Ladies and gentlemen, the Q&A session starts now. [Operator Instructions] Thank you. The first question comes from Francisco Riquel from Alantra Equities. Please go ahead.

Two for me. First, on the top line. The interest rate, the scenario has changed in the last few months. If you can please update on the outlook for NII in developed markets, particularly Spain and the U.S. And second, on costs. If you could please update on the EUR1 billion of cost-cutting plan in the European operations that you have reiterated today. I understand that half of the targets comes from Spain, where you have already reached an agreement with the unions, so just to check whether you are on track or not. And also if you can please give more color on the other half and in what countries. What actions shall we expect for you to deliver on these targets? We have seen some progress in the UK. And also what are the pending restructuring costs? Thank you. José Antonio Álvarez: Okay. Interest rate, the scenario, I mentioned in the presentation the lower for longer. Naturally, the shape of the yield curve and the yield curve as a whole has decreased pretty significantly in the quarter. And this is affecting in a significant way our business in Europe. The sensitivity to low rates for 100 basis points is north of EUR1 billion. So this gives you an idea of the impact. So for that reason, I said in the presentation that the outlook for revenues was difficult in mature markets and depends very much on the activity – on the levels of activity we are able to develop in the coming years.On the NIM, on the net interest margin, I’m more optimistic. And if you saw the last couple of quarters, and particularly in this quarter, we increased our net interest margin due to the reduction we were able to get in deposit costs. And we still…

Thank you. The next question comes from Alvaro Serrano from Morgan Stanley. Please go ahead.

Good morning. Thanks for taking my questions. It’s related to – on the NIM outlook, just a follow-up there. You mentioned you’re more optimistic on asset spreads. I’m thinking Spain and the UK at the moment. What makes you more optimistic on those asset spreads, any particular product? Because it does look pretty challenged, the market, particularly in Spain. And in your deposits, you’ve got the 1|2|3 account in both countries. I think you’ve launched a 0|1|2|3 account which lowers the remuneration. Maybe you can give us a sense of defining how much that benefit could be of the 0|1|2|3?And the second, on the U.S., you’ve now had year-to-date EUR400-and-something million versus consensus. I think consensus is looking for EUR600 million for the full year. So you did it in the first half, EUR465 million, and consensus was EUR630 million or so. Is there anything in the second half? You mentioned seasonality already. But provisions looked relatively contained. Is there anything apart from seasonality in terms of the U.S. slowdown, anything you can flag that should produce a slowdown in Q2? Or is consensus just too low? José Antonio Álvarez: Okay. So I’m going with the same questions. NII, why I’m not so pessimistic about asset spreads? As I said, the revenue – the macro environment is difficult. Well, I do think that – particularly in Spain, not much in the UK. In UK, the asset is spread – the margin compression comes more from the SVR book. So it’s the back book who is reducing the size of this book. And the front book, the margin compression, we came from 130 basis points one year ago to 90 basis points now. But it’s fairly stable in the last couple of quarters, so I’m not seeing in the front book…

The next question comes from Sofie Peterzens from JPMorgan. Please go ahead.

Yes, hi. It's Sofie from JPMorgan. I'm going to ask on capital, your capital progression was good this quarter. Could you just remind us what kind of capital headwinds and tailwinds you see in coming quarters that we should take into consideration? Are there any more regulatory headwinds that you expect to take and how we should view capital in coming quarters?And my second question would be on Santander Global Platform. Could you just give a little bit guidance how we should think about the performance and the outlook in this division over the next two, three years? And my last question is on the IRPH mortgages. Could you just give your view of what you expect from the September ruling? Thank you. José Antonio Álvarez: Okay. So let me to elaborate in the Santander Global Platform and IRPH and I pass to José the capital headwinds to go into what we have in front of us going forward. Overall, I gave you the guidance, the organic capital generation. And José will elaborate about the headwinds.Santander Global Platform, as I said to you, we have several business there. The most important ones are Openbank. We've been providing the financials of this bank and we keep updating you on this. So this is a – we plan to expand Openbank as an activity to several markets in Europe and several markets in Latin America in the coming years. It's a full banking proposition, and we provide good results.The other activities I mentioned there that probably you're less aware of, I do expect Superdigital already has financials. They are making some money already in Brazil. And we expect this activity to start to make money from the very beginning or achieve the breakeven in several counties. This is not going to be…

Thank you. The next question comes from Mario Ropero from Fidentiis. Please go ahead.

Hi, good morning. Thank you for taking my question. The first one is a follow-up on what you just said on the 20 to 30 basis regulatory headwinds still pending in the second half. Can you please clarify how much is TRIM and what would be the rest?Then the second one is on behalf of a fall in Spain, could you please tell us what is the average yield and the pace at which you expect this yield today to decline, given the yield compression that we are seeing very recently?And then finally, just a follow-up on the cost guidance you gave for the U.K. If I'm correct, you said that basically we can expect a decline in the cost base in the U.K. equal to the restructuring charges that we are seeing. Is that correct? I mean, basically, the decline that we are seeing in the U.K. in cost this quarter is not all, no? I mean, we are still waiting to see more. José Antonio Álvarez: Thank you. I take the cost question in the U.K. and José will elaborate in the other two, the capital and the ALCO portfolio. The cost guidance in U.K., I said to you that basically in the context of the EUR 1 billion reduction in costs in Europe, probably around EUR 400 million or something like that comes from the U.K.And as for the question how much this in restructuring costs? I said in U.K. normally it's one for one, yes? So it's what I said. This is in the medium term. So you should expect a reduction in cost in the U.K. of this size or the size I mentioned, yes? José? José García Cantera: All right. So as I said, it's again very difficult to estimate future impacts from regulatory inspections. But I would say we still have the SME TRIM pending. The conclusions of that exercise, that could mean around 10 to 15 basis points, I would say. Then we have some other exercises for corporate activities and market-related activities. And then we have the first impacts of FRTB and others. So I would say from 20 to 30, I would say two-thirds would be TRIM and the rest would be other smaller impacts. For the ALCO portfolio, the yield is around 1% right now. José Antonio Álvarez: Thank you. Next question please.

Thank you. The next question comes from José Abad from Goldman Sachs. The floor is yours sir. José Abad: Hello, good morning. Congrats on the presentation. My first question is on rate cuts on monetary policy. In case of additional rate cuts by the ECB over the coming months, which seems actually likely, what's the rationale for not passing these negative rates through to a broader group of clients? So in – and in particular, what's the rationale for not passing these negative rates through to retail customers and households?Now my second question is on dividend policy. So the Deputy Governor of Bank of Spain has been actually very vocal over the last actually two, three months about the need of Spanish banks actually to accelerate the buildup of capital through several channels. One is a return of a scrip dividend, which you've probably done. And the other is actually banks changing the way they or you provide guidance. They suggest actually guidance to be linked to the payout of a reported earnings rather than to an absolute amount, which is partially actually your case. So in light of this, should we be expecting any changes in your dividend policy and/or capital plans targets going forward?And if I may, a third question on the countercyclical capital buffer, which remains at zero in some of your realms, in particular Spain, whether we should expect actually an increase either in second half or first half of next year. Thanks very much. José Antonio Álvarez: Okay. The question ECB negative rates, is why not to pass to the customers? We are already doing. We've been doing in the most – we started with institutional clients as long as the rates got more and more into the negative territory, we need to rethink our…

Thank you. The next question comes from Andrea Unzueta from Credit Suisse. Please go ahead.

Hi, thank you for taking my questions. The first one is on the Brazilian NII, if you could give us the contribution from the bond portfolio this quarter. I know it was quite stable in previous quarters. But I was wondering what happened this quarter? And how should we think about that proportion of NII in Brazil going forward?And the second one is just a clarification. Last quarter, you guided for regulatory impact on capital of around 20 basis points to 30 basis points. And I had understood that you booked 12 basis points this quarter. But your guidance going forward remains the same. So I was wondering if there is an incremental regulatory impact now. Thank you. José Antonio Álvarez: So I think in the second part of the – I thought we guide you to 50 basis points to 60 basis points regulatory impact for the whole year, yes? And we are still basically within this range, yes? So I don't know if I made a mistake, but what I have in my head, I always had 50 basis points to 60 basis points and in line with what José elaborated what is coming in the next two quarters is the figures José mentioned.And NII on the bond? José García Cantera: Yes. We have an ALCO portfolio in Brazil of around EUR16 billion with an average yield of 10%. So with this – and the average duration is three years. Sergio Gámez Martínez: Thank, Andrea. Next question please.

Thank you. The next question comes from Daragh Quinn from KBW. Please go ahead.

Hi, good morning. It’s Daragh Quinn from KBW. Just on the U.K., maybe if you could just give us more detail about that outlook for weaker margins and the net reduction in costs, but also presumably some kind of normalization of provisions. Just trying to understand how the mechanics work to see an improvement in return on equity from the current levels?And then just on capital, you've reiterated the organic capital generation. But just looking a bit further out, I mean what kind of impact do you anticipate from operational risk or other areas of Basel IV that could also have – has an impact that, at some stage, the market will start wanting to take into account? José Antonio Álvarez: Okay. Thank you. The first question about U.K., I mentioned in the margin side was basically the impact is coming from the back book, the standard variable rate that, while although I have reduced a bit, will continue to be there.In the fee income generation, over the last, as you know, limiting over the last years isn’t an issue. So we're going to produce a significant reduction in costs. There's already areas in which we can grow revenues. Particularly, we can grow revenues with a more focused activity in the corporate sector, also what revenues we get from other areas like, related more with fee income.In provisions, well normalization, what you call normalization, we are not seeing signs of deterioration of the mortgage book because, well, as you know, 85% or 90% of the book is mortgages – are mortgages. Loan to value is pretty low, so – well, it's more – you can make the hypothesis on your own of what you call normalization of provisions. We are not seeing any risk of – at this point to have a high provision seeing in – meaning mortgages, although I understand that the level – the current level is very low, but it has been very low for years already, yes? Well, capital, operationally Basel IV is 2022, José? José García Cantera: Yes. I think it's still very early, although, Daragh, you know this, although it seems that Basel IV is really finalized, the reality is that it's not. And in terms of the operational risk, as you know, there are two components. One is size and the other one is the multiplier. The multiplier still needs to be defined. And there are some uncertainties with regards to size and the size of the actual operational loss that is part of the calculation.So the range, depending on how this plays out, actually the range could be somewhere in between like 20 to 100. So I think it's speculation at this stage. And until we see this really finalized, I prefer not to give you a number because again it will very much depend on the outcome. Sergio Gámez Martínez: Thanks, Daragh. Next question, please.

Thank you. The next question comes from Fernando Gil de Santivañes from Barclays. Please go ahead. Fernando Gil de Santivañes: Hi, good morning. Just a question from my side. The first one is volumes in Spain and UK, what are the trends that you're seeing and especially in Spain after the new mortgage law? This is one. Second would be the fixed rate mortgage production. How do you see it in Spain?And finally, in the U.S., you had the approval to increase in Santander Consumer. So if you can please provide an update on how you are doing on the increase on shareholder in Santander Consumer? And the capital release, if you get to that figure, 80%, how much will it be? Thank you. José Antonio Álvarez: So volumes in Spain, particularly in mortgages after the new mortgage law was introduced. Naturally, when you introduce a new law that is much more demanding on terms of the requirements in order to reassure that the customers know every stream of the contract they sign and they need to go twice to the public notary, for example, when before it was just one. And they sometime, between the first visit, let's call in that way, to the notary and the second one, creates some noise in the process. But it's a pure procedure. And some of the digital deployments that were new to assure that the new process was working properly had some problems because they were different developments in the market.Aside from this I will call noise, the activity remains, I would say, business as usual. When I mean activity, I mean activity in the demand of the new mortgages, not the activity on finally signing the mortgages, where the procedure creates some noise in this. But I wouldn't say nothing…

Thank you very much. The next question comes from Andrea Filtri from Mediobanca. Please go ahead.

Yes, thank you. First question, on BRRD II, what are the main changes versus your current MREL requirement? And if you can elaborate on this final version to address us on this. And secondly, on capital, what's the outlook for the approval of the new UK IRB models? Thank you. José Antonio Álvarez: [Indiscernible] regulator and the ECB. I don't know if you have a specific… José García Cantera: No. Obviously, the approval of models now, it's a bit more complicated because of Brexit because it has to be approved by both the ECB and the PRA. And the current situation is delaying a little bit the approval of the models. We expected to have some new mortgage models approved this year. Now it seems that it's going to be delayed to next year. But again, this is not going to affect our plans in terms of the targets that I gave you earlier. José Antonio Álvarez: But having said that, our weighting in UK probably now is in the mid-teens, when our competitors on average are around 10%, 11%, yes? So it's a big deal for us. But when this is going to happen, I cannot give you a specific timetable for this. Okay? Sergio Gámez Martínez: Thank you, everyone. Thanks for joining. And obviously, the IR team is at your disposal for any follow-up you may have. Thank you.