Banco Bilbao Vizcaya Argentaria SA (BBVA) 2015 Q1 法說會逐字稿

Good morning everyone, and welcome to the first quarter result presentation of BBVA. I'm Luisa Gomez Bravo, Head of IR, and as usual, joining me today are Angel Cano, President and COO of the Group; and Jaime Saenz de Tejada, our CFO.

As always, Angel will begin with the presentation of results and we will be moving on to the Q&A after that. As you know, we will try to answer as many questions as possible during this presentation and the IR team will remain available throughout the day to answer any pending questions.

Without any more delay, Angel please.

Thank you, Luisa. Hello, everyone, and thank you for joining us. Before starting with the first quarter's 2015 results, let me just shortly review the main highlights of the closing of Catalunya Caixa's deal announced last Friday.

We have acquired a healthy institution in a changing economic cycle in Spain. We are boosting market shares in both Spain and Catalunya, where BBVA becomes the largest and second largest in the market. And most importantly, it adds 1.5 million customers to the Group.

Regarding impacts, no material changes with those announced in July 2014, and I have no doubt that the terms and conditions of the deal will generate shareholders value with attractive returns.

The annual recurring cost synergies are expected to be close to 40% of its cost base in 2014. In terms of EPS, we expect neutral impact in 2015 and accretive in 2016. From 2018, we expect EUR300 million average annual contribution to net income and capital impacts will be manageable at around 55 basis points.

Now, we are looking forward to implementing and completing the integration process. You will find more details on Catalunya Caixa's figures in the annex.

Now, let me go straight to the first quarter 2015 results presentation. This quarter, BBVA's result continued the upward trend reported at the end of last year. For me it's very important to highlight that this growth is strongly supported by the good performance of recurring income.

Focusing on this quarter, three remarks; first, the positive FX impact; second, following recent changes in the Venezuelan FX regime, we've decided to adopt the use of the SIMADI rate for accounting our Venezuelan franchise, trading at 93% lower than the previous SICAD I exchange rate. The new exchange rate at VEF193 per dollar has led to a bottom line this quarter of EUR15 million. From now on we expect Venezuela's contribution to the Group to be negligible during the remaining quarters of this year.

In this presentation and only for comparison purposes in explaining our income statement figures, don't include Venezuela because the impact on the P&L after adopting the SIMADI exchange rate would make it difficult to follow the main trends.

Let me also emphasize that we continued to manage Banco Provincial in Venezuela as always, in the best possible way. And in this regard, locally it remains an excellent, profitable, well capitalized franchise and one of the best banks in the country.

Lastly, this quarter we booked in the corporate center the sale of 5.6% of CNCB, our Chinese investment, with net capital gains of EUR583 million.

Now, let's review the main highlights of earnings, risk solvency and our digital transformation plan. I will start with results and I would like to draw attention to the good performance of gross income. We achieved growth of 16.2%, risk indicators continued to improve, the NPL ratio dropped 100 basis points down to 5.6% and the coverage ratio increased by 5 percentage points up to 65%.

In terms of capital, the Group ended the quarter with a ratio of 12.7% phased-in and 10.8% fully-loaded, and our fully-loaded leverage ratio is 6.2%, which compares very favorably with the rest of our peer Group. I think these ratios are solid and strong and we remain comfortable with the capital level the Group has.

And finally, progress is being made on the transformation process, digitizing customers and products in order to improve productivity, efficiency and to boost digital sales.

Now, looking more closely into the P&L. As you can see on this slide, NII performance is excellent. For me the most remarkable aspect has been the positive performance across all regions despite the low interest rate environment. Also positive is the business activity recovery in developed countries. We expect the upward trend in recovery and growth to continue during the rest of the year.

As I mentioned earlier, we expect solid recurring revenue performance to be one of the main drivers of BBVA's 2015 results. This is reflected in net interest income and fees, which grew above 8% compared to the same period last year, demonstrating the quality of recurrence of these revenue streams.

Gross income was up 9%, with net trading income making a similar contribution as last year, bringing the total to EUR5.5 billion in the quarter.

Regarding cost, we delivered on our expectation and the jaws opened wider. Cost rose 3% in the quarter, whereas gross income was up 9%. This also contributed to significant improvement in the efficiency ratio, which fell 300 basis points to 49.8%.

The good performance of this quarter's operating income is one of the takeaways of today's presentation. It has reached its highest level in the last nine quarters, growing 16%. As you all know, operating income is where one can best perceive the robustness of the results and it is performing extremely well. We are very satisfied and will keep working to maintain this trend during the rest of the year.

In terms of cost of risk, provisioning was in-line with the quarterly average of 2014. But here we see already a change in the geographical mix, with the lower contribution of Spain compared to other business areas, mainly driven by recovery in Spain and business activity growth in the rest of the Group. All-in-all, the risk premium was stable during the quarter, providing evidence of good risk quality dynamics in all of our franchises.

This quarter's figure confirmed that we are in an earnings growth cycle. Excluding corporate operations, net income was up 53% to EUR953 million. To summarize, the main drivers of growth in the quarter were the good performance of recurring revenues, the excellent operating income due to jaws opening, and finally, a risk premium at stable levels.

If we include Venezuela and capital gains from the sale of CNCB, the net income for the Group reached EUR1.5 billion. In my view, the Group's results underscore once again another quarter of excellent performance, showing strength, recurrence and focused management.

Risk indicators maintained their positive trend in line with recent quarters. NPLs were down EUR2.2 billion over the last 12 months and primarily due to the decrease in NPLs in Spain. The non-performing loans ratio fell 100 basis points to 5.6%. This decline was due to a combination of lower NPL balances and portfolio growth. The coverage ratio increased in the quarter to 65%.

Regarding capital, we continued to maintain solid and strong capital ratios. The Group ended the quarter with a capital ratio of 12.7% phased-in and 10.8% fully-loaded. In order to help you to have a clearer picture on capital, if we include the announced estimated capital impact of corporate operation not yet closed in the first quarter, the pro-forma first quarter ratio would be around 9.8%.

Additionally, the quality of our capital is strong too, with the highest risk-weighted asset density and leverage ratios of our European peer group at 52% and 6.2% respectively. Furthermore, we continued to manage capital actively. In February, we issued EUR1.5 billion additional Tier 1 securities with an impact of 43 basis points in the phased-in ratio. And finally, with current information so far, we estimate the impact of TLAC to be manageable.

And now, as in past quarters, I would like to report our advances in the Group's digital transformation. Following the framework we've presented in previous occasions of our digital strategy, let me focus today on our progress in digital sales and the development of digital capabilities around the customer experience.

Regarding digital sales, we have a roadmap based on digitizing customers. Specifically, as of March, we reached 12.9 million active digitized customers, up 20% since December 2011, with a penetration of 29% of our active customer base. By the end of this year, we expect to have 15 million active digitized customers. And we currently have 6.4 million mobile customers, up 125% since December 2011, which is a penetration of 14% -- and our goal here is to reach approximately 8 million at the end of the year.

The second working line is digitizing products. We are not just referring to turning legacy products into digital ones. We are also launching native digital products. For example, we've launched BBVA Wallet in Spain and Chile and coming soon to Mexico and the US; BBVA Link in Chile for Facebook payments; NBA AmEx in the US; and Wibe, custom designed auto risk insurance in Mexico. So we are working in many different geographies with products which aim to be global.

The third step is sales optimization, converting digital traffic into digital sales and achieving incremental income due to the effectiveness of digital selling. Some examples are a five time increase in the purchases financed with a credit card by smartphones -- which is very important -- adding and not detracting from our other channels; relevant contributions to pension plans with low cost digital campaigns; and a significant increase in digital one click loans.

Lastly, during this quarter we made progress in our goal of improving customer experience. We've seen that our efforts are bearing fruit. We ranked top one in Spain in both mobile and online banking customer satisfaction. And in the US we acquired Spring Studio, a California design firm that specializes in user experience.

As we've done with Simple, Madiva of recruiting digital talent, BBVA is acquiring the capabilities to lead in digital banking. And in this respect, we believe design is a fundamental factor for success and we've made this investment to turn it into one of our competitive advantages.

Moving to the business areas and starting with Spain, as every quarter, the Spanish recovery is clearly underway, very tangible and picking up speed in the first quarter. Growth of internal demand and job creation are a reality and are accelerating as well. As in previous quarters, origination of new created operations continues to grow significantly year-on-year. New loan production in small businesses grew by 40%, customer loans over 30% and residential mortgages close to 20%.

In terms of lending volumes, the stock remained flat quarter-on-quarter, confirmed the anticipated end of the deleveraging process. Good macro figures and strong origination gives me confidence that our guidance for slight growth in total loans at the end of the year will be achieved.

In terms of customer funds, lower remuneration of time deposits has led once again to a strong increase in current accounts balances, growing by 15%, and in mutual funds, which have grown at 30% rates.

All things considered, core revenues, that is net interest income and fees, grew 5.3%. Gross income reflects the lower contribution from net trading income year-on-year and has grown by 1.9%. Costs were contained and this supported operating income growth, which rose 3.2% and exceeded EUR1 billion.

With regard to risk, indicators continued to show positive trends. NPL and coverage ratio improved on the back of the decline in NPLs. We expect the cost of risk to continue declining throughout the year, in-line with the good underlying trends in asset quality.

Net interest income was up 3.9% year-on-year thanks to the continuous management of the customer spreads, which fell slightly by 1 basis point in the quarter and grew 17 basis points year-on-year. As a result of QE, our asset spreads have suffered more pressure than initially expected from the Euribor based re-pricing. On the positive side, we've been able to offset most of the yield compression with still lower cost of deposits.

Performance in fee income has been remarkable, up 9% due to the outstanding growth of our fund management and brokerage fees.

We continue to work hard on costs, flat this quarter from an extraordinarily low first quarter 2014 -- and we've reached operating income of EUR1.1 billion. Based on progress of our digital transformation plan, we maintain our view of achieving around 3% decrease in costs for the year, excluding Catalunya Caixa. Meanwhile, loan loss provisions were down 8% year-on-year and continued to show a declining trend.

Let me also point out that in terms of the costs associated to our transformation plan, we've booked provisions this quarter of approximately EUR120 million. In this regard, we expect a similar amount in each of the following quarters of 2015. Our central scenario is to offset this impact with net trading income as we did last year. All these factors led to a net income for the area of EUR347 million at the end of this quarter.

Moving on to real estate activity in Spain, we continued to witness an improved outlook for the real estate market. Demand continues to grow in nearly all regions. Housing prices have stabilized in a growing number of markets in the last quarter of 2014, and the trend encourages an optimistic outlook for this year. Furthermore, origination of mortgage loans continued to grow in an environment with improved housing affordability.

With regard to sales, our management focus with this positive market outlook is to preserve value, and in this regard over the last 10 months that has been precisely what we've been doing; we are selling above net book value and generating capital gains.

As for our net exposure, we maintain a steady reduction of the real estate portfolio. In this first quarter, the net exposure amounted to EUR12.4 billion, which is a 12% year-on-year decrease. Lower loan loss provisions and asset impairments contribute as well to a 30% improvement in the area's bottom line.

Now, let's move on to the US. The stabilization of oil prices and an outlook for inflation below the Fed's targets allows us to be optimistic about the evolution of the country's GDP. The latest data of business activity and employment confirm the pace of recovery in the US economy, already observed in previous quarters. The US continues to show solid growth in terms of business activity. New loan production is growing at 11% year-on-year and all lending portfolios and customer funds are growing significantly as well.

In terms of earnings, the improvement in NII is confirmed even in an environment of low interest rates and spreads still under pressure. The good performance of cost management in the quarter has resulted in double-digit growth in operating income. The area's asset quality indicators and risk management continued to be one of the best in the Group. The non-performing loans ratio is 0.9% and the coverage ratio stands at 164%.

The good level of business volumes supported by stable customer spread is reflected throughout the P&L. Furthermore, recurring income growth plus a good net trading income resulted in gross income of EUR654 million, and this was up 4% compared to the same period of last year.

Costs were practically flat thanks to strong cost control efforts. Regarding loan loss provisioning, we begin to see more normalized levels. As a result, the area generated a net income of EUR136 million at the end of this quarter, up 6% compared to the same period of last year.

Lastly, I would like to draw attention to the following in the first quarter. We passed the DFAST and CCAR tests with good results. This is good news because it is further evidence of the capital adequacy of our US subsidiary. It recognizes the strength of our systems, policies and procedures in the management of capital. And as I said earlier, this month we acquired Spring Studio, a firm that will help us to offer our customers a much better experience.

And finally, this quarter's earnings and the income statement trends confirm the growth of this franchise is on track. In addition, as you know, our balance sheet is well positioned for an increase in interest rates.

Going to Mexico, once again excellent performance even in slower than expected macroeconomic environment. Business in Mexico grew at double-digit rate thanks to growth in lending -- especially strong in the wholesale portfolios -- and growth in customer funds driven by time deposits, mutual funds and current accounts.

NII in the quarter was affected by the lower contribution from global markets. If we exclude the impact of the market's portfolio, net interest income would be growing in-line with business volumes at approximately 11%. Customer spreads are decreasing slightly from an ongoing change in mix, driven by a strong growth of the wholesale client segment.

As you can see on the slide, topline growth translated basically to the operating income line with strong cost discipline. Results showcase once again bank's commercial strength, leadership and performing as the benchmark bank in Mexico.

In risk management, the non-performing loans ratio fell due to the increase in lending. These indicators reflect the good performance of our underlying asset quality trends, which compare very positively with those of our competitors. They are the result of management anticipation and an early exit from riskier segments. This strategy results in a stable cost of risk, which also compares favorably with our peers.

As previously mentioned, net interest income was affected by smaller contribution from global markets on a year-on-year comparison. All-in-all, this line of the P&L grew by 6%. Gross income exceeded EUR1.7 billion, driven by fee income and insurance revenues, and costs grew 6% as a result of the implementation of our investment plan in the country.

With cost of risk remaining stable, the area generated net income of EUR524 million in the quarter, up 7% compared to the same period of last year. In summary, BBVA Bancomer continues to demonstrate and bring forth its leadership quarter-by-quarter and it will continue in this direction throughout 2015.

Furthermore, the latest figures versus peers confirm that BBVA Bancomer is still the clear market leader, gaining market share in lending and maintaining its in-customer funds and it is also the leader in efficiency and profitability and it has solid capital adequacy.

Moving to South American business ex-Venezuela, as I mentioned at the beginning of the presentation, South America figures don't include Venezuela because the impact on the income statement after adopting the SIMADI exchange rates makes it difficult to follow the main trends. In the annex of this presentation you will find more details regarding Venezuela's P&L.

South America continues to enjoy good business activity, with double-digit growth in lending across all segments and customer funds mainly explained by Colombia and Peru.

Turning to the income statement we see how the increase in activity is translated into the P&L, driving recurring income up by 13%. Good market performance helped net trading income to grow 24% and pushed gross income up by 14%.

Cost growth is explained by expansion and digital transformation plan in the region and the high inflation in Argentina. As a result, operating income was up 14% to EUR576 million. NPL trends are in-line with lending, which means stable non-performing loan ratio at 2.3%. The coverage ratio fell to 119%, which is explained by activity growth in recent years. Cost of risk remains stable at levels similar to those in the first quarter of last year.

As I said before, all the P&L lines reflect the strong business dynamics. Growth in costs was in-line with growth in income, leading operating income to grow roughly 14%. Our strategic plans in the region and the strong dynamics of the Andean countries generated a net income of EUR230 million, up 8%.

And finally regarding Garanti's deal, we are still waiting for regulatory approvals to close the announced increase in our stake. At the macro level, GDP is expected to be higher in 2015 compared to last year, supported by positive impact of the decline in oil prices and an improvement in exports. However, there are some potential risks; higher depreciation in Turkish lira affecting domestic demand and pressure on inflation.

The Turkish banking sector is a very attractive market with significant long-term growth potential backed by demographics and low banking penetration. Garanti's excellent management led the bank to earn a net income of EUR86 million this quarter for our 25% stake, growing at double-digit.

Active management of the customer spread explains the favorable trend in net interest income. Net fee income continues to grow despite regulatory pressure on certain portfolios. Gross income reached EUR250 million, rising nearly 9% and offsetting negative net trading income due to the downturn in the markets and inflation linked bonds.

Operating income was also up by 8.4%. In summary, we feel confident with the P&L performance and we look forward to the upcoming integration.

And finally, with the underlying business trends that I see across the regions I am comfortable maintaining the guidance given last quarter. The only exception, as you can understand, is the guidance in South America as our previous guidance included EUR80 million contribution from Venezuela. This figure will now be significantly lower, as explained at the beginning of this presentation.

And I will now give the floor to Luisa so we can begin the Q&A.

Thank you, Angel. So now we will move on to the -- straight to the Q&A. There are plenty of questions, so we will start with an overall question from Vitor Roma from Goldman Sachs. Could you please clarify what is the overall FX impact in the quarter results?

The positive FX impact has been EUR67 million this quarter. That's excluding Venezuela. If we include the FX devaluation that has taken place in the quarter, the positive impact will be down to $43 million and this is of course net of cost of coverage.

Thank you. Moving on to capital regarding DTAs, Britta Schmidt from Autonomous and Raoul Leonard from Deutsche Bank ask the following. Given you do not raise capital for Catalunya Bank, the support from DTA guarantees in CT1 capital will increase. Have you been approached yet by the European Commission regarding a possible investigation? What lobbying is happening in Spain and what do you think could be an outcome?

Okay. First of all, for us, we are considering this potential event, that -- as a remote one first of all because the [consideration] of DTAs in Spain is due to the lack of carry back effect like in other jurisdictions, other countries they have done in the past. So in our case it's the result of making provisions over the last 2-3 years regarding the foreclosures and loan loss provisions.

So this is one comment to consider. The other one is the potential effect in BBVA capital ratios. So we have more or less an impact of close to 70 basis points in the worst case scenario in this case. But what we think is the potential effect from these file is going to be remote, as I said before, and just it's going to be a part of our new supervision from Frankfurt. Well, it's true they are going to consider this capital or these deductions among all the different elements that are part of capital.

Thank you. Please can you update on the monetizable DTAs you have in euros and how much do they contribute to the core capital ratio?

The current number is EUR4.9 billion and we are talking 70 basis points of core capital. After the integration of Catalunya Caixa that brings in an additional EUR3.5 billion of DTAs, the overall DTA number will be 168 basis points, around 170 basis points.

And then -- Jaime, another couple of comments. First of all, we have no doubts about the DTAs value. There is a clear value behind this concept. And considering our ability to generate results over time and especially in a more normalized environment in Spain, DTAs will be significantly lower in a 10 years period. So once fully-loaded ratios are enforced, and therefore, the abovementioned impacts will be reduced in a material way.

So Britta Schmidt from Autonomous, Carlos Peixoto from BPI and Raoul Leonard from Deutsche Bank ask if we could please elaborate on the evolution of the fully-loaded BIS III ratios during the first quarter, and also if we can talk a little bit about the RWAs and core capital impact in absolute euros since the devaluation in Venezuela.

Okay. We've generated 41 basis points fully-loaded core Tier 1 this first quarter. That's 25 basis points coming from net earnings. Organic risk-weighted asset increase -- that is excluding what has happened in Venezuela -- consumes 14 basis points. So the organic capital generation of the quarter will be that 11 basis points.

Then we have the sale of CNCB and mainly through the reduction of risk-weighted assets that brings an additional 20 basis points. And then we have other -- an Others column that adds up to 10 basis points and there we have different impacts in capital gains on available for sale securities, as you know, excluding always sovereign. Then we have decrease in treasury stock. We have a slight positive impact from the new FX rating in Venezuela and then lower tax losses carry forward.

The overall evolution of risk-weighted assets is down in the quarter. Risk-weighted assets go down by EUR3.5 billion in the quarter and the reason being the new FX rate in Venezuela. As you can imagine the rest of the portfolio's increase is asset based and so it's risk-weighted assets. The CNCB sale has also reduced the risk-weighted assets in the quarter.

Okay, on guidance and capital, what fully-loaded CT1 ratio do you expect for the end of 2015 and what would the ratio be in the first quarter if we had included the sovereign available for sales unrealized gains and if we expect to include them going forward?

Okay. The expected year-end number remains at above 10% as we've guided at the end of last year. Then, as you know, we have unrealized gains on sovereign portfolios of around EUR3 billion which are not included in our core Tier 1 number. So you can do the math.

Okay. Well, the pro-forma ratio for Garanti and Catalunya Caixa acquisitions has been included in the presentation. And also what was the dividend accrual in capital in the first quarter of 2015?

Okay. There we have to make the distinction between accounting rules and solvency rules. In solvency what is deducted is what we actually pay. Accountingwise in shareholding funds, we have deducted EUR845 million, the full amount of the dividend announced in the month of March of 2015 even if more than 90% of our investor base accepted shares instead of cash. That will be deducted in the second quarter. As you know, this is an accounting change that was introduced in March 2014.

Okay. Regarding dividends and the dividend policy, Raoul Leonard from Deutsche Bank asks if we can please update our dividend strategy, scrip versus cash outlook and if our intention is to pay dividends out of normalized earnings pre-Garanti one-off.

So we don't -- we've not changed the dividend policy during this quarter, so it's the same we guided last quarter. So in the end it's -- for this year is two scrip dividends and two cash dividends, first of all. We are moving in the future to this payout ratio policy between 35%-40% and always talking -- having as a reference the normalized earnings out of any kind of extraordinary results.

On TLAC, Carlos Peixoto from BPI asks if we could please elaborate on our expectation on the TLAC requirements, namely additional TLAC instruments issuance and its impact in the P&L.

I think that we've shared our view about TLAC impacts on the roadshow of the AT1 that we did in the month of Feb. As you all know, again we believe that TLAC impact for BBVA will be very manageable. We are expecting a TLAC deficit of between 9 and 11 billion, something around 10, which we believe is perfectly manageable for a bank of our size.

What type of instruments will end up confirming this bailing capital is something that still is to be decided, especially taking into account the different potential regulatory and legislative actions that can be taken during 2015.

Okay. And lastly on capital regarding regulatory equivalence, Raoul Leonard from Deutsche Bank has a few questions. Can you update us on the impact to RWAs and capital ratios on regulatory equivalence? Are Colombia, Peru and Turkey still excluded from the list? What would the impact be to your reported core Tier I ratio if these countries were included in the EU regulatory equivalence?

Okay, so pretty much the answer is the same. The three countries are still excluded from the list. We don't expect them to be included until probably the end of the year. The impact has already been recognized on the capital numbers that we shared with the market, and it has been something around 10 basis points.

Okay, moving on to a few other questions on the Group regarding asset quality, Carlos Peixoto from BPI asks if we can elaborate on the reason behind the pickup in the NPL net new entries at the Group level, what were the geographies behind this deterioration? And Rohith Chandra-Rajan from Barclays asks about the cost of risk, do you expect this to be stable with the current trends continuing, Spain improving and other geographies growing?

Okay, NPLs. NPLs showed pretty good numbers in Spain and they were down by around EUR550 million in the quarter, following similar trends as we've seen in the past few quarters. Cost of risk in Spain remains stable, around 1% in the quarter, while net provisions were down by 10% versus what we've seen in the first quarter of 2014. Our guidance here remains the same and our expectation is for them -- for it to reach between 80 and 85 basis points in Spain during 2015. So solid performance in Spain.

Regarding the rest of geographies, no surprises I think; and if any, on the positive side. Starting with Mexico, cost of risk is down by 10 basis points between -- at 3.3% with an NPL number of 2.8% and no surprises on the provision line.

The same is true for Latin America; cost of risk remains stable at 1.2%. This is actually a surprise from the guidance that we were expecting a slight increase in Latin America. That hasn't happened. And we've seen a very limited increase in the case of the US in the cost of risk number from 0.16 to 0.28, again within the guidance that we gave this year of an increase of between 10 and 15 basis points.

So I would say that in general a good quarter in terms of NPL numbers and cost of risk. And what we will continue to see during the year is less impact from Spain and a slight increase from geographies outside the country.

Thank you. A question on trading income from Britta Schmidt, Autonomous and Laura Hernandez from Invercaixa, please explain the reason for the high trading income, what is the outlook for the coming quarters?

Okay, trading income. I wouldn't say that trading income has been too high. It has been EUR263 million, down from the fourth quarter of last year. But it is true that it's EUR70 million up from the first quarter of 2014. If we use year-on-year comparison, we see a decrease in Spain of a little over EUR100 million, half of it explained by less capital gains from the ALCO portfolio and the other half by less contribution from our Global Markets Division.

The rest of the franchise have performed well, especially South America, impacted by the FX devaluation that was done in Venezuela and the corporate center, where we've seen very strong capital gains coming from the industrial portfolio.

Thank you. Moving on to Mexico, regarding the NII line in Mexico, Alfredo Alonso from Kepler, Britta Schmidt from Autonomous, Mario Ropero from Fidentiis, [Paco] Raquel from Enemasuno, Daragh Quinn from Nomura, Stefan Nedialkov from Citigroup, Alvaro Serrano from Morgan Stanley, Robert Noble from RBC have a few questions on the NII. The loans are growing by 13%, but net interest income is growing by only 6% year-on-year. Do you expect NII and loan growth to converge during the coming quarters?

Okay, this question. First of all, then the lagging trend behind the 6% -- just talking about the retail business; however, the commercial business is growing at expected pace and very close to the activity growth. So without considering the global markets activity in the country, NII has been growing by 11%. And this is more or less the pace we are expecting for the rest of the year to see how the net interest income is growing very close to the activity growth.

Thank you. NII is decreasing by [2%] in constant euros with net interest margin decreasing. Why should we expect this trend to continue?

Yes, this is a quarter-on-quarter numbers. As Angel has just said, we've seen a lower loan growth in this first quarter versus the fourth quarter of last year, just 2%, which is actually a fairly good number if we take into account the seasonality that always takes place in the first 2 months of the year in Mexico.

And also the only -- the other reason that explains it is the lower contribution from our global market activities, which was fairly low during this first quarter. Going forward, as Angel has just said, we expect NII to converge with the very strong loan growth that we are experiencing.

And regarding the outlook for net interest margins in Mexico, which segments of the market are you prioritizing?

What is happening -- and this has been true for the last year -- is we've seen a very strong growth in the commercial side. That's true for public sector, for large corps and also for SMEs in Mexico. This is what is driving growth and growing at a trend of -- at a rate, sorry, of around 24%-25% per year. That's something that we should expect to be maintained going forward.

Okay. And also regarding net interest income, when do you expect rates to go up in Mexico and what would be the impact on the Mexican business with rising Mexican interest rates?

As we've said in the past, we are expecting Mexico to follow whatever the Fed does. So our expectation is for an eventual increase in interest rates in the country. We have a positive sensitivity to increases in interest rates in Mexico. For every 100 basis points increase, the NII impact will be a positive 7.4%.

Okay. Regarding costs in Mexico, Mario Ropero from Fidentiis, Francisco Raquel from Enemasuno and Stefan Nedialkov from Citigroup are asking or stating that we are making investments there, but could you give an update on the investments still to be done and the calendar, when should costs start to grow in-line with inflation again?

If you remember, we launched an investment plan, a 3-year investment plan, finishing some time in 2016. So what we are expecting to see, a flattish evolution of cost in -- I mean flattish; talking about the inflation evolution for 2016. But all-in-all and taking to consideration the revenue trend what we are expecting is to see NII growing faster than this quarter and being able to offset this cost trend during 2015. So what we are expecting during the year 2015 is to see how the jaws are widening.

And regarding the pace of the program where have we -- so I would say --

Yes.

Okay. As you know -- the expected end of the plan was 2016?

Yes, this is our ultimate general forecast, is to finish the investment there in terms of the network, in terms of the most important investment for technology and the digital transformation of the country. So -- and is the time when we are going to see how the precision is starting to go down, affecting positively the jaws and the P&L account.

Okay, thank you. And asset quality in Mexico, Britta Schmidt from Autonomous and Mario Ropero from Fidentiis asks why the pickup in provision charges and what can we expect going forward, if our mix is moving away from credit cards, do stable loan losses imply worsening quality in other parts of the portfolio?

No, the increase in provisions is only based on loan growth, as we've mentioned before. The actual NPL ratio is down by 8 basis points. Cost of risk is actually slightly down from last year, and we are gaining market share in actually the very -- the lowest risk assets. So going forward, as I said before, our guidance remains the same and the cost of risk should remain around 3.5%.

Okay. Moving on to questions regarding Spain -- and obviously a lot of questions on the NII -- Luis Pena from [Sidnidef], Alfredo Alonso from Kepler, Vitor Roma from Goldman, Britta Schmidt from Autonomous, Rohith Chandra-Rajan from Barclays, Francisco Raquel from Enemasuno, Mario Ropero from Fidentiis, Carlos Peixoto from BPI, Raoul Leonard from Deutsche, Laura Hernandez from Invercaixa, Daragh Quinn from Nomura, Stefan Nedialkov from Citigroup, Alvaro Serrano from Morgan Stanley -- I think I would have taken less basically saying all of you -- Benjie Creelan-Sandford from Macquarie, Carlo Digrandi from HSBC, Ignacio Cerezo from Credit Suisse, Alex Koagne from Natixis and Andrea Filtri from Mediobanca, all ask about obviously NII evolution in Spain.

Specifically on the evolution, can we talk a little bit about loan growth quarterly trends? Maybe let's start talking a little bit about volumes and then we will move on to spreads, okay.

Okay, I will try to answer both. We have a year-on-year increase in NII line -- in NII, sorry, of 3.9%, which we believe is a fairly strong number. It is true that quarter-on-quarter NII is down by 2.8%. We must remember that we had a very strong fourth quarter last year. We've seen a flat loan growth in this first quarter. Excluding repos, it's a minus 0.1%. So technically flat.

Customer spread has remained stable. It's down by 1% -- by 1 basis points, sorry. We've seen a very strong reduction in deposit cost, 16 basis points. But it has been offset by an even higher 17 basis points reduction in asset yields. The main reason behind this strong reduction in asset yield is actually the reduction in the Euribor rate. It explains 70% of the impact. Actual margin pressure, spread compression, it's only 5 basis points in the quarter.

As we expect -- the last thing, as we've also said, contribution from the ALCO portfolio should continue to go down during 2015. The outlook, though, remains the same. We are expecting loan growth for 2015 between 1% and 2%.

Regarding spreads, I think we should expect a stability going forward. And the overall NII guidance remains what we gave at the beginning of the year, so in the low single-digit is what we are aiming to achieve in 2015.

And that is excluding Catalunya Caixa obviously.

And specifically, a little bit more detail on some of the things that you've mentioned, Jaime, specifically on deposit rates. Could you let us know about the back book and the front book regarding the decrease in wholesale funding costs in the quarter and how that is performing?

Okay, on the deposit side, the overall -- the total cost of time deposits is down to 1.12% in the first quarter of 2015, down from 1.27% at the end of 2014. Front book is down to 28 basis points, so a pretty similar number from what we had at the end of 2014. So as you can see, we still have positive tailwinds coming from a lower funding cost number.

Okay. And regarding the ALCO, a little bit more detail on the average duration yield and unrealized gains from the ALCO portfolio in relation to margins.

Well, we still have a very strong unrealized capital gains in the Spanish ALCO portfolio. They are around EUR2 billion. The total size of the portfolio remains pretty similar from what we had at the end of last year at EUR36 billion. As you know, pretty much everything is our sovereign bonds. The average duration it's around 3.3% -- 3.3 years, sorry, and the average yield is above 2.75%.

Okay. And regarding loan growth, a little bit more color on the growth that we see, consumer and wholesale portfolios how that is evolving?

As we saw in the fourth quarter of 2014, again this first quarter we saw increase in the commercial segment. We grew the commercial loan portfolio by 1% during the quarter. So pretty consistent, which is what our expectations are for 2015.

In the case of the retail segment, it's down by a little bit over 1%, as you know, mainly driven by the mortgage portfolio, which we expect it to continue to deleverage during 2015. So I would say that no surprises on volume terms in this quarter.

Okay, thanks. And that pretty much covers everything on the NII. Moving on to costs and transformation costs, Britta Schmidt from Autonomous and Francisco Raquel from Enemasuno asks if the results include any additional costs for the digitization program in the first quarter of 2015 and the EUR120 million, which is, as answered in the first question, the transformation costs in Spain -- in the quarter what are the cost savings expected and the cost evolution in Spain in 2015 and 2016?

As I mentioned in the presentation, we booked EUR120 million more or less for restructuring, in the end digitizing the network and the business in Spain. So in this case (inaudible) compared with last year, we are trying to have more or less the same amounts of restructuring provisions every quarter. So at the end we are going to offset, as I mentioned during the presentation, with net trading income during the year. So we are not expecting to have any negative impact from this restructuring process.

The effect on savings in the end is the one I mentioned during the last quarter result presentation, so we are expecting this 3% -- about 3% reduction at the end of the year in Spain and we expect to have another reduction in 2016 thanks to this restructuring process.

Thank you. Moving on to other income, what is driving this [trend's variance], specifically the deposit guarantee fund and the resolution fund as you know go in that line? And so what are we seeing there and specifically what do we expect to book in the fourth quarter of 2015 regarding deposit guarantee fund and if we think the SRM charges for the Group in 2016 will be lower than the total contributions in 2015?

Okay. First of all, yes, the other income line is mainly driven by deposit guarantee fees plus --

The changes in --

-- the changes in accounting of the deposit guarantee fee plus the resolution fund.

In the case of the deposit guarantee scheme, as you know, an accounting change took place last year that was conveniently explained. The 2015 impact will be accounted fully in the fourth quarter of this year and the number -- the overall number will be pretty similar to what we saw in 2014, around the EUR200 million number.

In the case of the deposits on the resolution fund, as you know, it's not easy to calculate. We do not have the full numbers of all our peers, but our expectation is for that number to be around EUR100 million and again will also be accounted fully in the fourth quarter of this year.

Regarding the 2016 number, yes, as you know, that number -- the way that is calculated will change in 2016. That will benefit Spanish banks and our expectation today is for that number to go down by roughly a third.

Okay, I think on asset quality in Spain, Carlos Peixoto from BPI was asking about NPLs and cost of risk guidance. I think we already answered that previously. Moving on to Caixa Catalunya, Luis Pena from Sidnidef asks if BBVA reiterates the EUR300 million contribution from the bank as of 2018 and when will the integration of the bank be completed?

Yes, we do reiterate the guidance of EUR300 million from 2018 and the integration took place the 24th of April when we signed the transaction. So it's integrated within the BBVA Group as of that date. So you should input in your numbers around 8 months of Caixa Catalunya in 2015.

We are going to complete this integration by the end of first half of 2016. And another piece of information important is evolution in terms of net income for the end of this year 2015. That's why we are expecting to see a neutral contribution for the rest of the year.

Okay. Raoul Leonard from Deutsche Bank asks about the update on the acquisition versus the time we announced the deal in July last year. Is it better or worse than expected? Can we provide a sense on the timing of cost synergies, investments, fair value adjustments and P&L impacts in 2015 and 2016? And Damien Souchet from Autonomous specifically asks about the guidance on the EUR450 million of restructuring costs for Catalunya Bank?

Okay. As Angel has just said, in 2015 we expect a neutral bottom line contribution from Catalunya Caixa. On the NII line the contribution will be around EUR200 million. Regarding cost synergies, we continue to expect a reduction in the cost base of around 40% by 2018.

The total restructuring cost that we expect to face remain at around EUR450 million. Accounting wise we expect to recognize in the PPA roughly EUR250 million of this figure. So the remaining EUR200 million will be accounted between 2015 and 2017. The actual additional number expected for 2015 will be EUR50 million.

I think that I have answered -- oh, yes, regarding the 2016 number, we expect it to be slightly positive.

Okay. Regarding --

Oh, yes, one -- sorry, one last thing; we do not expect goodwill nor significant badwill in 2015.

Okay, important piece of information. Regarding real estate, Britta Schmidt from Autonomous and Carlos Peixoto from BPI ask what volume of real estate in euro million has been sold in the first quarter in Spain?

Here I have the number. It's at the end of the first quarter EUR360 million of sales. And what is more important is this is the tenth month in a row having positive results when we compare the sale price with the net book value. And at the end of this first quarter having -- we recorded EUR17 million of profit regarding the sales. So this is part of our new strategy from the second quarter of last year when we tried to look at the sales from a more value point of view and just trying to preserve the value of the whole stock.

Okay, thank you. Moving on to South America excluding Venezuela, Carlo Digrandi from HSBC regarding the outlook asks if we can give an idea about future trends and management expectations in the region. And also in this sense, specifically regarding asset quality, Mario Ropero from Fidentiis asks about the trends and detail regarding NPLs. And also Mario specifically asks about the NII in Peru and Chile, why weak in Peru and the guidance regarding Chile.

Okay. And regarding the overall guidance for the region, after the very depreciated exchange rate that we've used for Venezuela we need to slightly change the guidance including Venezuela for the region. As you know, at the beginning of the year we are expecting the rest of the countries in Latin America to offset the 50% reduction that we were expecting coming from Venezuela.

As the Venezuelan contribution for the Group will remain fairly similar to what we've seen in this first quarter, the rest of the countries will not be able to compensate but around 50% of the reduction. So a slight decrease in the contribution of the Latin American region of around EUR50 million.

Regarding NII dynamics -- and now ex Venezuela -- the region continues to behave very strongly. Volumes are growing at around 12%. That is true for loans and pretty much deposits also. And the NII line is reflecting this loan growth increasing by 12% year-on-year. This increase in NII line can be expected going forward converting to volume growth.

Regarding a lower contribution from Chile and Peru, answering Mario, it's true contribution in Chile has been significantly down from last year, year-on-year it's down by 11%. It is true that we've seen lower activity growth. But the main reason has been the revaluation of the UFA after the inflation readings that we saw in the quarter. So the remaining evolution of the different segments in terms of not only volumes, but also spreads, continue to remain strong.

In the case of Peru, it is true that year-on-year NII is only increasing by 1% and the main reason being lower customer spreads on the US dollar portfolio. That portfolio reduces spreads by 32 basis points and that's the main reason why NII was not as strong as initially expected.

Regarding asset quality, I think that I've pretty much answered before; cost of risk remains at 1.2% and it is true that we were expecting a slight increase and we still expect a slight increase in the cost of risk number. But that hasn't happened as of the first quarter.

Regarding NPLs evolution, they have increased slightly, but following loan growth. So in terms of the NPL ratio, remains around 2.3%.

Okay. A couple of questions clarifying Venezuela, Rohith Chandra-Rajan from Barclays and Mario Ropero from Fidentiis, Raoul Leonard from Deutsche, Ignacio Cerezo from Credit Suisse and Daragh Quinn from Nomura asks if we can discuss a little bit the impact of the Venezuela devaluation and our expectations for the performance of the business. And also questions on book value, the book value invested in Venezuela, if we get a tax shield on the [hits] from writing down Venezuela's investment and what was the impact to the first quarter tangible book value considering the evaluation adjustments in the number?

Okay, a lot of questions. Okay, as you know, the exchange rate that we used to account for year-end numbers was 12 bolivars against the dollar. The new exchange rate that we are using is the SIMADI exchange rate, which is now at VEF195 against the dollar. So a 93% devaluation.

As you can imagine, it has completely changed the contribution of Banco Provincial to the Group. Just to give you a sense of the numbers, the overall asset base that at the end of the year was EUR22 billion is down to less than EUR2.5 billion. So a very, very significant decrease.

That is also true for the P&L account. Year-to-date contribution is down to EUR15 million in net attributable profit, and as I said, this is pretty much the number that we should expect for the year as quarter-on-quarter contribution will be pretty much negligible. This lower contribution can also be seen in the rest of the P&L line and year-on-year and quarter-on-quarter contributions are down between 60% and 90% following the depreciation.

In terms of book value, the net book value plus evaluation adjustments after these FX valuation adjustment is taken into consideration is down to EUR153 million, down from EUR1.58 billion that we saw at the end of the year. It does not create or generate a tax shield.

Regarding the performance of the business, which was a question that Rohith asked, the Bank remains very strong locally. Volume growth is very strong. We continue to provide very good service quality to our clients. Loan to deposit ratios remain around 70%. NPL ratio is 0.4%. Cost of risk is extremely good. Customer spreads remain around 19%. So we are still providing a wonderful service quality to our clients and we continue to manage what is a very strong commercial franchise in the country.

Thank you. A couple of questions on Turkey, Vitor Roma from Goldman Sachs, Mario Lodos from Sabadell and Damien Souchet from Autonomous ask if we expect closing of Garanti stake -- the increase in Garanti stake in the second quarter of 2015.

No.

And then also what about the negative impact expected for the deal since we announced EUR1.5 billion when the deal was launched?

We don't have any specific date for the closing of this transaction. Our expectation is some day mid June, but could be earlier and could be later. But normally it should be at the end of the second quarter of this year. So what we are not expecting is to add any result -- additional result from this additional investment in Turkey before the third quarter of the year.

Regarding the negative impact expected for this deal, I think the best number today is EUR1.5 billion, is the number we said at the beginning of this transaction and we prefer not to tell you any other number because the volatility of this number is there. It depends on the currency volatility and the market price volatility as well. So in the end is -- I think this is the central scenario for the time being and in a couple of months we will have the definitive one. So it's an accounting event. It's not an economic one.

Okay, I think that covers all -- pretty much the business areas. Just a few last questions regarding liquidity and ALCO. Carlos Peixoto from BPI asks if we can update on refinancing schedules and amount of ECB eligible assets and the current EBC exposure, which is also something that Alex Koagne from Natixis was asking regarding our TLTRO position, what -- do we expect the June TLTRO to happen? It seems like deleveraging in Spain is less pronounced than the benchmark, meaning that Spanish banks including BBVA should be in the position to raise a sizable amount. Do you see enough growth to raise your full potential take-up?

Okay. The loan to deposit ratio remains fairly strong. We are seeing, as we've discussed before, flat numbers on loans and still strong numbers on deposit growth. So loan to deposit ratios have been stable pretty much for the last five, six quarters now.

Regarding funding plans, we have maturities this year of around EUR30 billion. As we said before, our expectation is to refinance roughly 50% of these numbers. Of course everything is based on market conditions. We've already done two transitions. We've done a EUR1.5 billion Cedulas and a EUR1.5 billion AT1 in this first quarter. So we are well ahead of our funding plans.

And regarding senior and secure, we have maturities of roughly EUR6 billion and we haven't made the decision yet what we will do with this. Probably once we have a clear view of TLAC, we can potentially do something.

Regarding ECB, as you know, at the end of the year we have taken a total of EUR5.2 billion in the first two auctions in September and December. We took an additional EUR2 billion in March. So we currently have EUR7.2 billion from the ECB. We haven't made a decision on what we will do in the following three auctions, on June, September and December. But it's perfectly reasonable to expect that additional take-up can take place.

Regarding the assets that we have -- the eligible assets that we have are in the range of between EUR55 billion and EUR60 billion, a pretty similar number from what we had last year.

And the last question we have is on the corporate center, Damien Souchet from Autonomous asks for the guidance for this year and going forward on the contribution of the corporate center to the bottom line.

Yes, we had a very strong first quarter and that's even without the CNCB capital gain. We had very strong capital gains coming from the industrial portfolio. But as I think we've said during 2014, something in the range of between EUR300 million and EUR350 million per quarter will be the negative contribution that we should expect coming from the corporate center.

Thank you. As you know -- just a little point on that; all the corporate operations will be booked here, so the final number will depend on the booking of those operations.

And that concludes the Q&A session. Again, IR team will be available for any other issues you may have during the day. Thank you very much. Thank you, Angel. Thank you, Jaime.

Thank you all. See you next quarter.

Thank you.