Good morning, everybody and welcome to Banco Santander’s Conference Call to Discuss Our Financial Results for the Third Quarter of 2022. Just as a reminder, by the results report and presentation we will be following today are available to you on our website. I'm joined here today by our CEO, Mr. Jose Antonio Alvarez; and our CFO, Mr. Jose Garcia Cantera. Following their presentations, we will open the floor for any and all questions you may have in the Q&A session. With this, I will hand over to Alvarez. Mr. Jose Antonio Alvarez, the floor is yours.

Thank you, Begona. And good morning to everyone. Thank you for attending to this conference. So I should say, to start this presentation that while we've been developing our activity in unusual, highly uncertain macro environment. In this environment, we've been able to keep growing our customer base and translating this into volumes growth and revenue growth. So the most remarkable change in the quarter broadly has been the acceleration. Starting the acceleration of NII, we took it out of 5% quarter-on-quarter per this is the main event on the back of activity levels and starting just starting to raise interest rates, particularly in the Euro Shang where our exposure to higher grading or higher rate is high. Our profitability improved significantly. Return on tangible equities stays in 13.6%. EPS is growing at 31%. On the back of the profits, we got in the quarter €2.4 billion after serving €181 million shares net of tax on minorities in Poland, the gross number was north of €300 million related to the new payments holiday regulation, excluding net profit grew 11% quarter in the quarter 10% in constant years. In the nine month our profit attributable profit, we've got €7.3 billion increase in 25% with a positive impact of the currency is being plus 14% in constant Euros. The credit quality on our balance sheet show no signs of duration so far in the quarter overall because of remain below 1% and we continue to generate capital good base. Finally, as you already know, we continue to pay value to our shareholders both in terms of shareholder remuneration with the cost dividend we announced that the board approved last month and the growth in tangible net asset value per share that provides a combined within our plus cash dividend per share up 11%. Going into more detail into the region you see that the growth is well spread across the board about in all the process is fairly balanced growth. We cannot say that we are growing. Yes, in one part of the business we are growing while across the board in constant Euro loans increased 2% quarter-on-quarter €17 billion, which increases in almost all countries deposits were up 2% also in the quarter with some shift towards tying the policies given the current interest rate environment. Intellectual month loans and losses we do 7% and 6% in constant years. Regarding our loan portfolio natural history, this doesn't change quarter-over-quarter, yes, you to remind that our portfolio is fairly balanced at one third. Individual mortgages mainly UK and Spain by disorder being UK by far the largest more than 50% of the total portfolio. They are less than a third close to 30% is consumer lending. The majority is auto lending in in Europe and in the US. And finally, we have an exposure out north of €100 billion close to 40% of our loan book. The majority in SMEs and corporates and in CIB and you'll see that all the domain, portfolios are growing 7%, individual mortgages 7%, consumer 6% corporate. So, as I said balance sheet growth across the board. Looking at the income statement, you have we provide you growth rates both in Euros and constant Euros for you to analyze in the diversity in the industries where you in the way you can analyze. As you can see there was a positive impact from seeing rates of around 5%, 7% points partially offset by the effects right in the corporate center that is included in gains on financial transactions. In constant years, revenue grew at a faster pace than in Q1 and Q2 and costs face inflationary pressures but continue to grow below inflation. Thanks for these two of this performance net operating income reached €21 billion record for the first nine months of the year. In loan loss provisions that is one of the current topics in this particular environment. There were two opposition forces impacting the year-on-year performance. On the other hand in 2021, they were caught COVID-19 related loan loss provisions releasing Q2 and Q4 of 2021 due to better than expected credit performance. On the other hand in 2022 loan loss provisions including include an additional €1 billion share. €1 billion in provision related to update macro assumptions, mainly in the US, Spain, and UK. The markup provision roughly speaking was €1.1 billion. Spain represents €200 million. UK, €300 million; and US, €500 million and lower countries €100 million, of which €500 million spenders [ph] against P&L and the other is €600 million is reassigned funds, mainly coming from COVID provisions that were a new sheet in the balance sheet. So, we are seen and this is an important development in the quarter some normalization in the US as we anticipate to you. And in Brazil semester realization of the cause of risk, we elaborate on these costs that will elaborate in this fall. Additionally, this year will recall higher charges related to fund contributions or new resolution scams plus lower minorities and tax borrowing. The narrow south so as you can see €7.3 billion. Elaborating a little bit in the P&L trends led me to say while positive trends in customer revenue, especially NII the last quarter, we expect to continue as the positive impact of interest rate hikes and activity with our fully reflected in the different regions. The positive impact is just starting in Europe, and somehow more advanced in other countries like UK and US. More so in Poland, and in Mexico. The opposite happens the negative impact has happened in Brazil and Chile as you know that they are gearing toward lower rates. Secondly, our cost grew below inflation or reuse in most countries, our efficiency improved slightly to 45.5% compared with full year ‘21. But this is being eroded by inflationary pressures in some regions, by the lack between the almost immediate impact on costs and the revenue benefit from higher rates come in late. Thirdly, in general, we did not see any iteration because of race or in the key quality burial such as Harriers, we have very good cause of race in Europe in ECB. And also in North America, where both the US in process of normalization and Mexico are performing better than expected. In South America the costs from Greece in general was a stable. Brazil went up this year for now for two quarters in a row we has been stable and we believe that we already reached the peaks at the peak and some indicators more we are more constructive on this going forward. All-in-all, we are confident for the whole group to achieve our cost of risk target. In relation with the profitability, I mentioned our own the ROTE is to 13.6%. Earnings per share grew to 31% on backed by higher profit and share buybacks, we bought back 3.2% and we amortize 3.2% of our group's capital. Finally, regarding shareholder remuneration policy for 2022, I wouldn't tell our intention the board already approve 40% pay out to half of these in cash fine €8.83 in cash and €979 million in buybacks that we expect to be approved by the ECB soon and we start to execute as soon as is approved. As a result, the total remuneration this in this first dividend is going to be €1.9 billion positive in our performance and mentioned before, that is increasing for several quarters in a row on given the performance the profitability of the group, a more constructive exchange rate combined. Finally, on capital, we are very comfortable with our tier one core equity tier one ratio remaining above 12%. A level that we consider to be very appropriate for our business in the quarter net organic capital generation of 26 basis points after 8 basis points accruals for the future cash dividend. The increase was partly offset by negative impacts for markets available for sale portfolios. Some from models mainly more markets and models. At the same time, we continue to deliver our commitment of this simple discipline net capital location. As you can see on the slide, risk weighted assets grow well below loan growth, higher book from book profitability, and lower weight of risk weighted assets we return on equity below the cost of equity. Now, I will CFO, Mr. Jose Garcia Cantera will take you through the results in more detail.

Thank you, Antonio, and good morning, everyone. After the CEO presentation I will go through our performance in more detail in the quarter in more detail. And we look at the progress in in terms of country and business starting with profit on the right-hand side you can see the upward trend in in profitability, driven mainly by revenue which increased 5% in the quarter. This increase was supported by AI which also increased 5% which as we can see hustler rate has accelerated in the last two quarters, primarily as Spain, and Portugal are beginning to benefit from interest rate increases, in addition to the growth that we have already seen in countries like UK, Poland, US, etcetera. In North America in a row 6% with both countries growing more or less at the same pace. And in South America was up 5% supported by strong growth in Argentina, while Chile and Brazil show negative sensitivity to rates especially Chile where we had lower inflation in the quarter. In Brazil, AI remained stable following declines in previous quarters. I will explain this in a bit more detail when we go through Brazil. The digital consumer bank was practically flat due to the -- although we have a neutral position into rates in ECB. It's a slightly negative in the first quarter couple of quarters and then it neutralizes and that's what explains this behavior. Net income was flat in the quarter mostly due to weak performance in Europe due to seasonality. We have lower fees charged on deposits from CIB large corporate clients and one off in credit cards in a second quarter in the UK. On the other hand, South America increased 5% with an excellent performance in Chile and Argentina. Gains on financial transactions were higher driven by CIB, obviously quarter-on-quarter comparison in other income was affected by the contribution to the Single Resolution fund in the second quarter. This is our net interest income sensitivity to rates. This is consistent what we have shown in previous quarters. This time around we thought it would be better to look at forward rates rather than a sensitivity to 100 basis point change. So, this is the sensitivity of forward rates relative to rates remaining stable over the next 12 months. Obviously, the it is fully compatible because now forward rates are almost 200 basis points. And the sensitivity we showed in the previous quarter was 100 basis points for the Euro zone for instance. So this is the sensitivity again or forward rates relative to rates remaining stable. As expected obviously we have very high sensitivity in Euros. In Sterling, we have some additional sensitivity from current levels, but obviously the higher the rates, the higher the beta as well. So the beta we have here is around 50%, 50% to 60% in this exercise. And in Brazil as interest rates remain flat asset repricing should gradually compensate the increase in the cost of deposits, which as you know, is almost automatically repriced. It's important to note that the sensitivity is based on the maintenance of the TLT or row depo conditions that exist at the moment and we all know that they will change tomorrow. We don't know what the change will be so we'll adjust that accordingly in the next presentation. Looking at costs. The CEO has already mentioned that costs are growing below inflation, which as you know, is one of our targets. And as you can see on the slide, we are achieving -- thanks to the transformation plans underway in all countries, particularly in Europe, a very good performance. We had in Europe, four percentage point improvement in the cost to income at the same time as costs automatically adjust with inflation in emerging markets. It takes a bit longer in Europe for that to happen. So I said in South America, the rising cost is explained by the auto -- the automatic adjustment of cost to inflation, particularly in salaries in Brazil, Chile or Argentina. Even so cost in the region fell a little bit in real terms, and efficiency remain excellent despite a slight increased. In North America is worth mentioning the investments that we continue to make in Mexico to modernize our infrastructure. In terms of credit quality, we are not seeing any significant deterioration. The NPL and coverage ratios have been stable in recent quarters, as has the cost of risk status three exposures increase in line with the credit portfolio. As previously mentioned by our CEO, you can see the COVID-19 related provision releases in the second quarter, and the fourth quarter of ‘21. And the additional over 1 billion of macro provisions in ‘22. Mr. Jose Antonio Alvarez mentioned half of which came through the P&L and half were reclassifications have previously created COVID related provisions. Compared to 2021, there were long term loans provisions increases in the UK, in the US, Brazil, and Poland, but very much in line with what we expected. Going into a bit more detail about the quality of our portfolio, we maintain a low risk profile balance sheet. It's mostly concentrated in mature markets 80% of the total exposure with approximately 65% insecure lending mostly by real estate collateral. Additionally, the main macroeconomic variables that affect our businesses, particularly unemployment are expected to remain resilient across our footprint. Looking at the main countries in Spain 75% of our mortgage portfolios floating, we have significantly reduced the average loan to value and the percentage of mortgages with loan to values over 80% and corporate portfolio improve its rating. And as you know, the ECHO portfolio is performing very well and better than expected. Unemployment is low and stable and is expected to remain so. Housing affordability has improved significantly in recent years, and house prices are on average 30% lower in real terms than in 2008. In the UK, 12% of the portfolios floating. The simple average loan to value of mortgages is 40%. And less than 5% have loan to values over 80% versus 12% in 2015. In terms of macro that UK has a very low unemployment rate, which we believe will help avoid a sharp fall in prices. Moreover, affordability is currently at 34%, ten percentage points lower than in 2008. In the US, we change the mix recently towards more prime which currently represents 80% of the total auto portfolio and therefore it's a better-quality portfolio. Used car prices are clearly above historical levels they should gradually normalize, but this normalization should take place gradually as I said because of the scarcity of new vehicles. And also, US unemployment is very low levels is expected to go up a bit but by no means reaching the levels of previous crisis. Lastly in Brazil activity is gradually recovering. We are growing loss in low-risk products. 65% of individual portfolio is secured. The average maturity of our balance sheet in Brazil is a bit less than 1.5 years which means that as the quality deterioration surfaces very quickly. In summary, we remain constructive on the future of our asset quality. Now let me go in a bit more detail through the main countries. Starting with Spain, we continue to see a very dynamic market. Net customer we have had positive net customer growth every month since December 2021. We have increased transactionality, and we've seen robust volume growth. Year-on-year profit was reported by our efficiency plans cost to income is down 2.4 percentage points and the reduction in loan loss provisions the nine-month annualized cost of risk is 62 basis points, including 200 million from macro adjustments. In revenue, NII was under pressure in the first half. It started to ease in the third quarter, growing 10% quarter-on-quarter, starting to reflect the hike in interest rates. Looking forward for the next few months, we continue to see positive trends in NII lower cost base in absolute terms and control cost of risk. In the UK, we continue to have positive new lending trends and interest rates higher interest rates obviously are supporting NII growth. We had double digit growth in revenue together with strong cost control. Costs were down 6% in real terms, which resulted in an over 4% improvement in the cost to income and drove the strong operating performance which was up 20%. And the line profit was flat due to higher loan loss provisions versus releases in 2021. We are comfortable we will reach our targets, both for return on tangible equity and cost to income with double digit growth in AI and year-on-year and flat costs. Turning to the US, again also very solid business economics both in loans and deposits, underlying profit remains high at €1.5 billion well above average pre pandemic levels, despite falling year-on-year following a record nine months of ‘21 affected by competitive pricing and obviously the normalization of the cost of risk. We continue working on the normalizing our capital levels in the US. So far this year, over €3 billion have been upstream to the corporate center. So gradually, we will show a more sort of transparent profitability levels in the US, which as you know, our objective for the long term is to keep returns on equity at around 15%. We maintain our outlook for the year of ‘22 lower revenue impacted by leasing flood costs and better than initially anticipated cost of risk well below normalized levels. In Mexico, another excellent quarter profit increase quarter-on-quarter, driven by a strong uptrend in NII and lower loan of provisions. Costs were affected by the salary revisions that took place in July. We also delivered higher profit and greater profitability year-over-year supported by volumes growth, interest rate management, higher fees and excellent fees behavior. For 2022, again, we maintain our expectations of double-digit growth in in NII and the fee income, higher growth in costs affected by our investments in the utilization, and obviously inflation and the cost of risk of around 2%. The performance of asset quality in Mexico is excellent. In Brazil, we continue to grow our customer base on volumes dealing obviously with the pressure on margins coming from repricing. As you know, we tighten our credit standards in the highest risk portfolios, particularly unsecured individual lending last September, and that still continues. We are growing in low margin businesses more particularly CIB and mortgages. And that changing mix is obviously affecting in NII but then NII are repricing of assets. It starts out waiting replacing of liabilities is flatten in quarter-on-quarter in NII is basically flat already in the third quarter. And we would expect to see very gradual improvement until more or less the first half second quarter. And it's starting to grow more after the third quarter of next year. You know interest rates have already peaked. We have a 12-month repricing gap. So we would expect to see gradually increasing NII in the second half of next year. Costs rose because of the automatic pass through of inflation two costs in the country salary agreement in September for ‘23 was 8% relative to the 11% of last year. So we have some positive news for costs in 2023. The cost of risk around 4.5% very much in line with our guidance. We would expect these to remain more or less at these levels in the fourth quarter. Maybe a touch higher but around 4.5%, 4.6% and gradually starting to come down next year. As we turn to the Digital Consumer Bank of here the activity remains strong, despite continued market contraction, we are gaining market share, particularly in use cars we had double digit profit growth supported by fees leasing a very good cost of risk performance. Challenging environment for new cars but we think we will be able to continue to gain market share, and we will we should be able to maintain a high return on equity in the coming quarters. In the global businesses, CIB reported its best quarter in its history, gaining market share in with in all businesses and products, we expand that in the US, and we maintain our leading positions in the different countries in Latin America. We are leading leaders in sustainability, ranking number one in Latin America, Europe and globally in structured finance in the renewables sector. In terms of results, underlying profits grew 36% year-on-year with double digit growth in all core businesses. And the line attributable profit represented 27% of the group's total operating profits. In wealth management and insurance, the contribution of this unit to the base to the band was 17% on a like for like basis or very good performance. Private Banking is attracting new customers up 6%. Also new money up €10 billion and profits grew 30% year-on-year. In Santander asset management in the asset management business was affected by market volatility but it increased its contribution to group profits to 8%. Finally, in insurance, we had sustained growth in gross written premiums, and the total contribution to profit increased 15%. We expect to maintain double digit growth in profit contribution in this unit in the coming quarters. In Santander X, total revenue increased 75% year-on-year in cost in Euros, almost 100% in Euros fueled by all four main businesses, especially merchants and train. So we are doing better than our guidance of 50% revenue target for the year activities really going very well here. And finally, in cards, I will highlight we like to highlight the efforts that we are making to improve our credit card business. We currently manage almost €100 million cards across the group. And thanks to active customer management, nine-month revenue was 25% higher year-on-year in cost in Euros; 36% in Euros with very positive performance in both credit and debit cards across the regions, particularly in South America. Let me now turn it back to Jose Antonio for his final comments. Thank you.

Yes, a few words in relation with the outlook. So I should say that we expect significant revenue growth on the back of activity levels that will remains healthy, particularly in our global business with the capacity to generate additional net income. And while the additional NII growth that benefiting from activity and interest rate hikes so federally constructive on our capacity to keep growing our revenue, see in the coming quarters. On the cost side while we face inflation pressures you've seen through the P&L, but I'm confident that we continue to improve in our productivity and efficiency not only on the back of expansion or revenues that for sure is going to happen. I also for our capacity demonstrated capacity to run the cars while below inflation. On credit quality I do recognize that the environment is highly uncertain, but when I look at the balance sheet and loan book, while I felt comfortable that we are ready and prepared to face a more difficult environment with particularly the one in the consensus that as the consensus is today for the macro, it does worry me the much even harder scenarios we are in good position to match the given the very natural of the portfolio. On capital, why are we going to be above 12%. I feel that we have handled better than bidding on the average share the impact of the portfolio, the value of a portfolio that has affected the capital across the more or less as our competitors. And ours at the same time, we continue to be a stimulate discipline in our capital allocation. So all-in-all, we spare revenue grow to more than offset costs, inflation pressures, and the potential increase of costs or raise and on the back of these improve our profitability and value creation for shareholders. That's all on my on our side. So we remains at your disposal for the questions you may have. Thank you. I forgot to mention that we have an Investor Day, the very last page on the product, forget, because I'm going to be there. So on the 28th of February in London, we have an Investor Day where we update you on the prospect for the group. Back to you, Begona.

Thank you. We can start with a Q&A session, please.

Thank you. [Operator Instructions] We already have some questions in the queue. And the first one is coming from Ignacio Ulargui from BNP Paribas, please go ahead.

Thanks very much. Thanks for taking my question. Jose Antonio Alvarez, this will be the last your last results call then wanted to wish you all the best and thank you for the support all these years. I have two questions on the numbers. One is on the European loan book how because in the repricing of the asset side so far, I just wanted to get a bit of a sense of where we are standing in terms of the NII uplift that will come in coming quarters and also linked to the NII. I wanted to understand a bit better what has been the contribution of the DMTL in the quarter. The second question is basically linked to the cost to income ratio that you have for flat in your final remarks that you have to keep on improving the cost to income ratio target is going to be a bit side probably for 2022. What can you do to keep on improving goals, which looks to be to me very sticky in terms of growth, particularly in Latin America. Thank you.

Okay, in the first question, I mentioned a little bit a European loan book I said that NII expansion is just starting in Europe, particularly in the US and I mentioned that we have as you know, the central banks have reacted, the function reaction has not been the same across the board. In this particular cycle, Latin American Central Bank reacted first. And we saw Brazil going from 2% to 14%, Chile going from 1% to more than 10%. Mexico reacting along with the Fed but starting at higher levels. And UK and US came later the European Central the ECB being the last one. I forgot to mention Poland that the reaction was one of the first shots. So, when you go to the different books, I mentioned the presentation that you been seeing the impact of higher rates for a while in Brazil and particular case was negative and in Chile, that is more complex because this is a trade between inflation and nominal rates, which we so some reaction coming from UK, US and Mexico that are not just midway but somehow midway. Poland is advanced. It's like Latin America, you see the margin expansion in Europe is a start in the loan book, specifically in the loan book. Remember, in the quarter we barely have representation other than the new origination and some loans related we labeled through the month. The mortgage that everybody follows. We represent in September, Guam the book that repricing September was replaced with the Euro library in July that was not that high compared with the one we have right now. I should say that the big appreciation is going to go along the next 12, 13 months, yes, so and is going to be pretty significant. So you as the to try in the quarter the number I have in mind is €60 million or €69 million or something like that.

First thing, yes, so for the whole that's €216 to €91. First been in €252 to €70 in the quarter.

Yes, okay. So this is the impact of the DMTL. Because to income keep improving? Well, I said in my final remark, that naturally, the cost to income with the revenues expansion we expect and keeping the cost growing below inflation. Naturally, this leads to improvement in the cost to income, I do recognize that to reduce nominal costs as we are doing Europe, but CIB is difficult in the current inflation environment, and probably is impossible, we need to renew some agreements with unions, and this is going to put pressure on this cost to income for sure, on the back of higher incomes were improved, but also remember that well in South America, at some point, we the outlook that we have for Brazil is becoming more constructive on the trends at some point. And in Chile, at some point, we will start to recover overall, I'm fairly confident that the costs income should go down, but you're going to have specific details on the on the Investor Day in relation with this specific target for this.

Thank you, Ignacio. Can we have the next question, please?

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

Thank you for taking my questions. I wanted to ask about Brazil. In particular, first of all, about the NII. You mentioned in the past presentation that there was a two-quarter lag between the peak in the silica rate on the trust in NII. Now I hear from your comments that the NII in Brazil would not grow fast until the third quarter ‘23. So you can please update the NII dynamics in Brazil. And if you can please update on your NII guidance here, as well. And second in Brazil is about asset quality. You can comment on the unsecured lending for individuals? What is it? That is still driving MPLS this quarter? And if you can update on the 4.5% cost of risk guidance for ‘22? How much of deviation then, what did you see cost of normalizing from here and going? Well, thank you.

Okay. Let me to give you the big picture on Brazil and specifically the question you raise. So we've been in a situation in which we've been suffering a margin compression of the back of two things, higher interest rates, that the balance sheet is we are toward lower rates. And second, we changed our underwriting standards back last year in September last year, that leads to a changing mix with a lower yield issuing the backing in the in the lowering of the mass market. And these naturally impact the yield of our near alienation on the yield of the portfolio. That's the impact on the NII. Where are we right now. So we are now more constructive for two quarters, we've seen the cost of risk in line with our expectations. So that means that we are in a position to start to be to grow a little bit more little by little checking this and start to offset costs are set to pass through the growth in activity to sang growth in NII, still volumes got to grow faster than in NII for a while. But this is this gap is going to get reduced over time as we reprice assets in the book. And maybe at some point if we had confidence in the mix becoming more normalized like compared with the one we have today and the one in the past. So that's the expectation for NII. So more constructive little by little more activity, more pass through to NII in the summer. The asset quality also mentioned the 4.6, 4.5, 4.6 like the other end of the year, we were guiding you were doing 4.2, 4.5. We are growing particularly income in non-individual sector less than expected growth has been limited in corporate sector and in CIB and SMEs where quality is good, under the nominator push us up a little bit our expectation on the asset quality but nothing that we see fundamentally wrong in the vintage, we are analyzing on the generation in the mass market in the lowering of the mass market, where is where we got the problem. So, all-in-all, I feel I'm more constructive from there, I will look for Brazil. Yes. So I think that little by little, we're going to show these trends, I hope and show to you in the coming quarters.

Thank you, Francisco. Can we have the next question, please?

Yes. The next question is coming from Alvaro Serrano from Morgan Stanley. Please go ahead.

Good morning. Couple of questions from me. I want to touch on Brazil, because I think you've been pretty clear. But one question on UK and other one on the US. In the UK, you've now raised you're wanting to account and you've got pretty competitive remuneration on deposit remuneration. When we think about the next few quarters going forward and considering what's going on in the mortgage market, do you still have capacity to grow the NII? I'm just thinking, the overall ability to grow profits in the region, given NII potential headwinds from repricing mortgages. Minimum deposit be sort of minimum deposit sensitivity and obviously the economic outlook sort of deteriorating some media an update on the outlook on the UK more thinking about next year. And the second question on the U.S. I think you called out the Jose I think called out the gradual normalization. Some of your peers of profit warned some of your competitors in the auto space of profit warned during the results season, could you update us as how sort of delinquencies are performing, we back to normalize level and it's just about normalizing secondhand prices. And in that context of normalization is a 300 basis points provision charge for 2019 that you put in ’19, a reasonable sort of fully normalized provision charge or what what's fully normalized look like for you. Thank you.

Okay. Thank you, Alvaro, for your questions. And UK, you mentioned the one, two, three, overall, in UK as you know, there is a fairly dynamic and competitive deposit market. Yes. So we have a large, long book, not only mortgages, but mainly mortgages. And while we plan to keep the retail funding in line with the long book that we have, for the reason we need to react, this is your question goes astray. Can you grow the NII having to react to the more dynamic uncompetitive deposit market? Just I think we can. Jose mentioned about the beta. So within that, we still enjoy margin expansion outstanding that we need to react as we react in one, two, three. But taking into account all of these I do expect the NII to keep very constructive in the UK and growing nicely in the UK in the coming year. The market is complex, you reprise you remortgage basically one third of the mortgage book, in our case, roughly speaking €60 billion along the year. And while this is going to may raise some questions, because All-in-all, it's going to go from two, two and a half three to double of this as of as of today. And this increase should be more than enough to along with the corporate book that reprice faster, should be more than enough to offset the increase in deposit because that is going to happen and is happening. Okay, but I see margin expansion next year in the UK, all-in-all. In the U.S.? Well, the question goes in our P&L in the US, particularly you're referring to the auto sector, what is happening, there is margin expansion on the back of the deposit base of the bank, federally competitive market, in prices in the auto space. Fairly competitive more than I was expecting. And what we're seeing in the cost of risk. We also mentioned that the cost of risk is increasing less than expected, we'll have several factors, that one factor that is fairly negative is the leasing. Because on the back of the very high second used car prices, we are not having gains on the disposal of the cars that we have leases as we had the previous year. And on the other side, because of raise you mentioned 300 basis points up probably is not going to be the same. Damn previously, our book is more primed than used to be on. So as I said, 80% of the book in the US is prying only 20% is subprime. And we do not expect to go back sadly to the levels we had in 2019. Because the mix is true that some of our competitors show some increasing recite. I haven't go through the numbers and knowing and I don't know if they change the mix, or they change, but we are not seeing this. And on the back of this we are I feel comfortable. We're fairly well provide in the US. In fact, we reassign €500 million of provisions that we build for COVID to the new macro scenario. So in that regard, normalization will happen. I don't expect to go back to the to the 11th of 2019 just because the mix overall. But on a like for like basis, it makes sense that at some point we'll get there. Overall, not due to the means, but this is going to happen little by little and is taking longer than we were expecting.

Thank you, Antonio, and Alvaro. Can we have the next question, please?

The next question is coming from Sofie Peterzens from JPMorgan. Sofie, please go ahead.

Yes, hi. Here is Sofie from JPMorgan. So my first question would be if you could just repeat the TLDR in NII benefit story. I couldn't quite hear that. But then more broadly, the questions are the first one is on cost growth in Europe, instead have very strong costs of performance in Europe. But how should we think about the wage agreements that are coming off? Also higher investment higher IT costs to hire general expenses. So how should we think about going to cost growth in Europe going forward? And then my second question would be, when would you expect the cost of risk for Centenario to peak, it sounds like Brazil will still be ready, relatively high cost of risk, your risk of the risk is going up UK growth of risk is trending up. So how should we think about the cost of risk fee for something there? And at what level could that come in? Thank you.

I pass the question off to you, Jose Garcia Cantera.

Let me give you the figures. The group has €88 billion in TLTRO, €60 billion in Spain, €20 billion in Santander Consumer Finance and €7 billion in Portugal. So you can do the math very easily. Thank you, Sofie.

Because growth in Europe, the wage agreements so where are we in different jurisdictions? I should say in Poland and UK, we've been updating salaries along with inflation. So I should say BoU [ph] businesses usually is in Spain and Portugal where we had agreements for several years. In Spain, that is the most important one by the due to size till the end of 2023. And we are starting to negotiate a new agreement with the union's probably make 2023. Okay, before that maybe some minor adjustments, but it will remind us and then, we expect these unions to be quite demanding naturally. And we difficult to forecast the final agreement. But while looking into what has happening in Spain wages in 2022 are growing at 2.6%. We are growing wages north of one half of 1.6%. And naturally, I do expect the wages in Spain to accelerate a little bit. We've seen the agreement of the government with the civil servants, roughly speaking 9% for three years, this is a -- that this establish a kind of benchmark, because he's not an agreement for 3 million people or 4 million people. Along these lines, I do see having a negotiation with the unions. So this is my expectation is going to be possible to match keep the costs below inflation, I think so. With these kinds of agreements, these will be below inflation and probably growing the costs in the region of 3% is something before efficiencies should be something in 3% or 4% will be something doable. Over up in some countries less in CIB probably as well, again, in share, we're expanding the business probably we're going to get all the costs faster than that probably, as I mentioned in the presentation or cost mentioned in the presentation CIB as the main driver of positive cars in Europe, while the units, the retail units in Spain and Portugal are deeply in nominal negative growth. So, CIB I expect to continue to grow faster than the retail units where the transformation is going to go wrong. I know we've all been in the 3%, 4% region for the next couple of years. Because of risk pick, difficult to say. Yes, so the macro, as you know, we are providing due to the macro right now. We had €1.1 billion due to the macro, probably overall in the year, is the macro remains the same, or the scenario we have remains the same. We're going to add this year €1.4 billion, or in this €1.4 billion for this year, because of resume and below 1%. Is the macro deteriorates further, naturally. As is the specter to macro that the Euro is farther, we may need to increase the costs of race next year one is going to pick based on the consensus should be next year. Yes. So but naturally difficult to say. Yes. So based on current expectations, the end of 2023, 2024 is going to be the worst period of with a significant economic slowdown being predicted. Having said that, this is based on the scenario, yes, the peak. But in any case, our expectation on the car service is not to have anything close to what we had in the COVID. Yes, so well below this. So going up, but not that much. That's our expectation and with the current scenario going up, but are very much all levels, for sure, including why I said before revenues, increase in revenues will offset more than offsetting potential increase in ordinary costs and costs of risk.

Thank you, Antonio. And thank you, Sofie. Can we have the next question, please?

The next question is coming from Carlos Cobo Catena from Societe Generale. Carlos, please go ahead.

Hi, thank you. Thank you for the presentation. A quick question on the NII sensitivity please. For Spain, and Europe you mentioned the updated the way you calculate the sensitivities but could you touch quickly on why do you see the mix of deposits between site on time involved? And what are the time deposit data that you think is reasonable to assume going forward? The same thing for progressives, you've already explained how do you expect them NII to evolve over the following quarters? But how that compares with the slide where you show that in NII upside in NII in Brazil is only €100 million. If you can explain or reconcile those two guidance will be helpful. Thank you.

Okay, and he has given it's been, well, currently, almost 100% of deposits, our current account isn't 100% but isn't it something, yes. So gradually, this is going to go from current accounts towards well, a combination probably of money market funds, term deposits, some kind of law life insurance products. Overall, what this means is, well, based on the past, these used to have a beta that was between 60 and 80. So in relation with the official rates, which is the percentage that is going to go to term deposits, difficult to say at this stage. What they said, I can say to you, in the past, was a long time ago. Yes, so we have had negative rates for so long that probably we almost forgot this, we used to have a kind of 30% to 40% current accounts with no remuneration, we used to have an our 20% to 30%. What we call median remuneration, that was kind of lower sensitivity and another 30% kind of high sensitivity. Overall, the better you are using this 25 for the whole deposit book. This is what we're using. And this is what's embedded in what Jose said in relation with expansion of NII. Natural you may say that there are some new factors here, difficult to measure. So online deposits is somehow new, or this tension of potential players in online deposits is there. Now they are playing they're the only ones that are offering high rates, I don't know how important is going to be this if the rates remains in the 2% or 3% area is not going to be the big either rates naturally the higher the rates go the more impact of this. You mentioned -- NII in Brazil, the plus €100 million; the plus €100 million is a exercise like for like the taking into the forward rates. The forward rates means for one year, so what we got to you is being constructed every quarter, they pass through from volume growth to NII is going to be higher. That's what we're telling you in the overall one year using the forward rates and no volume growth is plus €100 million.

It’s okay. Basically, because interest rates just stop increasing. So obviously, because you have the 12-month lag, it will be you know, as we said we are using end of September figures. 12 months is end of September next year, you will only have three months of full repricing of assets and liabilities. So when we look 12 months in advance, the sensitivity is what I say. If you look beyond the 12 months, obviously the sensitivity is greater.

Okay. Thank you, Cantera. And thank you, Carlos. Can we have the next question, please?

Yes, the next question is coming from Marta Sanchez Romero from Citi. Marta, please go ahead.

Good morning. Thank you very much for taking my questions. The first one is a follow up on the US just a clarification on the cost of risk, because Antonio mention that we want go to 2019 levels, which if I'm right is roughly 310 beeps. I think in the past, you've guided for us through the cycle level of 250. Are we going to be somewhere in between for next year? How do you see that? And also in the US if you could elaborate as well on the long growth expectations, your risk appetite, generally for the auto lending business? And the second question is on deposits in Europe. You have a loan to deposit ratio above 200% in the digital bank 115% in the UK. It's true that you've got excess deposits in the Spanish balance sheet but what are you going to be doing strategically in terms of deposit. So you're going to be chasing deposits to balance the books in the digital bank. So you're going to be setting the price and I'm going to be potentially pushing prices higher. I think you've already launched a new platform in Germany to gather deposits. So what do you what do you see the cost of deposits, if you can give us a little bit more clarity on betas across the different businesses for the next 12 to 18 months? And just very quickly, if the ECB changes the terms on the PMPRO, would you be repaying all your TLTRO funds or you will be holding on to them? Thank you.

Okay, the last question is the easiest one depends on the terms. Yes. So, we are prepared, we were as you know, planning to repay the full amounts next year, if the terms change and it no longer makes sense to hold on to those funds, we will repay we could immediately repay almost in full the excess liquidity we have today the liquidity that we will build into repay next year would let us pay almost in full that but again, we need as was Antonio says we need to look at the terms.

Okay, Marta, go into the questions. US costs of risen in 2019. Our cost of risen was close to 3% was €280 or something like that? Yes. So normalization should be lower than that. So on the backup dummies, yes, growth, the growth in prime and a prime and the bluest stem say, yes, so, we saw blue stem where the cost of risen was simply high. And this we think that this is going to be below this the levels on 2019 for these two reasons. Yes, so you may you as the long growth. Yes. Well, the long growth, that we have two sources of the alienation, two main sources of alienation, and others that are working progress, as you say, is the Atlantis we are being I think, last month, our penetration last month, meaning September was our best month ever in penetration tester ante so that means that we continue our good pace, naturally, they sell us cars, and this is affecting new car sales is affecting this. On the traditional subprime space, our appetite while we went a little bit, we increase a little bit the bikers, and these affect the long road but largely is going to depend on the car market. We are trying to add, and we had some agreements with all the OEMs. We already sign Mitsubishi and we are working with Dealers Association in order to sign agreements with them in order to diversify our long run. We have appetite for these type of loans at the right price. Naturally, there are some as I mentioned, the market is fairly competitive now. And but we want to grow these provide that we can obtain the profitability we are targeting for this business. You mentioned the process in Europe and you rightly said that our loan to deposit is higher than 100% in UK. Consumer finance on lower significantly lowering Spain and somehow in Portugal, what we plan to do in the consumer finance and retail consumer bank, we expect to grow significantly. Now the figures are the following we have a book up roughly speaking €120 billion loan with a deposit book in the region of €50 billion to €60 billion. So, in the next couple of years, we do expect to add a couple of billions in deposits, maybe in the region €20 billion to €30 billion is a tougher figure to think about in order to close the gap, not that much, but close the gap between deposits, sorry, loans and deposits. We are in a position to do that. As you know, this is a business that we have more or less advanced deposit platforms in several countries in Germany, Netherlands, also some in Belgium. And in the past, we were active in the process also in the Nordic countries, and we are reactivating these in order to increase the percentage of funding coming from deposits in this business. We are in a good position to do that. And we think we're going to be successful on this in the other markets. I already elaborate in UK where we plan to keep growing line assets and liabilities and well, that's the reason we think our beta is high in the UK than it is in Spain. Because this position basically that's it.

Thank you, Garcia, Antonio. And thank you, Marta. Can we have the next question, please?

Absolutely. The next question is coming from Carlos Peixoto from CaixaBank. Carlos, please go ahead.

Hi, good morning. Thank you for taking my questions. And kudos is the word to Jose for his last presentation; it was a pleasure for all these years. So my question was actually on the -- on NII in Spain. So you gave the sensitivity to stable interest rate scenarios but I was wondering if you could complement that with sensitivity to further hikes considering that the expectation is that we will get some of these two hikes in this week, and possibly before year-end. And then finally, on NII in Poland; I was wondering what type of evolution you expect going forward? And whether you think there could be some margin compression given the higher deposit costs as opposed to the politics -- the political pressure on that front seems to be mounting? Thank you very much.

Carlos, as I said, these analysis that we show here is consistent with the previous one in which we showed that 100 bps sensitivity in Spain to 200 basis points is €750 million. So that's the sensitivity to additional increases over the forward rates in Spain only, not in the Eurozone, which obviously is higher.

Well, NII in Poland, you’ve seen a -- I would say a very significant margin expansion on the back of increasing rates is through that we are -- we have -- we enjoyed the cheapest funding costs in Poland. Naturally, additional margin expansion probably is going to be difficult but I remain comfortable that we can keep the NIM; the net interest margin, going on around the levels we are having on the back of repricing assets. Although we do recognize that the liabilities cost we should pay more for deposits given our position being the less than having the lower funding costs in the market. So -- but probably working with an assumption of need being around like this is a fair assumption to me.

Thank you. And thank you, Carlos. Can we have the next question, please?

Yes. The next question is coming from Pamela Zuluaga from Credit Suisse. Pamela, please go ahead.

Hello, good morning. Thank you very much for taking my questions. The first one is on the provisioning outlook. You've now built a €1.1 billion overlay [ph]; yet, you've been mentioning that you have not seen a significant deterioration in credit quality across the majority of your footprints. You flagged also that consensus sees cost of risk peaking next year. However, how are you thinking then about the timing to either use or release these provisions? Are you expecting to allocate some of these provisions to keep some stability in cost of risk in 2023? Then a question on your capital optionality; you have managed to build capital above your target now to 12.10% CET-1 [ph]. Would you be open to increasing your current 40% payout? Or is there a particular headwind that you're foreseeing and therefore you're deciding to be more cautious? And then if I may, one follow-up. Can you give us some color on the -- specifically the A -- B's negotiations with the trade unions to address the loss of purchasing power in Spain? I understand the last meeting was on Friday. Have we heard anything about the proposals from the unions and what would this mean specifically for the cost inflation in Spain? Thank you.

Thank you, Pamela. Let me too -- well, when we are providing based on expected losses, and you asking me about the use of these overlay. Naturally, we are providing with an initiative. This initiative we are providing that sees some mild recession in some countries in 2023, more towards the end of 2023. So, if these materialize and our models are right, in theory, we will use this prohibition; okay. If we are wrong, one way or another, we may be in a situation if the scenario deteriorates further until 2024. The scenario is worse than the one we were expecting, we keep building, the other way around is releasing; so everything is based on -- if our scenario right, our scenario is not far away from the IMF, just to understand among us -- yes, not far away from the IMF. The IMF -- that says that second part of 2023 we will see some recession. In that case, we will use this -- the €1.1 billion [ph] we already build and the extra €300 million [ph] that we expect to build from our delaying of the year. But this is again -- again, this is based on the materialization of the scenario or not if the scenario goes into 2024. Capital optionality; well, we stated clear that the board -- when the board approved 40%, especially the AVL going to 50% at some point; so it's a decision that the board is going -- is up to the board, and is not a decision taken. Having said that, I said in the presentation that within that -- the 12% is an appropriate level for us, and we keep building capital. A-B negotiations; yes, while there have been some negotiations about kind of one-off for the employees or some employees or the employees this year, aside from the negotiation from the union in the future. So this is not going to be -- this is not going to substitute the big negotiation that is the one which matters in terms of cost. This one is more about some compensation but a small one, and is not a negotiation of the full agreement with the unions that will come as I said before, at the start in 2023 -- mid-2023.

Thank you. And thank you, Pamela. Can we have the last question, please?

Yes. The last question is coming from [indiscernible]. Fernando, please go ahead.

Thank you for taking my questions. Couple of questions, please. The first one on Spain. What is your view on the potential impact that you may have? If the -- there is a change on the card of [ph] good practices on those vulnerability families that might be implemented? This is one. Second, on Poland, and the payment holidays provision that you have done; are you forecasting or seeing any more coming in the next quarter? And finally, if you can comment a little bit on the ALCO strategy and the mix that you have in the Spanish portfolio, that will be great. Thank you very much.

Okay. In Spain, well, I should say that these agreements -- the way we match vulnerable customers that have a mortgage with us is -- I should say is business as usual. They are in the agreement with authorities which are the ways that how do we match this? So -- and the ways I should say we are discussing is business as usual, unnaturally. The extra provisions, if any, are embedded in our macro scenario, naturally, the macro scenario when it comes to mortgages contemplate the way our mortgage work, and the capacity of the customers to repay the affordability, the loan to value, and all these things. If these deteriorate as a result of the higher inflation, lower disposable income, this is already included there. So I do not need to change anything because we changed this, because it’s supposed to be included in our respected scenario. Naturally, if the expectation is worse, the more sensitive issue here is unemployment. So unemployment is the key because when I look at the real estate market in Spain it is not in any dimension, overvalued. So it is not the case that we had 14 or 15 years ago, it is more a question of affordability ratios for those customers in the low end with low income or medium or low income with high affordability ratios that suffer in the disposable income is more of this. But it is included as I said in our macro scenario. Poland; payment holidays [ph], we need to see what's going on. Yes. So we think we’ve done -- I don't know, all or at least the majority of the provision. In any case, well, if we are going to assess how many customers come to claim the payment holidays, and we adjust accordingly to this is not -- I expect not to be significant, but maybe to [indiscernible] -- we need to add more, we will say quarter-on-quarter, if we need to add more. Having said that, the revenue generation of the bank and operating profit that the bank generates; and as I said before to a question of one of your colleagues, I feel very constructive that we're going to keep relatively or very high NII that allow us to face potential higher requirements from the payment holidays. ALCO strategy; I don't know if I should pass. Well, we start to build our portfolio little by little; so it's more to do. Jose, you want to elaborate on this?

Yes. As we mentioned in the first half results presentation, we didn't have an ALCO portfolio at the time in Euros, which obviously was a conscious decision that cost us some net interest income compared to our competitors. But obviously, put us in a much better position in terms of balance sheet value, and the opportunity to rebuild the ALCO portfolio going forward. We have today €6.5 billion already. In the Eurozone, we are building the portfolio through a diversified tenure [ph], through diversified countries; not only Spain, we have France, we have Italy, and we would gradually continue building the portfolio over the next probably two years. We don't have a figure in mind but clearly, we have an opportunity to rebuild the portfolio earning more than 3% yield, which is what we have so far in the €6.5 billion. We will make purchases again depending on the opportunities that we see. But again, from €6.5 billion today, gradually growing to a much larger figure over the next couple of years.

Thank you, Jose and Jose Antonio. There are no further questions.

Okay. Thank you, guys. Thank you for all these years. Following this result presentation, I've been -- tried yesterday to count the number of times I faced you; and I got a number of 72 times in the last 19 years. Yes, so good luck, guys. Keep following Santander. As always, an interesting equity story, and with the improving profitability going forward. Thank you. This is my last message to you. Good luck. Bye, bye.