Ángel Cano Fernández - President, Chief Operating Officer, Director, Member of Executive Committee and Member of Global Asset Allocation Committee Manuel González Cid - Chief Financial Officer and Head of Finance Division

A very good morning to everyone, and welcome to this webcast in which we'll be presenting the results of the BBVA Group for 2012. The presentation will be given by Ángel Cano, who's President and COO. And then we'll have a Q&A session immediately after the presentation, with the participation of Manuel González Cid, who's our CFO. As always, any questions that can't be covered due to lack of time during the webcast will be dealt with by the Investor Relations team during the rest of the day. Ángel, you have the go. Ángel Cano Fernández: Good morning, and welcome to this presentation results for the BBVA group corresponding to the financial year 2012. Now that was a year that we can all agree was a very difficult, very tough year. We went through possibly the worst moments of the crisis of sovereign debt. We shouldn't forget that around about July, the risk premium for Spain was over 630 basis points. And at the end of the year, we saw that there was a lot of uncertainty regarding the fiscal stability of the United States as they face their fiscal cliff, and here in Spain, we had to make a lot of changes to the tax regime, which had an impact of over 4 percentage points on the fiscal deficit, and a lot of work was done to restructure the entire financial system. Meanwhile, in the emerging economies, especially those where we are operating, have seen very sound growth in economic terms, and they've been growing at a much faster pace than the developed countries. In this environment, BBVA, as has happened in previous quarters, has once again been able to confirm its strength, which is based on diversification and it's very reliable business model. We've made a lot of…

We can start the Q&A session. As always, I'll try to group the questions together to save time and be able to answer as many questions as possible. So we'll start with the capital. Mario Lodos from Banco de Sabadell, David Vaamonde from Fidentis, Paco Riquel from N+1 and Rohith Chandra from Barclays, all asked about updating the impact of Basel III. "Has there been any kind of improvement because of the deleveraging or sale of assets? Paco Riquel most specifically says there has been a fall of EUR 500 million during the quarter, despite the Unnim preferential swap. So what are the prospects of organic generation of revenue for Basel III for 2013? So how are we going with Basel III at the end of 2012 to face 2013?" Paco Riquel says that "The core capital has fallen by EUR 500 million in the quarter, despite the preference swap in Unnim."

The impact that Paco's referring to here is exclusively due to the exchange rate between quarters, between the third and the fourth quarter. The exchange rate impact over the year was positive but in the final quarter, there was a negative exchange rate impact on our core capital, which obviously, is offset because of the effects that, that has on the risk-weighted assets. And then regarding Basel III, well, there, we have announced our vision to the market, talking about our fully-loaded ratios at all times. And we're sure that our Basel III fully-loaded ratio will be about 9% for the end of 2013. And as Ángel said, we have disclosed the sale of the pension business in Chile and although there are some transactions yet to be signed off, that's EUR 1.6 billion in capital gains, which will have to be recorded to the income statement in 2013. So that means that we are above expectations with respect to the optimization of the income statement. 50 basis points more core capital from the 3 transactions. Moreover, in organic generation of capital there, we are maintaining our vision; 15, 20 basis points added each quarter in rather more normal situation with respect to the provisions we are required to set aside in Spain. Of course, we continue to be conservative, and we think that this level of organic capital generation with our dividend payout policy is quite comfortable to maintain. And regarding financing and liquidity, Rohith Chandra from Barclays asks about the outlook for wholesale issues during 2013 and what relative prices we'd be thinking about? And above all, "What kind of tenors -- what kind of maturity dates would we have for such wholesale funded in 2013?"

Without actually going into any detail or irrespective of that, but seriously now, for 2013, there are EUR 17 billion in maturities that we've planned and there will be an additional reduction in lending because of this deleveraging trend that we've seen in the balance sheet, certainly, during the first half of 2013, which means there'll be no need to go to the markets to raise more capital in any significant amounts, although we will make strategic adjustments to the weight between short and long terms. Basically that's what we have planned for 2013.

As Ángel has said, the generation of liquidity that we're seeing on the euro balance because of the deleveraging and also because of the good performance of customer funds wouldn't make it necessary to raise funds in the capital market to renew these maturities that are on the wholesale side. However, we will continue to go to the markets to maintain the right financing structures. There are 2 major operations that we did at the beginning of the year where the objective has been to lengthen the term of our loans, to try to reduce the spreads as much as possible. And we've got prices that compare very, very well with our peers. And of course, with -- compare very well with the sovereign debt. So that's the idea that we have for the year as a whole.

Okay, carrying on with financing and liquidity. Mario Lodos from Banco Sabadell, Rohith Chandra from Barclays and Alejandro Andrade from Kepler, ask about the performance of the LTRO funds.

I think this question has been answered by the COO in his presentation. In the first window of December 20 -- we're going to reduce 2/3, and maybe in the first quarter, we will return 1/2 of what we have borrowed.

On the dividend side, Carlo Digrandi from HSBC asks about, "What plan do we have for our dividend payout for 2013. Is it going to be in scrip or in cash? And maybe, you can give us your forecast of 2014 along the same line." Mario Lodos from the Banco Sabadell says the same thing. "Are we considering the possibility of going back to a cash payout in 2013 or 2014?"

Well, with the information we have to date and according to the existent-- although, there is the -- a lot of uncertainties still about capital requirements, in 2013, we want to maintain our current payout policy, which is well known by everyone with respect to how we deliver it and when we pay it. But obviously, we will have to see what actually happens in 2013 when we will have more granular information with regard to the lookout for 2014, too. And from 2014, we could have more of the dividend paid out in cash.

Paco Riquel from N+1 asked for information on refinancing and restructuring of loans here in Spain according to the requirements of the potential new circular to be issued by the Bank of Spain. And Andrea Filtri to come to an end with this bit on capital, asks about the difference between core capital in the holding company and on the consolidated accounts.

Refinancing, first of all. In the report that we're going to publish shortly, this goes into all sorts of detail -- is quite complete about all the refinancing. But maybe, what is important to highlight is that all the refinancing for us are a management tool to make -- to overcome transitional financial difficulties to make this feasible. And it's a fundamental management tool that we use in this environment, basically, here in Spain, and is also a form of maintaining our relations with customers because our vision of the relations is a long-term one. To give you further insight into this, most of the refinancing in the groups are here in Spain. 50% of them are classed as substandard, and therefore, do have provisionings. The entire portfolio is under special surveillance, and our -- the policies we have established for issues of this and looking at refinancing in very complex of moments when the crisis has really hit in 2008, '09 and '10, I think that our coverage ratio are very good for these operations. Over 80% of all the loans have been refinances are meeting their payment obligations with total normality.

The question about core capital, the group's core capital. Manuel González Cid: With regards to this question about the core capital, in Basel 2.5, as we said in the presentation, the group has 10.8% capital approximately. Now the holding is 11.5%. So the capital ratio for Basel 2.5 of the holding is higher than for the group. EBA is 11.2%. So it's higher than the consolidation ratios.

Moving on to Spain now. David Vaamonde from Fidentiis is asking for information about our, the expected impact on net interest income due to the Bank of Spain's recommendations on putting ceilings for remunerating customer funds and on the same lines, Paco Riquel of N+1, says, "What's our position of the competition with regard to customer deposits, with regards to the new regulations of the Bank of Spain by capping what we can pay?" And Rohith Chandra from Barclays, asks for information about our expectation for the price of customer funds in Spain for 2013, as a whole. And along the same lines, Frederic Teschner from Natixis, Andrea Filtri from Mediobanca asked about the same issue, "What do we think will be the impact of the new regulations on placing a cap on remunerating customer funds imposed by the Bank of Spain throughout 2013?" Ángel Cano Fernández: Maybe first of all, I should try to make something really clear. What has the real change been? What's happened was the Bank of Spain was worried about the impairment of the margins of all the financial entities, including those that have got public money injected into them, thinking that, that could have additional negative impacts on their solvency. So this measure was mainly targeted at avoiding further impairment to the solvency of these institutions because they were paying above market prices in order to bring in deposits, which obviously was bad for their margins and therefore, bad for their overall solvency. That was the main reason for the Bank of Spain putting out this regulation. But they haven't established any mandatory cap, rather they put out indications, on the basis of which, we could start to analyze the potential impact on the margins of the institution. So we're talking about macro prudential…

Okay, then. In terms of credit quality in, asset quality in Spain from HSBC, we have a comment about Slide 25, which talks about the possibility of an increase in 2013 on, in our market share in the loan market in Spain. And so he asks, "In a few years, would that mean that we'd also see an increase in nonperforming assets, or would this growth only be coming in because of Unnim? Is it just Catalonia, or is it all of Spain?" Antonio Ramirez from KBW asks about the outlook that we have for increasing provisions against real estate exposure during 2013. Several banks are looking into the possibility of Oliver Wyman's worst case scenario coming into being materialized. So do we think this adverse scenario should be used in 2013 according to Oliver Wyman? "So what's the cost of risk for Spain in 2013? And when do we expect this to normalize?" Paco Riquel asking about asset quality, also asks "How much provisioning would have to be set aside for real estate exposure and other kinds of exposure to risk in Spain in 2013?" As does David Vaamonde and Theresa [ph] asks about asset quality, asking if we expect to see growth in real estate provisions in 2013, will they go on in 2014? Or are we going to be more or less aggressive in sales in order to avoid having to have so much provisioning. So it's all about asset quality, and it tends to focus on Spain with these 5 questions. Ángel Cano Fernández: Let's see if I've got that all of these. The first part, as we were saying, that we've grown our market share in Spain on the loan side in 2012. Most of these 113 basis points -- 103, 104 of these come…

So moving on now to M&A strategy. Rohith Chandra from Barclays has a question as to whether we have any plans to sell any further assets, or is there any plans to list any of our subsidiaries. Francisco Riquel from N+1, ask whether we'll be willing to buy a savings bank from the FROB without any Asset Protection Scheme, and Andrea Filtri from Mediobanca asks about the rationale for offer for Catalonia bank. AFPs now, pension business, Frederic Teschner from Natixis, has a question about the impact on revenues of selling the 2 transactions in Mexico and Chile of our pension business. "What impact will the sale have?" And Antonio Ramirez from KBW [Audio Gap] Ángel Cano Fernández: Okay. Manolo, I will leave the final question about Eurasia to you and maybe you can give us a contribution on the U.S. and Mexico, especially with regard to interest rate mix, sensitivity. There's no obligation in Mexico, there's no obligation to make an IPO with regard to regulating the hybrids. And I think it's as simple as that. We have a capital ratio of over 15%, which is way higher than the capital requirements. So from a capital point of view, there's no pressure of any kind, apart from the internal regulations of the country. Mexican drivers for 2013. First of all, we're going to see how the business grows, we're talking about low double-digit growth here. This is what we're going to see I think in 2013, I don't think we'll see any improvement in spreads. We're also forecasting spreads that are going be very similar to 2012. So the first one is going to be the increase in business volumes, because don't forget, the market share that we have in Mexico and when we talk about this in Mexico,…

First of all, coming back to the capital issue, Andrea Filtri from Mediobanca and Antonio Ramirez of KBW, "Is the Basel III will -- will this penalize BBVA because of the investment they have in some institutions that it doesn't actually manage." They're talking more specifically about our holding in CITIC. So the question is, "Do we have any plans to reduce the impact on core capital of our holding in CITIC?" And then concerning our M&A strategy with regard to guarantee, "What are our plans for guarantee? Are we going to increase our holding in guarantee in the next few years?" And to finish this, Ignacio Sanz from UBS, says that "On a strategic level, maybe the improvements in the earnings in the United States could lead us to consider to promote the U.S. franchise with -- by listing it. Have we considered listing it, an IPO for Compass?" And the second question, Andrea Filtri from Mediobanca, "What's our midterm strategy for guarantee? Is there any possibility in the next few years of seeing an increase in our holding in guarantee?" So 2 questions. One, concerning Basel III and the impact of CITIC. Okay. Ángel Cano Fernández: Okay. First of all, China, that's a question that tends to always come up in this forum with you. The advantage we have is that we have the kind of capital levels we've got. We comply with the capital requirements at all times, and we aspire to reach levels similar to what we've got now even under Basel III once it's fully loaded because of the divestments we are doing and our active management of risk-weighted assets at all times, which will continue in the future. Consequently, management, if the Chinese holding isn't subject to any pressure. We're aware of its impact…

And then the final question has to do with Spain. Jaime Becerril from JPMorgan asks why real estate assets continue to go up in Spain, and whether the retail funding price that we expect to see in 2013 is going to go up and down, and if we are going to see asset portfolios being sold off in 2013. Sergio Castillo [ph] from La Caixa asks about our position in public debt, in Spain, and what's on our balance sheet, and what kind of impact could it have on our ALCO margins? And he asks about the use we're making of the credit facilities from the European Central Bank. Are we depositing or are we doing something else with it? Carlo Digrandi asks about the outlook we have with respect to foreclosed assets during 2013. "Are they going to go up, remain stable?" And then final question, is about the performance of asset quality in Spain, for SMEs, for small and medium-sized enterprises, and retail mortgages. Ángel Cano Fernández: First of all, the cost of financing deposits is a question that we've gone into in great detail to Jaime Becerril. So I am not going to repeat that. The sale of assets, why has there been an increase? Basically, because we can follow the complete perimeter, we're talking about the outstanding risk, and we'll see how this goes. And in 2012, the sum of these 2 parts of the assets, both the risks or the loans that we have on the balance sheet and also the foreclosed, has been reduced by EUR 1 billion. And our objective or the figure that we're holding [ph] is real estate as a whole. This is something I said before. We have the installed power to sell these assets in an optimum form, and…

Fine. That was the final question. So I just like to thank you for coming along to this webcast. And I would remind you that any questions that have not been answered will be answered today by Investor Relations. Thank you very much. I'd like to thank all of you for coming along to this presentation. And as Tomas has said, the Investor Relations department is available to you to -- for any further information you would like. Thank you very much.