Javier Pano: Hello. Good morning, and welcome to CaixaBank's results presentation for the third quarter of 2020. Today, it will be just Gonzalo Rotaeche, CEO; and myself Javier Pano, the CFO presenting. Eddie O'Loghlen, our Head of Investor Relations is away on sick leave, but is recovering well and expected to return shortly. Otherwise, the format is the same as usual.

We plan to spend around 30 minutes presenting with 45 minutes available for live Q&A, for which you should have received instructions via e-mail. Let me just add that the Investor Relations team is a dual disposal after this event. And without further ado, let me hand it over to the CEO.

Gonzalo Rotaeche: Thank you, Javier. Good morning, everybody, and thanks for your time.

We'll get directly into the result presentation for the quarter. I'm highlighting here for Ads in the quarter first. The recovery in activity, and hence the continuity in the market share progress. Obviously after the second quarter, this was quite critical for us to make sure that the machinery regained speed very quickly and it has happened. You see, there how our market share and we're highlighting, particularly long-term savings and business lending one, because it's so much our core business, and the other one is also our core business, and it's been quite critical in this year 2020.

Second, credit metrics, I have to say much more positive than what we were expecting. We have actually reduced non-performing loans quarter-on-quarter by 1.5%. Obviously, ratio is stable on that slight contraction that we have some seasonality in the third quarter of the total loan book. The cost of risk is lower in the quarter obviously because we actually did a major provisioning for COVID in the first and particularly the second quarter. But I have to say given that this was a quarter in which most of our moratoria started to resume payment obligations, we were expecting a different impact and the situation has been quite good.

I know this is looking backwards and we are all concerned about what is coming in the future, but let's make it clear. The third quarter has been, I would say, outstanding from this point of view. Third quarter revenue growth and cost control. We have actually delivered a 3.1% reduction in costs compared to last year, so a pretty good level. And then on the core revenue side, we have pressure on NII.

You've seen that, but have been able to almost completely offset that with good performance on fees, and particularly on the insurance business. And this is obviously part of our strength. So, we are confident, I would say quite confident that we will be achieving positive jaws in 2020. In terms of solvency, it's been a good quarter. We know we have some market headwinds associated to our equity stakes.

But despite that we actually have grown our CET1 and build up further our MREL buffer. So, I'd say pretty good on that front as well. Getting some detail on market share. You see how long-term savings up 66 basis points. Life risk Insurance and a major outperformance in terms of premium versus the market.

And then, on loan to business as well almost 100 basis points, in fact not almost but over 100 basis points of market share gain. We continue to increase the number of clients that we define as relational with three or more products with us. So things are working well despite the very difficult situation we have. In terms of the activity, we're sharing here our statistics on credit card turnover, which are a good proxy for what's happening in Spain. Obviously, big reduction during the hard part of the lockdown in March, April, May, and then a recovery pretty fast towards similar levels to last year.

But then in the last two, three weeks clearly some weakness associated to the situation of the pandemic and the new restrictions that are being imposed. On loan production, we have households where we are on mortgages. We're adding better than last year. Consumer we have recovered a good level of activity compared to second quarter, but we are still below last year. I think it does make sense in the current economic environment and we want to be obviously prudent in this environment.

Long-term savings, a pretty good performance. As you can see the third quarter compared to the second quarter almost as good as the first and be better than the third quarter. You all know that there's seasonality in the third quarter, negative seasonality and activity. So the fact that we have this level of net inflows is a pretty good signal. And protection insurance again comparing to last year is a major improvement, also compared to second quarter.

So, good feelings about how we actually managed to recover activity quite quickly after the worst part of the lockdowns. Non-performing loans, I mentioned we reduced 1.5% in the quarter. We have maintained the 3.5%, and then out of our moratoria, we had 97% of the amount under moratoria that have resumed payment. Sometimes, it's partial payment or most of the times, because we start with interest payments not yet with principal. But out of moratoria, only 3% are not up to date in terms of payments.

So -- and obviously of this 3% is just -- some of them will eventually be non-performing loans. Others may actually, not depending on the recovery process between sort of zero and 90 days of default. So, good feeling from an end point of view, and a good reduction of non-performing loans actually across all lending segments. It's evident that there will be credit quality issues ahead of us. Let's not make any -- or have any doubt about that.

But clearly, at this stage where we are is much better than what we we're expecting we would be at this stage. So, I guess that part of the picture is pretty good. In terms of the macro outlook, and obviously Javier will elaborate on all these. But we have basically a macro environment that is similar to the one that we had expected at the end of the second quarter. What we have done and you see the dotted line blue and the sort of firm blue.

The difference is basically that we were being more negative about 2020. I'm more positive about the recovery in 2021. And we are a bit less negative. And even after today's GDP number, we're clearly even less negative for 2020, but less optimistic for the recovery in 2021. So we are ending up basically at the same point at the end of 2021 than we were before.

And that's really the driver for provisions. And for that reason the COVID, sort of generic provision, has not been changed. We did make a great effort in the first half, and we've seen that the current macro forecast, are consistent with that level. We've also put there some expectations by, for instance, the forecast of Bank of Spain to give you an indication that we feel what we have done already is conservative. There's no question that the environment now as we speak and given what's happening in Europe and Spain, should sort of move us to the set up even more cautiousness around what may happen in the fourth quarter and 2021.

That's why we're also pointing there what is our first case, which is obviously, a very slow recovery in 2021. And the fact that we have also included that scenario and weighted that scenario in our provisions gives us good comfort about where we are now in terms of provisioning level. You've seen that we had this guidance of 60 to 90 basis points. In this third quarter, not on an unrealized basis, we've added 10 basis points. So we're at 63.

I think we have to be quite confident at this stage that we are on track within that guidance. We have two factors. One is performance in the third quarter, which makes us much more optimistic than we were and at the same time, outlook for the fourth quarter and 2021, which makes us more cautious, at least for the time being. So we'll see depending on how these two things play, particularly the second one because the first one is a fact now. We will end up in one – closer to one side of the range or more in the middle of it.

Non-performing loans coverage, up to 65%. Obviously, that indicates the provision that we have built for future problems. Other pretty good news from the quarter is the jaws. You see, we had good drivers of comparison in terms of core revenues and recurring costs, core revenues obviously positive in the quarter but negative year-on-year but a much significant – much more significant reduction in cost of 3.1%, which shows as you can see in terms of core operating income. So deducting the cost, recurring costs from core revenues you see that we have actually managed to go back to positive jaws in this sort of three quarters.

And we certainly expect to maintain that by the end of the year. Solvency. Finally, I think a pretty good performance. You have the details here of significant organic capital generation. The impact of commerce I have to say, this is a pro forma but it has closed on the first of October.

So yesterday after the quarter end. So it's a pretty hard number. And the accrual of dividends, which as you know because of the current rules we have from the ECB is being down at 37%, despite – sorry 43%, despite the fact that we have said that our intention is to be with a payout that will not exceed 30%, assuming that the recommendation of the ECB is somehow lifted. On top of that, we had issued additional Tier 1 during the month of October and this has increased notably our MDA buffer to that level of 458. Obviously, I have to remind you what you know well, but is that we have one of the lowest SREP requirements among the large banks in Europe for good reasons.

I think our risk profile is obviously much reduced compared to others. And hence our absolute levels of capital compared to our SREP requirement gives us a very comfortable MDA buffer well above our targets and also obviously allows us to get into this merger project with Banca from a position of strength. And I wanted to finish there. On the merger project there's not much news. Idea as things are progressing well.

Timetable is on track. We'll have EGMs at the beginning of December. Our EGM is expected for the third of December. But we're still expecting to close during the first quarter. And actually we're now working also with an initial target of integrating all IT systems by the end of the year.

And again, we have a good spirit. There's quite a few things of preparing for the merger that we can do. Obviously, there are others we cannot do until we have competition approval and then the transaction closes. But so far so good. We're in I think on the right track.

Thank you very much.

Javier Pano: Thank you, Gonzalo. And let me now elaborate on the third quarter. Let me start with an overview of the evolution of the loan book. You may see that in the third quarter, the book is almost flat.

I told it's improving, considering seasonal impacts by 0.4%. You know that year-to-date what has been driving loan growth has been mainly the new origination of government warranted loans. But this demand has tapered during this third quarter €1.4 billion for a total balance of eco loans close to €12 billion. We have had also good performance in the origination of mortgages and consumer loans this third quarter. And with this year-to-date our loan book is up by 6.5%.

In the right-hand side chart, you may see precisely this evolution – the monthly evolution of the new production of mortgages and consumer loans. You may see that for mortgages, we are at the same level since the month of June, approximately compared to last year. And that in consumer lending, we are slightly below and considering current circumstances but clearly improving from the trough we had in the second quarter. Just a few words on the ALCO portfolio, we have had maturities this third quarter. Now the size of the book stands at slightly below €42 billion but the metrics of the portfolio remain broadly unchanged.

Yield duration maturity profile and the sovereign exposure you have here all the details. But as I say, no changes at all during the quarter. And on the customer funds, I would mention here that in the third quarter we have had lower inflows into on balance sheet deposits compared to what happened in the second quarter. But we have had inflows also into long-term savings, €600 million this third quarter. This makes the total for the year €1.4 billion.

We think it's a good result. And also this third quarter markets have helped to recover part of the losses. We recovered €2 billion, thus making the negative mark-to-market impact for the year at €2.4 billion. In the right-hand side chart, you may see the evolution of our average AUMs. You may see that in the third quarter average AUMs are over the average of last year approximately by 3%.

And also by the end of the period we are over 3% over. So this will result or this bodes well for fee revenues on AUMs in coming quarters markets permitting. And with this let me shift to the P&L. Some brief comments, you have here all the details. I would say that better cost and also insurance and fee performance this third quarter has led to an improvement in our pre provision profit.

You may see that, core revenues as I say, supported by fees, up by 4.9% quarter-on-quarter and insurance, up by 6% quarter-on-quarter is what has been driving this performance. Core revenue was up quarter-on-quarter by 3.7%, still compared to last year down by 1.1%. At the same time, we have a strong decline in expenses, underpinned by restructuring some lower pension liabilities and other saving initiatives. And as a consequence of this, our core operating income improves significantly. And year-to-date, it's up by 2.7%.

Below the line, we have lower loan loss charges this third quarter, as was already our forecast as we -- you know that we built strongly this COVID reserve during the first half. And with this, we end the quarter with a net income at €522 million, a clear improvement compared to the pace of the previous two quarters. Some words on BPI. In this case, I would say that BPI has strong support from resilient net interest income. Despite government loan scheme -- government loan scheme that is smaller compared to the situation in Spain, but we have managed to grow the loan book in Portugal by 3.9% year-to-date, and as you may see also with a positive contribution from mortgages.

And also in Portugal, we have a reduction in NPLs as is the case in Spain, 6% year-to-date. And we have this third quarter, a further release of the PPA that we built in 2017 with integration. And as a consequence of this, we have a positive contribution on this front, this third quarter for a net attributable profit from BPI this third quarter at €55 million. So more details now on the P&L. On NII, we are flattish this quarter, quarter-on-quarter and down by 2% year-on-year, in line with our initial expectations.

You may see that from the client side, we have positive contribution from higher average loan volumes. But on the other hand, this is more than offset by lower margins as the loan yield is impacted by the mix of the portfolio now with a larger wave of lower-yielding eco loans. And on the ALCO activities, we have the positive contribution from the full take-up of TLTRO 3. But this is partially offset with a lower contribution from the fixed income portfolio, as we have had those maturities and also the higher cost of care from the growth in deposits we had during the second quarter. As before mentioned, you may see that, the back book yield comes down this quarter by six basis points to 192 basis points, but the new production, the yield of the new production on the front book has clearly recovered and is up by 46 basis points as the mix is I would say normalized again and the front book yield is now at 220 basis points.

We are expecting that the fourth quarter net interest income will be in line with the levels of the second and the third quarter. On fees, we have had a strong recovery quarter-on-quarter up by 4.9% as commented before. And year-to-date, we are flat. We have had good performance across the different segments, I would say. In recurring banking fees, we are up by close to 10% quarter-on-quarter.

We are still down year-on-year in this case impacted by the less positive evolution of our payment business affected obviously in the third quarter by a weaker tourist season. In asset management, a clear improvement quarter-on-quarter, up by more than 6%, also improvement year-on-year. We commented before, the positive evolution of average AUM. In insurance distribution, improving quarter-on-quarter, close to 5%, and clearly on an upward trend and we expect that this will continue to be the case in coming quarters. And in wholesale banking, always more volatile, but we have had so far a very good year, also improving year-on-year this third quarter and obviously the third quarter always with seasonality.

You may see in the right-hand side chart, the evolution by month of our fee revenues and we are matching last year's performance from June except last month of August impacted mainly by this impact in payments I mentioned before. A few words on insurance. Here, I would mainly highlight the very positive evolution of our life risk business. €150 million of quarterly revenues on this business, record high actually. And this sets the accumulated increase in this business at 8.5% year-to-date.

In the right-hand side chart, you see the evolution of these all let's say insurance activities in our P&L. I would remark also a positive contribution on net interest income. And what here just to highlight again, the good performance of the MyBox commercial offer that is helping to do really well in current circumstances. On costs, we are doing well on this front. Year-to-date costs, down by 3.1%, and we are on track to comfortably meet our guidance.

Remember that, we were expecting costs to come down by this year, by at least 2%. And as of today, I can tell you that probably, we will be more close to the 3% area or around the 3% area, down by 3% in 2020. You see that the improvement is across the different cost lines and that what we have saved in costs more than compensate, what we have lost in revenues, in core revenues year-to-date. Thus, this is why we have a clear improvement in core operating income and also in our cost to income that is down to 56.3%. A few words from moratoria, important part of our presentation.

You may see here, the weekly moratoria production. You may see clearly that, if this is tapering or it has already ended by September 30. And in the right-hand side chart, you see the expected evolution of the stock of loans with moratoria. This is for Spain and for individuals. But you may see that, most legal moratoria is -- has expired right now and has resumed interest payments in the third quarter.

And actually, I would say that almost all performing as Gonzalo commented, 97% it's honoring these payments. And in the fourth quarter, there are most consumer loan moratoria that is going to expire and will resume normal installments. This is affecting approximately slightly more than €1 billion. So this is important to follow and monitor this fourth quarter. And then, in the second quarter of next year is when most mortgage moratoria expire and will resume normal installments.

Here you have a clear profile of what is going on, on this front. In Portugal, the timetable is different. It's a different program. Stock of moratoria that is €6 billion, 38% of the loan moratoria is facing payment obligations in the third quarter. I would say that almost 100% honoring those obligations.

Of the remaining 62%, only 3% show an indication of potential future payment difficulties. Here what we are doing is to cross check with other indicators for the client in order to foresee any potential issues. And some comments on loan loss charges. On this front well €260 million for the quarter. On IFRS 9 models we have made a few changes of fine tuning, as Gonzalo commented.

But on a cumulative basis here you have the figures for three years. We are considering our base case that the Spanish GDP will be down by 1.5% in three years. And this remains broadly changed, although, the profile changes a little bit. We have all the detail about by stages of our loan loss provisions and also our COVID reserve. I would also like to remind that this third quarter, those loan loss charges include generic reserves applying extremely conservative approach.

On liquidity, I would say that, we continue to be at ample -- in a very ample situation, with liquid assets at €111 billion. Our liquidity coverage ratio at 280% and at a stable funding ratio of 141%. You know that we have been in the market recently, with an AT1 issue with this. We feel 2% -- more than 2% of the AT1 bucket. And the -- now our MREL ratio standing at 41%, 40%, well above the current MREL Requirement at 22.7%.

On this one, I would like also to remark that CaixaBank ratings have been confirmed by all three major rating agencies post the announcement of the merger agreement with Bankia. And finally, on solvency. This third quarter we end, considering the commercial transaction that, as Gonzalo has commented, has already closed at 12.17%. Ex-transitional IFRS 9 is a quarter where we have had strong capital -- organic capital generation 45 basis points. In this case also with -- after the -- with a tailwind after the introduction of IRB models in the non-warranted part of ICO loans.

We have been accruing dividend, clearly, as you know, 43% according to supervisory requirements. We have a negative impact from markets mainly from Telefónica, as you know well, and others and this is minus 11 basis points for the quarter and then, a net positive impact considering dividends of 20 bps from Comercia. And on top of this, we have 51 basis points for transitional IFRS 9, thus ending the quarter with, let's say, regulatory capital ratio standing at 12.68% and resulting into an ample MDA buffer at 4.58% considering all the impacts from the Comercia and the AT1 issuance. So this is all from my side. Just to wrap up with a quarter where we have -- continued to have continued market share gains, with activity levels clearly picking up in the quarter.

And at the same time, credit metrics have been broadly stable, despite the bulk of the moratoria, assuming payment obligations. It's a quarter where we are widening core operating jaws. And at the same time, we have been reinforcing further our solvency metrics with the AT1 issuance, resulting into an ample MDA buffer. So thank you very much. And with that, that's it for my part.

So it's now time to proceed to Q&A. So, please, operator, proceed with the first question including the name and the company of the caller. And let me please remind you all to keep your questions brief for the benefit of everyone on the call. So, thank you. Operator?
Q -

Unidentified Analyst: Yes.

Hi. Do you listen to me?

Javier Pano: Yes. Hello?

Unidentified Analyst: Yes. Hi. Thanks very much for the presentation, Javier, Gonzalo, and for taking the question.

I also wanted to send my quick regards to [indiscernible], hopefully he recovers fast. Yes, I have two questions. One on NII. I mean, what should we expect beyond 4Q 2020 in terms of NII, given the trends that we see you rival? And also wanted to get a bit your thoughts on how to reduce the excess liquidity that you are gathering and whether the fee -- policy changes that you are fostering will lead to some reduction in that or you don't count on it? And the second question is on costs. The 4Q 2020 cost base has fully captured or not the departure from the restructuring that you did in 2Q? And if so, whether you're going to plan -- you are planning to book some extra costs from the merger in fourth quarter? Thank you.

Gonzalo Rotaeche: Thank you, Ignacio [ph]. I'll let Javier elaborate about NII. In terms of levels of liquidity, I'm sure Javier will -- obviously, I mentioned it as well, but we continue to be fairly successful in our activity and this is bringing additional levels of excess liquidity. This is unfortunately something that we have to cope with. The new fee commission, the new policy on fees, I don't think, it's going to change that in any significant matter.

But we will continue to try and pass those negative costs on, on the corporate side as strictly as possible. But it is certainly one of the big issues that we have. And in terms of costs there's, no extra costs booked so far, associated to the merger. There will be some in the fourth quarter, preparatory work that will be included. But I think, it's pretty clear that, we are pretty good shape, in terms of cost this year.

In fact, it is my expectation that we will end up close to 3% down, as opposed to 2% down on cost in 2020. Beyond that, I think Javier, you want to add and particularly on NII.

Javier Pano: Hello Ignacio [ph]. Well, on net interest income, I think that into 2021 for us, the uncertainty the most important uncertainty, we have now is on volumes. To what extent the production we have had strong growth in government granted loans, mainly channel to SMEs and self employees et cetera.

This will prevent loan growth into 2021. Also this is probably the biggest question mark. To what extent, capital spending will be there or not in order to help loan growth. And as of today, unfortunately I cannot give you much more visibility, because you can understand that what the situation in terms of health situation is preventing to have this now a longer-term view. I would also add to hear to what extent consumer confidence will continue to support growth in mortgages and consumer lending, so far is the case.

So we have been positively surprised with the performance. And actually this let's say positive mood has continued into October. But particularly, we need to see what happens going forward. You asked about the impacts from rates. I think that here in the past, we have been giving you a sensitivity analysis, let's say that, for let's say for each 10 basis points on a rival, we could have approximately an impact of 1% in NII.

I think that this according to let's say, the average profile of the balance sheet this metric continues to be valid. And probably can help you to figure out what may happen in 2021, from this front. On the positives, well let's see, how we are able to manage this excess liquidity. That's true. But it's a situation where there is an excess liquidity in the system.

And actually this is what the ECB is targeting, a situation with excess liquidity. At the end of the day, this liquidity filters somewhere or another into the balance sheet of banks in general. And from our side what we try to do is to put in place the right incentives for our teams, our sales force, at all levels. In order to at least to try to compensate, what the costs of this excess liquidity, that can be compensated with revenues, in other parts of the business. And the right incentives for this are in place.

I would also like to remark here any potential positives that we may have. And clearly yesterday already outlined that, there will be some news in terms of monetary policy or instruments in December. So here potentially draw over of the TLTRO or at least the benefit of the TLTRO, at minus 1% or a different level. But I think that, this is potentially something that may be on the cars or potentially an increase of the tearing. So those are -- who knows, part of the let's say the toolkit that the ECB is thinking about.

And well, if at some time we may have a steepening of the yield curve of course then -- so then we may have the chance to add to the ALCO portfolio, not that at the current levels. So I would say that thinking in the long-term probably are not the right levels to do so. I don't know if this, answers your question. If this is the case, I would go into the next one please, operator?

Operator: Marta [ph]

Unidentified Analyst: Thank you. Good morning.

Javier Pano: Hello.

Unidentified Analyst: My first question is on Spain. Can hear me? Hi. Can you hear me?

Javier Pano: Yes, yes. We can Marta.

We can hear you. The problem is that, we cannot hear the operator. So we are a little bit lost. But we recognize you. Go ahead.

Unidentified Analyst: Yes. Thank you. The first one Spain loan yields. Can you explain the 7 bps drop this quarter? And looking forward, on top of the river effect, how much loan yield do you think you could lose over the next 12 months, due to mix? The second question is on payment holidays. The stock is up 11% in the quarter.

What the banks have reported shrinking books? What explains the increase in CaixaBank? And related to this just a quick one on ICO lines, we've seen articles in the Spanish breast suggesting grace periods and maturities could get extended. How does the scheme work i.e. in the event of a loan covered by a guarantee defaults, can you claim the guarantee from the government straight away, or do you need to restructure first? And what's the probability of the fall you are calculated in your ICO Line portfolio? Thank you.

Gonzalo Rotaeche: Thank you, Marta. In terms of payment holidays, we actually had the end of June a similar level €11 billion in Spain.

€1 billion was under analysis. And now we have €11 billion. So it's been more or less stable. I -- honestly and maybe fair, I cannot make comparison with others, because different people have in different policies. Ours has been and so far so good, is that this instrument was actually, the right instrument we use with certain clients.

So we've been proactive, during the lockdown. And what we're seeing is that, as I said, payment is actually now following through. So -- but there's been no increase on the total ounce because we have €10 billion granted by €1 billion under analysis, at the end of June at least. Those are the figures I have. On ICO you are basically a question you had on how it works.

If there's default on principal, not non-interest if there's default, then we can execute the guarantee. That's a reality. But obviously, we are all looking at this being an instrument that is helpful. And what discussion currently is being is, obviously we had this lockdown, we had a tool to help companies and self-employed people with this government guaranteed lines, most of them are one year with a grace period for one year on principal. And these will, obviously, expire during the second quarter for most people.

The reality is unfortunately activity is not back to normal. So for many situations I think the right policy tool is to extend that period maybe up to a year or six months or whatever. I don't know if it will be done at a sector level or at overall level, and we are in a discussion with the government Bank of Spain or the banks et cetera, the banking associations to try and find out what makes more sense, because one thing is how we recognize accounting for in our books of these. But I think most importantly is to make sure that we help people when there's really a viable business that is just temporarily under pressure. And for those businesses to have to start paying principle when activity has not been back to normal will not make sense as a policy measure, but clearly the rule is that if a client defaults on principle then we can execute.

There was a question about yields book, and on the PV, you spoke if you want to…

Javier Pano: Yes. Well on the back book yield, the main impact quarter-on-quarter is coming from the fact that you have a full quarter of the lower yielding ICO loans in the book. I would say that this is almost main part of the impact. Actually this third quarter, we are not having much impact from 12 months LIBOR downwards. But yes we are having some impact on three months of LIBOR downwards.

So this is also affecting to some extent. And going forward, we -- our view is that this back book should be -- level should be more sustainable. So let's say the big impact of the new production impacting the back book has already been felt. And you had a question about PVs. Well, according to our internal fields, the average PV of our ICO, let's say portfolio it's slightly below 2%, 190 something.

And even if you exclude some of the more risky parts this is even below 1%. So probably this helps you in this question, Matt [ph].

Unidentified Analyst: Okay. Thank you very much.

Javier Pano: Okay.

Thank you. Please then we can proceed with the following question please.

Operator: Thank you. Your next question comes from Andrea Filtri from Mediobanca. Please go ahead.

Your line is open.

Andrea Filtri: Thank you. Could you detail the regulatory headwinds that are implied in the merger combinations, I'm referring to the future impact on definition of default in EBA guidelines and when they're expected to come please? And on slide 20, the Adeslas trend, would the lower claims shown in Q3 be just seasonal, or there could be an impact from COVID with people claiming less -- making less yields of the insurance. And is the trend expected to revert to normal in 2021? And then allow me please just a few details what dividend per share will you accrue in Q4 from Telefonica? How much generic provisions you charge in the quarter? And your minus 3% cost guidance, does it include the anticipation of merger costs that you mentioned before? Thank you.

Javier Pano: Okay.

Andrea if I may start with the regulatory headwinds. Okay, well, when presenting the banker transaction, we disclosed our best estimate after a close supervisory dialogue we had in the previous weeks as you can imagine of the upcoming regulatory impacts that we will face over the medium-term. And there were three main blocks, the quick fix for intangible assets, then the IRB models on Bankia books, so mainly on the mortgage book, and then other internal model inspection, the impact from other internal model inspections plus EBA guidelines. On this third block, I would say that approximately 80% of the impact is or stems from Kashagan. What happens here is the following.

And this impact is higher than initially expected, because in the low default portfolio for CaixaBank, historically we have been calculating the risk parameters. This is PV, so the risk [ph] relying on external data supplied by rating agencies as those are large corporate. It's something that is normal to do. And this is what has been approved historically by the supervisor. And according to the new EBA guidelines this now has to be -- those parameters have to be built according to our internal historical experience, okay? But as a consequence of this, we need to rebuild top models.

This is a process that will take 18, 24 months because then you need the approval et cetera, and other internal model inspection. And what happens is that meanwhile this happens and we have all these in place. We have what is called by the supervisory limitation. So this would be set a minimum PV and a minimum LTV. And as a consequence of these results into a much higher risk-weighted asset density, actually it will result into risk-weighted asset density on this portfolio.

It's a €37 million portfolio of 70% and from 55% approximately that is now. In our view, clearly this risk-weighted asset density is much higher than what is needed. And let's say that the capital -- regulatory capital that is set aside for this portfolio is much higher than what is needed according to the underlying let's say credit quality or credit risk of the portfolio. I think that this probably helps you to understand a little bit the different building blocks. But I would say that probably the main difference compared to where our initial expectations is this part.

I would like also to take the opportunity to add that for the quick fix. And after the changes, we're fixing on intangibles. And after the changes announced at a few days, or a few weeks ago for CaixaBank stand-alone the impact is 15 basis points and that approximately. And that for the combined entity is approximately 20 basis points. Okay.

I think that with this Andrea, I have answered or help at least to understand a little bit the different blocks. I don't know Gonzalo –

Gonzalo Rotaeche: There's a few more questions. Let me add on Adeslas this is seasonal it's every year. We have lower claims in the third quarter, and I expect for it to continue that way. COVID has affected but offset, because we have had higher claims from COVID, but lower claims from others.

And actually, during the third quarter and month of September and July in particular, we had expected an increase of non-COVID-related claims and that has materialized and it's included in what has happened in the third quarter. So I think we should look at the activity at Adeslas on a normalized basis like every year, where we see higher profits in the third quarter, because of the month of August in particular. And the outlook, there for the fourth quarter and next year is good. With respect to the rest of the questions, I mentioned on the cost side we're talking about 3% excluding any merger costs. It's not clear to us what amount of merger cost will book into 2020 in the fourth quarter.

In any case, I expect it to be a limited number obviously. And whatever we book in 2020, will be reduced from the extraordinary charges that we'll make in 2021. So it's not additional cost. It's just moving ahead to future costs that we're incurring obviously mostly related to consultants and preparatory work and some other impacts associated to the legal process. Other than that, I think there was a question on Telefónica, as well Javier.

Javier Pano: Well, Telefónica has just announced the dividend for the fourth quarter $0.20 and it will be registered in the fourth quarter accordingly. You know that, it maybe in cash or shares and what that decision on this will be taking in due time. Thank you, Andrea, and with this we answer your questions. We would follow. Please, operator move on.

Operator: Thank you. Your next question comes from Sofie Peterzens from JPMorgan. Please go ahead. Your line is open.

Sofie Peterzens: Yeah.

Hi. It's Sofie from JPMorgan. A question on dividend, I think the local press was saying that you are not going to pay any dividends before the merger with Bankia is completed. Is that a correct assumption? So when should we basically expect that the first potential payment – dividend payment from Deutsche Bank? And how should we think about the kind of dividend payments will it be 30% of the combined entity, or will it be 30% of Deutsche Bank's earnings. That would be my first question.

My second question would be on DTAs. Bankia has a significant amount of DTAs versus CaixaBank and combined you will have quite a lot of DTAs – that fees are going up across Europe and I think the expectation is that we're going to see more tax hikes also the macro environment is very uncertain as you highlighted how should we think about any potential risk for DTA write-downs in the coming year or two? And then just a quick follow-up, on the costs, how much of the cost saves that you're seeing this year potentially reversed in 2021 from higher travel costs fund and variable salaries. Thank you.

Javier Pano: Thank you, Sofie. In terms of the dividend you're right, the way the merger agreements work is that neither us nor Bankia will pay dividends until after the merger.

Otherwise, we would have to have some equalization in the exchange ratio which would have made things a bit more complex. So it will be paid after the merger is closed subject to obviously the recommendation from the ECB allowing us to do that which is our hope and expectation at this stage. In terms of what we said, our payout is going to be up to 30%. And what we will do is decide on what exactly the number will be. We need to hear the ECB recommendation.

At this stage, it's a bit I think few channel to speculate on exactly what the level would be because unfortunately maybe zero in recommendation is not lifted. I expect that, it will be but we will have a discussion. And then extend the payment to the total number of shares, which by the time rather than one billion €6 billion, which is around the number for Caixabank, it will be €8 billion, because Bankia would be part of the group, and we will have issued the corresponding shares. So that's the way, it will work. On costs obviously, we have had a positive impact from a lower level of activity in traveling expenses.

And as you say, there will be also in comp and some others you have to keep in mind that as well, we had a negative impact from COVID-related expenses. And the last number, I have in mind is around €50 million of not just providing sanitizers and masks, and all of the pure sort of medical test and all what we're doing. We've tested 30,000 basically the number of employees that we have. But also we have obviously had to manage a complex process during the year. And increase cleaning systems in many areas.

So all these costs in a normal year will also disappear. On top of that, we have before the merger a very strict sort of cost-saving program reengineering of processes et cetera. So the expectation for 2021 is not just an increase, because we have a reversal of costs that we did not incur in 2020, and well in. On top of all this, we're going to obviously have the merger with Bankia, and this is what is going to obviously dominate the ultimate outcome. We will in due course update on cost expectations for 2021.

But to be honest, not before the merger closes, because I think at this stage you wouldn't make much else. Efficiency is the name of the game. Obviously, the merger with Bankia has much to do with that point and we're going to continue delivering. This year we've managed to deliver more than what we expected partly because of COVID associated savings, but a lot of it because of other structural changes. So, we'll continue on that basis.

DTAs taxes going up is good, not bad for those….

Gonzalo Rotaeche: Yes. Theoretically, yes. And this in the U.S. what happened in 2016 is the opposite.

If you remember well, no. So -- well a few words on DTAs, because there is always questions around -- well just to confirm the figures. I think that public and well known. Well, yes, Bankia talking about monetizable DTAs all €7.4 billion, it's around €5.6 billion. This makes €13 billion the combined, well those are, let's say, were on the DTAs.

And we are paying a fee for those DTAs. Risk-weighted are 100%, so for us on that front we don't face an issue. And for the other parts of the DTAs that are probably more complex parts. But in any case, in many cases are already or deducted. And I would like to give you some figures, because I think it's worth mentioning for CaixaBank standalone, let's say, for CaixaBank, I'm not talking about the combined entity of Bankia.

We already have a consumption -- our capital consumption of €3 billion for DTAs. So this is 200 basis points of our CET1 ratio. So well, DTAs are there, but are already having a cost also. And so I think that any time you -- the market trend, let's say, questions little bit all the DTAs also have to take into account that are already or deducted or we have very high consumption in capital that in our case is 200 basis points as I say. So from our side, well, this has its process internally with every six months, and let's say, an impairment debt.

And as of today, there are no issues. So according to long-term forecasts of profitability for the bank. No need for an impairment at this according to today assessment. I don't know Sophie if with this, we are answering your questions. If this is the case, we would move on to the following question.

Please operator.

Sofie Peterzens: Yeah. Thank you very much. It was very clear.

Gonzalo Rotaeche: Thank you, Sofie.

Operator: Thank you. Your next question comes from Adrian Cighi from Credit Suisse. Please go ahead. Your line is open.

Adrian Cighi: Hi, There.

Thank you very much. This is Adrian Cighi from Credit Suisse. I have one question on cost of risk and one follow-up on NII please. So on cost of risk, clearly, Q3 was better than expected, but we're seeing renewed restrictions in Spain. Or do you expect this to impact your cost of risk into 2021? Clearly mindful of the pending merger with Bankia, any guidance around your outlook there would be helpful.

And just following up on NII to clarify your earlier sensitivity. So the highest point the 12 months of LIBOR versus now we've seen some 40 basis points decline. Is it fair to say that you would expect an eye to decline by 4% in 2021 before any sort of impact of volumes and potential incremental benefits from the ECB in December?

Gonzalo Rotaeche: Thank you Adrian. On -- I'll take on the first question on cost of risk nothing different from what we've been saying so far. We expect this year to be between 60 and 90.

We said last quarter would be probably close to the upper end of the range. Based on what we have seen in the third quarter, I will be more optimistic. But at the same time, I'm cautious because the fourth quarter and particularly the expectation for 2021 may be less positive. All-in-all even if we take a fairly conservative approach, we assume further deterioration of the 2021 environment. We are expecting to stay within that range of 60 to 90 basis points.

And we continue to believe that in 2021 even though we'll have the increase in non-performing loans, because this year it has not materialized. And in the fourth quarter, I don't think it will in any sort of significant size. So even if we see a higher NPL in 2021, because we are trying to cope as much as we can with anticipating in that environment in 2020, we should have a lower cost of risk next year than this year. This is on a standalone basis. Then when we add Bankia obviously we're going to be adding whatever is Bankia's impact, but being very much protected, because of the adjustments and that we have to do on completion of the transaction.

So that lower cost of risk in 2021 versus 2020 should hold even more taking into account the merger transactions. Obviously, we have some degree of uncertainty. But I think when we look at the overall big picture, we're pretty confident that this should be the framework or the range on which cost of rig should evolve. Javier, do you want to take the second one please?

Javier Pano: Yes. And if I may now I realize that I forgot to answer a question for Andrea before asking about the amount of generic provisions related to this question on cost of risk.

The amount of generic provisions this third quarter it's approximately €150 million. To your question on net interest income what you need to take into account is the delta. And the average 12 months of LIBOR in 2020 will be around minus 30 bps approximately. And into 2021 according to, let's say, market forwards, it's going to be probably 10, 15 basis points lower, and so this is the impact. So the delta is what impacts net interest income year-on-year and not the full amount of 12 months of LIBOR.

I hope with this we answer…

Adrian Cighi: Okay. Thank you very much.

Javier Pano: Please, operator, can we move on. Thank you.

Operator: Of course.

Thank you. Your next question comes from Carlos Cobo Catena from Société Générale. Please go ahead. Your line is open. Carlos

Cobo Catena: Hi.

Morning. Thank you very much for the detailed presentation. Two questions for me. One is on cost of risk outlook. And the recently published stress test from the Bank of Spain.

Obviously that is a theoretical exercise, it has nothing to do with your base case. But even under the Bank of Spain basis scenario, they are coming out with a big scenario for loan losses of around 12% of risk-weighted assets for domestic banks. And they believe that the system would consume capital under that basis scenario. Again, I understand the differences, but there seems to be a huge discrepancy and I wanted to understand if you have a chance to compare. Because when I look at their base case, they also talk about a 1.5% cumulative contraction of GDP in three years.

So that's similar to your base scenario. So I would like to hear your thoughts on that. Secondly, maybe if you could help us to understand some figures that other banks are publishing about the usage of payments and credit cards, which are returning to normalized levels. That's quite pressuring. But on the other hand, we have also seen a reduction in cash transactions.

So in a way that is improving the comparative, but it's not really implying an improvement in consumption. So do you have any way to adjust for that improvement in the usage of cash -- sorry of plastic transactions? Thank you very much.

Gonzalo Rotaeche: Thank you, Carlos. So let me answer the second question. The statistics that we publish actually include not just payments with cards, but also withdrawals with cards in our ATMs.

So the statistics that we're making public for October is like minus 5% versus last year. It already includes that impact that you mentioned, which is very true that obviously there's been increased propensity to pay with cards, which is good for that side of the business. But we look after the statistic report, we've said about credit card turnover it includes withdrawals from ATMs and on that what we've seen a minus 5% in October compared to minus 3% in September compared to slightly higher in August. And I would say the minus 5% in October is close to the levels of late June and July to give you a sense. And obviously, we're expecting the last quarter -- sorry the last week in October has been minus 10% to give you an indication.

We're expecting that in this sort of increased restriction framework which is already obviously happening in the last week. We're going to see some weakness. But compared to April where we were minus 40%, 40-something percent, we are in a different type of lockdown. Obviously, a different type of impact on our card payments on the economy. Obviously, you may think that it's going to be so bad that will go to a very hard lockdown.

I don't think it will be the case not for a very long time period certainly. And this current sort of partial lockdown is having an impact, but it's very different. And it's not just for our business because obviously that's most important is what is the impact on the economy? The impact on the economy as people, schools stay open, people send their children school. They can continue to work, continue working from home or from wherever they have to, the industry is not stopping et cetera. Hopefully, we can keep this level of restrictions which are hard on people, but not as hard on the economy.

As last time, we're going to have some weakness in the fourth quarter, but clearly nothing comparable with what we saw in the second quarter. But obviously, we'll need to follow the situation quite closely. On the Bank of Spain exercise I really don't have a view. Javier, you may know.

Javier Pano: Nor me in detail, so I need to go into detail on this.

Well that this is a lockdown stress test at aggregate level. The base scenario of the Bank of Spain is in line with our micro central scenario. Well according to Bank of Spain estimates this is going to have an impact of approximately one percentage point in CET1 between 2019 and 2022. Well in this case also with the help of government rental loan schemes et cetera. In the adverse scenario, this real is having a more harsh impact.

But I would say that this initial estimate that we have done that this is in line with previous stress test result that for us. So I would say that in general terms this would result into a CET1 ratio for us above our so of requirement. But you know that it's so difficult not to modelize the whole thing. And you know that DCB from their site also they presented sector-wide let's say impacts of the pandemic. And in general terms, I would say that according to our internal estimates we were comparing well.

Not I'm sure that we can go into the details another time so because well it's all complex. It's a vast and extent I would say.
Carlos

Cobo Catena: Thank you, Javier. Yes. So we can follow-up.

My intention is to understand that what they are including in the stress test, which are pay dividend at the for example [Indiscernible] payment for example.

Gonzalo Rotaeche: We can follow-up on the details. I'm sure. Thank you, Carlos. Operator please can we move on?

Operator: Thank you.

Our next question comes from Alvaro Serrano from Morgan Stanley. Please go ahead. Your line is open.

Alvaro Serrano: Hi. How are you? A question on asset quality maybe in a different way and one on capital.

Clearly, as quasi surprising everyone positively. Presumably, in the retail side it's the furlough schemes. And as long as the furlough schemes that are extended presumably that will continue to do relatively well. Just a confirmation of that. But also on the corporate side, obviously you've injected and all the banks have injected a lot of liquidity to the corporates and obviously things are going.

We're not going to see from our side any real changes in NPLs until maybe next year. But from what you track and your clients, are you being positively negative surprise or in line when you look at how much cash they're burning in doing the lockdown or during the tough times? Is that also a surprise or not maybe you can speak to how corporate is holding up which is maybe less intuitive and should be we worried or at about the cliff edge when they start paying the principal? And then on capital hopefully a simpler question just the moving parts for CaixaBank stand-alone this was obviously a focus when you announced the merger and the $11.3 million combined. I just want to get clarity on the moving parts for you stand-alone into Q4. So you've already called out software. I think talking with II is around 50 basis points from the high default portfolio from new stand-alone in Q4.

But on the positive side, I don't know if you can quantify the insurance dividend that is still pending and any other positives we should take into account, what are the moving parts that you already know about as we head into Q4? Thank you.

Gonzalo Rotaeche: Thank you, Alvaro. Let me address the first question on asset quality, let me be very clear. The experience we have had so far is much better than what we expected. And obviously, we had expectations based on furloughs and moratoria preferrals et cetera government-guaranteed loans.

But even including all that we're doing much better than expected and that is reflected also in the cost of risk that this quarter includes that amount of approximately €150 million of collective generic provisions again. Because we know that obviously, we need to be prudent. But really the experience we're having. It's also in sort of early defaults and what we call [Indiscernible] up to 0 to 90 days et cetera. We're having a very positive experience and experience in October has also been pretty good what we're having already also some sort of final maturity of grace periods for consumer lending in full principal and interest payment.

So let's be clear. The quarter has been outstanding in terms of asset quality. And let's be clear obviously, we are very much aware that we have plenty of challenges for the future. With respect to corporate, in general we have pretty good feeling how they are coping with this. And I would say not only corporate, but the rest.

Obviously, the question is for the smaller companies their protection and the margins the buffers they have are lower. But what we've seen in terms of how the economy has recovered, levels of activity and generally certainly corporates, during the third quarter has been quite positive. So I have the sense that if we have to make now a sort of an evaluation of where we are say what it's been done so far it's been known well and it's worked. And obviously we also have to be conscious that this is not the end of the picture. Picture is still not final.

And hence, we cannot have a final judgment on everything. But clearly in terms of how we're seeing our clients we're seeing them in better shape than expected. Then you have to go sector by sector. And obviously, there are sectors that are being particularly affected by what's happening right now and those obviously generate a higher degree of concern. And the resilience and again I go back to the figures of sort of leverage in companies, businesses and retail in Spain before this crisis they were before below Europe and certainly way below where they were at the time of the last crisis.

So there are some reasons to think that we are actually going to be able to cope on particularly referring to our clients that they will be. But that will be damaged certainly in certain sectors on certain parts. I think at this stage, we are well prepared to face that, but time will tell. On capital Javier please.

Javier Pano: Yes.

Alvaro, well for the fourth quarter I have already disclosed the potential impacts well the impacts for the software deduction 15 basis points. I think let's say for CaixaBank. There is also an issue about the potential non -- the contribution to the deposit rented fund will not be deducted anymore. So you know that this in France you had an issue on this front and probably we have also some clarity into the fourth quarter on this. This could add approximately 8 basis points.

And then you mentioned the insurance company, where on this front, we have already so the insurance company has already paid an interim dividend. So this is already unlocked this issue. What we have been able to argue to the supervisor that the solvency ratios for the insurance company were sufficiently ample in order to allow for dividends. And so we don't expect going forward any let's say headwind from this front. And then, the internal model inspection or I mentioned before in detail, the most probable is that it will be in the fourth quarter although it's not 100%, but I would say that you should count that it will be in the fourth quarter as you say.

Thank you, Alvaro.

Alvaro Serrano: Thank you.

Javier Pano: Please operator, can we move on to the next question.

Operator: Our next question comes from Domenico Santoro from HSBC. Please go ahead.

Your line is open.

Domenico Santoro: Hi. Good morning. Thanks for the presentation and for taking the question. Thanks for giving us actually the different scenario implied in your model at page 23.

I do have a question on how the amount of provision, model provision will change if you have to give more probability to the adverse scenario? Any sensitivity on this side would be great to have and especially also any also implication for risk-weighted assets from rating migration if any? The second question is on capital. I know that there are many moving parts here. I wonder whether you run the calculation for the core Tier 1 in Q1 of next year if this 11.3% still stands as it is. Or you have probably have enough date on this? And given that of course this is a number which are ODIs from investors. I was just wondering whether you have any timeline for capital rebuilding here in terms of timing to get to 12% now that probably you have done more work on the integration side.

And then I have a question on deposits if I can. I've seen that you got quite a big chunk of deposits this year. And given the level of rates where it is I'm just wondering whether there is any -- from clients or any commercial activity from your side in order to migrate this money into asset management products going forward? Thank you very much.

Gonzalo Rotaeche: Thank you, Domenico. I'm going to try and be concise an answer in order to make sure we allow for the rest because we should finish by 1.

I would say in terms of liquidity we're actively managing liquidity both through appropriate charges. And obviously making sure that we have a balanced proportion of liquidity from clients given the business they have with us. And also if clients have a lot of liquidity they should have all the business and the overall picture should be profitable clearly. There's room to go further on that front because now we -- it's clear to all of us and it's clear to our clients that money has a cost and it's going to have a cost this year, next year, and for quite a few years. So, this is no longer a discussion will say well why don't you -- this is just a few months or a couple of years.

Now, this is now a structural problem. If you look at it that way money is costly and our clients need to behave accordingly. So, I expect to make further progress on that front. In terms of the merger numbers, we have not updated them on capital or costs at this stage. I think it is something that we need to do in due course when the transaction is completed.

But it's obvious to I think everyone given the numbers that we have delivered in this quarter there is upside certainly on the capital side to the numbers that we have presented. I think both institutions are doing nicely in increasing further the capital ratios beyond certainly what the market was expecting and we'll keep working on that front. On the rest Javier can you maybe take it?

Javier Pano: Okay, Domenico on rating migration. So, we are in the same place. Remember that what we commented is that we have approximately €50 billion of risk-weighted assets in IRB models.

So, the rate in migration would affect that part. Our expectation is that this will be less than somewhere between 5% and 10%. So -- but this is probably the worst case 10%. And that's -- we think that it's something that we can manage in any case. And you had a question initially about the impact of let's say a more let's say pessimistic view in the combination of scenarios.

Our view here is that well this according to what we may think may happen on this front on the different way things, we should be able to accommodate this into our guidance for this year. I think that this is an important message. Unless where the situation or the whole scenarios had to be changed, but we think that we can absorb a more let's say asset view on the combination of scenarios.

Gonzalo Rotaeche: Thank you, Domenico. I think that -- this helps to answer your question and we should move up.

We should be closing by 1. So, let's see if we have time for one or two more questions please.

Operator: Your next question comes from José Coll from Santander. Please go ahead, your line is open.

José Coll: Hello, thank you very much for taking my questions.

Just to have a follow-up on capital and cost of risk. You mentioned that Bank of Spain Central scenario, you expect around a 1% impact on CET1 up to 2022. I think the EBA analysis that they present a few months back it was sort of 1.52% impact on CET ratios. And if I have understood correctly you said that you would be -- your view would be in line with that sort of analysis. So, my question is where do you think the impact on capital are going to come from? When cost of risk -- you're guiding for a lower cost of risk next year versus this year and the pre-provision profit already more than covers our cost of risk.

Is this mainly -- you see a big increase in risk weighted assets. This was the big driver for impacts on capital could be going forward. And the second question on legal lending. It's been down at lower yields versus the bad book for both corporates and SMEs. So, I understand that adjusted by capital consumption are very profitable.

But would you expect a spillover effect on the rest of the non-eco lending in the corporate and SME book when the time comes to roll over these non-eco loans? Thank you.

Gonzalo Rotaeche: Thank you. Thank you, Jose. Well on the CET1 impact here, I understand that you already take into account that we have frontloaded much of those impacts because we have built those COVID-related provisions. So it's not from now on that those impacts will be felt.

So we have already frontloaded a large part of those impacts. So just to take this into account. And I would say that our macro views are in line with what you have commented. So I don't think that this is going to be an issue at least according to our analysis. And regarding your second question on ICO, well I think our views are not -- that should not have an impact on the new production of loans after ICO because while it's a different product, it's a different probably target.

So our view is that we should be able to resume the new origination loans at let's say, wider spreads as before. So remember that also this -- from ICO loans also takes into account the cost of the warrant. So with ICO loans without the warranty of ICO you don't have this. So this -- it's worth mentioning also. I don't know Jose, if this answers your question.

We should be moving on. Thank you. Operator, please.

Operator: Thank you. And your next question comes from Daragh Quinn from KBW.

Please go ahead. Your line is open.

Daragh Quinn: Hi. It's Daragh from KBW. Thanks for taking my questions.

One question a follow-up on capital. Just on the commentary explanation you gave for the low default portfolio and building out your own model. So just to be clear the 50 basis point roughly impact that we should expect in Q4 or in Q1 will essentially be reversed as you rebuild your own models. Could you just confirm that? And if you could just outline the time line of that process? And then just a small question on NII -- just confirm the amount of TLTRO accrual in NII this quarter? And the final question on Telefónica. I mean, I know in hindsight it's maybe easy to look at as an investment and come to a conclusion.

But as you see the impact that this has had on your capital ratio maybe just some color around what -- I know it's available for sale and what's the kind of standard answer to this question is but just really what is the logic and benefit of having this type of investments? Ty

Gonzalo Rotaeche: Javier, do you want to start and then I'll finish on Telefónica if you wish.

Javier Pano: Hi, Daragh. Well we are starting to work on, let's say, the new model according to the parameters required by the supervisor. This is going to take some time as I said because then it's not only that we do our homework. It's also that we then the new the approvals for this new model has -- have to be obtained.

And this is going to take probably up to two years. Our view is that we will come up with a situation that is better than this -- just with a asset density of 70%. We will be back to where we are today. It's something that is still an open question, but clearly an improvement with the situation that we will be facing since the moment this limitation is enforced. On NII quarter-on-quarter the positive impact from TLTRO is €35 million.

We are accruing 87 basis points, according to accounting rules. And we already had some impact from TLTRO in the second quarter. And this is let's say, the 87 basis points compared to the 50 basis points you are obtaining of your charts in the deposit facility of ECB. And Gonzalo on Telefónica.

Gonzalo Rotaeche: Sure.

On Telefónica, Daragh nothing new other than the underperformance of the company, which, obviously, shows in our capital numbers. I hear you but there's nothing new. And I think in the interest of time and taking the last question I will not elaborate more because there's absolutely nothing new.

Javier Pano: Okay. Thank you.

That's all we have time today. I know that there are some other questions on the line. But -- well the IR team is available for you. And I am also personally available for you at any moment as always, please. Thank you very much.

Gonzalo Rotaeche: Thank you very much.