Ana Botín-Sanz de Sautuola y O’Shea - Chairman and Executive director Jose Antonio Alvarez - Chief Executive Officer, Executive Vice President of Financial Management and Investor Relations Jose Manuel Campa - Head, Investor Relations Ana Botín-Sanz de Sautuola y O’Shea: Good morning. Welcome [Technical Difficulty] Group 2014 Results Presentation. And thank you for joining us. Since I assumed my new role as head of the Santander Group, four months ago, I had cleared the four priorities going forward. And so our focus has been, first, governance and board composition. We now have a board with 60% independent members of which 33% women and four nationalities with a good mix of skills and experience. The executive team, we have new team that brings international experience from inside and outside the group, and in addition we have simplified the corporate structure. Three, capital, after a €7.5 billion capital increase we are now amongst the best in overall capital ratios versus our key competitors and we have a sustainable dividend policy. And fourth, and that is what I want to talk to you about, the fourth area of focus, which has been the strategic review of all our business and setting up priorities. There are six major trends that are shaping the way, in which we think about banking and we could group them around three. First the macro trends, which we see as overall positive for us; U.S. and UK, very positive view with expected growth of 3.6% for the U.S., 2.7% for the UK. Europe, less growth, but we expect QE and lower oil prices will deliver new investments and higher than expected growth, with countries like Spain with a projected 2.5% increase in GDP in 2015; emerging markets with a diverse performance but still growth. The second trend, of course…

Thank you, Ana, and good morning to, everyone. Let me to - as Executive Chairman has reviewed our vision of the group, our strategic priorities, and medium-term objective, let me to - focus in the results in 2014, full-year results. Well, instead of going as usual, we call the units in the presentation, I will focus only in the three larger units, but you have all the information in the package we gave to you all. Let me to start - we talk a few words about environment. In 2014, the global economy grew 2% with a recovery –some recovery in the global countries, particularly in U.S. and UK, a more moderate growth in the emerging economies. We’ve been living in an environment with certain volatility and uncertainty due to geopolitical risk and the falling prices in some raw materials, particularly, important the oil. In the Banking business, we continue to be affected by the extremely low interest rate environment that remained at historic low in most economies. Finally, last but not least, if you rollout the requirement, which are affecting both sides of the P&L revenues and costs, in this environment, we were able to increase profit - some profitability, gaining market shares in key segments on both, improving our operating capabilities and improving our cost income, and second, mainly maintaining a solid liquid on low risk balance sheet. Beginning with the first point, well, 2014 compared with 2013 was a strong year. We’ve seen a process of normalization. We come from very low levels and we normalized this. The profit grew 39% over 2013, or 49%, excluding the exchange rate impact. Revenue grow in nine of the 10 markets, I think are in market in which we operate, because we’re well under control, lower provisions due to a…

Thank you, Jose Antonio. Good morning, everybody. We proceed now to the Q&A session as usual. We will be corresponding questions that we have received via e-mail. And at the end we will look for any other questions that may be remaining or that may arrive via WebEx. Let’s start first with a blog on strategy. We have an initial question from Francisco Riquel from Nmas1 on strategy. The question is given your ambition to become top three in the main markets where you operate, do you have any M&A plans to get there in the markets while you’re currently below top three? Ana Botín-Sanz de Sautuola y O’Shea: Yes. So we’ll consider add-on acquisitions in the core markets where we operate. We don’t have this is a priority at the moment. Our priority will be organic growth, as I outlined in my presentation. But there are some examples - for example, Portugal, we are looking at something in Portugal, as you said, but this is not a priority for us over the next few years.

Okay, thank you. Second question also on the strategy for Rohit Chandra for Barclays, which geographies do you see as the greatest opportunities to increase your loyal customers? Ana Botín-Sanz de Sautuola y O’Shea: Yes. I think I had a slide in my presentation. So, where I covered the four major markets, where we have the largest number of active customers, that’s Brazil, the UK, Spain and Mexico. In these four countries we have close to 14 million of active customers. And I’d say, the biggest increase potential in the next couple of years is probably Spain. Just give to you an indication, in Spain we only have 23% of what we call loyal customers at the group level, and our aim is to go to close to 40%. Just to make clear what we define loyalty in this group measure, as retail customer who has a primary banking relationship with Santander. And these are the four markets where we expect the biggest growth in loyal customers.

Thank you. A follow-up question also on the strategy and customer loyalty also from Rohit Chandra from Barclays, how is the focus on loyal customer expected to change the business mix between different products and between retail and corporate customers? Ana Botín-Sanz de Sautuola y O’Shea: Well in this major markets and we’ve seen this happen in the UK the biggest changes, the increase in current account balances. However, if you go to a county like Spain, where we already have a very significant part of our balance sheet in current accounts, the change in mix will be less dramatic than what we’ve seen in the UK. But in general, going to more loyal customers in the definition where loyal customer is someone who has a primary banking relationship with us, you should expect higher growth in current accounts and debit cards, credit cards. In terms of the mix between retail and corporate, this depends very much on the geographies. Again the UK is an example, but Brazil and Mexico, where the growth in SMEs and corporates should be faster than the retail side, but it’s going to take a long-time to have a significant impact. For example in the UK, because of the size of the retail, in the case of the UK mortgage balance sheet. But in general, we are expecting to gain market shares in several markets on the SME and corporate side.

Thank you. We also have a question on the implications of banking union for you’re having a M&A strategy. This question has been asked by Andrea Filtri of Mediobanca, but there are also a number of related questions on the same issue. For instance, Marta Sanchez for KBW asked about the possible transactions of Pioneer and Nova Bank, where you can give an update on that, same thing, Andrea Filtri. Ana Botín-Sanz de Sautuola y O’Shea: So banking union, I’d say generally, it’s good news, it’s happening, so we’ve taken significant step forward over the last few years and it’s very positive for European growth and therefore for European banks. I think this is a very positive opportunity, however I think this is at least for us more a medium-term opportunity. I don’t see that there are any - well, there is an example I made of Portugal, but that is not really driven by banking union. I do think over the medium term that you’ll start seeing more pan-European banks offering services. But I don’t see that in the next few years. And there was another…

Pioneer. Ana Botín-Sanz de Sautuola y O’Shea: Pioneer, do you want to say something. Pioneer - well, do you want to say where we are in Pioneer? And Portugal we’ve just answered, but Portugal we’re just analyzing the opportunity. We are a major bank in Portugal and as far as of the system and as we did in the case of Spain when there are opportunities, we will take a look at them. And Pioneer for Antonio.

Pioneer, well, what I can tell you at this stage, we’re still in negotiations. What I can tell you, this makes a lot of strategic sense. But we are still in negotiations with the other parties...

Thank you. Then we have a number of questions regarding the general outlook for the business going forward. We have a question for Ignacio Ulargui from BBVA on what is our view regarding margins and volumes in the Spanish operations as well regarding lending yields for Spain as well, how do we see the overall outlook for Brazil as well? Ana Botín-Sanz de Sautuola y O’Shea: Yes. In terms of the, let’s say, the outlook at the group level and then we maybe, Jose Antonio, you want a complement on specific countries, but I’d say overall, so the guidance we given is to 2017. We given guidance in terms of achieving a gross income below 45%, return on tangible equity within 12% to 14%, core capital being between 10% to 11%, EPS better than peers, and so on. So these are the guidelines that we will give for the group. In terms of 2015, our specific markets, what - it’s quite different I’d say Europe from Latin America. In most European countries - the top line growth will be driven more by volumes than margins, even though in the first few months of the year, certain countries will continue to see some margin benefit like Spain. UK for example, the guidance is broadly flat margins for 2015 and growth in volumes. The second important idea is that we are growing and expect to grow more than the market and continue to grow more than the market in countries like Spain or the UK, more in SMEs and corporates. In the case of the UK growing mortgages in line with the market. So those would be the main guidelines in terms of specifically for Europe. In terms of Latin America, obviously the tendency is quite different. And we do expect different tendencies and depending on the markets and more both margin expansion in some cases and growth in volumes. In the case, we also have PSA coming on board this year. So that’s the significant addition to our business. This means €3 billion in the UK and a total of €8 billion, €9 billion for the group, €10 billion for the group I understand.

By the total it is €18 billion. Ana Botín-Sanz de Sautuola y O’Shea: €18 billion, so that as a summary is how we see 2015. Jose, could you take it out on Brazil?

Well, you mentioned Spain and Brazil, margins, volumes, lending yields. Well in Spain we remain positively, we can still keep reducing the cost of funds. The main uncertainty from the asset side, as I mentioned in the presentation where we continue to see margin pressure. Overall, we remain optimistic about the potential growth of the net interest income in Spain due to our combination of volume, higher volume, lower cost of funds, and some pressure on the asset side overall, we expect to be positive. You mention Brazil, the trends, well, I said, we expect to grow revenues. On the like-for-like basis, we are improving the net interest margin in the lending book. The change in mix is, we expect in 2015 not to be a significant as it was in 2014. So overall, with a relatively low and relatively low for Brazil means around inflation 6%, 7% loan growth we should be able to grow that to grow net interest income in Brazil in 2015.

Thank you. Again, coming back to Jose the business outlook by different geographies, we have a question from Rohith Chandra specifically on the UK outlook, particularly where the net interest margin can continue to rise with mortgage pricing under significant pressure. What would be the volumes, what would volumes be the main driver of 2015 in the UK, or do you expect any other interest income? Ana Botín-Sanz de Sautuola y O’Shea: I think, UK I mentioned already, so UK will be more about volumes. We expect overall margins broadly stable for 2015, put some pressure on the asset side and some improvement - continuing improvement on the deposit pricing, but overall margin is stable and growth in net interest income coming from volumes and continuing growth above market in SMEs and corporate, and growing in line with - in terms of mortgages that is our expectation. We grew the balance sheet this year by 2% already, so growth is already happening in volumes.

We have a next question on digital transactions from Mario Lodos from Banco Sabadell Bolsa asking us whether we have any kind of details from the share of the retail transactions versus traditional transactions in our online business? Ana Botín-Sanz de Sautuola y O’Shea: So this number is very different for different countries. Some countries like the UK, most of our transactions are done actually online either digital or mobile, in other countries, it’s still quite behind. The important thing is that in our plans, we’re aiming to almost double the number of digital customers, the customers that deal with us through digital channels. We’re investing in many countries significant amount and the objective is that all our customers can see, can manage, and buy all our products through all our channels, and that is the goal for the next couple of years in all our major markets. Again, in some markets we are there and others will be there by the end of this year and few others will take maybe a couple of years.

Thank you. We have a question specifically on our guidance that we have given on M&A by Rohith Chandra of Barclays, we said that basically the capital increase will help us in our organic growth by the small acquisitions complementary to this organic growth, maybe could also be considered, the question is, were we able to provide an indication of what sort of size does that type of M&A means? Ana Botín-Sanz de Sautuola y O’Shea: Well, the only indication we can give is, what we are looking at in Portugal, that is - they are not significant sizes. We don’t have anything that is significant except the Portuguese opportunity we are looking as I said.

Okay. Well, two more questions on outlook in our guidance, one question from Juan Carlos Calvo from Banco Espírito Santo asking guidance for 2015, particularly on operating expense and cost of risk? Ana Botín-Sanz de Sautuola y O’Shea: We - I mean, the guidance is the guidance we’ve given to 2017, but I think as Antonio and I was mentioned already that we see the top line growing more through volume growth than margin expansion. There is exceptions like Spain, where we still see some potential for improving deposit funding actually in the UK, but net interest margin is actually going to be broadly stable in some of the markets, where this year we’ve seen significant expansions of growth coming from that growth in fee income, operating expenses, we’ve given the guidance of reaching 45% cost income by 2017, where it’s 47% this year. So, obviously, there will be slight improvement there. Also, on cost of risk, I would say, stable to down in most of our markets with almost no exception.

Very good. One question, again on guidance, on the impact that the QE from the ECB, this again from Juan Carlos Calvo from Banco Espírito Santo, what do we think that this will impact our banking business in the years on, particularly in volumes and then interest margins? Ana Botín-Sanz de Sautuola y O’Shea: So it depends what the timing is in terms of the question. I think medium-term, it’s incredibly positive. It has to come with other measures like structural reforms continue in the countries like fiscal policies and very importantly having banks being able to lend again. But overall, it’s very positive for growth, it’s - therefore very positive for the bank. However, in the very short-term, it could be marginally negative for margins. There will be more pressure on the asset side. Again, it depends on the repricing on the liability side and how long that taste and how much more we have of that. But I would say net-net, it’s good. We’ve seen demand pick up again in our case, so Santander new production in Spain was up 64%, 65% for mortgages last year, the new production SMEs and corporate, I think we gave these numbers between 27% to 31% growth. So I think net-net this is positive, again, and it will not be the same. But in the countries, where we operate Poland, Germany, Spain, we are quite positive on growth for this year.

Okay, very good. One last question on general strategic things, we have a question from Raoul Leonard from Deutsche Bank regarding changes in management. The question is that we have announced a number of senior management changes over the last few months. Are we finished with this management reshuffling, and are we seeing already tangible benefits, for instance in falling costs? Ana Botín-Sanz de Sautuola y O’Shea: Well, I would say, yes, we’ve done. We are not anticipating changes at the senior level, we’ve made quite a few changes. But I would like to emphasize that with some exceptions like our Chairman in the U.S., our Chairman in the UK and in Brazil, all these changes are from people with lots of experience in the group. So, we already, I think, nobody needs a long adaptation period. So we are ready to go. We’ve made the changes, we think it’s good to have made the changes, so we can now focus on running the business and that is what we are going to do execute on the plans that we have outlined and start focusing on our customers and our people and delivering on our plans.

Thank you very much. Moving more to more of specific issues, we have a question on specific details on our agreement with PSA and our joint venture going forward. I’m Juan Carlos Calvo from Banco Espírito Santo and Stefan Nedialkov of Citi are asking we can give more details particularly regarding the timing of the deal going forward, the implication on earnings, as well as on core capital ratios?

Well, in the PSA as I commented this business that affects, I think, 11 countries, but is mainly concentrated in France, Germany, UK, Spain and Italy. We already close - we already incorporate to the joint venture with France and UK as of beginning of February, this is around €10 billion loan book. We expect along the year as I mentioned in the presentation in this summer couple of other countries and to finish the integration of all the PSA deal at the beginning of 2016, at the end, we are going to help around €18 billion loan book, while the majority of those loans in Santander models so the capital consumption you have the details. The target in this kind of business, I’m taking our assisting auto finance business in Consumer Finance as a proxy, we are getting clear of around 1.6%, 1.7% return on risk-weighted assets, and this is what the kind of return we expect from the PSA. If you remember that we are going to have 50% of this business, yes, so those are joint venture with 50% owned by Santander Consumer Finance and 50% owned by the group PSA.

Thank you. We have another specific question regarding regulatory concerns in the U.S. particularly the SICAV process, Raoul Leonard from Deutsche Bank is asking us where we can you give an update on the implications of the SICAV process, I think we have given there on the presentation already. But the question more is specifically he is asking whether we are still investing or we should expect costs to fall in the second-half of 2015 as the SICAV results are published, are these costs are structural in our business?

As I mentioned in the presentation, we are still facing significant hurdle there, significant. We - I keep investing. We need to keep investing. This is a multi-year process. As I mentioned, we have 500 people. This is going to stay probably increased because of this regulatorynot only the SICAV, overall the regulatory requirements and because we are still going to go up at some point, probably more in 2016, 2017, we will be able to produce some of those not in particular a big number, but some of those related model we bend our services that we are now hiding in order to offset or to build basically the models that we need to build for the - for - to have an outstanding SICAV as required by the regulators.

Thank you. Now moving up to our section on capital and financial management we have a number of questions, we have a question from Andrea Filtri of Mediobanca and Stefan Nedialkov of Citi regarding our guidance of 10% to 11% targets for capital ratios. The question basically implies that, what will determine where we’ll go towards the 10% or 11% and whether the ECB is comfortable with or has given an indication how they feel about this target.

Well, the 10% to 11% is our internal assessment, is our internal target. Well, I think taking into account the capital has always two sides. The risk you’ll have in your business model and the absolute amount of capital. We think that the 10% to 11% for our risk profile is where we should be. And we don’t have at this stage an indication of the ECB in relation with fully loaded ratio where we should stay in this ratio.

Thank you. Also on capital targets, basically they were asking us, again Stefan Nedialkov from Citi what does this guidance imply or assumes for dividend payouts, buybacks, and M&A?

Well, it was already mentioned, yes, so M&A is clear. We are focusing organic growth. We’ve seen that we have significant growth in front of us in terms of organic growth. And we mentioned the capital - when we raised capital that we expect mid-single-digit risk-weighted assets growth in 2015. And in dividend we already set our stance there to have a growing dividend policy with a payout between 30% and 40%. And the dividends grow along with the profits.

We have a question from Raoul Leonard of Deutsche Bank on DTAs, asking us about the amount of monetizable Spanish DTAs and Portugal DTAs as of the end of the year. I answer that the Spanish DTAs amount were €5.7 billion monetizable, and the Portuguese were negligible, non-existence. Moving onto our core portfolio, we have questions from Raoul Leonard, Benjie Creelan from Macquarie, and Marta Sanchez of KBW, basically asking us about the volumes of our ALCO portfolio and in specific about our available-for-sale assets in Spain, we’ve seen have to be increased significantly over the quarter as well as the UK where we can get to what are the tactics of this ALCO portfolio.

Well, as you know the role of the ALCO portfolio is to hedge or to hedge off too much the interest rate risk. We’ve been growing very fast in current accounts, in sight accounts both in Spain and UK. Our balance sheets are relatively - not only relatively are very short, so the duration of balance sheet both in the Spain and the UK is negative. And some of these portfolios is trying to offset partially, not 100% because of the relation is negative in both countries and these portfolios tend to offset partially some of the interest rate risk we are facing. Now truly those commercial balances are the position us to high rates by natural, by the nature of the business.

Very good. We have a specific question from Ignacio Sanz from UBS which asks, what are the underlying interest rate assumptions for Santander’s geographies for the 12% to 14% RoTE target that we have given? Basically we can provide details on this later on. But I can just announce that this is based on the forward curves of the different countries, forward interest rate curves that were put into the budgeting process. Interest - we also have questions regarding the also [ph] risk-weighted assets, for Ignacio Sanz again and specifically on Santander Consumer Finance. What was - what is the reason behind 5% fall quarter-on-quarter, while the loans grew by 3%?

Well, I don’t know it’s specifically to this, but we’ve had to approve the internal rating basis models in Germany. Yes, I think as a result of the approval of these internal rate base models, the risk-weighting fell significantly, having said that, we’ve got the approval for consumer lending, not for mortgage lending in Germany, not yet. Okay, so still some room to go, but we are not including this in our forecasting just because in the past we were not particularly good in forecasting when we’re going to get the models approved, yes.

Okay. In the same of risk-weighted assets, we have a question from Raoul Leonard of Deutsche Bank, highlighting that in Brazil there was 20% jump in risk-weighted assets of the quarter. What should be the future churn of risk-weighted assets going forward given this high increase in the fourth quarter?

Referring to specifically what?

Brazil risk-weighted assets…

Brazil risk-weighted assets, well risk-weighted assets in Brazil should grow along with the loan book. I don’t see any other particular reason. There is - potentially there is one saving that we’ve been anticipating for several quarters, that is due to operational risks. As you know the standard model in operational risk is a percentage of the revenues or revenues in Brazil are very high due to the high net-interest margin, while we were expecting to go from the standard model and to the standard alternative model. For several quarters we haven’t been able to get there. And we were anticipating that was in the range of 20 basis points to 30 basis points, unsure that we will now go to the standard alternative or we’re going to go directly to advanced model in operational risk that we provide some of the savings.

Okay, thank you. We have a question regarding handling fees from Raoul Leonard of Deutsche Bank. He noticed in the corporate center there is a charge for $332 million. He wonders how much of this was due to the German handling fees and whether this issue is now completely resolved or whether could there be further provisions ahead?

Well, I mentioned in the presentation the net number - the net charge in the corporate center was €260 million in the fourth quarter for these issue of handling fees in Germany. Going forward, we do not expect, because we stopped the handling fees, which are handling fees in 2012. And these settlement we done is - that the one that does go from - if I remember well, from 2004 and 2012. And there is nothing significant that may come in the future.

Very good. Now moving on to more specific questions of our specific geographies, particularly in Spain, a number of questions from David Vaamonde from MainFirst, from Marta Sanchez from KBW, Rohit Chandra from Barclays. All of them asking basically - whether we see term deposits have come down again this quarter; do we see a floor coming in the price of term deposits and what’s the implication of this with net interest margins going forward.

Naturally, we see a floor for time deposits, probably to go beyond certain limit is going to be difficult, as you may understand, but having said that, the average costs of deposits that at the end of 2014, if I remember well, was around 0.6%, 0.60% something. We still expect a significant reduction on the average costs of those deposits, because on average the new production of time deposits is coming up 0.4% or something like that. But the average cost of time deposit is still north of 1%. So we still expect significant reduction there, yes.

Another specific question in Spain also regarding the time deposits costs has to do with our company in Catalonia, Raoul Leonard of Deutsche Bank and Mario Lodos of Sabadell Bolsa both ask where we can give some details on how this company has evolved in volume and in margins, and whether we apply, we expect to apply this tactic in other regions in Spain.

Well, this specific campaign in Catalonia the target is to increase our market share. Well, I don’t have the details on those deposits, but these not when I was talking before about the overall the costs of deposits include naturally this campaign in Catalonia that given their size is not going to be material in terms of the trends in overall deposit costs.

Okay. Now moving onto Latin America we have a general question regarding our Latin America operations from Andrea Filtri of Mediobanca, he’s asking, how will our Central and South America franchises coped with the low commodity prices; what is the implication for this for our business in this region.

You mentioned low commodity prices, the only one that may affect - the only commodity that may affect in a significant way or in some way our business is oil, mainly due to the reduction in CapEx in the result in Brazil that was already announced by Petrobras. And maybe the thing happened in Mexico in some way in relation with Pemex. We’re reviewing our exposure not to these companies that we don’t expect any particular outcome that the contractors of those companies, is not significant, is not something that worries us. That is where we expect not a significant reduction on activity going forward due to the reduction in CapEx in the oil exploration industry.

Okay. Thank you. We also have some specific questions on the impact on Petrobras in Brazil, which I believe you have answered already. Now moving onto Brazil, we have two ranges of specific questions, Ignacio Ulargui from BBVA and Rohit Chandra from Barclays. Both ask us about the outlook going forward. How do we see us positioned in the market, have we seen the bottom in terms of margin pressure, and how is our change in product mix change going to be evolved going forward particularly in 2015 without the main risk to credit quality that we see there?

Well in relation with the margin, as I mentioned before on a like-for-like basis, we are not seeing margin compression in Brazil. So quite the opposite we’ve been able to re-price up some products. The overall net interest margin fell due to the mix. Well we expect to grow to address some of this issue in 2015, due to the launch of Advance in SMEs, that as you ask, we show in the presentation, we were not able to grow in SMEs in 2014. And our book decrease in individuals that naturally is the highest margin. With Bonsuccesso in the payroll-based lending, our book decreased significantly, while our competitors were growing in 15% to 20%. And we expect to address with GetNet and Bonsuccesso our relatively weaknesses in individuals and with the Advance program in SMEs. So we expect the mix to remain changing but not at the base we saw in 2014.

Okay. We have another specific question on Brazil by Raoul Leonard on Deutsche Bank regarding on trading gains there. He said, that we’ve reported a negative trade income in the fourth quarter, what will be the reasons for that?

Well, by definition trading rates are volatile. I suppose, I don’t have a specific announcement for this. Probably this should be related with the increase in rates, probably, comes to my mind. I am not 100% sure. Yes.

Well, thank you very much. I believe that we have no further questions to be addressed at this time. I hope we have addressed all of them thoroughly. Nevertheless after this conference call, please feel free to contact anybody in the Investor Department Relations - Investor Relation Department; I apologize, for any private questions or clarifications you may have. As you may already know I have recently been appointed to the group, by the group to new responsibilities in the area of regulatory affairs. As a new head of Investor Relations, Sergio Galvan has been appointed already to this position. Sergio is already here with us, welcome and fully engage. And I would like to thank you all for your professionalism towards me throughout this month. I have served in this role as Investment Relations Director and I wish Sergio all success going forward. I would like thank you all for joining this conference call. And I wish you a good day. Thank you very much.