CaixaBank, S.A. (CABK) Earnings Call Transcript & Summary

Good morning again. Dear shareholders, [Foreign Language], I would like to thank you again for your attendance, both to the people that are here with us in this hall to -- and also those that are following us telematically. It's a great pleasure and honor to me to be here with all of you as Chairman of CaixaBank. And first of all, I would like to thank you for -- warmly for your trust. Holding a general meeting is always a very important occasion, and this time is especially so because we are holding the first General Shareholders' Meeting of CaixaBank after completing the legal merger with Bankia, a merger that you approved last December with the support that is over 99% in the Boards of both banks. After this landmark, CaixaBank becomes the first financial group in our country with a clear intention to become leaders in the Iberian Peninsula. And we -- this is the result of the trust given by more than 21 million customers in Spain and Portugal and with the backing of all of you, dear shareholders. I'm going to structure my address in 3 different sections. First of all, I will make a brief review of the last financial year; then I will refer to our responsible and sustainable management model; and thirdly, I will share with you some thoughts about the future. After my address, our CEO will analyze in detail the evolution of the business and the annual account that we present for your consideration. Last financial year was incredibly complex. We had to face an unprecedented health care crisis that is still leaving and in turns marked both in terms of loss of human lives and also economic and social impacts. All economic sectors suffered, in a higher or lower extent, the effects of strict confinement and the impact on consumption and investment. This is reflected on unprecedented declines in the gross domestic product. Luckily, they set -- we applied support measures that are bigger than ever before, and that managed to cushion the most harsh effects. The banking sector is really cycle, and it wasn't immune to the pandemic nor its consequence. This had a clear effect on volumes, income, turnover and, of course, the prudential risk management. However, in this crisis, the situation of the banking sector was quite different to the previous one that took place in 2008. And thanks to the efforts made in the recent years, we had a strong position to be able to support families and companies. This financial strength and resilience, together with the efforts and commitments developed -- the commitment shown by the CaixaBank team, made us be close to the customers and the society as a whole in the moment that they most needed us because those support measures implemented by our bank where we had a great outreach at -- as it will be explained by our CEO later on. This work is behind the figures that the CEO will present later on for its approval in this general meeting. CaixaBank's figures in the 2020 financial year show, first of all, a great commercial resilience and strength with growth in volumes and share -- market shares, a great robustness of the balance sheet and profitability that is adjusted to the environment. This year was closed with an attributable net profit of EUR 1.38 billion after granting extraordinary provisions of EUR 1.2 million. Regarding the dividend distribution and in line with the recommendation of the European Central Bank about limiting the payment, we proposed a distribution of dividends in cash of EUR 0.0268 gross per share against profits of 2020 financial year. To finish my review of the last year, I'm going to make reference to the most relevant event of the year, the merger of CaixaBank of Bankia, which you, all our dear shareholders, approved last December. This merger is our strategic response to the enormous challenges we face as a sector. I will give more details later on. With the merger, we intend to reach a critical size, to be able to improve efficiency, to have a higher investment capacity in technology and innovation. Therefore, we will be more robust. We will have a strongly provisioned and highly capitalized balance sheet to face the crisis and to support families and companies, and ultimately, the society. Thirdly, we have a sustainable profitability, thanks to a balanced business mix with a high capacity to generate diversified income. We pursue these goals based on a common value set and culture, which cushions the risk of implementation of any merger process. Our merger fulfills all those objectives. It's a unique product. After the merger, we have an excellent platform, a new CaixaBank that is more resilient. And this way, we can face the future from a privileged initial position. But this is just a starting point. Our task as managers is to guarantee sustainability of the project in the future. This -- then I will come to the second part of my presentation. I have wished that society finds our work to be useful. And to do this, we don't only need excellent results. They have to be based on responsible management so that our clients are satisfied. With this objective, we wish to manage our organization with 2 references and a goal. The references are an excellent corporate governance; and second, clear commitment with society. Now together with this and what we want to do with our clients, we wish to meet their financial needs and offer them a service that is excellent: in short, a bank they can trust. Now starting with a corporate bank. I firmly believe that a corporate governance that is excellent, this is a condition necessary for the sustainability of a project. And for this, I'm referring to the Board of Directors. I would like to thank my predecessor Mr. Jordi Gual for his great work as President of this Board and what he's done in -- over the recent years in -- during very complex periods. Going back to the Board and its composition, I want to assure you, we are before an excellent Board with fantastic curriculums, and they represent 60% of the independent Board members. Similarly, I would like to point out that 40% of the Board is formed by women with a fantastic professional trajectory. And with this, we have established and met the 40% quota according to the Good Governance Code for 2022. Hence, we should be proud, I think, with -- to have in our midst an excellent Board with people that have enormous experience and an unquestionable commitment. The second pillar of our management is one of social responsibility. It is a distinctive feature of CaixaBank. Our social commitment is part of the DNA of our bank. It's part of our origin that goes all the way back to our origin, and our financial approach is a measure of our social action. We approach initiatives such as micro bank, the biggest microcredit bank in Europe, which offers finance to families and micro companies, which otherwise would not have financed. We believe in a strong financial inclusion of people, and we are present in 365 municipalities where we are the only banking institution. We are concerned with those who are vulnerable. We have 15,800 dwellings rented out to people in those characteristics. We indeed are very proud of our relationship with Fundación ”la Caixa”, the foundation whereby we are -- do thousands of social projects throughout all of the territory we operate in. 6,900 organizations benefited this from this year -- all over Spain last year. In terms of environment, we have a strong commitment with sustainability -- environmental sustainability. CaixaBank is committed, and has been for many years, for the [ world PAC ], the UNEP, the FI, the principles of responsible banking (sic) [ Principles for Responsible Banking ], the United Nations, the Equator Principles, among others. We also got involved last month in 0 banking, which has been pushed by the United Nations. And we are working towards the 2050 objective, which indicates there'll be 0 CO2 emissions. From the business itself, we have specialized groups working hard on sustainability. And we are very active in the ESG markets as finances and also as an issuing body. We also have committed to green and social issues for -- to the value of EUR 5,000 million -- EUR 5 billion, excuse me, for the 2021 period, and we are the first bank in Europe for that volume. We are doing this according to the terms of the DJSI principles. And we are abiding by the ISS international agency in 3 dimensions: environment, social issues and governance. And of course, we are all about the equality of -- between men and women as part of our identity. And we have obtained a maximum score for the Bloomberg Equality Index, and we are proud of that. On these 2 pillars, excellent corporate governance and our social responsibility, has made -- has reinforced the fact that we are close to our clients. We are all about giving good service to our clients, our CaixaBank clients, who receive us as the best financial partner because clients legitimize our role, our presence, and an excellent service for all and each client is the first step towards social responsibility. This is the framework in which we're operating in. It will allow us success and be able to meet the challenges ahead. The financial sector, and now we'll be moving on to the third part of my presentation, is already facing and has been facing for some time some incredible challenges. The crises -- the crisis provoked by the world pandemic is really affecting our competitive situation. The first great challenge has to do with the presence of negative interest rates. And we've been facing this for over 5 years. We've seen that monetary policy in view of this pandemic crisis has pushed us towards these negative interest levels never seen before. And this seems to be a prolonged thing and will be for some time. In fact, for the Euribor 12 months, we don't see any change until 2024. This situation is, therefore -- perhaps has been -- is no longer considered as a temporary situation and now more seen as a structural change in our business. And this is making us rethink our business model because certain things are no longer profitable, certain activities. And this affects our income sources, and we've been aware of this for some time, and we have forecast this accordingly. In second place, we are looking at our technological revolution. This revolution affects our chain -- the idea of building value along the chain, it affects our infrastructures and affects our client relationships. If we look at our infrastructures, we realize that we need a deep reconfiguration of our banking core and a migration from traditional storage of data towards the cloud that is imperative. This will enable to make -- us to make better use of the data, thanks to artificial intelligence. And we will, therefore, move better towards competitive advantage. We have enormous competitors, big competitors, who outside of the -- even the financial sector, like they'll be doing this through the ex novo banking activity without the legacies that are faced by traditional banks. Now in order to respond to this challenge, we need to attract talent with different -- different to the traditional profiles of before where talent has been recruited. We need to have that financial muscle to make the necessary changes and still enable us to make an attractive project for clients and still attract client -- talent -- excuse me, talent. In third place, we are in a setting of enormous competition. And when I mean enormous competition, it means that we have to consider 2 planes. The first is the financing plane. In this chapter, we are facing a growth, just singular growth of nonbanking competitors, which is known as shadow banking. The shadow bankers are also benefiting from the conditions where they don't face the same requirements as we do. I just want to give you a fact. According to the European Systemic Risk Board, at the close of 2019, 40% of financial active assets in the European system, that's EUR 45 billion, were controlled by financial entities different to banks, these shadow banks. The second part of this is the competition that's happened in the retail banking sector with this retro feedback of change in the habits of clients and the technological revolution is creating barriers to -- for entry into the sector. It's true that banks have responded technologically. But this critical mass offered by the merger has enabled us to a point to keep on leading and keeping ahead of these changes. So on the one hand, we have barriers to entry, but we're also having to maximize our technological advantages. These new competitors are looking for new opportunistic niches of the market, and this often enables them to have competitive advantages compared to the traditional operator. I really believe that competition is good. It's good for clients. It's good for banks because it makes us be stronger, to build up our muscles really. And therefore, we can improve. And I've also felt that we need to establish different regulatory frameworks and arbitration methods and approaches that will tackle things as we saw in the previous crisis. This is going to be the milieu in which we'll be working in the coming years. And it is undoubt -- not to be doubted that our strategic decision as an entity will be strengthened if starting point -- if we take all these points I've mentioned before. Looking toward the future, decisions -- we need to make decisions which will be tough. But at the same time, we need to be an organization that is very flexible and able to respond quickly to a changing environment, a changing setting. This is a challenge of enormous dimensions. It's a challenge, where we already have some very strong points in our favor. First, we have 21 million clients in Spain and Portugal. This is the most important value of our bank, and preserving this and incrementing it should be our main objective, I believe. We also have, in second place, and I think this is also very important, an approximation towards the idea of sustainable banking and a close relationship with the foundation known as Fundación ”la Caixa”. Maintaining this differential factor is, for us, a great permanent guide. And we also have enormous financial strength, a solid balance and a strong capital position above the regulatory requirements that have been set upon us. And this will strengthen any future upsets. And of course, we have an excellent team working, which is the key ingredient for any firm. So this merger that we have carried out requires a resizing or redimension of our staff to preserve the biggest number possible of staff, but also to think of sustainability in the future. And right now, we are in a process with worker representation specialists, where agreements are being reached. And we're -- I'm very sure that we'll be reaching these agreements with workers and staff. It's a delicate situation, of course. It creates uncertainty for our colleagues, for our team, and we need to do this as swiftly as possible. We will manage the whole process, convinced with the idea with our team. It is thanks to our team that we are where we are, that we have achieved so much. This is the ethos of CaixaBank. And furthermore, we -- I -- we should all be conscious that the strength of CaixaBank has allowed us to move towards the future with realism, but also with trust and confidence because I have no doubts personally, whatsoever, that I think we are a more technological bank, a more digitalized bank. I still am convinced that people have enormous role to play, to contribute. Because people, their capacities, talents and commitment is a factor that's going to differentiate excellent entities, bank entities from the mediocre ones. And therefore, it's going to be a priority for us to manage a good team, to have a good team. And it's one that needs to have a vision of participation, too, looking at sustainability and our project. And with this, I'd like to finish our presentation. In this first occasion that I'm appearing before you, ladies and gentlemen, I wanted to share a really realistic message, and that is a message of congratulating us, congratulating ourselves. Thanks to our excellent situation, thanks to our merger and the integration of 2 organizations that we have seen. But as we know, our industry, our sector has enormous challenges to face. And therefore, I feel we have the skills, the capacity, the strength, the ability to get on with it, to keep on managing. Management required of us -- will require the best that we can give to the organization. And I'm sure we will be able to lead the process in this industry and do that -- and do so with enormous closeness to our clients with our -- we will be at the center of their attention. Thank you very much.

Dear Chairman, dear directors, dear shareholders, [Foreign Language] It's always a pleasure to me to come back to Valencia to lead this General Shareholders' Meeting. And today, it's even more so after the merger that was agreed on this same hall by all of you last December that was executed this March. This transaction, it places us on a very strong position. Moreover, it extends the shareholder base at CaixaBank in 127,000 shareholders, reaching a total of 686,000 shareholders giving support to the project. In today's address, I will make reference to the priorities of the CaixaBank Group for 2021 in, I guess, the backdrop of this integration. And previously to that, I will make a review of the most relevant facts of last financial year that we are closing today and submitting to your approval. 2020 was an absolutely exceptional year, conditioned by the pandemic in which we have demonstrated that we are next and close to the customers, at the service of society as a whole. On the other hand, it's been a highly intensive year of activity with customers where we managed to increase both turnover and shares. We generated earnings, and we reinforced our balance sheet. Last but not least, it was the year of the merger agreement that, as our Chairman has just pointed out, is a decisive step forward in the reach, competitive advantage and sustainability of the Caixa Group's project. As a courtesy to the many Spanish-speaking shareholders, I will continue my speech in Spanish. He was speaking in Catalan. 2020 was a particularly difficult financial year for all of us, a year conditioned by the health care crisis, economic crisis conditioned by the COVID-19 pandemic, from which we haven't come out yet. Thanks to the dedication of thousands of professionals and the intense work of our team, CaixaBank kept its office network fully operative even in the worst moments of the pandemic to service -- to serve and support our customers. We made a very important effort to keep operating with normality and efficiency and -- so as to guarantee that liquidity and public subsidies reach families and companies. As a summary, I would like to highlight that the 500,000 loan moratoria granted until March last year in Spain and Portugal totaling EUR 17.5 million -- billion amount to 615,000 if we take into account Bankia's ones. In Spain, we gave 3 point -- EUR 13.3 billion in publicly guaranteed loans. Last year, we approved funding for more than EUR 83 billion. From the onset of the crisis, we also took another significant measure so as to support our customers, such as advanced payment of benefits for nearly 4 million people in terms of temporary layoffs, employment insurances or retirement pensions. Preferential attention and follow-up of the elder population was among one -- among our most important priorities. Additionally, to our financial activity, CaixaBank took part in other initiatives, highlighting the rent payment cancellation for families that were really vulnerable. I insist on cancellation of debt, people that couldn't face paying their rents. Also, VidaCaixa and SegurCaixa Adeslas contributed with more than EUR 8.5 million to the creation of a solidarity fund that assures the health care professionals in a free way. As a consequence of the intense work of our -- with our customer base, the turnover grew in a considerable way. The healthy credit portfolio, that is without doubt assets, grew in 7.6% and the customer funds did so in 8.1%. Funding to companies, a segment of the economy that require most -- a lot of credit last year, increased in 17.6% to [ EUR 106.0 ] million, and the Spanish share in this segment improved 110 basis points. Regarding savings, long-term savings management, the growth was 3.9%, up to EUR 166 billion, and the share in Spain grew to 23.3%. An efficient counseling model and the trust placed by our customers in our bank to manage these type of assets were the key factors in that evolution. In our neighboring country, BPI showed a similar performance. And consequently, a very important and interesting results last year with important growth in their activity. With its traditional prudential risk management, it kept its default ratio in 2.2%. Once again, it's become a benchmark in asset quality. Likewise, it showed commitment with economy and Portuguese society with the granting up to March of more than EUR 6,000 million in moratoria -- loan moratoria to families and companies so as to improve their financial situation and to favor the, well, preservation of the productive sectors. Regarding the income statement, the most remarkable aspect is its resilience that allowed to achieve recurrent revenues. In total, the interest income, the fees and commissions, the so-called core income kept more or less stable last year, although with an asymmetrical behavior. The net interest income and fees and commissions went down 1%, affected by the lower recurrent activity in the first part of the year and the deterioration in the interest rate curve. However, on the other hand, the insurance operation contributed very well to the group's revenues. The rest of the incomes, that is the earnings of our investees, financial operations and other products, fell considerably affected by the market volatility and the impact of the pandemic. Against this backdrop, it was very important to manage and to contain operating expenses that were reducing 4%. Staff cost went -- declined by 4.6%, thus materializing savings agreed in the labor agreement of 2019 and also early retirements last year. Also, overhead cost went down 4%. As a result of the evaluation in the income and the expenditure, the core cost-to-income ratio, that is the portion between recurring cost and basic income, improved in the year to -- totaling 55.1%. This ratio -- in this ratio, we need to keep focused on improving the sustainability of our activity in the future. I will continue with the expenditure lines. I would like to focus on provisions and loss of assets, both lines affected by extraordinary items. The amount of provisions equal EUR 2.2 billion against EUR 178 million in 2019. This is a very important increase, that, well, is the result of a prudential consideration and the anticipation so as to facilitate or to cushion or lessen the potential economic impacts due to default or late payment of loans. This provision gives us a lot of trust to be able to face adverse scenarios. The -- those losses in terms of lower assets were compensated. On the one hand, we have the gains from the sale of 29% of our investee in payment means. Commercial global payments announced last July, that was recorded in the last quarter. On the other hand, the consolidation of our industry in Erste Bank, that generated a negative entry for a similar amount. So the results last year were EUR 1.3 billion, which amounts to a fall in -- or diminishing in 19% and ROTE, the tangible -- profitability in terms of tangible capital was 6.1%. It is not the profitability it was prior to, but given the conditions, this level was quite reasonable and also superior to the rest of the sector. I will move on to speak about the balance sheet metrics. Thanks to the intense and systematic management, we managed to reduce the default rate, the NPLs. This has been so since 2013. In the last quarter of the year, NPLs diminished in 5.3%. Taking into account the part of the moratoria were finished in this period, they finished this interest-only period, this data is quite positive. In fact, in most of the moratoria granted when we had to resume payments at the due date, we did so with absolute normality, taking into account the commitment of our customers and the solidity. Liquidity, as always, was very high and closed the year at EUR 114 billion. Debt issuance in 2020 were EUR 3.7 billion. And in particular, I highlight a green bond and a social bond linked to the contribution to sustainable development goals of United Nations that had a very important demand in favorable conditions. In terms of solvency, we closed the year 2020 on a strong note, reaching a CET1 ratio of 13.6%, with an increase of 1.6 basis points compared to 2019. This level is much higher, about 4.5 basis points to our capital -- regulatory capital requirement. Therefore, we have a clear, robust position with excess [indiscernible] of approximately EUR 8 billion. I move on to priorities for this year. In 2021, despite the -- we can be optimistic regarding the vaccination process. However, our circumstances are complicated. Our Chairman referred to that some minutes before. Negative interest rates, the change in -- of behavior in our customer base whose digitalization is boosted, accelerated the increase of competition, particularly in credit granted as consequences of the liquidity access on the system and as a consequence of the entry of new players. So this increased the pressure of the -- on the already narrow margins. And finally, the economic and sustainable consequences of this pandemic are not strictly completely yet -- completely visible yet, which generates uncertainty about their impact on the financial system at mid- and long term. So I guess this backdrop, our commitment is to keep on supporting the economy, families and the society with a strong financial position and above all, a highly qualified team, a highly committed team. We linked the integration project with Bankia, which provide us with more outreach capacity and sustainability. Therefore, materializing this integration of businesses, employments, employees and systems is -- will be one of our undeniable goals for this financial year. And we have to do so by keeping the best quality of service to our customers. Moreover, we want to keep on contributing actively to the recovery. And of course, we want to be a benchmark in socially responsible banking. The legal merger that took place -- took place on March 26. Since then, we've become a single bank, the -- although the integration of all the systems will foreseeably be finished on the last quarter. Meanwhile, we are working intensely to integrate environments, equipment, teams, policies and processes and other elements that don't depend strictly on systems. The dimension model and the model of segment specialization at CaixaBank has proven successful because it allowed us to align the proximity to the customer with scale -- economies of scale and the investment capability that is necessary to innovate. So we have an extraordinary opportunity to keep boosting our model, which works very well and to extend it to more customers. I'm sure that we will manage that because we have a very good initial position, and we are very strong. We have very strong market shares, around 25% in credit and deposit and also in mutual funds. In some specific segments, such as mortgages, they are even higher, 21%; and for savings, long-term service, 21. We manage a turnover, including customer funds and credit portfolio that surpasses 943,000 -- EUR 9.7 billion, sorry. And linked to the aforementioned, we have the strongest distribution platform in the country, which combines physical [ capillarity ] with important digital capacities. We are starting up a new phase linked to our traditional customer orientation places. This places us in a unique position to keep on gaining efficiency commercially and keep on developing our innovative services at the best cost, and at the same time, to realize the synergies of EUR 770 million in cost and EUR 290 million in revenues that we announced when the operation was announced. Another important topic is the restructuring plan whose negotiate -- that is being negotiated with trade union representatives right now. We will seek to actively reach a reasonable agreement that guarantees competitiveness, that guarantees relocation of people leaving our bank. We will provide them with the adequate training so that they can find new placements. Achieving operational integration in an efficient way is a priority for all of us. This will allow us to align processes and products and to accelerate and to boost this model that works with the customer base that is over 90 million in Spain. We have an important position -- potential, and our aim is to take advantage of all our expertise to -- in integrations to make it a big success. The scale and the size give us the best position to keep on the sustainability of the business in a crisis that has taken too long to disappear. Last week, we presented the results of the first quarter, and we highlighted the strong position of our balance sheet. Between January and March, we increased the total liquid assets in more than EUR 32 billion. Thanks to the integration with Bankia, regarding solvency, the common equity Tier 1 ratio was 41% after the extraordinary effect of the merger. We still have to show the impact of -- in costs associated to the integration, but taking into account a very conservative stance applying all those impacts. At the same time, the capital ratio would be closer to 12%, which is above the aim announced when we presented this merger. On the other hand, the NPAs this quarter was practically stable. And even considering -- including the integration with Bankia, the default rate and the coverage rate, we have one of the best figures of all the banking system. Regarding the income statement, the most remarkable aspect in the first quarter is that the recurrent earnings are -- amount to EUR 540 million against the EUR 90 million recorded in the same period last year after making provisions to anticipate the future impacts associated to COVID-19. It is important to highlight that this result doesn't incorporate the result from the Bankia's activity because, I mean, in booking terms, Bankia's activity will start on the 1st of April. An extraordinary aspect of the quarterly result that I would like to emphasize is the [indiscernible] generated after Bankia's merger by EUR 4.3 billion. I must insist, as I said, 1 week ago, this figure doesn't imply any cash income. It doesn't respond to any real economic reason. So our recurring profit is EUR 514 million. As I said before, this result and the future result of CaixaBank's combines with the social orientation and sustainability aims that has been defined our group from its inception. This will -- this and will continue to be a priority. We were -- this bank was founded more than a century ago with the aim to promote welfare -- social welfare, savings and with -- and now we have a much bigger ambition: to support the progress of the whole community, especially the more vulnerable groups with social projects, which are very tangible. In the path towards this movement, many other entities were joined to us, to la Caixa and to Bankia, and we integrated them in the same spirit. The merger between CaixaBank's and Bankia, the biggest one in our history, will not be different because we share the same values. Recently, the social responsibility of many companies changed for the better so as to adopt an attitude and a discourse that we never left behind. Corporate results make sense only if they support the economy and provide support also to society as a whole. Our aim is to keep helping families, the economy and society. To do so, we firmly believe that we have all the necessary elements: an efficient commercial model, a strong financial position on a highly committed and qualified team. I would like to add that our corporate structure is also unique. We have a potential -- a positive return for our shareholders. So we, like I said, believe they are a very good partner. I would like to finish my [ intervention ] by thanking, by expressing my gratitude to all the human team at the group without -- regardless of their provenance, I can say that their intense work, their dedication, the firm commitment and their professionalism made possible all which I have explained. I would like to thank you all, dear shareholders, for your support, your implication and your inspiration. You are the pillar of this great project. We need you all to keep on making projects. Altogether, we will keep on working on the same line, on the same direction for achieve -- our achieve for -- to get more achievements so that CaixaBank becomes a profitable and committed bank. Thank you. [Foreign Language] [Statements in English on this transcript were spoken by an interpreter present on the live call.]