Oct 29, 2014
Executives
Luisa Gomez Bravo - Ángel Cano Fernández - President, Chief Operating Officer, Director, Member of Executive Committee and Member of Global Asset Allocation Committee Jaime Sáenz de Tejada - Head of Strategy and Finance
Luisa Gomez Bravo
Good morning, everyone, and welcome to the third quarter result presentation of BBVA Group. I am Luisa Gomez Bravo, Head of IR.
And joining me today are, as in previous occasions, Ángel Cano, President and COO of the group; and Jaime Sáenz de Tejada, the CFO of the group. Ángel will begin with the result presentation, and then we will move straight through to the Q&A.
As you know, we are usually very stretched for time, so we will try to group all the questions that come in as efficiently as possible. And I apologize in advance if I am not able to cover all of them.
In any event, as you know, the IR team will be available throughout the day to answer any of the remaining questions that cannot be answered during the call at this moment in time. So Ángel, please?
Ángel Cano Fernández
Thank you, Luisa. Good morning, everyone, and thank you for joining us.
And as you'll see during the presentation, the main trends shown in the previous quarters had been confirmed in this quarter, more specifically, the earnings growth cycle continues. There has been net interest income growth in all markets, supporting the good performance of recovering revenues.
Costs are under control, and there is a lower cost of risk. There have been no significant FX impacts in this quarter.
Although the first quarter's negative impact is still drags on the year-on-year results. These factors have, once again, led to a strong earnings growth.
In addition to this, in this quarter, I would like to highlight 2 significant points. The first one is the recent AQR and stress test results, which have shown that we are very well positioned in both the base and the adverse scenarios.
I'll explain in more detail in the first slide. And the second is the group's progress in the data transformation process we are engaged in.
In particular, we are implementing in the short-term 2 actions -- 2 action lines. The first one is the evolution towards a new highly productive distribution model in Spain and second, the organizational and cultural change required to make this transformation happen.
I'll elaborate further on these 2 topics. In addition, I would like to state that from now on, we'll start reporting the digital transformation as a new management driver in our fundamentals framework.
Regarding the comprehensive assessment, let me emphasize it has been a very demanding exercise. It marked a new beginning for banks in the Eurozone, with the ECB as the sole supervisor and a level playing field across Europe.
Spanish banks have passed the ECB test with high marks. We now stand out clearly at the top of countries rankings in the Euro area.
Results confirm the healthy balance sheets and solvency position of the Spanish financial system after the restructuring process. Regarding BBVA, let me start pointing out that our conclusions are referenced to the BBVA's peer group.
This comparison shows our capital strength in adverse scenario and also our leadership position in the most relevant rankings. First and foremost, the fully-loaded ratios in the adverse scenario of the stress test.
These ratios are the only ones truly comparable across countries in Europe, and BBVA clearly stands out as one of the strongest. It is 1 of only 3 banks in the peer group that exceeds 8% of the 2016 core capital under the adverse scenario.
BBVA resilience is also evident when you compare the adjustment to core capital between the adverse and base scenario. BBVA, together with 2 large peers, are the only 3 banks of the peer group that generate earnings in the adverse scenario.
Under the AQR scope, BBVA has excess NPL coverage for the selected portfolios. We can also highlight that the assessment recognizes BBVA's prudent management policy, as stated by its leading leverage ratio in the peer group, taking into account BBVA's higher risk-weighted asset density.
In summary, we are very happy -- I will say, very proud with the result or our standing position. Moving on to the presentation.
Let me start, as we usually do, with the main highlights of the quarter in terms of earning -- earnings, risks, solvency, liquidity and, for the first time, digital transformation. From the point of view of earnings, as I said before, we have very good news in the top line.
Net interest income has supported recovering revenues, thanks to its strong growth, up 7.8%. All geographies saw positive growth rates.
Moving on to risk management. The figures of this quarter showed, once again, an improvement in risk indicators.
The NPA ratio decreased by 30 basis points year-on-year, while the coverage ratio increased up to 64%. In terms of solvency, as I mentioned before, the AQR and the stress test results have shown the strength of BBVA's capital position.
In fact, the group has ended the quarter with a phased-in Basel III core capital of 11.7%. In liquidity, we keep an adequate and sound funding structure.
I would like to highlight that the group has financial independent subsidiaries, in each of which, our liquidity position is comfortable. And finally, regarding the new digital transformation strategy, the idea here is to share with you, on a recurring basis, updates on our progress as well as the most relevant KPIs.
When we talk about digital transformation, we are not only talking about online banking. It is a much more holistic approach.
In particular, there are 5 key elements of this transformation that we follow regularly as part of our strategy. The first is the development of infrastructures in terms of IT platforms and data processing centers which are reliable, scalable and safe.
And this is, at BBVA, already completed. The second is the definition and the progressive implementation of a highly productive distribution model based on customer convenience.
This affects all channels: the branch network, ATMs and of course, online banking. Third, the importance of having hired processes and adapting the product offering to a consumers' needs.
It involves redesigning the whole production chain. Regarding the fourth element, it is crucial to be permanently at the forefront of the transformation that is taking place and in order to do that, understand what is happening in this digital world in real-time.
For this purpose, we must develop new digital businesses as well as invest in leading startups, such as Simple in the U.S. And finally, the fifth, developing a new corporate culture, fostering agility, error tolerance, entrepreneurship and collaboration, incorporating new digital talent and creating new organizational structures.
But at the end of the day, going digital is a mean to an end, adding more customers that are more engaged are more profitable. And our ultimate goal is to be leaders in customer satisfaction across our global footprint.
Although we are working on all the elements mentioned in this slide, I would like to spend a few minutes talking about 2 specific lines of action: the new distribution model in Spain and the cultural and organizational changes affecting the whole group. Regarding the new distribution model transformation in Spain, let me highlight, it's an ongoing effort that evolves according to our clients' needs and to the pace of delivery of our digital projects.
Since 2013, we've accelerated this process in Spain, a market with a strong pressure on profitability and high Internet penetration in order to achieve results quickly. The main focus is to improve customer experience so the precise execution of our plan will be subject to service quality.
We are working on 2 main areas: the first one is changing the physical network, moving towards a more defined hub-and-spoke model, redesigning what our employees do at branches in order to increase productivity and maximize customer engagement by offering them new ways to interact with their bank; and the second, optimizing servicing, by reducing the cost of servicing at the branches. At the same time, we are working on the organizational and cultural change at group level.
In terms of organizational restructures, we are focused on streamlining and removing overlaps. We want to facilitate both decision-making and project implementation to become a lean organization with clear accountability.
In addition, we are working on reducing the support services and structural costs in the whole group by carrying out the specific initiatives affecting the corporate center and all the countries. In 2015, these initiatives are expected to achieve annual cost savings of between EUR 160 million to EUR 180 million.
And in addition to what we've recognized so far, we should expect investments of between EUR 270 million to EUR 290 million, which will go through the P&L in the fourth quarter. In the coming years, we'll continue to deliver cost efficiencies, depending on our client needs, and without affecting quality standards.
And now let me move on to a more detailed analysis of the group's P&L accounts. Regarding revenues, we can highlight the growth of net interest income, driving and recovering revenues to excellent levels, growing at 16% in constant euros.
As you can see on this slide, gross income, in current terms, increasing 1%; or 8%, excluding FX effect. Bear in mind that Telefónica and CNCB dividends affect the quarterly comparison.
Operating expenses continued to slow down in accumulated terms, decreasing 4% in current euros, and maintaining the positive jaws trend of the year. We have a differentiated cost management approach between the developed and the emerging world.
In the developed countries, we are working on cost reduction; and in the emerging world, we are investing to take advantage of growth opportunities. Also, as you all know, we operate in 2 economies with high inflation: Venezuela and Argentina.
As a result of the above revenues and expenses, you can see in the next slide the group's operating income growing at 11% at constant euros. Impairment losses on financial assets have fallen significantly compared to the average quarterly level in 2013, consolidating the year trend.
As a result, the group's cost of risk during the quarter is 1.2%. The net attributable profit increased to EUR 1.9 billion.
Net income, excluding corporate operations, has increased 43% in current euros. To sum up, the main components of the group's income statement were as follows: there has been top line growth due to well-managed customer spreads, despite the impact of the floor clauses removal, deleveraging low interest rate in Spain.
The gross income quarterly comparison has been affected by Telefónica and CNCB dividends. And finally, cost control and excellent performance of impairment, losses has allowed us to end the first month -- the first 9 months of the year with an income before taxes of EUR 3.1 billion.
Nevertheless, negative first quarter FX impact still drags on the year-on-year results in current euros. Turning now to risk management.
The positive trends seen in the previous quarter have continued. The group's NPA ratio ended September at 4.3%.
The main reason is the decline of the nonperforming portfolio in Spain. In addition, good news for the coverage ratio, which increases to 64%.
Regarding capital. The group once again ends the quarter with strong and resilient capital ratios.
The phased-in Basel III core capital ratio is 11.7%, and the fully-loaded ratio is 10.1% at the end of this period. We continue to be the bank with the highest leverage ratio among our European peers.
And now as usual, we examine the key drivers in our different business areas. We begin as every quarter, with banking activity in Spain, looking more closely at business volumes, we see that.
Regarding lending, the deleveraging process continues, although at a slower pace due to new production growth, in particular, in Corporate, SMEs and consumer lending. Customer funds continue growing at double-digit rates.
Good news in both balance and off-balance customer funds growth. Here, let me highlight that investment funds are growing about 30% year-on-year.
We see positive spread evolution, defending asset deals and an excellent performance of deposits repricing, even better than we anticipated. We expect this positive trend to continue in the next quarter.
This results in net interest income plus fees increasing by 11%. Turning now to gross income.
The positive impact on net trading income in this -- in the second quarter affects comparison in our P&L lines below. The fact that Spain is the geography that has advanced more rapidly in the transformation process has meant excellent cost management, achieving a 6% decline year-on-year.
As regards risk, the positive underlying trends remain, and the risk indicators show outstanding risk management. We can highlight that gross entries continued to decrease in all the portfolios, but are affected by one-offs in the large Corporate portfolio.
Moreover, the risk premium continues to improve and remains below 1%. Here, we maintain our guidance.
If we look at the income statement, we can see a very good performance in all P&L lines. Net interest income, almost flat, as anticipated.
Gross income was up 3% to nearly EUR 5 billion, supported by net trading income. Operating income rose 12%, mainly due to price management and cost reduction.
Moreover, if we add the significant decrease in loan loss provisions, the net income of the area reaches over EUR 800 million. Now let's look at real estate activity in Spain.
The initial data on pricing show that the price adjustment in the market is coming to an end. So we are closely monitoring the pace of the sales process, tracking demand recovery.
Our strategy is to reduce exposure whilst maximizing value. Therefore, we'll continue to see sales increasing year-on-year, but probably at a slower pace, optimizing the impact on the P&L.
As expected real estate losses have continued to come down, 29%, reducing the negative result on the bottom line to EUR 600 million year-to-date. You'll find a useful summary of real estate figures and risk indicators in the annex.
Now let's move on to the next business area, U.S.A. One of the most challenging areas for the group.
In the U.S., we are poised for growth. Business activity is focusing on gaining scale and client coverage, preparing to sustain future growth and ready to benefit from rising rates.
However, net interest income plus fees grew 2%, below activity levels due to the continued pressure on the spreads. We need to work hard on operating expenses control.
This quarter's growth is due to the opening of new loan production offices, compliance expenses linked to regulatory requirements and new digital projects. As a result, operating income fell 10%.
With regard to risk indicators, the strong increase in lending has not impacted asset quality. In fact, risk indicators continued to show excellent performance.
The income statement in the next slide shows the figures. Net interest income growth was up 3%, and gross income grew at a similar rate.
Operating income reached EUR 471 million, and net attributable income closed -- closed over EUR 300 million. I would like to highlight that, in this quarter; BBVA Compass successfully completed a $1 billion debt offering.
In summary, this franchise has evolved considerably over the years and is well prepared for the coming challenges. Now let's turn to our emerging markets.
I'll begin with the Eurasia business area and, in particular, with Garanti. Geopolitical uncertainties remain, as you know very well, mainly due to the increasing tensions at the border that may still result in FX volatility.
During this quarter, lending activity continues to show a strong growth, beating expectations. Net interest income growth is driven by the continued effort to reduce cost of funds, in particular, deposits.
Commissions grew at a good pace, on top of the strong growth already achieved in 2013, and we continue to see sound asset quality. The better evolution of all these items had a positive impact on the P&L from the top, where net interest income, plus fees rose 11%; to the bottom line, which is up almost 20%.
Now let's take a quick look at Eurasia as a whole in the first 9 months of the year. As you can see in this slide, the results are significantly higher than the same period last year.
Net profit was up 24% to EUR 471 million. The improvement can be explained by lower loan loss provisions, good performance in the rest of Europe and accounting of CNCB's dividends.
All in all, Eurasia continues to make a solid contribution to the group. Now we turn to Mexico.
Looking into activity in more detail, loans are growing over 9%, gaining market share in more profitable segments, such as SMEs, up 27%; consumer, up 18%; and corporate and government, up 15%. The strength of our franchise becomes evident when looking at the evolution of customer funds, up 40% -- 14%, sorry, both in demand deposits and of balance sheet.
There has been a positive trend regarding net interest income plus fees, up 10%. This top line growth is translated through all the P&L lines.
Gross income grew at 12%; operating expenses grew below gross income, boosting operating income growth to 13%. Risk indicators remain stable due to its anticipation BBVA outperform its peers in terms of the quality of the NPA portfolio and the volume of loan loss provisions.
The coverage ratio closed at 112%, and the NPA ratio is 3.2%, a reduction of 14 basis points quarter-on-quarter. The risk premium moderates this quarter to 3.3%, as expected.
To sum up, I'll give you a brief review of Mexico's figures that show, once again, an outstanding performance. The top line growing over 14%, which feeds down to the bottom line, with net attributable profit growing at 11%.
Remarkable cost management, considering the investments we are carrying out, maintaining positive jaws as a result. Bancomer continues to improve its service quality any the overall client experience of our millions of customers.
We have already refurbished 600 branches and, this quarter, we've launched the Ultra High Net Worth team with dedicated managers. Mexico, after Spain, is the area that has advanced the most in this transformation process.
It has made significant progress towards the highly productive distribution network as well. This casts a corresponding impact on costs while maintaining positive jaws.
In summary, Mexico continues to be the leader in efficiency and profitability. Well, we are coming to the end of this presentation, with South America.
In terms of activity, we are keeping up the positive momentum shown earlier this year, with growth rates above 20%. When looking at the evolution of the P&L, bear in mind the adjustment for hyperinflation in Venezuela.
The net impact of this adjustment is offset in the operating income line. You have further information about the Venezuelan P&L in the annex.
On a year-on-year basis, all lines showed double-digit growth. For instance, operating income was up 22%, or excluding Venezuela, 20%.
Now let's move on to risk management in this business area. The NPA ratio maintains the 2.1% levels we saw last quarter, while the coverage ratio fell to 135%.
The risk premium is up towards what we believe are normalized levels, reflecting changing -- changes in the portfolio mix. This division continues to show dynamic activity rates, combined with high credit quality.
As in our last presentation, this slide shows growth figures, including and excluding Venezuela, in order to remove the distortion generated by hyperinflation in each of the income lines. Let me start with operating income, where most of the hyperinflation impact is diluted.
It has reached over EUR 2 billion, up by almost 24% or 21% -- up 21%, excluding Venezuela. Net attributable profit rose almost 15% to EUR 755 million.
South America integrates different challenges which require, basically, 2 different management approaches. On one hand, in Argentina and Venezuela, although we still see political and economic uncertainties, we remain confident in a normalization in the long run.
Until then, we'll continue managing our local franchises in the best possible manner, as we have been doing so far. The second is regarding the Andean region, where we are investing to capture the future growth.
In these countries, we are witnessing strong core revenues evolution. For example, today, Peru is growing 9%; Colombia is up 12% and Chile, over 20%.
So thank you very much for joining us, and now I hand the call over to Luisa to start the Q&A.
Luisa Gomez Bravo
Thank you very much, Ángel. We will move on, then, straight away to the Q&A.
We will start with questions regarding AQR and stress tests. We've had a few of them, starting with the question from Alex Koagne from Natixis.
Is there any AQR impact on the provision line? Going forward, should we expect any?
Ángel Cano Fernández
Maybe, very quickly, first of all, the AQR is not an accounting exam. So what is important is to understand this point.
And here, there is a different methodology, with the one we normally apply in accounting. So here, what we -- we've seen is certain defects in some specific portfolio and certain excess of provisions in some others.
The net net is close to EUR 1 billion excess provisions at the end of this exam. But let me insist on that, nothing to do with accounting.
Do you want to add something?
Jaime Sáenz de Tejada
Yes, it's true. We are the only peer with excess provision in the AQR exam and, as Ángel said, the majority of the portfolios have -- analyzed have excess provisioning.
Only 2 of them had a deficit. The deficit is pretty much 80% due to the collective provisioning, and only around EUR 200 million based on sampling.
Our estimate is that those EUR 200 million will be fully recognized during 2014. If not, pretty much done already.
Luisa Gomez Bravo
Okay. We'll move on to Raoul Leonard's questions, from Deutsche Bank.
On the AQR, I think we've answered this already. Your total credit exposure coverage ratio actually fell from 40.2% at the end of year '13 to 38.4% post credit file review.
This appears driven by over-provisioning on the Corporate side and under-provisioning on the retail side. Will this result in provision releases in coming quarters?
We just, I think, answered that. We...
Jaime Sáenz de Tejada
Yes. We don't have anything else to say, yes.
Luisa Gomez Bravo
Okay. On the stand-alone AQR and stress test results for Catalunya Banc, Raoul states that they look quite benign.
Has only the information from this change are due diligence assumptions around fair value adjustments for the deal? Put differently, have you been overly conservative in any of your targets presented in July?
Jaime Sáenz de Tejada
I think that when we presented the transaction in July, we said specifically that we were trying to be conservative in the estimates that we were giving. And I think that was true, in general, for every single line.
In particular, we specifically said that the fair value adjustment could suffer changes during the year and, definitely, we will take into account only information that is provided to us in order to make the final adjustment.
Luisa Gomez Bravo
Thank you. Stefan Nedialkov from Citi and Francisco Riquel from N+1, regarding also the AQR provisions and adjustments.
Did you take any in the third quarter? Do you plan to take any on the fourth quarter?
And specifically, does it change your cost of risk guidance?
Jaime Sáenz de Tejada
I think I've already answered these. I think that the majority of the impact in the sampling will be taken care of in 2014, and I would say that the majority has already been done as of the third quarter.
Cost of risk in Spain, year-to-date, is around 101, a little bit above 1%, and it doesn't change our expectations for year-end.
Ángel Cano Fernández
So maybe just before moving to the next chapter of questions, what is important to remind is there is a lot of information in this exam, so it is very important to understand which are the real comparable pieces of information. So the purpose of the presentation was to give you a summary of the real important ratios that are completely comparable among the most important peers in Europe.
So the fully-loaded ratio is really important, the sustainability and the resilience of the business model of BBVA as well, and that's maybe the most important reason behind the -- being 1 of the 3 peers in Europe among the big peers having earnings during this scenario. So I think it's important to focus on the real comparable pieces of information or ratios in this exam.
Luisa Gomez Bravo
Thank you. Moving on to regulation.
Carlos Peixoto from BPI asks about the TLAC. Specifically, could you please elaborate on your expectation on TLAC?
Jaime Sáenz de Tejada
I think it's too early to answer this question because the final draft has not been finalized and we still have a year to go until the final regulation is issued. From the info that we have today, it's clear that in our case, we are affected by the risk-weighted asset part, as we already have a very strong -- one of the highest of our peers on the leverage ratio side.
I think we should wait in order to get the final legislation before sharing any further analysis.
Luisa Gomez Bravo
Thank you. Raoul Leonard from Deutsche Bank and Juan-Carlos Calvo from BES asked about ECB as our new regulator, specifically, what does it mean in practical terms.
First, regarding the current dividend restrictions from the Bank of Spain, will those be lifted? And second, do we think that the Bank of Spain NPL provisioning calendar will be abandoned?
Ángel Cano Fernández
So the first one, the new era regarding the sole supervisor. First of all, we are going to have, for the next -- no, maybe 2, 3, 4 years to some people working, not only in Frankfurt but as well in Spain, and with the combination of both teams with one joint supervisor is going to be the way to deal with the new sole supervisor.
So for them, the most important priorities are 2: the first one is to know all of us in debt in a very comprehensive way; and the second one is a long process of harmonizing, above all, the capital consumption. I'm talking about the risk-weighted density or ratios that they are worried about the big difference among different banks in Europe.
So one is knowledge, what they call normally, gut feelings; and the second one is the harmonization process. The second one is the dividend policy, you mentioned, Luisa.
Bank of Spain from the next 4th of November is going to be, I would say, a partner of this committee -- of this team, big team. So what they are -- state -- what they stated over the last weeks is they are going to analyze again this recommendation, write in a policy and write to see if they want to maintain that policy or to change it in other -- with the rest of the policies in Europe.
So these, we don't have still any additional information about that. And the third one, maybe, Jaime, some changes in the NPL policies or accounting?
Jaime Sáenz de Tejada
Well, I think, in general, what we will follow is International Accounting Standards, and those are the ones that, more and more, will be followed also in Spain.
Luisa Gomez Bravo
Okay. Moving on to capital, thank you.
Carlos Peixoto from BPI asks if we could please elaborate on the evolution of BIS III ratios during the third quarter, and what was the fully-loaded Core Tier 1 ratio as of September.
Jaime Sáenz de Tejada
Okay. The fully-loaded ratio as of September was 10.05%, an increase of 5 basis points during the quarter.
That's 15 basis points coming from net earnings. And on the negative side, we have 5 minus 5 basis points coming from DTAs, and another 5 basis points coming from increasing risk-weighted assets.
The rest are minor impacts. The same info on a phased-in format, we increased our phased-in ratio by 12 basis points to 11.70%.
Again, the same 15 basis points coming from net earnings and, in this case, the risk-weighted asset increase was only 3 basis and no impact on DTAs.
Luisa Gomez Bravo
Thank you. Stefan Nedialkov from Citi asks if we plan to issue more AT1 or Tier 2 capital?
Jaime Sáenz de Tejada
As you know, we've stated that would like to fill both buckets. The Tier 2 bucket is already filled.
But of course, we will continue issue additional Tier 2, taking into account the different maturities, the ground followings [ph] and liability management exercise that can be done here. On the AT1 side, we've only filled pretty much half of the bucket, so we still have room there to grow.
As you all know, we did the first AT1 January last year, and we did another one at the beginning of this year. So yes, it's our stated intention to issue, probably, an additional tranche at the beginning of 2015.
Luisa Gomez Bravo
Okay, thank you. Raoul Leonard from Deutsche Bank asks about -- well; let's start with the AT1 question.
Can you please tell us how you account for these now? What is the quarterly post-tax charge?
And is this included in your EPS calculation?
Jaime Sáenz de Tejada
Okay. The AT1s do not affect the P&L, and do not affect EPS, okay?
They are treated as dividend, okay, so does not affect the numerator, not the denominator on the ratio.
Luisa Gomez Bravo
Okay. On the dividend side, IBERDROLA brought forward this interim dividend X date from January 2015 to December 2014 to maximize shareholder return in 2014 before proposed tax reforms kick in from January 2015.
Will BBVA consider similarly moving forward its January 2015 dividend to 2014?
Jaime Sáenz de Tejada
As you know, this is a board decision, and we never comment on board decisions. But they will decide at the end of the year what they do with it.
Luisa Gomez Bravo
Okay. And Britta Schmidt from Autonomous asks a couple of questions.
DTAs, do you expect the ECB to take a tougher stance? And she also asks, specifically, about the other impacts in the fully-loaded Core Tier 1 mentioned on Slide 38 of the presentation that we handed this morning.
Jaime Sáenz de Tejada
Okay. I think we already answered the Slide 38 in the previous question.
That was a fully-loaded evolution of the quarter. Regarding DTAs, I think that there's a lot, I guess, of misunderstanding on how DTAs are treated, not only in Spain but also in many other jurisdictions.
The DTAs that we are accounting -- we are counting as capital are guaranteed by the government. So we should be perfectly comfortable with them.
And as you all know, they are not materially significant for our bank. So I think that the ECB should not have any questions on these.
If it does, the impact on BBVA will not be material.
Luisa Gomez Bravo
Thank you. And the last question on capital from Ignacio Cerezo from Credit Suisse is adjusting for the acquisition of Catalunya Banc.
Your fully-loaded Core Tier 1 would stand at 9.5%. Do you consider that adequate?
And how much organic buildup do you think can be generated through '15?
Jaime Sáenz de Tejada
Okay. This consumption, again, is conservative.
I think I've already answered the fair value adjustment question before. Having said that, we have stated that we will like to move to a 10% capital ratio on a fully loaded basis.
We definitely think that we have the capacity and the capability as we've demonstrated in the past to continue to generate organically capital. And I think we have additional levers at our disposal, if that doesn't happen.
So I think as the stress test has shown, we are an extremely resilient institution with pretty significant capacity in even the worst situations to generate capital on a fully loaded basis.
Luisa Gomez Bravo
Okay, thank you. We move on now, if you like, to liquidity and ALCO portfolios.
Alex Koagne from Natixis asks about TLTROs. Could you share your view on the participation to this operation?
How are you going to use the fund? Is all the funding advantage passed through to customers?
Jaime Sáenz de Tejada
I think there's no further information that we can share from what we've already shared in the past. In the September auction, we took EUR 2.6 billion, 50% of the amount that we were allowed to.
Our expectation -- our initial expectation is to draw the remaining at the end of the year in the December auction. As we have also stated in the past, we do not expect a significant increase in loan demand by this particular measure.
This will happen over time. We have stated that Spain, as a whole, will increase its total loan demand by a roughly EUR 50 billion in the next 3 years.
So loan demand will increase only slowly. In the short time, it will replace other funding sources.
Regarding transferring this lower costs to clients, I think that is already happening. We're seeing a little bit of spread tightening in Spain, especially on the SME portfolio and on the mortgage book.
So effectively, some of these this is already taking place.
Luisa Gomez Bravo
Thank you. Moving to the -- or on liquidity again.
Carlos Peixoto from BPI asks about an update on our refinancing schedule, current ECB exposure and amount of ECB eligible assets.
Jaime Sáenz de Tejada
Regarding refinancing, we have maturities this quarter of a little bit under EUR 5 billion. Total maturities in 2014 were a little bit under EUR 15 billion, and we do not expect any additional publications in the remaining of the year.
As you know this year, we've done 4 transactions: 1 senior, 1 cover, 1 AT1 and 1 Tier 2, totaling roughly, EUR 5 billion. And that was enough to cover all our financial needs as the balance sheet has continued to generate very good liquidity.
In terms of total exposure to the ECB, our TLTRO, as I said, is $2.6 billion. And we do have small amounts on the MRO that changes every week.
Regarding collateral, we have ample collateral. Today, we have over EUR 60 billion of collateral at our disposal to potentially draw additional ECB funds.
Luisa Gomez Bravo
Okay, thank you. We move on now to the questions regarding ALCO.
Carlos Peixoto from BPI, Alvaro Serrano from Morgan Stanley and Britta Schmidt from Autonomous asks the following questions: What is currently the size of the group's ALCO portfolio? And what is the current sovereign holdings?
And what was the contribution to net interest income? Also available-for-sale is up EUR 6 billion quarter-on-quarter, can you explain what is driving this?
What is the size of the ALCO portfolio in Spain and the yield and duration of the portfolio?
Jaime Sáenz de Tejada
Okay, if I don't answer every single question, please let me know, okay? The total size of the ALCO portfolio currently stands at EUR 57.8 billion.
That's an increase of roughly EUR 2 billion versus the second quarter. NII contribution is pretty much stable.
It hasn't changed significantly in each quarter during the year. In terms of sovereign exposure, it stands at EUR 36.3 billion, pretty much the same increase versus the second quarter as we've seen in the total ALCO exposure.
The available-for-sale, the increase has -- is mainly related to some forward sales that we've already done. And we wanted to replace some of those forward sales in order to continue to maintain the NII contribution from the portfolio, okay?
And I think I've answered everything. As you know, our -- the philosophy of our ALCO portfolio is to hedge duration and to hedge interest rates in our complete euro balance sheet, okay.
That remains so. We must understand that consumer -- sorry, customer funds continue to increase.
That's especially true for the checking accounts. And it's the only way that we have to actually hedge that increase.
When things change, ALCO will reflect that change in the business mix.
Luisa Gomez Bravo
Okay, thank you very much, Jaime. We move on now to some questions regarding strategy or strategic issues.
Alex Koagne from Natixis and Juan-Carlos Calvo from BES ask what is your view about potential consolidation moves in Spain and/or the Rest of Europe now that the stress test results are published and the change in supervisor is now the ECB?
Ángel Cano Fernández
Okay. As we expected before the release of the results in Europe, and in particular, in Spain, we didn't think it was going to be a trigger of further consolidation in the country.
So for us, the -- with the -- covering information on the table right now, our spending is basically the same. What we think is for the consolidation will depend on different things or concepts, like for example, the forward transformation this industry needs to receive over time.
So we believe you are not going to see any additional consolidation because of these results. And what is important to continue working on the transformation of this industry to raise the profitability ratios of every single financial entity, not only in Spain but in Europe as well.
So this is going to be the most important reason, over time to consolidate, but not now.
Luisa Gomez Bravo
Okay, thank you, Angel. Maybe you can also answer the next question.
Britta Schmidt from Autonomous and Sofie Peterzens from JPMorgan ask what is the risk to BBVA from the irregularities detected at CatalunyaCaixa? Are there sufficient reps and warranties in the SPA?
Jaime Sáenz de Tejada
Of course, of course. These -- all the transactions that have been shared with the judiciary system are fully provisioned on CatalunyaCaixa balance sheets.
And of course, we do have sufficient reps and warranties. And these are issues that only affect the FROB, okay not BBVA.
Ángel Cano Fernández
I don't know, Jaime. The way of analyzing due diligence, we normally do is always done in a very comprehensive way.
And what we know is all this potential risk issues from this kind of irregularities are fully provisioned in its balance sheet. We are very confident about their financials.
Luisa Gomez Bravo
Thank you very much. We move on now to P&L, to the group's P&L.
The first question is from -- well, Vitor Roma from Goldman Sachs and Rohit Chandra-Rajan from Barclays, asks what are the main drivers of operating cost increase. Is it mainly an exchange rate effect arising from appreciation of Mexican peso versus euro, for example?
Jaime Sáenz de Tejada
Operating costs quarter-on-quarter increased by 4%. Out of that 4%, 1 full percentage point comes from FX effect.
As you know, emerging market currencies, in general, is strengthened during this third quarter, having a positive impact on group's P&L. Another 1 full percentage point comes from Venezuela, okay, due to mainly, in this case, hyperinflation.
The remaining impact is only 2%, and I think that is not significant. Small increases in the U.S., as Ángel said during the presentation, due to these simple acquisition, opening of loan production offices and increase in expenses due to the regulatory investments that we had to do.
In the case of Mexico, we have the expansion plan and refurbishment of offices, the new head office plus investment in technology. I think they are the expense increases within the guidance with no significant change.
And the overall expenses in Spain only increased by 0.9%. It is true that we have an increase on the personnel expenses side, but that's the typical bonus pool adjustment that we periodically do, taking into account that results in Spain ads are behaving much better than what we initially expected.
Ángel Cano Fernández
Just let me add 1 more thing. Talking about the emerging markets, as I mentioned in the presentation, it was important not to forget, is we are in managing the costs always, having increases even in this region, below the revenue trend.
And this one is happening over the year. And the other one is the guidance we gave you some quarters ago.
This guidance remains in the same line. It's going to be very close to the lines, 5% at the end of the year or maybe even a little bit better, but around that figure.
Regardless of what Jaime said before about the borrowers integration, the guidance remained stable.
Luisa Gomez Bravo
Okay, thank you. Raoul Leonard from Deutsche Bank asks the following: You have announced cost plans to reduce head office costs by 2% and revenues versus costs just to be positive in all regions going forward.
In terms of details, do you expect to close domestic branches significantly? What is your medium-term group cost/income ratio guidance for 2016?
Jaime Sáenz de Tejada
Okay. I think I've answered the cost side in the previous question.
As you know, we don't give guidance beyond 2014. Regarding domestic branches reduction.
Here, first of all, we've always said that we will adapt to whatever our clients' needs are in order to maximize customer experience. If clients decide not to go to branches, we will, of course, follow them and reduce the number.
This year, we are down by over 90 in Spain, a good portion of them following the synergies stated on the Unnim acquisition. So going forward, yes, we could potentially see additional decreasing in the number of branches, but probably much more important is the format of those branches and what do we do inside them.
I think that's the major change that we will see in the future more than the number itself. As you know, the average size of the -- of our branches in Spain is very small, okay, roughly 4.5 employees per branch.
So it is not a cost driver as significant as in other geographies.
Luisa Gomez Bravo
Thank you. Moving quickly on because we still have a few questions to go.
Alvaro Serrano from Morgan Stanley and Alfredo Alonso from Kepler, ask if we can explain what drives the EUR 270 million to EUR 290 million P&L charge expected for the fourth quarter as part of the digitalization process?
Ángel Cano Fernández
Well, this is part of the investment we need to do for our P&L account. But the next quarter, in order to get to achieve the savings I mentioned in the presentation -- so it's part of the restructuring process and it is able to reduce the customer related to the headcounts and the branches, as Jaime mentioned before, and in the third quarter as well.
So the investments, we need to do from time-to-time in order to continue achieving additional savings.
Luisa Gomez Bravo
Okay, thank you. Alfredo Alonso from Kepler Cheuvreux asks what trading income should we expect in the coming quarters?
Jaime Sáenz de Tejada
It's a wonderful question but impossible to answer. It is true that we've seen a slight decrease in the contribution of global markets in this third quarter.
A lot is going to depend on volatility. If volatility remains high, I think we have -- remains higher.
I think we should have opportunities to generate additional trading income. If it's, it goes the other way, it will be much more challenging.
Ángel Cano Fernández
So just let me here to add, Jaime, our business model in CIB is based on our customer franchise. So it gives us a lot of flexibility and above all, stability.
So at the end of the day, when you qualify the revenues coming from CIB, corporate investment banking, is, are really stable and resilient revenues because of this business model.
Luisa Gomez Bravo
Okay, thank you. A couple of last questions on the group side from Benjie Creelan-Sandford from Macquarie.
There was a sharp improvement in negative valuation adjustments in equity this quarter. What was the reason for that?
And another question from Benjie is the return on tangible equity this quarter was below 7%. When do you think you will get back to double-digit returns?
And looking 2 to 3 years out, what level of profitability do you expect to recover to?
Jaime Sáenz de Tejada
Okay, I'll answer the first question. Yes, it's true.
Valuation adjustments were increased significantly to EUR 1.3 billion. As I said before, the FX had a very positive contribution in this third quarter, and that justifies roughly EUR 1 billion of this amount, almost EUR 1.1 billion.
And then the rest are unrealized capital gains on the available-for-sale portfolios. That includes the sovereign and non-sovereign debt class, our stakes in Telefónica and CITIC.
Ángel Cano Fernández
So regarding the second question, profitability ratios, long-term perspective, we are still with the same approach to this ratio. Our approach in the last quarter is to get this double or mid-10s profitability in the next, over the next 2, 3 years.
Luisa Gomez Bravo
Thank you. Moving on to, straight up to Spain, 1 quick question on the macro side from Britta Schmidt from Autonomous.
What does management think will be the end game in Catalunya? How worried are you about the 9 N and its implications?
Ángel Cano Fernández
So every time we talk about politics, it's really difficult to predict anything. So what we have seen here is this big room to -- for the understanding among the different players in this game.
And the thing that was very important is the -- what is very important is economics as always in every region and in every country. And this is going to be part of this necessary understanding.
They are going to -- they are working on it for the next weeks or months.
Jaime Sáenz de Tejada
Yes. I think we've also shared this in the past.
We need to work with this volatility in the environment. There will be tensions as we approach to the 9th of November, but our central scenario is that something workable will be achieved between politicians.
And that's our essential scenario for this situation.
Ángel Cano Fernández
Yes. And maybe add in additional piece of information regarding our operations.
Our daily business is these days, these weeks, these months is completely normal. We are recovering some customers CatalunyaCaixa lost during the process of being public.
So for the customers, for our customers today, part of the needs they need to fill was to have the guarantee of really, of a real solvent player as BBVA is. So business activity, normal right now.
Luisa Gomez Bravo
Thank you, okay. Quite a number of questions on the P&L side and business volumes in Spain.
I'll run through all of you who has, more or less, the questions in the top line, Carlos Peixoto from BPI, Britta Schmidt from Autonomous, Alvaro Serrano from Morgan Stanley, Juan-Carlos Calvo from BES, Alfred Alonso from Kepler, Rohit Chandra from Barclays, Mario Ropero from Fidentiis, Arturo de Frias from Santander, Stefan Nedialkov from Citi, Sofie Peterzens from JPMorgan, Francisco Riquel from N+1, Andrea Filtri from Mediobanca; Javier Bernat from BEKA and Robert Noble from RBC, and Andres Williams from Mediobanca. Obviously, a lot of interests, a lot of interests on the expected trends in net interest income in Spain, update on term deposit costs, what level do we think term deposit's new business will be priced in at in the first quarter of '15?
Talking about loan growth, it was weak; can you give us some color on demand? And what the corporate book might do, in particularly going forward, guidance on volumes growth, SME lending?
Are you seeing much pricing pressure on SME lending in Spain? And do you expect this to change after the December TLTRO?
And how do corporate spreads on new production compare with the back book? So a little bit of net interest income evolution, volumes and spreads on the asset side.
Jaime Sáenz de Tejada
Okay. I think the third quarter shows a pretty significant increase in NII in Spain at -- it stands at 3.6%.
I think, in general, income performed well in Spain, taking into account that in the commission line, we do have certain seasonality and then commissions decreased in the third quarter. Regarding NII dynamics, I think remain intact from what we've seen in the past.
Price management is clearly the biggest driver of NII going forward. We've been able to increase our customer spread by an additional 10 basis points this quarter.
We've shown decrease in the cost of the proceeds of 13 basis points and a slight spread compression of only 3. So clearly, the third quarter showed that continuous strength in the capacity of Spain to manage prices.
As we've stated in the September meeting with analysts, we expect this to remain the biggest driver of NII growth going forward. We're seeing front book deposits costs down to 50 basis points, a very significant increase from the 80-somethings that we saw in the second quarter of this year.
And the total cost of time deposits is still 140. So the room to go down remains fairly significant.
It is true, and as I said before, that we will continue to face spread compression of the asset side. As I said before, in this quarter, we've seen spread compression on the SME book by roughly 30 basis points, and for the first time, a slight compression on the mortgage portfolio.
Front book mortgages are down 20 basis points from the 2 45, 43 at the end of the second quarter to 2 22 at the end of the third. The rest of the portfolio, meaning large corporates, public sector and consumer showed a stability during the quarter.
Going forward, these trends could continue, a slight spread compression, but I think perfectly manageable, taking into account the room that we still have to reduce funding costs. Regarding volumes, I think we've seen a very significant increase during the year in customer funds.
That has remained so. This quarter, as you know, the third quarter tends to be less robust than the second in terms of growth but even that has shown a slight increase of almost EUR 1 billion.
And probably, the key remains loan growth. We are guiding for loan growth to be down year-on-year, roughly at 4%.
We expect a slight decrease probably also next year, maybe around, I don't know, maybe 1% or 1.5% decrease next year. And it will start to grow probably in 2016.
Those are the general expectations that we have as of today.
Luisa Gomez Bravo
Okay. I'm a little bit conscious of time because we still have a lot of questions to go, so I'm going to try to be more precise or summarize a little bit better all the questions that we have by theme.
So Britta Schmidt from Autonomous, Mario Ropero from Fidentiis, Francisco Riquel from N+1, Stefan Nedialkov from Citi, Robert Noble from RBC and Marta Sánchez from KBW, all ask about commissions. Here asked in the third quarter in Spain looked weaker than expected.
What part is seasonality? What part is underlying trends regarding deleveraging?
What do we expect for the year? What do we expect for next year?
Jaime Sáenz de Tejada
I think I've answered. Commissions went down by roughly EUR 30 million, exactly the same amount that went down last year in the third quarter from the second quarter.
So I don't think there's any significant change in trend here.
Luisa Gomez Bravo
Specific question regarding new regulation credit cards in Spain?
Jaime Sáenz de Tejada
Yes, it will have an impact, 2 new regulations, the pension funds, limits and credit cards. We're talking here, roughly a EUR 20 million, EUR 25 million yearly impact that will start to show specifically in 2015.
Luisa Gomez Bravo
Thank you. Mario Ropero from Fidentiis and Alfredo Alonso from Kepler ask about personal cost increasing when the headcount is actually falling, but I think we've answered this already.
So we'll move on to Spain asset quality. Francisco Riquel from N+1, Juan-Carlos Calvo from BES, Rohit Chandra-Rajan from Barclays and Stefan Nedialkov from Citi, ask about more details on the additions to NPAs, which have resulted in higher loan losses during the third quarter.
Can we also explain the jump in write-offs during the third quarter? And is this a one-off, or does it change our cost risk guidance?
Ángel Cano Fernández
So first of all, the NPA evolution this quarter is not any difference -- is not any different what we are -- we've seen over the last couple of quarters, the trend is exactly the same going down over the quarters. And here, we only have some one-offs in the corporate portfolio.
So apart from that, if we exclude the effect of this gross interest to the NPAs, nothing additional important. In terms of the cost of risk and in terms of the level of provision during the quarter, the effects of all these names, specific names or specific one-offs is around EUR 100 million.
So when we talk about the guidance for the cost of risk for the entire year, we remain in the low parts of the guidance. So we think we are going to be at just slightly over 100 basis points at the end of the year.
Jaime Sáenz de Tejada
Yes. So as Ángel has just said, we do not expect any particular increase in the cost of risk in the fourth quarter from the trend that we've seen in this first 3 quarters of the year.
Luisa Gomez Bravo
Okay. I think actually, you've answered Alfredo Alonso's, from Kepler's question about the contribution from one-offs to loan loss provisions.
And also a little bit of the questions or a few of the questions from Carlos Peixoto from BPI, Sofie Peterzens from JPMorgan, Ignacio Cerezo from Credit Suisse and Alvaro Serrano from Morgan Stanley, who were asking about the trends in NPLs, cost of risk guidance, including real estate, we've answered that. I think probably, prospects about impairments in Spain versus guidance, that's also been answered, I think.
And I think this one, maybe, which market sectors do you see asset quality pressure, and where do you see an improving trend?
Jaime Sáenz de Tejada
Okay. I think we have a good news on impairments this third quarter.
We do not know exactly this trend is going to be maintained going forward, but real estate impairments went down by 1/3 this third quarter. Let's hope it's the beginning of a new trend.
What was the question, sorry?
Luisa Gomez Bravo
Sorry. In which market sectors do you see asset quality pressure?
And where do you see an improving trend?
Jaime Sáenz de Tejada
Yes. I think we are seeing asset quality improvement in every single segment.
The one that took more time to be reflected was on the SME side, which is perfectly understandable, taking into account that this segment of the economy is completely driven by internal demand. As internal demand has started to increase at the beginning of the year, so as the improvement on NPL trends in these segments, so improvements in all segments.
Luisa Gomez Bravo
Thank you. One question on real estate, which is basically an update, which Carlos Peixoto from BPI and Britta Schmidt from Autonomous asks regarding asset sales during the quarter, if we could provide the numbers in units and millions of euros that were sold during the quarter on the real estate portfolio.
Jaime Sáenz de Tejada
Yes, yes, okay. We sold pretty much the same number of units as we sold in the third quarter of 2013.
We're talking 4,600. In terms of volume, it increased significantly.
We sold EUR 455 million in this third quarter of 2014 versus only EUR 324 million last year.
Luisa Gomez Bravo
Okay. Now we move on to Mexico.
Francisco Riquel from N+1 asks a broader question about Mexico macro. How do we think Mexico will be impacted by the lower oil prices?
And what type of impact could this have in our banking business?
Jaime Sáenz de Tejada
Yes. It is true that the price of oil is important for Mexico fiscal balance and public expenditure.
A $10 decrease in the Mexican basket implies an impact of minus 0.2% of GDP growth in the country. Our expectations is that the U.S.
growth dynamics, especially on the Sunbelt, and especially, in Texas, will be able to compensate any potential decreases in the price of oil. And the fact that reforms are being implemented on time and in a very aggressive fashion gives us a lot of comfort at the 3.5% GDP growth that we expect the country to have next year will be achieved.
Luisa Gomez Bravo
Okay. Quite a few of you have been asking about the top line growth in Mexico and also, on cost and provisions, so I'll just go straight through to the questions.
Carlos Peixoto from BPI, Alvaro Serrano from Morgan Stanley, Alfredo Alonso from Kepler, Stefan Nedialkov from Citi, Ignacio Cerezo from Credit Suisse, Javier Bernat from BEKA, Robert Noble from RBC and [indiscernible] from Sanford Bernstein, ask about the net interest income increase quarter-on-quarter in Mexico. What are our expectations here?
Can we provide a little bit of color as to that increase? How much pressure in spreads are we seeing given the low rates in Mexico?
And overall expectations on net interest income and net interest margin on guidance on volumes of growth for the quarter and for next year?
Jaime Sáenz de Tejada
Again, we don't give guidance beyond 2014, and the guidance hasn't changed in Mexico for 2014. Volume growth, and that's true for loans and for customer funds, remain pretty much close to the double-digit number that we've guided during the year, a slight decrease in customer funds this quarter.
And we will share that NII will follow that business growth. So our guidance still remains the same.
Quarter-on-quarter, NII increased by 2%. And customer spreads and NIM was roughly the same as in the second quarter of 2014.
Luisa Gomez Bravo
Okay. We're talking about snapshots now, because we're running out of time.
So snapshots on the cost in Mexico, the increase in the quarter and guidance, and snapshot on other provisions in Mexico and cost of risk evolution?
Jaime Sáenz de Tejada
I think I've answered costs already, regarding cost of risk, down to 3.2. Guidance remains the same, 3.5.
Luisa Gomez Bravo
Okay. South America, Marta Sánchez from KBW asks about volume growth prospects in LatAm going forward, concerns about macro trends in China slowdown, does this affect our Latin American prospects?
Jaime Sáenz de Tejada
Snapshot again, volume growth, around 25%. If we include Venezuela, we have Venezuela, roughly 16%, remains strong through that.
GDP numbers are -- been revised down in many countries, and that's especially true in Argentina and Venezuela going forward.
Luisa Gomez Bravo
Alvaro Serrano from Morgan Stanley asks about book values of Argentina and Venezuela.
Jaime Sáenz de Tejada
Argentina, 670 million; Venezuela, 1.387.
Luisa Gomez Bravo
Okay. Mario Ropero from Fidentiis asks about if we can comment on the quarterly evolution of NII in Latin America.
And do we see any changes there from what we expected in the different countries in constant terms, what we're seeing there?
Jaime Sáenz de Tejada
I think in general, a slight spread compression in Latin America during this quarter. Volume remains strong, no change in guidance.
Luisa Gomez Bravo
Okay. Venezuela, Carlos Peixoto from BPI and Sofie Peterzens from JPMorgan asked about the amount of the hyperinflation adjustment that we booked this quarter.
We can let them know what the amount was for this quarter. Rohit Chandra from Barclays asks if we see the earnings outlook in terms of underlying performance, how do we see the underlying performance of Venezuela?
And what are we seeing on hyperinflation in currency evolution? And Andrea Filtri from Mediobanca is asking about the impact on -- of Venezuela in the third quarter P&L, which just basically more or less the same.
Jaime Sáenz de Tejada
Okay. Let me remind everybody that the guidance that we gave for [indiscernible] Venezuela in current terms during the year was minus 50%.
We are at minus 48% in this third quarter due to diverses last year, so we are exactly within the guidance. EBIT inflation adjustment in net attributable increased year-to-date by EUR 110 million versus 2013.
The total adjustments in net attributable was EUR 212 million as of the end of the third quarter.
Luisa Gomez Bravo
The U.S., Stefan Nedialkov from Citi is asking about the quarter-on-quarter increase in costs, how much of that was due to Simple? And he is also asking about the outlook for loan growth in 2015 for Compass?
And Andres Williams from Mediobanca is asking about the impact of a rate increase on BBVA's U.S. business, so that's the rate increase impact and on the cost side and loan growth in 2015?
Jaime Sáenz de Tejada
I think I've already answered the cost side. The growth should remain strong.
It is growing at mid-teens, around 15%, almost 15%. That should remain strong going forward.
We have a positive sensitivity to increase on interest rates. Every 100 basis points increase in interest rates will increase our NII by roughly 6.5% in the U.S.
Luisa Gomez Bravo
Okay. Last but not least, corporate center, Alvaro Serrano from Morgan Stanley is asking about the EUR 165 million other provision in the corporate center in the third quarter.
What was that related to? I think it's part of the cost restructuring that we had.
But anyway, he's asking about the other provisions in the corporate center? And Raoul Leonard from Deutsche Bank and Mario Ropero from Fidentiis are asking or stating another volatile quarter from gross income and a jump in costs.
Is the draft from the corporate center one-offs or structural? And I think again, the dividends here also play a little bit of a quarter-on-quarter difficult comparison.
And then Francisco Riquel from N+1 is asking in the second quarter conference call, your guidance of losses in the corporate center of between EUR 1 billion and EUR 1.2 billion in the full year versus EUR 1.2 billion losses reported in 9 months. Can you please update the guidance and the main drivers of NII losses for this unit?
Jaime Sáenz de Tejada
Yes. I think the biggest deterioration in this quarter versus the last is the restructuring cost that also affects the corporate center.
As Santos [ph] said, we are looking to decrease the corporate centers in general at a 10% in every geography. Second, we do not have the Telefónica dividend in this third quarter versus the second.
It is true that we are going to be a little bit above the range that we've shared with the market in the second quarter. And it should be closer, a little bit above EUR 1.3 billion, the impact on -- of the corporate center in this 2014.
Luisa Gomez Bravo
Okay, thank you very much. I think that concludes the Q&A session.
I truly apologize for having run a little bit on the questions at the end and maybe not having been able to state all your names that were behind the questions. And again, the IR team is available throughout the day, of course, to answer any remaining questions that are outstanding.
And once again, thank you, Ángel. Thank you, Jaime, for the presentation.
Ángel Cano Fernández
Thank you, all, for your [indiscernible].
Jaime Sáenz de Tejada
Thank you.