Uriarte's Latin springboard

Why did you decide to pull back from Japan?

We closed the operation in Japan immediately after the IMF meeting in Hong Kong last year, for two reasons: we had no competitive advantage in Japan; second, we were very worried about the news we heard at the IMF about Malaysia [the public row between Malaysian prime minister Mahathir Mohamad and international investor George Soros] and that gave us a sense of uncertainty. We decided to go home very rapidly [after that].

We also closed during 1997 some lines to Korean banks. Then we met with different executives of other international banks and asked them about the situation in Korea, and everyone said it was very good. The chairman [Emilio Ybarra] and I had the uncomfortable impression that we had made a mistake. We met at the IMF with the people who had taken the decision asking them why they took took such a tough decision because the Korean situation was very good, according to such and such international bank. We reviewed the process but decided to maintain our opinion and cut some Korean bank lines. Due to this we are one of the few, and perhaps the only, big international bank with no operations in Japan, in south-east Asia or in Russia. [We have] no representative offices [in the affected areas] except in Tokyo and Jakarta, no risk at all. We are in a very comfortable position except for the Latin American issue.

How are you reacting to the volatility in Latin America?

On August 25 I sent a letter to my people all over the world giving them a very clear message: tranquilidad y confianza [stay calm and confident]. Staying calm doesn't mean doing nothing at all, it means we maintain the confidence in our strategic project and that we are not going to change this medium and long-term project due to a [short-term] negative situation in the market. We are not a mutual fund, we are not an equity fund. We are a strategic investor trying to create a global group in Latin America. And that takes a lot of time, a lot of work, and we will need at least three to five years to be as competitive in Latin America as we are in the Spanish banking sector.

But on the other hand you have to consider that the situation in the market has changed. You have to increase your controls, you have to take more care about the quality of your assets and so on. That means making tactical adjustments while maintaining the strategic idea. We are not going to leave Latin America. This is very clear. We are going to maintain our position and we consider that our strategic line is a good and profitable one for Banco Bilbao Vizcaya. I don't know if it's a good line for other international banks, possibly not, because they don't have our core competences [the Spanish language, cultural affinities and knowledge of developing banking systems gained in Spain in the early 1980s] and they don't have the same possibility that we have to transfer, very rapidly, these core competences into the Latin American markets. Exactly in the same way that I have no core competences in the east of Europe or in south-east Asia and we cannot compete there with Barclays, Deustche Bank and so on.

Has the Latin American situation meant changing your earnings forecasts?

We have reviewed our earnings forecasts for 1998 and we consider that Banco Bilbao Vizcaya as a group and the Latin American part of the operation will maintain their previous forecasts. I don't know what is going to happen in the next three years, perhaps we will have a world catastophe. But according to the present situation with the Latin American and world markets we will maintain the forecasts that we made at the presentation of the [half-year] results in July.

Currently Latin America delivers about 28% of your pre-tax profits? Will it still account for that amount?

Of course. I expect this year in Latin America pre-tax profits of $600 million.

Tell me the reasons why you have invested so heavily in Latin America?

We have defined the foreign strategy in order to give some reply to the euro challenge. The idea was to diversify. We are well placed in the Spanish banking system with a market share of more or less 10%, if you take account of the assets of the [Spanish] savings banks. We have a market share of 20%, if you don't consider the savings banks as competitors, and a very profitable position. For example, last June the return on equity of the retail banking operation of BBV reached 43%. But we consider the euro will impact our profitability in future and we have decided to diversify, geographically and sectorally.

We invested a lot of money in the Spanish industrial sector [BBV has equity stakes in leading Spanish blue chips such as Telefónica and Repsol] in order to place a part of our capital, part of our equity, in places that we consider have better prospects from our shareholders' point of view, and now we have an extremely powerful industrial group inside the consolidated assets. This group is based on stakes in 88 different companies, mainly Spanish companies, with a huge potential for capital gain. Up to yesterday [September 2], even after the decline in stock prices, we are maintaining potential capital gains of $2.6 billion in our industrial portfolio. That $2.6 billion covers all the Latin American investment. This was one of the main lines of diversification.

The second line of diversification was Latin America. Why Latin America? Because [although] we consider Latin America has a negative side - its violent economic cycle and the possibility of future instances of instability or volatility - we are a strategic investor. There was a clear opportunity. We were placed in a market of 40 million people, Spain, with the challenge of the euro, with the pressure of declining margins - 40% in the last three years - and we have the Latin American region with Spanish speaking people, with the possibility of increasing very rapidly the size of our operation there.