Good morning, everyone, and welcome to BBVA Fourth Quarter 2019 Results Presentation. I'm Gloria Couceiro, Head of Investor Relations; and here with me today is Onur Genc, Chief Executive Officer of the Group; and Jaime Saenz de Tejada, BBVA Group CFO.As in previous quarters, Onur will begin with the presentation of group's results, then Jaime will review the business areas, and then Onur will update on the strategy, before moving to the live Q&A session. So now I'll turn it over to Onur to start with the presentation.

Thank you, Gloria, and good morning to everyone. Welcome, and thank you for joining our fourth quarter results audio webcast. So let's just jump into it.Starting with Slide 3. We are, once again, reporting an excellent quarter, in our view, in terms of results, value creation and capital generation. As all of you know, we highlight three numbers on this first page. The first one, net attributable profit for the fourth quarter was EUR 1.163 billion, excluding the EUR 1.318 billion from the BBVA U.S.A. goodwill impairment as we announced in the relevant event of December 2019. Excluding the impairment, this represents a growth of 15% versus the same quarter of 2018.So there are two other very important messages to highlight on this slide. And in the middle of the page, you can see that we continued to deliver outstanding value for our shareholders. So the year-on-year evolution of our tangible book value per share plus dividends is extraordinary, growing 11.5%. And on the right-hand side of the page, I need to highlight our strong capacity to generate capital. In this regard, our fully-loaded CET1, it has increased 40 bps, 40 bps in the year to 11.74%. And as you all know, this is after absorbing 25 bps due to regulatory impacts, namely the TRIM and IFRS 16.It is also worth mentioning that the quarterly improvement was 18 bps. So one of our - the best quarter of 2019, for sure. So we ended the year in the middle of our target range. As you all know, our range is 11.5% to 12%, so we ended the year in the middle of that range.Moving on to Slide 4. I would like to emphasize that we are delivering these strong results despite a very challenging and complicated external environment. Obviously, our…

Thank you. Thank you, Onur, and good morning, everybody. Let me begin with Spain. The Spanish economy remains strong with no change in estimates. After growing by roughly 2% in 2019, GDP is expected to grow at 1.6% in 2020, maintaining a gap of nearly 1% above the Eurozone. BBVA in Spain had a very solid performance in 2019 with net attributable profit remaining almost flat versus last year.The main P&L highlights would be, first of all, a very good performance of fees, growing by 5% quarter-on-quarter and above our expectations of a low single-digit growth for the year, thanks to higher asset management fees, higher contribution from the CIB business and a good performance of credit cards. Operating expenses continued to decrease one more year, this time by minus 2.4%, thanks to our good transformation efforts. Cost of risk remains at low levels and in line with guidance at around 23 basis points, and that is excluding the provision release from the mortgage portfolio sale that took place in Q2. NII grew quarter-on-quarter by 1.3% and finished the year in line with our guidance, as the positive evolution of the commercial activity was more than offset by the lower contribution from the ALCO portfolio and the IFRS 16 impact. Net trading income behaved well in the quarter, but is down by almost EUR 300 million in 2019 due to lower portfolio sales and global market results. All in all, a strong Q4 in Spain with both a good evolution of activity and core revenues.Let's now turn to the U.S. Macro prospects for the Sunbelt continue to be solid with a GDP growth estimate of 2.8% for 2020, also outperforming the U.S. average by 1%. Despite the rate environment, the operating income of BBVA in the U.S. in 2019 is…

Thank you, Jaime. Given this is our end of year get together with you, so I'm going to share very quickly with you a quick update on our strategy.So Page 21 - Slide 21. As you all know, in - and most of you are aware of these phrases here, but we defined in 2015 a new purpose for our organization. We coupled that with six strategic priorities, and obviously, with the KPIs and the metrics that go with each one of them. And then we refined our values, which shape the new culture for our organization. And probably more than others and - but importantly, much sharper than others, our peers, we invested in our digital capabilities since then. So today, I'm going to very clearly show you - talk to you about the changes or the numbers that we are seeing as a result of this transformation and as a result of this new strategy.So Slide 22. We are starting here with the impact of our transformation on the way that we interact with our clients. And I'm very proud to share on this page that the impressive progress in the digitization of our customer base and in our value proposition. So the clients that interact digitally and through mobile devices have doubled and tripled, respectively, since 2015. Digital customer penetration now represents 57%, and the mobile customers, we reached the 50% tipping point goal and now we now stand at 51%. And in addition, we are very also very happy to report that our app in Spain was, once again, awarded as the best banking app in the world by Forrester in 2019. And this is the third year in a row that we are being recognized as the best in the world. And the second best…

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

[Operator Instructions]Our first question comes from Francisco Riquel from Alantra. Please go ahead, Francisco.

Yes. Thank you very much for the presentation. And two questions for me. First of all, on capital, if you can please update on the - your impact expected for 2020 depending TRIM to renew NPL or EBA guidelines or any other issue that you may highlight. And second question on Mexico, cost of risk at an all-time low. So I wonder how sustainable is this level given that the GDP is in negative territory. The mix is also shifting towards consumer loans, or I'm surprised that we have not seen any macro adjustment. So if you can comment on how sensitive are the [Indiscernible] loss models to changes in the macro environment? Or whether you have made any change in the risk-taking strategies, so that cost of risk could be structurally lower through the cycle in Mexico? Thank you.

Thank you, Francisco to be very short and sweet. On the first one, the regulatory impacts expected for 2020. We are expecting an impact of 15 bps in 2020. On the TRIM's low default portfolios, around 10 bps; and the new EBA PDA LGD new guidelines around 5 bps. So it's going to be 15 in total. Obviously, this is - these things might change around in the year, but that's the expectation that we have at the moment. And that compares favorably with the 25 that we have realized in 2019. Regarding Mexico, as you have noted, this was the best year ever in the past 10 years in terms of cost of risk. And we maintain our guidance for next year to be around 300 bps, the cost of risk. And in 2019, we had the macro adjustment. As you know, we were expecting a 2%-plus growth rate in the economy at the beginning of the year. Over time, it came down. And now the latest expectation for 2019 is basically no growth. So we had some implications of that in the IFRS 9 provisioning for Mexico. And despite that, we realized around 300 bps, and that's our guidance for next year as well.

Next question is from Alvaro Serrano from Morgan Stanley. Please go ahead, Alvaro.

Hi, good morning. Two questions. One on Spain. I don't know if you can be a bit more specific on the guidance, in particular on NII, presumably, it will be down. But if you can give a bit more color of how much margin pressure you'll see as a result of rates. And also, maybe an outlook on provisions, given one of your competitors was suggesting provisions could actually go up in 2020 in Spain. And the second question on capital, please. You're at 11.7%. It's clear you have a few levers on - that could easy pull you in 12% on top of your organic growth. So if we look a bit beyond what might be delivered this year or over the next few quarters, once you reach that 12%, the upper range of your guidance, what can we look forward to in terms of deploying that capital? Should we expect growth to accelerate? Is your preference to deploy that capital in the regions? Or is your - should we look forward to a higher shareholder return? So what's - philosophically, given the state of the world, what do you think - in the banking system, what should we - what would be your preference today? Thank you.

Very good. Thank you, Alvaro. The two things - the two sub questions regarding Spain and the guidance. On the net interest income, our guidance would be a slight decrease in net interest income, a little bit lower spread because, as you know, Europe - EURIBOR has come down in 2019. And there is a reset frequency of either six months or a year on our mortgages, so there will be some impact of those coming in, flowing in. But still, as you have seen in this year's numbers, our customer spread was 1.95% in Spain at the beginning of the year. We improved our spread to 1.99% at the end of the year, 4 bps increases in customer spread despite the fact that the EURIBOR has been coming down dramatically throughout the year. So we are managing our mix. We are growing in areas. Again, as you see in the analyst presentation, Jaime mentioned it partially, but we are growing in areas with better margins and spreads. So we think that will be a compensating factor. So finally, our final guidance is to slight decrease basically.On asset quality, a similar guidance to this year cost of risk around mid-20s. If you exclude, again, in Spain, the portfolio sales that we did throughout the year. As you know, our cost of risk for 2019 was 23 bps, and we expect 2020 to be, again, around mid-20s, around mid-20s. Coming back to capital, 11.74%. At the end of 2020, we should be around 12% level. That's our existing current focus; we should be around 12% at the end of 2020. After that, what happens? So you're asking after that, what happens. We have a very clear capital allocation strategy. We put our capital in places where we can earn our cost of equity. If not, we have a shareholder remuneration policy. We have been very consistent with that policy, 35% to 40%. And going forward, we might also be on top of dividends, depending on how we evolve, considering share buybacks. But we are going to be looking into it once we get to 12%, which we again expect at the end of 2020.

The next question is from Mario Ropero from Fidentiis.

Hi. Good morning. Thank you for taking the questions. I have a follow-up on the - on your expectations for Spain in 2020. I mean, presumably, you're expecting a slight decline in NII and positive fee growth and further cost cutting. So can you confirm whether you're expecting positive jaws in Spain? And then the second question is, if you could clarify what is the impact you expect on tax rate related to the measures that the Spanish government wants to implement on dividends from abroad.

Very good. Thank you, Mario. On the first question, are we expecting positive jaws in Spain for 2020? Very, again, short and sweet. The answer is yes. On the tax, Jaime, you're the expert, why don't you take the tax question?

Yes. There are different measures currently being discussed. The one that you specifically mentioned will impact the group by roughly EUR 50 million per year. That will be an increase in the tax rate of 0.5%.

That next question is from Andrea Filtri from Mediobanca. Please go ahead.

Yes. Good morning. A follow-up question from what Alvaro asked about future capital deployment in light of the changes with CRD V and the approval of Article 104a and your Basel expectations. First of all, can you give us now more color, as Basel is being defined this year, about a range of expectation for you from Basel IV? And how do you plan to use, if any, Article 104a of CRD V? Is it a buffer against Basel IV? Or is it a way to boost capital return once you touch the 12% mark? Also on Spanish fees, can we look forward to any repricing of fees in Spain in 2020? And finally, if you could update us on the insurance front? It's been fairly quiet on that front in the past few months after your indication that you were considering some potential changes in your setup on bancassurance. Thank you.

Okay. Thank you, Andrea. On the future capital deployment and future capital situation and regarding Basel IV, very quickly. I mean, as you know, the output floor, which is a clear lever - or clear impact to all the banks in the European lending banking landscape, we expect the impact on BBVA would be much less than others given that output floor. I mean, given the fact that our RWA density is already much higher than all of our peers. We are at the top of the European banking industry in terms of RWA density, as you know. So the impact from output floor, which is the key lever - key piece within Basel IV, is going to be impacting us much less, if none, in the application. So as a result of this, there was this EBA, E-B-A, study, if you remember a few months ago, on the European banking sector. The impact that was mentioned there and the impact that we calculate for BBVA, there's a clear differentiation, and we expect a much lower impact from Basel IV. And then P2R, it's not finalized yet. Let's see what comes out of it, but we welcome that development. And then the use of capital when we are there, it goes back to the answer that I gave to Alvaro. When we are there and when we have the excess capital, we will consider - we have a very consistent and stable dividend policy, by the way, that dividend policy is there. Plus, we might - we will consider share buybacks, and we will further fuel the growth of our businesses in areas for our shareholders.The repricing of fees in Spain, we are expecting a low single-digit growth in Spain for 2020 in Spain. It does include multiple levers, multiple levers. And as you all know, the deposit pricing to enterprise clients, we have been charging some of our enterprise clients for the negative interest rates that are happening out in Europe for their deposits. That's coming through the fee income line as well. Overall, net fees and commissions, low single-digit growth is our guidance for 2020. On the insurance front, you are saying we have been silent on that front. There is a process we have announced in respective relevant events throughout the years. The process is ongoing. And when there's something to be announced, obviously, we will be issuing a relevant event, but the process is ongoing.

The next question is from Ignacio Ulargui from Exane BNP Paribas. Please go ahead.

Hi. Good morning. I just have two questions. One on the outlook for cost in Spain. And also on the Corporate Center, if you could just give us some color regarding how do you see costs evolving in the Corporate Center in 2020? And regarding Mexico. I mean your strategy has been very focused on households and consumer lending. How do you see that going into 2020? It's going to be more corporate? Or what should we expect that?

Perfecto. On the first one, outlook for costs in Spain, we are expecting - we are guiding for 2020, a similar profile as in 2019. As - if you remember, in 2019, our costs in Spain have come down by 2.4%. We are guiding a similar rate for 2020 as well. Regarding the Corporate Center, we are going to see an improvement in terms of the bottom line of Corporate Center. So our expectation for the bottom line, meaning the profit sync that we have in the Corporate Center, will be better in 2020. Our guidance would be around 250 a quarter as compared to what you are seeing in the numbers for 2019. So a better profile there as well.Regarding Mexico, you were asking the growth. Mexico is a growth country all across the board. We are clearly, in my view, the leading player in Mexico, so we're going to grow across the board. But are we expecting the trend to continue in the retail portfolios? The answer is yes. We will continue to grow in consumer, in SMEs. SMEs were the only non-growing portfolio in 2019. We are expecting to reverse that trend in 2020. And in other portfolios, we maintain a similar perspective of growth for 2020 as we have seen in 2019.

The next is from Andrea Unzueta from Crédit Suisse. Please go ahead, Andrea.

Hi. Thank you for taking my question. I'm going to go back to Mexico. And I can see that you've been able to improve the cost of deposits by 25 basis points in the quarter, and I think that a lot of this has been achieved by migrating time deposits to current accounts, please correct me if I'm wrong. And how much more is there to do on the funding costs? On the other side, your loan - the yield on loans continues to go down, 13 basis points in the quarter. And so how is it that you expect your NII to grow as much as your loans next year?

Well, it is - Andrea, it is that and it is beyond. As you have - as I'm sure you are aware that the Banco de México has reduced rates 3 times in 2019 at the end of the year - actually, 100 bps in total, sorry, the 4, is 100 bps. And as a result, it is both. It is mix change. So time deposits moving to demand deposits. As you can see, demand posits have grown 7% and time deposits have grown 6.5%. So there's some - a little bit of a shift. But the key change was actually the money that we pay to both. Even demand deposits, we pay some, and that number has been coming down in the fourth quarter because the market rates have been coming down. So given the rate cuts of Banco de México, we are basically following the market.And the yield decline is also related to that one because some of our portfolio is variable rate and linked to the market rates, given the reduction in the market rates, it's reflected into the yields, and we are managing it dynamically. When rates come down, okay, the yields on the credit comes down, but also, we have to manage the cost of funding in a way that we maintain our spreads, and that's what we did in the fourth quarter. And as you - we publish this from time to time.The net interest income sensitivity of our Mexican balance sheet is relatively well capped, relatively restricted. So the NII sensitivity is minus 1.4%, 100 bps step function decline in 12 months has an implication of 1.4% in net interest income. So we manage both sides of the balance sheet in such a way that there is not much sensitivity in the Mexican balance sheet, in Mexican pesos, obviously, the Mexican peso balance sheet, I'm talking about.

The next question is from José Abad from Goldman Sachs. Please go ahead, Jose. JoséAbad: Hello. Good morning. One follow-up question on Spain. I know that you are reiterating guidance for cost of risk in Spain around mid-actually 20s. But it would be helpful if you could actually give us what is the cost of risk, in particular, and your expectations for the unsecured portfolios? And in particular, the consumer loan portfolio, it would be helpful if you could give us what is the cost of risk today? And what was the cost of risk in your consumer loan book in Spain back in Q4 '18?

Jaime, do you want to take it?

Okay. Yes, I will. Okay. Cost of risk in the - the NPL ratio, first of all, let me start with the NPL ratio of this portfolio. This portfolio has an NPL ratio which is exactly the same as the overall portfolio in the group - in Spain, sorry. It stands at 4.3 - 4.4%. The NPL ratio in the last 12 months has increased by almost 50% - actually over 50 basis points, sorry. It's mainly related with activity growth, activity in this consumer book has grown by 16%. Overall, the deterioration in cost of risk has been very small over the year, and we don't think that going forward this should change at all. So we are quite comfortable with the underlying trend that we're seeing.

And José, our PD at origination is around 50 bps. And you know that our yields are much, much higher than that. So our average yield, if I'm not mistaken, let me not mislead you, but it's around 6.3% in consumer loans, 6.3%. PD at origination, 50 bps, so it's safe. JoséAbad: May I ask a follow-up question because actually, when I look at Bank of Spain data, actually, consumer NPLs are growing double digit. So what's differential from BBVA versus actually the sector in that particular segment?

No, they can be growing at double digit because production is growing significantly.

It's maturity profile. This is a high growth book. It grew 20% last year. It is growing 15% this year. That maturity is kicking in. Because those NPLs arrive at a sort of maturity of the duration. And these are very normal. If you look into the growth of the balances, it's very normal.

The next question is from Stefan Nedialkov from Citigroup. Please go ahead.

Hi, guys. Good morning. It's Stefan from Citi. A couple of questions on my side as well. Just to come back on the capital allocation point that Onur elaborated on. When you say cost of equity, obviously, ROE should be higher than cost of equity, et cetera. But on the cost of equity itself, do you have a different cost of equity per segment? Or do you apply the same level for any capital allocation at the group level as well as the segments? And if you can give us your assumption for what your customer equity is at the group level that will be very, very useful. Secondly, on the U.S., quite a weak quarter. It's been up and down over the past few quarters as well. We obviously had the provisioning top-up for credit cards. Could you just tell us what's happening in the U.S.? And what are you planning to do into 2020? Fees were down this quarter, a lot more versus my expectations at least. Provisions were higher, costs were higher. It just seems to be sitting in one place or actually deteriorating. So any color in the strategy, anything interesting that you can share with us would be greatly appreciated. Thank you.

Thank you, Stefan. Of course, we have different cost of equities, as you can imagine, for both different subsidiaries and different segments within the different subsidiaries, depending on the risk profile of the different portfolios. Not only segments that will go through portfolios also. The overall cost of equity of the group will be slightly above 10%.

Okay. On the U.S., Stefan. I reiterate this every quarter, but BBVA in the U.S. is present in the sweet spot of the whole country. So we are in certain states. Our key presence is in Texas. As you know, if you look into the growth rates of Texas versus the rest of the U.S., it has been the best growing state, a sizable state, in the whole country over years. It's a $1.8 trillion economy. And as you know, Spain is $1.2 trillion, $1.3 trillion economy, much higher than our home country. So it's a very large country with an amazing growth profile. The growth rates, we have seen, 3%, 4% in GDP growth in Texas over the years. And we are the fourth largest bank in Texas. We have a 5% market share, but we are the fourth largest bank in Texas. Given this, we want to make sure that we deliver value, though, so it has to be coupled. In this attractive market, we have to deliver value, and that's what our focus is. So for next year, 2020, we have a clear focus on growth in activity. Because in the markets that we are in, the growth is there, so we want to capture that growth. And we have to do that in an efficient way, creating a positive operating jaw.And if you look into this year, you mentioned the costs were higher in the quarter. Yes. But if you look into the costs of U.S. for 2019, for the full year, the costs were flat, 0.3% growth only. The reason for that 0.3% is, again, we wanted to create a positive operating jaw because we - it's a key management discipline at BBVA. If you cannot create revenues, you have to then manage your costs. So the fourth quarter, because there are some year-end, let's say, adjustments in December and so on, but overall, you should look into the full year and 0.3% cost growth in the U.S. for 2019, in my view, was a success. But there are many other parts that we have to do better, and that's what we are working on. We are planning to grow better in 2019 - in 2020, and we are planning to manage our costs accordingly as well in 2020.

And if I may just follow-up. From a strategic point of view, are you happy with where your U.S. business is in terms of customer transactionality, customer engagement, fee generation? Do you feel that your digital model can actually help you make this much more of a relationship banking enterprise, so to say? Thank you.

You asked about the U.S.A, Stefan?

Yes, yes.

See, our digital model, can it help us in the U.S., if that's the question. Of course, yes. Of course, yes. If you look into the active customers of the U.S. franchise, active customers, we are one of the very few banks who are growing, again, thanks to the market as well, so - because we are in the sweet spot of the U.S. But we are growing our number of active customers by segment in a very healthy way in the U.S., number of active customers, probably much better relative to our peers, much better than our peers because these numbers are not published. But we know our numbers, and our numbers of customers are growing very decently, very nicely. So our digital model, is it working? In terms of growth, it is working. In terms of NPS, U.S. was one of the countries that we have improved our NPS, Net Promoter Score, customer satisfaction the highest in 2019. So is it working? Yes. Is it taking time? Yes. And we will continue to focus on the key value drivers to make sure that we have a good business there as well.

The next question is from Carlos Peixato from Caxiabank. Please go ahead, Carlos.

Hello, good morning. A couple of questions from my side as well. The first one is actually on other provisions. We saw a bit of an increase, excluding the goodwill impairment, of course, we saw a bit of an increase across some business areas, particularly the U.S. - sorry, Spain, the Corporate Center, Turkey as well, I believe. I was wondering if you could shed some light on the rationale behind these increases. And also, how we should think about it - about other provisions going forward? And then secondly, if you could give us some color on how you see fees evolving in Spain? Particularly, some of your peers have given a bit of a strong guidance for this year. I was wondering if you see the same potential as well. And then finally, sorry, just a quick follow-up on capital, just to make sure that we understood correctly. You expect the regulatory impact in 2020 to be 15 basis points or 55? Because I got a bit confused there. Thank you very much.

Just jumping into last one first, and then give the rest to Jaime. No, no, no, it cannot be - not 55, it is 1-5, 1-5, 15, 1-5, just to make it a bit clear. On the fee growing in Spain, again, as we are guiding fees and commissions, we are expecting, in Spain, low single-digit growth, which is a robust growth. For provisions, Jaime, do you want to take?

Okay. The main overall explanations have to do with restructuring charges. Although it is slightly different between the countries, it is true that, as you've mentioned, Carlos, that Turkey explains part of the increase, mainly because of higher provisioning needs or some contingent liabilities and also some tax provisions in the country. In the case of the Corporate Center, it mainly has to do with some restructuring charges. And the valuation adjustment of one of our equity stakes consolidated using the equity method. In South America, it's mainly Argentina, and it's mainly restructuring charges also. And in the case of Spain, the increase is smaller but has to do with updated appraisal values in some foreclosed assets, also higher restructuring charges. But this - in this case, mainly because of the closure of branches.

Next question is from Benjamin Toms, RBC. Please go ahead.

Hi, there. Thanks for taking my question. Just one for me, please. You show in your presentation that your ROTE was 11.9% compared to peer group average of 7%. Given the clear outperformance in this metric, why do you think BBVA can retain the discount to the same peers?

It's a very good question, Benjamin. I could ask the same question back to you. No, I mean, 11.9% return on tangible equity is good, but there is an overhang, maybe because of Europe. We are still perceived as a European bank. We are a Spanish bank. And given the markets and given the, I would say, maybe the regulatory uncertainty that was there, that is not there anymore, but that was there around capital, maybe. We really - we talk to a lot of people on this but the case for BBVA investment is, in our view, clearly there. I mean our dividend yield is, as we discussed today, 5.5%, 5.5%. Our tangible book value per share plus dividends this year, 11.5%, 11.5%. And if you look into the variability of our income over the years, if you take the past 10 years, past 20 years, the variability of our income is very little.The standard deviation of our profits over years is one of the best in the European banking sector, which implies that going forward; the variability is also going to be lower because the history of 10 years, 20 years, is a very good history. So if we continue to deliver the profits, which are our clear intention, and we have a clear conviction that we will do that, and the history is a proof of that. If we continue to distribute, and we have a clear and consistent dividend policy and if we are delivering tangible book value per share plus dividends, 11.5%, I agree with you, it should be better, but it is the market. We respect the market. Our job is to keep explaining ourselves that we have been delivering this value and hope that the market also realizes it. Jaime, do you want to add something?

Yes. That - maybe after that answer, I mean, we can cancel the Investor Day.

And we are not only institutionally, but personally believers in this as well. We are all shareholders of BBVA. Perfecto?

Next question comes from Marta Sánchez Romero from Bank of America. Please go ahead, Marta. MartaSánchezRomero: Thank you very much. I've got a follow-up on deposit costs in Mexico. Some of your peers in the country complain that you're probably overpaying for deposits, given your strong balance sheet position, are you changing your commercial strategy there? How long can you go, assuming the central bank stays put at 7%? And like with an M&A question. Some of your peers are suggesting that in this low-rate environment, there needs to be more consolidation in Spain and in Europe, in general. The supervisor is clearly trying to promote M&A by making it - by tweaking the rules to make it easier. So can you remind us what's your stance regarding M&A? Do you think it's essential for your strategy? Or you can survive and prosper with what you have at the moment with your footprint? And related to this, your decision to potentially sell the insurance business, is that a separate thing? Or could you - could that be put on hold depending on what you do in terms of other M&A?

Okay. On the deposit policy, I don't know what others said, to be fair, Marta. And thanks for the questions, all 3 of them. But we are adjusting our deposit pricing policy. And as you can see, our cost of funding in Mexico, from third quarter to fourth quarter, has come down from 2.54% to 2.29%, and that is mainly because of the fact that we are repricing deposits, mainly because of the fact that the market is taking down the interest rates, and the Banco de México has done all these rate cuts throughout the year. So yes, we are adjusting our policy. We are there. On the M&A, you said, do you believe you can survive and prosper as you are and with your current footprint and so on?The answer to that one is, of course, yes. And I - again, I'm saying this, not only this year, but if you look into the history of our delivery and our return on tangible equity, our key metrics around what we have been delivering, of course, we can survive and prosper. There's so much growth, there's so much growth in our footprint. I mean you have seen it in today's presentation. In 4 years, we have increased our number of customers - number of active customers close to 20%, close to 20%, close to 8 million customers in 4 years. So our footprint is a footprint of envy, in my view, and our position within that footprint is our key in the investor story. If you look into different countries and where BBVA is versus where the rest of the banking industry, if you look into the ROE of the banking industry in that country and the BBVA ROE in that same exact country, you would see a positive…

Next question comes from Carlos Cobo from Societe Generale. Please go ahead, Carlos.

Hello. Yes, thank you for the presentation. A couple of questions from me. First is, if you could elaborate a little bit about the impact on - I mean, the impact from the calendar provisioning for the stock of NPLs overall for the group, whether you expect any impact in P&L provisions next year or capital deductions? Second, on consumer credit in Mexico. I'd like to understand a little bit your strategy, why are you outperforming the sector? The sector is slowing down the risk appetite in consumer where BBVA is growing. We've seen a similar strategy in the U.S. where you expanded into consumer. I mean, I would like to understand your rationale there. And lastly, just a quick one on the generic provisions - sorry, the generic top-up in Turkey. That is the local reporting. Is that the same that you've reported as off-balance sheet risks in this quarter in other provisions? And what's the rationale? If you already have a substantial generic buffer, why do you need to top it up, when next year, cost of risk is coming down?

I'll take the first question, Carlos. I don't think we will have a relevant impact on provisioning next year. The guidance is the guidance that - and it includes all factors that we think that will affect us in each geography in 2020. It is true that we need to comply with certain recommendations. A combination of Pillar 1 and Pillar 2 impacts will be recognized in the next 6, 7 years, but nothing significant in 2020.

On Mexico - Carlos thanks for the question. So why are you maybe growing more or up, you said, outperforming the rest? Because we have a great bank in Mexico, and we do believe that we have those capabilities. As we have proven, if you look into the numbers, the 3.01% cost of risk in this context of 6.6% growth in the loans is a very good achievement. And not only the headline number, if you look into our models, if you look into our vintages, we are doing very well. So the growth is there. The Mexican situation is a very important one, I keep saying it.And we have a wonderful bank in the country, independent of the GDP growth rates. It has to catch up in terms of bancarization levels in terms of taking financial services to large masses through SMEs. So if you look into the bancarization level, I mean, the lending over GDP, for different segments, it is still much lower than most of the other emerging economies. So independent of the GDP growth, there is a catch-up that has to happen in banking and bancarization in Mexico. And that's why we are still growing 7% despite the fact that the GDP growth was basically 0, that 7% is there because of the catch-up. But more importantly, we do have a wonderful bank in Mexico.I mean, as I keep saying it, they are all our babies, so maybe we are subjective a bit on this. But your colleagues who are covering BBVA, I would encourage all of you to go and visit Mexico and to see how powerful and how great our service that we provide to our customers in Mexico. We have 23%, roughly, market share; the second largest is 13%, 14%. And our customer satisfaction in Mexico, which is a very important metric for us, is 61. Our NPS is 61. So it is the highest that you can ever imagine. Our customers are happy with what we are providing there. Our positioning is very strong there. Our team is an amazing team there. So that's why we are outperforming, and that's why the market might be a bit falling below. But on the third question, Jaime, do you want to take it?

Okay. Let me see if I understood correctly the question. The other provision impact in Turkey is the one that I've mentioned, okay? High provisioning needs for contingent liabilities and some tax provisions. Whatever happens locally might be a little bit different. And that's one particular example, the one you mentioned, fee provisions have nothing to do with this. This is a market practice that takes place in Turkey, in which they do certain provisions, and they do not assign them to specific risks. That has never happened under IFRS accounting, which is one that we comply with.

Next question comes from Britta Schmidt from Autonomous Research. Please go ahead.

Yes. Hi, there. I've got three questions, please. Firstly, on the expected cost decline in 2020 in Spain, can you give us a little bit more color in terms of what's driving this? How much of that is due to branch reductions? How much of that is to other potential cost savings? And secondly, on the U.S., I guess, the key question is, when do you expect it to make its cost of equity? How long is that going to take off? How far way are we from this? And then thirdly, on your Investor Day, could you give us a little bit of an idea as to what we should expect? Will it include end of the year business plan that would also include some profitability target for the group? Thank you.

I'll take the first question, Britta. I don't think what we'll do in 2020 anything different in Spain from what we've been doing over the last 3, 4 years. We've been closing branches at a decent speed. We closed over 1,200 branches since the end of 2015. That's a reduction of over 30% of our physical footprint in Spain. We're now down to 2,640, more or less, branches. We will expect to close maybe 160 branches or so in 2020. And the further development of our digital experience will be the main driver of that continued expense reduction.

Britta thanks for all the questions. The second one was on the U.S.; do you expect to earn your cost of equity? Yes, we do. And last year, we did earn our - more than our cost of equity in the U.S. If you exclude - there are some digital investments that we have there, as you all know, which is all consolidated under the U.S. P&L. But if you exclude those investment businesses, we have some fintechs and so on; we did earn our cost of equity in the U.S. last year. And we aim to have earned our cost of equity in every single market, actually. It's something that is very diligent. If we have that expectation, we keep investing in our business. If we don't, we have other levers to manage that as well. So do we have the expectations? The answer is yes. Investor Day, you are asking whether we will have numbers there. There are - obviously, we'll talk to you about the details of the strategy that we kind of highlighted today. But obviously, there will be some numbers associated with that discussion.

The next question is from Sofie Peterzens from JP Morgan. Please go ahead.

HI. Here is Sofie from JP Morgan. I was wondering about the goodwill write-down that you had this quarter. You still have a quite high book value of EUR 7.7 billion in the U.S. How should we think about any further potential goodwill write-downs in the coming quarters and years? Is that something that we could potentially see? And then my second question, I know you guided on the NII sensitivity in Mexico. But could you also just remind us what your NII sensitivity is in the other markets, given that we are also seeing lower rates in Turkey and also lower rates in Europe? Thank you.

Thank you, Sofie, for both questions. Well, we just did the write-down, as you know. And as you also know, this is independently audited, and there's an independent view in that process and all that. So given that we have just done it, we don't expect anything in the short term. But as you said - and the number, you said, EUR 7 billion, but the latest that we have in the books as of today, after the goodwill amount that we have written off in the fourth quarter, is now EUR 3.8 billion, EUR 3.8 billion. So you might be mentioning the before, and you might be mentioned the dollars, but EUR 3.8 billion is the remaining goodwill in the U.S. Then the NII sensitivity, the question that you asked on the NII sensitivity. As I said, you mentioned the Turkey. Basically, the NII sensitivity in Turkey is very limited. So there's no sensitivity there. The key sensitivities that we have are in the U.S. and are in Spain. That's why I put this chart in the analyst presentation on the fact that the 2 markets that we are more sensitive, because of the nature of the businesses there, it was a negative impact in 2019 because of EURIBOR and LIBOR, but those are the 2 key markets. The latest numbers that we have is minus 6% for U.S. and minus 5% in Spain, for a 100 bps step function decline in the curve in a 12-month period. So those are the 2 key markets in terms of NII sensitivity.

Next question comes from Ignacio Cerezo from UBS. Please go ahead.

Yes. Hi, good morning. A couple of quick ones for me on capital. If you can explain why the capital drag from regulation has come down in size versus the previous estimate? And the second one, if I can ask why the dividend has been on the low end of the 35%, 40% payout ratio despite the capital coming better than expected? Thank you.

On the first one, 25 bps. We did guide around 30s and so on, but 25, mainly because of the TRIM mortgage impact. So the total IFRS 19 plus TRIM mortgage turned out to be 25, which is better. So we should all be happy about it. On the 35%, 40% dividend policy? Well, we are delivering 39%, 39% is within the range. As we keep saying, the key thing here is to stick with the policy, and our policy is 35% to 40%, and it's 35.9%, 36%. So it's within the policy. There is no specific reason around this. And we wanted to stick with the policy. That's why it's 39% - 36%, sorry. Anything else?

Next question comes from Ya-Lan Liu from ACF. Please go ahead.

Good morning. And thanks for hosting an Investor Day this year, I appreciate. Two questions, one on capital and another one on Turkey. On capital, are there potential accounting changes - accounting treatment changes that could deliver capital, say release capital, say, accounting of deferred liabilities or treatment - accounting treatment of intangibles? And then on Turkey, some of your - some foreign banks are reducing their exposure to Turkey or other either - either they are planning to sell their stakes in the Turkish bank. I would like to learn your view on your strategy in Turkey in terms of - yes, your stake, and your stake in Garanti Bank. Thank you.

On the first one, Jaime?

Well, not on the [indiscernible] that I expect. As you know, the EBA is working on issuing an RTS on intangibles recognition in resolution and whether or not a full deduction in CT1 is not required. That's probably the potential upside we have there. Just to remind everybody, the current deduction of intangibles in CT1 is 43 basis points.

On Turkey - thank you, Ya-Lan, for the question on Turkey, reducing your exposure, selling, buying and so on. The answer to that is we are very happy with our existing share as we stand. Our original investment case for Turkey still stays as it is. Our original investment case was 2 things. Number one, the country. I mean, the average age of the country is 30. The demographic profile, the geopolitical risks are there for sure, but the closeness to Europe, the manufacturing hub for Europe position of the country, the culture in the country and so on. So there are many positive things around that.And then the fiscal situation in Turkey is a very positive one, as you might know, 32% of GDP is public debt. So the fiscal side is strong, and the country has shown clear resilience and clear strength last year and this year, in terms of recovering from the foreign currency hiccup that the country was realizing. So the country is a strong one as fundamentals, but more importantly, even more importantly, as I mentioned, our equity story is that we have wonderful banks in different countries, and Garanti BBVA is clearly one example of that. If you look into our pre-provision profit divided by assets, similar to ROE, it is much, much better than the rest of the banking industry in terms of private banks and also the state banks.So we have a wonderful bank in the country. The talent base, the customer franchise that we have there, the deposit - the low-cost deposit base that we have in the country, it's all a great testament to the strength of our franchise in Turkey. So to cut the long story short, the original investment case around the country, around the bank is still there, and we are comfortable with our share.

Our next question is from Fernando Gil from Barclays. Please go ahead.

Hi. Hello. Good morning. Thank you for taking my questions. Two questions from my side. Can you please detail the impact on Telefónica from CT1 this quarter? Second would be the bond portfolios, how much you expect to make on guidance for 2020? And third, and lastly, if possible, a comment on Paraguay, when do you expect this to happen?

Paraguay is expected in the first quarter. The rest on the Telefónica, I give to Jaime, so Jaime takes it.

Well, they're not that tough. Telefónica drained 5 basis points of capital in the fourth quarter. We don't give guidance for bond portfolio contribution. We've never done it. But probably, in the case of Spain, which is where you probably are asking the question, up to now, we've - the ALCO portfolio has been draining NII on a comparative basis. We don't think that will happen in 2020 as we don't have significant maturities in 2020 in that portfolio and the ones we have are mainly in the latter part of the year. So after a significantly negative contribution in 2019, remember that we had significant maturities in the last quarter of 2018, that won't be a drag any longer for Spain's NII.

I see that the list is ending. So Gloria, I think we are done. But one - no question came on that, and I very briefly touched upon it, but I want to highlight one single thing about our new strategy. One of the 6 things that I mentioned was around sustainability. And although there were no questions on that one, I would like to highlight the fact that on this topic of sustainability, which is probably the one of the largest trends that we are seeing shaping the whole business environment. From an opportunity perspective, there will be new economies, new things happening out there. And also from a risk perspective, both physical risks and also transition risks - I mean, industries are being reshaped with this new dynamic.We want to make sure that just like we have played a very fundamental and strong growth in digital as we started our journey many years ago, we would like to make sure that we help our clients in this new transition to combat and to take the opportunity of this new era. So the sustainability topic is an important topic that we would like to highlight, and hopefully, we'll share more with you in the Investor Day in March, on our thinking there. That's it, Gloria, back to you.

So thank you very much, Onur, and thank you very much to all of you for participating in this call. And let me remind you that the entire IR team will remain available to answer any questions you may have. So thank you very much. And have a great day.