Banco Santander SA (SAN) 2009 Q3 法說會逐字稿

(Interpreted). Good morning. As always, we will be dividing the presentation into four parts. In the first point, I'll cover the basic management drivers for Q3. Then in the second point, I will review the Group's result. In the third point I will introduce our CFO, Mr. Jose Antonio Alvarez, and he will analyze the results of the difference business areas in more detail. And, finally, I will conclude with some highlights about the year and about our priorities for the coming quarters.

The first point I'd like to convey is that the Santander has, once again, had an excellent quarter in an environment which is still difficult for the banking business. We can summarize the evolution of the main management aspects as follows.

First, the Group's ability to generate high, recurrent profit; the solid business model of the Santander, the right management of the basic business drivers, and very consistent diversification generated a recurring profit, without capital gains, of EUR2.221 billion in the quarter, which brings us up to over EUR6.7 billion in nine months.

The second point is the strong balance sheet and the Group's solvency; all the capital gains obtained in the exchange offers and in the purchase of securitization bonds in the quarter, as well as the favorable impact via capital gains and on the capital ratio of Santander's Brazil IPO in October, are being fully assigned to provisions to strengthen the balance sheet, mostly for generic loan losses and to improve our capital ratio.

With this operation, which we will see later, which is not yet in the figures for September, the generic provisions for loan losses will amount to EUR7.487 billion and our core capital would be at 8.4%.

And the third point that the solid recurrent results and capital gains enable us to maintain our payout policy and guarantee shareholders high returns.

We've closed the quarter with an ordinary profit of EUR2.21 billion. And, although this figure is slightly below Q2's, as usual because of seasonal factors in the European summer, means that for the first time in the year we have a number higher than that of the same quarter of 2008 and further improves the quarter on quarter trend.

As you can see in the chart, we began the year with a 5% fall with respect to the first quarter of 2008. In the second the decline was only 4%. And in this third we are slightly over the third quarter last year. And everything indicates that the trend will continue in Q4. And with that, the accumulated profit up to September was at EUR6.74 billion, which puts us on track to meet our target for the whole of the year.

These profits, as I mentioned and as I will stress, are all ordinary. There are no extraordinary impacts from any of the operations I've mentioned.

And these are profits that are driven by all our operating areas, and the first thing I'd like to mention is the great diversity of our business. The Santander and Banesto branch networks represent 27% of our profit. Brazil represents 20% already and the UK 16%. The rest, Europe retail, Europe global, and the rest of Latin America, account for between 10% and 15%. This diversification bolsters the Group's ability to withstand the current cycle.

On this slide you can see the performance in Q3 by geographic area, as you can see. The retail units in continental Europe grew their earnings by 11% over the Q3 of 2008. In the UK, once again we've demonstrated this quarter the sustainability of our business. Abbey has continued to grow strongly, plus there is a very positive contribution from Alliance & Leicester and Bradford & Bingley.

Latin America was highly affected by the impact of exchange rates against the dollar. But in constant rates, Brazil has been on a clear upward trend in the last few quarters and is already 42% above the profit of 2008. The rest of Latin America has felt the impact of our exit from Venezuela as it has not contributed for the last two quarters. But the third quarter is basically stable, without taking into account these discontinued operations.

Lastly, I'll also underscore the excellent performance in the last quarters of Global Wholesale Banking. We've taken advantage of market opportunities and the gaps left by other competitors, with very strict risk liquidity and capital management, as our CFO will discuss later.

Second point I'd like to mention is the strength of our balance sheet. In Q3 and in October we've had operations generate an extraordinary capital gains of EUR2.247 billion as follows; for the exchange of convertible issues EUR724 million, for purchases of securitization bonds EUR99 million, and from the Brazilian IPO EUR1.424 billion. All of this will strengthen our balance sheet.

On the right hand side of the chart, you can see a first indication of how these funds will be applied at the end of the year. For our generic loan loss provisions EUR1.4 billion, for real estate acquired, estimated on the basis of the first results of the appraisals we are making and which we will complete by the end of the year, EUR600 million. These EUR600 million represent 15% of the book value in September, which is EUR4.17 billion -- sorry, EUR4.04 billion, which has declined already in the quarter since the beginning of June it was EUR4.17 billion. The remaining EUR1.2 billion will be assigned to -- or allocated to other funds yet to be defined, such as restructuring our latest acquisitions, early retirements and so on. The definitive distribution will be announced at the end of the year as we always do.

As for loan loss provisions, the end of September we totaled EUR16.619 billion after a rising in the quarter by EUR900 million from normal business performance. Of these some EUR6.069 billion are generic. In the quarter there's been a decline in Spain almost fully offset by the increases in Mexico, Brazil and in the UK.

If we add the EUR1.4 billion, which we will allocate to generic provisions, we obtain a result of EUR18 billion with EUR7.469 billion in generic. Of this amount, Spain accounts for almost EUR4 billion, which means recovering or rebuilding the fund that we had at the end of 2008.

As for our capital ratios, we've closed September with a core capital of 7.7%. In the quarter we have, once again, improved it by 20 basis points. And we have the capacity to keep on generating between 10 and 15 basis points of capital each quarter in the kind of environment of smaller increases in risk assets.

Furthermore, after including the positive impact of the Brazilian IPO and the capital increase to be carried out in November to remunerate shareholders who have opted to receive the second interim dividend in the form of shares, the ratio will be strengthened further and will reach 8.4%.

Three comments about this ratio; it is a very solid ratio, particularly taking into account the low risk or our plain vanilla balance sheet and our retail profile. These capital levels of about 8.5% are a considerable cushion for potential regulatory changes in capital requirements and the uncertainty which still remains in the macro economic scenario. And the third point is that we have achieved it without any sort of public funding or aid.

Point three in my presentation is our ability to maintain our payout policy. This is the consequence of the two previous points, generation of earnings and solid capital ratio, and is reflected in the three most important aspects for our shareholders. We continue with our traditional policy of allocating to dividends about 50% of the Group's net ordinary profit. As you know, our goal this year is to allocate to dividend the same amount as in 2008, EUR4.812 billion. Additionally, we are maintaining a trend in the last years of constant rises in the book value per share.

And, lastly, our shareholder return share price plus dividends, is much higher than that of our competitors, both in the long, in the medium and the short-term. In all of them we are in leading positions and in the last 12 months we have reached the number one spot.

Moving on to our income statement, I'd like to emphasize that this income statement shows only ordinary profits. It does not include the extraordinary results that I have discussed above.

Moreover, and as we've done in previous quarters, the first column of changes is the accounting column and, therefore, reflects the favorable impact of our increased perimeter and the negative effect of exchange rates. Therefore, we have included a second column, which excludes the perimeter and exchange rate effect, in order to facilitate a better analysis of the underlying performance of our income statement.

The income statement demonstrates the Santander's management priorities, which are, first, very active spread management underscored by growth in our net interest income offsetting the fall in fee income more affected by reduced business.

Second point, strong cost discipline. Costs have remained flat, with growth rates close to zero or even negative in all units. These costs are beginning to be favorably impacted by the synergies of the ongoing integrations. The result of this revenue and cost improvement are a further gain in our efficiency or cost income ratio and in our net operating income, which has grown by 20%, both on a like-for-like basis and also including the impact of exchange rates and incorporations.

Third point is active management of risk and recoveries, which are beginning to show positive signs. The growth in provisions has slowed in the last two quarters, although it's still high in comparison with 2008 figures.

In summary, our net operating income, after provisions, is 7.8% higher which, as we will see now, compares very well with previous quarters and is, I think, the best example of the underlying strength of our business.

If we compare these percentages with the ones we reported in previous quarters, we see that the picture is improving. Our basic revenues continue to be solid and continue to grow overall at 10% -- 11%. Our costs are still shrinking. We've moved from 2% growth in the first quarter to zero growth for the first nine months.

Provisions continue to grow at a strong yearly pace, but there is a clear downward trend in the year. We started with a 68% increase at the beginning of the year and we're already now at only 45%. As a result, our net operating income after provisions, which declined by 2% in Q1, rose by 4% in the semester and is up almost 8% in the first nine months, which end in September.

We'll now look at each of the main lines of our income statement. And first, I will speak about the robustness of our most commercial revenues. That is, net interest income with our dividend fee income, insurance revenues, all of which have had a very consistent quarterly performance.

Our net interest income is more solid, while fee income has been harder hit in some of its lines by the environment or by the fund capturing strategy followed, which has mostly affected those related to securities and mutual funds.

In the future, however, it is to be expected that this trend will ease and that there will be lower growth rates in our net interest income, but a better evolution of our fee income. Indeed, this trend appears to have started already in fee income, since Q3 was already better than Q2 in units like Banesto, the UK and Latin America.

If we look at the charts of each of the areas, the bottom of the slide, we can see that even in a difficult scenario, like that of the last quarter, the UK and Latin America have maintained their growth trend, and Europe has remained quite stable in the year.

Second basic driver for our results is cost containment. And excluding the perimeter and exchange rate effects, costs have remained completely flat; have grown 0% in comparison with 2008. And this reflects the good performance of all the units, with growth rates of cost at around zero in the first nine months, with especially Brazil with a 4% drop. This implies, as Jose Antonio Alvarez will explain, that several units have already registered negative growth rates of their expenses in the third quarter.

In this successful cost containment what's involved is our usual controls plus, of course, the impact of the first synergies from the integrations we're carrying out, and we're optimistic that we will achieve or even surpass our initial forecast for 2009.

With that, we continue to improve our efficiency, our cost income ratio, which is at 41.3% for the Group, below 40% without the latest acquisitions. And all the large areas have improved significantly.

The third pillar I'll mention, our provisions. The global economic downturn has affected every country and has led, naturally, to an erosion of credit quality and a big rise in loan loss provisions everywhere. In the Group, last quarter they increased by 44% year-on-year, but the increase only is 26% if we exclude the perimeter effect.

Looking by geographies at these increases, and starting with the left hand side, specific provisions, we see that there is nothing new to add with respect to previous quarters. There's still a widespread rise, with a larger impact in Spain, both in retail networks and in consumer lending. Additionally, there is a growth, due to our perimeter effect, reflected in Europe consumers, the UK and Sovereign.

As for generic provisions, the Group releases in the first nine months amounted to [EUR123 million], mainly for Spain, both in our retail networks and also Global Banking and Markets, since the rest of the Group's units continue to build provisions. The generic provision for consumer credit remained in line with our forecast for the year, which we reported in previous quarters.

And in the current environment, the Group's NPL ratio is at 3.03%, and our coverage at 73%. By areas, the NPL ratio overall for all of our businesses in Spain is at 2.98%. Santander UK is at 1.65%, which is lower because of the bigger mortgage component. And Latin America is at 4.2% with a coverage of over 100%.

Some comments on these figures; coverage for the whole Group rose in Q3 after several periods of reduction. Also, since these figures are up to September, they do not include the EUR1.4 billion of capital gains that will be assigned to generic provisions. With them, the Group and Spain's coverage will rise by around 6 percentage points and 16 percentage points respectively.

Coverage, particularly in the UK but also Spain, is affected by the weight of mortgage balances, which require fewer provisions, as they have collateral guarantees, which are not included here. In this sense, the average loan to value of residential mortgages for Spain and the UK is 52% and 53% respectively. Or in other words, they have additional coverage, with collateral, of 190%.

For our competitors, and as we have shown in previous quarters, we compare very favorably at a Group level, but also very favorably in our three major geographies; Spain, the UK and Latin America. In all of them, we compare very well, very favorably with our peers.

After this general overview of the Group, Jose Antonio Alvarez will review the business areas.

(Interpreted). Good morning. As we do in every presentation, I'm going to give you more details on the different businesses. As usual, we're going to begin with the different geographical areas, starting by Continental Europe, where the attributable profit for the year was EUR3.986 billion; 15% more than in 2008 without the perimeter effect.

And this is backed by a growth in income that is growing at two digits, at 10%. And that together with flat costs allows us to increase our net operating income by 16%, which absorbs the higher provisions, and lifted net operating income after provisions by 15%.

So, the profit and the net operating income are better than in 2008. Although, certainly in the second quarter of 2009, the CEO mentioned that there was a seasonality effect because of the summer and worse results in the Wholesale business, after a record second quarter with some very significant deals.

In Europe, the [four] larger retail units joint gross income and net operating income increased by more than 10%, while profit was only 3% higher. But let me separate this into two areas; the Santander Branch Network. The Banesto and Portugal also branches, which have similar results, the gross income rose moderately, by between 2% and 5%. This is a result of still a high net interest income, although they are coming down, and also reduced fee income, basically due to mutual funds.

The three networks also have flat costs, which means that the net operating income is growing at higher levels, and also allows us to absorb the higher provisions.

There is a stronger growth in the recurring profit of the Santander Branch Network from the release of generic provisions, and an increase at Banesto, because at a Group level, its extraordinary allocation of EUR115.5 million was carried out with the extraordinary capital gains, already mentioned in the presentation.

Santander Consumer Finance is a particularly complicated environment, maintained a strong growth in gross income and net operating income; 14% and 19% respectively if we exclude the perimeter effect. And although profit was lower because of higher provisions, the trend is frankly very good, as we will see later on in more detail, when we talk about this business specifically. So, we are doubling our results as compared to last year.

If we look now at the different aspects of the Santander Branch Network, we see that there is good overall management of revenues, cost and recoveries against a backdrop of recession. And the volumes are helping us. Loans are flat. The net interest income is slowing down a bit, as the asset liabilities are appreciating.

The rest of revenues fees -- fee income and gains, and financial transactions fell by around 30%. And there is also a seasonal effect because of the marketing of some products in 2008, particularly in insurance and securities.

Costs have remained flat since the start of 2008, with a further gain in the efficiency ratio year-on-year. And the net operating income after provisions [will] grow 13% quarter-on-quarter.

It is true that all the measures that we took are already showing a positive result in the volume of entries, as well as in recoveries, which show a great quality. In any case, the market environment is still what it is and for the next few quarters, despite this improvement, we still believe that NPLs will continue to rise in the retail business in Spain.

Banesto in their presentation already gave the main details. I would just mention here that Banesto enjoyed a good third quarter and fulfilled its goals. Its credit quality ratios are much better than the market. The costs are under control and the net operating income after provisions increased faster in the first nine months than in the first half.

With regards to Santander Consumer Finance, here there has been a change in the perimeter, because of the GE and Royal business. This affects basically the revenue, although without perimeter net operating income is also increasing.

The second idea is that this area has performed very well in the last two quarters, basically because of an improvement in the spread. As you can see, the spread on loans is going up consistently quarter-after-quarter. A good performance of costs, they have remained flat without the perimeter effect and also, aided by the synergies that we are obtaining lately.

Risk has been managed very actively. We can see that the entries and provisions at a level of [60]%, less than at the end of 2008. And the absorption of revisions of the net interest income is two-thirds of this income. In the last two quarters it has performed very well.

And, given the context of the market, we can say that the performance of the Consumer Finance business it's been reasonably good.

Finally, and the last area in Continental Europe that I'd like to cover is Portugal, which has a similar trend, although there has been moderate growth in revenues and profits. The SME business is growing at 7%. And this is thanks to the Portuguese Government, which has a program called [In Invest], which is funded by the Government.

The growth in deposits is slowing, although we see a recovery in the past few months of the mutual funds, although it's still negative year-on-year. Costs remain flat and provisions have been affected by the cycle. And NPL ratio remains at around 2%.

If we now take a look at the second geographical area, the United Kingdom. There's an excellent performance there in terms of revenue and profit. We have been seeing this quarter-after-quarter; high growth in all the items of the income statement. And here we have the perimeter effect, but without the perimeter effect attributable profit grows at 28% and all of this in sterling.

Gross income on a like-for-like basis increased 24% in sterling. Control of costs enabled net operating income to keep growing at 45% on a like-for-like basis.

And there is a positive contribution in the attributable profit of Alliance & Leicester and Bradford & Bingley of GBP219 million in the first nine months.

Where does this come from? Why do we get these consistent results and, in our opinion, sustainable results? Well, the net operating income has performed very well. First of all, the spreads on assets are going up quarter-after-quarter. And this improvement is in the new production as well as in the retention of mortgages at the standard variable rate, the SVR. Apart from active management of spreads and deposits and hedging policy.

Then the costs; we are in the -- regards to the jaws, Abbey has been managing costs well for several years, and its efficiency ratio is slightly over 40%. We were one of the worst in the industry, and now it's becoming one of the best banks in the industry. And our credit quality is significantly better than that on the market with scant presence in high risk products, buy-to-let and the self-certified products with documentation provided by the customer. So, these trends are the three elements.

And there's a fourth element, which is a very good performance of the business. Particularly in this last quarter it's been particularly good, the mortgage book, the mortgage stock, because what we have here are residential mortgages. Well, it's growing 2%, although most of the growth has taken place in the last quarter.

The deposits and investments have grown at rates of 14%. In the last quarter, there has been an increase of almost GBP6 billion, GBP5.8 billion in deposits and GBP800 million in investment products.

Also, loans to companies, although the stock points to a growth of 1%, almost flat, we must bear in mind that here there are two different things. We have the products, or segments that we are no longer working with. Porterbrook, for example, that was GBP2 billion in the books, and additionally to that, some of the segments where we didn't show an interest to continue with, excluding it, that would give us an 11% growth.

In NPLs, our policy, our traditional policy, is to be very selective. We discontinued the Cahoot business and we're being very selective in this market and the portfolio has been decreasing significantly there; and then our securities portfolio which shows what we said when we acquired [B&L], a reduction of GBP4 billion, minus 27%.

Lastly, the progress made in integration, we're on schedule there and throughout 2008 -- 2010 we will unify the brands. We will change the brands to the Santander brand. That has already happened in the credit card business. Now this business is using the Santander brand.

In Latin America attributable profit, here we're speaking of dollars, $3.816 billion; 12% less than in 2008 because of the exchange rate impact, which subtracts 18 points. In constant dollars, the growth of profit has been 6%. From now on, we'll be referring to the column without the impact of the exchange rate.

The net operating income growth at 28%, revenue 18% (sic - see presentation), and costs fall 2%. This allows us to absorb the highest provisions. Later on we'll take a look at this by country. We have seen some improvement in some countries in this regard. The net operating income grows 10%.

In the first half we see 6% more in constant dollars, which means that it has been the best quarter by far in the last two years.

If we take a look at the next item, this next chart I think shows a very good performance of the region as a whole; revenues 15% up, net operating income almost 35% (sic - see presentation), attributable profit, 16% (sic - see presentation), with the exception of Mexico, which remains flat in revenue and costs. Good performance of costs, we will see this in further detail later, which means we have double-digit growth in the net operating income, which --

Well, we should point out Brazil, here, whose improvement quarter to quarter has been very important, and in fact this quarter we are growing at 22%, and the previous quarter I think it was 12%, and in the first one, repeating of the last quarter 2008.

Also good performance in the other countries that are included in the west area, as we call it; Argentina, Uruguay are the others, which is -- Uruguay is the others, with the exception of Santander Private Banking, [22%] down, [EUR153 million].

If we look at it country by country, in Brazil attributable profit was up $2.167 billion, after obtaining in the quarter $815 million. There is the great strength of the net operating income, because our Retail Banking as well as Global Business gross income rose in high double-digit and costs declined sharply, so the net operating income is almost 40% and attributable profit which goes up 22%. In the third quarter, the results from Visanet green shoe were recorded, which were $131 million, which have been assigned to generic provisions for loan losses with no impact on the profit, but we can see an increase in trading gain which is due to the green shoe impact.

The result of 22% is a combination of good spread management, volumes in line with what is happening, although lending in Brazil as a whole is growing at a very good rate. This is due to the public banks, to their policy. We are growing at the same level, although there are internal differences.

In our case, we are growing well at [13%] among individuals, but in car finance, that is not growing that much, as well as other segments that aren't growing that much. They are focusing more on the positives. We're growing well at bank deposits, but the term of bank deposits in Brazil remains flat.

And then a strong reduction in operating costs, we are at minus [4%] in local currency. Bear in mind that in Brazil, to give you an idea of the intensity there, it has inflation of 4% or 5%, so minus 4% is a very good figure. The integration is going very well, and synergies go according to schedule.

Good risk management; there's been an increase in the NPL rate in the country. There's been an increase in unemployment. And this affects our business, but in the last few months, the -- things seem to be picking up, and it looks like there might be a certain change in the trend in the deterioration of credit quality. Our provisions remain stable, about 50% of the net operating income.

Mexico; this year has been a difficult year in Mexico. There has -- renting has fallen. The spreads as well as the volumes depend a great deal on the credit card business, which has significant falls in volume and that has an impact on our spreads -- us bringing down the spreads.

Nevertheless, cost management -- well, we had double-digit costs and now we have brought that down. But if we look at the sequential performance, which is a quarter-to-quarter, on the one hand, the net entries into NPLs are falling. The level of effort of provisions, we are now at levels of 45% of net operating income in provisions. So quarter-to-quarter, the net operating income after provisions is going up and probably towards the end of the year the comparison will be better than that minus 25% which we are showing this quarter, because of how weak the fourth quarter of 2008 was.

In the case of Chile, $533 million in nine months in profit, basically in line with last year's result. Here there are several things that I should mention. Customer revenues are growing at [10%]. Also time deposits are growing. But nevertheless, and we have mentioned this in previous quarters, the impact of inflation, the negative impact of the US on the net interest income, partly offset by gains on financial transactions, with the hedging of inflation and interest rates, but this is one of the lowest figures we've had, $70 million (sic - see presentation) on gross income.

Costs have declined sharply, negative quarter-on-quarter rate compared to 8% in 2008. So as inflation figures are normal or positive, we think the unit will be recovered.

Corporate activities, EUR1 billion difference between last year and this year. There you see the differences less dividends and income by the equity accounting method, then the charge for Metrovacesa in the first quarter, reduced gains on financial transactions, the costs, the rentals, from the lease-back of the investments, and other minor items and taxes, for another EUR250 million less.

If we look at the secondary segments, Retail Banking, we are improving our net operating income and, in the last quarter, also our attributable profit.

I'd like to focus more on Wholesale Banking. Although the quarter has been weaker than the previous one, because the previous one had been exceptional, even so revenue is growing at 36%. Attributable profits are going up more than 80%. The explanation here is the following. I'm going to try to summarize in the next few slides how we can explain this performance.

The first aspect is that our Wholesale business depends a great deal on the retail branches, and the customer revenues accounted for close to 90% of the area's total revenues.

Where do we generate this revenue? Well, in our core markets, Spain, Brazil and the UK, which account for almost 80% of the total; these revenues come from a diversified portfolio of products. The FX business and interest rate represents EUR1 billion, or about 30% of the revenue. Investment Banking is falling, but that's a very small part of it. And the Securities business, well, it's still far from levels we had before the crisis. So there is the generation of revenue with very good growth and well diversified.

The second aspect is good cost management. Costs are falling 11% or 12% over the first nine months of 2008. There's been an adjustment in capacity to the environment, and this can be seen in fall of costs.

The third aspect is that this has not been done with an increase of our exposure, because loans to customers remains basically stable, and these loans come from different parts of the world, basically, the UK, Spain and Brazil, EUR69 billion. And risk-weight assets of the area have fallen in the last year; therefore, very good performance without increasing global risk.

And finally, Asset Management and Insurance, two trends here; total revenues from investment funds and insurance amounted to EUR2.709 billion in the first nine months, 9% of the total revenues of the operating areas. Most of it was seen -- comes from distribution recorded in the networks.

Now, the trend, particularly in mutual funds, seems to have changed. Assets under management, we fell to levels of EUR100 billion from EUR130 billion, and in the last two quarters, the trend is now positive, and we have EUR111 billion. This trend, which seems to consolidate, will change the generation of revenue in the next few quarters.

With regards to insurance, excellent performance in Brazil, Germany and the UK, weaker in Spain; that depends on the liability policy, it's instead of selling time deposit. We sell savings products linked to insurance, or the other way around. Last year, we sold lots of insurance products and now we're selling more conventional deposits.

Finally, a few words on Sovereign; well, Sovereign has reached the breakeven point, right now, eight months here; a global consolidation. If we look at the trends, they're reasonably good. We see that revenue is growing 9%; 3% in the second quarter as compared to second quarter last year. Costs continued to fall 3% over the second quarter.

$238 million -- $221 million in loan losses, that is more than the volume that we are making provision for. So this is why I say we have reached breakeven point. And funds for loan losses have reached 3.6%, which means that we compare very well with our peers. We are in the top five among the fifteen peers with which we compare ourselves in the United States. Therefore, these are very good trends, and right now, the Bank has reached breakeven point.

In terms of volume, you will remember when we talked about the offering there was some businesses which we didn't consider to be core for us. Therefore, there are businesses which we have discontinued, the car financing business, with a fall in the portfolio of 30%, and we have also discontinued parts of the business line that they call Commercial and Industrial, which are not in Sovereign's footprint, with a fall in these portfolios of about 15%.

So there has been a fall in lending, because of discontinuing these businesses, together with the fact that the demand for credit right now in the US is very weak. And this also has an impact, but most of it is due to the fact that we have discontinued these businesses.

In terms of deposits, time deposits, these are performing well and a fall of expensive deposits by a few of the banks raised a certain amount of deposits, which now are being more demanding in terms of their return and, therefore, there has been a fall in the volume of term deposits, particularly in the last quarter.

The liquidity of the Bank is very good. It isn't the same situation we had a year ago, where raising deposits was essential for the bank.

After this review let me give back the floor to our CEO, so that he can give you the conclusion of our presentation.

(Interpreted). Okay. I will conclude by giving you a summary of the presentation. In this difficult context -- in this year's difficult context, we have nevertheless managed to win it all, because we've managed to obtain a quarterly recurring profit of over EUR2.2 billion, which brings the total for the first nine months up to EUR6.74 billion. And this impacts the advantages of our diversification, which this year makes the UK, Brazil and GBM our main earning drivers; also, our ability to manage and extract value from the integrations that are under way and the Group's synergies.

The second element in this success is the strength of our balance sheet. Thanks to our high capacity to build provisions, our net operating income is 2.4 times the provisions, because we have managed to generate a lot of free capital, between 10 and 15 basis points a quarter, and because we've been able to allocate extraordinary capital gains to strengthen our balance sheet. As a result of generic provisions for loan losses are now up to EUR7.5 billion and our core capital is at 8.4%.

Thirdly, generate more value for shareholders consistently by sustained increases in the underlying value of the share or book value, which in September was already 8% above that of the end of 2008, and a sustainable pay-out policy, which enables us to distribute a large volume of dividend to our shareholders each quarter. The two dividends charged to 2009 already amount to EUR2.1 billion, and a total shareholder return which is higher than the market.

So these three successes that few peer banks can match and which we have achieved while remaining on track to attain the targets for our full year.

Looking towards the coming quarter our management will continue to focus on our traditional management drivers, our traditional management model but obviously adapted to the macroeconomic situation in each of the countries where we operate.

And, from this point of view, it seems that from the macroeconomic perspective we will be seeing two different rates of recovery; slower in Europe and the US but more V-shaped, faster, in Latin America, but especially in Brazil, with growth rates for 2010 of around 5%.

As the recovery gets under way in the different geographies, we will probably see interest rates go from low and stable, where they are now, to higher interest rates. And, in this context, the Santander's management drivers will become increasingly important depending on each scenario.

The greatest change will occur in the revenues where the management of spreads, volumes and fees will be adapted to the growth rate in each country. In all of the geographies we will continue to focus on cost containment, containing and managing our profit and obtaining synergies. And also we'll focus on integrating the new units in order to accelerate their contribution to the business.

Another key point will be risk management and recoveries in an environment where it still seems premature to anticipate a fall in provision.

We will still need more time to see the recovery bring improvement in credit quality and, therefore, we will still see some rising NPL rates in some markets in coming quarters.

As usual, we will be very strict and disciplined in our use of liquidity and capital. And all of that means we face the end of the year and the beginning of next year with optimism.

Thank you.

(Interpreted). Good morning. We're going to begin with the Q&A session. As always, we will begin with those that we have been receiving from the Internet and, as we have done in the last couple of quarters, we'll be organizing the questions by subjects so we can deal with them in a logical order.

The first of these has to do with the situation and outlook for 2010 and there's a question from Antonio Ramirez from Keefe about whether we're interested in acquiring the Royal Bank's branch network, which would be available, and any other assets we might be interested in in the UK.

And can we say anything about our strategy for the SME and corporate segments? That's all for the UK.

(Interpreted). Well, in the UK we've announced, and, in fact, in some of the presentations by Abbey, we've already underscored that our growth strategy there is a clear, organic growth strategy and has been for 1.5 years already.

We have been investing in the growth internally through investment in the teams, in technology. The acquisition of Alliance & Leicester has helped us make a major leap because, as you know, they had a significant SME and corporate unit.

And so we're in that process which, by its own nature, is not too fast because organic growth takes longer. But that is, and has been, the strategy that we have been following and will continue to follow in the near future.

(Interpreted). There is another question about capital and that's whether we're planning any additional IPOs for any of our units.

And also about this concept, can we give any final data about the Brazilian IPO.

(Interpreted). We're not planning any additional IPOs; haven't thought of it. It's not at all a consideration right now.

And the final number, I think, is 81.4% if I'm not mistaken; around that. The latest figure we have, I think, was 81.4%. 81.4% who have updated for shares instead of cash in the dividend -- internal dividend.

(Interpreted). Another question from Antonio Ramirez. How we see Spain for 2010, financial margins and growth of volumes, and the evolution of the gap.

(Interpreted). For Spain in 2010 we are currently in the middle of a budgetary exercise, so this last bit of October and in November and we'll have a clearer picture then.

Without going into too much detail, because again we don't have the numbers in a lot of detail yet. But clearly, next year will be a year in which volumes will not grow, will be either flat or dropping; asset volumes that is. Liability volumes will obviously grow because the Spanish economy is in a deleveraging phase.

We are seeing already this year strong growth of savings and much less growth of lending and that will continue, quite probably during 2010; so very little growth in lending or even perhaps see a slight decrease in lending, but on the contrary strong growth in deposits on the customer fund side. And what form that will take will be deposits or transaction bonuses or investments funds, we'll have to see. That's the first one.

As far as margins, we will obviously, and given this situation with volumes we will have some weakness in our net interest income, naturally, as lending shrinks. But on the contrary, we think that we will once again see a normal performance of fees and commissions.

They dropped a great deal in 2008, but also that was part of -- 2009, rather, but that was part of our product policy, because we've decrease our presence in investment funds and that means less fee income. But in 2010 we will see a recovery of growth levels in fee income, but our net interest income will decrease.

Net, probably a slight reduction overall because of the combined effect of volumes, a drop in net interest income and the rise in fee income; so overall, I'd guess, a slight reduction in our gross margin if we add up these two concepts.

(Interpreted). Okay. There are several analysts, Carlos Berastain from Deutsche Bank, David Vaamonde from Fidentiis and Jeff Davis from [SK] and Francisco Riquel from Cheuvreux were asking about any write-offs, and how do we explain the evolution write-offs. Anything worth mentioning? All the questions are requesting an explanation around that point.

And about risk, Carlos Berastain is also asking, as is David Vaamonde from Fidentiis about the increase in cost of risk, specifically in the UK, if there's any particular factor, or how you predict the cost of risk and how it will evolve in the UK.

(Interpreted). Well I can't remember the exact numbers off the top of my head. Perhaps Jose Antonio can tell us more, but we see no more effect of the growth in provisions. It's almost automatic as provisions grow and require more allocation scheduled. Once that cycle ends that means eventually transfer to write-offs.

But we don't have anything any different from the normal cycle of these things. It's very automatic. There's no event or anything that justifies that number beyond the usual cycle. That's the way it works. You get NPLs. You use provisions. You use them up in growing percentages until you get to 100% and that's moved to write-offs.

As for our lending, there's nothing in particular to say. I don't have the impression that the cost of risk has grown very significantly. In the UK there was last year a release of generic provisions, because of the foreign investment by Global Wholesale Banking and Markets so some generic provisions were freed up. And so if we compare this year with that quarter it may seem as if the provisions have grown, but they haven't actually really. And there's no underlying worsening of risk quality.

(Interpreted). I don't really get the point of the question, whether they see something different rather than what I'm saying, because we don't see anything in particular.

In the presentation for the UK you have the breakdown of how those generic provisions were recovered in the second quarter '09 and the third. And there you have the explanation of each of those items that the CEO has just mentioned.

(Interpreted). Santiago Lopez from Credit Suisse is asking about restructurings in 2008 and '09. What percentage of recovery is in the Santander network? Our cash, can we elaborate a little bit about this whole concept of restructuring and recoveries.

(Interpreted). Well, I'll just give you a couple of comments and then I'll give Jose Antonio Alvarez the floor.

Basically, we have been recovering between 60% and 65% of defaults. Two-thirds are being recovered in cash and the remaining third in allocation. So that's basically the number. So the remainder, about 20% or so, of defaults are being restructured or refinanced with very strict criteria, because the Bank of Spain has very strict criteria about how you may restructure or refinance these operations, as you all know, and may require that we comply, as usual, very strictly; first point.

Second point, restructuring or refinance does not mean that these items are no longer in default, because that has nothing to do with it; still accounted as an NPL. It only comes out of there if certain conditions are met; repayment of all interest pending, new effective collateral or certainty of payment and the balance we internally apply -- our own risk management function applies additional criteria and that is that we do not take it out of the NPL list until at least between three and 12 months have gone by, depending on the nature of the operation, checking that the interest and the monthly payments have been made.

So you have to meet the Bank of Spain criteria plus our own risk management criteria before you can take an operation out of the NPL list. So there are very strict criteria, because risk quality is crucial for us.

I don't know whether I've explained things properly but you can add that whatever you like. That's basically the idea, right, and that's our policy and those are the numbers.

(Interpreted). We're recovering 70%, 75% of which two-thirds in cash and a quarter in execution of collateral. Only 20%, 25% is being restructured or refinanced, with these very strict criteria again, because when you talk about refinancing or restructuring it sounds like you're just giving it away, but we're not. We're following absolutely strict criteria both those of the Bank of Spain in the first place plus additionally the ones that our own risk function requires.

(Interpreted). Fine, and in the financial management area, a couple of questions about risks, but I'll connect them with each of the countries.

International management, questions about why that change in the net interest income in the corporate center. That's a question from Miguel Angel Alcala from BBVA.

And another question about the growth of net interest income in Q3 without the perimeter or the exchange rate effect.

(Interpreted). That's in the general presentation. There's a column where you have that without subtracting the perimeter and the exchange rate effect.

Maybe you want to say something about the corporate center, the fall in net interest income there?

(Interpreted). The corporate center that's a combination of different things and items, but basically financial other net interest income, you mean, was minus EUR600 million in the first quarter, minus EUR580 million the second, minus EUR480 million the third. So we're talking about relatively small changes.

But here there's several factors at stake. Divestments, when you divest, of course, you receive less dividend income so you have more cash on the other hand, and that affects your financial revenue. As does the way in which you manage the parent company's lending or risk policies and additionally -- and that's corporate center.

The exchange rate hedges, being managed, some will bring in a financial revenue if the exchange rate that's currently being hedged is below the euro and negative if it's above. So that EUR90 million variation is due to Cepsa divestment. That's a big number, so less dividend income, plus some effects on ALCO and the exchange rate hedges.

(Interpreted). We've had two questions come in about strategy and outlook, whether apart from the UK we're interested in any acquisitions in Mexico, any savings banks and so on.

And also whether we can elaborate a little, not just for Spain but in general, about how we see net interest income evolving over the coming quarters and do we expect volumes to pick up differently in different countries or geographies.

(Interpreted). Well, the first question I'll answer absolutely not. We have no plan or intention of acquiring anything in any geography. And I answered that earlier already, so.

The second question is a bit harder to answer, because I have to go to each of the geographies and say how we see it unit by unit and it might take longer.

I spoke about Spain. In Spain -- well, it's been said Brazil, another important unit, and it has to do with some questions that have been received about how spreads or our margins will evolve in Brazil and probably in Brazil there might be some pressure on our margins on the one hand.

But on the other we feel that risk quality will improve too as the economic situation improves. And so the net risk margin, not the gross margin, which may possibly drop, the net margin will remain constant.

In any case, Juan Antonio Alvarez is saying that I forgot to mention that we're not supposed to talk about Brazil, because we're still in the IPO period, so sorry, I said nothing. Forget what I said.

In Latin America the volume effect should bring about a reasonable growth of margins in the other Latin American countries. The growth will be strong, even Mexico.

And in our view though the UK is still in a difficult economic situation and next year will probably still be difficult. With the work we're doing at Abbey we will be able to maintain our margins. The biggest threat really is Spain. For the rest there's no real issue.

(Interpreted). Javier Bernat from Caja Madrid is asking whether the separation of the insurance and banking business, like ING has done, whether there might be some trend in this direction in Europe, if Santander could be affected by these decisions?

And there's some other questions about regulation in general and capital requirements.

(Interpreted). Well as you know, the person who's asking the question, there's a lot of changes going on in the regulatory arena and we're seeing all sorts of documents and meetings from all kinds of levels, from Basel to the Financial Stability Forum to the G20 Summit and so on.

Two basic points; and this would require a whole seminar possibly, but there's two points that matter to me.

First, there will be regulatory changes. We don't think that it's going to affect us too much since we are a Bank which has a business model, a risk profile, a level of diversification and a branch model, which is what's succeeding right now in the world, and what's been recommended to solve these systemic problems.

And secondly, we don't think there is going to be anything about regulation before the crisis is over, but we will have time to discuss this, to look at it, to review it [too]. Through Government and the Bank of Spain we'll be able to participate in this discussion and express our points of view if we had any, and we do in some areas. But it's not going to be short-term. It's probably going to be more for 2011.

Okay, about risks, there's two or three questions, somewhat technical questions, and so if you agree we will answer them later from Investor Relations about net NPL entries in output values in Santander [Branch Network], a breakdown in Corporate Banking by spreading pieces and extraordinary transit operations and then Sovereign, whether it's partial write-offs or not.

And then there's a couple of questions from Sergio Gamez and from Domenico Santoro from Exane BNP and Merrill Lynch about what we expect for NPL rates in Spain specifically.

(Interpreted). Okay, NPLs in Spain; every quarter we're asked about this, every quarter we give our best estimate, and I'll go back to what we said at the beginning of the year. In January, February -- I forget if it was January or February when we presented the 2009 results, we said in answer to some of your questions what we expected for the end of 2009 for Santander in NPL rates in Spain.

And then we said that we thought we would end the year, and I'm talking about Spain not the Group, at 4.5%. Later, I think it was in July, I think it was when we presented the results of the first semester, we revised that number because the first semester had done somewhat better than what we had expected, and we decided that we would finish the year at 3.5% NPL rate.

What can we say right now? Well, I dare to say that possibly we'll remain below that 3.5% we had predicted. We'll probably by December be at maybe 3.3% at Santander in Spain, which means somewhat that we have managed to improve our forecasts in the various quarters.

What will happen in 2010? As we move ahead it's harder to make a forecast, and the risk of getting it wrong is greater, but we still think that -- and the whole sector thinks this, and it's in fact something that we discuss quite regularly in our meetings. We think that the biggest NPL peak will be at the middle of next year. What will be the number? I wouldn't dare speculate for the Santander, but we'll probably say something about that at the end of the year.

It will go up, it will continue to go up, and it will go up until it reaches a peak in 2010 -- in the middle of 2010. So probably the peak for provisioning will be at the end of 2010, because as everybody knows there is always a delay between the peak in provisions and the peak in NPLs. But we will continue to use our generic provisions. And if everything goes as planned we will see those peaks in NPL rates and provisions, which will occur towards the middle of next year and then improve by 2011. But we'll probably be able to be more precise by the end of the year when we have the budget.

(Interpreted). And several questions about the real estate we have acquired from developers, from Miguel Angel from BBVA, Antonio Ramirez from Keefe and Santiago Lopez from Credit Suisse. I'll try and summarize them all.

They're all similar in terms of volume of sales and allocation of real estate assets. In Q3 the EUR600 million funds, whether we expected to reach 20% of the value or not? How much have we bought? How big would be the impact if the Bank of Spain were to go from 10% to 20%? Our portfolio right now purchases basically real estate.

(Interpreted). Well, the figures we have approximately it was EUR4.15 billion at the beginning of the year that we had bought. We now have EUR4 and a bit billion. I forget how much the bit is, it's EUR4.02 billion or EUR4.03 billion, which means that we are selling.

Second, we also announced that we weren't going to be buying anything else and, in fact, that's so. We now have -- but we've sold EUR110 million. We've stopped buying, as we said, in June. But of course, that's a policy which cannot be applied overnight, so there's been a gross increase of EUR13 million, but these were things pending from other earlier operations. So that's one thing.

And the other, as you all know, when we buy this real estate the Bank of Spain requires that we provision 10%, and now an application of our capital gains, as we explained, we'll be putting in an additional EUR600 million in provisions. And so the EUR600 million, as you can see, out of EUR4 billion are 20%, 20% plus the additional 10% we had required by the Bank of Spain -- sorry, 15% required by the Bank of Spain, would give us 25% provision; so that's basically it.

I think that more or less answers every question around this area.

And Alfonso Gomez from Citibank is asking about risk weighted assets and capital, and why he's connecting the risk weighted assets with the rise in provisioning in the UK. And the other questions are (inaudible) Spain and maybe a final one on core capital; where we see core capital; so three questions evolution of risk and assets, the losses in the UK.

In risk weighted assets, what has happened the drop has two consequences. There are two effects that have maybe another, basically for two reasons. First, because the asset's not growing because lending's not growing, pretty much in any of the geographies where we have strong assets, because although we have assets in America too, but the weight of those assets is relatively low. So if the asset's not growing, the risk weighted assets are not growing. That's the first reason.

And the second reason is because we're optimizing the risk weight assets in order to optimize our use of capital. And this is being done in every single unit, and in every single geographical location, and in all businesses, so that the joint effect of both elements can lead us to a reduction in the risk weight assets. And foreseeably at least, for the first reason, next year this will continue.

(Interpreted). Santiago Lopez from Credit Suisse asks about coverages, what type of results of our capital that have been our hedge for? What has been the profits in hedging activities in the third quarter? That the net interest income is not as good as in other quarters, so what is happening with hedging?

(Interpreted). Well with regards to exchange rate hedges, we have two types of hedge. One is for book value and the other one for expected results. And also, and this is where the difficulty lies in there is a symmetry -- an accounting symmetry, because at the end the hedges are mark-to-market and the results are included in the exchange rate average of the nine months, so all the results of the hedges in terms of net interest income.

And I think I answered this when I was asked about the net interest income in the corporate center, well, the positive or negative carry of the hedge goes to the net interest income, and the mark-to-market is included in the trading gains. With the currencies that we deal with we have hedged right now 100% of the pound sterling in terms of income, as well as in terms of book value.

We also have 100% of Chile and Mexico hedged for and we have also a low hedge rate now for profits in Brazil, and we have a 90% hedge. So the hedge for Brazil is done with options, but the hedges in the UK, Chile and in the case of dollar and sovereign, it's only with forwards. The same thing goes for Mexico where the results are hedged with forwards.

The results are in those two lines where you have to go currency by currency. And I would like to add that the mark-to-market and the generation of income don't necessarily fall into the same period of time, because a currency might evaluate in the first quarter but then remain the same during the rest of the year.

(Interpreted). And to finish the area of financial management Sergio Gamez from Merrill Lynch asks about the ALCO. Could you say something about the ALCO, where it is right now, the hedges there, etc?

And from Citi, the question on core capital, I don't think you answered that. And what about the evolution of the core capital, where it is right now? And where do you see it in the future?

(Interpreted). In the core capital, I think we mentioned this in previous quarters, it hasn't changed. In normal conditions, with a payout of 50% and with the trends we see, it might change but very little, because in next year we hope a greater growth of assets in our loan portfolio in Brazil and emerging markets. But 10 or 15 basis points of generation, I would say, is what we expect and what we see in every quarter with regards to the core capital.

And the question about ALCO and the portfolios, every ALCO -- every subsidiary, has it's own ALCO and it is self-contained. ALCOs adapt to what every unit does. We have units where the position of the balance sheet is long, for example, in Consumer Finance in Chile or in the UK. And what we do there take liabilities through the fixed rate, so there we pay a fixed rate on the swaps and then we have balance sheets which are short, basically those in Spain, Portugal and Mexico.

Brazil is more or less balanced and it has small needs and that's where we have ALCO portfolios of sovereign bonds in Mexico. With our portfolio I think it's about $5 billion to $6 billion. And in the European countries -- in Continental Europe, the portfolio is of about EUR18 billion in the three units in Continental Europe to hedge for the interest rate. And these EUR10 billion compare with core deposits that don't pay interest of about EUR35 billion, so the duration of the ALCOs is of about three years. This is our hedging policy right now in the different countries.

(Interpreted). Some more specific questions now about the areas in Spain, there's one about the fees -- the breaking down of fees. We'll pass this question on to the person responsible.

And there are three questions, one from Antonio Ramirez from Keefe. The Group has lost 3 percentage points in the lending share. How do you think this is going to evolve in the future? I think he's referring to the market share of the savings banks.

And then there's another question from [George Lewis]. The Santander network, how is it performing and what is the impact of our gap there?

(Interpreted). I think all banks have lost their market share compared to savings banks but we have to remember that this is very much linked to the real estate business where banks, for example, we have a market share which is lower than our general business market share. We have grown less in this business and this is to our advantage right now.

The loss of market share is a very complex issue. We feel very comfortable right now with the market share we have, possibly because of the transformations which will certainly occur whatever the scenario. But there are going to be changes in the Spanish financial industry in the next few years and that, indirectly, is going to benefit us. We are going to see a reduction of installed capacity in the competition. And therefore, this will give us opportunities to gain back that market share that we have lost in lending, as well as in deposits. All of us have I think lost market share on both sides of our balance sheets.

Now the other question was, I'm sorry? The gap of the Santander network, okay. Yes, we are reducing that significantly. This year, only in Spain, lending has grown 0.4% or 0.3% whilst deposits have grown 19% or 20%. So the gap is getting smaller very fast. In Spain I think we have reduced it by more than EUR12 billion in these first nine months of the year, but we shouldn't forget that this is also impacted by the macro economic gap. This is a reflection of the gap in the Spanish economy.

We've been saying for months that the gap in the Spanish economy was of EUR800 million. Well, those EUR800 million affect each one of our tiny gaps. But having said that, since the economy is deleveraging, and we're noticing that too in our balance sheets, we have closed that gap by EUR12 billion.

(Interpreted). The questions on the UK provisions have already been answered. Now if we talk about Brazil, there are basically three questions about Brazil from Arturo De Frias from Evolution, from Nomura and Miguel Angel Alcala from BBVA.

First of all, on the high return of the franchise, 3.2 return over risk weight assets. How do you think that is going to evolve in the future? Do you think that the fall of spreads can be offset by increases in volume?

And then trading gains, why are they so high in Brazil in Q3?

And the third one is about risk quality. Do you see changes there and what about the total volume?

(Interpreted). Well, three questions; the high return on assets, that was the first one. This is a characteristic of the Brazilian financial system. This not only happens in Brazil -- Santander Brazil, but in Brazil in general. And I think we have been saying for some time, and what we expect is what usually happens in these processes, where you go from non investment grade emerging market to higher levels of rating, and so there's an expansion of our volumes together with a contraction of the spreads.

In any case I remind you that Brazil is a market where spreads on one side of the asset on deposit margins are very, very low, abnormally low, because there are some high ratios over core deposits. Despite the fact they have interest rates at 9%, the Bank doesn't favor from that situation. So on the long-term expansion of volume and smaller asset spreads and on the side of deposits, there's still a possibility to increase spreads.

And then the second question is about the growth. I mentioned this during my presentation. I think in Brazil the 17% league of -- in lending, and this stems from two different situations. First of all, the publicly owned banks, State owned banks, which are growing at rates of about 40%. And private banks, which are growing at rates of 5%. And this is where you get this average of 12%. Our average is 2%, more aligned with privately owned banks, and therefore there isn't much more to add there.

Now with regards to the arrears rate credit quality; well, I think I said during my presentation that the demand in terms of net margin, of our provisions in Brazil is about 50%.

I also mentioned, when I talked about Brazil, that it had been going up. Right now it remains stable, at 5.8% for the country. Private banks 5%, and the estimates are that that will tend to decrease as the economic situation improves, because the growth for Brazil next year is of about 5%. And therefore, unemployment -- the unemployment rate will go down.

Yes, trading gains; I don't know whether I talked about Visanet, the green issue, the execution of the Visanet green shoe was in June 2009. Therefore, it was included in the results of the third quarter and this has been used for generic privilege, so there is an abnormally high trading gain. I think it was $131 million, which is offset completely in the generic provisions, because we also see that the generic provisions in Brazil go up significantly in the quarter.

(Interpreted). From Brazil we have two more questions, which have already been answered or which we can answer. One is from Alejandro Ruyra. The capital gain -- well, we'll talk about -- we'll answer that later. And the update on synergies in Brazil, from Sergio Gamez from Merrill Lynch; but we'll tell you about this later on. Sergio, we'll answer this later.

So now Mexico, and this we will finish. We have quite a lot of questions about Mexico. The performance of the franchise, the quality, how do we see it? Have we reached the peak in the impairment of quality? Do we see volumes growing? What is our policy for Mexico, looking forward, the competitive environment, Arturo Frias from Evolution; also, the arrears rate. I think all questions are related to our vision on the franchise and the environment.

(Interpreted). The vision on Mexico 2009, I think we already mentioned this in our last earnings announcement. It was not positive. It was actually a fall in the income, basically due to low level of activity on the one hand, because of the economic situation and also because of NPLs and provisions.

This situation which, in our case, the arrears part comes from the credit card business that has been refocused, so I think we can say very clearly, that we have touched the bottom there in the NPL rate in Mexico, and that already is a very positive element.

When it comes to volumes, we are still not noticing a recovery, because the Mexican economy is very linked to the American economy. But all indicators, what seems to be the consensus is that next year, Mexico will start to grow, not too much, but they will grow from 1% to 2%, like the United States.

If that is so, which seems to be the case, then obviously Mexico will start to look different than in 2009. First of all, because that's the way it is and secondly, because things are changing. In Mexico I included in that vision of Latin America as a whole, which in our case, includes Mexico, Chile and the rest of the countries where we have a footprint, and our outlook is very positive for these countries as compared to 2009.

We will see growth in this part of the world, as compared to Spain and Portugal, where the situation is going to be gloomier. And that is what I have to say about this. I think we've seen the worst already. And from now on, without exaggerating, but I do think that 2010 is going to be a better year.

What is our vision for Mexico? Well, consolidate and consolidate and continue to consolidate our franchises. We don't have any ambitions, if that's what you were asking, of growing there, no, no intention to do that. Yes, we want to grow organically and to be better, and have a wider customer base, and have a better quality and a better quality of Retail Banking, but we're not thinking of making acquisitions or anything like it.

(Interpreted). There's a question from Javier Bernat on Sovereign. What about the franchise there? You have said that you reached breakeven point?

Well, Sovereign is a unit which we just started managing, and it's going through deep changes and a restructuring. We could compare it to Abbey in the first two or three years since we took over. So it's undergoing transformation and restructuring, and there are positive signals.

We don't see any negative signals, not even the arrears rate, because the assessment that we did when we acquired the last part, we don't seem to see anything that indicates that we were too optimistic, or that we didn't take into account write-downs that could surprise use. Nothing new is happening, no bad news, no -- nothing that we didn't expect.

The realistic part perhaps is the most negative part, but all of that was in the script. We knew that and we had already accounted for that, when we made the acquisition. And from thereon, gradually we are seeing -- or not positive results, but positive news.

I would say, first of all, that in 2009 we have already reached breakeven point. In October, we reached breakeven point and in October or December we will be -- start making money. That, which quantitatively speaking, is not very important from the qualitative point of view, is very important because we're on the right track now.

The situation has been stabilized and we're ready to grow. Of course, we are going through a very strong cost reduction program, which isn't really too difficult there, because it was not a very well organized bank, and we are right now transforming the technology and we are reorganizing business lines and our teams there.

So our outlook for next year is already positive and it has to contribute already to the Group next year.

(Interpreted). Well, that's -- those were all the questions that we received over the Web, and unless we have a question from the conference call. Yes, we do have a question from the conference call, and this will be the last question. Can we hear the question please?

Okay, I assume you do. It's Jernej Omahen here from Goldman Sachs, and thanks very much for giving me the opportunity to ask the question.

I have three very short questions. I guess the first one is that the target core capital ratio is around 7%. You are now at 8.4% as per your slide, and I guess it's not too unrealistic to expect that if the dividend policy stays unchanged, you're going to be at around 9% by the end of next year.

And I was just wondering how should we think about this? Should we think about the 7% still as the target and the difference to the current ratio is surplus capital? Or should we just think about it as Santander being more comfortable with a higher core capital ratio per se, and that essentially being it?

And the final question is on the coverage ratio, Santander rebuilt it up to 80% again I think, including the Brazil IPO, which is a comparatively high level. I was just wondering when you -- how do you think about this coverage ratio, what is the scope to actually run the coverage ratio down, if you chose to, i.e. given that you only expect the NPLs to peak in 2010?

Or should we -- modern Santander is essentially wanting to have coverage ratio at around the 80% mark? So those are the three questions. Thank you very much.

(Interpreted). Let me start with the first question which refers to the hedge of our deposits in the UK. I think I mentioned this when I talked about the corporate center, we had IRSs that in part hedged the low deposits. And I was referring to -- we had IRSs for EUR18 million to EUR22 million, which has matured, now it's less. And this hedge, we have deposits in the UK of more than GBP100 billion, so it was a very partial hedge, and there was no way to offset 100% of the shrinking of these spreads on the deposits.

So more than these IRSs, we have a standard variable rate, which in de facto is more than 4% and acts as a natural hedge for core deposits, without having to take up positions in the market.

With regards to capital, it is true, and we mentioned this in the presentation, when we did the capital increase a year ago, our intention back then was to increase our core capital from 6% to 7%. Now we are 8.4%.

But the CEO mentioned during his presentation that there we have two uncertainties right now. The main uncertainty is a regulatory one, because we don't know -- or we do know there's going to be a new regulation on capital, that's what the regulators say, and other types of regulations. And so it is advisable to be at levels of comfort, so as not to have to look for capital later on. So it is a good thing to have this core capital right now.

And the second point is that the macroeconomic environment is what it is, and that is a second uncertainty. The CEO made some remarks on how we see the future, but there is uncertainty regarding the economic situation, and that also advises us to have these levels of capital.

(Interpreted). Finally, your last question is about the coverage ratio or our hedging ratio that we have in the Group. I think it's 73%. I think you mentioned 80%. Well, the coverage ratio is made up by many things. When you have a coverage of mortgages, these ratios are usually low, and our mortgage book, don't forget, has a very important rate on the whole portfolio. In round figures, [EUR700 million] is our loan book. Well, half of it, I would say, or almost half of it are mortgages. So this brings down the coverage ratio.

If you look at it by business, in Latin America, where the weight of mortgages is much smaller, and the consumer business is more than 90%, so what brings down the average is the ratio in the [net] UK which is 47-some%, and in Spain where the weight of mortgages is also very relevant. So coverage ratio has to be put into context with the assets that are being hedged.

(Interpreted). Thank you very much. There are some technical answers that we still have to give, so from now on, we will start working on those answers in our department. Thank you very much.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.