.

With regard to the more specific point of Mexico itself, basically what we are expecting, not so much in NPAs in Mexico because I would insist in Mexico, if we compare ourselves with our peers there's not so much of a difference in the NPA ratio, because NPA in Mexico is based largely on credit cards and consumer credits.

And because of that there are very fast write-offs.

So I think a better proxy than the NPA ratio would be the risk premium.

And if you compare Bancomer's risk premium with that of our peers, you'll see there is a large difference and from the latest data we have this is a difference that we are going to increase this gap.

Apart from maintaining this gap in the risk premium with regard to our peers, I think the reasons behind this, the drivers, are very easy to explain.

This has to do with paying in advance.

Bancomer started operating in consumer finance and credit cards in 2003 and our peers didn't start until two years later.

And moreover they started two years later and their policy was far more aggressive.

And that I think marks the difference.

And I think the same thing can be said with regard to SMEs and mortgages, where Bancomer was a year, a year and a half ahead of our rivals.

With regard to the NPA ratio in SMEs we're not seeing any growth there.

And here I think we should bear in mind that there's an important point that explains this.

Just as more people are coming into banking for consumer banking -- consumer credits and credit cards in Mexico, there's been very little SMEs coming into banks.

People using credit from SMEs, there is a very low level and therefore it is much easier to select.

So in SMEs in Mexico at the moment, the situation is pretty stable.

Although obviously the real economy has slowed down so we can expect to see some sort of rise in this.

But we are not really showing any growth in the NPAs in Mexico.

Let's move on with the next question in English.

The next question comes from Mr.

Matteo Ramenghi from UBS.

Please you have the floor.

Yes, good morning.

I have a few quick questions on funding and on asset quality.

On funding I was wondering what is the driver behind the big change in the net interbank position which moved from about EUR19b positive in Q4 to EUR42b negative in Q1?

And also on funding I was wondering what is the reason why there was a deposit contraction in Iberia and if that's perhaps driven by commercial, a commercial choice?

On the asset quality front, I was wondering how much properties were acquired in the first quarter.

If I remember well it was, the figure was EUR500m at the end of last year, so it should be about EUR600m in Q1.

Is that correct?

And finally I was wondering how much are the restructured loans at the end of the first quarter?

I think they were EUR5b or EUR5.5b at the end of last year.

Thank you very much.

(Interpreted) You can answer the -- I'll answer the second question and you can talk about funding.

Starting then with your second question regarding purchases of assets.

In the first quarter the volume was slightly higher than what it was at the end of last year.

In the end of last year basically we had a speed of about EUR300m per quarter whereas this quarter it's been EUR490m.

That doesn't mean we've changed our policy nor does it mean that we've changed our forecasts about the purchases for the year as a whole.

Really this quarter has been very active we can say but we are maintaining our forecast for the year as a whole of basically having the same cruising speed as we did last year.

That is to have acquisitions for the whole year of some EUR1b.

And of course that incorporates that EUR490m from this quarter.

So the figure has been high in relative terms but there's no structural change there and we're maintaining all of our forecasts.

And then with respect to the restructuring of our loan portfolios, there really when we do restructuring we tend to report every six months.

And there has been no change in policy compared to what we were reporting in previous quarters.

So in no way is that the cause of the good figures for new entries into NPAs.

We've got the same policies and more or less the same cruising speed as we had last year.

So maybe, Manuel, you would like to answer the question about funding?

(Interpreted).

Yes, Matteo, you asked about funding.

If you look at the balance sheet you can see there is an increase -- a slight increase over December and a slight improvement in interbank items compared to last year.

But that doesn't respond to any interbank position because well there is no interbank market at the moment, as you know really, apart from overnights or sometimes as long as a week.

But the traditional business that BBVA had always had was to raise deposits from central banks or institutions and in the current context, given the scarcity of names in the financial sector worldwide with AA ratings -- at the moment there is an enormous scarcity -- there are very few of us, as you know.

So we are obviously benefiting from the fact that we are one of the few in order to be able to raise funds in this manner.

And I should also point out that the bank hasn't gone out to hardly any of the European Central Bank auctions in the first quarter of this year.

In general, going to the weekly auctions we'd just be talking about EUR1b which is really hardly anything given the size of the Group.

Although in fact we have EUR55.3b in unused collateral.

So it's there, it's available, we could use it whenever we wanted in order to go to the European Central Bank if it were necessary.

It's like a second level of cushioning for our liquidity or third level even.

And I should also say that when we're looking at these items on the balance sheet you have to take into account that between 2008 and 2009 we bought about EUR18b to put onto our available for sale portfolios which are there for hedging our interest rates and we've got them in repo.

So when you're looking at the balance sheet items you have to take into account those repos and the refinancing that we're doing.

And I didn't really understand because of the sound what you were asking about Iberia?

It was about deposits, yes.

And seasonality.

Right.

Well, basically there there are various things that come into play.

And you can read about that in the quarterly report.

There's a seasonal component where obviously deposits in many countries in the Americas are stronger than they are in Spain.

In December they grew very significantly.

And during the first quarter that growth flattened out slightly.

So there's a seasonal impact that we always see in the first quarter with respect to gathering customer funds.

We tend to see it flatten out a little bit in the first quarter.

And then as we said before our liquidity position was very strong, our balance sheet is very strong which means it's possible for our commercial network to have pricing policies on term deposits which are very responsible.

We are obtaining average margins on term deposits of about 30 or 40 basis points even with the current interest rates in a context in which the market is showing a lot of quite different strategies, rather aggressive strategies in order to gather term deposits.

And we're also seeing a shift from term to current accounts which have really performed fantastically.

And also funds and for the bank that means higher returns than those 30 basis points that we're obtaining on term deposits.

And if we look at the market shares that we have compared to the resident sector for deposits and funds you can see that we're gaining market share in current and savings accounts, which are the most profitable ones.

And term deposits is going down because of our pricing policy in terms of market share.

But we're raising more customer funds than the rest of the sector and that boosts our market share.

So you can see that levels are beginning to stable out there compared to December.

So that's an element you must take into account as well.

And there's another effect as well which is relevant and that's the volatility of deposits which are linked to wholesale banking or our European branches, especially in deposits.

So if you look at the term deposits for the resident sector which are showing growth of about 2.9% year on year that would be more like 3.9% if you take out the impact of those wholesale deposits which are much more volatile.

(Interpreted).

Yes, if you'll allow me, Manuel, talking about what's happening to deposits at Group level, there is one aspect that I really think we should highlight because I'd really like you to notice it and take it home with you.

That's what's happening to transactional things happening on current and savings accounts in all the geographical areas in which we operate in the Group.

First of all, in Spain after having a negative year on year performance or growth for the last few quarters, for the first time we're now reporting this quarter -- well, for the second time because in the fourth quarter we already reported growth -- we've been seeing positive growth there, year on year positive growth and an increase in the market share over the last five months here in Spain.

And I want to highlight that because when you look at our P&L that's really important.

In Mexico we're seeing the same thing happen.

If you look at the performance of deposits on the balance sheet in Mexico the performance is excellent.

But especially if you analyze what's happening in current accounts that was especially high growth and we're also gaining market share very clearly over the last few months.

And that has a big influence on our P&L.

And then finally in South America, as I said in the presentation, as you can imagine we're seeing some slowdown there in lending.

But there we're seeing high growth, yes, definite growth in the rates for funding, especially transactional funding.

And I think that's relevant and we have to keep on tracking that over the next few quarters because it has a big impact on our profit and loss account on our income statement.

(Interpreted).

Are there any more questions over the conference call in English?

There are no more questions.

(Interpreted).

Okay then, let's take the questions we've got over the webcast.

Antonio Ramirez asks what we think the restructuring of the Spanish financial situation will look like.

What's going to happen with savings banks and where will we be positioned after the restructuring?

What opportunities do we see there to gain market or to buy assets?

(Interpreted).

With regard to restructuring the Spanish financial system and especially the BBVA positioning in this, what I believe is that if you analyze the situation of the Spanish financial system there's a whole series of issues that I'm sure we'll all agree on.

I'm sure we all agree that the Spanish financial system, because of the business models and also because of the oversight and regulation, to tell you the truth if you compared the results here with the results of other international banks and other -- the financial systems of other countries, then quite honestly the Spanish financial system is quite resistant to the crisis.

And I'm sure we'll also agree that obviously if the crisis in the real economy continues then the financial system obviously will not remain immune because no financial system could remain immune.

So from this point of view I think the process of possibly restructuring the financial system -- obviously we have defined that, we have clear positions on this.

In any possible restructuring of the Spanish financial system it would be very important to work on overcapacity of the financial system.

And I think it's also important to distinguish between the strong players and the weaker players.

And I think it's also important that the weak players should be restructured so that they're not a burden on everybody else.

This is something that we've talked about on many occasions.

We also think that any restructuring will have to be done professionally by the Bank of Spain.

They have the information, they have the experience.

Not the theoretical experience, they have real practical experience of having done it in the past.

So they know how to do their job.

So basically that's the overview that we have.

More specifically now with regard to the relationship between possible restructuring and BBVA's position in the market, there are two things I'd like to make perfectly clear.

We have determined a clear strategy that at the moment we have enormous capacity for generating value by focusing on the perimeters, the franchise and the current situation.

That's our objective obviously and I think there'll be major opportunities for organic growth.

And the reason for this is because we've been showing -- we've shown that our model is highly competitive and we have enormous balance sheet advantages.

So we're really not interested and we give no priority to non-organic growth.

And obviously we give no priority to seek non-organic growth here in Spain where there are enormous opportunities with organic growth which is our top priority.

(Interpreted).

Moving on with questions, Ignacio Cerezo, some of which have already been answered but more particularly he asks two about Mexico, asking why are fees and commissions so strong in Mexico?

And also have we done any hedging in Mexico with regard to the falling interest rates there and whether moving forward will these hedges have any impact.

With regard to the US, another question is how sustainable is the major fall in costs we've seen this quarter?

And in corporate activities what are the EUR118m in impairments in this budget line?

(Interpreted).

Okay, Manuel, you can talk about that EUR118m and the hedging and I'll talk about the falling costs.

Okay.

Regarding the strength of fee income in Mexico, quite honestly I don't think -- well, I don't think they're above the expectations we had anyway.

I do indeed imagine that they will continue to remain strong in comparative terms throughout the year in Mexico.

You have to take into account that we redefined our fee structure last year and last year you saw the adjustment because of that.

With the re-pricing down of fees and commissions we thought that was the right time, especially in credit cards, in order to consolidate our presence in the best segments.

And as a consequence of that fee income last year in Mexico was pretty well flat.

But having digested that impact in 2009 we're expecting to see fee income perform well in Mexico.

And then with respect to what's happened to costs in the United States, this quarter I think is showing what we'd already talked about.

It's no surprise either.

We said that we were going to reduce our costs in the United States.

We said that between January and February we'd brought down headcount by 10% and as a consequence of that costs have gone down 7% year on year.

So really what we're doing is just delivering on what we had said we were going to do.

That level of costs, because you have to take into account that it's supporting the higher [LEOC] bill which is having an impact and will continue to over the other quarters.

And there we've seen an increase of $10m and that's incorporated into the expenses for the first quarter.

So I'm looking towards the future and I'm expecting to maintain or possibly reduce the expenses that we have in the United States.

And I think that during 2008 that's what we were working towards.

And so in 2009 it's to be expected.

(Interpreted).

Yes, okay.

I'll answer my questions then now.

In terms of hedging interest rates in Mexico, yes, indeed we've been actively managing the balance sheet in Mexico where the problems are rather different from the problems of the euro balance sheet.

As a consequence of that management we've got a portfolio with bonds and derivatives of about EUR7b.

That's the counter value in euros.

And the duration is 3.2.

So there too the risk is limited on that portfolio.

The possible surges or peaks in longer terms and basically that's there to hedge the impact of reduced margins when interest rates go down because of the weight of current account deposits which we have in Mexico.

Anyway we have to think that regardless of the sensitivity of the balance sheet in Mexico, which is different from that of the euro balance sheet, nonetheless when there's a change in interest rates if you look at the granularity and the customer base that we have in Bancomer, actually there there are very big commercial opportunities to manage your balance sheet and your asset and liability pricing.

And that means that we'll have a lot of opportunities to boost net interest income.

So I'm sure that in this context of dropping rates that we're seeing in Mexico in the next few quarters we will be seeing the outcome of our commercial management and our balance sheet management which go together hand in hand.

And then you asked about corporate activities.

I think you were talking about the provisioning of EUR119m.

Most of this figure reflects a provision for country risk at Group level for Brazil.

Traditionally we've classified Brazil as Group 2.

Bank of Spain has classified it now as Group 3.

So this quarter we decided to pass Brazil from Group 2 to Group 3 according to the Bank of Spain classification which means that we had to provision EUR108m against that.

And that explains that minus EUR119m that you can see in provisioning for the first quarter.

That's 10% of our exposure to resident customers in Brazil.

(Interpreted).

Paco Riquel asks various questions about the capital position.

First of all, can we explain the increase in risk weighted assets of 3% quarter on quarter given the drop of credit of 1%?

And we've also been asked that by other people.

And he also says what impact have exchange rates had on the capital position for the quarter?

And if we can give more color on adjustment for net equity and movements on treasury stock and the impact on capital during the quarter?

And then he also has a question that we've got from US Securities as well.

If we've generated core tier in this first quarter would that be 64 basis points?

If that's the case, how do we feel about the target that we have for 80 basis points for the year as a whole?

Then finally, he asks about the impact of the investment in China on core tier 1 -- on core capital in Tier 1.

I thought it was a bit odd that no one asked about capital and then they definitely did ask.

And so how is China impacting capital ratios?

And then with respect to US do we need to inject capital into Compass in the US and what kind of results are we getting from our stress testing?

(Interpreted).

Capital's your specialty, Manuel, I think.

(Interpreted).

So let's start at the beginning then and move forward gradually one step at a time.

With regard to APRs -- RWAs, sorry, there's a significant increase in RWAs in contrast with a balanced state that's been stabilized in December and hasn't grown very much since.

I think that may be about 5% for the Group as a whole.

The explanation of this is the currency effect in the quarter.

There's been an appreciation in fixing i.e.

the interest rates at the end have been significant both in the Mexican peso and in the dollar which has generated growth in RWAs that are significant.

And this has also led to other one-off effects, technical effects.

But the important thing for you I think is that from now on if there are no other major effects of exchange rates the RWAs will behave more in line with the growth in lending and the balance that we expect in this context which we expect to be constrained.

So that's RWAs, risk weighted assets.

Then valuation adjustments now.

The effect of the exchange rate in the quarter with regard to core.

Virtually none whatsoever.

There's a strong effect on the growth in RWAs which also leads to goodwill which is also into fixing but it also has a positive impact on reserves.

Even with the hedging policy for the WTC we have a contribution to net reserves of almost EUR600m for the quarter.

That's the net hedging on it.

So all in all, all these effects offset each other which leads us to a zero effect.

As you see, the COO didn't answer but he knows all of this.

(Interpreted).

I was just seeing if you knew.

(Interpreted).

I think he's just following me to see if I make any minor mistakes.

You can't imagine how difficult it is to be a CFO when your COO is as good as this.

So valuation adjustments now.

As you can see in the brochure, I think it's page 13 of the balance sheet, there's a valuation effect that improves EUR438m in comparison with December.

And basically this is the exchange rate effect though there's a little bit on interest rates.

But the main effect is the appreciation of exchange rates.

Because if you remember in December the effect was negative, significantly negative, for the same reason.

The treasury stock now has had a slightly negative impact on capital on March 30.

If you remember in the last communique that we put out to the CN and VM, public information on April 9 which showed our position in the treasury stock, very small, of about 10m shares which is 0.027% of our share.

And we're well below that figure.

With regard to generating core capital, we're very comfortable with the situation.

I think it's important the fact that we're delivering on everything that we said to the market in December.

We took responsible decisions with regard to managing our capital.

And these have translated in a reduction of our payout in order to strengthen and generate an incentive for creating organic capital by the Group in the current situation.

And also because of the kind of bank we are the weight of our risk weighted assets and total assets, how our advanced models include the effect of pro-cyclicality.

Because we're talking about consuming weighted risks adjusted to the cycle, etc.

So we think that our capital figures are quite strong in the current environment.

Moreover, there are many channels that others have used that we haven't to start with.

EUR1.3b in unrealized capital gains in our equity capital, EUR1b in bonds.

And so there are many billions of euros that are available to strengthen our capital generation.

And at this pace, as this is the first quarter which is the most complex one traditionally with regard to organically generating capital, and given what we're seeing in the growth in lending, we do feel quite comfortable that we will be able to generate the 80 basis points by the end of the year as we said.

And if we don't we're going to be very close to the 7% of core capital.

And don't forget that BBVA is probably the only major bank in America and Europe that hasn't increased their capital and has received no kind of support -- capital support from the government or any other kind of institutions.

With regard to China, the effect of our business in China, we've gone from 9.90% now to over 10%.

As you know our positions in banks of over 10% cannot be consolidated by a global introduction, deduce 50% of tier 1 and Tier 2.

So as you can see, the reduction of Tier 1 and Tier 2 that occur in this quarter are totally linked to increasing our stake to over 10% in China during the quarter.

And with regard to our situation in the US, we feel that our bank in America is above the regulatory levels so it's considered to be well capitalized.

In December we had Tier 1 of 7.41% versus a well-capitalized level of 6%.

And a total ratio of 10.72% in comparison with a well-capitalized ratio of 10%.

And a leverage that was far higher than the minimum level to be considered well capitalized.

And apart from that we're still generating revenues in a context in which many of our peer banks are reporting major losses.

And this quarter we've organically generated 17 basis points of capital in the United States.

So we do feel very comfortable with the situation.

(Interpreted).

And I think that's answered all the questions.

Just to ratify, when Paco was asking about the 80 basis points of core capital, I think the results of this first quarter have two or three relevant or important items in our presentation and I've pointed them out and I've tried to break them down for you in my presentation of the results to you.

I think one of these items that we can clearly highlight is our capacity to generate organic capital.

As I said before the first quarter is usually the most difficult one.

And we are delivering and we're delivering on time.

So I think the 80 basis points of core capital is something we're committed to and we've very comfortable with that commitment.

(Interpreted).

So we'll move on with another question on capital which is a shorter one.

Ignacio Cerezo from JP Morgan asks why have we increased core capital of EUR1.1b in the quarter and the Tier 1 remains stable?

(Interpreted).

Because you have to take China out of that 50% of the investment in the CITIC Group.

(Interpreted).

And Venture and Ibersecurities ask us how we're booking our part in the Metrovacesa deal?

(Interpreted).

We're booking our holding in Metrovacesa with a net -- in accordance with net asset value.

There's a discussion which quite honestly I don't understand.

Metrovacesa can't use the share price as its reference because it doesn't -- it's below 3% free flow so it doesn't really represent the true value.

So because of this for valuing it we applied the net asset value.

And we have a provision for this, a 10% provision that we set off against this too.

(Interpreted).

Giovanni Carriere has asked us if we can say anything -- go into more detail about the prospects for Texas because in the last few weeks some of our peers have changed their forecasts?

Is there anything in the Compass portfolio that is a concern to us?

(Interpreted).

I think that as we've said before indeed if you compare Compass's results with those of other banks that are basically the competitors of Compass, the Compass results are clearly outstanding.

That's the fact of the matter.

And I want to make sure that you take that home with you.

But looking towards the future, we're maintaining our forecasts that we shared with you at the last part of the year when we were talking about risk premiums.

If we had to highlight any one portfolio where we were at a higher level I'd have to say that just as everyone at the level of individuals is reporting that things are going well, there we're seeing ratios which are magnificent.

In terms of NPAs and their performance our NPAs are very concentrated, as you know, because we told you this several times.

We're very concentrated in a certain part of Florida.

So analyzing things to highlight one portfolio?

Well, since we're talking about the US we'd have to talk about the real estate business, above all commercial real estate.

And there we have to focus attention as you can imagine.

Yes, the volume's going down but, as you well know, if we think about asset quality there -- everywhere the same thing's happening.

Look at all the write-offs and write-downs that we're seeing amongst our competitors there and elsewhere.

But if you do more in depth analysis, mainly we have to focus on real estate.

For the moment we're performing well but we have to focus on that.

Of course we do.

(Interpreted).

Javier Bernat from Caja Madrid asks if the high growth that we've shown in wholesale banking and asset management in interest rates reflects what's being done by ALCO?

Jose Ignacio Goirigolzarri (Interpreted).

(technical difficulty) management is in corporate activities, as I said.

I think if you analyze global banking and asset management and if you analyze especially markets, as I usually say there are some changes in the lines and this is why it's better to analyze the gross income.

Because this way you can see that sometimes you use the net interest income, sometimes you use the net trading income.

But I think gross income is a better benchmark.

(Interpreted).

Sergio Gamez from Merrill Lynch has asked some questions that we've answered.

But apart from those he also asks if we think that if the quarterly performance in costs that we've seen in Spain and Portugal can be extrapolated throughout the year?

And also if we can talk a little bit about the payout and dividend policy for 2009?

(Interpreted).

Do you want to answer about payout?

Yes, and dividends.

(Interpreted).

You could answer costs first but I'll start.

Talking about payout and dividends, there's nothing different from what we said at the end of the year.

We're maintaining our policy for dividends with no change apart from what we announced with the payout of 30% in cash.

And that's our plan for the moment.

And that's the policy that we'll be maintaining.

(Interpreted).

And with respect to expenses in Spain, in terms of absolute value, it's perfectly maintainable.

And in terms of percentage drop, taking into account that last year we were already improving in costs, so we're comparing against a quarter that was high in relative terms compared to what happened the previous year, apart from the fourth quarter of course.

But in absolute terms I think that yes, it's totally maintainable.

And the drops at the end of the year?

Maybe not 6.5% but definitely 3% or 4%.

(Interpreted).

Javier Bernat also asks if we could update the strategy that we have in CITIC for China and our strategy in Continental Europe?

If we think that the time has come when it's attractive to invest there?

And there's another question from Daragh Quinn from Nomura about that.

But he specifically asks whether it's the time to make acquisitions in the United States?

(Interpreted).

First of all, I'll answer about mainland Europe and the US before moving on to the CITIC strategy.

I would go back to the starting point as I said before with regard to Spain which I think is applicable to the entire perimeter of our Group.

We are totally focused on the competitive edge we have in our position both from a financial and also a market point of view in the different markets that we operate in.

So this is our top priority and that's what we're working on.

And I think you can decline that in the same way everywhere.

Even more clearly in mainland Europe because there's a consequence of the movements that we've seen that have varied so much from one country to another.

And if we bear in mind that we have nationalized banking, semi-nationalized banking, a little bit nationalized banking, it's very difficult to consider cross-border operations.

And we also decline this in the US that in America we're totally focused on what we need to do there and that is to improve the productivity of our franchise as we're doing.

And I think we're delivering on that.

So we have no short term plans for any acquisitions.

Whether this means that the US won't present any alternatives, well, I'm sure they will but certainly not in the short term.

There's nothing on the table, I'd like to make that perfectly clear.

With regard to CITIC's position, our position in CITIC and what we've done over the last few quarters is to confirm the strategy that we've already shared with you and that is the aim of this strategy is to strengthen our position in mainland China where we have about 10% now.

We want to strengthen our position in Hong Kong where we have 30% and where we now only have one party which is the CITIC Group.

And at the moment I think we have a shareholder structure that enables us to drive a joint strategy between CITIC and ourselves.

And basically the aim of this strategy is to combine three simple ideas.

First of all, we have an extraordinary customer base in China because of the mainland bank that we have there.

Second, we have the internationalization of the CITIC Group of which we have 30%, the bank in Hong Kong.

And third, we have the know-how, we know the BBVA Group products.

And I think the combination of these three ideas has to produce results, not just on the books but also from a strategic point of view.

(Interpreted).

Another question by (inaudible) from (inaudible) is what level of provisions are we expecting for Spain and Portugal looking forward?

Because the first quarter seems to hint at a very low level of provisioning?

(Interpreted).

Oh he thinks it's low, well okay.

But talking in terms of risk premium we're expecting risk premium to be pretty well constant in Spain and Portugal during 2009, as I'm sure you can all imagine, because we have Spanish regulations here.

(Interpreted).

And with respect to the same subject we're asked when we think we'll see the peak of new entries into NPAs in Spain?

(Interpreted).

I think that depends.

When we talk about NPA entries I presume we're talking about net entries.

We'll have to see what happens.

Rather than talking about the industry because quite honestly I don't have the information so I'd prefer to talk about the BBVA.

And from our point of view, with regard to the first quarter entries into NPA, I think we're all satisfied with the figures that we're seeing.

We talked about comparing the third and fourth quarters of last year when this is very favorable with what we're seeing in the first quarter.

So I think we're at similar levels to what we saw in the third quarter of '08.

And looking forward our forecasts are no worse than what we've seen in the first quarter.

(Interpreted).

And the final question from Venture, the property that we've acquired through to the end of 2008, how much of it will be sold, if any?

(Interpreted).

Very low figures.

Anyway, no one should expect the rotation of these kinds of property assets to be short term movements.

(Interpreted).

Okay, in that case we've finished the questions so we can wrap it up there.

Okay, many thanks.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.

The interpreter was provided by the Company sponsoring this Event.