Grupo Financiero Galicia ( GGAL)

Q3 2011 Earnings Call

November 10, 2011 11:00 AM ET

Executives

Pablo Firvida – Head, IR

Analysts

Daniel Abud – Citi

Federico Rey – Raymond James

Nicolas Chialva – Itaú BBA

Walter Chiarvesio – Santander Bank

Operator

Good day and welcome to this Grupo Financiero Galicia SA third quarter 2011 conference call. This call is being recorded. At this time I would like to turn the conference over to Mr. Pablo please go ahead sir.

Pablo Firvida

Thank you. Good morning ladies and gentlemen. Welcome to the Grupo Financiero Galicia third quarter of fiscal year 2011 conference call. I am Pablo Firvida Investor Relations. With me today are some members of the management of the bank and Grupo who want to thank you for attending this call.

I would like a short introduction in order to explain the operating conditions under which the reported results have occurred and summarize the bank's performance during the quarter then we will take your questions.

Some of the statements made during this conference call will be forward looking statements within the meaning of the safe harbor provisions of the US Federal Securities laws. These forward looking statements are subject to risk and uncertainty that could actual results to differ materially from those expressed in the forward looking statements.

During the third quarter, international and financial markets remained highly volatile and with increased uncertainty related to the solvency of certain European economies, specially Greece and the potential contingent to the rest of the region. Economic growth showed signs of a slight recovery compared to the previous quarter in the US. Under the influence of this international scenario, the Argentine economy maintained its good performance, but showing a deceleration as compared to the previous quarter. Private estimates point to a 5.3% year-over-year growth while Argentine GDP is expected to grow around 6.5% for the whole year. During the quarter national fiscal revenues increased 33% year-over-year showing an acceleration as compared to the 31% recorded in the second quarter while growth of primary expenditures accelerated from 32.4% in the second quarter to 36% year-over-year in the third quarter as a consequence of the electoral process. The primary surplus for the quarter amounted to 1.3 billion pesos, 8.4 billion pesos lower than a year before. After interest payments of 4.4 billion pesos, the global balance was at 3.1 billion pesos deficit.

Consumer prices maintained its growth phase increasing 2.4% in the quarter as measured by the official index and 4.5% according to private estimates. While annual inflation rate as of September 2011 reached 9.9% and 21.9% respectively.

On the monetary front, the portfolio realization process in the third quarter was more intense than in the previous one as a consequence of the international uncertainty and the electoral process. We estimate that outflows were around $8.4 billion compared to $6.2 billion for the prior quarter.

The Argentine Central Bank expanded the monetary base by 16 billion pesos in the quarter and exchange rate increased from 4.11 to 4.21 pesos per dollar during the quarter representing a depreciation of 2.3%. Average interest rates paid by private banks increased during the quarter. Rates deposits in pesos for up to 59 days increased to 12%, 150 basis points increased from June 2011. The rates on overdraft ended the quarter at an average of 19.3% with a 95 [ph] pesos points increase.

Private sector deposits at the end of the quarter amounted to 310 billion pesos with a 4.5% growth during the quarter and a 32.3% inter-annual increase. Then deposits increased 6.7% in the quarter which transactional deposits grew 3.7%. Total loans per private sector at the end of the quarter amounted to 268 billion pesos, a 12.9% increase in the quarter and a 52.3% inter-annual increase.

Turning now to Grupo Financiero Galicia, I would like to make a short introduction regarding certain changes which took place during the quarter. In first place (inaudible) closing the insurance company of Grupo began submitting its financial results at the same dates as of the rest of the subsidiaries. As a consequence, Grupo's income statement includes six months of results from the company while until the previous quarter results were included with a three months delay.

Secondly, at the bank's level, all the year-over-year comparisons include figures from CFA as the bank to control the CFA at the end of June 2010 and began consolidating its income statement in the third quarter of 2010.

Finally, some steps have been taken in order to reorganize the corporate structure with a basic idea of allocating under the control of our holding companies (inaudible) the whole regional credit card business structure comprising all our operating companies, issues of credit cards and the processing and collection companies.

In the same process (inaudible) sold its 5% interest in CFA of which 3% was acquired by Grupo Financiero Galicia and 2% by the bank which now owns 97% of CFA. It is also worth mentioning that none of these changes modified the direct or indirect control of the subsidiaries involved. This being said, Grupo Financiero Galicia's net income total 275.2 million pesos including 15.9 million pesos were responding to the three additional months from Americana holding due to the above mentioned change in the submission dates of these figures.

Turning now to the bank, net income for the third quarter amounted to 265.3 million pesos, 93% higher than the 137.8 million pesos profit reported in the same quarter of fiscal year 2010. Primary (inaudible) to the significant increase in the volume of activity with the private sector. The bank's great exposure to the private sector reach 33.9 billion pesos up 50% during the last 12 months and deposits reached 28.8 billion pesos up 44.2% during the same period. As of September 30, 2011, the banks estimated market shares of both loans and deposits under private sector were 8.6%. During the quarter, the bank continued improving its asset quality. The non-acquired loan portfolio of total loans of private sector decreased to 2.9% and its coverage with allowances for loan losses increased to 145.4% from 3.8% and 132.8% respectively from the previous year.

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