Banco Latinoamericano de Comercio Exterior, S. A. (BLX) Q4 2011 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Bladex Conference Call. [Operator Instructions] As a reminder, this call is being recorded. At this time, I would like to turn the call over to Melanie Carpenter of i-advize for opening remarks and introductions. Ma'am, you may begin your conference.

Thank you, Kelly. Hello everyone, thank you for joining the Bladex Fourth Quarter and Full-Year 2011 Conference Call on this 24th of February of 2012. This call is for investors and analysts only. If you're a member of the media, you're invited to listen only. Joining us today from Panama are Mr. Jaime Rivera, Chief Executive Officer; and Mr. Christopher Schech, Chief Financial Officer, along with other members of the senior management team. Their comments will be based on the earnings release issued yesterday. A copy of the long version is available at the website of www.bladex.com. Any comments that management makes today may include forward-looking statements. These are defined by the Private Securities Litigation Reform Act of 1995. They're based on information and data that is currently available. However, the actual performance may differ due to various factors and these are cited in the Safe Harbor statement in the press release. And with that, I will turn it over to Mr. Jaime Rivera for his remarks. Please go ahead, Jaime.

Thank you very much, Melanie, and good morning, ladies and gentlemen. And welcome to our fourth quarter conference, which we get the opportunity to review the quarter a year ago and this is the part I enjoy the most, speak about the way we plan to move forward during this year. We don't want to waste any of your valuable time so Christopher Schech will dissect the numbers as he always does so well, while I will try to address some of the bigger picture type of trends driving our business. So let me start by stating the overriding principle of the bank once more. By design, by charter and by vocation, we do business in Latin America and only in Latin America. We think of ourselves as the most Latin American of banks and assure we are the most international of Latin American banks. Latin America, fortunately, is doing very, very well. The global slowdown, the distinguished politicians in Brussels and our colleagues in the European Union, notwithstanding. During 2011, we did business in the region that grew by some 4.1%, a growth rate that was skewed downward by the growth figures in Brazil, which at around 3% were less than half of what they were a year earlier as the country successfully dealt with inflation levels that were becoming worrisome. Still during 2011, we did business in 8 countries that grew more than 5% and in 17 that grew by more than 4% based on growing region. For 2012, the regional growth figure that economists are speaking about is about 3.5% but in visiting both Peru and Colombia in the last couple of weeks, I saw evidence of speaking to both clients and listening to government ministers that growth this year stands a very good chance of succeeding last year's, which runs against the economists' consensus. Having visited 4 regions -- 4 countries in the region this quarter, I'm sorry, I have a feeling that again from what I hear from our clients, principally, that absence of failed type of event, the region will probably do better than expected. To give you a flavor of how the region is doing, here are some figures which I thought would prove interesting to you. With only a few exception, typical [ph] debt loans in the region are hovering around the manageable 40% of GDP. Fiscal accounts, while they haven't recovered at 2008 levels, are again are also at manageable levels. And our current accounts are also -- current account deficit is in most cases are also running around 2.5%. Reserves typical from the point of view of the financial systems that support this economies have expanded about 50% beyond the already high levels that allowed central banks, you remember, faced the 2008 crisis without undue strain. The macroeconomic figures in the region are strong. From the point of view of monetary policy, central banks, unlike elsewhere in the world, have a lot of room to maneuver to stimulate their economies as should this become necessary. With the average reference rate hovering around 4% or so, and inflation levels are relatively in check in most countries. Workers' remittances, as you know are critically important for some of the smaller countries in Latin America, have not only recovered in 2008 levels but are actually increasing. So you put it all together and you have the makings of a 2012 year where gross capital market issuances are expected in the region to be smaller than coupon payments and amortizations. It's actually going to be -- debt issuance is actually going to be negative. Again, quite a contrast to regions in other parts of the world. Those just apply [indiscernible] already moderate in most countries along with what's going on in the European Union and in the United States, principally. It did moderate from an average of about 8% to 2% per annum. Crucially, retail sales have proven resilient. Colombia, to give you an example, the retail index went from around 105, 125 during the year. In Brazil from about 110 to 140. And here in life, another of the fundamental changes in the region. For the first time since independence really, for the first time, I think America is creating an expanding middle class. The larger economies, in fact, some 51% of the population is now part of the new middle class, up from just 41% in 2001. Socially, it is tough to think about it. This is just a phenomenally favorable thing. As an upward mobile middle-class, it's a serious supporter of democracy. And in a much more mundane level, is incredibly favorable for Bladex as a growing middle-class tends to fuel growing imports. Crucially, as well, investment levels are rising. To quote one of the ministers that I met in Columbia, investment levels there have reached 28% already. Levels which are a quantum leap over the mid-teens levels of just a few years ago. To round out my case for Latin America, I'd like to give you a couple of real-world examples that might surprise you, particularly, if you have in mind, as I'm sure you do, the equivalent figures for countries in the European Union. For instance, justifiably, one of the current darlings of the investment world in the region. Peru has a debt load of less than 22% of GDP, a current account deficit of only 1.1% and reserve levels that could roll into a full 13 months of imports. As known is the case of Bolivia, which I'd like to describe for you. In Bolivia, foreign debt amounts to only 21% of GDP. The country has a fiscal surplus, 2%. Current account surplus, again, surplus of 4.2% and 17 months import worth of reserves. I think this 2 real-world examples make my case for the strength of the economics in the region. Now we've all been around for a long time and the region does, of course, face risks and problems. Commodity prices, which are critically important for the region, are driven by the demand in China where fortunately, a soft landing seems to be underway. Infrastructure in the entire region is under great strength. [indiscernible], as we all know lacks the needs of a changing world. Innovation and productivity have only recently come to the forefront and crucially, in my opinion and I've been very vocal about this for a decade now. Their problem is getting worse as production -- growth production expands in line with demand, not only in the U.S. and the European Union but also in countries in the region itself. On a macro level, however, the overriding fact and the overriding truth is that our 2009 predictions calling for Latin America becoming a strategic source of the energy and of the minerals and of the food, and in the case of Mexico, the manufacturer of parts that the new global paradigm would require have proven to be right. And hence, our prediction that Latin American companies will expand into other Latin American countries attracted by favorable market dynamics, resulting from strong local demand itself, the result of the increasing middle-class phenomenon that I just described. So driven by this 2 tectonic shifts, Latin America, in our opinion, is and will remain a great place to do business. A great place to do business and especially, especially a great place to do trade finance. And here's where we can get to talk more specifically about Bladex. Bladex closed in the region during 2011 expanded by some 23%. That's about 5.5x the underlying economic growth rate in the region. Now coupled with Bladex's ability, resulting from the last 2 years of investment to gain market share through a higher share of [indiscernible] of existing customers and by developing new ones, this is what allowed our average Commercial portfolio to expand by some 39% during 2011, fully 1.6x the great growth of trade flows. Bladex enjoys a couple of real and structural advantages within the favorable scenario that I just described. Our brand, our infrastructure, our clients reach, and our products are all positioned after 2 years of investment, as I mentioned, to capture all the full growth rate in the region trade close and more. Crucially, and this is very important for us, and in fact it's crucial for the business as a whole. We have assembled what our clients themselves called in our recent survey, the best team -- the business of trade finance in Latin America and the best team in the business of trade finance in Latin America. And by the way, happy as I was to hear the news, particularly, because they came from our customers, our next goal is to become the best trade finance in the business by 2014. So then again -- until then, how are we going to go about our work in 2012? What are we going to do? Well, during the last 3 years, as you remember, we have been focusing on achieving the minimum scale that we needed to support the expanded infrastructure and commercial and risk management team necessary to position the bank as and where we have. 2012, as I said during our last conference, we will shift focus. Net income will become the number #1 priority. Net income achieved through a combination of incremental fees, then higher efficiency levels and added leverage in the balance sheet. Growing net incomes levels will result in growing ROEs and thus, higher stock prices, while at the same time allowing us to continue to increase our dividends. Some additional color on our plan for the year. Externally, we will shift the portfolio mix towards clients with higher risk adjusted returns and higher fee generation potential. And we will leverage our stronger than ever traction underground to expand the client base even further. Externally, we will focus on improving what our clients value the most about Bladex, and I say this because they've told us so in both surveys and in one-on-one conversations. Providing them with information about opportunities in the region and critically, improving our already best in class agility. The term agility coming up in our conversations and in the surveys. In this search for improved agility, we are already reviewing and consolidating and simplifying our processes and are planning to physically move our headquarters to new facilities some time in the second quarter of this year. The new premises have been designed with one main objective in mind, serve our clients better than anyone in the business. Bank finance, as you probably know, is a business that requires a great speed. So we have designed a new layout in accordance with the physical trade transaction process. The commercial team, for example, will be right next to the credit team. We will be next to the compliance team, which will in turn be next to the disbursement team. Administration functions will be in a separate floor. There will be no officers anywhere in conference and huddle rooms. Industry-leading speed, communication and efficiency, that's what we're after. Finally, there are 2 questions floating in the web that I'd like to address outright. First, the Asset Management Unit. As I said before, we like the business and we've made over $50 million out of the $100 million we originally put in. But it is a volatile business and crucially, our efforts in generating third-party fees have come short of expectations, to put it very mildly, even in support -- even if supported by the fund's strong track record. Guys in the asset management team have proven to be triple AAA traders. The fact is we haven't been able to sell our services and our ability to generate income for third-party investors. But [indiscernible] part of the problem, we have learned to manage. The rest of the bank has grown as we have promised it would do. And we have taken $50 million out of our investment in the fund, also as promised. Third-party money problem, however, remains an issue and one that is not getting any easier on account of the fault rule among other structural reason. So before I ask the management of the unit for strategic options to address the situation and while I cannot give you any details, I can confirm that our facility solution is being worked on literally as we speak. Other questions that seem to be floating in the net has to do with our portfolio growth during the fourth quarter. And what I think it's important to keep in mind that there was a 3% increase in the average portfolio balances during the quarter, which is what really counts for interest income purposes. The fact is that at the end of the year, balances showed a 4% decrease versus the third quarter. But here's the story of what happened in plain, simple and transparent terms. Our team, some time in late November, they saw the world becoming increasingly paranoid because, actually, I think that is the reason, the word rather, paranoid. While the clock stopping to tick in the financial world as a result of the sovereign debt problems in the European Union and particularly in Greece. So not being private to information as to what was really going on in the European Union, in the United States, at the IMF, at the ECB, at the Bank of England and at the Greek Parliament, we decided that the situation called for a strong dosage of prudence until things became clear. Not wanting to be the last ones out of a burning theater, we purposely stopped renewing some of our maturing loans and building a massive liquidity that as you can see in the balance sheet, came to exceed the amount of our capital. And that, that was that. We left some money on the table, yes, but we believe that what we did is consistent with running a bank in a responsible manner under the circumstances that we faced at the time. So this, ladies and gentlemen, is where we are, facing highly attractive markets from a great positioning purposely built over the last 2 years. And this is why we're so enthusiastic about the future for the bank. 2012 will be the year in which we will complete the transformation that we started in 2009 and which will place us ahead of just about everyone of our competitors in a growing business, which we're a specialist and in a growing region that we know better than just about anyone. Yes, we know of course, that there will be problems that we will have to face. We're experienced and especially have a heck of a strong team to face them. That's, for our results going forward, will not be [indiscernible], I can assure you. This is the real world after all. Just to give you an idea and to remind you, the growth rate -- the average growth rate in our portfolio over the last 7 quarters read as follows, let me see: 6%, 8%, 14%, 4%,[indiscernible], 7% and 3%. Our Trade Finance business is one which is not linear. It's seasonal and it's impacted by a number of factors that are often not related to either our business or the economics of the countries involved. There will be growth but it's not going to be -- it's not ever going to be linear and smooth. What I can assure you is that net income and ROE levels will continue to grow, that our shareholders and clients and our region will benefit accordingly. So, ladies and gentlemen, thank you for your patience and I hope you found some of my comments useful. At this point, I'll ask Christopher to please dissect the figures for you. And then we will be very glad to take up your questions. Christopher, please.

Thank you, Jaime. Hello and good morning, everyone. Thank you for joining us on the call today. In discussing our fourth quarter and full-year results, I will focus on the main aspects that have impacted our results and I will put them in context with the previous quarter, the same quarter of the year ago and of course, with the full-year 2010. But before I start, just a few words regarding the presentation of our business segment results. To reflect a more detailed, and we believe, more meaningful view of our segment performance and that we no longer allocate interest in operating expenses simply according to average portfolio balances in each segment. Instead, we allocate interest expense based on duration matched funding principles and at the risk adjustment capital determined for each of the segment. Our expenses are allocated based on actual resource usage in each segment. We have applied these changes to the full-year 2010, the fourth quarter 2010 and the third quarter 2011 segment results to allow for comparisons on the same basis. But to begin with the highlights, the results of the fourth quarter 2011 were a continuation and an acceleration of the results achieved in our core business over the previous quarters, in spite of and within an increasingly volatile capital markets environment. Therefore, towards the end of the fourth quarter, we prioritized liquidity of our loan balances growth as Jaime has already indicated to you. Even so, the Commercial division continued its earnings expansion across all client segments, driving scale and revenue growth as lending rates widened and average portfolio balances grew 3% in the quarter. Treasury division delivered another quarter with positive results, while reinforcing the bank's liquidity and funding positions in light of increased market volatility. And the Asset Management Unit had a good fourth quarter, capping the year 2011 with a very solid result. For lending interest rates have strengthened at an accelerated pace in the fourth quarter, short-term funding costs did so even more rapidly, which resulted in a tightening of the net interest margin and the net interest spread. Fundamentally, our Commercial portfolio continues to benefit from the favorable growth and credit quality trends in the region, as reflected in our stable non-performing loans outstanding, while balances are continuing to grow. Reserves grew moderately this quarter as a function of Commercial portfolio diversification and the strengthening of reserves relating to our non-accrual portfolio. Expenses are higher on a year-on-year basis, affecting a larger front-end workforce and our expanded presence in the region. However, effects of consolidating all these new elements and becoming more efficient in utilizing them are always showing its impact on efficiency, which has improved significantly. Just going to a little bit more detail. The fourth quarter 2011 closed with net income of $24.8 million, that substantially increased of $8.5 million compared to the $16.3 million that we achieved in the third quarter of 2011 and up $9.3 million versus the fourth quarter of 2010. The full-year 2011 closed with net income of $83.2 million, very nearly doubled the net income of $42.2 million that we achieved in 2010. So let's go into more detail regarding the performance and the results of each business segment before we discuss other aspects of the bank's financial performance. As usual, we begin with the Commercial division, where net income was $17.7 million in the fourth quarter compared to $14.5 million in the third quarter and compared to $11.3 million in the fourth quarter of 2010. The quarterly variance in net result was impacted mainly by net interest income growth as a result of higher average loan balances and in lending rates, while commission income came in lower due to limited growth in the letters of credit business and lower loan fees. Expenses dropped mainly as a result of lower hiring expenses and professional fees that we had incurred in the third quarter and that did not recur in the fourth quarter. The change in the provision for credit losses show the slight increase in provisions this quarter as a function of a gradual shift of the composition of our Commercial portfolio with higher middle market portfolio balances and also with the strengthening of reserves relating to the non-accrual portfolio, which is mitigated by a reduced reserving requirement as ending loan and contingency balances were slightly lower at the end of the quarter. Net operating income, meaning net income before provisions for credit losses, increased considerably quarter-on-quarter as higher revenues were derived from growing average Commercial portfolio balances and widening lending rates and as expense levels came down versus the previous quarter. Non-interest income, which means fees and commissions, amounted to $3.1 million this quarter compared to $3.7 million in the previous quarter and compared to $3.3 million in the same quarter of a year ago as increased commissions from the Letters of Credit business were offset by lower transactional fees, which result from loan structuring activities and loan commitment. During annual results, '11 fees and commissions amounted to $11 million versus $10.3 million in 2010 and that was mainly from increased commission income from the Letters of Credit business. When compared to the fourth quarter of 2010, net operating income improved as net interest income increased mainly on the basis of portfolio growth and margin improvement, which outpaced the growth in expenses associated with a larger sales force and a larger infrastructure. Average Commercial portfolio balances, as Jaime already mentioned, including acceptances and contingencies end in the fourth quarter 2011 reaching $5.5 billion, while period end portfolio balances reached $5.4 billion, a 4% decrease over the previous quarter as we slowed our lending temporarily in light of recent capital markets' volatility. Average balances in the fourth quarter 2011 were 26% above the levels in the fourth quarter of the year ago and total 2011 average balances were up 39% versus the year 2010, as our regional expansion segment penetration activities continue to gain traction in the market. With regards to disbursements, quarterly disbursements amounted to $2.3 billion in the fourth quarter 2011, down 15% from the third quarter 2011 as a result of the liquidity buildup towards the end of the quarter, but up 4% versus the level of the fourth quarter of the year ago. Annual credit disbursements is $10.5 billion in 2011, up 42% versus the previous year. Our cross border vendor finance activities increased substantially over the course of the year with over $2.3 billion disbursed in this business subsegment, which is characterized by very short-term facilities with an average turnover of around of 60 days involving the discounted purchase of trade receivables in the form of builds of exchange, which are primarily originated from US-based exporters selling into Latin American markets. Also general loan demand from large corporations and financial institutions continues to be quite strong. And it still represents a relatively small portion of the portfolio. Origination growth in our newer middle market segment doubled in the year 2011 in terms of loan balances and number of clients as the local workforce in our new representation offices is now fully deployed. Average net interest margin in spread decreased 6 basis points this quarter, mainly driven by a spike in short-term borrowing costs in the interbank markets. Average U.S. dollar LIBOR rates have started to move upwards, supporting the widening of lending rates and to benefit our bank portfolio mix. There's still buyers towards our established client base of large banks and corporation. Commercial portfolio continues to be short-term and trade related in nature. 70% of the portfolio will mature within 1 year and 59% of the portfolio is trade finance, while the remainder represents lending to banks and corporations, which are involved in foreign trade. We continue to maintain a diversified mix of country exposures that enhances the risk profile of our portfolio with more than 75% of our total exposure investment-grade rated countries. At the same time, our portfolio makes underscores our ability to support companies and banks in other parts of the region as well. The portfolio composition, in terms of clients, remains stable with 46% of the Commercial portfolio representing our relationship with corporations and sovereigns, another 46% represents lending to financial institutions and 8% pertain to our clients in the middle market segments. Outside the banking sector, our exposure to industry sectors in the region is well diversified and our strategy continues to be focused on those sectors, where Latin America has distinct competitive advantages as a key provider of processed goods and raw materials. Portfolio risk profile remains solid with non-performing loans representing 0.6% of total loan portfolio balances, compared to 0.7% in both the previous quarter and the fourth quarter of the year ago. At the end of the fourth quarter 2011, there were no amounts past due 90 days with all the non-accruing loans showing payment behavior, which was in line with the loan agreements. Reserves relating to a non-accrual loan were strengthened based on updated announces regarding expected payment capacity in the future. Improvements in both country and client risk levels continue to have a mitigating effect on credit costs. However, provision increases continue and will continue as reserves reflect both continued portfolio growth and to a smaller extent, it also changes in the portfolio mix. Now let me move on to the Treasury division, which posted a gain of $3.3 million the fourth quarter compared to $5.3 million in the previous quarter and $5.8 million in the quarter of the year ago. We again trend positions in our securities portfolio this quarter and proceeded to realize gains from sale, while favoring more liquid assets. The marked-to-market effects on the available-for-sale portfolio and related hedging instruments reflected improvements towards the end of the year in the debt prices of Latin American securities and contributed to reducing unrealized losses that we record in the OCI, other comprehensive income account by $10 million to a level of negative $3 million this quarter compared to negative $13 million at the end of the third quarter and down from the negative $6 million of the year ago. Securities portfolios continued to consist of high-quality and liquid Latin American securities. Around 3 quarters of the securities portfolios represent sovereign or state-owned risks. As market volatility increased in the fourth quarter 2011, we intensified our proactive monitoring of prudent liquidity levels and increased liquid assets substantially this quarter. [Audio Gap] ensure a maximum degree of flexibility for the bank. Capital markets conditions, however, have shown some improvement since the beginning of the year and we have adjusted our liquidity management accordingly, freeing up resources to fuel loan growth again. The mix in our diversified funding portfolio locking in short-term funding while increasing tenors and growing our medium-term obligations. Average weighted funding costs increased by 17 basis points versus the third quarter of 2011 and up 5 basis points versus the same quarter of the year ago as short-term interbank rates spiked in global financial markets during the fourth quarter. And interest spread, as a consequence, tightened 6 basis points as mentioned earlier versus the previous year but they widened 17 basis points year-on-year. [indiscernible] deposit balances decreased by $192 million or 8% to a level of $2.3 billion versus the historic highs that we reached in the third quarter of 2011, as more emphasis was placed by the bank on longer deposit tenors in lieu of accepting shorter-term deposits. Ending balances were up $483 million or 27% higher compared to the fourth quarter 2011 -- 2010, sorry. Average deposit balances in the fourth quarter 2011 were up slightly versus the previous quarter and up 24% versus the same quarter of the year ago. Average deposit balances have been an important factor in reducing overall annual funding costs by 14 basis points year-on-year, more than offsetting the cost of increased amount of medium-term funding. The deposits came primarily from our central bank shareholders, although many Latin American private banks also placed some of the U.S. dollar liquidity [indiscernible]. Now let's talk about our Asset Management Unit, which had a solid result this quarter with net income of $3.9 million after a net loss of $3.4 million in the third quarter and compared to a net loss of $1.6 million in the fourth quarter of 2010. The unit remains focused on the Pan Lat Am region. Its investment, of course, for the assets of its management continues to favor long positions in Latin American currencies, as well as long positions in short-term Latin American credits. This quarter's gain resulted from favorable marked-to-market valuations of these positions even as overall market conditions continue to be very difficult for the investment fund sector as a whole. The result capped a successful year for the unit in achieving a gross market return for its investors. The unit contributed net income of $15.1 million for Bladex's bottom line in 2011 compared to a $10 million loss in the year 2010. The Bank continued to redeploy its retained earnings in the investment fund this quarter, as Jaime mentioned also. And for all of 2011, it redeemed $60 million following through with its approach to reducing absolute and relative exposure towards its high return, but sometimes more volatile, source of earnings. Moving on from our segment review, let me give you a brief summary of other financial highlights of the bank's performance. The net interest margin decreased 6 basis points to 184 basis points in the fourth quarter and borrowing costs move upwards, pending a repricing in our loan portfolio. The net interest margin was up 14 basis points versus the same quarter of the year ago and the full-year net interest margin was at 181 basis points, 11 basis points higher than in the year 2010 as average credit portfolio balances increased and average yields benefited from an improved portfolio mix of higher yielding loans, securities and liquidity. At the same time, low-cost deposit growth allowed to offset the impact of higher short-term borrowing costs and higher average medium and long-term liability balances. With regards to expenses, operating expenses in the fourth quarter were up 3% compared to the previous quarter mainly as a result of variable compensation provisions in the Asset Management Unit. Expenses relating to the core activities in our Commercial and Treasury division were down quarter-on-quarter as discretionary spending and cost relating to new hires were reduced. Year-on-year, expenses were up 9% as the average portfolio is expected to increase the number of sales executives and risk management staff. Overall, 2011 operating expenses amounted to $50 million, up 19% versus the prior year. It was mainly driven by employee compensation and benefits costs after the bank all but completed its expansion in terms of average headcount and the number of offices, which we had planned to strengthen our position in the region and also due to an increase of the performance-related expenses in the Asset Management Unit. As the added capacity becomes increasingly productive, the bank's efficiency ratios continues to improve. Efficiency ratio for 2011 reached 36%, substantially improved over the previous year weighted at 55%. Quarterly efficiency ratio now stands at 34% compared to 44% in the fourth quarter of 2010. Same positive trend can be observed in the efficiency ratio relating to our core operations. The bank's overall return on equity reached 13.1% in the fourth quarter and stood at 11.4% for the full-year 2011, compared to 6.2% the year before. The ROE relating to our core operations is also improving steadily. After having reached double-digit levels in the third quarter, it has solidified in the fourth quarter and should continue to improve as a function of revenue growth from an increase in more diversified credit portfolio. The bank's book value stands at $20.45 a share. Leverage at the end of the fourth quarter 2011 is at 8.4x which is slightly down from the 8.6x in the previous quarter and which is -- and up from the 7.3x in the fourth quarter of 2010. Tier 1 capital stands at 18.6%, compared to a 16.9% in the previous quarter as a result of profits and improved OCI levels. And this 18.6% for the quarter compared to 20.5% in the quarter of the year ago. As published in the recent press release, the bank's Board decided to increase the quarterly dividend by $0.05 to $0.25 per share. The increased dividend corresponding to the fourth quarter 2011 was paid earlier this month and it reflects the continued commitment of the Bank to increase shareholder's return as the business grows. And with that, I'll hand it back to Jaime for the Q&A session. Thank you very much.

Thank you very much, Christopher. Ladies and gentlemen, we'd be delighted to take up your questions, please.

[Operator Instructions] Our first question comes from Tito Labarta with Deutsche Bank.

Maybe just a couple of follow-ups. First, on the Asset Management business. You mentioned that you're working on a definitive solution. If you could maybe just give some color on the time line for that, when you think that would be in? And if there is any preference for keeping it in-house and raising third party fees or maybe selling it or just kind of any color you can give on what that solution could be. And then the second question following up on the loan growth. I understand why you kind of slowed down in the quarter. But maybe, if you can give some guidance for 2012 and what kind of loan growth we should expect for this year.

To answer your questions, first, whatever solution we structure for the Asset Management business, we'll have the generation of third-party fees as one of the driving elements. As for timing, this was treated and discussed at our last board meeting. Our responsibilities were assigned for the analysis and discussion of the different options that were presented and discussions are already ongoing. And so while I cannot promise because I am really not in the position to do that. I don't have enough information to do that. I would expect that to be resolved one way or another before the end of this quarter. Is that sufficient color for you?

Yes, that's very helpful.

Okay. Regarding loan growth, it will be certainly smaller than what it was last year, simply because the economies are supposedly are going to slow down, one. And secondly, because we will concentrate our focus on bringing out as much money as we can, our existing portfolio -- by changing the portfolio mix. In our calculations, we have come to believe that if we do that, we will generate -- that portfolio mix is [indiscernible] that we will generate much easier than simply going out and trying to continue to leverage the bank. As to an actual number to use, if you believe that Latin America is going to grow at something like 3.5% to 4%, if you go back historically, our asset base have expanded anywhere from 3 to 4x the rate of growth of Latin America as a whole. I would start with that and then by the end of the first quarter, we should have a better idea of how fast the economies are really growing and how much additional demand we are obtaining as a result and provide you with a better figure. But use that one to begin with.

All right. Just maybe one follow-up question. When you look at the middle market lending, it now runs at 8%, I think of your portfolio. Do you have any idea where you could be by the end of this year? Or what kind of growth to expect in that segment?

That -- the figures that you see actually represent 100% improvement -- 100% growth over where we started last year. Growth in that segment will slow down. It will slow down not because we don't find it interesting but under the conditions that are currently existing in the market. It turns out that the highest risk-adjusted returns are in some sectors of the corporate market. And so that's where we're going to be aiming our guns at principally.

Our next question comes from James Ellman with Ascend.

First of all, could you give us some detail as to what you're seeing in terms of European banks withdrawing from Latin American trade finance funding? And your outlook for Bladex to be able to grow its loans in that space and if margins will expand with competition pretty soon.

Certainly. I'm sorry, I did not quite get your name.

It's James Ellman at Ascend.

European bank. As it turns out, a few comments on the -- from a macro perspective. European banks have something like 50% of their foreign claims in Europe itself, 20% in the United States and the balance is distributed in different-- Asia, all of Europe and Africa. Latin America represents, from the figures that we have seen, only 4% of their foreign claims. They are in fact withdrawing and I believe that to the extent that they could withdraw their third quarter lending that they have done most of that already. The ones that have not withdrawn nor do I think will withdraw are the European banks with underground retail operations, in particular, the Spanish banks. Spanish banks are responsible for more than half of the retail claims in the region. Those was paid because -- certainly because they're making very good money, which the headquarter surely need. And secondly because the local regulations in the markets, where they operate, [indiscernible] their ability to, "to get out". The impact it has had on margins, yes, there has been some margins having to improve partly as a result of the withdrawal of some of the European banks from the trade finance business. But on the other hand, local banks are increasingly filling the void and shows that while margins have increased, they have not to the extent that you have expected, even 5 years ago. And that by the way, we think is good. We don't want to face a situation in Latin America, where clients cannot get access to financing. We believe that margins in our business will continue to widen. Cost of funds will increase, certainly. But the fact is that we have been able to more than fund that increased funding to our clients. And that alone is sufficient to -- will be sufficient, rather, to fuel our growth in net income along with the other initiatives that I just mentioned, the increased fees and increased productivity.

All right. And just in terms of many of those European banks, the non-Spanish ones, I imagine much of their trade finance were correspondent lines to local banks in the region. Would you be able to pick up some of that market share?

We already have. We already have. There's a limit as to how much we want to do with that, in that respect, however, because often the risk-adjusted returns in the corporate sector, as I just mentioned, is better. So, yes, while we have and you can see that in our press release, our financial institution segment, it grow quite significantly last year. That's probably from a large extent comes to an end and in changing the portfolio mix, we will in fact be switching some of the money that is currently being played with banks to corporations, which prove more profitable to us and where we can get fees, unlike with the bank.

Okay. And I'm sorry, just finally on this side. So would you say that there is still room for you to gain market share and grow faster than the market in 2012 as the European banks or some of the non-Spanish ones retreat from the market?

No. That -- we are going to gain -- continue, by the way, continue gaining market share even if the European banks have never withdrawn from the market. We would have gained market share simply as a result of the positioning we currently enjoy in the market. We now have a network of 10 offices, which places us in a unique position to address the inter-regional trade. It's growing very rapidly and the internationalization of Latin American companies that are increasingly doing business across borders in Latin America and which require the assistance of a bank both at their home headquarters and at that the site of their new operations. We have, what we believe, is the best network to address that very rapidly growing segment of the business.

[Operator Instructions] Our next question comes from Jeremy Hellman with Divine Capital Markets.

First question for me. It sounds like you're back to expanding the loan portfolio. Do you have an ability to either give a definitive dollar value as of January 31 for the size of the portfolio? Or maybe just some relative basis versus where the balance was at year end?

Jeremy, let me just put it this way. January was an especially strong month for bank. Everything worked out extremely well in January. And one of the strongest Januaries we've had. February has slowed down as it generally does, Carnivàle in much of the region, particularly in some of our largest market. So, no, we're -- we are back to normal growth. We'll see how March goes. February is in the bag already. Basically, it's going to be a decent month. Nothing extraordinary. The quarter will be determined by March and we see no reason why normal growth should not resume. Remember that the first quarter is generally weak from all perspectives. But we have reason to believe that it might not be as weak as it generally is. That's probably all I want to say on this subject at the moment.

Okay. Next going back a few quarters. We used to be talking about factoring in possible acquisition in Brazil. Haven't heard any commentary about that in recent memory. Is it safe to presume that's not on the table anymore?

Two comments on that. No, the factoring in Brazil -- the purchase of the factoring company in Brazil is not on the table anymore. But B, as you noticed in our press release, we did have a Plan B in case the factoring purchase did not work out. We started discounting receivables on a wholesale basis and we did something like $2.3 billion last year of what is in essence wholesale factoring between Latin America and mostly Europe. It's mostly oil business. That business is growing very rapidly, that is another business that we are putting resources and focusing our attention. And that is probably how our factoring operation will evolve. Wholesale business, large tickets, client in Latin America and in Europe that we grow, extremely efficient. We discounted those $2.3 billion worth of receivables with only 2 people. So we had a Plan B and fortunately, Plan B worked very well.

Okay. And then 2 last ones for me. And more on the qualitative side. I always appreciate your qualitative opinion on things. I caught a piece on Bloomberg TV this morning. They had a commercial realtor from New York, talking about Mexico as being, in his view, the next Brazil. And I'm curious for your take on that sort of opinion. And then secondly, you mentioned that the growth of the regional middle-class. Looking long-term, do you think you might entertain listing your shares publicly on any of the [indiscernible] in the Latin America region so that growing middle-class might have an increased ability to invest in the bank?

Your second question first. It's easier to answer. Not only are we likely to consider listing ourselves in the local markets in the future, we have given very serious consideration to that in very recent times. For one reason or another, we haven't done so. But we have concluded that it wasn't the right time. But it's a question we periodically look at. The minute we think it's convenient from the point of view of volumes, et cetera, we will do so. I don't know the "problem" with many of the existing markets -- local markets in Latin America is that they're highly concentrated. A very few names make up a fairly large percentage of the traded volume. And so that's what stopped us from actually going through with the plan to the extent that, that is changing as some of these markets consolidate and actually form single markets. We will probably do so, yes. We're a Latin American bank, we should be in some or in various Latin American markets, for that sake. So we will do that at some time. The question on Mexico is a complicated one. The -- my -- off the top of my mind answer is, to a very large extent of Mexico, the future of Mexico in regards to economic growth will depend or continue to depend because that is the way Mexico structured itself within NASDAQ. On how things go in the United States, things in the United States are already picking up, slowly but they are. And we've already noticed that, in fact, in our business in Mexico. That's -- I think the NASDAQ will, to a large extent, determine how quickly and how fast Mexico develops. The other factor that will be -- will have an impact on how Mexico does is the level of investment in the country. And that, in my opinion, we primarily have to do with how successful Mexico is in eventually controlling the violence that is being brought up about and upon the country by the drug trade. My hope in this regard arises out of seeing what Columbia did. They were very successful. It was difficult and costly. But Columbia demonstrated that it is very possible to control violence and the drug trade. Mexico is just starting along that line. They've done great strides, great sacrifices. In fact, in the ultimate sense of the word, a lot of very courageous Mexican men and women have died, literally, in the fight against the drug trade. My belief is that with persistency, time and resources, that war will be won as well. In fact, if the U.S. does well, and Mexico succeeds in controlling violence, there's a great future for the country.

Our next question comes from David Ross of Chevy Chase Trust.

The question I have is the relative importance of Mexico and Venezuela seems to have declined over the last couple of years. I was wondering if you could provide some thoughts on what's going on there?

I'll address Mexico first. We decided to change course in Mexico about 3 years ago. And while our strategy was right, the staffing was not. It took us about 1.5 years to realize that the people that we had in charge of operation were very good people but not the type of -- they didn't have the type of skills that we needed to implement our strategy in the country. That delayed us for about 1.5 years. We now have a very strong team in Mexico and as a result, I expect we will see the importance of Mexico within our business grow. In Venezuela, on the other hand, the answer is quite simple. Strictly, the rich [ph] can uncertainly relate. Venezuela as a shareholder, we've followed it on the business, in the country, they follow [ph] it as well. But there comes a point where political risk and uncertainty makes it difficult for us to assess and therefore brave [ph] the risk. And as a result, we've purposely kept our exposure to the country small.

[Operator Instructions] Our next question comes from James Ellman with Ascend.

You mentioned that you had pulled back on the higher -- up normally high number of liquidity that you're holding as of the end of the year. Can you give us a bit of color in terms of the size of how much you're dropping that liquidity cushion? And what its impact might be on margins as we look into the first and second quarter of the year?

We used to run liquidity levels somewhere to $300 million to $400 million. We're not there yet but we're moving in that direction. I think you can assume, for purposes of your projection, a higher than usual but diminishing cost of liquidity through mid-year, by mid-year -- and midyear only because from what we know about Europe, it is the first and second quarter that are going to be critical in that region. If the market makes it through June 30, we expect to be able to grow from what we called a yellow liquidity scenario to the green liquidity scenario and go back to quote unquote, "historical" liquidity level the second half of the year. In the first half of the year, however, we will hold a liquidity level that while smaller than what we had at the end of the year, will be larger than what we historically carry. We think that's a prudent thing to do until things return to some sort of normalcy.

All right. And then just in terms of when you highlighted that you see significant opportunities for growth right now. Are you at all constrained by the amount of capital that you have? In other words, would you potentially need additional equity capital later this year as you grow?

Absolutely, absolutely, absolutely not. Our problem is just the opposite. We have in the past -- I've been asked a question as to what our right capital level should be and back when [indiscernible] levels were lower than they were today, we said that we're aiming at a 15% tier 1 ratio. We're currently at 18%, which is why we -- one of the things we're going to be working on this year is capital management. We need to deploy that capital and use it. And there's 2 ways we're going to do that. We're going to leverage the bank and to the extent that it will continue growing the net income, we're going to look at growing the dividends again and that's how -- those are the options and the combination of both leverage and increased dividends is probably will bring the capital back into -- in line.

All right. And in terms of the growth outlook you see right now, do you think you can get to that 15% level in the first half of this year?

Not in the first half, no, no. It would be unrealistic to think in terms of that. To begin with, this level such that we rather grow as we currently have been doing slowly. And secondly, we're going to be concentrating on doing the first half of the year. Yes, we're going to grow but more than grow, what we're going to be doing is doing a lot of portfolio shift in the mix, taking money from low-yielding assets to higher-yielding ones. So no, I think it would be unrealistic to think in terms of us going down to 15% in 6 months now.

Very good. And last question just to follow up on that, in terms of the low-yielding to higher-yielding. Can you give us just an idea in terms of what you're letting roll-off in terms of the low-yielding assets? And what sort of yields you're getting on the average higher-yielding assets right now? What sort of delta is there?

The delta is quite significant. On a nominal basis, it can be as much as 150 basis points to 250 basis points. When you look at it all on an aggregate level, the impact is less apparent, especially during the first year because of inter-established reserves, higher yields that generally mean higher risk and therefore, the need for higher or generic provisions. But that's the type of difference that we're talking about.

[Operator Instructions] Our next question comes from Arthur Byrnes from Delta.

Let me just ask you. Let me ask you a question. In getting to your 15% tier 1 capital, you're still not very leveraged compared to other banks and I understand why. But how has funding been for you?

It was, in December, in particular, it was difficult. Capital markets as you know, basically, stopped functioning for a couple of weeks. We're fortunate, however, that in over the last few years, we've done a couple of fees that turned out to be very appropriate and right. As you know, we make our fair share of mistakes but when it comes to strategic decisions, our record is quite solid. Firstly, we developed the funding markets in Asia. The funding markets in Asia have not been impacted by what's going on in the European Union and in the U.S. From an interbank perspective, both in terms of amount and number of respondents, our main sources of funding are China and Taiwan. And those markets have remained steady and we have been able to continuously source money from them. The next on tap and widely available source that we have are the capital markets in Latin America. We didn't tap them last year because we found other options which were more favorable, less expensive, either in the interbank market in Europe, even and the United States. But right now, because Latin America is doing so well, the capital markets in several countries are added for safer or risk of equality that Bladex represents. And so you will probably see us very shortly, starting to source funding through issues in a couple of Latin American countries at the least. And fortunately, the funding is available and the amounts are sufficient to provide us with what we need to fund our growth.

Your funding so far is all in U.S. dollars, isn't it?

It is and we will continue being in U.S. dollars. The most of the funding that we will raise we'll swap into dollars. We're just not ready to take currency risk. And we're more efficient providing dollar financing than we are providing our local currency financing. We know how to do dollars much better than local currency.

Second and last question. The return on your cash balances is -- it looks to me to be quite high. You do quite well there. Are you sure you're not taking too much risk with liquidity?

No. I'll make a couple of comments. The first comment is that the majority, not to say 100% of our liquidity, is placed with a certain central bank that is the only one in the world authorized to print dollars. So the risk there is relatively mild. Secondly, the reason why we're making money or so much money on our cash balances, is that we're telling our depositors, central banks, and the majority who want to keep money with us that the price for keeping their money safe with us is, well we pay them very little and as a result in intermediate, we've taken money from them, placed it with a central bank I just mentioned and we make relatively good money.

[Operator Instructions] Our next question comes from Jordan Hymowitz of Philadelphia Financial.

Follow-up with Mr. Ellman's question. If you took the cash portfolio down to cost $500 million over time, what would the margin then move up to? You said there's 150 to 250 basis point change?

If we took $300 million, just to speak of a theoretical figure, and we placed it out in the market in the form of loans, the difference would be substantial, anywhere from 150 to 250 basis points, straight off the bat. Remember how we're -- that we would have to establish our generic provisions against that. But, yes, carrying that liquidity is costing us some money, which is why we will bring it down as soon as we think it's a prudent thing to do.

What would the margin move to? Probably what, 15 to 20 basis points higher?

Oh, yes, absolutely.

I mean, have you run those numbers? I mean, I'm trying to run it as we speak. But have you run like if you had $300 million less cash and $300 million more loans where the margin would be? Because the provision doesn't affect the margins below the line.

Yes, we've run those numbers all the time and I -- because in addition to that's part of managing our liquidity, how much do we need and how much it's costing us.

And will you share or you don't want to share those numbers?

Well, yes, I can share you the number. Let me get hold of the latest calculations. The numbers would probably -- the net -- the difference would probably amount to somewhere around 15 to 20 basis points.

Okay. That's exactly what I thought. Okay, all right. And second question is if we're talking running a tier 1 capital of close to 15% versus the 18% now, and then you returned a 15% on equity. It seems like your normalized earnings could get up to about $200 -- $2.70 as we stand here today. Is that a reasonable thought? I mean, it's not going to be there tomorrow, but is that a reasonable, methodical thought process?

Can you repeat your question again? 15% tier 1 and?

And a 15% ROE.

And a 15% ROE, and therefore?

You get to about $2.75 of earnings.

That's a net income of about $100 million?

That's exactly right.

That's a conservative estimate. But yes, you're right.

There are no further questions at this time. So I'll turn the call back to Mr. Rivera for closing remarks.

Well, thank you. Thank you very much, ladies and gentlemen. In closing, let me again thank you for your interest and make a single and I think important point. We have a bank currently operating in a sweet point, probably the best position that we have enjoyed, literally, in the last decade and certainly in the 8 years since I have to prove it so far for being named to my current position. We're extremely optimistic about what we see ahead for the bank -- we are objectively optimistic. We have a capital. We have liquidity. Our credit quality is pristine, just that, pristine. We have very strong [indiscernible] of a growing market. Everything that you saw in the fourth quarter is sustainable. There's nothing there that is extraordinary. The fundamentals remain strong. We're going to continue growing and particularly focusing on net income. And that will increase the ROE, which will increase the price and will increase our ability to provide shareholders with even higher dividends. That is the opportunity for current shareholders and that is the opportunity for those considering investing in Bladex. And with that, I want to again thank you for your interest, for your confidence and hope you -- wish you success during the next quarter. And I look forward to talking in 3 months. Thank you very much, everyone.

This concludes our teleconference. You may now disconnect your lines.