Joe Lambert - Director of Marketing, Singular Research
Jaime Celorio - CFO
Chris Schech - Incoming CFO
Banco Latinoamericano de Comercio Exterior, S.A. (BLX) Singular Research Annual “Best of the Uncovereds” Conference Transcript September 10, 2009 2:45 PM ET
Okay. This is Joe Lambert again, Singular Research. Our next presentation is Banco Latinoamericano or also known as Bladex, symbol BLX.
Our analyst has this to say in his latest report. First quarter net operating revenue was trailing by – trailing our estimate by $1.5 million leading to EPS of $0.29 which was $0.04 below our estimate. Other income items provided positive variance versus our estimates, while loan loss provisions reduced net operating revenue. Our analyst raised their price target which is to $18 and he maintained his by rates.
Today, we have Chief Financial Officer with us, Jaime Celorio. Thank you, Jaime.
Thank you. And hello everyone and thank you very much for stopping by here, and I know that there are a lot of folks over the Internet and through the webcast, well, thank you very much for taking the time. It’s our pleasure to be here at this conference.
This is the second time we are here and we are really excited about to tell you the story about Bladex. For some of you guys that already know the story, we may be repeating some of the stuffs in terms of the fundamentals and some of the history of the bank and we will try to go fast, and then feel free to interrupt me if you want to ask a question.
Okay. First of all, the bank, it started operations back in ‘75; it’s in 23 different countries. In Latin America, many Central Banks decided to create this bank to promote trade finance. The mission of the bank is basically to promote a seamless support in Latin America to promote foreign trade and then create value obviously to shareholders. So we will see in the following slides, the percentage that we have in Central Banks and the percentage that we have in shareholders listed in the New York Stock Exchange.
Okay. The bank was one of the first bank from Latin America to be listed in the New York Stock Exchange back in 1992. It was also the first bank rated investment grade. And the current ratings that we have from Moody’s, S&P and Fitch is BBB. And the one from Fitch as you can see here, over here in July ’08, should be updated anytime soon basically as we speak and you should see this in September ’09.
Panama, that’s where we are headquartered. Before I go to the offices of diplomat, I will tell you a little bit about the information in getting out our mission. We have an average growth rate from 2005 to 2008 of 80%. Obviously with the current crisis, this percentage in ’09 was negative, but still we believe that now that economic crisis is over, we should be able to recover that that increase.
And the focus of Latin America, again the bank has been (inaudible), that’s a very good track record. The market share in the regions were solid and we have most of the transparency, world-class corporate governance standards, concerning the fact that we have Central Banks together with investors and we have been for a while listed in New York Stock Exchange. We have a very strong capitalization; you will see that also in the following slides. And the reserves are also very solid. We have a pretty ample liquidity as well as the asset quality.
We have also explicit support from throughout our agencies as well as from government shareholders. And therefore most of this congestion Latin America will consider us (inaudible). We use the function of currency as the US dollar and therefore there is no translation in between and that helps basically also to understand our financial statements and we use US GAAP.
To – Panama, that’s where we are and the most of the senior management is. We have offices in Mexico, we have offices in Brazil, Argentina, as well as New York and Miami. We cover also to Miami, we cover also most of the small countries in the region. We have got most of the team is in core business in the Commercial Division, that’s where we have most of the staff. We have Treasury Division that we will talk about later on. We have Risk Management.
As you can see also the percentage in Risk Management is very important and this is all the analysis that we have put together from an economic point of view for countries and also in terms of further research and analysis. We have put together from a training point of view for each of our clients.
We have our Asset Management Division that is based here in New York and we will talk about that one later on as well as the support which obviously it’s pretty tied in the ratio that we have. But again this is the minimum that we can have for being a public company.
Okay. So here you can see the shareholders composition. This hasn’t changed in the last couple of years. We have 75% that is listed in the New York Stock Exchange that is Class A shareholders – we have somebody actually on the line.
Excuse me for a momentum, I will have it fix. Here we go.
Okay, there are Class A shareholders, we have three Directors. For Class E shareholders, we have five. And we have from Board classes we have two to five that we have and Class E shareholders are the ones that were present – the ones are lifting the New York Stock Exchange. And on the day-to-day operations and in the Board meetings, one person, one Board, that’s the way it is.
We have also a new class of shareholders which is the Class F. We have recently created that Class F shares in the last shareholders’ meeting that took place back in April. In that one, we are able right now, we have the capacity to offer that one to government outside of Latin America and that’s why we got approval from shareholders to have that capacity. And in the future if we needed, we can increase that shareholders to other government outside of Latin America.
Okay. (inaudible) the strategic mission of the bank as I mentioned before is to provide seamless support for Latin America, to become the prime provider of financial solutions. And here, we will talk later on in the business follows how we actually want to connect all the (inaudible) different opportunities that we see for the timing and secure the business plan and take opportunities in the financial industry as well.
Further we are right now in terms of economic value for our shareholders. We want to become the most profitable institution, but also taking very controlled risk and being less vulnerable. And we want to strengthen our business model and we want to here create more products.
The business model that we have is very simple. We have basically what we call here the (inaudible) we have importers, exporters, we have all the financings as we put here together. We have the confirmation of stage, we have short-term most of our trade (inaudible). But for our new businesses, we believe that there are also opportunities in that aspect as well as in leasing.
In the financial highlights, it’s again our short term, it shows the preservation of value. The medium term right now is just to resume the rapid growth of the financial crisis base and rules, look in detail of all the financial crisis more than we believe most of the pillars are not being affected in the bank. Most of it is basically the solid capitalization that we have as you can see here since 2007 we are being about 20% in terms of Tier 1 capital. We right now continue to be at 21%, so we believe that the bank should be very well capitalized.
In terms of the leverage that we have it’s very low leverage compared to the industry. We have right now all the Swiss bank leverage of a bank and again these are the pillars we want to keep them without as per the needs of getting out and asking for capital. In this economic situation is very, very good because the bank is very, very strong. Once we feel that the crisis is over, the bank will be able to actually to reduce this Tier 1 capital as well as increase some of their leverage and be able to – by definition to increase the ROE.
In the liquidity, we had a great liquidity at the end of last year, basically that’s what we focused in the last quarter of last year and we almost ended up with – as you can see here a liquidity versus (inaudible) of 71%, it was actually very high. Field is very high and the levels that we keep it right now. In terms of running expenses, as you can see also we have been decreasing those running expenses in the last couple of years and quarter-by-quarter, but you can see also that there has been 11% decrease since last year.
Where we are right now in terms of – and I am going to start here with the bottom in terms of ROE. The bank in the last couple of years since 2006 has started increasing substantially the operating ROE. The difference between this operating ROE and the ROEs here we used to consider on the recoveries that we were taking from the bank. Most of these recoveries were from the loans or the services that we created for Argentina purposes. So we started still recovering most of these reserves.
And as you can see right now, we keep increasing basically the ROE and here these are again the reserves that we have been right now creating just to be sure that we have a solid reserve base. Even though we have non-performing loans receivable, we have been very prudent in terms of creating reserves for the bank.
Net income for the bank has been growing also in the last couple of years, especially they – what we call again the net operating profit started from $26,000 to $39,000 and follow all the way up close to $80 million in ’07 and last year we had $54 million.
Dividends, we have a solid track record in terms of paying dividends. In 2004, as you can see here, the blue line, we can show how we have been very savvy in terms of paying dividends. At some point, the bank was also more capitalized and decided to do buyback of stocks as well as paying extraordinary dividends.
And in terms of the net operating compilation, we have been with positive numbers except for last year, by the end of last quarter, we have yet to recognize P&L effect regarding some repo transactions by the end of last quarter, and I will talk also in detail once we get to the Treasury Division.
So this is the Commercial Division portfolio. This is premium we were increasing substantially the portfolio quarter-by-quarter and at this point we decided to get away from – move from sectors as well as heavy concentration that we have with and we have increased substantially our portfolio. Starting this year, in the first quarter, as you can see here, we already stopped that decrease and we are trying to grow obviously the portfolio at the levels where we were before.
In terms of non-accrual commercial portfolio, the last accrual that we made was back in 2005 where we have 42 million. Ever since then, we haven’t had to recognize any non-accrual, but that doesn’t mean that we are not recognizing what’s going on and that’s why we have been right now creating a reserve coverage that it fits the 3%, 2.5% and it’s basically the highest that we have in the last couple of years.
Looking now by the division, the Commercial Division which is a core by definition the intermediation business, it is – this is a business that 62% of them of this business it’s trade and then non-trade is 37%. Some people will ask probably you are having in terms of non-trade, most of it in non-trade in their banks, but again these banks doesn’t – most of these for trading their finance purposes, but we don’t know exactly, but that’s why we chose net capital as well as working capital. And the working capital, again normally the relationship with our clients are starting to strengthen and ended off at being later on in working capital.
70% of the portfolio as I mentioned before is short term, 30% is medium and long, and 64% is the non-financial entity. In the past, the bank used to lend a lot to banks, but obviously spreads were smaller and now we have been actually lending and there is an increase in the client base in their commercial division.
In terms of industry breakdown and the segmentation that we have, not a single industry (inaudible) more than 15%, so it’s pretty diversified. We – in the previous example that I showed, we’ve got away from sectors and industries and therefore we ended up getting this by through not have any exposure to the most of vulnerable clients or sectors where we thought there have to be some problems with the economic crisis.
Some of the breakdowns that we have by country, Russia [ph] continued to be the most important country. It’s definitely right now by definition the one that has been better preferred for the crisis and that has been recovering also in another shape, even the their currency has been also recovering substantially. In the last couple of – we needed the presentation, we need here maybe some support. I may continue just talking to you about the bank.
My apologies. That’s going to take a few moments to ready the computer. I apologize.
My mistake for taking control of the –
No, it’s okay.
Okay. I mean I will just continue talking about the bank. We were at the Commercial Division, I was just talking about the industry in terms of the breakdown that we have – but we have and you guys can’t hear the presentation. So for the ones that are here, it will be easy for the ones that are waiting out over the Internet unless they have access to the presentation already. They have it?
They don’t. So you can just go ahead and continue on hearing.
Well the breakdown in Brazil, as I mentioned Brazil hasn’t been as (inaudible) exposure and has been helping us right now despite (inaudible). Mexico is our second largest one. We have Colombia as the third one. And right now another country that we believe we have lot of opportunities is Peru. We will love to be right in Peru, but right now we are (inaudible) but we believe Peru has been pretty good and eventually we will building up in that country. Argentina, it’s very, very small and we have got Costa Rica as well and basically all the other (inaudible).
The Commercial Division as I was talking to is growing steadily quite a for the last couple of years and on the right side you will see a presentation in the graphs here that shows the compound average growth rate year-over-year and division which represents 32%. And the following page is the margin, this is very important because the fact that the bank has very short term loans has been able to reprice all these loans.
So most of the loans that we have been able to reprice are the three months loans over a good price and we took – the investments also came down by the end of last year, obviously – and because we see already also we are experiencing increasing this year. So the main highlights of the division will be the best result of the division during 2008, because (inaudible) for the last five years, we have increased the client base space in the Commercial Division, sorry in the corporate world. We had a portfolio verification too and again this (inaudible) our great quality.
In 2009, we will be focusing again in short term, selected growth, industry specific and we will continue to increase making spreads, but at least what we believe it will stay up and we are already increasing at a reasonable level, so hopefully we have a (inaudible) right now will be comfortable, but every steps we will continue to increasing or decreasing at the levels at which we are comfortable which is where we are right now.
In terms of treasury we have the division which is what we call back office for treasury, funding, the risk management and intensive management and the investments of securities. We have two portfolios, one is that that is the asset, the available for portfolio and another one that is the training portfolio.
I mean this one, we have been able to recall most of our value of this portfolio consumed by that we met this portfolio in (inaudible). The last year, at the end of last year, the evaluation which we have in this portfolio, the marked-to-market evaluations that we did in the portfolio was effective from a liquidity point of view. Even though the credit was could exist. So we needed because we got pretty ample and pretty strong capital we can wait and not (inaudible) right now we will be able to get the benefit.
In this two portfolio it’s important – sorry.
How much in every one quarter, how much of a discount to savings for that portfolio?
We have been getting almost like 15% in terms of FX that we can hand quickly and that’s also the other competency from accounts, so that will (inaudible).
If you were mark that back up to phase and then might have in whatever the –
It was like four years, they have it us –
Over the next four years, how many millions of dollars will you pick up?
It was almost like a $100 million.
And I assume (inaudible) over the last couple of months?
That’s correct, that’s correct. We have been able to get the benefit back on both sides. We will try to see in the equity and that they will quite do see in the P&L, because when we recall there some of the repo transactions that we did in fact in the last quarter of last year, we decided to bring that those resources, part of the training portfolio. So parts of that P&L that we have right now is being shown in the Commercial Division, that’s also is recovering of the lot that we show at some points at the end of last year.
We mentioned most of the countries where we have the securities in Colombia, Brazil, Mexico and Panama, those are the main countries where we can create the securities. 82% of them are sovereign or state-owned, but it’s again – we think equating from the main (inaudible). In terms of the funding sources, we have very well diversified funding sources. We have 36% internal deposit and I will talk a little bit in more terms of that it wasn’t in towards the profits come from and we have got a long-term goal of 34% and a short term goal of 15% and repost (inaudible) right now is at 12%.
(inaudible) deposit not a year we saw a (inaudible) some of them was brought from intra-bank where increased the continuing the price that they have deposits in the bank in the US and they did a (inaudible) results and most of them are US dollars and they have their reserves to those. And also they – olden times were using – Central Banks were using those reserves so to (inaudible) to turn their own coin, because that’s why and they pretty much netted out. In terms of the funding also that is long term loan for big one comes right now from Asia mainly in particularly from China, which is right now the largest provider of commercial bank funding.
The Asset Management Division, it’s a division when we started back again in 2006. The focus of this division is to be able to raise funds and to provide more fee generation income. The fund has (inaudible) and the American micro strategy combines different approach from FX, from equity indices, (inaudible) and slightly short and long position.
Here the banks owns the most of their of the bond – 95% of it. This is basically the way the net asset value of the fund has been growing in the last 10 quarters. You can see here at the bottom of the page, we have – we have been successful in nine out of the last 10 quarters.
So Bladex, we said that Bladex is a very good and best opportunity of this for consumed fact that we have traded below good value. This is the page that shows where is the book value that is below of $17 per share and we have been trading right now as of last quarter at 70%.
One of the important things that we said is the recent Bladex right now is trading also below regardless of a lot of investors they have been thinking or they have been actually reducing our share thinking the same way they have been selling also traded from other banks in the state considering the fact that we are listed in New York Stock Exchange.
So we believe that basically the fundamentals of the bank are very solid, we believe that the numbers are very transpiring. We don’t have anything that is close to evaluate like using 157, I mean it is very straightforward. Most of our evaluations they are marked-to-market, so therefore we should be trading at a distant [ph] right now. So we believe it’s a very good investment opportunity because you are buying something right now that is worth (inaudible) below that price. And that’s pretty much it.
I don’t know if you guys have any input.
Sure. We have been talk about it –
Yes, sorry about that. The question is if we can take a factor of the fact that we are trading now at a book value at some point we have been saying that lot of the opportunities that we are doing is a buyback program of shares and that will give us really (inaudible) to have a shares below the book value and we have capital to do that.
But at the same time, we believe that right now the market itself is going to adjust and there are going to be referring to the banks really below the value because of the fact that they have things very difficult to evaluate or the banks really as we have balance sheets are clean and easy to evaluating. So – and make sure that’s going to come up and at that time we are working right now in the bank and trading in terms of having starting for the next couple of years.
But as a matter of fact, I would like to take opportunity and tell you that I am leaving the bank to foresee opportunities. But here with me is Chris Schech. Chris comes from a great background. He has been living in all over the world in many different countries to get that all experience in finance from GE, also work in different bank in the region. And recently he came from Sweden, so Chris is here and then Chris will be also happy to do touch basis with (inaudible) and if not the guys aren’t aware they can contact also.
Chris, we are right now in the transition period until the end of September and I just want to welcome Chris to the role and I am sure that he will be playing a very important role basically looking into all these opportunities that we are seeing right now as we are speaking with the management.
On your funding sources at slide 26, the deposits are primarily –
Local currency denominated like out locally or is it Brazilian Real or just was out all over the place, what’s the nature of the currency?
Okay. The question is, if the deposit price is US dollar base (inaudible) is 24. Most of the deposits that we get are also US dollars. In some points, we are able to raise this money in local currency, but also we swap value into US dollars just to be sure that we don’t run any exposure to local currency.
Okay. And in your funding sources with a larger portion coming from China, is that – how is that currency?
Is this the slide you wanted up?
Okay. Well if you don’t have any question, I just want to thank you to our listeners. Okay well, thank you everyone. Thank you for your time. And I believe that presentation will save in the (inaudible).
Let me just mention it. Sorry for the brief technical difficulties there. The WebEx actually did not go off at that time, it was continuing on, it’s just the computer had some mind of its own, so my apologies for that.
You did an excellent job on keeping the pace going in spite of all the difficulties here. So – and that was nice to have a backup as a hardcopy, so good forward thinking on your part and on your staff for having that ready to go.
We will be starting our next session actually in about 10 minutes. But you will have your breakout one-on-one session in your breakout session down in Bladex, I keep saying you because (inaudible) probably don’t that who I am pointing to. But the one-on-one session, the breakout session will begin about 3:30 and then we will begin our next presentation at that time.
Thank you very much Jaime and good luck to you on your new ventures, and we will get to know you. All right, your position is CFO then.
Okay, great. All right, thank you very much.
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