Good morning. Welcome, and thank you for joining BBVA's Third Quarter Results Presentation. I'm joined today by Onur Genc, our CEO; and Luisa Gomez Bravo, the Group's CFO. As in previous quarters, Onur will start reviewing the group figures, and then Luisa will go through the business units results. Finally, we will open the line to take your questions. So thank you very much for participating and now I turn the call over to Onur.

Thank you, Patricia. Good morning to everyone. Welcome, and thank you for joining BBVA's third quarter 2024 earnings webcast. Starting with Slide number 3. On the left-hand side, you can see our net attributable profit in the quarter, reaching €2,627 billion, showing another very strong quarter. This figure is 26% above the results of the same quarter of last year and 6% below last quarter's record results. In the context of, as you all know, a relatively significant depreciation of the currencies in our footprint in the third quarter, we once again managed to largely compensate for these negative impacts with the strength in our operating performance in our core operating performance, especially in the core revenues. In fact, in constant euros, quarterly results have increased by 7%, showing the strong performance of our franchises. Our results, they represent €0.44 earnings per share, a 32% growth in the year-over-year comparison. And then the graph on the right-hand side, which is very important to us, it shows the excellent tangible book value per share plus dividends evolution with a 16% increase year-over-year and the 2.6% growth in the quarter, a very solid value creation figure again, despite the broader especially Mexican peso currency depreciation impact that we had this quarter. Page number 4, our CET1 capital ratio, it stands at 12.84%, increasing 9 basis points in the quarter. This ratio obviously is much above our target range and regulatory requirements. Regarding profitability, we continue improving our metrics, reaching an outstanding and record 20.1% in return on tangible equity in 19.2% in return on equity in the first nine months of 2024. As I mentioned last quarter, I mean, more important than the exceptional 20.1% return on tangible equity. In our view, it is the consistency of how we got there, improving…

Thank you very much, Onur. And good morning, everyone. We start with Spain on Slide 18. And I know that I sound like a broken record when we talk about Spain quarterly results, but one more quarter, we exceed expectations breaking the €1 billion mark for a second quarter in a row. In terms of activity, as Onur has mentioned, very positive dynamics in loan growth across the board, especially in the most profitable segments. Lending volumes accelerated versus last year, 1.5% year-on-year, driven by robust new loan production across all segments, increasing by 12% year-on-year on a cumulative basis. The quarter evolution is negatively impacted by public sector loan seasonality as also explained by Onur. By the end of the year, we are expecting the loan book to grow at low single-digit in 2024, outperforming the market. Moving to the P&L. Very solid results fueled by gross income growth with NII increasing sound level of fees and higher NTI. NII has continued to grow this quarter supported by sound activity and effective price management in the context of declining rates, preserving spreads across the portfolios and ensuring profitability in all business decisions are a key management priority. Furthermore, an improved outlook for loan growth, along with the positive contribution from our ALCO portfolio, reinforces our confidence that NII will remain well supported going forward. Strong fee generation growing at double-digit year-on-year in third quarter, primarily driven by fee income businesses, asset management, insurance and CIB. All of this combined with a slowdown on expenses growth led to a significant improvement in our efficiency ratio to an impressive 34.6%. In this context, we are expecting to end the year around this 35% level. Asset quality metrics have remained stable and fully aligned with our expectations. Cost of risk has held…

Thank you, Luisa. So to finish the presentation, I wanted to share with you some messages before the key takeaways regarding our optimism for the future. Why are we positive for 2025 and beyond? Some highlights on this page, Page number 22. First, on the upper left corner, our loan growth, it continues at very healthy levels. With declining rates, there are better growth prospects at the industry level in our largest markets. And on top of that, beyond the industry positivism, we continue to gain market share in a profitable manner. I would highlight here in this little box, the 25.1% lending market share in Mexico. After more than a decade, we exceeded the 25% market share barrier in Mexico this summer, which was a very positive news for us. So good loan growth, very good loan growth actually and good prospects going forward. Second, on the upper right corner, we have been proactively managing our business against structural risks through hedging policies. First, limiting the sensitivity of our NII to the interest rate costs. That’s the first thing that we have been doing. Currently, the sensitivity of NII in Spain is 4% compared to more than 10% at the end of 2022. And in the case of Mexico, our NII sensitivity is 2.5%, compared to 3.7% again at the end of 2022. So you might see a decline in customer spreads in the coming quarters, but the NIMs in our view, will be much more resilient. Similarly, similar to interest rate risk, we continue to hedge ourselves against any short-term volatility around the key currencies and you see the Mexican peso hedges in this page has been going up lately to prevent for any short-term volatility around Mexican peso. Third, at the bottom left of the page, our…

Yes. Thank you, Onur. So we are ready now to start with the Q&A. First question, please.

Thank you. [Operator Instructions] The first question is from Maksym Mishyn at JB Capital. Please go ahead.

Hi, good morning. Thank you for the presentation, and taking our questions. I have two. The first one is in Spain. Your cost of deposits has declined in the quarter, and so did the share of term deposits according to my estimates. I was wondering if you could explain us what kind of actions are you taking to contain growth in deposit costs? And what kind of outlook should we think about considering the current forward curve? And the second one is on Mexico. You’re gaining market share in a market that should see slower GDP growth in the coming years, according to BBVA Research and also growth is driven by SMEs and consumer loans. Can you comfort us regarding the outlook for the cost of risk beyond 2024? Thank you.

Do you want to take the Spain question, cost of deposits? What are we doing, Luisa?

Yes. Well, we are, as you know, managing the cost of deposits very firmly. We’ve come down 1 basis points in the quarter. Actually, this number would have been even better if it were not for a significant inflow of public sector deposits that came in the quarter actually would have come down 4 basis points. If it weren’t for that, so this is obviously a key management priority. Going forward, a lot of our deposits, especially time deposits on the wholesale side are referenced to Euribor rates. And these, as you know, have been coming down. And so we expect that lower rate environment to feed through our cost of deposits going forward.

Okay. And then regarding Mexico, Maks, as we always do, the detailed specific guidance on the different parts of the business, that 2025 guidance, we will be doing it in the next quarter. At the end of the year, that’s how we do it all the time, and that’s what we will be doing. The only thing I can tell you is that what we are seeing because you are talking about SMEs and consumer, what we are seeing at the portfolio level, sub-portfolio level, consumer, SMEs, and so on, we are seeing relative stability. Actually, in the numbers that you see for Mexican cost of risk, there is a little textual introduction there in the text box, which basically says that the cost of risk in Mexico has gone up in the quarter to €343 million but if you have excluded the macro impact because the macro forecast for Mexico has come down for this year, then the macro forecasts come down based on IFRS 9, you do basically provisioning for the future. If you take out the macro provisioning of Mexico out the impact of macro, the cost of risk would have been 319 basis points, which is basically confirming what I have been telling you, which is at the portfolio level, the cost of risk numbers are relatively stable. And for 2025, we will be discussing it at the end of January.

Thank you. Next question please.

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

Good morning. Thank you for taking my questions. Margins will start to contract but your book will continue to grow and your hedged FX on a 12-month rolling basis, and you built an interest rate hedge. In this context, at a group level, would you expect NII to grow in 2025 versus 2024, excluding any impacts from Sabadell? I think consensus expects a decline. You guided in the presentation that profitability would be similar in 2025 versus 2024, which I think must imply some form of growth in the top line. And then secondly, in relation to the same Dow transaction, if that's not successful on the day that, that gets announced, are you willing to commit to simultaneously announcing a buyback for shareholders equivalent to the spot offer price? I think you've been clear in the past that you'll return excess capital to shareholders. I don't think you've got as far as saying that we should view the Sabadell transaction as either being successful or if not successful, resulting in an instant announcement of a buyback. Thank you.

Well, let me start with the second one right away, Benjamin. So I said before that we are looking forward to the day of the Sabadell transaction closure to start the share buybacks. You are asking if the Sabadell transaction doesn't go through, our clear conviction is that it will go through because it's a transaction that makes sense. That makes sense that creates value for our shareholders, clearly for Sabadell shareholders. And as we keep saying for all the stakeholders involved. So there's nothing that leads me to believe that the Sabadell transaction will not go ahead. But in any scenario, at the moment, we are restricted to do the share buybacks in any scenario when the transaction gets completed, we will be starting those share buybacks. We have been telling you that we are clearly committed to our payout policy regardless. And our payout policy is very clear, 40% to 50% annual payout plus any excess capital above 12% will be distributed to the shareholders, okay? And we are fully committed to this. And I will reiterate what I said in the last quarter call, we are looking forward to today that we successfully complete the Sabadell transaction, and then we will start the share buyback programs given also where the share price is. On the NII growth in 2025, Benjamin, I will repeat what I told to Maks. I fully understand the pursuit of having a specific guidance on the different parameters of different businesses. We don't want to go beyond what we typically do, not because of OPA, because of Sabadell, not because of anything. We put the clear guidance at the end of the fourth quarter every year, and we deliver that guidance. And we will do that specific guidance to all of you. Again,…

Thank you, Tom Benjamin. Next question please.

The next question is from Antonio Reale of Bank of America. Please go ahead.

Hi, good morning. It's Antonio from Bank of America. A couple of questions for me, please. The first one is on Turkey. As you said, the region provides you with a lot of optionality, and I think that's well understood inflation has been coming down and the contribution from Garanti to the group could improve significantly from here. And our cost of risk is normalizing fast, although from a low base. My question for you is what's the risk that cost of risk goes out of hand in Turkey. Can you share maybe a little bit more color in terms of what you're seeing on the ground? And is there much you can do to protect your book there? That's my first question. The second question is on Mexico. Mexico is going back to show, I think, a solid print in local currency. Volumes are back to growing double-digit and core revenues were solid now. We have U.S. elections next week. You've talked about 60%, 70% hedge on your P&L. How are your clients behaving? And how do you think this will affect your day-to-day business in Mexico, please?

Cost of risk in Turkey? Do you want to take it, Luisa?

Well, we have been seeing cost of risk increasing in the country, especially, I think, this quarter and especially gears through the retail portfolios and specifically the credit cards. As you know, with such a level of interest rates, we've been mentioning, and that was part of our guidance this year when we guided cost of risk in Turkey at €110 million was precisely that normalization in the cycle that we're in. So the retail portfolios are the ones that are putting pressure on the cost of risk and we see that forward in the pressure that we see. But this is a normalization cost of risk. So we're not seeing any stress aside from that normalization and we have an expectation of interest rates coming down next year as inflation is being incurred. We actually expect some of that interest rate decrease to happen this year. But in any event, we expect rates to come down next year to 30%. So hopefully, that will also put less pressure on cost of risk going forward. But so far, what we're seeing is a cost of risk performing within the guidance that we gave to the market.

Just to highlight, we guided €110 million. Today, we had €112 million. We will probably close around these levels. So it's not anything extraordinary or concerned for us. And you might know that there is a new program in Turkey, where there is a restructuring program that the government has announced, which will help on these numbers going forward, clearly for the fourth quarter as well. Regarding Mexico, you are asking what do we see on the field basically. So Antonio, the quarter-over-quarter evolution, you might deduct it from the numbers that you have in the presentation, but the quarterly growth in Mexican lending has been 2.9%. Second quarter, third quarter, quarterly growth. And what we are seeing in the pipelines and in the future realization of lending is also very strong. So all the short-term volatility, it happens all the time when there is an election, either in Mexico or in the U.S. It's not anything new for Mexico. But we are clearly, clearly convinced that Mexican franchise will continue to perform and some of the concerns that has been there for the growth of lending book is unjustified. We have seen it over and over again. In 2018, I think, when the first year of AMLO, the GDP growth was negative in Mexico. In that year, we grew 7%. 7% in lending book. This all goes back to the dynamics that we keep mentioning in these calls, but they are important dynamics. Number one, the leverage in the country is so low. Banking debt over GDP in Mexico is the latest number is 33% versus 71% in Brazil, 105% in Chile, 200% in the develop [ph] economies. It is lower than Colombia. It is lower than Peru. It is lower than any other emerging economy that you can be imagining. That is creating this dynamic. If you look into the past 10 years, the nominal growth in lending, obviously, the GDP growth is a real figure, but the nominal GDP growth versus nominal lending growth, it's basically 1.4 times for BBVA Mexico. So whatever the GDP growth is in nominal terms, we basically multiply it by 1.4 times, because of that leverage point. Given all of this, what we are seeing in the field is quite positive. Again, quarterly growth, 2.9%. Pipelines are really healthy. So we are quite positive for the end of the year and more importantly, for 2025.

Thank you, Antonio. Next question please.

Next question is from Sofie Peterzens of JPMorgan. Please go ahead.

Yes, this is Sofie from JPMorgan. Thanks for taking my question. One of your peers is quite actively talking about risk transfers and securitizations, what's the BBVA’s view here? And kind of how do you think about this market and opportunities to kind of use risk transfers and do you also scope to cater [ph] for upload very low ROE yielding loans and putting new loans at significantly higher profitability level. So that would be my first question. And then in terms of the second question, one of your peers is also kind of saying that they are using a much more conservative FX rate for Argentina than compared to the official rate. How do you think about the FX rate in Argentina? And how do you think about hyperinflation going forward in Argentina? Thank you.

Your famous topical risk transfers, Luisa, do you want to take your famous topic?

Yes. Well, let me start by saying, first, perhaps how important it is for us to especially originate with the right profitability because obviously, risk transfers are something that is a tool in a toolbox. But the thing and where we actually put a lot of focus is that the profitability of the origination is the right one at inception. We have worked on this with a performance management model that actually allows us to see in all the countries, in all the segments, client by client, the profitability of the loans that we're originating on a granular level, contract by contract, not only on a stock basis, but actually on a prospective basis. So this is actually what we've been putting a lot of focus on, and you see that actually translating into those levels of ROTE that Onur was mentioning before. This is something that we put a lot of focus on, both Onur, the Head of Risk, the Head of Enterprise and retail and myself, we devote a lot of time and following this with the country heads, again, at all levels. Second topic, with regards actually to the balance sheet rotation, we have been doing balance sheet rotation throughout the year, mainly through securitization, some SRTs. Throughout the year, we've – in the case of balance sheet in Spain, we securitized around €3.2 billion. We've freed up €1.6 billion in RWAs. We've been doing also some very good deals on the CIB portfolio side and some of more of those coming up in the fourth quarter. And this is something that definitely will be part of our toolbox going forward as we continue to try to be as efficient as possible in optimizing the capital that we consume to grow the business.

On this first topic of risk transfers, we are in the middle of our strategic plan definition. I don't want to prelude any of those strategic plan levers to you today. But there's one thing that I will mention, which is on this topic. And it's basically – we have always been very much focused on this. Again, we calculate return on capital for every single loan that we give. I mean, I do have the tool that any part of the bank in Peru, in Colombia, in Turkey, every single loan that we grant, we can see from every single part of the world, what is the return on capital for that transaction and what is the return on capital for that client. We have developed these tools and management mechanisms in the past few years. And going forward, you will see us talking much more about capital generation, profitable growth and so on. In that sense, risk transfers is a lever is an action item under that bucket and we will be more engaged in this going forward. Regarding the second topic of Argentina and the conservatism and so on, we have always been very transparent on this topic. We are using the official exchange rate because the accounting standards in our interpretation, the accounting standards are basically telling us to use it because that's the number that you can register a note. The other number fluctuates and the source and so on. But the transparency is very clearly there. We have told you before that there is a – for every single 10% depreciation of Argentinian peso, the capital moves by 2.5 basis points. At the moment, the difference between the official rate and the CCL is around 20%, somewhat more than 20%. So if you apply that, it's basically five basis points impact. And that gap has been narrowing actually over summer and so on. So we are using the official one because that's what we think accounting-wise is the right thing to do. But we are being always transparent with that impact, and that's basically the five basis points Sofie.

Thank you very much, Sofie. Next question, please.

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

Thanks very much for the presentation and for taking my questions. I have two questions. The first one is on the Mexican business. If I just look to the loan-to-deposit ratio of the bank, it has deteriorated around nine percentage points in local currency in the last nine months. Just wanted to see how much comfortable are you keep on growing – keeping on growing through lending through wholesale funding? And how much do you think the cost of that could be – or the benefit of that could come in the context of lower rates as I assume that is swapped. Linked to that, have you seen any material pressure? Or how do you see the challenger banks like Nubank in Mexico? The second question, I know might be very preliminary, but I don't know if you have calculated any potential estimate regarding the – discussed changes on the banking levy for Spain that was apparently approved by the government yesterday with two political parties? Thank you.

Okay. Let me take that very quickly. On the 105% loan-to-deposit ratio that we have in Mexico, and you did ask about this in the past as well Ignacio and the potential pressure that this might be creating on the margins and so on. It might be a bit of a repetition. But our 105% is because we are optimizing the value. We can today very quickly, very quickly lower that percentage by increasing our deposits even more, but it will have an implication on cost of deposits. It will have an implication on the overall value. Most of our deposits, by the way, are very transactional deposits. Basically 1/3 of our deposits are basically less than €30,000, 53% is less than the insurance threshold – deposit insurance threshold that Mexico has, it's very transactional deposits. But for the beyond that transactional very hard core base, we can have much more deposits if we pay. But we decided when the rates are high, it would be better to go to the wholesale funding market. When rates start coming down, which is the expectation that we have for the world actually, but also for Mexico, when the rates come down, we might be swapping that wholesale funding to deposits. But the power of our Mexican franchise is so nice and so good that we can do that strategy shift. The reason that we are at 105 is because, again, we want to optimize the value. So you are picking some concern there, as I understand, I can tell you that we have operated even much higher loan-to-deposit ratios in Mexico. And the reason that we are opening at these levels, and we have much more room actually, is because at high rate environments, we have to do this optimization rather than…

Thank you, Ignacio. Next question please.

Next question comes from Carlos Peixoto from CaixaBank. Please go ahead.

Yes. Hi. Good morning. So a couple of questions from my side as well, basically focusing a bit on NII, both in Spain and in Mexico. You already discussed a bit of the trends there, but basically, I was just trying to understand if you maintain the low-teens growth NII guidance in Spain given that this would suggest a bit of a drop in a quite significant drop in the 4Q or whether you think you can beat that original guidance? And then in Mexico, I believe in the previous quarter, you were guiding to a high single-digit NII growth. Is that still the case for the full year right now? Do you still believe that to be sustainable? Thank you very much.

Very good, Carlos. Very quickly. I do it on Spain, low-teens guidance. As Luisa mentioned, we maintained the guidance with a positive bias. We most likely beat that, but we maintain the guidance. In Mexico, again, we maintain the guidance. You might have seen it every quarter, every quarter, year-over-year growth in NII is going up slightly. So we maintain the guidance.

Thank you very much Carlos. Next question please.

Next question is from Britta Schmidt of Autonomous Research. Please go ahead.

Hi. Thanks for taking my questions. On the outlook, I mean, we're now to through Q4, any comment that you can give us on Q4 trends or any reason to believe that Q4 will be very different from the kind of around about €2.5 billion run rate that we've seen so far this year. And if now it means you're heading towards around €10 billion of earnings for this year. And am I correct to then interpret your wording that you expect any – to outgrow any FX impacts in 2025 to maintain profit at these levels? And then the second question is just on the normalized cost of risk in Turkey. What is that normalized cost nowadays and is there a risk that it could overshoot a little bit given that customers have not been suffering from higher rates for quite a while? Thank you.

I mean, the second one, let's start with the second one because you partially mentioned about this, Britta, we do think we will end the year basically based on the guidance number that we have given to you, which is €110 million. The number at the moment is €112 million, so basically relative still. And again, I would highlight this notion that there's a new program in Turkey to be able to help the clients a government support the program and so on, that will also help, but in any case, relative stability. Given the rates, I mean, as you know, the interest rates in Turkey these days is 50%, and it has been at quite high levels in the past few quarters. We have seen that peaking in our view, in most of the portfolios. Regarding the first question, Q4, as we said throughout the call, we have guided you that the second quarter would be more or less the same as in the first quarter, which takes you to the numbers that you mentioned, Britta and we still stick with that. It's going to be a good quarter in our view. The only...

You said first – second quarter – second half.

Second half. Second half versus first half. The only thing is there is this U.S. elections now, let's see what it does to the currencies and so on. But beyond that macro and even on that one, as we just mentioned in the document that we are relatively well hedged. But bard that we have like huge market impacts. It's a significant event. Let's see what happens. Beyond those very exceptional macro impacts, we are quite positive for the fourth quarter as well. And as you said, for 2025, our perspective today, it's not a specific guidance. We will again do the specific guidance in the next quarterly call. But we see no reason that 2025 return on tangible equity would not be around the levels of what we have delivered in 2024. And if you take that statement, however you take it, the consensus numbers would be, at the moment, at least undershooting what we think the number would be for 2025.

Thank you very much, Britta. Next question please?

Next question is from Marta Sanchez Romero at Citi. Please go ahead.

Good morning. Thank you very much. So my first question is on rest of business. So it is gaining weight within the group, but it remains quite opaque what you have there. So it's difficult to value that. So it will be good if you could guide us on how much do you expect it to be in terms of RWAs within the group growth contribution to earnings? My second question is on Mexico. It's not on the cards, of course, but a potential downgrade to the country's rating, what could that mean for your capital position? Third, very quickly, have you consider pre-releasing Argentina or collapsing the P&L altogether because it adds too much unnecessary noise? Thank you.

Do you want to take the third one? Marta, thank you for the questions. The first one, I actually thank you for this question. We were actually thinking in the previous quarters and even this quarter, whether we should do a kind of a zoom on this rest of business because it is becoming a good part of the BBVA. You have it in the appendix, the profit and loss for the rest of business, but what is it? It's basically CIB businesses beyond the core geographies. So Corporate and Investment Banking business in the U.S., in the UK, in rest of Europe, as we call it, in Asia and so on. And we have done the strategic choice to grow that business. It's a hard currency business. We do have a right to win, right to play in that business because we are a cross-border bank. We are all around the world. We are an emerging market focused bank, but we do have very credible credentials in emerging markets and beyond. And you do see that in the figures. I mean if you look into that appendix page, first nine months, the profit from that business is €400 million. More importantly, in our view, it has grown 23%, the bottom line profit in the last – in the first nine months – first nine months of last year, amazing growth in our view. And our CIB business in general is around 20% return on capital. We never talk about profit without talking about return on capital, and it's a very, very profitable business for us. So maybe your question is also an encouragement for us to start doing that. But the rest of our business topic is becoming relevant, important and critical for us; it will be an even larger part of BBVA going forward in our view. The Argentina, do you want to take that question?

Well, I mean I think that we – Argentina is a very relevant part of our business in South America. It's a very relevant part of our business, not only for our clients there. We have an amazing bank in Argentina, but also for our international clients that are taking benefit, as Onur was saying now explaining the rest of business, the international clients that have operations in Argentina, which we cater to them. I think that we are seeing Argentina hopefully, normalizing – the economy, Mile [ph], I think, is being successful in addressing some of the critical issues in Argentina. So far, inflation has been coming down in a relevant fashion. We expect that to continue to go ahead next year, and he continues to have support for – from the population. So I think that all in all, I acknowledge the fact that Argentina generates noise, especially generates noise because of the volatility in the currency at the end of the year since hyperinflation accounting makes us restate basically from the first of the year of the P&L. So that generates more noise towards the end of the year than towards the beginning of the year. But I think that right now, we believe that it is important to have visibility in Argentina because we do think that it is an important market for us, and we are committed to the business that we're doing in Argentina.

Regarding Mexico, the second question that you asked that I missed, which is the rating topic. On this rating topic, Marta, we have been putting a lot of effort into this to see when that might be triggered, if at all, and what would be the impact? The impact – it depends on multiple things on how many rating agencies do this and so on. But more importantly is the first part. And on that one, I can give you some relative comfort our own BBVA research analysis and then our own analysis on that one, basically tells us that the threshold would be when the public debt over GDP obviously depends on many other things. But the threshold kicks in, in our view when the public over GDP goes above 56%. Based on what we are seeing at the moment and also the clear fiscal discipline that the new administration in Mexico has been communicating. As you know, this year, it's going to be around 5%, the fiscal deficit. Next year, they are saying 3%, maybe a bit higher, 3.5% is our estimate with those forecasts. But even if it continues as it is today, the public debt or GDP, passing the 56% threshold is not going to be happening in our view until 2027, 2028, even beyond, if they continue on this fiscal path that they said they would continue on, it will never be triggered. But even with the worst-case scenario, 2027, 2028 is the number that we are looking into. You might know this, but this year, they probably will close this public at or GDP around 51. Next year is around 52. So we are far away from the thresholds. And in that sense, the rating downgrade is not in the cards for the short term.

Thank you very much. So this was the last question. Thank you for participating in this call and have a nice day.