Foreign Trade Bank of Latin America Inc (BLX) 2008 Q3 法說會逐字稿

Good day everyone. Welcome to the Bladex conference call. As a reminder, today's call is being recorded. At this time I would like to turn the conference over to Pete Majeski.

Hello everyone. This is Pete Majeski of i-advize Corporate Communications. Welcome to Bladex' third quarter 2008 conference call on this the eighth of October 2008. This call is for investors and analysts only. And if you're a member of the media you are invited to listen, but if you have any questions, please follow up with i-advize after the call.

Joining us today from Panama City are Mr. Jaime Rivera, the Chief Executive Officer of Bladex; and Mr. Jaime Celorio, the Chief Financial Officer. Their comments will be based on the earnings release issued yesterday. A copy of the long version is available at their website at www.Bladex.com. Otherwise you can contact i-advize in New York at 212-406-3690.

Any comments that management makes today may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, but based on information and data that is currently available. However, the actual performance may differ due to various factors duly cited in the Safe Harbor statement in the press release, and we ask that you refer to it for guidance.

With that, I will turn the call over to Mr. Jaime Rivera for his presentation.

Good morning, ladies and gentlemen. Thank you for attending Bladex' quarterly conference, particularly in view of how valuable your time must be within current conditions in the market.

In times like these it is not easy to sit back and assess the situation in an objective, rational manner. But this is, of course, an important part of my job, and an important part of what has made Bladex successful. So during the next few minutes we will attempt to give you an honest, technical and transparent appraisal of what we think about the conditions in our market, and about how these conditions are impacting our plans and our business.

Following my comments, which are likely to be a bit longer than usual because I think the situation warrants it, I would well ask Mr. Jaime Celorio to review our third quarter performance, and then we will be glad to take any questions that you might have.

Let me start by giving you a quick take on our results for the third quarter. As you can see from our press release, our core intermediation business did very well, while our market [risk driven] (inaudible) business came in slightly below breakeven. Beyond that liquidity strengthened. Capitalization is very strong. And asset quality remained, as it has been for some time, a nonissue.

In spite of bottom line results that were essentially flat versus a year ago, our core business, which is the main driver of the value of the Bank, continued gaining ground steadily as it has, by the way, for the last two years now.

Next, let me say a few words about what I perceive the Latin American markets and how I perceive them. An opinion based not so much on what I read, but when I have seen on the ground, and what I have heard from companies, and what I have seen in dozens of financial statements from all over the region.

In so doing you will probably note that my views do not always match conventional wisdom. But it has always been my opinion that I owe it to you to call the total picture as it is. And that is exactly what I am trying to do.

Let me list for you what I consider some of the positive aspects that apply to our markets, and which are being in my opinion lost amidst all the noise prevailing in the market.

First, and to my mind this is hugely important, leverage. Leverage among banks, companies and countries in Latin America is relatively low. And low leverage levels, of course, mean a strengthened ability to withstand volatility.

And just to cite one example, debt to GDP ratios in the region, for instance, are running at about a 20% average, half of what they were a decade ago.

Second, reserve levels throughout the region remain at record levels, some $509 million -- or billion dollars according to our economists. And this has allowed for confidence in local currencies, in spike, by the way of exchange rate volatility that we have seen lately. And has given Central Banks the ammunition that they need to intervene when necessary.

Third, and again important, with some exceptions, fiscal accounts in the region are in relatively good shape. Which also translates into a strengthened ability on the part of economies to withstand external shocks.

And forth, remittances, which are also important and especially for many of the smaller economies of the region, are either stable in spite of everything that have had been predicted, or in those cases where they are falling, they are doing so from record levels.

But there are, of course, some cracks in the region's armor, which we cannot ignore, and I can assure you we're not ignoring. To my mind there are three main weak points in the region that could impact Bladex.

First, inflation levels in many of our countries remain high. They're cutting into disposable income, and thus curtailing consumer activity, and with it economic growth.

Secondly, nearly 50% of the region's exports go to the US, a country whose economy is under duress.

Third, commodity prices. Commodity prices have been falling -- had been one of the pillars of economic growth in the region, and have been falling. So very quickly then comments on each of these three chips in the armor.

Inflation levels are high, but they are leveling off, especially as food and oil prices stop rising, and as tightened economic and monetary policies on the part of the Central Banks are taking effect. I have seen this. I have seen this and I have felt it in the street.

Secondly, while exports to the US are in fact very important, companies throughout the region saw the slowdown coming as long as a year ago. And have adjusted accordingly, either by developing other markets, including in many cases markets in Latin America, and/or by changing their product mix. This is a real, live observation that many of my economist friends seem to have overlooked, but one I have also witnessed literally firsthand.

Third, regarding commodity prices, I think we tend to forget that they are coming off near record levels. Clearly the bonanza might be, and in fact, probably is over. But demand for food and minerals exist at reasonable levels. And will continue to do so unless, and this is key of course, the bottom just falls off the Chinese market. Something about which we haven't seen any evidence in the trade flows that we handle.

In conclusion, we're doing business under the assumption that there will be an economic slowdown in Latin America, but we don't foresee trade flows on the part of our clients slowing down in any significant way.

Which brings me into the issue of our clients. 40% of our clients, 40% of our business is done with banks in the region. In almost all cases they are well capitalized. This is another way of saying that they are also not highly leveraged. They own no toxic debt and local liquidity remains generally available.

We're not blind. We know the business. And we know that with the economic slowdown we do expect the industry to face some pressure in the consumer, commercial, and even some portions of its real estate portfolios. But reserve coverages are ample, and capital is generally sufficient to handle unexpected losses.

From a business perspective, and very importantly for us, with so many correspondent banks at a standstill in the region, many of our former banking clients are calling us back again. And we're happy to accommodate their business requests at a price, of course, that you can imagine.

The other 60% of our business is with corporations. Of these, a great majority are exporters, generating dollar revenue, and also coming off record profit years. Of critical importance, the majority of these companies are also carrying relatively little leverage. Cash flow remains sufficient to comfortably service debt obligations.

And certainly their profits and their stock prices might fall, along with commodity prices, but their debt servicing capacity remains strong.

A word on our security portfolio. In here we're talking about high-quality securities issued by governments and by strong companies. Now you have seen it. Prices are being hammered as a result of panic deleveraging, I suppose, as you can see from our OCI account in our capital.

But our approach remains consistent with how we have successfully run the business in the last three years. We will wait patiently until prices recover. Something we can easily afford to do because of our ample capital. In the meantime, of course, we're realizing attractive intermediation spreads on the securities, which are all performing beautifully.

So now comments on our business in general. Those of you that have been with us for a while know that we had a mindset and a track record based on having a sharp focus on those things that we do well, and actually of thriving in the face of adversity.

Now clearly these are extraordinary difficult circumstances in the industry. Based on our [gold] analysis of that reality, our opinion is that, to put it in simplistic terms, this is no time to play hero with our stockholders' money. It is no time to play hero with our depositors' money. And no time to play hero with our creditors' money. If you allow me a pun, we just don't feel surfing what still remains a tsunami out there.

So through year-end, and unless circumstances change, we will play defense. We will apply stringent credit standards to our activity, which is one of the things we know how do very well. Our focus will be on supporting our existing clients. Any foregone business volumes, and there will probably be foregone business volumes, we will probably compensate through higher pricing levels, as we did this quarter.

Our cost of funds is rising, as you can imagine, but we have never, never found it easier to pass these increases onto our clients.

Regarding funding, as you can imagine, we have benefited from the flight to quality that we have seen in the market. But what we would really like is to secure an increase in our interbank funding to maximize intermediation earnings based on the high pricing currently available in the market.

We currently have a medium-term syndication which is out in the Asian market. And have, as we speak, a team of treasury people talking to banks at the IMS meeting in Washington, where the initial response to our quarterly results published yesterday has been good.

Regarding our asset management activities for a second. As you can see from the press release, on September 15 we liquidated our positions and went into U.S. Treasuries, where we will remain temporarily until fundamentals, and rather than fear, begins playing as a starring role in the market.

Let me pause here for a minute, and make a point about our net income realized in the Asset Management Division. Firstly, the $11.5 million in year-to-date earnings are real, they are cash. They have been realized. Just as was the case with the $18.6 million in net income from that division in 2007.

By now our asset management team has demonstrated what, I frankly believe and objectively believe, has been tremendous scale in providing consistent value to the Bank, even in spite of what we can all probably agree has been the mother of all stress tests lately.

In summary then, we're well capitalized, we're transparently profitable and we're constantly able and happy to continue paying our dividends. We're doing fine, and are moving forward steadily, steadily as is our style.

Finally, let me go all out and made a forward-looking statement and try to look into 2009. It seems like a million years in the future. Here's what I see.

Clearly we're living through an unfortunate and costly environment for the world's economy, and for many companies. An environment which is actually tragic for many people. But this unfortunate scenario is actually playing to Bladex' strengths. Our competitive position, in particular, stands to benefit greatly. The fact is that a number of our former formidable competitors, well, they no longer exist. And many others will take some time to regroup.

To me this means that once things return to some semblance of stability -- and they will, they will, they always do -- our pricing and negotiation leverage will improve dramatically, and our market share will expand, even -- even if the market as a whole were to shrink, which we don't think can happen.

Now I will admit to you that the one key to making all of this work is asset quality, which is why we're watching it so carefully.

So ladies and gentlemen, I hope I have given you an idea about the way we're managing the bank, and about the way we see things moving forward. Let me then pass the conversation over to Jaime Celorio for him to lay forth the third quarter in a more quantitative fashion for you.

Good morning everyone. Thanks very much for your interest in the third quarter of 2008. I will tell you that in spite of a difficult and challenging market environment, Bladex has achieved an increasing profitability in the Commercial Division, which by this (technical difficulty) is the core business of our bank.

Regarding revenue composition, the year-to-date net income from the Commercial Division represents 75% of our total net income (inaudible) $59.4 million compared to 57% during the last year same period. This means that volatility of our overall results has increased -- has decreased, sorry -- as the Commercial Division results tend to be [steadier].

It is [important] information that the Bank's liquidity was strong, having increased 26% during the third quarter [or] $36 million, in order to finish with a balance of $469 million. The balance remains with a strong Tier 1 capital ratio of a 18.4%.

The third quarter net income of the Bank was $14 million, which is lower than the strong first quarter of 2008, mainly due to trading gains during the second quarter in the Asset Management Division, and no gain on sales on the securities available for sale, which I will discuss in a few minutes.

The year-to-date annualized return on equity represents 13%. And this one is unchanged from last year's same period, which again speaks to the stability of our business despite a volatile environment.

Now I will review the performance of each of our three business segments, beginning with the Commercial Division. Net operating income for the quarter was $16.7 million or 29% above the same (technical difficulty) 2008, and 55% above the third quarter of 2007.

The average portfolio growth during the quarter was 2%, and 11% during the last year. As of the end of the third quarter, the Commercial Division balances decreased 6% as compared to the second quarter, as the Bank slowed its lending activities in response to rising levels of uncertainty and their desire to build liquidity balance.

As mentioned in the last quarter results, we expected net interest income to increase during the third quarter, and as a result of average lending spreads which increased from 1.52% to 1.72%, driven by spreads in new disbursements increasing from 1.92% to 2.07%.

The Commercial Division contingencies and other assets as of the end of the third quarter represented $376 million. Out of this total, $292 million or 78% corresponded to letters of credit and guarantees covering commercial and country risk.

The remaining balance of $84 million represented mostly undisbursed loan commitments.

The geographic breakdown of our Commercial portfolio shows 39% concentration in Brazil. While Mexico, Peru and Columbia are the countries where we have the next levels of concentration, representing 30% of the total -- in total.

The Commercial portfolio for the quarter by transaction type represented 62% trade-related and 37% nontrade. While the corporate market segment keeps growing, and as of the end of the quarter represented 59% of our business, in comparison with 50% a year ago.

Regarding product portfolio diversification by industry, the Commercial portfolio has about 51% of its exposure in segments such as grains, agribusiness, energy and food products. In the case of Brazil here for example, as of the end of the quarter trade-related transactions represented an exposure of 87%, while 60% corresponded to the Corporate segment.

Also in the case of Brazil the portfolio exposure to grains, agribusiness, and food products represent 49%. Exporters represent almost 70% of exposure, with most of the revenues being US dollar denominated.

Let me say a couple of things in general about our portfolio quality, which remains solid as a result of our approach to selected risk-taking. Nonperforming loans continued to be zero in the quarter. And it is important to mention again that nonperforming loans have been zero since 2006.

The provision for credit losses were $86 million, which represented an increase at the ratio for the allowance and for credit losses of the Commercial portfolio from 1.9% to 2%.

Now let me switch to the Treasury division -- for Bladex had a net operating loss of $0.7 million during the third quarter. This represents a decrease of $3.7 million from the prior quarter, and a decrease of $1.5 million from last year, mainly due to lower and absence of gain on sale of securities.

The available for sale portfolio grew 5% during the quarter. The mark-to-market of this asset is recognized in stockholders equity through the other comprehensive income accounts. The impact for the valuation of the quarter represents a $38 million decrease in stockholders equity. And is equivalent to 1.1% of the Bank's Tier 1 capital ratio of the Bank that has stood at 18.4%.

The geographic breakdown of the available for sale portfolio is concentrated Columbia, Brazil, Mexico and Panama. By (inaudible) the available for sale portfolio consists of exposure of 82% to sovereign and state bond issuers, and 18% in high-quality private sector debt in Latin America.

Our deposit balances from Central Bank increased during the quarter, evidencing again continued support from -- to the Bank by its government shareholders. While the $185 million decrease was related to private bank deposits.

Also, deposit balances for the quarter were $1.5 billion, represented a well diversified 34% of our funding sources.

During the third quarter Bladex announced the successful closing of a three years syndicated term loan facility of $150 million, that was substantially oversubscribed, closing to the level of $245 million in total commitments among 13 participant banks.

A frequent question has been asked about an increasing cost of funding to the Bank. And the answer is, yes. For in current market circumstances we have no problem charging a multiple of such an increase to our clients.

Now we will move over to Asset Management business, where the net operating loss during the quarter was $2.2 million, in comparison to the $10.1 million gain from last quarter, and $3.7 million gain we obtained during the third quarter of 2007.

It is worth mentioning here that the asset management activity has generated positive results seven out of the ten quarters it has been in operation. Although the Asset Management Division suffered a small loss during the quarter, I would say that during the month of September the net asset value of the fund was up 1%, as Mr. Rivera already mentioned.

The Asset Management business has realized a 12-month annualized total return rate after fees and expenses of 13%, based on net asset value.

I have been asked also about how fast we can realize trading gains or losses in the investment fund. The answer is here. The fund just proved there during September with the market turbulence that the Asset Management Division was able to liquidate positions and invest in U.S. Treasuries basically within a day.

From the expense point of view, Bladex continued to show expense discipline. And as a result, total operating expenses for the third quarter decreased 13% or $1.5 million, mainly due to a reduction of $0.5 million in regular expenses, and the impact of a onetime write-off of $1 million related to an information technology application that was recognized during the last quarter.

That said, year-to-date efficiency levels represent 32%. And it is in line with last year's 32%. 32%, sorry, if I wasn't clear.

In summary, this quarter's results demonstrated three things, the strength of our core business and the quality of our portfolio, strongly accretive, strong capitalization, and diversified and balanced business model.

Now let me thank you for your attention. And I will turn the platform to Mr. Jaime Rivera.

Ladies and gentlemen, we look forward to your questions.

(Operator Instructions). Frederick Searby, EverKey Global.

A couple of questions. First of all, just given your cost of funding going up, and obviously spreads still up -- widening in terms of the export business, I just wondered what percent of your -- where do you think -- should we see NIMs continue to go up in the upcoming quarter?

And where are -- right now where's pricing going? I assume it is going up, given the dearth of capital.

Secondly, can you just address the dividend? I know you're probably going to say this is not the time to raise the dividend. And you have a fairly high yield. But I just wanted to see what your thoughts were there on the dividend.

Thirdly, from a big picture perspective, in the past there was an issue that arose in Argentina -- not to bring it up again. What do you think you are doing in terms of -- to make sure that if Latin America does see a swing in fortunes, although it looks like it is doing relatively well right now -- at some point I think that there is markets correctly pricing in a slowdown. What do you think you're doing to safeguard against maintaining your pristine asset quality, or to safeguard your pristine asset quality. Thank you.

I will answer your second question first. I don't think this is a time to raise the dividend. I think we have vindicated in our view that we have held over the last year in as far as we predicted a year ago that markets, like capital for banks, was going to become an increasingly dear resource, dear and expensive resource.

While it is clear to us, and I think it is clear to the market as a whole, that our increased profitability would under normal circumstances clearly allow for us to comfortably increase the dividend, I would ask you to please bear with us while the circumstances come down. And we can revise that decision within an environment that allows us to look ahead more than the three or six months, and we can look ahead under current circumstances.

We have a tradition, and it is now five years, I think, five years long of increasing common dividends, along with increasing performance. These are, however, not normal times. Please give us a break until the situation stabilizes. When it does, I see absolutely no reason why we should not go and do what we have always done. You can count on that. But again, not now.

One -- just to joust and come back at you. If you look at your dividend yield on your stock is [$7] and change, you could actually buy back stock at 70% of tangible book value. And actually it would probably be cash flow positive.

Absolutely.

What about a Dutch Auction or something? What are your thoughts on -- I mean, this is always the conundrum, but trying to unlock value in your stock.

Let me just put it this way, and it is a very complex subject. It is also a strategic subject. Just as what you said is true, it is also the case that the possibilities that we now have to employ our capital and to put it to work are much more valuable and attractive than they have ever been. So we have to weigh both elements in the equation.

Shall we buy back our stock or are there things that we can do with that same stock that would be even more accretive than buying stock. This is certainly something that -- there is a Board meeting coming out next week, and this is I am sure one of the things we're going to be looking at.

Again, we look at capital management every three months in great detail. We will continue doing so. And in the end, we will do the right thing. I can assure you that over time, as we have done in the past, we have always -- if we ever were to conclude that we have no better use for the capital than returning it, we would.

But it has been two years where we have been very clear -- and I think the record has vindicated us -- we stopped giving extraordinary dividends, and we stopped buying stock when we realized that circumstances in the market and the value that we could add to the capital was best or highest if we kept it in-house, rather than if we returned it.

But, again, all options are on the table. And I can assure you all options are reviewed carefully on a quarterly basis.

Again, to follow up, if the option -- I believe you. And I think it is right that obviously you have tremendous opportunities to earn outsized returns now on your capital deploying it in your loan book. The hedge fund has done very well, but does it really make sense then to have as much of your money in a hedge fund? And if you can't raise third-party money, doesn't it make more sense maybe just to have that in your straight loan book, particularly if funding costs are going up and you're sitting on treasuries?

We haven't made the information public, but I will now. The fact is that in spite of it all, we have been able to raise outside money. The fund is now only 95% ours, with a couple of other funds doing due diligence, as we speak. So in spite of difficult circumstances, it is something that is starting to move forward slowly, but steadily, as befits our style.

Can I now answer the question about Argentina and spreads?

Spreads first. What percent of your loan book has been repriced? And shouldn't we see net interest margins going up? I assume that more than your cost of funding that you are earning more now, you're able to charge higher on some of the export financing, right? Thank you.

Yes, all other things being equal, it is hard to think of a circumstance where our spreads have not continued going up. How quickly they will continue going up will depend -- really will be determined over the next three or four weeks as we secure incremental funding, and we reprice the loans.

The spreads that we could generate in the market right now, in some cases significantly higher than what they were in the past. And they are so high come, in fact, that we're being very careful about the credit decisions, because we have found in the past that when things are too good to be true there is probably some risk lurking in there that we haven't identified.

So we are sticking to our current plans and increasing their prices constantly. But so far we have avoided activity with new clients which we don't know -- [we're] pricing extraordinarily high until we find out what exactly is going on with the rest of the market.

Shortly, yes -- rather in summary, yes, you will see spreads increasing. What I cannot tell you is whether -- and the increase should be at least equal to what we saw this quarter. What I cannot tell you is whether how much larger it will be.

It is something that we're still not comfortable with, because we're still trying to figure out what is it that is driving the tremendous increase that we have seen in some of the markets.

Argentina next?

Frederick Neave, JP Morgan.

I'm interested in hearing about Argentina as well. So do you mind filling out just on Fred's initial question?

I will address the Argentina question. That is probably the easiest question to answer. There's a huge difference between the way Bladex was positioned vis-a-vis the Argentine crisis in 2002, and the way we are positioned in Latin America in general.

Most of our portfolio and Argentina in 2002 was out to companies that were generating local currency and was being funded with dollars. We participated, and we financed much of the privatization of many of the utility companies in Argentina. And when the roof fell down we found ourselves holding dollar debt owed to us by companies that generated local currency -- local currency revenue, and who also got price controls imposed on them.

Our current position is entirely different. Most of our exposure is trade in nature to dollar generating exporters. And in fact, the cash flow -- the debt capacity or the debt repayment capacity of those companies has actually been increased -- improved lately, as the local currencies have devalued. So it our position is about 180 degrees different to what it was in 2002. That lesson we learned and absorbed very well.

If I may, (inaudible) thank you for the conference. If I may just follow up on the Argentina question. You are saying basically that your clients don't have a currency mismatch. That is for Argentina. Do you see the same thing for other countries in your portfolio?

I'm very sorry, but I could not hear -- understand your question. Can you please repeat it?

Sure. For your clients in Argentina you think that right now there is no currency mismatch. So they earn dollars and they pay you -- they repay the debt that they have with you in dollars. Is this something that you could say with other countries in the region that you're exposed to?

In most cases -- doing business in Argentina is one thing, doing business in Chile is different. In general, we have something like 90% of our portfolio extended out to companies that generate US dollars. And most of the 10% of the portfolio that we have to companies that don't fully generate US dollars are in some of the countries where the country risk is the lowest. So we are comfortable.

Great. My second question would be on the asset quality. Your NPLs have been zero for quite some time now. And if I remember well, you were giving some long-term guidance that it would be natural for the NPLs to increase. Is it still your thinking right now? Are you still thinking that NPLs could increase, or it changed over the past few weeks?

You know, we went through the entire portfolio just three days ago. And we have been doing that on a weekly basis. I still think that statistically at some point we are going to have trouble with some loans. We are a bank and we're taking risk.

Yet the fact remains that as we go through the portfolio name by name by name, and we can afford to do that because we're a wholesale bank, there's nothing in the horizon that worries us. Which is why our reserve cover remains at historical 2% levels, which has been -- which relates exclusively to generic risk.

So the answer to your question is statistically I am a banker. I have been at this for 25 years. This is a statistic aberration. It has now been three years, however, and I can look at you in the eyes if you were here, and I can tell you, there's nothing in the portfolio that worries us.

But are you willing to take more risk and maybe have NPLs increase naturally, or that is not what you want?

The answer is yes. Our business is about risk, and we have -- and we have been taking increasing amounts of risk over the last two years.

Remember, two years ago our portfolio was simply -- it was all about safe loans to very large banks. 60% of our portfolio is now with companies in about 12 different industries, so the risk nature of the portfolio has increased.

One of reasons, by the way, because our Commercial -- that has allowed our Commercial portfolio -- our Commercial Division rather -- to improve its revenues and its contribution by 55% in two years. We're taking much more risk. But we have been skilled enough to be very good at picking the range. That is just a fact and a reality.

Gary Lenhoff, Ironworks Capital.

I think you have addressed most of the questions. But let me ask, can you be a little bit more specific in terms of where you see your cost of funds in the current market right now? And should we expect any shift between deposits, short-term debt repo's, etc., as a result of what is going on in the world?

I'm going to give you my best guess, because I am not good at predicting what is going on in the world, as anybody else is. But given what is happening in the last three days, I would expect the percentage composition of funding to remain relatively stable.

We are seeing some new correspondents coming -- increasing their line, particularly in the US in the last week. We are seeing some European correspondents walking away. I guess they are waiting for the European package to take form.

We are seeing some depositors -- some deposits from government, as it is increasing because of flight to quality considerations. We are seeing some deposits from banks decrease because of their own liquidity needs.

All in all I would expect the general composition of our funding to remain relatively unchanged. It might become a bit more bank dependent to the extent that our current [Ninja] loans indication in Asia joins the funding base in November. But all in all I would not count with much in the change of generic composition through year-end at least.

Costs again, they have in essence from the beginning of the year, six-month money for us has in essence doubled in price -- six-month money for our customers. And we have been able to charge our customers -- has quadrupled at least.

That is helpful. Thank you very much.

No, no, thank you. Again, I am sorry I am not able to give you a more specific answer, but the uncertainty in the world out there, as you know, is quite high, which is why we're so happy to have an [18%] Tier 1 ratio.

We're happy you have it as well. I would just comment with respect to buying back stock or dividends that the current financial landscape is littered with the wreckage of companies that bought back stock at much higher prices than they ever expected they would see in such an uncertain environment. So thank you.

Mario Pierry, Deutsche Bank.

In is Tito Labarta actually. I have two questions. You mentioned you slowed down the growth in the loan portfolio, just given the uncertain environment. Do you continue to see -- expect to continue to slow down the growth? Or in other words, what kind of growth do you expect for the full year and also for 2009?

Then the second question. You had a nice improvement in your fee income, $3 million. Is this a level that you is sustainable going forward? Do you expect it to go back down to prior levels or to increase? Thanks.

The second part of your question is relatively, in fact, it is easy to answer. Yes, I expect it to remain stable. That is basically a letter of credit activity. Many of our former letter of credit competitors have other things to worry about these days. We are one of the few reliable suppliers in Latin America. We have been able to increase our pricing -- volumes. It is mostly -- letters of credit mostly refers to energy-related activity, oil and to food stock-related activity, which we don't see diminishing over the next quarter.

You can expect that level -- that the level of fees to remain relatively stable, and even maybe to increase marginally. It depends on what happens during the month of December -- December or November. In fact, pre-Christmas activity, depending on whether we go into a recession or not -- pre-Christmas activity has been really a good time for us. So that is it for letter -- fee income in general.

Regarding loan growth, it really -- if this conference was taking place a month from now, I could probably give you a better answer. Because within a month we'll know how successful we have been in raising additional, incremental funding and in what amount.

To the extent that we can raise incremental funding, which is what we have been doing in the last week, and what we're going to be doing over the next two weeks, not only are you going to see some growth in the portfolio, but you're also going to see increased spreads. And that will of course be best case scenario.

Worst-case scenario, we have to decrease the portfolio because funding becomes scarce, and retain the performance of the Commercial Division more or less at current levels. Because any renewals that we will do, we would charge dearly for. That is, again, a general answer.

(Operator Instructions). Jeremy Hellman, Singular Research.

I was wondering about the available for sale portfolio. Is it possible to provide any prospective on the maturities in general terms, kind of what your average maturity is, or to put it in buckets, how much -- what percentage might mature in '09, '10, '11 and so forth?

We will do that in our next quarterly report. But in general these are bonds, and bonds tend to be medium-term in maturity and nature. That mostly is what it is. It is actually securities issued by the government of Colombia, the government of Brazil, some of the private oil producers in Latin America. It is basically a portfolio of bonds, and as a result they tend to be medium-term in maturity and nature.

Secondly, on the hedge fund, I'm kind of curious in terms of the move to treasury was -- and I'm looking at it, just bear me out in that I am looking at it from having an equity trader's background. When you have times of mass dislocation there is often mass opportunity as well.

I'm curious as to what was going on with respect to your investment instruments that you thought treasuries were the much preferable option as opposed to trying to take advantage of some of this carnage?

Here is the thing, and we have gone public with this. Preservation of capital is actually paramount to our asset management operation. Preservation of capital not only for us, but also now for our investors.

September 15 our Asset Management Division concluded that correlations between Latin American risk and the rest of the world has become so dislodged that there was very little value that they -- judgment value that they could add in order to make informed decisions about that which we do well, and where we have a competitive advantage, which is making calls on Latin American risk.

When that became the case, the decision was made, and I think it was the right one, look, let's get out of the market, and let's stay out until we can start making calls on Latin American risk with some degree of confidence.

The fund is about Latin American risk. And from September until now the correlation between Latin America and the rest of the world is just about perfect or zero, depending upon how you look at. We're simply waiting for Latin American risk to be driven by Latin America events and trends. And at that point we will get back into do the asset management people do so well.

I think that is a -- when you phrased as such is a prudent approach. Like I said, I'm speaking from an equity perspective, which is certainly different from the arenas you're playing in. Thank you very much.

(inaudible), [Porter Orland].

Just a quick question on the cost of funding and your ability to buy (inaudible) bonds. At what stage does it start becoming a difficulty for your customers to take [that] high cost funding and still maintain business as usual?

It depends. If we're talking about short-term financing to very strong banks, there is a lot of space. We can afford to charge a significant amount of money before their ability to pay us back becomes an issue.

In the case of corporations we have to be more careful. That is why -- and that is really what led me to make a statement a few minutes ago where we said we are being very selective and being very careful about laying out new expensive money to some companies. Because we don't want -- exactly -- we don't want to run the risk of putting debt on somebody's book that they will not be able to service.

So it depends. Our best opportunities for laying out very expensive funding at the moment is some of the strong banks throughout the region that have ample capacity to pay. That is probably what we will concentrate our extensive money on.

It is also, by the way, it is also short-term, so that helps get the rates down and make us feel a bit more comfortable.

Thank you, Jaime.

Again, that's why -- that is what I meant to say, we don't want to surf a tsunami. We could, but I think that business model has been proven wanting.

(Operator Instructions). Frederick Searby, EverKey Global.

Just a follow-up. I appreciate you don't want to surf the tsunami. A couple of quick questions. What is the ROE if you strip out the vagaries of the asset management business in this environment you think you can earn? I imagine it is quite a bit higher than the last two or three years. Can you give us some guesstimate there, a rough estimate?

Secondly, a follow-up question, given your cost of funding and the scarcity of capital, if you are sitting on treasuries, at what point do you pull some money out of the hedge fund business, while we are in this kind of period of extreme uncertainty, in order -- and now that you're getting third-party money -- given the risk inherent in all hedge funds? I just want to know your thoughts there. Thank you.

Can you go through your second question please, because that one conceptually I couldn't understand it?

If you're raising third-party money in the hedge fund, and you are sitting on whatever, $100 million -- $140 million or whatever in treasuries, of which a lot of that is your own money -- at what point, given you're having, A., capital scarcity, and the cost of capital is going up for you on the funding side -- at what point now does it become increasingly third-party money and you will take some of your own money out of the proprietary position?

You are basically running a prop book, right? At what point do you pull some of the money out of that and redeploy capital elsewhere, as it becomes increasingly third-party money, which is obviously less risk for you?

And then secondly, the other question was just what an ROE on the core business should be, given it had been somewhat low relative to peers? Now it looks like it is going up. Where do you think that should go in this kind of crazy environment?

Let me give you a historical perspective. Without the impact of the Asset Management Division, we're currently running around 10% ROE. That is without having realized the benefit of the significantly increased pricing that we are seeing in the market. 10% ROE is not where we would want it to be, but it is about three times what it was two years ago. It is going to continue going up.

Regarding -- and by the way, we established the Asset Management Division to be able to run a balanced model, so that within the ROE of a very safely run intermediation business and a somewhat more volatile asset management business, we could run ROE in the mid teens. Which we thought two years ago when we put our strategic plan in place, was probably where the financial industry was going to settle. I think we were vindicated in that view.

On your first question, what we're considering doing, and rather than bringing money back from the prop operation into the bank, is actually putting a cap to our investments. And probably capping our investments where it currently is. This is something we're considering. If we actually go through with it, we will let you know.

Again, it is all based on our view of what a balanced model should be. In our estimation a balanced model consists of 75% of our revenue coming from our intermediation activities and 25% coming from our market risk operations. Which you look at our numbers, this is very close to where we currently are.

The answer is, no, we are unlikely to pull money out. What we're likely to do is consider not putting additional money into the prop operations.

(Operator Instructions). Gentlemen, at this time I'm not showing any further questions in the queue. I will turn the call back over to Jaime Rivera.

Thank you very much. Ladies and gentlemen, unprecedented is a word that has been used a lot lately. A couple of comments. Yes, this is a very difficult situation. From our perspective, however, from the point of view of (technical difficulty) management and the Board of Bladex, we have undergone very difficult circumstances throughout our careers.

In my own case, I remember, we went through -- or I went through the crisis of 1982, and 1989 in Argentina, 1991 in Brazil, 2002 in Argentina. We have been through difficult times before. From our perspective, this is just another tough battle, and we're making the best of it.

The difference is that this time around we believe that the circumstances are such that the results of a battle will end up benefiting us greatly, and leaving us in a much stronger competitive position. So that once the waters come down, we will be able to gain a lot of charges very quickly.

We have what it takes. We have the clients. We have the management. We have the capital. We have the support of shareholders. We have great contacts in the region. We have the support of governments in the region.

I think that unfortunately as a result of something that has been terrible for people and the industry, Bladex now looks not only like a survivor, but one of the organizations that is going to thrive once this crisis is over.

In the meantime, we're going to play defense, block and tackle, which as you know is something we do extremely well. And as soon as we can, we call the quarterback in and move forward quickly.

So, again, thank you very much for your attention, for your confidence. With all the problems that I'm sure many of you have, I hope we have given you some reason to have some peace of mind.

And let's meet next quarter, and hopefully by then things will have settled down a bit. Thank you very much.

Thank you. This concludes our teleconference. You may now disconnect your line.