Banco Santander, S.A. (



Q3 2011 Earnings Conference Call

October 27, 2011 4:00 AM ET


Alfredo Sáenz Abad – Second Vice Chairman and CEO

José Antonio Álvarez – CFO


Alfredo Sáenz Abad

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(Interpreted) Good morning. We are going to begin the Results Presentation for Q3. As usual, I will present the quarter’s fundamentals and the group results, and then José Antonio Álvarez will review the different business units in more detail. And finally, I’ll close with some conclusions.

The quarter is taking place in a very unfavorable global context. Falling volumes in U.S. and Europe together with the uncertainty of the European sovereign debt crisis have increased risk premiums and affected consumer and business confidence. At the same time, there’s been strong corrections in assets and currencies and growing tensions in wholesale funding. And all of it has meant that global economy has grown a lot less than expected as seen in the latest IMF estimate.

The key to our results overall, our underlying operating income has continued to perform well and has become our main profit driver. In our balance sheet, we have focused on liquidity and capital management. In liquidity, we have a very good structural position. And at the end of the quarter, we had already comfortably covered the medium and long-term maturities for the whole year.

In capital, our ratios are still very solid and matched to our business model. We ended the quarter with core capital at 9.42%. That’s 62 basis points higher than at the end of 2010. Moreover, we will comply with the new capital requirement established by the EBA for June 2012 without requiring any capital increases.

Finally, and in line with our group’s policy of prudent solvency management, we will use the capital gains of around EUR1.5 billion which will be recorded in the fourth quarter to strengthen the balance sheet even further. We’ll now look at each of these points in more detail.

In the third quarter, attributable profit was EUR1.803 billion which demonstrates the group’s ability to generate earnings in complex environment. You should note the strength of basic revenues, the impact of markets on non-commercial revenues and continued high provisions. With this, profit for the first nine months was EUR5.3 billion. And I remind you that this profit was hit in the second quarter by a one-off charge of EUR620 million net of taxes related to payment protection insurance remediation in the UK.

Finally, these results do not include the approximately EUR750 million in capital gains from the agreement obtained by divesting of our insurance factories in Latin America to Zurich nor do they include the EUR750 million from the transaction of Santander Consumer U.S. which we have recently signed, align the entry of new partners in order to enhance our future growth potential.

Basic revenues – going into basic revenues, net interest income plus commissions plus insurance, we see a very solid trend in the last quarter. And their recurrence is the main driver of our result. Thus we see that Q3 was again a record quarter with the number slightly above that of the second quarter when seasonally it tends to be third quarter that’s weaker. And so, annually, a growth with 6% that is over EUR1.6 billion in absolute term. And the following breakdown, very dynamic growth in Latin America, up 46%.

Quarter running with an inter-annual of 12% in local currency. Acceleration of volume since mid-2010, the gradual impact on revenues is the reason behind this evolution. The strong growth of Santander’s consumer finance had post organic growth as well as the entry of SEB in Germany and AIG in Poland. Positive impact of the six-months contribution of the polish banks accordingly. And also growth comfortably offset the foreign revenues in more mature markets particularly the cost of funding in the UK in corporate activity.

If we look at total income in the group, we see a slight drop in third quarter due to smaller ROI income in our corporate center because of the unfavorable context of this activity and also reduced dividends because of a seasonal effect.

Growth for the first nine months, however, has continued to rise up to 5.8%. This growth distinguishes us from our peer whose gross income is either flat or declining in the case of our European peers. Moreover, and it’s not just our income that’s grown more, but also the profitability of our balance sheet has grown particularly if we compare with our European peers.

As for cost, cost have grown high single-digit rate versus last year as a result of a highly diversified policy depending on markets and businesses. Over 70% of cost increases came from emerging countries where we are investing in order to capture future growth.

In Latin America, growth was connected to increased installed capacity. We have 200 more branches and 1,300 more employees than a year ago. We’ve also been launching new sales projects, been remodeling our point of sale, deploying new technology, et cetera. And today, if we must add some pressure in the signing of wage agreement and cost related to inflation in countries such as Brazil and Argentina, also in emerging countries, we have a perimeter effect mostly because of the integration of the Zachodni Bank. Most of the rest of the increase came from countries and unit where we are improving our franchises, are investing either in technology or in our commercial structures or in service improvement.

Finally, in our retail units in Spain and Portugal, costs are declining at nominal rates between 1% and 2%. Overall, our cost income ratio has enabled us to continue to pay out the investment planned, and to continue to be the best in class in cost income ratio. We are second amongst our peer ahead of all our European competitors. And as a result, our cost income ratio is 14 percentage points better than the average.

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