Banco Santander's Management Discusses Merger of BZ WBK and Kredyt Bank Conference (Transcript)

| About: Banco Santander (SAN)

Banco Santander S.A. (STD) Merger of BZ WBK and Kredyt Bank Conference Call February 28, 2012 3:30 AM ET


José Antonio Álvarez – Chief Financial Officer


David Vaamonde – Fidentiis Equities

Marta Sanchez Romero – Keefe, Bruyette & Woods, Inc.

Carlos Berastain – Deutsche Bank Research

Daragh Quinn – Nomura

Britta Schmidt – Autonomous Research

Juan Pablo Lopez – Espirito Santo Investment Bank

George Karamanos – Redburn Partners

José Antonio Álvarez

Hi, good morning to everyone. This is José Antonio Álvarez, Santander CFO speaking. The reason of this conference call as follow do now is to explain the merger agreement that we’ve reached with Kredyt Bank in relation with the subsidiaries of the two Banks, Santander subsidiary in Poland BZ WBK and Kredyt Bank, the subsidiary of the KBC in Poland.

I think all do got the presentation, so I’m going to run through the presentation. The presentation has five different parts, the first one is about the transaction [result], the description of the transaction; the second one is the strategic rationale as we see in the transaction; the third one is the financial impact in our numbers, in our accounts; and finally the New BZ equity strategy going forward, and finally a brief summary of all the presentation.

I’m going to go through different page, page 4, you have there the description of the transaction, basically transaction is about combining BZ WBK and Kredyt Bank in Poland for a total combined value of slightly above PLN 20 billion, roughly speaking €5 billion. The exchange ratio is going to 6.96 BZ WBK shares with the assigned value of PLN 226.4 per share for each 100 shares of Kredyt Bank. As a result of this transaction, the shareholding structure will be – Santander will have 76.5%; KBC, 16.4%; and 7.1% the minority investors.

While Santander has committed to help to lower KBC’s stake from 16.4% to below 10%, the combined entity after the merger, while we are looking to incorporate new investors that some of them are really showing there is enough potential placing. Santander will acquire up to a maximum of 5% of the combined entity at the price of PLN 226.4 per share. KBC’s stake will be below 10%.

So finally, as a result of the transaction Santander will hold 76.5%, its minimum shareholder up to 81.5% if we acquire the 5%, we will then allocate this 5% to the market. The remaining share to – KBC reach – has a shareholding below 10% will be placed in the market with investors.

Other agreements, other considerations in relation with the transaction is, KBC will provide Swiss franc funding for three years maintaining the current terms and conditions, that means basically the funding is provide – half of the funding is provide in form of a loan in Swiss franc, the other half is a basic swap between the Swiss franc and the Polish zloty roughly speaking because it’s around 70 basis points, the basic swap.

Well, Kredyt Bank will continue to distribute KBC TFI Funds on a non-exclusive basis. In the context of this agreement, Santander has also agreed to acquire the channel Zagiel, the channel of consumer finance distribution. The book value of this channel is PLN 25 million.

Santander Shareholders’ agreement includes our governance rights, I would say they’re in [our] governance rights, including having one representative in the Supervisory board.

In Page 6, you have an overview with the numbers of the combined entity. Basically, we are creating an entity with €25 billion balance sheet, with a net income, pro forma net income of €375 in 2011, roughly speaking 900 branches, 3.5 million customers. Those are the main figures. This figures we’ll see later on represent close to 10% market share in the Polish market, in the different items.

Despite the timetable, since these agreement, well there is a preparation of the merger together the management boards of both BZ WBK and Kredyt Bank need to agree in the change ratio proposed, and afterwards there is going to be AGMs in the second quarter.

So we expect to do filing with KNF, Polish regulator at the end of the second quarter. While afterwards the approval process will start and we expect to close or we will be ready to close before the year end, but while this is something that we look through the process when it’s going to finish. And there is some regulatory filing, anti-trust filings with European Union that we do not expect any problem in the particular half.

So having the transaction described, I’m going to elaborate a little bit on the strategic rationale, the rationale we see for this transaction. In Page 9, so we have the three main relations why we think this transaction is compelled for us. Well, the first is the Polish market itself, is an attractive market that has significant potential to grow, which is stable, still plenty of room to grow in the market – market that we already we’ve been there since 2002, 2003 with our consumer finance; and we bought BZ one year and a half ago. So it’s a market that we know well.

Second one is being consistent with our, what we so call vertical strategy, that means that we always target to have kind of market share close to 10% market share, that is a rule of thumb that we use as a target to be a core market for us. On top of that, the market share, the balance sheet is strong of the combined entity, while the funding profile, loan to deposits is below 100%.The capitalization pro forma is going to be 12.2% core capital.

So, good market, strong balance sheet. And last but not least, a significant cost on revenue synergies. When we elaborate through the numbers you will see that roughly speaking, the value of the deal is expected to be paid by the synergies we expect to get in the next three years.

So in Page 10, basically what we try to express here is, well the expectations about the future developments in Poland, the GDP in Poland has been growing faster than the European Union, faster than the new member states of the European Union. So it’s one of the most attractive markets in terms of growth in the European Union. And we expect this continue to be case in the next or this is consumption for the next couple of years.

The second point is, well, the Polish market itself is the largest in the New Europe represents roughly speaking between 35% and 45% of the banking assets on the net income in banking business in the region, what I call the New Europe. There is still plenty of room to grow in the market. We used loan to GDP, but we can use our measures and still it’s under penetrated compared with other markets or markets that are more developed. While the GDP grow, we expect the nominal GDP per capita will keep growing, and catching up with a more developed market, and this creates a good environment for the retail banking business.

The third point I will mention in page 12, the critical mass. While the combined entity well it’s, we are closing gap with two largest players in market, two Pekaos. While in terms of volumes, in terms of market shares we are without doubt the third, now the combined entity will be the third largest bank in Poland with positions around the third place into different items, deposits mutual funds, loans and fairly well balanced all across, probably we are lagging a little bit behind consumers loans, but remember that we already own a consumer finance business there, so our position is fairly balanced across all the business in the Polish market.

Well in terms of branches, I mentioned before that the combined entity is going to have 900 branches that closing the gap with the Pekaos that own 1,000 branches, but not far, we are not far away from those two – the two largest players and well ahead of the medium sized bank that are in the mark of 400 branches, 500 branches. So you have a map there, where the – for those who are familiar with the Polish geography, you have – where the next branches are located.

In page 14, one of the most compelling reasons for going ahead with this transaction is synergies, developing cost on revenues and this is the first – this gives you the first idea of – I wanted to say to you. The Kredyt Bank cost income ratio is 63%, BZ WBK is 47% our plan for BZ WBK is to get over time approaching the mark of 40%, 41%, 42% where the group is. So not necessary to say how much room do we have with Kredyt Bank to reduce up to 20 points, the cost to income ratio is one of the reasons that lead us to this transaction.

If we take the number to the cost, Page 15 to the cost synergies, we’re expecting cost synergies of around 12% of the combined cost basis of the two entities. This is a figure of PLN 322 million before taxes. The chances of this efficiency in cost are the usual ones, so while applying the cost management best practices led more economies of scale, some optimization of the branch network, one single IT platform, and benefit from Santander Group global units to improve cost efficiencies. This is going to be achieved by the majority of this through normal attrition. The turnover in the banks go from 5% to 7% to 8% per year. So this turnover will help in this – and capture this increase.

On the revenue side, I know that normally the market is more reluctant to believe in revenues. Let me show to you our thinking in relation in Page 16. Our thinking behind the revenue synergies, what you have here is a few examples, why we think that we can improve, we can get some revenue synergies out of the combination of the two franchises in the country. So what you have there is KB market shares in different items, you see that KB market share is below the market share in terms of branches in every almost every item, but in mortgages.

So there is plenty of space to capture market share in all those items. The same apply not only in terms of volumes, also in terms of spreads, you have there the spreads, then I think there is income compared with average assets, and other income compared with average assets of different banks in Poland. BZ WBK is topping the market, 6.1%, Kredyt Bank is 3.4%.So it’s a significant capacity to generate more revenue supplying best practices from BZ WBK to Kredyt Bank franchise.

So when we take and put the number to this synergies, we get a number above PLN 100 million before tax PLN 114 million, so that is only roughly speaking 2% of the combined 2011 revenue base. Where do we see these revenues to come from? Basically there is some that we already doing in BZ WBK, the insurance productivity can be improved significantly, (inaudible) remains in business, while it may allow us to increase the market share pricing levels, but some cross-selling opportunity and FX income improvement increase maybe credit income that is fairly low compared with BZ WBK’s [funds].

In Page 18, you have a simple exercise of our targets on comparing the targets we are establishing with these synergies for KB franchise compared with the one prevailing in BZ WBK. So usually the commissions from branch of KB, PLN 1.9 million, now for synergies it’s PLN 1.6 million compared with the current BZ’s PLN 3.48 million per branch. The same is at the bottom line, the net income compared with the business volume KB per synergies still half way from the current ratios of the BZ WBK, 1.9% current BZ WBK compared with KB post synergies, 1.1%. So after the revenue synergies we are targeting, still KB productivity is still far below what BZ has today.

Going to the third part of the presentation, Page 19, the financial impact. The evaluation is basically in synergy, a transaction that is fair in terms of price to book BZ WBK has been valued 2.4 times price to book. Kredyt Bank at PLN 15.75 per share, so for the transaction, the value is 1.4 times price to book. In terms of Kredyt Bank 15.75 zlotys per share, so the transaction hit the values 1.4 times price to book.

In terms of Kredyt Bank has done alone 15.25 zlotys shares, that will be 15.6 – Kredyt Bank the value we assigned is around 7 times P/E, currently BZ WBK is 12.8, so within the combination both in terms of price to book and in terms of P/E which truly phase in synergies, giving a conservative synergies that deals makes out of financial sense.

In page 21, you have our business plan for the next three years. So assuming that we’ve closed the transaction at the end of 2012, we have begin basically kind of consensus numbers back to our numbers for 2011, kind of business plan and consensus numbers from 2012 and the consensus numbers going forward plus synergies, after tax synergies, the synergies I told you before.

So, for the BZ WBK shareholders this deal has an accretion of 6% in EPS in the year three. Santander earnings accretion is €58 million in the year three, and the return on investment is close to 18%. The core capital impact for Santander goes from zero if our final stake is 76.5, if we buy 5% from KBZ, the core capital impact is going to be 5 basis points, so between zero and 5 basis points our capital impact.

So let me throw a little bit BZ’s story, I think it’s an attractive proposition for investment proportion, the new bank in page 23 is going to be clearly top three in terms of distribution network, I mentioned before the number of branches grow to the two largest banks in the country and two times what we saw called the medium-sized banks that you have in this space (inaudible) and you’re getting dollar wise.

In terms of market share you have in page 24, well grows from 13% in branches, 12% in mutual funds, we’ll get 6% in consumer loans, I mentioned before, market share is below it’s natural level. Well the significant cap there and the significant improvement potential that is – was an profit for us, so the potential for improvement going forward in terms of market shares.

If you combine this capacity to improve, with the proven track record of efficiency on profitability of the BZ WBK, you have in page 25, well how BZ WBK has been outperforming consistently the peers in the last seven, eight years. So since 2004 you have debt and net income has been consistently well in the market, in terms of it’s equity, they also being well said, well above the competitors in this business same period of time.

Well, in taking the numbers, the consensus numbers, our plans there on the synergy we expect to capture, we expect the new bank will grow at the bottom line on average of 18%, the component on growth rate till 2015 having the bank close to the mark of €750 million and net profit for the bank in 2015.

Well, on a pro forma basis the new bank, so now is taking currently has a significant upside potential, you comparably get beneath average being in the market that is 33% upside vs. top players, so the combined entity is trading around 8.6 P/E comparably the market in the ’11 and ’12 times P/E. And the market capitalization branch show the same more upside potential as I mentioned before, the productivity of the branches are still, need to catch up with the top players in the market is still in more potential here 63%. So 33% in terms of P/E, 63% in terms of value per branch assigned to the market.

Now the interesting future of the combined entity is they’re pretty close going to be significant, the end of the process is going to be assuming that Santander 81.5%, so the free flow being 18%, that is the minimum one, that the flow will represent PLN 3.8 billion roughly, so roughly speaking €1 billion free flow in the market, but probably Polish market is significant, will be in the index under local stock exchange. So combined would be in changing the free flow is up comparing investment opportunity.

As a summary, as to finish and to go back to your questions, the questions you may have. Well, the rationale of the transaction is fairly strong, is consistent with our static and has increased our market share in the core marketing, high growth markets, Poland combined both features, core market and high-growth.

And well we improved the critical mass, third largest bank in the country, whereas the complementary is quite good. So well balanced commercial bank with a strong retail focus. Well it’s a significant opportunity to grow the return on investment, EPS, accretion is attractive. Well, so it’s a unique investment opportunity, the new combined entity in terms of scale, position, current price, upside potential and liquidity of the stock with a proven track record management of that.

So that’s the presentation I have. We are ready to answer the questions you may have.

Unidentified Company Representative

Okay, thank you, Antonio. Good morning, everybody, this is Santo Domingo. We open here the process of Q&A that of course Antonio will address directly. We will try to include all the questions that you may have through the phone. You will be identified by both your house and your name, but I would ask you please – in order to be respectful for everybody who is connected to concentrate and limit the questions specifically to the operation that we had recently. Of course if you have additional issues to discuss, we are more than happy to receive those comments or questions in Investor Relations team, and we will try to address them.

So thank you again for being there. And I can pass to the operator to start the Q&A please.

Question-and-Answer Session


Good morning ladies and gentlemen, the Q&A session will start now. (Operator Instructions) The first question comes from David Vaamonde from Fidentiis. Please go ahead with your question.

David Vaamonde – Fidentiis Equities

Hi, David Vaamonde fro Fidentiis, thank you for taking my call. Two quick questions, what’s the impact under Bazel III of this acquisition. And secondly, what’s going to be the consideration of the consumer finance operation of KBC Zagiel that you will be buying as well? Thank you.

José Antonio Alvarez

Okay, in relations with two questions. Here in relations with Bazel III impact is what I mentioned in the call. If we buy the 5% from KBZ is going to be 5 basis points. If we don’t buy it’s going to be zero. So that’s in relation with Zagiel, well, I explained in the presentation that we have a agreement to buy Zagiel. Zagiel as you know is a distribution platform for those who are not familiar with this that is selling consumer loans that we look at previously in KB balance sheet. So we agreed with KB to eventually buy, these are the book value, the book value is PLN 24 million, so roughly speaking, €5 million, €6 million. And eventually, if we finally will buy this because they have right to buy, to sell to upper body. If we buy this we will integrate in our consumer distribution as a top of this division charts.


The next question comes from Marta Sanchez Romero from KBW. Please go ahead with your question.

Marta Sanchez Romero – Keefe, Bruyette & Woods, Inc.

Hello, good morning. I just wanted to know, if you could give us some color on the ForEx mortgage book of credits which accounts for 67% roughly of all the mortgage book. So first, the (inaudible) ratios there and how do you plan, how are you planning to fund these books once the deal, the support with KBC expires in three years time? And the second question I have is in costs, basically, we see some overlap in the branch network, how many branches are you planning to close and any guidance on restructuring costs? Thank you.

José Antonio Alvarez

Okay, let me to elaborate first on the mortgage book. The mortgage book KB has a mortgage book roughly speaking of 3 billion Swiss Franc, roughly speaking €2.5 billion, let me – truly we’re starting this book. As you know, in Poland, the mortgages work like in Spain, the debtor is liable for any debt payments, even after the asset is repossessed. In general, the clients we have, ex. mortgages, have high repayment capacity; normally, are the highest quality clients. And the current NPLs in fact are lowering this portfolios across the sector is not something specific of KB, is something which is across the sector. So generally speaking, these portfolios tend to have better qualities than the ones in Polish zlotys.

So till now the performance has been positive, and a normal deterioration has been perceived, even last year the Polish zloty depreciate significantly against the euro and Swiss franc and depreciation around 20% or 25% at sometime, but the quality of the book remained well.

Having said that, these portfolio of 3.1 billion Swiss francs will be well amortized, so it’s kind of run off portfolio between 13% and 31%, 13% by 2013 and 31% of the portfolio by 2015. So when you mentioned the funding and how do we fund this, well we need to fund to fund two-thirds of the portfolio when the KBC funding expires.

How do we plan to fund this? Well, the question here is, basically, the cost of the basis swap between the Swiss franc and the Polish zloty, because, as I said before our loan deposit in the country is below 100%, so the question is the cost of the basic swap and we seem fairly volatile cost of this basis swap, now it’s around 70 basis points. At some point we reached 200 basis points and the lowest has been 30 to 40 basis points. So how do we fund, with the basis swap, once the KBC funding expires in three years time. So we need to find, as I said, this is around our portfolio runoff.

The combined mortgage portfolio in Swiss franc or in foreign currency is going to be slightly below 20% of the total loan book, the market average is right about 20%, so slightly below, so the market is 21%, the combined entity is going to have 19% of the loan book in foreign currency.

This book as probably you know is partially covered with high LTV insurance with insurance companies. In our case, the company, Warta, was recently acquired by Talanx Group, so some of the risk is hedged with Talanx Group in the high loan to value. Well, those are the comments in relation with the mortgage book, it's something, this is something that we need to look at, but it’s not a big worry, going forward given the size, given the behavior, that it has had and given our prospect for the trend of this book.

In relation with – you mentioned the synergies, well naturally in this combination, there are some overlapping branches, I cannot be in a explicit stage, but we are not massive overlapping branches, we do not plan to close massively branches in the country at all. The figures are fairly low, probably the majority of overlapping comes from the headquarters, not done much from the branches.

So but the two management teams of the BZ WBK and KB will produce a detailed plan on those. But our numbers do not rely on massive closure of branches. This is not the business. We are in Poland to grow, the overlapping I showed you in the map in the presentation. So BZ tend to have more presence in the worst part of Poland because the bank was originally born in this region and KV has more presence in the east of the company, and it’s quite complementary in the sense. But some plant closures was just because there duplication will happen, but there is no material, is not where the blank using the cost plant also.


The next question comes from Carlos Berastain from Deutsche Bank. Please go ahead with your question.

Carlos Berastain – Deutsche Bank Research

Thank you. One of the (inaudible) Antonio, two quick ones. One is a follow up from David’s initial question on solvency. Can you explain me why just by adding a five additional percentage stake, the consumption will go from 0 to 5, it sounds like a big jump for just a 5% a stake, am I missing something if on a accounting related issues. And the second one, I am trying to reconcile the Santander earnings attrition that you show on slide number 21? And if I look at the cost savings and the revenues synergies, and if I put that euros, I tax that, and I put 75% of stake. And if I take up to the underlying net profit that the company, Kredyt Bank, made in 2011, I get to a much bigger net profit contribution to Sandanter Group. I don’t know how you can get to 58, if you could help us getting more color on that that would be appreciated. Thank you.

José Antonio Alvarez

Well, two questions here in the solvency, the 300 million basically to buy the 5% of the combined entities, roughly speaking €250 million, €280 million. And this is a capital consumption basically of the 5 basis points I mentioned here. So our (inaudible) is well this is 100 billion and 1 billion capital basically is 15 basis point, so one-third is roughly speaking 5 basis points. So you want to go in detail to these numbers, we call you and we go into detail, into more specific detail. In relation with – I think that your question, you mean the €58 million, which had here as accretion is not the number you get?

Unidentified Analyst


José Antonio Alvarez

Carlos, are you there?

Carlos Berastain – Deutsche Bank Research

Yeah. Yeah exactly, I’m getting a slightly larger number than €58 billion just by consolidating synergies and all that stuff.

José Antonio Alvarez

Well, probably what we should do on that, probably is to go to the numbers, the daily numbers, the numbers we gave and compare with your numbers. Overall (inaudible) 5% problem while we are ready to go into detailed number with them, that maybe different than yours for different assumptions. But probably is now worth – now to go through the details.

Unidentified Company Representative

We have the number totally explained, so we will get (audio gap) and just let us know.

Carlos Berastain – Deutsche Bank Research



The next question comes from Daragh Quinn from Nomura. Please go ahead with your question.

Daragh Quinn – Nomura

Hi, good morning. It’s Daragh from Nomura. Just wanted to double check, if you could just highlight again the impact on capital at a local level so for the, what the impact on capital would be for the combined entity in Poland. And then just a follow up question and that was already asked, I’m not sure if I heard – and the answer just, what level of restructuring costs do you anticipate at this stage, thanks.

José Antonio Alvarez

Yeah Daragh, in relation with the capital for 2012, Tier 1 will be the combined entity 12.2%, and the total capital ratio 14.7%, assuming a Polish zloty dividend per share in BZ WBK. Okay, so those will be added, for 2012 the capital ratios of the combined entity. Okay, probably what you miss is the dividend we expect to pay from in BZ.

Daragh Quinn – Nomura


José Antonio Alvarez

8 zloty per share, yeah, what I was referring to. In relation with restructuring plan, I said the restructuring is mainly about headquarters; nothing much on the branch side. And as I said, we have a turnover of people of 5%, or slightly below 5% in BZ. In Kredyt Bank it’s higher than that, 7% and 8%. So you take the average number is 6% or 7% so that means that the combined entity with 14,000, and we’re going to have a turnover roughly speaking 700, 800 employees per year.

If we match properly these and we accommodate, we do not need to go to a massive lay-offs, or finance or somethings like that. We think that we can accommodate within the three years timeframe, we establish the time limit, we establish in this plan to accommodate the natural addition that this happens in the two banks to accommodate with the restructuring process we’re going to be focused. But the majority of this is going to be the overlapping in IT, the overlapping in third quarter.

So as I mentioned before, it’s not a number of branches that we will have in mind, but should be [mind] like we say, (inaudible) you tell me 5% maybe, but it should be a small number. And that is actually number of branches, and maybe some of those we open in a different place. But it's not about branch process, I did mention because it’s not material, and this is more material. Predominance is in IT operations, or some things like that, that we expect to accommodate the maturities not through attrition that happens in the two banks.


The next question comes from Britta Schmidt from Autonomous Research. Please go ahead with your question.

Britta Schmidt – Autonomous Research

Yeah, José, the first question is just speaking off again on that, could you tell us what the euro million amount of restructuring cost is that you expect for the transaction. The second question I have is, is there a separate agreement on the insurance side with Warta, or its new owner, Talanx, for the distribution, because I think some of the Warta distribution is selling within the Kredyt Bank branches. And then…

José Antonio Alvarez

Sorry, I didn’t get the second question.

Britta Schmidt – Autonomous Research

The second question is, is there an agreement with Warta, do you intend to construct an agreement with Warta or Talanx on the distribution of insurance products? And if so, can you tell us anything in terms of cost, terms, length, and when you expect that to be negotiated?

And then, just thirdly on the revenue synergies, I think Kredyt Bank’s net interest income was depressed in the past, because from the previous owner there was a bigger push towards generating deposits to improve the loan to deposit ratio, obviously the combined loan to deposit ratio now looks better benefiting from BZ WBK. Do you expect some repricing on the deposit side as well?

José Antonio Alvarez

Sorry, what the third question was? Sorry Britta.

Britta Schmidt – Autonomous Research

On the revenue synergies side, do you expect to change the pricing policy of the deposits for Kredyt Bank?

José Antonio Alvarez

Yeah, yeah, okay. Thanks. Thanks, now I got the question. Well the first question is, restructuring cost you mentioned, the figure is highly material and still need to be refined, but this is going to be anyway – does not represents a significant jump probably, is going to be significantly below €100 million or something like that, yeah.

In relation with the insurance, we do not, as you know we have an agreement with Aviva for – with BZ Aviva for distribution of the insurance products, we need to reach an agreement with Warta; not Warta, Talanx now or Aviva or rather play something, somebody we have there because it’s up to us to decide who is going own the distribution of insurance to KB. Probably, there is some hidden value in this part of the business.

In relation with KB, what you said is exactly true. KB deposits are much more expensive than BZ deposits, so pricing policy is one of the tools we plan to use, we’re going to be more selective in deposits, and probably to introduce different practices in pricing of deposits, while the banks will fund, as I mentioned the combined entities will have along to the process of 90%, so we don’t need to be in a hurry to raise deposits. So probably the pricing is going to be – this will allow us to extract a higher net interest margin from the deposit side.


The next question comes from Juan Pablo Lopez from Espirito Santo. Please go ahead with your question.

Juan Pablo Lopez – Espirito Santo Investment Bank

Hi. Hello, good morning. Thank you for taking my question. I just have one very quick question. If there is any opportunity in Poland, do you vouch any further M&A deal in the future? Thank you.

José Antonio Alvarez

So it’s a question that probably comes too early. So we are talking about execution of this deal, starting the execution of this deal, so probably it’s a question from 2015 onwards. Thanks.


The next question comes from George Karamanos from Redburn Partners. Please go ahead with your question.

George Karamanos – Redburn Partners

Yes. Thank you. Just two questions, actually. The one is on the structure of the deal. You’re swapping your shares with KBC, yet you’re still leaving minorities on the table, and I was wondering what your plan is going forward with those minorities, and why – what was the rationale for not offering to take the whole bank rather than these structure of leaving minorities there.

And the second question is, on the Swiss franc loans, I understand they’re fully funded by KBC over next three years, however at the end of year three, did you plan to try and change these – restructure these Swiss franc loans into euro loans or local currency loans or do you plan to keep them Swiss francs till they expire, say mature? Thank you.

José Antonio Alvarez

Okay. Thank you, George. In relation with this structure, we leave minorities. I don’t know if you’re aware, but I would compromise with the KNF when we bought BZ WBK is to have 25% free flow in the market in Poland. So the reason why we now take the whole bank is, well our compromise is quite opposite, at some point we need to own more than 75% of BZ WBK.

So as you know our policy in different markets is to enhance our relationship with the local community, the local financial community, we have minorities as you know in our countries, in our subsidiary, so we are happy with this kind of position.

In relation with the Kredyt, the Swiss franc portfolio was naturally, as you know nowhere this was about regulators in different countries, European countries where these practices of lending foreign currency has been quiet common after the last decade. They’ve shown some conferring relation with BZ. So in that sense, we will be in a run-off situation, I mentioned before. This portfolio is going to be in a run-off situation. Absolutely, Swiss franc portfolio, foreign currency portfolio in Poland, maturity of this. So they will probably decide taking the steps in that way.

Remember that we stopped in our consumer finance division in Poland, the mortgages in foreign currency in 2008, so the portfolio has been in run-off since 2008. BZ WBK portfolio of Swiss franc mortgages is probably more, there’s more in the market by far. So our policy is going to be consistent with those lines, we are not going to be presenting in growing these book.

If we can turn this book into local currency, it will make sense for us and for the customers, mainly for the customers that I think what the problem is, for sure, we’ll try it. If we are successful or not, this general question, because these are true customers, they sign Swiss franc mortgage on (inaudible) even having facing a significant FX risk, would like to remain with Swiss franc mortgage, but naturally if we can push or ask them to go from the current mortgage into Polish zloty mortgage, it’s better for everyone else.

Unidentified Company Representative

Okay, I think we have covered almost all demands, and we are running out of time. I think we’re going to leave you there, please. If there is any further question or things that we haven’t addressed, do call us to the Investor Relations department. Thank you very much, José Antonio. Thank you very much all of you for being here. And do please come to us if you have anything to comment. Thank you.

José Antonio Alvarez

Okay, thank you.

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