Banco Santander, S.A. (SAN) Q4 2010 Earnings Report, Transcript and Summary

Good morning. To begin the presentation of results for 2010, I’ll review the main highlights of our management in the year, and then Jose Antonio Alvarez will review the Group’s results, and we’ll go into the different business areas in further detail. Finally, we will conclude with our perspective of the coming quarters. I will start by reviewing the six main highlights of the year, which I will discuss in a moment, and which I will cover in more detail in the next slides. First, the Santander Group’s ability to generate high recurring results in a difficult market environment. Our diversification and management strategies adapted to each market have enabled us to obtain profit of EUR8.18 billion. Secondly, nonperforming loans have improved their trends and such significant units of Santander Consumer Finance, Brazil, or Sovereign have significantly improved their NPL ratios in the year. Third, we have markedly improved our structural liquidity position after attracting this year, a combination of deposits, and medium and long-term issues for a total of a EUR147 billion, which is double what is needed for the business and for maturities in the year. Fourth, we have ended 2010 with very solid capital ratios. Our core capital has increased to 8.8% after increasing 33 basis points in the last quarter. Fifth, we continued to offer high shareholder return and are planning a total payout for the year of EUR0.60 per share. Sixth, today, we have a more diversified portfolio than a year-ago and we have increased our presence in the countries that have a greater growth potential. Let’s now look at each of these highlights in more detail. Profit; starting with profit, in the fourth quarter, we have continued to grow our recurring profit with a total in the quarter of EUR2.1 billion, and for the year EUR8.18 billion, with earnings per share of almost EUR1. I’d like to remind you that both the profit for the year and the earnings per share are impacted by the one-off provision we made in the third quarter as a result of applying the Bank of Spain’s new circular on provisions, which meant subtracting from our profits EUR472 million. Business model; our strategic positioning and diversification are the key drivers that are enabling us to go through this crisis, while maintaining high recurring profits. Best example of positioning and diversification, you can see on the screen. Starting on the right hand side, you can see that emerging markets have significantly increased profit generation. Brazil is up 24% versus 2009 in local currency and before minority interests. Also, the other Latin American countries are growing very significantly, double-digit growth in profit, and all the countries have increased their profit in comparison with 2009. The UK and the US are growing at 37%. The UK’s growth has been double digit in Pound Sterling, and Sovereign moved from losses in 2009 to EUR561 million in profit in 2010. So three of our four major business areas are significantly growing their profit. It’s only Continental Europe where there has been a drop, and this is mostly in Spain and Portugal, due to a very difficult macroeconomic environment and to the one-off impact in the third quarter of the Bank of Spain circulation I’ve mentioned. On the other hand, Santander Consumer Finances had an excellent year, and this will continue in 2011. Since, because of the characteristics of its business, it’s further ahead in the economic cycle. Jose Antonio Alvarez will discuss in more detail the results of the different business units. Second point in these highlights was risk quality. And our active management is reflected in the good evolution of net entries into NPLs and our risk premium for the whole Group and also for the major business units. As you can see in the bottom of this slide, this trend can be seen in a significantly slower rise in the Group’s NPL ratio, which was 3.55 at the end of the 2010. And as you can see in the upper left hand corner of the slide, went from increasing by more than 1 percentage point in 2008 and 2009, to rising only 0.3 points in 2010. This favorable trend is due to the fact that in 2010, all our large units have either improved their NPL ratios like Santander Consumer Finance, Brazil, or Sovereign, or have stabilized like the UK and Latin America, except for Brazil. As a result, we’ve been able to offset the increase which is still taking place in Spain and Portugal, and which as we mentioned in previous results presentations, we expect to continue for a few more quarters. Finally, and to conclude this review of our credit quality, our coverage ratio has remained practically stable in the year at around 75% for the Group overall. By business areas, we can draw similar conclusions to those we drew for the NPL ratios. We have significant improvements in Santander Consumer Finance in Sovereign. In Santander Consumer Finance, the coverage is already at a 128%, that’s 31 percentage points higher than at the beginning of the year. We also have very high coverage in Brazil and the rest of Latin America at around a 100% or more. So in short, we have NPLs in all areas that are relatively low, well provisioned, and we do not envisage any significant worsening. Moving onto the third highlight in my presentation, liquidity; let me begin with the conclusion. In 2010, we have significantly improved the Group’s funding structure on our liquidity ratios. And as a result we faced 2011 from a very comfortable liquidity position. There are three main drivers for this. First, in 2010, we have pursued a very conservative retail and wholesale financing policy. Our strategy to capture retail deposits has been different in different markets; in mature markets, deleveraging. In other words, we have grown deposits much more than lending, and therefore have improved our lending to deposit ratio, and thus have reduced our need for wholesale funding. In emerging markets like Latin America, self financing that is the greater growth in lending was funded by a similar rise in deposits. And we’ve maintained our lending to deposits ratio below 100%. As for wholesale funding, the Group has been very active, taking advantage of its ability to go to the markets. We have captured EUR38 billion in medium and long-term issues, higher than the volume of maturities in the year. This two-pronged strategy has brought in a EUR147 billion, while our needs are for only EUR72 billion. Second point, big improvement in the Group’s funding structure and liquidity ratios. The way in which we have captured funds and applied them in 2010 has enabled us to increase by EUR54 billion, our Group’s surplus structural liquidity in comparison with the previous year, up to a EUR127 billion. This was due to, you can see, in the Group’s liquidity balance sheet to permanent funds being to used to finance all lending and fixed assets in a significant part of all financial assets. Or in other words, the Group has assets that can be realized short term that represent 17% of its total balance sheet, while short-term funds required only represent 4%. We’ve also significantly narrowed our loan to deposits gap. The ratio is at a 150% versus – it’s at a 117% versus a 150% in 2008. And, finally, I’ll remind you that we still have discounting capacity with the central banks of some EUR100 billion. Third point, we started 2011 in an excellent situation and with fewer issuance needs. We don’t have maturities concentrated in the coming years. Annual maturities are lower than the issues made in 2010. Moreover we do not need to cover all of them. And in the current deleveraging environment in Spain and Portugal, the business requirements are leading us to reduce our commercial gap by some EUR10 billion a year. That is an amount equivalent to half the maturities. If we extrapolate this process to the whole banking sector in Spain, we will see that the sector’s issuance needs in 2011 will be much lower than envisaged EUR90 billion. And there is a very common mistake to associate the maturities in a year with the financing needs. Additionally, Santander has strategies on the way to optimize our use of liquidity. Specifically we have sharply reduced the recourse of Santander Consumer Finance to the parent bank as part of a strategy that will conclude with its complete self financing in 2012. As for the remaining markets, we have active policies in place for issues in the UK to cover the maturities of the special liquidity scheme, and in Latin America, more connected to the growth in lending. The fourth and last idea; while the current environment persists, and as in 2010, we will continue to pursue a conservative issuance strategy. In January, for instance, we’ve issued over EUR4.5 billion with an average maturity of five years at an average cost of a 165 basis points over the reference or benchmark grade. Going back to the highlights of the year, the fourth was solvency. We closed 2010 with our core capital ratio at 8.8%, that’s 33 basis points higher than in September, 20 of these basis points from organic capital generation and 13 basis points from the scrip dividend. As a result, we have increased for the third year running, our core capital, we have a very solid ratio as befits our business model and our risk profile, and we have a very comfortable starting point to meet regulator requirements. Fifth point; shareholder return. Here, there are three points I should like to underscore. With the 2010 dividend payout proposal, which will be submitted to the coming AGM, total remuneration per share for the year including scrip dividends will be EUR0.60, same as in 2009. This number is consistent with a further rise in the book value per share to EUR8.58 after increasing for the fifth straight year and being up 60% since 2005. As for total shareholder return or TSR, we have significantly outperformed our benchmark index, both medium and long-term, specifically in the last 15 years we have outperformed that index by 5 percentage points each year. Lastly, I’d like to review the sixth highlight of the year, which is the improvement in our business portfolio. Organic growth initiatives in key countries and active portfolio management with acquisitions and divestments that have increased as opportunities arose during the crisis have enabled Santander to close 2010 with a more diversified business portfolio and with more growth potential than three years ago. The snapshot on this slide tries to represent this by coloring the countries that generate profits for the Group on the basis of growth forecasts of their economies over the next three years. We have the first set of countries led by Brazil, where we expect average real GDP growth of over 4% until 2013. Plus, of course, there will be monetary and banking penetration growth which will drive the growth of the banking business to high double-digit rates. In this set of emerging countries which currently bring in 43% of the Group’s profits, that’s 11 percentage points more than three years ago, we can have Poland a stable market with big growth potential, which will mean emerging countries will bring in about 46% to 48% of our profit. There is a second set of countries which are currently bringing in 38% of the Group’s profit. These include the developed countries in a more sustained phase of recovery led by the US and Germany, and for them the GDP growth forecasts are at about 2% to 3% until 2013. And here, Santander also has significant additional growth opportunities as a result of our ability to derive synergies from restructuring processes in the UK, Germany, and the US. In these three major markets, Santander has many areas from which to extract value over the next three years. And, finally, in the third set of countries, we have those that still need more time to conclude the restructuring of their economies, countries such as Spain and Portugal, which therefore will temporarily have lower GDP growth and business growth. So as a result, the combination of these three sets of markets is a solid and stable base for creating value for the Group in the coming years. Now, Jose Antonio Alvarez, our CFO, will review the Group’s results and the business areas.

Good morning. Continuing with the CEO’s presentation, I’m going to review the Group’s results and then the business areas. I’d like to remind you that, on the website, you will find presentations with more detail on the main units and Spain. On the slide, you can see our income statement where we usually present it. The first column changes is based on our accounts and the other reflects the exchange and perimeter effect. General conclusion about the statement that the underlying trend is still bringing in consistent solid basic revenues in an environment where there has been a low growth in lending, negative in some mature markets, and with interest rates at record lows, which are, of course, affecting the profitability of the lending business, but at the same time there has been an increase in wholesale financing costs. I’d say that there has been overall very good cost management in the Group. Costs have grown 2% overall. I’ll talk in a little more detail by areas about this later. And recurring provisions have dropped by 8.5%, because a good part of our businesses have already turned the corner in the trend of raising NPLs. Net of these three items has produced the 3% increase in net operating income which is not reflecting in the bottom line, because of that one-off our CEO mentioned, for applying the Bank of Spain’s new circular in Q3, greater tax burden due to the diverse tax pressures in the markets where profits been generated, we’re generating more profit in countries where there is a greater tax burden, and because of higher minority interests, because of the increase especially in Brazil. If we look at the different details in the statement, you can see that there are more commercial revenues, that is net interest income and net fee income. And revenues from insurance have shown very consistent and positive growth, given the kind of phase of the economic cycle. By geographies, we see that both the mature markets, the UK and Sovereign have grown 10%, Brazil is growing 6%, Latin America 4%. Brazil and Latin America are accelerating. Although it’s true that we have been growing our lending portfolios at double-digit rates in these markets, but the annual average is similar to that of the revenues. And, finally, in Continental Europe, again great pressure on our margins, low business volumes, and the impact on the one hand deposits, in some cases in Spain and Portugal, because we’ve been very aggressive and attracting new customer funds, and there has been no growth in lending. As for costs by areas, similar trend; but, of course, in the opposite direction. In all commercial units in Europe and the UK, costs have gone down. Sovereigns have also gone down, since they’re undergoing the restructuring and integration process. And in the emerging markets, costs have increased below inflation rate with the exception of Chile, where we’ve had various circumstances, opening of new branches, the impact of the earth quake, and the signing of the collective agreement where the costs have grown slightly above inflation, but much less than the industries, so a very good result in terms of costs overall. If we look at the third point, provisions, I’d say that basically what we see here is a very similar level to last year’s, excluding the impact of that Bank of Spain circular. We’ve used up generic provisions and an amount similar to last year, about EUR2 billion. And at the Group level, when looking at the different units, there has been a sharp reduction in provisioning in all the units except Continental Europe, or actually except Spain and Portugal, where there has been an increase of 35%. And, of course, this is due to the underlying NPL trends that the CEO explained before. If we look at our overall provisions, we’re at EUR21 billion, which is approximately 3% of our total lending, of which, EUR5.8 billion are generic provisions for NPLs. The generic fund for Spain after using up the total for the year is at EUR768 million; we provisioned slightly more in Q4. And with the use up, we expect we estimate the fund will last for the next two quarters of 2011. Going down to the different business areas, let me speak first as we usually do, about Continental Europe. So summary for the year, I think our income statement shows the difficult environment for our business, especially in the second half of the year. Gross income down 2% in the year of low growth in lending, in some cases negative, interest rates at historical lows or record lows plus mortgage repricing, and strong competition to attract customer funds. And deposits, although there has been an improvement in lending expense, and as a result, we will see improvements in the next quarters. The costs in the retail networks have dropped a little as we saw earlier. Provisions have increased because of the efforts made in write-downs, largely the impact of the new Bank of Spain circular. Without that impact, the drop would be of 13% of our profit, instead of 22.8% or 23% as you see in the slide. And, finally, the exception in this market, in these weak business trends, and pressure on our margins was Santander Consumer Finance, as we will see profits rose by 29%. And as we will see later, their performance was really excellent, and the prospect for 2011 also very good. Going now to look at the underlying components; in Europe, we had a very similar scenario in Spain and in Portugal, where lending is not growing, it’s in fact shrinking slightly. Good growth in deposits, 18% in the network in Spain and 47% in Portugal. This growth in deposits, both for time and term deposits, and as a result we’ve been able to improve our market share by a 160 basis points. As for the return on average total assets, as I mentioned earlier, there are several negative impacts there. The write-downs on mortgages which reached at their lowest level in September last year, higher cost of deposits as I mentioned earlier. On the positive side, improving spreads on lending and potentially raising interest rates which would improve our net interest income in the future. As for consumer finance, the drivers are different. Here, there has been very good growth in lending, double digit. Deposits also growing at double-digit rate, and spreads are raising very low interest rates and are very favorable for this business. They have enabled us to increase our spreads and obtain very good profit. Let me now go into a bit more detail on our lending portfolio on Spain and Portugal, given that this might be of interest to you. Let’s look at the trends and the forecast for our lending portfolio in both countries. Starting first with lending in Spain, our portfolio is EUR236 billion, that’s the total portfolio. You can see a break down in the slide, 5%; public sector EUR91 billion is individual loans, of which, EUR61 billion are mortgages for purchase of homes; EUR95 billion companies that have no connection with construction or real estate; and finally you also have the loans given to the construction and real estate market. There are loans for different purposes, not for real estate itself. And, finally, those that are directly connected with real estate, EUR27 billion of which developer loans are EUR11 billion or EUR12 billion. We’ll present this in this way following the new criteria that Bank of Spain has recommended for the reporting by all the banks in order to clearly identify the risk that is really connected to the real estate business in Spain. Before assessing in more detail the numbers for the Santander, I’d like to review the new information required by the Bank of Spain in comparison with the information reported by the sector in the previous quarters, which corresponding to loans classified as construction and real estate, according to the CNAE code, which is the national classification for economic activity. That is that notorious figure, EUR440 billion for the sector, which as we have mentioned in the previous quarter includes intra-Group balances financing through banks and savings banks, real estate agencies which manage foreclose properties, loans for properties other than real estate, but granted to real estate companies such as to financing of public works, infrastructures, highways, leased backs, project finance, et cetera, which will also fall under the same code. Therefore, the real estate risk now this new break down is a much smaller figure. And with our EUR27 billion, we have a market share of that of less than 10%. In any case these figures represent less than 4% of the Group’s total loans and 12% of our loan portfolio in Spain. If we look at the evolution, looking at our portfolio at the end of 2010, we can see that total lending portfolio in Spain has shrunk slightly by 3.5% in 2008 versus 2009, 3.6% 2009-2010, 4% ending mostly in the real estate construction sector for real estate purposes, which has dropped 27% in the year, when the average drop of the portfolio was about 7%. The fall in the risk hasn’t been realized, lending declined by EUR10 billion and foreclosures only increased by EUR900 million. Looking at this portfolio, if we analyze the quality of lending in Spain overall, we can see that the total NPL ratios I mentioned and as we’ve heard from the CEO is 4.24%, and the growth has slowed down a great deal in the last year as you have seen after a strong increase in 2008, had an increase of 140 basis points in 2009. This year it’s only risen 80 basis points. The portfolio has NPL ratios now are highly diverse, because for residential mortgages, the NPL ratio is 2.2% and that has actually improved in the year from 2.5% to 2.2% in the rest of the portfolios, so SMEs and corporate, the ratio is 3%. And the construction and real estate development sector overall is at 13.3%, of which, the non-real estate is 4% in line with the rest of our portfolio. I mentioned that the same is not for real estate development. And those that are for real estate developments have an NPL ratio of 17%. Let me focus now on the portfolio for real estate purposes of EUR27.3 billion. I mentioned earlier that in this we include loans to developers, but also hotels and shopping malls and other activities that has to do with the real estate. On the screen you will find the structure depending on the collateral. 10% is for finished buildings which compares very well to the rest of the industry, land represents 21% of the collateral, and to finance the working capital we have 22%. Out of this, for the loans, what you can also find on the screen are EUR4.9 billion and substandard EUR4.3 billion, with a total of EUR9.568 billion classified as doubtful or nonperforming. But even though they are classified as doubtful, the substandard are paying well. The coverage for these assets is of 28%. If we now look at the other portfolio that has to do with the real estate industry in Spain, in other words mortgages for homes, the EUR61 billion that I mentioned earlier, I already said that the NPL rate was 2.2%, and it’s falling. And I would say that this is the healthiest part of all our loans in Spain, and for several reasons not always well understood by the market. Mortgage loans in Spain, all of them pay principal from day one. It’s not that we have now interest only. When you begin the year with a 100 mortgages, if there is no new production, you end the year with 86 or 88. So there is a very significant prepayment or early payment component. Most of them are to finance first home. There is no buy to let. And the different characteristic that we have in Spain which is at 99% are at a variable interest rate. The expected loss is 0.23%, therefore it’s a high-quality portfolio, it’s a portfolio with very good collateral, and it is not a portfolio that is a reason for concern in terms of risk quality. And to finish with the real estate part, we have foreclosed buildings. We see that there is a significant slowdown in the increase of stocks. New inflows have fallen 20%, exits have increased by 30%, our outflows have increased by 30%. The sales in the year, EUR1.1 billion, so loss has been about 25% compared to a coverage of 31%. If we look at the coverage percentages, they go from 25% in finished buildings to 40% in land, which is what includes the impairment of the reasonable of the fair value of these assets. The charts as required by the Bank of Spain, of these three parts that I just mentioned can be found in the annex of this presentation with the format required by the Bank of Spain. If you look at the land loan portfolio in Portugal, the land loan portfolio fell last year 8%, this year it’s stagnated. It’s very similar in size to the Spanish one. Only 3% of the portfolio is for construction and real estate. The NPL rate is 2.9%, it’s fairly contained. The construction and real estate NPL ratio is of 18.4%, but since it’s so small, the NPL rate only represents EUR250 million. So we have a portfolio with a very good quality, a very low NPL rate 2.9%, and the exposure to construction and real estate is very small. With regards to Sovereign risk, Santander sort of has EUR2.4 billion of Portuguese debt. And with regards to liquidity issues in 2011, it has maturities of EUR1.5 billion. The commercial gap is more than EUR1.5 billion a year taking into account the dynamics of lending and deposits. And Santander Consumer Finance, four ideas regarding that very good performance. Strong growth in production, in some cases as in the US, it has doubled, but that is because of the acquisition of portfolios in the Nordic countries as well as the UK and Spain, we ended the year with positive growth. Although the stock is falling, production is increasing. Weaker in Germany though due to the sharp drop in new car sales drop of 23%, although better in used cars. Improvement in spreads taking advantage of the low interest rate environment, flat cost if we exclude the perimeter impact in the US. Lastly, reduced demand for loan loss provisions in line with the drop in risk premium and the improvement in credit quality with our coverage of a 128%. The evolution of the business is very good and we’re very optimistic for 2011, given what we see so far. The UK, the second relevant geographical area; we ended the year with a profit of EUR1.7 billion, about EUR2 billion, an increase of 10.7% over 2009. This is the sixth year that we have a double-digit growth in profits in the UK. The economic environment, our regulatory environment are not very favorable. But even so, gross income rose 4%, affected by lower gains on financial transactions and higher funding costs. The net interest income rose 8.5% and absorbed in the last quarters the higher cost resulting from the FSA’s new liquidity requirements. Cost remained flat, provisions were 17% lower because of the good evolution of arrears relating to mortgages and UPLs. Net operating income after provisions increased 15%. Lastly, the fall in fourth quarter profits was due to the establishment of the EUR74 million provision fund for possible commercial risk contingencies and lower gains on financial transactions, because of portfolio evaluations. If we look at the activities growth in mortgages, the stock of mortgages rose 3%, market share is 14%. We’ve gained 40 basis points in market share in the year and our share of gross mortgages is 18%. Loans to companies rose 13%. In the part that we have identified in core in SMEs we’re growing more, rates of more than 20% with an increase in market share growing from 2.9% to 3.6%. Deposits, they grow 7% year-on-year, the market is still very competitive. It is a market where the spreads haven’t changed in the last four quarters, it’s still very competitive. The combined effect of revenues, cost of credit was very positive. And given the fact that we have less provision requirements, we have very good results. So we think that these trends are relatively stable for 2011 in terms of margins and volume. Brazil; in general terms, Brazil maintained a good general trend in the fourth quarter in profits, business growth and credit quality. Profits before minority interests were 24% higher and 10.4% net of them. Growth came from net interest income plus net fee income which increased 6% in 2010; this is the average growth of the portfolio. It started at minus 5% compared to 2008 and 2009, and now it ended in more than 10%, so that gives us an average of this digit. Controlled costs grow below inflation, 3.7% versus 5.9%. And provisions had registered a double-digit reduction in 2010 due to the improved risk premium and NPL ratio. Net operating income after provisions increased 17% and profit before minority interest was 24% higher. Earnings were very consistent. We went from levels of EUR800 million in net profit to EUR1 billion in the first two quarters of this year to levels of EUR1.2 billion in the last two quarters of 2010. If you look at the activities in Brazil, it’s very dynamic. Lending decreased at the beginning of the year by 5% and it ended up growing by 18% at the end of the year, particularly in business and loans to individuals. They didn’t grow that much in large corporations, because of the disintermediation process. We participated there intensely, but that doesn’t appear in the stocks, placing bonds from large Brazilian corporations in financial markets, international markets. Investment funds are growing 12%. Term in Brazil plays a very important component, is an important component. It’s more liquidity management and the liquidity position of the bank is very good. In terms of results, a quarterly trend shows a sustained rise in revenue due to larger volumes, good management of cost, lower cost of credit and provisions much lower than in 2009. Net operating income after provisions increased 24% over the fourth quarter of 2009, and profits that point to maintaining the good growth outlook for 2011. If we look at the rest of Latin America without Brazil, I would say that it follows the same trends as in Brazil. Throughout the year, there was a clear pickup in lending; growth was negative at the end of 2009, and 14% a year later. There was growth in all segment except for cars in Mexico within our strategy of reducing risk. Savings also registered double-digit growth, plus 11%. In results a higher business volumes in the defense of spreads in an environment of lower interest rates than in 2009, and a change of mix toward lower risk products and the lower cost of credit is reflected in sustained growth in basic revenues and in net operating income after provisions. That reaches attributable profit with increase to EUR2.604 billion reflecting the positive trends in all countries. Mexico is up 23%, Chile registered the same trends, but lower costs. Argentina rose 31%, reflecting the strength of the franchise. Uruguay profits were 10% higher, the level of coverage was higher. Puerto Rico increases profit by 8%. Basic revenues grew 4% and costs were flat. And there is a very good control of risk, and this is why we are very optimistic with regards to a lower needs for provisions in 2011. If we look at activity in Mexico and Chile, we see that the trends are very similar to what we saw in Brazil. We come from negative lending rates to, and at around 15% positive in Chile and 14% in Mexico. It grows in all areas with the exception of credit cards in Mexico. Savings grew at double digits in Mexico in time as well as in demand deposits. Initially demand deposits grew strongly in line with an environment of interest rates rises. The savings, as I said, performed very well in Mexico. There is a certain pressure on the spreads. The spreads are stable. Part of it is because of the change in mix in Mexico and an increase in interest rates in Chile, where lending, most of it, is at a fixed interest rate. But in general terms very good dynamics in terms of volume. The spreads remain at the same level and less provisions. Sovereign; let me remind you that we had announced in our Sovereign plan we wanted to obtain profit this year of $250 million. We’ve obtained $561 million. The activity is improving, although lending is still falling. I’ll remind you that we put 20% of the portfolio we decided not to continue with, and that portfolio is fully now 32%. So excluding that, we have a very good momentum in developing our activity. Deposits; core deposits grow 8%, the other deposits price policy particularly in the market meant that these have gone down. The costs fell by 8%, because on the synergies, we as of March of last year – I think we mentioned this in previous quarters – the NPL rate has been falling significantly. We have improved – the NPL rate went down and we improved coverage, so this is why we have reached $561 million in profit that I mentioned earlier. We’re also very optimistic with regards to reaching our targets in 2011. With regards to corporate activity, let me refer first of all to the year as a whole, to the year 2010 in compared to 2009. And then, I will compare the fourth quarter to the third quarter of last year. As compared to 2009, we have less trading gains in the corporate center from a profit of EUR631 million in 2009 to a loss of a EUR142 million in 2010. In other words, minus EUR773 million, basically because of the negative impact of currency hedging, the counterparty was more than EUR500 million from which the business areas benefited, and also the higher results in 2009, because of hedging of interest rates in financing of a structural nature. The second – so we have these two elements. And then the second is the higher cost of issues reflected in the fall in net interest income, that’s for the whole of the year. Without taking into account, the trading gains and the net interest income, the other items in the account don’t change much. If we compare the fourth quarter with the third quarter, there are some elements that we should mention. Net interest income improved in the quarter because of the lower financing cost of currency hedging and the lower financing volume to retail businesses from corporate activities due to the strong rise in deposits. Positive financial transactions in the quarter, because of positive exchange rate differences from dividends. When you declare a dividend from the moment in which you declared until you pay, the difference in the exchange rate has been positive. And the other results were basically zero in the quarter as different write-offs were done during the year which resulted in unnecessary additional provisions. So now, let me hand over to our CEO, to look at the forecast for the coming quarters and the different businesses.

Right, we’ve already reviewed the Group’s strategy and its evolution. And my summary is that, 2010 was another good year for Santander. The Bank had met the challenges of a very complex environment and obtained good grades in key aspects, generating high profits, keeping NPLs under control, strengthening liquidity and capital, giving shareholders a high return, and improving the Group’s strategic potential. This gives us a solid starting point for 2011, a year when management will again be tested. We have three focuses for 2011. The first of these is to generate value in three very different business environments, more demanding markets for business such as Spain and Portugal, other developed economies where we expect to have positive news as a result of their recovery such as the US, Germany and the UK, and the emerging economies where no barriers to grow, which will continue to drive business. The second focus is to integrate during 2011 and 2012 the latest acquisitions. This is going to take place not only in 2011, but also in 2012. And thirdly, to maintain a strong liquidity and capital as critical variables for management. And I will look at each one in more detail. The first idea is that Santander will develop a clearly differentiated management of its business drivers on the basis of the macroeconomic and financial environment of each market. In Spain and Portugal, we expect a slight fall in loans while deposits will pickup, which will make us put the maximum emphasis on spreads, costs, and in recoveries. Meanwhile, we will be very demanding in provisions, although we see a reduction in specific ones. In consumer, the UK and the US, we see a moderate recovery in volumes as these economies get back on their feet. Here we will actively manage spreads to reflect the higher cost of liquidity and capital and strictly control costs that we can – so that we can generate savings in ordinary activity. At Sovereign, we will make investments in Parthenon. And lastly, we expect strong growth in lending, aiming to gain market share at our units in Latin America. Spreads will be adjusted to each country’s interest rate expectations, while costs will reflect investments to increase distribution capacity in key countries. More provisions from lending growth, but with better risk quality and risk premium. The second point is integration of the acquisitions. On the left side of the slide, we mentioned of the three main units that concentrate our efforts. We have just closed the SEB transaction and are about to start customer migration which will be finished by 2012. The integration of the Royal Bank of Scotland branches will be done by a carve-out process. And given the complexity of this process we expect some delays and the operation will be completed by the first quarter of 2012. As regard to Poland, we are awaiting authorization from the Polish regulators. The contribution to profits from these integrations will not be immediate. It will be progressive and start in the second half of the year as they are incorporated into the Group. The third point is that in 2011 we will again put an emphasis on liquidity and capital strength, something that today I feel very comfortable about. We will continue to work to maintain this position. Santander has resources and capacity to generate liquidity and capital, as well as plans to optimize its use in the various units. All of this will enable business to keep on growing without restrictions and comfortably meet regulatory requirements. In conclusion, and with a still demanding year ahead of us, Santander has the strength and management capacity to keep on performing well. And before we end, let me just remind you that on 29th and 30th September, we will be holding an investors day where we’ll review the strategy and the Group’s forecast, and that of their main units for the next years.

Good morning. As usual, we will continue to review the questions that come in over the webcast, and then we will look at the questions we’ve received over the phone. Well actually we have many coming in over the Internet. I’ll start with the subjects starting with strategy and regulation. There are several questions from Britta Schmidt at Autonomus; Carlos Peixoto, BPI; and Antonio Ramirez, about our plans for an IPO in the UK for going ahead with those plans, if we still think it’s possible to do it in the next semester of 2011, and what kind of evaluation are we thinking we can obtain?

I’ll confirm our intention to carryout the IPO in the second semester, we can confirm that. We had already announced that that was the plan. And we will meet that target second semester, that was the first half of your question. And the second, evaluation, I don’t think now is the time to talk about that. We’ve not given any kind of guidance. This is something that we’ll talk about when the time comes when we’re in the final stages of the IPO.

There is a set of questions about Poland, the Poland project; Britta Schmidt, Carlos Peixoto. When do we expect to close that and finalize that, will we be taking it? Well, you know that we’re awaiting the approval of the local regulator, and when that happens we will let the market know. We can’t really say anything more than we have said with regards to our expectations on that. There’s a lot of questions about Spain too and the restructuring of this industry in Spain; Britta Schmidt, David Vaamonde from Fidentiis, Sergio Gamez from Merrill Lynch, Andrea Filtri from Mediobanca and Benjie Creelan from Maguire. And basically I’m going to try and summarize. And the question is, are we interested in savings banks in terms of an organic growths or acquisitions? Do we think it’s fair to apply different capital requirements to different banks whether listed or not? And what organic growth do we expect for the next three years or do we expect to also grow inorganically through acquisitions? And organic growth for this sector in Spain in general. In terms of volume I suppose they mean, forecasts and prospects for these Spanish banking sector.

Right. As for the Group’s position with regards to the restructuring of the savings banks, I think it’s early days yet, since the process has only just started. And we still need to learn in more detail about how this process is going to evolve. So I’ll just say, for now, that we think there will be opportunities for investors clearly in this process, especially in the initial stages of the capital injections, but it’s I think early days to say whether our Group is going to be interested in playing an active roll in this process or not. As for the different capital requirements, that’s something where clearly of course the market will eventually put everyone in their right place in terms of capital requirements over and above regulatory requirements. But regulatory requirements are pretty similar in both cases, and always dependent on risk profiles and business profiles for each bank. As for organic or inorganic growth prospects, it’s really hard to predict the future. But our current expectation is to grow organically. The Group still has significant potential for organic growth, over and above the acquisitions that are currently in the pipeline of course like Poland and the Royal Bank of Scotland branches, which are still pending finalization. But beyond those acquisitions – and I mentioned SEB, because that’s already closed. Our plan is to grow organically in the next years in order to really draw out all and extract all the value that we can still capture in the UK, and Germany, and the US, and Brazil, where the integration process and the restructuring process continues to draw values. So in the near future we expect mostly to grow organically, mostly.

Okay. And as far strategy and operations, there is a question from Rohith Chandra about whether we’re still thinking about other IPOs apart from the UK, and he specifically mentions Mexico. I don’t know if you want to answer that.

No decision has been made on that, so I can’t really say anything. We’ll have to wait and see what happens. No decision has been made.

Sergio Gamez from Merrill Lynch is asking about management changes. There has been changes in the management of some business units, which represents about half the profits of the Group. Do we expect any new strategic plan for these units or are we going to go on as we have until now?

Well, of course, the individual managers have their own personal style. But beyond that in the two major markets where there has been changes in the management, Brazil and the UK. In both cases the plan is to continue with the same strategy, with the same model, with the same focus for the business, which is the Group’s model, and that’s not changed since the time when we acquired these companies. Although, of course, always adapting to current circumstances.

And finally to end with the strategy subject, two questions that I can combine. Neil Smith and Luis Pena from JB Capital asking about the outlook for 2011; what’s our biggest concern? And how could that impact us? And what outlook do we have for profit growth in 2011?

Well, our outlook is positive, and I think we’ve said it in the presentation, or could be understood from what we said in the presentation that in three quarters of the markets where we have our presence, and that means both mature markets that are undergoing recovery like the US and the UK and Germany, and more specifically in the emerging markets like basically the Latin America, but also Poland when that part of the Group – from these markets we expect to have a very good year. And so, the overall result with these markets that are growing strongly and so we can expect them to bring in significant growth in profit. And those markets where microeconomic circumstances are not yet ideal but which nevertheless for different reasons either because of the perimeter effect or the internal restructuring or our own internal factors, we expect good results too. Excellent, in fact, from the emerging markets again. In Santander Consumer Finance, again, without a geographical perspective, I said already in the presentation as Jose Antonio Alvarez when he talked about this division, we also expect that to bring in significant growth in profit in 2011. In fact, it had a very good 2010 too, because that’s a unit which is ahead of the rest of the business in the cycle. It solved the problems it had in 2008 and 2009 with NLPs and is in really accelerating its growth. So the only concern or you were asking about our biggest concern, and our biggest concern basically is Spain and Portugal, where we still expect to have a difficult 2011, because the economy is still slow and volumes will not recover as yet, that’s why we said since we expect less volume and less business in those markets in comparison with 2008 or 2009, we will focus our efforts on our spreads, our costs, our recoveries, risk quality, so all those aspects of our management. Having said all that, our outlook for next year is optimistic, positive definitely.

Right, moving on to financial management or financial area, there are several questions about capital; Sergio Gamez from Merrill Lynch, Arturo De Frias from Evolution, Marcello from Bernstein, Antonio Ramirez from Keefe and Francisco Riquel from N+1. Questions are what capital levels do we expect to have in 2011? How much capital will you generate organically given that in Q4 you’ve reported 20 basis points of organic capital generation? Does this mean we’re going to increase our guidance from 10 basis points, 15 basis points per quarter? And, basically, are we still not thinking of the capital increase, especially if your UK IPO doesn’t happen? And do we think that organically we can reach 9% or 10% core capital only from profit generation and the scrip dividend?

Okay, the guidance we had issued was 10 basis points, 15 basis points of organic capital generation per quarter. I’d say from now on, probably more like 15 basis points, because of what we’ve said in terms of the growth in volumes we expect basically in mature markets. When I say volumes, I mean volumes in lending will be growing strongly in emerging markets, but overall the Group’s loan portfolio, emerging markets represent less than 20%. Although that percentage will be growing at 20% rates and it’s true so that our loan portfolio mature markets, which is now 80% will be growing very little, and in some cases will even be shrinking, I’d say high as this year. So we expect good organic capital generation probably at around 15 basis points per quarter. We’re certainly not planning a capital increase, because with this kind of rate of capital generation plus scrip dividends, we’re talking about annual capital generation of almost 1%. So really – and using out relatively little. So we think that organically we are generating more than enough capital to continue with the kind of payout policy and to reach ratios at around where we are now which are more than comfortable.

Capital increase, you want to add any thing?

No, not planning a capital increase at all. Not going to do capital increase, no.

There is a question about – Rohith Chandra about – from Citi about the 550 million reduction in capital, whether that has added 10 basis points to core capital in the quarter. The answer is no. It’s true that there are these 500 and some million impact on the capital, because of the adjustment both in equity and fixed income and currency. But those are very similar amount about 500 million, which is offset by increasing goodwill, so net the impact is practically zero. There is a question about the impact of the SEB acquisition on our core capital from Andrew Lim, Matrix, how much core capital is that going to use out? That’s approximately 10 basis points – 8 basis points exactly. And it will take place as we’ve mentioned through out the first semester of 2011. We have more questions about how we expect to close the year, which we’ve already mentioned. Whether we can give an update on the impact of Basel III; no change as we said 70 basis points, 75 basis points used up. We gave you the breakdown previous semester about the different items. Question from Neil Smith, I don’t know, Jose Antonio you would like to elaborate, he is ask – saying that the ECB published its – the case on December 16th, estimating an impact on banks in Europe in general and that Santander sent its own figures. And can we say something about the case and where it might be the impact of Basel III, I’ve already said that. Do you want to elaborate?

I think basically it’s widely known. There is no really and lot else to add to the known impacts of Basel III. We’ve discussed already. It’s true that there is still an ongoing discussion about some elements, not really whether it’s Basel III or what it is, anyway the regulatory framework for the large systemic important entities for countercyclical buffers too, but that still has to be debated by the EU. They’re still discussing what is called the capital directives CRD4 which will transpose to the EU’s regulations, the principles that have been defined by Basel, but that’s still happening. So as far as we know, we’ve given you those numbers of 70 basis points, 75 basis points. And when we have more information we’ll give you a more detailed response.

To finish with capital, question from Andrea Filtri from Mediobanca; are we still thinking that the RBS acquisition will be finalized at the end of this year or the next?

Probably it will be finalized at the beginning of 2012, given the carve-out process which is taking place in our transaction. But in any case that calendar we reported before still applies.

As for the corporate center, there are several analysts, David Vaamonde from Fidentiis, Sergio Gamez from Merrill Lynch, Rohith Chandra from Citigroup, Arturo De Frias from Evolution, Frederic Teschner from Natixis, who are asking basically about two things. The evolution of our net interest income especially in 4T comparison with 3T, can we clarify that trend, and bring the ROS and the outlook for 2011, given the increase in financing costs we are seeing. And what do we expect from the top end and the bottom end of corporate?

Well, as for in the past, I think I explained that difference ‘10 versus ’09, and also Q4 2010 versus Q3 2010. Speaking about our outlook to predict the margins for the corporate center, we have to have several caveats, interest rates, of course, because it’s not the same if they’re raising and if they’re dropping or stable, since there is finance for the holding company which is there. So if interest rates are higher, our net interest income is lower. Also the perimeter has an impact, the size of the holding varies. And so if goodwill is generated or decreased, financing volume increases, and also the cost of finance of course self finance to finance corporate. Basically in principal, with stable interest rates and constant perimeter, we would had some negative impact from raising wholesale financing costs and some negative impact from goodwill generation, because of the investment in Poland. It’s been more difficult to predict the cost of the carryover of our currency hedges, which were particularly well in Q4. But in principal, both Mexico – hedges in Mexico and Chile are closed for the whole of the year, so no changes are expected. Brazil hedge is shorter term, and so we will have an impact from interest rate variations in Brazil, and Pound versus the Euro, that also affects us. Of course if the hedge is greater, the greater it got, but that’s just the usual run of this business, it’s hard to be specific about our number. But you can calculate your estimates from what I’ve said.

As for ALCO portfolios, Francisco Riquel and Antonio Ramirez from Keefe are asking about contribution of these to our net interest income. And Britta Schmidt is asking about issuance plans for 2011. We’ve already talked about maturities in this presentation. Will we be covering or replacing all maturities or not? And what financing costs do we expect in 2011 versus 2010?

Our core portfolios, I think we’ve said that there is approximately – this is basically public debt EUR15 billion in the parent, EUR5 billion in Banesto and EUR3 billion or EUR4 billion in Portugal. In Brazil, there is a portfolio of about EUR9 billion. In Mexico, approximately EUR4 billion. The rest are smaller around EUR1 billion and EUR1.5 billion. Contribution to net interest income in the year I’d say in the Euro area about EUR500 million – EUR550 million, and in different markets or countries, probably around EUR100 million in Mexico and in Brazil maybe about $250 million. So those are the portfolios. Usually the maturities which is the usual question in euro areas, 2.5 years to 3 years; in Brazil shorter; and in Mexico very short term, probably 1.5 years on average. Second question about issuance plans, we said in the presentation – I think our CEO said, that we have – we plan to be quite active in the UK, we have the majority of that special liquidity scheme in the UK. And so we have to replace that special liquidity scheme which was created in 2008, so we’ll be quite active there. More active than last year in Latin America, especially in Chile, because there is strong growth in lending, and so we will be more active. Certainly more active in Brazil and slightly more active in Mexico, but only slightly, not very much, because excess liquidity in the deposit-to-loan ratio is still significant. As for the Euros zone, as we said in the presentation, maturities are some EUR20 billion this year and then the next, and the following about EUR15 billion. We’re deleveraging so we think in principal we will be issuing a lot less. So if it’s EUR25 billion round figures, maturities, we think that commercial gap might be EUR10 billion under ordinary circumstances. And since we’re providing less finance for consumer finance, so in the past a good part of that was financed by the parent, but now it’s increasingly self financing. In 2009, it was EUR14 billion; at the end of 2010, it was EUR9 billion; and we think that it will self financing in 2012. So the parent Portugal and Banesto will have less issuance needs then we’ll issue relatively little. And as for the costs, I think that was the final question, financing 2010-2011. Right now your northern market is – our expectation is that cost will drop, Sovereign risk will drop very significantly, it has been dropping in the last few days, but we expect those drops to continue, and so we expect that there will be more normal, let’s say, more normal. But if only will go back to the levels before the crisis, but at least within the period of this crisis when the financing costs were about 70, 80, 150 basis points depending on the instruments on the terms. So that’s what we would expect for 2011 overall.

Okay. And to finish this chapter, Raoul Leonard from RBS was asking specifically about closing the commercial gap. You’ve just mentioned it, so no need to answer again. As for credit quality in the Group, there is questions from Britta Schmidt, from David Vaamonde, from Marcello Zanardo and from Raoul Leonard to, how do we see the evolution of lending quality? In the year, there has been an increase with net additions in Q4, how do we expect risk quality to evolve? Do we think it’s going to continue to worsen? And what’s the trend we expect for 2011 and 2012, for risk quality?

For the Group overall, we showed you in the presentation, there have been improvements in NLPs in all markets, except Spain and Portugal I think it was. That’s going to be particularly intense in the US, where we’ve had significant improvement, but it will depend on growth in the different segments in emerging countries. In Spain and Portugal, we probably think that they are still going to be some slight increase at least in the first half of the year in Spain. I’m talking just a few basis points. We finished at 4.24 I think, so maybe it will raise to a peak of maybe 4.5 or 4.47, but thereafter it will stabilize and then begin to drop. In Portugal a slight rise, but not significant, we’re at 2.9, so not significant. If we translate this to the Group overall, I can’t actually translate what that means mathematically in the rest of the Group, but probably quite stable or even slightly down, but can’t really calculate off the top of my head exactly all the weight of the different units. And in the UK, I did mention it we don’t have any concern over credit quality.

And specifically as for risk quality for Spain, there are questions about the evolution in Q4, worsening in Q4, anything specific; Francisco Riquel from N+1 is asking this. How do we expect Spain to behave specifically quarter-on-quarter basically? Carlos Peixoto and Fredric Teschner, one from BPI and one from Natixis are asking this question. And specifically on the income statement, Britta Schmidt is asking do we expect provisions to increase or decrease versus – since we’ve used the EUR2.1 billion during the year. Question from Britta Schmidt.

I think I explained this. All goes hand-in-hand. We think that NPL will rise slightly in the first half, in the fourth it could be stable or go down slightly. And the impact on our P&L, we’ve said that’s generic for two quarters. Then we may have a slight bigger impact because of the net, but we think specific provisions should go down. But the net impact on our fixed income statement will be greater, because of their lack of availability of generic provisions from Q3.

There is question from Fredric Teschner in Natixis about our dividend or payout policy. No change, still the same, 50% payout for dividends, to scrip dividend, which will be paid in the dates that had been announced. As for generic provisions in Spain, there are several questions from Rohith Chandra again. Given the use in Q4, how much do we expect to – how long do we expect our generic provisions to last and what will be impact thereafter?

I just said just now, we have two quarters. Of course, the Group’s policy is if when there are capital gains, we usually provision generic provisions, but as I said just now.

There is a question on strategy from Neil Smith. He is saying, that the euro zone has announced the possibility of a European bank levy. Do we think that’s a risk, will it apply to Spanish banks and do we think that it could have some kind of impact on the sector? I don’t know if you want to answer that.

Well, bank levies are not good obviously, but we don’t have any news or any indication that the Spanish government might be thinking of applying one in Spain.

Moving onto real estate exposure, Andrea Filtri from Mediobanca, he is saying thank you very much for this new clearer reporting on risk in the construction sector, no other bank has done it so clearly. So thank you very much Andrea for that praise. And as for specific exposure there are several questions with regards to what it – what this real estate purpose means or it doesn’t mean or what’s the NPL rate, the substandard. All of these specific details are in the appendix or the annex to the presentation. You have all the tables with all that information. I think we’ve given all the information required or even more. But any case we can answer you all your specific questions after this webcast. And there is a question from Andrea Filtri, do we expect to continue buying back assets on what rate? And what is our policy with real estate assets in general?

Well, our policy, I think you know. There have been some small increases, but buyback policy stopped I think 1.5 years ago and we’re still maintaining. We have had some of asset allocations as part of a normal recovery process, allocations generally through the courts.

Continuing with construction and real estate, David Vaamonde is asking about intra-Group balances you mentioned in the presentation when you talked about those EUR440 billion, can you elaborate a little more there and the composition of those EUR440 billion?

Well, I don’t actually have the information to give you the breakdown of the EUR440 billion, because that’s the whole sector and I don’t have the information. But what I can tell you is the intra-Group balance, when we incorporate a company for real estate assets, ours is called Altamira, it buys those assets with a loan awarded by the bank which eventually falls statistically as part of those EUR440 billion. And so as not to count the same as real estate loan and as allocated asset that’s why I say net, in our case it’s EUR4 billion. About EUR4 billion are the loans granted by the bank to Altamira to buy these – or hold these allocated or acquired assets. And in the sector, I suppose there are different practices. There are banks that keep those assets in their balance sheet and others have it in a separate company. And, of course, you can endow that company with capital or with loans. But I can’t really give you more details about what those EUR440 billion the sector contains. In our case, it’s those EUR4 billion in Altamira I’ve mentioned.

There is a question from Andrew Lim from Matrix. He says the following; the coverage ratio of the loans to real estate developers and construction companies is 28%. How can we justify this coverage ratios which is so low?

Well, I think he is referring to doubtful loans plus substandard, the EUR9.5 billion. I think I said during the presentation that 75% by definition – by definition all sub standards have made their payments of interests and principal, and 50% of those classified as dubious or doubtful have covered – have paid the interest plus principal. Therefore, the coverage of 28% over a portfolio were only 25% is in arrears. We think based on our estimates is the right level of coverage for this portfolio. In effect, I remind that 75% has made its payment on a timely basis and 25% are in arrears. But that’s a substandard portfolio because of the sector, because of the client in some cases – and well those are figures that I gave during my presentation.

To finish with the risks department, there is a question on the very slight increase in the charges for provisions in the quarter in Brazil. Nothing special to mention there, this is basically the growth of the portfolio in business as usual. And the different ways of the different credit qualities, but there is nothing specific there in the quarter. Andrea Filtri ask whether we think that the evolution of the results in Brazil is sustainable? Is that growth of profit sustainable in Brazil?

I would say absolutely so. Our forecast for Brazil – and I don’t think we are very original there – is favorable we think that lending will continue to grow despite the increases and reserves and despite the increase in interest rates, we do think Brazil will continue to grow significantly so, and the spreads will be in line with the ones we have now. We think that the scenario to generate revenue in Brazil is favorable, credit quality is improving and will continue to improve. And there is a general pressure on cost, because of wage increases, but we are undergoing an integration process, so we should outperform our competitors there, therefore we do think these profits are sustainable.

Yes, if we now look at the different business areas, in Spain, there are several questions on the net interest income. Let me start with Sergio Gamez from Merrill Lynch. Deposit retention campaigns, what is our best estimate on the retention of deposits and what do we think will happen in the next few quarters? I guess he is referring to the campaign we rolled out on the second half of last year.

Well, more than the campaign the net interest income – the worst about the net interest income in Spain is probably over. That was a period in July to October, because the appreciation of the mortgages stopped, it went down to minimum levels. Now, the Euribor is going up, that’s an important impact as well as the campaign which was a negative effect. On the last quarter, the customer spread has improved by 2 basis points as compared to the previous quarter. We think that the fact that mortgages are growing, the fact that there is less intensity in the campaign for deposits. An increase in spreads on assets that will give rise to increases in the net interest income in the next few quarters. Of course, the first quarter of 2011 will be below the first quarter of 2010, we might tie in the second quarter, and from there on the net interest income will clearly be better than in 2010. That is our outlook and that is – and there we include the results of the campaign to gain more deposits. And there is going to be less competition for deposits and these deposits will re-appreciate with a downward bias. We have about three and a half products per client that we attracted with our deposit campaign, so the performance we think is going to be reasonably good as compared to other retention campaigns.

Rohith Chandra asked about the net interest income and the performance compared to the customer spread; that you just answered that question. Antonio Ramirez is asking about the competitive environment in deposits. Is there going to continue to be pressure on deposits? You just answered that question as well that things are quieter on that front. Brazil; Carol Peixoto is asking about the impact we expect from the increase in compulsory reserve requirements in Brazil and what volume growth do we expect in the year.

The truth is at the impact of this type of increase in reserves we don’t think it’s going to be too large. Federal Bank is saying, in its estimates, that the impact is going to be of 1 basis point and double-digit growth in terms of volume from 15% to 20% volume growth, which is what we’ve been saying the past year. So we’re – we still have the same forecast.

England; UK, Manolo Fernandez [ph] is asking about the performance of the business particularly on the top part of the P&L. Do you see any weakening in revenue or net interest income? And can we give any forecast on whether anything is happening there and what we think will happen this year in the UK?

Well, with regards to the net interest income in the UK, the business spreads remain the same, and assets and liabilities. We don’t see any changes in business spreads, the mortgage spread, as well as the spread on deposits remains as – the same as in previous quarters. What has changed basically is that there is a higher cost because of the liquidity regulation which is introduced in the second quarter of 2010. We think we have absorbed in the year two-thirds of the total cost of this new liquidity regulation, but there is still a third that will be absorbed in 2011. And from there on we’ll go back to business as usual. So that’s part of the impact. But I think it’s 250 million pounds or 300 million pounds that will be the total impact. And we’ve already absorbed in 2010 two-thirds of that. And as I said the commercial activity continues to be the same, we have the same spreads and the same volume of activity that I showed you in the presentation.

And there's a question from Arturo De Frias about the UK, about the commercial contingencies, the provision of EUR74 million that me made. This is reasonable giving the situation in the UK. We’ve another question on – about the UK on the net interest income, but we already answered that question. There is a question from Pierre Alexander on the litigation in the UK. I guess it’s just what we said about the contingencies, otherwise you please get in touch with me and we’ll answer your question. And then, there is a question from Benjie Creelan from Macquarie. If there was a rise in interest rates soon in the UK, would that have a positive or negative impact? How do we see the outlook of interest rates? What impact could interest rates have particularly in the UK?

Well, in general terms, and in the UK more specifically, the rise in interest rates, I can give you the figure, because we did a standard analysis to see how it would change by 100 basis points, while the net interest income would improve by – I think it’s 3% or 4% with a 100 basis points in change. In most of the units, with a greater or lesser intensity we’re at the more or else the same level. The balance sheets are positioned for an increase in interest rates for impact of a 100 basis points. That will be 3% in Continental Europe and 0.5% in the UK will be impact. And the same thing for Sovereign or a little bit more and thus so in the Latin American countries where balance sheets are relatively close. But generally speaking, the balance sheets of the matured countries are positioned to face rises in the interest rate.

Ignacio Cerezo of JP has a question on the impact of the change of perimeter in the P&L. Also in the UK for the time being this is just having a very small impact or almost no impact, so I would say that there is no change, no impact from a change in the perimeter. And there is a question from Ignacio Ulargui on the Bank's view on the regulatory environment in the UK. How do we see the situation – the competitive situation in the UK and how do we think it’s going to evolve the regulations as well as the competition in that country?

I don’t see that there is anything specific in the UK other than Basel or other things that we mentioned for the European Union. Since the UK is part of that, and therefore the regulations will be the same, we’ll follow the same guidelines.

We have a question from Arturo De Frias on generic provisions. What will happen if we run out of them? We will have to make further provisions. It depends on two things, the cost of risk and variation of the book or the order book. We don’t expect changes in that and the evolution of the cost of risk will determine that. But it doesn’t look that we’re going to see significant changes. With regards to Portugal, Andrew Lim from Matrix has a question, asking whether Portugal is if it’s intervened or if it’s bailed out by Europe, will that force Santander to take on more provisions in the loan book in Portugal as has been the case of some banks with loans in Ireland. And Inigo De Guevara [ph] from Avaco [ph] would also like to ask about the net interest income. And Portugal, can we give any outlook on the NI either?

Well, the first question you talked about the loan book. In portfolio the NPL rate is low 2.9%. When you take provisions for loans in other countries is because the quality is bad, the quality of the portfolio in Portugal is good. And even if there were bailout, we think that – well we will have to see the impact that would have on the economy. And if the NPL rate goes up, in that case, we would require making further provisions. But additional one-off thing we don’t think there is going to be a significant change in the portfolio. The net interest income, well the situation is quite similar to Spain, but there are a few differences though. The spread on assets are going up as they are in Spain and significantly so. The deposit market continues to be a very competitive market and competition hasn’t gone down as much as it has in Spain, so it’s still very competitive market. And on the side of volumes, we already mentioned that in the presentation there is a difference which is that mortgages in Portugal and we appreciate it every six months instead of every year as in Spain. So they re-appreciate faster.

And to finish, Benjie Creelan is asking about Brazil. The growth in volume in Brazil, we already mentioned that. And the last question is from Kevin Roger from Sujin [ph], asking about Santander Consumer Finance. The – he says we’ve presented a very strong net interest income, but the fourth quarter compared to the third quarter is flatter, could we give any details on the asset and liability spreads, the evolution, whether we depend on wholesale funding which has grown and the cost of retail deposits which are going up, but there aren’t many of those with the exception of Germany? Would you like to add something to that?

Well, the performance of the business has been very good with an increase in the spreads. The business in Germany is financed 100% by deposits. In the US and in the other countries, we are doing securitizations and therefore a high percentage has been funded with that. And as I mentioned earlier, the funding of the parent company has gone from EUR20 million to EUR9 million, has gone down, and I think the business will fund itself at the end of 2011 or beginning of 2012, developing its own issuance tools in each local franchise. The – we’re very positive with regards to the business in terms of revenue as well as in provisions for 2012, but we think that the business will continue to grow well or very well in 2012.

Very well then, so with this we close. If there are any questions that have not been answered, please do send it and we will answer. Thank you for coming and we’ll see you next quarter.