Okay. Good morning to everyone. Thank you for attending the second quarter results presentation. So as you very well know, the quarter has been very challenging. The environment was significantly deteriorated by the pandemia. And in this environment, this difficult environment, the bank had delivered a solid operating performance despite the economic environment. So during the second quarter, we were able to continue the performance trend set during the previous quarters in activity and underlying results. In terms of activity, the bank has extended substantial financial support to its customers to help them through the pandemic. Stock continued to grow in our three regions, and our digital adoption has accelerated a lot. We are starting to see signs of normalization in retail new lending, particularly in Europe, with mortgage and consumer new business increasing. SMEs and corporates were supported by the existing government warranty programs. CIB reduced from the peak in April, I would talk more in depth about the different segments of the activity. Strong top line performance given the current market context, with a net operating income increase of 2%, driven by resilient customer revenue and our cost reduction plan, minus 5% year-on-year in real terms. The cost reductions are ahead of plan, driven by successful expense management in the last few years and additional savings measure adopted since the beginning of the crisis. Higher loan loss provisions based on the application to our model, the synergies we outlined to you in the previous quarter. The total loan loss provisions are €7 billion in the first half of the year, an underlying profit of €1.5 billion in the quarter, €1.9 billion in the first half 2020. However, as a result of the pandemic, the bank has completed a review of the valuation of the bank goodwill held against past acquisitions and of the tax credits carryforward. We recorded a non-cash non-recurring impairment charge of €12.6 billion, resulting in a statutory attributable loss for first half of €10.8 billion. I will explain in – the details later. Additionally, we have strengthened the balance sheet. We maintained the estimation of the cost of credit we gave to you in first Q, expecting to reach 1.4%, 1.5% at year-end, with very good credit quality, supported by mitigation measures that we’ve been taking. Furthermore, we reinforced our capital position in the quarter, delivering a strong organic capital generation of 28 basis points in the quarter, with group CET1 reaching 11.84%, at the top end of the bank’s 11%, 12% target, after the accrual of 6 basis points of core equity Tier 1 capital in the quarter, to allow the flexibility to pay a cash dividend from 2020 earnings. In addition, the Board intention is to propose to shareholders the payment of a scrip dividend, payable in shares in 2019. As soon as possible, depending on the macro and the regulatory requirements, the intention of the Board is to go to full cash dividend – to 100% cash dividend, as I said, as soon as possible. Going to the P&L. So we delivered a strong performance. Exchange rates has a significant – has had a significant impact, eight percentage points in revenues and six percentage point in cost. Resilient customer revenue, even in – with lower business activity. A strong performance on CIB space, that is reflected in other income. We accelerate our cost reduction, and higher loan loss provisions due to COVID-19-related provisions. In Q1, these were within the provision overlay, which we included in the net capital gains and provisions, would have now been allocated by country in this line. You have the details in the appendix. As a result, second quarter underlying attributable profit of €1,531 million, driven first half 2020 results of €1.9 billion, after absorbing €7 billion of loan loss provision. We have also recorded non-recurring charges, which I am going to explain and break down in the following slide. Every year, usually in the Q4, group evaluates whether the adjustment of the goodwill generated in the acquisition of the subsidiaries is necessary. In the quarter, following the triggering of events occurred requiring an earlier review. This is a very special economic situation. The changes in the economic environment has been very, very, very high. We expect GDP to contract in all the countries in which we operate and anticipate a two-year – two-, three-year recovery period. At the same time, we have a lower for longer interest rates, with significant decreases in many jurisdictions. And the increase – we also increased the discount rates to reflect market volatility and higher risk premiums when we discounted the future cash flows. So the analysis of value in use guidance and its comparison with the group value results in a total goodwill impairment of €10.1 billion, of which €4 billion is the result of a 1 percentage point increase in the discount rate. By country, you can see the figures in the slide. Santander UK is €6.1 billion; U.S., €2.3 billion; Poland, €1.2 billion; and consumer finance, €500 million, some in Nordics, some in Germany. Additionally, economic environment also affect our capacity to use the tax credits carryforward in the short run, especially those that are registered in Spain, the Spanish consolidated fiscal group. As a result, we also recorded a €2.5 billion impairment to deferred tax assets. The impairments, as you know, are non-cash items, have no impact on our market position and credit risk position and are neutral in CET1 capital. Nevertheless, we remain optimistic that the growth potential in the markets in which we operate, and this impairment does not reflect, in any case, the importance of the markets in which we operate and how core are for us. Going for capital, we continue to build capital. In the quarter, we generate 28 basis points organic capital in the quarter due to higher net profit, management of risk-weighted assets and increased securitizations. This, together with the positive regulatory impact driven by the expected European regulation of capital requirements, CRR II quick fixed measures, led to a total increase of 52 basis points. On the other hand, we – there were several non-recurring impacts in the quarter, such as Ebury acquisition and negative impacts coming from FX mainly and some from pensions. All of these results in a CET1 of 11.84% and the management buffer of circa 300 basis points versus 189 basis points pre-COVID-19. Today, we have greater visibility than a few months ago. We do not believe that we’re going to destroy capital. Conversely, we think it’s more feasible to pay dividends. So we haven’t included in this capital position the sale of Puerto Rico, nor the sale of Puerto Rico. Now the potential impact of the software deduction that may come at the end of the year, that will be in the region of 20 – north of 20 basis points impact. So going to the activity. Let me to guide you through the activity in the quarter. First, on the operational side, we – the bank has operated remarkably well in all the geographic areas. The business continuity was not compromised, and we haven’t had any relevant incident. At the same time, we continue to serve our customers with the attention they deserve. Currently, nearly 90% of our branches are open. We strengthened our corporate centers capabilities, and we are over 37,500 ATMs available in the group working as usual. Also, our point-of-sale turnover has recovering near to precrisis levels, following 25% turnover growth from the low reached in April. Also, we started to gradually return to our usual workplace in some countries at the end of May, always following the recommendation of the local government, respecting the individual needs of each employee. When it goes to the activity – to the financial activity, you have on the screen the new – retail new lending. While we are seeing some signs of normalization, particularly intense in Europe, also in the U.S., less intense in Latin America. In Europe, as you can see, mortgage lending new business is recovering, particularly in UK and Spain. North American and South America are below precrisis levels, with South America more affected as some restrictions still apply. In consumer lending, recovering quickly in all the European countries, with Nordics above pre-COVID activity, and Germany, 100%, and Spain and Italy, over 70%. We had strong origination volumes in the U.S., particularly in prime, boosted by FSA campaign. In South America, volumes are still below pre-COVID despite having spike in April. When we go to the corporate and CIB lending. Let me to remember that this has been a quarter in which we’ve been used in the credit facilities through the government warranty programs. Over 630,000 operations have been formalized, amounting for more than €25 billion, mainly in Spain, also in UK and some in U.S. In lending to SMEs and corporates, in Europe, growth was driven mainly by Spain, in large part due to ICO and also in the UK, bounceback loans and CBILS. North America, volumes returning to pre-COVID levels. South America, it is still an earlier phase of the crisis and continue to have mixed performance across countries. Brazil declining month-on-month, while Chile and Argentina having some growth. In CIB, credit growth of €16 billion since February, such in drop-downs across countries in March and first weeks of April, start normalizing in the later half of the quarter. Much of this liquidity has been placed directly in deposits that grew 25 – €24 billion in the quarter. So if we go for geographic areas, you see the activity. In June, group new lending was similar to pre-COVID levels. In the second quarter, stock continued to grow in our three regions, resulting in a 6% year-on-year increase in loans and 7% growth in customer funds. Stock, you have the stock there. Basically, retail loans remained fairly stable, while corporate and wholesale balance increased across the board. Finally, as a result of the health crisis, digital adoption has accelerated a lot. Our digital products and service are becoming more important than ever. We have increased 6 million mobile customers since June 2019, growing 22%, and we reached 40 million digital customers. In first half 2020, we grew 50% more than in first half of 2019. Our digital sales penetration increased to 47% in Q2 versus 36% in 2019. Of note, it was Santander UK with an exceptional 92% of digital sales of the total in Q2, 76% in the first half of 2020. As a result, we have again achieved record quarterly figures in the number of digital accesses and transactions. Going to the group earnings. Let me to start with revenue. I will qualify the revenue as I did at the beginning, very resilient, with significant growth in the Americas. North America is still growing. And Europe, some decrease, mainly due to the fee income line as a result of lower activity. Well, overall, as I said at the beginning, very resilient revenue with – as the result of our business model that is characterized with – by strong a relationship with our customers. If you go to different parts of the revenue lines, the different revenue lines. NII was €16.2 billion, basically flat compared with the previous year. So although internally, we have significant changes, better – higher volumes, the impact of the lower interest rates, some regulatory path, particularly in Brazil with the overdrafts and the higher – the very high liquidity buffer, the highest ever, that has implications in the cost. But overall, flat NII in constant currencies. Going to the fee income. We have like three walls here: the retail banking, that suffered naturally the lack of activity in the quarter; the lower volumes of transactions, mainly in Europe; and regulatory changes in several units. The Americas remained broadly stable. From the business point of view, of note is Wealth Management and Insurance CIB, increased fees, and represent 47% of the group fees. This quarter, we can proceed a gradual recovery in net fee income associated with normalization of the activity. In retail, point-of-sale and card turnover increased 25% and 28% between April and June, after the sharp plunge of 24% year-on-year on like. In Wealth Management and Insurance, volumes show positive year-on-year growth in Santander Asset Management, driven by market movements and positive net sales in May and June. In insurance, new production started to cover precrisis levels in the second quarter, mainly in Latin America. In CIB, the evolution has been very good, 20% up, the fee income, driven by global transaction banking, global debt financing and the global markets. Our strategy remain focused on increasing loyalty and growing higher value-added products and services, and we are more optimistic for the coming quarters. Costs, as I mentioned at the beginning, 5% lower in real terms, reflecting our successful management in this space. We are accelerating the cost reduction trends in most markets, notably in Spain, minus 10%; UK, minus 6%, and U.S., minus 4%. This allow us to be ahead of schedule in our cost reduction plan, and we captured incremental cost efficiency. We have already achieved efficiencies in Europe, over €300 million year-to-date. We represent 75% of the initial full year 2020 target. The efficiency ratio remain broadly in line with the previous year at 47%, but it’s remarkable in this environment. And we believe that the management that we plan to do by region and the lessons learned from the management of the pandemic will enable us to accelerate our transformation plan in the future and consequently, further optimize costs while improving customer experience. We – I’m optimistic about the cost evolution in the coming quarters. So going to credit quality. We recorded a loan loss provisions, as I mentioned before, of €7 billion: €3.9 billion, first quarter; €3.1 billion, second quarter. As a result, we still expect the cost of risk of the group to be in the region of 1.4%, 1.5%, as we already mentioned. So the traditional measures of credit quality at this stage do not apply that much. NPL remain fairly flat. So all these provisions are based on the models, plus applying the scenarios to the model, as you know. Let me to – having said that, let me to give you some color about what’s going on in our loan book. As we mentioned in the previous quarter, payment holidays had been and the amount of customers affected like – that got a payment holidays has been significant. More than 5 million customers got some kind of moratoria for a total amount of €116 billion. Close to 80% of this amount is granted to individuals, of which around 90% is secured lending. The vast majority is mortgage-related, and it represents 60%, and is more to be concentrated in our highly collateralized UK portfolio. Moreover, as 100% other than [indiscernible] moratoria, a large majority of the customers in the UK have requested the payment holidays as a way to benefit for favorable financial conditions. Indeed, circa 90% of these customers do not have any arrears on record. Consumer accounts for 20% of the moratoria, of which 2/3 is [indiscernible] loans, such a moratoria is short term, typically two, three month, and is starting to expire, and I will provide you some data immediately. Just 6% of the SME and corporate portfolio is under moratoria. And this is complemented with new liquidity facilities backed by government warranties by more than €20 billion, as I mentioned before. In summary, according to our internal risk analysis, 75% of the portfolio subject to moratoria is defined as a low risk and so still, as early given the uncertainty levels to draft final conditions. Let me to share with you what’s going on with this portfolio as the current moratoria expires. As you can observe, close to 90% of the moratoria will mature in 2020. Of which 25% had already expired as of 30 of June, and 50% more will do so in the next three month. And so it’s still too early to draw any conclusions on expired volumes, we can see that the current expirations are behaving with no material deviation from the normal behavior. Of the total expired at 30 of June, circa €29 billion, 98% remains performing. More than 60% are essential mortgage, mainly concentrated in the UK, €18 billion. 30% is consumer, of which 90%, €8 billion, is short term mainly in SCUSA. Concerning SMEs and corporates, as of June, the expired loans are concentrated mainly in Brazil. We are reinforcing local recoveries teams. This moratoria and the early performance of expired payment holidays were taking into account when calculated the estimated cost of credit at year-end of 140, 150 basis points. As of 15 of July, more than €40 billion of these loans had expired, maintaining similar credit quality, and only 2% of the total had entered into Stage 3. So let me to handle now to José that he’s going to elaborate to the different business areas – regions and business areas in the quarter. José García Cantera: Thank you, José Antonio, and good morning, everyone. As previously mentioned, group net operating income was again supported by the bank’s geographic and business diversification. North and South America grew their operating income, while the performance of Europe was impacted by the economic environment, showing the different stages in the evolution of the pandemic. We had an outstanding performance in our global businesses, both in net operating income and profit, enhancing our local scale with global reach. As mentioned, our Corporate & Investment Bank grew profits by 23%, achieving double-digit growth in all of its main businesses, but particularly in global markets and global debt financing. Also, Wealth Management and Insurance expanded its profits based on sound revenue and flat costs. Now moving on to the countries. Let’s start with Spain. In a period heavily impacted by the state of alarm, we led in – among the Spanish banks the response to the economic crisis. It is worth mentioning the implementation of plan ayuda, help plan or aid plan to protect our most vulnerable customers, with more than 170,000 joining the mortgage, consumer and card payment holiday measures. From the outset, we’ve been the most proactive bank in eco-funding. And thanks to process optimization, we granted €20 billion of eco-loans in over 150,000 operations, which represents a market share of 27%. Customer funds were 2% lower year-on-year, impacted by the fall in time deposits and mutual funds, mainly due to market’s performance. However, customer deposits grew 6% in the quarter. Underlying attributable profit amounted to €251 million in the quarter, 64% down year-on-year, obviously driven by higher provisions. In addition, total income decreased due to lower net interest income, basically lower rates and smaller ALCO explain the majority of this drop, and also lower net fee income due to reduced transaction volumes. These impacts were partially offset by double-digit growth cost reduction – sorry, double-digit cost reduction as a result of the optimization processes carried out. Looking forward, we would expect to see improved trend in net interest income, boosted by higher volumes, as it was the case quarter-on-quarter, and also, we will see further cost reduction. Santander Consumer Finance, we are starting to see strong signs of recovery in most of the markets we did operate. New card sales in Europe dropped almost 40% in the first half, while new lending in Santander Consumer Finance fell by less than half due to the strong performance in January and February. The largest falls of – in the business were in Southern Europe, while Northern Europe, less affected by the lockdown, held up better. As the CEO already explained, new businesses has – have bounced back considerably in recent weeks, approaching precrisis levels in many markets, or even exceeding as it is the case in the Nordics. Net interest income increased 3%, driven by a strong loan growth year-on-year, particularly in Northern Europe. However, net fee income, which is directly related to the fall in new card sales, decreased 16%. Costs were down 4% year-on-year, 8% quarter-on-quarter, due to the efficiency programs we have launched already before the COVID. Loan loss provisions increased to historically high levels. But the cost of credit, the cost of risk remains at a low level for this type of business. As a result, underlying profits fell 26%, although it rebounded 19% in the quarter. In the UK, volumes continued to grow healthily. Loans rose 4% year-on-year. Underlying attributable profit continued to be impacted by revenue pressures. Net interest income, affected by the base rate reduction and the SVR, and net fee income affected by lower transactionality and regulatory charges – changes to overdrafts. There was also an expected significant impact on loan loss provisions. We have reason to expect, however, an improvement for the rest of the year. We have reduced the rates on the 1|2|3 World accounts in May, and we have announced a further reduction in August. Additionally, funding from the Bank of England’s Term Funding Scheme has significantly reduced funding costs. Both of these will support net interest income over the rest of the year. Moreover, our transformation program is driving the 5% year-on-year drop in costs, 6% in real terms. Our credit quality remains strong. Related to payment holidays that have been granted, as previously mentioned, the majority are mortgages with very high-quality borrowers who have requested the holiday to – due to its favorable financial conditions. Looking forward, we believe that we have weathered the worst of the crisis and expect an upward trend in the coming quarters. The UK remains a core strategic market for the group. Brazil has again proved its balance sheet strength and successful business model, which enabled us to maintain high returns for our shareholders. Return on tangible equity was 17%. Additionally, we continued to focus on improving our service quality, and this was reflected in a substantial increase in NPS to record levels. Lending increased 18% year-on-year, with all segments growing. Customer funds also rose, boosted by demand and time deposits. Net operating income rose 5%, backed by positive performance of revenues and efforts to reduce costs. Net interest income increased slightly, driven by larger volumes, which offset margin pressures due to the change in mix, interest rate cuts and change of the cheque especial terms of regulatory change, while net interest income was impacted by the slowdown in activity. Costs were 1% lower, excluding inflation, with improved efficiency year-on-year, 67 basis points down. The good net operating income was not reflected in underlying attributable profit because, obviously, higher provisions, which also led to an increase in cost of credit, but within our expectations. In short, the bank continues its excellent performance even in a more difficult environment. During the pandemic, Santander U.S. has remained focused on supporting its customers, employees and communities while pursuing its strategic priorities. In the bank, in SBNA, we continued our digital and branch transformation while enhancing our auto finance partnership with Santander Consumer, focused on prime loans. In Santander Consumer, we had disciplined originations through our dealer network, enhancing our partnership with Fiat Chrysler and SBNA and the bank. Loans were boosted by the Paycheck Protection Program. In Santander Consumer, originations declined in March and April, but have recovered later in the quarter, driven by FCA initiative programs. Underlying attributable profit decreased 56% year-on-year due primarily to provisions, which increased almost 50%. Compared to the previous year, underlying attributable profit was 1.5 times to – 1.5 times, 150% higher due to lower costs, loan loss provisions and reduced minority interest. In summary, we had a solid volume growth in the quarter and in previous quarters, we’ve doubled profits in the last two years, and we have strengthened our capital position as shown in the stress test. This is the result of the continuous improvement in our franchise, and we believe we can continue to grow and add value in a key market for us. In Mexico, the bank continued with its debtor support program, aimed at individuals and SMEs. In addition, a significant number of branches operated with reduced staff. Digital channels and contact centers worked normally. Digital activity increased substantially year-on-year, with a 38% increase in mobile customers, 45% in transactions. And digital sales penetration is now 11 percentage points higher than in the first half of 2019. Loan growth was driven by corporates, CIB and mortgages. Quarter-on-quarter, obviously, it was impacted by the slowdown in the use of credit lines from corporates and CIB following the strong growth that we had in the month of March. Net operating income increased 11% year-on-year, supported by positive revenue performance and improved efficiency. Costs show a better trend than in previous quarters, and the efficiency ratio improved by more than 2 percentage points. Underlying attributable profit rose 4% year-on-year, which benefited the reduced – which benefited from reduced non-controlling interests. In short, very positive trends, reflecting the improvement of our franchise in recent years. And finally, in the Corporate Center, the first thing I wanted to say is that it continues to play a critical role in supporting the group through the Special Situation Committees. Also, starting in May, the progressive reincorporation of employees to the workplace began, with a mixture of on-site and remote working, always following government and healthy – and health authority recommendations, maintaining a high level of flexibility to meet individual needs. With regards to results, underlying attributable loss is flat compared to 2019, mainly due to the combination of, on the one hand, the positive impact on – of the foreign currency hedging, which is reflected in financial transactions of €250 million, and a 4% reduction in costs. On the other hand, net interest income was negatively affected by larger liquidity buffer, while the revaluation of some small stakes is reflected in provisions. And now I will hand it back to Jose Antonio for his concluding remarks. Thank you.

Thank you, José. Let me to conclude and to go back to the questions you may have. So second quarter, as I said at the very beginning, continued to – we operate under a specific conditions that were not the best to deliver in terms of our business. Having said that, as I mentioned at the beginning, operationally, we served very well, I will say, our customers, and we were able to keep the business going. So as a result of this situation, the management of this situation, we mentioned already, we continue with strong capital. We generate significant capital in the quarter, organic capital generation. And we maintain our core target in the top of our 11%, 12% range. As I mentioned before, and given the strength of the bank’s capital underlying performance, the bank has accrued 6 basis points of CET1 capital in Q2, allowing the option to pay dividend from 2020 earnings. On top of that, we have the intention to pay a scrip dividend payable in shares before the year-end and coming back to 100% cash dividend when this is feasible from the macro point of view and from the regulatory point of view. We delivered strong performance on pre-provision profit, resilient income and cost reduction accelerating. In second half of this year, we expect to recover our customer revenue via NII and fees to continue to delivering on our cost reduction ahead of our plans. We have good credit quality, so we maintain the cost of credit after the – some of the customers, the moratoria has expired, and we shared with you the data, we – these continue to be consistent with our expectation of cost of risk for this year. In summary, I will say our business model’s strength and execution of our strategy continue to show resilience across different cycles. This is helped by the group strong pre-provision profit, the amount of credit reserves of €24 billion, and the fact in all the stress tests, capital destroyed is significantly lower than our competitors. This makes us confident about our future performance and our ability to continue to generate capital. Finally, accelerating our transformation plans are key. For this reason, we are accelerating our transformation plans to leverage both our scale and the collective strength of our regions and global businesses, are focusing on simplifying our operation and improving customer experience to grow profitability and with improved efficiency, have learned from customer behavior changes during the pandemic and from our own operational experience. I’m convinced that all of these will enable us to work more efficiently, which, combined with greater integration, should be reflected in an increase to our profitability. All these elements make our net operating income forecast consistent with our Investor Day medium-term targets. That’s all on our side. And now we have time for questions, Sergio. You take the lead. A - Sergio Gámez Martínez: Thank you, Jose Antonio. Thanks, José. Indeed, we have now time for Q&A. So please, let’s proceed with the session. First question?

[Operator Instructions] The first question comes from Alvaro Serrano from Morgan Stanley. Please go ahead.

Just one on the dividend and another on impairment. On the dividend, just the mandatory scrip, just the rationale behind it, given it has no impact on valuation and given it’s certainly affecting the perception among institutional investors. So what’s the rationale behind it? And you’ve also pointed out that you’re going to moving cash dividend. Just wanted to discuss – if you can discuss the visibility. Obviously, on the macro, we understand visibility is what it is. But I’m more asking about regulatory headwinds. The ECB announced that TRIM exercised are back live now. So how comfortable are you that the visibility is better from a regulatory perspective given you were going to move in cash last year? And so what makes you more comfortable there? And the second question on impairments. I don’t know if you can maybe after the call share some of the assumptions behind the impairments and the DTAs and goodwill impairments. And will that – are you comfortable now that we should not have any further impacts on tangible value going forward from extraordinary ones, of course?

Okay. Alvaro, thank you for your question. The first one is the rationale behind the mandatory scrip. As we say, as you know, our shareholder base, 40 – north of 40% of the shareholder base are retail shareholders, and they being quite vocal on this, asking us for keeping some kind of a remuneration in scrip. That’s the main rationale. I know that the share count goes up, and this is probably something that may not please some institutional investors, but we need to take into account all our shareholder base, institutionals and retail shareholders. So the second question, regulatory. Well, we also want to stress to you and state to you that the Board’s intention is to go back to cash dividend, as soon – to 100% cash dividend as soon as we can. And in this line, we accrue six basis points, roughly speaking, €400 million, as is the intention if the profit generation goes accordingly with our expectations to keep accruing dividend in the coming quarters. And we think that the ECB regulatory – the ECB position on this, as – cannot be other way, it’s going to be related with the capacity of banks to keep generating profits along this cycle. As long as we are forecasting a recurring capacity to generate profits, we accrue dividend, that shows the Board’s intention to pay dividend in cash if we continue to keep generate profits. Naturally, this – there are two uncertainties here. One is on the macro side, if we are wrong on the macro and the profits are not the ones we expected, it may happen. We are not in this line. We think that we keep – we’re going to keep generating profit, recurring profits. And second one is the recommendations from the regulator. That, in my view, will depends more on the capacity of the banks not to destroy capital during the crisis. The impairment – assumptions for the impairment. So basically, the impairment, I mentioned three factors behind this. The first one and the most important one is the macro situation. That deteriorate significantly the profits in the very short run, not in the medium term. This is more in the short run. As you are seeing, this quarter, we’re reporting a significantly lower profits, I mean underlying profits than the ones we were reporting one year ago as a result of the health crisis. This is going to affect for two years, three years, as I mentioned before. And this has an impact. The reaction of the central banks to this situation, in many jurisdictions, has been to reduce rates, particularly in U.S. and UK where this has some effects. And the first part, the health crisis translating to higher loan loss provisions. The second part put pressure on NII. And finally, we increased the discount rate, on average, 1%. And I think all the jurisdiction is the same, but take the 1% as a wrong number, more in some jurisdiction, less in others, as a result of the higher market volatility, and as a result, higher risk premiums. And this has an impact of – I mentioned – I think I mentioned in the presentation of €4 billion. Out of the €10 billion, €4 billion is due to the higher discount rate and €6 billion coming from the other two factors I mentioned.

The next question comes from Ignacio Ulargui from Exane. Please go ahead.

The first – I have one question only. If you could elaborate a bit on what is the outlook for pre-provisioning profit at a group level into the second half, with the different moving parts on revenues and costs? And whether that 2Q number, it’s with the information that we have today, at the bottom of 2020?

Okay. Ignacio, we elaborate a little bit about this, that we are expecting a – well, a lot of this depends on the – naturally, on the scenario in which we are working is a – having somehow new normality, what is called new normality somehow in Europe, and in U.S., with some – still a activity that is at the current levels. Not 100% back because probably this is not going to be possible till we get a efficient treatment for the COVID or a vaccine being widely spread. So we are working with the scenario close to the one we have today,in Europe and U.S. And Latin America, coming back to certain normality in the next two months. Yes? So this is the scenario in which we are working – with which we are working. In this scenario, we should be able to recover our NII. As we mentioned, I’m fairly positive on NII. We are repricing liabilities in many jurisdictions, particularly intense, as José mentioned, in the UK, also in other jurisdictions. And NII should have certain strength in the second quarter and to recover some fee income that we lost as a result of the lockdown, particularly in Europe, I showed you the numbers. And the effects on fee income was due to significantly lower activity during the lockdown. As long as we don’t have lockdowns, and this is the hypothesis I’m making, we should have a stronger pre-provision profit in the second half of the year than the one we had in the first half of the year. And I do not see in this scenario – again, uncertainty in the scenarios is that higher provisions than the one we recorded in the first half of the year. So that’s my assumption for the rest of the year.

The next question comes from Fernando Gil from Barclays. Please go ahead.

Two questions from my side. First is, can you please remind us the book value of the UK and U.S. after these goodwill impairments? This is one. Second is, can you please refresh the FX exchange sensitivity going forward in the P&L?

So do you have the figures for UK and U.S.? I remember it’s €12 billion. José García Cantera: €12 billion, UK.

€12 billion UK. It’s in our quarterly report. I am speaking my memory. €12 billion, UK Sergio, you remember the number for U.S.? We’ll come back to you and give you the exact figure. But it’s published in our annual report, you have there the book value and the goodwills. The goodwill at the group level was €25 billion. After this, impairment it’s going to go to the €15 billion, concentrated mainly, and speaking by memory, in Brazil, Mexico, and very few – very little in UK after this impairment, very little in U.S. So this is – I think, Alvaro, your colleague, asked me in the first question, I didn’t address this. Further impacts of impairments affecting us. No, I do not see further impairments that affecting us I do not see further impairments. In fact, when we do the impairment tests, only when it comes negative, you record it. In many cases, it’s positive. And when we compare the discount of future expected cash flows with the current market value. FX impacts? José García Cantera: As you know, we have the policy of hedging tactically the P&L. It is hedged for the rest of the year mostly. Almost all currencies are hedged for the rest of the year. And we have started already to hedging some of the positions for next year, particularly the U.S. dollar, the Mexican peso and the Brazilian real. So fully hedged next year, but we are starting – we have started to do it.

But let me to elaborate on this. Well, the FX, this first half of the year, impact has been intense. The depreciation of emerging market currency has been very significant across the board. In general, the euro strength is there. And what we expect going forward is, after this depreciation, not having additional significant depreciation impacts other than the one that may come from very high inflation countries, in our case, it’s basically Argentina, but I’m more – I couldn’t be more constructive of – on FX in Mexico and Brazil, that are the two most important countries, given the fact that I think the markets are taking a overly negative view over the developments in those countries. And as you can see in our figures, we are seeing the activity and the levels of activity and the capacity to generate profits in those markets continues to be relatively strong. And this means that the economy is handling the crisis better than I think many market participants are thinking. Yes. Sergio Gámez Martínez: Just as a follow-up, if I may. Current value from the UK is €14 billion, €6 billion, SCUSA, and €10 billion, SBNA. And out of the post impairment, €12 billion goodwill for entire group, brazil represents around €3 billion. But obviously, I’m happy to catch up in more detail about the numbers after the call.

The next question comes from Andrea Filtri for – from Mediobanca. Please go ahead.

Could you please update us on IFRS 9 charges? Where are you on those? And what macro scenario you’re reflecting now? Are you envisaging further COVID charges in H2 2020? What sort of capital headwinds do you envisage from risk-weighted assets pro cyclicality as macro deteriorates in the coming quarters? And are there any pending TRIM impacts left at this stage? You said that confirm the 1.4% to 1.5% cost of risk guidance. Reflecting the benefits of the moratoria, what would this be without that? And just finally, what is the TLTRO III benefit to come, I guess, from Q3 onwards?

Okay. Plenty of questions, Andrea. I’m going to address some of them, and others, I will pass to José. IFRS 9 charge is what is reflected in our loan loss provision, and we are working with a – naturally with our models. And the scenario that I mentioned, we haven’t changed the scenario. It’s the one I mentioned in the previous quarter. That is not exactly, but very much in line with what IMF scenario was, at this time. We haven’t changed this. So do we expect further COVID-related provisions? Unless we have a different scenario going forward, I do not expect additional that are already embedded in our numbers. The second question is risk-weighted asset pro cyclicality. It’s true that there is some pro cyclicality already happening. So we are – there is rate immigration, and we are already including. We have some rate immigration, particularly – or in some cases, significant rate migration, particularly in the CIB space. It happens on a continuous basis, and it is going to be reflected quarter-after-quarter, yes? So including the second quarter where the pro cyclicality was significant, and is included in our organic capital generation. Okay? The TRIM impacts, Jose, maybe want you to – you want to take this one. The moratoria, as I mentioned, does not help in the cost of risk. So the cost of risk at this stage is – come from the application of scenarios to the models. If we were recording cost of risk based on observation like it was in the past, the cost of risk will be significantly lower. We take into account naturally all the moratorias, what is going on with the moratorias, because, well, naturally, this is – but the majority of the cost of risk comes from – the extra cost of risk comes from the models, yes. Would you want to elaborate in TRIM impact, TLTRO III? José García Cantera: Yes. Yes. With regards to TRIM models, we have – the most significant one is the TRIM on Spain’s SMEs. That was put on hold last year to try to help lending to this sector. And that, obviously, with the end of the extraordinary conditions, this may come back. It could be up to 16 basis points. And then we have some other smaller ones that may happen before the end of the year, although some might be postponed for next year, could be up to five basis points. So worst case scenario, I think we’re talking tops 20 basis points. And with regards to the TLTRO, we increased TLTRO in the region of €17 billion relative to what we had last year.

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

Here is Sofie Peterzens from JPMorgan. I had a question on the NII outlook. You mentioned that the volume growth was very strong, was holding up quite well in the quarter. But how should we think about the NII outlook is paying going forward? And my second question would be on your TNAV. It was down around 5% quarter-on-quarter. Are you doing anything to keep the TNAV a little bit more stable going forward? Have you any hedges in place? And how should we think about the TNAV growth going forward? And the last question would be just a follow-up on the previous question. What kind of macro assumptions do you have for your various geographies? For example, in Spain, are you using the Bank of Spain macro scenarios? Or how are you thinking about the macro picture in your different markets?

Okay. Thank you, Sofie, for your questions. Let me to elaborate in the NII in UK going forward. So as José mentioned in the presentation, probably, we’ve seen the worse already in the first, second quarter. Yes? So it’s a liabilities repricing exercise that is going on, and we started to see this starting in May. It’s going to accelerate in August, and probably, we will go back to kind of normal in the fourth quarter, yes, so accelerating this. Probably, the fourth quarter, we should go back what we had the previous year, yes? So and – after the repricing of all the liabilities. That’s the reason why we said – José said that we are optimistic on the NII evolution in the UK. It’s basically a liability repricing across all the deposit base. Second, I will leave the TNAV to – question to José going forward. Macro assumptions. You mentioned specifically Spain. We are working in the region of 10% GDP decrease this year and a significant recovery next year. I don’t remember exactly the number, but I think it was 7%, or 6% or 7% next year. As I said to you, our scenario is not far away from – maybe a bit better or a bit worse country by country, but on average, not significantly different than the one of IMF. The TNAV, you want to elaborate on this, José? José García Cantera: No. I mean the TNAV, Jose Antonio already said that if you look at the two charges that we made in the first quarter, obviously, the impairment of goodwill has no impact on TNAV, the DTAs hub, and we would not expect to have any one-offs affecting TNAV going forward. So obviously, the evolution of TNAV will depend on our capacity to generate earnings affected by the currency and the evolution of the FX. But as Jose Antonio said, was extraordinarily high in the first quarter – in the first half, and we would not expect to see the same level of depreciation of the currencies in the countries where we operate in the second half. So I would – with all things being considered, I think we could be – we can be quite – more optimistic about the TNAV evolution in the coming quarters.

The next question comes from Mario Ropero from Fidentiis. Please go ahead.

My first question is on fees in the UK. Could you please explain how much was the impact of the regulatory cap on overdrafts and how much you expect to recover in the third quarter? And then the second question is on loan yields in Spain, which went down significantly in the quarter despite some marginal help from Euribor. So is there a pressure on yields in Spain due to ICO loans? And what do you expect in the coming quarters?

So fee income in UK, you’re rightly pointed to overdrafts. As you know, we were not allowed to apply in the overdrafts the interest rates we were planning to apply. It was a mandatory, and this reduced our capacity to generate income more to the NII than the other. But we expecting to lose net-net between NII and fee income like €100 million, €130 million, €140 million. And now we are €100 million lower than that or something like that, yes? So it’s the numbers I have in my mind. So we’re going to recover somehow charging interest on the overdrafts in line with how – with what we want to do, but was not allowed to do this quarter, and this will come back in coming quarters. Loan deal, in Spain, it’s pure mix, yes? So it’s true, ALCO loans came basically in line with the existing loans, and the mix has changed a bit. The consumer lending decreased, the weight of the consumer lending decreased, while the CIB and large corporates increased. And this result in a drop in the loan yield. That – well, you ask me going forward what’s going to happen. As long as we recover the level of activity that we are doing right now in the retail arena, we should be able to recover somehow to the previous levels or even higher levels depending on Euribor, as you rightly pointed out, that it has an effect. Euribor is like 20% of our portfolio – mortgages re 20% – Euribor and mortgages are 20% of our portfolio.

The next question comes from Carlos Peixoto from CaixaBank BPI. Please go ahead.

A couple of questions here. First one would be on the dividend and – on the dividends on 2020 earnings. So if I do some maths on the six basis points accrued on the first half earnings, it looks as though you’re implying that you’re an 18% to 20% payout ratio or expected payout ratio in 2020 earnings. Is that the case? Then on NII in Brazil, we witnessed a strong compression in margin, basically, with volumes growing at a healthy pace, I would say, NII was still down. Also I guess that the changes in mix can account for part of this, probably interest rates as well. But I was wondering how do you see this moving – going forward. And so basically, what’s the outlook you see there on NII and also on the cost of risk, by the way?

Okay. Thank you. So dividend in 2020, we accrue six basis points. Well, this is a – has a – I will take the number as a strong signaling effect that – provided that the macro conditions remain as we – or behave as we are expecting and subject to regulatory recommendations. We are not – we don’t have in any mind any specific payout, but we have in mind or what the scenario in which we are working is we’re going to be at the top end of our core equity Tier 1 target. And that is 11%, 12%. We’re going to be close to 12% or around 12%. And this will allow us to keep a dividend, naturally first based on the profit generation, but I will not take this six basis points compared with the profit we generated in the first half as a guide of the – as a guidance for the payout that – for the whole year, probably. The payout, if we are right in the macro recommendation – in the macro scenario and the profit generation is the one we expect, probably we can go beyond that, provided that we are allowed to do so. José García Cantera: NII In Brazil.

NII in Brazil? So two different – and NII in Brazil, there is a products that in Brazil, they call cheque especial. That is kind of overdraft in Brazil, that the interest rate was very high, and the regular – the regulator put a cap in this product. This product will last. Well, we were – last year, we start to reduce our presence in these products. And in fact, our market share was close to 20%. Now it’s 12%. And this is the main impact. So it’s a bit of mix. And the main impact come from this specific product, that has very high yield, extremely high interest cost of risk, yes? So it has an impact in the NII, a significant impact also in the cost of risk. So now going forward – you mentioned interest rates. Interest rates are not that – as important in Brazil as they are in other jurisdictions given the higher reserve requirements. It matters. But I will say, in the very – in the first year, probably, it’s a net-net positive, the impact, slightly positive. Afterwards, may turn a little bit negative. But at the beginning, it’s not as important in our market due to high reserve requirements in the country. The main effect come from mix change due to this specific product, and that we have been doing more activity in corporates and large corporates. Let me to say that on a like-for-like basis, our spread in Brazil is increasing, okay, significantly. So lower volumes, higher spread on a like-for-like basis. The mix is – and these products are the ones who explain the decrease in NII, yes? José García Cantera: Cost of risk.

Yes. The cost of risk in Brazil, well, in fact, we are developing – or we develop a full plan to address collections and recoveries in the country, and we do not expect an spike. I think at this stage, we are clearly, clearly much more optimistic than my perception where the market is. So we are not seeing that large deterioration. Maybe we – in this environment, the moratorias are not that high in Brazil. They last only for one or two months. They came back. So I’m not pessimistic about the outlook of cost of risk in Brazil unless the situation deteriorated further from the macro due to the health situation of the country. But as I said, I’m not pessimistic on this, yes.

The next question comes from Stefan Nedialkov from Citi. Please go ahead.

It’s Stefan from Citi. Two questions on my side. The first one is on capital. Have you done any risk – any synthetic risk securitizations which may or may not has helped your capital in the quarter? And also, what’s the outlook for synthetic risk securitizations for the rest of the year? On the – the second question is about the moratoria. You gave some interesting statistics on the non-performing loan ratio on moratoria loans that have expired. Just to probe that a little bit further. What’s the percent of clients that were furloughed within that €40 billion of mature moratoria loans? And related to that, are there any geographies and products that you’re not accruing NII before in terms of moratoria loans, for example, Mexico or other countries? José García Cantera: Yes. Okay. So in terms of securitizations, we did a capital that were really very small relative to what we thought we could – that we had in our budget, but they were insignificant. I think it was like €500 million or something of risk-weighted asset, I believe. So it was not significant, basically because the market was closed for most of the quarters, but it has started to open. So we would expect to be a bit more active in the second half, probably not reaching our expected activity for the year, but clearly, a bit more active in the second half than in the first half. And indeed, we are working on a couple of more sizable transactions to be closed over the next few quarters, a few months.

Okay. Second question was about the moratoria, the €40 billion, the percentage of this – the €40 billion that is the moratoria that expired as of mid-July, the percentage, I mentioned in the presentation was very much in line that went into non-performing, very much in line with the ones who pie at the end of June, in line with the 2%, yes. So it’s – and that’s what we can share with you at this stage. And the other question, Stefan, your question was accruing NII on moratoria loans. The majority of the moratoria loans, I think the only big chunk of moratoria loans that are not paying interest are the mortgages in UK, yes? The majority of the others, they keep paying interest, and the moratoria applies to principal. So what we’ve done, for example, in mortgages in Spain on a voluntarily basis and in other jurisdictions is to keep paying interest and not paying the principal. So we are accruing interest, for example, in UK for the mortgages that are under moratoria, so we accrue. And in emerging markets, well, in emerging markets, as you know – not due to this crisis, yes. So it’s the way we accrue and the way we write-down – remember that in those markets, we write down after five, six month all the consumer-related, credit card-related lending, the write-down happens very quickly, okay? So if the moratoria – when the customers come back to the moratoria, and we accrue some interest on this, and we get on pay, immediately goes – jumps into the write-downs, yes? So it happens. It’s not like a mature market where it takes longer, yes?

The last question is from Adrian Tang from Crédit Suisse. Please go ahead.

This is Adrian Cighi from Crédit Suisse. Two questions, please, and a brief follow-up. So the first one is, you’ve written off €2.5 billion in DTAs, guiding a deteriorating outlook. Yet you recommit to the 13% to 15% RoTE target. Can you give us any more color as to how to reconcile the two? The second question is on cost. You’ve achieved an impressive performance on cost reduction this quarter again. And you also note that you’re confident you can do more. Any chance we can get you to quantify or provide us a range of some of these potential incremental cost saves? And then maybe a follow-up on cost of risk and trying to get your outlook in a different way. You mentioned the significant front-loading costs from IFRS 9 models. But would you expect a meaningful decline maybe in cost of risk next year?

Okay. So the €2.5 billion DTA is naturally our outlook in the medium term. I mentioned that our outlook hasn’t changed in the medium term, provided that the scenario we have in mind works. And we mentioned – I mentioned in the presentation that the impairment was related with the impact on profits in the next – in this period, in the next two years, yes? So two, three years to recover the previous levels. What happens with the DTAs? So when you factor these two years of lower profits at the very beginning, with the – where the discount rate has little effect, is significant and leads us to this charge. And at the same time, remember that we put a higher discount rate. So the same applies to the DTAs, high discount rate that again is 40% of the impairment. As I said, globally, €10 billion in impairments, as I said, €6 billion coming from outlook, particularly lower profits in the short run and the rest from the discount rate. The same apply here. So I think it’s consistent in the medium-term target. We are now seeing our capacity to generate profits in the markets in which we operate. As we see today, the market is there, and I don’t see any reason not to keep those targets. The cost reduction, the second question, to quantify cost savings. Our plan is to update later in the year. But for sure, I’m – we are much more optimistic as a result of the – what has happened in the crisis, the behavior of the customer, our capacity to operate, our operational capabilities that were shown in the crisis, for sure. And we’re going to produce higher cost reductions than the ones we commit to you in Europe, but that if, as you know, were €1 billion nominal drop in costs in Europe, we already got €300 million in the first Q and first – sorry. José García Cantera: First half.

In the first half, sorry. Thank you, José. And we’re going to exceed easily this target. Yes? So – and this is – we will update you once we finish our plans more in the fall or at the end of the year. Yes? The last question was? José García Cantera: Cost of risk next year, we’re going to see it drop.

Well, I do expect – if we are right with our scenario, I do expect to see a drop next year, naturally. So otherwise, we need to – the macro should be significantly different than the one we have. Again, this is the area in which the uncertainty is higher. Naturally, we are seeing the – what is going on with the COVID on a daily basis. Well, we are working, as I said before, with any scenario in which we live – in the scenario we live today in Europe and U.S., with economy open up to a point with some restrictions to travel, but operating as of today, the economy, for a while, till we get a vaccine. Once we get a vaccine, I think that we should be able to reduce the cost of risk. Sergio Gámez Martínez: Okay. So I’m afraid we need to leave it here. Thanks, everyone, for joining this call. Obviously, the IR team is at your entire disposal for any follow-up. So thanks very much. See you next quarter.

Bye.