Banco Santander SA (SAN) 2005 Q1 法說會逐字稿

Good morning. Let's start with our presentation of our financial results first quarter 2005.

I'll provide a presentation for you this morning, which basically can be split into three different sections. The first section will be a summary, a brief summary of the Group's main highlights during the first quarter 2005. The second section will take me more into details on the new business areas, and I'll be going into details of those areas, although obviously we explained a few days ago. Lastly, I'll try and make a few concluding comments to sum up the first quarter 2005.

Let me tell you, first of all, that the quarter in general has been very good for business earnings and the development of all our corporate plans. We have an attributable income of €1.185b, including the €153m from Abbey, whose income statement was consolidated for the first time. Without Abbey, the attributable income rose by 20.6%. And the profit that came in through capital gains from Royal Bank of Scotland has not been included because it has simply been neutralized -- offset with a provision for the same amount.

Abbey for the very first time has been included with this P&L account. €153m was the contribution made by Abbey during the first quarter. Behind that, we have seen a growth in our income there, our net operating income. We have had a low level of provisions for loan losses, because we reached the maximum limit for generic provisions in the Santander network. That happened in 2004. And also, lower results for financial management equity stakes.

All the figures for this year have been worked on in accordance with the new International Financial Reporting Standards, and comparisons made with 2004 are drawn up in the same way, like-for-like comparisons.

So, as I said before, moving into figures attributable to our income, we're 38% higher at €1.185b. Ex. Abbey, 20.6% was the growth in earnings for the first quarter of the year, 34% higher than the fourth quarter 2004. This profit, in fact, is the highest figure that we've had, it's even higher than the second quarter 2004, which did include a seasonal factor.

There are a number of factors behind the quarter's results that can actually explain why we've had this growth. Particularly, we have had a rise in net operating income, 18% was the rise in this case. €294m is that 18% rise. Lower provisions, €95m, a reduced need for provisions. The tax bill has gone up €22m more. And we have had a drop of €91m in the results from financial management and equity stakes.

In other words, €300m is the rise in net operating income; €95m because of reduced needs for provisions, and a drop in the results of financial management equity stakes, because of lower revenue for the dividends, and structural positions regarding hedging of currency exchange rates and interest rates.

Let's look at the different lines in our P&L account and look at the evolution of operational areas' net operating income. We're talking here about [sterling] and dollar areas - Retail Banking Europe and also Global Wholesale Banking. The operating profit grew 17.5%. If we look at it in business, 18.6% is the growth in Europe, in America 40%. Asset Management and Insurance 45.7% is the growth. And business Global Wholesale Banking was affected by the lower trading gains, particularly in Latin America. So, that is a drop of 16.2% in business on the first quarter. So, the total growth is close to 18%.

There are, looking at Europe, 22.8% is Continental Europe growth in business and Latin America 8.5% is the growth in euros. That's the very first time that we have seen a growth figure there for our operating income in Latin America in that area.

This growth is underpinned by growth in business. In Europe, loans have grown by 15%, funds 8% approximately. And those growth figures have had a major impact on our P&L account. In Latin America, 20% in local currency is the rise in lending. 6 -- 17%, rather, is the rise in customer funds that are being brought into the Bank in Latin America.

The -- turning to the Retail area, we have a 10% growth in our margin there. The gross operating income increases 12.7%, costs rising 3.4%, 24.4% net operating income rise. However, the treasury positions -- the trading positions over the first quarter have, of course, brought in an impact, which has been a lower impact before.

The second factor that I want to talk about underpinning our figures, our net loan loss provisions, which have come down. We had to cover the [Fonsay] statistical provisions previously. Now, according to the new standards, we have a maximum cap, a ceiling that we have -- we can reach. And once we've reached that, as you look at this slide, we can see that we have now a position where €136m is the provision of the first quarter 2005. The figure for last year was €134m. Basically, over 2004 we gradually built up our provisions and following on from the third quarter 2004, provisions started to come down after that limit. Essentially, this is focused on the Santander network.

Lastly, as I said, €300m plus is the net operating income. We have €95m lower loan loss provisions and lower financial results from financial management and equity, because of hedging of positions, exchange rates, then also the ALCO provisions and lower dividends. €91m is the drop there. But in both geographical reporting and business area reporting, this covers 100% of the Santander Group.

Let me now turn to the Group's results, with and without Abbey. When I've talked about provisions, net operating income and financial management equity stakes, I've been talking about figures without Abbey. Now it's with Abbey.

You can see with -- you can see 7.3% commercial revenue increase, 26 -- 20.6% of attributable income increase. 30% is approximately the rise in gross operating income and attributable income. The capital gains, though, the €717m figure that came in from the sale of the Royal Bank of Scotland stake in January 2005, is not included here.

Therefore, with these figures the management ratios that the Bank has recorded, you can see here ex. Abbey and with Abbey. You can see 80 basis points is the improvement without Abbey, and 70% is approximately Abbey's cost to income ratio. The Group's ratio is better. We, of course, expect to make improvements over the next few quarters.

The NPL ratio in Abbey, because Abbey is mainly a mortgage bank, the NPL ratio is very low. It dropped 11 basis points there, from 1.33 to 1.22%, and is now in March 2005 at 1.07% with Abbey.

Return on equity has come down from 20.2% in the first quarter last year to 15.1%. Coverage ratio is without Abbey 162%. That's 33 percentage points up in the case of -- or without Abbey.

The capital ratios for the Group, the BIS capital equity ratio was 13% at the end of March, core capital 5.3% and Tier 1 7.2%, not included the capital gains from the sale of the stake in Royal Bank of Scotland, because it was offset in our accounts. We've also publicly announced the sales process for AUNA, which will of course have a positive impact on capital ratios.

So, that's -- those are highlights for you from the Company's accounts. Now I'd like to turn to the business area results first quarter 2005 and explain the evolution of business results for you. I'd just like to remind you of the fact that -- we explained to you a few days ago, we've now new segmentation here. We have a Continental Europe, the euro area, the United Kingdom, the sterling area, and the dollar area, America and Latin America, we've got that as the dollar area. And lastly, we have a Financial Management Equity Stakes segment.

We provide broken down information for you. This is the geographical segmentation, the principle level that we'll be using during this presentation.

Let me look at the results structure by area, operational business area. As you can see here, the gross operating income 49% there, Continental Europe 32%, Abbey Latin America 19%. Then if you look at attributable income on the right hand side, 57% is the contribution of Continental Europe. About a third comes through from Latin America and 11% Abbey. This is very much linked to the different cost income ratios in the business areas of the Group.

Moving down to the secondary level, we've got Retail Banking, Asset Management and Insurance, and Global Wholesale Banking complemented -- supplemented by Financial Management Equity Stakes. U.K., of course, is Abbey Retail Continental Europe and we have Retail Latin America, Retail Brazil, Mexico and Chile.

If we look at the contribution of the different business areas to our results, 42% are for the gross operating income. First, Retail Europe net operating income contribution 49%, income before tax is 48%, 15% comes from Retail Abbey, 8% in income before taxes. 26% is the Retail Latin America, a 21% net operating income contribution, 19% income before taxes. And you can see that there's a big change in the consolidation perimeter for Global Wholesale Banking, instead of it -- instead of representing 9%, it's now 14% of our income before taxes. That gives you some idea of exactly how segmentation works geographically, and in operational business terms in our results.

Let's take you through the business area structure. Now, let's see if this chart helps. The idea is for you to follow this structure. We have Continental Europe, which includes the geographical segment Retail Banking, and the United Kingdom we have, that's the sterling area. We've got Abbey. That's the geographical segment. In Latin America we're reporting the principle segment geographically and also the main retail banks. And then we have the secondary segments; we have Asset Management, Global Wholesale Banking, there on the right hand side of that chart.

These are the areas that we will be reporting to you on from now on. In the presentation you'll be seeing this chart, this table, and the shaded areas will represent the areas that we're actually talking to you about that we're reporting on.

For Continental Europe, we'll be looking at the geographical segment then and also the Retail Banking area. This hopefully will help to steer you through the presentation. So, Continental Europe first.

I would say that this is our model of growth for Europe that we have reported to you on over the last few years. 13% is the net operating income increase, practically costs pretty flat, the attributable income growing by almost 45%.

Turning then to the right of the chart then, net operating income. 22.8% is the increase over the first quarter last year and 13.4% is the increase in net operating income over the last quarter 2004. And here we're talking about Retail Banking accounting for the bulk of our contribution to the accounts here in Europe.

Let me take you through the main Europe -- units in Europe, Continental Europe. We have the four main units and the rest is all Financial Management and Equity Stakes and Global Wholesale Banking. And I'm not going to spend a lot of time on that, because at the end of the presentation we'll be looking at those two global areas of business. The other four areas basically represent a proxy to Continental Banking in Europe. It's not exactly Retail Banking in Europe, but it's a proxy to that.

We've got Santander, Banesto, Santander Consumer and Portugal. We can see an increase of basically net interest income and also fees and insurance, good figures there. The net interest income figure is now growing. It's no longer negative. It's 4.4%, the increase there, and the trend looks positive for the next few months.

Costs are flat, as I said before. In other words, we're in double figures now for net operating income results, apart from Santander Consumer Finance, which has a huge growth figure there. Net interest income is up 35.4% and net operating income 40.7%. In other words, solid figures, sound figures, in all of those areas of business in Continental Europe, taking us to double figures in all cases for net operating income. And in the case of Santander Consumer Finance, we have quite booming growth figures.

If we analyze the high level of net operating income, well, you can see one of the explanations I gave before, which is the loan loss provisions. The specific provision has grown from €52 to €67m, but you can see that loan loss provisions have come down by 28.5%, in spite of -- despite this growth, slight growth in specific provisions, because the Santander network was the last unit to actually hit that maximum set out by the accounting standards. In other words, the 12% growth in net operating income growth actually represents 38% in terms of attributable income.

Abbey's grown by [13%], Santander Consumer Finance close to 80%, Portugal 21.6%. Remember, of course, the economic circumstances there in Portugal are still not that favorable. We have low economic growth there. So, €752m is the contribution of that area to our business, a 45% growth.

NPL ratios still remain at excellent levels. Given the reduction in loan loss provisions, Santander's NPL ratio has improved. Santander Consumer Finance, because of the nature of the business, has seen a slight rise there. Banesto, it's come down. And in Portugal, the levels are still extremely high.

I'm now going to the different units. And the main landmarks for the quarter are volumes in loans to individuals grew, SMEs 26%. The spreads have improved by 3 basis points, compared to the same quarter last year. Costs have come down by 1.1%, so good cost containment. And we have change in net interest income, which is no longer negative. It's now positive.

So for Bank Banesto, they gave their presentation of results. I'll just talk about the main aspects. Huge growth, gaining market share, good spreads, good cost discipline, and with projects that will enable it to maintain growth in its core business.

So, if we look at the Santander Consumer network, we have new production growing by 26%. With a constant perimeter it would be 15%. Holland and Norway are already making a contribution. So, it's 26% with those two. Customer spread 4.2%. That's after deducting loan loss provisions plus -- so that's up 9 basis points. Costs have grown 16.7%, constant perimeter 3%. So, we are enlarging our network in Italy and Germany. So, that constant perimeter of 3.1% is fantastic.

And so the companies that we acquired in 2004, Poland have -- and Norway and the Netherlands have contributed €10m in the first quarter of 2005. And you know the Norwegian bank has specialized in cards, Bankia Bank.

Now Portugal, the growth in the Portuguese economy is certainly not as good as the Spanish one. We're growing there both in loans and mortgages, and customer spread is 2.8%, up on last quarter 2004. Good cost control. Cost to income is 42.1%. And it's doing very well in fee income. Huge increase, 17%. And in mutual funds, we're actually the second biggest fund manager in the country, with 10% increase there this quarter.

So, I think in Europe we're getting good growth, good margins, good cost control, which means increased profits.

Let's go to the U.K. and let's have a look at Abbey's first quarter performance. We're not going to compare it, of course, because we don't have the same basis for 2004. So, I'm just going to try and give you the backdrop.

So, profit was €153m attributable income; revenues are going the right way. We're hoping to stabilize revenues by the end of this year. There's still a slight reduction in spreads, but very slight. Really, spreads have been flat in mortgages and came down, I think, 1 basis point in deposits. We have -- costs are actually lower now than the last quarter of 2004 and the first quarter of 2004. Operating costs are going well. I think we're going to be on target and we're going to reduce costs by €153m. The net operating income €270m and we talked about €153m for the whole year. So, we're slightly below. And profits are in line with our estimates.

So, rather than have a look at the P&L account, I think it would be better for me to explain what we've been doing in Abbey over the last five months, since we completed the operation. So, now we have a new management team in place. We've hired a new Network Manager from Nat West, in fact. We have a new branch management model and we are hiring sales staff. I think in the U.K. you need a license to sell certain products and we're launching new products to re-launch the sales activity over the different channels, both branches, call centers, etc.

In order to reduce costs, 2,400 employees will be made redundant. We expect that to be 4,000 for the whole year. We initially said 3,000 but we think it will be 4,000 towards the end of the year. We've renegotiated with suppliers, in order to have global agreements with them. I think you've probably seen news of that in the press. We've closed two call centers and we'll be closing another one.

So, we'll be re-launching the different sales channels and reducing costs simultaneously, and we're doing that quite smoothly. As you will see, there hasn't been much disruption. And when you start to manage your Retail Bank, the new flow compared to stock is not so important but does take time.

So, I'd like just to show you how the activity's going. In March and April, we had the highest market share over the last 12 to 15 months in new approved mortgages. November, December, January, there was a certain slowdown in the market because of the new N3 rule, which means you have to provide customers with more information. But we've seen March and April have given us £2.6b worth of mortgages, which are the highest in the last 1.5 years.

If we look at market share in consonance with this, the market activity has gone down. And we've seen an improvement rate of 10.5%. If we look at other business flows - let's look at savings, that's positive. Well actually, in the first quarter they have been negative. In red we have the Abbey brand, gray other brands, basically those who aren't Building Societies. So, we've a net positive rate for the quarter.

Personal loans are still doing very well, £104m. Credit cards are growing and the number of new cards issued is growing. And in Insurance, we have the protection premiums via [ESA], where we still have a lot of work to do with IFAs. And we still have work to do in Asset Management and Insurance.

So, I would say that these are the first signs of recovery in Abbey's commercial activity, although it is too soon to say there is a specific trend and a significant impact on the P&L because of the flow versus stock influence. But I think we will be stabilizing revenues, as we predicted at the beginning of the year.

So, let's look at the dollar and Latin America, which includes International Private Banking. And Latin America has shown a big increase in business, €422m attributable income, $533m, which is the currency we use in the region. All the figures - commercial margin, attributable profit - all double-digit growth, basically because of Commercial Banking. As we'll see, commercial banks are growing and Retail Banking is growing really well in the region.

And the trading gains in Mexico and Brazil have not been very good for the quarter compared to the first quarter last year, but that does have an explanation. Retail Banking has gone from $416m to $614m, almost 50% growth in operating margin. But if we look at the other part of the result, which was very high in the first quarter of 2005, it's been lower this quarter. So, there's big growth in Retail Banking, which means double-digit growth, but not as high as we'll see in Retail Banking throughout the region.

So, let's look at that Retail Banking. As I said, all the growth is coming from Retail Banking, increasing 20% almost in the different margins and net operating revenue, for example, 22%. And customer funds 17%, which means net operating revenue increase of over 22%. Costs, 9.7%, so they're coming down. The increase in net operating revenue is great. And with some pre-tax results, which speak for themselves.

If we look at the net operating revenue in Retail Banking, it's been growing consistently, 23% year on year. If we look at the operating margin, given the evolution, of course, it's still -- it's very high, 48%, and 13% just this quarter. So, I think that is proof of the solidity of our growth, quarter after quarter, of our activities in the region.

That evolution is really thanks to Mexico, Brazil and Chile and International Private Banking, which is in dollars, so we've included it there. And in all countries, we are growing above 20%, in ordinary margin 12%. Global Wholesale Banking minus 30%, that's the treasury effect, but Retail Banking growing above 20%. Net operating income 20% Brazil, Chile 87%. And the pre-tax profit in Retail Banking in all countries well over 20%, with exceptional growth in some cases such as Chile, which last year in the first quarter had very low results and it's, in fact, doubled them this year -- this quarter.

And then we have Private Banking, International Private Banking doing very well. Asset management and insurance very linked to retail activity. It's really the source of the premiums that we sell. And so increased Retail Banking means increase in net operating revenue of Insurance and Asset Management, with $173m pre-tax profits. And the treasury -- the trading impact has been negative.

If we now look at what has happened in the different retail banks in the different countries. Let's have a look at Brazil, increase in volumes, especially loans, 33%. Customer spread in year-on-year terms is not that good, but in quarter-on-quarter terms 10.5%. Costs are converging to inflation. After big increases in cost, we had said that they would come into line with inflation, that's plus 8%. Cost to income 61%, so there's still room for improvement there. It's come down to 0.1 percentage point and we have generalized growth in the country. And specifically in SMEs, we've increased our market share in loans and we've been stable in mutual funds and deposits.

Mexico, Retail in Mexico. Loans up 24%, funds up 15%. Customer spread 30 basis points up. Costs have increased, but because we're spending more on infrastructures, we're investing. I had said that we would be investing in Retail infrastructures, 9% up. But there's been huge growth in revenues, so that the increase is cost to income by 7 points, that's 53% now. We're doing very well in consumer loans, credit cards; to individuals we are increasing loans, mutual funds and deposits by the corresponding figures.

If we now have a look at Chile, we have good growth in volume. In Chile after the merger, since the merger, we've been seeing very high growth, very high growth. You might remember we'll already have high quotas there. And we're gaining market share in the Retail end of things, maybe losing slightly in the Wholesale end with this change in mix. And in funds, in deposits 12%; customer spread 5.6%, 12 basis points up. Flat costs; cost to income 45.7%. So, it's a significant improvement, that's since the first quarter 2004. I have -- I should say first quarter 2004 cost to income was not that good. There's been a big increase in individual customers and we're increasing our share in targets, individual customers, and mutual funds half a percentage point.

As a summary, I would say that all commercial -- all Retail Banking continue doing very well, round about 20% improvement. We're improving our spreads in almost all countries and of course, that means excellent growth in ordinary revenue. And of course, we don't need such big provisions in Latin America any more. So, Retail Banking results have been exceptional in the first quarter of this year.

I'd like to have a quick look at our two Global businesses. Remember, when I talked about Europe, I said I would talk about Asset Management and Insurance later on. And I'll also talk about Global Wholesale Banking and how they've evolved in the first quarter.

Asset Management and Insurance, what we call our factory, because we get that from our retailers and managers and insurance companies who work with us. So it's what we call our factory, and our net operating revenue is very much linked to the increase in activity, at 26% up. Flat costs and growth in operating income's also very good and pre-tax profit 52.4% up.

If we look on the figures quarter by quarter, we've included Abbey here because it has a lot of insurance business. So, with Abbey we get €208m of net operating income, without Abbey it's €125m. So, a big increase in net operating income in our factories. And the underlying thing is that that business is doing really well in Europe - pension funds, mutual funds, insurance, etc. Cost containment is excellent, as you can see.

Now, business areas, €185b under management, that's what we have in this business. That is the volume of pension funds plus mutual funds, plus the portfolios of insurance companies in this business, and that includes Abbey.

In Spain we are improving our mix. We're launching added or higher value funds and we're achieving good growth. In Latin America, mutual funds are basically in line with the other figures and growing well; general increase in volumes and in revenues.

And in Banking Insurance, it's difficult to have a set model here, because U.K. is quite different from Spain and Latin America, of course. But in Insurance we're growing. Well, on the right hand side we have total revenues from insurance, pensions and mutual funds, which is not 100% to this account, because that's just for the factory, but mutual funds increasing by 12%. Pension funds suffering the impact in Latin America, it was the pressure on management fees, 5%, and insurance 25%, that's with Abbey. And Abbey gives us -- we have 13% without Abbey. Revenues for the quarter, for the Group as a whole, is €845m, which I think is a very high figure indeed.

And finally, I'd like to talk about Global Wholesale Banking. It's the worst part of the whole business. This quarter it's a paradigm, falling revenues 8.5%. If we look to the right, we can see the net operating income last year was €329m in the first quarter, highest for the year. And this quarter €423m compares well to the three quarters two, three and four of 2004.

We have an increase -- big increase in cost because we're investing here. We've launched the Santander Global Connect program in Portugal and Santander Global Market, which will have a treasury franchise with customers that's a lot higher than it ever has been. That's why there's an increase in costs. So, we've -- as I was saying before, the net operating income this quarter and pre-tax profit has fallen 9%.

If we look at the pre-tax results in quarter-on-quarter terms, it's -- there is a reduction compared to first quarter 2004, but since the third quarter it has actually been increasing.

What is there behind all of this? Well, Investment Banking, Corporate Banking is growing 7%. Treasury activity with customers, which is where we're investing, that's why there's that cost increase. That's Santander Global Connect and Santander Global Markets, which is treasury activity with customers. And then we have trading treasuries, which grew €37m for the quarter. That's basically due to trading -- well, it's because of the increase in interest rates, basically in Mexico and Brazil.

So, if we now go to the conclusions, we've had a very good first quarter. I think you can see from the great results from Retail Banking in Europe, Latin America. And good results, I would venture to say, in Abbey, although we still have a long way to go.

But we are in line with our expectations. Big increase in Retail Banking in Europe, very good growth both in terms of volumes, revenues and profit. Abbey has got off to a very good start. Revenues are stable. There are some signs that indicate we're starting to bounce back in Latin America. Good macroeconomic backdrop. We've seen that the Group's growth there is based on an explosion in banking customers. Asset Management and Insurance, the factory, is in line, of course, with the current very positive trend in Europe and Latin America. So, that's going very well.

You've seen that the assets under management come from Retail, it's not Wholesale. And our Global Wholesale Banking, compared to the first quarter of 2004, is weak but it is growing in the best part of the business, the development of treasury activities with customers. And we've had more trading losses in Latin America than anywhere else.

And I think that's the end of the presentation. I can now take your questions.

Okay. Well, let's start with questions here in the room first and then we'll go on to the webcast questions. Okay, Manuel.

Good morning. I have a question about the evolution of spreads in the Santander network, as it's gone up 3 basis points compared to the fourth quarter. Can you tell us about the difference between return on investment and costs? Do you think you'll be able to keep up these figures throughout the year, or will there be any ups and downs?

Well, as I said, the spread did increase by 3 basis points. That's because of the momentum between, well, stock and new production that's coming in. But, well, three things, new production versus stock, new lending business stock, and I think we're pretty stable there. The mortgage book is 80 basis points, both in stock and new mortgages. And the spread's about the same for new consumer loans, and also for company loans. So, the commercial margin is stable.

The second impact will be interest rates, the interest rate curve, because the steeper the slope between the 3-month and the year rate, the better it is for mortgages. But that's not a static model; it's a dynamic model, as you know. So, as market -- as I said, the steeper the slope, the better the results. And there is a negative factor, because we have growth in deposits, in some places, of 20% and in others 7 to 9%, then we have a greater stake in Wholesale funding, which obviously brings the average yield down. I think the exact figure is for the last 6 months €330m. And cost has come down to €0.65m.

No more questions from here in the room? In that case, we can go on to the webcast questions. First of all, we have a series of questions from Eva Rubio from BBVA Research. Actually, her first question is the same as the one we've just had.

What about your policy to attract new customers and funds, because it seems that the network is growing below the market average. So, what's our policy to attract funds and deposits and sell funds?

And what about mortgage business in Abbey, in terms of the evolution of stock? And what about year-on-year growth -- what year-on-year growth do we expect in mortgage business in Abbey?

Okay. Well, let's start in Spain, attracting new customers. In the last few years, our policy has been to attract mutual funds over term deposits. And this time we're stressing a higher value, added-value funds and that's what we're doing. Our play now is for those kinds of investment funds.

You can -- and you can see that from the fee income, actually, because we've been achieving more fee income from funds. But we haven't had so many campaigns for attracting more term deposits and everything is based on margin. That's why we prefer to attract more mutual fund customers now.

Now, Abbey's mortgage business, I suppose you're asking that because the mortgage stock has come down very slightly. And I suppose your question wants to know what -- your idea is to find out more about our expectations about the mortgage portfolio.

Well, I think what I've shown you during the presentation is that there is an increase in the approval of new mortgages. The second variable in the portfolio is prepayments or redemptions, using U.K. terminology. In 2002, Abbey launched a huge campaign with a two-year incentive, launched in 2002. And those mortgages, with this incentive period and a very attractive price, "mature" in the first -- the last quarter of 2004, first quarter of 2005. So that's why there's been an abnormally high number of redemptions. And I don't think we'll be losing volume after this, because that's the end of the effect of that special offer for mortgages.

Okay, let's keep looking at spread. Now, from Citigroup Smith Barney we have a question about the year-on-year evolution of spreads prior to provisions in Santander Consumer Finance, and the evolution of spreads in Portugal, also in year-on-year terms.

Well, in Santander Consumer Finance, well, we have two impacts there on spreads. We have, well, two activities, two main line activities - Santander Consumer Finance, that's car loans. That's about 65% of total activity in Santander Consumer Finance. And then Consumer loans, 35%. That includes revolving credit cards and loans for computers, etc.

The mix or the proportion of car loans has actually come down and pure consumer loans are increasing and showing very strong growth. In car loans, as I said, the spreads are coming down but that's being offset by the change in the business mix.

In Global, spreads have come down slightly but there is a fall in spreads in cars. But because we get higher spreads in pure consumer loans, there is a mitigation of the impact there. And I think we're at 4.4% and the first quarter 2004 it was 4.5%. So, you can see that's pretty stable. So, there are variations, but there's been a drop in spreads in car loans but an increase in spreads in consumer loans.

And the other question is about -- was about spreads in Portugal. Basically, in Portugal spreads have fallen in the Consumer loan business, maybe 70 to 80 basis points in Consumer loans, but then spreads in new mortgages are stable and there's been a drop in Consumer loans and stock in Portugal. The yield on stock has fallen by 7 basis points.

Okay. Let's get back to Eva Rubio's questions, who's -- she's asked about provisions.

Basically, to what extent are these provisions recurrent, and Arturo de Frias has asked a similar question. Will provisions be maintained at this level for the rest of the year and could you give us an idea in -- about recurrent provisions in basis points per area?

Well, if we look at the trend in provisions for 2004, you can see that we had reached the limit by the end of 2004. So, they are recurrent and will be concentrated in the Santander network as they have been, indeed, this first quarter.

In terms of the costs -- loan costs, well, provisions I think could be taken as a trend because by the end of last year we'd reached a threshold established by the Bank of Spain. So, provisions in the first quarter are represented as, I think, a good proxy, a good indication of what we'll be seeing for the rest of the year, in other -- all the areas in general, yes.

Eva Rubio is also asking about Brazil.

Why has the financial margin come down by 8% in the country, whereas in the Retail network it's gone up by 13%?

I actually explained this before. It's a question of the portfolios, the treasury portfolios. There are two impacts here. One on trading gains but also there's an impact on the financial income. We have a number of higher income operations that have gradually been maturing, which have had an effect, and then we've had a lower income coming in.

We have a question from Man Securities, a quite significant question.

The growth in spreads in Latin America, is it to do with higher interest rates in all countries, Brazil, Mexico and Chile, is specifically the three? And is it -- can we expect then spreads to come down if interest rates come down?

We -- I think we have to really make a distinction between the different countries here, because the financial structure of the three countries is not exactly the same. Let's start off with Brazil.

The impact of the level of interest rates has very little impact on our customer spreads or our commercial revenue, because the mandatory coefficients that are set by the Bank, that is basically 70% of liabilities, is not actually passed on to the P&L account at all. So in Brazil, the interest rate effect is certainly lower. That is to say, if the interest rates go up or down, the effect on the spread is minor. In Mexico, though, the impact is high. The elasticity of deposits, core deposits, the number of the transactions is close to zero.

So, since first quarter of 2004, when we had interest rates 5.5%. And since then, of course, it's gone up to close to 10%. You're talking about 150 basis points rise, so that we see increased revenue, increased margin there. So there is a big impact there.

Mexico and Chile, however, it's a sort of a half-way house position. I say yes on transactional deposits. Maybe there is an impact, although it's lower than Mexico. But certainly there is a negative impact on the asset side, because assets are usually worked out on a fixed interest rate.

So if -- we really have three different notions there that we have to understand in the three different countries. Brazil - impact is lower. Mexico - impact is pretty heavy. And Chile, well, it's a mix situation. The liability spread is favored. The asset spread loses out.

We have a number of questions on capital ratios. Obviously we didn't explain this properly because there is a couple of questions about the 5.3% capital ratio and whether that includes the impact of the sale of the Royal Bank of Scotland stake.

Eva Rubio is also asking about the capital ratio -- core capital ratio impact with regard to IAS equity standards.

Right. The capital gains from the sale of the RBS stake is not included here. So this is zero impact here. I think we specifically did mention Royal Bank of Scotland. I think we said something about there would be -- it would be 5.5% if the RBS stake had been included, but it's not.

With regard to the adjustment for equity for IAS, I think the adjustment is €300m, I believe, for core capital. That's euros. 0.29. I'm being told that it's €1b. And Tier 2, 2 something -- €2b more or less because of the capital gains, specifically from the industrial holdings that we have.

So we have had a number of questions about Abbey. [Catherine Cougan] from the Citigroup is asking us about our current updated view with regard to the closed life funds. Are we going to sell them or not, is the question.

And there's also a question, can we give some guidelines on how these people can actually follow and monitor the evolution of the business.

The closed with profit funds, first of all. We've already said that they're not for sale in the presentation. I did say that we have just brought in a person, actually we've hired a person to actually take charge of the Insurance and Asset Management business in the U.K. So what we can tell you about this business, our view is that we will continue to manage it as a financial business. It's solely a financial business. It's a portfolio, basically. And we will continue to manage this.

What about modeling this business, first. We've got -- the Financial Services Authority basically gave guidelines on the composition of this business. Equity bonds, fixed yield or with some credit or loan component and real estate. That competition was defined.

And what we've done, when we actually acquired Abbey back in November, that portfolio was slightly unbalanced. The balance wasn't quite the right way the FSA had actually set out. It was over-exposed on the real estate side, which is why we have actually put on sale the real estate assets for those particular funds in the U.K.

And basically, the result of this business depends on two things. One is the embedded value, which is -- which we know about. And secondly, the second factor underpinning this business is perhaps the most complex factor which -- to work out and to estimate, which is the people who are going to actually withdraw their money before the maturity of the policy.

That's perhaps the most complicated way to monitor and to estimate the business. But the embedded value aspect, I don't think, is problematic. The second factor is probably more complicated.

I have a question once again about Abbey. The fact that expectations for the number of jobs that are going to go in Abbey, the fact that instead of 3,000 it's going to be 4,000 during the year, the fact that there's increased redundancy, does that mean there will be more cost savings by the end of the year?

And he's also asking when we will start to see a positive impact on the P&L account of this employee reduction.

Let me start with the second half of that question. I think the positive impact has already been seen. Cost reductions, I think we're seeing €20m down already in cost terms. So we've already seen a cost reduction compared to the previous quarter.

Also, we've actually renegotiated our supplier contracts, etc., etc. So there is a €20m impact already in the quarter. And this will be a progressive trend that we will see during the year. We will gradually be bringing down cost, not just because of the number of redundancies that we are going ahead with, but also because of supply contracts, etc., etc.

Now we have a 4,000 figure for redundancies that are 3,000 now. I did say we were slightly more optimistic but we thought we might actually manage to increase that £150m figure -- that's pounds, €225m. But it really depends on whether the redundancies are all concentrated at the end of the year, in which case there won't be a big impact on 2005 figures. But we do have this overall redundancy plan and we have the upside that will come through on the cost side eventually into Abbey.

We have a question from others from Morgan Stanley. A number of questions, actually. What steps are being taken by the management to cut down the redemptions, mortgage redemptions at Abbey please?

I did mention before that the volume of redemptions is very high because of the mortgage product that was being sold two years ago. And that was a two-year period with an incentive, which is coming to an end right now. That means that we do have a high number of redemptions right now.

But, I have to say that we have enormous capacity -- capability of bringing in new customers, but a low capability to actually retain customers. Now we're changing that now. We're trying to turn around the model. We're trying to actually change the accountability of our branches here. We want more people there. We have to make sure that we actually increase the number of people who are licensed and trained to actually sell these products.

We know that cause/effect will not be overnight, that we won't get immediate results from this new, changed strategy. But hopefully we will be able to manage this high volume of redemptions. But remember, I did say that this is a very one-off effect. It's because of that two-year period that is coming to an end right now, of that special mortgage campaign.

A question from Citigroup. Another question about Abbey. The question is about the reasons why the inflows of deposits or the savings funds coming into Abbey have come down, if you look at the quarter-on-quarter comparison.

I think there is a seasonality factor that you have to take into account here. In 2004, look at the first quarter there. The inflows were negative in that first quarter. They're positive this time, in this quarter of 2005. So the seasonality factor isn't so marked.

In fact, it is a low season. And yet, even though it is a low season, we have managed to push up the deposit inflows. Remember that it was coming down -- it was down last year.

Javier Bernat from Caja Madrid Savings Bank asks what would be the normalized -- the standardized level of expenditure in the wholesale banking area.

In wholesale banking, as I mentioned before, 10% was the expense or the cost rise. We're talking about global markets. And global market -- Global Santander Connect is expanding in Portugal and we are going to start to work also in Latin America. So it's expansion. That means there will be a certain steady growth in costs, until those projects are at cruising speed and fully deployed.

The expense growth is what we would expect, I think. Perhaps it's slightly higher, actually, because the Global Market project is being deployed. I think another €5m per quarter is what you could take out of our costs for the next few months because of that extra effect now.

Pablo Beldarrain from Morgan Stanley is asking for a clarification about the negative extraordinary results that we have.

€140m is the exceptional figure, the negative figure we have in the account, if you're talking about that. There are a number of reasons for that figure. The most relevant reasons are because of the amortization of the deficit of the pension funds was done differently before. And now we have different restructuring project costs. For example, branch offices that have been closed outside Spain.

Now, this is financial management and equity stakes. And that will eventually be taken out of corporate center figures and assigned to the different area that it actually applies to. But it's basically due to restructuring activities and the closure of some branch offices outside Spain.

UBS, Pedro Reis, analyst, asks about the costs that we're booking for early retirements during the first quarter.

We're not specifically accounting for any specific costs for early retirement in this quarter. We did say that the capital gain from Royal Bank of Scotland has been offset. So there is no specific charge that has been put into the accounts for early retirements the first quarter, although we are netting out the capital gains for RBS. We are expecting certain charges for this item outside Spain.

Arturo De Frias from Dresdner said we have been specifically active with regard to securitization, specifically in the Santander network. 8.9% was the growth in credit in the balance sheet. It would be 18% if we didn't have securitization activities. He is asking why are we securitizing so much when other banks are saying it is very expensive.

It's true that we've had a very high volume of securitization. We are securitizing for two reasons. One for funding reason. And I will explain to what extent -- whether we believe this is expensive or not. And secondly, part of the securitizations have been kept on the balance sheet, so there hasn't been any change there. Is it expensive to securitize?

Securitization has been expensive because of the transfer of risk and the spread was actually higher than senior debt. But, given loan spreads, the evolution of loan spreads, it's been better to do securitization than offer senior debt. So our securitizations have had costs which favorably compare to the cost of senior debt. So that's why we've done it, because the reduction in spread, in spreads in securitization, means that they have not been as expensive as they used to be.

Another question related to capital. [Semi Marchinson], Citigroup. Do you have any -- have we had an answer from the Bank of Spain yet about hybrid, or about Abbey's hybrid or preference instruments?

No, we don't yet have an answer. We are still waiting.

Another question about Abbey from Arturo De Frias. Do you have any estimates, after all the analysis we have made about mortgages, about the balance of the mortgage business at the end of 2005?

We don't have a specific estimate, although we do expect some growth in Abbey's mortgage stock in 2005. In the first quarter, stock fell because of the high number of redemptions. The second quarter, those redemptions should fall. And also, given the approvals that we've had so far, I think the message should be one of stability and even slight growth in the next three quarters.

Another question on Abbey's mortgage business. What about the evolution of Abbey -- of the competition of Abbey's mortgage business, the standard variable rate, and do we have any idea about the evolution of spreads in the future?

Well, the SVR, as you know, has been falling. It used to be a very high percentage of the portfolio, now it's stable. It's about 13 to 15%, pretty stable. What we have observed is a change in the mix of a higher percentage of fixed rate mortgages now. And we have also observed an increase in opening -- in arrangements -- in arrangement fees.

So it's stable in SVRs, higher fixed rates, and a significant increase in arrangement fees. The spread is stable. I actually said that during the presentation.

And Tomas Nicolau from Fidentiis, who would like some clarifications about trading results and financial margin, especially in Latin America, probably in Brazil. What's the relationship there and what mid-term sustainability do they have?

Well, it's true that trading in Latin America has an impact on the financial margin. These are very short-term instruments, bonds in Mexico, where there is a certain mismatch between the three-month and intradiem rate. That used to give us a positive carry. But of course, with the increase in interest rates in Mexico and Brazil, those positions have led to a negative margin. So that's the relationship there. In Brazil there are lots of different securities indexed to the [CDI].

Okay. It doesn't look like we have any more questions in from the webcast. And of course, you can get in contact with our Investor Relations department if you need to ask us anything at any time.

Well, as I said in the presentation, it's been a very good quarter, especially in Retail Banking. Our trading activities have not had -- not achieved such good results as first quarter 2004, but that was an exceptionally good one.

And we think the basic trend is very positive for all the different margins in Europe. We think that in Latin America, well, there are no clouds on the horizon. The macroeconomic backdrop should not change in the next few quarters.

And in Abbey, we feel satisfied to see that the first measures we have implemented are stabilizing revenues, which was the most complicated issue. And we think that we will actually do better in costs than we estimated, but it's all a question of timing. It depends when we actually achieve those cost reductions.

So thank you very much ladies and gentlemen.