Banco Santander, S.A.

Good morning, all, and welcome to the Santander Q1 2025 results call.

We entered the last year of our strategic cycle well ahead of our plan, focused on disciplining capital allocation, which is further improving our profitability to 15.8% post-81s and our C81 ratio to 12.9%, with 87% of RWA generating returns above our cost of equity. Given our solid progress building capital, our diversified earnings, and improving profitability, we reiterate our target to distribute up to $10 billion to our shareholders through share buybacks for 2025-2026, subject to regulatory approvals. Remember that we no longer set a maximum price for our buybacks, reflecting our confidence on the group's potential in terms of profitability and value creation. Q1 was another record quarter for Santander, demonstrating the strength of our strategy and the resilience of our business model. Profit reached a new record of 3.4 billion, 19% higher than Q124, with all of our businesses growing. On the back of our solid franchise of 175 million customers, that continues to grow as we improve our customer experience, leveraging our global platforms. We achieved this as we continue to invest for the future through one transformation and making excellent progress towards a simpler and more integrated model. This has helped us to improve our efficiency by around 1 point and increase our ROTE by almost 2 points to 15.8%. Our balance sheet remains solid with a strong CET1 capital ratio, which ended the quarter with another all-time high of 12.9% towards the top end of our 12 to 13 operating range. All this contributed to the strong shareholder value creation, with TINA plus dividend per share growing 14.5%, despite the depreciation of sub-currencies, Expenses grew below revenue and inflation, showcasing the positive effects from a transformation. We reiterate our target of lower costs in current euros in 2025. Third, we are once again demonstrating the sustainability of our results with 7% growth in net operating income. Fourth, our approach to risk is also evident in our robust credit quality trends with cost of risk that is consistently improving quarter after quarter. Fifth, finally, we have the impact from the different treatment of the Spanish banking tax that this year we're accruing quarterly through taxes. Even excluding this favorable impact, profit rose double digits year on year. All in all, as we have shown over time, our results are sustainable and less volatile than peers. This is because we are mainly a retail consumer bank with a business model that combines businesses and geographical diversification with a prudent approach to risk. We are ahead of our plan in executing our transformation, which continues to boost our operational leverage, structurally improving both revenue and cost performances. Simplifying and automating processes and our active spread management have already contributed 253 basis points of efficiencies since we started surpassing the levels which we expected to reach by the end of 2025. Our proprietary and global tech capabilities have generated 79 basis points in efficiencies so far. As we said last quarter, there is still more upside over the medium term for our strategy for both revenue and cost. Retail and consumers, which represent more than 70% of our revenue, have significant upside as we progress on the implementation of our common platforms. The rest of our revenue comes from wealth, CIB, and payments, which are more expertise to grow our U.S. franchise without changing the risk profile. Revenue grew 8% to another quarterly record supported by the good performance in the U.S. and client flows, demonstrating the benefits of our strategy. Wealth continues to grow strongly, improving in both efficiency and profitability, and in payments, we are seeing good activity trends as reflected in double-digit revenue growth both in PagoNext and Cards. The combination of our global businesses and our geographical diversification puts us in a unique position to face the challenges for 2025. Higher interest rates benefit some of our retail franchises, while other parts of our business, such as CIB consumer and some emerging markets, perform better with lower rates. Diversification that allows us to deliver recurrent strong results, consistent profitable growth, and value creation even under very different environments. Overall, the great start of the year, the execution of our strategy, and our diversification puts us on track to achieve our profitability targets for full year 25. In retail, which is at the heart of our banking business, we are progressing in our aim to become the number one bank for our customers. As we progress in the simplification, process automation, and customer experience, we gain their principality. Today, we have 3.5 million more active customers than a year ago. We have reduced the numbers of products by 40% in the last year and 51% since we started the process back in 23, with a special focus on the front book. As we deepen simplification, our digital sales and our cost to serve improves. Today, our digital sales are 23% higher than last year, and our cost to serve has dropped by 5%. The implementation of our global platform progresses at pace. We have completed the integration of Gravity in Chile, which improves the digital channel performance, reducing the best solutions, and increasing our cost competitive advantage across all of our footprint. First, we are verging towards global platforms. This quarter we launched Open Bank in Mexico with a full value proposition and we opened a branch in Germany. In the U.S., we have announced a multi-year partnership with Verizon offering their customers saving accounts. These initiatives are part of our focus on deposit gathering to lower funding costs, as reflected in our deposit increase of 12% year-on-year, while we continue to improve our customer experience. Second, we are working to grow and consolidate partnerships, offering global and best-in-class solutions integrated into our partners' processes. Xenia continued processing and progressing with strong partnerships. For example, we launched the Amazon co-branded cart in Austria. Finally, we are promoting the network effect, aligning the businesses with the group's operating model and becoming more agile through the simplification and automation of processes. Profit grew 6% in consumer on the back of NII growth and LLP improvements, mainly in the U.S. Growth grew in line with inflation, even after our efforts on transformation, which are supporting double-digit customer deposit growth. During the year, we expect NII to improve as interest rates continue to decline as we execute our strategy to lower funding costs and reinate at attractive profitability levels. In CIB, we are building a world-class business to better serve our corporate and institutional clients across our footprint while maintaining the same low risk profile. Number one, We're deepening our client relationships by expanding our advisory capabilities in the U.S., building on our areas of expertise to accelerate growth. CIB provides FX solutions to retail, product development, and structuring to wealth, and a full suite of products, including capital markets and advertising. advisory to commercial and auto. CIB had solid results, with revenue up 8% to a new record high, with fees growing at double digits. All of this while we maintained an efficiency ratio that is among the best in the sector and an ROT of around 22%, reflecting our focus on profitability and capital discipline. In wealth, we are building the best wealth and insurance manager in Europe and the Americas. First, in private banking, we remain focused on expanding our fee business by promoting value-added solutions, leveraging our best-in-class portfolio advisory capabilities. We have created a new global family office team, and we have expanded our ultra-high net worth business global team offering world-class specialized wealth management services. Second, in asset management, we progressed in the implementation of an advisory model for retail customers across countries, supported by a global investment platform that offers enhanced customer experience. Third, in insurance, we are developing new business lines, such as retirement, which we are offering an integrated value proposition while we span high growth verticals such as health and motor. Fourth, in collaboration with other businesses is of the essence in wealth and it is a major driver for growth. Collaboration fees increase by 10% year on year. In summary, all this supports growth and high profitability levels. Profit rose double digits on the back of strong activity and double-digit-free growth across all the three businesses. Efficiency ratio improved close to 1.5 points year-on-year, and ROTE stands at close to 70%. Finally, payments, where we have a unique position on both sides of the value chain. In merchant acquiring, we are one of the largest... In cards, where we are one of the largest issuers globally with 106 million active cards, we continue to deploy Plard, our global cloud cards platform. In Brazil, we currently... We managed more than 16 million debit cards through PLARD. In Chile, we started issuing debit cards for new customers, and in Mexico, we already authorized more than 160 million transactions per month. Payment delivered a strong quarter, with double-digit revenue growth year-on-year, both in cards and payments. AntCost is under control, which drove 30% profit growth. Finally, Pagonek's ABDA margin improved to around 29% backed by GetNet, with one of the best ratios among our competitors. We expect cost efficiency and capex optimization to continue to drive profitability in the coming quarters. Our strong operational and financial performance is improving profitability and driving double-digit value creation for the eighth consecutive quarter. ROTE post-81 was 15.8%, up close to two points year-on-year, reflecting the high levels of new business profitability. Earnings per share rose to above 21 cents, supported by a strong profit generation and a lower number of shares following the ongoing buyback programs. As a result, we continued to grow our value creation, which, in terms of TNAF plus cash DPS, increased 14.5%, reflecting our disciplined capital allocation and again the impact of our share buybacks. Buybacks remain one of the most effective ways to generate shareholder value. Since 2021, and including in full the share buyback that is currently underway, we will have bought back 14% of our outstanding shares, providing a return on investment.

We are yet again reporting record results, as our transformation continues to drive operational leverage. We had strong top-line performance with sound underlying trends, as revenue grew 5% and reached a new record high for the fourth quarter in a row, with good performance in cost towards our objective for 2025. As you can see, Argentina introduces some distortions between different lines of the P&L, which are fully compensated in total revenue. Local currency net interest income is affected by a sharp decrease in interest rates for around 600 million year on year. And in other income, there is a benefit from lower hyperinflation adjustment for a similar amount. Cost of risk. remained fairly stable in the quarter, supported by robust labor markets and prudent risk management. Last year, we charged the temporary levy on revenue earned in Spain in full in the the first quarter through other results. This year it is charged in the tax line on an accrual basis. This is the main reason that explains the significant jump in other results line. Even if we exclude this impact and calculate year-on-year growth on a like-for-like basis, profit grew to double digits, not only at the group level but also in almost all the global businesses. Finally, on the right-hand side of the slide, you can see the upward trend in profit, which grew 4% this quarter on the back of positive customer activity, lower cost, and better provisions. Please also remember that the last quarter we had the full positive impact from the FX account of the Argentine peso. This also produces some distortions quarter on quarter that I will comment on during the presentation only where relevant. Total revenue increased 5%, which puts us on track to meet the target for the year we provided last quarter. This was underpinned by growth in customer activity across businesses and reflects the benefits of our model. All of our global business interest income growth, mainly in the U.S., Groups net interest income increased 4% year-on-year, excluding Argentina, even in a less favorable interest rate environment. More than 80% of groups net interest income comes from retail and consumer businesses. And the positive evolution was supported by our active assets and liability pricing management in retail, most evident in the UK and Mexico, and consumer. both in Europe and in the U.S. It was also supported by continued profitable growth across most businesses and countries, mainly consumer, and finally also by our focus on adapting the sensitivity of our balance sheets to the new cycle of interest rates. A good example of this is retail NII, which increased across most countries and remained flat in Spain and Brazil in a context of unfavorable interest rates. Net interest income was resilient also quarter on quarter, flat when we exclude Argentina for similar reasons, which also explained the performance of net interest margin, which fell only seven basis points year-on-year without Argentina and was flat in the quarter. This performance is slightly better than our guidance of NIR going slightly up in 2025 in constant euros, excluding Argentina. slightly down in current euros. However, as forward rate curves remain very volatile in our jurisdictions, we reiterate our guidance for the year at this stage. We generated another record period of net fee income, reflecting our transformation efforts to promote connectivity across the group, deploy high-value added products and services, and provide the best customer experience. grew close to double digits on the back of strike activity in general, consumer growth, and in a change in mix with a higher share of more value-added services. Ritter showed good performance in his presentation. This year, consumer is affected by the impact of a new insurance regulation in Germany, which is being upset by strong free growth in DCB-US. As sector elaborated, one transformation is key to understanding why we can continue to get better in every single market leveraging our global businesses. As a result, we expect sustainable improvements in operational leverage as we further implement the structural changes to our model. These improvements are already very evident, as demonstrated by the trends in our efficiency ratio, which is consistently getting better quarter after quarter and remains one of the best in the sector, but more importantly, by the evolution of cost in absolute terms. and consumer are leading our transformation, which is delivering structural efficiency gains with revenue improving and costs flat. These two businesses represent 70% of our cost base, and we expect them to reflect further the benefits of one transformation going forward. CIB wealth and payments are more fee-driven. Cost grew 6%, showing positive operating with double-digit fee increase, as I have just explained. As a result, our efficiency ratio closed at 14.8% in the quarter, amongst the best we have reported in the past 15 years. As Hector said, we reiterate our guidance for lower absolute cost in current euros for 2025. The risk profile of our balance sheet remains low, with robust credit quality across our footprint, on the back of low employment and easing monetary policies in general. Loan loss provisions increased 7% year-on-year, mainly due to our efforts to reduce MPLs and some deterioration in Brazil in the context of higher rates and inflation. It improved year on year across all our main countries and was flat in the quarter, with significant improvement in Mexico, compensating the weaker performance in Brazil. In consumer, cost of risk was relatively stable both year on year and quarter on quarter, with notable improvements in the U.S., where we are seeing favorable payment rates, higher car prices, and an improved labor market year on year. As of today, we are not seeing any significant deterioration in employment rates and our credit quality remains stable. Moreover, it is in periods of high instability when diversification becomes more important. For instance, in the current context, we benefit from from the fact that tariffs do not equally affect all countries, and Brazil is a good example of it. Nevertheless, it is too early to make conclusions regarding the new geopolitical environment, but as long as labor markets are not significantly affected, we wouldn't expect material impacts to our cost-of-risk target. Moving on to capital, as you know, we have been working on improving our capital productivity and accelerating our capital generation for some time. This quarter, we delivered exceptional growth again, generating 10 basis points to 12.9% at the top end of the operating range we disclosed during last results. presentation and already very close to our 13% guidance for 2025. We generated 33 basis points of net organic capital after having absorbed 24 basis points of profitable risk weighted asset growth while we had a positive impact from securities portfolios and DTAs. This enabled us to compensate shareholder remuneration accrual, some regulatory charges, as well as to accumulate capital. As we have already mentioned in the past, there was no impact from Basel III implementation on day one.

We continue to deploy capital to the most profitable... ...to achieve our 25 targets, targets that we rate... Good business dynamics supported by revenue increase backed by all our businesses with fees growing high single digits at the same time that will reduce the cost in euro terms. Cost of risk improved and is also in line with our target of around 1.15% at the end of the year. We increased the CET1 ratio by 10 basis points as we profitably grew our business organically, accrued shareholder distribution, and absorbed some regulatory impacts. In a Q1 that is normally lower, affected by day count and seasonality in consumer and South America, our ROTE grew year-on-year to 15.8% on track. to reach our target of around 16.5% in 2025. In summary, very positive trends, which we expect to consolidate in the coming quarter, even in an environment of high uncertainty. As Jose has mentioned, it is precisely in periods of higher instability when our diversification becomes more evident, acting as a stabilizer. This is key and represents one of our competitive advantages that differentiates us from some others. And now we are happy to take your questions.

Thanks, Hector. Operator, could we have the first question, please?

Thank you. If you wish to ask a question, please press star five on your telephone. We already have the first question from the line of Sophie Petersons from JP Morgan. Please go ahead.

Yeah, thanks a lot for taking my questions. So my first question would be on net interest income. How should we think about net interest income going forward? We have seen quite a lot of changes in rate expectations across your core market. So if you could talk about the NII outlook. going forward. And my second question would be if you could just discuss how you got to think about any M&A and asset disposal opportunities. Are there any businesses where you would like to grow a little bit more inorganically and equally? How do you think about your business areas and Anything that you wanted to really use your exposure to? Clearly, we have seen headlines around Poland. But anything you could kind of say around asset disposals and M&A? Thank you.

Thanks, Sophie.

Thank you. Okay, Sophie. Good morning. First of all, I think it's important to say that we have believed that we will continue in that regard. Excluding Argentina, we rate the NII. We believe it's going to be slightly up in constant euros and slightly down in year-on-year current euros. We're assuming end rates at around 1.5% by the end of 2025. The current outlook is around 1.69%, so I believe we are able to get it. It's important to acknowledge that the ALCO portfolio has grown to $152 billion. in the whole group. That's around $7.5 billion more quarter on quarter. Most of the group's sensitivity to rates is concentrated on retail. It's 60% of the loan book. But we have drivers that offset each other. So in that regard, I believe that we have control over it. It's important to understand, as you know very well, that Europe has positive sensitivity to higher rates, retail in Spain, Portugal, and Poland. UK retail NII is positive, even with the decline of the NIM. thanks to the hedging strategy that we have performed in that country. And in Brazil, we are very well positioned to lower rates. Outlook is improving for 25. We expected a peak of around 16%. Now it's around 15%. And our sensitivity remains at 100 basis points. That's 120 million. That's 120 million euro. So we continue to proactively manage, and we believe that we're going to deliver what we have said. In that regard, in terms of asset disposal, I think I'm going to be very clear about it since the beginning for you, okay? I know we acknowledge a recent speculation about regarding a potential transaction involving Santander's Polska. I can tell you that this is a great bank, has a great 22% routing, and we have interest from several parties, and we are currently in discussions with Erste for the potential sale of the 49% stake. At this point, I must say there is no certainty that the discussions will lead to an agreement with them. And in any event, completion of any transaction will be subject to closing conditions and different things and regulatory approvals, et cetera. So if required, we will make a further announcement. But at this point, I would like to discuss any acid disposals or anything like that.

We have a fiduciary duty to review any... The next question comes from the line of Ignacio Ulargi from BNP Paribas. Please go ahead.

Thanks very much for the presentation and for taking my questions. I have two questions. I mean, the first one is if you could give us a bit more color on how we think should... we think about group costs evolution throughout the year. So is this the run rate that we should expect or incremental efficiency? So that's part of the decline to the cost line. And the second question is related to DCV Europe. So performance in the quarter has been a bit more difficult than what consensus was going for. How should we think about the performance of the unit in the year? How much is recurrent or will be seen as a one-off in the non-profit world? Thank you. Thank you.

Thank you, Ignacio. In terms of cost, it's very important to understand what we're doing. Cost is a result of the strategy we have and the change of the model that we are executing right now, okay? It's important to tell you that we reiterate our guidance to deliver the lower cost in current euros versus 25 versus 24, despite the potential inflation headwinds and the effects pressure in the current macro environment. Costs were 2% higher year-on-year in Q1 in constant euros, but they declined 1% in current euros. You have lower cost in retail, as I said, lower by one transformation. It's very important for you to understand the operating leverage that we're generating in which the model is allowing us to generate actually more revenue while we maintain costs flat or down. And that basically is helping us out to have much better results. It is important also to say, and it's important that you acknowledge that we are a consumer and a retail bank. And in that regard, that's exactly what we're working on to lower the cost of the operation. We're investing a lot. in the platforms, and that also will allow us to basically have lower cost in the future. And you are only seeing the beginning of what we're doing. If you look in detail, retail and consumer, as I was saying, 70% of the growth cost, cost is flattish, and revenue growth by 2%. That's exactly what I was explaining you in terms of the operational leverage that we're getting. CIB wealth and payments is around 30% of the group cost, increased 6% actually changing the engine. At the same time, we're flying the plane due to the fact that we have still some of the old platforms working. And this is going to take probably the next 18 to 24 months. On DCB Europe, it's important to tell you the facts. It's important to tell you, first of all, that NII continues to do very well. And it's on track to benefit from the lower rates in the future. Also important to say that market share is growing with the current OEMs that we represent. Fee income was impacted because of regulatory change in Germany, which we indicated last quarter, if you remember. and this has now been revised by the regulatory changes. Impairments were higher, driven partly by a mix of the items including Germany, but we are not concerned about the credit quality of our portfolio. New origination is meeting the returns hurdles, and returns will improve with lower rates. Remember that... In the past, part of the stock is at lower rates than we are originating today. So that basically is helping us out. And the cost of risk, normally said, and the potential macro model adjustments, especially in Germany, should peak in 2025. All right? So I don't know if you want anything else, or Jose, anything to add?

No, I think the NIA was up. year-on-year, which I think it's a great performance. Our brands are doing very well relative to others. We're gaining market share. So I think... And obviously the impact on fees from Germany is a one-off, so it's a rebase of the fee line going forward. So I think, you know, the return on intangible equity in the year was double digits. We feel comfortable that we can improve the returns going forward.

Thanks very much, Nacho. Operator, could we have the next question, please?

Next question from Andrea Filtri from Mediobanka. Please go ahead.

Thanks for taking my question. You confirmed you are negotiating the sale of the stake in your Polish bank. Can you please share with us the rationale for exiting Poland and how you would intend to redeploy the proceeds? Why selling only 49%? And could the buyer... eventually receive exemption from a mandatory bid on minorities. Second question on your digital transformation, which is proceeding... Okay, and in Brazil.

Okay, so in Poland there is... There's not much I can say at this point. As you know, we have a huge duty, as I said, to basically review any offer that comes, and we're exactly doing that. So as of today, there is not much I can tell you about what's going on. Once the transaction, if it evolves or not, we'll basically give you all the details as soon as we have something. So regarding that, that's all I can say at this point. I don't know, Jose, if you would like to talk about it.

Andrea, I don't think we can give you a percentage of completion of the transformation program. The transformation program is a continuum. What I can say is that... end of this year, 80% of our customer base will run in Gravity, which is the back-end banking system that we are developing everywhere. And we are increasing the speed at which global platforms are being deployed across the group, like the credit card platform Hector referred to. The point is that we We should continue seeing the benefits of this transformation for years to come. And this should accelerate as we get the synergies and continue adding more customers with lower costs. This is a virtuous circle.

Just to complement what Jose was saying, it's important what I said just before, Andreas. We are not at the transition part. Probably the most difficult two years of the transformation, given that we are running the old platforms together with deploying the new platforms. And that basically doesn't help a lot in the cost. And even with this, or despite this, we are basically being able to control cost and even lower it in some cases. That basically is all. So because we're gaining market share and we're gaining customers, just we gain nine million customers in a year. So that basically tells you that the model is working and clients are liking what we're doing. In terms of what we're doing, of what's going on in the Brazilian cost of risk, I'll be very brief. First of all, okay, it's important to understand. Today, I would say, if you allow me, it's at its worst. Provisions nevertheless increased 7% quarter to quarter because of also the challenging macro environment. I mean, in the higher inflation, and look at the rates. The rates went all the way. from 2% and we're almost going to get to 15%. So that affects a little bit of the portfolios in that sense. And also the calendar effect in DCB, lower working days in the quarter that impacted the long renegotiations. Whatever. At the end, we see better performance. Retail, though to the cautious approach I was explaining to you about, and we also remain very vigilant, as I was discussing, in terms of credit quality. All right, so in that sense, in Brazil, I believe that we have seen the worst in terms of the cost of risk at this point. In terms of, you were asking as well about the U.K., So in terms of the UK, give me one second. Okay, so in terms of the... UK business is actually performing much better. We have done some hedging on the portfolio. That hedging basically in the portfolio has allowed us to have a much better outlook on NII. We are planning to increase a little bit of volumes because we have seen a very good resistance of the cost-for-risk in the portfolio. And I believe that we could have a much better outlook in the next quarter as well. So the U.K. is performing quite well. And also, at the same time, we are performing what I would say – much better management of the business, and we're already mentioning what we're doing there. And we have seen a very good behavior in terms of, all in all, the operations on the bank and the portfolio.

Thanks very much, Andrea. Operator, could we have the next question, please?

Next question from Francisco Riquelme from Alcantara. Please go ahead.

Yes, thank you. So I want to ask about the U.S., which has surprised positively this first quarter, so several questions to assess the quality of the bid, if you allow me. So cost of funding is falling, so how much is because of open bank deposit gathering, or how much is because of the lower Fed rates? The loan yield is also going up, despite the lower Fed rates, and I thought you were shifting out of sub

And that's mainly because what happens is you get the tax by the tax refunds and the tax backs to the people. And basically people basically have more money. And so we have a lot less in terms of the cost of risk. So that basically always helps out. But nevertheless, this was a problem. It is important to say that I'm going to give you all the details of what you have asked. First of all, I could tell you that we're going to have a pretty good year in terms of what we see in the U.S. They adjusted the target of of 15%. Okay, we believe the outlook of the US business has not fundamentally changed. The new tariff scheme from the imported vehicles should result in higher auto prices, but index is 4% year on year, and 1.3% of year today. This is very supportive of the consumer business that we have that is 60% of the U.S. We are focused on the business that, as I can tell you, that we have competitive advantage and can deliver profitable worth. It's important to acknowledge in the terms of the particular things is the cost of funding, yes, is getting better. Just to tell you that we have 3.5 billion more in the deposits with 90,000 new customers in OpenBank. So it's working quite well, much better than we expected in the beginning. And now that we launched a Verizon account, I think it's going to do much better. That account basically is really starting to work starting this week. So that basically is helping out. Also, it's important to tell you that the behavior of the portfolio after 90 days delinquency is actually still much better than expected at around 60% in terms of delinquencies after 90 days. So that basically is helping us out, and it's exactly what I've been telling you all along this past year and a half.

If I may add, sorry, Paco, very quickly. The increase in the yield of loans, which year-on-year is 21 basis points, is coming because of the drop in low-yield loans in commercial banking and in corporate investment banking. In fact, volumes in auto finance are up year on year. So the strategy in auto finance continues as we discussed. But the improvement in pricing is due to the decrease in low pricing in other parts of the business.

Yeah, and I forgot to tell you, your question in terms of we're doing more subprime? No. No, we are not. We're exactly at the same level of prime that we had. And I was even looking at the numbers. It was around 40% in terms of what we still have in prime and near prime. And so prime total for the year is not going to go further than 15 billion. That has been exactly the same number since five years ago. Okay? So no changes from there.

Thanks very much, Paco. Operator, could we have the next question, please?

Next question from Alvaro Serrano from Morgan Stanley. Please go ahead.

Hi, good morning. I've got two questions, one on strategic growth priorities and second on capital. You just discussed U.S. and I wonder if that's a strategic growth priority market for you and where I'm coming from is obviously I realize Poland is up in the air, but if it does go ahead you're going to be well above 13% CET1 and from a strategic point of view I just want to understand what are the growth priorities would you prioritize US prioritize Europe to redeploy that capital product gaps how do you think about sort of the medium term sort of growth priorities by markets considering the discussions we're having And the second question on capital, there was eight basis points of model headwinds in the quarter. I guess this might be for Jose, but is the 60 basis points still what you expect for the full year? And how many SRTs or capital efficiencies RWA's savings have you done in the quarter considering the wobbles in the credit market? Do you still see SRTs and selling of RWAs? Are you seeing the market there? Are you still able to do these operations? Thank you.

Okay, thanks, Albert. I will start with capital. Yeah, we still think the base case scenario for regulatory and supervisory headwinds is around 60 basis points for the year. But let me remind you that we... So demand continues to be very strong. And to be honest, we are not seeing any widening or increasing in the cost for Santander. In the first quarter, total asset mobilization was around 2.8 billion. So obviously, it was significantly lower than reached with the asset growth net. risk-weighted asset growth was around 12 billion. And we, obviously, there is seasonality in SRTs and asset mobilization because it takes time to prepare the different assets to be sold. We should see a substantial acceleration of asset mobilization in the second quarter already and towards the end of the year. And we would expect to see net risk with Russia growth much closer to zero every quarter from now on.

Thank you, Jose. So, Alvaro, going back to your questions in terms of capital deployment, what we see. First, it's very important to understand that the U.S. is a really important growth market for us. We still, as I said previously, very much concentrated on delivering that 15% ROTE, and we will continue to deploy capital into the U.S. as long as it's profitable. It's very important, and I'm going to give you the hierarchy in terms of where to go. we deploy capital. First of all, we're concentrating on organic growth, okay? Because organic growth, we've been happy, is above 20%, so we will continue to do that, and we will concentrate, again, on organic growth. It's important also that we are deploying money to the buybacks. You have seen the returns that we have done. I said, I mean, we have repurchased over 14% of the capital and returns at around 20%, so quite good. And we're going to be very much concentrated on running the businesses. We are doing it today. I think that's the most important thing is concentrate and focus on continuing the growth of our own businesses and continue with the transformation. That's the best way to deploy our capital and to get the best returns to our shareholders, which I believe we're delivering in a quite strong way.

Thanks very much, Alvaro. Operator, could we have the next question, please?

Next question from Marta Sanchez Romero from . Please go ahead.

Thank you very much. My first question is on the UK. What is the rationale of a potential spin-off of your motor finance business? We read some headlines a few days ago. And then my second question is on Mexico. Could you please provide an update on how the business is going there?

You've been rolling out open banks, so how many units, due to the fact that it's very important to have them separate from the rest and funded in a different way. That's why we call it the consumer bank, and that's why open bank is together with the consumer bank. consumer bank, because that's the model that we would like to follow. So it's not a particular thing of the UK, it's a particular thing of many of the different markets we operate, and you're going to see us continuously doing it in that trend, okay? So it's part of the strategy there, and I believe it's the right strategy given what is going on in Europe. We have been, as you know, ECB Europe has been independent all along, and we have been able to grow it very well. Also, it's interesting to know that we have been able to find out that this business can be parachuted anywhere we want. I mean, we have done it, for example, in Peru, and now we have a very successful auto business in Peru. without having a retail bank. And the same thing we're doing in Colombia without having the retail bank and doing this combination. able to really grow in an important way in these countries with just this business. So we believe that managing it independently makes a lot of sense and allows us to go into further countries. As you know, we are in 28 countries right now with auto business. We continue to be a big auto lender. We really believe in that business, and we will continue to do so in that regard. In terms of Mexico, The Mexican business, as you know, Mexico is actually the one that is most more affected, not by the tariffs, but by what happens to the U.S. So Mexico is very dependent on the U.S. economy. And if the U.S. basically has a hard time, Mexico has a harder time because a third of the economy is affected. the U.S. exports. You're talking about about $500 billion in terms of exports that Mexico does to the U.S. with a GDP of $1.3 trillion. So that basically gives you a perspective on the size of it and how dependent is Mexico on that. Nevertheless, the Mexican economy is doing quite well. is at a very good level of unemployment, and we have seen a very good behavior for our credit portfolio. The cost of risk is actually behaving much better than we expected in our competitors in terms of clients coming in week per week. And also deposits coming in at a good way. We are giving a better treatment in terms of we are paying a little bit more on deposits of what we pay in Santander, and that basically is enabling us to increase the client base there, but we are normalizing it as we speak. So in that sense, what I could tell you, Mexico, we will continue pushing on organic growth and continue managing our bank the way we have been, and we believe that we have really good room for growth in that market.

Thanks very much, Marta. Operator, could we have the next question, please?

Next question from Carlos Peixoto from CaixaBank. Please go ahead.

Hi, good morning. Thank you for taking my questions. Some of them have already been answered, but I would probably focus the discussion on where do you see NII in Spain evolving from here? Previously, you had guided to around a mid-single digit decline, if I recall correctly. First, you seemed to perform quite strongly. Do you think that there's scope to surprise positively on that front. And then perhaps still in Spain, a bit of a view as well on the expected evolution, of course, of risk throughout the year. And if I might extrapolate a bit into the rest of the bank, whether the ongoing uncertainty is caused by tariffs and then potential downturns waves of macroeconomic expectations could lead to a revision of provisioning model inputs and could that trigger some sort of additional provisioning over the coming quarters. Thank you very much.

Thanks, Carlos. I'll take both questions. In Spain, remember that At the end of the year, we said NII might go down, you know, mid single digits, six, seven percent. At that time, we thought rates could, the terminal rating 2024, sorry, five, could be around two percent. As I just mentioned, we've been working very hard to decrease interest rate sensitivity. lengthening the duration of the ALCO portfolio. Right now, in Spain, we have 44 billion of government bonds yielding 3.3% at an average maturity of seven years. On top of that, in the Eurozone, we have a total of 61 billion in government securities. So the interest rate sensitivity in euros is very much reduced. So even if rates were to go down and as low as 1.5% by the year end, we still keep our NII strong everywhere. We don't see any risk to our guidance of 1.15% cost of risk for the year. Again, remember that this 1.15% comprises different behaviors. Countries where cost of risk is going to be very much flat, like in Mexico, countries where cost of risk could be a bit better, like in the U.S. or Spain, countries that are normalizing from negative cost of risk to very low but still positive cost of risk like the UK and countries where we expect a slight deterioration in cost of risk, as Hector mentioned, in Brazil. But net-net, 1.15 is still our central scenario.

Thanks very much, Carlos. Could we please have the next question, operator?

Next question from Britta Smith from Autonomous. Please go ahead.

Yeah, thanks for taking my questions. In Brazil, I'd be quite interested in your thoughts on what you think about the new private payroll initiative through apps, which has received some pickup. Are you intending to participate in this, and how do you think this will impact competition and margins for personal lending business overall? And then Secondly, maybe you can give us a view on what your outlook now is for this year with regards to Polish FX mortgage charges and also whether you've got any updates on the UK motor finance case or the numbers that you indicated in previous calls. Thank you. Thank you.

So, Brita, in terms of the UK motor, I mean, we believe that we're at the right place. We haven't seen any reason, basically, to increase it, and we believe that that's going to be around the number that we need to have. And we don't have any plans, basically, to modify it at this point.

I'll take the other two questions. questions. UK, the mortgage market, well, in terms of volumes, year on year we've seen volumes up 3%, and actually a substantial increase in net interest margin in the UK. The yield on loans, in our case, is mostly mortgages, as you know. It was 3.83% in the first quarter of last year, and it's 4.19% in the first quarter of this year. So substantial improvement in pricing and also better outlook for volume. So we are quite constructive on the outlook for activity in the UK. On the liability side, at the same time, yield on deposits is down from 2.23%. is a good move for activity.

Thanks very much, Britta. Operator, could we get the next question, please?

Next question from Cecilia Romero from Barclays. Please go ahead.

Thank you for taking my questions. Just a follow-up on Marta's question on Mexico. Nubank has just gained on a for a banking license in Mexico this past month. Do you see any impact in the competitive landscape from this, especially for your digital bank in the country? Thank you very much.

Thank you, Cecilia. What I would say is I think that is pretty good news for us that these guys basically turned themselves into a fully licensed bank. because then they have to comply with the same rules as we do as a bank. So in that regard, we are happy that they turned themselves into a fully fledged bank. The competition right now in the market is very tough, very competitive, and we believe that we have all the tools needed to be able to compete head-to-head against any competitor in the market.

Thanks, Cecilia. Next question, please, operator.

Next question from Ignacio Ferezo from UBS. Please go ahead.

Hi, good morning. Thank you for taking my questions. The first one is if you can give us some information on when we should be expecting you to take the decision on the extraordinary capital distribution between 25 and 26, how that extraordinary distribution is going to be split between both years. Second one is if you can share the fully loaded capital number in the quarter, not just the phase 10. And third, if you can provide an update in terms of the hedging per unit.

In terms of the extraordinary capital distributions, we'll do as we see fit. We see it much more towards the year 26. The important fact that we are doing now is basically very much concentrated in delivering the capital. The numbers, as Jose explained to you last quarter, basically what we need to absorb in terms of the regulatory items, et cetera, ones that basically that's having covered, we will continue to build up and we will tell you exactly when the extraordinary capital distribution will happen. Okay?

The fully loaded number. Again, I have to give you a range because the technical notes that the EBA will publish can have a substantial impact long-term. 2030 to 2033, but I'm referring to the credit conversion factors and the uncommitted credit lines, which were still pending a final note on that. So, the fully loaded could range somewhere between 2030 25 to 40, 45 basis points. Today, we see more sort of towards the low end of that range, around 25 to 30 basis points. In our case, most of that impact will come in the next three to five years at most. So we would expect, and this is related to the operational risk. So a central scenario again is that we could have from moving from phasing to fully loaded, something around five basis points per year for the next five years. And then longer term, depending on Everything related to credit, which is mostly 2029 to 2033, there could be an additional level. In this case, 12.9%.

Thanks very much. Thanks very much, Nacho. Operator, could we have the last question, I believe?

Last question from Pablo de la Torre from RBC. Please go ahead.

Thanks for taking my questions. I had two more on the UK. I think the first one was Santander UK was a signatory to a letter to the chancellor requesting the abolition of the ring fencing regime here in the UK. Could you please provide more color on what the actual financial impact you would expect from the ring fencing regime being discontinued? And then more on the trends in the UK in the quarter and a follow-up. I guess, could you just update us on the structural hedge and the shape of NII for the rest of the year that you see in the UK? Thank you.

Okay, so let me take the second question first. Structural hedge is almost $110 billion at a yield of 2.47 or 2.5% to round it up. would expect NII to go up in the UK low single digits, in line with volumes up also low single digits. So generally, the same guidance that we gave at the end of the first quarter. The ring fencing. Well, we are convinced, not only in the UK, but in Europe, that banks can contribute a lot more to improving competitiveness in Europe and in the UK and contributing to growth. And we think that having a simpler a framework to operate will help but that applies to the uk that applies to europe as well in terms of what impact this could have on us is negligible so this is not a question of of a you know, an impact in the near term. It's just that a simpler operating framework in Europe and in the UK should help banks contribute more to improving productivity and growth in the UK and in Europe.

Thanks very much, Jose, for that. Thank you, everybody, for all your questions. The whole IR team is available if you've got any follow-ups. We thank you for your time and wish you a very good day.