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Banco Latinoamericano de Exportaciones, S.A. (NYSE:BLX)

Q2 2008 Earnings Call Transcript

July 29, 2008 11:00 am ET

Executives

Melanie Carpenter – IR, i-advize Corporate Communications

Jaime Rivera – CEO

Jaime Celorio – SVP and CFO

Analysts

Frederick Kirby [ph] – EverKey Global

Anry Bhagwanji [ph] – Porter Orlin

Pito Chickering – Deutsche Bank

Lance Ettus – Mortar Rock Capital Management

Ronald Redfield – Redfield, Blonsky and Company

Jeremy Hellman – Singular Research

Operator

Good day everyone. Welcome to the Bladex conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the conference call over to Ms. Melanie Carpenter. Ma'am, you may begin.

Melanie Carpenter

Thank you. Hello, everyone, this is Melanie Carpenter of i-advize Corporate Communications. Welcome to the Bladex second quarter 2008 conference call on the 29th of July 2008. This call is for investors and analysts only. And if you are a member of the media, you're invited to listen. But if you have any questions, please follow up with i-advize after the call. Joining us today from Panama City are Jaime Rivera, the Chief Executive Officer of Bladex, and Mr. Jaime Celorio, the Chief Financial Officer. Their comments will be based on the earnings release issued yesterday. A copy of the long version is available at their website at www.bladex.com. Otherwise you can contact i-advize in New York at 212-406-3690, and we'll e-mail you a copy immediately.

Any comment that management makes today may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. They are based on information and data that is currently available. However, the actual performance may differ due to various factors. These are cited in the Safe Harbor statement in the press release, and we ask that you refer to it for guidance.

And with that, I'll turn it over to Mr. Jaime Rivera for his presentation. Please go ahead, Jaime.

Jaime Rivera

Thank you, Melanie. Good morning, ladies and gentlemen. Welcome and thank you for once again allocating some of your valuable time to our conference call. As usual, we will try to summarize for you both the quantitative and the qualitative aspects of our performance during the quarter and try to place it all within a strategic context. As is always the case, following our comments we will be glad to take up any questions that you might have.

Well, during the second quarter, we made what I consider was a strong statement regarding our financial performance. Not only were the results in and of themselves strong with diversified revenue and growth, but our fundamentals such as liquidity, capitalization, et cetera, all remain very solid.

I will let Jaime Celorio take you through the details behind the figures. But I'd like to pause for a second and maybe add some perspective by recalling that just two years ago, as of June 2006, our year-to-date operating income was something like $16.5 million. Just two years later, it's $45.1 million. That amounts to a pretty healthy 65% annual growth rate. Meanwhile, the growth in our credit portfolio close to 19% per year on a compounded basis has been steady and perfectly in line with the upper range of our guidance on the subject. So it has been a very good growth story. Still, however, the fundamental question is being asked as to our outlook going forward.

So, let me spend, if you allow me to, a couple of minutes on the general topic of the dynamics driving our market because they are quite interesting. The result, I just came back from a trip to El Salvador, a relatively small economy within the larger Latin American country. My prior trip was to Brazil, one of the largest economies in the region. The interesting thing is that as different as these two markets are and based on what I heard and principally on what I saw, my overall conclusion remains unchanged, and that is that a lot of business is getting done in the region and that we, Bladex, are getting an increasingly larger share of it.

Interestingly, just like in the case of Bladex, a number of our clients are reporting record results for the first half of the year. And in El Salvador, just to give you another real example, the country recently reported a 16% or so rise in maquila exports to the US, economic slowdown and all notwithstanding. So, a couple – all of this with less competition by international banks with troubles at home and you have the makings of a very favorable environment for us to do business. Origination, new business is in fact growing. Importantly, very importantly, pricing is improving markedly, while credit quality all across the border, as you can see, is holding firm.

As a side note on the subject, if you allow me to, my impression is that economic forecasts are simply not taking into account that companies are not just standing still while demand in some of their main markets slowed. Instead, they are adapting. They are changing their product mix. They are improving efficiencies or they are developing new markets, particularly inter-regionally. Inter-regional trade is growing quite rapidly. Or in most cases, doing all of the above. So you can see that within this environment, as you can imagine, loan and fee business is looking the best it looked in years. Again, it's looking the best it looked in years. That's it for our asset side.

And what about for things on our liability side? Amidst all the noise in the market, you have seen and we have proven that we have consistently been able to secure the funding needed to support both growth and liquidity. And judging from what appears to be a solid oversubscription of our syndicated facilities that we have in the market as we speak, I expect this to continue being the case. So, yes, funding is not easy, particularly these days, but it's something that we do well. And yet the liability side of our business was the one responsible for the one bit of headwind that we face this quarter.

Interest rates remain low, and those hurt our earnings on capital, which for a solidly capitalized bank like us can and are significant. However, this is important for you to please keep in mind, given that we don't expect interest rates to fall much further, if at all, our net interest income going forward will start reflecting the full benefit of the interest lending spreads, as you can see in our press release.

Some extra – let me give you my take on our asset management business, which by the way, as you can see, came close to matching the record levels of a year ago. Again, Jaime Celorio will provide you with more color, but I’d like to emphasize two aspects about this business. First, asset management has proven to be a very good complement to our other activities because the business is driven by the same core competencies that drive the rest of our franchise. And second, we have now proven that we can do well under quite different market circumstances. So quarter-to-quarter the business can and of course has been volatile. But on a year-to-year basis, results prove that it's proven reliable.

So to summarize the short term then, we are doing well and we are likely to continue to do increasingly well. From a purely strategic perspective, we believe that the last four quarters have validated the fundamental thesis behind our business model. Great finance constitutes a growing and predictable platform on which to build a great business, particularly given the advantages that we enjoy in terms of market access, product skills, government shareholdings, risk management, financial strength, and client franchise. So going forward you can expect us to continue leveraging the bank of this set of competitive advantages. We will, as we have in the past, methodically go about developing new ways of realizing the new opportunities being created in the market.

And lastly, a small but yet important matter. A number of you called us to enquire about the change in the dividend dates, which were moved back effective this quarter by a couple of weeks. I realize that our communication process could have been better. But let me assure you that we did this only to get the schedule of the quarterly Board meetings to match the dividend date, which of course has brought about a second set of closely related questions.

What about any potential increases in dividends, or the possible establishment of some sort of share buyback program? Well, as I have said in the past, capital management is given very careful consideration at Board level every quarter. And in this respect, my comments of last quarter hold. That is, they remain unchanged. The fact is that with capital for the financial sector at such high premiums, we think it's in the best interest of the company to wait until things in the market begin to settle before considering any changes.

So with that, ladies and gentlemen, let me hand you over to Jaime for him to take you through the figures for what was a great quarter. So Jaime, please.

Jaime Celorio

Thank you, Jaime. Good morning everyone. Let me begin by taking some minutes of your time to elaborate further on some of the larger (inaudible) affecting the second quarter result. I will tell you that during difficult and challenging market environments, Bladex has achieved an increase in profitability while maintaining balance between growth and asset quality.

The second quarter's net income of the bank was $26.3 million, which is higher by $7.1 million and represents a 37% increase from the strong first quarter of 2008. The annualized return on equity improved to 17% compared with 13% in the last quarter. That means that we can see the evolution of operating ROE over the last couple of quarters.

Net operating revenue of $36.4 million continues to grow quarter-by-quarter. And we were able to perform in line with the second quarter of 2006, which was a quarter where we have realized significant trading gains. That said, the results of this quarter show an increase of 28% from the first quarter of 2008.

Regarding revenue composition, the year-to-date net income from the Commercial Division represents 62% of net income. That's compared with 52% during the same period last year. This means that the volatility of our overall result has decreased. As by definition, the Commercial Division results tend to be more steady.

Regarding net interest income, the $1 million decrease during the quarter was a result of three things. Let me explain the first one. Yields in our capital and liability side fell along with the average market interest rate from around 3.2% to 2.1% in the second quarter. Second, during the first quarter, our liability sensitive position was able to afford our deposits resulting in a cap gain, as you saw that in the last quarter and as the six more liable rates decreased during the first quarter from an average from 4.9% to 3.2%. During the second quarter, six more liable rates remained almost flat, and therefore, cap gains fell accordingly.

Third, both of the negative impacts were partially offset by average lending spreads increasing from 1.25% to 1.52% in the second quarter, driven by spreads in new disbursements, which increased from 1.52% to 1.93%. It's important to mention that moving forward interest rates and yields on capital are most likely to remain steady and therefore allow the net interest income to rise along with the lending spreads.

Some questions have been asked about the composition regarding our off-balance sheet items, which as of the end of the second quarter amounted $410 million. Out of this total, $272 million or almost 70% represented letters of credit and Country Risk Guarantees. The remaining balance of $138 million represented mostly undisbursed loan commitment.

Now I will reveal the performance of each of our three business segments beginning with the Commercial Division. Net operating income for the Commercial Division for the quarter was $12.9 million. That means 28% above the second quarter of 2007. As I already mentioned, our weighted average lending spreads have been increasing since last year, and for the last quarter we increased the weighted average lending spreads on loan disbursements from 1.52% to 1.93%.

The average portfolio growth during the quarter was 4% in absolute terms, and 5.8% if you compare end-of-period balance. The average portfolio increased 15% during the last year, as we continued to add new customers and expand our relationship with existing ones. As a result of our approach to selective risk-taking, non-performing loans continue to be zero since 2006.

The geographic breakdown of our commercial portfolio shows a 36% concentration in Brazil, while Peru, Colombia, and Mexico are countries where have the next levels of concentrations. And by the way, all of these countries continue to have a very solid growth. The Commercial portfolio for the quarter by transaction type represented 66% trade-related and 34% non-trade, while the corporate market segments keep growing and as of the end of the quarter represents 55% versus 49% a year ago. Regarding the portfolio diversification by industry, we have close to 62% of our commercial exposure in high-growth segments such as energy, grains, mining, and food products.

Okay, let me say a couple of things about portfolio quality. The provisions for credit losses were $86 million, which represented an increase of 3% versus last quarter. Along with portfolio quality, the ratio of our allowances for credit losses for the Commercial portfolio remained steady at 1.9%.

So, now let me finish the Treasury Division where we had a net operating income of $3 million during the quarter, representing an increase of $2 million from the prior quarter and a decrease of $1.1 million from last year, mainly due to trading gains. The available for sale portfolio were 6% during the last quarter. And here it's worth mentioning that during the quarter we realized trading gains of $2.1 million, and as we had been very consistent in our ability to buy these securities at attractive spreads and prices and selling them once prices improved.

The mark-to-market of the Treasury portfolio, as I told before, is recognized in the other comprehensive income account. And such evaluation had improved also from close to $25 million last quarter to almost $6 million during the end of June. The geographic breakdown of our available for sale portfolio shows a concentration in Brazil, Panama, Colombia, Mexico, which again, by the way, all of the above are markets with a steady or improving credit quality. And as we would have a reason – in this case with these countries, we have a reason to believe that prices will improve.

The available for sale by client type for the quarter reflects an exposure of 81% to sovereign debt and 19% comes from the private sector debt. Our deposit balances increased $379 million during the quarter, mainly from new deposits by Central Banks, evidencing here again the continued support from the banks by its government shareholders. Also deposit balances for the quarter were $1.7 billion, representing a well-diversified 37% of our funding sources.

Well, now I will move to Asset Management business, where we maintain a strong momentum in order to achieve $10.1 million in net operating income during the quarter, in comparison with $3.6 million we obtained last quarter. It's worth mentioning that the Asset Management activity has generated positive results during seven out of the nine quarters it's been in operation. Only the first two quarters were not positive. And the result for this quarter represented second best results ever and is the second time in five quarters during which net operating revenues exceed $10 million.

The Asset Management business has realized a 12-month annualized total return rate after fees of 18%. I got a question yesterday in terms of how much unrealized trading gains we have. So here it's important to mention that as of last Friday, all but around $3 million of these gains in the business have been already realized. Then from the expense point of view, Bladex continue to show an expense discipline, and as a result, the efficiency levels improved to 29% for the quarter. That said, the efficiency level reflects an improvement from last quarter where efficiency level was 32%.

Well, with that let me thank you for your attention, and I will turn the platform over to Jaime Rivera.

Jaime Rivera

Thank you, Jaime. Ladies and gentlemen, we'll be delighted to take up your questions, so please go ahead.

Question-and-Answer Session

Operator

At this time, we'll open the floor for questions. (Operator instructions) Our first question comes from Frederick Kirby [ph] with EverKey Global. Sir, you may begin.

Frederick Kirby – EverKey Global

Hi, thank you. Congratulations guys on the fantastic results. It's Fred Kirby from EverKey Global. Couple of questions. One, have you – you've had very good returns in the asset management side now, and I wondered how the third-party marketing is going, whether you're ramping that up, and what you're expectation is, whether you have something in the pipeline to come in. And then secondly, to try and understand the comments you made, Jaime, about not increasing the dividend in spite of being overcapitalized or the potential Dutch auction. Is that something that you expect when things normalize a little bit? Is that the correct view of what you were saying, that you will in fact increase the dividend or look to do a Dutch auction share repurchase? Thank you.

Jaime Rivera

Thank you, Frederick, for your comment. I'll take your questions sequentially. Third-party asset management is going well. As you remember, last quarter I had mentioned that we hope to get our first institutional investor to invest with us. That in fact happened. And starting next quarter we would be separating the report for – the result for the proprietary business from the results of the third party business. It's going well. There's a lot of interest. We have the first investor. You might have seen we’ve already – we also hired somebody to allocate specifically to the sales function. Given our track record, there's a lot of interest out there. We hope that the business will ramp up nicely. And again, as mentioned in the past, we don't need much in terms of assets under management to make a real difference in our fee income line.

Frederick Kirby – EverKey Global

What is the size? Have you disclosed the size of that first institutional investor?

Jaime Rivera

No, we haven't, and I can't. But again, starting next quarter you will get an idea from the fee you have – from the fees that we will be collecting, and you can work back on that. Our fee structure is marked 2/20.

Frederick Kirby – EverKey Global

Okay.

Jaime Rivera

And you can track it.

Frederick Kirby – EverKey Global

Okay, all right.

Jaime Rivera

And in terms of going – our capital management policies going forward, all I can say is the following. If you go back to the last four years, I think you will find out that we have established a tradition of making the right move at the right time. And as a result, we have established things like repurchase programs and we have increased the dividend along with increasing profitability, and the need to – or the convenience of managing our capital to some target. We will continue to do so. And I just like you to please bear with us while things in the market settle. It's something that I usually do [ph] constantly. I think again we stand on our record. We have always done the right thing at the right time. We just don't think this is quite the right time yet.

Frederick Kirby – EverKey Global

And so will you favor a – I guess you have to see where the stock is, but a Dutch auction, is that the favored mechanism you would look at?

Jaime Rivera

Actually, all – what is it that persons like to say, all alternatives are on the table.

Frederick Kirby – EverKey Global

Okay.

Jaime Rivera

And so we look at all of it and decide accordingly.

Frederick Kirby – EverKey Global

Okay. All right. Thank you and congratulations, guys.

Jaime Rivera

No – thank you, Frederick.

Operator

Our next question comes from Anry Bhagwanji [ph] from Porter Orlin.

Anry Bhagwanji – Porter Orlin

Good afternoon, Jaime.

Jaime Rivera

Good afternoon, Anry. How are you?

Anry Bhagwanji – Porter Orlin

Good. I may have two questions. One pertains to the weighted average lending spreads chart on page two. Am I right in reading that the new lending is happening at about 41 basis points above where the portfolio on average is priced, so – which means that if you continue to make the new lendings at 1.93%, your margin should continue to expand over the next couple of quarters?

Jaime Rivera

That is absolutely correct. That is, in fact, what we believe is going to drive the improvement in net interest income over the next couple of quarters. And we have stated in the press release, and I can tell you again, that the process of increasing spread remains in place as we speak. I can't tell you how long this will go on for, but as we speak, spreads are still increasing.

Anry Bhagwanji – Porter Orlin

So it's – are the current spreads you're lending at now above that 1.93% or are in that 1.93% ballpark?

Jaime Rivera

They are in the ballpark, but increase a few basis points per month.

Anry Bhagwanji – Porter Orlin

Okay, okay, that's quite impressive. And my second question is just trying to understand the net interest income on allocated capital. So if I take the $5.4 million income that you had in Q2 and annualize that, divide that by 2.1, I get about $1 billion. So, is that roughly the notional capital you have in that head? Is that the right way of thinking about it?

Jaime Rivera

No. That is not the right – we're basically talking about $650 million in capital based [ph] at market rate.

Anry Bhagwanji – Porter Orlin

Okay. And the market rate we should think about is basically the Fed rate?

Jaime Rivera

You're absolutely correct. That's basically what drives it.

Anry Bhagwanji – Porter Orlin

Okay. So, as long as the Fed is not going to cut rate further, the earnings on that should be stable from now onwards.

Jaime Rivera

That is what I tried to say. Thank you for saying it much clearer than I did. Yes, and the converse of that is if interest rates start rising, we'll benefit accordingly.

Anry Bhagwanji – Porter Orlin

Okay. And just the last point on this – so, on a quarter-on-quarter basis, there should be no negative impact, but on year-on-year comparison, there will be a negative impact because Q3, Q4 Fed rates were much higher than the Fed rates now?

Jaime Rivera

Yes, absolutely. You might remember that as of Q3, Q4 last year rates were something around 5%. So year-on-year, unless something dramatic happens in the next six months, there will be a negative impact from that particular source.

Anry Bhagwanji – Porter Orlin

Okay. Thanks a lot, Jaime. And once again, many congratulations on a great quarter.

Jaime Rivera

Thank you very much.

Jaime Celorio

No – thank you, and thanks for the confidence and the patience.

Operator

Our next question comes from Mario Pierry with Deutsche Bank.

Pito Chickering – Deutsche Bank

Hi, Jaime, it's actually Pito here. Just had a question, if we look at the earnings, it's kind of excluding the trading gains, still it's around maybe $12 million. Just wanted to get a sense of kind of your expectations for the core banking business, how you see that going forward? Are you comfortable with the current levels or any strategies you have to increase the income there? Thanks.

Jaime Rivera

Like Jaime Celorio mentioned, 62% of our income is now being generated by the commercial division. It was 62% last year. Ideally, we'd like to have it at 70% to 75%. I think given the way spreads are going and the way the business is going, we should get there. If we don't, it will be because the asset management business as a couple of other phenomenal quarters, which would be gravy on the cake. Do I answer your question, or do you want me to further elaborate on it?

Pito Chickering – Deutsche Bank

No, that's good, thanks.

Jaime Rivera

Okay, thanks. Again, the intermediation based on the Commercial Division is doing extremely well, originating lots of business at pricing which was, as you can see, or is much better than it was even six months ago. So that – and we're getting the funding that we needed to feel the growth. So we're doing just fine there.

Pito Chickering – Deutsche Bank

All right, thank you.

Jaime Rivera

Sure.

Operator

Our next question comes from Lance Ettus from Mortar Rock Capital Management.

Lance Ettus – Mortar Rock Capital Management

Hello.

Jaime Rivera

Lance, how are you–?

Lance Ettus – Mortar Rock Capital Management

Yes, hi. I just had a kind of follow-up on the potential of share buyback. How much could you guys buy back both from what you'd feel comfortable with as far as how much capital you would like to deploy back into the stock and how much could you deploy as far as what you have to maintain in capital as far as regulatory concerns are?

Jaime Rivera

Let me start with the latter part of your statement. Regulatory concerns are an issue, but not a limitation. We are well in excess of regulatory – minimum regulatory requirements, both in Panama and the United States, and just as importantly, of what our funding sources require. How much are we going to decrease the capital if we do so and when, is a difficult question that we deal on a quarterly basis. And in the past – again, it's a combination of how do we see the prospect for our business going forward, which as I've just mentioned, we see – we're very encouraged about, and how much capital might be – what might we need to continue fueling our growth, and what is the cost of getting the answer to that question wrong, which right now is extremely high. In the past, if you look at our history, we have increasingly or steadily increased a common dividend on a year-by-year basis along with increased operating earnings. And we have slowly brought the capitalization of the company down to historical levels as the financial strength of the company improved. In very general terms, I would expect that type of thinking and consideration to continue guiding our thought process as we do capital management. I cannot tell you any more specifically on that other than adding that it's a question that is looked at every quarter. When the time is right, we will do something. And again, all options are on the table. In the past, we've done both the purchase programs and increased dividends. We'll probably consider both. The one thing we will not do and we've said that over the last year and a half now is, extraordinary dividends are no longer on the table.

Lance Ettus – Mortar Rock Capital Management

Okay, thank you.

Jaime Rivera

Sure.

Operator

(Operator instructions) Our next question comes from Ronald Redfield from Redfield, Blonsky and Company.

Ronald Redfield – Redfield, Blonsky and Company

Hello, my question actually has been answered, but if I could ask you – the stress in the financial markets has changed a lot of – a lot of financial institutions have changed from a book value standpoint, from a stock price standpoint. What are – and all is – if you can't control the stock price and that's been volatile and probably – hopefully has nothing to do with you. But under worst-case scenarios, what stress levels – what could be the worst things that could happen to Bladex to create anything that could bring you to the current market of the other major financials?

Jaime Rivera

Well, that's a very good question. And our risk management division spends a lot of time stressing or putting or running sections of a number of stress scenarios, both on our asset side, which we think of as a purely theoretical exercise to the extent that our credit quality remains very strong, and we just don't have any reason to believe that it's going to deteriorate any time soon. And on our liability side, where we are, of course, exposed to the difficult circumstances that are created in the market. Judging from historical experience in the case of Bladex, the most stress we have ever been placed on is when we had difficulties on both the asset side and the liability side at the same time. And the way we made it through during those years, but this was not 2002, was by making use of the very short nature of our credit portfolio. We have about $200 million in loans that mature every month. So, what we did is we collect on those loans. We collected on those loans as they came due and paid down our liabilities at a time when liquidity for the company was a problem. That is probably the most stressful situation that we put the company under in our projections. And even under conditions of duress and stress, we can – we are sure we could do the same thing we did in 2002. It's not at all a likely scenario, but that, to answer your question direct, would be the ultimate stress for the company. Problems on the asset side in one of our industries, it's no longer a question of countries by the way. It's more a question of industry, while at the same time, stress on the liability side. The former is not likely. Companies are doing well. And the latter is not likely either. We have a well-diversified funding structure between deposits, interbank lines and capital market issues. So we don't see stress to this extent coming about any time soon. But again, if it did come about, the short-term nature of our credit portfolio would win the day.

Ronald Redfield – Redfield, Blonsky and Company

Right. Thank you very much.

Jaime Rivera

No, thank you.

Operator

(Operator instructions) Our next question comes from Jeremy Hellman with Singular Research.

Jeremy Hellman – Singular Research

Hi, good morning, gentlemen.

Jaime Rivera

Good morning Jeremy.

Jeremy Hellman – Singular Research

First question, just kind of getting a little bit of a kind of a macro understanding of the available for sale portfolio, the understanding I'm kind of picking up is that you guys see interest rates bottoming here, you're headed – either staying steady or going up. So what – with that in mind, if I'm right in understanding that, what's your general thought with the available for sale portfolio, any changes there in that strategy of putting money to work there?

Jaime Rivera

Jeremy, it is important to mention that our available for sale portfolio has all been swapped to floating interest rate. So the portfolio is not exposed to interest rate risk. What the available for sale portfolio is, is to the extent that it is at play, it is at play on credit spreads. And we have bought – we bought paper at very good prices in the belief – and so far we are starting now to be proving right that as markets eventually stabilize, the price of those securities, the net price of the security under swap will start going back to relatively normal levels. When and if it does, we will get the opportunity to realize very attractive gains. Until then, those assets are in the portfolio realizing very good spreads. That's a strategy we have been following successfully for the last three years. We can afford to enter in – to enter in such business because we are strongly capitalized so that volatility on the OCI, as prices change, don't really have an impact on our capital, one, and because the same capital allows us to be patient and wait until things do improve. And again, we're starting to see the first signs of that turnaround in – and when it does turn around, you would probably be able to realize attractive gains as you've seen us do so – as you've seen us do in the last couple of years. That's the basic strategy. The fundamental point is, we are not running interest rate risk on that portfolio; we're running credit risk. And credit risk is something that we believe in Latin America at least we can measure fairly well.

Jeremy Hellman – Singular Research

Okay, great, thanks. Just taking – looking at a couple of things in your financials, one item that shows up on the balance sheet that I haven't seen previously was the investment in mutual funds. Can you just elaborate on what's going on there a little bit?

Jaime Celorio

Yes, Jeremy, that's basically the investment that we have. In the past, we used to have different lines in the balance sheet, now we're separating this. This is from an accounting point of view. So here is our investment in the Asset Management Division.

Jeremy Hellman – Singular Research

Okay. Was that something that – that wouldn't have been in the cash and other line in the past, would it have been?

Jaime Celorio

In the past it used to be in different lines. It used to be in cash, it used to be in trading, it used to be in different lines of the balance sheet.

Jeremy Hellman – Singular Research

Okay, I got you. And looking at the reversal in provision for loan losses, you had a reversal this quarter, how much of that reversal was tied to the Brazilian – that upgrade?

Jaime Rivera

None of it. These were old loans that we have been working on for a long time that in essence we are able to recover on.

Jeremy Hellman – Singular Research

Okay. And then the efficiency ratio, you guys have continued to make some real good progress there. Prior guidance for the year was that, as I believe it was that you expected to be around 35% for the year. Given where you are through the first six months, it would certainly seem there might be optimism for coming in better than 35% for the year?

Jaime Rivera

That is correct. I would be remiss if I said that we didn't think that we're going to beat that target.

Jeremy Hellman – Singular Research

Can you venture into quantifying at all on that number?

Jaime Rivera

We ought to keep the second half of the year slightly below. That is, efficiency should deteriorate a bit during the second quarter, but not much. It all depends in the end on how quickly we can increase those spreads in the Commercial Division and how well the Asset Management Division does.

Jeremy Hellman – Singular Research

Okay. I think that's it from me. Thanks for your time guys.

Jaime Rivera

No, thank you.

Operator

(Operator instructions) There are no more questions in the queue. So, Mr. Rivera, I will turn the call over to you.

Jaime Rivera

Thank you. Ladies and gentlemen, I hope that we were able to transmit what is a real positive sense of increasing momentum within the company. Market circumstances are now in our favor and likely to remain so for a while, allowing us to continue growing and consolidating. This is important. Not only growing, but also consolidating our gains. At no point in the last four years have our capability matched opportunities in the market so well. It's not easy out there. I'm not going to belittle the task, but the fact is that we are doing well and likely to continue doing so. So with this, I'd like to thank you all for your – not only for your patience, but for the confidence that you have shown in spite of what, from an industry perspective, have been very difficult circumstances. Our objective is to reward your confidence and your patience. And we are confident we're going to be able to do so. So, I wish you all success during the next quarter and I look forward to talking in three months. Thank you very much.

Operator

Thank you everyone. This concludes our teleconference. You may now disconnect your lines.

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Source: Banco Latinoamericano de Exportaciones, S.A. Q2 2008 Earnings Call Transcript
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