Banco Santander, S.A. (SAN) Q3 2013 Earnings Report, Transcript and Summary

Javier Marín Romano – CEO Jose Antonio Alvarez – CFO Javier Marín Romano: Good morning, ladies and gentlemen. Thank you very much for joining us for this Third Quarter Results Presentation for Group Santander. And Jose Antonio Alvarez, Chief Financial Officer of the Group is joining me for this presentation. I will basically go through the main figures for what has been the third quarter. Then Jose Antonio will comment on the results for each geography and each area. I will come back with a summary of conclusions and for the priorities for the group for the next quarters. In an environment that shows signs of improvement, but which remains complex, the Group focused on two aspects. On the one hand and in line with previous quarters, maintain a strong balance sheet in terms of liquidity and capital and continue to reinforce the capacity to generate results. On the other hand, we are laying the foundations for our more efficient management in allocating capital and investments, generating more revenues by taking advantage of the group economies of scale, thus let’s say integrating multi-group, better segmentation with a great focus on customers. Some key figures and messages for this quarter. First thing, with respect to volumes that continue to reflect the different macroeconomic situation of the countries where we operate. We see our larger growth in deposits, a larger rise in deposits than in loans, that they shrink by 2% because of the de-leveraging of certain of the economies where we operate. As a result, we maintain a very comfortable liquidity ratio, the loan to the positive ratio stands at 108%, but this – and especially backed by Spain, where the loan-to-deposit ratio sits at 85%. Just let me remind you that we have grown in more than 230 billion in deposits over the last five years. With respect to capital, we registered again a strong organic capital generation in the quarter, increasing the core capital to 11.56 by 45 basis points in line to comfortably meet Basel III or we expect to be always above 11% for the phase-in ratio and above 9% for the fully loaded one. We have a very strong profit for the first nine months, 77% year-on-year. Of course affected because of the lowering of provisioning that were extraordinary last year for the two royal decrease that affected the real-estate assets. The third quarter, we had flat profits taking into account exchange rates. Exchange rates have had definitely a big impact over this quarter. If we eliminate this impact, the profit for the quarter increased 8.5% with respect to the previous one. Thanks to stable revenues on declining provisions. Let’s look to each of these points. This slide shows the evolution of GDPs in Santander footprint, helping us to better understand the context in which we are conducting our business, which is basically our context of lower growth and lower interest rates. The macro-picture this year, is still unfavorable. You see basically that only three countries grew above last year for the first half, where the rest of them are basically decreasing. Three economies improving, Brazil, U.K. and Argentina, the rest reducing like Poland or Mexico, are still in recession like Spain or Portugal. The good news is that the forecast for 2014 from the IMF points to a general improvement and a significant one. This will be probably the first year since 2007, where the 10 economies will re-operate, will have positive growth. We have positive news for Spain and Portugal where they get out of recession. We have heard the expectations from the IMF 0.2 of growth for Spain and 0.8 for Portugal. Our forecast for Spain is that we’ll be – is well above this. We expect that the Spanish economy should be growing at a pace close to 1% and still with room for some even more positive surprises. While we see faster growth in Germany, in Poland, the U.K. and the U.S. and in Latin America we’ll see our recovery in Mexico that has been affected because of the change of government that occurred this year and basically unchanged growth in Brazil and Chile. Meanwhile of course we’ll have low interest rates that will continue to accept pressure on revenues in some countries. In this context, and taking into account the strategy of the Group of strengthening our retail franchises in the last years, we have this reflected in the balance sheet. Where basically we see a de-leverage in mature markets because of lower demand for loans together with more selective growth of reduction in higher risk products, basically real-estates in Spain portfolios or portfolios in run-off in the U.S. We have a stronger and more balanced growth in emerging countries with acceleration in the third quarter in Brazil, Mexico and Chile, although below our forecasts. Just in Spain, basically create strength, although Jose Antonio will come in later, in Spain we’ll create strength over this first nine months by about 6%. Net new loans to SMEs -- sorry grocery loans to SMEs accounted for €31 billion plus €11 billion of bond issues for SMEs that work either lead managed by the bank. Even though we are still as I said before, the current stock is diminishing by about between 5% and 6%, but we are gaining market share by 0.4 points. As a result of these decrease in loans and increase in deposits, the loan-deposit gap has been reduced by €62 billion since the beginning of 2012. This figures covers the maturities of medium and long-term debt in this period. And so this year we have sharply reduced the volumes of issues by the group. The long-term deposit ratio as I said before stands within our comfort zone at 108%. Just let me remember that the comfort zone where we would like to be is between 110% and 115%. With respect to capital, the group maintains its strong capital generation in the third quarter. Basel II Core capital grew by 45 basis points in the quarter, and 123 basis points since the end of 2012 accelerating the growth over the last few years. This was due basically to profit generation favored of course by the high acceptance of the scrip dividends between 80% and 85%. Another reduction in risk-weighted assets, due basically because of the shrinking of the balance sheet by the reduction of credits and the positive impact of the new SMEs definition that was applied in Spain, in accordance with the European definition of SMEs. We also continue to improve our leverage ratio, shareholder’s equity to total assets in the quarter. According to the IMF criteria, we grew to 7%, this is the same criteria we used in the last presentation. So now you can all make your own calculations with respect to what this will represent in accordance with CRD4. In short, we are very comfortable with our capital and liquidity levels and with our capacity to grow and strengthen our balance sheet. We just received the letters from the European Central Bank with respect to the risk-assessment the asset quality and the stress test. We don’t expect any surprises from these exercises. We hope that it will definitely recognize our low-risk model and the low risk profile of the retail bank that we are. We are very comfortable towards a meeting with the criteria of Basel III. We will always be above 9% on a fully loaded basis and 11% on the phase-in. And it is very important to show the great capacity of the group to generate organically capital. With respect to profits, the attributable profit in the quarter was €1 billion and €55 million in line with the second quarter. If we exclude the exchange rate impact it was 8.5% higher, the profit for the nine months stood at €3.31 billion, 77% more than in the same period of 2012 given the big impact of real-estate provisions in the second half of 2012. This is the first step towards the normalization of the group profit. Let me just remember that these results do not include the €700 million of net profit that we will generate from the strategic alliance for the asset management unit, which are expected to materialize on the last quarter of this year. If we take a look to the P&L account. The first thing to note is the big impact of exchange rates as I mentioned before. So, I will comment basically on the grade line, that is basically excluding the exchange rates where we will see basically the efforts of management on the results of the management of the bank over this quarter. In relation to the first nine months of 2012, exchange rates explain two thirds of the falling gross income and close to half of the decline in net operating income. If we eliminate their impacts gross income decline by 2.9% due to the liquidity buffer. The narrowing of the spreads due to the change in the mix to our lower risk products in some countries like Brazil and lower lending volumes. Costs were slightly below the average inflation of the group. And low provisions were lower year-on-year. Lastly, the higher attributable profit reflects the impact of large real-estate provisions in 2012. We have a better evolution on our quarter, if we take a look to the quarter-on-quarter. Attributable profit was 8.5 higher after correcting the impact of exchange rates. The lower provision this quarter particularly in Brazil, explains a rise in attributable profit. Gross income wasn’t changed and costs reflected some revision of collective agreements basically in Brazil that we will comment later. And one-off factors basically in Mexico. With respect to the gross income, there are fewer basically two lines, the line that is excluding the impact of exchange rates and the bars that are including the impact of exchange rates. At constant exchange rates, gross income showed a stabilization trend in the last few quarters and reflecting some seasonal factors in the third quarter mainly for Spain. Important to say, on a quarter-on-quarter basis, that seven out of our 10 countries had a better income in the third quarter than in the second quarter. In current euros, the evolution is conditioned by the large depreciation of Latin American currencies which reduced growth and gross income by 5 percentage points. Another point is the composition of gross income which shows a significant degree of recurrence. Roughly 90% of the income of the group comes from net interest income on fee income, which we take into account only the operating areas, this percentage would grow to 93%. We have a reduced proportion of trading gains 9%, a lot of that related to client activity. Even though this is half of our peers that stand at this level at 17% in the first half of 2013. The rest of the revenues basically dividends, equity accounting methods and so on accounted for barely 2% of the income of the group. In terms of costs, we have a different performance by units, countries, depending on their momentum. On one hand the clients in those units going through an integration process like Spain or Poland, or adjusting the structures for loan growth like Portugal. On the other hand, some higher costs in franchises under development or growth like Mexico, the U.S. or Brazil. An effort is made in the letter to combine growth in the business capacity with control over spending. For example, the pace of growth in Brazil, costs continue to decline, 3% so far this year compared to 6% inflation. For the group as a whole, and at constant exchange rates, costs rose slightly below the average inflation rates of the countries that we operate. The average inflation for this country stands at 3.7%. At the same time and compared to our peers, we maintain a significant advantage in efficiency and we have the potential to keep on improving. I believe that in the coming quarters, with integrations at cruising speeds plus additional efficiency measures that we will comment later, we will see further cost cuts. This is key to adapt to a new environment of lower growth and lower interest rates. And to enhance the value proposition to our customers, becoming a more attractive bank for them. With respect to integrations, in Spain and Poland, both are ahead of schedule, which has reflected in the outward revision in the forecast for synergies. In Spain, we have the first wave of branches, 130 that was already rebranded. We have brought forward the exercise of re-branding. The whole Banesto branch will be rebranded to Santander before year end. We will bring forward the initial branch integration plan. You will remember we had, the plan was to close 750 branches, 250 this year and the rest next year. We will bring this forward to close 450 this year. We have already achieved almost 40 by September. And now that everything has been tested and works well, it will be accelerated over this year last quarter. In technology, branches already in four regions, in the center north, we have been successfully immigrated in September, with basically no incidences. We plan that 100% of the branch migration will take place before the end of the year. In Poland, the Kredyt Bank branches are already operating with the same brand and technology as the Bank Zachodni. Now that the re-branding of Zachodni has been fully completed, we are working on the transition to the Santander brand. The optimization of branches and headcount is also proceeding ahead of schedule and surpassing the intermitted goals in synergies. Technology integration is enabling us to launch common products in the unified branch network. This will help and it’s already helping to improve the productivity of the former Kredyt Bank branches. Let me remind that Zachodni is notable for its innovation and leadership in credit cards, in electronic banking and in mobile banking. Even though it’s not an integration, there is something important occurred recently that has been the re-branding of our bank in the U.S. from Sovereign to Santander. This shows a commitment to the country, to our employee’s, and to our clients. It places more pressure on us to improve the quality of service at the bank. We’re working hard to simplify the bank, to streamline the processes, incorporating new tools like the new mobile app that has been successfully implemented and with very good comments from our clients. So step by step definitely we’re working to improve the retail franchise that we have in the U.S. With respect to credit quality, it is basically maintaining the trends. The non-performing loan ratios stood at 5.43 up 25 basis points in the quarter, in line in terms of growth with previous quarter, except for the second one where we had the reclassification of sub-standard loans in Spain that was incorporated. The rise in the ratio was basically due to Spain. Because half of it, because of the fall of the credit, let’s say the fall of the denominator. On the other hand, we had units that account for two third of the Group loans that show stability or an improved non-performing loan ratio. Jose Antonio will come in later with more detailed price unit. Coverage remains at 65%, high level in relation to the mix of our credit portfolio. More than half of our credit portfolio are secured loans that require normal coverage. I mean, in certain countries, where we have the proportion of secured loans is lower due to the consumer business in countries like Brazil and Mexico, [this coverage] level, well close or above 100%. The evolution of the non-performing loan in the large units, we see basically Brazil where we have a new decline in the non-performing loan ratio, 37 basis points in the quarter, which confirms the trend we announced and return (inaudible) to the levels we had in the first half of 2012. The reduction was due both to individuals and corporates. And the declines were anticipated in the previous quarters because of the evolution of the early non-performing loans, let’s say maturities of less than 90 days that are materializing. In the U.K. the ratio has remained stable, at around 2% like the previous quarters. The Spain’s ratio, continue on a rising trend basically for [few] reasons. As I said before the denominator explained half of the rise around 30 basis points. We continue to see a rise in companies that the new entrants in non-performing loans continue at high levels, although stabilizing. The impact of unifying the Santander on Banesto loan portfolios to the most conservative criteria, we already mentioned this in the last quarter because we did a provision of €188 million. But now that we have the recognition of this non-performing loans into the – due to the more consolidated criteria in the figures for this quarter. My views are, we will continue to see an increase on the non-performing loan ratio. We should be close in Spain to 7% by year end. Although by next year, we should already begin to see a reduction of the cost of credit on our trend towards normalization. With respect to provisions (inaudible), first, is the trend of decline in total provisions in 2012 with respect to 2012 sorry. Secondary provisions made in the third quarter are the lowest since the beginning of 2012, we have low levels in Brazil, the U.K. Santander Consumer Finance Portugal and the U.S. in contrast to the still high levels that we have in Spain as mentioned and in Mexico, because of the home builders. And the regulatory change to provision with respect to expected losses that Jose Antonio will comment later. Lastly, these trends are reflected in a new and significant reduction in the group cost of credit in the third quarter. It is still that 1.77% calculated on the basis of the provisions for the last 12 months as a percentage of the average credit risk. It would take the quarter on a standalone basis, this ratio would be – the cost of credit would stand at 1.47% which compares favorably to the 1.65% that we had on the second quarter. It is the best figures of the last two years, still higher than the pre-crisis levels. Let me remember that in 2008 we had 1% cost of credit and in 2007 0.63%. These are the levels towards we should return in the coming years. I now hand over the mic over to Jose Antonio, who will comment on the different business areas.

So, good morning. As Javier mentioned, I’m going to go through the different business areas, making the highlights of each of them. First, to start the chart that shows basically that the profit is well diversified by countries. And basically is virtually unchanged in the quarter compared with the previous quarter, 55% of the profits come from what is so called emerging markets, being the main one Brazil as usual. And matured markets U.K. generated 15% of the profits and the U.S. 11%, Spain at this point of the cycle, only 7%. Let’s start with Spain, in Spain, on the activity side we continued to see a significant de-leveraging. We are gaining market share both in long term deposits, but even though the volumes in the loan book are falling and this is playing in some sense the trends in revenues. In the revenues in the quarter, we have some major effects, the de-leveraging that is going on as I mentioned. The second effect that is very well known for you is the re-pricing of mortgages that is coming to an end. The bulk has been done already. There is some trade-off between net interest income and trading gains in wholesale business that as you know, the Spanish wholesale business is reported here in Spain. And still the improvement coming from the cost of deposits is not yet at full speed. Still the next two quarter, we’ll see significant drop in deposit cost that basically we are renewing the deposits a 150 basis points the time deposits, lower than the bank book. Because are relatively flat. Still too early to see the effects of integration that Javier mentioned before. And lastly, finally, still have a very high effort on provisions as you can see in the numbers. Well, in the coming quarters and we’ll elaborate later on - specifically on activity and asset quality. What we see is a, as we mentioned before, positive trends in the P&L here due to the improving revenues to recover after the end of the re-pricing of the mortgage book, lower deposit cost and largely efficiency gains, the ones we announced in integration plus others that additional efficiency measures that we’re going to take and normalization of provisions. Going to the activity in Spain, the trends in business were literally unchanged. Lending reflects the leveraging, the leveraging is more intense in companies and corporates than in individuals, individuals is fairly flat. Company is still significant de-leverage there. And even we’re doing intense efforts to try to grow the book, but the demand is still really weak at the moment. In deposits, well our priority here is the cost, is not as much of volumes. The loans of the processes is running on 85%. So the priority is the cost and we will see in this quarter and in the next quarter significant drop in the deposit cost that will go in the total cost in the region more – 120 to 130 basis points. In terms of volumes in deposits, the quarter retail deposits went up by 0.2% on the second quarter and 32% in the year. The falling in deposits you see in the quarter is largely institutional deposits and is the result of more demanding pricing from those. The strategy going forward is to grow (inaudible) and SMEs and to grow in related customers that already grew in the year [19,000]. Going to the asset quality, well, the NPL ratio continued to go up as the CEO mentioned largely due to the nominated half of the increase. Mortgage NPL remained unchanged. And the corporates, the corporate’s NPL are the ones who are going up. We see a cost of credit for this year around 150 basis points for the Spanish business including real-estate business in run-off. And what we see going forward is a reduction – significant reduction in the cost of credit in 2014 and onwards. We will look at the trends in the NPLs, we will see what I said before, basically in the U.S. mortgages and consumer loans are flat down the new entries. It’s the companies, the corporate loans that reflect the current macro-environment in Spain and are still going up when you compare with the previous quarters. Going to, now to Portugal. Well, the trends are pretty much the same strong de-leveraging the country. Long deposits are falling. Even we are gaining market share. Yes, more in deposit is we’re gaining 40 basis points in market share in deposits in the last 12 months and 20 basis points in loans. Where we – in Portugal now, revenues are more stable, I would say fairly stable. The lower deposits costs are setting the de-leverage that this happening on the asset side and we will see relatively stable revenues going forward and lower provisions, the new entries are falling across the board and you will see in this quarter, the quarter was relatively good or very good in this regard, where the provisions fell 11%. In the coming quarters, we see a more positive evolution of the net interest margin with the stable spreads in loans improve cost of deposit and expenses flat to down, provisions (inaudible) to normalize. This is the outlook for Portugal. In Peru, well, different study. On the activity side, where we are focusing very much in the reduction of the deposit cost, both in BZ WBK and more intensively in KB where deposits were really expensive. And in this regard, with growing the loan book 3%, deposits are falling 3% but mutual funds are growing 23%. So we’re being able to translate some of the expensive deposits into mutual funds as a policy. The policy is reflecting a significant improvement as you can see in July, of the costs of deposits that are falling dramatically in every quarter. In terms of P&L, (inaudible) good management of the net interest income in the context of lower income rates, solid generation of fee income, overall net interest income and fee income grew 5% higher in the quarter. Cost 3% down, 8% on the year did reflect the integration process that the CEO refers to, before. Provisions went down dramatically this quarter 30% that is due to run-off in the company that would recover. So then P&L ratio and coverage improved. During the year, growth in gross income and net operating income and profit of more than 30% because the integration of KB on a like-for-like basis double-digit growth. The outlook, we expect a slightly better macroeconomic scenario. We see stronger growth in the future. We maintain as a priority here to complete the merger process, matching the spreads, improving the productivity going forward particularly in the KB operation. Consumer finance, well, another good quarter I would say. The performance continue to be very good. Particularly good in an environment where the consumption is relatively weak, all across Europe as you know. And we are gaining market share, the car sales, the new car sales are falling 6%. Our production is falling the new lending only 1%, so this means that we’re gaining significant market share. And in results, I would say good management of spreads and still a good – credit quality. The profit was 4% higher than in the first nine months of 2012. And it’s particularly important, this, because they had this with self-funding. This unit that used to have a significant line from the parent company now is self-funded 50 plus percent with deposits. They are 50% with their own Insurance and the securitizations. The outlook for this unit, well, we continue to see or we expect to see a recovery in the consumption in the Euro zone that will affect positively their levels of production in the consumer – Santander Consumer Finance business that as I said before the performance continues to be excellent. Going to the Spanish real-estate, run-off portfolio, firstly the portfolio fell 26% in the last 12 months. The level of – the size of the portfolio now represents 3% of the total assets in Spain and less than 1% of the group assets so it’s relatively small. And what we expect here is to continue the pace of reduction that we see in the last 12 months. So we’re running on a 20% reduction per year more or less. And this is what we expect to continue to see in this run-off portfolio. We sold 2800 units in the third quarter in Spain. In the first quarter we saw 9,000 units so the third quarter normally seasonally is low. The coverage remains above 50% and we’re also seeing this remain relatively stable. U.K., well, in activity I would like to say we’re focusing into -- I qualify the activity with two features. The first, we are doing selective growth. And second, we tried to strengthen the franchise, those are the two main elements of our activity in the U.K. Loans, grow about 11% in corporate banking, mainly in SMEs. We are growing sustainable variable rate mortgages at the same time we have a significant drop in interest-only mortgages as you know our policy, we introduced our new policy, one year ago only – 15 months ago in interest-only mortgage. In deposits, again we are being – there is a significant reduction in the most expensive ones. And we are focusing in the more rated current accounts, I will elaborate later on, on this. In results, very good quarter, results overall. Two quarters the profit was £261 million, 17% more than the previous quarter. This was basically higher spreads in loans, lower cost of deposits because there was significant maturities of expensive deposits, probably this is cannot repeat quarter after quarter, it can now be extrapolated. The costs remained flat and you saw in the quarter, relatively flat, We expect relatively flat deposits. On the rising provisions, over the second quarter that were very low. Overall very good quarter and we remain positive on the outlook for the United Kingdom business. Let’s focus on what we are doing on the commercial side. We have a strategy that is (inaudible), the 1,2,3 strategy that well has already more than 2 million customers. And growing a lot in current accounts as you can see into July. Second pillar of this strategy is segmentation of the customer base, individual customer base, the third is to wide our mortgage offer to the customers. And the four is to focus on corporate – those are the four pillars of our strategy there. (inaudible) you can see in this light, we’re gaining market share in SMEs. We’re gaining market share in current accounts and we are happy with how the business is performing in the ground. Additionally to this, the balance sheet is still (inaudible) and the capital strength is – has been recognize by the British regulator in last June stress test. In short, high solvency, good dynamics in volumes and net interest income, provisions under control and cost rising below inflation rate. So I will say overall it is a pretty good picture for the business going forward. In Brazil, well the GDP in fact came stronger in the quarter, with a growth of more than 2%, inflation relatively high and central bank raising interest rates. Loans growth accelerated to around 7% year-on-year, largely in line – slightly above than private sector bank, but largely in-line with those. Well, we are changing the profile of our – we will say later on our loan book with lower risk products that naturally has some effect in the net interest income. And we are making an effort to capture deposits, particularly the cheapest one is not the result of trying to improve the relationship with the customers with more transactional banking with them. And as a result of this, we are growing the low cost deposits, as you know, we reserve the majority of those in the central bank. Looking at the results which in the quarter a percentage wise in profit before taxes, but the growth did not feed through the attributable profit because higher taxes of minority interest. Gross income unchanged because there is a trade-off between longer net interest income and higher trading gains. I will elaborate on this. Cost grew in the quarter because there was normally in September it’s the wage agreement, the wages grew 8% in the sector, the agreement with the unions. And co-related with contracts on rentals. So, finally it was a sharp fall in provisions because thanks to the better evolution of non-performing loans. I will look into more detail in to the two main drivers of the P&L in the quarter. The first driver was the net interest income, the reduction. There has been a significant reduction in the credit spread, 10.5 to 9.9. This is due to three elements. One for each one basically. The first was here to change the mix that I mentioned before we’re growing faster than large companies in mortgages than in consumer kind of lending. And this produces a reduction in the average plate to spread. The second one is change of mixed approach inside the same customers, and the third [answer] is due to reduction in the spreads product by product. Second, was a lower contribution from the ALCO portfolio, (inaudible) seeing the numbers in the balance sheet, the duration of the balance sheet before the rates going up. This has reflected on the other side of the higher trading games. Credit quality continued to improve in the quarter significant NPL ratio going down 37 basis points. Provisions went down in line with this we’re the lowest in the last two years, the cost of credit continued to fall. In the quarter the provision cost was 5.9%, the lowest of the series. In short, in Brazil, we see our country with a significant underlying strength with still some pressure on spreads from the change in mix that we have not yet finished. Personal and general cost we expect to increase well below inflation, half of the inflation or somehow like that. And improving cost of credit (inaudible) process that continues to go on. Our targets here is to increase significantly the trans-nationality with our customers. And lead the way towards efficiency improvements and it’s not the cost income ration is more than that is the cost to business that Javier mentioned several times to you that is what matters most --. In Mexico, as you know slowdown in the economy more than expected or the economy is significantly less than consensus. And this in reality this is not – this is affecting the business somehow but the results and activity are quite good, the overall in almost 10% both in loans and deposits and we’re growing faster than that – significantly faster than that in target centers like SMEs where we’re around 29%, our mortgages 13%. High single digit growth in deposits, with demand deposits growing at 20%. So in the results, I would say two angles here. The first one is the top – the top-line of the P&L that good – very good trends. Net interest income 4% up. The quarter fee income 9% up so bigger trends in the fee income generation in – in revenues in relation in Mexico. We have two exceptional impacts in the quarter, we made charge of €19 million for home builders. This we have now a coverage of 40% of that is in line with our respective loss coming from this specific situation. The rising NPLs in the quarter was due to the incorporation of the NPL portfolio of the home builders. Excluding them, NPLs were almost flat in the quarter. The second I will say exceptional item in the quarter, was a change in methodology in the way of provisions are made in SME lines. The new formula incorporates the expected loss, the average expected loss in the system, in the Mexican system. Now our portfolio is significantly better and we have much more warranties coming from the government bodies than the average. And this increases the provisions in the quarter for this specific set. Finally, cost went up also significantly in the quarter. There was a revelation change in the employee statutory profit sharing. And we are opening branches, in the last 12 months we opened 106 branches, 9% of them now work. And we also increased the number of ATMs in 400. So, overall the business is performing well. We have signed one off this quarter, some of them would stay like the employee statutory profit sharing, but the other two,– the SMEs and the home builders is one off that we don’t have in the next quarter. So, overall the current profits and expectations for the business are good. Chile, well, the macro in Chile is good. Our activity is picking up. The loan book is growing faster and deposits are growing faster. We are growing, we are having a selective growth, SMEs growing at 16% affluent customers 12%. Deposits, demand deposit 12% year on year. Profit was significantly up in the quarter, 26% net interest income rose 16% due to partially due to the inflation portfolio, the so called U.S. portfolio. You should look up in this light the inflation, [U.S.] rates in the quarter was 1% compared to minus 0.1% in the previous quarter and this explain a part of the increase and net increase income. Fee income is still this year affected by regulatory changes in the insurance and in car businesses, and trading grains were lower than the previous quarter. Costs remaining flat and provisions increase is not something that we expect to stay there but continue to grow more slowly year-on-year. In short, the dynamics, the business dynamic of the bank are improving. In the quarter, for quarter high inflation is suspected, we will push the net interest income see stable cost and risk premium. In other Latin American countries, overall they are performing well. All countries increase their profits, with double digit kind of growth over 2012 and is driven by your financial business, net interest income and fee income. You have Argentina, the profit, €254 million plus 31% Puerto Rico rose 70% in the first nine months, Uruguay 16% and we do not expect significant changes in the coming quarters in this area. U.S. well, you know the economy continued to grow around 2%, interest rates, ultra low interest rates as you know our expectation remaining in the same probably until 2015. Well, we are taking significant steps here, in the direction of consolidating our business there. And to change the Sovereign brand to Santander brand, and we are reorganizing, we reorganized the commercial areas. We are focused the bank more in commercial areas. On the other front, in consumer business, the agreement with car leases has stellar performance and we’ll allow ourselves to benefit from the bank with better penetration on some areas. Well, activity in Santander bank growth is focused on companies. Total lending decline because we saw more mortgages and the reduction on the portfolios are run off. In the process, we are pushing in demand process that are growing in the 7%. At Santander Bank, the results, the fall in revenues was due to lower spreads, some reduction on the duration of the balance sheet which impacted the net interest income and trading gains. The quarter cost rose because of the re-branding and costs from the development of the franchise among others, recovery of provisions and this, in the quarter and on significant year-on-year fall of things to excel in credit quality. On the consumer side, on SCUSA, a strong rise in lending probably due to the agreement with Chrysler which is not fully reflected in the P&L, yes so because the first – when you start to grow, you should make as you know provision – upfront provisions to the expected – the new growth that at the beginning produce lower profits. The contribution of SCUSA was €246 million, 4% more than in 2012. We continue to see a SCUSA very strong in the coming quarters, while Santander bank, we are targeting, we are building the franchise and we target more diversified revenues with larger range of products. And using the funding cost with while we expect to keep the good credit quality. The corporate center, while the results are pretty much in line with those of the previous year. Overall, the profit is negative €1.49 billion compared with €1.5 billion in the same period of 2012, before the recording of capital gains. Net interest income is slightly compared in nine month, less negative while but place here is the liquidity buffer in that we have been keeping during this period. The second, the trading gains was significantly up. This year 920 comparable with 512 the previous year, it’s the centralized management of interest rate, risk and exchange risk, who is recorded here and who produced this change from last year to this year. General cost increase mainly due to indirect taxes and provisions are higher incorporating the charge that we recommended in the previous quarter that was due to the unification of the lending portfolios in Spain to the most conservative criteria of the two of the three banks we merged at that time. And now I’ll give the floor to Javier to elaborate in the conclusions and the priorities for the coming quarters. Javier Marín Romano: Thank you Antonio. Summary is just to sum up the quarter. Santander has adjusted to the macroeconomic and competitive conditions in each market to increase volumes and customers in a differentiated way. In general terms, as you’ve seen there is more focus, there is greater focus on lending in emerging economies and developing the franchises and on deposits on mature markets. We continue strengthening the balance sheet backed by our business, high capacity to generate capital and liquidity. We are comfortable with the current levels and have no restrictions to keep on growing. Furthermore, we see improvements in our underlying business which we expect will continue in the coming quarters. Group revenues are stabilized in recent quarters, seven out of 10 for core markets with quarterly increases in net interest income and fee income. In costs, we are absorbing the investments in building franchises in several countries. Even though we have a clearly room for improvement. And lastly still high provision extending to go back to normal. The group cost of credit dropped in the year, which is six core markets with reductions since the beginning of the year and two are stable. In short, in 2013 we are managing business to lay the foundations for growth. Let me finish reviewing the priorities for the coming quarters when we will focus on recovering profits and profitability, focusing on customers. We have three global priorities to attend this. First improve the profitability of capital through a more efficient allocation. We’re over the mapping the group, revising each of the business segments to adjust their levels of capital to their strategies and growth perspective. As you know we have split each bank into different segments reviewing the return on risk-weighted assets by segment, the potential for growth and then preparing the plans for each segment for each country in order to see how we can increase the returns. And definitely take profits from the high growth pools. In some cases we will increase the investments and in others we will adjust it to be more profitable. In any case Santander will maintain its presence in the square markets and businesses. Second, we will improve our cost efficiency. Our objective is to redesign the bank so we can do the same with lower costs. Overall, our efficiency is higher than that of our peers, we can improve it. We are identifying cost inefficiencies across the Group that enable us to keep on enhancing efficiency. We’ve been measuring margin on sales, we’ve not been measuring costs of production. So now, aside from efficiency, we will focus much more on our cost to do business in the different geographies. Our objective over the three years is to achieve cost savings of €1.5 billion including the €500 million of synergies announced out of the integrations underway in Poland and Spain. The third priority is to increase the integration of the units across the Group. On other words, to obtain the global advantages in revenues, costs, provisions and quality, while keeping very strong local focus and give us benefits in our core markets. We need to benefit more from our global footprint, identifying the best practices and showing them across the group. This is where we have to create the retail banking division, the recuperations division and so on. If we take a look into countries, and we see what are the trends to follow. We see Spain and Portugal where we have a good evolution of the basic lines of income, backed by economic recovery and some efficient growth. We need to gain market share in more attractive segments, SMEs, affluent.– We need to speed up the synergies from the merger as we’re already doing and take advantage of the increase in revenues and the lower cost of deposits together with the decline in the cost of credit. You see very clearly cost of credit declining to more normalized levels in the next years, probably going down to 70 basis points by 2015. In the U.K. we’re already seeing improvements in recent quarters, and we will remain focused on improving segmentation, linkage and service quality as the main drivers to grow in target segments. We’re already growing SMEs, we will continue with [our bet over there] and to see how we can speed up growth. And we will focus on the affluent segments that – there is a huge opportunity for us. We’re doing well with the growth but we believe we can still accelerate that. And we will continue to reduce the cost of funding for our bank. In Brazil, our objective is to develop the commercial franchise, particularly in mid corps and high income individuals. It will be key to improve efficiency, inflation at 6% and with a payroll increase of 8.5, you see how important it is to drive our costs to business as low as possible. We need to adjust the spreads to the risk so that the net interest margin, net of the cost of credit can increase in a sustainable way. This has been the case of this quarter where for the first time, the net margin – net interest margin minus the cost of credit for individuals has gone down in Brazil. In consumer business in Europe, we are maintaining the guideline of the last few years that are producing very good results. We will increase market share organically and as well as by taking advantage of opportunities like the one we had the profit care in the Spain that hopefully will be closed, should be closed by the end of the year, the early beginning of next year with the biggest and the best retailer in Spain, El Cortes Ingles. We should maintain efficiency and create quality at the actual levels that compares very, very well to with respect to our peers. In Mexico, we should manage the priorities and firmly set on growth. We will continue to invest in our commercial networks. We’ve opened almost 40 branches over these nine months, we will open still another 40 branches over the next quarter. And still more than 100 branches for next year. And we need to do this efficiently in order to keep growing in volumes and revenues, taking advantage of the economic recovery focusing on key segments like SMEs, where we are already the bank of reference and in affluents. We still have room in certain products like mortgages, insurance and deposits to grow. Very similar in Chile, focusing on companies in the affluent clients, in order to take advantage of the economic growth, differential with other countries in the region. In the rest of Latin American countries, the Group should be spurred by the economy and the banking penetration potential so we should develop our franchises in the mid-corporate and the high income clients that will produce strong rises in volumes and revenues. In the U.S. Santander has begun the last phase of its transformation developing a full franchise bank for clients boosting companies, global banking and markets, transactions to generate fee income and focus on high income clients. As you see, a lot to do, a lot of opportunities. We should develop some niche business, some of which are already underway like auto finance through the agreements with Chrysler, which will improve our credit quality to our customers. We already begun with our re-branding, I already elaborated on that. And it’s vital to reduce the cost of funding, which even though it has declined, it still has room to go further down. Lastly in Poland, we will continue to center on completing the merger and extracting the maximum value, anticipating synergies and boosting the productivity of our branches. In short, a series of priorities for the group and its units which I believe should enable us to attain a more normal level of profits and profitability and reflecting Santander’s potential. Thank you very much. We will now open the time for Q&A. [Antonio]?

Good morning. As Javier said, we are open now the session for Q&A for all the question that we have received through the internet. Of course at the end, if there are questions through the phone we will try to address them if time is available. We would organize questions as always by themes, starting with strategical relation perspectives for the Group and for the sector. The first question would be about just those announcements from the ECB, on the AQR and the stress test. There are several questions here posted by Britta Schmidt, Autonomous; Axel Finsterbusch from JP; Alexander Pelteshki from ING and Daragh Quinn from Nomura. Basically the questions would be what is our reaction and opinion on this announcement if it would change or not the strategies of the Group. If we think we can meet the 8% buffer that was announced by January 1, 2014? And if we expect changes on our books, on the sovereign book, measures etc,. So in general terms, comments to what was announced yesterday and impacts both on us and on the sector? Javier Marín Romano: Our first reaction to this is positive, right. First thing we believe you know it’s a good exercise of transparency which is key in order to recover and trust on the financial sector. We will see for the first time a more level playing field so, applying homogenous criteria to all the banks, and basically with respect to non-performing loans, the refinanced loans and criteria that are being applied are basically the same criteria that are being applied in Spain by Bank of Spain, so we feel very comfortable with that. It will cover a spectrum, not only balance but also off-balance sheet assets, was all kinds of – with all kind of risks, and the European Central Bank will be the – will (inaudible) that the consistency on the quantity of information is enough. We feel very comfortable with this. Santander has a very low risk profile. We’ve gone already through a number of stress tests, always with very good results. With respect to capital, there is -- the European Central Bank is placing the bar – the phase-in, 8% Basel III phase-in. As we’ve been stating, we are already 3 percentage points above this figure, so we feel very, very comfortable with most prices, and we expect good results out of that. You also asked me whether this will change the way we do business; well, if we are comfortable with the results and as we are quite confident that this will be good, definitely there will be no change with respect to the way we do business. We are a very retail bank, very well diversified with a very unique model in terms of our affiliates in core markets and we are granular in terms of income and in terms of risk business, so we don’t expect to make any changes because of the outcome of the asset quality review on this stress test.

Second group of questions, apply to dividends and dividend policy. Rohith Chandra from Barclays, Stanislas Wawrinka from BNP; Victor Rodriguez from (inaudible); and Britta Schmidt from Autonomous, all circle around our dividend policy with regards to 2014. Basically, we think that the dividend payout rules from Bank of Spain will be maintained on the 25% payout ratio. What is our idea with regards to remuneration of shareholders if we think we can sustain the dividend that we have paid or what are our thoughts around this? Javier Marín Romano: The dividend policy of the bank sits perfectly within the recommendations of Bank of Spain. So, we don’t expect to do any changes. We have already announced the dividend for this year that it will be 60 cents in [FOREX] (ph) groups. For the next year, as you know, every year we bring to the General Shareholder’s Meeting what should be the policy for 2014, so this is a decision that is up to the General Shareholder’s Meeting. I can only speak for 2013, where basically we’ll keep the dividend on the same way we already -- for the amount underway we announced that sits perfectly within the new policy set out by Bank of Spain.

There are many questions coming from Rohith Chandra from Barclays and Carlos Peixoto from BPI with regards to our interest in M&A basically in Spain. In fact, they specifically ask about CatalunyaCaixa and NovaCaixaGalicia, if we are interested or what are our ideas with regards to making inorganic movements in Spain? Javier Marín Romano: Our first task in Spain is to integrate Banesto and Santander. We’re on the process, we’re trying to accelerate it as quick as possible. It is very important you know that we don’t lose foot during this process from our commercial side. We are growing well in the profits, we have [bombarded] (ph) more than 90,000 loyal clients into the bank over this nine months, and that is very important, and I think we still have a lot of room to do things better with our actual footprint in Spain. However, of course, definitely we will take a look to both NovaCaixaGalicia and CaixaCatalunya. We always, I think it’s our duty to analyze any opportunities that might arise in the markets where we operate. And of course as you all know, the group has very rigid returns, expectancies on all the investments that we look at, so they need to make them, right. So we look at them as we are already looking at NovaCaixaGalicia, and we will see balancing the risk as the opportunities what should be the decision of the bank.

With regards to potential IPOs, there are a couple of questions coming from Carlos Peixoto from BPI, Mario Lodos from Sabadell, Rohith Chandra from Barclays. Basically fortunes from both U.K. and U.S. From U.K. given the recent relation from the (inaudible), we are thinking of the IPO in ’15 or ’16, 2015, 2016 in U.K. if we can – if a clarification here, if we could be thinking offering a private placement like the consumer finance, USA. Then what are our ideas with the IPO for SCUSA of Santander Consumer Finance USA? Javier Marín Romano: Well, as you know, the group policies they have are affiliates independent in capital, independent in financing, and quoted in the markets where they operate, so this will come.

When? Javier Marín Romano: When, at the appropriate moment. So now we are hands free in the U.S. after the self-registration for the IPOs, so now we can do it whenever we want. In the U.K., we need to wait for the appropriate moments and the appropriate moment means both the markets and the internal situation of our franchise. I don’t think this will happen definitely next year, so later next year we will see.

With regards to regulation, there are certain questions on DTAs, Britta Schmidt from Autonomous, Rohith Chandra from Barclays, and Patrick Lee from RBC. Basically what do we expect from the new potential regulation on DTAs if we include them on our fully loaded calculations, if there is any update on availability of DTAs, what could be the conversion in Spain, if we can elaborate under different types of DTAs and if they’re fully loaded 9% includes them or not? Javier Marín Romano: Very good. With respect to the DTAs, our attitude with respect to this is that we should leverage only on our capabilities that this – the potential to grow the business and to generate organic capital. We cannot wait for any kind of negotiations that we are not part of. Of course, we would love to have level playing field in Europe. So, the similar situation that we have in Italy, in Germany, or in France, we have it in Spain, but we’re not counting on that for anything within our numbers. So if it comes it will come as a bonus. Our objective is to generate positive results in Spain in order to bite into those DTAs.

Okay, linked with DTAs and going into capital, there are several questions both with regards to our level of capital in the fully loaded – you have elaborated here, but if you want to address something additional, Rohith Chandra from Barclays, Stanislas Wawrinka from BNP, Ignacio Cerezo from Credit Suisse, Benjie Creelan from Macquarie, and Carlo Digrandi from HSBC. They basically ask about if we see more capital optimization exercises like in Brazil recently that’s on one side. The other side is if we are thinking of raising capital and what are the levels of capital that we feel comfortable with, as I said, do you want to elaborate here a little bit. And then the first kind of – group of questions would be on the fully loaded. And they say if can add data there, our position, what is the fully loaded and what is still to come, elaborating around the 9% that we had said that we think will be above that firstly? Javier Marín Romano: With respect to optimization exercises, definitely some with operation in Brazil, which definitely will increase (inaudible) end returns for all the shareholders which I think is good. We have an active policy of reviewing the capital as I mentioned before not only by geographies but also by segments. So you should not exclude that we also – that we actively review and take action when we see some opportunities for optimization. With respect to raising capital, the answer is no. We are not going to raise capital. We are very comfortable with the actual levels of capital, and with our capacity to organically generate capital, so we’re not planning any capital raising even though the price of tangible book is high and whatever, but we are not planning anything because you do this when you need it, and we don’t need it, and we’re already comfortable with our actual levels. And with respect to the fully loaded, we already said that Santander will always stand the above 9% on a fully loaded basis, and we are in the – we’re on track to be there.

Finalizing the relation we have specific questions from Antonio Ramirez from KBW. How does the NPL and re-finance restructured loans definition by EDA compare with those that we already applying with regards to the AQR exercise? Let me remember here that basically that exercise is converging to what we could call a Spanish criteria. They include above 90 days, they include subjective NPLs on the definition of NPLs. And on restructured, they comply or they move towards that definition for those that is highly conservative following the Spanish standard, so I would say basically we are already there. Moving into financial – in the financial arena, and then to capital, there is a question, sort of questions around risk weighted assets, Britta Schmidt from Autonomous, Andrea Filtri from Mediobanca, Ignacio Cerezo from Credit Suisse, and Ignacio Ulargui from BBVA. They ask for explanation from the drop of risk weighted assets. And the total amount, specifically in Spain, if we had reduced risk weighted assets on SMEs and if there is additional potential optimization in the background? Javier Marín Romano: Well, as we said during the presentation, the reduction in risk weighted assets came firstly because of the reduction of the stock upgrades. And secondly and most because of the new definition of an SME that made it (inaudible) with what we have in Europe. And half of the generation of capital came from organic generation from the P&L, and the other half came from the other – from the other effects.

You probably also have to add the products, the impact of it is like about one on that movements. About insurance-linked to the relation and to our ideas of what we could issue, Britta Schmidt from Autonomous and Axel Finsterbusch from JP ask about what are our ideas of issuing additional tier-1 with the requirements about CR differ. What are our plans there if we are going to start issuing these types of securities or if we see foresee additional tier-1 to be issued? Javier Marín Romano: Basically, our idea is to replace our additional tier-1 and our additional tier-2 that will go under the (inaudible). So, we have basically €18 billion that will be replaced over the next 10 years, both at a corporate level and at the affiliate level. I will ask Jose Antonio, if you want to elaborate more on this.

Basically we will issue both from the paradigm from the affiliates. In some affiliate, you must assume the parent company level maybe next year when we start to replace, as Javier said, some issuance that mature we can call or lose [computability] in the coming years. With regards to (inaudible) and ALCO portfolios, there are also several questions from Britta Schmidt from Autonomous, Mario Ropero from Fidentiis; Antonio Ramirez from KV, basically they all ask about the ALCO structure, if we can speak about what are our exposure to [covering] (ph) that, what is the reason of the drop on debt securities in the balance sheet, if we can speak about duration and volumes and NII contribution? Javier Marín Romano: The policy in the ALCO portfolio is very – the main task has been to reduce assignments during the presentation to reduce the reduce [inflation] in the balance sheet. This was particularly strong in Brazil, US, and (inaudible) Spain. So, duration in the balance sheet is generally shorter than in the previous quarters, so we started these – the instruments we used to change, to change the (inaudible) of the balance sheet normally is holding that, the majority is holding that or almost holding that. As a result of this, we reduced the holdings in Brazil, in U.S. you have seen U.S. in one year has been like 30% and increasing significantly, and the Spain we reduced 15% or something like that. The (inaudible) is now really short in balance sheets it is negative, yeah, so because it will run significant amount of demand deposits, current accounts will pay interest, and in general I would push it in all the balance sheets and all the ones I mentioned is more to (inaudible) rates. Our position is to high rates (inaudible). The holdings of sovereign debt is around 60 billion, in Spain around 30 billion, Brazil 7 billion, I am speaking in euros, that’s my knowledge, Poland 4 billion , U.S. 3 billion, Mexico 2 billion, and so those are the main holdings. Overall, 58 billion.

On the liquidity side, there are a couple of questions from Carlos Peixoto from BPI and Carlos Barfia from the Zee with regards to our financing exposure with ECV mentioning [de litros] (ph) the LTROs if we – what are we using, what do we expect to use, if we expect (inaudible) or not and that would be basically two of the main issues around the liquidity? Javier Marín Romano: Basically, when we (inaudible) in Spain, most of that is already paid -- has already been paid back, the first quarter of this year. We have still an exposure of 10 billion, 7 billion in our bank in Portugal that should come down to 5 billion soon, and the rest is to (inaudible) financing in order to finance their business. In respect to our new (inaudible), you know, for that basically we don’t need it, so you know, it should be good for some operators in the industry you live, but to avoid paying risks for us basically as we are in a very comfortable position in terms of liquidity.

We have also questions on our announcement of cost synergies that we made around one month ago, questions coming from Carlos Garcia from Soc Gen, Irma Garrido from Ahorro Corporation, and Rohith Chandra from Barclays. They are basically asking if we could allow the rate on the 1 billion additional cost savings that we announced? If we plan to have additional charges, divest operation chances whether they are included or not, if that is the – the 1.5 billion is the total [debt] (ph) that we will see by 2016 in the rate (inaudible) so basically. Javier Marín Romano: Out of the one billion, the split will be basically between around 45% in Spain, around 40% in Brazil, and the rest will be a split between the different countries, will they have instructions charges, definitely there will. In order to restructure, we will need to apply some costs, right. We are in, we will come with this, with this figure, we are already working on each exact plan in each country in order to figure exactly what the restructuring costs are going to be, so the next quarter, we will come back in order to -- with much more detailed information in terms of what we can expect in terms of restructuring charges. With respect 2016, yes, you can expect 1.5 of less costs by 2016.

Okay, to end up on this area we have a question with regards to the double U.S. rules, what do we expect, if we expect to affect or moving to Europe and what are our thoughts on those rules? Javier Marín Romano: Basically, we are not -- as you know, the new rules apply basically to foreign banks that have operations in US. We have already complied with this, we have an affiliate , due to our strategy and policy of having affiliates that are independent, being capital independent in financial work on the affiliate base and not on a branch base, we already comply with it, our new rules, so, you know, we are already okay.

Okay, moving to the next area which is risk, the risk arena, we have a question around the coverage ratio, for the group made by (inaudible) from Mediobanco asking why do we let the coverage ratio go down a couple of percentage points that are referred there and what is the relation we expect from there? Javier Marín Romano: Well, as you know, the coverage has always been our objective for us, it’s a consequence of the evolution of the nonperforming loan ratio and the need of provisioning in order to cover the expected of losses of this. So the portfolio of course has different – have a different collaterals, we have, as we said before more than half of our book is collateralized, so, you know, the end coverage is the result of the nonperforming loans minus the collaterals that we have and with the expected loss that we have for each portfolio in each country. So, you know, it’s not a question, for us, it’s a fact, it’s not our objective.

With regards to criteria and specific data, there are a couple of questions. One from Santiago Lopez from Exane. If a company that has been restructured (inaudible) financial more than once, if we are including those on the restructuring in the finance levels, the answer is yes. With regards to Spain, there are several questions, as you can imagine, one first is the exposure to renew our energy. We already gave those (inaudible) from Carlos Peixoto from BPI. Javier Marín Romano: We already gave that exposure in the previous quarter, I think it is around 1.5, 1.6 billion in the specific renewal exposure that could be affected, and it’s already a provision with no additional expected problems there.

Speaking on Spain from Rohith Chandra from Barclays, Ignacio Cerezo from Credit Suisse, there are several questions of how do we see the quality of Berlin, what is our provision charge expectations for 2014 if we keep on seeing a gradual reduction in both loan charges and provisional charges in the P&L. I wanted to speak with respect to improvement, and if we can kind of update on the refinance, well refinance is another area basically [quality] (ph) in Spain, cost of risk, how do we see that evolving? Javier Marín Romano: With respect to quality, we also see, we are going to be seeing some improvement in quality from (inaudible) individuals, both consumer credit and mortgages are performing better in terms of new non-performing loans, and reassurance are performing better, we still see a high levels of entrants of new nonperforming loans in SMEs at the high level and at a sustained level, so we don’t see still an improvement there. With respect to cost of credit, we are ready to see an improvement for next year, we already saw an improvement from second quarter coming to this quarter, and we will see this going farther down from next year.

Patrick [Lee] from RBC was also asking this point to us if there any a specific run rate or anything that we should start from the 6.4% of NPL ratio in Spain and at least as far as there is nothing really specific to underline. On the refinance on the (inaudible) side, we have several questions. Antonio Ramirez from KBW, Ignacio Cerezo from Credit Suisse, Andrea Filtri from Mediobanca, they ask if we – what do we expect in terms of additional or potential new reclassifications on this structured and refinance loans by Banc of Spain potential, additional definitions, if we feel originally provisioned on that area, and if we can give basically an update on how we adhere, what are our coverages, etcetera? Javier Marín Romano: Okay, in terms of that do we expect any additional reclassification, no, the answer basically is no, right. With this portfolio, it is adequately provisioned with respect to the expected loss for this portfolio. We have roughly around 42% of this portfolio that is already a nonperforming, and around 25% to 30% of this portfolio that is substandard, thank you. You know, the rest is basically performing and the portfolio is provisioned in accordance with how we expect that this portfolio should perform in the next year.

There are two questions from Andrea Filtri from Mediobanca and (inaudible) asking when would be the NPL raise according the VA, if we expect non NPLs through the structured loans, and there will be – if we would include that in the business additional cost (inaudible) an danswer has been stated is yes, that is in the (inaudible) should include a -- including this type of movement in potential impacts that we have from this type of launch. Javier Marín Romano: (Inaudible) specifically mentioning the risk side, Mexico and Brazil, and on the first one several questions from Daragh Quinn from Nomura and Patrick Lee from RBC, Rohith Chandra from Barclays, Álvaro Serrano from Morgan Stanley, Mario Lodos from Sabadell Bolsa with regards to the jump in provisions in Mexico if we can update, we could update on the home building exposure, coverage reinsurance of the (inaudible), how do we see the trends in asset quality in Mexico and do we expect additional hits from there?

Yeah, in respect to the home builders in Mexico, our portfolio sits at 300 million euros. The provision that will be charged is made at 42%, and this is will be -- what we expect could be the potential loss of this exposure. As you know, this provision was made against capital at local level, at local accounting, it was made against results at the group level. And in terms of the general portfolio, we’ve seen slight deterioration because of the sluggish growth that we have seen in Mexico over the last quarter, but we don’t see a big trend of deterioration. We hope that this should come back when the economy begins to grow at a more normalized level. On going to the second division in Brazil mentioned the question is from Ignacio Cerezo from Credit Suisse, Mario Ropero from Fidentiis and Rohith Chandra from Barclays well stating that we have seen the decrease of [both] frontiers and provision charges in the P&L, how do we see that evolution, if we can explain how sustainable it is and whereas in the bottom of those charges where we could additional good news from that part of our business? Javier Marín Romano: Our view is that this year reduction in [normal] and provisioning should continue over the last, over the next quarter. If you compare our bank to our peers in Brazil, you see that the peak of our NPLs took place nine months later than it did for them. So we are nine months behind, right. And in addition to this, of course it’s hurting the financial margin as Antonio explained, we are growing in certain areas of lower margin and lower risks, and this should be of course reflected on the behavior of our portfolio. In addition, earlier arrears especially over 60 has shown good decreases, so we believe that this should be a trend to be seen over the next quarter.

Going to specifically units, we’ll start with Spain. There is probably the same question made in three different ways or linked in between them, let me try to summarize them, the first would be the general thoughts about business in Spain, but we expect positive surprises in 14 if you could elaborate there with respect to return to profits in Spain early or not, that would be the area one, and then specifically there are two areas volumes and NII that we probably want to address jointly. On the volume side, questions around leveraging in Spain, loans going down, if we see them still going down or not, how much additional leverage we could see given the strong activity in new launch in companies in Spain, if we can [spend] (ph) increase all along the loan book in volumes – if they are affected by the integration of Banisto (inaudible) The first part of this question is the (inaudible) margin that is the reason for the decline for that margin in the Q, if we can give some kind of guidance, if we expect it to be positive, et cetera. Those questions from Carlo Digrandi from HSBC; Daragh Quinn from Nomura, Ignacio Cerezo from Credit Suisse, Mario Ropero from Fidentiis, Frederic Teschner from Natixis; Alvaro Serrano from Morgan Stanley, Rohith Chandra from Barclays, and Francisco Riquel from (inaudible) and Ignacio Ulargui from BBVA. I think I included all of them. Javier Marín Romano: The first question volumes [deliberating], as you know, the economy has gone through a very strong deleveraging besides upgrade for a households and companies has gone down to almost 30%, which is quite a lot. We believe that this is, we should be close to the bottom, our expectations from next year is that our loan books should be stable, so no more decreases. Is it affected by the integration of Banisto, definitely no, right. We haven’t reduced the loans to any credit because of the concentration of something there in banister. With respect to deposits, we’ve seen a growth in deposits over the last, over the last month, over the last quarter. We expect to see this – to continue to see this trend, especially with respect to current accounts. We have a very strong focus on transactional business, so we expect to see this growing and assets under management funds are growing very, very well, and still see this trend, especially with this very low interest rate scenario, insurance is working well, so we see some good news in terms of the overall income. And margins, margin should move up. As Jose Antonio explained, our average cost of deposits. began the Euro at around 180. We will close the Euro at around 125. So, this will mean a huge reduction in the cost of deposits for next year, the depreciation of mortgages is already close to its end. So, it will – we will have a normal impact, especially next year, and we don’t see a huge – we don’t see any price compression with respect to credit. So, we are quite positive with respect to what we can expect not only in terms of the net interest income but in terms of the net income for Spain next year. Costs, you already know, we will see next year the acceleration of synergies in terms of their impact on their P&L. We will see already some new year effects of the efficiency measures that we will take. So, costs definitely next year will be lower than 2012. On provisions, we already set the cost of (inaudible) is going down, should continue to go down, and we expect (inaudible) to have some positive news in this site.

You addressed, there is another group of questions with regards to specifically deposits and pricing and cost of the profits, and it’s price. The questions are, if we can show what are the cost of deposits that are mentioned, how they are evolving, how is the new production, , why the spread has gone down in the quarter, that weaker (inaudible) volume of deposits shrinking, if you can explain that movement that you mentioned in your presentation, but I don’t know if you want to elaborate a little bit. These questions come from Benjie Creelan from Macquarie, Patrick Lee from RBC, and Rohith Chandra from Barclays. And there is an additional one from John Blanch from RCM, from Raiffeisen Capital Management, speaking about the general situation in markets, first with regards to specifically on the deposits of Sovereign banks that given that they gained a lot of market share before the crisis, if we are not (inaudible) that Spain could go through difficult times given that now is the other way around. You can elaborate a little bit there. Javier Marín Romano: Okay. I know what I said in presentation, basically on deposit costs and from book – back book dynamics is very good. So, in fact the time deposits we are seeing reductions in the cost of a 150 basis points and when we compare the back book time deposits, we do front book time deposits. What remains to be done some as Javier mentioned we started the year on 180 basis points consolidated deposits, we got another 125. But with respect to the – what needed to be done is around 30 billion deposits that are going to be price timed deposits in the next six months or something like that that was (inaudible) – from this reduction of 150 basis points or speaking, and this is the process of repricing down the deposits. On volumes, we already eloborated. The volumes are coming in good sight particularly in the last quarter was (inaudible) concerning deposits because the focus on deposits is as we mentioned is more of the cost than the volume, given the liquidity position of the bank.

Then with Spain, we have a question from Mario Lodos from Sabadell Bolsa. When do we think the mortgage re-pricing will end? Remember, that this is linked to the [LIBOR], the LIBOR going down in 2012 until around October, November, which is operational, we should see the end of that re-pricing process with a little delay in one month or a month and a half? And the last question on Spain would be on Ramos real estate portfolio, made by Benjie Creelan from Macquarie. He asks about the proportion of land within our portfolio that is growing, 57% now with 62% coverage ratio. You would feel that that is enough and hard to rethink that (inaudible) in the future? Javier Marín Romano: We are expecting the first one, reputation of mortgages. The bulk of that has already occurred. We still have a tail, a small part over the next quarter, and by year end, it should be finished. With respect to the land, the question about the land, of course the rate of the land on our real-estate portfolio increases because we’re selling the flats. So, definitely it increases. What we are doing is today we have more than – we’re promoting more than 100 of these plots. And basically in big cities, we see there is demand for this. We only begin the promotion when we have more than 35% of the flats showed. So, we see a very good trend here that will (inaudible) to recover out of the price, out of the accounting figure for these plots more than we have – than we have provisions. So, we expect some good news over there.

Going to what I see, two big groups of questions, one is around business in volumes, second one around costs. The first one – the question is like how do we see generally speaking volume growing in the country, still the difference in between public banks and private banks. If we think that the government will keep enforcing or increasing through public banks volume growth. How do you see our growth growing on this year and next year, and linked to that margins and spreads, how do we see the NII evolving in Brazil? How do we see the spreads if we think (inaudible) or that they will continue, so basically volume at the micro sector at the sector level, volume for us and NII evolution that’s from on the business? And then on the cost, Mario Lodos specifically asks on the negotiations with unions, if you can give an update of the quest situation and the impacts in terms of cost evolution going forward? Javier Marín Romano: Okay. In respect to volumes, we expected that the last last quarter that we expected our bank to be growing the credit portfolio close to 10%. The credit is going up 7% by now, so we expect to be close to that figure. It is true that the growth for public banks has been huge compared to the private banks. We see the public banks already slowing down the pace of growth in credit. And probably, next year we will see again for the whole industry double digit growth, low double digit growth in terms of credit. With respect to net interest income, with respect to our bank, the most important thing is that our net interest income minus provisions, how this figure evolves, right. So our view is that this net interest income minus provisions minus the cost of credit should continue to behave better. We will still see some margin compression in the country basically because of competition, because of regulation, and because as we did this quarter, we are focusing more in growing it in segments, enough (inaudible) that have a lower cost of credit and definitely a lower margin. But the net -- but the margin net of provisions should begin to improve. Costs, the collective agreement has come up with an 8.24% increase in salaries. That is why it is so important to implement all the measures we have in plan in order to bring Brazil to our cost to business that this is similar to other countries where we operate like Mexico.

Speaking about Mexico, we have a question from Benjie mentioned a question from Brazil, Benjie Creelan from Macquarie, Mario Ropero from Fidentiis, Daragh Quinn from Nomura, and Alvaro Serrano from Morgan Stanley, and also Carlo Digrandi from HSBC is asking about Mexico, about NII if we still need (inaudible) in inflexion point, if we can elaborate on the drivers for next year in Mexico, specifically speaking of the [rapid] part of the P&L? Javier Marín Romano: Well, we’ve seen a reduction in Mexico that definitely has hurt our net interest income. The trends we see basically, we see interests where they are picking up slightly. Volumes are working well. We think that they should accelerate both in grade and deposits over the next quarter with the economy getting more speeding up.

There are two questions on the Anglo-Saxon markets. On UK, Alex Potter from Mirabaud Securities, he asks about U.K. results mix, NII was good and positive with re-pricing comments. If we can talk about Q3 fees, I mean, evolution of fees in loan losses, so the kind of part of the revenue side and specifically in the quality side on U.K., that would be U.K. In U.S., there is a question by Mario Lodos from Sabadell asking about our guidance given by the chairman. Our CEO spoke about 2 billion net profit dollars for 2016. How do we plan to meet that target? Are we going to see the recurring interest levels -- are we considering any inorganic growth setting? Javier Marín Romano: Okay. With respect to the U.K., commissions were hit in the quarter basically because of the lower volume in terms of funds, distributed funds through the network, and a less intense activity on global banking markets that definitely at the end brought down our commissions in the quarter. With respect to provisions, we see the U.K. at a very good level, as you saw non-performing loans is still 3 basis points below what we had the previous quarter. So, we don’t see any special item here. With respect to the U.S. and the $2 billion that were stated by the Chairman, and definitely we don’t have the presence in the U.S. that we would like to have. We have – we’re in the Northeast. We would like to be as in any other country, top three player in the region. We need to do this basically right now organically. We have still lots of things to do, and at some point, we will take a look to any opportunities we have in the country, in order – in the area in order to accomplish this objective of being a top-three player in the region. However, today what we need to focus is in improving the franchise, improving the quality of service, and growing our franchise. And connecting more with Santander consumer which is our ultra – a very good operation that will give us very good surprises over the next quarter, and altogether, I’m sure we’ll be on top of this $2 billion.

Okay. I do notice questions through the phone. So, we are set if there is. I thought we have covered all questions received. If this is not the case, please contact us on the Investor Relations department. Thank you for being here. And thank you for receiving the results of Santander. Javier Marín Romano: Thank you very much.