Carlos Alberto López Galán - Chief Financial Officer, Vice President, Executive Officer, Investor Relations Officer, Member of Executive Committee, Member of Asset and Liability Management Committee, Member of Compliance Committee, Member of Human Resources Committee, Member of Legal Committee and Member of Financial Committee José Maria Nus Badía - Executive Vice President of Santander UK Operations Oscar Rodriguez Herrero - Head of Risk Management Area, Vice President, Executive Officer, Member of Executive Committee, Member of Asset & Liability Management Committee and Member of Compliance Committee Luiz Felipe Taunay Ferreira - Officer and Chairman of Asset & Liability Management Committee

Carlos G. Macedo - Goldman Sachs Group Inc., Research Division Mario Pierry - Deutsche Bank AG, Research Division Jorge Kuri - Morgan Stanley, Research Division Marcelo Henriques - Banco BTG Pactual S.A., Research Division Saul Martinez - JP Morgan Chase & Co, Research Division Regina Longo Sanchez - Itaú Corretora de Valores S.A., Research Division

Good morning, and thank you for waiting. Welcome to the conference call to discuss Banco Santander SA Results of the First Quarter of 2013. Present here are Mr. Carlos Galan, Vice President, Executive Officer and CFO; Mr. Oscar Rodrigues Herrero, Vice President, Executive Officer and CRO; and Mr. Luiz Felipe Taunay, Head of Investor Relations. The live webcast of this call is available at Banco Santander's Investor Relations site at www.santander.com.br/ir where the presentation is available for download. [Operator Instructions] Before proceeding, we wish to clarify that forward-looking statements may be made during the conference call relating to the business outlook of Banco Santander, operating and financial projections and targets based on the beliefs and assumptions of their Executive Board, as well as information currently available. Such forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and hence, depend on circumstances that may or may not occur. Investors must be aware that general economic conditions, industry conditions and other operational factors may affect the future performance of Banco Santander and may cause actual results to substantially differ from those in the forward-looking statements. We would now like to pass the word to Mr. Carlos Galan, Vice President and Executive Officer and CFO. Mr. Carlos Galan, you may proceed. Carlos Alberto López Galán: Okay, thank you. Good afternoon, and thank you to all of you who are attending this conference call. The table of contents are a quick view about the macroeconomic scenario, highlights about the first quarter, the evolution of the main drivers of the results and the commercial activities, and I would like to finish with final remarks. I would like to mention that in view of the implementation of International Accounting Standards #29 -- 19 in Brazil…

[Operator Instructions] The first question comes from Carlos Marcelo with Goldman Sachs.

I have a couple of questions. The first one regarding your margins. Carlos, if I heard you well, you said you think the bulk of the pressure in margins for 2013 is already in place. If you could just give us some more color on that, we did see your credit spreads declining through essentially the last 3 quarters now down to 11.3%. How much lower do you think that can go throughout the year? And what kind of relief do you think you can get on the deposit spread given the increase in the benchmark rates we would expect the government to implement? The second question is regarding expenses. You did the fourth quarter -- the first quarter was, obviously, very solid from that front with the year-over-year growth around 1%, yet you're sticking to growing around inflation. Is there the potential for some positive surprise from the expense front during the year? Carlos Alberto López Galán: Regarding the first one, spreads, well, we've seen that, we mentioned in the presentation that we think that the mix change process was quicker than we expected. We've seen that this is a long trend reality. We've seen that it will continue not just in 2013, but in the coming years. But our perception, as I shared with you before, is that we think that it will be more moderate, more gradual. And for 2013, more or less, we are working at this moment with between 90, 110 basis point reduction versus 2012. And basically, this compression will be depend on the growth portfolio and these spreads are important assumption about how the denominator is going to grow. Later, how fast is the overdraft or rollover portfolios are going to grow. And bear in mind, for instance, that in order to give…

And just to follow up on that. Do you think growing at half of inflation, would that still enable you to pursue your growth objectives in loans and fees, that would still be within the -- in your reach? Carlos Alberto López Galán: Yes. In order to give you an idea, part of our challenge is that you know that we have invested there, now very important money. And we are still maintaining this pace in investing for 2013. Now the idea is to leverage this investment in branches, in new IT development, in new products as a priority. Bear in mind that the Santander franchise is more or less 12% market share in the branch network infrastructure, while in terms of commercial activity, only has 10%. So I think there's plenty of room to leverage the -- our footprint -- our actual footprint in order to -- we are capable of -- with the infrastructure that we have at this moment to lead with the potential pickup in the growth portfolio and in the potential growth in services and transactions. So we don't think that it's something that is going to be a constraint at least in -- for the short-term.

Our next question comes from Mario Pierry with Deutsche Bank.

Let me ask you 2 questions as well. Just on your asset quality, the big deterioration we saw in your corporate portfolio, I know you cannot specify your clients, but I was just wondering if there's a specific industry where you're seeing a bigger problem? Also, I think you mentioned that you expect corporate NPLs to peak, I think, in second quarter. Is that what you meant that we should see a peak in second quarter 2013? And if that's what you said, why do you expect that? And then my second question is related to your fees, especially your asset management fees. I did not understand the trend here. We saw assets under management growing 5% year-on-year, but your fees were down close to 15%. So is there anything in particular that happened at the asset management? And how should we think about fee income growth for 2013? Carlos Alberto López Galán: Thank you, Mario. Well, I would like to -- regarding the first question, I would like to pass the question to our Chief Risk Officer, and later, I'm going to face the rest of your questions. José Maria Nus Badía: Mario, thank you very much for your question. In terms of asset quality, the trend and evolution on the corporate portfolio delinquency is very much related to the mix of segments. As you probably remember from the previous calls throughout 2012, one of the, I will say, distinctive elements of our business evolution during 2012 was the ability to grow our SMEs portfolio, but this is also one of the pillars of our strategy. We believe that our share in the SMEs business is still low compared to the opportunity that we see in the market, and we're pursuing that with a differentiated service proposition using the…

Great. That's clear. Just to make sure, when you say high single-digit for 1 year, you're talking about the overall fee income or just for the asset management? Carlos Alberto López Galán: No, the assets management fees, and they are fees coming or commissions coming from the assets management. But more or less, for the total portfolio, we expect more or less similar volumes there. We are working between 10%, 12% for the entire year, and it always is dependent on the credit loan origination, but it is more or less the figure that we all have been working for the entire 2013.

Our next question comes from Jorge Kuri with Morgan Stanley.

I have 2 questions. The first one is on margins. I'm not sure I understand your expectation of the worsening margin is now behind. If I recall correctly, at the onset of the easing cycle, you commented that you had hedged your mismatch for around 12 months, and that's the one -- and that would have helped you deliver better margins in the first 12 months of the repricing, and then you would suffer more margin pressure. Given that rates fell mostly during the first half of last year, I would expect that your margins will continue to compress all throughout this year, as you commented some of those hedges maybe expire by the mid of this year, therefore, your margins are going to fully reflect the lower level of Selic rate by the end of 2013 and '14. So if you can just clarify what the expectation is. It doesn't seem that even given the 40%-plus decline in Selic that you are going to reflect better margin. That's question number one. Question number two is on -- if you just can help us translate what you think is the improvement in asset quality or the stabilization in asset quality that you're soon to see, how does that translate into provisions for the year? Your provision charge last year was around 7.3% of average loans. I'm just looking at provisions, not deductions and recoveries, so provisions of BRL 14.9 billion, last year was BRL 7.3 billion, what is your expectation as we normalize asset quality in 2013 either on an absolute number in reals or as a percentage of average loans? Carlos Alberto López Galán: Thank you, Jorge, for your questions. Yes, I'm going to clarify, maybe I didn't make it clear. When I was referring to the spread compression…

No, thank you. The question was answered.

[Operator Instructions] Our next question comes from Marcelo Henriques with BTG.

I have a couple of questions. And sorry to go back to the asset quality issue. When you look at the evolution of asset quality, the NPLS, there's like this very important disconnection between the early delinquencies and NPLs over 90 days. So I'm just wondering how confident are you really that [indiscernible] in the second quarter? I understood that the main explanation for the deterioration in the asset quality of the corporate was because of a shift in mix [indiscernible] with the small and medium companies than corporate. But when you look at the percentage of SMEs on top of your total credit outstanding, if you compare March 2013 with March 2012, it was actually relatively flat, I mean, with a stake of 16.5%, 17%. So there -- actually, there was no -- at least in my view, there's no major change in the mix if you compare 1 year ago. So I was just wondering if there's any, again, specific issues. It seems like the quality of SMEs could have deteriorated much more or large corporates to some extent. So I just would like to understand it. And then I have more questions. Carlos Alberto López Galán: Thank you, Marcelo. Oscar, please.

Marcelo, thank you for the question. But you didn't clarify what is the disconnection because [indiscernible] there is a disconnection between the early delinquency and the delinquency percentage. Did I understand you correctly?

Yes. Because I understood from your speech that the early delinquency, there is positive signs that NPLs should cede going forward because of this -- because of the early delinquencies. But it has -- the early delinquencies, you see, in your chart, it been moving down for a couple of quarters, several quarters. But it has not translated into the NPLs over 90 days. So I just want to understand, as part of the first question, how confident are you that now it has indeed quite improved, but that you have been improving fast so...

Well, really, we are confident, I am confident in terms of the internal -- on evolution that we're commenting. As I said, and I've been already sharing with you in the previous calls, in terms of what is the quality of the new vintages that we're originating, in terms of disconnect, that disconnect, and it is very much related to the way NPLs have been -- that the back of NPLs over 90, it's a longer period. So as the early delinquency goes down, it takes some time to absorb or to write off that portfolio originated. So it is normal that you shall see a delay of 2 to 3 quarters before you actually can see that improvement in terms of the over 90. And we have to take also into consideration that when you look at the mix in terms of corporates, it's important to see the trend. And we started to grow stronger in SMEs in the first -- basically, since the first and second quarter of last year. And as it is a sustainable growth because the first quarter typically, for us, in SMEs is a slower quarter, which has not been the case in the large corporates. So even though it is that there is no big differential in terms of growth over the 1 year period, but the trend in the -- how that growth has been built in terms of SMEs, it is clear that we're being impacted right now by the new portfolio originated in 2012. And also, as I mentioned, the portfolio was impacted by the slowest growth in GDP in 2012. And what we've seen in the market and digging a little bit more detail is that corporates -- our large corporates were better prepared for a slowdown in the economy as they had longer tenure debts, and they have raised money in the last few years with longer tenure, whereas typically, SMEs have more difficulty in -- because their capital structure, it's more dependent on the shorter-term financing. So that's why, typically, they have -- they suffer more when there is a slowdown on the economy, like it has happened currently. So basically, this is complementing a little bit of the view that I already shared. But you also -- I think it's important to consider that the first quarter, typically, it's bad for us in terms of collections, as you've seen in the numbers. And that's why the combination of all the factors lead us to be confident in terms of the trend that we have commented in NPLs and delinquency. It is obvious that the environment, it will play an important role in terms of the future delinquency, but we don't expect to see significant changes. And if those happen, we will have to review it.

Okay. Just one quick thing before the final question. In April, which just basically ended, are you seeing any kind of pickup in demand for credit or already seeing signs of releasing NPL on both loans? Are you seeing improvements on both sides? Or how do you see for April? And if you could give us some color, comparing it to last year. Okay.

In terms of demand, we don't see anything very much different to what we've been talking about. It is obvious that now we benefit from months that had more days. So what we see in NPLs and delinquency is that January and especially February and March are showing better numbers than we saw in the evolution between November, December and January. So we already see a different performance within the quarter.

Okay. So just one final question. On the acquiring business, your market share reached 4.8% in March 2013, but I noticed that you have moved the guidance for 10% market share by the end of 2013. Should we interpret that -- how should we interpret it? Is it something that you feel focused on, getting the 10%? Or is this no longer a target for the end of 2013? Carlos Alberto López Galán: Okay. It's a client business, as we've seen that we discussed with some of you. I mean, this is a key target, a key role for the bank. Our aspiration, our goal is to achieve that percent. Bear in mind that, first, our first movement -- or the first movement in the last 2 years was, obviously, on the SMEs. Basically, you could rate or you could break down the differences on the market share between big corporates and SMEs. Basically, the bank has already achieved the 10% in SMEs. And basically, all the efforts were in order to gain some market share in this segment. Why? Basically, because we've seen that they're natural clients for Santander; secondly, because it's the most profitable; thirdly, because you know that SMEs or that segment is a key segment in our strategy medium-term. Now in order to achieve the 10% market share as a whole or for the whole portfolio, we enter in dealing with new retail companies since, basically, second Q, third Q last year. Well, it's taking time in order to gain the confidence because, usually, this is a process that it's made in different parts. At the beginning, they usually give you a percentage. Later, when you show that you can deliver the service and the quality that the companies are expecting, later, they usually expand some of their transactions to you. And at the end is when you can gain their entire confidence and entire transactionality with different companies. So well, this is more or less -- we are in the way of that. Now to give you an idea, in this quarter, we gained some 30 basis points in the market share, and this is more or less the goal that we have. But we are not upset. If you ask me, if we are going to keep 10%, no matter the price that we are going to pay, the answer is not. We want to maintain the profitability in this product and not to jeopardize the profitability of our customers on -- in the process.

Our next question comes from Saul Martinez with JPMorgan. Saul Martinez - JP Morgan Chase & Co, Research Division: I'm surprised that very little comments were made on the resignation of your CEO and the installment of the new CEO. Can you comment a little bit more on that? That's, obviously, a major corporate event. What drove that? Who is the new CEO, what he brings to the table? And I have a follow-up as well. Carlos Alberto López Galán: Okay. Saul, thank you for your question. Well, I would like to share 3 ideas with you. The first one is that I expect that once that is -- all the legal procedures in place, that you personally meet him in the near future. Secondly, that, well, as you know, when the former CEO became CEO, which was the Chairman of the Board, basically, signed a contract for a period of time. When this contract expires, it was planned to substitute the CEO for another person. This new person, well, the message that maybe he is going to bring us, he is going to bring you is that he's most troublesome on the commercial activities. He's a specialist in retail, in branches, in the commercial arena. He has been dealing with the LatAm units for the last 8, 9 years; the last 3 years as a head of the unit, dealing with the different countries, Mexico, Chile, Uruguay, Argentina, et cetera. So he knows the clarities that every market has regarding the financial industry. And I would say that, well, we closed a cycle, where, basically, the experience of the former CEO, Marcial Portela, was more focused to create a robust platform, a financial platform. He -- basically, he dealt with the integration. We dealt with the -- or focused…

Our next question comes from Regina Sanchez with Itaú. Regina Longo Sanchez - Itaú Corretora de Valores S.A., Research Division: I also have 2 questions. The first -- more specific ones, okay? The first one is that you announced the sale of 30% stake of WebMotors to CarSales. Is it true that WebMotors' stake is now booked under Santander subsidiary that was created as a result of last quarter restructuring? And if this is correct, and Santander Brasil has 60.65% of Santander Serviços and not anymore 100% because Santusa Holding has the other 39% stake. Can you share with us what is the expected gain related to this transaction for Santander Brasil? Can we expect a positive impact on second quarter results? And then my second question is regarding the Basel index. That increases quarter-over-quarter even considering that you have the negative impact of the BRL 2.4 billion in the shareholder equity related to the pension plan. I believe the main reason was lower loan growth and also the new Basel rules that lower risk-weighted factor that was announced by the Central Bank in March. But have you simulated the common equity Tier 1 ratio under Basel III? I mean, if it was already fully implemented, how much it would be? That bank has a very good Basel ratio, but I was curious about Basel III common equity Tier 1 ratio. Carlos Alberto López Galán: Thank you, Regina. Regarding your first question, the -- yes, we announced the 30% sale of the stake in WebMotors. It's an important partnership because we are -- as you know, we are always looking for the best promise where we see that we can't add value, as it happened in the insurance activity as well, and this is -- and especially in CarSales through the net, and this is the biggest and main player in Australia. And yes, we are going to do the transaction, and we expect -- it depends on the -- all the legal procedures, we expect to book the profit in the second Q. And more or less, the profit, net of taxes in local books, will be around BRL 70 million. Regarding the second question about BIS, yes, you're right, we improved even though the charts, with the new rule around pension plans. Basically, this improvement is coming from 3 elements. The first one, it's, yes, we benefit from the new rules in capital consumption issued by the Central Bank of Brazil. The second one, it's -- we've had less consumption in the market risk, capital consumption. And the third one is that the bank is always trying to optimize the capital consumption and part of this -- forming this process was affected by an implementation of optimization that we execute in the first Q. And Felipe is going to add some color.

Yes, Regina, when the government announced the package, it concluded, let's say, Basel II features and Basel III features. He mentioned at that time that the overall impact of those together was 50 basis points in the Tier 1 capital, right? Now we've seen already the positive impact of the Basel II elements, which is about 90 basis points. So you could claim that the future impact of Basel III elements, going forward, will be in the neighborhood of 140 basis points in Tier 1 capital.

Thank you. The Q&A session is over. And now I wish to turn the conference back over to Mr. Carlos Galán for his concluding remarks. Please go ahead. Carlos Alberto López Galán: Well, thank you, everyone. We extended more than usual. And please don't hesitate to contact us if you have -- or you want to clarify any more subjects. Thank you very much, and good afternoon.

Banco Santander's conference call has come to an end. We thank you for your participation. Have a nice day. Thank you.