Banco Santander, S.A.

presentation for Banco Santander. First of all, on behalf of the Santander team, I hope you and yours are well under the extremely challenging current circumstances. The call should take around, as usual, one hour. Our group CEO will address the first quarter highlights and then our group chief financial officer will address the group business and areas to review as every quarter, and then the group CEO will take this mic again to address a bit in detail and give you a bit of color on what we are seeing in our different markets after the Q1 close before jumping into the Q&A. So again, thanks for being here with us today, and obviously right after the call, I think we'll be at your disposal for any follow-up you might have. And now, please, Jose Antonio.

Thank you, Sergio. Good morning to everyone. I hope you find while in the middle of this health crisis, you and your families and relatives. Well, this quarter has been a strange quarter. We've been in business as usual till the last two weeks. The last two weeks, the COVID-19 outbreak has produced an unprecedented worldwide health crisis. This is a health crisis which is resulting in an economic crisis where the financial system, I think, is more resilient and banks need to be an important part of the solution of the COVID-19 economic situation. Since the crisis started and with some anticipation, we implemented in our geographies specific measures to take care of our employees, customers, shareholders, and investors. in order to protect them and to mitigate the economic and social impact. I will talk more about this in the last part of my speech. Starting with the quarter, let me follow how the quarter has, the figures have behaved. In volumes, we grew significantly, more at the end of the quarter than at the beginning. The long book grew 26 billion. The pickup was basically in the latest part of March. due to the drawdown of the committed lines by the large corporations. The positive view, 6%, with a jump also in the second part of the month of March. Our customer digital activity reached record figures. That is not strange. And the growth in the group digital customer base doubled that compared with the previous quarter. As regards results, we recorded a provision overlay of $1.6 billion to cover the expected deterioration of the macroeconomic conditions arising from the health crisis. As a result, attributable profit was only $331 million. The screen discharge underlying attributable profit amounted to $1,977 million, 1% higher than the same period in 2019, 8% excluding the change rate impacts. In the current environment, our credit quality and liquidity remain solid in all geographic areas you have in the numbers. We continue to generate capital organically, although the growth in risk-weighted assets has been approximately three times the ordinary growth. The consumption of capital due to growth in risk-weighted assets was 21 basis points in the quarter that were offset by the non-dividend payment, and the resulting As a result, the core equity, their one ratio at the end of the quarter was 11.58. Going to the geographic areas, the resilience of the underlying performance of results is based in our diversification and scale. By region, we can see growth in loyal customers, increasing loans and customer funds, notably in the Americas. In Europe, profit and profitability were dampened. by the already complex economic environment before the crisis due to low interest rates that become lower in some geographies, particularly in the UK, and therefore more by confinement measures in many European countries in March. North and South America, on the other hand, record strong profit growth and improved profitability. Going to the global business, performance has been stellar. We grew both in CAB and wealth management at 21%, profits, underlying profit in the quarter. CIV grew strongly, particularly in the last few months, answering the funding needs of our customers. These were reflected in a greater utilization of existing credit lines. In March alone, more than $15 billion in increasing deposits. Wealth management and insurance recorded also very high profits due to strong activity levels early this year, which slowed down at the end of the quarter due to the impact of the crisis in the market. Going to the P&L, well, first thing to say is change rates play a significant role. It has a negative impact of 5.8% year-on-year. If we take a look at cost and euros, we reflect the underlying operating trends. We see customer revenue growing at 3% with cost management and growth in provisions partly driven by higher volumes, not yet for the economic crisis that we expect from the health crisis. As a result, underlying attributable profit amounted, as I said before, $1,977 million, 8% higher, excluding the change rate impact compared with the first quarter of 2018. The non-recurring charge of $1.6 billion correspond to the already mentioned provision overlay and the remaining amount of restructuring costs that you have for more detail in the appendix. As regards the provisions, And as acknowledged by the ISB and other regulators and supervisors, it is likely to be difficult at this time to know the specific effect of the health crisis on government and central bank support measures. Nevertheless, in the first quarter, based on information on the environment at the quarter end and following the regulatory guidelines, based on the expected duration of the macroeconomic conditions, a provision overlay will be recorded. conceptually reflecting the permanent impacts from the COVID-19 in the medium-long term arising from the expected worsening of the portfolio's credit quality and avoiding the negative effects from profitability and volatility of the IFRS 9 in the very short run. This environment of extremely high uncertainty, the macro variables considered here are very much in line with those published by the IMF. It's not exactly the IMF on a country-by-country basis, but we have scenarios on a country-by-country where the main items that affect the provision, the potential provision going forward are GDP growth, unemployment, and house prices. In our case, also the new the car sales. So it's important how deep the recession is, but it's probably more important in accounting for how long the recession or the recovery or when the recovery comes. Going into the revenue, in the first quarter, capital revenue grew 3%, boosted by the Americas, as I said before, and our global business. Net interest income grew to greater volumes, combined with active management of The deposit costs in an environment falling into rates. Net income, where our global business wealth management plus 6%, CAB plus 20%, with account for more than 44% of the group total fees generated. We are confident that we will continue to deliver quality revenue growth. I will further discuss this at the end of the presentation in the conclusions. On costs, costs 3% lower in real terms In Europe, as we were indicating to you in our efficiency plan, costs dropped significantly in all countries, notably in Spain, minus 8%, UK, minus 6%. This performance comes from the efficiency plans we are executing in all this geography. This enabled us to obtain the expected synergies in the quarter needed to deliver our target for the year. Good management in North America, where costs have not material changed. In South America, of particular note, was Brazil, with a 2% fall in real terms. This performance allows us to remain leader in efficiency among our peers, with an efficiency ratio of 47%. Our goal is to continue to make progress regarding operational environment and cost management adapted to the new environment. We continue to pursue our targets as we indicated to you in our investor update. Credit quality, while the quarter was in line with the traditional trends, still the NPL's coverage ratio and cost of credit remain basically stable with the same trends you've seen before. On capital, well, we continue to strengthen our capital ratios. The quarter, we generate, we once again generate capital organically, combined with the favorable impact from the dividend measures taken resulted in an increase of 36 basis points in the quarter. The increase took place in a context marked by a strong growth in risk-weighted assets, one basis points in the quarter, three times the ordinary increase, mainly due to the higher lending and some market volatility that affects the risk weighting of the market positions. On the other hand, there were significant non-recurring negative impacts. As you can see in the slide, 19 basis points for corporate transactions that were already announced, Allianz, Celebon, and the minorities of Credito Consignado in Brazil. 15 basis points from regulatory impact on oil that we were expecting is the majority of what we are expecting for this year, and 9 basis points from markets, basically the market of the alcohol portfolios in Mexico and Brazil. We are comfortable with our capital levels. We maintain our 11% to 12% capital target in the scenario we foresee in the coming quarters. with the aim of being on the upper side of the range. Finally, before handing to Jose to comment the performance of our main markets, I would like to highlight the resilience of our profitability ratios, both in terms of underlying return on tangible equity and return on risk-weighted assets, as well as the TINAP per share. We remain above 4 euros per share, although suffer some impact from effects from the change rate. I hand over to Jose to elaborate on the different units and regions.

Thank you, Jose Antonio. Good morning, everyone. As for the performance by region and country, the Americas increased their weight as a percentage of total profits to almost 60%, so we remain very well diversified. As previously mentioned by Jose Antonio, North America and South America grew at double-digit rates, while the performance in Europe was impacted by the economic environment. Also, our global businesses increased our double-digit rates, which helped to strengthen our local franchises. Taking a look at volumes, we also had a positive performance in the quarter and covered our customers' funding needs. Loans grew 7% in real terms, excluding exchange rate year-on-year, mostly driven by South and North America, which grew at double-digit rates across all markets. In Europe, 4% growth. with increases in all countries except Spain, as I will explain later. Customer funds were also up in nine markets, deposits 6%, while mutual funds fell 2%, mainly driven by the drop in equity and fixed income markets. In Spain, we had positive commercial trends, especially in March, when loans increased by nearly 3 billion, driven by SMEs and corporates. This trend accelerated in April as the ICO lines became available. March was also a month of intense digital activity. We operated most of the month with 50% of our branches open and recorded the highest month in the number of digital customers. Almost 5 million digital customers interacted with the bank. The number of new contracts signed with digital signatures tripled, accounting for more than 50% of the bank total sales. We had slightly lower net income, although profit before tax was up as cost savings offset the drop in total revenue. Net interest income was down 8% due to smaller ALCO portfolios and lower average assets, earning assets, in wholesale banking. We are in line with our cost savings plan, as Jose Antonio said, delivering 8% drop in costs. Non-performing loans fell 41 basis points year-on-year, and provisions remained also under control. In Santander Consumer Finance, the business was the first to be impacted by the health crisis, first in China, where, as you know, we have an operation, and later in our units in Italy and Spain. New car sales in Europe dropped 26% in the first quarter, while new lending in Santander Consumer Finance fell only 5%, due to the strong performance in January and February. In the last few weeks of the quarter, and driven by the confinement measures, the declines were sharper. New lending in Italy and Spain was at 10 to 20% of the usual volumes, so that drop of 80 to 90%. In Germany, the levels were 50 to 70% of normal levels, and only the Nordic countries remained our pre-crisis levels. These declines were reflected in our results, especially in net fee income, which fell 12%. On the other hand, and due to the good performance at the beginning of the quarter, net interest income increased 5%. Costs rose due to the new alliances that we signed in the previous quarter and in the previous 12 months. Excluding the change in perimeter, they fell 3%. Provisions were higher, mainly driven by lower portfolio sales compared to the first quarter of last year. The underlying profit, as you can see here in the upper right of the slide, it fell 5%. Moving to the United Kingdom, volumes grew at good rates. Loans increased 5% year-on-year. In the quarter, and driven by mortgages, loans grew 2%. However, in April, new mortgage applications fell 80%. while the demand for mortgage repayment holidays amounted to around 50% of the total mortgage portfolio. Revenue was affected by lower yields on new production and the continued SVR attrition. Also, the income was lower, in part due to the reduction in overdrafts. However, we had a good performance in the P&L. Costs were reduced by 5%, provisions fell 20%, and cost of risk remained at very low levels. In Brazil, we kept our good momentum going, which continued to show recurring profit generation even in the more adverse current circumstances, current environment. In volumes, lending increased 18% year-on-year, with all segments growing, notably corporates and CIV. Consumer funds rose boosted by demand and time deposits, up 31% and 17% year-on-year, respectively. both partly favored by foreign currency balances, the depreciation of the real. The return on tangible equity rose to 22%, following the 10% increase in profits, as you can see in the P&L. Net interest income increase driven by higher volumes, which offset margin pressures due to the mixed effect, the negative impact from the fall in the SELIC rate, in the interest rates, and the limit on the overdraft interest rates. Net fee income grew, driven by payments, COMEX, and Forex. Strong efficiency improvement year-on-year, and the cost of credit remained stable. In the quarter, profit rose 8% due to the strong fall in costs and provisions, seasonally higher in the fourth quarter, which obviously favors the quarter-on-quarter comparison, and which more than offset the fall in net interest income due to lower spreads and net fee income. To finish, in Brazil, let me give you some color of the activity in recent weeks. The acquiring business is down 15% relative to pre-crisis levels, cash withdrawals down 30%, and auto loans down 40% to 50%. In the United States, we had a strong volume growth in the quarter driven by both corporates and auto, which do not yet reflect the falling activity recorded in recent weeks. Underlying attributable profit rose 46% year-on-year, with an adjusted return on tangible equity of 12% backed by higher revenue and cost control. As you can see on the page, profit rose strongly quarter-on-quarter, driven by seasonally lower provisions and costs in the first quarter. In Mexico, loans and customer funds grew at double-digit rates. New lending to corporates and CIB more than doubled in March compared to a regular month. They went back to usual levels in the first weeks of April. Profits rose 22% year on year, backed by positive performance of income and lower non-controlling interests. Costs were higher due to increased amortizations and technology investments. However, efficiency improved by more than one percentage point. We also had with all metrics improving. Compared to the fourth quarter of 2019, underlying attributable profit fell due to high gains from financial transactions in the previous quarter. And to finish, I will make some quick comments on the corporate center, where in attributable loss decreased 16% compared to 2019, mainly due to the combination of two things. On the one hand, in total income, positive impact of around 93 million in gains on financial transactions, mostly coming from foreign exchange, foreign currency hedging, and two, costs, which improved 13% year on year, reflecting the positive impact from streamlining and simplification of our processes carried out in previous quarters. With this, I'll turn it back to Jose Antonio for the first section of the presentation. Thank you.