Caixabank Sa Unsp/Adr

Good morning and welcome to Casablanca results presentation for the first quarter of 2024. We are joined today by a CEO, Gonzalo Gortazar, and the CFO, Javier Pano. Just a brief reminder in terms of logistics for first-time viewers. We plan to spend about 30 minutes with a presentation and about one hour with a Q&A. The Q&A is live and you should have received instructions by email on how to participate. My team and I will be at your full disposal after the call, as always. Without further ado, Gonzalo, the floor is yours.

Thank you, Marta, and good morning, everybody. Get into the highlights of the quarter directly. Good in terms of activity. Obviously, we've seen also now the GDP figures for Spain for the first quarter, which have all surprised to the upside, and good figures from the eurozone with respect to our expectations indeed as well. In that context, we had a pretty good quarter in terms of activity. You see in terms of new lending up 3.5% year-on-year, particularly you'll see later on in mortgages and consumer lending, doing very well. Wealth management up 4.4% in the three months here to date. Good level of net inflow, so nice feeling in terms of commercial activity to start with. In terms of profitability, just above a billion, 17.5% growth in net income. Obviously, if you look at this year-on-year, It's NII that is driving the improvement with that 27.4%. But when you look at the detail, particularly of our fees and insurance revenues, you see wealth and protection are growing 12% year-on-year, even quarter-on-quarter if you adjust for the seasonality of the fourth quarter. There's also a good level of growth. So, again, a good sense in short-term, NII is the driver. Mid-long-term, obviously, the rest of the revenues are going to be a key driver as well. Asset quality under control, 2.8% NPLs. We'll get into some more detail on convergence to a new definition of the fund later on. And most important, we keep a very high level of coverage of non-performing loans. And then capital according to plan. Obviously, it's been a quarter we've paid the dividend and the – well, not in the quarter, but in April. And also the share buyback is well underway. So in good course to meet our commitment, our $12 billion that we updated recently up from $9 billion in terms of generation of dividends. excess capital. Return on tangible equity, slight growth to 15.8%. We're upgrading our expectations for the year for this return on tangible equity to be above 16%. That's mostly a consequence of the upgrade in our guidance of NII, where we're moving from basically in line to mid-single-digit growth, and obviously the strength of the NIA in the first quarter is a good reason that justifies that move. Economy, I said we just had numbers for GDP this morning, 0.7%. That was way above what we were expecting for this first quarter. So our GDP estimate of 1.9% is likely to be revised upwards this Yes, I think mechanically the point, the revision of first quarter to current levels, if all the things remain equal, would mean that closer to 2.5% than 2.2%. But we'll see. But we have certainly good news there, and we had already upgraded our projections, but the reality is turning out to be better than expected. And it's also... lifting levels in the Eurozone, which is obviously very good for us as well, that there's not so much gap between Spain and the Eurozone, and we had 0.3% growth in the Eurozone, so that sounds also a good start for the year. You see some of the indicators, composite PMIs of Spain, and clearly indicating expansion, not recession. Eurozone just about dividing, Line employment continues to do very well, close to 3% job creation last year. And then we are having a spectacular boom in tourism, not just in the number of visitors, but also in the payments or expenditure from tourists, as you see on the page show. Good environment, much better than the Eurozone, and no indication that this is slowing down, quite the opposite, I have to say. So let's see how things go, but a good framework indeed. New lending, as I said, is the 3.5% growth over last year, 11.6% over the fourth quarter. And then when we look at residential mortgages, 24% in the first quarter, which was a weaker quarter for us, but this quarter has been very good, even better than the fourth quarter of last year. best quarter in the last eight or nine, 15% growth versus last year, 12.5% versus previous year. Obviously, consistent with what we saw in terms of the economy, both in mortgages, where we have also seen an increase in the number of transactions yearly for the market, and initial leading indicators of good price performance as well. And then on the new business lending, you see it's obviously more volatility because... Sometimes it depends on large ticket items. So when you compare it to the last year, it's actually decreased 3.5%, but it's 13.8% increase over the fourth quarter. And as you will see later on, actually balances are going up. So, again, picture is obviously one of modest growth, but it is certainly better than what we expected. Here you have the loan book. We see the growth in businesses. The last part of that relates to our international exposure. Consumer lending, again, doing well, and mortgages coming down. But if you look at the right-hand side, it's actually half the level which we had a year ago in terms of deleveraging. So looking forward to that change in trend and inflection point in the mortgage portfolio that may actually come much earlier than what we had anticipated initially. Some small but some growth in business loans and market share, which is obviously also a positive. Customer funds. good quarter in terms of market impact. You see $6.8 billion also in terms of net inflows, another $3.4 billion of net inflows. That has more than offset the outflow in deposits. There's been mostly transfer from deposits into mutual funds in these monetary mutual funds in this in this quarter, but with some net growth, and then there's some other volatile transitory seasonal items that this quarter result in minus 1.6. So all in all, 1% growth, again, a highlight, obviously, is wealth management. Worth saying, we always discuss about beta, and I'm sure we'll have some discussions about beta as we move into marketing, which rates are likely to come down We are increasingly trying to just give you the information of how much are we paying for deposits, and that means what portion of our deposit base is remunerated. You have it there, 21%. And obviously what is relevant is what's the increased quarter-on-quarter, and you've seen such substantial slowdown in this first quarter. just from 20% to 21% in round numbers, a little bit more than 1%, which is much less than what we had seen in previous quarters. So obviously we need at least to wait until later in the year, but certainly the trends are pretty good on that front. Javier will obviously elaborate on that. In terms of wealth management, $246 billion at the end of the quarter. Again, a pretty good level of increase. Savings insurance, one-third. Two-third, I would say, mostly monetary mutual funds of balance sheet. And just giving some information on synergies, revenue synergies, convergence of penetration of former Bankia and CaixaBank clients. We'll do that on this page and on the next one for protection. And you can see how clients from former Bankia are growing in terms of the number of them that have wealth management products. gradually converging to the rest of our client base. Still some room to go, but clearly the good direction. And obviously, in any case, plenty of growth given the levels of penetration of Spain vis-à-vis the Eurozone. Similar story in terms of protection insurance. You have growth of 8.6% in premium. And again, with a balanced distribution between life risk and premium, and other non-life where health, auto, and household are the key drivers of premia. My box continues to be. A great success, and again, same story in terms of synergy potential and how the penetration of non-life insurance products have grown for former Bankia clients vis-à-vis the levels that we have at CaixaBank, and obviously the fact that there's further room to continue growing so that eventually we get those levels to converge, and certainly, in any case, for the whole of our client base, given where it is in Spain. versus the Eurozone. We're gaining market share, and we expect to continue to do so in this important part of the business. BPI has presented the results today. I'll be very brief, but obviously things continue going in the right direction in terms of deposit competition and rates that the market is tougher there. And Javier will comment on that later on. But all in all, we see very significant increase in profitability with return on tangible equity having improved very sharply over the last 12 months, cost income in the 40% region and asset quality at very good levels, generally gaining market share or so. Again, very happy with the way things are developing at BPI. In terms of our results, obviously mostly a result of increasing revenues, in turn mostly a result of higher NII. You see that waterfall of net income. And the reality is that we're seeing increasing costs as expected. We're confirming guidance there as well, and cost of risk increasing. remains in line with what we guided for, so contain, hence this improvement of return on tangible equity and profitability. And finally, just a comment on our sustainable strategy. You know about social, the S part of the ESG for us, and some of the numbers that We wanted you to be reminded of on this page in terms of financial inclusion, microcredit activity, all the solutions with social impact and the volunteering program and the partnership with the foundation. That makes us very unique. On the east side, this quarter has been particularly relevant because we have published now decarbonization targets for five additional sectors, completing what was our commitment on the net zero banking alliance. You see some of the figures there. We continue to be recognized for our very large and good progress on sustainability. So that is all for me for now. And Javier, your turn.

Okay. Thank you, and good morning. Well, from my side, as always, further details on the P&L and the balance sheet, starting with the P&L. Here you have the consolidated income statement, net income of 1 billion. You know it well already, up by close to 18 percent year on year, strong revenues. continue to support profitability underpinned by NII but also our key business engines, wealth management and protection insurance. NII positive quarter on quarter and wealth management up by close to 16% year on year. Quarter on quarter impacted by the success fees on the fourth quarter. Protection insurance with very good levels of commercial activity up by 7% year on year. And then on banking fees, the well-known headwind from the lower account maintenance fees. But as you may see, also quarter on quarter are less negative evolution. So we think that as quarters progress, we are going to do better on that front. On other revenues, I would only remark here that the dividend from Telefonica this year is not paid in the first quarter. and that on other operating income and expenses we have an additional negative impact from the banking tax of 120 million euros. On operating expenses and loan loss charges, not much to say. Everything is doing according to our expectations. We are reconfirming guidance, as you know. And finally, on other provisions, here we have higher provisioning levels for legal contingencies. With that, let's move to the details on NII. Let's focus on the quarterly evolution, this NII bridge on the center. As usual, on the first quarter, a negative contribution from day count. Then, as you may see, a slightly negative client NII, but this is basically due to lower average loan balances during the quarter. On the other hand, we have had larger cash balances, and this is why you see this larger contribution from ALCO. Below, bottom left, you may see the evolution of the customer spread progressing up by six basis points, 364 basis points. And then on the center, the evolution of yields, the BAP book yield of the loan book progressing at 462 basis points. And then the cost of our client funds, 75 basis points, up 10 basis points in a quarter. Remember, this is the cost X structural hedges. and foreign exchange. On the right, you may see the evolution of deposit beta, but as you know, I think that for better clarity going forward, we will be more specific about the cost of our deposits and the percentage of deposits at a cost. But in any case, it's evolving in line of even better compared to our initial expectations, and this together with good activity levels. Gonzalo has already commented on a higher yield curve than the one used for our initial estimates. We are upgrading our fiscal year 24 NII guidance to meet single-digit growth. Let's continue with revenues from services. This is, remember, this new P&L presentation that we think is better to understand the different dynamics of our commercial activity. And here, clearly, you see much better performance from wealth and protection revenues up by 12%. year-on-year compared to banking fees down by close to 11%. In any case, on the bridge on the right, in euro terms, you may see that wealth management and protection insurance revenues are more than compensating that hand win from banking fees. And on that front, we are reiterating the guidance we provided three months ago for revenues from services to grow by low single digits. Here you have all the details. On the left, wealth management revenues. As I say, with growth close to 16% year-on-year. On AUMs, strong inflows. Also, the positive market-to-market effects are clearly helping. On life-saving insurance, very positive evolution with strong carryover effect from high commercial activity last year. And as I said, quarter on quarter, the impact of the success fees on the fourth quarter, but even not considering those, we have a positive evolution quarter on quarter. On protection insurance, up by close to 7% year on year. Life risk with sustained growth driven by high activity. And on insurance distribution fees, although we have also very positive commercial activity dynamics, on P&L terms there are some non-recurring impacts, including timing differences in revenue recognition that are affecting the P&L, but something that we expect to improve in coming quarters. And finally, banking fees. I have already very well commented the impact from the current account maintenance fees on recurring banking fees. But in any case, you see that quarter on quarter, we have less negative evolution. And also, finally, on that front, wholesale banking fees that this first quarter have performed really well. A brief comment on costs. On this slide, I will focus on basically on cost to income that keeps trending down 40.3% compared to 40.9% the previous quarter. On the bridge, you may see that banking tax obviously is having an impact on that, negative impact. It's a quarter where we have closed a new collective agreement with unions for our staff compensation for three years. After that, we are reiterating our course guidance for the year for costs to grow by less than 5%. And a final comment on P&L items, long-loss charges. I would say that everything is really calm on that front with an annualized cost of risk for the first quarter, 28 basis points, 29 basis points on a 12-month trailing basis. We are guiding for circa 30 for the year, something that we are reiterating. A high coverage ratio, 71%, small reduction quarter-on-quarter, but it's basically due to a denominator effect, and we keep our 800 million unassigned collective provisions unchanged or pretty much stable for the quarter. Moving to the balance sheet, a comment on MPLs, precisely that increase that I commented as a denominator effect, 300 million euro more of MPLs, but of those, approximately 200 million are due precisely as we continue with the ongoing alignment of the provincial definition of default, the new definition of default, a process that is expected to be finished by the second quarter. In any case, the NPL ratio is really low level, at 281%, well below the average of the sector. You have all the breakdown across segments, not much to comment, I would say. Everything doing according to plan. And finally, we are reiterating this NPL ratio guidance for the end of the year, circa 3%. Liquidity, very ample liquidity position, over 200 billion, of which over 100 HQLAs. We have a slight reduction of the liquidity cover ratio, but in any case at very sound levels, 197%. This is due basically as we paid the dividend early April, and by the end of March we had already the negative impact on liquidity cover ratio. On the right, you see the mix of our funding, our client funds, retail 79%, wholesale 21%, really conservative funding with insured deposits 64%. A few words on MREL. We have received the 2024 MREL requirement this first quarter, and it's 24.65%. We comply with it very comfortably with an MMDA buffer at 232 basis points. We end the quarter pro forma the 81 call we have just announced today with MREL ratio at 26.97%. We comply with the MREL requirement mainly with subordinated instruments, and this has been a key driver for the rating upgrades we have had this quarter. Moody's now rating our Senior Prefers A3, and now our Tier 2s rated investment grade by all main rating agencies. It has been a quarter with quite active in terms of issuances, equivalent of 4.2 billion euros, and I would remark that we have already made very good progress on our funding plan, and remarkably, this 2 billion U.S. dollar senior non-preferred with great success. And finally, capital. We end the quarter with a CT1 ratio at 1226%. Keep in mind we fully deduct the third 500 million share buyback from our solvency ratios. That is minus 22 basis points. Then we have positive 36 basis points of organic capital generation. Despite, as you know well, the banking tax is affecting our profitability, hence our organic capital generation this first quarter. And then dividends and 8-to-1 coupons, minus 29 basis points, plus four basis points from markets and other impacts. And finally, the book value per share, considering also the dividend paid this April, evolving fine up by 9.2%, and the tangible book value per share, as a reminder, €3.94. And before moving into Q&A, please save the date. We are planning to hold an investor day to present a new 25-27 strategic plan November 19th in Madrid. So we'll be very happy to see you there. So thank you very much and ready for questions.