Good afternoon, everyone, and welcome to BBVA First Quarter 2019 Results Presentation. I'm Gloria Couceiro, Head of Investor Relations. And here with me today is Onur Genç, Chief Executive Officer of the Group, and Jaime Sáenz de Tejada, BBVA Group CFO. As in previous quarter, Onur will begin with the presentation of group's results and then Jaime will review the business areas. We will move straight to the live Q&A session after that. As always, let me remind you that we would appreciate all the participants to try to make the calls from the landlines and avoid using the speakerphone. And now I will turn it over to Onur to start with the presentation. Onur Genç: Thank you, Gloria. Good afternoon to everyone and welcome to the presentation of BBVA's 2019 first quarter results. As Gloria mentioned, I would comment on the group's evolution and Jaime will focus on the separate business areas. So, starting with slide number 3. We have started the year with net attributable profit of €1.164 billion. This represents a 9.8% decline versus the first quarter of last year given the sale of BBVA Chile in July 2018 though. If we exclude BBVA Chile recurrent operations, the decline would have been 7.7%. With respect to the previous quarter though namely the fourth quarter 2018, the net attributable profit, it grew at 16.2%. Two other key messages to highlight on this slide, as we have started a few quarters ago, first in the middle of the page, you see that we maintain our clear focus on creating value for our shareholders. In the quarter that's why we have this metric in this documentation and that's why we have it in our management scorecards. In the quarter, we increased our tangible book value per share plus dividends by…

Thank you, Onur. So we're now ready to move into the live Q&A session. So first question, please?

Our first question today comes from Alvaro Serrano, calling from Morgan Stanley. Alvaro, your line is open.

Good afternoon. Thank you for taking my questions. Two quick questions. Spain, on the NII in Spain, you very clearly explained what happened in Q1 and obviously the guidance. But just -- I want to press a bit more on why do you think the NII is going to improve over the next few quarters, given your minus 1% to minus 2% NII growth? Is it can you explain a bit more on what's going to improve and what gave you confidence and what should we take into account in terms of modeling for the next few quarters? And the second question is on Turkey. Also you've shown confidence that the provisions will be better than probably expected at the beginning of the year. But the currency keeps on sliding which you flagged in the past that's the main uncertainty when it comes to provisions. Can you maybe give us a bit more color on that confidence and what do you think the currency impact so far could be or some kind of sensitivity? Onur Genç: Thank you, Alvaro. Great questions both. The first one Spain. So, what will change to improve the trend is the question. As we mentioned, there are three drivers of the decline. Because if you look into the Spain page, the activity and also the customer yields they actually have improved versus last year. So, there were three other factors that created the decline in the NII. And those three were as partially explained by Jaime first of all the IFRS 16 impact which is there to stay but then the second and the third we see better prospects in the next quarters. And those second and the third impacts or the factors were the ALCO portfolio and the excess liquidity that we had in…

Thank you very much.

Thank you. Thank you, Alvaro, for your questions. Next question, please.

Our next question today comes from Carlos Peixoto. Carlos, please go ahead. Carlos from CaixaBank, your line is open. Please go ahead.

Hello, are you listening to me? I'm getting through now, okay. Sorry. So, thank you for holding my question and also for holding a reservation in the afternoon which I think is quite useful. First question would be regarding a bit on how do you see the potential -- the new TLTROs from the ECB in what role could that play in the management of your ALCO portfolio? And overall how do you expect to manage the overall exposure to the ECB against this backdrop? Second question would be on capital. Basically the IFRS 16 impact was a bit smaller than expected which was a good news. We now have another pending regulatory impact which will be coming from the Trim I believe. Do you expect it to be able to -- entirely throughout this year? And you maintained the 25 basis points guidance that you have mentioned in the past. Are there any other impacts such as the changes and risk ratings on foreclosed -- sorry on real estates exposures, real estate lending that we should take into consideration? And finally just -- sorry for putting a third question which is a quick one. What's the current size or evolution of the foreclosed assets portfolio in Spain in the quarter? Thank you.

Carlos, do you mind to repeat your last question please?

The last question was the evolution of the foreclosed real estate portfolio in Spain?

Okay, thank you. Onur Genç: Why don't you start with the first one? Do you want to take the first one TLTRO Jaime? Jaime Sáenz de Tejada: Yes sure. As you know we have $23.7 billion possession with TLTRO-2 that matures June next year. Our best case as of today and that's why we're accumulating so much liquidity is to bake down at maturity. We will wait until final details are provided to see whether or not it makes sense to do anything with TLTRO-3. Onur Genç: Okay. So, on the capital question Carlos just to restate what I said in the fourth quarter quarterly presentation, we expect for 2019 regulatory impacts to be in the range of 30 to 40 bps. And this was including IFRS 16 plus the Trims that we expect to be concluded in 2019. As you know, the Trim exercise is running from 2017 to 2019. Some of that will be concluded at the end of 2019 and some of that impact will probably be realized in 2020 especially the low delinquency portfolios. But our guidance that in 2019, we will see a total regulatory impact of 30 to 40 bps, it still remains. And this includes the IFRS 16 of 11 bps which we have already realized. And it includes the Trim exercises that will be completed and concluded in 2019, like the credit risk in Spain, like the market risk exercise that we have just completed and everything else. So the 30 to 40 guidance still remains for this year for 2019 as we have mentioned before. On the foreclosed assets, I have the numbers in front of me, but do you want to take it Jamie? Jaime Sáenz de Tejada: Sure. They remain stable during the quarter at €1.9 billion. And we actually closed another portion of the Marina transaction with Divarian during the month of April. So during the month of April, we've actually transferred an additional €500 million. We expect to transfer the full amount pending an additional €200 million during the next quarters.

Thank you, Carlos. Next question, please.

Our next question comes from Andrea Filtri calling from Mediobanca. Andrea, please go ahead.

Thank you very much for taking my question. One question on the U.S. regarding your consumer strategy, if – from the negative surprise of the quarter of the surging cost of risk, what have you learned? And if this is implying any changes to your strategy in the U.S.? And secondly on capital, the approval of CRD 5 allowing for the exclusion of certain IT intangibles from deductions and the SME support factor, I wonder if you could share with us if this could be – had an element of relevance for you, I guess on the positive side going forward and how much? And just a follow-up on what was just said before regarding the regulatory headwinds. If I understood correctly, the 30 to 40 basis points just regards the 2019 impact and therefore on the low default portfolio you could have some additional impacts in 2020? Onur Genç: Very good. Andrea, thank you for the questions. Let me start with the U.S. So what did you learn and are we changing the strategy and so on. Of course, we learn. We learn every single day. So in the U.S. as we probably mentioned before and I partially mentioned it in the last quarterly presentation as well our approach in the U.S. has been to grow the customer base. And consumer strategy was developed to achieve that. At the end of the day, what we realized was when we were acquiring customers what we call from the open market they are completely new customers to BBVA. So it's not like lending to our existing customers, which we know and which we do very well. Given our customer base in the U.S. we went out to the open market to underwrite and acquire completely new customers. And that requires a…

Thank you. Thank you, Andrea, for the questions. Next question, please.

Our next question today comes from Marta Romero calling from Bank of America Merrill Lynch. Marta, your line is now open.

Thank you very much for the evening presentation. I have a couple of questions. The first one is a follow-up on NII in Spain the ALCO portfolio. You've got €23 billion seems low from the size of your balance sheet in Spain. How do you -- how are you thinking about it? Where do you -- where are you aiming at building in the ALCO portfolio in Spain? And the second one is on Turkey. The public banks are raising equity, this is going to add pressure to volumes, the margins. How you seen -- how comfortable do you feel about the capital position currently at the moment? And if you could share the sensitivity to movement of currency to NPLs, so what would happen to your NPL ratio if the currency depreciates by every 10%? And where do you -- where do we need to see the currency going for Garanti to need more capital? Thank you. Onur Genç: Good. Why don't you take the first one, Jaime? Jaime Sáenz de Tejada: Sure. Okay. As you mentioned Marta, the size of the ALCO portfolio went down significantly in the fourth quarter of last year. We had significant maturities of around €6 billion. Half of that was Spain's sovereign risk and the other half Italian sovereign risk as we shared in the previous call. We've increased slightly just slightly the position this first quarter. We are planning to increase a little bit more the size of the portfolio, but we are waiting to -- for slightly higher levels before we do that. As Onur mentioned before, we are trying to reduce also the negative cost of carry of the high-quality liquid portfolio that we have prepared in order to pay down the TLTRO in June next year. We've increased the…

Thank you, Marta. Next question, please.

Our next question today comes from Francisco Riquel calling from Alantra. Francisco, please go ahead.

Yes. Hello. And first question about Spain. And you are guiding down NII slightly I wonder, if you can mitigate it somehow across the P&L other -- with other P&L lines. So if you can please update, how do you see fees evolving on the cost base, which is falling again this year? That could be helpful And then I would also like to follow-up on the cost of risk in the U.S. You can please elaborate it a bit more. IFRS 9 macro impact you mentioned. So can you explain the assumptions because the macro is holding up well at this point in the U.S. cycle? The write-offs in the consumer loan, I mean, this has been the main driver of NII growth to-date in the U.S. You plan to change the risk appetite the growth outlook in the U.S. because this segment is still growing by 22% year-on-year. So can you give us what do, I mean, 80 bps, 90 bps cost of risk at this point in the cycle is -- in the late cycle in the U.S. is high. So do you think it's -- what could be the through the cycle cost of risk in the U.S. given that -- what you have shown us in the first quarter? Onur Genç: Thank you, Francisco. On the first question, some guidance on Spain going forward. As you mentioned, we -- as we said -- as Jaime said NII, we expect it to decrease slightly 1% to 2% this year. Again better than the first quarter trends as we also mentioned due to the reasons for the first question. So NII to decrease 1% to 2%. But on net fees and commissions our guidance is low single-digit growth. On expenses, we continue to maintain our guidance of…

Thank you, Francisco. Next question, please.

Our next question comes from Britta Schmidt calling from Autonomous Research. Britta, please go ahead.

I have got two questions please. Coming back to the U.S. business, am I right in understanding that you're referring to underwriting issues with the personal express loans in the U.S. And coming back to the question of what loan growth could be, could you give any guidance what the 22% could be down towards? And Andrea has asked about this as well, are there any learnings from this that you can draw also on your Spanish business given that giving out consumer loans to non-customers is on the raise, especially within the digital lending area. And the second question will be on Turkey. There is a bit of a mismatch emerging in terms of FX deposits growing, but FX lending declining. Can you comment a little bit on the funding cost outlook given the dollarization in the economy and also comment a bit on the Turkish lira funding outlook? Onur Genç: Okay. On the first one Britta you asked about the U.S. business. I mean our guidance still stands for the overall loan book. We expect mid single-digit loan growth in the U.S. this year mid single digit. And there will be a higher growth in consumer. But you asked about the precise guidance, we cannot give that to you, because it's an ongoing calibration, ongoing dynamic management of the portfolio. So on that one I'll reiterate our overall guidance of mid single-digit for the overall loan portfolio. On the Turkish case, do you want to take it Jamie? Jaime Sáenz de Tejada: Yes. As you've mentioned, the Turkish lira portfolio is up by 7% in the quarter, the same rate on a year-on-year basis. We remain -- we maintain guidance. We expect the year to end at around 5% growth in the Turkish lira portfolio. It's true that the economy, especially deposits have been dollarizing over the last couple of months in Turkey. So loan-to-deposit ratio in dollars has decreased significantly, but it is happening in Turkish lira. This has created additional pressures in the Turkish lira funding over the last couple of weeks. So the level, the trend, the very positive trends of cost of funding that we've experienced in liras over the first part of the year will probably decrease slightly as the second quarter evolves. On the other hand, the FX spreads continue to improve. They continue to improve significantly. That was also the case this first quarter they were up by over 60 basis points and we expect that to sustain as the year goes by.

Thank you, Britta. Next question please.

Our next question comes from Mario Ropero from Fidentiis. Mario, please go ahead.

Hi, good afternoon. My first question in on the coverage in Spain, it is 58%, which looks very high relative to the sector. So I wonder if you can give some color on the level of this going forward? And if you see should remain this high, don't you think that this is a competitive disadvantage versus peers regarding loan growth? And then the second question is also about Spain. Profitability trading income remained very high I would say. So to understand the sustainability of this line could you please tell us what is -- what are the unrealized gains in the European ALCO book? Thank you. Jaime Sáenz de Tejada: Okay. On the first question, yes as you said, the coverage level increased in Spain this quarter to 58%. We don't believe this is a competitive disadvantage. We think this is a competitive advantage. So we are quite comfortable with our coverage level. I think we've always been very prudent provisioning-wise and we maintain that policy. The second question is around, if I understood correctly, the capital -- the unrealized capital gains on the ALCO portfolio?

Trading income for…

Trading income for Spain. Okay. The trading income went down versus the first quarter of last year in Spain. Two reasons. Lower ALCO sales and then a slower beginning in the global markets area. We do expect additional ALCO capital gains in the year, but they will probably be lower than the ones that we had last year, even if unrealized capital gains in the ALCO portfolio have increased quite significantly over the quarter, taking into account the very low premium that Spain has reached during this latter part of the quarter.

Thank you, Mario. Next question, please.

Our next question comes from Ignacio Ulargui calling from Deutsche Bank. Ignacio, please go ahead.

Hi. Yes. Hi. Good afternoon. Just have two questions for you guys. One is, if you could update a bit on the trends that you see for NII in Mexico in terms of competitive landscape? And then, to just move things, maybe you have commented that, but I joined a bit later in the presentation. Whether you could give some color on what is it under the €123 million of other provisions in Spain? So whether the €8 million of other income and expenses in the quarter is sustainable? Thanks. Or is that at the current level which should go on a normalized level going forward? Onur Genç: I will take the Mexico one. Jaime, why don't you take the second one? On the Mexico one, our guidance remains NII, we see it growing at high single digit in line with activity. We see the clear signals of that in the first quarter as well. We expect high single-digit loan growth for the year as well. So, robust -- as before, robust net interest income growth in Mexico. On Spain, I think it was about provisions in Spain?

Yes. If I understood correctly, I think, it was on other provisions in Spain, right? Onur Genç: Ignacio?

Ignacio?

Yes.

Okay. I'll answer that question, because it's not -- it was not clear there in the call. The other provision line is down versus Q4 of last year. The main impact that we had this first quarter in this line mainly has to do with restructuring charges. We've increased restructuring charges related to the closure of branches. A good portion of the expected closures have been front-loaded to this first quarter and we've had to recognize some cost there. And also, it had to do with some early retirement charges. If you compare the number to the first quarter of last year, the number is higher, because we had releases in Q1 2018 having to do with especially the real estate portfolio, both in some contingent liabilities and also on the update of the appraisal values of some foreclosed assets. And I also think that you asked a third question regarding how sustainable the minus 3.5% year-on-year rating expenses is? Well, we don't believe it is sustainable going forward. That's why we are guiding for a slight expense decrease in 2019, although, as you can imagine, we will try -- we will strive to perform as best as we can. Onur Genç: Nothing changes from the current guidance that we have given regarding the costs in Spain. We still see a clear decline in costs, but not as large as last year, which was 3.6%.

Thank you, Ignacio. Next question, please.

The next question today comes from Stefan Nedialkov from Citigroup. Stefan, please go ahead.

Hi, guys. Good evening/good afternoon. A couple of questions on my side. Sorry, to come back on the U.S. consumer topic, but it's something that you basically got involved in relatively recently. It looked like you wanted to make a showcase out of the U.S., how quickly you can increase operating leverage, et cetera, or at least that's how it came across? In order for us to understand things a little bit better as analysts, could you just help us with, for example, return metrics of some sort? What was your hurdle rate of return or return on risk-weighted assets? Or, for example, what was the cost of risk you are expecting through this cycle on that new book of business and what did it come out to be in the past few quarters? Some color around that would be extremely helpful. My second question is on Mexico. I see that fees grew 1% year-on-year in the quarter. Is this part of the new normal in terms of fee growth that we've been witnessing, the political noise around for the past couple of months? Or is this just a one-off and we should be -- we should probably be seeing something bigger than the 1%? Some color around that would be great. And thirdly, if I may, there have been some press articles on you potentially reorganizing your insurance agreements in various parts of the world. If you can share your strategy, vis-à-vis, insurance overall and specifically in Europe and also South America? Thank you. Onur Genç: Very quickly, I'll do the all three of them, because we need to save time. There are five other colleagues who want to ask questions. Very quickly, Stefan, thanks for the questions. Consumer topic. I can very clearly, very clearly tell you that…

All right. Thank you.

Thank you, Stefan. Next question, please.

The next question today comes from Javier Echanove calling from Santander. Javier, your line is open.

Yeah, so, thanks very much for taking the questions. I wanted to go back to the commissions in Mexico. We were expecting some resolution of the negotiations with the government and the banking sector on these. But things appear to have stalled. I don't know if you could comment on that and give us an idea of where we are right now. Sorry that was my question. Everything else was answered. Thanks very much. Onur Genç: Okay. Very quickly again on that one. Commissions -- the fee proposal as we call it, it has been -- there has been a new fee proposal as you all know in the past few months on the table. A revised version of the original fee proposal that was put in place back in October/November timeframe. And that new fee proposal is, as far as we understand, it's sitting on one side and then -- but then there is a clear guidance from President López Obrador on the fact that in the next three years, there will not be any new legislation on these type of topics on the financial topics and so on. So, we don't know. There is some uncertainty around this. We don't know what will come out of it. But as mentioned previously multiple times whatever is good for Mexico, is good for BBVA. We are long-term investors in Mexico. We have been there for long. We will be there for long. So, whatever is good for Mexico -- and if the fee proposal supports the key objectives of the country, we are 100% supporting it as well.

Thank you, Javier. Next question, please.

The next question comes from Benjie Creelan-Sandford calling from Jefferies. Benjie, please go ahead.

Yeah. Hi. Good afternoon, everyone. Most of my questions have been answered. Just two quick ones. First of all, on the U.S. and apologies if I missed it. But I just wanted to check whether you had updated the NII growth target in 2019 for the U.S. business? And then the second question is just a broader strategic one. Just when you think about the footprint of the Group and capital allocation going forward and whether you are thinking about organic or inorganic growth. Do you consider the mix of capital between developed markets and emerging markets an important factor? And is that a constraining factor in terms of how you would want the Group to grow going forward in terms of that balance? Onur Genç: Very good. On the first one updated NII guidance for the U.S., right away, we expect high single digit growth in the NII, high single-digit growth. That was our guidance. We stick with that guidance. On the capital allocation regarding the footprint, obviously, there are macro and we look into again through the cycle mid to long-term view on the countries, but our capital allocation framework is a very clear one. We do it at the micro level, which means every single dollar of capital that we deploy in any country has to go through a capital planning process, which means it has to be above a certain threshold of return on regulatory capital. It has to be above a certain threshold of return on economic capital. On those two metrics, if the relationship with the client justifies that capital deployment, we support that deployment. And we believe on top of the macro which is very important -- on top of the macro, this micro capital planning approach is the right one to go. Because there might be really great clients and opportunities in countries that we're in and the macro should not be shadowing the opportunity at the client level. Again, you should put the macro view on top. But on top of that macro view that micro planning is very critical to us and that's how we deploy capital. Two more questions and we have to close I know, but let's take the two, Carlos.

Yes. Next question, please.

The next question is from Ignacio Cerezo calling from UBS. Ignacio, your line is now open.

Yeah. Hi and good evening everybody and thanks for presentation. Sorry to come back to the U.S. consumer book. If you can give us some color in terms of how quickly those vintages have gone bad basically. And the second one is on Turkey. You can share with us actually why you feel comfortable if you show profit in Turkey considering that the music around the economy and the currency in the last couple of months has deteriorated. I'm basically wondering if it was -- having been more conservative actually to keep some of those profits, especially on the loan loss provisioning side. Thank you. Onur Genç: Okay. On the first one how quickly those vintages go bad? I mean, these are typically 50 -- you're asking very specific than. Let me go very specific. They are typically 52-month loans on average maturity and some of them are prepaid, weighted average lifetime is around 2.1 years, because they -- the maturity after closures is around 44 months and then the weighted average lifetime is around 2.1 years. And we see the vintages in six months. That's why what I said in the beginning of this call that we have adjusted looking into the vintages in the second half of 2018. We are seeing some implications of that in the first quarter this year, but we had done the adjustments. On Turkey, I didn't get the full question, but you were asking, whether we should be more conservative on Turkey no? A – Jaime Sáenz de Tejada: Yeah, provisioning wise. Well Ignacio, the profits are still there. They're still in Turkey. So if we don't need to make additional provisions, but the profits are still there are still in Turkey, I think they still qualify as being conservative. A – Gloria Couceiro: Thank you. Next question please?

Our final question today comes from Carlos Cobo calling from Societe Generale. Carlos, please go ahead. Q – Carlos Cobo: Yes, good afternoon. Thank you very much for the afternoon presentation. Couple of questions. I read something around the European Union approving the regulatory equivalence in Argentina. And I wanted to know if you are expecting any sort of positive capital impact out of that? And the second one, if you could add some more color on the type of ALCO portfolio you're building up because at current rates levels a conservative portfolio with very short-term maturities is not very profitable. And I wonder what type of maturities are you adding what yields and if you're comfortable with the risk reward of the new portfolio? And whether it makes sense or it would be more conservative to add a shorter term portfolio to improve the liquidity metrics, but not adding such a market risk to the portfolio? A – Onur Genç: Very good questions Carlos. On the first one, yes. European authorities have recognized the equivalence of Argentina. It will be reflected in the second quarter's numbers. We expect five bps impact from that equivalents, five obviously positive impact. On the ALCO portfolio, Jamie? A – Jaime Sáenz de Tejada: Yes. The increase in the ALCO portfolio Carlos was €400 million in the quarter. Okay? So we agree with you that at current levels, it doesn't make too much sense to increase the size. And that's exactly what I said when I answered a previous question. So what -- we're doing exactly what you're recommending which is trying to build a high-quality liquid asset portfolio very short-term in nature, less than two years, so has to reduce more or less by half in the minus 40 basis points cost of carry. We agree with you that at these levels it doesn't make sense. The current ALCO portfolio in Spain is €22.9 billion and a little bit more than half is accounted in the former health maturity situation. So it will not affect in case there is volatility in the market our capital numbers. We still hold as I said quite significant amounts of unrealized capital gains to act as a buffer and the average is at five years sorry.

So we need to end here as we have the press conference in a few minutes. So thank you very much for participating in this call. And let me remind you that the entire IR team will remain available to answer any questions that you may have. Thank you very much. Onur Genç: Thank you to all of you.