Foreign Trade Bank of Latin America Inc (BLX) 2010 Q3 法說會逐字稿

Hello, ladies and gentlemen. Welcome to Bladex Day 2010 and Third Quarter Earnings Call live from the New York Stock Exchange. I'm Melanie Carpenter of i-advize Corporate Communications. With us today from Bladex are Mr. Gonzalo Menendez Duque, Bladex's Chairman of the board, Mr. Jaime Rivera, Bladex's Chief Executive Officer, and Mr. Christopher Schech, Bladex's Chief Financial Officer. Also present are members of Bladex's board of directors and senior management team. Before we get started, I would like to briefly describe the structure of today's event.

To begin, Mr. Gonzalo Menendez Duque will give opening remarks. Then Mr. Jaime Rivera will give his presentation. And after he concludes, Christopher Schech will review the quarterly results. Then we'll open the floor for questions, taking questions from our audience and investors here present at the NYSE first, followed by those who are participating via telephone. And for those via telephone (Operator Instructions).

I just want to remind everyone that this is a recorded call and webcast. Comments made during the event will be based on the earnings release which was issued yesterday. A copy of the full release and management's presentation is available on the website at bladex.com. Any comment made today by management may include forward-looking statements and we ask that you please refer to the Safe Harbor statement, which is in the press release or in the presentation for guidance in this matter.

And without further ado, it's now my pleasure to introduce Mr. Scott Cutler. He's Executive Vice President and Co-Head of US Listings and Cash Execution for the New York Stock Exchange. So please join me in thanking him for being with us to open today's event. Scott?

Thank you so much. It's actually a great day today and celebration for Latin America. We've been watching very closely the events in Chile and just a few weeks ago we hosted President Pinera here, actually, just in this room where he showed us the plastic piece of paper that represented the miners there. And so our hearts and prayers have been with them and their families and the region for the last number of weeks.

So today for us is actually a celebration and we're honored to be able to host the Bladex team here and each of your investors here at this historic venue at the New York Stock Exchange. It's our great opportunity to list over 500 companies from around the world that are outside the United States on our marketplace today.

We've been a very active marketplace in terms of capital raising. As many of you know, last year the largest global IPO in 2009 was Banco Santander Brazil, which was a US$7 billion to US$8 billion IPO. A few weeks ago Petrobras made history, raising over US$70 billion. Around 60% of that was placed here and we're happy to trade them.

Just since 2007 we've had many new listings from Latin America, including Cosan, Electrobras from Brazil, [Edinor] and Pampa Energia from Argentina, Ecopetrol from Colombia, Maxcom and Telmex International from Mexico. And in total we have almost 80 companies that trade on average almost US$4 billion a day on our various platforms. And our stature at the New York Stock Exchange is directly associated with many of the companies that have successfully listed here from Latin America, including Bladex. And today you'll have an opportunity to hear from the management team.

But before those presentations, I just want to take a couple of minutes to talk about Bladex and its history here with the NYSE. First listed in September 24, 1992, becoming the first Latin American bank to trade on the New York Stock Exchange. In the 18 years since listing, Bladex has experienced exceptional growth and has become a leader at home, globally and on Wall Street.

Certainly coming out of the financial crisis, you've seen the strength of these financial institutions in Latin America certainly be present on a global scale. Its market cap has gone from approximately US$88 million in the fall of 1992 to US$668 million currently, an increase of nearly 650%.

Beyond its business, the Company has also been a strong model of corporate governance as well as social responsibility, two things that we are very supportive of and congratulate the management team for being so forward-thinking in those areas. It's also an honor for us to welcome such a dynamic partner in a world-class company to the Exchange. And we really look forward to the growth that will come out of Panama and the many great companies that will come there into the future. So without further ado, I'd like to introduce Gonzalo Menendez Duque, Chairman of the Board. Thank you.

Mr. Scott Cutler, Executive Vice President and Co-Head of US Listings and Cash Execution, Mr. Alex Ibrahim, Head of Latin American Global Corporate Client Group, Mr. Leslie Tepper, Director of Financial Compliance, all of the senior member of the NYSE Euronext organization, fellow directors and senior managers of Bladex, esteemed shareholders, member of the financial community, friends, and colleagues, I am very pleased to be with you today as we mark 18 years as a listed company on the New York Stock Exchange. This is a significant occasion for the Latin American banking industry as it is the first time that a financial institution from the region has reached such a milestone.

Today, financial industries are adjusting to a new reality, following the impact of the severe crisis that has affect global market since late 2008. Fortunately, many countries have made real progress in overcoming its negative effects. And it is against this background that I am pleased to inform you that today Bladex finds itself in a better market position than ever before, due to four reasons.

First, in the context of the ongoing international recovery, Latin America has posted one of the world's highest and most consistent regional growth rates. Bladex is benefiting from operating in this market, which is providing growing opportunities for our business. A second reason, just as favorable, has to do with our financial strength, which provides us with the capital and liquidity needed to seize these opportunities.

Third, our market knowledge, experience, and expertise in Latin America developed during both good and difficult times in the region, enable us not only to identify and take advantage of these opportunities, but also to effectively measure price and manage the risk inherent in them.

Our record in balancing growth with prudency is well established and is one we are proud of. And lastly, our disciplined approach to management allows us to focus our effort on what we do and can do best. Based on these four reasons, we foresee a promising future for Bladex as we fulfill our institution's two fundamental objectives.

First, to carry out the mission which we have -- which, sorry, we were entrusted 31 years ago by the Central Bank in the region, namely to support trade in Latin America, to improve the well being of our people. This mission has turned into an important competitive advantage as we have developed great expertise in our business, a business that is more important now than ever as trade has become one of the driving forces behind the region's strong economic recovery.

Our second fundamental objective is to enhance the value of the Company for the benefit of our shareholders. The board of directors and the bank's management have confidence that the combination of a favorable market and effective strategy, and solid execution will enable Bladex to prudently and consistently increase its profitability and with it those return on investment to our shareholders.

As Mr. Jaime Rivera will explain, this quarter results demonstrates that our efforts are paying off in a manner consistent with both our mission and our financial goals. In closing, allow me to restate my commitment as chairman of your institution, to continue to ensure that Bladex fulfills its role in supporting Latin American trade and increasing your company's value in a manner consistent with the bank guiding principles of integrity, excellence, commitment, humility, and respect. Thank you very much for your valuable time, ladies and gentlemen, and now I leave you with Jaime. Thank you.

Ladies and gentlemen, good afternoon. I'd like to join the Chairman in thanking you for your presence and for your attention. It's certainly an honor for us to be here back at the NYSE, our home, after, I believe, four years since we held such an event. I'm going to diverge a bit from the schedule that Melanie presented in that I also want to spend just a couple of minutes echoing Scott's words regarding the events that are taking place in Chile as -- literally, as we speak.

We at Bladex were extremely elated and we were literally glued to our televisions last night as the first of the 33 brave Chilean miners were rescued. For us, this is a special situation. Chile is one of our founding shareholders. Chile is also one of our better markets. And thirdly, our chairman is Chilean. And not only is he Chilean, he's also a distinguished member of one of the largest international mining conglomerates in the country.

So for all of these reasons, I'm sure I speak for all of you in wishing the miners and in wishing their families very well and in congratulating the Chilean government for having done such a spectacular job in carrying out what was viewed as a very, very, very difficult task. So again, our best wishes to the Chilean miners and the Chilean people.

It's always great to see a story ending well, which brings me straight to Bladex. Again, deviating a bit from our -- the regular way we conduct the quarterly call, rather than having my -- or focusing my introductory comments on giving you some flavor on the quarter that just passed, Christopher Schech will do that at length in a few minutes, I would like to spend some time telling you about what we consider are the drivers, the strategic drivers of the Company.

We think -- we would like to make sure that you, our shareholders and analysts and rating agencies and friends of the Company understand well what is it that drives us as we manage the Company forward. I would -- to start, I would ask you to please put some attention to this very clear and -- statement on the board. I am going to be, by necessity, making some forward-looking statements, take them with a grain of salt provided by the regulations, please.

There I would like to make three simple points and it will take me something like 12 minutes to develop them. The first point that I'd like to make is that, as the chairman alluded, we are in a growing business. Not only is trade growing, but it's doing so in a sustainable way. This is very important. Trade is growing and is growing in a sustainable way that provides for stability or the prospect of stability in our business as we go forward.

Secondly, we are well positioned. Bladex is very well positioned to capture this growth. So again, the equation so far, we're operating in a market that is growing and, as I'm going to describe to you in a few minutes, we are well positioned to capture this growth. The third point that I'd like to elaborate on is that a growing business and a strong position will allow us to increase profitability almost inevitably. So let me then dwell into some -- into these three points briefly.

Sustainable growth first. You're probably well familiar with this figure. Latin America trade, before the 2009 aberration, had been growing at something like 20% per year in a fairly stable station -- in a fairly stable manner, I'm sorry. It's growing quicker this year and this is partly what explains the phenomenal growth that we experienced this quarter.

But we believe that the underlying, the structural ability of the Company -- trade to grow is about 20% per year. That allows us for a very stable platform to grow at a similar rate. If you remember, if you've been with us for a few years, you might remember that 20% is always the guidance figures that we have provided for the market regarding our ability to grow every year.

Something that has changed since the last time we -- since the last time we came together is the fact that we have now developed a corporate portfolio. And that corporate portfolio is, in its majority, focused on the businesses, on the industries that are driving this growth. We have, for instance, a large and growing exposure to the energy sector.

You might have heard of our intention to open up an office in Peru. Well, we're doing so because in Peru, as in other countries who are interested in pursuing the rapidly growing mineral sector of the economies. Thirdly, Latin America is becoming and will probably remain, for the next 10 or 20 years, a breadbasket for the world. Food is becoming a large and important part of what Latin America does. Bladex has already -- is already working with some of the largest agricultural conglomerates in the region and we expect -- and we are, in fact, growing along with them.

This trade -- this growth, we believe, is largely sustainable. The growth, the demand for many of our products is being driven, not only by the growth in the United States and Europe and Japan, as used to be the case, but it's now being driven by demand on the part of Asia. Even if Asia slows down, and it might, it will still provide sufficient growth potential along with the traditional markets of Latin America, in Europe, and in the United States and Japan to maintain that overall growth of 20% that I was just talking about.

Something that is particular to Bladex, and this is something that not many people know about because there aren't very many organizations that are exploiting this. As fast as Latin American trade has been growing over the last few years, the fact is that intraregional trade has been growing faster. Now, in order to capture this growth, you have to be able to operate regionally. And Bladex is one of the companies, of the financial institutions best positioned to do so.

More strategically, now I'm -- this is -- think 2014, the map that you're looking at displays the shipping connections from the shipping lines that exist today through the Panama Canal. The Panama Canal is being expanded. By 2014, that project which, by the way, is on schedule and on budget, will be finished.

The people that know about shipping and the people that are experts in the flow of trade in the world believe that when the Panama Canal opens, the result will be a sea change in the way trade logistics moves in the world. That will have two impacts.

Firstly, many industries in Latin America that are currently not competitive in Asia will become so because trade -- because fares will become cheaper and more frequent. And industries and products that are currently being produced in Asia that are not competitive in the Atlantic coast of Latin America will become so.

There will be great changes in the industries and some will come out sinners and some will come out losers. But what nobody questions is the fact that an expanded Panama Canal will bring about an even further expansion of trade in Latin America, a development that we are perfectly positioned to capture because we operate regionally.

More specifically, however, in Panama, it is expected that, as the expansion of the Canal is completed, the country will become one of the main logistics ports in the world. Just so you know, I've actually measured it, my office is in a straight line 2.7 miles away from the Canal.

We believe that 2014 rolls around, there will be great opportunity for Bladex to support the logistics needs of trade flows in the region. And that will open another avenue for growth. Again, this is a more strategic discussion because it will take place in 2014 onward. But it's something we are already investigating and working on. Bottom line then, and with this I will finish developing my first point, we are operating in a business that is growing and is growing steadily. When we are -- something that cannot be said by many companies or regions in -- operating in the world today.

Given then that we're growing -- that we're operating or we're facing in a growing market, it is critically important to be able to capture that growth. After all, if you operate in a market that is growing and you cannot capture it, you cannot benefit from it. Let me show you now -- let me try to convey to you the reason why we believe that we are very well positioned to capture this growth.

In order to do that, however, let me take a step back and let you know what we believe our core competencies are. Because there is some confusion in the market at what is it that we do well. There -- clear we do -- we are very good at opening letters of credit, but we do a lot more than that.

And here are the true core competencies of Bladex, which we define as core competencies that -- or competencies, skills, and assets first that cannot be easily replicated, that's critical. Second, that create customer loyalty, that's also critical. Most of our clients are very loyal to Bladex. We lose extremely few clients. And thirdly, it's important that our core competencies can be used across a variety of products and segments -- core competencies we use not only -- not only to do pre-export financing in Brazil, but pre-export competencies we can also use in other businesses like, for instance, vendor financing and, yes, as you will see, asset management.

Specifically, what are, what we consider, our core competencies? Firstly, and this is something that is very well known and widely accepted, we have a very strong regional knowledge of Latin America. We are not, nor do we claim to be, we've never claimed to be an expert in every single country in Latin America. It's obvious that a Brazilian bank will know Brazil better than we do.

But there are very few organizations that know Latin America in general the way we do. And this skill takes very many years to develop. Our culture -- our whole culture is embedded with a very deep knowledge and culture of Latin America. This allows us, among other things, to identify opportunities early. And more equally importantly or sometimes even more importantly to identify risks ahead of the market.

Our second core competency has to do with the ownership by 23 central banks in our company. This affords us privilege -- genuine, but privileged information. It provides us with funding. You might have seen the way our deposits increased this quarter, they are now at a record level, institutional support, not only with capital as they have in the past, but also with marketing companies.

And it provides us with a very effective product distribution channel. In addition to it all, the fact that we are partially owned by 23 central banks or governments, allows us to participate or be a member of the multilateral community which, in the past, has proven quite useful in providing us with funding at times of difficulty or funding at attractive rates.

It would be close to impossible for anyone to replicate these four competitive advantage of the bank. It would be very difficult to form a multilateral in Latin America, conforming our 23 central banks agree to participate. This is a tremendous advantage, a tremendous core competency of the bank.

Thirdly, we own and we operate a coordinated network. As you know, we have units in the United States. We have a unit in New York, a unit in Miami. We now have two offices in Mexico, one in Panama. We have two offices in Brazil. We have an office in Argentina and we have announced that we're going to open an office in Peru.

Having a network is one thing. And for those of you that have worked in the financial industry before, you know that it is one thing to have a network. It is another thing to have it operate in a coordinated fashion. This is one of our great advantages. If one of our relationship managers in Brazil determines a need for support of a subsidiary of its customer in Mexico, we will know about it the same day and will probably be acting on it the day after.

There are no silos in Bladex and we work a lot at making sure that there are none. A coordinated network is one of our great core competencies. And lastly, and Scott alluded it to -- alluded to, rather, our corporate governance. We are recognized in the market as having excellent corporate governance, so much so that we are often asked by other banks, central banks often, to provide seminars to make sure or to teach them how to improve corporate governance.

What this means -- what this creates is trust. And trust in a banking environment, of course, is critical. It's critical. If you are a shareholder, you know that, in the past, whenever we have had bad news to deliver, we have done so. So the ability -- the rating agencies know this as well, the trust that we have created through corporate governance is a core competency that, again, can be replicated but takes a very long time.

So based on these core competencies, we have a position. We have -- Bladex, as a brand, is positioned. And we are positioned as the most professional and reliable trade finance organization in Latin America. That is the position of our brand. And, by the way, this is not us talking about our position. No, this is borne out by client surveys. And this provides us with a great platform from which to generate business.

We generate business throughout the region. We cover the entire region -- the entire region is growing. You will note that when we put this presentation together, we were not operating in Bolivia. We had our board of directors meeting in the last couple of days and we allocated capital to Bolivia. So from now on, we can state, as I'm stating now, that except for the countries that are not members of Bladex, we're operating and we do business in all of a region that is growing.

What -- given that we have a strong position based on our core competencies, what type of clients do we serve and what is our value proposition to them? Why do we -- why are we successful in competing against them? Why are we growing the way we are and why is it that we are not particularly afraid of our competition? Here are the reasons in simple terms.

Four regional companies. And there's more and more companies in Latin America becoming regional. What Bladex offers is a multi-country product delivery in a uniquely, and I stress this, a uniquely coordinated fashion. We do this very well. We do this very well for Mexican companies operating in Central America, for Brazilian construction companies operating in Panama, for Peruvian companies operating in Guatemala, for instance.

And our competitive edge and the reason why others cannot penetrate this market once we develop our client relationship is because we, as we said, have a very strong and deeply rooted regional knowledge. Secondly, we have a system, sorry. Our client relationship system is based on single points of contents. Each one of our clients has one person that they can call and that person puts the entire organization at their disposal. That makes a big difference and differentiates us from many of the competition that have, again, different relationship managers for different products. Our product, actually, our single product is service.

For domestic companies, which is the other segment, the other segment that we operate with in the corporate sector, what we offer is the specialization that we have in trade finance. We do trade finance better than most local banks. We also offer reliability. Reliability means the ability to be there in the good times and bad times. This particularly, after what happened in 2008, has provided us with a great competitive advantage. We are known as a bank that, to the extent that risk and resources allow us to, will stick to our clients.

And lastly, excellence in execution. It's amazing, but -- thank you, part of the problem that local companies are experiencing more and more with their local banks, as they grow, is that local banks tend to make more mistakes than we do. We very seldom make a mistake. And this, for companies, is something that is very attractive.

In addition to that, we decide quickly. We're a small company. Our processes are simple. The lines of communications are effective. We are perceived as being professional. Again, this is not something that I'm telling you about. Customer surveys, as recently as last year, identified us or qualified our people as the best in the business. And thirdly, after we do a transaction with a company, by definition, because they tend to be short term, we tend to hold our clients' hand longer and with more care than those other competition.

For our third segment, for the banks, we represent stability and experience. And stability, if you are in the banking system, is now valued a whole lot more than it used to be in the past. And we have proven to be, within the relative context of the financial industry, stable. We also have -- we have credit availability. Most or many of our correspondent bank competitors are not able to extend credit, either because they don't have enough capital at headquarters or because they don't have liquidity or both. We do. We have them both. And lastly, loyalty. Many of these banks have been with us and we have been with them for 25 years or longer. We have a very strong franchise which is growing with the banks.

Regarding product now, how do we serve these three segments? We have a number of well-established products, anything from loans to leasing to vender financing, et cetera. We place great store in continuously improving them. We need to continuously improving them because we need to keep their competitive edge in order to be able to charge premium pricing for them.

I'll give you a very simple example. We are now -- we are now accepting documentation subject to local jurisdiction. Not very many international banks do that. In some jurisdictions where we feel comfortable, we are now using local documentation which, for our clients is a huge advantage in terms of time and cost.

We also have products that are in the process of being developed. And here the classic example is asset management. And I will develop the subject for a minute or two because I know last quarter, in particular, this was an issue. We do have competitive edges that we think are unique in the business.

Firstly, we have access to a set of investors that others don't. We have access to potential investors in the central banks, in the commercial banks that were our clients, and this is just as important as the corresponding banks that know us outside Latin America. I will give you an example of only about a week ago.

We were meeting in Washington at the monetary fund with a Japanese bank. And when we described our Latin American fund which we could sell to them so they could sell to their clients, they were extremely interested. They were extremely interested because they know of Bladex as somebody that knows Latin America and they can sell with confidence to their clients.

In addition to that, at board level, and this is important that you know, the board of our asset management subsidiary is composed of Bladex directors -- of majority composed by Bladex directors that know Latin America and by representatives of Bladex management. This provides the subsidiary, the asset management subsidiary, with a real advantage in terms of strategic direction. And this is why we believe that we have very strong or very real competitive advantages in the business and that is why we remain, as we explained in the press release, committed to it.

And lastly, we always have a portfolio of innovation. We are a relatively small bank. We compete with big fish. And one of the ways we do that is by finding new and better ways of doing things. One example is regional factoring. We've been talking about it for a while, we've come a long way forward in developing the business.

We have now engaged an investment bank to help us structure an acquisition of a company in Brazil as we have announced before. Factoring, as such, is a well-established business. It's not particularly innovative. However, Bladex has the unique capability of making this into a regional business.

And let me tell you, when we talk to our clients and we tell them about the possibility of discounting the receivables of their providers across borders, their eyes open like this. They love it. It hasn't been done and we think we can do it and that's why we're working on it.

And that's -- so that's our product [switch]. A mix of established products, developing products, and innovation. As we move innovation to developing products, we always, always look for something new that we can develop and bring to market to give us a competitive edge. So how does this all add up to what many of you are interested in and rightfully so? Why does this -- how does this allow us to think or plan in terms of increased profitability?

Growth is -- there are two pillars to increasing profitability in the bank the way we look at it. The first one is capital deployment, leverage, growth, whatever you want to call it. Take a look at the three lines. We are currently leveraged at about 7.1 to 1. Just to put that figure in context, the banks that ran into trouble in 2008 were leveraged at figures of about 35 to 1. We believe that a responsible bank, the way it's generally run in Latin America, tends to run at leveraged figures of somewhere between 10 and 16. Look at how quickly we will get there and deploy the capital, depending on how quick we grow.

Even, and this is the yellow line, even if we grow at less than our base rate of 20%, by 2013 we will be at 10 to 1. That has, if you put it in your models, a huge impact -- a huge impact on return on equity. If we grow at our base rate of 20%, we will be at close to 12. ROE will be even higher. Risk will be only marginally more of an issue.

If we were to beat our growth estimations every year and be able to grow at 25%, leverage would become something like 13 times, still well within what is considered a prudent way of managing risk. Capital deployment then, or leverage, is one of the two pillars that, over the next couple of years, will surely allow us to increase ROE.

The second pillar has to do with ROA, which is closely related to the products I just described. The first thing that we're doing, and you can already see it in this quarter, we're changing the portfolio mix. We're not, by no means, abandoning the bank sector, which is a great business for us, but we are developing more and more corporate and middle market clients, which, by definition, have reached a pricing and where we find less competition than in the bank sector.

We will continue to do so over the next couple of years. And again, as I just -- I hope I showed you we have very real competitive advantages, very real reasons to believe that we can gain clients in this segment, competing not only against international, but also local banks. We've already been doing that.

The second thing we're going to do is we're going to increase fees. As our number of clients grows that we will have more usage of our traditional products like letters of credit, collections, whatever. That alone will increase fees. And we also believe that as we develop the asset management business, and we don't need much for it make a big difference, the fee income -- the total fee income of the bank will increase in a stable fashion.

The third driver of ROA will be efficiencies of scale. As we told you at the beginning of this year, during 2010 you might have noticed it, we are spending more money than we did in 2009. We have been building -- we have been building an infrastructure that allows us to capture more of the growth that we just described. That's why we have opened new offices and we have hired people to work both in our commercial division and our risk division, by the way. Clearly, we don't want to -- we cannot do the one without doing the other.

The point will come, however, where with that infrastructure in place, growth will start accruing at a much faster rate than the increase in expenses. And that alone will tend to increase ROA significantly. And lastly, there will be new businesses. If we bring factoring in line, there will be a net addition to what we currently have.

And clearly -- so the combination of higher leverage and an increased ROA doing nothing, because none of this is rocket science. There's nothing here that we cannot do. It will take us some time, but we will surely get there, absent another Lehman Brothers affair that we don't -- none of us believes is in the cards. If it isn't -- if we don't face anything like that, this is a plan perfectly doable. We will get there.

And here is where I want to offer the third quarter as a proxy. During the third quarter, many of the things that I just told you about started happening. Growth was phenomenal, admittedly. We benefitted in this quarter from the bounce-back effect that is taking place in Latin America. I would love to continue growing at 18% per quarter, but no, I don't -- nobody in the Company believes that's going to happen.

But clearly, capable of growing we are. We just showed it. Liabilities are not a problem. We just -- we are, as you can see from the quarterly report our deposits are, for instance, at record levels and we don't see that there is any reason why that should not continue increasing.

The asset management division has now increased -- has now returned to profitability. We believe that, in two or three quarters, as we rebuild the track record, that will allow the asset management unit to start selling to third party investors more effectively, that will build the stable fees that we're looking for and that will contribute even more to the ROA.

All of this is happening and this is crucial. We're actually paranoid about this. We're growing -- while we wrote down here, stable credit quality. In fact -- in fact, it's improving. So we're being very mindful of credit quality. We are not going to grow while sacrificing credit quality.

You will note that in the new segment, in what we call middle market, we're growing very rapidly, but the amount is still very small. And that is because we're using small tickets while we learn the business. And we want to learn the business so that when we press the foot on the accelerator, we can grow with relative peace of mind.

So the quarter -- we earn US$15 million. It was a well diversified figure. It was high quality because most of the -- in fact all of the items that we saw in the income statement are of a recurrent nature. And what remains for us to do from here on is to grow the bank and along with the bank grow the nominal figure of the profit.

As we grow the nominal figure of the profit, ROE will increase. With increasing ROE, that will drive the value of the share up and we will have fulfilled both of the commitments that the chairman just mentioned. We will have provided the region with trade finance and remember we disbursed US$1.7 billion in trade finance in this quarter, something very important for the Company. And secondly, we will have increased the value of your company.

So with that then I will let Mr. Christopher Schech take us to the particulars of the quarter, I hope, because this was my intention. I hope that I have cleared some of the misconceptions that exist about what is it that we consider our core competencies, how do we apply them across different markets, what clients are we concentrating on, why is it that we believe that we have a competitive advantage, not only in the region but also with the individual segments.

And I hope that you can now see that our plan for increasing profitability is based on solid foundations and it's perfectly doable. Thank you very much, ladies and gentlemen. And with this I leave you with Mr. Schech, for him to discuss the particulars of the quarter. Go ahead, Christopher, thanks.

Thank you, Jaime. Hello and good afternoon, everyone. Thank you for joining us here at the New York Stock Exchange today. As usual, I -- my comments will focus on the main aspects of the -- that have impacted our results in the third quarter of 2010 and I will try to put them in context with the previous quarter and also with the same quarter of last year.

And to start with the highlights, even through Jaime really took away a lot of the wind out of my sails in that regard, a quick recap of what we believe to be the third quarter highlights. First of all, solid results produced by the bank, on the back of the rapidly growing commercial division -- our asset management unit is back on track again, producing results that are more in line with its historic track record.

And the treasury division has also shown improved results while continuing successfully with its key mission to reduce funding costs. And although market interest rates remain at very low levels, we have been able to manage our margin spreads effectively. Cost management remains prudent and by -- with investment in resources in the right places, and by that we mean investment in our commercial division, in our front-end resources, but also in our risk management as Jaime already mentioned.

So we're focusing on client-facing activities that will allow us to grow and portfolio risk management that allows us to grow safely and responsibly. The importance of risk management shows in the improving trend of our non-performing loan portfolio and the reduced reserving requirements in our portfolio.

So the third quarter of 2010 closed with net income of US$15 million compared to US$1.7 million in the second quarter and US$15.8 million in the third quarter of last year. And as mentioned in earlier calls, the performance in the first three quarters of 2009 was heavily influence by the outcomes of the financial crisis.

Back then, our results were impacted by a strong rebound of the financial markets, triggering a revaluation of our securities portfolio. And last year market interest rates stood at levels that were significantly higher than what they are today.

And as regards the portfolio quality, there has been a significant year-on-year shift in terms of nonperforming loan performance and generic reserve requirements as the economic outlook for countries and companies in the region has improved. So let's go into more details regarding the performance and results of each business segment before we discuss other aspects of the bank's financial performance.

Let's start with the commercial division where net income was US$13.9 million in the third quarter, the same result as in the previous quarter and compared to US$11.8 million the same quarter a year ago. The net result was mainly impacted by higher revenues from a growing commercial portfolio base. Net operating income, and by that I mean net income before provisions for loan losses, showed a healthy quarter-to-quarter increase, mainly from net interest income as average loan portfolio balances showed solid growth in the quarter.

Revenues were higher, even as the shift in the portfolio composition towards higher quality clients in investment-grade countries increased and that ensued also lower margins. Market interest rates continued to persist at historically low levels with six month's LIBOR at really low levels they have seen for the last three or four quarters. And that therefore represents still a drag on our earnings.

Commission income slowed a bit this quarter with decreased activity in our letters of credit business as oil shipment transactions, which make up a significant portion of that business slowed temporarily. However, contingency balances and number of transactions are up on a year-on-year basis.

All this translates into average commercial portfolio growth, as you can see in this chart, and our commercial portfolio balances that we show here include acceptances and contingencies which are off balance. But together they accelerated, they grew significantly this quarter. And as a consequence, period end portfolio balances stood nearly at US$4.2 billion, a 17% increase over the previous quarter and 44% above the levels at the end of the third quarter last year.

Loan disbursements, as already alluded to by Jaime, surpassed the US$1.7 billion market in the third quarter, a very strong increase as pent-up demand from large corporations and financial institutions kicked in. Disbursements to both of these segments grew slightly more than 50% quarter-on-quarter, while disbursements to the middle market grew at 76%, although the -- as Jaime already mentioned is still very small in scale.

The average ticket size was above previous periods as we had a few large transactions. And that contributed to the size of the disbursement increase which was somewhat above what we would consider normalized run rate. Average lending spreads dropped slightly this quarter as the portfolio mix grew more biased towards large banks and corporations in investment-grade countries.

The commercial portfolio remains short term and trade related in nature. 71% of the portfolio will mature within one year and 57% of the portfolio is trade finance related, while the remainder represents lending to banks and exporters. We continue to diversify the country exposures of the commercial portfolio as demand and the competitive position of Bladex strengthens in more countries.

59% of the commercial portfolio is corporations and sovereign risk, 41% is lending to banks. Outside the banking sector, our exposure to industry sectors is very well diversified, as you can appreciate in this slide. The portfolio risk profile continues to improve as nonperforming loans are trending down, both in absolute and relative terms. The amount of loans in non-accrual status amounted to US$33 million this quarter, representing 0.9% of our loan portfolio. And that is 27% below the level of the previous quarter.

At the end of this quarter, US$4.1 million of these US$33 million were actually passed due 90 days. That is the same amount that we had last quarter and the rest of the non-accruing loan portfolio showed payment behavior which was in line with the workout terms.

Despite reduced reserving requirements with the commercial portfolio growth this quarter, we did see an increase in absolute reserves and that impacted our provision life, even though the impact this quarter was fairly small. Going forward, we should expect to see provision increases as reserves start keeping pace with portfolio growth.

Now let me move onto the treasury division, which contributed a loss of US$1.5 million to the bank's bottom line in the third quarter. And that is an improvement of US$1.3 million over the previous quarter. Low market interest rates continue to pressure valuations of interest rate swaps that we have in place to hedge our interest exposures relating to the trading portfolio.

But this quarter the foreign exchange result was net positive, due to a consequence of valuations of local currency loans, obligations, and related hedging instruments. We'd have to notice here that -- or make note here that the bank does not expose itself in any way to a foreign exchange risk. Those differences in valuations that you see quarter-on-quarter in our P&L statement result from the accounting treatment that we derive from our hedging instruments.

The mark-to-market effects on the available for sale portfolio on related hedging instruments were the main factors driving a decrease of unrealized losses that we record in the other comprehensive income line in the balance sheet, which stands now at US$6 million, some US$5 million better than the previous quarter.

The securities portfolio balances grew this quarter, mainly with additions in the available for sale portfolio. It consists of high quality and liquid Latin American securities as it has always consisted. 81% of the securities portfolios represent sovereign or state-owned risk. And as regards to liquidity levels, they are now more in line with historical levels at about 7% of overall credit portfolio balances.

And on the funding side, as we already alluded to, the division achieved nearly US$1.9 billion in deposits, the highest level on record for this bank. Deposit growth has been an important factor in reducing overall funding costs and helping offset the effects of increased medium-term funding. The division continues to manage an effective mix in our diversified funding portfolio as average weighted funding costs were down 4 basis points versus the second quarter and spreads widened by 10 basis points over the same period.

Now let's move on to discuss the asset management unit which saw a nice turnaround this quarter, a healthy rebound delivering net income of US$2.6 million. For the bank, it's the highest level of income that we've seen since the third quarter of last year. This result is, of course, more in line with the track record that the unit has accumulated over the years.

And the only caveat to that is, of course, that the effect that third party participation in the fund has dropped to levels as of a year ago. However, as mentioned by Jaime, efforts are being redoubled to achieve greater third party inflows. Bladex's role in helping provide access to perspective clients throughout the world will be expanded going forward. We also made the decision to cap our investment in the fund at a level of approximately US$115 million.

Moving on from our segment review, and in summary, let me briefly highlight a few more aspects of the bank's performance in the third quarter 2010. Overall, we continue to see strong net interest margins at 173 basis points this quarter as a result of lower liquidity levels, higher securities portfolio yields and solid lending margins.

Interest rates reached 148 basis points as funding costs remained under control. Operating expenses in the third quarter were slightly up as we continue to invest in commercial and risk resources, as we mentioned before and also in expanded local presence as we have opened new representation offices in both Monterey, Mexico and Portalada, Brazil.

The efficiency ratio stood at 40% for the third quarter. Efficiency gains in co-operations continued to grow as revenues accelerate faster than costs. And scale efficiencies are starting to materialize as portfolio growth continues. And before I hand it back to Jaime, just to comment on the bank's book value, which increased US$0.42 from the previous quarter to US$18.77 a share.

Given our portfolio growth, we are relevering at a faster pace now with leverage currently at 7.1 times, which compares to 6.6 times in the previous quarter. Tier one capital now stands at 20.6%, which is still a comfortable base for further business growth and more efficient capital deployment.

And so, although we are still at the very early stages in the process of improving overall returns, we believe that this third quarter results are really an indication that we are indeed on the right track. And with that, I hand it back to Jaime for the Q&A. Thank you.

Stay around, Christopher. Stay around. Ladies and gentlemen, this concludes the formal part of our presentation. We'd be delighted to take your questions and provide you with our thoughts and answers. Please, go ahead. We get a chance to do it in person now.

Hi. [Chris Bell], Orange Capital. I'd be curious to hear your view on the most recent events which, coming from the fund flow side, there's clearly a lot of funds going into Latin America. Some countries have started to raise taxes, et cetera. How do you see that development impact your business, maybe on the net interest margin side? Or should we think of this as a positive or maybe even a negative, given that, maybe too much liquidity could even be a negative. Or how do you see that as a pan-Latin American bank? I'd be curious to hear your view on that.

So far, it's neutral. And let me explain my answer. Very differently to what they did before, when the funds arrived in [March] to Latin America, they are not engaging in the business of lending money. I think they, quote-unquote, learned their lesson from last time where they really got burned. They got into the business of lending without really knowing about the business.

This time -- and we just performed an analysis of that because we wanted to see what the potential impact of hot money going into and possibly out of the region might be, our conclusion was that so far that money is going into mostly the stock markets. We have not seen a single transaction, like [Reuben's] where we've had to compete against a hedge fund or anything like that in this post-2008 era.

Lessons are forgotten and I would not be surprised if, in a couple of years from now, we start seeing some competition from them. But it's not an issue. Our biggest competition, we still believe, is going to come as large local banks start becoming international in nature. And that's fine. We can compete against them.

Hi. Jeremy Hellman, Divine Capital Markets. I want to say thanks to everyone from Bladex for coming up, first of all, for the event.

Thanks for being with us, Jeremy.

I wanted to get your views on foreign currency, in particular with respect to the US and China. Obviously, things are getting interesting. I wanted to hear your views on that, how it might affect the bank and, just from a macro currency perspective as well.

I will answer your question from a very micro perspective because we don't view ourselves as experts in currencies as the impact, say, the relationship between US and China. But I will tell you this. There has been, as a result of what's going on in the currency world, there has been a strong appreciation of Latin American currencies. And that is a reality that is impacting the competitivity of some exporters, particularly in countries like Colombia and Brazil. What companies have done, however, is they have invested huge amounts of money in the last couple of years in improving productivity.

Beyond what the governments are doing, such as the measures that you just mentioned that Brazil took recently and probably other countries will be taking in the future, I am convinced because I have seen the companies and I have visited them, that through productivity they would probably be able to offset most, if not all, the impact of appreciating currencies. Of the technology being used, the amount of real investment going on in productivity improvement has just been astounding in the last couple of years.

If you visit factories in Mexico, which I did this quarter or in Colombia, which I did this quarter as well, or in Brazil, your conclusion is, look, they're operating with absolutely first world technology. They can withstand currency appreciation and continue to compete. That is, in short, what -- the way we look at it. Is that a half-satisfying answer? I do, however, believe that the central banks will continue to the degree that they can, trying to impose controls or trying to limit the appreciation of the currencies.

Jaime, hi. [I haven't gotten less], excellent presentation.

Thank you. Thank you.

I'd like to ask you, does Banco Latinoamericano have any plans to enter Cuba?

No. For historical reasons, the charter of the Company states that Bladex can only do business in companies that are part of -- that have Class A participation in the bank. Cuba was not a founding member and therefore we do not -- and in fact, we're not allowed to make -- to do business with Cuba.

Hello. Patrick Brennan with RBO & Company. I just had a couple questions on the asset management division. I was just curious if -- with regard to, in the future if there was another quarter like the second quarter, hopefully, we don't see that, but how big a setback would that be on the fund-raising efforts, do you think?

And I guess if one year from now, two years from now, you still are unsuccessful selling down the amounts that outside investors own in this fund, would you reconsider and sort of your thoughts on the value investors place on sort of the -- a prop trading type revenue stream? That would be helpful.

I thought there would be no questions on the asset management unit this time. Actually, no, your question is very pertinent. A very practical manner is, of course, given what happened in the second quarter, any setback of a magnitude similar to that of the second quarter would represent anywhere from a serious to a very serious challenge to our ability to rebuild a track record and generate third party business.

We are aware of that and the asset management unit is conducting and managing the operations of its subsidiary accordingly. Regarding your -- the second part o f your question, we are businessmen. If it turns out that our assumptions regarding our competitive advantages in the business turn out to be not correct and that we are, in fact, not able to raise third party money, then we'll certainly reassess the strategy of the subsidiary as we have done with every other business that hasn't gone the way we want it.

We are, however, convinced that our competitive advantages in the business are real. Secondly, we don't need much in terms of assets under management to make a real difference in our ROA. If we were able to raise US$200 million, US$300 million, US$400 million in assets under management, that would make a big difference in our ROA and therefore in ROE.

So again, we are convinced that we have competitive advantages. We are not reaching for the sky. We are reaching for an amount that we think is perfectly reasonable and doable, given the channels that we have opened with potential investors. We will give the unit time to rebuild its track record and go at it again. If it doesn't work, we will reconsider it. Any -- Melanie, any questions from the phone?

At this time, there are no questions on the phone.

Well, ladies and gentlemen, then that leaves nothing for me to do. On behalf of Bladex as an institution, on behalf of our chairman and the board of directors and of the management team of Bladex that's here -- oh, we have one more question. Yes?

Okay. Our first question will come from [Howard Langston] with National Bank.

Hi.

Hello, Mr. Schech how are you? I'm sorry I can't be there. You were speaking about the credit recapture in your mark-to-market portfolio where there was a problem in the previous quarter. And you said the earnings this time were US$6 million, US$5 million better than in the previous quarter. Was any or all of that a partial recapture of the problems in the second quarter?

Yes. If I understand your question correct, the impact, and it all went to the other comprehensive account was the result of increases or improvement in prices of securities that we already had in the second quarter. Is that what your question was?

Well, yes, I guess so. Just to repeat, the -- you had a partial recapture of the negative impact of mark-to-market. And so part of the US$6 million of the -- or most of it that you showed in earnings of -- were recapture of the negative impact in the second quarter.

That is only partially correct.

Okay.

In our securities portfolio --

Yes.

-- which we keep in available for sale --

Yes.

-- the changes in valuations, whether negative or positive, do not flow through the income statement. So that --

Oh.

-- improvement in valuation did not flow through the income statement. It was posted directly to capital, and you will see that the line in capital called other comprehensive income improved or became less negative by US$5 million. According to accounting and US GAAP accounting considerations, the changes in valuation in the available for sale portfolio are, whether positive or negative, are put through to the -- directly to capital without flowing through the income statement. There was no positive impact on the US$15 million that we reported on behalf of improvement in prices and securities.

Okay, good. Okay, thank you. Hello?

Barrington Pitt-Miller from AMRO Capital. You very helpfully laid out the releveraging opportunity and therefore the potential to increase the ROE. You're obviously seeing a very substantial sort of consumption of capital to get to that new level of ROE. Can you just give us a sense as to where you can trend that -- the ROA so that within a few years' time we can begin to understand what the sustainable organic growth potential is without further capital increase?

Can you rephrase your question because I want to make sure that we are --

Your releveraging of the balance sheet implies that we're going to take the Core Tier One capitals down very substantially --

Right.

-- over a period of a few years.

Of course.

And obviously you've got tremendous opportunities to manage the mix within your business and therefore the ROA.

Right.

Can you give a little sense at the end of that period what the ROA dynamic will be, therefore what the ROE dynamic will be, and therefore what is sustainable growth without taking -- increasing leverage further?

I -- we believe, and this is the summary of it all, what we are aiming for is a 15% sustainable ROE based on a leverage ratio of somewhere around 10 or 12 times, depending on risk levels when we get there in 2012. The balance -- the balance will come from ROA improvement. Does that more or less answer the question that -- in a manner that you find it useful?

Okay. Thank you.

Okay. And with this, I have -- I am now being signaled that the questions are truly over. Again, ladies and gentlemen, on behalf of the board of directors, our directors, senior managers of Bladex, we want to thank you for your presence. It was an absolute delight to be here. Thank you very much for your time. We hope you found the use of your time useful and this a good investment of your time. And we look forward to -- for those of us who are on the phone to hearing from you again next quarter and hopefully we'll see you soon here in person again. Thank you very much.