It's 10 o'clock Madrid time, I think we are ready to kick off. Good morning, everyone. This is Sergio Gamez, Santander Global Head of Investor Relations. Thanks for attending the Santander's 2015 earnings conference call. Our Executive Chairman will kick off the results presentation by reviewing our accomplishments in 2015. After that, our CEO will provide with more details on the Group and subsidiaries earnings. And finally our Executive Chairman will conclude by providing the strategic views and Group priorities for the years ahead. We'll have time for a Q&A after the presentation. Our total time should be around an hour and 15 minutes. With no further delays, Ana, the floor is yours.

Good morning, everybody, and thank you very much again for joining us. As Sergio just said, I will first review what we did in 2015 in terms of both the financial metrics and the customer-focused business transformation process. Following the CEO's presentation, I will provide a strategic overview of our business and our priorities for the years ahead, and specifically our vision for 2016. In 2015 Santander improved all its financial metrics and delivered on plan on what we committed a year ago when we did our capital raise, and then again in September. In terms of the income statement, net interest income and fee income grew by 8%. Underlying profit was up by close to 13%. Thanks to these results we were able to generate 50 basis points of core capital organically. We are above the 10% we set as a target for 2015 yearend. This would be 10.15% excluding the PPI and above 10% including it, and on track to exceed 11% by 2018 as we committed at the Investor Day. And this capital, very important, is generated thanks to the high and growing profitability of our business at around 11%, which enables us to grow the business in a profitable way, generate organic capital and grow dividends. We have increased net tangible asset value per share by 11 basis points to 3% -- sorry, plus 3%. And last but not least, we have increased cash DPS by 79% -- sorry, I meant $0.11 in terms of our net tangible asset value per share. The 2015 income statement, which you can see on the screen, shows growth in quality earnings again driven by the performance of our commercial activity with customers and a positive trend in the credit quality of our balance sheet. Gross income up by more…

So I would like now to finish, as I mentioned, focusing on the strategic priorities for the Group, not just for the next three years, but also our vision, how we see 2016. And I would like to start by saying that as I showed before our teams in all the countries share our vision on how we want to do things at Santander going forward. I mentioned that in the latest survey more than 75% of the Group employees share this vision. And having a clear purpose is important. Our purpose is to help people and businesses prosper. We know what we want to be, and that is the best retail and commercial bank that earns the lasting loyalty of our people, our customers, our shareholders and our communities. And I would like to stress that for us the best bank is not necessarily the biggest, but rather a combination of many factors; profitability, doing things in the right way. And I would like to stress that trust is the key to building long-term relationships with our customers, but also with our people and our communities and that what we want to do is important, but how we are doing it matters a lot too. Yes. And in terms of how we want to do things, we've mentioned before we want to do things in a way that is simple, personal and fair. And I'd like just to remind everyone that -- what we mean by simple. Simple is about offering value-added, easy-to-understand services to our customers whenever and however they decide to use them. And a simple bank strives to upgrade its processes every day in order to make them simpler and clearer for its customers and employees. What we mean by personal banking is that we want…

Thanks, José Antonio. Indeed, we have time now for Q&A. Before kicking off, I will appreciate if you identify with your name and your house name, as well as leaving the number of -- limiting the number of questions, that you ask two questions per caller. So open it up, please, and we'll take the first question now.

Gentlemen, the Q&A session starts now. [Operator Instructions] First question comes from Andrea Unzueta from Credit Suisse. Please go ahead, sir.

Hi. Good morning. I just have two questions. The first one is on the UK and specifically on fees. There is a 12% quarterly decline. I was wondering what explains that. And the second question is on capital, if you could explain the close to 1 billion increased that you have on your regulatory capital numerator. Thank you.

Yes. So can you hear me? Hello. Yes. So on the UK that we have, the fees are falling partly because of the reduction in interchange fees. José Antonio: Is the only explanation.

That’s the explanation, yes. On the capital… José Antonio: Yes. Yes, the quarterly evolution.

Yes. In terms of capital, the quarterly evolution -- José Antonio: Yes. Well, as I said, normally we have on capital, on average, we have a generation, as I show in the presentation. Recurrent generation in the year was 50 basis points and extraordinary items took off 10 basis points. Specifically in the quarter, this has to do with the evolution of the exchange rates that in some cases, particularly in Brazil, in some cases translate into a negative charge and some other occasions into a positive charge. And in the quarter also the evolution of the available for sale in the previous quarters was negative was not negative in the quarter, was basically flat. And this was the reason of the capital generation in the quarter. It was normalization I would say. In the previous quarters we had pressure from available for sale mark-to-market and the generation of the DTAs in different geographies, while in the quarter was. this was not negative. This is the reason to growth, in the growth of the quarter.

Yes. Next question, please.

Next question comes from Ignacio Ulargui from BBVA. Please go ahead, sir.

Hi. Good morning. This is Ignacio Ulargui from BBVA. Relating to the capital generation of the quarter, you have done 25 basis points increase in the quarter. What would we expect for the coming quarters? Will you stick to the 10 basis points quarterly generation for ’16? And the second question is linked to Brazil. Did you have, have you seen any deterioration in the KPIs, in the key performance indicators of Brazil that could lead to a change in the cost of risk that you expect for 2016 or you stick to the messages of the Investors Day? Thanks.

Yes. On capital, I think it’s important to look at the yearly evolution. There’s obviously plus and minus in some of the quarterly numbers. I want to stress that we do not need and we do not, we’re not going to raise capital and we're not planning to sell assets. And just three key very important points again on capital, the first is that we’re above the regulatory minimums. The 280 basis points, to give you a sense, is 16 billion excess. Just to put it into context, that’s about a third of our market cap today. And this is a comfortable buffer today. Second, again, this generation of capital is thanks to a model that, as you’ve seen, we’re growing the top line. It’s thanks to a diversification which allows us to deliver through the cycle even though some countries like Brazil might go through difficult times. We had Spain in the last few years. And again, during the year we included in this capital generation the PSA growth and of course Portugal. So again, profitability, top-line growth. We anticipate lower cost of credit, as I said, for 2016. All of this is allowing us to guide in terms of this 10 basis points per quarter. It might not be always even, so 40 to 50, I would say basis points per year to fund also our lending growth and as we guided again, growing our dividend next year. And very importantly, by 2018 the 11% plus number gives us, again, comfortable buffers against what we know are the regulatory requirements. And the other question on. Yes. We do reaffirm the guidance we gave for Brazil. We did say that cost of risk would go up next year slightly. Our aim is to be better than our peers. In terms of the comparable numbers that we have in terms of NPLs, local criteria, the 3.2% compares to 4.5% with our peers. But that 3.2% is better than the private banks also. So we have de-risked the balance sheet. And there will be some deterioration next year. Our commitment is to be at or better than our peers. Very importantly, we need to look at Brazil as a whole, so margins and spreads tend to go up. Our income is sufficient to, so the increase in our income compensates for the increase in NPLs. And I think it’s important to look at the bottom line. Brazil has delivered a PBT in constant -- as José Antonio mentioned, of plus 20%. And we are saying, as guidance, that next year we will -- our aim is to grow -- our target is to grow our net profits in Brazil in local currency.

Thank you. Next question.

Next question comes from Carlos Peixoto from BPI, please go ahead sir.

Hello. Good morning. First, I would like to pose a question on Spain, namely on the potential impact from the recent -- on the draft the Bank of Spain has published for the Circular 4, which revises provisioning standards for Spain. How do you see that impacting Santander, in whether that is already incorporated in the guidance of 60 basis points that you provided for Spain for next year. Secondly, and still on Brazil, I would also like to ask if you believe that the improvement in income that you are mentioning there that should offset the increase in provisions, on whether it would also be -- or whether you're also incorporating an increase in tax rate after the changes in the CXDF CSLR tax in Brazil or whether that could end up distorting your comparison.

Yes. I will answer on Brazil and maybe you can answer on the circular. I think there's no effect, but maybe you want to say that after. On Brazil, yes, we are planning next year. And this is the reason why we're guiding towards more or less stable cost income and growing, but not really as much as after that. Because it's not just Brazil, it's the UK is going to have higher taxes and it's a couple of other places. So we are -- yes, we are taking into consideration everything we know today. If they continue, other countries, to do other things, that's obviously not included. But all the information that's public today on higher taxes in the UK is going to have a negative effect. I think we said the number even. We know the number. It's about 100 million. At the Group level, the total increase in taxes is about 300 million. There will also be increases in regulatory project investments, hundreds of millions, '16 over '15. And what we are saying is we're going to absorb all those increases not just in Brazil, at the Group level, and still guide towards growing our dividend per share in '16. On Brazil, I'd also like to say that there are opportunities for us to grow our business in non-lending activities, for example, on the liability side of the balance sheet. Again, this is very much the customer loyalty strategies, improving satisfaction and doing better on the transactional business in Brazil, where we start from a very strong base. And so, again, we are aiming for a new model. This new model is based on loyalty, delivering for customers. This is what allows us to generate, even in difficult situations, better-than-peer performance. On the Bank of Spain, can you --? José Antonio: Well, on the Bank of Spain, as you know, we have been for years making the provisions based on calendars. That are very well known for you. What the Bank of Spain has announced is, going after June, if I am right, incur losses. The calendars and incurred losses should be more or less aligned, so we do not expect any material impact coming from this change in the Bank of Spain. So we are not talking -- for the purpose of the clarity, we are not talking about IFRS 9. That is going to be -- is going to come in January 2018. So the change from the current Circular 4 to the new system at the Bank of Spain, no materiality at all. The IFRS is still too early to say what is going to be the impact.

Thanks, José Antonio. Operator, go to the next question please.

Next question comes from Mario Ropero from Identic, please go ahead sir.

Hello, good morning. A couple of questions. The first one, in Spain, excluding specific cases, could you please tell us what's the underlying cost of credit in the fourth quarter? And then in Poland, I would like to know what is the impact of the new tax on assets for Santander, and whether you are expecting to implement measures to offset this? Thank you.

Underlying cost of credit, at least what we published, I understand, right? That is the cost of credit for the Group. We are 1.25 for the year -- oh, Spain. Yes. 0.4. Yes, 0.4 in the quarter. But that's including everything that we know now, right? So. José Antonio: The 0.4 probably reflects what we're going to have going forward, yes. So I mentioned in the presentation that 62 basis points for the year, but probably that is close to the expected through the cycle. But probably for 2016 we're going to see some overshooting, and 0.4 probably reflects pretty well where we may be in 2016, based on our current information, yes.

Poland. José Antonio: In Poland, the new tax was already introduced, as you know. For those who are familiar with this, they introduced a tax on assets of 0.44%, excluding some assets, particularly the sovereign debt. So that means a significant, as you may imagine, it's a significant charge. What we -- what the system is doing is try to do a pass through of this to the pricing both from loans and deposits. It's true that in the very first year we're going to be able to pass probably one third of this tax to the impact is going to be, say, two thirds of the tax in the P&L. And probably in two years, two years and a half, we will be in a position to offset 100% of this tax to the new pricing of the assets and liabilities.

Thank you, José Antonio. Next question please.

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

Hi, good morning. Alvaro Serrano from Morgan Stanley. I've got a question on Spain and then a follow-up on Brazil. In Spain, the NII is down 7% quarter on quarter. Could you update us on the effects of the 1, 2, 3 accounts because I remember from the Investor Day you mentioned that the trough of NII would be in Q1 this year? Are you still expecting that? And if you can give us our NII for the full year. And also I've seen that the fees didn't move that much. I guess that's a bit unfair because there's also obviously market fee there. But again, any color and update what the impact of fees from the 1, 2, 3 account there would be as well. And on Brazil, I've listened very carefully to your answers, but I just wanted to understand, because the 90 days clearly is contained, but on your corporate definition of NPLs, the NPL deteriorated and the coverage is down 12 basis points. What exactly can you give us a bit of color of the dynamics there [Inaudible] and why you're still quite confident? I think the guidance was flat provisions. Just a bit more color more than quantitative numbers of what's going on in Brazil. Thank you.

Yes. On the 1, 2, 3 account, we actually are better than plan in terms of our numbers. So the plan we had made in terms of the impact this year is actually better than we expected. And so it's performing very well. What you're seeing in terms of net interest margin, if you go back and look at the past three quarters in Spain, you see relative stability, and on the deposit side, actually improving, and on the net interest margin, i.e. the trends are there. And the reason for the deterioration, as you can see, is on the asset side, not on the liability side. So there is really not that is not the explanation, it's more the dynamics of the asset side. There's a lot of competition on the corporate side as the government institutions are reducing. And so and also of course the lower LIBOR. So it's more the asset than the liability side that is the explanation for the margin. And it's if you go back and look at the quarterly evolution, you will see that this is there is no change since the launch of the 1, 2, 3. On the fee side, we are guiding towards higher fee growth next year in Spain. There's pressure, regulatory pressure, in almost every country on the fee side. But actually the trend is positive. If you look at the fees in Spain, it's zero growth for the year, but its plus 0.5 for the quarter. So we're already starting to see a positive impact in terms of our strategy. In terms of Brazil, maybe you want to give a bit more detail on the NPLs. José Antonio: Yes. Well, probably in order to understand the our guidance in provision is really to elaborate in 2015. 2015, like what we've had in the provisions, we have had the level of provisions we're expecting, but the composition was significantly better than the one we were expecting. So we took significant charges on the corporate book. And the retail behaved much better than we were expecting. And you see this in the NPLs. What we are seeing well, when it comes to the charge in corporates, a significant portion of them were related with [Lavallato] and all these items. So we do not expect this to repeat next year naturally. On the contrary, as you rightly pointed, the being the environment quite challenging, we do expect the retail to start demand more provisions, so we took this year BRL1.5 billion more provisions in the corporate book than we were expecting and BRL1.5 billion less in the retail, I'm talking in reais. Probably next year we're going to have more provisions in retail, but the corporate book we are not expecting they're being as demanding in provision as it was in 2015. And for that reason, we are giving you our best view or our best estimate based on the current numbers.

Thank you. Next question please.

Next question comes from Johan De Mulder from Bernstein. Please go ahead.

Good morning. Johan De Mulder from Bernstein. Two questions. One is a follow-up on the UK, the other one is on operational risk. So in terms of fee income in the UK, you mentioned that the drop was mainly due to interchange fees becoming lower. But at the same time, if you see UK fees have dropped 20%, at the same time, the number of loyal customers has come up 10% over the year, also you've added another million of 1, 2, 3 accounts. I was just wondering, if you take the interchange fees out, how can you explain how the fees have grown basically because at the same time, you are showing good growth in loyal customers at 1, 2, 3 accounts, and whether that reflected the fees? The second one is on operational risk impact. Santander is one of the biggest banks around, so you also the new standards approach is actually more on total revenues and staggered actually in terms of more capital requirements as revenues are bigger. So what would be the operational risk impact for Santander? Thank you.

In terms of the UK, we've guided for 2016, 5% to 10% fee income growth. I didn't quite understand the question, but we grew 1 million loyal customers in 2015. We've been growing at a very high rate, and we are now launching as we've announced a new investment service, which again is one -- should be one of the drivers in the fee income growth going forward. So, basically, we are 4.5 million, roughly, 4.4 million 1/2/3 customers. This is a very good base to grow fee income going forward as loyalty drives deeper relationships, and we can grow that ex the negatives we've had this year on interchange fees. Operational risk, you want to say something about that? José Antonio: Yes. Operational risk, you mentioned. Well, it's true that we are operating under the standard methodology on operational risk that basically the operational risk is a percentage of the revenues, and this is penalizing us in some countries where the revenues are extremely high just because the cost of risk is very high. This is particularly true, as you know, in Brazil, also in SCUSA in the States, and somehow in Mexico. But while this is an angle that when I look forward, probably this is an opportunity for us to reduce the capital consumption given the fact that we are running retail operations, we can go from standard method that we use right now, to the standard alternative, provided that more than 90% of the revenues in those jurisdictions come from retail. If that were the case, and this requires the approval of the regulator, we will be in a position to reduce somehow the operational -- the consumption capital due to operational risk. So I do see this more as an opportunity because we are penalized by this standard approach given the high revenues in those jurisdictions.

Thanks, José Antonio. I'm afraid we are running out of time, so we only have time for one more question. So, please go ahead, operator.

Last question comes from Daragh Quinn from KBW. Please go ahead, sir.

Hi. It's Daragh from KBW. I have a quick question on Spanish revenues, the decline in net interest income in the quarter. You highlighted the pressure on the asset side. I wonder if you could just give us a rough indication of how much is -- of that decline is from lower Euribor rates and how much is from the competitive environment, and what's your outlook for competition on spreads, particularly corporate and SMEs in 2016. And then just one question, on Argentina and the recent devaluation, just what kind of impact did that have on book value?

On Spain and lending spreads, our strategy, I mentioned, in terms again of the guidance for 2016, our loyalty strategy for SMEs is giving very good results in the first few months. We've acquired 50,000 SME accounts. This is important in terms of our lending growth, so we can do it in a safe way, understanding better our customers. Given the very strong penetration in terms of our branch network and relationship mangers, we believe this could be one of the drivers for next year. We are growing our lending to SMEs on a float basis at 18% and already the stock is growing. So, a plus 1% growth in the stock of SME and small companies lending, even though the overall market and lending is falling. So it's difficult to say, but I think we should expect things to continue to be very competitive. So we're going to focus more on where we are more active. Again, loyalty is the driver not just to increase overall income but also to allow us to defend our spreads. And we think Spain is in a positive cycle, if you look at the numbers on GDP growth. The growth we are seeing in the Spanish economy, I know nobody has asked much about the macro, I mentioned, we both mentioned this in our presentations, but I want to stress that Santander is in markets that are relatively less affected by what's happening in the world. We're a big gainer in terms of the decline in oil prices, a big gainer in terms of interest rates. I mean, average mortgage payments in Spain have fallen by €275 per month over the last four to five years, so, consumption is growing. Again our lending to individuals in Spain is growing at above -- around 27% between mortgages and consumer lending. So this is what we're going to work on for next year. Having said this, 2016, and José Antonio mentioned this, is still a year where in Spain the two main drivers will probably continue to be cost and reduced cost of credit, as is normal in an environment like this. But you should see positive trends in general in all our business in Spain. Argentina, well, we're very happy with what's happening in Argentina. The Bank of Argentina, the Central Bank, just signed that banks can pay dividends again. So I think that's a very positive and welcome news. José Antonio: Maybe the question was more related with the impact of the depreciation of the Argentinean peso in our capital position. Well, as we have the capital in Argentinean peso and the risk-weighted assets in Argentinean pesos, when we translate into the Group is not material at all, maybe 1 basis point. Well, it's not material at all, yes.