Banco Santander SA (SAN) 2004 Q3 法說會逐字稿

Good Morning ladies and gentlemen, I would like to make a preview remark before making the presentation and following the indications from our legal advisors, I want to highlight point 6 of the disclaimer, which refers to satisfaction of the condition relating to the Abbey National PLC, (inaudible) arrangement and as a consequence we cannot provide information about the transaction, which has not been public (inaudible).

Well, we will divide our presentation into five areas. In the first one, we will take a brief look at the group's overall performance in the past nine months, then (inaudible) we will look into greater detail of the business areas and lastly we will comment on the coming steps of the Abbey acquisition.

Well, the highlights of our nine months performance, firstly, I want to point out that the third quarter is in line with the year as a whole. Was good for others business and development of the group with strategic plans. We continue to achieve high rates of growth in business volumes and in earnings; net ordinary (inaudible) ordinary attributable income grew 21% excluding extraordinary capital gains, led by good performance of retail units in Europe and Latin America, and also by reduced costs from preferred shares and ordinary goodwill amortization. At the same time, we improved all our management ratios, efficiency ratio, profitability, credit risk, and capital strength in relation to 2003 and lastly, as you know (inaudible).

The third highlight is the containment of "after absorbing (inaudible) technology and business, special business projects." The second pillar of our management (audio gap). There are two types of projects, both for future cost savings, boosting efficiency activity, satisfy demand and create and the integration of back offices, and orders for stepping up revenue growth like IO6 measures, regional projects in Latin America etc. Other specialized personal gross and general gross on a like-for-like basis rose 2.4%. This performance of course together with higher revenues improved the efficiency ratio by almost 2.47%.

The fourth highlight is that we increased loan-loss provision because of the greater volume of lending. While revenues grew, our costs remained almost stable, provisions were significantly higher than in the first nine months of 2003. As seen in the chart on the right, visualizing provisions is compatible with excellent credit risk quality because we increased but mostly due to provisions linked to growth in lending, what we call generic and statistical. Furthermore, the specific provisions related to the rise in non-performing loans declined 49% between the two periods. Contra-risk (ph) provisions were especially in the last quarter due to an increase in credit finance operations.

In summary, on the basis of just economic criteria, the necessary provisions were 324 million euros and the rest correspond to specific regulations i.e., loan business related.

Summary of our group results, January-September 2004, the main points of the income statement for the year are good growth in basic revenue with controlled costs producing a 12.3% rise year-on-year in net operating income, even though trading gains were lower, growth of 15.6% on the basis of unchanged trading gains.

Net ordinary attributable income less the profit by extraordinary income. Net operating income grew by 576 million euros and net attributable income by 408 million euros. Positive impact of lower cost from preferred shares, increase of 14% before the impact of this course, but as mentioned before the 851 million euros of extraordinary capital gains brought total attributable income to 3,169 million euros, plus 64% than the first nine months of 2003.

But these higher earnings and the stronger business, enabled us to improve the main management ratios. The efficiency ratio improved by 1.7 points between the first nine months of 2003 and the same period of this year. ROE by more than 2%. The non-performing loan ratio reached an all time low and non-performing loan coverage surpassed 200% and moved plus 56 points over the last 12 months. And now (inaudible) will continue with the presentation by business areas.

Good Morning. I will start with European Retail Banking. You can see that the trends continue to be the same. I would emphasize the growth of 9% in revenue with almost flat costs, which has translated in a very rate of growth in operating income which is around 18% the same in net attributable income. This in the sequential, in the monthly, (inaudible) you can see that this reduction, which is reasonable in this quarter because of seasonal reasons, basically in Spain.

We go ahead, we can see the different units in European Retail Banking. I would emphasize that Santander retail that has been in the last two or three quarters with a good net interest revenue starting to react and to change the terms as we announced the second quarter was flat compared with the first quarter and the third quarter starting to show an increase over the previous quarter. Taking also into consideration that the first quarter is weak traditionally because of seasonal reasons. And also emphasize the strong growth in consumer finance, which is impressive and we think will continue in the next quarter.

This performance is translated in the corporate cost to income ratio which is now for European commercial banking is now around 43%, 42.6%. The performance is driven by the growth in volumes. You have here the evolution of loans and customer financing in Santander retail. The loans are growing at the rate of 22% and customer funds including mutual funds are growing at the rate of 8%. You can see that the loan growth is very, very stable. Each quarter we are growing over the previous quarter and probably the last two quarters has been the best in the history of Santander retail with absolute volume increase in loans of 3.7 and 3.2 billion respectively. You have also the rate of loss, which is very stable now around 22%.

The growth as you can see is not only concentrated in one (inaudible). It was in the last quarter of last year, right here because of the strong (inaudible) in the mortgage business through the summer, but this year and specifically in the last two quarters, more evidence in the last quarter, the rate of loans to FME(ph) is starting to be more important. In the case of (inaudible)are very good with a better performance in the growth of customer funds, more or less the same in loans and this growth in loans is very well spread between companies and individuals backed by mortgages and products such as credit cards which is performing extremely well. (inaudible) sector and small shops.

The growth in retail lending is 34%. This growth rate (inaudible) to increased market shares, you can see, that most compared with the banks which have 50% of the (inaudible) Here increasing our market share. In the case of mortgages, for the total system is 1.2% increase in market share in Spain and total lending 0.4%.

Santander Consumer is delivering on some performance and it is not due to the change in parameter. We are consolidating Alcon (ph) the Norway Company and PTS the Poland Company, but the effort is still very weak.

The volume of lending up is 36% in nine months and net operating revenue is 28% up. So, net operating income plus equity accounted income net the (inaudible) growing 46% very in line with the growth of profit, which is 42.5%. The efficiency ratio of this unit is now around 35%. It is roughly 5 points below the efficiency ratio it had one year ago. So (inaudible) group is performing well, is performing well and the trends continue and we can comment in the question and answer section, but we see that this trends can continue.

Latin America after the re-launching of the commercial activities, we did, we started last year by June is growing very well. In local currency, the growth of total business is good and the growth in (inaudible) is 18% in 12 months and the absolute volumes we are accumulating is 6.1 billion in nine months of additional loans and 11.7 billion of additional deposits in mutual funds (inaudible)strong growth of this area in the next quarter.

Brazil. The growth is above the market. The growth in loans is above the market growth, (audio gap) in nine months and 28% when compared with the first quarter of last year. The absolute figure of net operating income this quarter $612 million, is the highest of the last two years and the highest in the history. This better performance in commercial activity with lower volatility in the market and more stability is giving a lot of stability and growth to the profit and loss account. The higher revenues flowing to the bottom of the profit and loss account still not with the same intensity because of the cost effort, we are doing specifically in Brazil but quarter-on-quarter net attributable income is growing at 13.7%.

(inaudible) specifically in Mexico due to the consolidation of 100% of Mexico in the first quarter of last year and only 75% this year.

All the leading countries are performing well. Maybe the only comment I would like to make is sales affected by this strong effort in cost, we can comment more if you want after, and Mexico the level of net attributable income is still down 14% and the reason is that there is question of this 25% we sold to Bank of America in the second quarter of last year and the other effect is the release of peripheral relief in Mexico last year. You can see that the rest of the companies are performing well on the line trend of what Mexico Brazil is doing good. Net operating income of Mexico still in this quarter is growing near 19% despite of lower trading gains than last year.

So this is Latin America and Latin America is growing well. This growth is starting to be reflected clearly through (inaudible) revenues but this is not the subject, it is not clearly visible in the bottom line because of (inaudible).

Asset management and private banking, net attributable income is growing 13.5% with a very good performance as you can see and a very important contribution from private banking. We have two private banking units. One is Spain BANIF and total private banking basically for Latin and both are performing well. This area is growing consistently. In the last five or six quarters this has been growing steadily and the last quarter was the record and maybe the only comment is that cost increased, which is not following that trend of flat cost that have said that we would want to maintain for this type of unit. Is due to the installation of (inaudible) we bought last new year. The group operation for Latin America to Royal Bank and the expansion that BANIF, the private banking branch in Spain is doing at this moment. Nobody has either a branch or (inaudible) in private banking industry.

A part of the profit of these reporting areas, it is important to understand the tax because we allocate most of the commissions to the distribution network and the proportion of commissions are related to the tax very low. So you can see that both insurance and mutual funds and business funds contribute 1.5 billion roughly in nine months, growing 32% with a sound growth of insurance contribution and mutual funds. On the right hand side, you can see also the good performance that we are having in our private banking operations.

By the contrary, (inaudible) retail banking had a weak third quarter due to lower trading gains and less flow of goods, but the trends in the nine months did very good with an increase of 57% in net attributable income. This is due to the first quarter of (inaudible) and also to the lower provisions due to the lack of wealth in the (inaudible) portfolio something that we are developing, but we are increasing the proportion of other value parts in this area and this is something that is the main target for the area in this moment.

And finally, I would like to give you only, to update you in the next step in the calendar of filing transaction, the approval of the scheme of arrangement should take place between the 8th and the 11th of November. We expect to complete the transaction by the 12th of November and the trading of the new shares will be the 16th of November. Now, we are prepared to answer any questions that you may ask.

Jorges Calamari (ph)from (inaudible) Just a couple of questions. First of all on the (inaudible) margin. If I remember correctly in the past you were beginning to position yourselves for rising CD rates and you have reduced your interest rate hedging. If you could give us an update on what the situation is there and also looking at the Santander network in Spain, the customer spread (inaudible) deposits continues to fall on a year-on-year basis by 72 basic points.

How do you see that evolving because the cost of deposits is more or less stable now and with the growth rates that we have seen you also need if the loan rates will continue being adverse and then if you could give us an update in Latin America on the same topic as well because you have in Brazil rising interest rates, inflation expectations coming up and I was wondering what the mix is with your inflation indexed bonds and how that plays along. Then moving to provisions, we haven't seen an indication of what the provisioning levels are in Brazil and in Mexico because historically you have been providing a little there because of the high coverage rates. If you could give us the trend that we are seeing today, and that's it. Thank you.

Well, net interest margin, I think is the topic or the issue that you addressed, but it is difficult to explain. Let me say that while it is true has that we have been losing margin in the last many months. (inaudible), but what is also true is that this fall in (inaudible) has been stopped in the last few months. We expect to increase this lightly (inaudible) loan. In view, we have split (inaudible) for the new production I mean, and the new production takes a long time (inaudible).But the interaction we are seeing the month of August, September, and October, (inaudible) have stopped the fall in the net interest margin in Spain.

In Spain and Portugal, which is more or less in the same phase and in (inaudible) is the same thing, Santander and BANIF. So that means that what we think, that is what we anticipate is not a tremendous increase in the spreads which is not probably realistic, but at least we stopped the fall and with the increase in production (inaudible) will go up in loans at 10%, the increase in income coming from the asset side will increase our (inaudible) 10%, roughly speaking. Of course, always there is another aspect, which is the mix of products that you sell, do you sell more consumer loans or you sell more to companies or more (inaudible).

The second idea is that you are right, we are seeing a shortening demand for mortgages (inaudible). Anyway, you will compare our ordinary figures, let's say our gross figures in September and October. We have had already our special campaign compared with the period we had in the same months in 2003. Even we still are above the figures we laid before launching the special campaign. So in other words the demand for mortgages is still extremely strong in Spain. Despite, what you could think, it is still very strong and I do not think that this demand for mortgages will fall down abruptly in the next quarters.

I don't mean months, quarters. In other words, the demand for mortgages is growing I think very, very steady by 20% or it could go up by 15 or 14 or 16 or some figure like that but not by 3% that's my idea. I am at the resale bank I cannot anticipate what the development will be but I insist that we don't see the demand to fall out abruptly at least for the next few quarters. So, that means that it's true that we have growth and we are doing better, increase our production in other kind of loans, to small and medium size companies etc. In fact we are growing over 20% in this business line in small and medium size companies and for individuals, but still it is true that 50% of our new production is coming from mortgages and this is going to be worth (inaudible) for the next year budget in Spain.

In Latin America, the situation is very clear. You can see (inaudible) with our people. What has been the evolution of (inaudible) Latin America is very stable. In the last year, since January this year in Brazil, Mexico, and Chile the spread is very stable. A slight difference month-by-month, very stable. So we haven't lost net interest margin in Latin America. I think I have answered basically, the first part of your question.

The second part of your question was on provisions. Well, provisions this is like it is, so we are living not only in Europe even Spain very wonderful environment in terms of risk quality, but it's true in Spain, that is true in Portugal, that is true in Europe, and that is true in Latin America as well and that makes our figure for loan operations very low and that justifies what we did last year, in 2003 in the third quarter, that we released, left provision for Mexico. But that hasn't been the case in this period of time (inaudible) the now figure for provisions in Brazil and Mexico, but this is what we are supposed to. Of course, you could argue with me that we have a very young investment from the history of our loans; the growth of loans is very young.

So basically we should pay attention to what will happen in the next couple of year when the maturity of the loans will be 3 years, 3-1/2 years so that means that probably the provisions or the (inaudible) risk would be the lowest. I don't think so. For the time being we are prudent. As you know, we have a very tight and very well-developed admission assistance for our loans. I think that it may rise our need for provision in the future, if the current situation turns down, but I don't see any danger that our corporate loans in Mexico and Brazil is weak or is let's say or will be in the future even in a downturn of the economic situation.

(inaudible) figures in Brazil but it is more important for us to follow the corporate growth in the individual segment, one we are growing more in the loans could be giving us more (inaudible) the future and (inaudible). (inaudible) was 5.5% (inaudible) last quarter it was 5.1%, in the first quarter of this year was 4.5%, the second quarter 4.6% and in the third quarter 5.9%. This is likely (inaudible) duration in the cost of (inaudible) but this (inaudible) below in the previous (inaudible).

The margins and the revenues (inaudible) in Brazail are going well in the commercial side and going very well in what we call the known customer side because of two reasons. One is year-on-year the investment of the capital, the net profit value of the bank, the investment in market interest rate if you have not (inaudible) because the market interest rate dropped 10 full points. The investment of the capital is giving us less money and the index bond also is giving us less money.

And the last comment I would like is we are doing a low level of provisions, a low level of economic provisions but due to the fact that Bank of Spain has this special rules, as you saw before economically we needed in nine months only 230 million but on top of that we accounted with this accounting provision of 1 billion additional. So, clearly the bank, you know that the bank in particular is clearly very well positioned.

Thank You. I see it reported that you don't have any interest in buying a specialist mortgage loan (inaudible) in Mexico while other banks have bought or are looking very closely. Could you tell us if that's true and if it is indeed true why you think (inaudible).

We are very much interested in doing mortgage business in Mexico. That's clear. Our vision of the mortgage market in Mexico is that it is a market to be developed, we (inaudible) so much (inaudible), but we are definitely in theory interested in being a participant and being very active in this market. A different question is did we think that to be active in this market once (inaudible) is needed or not. We think that we don't need to have the support to be active and to be effective in this market. Among all our ratios because as a whole it's is a kind of company not regulated by the, say by the Central Bank and that kind of practices that are the core elements, the key success factors as (inaudible) would say and these key success factors in the hands of a bank are not exploitable because these are let's say practices are not accepted internally by ourselves. So we prefer to develop our mortgage division, our mortgage activity, our mortgage line of business and we think that our vision is to acquire a so called specialized company like this.

You have mentioned several times that you are (inaudible) assets in terms of costs and reserve. Could you give us some more detail on that specific target for cost-to-income for the medium term please.

I cannot tell you except that the target (inaudible) who have made, they (inaudible) a vision of our cost to income, we have a vision coming from our three year plan which is not operational if you like. Our operational cost-to-income target will come from the budget 2005 which is not yet completed. My personal vision is that in the retail banking we should reach a cost to income ratio under 40%. In how many years is the big question, I don't know, but I would say that we should and we have to work very hard to reach up for Europe, let us say, in a time frame not more than five years. I don't want, I cannot be more specific. I think in a large company as we are it is very important that everyone has a clear vision in the let's say medium term, because in the medium term is your question. The medium term is 40% and a more longer term is under 40%.

Yes, coming back to the question of operations in this quarter you added EUR150 million of provisions in the corporate center which internally are not allocated to the business units. So I think you mentioned representation that there was an impact from (inaudible) provisions related to higher activity in trade finance. So can you be more explicit on this 160 million, what part of that could be considered a loss and what part of that is something that you will recover when these trade finance operations will mature because we saw in this quarter quite a substantial increase in provisions on a quarterly basis.

And also complementary to this question, we know that there is a new draft of the Bank of Spain regulation although it looks early to have a final figure, can you make an assumption of what would be more or less you know the impact for your bank for the group if you expect any release to capital provisions and in terms of costs in the general looking forward. And finally not related to provisions, I thought you mentioned when talking about some margins in Spain that from now onwards you will expect an stabilization in the net interest margin in the retail business, that I don't know if I understood correctly, what do you expect in the coming quarters?

Yeah, you are right the provisions here in the corporate center are normally related with country risk provision. You know that Bank of Spain has it (inaudible) I think it is 15% with Brazil and basically these are very short term loans related with (inaudible) but we have to do this kind of provisions, but these provisions are not going to be losses (inaudible) so this is part of the other provisions line in that you have in (inaudible).

(inaudible) exports with the payments. So, the Bank of Spain requires us to make a provision for specific countries, this is the case of Brazil and we give trade finance lines over I think one year, under one year, you will meet the provision or (inaudible) provision so this is an accounting provision as I said (inaudible) it will be released. At the moment, the line contributed to the one year figure using as the provision. Behind these lines which are export financing basically, export and import financing, so there is no risk with prime loans etc. or no losses are present behind these kind of provisions.

(inaudible) Bank of Spain is complicated it is very early to give a clear analysis you know that they call (inaudible) A and B or alpha and beta. As you know (inaudible) similar approach a general provision and a statistical provision. With fund limits that is the main point that is going to affect the (inaudible) provision. So the situation we have today is that this will allow us to release some of the provisions you have in your stock, not very much, probably no more than 200 or 300 million and that the normal commission the value of new provision's flow is going to be slightly lower depending also on the kind of business you do because the provisions are going to be different depending (inaudible), but this is where the (inaudible) and this is only for Spain, for the rest of the countries the IIF rules will be applicable. This is what we can sat.

Coming back to the next interest margin, that's true but you know that in the interest rate margin there are two elements that work together. One is the rate of interest curve and then the new business you adapt to your portfolio to your stock. And that's (inaudible) in the last two months the policy we are following is that the new business is adding goodwill to the worker. We are improving the mix in terms of profitability. So we are increasing our spread. The path of the portfolio of the stock depends on the rate of interest slope of the curve. Now with the present slope we will not be, will not have a very substantial increase because the curve is very flat, but as far as (inaudible)prices are basically is what the (inaudible)more in terms of (inaudible). Anyway even with a flat curve the new business we add up today and to the stock is better than the average (inaudible) of the portfolio. So then there is a way (inaudible) insist that (inaudible) will grow but difficult to say at which speed (inaudible), only in the next (inaudible).

A number of quarters ago you took a decision to launch a campaign on the mortgage side which was instrumental to reducing spreads out there in the marketplace. It was an interesting one because it had a fixed element of it and it had over a period of time and then the mortgage proposition was reducing this space going forward. Now initially in the first few quarters you gained a lot market share, specialty coming down. If I analyze the situation today in the third quarter relative to the quarter before, what I see is that you are no longer gaining market share in mortgages but the spreads continue to come down for you and for the rest of the industry and I would like to propose this to bizarre decision, bizarre situation as that at least produce a positive networking value for bankers (inaudible) and point two is when do you expect the lines will cross, I suspect sometime next year when the fixed part of the mortgage proposition dies away and the and basically improve the (inaudible) value proposition.

(inaudible) not difficult question as to (inaudible) elaborate all the elements for the (inaudible) but basically speaking first I think we have been very clear many times that we have been asked about the profitability of the mortgages, but for a retail bank the profitability of the mortgages is coming probably 40% from the mortgage itself and 60% from all other products unrelated where the customer who takes a mortgage from you which is Spain. We have very clear measures for the profitability of the customers with a mortgage and without a mortgage and is between two or three times higher the profitability of the customer with mortgage. So that means that at the limit, let's say as you may (inaudible) the limit, you could do for a new customer a mortgage with no spread and you get from, him all the related products as insurance, current account, direct debit, credit card etc, etc. This is the limit.

So going back to the question in our case, not being an incumbent as Santander was not in the past, this launching of these new products in mortgages both (inaudible) have been extremely interesting, extremely profitable because we have taken a part of the market which was more related to the savings banks. We have taken a lot of new customers and considering both parts of the profitability it has been very, very good business for us. It's true that we will have pushed the market so much that we have reduced the spread for every one and for the first couple of years this spread is extremely low. It has been extremely low in the special campaign we were, but overall so in your question is you would do that again tomorrow morning. I will do that again tomorrow morning. This is a decision that for the balancing position has been extremely positive.

The question is the main question here is that for some Santander we are not changing significantly the pricing of our mortgages because Santander has been using always (inaudible) one year plus 80, and 100 basis points. The difference of the market here in Spain has been using the mortgages (inaudible) alright. This competition that has (inaudible) with this kind of (inaudible) are going to suffer and they are suffering and this is what you have seen in the market. The market is going to converge slowly, (inaudible)

I will ask again about margins in Spain, sorry about that but not about mortgages but about SMEs because well, we are hearing all kind of comments regarding a very strong competition in the SMEs market and that could drive margin down. But in the last couple of days we have heard very clear statements from management of all the banks saying that they don't expect a very strong additional erosion in SME margins which would be a very positive development. If it is the case. We would like to hear your view on that.

That would be one question, second question would be about growth in (inaudible) operation in Europe which has been very strong obviously you have bought a couple of institutions and there is a little distortion, because of that I think I like-for-like growth in loans is still above 20% in Europe and I would like to hear your views about if this is sustainable or not for 2005 if you still expect this kind of loan growth.

Third is outlook in Brazil for 2005 in terms of loan growth. Again is sustainable versus a very strong current rates, more stable margins will possibly imply revenue growing well above 10% and that will imply with your rate in leverage profits growing by 15% or even more. I would like to see what is your view on Brazilian (inaudible) and finally you have made an interesting mention right now saying that for non Spanish loan books it will be IIF and not Bank of Spain regulations. That means that for any foreign bank that you could be acquiring before year-end you would not need to make a kind of counter cyclical provision if you consolidate that in December 31. Thanks.

Coming back to the margins I think I have been clear about this point. Of course, there is competition, of course, you may have heard different views from all our competitors but my point and my view is that we are not going to reduce net interest margins in small and medium sized companies in the next (inaudible), that is my impression. I mean not only my impression is that we are getting in the last two or three (inaudible) we have changed it. There is a change in the trend of this acceleration of (inaudible) in general. I think this will continue. So I am not extremely optimistic I have an not talking about gaining an increasing 100 basis points. But I am talking about just stopping the decline and retaking or regaining some of that in the next few months. The second part of the question I have missed the question.

This question is a good question because with a real GNP growth of 2.5%, 2% in Europe plus 2% inflation that means with 4% nominal growth in GNP. Very difficult to see credit growth over 8% something like that because the multiplier effect on GNP is about, it all depends on the degree of the maturity of the economies but between 1.5 and 2.5 and within the Spain. In Spain in the last two years we have had a multiplier of four and a half. Probably it is very, very a specific situation because of the low interest rate situation coming from high environment. But generally speaking talking about Europe I don't see that Europe will grow into its loan credit volume more than between 6, 7, 8%. According to the GNP growth that is as anticipated.

In Spain the push in loan growth is still from mortgages and well push. But we still have this low interest rate environment. We are anticipating loan growth of our Macro Economic Department is considering loan growth about 12% still in Spain and in fact now that we are in the process of making up our Budget for 2005 we are considering this figure as a base figure for a loan growth for next year not for our Budget but as Macro-Economic environment to make up to build up our Budget. Wel,l your third question was?

Yes, you asked about Brazil Well, Brazil, the business coming from customers, Brazil has always had you know as always have the two parts of the P&L say what we call the financial part and the customer, commercial side. In the commercial side of the P&L are on the business in Brazil is going very well. For the next year we consider that that they would grow over 20% in loans, over 20% in deposits and in mutual funds and well the profit coming from this side of the business will increase substantially. The margins in the retail not in the corporate side I think in the retail business are very good and continue to be very good and even with their reduction in interest rates which in Brazilis not very clear and probably one year ago we considered that Brazil will go down in percent more quickly now you know the vision of Brazi is more a steady into a better rate even you can see an increase. Temporarily, at least in interest rates. So we don't see any special (inaudible).

Reduction (inaudible) even you can see an (inaudible) increase. So we cannot see any especial (inaudible) in our PML just the contrary we see that the business volume will (inaudible) to increase substantially our business activity and our PML in the business side. The financial side is a different question. We will see because these already are really volatile and it all depends on that how we read the market and that we take the right decision in our (inaudible) management etc. So this is the case for (inaudible).

We are really through a plan of IIS not (inaudible) also on your same. To defend up their rules on bank (inaudible) with IIS we will use the rules of bank (inaudible) but if they are not competitive we would have to apply IIN. How can you explain because unless we will that (inaudible) then we will to apply IIS in all the matters following the local route and (inaudible) level that IIS following the rules of (inaudible). So note down that this is going to be the case. I will like to have (inaudible) around the role of the loan in Europe and the loan (inaudible) calling the (inaudible) is going to be lower not far enough is not the case with the consumer lending and that the consumer because of the newer (inaudible) because of the strong (inaudible) that they are having and (inaudible) of the case in (inaudible) because their economy is growing better. My question is that since the last two year (inaudible) has not reached (inaudible) because of the narrowing of the (inaudible) or almost free. So the (inaudible) or is going to rematch that is reflected in the (inaudible). The second very important point is that this is very specific for (inaudible) in front of like merger of two banks of two grades to be (inaudible). We are doing (inaudible) the merger of (inaudible) in terms of operational activities because we are right now in the process of finishing (inaudible) and that means the cost reductions that we can loose in the future are much more important or more less relatively in this kind of situations when you merge the back offices of two biggest users. So this is a big differential for us that (inaudible) a very optimistic view of the (inaudible).

Simple question one in SMEs in Spain DCR a very strong growth in commission and in trading gains after some extent compensated the weakness (inaudible) because of margin compression. What is you all look for next year regarding a commissions and trading end and in a specific regarding the growth which I think is part of their(inaudible).

Next year regarding a commissions and trading end and in a specific regarding the growth which is think is part of their success of commission and trading ends which is the growth in currency funds that has been very successful up around what you expect and is the kind of growth to be of the next twelve months.

From regarding SMEs in Spain, could you please give us some details of which type of which type of SMEs are you targeting to grow. Is it more micro that (inaudible) are doing or medium, or all sizes and what is the average spreads that you are making in the new launch that you are from.

Third securitisation if I am not wrong in the last quarter you have secured like 800 million in retail Spain non-mortgage. What is the outlook of securitisation for coming quarter and finally Latin America, Mexico and our (inaudible) economy start expecting (inaudible) rate to continue rising in Mexico next year up to 9% by year end 05 from current 7.5. That is good news for margins. Instead the margin should continue to expand as they have this year but my question is What do you think would be the implication for Longo and (inaudible).Thank you.

(inaudible) Spain are invading things. Well get the way clear when the (inaudible) in Spain talks about (inaudible) gains they are (inaudible) gains what (inaudible) in other words rather than from customers financial protection. So I am not stating gains coming from the treasury activities. Treasury activities are accounted in other places. They are all S in the profit (inaudible)accounts of (inaudible) Spain the means ROS coming from customers. So it is a customer related business behind but (inaudible) that are also more commissions so the real commissions we get from their customer the line of commissions plus the line threading gains so all that said I would say that for a net (inaudible) we think that we will continue to raise our commissions by that rate for the prime reasons first because the means of payments for which commissions are coming from insurance the basic elements mutual funds, insurance business, means of payment credit cards and all the (inaudible) and for the payment (inaudible) in general was all four items that we are going to see there and we are planning for next year (inaudible) increases to maintain these 10% or 12% increases that we don't see that side of the business as a weak one for (inaudible). The guarantee's funds will receive this as a product we consider that next year we will grow up in mutual funds over 12% so that means we will have to increase our commissions over 12% or even more we are able to put in the market a better mix with a better commission. Will that be (inaudible) or will that be (inaudible) product it will depend on the region of the market that our commercial people makes and the kind of product (inaudible) I do not know it is upon their (inaudible) to be for the market we will see. Check on the SMEs. Well we are talking about SMEs all the days, so I am pretty old in this business. I am 20 years old we all in a once we were already speaking about the small and medium size companies. So it is not the (inaudible) the again small and medium sized companies. We have always been talking about the small medium size companies for years and years and years. So what the I am trying to see behind your question is that why (inaudible) is going to loose better than any other competitor with all the competitors in Spain are talking about launching (inaudible) specific (inaudible). I have been answering these questions may be the first time 20 years ago. I (inaudible) where we are so. (inaudible) limited the (inaudible) exceptions (inaudible) are we are not active at all in this more (inaudible) our market sales is very limited. This market sales has been taking not very actively but has been (inaudible) saving (inaudible) and managed to (inaudible) in a specific tie (inaudible) successful. We are following that trend and we think we have been not (inaudible) and we expect very successful in this business. Was this ever to (inaudible) but probably (inaudible)

In (inaudible) companies but this is an average that the (inaudible) lets say many evidences we (inaudible) decision (inaudible) Northern America, Mexico, (inaudible) New York, Mexico we think that these are the (inaudible) we have brought and will WB really look for a market mainly for the ones that will have a strong deposit base and is not (inaudible) in our case our company has a better deposit base then their (inaudible). All of us it will increase our revenue and may that there will affect their long growth and we will have the (inaudible) the size of this increase (inaudible) will after (inaudible) various points (inaudible) basically the asset quality but do have to pay attention (inaudible) but for the (inaudible) I think as you know all retail banking when interviews were up we (inaudible) that will be the case will be the case in Mexico.

As for your decision you know that normally we will (inaudible) your decision but remain with the ones who has (inaudible) portfolio we are going to sent them on your question of how (inaudible). On the question of (inaudible) that give us (inaudible) discounting done in the (inaudible) banks. So the (inaudible) in the (inaudible) that (inaudible) by our (inaudible) in the quarter involved we give also the (inaudible) to you rate of (inaudible) including the effects of a quick decision. The amounts in the last quarter has been 1.3. This is only a question of moving from (inaudible) .

Okay, last question.

I have three small questions up, first I will need to check on to the source even when you have to (inaudible) had increased substantially in the third quarter and I was wondering if you could comment on this features (inaudible) insurance company that are to blame with this (inaudible) also regarding by the way comment before on that why they have charged the corporate centre but I have also aim Portugal division by the charges increase (inaudible). Could you comment on this as well and the third question will be regarding Mexico. I would like to know how (inaudible) tax credit will be (inaudible) balance sheet tax (inaudible) you have in Mexico and when do you expect these completely. Thank you.

Now the equity account of the corporate (inaudible) Bank sets out and the insurance company is also obvious that the main (inaudible). You have (inaudible) the final figure we (inaudible). About their potential in Portugal yes there is an increase in the quarter. I would say that the economy is not increasing but with (inaudible) increased or a reduction in the current rate more than that. Because we (inaudible) more grades of non performing loans without affecting the level of (inaudible), which was (inaudible) of our internal audit and we also right region of more non performing loans so the over all effect of that is more or less an increase and a slight increase in the rate of non performing loans and (inaudible) but this basically is a result from movement from performing loans to non performing loans due to the recommendation of our internal audit. And the (inaudible) in Mexico are that we expect to continue in the next two years at least with the same level of (inaudible) that we have (inaudible).

There is a final question that joint (inaudible) is that we will continue more or less in two year.

Thank you very much.

Thank you.