Banco Santander SA (SAN) 2014 Q4 法說會逐字稿

Good morning. Welcome (technical difficulty] Group 2014 results presentation, and thank you for joining us.

Since I assumed my new role as Head of Santander Group four months ago, I had still the four priorities going forward. And so our focus has been, first, governance and Board composition. We now have a Board with 60% independent members, of which 33% woman and four nationalities, with a good mix of skills and experience. The executive team, we have a new team that brings international experience from inside and outside the Group. And in addition we have simplified the corporate structure.

Free capital, after EUR7.5b capital increase, we are now amongst the best in overall capital ratios versus our key competitors, and we have a sustainable dividend policy.

And fourth, and that is what I want to talk to you about, the fourth area of focus, which has been the strategic review of all our business and setting of priorities.

There are six major trends that are shaping the way in which we think about banking, and we could group them around three. First, the macro trend, which we see as overall positive for us. US and UK very positive view, with expected growth of 3.6% for the US, 2.7% for the UK. Europe, less growth, but we expect QE and lower oil prices will deliver new investment and higher-than-expected growth, with countries like Spain with a projected 2.5% increase in GDP in 2015. Emerging markets, with a diverse performance but still growth.

The second trend, of course, is regulation. The regulatory house we live in is being rebuilt as we speak. We need more clarity on important things like capital, banking reform or resolution frameworks.

And the third, digital and consumer revolution. This is perhaps the most profound and its impact is here to stay. Digital technology is changing banking as it changes our customers' behavior. In many of our markets, 85% to 90% of transactions are done digitally. Smartphone users check them 150 times a day. That's being close to your customer. With so much choice available to customers, earning their loyalty is more important than ever and also more difficult. And this revolution means we must offer a different kind of bank. Santander's response is summarized in three words, simple, personal and fair, a point to which I will return later.

So this is our starting point, our model. It is unique. No other bank has this combination of, first, a diversified presence with a well-balanced emerging mature market mix, delivering growth above peers. Expected average GDP growth in our markets close to 3% by 2016.

Second, with a strong retail and commercial operation in all of those markets, we are or could be or have potential to be top three in our 10 core markets, where we have access to 1b potential customers.

Third, our model of autonomous subsidiaries in liquidity and capital, but with integrated IT and support and control frameworks to deliver Group value added.

Fourth, a strong balance sheet with a predictable risk profile. We have delivered a dividend every year for more than 50 years, including during the crises.

And last but not least, a top global brand. According to Brand Finance, we're number 10 in the world. And this is one of the many ways in which we add value every day from our corporate center.

In summary, Santander is today a well diversified retail and commercial bank, with recurrent earnings generation, low risk and attractive growth profile.

Our purpose is to help people and businesses prosper. It has always been part of the Santander culture since its beginnings as a small regional bank that looked to support international trade and commerce with Latin America. Our aim to be the best retail and commercial bank that earns the lasting loyalty of our people, customers, shareholders and communities.

So what does that mean? The best bank is not necessarily the largest. It is a combination of many factors. Retail and commercial bank, this is our essence; traditional banking; delivering sustainable results. Loyalty is the core of our opportunity, building lasting relationships with all our stakeholders, people, customers, shareholders and communities, to create a virtuous circle. Loyal employees will achieve loyal customers that will deliver better returns that will revert to society.

Just as important as our aim is how we achieve it, how we act and behave each day. And we asked our teams and our customers about the type of bank they want, and the three words that summarize it were simple, personal, fair. This is the Santander way.

And we will put in place initiatives to ensure our culture is consistent with the Santander way, to be the best bank for our people. For our customers we'll work to add value for them through our products and our services in an efficient way to earn their loyalty. For our shareholders we will use our reinforced capital position and predictable risk profile to grow our profit in a sustainable way. And when we achieve this, we will be able to further support the communities in which we operate, among other programs, with our flagship Santander Universities.

We want to be the best bank for our people. And our way to achieve this will be by being simple, personal and fair. And we have done more than 6,000 interviews, talked to our people across the countries in which we operate to ensure we land these principles according to the local culture. We are working on specific initiatives to promote this cultural change, a global talent management program and internal communications program led by the local CEOs, reviewing our training and development for all our teams and also review of our objectives and incentives.

The UK example, we aligned objectives and incentives to our simple, personal and fair objectives. And the best example was we introduced a gateway to customer satisfaction for all employees, from the CEO to the branch managers. Nobody would get a bonus if customers were not satisfied according to our metrics. And the goal is to become top-three bank to work for in most of our geographies in 2017 and ultimately in all of them.

Earning the loyalty of our customers will be our top priority and the base of our strategy. We have 92m retail customers and only 12.2m are loyal customers. And that is a customer who does most of his or her banking with us. Growing this number is the most significant opportunity we have and it will deliver benefits and measurable results. It should grow our current account balances as a result of having more transactional customers. This is already happening in certain countries. It will allow us to better understand, have better information on our customers, our customer behaviors and deliver more profitable lending growth as I would say we have a goal to grow more than our peers and have and deliver this growth with the right returns. It will ultimately allow us to grow our profit as loyal customers are four times more profitable.

Our goal for 2017 is to have 17m loyal retail customers. That is 40% more than today. And again, we have specific initiatives underway to achieve this. Products that foster loyalty, like the 123 account, our services and select private banking and others.

More importantly, we know this can be done. I have seen it in the UK. With the 123 account, in three years we have multiplied times 3 our current account balances, doubled the loyal customers and moved from last to first in customer satisfaction, with a resulting increase in GBP1b in revenues.

In corporate and SMEs, we have a very similar opportunity. We have 3m customers, of which only 26% are loyal. We have a unique value proposition for corporates, offering all companies specialized products and services that normally are only available for larger corporates. For SMEs, our retail network and digital channels, our strong presence in 10 countries and working together with our private banking offering.

But in addition, we offer innovative and differentiated programs unique to Santander. Our Breakthrough in the -- program in the UK or Advance in Spain and other countries, where we offer financial and non-financial support for SMEs. Santander Trade, a portal to support SMEs who are looking to import or export. We have already 14,000 customers on-boarded. And finally the Santander Passport, where if you are a Santander customer, you'll be treated in the same way in every single one of our banks.

So where are we in terms of results? We have grown this year our lending balances by 7.7%. We expect to grow above our peers in the future. And the goal is to exceed 1m loyal customers by 2017.

The second strategic initiative for our customers is operational excellence. We have been cost leaders for many years. Going forward, we understand operational excellence as delivering the best service in an efficient way, adding value to our customers. And we have not always been leaders in customer service, as you can see in this graph. And that is why we have a dual goal, to become top three in customer satisfaction across geographies, whilst maintaining the cost leadership.

We're working on two fronts to achieve this. First, simplifying our customer processes across the Bank, leveraging on digital technologies. And second, adding value from a simplified Group structure. We have already taken steps towards this by reducing from 15 to 11 the number of divisions in the Group. But we will add value, as I say, by providing corporate frameworks and control and sharing of best practices to the countries who are the ones responsible for leading the businesses.

Our digital offering is core to our business model. Our digital customers are more loyal and three times more profitable. However, today only 28% of our customers use our digital channels. The objective is to increase this to 45%. That's almost double by 2017. This will drive more loyalty, more lasting customer relationships and, as a result, more revenues. It will also reduce the cost to serve. Here we're working on several fronts. We're upgrading with specific programs our online and mobile channels. We have created a new innovation area which reports directly to me. And we have initiatives already going, like our $100m FinTech fund.

So what does this mean for our shareholders? After our EUR7.5b capital increase, we are amongst the best in overall capital adequacy. As you can see in the slide, if we consider our business model and risk profile, which has been validated by the recent AQR and stress test, our reinforced capital base will now allow us to pursue organic growth opportunities to support our customers and to pursue a sustainable dividend policy, increasing the cash dividend payout from EUR1b to EUR2.5b.

Very importantly going forward, we will assign this capital in a more efficient way. As we focus on organic growth, mainly in Europe and the Americas, we will be stricter in the internal capital allocation, allocating capital to those businesses where we see higher potential returns. We will be stricter in our acquisitions criteria. Though let me be clear, we are not currently considering this a priority and we're not considering any acquisitions. In summary, this will allow us to deliver a return on tangible equity between 12% to 14% by 2017.

And to achieve this profitability, excellence and risk management will continue to be essential. We are working on several initiatives which we group around what we call the Group-wide risk management program, where we are enhancing the holistic and timely control of all types of risk in the Group. And just as an example in what we call the risk data aggregation project, we're investing EUR500m. The goal is to achieve a predictable risk profile with NPLs below 5 and with high -- 5% and with high coverage levels.

Going forward now, most of our geographies we see as entering growth cycles. We expect an average GDP growth, as I said, close to 3% by 2016. So a positive macro, together with a growth in revenues driven by developing better customer relationships and loyalty, improved performance in cost and customer satisfaction and strong balance sheet and prudent risk management will allow us to deliver higher growth than our peers and improve profitability to our shareholders.

We're building from a solid base of results. We increased our profit by 39% in 2014, showing improvement in net interest income, plus 4%, expenses down by minus 0.6%, and provisions minus 14%. And going forward again, our aim is to deliver higher earnings per share growth than our peers.

This is driven by a solid increase in customer business. Our loans are growing by 5%, with deposits and mutual funds growing by 6%. And as you can see, almost every single one of our countries is growing across all markets, with one exception, which is Portugal on the credit side.

Finally, I want to mention our commitment with our communities. Santander Universities is the focus of this commitment. We are global leaders in education, with innovative programs of support to entrepreneurs and SMEs, as I explained. But we also have many local programs where we're supporting charitable initiatives through our branch teams. We have committed EUR700m over the next few years, as we announced in our meeting in Rio last summer, to support higher education.

So with this contribution to our communities, we close the virtuous circle of people, customers, shareholders and communities.

So what does this mean for our main geographies? If I have to sum it up, and I said this earlier, earning the loyalty of our customers is the unique opportunity we have going forward. And just as an example, if we are able to grow in just these four countries to 40% loyal customers out of total active customers, which are already with us in the Bank in the UK and Spain, and 25% of the total in Mexico and Brazil, we would generate between EUR2b to EUR3b of additional income. But most importantly, there would be satisfied customers, which means better and more sustainable revenue generation going forward. So earning our customers' trust, growing the number of loyal customers is the most important common denominator of all our local strategies.

And briefly, just what are our main goals country by country? In Spain and Brazil, this strategy entails a regional transformation, with major emphasis in digital, which will result in top-line growth and higher market share in SMEs and commercial, with the UK continuing along the current path. These three countries should contribute with circa 4m increase in loyal customers by 2017.

In Spain, our specific aim is to lead the retail and SME market by investing in our digital offering and become the bank of choice in the Spanish market for all customers.

In Brazil, we have completed now the integration and we have a solid platform. We are now aiming to build a retail franchise, which again will deliver top-line growth based on loyal customers and a more balanced business mix.

In the UK, the priority remains to continue building on the 123 strategy, which has been very successful, continue growing the SME franchise. We have grown from less than 3% market share in SMEs to more than 6%.

In the US, which is a developed market with emerging market GDP growth, we expect 3.6% growth for 2015. Our priority is compliance with the new regulatory requirements. We are confident we will deliver on our commercial transformation plans to improve our return on equity.

Mexico, we see huge potential for us. We have ambitious loyal customer growth targets, both for retail and corporate, again by investing in digital and leveraging on the relationship with the US and opportunities like the new infrastructure, energy and telecom projects.

And finally, Santander Consumer Finance, which will continue delivering profitable growth.

So to become the best retail and commercial bank, we will work on the execution of the strategy I have outlined. We have set for ourselves specific and measurable targets for each of our four stakeholders in the four quadrants.

For our people, to be the top-three bank to work for in the majority of our core geographies.

For our customers, achieving 17m loyal retail customers, 1m SMEs and corporate, with growth in our customer loans above our peers and to be among the top three in all our geographies in customer service and reach 25m digital customers.

For our shareholders, this means 12% to 14% return on tangible equity, a fully-loaded core capital of between 10% and 11%, NPL ratio of below 5%, with a cost/income below 45% and higher earnings per share growth than our peers.

And finally for our communities, I mentioned the EUR700m commitment we have made, giving out 90,000 scholarships in this period and being top 10 in the Dow Jones Sustainability Index. And we will track the progress against these metrics twice a year.

To give you visibility on our plans by country, we're proposing to review this progress in more detail in an Investor Day to be held next September, and we would be very happy if you could join us.

So in summary, Santander offers today a combination of both financial strength and growth above market through organic growth. We believe the current environment offers a huge opportunity for us and that we're well placed to take advantage of this. We will do it by strengthening our culture, by strengthening and giving more value-added products and services to our customers and communities.

We will do this by growing organically. Increasing our customers' loyalty will be the key building block and do it profitably through offering them the best customer experience and leveraging on our operating excellence. We will be, going forward, even more rigorous in our capital allocation interlinked to those businesses that have higher potential.

I joined Santander in 1988 so I know my team and our business quite well. Over the last month, as I explained, we've made the necessary changes, both at the executive and Board level, so that going forward, as of today, we can focus on building the best retail and commercial bank that earns the lasting loyalty of our people, customers, shareholders and communities.

Ultimately, as I see it, the measure of our success will be that in every market we operate in, our customers are the ones bringing in new customers. And I'm confident we will achieve this because we are a team willing to go that extra mile to serve our customers.

Most important is our aim, to be simple, personal and fair. A simple bank offers its customers a service that is convenient, products that are easy to understand however and whenever they choose to bank. It makes its processes better every day so they're easy and clear for customers and its team.

A personal bank treats its customers as valued individuals, providing a professional personal service they can trust. It supports colleagues to develop their skills and achieve their ambitions.

And a fair bank treats people as they like to be treated and earns investors an adequate and sustainable return. I mentioned 12% to 14% return on equity while contributing its share to help communities.

So thank you very much for listening. And I turn over now to Jose Antonio for the results presentation.

Thank you, Ana, and good morning to everyone. Let me to -- as Executive Chairman has reviewed our vision of the Group, I will start strategic priorities and medium-term objective. Let me to focus in the results in 2014, full-year results.

Well, instead of going, as usual, with all the units in the presentation, I will focus on in the three largest units. But you have all the information in the package we gave to you.

Let me to start with a few words about our environment. In 2014 the global economy grew 3%, with a recovery -- some recovery in developed countries, particularly in the US and UK, and more moderate growth in emerging economies. We've been living in an environment with certain volatility and uncertainty due to geopolitical risk and the falling prices in some raw materials, particularly important the oil.

The banking business, we continued to be affected by the extremely low interest rate environment that remained at historic lows in most economies. And finally, last but not least, the new regulatory requirements which are affecting both sides of the P&L revenues and costs.

In this environment we were able, first, to increase profits and profitability, gaining market share in key segments and products, improving our operating capabilities and improving our cost/income. And second, mainly maintaining a solid liquid and low-risk balance sheet.

Beginning with the first point, well, 2014 compared with 2013 was a strong year within a process of normalization. We come from very low levels and we normalized this. The profit grew 39% over 2013 or 49% excluding the exchange rate impact. Revenue grew in line of the 10 markets within -- core markets in which we operate. The costs were well under control. Lower provisions due to a general improvement of the course of things.

As a result, all units increased their pre-tax profit for the first time since 2007. And we improved the profitability ratio, both in terms of efficiency and earnings per share that went up 24% and return on tangible equity that we are at 11%.

Going to the balance sheet, volumes reflect clearly what we said to you in the -- when we increased capital. Volumes are picking up, both in loans, where we grew 5%, while the previous year we were decreasing 2%. And deposits and mutual funds customer funds, grew 6% compared to plus 3% last year. And most important of this, we grew 6% with reduction -- with a significant reduction in the funding cost.

We continue to have a comfortable liquidity position. NPL ratio improved for the fourth consecutive quarter. We extended our capital position with a capital increase. And finally, as the ECB asset quality review and stress tests show our model is significantly lower risk than those of our competitors. And we came out of this exercise showing that our resilience is much stronger than our competitors.

Focusing on the P&L, 2014 P&L, let me to start with the fourth quarter compared with the third quarter. Fourth-quarter commercial revenues grew for the fifth quarter running and provisions continued to normalize. They were at the lowest level in the last two years.

The bottom line came 9% lower than the previous quarter due to three reasons. The first one, trading gains were EUR331m lower than the third quarter that were extremely high. Second, the impact of the German federal court ruling on [accounting] fees that were charged in the corporate center that had a net impact of EUR260m. And a higher tax rate in the fourth quarter, mainly in the corporate center due to the adjustment. We adjust the annual tax rate in the corporate center in the fourth quarter.

Going to the full-year results, year on year you have in the slide changes with and without exchange rates. Let me to focus in the -- without the impact of the exchange rates because it's what shows better where are the trends at the local -- at the ground.

Well, the first area is the P&L statement is very solid. We are growing revenues at double rate than the cost, and provisions are falling. So this shows a consistent delivery quarter after quarter in the upper part of the P&L.

The second impact on this is more a one-off. There is a change in the new international accounting standards, the so-called IFRIC 21, which means anticipating the recording contributions to the deposit guarantee funds that these reduce the profits of 2013 in EUR195m. And this produced an increase when we compared 2014 with 2013 higher than otherwise would be the case.

I think there an important one is we do not include any extraordinary gain in this P&L. And I will show you in the next slide the capital gains we got in 2014, around EUR1.6b, were 100% dedicated to restructuring and cost and impairment of tangible assets. In the fourth quarter we got EUR250m capital gains from this portal of the insurance business in Ireland, related with consumer finance. And we're 100% dedicated, as I mentioned, to restructuring cost basically.

Going into the P&L, when we see revenues, costs and provisions, gross income continued -- grew continuously through the year. So you see the upward trend of the gross income, 6% constant exchange rate year on year. Operating costs 3%. The fourth quarter went up seasonally high. You look at the last year, it happened the same. There is a one-off -- a kind of one-off effect at the end of the year that every year the fourth quarter is -- comes a bit higher. And provisions have been declining quarter after quarter.

Analyzing internally the revenues, when we look internally in the revenues, four ideas. The first is high quality. The most recurrent part, net interest income and fee income, accounted for 92% of the total gross income. Both of these lines evolved very well.

Net interest income increased consistently and quarter on quarter, and the fourth quarter was good in this regard. All the units did quite well, mainly the main ones, but still UK, Spain, Mexico did very well. Well, this kind of non-recurring item in Chile due to the high inflation, I will elaborate later on, because Chile this year, the results were extremely high, and this is not sustainable due to the high inflation. And there is some slight impact in perimeter, EUR30m, EUR40m due to the [economics].

Fee income was also a slightly growing trend. And trading gains were significantly lower than in the previous quarter, not that low compared with the other quarters, where the third quarter was, as I mentioned before, extremely high for the standards of the Group.

When we go to the gross income year-on-year terms, there is still a negative impact of exchange rates. The growth comes basically from the net interest income that grew 9%. All units growth -- income grows, except Brazil. I will elaborate later on in Brazil. And we will see that the mix was the main reason why the gross revenues didn't grow in Brazil, but we grew at net after provisions grew in the country.

The -- where the growth comes from I will split into two sides. In emerging countries, mainly it's due to volumes. In developed countries, the main reason of the growth of NII was the lower cost of funds.

When it comes to cost, well, they rose below inflation rate. Thus, as you know, this is our target. The 3.6% average inflation in the Group for -- in our costs grew 3% and 2.2% excluding perimeter. The performance was different by units. When it comes to Brazil, Spain, Portugal and Poland, costs in real terms are falling. And the other [operating unit] costs are growing for different reasons. We have in Mexico opening branches. In US mainly due to regulatory cost. We hired more than 500 people at -- for -- in this -- to couple with this regulatory cost, these regulatory issues we have there. Finally, in the UK, where we produced amortization of -- [India] data center particularly in the fourth quarter the costs due to this.

We outperformed our targets in the efficiency plan. We were expecting to reduce to half, EUR1b savings. We got almost EUR1.2b savings. Mainly the savings come from Brazil and Spain, as you can expect -- we were mentioning before -- and some of those from the corporate center. In some cases it's due to integration. In some cases it's due to doing the same things in a different way, particularly in Brazil, where we were able to keep almost flat cost environment in a 6%, 7% inflation.

Looking ahead, we intend to maintain our final target in EUR2b cost savings for 2014/2016. We are opening new lines of working effectively in order to identify new possible synergies. As a Group, as I mentioned before, our aim is to grow below the inflation rate the cost base.

When it comes to provisions, well, are trending down. I put those two lines there, one including SCUSA and another without SCUSA, because SCUSA, being relatively small in terms of size, is relatively high in terms of the provisions due to the nature of the business. The provisions declined 10% year on year. In SCUSA went up significantly, 47% in the US. The size of the portfolio is much larger than 2014 -- in 2013 because we include the credit agreement in 2013 midyear, and the portfolio in 2014 is 25% larger.

The coverage ratio in SCUSA is 296% year end compared with 240% as of December 2013. The cost of credit declined from 1.43% -- to 1.43% from 1.69% and without SCUSA to 1.15% while we still see some room to decrease the cost of credit across the Group in 2015 with a normalization that is happening in other markets, but particularly in Spain.

Going to the balance sheet side, when Ana elaborated about the loans, we grew our loan book 5%. The first idea is a changing trend of the Group, so previously the loan book was shrinking. Secondly, we have clearly started to grow. I already mentioned the targets in SMEs, the launch of plans and more focused growth in some jurisdictions, like US in GBM, in SMEs in Poland. So plenty of projects to grow the loan book all across geographies, different by geographies.

And in individual customers particularly, there is a sharp rise in mortgages in Latin America and consumer credit in mature markets. In Brazil, mortgage grew 34%. In Mexico 17%. In Spain and UK we are growing. The new production is growing significantly, we will see later on. And in auto finance we are also growing nicely all across the board.

When it comes to deposits to mutual funds, well, we grew 6%. Well, the question here is to grow with lower funding cost, as we did. Our strategy has been to grow in current accounts. We grew 9% in demand deposits. There is a 5% fall in time deposits and 18% rise in mutual funds. So the mix is also improving in an environment where to grow in deposits with the rates being close to zero is a difficult environment.

In terms of liquidity, nothing to add. It's a comfortable position. The loan to deposit is fairly equal than previous year. The structural funding is good. And when it comes to the ratios, the LCR -- about the LCR and the net stable funding ratio, we are okay on those two ratios. And this doesn't represent any kind of concern to us.

In credit quality, overall NPL falling 5.19%, declining for the fourth consecutive quarter. This is 42 basis points below the end of 2014 -- 2013, excluding the entry of the GE Nordics, the ratio will have dropped 16 basis points in the last quarter.

Three areas in relation with the NPL. The first area is the sharp fall in the net entries, 51% below 2013. Plus decline in the NPLs year on year and improving in the four largest units, particularly in Spain and Brazil, which I will comment later on.

The coverage ratio rose to 67%. Well, it's important to take into account that 60% of the loans classified have real guarantees and so that requires less coverage. In short, we are seeing good trends in all the parameters related to credit quality and we expect this to continue along 2015.

Capital ratios. We disclosed all these capital ratios at the time of the capital increase. Above the fully loaded capital is core equity Tier 1 9.7% facing 12.2%. And you have the level of ratio at comfortable levels. As we mentioned in the capital increase, our target is between 10% and 11% core equity Tier 1 on a fully loaded basis. This is an excellent position to exploit the organic growth opportunities that we see in the majority or almost in all our markets.

Financial ratios. Well, the efficiency, we improved efficiency by 1.1% in the year. EPS went up 24% and return on tangible equity went up 1.4% to 11%. These trends put us in the right path to attain the medium-term goals that we have just made public.

Well, going to the business areas, the first thing we used to show to you is the attributable profit by geographic segment. We have UK, US -- UK and Brazil 19%, Spain 14%, the US 10%, and all other countries, Mexico, Chile, Poland and Germany between 5% and 8%. As stated the Executive Chairman, our diversification distinguishes us from our international peers.

When we look at the units by attributable profit, well, we have the first idea. All the units but Mexico were growing in profit after taxes. Mexico, the tax rate grew from 8% to 20%, pre-tax profit of 9% higher impacts us. US, there is a small change in perimeter before the minority interest grew, before this profit was 4% higher in dollars. So all the core units increased their pre-tax profits in local currency and for the first time -- this was for the first time since 2007.

I will analyze the three main units, UK, Brazil and Spain later on. But let me to say some words about the other units. In consumer finance, well, the business is performing well. We are growing basically the double than the car sales. The production is growing double than the car sales. So we are gaining market share.

The outlook for 2015 is very good. We are speeding up the implementation agreements with PSA. In fact, the business in France and UK started to be part of the Group, 50%, as you know, those are joint ventures, at the beginning of February. This is some EUR10m, around EUR10m portfolio were incorporated. The total under the agreement is around EUR19m. So EUR10m were already incorporated.

For the rest of the year, we expect around summer to incorporate Belgium and Portugal; around the fall, Spain, Switzerland and Poland; and at the beginning of 2016, Germany, Austria, Italy -- and Italy.

In US, the units follow different strategies. Santander Bank is focusing on the franchise and repositioned the balance sheet, selling unproductive assets. SCUSA increased significantly origination and sales and it's focusing in servicing activity, that is -- which is lower risk. We continue to build a commercial franchise and to adapt to the regulatory requirements. We continue to work and invest on the regulatory front in a process that is going to be multiyear because the hurdles we face are still significant.

Mexico, we are in an expansion plan. The plan was to open 200 branches. We opened 95 last year. Pre-tax profit increased due to the very good growth in gross income volumes and lower cost of risk. We continued to invest in the business in 2014 and we want to be one of the leading banks in the -- investing in the government infrastructure plan.

Chile, the results are not, as I mentioned before, are not 100% recurrent. There is a significant impact of the relatively high inflation. So we see relatively low inflation in 2014 and 2015. That is going to affect significantly the results this year, going up 35% very likely in 2014. In 2015 the results will fall with a more normalized inflation. But the on the ground business, the ground -- the business in the ground is growing around double digits, 9%, 10%, not the 35% we are showing at the bottom line due to the high inflation.

In Poland, we are growing well in the lowest interest rate environment we've seen in the country. Well, the underlying results are good, but there is a significant impact of the very low, or for the country standards, interest rates. And we are looking at the -- also at the Swiss franc. For sure that we will see developments in 2014. As of today, we do not expect a significant impact, but we will keep an eye on the developments there.

Lastly, in Portugal, well, it's literally the best bank in the country. It's well known; the only bank that is making -- is able to generate profit in the country. We are gaining share in this environment, apart from deposits and loans. The profit is continuing to normalization, 65% up due to lower cost of funding on provisions. There is still room to reduce funding costs in Portugal because they're still relatively high compared with other markets.

I will elaborate a little bit more on Spain, UK and Brazil. In Spain, well, as we were anticipating in previous quarters, we grew the loan book 2%. The last quarter we were 1%. That reflects the effort we are making, particularly in the SME segment. And on the funds side, we are growing 5%, with a significant different mix. We grew a lot in sight deposits. And mutual funds and time deposits are falling as a result of the new time deposits. The cost is 0.44% and the opportunity cost remains in current accounts is relatively low.

In results, the profit more than doubled due to lower provisions, cost savings and recovering net interest income. Net interest income grew 9%. Operational cost dropped sharply due to the integration. Provisions continued to normalize, still significant room to go. The cost of credit dropping to 1.15%, I always tell you that the average cost across the cycle is 70 basis points, so there is significant room to go there. And we'll capture significant part of this in 2015.

While incoming quarters, we don't see significant change of trends. We continue to see reduction in the funding cost. It's true that we are seeing pressure on the asset side. There is significant competition on the asset side, particularly in SMEs and also in mortgages.

If we look at the volumes, the loan book grew basically in companies, 5% up. We are increasing the production of new mortgages, 64%, not yet enough to offset amortizations. And we grew in SMEs 27%, well above the sector that are growing 8% thanks to Santander Advance. And we also saw 31% increase in new production in the large companies.

In deposits the fourth quarter was pretty much the same as the previous quarters' trends, rise in demand deposits, mutual funds and falling time deposits. Loan to deposits remain in a very comfortable position of 88%. Well, in NPLs -- NPL entries -- the net NPL entries fell 92% year on year. The trend is already reflected in NPL ratio while the coverage has remained stable.

In UK, there is a changing trend in volumes, well, grew the loan book 3% and 2% the customer funds. In the lending side we grew 8% in companies. We've been growing significantly faster than the markets. And in mortgages, well, the gross lending -- the gross new lending went up 43%. In deposits, well, these are obviously [suggesting the cost] of more [expensive] deposits, at the same time we continue to be extremely successful with the 123 product in current accounts as we can see later on.

The profit grew 30%, net interest income 16%, lower provisions. The costs, as I mentioned before in the fourth quarter the increase was partly due to amortization of the data center. So, well, we are seeing improvement in efficiency there.

Looking at the commercial side of the business, well, the 123 strategy continued to increase the number of customers at the pace of 100,000 -- 100,000 customers per month, EUR1b new deposits per month in new current accounts per month. We continue a bank that is capturing more switches, 25% of the switches we are capturing. We continue to strengthen our position in corporates, we are growing at 8% as I mentioned before. And we are investing in new business centers and relationship managers; you've got the figures -- you've got the figures there.

Initial commercial dynamics and results were very good. We want to do more of the same in 2015, increase loyalty of customers, growing current accounts, continue to grow faster than markets in business of corporates, and continue to have a clear focus on efficiency.

Finally in Brazil, well, in a not-very-good macroeconomic environment, relatively high inflation, 6.4%, GDP flat, interest rates went up to 12.25%. The business is performing relatively well in this environment. Business and results are beginning to reflect the results of our strategy. The better growth in the loan book, 6% quarter on quarter probably -- 10% year on year, probably this is a little bit overstated because some of the portfolio is in dollars. And as a result of the depreciation this overstates a little bit in the growth in the lending. But excluding the exchange rate lending grew in the last quarter 5% quarter on quarter that is remarkable.

There is a better trend in SMEs following the fall at the start of the year. We're strengthening also the segment with the launch of Advance this quarter. Mutual funds grew 16%, deposits 8% so we are seeing pretty good trends, encouraging trends in the country. The profit EUR1.5b, plus 8% year on year on local currencies, some change in perimeter due to the loss in the last two months, but not very significant. Fee income increased up by a nice rate and net interest income plus fee income in the last two quarters was higher than the previous year.

When it comes to the loan book, and this is important to understand the dynamics in Brazil, we are growing very fast in large corporates and corporates, and mortgages. Relatively low [GIL], low-risk portfolios. While in the other individuals that is basically consumer and SMEs we're not growing. This helps to understand why the net interest margin has been trending down and provisions also trending down. So -- and the great quality improving.

So in short, with this selective lending by products, by segments and with a new mix of profitability and risk, we are getting a 13% growth in net interest income after provisions. In credit quality we do not -- we expect to continue with these trends, not to be the same pace of decline that we saw in the last couple of quarters. And in the country, we see the country with the macro is not particularly good, probably fairly flattish kind of GDP behavior this year. But the Bank, our Bank has the capacity to improve and to grow internally.

We made two acquisitions that will help to this, to keep us growing above our peers. We acquired GetNet, a minority interest in GetNet the acquiring business and we are going to integrate Bonsuccesso that is the payroll-based lending where we are quick while we reduce our loan book in 2014, while our competitors are growing well in double-digits and we expect to address this issue in 2015.

The outlook, let me to sum up a little bit. We are seeing good dynamics in results and volumes, comfortable capital and liquidity position. We are improving risk. We are going -- doing a global risk management program on several years. We are working on increased customer linkage and satisfaction as part of our operational excellence targets. And we are -- we have measures on this regard to combine cost/income, customer satisfaction and employees' engagement along this process. The objective of this, as the Executive Chairman has mentioned, is to make Santander the best bank to work for, to do business with and to invest in.

In order to focus in the aspirations we have in financial targets, we have three-year objectives for improving the key aspects of the Bank. Growth, we expect to grow faster than peers, of all peers. Operating excellence in the three components, gross income, customer satisfaction and employees' engagement, risk management with our target was already stated; the solvency our 10% to 11% core equity Tier 1 on a fully loaded basis and profitability 12% to 14% with an EPS growth that I think is going to be superior to the peers.

And now we remain at your disposal for the questions you may have or your send to us through the -- through the web.

Thank you, Jose Antonio, good morning everybody. We proceed now to the Q and A session. As usual, we will start responding questions that we have received via email and at the end we will follow with any other questions that may be remaining or that may arrive via Web ex.

Let's start first with a block on strategy. We have an initial question from Francisco Riquel from N+1 on strategy. The question is, given your ambition to become top three in the main markets where you operate, do you have any M&A plans to get there in the markets where you're currently below top three?

Yes, so we'll consider add-on acquisitions in the core markets where we operate. We don't have this as a priority at the moment. Our priority will be organic growth, as I outlined in my presentation. But there are some examples, for example, Portugal we're looking at something in Portugal, as we've said. But this is not a priority for us over the next few years.

Okay, thank you. A second question also on the strategy for Rohith Chandra for Barclays. Which geographies do you see as the greatest opportunities to increase your loyal customers?

Yes, I think I had a slide in my presentation also where I covered the four major markets where we have the largest number of active customers, that's Brazil, the UK, Spain and Mexico. In these four countries we have close to 40m of active customers. And I'd say the biggest increase potential in the next couple of years is probably Spain. Just to give you an indication, in Spain we only have 23% of what we call loyal customers at the Group level and our aim is to grow to close to 40%.

Just to make clear, what we define loyalty in -- at -- in this Group measure as a retail customer who has a primary banking relationship with Santander. And these are the four markets where we expect the biggest growth in loyal customers.

Thank you. A follow-up question also on the strategy and customer loyalty, also for Rohith Chandra from Barclays. How's the focus on loyal customers expected to change the business mix between different products and between retail and corporate customers?

Well, in these major markets and we've seen this happen in the UK, the biggest change is the increase in current account balances. However, if you go to a country like Spain where we already have a very significant part of our balance sheet in current accounts, the change in mix will be less -- less dramatic than what we've seen in the UK. But in general going to more loyal customers in the definition where a loyal customer is someone who has their primary banking relationship with us, you should expect higher growth in current accounts, in debit cards, credit cards.

In terms of the mix between retail and corporate, this depends very much on the geographies. Again the UK is an example, but Brazil or Mexico where the growth in SMEs and corporates should be faster than the retail side. But it's going to take a long time to have a significant impact, for example in the UK, because of the size of the retail -- in the case of the UK mortgage balance sheet. But in general we are expecting to gain market share in several markets on the SME and corporate side.

Thank you. We also have a question on the -- a question on the implications of banking union for your M&A strategy. This question has been asked by Andrea Filtri of Mediobanca, but there are also a number of related questions on the same issue. For instance, Marta Sanchez for KBW asked about the possible transactions of Pioneer and Novo Banco whether we can give an update on that, same thing Andrea Filtri.

So, banking union I'd say generally it's good news, it's happening, so we've taken significant step forward over the last few years. And it's very positive for European growth and therefore for European banks, so I think this is a very positive opportunity. However, I think this is, at least for us, more a medium-term opportunity. I don't see that there are any -- well, there's the example I made of Portugal, but that is not really driven by banking union. I do think over the medium term you'll start seeing more pan-European banks offering services. But I don't see that in the next few years.

And there was another? Pioneer, you want to say something? Pioneer, well, do you want to say where we are on Pioneer? And Portugal we've just answered, but Portugal we're just analyzing the opportunity. We're a major bank in Portugal and as part of the system and as we did in the case of Spain when there are opportunities we will take a look at them. And Pioneer, Jose Antonio?

Pioneer, well, what I can tell you at this stage we are still in negotiations. What I can tell you is that this makes a lot of strategic sense, but we are still in negotiations with the other parties.

Thank you. Then we have a number of questions regarding the general outlook for the business going forward. We have a question from Ignacio Ulargui from BBVA on what is our view regarding margins and volumes in the Spanish operations, as well regarding lending yields for Spain as well? How do we see the overall outlook for Brazil as well?

Yes, in terms of the -- let's say the outlook at the Group level and then maybe, Jose Antonio, you want to complement on specific countries. But I'd say overall -- so the guidance we've given is to 2017. We've given guidance in terms of achieving a cost/income below 45%, return on tangible equity between 12% to 14%, core capital being between 10% to 11%, EPS better than peers, and so on. So these are the guidelines that we will give for the Group.

Now, in terms of 2015 our specific markets what -- it's quite different I'd say Europe from Latin America. In most European countries the top-line growth will be driven more by volumes than margins, even though in the first few months of the year certain countries will continue to see some margin benefit, like Spain. The UK for example the guidance is broadly flat margins for 2015 and growth in volumes.

The second important idea is that we are growing and expect to grow more than the market, and continue to grow more than the market in countries like Spain or the UK, more in SMEs and corporates. In the case of the UK growing mortgages in line with the market. So those would be the main guidelines in terms of specifically for Europe.

In terms of Latin America, obviously the tendencies are quite different and we do expect different tendencies, and depending on the markets. And more both margin expansion in some cases and growth in volumes. In the case we also have PSA coming on board this year, so that's a significant addition to our business. This means EUR3b in the UK and a total of EUR8b, EUR9b for the Group, EUR10b for the Group I understand.

Well, the total is EUR18b.

EUR18b, so that as a summary is how we see 2015. And also Jose Antonio maybe on Brazil?

Well, you mentioned Spain and Brazil margins, volumes, lending yields. Well, in Spain we remain positive we can still keep reducing the cost of funds. The main uncertainty comes from the asset side as I mentioned in the presentation where we continue to see margin pressure. Overall we remain optimistic about the potential growth of the net interest income in Spain due to a combination of volume, higher volume, lower cost of funds and some pressure on the asset side. Overall we expect to be positive.

You mention Brazil, the trends, well, I said with respect to lower revenues. On a like-for-like basis we are improving the net interest margin in the lending book. The change in mix is we expect in 2015 not to be as significant as it was in 2014. So overall with a relatively low -- and relatively low for Brazil means around inflation, 6%, 7% loan growth, we should be able to grow net interest income in Brazil in 2015.

Thank you. Again, coming back to general business outlook by different geographies, we have a question for Rohith Chandra specifically on the UK outlook, particularly where the net interest margin can continue to rise with mortgage pricing under significant pressure. And, what would be the volumes -- what would volumes be the main driver of 2015 in the UK, or do you expect any other?

I think you kind of mentioned already, so UK will be more about volumes. We expect overall margins broadly stable for 2015. Some pressure on the asset side and some improvement, continuing improvement on the deposit pricing, but overall margins stable. And growth in net interest income coming from volumes and continuing growth above market in SMEs and corporates. And growing in line with the -- in terms of mortgages, that is our expectation. We grew the balance sheet this year by 3% already. So growth is already happening in volumes.

We have a next question on digital transactions from Mario Lodos from Banco Sabadell Bolsa asking us whether we have any kind of details on the share of digital transactions versus traditional transactions in our ongoing business.

So, this number is very different for different countries. Some countries like the UK most of our transactions are done actually online, either digital or mobile. In other countries it's still -- are still quite behind. The important thing is that in our plans we're aiming to almost double the number of digital customers, the customers that deal with us through digital channels.

We're investing in many countries significant amounts and the objective is that all our customers can see, can manage and buy all our products through all our channels and that is the goal for the next couple of years in all our major markets. Again in some markets we're there; in others we'll be there by the end of this year. And a few others will take maybe a couple of years.

Thank you. We have a question specifically on our guidance that we have given on M&A by Rohith Chandra of Barclays. We said that basically the capital increase will help us in our organic growth but small acquisitions complementary to this organic growth maybe could also be considered. The question is, were we able to provide an indication of what sort of size does that type of M&A mean?

Well, the only indication we can give is what we're looking at in Portugal. That is they're not significant sizes. We don't have anything that is significant except the Portuguese opportunity we're looking at, as I said.

Okay, one -- two more questions on outlook in our guidance, one question from Juan Carlos Calvo from Banco Espirito Santo asking guidance for 2015 particularly on operating expenses and cost of risk.

We -- I mean the guidance is the guidance we've given to 2017. But I think Jose Antonio and I, we've mentioned already that we see the top line growing more through volume growth than margin expansion. There's exceptions, like Spain, where we still see some potential for improving deposit funding, actually in the UK. But net interest margin is actually going to be broadly stable in some of the markets where this year we've seen significant expansion, so growth coming from that.

Growth in fee income, operating expenses, we've given the guidance of reaching 45% cost income by 2017. We're at 47% this year, so obviously there'll be slight improvement there also. And cost of risk I'd say stable to down in most of our markets with almost no exception.

Very good. One question again on guidance, on the impact that the QE from the ECB this again from Juan Carlos Calvo from Banco Espirito Santo, what do we think that this will impact our banking business in the years on, particularly in volumes and then interest margins?

So, it depends what the timing is in terms of the question. I think medium term it's incredibly positive. It has to come with other measures, like structural reforms continue in the countries, like some fiscal policies and very importantly having banks being able to lend again. But overall it's very positive for growth; it's therefore very positive for the banks. However, in the very short term it could be marginally negative for margins as there will be more pressure on the asset side.

Again it depends on the repricing on the liability side and how long that takes, and how much more we have of that. But I'd say net-net it's good. We've seen demand pick up again in our case, so Santander new production in Spain was up 64%, 65% for mortgages last year, the new production. SMEs and corporates, I think we gave these numbers, between 27% to 31% growth. So I think net-net this is positive again and it will not be the same. But in the countries where we operate, Poland, Germany, Spain we are quite positive on growth for this year.

Okay, very good. One last question on general strategic things, we have a question from Raoul Leonard from Deutsche Bank regarding changes in management. The question is that we have announced a number of senior management changes over the last few months. Are we finished with this management reshuffling? And are we seeing already tangible benefits, for instance, in falling costs?

Well, I'd say, yes, we're done. We're not anticipating changes. At the senior level we've made quite a few changes. But I'd like to emphasize that with some exceptions, like our Chairman in the US, our Chairman in the UK and in Brazil, all these changes are from people with lots of experience in the Group. So we already -- I think nobody needs a long adaptation period. So we're ready to go, we've made the changes. We think it's good to have made the changes so we can now focus on running the business and that is what we're going to do, execute on the plans that we have outlined, and start focusing on our customers and our people and delivering on our plans.

Thank you very much. Moving more to more specific issues, we have a question on specific details on our -- on our agreement with PSA and our joint venture going forward. Juan Carlos Calvo from Banco Espirito Santo and Stefan Nedialkov of Citi are asking we can give more details particularly regarding the timing of the deal going forward, the implication on earnings as well as on core capital ratios.

Well, in the PSA deal, as I commented, this business that affects I think 11 countries, but is mainly concentrated in France, Germany, UK, Spain and Italy. We already close -- we already incorporate to the joint venture, France and UK as of beginning of February, this is around EUR10b loan book. We expect along the year and I mentioned in the presentation in the summer a couple of other countries and to finish the integration of all the PSA deal at the beginning of 2016.

At the end we're going to have around EUR18b loan book. Well, the majority of those loans are in standard models, so the capital consumption you have the details. The target in this kind of business and I am taking our assisting auto finance business in consumer finance as a proxy, we are getting here around 1.6%, 1.7% return on risk-weighted assets. And this is what the kind of return we expect from the PSA deal. Remember that we are going to have 50% of this business. So those are joint ventures with 50% owned by Santander Consumer Finance and 50% owned by the group, PSA.

Thank you. We have another specific question regarding regulatory concerns in the US, particularly the SICAV process. Raoul Leonard from Deutsche Bank is asking whether we can give an update on the implications of the SICAV process. I think we have given that on the presentation already. But the question more specific is asking whether we're still investing or whether we should expect costs to fall in the second half of 2015 as the SICAV results are published, are these costs structural in our business?

As I mentioned in the presentation, we are still facing significant hurdles there, significant. We're going to keep investing, we need to keep investing. This is a multiyear process. As I mentioned we hired 500 people. This is going to stay or probably increase the cost of these regulatory -- not only the SICAV, overall the regulatory requirements. Because we're still going to go up at some point, probably more in 2016, 2017 we will be able to reduce some of those. Not in particular a big number but some of those related more with vendor services that we are now hiring in order to offset or to build basically the models that we need to build for the -- for -- to have an outstanding SICAV as required by the regulators.

Thank you. Now, moving on to a section on capital and financial management, we have a number of questions. We have a question from Andrea Filtri of Mediobanca and Stefan Nedialkov of Citi regarding our guidance of 10%, 11% targets for capital ratios. The question basically implies what will be -- what determines where we'll go towards the 10% or 11% and whether the ECB is comfortable with, or has given an indication about how they feel about this target?

Well, the 10% to 11% is our internal assessment it's our internal target. Well, I think taking into account the capital has always two sides, the risk you have in your business model and the absolute amount of capital. We think that the 10% to 11% for our risk profile is where we should be and we don't have at this stage an indication of the ECB in relation with the fully loaded ratio where we should stay in this ratio.

Thank you. Also on capital targets, basically they were asking us, again Stefan Nedialkov from Citi, what does this guidance imply -- or assumes for dividend payouts, buybacks and M&As?

Well, it was already mentioned. So in M&A it is clear, we are focused on organic growth. We think that we have significant growth in front of us in terms of organic growth. And we mentioned the capital -- when we raised capital that we expect mid-single-digit risk weighted asset growth in 2015. And in dividend we already set our stance to have a growing dividend policy with a payout between 30% and 40%. And the dividends grow along with the profits.

We have a question from Raoul Leonard of Deutsche Bank on DTAs asking us about the amount of monetizable Spanish DTAs and Portuguese DTAs as of the end of the year. I can answer that, the Spanish DTAs amounts were EUR5.7b monetizable and the Portuguese were negligible, non-existent.

Moving onto our ALCO portfolio, we have questions from Raoul Leonard, Benjie Creelan from Macquarie, and Marta Sanchez of KBW, basically asking us about the volumes of our ALCO portfolio and in specific about our available-for-sale assets in Spain which soon have to be increased significantly over the quarter, as well in the UK, whether we can give -- what are the tactics on this ALCO portfolio.

Well, as you know the role of the ALCO portfolio is to hedge or to hedge off too much the interest rate risk. We've been growing very fast in current accounts, in sight accounts, both in Spain and UK. Our balance sheets are relatively, not only relatively are very short, so the duration of the balance sheet both in Spain and the UK is negative. And some of this portfolio is starting to offset partially not 100% because the relation is negative in both countries and these portfolios tend to offset partially some of the interest rate risk we are facing. Naturally those commercial balances are -- the position is to higher rates by natural -- by the nature of the business.

Very good. We have a specific question from the Ignacio Sanz from UBS which asks, what are the underlying interest rate assumptions for Santander's geographies for the 2012-2014 RoTE target that we have given? Basically we can provide details on this later on, but I can just announce that this was based -- is based on the forward curves of the different countries, forward interest rate curves that were put into the budgeting process.

Interest -- we also have questions regarding the [growth] of risk-weighted assets for Ignacio Sanz again, and specifically on Santander Consumer Finance, what was due -- what was the reason behind the 5% fall quarter on quarter on the -- while the loans grew by 3%?

Well, I don't know it's specifically to this, but we've had to improve the internal rate in basic models in Germany, yes, I think as a result of the approval of this internal-rate-based models, the risk weighting fell significantly. Having said that we got the approval for consumer lending not for mortgage lending in Germany, not yet, okay, still some room to go but we are not including this in our forecasting just because in the past we were not particularly good in forecasting when we're going to get the models approved.

In the same line of risk-weighted assets we have a question from Raoul Leonard of Deutsche Bank highlighting that in Brazil there was a 20% jump in risk weights -- risk-weighted assets at the quarter. What was the -- what should be the future trend of risk-weighted assets going forward given this high increase in the fourth quarter?

Referring to specifically what?

Brazil risk-weighted assets (inaudible).

Brazil risk-weighted assets, well, risk-weighted assets in Brazil should grow along with the loan book, I don't see any other particular reason. There is -- potentially there is one saving that we've been anticipating for several quarters that is due to operational risk. As you know the standard model in operational risk is a percentage of the revenues. As revenues in Brazil are very high due to the high net interest margin, while we were expecting to go from a standalone loan to the standard alternative model for several quarters we haven't been able to get there.

We were anticipating that was in the region of 20 and 30 basis points. And we're sure that we're going to go to the standard alternative or we're going to go directly to advanced model in operational risk that will provide some of these savings.

Good, thank you. We have a question regarding (inaudible) from Raoul Leonard of Deutsche Bank, he noticed in the Corporate Center there's au charge for EUR332m. He wonders how much of this was due to the German (inaudible) and whether this issue is now completely resolved? Or whether could there be further provisions ahead?

Well, I mentioned in the presentation the net number -- the net charge in the Corporate Center was EUR260m in the fourth quarter for this issue of (inaudible) in Germany. Going forward we do not expect, because we are stop the [fund increase], the general fund increase in 2012 and this settlement we done is that the one does go from, if I remember well from 2004 and 2012 and there is nothing significant that may come in the future.

Very good. Now, moving on to more specific questions about specific geographies, particularly in Spain a number of questions from David Vaamonde from MainFirst, from Marta Sanchez from KBW, Rohith Chandra for Barclays, all of them asking basically whether we see term deposits have come down again this quarter. Do we see a floor coming in the price of term deposits? And what's the implication of this with net interest margins going forward?

Naturally we see a floor for time deposits; probably to go beyond certain limits is going to be difficult as you may understand. But having said that the average cost of deposits at the end of 2014 if I remember well was around 0.6%, 0.60% something. We still expect a significant -- significant reduction on the average cost of those deposits because on average the new production of time deposits is coming at 0.4% or something like that, but the average cost of time deposits is still north of 1%, so we still expect significant reduction there.

Okay, another specific question on Spain also regarding deposit costs has to do with our campaign in Cataluna, Raoul Leonard of Deutsche Bank and Mario Lodos of Banco Sabadell Bolsa both asked whether we can give some details on how this campaign has evolved in volume and in margins and whether we expect to apply this tactic in other regions in Spain.

Well, this specific campaign in Cataluna the target is to increase our market share there. Well, I don't have the details on those deposits. But it's not -- when I was talking before about the overall cost of deposits include naturally this campaign in Cataluna that given the size is not going to be material in terms of the trends in overall deposit cost.

Okay. Now, moving on to Latin America, we have a general question regarding our Latin American operations from Andrea Filtri of Mediobanca. He's asking how will -- how will our Central and South American franchises cope with the low commodity prices? What does that -- the implication of this for our business in this region?

When you mention low commodity prices the only one that may affect -- the only commodity that may affect in a significant way or in some way our business is oil, mainly due to the reduction in CapEx in the result in Brazil that was already announced by Petrobras and maybe the same happen in Mexico in some way in relation with Pemex. We're reviewing our exposure, not to these big companies that we don't expect any particular outcome there. The contractors of those companies is not -- is not significant -- is not something that worries us. That is where we expect not a significant reduction on activity going forward due to the reduction in CapEx in the oil exploration industry.

Okay, thank you. We also have some specific questions on the impact on Petrobras on Brazil, which I believe you have answered already. Now, moving onto Brazil we have two range of specific questions, Ignacio Ulargui from BBVA and Rohith Chandra from Barclays both ask us about the outlook going forward. How do we see us positioned in the market? Have we seen the bottom in terms of margin pressure? How is the change in product mix going to be evolved going forward, particularly in 2015 without the main risk to credit quality that we see there?

Well, in relation with the margin, as I mentioned before on a like-for-like basis we are not seeing margin compression in Brazil, so quite the opposite, we've been able to re-price up some products. The overall net interest margin fell due to the mix while we expect to grow to address some of this issue in 2015 due to the launch of Advance in SMEs that as you -- we show in the presentation we were not able to grow in SMEs in 2014. And our book decrease in individuals that naturally is the highest margin.

With Bonsuccesso in the payroll-based lending, our book decreased significantly, while our competitors were growing in 15%, 20%. And we expect to address with GetNet and Bonsuccesso our relatively weaknesses in individuals and with the Advance program in SMEs. So we expect the mix to remain changing but not at the base we saw in 2014.

Okay, we have another specific question on Brazil, from Raoul Leonard from Deutsche Bank regarding on trading gains there. He says that we have reported a negative trading income in the fourth quarter, what will be the reasons for that?

Well, by definition trading rates are volatile, I suppose I don't have a specific announcement for this probably -- for this is -- should be related with the increase in rates probably, it comes to my mind, I'm not 100% sure.

Well, thank you very much. I believe that we have no further questions to be addressed at this time. I hope we have addressed all of them thoroughly. Nevertheless, after this conference call, please feel free to contact anybody in the investor department relation -- investor relation department; I apologize, for any further questions or clarifications you may have.

As you may already know I have recently been appointed to the Group, by the Group to new responsibilities in the area of regulatory affairs. And the new Head of Investor Relations Sergio Galvan has been appointed already to this position, Sergio's already here with us, welcome, and fully engaged. And I would like to thank you all for your professionalism towards me throughout this month I have served in this role as Investment Relations Director and I wish Sergio all success going forward.

I would like to thank you all for joining this conference call and I wish you a good day. Thank you very much,