Banco Santander, S.A. Q1 FY2025 earnings call

• Santander entered the last year of its strategic cycle well ahead of plan, with capital allocation improving profitability to 15.8% post AT1 and CET1 ratio to 12.9%. - Q1 was a record quarter with profit up 19% year-on-year, and all businesses growing. - The transformation efforts led to around a 1-point improvement in efficiency and ROTE (return on tangible equity) reaching 15.8%. - Retail performance reflected the benefits of scale and transformation, with revenue up 8% and strong U.S. and client flow contributions. - Wealth management showed robust growth, and payments business exhibited double-digit revenue growth. - Diversification across businesses and regions enabled consistent profitable growth even under varied environments. - Global platform implementation was progressing, with 75 basis points of efficiency improvements and more upside expected.

Profit reached a new record of €3.4 billion, 19% higher than Q1 2024. Revenue grew 5% in constant euros, supported by net interest income (NII) up 4% and record fees up almost double digits. Retail revenue grew 8% to a quarterly record, driven by strong performance in the U.S. and client flows. Wealth management continued strong growth, with improvements in efficiency and profitability. Payments business saw double-digit revenue growth in PagoNxt and cards. Retail and Consumer businesses together represented 80% of the group's loan loss provisions. Net interest income was resilient, excluding the impact of Argentina, and cost of risk improved consistently across quarters.

• Santander reiterated the target to distribute up to €10 billion to shareholders through share buybacks for 2025/2026 subject to regulatory approvals. - The company is on track to achieve profitability targets for the full year 2025 despite uncertainties. - NII guidance was reiterated excluding Argentina, assuming end rates at around 1.5% by the end of 2025. - Expectation to have lower cost in current euros in 2025.

• Argentina caused disturbances in net interest income. - Brazil's cost of risk was affected by changes in portfolio mix and tightened underwriting criteria. - Geopolitical events posed uncertainties. - Impact of new regulations in some markets, such as Germany, on fees was a concern.

Q: Net interest income outlook and business area exposure?

A: Hector Grisi mentioned confidence in achieving the ROTE target, with NII guidance reiterated excluding Argentina. The business model has earnings predictability despite macro volatility.

Q: Group cost evolution and DCB Europe performance?

A: Hector Grisi stated that the cost guidance is to deliver lower cost in current euros in 2025. For DCB Europe, NII was doing well, and the fee impact from Germany regulation was a one-off.

Q: Sale of Polish bank stake and digital transformation?

A: Hector Grisi said there were discussions with Erste regarding the potential sale of the 49% stake in Santander Polska. Digital transformation was progressing with 9 million new customers gained, and it was not at a transit phase.

Q: U.S. performance, cost of funding, and Brazil cost of risk?

A: Hector Grisi said the U.S. was an important growth market, cost of funding was better, and Brazil's cost of risk was improving with portfolio mix changes.

Q: U.K. motor finance and Brazil product initiative?

A: Hector Grisi said the U.K. motor finance strategy made sense, and Jose Garcia-Cantera discussed the U.K. mortgage market and the impact of Brazil's payroll lending initiative.

Q: Mexico and capital deployment?

A: Hector Grisi said the Mexican economy was doing well, and capital was deployed in organic growth and the U.S.

Q: Extraordinary capital distribution and hedging?

A: Hector Grisi said extraordinary capital distributions were expected more towards 2026, and Jose Garcia-Cantera discussed the capital number range and hedging for the P&L.

Q: U.K. ring fencing and NII outlook?

A: Jose Garcia-Cantera said the impact of ring fencing was negligible, and U.K. NII was expected to have low single-digit growth.