Banco Santander, S.A. (SAN) Q3 2015 Earnings Report, Transcript and Summary

Okay, I think we are ready to go. Morning all, welcome to this Q3 Earnings Presentation from Banco Santander. Just to be consistent with previous conference calls, our CEO will address the Group performance as of nine months 2015; the CFO, our Group CFO, will cover the different business areas’ performance, and obviously, the CEO will conclude the presentation with the concluding remarks. We will have time for Q&A. As always, I will appreciate if no more than two questions per caller are asked. With no further delay, José Antonio, the floor is yours. José Antonio: Thank you, Sergio. Thank you to everyone for attending this third quarter result presentation. Let me to start the session just going through the environment, which we have been developing our business in the quarter. As you know the macroeconomic environment has been different depending on the geographies. We have had the relatively recovery or good macro-economic developments in several countries, particularly UK, U.S., Spain and also in Poland. Some slowdown in emerging markets, particularly Mexico and Chile, and adjustment that is going on in Brazil that we expect to continue for a while. In relation with the banking business, so two major impacts are affecting profits. The first one has been highly recurrent in the results session, thus not affect that much us, that is the market’s high volatility. That for our business, the only part that is affected is the valuation of the portfolios, but not the commercial business, being mainly retail and commercial one. The second impact that it affects us is the ForEx, exchange rates, which reflects on appreciation of emerging countries’ currencies against the euro and the dollar. At the same time, and this is not new, interest rates remains historic lows comparison, in some markets remain – the competition remain relatively strong. And we have seen, all across the board, mainly in mature markets, significant competition on the asset side provided that the interest rates are zero level. Going into our numbers in the quarter, profit in the quarter, the net profit in the quarter in – I am going to refer in the presentation constant euros and current euros, because in this quarter the difference is 4% or 5% depending on the lines. I am going to refer normally to the constant euros because this will reflect better the underlying performance. So in the quarter we were €1.74 billion constant euros net profit, €1.68 current euros; so the difference is there. And in the nine months, we got €5.1 billion net profit, 17% higher than the same period in 2014. While the profits were driven by relatively good developments in net interest income; we are able to grow commissions even at the lower speed than the net interest income. The second driver, we have lower provisions, the costs well under control, we are in line and keeping our efficiency ratio. And lastly, if we look at the nine months still positive FX impact, while in the quarter this effect has been negative as you can see in the left side of the slide. The return on tangible equity was 11.4% and tangible book value per share was slightly better than last year, while in the quarter it went down due to the FX impacts. The full quarter attributable profit was €1.68 billion with the already mentioned negative exchange impact. Well, in order to facilitate the comparisons, I am referring always to the ordinary profits and not included in these numbers. The €835 million net gain that we got from the reversal of tax liabilities in Brazil. Going to the balance sheet, so I will say the same things that we saw in the previous quarters continue. Lending is going up year-on-year. In the quarter we grew loans 1% and the deposits on mutual funds was also 1%; on yearly basis we are growing at 7%. As we said to you in the Investor Day, well, we are a growing Company, we are operating in markets where we are growing and we expect to keep growing in the coming quarters and year. So, naturally this – the quarter on quarter [indiscernible] in constant euros, in current euros, the FX impacts have reviewed the size of the loan book, at the same time reduced other items of the P&L and the Balance Sheet. In the NPL, asset quality keeps improving, particularly in Spain, but also in the other geographies. The only geography in which see a pick up in the NPLs was Brazil and will elaborate later on this – José will elaborate later on this in more detail. And in relation with capital, the Core Equity Tier I went up only 2 basis points in the quarter. The capital generation in the quarter was 13 basis points. So it means that the profit we generate excluding dividends and with the growth we had in risk-weighted assets. In constant euros the growth we had in risk-weighted assets was around 1.5%. That is the normal growth or the growth we expect. Like we told you that we expect mid-single-digit growth and the quarter has been in line with this in constant euros, so we generate 13 basis points organic capital that were offset by other items that I will refer later on in the presentation. So going to the commercial transformation, I am going to provide you some figures, not – probably in every six months, we provide you more detailed figures in relation with our commercial developments but just to give you some color what’s going on. The focus we put in our commercial transformation that were the number of loyal customers and the number of digital customers, the number of loyal customers is growing 7% compared with December 2014. Well, this is part of, as you know, this is one of the key targets we have in order to transform our commercial model, and to improve the value creation, and as you know we are launching differential value offers depending on the countries and depending on specific targets we have in the different countries. In digital customers, we are growing 11% compared with December 2014. This is not the run rate we are targeting. We are targeting 20% more or 30% more than the run rate we are showing right now. And we are improving and investing in reinforcing our multichannel strategy while – with new apps, functions mainly in mobile devices but not only mobile. At the same time, as a result of this process, as also we said in Investor Day we expect to streamlining processes and this should help us in our cost efforts. Going to income statement, I’m going to refer first, quarter-on-quarter. When we compare the third quarter with the second quarter, we have, you see clearly in the P&L the impact of the FX. So, going to constant euros you have basically revenues are growing and costs growing around 2%, net operating income 2%, and at the bottom line 3.8% better than in the previous quarter. This is in constant euros. The impact of the FX, as I said, is between 4 and 5 percentage points and this translates into at the quarter-on-quarter in current euros a minus 2% bottom line and around minus 2% in the main lines of the P&L. If we go to the first nine months, we have the opposite effects. So in constant euros, the bottom line, this is 11.8% up, net profit. In current euros, it’s 17% up, as I said at the very beginning. So that means that in the nine-month there is a positive impact of the FX; in the three month, quarter-on-quarter, there is a negative impact coming from the FX. On one side, this – in the quarter was 4 or 5 basis point, sorry, percentage points. While in the year has impact around 2 or 3 percentage points at the bottom – top line. So, let me to remind you that in the last quarter as we’ve been telling you we will have the impact of the ordinary contribution of the deposit guarantee fund that is not accrued on a monthly basis. The cost per month should be around €15 million, €20 million per month that we will account in the four quarters. This is the rule for this kind of contribution. Going to more detail, through the P&L you have here the trends both in revenues, costs and provisions. You have consistent growth in revenues. Quarter on quarter has been fairly consistent in constant euros in the quarter naturally, in current euros the impact dropped the revenues down as the costs – and cost are growing in line with the income. So 7% up both, and provisions are trending down. This is mainly due to Spain; we saw in the quarter some increase in Brazil but not – nothing significant. And we’ll elaborate later on in more details on this, José will do that. And I will refer later on when I go through the asset quality. When it comes to revenues, we see a very consistent growth in net interest income. This is due to volumes on lower costs, lower funding costs, while in the asset side, due to mix in some cases, particularly in Brazil or to tougher competition in UK and Spain. So we are suffering on some margin compression on the asset side. Fee income, the trend is consistent. Fairly consistent trending up not at the rate we are targeting. You remember in Investor Day we were targeting more here. It is true that in these numbers you have a significant regulatory impacts that came as a result of European regulations mainly that affect this line. Financial transactions, well, this quarter was normal. So what was below the running rate was the previous quarter, €644 million is roughly speaking is even below the average in the last 7, 8 quarters. So nothing abnormal here; probably last quarter was the one who was not in line with our running rate. So, when we go – the revenue gross income where the revenues come from, you have, overall in the Group the FX impacts, as I mentioned before is still positive, €694 million in revenues. The businesses provide €2.1 billion more revenues where NII and fee income are the two main drivers. Still the gains on financial transactions is the only line that is going down in the business, minus 6% in the year. When it comes to the different countries, good developments almost all across the board. Two caveats; one, Spain where we suffered in volumes, we were expecting the loan book to grow. We are not growing, we’re not yet growing. It’s true that the front book is having relatively healthy or very healthy results. The growth in the new production, the front book is in the 20s, in the 30s, depends on the lines, but not enough to offset the amortizations of [indiscernible] book. On the other side, I also referred before, we have a significant margin compression on the asset side, as I – we’ve been telling to you in the previous quarters that was our expectation. So, in relation with Brazil, good developments. So in the last few years we’ve been doing very good efforts in the bottom line of the P&L, in costs and provisions. Now, we are gathering momentum on the upper side, even taking into account the recessionary environment that the countries is having as you know. So, the other country in which we suffered decrease in revenues was Poland. This is due to the effect that is very well known when the official rates go down in Poland, they translate into four times the reduction rates to all the portfolios that are relatively high yield, particularly consumer lending and credit card, some of these relating to a significant hit at the level of NII. All other geographies are performing well or very well in terms of revenues. Nothing to say, so on the terms – I would say fairly consistent. And on the cost side, what we have – doing the same exercise with the revenues, €200 million costs come from FX. €1 billion is comes from the business, that when you exclude the perimeter and inflation we are running a little bit higher than – we are growing a little bit the real cost 0.9%. This is due mainly to – you focus on the countries on the right side of this slide, what you have is the U.S., while due to the investments we are doing to – in the holding then to incorporate the holding is the cost side growing significantly, as you can see, significantly above inflation, 11.7%. While in the other countries, Mexico is due to – we opened more branches, and in Chile, well, we still have costs that are running relatively high compared with inflation. So, at the Group level as I said, we are 0.9% above inflation that is well over benchmark. When it comes to the asset quality, good news here. The cost of credit is trending down. We announced to you that we think that the 1.2% cost of credit across the Board is what we expect for the next couple of years. So, we have 1.26% excluding the SCUSA that – well, somehow the relationship between the size of the balance sheet in this SCUSA and the provisions we have there is disproportionate compared with the rest of the business it is clearly SCUSA we are slightly below 1% cost of risk. At the same time, when we go by countries, we see as expected, very good trends in Spain, where the provisions are falling 41%. UK, exceptionally good, and we released some provisions in the quarter, so falling 74%. While in the other geographies still in Brazil minus 1% compared with the previous year. In U.S., nothing to worry about, it’s more the size of the SCUSA businesses being run the previous year and for that reason we are growing the provisions. And consumer finance in Mexico is due to the growth of the portfolio. So nothing particularly worrying on this regard based on the provision and the costs of credit. Going to the financial ratios, in efficiency we are fairly flat, quite flattish financial ratios. EPS, minus 5% due to the capital increase but well, it is very much in line with our expectations. The return on tangible equity 11.4%. Remember that our target here by 2018 is to reach the 13%. And tangible book value per share quarter-on-quarter went down. The profit [indiscernible] €0.12 but devaluation adjustments, the effects impacting the capital in the subsidiaries is an effect of minus €0.20 in the quarter. So year-on-year the tangible book value per share at the same time we grow the dividends and we accumulate capital. So the three combined, capital accumulation, growing dividends and accumulating tangible book value per share. Going through the balance sheet, nothing relatively, nothing new in this regard. I also refer to the Spain, the loan book is still in negative territory, while Portugal is around flat right now. All the other markets are growing and are growing in a significant way quite healthy growth all across the board in line with our expectations. Deposits mutual funds, I will say the same then when they were referring to the loan book, we see all across the board all the units are growing year-on-year and in the quarter some up and downs depending on seasonal effects mainly. Credit quality, coverage is turning up in Banco Santander now significantly, particularly intense in Spain, also in UK, in U.S. relatively flat. We don’t see any particular concern or problem in all the geographies. I would refer specifically to Brazil, where given the economic situation and that you see the NPL going up from 5.13% to 5.3% that is well below [indiscernible]. We expect here some headwinds coming to mainly economic situation, but as we said to you in the Investor Day, the cost of credit is not – is going to go up, and not significantly up, and so we are now around 4.3%, 4.4%. So we maybe in the range of 4.5% to 5% in the coming quarters but no more than that is our current expectation. When it comes to capital, so you have the total capital ratio that changed in the quarter due to the sum issuance in tier 2 both in UK and in Chile when it comes to the Core Equity Tier 1, as I said before, capital generation in the quarter 13 basis points, very much in line with our target of generating around 10 basis points per quarter. So this will lead us to 1996 core equity, but in the quarter we had two effects. The first one is the value of for sale portfolios, some negative effects. And the second one, the other one was the treasury stock that in the quarter cost 4 basis points in capital. So in the year, if we look through quarters, our organic capital generation has been 45 basis points, the available for sale portfolio, the mark-to-market value for sale portfolio cost 16 basis points in the year. So we’ve been able to accumulate only 20 or 20 something basis points due to this effects including change in perimeter, mainly PSA, that well introduced €13 billion of assets or €14 billion of assets already in the rejuvenated assets. As I said before, risk-weighted assets are on ForEx, FX 1.5% that is in line with our expectation; our capital generation is according to our expectations and with the guidance we gave you in the Investor Day that keeping in mind our target to seize the 11% Core Equity Tier 1 by 2018. So we are in line to meet those targets. And I hand it now to José to elaborate in the business areas and I will make some conclusions at the end. José García Cantera: Thank you, José Antonio. Good morning, everyone. I’m going to look at the main geographies in detail. Before that I will make some comments about the smaller ones. Our profits continue to be highly diversified. The UK and Brazil account for around 20% of our profits. Santander consumer and Spain, the U.S. 10% or slightly above, so it’s a highly diversified profit generation and well-balanced between emerging and developing countries. All the figures that I’m going to refer to throughout the presentation are adjusted or restated based on the adjustments we announced in the Investor Day. If we look at the smaller units first, in Mexico, we – the increase in the retail network and the physical distribution network on our strategy are reflected in the faster pace that we have seen in many quarters and in market share gains. We are growing in SMEs, we are growing mortgages and companies as well and on the liability side, we are growing demand deposits, both individuals and companies. Profit before tax is 7% higher this quarter with very good performance in net interest income that rose for the sixth quarter in a row. Net interest income increased 13%. Costs are stabilizing after the investments we made in the expansion of the distribution network and cost of credit is coming down. Chile, very good performance in all segments. We are gaining market share in the businesses that are a strategic targets, basically companies, high income individuals, demand deposits and mutual funds. Year-on-year profits increased 4%, that’s remarkable taking into account the negative impact of inflation. The first nine months of the year compared to last year inflation is lower. And as you know, we had the positive or a long position in U.S. locally. So we were able to absorb that through a good management of margins and volumes. Argentina, Uruguay, Peru, positive performance in all the three cases; growth double-digit rates. In Poland, the economy is doing very well and we are being able to accompany the – this positive economic growth. Positive volume performance, growth in SMEs, mortgages; companies, which are our target segments. In funds, the strategy here is to manage the cost of funds after the substantial growth in deposits that we had last year. And this year’s results are negatively affected by the lower interest rates. As you know there is a cut that you can charge in loans in the country that is called the Lombard rate. So we’ve had lower interest rates in Poland and that has cut where we can charge in loans to individuals and those measures are retroactive. So – but despite that we’ve been able to compensate most of it through a very agile margin management and hedging strategy. In the quarter, we see a seasonal drop in profits because we have lower dividend. Excluding this impact, we’ve had positive growth in most of the lines and in profits. And lastly, in Poland, we are performing relative to our peers much, much better. In Portugal, we have the best bank in the country. Here the focus is to gain market share. Given what’s going on in the country, we have been gaining market share and we will continue to gain market share. We need to control costs better and benefit from the normalization of the credit cycle. We launched a 1/2/3 account in March, since then we’ve captured 60,000 new accounts, and in SMEs we launched Advance in December of last year, we already have 7,500 accounts in this product. As I said, we are gaining market share. When we look at new production, in most cases we – our production rates are much, much higher than the stock that we have, so gaining market share. We think this will feed through the P&L in the coming quarters very clearly. Profits continue to normalize, 61% higher than in the first nine months of 2014. And this quarter it is important to know that we have the capital gains from the sale of our 50% stake in the bank in Angola. And finally, the real estate activity in Spain posted lower figures in the first nine months that in the same period of last year. Now, going into the major countries, Spain, the strategy in personal banking continues to focus on the 1/2/3 account. Remember the 1/2/3 is not a product; it’s a strategy looking for deeper relationships with our customers and longer relationships with our customers. We already have over 500,000 1/2/3 accounts at the end of September and we are already starting to see the benefits of this strategy because cross selling is improving. We are seeing a substantial increase in the use of debit cards, credit cards. Domicile payrolls are doing very well. So the strategy is starting to feel through the P&L and we think this will be the case in the coming quarters. In the balance sheet, positive as I will show you in a moment, positive new production figures, however, insufficient to compensate for the decrease for the amortization of existing balance sheet. Total ending that Santander has given in Spain in the first nine months of the year was €71 billion. In terms of deposits, positive 2% growth year-on-year, good performance in demand deposits and funds, at the expense of time deposits. In terms of results, profits were up 64% year-on-year, mostly because of improved costs and cost of credit. Gross income fell a little bit as I said, strong competition on the asset side, slightly decreasing in the stock volumes in the quarter. However, the performance of the results from financial transactions was more normal than in the previous quarter as José Antonio mentioned, that was abnormally low. If we look at the balance sheet, again new lending figures, new production growing very, very well. Loans to individuals up 34% year-on-year. Loans to SMEs up 22%, and large companies up 14%. On the liability side, demand deposits and funds growing 15% and 6% respectively, compensating the 20% drop that we see in time deposits. In NPLs, very good trends. The NPL ratio as you can see dropped almost 100 basis points in the last year to 6.6%. Cost of credit is up 0.7% and net entries were negative so far this year. So in short in Spain, the 1/2/3 strategy is progressing very well according to our estimates, and we are already starting to see the positive contribution of this strategy to our profits. Good performance in the P&L, with a very clear positive contribution from the normalization of the cost of credit that we think will continue in the next few quarters. Volumes are not expected to perform very well due to this affect that I just mentioned between the very positive new production figures and the amortization of the existing loans, and competition especially on the asset side continues to be strong. If we move to the UK, we continue to do very well both in individuals and in SMEs and companies. Lending rose 1% in the quarter, 5% year-on-year. Of particular importance is the growth, the 12% growth in SMEs and the middle market, basically in a country, in a market that is declining. So we are definitely gaining market share. Net new mortgages, new mortgages, gross new mortgages in the first nine months amounted to £20 billion. In deposits, high deposits 5% growth year-on-year, especially in current accounts; individuals, which were up 34% associated with the 1/2/3 accounts; and companies, up 27% associated to deeper commercial relationships with companies. In terms of results, profits were up 14% year-on-year. Net interest income increased 6% mostly due to higher volumes and improved cost of deposits. Net interest margin continued to evolve as expected and we talked about these the previous quarter. The change in the mix, in the mortgage portfolio with lower contribution from SBR explains most of the drop in net interest margin in the quarter. We think that in 2015, we will see a net interest margin on average similar to the one we saw in 2014, around 1.82%. Costs reflect the investments that we’re making in technology, digital transformation, in the refurbishment of existing branches, and in expanding the network for SMEs and companies. Loan loss provisions were much lower. The current economic environment is positive. We don’t see any pressures in terms of asset quality and in fact we are seeing some reversals like it was the case in the quarter. Just important to mention that we took £43 million provision in the quarter related to wealth and investment products. The strategy in the UK continues to be diversifying our business portfolio, our business mix, increased engagement and improved customer satisfaction. The pillars of this strategy are the same that we’ve had for the last few quarters. The 1/2/3 account continued to perform very well. We are gaining £1 billion of deposits, mostly demand deposits a month. We haven’t seen any impact so far from the increase in commissions for that account that we announced a few weeks ago. We continue to be the bank that attracts the most switchers in the country and this is helping us improve our quality of the relationships with clients, customer satisfaction. We are among the top three in the country. In terms of companies as I said, we’re growing 12% in a market that is declining, and this, we think with the expansion of our distribution network, will continue in the next quarters. To this success, the improvements that we are making in digital transformation, clearly a positive element. We are activating right now 1,600 new customers; new mobile banking users per month. This is 200 more than at the beginning of the year. One every four mortgages is retained online, and around 32% of sales are already conducted via digital channels. So in short, the unit continues to have very good business dynamics improving the quality of service and increasing profits. Brazil is – the economy in Brazil is going through some structural adjustments that are needed to build stronger foundations for the future; despite the negative impact of these measures we think that the country has its long-term potential impact. And we, in this environment, the strategy we defined, a couple of years ago, has proven to be the right one. The strategy basically is based on improving our position with low risk segments and products and improved customer engagement. Lending in the quarter was up 1%, excluding the impact of the currency depreciation. 12%-13% of the balance sheet in Brazil is denominated in U.S. dollars, and because of the appreciation of the dollar relative to the real you see higher increase, greater increase in loan volumes. But excluding this effect, it was 1%. Year-on-year credit, up 16%. Again excluding this currency impact, growth was 7%. And we also see double-digit growth in funds, in client funds. In terms of results, ordinary profits increased 37%. This is distorted by the fact that we bought back part of minority shareholders last year. When we look at profit before taxes, growth was 20%. That’s more representative of what we are doing in the country. Gross income grew – net interest income – gross income grew basically because net interest income grew fourth quarter in a row; a very good quarter also in fee income. Costs are growing well below the inflation rate, as the CEO explained, with inflation in the country at 9.5% our costs are growing well below inflation but even if we – even more so if we exclude the perimeter impacts from the incorporation of [indiscernible] and GetNet. So very, very positive cost management in the country. Provisions fell year-on-year although they increased in the quarter due to higher provisioning effort on companies. For comparison purposes, remember that this – all these figures do not include the extraordinary gains that José Antonio referred to at the beginning of his presentation. Looking at the balance sheet, you can see the balance strategy, how this reflects clearly the strategy of growing into lower-risk products and segments. Stronger growth in mortgages and large companies, again, this – the large companies is distorted by the U.S. dollar impact. Also improved trend in SMEs growing 7% year-on-year, the growth rate in SMEs were negative in previous quarters. So we are doing well there as well. Margins dropped in the quarter to 7.7%. This is due mostly to change in mix. When we look at the components of this spread, in most cases, prices are actually going up. Cost of credit was stable at 4.4%, a drop of 74 basis points in the last 12 months. In local criteria, our NPL ratio is performing very well compared to the private banks. We were able to keep NPL over 90 days flat in the quarter while the private banks actually increased. So in short, in an environment that is challenging, our strategy has proven to be the right one, it’s actually yielding very positive results. We will keep to that strategy in the future. Santander consumer finance, two key ideas here. One is we are integrating the recent transactions, the Nordic countries and PSA very well. These are performing in line if not slightly better than we had anticipated, and this coupled with a very good environment consumption in Europe and car sales in Europe are doing very well is helping the unit to do very, very well. And the agreements with PSA and the Nordic countries is helping us not only in terms of growth, but also in terms of improving the business mix. New lending rose 24%, excluding the change in parameter, growth was 9% based mostly on direct and credit - direct credit. And a card, up 21% but mostly new auto lending that was up 40%. By countries Spain up 27%, Nordics up 26%, Germany also up although slightly less than these figures, 4%. Looking at the P&L, profits in the first nine months amounted to €700 million, which is up 28% year-on-year. As I said, the incorporation of the different units that were part of PSA has performed – is performing according to plan. We will integrate Spain and – well, we integrated Spain and Switzerland in October. That integration is not reflected in these figures. You will see that in the year-end figures. Profits in all countries rose very well; performance in the Nordic countries, Spain, Germany, and those that had weaker performance in the past like Portugal and Italy are starting to do very well as well. Turning to the U.S., the economy in the U.S. is doing very well, growing between 2.5% and 3%, although the uncertainty about when interest rates will rise is still unresolved. The trends that we have seen in both the Bank and Santander Consumer in the previous quarters continue. In the bank loans, up 6% year-on-year with a main focus on companies. Also deposits up 8% year-on-year. In SCUSA, lending was up 14% due to retained – more retained balances and increased servicing and fulfilled portfolios. In terms of results, profits were up 6% due to higher gross income and moderate provisions. However, this performance did not come through to the bottom line because of the greater contribution from SCUSA, that where we have minorities and where taxes are higher than at the Bank. So a positive performance in terms of profit before taxes at 6% ended up being minus 9% in terms of attributable profit. Gross income rose 10%, mostly in SCUSA. The Bank is still suffering from low interest rates. Operating expenses increased 12%. We think we are close to the peak. We have been investing heavily to meet regulatory compliance expectations, and we think, as I said, that we are close to the peak and we should see lower costs in the coming quarters. The NPL ratio is at 2.2% with a coverage over 200%, SCUSA is at about 300%. And lastly, we continue to make good progress in making SCUSA the holding company, a truly operating company in the U.S. Finally, the corporate center, the third quarter loss was €394 million lower than in the second quarter due to higher gains on financial transactions mostly because of currency hedging strategies. In the first nine months, the loss amounted to €1.4 billion, year-on-year comparisons, we had lower revenues as a result of reduced results from financial transactions, financial management, stable costs, and higher provisions to bolster the balance sheet. As you remember, in the Investor Day, we announced that we would – our target was that the corporate center will represent 25% – around 25% of the Group by year-end. It’s now at 27%. It was 29% in June. So we – I think we will meet the target that we set in the Investor Day. And now let me turn it over back to José Antonio for his final comments. Thank you. José Antonio: Let me to sum up a little bit, yes, one, two minutes to leave you time for the questions you may have. Well, on the financial side, I would say we present to you a – what I think is a high quality set of results because they are recurring – 100% recurring. So good-quality results. The volumes are performing as we were expecting, both in the loans and in deposit gathering. On the liquidity and capital front, we feel comfortable with our targets. Our capital generation continues to be in line with our expectations. On the asset quality side, good trends there, all across the board, challenge – a very challenging environment in Brazil but we feel comfortable that we – due to the change in means, we’re going to be able to handle in a relatively good way. Profitability is progressing along with our targets. I don’t want to finish without going to the commercial side then. This is about customers and we established clear objectives for 2016 and we are pursuing these objectives, and let me to remember the objectives we gave to you back in the Investor Day. It’s about loyalty of customers being individual or being SMEs. It’s about the digital customers not for being digital, for improving the efficiency and providing better service. And the cost of risk, we are progressing in line with our targets. As I mentioned before, fee income growth is going to be one of the key objectives. We are going to have the cost income, as we have a target for 45%, we are 47%, but we pursued this target and the growth in dividend and EPS. Just to finish, to remember this slide, that these are our goals and I want to remark to you that we are measuring, following and incentivize things along those targets and along those goals. And our plan is to keep updating you, in some cases, quarterly, in some cases, every six months about how we are progressing in those targets. And now we remain at your disposal to answer the questions you may have. Thank you.

Thanks, José Antonio. Indeed we open now the Q&A session. I will appreciate if you limit the number of questions to two so everyone can participate. So please, Operator, proceed to pass the first question.

[Operator Instructions] The first question comes from the line of Raoul Leonard from Deutsche Bank Research. Please go ahead.

Good morning. I just wanted to ask two questions. One was, can you go into a little bit more detail on the changes in the valuation with us. It looks like they fell €4.6 billion quarter-on-quarter. I mean, I think there is obviously FX and the deferred tax liabilities expenses and FX. But if you could just break that down a bit more, so we can get a sense of where this might go in the future as different market rates move around. Secondly, this is more of a generic question on consumer finance. Are you seeing any ripple impact from the VW diesel issues. I don’t know whether that is a positive for you guys; could you distribute VW cars or Audis or Fiat. Can you just give us a sense on how you’re looking at that fuel business? Thank you. José Antonio: Okay, so the first question is about valuation adjustments. Well, let me explain our FX hedging. So as we’ve been stating to you for well, we have a policy that is to hedge the capital ratio at the Group level. That means that in a given geography, it doesn’t matter which is the currency, the capital ratio is in line with the Group one, we do not hedge anything, because all the impact of the FX comes at the same time from the risk-weighted assets and the capital in the same currency. If the capital ratio in a given geography is higher than the Group capital ratio, we hedge the cess. The opposite happens when there is a deficit in a country compared with the Group. So that means that the capital at the level of 10%, 11%, remain unhedged in the sense that if we hedge the ratio, not the absolute level of capital. So that means that in the quarter you have a impact of the FX in the capital in the different geographies. So 10%, 11% of the capital in Mexico, in Brazil, in Chile, in Poland, in every geography, in US, in UK and this is the main reason for the change in valuation adjustments. So in the previous quarters, you saw this valuation adjustments were positive, because the appreciation of the dollar and the pound and this quarter it’s paying negative due mainly to the depreciation of the Brazilian real, also the Mexican peso and the Chilean peso. We will provide you the detail on the figures later on but this is the rationale of this and you should take into account this when you make your in relation with this. Remember it does not affect the capital ratio, it affects the absolute amount of capital but at the same time it affect the absolute amount of risk-weighted assets in the same direction, [indiscernible] in the quarter. Capital, absolute amount of capital going down; tangible book value per share, I was explaining, going down due to the reduction in absolute amount in capital in euros. At the same time, the risk-weighted assets in the quarter in current euros went down, yes, so the ratio remained stable. So this is the reason and the detail of the figures we provide to you. Well, the diesel impact, so well, as you know, we have a quite a large consumer finance business, mainly car finance. In Europe, 60% of the business, around 65% of the business or 70% of the business in €85 billion around €80 billion €85 billion portfolio is car lending, is through that our exposure to a specific branch is much more limited than others because we act as a captive player for PSA. We have agreements with other branch, particularly the smaller ones but we do not have agreements with the big players that they act in their own. So, some of the scandals we have seen in the diesel has a limited – very limited impact, because we do not fund generally those plants that the car makers have their own finance arm as is the case in the scandal you are talking about. So it is fairly limited and we don’t expect any big deal from it. On top of that we do not have leases because the problem may come mainly in the residual values of those potential leases of the branch that may be affected. We don’t have leases so we don’t expect any material impact in our car businesses due to this fact.

Thanks for your question, Raoul. Operator, next question please.

The next question comes from Ignacio Ulargui Lopez from BBVA. Please go ahead, sir.

Hi, good morning, gentlemen, [indiscernible] the capital accumulation that we have seen over the past two quarters, 13 basis points that you have [indiscernible] slightly above the 10 basis points you have guided for on Investors Day on a quarterly basis. [Indiscernible] explain because of lower risk weighted asset [indiscernible] what you expect or because of a stronger profit? And also just to understand whether any of the [indiscernible] in the FX could be [indiscernible] any time soon. And finally, [indiscernible] in Spain, if you could elaborate a bit on the cost of risk outlook that you see for the domestic unit, whether we should [indiscernible] in terms of operations over there; 55, 60 basis points where you have been [indiscernible]? Thanks. José Antonio: Well, capital generation, as I mentioned in the presentation, you refer to which part. It is true that we have been generating organic way above our guidance of 10 basis points. I mentioned in the first two quarter 45 basis points, but well 10 basis points, let me to say is the safe play, yes, so we may be above this and we have been above this for three quarters in a row, but in some jurisdictions we were expecting to have higher growth. As I mentioned in Spain we were expecting higher volume growth in risk-weighted assets, and it has not materialized. But let’s say 10 basis points is in the safer side on organic capital generation, and in relation with risk-weighted assets we will plan to stick or we expect to stick with the guidance we gave you to grow in mid-single digits in risk-weighted assets going forward. Domestic Spain cost of credit, while it’s true that we have been telling you for a while that the cost of credit in Spain across the cycle, should be in the region of 60 to 70 basis points, now we are 71, if I remember well in the last quarter, but we expect normally – we expect this to overshoot. Naturally when you come to 200 basis points, you are trending down. Probably this is going to overshoot into the region, I don’t know exactly at this point but 40 basis points seems possible in the coming quarter. So we expect some overshoot or significant overshoot. This also depends on the recoveries we made and this is very much linked with the trends in the real estate in Spain that the real estate as you know is showing better trends and maybe the recoveries we done in the portfolio of real estate assets is better than the one we have had in the past quarters. So, we expect positive news on this regard in Spain in coming quarters and in coming years. [Indiscernible] reverse the impact of available for sale portfolio naturally, so available portfolio is something that you should keep in mind. You do nothing normally, available portfolio, capital gains into renewals because normally you get positive net interest income and you don’t do nothing then to reduce, but the impact in the last quarter was mainly due to Brazil, yes. As a matter of fact, the available-for-sale portfolio that has all the portfolio, at least around €85 billion, if I remember well. The mark to market is positive, which means it was less positive than it was in the previous quarter and this goes straight to the capital. It is possible to reverse, yes, I mean, as a matter of fact, if we keep the portfolio, the portfolio is a hedge portfolio and normally these tend to be offset by the – in favor of the other items in the commercial side. So the portfolio tends to hedge commercial positions on the other side, and it gives some volatility to the capital base, but naturally can reverse. And probably, as of today, has reversed since the close of the quarter, yes.

Thanks for your question Ignacio, let’s move on to the next one, please.

The next question comes from Stefan Nedialkov from Citi Group. Please go ahead, sir.

Hi guys good morning. It’s Stefan from Citi. I’ve got two questions. The first one is on Brazil. You did give us some guidance over the short term on the NPL ratio. You said 4.5% – sorry cost of risk 4.5% to 5%. But if I were to take a step back and look through 2017, if you were to look at the next couple of years as a cycle, where do you see the NPL ratio and the cost of risk peaking? Are you still looking at 5% for the cost of risk or something higher or maybe lower by 2017 so over the next couple of years? And the second question is actually a combination of a couple of I guess, quick – quicker smaller questions. The Metrovacesa consolidation, does that impact capital at all? Secondly, the tax rate in Brazil and Mexico came in quite a bit lower versus – at least to my expectations and also q-on-q and year-on-year. Anything interesting going on there that we should be taking into account? And the third small question is hedge benefits in the P&L, the FX hedging benefits for 3Q, what was that at the Group level? Thank you very much. José Antonio: The second question the tax rate in Brazil and Mexico and the hedge benefits. Okay, Metrovacesa. Okay. Brazil, let me to elaborate on the asset quality on Brazil. To understand our expectations in Brazil, you should start – how much we have changed the mix in the last two years. It is necessary to understand this. We reduced significantly the weight of the consumer portfolio, the unsecured part of the portfolio, and we increased significantly our exposure to the large corporates and to the mortgage market. So our portfolio is now much more secure than it was only two years or three years ago. Keep in mind that the renewal on the portfolio on average is slightly above one year. So [indiscernible] renew 100% of the portfolio in volume in one year. So that’s important to keep in mind. The cost of risk, we gave you a guidance to be between 4.5% and 5% and we expect to stick with those – with these guidelines. The NPL cycle, the NPL naturally, there is tensions there in the NPL even we show – we are now seeing that the duration of these two states is quite the opposite in the retail. In the retail, we are being good trends. We are seeing good trends. We saw some damage in medium-size corporates, medium to large size corporates. Well, the NPL may suffer one quarter or another, because in the medium-size corporates may go on quarter to half to classify, we have to classify some loans. But overall, we expect to stick with 4.5% to 5% cost of risk in the period you mentioned 2016 and 2017. So that’s how our expectation as of today. Well, you mentioned Metrovacesa, it costs – I don’t know – I don’t have the number. So its €5 billion in risk weighted an asset that means it’s around €500 million capital that this – 5 basis points or something like that – 7 basis points in capital. Tax rate. Let me to refer the tax rate, because well, when we go to the income statement probably we missed this point. Tax rate is going up. It’s going up. I wouldn’t say in every country, country-by-country, but overall it’s going up. You know it’s very well now in the UK. The tax rate in Mexico is going up. In Chile it’s going up. In Brazil going up 5%. So all across our tax rate is around 30% while in the previous year was more in mid 20s. We expect this to still to go a little bit up probably 1%, 31% maybe for next year. Yes. So because there is still something to come, base it on what we know today. But not as intense as it has been in the last two or three years, it has been more intense. JoséGarcía Cantera: In Brazil, and specifically in Brazil, the drop in the tax rate in the quarter is related to some adjustments to the different taxes that were changed in the country, but it would normalize again in the fourth quarter. So it’s just an adjustment. José Antonio: Hedge [indiscernible] in the quarter, FX [indiscernible]. JoséGarcía Cantera : Yes, the FX hedging a positive impact as I mentioned is in the corporate center. So the lower losses that we’ve had this quarter in the corporate center are partially due to the positive hedging results in the quarter. José Antonio: It’s more than €100 million. JoséGarcía Cantera: Well, the change in the quarter – yes, it’s actually €100 plus million, yes.

Okay, thanks Stefan. Let’s move on to the next question, please.

The next question comes from Alvaro Serrano from Morgan Stanley. Please go ahead, sir.

Thank you for taking my questions. Two questions. One on the NII outlook in Spain over the next couple of quarters, is this the level of deterioration we should expect as you roll out the 1/2/3 account in particular? Can you comment how you expect in the next few quarters the loan growth to play out? Obviously, loan demand is improving. You’ve given us some data, but the stock continues to control. When do you think the stock loans in Spain is going to start growing as we expected earlier in this year, but it doesn’t seem to come though. Then the second question is around the NII outlook in Brazil. You see in the quarter, you had a good development in local currency. I seem to remember you had the trade finance book in dollars in Brazil and I assume part of that is the reason for the good NII trends. What kind of NII growth is sustainable over next – looking into next year in Brazil? Thank you. José Antonio: Okay. Let’s start with Spain NII outlook. Well, the NII in Spain as we said on the liability side, we expect the cost of deposits to remain flat. We announced and we said that in Investor Day that we still that we – this is our best view in relation with this. When it comes to the asset side, there is still some depreciation trending down the mortgage book given the level of [indiscernible] one year now compared to one year ago, so still some trend down. Having said that, we are not as pessimistic as we were in the front book, and the front book we think that there is margin compression, there is competitive pressures on the asset side, but there are less so now than they were six month and a month ago, given the fact that we had already significant margin compression. So still trending down, but probably a lower spit or coming to an end relatively soon is my – at least it’s my expectation. In relation with the volumes, I’m not optimistic here in the overall volumes, because we’re going to have a significant drop in institutional lending. You look at the quarter-on-quarter where we’re having this say, significant drop in institutional lending I think in the 15% while in companies we are growing 5% or 6%. Yes. So this is certain that they expect to continue institutional lending as you know the policy of the Spanish Treasury is very much in favor of funding directly the institutions and these will reduce this book. So the overall book is going to be affected by this. I’m more positive in companies lending also in consumer lending. Not that much in mortgages, in mortgages we still expect some pressure, because amortization. It is true that the production is going up from book more than 30%. But not enough to offset amortizations that will happen and we gave you guidance in Investor Day that at some point next year we will balance this book. So those are the trends. Overall – and the worse is behind us in margin compression in my view on the NII from – in Spanish businesses. In Brazil, well, you mentioned NII in Brazil we have – I am referring also to the mix. As long as we keep changing the mix, this is going to affect. You mentioned the dollar book producing a – the dollar book tend to be, well tend to be – it is only very large corporates, yes. So it’s almost 100% very large corporates. The dollar book – I’m speaking – don’t take the figure as exactly figures, but it may have in the split of 200 basis points or around 200 basis points, while the average expressed in Brazil is north of 7%. So that means that the impact of the dollar book in the overall absolute figures is – has in the NII somehow limited compare in absolute terms. So it is true that [indiscernible] produce some uplift but this is not that significant, it is much more significant what happens in the consumer arena, particularly in our business car line and business in Brazil where we have a market share close to 20%. Now what happens in other products in the – with SMEs where we are production relatively well. Compared with the previous year, we were negative territory. So I will not translate these dollar effect into a significant witness in the NII going forward. So we remain relatively constructive and positive in potential developments in NII coming not as much from the volume growth that is not going to be significant. José mentioned that with X dollar effect we are growing in the region of single digit and we expect to keep at that base. Keep in mind that inflation in Brazil is 10% or around 10%. So that means that we are growing well below inflation. So I will not translate the impact of the dollar book. I will not extrapolate this as a significant effect in the NII.

Thanks, Alvaro. Next question please.

And next question comes from Mario Ropero from Fidentiis. Please go ahead, sir.

Hello, good morning, two questions. The first one is since the 1/2/3 strategy is so important in Spain could you please give us some more color on the delta that this strategy has cost in the quarter in terms of fee income and also in terms of net interest income? And then second question is please if you could give us the breakdown of ALCO book in Spain average duration, average yield? Thank you. José Antonio: Okay. As I mentioned, as José mentioned clearly 1/2/3 is and the strategy to take into account this strategy probably in the short run and we said in the Investor Day this year is going to be overall slightly negative in €30 million to €40 million in the P&L in Spain. But it should be in a strategy we are betting in more loyal customers in Spain and in gathering not more deposit in gathering more transactionality with the customers more customers engaged and with more than transactionality. We are progressing well on this. Very well on this, we are as José also mentioned regarding 1,000 payrolls a day on average and we expect as we said that overall taking into account NII fees and transactionality with those customers in 2016 the 1/2/3 to be breakeven level. So everything taking into account, naturally this has some negative NII and some positives in fee income and mainly in fee income that will – but at the end we will have a much better franchise with more capacity to generate profits going forward. And this is our bet to have more loyal customer in Spain with more transactionality with the Bank. The Bank being the first bank for those customers. Naturally this has balance between NII and fee income that – but overall, I said to you numbers are slightly negative this year breakeven next year. This is our expectation for the 1/2/3.

The ALCO portfolio in Spain, at the end of September was €28 billion to 2% average yield and four year average duration. Thanks Mario. Operator, next question, please.

The next question comes from Johan De Mulder from Bernstein. Please go ahead, sir.

Thank you. One specific question actually about the increase in client provisions. So we see there is a 5% increase over last quarter. So we are just wondering what exactly does that consist of? Thank you. José Antonio: I think you refer to the corporate center in – this is basically in the corporate center. We are anticipating provisions that we think that we should do it in the next quarter. So there is some kind of anticipation there and this is what why mainly in the corporate center, this figure goes up.

Thank you. Next question. Operator The next question comes from Darrell Queen from KBW. Please go ahead, sir.

Hi, it’s Darrel here from KBW. Just had a couple of questions. One on Brazil just on the asset quality, if you could just give us maybe a bit more color on the asset quality by segments and [indiscernible] if there is any differential performance in asset quality from the corporates U.S. dollar loan book. And then Spain, just a follow-up question just to be clear on the – your comments on the competition, competitive environment in Spain and your [indiscernible] being less intense than before and close to the bottom. Is that [indiscernible] competition in Spain? José Antonio: Okay. Brazil some color by segment you ask, as I said before the [indiscernible] we are seeing as of today and I mentioned before, we are now seeing deterioration on the retail book those are the factors as of today. We are seeing some deterioration in the book in mid-size large corporates and we are now seeing deterioration in the very large corporates that belong to the global corporate banking model. Naturally we acknowledge that the economic situation is difficult, the country is in recession. GDP is going down significantly and that reason and for that reason we recommend us to be proven. And we are being proven in our provisioning policy in relation with those situations that within that they can deteriorate in the future. But as a matter of fact we gave you the comparison with other local banks in local terms and you see that quarter-on-quarter our over 90 days NPLs remain flat in the quarter. We acknowledge that there is some deterioration and we may more impacts in the future. In Spain, referring to the competitive environment, already mentioned well we saw a significant drop in asset spreads particularly in terms you’ve seen because it is fairly transparent in the mortgage market. So probably one year ago we were close to 200 basis points or 180, now we are more talking about 120, 130 basis points where the market is in mortgages. So a significant drop in spreads. The same has happened in SMEs and what I was – I wanted to relate to you is that we continue to see significant competition all across the board but we are now seeing the same kind of drop in the spread that we have seen probably six, nine months ago. Well, if this came to an end or not remains to be seen but I am starting to be more optimistic in the marginal, not the fact that we have now a 100 basis points or more or less dropping these spreads in SMEs. And 60, 70, 80 mortgages that are the two main business and this is the competitive environment as of today. As this – in this environment is difficult to generate revenues and for the reason I think the competition is going to slow a little bit yes because if not we enter – we will enter into a more negative territory and that’s my view but having said that it is my view and we will see the competitive dynamics that anyway I expect the market to be remain fairly competitive.

Thanks, Darrel, for your question, next one please.

The next question comes from Robert Nobel from RBC. Please go ahead, Sir.

Hello, good morning. Sorry to oppress you on Brazil again, you must be getting bored. You said the cost of risk could be in the 4% to 4.5% to 5% region and NII you are positive. I just wanted to square those two things off. Do you expect further pressure in NIM adjusted for provisions? And on a worse case in your internal stress test where do you see Brazilian cost of risk going? And then on the UK, I know that the NIM is in line with your full year guidance and that kind of means it will come down in Q4? Do you expect NIM to continue to going down in the UK in 2016? Thank you. José Antonio: [Indiscernible]. So Brazil – I referred already to this. Brazil, different book spreads are going up, so probably – we need to mention. So, the same products today and one year ago the spreads went up, yes, this year it went up and the spread went up on a like-for-like basis. What has happened to us, the change in this is so significant and remember that we have – the gap between the spreads in different segment is huge in Brazil. So, when you go to the consumer side probably the spread is in the region of mid double digits 16%, 17% or 15% when it comes to large corporate it is below 2%. So small changes, it means translating into material changes in the overall spread. So for that reason I am relatively positive constructive I said in the NII, because I do expect the spreads to continue to go up mainly in corporates and large corporates but also in some consumer products. At the same time the costs of risk from the 4.3%, 4.4% we expect to go up in the region 4.5% to 5% and this is what I elaborate about this before. NII in UK, two developments here, the mortgage market has become more competitive, we saw some – in the margin – there is more competitive pressure there. On the other side, we are growing faster in SMEs, so we are growing at 11%, 12% if I remember well in SMEs. So the combination of both make us to be not positive but probably we have some pressure there but not a significant pressure. The SBR continues to be the main drag on NII. So, as you know this is always difficult to forecast the volumes that we are going to keep in NII but overall in mortgages some margin pressure, while in companies we expect to have positive developments both in volumes and in fee income generation and NII. So overall we remain overall constructive on developments in the UK. JoséGarcía Cantera: Obviously if interest rates – when interest rates go up obviously that will help, we are positively geared towards increases in interest rates in the UK.

Thanks Robert. Next question please.

The next question comes from Carlos Peixoto from BPI. Please go ahead.

Hello, good morning. Just a couple of quick questions. The first one will – what is related with the NPL and new entries, we witnessed an increase at the consolidated level. My assumption here would be that this is mainly related with Brazil but I would ask if you could give us some color on that. The second one would be relative with Core Tier 1 targets for year end, the 10% targets. Do you stick to it or do you see the risk of FX or other items hampering organic generation throughout the first quarter as it was the case in the – in the third one? Thank you. José Antonio: So, I don’t have the figure from the – do you have it? JoséGarcía Cantera: Yes, it was up – let me go to the second one –, José Antonio: Well, I’ll go with the second question while José looks for the numbers and your answers in Brazil. The Core Equity Tier 1 at the yearend I would target this to be a 10%, and we think that we can get there. Yes, so naturally we already elaborate about the volatility coming from available for sale portfolio that had some volatility. But we have what is in our control we think that we are going to stick with the target we have for this year and also I mentioned the target we have, the medium-term target that is to go to 11% but we feel comfortable with the target for the year end knowing that there is some volatility out of our control. And the new entries in Brazil you have… JoséGarcía Cantera: No, we don’t have that figure, we’ll get back to you. Most of the impact was due to companies or 100% of the increase was due to the deterioration in the corporate and companies sector. José Antonio: Now we don’t have…

We will come back to you with these figures in new entries in Brazil because we don’t have in local currency and in euros probably this figure is distorted by the FX. José García Cantera: Yes, thanks Carlos. Next question please

The next question comes from Francisco Raquel from N+1. Please go ahead, sir.

Two questions. First and I wanted to ask about the contribution of the bond portfolios to the NII in both Spain and Brazil in this first quarter. And how much was it in the second quarter? And also on the UK we saw some [indiscernible] of loan losses and you mention micro housing sector, so how much is left here to recover and what should be the cost of risk for the coming quarters? JoséGarcía Cantera: In terms of the ALCO portfolios I already gave you the figures. In Spain it’s – we have €28 billion with an average yield of 2% and an average duration of 4% and in – four years and in Brazil we have BRL30 billion plus at an average yield of around 10%, 10.5%. José Antonio: Cost of risk in UK. So, this quarter came normally low because we had some release in provisions, but going forward we do not see a material change not from this quarter from the previous quarter. So, we see a very good environment for cost of risk in the UK and we are not seeing any kind of sign that we should or we should expect any kind of change in this dynamic. Not in this quarter. JoséGarcía Cantera: Sorry, there was one off – you ask about reversals in the quarter, there was a one off reversal in the quarter basically as a result of the improvement in the ratings and quality of our customers in the mortgage portfolio.

Next question please.

The next question comes from Britta Schmidt from Autonomous Research. Please go ahead, madam.

I’ve got two questions please. The first one would be on Poland. What do you think is the odds or what are your expectations with regards to a potential banking tax after the elections and also a solution to the [indiscernible] lending issues? And can you perhaps tell us what capital target Visa-W has been given and whether you anticipate any measures to offset any negative impacts on the P&L going forward? And the second one would just be a clarification on some of the Spanish impact with regard to the DTA solution that has been found. Can you give us any guidance as to what this was cost to you the 1.5% agreed with the European Commission? And secondly, should we expect any impairments on the side of equity investment or potential subordinated debt conversion? José Antonio: Okay. The first question in relation with Poland. Well, you know that in Poland the market has been talking for a while about the Swiss franc portfolio, our Swiss franc portfolio is now is in the region of €3.6 billion or €3.7 billion. While we need more clarification on this you made your own numbers we don’t have any material information to add what has been discussed in the parliament and we are expecting the new government to put some proposal on this. We are not particularly pessimistic on these and we think that we will find a balanced solution and we are working along with other banks in the country to find out a balanced solution for this problem that so far has now created [indiscernible] relation in portfolio, the non-performing loans in the portfolio is very low, and the affordability ration of the portfolio remains at the very good levels. So, there’s now a problem, a financial problem in the sense that the borrowers cannot afford to repay the debt. This – an old proportion that’s coming and going in relation with potential higher taxes we already elaborate before about what we expect on taxes at the Group level. DTH in Spain, the government reached an agreement – and I don’t know it will publish – is public but we expect this has to cost in the region of €60 million or €50 million, €60 million per year. Initially, this [indiscernible] depends on the amounts of DTH we have under this so called warrantee government work.

I’m afraid we just have time for one last question, please.

The last question comes from Rohith Chandra Rajan from Barclays. Please go ahead sir.

Hi, good morning. Thank you, just two quick ones from me, please one on currency and the other one is coming back to UK revenues. So, just on currencies, you talked before about selectively hedging budgeted earnings one year forward. Just wondering what the appropriate exchange rate we should think about for next year would be. Is it something around like current levels? And then secondly, on UK revenues. On NIM if I understood your previous comments correctly current trends should continue until we get a change in the UK interest rate environment, which could prove to be an inflation point in margin I just wanted to check I correctly understood that. And also fees are down 7% quarter-on-quarter the lowest for instance the beginning of 2014, just want to make sure if anything in particular we should bear in mind there? Thank you. José Antonio: Okay. The first question on hedging policy also it is very well known we hedge the capital ratio. This is our policy, we always hedge the capital ratio and expect the results of the next 12 months this practical approach. Sometimes we do hedge, sometimes we don’t and José before refers to the impact in this quarter of the hedge in the P&L this hedge was mainly Brazil and the impact was mainly coming from the hedge we had and we still have on the expected results on Brazil. The impact in capital levels from the hedge the cost of the hedge is around 10 basis points per year –yes. Seven, they tell me seven basis points per year is the cost of the hedge, just the capital hedge – the capital ratio hedge we have in place, this is the cost per year. Referring to the net interest margin in UK, I already elaborate on this. I tell you basically we see some margin compression on mortgages, we are changing the mix we made offset partially this – mortgages is mainly due to the main effect comes from SBR this the major effect. But the front book is some margin – some competitive pressure on the side and on the SMEs side we see quite stable environment in terms of NIM generation, as we grow 12% in one, and 4% to 5% we are growing the mortgage book, probably some margin compress is expectable there, and we can expect that – that we expect to offset with partially or totally with higher income – high fee income.