Good morning all, and welcome to the Santander Q1 2025 Results Call. We are joined today by Hector Grisi, our CEO; and Jose Garcia-Cantera, our CFO. We will start with a brief presentation on our Q1 results and then open the floor for questions. Hector, over to you.

Thanks, Raul. Good morning, everyone, and thank you for joining Santander's results presentation. Today's presentation will follow the usual structure. Number one, first, I will talk about our results with a special focus on the performance of our global businesses. Jose, our CFO, will then give a deep dive on the financials and I will conclude with some final remarks before opening up for Q&A. We have entered the last year of our strategic cycle well ahead of our plan. Capital allocation, which is further improving our profitability to 15.8% post AT1 and our CET1 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 will reiterate our target to distribute up to €10 billion to our shareholders through share buybacks for '25/'26 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 Q1 '24 with all of our businesses growing. On the back of our solid franchise of 175 million customers that continues to achieve 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 was 81% by almost 2 points to 15.8%. Our balance sheet remains solid with a strong CET1 capital ratio within a plus dividend per share growing 14.5% despite the depreciates across our footprint. Going into more detail line…

Thanks, Jose. As you have seen, this is a great start of the year. We are well on track to achieve our '25 targets, targets that we reiterate. 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 it's also in line with our target of around -- as we profitably grow 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 '25. In summary, very positive trends, which we expect to consolidate in the coming quarters, even in an environment of high uncertainty. As Jose has mentioned, it is precisely in periods of hiring instability when our diversification becomes more evident, acting as a stabilizer. This is key and represents one of our competitive advantages that differentiate us some others.

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

[Operator Instructions] We already have the first question from the line of Sofie Peterzens from JPMorgan.

We think about net interest income going forward. We had 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 it more organically and equally, how do you think about kind of your business areas? Anything that want to reduce your exposure to clearly lay around asset disposals and M&A.

Okay, Sofie. First of all, I think it's important to say that we have a lot of confidence that we can achieve what we have said in terms of the ROTE target of 16.5% under the new economic scenario, okay? I mean, given to the NII. Our business model, first of all, it's important for you to know, has a high degree of earnings predictability despite the macro volatility we have seen. For example, and as you were asking, I'm reiterating the NII guidance despite the outlook for rates being lower than we previously anticipated. Rate count that would be 16.3% normalized. So in that sense, we believe that we will continue in that regard. Excluding Argentina, we reiterate the NII. We believe there's going to be slightly up in constant euros and year-on-year current euros. We're assuming end rates at around 1.5% by the end of '25. The current outlook is around €0.169. 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. Retail NII is positive even with the decline of the NIM, thanks to the hedging strategy that we -- in Brazil, session to lower rates, outlook is improving right. We expected a peak of around €60 million, that's €120 million. So we continue to proactively manage, and we believe that we're going to deliver what we have said. In that regard, begin for you, okay? I know we acknowledge a recent speculation about the regarding a potential transaction involving Santander 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. The discussions will lead to an agreement with them. And in any event, completion of any transaction, we 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 asset disposals or anything like that. We have a fiduciary duty to review anything that comes, and this is exactly what we're doing. I don't know, Jose, if you'd like to comment anything else. José García Cantera: Nothing. You explained very well. We've reduced net interest income sensitivity. We've continued to with the strategy that we started last year. So right now, we have less than half the NII sensitivity we have in euros and in the Brazilian trade in our NII guidance even in rates in Europe go as low as 1.5% by year-end.

The next question comes from the line of Ignacio Ulargui from BNP Paribas.

The first one is if you could give us a bit more color on how we think -- should we think about group cost evolution throughout the GRS? This the run rate that we should expect or incremental efficiency so that further decline to the cost line? And the second thing -- second question is related to DCB Europe. So performance in the quarter has been a bit more difficult consensus was going forward. How should we think about the performance of the unit in the year? How much is the current or would be seen as a one-off in the net profit of 1Q.

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 FX pressure in the current macro environment. Costs were 2% higher year-on-year in Q1 in constant euros, where 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 cohorts. 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, our retail and consumer, as I was saying, 70% of the group cost is flattish and revenue grew in terms of the operational leverage that we're getting. CIB, wealth and payments is around 30% of the group cost in terms of everything that we're doing. And we see sustainable fee income of around 13% year-on-year, and we continue to infer positive operating leverage across all the group. So in that sense, I do believe that we will continue to increment efficiencies in years to come. And much more while the model is being implemented and where…

Operator, could we have the next question, please?

Next question comes from Andrea Filtri from Mediobanca.

You confirmed you are negotiating the sale of the stake in your Polish bank. Can you and how you would intend to deploy the proceeds. By 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 ahead of targets. And what percentage of full delivery, do you feel you are right now? And when will you be able to rightsize staff for the new business model? And finally, can you elaborate on the high other provisions in U.K. and on the outlook for Brazilian cost of risk.

So I will take the number 1 that I ask Jose to help me in the percentage of the full delivery and then we'll comment also on the U.K. and in Brazil, okay? So in Poland, there is not much I can say at this point. As you know, we have a [indiscernible] 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 evolute or not, we will basically give you all the details on banking system that we are developing everywhere. And we are increasing the speed at which global deployed, at least important what I said just before, Andreas. We are not at the transit. We are running the old platforms together with deploying the new platforms and that basically doesn't help a lot in the cost or it in some cases that basically is also because we are gaining market share and we're gaining customers. Just we gained 9 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 or what's going on in the Brazilian cost of risk, I'd be very brief, first of all, okay, it's important to understand that we are taking actions to strengthen the balance sheet. First of all, as I explained last quarter, we're changing the mix towards lower risk portfolio. It's less payroll and unsecured lending is down 10% year-on-year, and we're also increasing collateralized products, which basically are much better in terms of cost of risk, but doesn't have those high margins that we have. Also, we have tightened quite a lot underwriting criteria. In a scale of 1 to 10, we moved from 6, 7 up to 8 and higher. So it's exactly what I was telling you about. So what you're going to see is that over time, the Brazilian cost of risk is going to get better, probably today, I would say if you 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 portfolio in that sense. And also the calendar effect in DCB, lower working days in the quarter that impacted the loan renegotiations. Whatever at the end, we see better performance in retail though to the cautious and we also remain it, all right? So in that sense, in Brazil, I believe that we have seen okay. And I believe the fee outlook in the next quarter as well. So the U.K. is performing quite well and we already mentioned in 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.

Next question from Francisco Riquel from Alantra.

Yes. 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 bit, if you allow me. So cost of funding is falling. So how much is because of Openbank deposit gathering and all out. The loan yield is also going up despite the lower rates. So -- and I thought you were shifting out of subprimal rate. The cost of risk is falling, but the economic expectations have wasn't in the U.S.? So shall we expect any model adjustments related to IFRS 9 in coming quarters. And then the tax rate, if the first quarter could be extrapolated for the year. Overall, the net profit contribution, about €400 million is a big deviation versus consensus forecast. How sustainable is this quarterly run rate for the rest of the year?

Okay. First of all, it's important to understand there is always seasonality in the U.S., and we have always a much better first part of the year towards the second part of the year. And that's mainly all the details of what you have asked. First of all, I could tell you that we have -- we set adjusted the ROTE target of 81 of 15%, okay? We believe the outlook of the U.S. business has not fundamentally a 4% year-on-year in 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 past also, it's important to tell you that the behavior of much better than expected at around 60% that is much better than we expected. It was all the way to 90%. It's still at around 60% to 65%, all right? It's important to tell you that CIB build-out continues to be a significant driver for fee growth is talking -- we're talking about 47% growth outlook for the U.S. and to be able to get to the numbers that we have discussed. José García Cantera: Sorry, Paco very quickly. So 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...

Operator, could we have the next question, please?

Next question from Alvaro Serrano from Morgan Stanley.

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 realized 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 -- 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 points model headwinds in the quarter. I guess this might be for Jose is the 60 basis points still what you expect for the full year and how many SRT or capital efficiencies, RWAs savings have you done in the curve. José García Cantera: Going on. In terms of SRT, the market has not really been very much a private credit market at prices which are a little bit better than the prices we had in the first quarter of last year. Total asset mobilization was around €2.8 billion. So obviously, it was significantly lower than -- and we -- obviously, there is seasonality in SRT and asset pubilization 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 as a growth much closer to 0 every quarter from now on.

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 are still, as I said, very much concentrated on delivering that 15% royalty. 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 do we deploy capital. First of all, we'll concentrate on organic growth, okay? Because organic growth we've been having is above 20%. So we will continue to do that, and we will concentrate again on organic growth. It's very important also that we are deploying money to the buybacks, as 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 concentrated and focused on continuing the growth on 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 a strong way.

Operator, could we have the next question, please?

Next question from Marta Sanchez Romero from Citi. Marta Sánchez Romero: My first question is on the U.K. What is the rationale of a potential spin-off of your motor finance business. We read something, but on how the business is going there? You've been rolling out Openbank. So how many deposits have you been gaining under that franchise? Just what you're seeing generally in terms of loan detection, et cetera. And if you were to do you think you have the political cloud and just the right size to buy anything without obstacles?

I mean what we're doing in the motor finance business is exactly what we're doing in the rest of the world. I mean we are actually doing that in every single one of our units due to the fact that it's very important to have them separate from the rest and fund it in a different way. That's why we call it the consumer bank, and that's why Openbank is together with the consumer bank because that's secular 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 was going on in Europe. We have been -- as you know, DCB 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 without having a retail bank. And the same thing we're doing in Colombia without having the retail bank and doing this combination. So -- and we have been 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 allow us to go into further countries. As you know, we are in 28 countries right now with the 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 bought by what happens to the U.S., okay? So Mexico is very…

Operator, could we have the next question, please?

Next question from Carlos Peixoto from CaixaBank.

Hi. Good morning, some of them have already been answered, but I would probably focus the discussion on when you throughout the year? And if I might extrapolate everything to the rest of the auto bank whether the ongoing uncertainties caused by tariffs and the potential downgrades of macroeconomic expectations could lead to a revision of provisioning models inputs? And could that trigger some sort of additional provisioning over the coming quarters? José García Cantera: I'll take both questions. NII in Spain. Remember that at the end of the year, we said NII might go down mid-single digit, 6%, 7%. At that time, we thought rates could -- the terminal rate in 2025 could be around 2%. As I just mentioned, we've been working very hard to decrease interest rate sensitivity, lengthening the duration of the ALCO portfolio €34 billion of government bonds yielding 3.3% at an average maturity of 7 years. On top of that, in the euro zone, we have a total of €61 billion in government securities. So the interest rates in euros is very much reduced. So even if rates were to go down and as long as we estimate where we had it at the beginning of the year. In terms of cost of risk in Spain, we expect cost of risk to be below 50 basis points in my presentation. The key variable is unemployment is the labor markets. Obviously, GDP needs to be updated in the models, but the impact of a downgrade or slower GDP growth, it's very, very -- it's very small compared to the impact of unemployment. So as long as labor markets remain what they are, and they are very strong everywhere, we don't see for the year. Again, remember that this €115 million 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 U.K. and countries where we expect a slight deterioration in cost of risk, as Hector mentioned in Brazil. So -- but net-net, €115 million is still our central scenario.

Could we please have the next question, operator?

Next question from Britta Schmidt from Autonomous.

In Brazil, I'd be quite interested in your thoughts on what you think about the new product payable initiative throughout 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 the quotas FX mortgage charges and also whether you've got any updates on the U.K. motor finance case or the numbers that you indicated in previous calls?

So Britta, in terms of the U.K. motor, I mean, we believe that we are 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're not -- we don't have any plans basically to modify it at this point. José García Cantera: I'll take the other 2 questions. U.K., 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 U.K. 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 is 4.19% in the first quarter of this year. So a substantial improvement in pricing and also better outlook for volumes. So we are quite constructive on the outlook for activity in the U.K. On the liability side, at the same time, yield on deposits is down from 2.23% last year to 1.99% this year, and that is what explains the very good evolution of net interest margin in the U.K. And in Brazil, the new legislation on payroll lending. Well, this will clearly widen the possibilities. I think this is going to make the market more attractive, it's extending the possibility to many -- still don't have the details. And I think details. So I think we need to wait for the details to really have a good assessment of what this could mean for the country as a whole, for the banking system and for Santander. But generally speaking, it's a good move for activity.

Operator, could we get the next question, please?

Next question from Cecilia Romero from Barclays.

Just a follow-up on Marta's question on Mexico. Move on to gain an approval 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.

What I would say is I think that it's pretty good news for us that these guys basically turn themselves in a fully licensed bank because then they have to tie with the same rules as we do as a bank. So in that regard, we are happy that they turn 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 at the head-to-head against any competitor in the market.

The next question, please, operator.

Next question from Ignacio Cerezo from UBS.

The first one is if you can give us some information on when we should be expecting you to take the decision on 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 1. And third, if you can provide an update in terms of the hedging per unit you do in terms of FX for the P&L?

Okay. 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 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 have been covered, we will continue to build up, and we will tell you exactly when the extraordinary capital distributions will happen, okay? José García Cantera: About the fully loaded number. Again, we -- I have to give you a range because the technical notes that the EBA will publish can have a substantial impact long term. We're talking to 2030 to 2033. But I'm referring to the conversion fact, the credit conversion factors and the uncommitted credit lines which we are still pending a final note on that. So the fully loaded could range somewhere between 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 3 to 5 years at most. So we would expect -- and this is related -- so our central scenario again is that we could have from -- moving from facing to fully loaded, something around 5 basis points per year for the next 5 years. And then longer term, depending on everything related to credit, which is mostly 2029 to 2033. There could be an additional factor. But for us, that should be very small compared to what the industry could see.

Sorry, Ignacio. I think we missed your hedging question. Would you mind repeating that?

Give us an update on how much of the different units P&L you're hedging for next years? José García Cantera: No, right now for 2025, everything is hedged. So the expected profits from all countries, with the exception of Argentina, we cannot hedge Argentina, but for most for all other countries, the P&L is hedging. And as you know, we always fully hedge the capital ratio. That's it. It means the excess capital using European capital rules in each country above the group's capital level, in this case, 12.9%.

Operator, could we have the last question, I believe.

Last question from Pablo de la Torre from RBC.

I had two more on the U.K. I think the first one was Santander U.K. was a signatory to a letter to the chancellor requesting the abolition of the ring-fencing regime here in the U.K. 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 U.K. in the quarter and 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 U.K.? José García Cantera: Okay. So let me take the second question first. Structural hedge is almost €110 billion at a yield of 2.47%, 2.5% to round it up. We would expect NII to go up in the U.K. 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 U.K. but in Europe that banks can contribute a lot more to improving competitiveness in Europe and in the U.K. and contributing to growth. And we think that having a simpler framework to operate will help but that applies to the U.K. and 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 an impact in the near term. It's just that a simpler operating framework in Europe and in the U.K. should help banks contribute more to improving productivity and growth in the U.K. and in Europe.

Thanks very much, Jose, for that. Thank you, everybody, for all your questions. The whole IR team is available ops. We thank you for your time, and wish you a very good day.