Foreign Trade Bank of Latin America Inc (BLX) 2009 Q1 法說會逐字稿

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 Melanie Carpenter. Ma'am, you may begin.

Thank you. Hello, everyone, and welcome to Bladex's first quarter 2009 conference call, on this, April 23, 2009. This call is for investors and analysts only. And if you're a member of the media, you're invited to listen only. But if you have questions, please follow up with i-advize after the call.

Joining us today are Mr. Jaime Rivera, the CEO; Mr. Jaime Celorio, the CFO. And they will be giving the presentation today. Their comments are based on the earnings release issued yesterday. A long version is available on the website at www.bladex.com. Any comment made by these gentlemen may include forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995. And their comments are based on information and data that is currently available. However, the actual performance may differ due to various factors and they're cited in the Safe Harbor statement in the press release.

And with that, I'll turn it over to Mr. Jaime Rivera for his presentation. Please go ahead, Jaime.

Thank you, Melanie, and good morning, ladies and gentlemen. We thank you for joining us this morning and appreciate your interest in Bladex. As usual, we will try to provide you with some additional color and some insight into our quarterly results. Following my initial comments, Jaime Celorio will go through the figures for the quarter in detail. And following his presentation, we'll be glad to answer your questions.

I have structured my comments so as to first provide you with a brief commentary on our general approach to the business to make sure that we do the right things as we move forward through the economic turbulence that we're all living through. And second, I want to give you some insight into the implications of the economic environment that is shaping our business, and the implications of this environment for our business over the short term, but probably most importantly, over the medium term as we think strategically.

So regarding our general approach to the crisis, as those of you that have been with us for awhile can probably assess, we tend to be pragmatic and therefore, to face problems head on and as soon as we identify them. For instance, we were first -- or we first became aware of something going not quite right with the market back in August 2007 and started positioning the Bank accordingly, so that when the full blown crisis hit last September, we moved quickly to take all additional steps needed to protect the Bank and our franchise.

So next, a few words regarding the economy. While we remain optimistic in the medium term, we are quite realistic about its current shape. And its current shape is not encouraging, certainly not judging from global activity data for the first quarter. From our perspective, therefore, demand in general continues to be under a great deal of highly correlated stress. And Latin America has not been spared in this process, although the region, as we said before, was well prepared to face a crisis.

The situation, as usual, varies from country to country, but economies are generally slowing down, mostly as a combination of smaller trade flows, less foreign investment, fewer remittances, along sometimes with shrinking consumer demand and some degree or another of credit crunch.

But there is a silver lining to all of this. Inflation is well under control and the slowing imports are actually easing pressures on local currencies. So as to the impact of this environment on our business over the short term, the situation implies a number of risks, as well as some good opportunities. The opportunities relate mostly to weakened competition and increased lending margins.

Now we're sure that some of our former competitors will eventually return and that new ones will probably emerge. But for now, there are fewer of us in the market. Wider lending margins have also proved beneficial.

Now my impression is that supply and demand of trade credit do seem to have reached some sort of equilibrium. So we're not counting on continued margin increases, but we don't foresee them shrinking either.

Opportunities also relate to market risk. As you know, we know -- we run our asset management division based on fairly conservative limits and positions. Still the wide diversity of views in the market has allowed organizations like Bladex, who know the reality of the region firsthand, to do fairly well in our trading activities.

Now when it comes to risk, foremost in our minds is, as has been the case now for the last six months, credit risk. While as you can see, our portfolio quality remains strong and we have collected a lot of potentially vulnerable exposures, the fact is we're still witnessing company cash flows in the region generally tighten and pressures on bank portfolios slowly build up.

In addition, the impact of foreign exchange volatility is still working its way through some income statements. This mix implies higher level of credit risk generally, particularly when you add it to questions related to the timing and to the extent of the crisis, questions that no one has been able to answer in a forthright manner.

In response, the bank has increased its generic reserve coverage and strengthened its capitalization level. This is also the type of considerations that led the Board of Directors to recently review the Bank's dividend, bringing it to a level commensurate with these circumstances.

The second important risk element that concerns us is liquidity. Now while as you can see, the liquidity position for Bladex has certainly eased, we cannot ignore the reality of volatility in the inter-bank markets. So for now, we're continuing to carry a large liquidity cushion.

And lastly, the third important risk or limitation that we're facing relates to quality credit demand. As trade flows have slowed and commodity prices fallen from their peaks, quality credit demand has diminished. But, as we are not and as we were not about to compromise on credit quality to offset this impact, we have instead reduced our operating expense level, as Jaime will explain in a minute.

In short, the bottom line is that our financial indicators are the strongest they have been in years. And the business, while not buoyant, is actually quite good. We're managing the Bank to make absolutely sure that when the dust of all these things finally settles, we are among the organizations left standing with our franchise and our resources intact. So then we can pick and choose among the opportunities that will be generated once robust growth resumes, which brings me, of course, to the question of the longer-term view.

Although we don't yet have an exact read on exactly how the financial crisis will work itself out, we are reasonably certain of a few general conclusions. First, whenever the economic recovery does take place, trade and trade finance will play a critically important part of the process.

Second, difficult as current market circumstances are, once the crisis is over, we will be left in a much stronger competitive position.

And third, it's clear to us that we will be part of a changed financial industry with a host of new opportunities. And this is why, in strategic terms, the recent approval by shareholders of the changes to the Bank's articles of incorporations will prove so important.

Now, while we have currently no specifics on our plate, the expanded definition of our business scope, for instances, affords us the flexibility needed to adapt our business to whatever new forms of trade finance emerge in the future.

Similarly, the creation of a new class of shares will make it easier for us to eventually expand the shareholding of Bladex to incorporate governments and cities outside Latin America, a move which could, in time, prove a tremendous boost to our scale, profitability and shareholder value.

So in summary, while we are realistic about the difficult short-term market circumstances that we all face, we're quite optimistic about both our ability to overcome them and about the opportunities that will emerge from this situation.

So with this, ladies and gentlemen, let me hand the discussion over to Jaime Celorio, for him to take us through the figures for the first quarter. Jaime, please.

Thank you, Jaime. [What I] told you, thanks for participating in today's call. We have the opportunity to be here in New York, and I've been talking to some professionals in the industry. And I would say that the common denominator at this point is that in order to describe the market, it's by saying, "Tough times, but definitely interesting times." Everyone agrees that there will be lots of opportunities. But nobody is clear, again, when the crisis will end.

With that said, I will start by mentioning how the Bank was able to have such a great quarter with diversified revenue sources, maintaining strong liquidity, capitalization, asset quality, increasing deposit base and a stronger credit reserve.

I will also be describing in 2009, how the Bank was able to deliver net income in each of its three business lines. And why the 2009 quarterly net income was $16.7m. Our traditional intermediation business through the commercial division performed well, due to an increase in lending spreads and effective credit risk management. The Treasury division benefited from the mark-to-market of trading securities. And the Asset Management business had a strong quarter, showing once again a steady performance.

Now let me talk in detail about the performance and results of each business segment, as well as the Bank credit quality and financial performance. Okay, let me start here with the commercial division where net operating income for the first quarter was $12.8m, representing an increase of 7%. Here the main reason has been to lower average loan portfolio balances, although such decrease was partially compensated by wider lending margins. The weighted average lending spreads on loan disbursements continued to increase.

As of the end of the first quarter of 2009, there were 381 basis points versus 152 a year ago. The bank continues to re-price loans due to the short-term nature of portfolio. The bank continues to monitor risk very carefully and continues to reduce concentrations, as well as reduce exposures to vulnerable sectors and clients, while imposing stricter credit standards, generally.

The commercial portfolio continues to be short term and trade related in nature, with $1.7b or 62% of the commercial portfolio that matures during 2009. The breakdown of the portfolio through December 2008 -- sorry, as of March 31, 2009 was 69% in corporate segment, 39% in banks and 2% in sovereign. Also, trade finance represented 64%, while non-trade represented 36%. Trade disbursements increased during the first quarter of 2009, to $831m from $685m during the previous quarter. Here, it's evidencing the beginning of a gradual recovery in activity.

The commercial portfolio is very well diversified and not a single industry, at this point, represents more than 14%. As of the end of the first quarter, the main exposures of the commercial division were in countries such as Brazil, Mexico and Colombia.

Let me take a minute now to discuss the quality of our loan portfolio. The bank continues to have zero non-performing loans as of the end of the first quarter of 2009. As Jaime Rivera just mentioned, because of concerns about the global economy environment affecting the region, the bank continued to be very selective and prudent about risk. And as a consequence of the end of the first quarter of 2009, the allowance for credit losses were stronger, at the level of 3.2%, compared to 2.8% during the previous quarter and 2% a year ago.

That's all for the commercial division. Now let me switch over to the treasury division, where I will explain the fact of liquidity balances, as well as the trends in the available-for-sale and trading portfolios.

The first quarter net operating income of $1m includes the combined effect of $3m gain from trading securities due to appreciation of the underlying securities, as well as the effect of $0.6m net gain from the relative hedging instruments, as well as currency exchange loss.

As of the end of the first quarter of 2009, the year-end portfolio of securities available for sale totaled $580m, representing a small decrease of 2% from the fourth quarter 2008, mainly due to the bonds that matured, as well as appreciation of the mark-to-market of the securities relating to the recent rally in security prices or the recovery of the security prices in the region, representing $15m. And these $15m are recorded in the other comprehensive income accounts as part of the stockholders' equity.

During our last conference call, we mentioned that the bank fully expected to unwind its outstanding repos at maturity and repurchase the underlying bonds during the second half of March of 2009. And that's exactly the case. That's what we did and it's the reason why you can see in our balance sheet an amount of $159m considered in trading securities.

At the end of the first quarter of 2009, the securities consisted, all of them, in Latin American securities which, by the way, 82% of them are sovereign or state-owned risk in nature.

Finally, let me talk about funding, where our sources continue to be well-diversified. As a matter of fact, deposit balances increased 4% during the last quarter and now they represent $1.2b.

As mentioned also by Jaime Rivera, the bank continues to have a strong liquidity balance. As of the end of the first quarter of 2009, the balance represented $563m.

The asset management division continued to deliver solid results, with net operating revenue during the first quarter of 2009 of $10.7m. At this point, the division has been able to have positive results in eight out of the last nine quarters. The net asset value of the fund, as of the end of the first quarter 2009 was $155m, and represents an increase of $9m in comparison with the $146m balance as of the end of 2008.

All assets held by the fund are liquid, are marked at the FAS 157 Level 1 and Level 2 inputs, which are basically observable market levels. We have here no assets that are marked based on Level 3 inputs which are the ones that are reliant on market estimates.

Now let me say a couple of things about operating expenses. The total operating expenses for the first quarter of 2009 were $11m and these ones include $1m regarding severance payment from the headcount reduction done by the bank back in February, so this was a one-time event, as well as $1m increase regarding variable performance compensation from the investment fund, based on the outstanding performance of the fund.

And before I turn back the word to Mr. Rivera, I would like to give emphasis that Bladex fundamentals as of the first quarter 2009 were solid. Tier 1 capital ratio was 21.7%. Important also to mention here is that the bank equity consists entirely of common shares. ROE was 11.4%. Leverage was only 6.8 times. Liquidity continued to be strong. Asset quality is good and reserves level are adequate.

With that said, let me turn over the word to Mr. Jaime Rivera for his closing remarks.

Thank you very much, Jaime. Ladies and gentlemen, we will now be glad to take up any of your questions, please.

At this time, we'll open the floor for questions. (Operator Instructions). Our first question will come from Jeremy Hellman with Singular Research.

Hi. Good morning, everybody.

Morning, Jeremy.

First, I'm kind of curious in kind of thinking back to last quarter's call when you were talking about the commercial portfolio. And the note I had indicated that you guys didn't think the portfolio was going to shrink at all from that point. The comment I'd noted was that you said it should probably be about a low point. So I'm curious to know if I'm either recollecting that improperly or if something really changed out there that made you change course.

The biggest change that took place during the first quarter is that following what had been a fairly good Christmas season in Latin America, the economy slowed down, starting in February, dramatically, one. And secondly, cash flows continued -- started to shrink. And we decided that as long as that was the case, we would continue to collect on exposures that we thought were vulnerable. It was a difficult call to make, but we thought that it would be much easier to reduce vulnerable exposures and reduce concentrations and then rebuild them when the situation changed rather than not doing that and facing what could be a portfolio-wide credit problem down the road.

So that's really what happened. We were afraid with the changing situation in the second half of the quarter and we reacted accordingly.

Okay, and that's definitely a great feature of the short-term nature of your book is it enables you to reverse course pretty quickly. When you're kind of looking at --

One way or another, as you have seen us do in the past, we can also press the accelerator fairly quickly.

Yes. When you kind of look at you guys opting to not renew a lot of credits that have come due, where, conceptually or qualitatively do you see the funding for those credits coming from? Is it coming from your other regional bank competitors or alternative financing or are people just not in demand for credit renewal?

There were two phases to this process. As we mentioned last quarter, to the extent that we did anything right following September 15, was to sound the alarm before others in the market did. And often, when we requested prepayments or collections from our clients, they were very -- it was easy for them to go to other local banks that had not realized, or they had not reached the conclusion that they should clamp down on credit and get the money. So other -- our clients obtained money mostly from other local institutions in the market.

By the time year end came, most banks had come to the same conclusion and collecting became a lot more difficult. And we had to do that from clients' cash flow. Fortunately, because our transactions tend to be fairly simple and well-identified to -- with individual trade transactions, this made it easier for us to do so. So it's a combination of refinancing in the local market during the first couple of months and then just working very closely with our clients to make sure that as trade transactions matured, we were paid with the proceeds.

Okay. One last one for me and then I'll jump out. Just looking at the asset management division and the fund, last couple quarters, my recollection is at quarter end, you guys were generally in highly-liquid, highly-safe investments by quarter end. Are you a little more of a risky stance at this stage with the fund assets?

I think that what we have found is that the market's irrationality tends to peak towards quarter end. And it makes it even more difficult for our guys to make market calls. So they have generally been avoiding the end of the month and end of the quarter madness and keeping their powder dry until things settle down and then they can start making calls, at least partially based on a perception of some rationality on the part of the market. But end of quarter -- I'm sorry, end of month, but in particular the end of quarters are in bear market, very volatile and unpredictable.

Okay, thanks.

Sure.

(Operator Instructions). Our next question will come from Saul Martinez with JP Morgan.

Saul Martinez. Hi. Good morning gentlemen. A couple of -- just a couple of questions. One, first to follow up on the previous question on the hedge fund. Can you -- I just want to get a better sense for what the strategy is there. I think you invest, I think, $160m of your funds in -- or $150m of your funds, invested there. What is the strategy behind that now? Are you still looking, obviously, it's a very difficult market, but are you still looking to raise third-party funds and to grow the assets under management there?

And just kind of as a follow-up to the previous question, you had a very, very strong quarter. Your return was close to 6%. I think the previous question wanted to get a sense for how much risk is behind that reward. And if you can kind of address -- I sense you guys are being opportunistic, but I guess if you can kind of give us a sense for how you view the risk tolerance of the hedge fund right now and how much risk is essentially being taken there.

Okay. The first question first. Ever since we started into this business, we made it clear that yes, we think making calls on market risk to benefit the bank or to benefit Bladex directly, was something that we wanted to do because we have the ability to do -- to make market risk calls. We have developed it over many years. And this was an intelligence -- a corporate intelligence that we were not making any use of. But in addition, from day one, we announced that the ultimate goal of this activity was to bring in third-party investors.

It's unfortunate -- timing is what it is in the world -- that as soon as we -- or shortly after we had amassed and gotten an award recognizing the excellence of our track record, something happened to the hedge fund industry in general. And it's now been much more difficult to raise money ever since September. We continued to do a marketing effort. In fact, we have a very good man doing just that. But we're quite realistic and we realize that it's going to take longer than it would otherwise have taken to raise the funds. But no, that remains a very important goal for the fund.

As to the risk appetite that we have, we have always said, and this was the way the limits for all activity in the fund have been set, that we wanted to have -- be highly confident that if the fund has a bad quarter, and it has. Just last quarter it lost money. If it does lose money, it doesn't do much than take the luster of the quarter. Last quarter, for instance, we dropped close to $2m. And that was the first quarter in something like seven -- nine quarters that we have lost money.

At the beginning of the operation -- of the fund's operation, we also had some losses in a couple of quarters, actually one after the other. And the order of magnitude was, again, $2m to $4m. We have set the limits such that if things go bad in the asset management division, they will take the luster of the quarter, but they will not endanger the quarter's results.

The limits have been subject to, again, the greatest real stress test that we could probably imagine since September, and they've done well. Now of course that doesn't mean that's going to be -- that we can be 100% sure that will be the case in the future. But it does give us confidence that while we will see instability or volatility in the results from month to month, they do not represent a significant danger to the operations of the bank going forward, certainly as you look at any one particular year.

Okay. And just one quick follow-up. You made some, what I perceive to be somewhat cautious comments about credit quality. Obviously you took -- you increased your reserves in the quarter. But should we expect non-accrual -- some positive non-accrual loans to eventually emerge? Is that your expectation behind the somewhat conservative reserve policy?

The answer is yes. I think I've been telling people now for a number of quarters that statistically, having no zero accrual loans and not a single past-due loan in a portfolio in a relatively dangerous -- risky region at a particularly risky time, it's just a statistical aberration. That's of course what we aim for. But again, as I just said, we've seen cash flows shrink. We've seen people doing well but not as well as they were in the past. I would not be surprised if we have to restructure a couple of loans going down the road. If we do, we will do so.

We know how to do this well. We've done it before. We've done it before under much more difficult circumstances. Whenever we have a couple of zero accrual loans show up, we will work on them, restructure them and go on with our lives. We have extremely strong reserve coverage. We have extremely strong capitalization. We have liquidity. And we have people that are very experienced in dealing with this type of thing. It's not something that worries me, because again, we have the reserves. And we have the capital and the people. It's a normal part of our life which somehow hasn't been present for the last three years.

Got it. How many clients do you have throughout the region -- borrowers?

It varies from month to month because our business is short term. But we go from about 250 to 350.

Great. Thank you very much.

Sure.

(Operator Instructions). Our next question will come from Ronald Redfield with Redfield & Blonsky.

Good morning.

Good morning.

Some of the questions were already asked, but maybe I'll ask in a different way. But with the hedge fund, what is a typical asset class that's being used? It's just that as was mentioned, the rates of return have been pretty good and you're not really identifying the risk. But if you could tell us what you're investing in to --?

It's all Latin American-oriented risk. It's drawn off Latin American bonds, Latin American currencies, Latin American interest rate levels. And we take long and we take short positions. There is an authorization to use stock indexes, simply as hedge mechanisms. We have found that there is some correlation between the capital market and stock markets in the region, so sometimes stock indexes provide a good way for us to hedge our positions.

And that's basically it. It's calls on market price regarding Latin American securities, foreign exchange levels regarding Latin American securities. In general, risk or risk that we believe we have a special insight in simply because Latin America is where we do best and that's what we know.

I have the impression, when it really comes down to it, to the extent that there is a secret in addition to the very good people that we have managing the fund, is the fact that we base our decisions on the conclusions that we reach as a result of our own analysis and as a result of being on the ground and tend to be less guided by conventional wisdom as expressed in the press. We actually intermediate and do quite well, both in our asset management and in our intermediation activities, we intermediate between reality as we perceive it and reality as expressed in conventional wisdom.

Is there an investment letter that is produced or top five holdings that are discussed ever by (multiple speakers)?

The funds, we can put you in contact with them. They provide a monthly investment letter describing all the details of what they did, how they did, etc. It's widely distributed to their investors. And if you give Jaime Celorio or me a call, after the call, we can put you in place with some people. They're right here in New York.

All right, I'll do that. And I also have a few others, if that's okay.

No, please.

Within the hedge fund or within Bladex, is there any derivative risk?

Yes (multiple speakers).

I have to qualify it. In Bladex, the derivative risk arises because in our bond portfolio we have used interest rate swaps to convert the bonds to floating rate instruments. And our funding is all floating rate so we did not want to run interest rate risk. So we do have a portfolio of interest rate swaps. And they're very simple, plain vanilla interest rate swaps.

In addition, there are a couple of countries in the region where we raise funding in local currency. And we have converted that local currency into dollars, which is our functional currency through foreign currency or derivatives and cross-currency swaps. That's the extent of the derivative activity in Bladex. It's actually fairly simple and straightforward.

In the hedging operation, they do use derivatives to establish positions.

Okay. Are there any -- I'll ask it again for both groups -- for both the hedge fund and for Bladex, do you have any loans extended or investments with Brascan residential, any Brookfield Asset Management companies, subsidiaries that are quite active in Latin America?

Can I ask you to repeat the question, because I want to make sure that I understood it so I can explain (multiple speakers)?

Sure. A company with a presence in Latin America would be a Canadian company, formerly from Brazil, formerly Brascan. Now it's Brookfield Asset Management. My question is, do you have any -- and they also have a large power and transmission division in Latin America.

Right.

Do you have any investments with them, with the hedge fund or with Bladex, via loans or any investments with any of their related companies?

I wish I could answer you, but we don't provide information as to our individual clients. If you are asking us whether we have had or we have any investments either on the bank, on the side of the bank or on the side of the hedge fund in organizations that are rumored to have problems or have had problems or have been subject to some sort of stress, the answer is no.

Is Brookfield -- I haven't heard any of those rumors. Have you?

No, no. Quite frankly, the name Brookfield doesn't even sound familiar, if that helps you at all.

Okay. That's, so obviously not very material.

I haven't heard of them.

Last thing. Are there any specific situations which you could describe which caused you to increase your reserves or any that are on their way that are specific where we will see direct write-offs in the next quarter or two?

We increased the generic reserves because of the reasons I just mentioned. Cash flows for companies in the region are becoming tighter. The portfolio quality of banks, while still strong, is becoming weaker. Volumes are becoming tighter. And in particular, there is tremendous uncertainty as to how long this whole process will last. In our model -- in our provision model, this all translates into an increase in the probability of default. Again, a crisis that goes on for a very long time, cash flows that continue shrinking for a very long time, that would eventually have an impact on customers' ability to pay.

We don't know how long the crisis will last and we don't know how deep the recession will be. But we know that that is a risk and that that risk would imply a direct impact on the probability of default. That's why the model -- the results of the model, once we input all of these factors, indicated a need for increased reserve coverage.

As we move forward, if some of these factors improve, the same reserve model will imply a need for reduced reserve coverage. And if that's the case, we will be glad to bring it down. But we don't want to do so until the smoke clears.

And if I could keep going, and please cut me off if I'm hogging too much.

No, please (multiple speakers).

A trend here in the States has been loan extensions and payments in kind. Are you seeing an increase in that? And is it worth talking about if there's any -- if it's been a trend of late that's been somewhat concerning?

Payments in kind is something that I have not seen at all. Just the first part of your question I did not understand. I'm sorry.

And really more so, is towards that, is there's been a great amount of loan extensions here in the States. What's loan extensions, where loans were coming due and because of the economy and other reasons, they just couldn't pay it. Rather than foreclose or go into it, the lending institution would grant an extension of time, also increase the rate and so forth. Have you been granting extensions in lieu of calling in the debt or maybe -- and others might do it in a keystroke where yes, they pay the debt but then they get it right back, so there was no real -- they could have a liquidity crunch but still continue the funding. Are you following me on that?

No, no. I understand your question perfectly. We have had, for some time, a strict rule in Bladex. If you want credit from me again, I want to require you to do a cleanup. And we're very strict about that. Clients, before we consider extension of credit or a renewed extension of credit to a client, we ask them, "Well look. We financed a trade finance transaction. The trade finance transaction is coming due. Therefore, pay me. Pay me down entirely. Once that is done, we'll consider it a cleanup period and move forward from there." And that's been our experience to-date.

If cash flows continue shrinking, however, we might have to do some of what you're talking about. And if we do, we'll work these things out. It's nothing that we haven't done before. The companies are working well. We'll report on it and give companies the time that they need to pay us back in due fashion. But so far, again, companies are complying with a strict cleanup period. And after they do that, we disburse to the extent that the underlying trade transaction merits it and to the extent that the client merits it.

Okay. And then the last thing is, getting back to Brascan. My understanding is Brascan Residential Services is one of the largest Latin American mall developers and property developers. And I'm surprised you haven't heard of them, but that's out of just discussion. And what is your (multiple speakers) of large exposure to commercial real estate?

No, it's zero.

Zero, okay.

The only exposure that we might have to commercial real estate is remember, we finance banks. And some banks have exposure to commercial real estate. But no, commercial real estate is not something we know and we don't want to know.

Okay. And to get in touch with you later, there's a number on the press release or somewhere on your site that I can reach out on?

Absolutely. You can either call Jaime Celorio or myself. One of the advantages of Bladex is that people call either Jaime Celorio or me, the CEO, all the time.

Or email works.

Email and we can talk any time.

Very good.

I get a lot of calls from clients and from shareholders, often just to clarify the public comments that were made on -- during our conference calls, or often, very often, to ask our opinion as to -- about news that they read in the newspaper about Latin America.

And do you have any planned New York Stock Exchange events like you had a year or two ago?

We are planning one next year.

Okay. Well great. Thank you. Thank you very much.

You're welcome.

We have a follow-up question from Jeremy Hellman with Singular Research.

I actually have two quick ones for Jaime Celorio. Just wanted to make sure you got involved there. In the operating expenses, what was the numbers again for the severance and performance comp for the fund?

It was $1.2m in the severance. But that was a one-time event. That was back in -- at the beginning of February. And then it's also $1m in the fund.

$1m, okay. And sort of thinking about the year as a whole, any thoughts on where you expect the efficiency ratio to land for the year?

Something in the neighborhood of 38%.

About 38%. Okay. And then kind of back to everyone's favorite topic, with the hedge fund, I was kind of curious how much -- I guess two questions on that. Number one is the returns you had, which were very good in the quarter, was that an accumulation of singles and doubles, or were there a few home runs in the mix that drove those results?

We follow the fund on a daily basis. And I'll give you my sense of it. On a day in and day out basis, we will make $200,000 or $300,000 or lose $200,000 or $300,000. And occasionally we'll make slightly over $1m. And occasionally we will lose slightly more than $1m. And that's the magnitude of how things work.

Okay, good. And then lastly is how much do the managers of the fund get involved in essentially making bets that would counter what you might be doing in the commercial portfolio. If, for example, in the quarter you increased your loan loss reserves. So is there an ability for them to look into your underlying analysis and say, "Well, the loan loss reserves tended to -- were increased based on concerns that kind of centered in a certain area," and that they could then go and basically make bets that would counter that? Do you follow the question? Does that make sense?

Yes. Here we have basically -- it's basically a Chinese wall here, totally independent decision makers. They have their own board of directors and their view is very short-term as you can see actually in terms of how liquid are their investments. Basically, the bank is run more in a long-term decision maker.

Okay. So it's not like you -- there's no ability for you guys to say, "Well geez, we're seeing some rapid deterioration in Colombia, for example, and they might therefore go establish short -- according short positions with (multiple speakers).

We share opinions more on a strategic and a risk perspective, based on what's going on with the countries. But on a day to day basis, in terms of how they make their decisions and their ability to get into the market, the guys in the fund, they are totally independent.

Okay. And then just one last one and I'll be done. Just kind of following up a prior caller's question, was the sense I got out of the question was I think most of us understand that you guys are engaged in the fund and a whole host of instruments pertaining to the region. But were most of the profits gained in currency or in debt, if anything, or was it just well spread out? But was there a particular asset class or vehicle that could have -- was the lead dog, so to speak?

I think it's fairly spread out. And it varies -- it literally varies from week to week and month by month. And probably your best source of information is the monthly report that they put out. Sometimes the money comes out of foreign exchange, which was the case this quarter. Sometimes it's been generated out of long securities positions, sometimes out of short securities positions. So it literally varies from week to week. My general statement for this month would be it's probably a result of very good calls on foreign exchange positions. Again, it changes. And your best source of information is the monthly report.

Great. I think it's very helpful that you guys -- volunteering to put all of us that are interested in touch with those managers. That's definitely something I'd like to follow up on, too. All right, great. I appreciate it, guys.

Sure.

Our next question will come from Thomas Valeo with Oppenheimer.

Yes, hi. Tom Valeo with Oppenheimer. I'm sorry. I missed your prepared comments at the beginning, so I apologize if you've covered this. But when I first started following the Company, a large percentage of your assets were in trade letters of credit. And I was just curious how your assets break down roughly between export letters of credit, C&I, and loans to your correspondent or investor banks.

And then, if you could comment a little bit -- and I apologize if you did this -- on the competitive environment, what it was like and, more importantly, what you see the competitive environment like going forward. I would assume there are fewer lending officers running around in your area than there were a year ago, but I don't know much about that. Any thoughts?

Tom, can you repeat the second part of your question first?

Yes, just if you'd comment on the competitive landscape in Latin America for the type of lending you do. I would assume that the major money center banks are less aggressive and active in your region than they may have been a year ago and that may provide you with an advantage going forward, but that's just an assumption on my part.

Actually, there's a bit of both in -- there are two types of questions or two types of answers to your question. From a competitive landscape, on the one hand, and working in our favor, is the fact that many of the large international banks that have had their own problems at home have withdrawn from the region.

If not completely, largely so, either because they have capital problems at home or because they have to reduce headcount and they have, in the process, their teams have been reduced in Latin America and therefore cannot cover -- their coverage ability is now diminished and/or because the product groups that they depended on to provide services to their Latin American groups have either diminished or, in some cases, have disappeared. So this has worked to our advantage.

On the other hand, central banks in the region have been providing trade finance lines to support their export industry. And this has been happening in places like Brazil and in Mexico. And it's actually a very good thing that it took place because that kept the export infrastructure of the region in place. We would not have been able to provide the full degree of support needed. So those -- the central banks, to an extent, have been competitors of ours, although from our perspective, a strategic perspective, we consider that welcome competition.

And in addition to that, we're starting to see some of the local -- the largest local Latin American markets, rather banks, starting to nibble in cross-border financing. As we look at it -- as we look at the industry strategically, we believe that three, four years from now our main competitors are going to be not so much the foreign banks, as they were before, but probably two or three Latin American banks operating internationally.

Okay. Appreciate that perspective. And can you just give us some breakdown in terms of your loans today, whether they're export letters of credit, C&I, or just lending to other banks in your region?

A couple of breakdowns. Firstly, the bank, 64% of our exposure is trade finance. And that's fairly consistent with what it's been in the last couple of years. The remainder, the one which is not classified trade finance, is non-trade finance credit to companies involved in trade finance. So that ought to give you a fairly -- that's one way of cutting the portfolio. Another way of cutting the portfolio is that non-financial entities are 60% of the portfolio, that is corporations. 40% of the portfolio are banks. And about 2% are sovereign loans.

All right. Thank you very much. Appreciate it.

All right.

(Operator Instructions). Gentlemen, at this time I'm not showing any questions in the queue, so I'll turn it back to you for closing remarks.

Thank you very much. Well, ladies and gentlemen, again, thank you very much for joining us during the call. I hope we have portrayed the situation of an international bank doing business in a difficult environment, but based on very strong fundamentals, sticking to the basics, and doing well, business-wise. Our short-term results will, because of the nature of the environment we're working with, show some volatility. But we have no doubt as to our ability to continue making headway and get to port short term, one.

Secondly, we're more convinced than ever that when the storm does pass, our powder will be very dry and we'll be able to run off the blocks and make the most out of the opportunities that will arise within a changed industry where we will have less competition and where, in particular, the strategic importance of Bladex to its clients and the region will have improved.

So thank you very much for being with us today. Best of luck during the next quarter. And we'll talk next.

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