Banco Santander, S.A.

Good morning, everyone. Thanks for joining to this Banco Santander 2020 full-year earnings presentation. As every Q4 with full-year presentation, we have today our executive chairman and our team who will address with the CEO the performance of 2020 and the different regions and some of the countries review. Then the executive chairman will make a disclosure on the progress on the transformation and the next step that we will kick off from 2021 to conclude with medium-term outlook and key takeaways before jumping into the Q&A session. With no further delays, Anna, please.

So thank you, Sergio, and good morning, everybody. And I want to start by saying that I hope you and your close ones are safe and well. It's been a difficult year for everybody, and all of us have lost colleagues and friends, and so our thoughts are with everybody that has had that terrible experience. Without further ado, again, welcome to our 2020 presentation. We will cover the results for the year. We will give you our views for the medium term and cover some of the strategic priorities that we will be focusing on for the next few years. sorry, cost of credit at 128 and slightly better than the improved guidance that we gave last quarter. And finally, we have continued to generate very strong growth in organic capital, reached 1234 at the end of the year, which is above our target range. We, in November 2020, paid a dividend in new shares equivalent to $0.10 per share, and the board of directors' intention is to go back to the 40% to 50% as soon as we can. We are also proposing to our shareholders at the end of March a $0.275 per share in cash against 2020 results. Rosantonio will review in more detail the full year results, but just to point out again that we delivered a 5 billion underlying profit. That's after a 50% increase in provisions due to COVID, with very good cost control, as you can see, and net operating income in constant euros, as I mentioned, which is up year on year. Again, these underlying results and provisions represent a prudent approach to the COVID-related potential losses, which we have been guiding through the year. At the base of these strong underlying numbers is again our geographical and business diversification. It has shown its worth in previous crises, again in this one. We have delivered robust performance in the Americas. I want to point out that North America has been our best performing region. the best ordinary profit performance in 2020 with growth in loyal customers based on increased collaboration between Mexico and the U.S. Importantly, in the U.S., we delivered $1.2 billion net profit. That's a statutory attributable profit and a growth in the underlying profit for the year. Europe, we are very much focused on transforming the business. What we call One Europe is a new operating model. We are very confident this will lead us to results that will be increasingly positive. We are basing our growth in revenues and increase in productivity. And importantly, we have generated one billion net cost savings excluding perimeter in the last two years. And South America remains the growth engine for the group. We have delivered 19% ROTE, but very importantly, operating income increased 5% on a year-on-year basis in Brazil, and loyal customers and customer loans grew at 9% and 15%. And finally, we're also increasingly diversified by businesses. You can see here CIB, very strong numbers, wealth management, Also, our digital consumer bank, which is the pro forma merger of Santander Consumer Europe and Open Bank, which is already 16% of the total revenues. I mentioned at the beginning that COVID has been a challenge for all of us at the personal level. We have very clear that our priority throughout and continues to be our people. This is the best way that we can take care of our customers. We have supported 6 million of our customers with moratoria, lending a billion per day to SMEs and corporates. We have also supported our communities in a very important way with 100 million across the group in aid in different aspects and this is something which we are very keen because we know that that is at the base of our success for the future. We're also during 2020 very focused on further embedding ESG across the bank. It's something which is at the base again of our aim, and I define it as being a more responsible bank. We have continued supporting our customers, In a transition to green, this is something which we are absolutely very focused on. 32.6 billion in green financing, as you can see, since 2019, and going green ourselves. So in 2020, we were net zero in our own operations, and this is something we will continue going forward. We are promoting financial inclusion, especially in the Americas. We supported about 500 million credit to micro entrepreneurs and also supporting society through scholarships and our support for universities. Very importantly, we have continued to invest in our talent and also diversity. We are aiming to continue in this line. We're now close to 24% of women in leadership positions, a very diverse board in terms of nationalities, backgrounds, with 40% women on the group board. And again, at the base of all of our strategy is an increasingly strong culture, which we have defined as being simple, personal, and fair. So after this introduction, I will pass over to José Antonio to give you a summary of both the group and the businesses in 2020. José Antonio?

So excluding them, total income remains stable as the decrease in activity and lower interest rates were offset by higher volumes, the lower cost of deposits and good performance in global businesses. We accelerate our cost reduction and we expect to keep on track in this year. As the result, net operating income in a very difficult year grew 2% year-on-year in constant euros. Higher loan loss provisions due to the COVID crisis, with the cost of credit in line with our guidance to you during the year. All in all, underlying attributable profit reached the $5 billion I already mentioned. We had a very positive fourth quarter. We improved our business activity and customer revenue reached its highest figure in the last eight quarters. Finally, we recorded in the year 13.9 billion negative net capital gains and provisions. Following the 12.6 billion impairment we announced in June, the bank has recorded charges of 1.1 billion in the fourth quarter. These charges in the fourth quarter were mainly restructuring costs in Spain, but also in other countries in Europe due to the transformation process we are implementing to increase productivity and efficiency. In Europe, We expect total restructuring costs in 2020 and 2021 of around €1.5 billion, and we expect savings of €1 billion in 2021 and 2022. Going through the P&L, along the main lines of the P&L, Q4, customer revenue continues to consolidate its upward trend. Well, trending towards the pre-COVID levels. 4% growth in NII versus Q3, with the highest NII in the last two years, mainly driven by Spain, UK and South America. The income grew 3% primarily backed by South America. Costs were up. 4% in the quarter, partly affected by seasonality labor agreements in Argentina and Brazil, where they are the main drivers, and higher technology expenses, particularly in Mexico. As a result, net operating income decreased 3% quarter-on-quarter, but was 3% higher than in Q4 2019. Taking a more detailed look at the customer revenue, N&I increased from higher lending and deposit volumes with more than offset the interest rate impact and negative regulatory impact in Brazil, particularly in Brazil and Poland. Net fee income was affected by the COVID crisis. In this environment, our strategy remains focused on increasing customer loyalty and growth in higher value-added services and products. Very positive quarter for CIV and wealth management and insurance. Together, they represent 50% of the fee income of the bank. In cost, you see the trends. The figures speak for themselves. In Europe, 6% decrease. In North America, 2% down, mainly in the U.S., 5% down. In South America, cost increase 1%, excluding Argentina, due to the high inflation. We expect to continue to reduce in cost and improving our efficiency ratio in 2021. Going to the cost of credit, the cost of credit stood in line with our expectations and already mentioned the 128, increasing the year due to expected macro scenario. The increase largely reflects the AFRS 9 forward-looking view based on potential macroeconomic scenarios and collective and individual assessment to cover expected credit losses in these scenarios. However, The underlying trends in credit quality remained solid in 2020. NPL decreased 11 basis points. Coverage increased 8 percentage points. Loan loss reserves increased 4 billion to more than 24 billion. By stage, we increased stage 1, 22 billion, due to the increase in the loan book. Stage 2, 21 billion. And stage 3, remaining virtually flat. This classification speaks about the quality trends, the underlying quality trends in the loan book. When it comes to moratoria, at some point, we were very proactive in the moratoria. Some of them were offered by the bank to the customers. Some were mandatory by the different governments. At some point, we have 112 billion in moratoria. So the majority of this has expired and just 3% of the expired moratoria are classified as stage 3. 78% of the active moratoria that remain are secured, and 83% is concentrated in Europe, mainly in Portugal and in Spain. In Portugal, government mandated extension of all moratoria until September. In Spain, longer initial terms than other countries, almost 95% of the one you have in the screen, despite in the coming month, although yesterday the Spanish government took some actions to extend some moratoria for specific sectors and vulnerable When it comes to capital, the capital ratio reached 12.3% after increasing 36% in the quarter and 69 basis points in the year. The 104 basis points of organic generation partly offset by the impact of restructuring costs, corporate transactions and market performance. It also includes nine basis points related to an accrual of 2020 dividend payments based on the limit established by the ECB that allows a maximum payment of 2.75 cents per share. The fully loaded core equity tier one ratio was 1,189. Tangible net asset value was €3.79, virtually stable since September, although we took some restructuring cost charges as well. As you have seen in the P&L. Going through the regions and making some comments about the three regions and the main countries. With the creation of One Europe, we are accelerating our business transformation to achieve with two main goals. Achieve superior growth and having a more efficient operating model. Regarding commercial activity, loans grew 4%, boosted by SME and large corporates in Spain, mortgages in the UK and CAB. Portugal rose the loan book 8%. Deposits increased 6% and mutual funds 5%. This growth is remarkable in Europe. Moving to results, underlying attributable profit amounted to 2.7 billion in 2020, 45% less than in 2018, affected by higher loan loss provisions in all markets. So other points I want to mention is the cost decreases well ahead of our schedule, the way I commented before. The total income, net interest income, remained flat but improved in the later part of the year, partly driven by the recovery in commercial activity and consumer lending and improving the cost of funding. Before going into more detail into Santander, Spain and UK, I would like to highlight Santander Consumer Finance's positive performance in the year, clearly outperforming the market, showing high resilience in results and recovery in the second half of the year. In Q4, profit increased 14% compared with an already solid Q3. This is a business that clearly reflects the benefits of this education. And I will describe later our project in Digital and Consumer One in more detail. In Spain, we have been very active in supporting our customers, being very active with eco-funding, where we granted 31 billion. Since the state of the alarm was declared, we have granted 100 billion euros to self-employed people and corporates. We made further progress in enhancing customer experience. We are escalating in net promoter score in relation with our competitors. The volumes grew, loans grew 5% and customer funds 4%. In the income statement, the profit for the year was 517 million, 60% lower year on year. By line, the income fell basically due to the lower fee income in relation with the lockdowns we have had, and also the reduced income from real estate stakes and smaller alcohol portfolios. Conversely, net interest income grew 1%, driven by the positive performance in volumes, margin management, and the positive contribution for TLTROs. We had another positive year in costs, dropping 10%. Lastly, loan loss provisions doubled, driven by the expected potential losses in our macro scenario arising from the pandemic and several collective assessments in the most vulnerable sectors that say Our portfolio's credit quality remained solid. NPL decreased 71 basis points. Arrears remained at lower levels than pre-COVID, provided the different support programs in place. The arrears are 1.8 billion in December versus 3.7 billion in February. Coverage increased 6 percentage points. Loan loss reserves increased by 1 billion. And the different stages, stage one grew $16 billion, stage two $3 billion, and stage three a little bit less than $1 billion. Going into the UK, our transformation program is gaining traction and beginning to show results. Volumes increase year on year. Loans plus 3%, customer funds plus 8%. 2020 profit, as it cannot be other way, was heavily affected by COVID-19 and regulatory changes, particularly in relation with overdrafts, with one upset by better NII plus 2% and lower cost minus 6%. Profit fell year on year, but increased 18% quarter on quarter, continuing the recovery that began in Q3, thanks to the NII, the increased NII rate, due to increase in the NIM by 11 basis points in the quarter, due to lower funding costs and high from book margin. Cost improves 3%, minus 6% year-on-year. Loan loss provisions have started to normalize in the year, cost of raises relatively low, 28 basis points. Coverage increased by 11 percentage points. In constant euros, stage 2 increased by 6 billion and stage 3 plus 600 million euros. For 2021, we expect good operating performance based on lower funding costs and new business margins, improving productivity through our transformation program. In North America, it is the region that has delivered the best ordinary profit performance across the group in 2020. Group grew the volumes, loans plus 4%, and customer funds plus 19%. Profit decreased just 3%, despite the pandemic-related provisions driven by net operating income. Efficiency improved significantly. By country, Santander U.S. focused on preserving the strength of its balance sheet and its sustained improvement in profitability. Volume, loans grew 6%, and deposits grew 20%. Profit increased 4% year-on-year with resilient NII, cost reduction minus 5%, and lower minority interest in SCUSA. NPL ratio fell 16 basis points. We reinforced coverage, plus 50 percentage points to 210. In constant euros, stage 2 increased 3 billion and stage 3 remained flat. In Mexico, the loan book remained flat. It had a spike at the middle of the year and normalized afterward. Customer funds grew 14%, particularly strong growth in demand deposits from individuals that grew 24%. Regarding results, positive trends in revenue and net operating income cost 5% due to IT investments. NPL ratio increased 62 basis points and the coverage decreased 7 percentage points to 121%. In constant euros, stage 2 increased by 2 billion. Stage 2 remained basically flat, grew 200 million. South America, volumes gradually recovered during the second half of the year. Loans grew 15% year-on-year and customer funds 18%. Deposits, particularly strong growth in deposits, plus 30% in the region. The region was the main driver of the top line with high revenues in all countries. Net operating income rose 5% as a result of the positive revenue and improvement cost to income. Full year 2020 underlying attributable profit fell just 4% due to COVID-related provisions. NPL ratio fell 47 basis points on coverage increased 9 percentage points. By country, Brazil recorded an excellent year. I will explain later. In Chile, we ranked number one in MPS with a record growth in current accounts, plus 42%. Full year 2020, net operating income increased 4%, boosted by higher NII and cost control. Argentina, Uruguay, Peru, and Colombia achieved higher profits due to positive performance in revenue and efficiency improvement. Going to Brazil, Brazil's economy performed significantly better than expected. Santander has once again recorded an excellent year, both in terms of results and volumes, while we remain focused on capturing growth opportunities. Commercial activity in the second half of the year Pre-COVID-19 levels, boosting revenue growth in the year and achieving double-digit increases in volumes. Loans grew 19% and customer funds 16%. Full-year 2020 net operating income increased 3%, driven by resilient revenue and efficiency improvement. Higher volumes offset the significant margin pressures and lowered indoor rates. Higher provisions with net credit quality indicators at very controlled levels. NPL ratio fell 73 basis points, coverage increased by 13 percentage points. Underlying attributable profit decreased 5%, but return on tangible equity remained high at 19%. For 2021, we remain optimistic about Brazil, focus on increasing our customer base, maximizing revenues across our business and segments, and maintaining high profitability levels and volumes growth with a good asset quality, and continue to gain market share in the most important segments in the country. Taking a look to the global business, corporate investment banking had an excellent year. We continue to support our customers increasing our market share. Income grew 15%, profit was 23% higher than by 15% growth in the income I mentioned and 3% cost reduction. We grew double-digit in our core business, particularly in global markets and global debt financing. In Q4, profit declined as the improved performance in NIA and FIB was broadly offset by lower trading gains due to CBA and lower volatility than in the third quarter and higher provisions related with COVID-19 on specific names. Wealth management and insurance. Business performed well in the year. The assets under margin amounted to 370 billion, in line with December 2019 in constant euros. In the quarter, growth was 4%. Total income generated accounted for 31% of the group's total. Underlying attributable was up 2% thanks to 3% growth in revenues. In pre-banking, positive sales and business growth fees grew 9%. In Santander asset management, a strong volume rebound from the lows in May and further progress in our ESG strategy. Lastly, in insurance, underlying profit rose 18%. The main growth driver continues to be non-credit related business. And now I hand over to Anna to continue with the presentation.