Banco Santander SA (SAN) 2009 Q4 法說會逐字稿

(Interpreted). Good morning. We're going to begin the results presentation for 2009. I'll be presenting chapter one, in which I'll speak about the basic aspects of the Group's management last year. And then Jose Antonio Alvarez will give you a review of the Group's results and the business areas. And finally I'll conclude with some statements about our outlook for 2010.

First, I'd like to say that Santander has once again had a very good year. In this chart you can see a summary of the Group's trends and management over the year. I've divided it into four major sections. First the Group's continued ability to generate high results. The soundness of our business model, the management of our basic business drivers and the advantages of our diversification are reflected in our recurring profit that is without capital gains of EUR8.943 billion, a number which should put us again amongst the top banks in the world.

As well as this ordinary profit, we have obtained EUR2.58 billion in capital gains, all of which we have voluntarily assigned to reserves to strengthen our balance sheet.

The second major focus of 2009 is our balance sheet strength and the Group's solvency. We've ended the year with a loan loss provision level, including generic reserves, which is far higher than what we had at the beginning of 2009. At the same time our non performing loans have done better than expected. We've improved our core capital ratio to 8.6% and our Tier 1 capital is at over 10%. Moreover, we have a comfortable liquidity position with a very appropriate financing structure for our business model.

Thirdly, generation of shareholder value, we will allocate over EUR4.9 billion to pay out for our shareholders, which is 2% more than in 2008. Remuneration per share, EUR0.6 represents a return of current prices of 5.9%.

We have continued to increase our shares book value consistently. We compare very well in total shareholder return over various periods. And we are the most traded share on the Stoxx 50.

Fourth point in this initial summary is that not only have we improved our financial variables, but we have also and very clearly improved our competitive position in order to position ourselves more favorably for the coming years. I will discuss each of these points in more detail.

In the fourth quarter, attributable profit was EUR2.02 billion, similar number to that of the third quarter which has enabled us to continue improving our quarter-on-quarter trend.

As you can see in the chart we began 2009 with a 5% decline in the first quarter versus the fourth 2008, a 4% fall in the second, flat in the third, and in the final quarter we have increased by 13% in comparison with the same quarter 2008. So that our profit for the whole year was 1% higher at EUR8.943 billion, which is the target we had announced.

These profit levels again are all recurring and ordinary. They do not include any extraordinary income derived from any divestments. And these are profits supported by all of our business areas.

First point I should stress is the diversification of our businesses. The Santander and Banesto networks represent 26% of our profits; Brazil brings in 20% and the UK 16%. The rest Retail Europe, Global Europe and Latin America generate between 11% and 16% of our profits. Lastly, Sovereign did not bring in any profit yet in 2009 but will do so in 2010. And this diversification reinforces our cycle resilience.

In the slide you can see a snapshot of the trends over the last two years. If we focus on 2009 you can see that our retail units in Continental Europe have maintained stable earnings.

In the UK we've have seen strong 55% increase, 27% on a like-for-like basis without perimeter effect. Latin America has been affected by adverse exchange rates against the dollar. But at constant rates Brazil has grown significantly in the last few quarters with attributable profit growing by 27% in the year. And the rest of Latin America is affected by our exit from Venezuela, but on a like-for-like basis grew by 12%.

Finally I will also [announce], the good performance of Global Wholesale Banking in the year, especially in the first half with very strict risk liquidity in capital management policies.

These profits keep us amongst the top banks in the world. On a basis of reported figures or consensus estimates we will remain amongst the top three banks in the world by attributable profit to common shareholders. But even more importantly, we will be the only bank that will remain amongst the top seven during the last four years. I believe that this is the best proof of our resilience and the soundness of our business model in these extraordinary complex times.

As well as these are ordinary earnings, in 2009 we obtained extraordinary capital gains of EUR2.587 billion with the following breakdown; from the exchange of issues EUR724 million, from the Brazilian IPO EUR1.49 billion, other operations including the sale of 10% of the Attijariwafa Bank EUR364 million. The total number is somewhat higher than the one we announced in September basically due to our sale in December of out --part of our stake in Attijari. Also as we stated in the last results presentation where we provided an initial estimate of their application, all of these earnings are used to strengthen our balance sheet and therefore have no impact on profit.

The breakdown is as follows; the generic loan loss provision fund EUR1.5 billion. For the acquisition of properties EUR814 million, the coverage is now at 32%. An additional provision of EUR269 million for Metrovacesa had a very conservative valuation of EUR25 per share. EUR260 million are allocated to restructuring funds for General Electric and Sovereign. And finally, EUR463 million are allocated to other funds for, amongst other things, early retirement.

Second point to be stressed in that initial chart, is the strength of our balance sheet. As for loan loss provisions, the end of December they totaled EUR18.5 billion after increasing in the year by EUR5.6 billion. Generic provision amounted to EUR6.727 billion out of which almost EUR3 billion correspond to Spain, EUR1.4 billion to the rest of Europe and EUR2.4 billion to America.

Regarding Spain and given that in this part of the cycle there were the largest fluctuations, we have discussed the trend during 2009, which I'll summarize, we began the year with EUR3.837 billion to which were added EUR1.5 billion from capital gains, and EUR1.569 million were consumed ordinarily. On the basis we would have ended the year with EUR3.768 billion.

But to get those EUR2.907 billion there were two impacts, the release of EUR274 million arising from lower volume in lending and a better risk profile. In other words, a release which was not due to the deterioration of our credit quality, but quite the reverse; and the use of EUR587 million partly because of substandard provisions due to a specific risk classification we have to carry out in accordance with the regulator; and partly as a result of applying our own very strict internal risk criteria.

These funds provide wide coverage of NPLs which have maintained good quality levels in all our geographies. The NPL ratio for the Group is at 3.24% and by geographic area the breakdown is as follows. The NPL ratio for all businesses in Spain is at 3.41%; well below the 4.5% we envisaged at the beginning of the year and which we have been lowering in our successive results presentation. Santander UK is at 1.71%, lower because of the higher mortgage company and Latin America is at 4.25% after a fourth quarter with hardly no change.

As for coverage. the Group closes the year at 75% after improving it again in the fourth quarter. In order to explain this figure you should bear in mind that the coverage ratio, particularly the UK's but also Spain's, was affected by the weight of mortgage balances which require lower provisions as they have guarantees which are not included here, collateral which is not included here.

In this sense the residential mortgage balances in Spain and the UK have an average loan to value of 52% and 53% respectively. Or in other words, they have additional coverage by a collateral of 190%.

Santander Consumer Finance's coverage reached the level of close to 100% after beginning the year at 86%. And Latin America closed the year with an excellent 105%, it was 108% at the end of 2008; with Brazil at 99%; Mexico, Colombia, Argentina, Peru, and Uruguay, all, clearly, above 100%. As a result, we compare very favorably with our peers, both at the Group level and in the three major geographies where we operate; Spain, the UK, and Latin America.

The evolution of NPLs in the last few years, and, therefore, the notable rise in the cost of lending, has had a strong impact on the results obtained by banks. In this graph, I will explain our management of return risk and why it is so different from our peers. There are two major reasons.

First; our business model, and, once again, our diversification; it has enabled us to manage our spreads in a way that has provided a wide and stable spread against the cost of lending measured as total provisions over total loans.

Second; the establishment of generic provision in the good times provides stability to our income statement throughout the cycle since their use during the lower part of the cycle enables us to continue obtaining profits and capital.

The combination of both effects, our business model plus our large generic provisions, has meant we have been able to go through this crisis whilst maintaining a net interest income over average total assets at a level which is, clearly, better than our competitors. And this is a crucial driver in the soundness and the recurrence of our results; soundness and recurrence, which are reflected in the improvement of our solvency ratios.

We ended the year with the core capital of 8.6% and our Tier 1 capital at 10.1%, which has improved by about 1 percentage point in both cases in the year.

The improvement in our core capital is due to around 80 basis points from free capital generation; 14 basis points from our scrip dividend in November, where 80% of our shareholders opted to receive the second dividend in shares; about 60 basis points from the positive impact on equity of a Brazilian IPO; and a negative impact of the use of consolidation on our acquisitions, around 40 basis points.

We have very solid ratios, which give us a considerable cushion in the face of potential regulatory changes. And here, I can tell you that on the basis of the current draft, which is still very preliminary, we estimate that the new Basel II requirement will have no significant impact on our Group's capital ratios. I remind you, furthermore, that, in any case, this is contemplated for 2012. Closer than that, in 2010, our budgetary scenario envisages further rises in free capital.

The final aspect I'll discuss about our balance sheet is our financing structure, which more than adequately covers the needs of a retail balance sheet like ours.

Our solid structural liquidity is reflected in the stability of our core funding ratio, at around 75%. This ratio connects the Bank's most stable funding, that is deposits plus medium and long-term wholesale financing, plus capital, versus total assets in the balance sheet. So you can see, we can more than comfortably cover customer loans in our balance sheet; 62% in December. And we are amply above our peers' average and the target of 70%.

This soundness is the result of active liquidity management, which has been always present in the Group but which we have intensified due to difficult environment.

In 2009, as we announced, we focused on deposits, which have increased by 21%; twice as much as lending. With that, we've improved our loan/deposit ratio by 15 percentage points in the year and 26 percentage points since 2007.

This ratio is closely monitored by every bank in the sector, but there are significant gaps. First, because all assets must be financed and not just loans; and second, because it leaves out basic aspects, such as the deposit stability or the relation between asset and liability maturities.

In our case, we have very stable funding. Over 90% of our deposits are retail and over 50% are demand deposits, with lower remuneration and greater stability. Moreover, the average residual maturity of our issues is more than four years.

As well as this favorable structural position, we have two additional competitive advantages; our ability to issue both medium and long-term, both from the parent bank and from a large number of subsidiaries, and a very significant buffer available in central banks. In short, both the Group and its major units have a very solid and independent structural liquidity, as you can see in the appendices.

Third point in this initial presentation is shareholder value creation, and there are four major aspects. We will propose, in the coming AGM, a dividend charge to 2009 earnings, which will put our pay out at EUR0.60 per share, which is a total of EUR4.9 billion; that's 2% more than in 2008. In addition, our book value is at EUR8.04 per share after increasing further in 2009 with a 34% rise since 2006.

Total shareholder return, price plus dividend, is well above our competitors both long, medium, nd short-term. In all of them, we are in leading positions and, specifically, in 2009 we were second.

Furthermore, the Santander share was the most traded share in the Stoxx 50 during 2009 with an average of EUR860 million traded per day, with a total volume traded in the year of about EUR218 billion.

So far we have just looked at the numbers. I will be explaining briefly how one of our basic pillars, active management of our business portfolio, has enabled us to continue to improve our strategic position during the crisis in some of the major economies, and especially in those with biggest potential.

Beginning with Europe, I would like to highlight the enormous leap obtained in the UK with the incorporation of Alliance & Leicester and Bradford & Bingley to Abbey's solid organic growth. Today, with the full integration to be completed in the year, Santander UK is already the best banking brand in the country. And although there is still a lot to do, it is firmly moving towards becoming a full service commercial bank.

We have also obtained very qualitative progress in Germany. We've completed the integration of our new businesses; moved forward in capturing synergies; and are working to establish global financing agreements with leading auto manufacturers. All of that consolidates Germany as the number one Santander Consumer Finance unit. And it's the seventh country in the Group by profit, contributing for the first time to our recognition as the best bank in Germany in 2009 by The Banker.

In Latin America, the most noteworthy country is Brazil. Here, we have combined fast integration, which will conclude with the merger of our branch networks at the end of 2010, with the solid delivery of cost synergies of BRL1.1 billion; well above the BRL800 million we had initially predicted. Furthermore, we have successfully carried out the Bank's IPO, which have enabled us to realize the value of our franchise and obtain funds to accelerate its growth in the coming years.

Sovereign is another unit we have focused on in 2009, and we have obtained excellent results. We have launched a reduction plan to reduce costs and risks, with a sharp reduction in non-core assets; active volume and price management; and all of it with a very positive impact on our results. In our fourth quarter we reached breakeven and generated $4 million in profit.

We've also began to adjust the structures on the businesses in order to create a real retail bank, which will sustain business and profit growth in the coming years.

And the best proof of the excellent management of the new units in the year are the total synergies captured; about EUR750 million, 130% over our target. And with that, these units have brought in, in 2009, about EUR1.5 billion in attributable profit for the Group.

But in order to properly manage our business portfolio, it is not enough to know how to acquire or manage integrations. You must also know when and how to sell. And in this sense, in 2009 we completed the sale of our bank in Venezuela.

After this summary of the basic management drivers, Jose Antonio Alvarez will tell you in more detail about the Group's results and the results in the different business area.

(Interpreted). Good morning. As usual, I'll be discussing the Group's results and business areas first. Then, we will look at the results by business area. And finally, our CEO will explain our outlook for 2010.

Our income statement is only for ordinary profit. It does not include the extraordinary results that our CEO has just reported. Additionally, and as in previous quarters, we have two columns; one showing the accounting results and the other which does not include the impacts of exchange rates or perimeter effects.

I think the income demonstrates our management priorities, which we defined last year for 2009. Our income has been growing very successfully due to the active spread management. There's been no significant volume effect, except in deposits, as we will see later.

Second priority in our strategy this year was strong cost management. Our costs have basically remained flat at the Group level. And the combination of cost and income management has improved our net operating income, which has grown by about 20% without taking into account exchange rates and incorporations.

And third, active management of risk and recoveries is the third management priority in 2009. Provisions are still growing, although the increase is less strong than it was in 2008.

Net operating income after provisions, up 13%, which, as we will see, compares very well with previous quarters and is the best example of the strength of our underlying businesses.

And if we compare these changes with those we reported in previous quarters, you can, basically, see that revenues has remained solid, growing at around 10% consistently; costs have remained mainly flat, also very consistent; and there is a deceleration in provision growth, although they're still growing significantly, as we will see later.

With these three factors, our net operating income after provisions has grown very strongly from a 2% decline in the first quarter to a 13% increase in the year.

If we look at each of these lines in the income statement, starting with income -- well, commercial revenues, net interest income plus fees, you can see a very solid performance. Fees have been harder hit in the year, as we've said at other presentations, due to the environment and our operations with securities and mutual fund. But the trend is to see if these grow in the coming year, and therefore -- and net interest income, on the other hand, to slow down its growth.

If we look at it by areas, the UK and Latin America show very solid trends, whilst Europe is showing stability in a very difficult environment.

The second driver is the cost control, which deducting the perimeter and exchange rate effects are flat; plus 0.4%, as compared to last year. In all areas we see the effect of synergies, like Brazil minus 3.7% in costs. Also Santander Consumer Finance, with a change in the perimeter. Nevertheless, the costs are under control, or in the UK where costs remain practically flat. In this favorable -- this is thanks to the effect of synergies and also business as usual.

The third point that I'd like to refer to is credit quality, and I will divide this into three aspects. First of all, provisions, then refinancing and number three, the performance of loans to developers in Spain, as a very specific element, which is generating a great deal of interest in the market.

In this first quarter, we made a greater effort in provisions. We have specific provisions worth EUR11.8 billion. This increase is generalized although it has a greater impact in Spain. The Santander network and Banesto network have EUR900 million more in provisions. Consumer Finance, the UK and Sovereign have had a change in the perimeter, which is reflected in the provisions as well.

Regarding generic provisions, we have realized provisions, net provisions basically, in Spain. And, therefore, in the P&L, we have a provision which remains stable EUR2.3 billion or EUR2.4 billion per quarter. Although provisions -- specific provisions increased, [interbank] provisions are released following the rules established in the countries where we have generic provisions.

I was talking about the credit quality and a second aspect of this, which has given rise to a great deal of interest, is refinancing. The level of refinancing in the Group was very low, 0.30% of the loans of the Group; EUR2.5 billion for the year. Refinancing loans positions with delinquency where we reach an agreement with the customer. And we have established the rules by which we will do this. The client must pay the ordinary interest and must add additional collateral, and they have three to 12 months to reclassify it as ordinary.

0.58% have been refinanced; 0.2% (sic - see press release) in the UK; and in Latin America about 0.6%. It is important to point out that out of the total refinancing carried out in 2008 and 2009, only 6.5% of this went into arrears during this period.

Finally, the third point with regards to credit quality is the performance of loans to developers in Spain. But before I go into the figures of the Group, I do think it is important to understand what we are talking about.

First of all, the market figure of total developer loans is EUR324 billion for the industry as a whole. But this does not include the developer risk only. This figure is based on the aggregate of the [T-13] account, which each bank sends every quarter to the Bank of Spain disclosing loans to resident companies in accordance with the code of activity or CNAE.

And Santander's share of this figure is EUR31.6 billion, including a series of loans of financing and activities, which are not developer activities, properly speaking. For example, non-developer activities, we have the tourism sector, the hotel business and lease-back operations, real estate operations of insurance companies that's included in that figure. And loans to developers for new construction; the exposure is EUR14.6 billion.

What characteristics of this portfolio have Santander? Well, it's very granular; more than 20,000 customers. So we have a very low average exposure. We have low concentration. The 10 largest risks account for only 7% of the total portfolio; the biggest for less than 2%. In pure loans to developers that has fallen by 13% in the last two years.

And with regards to the NPL rate, the EUR31.6 billion has an NPL rate of 5.7% with a coverage of 77%. In the slide you will see the NPL rate for the industry -- as an average for the industry, which is 8.7%. If we look on the asset portfolio developer loans, the NPL ratio is 8%.

I'd like to remind you that in loans to developers, the loss given default, the expected loss is 30% to 35%, which compares with our current coverage of 61%.

Now let me elaborate on the main trends of the Group's balance sheet, once having gone over the income statement. And I would say that the trends reflect our point in the cycle just as the NPL rate, as [couldn't be] otherwise.

Our lending activity is not growing. It remains basically flat. The volume of growth of EUR56 billion is from the perimeter and the exchange rate, not because the business is growing. But, nevertheless, we see a growth in deposits because of the higher savings rates in the countries were we are operating. The combination of no growth in lending and an increase in deposits, the risk-weighted assets remain practically flat.

And with regards to the balance sheet, which is grouped there under different items, and it reflects what we are. We are a retail bank. Two-thirds of our balance sheet are loans financed, basically, with customer deposits, long and medium-term issues, and liability and equity.

The rest of the balance sheet reflects the activities of [our OpCo], and also the fact that we are managing the subsidiaries, and these are independent in terms of funding. And thus, we have an accumulation of cash in the consolidated balance sheet.

If we now take a look at the different business areas. Let me start with Continental Europe, where our income -- our attributable profit has grown by 7% in a difficult environment. Gross income has grown 5%. We are controlling our costs; they have gone up by only 1%. And our net operating income has grown by 6%.

If we look at the different units in Continental Europe, we have the three large retail units, the Santander Banesto Network, Portugal and the Santander Consumer Finance business. The three retail networks -- well, Banesto as well as Portugal are complete -- [directly under] Santander network with [the] activity of our Retail network. So the Retail network has no OpCo and doesn't have any wholesale activity, so the trends are very similar.

In the bottom line, what we have is flat profit. Of course here we made use of general provisions, as I mentioned earlier, and this gives us flat results. In Santander Consumer Finance there we have seen an improvement quarter-after-quarter, a gradual improvement. And we have the perimeter effect, of course, on the top part of the account not at the bottom. But at the end the results fell 9.2% but taking into account the nature of the business, we feel quite satisfied by this result.

Outside of the Retail unit, although I talk about Wholesale Banking later on, which has had EUR1 billion in net profit, 33% more than in 2008, although in the fourth quarter there its results have been weaker, but I'll talk about the reasons for this later on.

With regards to the Santander Network, low growth of volumes with the exception of time deposits, because we were very active in raising these deposits. With [accounting] we want to be your Bank, lending falls by 5% in the year and managing the spreads has been the key here.

And other income, on the contrary, has [a fall in] fees; they go down by 25% affected by the performance of mutual funds and also insurance. Less insurance products have been sold and part of those resources have been transferred to other products such as time deposits. Costs remained flat through 2008.

Provisions, because of the release of generic provisions remained flat and risk management, if we see net entries that have grown in the last quarter. We see they've gone from [134, to 244]. And this is because of one single transaction, a real estate transaction. Without that, entries would be [111], therefore they would follow the trend that we have seen so far. I could say more or less the same with regards to recoveries where recoveries they fell 16% but they would go up to 77% if we did include that single transaction. So this is distorted by one single transaction during this quarter.

In the case of Banesto, I'm not going to say much because they already presented their earnings. The trends are more or less the same, 2.94% NPL rate, good coverage for that. And the net operating income increases by 3%. This coincides with Banesto's data and that's the bottom line because these write-downs are done at the Group level when we present consolidated figures.

The Santander Consumer Finance business, as you can the credit spread going up consistently quarter-after-quarter in the past three years and this is the main driver of the performance of this account. The costs remain almost flat at a constant perimeter, which is another driver in the P&L. We improved our coverage for NPLs. Last year we said that we would close the year with a NPL rate of 5.5% to 6% and it's 5.39%. Less than we expected, and also the coverage is 97%.

The volume of entries is falling significantly and this means that the provisions over net operating income are also beginning to fall. So we're very optimistic with regards to next year.

In Portugal we see a low growth, although in SMEs it has grown 8%. Costs are under control and provisions have grown but they're also under control. And the net operating income after provisions has also grown.

If we take a look at the United Kingdom now, Santander UK closes an excellent year. The figures with and without perimeter are very good; increase of the bottom line of 35%, with perimeter 25% higher -- or 55% on a like-for-like basis. Very good cost control and high credit quality, which is consistent in our business in the UK; the reasons for this, the performance of the spreads growing, a good control of costs.

Our cost to income is 48%, which gives us a very good management of the JAWS. And then we have a credit quality, which is much better than that of the market because of the scarce presence that we have in the segment of higher risk.

The balance sheet, well, [the] stock, we have 19% in mortgages in the UK. The deposit stock has grown GBP15 billion in the year, so 12%. The volume of loans to companies grew 3% and this has two components. The core segments which are growing at 12% and the reduction in the portfolio that we said we were going to do when we acquired A&L, which means that the risk is falling.

In UPLs, unsecured personal loans, where traditionally they've had problems, this number continues to fall so we're not interested in it. And the A&L portfolio, we said we were going to reduce it, because this is not part of the core of our activities.

In Latin America attributable profit was $5.3 billion, plus 11%. Net operating income is growing without the exchange rate at 25%. This allows us to absorb the high growth of provisions. And the net operating income after provisions grew 19%. The trend is very good. In the quarter we see an increase in profits and it is the best quarter in the last two years.

And if we look at the different units, the Retail units, I should mention Brazil, where the trend improved significantly -- well, it's improving everywhere. I remind you that Brazil at the end of the first quarter is growing at 13%, the attributable profit and that's grown at 27%. In Mexico we have seen falls of more than 25% and we entered the year with falls of only 5%. In Chile we also had falls in the last quarter, since there was no negative inflation that has improved the result significantly which had been affected by this [cost] in previous quarters.

In Brazil revenues grew more than 20%. Costs, because of the synergies, is falling at 4%. There's been a significant increase in provisions but net operating income after provisions still grows at 23%.

In the quarter there are minority interests. We have obtained EUR738 million (sic - see presentations) in profit and the unit had EUR132 million in minority interest, which turns the fourth quarter into the best quarter of the year.

How have these results been obtained? First of all selective growth. There has been no growth in lending in the year, although it started to grow at the end of the year. Nevertheless, we grew 11% in individuals and 14% on time deposits, two of the more profitable segments, which have allowed us to increase our spreads.

And a strong cost reduction that requires no further comment. The number [three] provisions are under control. They represent 45%, 47%, 48% of the net operating income. And in 2010 we are already witnessing growth in Brazil and we think that growth is going to be much greater as the country grows.

In the case of Mexico, it was a very difficult year. We have obtained -- with a 7% decrease in GDP. Mexico, the income has been affected by the credit card business, and fees and spreads. Time deposits grow at 13%; also, mutual funds grow. We have a policy focused on increasing spreads.

Generation of income has made us very aggressive in costs. The costs fell by 3% for the whole year. And in risks the measures that we took for credit cards in the second and third quarters of last year, well, we made strong provisions for credit cards. The net entries are going down and provisions are also decreasing and this is the trend that we hope will continue in 2010.

In Chile, I mentioned this before, attributable profit EUR783 million, 6% more than 2008. [UEF] inflation had a negative impact, minus 8%, which is offset only in part by trading gains. The costs remained flat when in 2008 they were growing at rates of 8%. Provisions net entries are going down and provisions over net operating income is improving quarter-after-quarter. In 2010 we also see a good performance in our activities.

Argentina, good performance; in Venezuela we only have the first quarter there because in the second quarter we sold the Bank.

Sovereign, shows a consistency; a decrease in costs, increase in revenue. Provisions remain basically stable, [$200 million to $100 million] per quarter. And provisions, the fund for loan losses, is 6% (sic - see presentation). We are thinking still that we're going to obtain profits of $700 million in 2008, which will allow us to get a return on investment of 17%.

In Sovereign loans are [struggling]. We said that there were certain activities there that we would not continue with, basically some types of loans. So the loan portfolio [has fallen] by 11%.

In the slide you will see divided in different sectors. The most sensitive one, that's real estate, has a high NPL rate, although we have high coverage for that. As a whole the NPL rate following the Group's criteria is 5.35% with a coverage of 62%. And we have collaterals for 74% of the portfolio, so we feel very comfortable with that.

For 2010 we still expect provisions of about $200 million per quarter, basically in line or slightly less than in 2009. And here we don't expect significant decreases until 2011.

With regards to deposits, good news here. First of all, time deposits are growing very well. And term deposits, well, there we have a very selective policy. On the right-hand side you will find the explanation. The costs of deposits have fallen from 1.7% in the last quarter and this is because of better management and improvement in the income of the Bank.

Finally in Corporate Activities, let me refer to variations of our last year with the sale of Sepsa, the charge for Metrovacesa, which are, against ordinary profit, EUR195 million. The cost of higher rental costs is because of a leaseback here in Spain, and there are some fiscal contingencies from the acquisition of property.

I'm not going to talk about secondary segments. I'm only going to talk about Wholesale Banking where we have a fourth quarter which is weaker than the others in the year. For a reason, this is a customer business, a part of the business that in the last quarter was weaker is the part that we call interest rate and exchange rate coverage. It grows 14% in the year and the first half of the year it was growing at 64%.

Corporate Banking continue to have a good performance. Investment Banking, there were very few deals there and Investment Banking is picking, although it's still growing very slowly. The main difference is the income for exchange rate and interest rate hedging. The business continues to be focused on Spain, Brazil and the UK in our traditional Retail Banking activities for large corporations.

Asset Management and Insurance, 9% of the Group's income, attributable profit at EUR400 million. Bad performance in mutual funds, because of the fall of the volumes, although they're starting to grow again; and in Insurance the contribution is basically stable. Of course, it depends on the resources policy between term deposits and insurance, which places the results either in commissions or net interest income.

And after this overview of the different business areas let me give the floor back to the CEO so that he can talk about our ideas for 2010.

(Interpreted). Before I finish the presentation, I wanted to give you our vision of 2010, our outlook for this year and review our management drivers.

If we look at the year from a macroeconomic standpoint, we see another demanding year for managing banks. We expect an economic recovery practically in all the locations where we operate, although with different intensity depending on the region; the growth forecast for Latin America, and particularly Brazil, at the head of the recovery, followed by the United States.

On the other hand, the banking business could be limited by the situation and by the imbalances in some economies; more in mature markets, which will continue to face large de-leveraging, a high unemployment rates and the withdrawal of the stimulus packages of governments and Central Bank.

But nevertheless, we have a better starting point for emerging markets, which do not need to deleverage and these will be the first markets where we will see a normalization, where the pickup in volumes, lower cost of credit and upwards interest rates as economies recover.

In this context, Santander has a solid position that we have shown throughout our presentation and I don't want to say much about this. I would just like to underline that we will maintain our business model intact with a quality balance sheet, well provisioned and without capital or liquidity restriction in order to be able to keep on growing and generate value.

We will achieve these three basic management drivers, which are, revenues, costs and risks. In revenues we'll adapt our management to the conditions of each market. The drivers here are volumes, spreads and fees.

As regards volumes, we will see a different growth rate by countries. In Spain limited growth in loans and higher growth in deposits. In the UK a good trend, taking advantage of our competitors at this moment. And also with the support or the strength of the Santander brand the Latin America growth will be higher, more so in Brazil with two digit figures. In Mexico and Chile we will be recovering the previous [paces].

At Sovereign on the other hand, we see selective growth, both in loans where quality will be the priority, as well as in deposits where we will continue to focus on defending our costs.

In spreads we will concentrate on defending spreads in those countries where we are feeling the greatest pressure, such as the case of mortgages in Spain. Nevertheless, in other markets we expect better prospects, as in the UK from our position in the market, we expect stable spreads and business growth or in Latin America where we envisage some stability and levels of high spread.

Lastly, we expect a recovery in fees, which will play a greater role in revenue growth. This recovery will occur we believe in all areas, from mutual funds, insurance and also from more activity.

In costs we are going to maintain our track record of continuous improvement in efficiency thanks to two drivers. On the one hand the flexibility and adaptability of our cost to the environment and to the evolution of revenues, and on the other hand from the synergies we will continue to obtain in 2010 from integrations that are under way.

In both cases the global technology and operations model of Santander will be decisive and this will enable us in 2010 to increase our investment in new projects that will contribute additional revenues and profits in the future, and continue nevertheless to improve our cost to income ratio to around 40%. In other words, almost 30 percentage points less than in 2008.

The third driver will be very active risk management. I want to stress the Group's good risk management and the success of the measures taken in 2009, which have enabled us to end the year with NPL levels lower than those announced at the start of the year in the countries and businesses which are most sensitive to the current circumstances, such Spain, the UK, Santander Consumer Finance and Mexico.

In 2010 we will go further at a global level extending the recovery model used in Spain to other markets, initially the three large Latin American countries. I remind you that the model sees recovery as a business, which requires a management share between risks and the commercial network with substantial changes in organization, incentives, mindset, etc.

And in the case of Spain, we will continue to reduce the purchased properties. The launch of Altamira in Santander Network and Athena in Banesto for managing and selling these assets, together with the provisions made enabled us after the peak reached in the middle of 2009 where we surpassed EUR4 billion, to end the year with a net volume of EUR2.9 billion and therefore a coverage of 32%.

These measures and others in the Group's various units, coupled with high specific and generic provisions, will be decisive in limiting the impact of the cycle on the income statement this year in an environment. In which we see greater stability of our NPL ratios, with some markets already stabilized or starting to decline and others still slightly higher as in the case of consumer finance, but that is because of the greater weight of Drive, although less so than those suffered in 2008.

And to conclude, as we have seen throughout the presentation, Santander faces 2010 from a situation difficult for our peers to replicate. We ended 2009 fulfilling or improving our goals and results, balance sheet strength and generation of shareholders' value and we enhanced our competitive position in our core markets. And we began 2010 with six growth drivers that will help us to meet our objectives.

First of all, excellent commercial positioning giving us the capacity to gain market share and defend or even improve our spreads.

Number two, a healthy balance sheet, a fit balance sheet, and very much related to our customer business.

Number three, strong presence in emerging markets with more solid macroeconomic data and a greater capacity to grow in the short-term.

Number four, contribution from our new units in Brazil, the UK, Germany, Sovereign which, as envisaged, will help to bring the incremental profit of the new units in 2011 by more than EUR2 billion.

Number five, strong generation of net operating income which absorbs the provisioning needs in each phase of the cycle and maintain the capacity to generate profits and capital.

Number six, high generic provisions and a low risk profile as a protective shield in such a difficult environment as today's.

I do not exaggerate when I say that no bank in the world has all these ingredients at the same time. All of them will make Santander a bank with a winning model and with a solid base of recurring profits.

Thank you very much.

(Interpreted). Good morning. We're going to begin as usual with all the questions that have come in over the Internet and we will be classifying the questions -- well, taking the questions in turn by subjects, beginning with strategy. We'll include strategy and regulation together since there are various questions about the regulatory framework. So we'll start with general questions for our CEO and then some more.

(Operator Instructions).

(Interpreted). What opportunities do we see in the restructuring to come of the Savings Bank, especially in lending growth, spreads and whether we see any pressures on customer fund spreads within that growth potential?

(Interpreted). Well, as for the Savings Banks, everybody knows that there is a restructuring of that sector underway and all we have to say about that is that we would like it to happen quickly, especially for the benefit of the stability of the market.

We are seeing pressure on spreads, on customer fund spreads. But, of course, those are offset by a competitive advantage which we have, [so] Santander and similar banks, because we're seen as being especially solvent and solid, and that offsets the greater pressure that we see.

However, as we've discussed, although very briefly, our view is from our Bank, from Santander, to continue to grow our deposits. And so that's going to be an area where we hope to continue growing and gaining market share in 2010.

(Interpreted). Right, and as for dividend and -- policy, our payout policy there are several questions. Daragh Quinn from Nomura saying since we expect our core capital to grow by 40 to 60 basis points that would bring us up to 9% in 2010. And given the limited impact of Basel II regulations, what capital levels do we think are best? And this is connected with the dividend policy, whether we are going to retain a scrip dividend in shares and what is our general payout policy, capital and dividends?

(Interpreted). Right, well we are clearly one or not the bank which pays out more dividends in the international banking sector. We have given you the numbers in the presentation. We paid out about EUR4.9 billion in dividends to our shareholders in the year.

And the Bank has always -- and I want to underscore that, for the Bank and its policies it's essential to maintain that policy, that payout, that dividend. So we will continue to pay cash dividends and we will maintain it at about 50% of the profit. That's the dividend or the payout policy which, of course, will be defined every quarter because that's the Board's decision. But the general policy is that one and that's not going to change.

As for capital, that was the other question, whether we expect to be at 9% tier capital in 2010 and do we think that's the right level for Basel III? It's really hard to predict what the best capital level is. We feel that now the capital level we have, 8.5%/8.6% or between 8.5% and 9%, is really very comfortable. But, of course, we're all, the whole sector, waiting to see what the regulatory framework will be.

We don't think that that's actually going to affect our capital ratios very significantly. We have a capital ratio now which is, as I've said, very comfortable and we think that it's very appropriate for our business model. But again, we're waiting to hear.

Right now the industry seems to feel that between 8.5% and 9% would be the right level and our business model is a business model where our capital structure does not need to be as strong as in other businesses which are higher risk. Our risk profile is medium low and so we feel that our capital structure is sensibly better than it was before these two years of recession.

So really we're very comfortable. We think it's the right level and it demonstrates our solvency and our strength, and we always hope to be comfortable in this way.

(Interpreted). Staying with capital, there's a couple of questions from Ignacio Ulargui from Espirito Santo and [Mateo Santos] from (inaudible) about the jump in our core capital in the last quarter.

(Interpreted). I'd just like to remind you that the Brazilian IPO and the scrip dividend both have been accounted in this quarter and that's why there's been that increase in our tier capital, although we announced the Brazilian IPO in the results of the third quarter.

(Interpreted). As for more specific questions about regulations, there's several questions by Britta Schmidt from Autonomous, Antonio Ramirez from Keefe about [DTA] fiscal assets. Why have they grown so much between June to July but especially in the last semester? Can we provide a breakdown by items? What do we expect to be the impact of Basel III? I think that question's probably for Pepe [DeHan]

(Interpreted). Okay. For DTA in the last 18 months they have risen for several reasons. One is the perimeter effect. In this period we have incorporated Alliance & Leicester, Bradford & Bingley and all of the General Electric Consumer Finance business, plus Real, plus Sovereign and they all had some DTAs in their balance sheets.

Plus, in the last part of the year there has been an appreciation of the pound sterling and the real, so the value in euro of those assets has also grown, for that reason.

And finally, and that's another characteristic of Spanish banks, since there have been significant early retirement programs and generic provisions, these are not deductible until they are used up through specific provisions. You endow them and that generates a tax credit for 30% of that amount. Since we have done these write-downs at the end I forget; it's about EUR2-and some billion for early retirement and so on. They've also grown for that reason.

As a result, Spanish banks in general have quite a lot of assets in comparison with other banks because of our accounting standards in this country. As for generic provisions which are very unique to Spain and, as I said earlier, they are not turned into -- or cannot be deducted until they are used up as specific provisions. So as you endow and grow in the balance sheet, you increase this asset class.

The other source of these assets are early retirement. In Spain, in order to downsize, you need to go through the early retirement route and these are not deductible until you actually pay out the wages.

So basically DTAs, at least at Santander, are mostly from maturity differences. They're not losses deferred like other banks in the world. That's the major difference. And they are used up in a short period of time, in fact in a maximum of four to five years.

Right, the other question or the other thing I wanted to say is that the volume we have, I don't know whether you can see it in the accounts, but definitely in the Annual Report we have about EUR20 billion in our balance sheet right now, of which current assets, those that are going to be used in 2010 by presenting the appropriate tax declarations are EUR5 billion. So another EUR15 billion will remain.

Of those EUR15 billion those that are not connected or which do not depend on future profit to be materialized, that's the other condition it seems that will be included in the Basel III draft, are approximately EUR11 billion. And so that leaves EUR4 billion which will be deductible from capital if the current draft for Basel III is approved, but it doesn't seem that's going to be the case.

Of those EUR4 billion you also have to subtract the liability we have for those concepts. It's not just tax assets, but also liabilities. So the net we would subtract if the current Basel III draft is approved would be just over EUR500 million at most. So that's why we said the impact on our capital will be negligible.

I might have gone on for too long. I hope it's clear.

(Interpreted). Now because really all three questions had to do with your field. There was a question about the final amount you would subtract from your core capital. And that's EUR500 million.

There's three questions from Ramirez and Daragh Quinn about the same subject. What do we think is going to happen with NPLs in Spain? When will it touch bottom, both general and lending and also developer loans? And what do we expect from our NPL ratios?

(Interpreted). I think that's already been answered to some extent in the presentation, but I will give the floor to Jose Antonio Alvarez so he can give you more details in a minute.

We've been saying, and we haven't changed that view, that NPLs will continue to rise in 2010 and will reach a peak probably in the middle of the year, approximately. It's really hard to predict, but around then, we think. In the middle of this year, 2010, NPLs will reach their peak. And thereafter probably they will stabilize and probably will begin to go down slightly.

Equally provisions, where there's always a mismatch, there's a six, eight, 12 month delay traditionally, will reach their peak at the end of 2010 and perhaps in 2011. At least in the second half of the year we will begin to see a drop.

As for forecast, I think we gave some guidance in the presentation, looking for it, of NPL in -- next year. Yes, where it says risk management which I discussed at the end.

We began the year saying that we expected NPLs in Spain to be at 4.5%, but in the various quarters we have revised that prediction downwards and in September when we presented the results we said that we expect it to be below 3.5%. Initially the prediction was 4.5%. And, in fact, we've come in at 3.4% at the end of the year. So we are slightly below 3.5%.

And our forecast for 2010 is to remain just slightly below 4%. But, of course, we will revise that every quarter as we've done traditionally. But right now, and there is a lot of uncertainty, because it's not hard to predict -- it's not easy to predict NPLs a full year in advance, especially right now, but we do think in Spain we'll be below 4%.

In the UK we'll remain probably at around 2% as we close 2009. We were at 1.7% at the end of the year, maybe because of that business mix. We are increasingly bringing in businesses, SMEs, to our mix and that will probably increase. Since the mix will contain fewer mortgages and more commercial loans, we expect NPLs to rise to maybe 2% or just under 2% at the end of 2010.

Santander Consumer Finance, very influenced by Drive's contributions. If we subtract the Drives we don't expect NPL to rise overall in 2010. But, of course, Drive's contribution is growing because the business is growing. And so the NPL level in a business, which has a high NPL model, is going to be at 6%/6.5%; so stability in anything that's not Drive and maybe the total rising slightly because of Drive.

And in Brazil, another important unit, we expect NPLs to be stable at around 5%. We finished the year at 5.3%. The business in 2010 will grow strongly, as we've said. And as Jose Antonio has explained when he spoke about the units, we'll be growing strongly plus our business mix in Brazil has a lot of individual customer loan components and consumer finance component. And so we might be at around that level, but it won't really change very much with respect to the numbers of 2009.

(Interpreted). Right there's a question -- a final question on strategy and regulation from Britta Schmidt from Autonomous and she says can we discuss our potential expansion via new acquisitions in the UK?

(Interpreted). Well, there's nothing specific. But obviously in the UK we do intend to continue to grow organically in principal, the standard way, and we're doing so.

The Alliance & Leicester and Bradford & Bingley integrations, especially Alliance & Leicester, have given us a chance to start growing significantly in the SME market and we will continue along those lines.

But, of course, we will keep an eye out, as we should, for opportunities that might arise in that market, in that field. We want to turn Abbey increasingly into a full-service commercial bank, with our business model, which is well known, to apply that in the UK. And so we will grow basically also in Corporate and SME Banking, which is where we're weaker. Organic growth, basically, but we will be open to any opportunities that might develop.

(Interpreted). Right, moving on to risks, there's several questions about the real estate sector and the first very specific from Davide Vaamonde is how many properties do we have allocated? And what is the coverage or the provision level for those properties?

(Interpreted). Right the volume is at around EUR2 billion and coverage is around 26%. For Spain coverage is pretty similar and it's about 60% -- 60%/65% of the total number.

(Interpreted). And developer loans, there are several questions from Davide Vaamonde again, Miguel Angel Alcala from BBVA, Ignacio Cerezo from JP and Francisco Riquel about breakdowns in developer loans. Well, some questions have already been answered such as exposure and NPL rates and coverage evolution.

What percentage is land? Do we want to give a bit more detail, Jose Antonio?

(Interpreted). Well, I think I gave quite a lot of detail in the presentation about this. The internal makeup of the developer portfolio has not changed significantly. As time goes by, there's a lot less building going on so the percentage of finished project versus those under construction is rising or over under construction is rising.

But really the trend is for the portfolio to shrink over time. I think in the presentation we showed that there's been a 13% reduction; projects under construction dropping, projects finished rising and the land percentage dropping too in our developer portfolio.

Land percentage is rising a little however in the acquired properties since we are selling units. We're selling finished units, of course, and it's harder to sell land. And so the relative percentage of land there is rising. It was 33%/35% and now it's just over 40% -- 40%/45%.

(Interpreted). There are two more questions from Santiago Lopez about expected losses in the developer portfolio. You said that it would be at around 30%/35%. And Miguel Angel Alcala from BBVA was asking about exposure in shopping centers also in that portfolio. It's very small right?

(Interpreted). Yes, I'll have the number to hand but reviewing all of our portfolio. We have 23,000 customers highly diverse in the developer portfolio and there are a few of those projects which are shopping centers. There is a big -- it's there a big exposure to shopping centers? No. There is a small exposure to shopping centers in [F&I]; same thing with resorts and also City Council developments. Those are amongst the numerous operations we have in the developing portfolio, but there is no real concentration of shopping centers.

(Interpreted). There's two questions which I think have already been answered from Matteo Ramenghi from UBS; breakdown of the growth in specific and generic provisions by areas in Spain. There was a slide about that. There's another about Sovereign from Miguel Angel Alcala, exposure to commercial real estate in Sovereign, that's already been answered too in one of the slides.

And there's a question, Britta Schmidt from Autonomous and Francisco Riquel from Cheuvreux, and Ignacio Cerezo from JP are asking again about any substandard provisions and coverage levels for those. I don't know whether Pepe or whoever wants to answer, and give those figures.

(Interpreted). I seem to recall that the sub standard figures are around EUR2 billion/EUR2.5 billion. I don't remember exactly. But provisions are now over 20%/22% on average.

(Interpreted). Javier Bernat is asking this final question on risks. About coverage in the UK, whether it's not too low and what do we expect to see in risk weighted assets in the country. Are the volumes going to grow and the risk -- risk coverage basically?

(Interpreted). Right, in the UK coverage in comparison with Latin America where we had the highest and Spain is the lowest, because of the mix; it's basically a mortgage portfolio. And so expected losses are very low. In fact, what is happening, the loss from housing units sold are dropping in the last months or quarter. I seem to recall that the coverage is at 21%/22% and with not mortgages it's at 21%/22%. And so, its appropriate and we're well covered; and so you get that number of 47%.

And risk weighted assets, here there are two factors; growth we expect to continue to grow at the current rate more in that mix, but we are reducing our securities and corporates portfolios, which are not part of our core business. So we have two businesses which are going to shrink these two. Our securities portfolio has dropped by EUR5 billion and our corporate by EUR1 billion or EUR2 billion, which will offset the growth we will experience in mortgages and other business. So if risk weighted assets grow, it will be only very slightly.

(Interpreted). Okay, moving on to -- one more about risks, no I think everything's been answered about risk. Rohith Chandra from Barclays is asking about growth of NPLs in Spain; we've answered that.

Developer loans, there's a couple of questions from Patrick Lee from Societe Generale, asking for very specific numbers on the evolution of generic and specific provisions which we will answer you from Investor Relations when we finish and give you the exact figures if you don't mind, Patrick.

As for financial investment there are a couple of questions about funding. The first specific question about the need in wholesale funding in pounds and 2010 and '11, are we planning any issues? Will refunding become more expensive? This is from Antonio Ramirez.

And in connection with this, a comment from Britta Schmidt from Autonomous about macroeconomic developments, about saving ratios in Spain and whether that is going to affect our cost of funding.

(Interpreted). Starting with the final question, what we are seeing and we showed in the presentation is that the current point in the cycle -- in mature markets, of course, because wholesale funding is from mature markets in our case for our Continental Europe business and the UK business, and to a lesser extent or almost hardly at all Sovereign.

In these markets what we're seeing is a clear process of deleveraging shown by that ratio loans to deposits. We had EUR32 billion growth in deposits and EUR8 billion reduction in loans. So that's the point in the cycle in which find ourselves where deposits are growing faster than loans.

The Group has wholesale issues with annual maturities basically on average, I think [the fee] I mentioned it in the presentation of 4.5 years about EUR25 billion approximately are mature each year and, therefore, our needs for also funding following the same trends.

These maturities are basically between 50% and 60% is parent, 20% as Abbey. You know that we manage the liquidity and capital independently in each unit, except in Consumer Finance, as we've been discussing. Maturity 50%/60% is the parent, 20% Abbey and the other 10% Portugal and a few maturities, basically small, in Chile or Brazil.

As for whether funding is going to get more expensive, we're in a very volatile market. If we compare it with a just a month ago in January we issued in the Group I think it was EUR7 billion in issues. Right now it is more expensive than a month ago, but if we compare it with a year ago it's a lot cheaper than a year ago, when you will remember it was really difficult to place any 3years/5 years issues below 30 basis points to 50 basis points. Now it's lower, but is more expensive than a month ago.

So we are in a comfortable funding position. Cost is high in comparison with the situation before the crises. But basically half what it was a year ago.

So far we've been managing this successfully with our asset spread management. In almost all geographies we've seen -- we've been able to offset the cost of funding and, as you've seen in the accounts, with the growth in our interest income.

(Interpreted). And as for funding again, there's a question from [Geoff Davis] about deposits and expected growth. And I think our CEO has answered already deposit growth and what are our policies?

And a question, also Geoff Davis is asking about the EUR100 billion buffer we have in the central banks. He says the ECB, but what is the makeup? Do we have RBS's? And same thing about the size of our ALCO portfolio.

(Interpreted). It's not the European Central Bank, it's central banks that includes the European Central Bank, the Bank of England, and the Fed in the US for Sovereign.

It is true that in most cases 70% or 80% it will be the European Central Bank. Look, the makeup or composition, well, there's public debt at the front countries of the euro zone, more concentrated in Spain; some mortgage securitizations, not too many; quite a lot of ABSs and also public debt and trading. That's basically it. And I think it's a normal composition with a significant weight of ABSs and MBSs, but more on the side of the Bank of England; more so than in the ECB.

And the second was about the ALCO?

(Interpreted). Yes, there's a question regarding the size, but Ignacio Cerezo will also like to ask about the contribution of the ALCO and capital gains or capital losses associated to the UK subordinate loss -- debt. ALCO [is aside], the contribution to the net interest income.

(Interpreted). Well when I showed you the balance sheet of the Group, I showed assets at value for sale of the ALCOs of EUR79 billion if I remember correctly for the Group as a whole; EUR79 billion.

Of course, not everything is ALCO and I would say 80% or 70% is ALCO for interest rate risk. There's a part included there to comply with the ratios in Brazil. But without that -- without taking them into account we have about EUR30 billion in the balance sheet of Latin America, basically Brazil, Mexico and a little bit in Chile and Puerto Rico. And EUR40 billion excluding the EUR10 billion that I mentioned in Brazil in the European balance sheet; out of which for interest rate risk we have the EUR20 billion that I mentioned. That has not changed since the previous presentation.

And in the balance sheets in European -- Continental Europe, in Banesto Portugal and the contributions, this portfolio has a carry -- it's a three year portfolio; hasn't changed very much. And it has a contribution of EUR250 million to EUR300 million. I'm referring to the parent company EUR250 million to EUR300 million in carry a year.

In the other countries it varies. In Mexico it's EUR7 billion or EUR6 billion with a carry of EUR6 billion or EUR7 billion. These are the main ones. In Brazil it doesn't have a carry. It's an investment of the surpluses of liquidity of the bank. The [information] is not to manage interest risk. And in Chile there is a portfolio EUR3 billion who's basic mission is to try to hedge the effect of the low inflation rate or negative inflation rate. Those are the ALCO positions that you will find in the balance sheet, in the part available for sale.

And we don't have held to maturity in the balance sheet, we have nothing of that at the Group level.

(Interpreted). Funding, two more questions about funding. Carlos Berastain and Carlo Digrandi, Carlos Berastain from Deutsche Bank and Carlos Digrandi from BSCH; the maturity schedule, we already mentioned that, but he also asks about needs for refinancing. How much of that has been done? And, both of them ask about the -- what we expect to happen with the net interest income. Perhaps you'd like to answer by geographical location?

(Interpreted). In the presentation, following the trend, because we are a very retail bank, so the important things are the trends in the balance sheet. And, we have trends of lower growth of the net interest income.

I mentioned this in my presentation in Spain, where we think that the net interest income is going to become weaker. Fees will, in part, offset that. We have a situation of net interest income, which is, basically, stable in Portugal. Very good performance in the UK, which showed high expansion of asset spread. So, we do expect the net interest income to do well in the UK.

In Brazil, not because of spread reasons, but because of the growth in volume, a good performance there as well; in Mexico, in a situation where the loss of net interest income with credit cards has been quite significant, we expect a growth of net interest income, but not too much. And in Chile, the problem of inflation is the key, with not negative inflations rates as we have seen throughout 2009 we should see an expansion of the net interest income. But inflation, as we see, did have an impact in minus 8% in the net interest income in 2008.

Finally, Santander Consumer Finance. There, there has been a permanent expansion from the spreads, similar to the case in the UK.

(Interpreted). Javier Bernat has two questions. Caja Madrid also has a question, and then we will finish with the financial area with these two questions.

One of them is the cost of the lease-back of the offices in 2009. Is that in the corporate center in cost? And, that's about EUR80 million, but there has been a slight change, because of that concept.

And, there's another question related to what you were talking about, the net interest income. It's a question about spreads. What do you think is going to happen about spreads?

And, there's a question about Latin America, Brazil particularly. What's going to happen with those spreads there?

(Interpreted). Well, I think this was mentioned already, when we talked about the trends, in different -- with regards to business areas there are very few questions.

(Interpreted). In Spain, Matteo Ramenghi from UBS would like to ask about the fall in insurance in Spain.

(Interpreted). We mentioned that in 2008 we sold lots of assurance, so this year, compared to (inaudible) we're selling less.

(Interpreted). And [John Davies] would like to ask, in the UK, about the growth stabilization or fall of the income before -- profits before taxes in the UK. What are the reasons for this, and what is the outlook for profits before taxes in the UK in 2010?

(Interpreted). Well, I guess he's referring to the fourth quarter. Well, perhaps, I didn't make myself clear in the presentation.

In the UK -- let me put it this way, we have two businesses, the Retail Bank, and then the Global Banking and Markets in the UK. The fall in the last quarter also -- I also mentioned in the presentation that the fall in the last quarter in Wholesale Banking was weaker, because of interest rate and exchange rates. And part of that is in the UK.

And so in the UK the quarter seems weaker, in terms of revenue or the increase of revenue is smaller. And, we're very optimistic about the UK. We expect to grow there. We already have five years in a row of two-digit growth and we hope that -- and we think that this is going to continue in the future.

(Interpreted). Well, very well; that's the end of the questions that we got over the web. Have you -- we have a few more questions. If you have any more questions later on, we will answer from the Investor Relations department, but I do think we have one or two telephone questions that come through the telephone.

(Spoken in Spanish).

(Interpreted). Yes, we have a question. We have a question from Arturo de Frias from Evolution.

Arturo, please we're doing very badly for time, so please be very specific in your question, because we have to finish up here in two or three minutes.

(Interpreted). Very well then, I have two questions. I'm going to try to ask these questions very fast. So first one is, why do you feel so comfortable with the risk that you have in developers? Why do you think that the -- it's going to be 30%/35% the loss? I thought it was going to be much more, why do you feel so comfortable about that?

And number two, if minority interests are subtracted from the capital, according to Basel, the IPO in Brazil turned out to be very expensive, because you lose 15% of the profit, and you haven't improved your capital position?

And my third question, but I'm sure it's going to be very difficult for you to answer, but if there is a downgrading of the Spanish Sovereign rate, how is that going to affect your business if the rating is downgraded for Spain?

(Interpreted). Yes, your first question 30% to 35% of loss given default on developers, well, that's our experience. We already have a certain experience selling property through Altamira, and the loss is, right now, less than 30%. I think it's 21% to 22%. This is why we say that that is the loss we expect.

And with regards to minority interest and the IPO, from what we know of Basel 3 what is reasonable is for a minority interest to be discounted if they're discounted from the capital base, not from Q1, they will be included there. And if they're discounted, it would be reasonable to discount the risk rate assets associated to those minority interests. And therefore, we think this is going to be the end of the story but, of course, we need to have the final regulations to see what the effect is going to be.

So, first of all they are included in Tier 1, and we think the associated risk rate assets are going to be discounted. And, actually, we're working with the theory that in terms of capital business going through a process about 40 basis points, more or less, these minority holdings. And then the [downgrading] of the Sovereign rating for Spain would affect this, because 27% of our profits are in Spain and it would affect us in public debt.

Well, it does affect you, because you might lose part of the capital gains. But that won't be too much, unless we're talking about default, but we are thinking about a downgrade from, well just a notch down, so it might have an impact on the market-to-market, because we deduct that from the capital.

So, the greatest impact that would come from the business dynamics, because the downgrade of the Sovereign ratings are developed to macro economic developments in the country. 27% of our business is in Spain. We are in an economic downturn, and the Bank, or businesses, in Spain are in these circumstances, I think, giving very good results, given the circumstances.

(Interpreted). We have a last question over the phone. I'm told that we have received more questions, but we will get in touch with you after the webcast to answer your questions. But the question we got over the phone, please could you -- could we hear the question please, now?

We have a question from Fiona Simpson from Morgan Stanley. Please go ahead.

Good morning, Fiona Simpson from Fixed Income Research at Morgan Stanley.

As an issue in the debt capital markets, you've been ahead of the curve, in terms of tendering and exchanging for subordinated issues locking in profits on those. With the changes in hybrid Tier 1 instruments under Basel III, can you comment if there's any regulatory pressure to get rid of those first call date, or to tender for them?

And given that these instruments have proved pretty useless in a crisis, we're wondering if the regulator is keen to see strong banks, like Santander, get rid of them and ultimately replace them with new loss absorbing hybrids; just your thoughts on that.

(Interpreted). Well, the regulator, when we decided to do a tender for these instruments -- of course, we asked the regulator for permission to do that because, according to Spanish regulations, when an issue -- if you want to amortize it you must get authorization from the regulator.

So we asked permission, but in no case did the regulator told us -- tell us -- he didn't tell us that we needed to do this. This was a decision we made, because, thinking about the current circumstances, where capital hybrids have lost part of their perceived value, given the market situation, and the fact that their capacity to absorb losses in the crisis was very low, we decided to do these tender operations and -- of Tier 2 in August, and now we did it for the subordinates.

As the CEO said, we're very well capitalized with core capital. We have a Tier 1 of more than 10%, and I think the total capital ratio is 14%. Therefore, it was a decision -- internal decision that we made to improve, even more, the quality of our capital structure by doing these exchanges, and this repurchase of shares and repurchase of subordinate debt.

Well thank you very much.

I have a comment to make. The 40 basis points of impact on minority interest is for the whole Group, it's not related to the Brazil operation; it's for the whole Group.

(Interpreted). And, so, thank you very much. That's the end of the webcast, and any further questions, please send them to our department, and we will answer them. Thank you.

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.