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Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA)

Q1 2013 Earnings Call

April 26, 2013 3:30 am ET

Executives

Ángel Cano Fernández - President, Chief Operating Officer, Director, Member of Executive Committee and Member of Global Asset Allocation Committee

Tomas Blasco Sánchez

Manuel González Cid - Chief Financial Officer and Head of Finance Division

Operator

Good morning to everyone. Welcome to this webcast presenting the BBVA Group earnings for the first quarter of 2013. The presentation and explanation behind the earnings will be given by Ángel Cano, who's the group's President and Chief Operating Officer. Then immediately afterwards, we'll have the Q&A and Manuel González Cid is here to accompany us on that, our CFO. And any questions that can't be answered during the webcast, as always, will be covered by the Investor Relations team sometime during the rest of the day.

Ángel Cano Fernández

Good morning, everyone, and welcome to this presentation of the BBVA Group earnings for the first quarter of 2013. I think it will be a good idea before I start to go over the highlights for this quarter to also go over some of the comments that we made during the presentation, for the 2012 year-end earnings when we talked about how we expected 2013 to roll out and the main tendencies we were expecting.

To start with, we talked about one concept which was, that it was going to be a year of transition, and we'd see a big change between the performance in the developing and the developed economies, and talking about Spain, we said that in Spain, we will still and we'll see this when we talk about the first quarter, we're still going to be seeing a drop in lending volumes because of the deleveraging that was going on here. And we see that in many different sectors. We also talked about nonperforming assets and we talked about this slight rise that we will be seeing in NPAs for the group as a whole but above all, that was because of the growth in NPAs in SMEs. And we said that in 2013, we'd probably see there would be more net additions coming from SMEs and above all, from very specific customers.

And the other thing we were looking at was the behavior of the main lines on the income statement in 2013 was going to gain steam as the year went by, as the impacts of the reduction in retail deposits went down and also, as wholesale funding became less costly and also, as we got the synergies from the merger between BBVA in Spain with Unnim.

And then looking at things from the U.S.A. viewpoint what we expected to see there in 2013 was that the business would continue to be very much influenced by the low interest rates that we are seeing at the moment, and we know that this environment at the end will normalize, but we're not quite sure when will it be in 2014, will it be in 2015. But in 2013, we're definitely not expecting interest rates to rise significantly in the U.S. area and we said this at the end of last year. We were expecting to see earnings again and business gaining steam and growth increasing as the year went by.

And then in the emerging economies, quite about from what we will be saying when we talk about the highlights in the quarter, we thought that there would be positive growth in Mexico and in South America which would be able to cover the inter-quarter impact of the devaluation in Venezuela, which obviously affected quarter-on-quarter earnings.

So now, we can move on to the presentation and I want to point out that we've had a positive impact on our earnings from 2 one-offs that the market knows; the sale of the pension business in Mexico which has been booked to this quarter, and then the life insurance business here in Spain. So those 2 transactions have been booked to this first quarter, so we've got high earnings because of those 2 impacts. But anyway, when we look at the main lines on the income statement quite apart from these one-offs, we are still seeing how resilient our revenues and all the other items on the income statement are giving us a very robust income statement with gross margin, gross income of EUR 5.4 billion, and that's up 3.9% year-on-year, and if we look at risks earlier on, I was saying that we're just incorporating the impact of the NPAs in SMEs here in Spain. But in general, we can say that it's in line with what we were expecting to get as of the beginning of the year.

So there's a slight worsening in the NPA ratio, which has gone up from 5.1% to 5.3% whilst coverage ratio remained about the same as what we had at the end of last year.

In capital, we're talking about a quarter with a big increase. In capital, we'll be looking at 2 things here. First of all, capital gains on the one-off transaction in Mexico and then the generation of organic capital over the quarter which led to us to generate 42 basis points over the quarter.

And then finally, liquidity. We are really shoring up liquidity in this quarter above all in the euro balance sheet, about EUR 10 billion, nearly EUR 10 billion reduction in the liquidity gap this quarter. So the highlights are that we are doing well on all of these parts of the screen. What's the most significant about what's going on? Well, we're keeping up a high level of growth revenues well supported this quarter with net trading income. Net trading income is incorporated when we are talking about the net interest income with low interest rates. So that's pretty normal and to be expected. We also incorporated capital gains from 2 one-offs, the sale of the pension business and the life insurance business here in Spain. And at the same time, we've got some adjustments which were made. First of all, because of the way that we booked, we booked China under the equity accounting method, and then the CITIC results at the year end were impacted by new regulations and that meant they had to increase their generic provisions. And so we wanted to anticipate the impact it would have up to 2016, so that will be booked to year-end accounts in 2012, and that has an impact on this quarter. We have also taken advantage to increase our provisioning, as I said before, with very specific customers, knowing exactly which books we were provisioning, and a very often due in real estate. And also, we were able to absorb the quarter-on-quarter impact of the Venezuelan devaluation between year-end last year and this first quarter.

So now looking at the main lines on the income statement. Obviously, we're seeing very resilient performance and right from the net interest income, we can see how this trickles down into the rest of the account. Once again, net interest income has grown 0.8% quarter-on-quarter, and this is clearly the outcome of the business model based on diversification which is generating recurrent earnings over time. The net interest income in the emerging markets is going up about 12%, and this tendency is leading us to get a gross income, which is also growing positively, nearly EUR 5.5 billion, growing nearly 4% quarter-on-quarter. The net interest income plus fee income which is the most recurrent business really, has also shown year-on-year growth of 0.4%. Consequently, we're continuing to see this very resilient performance of our income statement. It's the outcome, mostly diversification, that we've got in the group. We're talking here about gross income of which 58% comes from emerging economies which are growing over 9%, and 42% comes from the developed economies. If we look at it in geographic terms, Spain, is still 30% of the total gross income for the group. Mexico, is now 28%; and South America, 24% of the total. That means that very clearly, the emerging markets are the driving force behind the growth in revenue.

On the cost side of things, there, we have had selected cost management depending on whether we are talking about the developed or the emerging economies. In the developed economies, we're talking about pretty flat year-on-year changes, 0.9%, with EUR 9 million increase year-on-year in costs. And we've also got to incorporate 5 points because of the change of perimeter [ph], with Unnim coming into it, and that's an increase of EUR 78 million. So that's a contribution to the expenses of the group in this quarter, whereas last year, we didn't even have that. So we could say that in terms of the developed economies, we are definitely keeping our costs under control, and our outlook is to expect to see further reductions over the next few quarters. Looking at the emerging economies there, we're accompanying the growth that we see in these economies where we want to invest in organic growth in Mexico, Colombia and Chile, and we are investing in regions where we still need to open more branches and increase our number of ATMs and opening new branches, means also that we are employing more people. So we want to accompany the growth in these economies. But when we talk about some countries, in particular, we'll see that in some places, we're expecting them to self finance the growth with internal efficiency.

So with that performance of the gross operating income, we get net profit pretty well flat compared to the last quarter of the previous year, EUR 2.7 billion. And once again, with this tendency, it's very similar to what we saw in operating income when we were looking at the distribution over the different countries, Spain, instead of accounting for 30%, it's 28% here; Mexico is 31%; South America, 25%. And the other countries, have the same tendencies that we've been seeing over recent times. So this, I repeat, is the hallmark of our earnings this quarter, which give us the structural strength and the possibility to recurrently generate operating income, which means that we can then cover all the provisions that we have to set aside.

So taking into account these levels of revenues, plus the one-offs that I have already mentioned, we can see that provisions have consequently gone up. We've increased the volume of provisions over this quarter, so they've grown 26.3% year-on-year. And the main focus here is to provision portfolios with SMEs here in Spain. The ratios show us an increase in NPA ratio for the group to 5.3%, and coverage ratio is about the same level and NPAs including the incorporation of Unnim has been going up very slightly, but mainly, again, that's from SMEs and some from the real estate market. But the main increase year-on-year has to do with incorporation of Unnim.

So that gives us a net attributable profit of EUR 1.7 billion. Obviously here, we have to include the -- we are including the one-offs I've already mentioned. So what's most important here is to highlight what I said before, the recurrency and the stability of the net interest income, the gross income, which are really the underlying performance, the real performance of our management.

Then in terms of capital, we were expecting to have a lot of new capital coming in, 42 basis points came in, which means that our core capital ratio under Basel 2.5 is -- went from 10.8% up to 11.2%. Apart from that, we also got the rest of the capital gains which have to be booked coming from the sale of the rest of the pension business in South America. And anyways, as we said, at the end of 2012, our internal target was and continues to be to be at around 9% under Basel III, fully-loaded.

In our liquidity, there's not much to say, it's getting stronger and stronger. Our ratios are improving, taking advantage of windows to issue debt on to the market with the repayment as well of our LTROs to the European Central Bank. So resilient revenues mean that we get year-on-year growth of 4%, and that comes from our diversification of revenue sources we have in the group: 58% coming from the emerging economies, which means that bringing in the one-offs, we get a net attributable profit of EUR 1.7 billion, which also boosts our capital ratios. Our core capital ratio is now up to 11.2% under Basel 2.5, and our aspiration is to get this 9% under Basel III fully-loaded by the end of this year, 2013. Liquidity is getting stronger and stronger quarter-by-quarter. And in terms of our risk profile, I'd say everything's under control. Where we are focusing at the moment is on SMEs above all here in Spain.

I also talked about the other non-core divestments. We've already signed off the key transactions. One has already been booked to the first quarter, that's in Mexico. There, we've got about EUR 0.8 billion, those an upfront payment made in December, which was booked to the December accounts, but most of this EUR 800 million have been booked to -- into January. All in all, we have EUR 1.8 billion in proceeds, of which EUR 1.7 billion will be for this year. Mexico first quarter, Colombia and Peru will be booked to the second quarter and Chile because of certain additional authorizations that we need to get will be booked to the third quarter of the year. Anyway, the outcome of these divestments is that we've got an improvement in our core capital of 51 basis points.

Okay, then now let's have a look at the different business areas and as always, we'll start with Spain. Business activity in the quarter, Spain has been affected by bringing in the Unnim balances, which means that our lending has gone up by 3.6%, and we can see how the investment is, if we take out Unnim, we're closer to a fall of almost 5%. But deposits are still be heading better than the lending side, and that is why we continue to improve our liquidity ratios.

If we look at the margins now, it means they are falling between 8% and 11%. As we can see on the slide here, the spread between -- customer spreads in this quarter has improved in comparison with last quarter. But if we compare it with Q1 of last year's, there's a fall of over 30 basis points, and this is because we haven't entirely taken onboard the cost of the retail lending. And as I said at the beginning, the margins in Spain will pick up steam throughout the year, and they will be closer to 12%, 13% negative than the levels that we're seeing here on this slide. If we look at the market share, despite the fall in business activity, with gain between 180 basis points and 190 basis points between lending and deposits depending on the headings, so I think the dynamics are pretty good in our bank management business here in Spain.

The NPA ratio, as I said, the trends are the ones that are spread to the group, because most of them, our business is based here in Spain, there's an increase of 4.3% in our NPA ratio without real estate. And as we can see, the real estate has dropped 48.8% to 46.6%, and all the other NPAs has dropped 4% to 4.3%, and these 3 decimals, these 3/10s can be explained basically by the SMEs.

Provisions. If we take out the dark part of the bar graph here which are the provisions for -- secrets [ph] in 2012, this term we've got more provisioning than the previous quarter because that we've set aside more money for provisions. And if we add in with the real estate provisionings, then we're talking about nearly EUR 800 million in this quarter in provisions. And this takes us to a banking business income statement that's generating EUR 569 million and the margins that we've seen before that have been affected negatively because of the 2 items that we have to add in, which is the impact of the full and the cost of deposits and also, the synergies as of the second quarter of our merger with BBVA Spain with Unnim. And on the way we are still generating gains in our market share.

The second key or second part of the business in Spain is the real estate business, and the first thing we're looking out here is the net exposure. Once we take out the provisions that we've already set aside for real estate, and we're talking about EUR 18 billion at the end of 2011 and we've ended at with EUR 15.4 billion at the close of this quarter. So you're talking about a full -- a 15% full. But it's also true that in 2012 in net entries, we've added EUR 1.4 billion from our assets from Unnim, our Unnim assets.

And then I think the rest of the year, what we're going to see, this trend in reducing our exposure as a whole to real estate, both lending and asset side will continue to fall, which takes us to the income statement with losses at the end of the quarter, EUR 346 million. Basically, I wouldn't extrapolate this by fall for the whole year. I think the trend that we're going to see is what we've mentioned at the end of last year, that around EUR 700 million, EUR 800 million in loan loss provisionings or losses due to the adjustment we have to make and the prices of our real estate assets.

You could say that the acceleration process that we were seeking for in our sales as [indiscernible], we've sold over 3,000 units at the end of this quarter, which is 2.7x what we sold last year at this date. So we're talking about an average of over 1,000 units sold a month. So I think the sales rhythm is picking up speed, and it's up to cruising speed in these 3 months. And as we've done at the close of this month, what we're going to do is try and mark all these assets at market prices and sell them in the market at market prices.

The rest of Europe and Asia now. We have the gross income here, which shows a fall of over 4% over EUR 500 million. This is due to 2 effects. On the one hand, the positive growth business in Turkey, yesterday, they presented their results and with fantastic growth there, both in lending and in deposits. We're talking about growth in Turkey in lending, in guarantee of 18% and 13%, with excellent performance in this -- the customer spreads and this has led to major growth in the main lines of the income statements in Turkey. And this is offset by the effect that I manage, of the adjustment of EUR 100 million in the equity accounting this quarter. So in the end of this quarter, we're talking about the dividends that we hope -- we expect to collect from China. And this is associated with the provisions that we have set aside in advance and what we did at the end of last year and which we reported in March, and this leads us to the income statement, starting with just over a EUR 500 million in gross income, with attributable profit of EUR 778 million. And there are 2 things here, there is the retail world and the one-off concerning the equity accounting of our share in CNCB.

Mexico now. Continues to grow well, we're seeing growth of between 6% and 7% in their business, both in deposits and in lending. And the customer spreads, we've seen a fall of 50 basis points in the benchmark rate this quarter and in the end, this means that the different margins are growing at the same rate as the business itself. Costs have gone up at the same rate as revenues. So we don't have an open juror [ph] in the spreads. So we're seeing growth in the operating income of over 6%. Revenues they've covered the -- NPA ratio has dropped from the maximum ceiling we saw last year and the coverage rate continues to grow as it has over the previous quarters. The cost of risk is stable, more or less at the same level as we saw in the last few quarters which takes us to the income statement, which as I said before, the operating income of the nearly EUR 1 billion which is a growth of over 6%, which takes us to a pretax profit of over 4% over 400 -- EUR 560 million -- EUR 460 million and year-on-year, this is an excellent result. And then at the bottom, we see flat growth there, and this is because of the interrupted operations that were associated with adding the pension business last year, which we don't have this year because we've sold it, so the trend as we can see is still positive in the rest of the income statement.

South America, business continues to grow, maybe not quite as much as we saw last year, but we can see that lending has grown by over 15% and deposits by over 20%, which leads us to net interest income as close to 11%, 17%, 15%, depending on which one you're talking about, and the main ones in the gross income and the operating income. The NPA ratio, there's nothing special to highlight here, the same with we're talking about just over 2% in the region, and the coverage ratio is over 140% as we've seen in recent quarters. And here, if we look -- when we see the income statement, we'll see that provisioning has reduced the profit because of the operating income, because of the behavior and the provisions between the first quarter of this year and the first quarter of last year, but the provisions of this quarter are in line with what we've seen over the last 3 quarters of last year, which takes us to an operating income of nearly EUR 800 million. And as I said before, which is a growth of 15%, which enables us to book profits before tax of almost EUR 600 million, which is 6% growth because of the provisions that have behaved worse than last year or performed worse than last year, and we've added these discontinued operations this year. And if we look at the net profit, because of the -- if we look at the pensions business last year and this explains the difference, and this accounts for the fall [ph] in the contribution from the pension business in the first quarter of this year, we're talking about nearly 19%, which means that the attributable profit is EUR 348 million. But what we do continue to see is the resilience, a sound performance in the year from South America.

Moving on to the United States now. Business activity, as we can see, is behaving very well, is performing well. Lending has increased by over 8% and deposits by over 10%. The business has increased in residential real estate but the customer spreads and particularly the business spread continues to fall. This is what we've seen basically this quarter when on the deposit side with such low interest rates there's very little elasticity, which leads to this fall in the customer spreads, and this is passed straight on to our margins. But in any event, the margins that we can see here, which you're talking around 10%, 8%, and for the operating income, you're talking about nearly 20%, continued to perform as well, although the expectations that we have as I said at the beginning for the year, as a whole, and this is something we'll see over the coming quarters, we'll see how these margins are going to pick up steam. And we might be able to see by the end of the year, an operating income might become positive year-on-year because the costs, as I said before, for the group, as a whole, have fallen about 1.4% year-on-year. So our balance sheet is very sensitive to interest rates.

Risks, once again, in the United States, we have an NPA ratio of below 2% we've delivered. This is the geography with the best NPA ratio of all and with negative net entries in recent months. The coverage ratios has gone over 100%, and the loan loss provisioning is stabling off in the cost of risk at the very low rate. And obviously, this is in consonance with what we're seeing in the net entries in NPAs, so attributable profit of around EUR 100 million.

The greater sensitivity of the business here is to future interest rates. So that is the different business areas. So let's go through the main conclusions.

Structural strength in our earnings, resilience despite the complex environment, and this is thanks to the business structure that we have and the diversification we have between the emerging market of 58% and the developed market, 2 one-off operations that made there -- left their print on this quarter, which is a sale -- the sale of the pensions business in Mexico and the life insurance business here in Spain. And what we've done is change the equity accounting and also, there's the devaluation in Venezuela, which means we've been able to raise the capital ratios significantly by 42 basis points this quarter. There's no news on the risk side. The focus is still on SMEs, and this is something we're going to continue to see in coming quarters, but the risk indicators seem to be stable and liquidity, as I said before, we are strengthening our position as we have been over the last few quarters. So from now, I think what we can do is to move on to the Q&A session.

Question-and-Answer Session

Tomas Blasco Sánchez

Thank you very much, Ángel. As we always do, what I'm trying to do is to put the questions together in groups so that we can answer as many costs questions as possible. So we'll start with questions about funding and liquidity. Ignacio Cerezo, Crédit Suisse and Carlos Peixoto of BPI asked about how high is the -- BBVA's dependence on the ECB, and what is the sum of our ALCO portfolio in Spain?

Manuel González Cid

If we look at our position with the European Central Bank, as we disclosed in the annual earnings presentation for 2012, we've managed to reduce this by 50%, including positions which we've brought on board with Unnim. So our position, our net position now with the ECB, just in LTROs, is about EUR 14 billion. As to the assets and liabilities committed portfolios in Spain on the euro balance sheet, at the moment, incorporating the figures from Unnim, we'll be talking about a total position that's EUR 35.5 million, which comes from an end-of-year position of EUR 37 billion. So the position has gone down EUR 1.5 billion over the quarter. And this change has been generated with a reduction in our positions coming from Unnim and from sovereign debt, which we already had about EUR 3 billion with other positions taken in non-sovereign securities of about EUR 1.8 billion, also denominated in euros. So at the moment, the maturity would be EUR 2.7 billion, and it means that we have protection of the deposits that we have on a euro balance sheet, taking into account the environment that we have in terms of interest rates. But over the quarter, we've seen a reduction of exposure here with these portfolios. Although, with the deleveraging and the low interest rates, that's the level that we considered suitable.

Tomas Blasco Sánchez

Now coming onto capital. Three questions. First of all, Britta Schmidt from Autonomous, Mario Lodos from Sabadell, and Rohith Chandra from Barclays, Ignacio Cerezo from Crédit Suisse and Carlos Garcia from Société Générale, asked first of all, about the impact of the CRD4 standard on small and medium-sized enterprises. So that's -- exactly how much risk will that entail? Second question. An update on the impact of Basel III on the core capital, both in terms of fully loaded and phased in. And then, the third question -- several, unless apart from those I've already mentioned, are asking about whether you could give a bit more color on -- with respect to the news that came out on Reuters yesterday, about a forthcoming Tier 1-related issue. And so -- and if you could talk a little bit about the conditions, if possible.

Unknown Executive

I believe the -- the impact...

Ángel Cano Fernández

Do you want me to talk about the impact of Basel III? And you can answer about CRD4 and the Tier 1 operation. Basel III, I said in the presentation, that our objective -- and this is what we're working to, is to -- by the end of the year 2013, is to have around 9% fully-loaded pursuant to Basel III. When we talk about the impact of moving from 2.5 to III under Basel III, the impact on deductions, our best guess is going to be 335 basis points, and there are several items to take into account here, and maybe I should highlight one of these in our tax assets. The DTAs within these 335, there's one line which is tax credits themselves beyond the deferred tax assets, and these are tax assets that will never be added to the deductions because they'll be offset before the stipulated phase-in period, so they will never have an impact here. But of this 335 basis points that I mentioned, 100 basis points are associated with the negative tax basis or the tax credits per -- and about 90 are related to the investments in our share in China. That's the data, basically. But by the end of the year, as I said, we should have 9% fully loaded, as I say.

Manuel González Cid

The impact of the final draft of the European capital rules with regard to the -- of weight -- risk-weighted assets in SMEs, in preliminary estimations we have, we're talking about EUR 1.7 billion in risk-weighted assets. From the point of view of the second question, the announcement that Reuters made yesterday concerning a possible Tier 1 instrument, basically, BBVA, along with many other banks with [indiscernible] have been asked to issue what is known -- perpetual Additional Tier 1 security. This is a Basel III requirement. So you're talking about perpetual fixed income which can be changed into equity in certain conditions. Traditionally, these are called CoCos, but this time, they are Tier 1. And what we're reporting is we're starting the process but until a few days or weeks have passed, we don't really know whether this deal is going to come up, we don't know exactly what the coupon is going to be or the final amounts that are going to be issued. We were talking about the benchmark issue. Neither can we can we confirm that it's actually going to occur. So what we're doing is a market prospection with the idea to assess the value of these instruments. The reason why we're thinking about issuing a Tier 1 Basel III, if you remember, a significant part of the reconstruction of our core capital levels is comparable with the European average, despite the fact we are the -- we have the highest density of risk-weighted -- risk asset over total average assets in Europe. Part of this effort was made by swapping preferred issue,bascially [indiscernible] for a convertible -- a mandatory convertible bond, which leads -- means there's 1 convertible issue pending in June, for a total initials amount of EUR 3.5 billion. This means that the remaining Tier 1 that we have is only EUR 1.8 billion, and is not Basel III with finance either, so it will gradually lose its eligibility over time. So -- if we look at the deductions, Tier 1 deductions that we have at the moment, these exceed the deductions that we have, Tier 1, by about EUR 900 million, which means that these deductions are not going to Tier 1, but rather, to core capital, as will happen under Basel III. So our core capital is EUR 900 million, less than what it really is because of the excess deductions that we have in the Tier 1, and this is penalizing our core capital, this EUR 900 million. You're talking about 30 basis points of core capital. And as the COO -- with the Basel 2.5, without this Tier 1 limitation, we'll be talking about 11.5% capital ratio. This is also, too, has an effect on our core capital. These are regulatory capital requirements today. Moreover, this Tier 1 we want to -- we want it to be eligible in the EBA as a buffer. And as you know, in Basel III, the directive talks about that total -- a maximum bucket of 1.5 of risk-weighted assets over total average assets. It has to be perpetual; it has to be discretional in the payments of the coupon; and it has to be able to absorb losses, and in our case, what we're defining is a convertible instrument at a market price with a minimum conversion price that'll be established in -- in advance but only in very negative circumstances. And we're a long way from that in our capital ratios. So the logic of this operation, for us, is to generate core capital at a significantly -- core capital at a significantly lower rate without penalizing our shareholders, unless we become highly insolvent, and at the same time, we are strengthening our main capital and adapting to Basel III. And I think this is good news for our shareholders and those who have seen the unsubordinated debt, and also for our depositors, because moreover, we're talking about an instrument that will be highly attractive for investors. And finally, we hope that this instrument, if we end up going ahead with this operation, will be well accepted by the rating agencies.

Tomas Blasco Sánchez

Okay. Moving on now to Spain. Several questions concerning the net interest income. Rohith Chandra from Barclays asked for more information concerning the performance of the net interest income in 2013. Britta Schmidt from Autonomous would like information on the impact that a potential additional Royal Legislative Decree No. 3 would have. Britta also asked about the guidance -- our guidance for the contribution to the Deposit Guarantee Fund, and the change in legislation with regard to a one-off contribution, how much is this going to be? How are we going to absorb this? Mario Lodos from Banco Sabadell asks about what factors would justify the good performance in the net trading income in Spain in Q1 2013. And finally, this first block about Spain, David Vaamonde from Fidentiis has a question about the effort that's been made in this first quarter with regard to term deposits. And his question is, is there any -- are you worried, at all, about what could happen in the market in the coming months or do we want to get ahead -- above the curve in restructuring, get ahead of other banks? Can we see this flight to quality, this internal flight to quality in Spain? So these are the first questions regarding Spain.

Ángel Cano Fernández

Well, let's start with net interest income for 2013. And as I said in the presentation, the first quarter performance will probably be the worst of the whole year, with the biggest falls that we'll see throughout the year. You should think that right now we're comparing against the best quarter in terms of deposit costs of all of 2012. In 2012, we saw the price of deposits going from lower to higher, and in the second quarter was when we started to see the price of deposits going up again. So with this year, mainly, it's in February rather than from the very beginning. We've seen an across-the-board drop in the cost of deposits. Above -- or 70 basis points drop for us over the last 2 months of the quarter. As I've said before, in terms of the performance of the net interest income for the rest of the year, we'll see improvements in the year-on-year drop, and we should reach levels which will be closer, well, minus 1, 2, 3. And we think that by the end of the year, we'll probably be at about the same level as last year. And in terms of a possible new Royal Decree, at the moment, we haven't heard that there is going to be any new one. We know that there's an MOU, which includes some things that have to do with provisioning but, to date, we definitely haven't been given any indication from the ministry or from the Bank of Spain that would lead us to expect to have anything coming out. So to date, that's what we know. And as to contributions to the deposit guarantee fund, the Royal Decree talked about the incorporation of an extraordinary contribution and for us, if it comes out -- and in the first 20 days of 2014, if we have to pay 1/3 of the total for BBVA, our best estimate would be about EUR 120 million. And then, what the Royal Decree would make it possible for the board of the Deposit Guarantee Fund to do would be to alter the term. So we'd have to see when the rest of the contribution would be, which would be about EUR 180 million, and that could probably be staggered over a 7-year period. And maybe, Manolo will talk about net trading income. And then, in terms of term deposits, we're gaining market share and deposits in general, without talking about specific figures. And that means an increase of our market share in deposits, and at the same time, we're seeing this drop in the price of the deposit. So in summary, I could say more deposits, more market share and above all, more customers, more customers are now seeing a big change of tendency compared to 2012, and our explanation is that apart from the fact that the technology platform is now up and running, and services have improved, that we are offering our customers. And we've also got that flight to quality you mentioned in the question, and that is clearly leading to an improvement every single month. And so maybe you can talk about net trading income, Manolo?

And it's really what we said anyway in the presentation. With such low interest rates as we're seeing in Spain and in the United States, the contribution to net trading incomes tends to go up, which has to do with the coverage that we've got in the balance sheet for the group as a whole. And that is one part of the explanation.

Manuel González Cid

Thank you very much, Ángel. Indeed, as the COO said, it's clear that on our portfolios, we are positioned for the kind of scenario we've got. So when you get this scenario in the market, the reaction is to accumulate capital gains with a proactive management of the portfolios. There's a lot of volatility in the market, so we have to have very proactive management of these books, and that means that we are often realizing the gains. But whilst the market environment continues to be as it is, we'll continue to have the possibility of generating net trading income with these low interest rates. So that's the main message that you could take home from this. The other factor that comes into the net trading income figure is what we're doing in restructuring the Unnim books to reduce our exposure to bring it into our target levels for risk profile and especially, to move away from the sovereign debt and from the private customer risks. And that explains the NTI performance this quarter and also, the figures that we've been reporting over previous quarters. But basically, it's what Ángel said, that is to say, we've got low interest rates from the market and so it's only normal for these portfolios to protect our gross income. And with the deleveraging and the low interest rates, I think we can explain a lot of this. And we also have talked about business volumes in the markets area. In global terms for the group, the contribution to the bottom line is positive at gross income but between net interest income and NTI in the first quarter of the year or over the last couple of months, really. Although -- yes, and also in April, we are seeing a growth of NTI and a drop in the net interest income. But you couldn't bring together, which means that gross operating income is growing against the previous year. This is positive in Europe and in Spain, definitely; in Mexico; in South America, and flatter, in the United States. So you should incorporate that because that gives us greater stability because we are incorporating the NTIs into all these different areas.

Tomas Blasco Sánchez

Continuing, then, with Spain. Three questions. The first one from Daragh Quinn from Nomura. Regarding the latest unemployment figures here in Spain, over 27%, which is the most adverse scenario reported in recent times. How could this risk lead to an increase in provisioning here in Spain? And then, connected to that question, how much can -- well, what estimates do we have for the economy in Spain in 2013 to avoid the recession that is predicted for the rest of the year? What's our best guess of what the macro economy is going to do here in Spain? Jaime Becerril from JPMorgan asks about the estimated impact that we are expecting to see in Spain with the new mortgage law. Have we got any value that we can place on that impact? And Paco Riquel from N+1 -- although, I think that the COO has largely answered this, regarding a change in the legislation, asks whether we think there might be a change in regulations on provisioning, specifically for refinance loans here in Spain. So there are 3 questions: unemployment, how it might affect us; then, refinanced loans, new regulations and the impact of the new mortgage act and how that might impact our -- the Spanish franchise.

Ángel Cano Fernández

Starting at the end -- as I've said before, for the final question, we have no further question than the market has. Our information on exposure to refinancing at the end of 2012, we gave this information and we will, once again, at the end of Q2. There's not usually any major change in 6 months, so we will provide that information twice a year, in December and in June. And basically, we have no further information of any potential changes in regulations. The MOU sets out possible changes in the definition of provisions, but to date, we do not have this information on the table. Unemployment data, the figure is very negative if you take it as itself, we're talking about 27% unemployment rate. But if we look at the expected trends for this rate, this is something we knew how to continue to climb and maybe, the upside of this is the increase in the unemployment rate is slowing down if we compare it with last year. But what is true is that we still need stimulus measures, measures to stimulate the economy so that we can start generating jobs as soon as possible. In normal conditions, while the economy doesn't grow, it's very difficult to see any fall in the unemployment ratio. And from what we know from the performance of the economy in 2013, and this is in line with our forecast, we're forecasting a fall of 1.1% in the year as a whole and we can't see any growth until 2014. And at the moment, we're estimating growth of 1%, 1.2%, 1.3% for 2014. So to see a fall in the unemployment rate, we have to see an increase in the growth, which we don't think is going to happen this year. We think it won't happen until next year. When growth starts in the economy, then, in the large companies, have always insisted on the need to bring in greater reforms that will stimulate the economy and promote job growth as soon as possible. So -- and that's what we're seeing. The impact that these increases may have, as you say, we're taking this into account on our provisions, we can't see any change in the trend in the private individuals. And what we are seeing more clearly is the deterioration in SMEs. That's our opinion on the information available, and when we get further information of the effects that it will have, then obviously, we will factor this into our financial statements. Now if you would like to talk about the mortgage act, Manolo, and the impact that this may have?

Manuel González Cid

In my understanding, I think the question is talking about the mortgage act that's been adopted and this affects 4 major aspects and that is the suppression of evictions for 2 years for families in danger of exclusion, especially the limits of arrears interest that can be charged. There's -- a ceiling has been placed on this and modification is also in the Civil Procedure act to improve the foreclosure procedure to enhance protections for people involved in these processes. And then, there's the code of best practices established, especially in the threshold of the exclusion defined by the regulations. In short, we're talking about a new law that contains some very far-reaching impacts to protect the most vulnerable people in this crisis and to enhance the protection they have, but without making it more difficult for people to access housing, nor to threaten the rule of law or legal security in the country with regard to mortgages, et cetera. As for evictions, we have to recognize that this is a serious, a very serious problem that affects 0.4% of our mortgage customers. We are very sensitive to this, and we are dealing now with specific solutions, but this is the scope of the mortgage act that's been adopted and enacted.

Ángel Cano Fernández

When we talked about the cost of performance, one thing I didn't mention is one line that generates an increase -- especially in Spain, is one sum we set aside for social plans, and there's -- one of these concerns all of this, and that is how we can help families who are at risk of exclusion, so that they can pay a social rent. And then, a different social plans that we've launched this quarter, others concern job creation. We're trying to create 10,000 jobs, working with the SMEs and larger companies that work with the banks. So over the next 2 years, we're hoping to generate a minimum of 10,000 jobs. This means that this quarter, that we have some 13 million quarters that have been added to costs, but this is to cover the social impact of unemployment that we're seeing, because this is certainly the most negative figure that we've seen. Because before people lose their houses, they lose their jobs, and this is what leads to it, so what we need to do is to try and generate more jobs.

Tomas Blasco Sánchez

Okay. Creditworthiness in Spain, several -- or credit quality. There are several questions, Rohith Chandra from Barclays, Ignacio Cerezo from Crédit Suisse, Frederic Teschner from Natixis and Carlos Berastain from Deutsche Bank, Juan Pablo Lopez from Espirito Santo and Marta Sanchez from KBW. There are 2 or 3 questions all aimed at the same subject. First of all, the doubtful assets have grown this quarter, NPAs have grown. So the question is, are we seeing some sort of impairment in the mortgage portfolio or basically, is the impairment in SMEs? That's the first question. Question 2, what is the outlook for provisions for real estate throughout 2013? Will there be a normal ground rate of about EUR 650 million, EUR 700 million, which is what we've been seeing in recent years? Question 3, about our outlook for the cost of risk, both for real estate assets, and also for non-real estates loans. And question -- the next question is, what is our sales policy with regard to selling real estate assets? And how much impairment do we expect to have to absorb this year in our real estate portfolio? And the final question, and I think this includes everything that's been asked, the question is, whether we can give some more difficult -- details on the coverage of the different segments of our portfolio in Spain.

Ángel Cano Fernández

A whole lot of questions. Should we share them out, Manolo? You can talk about the cost of risk or the risk premium in real estate and non-real estate and NPA ratios. NPAs increased 2/3, 1/3, more or less up in Spain. Above all, SMEs, 2/3, and then 1/3 would be real estate. So the nonperforming asset ratios you saw when we talk about Spain reached 46% to 46.6%, which is 4.3% up, so 500 -- or not even -- it's not even 500 in real estate; and then, the rest in SMEs. And the provisions for real estate, the tendency of between EUR 600 million, 700 EUR million is exactly what we budgeted for, and what we're estimating for the year as a whole. And nowadays, we are not expecting to see anything different happen. We tend to say that from the beginning of the crisis, from the peaks in 2008, there's been a drop of 35%. Obviously, this is uneven over the different regions in Spain. The north is quite different from the south here in Spain, in the way that, that's performing. But we think that between 5%, 8% more drop would be possible in some regions in Spain. What we do think is that from these peaks, down to the end of the fall, could be between 42%, 43% overall, including what we still have ahead of us.

So another 10% further fall could be expected. And in 2013, we could expect that maybe we get 5%, 7%. But anyway, we're not expecting to see anything very different from what you said between EUR 700 million, EUR 800 million for the year as a whole. Our sales policy, basically, as I said over the last 2 or 3 quarters, we are trying to create a strong business unit, a strong department with a good set of people working intensively on the reduction of our exposure to the real estate market, as you've seen. We said it in the presentation. There's a 15% drop in our exposure. But you should also include the fact that in this period, we've included EUR 1.4 billion net from Unnim. So the fall would indeed seems greater. So we had set up this business unit with all the necessary resources. We're talking about a unit that now has about 800 people working for it on the different aspects, loans to developers, recoveries, nonperforming asset management, et cetera. And we were talking about sales of about 1,000 units. So we're talking about 11,000 sold by the end of the year with that monthly rate. And so our risk exposure to developers means that we are also selling properties which are owned still by the developers. They're not actually ours yet. They are on the balance sheet of the developers that we have been financing. So by then of the year, our target is to sell over 22,000 units, both of our own assets and those of our developers, thereby reducing our exposure to developers and real estate.

Manuel González Cid

Okay. I will talk about NPAs, coverage, the different segments and such like. Well, I think that in the documentation you've been given, you've got a detailed explanation of the new reporting regulations in Spain. And I think that a lot of progress has been done with respect to planning and business management and internal control, getting greater transparency. So it's easier to interpret what our results in Spain are. So you've got the results here in Spain -- in business in Spain without including real estate, which is what Ángel was talking about because that's a specialist area now that manages all our foreclosed assets and all of our exposure to developers as well. And you've also got the data of our entire exposure to the real estate market which is managed by that unit. And there you can see, for example, that if we eliminate the data on the nonperforming assets related to developers and the -- to the real estate market in Spain, as we define it right now, NPA ratio will be 4.2 -- 4.3%, and the coverage ratio is 50%. So those, that 4.3% NPA ratio corresponds to everything, excluding our exposure to developers and real estate. We're talking about SMEs and small companies and individuals and, well, also larger companies because we include large corporations there, in fact. So it's our exposure. And then the coverage of the unsecured part of those nonperforming assets is quite high because we've got all the retail mortgages which have high levels of collateral. And as to developers, well, you can see all the details in the documents you've been given, whether they are on the watch list, they are foreclosed, the EVO [ph] with the land, collateral and with -- development collateral. We've got all the data there. And then as to the cost of risk this year and the outlook for the rest of the year here in Spain, I just want to remind you that last year, between loan-loss provisioning and real-estate provisioning, we had EUR 7 billion provisioning set aside this year, as we've been saying, since the year-end results were presented. And as our COO said on the ratio, we're estimating provisioning in Spain for everything, loan-loss provisioning and real-estate provisioning, to be about EUR 3.5 billion for the year as a whole. So we're still seeing very similar levels of provisioning as we were expecting at the end of last year. We haven't really changed at all our outlook. Everything that's happening, all the data that we are recording in the macro economy and microeconomic level in our books as well do correspond to the scenarios that we were expecting to see as of the beginning of the year.

Tomas Blasco Sánchez

Okay. Now changing subject matter, let's have a look at the questions we've got about the different subsidiaries and franchises. So let's start with Mexico. Daragh Quinn from Nomura, Carlos Berastain, Juan Pablo Lopez from Espirito Santo and BPI have asked about 2 things. First of all, how is the growth in the loan book in Mexico performing? What's our outlook for 2013? And the second question is, what is going on and what can we expect in terms of the net interest income in Mexico?

Ángel Cano Fernández

[Spanish] First of all, lending throughout the year or the loan book, what we saw at the close of Q1, as I said before, in Mexico, SMEs and consumer is growing. But we're seeing a reduction in our exposure. This is the developer exposure that we've seen over the last 2 years. If we go back 2 years, we'd have seen a fall of 50% in our exposure to developers in Mexico. And in fact, the total risk in Mexico is -- about EUR 1 billion is for developers. So first of all, we've adjusted that exposure. We've also adjusted our business relations with the number of developers in Mexico. Instead of working with 700, we now work with 150 selected promoters. That's the first point. The second point is the performance in Mexico because of the liquidity that's available there, as it is in South America, too. First of all, this leads to -- pushes prices down. So this pushes spreads down. And there's another trend, and that is a lack of intermediation with -- instead of going to banks for credit, we're seeing bonds being issued in the primary markets. And that's the trend we're seeing. So for 2013 as a whole, I think we're going to continue to see how loans will grow as they have in the first quarter. I think it's going to be close to double-digit growth. And its impact on margins, I think we're going to see things picking up speed. It might not pick up too much, but we could reach 7% for the year as a whole.

Tomas Blasco Sánchez

The South American franchise, I have 4 questions on this asked by Andrea Filtri, Mediobanca; Ronit Ghose from Citi; Daragh Quinn from Nomura; Carlos Berastain from Deutsche Bank; and Jaime Becerril from JPMorgan. First of all, are we concerned about the overheating that can be seen in this South America franchise in our business over there? Are the growth ratios that we're seeing sustainable? That's Question 1. Question 2 is more specific, more focused on the devaluation that's occurred in Venezuela. So what's the recurrent impact that we're going to see off the Venezuelan devaluation? And Question 3, are we expecting any devaluation in Argentina? And the final question, are there any outstanding adjustments in Argentina and Venezuela because of the capital restrictions that we are facing? I'll repeat. First question is, are the growth rates that we're seeing in Latin America sustainable? Question 2, the impact on the accounts of the Venezuelan devaluation? And Question 3, are we expecting a devaluation in Argentina? And the final question, are there any outstanding adjustments to be made in Venezuela and Argentina because of the capital restrictions that we've seen recently?

Ángel Cano Fernández

Maybe if we want to talk about the sustainability of the growth in South America, we have to talk about how we manage these things. We have sound planning -- well, as we do everywhere, which -- it looks at risk in very general terms, liquidity risks, structural risks of all kinds and also, obviously, the risk on the loan book. And so for each country, we have a way of planning our asset allocation for the different countries, the different sectors. Every sector is, in turn, related to the economic growth and performance of each sector. So we get maximum growth in each sector and linked to that sector for each customer. So we are very much on top of the growth of our lending in this region and in everywhere else as well. Apart from that, what we look at is the self-financing of the different countries. So we look at the deposits. We look at the loans and make sure that they are growing in a similar rate. And that means that we get a really robust growth. We've got limits. We've got alerts that get triggered in the sectors, in the countries, in the different risks. And with the kind of monitoring we've got, everything is evolving as expected at micro and macro levels for all the different countries. As for the devaluation in Venezuela, well, there, one of the main impacts from the last quarter of last year to the first quarter of this year from the net interest income -- but it trickles down further, has been the impact in revenues and costs but above all, in the income lines for this quarter. For 2013 then, in the first quarter, we've incorporated a reduction of about EUR 150 million in net interest income, for example, when we compare it against the last quarter of last year. And that's probably the main drop when we look at what's happened from the net interest income. We see how it trickles down to the rest of the account, between EUR 40 million and EUR 150 million, then we took the main hit. The main cause is Venezuela, as I said. The next in the group as a whole is Spain although less so. Here, we're talking about EUR 1 million, more than EUR 40 million last quarter to first quarter and very much linked to the price -- well, the spread on -- the customer spread, and then the U.S. because of the fall in the customer spread, above all, with SMEs. But the main item was the -- for what we get from Venezuela, about EUR 150 million less net interest income in the quarter because of the Venezuela devaluation. So for the year as a whole -- we're expecting an impact of about EUR 50 million negative for the year as a whole. And those EUR 50 million will be offset by positive impacts from our dollar positions on the Venezuela balance sheet. And that means that we just have EUR 50 million left instead of the EUR 100 million and EUR 80 million that we could have expected had we not taken into account the impact of our dollar position or dollar-denominated position. As for Argentina, well, there, the exposure is much lower for the group and any devaluation that might happen in Argentina. I think over the next few months, it's not that likely. For the next 6, 7 months, definitely, we're not expecting to see it. But anyway, the impact, if it did occur, would be much lower than the hit that we took in Venezuela. And then the restrictions from the adjustments, Manolo, maybe you could talk about that?

Manuel González Cid

Yes. Well, in the event of -- well, Argentina is quite different from Venezuela. In Argentina, there are capital requirements on the basis of which there are certain thresholds you have to get before you can repatriate dividends, whereas in Venezuela, things are a little bit more complex and more related to the control of the exchange rates. And so the dividends outstanding are in reserves and have been adjusted because of the devaluation. Like all reserves, the impact on capital that we've taken because of the Venezuela devaluation in reserves, looking at the book value and in minority holdings, was EUR 800 million, which is offsetted by the risk-weighted assets which go down, which means that the core ratio has maybe gone down 1 point, 1.5 because of Venezuela absorbing very positive impacts with respect to currency trading and such like, which have had a positive impact. And then in terms of dividends there, the impact of this EUR 800 million, EUR 200 million have to do with dividends which are pending repatriation, which are there in the reserves that we have in Venezuela.

Tomas Blasco Sánchez

Okay. And now we can go on with the different franchises, grouping together Eurasia and the United States. In Eurasia, one single question, what's the contribution of CNBC to the earnings for 2013? What we saw in the first quarter was -- is a one-off in the United States? Frederic Teschner from Natixis and Juan Pablo Lopez from Espirito Santo asked, first of all, about whether or not the provisioning levels are sustainable because they think they're low and asked about whether -- the net profits, if they were to go down over the year, would there be any risk of a further impairment of goodwill before the end of 2013? So 3 questions. The first, the contribution of CNBC to the year and then, is the provisioning in the U.S. sustainable? And finally, whether the earning potential fall of profits from the U.S. could lead to an impairment of the goodwill before the end of the year?

Ángel Cano Fernández

First of all, the Chinese contribution and the equity accounting, the first thing you need to bear in mind is the EUR 100 million that I mentioned in my presentation that reduced the equity accounting, which means that this can be the same throughout the year. So we expect less equity accounting this year than last year. And all the rest will depend on the performance of the bank in China, which is difficult to forecast. I think maybe the most important adjustments were made at the close of the year when we got ahead of the timeline set out by the Chinese Central Bank as they set a deadline for 2016 to do this. And we started doing it in 2012, which means that we shouldn't expect any growth in the provisions in China there. So in the end, we're talking about EUR 100 million less than we saw last year. The U.S. now. The cost of risk in the United States is in line with the risk information we have. We've seen the NPA that's below 2%, it's at 1.8%, but the most important thing is the net entries if we look at these in the last 7, 8 months, the negative net entries which has led to the fall in the NPA ratio. But it's not just the falling trend. Apart from that, the pre-entries in NPA of payments due after 90 days are down at minimum level. So it's not just the positive performance of entries. There's also the trend for coming quarters. And we don't foresee any change, which means that this year -- well, I think throughout this year, we're going to see a cost of risk just as low as we're seeing at the moment. In the midterm, it might go up a little bit. But for now, the behavior is highly objective. So as I said before, if we put the performance of the cost of risk and the cost management that is very tightly controlled in the United States, we're seeing it falls around 2% in costs in the first quarter. And I think this is a trend that we're going to see throughout the year. And the different lines are going to pick up throughout the year. And we hope to see positive data by the end of the year. And we certainly don't expect any fall in profits in the year as a whole. So the profit is in line with our forecast. So we certainly wouldn't expect any additional impairment although, obviously, this is not our opinion or our decision. That this up to the supervisors, the regulators. But we believe that's the performance of the United States. We shouldn't forget that this is a balance that's very sensitive to interest rates. We think that they will go up in the midterm. The net interest income would grow by 7 basis points when interest rates start going up.

Tomas Blasco Sánchez

Strategy now. There are several questions on strategy, Andrea Filtri from Mediobanca and Daragh Quinn from Nomura, Juan Pablo Lopez from Espirito Santo and Jaime Becerril from JPMorgan. I think we can put them all together in a single question. What plans do you have for CITIC, Telefónica and Garanti?

Ángel Cano Fernández

[Spanish] Okay, CITIC, Telefónica. I don't think really there is anything new to report other than what we've already been reporting in previous quarters. I'll be going on, talking about similar levels. Telefónica is a financial investment. And right now, the prices we have in the market, we have no intention to divest. And it's true that anyway, in terms of capital right now, it wouldn't really have a relevant impact. As to our investment in China, obviously, we are sensitive. As I said at the year-end presentation, we are sensitive to the 90 basis points impact on -- the impact that we have on the Basel III fully-loaded -- of course, at the moment, the impact is less. But we're trying to think in terms of what impact will be reported under fully-loaded Basel III. But anyway, as in Telefónica, we don't have any intention to sell at least at current market prices. Having said that, as long as we have the comfort of knowing that we can get to the levels we want to under Basel III fully-loaded, we're going to be very rational in what we do. And the same for Garanti, obviously, we've got a much more long-term view until 2016. We don't have to come to any decision anyway about what we are going to do. And we are very clear about the path to control, which is established already under the shareholders' agreement. And from thereon, we have no particular -- we're in no particular hurry to grow in Turkey. Turkey, as I said before, is performing very well, very positive news on the earnings, the market, like our investment there. And the incorporation of this franchise to the group is going even better than we had expected. We are -- they are working very well with us and make a very positive contribution. And so we'll now wait for market conditions to become more positive. And we want to be very rational in any decisions we make. And we've got strategic long-term planning here in the group. And at the moment, we are rolling things out, as we had expected, on the basis of the rationale established.

Tomas Blasco Sánchez

And now, 3 final questions, quite different. Ignacio Cerezo from Crédit Suisse asks if we can give any guidance regarding the line of costs in Spain, but above all in Mexico, given the high growth we've seen there when the 2 is going to come together. Second question regarding dividends, Jaime Becerril and Andrea Filtri from Mediobanca ask, what's our dividend policy for 2013? And can we talk about 2014? Will it be cash or scrip dividends? The third and last one has to do with the tax rate for the bank. That is to say the potential gains in sales of real estate assets. Could that change our tax ratios and make them different from what we've been reporting in previous quarters? So what would our tax rate be for 2013? What kind of range would we expect?

Ángel Cano Fernández

[Spanish] As I said before, when I showed you a slide, without going into detail, of how we are managing costs in the group, and there are 2 ways of looking at this. On the one hand, we -- there is the flow management, which is costs associated with organic growth in the emerging market. That's on the one side. The second point you need to bear in detail is the control management of costs into the developed world. And you'll see fairly flat and even negative growth in costs, especially in the United States. We've seen efficiency plans which are even greater that are being rolled out both in Spain and throughout the group. But what we don't do is allow the cost to grow just because we have organic growth plans in places like emerging markets. What we do is we work just as hard on the stock of costs we have for all different areas. And that's the way we're going to look at it. Throughout the year, we're going to -- we think that costs are going to improve their performance in general. In Mexico, in particular, I think I mentioned this before, too, that when we recently launched an invention -- an investment plan of $3.5 billion and we've put this together with the existing plans, the technology plan or building branches in Mexico, what we do, as we have in other areas, is to concentrate the different buildings that we had in this case in Mexico City. And we've done this in other franchises. We've even done it here in Madrid and in Spain. And that means that once you finish building your head offices, then you have the depreciation and amortization. But the rents are lower because we sold the buildings here in Spain and Mexico in the past. So we're seeing enhancements in our productivity. And what we really want to change now is the morphology of our offices, our branches in Mexico. We're budgeting for transformation and we're working actively on the morphology of our branches. We're talking about 1/3 of the total investment which will be for transforming our branches. And this is associated with far more personalized attention to the high-value products. We want to accelerate the sale of this and reinforce the generation of value for our top value customers. And we want to migrate all the services, especially repetitive services, the administrative services, at customers, where there were -- there are alternative challenge -- channels. We want to migrate these 2 alternative channels, which will enable us to recover the -- which will open the drawers in Mexico again. The -- in the first quarter in Mexico, the costs are growing at the same rate as revenues, which is better than previous quarters. And our outlook for 2013, I think the trend is going to continue with revenue and costs increasing at the same, maybe with revenues growing slightly more than cost and they will -- by 2014, the drawers will start to open again. Company tax, Manolo, or corporation tax?

Manuel González Cid

One thing we have to clarify here, 2012, as you know, because of the earnings of the dividends, the equity accounting rate did not pay tax -- or the loss because of loan-loss provisioning meant that we were paying a very low tax rate. In Q1, we're absorbing the return to a normal tax rate. And at the moment, it's around 26%. And we think that for the year as a whole, it's going to be around there, 26%, maybe 25%. But this is a more -- far more normal tax rate. And this is an important message that we are absorbing this return to a normal tax rate. And just to finish off the question about the dividend, no news with regard to -- when we presented 2012 as a whole. If you remember, we talked about maintaining our current policy to scrip and to cash dividend of EUR 0.42. That is our policy. Obviously, it has to be adopted by the general assembly. And another thing we said at the end of last year is the trend that we need to move towards cash dividends and less scrip dividends. 2014 -- whether we're going to see it in 2014, as we always say, there are 2 important points that we shouldn't lose sight of. And that is the capital. With the information that we have, we think that we can start this trend in 2014 to move towards cash dividends. And obviously, it depends on earnings as well because dividends have to be in consonance with a certain payout from normal earnings of the bank. And that is why, with the information available to date, we think that this trend towards more cash dividends is something that we're going to start doing in 2014, I'll repeat, with those precautions that I've mentioned.

Tomas Blasco Sánchez

Well, having answered that final question, I'd like to thank you for coming on to this webcast. And I would remind you once again that any questions that have not been answered will be answered throughout -- in the course of the day by Investor Relations. Thank you very much. [Spanish] Thank you very much to all of you for coming along. Thank you.

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