Banco Santander SA Q1 FY2024 earnings call

• Strategy focuses on profitable growth, customer focus, and scale. - Q1 2024 profit was €2.9 billion, an 11% increase vs Q1 2023, 9% in constant euros. Excluding Spain's temporary levy, profit rose 14% y-o-y. - Execution of transformation plan driving efficiency improvements, with efficiency ratio at 42.6%, net operating income up double-digit for eight quarters. - Retail and consumer showing operational leverage, CIB building world-class business, wealth management growing, payments expanding market share. - Welcome of 5 million new customers over last year, revenue up close to double-digit in constant euros.

Retail: Profit grew 22% year-on-year. Double-digit revenue increase driven by net interest income (NII) and fees across regions. Efficiency ratio improved. Consumer: Net operating income grew 7% year-on-year. Revenue increased due to volume growth in Europe and Brazil, NII performance, and 22% fee growth (mainly from insurance). Cost dropped 4% in real terms. Provisions increased mainly due to cost of risk normalization. CIB: Revenue reached an all-time high in Q1, backed by strong performance in the US. Growth in global markets and corporate finance. Wealth Management and Insurance: Attributable profit grew double-digit. Fee contribution from Santander Asset Management and Insurance grew near double-digit. Efficiency improved four points year-on-year, RoTA rose to 80%. Payments: Profit grew 22% year-on-year. Active merchants growing in countries like Chile, Spain, Portugal. Migration to PagoNxt global platform, with around 1 billion annualized transactions running through it.

• Expect good NII performance in 2024, supported by positive momentum in Europe, interest rate cuts in South America, and consumer profitability. - Cost of risk expected to be contained in line with expectations. - RoTE expected to remain at 16% in line with 2024 targets. - TNAV plus cash dividend growing double-digit, on track to meet targets through the cycle.

• Impact of hyperinflation in Argentina distorting financial results. - Uncertainties around Basel III implementation, including potential delays in FRTB and other regulatory changes. - Potential impact of UK motor finance review and countercyclical buffers affecting capital ratios.

Q: On NII in Spain, guidance for 2024 and lift in 2025?

A: Héctor Grisi noted good trends in Spain with continued client growth, José García-Cantera explained NII in Spain expected to be up low single digits y-o-y in 2024, and benefits from yield curve.

Q: On fees and fee generation, expectations for coming quarters?

A: Héctor Grisi said fees grew strongly in Q1, with retail, CIB, wealth, and payments contributing, expecting mid to high single-digit fee growth in 2024 driven by CIB and wealth.

Q: On capital after Basel IV, Basel IV regulatory impacts?

A: José García-Cantera explained day one impact of Basel III expected to be very low, fully loaded impact between 30-50 basis points, and countercyclical buffers having a lagged impact.

Q: On US asset quality and RoTE target?

A: Héctor Grisi said US asset quality has stable delinquencies, expecting to reach 15% RoTE in US by end of 2025 through investments in consumer and CIB.

Q: On revenue growth, constant vs current euros?

A: José García-Cantera explained revenue growth is estimated at almost double-digit in constant euros with Argentina in current euros, avoiding hyperinflation distortions.