Banco Santander SA (SAN) 2010 Q4 法說會逐字稿

Good morning. To begin the presentation of results for 2010, I'll review the main highlights of our management in the year, and then Jose Antonio Alvarez will review the Group's results, and will go into the different business areas in further detail. Finally, we will conclude with our perspective of the coming quarters.

I will start by reviewing the six main highlights of the year, which I will discuss in a moment, and which I will cover in more detail in the next slides. First, the Santander Group's ability to generate high recurring results in a difficult market environment, our diversification and management strategies adapted to each market, have enabled us to maintain profit of EUR8.18 billion.

Secondly, non-performing loans have improved their trends, and such significant units as Santander Consumer Finance, Brazil, or Sovereign, have significantly improved their NPL ratios in the year.

Third, we have markedly improved our structural liquidity position after attracting, this year, a combination of deposits, and medium and long-term issues, for a total of EUR147 billion, which is double what is needed for the business and for maturities in the year.

Fourth, we have ended 2010 with very solid capital ratios. Our core capital has increased to 8.8% after increasing 33 basis points in the last quarter.

Fifth, we continue to offer high shareholder return, and are planning a total payout for the year of EUR0.60 per share.

Sixth, today, we have a more diversified portfolio than a year ago, and we have increased our presence in the countries that have a greater growth potential.

Let's now look at each of these highlights in more detail; profit -- starting with profit. In the fourth quarter we have continued to grow our profit with a total in the quarter of EUR2.1 billion, and for the year EUR8.18 billion, with earnings per share of almost EUR1.0. I'd like to remind you that both the profit for the year, and the earnings per share, are impacted by the one-off provision we made in the third quarter, as a result of applying the Bank of Spain's new Circular on provisions, which meant subtracting from our profit EUR472 million.

The business model, our strategic positioning and diversification are the key drivers that are enabling us to go through this crisis, while maintaining high recurring profits. Best example of positioning and diversification you can see on this screen.

Starting on the right-hand side, you can see that emerging markets have significantly increased profit generation. Brazil is up 24% versus 2009 in local currency, and before minority interests. Also, the other Latin American countries are growing very significantly, double-digit growth in profit, and all the countries have increased their profit in comparison with 2009.

The UK and the US are growing at 37%. The UK's growth has been double-digit in pound sterling, and Sovereign moved from losses in 2009 to EUR561 million in profit in 2010.

So, three of our four major business areas are significantly growing their profit. It's only Continental Europe where there has been a drop and this mostly in Spain and Portugal, due to a very difficult macro economic environment, and to the one-off impact in the third quarter of the Bank of Spain's Circular, I've mentioned.

On the other hand, Santander Consumer Finance has had an excellent this year, and this will continue in 2011, since, because of the characteristics of its business, it's further ahead in the economic cycle.

Jose Antonio Alvarez will discuss, in more detail, the results of the different business units.

The second point in these highlights was risk quality, and our active management is reflected in the good evolution of net entries into NPLs, and in our risk premium for the whole Group, and also for the major business units, as you can see, in the bottom of this slide.

And this trend can be seen in a significantly slower rise in the Group's NPL ratio, which was 3.55 at the end of 2010 and, as you can see in the upper left-hand corner of the side, went from increasing by more than 1 percentage point in 2008 and 2009, to rising only 0.3 points in 2010. This favorable trend is due to the fact that, in 2010, all our large units have either improved their NPL ratios, like Santander Consumer Finance, Brazil, or Sovereign; or have stabilized, like the UK and Latin America, except for Brazil.

As a result, we've been able to offset the increase, which is still taking place in Spain and Portugal, and which, as we mentioned in previous results presentations, we expect to continue for a few more quarters.

Finally, and to conclude this review of our credit quality, our coverage ratio has remained practically stable in the year, at around 75% for the Group overall.

By business areas, we can draw similar conclusion to those we drew for NPL ratios. We have significant improvement in Santander Consumer Finance and Sovereign. In Santander Consumer Finance the coverage is already at 128%; that's 31 percentage points higher than at the beginning of the year. We also have very high coverage in Brazil, and the rest of Latin America, at around 100% or more. So, in short, we have NPLs in all areas that are relatively low, well provisioned, and we do not envisage any significant worsening.

Moving on to the third highlight in my presentation, liquidity; let me begin with the conclusion. In 2010, we have significantly improved the Group's funding structure on our liquidity ratios, and, as a result, we face 2011 from a very comfortable liquidity position. There are three main drivers for this.

First in 2010, we have pursued a very conservative retail and wholesale financing policy. Our strategy to capture retail deposits has been different in the different markets; in mature markets, deleveraging. In other words, we have grown deposits much more than lending, and, therefore, have improved our lending to deposit ratio, and, thus, have reduced our need for wholesale funding.

In emerging markets, like Latin America, self-financing; that is the greater growth in lending was funded by a similar rise in deposits, and we've maintained our lending to deposit ratio below 100%.

As for wholesale funding, the Group has been very active, taking advantage of its ability to go to the markets. We have captured EUR38 billion in medium and long-term issues, higher than the volume of maturities in the year. And this two-pronged strategy has brought in EUR147 billion, while our needs are only for EUR72 billion.

Second point, big improvement in the Group's funding structure and liquidity ratios; the way in which we have captured funds, and applied them in 2010, has enabled us to increase by EUR54 billion our Group's surplus structural liquidity, in comparison with the previous year, up to EUR127 billion.

This was due, as you can see in the Group's liquidity balance sheet, to permanent funds being used to finance all lending, and fixed assets, in a significant part of all financial assets. Or, in other words, the Group has assets that can be realized short-term -- that represent 17% of its total balance sheet, while short-term funds required only represent 4%.

We've also significantly narrowed our loan to deposits gap. The ratio is at 150% -- it's at 117% versus 150% in 2008. And, finally, I remind you that we still have discounting capacity with central banks of some EUR100 billion.

Third point, we started 2011 in an excellent situation, and with fewer issuance needs. We don't have maturities concentrated in the coming years. Annual maturities are lower than the issues made in 2010. Moreover, we do not need to cover all of them. And in the current deleveraging environment in Spain and Portugal, the business requirements are leading us to reduce our commercial gap by some EUR10 billion a year. That is an amount equivalent to half the maturities.

If we extrapolate this process to the whole banking sector in Spain, we will see that the sector's issuance needs in 2011 will be much lower than envisaged, EUR90 billion, and it's a very common mistake to associate the maturities in a year with the financing needs.

Additionally, Santander has strategies under way to optimize our use of liquidity. Specifically, we have sharply reduced the recourse of Santander Consumer Finance to the parent Bank, as part of a strategy that will conclude, with its complete self-financing, in 2012.

As for the remaining markets, we have active policies in place, or issues in the UK, to cover the maturities of the special liquidity scheme, and in Latin America, more connected to the growth in lending.

The fourth, and last, idea; while the current environment persists, and as in 2010, we will continue to pursue a conservative issuance strategy. In January, for instance, we've issued over EUR4.5 billion, with an average maturity of 5 years, at an average cost of 165 basis points over the reference or benchmark grade.

Going back to the highlights of the year, the fourth was solvency. We closed 2010 with our core capital ratio at 8.8%, that's 33 basis points higher than in September; 20 of these basis points from organic capital generation, and 13 from the scrip dividend.

As a result, we have increased, for the third year running, our core capital. We have a very solid ratio, as befits our business model and our risk profile, and we have a very comfortable starting point to meet regulatory requirements.

Fifth point, shareholder return; here there are three points I should like to underscore. With the 2010 dividend payout proposal, which will be submitted to the coming AGM, the total remuneration per share for the year, including scrip dividends, will be at EUR0.60, the same as in 2009. This number is consistent with a further rise in the book value per share to EUR8.58, after increasing for the fifth straight year, and being up 60% since 2005.

As for total shareholder return, or TSR, we have significantly out-performed our benchmark index, both medium and long-term. Specifically, in the last 15 years, we have out-performed that index by 5 percentage points each year.

Lastly, I'd like to review the sixth highlight of the year, which is the improvement in our business portfolio. Organic growth initiatives in key countries, and active portfolio management, with acquisitions and divestments that have increased, as opportunities arose during the crisis, have enabled Santander to close 2010 with a more diversified business portfolio, and with more growth potential than three years ago.

The snapshot on this slide tries to represent this by coloring the countries that generate profit for the Group, on the basis of growth forecasts of their economies over the next three years.

We have a first set of countries with -- led by Brazil, where we expect average real GDP growth of over 4% until 2013. Plus, of course, there will be monetary and banking penetration growth, which will drive the growth of the banking business to high double-digit rates. And this set of emerging countries, which currently bring in 43% of the Group's profits, that's 11 percentage points more than three years ago, we can add Poland, a stable market, with big growth potential, which will mean emerging countries will bring in about 46% to 48% of our profit.

There's a second set of countries, which are currently bringing in 38% of the Group's profit. These include the developed countries in a more sustained phase of recovery, led by the US and Germany, and for them the GDP growth forecasts are at about 2% to 3% until 2013. And here Santander also has significant additional growth opportunities, as a result of our ability to derive synergies from restructuring processes in the UK, Germany and the US. In these three major markets, Santander has many areas from which to extract value over the next three years.

And finally, in the third set of countries we have those that still need more time to conclude the restructuring of their economies, countries such Spain and Portugal, which therefore will temporarily will have lower GDP growth and business growth. So as a result, the combination of these three sets of markets is a solid and stable base for creating value for the Group in the coming years.

Now Jose Antonio Alvarez, our CFO, will review the Group's results and business areas.

Good morning, continuing with the CEO's presentation, I am going to review the Group's results and then the business areas.

I'd like to remind you that on the website, you will find presentations with more detail on the main units and Spain. On this slide you can see our income statement the way we usually present it. The first column of changes is based on our accounts. And the other reflects the exchange and perimeter effect.

General conclusion about the statement is that the underlying trend is still bringing in consistent solid basic revenues in an environment where there's been a low growth in lending, negative in some mature markets; and with interest rates at record lows which are, of course, affecting the profitability of the lending business, but at the same time there has been an increase in wholesale financing costs.

I'd say that there's been overall very good cost management in the Group. Costs have grown 2% overall. I'll talk in a little more detail by areas about this later. And recurring provisions have dropped by 8.5%, because a good part of our businesses have already turned the corner in the trend of rising NPLs.

Net of these three items has produced the 3% increase in net operating income, which is not reflected in the bottom line because of that one-off our CEO mentioned, for applying the Bank of Spain's new Circular in Q3, a greater tax burden due to diverse tax pressures in the markets where profit's been generated. We're generating more profit in countries where there's a greater tax burden, and because of higher minority interests because of the increases, especially in Brazil.

If we look at the different details in the statement you can see that the more commercial revenue that is net interest income, and net fee income, and revenues from insurance have shown very consistent and positive growth, given the current phase of the economic cycle.

By geographies we see that both the mature markets, the UK and Sovereign have grown 10%; Brazil's growing 6%; North America 4%. Brazil and Latin America are accelerating, although it's true that we have been growing our lending portfolios double digit rates in these markets. But the average is similar to that of revenues.

And finally, in Continental Europe again great pressure on our margins, low business volumes and the impact on one hand of deposits, in some cases Spain and Portugal, because we've been very aggressive in attracting new customer funds and there's been no growth in lending.

As for costs by areas, similar trends but, of course, in the opposite direction; in all commercial units in Europe in the UK, costs have gone down. Sovereign's have also gone down it since they're -- and they're going in the restructuring and integration process. And in the emerging markets costs have increased below inflation rate with the exception of Chile, where we've had various circumstances; opening of new branches, the impact of the earthquake, and the signing of the collective agreement, where costs have grown slightly above inflation but much less than the industries, so a very good result in terms of costs overall.

If we look at the third point, provisions, I'd say that basically what we see here is a very similar level to last year's excluding the impact of that Bank of Spain Circular. We've used that generic provisions in an amount similar to last year about EUR2 billion. And at the Group level and looking at the different units there's been a sharp reduction in provisioning in all the units except Continental Europe where -- actually except Spain and Portugal, where there has been an increase of 35%. And of course, this due to the underlying NPL trends that the CEO explained before.

If we look at our overall provisions, we're at EUR21 billion, which is approximately 3% of our total lending of which EUR5.8 billion are generic provisions for NPLs. The generic fund for Spain after using [up] the total for the year is at EUR768 million. We've provisioned slightly more in Q4. And with the use that we expect we estimate the fund will last for the next two quarters for 2011.

Going down to the different business areas, then we speak first, as we usually do, about Continental Europe. So summary for the year, I think our income statement shows the difficult environment for our business, especially in the second half of the year; gross income down 2% in a year of low growth in lending, in some cases negative. Interest rates at historical lows, or record lows, which -- plus mortgage repricing and strong competition to attract customer funds and deposits. Although there has been an improvement in lending spreads, and as a result we will see improvements in the next quarters.

The costs of our new retail networks have dropped a little as we saw earlier. Provisions have increased, because of the efforts made in write downs, largely the impact of the new Bank of Spain Circular. Without that impact the drop would be a 13% of our profit instead of 22.8%, or 23%, as you see in the slide.

And finally the exception, the exception in this market in these weak business trends and pressure on our margins was Santander Consumer Finance where, as we will see, profits rose by 29%. And as we will see later, our performance was really excellent and the prospect for 2011 also very good.

Going now to look at the underlying components in Europe, we have a very similar scenario in Spain and in Portugal, where lending's not growing; is, in fact, shrinking slightly. Good growth in deposits 18% in the network in Spain and 40-some-% in Portugal. This growth in deposits, both for time and term deposits, and as a result we've been able to improve our market share by 160 basis points.

As for the return on average total assets, as I mentioned earlier there are several negative impacts there; the breakdowns on mortgages which reached their lowest level in September last year; higher cost of deposit as I mentioned earlier. On a positive side, improving spreads on lending and potentially rising interest rates, which would improve our net interest income in the future.

As for Consumer Finance, the drivers are different. Here there's been very good growth in lending, double-digit. Deposits also growing at double-digit rate and spreads are rising. Very low interest rates are very favorable for this business. They have enabled us to increase our spreads and obtain very good profit.

Let me now go into a bit more detail on our lending portfolio in Spain and Portugal, given that this might be of interest to you. Let's look at the trends and the forecast for our lending portfolio in both countries.

Starting first with lending in Spain, our portfolio is EUR236 billion; that's the total portfolio. You can see the breakdown in the slide, 5% public sector; EUR91 billion is individual loans, of which 61 are mortgages for purchase of homes; EUR95 billion, companies that have no connection with construction or real estate. And finally, you also have the loans given to construction and real estate market. There are loans for different purposes not for real estate itself. And finally, those that are directly connected with real estate, EUR27 billion, being of which developer loans are EUR11 billion -- or EUR12 billion.

We present this in this way following the new criteria that the Bank of Spain has recommended for the reporting by all the banks, in order to clearly identify the risk that is really connected to the real estate business in Spain.

Before assessing in more detail the numbers for Santander, I'd like to view the new information required by the Bank of Spain in comparison with the information reported by the sector in previous quarters, which corresponded to loans classified as construction and real estate according to the CNAE code, which is the national classification for economic activity.

That is that notorious figure of EUR440 billion for the sector which, as we have mentioned in the previous quarter, includes intra Group balances, financing to banks and savings banks, real estate agencies, which manage foreclose properties, and loans for purposes other than real estate but granted to real estate companies, such as the financing of public works infrastructures, highways, leasebacks, project finance, etc., which also fall under the same code.

Therefore, the real estate risk now with this new breakdown is a much smaller figure. And with our EUR27 billion we have a market share of that of less than 10%. In any case, these figures represent less than 4% of the Group's total loans and 12% of our loan portfolio in Spain.

If we look at the evolution, looking at our portfolio at the end of 2010 we can see that total lending portfolio in Spain has shrunk slightly by 3.5% in 2008 versus 2009; 3.6% 2009/2010. Fall in lending mostly in the real estate construction sector for real estate purposes, which has dropped 27% in the year when the average drop of the portfolio was 7%.

The fall in the risk is where real [house] lending decline by EUR10 billion and foreclosures on the increase by EUR900 million.

Looking at this portfolio, if we analyze the quality of lending in Spain overall, we can see that the total NPL ratio, as I mentioned and as we've heard from the CEO, it's 4.24%. And the growth has slowed down a great deal in the last year, as you've seen, after a strong increase in 2008, an increase of 140 basis points in 2009. This year it's only risen 80 basis points.

The portfolio has NPL ratios that are highly diverse, because for residential mortgages the NPL ratio is 2.2%, and that has actually improved in the year from 2.5% to 2.2%. And the rest of the portfolio saw SMEs and corporate, the ratio is 3%. And the construction and real estate development sector overall is at 13.3%, of which the non real estate is 4% in line with the rest of our portfolio. I mentioned that this is not for real estate development and those that are for real estate developments have an NPL ratio of 17%.

If we focus now on the portfolio for real estate purposes of EUR27.3 billion, I mentioned earlier that in this we include loans to developers, but also hotels, shopping malls and other activities that have to do with the real estate.

On screen you will find the structure defending on the collateral. 47% is for finished buildings, which compares very well to the rest of the industry. Land represents 21% of the collateral, and to finance their working capital we have 22%. Out of this, doubtful loans, which you can also find on the screen, are for EUR4.9 billion (sic - see slide 28) and substandard EUR4.3 billion (sic - see slide 28), with a total of EUR9,568 billion classified as doubtful or not performing. But even though they are classified as doubtful the substandard are paying well. The coverage for these assets is 28%.

If we now look at the other portfolio that has to do with the real estate industry in Spain, in other words mortgages for homes, the EUR61 billion, that I mentioned earlier, I already said that the NPL read was 2.2% and its falling. And I would say that this is the healthiest part of all our loans in Spain and for several reasons, not always well understood by the market.

Mortgage loans in Spain, all of them pay principal from day one. It's not that we have no interest, only when you begin the year with 100 mortgages, if there is no new production you end the year with 86 or 88, so there is a very significant prepayment or early payment component. Most of them are to finance first home. There is no buy to let. And the different characteristic that we have in Spain, which is that 99% are at a variable interest rate; the expected loss is of 0.23%. Therefore, it's a high quality portfolio. It's a portfolio with very good collateral and it is not a portfolio that is a reason for concern in terms of risk quality.

And to finish with the real estate part, we have foreclosed buildings. We see that there is a significant slowdown in the increase of stocks. New inflows have fallen 20%; exits have increased by 30%, or outflows have increased by 30%.

The sales in the year EUR1.1 billion, so loss has been about 25% compared to a coverage of 31%. If we look at the coverage percentages they go from 25% in finished buildings to 40% in land, which is what includes the impairment of the reasonable or the fair value of these assets.

The charts as required by the Bank of Spain of these three parts that I just mentioned can be found in the annex of this presentation, with the format required by the Bank of Spain.

If we look at the lending portfolio in Portugal, the lending portfolio fell last year 8%. This year it's stagnated. It's very similar in size to the Spanish one; only 3% of the portfolio if for construction and real estate. The NPL rate is 2.9%. It's fairly contained. The construction and real estate NPL ratio is of 18.4%, but it's -- since it's so small the NPL rate only represents EUR250 million. So we have a portfolio with a very good quality, a very low NPL rate 2.9%, and the exposure to construction in our real estate is very small.

With regard to Sovereign risk, Santander [Totta] has EUR2.4 billion of Portuguese debt. And with regards to liquidity shows in 2011 it has maturities of EUR1.5 billion. The commercial gap is more than EUR1.5 billion a year, taking into account the dynamics of lending and deposits.

And Santander Consumer Finance, four ideas regarding that very good performance; strong growth and production in some cases as in the [US service platform], but that is because of the acquisition of portfolios in the Nordic countries as well as the UK and Spain. We ended the year with positive growth.

Although the stock is falling, production is increasing. Weaker in Germany though, due to the sharp drop in new car sales, a drop of 23%, although better in used cars. Improvement in spreads taking advantage of the low interest rate environment; flat cost if we exclude the perimeter backed in the US.

Lastly reduced demand for loan loss provisions in line with the drop in risk premium and the improvement in credit quality with a coverage of 128%. The evolution of the business is very good, and we're very optimistic for 2011, given what we see so far.

The UK, the second relevant geographical area, we ended the year with a profit of EUR1.7 billion, about EUR2 billion, an increase of 10.7% over 2009. This is the sixth years that we have a double-digit growth in profits in the UK. The economic environment or regulatory environment are not very favorable. But even so, gross income rose 4%, affected by lower gains on financial transactions and higher funding costs.

The net interest income rose 8.5%, and absorbed in the last quarters the higher cost resulting from the FSA's new liquidity requirements. Costs remain flat. Provisions were 17% lower, because of the good evolution of arrears related to mortgages and UPLs. Net operating income after provisions increased 15%. Lastly, the fall in fourth quarter profits was due to the establishment of a GBP74 million provision fund for possible commercial risk contingencies and lower gains on financial transactions because of portfolio valuations.

If we look at the activities, growth in mortgages, the stock of mortgages rose 3%. Market share is 14%. We've gained 40 basis points in market share in the year. Our share of gross mortgages is 18%. Loans to companies grows 13%, and the part that we have identified in core in SMEs we're growing more, at rates of more than 20%, with an increase in market share going from 2.9% to 3.6%. Deposits, they grow 7% year-on-year.

The market is still very competitive. It is a market where the spreads haven't changed in the last four quarters, but it's still very competitive. The combined effect of revenues/cost of credit was very positive, and given the fact that we have less provision requirements, we have very good results. So we think that these trends are relatively stable for 2011, in terms of margins and volume.

Brazil; in general terms, Brazil maintained a good general trend in the fourth quarter in profits, business growth and credit quality. Profits before minority interest were 24% higher and 10.4% net of them. Growth came from net interest income plus net fee income, which increase 6% in 2010. This is the average growth of the portfolio. It started at minus 5% compared 2008 to 2009, and now it ended in more than 10%. So that gives us an average of this digit.

Controlled costs grow below inflation, 3.7% versus 5.9%, and provisions that registered a double-digit reduction in 2010, due to the improved risk premium and NPL ratio. Net operating income after provisions increased 17%, and profit before minority interest was 24% higher.

Earnings were very consistent. We went from levels of $800 million in net profit to $1 billion in the first two quarters of this year, to levels of $1.2 billion in the last two quarters of 2010.

If we look at the activities in Brazil, it's very dynamic. Lending decreased at the beginning of the year by 5%, and it ended up growing by 18% (sic - see slide 38) at the beginning of the year, particularly in business and loans to individuals not -- didn't grow that much in large corporations because of the disintermediation process. We participated there intensely, but that doesn't appear in the stocks, placing bonds from large Brazilian corporations in financial markets -- international markets.

Investment funds are growing 12%. Term in Brazil plays a very important component -- is an important component. It's more liquidity management, and the liquidity position of the Bank is very good.

In terms of results, the quarterly trend shows a sustained rise in revenues to larger volumes, good management of cost, lower cost of credit, and provisions much lower than in 2009. Net operating income after provisions increased 24% over the fourth quarter of 2009, and profits that point, to maintaining the good growth outlook for 2011.

If we look at the rest of Latin America, without Brazil, I would say that it follows the same trends as in Brazil. Throughout the year, there was a clear pickup in lending; growth was negative at the end of 2009, and 14% a year later. There was growth in all segments except for cards in Mexico, within our strategy in reducing risk. Savings also registered double-digit growth, plus 11%.

In results, higher business volumes in the defense of spreads in an environment of lower interest rates than in 2009, and a change of mixed or lower risk products, and a lower cost of credit, is reflected in sustained growth in basic revenues and in net operating income after provisions.

The region's attributable profit would increase to $2.604 billion, reflecting the positive trends in all countries. Mexico is up 23%. Chile registered the same trends, but lower impact, lower costs. Argentina rose 31%, reflecting the strength of the franchise. Uruguay profits were 10% higher. The level of coverage was higher. Puerto Rico increases profit by 8%. Basic revenues grew 4%, and costs were flat. And there is a very good control of risk. And this is why we're very optimistic with regard to lower needs for provisions in 2011.

If we look at activities in Mexico and Chile, we see that the trends are very similar to what we saw in Brazil. We come from negative lending rates to end at around 15% positive in Chile and 14% in Mexico. A growth in all areas, with the exception of credit cards in Mexico. Savings grew at double-digit in Mexico in time as well as in demand deposits. In Chile, demand deposits grew strongly, in line with an environment of interest rate rises.

The savings, as I said, performed very well in Mexico. There is a certain pressure on the spreads. The spreads are stable. Part of it is because of the change in mix in Mexico, and an increase in interest rates in Chile, where lending, most of it is at a fixed interest rate; but in general terms, very good dynamics in terms of volumes. The spreads remain at the same level, and less provisions.

Sovereign; let me remind you that we had announced in our Sovereign plan, we wanted to obtain profit this year of $250 million. We've obtained $561 million. The activity is improving, although lending is still falling. I remind you that we put 20% of the portfolio, we decided not to continue with, and that portfolio is falling at 32%. So excluding that, we have a very good momentum in developing our activity.

Deposits, core deposits grow 3%; the other deposits, the price policy particularly, in the market, meant that these have gone down. The costs fell by 8%, because of the synergies.

As of March of last year, I think we mentioned this in previous quarters, the NPL rate has been falling significantly. We have improved -- the NPL rate went down, and we improved coverage. So this is why we have reached $561 million in profit that I mentioned earlier. We're also very optimistic with regard to our -- reaching our targets in 2011.

With regard to corporate activities, let me refer first of all to the year as a whole, to the year 2010 and compare it to 2009, and then I will compare the fourth quarter to the third quarter of last year. As compared to 2009, we have less trading gains in the corporate center, from a profit of EUR631 million in 2009 to a loss of EUR142 million in 2010; in other words, minus EUR773 million.

Basically, because of the negative impact of currency hedging, the counterparty was more than EUR500 million, from which the business areas benefited, and also the higher results in 2009 because of hedging of interest rates and financing of structural nature.

The second -- so we have these two elements. And then the second is the higher cost of issues reflected in the fall in net interest income. That's for the whole of the year.

Without taking into account the trading gains and net interest income, the other items in the account don't change much.

If we compare the fourth quarter with the third quarter, there are some elements that we should mention. Net interest income improved in the quarter, because of the lower financing cost of currency hedging and the lower financing volume to retail businesses from corporate activities due to the strong rise in deposits.

Positive financial transactions in the quarter, because of positive exchange rate differences from dividends, when you declare a dividend, from the moment in which you declare it until you pay the difference in the exchange rate has been positive. And the other results were basically zero in the quarter, as different write-offs were done during the year, which resulted in unnecessary additional provisions.

So now, let me hand over to our CEO to look at the forecast for the coming quarters and the different businesses.

Right. We've already reviewed the Group's strategy and its evolution. And my summary is, 2010 was another good year for Santander. The Bank met the challenges of a very complex environment and obtained good grades in key aspects; generating high profits and keeping NPLs under control, strengthening liquidity and capital, giving shareholders a high return, and improving the Group's strategic potential. This gives us a solid starting point for 2011, a year when management will again be tested.

We have three focuses for 2011. The first of these is to generate value in three very different business environments. More demanding markets for business, such as Spain and Portugal; other developed economies where we expect to have positive news as a result of the recovery, such as the US, Germany and the UK; and the emerging economies with no barriers to grow, which will continue to drive business.

The second focus is to integrate, during 2011 and 2012, the latest acquisitions. This is going to take place not only in 2011, but also in 2012; and thirdly, to maintain the strong liquidity and capital as critical variables for management. And now, I will look at each one in more detail.

The first idea is that Santander will develop a clearly differentiated management of its business drivers on the basis of the macroeconomic and financial environment of each market. In Spain and Portugal, we expect a slight fall in loans, while deposits will pick up, which will make us put the maximum emphasis on spreads, costs and in recoveries. Meanwhile, we will be very demanding in provisions, although we see a reduction in specific ones.

In Consumer, the UK and the US, we see a moderate recovery in volumes, as these economies get back on their feet. Here, we will actively manage spreads to reflect the higher cost of liquidity and capital, and strictly control costs so that we can generate savings in ordinary activity. At Sovereign, we will make investments in Parthenon.

And lastly, we expect strong growth in lending, aiming to gain market share at our units in Latin America. Spreads will be adjusted to each country's interest rate expectations, while costs will reflect investments to increase distribution capacity in key countries; more provisions from lending growth, but with better risk quality and risk premium.

The second point is integration of the acquisitions. On the left side of the slide, I remind you of the three main units that concentrate our efforts. We have just closed the SEB transaction, and are about to start customer migration, which will be finished by 2012.

The integration of the Royal Bank of Scotland branches will be done by a carve-out process. And given the complexity of this process, we expect some delays. And the operation will be completed by the first quarter of 2012.

As regards Poland, we are awaiting authorization from the Polish regulator.

The contributions to profits from these integrations will not be immediate. It will be progressive, and start in the second half of the year, as they are incorporated into the Group.

The third point is that in 2011 we will again put an emphasis on liquidity and capital strength, something that today I feel very comfortable about. We will continue to work to maintain this position. Santander has resources and capacity to generate liquidity and capital, as well as plans to optimize its yields in the various units. All of this will enable business to keep on growing without restrictions, and comfortably meet regulatory requirements.

In conclusion, and with a still demanding year ahead of us, Santander has the strengths and management capacity to keep on performing well.

Before we end, let me just remind you that on September 29 and 30, we will be holding an investor's day, where we will review the strategy and the Group's forecasts, and that of their main units, for the next years.

Good morning. As usual, we will continue to review the questions that come in over the webcast, and then we will look at the questions we have received over the phone; although, actually, we have many coming in over the Internet. I'll start with subjects, starting with strategy and regulation. There are several questions.

From Britta Schmidt at Autonomous; Carlos Peixoto, BPI; and Antonio Ramirez, about our plans for an IPO in the UK, if we're going ahead with those plans, if we still think it's possible to do it in the second semester of 2011, and what kind of valuation are we thinking we can obtain?

I'll confirm our intention to carry out the IPO in the second semester, we can confirm that. We had already announced that; that was the plan and we will meet that target, second semester. That was the first half of your question.

And the second, valuation, and I think now is the time to talk about that. We're not giving any kind of guidance. This is something that we'll talk about when the time comes. When we're in the final stages of the IPO.

There is a set of questions about Poland, the Poland project. Britta Schmidt, Carlos Peixoto, when do we expect to close that or finalize that? Will we be taking it over?

Well, you know that we're awaiting the approval of the local regulator and when that happens we will let the market know. We can't really say anything more than we have said with regards to our expectations on that.

A lot of questions about Spain too and the restructuring of this industry in Spain; Britta Schmidt, David Vaamonde from Fidentiis, Sergio Gamez from Merrill Lynch, Andrea Filtri from Mediobanca and Benjie Creelan from Macquarie.

And basically I am going to try and summarize and the question is are we interested in any savings banks in terms of inorganic growth or acquisitions? Do we think it's fair to apply different capital requirements to different banks whether listed or not?

And what organic growth do we expect for the next three years, or do we expect to also grow inorganically through acquisitions? And organic growth for the sector in Spain in general, in terms of volumes, I suppose they mean. So, forecasts and prospects for the Spanish banking sector.

Right, as for the Group's position with regards to the restructuring of the savings banks, I think its early days yet since the process has only just started and we still need to learn in more detail about how this process is going to evolve.

So I'll just say for now that we think there will be opportunities for investors, clearly, in this process, especially in the initial stages of the capital injections but it's, I think, early days to say whether our Group is going to be interested in playing an active role in this process or not.

As for the different capital requirements, that's something very clearly across the market will eventually put everyone in their right place in terms of capital requirements over and above regulatory requirements. But regulatory requirements are pretty similar in both cases and always dependent on risk profiles and business profiles for each bank.

As for organic or inorganic growth prospects it's really hard to predict the future, but our current expectation is to grow organically. The Group still has significant potential for organic growth, over and above the acquisitions that are currently in the pipeline, of course, like Poland and the Royal Bank of Scotland branches, which are still pending finalization.

But beyond those acquisitions, and I don't mention SEB because that's already closed, our plan is to grow organically in the next years, in order to really draw out all and extract all the value that we can still capture in the UK, and Germany, and the US and Brazil where the integration process and the restructuring process is continuous to draw value. So, in the near future we expect mostly to grow organically, mostly.

Okay, and as far as strategy and operations there is a question from Rohith Chandra about whether we're still thinking about other IPOs apart from the UK, and he specifically mentions Mexico. I don't know if you want to answer that.

No decision has been made on that, so I can't really say anything. We'll have to wait and see what happens; no decision has been made.

And Sergio Gamez from Merrill Lynch is asking about management changes. There's been changes in the management of some business units, which represent about half the profit of the Group. Do we expect any new strategic plan for these units or are we going to go on as we have until now?

Well, of course, the individual managers have their own personal style. But beyond that, in the two major markets where there's been changes in the management, Brazil and the UK, in both cases the plan is to continue with the same strategy, with the same model, with the same focus for the business, which is the Group's model and that's not changed since the time when we acquired these companies, although, of course, always adapting to current circumstances.

And finally to end with the strategy subject there are two questions that I can combine. Neil Smith and Luis Pena from JB Capital asking about the outlook for 2011; what's our biggest concern? And how could that impact us? And what outlook do we have for profit growth in 2011?

Well, our outlook is positive. And I think we've said it in the presentation or could be understood from what we said in the presentation, that in three-quarters of the markets where we have a presence, and that means both mature markets that are undergoing recovery like the US, and the UK and Germany, and more specifically in the emerging markets, like basically Latin America, but also Poland when that's part of the Group. From these markets we expect to have a very good year.

And so, the overall result with these markets that are either growing strongly, and so we can expect them to bring in significant growth in profit and those markets where macroeconomic circumstances are not yet ideal, but which, nevertheless, for different reasons either because of the perimeter effect or the internal restructuring or our own internal factors, we expect really good results too. Excellent, in fact, from the emerging markets again.

And Santander consumer finance, again without a geographical perspective, I said already in the presentation as did Jose Antonio Alvarez when he talked about this division, we also expect that to bring in significant growth in profit in 2011. In fact, they had a very good 2010 too, because that's a unit which is ahead of the rest of the business in the cycle. It solved the problems it had in 2008 and 2009 with NPLs and is now in -- really accelerating its growth.

So the only concern -- or you were asking about our biggest concern, and our biggest concern basically Spain and Portugal, where we still expect to have a difficult 2011, because the economy is still slow and volumes will not recover as yet. That's why we said since we expect less volume and less business in those markets in comparison with 2008 or 2009 we will focus our efforts on our spends, our costs, our recoveries, risk quality; so all those aspects of our management.

Having said all that our outlook for next year is optimistic, positive, definitely.

Right, moving on to financial management or financial area there are several questions about capital; Sergio Gamez from Merrill Lynch, Arturo De Frias from Evolution, Marcello from Bernstein, Antonio Ramirez from Keefe, and Francisco Riquel from N+1.

Questions are what capital levels do we expect to have in 2011? How much capital will you generate organically given that in Q4 you've reported 20 basis points of organic capital generation, does this mean we're going to increase our guidance from 10 to 15 basis points per quarter?

And basically, are we still not thinking of a capital increase, especially if the UK IPO doesn't happen? And do we think that organically we can reach 9% or 10% core capital, only from profit generation and scrip dividend?

Okay, the guidance we'd issued was 10 to 15 basis points of organic capital generation per quarter. I'd say from now on probably more like 15 basis points, because of what we've said in terms of the growth in volumes we expect basically in mature markets. When I say volumes I mean volumes in lending will be growing strongly in emerging markets.

But overall, the Group's loan portfolio emerging markets represent less than 20%, although that percentage will be growing at 20% rates, and it's true also that our loan portfolio mature markets, which is not 80% will be growing very little and in some cases will even be shrinking, as it has this year. So we expect good organic capital generation probably around 15 basis points per quarter.

We are certainly not planning a capital increase, because with this kind of rate of capital generation plus scrip dividends we're talking about annual capital generation of almost 1% so really, and using up relatively little. So, we think that organically we are generating more than enough capital to continue with the current payout policy and to reach ratios at around where we are now, which are more than comfortable.

Capital increase, you want to add anything?

No. Not planning a capital increase at all; not going to do a capital increase, no.

There's a question about from Rohith Chandra about -- from Citi about the EUR550 million reduction in capital, whether that has added 10 basis points to core capital in the quarter.

And the answer is no, it's true that there are these EUR500-and-some-million impact on the capital, because of the adjustment both in equity, and fixed income and currency. But there's a very similar amount, about EUR500 million which is offset by increase in goodwill, so net the impact is practically zero.

There is a question about the impact of the SEB acquisition on our core capital from Andrew Lim, Matrix, how much core capital is that going to use up?

That's approximately 10 basis points; 8 basis points exactly. And it will take place as we've mentioned throughout the first semester 2011.

There are more questions about how we expect to close the year, which we've already mentioned. Whether we can give an update on the impact of Basel 3?

No change; as we said, 70 to 75 basis points used up. We gave you the breakdown previous semester about the different items.

Question from Neil Smith, I don't know if Jose Antonio you'd like to elaborate? He saying that the ECB published its -- the case on December 16th estimating an impact on banks in Europe in general, that Santander sent its own figures. And can we say something about the case and where it might be the impact of Basel 3? I've already said that. Do you want to elaborate? I think basically it's widely known.

There's not really a lot else to add, the known impacts of Basel 3, we've discussed already. It's true that there's still an ongoing discussion about some elements, not really whether its Basel 3 or what it is, anyway the regulatory framework for the large, systemic important entities for countercyclical buffers too, but that still has to be debated by the EU. They're still discussing what is called the Capital Directive, CRD4, which will transpose to the EU's regulations, the principles that have been defined by Basel, but that's still happening.

So, as far as we know, we have given you those numbers of 70/75 basis points, and when we have more information we'll give you a more detailed response.

To finish with capital, a question from Andrea Filtri from Mediobanca. Are we still thinking that the RBS acquisition will be finalized at the end of this year or the next?

Well, very probably it will be finalized at the beginning of 2012 given the carve-out process, which is taking place in that transaction. But in any case the calendar we reported before still applies.

As for the corporate center there's several analysts, David Vaamonde from Fidentiis, Sergio Gamez from Merrill Lynch, Rohith Chandra from Citi Group, Arturo De Frias from Evolution, Frederic Teschner from Natixis, who are asking basically about two things, the evolution of our net interest income especially in [4T] in comparison with [3T]. Can we clarify that trend?

And in the ROF and the outlook for 2011, given the increase in financing costs we are seeing and what do we expect from the top end and the bottom end of corporate?

Well, as for the past I think I explained [that] the difference of 10 versus 9 and also Q4 versus Q3 2010.

And speaking about our outlook to predict the margins for the corporate center we have to have several caveats interest rates, of course, it's not the same if they're rising and if they're dropping or stable, since there's finance for the holding company which is there. So if interest rates our higher our net interest income is lower.

Also, the perimeter has an impact, because the size of the holding varies and so if goodwill's generated or decreased financing volume increases and also, the cost of finance -- wholesale finance to finance corporate. Basically, in principal with stable interest rates and constant perimeter we would have some negative impact from rising wholesale finance costs and some negative impact from goodwill generation, because of the investment in Poland.

But it's a bit more difficult to predict the cost of the carry-over of our currency hedges, which were particular relevant in Q4. But in principal both Mexico -- hedges in Mexico and Chile are close for the whole of the year, so no changes are expected. Brazil, the hedge is shorter-term and it we will have an impact from interest rate variations in Brazil, and Poland versus the euro that also affects us.

The cost of the hedge is greater the greater the gap, but that's just the usual run of this business. It's hard to be specific about a number, but you can calculate your own estimates from what I've said.

As for ALCO portfolios, Francisco Riquel and Antonio Ramirez from Keefe are asking about the contribution of these to our net interest income.

And Peter Smith is asking about issuance plans for 2011. We've already talked about maturities in this presentation. Will we be covering or replacing all maturities or not, and what financing costs do we expect in 2011 versus 2010?

ALCO portfolios, I think we've said that there's approximately -- this is basically public debt; EUR15 billion in the parent, EUR5 billion in Banesto and EUR3 billion or EUR4 billion in Portugal.

In Brazil there's a portfolio in Euros of about EUR9 billion; in Mexico approximately EUR4 billion; the rest are smaller, around EUR1 billion/EUR1.5 billion. Contribution to net interest income in the year of, say, in the euro area about EUR500 million -- EUR550 million. And in the different markets or countries, probably around EUR100 million in Mexico; and in Brazil, maybe about $250 million, so those are the portfolios.

Usually the maturities which is a usual question, in the euro areas, 2.5 years/ three years; in Brazil it's shorter; and in Mexico, very short-term, probably 1.5 years, on average.

Second question about issuance plans. We said in the presentation -- I think our CEO said that we have -- we plan to be quite active in the UK. We have the maturity of that special liquidity scheme in the UK. And so we have to replace that special liquidity scheme, which was created in 2008. So we'll be quite active there.

More active than last year in Latin America, especially in Chile, because there's strong growth in lending, and so we will be more active; certainly, more active in Brazil and slightly more active in Mexico, but only slightly, not very much, because excess liquidity in our deposit to loan ratio is still significant.

As for the euro zone, as we said in the presentation, maturities are some EUR20 billion this year and then the next, and the following about EUR15 billion. We're de-leveraging, so we think, in principle, we will be issuing a lot less.

So if it's EUR25 billion, round figures, maturities, we think that commercial gap might be EUR10 billion, under ordinary circumstances, and since we're providing less finance for Consumer Finance, because in the past a good part of that was financed by the parent, but now it's increasingly self-financing. In 2009, it was EUR14 billion; at the end of 2010, it was EUR9 billion; and we think that it will be self-financing in 2012. So the parent Portugal and Banesto will have less issuance needs, and we'll issue relatively little.

And as for the costs, I think that was the final question, financing 2010/2011. Right now, you all know where the market is. And our expectation is that costs will drop; Sovereign risk will drop very significantly. It has been dropping in the last few days, but we expect those drops to continue. And so we expect that there will be more normal -- I say more normal, but I don't mean we will go back to the levels before the crisis, but at least within the period of this crisis, when financing costs were at about 70 basis points, 80 basis points, 150 basis points, depending on the instruments and the terms. So that's we would expect for 2011, overall.

Okay. And to finish this chapter, Raoul Leonard from RBS was asking specifically about closing the commercial gap, but you've mentioned it, so no need to answer again.

As for credit quality in the Group, there's questions from Britta Schmidt, from David Vaamonde, from Marcello Zanardo and from Raoul Leonard, to how do we see the evolution of lending quality in the year. There's been an increase with net additions in Q4. How do we expect risk quality to evolve? Do we think it's going to continue to worsen? And what is the trend we expect for 2011 and '12 for risk quality?

Right, for the Group overall, we showed you the presentation, there have been improvements in NPLs in all markets, except Spain and Portugal, I think it was. That's going to be particularly intense in the US, where we've had significant improvement. But it will depend on growth in the different segments in emerging countries.

In Spain and Portugal, we probably think that there are still going to be some slight increase, at least in the first half of the year in Spain. I'm talking just a few basis points. We finished at 4.24, I think, so maybe it will rise to a peak of 4.5/ 4.7, but thereafter, it will stabilize and then begin to drop; in Portugal, a slight rise, but not significant; we're at 2.9, so not significant.

If we translate this to the Group overall. I can't actually translate what that means mathematically in the rest of the Group, but probably quite stable or even slightly down, but I can't really calculate off the top of my head exactly all the weight of the different units.

And in the UK, I didn't mention it; we don't have any concern over credit quality.

And specifically asked for risk quality for Spain, there's questions about the evolution in Q4, a worsening in Q4; anything specific? Francisco Riquel from N+1 is asking this.

How do we expect Spain to behave specifically, quarter-on-quarter, basically? Carlos Peixoto and Fredric Teschner, one from BPI and one from Natixis are asking this question.

And specifically on income statement, Britta Schmidt is asking, do we expect provisions to increase or decrease versus -- since we've used the EUR2.1 billion during the year? A question from Britta Schmidt.

I think I explained this. It all goes hand in hand. We think that NPL will rise slightly in the first half. In the fourth it could be stable, or go down slightly.

The impact on our P&L, we've said, that's generic for two quarters and we may have a slight bigger impact, because of the net. But we think specific provision should go down, but the net impact on our income statement will be greater, because of the lack of availability of generic provisions from Q3.

There's a question from Fredric Teschner in Natixis, about our dividend or payout policy.

No change, still the same, 50% payout for dividends to scrip dividends, which will be paid [in] the dates that have been announced.

As for generic provisions, in Spain, there are several questions from Rohith Chandra again. Given the use in Q4, how much do we expect to -- how long do we expect our generic provisions to last? And what will be the impact thereafter?

I've just said just now, we have two quarters. Of course, the Group's policy is, if -- when there are capital gains, we usually provision -- generic provisions, but as I said just now.

There is a question on strategy from Neil Smith, who's saying that the euro zone has announced the possibility of a European bank levy. Do we think that's a risk? Would it apply to Spanish banks? And do we think that it could have some kind of impact on the sector? Alfredo, I don't know if you want to answer that.

Well, bank levies are not good, obviously, but we don't really have any news or any indication that the Spanish Government might be thinking or applying one in Spain.

Moving onto real estate exposure, Andrea Filtri from Mediobanca is saying thank you very much for this new, clearer reporting on risk in the construction sector, no other bank has done it so clearly. So thank you very much, Andrea, for that praise.

And as for specific exposure, there are several questions with regard to what this real estate purpose means or doesn't mean, and what's the NPL rate, the substandard?

All of these specific details are in the appendix or the annex to the presentation. You have all the tables with all that information. I think we've given all the information required, or even more. In any case, we can answer you your specific questions after this webcast.

And there's a question from Andrea Filtri. Do we expect to continue buying back assets, at what rate, and what is our policy with real estate assets in general?

Well, our policy, I think you know, there have been some small increases, but that buyback policy stopped, I think, 1.5 years ago, and we still maintain it. We have had some asset allocations, as part of the normal recovery process; allocations generally through the courts.

Let's continue with construction and real estate. David Vaamonde is asking about intra-Group balances you mentioned in the presentation. When you talked about those EUR440 billion, can we elaborate a little more there? And the composition of those EUR440 billion.

Well, I don't actually have the information to give you the breakdown of the EUR440 billion, because that's the whole sector; I don't have the information. But what I can tell you is the intra-Group balance, when we incorporate a company for real estate assets, ours is called Altamira, it buys those assets with a loan, awarded by the bank, which eventually falls statistically as part of those EUR440 billion.

And so as not to count the same as real estate loan and as an allocated asset, that's why I said net. In our case, it's EUR4 billion, about EUR4 billion are the loans granted by the Bank to Altamira, to buy these -- or hold these allocated or acquired assets.

And in the sector, I suppose there are different practices. There are banks that keep those assets in their balance sheet, and others have it in a separate company. And, of course, you can endow that company with capital or with loans, but I can't really give you more details about what those EUR440 billion in the sector contain. In our case, it's those EUR4 billion in Altamira I've mentioned.

There's a question from Andrew Lim from Matrix. He says the following; the covering ratio of the loans to real estate developers and construction companies is 28%. How can we justify this coverage ratio, which is so low?

Well, I think he's referring to doubtful loans, plus substandard, the EUR9.5 billion. I think I said during the presentation that 75% -- by definition, all substandards have made their payments of interest, and principle; and 50% of those classified as dubious or doubtful, have covered -- have paid the interest, plus principle.

Therefore, the coverage of 28% over a portfolio, where only 25% is in arrears, we think, based on our estimates, is the right level of coverage for this portfolio. In effect, I remind you that 75% has made its payments on a timely basis, and 25% are in arrears. But that's a substandard portfolio because of the sector, because of the client, in some cases, and -- well, those are the figures that I gave during my presentation.

To finish with the Risks department, there's a question on the very slight increase in the charges for provisions in the quarter in Brazil.

Nothing special to mention there. This is basically growth of the portfolio and business as usual, and the different ways of the different credit qualities. But there's nothing specific there in the quarter.

Andrea Filtri asks whether we think that the evolution of the results in Brazil is sustainable. Is that growth of profit sustainable in Brazil?

I would say absolutely sure. Our forecast for Brazil -- and I don't think we're very original there -- is favorable. We think that the lending will continue to grow, despite the increases in reserves, and despite the increase in interest rates. We do think lending will continue to grow, significantly so. And the spreads will be in line with the ones we have now.

We think that the scenario to generate revenue in Brazil is favorable. Credit quality is improving, and will continue to improve. And there is a general pressure on cost, because of wage increases. But we are undergoing an integration process, so we should outperform our competitors. Therefore, we do think these profits are sustainable.

Yes, if we now look at the different business areas. In Spain, there are several questions on the net interest income. Let me start with Sergio Gamez from Merrill Lynch. Deposit retention campaigns, what is our best estimate on the retention of deposits? And what do we think will happen in the next few quarters? I guess he's referring to the campaign we rolled out on the second half of last year.

Well, more than the campaign, the net interest income -- well, the worst about the net interest income in Spain is probably over, that was a period in July to October, because the appreciation of mortgages stopped; they went down to minimum levels. Now, the Euribor is going up, that's an important impact, as well as the campaign, which was a negative effect. On the last quarter, the customer spread has improved by 2 basis points, as compared to the previous quarter.

We think that the fact that mortgages are growing, the fact that there is less intensity in the campaign for deposits, an increase in spreads on assets, that will give rise to increases in the net interest income in the next few quarters. Of course, the first quarter of 2011 will be below the first quarter of 2010. We might tie in the second quarter. And from there on, the net interest income will, clearly, be better than in 2010.

That is our outlook, and that is -- and there, we include the results of the campaign to gain more deposits. And there's going to be less competition for deposits, and these deposits will re-appreciate, with a downward bias. We have about 3.5 products per client that we attracted with our deposit campaign. So the performance, we think, is going to be reasonably good, as compared to other retention campaigns.

Rohith Chandra asked about the net interest income, and the performance compared to the customer spread, that you just answered that question.

Antonio Ramirez is asking about the competitive environment in deposits. Is there going to continue to be pressure on deposits? You just answered that question as well, that things are quieter on that front.

Brazil; Carol Peixoto is asking about the impact we expect from the increase in compulsory reserve requirements in Brazil, and what volume growth do we expect in the year?

The truth is that the impact of this type of increase in reserves, we don't think it's going to be too large. Federal Bank is saying, in its estimates, that the impact is going to be of 1 basis point, and double-digit growth; in terms of volume, from 15% to 20% volume growth, which is what we've been saying the past year. So we still have the same forecast.

Unidentified Company Representative; England, UK; [Manolo Fernandez] is asking about the performance of the business, particularly on the top part of the P&L. Do you see any weakening in revenue, or net interest income? And can we give any forecast of -- on whether anything's happening there, and what we think will happen this year in the UK?

Well, with regards to the net interest income in the UK, the business spreads remain the same, and assets and liabilities. We don't see any changes in business spreads, and mortgage spread. As well as the spread on deposits remains the same as in previous quarters.

What has changed, basically, is that there is a higher cost, because of the liquidity regulation, which was introduced in the second quarter of 2010. We think we have absorbed in the year, two-thirds of the total cost of this newly liquidity regulation, but there's still a third that will be absorbed in 2011. And from there on, we will go back to business as usual.

So that's part of the impact. But I think it's GBP250 million or GBP300 million that will be the total impact. And we've already absorbed in 2010, two-thirds of that. And as I said, the commercial activity continues to be the same; we have the same spreads and the same volume of activity that I showed you in the presentation.

And there's a question from Arturo De Frias about the UK, about the commercial contingencies; the provision of GBP74 million that we made.

This is reasonable given the situation in the UK.

Another question about the UK, on the net interest income, but we already answered that question.

There's a question from Pierre-Alexandr on the litigation in the UK. I guess it's just what we said about the contingencies, otherwise you please get in touch with me and we'll answer your question.

And then there's a question from Benjie Creelan from Macquarie. If there was a rise in interest rates soon in the UK, would that have a positive or negative impact? How do we see the outlook of interest rates? What impact could interest rates have, particularly in the UK?

Well, in general terms -- well, in the UK more specifically, the rise in interest rates, I can give you the figure, because we did a standard analysis to see how it would change by 100 basis points. Well, the net interest income would improve by -- I think it's 3% or 4%, with 100 basis points in change.

In most of the units, with a greater or lesser intensity, we're at more or less the same level. The balance sheets are positioned for an increase in interest rates for impacts of 100 basis points; that would be 3% in Continental Europe, 4.5% in the UK would be the impact. And the same thing for Sovereign, or a little bit more, and less so in Latin American countries where balance sheets are relatively close. But generally the balance sheets of the mature countries are positioned to face rises in the interest rate.

Ignacio Cerezo [on] JP has a question on the impact of the change of perimeter in the P&L, also in the UK.

For the time being this is just having a very small impact, or almost no impact. So I would say that there is no change -- no impact from a change in the perimeter.

And there's a question from Ignacio Ulargui on the Bank's view on the regulatory environment in the UK. How do we see the situation -- the competitive situation in the UK, and how do we think it's going to evolve, the regulations as well as the competition in that country?

I don't see that there's anything specific in the UK, other than Basel or other things that we mentioned for the European Union, since the UK is part of that. And therefore, the regulations will be the same, or will follow the same guidelines.

We have a question from Arturo De Frias on generic provisions. What will happen if we run out of them, if we would have to make further provisions?

It depends on two things; the cost of risk and variation of the book -- order book. We don't expect changes in that, and the evolution of the cost of risk will determine that. But it doesn't look that we're going to see significant changes.

With regard to Portugal, Andrew Lim from Matrix has a question asking whether Portugal, if it's intervened or if it's bailed out by Europe, would that force Santander to take on more provisions in the loan book in Portugal, as has been the case of some banks with loans in Ireland?

And [Inigo De Corvaro] from [Avaco] would also like to ask about the net interest income in Portugal. Can we give any outlook on the NII there?

Well, the first question you talked about the loan book and portfolio, the NPL rate is low, 2.9%, and when you take provisions for loans in other countries, it's because the quality is bad. The quality of the portfolio in Portugal is good, and even if there were a bail-out we think that -- well, we would have to see the impact that would have on the economy. And if the NPL rate goes up, in that case we would require making further provisions. But there is no one-off thing; we don't think there's going to be a significant change in the portfolio.

The net interest income, well, the situation is quite similar to Spain, with a few differences though. The spread on assets are going up, as they are in Spain, and significantly so. The deposit market continues to be a very competitive market, and competition hasn't gone down as much as it has in Spain. So it's still a very competitive market.

And on the side of volumes, we already mentioned that in the presentation. There is a difference which is that mortgages in Portugal are re-appreciated every six months instead of every year, as in Spain, so they re-appreciate faster.

And to finish, Benjie Creelan is asking about Brazil, the growth in volume in Brazil. We already mentioned that.

And the last question is from [Gavin Roger] from [Sujin], asking about Santander Consumer Finance. He says we presented a very strong net interest income, but the fourth quarter as compared to the third quarter is flatter. Could we give any details on the asset and liability spreads, the evolution, whether we depend on wholesale funding, which has grown? And the cost of retail deposits, which are going up, but there aren't many of those, with the exception of Germany. Would you like to add something to that?

Well, the performance on the business has been very good with an increase in the spreads. The business in Germany is financed 100% by deposits. In the US and in the other countries we are doing securitizations, and therefore a high percentage is being funded with that.

And as I mentioned earlier, the funding of the parent company has gone from EUR20 million to EUR9 million, has gone down. And I think the business will fund itself at the end of 2011 or the beginning of 2012, developing its own issuance towards -- in each local franchise.

We're very positive with regards to the business in terms of revenue, as well as in provisions for 2012, and we think that the business will continue to grow well, or very well, in 2012.

Very well then, so with this we close. If there are any questions that have not been answered, please do send it and we will answer. Thank you for coming, and we'll see you next quarter.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.