Banco Latinoamericano de Comercio Exterior, S. A.

Thank you, Lindsey. Hello, everyone.

Thank you for joining the Bladex First Quarter 2012 Conference Call on this, the 19th of April 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 which is available at 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.

With that, I am very pleased to turn it over to Mr. Jaime Rivera for his opening remarks.

Please go ahead, Jaime.

Thank you, Melanie and good morning, ladies and gentlemen. And again, thank you very much for allocating some of your valuable time to our conference and spending time with us.

As usual, I will try to address my comments from the big picture's perspective. I'll let you know what my opinion regarding the performance of the company from a purely strategic point of view and then ask Mr.

Christopher Schech to do his usual great job in running through the details of the quarter and providing you with the information regarding a line-by-line analysis of the way our financials performed during the period. Following that, we'll go onto my favorite part of the call, which is listening to your questions and answering them.

So let me start by some general comments which I will, I guess, start from shortly after the big bang and tell you certainly something about -- certainly, something about the environment that we faced during the quarter and as we moved forward. I'm sure much of these is nothing new to you but I think it's still worthwhile to summarize what was going on and what is going on in the market and what we're being faced with.

The word that applies the most to the environment we're facing is volatility and uncertainty. There's uncertainty coming out, as you know, of what is happening in the European Union.

There's uncertainty on account on CBS and interest levels. There's some uncertainty on account of what might or might not happen to China's economic growth and the impact it might have on trade flows and commodity prices.

There's also uncertainty, and we have identified this last year, as to the way the Chinese Communist Party internal elections are going to turn out. Something that is going to be critical, not only for us in Latin America, but literally, for the entire world.

There's also some uncertainty remaining about the pace of economic recovery in the United States. There's uncertainty about everything.

There's uncertainty about the time of release of the iPhone 4 (sic) [iPhone 5] and there's uncertainty about the price of oil and there's uncertainty about the ongoing feud between Repsol and YPF and the Argentinian -- the current environment is defined in terms of uncertainty and therefore risk, and therefore opportunity. And in this environment, it is the organizations with a vision, the means, the expertise and the stomach to play the game that come out ahead.

And so within the scenario, within this general uncertainty scenario, Bladex is privileged to be working in Latin America where, firstly, rate is generally lower, it is actually lower than elsewhere. And importantly, we at Bladex know how to play the game very well.

Yes, the IMF is predicting a slowdown in the region's growth for this year. But like last year, it's important to keep in mind that while growth slowed, and it did slow, there were 8 countries that grew up more than 5% per year and fully 17 countries that grew at more than 4%.

And it was by identifying opportunities in those countries that we generated the good results that we did in 2011. And that is exactly what we are doing as we move forward this year and what we plan to continue doing during the remainder of the year, identifying opportunities within an environment that is generally quite volatile.

But more fundamentally, if you allow me, I'd like to restate the 3 pillars of our strategy. Because they're driving our work as we move forward and because, as time goes by, proving to be, well, right on the money literarily.

Right on the money, in this case. The 3 pillars, just to remind you because we've mentioned them before, Latin America is -- it is becoming an increasingly important supplier of critically needed minerals, food, and in the case of Mexico and other countries, manufactured goods that are being demanded by the large emerging economies and in the case of the U.S., by the recovering U.S.

economy. Secondly, more and more Latin American companies are becoming regional in nature.

A trend that we identified, earlier than most, which led us to make all of the changes in infrastructure and coverage that we put together during the last 2 years. And thirdly, I think our results, not only this quarter but within the last 3 quarters, have clearly demonstrated that Bladex is, in fact, ideally -- and I used to hesitate about using this word but now I can use it confidently, we're uniquely positioned to make the most out of the increased trade flows in Latin America that are coming about as a result of demand for our products in our growing emerging markets world, and that are coming about as a result of the regional financial needs of companies in Latin America that are becoming international.

So again, the macro picture is providing us with wind in our sails, and more importantly, we think that this is a structural change. This is something that we can count on for the next few years and it represents the wind that is going to allow us to grow in terms of both scale, and most importantly, profitability.

So having spoken about the big picture, let me be a bit more specific and give you some of my comments about what went on in the first quarter. From -- again, from a strategic point of view -- so I made it as Christopher will cover the technical details later.

Clearly, you can see it from the press release, the numbers were great. They reflect an acceleration of the trends that have been going on and the improvements that have been taking place in both our Commercial and Treasury divisions for 2 years now.

It's just a continuation and acceleration of work that we have been doing for 2 years and seeds that we planted starting in 2009. There are reasons why this is happening, but let me -- and Christopher will detail the line-by-line movement that took place during the quarter but I'd like to just concentrate on 3 points which I thought -- I think, that were particularly relevant during the quarter because they establish what is likely to be the trend for the rest of the year.

Firstly, as you can see the balance sheet growth was solid. Even though we had to face temporary slowdown on account of regulations in Brazil.

As you probably know, Brazil established new regulations, imposed a series of limitations on, particularly, export trade -- export financing, which is taking us some time to restructure and to figure out what late [ph] because the country will continue needing export financing. But during this quarter, it got off left-footed, with a number of very excitable transactions in the pipeline which we had to delay.

But still, and this is the good news, based on the strong growth in Mexico and other countries in the region, we were able to show a nice growth for the quarter. So this bids well for the rest of the year.

We will find, and in fact, we've already found a couple of ways of structuring transactions in Brazil to again fuel our export financing growth in the country. And at the same time, we have the rest of the region growing very nicely as well.

Secondly, from my -- from a most fundamental perspective, this was the quarter where we did restructuring, the liability side of our balance sheet. With the successful issues of bonds that were placed in the market in March, we have achieved -- well, in my opinion, is the strongest and soundest asset liability and liquidity position that I can remember in the company.

And this is great from a risk perspective, but more importantly, what this means is that we can dedicate more of our intellectual capital to the pursuit of business rather than the pursuit of liquidity and asset liability management. The structure of our balance sheet, the foreign-exchange positions, the maturity gaps, et cetera, have been reduced to what I believe we called nearly immaterial levels in the press release.

Thirdly, margins. Important, the margins actually -- surprisingly, margins in the corporate sector are increasing.

They are increasing and steadily so, as competition on the part of other banks that have left -- international banks that have left the region benefits us. And this is probably going to continue to be the case during the year, allowing us to compensate for what is likely to be as a continued decrease in margins in the banking sector.

So the increase in our activity in the corporate sector had a double whammy type of effect. Doing business in the corporate sector implies, as you can imagine, less risk and with decreasing risk comes the decreasing need for provisions and that allowed us to, at least in this quarter, release provisions that will lighten the provision loads during the rest of the year.

So you put all of this together, along with a good quarter in our Asset Management Unit, along with gains on sales of securities for the fifth time in 5 years, and something like the seventh quarter in the last 12 quarters, along with tight control of expenses and you get the $32.2 million in profit that we reported. That's basically -- those were basically the strategic elements that drove the quarter and which we believe are going to continue driving the performance during the rest of the year.

So speaking about the rest of the year, from my perspective, what is -- what are the elements that are going to determine our success or our results during the rest of the year? Because it is going to be a successful year.

I think, the only question that may be asked is how successful it's going to be. There are 4 elements that I believe will drive it.

Firstly, margins. I just told you, margins in the banking sector are under pressure -- there's a lot of liquidity in the domestic market in Latin America, so margins in our banking activity will probably decrease.

But on the other hand, and this is critically important, now that we have raised medium-term funding, we will be deploying it. And as you can imagine as well, margins in the corporate sector are, in long-term tenures, are substantially higher than they are when we financed our short-term operations.

And this will, to a large extent, either compensate, or more than compensate, for the decrease in margins that we'll probably continue to see in the banking sector. The middle market corporate sector, by the way, the markets are steady and we believe will remain steady during the rest of the year.

So the story on margins is positive in some segments, less so in others. But we believe, for all intents and purposes, is going to remain relatively steady during the rest of the year.

It will take us some time to deploy the longer-term credit because, as you can imagine, this is something that we like to do very carefully. It does involve credit risk and we are quite careful about the way we engage in price risk.

The second element that is going to drive the rest of the year and the results is volume. Now, those of us that have been with us for some time, you probably remember -- I'm sorry, that the year -- the first quarter of the year is generally a slow one.

This is summertime in -- or rather January and February, it's summertime in South America, activities generally are at a low point. And yet, it's just you have the figures in front of you, this year we're starting out in a particularly strong fashion, which provides us with a great base on which to build during the rest of the year.

We also believe we have, during the second part of the year and particularly as the agricultural season gets started in South America, demand for pre-export and export financing will kick in and we will, again, see acceleration of growth in the second half of the year. You put it all together and we are quite confident that volumes, as we move forward in the year, will grow.

It will not be smooth, some segments will grow faster than others. The second quarter might, and probably will be, slower than the rest of the year.

But the fact that we started out of the first quarter so strongly, provides us with a fantastic base with which to continue working through December.

The third element that I think will drive the result of the year relates to provisions. It's actually the numbers in front of you, because of the reasons I just -- and Christopher will dwell into.

Basically an improvement in the risk profile of our portfolio during the first quarter, as we move to more trade finance and more corporate credit, provided us or allowed needed -- less provisions, which allowed us to free an amount of provisions that will probably, in fact, definitely fund the growth of the portfolio. Partially, grow the -- fund the growth of the portfolio in the second half of the year.

Probably -- there's also a possibility, and it's a very real possibility, that the quality of our CO accrual portfolio, which as you note in our press release has been coming down. We improved to the point where some of the specific reserves that we have allocated towards the portfolio might diminish.

And that would also help us, in a very real way, finance the provision needs for the rest of the year. So provisions will be needed.

We are, after all, going to grow. But we have a couple of reasons to believe that the load, the provision load during the year will not be as heavy as it normally would have been, particularly because during this first quarter we got a credit, so to speak.

Provisions from our point of view, during the rest of the year, are going to be fairly normal and will not determine the outcome of 2012.

And the fourth element that will be important in our performance as we move forward in the next 8 quarters will be fees. Fees are hugely important and we have, for us this year, as we had announced even 2 quarters ago, provisions of fees, rather, in our company are driven by 2 main elements, letters of credit, and those are driven primarily by oil shipments, intra-region.

Those were low during the first quarter on account of -- what seems to have been high inventory levels. We expect those to normalize during the rest of the year.

And most importantly, however, we have a number of syndication transactions in the pipeline that we hope and we will -- and we have real reason to believe, that will materialize in the coming quarters. As you know last year, we got a nice bump on account of syndications.

That pipeline is growing and we think that, either in the second or third quarter, will start showing up in the income statement of the company.

Growth, margins, provisions and fees and you add it to what we believe is going to be volatile but favorable results in the Asset Management division, along with expenses that should remain tightly under control. Because, as you remember, we have already deployed the infrastructure that we needed to do all the work and provide all the services that we thought was going to be necessary this year, so we don't expect our infrastructure to grow during the rest of the year.

You add all of that up, growth in volume, margins, either steadily or increasing fees, steady income on the part of the Asset Management Unit and expenses tightly under control, 2013 -- 2012, sorry, is shaping up like a very good -- to great year.

With increasing leverage that will come about as a result of increasing volumes; with the increasing fees that I just told you about; with increasing efficiency levels that will result from revenues increasing at a much faster rate than revenues; and with a stable income on the part of the Asset Management division and stable credit quality, it's inevitable that our profitability will tend to improve.

Well, if you read the Chairman's message in our Annual Report, and if you haven't, I will encourage you to read it because a couple of important messages that are portrayed in that write up. The message makes it clear that it is the Board of Directors' intention to continue improving and increasing the dividend along with steadily increasing the result on the part of the bank.

So you put it all together, if profitability does in fact move as it looks, as its going to be the case, that will probably bring about, eventually, and then when the time is right, increasing dividends which will result in retained earnings and therefore capital increasing at a lower rate than net income. The result will be higher ROE, and with higher ROE, we're going to have an increase -- a further increases in the stock price which is what we've been working towards in the last 4 years.

So it looks good, the year looks good, to the extent that the world hangs on and that no financial or nuclear explosion takes place. That is not what we see in the cards, although we're prepared for it.

This year, from the point of view of both the results of the bank and the return to the -- there should be a good one.

And so, in summary then, if you've been with us for a long time, and many of you have, you know that all of this is not going to happen in a smooth quarter-to-quarter manner. There will be some quarters that are going to be better than others.

So we recommend that, as you look at Bladex, you do it at the same way as we do it. We tend to manage the company by looking at what has been achieved in the last 2 years, compare it to what we have aimed to do in those 2 years and we look forward and project the next 2 years on the basis of what we believe are real and well-justified fundamentals.

If you do that, you will come to the same conclusion that we have. Profitability is going to increase, revenue is going to increase, credit quality is going strong and therefore the value of the company will increase, which explains why we are so particularly enthusiastic about the -- our prospect for the company.

So those are my general comments. Again, on the environment that we face, my views on what happened to the quarter and some general comments on what is likely to be our performance during the remainder of the year and what that will mean, likely, in terms of shareholder value and profitability.

Having spoken in general terms, I will then -- I would next ask Christopher to please run through the details of the quarter and then give you a better idea of what happened and why, and the way this -- and why this fundamental, we expect, are going to drive the performance during the coming quarters. Christopher, please.

Thank you, Jaime. Hello and good morning, everyone.

Thank you for joining us on the call today. In discussing our first quarter results, I will focus on the main aspects that have impacted our results and I will put them in context with the previous quarter, and also the same quarter of the year ago.

The first quarter of 2012 closed with net income of $32.2 million, a substantial increase of $7.4 million or 30% compared to the $24.8 million that we achieved in the previous quarter and very nearly doubled the net income reported for the first quarter of 2011.

Let's get into more detail regarding the performance and results of each business segment before discussing other aspects of the bank's financial performance. And we begin with the Commercial division where net income was $25.7 million in the first quarter, compared to $17.7 million in the fourth quarter of 2011, and compared to $10.4 million the first quarter of 2011.

The quarter-on-quarter variance in the net result was primarily impacted by net interest income growth as a result of higher loan rates which compensated for somewhat lower average loan balances during the quarter that followed the traditionally lower levels of activity during the summer period in South America as Jaime already explain. Commission income came in slightly lower compared to the previous quarter, again as explained by Jaime, due to limited activity in the Letters of Credit business.

The provision for credit losses line showed a decrease this quarter, as a function of several drivers that resulted in a shift of the composition of the Commercial portfolio towards transactions with lower inherent risk. For example, this quarter, trade related balances amounted to 61% of Commercial Portfolio balances comparing to the 59% at the end of the previous quarter.

And since trade related transactions have lower risk compared to non-trade transactions, this shift was a major driver in reducing generic reserve requirements. The portfolio risk profile remained solid, with nonperforming loans representing 0.5% of total loan portfolio balances compared to 0.6% in the previous quarter and compared to 0.7% in the first quarter of a year ago.

While we do expect no deterioration in the credit quality of our Commercial portfolio in the foreseeable future, we do expect to see portfolio growth across all risk levels which should drive additional reserve requirements going forward. Net operating income, meaning net income before provisions for credit losses, increased 13% quarter-on-quarter to $21.3 million as higher revenues were derived from widening lending rates which helped compensate for lower average portfolio balances during the quarter.

Meanwhile, expense levels remain stable. Non-interest income fees and commissions amounted to $3.0 million this quarter compared to the $3.1 million in the previous quarter, and compared to $2.2 million in the same quarter of the year ago as commissions from the Letters of Credit business were lower due to the lower average portfolio balances primarily due to seasonal effects.

Transactional fees, which result from loan structuring activities and loan commitments, remains stable versus the previous quarter. But as Jaime explained, we expect to see improving results in that category going forward, as transactions currently in the pipeline come to fruition over the course of the next few quarters.

Average CO and Commercial portfolio balances, including acceptances and contingencies decreased 5% in the first quarter -- quarter-on-quarter, reaching $5.2 billion. By period end, portfolio balances reached $5.4 billion, a 2% increase over the previous quarter as market volatility receded somewhat and which allowed us, as a consequence, to redeploy liquidity towards lending activity.

Quarterly disbursements amounted to $2.5 billion in the first quarter 2012, up 11% from the fourth quarter 2011, as liquidity buildup in the previous quarter was redeployed towards the loan book, and up also 12% from the level of the first quarter of 2011. Credit disbursements increased despite the impact of the introduction of new FX regulations in our largest market, Brazil.

The new regulations were introduced in March and they called for additional levies on new funding transactions with tenures up to 5 years, and that forced some of our exporting clients in the country to delay or even cancel transactions that were slated to be disbursed during the month. And as Jaime mentioned, we are reviewing our export credit facilities in that country, but meanwhile, we have shifted our loan growth momentum to other parts of the region, in South America, Central America and the Caribbean, as well as to Mexico, which now has moved to the #2 spot in Commercial Portfolio balances by country.

General loan demand from large corporations and financial institutions continues to be strong and the share of new market companies in our Commercial Portfolio keeps increasing gradually but surely. This segment now accounts for 9% of the Commercial Portfolio.

Average net interest margins increased 6 basis points this quarter, while net interest spread increased 4 basis points, mainly driven by stronger rates in the loan book which offset the increase of short-term borrowing costs. The Commercial Portfolio continues to be short-term and trade-related in nature.

75% of the portfolio will mature within 1 year, and as we've already discussed, 61% of the portfolio is trade financed while the remainder represent lending to banks and to 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 exposures in investment grade -- rated countries.

This quarter, the Commercial Portfolio composition continues to shift in terms of client segments as the banks place emphasis on higher return on risk business in the corporate sector. 62% of the Commercial Portfolio represents relationships with corporations and sovereigns, and 39% represent lending to financial institutions.

Outside the banking sector, our exposure by industry sectors in the region is well diversified, while our -- continues to be focused on those factors where Latin America has distinct competitive advantages as a key provider of processed goods and raw materials. If you look at the sector split, compared to the previous quarter, exposure to the oil and gas sector increased as a consequence of higher oil prices and the ongoing peak season of Latin American shipments, which should also have a beneficial impact on second quarter.

Now let me move on to the Treasury Division, which had a very productive quarter, posting net income of $5 million in the first quarter compared to $3.3 million in the previous quarter and compared to $2.4 million a year ago. Given favorable valuations of bonds issued in the region, we continue to reduce positions in securities that were bought during times of high market liquidity, and we realized substantial gains on sale as a consequence.

The mark-to-market effects on the available for-sale portfolio and related hedging instruments also reflected improvement in the debt crisis of Latin American securities and contributed to reducing unrealized losses recorded in the other comprehensive income account by $3 million from the previous quarter, to close to 0 this quarter, and down to a negative $4 million a year ago. With our Treasury portfolio balances at fairly low levels now, we expect to become net buyers of well priced securities going forward.

The Securities portfolios continue to consist of high quality and liquid Latin American securities. More than 3/4 of the Securities portfolios represent sovereign or state-owned risk.

The bank continues to cover any FX exposures with appropriate hedging instruments that are designed to offset the effect of gains or losses on foreign currency exchange. Most of these transactions are negotiated to hedge assets and liabilities that in most cases are designated and qualified for hedging accounting, either as cash flow for value or net investment hedges.

There are a very small number of contracts that, even though contracted to hedge underlying assets and liabilities, do not qualify for hedge accounting as per U.S. GAAP criteria.

In those cases, the valuations of the hedge and the underlying are accounted for on a standalone basis and recorded in their respective P&L positions.

Taken together, these positions largely offset each other, thus achieving our goal of neutralizing FX risk. After having increased the liquidity level [indiscernible] this quarter

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capital markets conditions have shown some improvement in the first quarter of 2012 and we have adjusted our liquidity levels accordingly, freeing up resources to fuel loan growth again. Average liquidity balances which were still relatively high during the quarter should reflect that redeployment going forward and therefore trend lower as long as current market conditions permit.

On the funding side, the Treasury division took important steps to further diversify our funding portfolio into the debt capital markets by issuing 3-year bonds in Mexico and a 5-year bond in the global markets. Market demand for our issuances exceeded our expectations, leading to an upsizing of our issuances at very favorable rates.

These medium and long-term funds will help stabilize our funding structure, ensuring a greater degree of independence on disruptions in capital markets.

Average weighted funding cost in the quarter increased by 16 basis points versus the first quarter of 2011 and they're up 29 basis points versus the same quarter of a year ago, mainly as a result of the spike in short-term interbank rates in the global financial markets. However, net interest spreads widened 4 basis points versus the previous quarter and 16 basis points year-on-year as rising lending rates outpaced the increase in funding costs.

Deposit balances have been an important factor in mitigating the increase in funding costs. Deposits represent a significant share of short-term funds in our bank with ending deposit balances increasing by $90 million quarter-on-quarter or 4% to $2.4 billion, which is some $500 million more than the balances of the year ago.

Average deposit balances in the first quarter of 2012 were up 2% versus the previous quarter and up 31% versus the same quarter of the year ago. The deposits came primarily from our central bank shareholders although many Latin American commercial banks also place some of their U.S.

dollar liquidity with Bladex.

Now let's talk about our Asset Management Unit, which added another positive quarter to its investment track record with net income of $1.5 million after net income of $3.9 million in the fourth quarter of 2011, and compared to net income of $3.5 million a year ago. Having redeemed $50 million throughout 2011, the bank maintained its investment levels in the fund this quarter but remains committed to following through with its approach to reducing absolute and relative exposure.

Now moving on to our segment review, let me give you a brief summary of other financial highlights of the bank's performance in the first quarter of 2012. Operating expenses in the first quarter were down $0.5 million or 4% compared to the previous quarter, mainly as the result of variable compensation tied to the performance in the Asset Management Unit.

Other expenses were largely in line with the previous quarter. Year-on-year, quarterly expenses were up 16% as the average workforce reflected the increased number of sales executives and risk management staff.

The bank's efficiency ratios continue to improve. The efficiency ratio for the first quarter of 2012 reached 31%, down from 34% in the previous quarter and down from 44% a year ago.

The same positive trend is reflected in the efficiency ratio relating to our core operations which exclude the Asset Management Unit as core revenues growth exceeds expense growth.

The bank's overall return on equity reached 16.6% in the first quarter compared to 13.1% in the previous quarter and compared to 9.4% in the first quarter of 2011. Operating ROE which excludes the effects of provisions and reserve releases also improved sequentially.

The ROE relating to our core operations is well into the double-digit level. The bank's book value stands at $20.79 a share, up from $20.45 a share in the previous quarter, as a result of higher retained earnings.

Leverage at the end of the first quarter of 2012 is 7.7x down from the 8.4x in the previous quarter and slightly up from the 7.5x in the first quarter of 2011. Tier 1 capital stands at 17.9%, compared to 18.6% in the previous quarter and compared to 19.3% a year ago.

After having increased the dividend by $0.05 a share last quarter, the bank's board decided to maintain the quarterly dividend corresponding to the first quarter of 2012 at $0.25 per share.

In closing, we believe we have started the year 2012 with good momentum and should be well positioned to perform over the coming quarters.

And with that, I'd like to hand it back to Jaime for the Q&A session. Thank you.

Thanks, Christopher. Ladies and gentlemen, we'd be delighted to take your questions.

Please, go ahead.

Two questions for me, if I might. First, I just wanted to get -- have you elaborate a bit on where you think things are headed in Argentina, as you might suspect.

And then secondly, going back to last quarter's call, there was a sense that you were going to have, I guess, "a final solution," if you want to call it that with respect to the Asset Management business. Whether that meant changing the strategy or sale or something like that.

So I'm just kind of curious where you're head is on that now as well.

I thought you weren't going to ask. Argentina first.

Let me address what I imagine is probably the most important thing that you want to hear. We are quite comfortable with our exposure in Argentina.

That having been said, some background on it, we started following with special care what was going on in Argentina, actually starting August of last year, which we are -- because of several reasons, we thought the reason that rate levels were increasing and we've been following up very closely on it. Our exposure?

The good news is that our exposure is all trade-related. It's either short-term and/or extremely well structured with payments received offshore.

We have reviewed all of the accounts involved. We did so again during the Board of Directors' meeting that took place a couple of days ago.

The situation in Argentina is fluid and is risky but our portfolio is doing just fine. The second part of the question is probably one which concerns us more fundamentally.

Argentina is one of the most important, largest economies in the country. It behooves and it would be important for the region as a whole, that a normalization of relationships between the Argentinian government and the Spanish and foreign investors in general take place as soon as possible.

There's a heavy, as you know, heavy, heavy element of politics involved in all of this and it's difficult to project or predict what politicians will do in Argentina, in Spain or anywhere else in the world. That all being said, we do have a special insight into the country.

We've been there for a long time. We have an office there.

We have long time clients there. We have a director from Banco National Argentina, who sits in our board.

Our well founded hope is that the noise will abate and a mutually satisfactory solution will be found because it's to everyone, everyone's advantage that, that takes place. That having been said, we are ready to continue living with volatility and noise for a couple months at least, but our portfolio is fine.

Just a follow-up on the Argentinian aspect. Is there -- are you seeing any opportunities within the trend to maybe -- Christopher noted being that purchasers of securities.

Are you seeing any real good pricing distortions that you feel like you're able to take advantage of in the Treasury division on?

No, not in Argentina. What -- the paper that we generally vie for, available-for-sale purposes, we buy when there's a general market disruption, the liquidity dry-stop and even the price of the best papers in the regions drop, and that's what we do.

We buy the best papers in the region and then wait for the situation to normalize and sell them. In the case of Argentina, we consider those high-priced papers and therefore, that is not something that is within the realm of what Treasury does now.

Okay. And then on the Asset Management business, where -- what was the strategic thinking on that right now?

We have moved ahead, I made a mistake, and I freely admit it last time. I thought there was going to be a solution coming up within a quarter.

The bad news is that I made a mistake regarding the timing, but I can confirm to you that, one, our strategy has not changed and we are moving forward with the objective of, one, reaching a solution where we can, A: reduce the volatility that the Asset Management division has been imposing on the bank and that will probably come in the form of a lower exposure to the business; secondly, we are trying have our cake and eat it too, in that we're trying to preserve the upside of the business in terms of management fees in particular. There are conversations going on with at least 2 parties that we believe -- we know are seriously interested -- had been considered and have proposed structures to us that we are working on at very high levels, spending a long time in trying to come up with an agreement.

The conversations are moving forward. It will take us some time to negotiate the details.

And it probably will take us even more time to -- once we get the lawyers involved to discuss -- to document the deal if we reach that stage. But we are moving forward.

And again, the decision on the part of the bank remains the same. We -- our aim is to, one, reduce the volatility that, that business impacts on the company.

But secondly, if we can keep the upside potential of the business at the same time, let's do it. And it looks as if we just might be able to get away with it.

I hope to have more news on the subject during the next quarterly call in July.

Just 2 quick questions. First, given the strong quarter you guys just had and you're just -- and your comments on the dividend, I just kind of want to get an expectation if it's changed pretty much for the ROE for this year.

And kind of going forward, I think you mentioned previously that you guys kind of saw a core ROE of around 12% for 2012. My second question is, you guys have been pretty much been carrying some excess liquidity and maintaining that larger funding pool now for a few quarters and I guess you guys really haven't seen any funding pressure recently, which is always good.

But I just kind of want to get an idea of what you guys are looking for before you kind of change the structure of that and kind of look to shift it into higher-yielding assets?

I think that we've already made a decision and Christopher alluded that to start lowering our liquidity balances because not only has the strain in the international markets eased but also as a result of the medium-term funding that we obtained in March, that had a tremendously beneficial effect in the strengthening that is the source of our liquidity. So yes, as the -- in fact, starting this quarter, you would probably see -- in fact, you will definitely see the liquidity balance will start coming down to more normalized levels.

On the question of the ROE, again from the point of view of the core business, we expect growth in the volumes to remain in the order of 2x to 3x underlying growth in the region, margins to remain relatively stable, fees to increase and expenses to remain steady. That will give you an update on improvement of ROE levels last year and will probably reach or exceed the 12% that we had mentioned.

There are some upsides to that. However, there are some upsides to that in terms of potentially increased margins in -- particularly the corporate sector as we extend longer-term credit.

There's also upsides to that in terms of fees to the extent that a higher percentage of the leads that we now have in the syndications pipeline work out and there's also some downside ridge, particularly in terms of global growth. If global growth is also down, then we might not be find it -- we might not find it prudent to grow at the way that we had estimated.

But so far, we seem to be on track or slightly ahead of where we thought we were going to be last time we spoke, particularly because this quarter was stronger than we expected.

I just was looking for a little bit of clarification on the makeup of your loan portfolio. Loan up 2% from last quarter but your risk-weighted assets were up over 5%.

I'm just trying to see -- get some color on what's going on there.

Christopher, will you take it?

The increase in total assets is -- as you look at the composition of the portfolio, while loan growth and loan book has grown only 2%, as you mentioned, our liquidity levels were substantially higher than in previous periods and, of course, the risk weighting of those types of assets is much more lenient compared to the loan book. And so from a risk-weighting perspective, we actually had a lower capital with these overall assets.

And then we might had it if our loan book were larger and the liquidity and the bond portfolio were lower. I don't know if that answers your question.

Yes. It goes a good way to answering my question.

Also, you mentioned looking to increase the tenure of some of your corporate lending. What type -- how far out are you talking about?

Our -- firstly, our -- the average tenure of our portfolio remains somewhere in the order of 1 year. The tenure that we generally extend because most of these tend to be trade-related transactions, depends on 2 things.

Firstly, the country that we're talking about. You can imagine how -- we feel more comfortable with extending tenures in a country like Chile than in a higher risk country, but we generally -- trade-related terms transactions generally go -- will begin at 2 years and go as far as 5.

That's the average of the tenures that we generally talking about and they're generally were structured. And we extend them to companies that are involved in trade finance of -- before we had a percentage of our portfolio in term financing and have done so successfully.

Most of my questions had been answered. I just wanted to clarify the bond issuance under the EMTN is not reflected on the $331 million balance sheet but secured issuance is, correct?

That is correct. Yes.

Okay. And then sorry if I missed this, but in terms of the leverage ratio, it dipped a little bit sequentially.

Where do you see that directionally by year end, sir?

We want to become more leveraged. I think -- I hope, there are 2 things that are going to drive the leverage higher.

Firstly, our loans are going to grow. And secondly, as I said, to the extent that we improve profitability, we'll probably increase the dividend.

So in relative terms, our capital will not grow as fast as the loan balance and therefore, our leverage will increase.

I've 2 sets of questions. First one would be on the gain or loss on foreign exchange line on the income statement.

Note that the dollar amount there has been growing significantly. Can you comment on why it was large gain in the fourth quarter of '11?

And why it was a large loss in the first quarter of 2012? And is this line item likely to become more volatile over time?

Yes, I'd like to take that question, if you allow me, James. I mentioned in my notes that we -- the bank pursues the policy of not exposing itself to any FX expenses.

And so even you -- if you may see an increase in gains or losses in the FX line, you will see a counteracting amount in other P&L lines that convey the impact that our hedges actually have in obtaining the coverage that we seek. And so yes, these amounts have increased but those are really attributable to distinct transactions in the wake of -- or in the months leading up to the issuance in Mexico.

We secured short-term financing in the meantime, that was in Mexican pesos and we covered that with the appropriate hedges which were not accounted for on -- as hedge accountings for the U.S. GAAP criteria, but still achieved the economic benefits that we hope from having deep hedges in place.

Those you should not expect to see going forward as our funding has now -- the funds from the issuance have come in. We have redeemed or released these -- the interim financing.

In the meantime, so while I wouldn't rule out the possibility of some transactions being reflected in these accounts going forward, we don't really expect these to be very relevant nor hugely impactful.

Very good. Second question would be regarding the European bank competitors.

First of all, could you give us the outlook for their share trade finance in Latin America? Do you expect it to recover or do you expect it to continue to come down?

Secondly, the European banks because of their capital difficulties -- I'm talking about moving to a more capital-light, originate in sale model for trade finance and receivables, do you think that would work? And how would that affect your business either positively or negatively?

Our experience, James, is that inevitably what is going on in Europe particularly in regard to the European banks need for capital has in fact, in general, resulted in them being able to extend less credit in Latin America, including trade. It doesn't apply to every bank in the same manner.

There are some that are still doing their tax in conducting the business and they're still represent competitors of ours. Regarding as to where they would be able to engage in a lighter capital rouche structures and become competitors of ours, yes, that is possible.

However, in most cases, it is the case that clients expect you to provide financing in several forms. So unless you provide a low-capital-use structure at extremely low rates, in which case you will lose volume in the transaction, it's unlikely that they will -- you will become their house bank unless you also provide them with the more capital-intensive instruments, which we do.

So yes, it's -- we'll probably see them in the market. We haven't seen them at all.

It took us 2 years to establish a strong position in the market starting from a very strong position with our clients. So I expect that these Europeans will pursue that strategy.

Firstly, it will take them a long time. And secondly, they will have to literally win market share from us which is, of course, much more difficult than for us, it will be to defend our market share.

I don't think that's -- it is a factor but not something that concerns us at the moment.

I thought James' question was particularly astute and I want to follow up on that. I think he was asking a different question, is that the European banks are having higher -- with the new Basel III trade finance requires a 100% risk weighting and a lot of the European banks aren't doing very well.

So I guess the question I think he was asking was what share did the European banks have in Latin American in trade finance and do -- as Peter said, is gaining share from this?

We don't know what share the Europeans have of Latin American trade finance. Those statistics have never been available in our day-to-day activity as we conduct business on a day-to-day basis.

We have just -- we've seen many of the names that we used to compete with. In some cases here, and in some cases become much less aggressive than they were in the past.

There are still a couple of European banks competing in the region and doing well but they're a much less a factor than they were in the past.

Do you have any sense of magnitude, if you had to guess, are they major competitors now or are they minor competitors now?

I would call them, with the exception of a couple of names, minor competitors.

Okay. So if they disappear completely, would they benefit for you?

I'm sorry, what was your...

So if they disappeared completely, would it be a major benefit to you?

Absolutely, yes. And we've already realized much of that benefit in the last year but they have slowly been winding down their credit in Latin America.

So you think you've already achieved that benefit, in other words?

Yes, we've already achieved that benefit already. That's probably less to be gained because most of that has already been realized.

Got it. And my other question is what type of a dividend payout rate do you target?

If you allow me, I'd like to take this question. In the past, we have -- every quarter we present our dividend proposal to the board.

And as we do that, we provide a benchmark information as to what payout ratio we would be looking at. And so in the past, we've always used the benchmark of around 50% payout over the core income, which as you know, excludes the income that we derive from the Asset Management business.

So that is a benchmark, not a commitment necessarily because as you -- this quarter, we are fairly below that, that payout ratio of 50%. But I think there's always the intent to look at this payout benchmark from not a quarter-to-quarter basis but on an over an entire year basis and you saw us taking adjustments with the dividend just as frequently as in the fourth quarter of 2011 and that took into consideration the entire performance of the entire year not just 1 quarter.

And I think the board if -- I don't want to speak for them, of course, but I believe the board is on board with that type of perspective.

And what would you say your core number was this quarter, by your definition about $0.60?

I don't have it quantified in per share amount but I calculated the payout of the $0.25 to be somewhat in the neighborhood of 35% of our core income. That is the analysis I do recall at this moment.

So that would put it in the neighborhood of 60% as you...

So this shows $0.70 then would be the number of core income by your -- by that logic but $0.35 would be a 50% payout today?

I think that's more like and more or less like that, yes. I don't have the numbers right in front of me.

But I think that's in the neighborhood of what we're looking at, yes.

Got it. So if else was equal, and you maintained this level of core income for, let's say, the next 3 years, you would see most likely that trend up to a $0.35 dividend?

That is correct. The only thing that would determine -- and the determining factor is if you've been with us for a while, the board quite rightly waits until we are absolutely sure that the quarter-to-quarter results are sustainable before moving the dividend up.

But yes, that -- what you're saying is absolutely right and that is the reason why I believe why I made my comments in the opening statement. If -- as we continue improving profitability -- core profitability, the dividend, according to what the board has committed to, should increase and that should benefit both the yield on the stock and the ROE indirectly by accumulating the [indiscernible].

And again, I think that if you want a further and clearer explanation of that, it's well laid out in the Message to the Shareholder of our Annual Report. We dedicate a whole paragraph to the dividend issue.

I believe you just addressed my question but just to elaborate, the loss on foreign exchange of $8 million in the quarter, are the related gains, if you will, in the transactions related to the losses, are they falling primarily in the securities and fund trading -- I'm sorry, the trading gains lines in the income statement?

Absolutely, yes.

Just to make it absolutely clear. We have a policy in the bank.

We run no foreign exchange positions. And now, of course, we do fund ourselves in local currency.

We fund ourselves -- we've funded ourselves in local currency in Mexico recently. In every case, we either lend them in local currencies which gave them the position in shopping or we hedge and them and move them to dollars.

The accounting is such that some of the gains or losses of the underlying instruments appear in one line and the offsetting gains or losses appear in other. But they should tend to offset each other almost exactly.

I have a specific question on Argentina. I know you already talked about in general about the portfolio and how it's behaving there but can you comment a little bit more specific on YPF?

Do you have direct exposure to the company? Is it secured, unsecured?

What about the potential acceleration of the syndicated loan of $3 billion. Is it -- does it cross with your debt?

Can you comment on that please?

I'm not at liberty to discuss our independent or our visual exposures either in Argentina or in any other country for that matter. But what I can tell you, and again bring assurances to you is that we have reviewed our portfolio in Argentina, which again, is all trade.

And we are very well aware of what's going on between Argentina and YPF and have concluded that yes, it is a difficult situation for the country, unfortunately. But our portfolio is solid and we have no particular reason to be overly concerned about it.

We're following up on it, of course, extremely carefully. But, no.

So far, so good. We don't think it's going to be a problem.

Again, I do want to emphasize, however, I think for Latin America as a whole, it's critical and it will be tremendously important for Argentina and the Spanish government and everybody else to come to terms and get that situation resolved. It is -- in our estimation, from everything that we know, it is going to eventually be resolved and some sort of agreement is going to take place.

But there will be a lot of noise, volatility and uncertainty while that happens. And that's -- we're just going to have to live with that.

Well, ladies and gentlemen, again thank you very much again for your time. Particularly, thank you very much for your questions.

They were extremely interesting. We're very glad to answer them.

They reflect a very big note of our company and that's what we love. We love to have shareholders and analysts that understand our business because -- to the extent that you do -- as you do understand our business, you can appreciate the benefits of our business model and it becomes easier for you to project our results.

And in fact, if you do that, we are sure you will come to share our excitement about the company's prospects. So thank you very much for your time.

Thank you very much for your support. And on behalf of the board, I want to thank the shareholders.

Most of you are Class E shareholders, who show -- overwhelmingly supported the propositions that were put forth in our Shareholders Assembly a couple of days ago. I personally want to thank you for supporting my nomination too.

I think I got something like 98.7% of the Class E supporting my nomination. My wife joked with me.

She said that this is a type of result that somebody like Fidel Castro would expect. And I was going to find out who the people that voted against me were, but in the end, I called the SWAT team off.

Again, thank you very much for your support of the company in general. And best of luck during the coming quarter and success and we'll talk in 3 months.

Again, thanks a lot and we'll speak in July.