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Presentation

Begoña Morenés: Good morning everybody and welcome to Banco Santander’s Conference Call to Discuss our Financial Results for the First Quarter of 2024. Just as a reminder, both the results report and presentation we will be following today, are available to you on our website. Let me just highlight that this is the first full quarter in which we are publishing results with our global businesses as primary reporting, aligned with the way we are managed, as we announced late last year. Secondary reporting will be what used to be primary until 2023, mainly country reporting, European DCB, et cetera. As we will explain later, changes versus previous periods are done on constant euros with the exception of Argentina, which is presented in current euros to avoid distortions.

All information will be, as always, available in the Excel Sheet and report that is published on our website. But now to the presentation. I am joined here today by our CEO, Mr. Héctor Grisi; and our CFO, Mr. José Garcia-Cantera. Following their presentations, we will be opening the floor for any questions you may have in the Q&A session. [Operator Instructions] And with this, I will hand over to Mr. Grisi Héctor, the floor is yours.

Héctor Grisi: Thank you, Begoña. Good morning to everyone, and thank you for joining us. First, let me share with you what we will focus on today. First, I will talk about our Q1 results on the context of our strategy. Second, José will then review our financial performance in greater detail, and then I will conclude with some final messages. Let’s start with Q1. Q1 was another very strong quarter for Santander. Positive contributions for all our businesses, demonstrating the strength of our strategy and our business model. We are presenting a profit of €2.9 billion, that’s an 11% increase versus Q1 2023, 9% in constant euros. As Begoña excluding the impact of the temporary levy of revenue paid in Spain recorded in full in Q1.

If you include that, this was another record quarter. Our customer focus and scale are driving profitable growth. Over the last year, we welcomed 5 million new customers and our revenue in Q1 increased close to double-digit year-on-year in constant euros, and that’s supported by all global businesses and the regions. We’re executing on our transformation plan, which is already supporting efficiency improvements, leading to growth in profitability and as a result, our efficiency ratio improved 1.4 percentage points year-on-year to 42.6%, and net operating income has grown double-digit year-on-year for the last eight quarters. Our return on tangible equity rose 55 basis points year-on-year to 14.9%, even more, 16.2% if we analyze the impact of the temporary levy in Spain.

Finally, our solid balance sheet. With some capital ratios and robust credit quality, it contributed to strong profitable growth and more importantly, to shareholder value creation. TNAV plus dividend per share grew by 14% year-on-year from a combination of higher profit, increased shareholder remuneration, and fewer shares due to the buyback programs we have and we are still executing. In the last 12 months, we increased TNAV by more than €4.5 billion. If we take a quick look at our income statement, as we usually do, we present growth both in current euros and in cost in euros, although there were no material differences between them this quarter. Part of the reason is that for the first time, the variations in constant euros applied to all countries except to Argentina, which is in current euros to mitigate distortions from the hyperinflation.

Our P&L was strong from top to bottom. The strong top — number one, strong top line performance, driven both by NII, record fees supported, as I said, by all the global businesses and regions. Second, revenue grew while costs remained flattish in real terms, in line with expectations and relatively stable over the last three quarters. Third, we demonstrated the sustainability of our results with 11% growth in net operating income. Fourth and low loss provisions continue to normalize as expected. Finally, as I mentioned earlier, during the first quarter, we recorded a €335 million charge related to the temporary levy in Spain, which was 50% higher than in 2023. Excluding this impact, profit rose 14% year-on-year, implying a growth of 12% in constant euros.

Jose will go into more detail into these points later on. As you can see, this is a great start of the year, and we are well on track to achieve our 2024 targets, targets that we comfortably reiterate. Good business dynamics supported high single-digit revenue growth. Our efficiency ratio improved, even as we’re investing for the future through one transformation and it is already better than our target in 2024. Cost of risk remained fairly stable, in line with our target of keeping it around 1.2% at the end of the year. The fully loaded CET1 ratio remained at 12.3% in Q1, having profitably grown our regions organically and accrued distributions in line with our 50% payout and we have absorbed regulatory impacts. We are comfortably in line with our target of keeping it above 12% even after Basel III implementation, and Arrote grew year-on-year 16.2% putting us on track to reach our target of 16% for 2024.

As you can clearly see, we’re achieving these results backed by the operational leverage provided by one transformation, which is improving both revenue and cost. The efficiencies we have captured and the impact of our active spread management have already contributed 174 basis points of improvements since 2023. Our global businesses continue to contribute to the group’s profitability and have delivered 88 basis points in efficiency gains. Our initiatives to better serve our multinational corporates and SMEs through our regional coverage model continued to grow well with revenue increasing 5% year-on-year. Finally, our proprietary and unique global technology capabilities have already generated 63 basis points in efficiency savings so far. Our global approach to technology has allowed us to capture €50 million in additional savings in Q1 for a total of €237 million since 2022.

This has been mainly driven by the deployment of gravity by new global agreements with vendors and process optimization in operations and the implementation of the new IT and Ops shared services. Our business group overview shows that our common operating model supports value creation based on profitable growth. From the creation of a best-in-class customer experience and operational leverage from our global platforms and common tech. This is helping us to accelerate the achievement of our investor rate targets. This operational leverage is already very evident in our retail and consumer businesses, where the efficiency ratios improved close to 400 basis points and 200 basis points year-on-year, respectively. In CIB, we are building a world-class business, leveraging our ISO expertise to roll our US franchise without changing the risk profile, proof of which is the revenue, which grew 5% and reached another quarterly record, supported by the good performance in the US and strong client flows.

Wealth continued to grow strongly, improving both efficiency and profitability. And finally, in payments, where we are managing more than 100 million cards group-wide, we are seeing good activity trends. In Q1 2023, we had a one-time revenue from a commercial agreement with one of our partners in Brazil. Excluding this impact, revenue grew 7% and efficiency remained flat year-on-year, despite our investments in deploying our global platforms. Now let’s look at each business in greater detail. First, our goal in retail is to become the number one bank for our customers, which is key to our strategy. At the same time, our retail business is a great example that demonstrates the benefits we are generating from one transformation, as operational leverage has significantly improved the efficiency ratio.

First, we continue to innovate to offer the best customer experience. For example, in Spain, our new digital onboarding is contributing to 630,000 increase in net new customers year-on-year, while Santander Key already enables more than 4 million customers to approve transactions securely with a single click using biometrics. Second, we continue to implement a common operating model across our banks, increasing automation to free up time for our people to focus on commercial activities. As a result, the dedication of resources to non-commercial activities have dropped by 4% in the last nine months. Third, the deployment of our own global platform continued in Q1, and Gravity is already operational in Spain, the UK, Chile and the US. From a financial perspective, this is also a great moment for retail.

We are managing margins very carefully to make the most of the tailwinds from higher for longer interest rates in Europe. And at the same time, benefit from our negative sensitivity to interest rates in South America on top of the strong operational leverage that we are obtaining from one transformation. As a result, our profit grew 22% year-on-year, with the following three things to highlight. First, double-digit revenue increase, driven by good performance, both in NII and fees, with all the regions growing year-on-year, especially Europe and South America. Second, cost under control, flat in real terms as the benefits from our transformation in some units are offsetting the impact of inflation on salaries and investments. And third, provisions dropping slightly with cost of risk fairly stable at the comfortable levels across all the group.

The execution of the strategy is driving profitability improvements with growth increasing to 3% to 17.6%. In Consumer, we are working to become the partner of choice for our customers. We offer best-in-class global solutions, which are integrated to our partners’ processes. Last year, we launched a new digital onboarding to pure direct auto players, which has been received well because it allows our customers to compete their vehicle acquisition and financing fully aligned. We’re also progressing well on simplification and automation, supporting a 15 basis point decline on our cost to total volumes ratio. Deploying global platforms is key to scaling our business, reducing cost-to-serve and improving profitability. We recently announced the launch of Openbank in North America this year, which will result in having a national deposit gathering platform for the US.

Consumer is also delivering operational leverage with net operating income growing by 7% year-on-year, driven by the following three elements. First, an increase in revenue due to positive commercial dynamics with volume growth, mainly in Europe and Brazil, good NII performance and 22% fee growth, mainly from insurance. Second, cost dropped 4% in real terms as a result of the execution of our strategy and the efficiency plans we implemented last year in a more complex interest rate environment. Third, provisions increased year-on-year, mainly due to the expected cost of risk normalization in the business, both in Europe and the US, though still below the historical averages as well as some impact from volumes and regulation. Last year, we started to prioritize profitability over volumes.

So we are originating at high [indiscernible]. The increase of volumes and good profitability levels of the new business makes us confident that profit will be growing close to double digit year-on-year by the end of 2024, even after the normalization we expect on provisions. As you can see, we are building a world-class CIB business to help our clients that leverages our strengths to grow profit, while maintaining, at the same time, the same risk profile and is well-under control. We are deepening our client relationships and increasing our capabilities in the US, building on areas of expertise to accelerate growth across all regions. We had a good start of the year, and we have a very strong pipeline with markets also performing strongly across the asset classes.

As a result, revenue in CIB in the US grew 35% year-on-year. Also, we continued expanding and strengthening our centers of expertise including key industry groups, such as synergy transition, healthcare, among others, and product teams such as M&A and ECM. At the same time, active capital management continued to support greater origination and high profitability levels. Our business through CIB is capital-light, very much linked to customers and with fees growing at a good pace year-on-year. CIB had a good result in Q1, with revenue up 5% year-on-year, even after the record in Q1 in 2023, making Q1 2024 the best quarter ever for the business. Almost all of our growth came from customer flows and was mainly supported by strong performances in global markets and global banking, both in global debt finance and corporate finance.

Additionally, we are investing to expand our business to drive additional efficiency gains and further improve our profitability. As for wealth management and insurance, we continue our journey to build the best private banking and insurance manager in both Europe and the Americas. First, in Q1, Euromoney once again named us the best private bank in LatAm and the best international private bank in eight countries. Second, a major driver for growth is wealth, is collaboration with other businesses, especially retail and CIB, by capturing network benefits. Third, we are developing global platforms across the three businesses, while we digitalize our distribution and advisory capabilities to improve customer experience and promote growth. One example is the development of a global investment platform, which we began in Q1 and will enable our clients to manage any kind of investment across all countries.

In summary, customer experience, efficiency and time to market improvements are accelerating growth helping us to maintain our high profitability levels. Attributable profit grew double-digit on the back of strong private banking activity in a favorable interest rate environment, with a total fee contribution from Santander Asset Management and Insurance growing at or close to double-digit, while costs remained fairly stable in real terms. As a result, efficiency improved four points year-on-year, and RoTA rose nine points to 80%. Finally, payments. We have a unique position as we are on both sides of the value chain, issuing where we manage more than 100 million cards group-wide and merchant acquiring. We are gaining market share as we strengthen Getnet’s value proposition for customers through continued product development and a greater offering of value-added services.

Growth of active merchants has been particularly strong in countries where Getnet has been mostly rolled out, such as Chile, Spain, or Portugal. We continue to migrate significant volumes of payments to the PagoNxt global platform to leverage on the group scale. Around 1 billion annualized transactions are already running through the new global platform, and we expect to double this volume by the end of the year. Also, we have started to deploy Plard, our global cards platform. We have more than 45,000 debit cards managed already in Plard, and we are starting the migration of the debit portfolio with 1.5 million cards in dual-run in Brazil, and we have launched a friends and family pilot in Chile. From a financial performance perspective, payments delivered a strong quarter, with good underlying revenue trends in both businesses, which combined with a positive performance of provisioning cards, drove 22% year-on-year profit growth.

Finally, PagoNxt EBITDA margin reached 17%, showing good progress towards reaching our 30% target by 2025, which we set at our last Investor Day. Cost efficiency and CapEx optimization will continue to drive profitability in the coming quarters. As I mentioned in my opening remarks, the result of our strategy and our strong first quarter is aligned with our new phase of our shareholder value creation. Q1 has led to outstanding profitability growth and double-digit shareholder value creation for the fourth consecutive quarter. As I mentioned earlier, RoTE was 16.2%, if we analyze the Spanish bank levy, up 93 basis points year-on-year, reflecting the high levels of new business profitability. Earnings per share rose to $0.17, up 14% year-on-year, supported by a strong profit generation and the lower number of shares following the buyback programs we have and are still executing.

Finally, in the quarter, we delivered 14% growth in shareholder value creation, reflecting our disciplined capital allocation and the impact of the share buybacks. Buybacks continue to be one of the most effective ways to generate value for our shareholders. If we include in full the share buyback that is currently underway, where we have bought back around 11% of our outstanding shares in the last three years, providing a return of investment of approximately 19% to our shareholders. I’ll leave you now with José, our CFO, to go in through more detail on our quarterly financial performance. Thanks, José

José García-Cantera: Thank you, Héctor, and good morning, everyone. I’ll go into more detail on the Group’s P&L and capital performance. But let me first remember that we are presenting growth rates, both in current and constant euros and also that the full impact of the Argentine peso devaluation last December for the whole year was accounted for in the fourth quarter, which introduces some distortions quarter-on-quarter. Let me also, as Sector has mentioned, highlight that we are presenting constant what we present here a constant is constant. That means local currency for all countries, but Argentina. Argentina is in current. By doing that, we try to avoid the impact of hyperinflation. But also by doing this, we are lowering the growth rates that show us constant.

For instance, net profit instead of growing 9%, with Argentina in constant is growing 13%. NII is growing 20% instead of 16%, fees would be up 8% instead of 5% or total revenue would be increasing 12% instead of 9%. So we are trying to be transparent and trying to show the underlying performance of our business without taking into account the impact of hyperinflation in Argentina. Now let me go to the main components of the P&L. As Héctor said, we are reporting exceptional results for the first quarter. We are starting to see the benefits of our transformation programs in terms of operating leverage in retail and consumer and obviously, the very positive momentum we are experiencing in both Europe and Latin America at the same time. Revenue grew 10%.

Actually, 12%, if we only look at customer revenue, supported by strong NII, highest quarterly fee income in our history, while costs were fairly stable for the third quarter in a row. Net operating income grew 11% year-on-year. Cost of risk remained fairly stable, supported by strong labor markets and risk management provisions increased slightly due to the expected normalization in some countries, but we see no asset quality pressures anywhere. Additionally, we had a higher impact from taxes year-on-year, driven mainly by stronger performance in Brazil, where we have a higher effective tax rate than the group average. And also the fact that the temporary levy in Spain is not tax deductible from the corporate tax level. The full impact of this tax levy in Spain is accounted for in the first quarter and is 50% higher than last year.

As you can see on the right-hand side, excluding this impact, profit would have increased 14% year-on-year or 9% quarter-on-quarter, and Q1 would have been another record high. Let me break down the P&L. Starting with revenue. There was a strong growth driven by customer revenue again this quarter, which made up more than 95% of our total revenue and explain almost all of the growth in the quarter. Year-on-year, revenue increased 9% with all businesses and regions contributing. This growth was primarily supported by our retail business, which is growing at double-digit rates with good performance in net interest income and fees across regions and consumer driven by our good profitability levels in new businesses and a strong volume growth in Europe and Latin America.

CIB also had a great performance as revenue reached an all-time high in the quarter backed by outstanding performance in the US. We also delivered double-digit revenue growth in wealth, driven by solid commercial activity in private banking and in asset management. Payment is also showing very good underlying trends year-on-year as both PagoNxt and cards are growing if we exclude the onetime positive impact recorded in Brazil in the first quarter of last year, as Hector has explained. Finally, at the corporate center, high liquidity buffer remuneration was compensated by the negative impact of FX hedging. Most of our revenue growth came from NII, which contributed — which continued growing in the quarter, particularly in retail and consumer, representing 82% of group’s NII, it went up 16% year-on-year on the back of active price management in retail in Europe, especially deposits and also in Mexico and the benefits from the negative sensitivity to rates in South America, both in retail and consumer and the fact that now forward rate curves in Europe are a bit higher.

In terms of profitability, we have improved net interest margin year-on-year even if we exclude Argentina. This was mainly explained by higher yields on assets as we actively manage credit spreads to take the most out of our — of the interest rate environment. These gains from credit yields more than outweighed higher funding costs, which we were able to contain thanks to our disciplined deposit remuneration in Europe, and deposit re-pricing downwards in Brazil, leading to a notable margin expansion. The only country where we saw a slight increase in EBITDA in the quarter towards the UK. Going forward, we expect the positive momentum in Europe to continue, we expect to benefit from the interest rate cuts in South America, and we expect an improvement in our consumer business throughout the year, boosted by high profitability levels of the new origination.

As a result, very good NII outlook for the year. In the context of low fee income growth in general because of subdued loan demand and weaker consumer activity, we generated record net fee income of €3.2 billion in the quarter. Even if we exclude Argentina, growing strongly quarter-on-quarter despite the strong seasonality in payments in the fourth quarter. We also delivered solid growth year-on-year, supported by most of our businesses with retail growing 9%, driven mostly by higher activity in Brazil, outstanding performance in consumer fueled by insurance. CIB also growing from very high levels in the first quarter of last year, especially in the U.S. on the back of our strong dynamics in DCM and customer-related markets activity. Wealth also had a great performance, particularly in private banking, higher volumes in asset management, and protection businesses — business performance in insurance.

Payments was impacted by the usual seasonality from Christmas and Black Friday in the fourth quarter and the aforementioned one-time positive fee recorded in the first quarter of 2023 in Brazil. In terms of efficiency, significant improvement in our ratio to 42.6%, which remains amongst the best in the sector. As we have already mentioned, structural savings from our transformation are already becoming evident in terms of operational leverage, especially in retail and consumer as costs remained stable at around €6.5 billion for the last three, four quarters. Average inflation continued its gradual decline across our footprint, dropping from 12% a year ago to 4% in the fourth quarter, and we were able to maintain costs fairly flat in the year in terms of real terms despite the lagged effect of higher inflation on salaries and other costs and our investments in transformation.

By business, costs remain well under control in retail, consumer, and wealth, which represents 75% of our total cost base. However, total cost rose 5%, reflecting our strategy to reinforce our CIB franchise and develop global payments platforms. We expect a structural operational leverage from our new operating model to become even more evident in the coming quarters and years. Credit quality, as I have mentioned, no signs of any pressure. In terms of quality — credit quality, which remains robust with cost of risk fairly flat in the quarter across our footprint, in line with our expectations. By global business, credit quality remained stable at low levels in the quarter in retail, which represents 50% of the group’s loan loss provisions with some underlying trends across the different countries.

Cost of risk improved in Spain, remained at very low levels in the U.K., while Mexico continued to normalize in line with expectations. In consumer, what represents around 36% of group’s loan loss provisions, cost of risk normalized to 2.12%, also in line with our expectations, but still below the historical average, both in DCB Europe and in the U.S., which is still 5 percentage points below 2016 levels. Going forward, we are confident that our cost of risk will remain around 1.2% in 2024, a strength in consumer and Mexico towards more normalized levels are expected to be offset by better performance in retail, especially in Brazil, improving mostly in the second half of the year; Spain will be stable; and in the U.K., that will also remain at very low levels.

Closing with capital, our fully loaded capital ratio remained at a very comfortable level of 12.3%, backed by a strong capital generation and significant risk-weighted asset mobilization. This quarter, we generated 32 basis points organically after having absorbed 5 basis points due to the temporary levy in Spain and an increase in risk-weighted asset density related to a change in mix. We recorded 22 basis points charge from — for shareholder remuneration, in line with our 50% payout. There are also 24 basis points from regulatory charges related to the maturity measure of CIB models, which is expected to be temporary and revert next year with the implementation of Basel III. Finally, there was a 14 basis point positive impact mainly related to intangibles and the valuation of available-for-sale portfolios.

We continue to deploy capital to the most profitable growth opportunities and expand our asset mobilization capabilities to maximize capital productivity. Our disciplined capital allocation is resulting in a new book, return on risk-weighted assets of 2.8% in the quarter, well-above that of our back book and higher than last year’s. We created a centralized asset management desk with the aim of optimizing capital deployment. Last year, we disposed of an amount of capital risk equivalent to €30 billion in risk-weighted assets at the cost of capital of around half of that of the new origination, our target this year is to do even more. That’s all from my side, Héctor over to you.

Héctor Grisi: Thank you, José. First of all, a quick reminder. We continue to make good progress towards the targets we set for 2025. Thanks to our unique business model and the execution of the strategy with, first, a strong and increasing organic capital generation and execution of our capital allocation plans. Second, we continued improving our profitability. Investor Day target, just to remember you, was 15% to 17% RoTE. And by growing both profit and profitability sustainably, we have been able to deliver 14% value creation. And a summary to finish off. Q1 2024 was another strong quarter, supported by recurrent customer revenue growing high single digit, backed by a strong performance in all our businesses and regions.

Our structural change to a simpler and more integrated model is driving efficient improvement and profitable growth, which is essentially evident in retail and consumer. Our rock solid balance sheet and robust credit quality are contributing to growth and double-digit shareholder value creation. This is very strong Q1 2024, we are confident that we will achieve our 2024 targets, as well as those we gave on our Investor Day in 2025. First of all, it’s important to acknowledge that it’s supported by our global businesses as we continue executing on one transformation. From a revenue perspective, we expect good NII performance in the year. This is based on, first, the positive momentum in Europe, which will continue at least in all of the quarter; second, enjoying the benefits from the interest rate cuts in South America; and third, the significant improvements in consumer boosted by the high new business profitability.

The benefits of the operational leverage from one transformation program are expected to become even more evident during the rest of the year and well into 2025. Cost of risk is expected to be contained and in line with our expectations in the context of strong labor markets. As we deploy capital to the most profitable growth opportunities, the group’s RoTE improved from 16.2% in Q1 2024, and we expect it to remain at 16% in line with our targets for 2024. All-in-all, our TNAV plus cash dividend is growing double digit, well on track to meet our target through the cycle. And now we would be happy to take your questions. Thank you.

Begoña Morenés: Thank you, Héctor, and thank you, José. We can start the Q&A session now.

Operator: Thank you. [Operator Instructions] We already have the first question from the line of Francisco Riquel from Alantra. Please go ahead.

Francisco Riquel: Yes. Thank you for taking my questions. First is on NII in Spain, which has surprised positively. We have seen local peers raising guidance. So I wonder if you can update on your guidance for 2024 and detail the main assumptions behind it? And then how big a lift shall we expect in 2025 with the current yield curve? Also connected to this, the NII in the corporate center because the Spanish liquidity, I understand is remunerated here. So you can provide any comment to better assess the combined NII performance of Spain and the corporate center? And my second question is on capital after the 20 bps front loaded in first quarter for Basel IV. You mentioned in the past 30 bps left for January 1, 2025. So, meaning that you’re already in line with the 12% pro forma post Basel IV.

I wonder if you can update on this Basel IV regulatory impacts and other headwinds that we should expect? And where do you see your CET1 target in the context also of potential countercyclical buffers? Thank you.

Héctor Grisi: Thank you, Francisco. Let me explain exactly how do we see NII basically going in Spain. First of all, I mean, we see really good trends as you can see in retail due to the fact that we had really good growth in clients. I basically talk about 630,000 net new clients in just one year. And the trend continues basically very positive during the first quarter as well, which we can basically have been able to add 130,000 new clients. It’s important to say, and as I commented, that we see this continued trend also on the interest rates towards the second quarter to continue to go. All the different business basically are doing quite well. As you can see, I mean, CIB is also performing quite well and the commercial business, too, and that will basically give you the idea that we expect to have a very strong 2024 all along in NII in Spain. In terms of the corporate center of what we see there on capital, I will ask basically Jose to give you the details.

José García-Cantera : Thank you, Héctor. Let me complement those comments. With the current forward rates, as Héctor said, we see NII still up in the second quarter, basically flat in the third and a bit down in the fourth. This would lead to NII in Spain year-on-year, up low single digits. Remember that we expected NII in Spain to drop a bit year-on-year in 2024 relative to 2023 with the current level of interest rates and forward rates, we see actually NII up in Spain year-on-year. In the Corporate Center, the first quarter is a bit abnormal, because we increased the hedging. We always try to hedge at the beginning of the year based on our expectations for the different currencies. So I would expect the NII in the corporate center to gradually perform better, as future charges might be lower.

Capital, Basel III. Let me make a general comment before I go into Basel III. There are a few elements — well, several elements of uncertainty to European bank’s capital and capital requirements in the coming quarters. The first is the U.S. has stated that they will not implement FRTB for the time being and that they will analyze the proposed Basel III rules to avoid having any unexpected impacts. impacts. It is therefore very likely that both the FRTB and the Basel III rules in the US will be quite different from the initial proposals. Europe needs to react to this because this will put European banks at a profound competitive disadvantage. It is not unlikely though that the commission will make use of its delegated act to postpone the implementation of FRTB beyond January 1, 2025.

However, we don’t think CRR is going to change. In addition, the EBA needs to publish 140 technical papers to interpret the new directive — capital directive. The EBA mandate is that in aggregate, all these — the impact of all these papers must be neutral. But that doesn’t guarantee that everyone and all these papers will be neutral themselves. This is the case, for instance, in the paper presented for consultation on advanced operational risk model calculation. So all in all, with the information we have today, we maintain our estimate for a very low day one impact of Basel III. So on January 1, the impact will be very low, zero to 20 basis points, and the fully loaded impact of between 30 to 50 basis points as we had commented before. So all in all, we would expect to be above 12% fully loaded and phase-in once Basel III comes into effect.

Countercyclical buffers. If in Spain, in Spain we have approximately 25% of our risk-weighted assets for the group. So any countercyclical buffer will have a quarter of that amount impact on capital for the group. So if it’s 50 it will be 12 basis points. If it’s 100 basis points, it will be 25 basis points. Remember, however, that from the time countercyclical buffers are announced to the time they’re implemented, there is a one-year lag. So any announcement will not impact capital requirements for a year. It most likely will not impact 2025 capital requirements or they might impact year-end capital requirements in 2025, but not 2024.

Begoña Morenés: Thank you. Can we have the next question, please?

Operator: Question from Ignacio Ulargui from BNP Paribas. Please go ahead.

Ignacio Ulargui: Hi, good morning. Good morning, everyone. Thanks for taking my questions. I have two, if I may. The first one is on fees and fee generation in the quarter was quite good when looking to the coming quarters, what should we expect? Should we expect an acceleration of growth, driven by the good performance of CIB and Wealth Management insurance? Linked to this, I just wanted to see if there was any kind of one-off in the fees reported in the US, which jumped out quarter-on-quarter? The second question is a bit linked to the capital debate. And I just wanted to better understand what is the organic generation that you expect, I mean, as profitability improves, I feel that 10 to 15 bps is to be a bit low and you could probably generate a bit more or you would be able that to additional growth of our revenue base? Thank you.

Héctor Grisi: Thank you, Ignacio. Okay. In terms of fee generation, okay, we have, as you can see, I mean, a strong Q1, 14% quarter-on-quarter. That’s an 18% quarter-on-quarter growth in retail. Retail represents basically half of the quarterly growth, and it’s basically solid commercial activity in all the regions and it’s continued to do so, okay? You talk about the outstanding performance in CIB, that’s 39% quarter-on-quarter. That’s record revenue. This is basically what we’ve been doing in global transactional banking, and there is no one-offs whatsoever in all the bank and in the U.S. It’s basically business as usual and client flow from all accounts, okay? In wealth, we have also a very strong recurring activity in private banking.

Also, we have higher volumes in asset management. And as well in the insurance business, we have seen a very good trend and probably we see a very good trend coming from Brazil towards the end of the year that could help us out, okay? Consumer growth came mainly from Europe, okay? Volumes grew and also the insurance fees recovered in Europe, and that shall help us as well. For 2024, we expect that trying to continue, as I told you, the fees are growing to reach mid to high single-digit. This is not an official target, but I can tell you that this is a trend that we see. This is mostly driven by the increase in CIB with the connectivity we have on wealth and payments and the growth in customer and transactionality. And most of the global businesses, we experienced double-digit fee growth in 2024 as we changed the business model and we concentrate on the principality of the account.

It’s very important that you understand what the model change is about. The model change is exactly about that. When I was talking about to become the number one bank to our clients, this goes more to transactionality and fees than RWA consumption as we used to do in the past, okay? So, this is the basic change that we’re executing today. So, you’re going to see a much better trend towards that and the most disciplined part on the allocation of RWAs. With that, then I’ll leave on the capital question to José. Thank you.

José Garcia-Cantera: Hello Ignacio. Our organic capital generation post dividends is around 15 basis points per quarter. We think we can keep risk-weighted assets fairly flat throughout the year, very, very low risk-weighted asset consumption because of the asset rotation initiatives that I mentioned. So, we should be able to have available for capital growth or regulatory headwinds, 15 per quarter the next three quarters. We still expect 20 to 30 basis points of additional regulatory requirements and some positive contributions for intangible management. So, net-net, with all of that, we still see 12.40 to 12.50 capital ratio by year end.

Begoña Morenés: Thank you. Can we have the next question, please?

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

Alvaro Serrano: Hi, good morning. I’ve got kind of a couple of follow-up questions. Héctor, you gave details on the fee performance. I just want to circle back to U.S. again and Brazil. In the U.S. so is this — I noticed you said there’s no one-offs, but is this the run rate we should expect going forward? How is the pipeline looking? I realize there’s no one-offs, but there may be seasonality? And can you repeat, you mentioned in Brazil, there was a renegotiation [indiscernible] I suspect that’s why the fees have been lower, but if you could repeat that? And then the second question on NII. If you think through your comments on Spain, could I invite you to comment on Brazil and U.K., Brazil, obviously, very, very strong. It sounds like above the sensitivity you gave. Can — do you expect — what do you expect for the full year? Can it continue strong? And on UK, just when you think it can bottom? Thank you.

Héctor Grisi: Thank you, Alvaro. Yes, as I explained to you, the performance in the US is quite good. And look, we have a very strong pipeline. It’s — and if the markets are there and we’re able to execute everything that we have I think we will have a very good trend. But as you know, that will all depend, I mean, how the market basically goes. But what I can tell you is that, the market is basically helping us out in that sense, and we will continue the trend if the market helps us. I’m sorry to repeat myself. In what we’re looking at in Brazil is exactly you were saying, I mean, we had a one-off in payments that we had on the first quarter last year, which is not going to repeat itself. It was a big one, €195 million.

So that basically slowed us a little bit, but I see the trend quite well in the sense that I see payments growing nice. And I also see that retail is helping us out also in the growth. And what I saw towards the end of the year, we see that if we continue that trend, that should help as well in insurance, in retail, so that will help us as well, okay? So I see pretty good trends in that sense and the trends that will continue to be strong. In terms of NII in Spain, Brazil and the UK, I could tell you that the indications we gave at the beginning is that with — if the rates continue the way they are, this is going to give us — I mean, first of all, see the volume growth that we’re having in Brazil. So it’s important to understand, and the volume growth is coming from payments and from retail mainly.

And NII, in Spain, already Jose gave you a very good explanation, but I will allow Jose to go deep into that detail on that one. In terms of the UK, let me go real fast to tell you what the trend is. I mean, as you have been seeing the UK basically will behave the same as our competitors are behaving, okay? The business, as you know, is very focused on retail. It’s our core business, and we continue to improve their offering and the user experience. And we also are gradually continued growing and investing in the corporate segment and wealth to try to diversify away from retail, okay? NII is down 4.4% in the quarter, similar just as I said, to the UK banks. And all the big ones have the similar trends of us, but we’re taking actions to improve the NII.

We’re doing pricing changes. We announced both deposits and lending in the first quarter, and we are trying to use the betas and to manage them in a much better way. And asset mortgage spreads also are improving in the UK market, so that shall help us towards the next quarter. So it wouldn’t be as negative as we expected in the beginning of the year. And then we are also executing cost control efforts to help us on that. That is basically the main part that you’re going to see in the UK. And the cost of risk is basically very well — I mean, under control, and we expect it to be very much there. So with that, I’ll ask Jose to basically give you more details in terms of Spain and Brazil NII.

José García-Cantera: Yes. So in Brazil, NII should gradually accelerate over the second half of the year. That means that year-on-year, we should see mid- to high double digits teens, not double digit teams, growth in NII. And in the UK, the performance for the rest of the year should be similar than the one we saw in the first quarter. We’ve — as Hector said, we’ve seen a pickup in volumes, margins, customer margins were flat quarter-on-quarter. So year-on-year, for the full year, NII down a little bit, mid-single digits, something like that. With all of these estimates, we believe NII for the group should grow quarter-on-quarter this year. So sequentially, we should see higher NII every quarter this year. And year-on-year, customer revenue, we’ve talked about fees and the strong performance in fees. So year-on-year, customer revenue should be very close to double digit in 2024 relative to 2023.

Alvaro Serrano: Thanks.

Begoña Morenés: Thank you both Can we have the next question, please?

Operator: Next question from Ignacio Cerezo from UBS. Please go ahead.

Ignacio Cerezo: Hi, good morning. Thank you for taking my questions. There are two, both on the US. I don’t think I have seen the slide you used to have in last quarter around the aspirational 15% RoTE target in the US. So if you can kind of update us basically on how quickly you think you can get to that number, and what are the main drivers and the main initiatives I’ve seen Openbank being launched in the US recently. So just a little bit of color basically on how quickly you can get to that? And the second one is on the asset quality in the US. I mean, you used to give some information around PV’s charge-offs in the past as well. I don’t think I’ve seen those actually. So forgive me if I have missed them, but if you can give us a little bit of underlying color of how the US asset quality, delinquencies on the auto businesses are developing from here? Thank you.

Héctor Grisi: Thank you, Ignacio. Okay. In terms of the US, a particular thing is, first of all, I mean, as you know, we’ve been investing quite heavily on that market basically to concentrate ourselves in the most important businesses, which is consumer on one side, which is a business that we have at scale. We have also expanded a little money on the CIB side to be for our presence there. And we’re also investing to become domestic in our private banking and wealth management capabilities to do it in a domestic way due to the fact that today, we are just basically for non-US alliance. So those are the things that we’re investing in the US to take it to a 15% RoTE. And I believe it’s going to be more towards the end of 2025 that we’re going to be able to get there, but still we’re working really hard in order to be able to complete that.

In terms of the asset quality in the US, let me explain you exactly how the trend is, first of all, we still see a strong labor market in the US. And the behavior of the portfolio continues to do very well. What has been happening is that we continue to see the trends in delinquencies above 90 days behave much better than pre-COVID, that remember pre-COVID was about 90%. We went all the way down to 59%. Today is more around close to in between mid-60s, and it continues to be like that. So as you can see, our cost of risk in the US has been pretty stable around the same levels, and we expect it to continue to be like that towards the end of the year. We don’t see any surprises and the way the portfolio has behaved. So circa around 2% that’s where I see it.

And now what we have done also is very much focused on profitability. We’ve been very strong on capital allocation. And we see that the origination that is coming through is quite good. And also, we are focusing on credit quality and the mix of the portfolio continues to sustain itself in around 40% prime and near prime, okay? So you see the portfolio very stable and in that level.

Ignacio Cerezo: Thank you.

Begoña Morenés: Thank you, Héctor. Can we have the next question, please?

Operator: Next question from Carlos Peixoto from CaixaBank, BPI. Please go ahead.

Carlos Peixoto: Yes. Hi. Good morning. So the first question would actually be on the U.S. on the outlook for NII, how do you see it evolving throughout the year? Should we expect pressure to continue? Or could we also see a recovery trend in there? And then second question, and sorry if you answered it before because I’m not sure you did. On the cost of risk in the U.K., it remains at quite low levels. Do you see this picking up throughout the year? Or should we — or should we see the first Q level something recurring throughout the year? Thank you very much.

Héctor Grisi: Sorry. Thank you, Carlos. First of all, on the outlook of NII in the U.S., I see it flattish, okay? Let’s see how volumes basically turn out. And as I explained before, since we are very much focused on profitability and also in capital allocation, I see that it’s going to be flattish around there, okay? And in terms of cost of risk in the U.K., sorry. The cost of risk in the U.K., as I told you before, when I was explaining Alvaro, I see it very flattish. I mean the guidance is going to be at around 11 basis points to 14 basis points at the most. So below 2% — sorry, below 20 basis points.

José García-Cantera: So if I may add, we — as I’ve said, we see no asset quality pressures anywhere. Labor markets are very strong, new employment, new job creation is also very strong everywhere. So we see really no pressure. There’s no signs of asset quality deterioration. So we could extrapolate what we’ve seen in recent quarters in the U.K., we could extrapolate for the rest of the year.

Begoña Morenés: Thank you. Can we have the next question, please?

Operator: From Marta Sanchez Romero from Citi. Please go ahead.

Marta Sanchez Romero: Thank you very much. Good morning. My first question is on capital. So the Bank of Spain were to introduce the CCI of 100 bps, that is 25 bps for you, but that would leave your 12% fully loaded core equity Tier 1 ratio, leaving or implying an MBDA buffer of just about 177 basis points, which is pretty low for European standards. So do you think that 12% fully loaded Tier 1 ratio target is still the right one in that event? And the second question is on the U.K. So the bottom line is now 25% smaller than last year. Is the shrinking going to continue? Or do you think you can stabilize earnings at current levels? And just quickly a clarification on a previous question. The revenue growth that you are foreseeing, is that just reported revenues? And is that in constant or current euros? Thank you.

José García-Cantera: Let me answer your final question. We are estimating almost or around double-digit revenue growth in constant euros with Argentina in current euros. Obviously, in current euros or in euros with Argentina in constant might be higher than that. But as I explained, we believe this is the best reflection of our underlying performance, eliminating the distortions of hyperinflation in Argentina.

Marta Sanchez Romero: Thank you.

Héctor Grisi: In terms of capital, what I can tell you is basically that exactly, as I said, I reiterate that we’re going to end up the year at around 12 40 to 12 50, okay? And I really do believe — actually reiterate that we’re going to be above 12% after Basel III. I would be — that would be the main points.

José García-Cantera: Yes. And again, the countercyclical buffer will be implemented in a year’s time. So again, the capital target is being decided by the Board. The Board might review that capital target once the variables that led to that capital target might change, but we are going to be comfortably above 200 basis points MDA with our actual capital buffer.

Begoña Morenés: Thank you. Can we have the next question, please?

Operator: Next question from Britta Schmidt from Autonomous. Please go ahead.

Britta Schmidt: Yes. Hi, there. Thanks for taking my questions. I’ve got two questions. You sound more optimistic on net interest income in Spain, UK and Brazil. But yes, there’s more been no change to the official group targets for 2024. What is the delta here? And what do you think is the biggest delta to consensus? And then secondly, you guided to double-digit customer revenue growth and the group revenue target is mid-single digit. What’s the delta here for 2024? Thanks.

José García-Cantera: As we saw in the first quarter, just the monetary adjustment in Argentina, in the first quarter was €600 million. We have €1.2 billion monetary position in Argentina, and inflation was 51% in the first quarter. So just that in the first quarter was €600 million. That’s what we are trying to avoid by looking at constant. So there are charges to the P&L that obviously we don’t control. So that’s the reason why we haven’t changed the revenue target for, I mean, the total revenue target for the group, mid-single digits, but we believe that the customer revenue growth can approach can be close to double-digits.

Héctor Grisi: Britta, in terms of the revenue overall, as you were saying in NII, Yes, I sound optimistic because I’m very optimistic of the trends that we have in front of us. And I reiterate that we’re going to meet the 16% RoTE that we basically have announced onwards, I believe that is — it looks good and it looks promising, but I reiterate the guidance that we have gave you.

Begoña Morenés: Thank you. Can we have the next question, please?

Operator: Next question from the line of Sofie Peterzens from JPMorgan. Please go ahead.

Sofie Peterzens: Hi, here is Sofie from JPMorgan. Thanks very much for taking my question. So I was just wondering about the net cost guidance for 2024. Does it still hold your costs were up 5% in constant euros, 7% in current euros, so how should we think about that as cost guidance that you previously gave? And then my second question would be on rates sensitivity to 100 basis point change in rates, if you could just remind us what that means for Spain, Brazil, the U.K., U.S., all the core markets? And also, if you have any hedging in place to reduce that rate sensitivity? And then my final question would be on Slide 5, you say that your — you only got 5 million new customers year-on-year. But at the Investor Day a year ago, you targeted, I think, 75 million new customers.

Just like a strategic question, maybe it doesn’t make it different if you only have 5 million new customers or does it make it difference? And how do you plan to get the 75 million new customers that you guided for at the Investor Day a year ago? Thank you.

Héctor Grisi: Thank you, Sofie Let me answer you the last question first. I mean, what we’ve been doing here is basically, we are cleaning up a lot of our customer bases. And even though we are growing quite hard, we’ve been cleaning up that and basically that’s, at the end, what’s going to be telling — I mean, moving up towards the number of customers that we are able to include. We’re going to be working on that. And — but I mean, the growth of customers basically is very strong in all different areas and in all different businesses. In terms of the cost, I was basically — as I explained to you, I mean, this remained fairly stable for the third quarter in a row, okay? As you have seen, that’s close 1% quarter-on-quarter.

If you exclude Argentina, that’s minus 3% because Argentina is moving the numbers up and down. That’s plus 2% year-on-year in real terms, and that’s a cost to income at around 42.6% and this is in track to our 2024 target of below 43% cost to income. And I believe that we’re going to be able to get to that. Cost efficiencies are just coming from operating leverage through simplification of products. If you see the amount of product that we have simplificated, we have 10,000 different products, today, we’re down to 7,500 and automation, which is a very important part. And I was explaining you in the change of model how we’re changing the non-commercial FTEs to commercial FTEs. And this is something that, in time, will help us to control costs much better than we’ve been doing, okay?

That’s basically the efficiency gains. If you look at that simplification gave us 17 basis points year-on-year of savings. Automation is helping us out, 58% of product services are now digitally available, okay? That’s 2 percentage points in help versus December 2023. And if I can tell you an example, the U.S. have captured €10 million in efficiencies just in Q1 alone. And that’s €210 million since we started the process in 2022, and that’s just in consumer and retail. So, it’s very important that we also remember that one transformation is not a really cost-cutting exercise for the creation of the single model and with several other benefits, and this trend will continue on and on helping us out as we change completely the model of the way we operate the bank, okay?

So, to reiterate is basically to tell you that we’re going to be in our target below the 43% cost-to-income for the rest of the year.

José Garcia-Cantera: Now, in terms of rate sensitivity, there hasn’t been any change in all countries, in most countries, but Europe, let me — in euros. Let me explain. So, in the U.S., it’s plus/minus €150 million; in Brazil, plus minus €150 million. In the UK, it’s plus/minus €200 million; but we have reduced the sensitivity in euros, in Spain, in particular, significantly. Let me make first 1 particular comment about the UK. Our structural hedge in the UK is £113 billion with an average duration of £2.4 billion. It was £106 billion in December. So £113, 2.4 years, average duration. And in Spain, we have been hedging our balance sheet through a combination of different actions, basically originating — adjusting the origination buying ALCO portfolio.

We now have €30 billion ALCO in Spain at an average duration of between six to seven years at 3.25% yield. And we have been also writing some hedges. The result of that is that of the €240 billion risk-weighted assets, €250 billion average earning assets, we have in Spain, 60% is floating, 40% is fixed. That’s significantly higher fixed portion than before. So now we have now lower sensitivity to rates in Europe.

José Garcia-Cantera: Sorry, Sophie, just to be more precise, what I was saying is the cost to income is going to be below 43%. That’s efficiency that we have said for the year, and we reiterate that. And efficiency this quarter was 42.6%.

Héctor Grisi: Let me — so let me just finish. The NII sensitivity compared to the average of the major competitors we have in Spain has been reduced to 7.5%, compared to their sensitivity at 5%. And we expect to continue hedging the balance sheet as we in the future. Obviously, the decision to this gradually has proven to be good in the sense that rates, curve rates, interest rate curves have picked up a bit, so that has allowed us to earn higher NII and also more time to hedge the positions. But again, we are gradually hedging our interest rate sensitivity in euros, reducing duration through the combination of all these actions that we’ve taken.

Begoña Morenés: Thank you. Can we have the next question please.

Operator: Next question from Andrea Filtri from Mediobanca. Please go ahead.

Andrea Filtri: Thank you for taking my question. The first is on your profitability targets. You’re above 16% RoTE guidance for 2024 implies more than €12.4 billion net profit this year with Q1 on track to hit that with tailwinds in H2 that you indicated in Brazil, in the UK reticketing portfolio in consumer with lower rates. Can you be more specific about your profit target for this year and give us an insight on the 2025 RoTE outlook? Second question, if you could give us a target for 2024, group costs in absolute million? And where do you see them going in 2025? Finally, a quick one on the insurance business, the new banking package improved, the treatment of insurance activities inside banks. Could you consider internalizing this business? Thank you.

José García-Cantera: Thank you, Andrea. You’re right. I mean, we are confident that we are going to reach the 16% target that we set in terms of ROTE for the year. And as we said correctly in our Investor Day, we said 15% to 17% towards 2025. And we are working towards that, and we are working very hard in order to be able to do it. But today, I reiterate to you that we’re going to be at the 16% that we have set, okay? In terms of cost, what we have said is basically around less than 43% in the terms of cost to income. If you see the numbers that we have been, we’ve been very disciplined in terms of — and what we have said, I mean, if you said it, is you saw is quarter-on-quarter is around 1% top, and we’re going to be very disciplined about it.

And if you see the operational leverage that we have on the — what I presented on retail, you see that the operational leverage is working like that, okay? So our target is basically to maintain cost the way it is. And I believe that the trend would continue like this. So I feel very confident on the way we’re managing things. And I believe that we could be able to reach and to be more or less flattish in terms of cost. The question of insurance is quite a good one. We love that business. We believe that we have huge upside mainly in markets such as Spain and in Brazil, I could tell you, Mexico where insurance penetration is quite low. So we see huge opportunities on that, and we continue to better up our systems. For example, we are simplifying products in that sense in a very important way.

Today, average by market, we have 222 different products per market. The idea is basically to go down to 25 basic products that I believe that would help us in order to be much more concentrated for our teams to be able to sell to the clients exactly what they expect and to continue a really good trend. So that’s a huge opportunity, as you say. The other side of the coin is that we have JVs that in place on the long-term basis, mainly in Latin America and Spain and Portugal. And then we will continue to have them over the years because they are long term. I would love to internalize that business, what unfortunately is what it is. We have the JVs and we need to respect what we have there. But as you say, there’s a huge opportunity in that sense, not just because of the change and sweets in regulation, but also because of the — the advantages and that we have given the amount of customers that we have and the low penetration in the different markets.

Andrea Filtri: Thank you.

Begoña Morenés: Thank you. Can we have the next question, please?

Operator: Benjamin Toms from RBC. Please go ahead.

Benjamin Toms: Thank you for taking my questions. At the full year results, you noted that you do not expect any material impact from the FCA’s review of mode’s Finance in the UK. And since then, one of the large banks in the UK has made a significant provision in respect to that issue, do you still expect no material impact here? And are there any numbers you can provide us with to help frame the issue? And then secondly, we’ve seen consolidation in the space in the UK from banks looking to improve their return profiles, your ROTE in the UK is slightly below that of your major peers despite a favorable asset mix, do you believe you can improve returns in this geography using organic methods? Thank you.

Héctor Grisi: Thank you. I mean, first of all, on the UK motor finance issue, I mean the resolution of such matters, as you know, is not possible to predict. There are some significant uncertainties that remain with regards to the existence, the scope and the timing of any possible outcome there. So as a result, we’re not yet in a position to disclose the extent of any potential impact. And I don’t believe until basically this, I understand there is an expert basically running through that. So I don’t believe that we can give you an idea. What I can tell you is that so far, we’re doing well in the sense of the settlements that we have. And so far, we’ve been doing better than we expected. In terms of consolidation in the UK, I don’t see that we should play in a consolidation at this point. I don’t believe that that’s a market that we should invest more at this point. That would be my view in that sense.

Begoña Morenés: Thank you. Can we have the next question, please?

Operator: Next question from Chris Hallam from Goldman Sachs. Please go ahead.

Chris Hallam: Yes, good morning, everybody. So two for me. So first on Basel IV and then on Argentina. So hope thanks for the color earlier on Basel IV. I mean I suppose it sounds very possible that FRTB gets pushed to align with a revised US time frame, let’s say, towards July 1, 2026. And you mentioned the delegated act provision for FRTB here in Europe. So just within your day one and fully loaded guidance, how much is FRTB and how much is all the rest of it, i.e., if we only get parts of Basel IV in January 1, 2025, and then FRTB follows on July 1, 2026, how much would that change the phasing of the capital headwinds you talked about earlier? And then second, on Argentina. So clearly, it has quite a distortive effect on the group figures.

And then there’s the associated cost of hedging, and it’s below 5% of group earnings. So I just wondered whether you’ve reassessed your footprint plans in Argentina, I guess, especially in light of the announcement that one of your peers is exiting that market? Or are there any sort of interconnectivity with other parts of the group that would make such an exit on economic?

José García-Cantera: So the answer to your third question. Yes, when — we’ve always mentioned Basel III, but when we gave the impacts, we were including FRTB, you’re right. So when we said day one impact of Basel III, was Basel III plus FRTB. FRTB isolated is 10 basis points. So if FRTB gets postponed, we will not have this 10 basis point impact on day one that we were accounting for in our estimates. I hope this clarifies the matter.

Héctor Grisi: Thank you. In terms of Argentina, I think that we need to leave our options open given what’s going on in Argentina, basically can sustain what’s going, and we’re trying to be positive about what could happen, I don’t believe that we have no downside or upside given the situation. So there are no plans to do anything at this point, and we’ll just wait and we will continue operating our business. Our business is doing well. It’s very good structured, is one of the best banks that we have in terms of client penetration, in terms of the transactionality that we have from our clients, fee generation. So we will continue to be there and see what our options are later on

Begoña Morenés: Thank you. Can we have the next question, please?

Operator: The last question comes from the line of Andrea Filtri from Mediobanca. Please go ahead.

Andrea Filtri: Yes, thank you. Just having a second go. Asking for absolute numbers on your net profit guidance for 2024, the 16% rate implies over €12.3 billion, can you be more specific about what number you’re actually targeting? And then your own cost, the same story. I’m asking for a nominal euro-denominated group cost target for 2024? Thank you.

José Garcia-Cantera: Insufficient numbers and growth rates in the P&L to really estimate what we believe is our most likely figure for net income and cost. So, again, for net income, 13% — sorry, 16% return on tangible equity gives you a figure in line with what you are saying around 12 — north of €12 billion, it’s what — it’s the conclusion of the 16%, we agree with that. And in terms of costs, we are looking at a cost growth, which is going to be around 2% this year, 2% to 2.5% this year. Going forward, as we’ve discussed, we are targeting flat costs in absolute terms going forward. That is going to be difficult. Obviously, we are still in a relatively high inflationary environment. We believe that — well, it is a very ambitious target, but that’s the internal target we have.

We haven’t given any guidance for 2025. But what I’m saying is that long, medium term, our target is to keep costs flat or down in absolute terms. We are not there yet in 2024, close. We think we could be closer there in 2025, but it’s too early. We are still in early 2023 — sorry, 2024. So, we’ll give you this guidance in due course. But again, our medium long-term objective is to keep costs flat or down in absolute terms.

Begoña Morenés: Thank you very much. Thank you, Héctor, and thank you, José. I believe there are no more questions. Thank you all analysts and investors for your attendance. Our Investor Relations team is, as always, at your disposal for any further questions you may have. Good bye.