Banco Bilbao Vizcaya Argentaria SA (BBVA) 2014 Q4 法說會逐字稿

(Audio in progress) -- President and COO of the Group; and Jaime Saenz de Tejada, the CFO of the Group.

We will begin, as usual, with Angel giving us the presentation of the results and then we will open for Q&A immediately afterwards. Please keep in mind that we are specially stretched for time today, so we will try and cover as many of the questions as possible and, in any event, after the presentation of course the IR team will be fully available to answer any remaining questions (inaudible).

And without further ado, Angel, up to you.

Hi. Thanks, Luisa. Good morning everyone and --

(Spoken in Spanish) --

I'm sorry, the sound feed isn't coming into the booth. I'm sorry, the sound booth isn't reaching the interpreter's booth.

-- progress is being made by BBVA successfully on getting acquainted with the new [single supervisor], who is closely focusing on the Bank's business models and profitability analysis. I have no doubt it will be very positive for this sector.

During the year, BBVA held a constant and open dialogue with the ECB to facilitate this process as much as possible.

With regard to our business portfolio management, we continue to follow our strategic road map. This past year we announced the acquisition of Catalunya Banc, which together with the Union deal, allowed BBVA to participate actively in the restructuring of the Spanish financial sector.

The latest figures disclosed by Catalunya Banc and the AQR results themselves bring forth our excellent prospects for the franchise. This transaction has a clear strategic rationale and strengthens our position in Catalunya, giving us the opportunity to gain 1.5 million customers in a very attractive market.

Also, I would like to highlight the favorable terms of this deal for BBVA and the limited execution risk due to our proven track record in integration processes. The synergies generated will undoubtedly create value for our shareholders. We estimate the closing of the transaction to take place during the beginning of the second quarter of 2015.

The second one regarding Garanti; the deal announced in November is a key step forward in the Group's growth strategy. BBVA brought forward its option to gain board control of Garanti in a deal which increases our stake in the franchise whilst keeping Dogus Group as a qualified investor and partner.

Since the transaction was announced, Garanti's share price has outperformed its peers with a revaluation of 16% and we remain positive on the outlook for the bank and the country. We've been working together for 4 years and we have learned a lot from each other.

We've formerly been actively collaborating in areas such as payment system, consumer finance, wholesale and retail banking, and now we are taking another step towards Garanti's full integration into the BBVA Group. Completion of the deal is subject to regulatory approvals.

The third one is China. We have also made important strategic decisions affecting the Group's presence in China. We've exited CIFH in Hong Kong through the sale of our 29.7% stake and have sold down our stake in Mainland China by divesting 4.9% of CNCB.

These transactions were aimed at managing our portfolio by concentrating on our core markets and optimizing capital. The results for the Group are excellent in financial terms, EUR1.4 billion of capital or about 40 basis points on a fully-loaded basis, and we still maintain capital gains in the remaining 4.7% stake in CNCB. We are expecting the CNCB disposal to be closed late first quarter 2014 and the CIFH sale in the second quarter 2015.

Regarding the Group's ongoing digital transformation process, we continue to execute our strategic road map, as presented to you in the previous quarter. We've advanced in all lines of the transformation process, but if I had to highlight just one today would definitely be the implementation of our new distribution model in Spain.

Its acceleration during last year is already having a significant impact on the P&L. The goal is to deeply transform customer experience by improving customer service for clients and reducing servicing costs for the Bank, a win-win value proposition for all parties.

This involves a tremendous amount of effort in aligning IT processes, branches and commercial activities all in the same digital way, creating a clear competitive advantage for the Group. We have also rolled out deep cultural and organizational changes in order to simplify structures; that also means reducing costs at the corporate center and in central support functions.

The results of just these two lines of transformation in 2014 are already starting to deliver significant cost efficiencies with costs coming down in Spain and in the corporate center area by EUR340 million or minus 8%, and if we exclude amortizations, by 9% or EUR357 million reduction.

At the same time and in line with our strategy of incorporating talents, ideas and different ways of creating value in this new digital environment, we carried out cornerstone digital transactions. In the USA we acquired Simple, a start-up that offers a differential customer experience, and we invested as well in Coinbase, the world's leading bitcoin platform. In Spain we acquired Madiva, a company which specializes in big data.

Now, let's refer to the financial results. Before I begin, it's important to know that in order to make results comparable and easier to understand throughout the presentation, I will refer to the P&L without the restatement that has been carried out on our 2013 accounts with regard to the Deposit Guarantee Fund. In the annex of this presentation and in our financial report, you will find all the details regarding these changes that have effectively been applied as per IFRIC 21 accounting rules.

Turning now to the income statement, you may remember that we started the year talking about a new cycle of earnings, and without a doubt this has been a year of growth. Although it's true that the improvement has been most visible in Spain, where we have seen lower costs and lower provisions, I am very happy that the other business units also showed excellent performance with bottom lines growing at around double-digit rate.

Let me highlight the key trends. With regard to income, NII growth was excellent in both current and constant terms, illustrating the significant effort made to boost business activity and manage prices in all of our franchises, clearly our main priority throughout the year.

Secondly, costs; costs have performed extraordinarily well throughout the Group, maintaining the positive jaws trend through the year. Regarding the cost of risk, we've seen stable or declining risk premiums during the year in all the business units. It has been one of the main drivers of the year's growth in earnings.

As a result of all the efforts carried out, the Group's earnings have increased 43% on a like-for-like basis excluding 2013 corporate operations.

With regard to solvency, BBVA Group ends the year with a strong capital position, having actively managed capital to finance business growth throughout the year.

As you can see the performance of NII has been excellent, growing about 16% during the year at constant exchange rates. This has been one of the management's priorities during the year as we faced a complex environment with low interest rates in our developed franchises and strong competitive dynamics across the board. Therefore, NII performance is definitely for me one of the success stories of 2014.

And such positive performance has been the trend quarter-on-quarter during the year even if we remove the impact of Venezuela, the increase over fourth quarter 2013 will be 16% up -- 16%, sorry. That excellent NII performance is translated into recurring income, which is up 13%, and to gross income as well, which is up 8.5%, after absorbing a 7% decrease in net trading income.

As I mentioned earlier, our outstanding cost management was another source of good news in 2014. The graph shows that the jaws have been widening since the first quarter. The excellent cost performance is more evident if we remove the distortion caused by Venezuela. If we exclude this, costs grew by only 1.8%, well below the average inflation in our footprint.

If I look further into the analysis, we can also see very disciplined control of personnel and general expenses. Depreciation, on the other hand, has increased as a result of the Group's investments in technology and our opening new branches mainly in Peru and Colombia.

By region, I need to highlight the substantial cost savings achieved in Spain, where as a result of our digital transformation plan costs went down by EUR340 million, also taking into account as well the corporate center. Mexico and South America, ex-Venezuela, also contributed significantly to the positive performance widening the jaws gate further.

As a result of the excellent income performance and discipline cost management, operating income grew more than 2% at current exchange rates and more than 13% if the effect of the exchange rate is removed.

The impact of Venezuelan hyperinflation is neutralized on operating income, so it is the P&L line which best reflects the performance of our operational results. Growth here was at a higher level than in the last 6 quarters and operating income reached EUR10.4 billion in the year.

As we have reported in previous quarterly presentations, the decline in loan loss provisioning was one of the main drivers of earnings growth last year. This slide shows that the positive trend we saw during the year is continuing with provisioning decreasing by EUR1.6 billion in the year, mainly because of Spain. As I said before, the risk premium remained stable or fair in all regions.

In conclusion, despite the challenging environment I believe the BBVA Group results have been truly positive in 2014. I am very pleased with the figures for the year, which point to an improvement at the operational level in the Group's income statement, as you have seen during the presentation.

The Group earned a net income of EUR2.6 billion in 2014 and of over EUR3 billion excluding corporate operation, an increase of 43% over 2015. Also, I would like to highlight that pre-tax earnings grew by EUR1.3 billion or 48%.

Bottom line growth is driven by outstanding performance of net interest income with good management of spreads and buoyant business volumes; excellent cost control with costs decreasing especially in Spain and the corporate center; and finally, the significant decrease in loan loss and real estate assets provisions. Therefore, a year of growth with substantial improvement in the net income in the income statement, which I expect we will maintain in 2015.

And when looking specifically at risk, also here we have more good news; the risk indicators maintain their positive trend; NPAs were significantly down during the year due to a decrease in net entries and thanks to falling gross entries and greater recoveries compared to 2013, as you can see, improvement in asset quality and risk indicators.

The non-performing asset ratio ended 2014 at 4.1% after falling 53 basis points in the year. This decline was due to both lower NPA balances and portfolio growth. The coverage ratio closed the year at 65%, up 6 points.

Our regulatory capital ratios are 12% phased-in, 10.4% fully-loaded and our leverage ratio is 5.9%, all of which is evidence of the strength of our capital.

During 2014, we were very active in capital management to finance the Group's organic and inorganic growth. Three operations were closed; a EUR2 billion capital increase together with an additional Tier 1 and Tier 2 issues of EUR1.5 billion each.

Shareholder remuneration policy; these comfortable capital position together with our ability to generate earnings allow us to maintain our shareholders remuneration policy announced in 2013 based on 35% to 40% cash by payout, complemented with scrip dividends in order to continue delivering an attractive shareholder return.

We aim to maintain the recurrence and predictability of our shareholder return. We are committed to offering an attractive yield over time, especially in this low interest rate environment.

Moving onto geographies and starting with Spain as every quarter, Spanish recovery is clearly underway with economic growth and job creation accelerating towards the year end. As in the third quarter, we've witnessed double-digit growth in loan origination. This led to a rebound in the flow of new [credit] operations especially in the last quarter.

Average new loan production in residential mortgages grew 15.8% and in the case of consumer loans it grew over 35%, and finally new lending in small businesses is also growing over 27%.

However, the growth in new loan production is still not enough to offset the stock maturities, and therefore, deleveraging continued, although at a slower pace. From September, we started to see growth in the stock evolution in commercial and business portfolios. We are expecting this improvement in new business volumes to continue in the coming quarters underpinned by rising economic activity in the country.

In terms of customer funds, the sharp fall in the remuneration of time deposits has resulted in an increase in current account balances, up 13%, and mutual funds up 30% in the year.

The decline in the cost of deposit had a positive effect on the area's NII, which grew nearly 3% in the quarter and nearly 9% compared to the same quarter of 2013. All the revenue lines grew faster, supported by higher net trading income than in 2013.

Operating income reflects the delivery of cost savings that we mentioned earlier when talking about the digital transformation of our distribution model.

With regard to risk, indicators improved due to a fall in NPAs and less deleveraging. The positive trend seen since previous quarter continued.

I would like to draw your attention to the notable performance in gross entries, which fell in all portfolios. This points to future improvements in risk indicators. Provisioning fell by about EUR900 million during the year, leading to a lower cost of risk 0.95%.

Growth in NII was flat in the year, as stated in our guidance, due to a clear focus on the management of spreads, which increased 29 basis points over the year, and the strong increase in new loan production, which was a top priority throughout the year in the deleveraging environment.

It is worth remembering that the year-on-year comparison of NII figures includes EUR244 million from floor clauses, which were removed in May 2013. Without this impact, NII in this area would be up 6% year-on-year.

Fee income also performed well, rising 6% in the year. As a result, recurring income grew 1.4% year-on-year.

I would like to highlight net trading income was high in 2014, taking advantage of the market conditions in the year. Also, we have witnessed an increase in provisions as anticipated in third quarter of 2014 related to the Spanish restructuring cost deriving from the transformation and savings plan.

The result has been an operating income of EUR3.8 billion, up more than 20%. This together with the improvement in provisioning led to a net attributable profit for the area of over EUR1 billion, up 75% compared to 2013.

We continue to witness an improved outlook for the real estate market, increasing demand for all kinds of real estate assets, with prices on average creeping up towards a more positive territory.

Sales; over the year sales volumes increased 18%, with a disposal strategy based on maximizing returns. As a matter of fact, although immaterial, in the last two quarters we've been obtaining capital gains in our divestitures. We've maintained steady reduction of the real estate portfolio. At the end of the year, our real estate net exposure amounted to EUR12.5 billion, which is a 14% decrease year-on-year and 20% if we compare it to the peak in December 2012.

So all-in-all, this area has seen loan loss provisions and property sales having a significantly less negative impact on the bottom-line with a loss of EUR876 million, a 30% improvement versus 2013, due to lower loan loss provision and asset impairments.

Looking ahead, we see this market trends continuing. We think the negative impact of this area on the income statement will be significantly lower in 2015 and quite limited in 2016.

Now, let's move on to the USA. Recent business data confirmed that the steady recovery noted in previous quarters in the US economy will continue. Compass is maintaining significant growth in customer funds in all credit portfolios. Lending and customer funds are growing faster than the peer group average. The improvement in NII that we had seen in previous quarters is confirmed, mainly driven by the volume effects as spreads are still under pressure.

Given the sensitivity of the balance sheet to interest rates, spreads' margins may recover in 2015 owing to the expected rise in rates. Looking at the quarter-on-quarter comparison, it is important to note that we've been reporting NII growth for four consecutive quarters.

The area asset quality and risk management continues to be one of the best in the Group. The non-performing asset ratio is 0.9% and the coverage ratio 167%.

Recurring income is growing both year-on-year and quarter-on-quarter, supported by the double-digit growth of business. Positive performance also comes from the rest of the lines that fit into gross income, which rose 4% to EUR2.1 billion.

Costs are under control despite the acquisition of Simple and compliance expenses linked to regulatory requirements. Excluding these impacts, costs are growing at 2.1%. As a result, the area generated net income of EUR428 million in 2014; this is up 9% on 2013.

In summary, in the USA we have a franchise that is prepared for growth. This is a country where digital transformation offers a huge upside because it has the highest internet penetration worldwide together with a financial system which can and should definitely improve its customer experience.

Looking ahead, the macro outlook seems positive and we are optimistic as to the evolution of the franchise.

Increasing our stake in Garanti by almost 15% strengthens our commitment to the Turkish market, one of the emerging markets with highest growth potential. BBVA becomes the major stakeholder in Garanti, Turkey's largest bank by market cap.

In a year marked by volatility, Garanti's excellent management led to double-digit growth in all lines. Active management of customer spreads is the main driver of NII growth, which grew nearly 20%. Fee income showed very positive performance, growing at 20%, even taking into account recent regulatory changes temporarily impacting this line.

Operating profit grew at 21%, leading to a net income of EUR310 million, 35% higher than last year.

In 2014, Eurasia as a whole generated EUR565 million in net income that represents a year-on-year increase of 36%.

And I would like to highlight the following points. In terms of our business activity, we've continued growing our loan book in Garanti, while in the wholesale business in the rest of Europe and Asia deleveraging has been visibly tapering out.

NII performance was very positive. Our net interest income grew 13%, driven by active management of funding costs in Garanti. Impairment losses on financial assets were down 34% because no relevant one-off provisions had to be set aside as had been the case the previous year.

As I mentioned at the beginning, in this region we've announced three corporate transactions. The first, which I have already discussed, was Garanti. The second was the sale of almost 30% of the Chinese bank CIFH and the third sale of 4.9% of CNCB.

Mexico; again this quarter Mexico has delivered outstanding performance to the Group. Our business volumes performed well this quarter and throughout the year as a whole despite only moderate GDP growth and low interest rates.

On our loan book we saw dynamic growth in consumer, up 18%, and SMEs up 27%, and our commercial portfolio also gave us a healthy growth of 20%; customer funds growth also outperformed the market as a whole; transactional accounts grew 11% and mutual funds 11.5%, once again proving what a solid franchise we have there.

Such healthy growth can be seen in all the income lines and margins on both a quarterly and annual basis. We maintain our leadership position in revenues, cost to income ratio, solvency and risk indicators. I specially want to highlight the fall in NPL ratio. This is due to a decrease in non-performing loans and an increase in lending.

All in all, our risk indicators have performed well and also compare positively with our peer group there. This is the outcome of forward looking management and early pulling back from riskier segments. Overall, this has been a very good year for Bancomer, which made more than EUR1.9 billion in net income and growth close to 11%.

Increasing business volumes and spread management can be seen right from the top-line, where NII grew 14% and flowing all the way down to the bottom-line with double-digit growth in practically all income items.

In Mexico, significant progress has been made in the rollout of our transformation plan. This year alone we've invested close to EUR1.5 billion, mainly in sales networks, IT and new head's offices.

Despite these investments, which we've been making over several years now, careful cost management has enabled us to keep the jaws wide open, with income growth outstripping cost growth.

So to sum up, Bancomer has grown faster than its peers, confirming our well earned place as market leaders.

In particular, we can highlight the following. We've gained market share in lending and customer funds; we are market leaders in efficiency; our risk profile is moderate and compares very positively with those of our competitors; and we are best-in-class on solvency and revenues.

South America; performance in South America reflects buoyant sales activity and strong recurring revenues. Focusing on business volumes, lending and customer funds have grown more than 20% year-on-year. Perhaps, what is most relevant is the operating income performance. This is the line where the effect of hyperinflation in Venezuela is neutralized. Growth here is 7%.

The evolution of non-performing assets has been closely correlated to the overall performance of our loan book. Thus, the NPA ratio has remained practically stable throughout the year and the coverage ratio ends at 138%.

In order to compare the data more easily, we present the figures with and without Venezuela. Thus, we remove the distortion generated by hyperinflation.

Buoyant business volumes and carefully managed customer spreads have given us very positive growth in revenues, which are up 22% year-on-year without Venezuela.

One thing we've been focusing on this year in the region was our fee structure. Fee income responded with 25% growth, which pushed gross income up to EUR5.2 billion.

Cost performance reflects the various expansion plans we are rolling out in the area, above all in Colombia and Peru, and our exposure to inflationary economies there. Nonetheless, net operating income still grew close to 19%.

Thanks to the boost coming from our strategic plans in the region, its earnings in 2014 were over EUR1 billion; that is 6% more year-on-year. Excluding the impact from Venezuela, we are seeing double-digit growth of 13%.

Now, let's come to the present. It is 2015 and we are expecting business this year to be growing again throughout the Group. Here in Spain, the end of the deleveraging process will be especially important.

Although we expect a low interest rate environment in some of the countries where we operate, business recovery leads us to expect further and significant growth in our recurring income. We maintain a strict control over costs, which will enable us to continue to present widening jaws, as income growth outstrips cost growth.

Provisioning requirements will go on improving, moving towards normalized levels. This is basically going to be seen in Spain and real estate.

Finally, during 2015 we will continue to take further steps in rolling out the Group's digital transformation, we will deal with supervisory and regulatory requirements and we will work actively to fully integrate Garanti and Catalunya Banc.

I think I can now give the floor to Luisa so we can begin our Q&A.

Thank you, Angel. First of all, I apologize because I think that there may have been some technical problems at the beginning of the call. So we will move on now to the questions and answers that -- from the presentation.

First, we will start out with the P&L of the Group. Vitor Roma from Goldman Sachs and Johan De Mulder from Sanford Bernstein ask: Could you please provide further detail on the provisions net and other gains/losses composition booked in the fourth quarter 2014, Spain, Venezuela and Chile?

Yes, okay. I'm Jaime. I'll answer the question. Three major impacts; the first one is in Spain, as you mentioned, the restructuring cost that we announced. When we published the (inaudible) quarter result presentation, we said that restructuring costs were going to be increased from the recurrent impact in a range of around EUR300 million. That was the case.

We have a EUR295 million [hit] in Spain, around EUR245 million in banking activities and around EUR50 million at corporate center.

In the case of Chile, we have a EUR52 million hit due to the Inverlink case. As you know, the Supreme Court forced us to pay that civil penalty. And then in the case of Venezuela, there -- mainly compose of generic provisions in order to make sure that we reduce this year's contribution to our Group P&L.

Thank you. Juan Carlos Calvo from [BESI] and Alfredo Alonso from Kepler Cheuvreux ask: Digitalization and restructuring charges, can you identify the precise figure charged for this concept in the fourth quarter? What will be associated cost savings that you expect and when? Can we expect further charges to the P&L in this concept in 2015 and 2016? How are evolving synergies obtained and how much is expected to be obtained?

Okay. Those are a lot of questions. I already comment on the impact on the fourth quarter, EUR245 million and EUR50 million in banking activities and the corporate center respectively.

Clearly, the impact that these charges are having on our recurring costs are significant. I think one of the biggest surprises of this year's results is the pretty significant reduction in expenses in Spain, minus 6%, above the guidance that we gave at the beginning of the year. And that's also the case at corporate center, where expenses are down by 10%.

Our expectations as we shared in the third quarter results presentations is for expenses to continue to go down in Spain and in the corporate center in the future.

So just maybe let me add, Jaime, a couple of pieces of data related to the digital numbers we are releasing every month and every quarter. First of all, one of the purposes of this transformation is to increase the number of our digital active customers.

We ended the year 2014 with -- at Group level with 9.1 million customers. When we started this comparison with -- in December 2011, this compares with 5 million customers. So on average 22% increase every year.

And the other important number is the number of mobile active customers. We reached 4.3 million mobile active customers at the end of 2014. From the beginning of this four year period is a 140% increase on average year-by-year.

So I think the result of this transformation is getting better and giving us the result we were expecting at the beginning of this project.

Juan Carlos Calvo from BESI asks how much is the FX effect in the fourth quarter?

The FX effect has been positive in a range of about EUR50 million.

And also he asks operating costs guidance for 2015 for the Group and for Spain.

So just looking forward and in Spain what we are forecasting, we are expecting is to see a further reduction in expenses between 3%-4% during the year both in Spain business -- in Spanish business and the corporate center.

For the Group as a whole, the rest of the countries they are going to implement their investment projects throughout the year. So the -- you know the target is to grow the expenses below the revenues and widening the jaws over the year, and of course implementing the investment they have released to the markets a couple of years ago.

[Francisco Raquel] from [Enemasuno] asks, assuming FX rates stay at current levels what P&L impact do you expect in 2015? Can you update on your FX hedging policy and if this could mitigate the positive impact in the 2015 P&L?

Okay. We don't give guidance for FX impact one year ahead. We've never done it and we won't do it today. Let's refresh everybody on our hedging policy. As you know, we hedge earnings in a range between 30% and 50% depending on our view of what the FX is going to be, taking also into account the cost of the hedging policy. And that remains the case. So for 2015, hedges are within those ranges.

As well, we have a hedging policy regarding capital. As you know, we want to minimize core capital impact as a result of FX movements. So whatever is not covered by the actual ratio -- as you know, the numerator and the denominator core and risk-weighted assets move the same way -- whatever is not covered by this natural hedge, we cover at around 50% again. Okay.

And as you know, the FX impact for 2014 due to FX has been only 1 basis point, which is roughly the same impact that we had in 2013.

Moving on to liquidity and ALCO, Rohith Chandra-Rajan from Barclays and Francisco Raquel from Enemasuno ask about the ALCO composition. Please could you provide an update on the size, composition, yield and duration of the ALCO portfolio?

Okay, the size of the ALCO portfolio went down slightly in the quarter to EUR36.2 billion, roughly EUR1 billion down from the third quarter. Its composition is mainly sovereign debt. EUR35.2 billion is made of sovereign debt. Its average duration is a little over three years and its yield is around 285.

Okay, moving on now to Capital. Francisco Raquel from Enemasuno asks if we can explain the decline in fully-loaded ratios during the fourth quarter and the positives and negatives in this fourth quarter?

Okay, so fourth quarter, right?

Right, fourth quarter, please.

Okay. On a fully-loaded basis total capital increased by 30 basis points from 10.1 to 10.4. The main positive impacts were the equity offering that we did in November that generated 58 basis points, and the results net of dividends contributed to an additional 17 basis points. Those were the main positives.

On the negative side, we had a decrease in core capital of around 26 basis points. Nine of those are explained by the Deposit Guarantee Fund adjustment that all the Spanish banking system had to do. And an additional 17 basis points is explained by prudent valuation, adjustment in the value of our pension funds and an increase in our treasury stock.

And then on the risk-weighted asset side, the denominator also had an impact of minus 20 basis point impacted by mainly increase in activity that, as you've seen, has been very positive in the fourth quarter. And then we have some small impacts due to FX and the increase in value of our stake in CNCB.

Okay, thank you. I think this also answers Stefan Nedialkov, Citi -- from Citi's question basically asking the same thing. Alvaro Serrano from Morgan Stanley, adding on capital accumulation which was weak in the quarter, asks what kind of organic growth do you expect in 2015?

I think clearly the Bank businesses are going to grow significantly in the years ahead. That's what we are expecting in many of our geographies. So risk-weighted assets will increase with that increase in activity. Taking into account that it is our intention to move to a -- to cash to a scrip dividend policy this year, of course subject to Board approval, capital generation will be slower in 2015 from what we have seen in the past.

Okay. And Alvaro Serrano from Morgan Stanley, Juan Carlos Calvo from BESI and Francisco Raquel from Enemasuno ask about our proforma number at the moment including the acquisitions and disposals announced. If the fully-loaded ratio is below the 10% target, how are you planning to come back to the 10% rate?

Okay. If we deduct from the 10.4 the impacts that we have shared with the market during 2014 of the different transactions that we announced, the proforma ratio will be 9.7.

Our expectations for the fully-loaded ratio at year-end 2015 is to return to the 10% number, so complying with our intended guideline.

Okay, thank you. And Rohith Chandra-Rajan from Barclays asks as well if BBVA has had any indication from the ECB on capital requirements. What is the right level of CET1 and when does this need to be reached by?

Okay. As you can imagine, and as Angel said during the course of his presentation, we have been having regular interactions with our supervisors, the old and the new. And regarding capital, all that interaction remains confidential as many other Spanish players have already said with the market.

But what we can share with you is that we have an ample capital base that has demonstrated being very strong and very resilient in the very recent stress test. And we do not have any indication otherwise.

Carlos Garcia from [Societe Generale] and Francisco Raquel from Enemasuno ask what amount of DTAs are [now] deducted from CET1 [now]. Do we have?

Okay, we have 4.9 billion of DTAs guaranteed by the government. As we said during 2014, that's around 70 basis points in core.

Okay. And Raoul Leonard from Deutsche Bank asks about the CRR, article 114 regarding the equivalence -- the new regulatory supervision line with the EU. The impact -- he says, if there are any RWA inflation impacts from the fact that Turkey is not regarded as having banking regulatory supervision in line with the EU?

Yes, not only Turkey. In our footprint, also Colombia and Peru have not received yet the regulatory equivalence by the European authorities; in this case by the European Commission. We expect that to happen in the course of 2015. This is an open-ended list and these countries are not there yet because they haven't had enough time to go through all of the process.

As you know, Bank of Spain in a circular in 2008 did qualify each of these three jurisdictions as having the regulatory equivalence to Spain; meaning that they have the same regulation and the same standard of supervision. And so our expectations are for these three countries to join the list, as I said, in 2015.

If that didn't happen, the impact will be very manageable for BBVA.

Okay, now a couple of questions on dividends and dividend policy. Alvaro Serrano from Morgan Stanley and Juan Carlos Calvo from BESI ask about our guidance of 35% to 40% dividend payout. They say it stands in light of the -- how does it stand in light of the recent ECB recommendations? When do you think you will be paying it in full cash?

And in this regard, also on dividends, Raoul Leonard from Deutsche Bank asks about scrip versus cash and specifically if there are any significant one-offs to the P&L in this year from Garanti accounting changes. For example, how should we think about your cash and scrip mixed dividend in 2015? Will you try to keep the overall headlined dividend per share at the same level as 2014?

Yes. First of all, the payout ratio policy is going to be the one we released at the end of 2013, as Jaime said before. So we are -- what we are foreseeing for this year is subject to the AGM approval is to have two cash and two scrip dividends.

Our policy said as well to move from scrip to cash over time and depending on the evolution of the results. So maybe it's going to be a process to be implemented over the next 2 years, maybe sometime from now till the end of 2017.

And the other one is something related to the extraordinary charges and one-offs during 2015. So as we released during the Turkish operation presentation, what we said is we were going to have a one-off adjustment to the P&L -- to the 2015 P&L of EUR1.5 plus billion negative -- what I remember.

So once you look at our annual report that we are going to release over the next few days with the audit report as well, you are going to see one update for the end of this year of this number, and the number you are going to see is EUR1.2 plus billion negative.

So this is one negative one-off and the other positive one-off is going to be the capital gains from the Chinese transactions, both the Hong Kong one and the Mainland one. So maybe at the end of the year we are going to have some negative number in net-net, but it's going to be manageable for this point of view.

Okay. Moving on now to Spain banking business, first let's start with Raoul Leonard's question from Deutsche Bank regarding the Deposit Guarantee Fund. Specifically, he asks if we can detail the impact of the IFRIC 21 this quarter. What charge did you take through P&L and what was the impact on capital?

Okay. I think that the rationale behind the numbers is already well known by the market. In our case, the extraordinary contribution that we didn't charge to the P&L in 2013 was EUR181 million. So this is what we had to account as a negative in the 2013 P&L numbers.

On top of that, as you know, we have to account for the contribution that we are going to pay in February 2015 in the results of 2014. That was an impact of EUR221 million.

Also, we had to readjust the 2013 ordinary contribution, which was EUR200 million, and that had to go to the 2013 P&L too. The exact number was EUR226 million.

And the last adjustment is what -- the contribution for 2012, which was also around EUR200 million, we have to deduct from the 2013 P&L numbers and deduct from reserves. Okay.

It's a little bit complicated, but those are the numbers.

Okay, now moving on to the block of net interest income, starting off with volumes, Alfredo Alonso from Kepler Cheuvreux asks what are the reasons for positive quarter-on-quarter loan growth in Spain banking business?

As I think we shared with markets during 2014, I think we were expecting that at the end of the year loan volumes were going to remain flat, and that's what happened in the fourth quarter. It shows a slight increase. So that's very positive news.

And as we've also shared with market, that was mainly driven by the corporate sector. Okay. So we have increases quarter-on-quarter on SMEs above -- around 1.5%, we have increases in large corps around 6%, and we have increases in the CIB business of around 2.5%. So in general, corporations -- large and small -- is what has driven loan growth in the quarter.

Okay. Alvaro Serrano from Morgan Stanley, Vitor Roma from Goldman Sachs, Rohith Chandra-Rajan from Barclays, Alfredo Alonso from Kepler, Arturo de Frias from Santander, David Vaamonde from MainFirst, Damien Souchet from Autonomous, Sofie Peterzens from J.P. Morgan, Francisco Raquel from Enemasuno and Mario Ropero from Fidentiis ask all about deposit and loan pricing specifically, several questions.

Please could you discuss recent trends and future expectations for deposit and loan pricing? Do you think deposit costs could go down further, the front book?

Do you think it will be sufficient to offset asset spread compression? Could you please comment on your outlook for NII and volume growth for 2015? And funding costs will come down further, but to what extent lower loan loss spreads and lower contribution from ALCO portfolio could impair growth in NII in 2015?

Quite a long question, Luisa. So first of all talking about the deposits, the latest price -- we are repricing our new entries and new production is a little bit under 30 basis points, in fact 29 basis points for December.

The average cost of the stock at the end of the year is 1.27. So in fact what we are going to see during the year, during 2015, is a new decrease of the cost of the stock. So maybe we are going to see depending on the maturity of these time deposits a further -- an additional 50 basis points reduction on this number.

Regarding the loan or the lending prices we are going to see during the year, it's true we are seeing quite important pressure on this yield. So what we think is we are going to offset most of this negative impact from the lending side, having a slight increase or improvement on our customer spreads.

So in fact, whilst you take into account the evolution of the -- on the lending activity during the year, we are expecting again here a positive -- a slight positive growth on the total stock, not very large, but maybe between 1%-2% growth. So all-in-all, from this side we are expecting positive growth on the NII line.

So maybe talking about ALCO, Jaime?

Yes. I think in 2014 ALCO contribution was pretty much in line with our expectations and with 2013 numbers. It is true that its contribution to the 2015 numbers will be lower, but a lot will depend on how do we manage wholesale funding, which we are still seeing its cost down. So that will be my answer here.

Okay. Francisco Raquel from Enemasuno asks, what has been the evolution of your deposit base and deposit costs in Catalunya since the campaign launched by Santander in this region?

Nothing significant and its strengths are not -- do not differ from what we have seen in other regions. So the impact has been minor.

Okay. Sofie Peterzens from J.P. Morgan asks fee income guidance for 2015.

Okay. Clearly, one of the best news of the quarter is the increase in commissions in Spain. I think this is something that we have also been sharing with the market during 2014.

The main reasons being the good performance of mutual and pension funds that have increased almost 30% during the year and also the good behavior of investment banking fees. So we've seen an increase quarter-on-quarter of 4% in fee income for the year -- for the quarter.

Regarding guidance for 2015, it's true that we have some headwinds because certain commissions, mainly interchange fees and commissions on pension funds, have been regulated and reduced. But we expect to be able to compensate through growth in activity these reductions and grow in the low single-digits.

Okay, a couple of questions regarding Catalunya Banc. [Luis Painya] from [Signitef] asks any news regarding the tax asset plans for the entity upon the closing of the deal. Is the Bank going to maintain Catalunya Banc as a separate entity?

And Johan De Mulder from Sanford Bernstein asks if we can give an update on the progress of the Catalunya acquisition and some color on deposit pricing trends there?

Okay. So to update on the progress, everything remains on track and so we expect to close the transaction during the first month of -- the first four months of the year. So that will be around the month of April. [Different] approvals are coming without any problems.

Regarding the name, I think we haven't -- and that's something that we shared in the past, we haven't shared any -- we haven't made any decision on that yet.

And regarding deposit trends, they are and they remain within what were our expectation when we did the due diligence numbers. So the good news about Catalunya Caixa's transaction is that everything goes on track and that we were very happy with the results of the stress tests that clearly ratify that we were conservative in the due diligence process.

Okay. Regarding asset quality in Spain, Juan Carlos Calvo from BESI asks about cost of risk guidance for 2015?

So as you've seen during the presentation, we finally released a 0.95% the cost of risk in Spain, which means 1.03% including real estate provisions. So for 2015 we are forecasting from this 1.03% to move down to 80-85 basis points.

Okay. Going to BBVA real estate, Johan De Mulder from Sanford Bernstein asks if we can provide more color on the Spanish real estate portfolio. Losses are higher than expected in the fourth quarter on the real estate portfolio and if we can provide more color there.

And also Johan De Mulder from Sanford Bernstein and Raoul Leonard from Deutsche Bank ask what is the average gain/loss on disposals and how do you see it evolving in 2015?

Okay, again a lot of questions. If I don't answer all, please, Luisa, remind me. Yes, this is true the fourth quarter provisions were a little bit higher than what we've seen in the previous quarter, especially because the third quarter was below the recurrent rate. It's mainly due by the collateral update and certain foreclose assets revaluation that we have to do periodically.

Regarding the overall evolution of the portfolio, the portfolio was down by EUR700 million in the quarter, so very positive news. The total number for the year is minus EUR2 billion; down to EUR12.6 billion our total exposure. So clearly improving on the trends that we've seen at the beginning of the year.

In terms of actual sales, we increased them in value by 18% and we made actually EUR10 million in the second half of the year on all those sales with an average discount of 50%. So means that provisioning levels are good and these sales do not generate losses.

As I mentioned during the presentation, very clearly talking about the real estate projection during 2015. So what is clear, we are going to see materially less negative contribution from this unit in 2015, and as I said in the presentation, quite limited for 2016. So we are expecting to talk about Spain without any material negative contribution from this unit just in a couple of years.

Okay. Moving on to Mexico, Arturo de Frias from Santander and David Vaamonde from MainFirst ask about the impact of oil in the Mexican economy and specifically how does 2016 look like if the oil price does not pickup, and expectations in Mexico in terms of GDP growth for the year?

Okay. The year-end GDP growth rate was 2.1%. We expect 2015 to behave much better. Something in the range of between 3% and 3.5% is what we are expecting as of today. And if reforms are implemented correctly, this could be the running rate for the next three to five years.

Regarding the impact of the oil prices, if they follow the baseline scenario that we have as of today, which means that oil prices will eventually go back to $80 per barrel in 2 years, the impact -- the actual impact in Mexico is actually very minor. We are just talking 0.2% on GDP numbers.

We've already shared with market the different hedges that they have. If prices remain at $50, maybe the impact could reach 0.4% per year. So the impact in that case will be a little bit higher.

Okay. Johan De Mulder from Sanford Bernstein, Vitor Roma from Goldman Sachs, Alvaro Serrano from Morgan Stanley, Rohith Chandra-Rajan from Barclays, Arturo de Frias from Santander, David Vaamonde from MainFirst, Francisco Raquel from Enemasuno, Stefan Nedialkov from Citi, Ignacio Sanz from UBS and Benjie Creelan-Sandford from Macquarie ask about the NII performance -- and the NII performance excluding the contribution from the securities portfolio.

Specifically, if we can explain the net interest margin -- the NIM margin increase -- in the fourth quarter, which developed very well. How do you expect this trend going forward given the low interest rate environment? What drove the lending growth in fourth quarter, individuals, SMEs sectors?

And if we can give details on the expectation of loan growth for this year and 2016 in view of lower oil prices, related pressure on public finances, et cetera. So basically NII performance, NIM increase and lending growth, how it has behaved by sectors and outlook for this year.

I think Angel has already answered 80% of the questions. Regarding NII growth this quarter, it has been 2.9% -- 2.8%, so definitely a very positive number. Taking into account that contribution from the ALCO portfolio has remained pretty much stable in every single quarter. It means that this increase is mainly driven by volumes and better behavior of the customer spread, as Angel has said. The good behavior of funding cost is also helping. That's for Euro, okay.

Regarding the future and guidance, I think we've answered every single question.

So -- in fact we were talking about Mexico.

Oh, we were talking about --

We were talking about Mexico, yes.

Oh, I'm --

So I'm a little bit confused.

I am very sorry. I didn't hear the --

No, no, but, Jamie, the answer is quite similar, generally the -- the answer is quite similar. The lending activity in the fourth quarter of the year has been quite positive for Mexico. SMEs -- the commercial activity has grown by close to 10%, first of all, and even we were -- we were been growing at consumer side and residential mortgages as well. But above all, commercial has had a really outstanding performance during this quarter.

So this is one. The other one is the customer's spread evolution as well has improved just a little bit during the quarter. So both items drove the NII during this quarter to grow, as you can see in the presentation in the Mexican P&L statement.

Okay. Alvaro Serrano from Morgan Stanley and Stefan Nedialkov from Citi ask what kind of cost growth should we expect this year in Mexico.

Cost.

Generally, the cost of risk in Mexico is -- oh, cost -- just cost.

What Angel really said is that the investment plan continues in Mexico. We will continue to invest above inflation, as we did this year. The investment plan is half underway, so that will remain so for 2015 and 2016.

What Angel has also said is that gross income will grow higher. So we will not only maintain positive jaws, but also increase the operating leverage.

Okay. And now effectively David Vaamonde from Main First, Stefan Nedialkov from Citi and Ignacio Sanz from UBS ask regarding our guidance on cost of risk for 2015 in Mexico.

In Mexico, okay. Clearly, one of the positives of 2014 has been the very good evolution of the cost of risk in Mexico. That has been particularly true also in the fourth quarter.

The cost of risk during the year has behaved a little bit better than our guidance at 3.45% clearly thanks to the good measures that were taken in 2013 that we've also shared with markets in terms of mortgages, credit cards and the real estate portfolio. Our numbers are much better than what other peers have been sharing with the market.

That trend should remain for 2015. As you know, our customer spread in Mexico is very rich -- we are talking over 12% -- and a cost of risk of around 3.5 is what we feel our business mix should have going forward.

Okay. Moving on to a few questions on Venezuela, we start off with Raoul Leonard from Deutsche Bank and Mario Ropero from Fidentiis asking if we can please refresh us on the carrying value of your investment in Venezuela and if there is any goodwill?

The carrying value in Venezuela is EUR1.58 billion, okay, and we don't have any goodwill.

Okay. Sofie Peterzens from J.P. Morgan, Francisco Riquel from Enemasuno, Raul Leonard from Deutsche Bank, Mario Ropero from Fidentiis, Marta Sanchez Romero from KBW, Ignacio Cerezo from Credit Suisse and Johan De Mulder from Sanford Bernstein ask regarding FX in Venezuela.

Specifically, any plans of readjusting the FX for Venezuela. What will be the trigger of that, and if not, why not? And what is our outlook for Venezuela? What will be the impact of a potential SICAD-II on capital and earnings and how much is already provisioned?

Okay. As you know, President Maduro has very recently announced his intention to change the different -- the FX policy in the country. Although we do not have some specifics, so we are waiting for those specifics to be announced in order to have a more clear view of what should be our exchange rate for 2015.

As you know, they will keep maintaining the CADIVI rate at 6.3 and what they said is that the current SICAD-I, which is at 12, will merge with the SICAD-II, which is currently around 50-60. It changes quite often. Our expectation is that this convergence will be done within those ranges.

They are also sharing their intentions to have a free exchange rate, also trying to move then the parallel rate into the formal economy. Until we know the answers, I think it's too early to go -- to move to a specific.

Regarding the contribution of Venezuela to the 2015 P&L, I think our intention remains the same of what we shared with the market this year. This year's contribution in current numbers is down by 50% from 2013 and our intention again is for that to also happen in 2015. So around EUR80 million is what our expectations are today.

Okay, I think that answers as well Rohith Chandra-Rajan from Barclays question regarding the outlook for the year and also Benjie Creelan from Macquarie, a question regarding guidance on 2015 for the P&L.

Specifically, Francisco Riquel asks from Enemasuno if we would consider to inject capital in Venezuela subsidiaries in case there's a sovereign default in the country.

So the answer is no, but this is not our central scenario.

The franchise is very well capitalized. Its total capital ratio is 17%, almost all Tier I, well above the minimum requirement. So we don't feel that that is close to happen at all.

Okay. Sofie Peterzens from J.P. Morgan asks about hyperinflation; specifically, if we could please give details on the hyperinflation charge in Venezuela.

Yes. The total hyper charge in 2014 has been EUR301 million. That is almost double the actual impact that we saw in 2014 when it was around EUR140 million. So the actual increase is EUR160 million impact for the year.

That's taking into account the inflation rate that we've seen this year, which is around 70%. And our expectation is for an increase in that rate in 2015.

Okay. And last question regarding Venezuela from Johan De Mulder from Sanford Bernstein is regarding our government bonds in Venezuela. Specifically, how much exposure do you hold to Venezuelan government bonds?

Yes, our total exposure in Venezuela is 3 billion. What is important to realize is that everything is denominated in bolivars, so our expectation is for them to be paid and it won't have an impact whatsoever on whatever happened with Venezuela's sovereign debt denominated in euros -- or dollars, sorry.

Okay. Moving on to the US, Robert Noble from RBC and Andres Williams from Mediobanca asks about cost of risk. They specifically say that cost of risk is very low in the US business given its exposure to Texas. What do you expect to happen to cost of risk going forward in light of the oil price fall?

Yes, it's true cost of risk in general in the US and in the different US banks and as well as in Compass is structurally very low right now or in the point -- 2.3 range. Our expectation for that rate is to normalize going forward. But we don't feel that we will face a significant impact from our oil and gas portfolio in the US.

I think that you are aware that Standard & Poor's hasn't changed the outlook of Compass after reviewing the oil and gas exposure that different banks in the region had. That was not the case for many other institutions, where the outlook was lower.

And that is because our exposure is focused on integrated companies, mainly on midstream, less affected by the reduction in oil prices and very little exposure on the servicing industry, which is one that's been most affected. So a very conservative oil and gas -- energy exposure.

Okay. And moving on to South America, ex-Venezuela, Robert Noble from RBC asks where do we see the Latin American tax rate going over the next 2 years, specifically the impact on our Colombian, Chilean and Peruvian businesses due to the tax reforms and what the impact will be for BBVA?

Yes, he is right. We have seen -- we are seeing changes in the corporate tax numbers in some countries. We are seeing an increase in Chile and Colombia and a decrease in Peru.

Also, this year we've seen an increased tax rate in Colombia as the intangibles from the Ganadero transactions are done with it. So the total tax rate has increased a little bit. So, yes, we expect an increase in Chile and Colombia and a reduction in Peru.

The rates are public, so I don't think it's necessary to share with the market the actual rate.

Okay. What credit growth rate -- sorry, a question from Robert Noble from RBC. What credit growth rate do you expect from Latin America in 2015 and 2016 particularly in light of the impact of the oil prices in the -- and lower commodity prices in the region?

Okay. We've seen a very strong growth rate in 2014. Volumes have increased by around 21%. Without taking into account Venezuela, actual growth has been 13% -- and that's with Peru and Chile actually not having the best year in the last three or four.

Our expectations for GDP growth in both countries -- in Chile and Peru -- is to increase significantly. Chile to 3% and Peru over 4% or more than doubling this year's growth. And that will also continue to drive loan demand in both countries.

It is true that Colombia is the most affected country by the lower price of oil. We expect that GDP growth could be affected by roughly minus 1%. So as Colombia was a fastest growing country in Latin America, almost reaching 5% growth levels, the minus 1% impact will only reduce growth to 4%. So still continue to drive loan demand going forward.

So in general, good news expected for 2015 and beyond.

Okay. And the next question, the last question on South America from Mario Ropero from Fidentiis asks about the NII in Chile. Given that inflation is going to be lower this year, what can we expect in Chile in NII in that regard?

Yes, low inflation numbers do affect NII in Chile. As we expect inflation to be around 2.3% in 2015 versus 4.6% in 2014, definitely that will have an impact on NII growth in 2015.

Okay. A couple of -- we just have 2 minutes left, but on strategy quickly. Raoul Leonard from Deutsche Bank asks if -- given your recent sell down of stakes in Asia, are you now deemphasizing this region completely and should we expect further divestments?

Just here we are -- we are going to manage this region in the following way. One is having a branch, a full branch to operate from now on and the next six months of the year in Shanghai, our current wholesale banking activities from Hong Kong and our wholesale banking activities in some other branches in that region.

So we are going to have more of -- we are going to focus on the commercial sides on the region from that point of view. And so we are going to be there for the next years in this way.

Okay --

And having as well -- sorry, and we are going to -- as well to focus on the consumer side, trying to reach some additional joint ventures from this point of view to manage as well this consumer business.

Okay. [Alyati] from [Citadel] asks what are the reasons behind BBVA wanting to sell its Portuguese business. Press reports suggest that BBVA expressed its interest in Novo Banco. How are you thinking about this opportunity?

As you know, we never comment on these press reports.

Okay. Andrea Filtri from Mediobanca asks if we should rule out any further acquisitions in Spain, external growth or what about elsewhere?

I think it is our responsibility to take a look at every single transaction that takes place in our footprint and that's what we will continue to do. We don't have any expectation whatsoever that anything will be done in the next few years, but our obligation is to take a look at whatever comes across. No changes there either.

Okay. And I think the last question. The other ones I think that we can't answer. They are more detailed questions. But Alex Koagne from Natixis asks if we could share our view on the QE and the impacts on the banking sector?

Okay. I think we believe that QE has been very positive news. [EUR60] billion per month in an open-ended program clearly has surprised markets. So it will increase significantly the ECB balance sheet.

In the case of Spain and the periphery in general, that will have a very positive impact. Taking into account Spain's capital key in the ECB, this means that Spain will receive EUR100 billion in bonds acquisitions by the ECB, which is a very, very significant number that should continue to drive spreads down going forward.

Okay. And just to finish off on the corporate center, Mario Ropero asks about the reason for the positive tax shield in the corporate center in the quarter?

That is because we received Telefonica deliverance; as you know, there are certain taxes.

I'm sorry I had to rush through the last part of the questions. And as I mentioned before, we will be available throughout the day to answer a couple other more of detailed questions that came in and any other questions that you may still have for us.

Thank you very much all for attending the presentation.

Thank you very much.

Thank you.