Banco Santander Q2 2025 Earnings Report

Banco Santander EPS Results

• Actual EPS: $0.22
• Consensus EPS: $0.26
• Beat/Miss: Missed by -$0.04
• One Year Ago EPS: N/A

Banco Santander Revenue Results

• Actual Revenue: $17.83 billion
• Expected Revenue: $17.69 billion
• Beat/Miss: Beat by +$136.35 million
• YoY Revenue Growth: N/A

Banco Santander Announcement Details

• Quarter: Q2 2025
• Date: 7/30/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, July 30, 2025
• Conference Call Time: 4:00AM ET

Banco Santander (NYSE:SAN) (NYSE: SAN) is a leading global financial institution headquartered in Santander, Spain. Founded in 1857 to facilitate trade between Spain and Latin America, the bank has since evolved into one of Europe’s largest banking groups. Its universal banking model integrates retail, commercial, and investment banking under a single corporate structure, allowing for a diversified revenue stream and cross-border synergies.

The bank’s core business encompasses a broad range of financial services, including deposit-taking, lending, payments, wealth management, asset management, and insurance. In retail markets, Santander offers checking and savings accounts, personal and mortgage loans, credit and debit cards, and consumer finance solutions. For corporate and institutional clients, the bank provides treasury and cash management, trade finance, capital markets access, and advisory services, alongside specialized financing for large infrastructure and energy projects.

With operations in more than 30 countries across Europe and the Americas, Banco Santander maintains a well-balanced geographic footprint. Key markets include Spain, the United Kingdom, Portugal, Germany, and Poland in Europe, as well as Brazil, Mexico, Chile, and the United States, where its presence was bolstered by the acquisition of Sovereign Bank in 2009. The bank leverages digital platforms and mobile banking apps to enhance customer experience and extend its reach in both mature and emerging markets.

Under the leadership of Group Executive Chair Ana Patricia Botín since 2014, Santander has prioritized digital innovation and sustainable finance. Initiatives such as the digital-only Openbank platform and the expansion of green lending products reflect the bank’s commitment to technology and environmental, social, and governance (ESG) principles. Throughout its history, Santander’s growth strategy has combined organic expansion with strategic acquisitions, reinforcing its position as a major player in global banking.

Banco Santander Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: The bank reported a record Q2 profit of €3.4 billion and its best ever first-half profit, driven by strong net interest income, double-digit fee growth and an 8 million increase in active customers.
• Positive Sentiment: Santander agreed to sell its Poland business and acquire TSB at five times earnings, generating around 100 basis points of capital and upgraded its share buyback program to at least €10 billion for 2025–26.
• Positive Sentiment: One Transformation initiatives delivered over 243 basis points of efficiency gains so far and drove the group’s efficiency ratio down to 41.5 percent, the lowest in more than fifteen years.
• Positive Sentiment: Credit quality continued to improve, with the group’s NPL ratio falling to 2.91 percent and the cost of risk improving by seven basis points year-on-year.
• Negative Sentiment: Foreign exchange translation, notably the depreciation of the Brazilian real and Mexican peso, created a roughly 5 percent headwind to reported revenue growth in current euros.

Presentation

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Good morning, and welcome to Santander's First Half twenty twenty five Results Presentation. We are delighted to be joined by our CEO, Hector Grisi and our CFO, Jose Garcia Cantera. We will start with the presentation and then come back for your questions. Hector, over to you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thanks, Raul. Good morning, everyone, and thank you for joining Santander results presentation. We will follow the usual structure. First, I will talk about our results with a special focus on the performance of our global businesses. Then Jose, our CFO, will give a deep dive on the financials.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And I will conclude with some final remarks before opening up for Q and A. Before starting the presentation, let me remind everyone that we have announced an agreement to sell our business in Poland. Given that, until the deal is completed, we're still managing Poland as prior to the announcement. All figures in this presentation include Poland. We are approaching the end of our strategic cycle well ahead of our plan.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thanks to our disciplined capital allocation, which is further improving profitability up to 16% post AT1 with our CET1 ratio at 1388% of our RWAs generating returns above our cost of equity. After our latest inorganic transaction, we decided to accelerate execution of our EUR 10,000,000,000 share buybacks and upgrade our share buyback target, so we now expect to distribute at least €10,000,000,000 to our shareholders through share buybacks for $25.26 subject to regulatory approvals. Q2 was another record quarter, demonstrating the strength of our strategy and the resilience of our business model in a more challenging environment. Our quarterly profit hit a new record of $3,400,000,000 making H1 twenty twenty five the best first half ever driven by strong revenue growth across global businesses and our solid franchise of 176,000,000 customers that continues to grow, having increased by more than 8,000,000 year on year as we improve customer experience, leveraging our global platforms. We achieved this as we continue to invest for the future through one transformation, making excellent progress towards a simpler and more integrated model.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

This has helped us to improve our efficiency and increase our post-eighty one RoTE by almost one percentage point to 16%. Our balance sheet remains solid with a strong capital ratio, which ended the quarter at 13% at the top end of our 12% to 13% operating range. All this contributed to strong shareholder value creation, with TINA plus dividend per share growing 16% despite the depreciation of some currencies across our footprint. Going into more detail on our income statement, our P and L remained very solid. We delivered strong top line growth with revenue up 5% in constant euros, supported by NII, which increased 1% or 4% excluding Argentina, and also by new record fees, up near double digits supported by significant customer growth and the network benefits we're capturing through our global businesses.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Expenses grew below revenue, showcasing the positive effects of Fromar transformation. We reiterate our target of lower cost in current Euros in 2025. We are once again demonstrating the sustainability of our results with 5% growth in net operating income. Our prudent approach to risk is also evident in our robust credit quality trends, with a cost of risk that is consistently improving year on year. As a result, profit rose by double digits year on year.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Lastly, this quarter we had positive and negative one off charges that were not part of our ordinary business and are fully compensated in the net capital gains and provisions line. All in all, as we have shown over time, our results are sustainable and less volatile than peers, even in an increasingly challenging environment. We are ahead of plan in executing our transformation, which continues to boost our operational leverage, structurally improving both revenue and cost performances. Simplifying and automating processes and our active spread management have already contributed two forty three basis points of efficiencies since we started. Our global businesses continue to drive the group's profitability and have delivered 104 basis points in efficiency gains.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Our proprietary and global tech capabilities have generated 87 basis points in efficiency so far, surpassing the levels which we expected to reach by the 2025. As we said last quarter, there is still more upside over the medium term from our strategy for both revenue and cost. Retail and consumer, which represent 70% of our revenue, have significant upside as we progress on the implementation of common platforms across all our global footprint. The rest of our revenue comes from wealth, CIB and payments, which are more fee driven and will deliver additional efficiency improvements as we continue playing to our network strengths. All our global businesses delivered revenue growth while we improved group's profitability.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Customer activity continues to drive revenue growth across all businesses, double digit in Wealth and Payments and also strongly in CIB. Profit also grew at double digit rates in every business except Consumer, which remained broadly stable year on year and improved significantly in the second quarter. In terms of profitability, we're already above the target we set for 25% in most of the cases, with an efficiency ratio that is improving at group level. The combination of our global businesses and our geographic footprint is a powerful example of how diversification works, putting us in a great position to navigate the challenges ahead. Higher than expected interest rates support some of our retail franchises, while other parts of our businesses, such as consumer and certain emerging markets, perform better with lower rates.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

It is this diversification that allows us to deliver recurring strong results, consistent profitable growth and value creation even under more challenging circumstances. Overall, the record first half performance, the execution of our strategy and our diversification keeps us on track to achieve our full year profitability targets. In retail, we are transforming the way we operate to become a digital bank with branches, combining cutting edge technology with expertise and proximity of our teams. This combination is very powerful. It enables us to match the customer experience of digital only competitors while offering personalized support and advisory through our branch network.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Over the last year, we have gained almost 3,000,000 active customers, increased 3% our deposits, and digital sales are up 16%. A key initiative is our new based AI global CRM already being deployed across the group. In Spain, we completed the rollout of this CRM in the branch network during the quarter, boosting agent productivity by 23% in our assisted channels. On the cost side, automation is reducing operational complexity, allowing teams to focus more on customer interactions and value added activities and reducing manual activities to improve our cost to serve by 2% year on year. Are progressing in the rollout of our global platform.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

This quarter, we achieved a major milestone. We completed the migration of Gravity in Spain, following last quarter launch in Chile. This brings us closer to becoming the first major Western bank to operate fully in the cloud and has already resulted in tangible benefits. Respond times are 15% faster. Running costs have dropped over 65% in Spain.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Deployment speed has improved for one month to just two days. And customers now enjoy a faster, more agile and intuitive digital banking experience. Retail profit were strongly year on year, driven by solid revenue across most countries. Costs declined in real terms, while credit quality remained solid. In a more demanding environment, NII grew 3% year on year excluding Argentina, reflecting our focus on profitability and disciplined margin management.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Fees rose 8%, supported by higher customer activity. As we said last quarter, by enhancing customer experience, reducing operational complexity and fostering connectivity, we expect our transformation to continue driving customer growth and lowering cost in euros. In Consumer, we continue to advance in our priority to become the preferred choice for our partners and customers by delivering the best solutions and increasing our cost competitive advantage across our footprint. We are converging towards platforms. The recent launch of Openbank in The US, Mexico and Germany has proven highly successful, attracting €6,000,000,000 in incremental customer deposits.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We're expanding and consolidating partnerships, offering global and best in class solutions integrated into our partners' processes. Zynia, our checkout lending platform, continues to gain traction, with more than 200,000 new customers onboarded in Q2. Consumer profit was relatively stable year on year in a context of lower car volumes in Europe, which began to show signs of recovery towards the end of Q2 and was supported by a solid cost of risk performance. Quarter on quarter profit grew 16%, driven by strong net interest income and fees, as well as solid underlying LLP trends, mainly in The U. S, which was also benefited from some seasonality.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Costs remained flat, reflecting the benefits of our transformation. Our focus is clear. We prioritize profitability over volume. We are currently originating at ROTES above 16%, well ahead of our back book. At the same time, we're lowering funding cost.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Retail customer deposits grew 10% year on year and now represent 62% of total funding, up five points year on year. We are accelerating our transformation, which keeps bringing cost savings and we actively manage capital to maximize returns, redeploying it from lower return businesses to most profitable opportunities. As a result, we expect profit and NII to improve through the year as we continue to originate at attractive profitability levels, lower funding costs and accelerate and transformation. In CIB, we are building a world class business to better serve our corporate and institutional clients across our footprint, while maintaining the same low risk profile. Number one, we continue deepening our client relationships by expanding our advisory capabilities in The U.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

S, building on our areas of expertise to accelerate growth across the group. As a result, we are gaining market share and more relevant roles in investment banking. In The U. S, for example, we have won 30% more deals than last year, with better roles in a market where overall deal count has fallen by 11. Number two, we're strengthening our position in our core markets, leveraging our centers of expertise.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

A good example of this is a record half in global markets with revenue up 25% driven by, first of all, client flows, the investment banks investments, sorry, we made and the collaboration with global transactional banking and global banking. Third, collaboration with other businesses is also a key growth level. CIB provides FX solutions to retail, product development and structuring to wealth and a full suite of products, including capital markets and advisory to commercial and auto. Even in a more challenging context in Q2, CIB delivered solid results with revenues up 9% year on year, leading to the highest H1 revenue on record, supported by a higher NII increase and fee growth across the business lines and the exceptional performance of Global Markets in Q1. All these while we maintain one of the best efficiency ratios in the sector and then rotate above 20%, reflecting our focus on profitability and capital discipline.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

In Wealth, we are building the best wealth and insurance manager in Europe and The Americas. Number one, in Private Banking, we remain focused on expanding our fee business and consolidating our global position through value added solutions. This quarter, we launched Beyond Wealth, our new global family office service and opened a dedicated center for non resident customers in Spain. Number two, in asset management, we strengthened our position in alternatives with the launch of the Real Estate Co Living Opportunities Fund. And third, in insurance, which represents one of our most relevant growth opportunities, we're accelerating our strategy across two verticals: Life and Pensions, with new lines such as Retirement in Spain and Unit Linked Products in Mexico and Property and Casualty, expanding high growth businesses such as Health and Auto Compara.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

These efforts have supported a 6% year on year growth in gross written premiums. Fourth, promoting connectivity and collaboration with other businesses, mainly CIB and Retail, is also a major growth driver for Guelph. Collaboration fees increased close to double digits. In summary, all this supports a strong growth and high profitability. Profit rose 24%, driven by strong commercial activity and double digit fee growth across businesses.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Efficiency improved 1.5 percentage points year on year and Rote is close to 70%, making Wealth an extremely efficient and profitable business for the group. Finally, payments, where we hold a unique position on both sides of the value chain. In merchant acquiring, we're among the largest players in Latin America, Spain and Portugal. We are focused on expanding our global platform with a single API to serve all our customers, and we have already integrated several partners in Mexico, Argentina and Uruguay. As a result, GetNet total payments volume keep growing strongly, which is helping us to consolidate our presence in core markets.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

PagonX Payments is leveraging the best proprietary technology to deliver account to account payments processing, FX, fraud detection and other value added services. Volumes processed by our payments hub were four times higher than the same period last year. In cards, where we are amongst the largest issuers globally with 106,000,000 active cards, we continue to expand the business, offering best in class products to our customers. This quarter, we have introduced PaySmarter in Spain, a new initiative designed to enhance the security, control and benefits of credit card usage, encouraging greater adoption among our customers. We also continue to expand our joint value proposition with GetNet, now available in Spain, Chile and Portugal, and following the recent launch also in Argentina.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Payments delivered a strong quarter with double digit revenue growth year on year, both in cards and Pagonext, and costs under control driving 47% profit growth. Finally, Pagonex EBITDA margin improves to 29% backed by GetNet with one of the best ratios among our competitors. We expect revenue growth, cost efficiency and CapEx optimization to continue driving profitability in the coming quarters. Our strong operational and financial performance is improving profitability and driving double digit value creation for the ninth consecutive quarter. Post-eighty one ROTE was 16%, up nearly one percentage point year on year, reflecting the high levels of the new business profitability.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Earnings per share rose to more than $0.43 supported by strong profit generation and fewer shares following the buybacks. As a result, we continue to grow our value creation, which in terms of TNAV plus cash EPS increased 16%, reflecting our disciplined capital allocation and again the impact of our share buybacks. Buybacks remain one of the most effective ways to generate shareholder value. Yesterday, the Board of Directors approved a new buyback program up to €1,700,000,000 against 25 results, which, as the ECB has already granted the corresponding approval, will start to be executed tomorrow. Since 2021, and including this last program we are announcing today, we will have repurchased around 15% to 16% of our outstanding shares.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

These programs have been executed at an average price of EUR 3.9 per share, providing a return on investment of approximately 20% to our shareholders. I will leave you now with Jose, who will go into our financial performance in more detail.

[José García Cantera, CFO at Banco Santander]

Thank you, Hector, and good morning, everyone. I will go into more detail on the group's P and L and capital performance. But before I do that, let me make a couple of comments. First, this quarter we have recorded two one offs, obviously not part of our ordinary business, of the same amount but opposite directions. A net capital gain of €231,000,000 from the sale of our stake in CASEIS, amount that we decided to use to strengthen the balance sheet in Brazil.

[José García Cantera, CFO at Banco Santander]

Second, as we always do, we present growth rates in both current and constant euros. We have a difference of around five percentage points between them again this quarter, mainly due to the depreciation of the Brazilian real and the Mexican peso towards the end of last year. As the CEO explained, we are yet again reporting record results this quarter for the fifth quarter in a row. Revenue grew 5% with a good performance in costs, in line with our objective for 2025. Cost of risk remained stable in the quarter, supported by robust labor markets and prudent risk management.

[José García Cantera, CFO at Banco Santander]

There are several positives and negatives in the other results line, but the concepts that explain most of the significant jump in this line year on year are the write downs in Pago Next and the temporary levy on revenue earned in Spain, which were accounted for last year. Finally, on the right hand side of the slide, you can see the upward trend in profit, which grew 4% this quarter on the bank of an outstanding NII performance, which rose 2% quarter on quarter, cost control and better loan loss provisions. Total revenue increased 5% to CHF 31,000,000,000, on track to meet the target for the year in a less favorable context than initially anticipated. This was underpinned by growth in number of customers and in their activity with us across all businesses. All our global businesses contributed to revenue growth, which was mainly supported by another record half in CIB, up 9% year on year, driven especially by global markets and our growth initiatives in The U.

[José García Cantera, CFO at Banco Santander]

S. We had 14% revenue growth in wealth, with record assets under management and strong commercial trends. Payments was up 17% with double digit growth in NII and fees, both in Pagonext and cards, which was fueled by higher activity levels. And we showed a strong performance in Retail and Consumer. In Retail, particularly due to good NII and fee income in most countries and in Consumer supported by net interest income growth both in Europe and in The U.

[José García Cantera, CFO at Banco Santander]

S. The group's NII increased 4% year on year, excluding Argentina. Almost 85% of the group's net interest income comes from retail and consumer. However, this quarter, most of our businesses contributed to the overall positive growth year on year, which was supported by our active asset and liability pricing management, most evident in consumer, both in Europe and in The U. S, with improving loan yields and a funding structure with a larger share of customer deposits, but also in retail, especially in UK, Chile and Mexico lower funding costs related to market activities in CIB and the measures that we have been taking in the last few quarters to adapt the sensitivity of our balance sheets to protect NII on the new cycle of interest rates.

[José García Cantera, CFO at Banco Santander]

A good example of this is retail, where NII increased across most countries and remained fairly flat in Spain and Brazil in a less favorable context for interest rates. As you know, we have positive sensitivity to rates in Spain and negative in Brazil. Net interest income grew 2% quarter on quarter, primarily due to the performance of net interest margin, which improved in the quarter for the same reasons that I mentioned before, while it fell only 10 basis points year on year without Argentina. This performance is in line with our guidance of NII, going slightly up in 2025 in constant euros, excluding Argentina, and slightly down in current euros, guidance that we reiterate. We generated another record half in net fee income, reflecting our transformation efforts to promote connectivity across the group, deploy high value added products and services, and provide the best customer experience.

[José García Cantera, CFO at Banco Santander]

Net fee income grew close to double digits, well above inflation and cost on the back of a strong activity in general, customer growth and a mix that is more weighted towards value added products and services. Retail showed good performance across our footprint with solid consumer growth. CIB grew 9%, up from record levels last year, with an excellent after an excellent first quarter. And the second quarter was supported by the good performance in GTV and as we continue executing our growth initiatives, particularly in Global Banking in The U. S.

[José García Cantera, CFO at Banco Santander]

We had a 20% increase in wealth, with a strong growth in all business lines, backed by record assets under management and a greater share of fee businesses. We showed double digit growth also in payments, both in Pagonext and cards, supported by high activity levels as GetNet's total payments volume increased 15% and cards spending rose 9% year on year. As we detailed in the first quarter, this year, consumer is affected by the impact of a new insurance regulation in Germany and also by lower car registrations in Europe. However, strong fee income growth in consumer U. S.

[José García Cantera, CFO at Banco Santander]

Came mainly from servicing fees on auto portfolios sold under our capital light strategy, which is helping to partially offset this impact. And our strategic focus on insurance is also delivering tangible progress in consumer across Europe and LatAm, with rising penetration expected to translate into higher fee income generation as activity gains momentum. One transformation is key to understanding why we're improving our profitability in every single market, leveraging the connectivity of our global businesses, providing economies of scale and scope. As a result, we expect sustainable improvements in operational leverage as we further implement the structural changes to our model. These improvements are already very evident, as demonstrated by the evolution of our cost base in absolute terms that translates into better efficiency levels, which are amongst the best in the industry.

[José García Cantera, CFO at Banco Santander]

In retail and consumer, which are leading our transformation, costs remain well under control, down 1% in real terms, even after absorbing wage inflation in some of the countries and upfront cost of rolling out global platforms. Retail and consumer represent 70% of our cost base, and we expect them to showcase the benefits of one transformation going forward. CIB, Wealth and Payments are more freight driven. Cost in these businesses grew 6%, however, showing positive operating jaws with a double digit fee increase, as I just explained. We had a strong cost performance also in the quarter, which was affected by Argentina.

[José García Cantera, CFO at Banco Santander]

Excluding Argentina, cost remains flat, even after our investments on transformation and initiatives for future growth. As a result, net operating income rose 5% from last year, and our efficiency ratio improved to 41.5, the best in more than fifteen years. As Hector said, we reiterate our guidance for lower absolute cost in current euros for 2025. The risk profile of our balance sheet remains low, with robust credit quality across the footprint on the back of strong labor markets and easing monetary policies in general. Loan loss provisions increased 6% year on year, reflecting our efforts to reduce NPLs and also some deterioration in Brazil in the context of higher interest rates and inflation.

[José García Cantera, CFO at Banco Santander]

Excluding the provisions allocated to accelerating write offs, the increase would have been just 3%. Credit quality continued to improve year on year as reflected both in the NPL and the cost of risk. The NPL ratio fell further and is now at 2.91%. Remember that much of our NPL portfolio has collateral, guarantees and other provisions that account for more than 80% of total exposure. Cost of risk improved seven basis points year on year and remained stable in the quarter at 1.14% despite proactive management actions to lower NPLs, as I just explained.

[José García Cantera, CFO at Banco Santander]

In retail, cost of risk improved across all our main countries and was also slightly down in the quarter with significant improvement in Mexico, compensating a weaker performance in Brazil. In consumer, cost of risk improved both year on year and quarter on quarter, with notable improvements in The U. S, where we are seeing a resilient customer behavior, stronger used car prices and stable labor market. We anticipate a stable cost of risk going forward, as we do not foresee a deterioration in employment levels. Moving on to capital.

[José García Cantera, CFO at Banco Santander]

As you know, we have been improving our capital productivity and accelerating our capital generation for some time. Our CET1 ratio increased to 13% and stands at the top of our 12% to 13% operating range. This quarter, we generated 54 basis points of capital from attributable profit, and asset rotation initiatives more than offset organic risk weighted asset growth. Since the asset rotation typically concentrates in the second half of the year, we would expect net organic capital generation to accelerate meaningfully in the next two quarters. This enabled us to accumulate capital after compensating capital distribution charges for shareholder remuneration and AT1s and absorbing other charges, including some regulatory headwinds, which this year will be lower than initially expected, as some of them have been postponed to 2026.

[José García Cantera, CFO at Banco Santander]

As a result, we expect regulatory charges of around 20 basis points in the 2025. These figures do not yet reflect the impact from our recent inorganic transactions in Poland and in The U. K. We continue to deploy capital to the most profitable opportunities and leverage our global asset desks mobilization capabilities to maximize capital productivity. Our disciplined capital allocation delivered a new book return on risk weighted assets of 2.8% in the quarter, equivalent to a return on tangible equity of 22%, well above that of our back book.

[José García Cantera, CFO at Banco Santander]

We are selling credit risk at a RORWA of approximately half of that figure. All these actions underpin our growing profitability and consistent capital generation. Accretive capital redeployment is a top priority for us. Our recent organic transactions are a clear example of our consistent application of a strict capital hierarchy, under which we prioritize organic profitable growth and ordinary distributions, while any bolt on acquisition must be complementary to our strategy and deliver attractive financial results at least in line with those of any organic investments and exceed share buybacks. We announced the disposal of Santander Polska at three times our initial investment, which is expected to generate around 100 basis points of capital.

[José García Cantera, CFO at Banco Santander]

As buybacks remain one of the most effective ways to generate risk free shareholder value, we decided to use half of this excess capital to accelerate the execution of the share buybacks that we announced at the beginning of the year and improve our target to at least €10,000,000,000 for 2025 and 2026 earnings. We will deploy the remaining half excess capital into the acquisition of TSP at highly attractive returns while we enhance our strategic positioning. We are deploying capital at least a 20% return on investment capital. The deal will be EPS accretive from day one, and it will increase group EPS by around four percent by 2028. We are buying TSB at around five times earnings post synergies.

[José García Cantera, CFO at Banco Santander]

At the same time, TSB will contribute to the group with a low risk profile. It will accelerate Santander UK's transformation, improve connectivity across the group and increase our exposure to mature markets and hard currency. During 2026, we expect that organic capital generation will provide additional room to deploy capital in line with our capital hierarchy. That's all from my side. Hector, over to you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thanks, Jose. In conclusion, this is a great first half. We are well on track to achieve our 25 targets that we reiterate. Good business dynamics supported a revenue increase backed by all our businesses, with fees growing in high single digit at the same time that we reduced cost in euro terms. Cost of risk improved year on year and is also in line with our target of around 1.15% at the end of the year.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We grew the CET1 ratio again to 13%, so it now stands at the upper end of our operating range as we profitably grew our business organically, accrued shareholder distributions and absorbed some regulatory impacts and one offs. And a ROTE increased to 16%, on track to reach our target of circa 16.5% in 2025. Antenna plus cash dividend per share is growing at double digits. In summary, very positive first half, which we expect to consolidate in the second part of the year to achieve our targets, even in an environment of higher uncertainty than initially anticipated. We anticipate revenue to continue evolving along similar lines, with NII growing slightly in constant euros excluding Argentina and fees increasing in line with the guidance we provided at the beginning of the year.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Cost should improve during the rest of the year as we continue to capture the benefits of our transformation and we expect the cost of risk to remain stable supported by resilient labor markets. The strength of our business model is clear. Our unique combination of customer focus, scale and diversification with consistent execution of one transformation delivers profitable, predictable and sustainable growth and creates long term value for our shareholders, our customers and our teams. Before we move to the Q and A session, I would like to announce our next Investor Day, where we will deep dive on our strategy and goals for the next three years, which will take place in London on the 02/25/1926. Now, we will be happy to take your questions. Thank you.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Thanks, Hector and Jose. Let's move to the Q and A. Operator, could we have the first question, please?

[Operator]

And our first question comes from the line of Francisco Riquel from Alantra. Please go ahead.

[Francisco Riquel, Head of Equity Research at Alantra]

Good morning. Thank you for the presentations. I have two questions. The first one is NII in The UK, which disappointed this Q2, particularly in deposit costs and despite the structural hedge. If you can please comment on the Q2 dynamics and update your NII guidance for The UK going forward and how this could affect your recently revised ROTE target for this unit after the TSB acquisition?

[Francisco Riquel, Head of Equity Research at Alantra]

And my second question is top up provisions in Brazil. What is the problem here? What segments are the most affected despite the top up provisions to accelerate the write offs, the NPL ratio is approaching 7%. So you can please update on the outlook for NPLs and cost of risk in Brazil going forward? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you, Francisco. Okay. First of all, it's important to say that U. K. As you know is work in progress, okay?

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

I believe that one of the biggest opportunities of Santander is here. We have a big transformation underway here in the country and we're very focused on profitability, okay? You have seen the deposit margin discipline that we have. We have delivered strong net operating income and also better fees and focus on becoming the number one bank for our customer. It's important to say also we have had some tailwinds from the structure hedge that we have and Jose can give you in detail exactly what's going on there.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Also, it's important to acknowledge that we have a cost savings from transformation of around 3.5% that is showing off in the numbers. And 25% is going to be slightly up in NII. Bottom line spec is impacted by the transformation cost, first of all. The branch closure mainly that we have done there as the program that we actually announced in the first quarter, okay? And we believe also that the cost of risk is basically going to normalize level so far around 8% to 10%.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

It is important to say that our commitment to The UK is reinforced by the TSB acquisition, okay, that will contribute in improving our RoTE from 11% in 2024 to 16% expected in 2028, okay? Also for 2025, we expect NII to be, as I said, already slightly up, driven by the focus on the margin management that we have already stated, the structural hedge that we have. And what I said, I mean, cost should be down. I don't know, Jose, if you'd like to complement a little bit In on the hedge?

[José García Cantera, CFO at Banco Santander]

JOSE the first quarter, there was an abnormally high volume of mortgages ahead of the end of the stamp duty exception. And this was corrected in the second quarter. And we also had substantial early repayments. So when you look at margins, actually volumes margins, they are behaving very much in line with what we expected, excluding this one off from early repayments.

[José García Cantera, CFO at Banco Santander]

So average volumes for loans were was down 3% in the first half relative to the first half of last year. But net interest the yield on loans was up 28 basis points. Similarly, deposit volumes were down 4%, but cost of deposits was down 25 basis points. So the improvement in net interest margin client net interest margin in the first half relative to the first half of last year was actually 53 basis points from 1.66% to 2.19%. So very good net interest margin performance from customers.

[José García Cantera, CFO at Banco Santander]

And again, as Hector said, we reiterate the guidance that we gave for the whole year. Again, here, let me reiterate, there is a strong seasonality or a very different behavior between the first quarter and the second quarter. And because we mostly have we have a mortgage portfolio, we are more affected in relative terms than others for the early repayments.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

IGNACIO Thank you, Francisco. In Brazil, okay, despite that challenging environment, we will make mid teen returns in Brazil. That's basically around the same returns we did last year. As you have seen, fees are going up quarter on quarter despite the one off that we had in insurance. One transformation is basically impacting and helping us out in many ways to manage much better the bank.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Putting into perspective, Brazil is only 9% of our loan book, okay? So it's very important. And also diversification is helping out and is offset by The U. S. And Europe and the power that we have in terms of basically managing the books as we see fit.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We're it's important to say we're operating profitability, okay? We're changing the mix on the portfolio given the environment, and we're concentrated on secure lending for individuals. Examples what we're doing in auto, where we're the number one lender in the country, and payroll loans, which we believe are an opportunity given the current environment. Credit cards, for example, we are diminishing what we're doing there. And instead of placing and doing 400,000 cards per month, we come down to 250,000, trying to be and only giving credit cards to our customers, okay?

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

It's important also to tell you that cost of risk losses didn't change, okay, relative to our expectations. So it's very important to say that. But given the macro environment, we wanted to be conservative and strengthen the balance sheet. That's why we took the gain from CASEZ to do that and to do the PMA. That's basically what it is.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

But nonetheless, we believe that we're going to be around the levels that we told you at the beginning in terms of cost of risk basically at levels at around 5% or below.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Next question please, operator.

[Operator]

The next question from Ignacio Largi from BNP Paribas. Please go ahead.

[Ignacio Ulargui, Analyst - Iberian Banks at BNP Paribas]

Thanks very much for the presentation and for taking my questions. I have two questions, if I may. The first one is just looking to one transformation, and I'm sure that you will probably give us much more color on that in the CMD in February. Just wanted to get a bit of a sense of what would be the potential direction of travel of costs at a group level going forward, if you think that the trend of declining costs could be maintained going forward? The second thing is on capital.

[Ignacio Ulargui, Analyst - Iberian Banks at BNP Paribas]

I mean following Jose's comments in the call that kind of capital generation would be stronger. I mean, you give us a sense a bit of how much that growth improvement could be and whether there could be a scope for incremental distributions in full year 2025 results beyond the €3,200,000,000 an ounce from the disposal of Santander Postca? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

RAMON Thank you, Ignacio. Okay. First of all, I will tell you that cost remain under control as you have seen on the first half. We're down 0.4 in euros year on year. And we reiterate our guidance to deliver lower cost in current euros in 2025 versus 2024.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

H1 cost stand in absolute terms and cost growth remaining below. And revenue growth in cost in euros as we see. Short term costs are higher than we as we invest. It's very important to understand what are we doing, okay? If I give you some particular examples, we're deploying Plard in Brazil, in Mexico and in Chile.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And at the same time, we still have Pampa, the old platform basically running at the same time. So even with that, we are actually being able to lower costs because we're controlling costs in all levels. So what this will tell you, this is a transitional year in that sense. And even with that, we're able to decrease cost given what we're doing. And it's not just that.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We're already deploying platforms in every single place. For example, also the version 24 of our new app is being redeployed now in Brazil. And at the same time, we are basically shutting down what we had before and doing the same in every single country. So I believe that One Transformation is driving positive growth. The cost to income ratio improved to 41.5% in the 2025, below the 42% target, and I believe we'll continue to do so.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So we're very well under control on cost and basically working really hard to maintain it.

[José García Cantera, CFO at Banco Santander]

So in terms of capital, Nacho, organic capital generation, thinking about how much capital we are going to be generating from profits, it's going to remain at the same level, might be a little bit better in the second half. Risk weighted asset growth tends to be lower in the second half because asset rotation initiatives tend to concentrate in the second half. So if you look at the first half, in the first quarter, we did around CHF 2,000,000,000 in risk weighted assets, CHF 12,000,000,000 in the second quarter. We still are targeting between CHF 40,000,000,000 to CHF 45,000,000,000. So most of the asset rotation initiatives tend to concentrate in the second half.

[José García Cantera, CFO at Banco Santander]

Also, although we guided for around 60 basis points of regulatory charges this year, around 20% to 25 has been have been postponed to next year. So now we are looking at, let's say, around 40 basis points. So we still have 20 left. So with all of these, I think you have all the numbers to look at what the capital ratio could be by the end of the year. And what we said and we reiterate is that excess capital above 13%, subject to regulatory approvals and the Board of Directors, will be distributed as share buybacks.

[José García Cantera, CFO at Banco Santander]

But again, subject to REPRESENTATIVE:] regulatory approvals and the Board of Directors.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Thanks, Nacho. Could we have the next question, please?

[Operator]

Next question from Andrea Filtri from Mediobanca. Please go ahead.

[Andrea Filtri, Head - European Equity & Credit Research at Mediobanca]

Good morning and thank you for taking my questions. You're only 45 basis points away from your best case scenario on one transformation implementation. Does this mean that we have already seen the benefits of this transformation? Or could you go below 41% cost income in coming years? If so, what is the next stage?

[Andrea Filtri, Head - European Equity & Credit Research at Mediobanca]

The second question is on consumer, which is representing a drag to group RoTE. Why is that? And when will we see this segment no longer dragging down group profitability? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you, Andrea. First of all, I think that you're going to have a lot of fun in the Investor Day because that's exactly what we will be talking about in terms of one transformation. I really do believe that you're seeing the tip of the iceberg on what we're doing there, given that, as I explained to Ignacio, we're still basically running and deploying some of the platforms and running the old platforms at the same time. As I said, 2025, 2026 are transitional years. For example, payments hub, which is very powerful and already, as I told you, I mean, lot of our payments are going through there, are still running in parallel lines because, for example, the regulator in Mexico has not allowed us to close down transfer.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So I'm still basically running two platforms at the same time, the same with the credit card platform, the same in many of the different things that we're doing. And once basically these platforms are finished and deployed in all the countries, you're actually decommissioning the old ones, the commissioning teams of FTEs that are basically doing manual processes, etcetera. So remember that transformation also is simplification. If you have seen, for example, product catalog in the group on front is basically down more than 40%, and we'll continue to do so in the following years. And we'll continue to lower products and simplify what we do.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

The back end is a little bit more difficult, but once, I mean, we are in runoff with some other portfolios, this actually will help us also in the operations side because we will be able to decommission a lot more than we do today. So all in all, just to answer your question, no. I think we're going to be able to deliver much more than we have in front of us today. In terms of consumer, I don't know, Jose, if you would like to comment to that one.

[José García Cantera, CFO at Banco Santander]

No. I think I would separate three components in consumer. Consumer includes Openbank that is doing very well. We already have $5,000,000,000 in deposits in The U. S, over 5,000,000,000 from 150,000 customers.

[José García Cantera, CFO at Banco Santander]

So the strategy in The U. S. Is working. And we will be adding more products over the next few quarters to be a full fledged bank, digital bank in The U. S.

[José García Cantera, CFO at Banco Santander]

With Openbank. So that's going very well. In Europe, it has over around €20,000,000,000 in deposits and also capturing clients very well. So Openbank is doing as expected, and I would say, going even faster than we expected in The U. S.

[José García Cantera, CFO at Banco Santander]

Auto U. S. Auto U. S. Is doing very well.

[José García Cantera, CFO at Banco Santander]

You can see that the cost of risk is a lot better than we expected. We see stability in NII. Obviously, as we do less EVs, we will see an expansion of NII. We have already seen that, but it will accelerate towards the end of the year and next year. And obviously, the consequence is that we will have to pay more taxes.

[José García Cantera, CFO at Banco Santander]

Tax rate is still below 10% in The U. S, but it will gradually normalize, again, starting in the third, fourth quarter due to the impact of EVs. And next year, it should gradually increase. And the weakness, and you're right, is in Consumer Europe. And this is due basically to the impact of rates.

[José García Cantera, CFO at Banco Santander]

Although we have no sensitivity to rates in consumer Europe, this is a business that is very sensitive, highly sensitive to volumes. And the car registration in Europe are down in most countries. So we are suffering a little bit from volumes. But if you look at quarter on quarter, cost of risk is already normalizing. So we are very constructive in terms of the returns, the path to normalization of returns in consumer Europe quarter after quarter in the coming quarters.

[José García Cantera, CFO at Banco Santander]

Lower rates will definitely help with volumes. We are seeing that already. And lower rates will help with cost of risk as well.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Thanks very much. Could we have the next question please, operator?

[Operator]

Next question from Alvaro Serrano from Morgan Stanley. Please go ahead.

[Alvaro Serrano Saenz de Tejada, Managing Director at Morgan Stanley]

Hi. Kind of two follow-up questions. You've made a 16% RoTE in the first half. Obviously, the target for the full year is 16.5 It's a step up. Maybe you can talk us through sort of big picture what's going to drive that step up.

[Alvaro Serrano Saenz de Tejada, Managing Director at Morgan Stanley]

And the follow-up, which I think might be part of the explanation is around consumer. Jose and Hector, I've heard your comments around the medium term outlook. I'm wondering that 10% return in consumer at the moment, how much is it dragged down by the launches of Openbank in the different countries, both in Europe and The U. S? I'm just wondering if there's a front book, back book dynamic there.

[Alvaro Serrano Saenz de Tejada, Managing Director at Morgan Stanley]

And the second question, also a follow-up on Brazil. On the provision side, should we when do you expect the peak in provisions? Obviously, rates are still high for the time being, but expect to come down early next year or late this year. When would you expect provisions to peak because there's still a bit of room until you reach that 5% cost of risk charge that you've guided for? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

You, Alvaro. Okay. First of all, it's important to say that if you saw this second quarter, we're already at 16.2% in terms of rotate, okay? It is important to assess that it's also due to the change of the model that we're doing, becoming number one bank to our customers because one transformation is not just about cost, it's also about changing the model about how we manage clients. So as you have seen, we have already increased tremendously the number of active customers, the amount of products that we sell to these customers.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And that's why you see fees, for example, in retail, you see fees numbers basically going 8% year on year. This is basically because we are selling much more products to our customers and penetrating that client base at the same time that we gather new customers, okay? So we will continue towards that, and that's helping us basically to go not just depend on the NII, but also to get fees and commissions that are helping us in the bottom line. So it's very important to understand that. And we do believe that we're going to be able to tell you and to get to the rotors that we indicated in the guidance, all right?

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

In terms of consumer, I think Jose gave you a pretty good explanation of what's going on there. It is important to say that also Mannheim in The U. S. Has helped us quite a lot, is very strong, is up six points. I was looking at the numbers that I explained to you every quarter about delinquencies.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And also delinquencies above ninety days, we are repossessing no more than 65% of the cars. That's basically still far ahead far away from the pre COVID levels that we were around 90%. And we are looking at the different mix of the portfolio and how it's basically performing. And we see, as Jose told you, that the worst is behind us in terms of that. And also that volumes are getting much better in terms of the registrations that we see in Europe.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So I see that all in all, that is basically helping. Also, Openbank is helping us to get better margins. As you've seen, we already gather really good amount in deposits on The U. S. It has been a huge success, more than 140,000 customers coming in, deposits about €5,000,000,000 And that's basically helping us to manage that and to fund that operation.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We have a little bit of cost, yes, because of the deployment on that. But that would be basically amortized over the next few years. It is important to say that Openbank in The U. S. Just started with the deposit gathering.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We're going to have a full fledged commercial bank towards the next few months in terms of where we are implementing that. But for example, in Germany or in Mexico, we have a full bank already operating there with very good and I will not say in Mexico, with very good results. In terms of Brazil, what I could tell you about is we wanted, as I said, to be conservative, and that's why we basically did the PMA. So we wanted to be conservative because we see what's going on in terms It's important to understand the dynamics of the country. You have real rates that are 9.5 points.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

That's probably in the OECD, the largest real rates. We're talking about rates at 15% with inflation and 5.62 plus the spreads, etcetera. You can imagine that we have some SMEs and some mid sized corporates that are suffering a little bit given those rates. I hope that which basically rates coming down, we will be able basically to drop the cost of risk in one sense, also get better margins because we see that if rates come down to the levels we expect in Brazil towards 12%, we're going to be about 20% ROTES. So in that sense, we believe that we're under control, that the worst is over now and that we understand exactly how the portfolio is performing.

[José García Cantera, CFO at Banco Santander]

If I may add very quickly on consumer. It's true that there is a, let's say, a game of production, right? So post COVID, the profitability of post COVID production was extremely high. Then it was significantly lower. Now the post COVID production is coming to an end.

[José García Cantera, CFO at Banco Santander]

So the low production, the low profitability production of the years following COVID is gaining relative weight. But as we produce, the new production is actually significantly higher profitability. So in the next few quarters, as the old low profitability production matures and we substitute that by the profitability, the production that we are producing today, which is significantly higher, we should also see much better returns in consumer. Also remember that consumer Europe has the Swiss franc mortgage provisions in there, which obviously is affecting results. But again, pretax profit in The U.

[José García Cantera, CFO at Banco Santander]

S, auto U. S, is up 42% year on year. Pretax profit in Europe is flat year on year. So again, despite these negative trends, the business is performing well. So truly, I mean, we are quite optimistic about the next three, four, five quarters to see a normalization of both cost of risk and profitability of the portfolio.

[José García Cantera, CFO at Banco Santander]

No. In Brazil, when is going to normalize cost of risk? If you look at the three month cost of risk, it was 4.5 every quarter last year. 4.5, 4.5, 4.5, 4.5. In the first two quarters of this year, it was 4.9.

[José García Cantera, CFO at Banco Santander]

We guided for something like between 4.7 to 4.8. So we are slightly above what we expected. Obviously, rates at 15%, we didn't think they were going to get to that level. They're going to stay at that level probably until year end. But more importantly, when you look at the NII in the context of significantly higher rates, we have been repositioning the balance sheet a lot for lower rates.

[José García Cantera, CFO at Banco Santander]

So when we look into 2026, the market expects rates to go down to 150 basis points. The balance sheet today would react to that extremely well. And we do not think cost of risk, as sector said, on average, will go above 5% this year. Again, the provisions we've taken using CASE's capital gains is a post model adjustment, because we want to be conservative. Rates at 15% ahead of elections next year.

[José García Cantera, CFO at Banco Santander]

But again, BAU cost of risk is below 5% in the first half, and we think it will remain more or less at this level for the rest of the year.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Thanks very much. Could we have the next question, please?

[Operator]

Next question from Carlos Peixoto from CasaBank. Please go ahead.

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

Yes, hi, good morning. A couple of questions from my side as well. First one would actually be related with the loan loss provisions at the corporate center. So you booked €98,000,000 there. This quarter, the previous one you have already booked 99,000,000 I believe that those were related with NPL sales.

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

I was wondering if this is also the case this quarter. And also, if you could give us some clarity some visibility on what geographies those NPL sales will relate to? And also, should we expect this to become the normal quarterly run rate of loan loss provisions at this unit for upcoming quarters? And then just going back to Brazil, if you could give us some view on what you expect in terms of NII evolution over the coming quarters considering the de risking of the portfolio? You are mentioning the fact that the volumes are down as well.

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

How will that play out in terms of the final print for NII? Thank you very much.

[José García Cantera, CFO at Banco Santander]

Okay. So provisions at the Corporate Center, as we explained and Hector explained during the call, these were taken to basically accelerate charge offs to lower the NPL ratio, which is below 3% to 91%. We do not think this is recurring. So we should not expect this to happen every quarter in the coming quarters. This was a, let's say, a decision to accelerate charge offs to bring the NPL below 3%.

[José García Cantera, CFO at Banco Santander]

So do not expect the same level of provisions at the corporate center going forward. NII in Brazil. I just referred to how we've been repositioning the balance sheet for the rate environment that is going to come next year. So let's go a little bit in detail about the first half. So average balances for loans were up 5% year on year in the first half.

[José García Cantera, CFO at Banco Santander]

And yield on loans was up 63 basis points. Deposits, and this is the key going forward, were up 8%. Demand deposits was up 6%, and time deposits was up 9%. Obviously, the deposits is where you see the sensitivity, and the yield of deposits was up 131 basis points. So net net, we had a customer margin that contracted 68 basis points year on year, despite which NII was actually up year on year in Brazil, slightly up.

[José García Cantera, CFO at Banco Santander]

So we've been working a lot on improving not only the quality of the asset side, but the quality of the liability side. And there is what we think is where the gain is going to come in the coming quarters. Rates are at 15%. The market expects rates to go down two fifty basis points, maybe to 12.5 by year end. So in 2027, we should see rates at around 12% on average.

[José García Cantera, CFO at Banco Santander]

And in our models, at 12% rates, the return on equity of the bank moves to 20%. So we are quite confident that if rates are on average to 12% in 2027, the return on equity in Brazil will exceed or be at or exceed 20%. And again, this is due to the work that we've been conducting in the last few quarters to improve the quality of the asset side, but mostly the quality of our funding structure and our deposits.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Thanks very much, Jose. Next question, please, operator.

[Operator]

Next question from Ignacio Ferreto from UBS. Please go ahead.

[Ignacio Cerezo, Equity Research Analyst at UBS Group]

Yes. Hi, good morning. Thank you for taking my question. I've got one coming back, summarizing a little bit actually some of the questions my colleagues have done. If I'm doing the numbers right, actually, your second half of the year on a group basis needs to be around 5%, 6% higher than the first half in terms of net profits to get to the guidance.

[Ignacio Cerezo, Equity Research Analyst at UBS Group]

So if you tell us geographically where is that growth going to come from, especially considering that, I mean, the currency headwinds seem to be compounding a little bit actually and you have seasonality in The U. S? And the second question is on the regulation. I mean the 20 basis points you're postponing or shifting back into '26. If you have any color and preliminary information basically on what is going to be the underlying regulation in '26 over and above those 20 basis points? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Okay, Ignacio. In terms of what you're basically asking in terms of where do we see basically the second half, I could tell you that, first of all, I explained in detail already a lot of the details that we're doing in One Transformation, how we're focusing on basically becoming the number one bank to our customers, how do we see that? But it's very important to say that we have a really consistent track record of implementation in everything that we say, okay? So what's something that makes us confident that we will achieve our targets, as I said? And based on the macro outlook for 2025, we expect, first of all, to reiterate our guidance of €62,000,000,000 in revenue for the year despite the 5% headwind from FX translation that we have seen.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

On the first half, revenues are growing 5% year on year in constant currency, but spur this to growth and continue to the second half given by improving consumer revenue momentum. That's basically up mid single digits. We see also continued strong growth in payments and wealth and also CIB. Remember that CIB had a second tough Q2 due to the fact that markets were basically after liberation day for eight weeks basically completely off. So that basically is helping us out because we believe that that's not going to be the case on the second half.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

In retail, revenues up 1.6% in the first half, flat NII, but fees growing at 8%. What I said about one transformation, very important. We're doing much more business with our customers. We're penetrating the client base, and we expect that revenue basically to continue basically doing well, maybe flattish for the full year, but we will continue to see growth in fees. At the country level, we expect Mexico growing revenue high single digit, The UK up low single digits and offsetting low single digit declines that we see in Brazil and in Spain, all right?

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

In Consumer, we expect revenues to grow mid single digits both in The U. S. And Europe driven by NII, which is also expected to be up mid single digits, okay? And in CIB, as I already explained, we continue to expect the growth to mid single digits for the year. And if the market basically is strong, that also maybe is going to give us an extra headwind and an extra tailwind.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

In wealth, revenues were up 14% in the first half, and we expect low double digit growth for the full year. So that basically tells you 100% of what's going on there.

[José García Cantera, CFO at Banco Santander]

Just one final comment. Remember that the other results line in 2024 was abnormally high. You already saw a substantial improvement in the first half. So we would also expect a better second half relative to the year to last year. So again, yes, we are confident that we will meet our 16.5% return on tangible equity in the year, absolutely.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Think there was Any a question question

[José García Cantera, CFO at Banco Santander]

regarding regarding regulation? That. Think it's early days. I think this twenty, twenty five basis points is the SME model in Spain that we need to recalibrate. Other than that, it's we see very little else at this point.

[José García Cantera, CFO at Banco Santander]

But again, we need to wait to see the calendar of inspections, etcetera, by the ECB, which will come later in the year. So I think for purposes of estimating capital, I would use more or less the same amount that we had this year. We'll see if we have a different guidance towards the end of the year. We'll communicate that. But today, I don't see anything different from what we saw in 2025.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Thanks very much. Could we have the next question please, operator?

[Operator]

Next question from Chris Hallum from Goldman Sachs. Please go ahead.

[Chris Hallam, MD & Head - European Financials Research at Goldman Sachs]

You for taking my questions. Hector, you talked earlier about the parts of the business in Brazil where you still feel confident versus where you're looking to pull back slightly in credit cards. Think is that a temporary phenomenon? Or should we assume that's the new normal? And how would that feed into the NII growth algorithm in terms of volume versus margin?

[Chris Hallam, MD & Head - European Financials Research at Goldman Sachs]

And then on the top up in Brazil, I guess, why now? Was there a specific sort of proximate cause within Q2 to trigger that aside from the obviously, availability of proceeds from CAFES? And then second question on The U. K. And the AXA headlines last week.

[Chris Hallam, MD & Head - European Financials Research at Goldman Sachs]

So I understand you already have a provision in place here, but it would be prejudicial to disclose the amount. But I guess, in broad terms, is the potential delta on that provision, I. E, whether it would need to be sized up or down material to the CET1 walk for 2025 or 2026? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Okay. Thank you, Chris. Okay. In Brazil, it's not exactly a pullback. I mean, as we know, and I have explained basically in the past, we are very flexible in the way we manage our portfolios.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And we manage the portfolios as we see fit, okay? So what we basically started looking in Brazil was that open market was starting to be pretty difficult to manage. So we decided basically to concentrate on our own customers and to just give credit cards to them. So open market, we will go back when we see basically a much better market even though labor market is still strong in Brazil and the economy is doing much better than we have seen. Nonetheless, I think it's important to be conservative at this point and move the portfolio.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

When you have these high rates basically to other more secure things that like I was telling you about auto and about payroll loans, which are what we call consignado, which is much better in terms of cost of risk at this point. They would basically exactly, as you were saying, this NII volume versus margin because we have now basically investing in things that have less margin than we used to have when you basically have much more credit cards and unsecured personal loans. We will go back to them when we'll see basically the economy in a different way and we see rates starting to come down and a better macro scenario. But this is exactly what we do, and we manage the portfolio. Look, very active.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Our teams basically see pricing, and they basically change the way we manage the portfolios on a weekly basis. And so it's important to say that, that's the way we manage that. And what is, as you were saying, is temporary. I do believe that when market basically clears up and we believe that it's a strong thing, we will get back into that and then margin could be a little better. And also basically, Jose explained you that when rates basically go to 12%, our returns and the way we basically have positioned the portfolio will give us lot better margin and a much better position and much better returns as you have seen.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Okay. In terms of the AXA situation, regarding The UK's court decision in relation to the claim, we disagree with the outcome and we are seeking to appeal. We do not expect the net impact of the judgment to be material for Santander given the provisions already made and the potential elections available. It's important to say also that no customers have suffered a loss as a consequence of the claim brought by AXA or the judgment. And given this is an ongoing legal matter, we are not able to comment any further, unfortunately.

[José García Cantera, CFO at Banco Santander]

You asked specifically if the capital path is going be affected by this. Look, our pre provision profit is going to be €37,000,000,000 €38,000,000,000 this year, something like that, between 35,000,000,000 to €38,000,000,000 This is immaterial, really. Why now Brazilian provisions? It's because the capital gain happened right now. And we think, given ARAMBARRI:] the level

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

of rates, given we have presidential elections next year, we think we wanted to be prudent. It's as simple as that. Thanks very much. Could we have the next question, please, operator?

[Operator]

Next question from Tethyria Romero from Barclays. Please go ahead.

[Cecilia Romero, Director & European Banks Research Analyst at Barclays Corporate & Investment Bank]

Thank you very much for taking my questions. I have two, one in Spain and another one on litigation. The first one in Spain, cost of risk is down quarter on quarter, but still running higher than peers. Given Vagtor continue to be very supportive, how do you see Spanish cost of risk developing through the rest of the year? And what's your view on the medium term trajectory?

[Cecilia Romero, Director & European Banks Research Analyst at Barclays Corporate & Investment Bank]

And in terms of Spanish NII, could you walk us through the expected dynamics in customer spreads for the remaining of the year? Given current trends with NII up quarter on quarter, do you now expect NII to perform better than the guidance of minus 5% fall issue earlier? And the one on litigation is on Mexico. Mexico antitrust regulator has issued preliminary findings, naming several banks in a potential case of fee fixing on deferred credit card payments. Can you comment on the status of this investigation and whether it could impact your expectation for fees in Mexico going forward? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Okay. I will go to basically thank you, Cecilia. First of all, on the litigation in Mexico, we cannot comment at this point. There is no basically information about it that we can tell you. So that one is as much as I can say.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

In terms of what we're doing in Spain, cost of risk, as you have seen, as you have said, is coming down. And we are actually performing very well. The Spanish economy and the labor market are quite strong. And we see that, that will continue towards the end of the year. We don't see basically any changes whatsoever on that.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

On the other side, actually, we see the market coming very strong, and we see also good demand of credit on mortgages. We see credit cards going up, a little bit of consumer loans coming in. So nothing to report there. I think it's much better than we expected.

[José García Cantera, CFO at Banco Santander]

In terms of NII, if I remember correctly, we guided for NII down in Spain 6% to 7%. Obviously, NII is behaving better. So now we think it will do better than that, maybe down 4% to 5%. We are still building the ALCO portfolio, adding government bonds at well over 3%. We bought some ALCO portfolio in the second quarter.

[José García Cantera, CFO at Banco Santander]

The asset hedges are coming to an end. We are not hedging the repricing of mortgages anymore at this level of rates. We think rates are close or about to stabilize. And we obviously put all the funding floating already. So the hedging is still some hedging coming from the ALCO portfolio, not a lot more, though.

[José García Cantera, CFO at Banco Santander]

So the improvement is coming from cost of deposits. Cost of deposits first half this year relative to last year is down 30 basis points. Now cost of deposits is 67 basis points relative to 98% last year. So extremely good deposit cost management, and that's what is going to drive the better NII performance we expect this year relative to the guidance we gave in the previous quarter.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

We have the next question please, operator.

[Operator]

Next question from Peter Smith from Autonomous. Please go ahead.

[Britta Schmidt, Senior Analyst - Spanish & Italian Banks at Autonomous Research]

Yes. Good morning. Thank you for taking my questions. Just a follow-up on Spain. The volumes ex repos were weaker year on year in Q2 and also compared to the trends that we've seen in Q1 and remain below the market.

[Britta Schmidt, Senior Analyst - Spanish & Italian Banks at Autonomous Research]

Now that you've improved the customer spread, at what sort of level of customer spread would you need to see volumes pick up again to continue on an NII growth trajectory into 2026 and 2027? And then just a follow-up on the provision on Brazil. I mean, with rates expected to be lower, there's obviously going to be a volatility on the elections to be managed. But what would need to happen for the provision in Brazil to be released back into the P and L or to be used towards provisions in the future? What are the macro parameters that we need to improve? Thank

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you, Britta. I mean on your question on Brazil, it's important to tell you that we as I said before and Jose already explained that we don't see expected FERNANDEZ:] losses to change, okay? So we basically continue on the same trend over there. In terms of what we see in terms of Spain

[José García Cantera, CFO at Banco Santander]

Yes, If I speak sorry. About Spain, just one thing. The increase in cost of risk in Brazil is not coming from individuals. Employment levels are very strong. The economy is doing very well.

[José García Cantera, CFO at Banco Santander]

It's coming mostly from companies and the increase in Chapter 11 bankruptcies due to higher rates. So some of the higher leveraged companies are suffering because of the level of rates. So there is a limit to the deterioration in asset quality, obviously, because this only affects a very small portion of our balance sheet. So again, it's with a strong levels of employment, the ones we have today, and with expectation of lower rates, it's because we believe clearly cost of risk will go down next year. So these are the variables that really matter.

[José García Cantera, CFO at Banco Santander]

But it's really important to mention that the increase in cost of risk is not retail. It's not individuals or SMEs. It's mostly mid sized large companies that are having problems with interest rates.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you, Britta. Okay. Let me give you a little bit of the dynamics of what's going on in the Spanish market, okay? Given the recent events and everything, we are seeing a drop an important drop in spreads and in margins because of tremendous competition in the market, okay? And we are very being very, very disciplined in order to manage and to concentrate on profitability, okay?

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So it's important for you to understand that some of our competitors have decided to do mortgages, and I would say all the way down to $165,000,000 We don't think that that's the right thing to do. We believe that the market basically is not profitable to do them at those levels, and we are being very disciplined in that. And the volumes that we're basically doing are at much better margins than those. So when are you going to see us back doing much more bigger volumes? When the spreads basically go to the right level.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Because we do believe that the market would basically change and react to that and be more, I would say, the right word in English is no, be more intelligent or smart in the way we're managing the margins. So in that sense, we have all the firepower, but we're basically expecting that the market will basically be much better. And we're concentrated also on our big customers and in house customers and taking advantage of that. And also you can take a look of what we're doing in terms of fees and penetrating the customer base, what we're doing in credit cards. For example, volume in credit cards in Spain grew really strongly these past six months because we believe there is an opportunity in the consumer side, as I said, even though also we see some of the SMEs basically coming back to the market.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And we are basically fulfilling that volume demand and also CIB with a lot of interesting opportunities, and we're basically going back to the market in that sense. So I do believe that we could have much better volume, but we need a market that is smart and organized in order to be able to do that.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Thanks very much, Hector and Jose. This is the last question. So this brings our call to an end. I would like to thank everybody for joining us on what is a busy day. If you've got any follow-up questions, the whole Investor Relations team is available at your disposal through this week.

[Raul Sinha, Global Head - Shareholder & IR at Banco Santander]

Thanks very much, and have a good rest of the day.

Participants

Executives

• Raul Sinha, Global Head - Shareholder & IR
• Héctor Grisi Checa, CEO & Executive Director
• José García Cantera, CFO

Analysts

• Francisco Riquel, Head of Equity Research at Alantra
• Ignacio Ulargui, Analyst - Iberian Banks at BNP Paribas
• Andrea Filtri, Head - European Equity & Credit Research at Mediobanca
• Alvaro Serrano Saenz de Tejada, Managing Director at Morgan Stanley
• Carlos Peixoto, Equity Research Analyst at CaixaBank
• Ignacio Cerezo, Equity Research Analyst at UBS Group
• Chris Hallam, MD & Head - European Financials Research at Goldman Sachs
• Cecilia Romero, Director & European Banks Research Analyst at Barclays Corporate & Investment Bank
• Britta Schmidt, Senior Analyst - Spanish & Italian Banks at Autonomous Research