Banco Bilbao Vizcaya Argentaria, S.A.
Q2 2013 Earnings Call Transcript

Published: 31 Jul 2013

[Unknown Executive:]

Okay. Good morning to everyone. Welcome to this webcast presenting the results of the BBVA Group for the second quarter of 2013. The presentation will be given, as always, by Ángel Cano, the President and COO of the Group. And then we'll have a Q&A immediately after the presentation. And then we'll be with Manuel González Cid as well, our CFO. Any questions that are not answered during the webcast for lack of time will be answered during the rest of the day by the Investor Relations team. Ángel?

[Angel Cano Fernandez:]

Good morning, everyone. Welcome to this presentation of the results for the second quarter of 2013 for the BBVA Group. The main characteristics of these earnings is that they're very resilient. And above all, they're in line with the messages that we've been putting out to you over the last few quarters. We can still see that the world is growing at two quite different speeds. First of all, we've got the emerging economies and then the developed economies. In the developed economies, we are seeing that there is still a complex environment with, above all, a difficult situation in Europe. The objective is very clear

[Tomas Blasco Sánchez:]

[Spanish] Okay. We'll carry on with this presentation. As always, as we've done in previous quarters, I am going to try to divide all the questions into different blocks so that we can answer as many as possible. The first block is -- concerns capital. I have several questions here, including Stefan Nedialkov from Citi, Francisco Riquel from N+1, Rohith Chandra from Barclays, Carlos Peixoto from BPI, Ignacio Cerezo, 3 or 4 questions concerning capital and the performance of our risk-weighted assets. First question, maybe you can give us some color on the growth we were seeing in risk-weighted assets, about 170 basis points year -- quarter-on-quarter? Second question, can you give us an update of the fully loaded Basel III by the end of the year? How do you think we're going to be? What position are we going to be in? Third question, could you give us a percentage of Basel III core capital, bearing in mind the different DTAs, the deferred tax assets? And a final question concerning risk-weighted assets and that is, if we have any plans to -- optimization plans for the second half of 2013.

[Angel Cano Fernandez:]

Well, Manolo, as always, you can add to anything I say. But first of all, there has been no surprise as we saw what happened to risk-weighted assets. They performed in a manner that you'd expect. We have internal models in certain places where we can use less capital based on the past record and all the information we have on the main risks besetting any of our entities. At times of crisis, what tends to happen when you incorporate another year of crisis, as 2012 has been, you have to calibrate your internal models. And we have to grow a certain number of basis points, as you've seen, about 28 basis points. We're talking about for this half year, which means that we have used capital -- well, we haven't. This capital is still there. It's on the balance sheet. So when we calculate the group's capital, it's there. The only thing is that the way that we calculate the RWAs is more demanding, more stringent than if we did it in another way. So when we come to better times, then the bad deals will come off the track record that we have to use for the internal models. And we'll therefore be able to calibrate the models more favorably in the future. So the capital is there. And it will be recovered as soon as the economy recovers as well. So that fully loaded Basel III ratio there, obviously, we are above any of the requirements for the phase in, for the fully loaded, whatever. I think what's important is we've got 9%, 9.3%, 9.9%. But those figures aren't so important. The main thing is that we're above that 9%, which was the target that we established. In terms of core capital, we haven't included any impact from DTAs in that target level. The structure of deferred tax assets that we have, in general, here in Spain means that we're above what you have in Europe. I mean, on average, it will consume 220 basis points of capital. The average for us would be 175 -- sorry, 165 basis points, all the DTAs that are recorded right now to our books. So maybe this greater increase or the fact that we've got more DTAs in Spain than elsewhere is mainly because it's not possible to offset losses with profits from the past, which does happen in other countries. And in other economies, where you've got similar standards as here, as in Italy, we see a similar situation. There is, of course, a debate going on and the Ministry are working on that. The way that we'll be impacted with that 165 basis points will be about 2/3 of the total. So we're talking here between 90 and 100 basis points, so a positive impact that we'd get. And with that obviously, we'd be above that 9% that I gave you before. So optimization plans, we don't have specific ones, but we are permanently working on the assets and the risks that we consider have the lowest productivity because they are consuming more capital. And then we have the impact of the way we calibrate our internal models as well, which I've already explained.

[Manuel González Cid:]

Maybe I should just add that the calibration of the internal models is done every year. And we've always done it normally at this time of the year when we incorporate the latest observations available from the previous year onto our databases, along with the expected performance of the next few months. And so there's a procyclical impact on our risk-weighted assets, which we have to incorporate, above all, in Spain. In Spain, lending has fallen off 4.4% in the quarter, and the RWAs have gone up EUR 3 billion because of this impact. But as Ángel said, really, what we're doing is to establish a capital buffer so that when get to better times in the economic cycle, there will be a reversion. Another impact is the exchange rate. That's 11 basis points impact because of the -- what's been happening with the hedging that we have in the United States, which -- where things are denominated in non-euro currencies. But we can expect to see that improving over the rest of the year with the kind of hedging that we have in non-euro currencies. And there shouldn't be any more impacts from any further recalibration of internal models for the rest of the year so that, in general, we can expect to see a more positive picture than the rest of the year.

[Tomas Blasco Sánchez:]

And then finance and liquidity, Filtri from Mediobanca and Carlos Peixoto from BPI. The first question, the composition of the ALCO portfolio, the Assets and Liabilities Committee? And then what's the situation with the LTROs that we had to the end of June 2013? And third question, what's the exposure of BBVA as a whole to the European Central Bank? And what is the level of collateral available on the balance sheet, which can be discounted with the European Central Bank?

[Angel Cano Fernandez:]

[Spanish] Manolo, I think these 3 are for you. I'll give you a hand with some of them, if you like. No, you get on with it.

[Manuel González Cid:]

The ALCO portfolio, our exposure and our interest in our exposure, with regard to Spanish sovereign debt, in a 6-month period, there has been a slight increase of EUR 1.2 billion. So we're talking about EUR 32.5 billion of exposure. Most of this increase, EUR 600 million, EUR 700 million, is because of our negotiation with the markets with our portfolio. So this could be a purely ALCO portfolio. Held to maturity is stable over the 6-month period without any major change in the ALCO portfolio and the euro balance in the 6-month period. With -- if we look at the ALCO portfolios in other units, there hasn't been any great variation that we have EUR 6.6 billion in the United States. And we have a portfolio of EUR 7.6 billion in Mexico. And in Mexico, because of the increase in duties in Mexico, because of the increase in the American curve and rates, because of the change of monetary policy in the United States -- so with this increase in rates, we've added EUR 1.5 billion extra to the Mexican portfolio at the end of June. Once -- after this movement, at the moment, we have low durations in our portfolios in the 3 countries of around 3 or just over 3 or just under 3, depending on the country. And in some way, the portfolios are performing very, very well. And we can see that despite this increase in interest rates, there hasn't been any kind of problem anywhere with regard to net trading income or mark-to-market on the contrary. LTRO now, during this quarter, we've amortized some of this LTRO. We have about half of this left to pay back. The only exposure that we have to the ECB is through the LTRO. And at the moment, we have no plans for any further amortization probably until the end of this year or maybe the beginning of next year. Our liquidity position is extremely comfortable. And as Ángel said, the euro balance to focus on this balance, this balance has generated liquidity in the 6-month period of EUR 15 billion additional. We've issued -- we've had issues of around EUR 6 billion. So we have -- all the maturities for the year are well covered. And just to remind you, this was about EUR 13 billion. Obviously, for next year, the budgets include the estimates for generating liquidity for the balances, the maturities. We have the LTROs with the remaining one. And based on all of this, we will draw up our strategy for managing our liquidity. And finally, with regard to collateral, the euro balance -- because I think the question is aimed at the euro balance. Obviously, we have ample collateral on other balance and other areas. But we have enough collateral to absorb any liquidity shock on the euro balance. We have a liquidity buffer of approximately 2.5x all the unsecured maturities we have for the next 3 months. And I think this clearly shows that even in the worst possible scenarios, our liquidity position is guaranteed and totally sound.

[Tomas Blasco Sánchez:]

On the strategic block, we have several questions, Andrea Filtri from Mediobanca, Carlos Peixoto from BPI, Jaime Becerril from JPMorgan and Britta Schmidt from Autonomous. The first question is we've completed the sale of non-core asset. Have we completed the -- do we have any ideas to go any further in this area? Question 2, what is our position concerning CatalunyaCaixa and Novacaixagalicia? Question 3, what are our plans for Garanti? Are we going to increase our stake in Garanti and under what conditions? Questions about -- in what circumstances would we send -- sell CITIC, our exposure in China? And the final question with regard to strategy would, what is our position at the moment in Telefónica? Because it hasn't made a really great contribution to dividends, so are we thinking about selling this stake, and in what conditions?

[Angel Cano Fernandez:]

Well, the sale of non-core assets, have we finished our plan? Well, when we decided to sell off the pension business, it wasn't what we had as our objective, initially. We just wanted to look at the multiples that we were getting from the sale of this business there because of the excess liquidity. It's a very profitable business. But the multiples paid, taking into account that it's not a business that gives us synergies, bringing in additional revenues because of synergies with the banking business. That's why we decided to sell. Well, Panama, I've already explained the reasons behind that sale. If there hadn't been, as I've said before, offers with the multiples that we could get, we are obviously getting good earnings and not very high earnings because of the market share that we have there. But since that we did have those offers, we thought that they were just too good to refuse. So apart from that, apart from maybe some small minor transaction, we haven't got any assets that we're thinking of selling off that we consider non-core. Catalunya, Caixa Catalunya, NovaCaixaGalicia, well, obviously, we have to analyze them on a case-by-case basis. We'll have to look at the books that are open to us, and we'll do what we always do. We will always see how much value we can generate for our shareholders and we'll be highly objective in the way we approach these transactions. And then guarantee, there, obviously, we can't say anything apart from that we're seeing excellent performance in Turkey, as we've seen this quarter yet again. The earnings coming in from Turkey are excellent, and we are seeing that over the first few quarters in which we have been booking the earnings from Turkey. The integration in corporate terms has also been excellent. And in fact, they've done better onboarding, we could say, than almost any other strategy we've got in terms of their HR, in terms of their technology, the way that they're so customer oriented. The way that they run their franchise has meant that we managed to combine our businesses very well. We just have to see when the time is right to increase our stake, but there are no restrictions regarding that. When will we sell off CITIC? Well, it's something I said last quarter as well. We're very clear that we have to manage our exposure with respect to capital consumption in the first quarter. And in the last quarter of last year, we already talked about that. And maybe the main thing is that taking into account the capital surplus that we have at the moment would mean that it wouldn't make any economic sense to sell off these positions and so we then hang on to this stake. We're definitely not in any hurry. There's no regulatory pressure on us. There's no problems with the consumption of capital. So as long as it makes sense to have to hold it, we'll keep it. And as for Telefónica, I've been saying for several quarters now that this is an investment that we have which doesn't consume very much capital. So in terms of capital consumption, there wouldn't be much impact where we do change our level of investment there. And we're going to go on working with this investment and trying to make it a rational investment, and it will depend on what happens in the markets, what we decide to do with this at any one time. Manolo, have you got anything else to say?

[Tomas Blasco Sánchez:]

Well, asset quality is the next block, talking about the restructured loans above all. Frederic Teschner from Natixis, Carlos Digrandi from HSBC, Rohith Chandra from Barclays, Paco Riquel from N+1, Carlos Peixoto from BPI, Antonio Ramirez from KBW, Ignacio Cerezo from Crédit Suisse asked us about the restructured loans. Let's see if we can sum things up. How much do we estimate should be classified as restructured with respect to NPAs that we have through 2013? Might we have an update on the cost of risk in Spain for 2014 and 2015? What kind of figures are we using in our estimates in BBVA? What volume of foreclosures would we have by the end of 2014? Are we seeing a fall in the foreclosures? There has been a fall in the first half year, is that expected to continue or not? And then the final question here in this block would be, what kind of coverage do we expect to have of our nonperforming assets in the group and in Spain which would make us feel comfortable? So what level of coverage do we want to have in Spain and group wide?

[Manuel González Cid:]

I'll try and answer all of these questions. The first thing is with regard to refinancing, this is a work in progress. We have good communications with the Bank of Spain, so we're going to share all of these in September and we'll make all of these public at the end of September. So what we can't do now is to give you any information that we haven't been able to check with the Bank of Spain. There are 2 things to bear in mind here with regard to classifications. We need to remember that the data for reclassifications of the group here in Spain, which is basically what affects us, we're talking about EUR 24 billion in refinancing at the close of June. This is not public information yet, but this is sort of EUR 23 billion at the close of December, which are in the public domain. And of this EUR 24 billion, EUR 8.6 billion are outstanding, and 6.5% are classified as substandard and EUR 9 billion are classified, at the close of June, as nonperforming assets. But the refinancing for this in the 6 months has increased by EUR 1.6 million. The view that we have of all of this with regards to this reclassifications, what we're going to find in September are going to be substandard -- from substandard to nonperforming assets. I can't give you any figures at the moment because I think it would be irresponsible, because we don't -- we haven't even sat down and talked to our supervisor yet. Secondly, with regard to provisioning, we do think that we'll have a limited impact, especially because as most of these reclassifications come from the substandards, a lot of this has been provisioned, so we will see some additional additions to provisionings, but I don't think it would be very much. To give you an overall snapshot of what we're expecting for the second half of the year. In the presentation, I said that just over EUR 1.4 billion in provisioning, those have been carried out in the first half of the year here in Spain. EUR 500 million to EUR 600 million, depending on how deep you want to zoom in, can be considered as related to reclassified transactions or operations with specific companies. So somewhere around EUR 900 million, maybe a little bit less, could be considered as normal recurring things because of our normal timelines. What we're estimating for the second half of the year here in Spain, I think the figures are going to be very, very similar to what we've seen in the first half of the year. These means that we will continue to have an excessive provisioning to make relating to what I have mentioned. So I don't think we're going to see anything different in the second half of the year from what we've already seen in the first half of the year. The risk premium for 2014 and 2015, once again, we're talking about recovery of the economy here in Spain, we're estimating this is going to be 0.9% growth at the end of 2014 and further growth in 2015. And this will help us to face less elements if we talk about this EUR 900 million in recurring provisioning for 2014, then I think we're probably talking about a risk premium about 0.9% or 0.85%. And then between 2014 and 2015, this will fall off. And that's what we are seeing for the risk premium once we've finished all the one-off operations, basically SMEs or, in this case, reclassifications, such as the ones we have seen in 2013. But way below the provisionings we had in 2012, especially with regards to real estate. I also mentioned in the presentation the -- not so much provisions as the write-downs that we're seeing in real estate. Because basically, in book value, in the first 6 months of the year, we're seeing loss on sales that, I think, they've only gone up by EUR 19 million, and all the rest is the high appraisals because of this slight fall in prices that we're continuing to see month after month. Foreclosed assets. I did give you a figure on how developer risk is performing as a whole. RE assets on the balance and also exposure to developer risk, we're talking about 33% reduction since the close of 2011. So practically 1/3 has been -- were reduced by 1/3, which means -- which is enabling this to offset the assets that were taken on board from Unnim, which come from the Asset Protection Scheme, but we're managing them all the same. I think it's fundamental that we have the organizational structure, which is already adapted, it's up and running and it's coming up to full speed. We're seeing these -- the rate of sales that we're seeing, we're selling assets off very, very quickly, these foreclosed assets. And what we have to keep an eye on in the coming quarters is how mortgage -- nonperforming mortgages fall off in coming quarters, which will directly -- which reduces stock of foreclosed assets. Coverages, whatever we need. From the point of view of prudence, maybe we want to stay ahead of the curve, as we have in the past. In the end, we'll have less provisioning impacts is because part of this work has already been done every month. So that when we see effects like this, when things like this happen, it has less of an impact on write-downs and it will for our peers. So for coverage, whatever is necessary from the point of -- and international rules at any one time. With regard to coverage of nonperforming assets, I think it's important that current coverage, we feel very comfortable with this. If we take the stress tests as a reference against the ones that we've done in Spain by Oliver Wyman on a detailed review of audit companies other than the normal ones that work to these banks. If you remember, the expected losses in the stress tests for BBVA in 2012 to 2014 were EUR 20.3 billion. At the end of last year, we had provisions for write-downs of all kinds of almost EUR 17 billion. So we need EUR 3.5 billion in extra provisioning in 2013 and 2014 to cover these expected losses. Just with the write-downs and Ángel Cano says that we're going to do it in 2013, not without 2014, we will have sufficient provisions to cover these expected losses, which is the basic scenario mooted by Oliver Wyman. So we're very comfortable with the provisions that we have.

[Tomas Blasco Sánchez:]

So let's move on to the questions on each specific business units. Starting with Spain, practically, all the questions have a common denominator, and that is what is the expected trend in 2013 in the trading profit, in the net interest income and nonperforming assets, bearing in mind how the impact of the foreclosed mortgage could have an effect on this in 2013? And with also regard to the net interest income, what is our price policies we're going to see on deposits going forward? Carlos Peixoto, Antonio Ramirez, Ignacio Cerezo, Paco Riquel and Frederic Teschner asked about this issue. And 2 further questions that are slightly different from the ones I've already gone through concerning, first of all, what is our exposure to renewables in the energy sectors that we have, and what could the impact arising from the new legislation will be the -- that we'll see after the summer? And the other question concerning mortgage forecloses. Antonio Ramirez says that we have appealed to the constitutional court their decision to do away with this floor clauses, so what can we expect to hear from the final decision? And maybe the most important thing is, is to see whether this ruling is going to be favorable, what effect would this have on BBVA if the constitutional court ruled in our favor? So the question is, would they go back in writing out these mortgage closes, the floor clauses from mortgage contract?

[Angel Cano Fernandez:]

Is that it?

[Tomas Blasco Sánchez:]

Yes.

[Angel Cano Fernandez:]

Okay, then. First of all, net interest income. During the presentation, I was explaining the impact of these floor clauses being taken out of our contracts because of the ruling handed down. EUR 93 million in the first quarter was the impact, but it was mainly in the second quarter that we got that impact actually. But the first complete months has been due [ph] where it's had an impact of EUR 56 million before tax. And that gives us our performance, which was growth, positive growth speeding up over the year, and then we have this sudden drop, which will continue. The way we see it, well, with the impact of the change in the floor players, we could extrapolate from that 1 month that we've got so far, but it will depend on the euro board [ph] rates any time. But with the extrapolation in the next few months, where we've got some visibility with not much change in euro board, we could extrapolate that level, make EUR 56 million, EUR 57 million. And then the second question, about the cost of deposits. What we're expecting in the final quarter, above all, is to see an additional reduction in the cost of deposits because of the renewal of term deposit, which is the most expensive ones we have in our stock of deposits, which we'll have to repriced to the much lower rates that we now have compared to 1 year ago. So we'll see an improvement in customer spread, above all, in the last quarter. And we could talk about a slight upward rise in customer spread in the final quarter, above all, because of the repricing to prices, which was significantly lower than what we had 1 year ago in the term deposits that were taken out in Spain at that time. Nonperforming assets. Well, with respect to the loans that -- with SMEs and real estate business, performing quite stably. So they are offsetting one another. And we're talking about 11.5%, there's a NPA ratio, above 43% for real estate. It's difficult to make any predictions here, but we think we may see some additional decimal points of increase in the NPA ratio being added, above all, in SMEs and real estate developers going on into 2014. But it's difficult to say. If the economy recovers as we're expecting it to, maybe the peak in additions will be at the end of this year. Otherwise, it might be perhaps moving on to the end of 2014. That ruling about the foreclosed becoming null and void, obviously, we have appealed because we have the right to do so. We also have responsibility to our shareholders to do so. And so we are talking about the constitutional court looking at the Supreme Court ruling, and they could rule in the next few months. But talking about what we might do before we know what the court is going to say is very difficult. What we have to do is to analyze the ruling, see how it's worded and see what impact it might have when the time comes. And then renewables. Perhaps, Manolo, you could talk about that?

[Manuel González Cid:]

BBVA closure to renewable energy, which could be impacted by the reform that was presented recently by the government, would be about EUR 1.95 billion. Obviously, as part of that exposure, we've got various different risks with industrial investors. We're talking about big companies in this sector with the financial position. But we consider it to be very sound. So obviously, we have to be on top of the risks associated to financial investors who came on board at the beginning of projects, some of which have progressed quite far. We've classified some of the portfolio substandard, and we've already got provisioning set aside for them all, but they haven't entered into being considered nonperforming. And we will have to see what the final regulations are once the law is enacted in September, so we can see the cost of investment in each kind of technology. But on the basis of the figures that we've already given you, we're not expecting to see any big surprises or anything that might change the outlook that we currently have with respect to the kind of provisioning we have.

[Angel Cano Fernandez:]

And Manolo, just to add to what you said, all the projects we studied in great depth. We looked at them in terms of their economic rationale, and we knew the possibility of some changes and we've classified them on the basis of very prudent, very conservative criteria. So we feel very comfortable with our exposure to renewable energy.

[Tomas Blasco Sánchez:]

Let's now move on to Mexico. There are several questions about Mexico. From Antonio Ramirez, from Benjie Creelan, from Alvaro Serrano from Morgan Stanley, Jaime Becerril, Jaime Rigel, Carlos Peixoto, Ignacio Cerezo, Antonio Ramirez again, and Benjie Creelan, and Arturo de Frias who've asked the question about Mexico. So what the questions are is basically, first of all, NPAs in the second quarter have gone up 30 basis points after 2 quarters in which it was improving, 2 quarters running. Could you explain what happened in this quarter? And what's your outlook for the next few quarters to the year-end? Second question about Mexico would be, what's the impact we expect to see from the banking reform being enacted in Mexico, how would it impact our outlook there? Third question would be, what do we expect the cost of risk to be in Mexico? How will it be in 2013 and do we have any visibility for 2014? Fourth question has to do with what might happen to our loan book and how we expect it to grow in Mexico? We've seen in second quarter that it's below double-digit growth, but what's the outlook for the growth of our loan book towards the end of 2013, this -- will it be higher? And then finally, I think I've given the summary of all the questions. But finally, we've got the question

[Angel Cano Fernandez:]

First of all, NPAs. Basically, I mentioned this pickup of 3/10 in the quarter, and here I said that, basically, this was due to the fact that the 3 major developers in Mexico have been reclassified to NPAs. It's true that with these developers, since the end of 2010, we have reduced our exposure to them by 60%, and this is an important figure. And the remaining figure in all 3 classes has been reclassified as NPA at the close of this second quarter. So going forward, I think what we can expect is another few tenths of a fall in the second half of the year. And this is the only one-off that we've had in classifications in this second quarter that has had a slight effect on the risk premium in the second quarter. The risk premium for 2013 as a whole, I think is going to be around what we saw at the end of last year and the beginning of this year. So the risk premium is going to be slightly lower than what we're seeing at the moment. Reforms, now I think it's too early to say anything about -- to talk about it really, because what they are trying to do basically, above all, is to reactivate the growth in lending especially to companies. Don't forget that in Mexico, bank penetration is still below 30% or low 30s, so the emerging markets, the best emerging markets probably has the lowest ratio. And the reason for this -- and that's why we're working on this in order to reactivate lending, to bring it up in line with other emerging economies. But it's still too early, really, to see the results. Maybe in the third quarter results or fourth quarter results we can maybe give you an update of what we consider the effect of this reform. Lending. This is something I also mentioned in the presentation. We're around 7%, and it grows occasionally. But basically, it was around 7%. And what I said was that there was -- it's growing less than expected for 2 basic reasons. The most important reason is because of the slowdown we've seen in public investments because of that change of government in the first 6 months of the year. And the second reason -- I didn't say this in the presentation but I will now and that is the transformation of bank debt of the major corporates in Mexico versus issues of vehicles or instruments in the wholesale markets, such as debt, which means that total debt is not changing significantly, but the kind of instrument that we're using for financing all of this has shifted from bank debt to wholesale capital market debt. And moving forward, I think I did mention this in my presentation. Talking to our team basically, and the SME teams and the corporate team in Mexico, what we're witnessing is growth, low growth of around 2%, 3%. 7% is SMEs, and, consumer loans and individuals. I think in the second half of the year, this 2%, 2.5%, I think is going to be closer to 10% to 12% growth if, as we think, there's going to be a recovery in public investment. And also bearing in mind, the number of transactions that we have in the pipeline for these businesses in Mexico. So I think we should see growth of -- from the 7% that we're seeing now to around 10% or 11%. And if it's not by the end of the year, it's going to be in the first quarter of next year. And I think that's about it. Now on profit. I think profits are going to -- the trend that we're going to see is going to be very similar to what we've seen at the close of June. We don't think there's going to be any major difference in the snapshot that we've seen at the close of June.

[Tomas Blasco Sánchez:]

Okay. Moving on to Latin America. I have 2 questions here from Antonio Ramirez and from Rohith Chandra. First of all, are we witnessing a certain slowdown in growth in Latin America? What do you think it's going to be like by the end of 2013? And could you give us some details on the inflation adjustment that you've made in Venezuela? What can we expect in coming quarters? So 2 questions. The close of 2013 in Latin America, and secondly, the effect of inflation in Venezuela.

[Angel Cano Fernandez:]

Let's start with the business volumes we've got. We see some buoyant growth in several countries, the most stable countries, Peru, Chile, and Colombia whose economies are performing in a very stable way. And even in Venezuela, we're seeing growth in business volumes. Maybe the most significant impact is hyperinflation, which impacts accounts for the whole region and mean that costs are growing very fast, although revenues grow, too. Nonetheless, they are offset. And you have to go on from operating income where we have to book all the impacts of the hyperinflation. And there, you'd have the weigh that revenues and costs offset one another. What we're expecting for the second half of the year? Well, it's difficult to see ahead, but we think there should be changes in the inflation rates in Venezuela, which should go down quite significantly, which will mean that it will offset that impact that we've seen in the second quarter. Although it would probably remain quite high in the third quarter, but it should go down in the fourth quarter. So that is the outlook we have for the rest of the year. And then business volumes. Well, there, because we look at Columbia, Peru and Chile, and see their economies working well. We want to invest in Columbia and Peru as well. And last year, we made quite significant investments in Chile already. And because of their sound economies, we think it's worthwhile growing. We want to grow organically, increasing our market share in those countries. And in Peru and Colombia, we already have reported some growth, organic growth, so looking at double-digit growth even after the accounting adjustments over the next few quarters.

[Manuel González Cid:]

And when we look at the increase in business volumes in Latin America and how they're going to be recorded, we have to take into account that we've seen double-digit, high double-digit growth throughout the region for the last 2 years now. So it's not easy to go on growing 30% for the fourth year running, and it wouldn't be good if it did. So a slight slowdown in the region is a good thing. And we are seeing that base affect us well with comparison year-on-year. And so we are seeing growth, okay, 17% compared to 20-something percent last year, isn't a bad thing at all.

[Angel Cano Fernandez:]

And with what you said, Manolo, when we look at the business world there, earlier on, we were talking about the liquidity we have in the region and that everyone has, that means there's some pressure on the different lines of income for businesses. And obviously, there is more activity with individuals, and that's growing faster than what we're doing with corporates and business, and that has an impact. It's -- but there's also that's shift from bank borrowing to market issuance amongst the corporates, which is a phenomenon we'll see over the next few quarters as well.

[Tomas Blasco Sánchez:]

Okay. We can now move on to dividends. There are several questions from Rohith Chandra, Mario Lodos from [indiscernible], Luis Peña from JB Capital, Carlos Peixoto from BPI. They mainly have to do with the potential impact of the 25% cap on dividends in cash. How will that impact our dividend policy, our payout policy? Are we going to continue in 2013 and 2014 paying out dividends in script? Is there any possibility of cutting back total dividends because that's the recommendation emanating from the Bank of Spain? So that's the block on dividends. And then capital. There, there were 2 further questions. One from Javier Ruiz from Interdin. He asks, at the end because of the DTAs, will we have a capital ratio under fully loaded Basel III of over 10%? Will policy change with respect to lending or dividends because of the DTAs? Carlos Garcia from Société Générale asks about our vision of leveraged operations and how that will affect us.

[Angel Cano Fernandez:]

The impact of the recommendation that we've received and the combination from the IMF and the Bank of Spain, we're talking about a recommendation that would only cover the dividend for the earnings for 2013, that and that alone. A lot has been talked about 25%, but nobody's mentioned the time periods. It's only for 2013. We have already distributed the first dividend in July, which has been in cash, then there's the October dividend with a policy that we've established, which will be in shares. And from there on, we'll have to see the behavior of our earnings from now till the end of 2013 to see the impact this recommendation would have. But we are continuing on an ongoing policy. And from here to the end of the year, there might. We will let you know if there's going to be any change in our dividend policy. With regard to your question on capital. What is true is that we are already over any capital -- regulatory capital requirements, whether we're over 10% or not doesn't affect lending and doesn't affect dividends. It's necessary but it's sufficient -- but it's not sufficient. Lending will continue to perform in line with demand, and depending on the economic situation of the countries and also the asset allocation we have in each country, which has nothing to do with capital, but rather, to the generation of return to the group. So we're not -- this is not going to change. Lending is not falling off to protect capital. It's falling off because -- basically because demand has fallen significantly, basically in Spain. And in each area that we operate in, in the United States, it's growing 20% or it continues to grow at around 16% in South America or only 7% now in Mexico. But here in Spain, although it's -- what's happening here is because of the enormous growth that we've seen in the past, so the deleveraging is not related to capital. But capital is affected by the continued strengthening of our capital position that we're looking for. And especially moving forward, we think it's important to be highly solvent. We need to be in surplus especially to see growth in each area. Dividends, this is the first need. We have to have sufficient capital to be able to pay dividends. But from there, our dividend policy depends on the recurring nature of our revenues, not just present revenues for future ones. So the payouts that we set out for the future would always depend on the recurring behavior of our earnings. And the leverage ratio, Manolo?

[Manuel González Cid:]

The leverage ratio, I think this is important. I think it's important to put this into its context, the regulatory framework of the sector. It's highly complex, but basically, it's triangular. And the top, we have liquidity ratios. And at the base of the triangle, we have capital. And on the left-hand angle, we have the traditional ratios of capital based on what risk-weighted assets, where we have fully loaded Basel III. But as we witnesses significant differences in the density of risk-weighted assets between institution and even in the performance of these risk-weighted assets between different institutions, we're starting to look at leverage, and this leverage ratio is very important, it's very pertinent. We've received an important news today that show just how important the leverage ratio is for supervisors, especially here in Europe. The ratio that we published here is the leverage ratio that includes the capital circular and enumerated, it has a fully loaded tier 1 for Basel III. So all deductions from the fully loaded Basel III and the denominator where assets are based on derivatives and assets that are off the balance sheet, such as credit lines that are available, et cetera. So this is the most -- the worst ratio. And in our case, this leverage ratio is 4.8%, which comes from the 4.3% that we're going to see at the end of the year and the first quarter which was 4.2%. So we're consistently improving quarter-after-quarter our leverage ratio. We're way ahead of the performance of the improvement that we're seeing in total capital ratio. So I think it's important to put things in that context. The importance of leverage ratio as a mirror to look at the traditional capital ratio is based on risk-weighted assets.

[Tomas Blasco Sánchez:]

And the 2 final questions that we've just received. The first comes from Ignacio Sanz from UBS and he asks about funding in Spain. What level do we expect loan to deposits to stabilize at, and where are we -- where will be comfortable, what will be the optimum level? And the final question from Andrea Filtri concerning regulation funds, the European regulation funds. Do we consider any risk of perpetuation of the asymmetries between banks if the banking union was rolled out on national resolution funds rather than European resolution funds?

[Angel Cano Fernandez:]

Okay. Manolo, maybe you'd like to start?

[Manuel González Cid:]

Okay, then. We haven't got a loan-to-deposits target in Spain. We feel very comfortable with the situation we've got. Our loan-to-deposit ratio, when we adjust it for total assets and temporary retail lending, at the moment, it would be 128. If we include the mortgage warrants issued onto the market, then we'd be talking of about 100 or even less than 100. So we're talking about a situation in which we feel relatively comfortable. So we think it's a prudent funding for medium- to long-term books with those kinds of loans. So with the provisioning we have, it's suitable for Spanish economy. Deposits are growing quite fast, and we are benefiting from people preferring us for their deposits. We're gaining market share with organic growth, as well as the incorporation of Unnim, going up over 120 basis points in the year. So we've gone up 4% in market share deposits within the system just through organic growth. And if you look at lending, there is some deleverage there, and it's quite positive to get that kind of deleveraging. And so we think there should be a substantial improvement on our loan-to-deposit ratio on our balance sheet here in Spain. But we feel very comfortable with the current situation. As we said at the end of the year, we think the situation will be of an even higher loan-to-deposit ratio than what we're currently reporting.

[Angel Cano Fernandez:]

And then the regulations funds that you are talking about, and Manolo will probably have more to say about this, and symmetries as well. Well, there will always be asymmetries until we have a single supervisor, a real banking union. And that's one of the objectives of the banking union for Europe. And we can't expect to see that until at least the end of next year. Along the way, before we get that, there are various exercises being carried out with security review stress tests, or whatever you want to call them. So the European Central Bank will know exactly what the accounts are and how things are being reported in different ways. But there will continue to be asymmetries. We're seeing them, above all, in the reporting of capital ratios, also DTAs as well, the deferred tax assets, because there's different kinds of regulations in different countries. So it's not just capital when we're talking about the DTAs, although in part that does have an impact on capital, but there isn't a level playing field with respect to regulation on DTAs. And then the resolution funds, what's really important with the new directive is the regulation on bail-ins. So it's really important to separate out what's happening in the financial industry from what's happening in terms of sovereign risk. And so I think the initial approach has been quite positive before going to resolution funds, there will be bail in on the balance sheets of the different financial entities. So that the taxpayer bill will be kept as low as possible unlike what happened to date.

[Manuel González Cid:]

I totally agree with what Angel said, but I would like to add something that I do think is relevant. If we look at 1 year back what was happening in Europe then and what's happened now, we have made some progress. Sometimes people are a bit skeptical about what happens in Europe. But if we look at what was happening 1 year ago, it's important to see now we do have a single supervisory system, which is being prepared and ready to work. We've got a draft directive from the European Council with the very important factors improved -- improving, the separating out of sovereign risk and banking risk. And that will mean that individual asset quality in the different banking entities will be much more important than their post code. And that means that discussions about the possibility of having this European resolution fund won't be so important as long as there is a national resolution funds in all the different countries and additional activities with the European stability mechanism in order to have the bail-in of up to 8%, as the junior debt holders are bailed in before the authorities are brought in either at national level or at European level. I think that's the most important thing to take into account.

[Tomas Blasco Sánchez:]

Okay, well, that was pretty well the last question I think. So thank you for attending this webcast. And do remember that any questions that haven't been answered now will be covered by Investor Relations during the rest of the day. So thanks. And those of you who are lucky enough to go off on holiday, I hope that you enjoy your summer holidays. Thank you.

[Angel Cano Fernandez:]

Tomas, I wanted to say, I wanted to wish everybody happy holidays. But it's important, I think, you've all deserved the rest. We've had difficult times. We've had to get through them, that's pretty stressful sometimes. And so it will be great if people can go on holiday and really charge their batteries. So enjoy your holidays.