[Starts Abruptly] 2020 Earnings Presentation for Banco Santander. First of all, on behalf of the Santander team, I hope you all are well under the extremely challenged current circumstances. The call should take around as usual of one hour. Our Group CEO will address the first quarter highlight and then our Group Chief Financial Officer will address the Group business and areas review us every quarter, and then the Group’s CEO will take his mic again to others and a bit on detail – and give you a bit of color on what we are seeing in our different markets well after the Q1 close before jumping into the Q&A. So again, thanks for being here with us today and obviously right after the call, then the IR team will be at your disposal for any follow-up you might have. And now please, Jose Antonio.

Thank you, Sergio. Good morning to everyone. I hope you find well in the middle of this health crisis, you and your families and relatives. Well, this quarter is – has been a strange quarter, we being in business as usual in the late – in the last two weeks. In the last two weeks the COVID-19 outbreak has produced an unprecedented worldwide health crisis. This health crisis that which is resulting in an economic crisis, where the financial system I think is more resilient and banks need to be an important part of the solution of the COVID-19 economic situation. Since the crisis has started and with some anticipation, we implemented in our geographies these specific measures to take care of our employees, customers, shareholders and investors in order to protect bank and to mitigate the economic and social impact. I will talk more about these in the last part of my speech. Starting with the quarter, let me to – to follow how the quarter has – the figures have behaved. In volumes, we grew significantly more than of the quarter at the beginning, the loan book grew EUR 26 billion. The pickup was basically in the latest part of March due to the drop down of the committed lines by large corporations, deposits grew 6% with a jump also in the second part of the month of March. Our customer digital activity reached record figures, it does not – is not strange and the growth in the Group digital customer rates doubled that compared with the previous quarters. Regarding results were recorded up a provision overlay of EUR 1.6 billion to cover the expected deterioration of the macroeconomic conditions arising from the health crisis. As a result, attributable profit was only EUR 331 million. Excluding these charges, underlying attributable profit amounted EUR 1,977 million, 1% higher than the same period in 2019, 8% excluding the exchange rate impact. In the current environment, our credit quality and liquidity remained solid in all geographic areas we have in the numbers. We continue to generate capital organically out of the quarter and the growth increase while deposits have been approximately three times the ordinary growth. The consumption of capital due to grow the net worth this has – was 21 basis points in the quarter that were offset by the non-dividend payment. And the result – as a result, the capital – the core equity tier 1 ratio at the end of the quarter was 11.58%. Going to the geographic areas. The resilience of the underlying performance of results is based in our diversification and scale. By region, we can see growth in loyal customers, increasing loans and customer funds, notably in the Americas. In Europe, profit and profitability were dampened by the incumbent economic environment before the crisis due to low interest rates that become lower in some geographies, particularly in UK, and therefore, the more by confinement measures in many European countries in March. North and South America, on the other hand, record strong profit growth and improved profitability. Going to the global of business, performance has been stellar, [we could do] [ph] both in the SCIB and wealth management of 21% profits – underlying profit in the quarter. SCIB grew strongly, particularly in the last few months and during the funding niche of our customers who are reflected integrated into the decision of existing credit lines. In March alone more than EUR 15 billion, an increase in deposits. Wealth management and Insurance recorded the highest very high profits due to strong activity levels early this year, which slow down at the end of the quarter due to the impact of the crisis in the March. Going to the P&L. Well, first thing to say is churn rates play a significant role, has a negative impact of 5 percentage points year-on-year. If we take a look in cost of euros will reflect the underlying operating trends we see. Customer revenue grow in a 3% with cost management and growth in provisions partly driven by higher volumes, not yet for the economic crisis that we expect from the house prices. As a result underlying attributable profit amounted, as I said before, 1,977, a 1% higher excluding the churn rate impact compared with the first quarter 2019. The non-recurring charge of EUR 1.6 billion correspond to the already mentioned in provision overlay and remaining amount of the restructuring costs that you have for more details in revenues. As regard – regarding provisions – as acknowledged by IASB and other regulators and supervisors, it is likely to be difficult at this time to know the specific effect of the health crisis and government and central bank support measures. Nevertheless, in the first quarter based on the information on the environment, at the quarter end and following the regulatory guidelines based on the expected duration of the macroeconomic conditions, a provision overlay will be recorded conceptually reflecting the permanent impacts from the COVID-19 in the medium and long-term arising from the expected portioning of the portfolio’s credit quality and avoiding the negative effects from profitability and volatility of the IFRS 9 [indiscernible]. This environment is extremely high uncertainty, good macro variables consider here are very much in line with those published by the IMF is not exactly the IMF on a country-by-country basis, but we have as a scenarios on a country-by-country where the main items that affect the provision – the potential provision level going forward on GDP growth, unemployment and health crisis in our case also the new car sales. So, it’s important how deep the recession is, but it’s probably more important in accounting for how long the recession of the recovery or when recovery comes. Going into the revenue, in the first quarter customer revenue grew 3%, boosted by the Americas so as I said before on our global business. Net interest income grew to greater volumes combined with active margining of deposit costs in an [environment] [ph] falling into the rates. Net fee income, where our global business, wealth management plus 6%, CIB plus 20% with account for more than 44% of the Group total fees generated. We are confident that we will continue to deliver quality revenue growth. I will further discuss this at the end of the presentation in the conclusions. On costs, costs 3% lower in real terms, in Europe as you – as we were indicating to you in our efficiency plan, costs dropped significantly in all countries, notably in Spain minus 8%, UK minus 6%. This performance comes from the efficiency plans we are executing in all the geography. This enabled us to obtain the expected synergies in the quarter needed to deliver on our target for the year. With [margining] [ph] in North America, where the costs have no material change. In South America, of particular note was Brazil with a 2% fall in real terms. This performance allows us to remain leader in efficiency among our peers with efficiency ratio of 47%. Our goal is to continue to making progress regarding operation environment and cost management adapted to the new – the new environment. We continue to pursue our targets as we indicated to you in the – in our investor update. Credit quality, while the quarter was in line with the traditional trend due to the NPLs coverage ratio and cost of credit remain basically stable with the same trends you – that you’ve seen before. On capital. Well we continue to strength our capital ratio. In the quarter we generate – we also again generated capital organically with – combined with a favorable impact from the – due to the measures taken resulted in an increase of 36 basis points in the quarter. The increase took place in a context market by a strong growth in risk weighted assets, 21 basis points in the quarter, 3 times the ordinary increase, mainly due to the higher lending and some market volatility that affects the risk weighting of the market positions. On the other hand, were significant non-recurring negative impacts, as you can see in the Slide, 19 basis point for corporate transactions that were already announced Allianz, Elavon and the minorities of greater – Ole comm technology in Brazil, 15 basis point from regulatory impact and all I think we are expecting – is the majority of what we are expecting for this year and 9 basis points from markets basically the mark-to-market of the ALCO portfolios in Mexico and Brazil. We are comfortable with our capital levers. We maintain our 11% to 12% capital target in the scenario we foresee in the coming quarters with the aim of being on the upper side of the range. Finally, and before hand – before handing to Jose to comment the performance of our main markets, I would like to highlight the resilience of our profitability ratio, both in terms of underwriting return on – tangible equity, and return on risk weighted assets as well as the TNAV per share will remain above EUR 4 per share although suffer some impact from FX or from the exchange rates. I hand over to Jose to elaborate over the different units on regions.

Thank you, Jose Antonio. Good morning, everyone. As for the performance by region and country, the Americas increased their rate as a percentage of total profits to almost 60%. So we remain very well diversified. As previously mentioned by Jose Antonio, North America and South America grew at double-digit rates, while the performance in Europe was impacted by the economic environment. Also our global businesses increased at double-digit rates which helped us strengthen our local franchises. Taking a look at volumes, we also had a positive performance in the quarter and covered our customers’ financial – funding needs. Loans grew 7% in nominal – in real terms in – excluding exchange rate year-on-year, mostly driven by South – North America which grew at double-digit rates across all markets. In Europe, 4% growth with increases in all countries, except Spain as I will explain later. Customer funds were also up in nine markets, deposits 6%, well mutual funds fell 2%, mainly driven by the drop in equity and fixed income markets. In Spain, we had positive commercial trends, especially in March, when loans increased by nearly EUR 3 billion driven by SMEs and corporates. This trend accelerated in April as the ICO, the ICO lines became available. March was also a month of intense digital activity. We operated most of the month with 50% of our branches open and recorded the highest month in the number of digital customers, almost 5 million digital customers interacted with the bank. The number of new contracts signed with digital signatures – digital signatures tripled accounting for more than 50% the Bank total sales. We had slightly lower net income, although profit before tax was up as cost savings offset the drop in total revenue. Net interest income was down 8% due to a smaller ALCO portfolios and lower average assets – earning assets in wholesale banking. We are in line with our cost savings plan as Jose Antonio said, delivering 8% drop in costs. Non-performing loans fell 41 basis points year-on-year and provisions remained also under control. In Santander, consumer finance, the business was the first to be impacted by the health crisis. First in China, where as you know, we have an operation and later in our units in Italy and Spain. New car sales in Europe dropped 26% in the first quarter, while new lending in Santander consumer finance fell only 5% due to the strong performance in January and February. In the last few weeks of the quarter, and driven by the confinement measures, the declines were sharper. New lending in Italy and Spain was at 10% to 20% of the usual volumes, so that drop of 80% to 90%. In Germany, the levels were 50% to 70% of normal levels, and only the Nordic countries remained are pre-crisis levels. These declines were reflected in our results, especially in net fee income which fell 12%. On the other hand, and due to the good performance at the beginning of the quarter, net interest income increased 5%. Costs rose due to the new alliances that we signed in the previous – in the quarter and in the previous 12 months, excluding change in perimeter, they fell 3%. Provisions were higher mainly driven by lower portfolio sales compared to the first quarter of last year. The underlying profit as you can see here in the upper hand – upper left – upper right of the Slide, it’s – it fell 5%. Moving to the United Kingdom, volumes grew at good rates, loans increased 5% year-on-year in the quarter, and driven by mortgages, loans grew 2%. However in April, new mortgage applications fell 80%, while the demand for mortgage repayment holidays amounted to around 50% of the total mortgage portfolio. Revenue was affected by lower yields, so new production and the continued SVR attrition. Also fee income was lower in part due to the reduction in overdrafts. However, we had a good performance in the P&L, costs were reduced by 5%, provisions fell 20% and cost of risk remained at very low levels. In Brazil, we kept our good momentum going, which continue to show recurring profit generation even in more adverse – in the more adverse current circumstances – current environment. In volumes, lending increased 18% year-on-year with all segments growing notably corporates and CIB. Consumer funds rose, boosted by demand and time deposits, up 31% and 17% year-on-year, respectively, both partly favored by foreign currency balances and their depreciation of the real. The return on tangible equity rose to 22%, following the 10% increase in profits as you can see in the P&L. Net interest income increased driven by higher volumes which offset margin pressures due to the mix effect. The negative impact from the fall in the SELIC rate in the interest rates and the limit on the overdraft interest rates. Net fee income grew driven by payments, Comex and ForEx. Strong efficiency improvement year-on-year and the cost of credit remained stable. In the quarter, profit rose 8% due to the strong falling costs and provisions seasonally higher in the fourth quarter, which obviously favors the quarter-on-quarter comparison, which more than offset the fall in net interest income due to lower splits and net fee income. To finish, in Brazil, let me give you some color of the activity in recent weeks. The acquiring business is down 15% relative to pre-crisis levels, cash withdrawals down 30% and auto loans down 40% to 50%. In the United States, we had a strong volume growth in the quarter, driven by both corporate and auto, which do not yet reflect the falling activity recorded in recent weeks. Underlying attributable profit rose 46% year-on-year with an adjusted return on tangible equity of 12% backed by higher revenue and cost control. As you can see on the page, profit rose strongly quarter-on-quarter driven by seasonally low provisions and costs in the first quarter. In Mexico, loans and customer funds grew at double-digit rates. New lending to corporate and CIB more than doubled in March, compared to a regular month. They went back to usual levels in the first weeks of April. Profits rose 22% year-on-year, backed by positive performance of income and lower non-controlling interest. Costs were higher due to increased amortizations and technology investments. However, efficiency improved by more than 1 percentage point. We also had with us equity at with all metrics improving. Compared to the fourth quarter of 2019, underlying attributable profit fell due to high gains from financial transactions in the previous quarter. And to finish, I will make some quick comments on the corporate centre, where underlying attributable loss decreased 16% compared to 2019, mainly due to the combination of two things, on the one hand, in total income, positive impact of around EUR 93 million in gains on financial transactions most coming from foreign exchange, foreign currency hedging and two, costs which improved 13% year-on-year, reflecting the positive impact from streamlining and simplification of our processes carried out in previous quarters. And with this, I’ll turn it back to Jose Antonio for his – for the first section of the presentation. Thank you.

Thank you, Jose. I’m going to elaborate basically on the actions we’re taking as a result of the COVID-19 crisis and I’m going to provide you with the latest data available that to give you a – to the facts how the business is performing till the – the data I’m providing to you in this section till the 22nd of April. So starting with the – how do we match the crisis? Well this is – crisis has produced an unprecedented situation. So the end of the first quarter was very, very conditioned by the spread of the virus. We had too much the business in a total different way. We’ll be monitoring since the beginning of this situation and activated all the necessary protocols to ensure business continuity. We implement different measures taken into consideration to the authority’s recommendations, while the central banks have been acting and ongoing take these measures in order to protect our stakeholders and to fulfill their expectations in our actions. The pandemic has involved with each market, the Group has evaluated the situation and rollout measures in line with the specific needs of each country. I would like to explain more in detail as how do we manage the crisis. In crisis situation preserving our critical functions is key in order to provide service of high standards to our customers. Different action plans were implemented in different corporate areas and the counterparties in all the countries. These action plans covered the four dimensions included in this slide. As on prevention, we follow – we follow larger scale strategy to work from home. Currently more than 110,000 people is working from home. This was combined with keeping 70% of our branches open and the employees are working in shifts. Our ATM are fully functioning and most of our employees in contact centers are also telecommuting. We’ve been in practice, regarding internal or external communication to be as transparent as possible. Our aim is to keep our people, customers, shareholders and investors informed of all the times on providing advice, if needed. And we are monitoring risk on liquidity on a day or – day-by-day today. Well, measures we took also measured for the community in which we’re working. Our – one of our main priorities is to contribute to the well-being of the society as a whole. We have implemented actions and mobilized resources together with governments and institutions to help the society. We already raised EUR 100 million to combat the pandemic, some of the main initiatives are the creation of solidarity fund, which already amounts EUR 54 million, financed by a reduction in remuneration and voluntary contributions from the Bank employees. We’ve been pretty active in Spain, one of the most affected countries in this pandemic. The Bank has donated several – nearly on self-protecting mask, respirators, hospital beds and blankets and other things that were in high demand in the states. In Santander University, we reallocate EUR 30 million to fight COVID-19 and by this local units are supporting well in number of goods with EUR 60 million. We’re working with third-parties to facilitate donations and to help well this is needed time if required from us. Let me to – to talk a little bit, one area of the Bank that has become crucial in this situation when there is the [D&O] [ph] has been key through this process, allowing us to continue to running the Bank and serve our customers remotely going. We increased, as you may expect, our network capacity, our bandwidth and the – increased the maximum number of users reported by the VPNs. Do have the figures in the fly. In Q1, naturally as a – natural reaction of the confinement we had dramatic increase in the operations with our channels. We doubled the number of – the increase in the digital customer base, the digital sales increased significantly record quarter in number of process, the behavior of the Group was more as integrated into countries – in some countries, particularly Spain, Poland and UK. We need to go to the figures already Jose mentioned some of the figures in relation with the activity. Well we have also adopted measures to facilitate well our customer life during the crisis in all regions. We provide payment holidays or referrals in most markets, you have in the July some figures temporary option to increase credit card and overdraft limits, proactive support for vulnerable customers, being proactive on trying to cover their needs, reduction on suspension of some fees. With regards to the payment holidays, we received applications on request, both relating to the government programs as well as the Santander on options. On the slide, you can see the number of applications for the largest customers on hold, they are well above 1 million. Also you can see the rate as a percentage of the total portfolio as of 22 of April. This process is still underway as you can imagine, and we think that we could end up affecting 15% to 20% of the mortgage book in Europe, 5% to 10% of the consumer book in Europe and 20% to 25% of the consumer book in the US. And another future of these crisis is the government has been – the governments in different countries has been particularly active in establishing programs for SMEs and corporate whose aim is to provide liquidity and credit facilities with favorable conditions for business facing hardship. You have in the screen some of the programs established by the different governments in Europe and the US and South America. Perhaps while I’m giving you the figures on the right side that related to Spain. Spain has approved two tranches of EUR 20 billion niche. We were assigned with some of these warranted lines, we already approved 60,000 operations EUR 9.6 billion, of which EUR 7.2 billion are warranted by the government. The figure is split across different segments, where we reach all the sectors from large corporate to self-employed. We provide EUR 7 billion for the small-sized companies across 59,000 operations. Additionally, we have granted we continue with the ordinary activity since the mid March, the ordinary activity has been progressing well according with our expectations. In this context, if we look at the loan book in different segments, what you see is kind of a stable slightly up individual related business, the mortgages on consumer is too early. So at the end of the March, I will provide you with figures for the applications in April and SMEs and corporate you see in March, a significant increase in the size of the loan books due to a high demand and drop downs, particularly on the CIB space, where the book grew in the month of March EUR 19 billion. So if we go to the trends, Jose mentioned some of them, you have clear indices like the new mortgage lending how is evolving when we refer to new mortgage lending it’s payments, actually payments that goes into the tock, where their daily average in the different regions fell 60% in mortgages, while the applications and you have on the right side, this goes from minus 80% in Spain and UK to a smaller impact still in Latin America companies. In consumer lending, you have the same figure there, minus 25% in new consumer lending and applications falling differently depending on the countries and regions and businesses. This is the – while it’s a summary of the behavior of the individuals vis-a-vis in the middle of these crisis. When it goes to the corporates and CIB, we’ll have a total different picture. We will see the opposite new SMEs and corporate lending grew already much more in April due to the years of the government programs, the daily average went from EUR 500 to EUR 600 favorably that is probably the normal level to close to EUR 700 in March and more than EUR 1.1 billion the daily average in April. In CIB that happened the same, while it was the massive drop downs of existing credit facilities in March, while in April, the balance sheet is fairly stable. This – I hope this gives you a sense of what’s going on in the business in these days. Just to finish and well you do have time for the questions you may have. Let me too share with you a couple of points. We think the best way to support our shareholders is to prioritize the health and – safety of our employees. Our top priority as a way to help customers and communities and ensure profitability for the shareholders. This is the best way to act in this scenario. We are confident going forward, because we have a strong starting point both in terms of balance sheet, liquidity and capital and in terms of P&L, our pre-provision profit is one of the strongest in the industry. Finally, our business model is where we’re still in and you have seen year after year in distressed areas that we tend to be less affected, because the resilience of the bondage. And we are activating management actions in revenues and costs that could mitigate the negative impact that will be derived from the COVID-19. First – firstly we raised our EUR 1.2 billion cost reduction commitment. We will take additional action in costs, including detailed analysis of our process in the new operating environment. From the revenue side, where margin costs – we are managing costs of funds to reflect the new interest rate environment. The cost of the process has been reducing over the past few quarters, we still have some levers to continue this trend going forward. And also on a case-by-case, we’re trying to design an efficient pricing study on the asset side to reflect the deterioration in risk profile. However, it’s too early to be conclusive about the macro and financial effect of the current health crisis. As stated during the latest AGM, the medium-term strategic objective will be reviewed once the economic impact of the crisis is clear. In the meantime, considering the high level of uncertainty and lack of visibility, the situation recommends to be prudent and additional stage we are not in a position to provide a guidance that with the levels of certainty required. To conclude, I would like to reassess that the pillars of the Group strategy remain unchanged, improving operating performance, optimizing capital allocations to the regions and business, that generate the highest returns and accelerate the Group – transformation the Group digital formation. That’s all on our side, and we will be ready to answer the questions that you may have. Thank you.

Thank you, Jose Antonio. And we will just now enter the rest of hour for Q&A, so please operator can you proceed with the questions?

Ladies and gentlemen, the Q&A session starts now. [Operator Instructions] The first question comes from Alvaro Serrano from Morgan Stanley.

Good morning. Thank you very much for the very comprehensive view of the current situation. I have a few follow-ups, hopefully very short. Can you give us the breakdown of the EUR 1.6 billion provision overlay? I can’t reconcile with the divisions. And the two follow-ups that is, this – if I take the EUR 3.9 billion total provisions you’ve taken in the quarter, is it – should we annualize that? I understand – I’ve heard you, Jose Antonio say that it’s very uncertain and you’re taking IMF, but – but at what circumstances should we analyze it? Should we not analyze it? Could it be worse, maybe some color there? And the last point will – related is one of your competitors or peers, yes in their results were saying that their provisions were consistent with saying that 50% of the payment holidays would ultimately result and being default – and been a default. Can you give us a color, I know that provisions don’t strictly work like that, but can you give us a color of what do you think the pay – the payment holidays today? Ultimately, how much that could result in defaults based on your modeling what do you think about the quality of those payment holidays? Thank you.

Okay. So a couple of different questions, Alvaro to ask well at this point – at this juncture. The breakdown of the overlay, we don’t have a specific breakdown, we went by segments using a global scenario that is not exactly, but it’s close to IMF scenario and we don’t have any specific additional data specifically breakdown that I can provide to you on a country-by-country basis as you – as I understood you were asking. We made EUR 3.9 billion provisions in the country in the quarter, sorry, should this number is 10 digit number be annualized in these times, well I will say you know I was speaking – my thinking of this and don’t take it – so written in stone, we are matching the scenarios. We tend to look above what and to try to assess what has happened in different countries in the scenarios like this. We have the real estate crisis in Spain, we have the recession in Brazil and the other side. You look – that you look backwards in the real estate crisis in Spain, the Group as a whole we were running into 141 – 1.4%, 1.5% cost or risk at this time, you look book backward in Brazil when the recession hit the country and that’s GDP fell by 10%, the cost of risk went from the current – a little bit lower than 400 to 500. So those are the kind of figures that we’ll have in our mind. And well, payment holidays and not – you mentioned how much of this is going – it’s going to be default? Well you need to look at the – at the book. So 40% of our total book as a Group are mortgages, yeah. So we do not expect a significant default in the payment holidays related with mortgages. The payment holidays, the majority of the payment holidays related with mortgage have a financial advantage to the customer and make sense from the financial point of view of the customer to take these payment holidays. And we think that many of them are taking, because some of them, because they are facing a difficult situation and some others, because is an advantage. Having said that, the main factors behind potential defaults here and when I mentioned before, GDP, unemployment, health crisis, the health crisis, how did they develop, not in 2020 is more 2021 and 2022 is the most important factor in relation with potential default in – in mortgages. So I do not expect mortgages, the majority of payment holidays are mortgage and I do not expect about to outcome that. In consumer, we need to elaborate on country-by-country basis. You’ve seen that Jose provide information I mean, the latest Jose provide to you in consumer in Europe, we have like four countries that the production collapse and the other four countries half of the business still performing relatively well, Germany, Nordics and countries around this. So we do expect different outcomes occurring with this kind of situation. So in the – particularly in the US, that in this crucial extensions that we provide you the number of extension is business as usual, the number of extensions we do on a normal amount, without having a crisis is in the region of 15,000 amount. Yeah, so now grew dramatically, but is part of the business as usual and is difficult for us to assess how much is going to end up in a higher costs of risk.

Thank you, Alvaro. Next question, please.

Thank you. The next question comes from Francisco Riquel from Alantra. Please go ahead.

Yes, thank you. Just a follow-up on the previous questions. So you mentioned that the scenarios that you are managing are in line with the past prices in Spain you mentioned on their – of their recession in Brazil. So what I mean, despite the economic recession is going to be bigger overall, not only in those countries, but worldwide. So what makes you confident that the cost of risk should not be bigger than what you do have been mentioning for those scenarios impact past prices? So that’s the general question. So and then specifically wanted to ask you about Brazil. You mentioned that that cost of risk in the past recession, 2015, ‘16 went up from 4% to 5%. And so at that time, you went through the recession in Brazil in a fairly good shape. What – how did you expect now those Brazilian bank to perform in this crisis given that you have grown relatively fast and how confident are you of the risk taken in the last few years? Thank you.

Thank you, Franco. The first question, why this time is not going to be bigger. As you know, provision is related with expected losses in a medium and long-term period. What matters here is, we have a new kind of crisis this time. It’s a crisis that that we’ve never seen for that reason is extremely uncertain of the outcome, but you look at the different scenarios, not necessarily on the IMF. Well overall all the scenarios have a strong impact in 2020 and relatively rapid recovery in 2021 and 2022. So if that’s the case, the – the level of defaults is not that high. So remember the last crisis, when I spoke before in Brazil, that GDP fell 10% and the recovery is still ongoing, okay. So three years later it’s still not recovering this in Spain at the top to the bottom was around 9% to 10%, 9% I think it took four or five years to recover. The kind of crisis we have in front of us is a crisis in which you have a deep recession with very short – duration sharp meaning months or maybe three months, maybe six months, maybe nine months, depending on the kind of scenario you want to – the kind of we or the kind of you a scenario you want to choose. But in any case, relatively sharp period of deep recession that follows a relatively rapid recovery immediately after. This is not a very bad scenario for – or if this happens for the cost of risk. The longer the recession last, without even any of the intensity is lower, the higher penalization I mentioned already, the mortgages in which, is not that – what matters is not that much how deep the health crisis fall immediately, how long it takes to recover the crisis afterwards, yeah. So this is the general thinking on this. And for that reason, we remained relatively confident, that if a niche a biggie at this stage, the scenario behaves like the ones we are seeing from the different economies now – and we have a relatively quick and rapid recovery afterward the scenario is workable I will say. You said Brazil, while in the last crisis, we had a – you said, yes that we had a different portfolio that grew a lot in the last couple of years. It’s true, but well our franchise now is much better franchise than it was four or five years ago, much more resilient, with much higher profitability, with much more capacity to take management actions. I’m fairly positive on trends in Brazil naturally because of this is going to go up for sure, we are suffering right now and you see the NII, the impact of the overdraft – the charges that were reduced significantly, yes. But the underlying trends are pretty good, yeah. So we continue to see our strand across the board is significant. And we are – I think we are well prepared to face the headwinds that we’re going to suffer in the coming quarters and we feel confident that that we’re going to be able to march in the range I was telling you, well not exactly, don’t take the numbers, take the range as a potential outcome in the coming quarters.

Thank you, Franco. Next question, please.

Thank you. The next question comes from Carlos Cobo from Societe Generale. Please go ahead.

Hello. Thank you very much for the presentation, Carlos Cobo from SocGen here. The first question would be on the FX hedging policy, if you could update how much of the currencies you’ve hedged? And for how long that hedges in place would be, if you see – we’ve fully seen the impact already in Q1 and what would be the pacing of that hedging growing off? And secondly, if you could confirm that the EUR 1 billion cost cutting target for Europe is being reiterated, I think Antonio said and whether you see any risk of as in the – coming from investment related needs in the context of the COVID-19. I would like to understand your thoughts around, any room to beat the previous guidance on costs now or on the contrary, to meet the targets you now need to make in a stronger effort? And finally on capital, if we should still maintain the 10 – the 12% year end 2020 target or how should we expect the capital evolving from here? Thank you.

Well I will take the second and the third question I will pass to Jose. The first one, the FX hedging policy. Target for EUR 1 billion cost cutting in Europe remains in place is reiterated I’m fairly optimistic as you see the numbers in the first quarter fairly optimistic we’re getting there probably in the short run we’re going to have as I mentioned before, at the end of the presentation, we’re going to take management actions, management actions on revenues and costs and costs we have capacity to reduce the costs further from our targets in recent time, yeah. Capital here in 2020 capital asset that we also expect to remain inside the range of our target. Remember, our targeting capital was – is 11% to 12% and we’ll expect to be in the upper side of the range at the end of 2020 taking into account all of that has been said in this presentation. Jose, FX hedging?

[technical difficulty] we have two different policies for capital – for the capital ratio, we fully hedged the capital ratio and we do that on a monthly basis. So any exchange rate volatility does not affect the capital ratio directly. And in terms of profits, we hedge basically based on our expectations for exchange rate movements and to go into the details, we here, we have the Mexican peso, the sterling and the US dollar fully hedged. We have the real partially hedged. So we in the next few quarters, if the exchange rates remain where they are today, we will still see some negative impacts on our numbers.

Thank you, Carlos. Next question, please.

Thank you. The next question comes from Jose Abad from Goldman Sachs. Please go ahead.

Hello. Good morning. Thanks very much for the presentation. I have three questions. First one is, whether your 1.6 perspicacity impairment taken today. Does this include the positive things from the warranties in the different countries that you operate? The second question is on the – from the profitability, one of your European peers actually mentioned in a conference call was taking place in parallel to yours, that they expect to exceed a profit from the government warranty lines. Is this also the case for you in Spain or in other countries? And the last question is given that actually only in Spain two tranches have been approved up to actually EUR 40 billion so you granted EUR 9.6 billion. So based on these should you expect actually these to go up to potentially EUR 25 billion in cumulative incremental corporate lending until potentially Q3? Thank you very much.

Okay. When you are referring to the EUR 1.6 billion including warranties, does this include warranties? That will include warranties, because we are assessing the portfolio, we – that was in our books as of 31st of March. So on the – these new lending started in April. So does not include government warranties. How much profits we expect to reap? I understand the profit in the overall lending related with government warranties. I don’t really, I don’t expect to make profit out of this. So we’re going to get some revenues on cost of risk, but overall it’s going to be difficult to make profits, we may make some profits, but not significant at all, yeah. The government warranties. You extrapolate the – as you know, in Spain, the government established a kind of coupon for each bank based on the market share in the overall credit market. And our case was, I think 18.5% or something like that. And, as you know, we have – we finished the assignment of the lines we were granted to – maybe that were granted to us one week ago and we still have pending demand. That’s something that you may expect, given the fact that I’ll do our participation in the overall credit portfolio, the market share is 18.5%. Our participation in the SMEs portfolio space, that is the ones who are demanding more loans in these days in the region of 25%. For that reason, we have significant demand. Well it’s up to the government to – to go from the EUR 40 billion to EUR 100 billion, they match this and well, what they can tell to you is, we have stated demand pending for these kind of facilities.

Thank you, Jose. Next question, please.

Thank you. The next question comes from Sofie Peterzens from JPMorgan. Please go ahead.

Yeah. Hi. Here is Sofie from JPMorgan. When I looked at your stage two and stage three exposures, they fell quarter-on-quarter although very marginally. But how much or what movements should we have expected in your stage two and stage three exposures if the EBA would have had the new rules out on forbearance? Would that have had any impact on NIM on your stage two and stage three exposures? And then my second question would be clearly COVID-19 has different invites in different countries, but overall, which countries are you most concerned about in terms of the outlook and which countries are you believed or concerned about? And then my final question would be, if you could just remind us of your recent rate sensitivity given that we are seeing lower rates, both in Brazil and Mexico and the US and so on. So if you could remind us of why your rate sensitivity? Thank you.

Well, I will have the first two questions. I pass the third one, the sensitivity rates to – yeah, well Jose is going to take this one.

This one, do you want me to take it now?

Yeah.

Okay, so the interest rate sensitivity to a drop of 100 basis points is around EUR 500 million, a 176 more or less in Spain and very, very small sensitivity in Latin America, but overall for the Group is around EUR 500 million more or less.

So the other two question is stage two and stage three is too early to go into these detailed analysis – in the next, we have plenty of moving parts. The first one is the scenario that very likely we’re going to have more in the stage two and stage three. Second, we have the government guarantees that are going to upset partially what goes to the stage two and stage three. And so the uncertainty is so high that at this stage I can’t elaborate and but later on this. The overall, which countries will be more affected. More than these countries, I will tell you ex government guarantees, the sacraments that I see potential highest effect. The first one is all this semi, self-employed, the small corporate segments on top of the traditional sectors that everybody has in mind, yeah you know the sectors, everybody speaks about the sectors, yeah. But by segments, this is the segment that probably is going to be significantly affected. The second one is some pieces of the consumer lending, not necessarily cars, probably direct lending, more – much more than car and auto lending is the second I see a potential more impact. And at this stage and I may be wrong, because it depends on the – how the house price evolve, I don’t see a significant impact in the mortgage books, because the interest rates are so low, that affordability ratios and the loan to value ratios in our books are relatively low, interest rates very low, so affordability ratios are relatively high at this point, you combine the affordability ratios with the loan to value ratios, I do not expect a big impact overall in the mortgage book.

Thank you, Sofie. Next question, please.

Thank you. The next question comes from Adrian Tang from Credit Suisse. Please go ahead.

Hi, there. This is Adrian T from Credit Suisse. Thank you very much for taking my questions. Three follow-up questions from me. On the EUR 1.6 provision overlay, can you maybe provide us some key sensitivities around your base case scenario? You mentioned GDP, unemployment and house prices as the key variables just to judge, if these get better or worse, what we could expect on the capital? Can you maybe help us think through the potential impact you expect from the risk migration given the increasing PDs and LGDs? And then the third one, just a clarification, thanks for the disclosure on the mortgage and consumer payment holidays on Slide 30. Can I just clarify that you’re still accruing that interest income on all the loans in all geographies on these? Thank you.

Well, the EUR 1.6 billion, the question was exactly –

The sensitivity associated with –

The sensitivity to the base case. Well these EUR 1.6 billion comes from the combination of two scenarios. One scenario that this kind of we, a scenario that is relatively mild, and one scenario that we call internally, you scenario that is much, much worse and, overall much – it takes longer to recover the – some of the variables that are behind this expected losses, particularly as I mentioned before house prices. So house prices, let’s say, call 20% and it takes more than three years to recover, the impact is much more intense than if we have a stronger GDP fall in the short run and our recovery immediately after, none otherwise will be the case. So these are the base case we are using is a combination of we, a scenario with you a scenario that give us and I mentioned before, kind of IMF, on a country-by-country basis in some countries is more intense than IMF in some other is less, but overall as an average we are basically there. Capital impact of the great immigration. Remember, we have 50% of the portfolio is just under model. The other 40% is mortgages that the world immigration, right immigration is not significant and this trade immigration affects wildly to 10%, 15% of the portfolio that is related more with a kind of CIB business and some corporate. So the impact should be relatively minor, yeah, so we’re going to have some, but relatively minor in our case, given the fact that the standard model still plays a big role in our capital numbers that we’ve been telling you. And the third one is consumer. The third one was? Holidays. Payment holidays. It will accrue? We don’t accrue. We accrue in the majority of the case, although there are some cases that the government initiatives, the payment holidays force us not to accrue for one month or two months or three months. It’s not significant, but it has some effect, some in a limited number of cases, because it doesn’t apply to the overall portfolio that’s applied to specific people that has a very, very low income along with vulnerabilities that we cannot accrue interest, but this is really, really minor. What this has in the other cases is the financial effect, because we are translated interest into the future – in the future principal payments and that has some financial advantage for the for the borrowers, yeah.

Thank you. Next question, please.

Thank you. The next question comes from Marta Romero from Bank of America. Please go ahead.

Thank you very much. I’ve got three questions. The first one on capital. You’ve mentioned you’re in to be the upper end of your 11 to 12 target for fully loaded core equity tier 1. However, given that 2020 is kind of the last year dividend in some more or less banned, and you still have legacies from the previous crisis, but it makes sense to clean up as much as possible in 2020. I would you be willing to bring your fully loaded core equity tier one just in line with the MDA thresholds at around 9% after CRD V? The second question is on your ALCO strategy. How attractive do you think current sovereign yields in Spain, Italy and Portugal are? Are you willing to increase your exposure to the periphery? Do you believe the ECB backstop will be effective and hence, it makes sense to load up on periphery bonds today? And finally on Santander consumer finance, thank you very much for the color you provided on recent activity levels. How that translates into revenue outlook for the rest of the year. And just to be on cost of risk you’ve given us lot and lots of details and you’ve tried your best of course, given the uncertainty, but where do you see the cost of risk in consumer – in Santander consumer Europe progressing for the next two years? Thank you.

Can I take this?

Yeah.

Okay so. Hello, Marta Sanchez, I – I’ll take the first question. I’m not sure I understand what you were saying about legacy issues from the previous crisis in terms of capital, beyond the IFRS 9 transition period. So we can take that offline and discuss that, but I don’t think we have any legacies whatsoever coming from the previous crisis in terms of capital. Having said that, you have to remember that, we no longer have a capital conservation buffer in the UK which gives us 20 basis points. So the capital requirement has been lowered by at least 20 basis points, we have fully reached the 81 and tier 2 buckets. So any new issuance of 81, we do – we’ll go against a P TO R. So if we issue in the market this year, we will create more space and a higher MDA. And we would you know, expect to demonstrate that our capital continues to be extremely resilient even in the worst case scenarios within the different stress tests that have been conducted by the EBA and the ECB, we’ve always come as the least affected Bank, those were paper crisis, this is a real crisis. But what we are saying is that, our capital, which, you know, I would agree that it takes time for us to build up capital, because of our model, our model or show also it’s extremely resilient when withstanding the shocks of crisis and we will demonstrate our capital, we’ll withstand this crisis again extremely well.

Okay. The second question was related with ALCO strategy usually, yes like why not? If we plan to buy a Spanish-Italian sovereign bonds in order to hedge the current accounts. Well what I can – well this ALCO mix monopoly, what I can tell you, we are probably at the lowest level in the last six, seven years in the portfolio of ALCO and you are referring to the parent company where the lowest level in the last probably six, seven, eight years I don’t know for a long time. Finally, revenue outlook for consumer finance. This is going to happen immediately affecting the fee income. You saw then on the first quarter we mentioned, because fee income in the new origination plays a significant role there. Fee income coming from – the long-term fee income coming from an insurance business that we do at the origination. This is the government to be the main effect in the very short run. You mentioned the cost of risk. You’re right, we elaborate that we do expect much significant higher impact. We are relatively positive in auto lending and we expect higher impact in direct lending and direct lending well, the main – the biggest portfolio is Germany and somehow Spain, but a smaller size, Nordic countries and naturally these – those are the portfolios, the businesses one-third auto lending – sorry two-third is auto lending, one-third other business, credit cards and direct lending and this one-third is what I do expect higher costs of risk. On the portfolio, I can’t resist what Germany is the largest, second is Spain, Italy we have some lending although is warranty by the payrolls is the probability of default is relatively low and Nordic countries where we have credit cards and direct lending where I do not expect a significant increase. Going forward you mentioned in the medium-term well now at our scenario in the medium-term, the cost of risk will go up, but not in a dramatic way.

Thanks, Marta. Next question, please.

Thank you. The next question comes from Ignacio Ulargui from Exane BNP Paribas. Please go ahead.

Yes. Hi, good morning. I just have two questions. One on the capital, coming back to how do you see the capital evolving in the coming quarters? I think that the 1Q has been a bit of a trough of the years, there’s quite uncertain, but if you can give us some color on how you see the capital moving onwards? The second one is on the government reactions in Latin America, has been a bit lower than the – than that we have seen in Europe and in the US. How do you see these impacting the banks there, particularly interested on your thoughts in Brazil and Mexico? Thanks.

Can I – while to the capital –

Yeah.

In the first quarter, we had, as you could see, 15 basis points from regulatory and accounting charges and 19 basis points from perimeter changes. We wouldn’t expect to see more significant perimeter changes in the coming quarters, and yet there might be some regulatory charges, but they are not going to be of the nature and the amount that we saw in the first quarter. So going forward, I would expect, that we would expect the capital to evolve in line with our capital generation, which we think could still be in the region of 10 basis points per quarter, on average.

Okay, government reactions, your question was, is the reaction of Brazil and Mexico was lower? Well, this is probably the European view. You take into account that how that these societies where is the – in economic terms, where the societies and economic terms are, we say the informal economy playing a big, very big role and the resilience of the population in terms of the resilience to a confinement of these populations is much, much lower than it is in Europe. You will understand a bit better why in some countries they’ve been reluctant to take strong measures of confinement. Having said that, they are taking measures and if this is going to affect our – the performance, because this is lower reaction of the governments, well it will depend basically the kind of actions they will take in protecting or warranting the lending to the SMEs. Having said that, you take the figures, the figures are pretty small when I looked at the SME book in Mexico, that in our case is more than 50% already has warranty from the government from an institution called now things are more than 50% of the book. We already bought warranty for these books at the origination time when the book was originated and you see Brazil, the size of this book is relatively small. So the governments are reacting in Brazil, there is plenty of measures that the government, the central bank already took and we feel comfortable there. And while in relation with how they are handling the health crisis, I am not an expert on this. I’m not telling there’s plenty of controversy about how to match this even in the Europe and the states there has been controversy about this I’m not in a good position to make you an analysis of this.

Thank you. We have time for one last question, please.

Thank you. The next question comes from Fernando Gil de Santivanes from Barclays. Please go ahead.

Hi, good morning. Thank you for the presentation. Just a follow-up question on the ALCO portfolio. Just to get to the strategy on the Alco portfolio, I see that the volume has come down quite significantly in the quarter. What should we expect in terms of size and the disposal on the TLTRO programs on the ECB? This is one. And the other one is on RWA inflation I mean, you have disclosed on these pages 30, 31 and 32, the increasing in loans in April so far, how does these effects on the RWA makes an inflation going into quarter two? Thank you very much.

So the ALCO portfolio, the size, while this depends and then on a – on the – this issue is related with interest rate we reduced the size of the portfolio. Well, it’s up to the ALCO to decide if we want to increase or not, is to – and I cannot elaborate on this in turn. TLTRO was the role of TLTRO depends very much on the overall liquidity in the market. At this stage, the overall liquidity is quite good. Our liquidity provision, in fact, our LCR since we started the crisis had been going up. The deposits are growing fairly rapidly, stable deposits coming from customers. And the liquidity position is, as I said, is improving almost on a daily basis. Risk weighted assets inflation, because the lending I showed you there, the lending goes to corporate and CIBs, the lending going to SMEs, the majority of these has government kind of government warranties. So the weighting is very, very low is maybe in the region of – 10%, 15% depending on the country, but this is very low. So I don’t see that much inflation there. The other growth that we had was in CIB, but was already in the first quarter we do not expect another jump in the second quarter in CIB companies drawing the committed line. So which better no more normalized behavior, so overall with individuals, I don’t see in this quarter coming back to normalized levels in Europe. And with the majority of the lending going to SMEs being warranted by the government and with CIB being fairly stabilized, I don’t see a particular inflation in risk weighted assets or some come from breaking some of your colleagues are still before is not that important. Here the government warranty plays a role, unfortunately, originating within the reverse is fairly low. So overall, I do not see, we’ll stick with our targets of course, I said before, so.

[technical difficulty] we have very – relative to others very limited market risk. So.

That’s right.

Okay. So that will also not impact our risk weighted assets significantly. A - Sergio Gamez Martinez: So we need to leave it here guys. Thanks very much for your time today. Obviously, myself and the entire team will be at your disposal for any follow-up from now. Thank you keep safe. A - Jose Antonio Alvarez Alvarez: Thank you, guys, and take care. A - Jose Garcia Cantera: Thanks a lot guys.