Banco Santander SA Q3 FY2023 earnings call

Hector Grisi highlighted a strong quarter demonstrating the resilience of the business model. Profit was record-breaking, driven by strong customer revenue growth. The bank advanced towards a simpler, more integrated model via One Transformation, leading to efficiency improvements and profitability growth. Jose Garcia-Cantera detailed revenue growth, with customer revenue making up over 95% of total revenue, supported by retail business and interest rate tailwinds. Net fee income grew 9% compared to Q3 2022. Costs were managed with savings from One Transformation initiatives offsetting tech investments. Credit quality remained robust, and the fully loaded capital ratio improved to 12.3%.

Banco Santander reported a record profit of €2.9 billion in Q3 2023, a 20% increase compared to Q3 2022 (26% in constant euros). For the first 9 months of 2023, profit was €8.1 billion, up 13% in constant euros, driven by strong customer revenue growth. Revenue grew double-digit year-on-year, supported by all global businesses and regions. The bank added 9 million new customers in the last 12 months, bringing the total to 166 million. The efficiency ratio improved 1.5 percentage points year-on-year to 44%. Return on tangible equity rose 126 basis points year-on-year to nearly 15%, and earnings per share improved by 17% year-on-year. The balance sheet was strengthened with capital generated, liquidity remained comfortable, and credit quality was strong. One Transformation efforts led to efficiency improvements, with simplification (reducing products by 8%), digitalization (16% reduction in contact center use), and global platforms (e.g., Gravity deployed in 3 countries) contributing to these gains.

Banco Santander is on track to achieve 2023 targets, including a net profit of around €10.9 billion. For 2024, they expect further NII growth from portfolio repricing, efficiency to continue improving, cost of risk to end 2023 better than target and remain similar in 2024, and RoTE to increase significantly. They see upside potential for NII growth in Europe from portfolio repricing and positive margins in South America.

Market volatility impacting the business model; potential increase in deposit betas leading to higher cost of deposits; regulatory changes affecting specific regions/businesses (e.g., auto in Germany, wealth management market conditions); uncertainty in Brazil interest rate dynamics; and uncertainties related to digital euro implementation affecting the business model.

Q: Francisco Riquel from Alantra Equities asked about weak loan growth in Spain and other regions.

A: Hector Grisi and Jose Garcia-Cantera discussed loan growth, repricing, and risk-weighted assets, noting loans were 2% below year-to-date but expected to recover as rates stabilize.

Q: Antonio Reale from Bank of America inquired about profitability outlook and U.S. asset quality.

A: Hector Grisi and Jose Garcia-Cantera commented on RoTE targets, NII growth in Europe and Latin America, and U.S. asset quality trends, noting cost of risk normalization and mix changes in the portfolio.

Q: Sofie Peterzens from J.P. Morgan asked about deposit betas and U.S. tax rate.

A: Jose Garcia-Cantera provided details on deposit betas in different geographies and Hector Grisi discussed U.S. tax rate implications related to electric vehicle leasing.