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FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the month of January, 2019

Commission File Number: 001-12518

Banco Santander, S.A.

(Exact name of registrant as specified in its charter)

Ciudad Grupo Santander

28660 Boadilla del Monte (Madrid) Spain

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes  ☐             No  ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes  ☐             No  ☒

 

 

 


Table of Contents

Banco Santander, S.A.

TABLE OF CONTENTS

 

Item

    
1    Press Release regarding January – December 2018 Results
2    January – December 2018 Financial Report
3    January – December 2018 Earnings Presentation


Table of Contents

Item 1

 

LOGO

 

Santander attributable profit for 2018 reaches €7,810 million - up 18%

In the fourth quarter alone, attributable profit was up 34% to €2,068 million, compared to Q4 2017

The Group has achieved its target of increasing earnings per share by double digits in 2018 with EPS increasing to €0.449, up 11.2% compared with 2017

Madrid, 30 January 2019 - PRESS RELEASE

 

The Group has successfully completed its three year strategic plan based on customer loyalty, and as a result remains one of the most profitable and efficient banks among its peers, with a return on tangible equity (RoTE) of 11.7%, and a cost-to-income ratio of 47%.

 

It continued to help people and businesses prosper during the year, earning the loyalty of a further 2.6 million customers and increasing lending and customer funds by 4% in constant euros.

 

The number of customers using digital services increased by 6.6 million to 32 million as the Group’s digital transformation continued to deliver new and improved services for customers, helping the bank achieve a top three ranking for customer satisfaction in seven core markets.

 

Attributable profit increased in eight of the Group’s ten core markets year-on-year in constant euros (i.e. excluding movement in exchange rates), with particularly strong growth in the US (+74%), Spain (+28%), Brazil (+22%), and Mexico (+14%).

 

Credit quality improved further during the year with the Group’s non-performing loan (NPL) ratio now at 3.73%, 35 basis points lower than 31 December 2017, while the cost of credit has fallen 7 basis points in the same period to 1.00%.

 

The Group’s fully loaded CET1 ratio reached 11.30% at 31 December 2018, up from 10.84% at 31 December 2017, surpassing its 11% goal for 2018 due to strong organic capital generation.

Banco Santander Group Executive Chairman, Ana Botín, said:

“2018 has been an excellent year for the Group. We have successfully completed our three year strategic plan, and our focus on earning customer loyalty and digital transformation has been central to our success. As a result we remain among the most profitable and efficient banks in our peer group.

“We’ve added more than two and half million loyal customers in the year and over six million digital customers by investing in technology and developing better ways to meet the needs of the people and businesses we serve. We are seeing better customer engagement, stronger relationships, and higher quality earnings as a result, with a third of sales now made through digital channels.

“Latin America has remained an important engine for growth within the Group, with especially strong progress in Brazil and Mexico. In Spain, the integration of Popular is progressing ahead of plan, while the turnaround of our business in the US continues to build positive momentum.

 

Corporate Communications    1    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

“Our balance sheet is even stronger, with credit quality improving, and the Group CET 1 capital ratio now 11.30%, ahead of target for 2018, in spite of external and regulatory headwinds.    

“We have achieved a lot, but I am confident in our capacity as a team to seize the potential for significant further organic profitable growth. We serve over 144 million customers with a balanced presence across developed and high growth potential markets where we have strong leadership. This creates huge opportunity for our business and is what sets us apart from our peers. We will be giving our next strategic update to investors in April this year.”

Results Summary - 2018

 

          

FY’18

(m)

 

  

FY’18 v

FY’17

 

  

FY’18 v FY’17

(EX FX)

 

  

Q4’18

(m)

 

  

Q4’18 v

Q4’17

 

  

Q4’18 v Q4’17

(EX FX)

 

 
       Gross income    €48,424    0%    +9%    €12,542    +4%    +8%
 
  Operating expenses    -€22,779    -1%    +7%    -€5,936    0%    +3%
 
  Net operating income    €25,645    +1%    +11%    €6,606    +8%    +14%
 
  Net loan-loss provisions    -€8,873    -3%    +7%    -€2,455    +13%    +17%
 
  Profit before tax    €14,776    +9%    +20%    €3,546    +5%    +12%
 
  Tax    -€5,230    +14%    +25%    -€1,177    +8%    +15%
 
  Underlying Profit    €8,064    +7%    +18%    €2,022    +5%    +12%
 
  Net capital gains & provisions    -€254    -72%    -72%    €46      
 
  Attributable profit    €7,810    +18%    +32%    €2,068    +34%    +45%

Banco Santander increased attributable profit during 2018 by 18% to €7,810 million (+32% in constant euros), as strong growth in customer revenues in several markets, including Brazil, Spain, Mexico and the US, combined with improvements in credit quality, more than offset the impact of exchange rate depreciation against the euro in certain currencies, including the Argentine peso.

Underlying profit increased by 18% year-on-year in constant euros to €8,064 million.

In the fourth quarter alone, attributable profit was €2,068 million, 34% higher than Q4 2017. Profit before tax for the fourth quarter was up 12% year-on-year in constant euros.

Gross income in 2018 increased by 9% in constant euros to €48,424 million, the highest level on record for the Group, with the Group increasing lending and customer funds by 4% in constant euros, while increasing the number of loyal customers (people who see Santander as their main bank) by 2.6 million to 19.9 million. Total customer numbers increased by 11 million in the year to 144 million.

Ongoing investment in commercial transformation and digitalisation led to a 7% increase in operating expenses in constant euros, however, the Group’s cost/income ratio, a key measure of efficiency, remained among the lowest of our peer group at 47% (compared to a peer average of over 63%).

 

Corporate Communications    2    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

During 2018, the number of customers using digital services increased by 6.6 million in the year to 32 million, with ongoing investment in technology driving an increase in digital service adoption and improving the customer experience. 48% of active customers now use digital services regularly.

The Group ranks among the top three banks for customer satisfaction in seven core markets. Openbank, which launched several new services in 2018, has increased mortgage balances by 370% after the first full year of mortgage sales, as well as increasing deposits by 19%. In April 2018, we launched One Pay FX, the first blockchain-based retail payment solution, in four countries leading to a 55% increase in foreign exchange transactions in Spain since launch.

Credit quality improved during the year, reflecting the strength of the Group’s loan book. The Group’s non-performing loan (NPL) ratio is now 3.73%, down 35 basis points since 31 December 2017. Cost of credit, a good indicator of credit quality, fell to 1.00%, down seven basis points since 31 December 2017, the lowest annual level since 2008.

A balanced presence across both mature and emerging markets remains one of Banco Santander’s key strengths. Attributable profit increased in eight of the Group’s ten core markets in constant euros.

During 2018, Europe contributed 52% of Group profit and the Americas, 48%. Brazil was the largest contributor to Group earnings, with 26% of total underlying profit, followed by Spain with 17%, and the UK and Santander Consumer Finance with 13% each. The lending book also remains well diversified across business segments and geographies.

 

LOGO

1. Excluding corporate centre, and Spain Real Estate Activity. 2. Loans excluding repos.

During the year Santander generated 46 basis points in capital, bringing the Group’s fully loaded CET1 ratio to 11.30% at 31 December 2018, significantly exceeding its 2018 target of 11%. This ratio does not include the impact of the full application of IFRS 9 (-27 basis points) which is subject to a five year transitional period before full implementation is required in 2022.

Over the last 12 months Return on Tangible Equity (RoTE), a key measure of profitability, has increased by 129 basis points to 11.7%, while underlying RoTE increased by 26 basis points to 12.1%, making Santander one of the most profitable banks among its peers.

 

Corporate Communications    3    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

The Group has achieved its target to deliver double-digit Earnings Per Share (EPS) growth in 2018, with EPS increasing by 11.2% in the year to €0.449. Tangible net asset value per share was 1% higher than 2017 at €4.19, while cash dividend per share is 9% higher at €0.20 (subject to Board and 2019 AGM approval).

Three year plan achievements: 2016 - 2018

In 2018, the Group successfully completed its three year strategic plan. During the period Santander has undergone a significant commercial and digital transformation:

 

Redefining its strategy with a focus on customer loyalty, digital excellence and organic growth.

 

Embedding a common culture across our 200,000 employees, reinforcing governance and teams, and improving employee engagement.

 

While continuously increasing shareholder value - growing earnings per share and tangible net asset value per share.

 

LOGO

Since 31 December 2015, the number of loyal customers has increased by 44% to 19.9 million, improving the quality and recurrence of the Group’s earnings, with higher revenues per customer and lower customer attrition.    

The Group’s digital transformation has led to a 93% increase in digital customers to 32 million, with nearly a third of total sales now made through digital channels, and 48% of active customers using digital services (up from 30% in 2015). Investment in digital, as well as improving customer satisfaction, has allowed the Bank to maintain its position among the most efficient banks in the world, with a cost-to-income ratio of 47%.

 

Corporate Communications    4    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

This, in turn, has led to a significant increase in returns, with RoTE now 171 basis points higher than 31 December 2015 at 11.7%, and earnings per share growing by double digits in 2018.

The Group fully loaded CET1 capital ratio is now 125 basis points higher than 31 December 2015 at 11.30%, while cash dividend per share has increased by 31% over the same period (subject to Board and 2019 AGM approval).

Country Summary (FY’18)

In Brazil, attributable profit increased by 2% to €2,605 million (+22% in constant euros) as a focus on customer experience allowed the business to attract an additional one million loyal customers during the year, with loans and funds increasing year-on-year by 13% and 15% respectively in constant euros. Santander Brazil now ranks first for customer satisfaction. The business continued to gain market share in key segments, while maintaining asset quality; with the non-performing loan ratio falling four basis points in 12 months to 5.25% and cost of credit reducing by 30 basis points to 4.06%.    

In Spain, attributable profit increased by 28%, to €1,458 million, as the planned integration of Popular was supported by ongoing growth in revenues (+15% YoY). Santander Spain made significant progress in its digital transformation and implementation of the customer relationship model, including the launch of 1|2|3 professional. New lending to SMEs increased 17% and 30% in private banking. Credit quality also improved, with the NPL ratio falling 13 basis points since 31 December 2017 to 6.19%.

In the UK, the business continued to grow current account balances and mortgages, while making further improvements to the customer experience, with Santander UK now ranked second for retail customer satisfaction. While a highly competitive landscape placed pressure on revenues, credit quality remained extremely strong, with a cost of credit at 0.07%. Attributable profit was 9% lower than 2017 at €1,362 million (-8% in constant euros), reflecting an increase in operating costs due to ongoing investment in digital transformation and regulatory projects, as well as other provisions.

Santander Consumer Finance increased attributable profit by 11% in 2018, to €1,296 million (+12% in constant euros), with new lending increasing in most geographies due to increasing auto and consumer finance lending and strengthening digital channels. SCF maintained best-in-class profitability with a RoTE of 16% while the NPL ratio remained at a historic low of 2.29%, down 21 basis points in the year.

In Mexico, attributable profit increased by 7% to €760 million (+14% in constant euros) as the bank continued to strengthen its distribution model, through the transformation of the branch network, an improved mobile platform, and the launch of new product lines such as auto finance. This helped attract new customers and increase both volumes and profitability. As a result, total income increased by 9% YoY in constant euros, while credit quality remained solid, with the NPL ratio falling 26 basis points in the year to 2.43%.

In Chile, attributable profit increased by 5% to €614 million (+8% in constant euros) as business volumes grew at a higher pace in core segments, leading to a 4% increase in gross income in constant euros. The transformation of the branch network, ongoing digitalisation, and improved products and services, led to a 7% growth in loyal customers and digital customers. Credit quality also improved with the NPL ratio falling by 30 basis points to 4.66% over the period.

 

Corporate Communications    5    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

In the US, attributable profit increased by 66% to €552 million (+74% in constant euros) as strengthened business performance and the achievement of several significant regulatory milestones led to a very positive year for the business. Lending increased year-on-year at both Santander Bank (+9%) and SC USA (+5%), with the number of loyal customers increase by 12%, while the cost of credit fell 15 basis points to 3.27% in the year.

In Portugal, attributable profit increased by 15% to €500 million, driven by improved efficiency and a significant improvement in credit quality, with NPLs falling by 157 basis points in the year to 5.94%. The operational and technological integration of Banco Popular Portugal, which completed in October 2018, strengthened Santander’s position as the country’s largest privately owned bank by assets and loans in domestic activity.

In Poland attributable profit increased by 14% to €343 million (+14% in constant euros) as the business achieved year-on-year organic growth across all key products and segments. The Group strengthened its position with the integration of the retail and SME businesses acquired from Deutsche Bank Polska. In September Bank Zachodni WBK successfully completed a rebrand to Santander.

As Argentina, which represents c.1% of the Group’s attributable profit, is considered a high-inflation economy, international accounting standards dictate that the results and balance sheet for the country must be adjusted. This had a negative P&L impact of €239 million for 2018. As a result, despite strong growth in revenues, attributable profit in Argentina fell by 77% to €84 million in 2018 (-54% in constant euros). The agreement with the IMF allows Argentina to meet its financial obligations for 2018 and 2019, while the adjustment in currency should create greater FX stability going forward.

About Banco Santander

Banco Santander is the largest bank in the eurozone with a market capitalisation of €64,508 million at 31 December 2018. It has a strong and focused presence in 10 core markets across Europe and the Americas with more than four million shareholders and 200,000 employees serving 144 million customers.

 

Corporate Communications    6    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

Key Consolidated Data (from Financial Report)

 

BALANCE SHEET (EUR million)    Dec-18      Sep-18      %     Dec-18      Dec-17      %     Dec-16  

Total assets

     1,459,271        1,444,687        1.0       1,459,271        1,444,305        1.0       1,339,125  

Loans and advances to customers

     882,921        866,226        1.9       882,921        848,914        4.0       790,470  

Customer deposits

     780,496        778,751        0.2       780,496        777,730        0.4       691,111  

Total funds

     980,562        986,199        (0.6     980,562        985,703        (0.5     873,618  

Total equity

     107,361        105,668        1.6       107,361        106,832        0.5       102,699  

Note: Total funds includes customer deposits, mutual funds, pension funds and managed portfolios

 

 

INCOME STATEMENT (EUR million)    Q4’18      Q3’18      %     2018      2017      %     2016  

Net interest income

     9,061        8,349        8.5       34,341        34,296        0.1       31,089  

Gross income

     12,542        11,720        7.0       48,424        48,392        0.1       43,853  

Net operating income

     6,606        6,359        3.9       25,645        25,473        0.7       22,766  

Underlying profit before tax(1)

     3,546        3,750        (5.4     14,776        13,550        9.0       11,288  

Underlying attributable profit to the Group(1)

     2,022        1,990        1.6       8,064        7,516        7.3       6,621  

Attributable profit to the Group

     2,068        1,990        3.9       7,810        6,619        18.0       6,204  

Variations in constant euros: Q4’18 / Q3’18: NII: +3.0%; Gross income: +0.7%; Net operating income: -1.8%; Underlying attributable profit: -3.3%; Attributable profit: -1.1%

2018 / 2017: NII: +8.7%; Gross income: +8.9%; Net operating income: +10.6%; Underlying attributable profit: +18.5%; Attributable profit: +32.1%.

 

 

 

EPS(2), PROFITABILITY AND EFFICIENCY (%)    Q4’18      Q3’18      %     2018      2017      %     2016  

Underlying EPS (euro) (1)

     0.116        0.115        1.1       0.465        0.463        0.6       0.429  

EPS (euro)

     0.119        0.115        3.6       0.449        0.404        11.2       0.401  

RoE

     8.46        8.43                8.21        7.14                6.99  

Underlying RoTE (1)

     11.93        11.95                12.08        11.82                11.08  

RoTE

     12.00        11.95                11.70        10.41                10.38  

RoA

     0.65        0.66                0.64        0.58                0.56  

Underlying RoRWA (1)

     1.60        1.59                1.59        1.48                1.36  

RoRWA

     1.60        1.59                1.55        1.35                1.29  

Efficiency ratio (with amortisations)

     47.3        45.7                47.0        47.4                48.1  
SOLVENCY AND NPL RATIOS (%)    Dec-18      Sep-18      %     Dec-18      Dec-17      %     Dec-16  

Fully loaded CET1 (3)

     11.30        11.11                11.30        10.84                10.55  

Phased-in CET1 (3)

     11.47        11.29                11.47        12.26                12.53  

NPL ratio

     3.73        3.87                3.73        4.08                3.93  

Coverage ratio

     67.4        67.9                67.4        65.2                73.8  
MARKET CAPITALISATION AND SHARES    Dec-18      Sep-18      %     Dec-18      Dec-17      %     Dec-16  

Shares (millions)

     16,237        16,136        0.6       16,237        16,136        0.6       14,582  

Share price (euros) (2)

     3.973        4.336        (8.4     3.973        5.479        (27.5     4.877  

Market capitalisation (EUR million)

     64,508        69,958        (7.8     64,508        88,410        (27.0     72,314  

Tangible book value per share (euro)(2)

     4.19        4.16                4.19        4.15                4.15  

Price / Tangible book value per share (X) (2)

     0.95        1.04                0.95        1.32                1.17  

P/E ratio (X) (2)

     8.84        9.83                8.84        13.56                12.18  
OTHER DATA    Dec-18      Sep-18      %     Dec-18      Dec-17      %     Dec-16  

Number of shareholders

     4,131,489        4,190,808        (1.4     4,131,489        4,029,630        2.5       3,928,950  

Number of employees

     202,713        201,101        0.8       202,713        202,251        0.2       188,492  

Number of branches

     13,217        13,414        (1.5     13,217        13,697        (3.5     12,235  
(1) 

In this document we present the figures related to “underlying” results, which exclude non-recurring items, as they are recorded in the separate line of “Net capital gains and provisions” above the line of “attributable profit to the Group”. Further details on that line are provided in pages 10 and 11 as well as in the Alternative Performance Measures section as follows below.

(2) 

2016 data adjusted for the capital increase in July, for like-on-like comparisons with 2017 and 2018 data.

(3) 

2018 data applying the IFRS 9 transitional arrangements.

Note: The financial information in this report was approved by the Board of Directors, following a favourable report from the Audit Committee.

In accordance with the Guidelines on Alternative Performance Measures published by the European Securities and Markets Authority on 5 October 2015 (Guidelines on Alternative Performance Measures, ESMA/2015/1415en), we are attaching herewith a glossary with the definitions and the conciliation with the items presented in the income statement of certain alternative performance measures used in this document. Please refer to “Alternative Performance Measures Glossary” on page 60.

 

Corporate Communications    7    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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Important Information

In addition to the financial information prepared under International Financial Reporting Standards (“IFRS”), this press release includes certain alternative performance measures (“APMs”) as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415es) as well as non-IFRS measures (“Non-IFRS Measures”). The APMs and Non-IFRS Measures are performance measures that have been calculated using the financial information from the Santander Group but that are not defined or detailed in the applicable financial information framework and therefore have neither been audited nor are capable of being completely audited. These APMs and Non-IFRS Measures are been used to allow for a better understanding of the financial performance of the Santander Group but should be considered only as additional information and in no case as a replacement of the financial information prepared under IFRS. Moreover, the way the Santander Group defines and calculates these APMs and Non-IFRS Measures may differ to the way these are calculated by other companies that use similar measures, and therefore they may not be comparable. For further details of the APMs and Non-IFRS Measures used, including its definition or a reconciliation between any applicable management indicators and the financial data presented in the consolidated financial statements prepared under IFRS, please see 2018 4Q Financial Report, published as Relevant Fact on [fecha publicación del trimestral],    Section 26 of the Documento de Registro de Acciones for Banco Santander, S.A. (“Santander”) filed with the Spanish Securities Exchange Commission (the “CNMV”) on 28 June 2018 (the “Share Registration Document”) and Item 3A of the Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission of the United States of America (the “SEC”) on 28 March 2018 (the “Form 20-F”). These documents are available on Santander website (www.bancosantander.com).

The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicable accounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries.

Santander cautions that this press release contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expect”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “RORAC”, “RoRWA”, “TNAV”, “target”, “goal”, “objective”, “estimate”, “future” and similar expressions. These forward-looking statements are found in various places throughout this press release and include, without limitation, statements concerning our future business development and economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, industry, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. Numerous factors, including those reflected in the Form 20-F—under “Key Information-Risk Factors”- and in the Share Registration Document –under “Factores de Riesgo”- could affect the future results of Santander and could result in other results deviating materially from those anticipated in the forward-looking statements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.

Forward-looking statements speak only as of the date of this press release and are based on the knowledge, information available and views taken on such date; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise

The information contained in this press release is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person’s own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in the press release. No investment activity should be undertaken only on the basis of the information contained in this press release. In making this press release available, Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever.

Neither this press release nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this press release is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000.

Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this press release should be construed as a profit forecast.

 

Corporate Communications    8    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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Item 2

 

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Financial Report 2018

JANUARY—DECEMBER


Table of Contents

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January - December 2018 FINANCIAL REPORT 3 Key consolidated data 4 Santander aim 6 Group performance 9 General background 10 Income statement and balance sheet 17 Solvency ratios 19 Risk management 22 Business information 39 Corporate Governance 40 Sustainability 41 The Santander share 42 Financial information. Appendix 60 Alternative Performance Measures All customers. shareholders and the general public can use Santander’s official social network channels in all the countries in which the Bank operates,


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JANUARY - DECEMBER  

Key consolidated data  

 

GRUPO SANTANDER. KEY CONSOLIDATED DATA

 

BALANCE SHEET (EUR million)            Dec-18              Sep-18              %              Dec-18              Dec-17              %              Dec-16  

Total assets

     1,459,271        1,444,687        1.0        1,459,271        1,444,305        1.0        1,339,125  

Loans and advances to customers

     882,921        866,226        1.9        882,921        848,914        4.0        790,470  

Customer deposits

     780,496        778,751        0.2        780,496        777,730        0.4        691,111  

Total funds

     980,562        986,199        (0.6)        980,562        985,703        (0.5)        873,618  

Total equity

     107,361        105,668        1.6        107,361        106,832        0.5        102,699  
Note: Total funds includes customer deposits, mutual funds, pension funds and managed portfolios

 

     
INCOME STATEMENT (EUR million)    Q4’18      Q3’18      %      2018      2017      %      2016  

Net interest income

     9,061        8,349        8.5        34,341        34,296        0.1        31,089  

Gross income

     12,542        11,720        7.0        48,424        48,392        0.1        43,853  

Net operating income

     6,606        6,359        3.9        25,645        25,473        0.7        22,766  

Underlying profit before tax (1)

     3,546        3,750        (5.4)        14,776        13,550        9.0        11,288  

Underlying attributable profit to the Group (1)

     2,022        1,990        1.6        8,064        7,516        7.3        6,621  

Attributable profit to the Group

     2,068        1,990        3.9        7,810        6,619        18.0        6,204  
Variations in constant euros: Q4’18 / Q3’18: NII: +3.0%; Gross income: +0.7%; Net operating income: -1.8%; Underlying attributable profit: -3.3%; Attributable profit: -1.1%

 

                                               2018 / 2017: NII: +8.7%; Gross income: +8.9%; Net operating income: +10.6%; Underlying attributable profit: +18.5%; Attributable profit: +32.1%.

 

EPS (2), PROFITABILITY AND EFFICIENCY (%)    Q4’18      Q3’18      %      2018      2017      %      2016  

Underlying EPS (euro) (1)

     0.116        0.115        1.1        0.465        0.463        0.6        0.429  

EPS (euro)

     0.119        0.115        3.6        0.449        0.404        11.2        0.401  

RoE

     8.46        8.43                 8.21        7.14                 6.99  

Underlying RoTE (1)

     11.93        11.95                 12.08        11.82                 11.08  

RoTE

     12.00        11.95                 11.70        10.41                 10.38  

RoA

     0.65        0.66                 0.64        0.58                 0.56  

Underlying RoRWA (1)

     1.60        1.59                 1.59        1.48                 1.36  

RoRWA

     1.60        1.59                 1.55        1.35                 1.29  

Efficiency ratio (with amortisations)

     47.3        45.7                 47.0        47.4                 48.1  
SOLVENCY AND NPL RATIOS (%)    Dec-18      Sep-18      %      Dec-18      Dec-17      %      Dec-16  

Fully loaded CET1 (3)

     11.30        11.11                 11.30        10.84                 10.55  

Phased-in CET1 (3)

     11.47        11.29                 11.47        12.26                 12.53  

NPL ratio

     3.73        3.87                 3.73        4.08                 3.93  

Coverage ratio

     67.4        67.9                 67.4        65.2                 73.8  
MARKET CAPITALISATION AND SHARES    Dec-18      Sep-18      %      Dec-18      Dec-17      %      Dec-16  

Shares (millions)

     16,237        16,136        0.6        16,237        16,136        0.6        14,582  

Share price (euros) (2)

     3.973        4.336        (8.4)        3.973        5.479        (27.5)        4.877  

Market capitalisation (EUR million)

     64,508        69,958        (7.8)        64,508        88,410        (27.0)        72,314  

Tangible book value per share (euro) (2)

     4.19        4.16                 4.19        4.15                 4.15  

Price / Tangible book value per share (X) (2)

     0.95        1.04                 0.95        1.32                 1.17  

P/E ratio (X) (2)

     8.84        9.83                 8.84        13.56                 12.18  
OTHER DATA    Dec-18      Sep-18      %      Dec-18      Dec-17      %      Dec-16  

Number of shareholders

     4,131,489        4,190,808        (1.4)        4,131,489        4,029,630        2.5        3,928,950  

Number of employees

     202,713        201,101        0.8        202,713        202,251        0.2        188,492  

Number of branches

     13,217        13,414        (1.5)        13,217        13,697        (3.5)        12,235  

(1) In this document we present the figures related to “underlying” results, which exclude non-recurring items, as they are recorded in the separate line of “Net capital gains and provisions”, above the line of “attributable profit to the Group”. Further details on that line are provided in pages 10 and 11 as well as in the Alternative Performance Measures section as follows below.

(2) 2016 data adjusted for the capital increase in July, for like-on-like comparisons with 2017 and 2018 data.

(3) 2018 data applying the IFRS 9 transitional arrangements.

Note: The financial information in this report was approved by the Board of Directors, following a favourable report from the Audit Committee.

 

In accordance with the Guidelines on Alternative Performance Measures published by the European Securities and Markets Authority on 5 October 2015 (Guidelines on Alternative Performance Measures, ESMA/2015/1415en), we are attaching herewith a glossary with the definitions and the conciliation with the items presented in the income statement of certain alternative performance measures used in this document. Please refer to “Alternative Performance Measures Glossary” on page 60.

 

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Santander aim

 

SANTANDER AIM

 

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“Helping people and businesses prosper” 83% 82% 19.9 (+15%(1)) 32.0 (+26%(1)) of employees engaged million loyal million digital perceive that employees customers customers their colleagues behave in a more Simple, Personal and Fair way ...ma o s ke a d d o a i v n ur o d t . . . sati c m e e s … s s u t o e fi st s a d y ed o i v l t o i a m t p e n m People o d e Customers m s m l r oe o o s d r e p d y o a r e a l m e g m o l … r 144 202,713 M p g c a o e million E m n y e a d . . . d r l i … e i n s a e u a bb l l y t t i i n i n i l n i n e e v i g ib r t … e n r n t a a h s l t s t i h a fi o Communities(3) h e i g r l s o w s Shareholders n h p u r o c e er g p t o nl in i m n n g ma ve r e i v l e msu st . q d u a i b m 2.3 on ci men . . l o . . i e n c 4.1 t eyd.a t . s l t c a r million people d. s y u e million helped in 2018 > 72,000 ~ 1,200 11.30%(2) +5% scholarships agreements with Fully loaded dividend per granted universities CET1 ratio share growth in 2018 and academic institutions expected for in 21 countries 2018 (1) Year-on-year % change (2) Calculated using the IFRS 9 transitional arrangements (3) Provisional data

 

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Santander aim  

 

SANTANDER AIM

 

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(*)

Final dividend charge to 2018 earnings is subject to the Board of Directors and 2019 AGM approval.

People 82% of employees showed their commitment to the Group (six percentage points more than the financial industry’s average), and in seven countries we were among the best three banks to work for, according to the GPTW ranking. The 360 assessment process, in which employees are evaluated by their peers, direct subordinates and line managers, became widespread. Progress was made in installing the Workday platform, which enables teams and people to be managed globally in a homogeneous way. Once the pilot phase of the Strategic Workforce Planning in the UK, Mexico and the corporate centre was concluded, action plans were launched in the rest of countries. A new campaign to strengthen the Group’s image and make it more attractive to capture talent was developed (Efecto Santander). We launched initiatives to attract digital talents (Digital Cellar) and launched a programme that identified 280 employees for their youth (younger than 35 years old) and potential to contribute to the Group’s future evolution (Young Leaders). Customers Various strategies continued to be developed under the commercial transformation programme in order to improve customer loyalty and the customer experience. The number of loyal customers rose by 2.6 million in 2018 and digital ones by 6.6 million, and in seven of our core countries we were in the Top 3 in customer satisfaction. Of note among the commercial actions was the launch of various current accounts (Conta SIM in Portugal, 1|2|3 business for SME in the UK, 1|2|3 Profesional in Spain) and the first digital account for SME with SAS (Sociedad por Acciones Simplificadas) status in Mexico, together with other products and services such as mortgages, investment products, services and advice. We continued to strengthen our traditional branches, as well as developing new ones (SMART, Super gil y Work Caf), while investing in new generation ATMs and our contact centres. As regards digitalisation, progress in all countries with apps, platforms, products and services. Of note globally was the expansion of Openbank, our fully digital bank, the launch of OnePay Fx, a blockchain-based service and the development of Superdigital, an alternative solution to traditional banking mainly focused on the unbanked population of Latin America. Shareholders The total dividend per share charged to 2018’s earnings was scheduled at EUR 0.23 via a scrip dividend and three payments in cash, 4.5% more than that for 2017*. We continued to strengthen measures that increased and enhanced communication with our shareholders and fostered transparency through the use of new technologies. Of note was the creation of a new personal service channel via video conference. Santander was recognised as one of the best companies and European banks in the area of investor relations, corporate events, website and multimedia use by Institutional Investor, IR Magazine and Global Capital and by the Extel survey, conducted among more than 11,000 investment professionals. Banco Santander is ranked the world’s third best bank and the first in Europe in the Dow Jones Sustainability Community Index (DJSI), the reference index in which Santander has been present for 18 straight years, and which measures companies’ performance in sustainability matters, in its three dimensions (economic, social and environmental). The magazine Fortune included Santander in its 2018 Change the World ranking, which includes a small group of companies that “combine success with their contribution to society” by generating a positive social impact with initiatives that form part of their business strategy. Santander Universities held its fourth international meeting of rectors, a reference event in academic world and launched the new Santander Scholarships portal. A record number of scholarships (almost 55,000) were granted in 2018 and close to 19,000 entrepreneurs were supported by Santander X (*) Final dividend charge to 2018 earnings is subject to the Board of Directors and 2019 AGM approval.

 

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Consolidated financial report

 

GROUP PERFORMANCE

 

 

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2018 has been an excellent year for the Group. We have successfully completed our three year strategic plan, and our focus on earning customer loyalty and digital transformation has been central to our success

 

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We boosted our profit and profitability in 2018 and at the same time improved credit quality and increased our capital ratio to 11.30%

 

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The commercial transformation is driving growth in loyal and digital customers, reflected in greater business in almost all markets

Santander’s strategy remained focus on customer loyalty. The number of loyal customers continued to rise in the quarter close to 20 million, 2.6 million more than at the end of 2017 (+15%), with individuals as well as companies rising.

The number of digital customers rose by 6.6 million in 2018 (+26% in the last 12 months) to 32 million, underscoring the strength of our multichannel strategy. Penetration of digital clients, the use of mobile devices, and the weight of digital sales are growing notably.

 

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Growth in lending and customer funds in the fourth quarter, benefiting slightly from the acquisition of the retail and SME business of Deutsche Bank Polska.

Loans grew in the whole of 2018 (at constant exchange rate) in eight of the ten core units and funds also in eight, with rises in demand and time deposits and mutual funds remained stable, affected by the market environment.

Solid funding and liquidity structure. Net loan-to-deposit ratio of 113% (109% in December 2017).

 

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Consolidated financial report  

 

GROUP PERFORMANCE

 

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Santander is a predictable, profitable and efficient bank, with a business model that enables us to obtain higher profits in a recurring way

The fourth quarter attributable profit of EUR 2,068 million, 4% more quarter-on-quarter, despite the contribution to the Deposit Guarantee Fund in Spain. Excluding this charge, the quarter’s profit would have been 12% higher (+7% in constant euros).

The full year attributable profit was up 18% at EUR 7,810 million (+32% in constant euros). Earnings per share were EUR 0.449 (+11%).

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Santander is strengthening its capital ratios and improving credit quality while remaining among the leading banks in profitability.

In 2018 we continued to increase our capital ratios quarter-on-quarter. The fully loaded CET1, applying the IFRS 9 transitional arrangement, was 11.30%, after generating during 2018 46 bps, mainly organically (+64 bps).

In addition, the stress test conducted by the EBA, reflected once more that thanks to our business model and geographic diversification, we showed itself capable of generating profits for shareholders and meeting the most demanding regulatory requirements in adverse scenarios.

 

 

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Excluding the non-recurring results, the underlying attributable profit was EUR 8,064 million, 7% higher (+18% in constant euros), and rose in seven of the ten core markets.

The efficiency ratio improved to 47.0%. The continued growth in customer revenue in all quarters of 2017 and 2018 (in constant euros), together with operational excellence enabled us to combine one of the sector’s best efficiency ratios and be among the Top 3 in customer satisfaction in seven of our main countries.

The Group’s profitability is one of the highest of European banks. with a RoTE of 11.7% (12.1% underlying). Both the RoTE and the RoRWA (1.55%; 1.59% underlying) improved in 2018.

Tangible capital per share was EUR 4.19. The comparison with December 2017 is affected by a negative impact of EUR 0.08 from the first IFRS 9 implementation. Additionally, in terms of value creation for shareholders, a cash remuneration of EUR 0.20 paid in that period should be considered. Including both, TNAV would have increased 8% in the year.

Credit quality improved. The cost of credit ended 2018 at 1.00% (1.07% a year earlier). The NPL ratio fell for the sixth quarter running (-14 bps) and -35 bps since December 2017. Coverage rose by 2 pp.

 

 

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Consolidated financial report

 

MAIN BUSINESS AREAS PERFORMANCE

(Greater detail on pages 22 to 38 and in the appendix)

(Changes in constant euros)

 

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Continental Europe: generated an attributable profit of EUR 3,428 million, 22% more year-on-year after recording the charges in 2017 and 2018 associated with integrations, mainly restructuring costs.

Excluding these impacts, underlying attributable profit was EUR 3,642 million (+14% year-on-year), largely due to the increase in customer revenue and also partially benefiting from Banco Popular’s integration.

Underlying attributable profit was 4% lower quarter-on-quarter, due to the recording in the fourth quarter of EUR 158 million net of tax for the contribution to the Deposit Guarantee Fund in Spain. Excluding this, profit would have been 12% higher given the good evolution of customer revenue and lower loan-loss provisions.

 

United Kingdom: in a highly competitive environment with some remaining uncertainties on Brexit, attributable profit was 8% lower in 2018 at EUR 1,362 million. This was due to pressure on spreads and investments in regulatory and strategic projects. The cost of credit remained stable at just 7 bps.

The fourth quarter underlying attributable profit was 26% lower quarter-on-quarter, due to the recording of historical probate and bereavement processes and others related to consumer credit business operations, as the rest of the P&L lines were virtually at the same levels as in the third quarter.

 

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  Latin America: attributable profit of EUR 4,228 million in 2018, 16% higher year-on-year. Growth in volumes, spreads management and increased loyalty underpinned the good evolution, both in net interest income and fee income. Notable improvement in the cost of credit.

  

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Operating expenses grew mainly due to plans relating to the expansion, commercial transformation and increased digitalisation of our retail networks.

The fourth quarter profit was 2% higher quarter-on-quarter, due to the good performance of customer revenue, particularly fee income, and taxes, and was partially offset by higher costs (seasonal in the quarter) and lower gains on financial transactions.

 

United States: attributable profit of EUR 552 million in 2018, 74% more year-on-year, impacted by extraordinary net charges of EUR 76 million.

Excluding this, underlying attributable profit increased 42%, due to higher income from leasing and lower costs and provisions.

The fourth quarter underlying attributable profit was 29% lower, due to higher provisions because of the strong growth in lending, together with seasonal factors of SC USA. In addition, there was a change in methodology in the fourth quarter in the accrual of troubled debt restructuring (TDR) that affected net interest income and provisions (both increased). This impact, of around EUR 180 million, corresponds to the whole year.

 

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General background   

 

GENERAL BACKGROUND

Grupo Santander developed its business in 2018 in a generally dynamic economic environment. However, as the year advanced so it became clearer that the peak of the expansive cycle had been reached, giving rise to instability in the markets. The countries where the Group conducts its business performed in a less similar fashion although they are generally growing.

Trade tensions, despite the agreement reached in the renegotiation of NAFTA, and the tightening of US monetary policy were the main causes of greater uncertainty, which triggered tensions of varying intensity, particularly in developing markets such as Argentina and Turkey and, to a lesser extent, in Brazil and Mexico, also affected by the electoral cycle in most of the year.

Other factors such as the Brexit negotiations and the shape of Italy’s fiscal policy also weighed on the tone of the markets.

 

Country    GDP1
change
     Economic performance

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Eurozone

  

+1.9%

    

 

Economic activity could not maintain the strong rhythm of 2017. Yet growth in 2018 was above the potential. The jobless rate came down to 7.9%. After the hike in inflation because of energy prices, it eased at the end of the year (1.6%).

 

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Spain

  

+2.5%

    

 

The economy slowed in 2018, although Spain remained one of the euro zone’s most dynamic economies. Job creation was very strong and the unemployment rate continued to fall. Inflation ended the year at 1.2%.

 

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Poland

  

+5.1%

    

 

Growth remained strong, mainly due to consumption and the lack of imbalances. The unemployment rate was below 4% (an historic low) and inflation (1.0%) remained below the central bank’s 2.5% target. The central bank held its key interest rate at 1.5%.

 

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Portugal

  

+2.2%

    

 

The economy slowed a little, but growth was still solid. Robust domestic demand was fueled by consumption and investment, while exports fell. The jobless rate was below 7% and inflation ended the year at 0.7%.

 

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United Kingdom

  

+1.3%

    

 

The economy lost strength in 2018 because of the uncertainty over Brexit, whose ups and downs were reflected in sterling (GBP 0.9/Euro). Inflation (2.1%) eased and the unemployment rate of 4% was effectively full employment. The Bank of England’s base rate ended the year at 0.75%.

 

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Brazil

  

+1.3%

    

 

Growth picked up a little, despite the impact of the transport strike. Investment recovered after four years of falling and private consumption and exports accelerated. Inflation was 3.75% in December 2018, below the central bank’s 4.5% target and the Selic remained at an historic low (6.5%).

 

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Mexico

  

+2.1%

    

 

The economy grew by around 2%, spurred by a recovery in investment and exports. The central bank raised its key rate by 100 bps in order to prevent the effects of the peso’s depreciation and moderate inflation. Mexico, the US and Canada reached a new trade agreement, which has yet to be ratified.

 

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Chile

  

+4.0%

    

 

The economy was strong, spurred by private consumption, investment and exports. Inflation rose to 2.6% (below the 3% target) and the central bank began to normalise its monetary policy, with a rise of 25 bps in its key rate to 2.75%.

 

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Argentina

  

-2.4%

    

 

Thanks to financial aid from the IMF, the economy began to show signs of stabilising, with an easing of inflation, a significant fiscal consolidation and relative exchange rate stability. The economy shrank 2.4% and is expected to gradually recover in 2019.

 

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United States

  

+3.0%

    

 

GDP grew at a faster pace (3%) and the jobless rate was down to 3.7% at the end of the year. Inflationary pressures increased, aligning underlying inflation with the target of the Fed, which raised interest rate by 100 bps.

 

(1) Year-on-year change 2018 (estimated)

 

EXCHANGE RATES: 1 EURO / CURRENCY PARITY

 

         Average (income statement)                     Period-end (balance sheet)      
      2018      2017              Dec-18      Sep-18      Dec-17  

US dollar

     1.180        1.127                   1.145        1.158        1.199    

Pound sterling

     0.885        0.876                   0.895        0.887        0.887    

Brazilian real

     4.294        3.594                   4.444        4.654        3.973    

Mexican peso

     22.688        21.291                   22.492        21.780        23.661    

Chilean peso

     756.661        731.538                   794.630        765.301        736.922    

Argentine peso

     31.164        18.566                   43.121        47.635        22.637    

Polish zloty

     4.261        4.256                   4.301        4.277        4.177    

 

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Consolidated financial report

 

GRUPO SANTANDER RESULTS

 

 

Fourth quarter attributable profit of EUR 2,068 million, affected by the contribution to the Deposit Guarantee Fund in Spain. Excluding this charge, the profit would have been 12% higher quarter-on-quarter (7% in constant euros)

 

 

Attributable profit for the full year was 18% higher at EUR 7,810 million (+32% in constant euros), after recording extraordinary results of EUR -254 million (EUR -897 million in 2017). Earnings per share increased 11%

 

 

Underlying attributable profit was EUR 8,064 million, 7% more than in 2017 and 18% more in constant euros. These results reflect solid customer revenue, an efficiency ratio of 47.0%, among the best of our peers, and an improved cost of credit at 1.00%

 

 

RoTE of 11.7% (underlying RoTE of 12.1%), and RoRWA of 1.55% (underlying RoRWA of 1.59%). Both were better than in 2017

 

 

GRUPO SANTANDER. INCOME STATEMENT

 

  

    EUR million

                                                                       
                   Change                    Change  
      Q4’18      Q3’18      %      % excl. FX      2018      2017      %      % excl. FX  

Net interest income

     9,061        8,349        8.5        3.0        34,341        34,296        0.1        8.7  

Net fee income

     2,956        2,640        12.0        3.0        11,485        11,597        (1.0)        8.5  

Gains (losses) on financial transactions

     438        505        (13.3)        (25.5)        1,797        1,703        5.5        18.0  

Other operating income

     87        226        (61.5)        (54.0)        801        796        0.6        4.9  

Dividends

     78        28        178.6        165.8        370        384        (3.7)        (1.0)  

Income from equity-accounted method

     205        178        15.2        7.8        737        704        4.7        14.2  

Other operating income/expenses

     (196)        20                      (306)        (291)        5.0        19.8  

Gross income

     12,542        11,720        7.0        0.7        48,424        48,392        0.1        8.9  

Operating expenses

     (5,936)        (5,361)        10.7        3.7        (22,779)        (22,918)        (0.6)        7.0  

General administrative expenses

     (5,285)        (4,804)        10.0        3.0        (20,354)        (20,325)        0.1        8.0  

Personnel

     (3,068)        (2,837)        8.1        2.1        (11,865)        (11,972)        (0.9)        6.2  

Other general administrative expenses

     (2,217)        (1,967)        12.7        4.1        (8,489)        (8,353)        1.6        10.6  

Depreciation and amortisation

     (651)        (557)        16.9        9.8        (2,425)        (2,593)        (6.5)        (0.8)  

Net operating income

     6,606        6,359        3.9        (1.8)        25,645        25,473        0.7        10.6  

Net loan-loss provisions

     (2,455)        (2,121)        15.7        8.7        (8,873)        (9,111)        (2.6)        7.2  

Impairment losses on other assets

     (100)        (49)        104.1        89.7        (207)        (414)        (50.0)        (46.7)  

Other income

     (505)        (439)        15.0        4.6        (1,789)        (2,398)        (25.4)        (17.7)  

Underlying profit before tax

     3,546        3,750        (5.4)        (9.7)        14,776        13,550        9.0        19.7  

Tax on profit

     (1,177)        (1,394)        (15.6)        (19.8)        (5,230)        (4,587)        14.0        25.2  

Underlying profit from continuing operations

     2,369        2,356        0.6        (3.7)        9,546        8,963        6.5        16.9  

Net profit from discontinued operations

                                                       

Underlying consolidated profit

     2,369        2,356        0.6        (3.7)        9,546        8,963        6.5        16.9  

Minority interests

     347        366        (5.2)        (6.2)        1,482        1,447        2.4        9.1  

Underlying attributable profit to the Group

     2,022        1,990        1.6        (3.3)        8,064        7,516        7.3        18.5  

Net capital gains and provisions*

     46                             (254)        (897)        (71.7)        (71.6)  

Attributable profit to the Group

     2,068        1,990        3.9        (1.1)        7,810        6,619        18.0        32.1  

Underlying EPS (euros)

     0.116        0.115        1.1                 0.465        0.463        0.6           

Underlying diluted EPS (euros)

     0.116        0.114        1.1                 0.464        0.461        0.6           

EPS (euros)

     0.119        0.115        3.6                 0.449        0.404        11.2           

Diluted EPS (euros)

     0.118        0.114        3.7                 0.448        0.403        11.2           

Pro memoria:

                                                                       

Average total assets

     1,459,756        1,431,897        1.9                 1,442,861        1,407,681        2.5           

Average stockholders’ equity

     96,187        94,391        1.9                 95,071        92,638        2.6           

 

(*)

In 2018, costs associated to integrations (mainly restructuring costs), net of tax impacts, in Spain (EUR -280 million), Corporate Centre (EUR -40 million) and Portugal (EUR 20 million) and badwill in Poland for the integration of Deutsche Bank Polska (EUR 45 million). In 2017, integration costs (Popular: EUR -300 million and Germany: EUR -85 million), charges for equity stakes and intangible assets (EUR -130 million), capital gains from the disposal of the stake in Allfunds Bank (EUR 297 million), USA fiscal reform (EUR 73 million), goodwill charges (EUR -603 million) and in the US provisions for hurricanes, increased stake in Santander Consumer USA and other (EUR -149 million).

 

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QUARTERLY INCOME STATEMENT

                       

    EUR million

                                                                       
      Q1’17      Q2’17      Q3’17      Q4’17      Q1’18      Q2’18      Q3’18      Q4’18  

Net interest income

     8,402        8,606        8,681        8,607        8,454        8,477        8,349        9,061  

Net fee income

     2,844        2,916        2,888        2,949        2,955        2,934        2,640        2,956  

Gains (losses) on financial transactions

     573        286        422        421        493        361        505        438  

Other operating income

     211        240        260        85        249        239        226        87  

Dividends

     41        238        31        75        35        229        28        78  

Income from equity-accounted method

     133        160        188        223        178        176        178        205  

Other operating income/expenses

     37        (157)        42        (213)        36        (166)        20        (196)  

Gross income

     12,029        12,049        12,252        12,062        12,151        12,011        11,720        12,542  

Operating expenses

     (5,543)        (5,648)        (5,766)        (5,961)        (5,764)        (5,718)        (5,361)        (5,936)  

General administrative expenses

     (4,915)        (4,983)        (5,161)        (5,267)        (5,151)        (5,114)        (4,804)        (5,285)  

Personnel

     (2,912)        (2,943)        (3,000)        (3,116)        (3,000)        (2,960)        (2,837)        (3,068)  

Other general administrative expenses

     (2,002)        (2,039)        (2,161)        (2,151)        (2,151)        (2,154)        (1,967)        (2,217)  

Depreciation and amortisation

     (629)        (665)        (605)        (694)        (613)        (604)        (557)        (651)  

Net operating income

     6,486        6,401        6,486        6,101        6,387        6,293        6,359        6,606  

Net loan-loss provisions

     (2,400)        (2,280)        (2,250)        (2,181)        (2,282)        (2,015)        (2,121)        (2,455)  

Impairment losses on other assets

     (68)        (63)        (54)        (230)        (24)        (34)        (49)        (100)  

Other income

     (707)        (785)        (591)        (315)        (392)        (453)        (439)        (505)  

Underlying profit before tax

     3,311        3,273        3,591        3,375        3,689        3,791        3,750        3,546  

Tax on profit

     (1,125)        (1,129)        (1,243)        (1,090)        (1,280)        (1,379)        (1,394)        (1,177)  

Underlying profit from continuing operations

     2,186        2,144        2,347        2,285        2,409        2,412        2,356        2,369  

Net profit from discontinued operations

                                                       

Underlying consolidated profit

     2,186        2,144        2,347        2,285        2,409        2,412        2,356        2,369  

Minority interests

     319        395        371        362        355        414        366        347  

Underlying attributable profit to the Group

     1,867        1,749        1,976        1,924        2,054        1,998        1,990        2,022  

Net capital gains and provisions*

                   (515)        (382)               (300)               46  

Attributable profit to the Group

     1,867        1,749        1,461        1,542        2,054        1,698        1,990        2,068  

Underlying EPS (euros) **

     0.120        0.112        0.118        0.113        0.120        0.115        0.115        0.116  

Underlying diluted EPS (euros) **

     0.120        0.111        0.119        0.111        0.119        0.115        0.114        0.116  

EPS (euros) **

     0.120        0.112        0.084        0.088        0.120        0.096        0.115        0.119  

Diluted EPS (euros) **

     0.120        0.111        0.085        0.087        0.119        0.096        0.114        0.118  

(*) Including the following amounts, net of tax:

 

In Q3’17, integration costs (Banco Popular EUR -300 million, Germany EUR -85 million) and charge for equity stakes and intangible assets (EUR -130 million).

 

In Q4’17, capital gains from the disposal of the stake in Allfunds Bank (EUR 297 million), tax reform in the US (EUR 73 million), goodwill charges (EUR -603 million) and provisions for hurricanes, repurchase of a minority stake in Santander Consumer USA and others in the US (EUR -149 million).

 

In Q2’18, charges associated with integrations (mainly restructuring costs) net of tax impact in Spain (EUR -280 million), Corporate Centre (EUR -40 million) and Portugal (EUR 20 million).

 

In Q4’18, recording of badwill from DBP’s integration in Poland (EUR 45 million).

 

(**)

The figures for the first and second quarters of 2017 are adjusted to the July 2017 capital increase in order to make them comparable with the rest of quarters.

 

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JANUARY - DECEMBER

Consolidated financial report

 

Fourth quarter results compared to the third quarter of 2018

The fourth quarter attributable profit was 4% higher than the third quarter’s at EUR 2,068 million. Eliminating the exchange rate impact, it was 1% lower. The evolution was affected by the contribution in the fourth quarter to the Deposit Guarantee Fund in Spain (EUR 226 million or EUR 158 million after tax). Without this impact, profit would have risen 12% and without the exchange rate impact it would have been 7% higher, with the following detail:

 

Net interest income increased for the seventh consecutive quarter, backed by Spain and benefiting from the change in methodology in the recording of TDRs in the US already mentioned, and which meant an increase in both this line as well as in loan-loss provisions. Fee income grew 3%, with a positive seasonal impact from Brazil. Gains on financial transactions were lower than in the third quarter when they were the highest for the year.

 

Operating expenses were up 4%, affected by the seasonality that is usually registered in the fourth quarter in some countries such as Brazil (marketing campaigns, applying the salary agreement), the US and SCF.

 

Provisions rose mainly in the US because there was a sharp rise in new loans in the quarter, both at SBNA and SC USA and some seasonality in the latter. The aforementioned change in methodology in net interest income should also be taken into account.

 

In addition, badwill was recorded in the fourth quarter for DBP’s retail and SME business integration in Poland and some charges, mainly related to restructuring costs.

Evolution of results compared to 2017

The attributable profit of EUR 7,810 million in 2018 was 18% higher in euros and 32% in constant euros.

The results reflect the favourable impact of the acquisition of Banco Popular, the larger stake in Santander Asset Management (SAM) and the negative impact of exchange rates and of the still low interest rates in mature markets. In addition, profit was affected in 2018 and 2017 by the results included in the “Net capital gains and provisions” item (net of taxes), which are set out on pages 10 and 11 of this report.

Excluding these results, underlying attributable profit was EUR 8,064 million (+7% in euros and +18% in constant euros). The P&L performance by line was as follows. To facilitate analysis and comparisons of management actions, all changes exclude exchange rate impacts.

LOGO Gross income

 

The structure of our gross income, where net interest income and fee income accounted for 95% of total revenue in 2018, well above the average of our competitors, continues to enable us to grow in a consistent and recurring way, limiting the impact that periods of high volatility can have on gains on financial transactions. Gross income increased 9%, as follows:

 

 

Net interest income rose 9%, due to greater lending and deposit volumes, mainly in developing countries which overall grew at double-digit rate in local currency, and management of spreads.

By countries, all units increased except for the United Kingdom, affected by pressure on spreads on new mortgages and standard variable rate (SVR) balances.

 

 

Fee income was up 9%, reflecting greater activity and customer loyalty, in addition to our strategy of growth in services and higher value-added products, and in areas of low capital consumption. Growth in fee income from Retail Banking (+6%), Corporate & Investment Banking (+0.3%) and Wealth Management (+63%).

 

 

Gains on financial transactions, which account for less than 4% of gross income, increased 18%, while the sum of dividends, equity-accounted income and other income rose 5%, due to higher income from leasing in the United States and by the equity accounted method.

 

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LOGO Operating expenses

 

Operating expenses rose 7% as a result of higher inflation in some countries, investments in transformation and digitalisation, and the perimeter effect. In real terms (excluding inflation and perimeter effect), costs were 0.5% lower. Of note by units was the fall in costs in the United States, mainly due to lower depreciation, and in Spain, Portugal and SCF, all of them related to integration processes.

The main rises were in Mexico and Chile, due to investments in infrastructure, and Poland, because of transformation projects and pressure on salaries.

The measures to optimise costs, as part of the ongoing integration processes, will be reflected in greater synergies in the future. This evolution is enabling us to combine the investments made to enhance the customer experience with an operational efficiency that continues to be the sector’s reference.

LOGO Loan-loss provisions

 

Good evolution of credit quality ratios. The NPL ratio, as well as the coverage ratio and the cost of credit, improved in the last 12 months.

 

By countries, provisions fell in the US and Mexico, in Brazil they rose at a slower pace than lending, while the UK and Portugal maintained a cost of credit below 10 bps.

The main rises in provisions were in Spain, due to the greater perimeter, in SCF, because of higher releases and portfolio sales in 2017, although it maintained a cost of credit below the standards for its business, and Argentina due to higher provisions for individual borrowers and the impact of the peso’s depreciation on dollar balances.

 

The cost of credit dropped from 1.07% in 2017 to 1.00% in 2018.

LOGO Other results and provisions

 

Other results and provisions were EUR -1,996 million, 22% lower than in 2017. This item records different kinds of provisions, as well as capital gains, capital losses and asset impairment.

 

The improvement over 2017 was largely due to lower provisions for legal and labour claims (trabalhistas) recorded in Brazil, lower charges in the UK stemming from potential customer complaints, and at SCF because in 2017 provisions for legal claims, customer complaints and restructuring in some countries were higher.

LOGO Profit and profitability

 

Underlying attributable profit rose 18% (+7% in euros). Underlying RoTE rose to 12.1% and underlying RoRWA to 1.59%.

 

Considering the results included in the “Net capital gains and provisions” item, attributable profit increased 32% (+18% in euros), and earnings per share were EUR 0.449 (+11% year-on-year in euros). RoTE was 11.7% and RoRWA 1.55%, in both cases higher than in 2017.

 

LOGO

 

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JANUARY - DECEMBER

Consolidated financial report

 

 

GRUPO SANTANDER. BALANCE SHEET    

              

    EUR million

                                            
Assets    Dec-18      Dec-17      Absolute
change
     %      Dec-16  

Cash, cash balances at central banks and other demand deposits

     113,663        110,995        2,668        2.4        76,454  

Financial assets held for trading

     92,879        125,458        (32,579)        (26.0)        148,187  

Debt securities

     27,800        36,351        (8,551)        (23.5)        48,922  

Equity instruments

     8,938        21,353        (12,415)        (58.1)        14,497  

Loans and advances to customers

     202        8,815        (8,613)        (97.7)        9,504  

Loans and advances to central banks and credit institutions

            1,696        (1,696)        (100.0)        3,221  

Derivatives

     55,939        57,243        (1,304)        (2.3)        72,043  

Financial assets designated at fair value through profit or loss

     68,190        34,781        33,409        96.1        31,609  

Loans and advances to customers

     23,796        20,475        3,321        16.2        17,596  

Loans and advances to central banks and credit institutions

     32,325        9,889        22,436        226.9        10,069  

Other (debt securities an equity instruments)

     12,069        4,417        7,652        173.2        3,944  

Financial assets at fair value through other comprehensive income

     121,091        133,271        (12,180)        (9.1)        116,774  

Debt securities

     116,819        128,481        (11,662)        (9.1)        111,287  

Equity instruments

     2,671        4,790        (2,119)        (44.2)        5,487  

Loans and advances to customers

     1,601               1,601                

Loans and advances to central banks and credit institutions

                                  

Financial assets measured at amortised cost

     946,099        916,504        29,595        3.2        854,472  

Debt securities

     37,696        31,034        6,662        21.5        27,705  

Loans and advances to customers

     857,322        819,625        37,697        4.6        763,370  

Loans and advances to central banks and credit institutions

     51,081        65,845        (14,764)        (22.4)        63,397  

Investments in subsidiaries, joint ventures and associates

     7,588        6,184        1,404        22.7        4,836  

Tangible assets

     26,157        22,975        3,182        13.9        23,286  

Intangible assets

     28,560        28,683        (123)        (0.4)        29,421  

Goodwill

     25,466        25,769        (303)        (1.2)        26,724  

Other intangible assets

     3,094        2,914        180        6.2        2,697  

Other assets

     55,044        65,454        (10,410)        (15.9)        54,086  

Total assets

     1,459,271        1,444,305        14,966        1.0        1,339,125  
Liabilities and shareholders’ equity                                        

Financial liabilities held for trading

     70,343        107,624        (37,281)        (34.6)        108,765  

Customer deposits

            28,179        (28,179)        (100.0)        9,996  

Debt securities issued

                                  

Deposits by central banks and credit institutions

            574        (574)        (100.0)        1,395  

Derivatives

     55,341        57,892        (2,551)        (4.4)        74,369  

Other

     15,002        20,979        (5,977)        (28.5)        23,005  

Financial liabilities designated at fair value through profit or loss

     68,058        59,617        8,441        14.2        40,263  

Customer deposits

     39,597        28,945        10,652        36.8        23,345  

Debt securities issued

     2,305        3,056        (751)        (24.6)        2,791  

Deposits by central banks and credit institutions

     25,707        27,027        (1,320)        (4.9)        14,127  

Other

     449        589        (140)        (23.7)         

Financial liabilities measured at amortized cost

     1,171,630        1,126,069        45,561        4.0        1,044,240  

Customer deposits

     740,899        720,606        20,293        2.8        657,770  

Debt securities issued

     244,314        214,910        29,404        13.7        226,078  

Deposits by central banks and credit institutions

     162,202        162,714        (512)        (0.3)        133,876  

Other

     24,215        27,839        (3,624)        (13.0)        26,516  

Liabilities under insurance contracts

     765        1,117        (352)        (31.5)        652  

Provisions

     13,225        14,490        (1,265)        (8.7)        14,459  

Other liabilities

     27,889        28,556        (667)        (2.3)        28,047  

Total liabilities

     1,351,910        1,337,472        14,438        1.1        1,236,426  

Shareholders’ equity

     118,613        116,265        2,348        2.0        105,977  

Capital stock

     8,118        8,068        50        0.6        7,291  

Reserves

     104,922        103,608        1,314        1.3        94,149  

Attributable profit to the Group

     7,810        6,619        1,191        18.0        6,204  

Less: dividends

     (2,237)        (2,029)        (208)        10.2        (1,667)  

Other comprehensive income

     (22,141)        (21,777)        (364)        1.7        (15,039)  

Minority interests

     10,889        12,344        (1,455)        (11.8)        11,761  

Total equity

     107,361        106,832        529        0.5        102,699  

Total liabilities and equity

     1,459,271        1,444,305        14,966        1.0        1,339,125  

NOTE: Due to the application of IFRS 9 from 1 January 2018 and the decision to not restate the accounts, as permitted in the regulation, the balance sheet from December 2018 is not comparable with previous reporting periods. As such, for comparative purposes, and given the portfolio reclassification and the corresponding nomenclature changes were not significant, the 2017 accounts have been reorganised in accordance with the new aims and valuation methods. The initial impact as of 1 January 2018 was a 1.8% increase in fair value portfolios and a 0.8% decrease in portfolios valued at amortised cost, including a EUR 2 billion increase in impairment losses. The resulting decrease in equity was just under EUR 1.5 billion.

 

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GRUPO SANTANDER BALANCE SHEET

 

Lending increased 4% in 2018 (excluding exchange rate impact) in eight of the ten core units, particularly in developing countries (+14%)

 

 

Customer funds rose 4% (excluding exchange rate impact), with growth in eight of the ten core units (basically flat in the other two). Demand and time deposits, in particular, grew. Mutual funds remained virtually unchanged because of the market environment

 

 

The evolution of exchange rates in the fourth quarter had no impact. In year-on-year terms, there was a negative impact of 2 pp on loans and funds. Slight positive impact from the consolidation of Deutsche Bank Polska’s retail and SME business balances

 

LOGO Gross customer loans and advances (excluding reverse repos)

Gross customer loans and advances excluding reverse repos remained evenly balanced: individuals (45%), consumer credit (17%), SME and companies (27%) and SCIB (11%).

 

Quarter-on-quarter, and excluding the exchange rate impact, loans increased 1%, with the following performance by country:

 

  -

Increase of 5% in balances of developing countries, with growth of 4% in Brazil, 1% in Mexico and Chile and 20% in Poland, and a fall of 13% in Argentina, partly due to the impact of the peso’s appreciation on dollar balances.

 

  -

Balances in mature countries increased 1%, very conditioned by Spain (-2%), due to wholesale balances and institutions.

 

Compared to December 2017, there was a 4% increase (eliminating the exchange rate impact), with the following performance by country:

 

  -

There were rises in eight of the ten core countries. Of note were all the developing markets which grew 14%: Argentina (+40%), due to balances in pesos as well as the impact of the peso’s depreciation on dollar balances, Poland (+30%), partially due to perimeter effect, Brazil (+13%), and Mexico and Chile (both +10%).

 

  -

More moderate growth in the US and the UK (+6% and +1%, respectively).

 

  -

Portugal and Spain’s banking sector continued to deleverage with a credit decreased around 3%. In this context, we recorded declines. In Portugal, down 2%, because of the sale of non-productive portfolios and Spain by 4% because it was affected by the already commented evolution in the quarter.

 

LOGO

LOGO

 

 

 

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Consolidated financial report

 

LOGO Customer funds

Customer funds are well diversified by products: 61% are demand deposits, 22% time deposits and 17% mutual funds.

 

In the fourth quarter, total deposits excluding repos and mutual funds increased slightly (+1%) excluding exchange rate impacts. By countries:

 

 

In developing markets, there was a 19% rise in Poland, in part due to the consolidation of Deutsche Bank Polska, and 6% in Chile. Brazil and Mexico declined 1% .

 

 

In mature markets, they grew 2% in the US and the UK. Portugal was virtually unchanged, and there was a fall of 1% in Spain, where the strategy of combining a reduction in the expensive balances (the cost of deposits was 1 bps lower in the fourth quarter and 21 bps since the end of 2017) with a rise in demand deposits continued.

 

Compared to December 2017, year-on-year growth was 4% excluding the exchange rate impact.

 

 

Demand deposits were up 6% with growth in almost all countries. Time deposits rose 2% due to Latin American countries, particularly Brazil, which increased 29% as part of the strategy of replacing letras financeiras with customer deposits in order to optimise the cost of funds. These rises offset the falls in the UK and, above all, in Spain. On the other hand, mutual funds were virtually stable (-0.4%) impacted by the falls in the markets.

 

 

By units, total funds rose in eight of the ten core units. The largest increases were in Argentina (+51%), Poland (+32%), Brazil (+15%), Portugal and Chile (both +8%).

 

 

More moderate growth of around 3%-4% in Santander Consumer Finance, Mexico and the US.

 

 

Balances in Spain and the UK hardly changed, because of the sharp fall in time deposits (and savings in the UK’s case), which cancelled out the 8% growth in demand deposits in Spain and the 2% rise in demand deposits in the UK.

As well as capturing customer deposits, Grupo Santander, for strategic reasons, maintains a selective policy of issuing securities in the international fixed income markets and strives to adapt the frequency and volume of its market operations to the structural liquidity needs of each unit, as well as to the receptiveness of each market.

 

In 2018, the Group issued:

 

 

Medium- and long-term senior debt amounting to EUR 17,585 million and covered bonds placed in the market of EUR 6,376 million.

 

 

Issuances to meet the TLAC (Total Loss-Absorbing Capacity) requirement amounting to EUR 13,544 million, in order to strengthen the Group’s situation, consisting of senior non-preferred: EUR 10,284 million; subordinated debt: EUR 1,760 million and preferred: EUR 1,500 million.

 

 

Maturities of medium- and long-term debt of EUR 21,711 million.

 

 

Additionally, there were EUR 20,554 million of securitisations placed in the market, and extended the maturity of others for EUR 2,069 million. Total securitisations amounted EUR 22,623 million.

 

The net loan-to-deposit ratio was 113% (109% in December 2017). The ratio of deposits plus medium- and long-term funding to the Group’s loans was 114%, underscoring the comfortable funding structure.

 

LOGO

LOGO

 

 

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SOLVENCY RATIOS

 

 

The fully loaded CET1 ratio reached 11.30%, up 19 bps in the quarter and 46 bps in the year

 

 

Tangible equity per share was EUR 4.19, an increase of 1% in the quarter after the payment of dividends

 

 

The fully loaded leverage ratio was 5.1% (5.0% in December 2017)

At the end of 2018, the total phased-in capital ratio stood at 14.99% and the phased-in CET1 ratio at 11.47%, comfortably meeting the minimum levels required by the European Central Bank on a consolidated basis (12.315% for the total capital ratio and 8.815% for the CET1 ratio).

On 1 January 2018 the IFRS 9 came into force, which implied several accounting changes affecting the capital ratios. Santander chose to apply the phased-in under a dynamic approach, which means a five-year transition period. Applying this criteria, the fully loaded CET1 was 11.30% at the end of 2018.

The fourth quarter generated 19 bps (11 bps organically) and the favourable impact of WiZink (8 bps).

After this increase, the fully loaded CET1 rose 46 bps in 2018, with a notable 64 bps generated organically, which was partially offset by the net negative impact among corporate operations (+21 bps mainly Blackstone and WiZink), regulatory effects/one-offs (-25 bps mainly SC USA minority interests and restructuring costs) and markets and others (-14 bps, AFS, intangible assets).

Had the IFRS 9 transitional arrangement not been applied, the total impact on the fully loaded CET1 at end December would have been -27 bps.

In accordance with the TLAC issuance plan, there were three issuances in 2018, with impact on the capital ratios. In February we issued EUR 1.25 billion of subordinated (Tier 2) debt maturing in 2028. In March we completed a EUR 1.5 billion issuance of contingent convertible capital securities (CoCos), which contribute towards additional tier 1 (AT1) capital levels, and in April 10-year PLN 1 billion of subordinated debt (Tier 2) was issued in Poland.

Lastly, as a result of the implementation of the IFRS 16, which came into force in January 2019, the Group estimated an impact on the CET1 ratio of around -20 bps.

 

ELIGIBLE CAPITAL. DECEMBER 2018

     EUR million

 

 

      Phased-in      Fully loaded  

CET1

     67,962        66,904  

Basic capital

     77,705        75,826  

Eligible capital

     88,788        87,569  

Risk-weighted assets

     592,319        592,319  
                   

CET1 capital ratio

     11.47        11.30  

T1 capital ratio

     13.12        12.80  

Total capital ratio

     14.99        14.78  

 

LOGO

 

 

LOGO

NOTE: All 2018 data calculated using the IFRS 9 transitional arrangements, unless otherwise indicated.

 

Financial Report 2018     LOGO     17


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Consolidated financial report

 

STRESS TEST

In November, the European Banking Authority (EBA) published the results of the stress test for the European Union’s 48 main banks.

This stress exercise presented two macroeconomic scenarios (baseline and adverse), taking as a starting point the banks’ balance sheet at the end of 2017 and a three-year time frame ending in 2020. This time, there was no minimum capital threshold to meet.

The adverse scenario, very unlikely to occur, sets out a sharp macroeconomic and financial markets downturn, both in Europe and in other countries where Banco Santander operates. For example, the fall in the euro zone’s GDP was put at 2.7%, the unemployment rate rose to 9.7% in 2020 and house prices plummeted by 19.1%.

Since 2008, Grupo Santander has been submitted to seven stress tests in all of which it has demonstrated its strength and solvency in the face of the most extreme and severe macroeconomic scenarios. In all of them, thanks to its business model and geographic diversification, it showed itself capable of generating profits for its shareholders and meeting the most demanding regulatory requirements.

In the latest stress test:

 

Under the adverse scenario, Santander was the bank with the least capital destroyed (-141 bps) among its peers and also less so than in the test in 2016.

 

In the baseline scenario, the Group was the bank that generated the most capital among its peers.

 

Lastly, in both scenarios, Santander generated the largest net profit among its peers.

 

LOGO

 

LOGO

 

 

Peers: BBVA, Intesa San Paolo, Nordea, BNP, Unicredit, Commerzbank, Société Générale, ING, C.Agricole, HSBC, Deutsche Bank, RBS, Barclays and Lloyds.

 

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RISK MANAGEMENT

 

 

The Group’s NPL ratio continued to show a positive trend (14 bps lower in the fourth quarter) and ended the year at 3.73%

 

 

The cost of credit also improved, falling 7 bps in the year to 1.00%

 

 

In 2018 loan-loss provisions amounted to EUR 8,873 million and coverage was 67%

 

LOGO Credit risk management

 

Non-performing loans fell 2% in the fourth quarter to EUR 35,692 million (-5% for the whole year).

 

Cost of credit improved to 1.00%. The NPL ratio was 3.73%, after a 35 bps reduction throughout the year.

 

Loan-loss provisions amounted to EUR 24,061 million and coverage was 67% at the end of 2018, bearing in mind that a significant part of the UK and Spain’s loan portfolios are secured by real estate collateral and therefore require fewer provisions.

 

The Group’s coverage in terms of each IFRS 9 stage is as follows: Stage 1: 0.5%, Stage 2: 9.2% and Stage 3: 42.4%.

 

LOGO

CREDIT RISK MANAGEMENT

 

        

     EUR million

                                   
      Dec-18      Dec-17      Chg. %      Dec-16  

Non-performing loans

     35,692        37,596        (5.1)        33,643  

NPL ratio (%)

     3.73        4.08                 3.93  

Loan-loss allowances

     24,061        24,529        (1.9)        24,835  

For impaired assets

     15,148        16,459        (8.0)        15,466  

For other assets

     8,913        8,070        10.4        9,369  

Coverage ratio (%)

     67.4        65.2                 73.8  

Cost of credit (%)

     1.00        1.07                 1.18  

 

COVERAGE RATIO BY STAGE

 

       

    EUR billion

                                  
     Exposure*             Coverage  
      Dec-18              Dec-18     Jan-18  

Stage 1

     845                 0.5     0.6

Stage 2

     53                 9.2     8.6

Stage 3

     36                 42.4     44.2

 

(*) 

Exposure subject to impairment expressed in EUR bn. Additionally, there are EUR 24 bn in customer loans not subject to impairment recorded at mark to market with changes through P&L

 

 

 

LOGO  NON-PERFORMING LOANS BY QUARTER

 

              

    EUR million

                                                                       
     

 

Q1’17

    

 

Q2’17

     Q3’17      Q4’17      Q1’18      Q2’18      Q3’18      Q4’18  

Balance at beginning of period

     33,643        32,158        50,714        39,442        37,596        37,407        36,654        36,332  

Net additions

     1,583        2,255        2,499        1,933        2,340        2,906        2,528        3,136  

Increase in scope of consolidation

     18        20,969        (10,954)                                    177  

Exchange rate differences and other

     536        (854)        (150)        (358)        361        (409)        (140)        (130)  

Write-offs

     (3,623)        (3,813)        (2,667)        (3,420)        (2,890)        (3,250)        (2,710)        (3,823)  

Balance at period-end

     32,158                50,714                39,442                37,596                    37,407                36,654                36,332                35,692  

 

Financial Report 2018     LOGO     19


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JANUARY - DECEMBER

Consolidated financial report

 

The following table sets out the NPL and coverage ratios of the main countries where the Group operates:

 

CREDIT RISK MANAGEMENT. DECEMBER 2018

 

  

     %

                                   
     NPL      Change (bps)      Coverage  
      ratio      QoQ      YoY      ratio  

Spain

     6.19        (4)        (13)        45.0  

Spain’s real estate activity

     97.05        147        652        33.7  

Santander Consumer Finance

     2.29        (16)        (21)        106.4  

Poland

     4.28        5        (29)        67.1  

Portugal

     5.94        (149)        (157)        50.5  

United Kingdom

     1.05        (5)        (28)        33.0  

Brazil

     5.25        (1)        (4)        106.9  

Mexico

     2.43        2        (26)        119.7  

Chile

     4.66        (12)        (30)        60.6  

Argentina

     3.17        70        67        135.0  

USA

     2.92        (8)        13        142.8  

 

LOGO

Spain’s NPL ratio fell slightly in the fourth quarter, mainly due to the better performance of retail portfolios and the improvements in the financial situation of companies.

 

LOGO

Santander Consumer Finance’s NPL ratio decreased thanks to the good performance of new loans.

 

LOGO

Poland’s NPL ratio remained virtually unchanged in the fourth quarter, once the integration of DB Polska’s retail and SME business portfolio was completed.

 

LOGO

Portugal’s NPL ratio continued to decline following the integration of Popular’s portfolios into Santander Totta’s usual management and also driven by the sales of distressed portfolios.

 

LOGO

The favourable evolution in the UK observed in previous quarters continued.

 

LOGO

Brazil’s NPL ratio remained unchanged, thanks to preventive management of the non-performing loan portfolio entries and growth in lending, focused on individuals and consumer finance as well as on singular transactions with companies and SCIB.

 

LOGO

Mexico’s NPL ratio was stable in the quarter and was 26 bps lower year-on-year due to the good performance of the portfolio of individuals (mainly cards and consumer loans).

 

LOGO

Chile’s NPL ratio decreased again in the quarter driven by the good performance of the main portfolios.

 

LOGO

Argentina’s NPL ratio rose due to the deterioration observed in the individuals portfolio, and to a lesser extent companies portfolio, both of which were affected by the macroeconomic environment. Lending slowed because of lower demand following a hike in interest rates.

 

LOGO

In the US, the increase in investment and credit quality of new lending contributed to the NPL ratio improvement in the quarter.

LOGO Foreign exchange rate structural risk

Santander covers approximately 100% of its core capital ratio in order to hedge from exchange rate movements.

 

20     LOGO     Financial Report 2018


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LOGO Market risk

 

The global corporate banking trading activity’s risk, measured in daily VaR terms at a 99% confidence level, fluctuated between EUR 14.6 million and EUR 6.5 million. These figures are low compared to the size of the Group’s balance sheet and activity. The average VaR was slightly higher in the second part of the quarter due to market volatility, temporarily increasing the exposure to interest rate and FX risks, although they always remained within the established limits.

 

In addition, there are other positions classified for accounting purposes as trading. The total VaR of trading of this accounting perimeter at the end of 2018 was EUR 11.8 million.

 

The fourth quarter was marked by increased market volatility. A positive impact was generated in the structural debt portfolio, mainly in Brazil, as a result of the strong positive market reaction to the general election results.

 

 

TRADING PORTFOLIOS*. VaR by geographic region

 

     EUR million

                           
     2018         2017  
Fourth quarter    Average      Latest          Average  
           
           

Total

     10.1      11.3           16.9  

Europe

     5.6      6.3           6.5  

USA and Asia

     1.5      1.8           2.0  

Latin America

     10.1      12.0           16.6  

Global activities

     0.9      0.5           0.4  

(*) Santander Corporate & Investment Banking performance in financial markets.

 

LOGO Real estate exposure (1)

 

The Spain Real Estate Activity unit’s gross exposure stood at EUR 9.3 billion and provisions of EUR 4.6 billion represented coverage of 50%.

 

The net value is 4.7 billion, equivalent to 1% of the balance of businesses in Spain.

 

This unit recorded losses of EUR 242 million in 2018, down from EUR 308 million in 2017 because of lower provisioning needs.

 

Management continued to be aimed at reducing these assets, particularly loans and foreclosed assets. In 2018, the Group reached agreement with a subsidiary of Cerberus Capital Management to sell 35,700 properties for approximately EUR 1,535 million, with no material impact on profit and capital expected. This transaction is expected to be finalised by the first quarter of 2019.

LOGO

 

TRADING PORTFOLIOS*. VaR by market factor

 

  

     EUR million

 

        
Fourth quarter    Min.          Avg.          Max.          Last  

VaR total

     6.5        10.1        14.6        11.3  

Diversification effect

     (5.5)        (9.6)        (13.0)        (11.5)  

Interest rate VaR

     7.1        8.9        11.9        9.7  

Equity VaR

     1.7        3.8        6.3        2.8  

FX VaR

     2.6        4.0        6.2        6.2  

Credit spreads VaR

     2.3        3.1        4.2        4.1  

Commodities VaR

            0.0        0.4        0.0  

(*) Santander Corporate & Investment Banking performance in financial markets.

NOTE: In Latin America, United States and Asia portfolios, VaR corresponding to the credit spreads factor that is not related to sovereign risk is not relevant and is included in the interest rate factor.

 

REAL ESTATE EXPOSURE NET VALUE (1)

     EUR billion

 

 

      Dec-2018  

Real estate assets

     3.8  

- Foreclosed

     2.6  

- Rentals

     1.2  

Non-performing real estate loans

     0.9  

Assets + non-performing real estate

     4.7  

(1) Spain Real Estate Activity

 

 

Financial Report 2018     LOGO     21


Table of Contents

JANUARY - DECEMBER

Business information

 

DESCRIPTION OF BUSINESS

In 2018 Grupo Santander maintained the same general criteria applied in 2017, as well as the business segments, with the following exceptions:

 

 

Banco Popular’s financial results and balance sheet have been allocated to the corresponding geographic areas. In 2017, starting from the integration date, Banco Popular was reported separately. The main affected areas are: Spain, Portugal and Spain Real Estate Activity.

 

 

The Wealth Management unit, created at the end of 2017, is reported independently as a global business. This unit was previously included in Retail Banking. This change has no impact on the geographic segments.

 

 

Annual adjustment of the Global Customer Relationship Model’s perimeter, between Retail Banking and Corporate and Investment Banking, with no impact on the geographic businesses.

These changes have no impact on the Group’s figures. However, for comparative purposes, the figures of previous periods have been restated including changes in the affected geographic and global businesses.

Moreover, the balance sheets have been adjusted to the new IFRS 9 regulation. Since retroactive application of this rule is not mandatory, certain lines of the 2018 balance sheet are not comparable with previously reported periods. For comparative purposes, and given the scant significance of portfolio reclassifications and their nomenclature changes, the 2017 accounts have been reorganised in accordance with their purpose and valuation method.

The financial statements of each business unit have been drawn up by aggregating the Group’s basic operating units. The information relates to both the accounting data of the units integrated in each segment, as well as that provided by the management information systems. In all cases, the same general principles as those used in the Group are applied.

The operating business areas are structured into two levels:

 

LOGO

Geographic businesses. The operating units are segmented by geographical areas. This coincides with the Group’s first level of management and reflects Santander’s positioning in the world’s three main currency areas (euro, sterling and dollar). The segments reported on are:

 

 

Continental Europe. This covers all businesses in the area. Detailed financial information is provided on Spain, Portugal, Poland and Santander Consumer Finance (which incorporates all the region’s business, including the three countries mentioned herewith).

 

 

United Kingdom. This includes the businesses developed by the Group’s various units and branches in the country.

 

 

Latin America. This embraces all the Group’s financial activities conducted via its banks and subsidiaries in the region. The financial statements of Brazil, Mexico, Chile and Argentina are set out.

 

 

United States. Includes the holding Santander Holdings USA (SHUSA) and its subsidiaries Santander Bank, Banco Santander Puerto Rico, Santander Consumer USA, Banco Santander International, Santander Investment Securities and the New York branch.

 

LOGO

Global businesses. The activity of the operating units is distributed by the type of business: Retail Banking, Santander Corporate and Investment Banking, Wealth Management and Spain Real Estate Activity.

 

 

Retail Banking. This covers all customer banking businesses, including consumer finance, except those of corporate banking, which are managed through the SCIB, and asset management and private banking, which are managed by Wealth Management. The results of the hedging positions in each country are also included, conducted within the sphere of each one’s Assets and Liabilities Committee.

 

 

Santander Corporate and Investment Banking (SCIB). This business reflects the revenues from global corporate banking, investment banking and markets worldwide including treasuries managed globally (always after the appropriate distribution with Retail Banking customers), as well as equities business.

 

 

Wealth Management. Includes the asset management business (Santander Asset Management), the new corporate unit of Private Banking and International Private Banking in Miami and Switzerland.

In addition to these operating units, which report by geographic area and by businesses, the Group continues to maintain the area of Corporate Centre. This area incorporates the centralised activities relating to equity stakes in financial companies, financial management of the structural exchange rate position, assumed within the sphere of the Group’s Assets and Liabilities Committee, as well as management of liquidity and of shareholders’ equity via issuances.

As the Group’s holding entity, this area manages all capital and reserves and allocations of capital and liquidity with the rest of businesses. It also incorporates amortisation of goodwill but not the costs related to the Group’s central services (charged to the areas), except for corporate and institutional expenses related to the Group’s functioning.

 

The figures of the Group’s various units have been drawn up in accordance with these criteria, and so do not coincide individually with those published by each unit.

 

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Business information    

 

 

NET OPERATING INCOME                  QoQ                    YoY  
     EUR million    Q4’18              %      % excl. FX              2018      %      % excl. FX  

  Continental Europe

     1,940                 (4.5)        (4.5)                 7,604        12.6        12.9  

  o/w: Spain

     770                 (23.9)        (23.9)                 3,414        21.1        21.1  

Santander Consumer Finance

     693                 1.7        1.7                 2,625        4.8        5.3  

Poland

     225                 6.7        6.6                 851        4.5        4.7  

Portugal

     172                 3.9        3.9                 702        11.3        11.3  

  United Kingdom

     593                 (6.9)        (7.4)                 2,426        (15.0)        (14.2)  

  Latin America

     3,324                 7.8        (3.0)                        13,204        (4.3)        12.7  

  o/w: Brazil

     2,205                 2.6        (2.7)                 8,863        (3.6)        15.2  

Mexico

     521                 (4.8)        (2.6)                 2,064        (0.7)        5.8  

Chile

     364                 (2.8)        (2.2)                 1,491        (0.5)        3.0  

Argentina

     149                        (19.9)                 460        (40.8)        15.8  

  USA

     1,172                 18.7        17.1                 3,934        4.6        9.5  

  Operating areas

     7,029                 4.3        (1.1)                 27,168        (0.0)        9.2  

  Corporate Centre

     (423)           11.3        11.3           (1,523)        (10.2)        (10.2)  

  Total Group

     6,606                 3.9        (1.8)                 25,645        0.7        10.6  
ATTRIBUTABLE PROFIT TO THE GROUP                  QoQ                    YoY  
     EUR million    Q4’18              %      % excl. FX              2018      %      % excl. FX  

  Continental Europe*

     946                 (4.4)        (4.4)                 3,642        13.7        14.1  

  o/w: Spain*

     432                 (18.0)        (18.0)                 1,738        20.8        20.8  

Santander Consumer Finance*

     296                 (10.8)        (10.7)                 1,296        3.4        4.1  

Poland*

     62                 (23.4)        (23.2)                 298        (0.7)        (0.6)  

Portugal*

     136                 18.9        18.9                 480        10.3        10.3  

  United Kingdom

     286                 (25.7)        (26.1)                 1,362        (9.1)        (8.2)  

  Latin America

     1,068                 12.8        2.4                 4,228        (1.6)        16.5  

  o/w: Brazil

     663                 7.1        1.4                 2,605        2.4        22.3  

Mexico

     206                 5.5        8.0                 760        7.0        14.0  

Chile

     153                 0.6        1.2                 614        4.9        8.5  

Argentina

     17                                        84        (76.7)        (54.5)  

  USA*

     92                 (26.4)        (28.9)                 552        35.4        41.7  

  Operating areas*

     2,391                 (2.2)        (6.1)                 9,785        4.0        12.5  

  Corporate Centre*

     (369)                        (18.9)        (18.9)                 (1,721)        (8.9)        (8.9)  

  Total Group*

     2,022                 1.6        (3.3)                 8,064        7.3        18.5  

  Net capital gains and provisions

     46                            (254)        (71.7)        (71.6)  

  Total Group

     2,068                 3.9        (1.1)                 7,810        18.0        32.1  

(*) In the units, underlying attributable profit (excluding net capital gains and provisions)

 

           
GROSS LOANS AND ADVANCES TO CUSTOMERS EX. REV. REPOS             QoQ                    YoY  
     EUR million    Q4’18              %      % excl. FX              2018      %      % excl. FX  

  Continental Europe

     390,794                 1.5        1.7                 390,794        1.7        1.9  

  o/w: Spain

     209,630                 (2.2)        (2.2)                 209,630        (4.1)        (4.1)  

Santander Consumer Finance

     97,707                 3.4        4.1                 97,707        5.7        6.0  

Poland

     29,033                 19.2        19.9                 29,033        26.4        30.1  

Portugal

     36,568                 (1.4)        (1.4)                 36,568        (2.5)        (2.5)  

  United Kingdom

     235,753                 (0.6)        0.2                 235,753        (0.0)        0.8  

  Latin America

     157,022                 3.3        2.4                 157,022        2.4        11.9  

  o/w: Brazil

     75,282                 8.8        3.9                 75,282        1.3        13.3  

Mexico

     31,192                 (2.1)        1.1                 31,192        15.7        10.0  

Chile

     39,019                 (2.8)        1.0                 39,019        2.0        10.0  

Argentina

     5,574                 (3.9)        (13.0)                 5,574        (26.7)        39.5  

  USA

     83,696                 3.7        2.6                 83,696        11.0        6.0  

  Operating areas

     867,264                 1.4        1.5                 867,264        2.2        3.7  

  Total Group

     873,916                 1.4        1.4                 873,916        2.3        3.8  
CUSTOMER FUNDS (CUSTOMER DEP. EX. REPOS + MUTUAL FUNDS)      QoQ                    YoY  
     EUR million    Q4’18              %      % excl. FX              2018      %      % excl. FX  

  Continental Europe

     436,913                 0.6        0.7                 436,913        2.7        2.9  

  o/w: Spain

     315,351                 (1.1)        (1.1)                 315,351        (0.5)        (0.5)  

Santander Consumer Finance

     36,531                 (0.3)        0.5                 36,531        3.2        3.5  

Poland

     35,554                 18.5        19.1                 35,554        27.9        31.7  

Portugal

     39,143                 (0.1)        (0.1)                 39,143        8.4        8.4  

  United Kingdom

     206,630                 0.7        1.5                 206,630        (1.7)        (0.9)  

  Latin America

     197,598                 1.8        (0.0)                 197,598        1.3        11.8  

  o/w: Brazil

     110,243                 3.4        (1.3)                 110,243        3.1        15.3  

Mexico

     38,630                 (4.4)        (1.3)                 38,630        8.7        3.3  

Chile

     33,279                 2.5        6.4                 33,279        0.5        8.4  

Argentina

     10,191                 9.9        (0.5)                 10,191        (20.7)        51.0  

  USA

     64,239                 3.6        2.5                 64,239        8.3        3.4  

  Operating areas

     905,380                 1.1        0.9                 905,380        1.7        3.8  

  Total Group

     905,624                 1.1        0.9                 905,624        1.7        3.8  

 

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SPAIN

   EUR 1,458 Mn

Highlights

 

   Attributable profit

 

Banco Popular’s integration is progressing as scheduled: the legal integration was completed, central services and regional teams unified and a single technological platform put in place where we started the migration of customers

 

 

Progress was made on digital transformation and the customer relationship model (4.8 million digital customers, launch of the first Work Café in Spain and reinforcement of Santander Personal)

 

 

Strong growth in SME and companies: New lending increased 17% in 2018 and the stock by EUR 1,800 million

 

 

Underlying attributable profit rose 21% in 2018, with better efficiency, a cost of credit at around 30 bps and a favourable perimeter impact

Commercial activity

 

 

Loyal customers rose 40%, with double-digit rise in the main transactional drivers: new insurance premiums increased 30%, turnover of cards 14% and point-of-sale terminals 11%.

 

 

Commercial dynamism in the high value-added segments: new lending to SME increased 17% and 30% in Private Banking. In SCIB, we were first in loans to large companies, with more than 80 syndicated loans signed in the year.

 

 

The digital transformation enabled us to position ourselves as leaders in mobile phone and website functionalities for banking with individuals (Aqmetrix benchmark) as well as enabling us to strengthen our competitive advantage in SME with new digital functionalities: fully digital on-boarding, online remittances in just one click, pre-granted loans in three clicks, etc.

 

 

Launch of Smartbank, new relationship model with the more than 600,000 millennial customers, offering them a tailored financial proposal (guarantees and loans to facilitate getting on the property ladder) and non-financial proposals (CV advisory services through Santander Universidades).

Business performance

 

 

The core retail banking investment increased driven by SME and companies (EUR 1.8 billion) and private banking (EUR 400 million). However, total lending decreased 4% compared to 2017 due to SCIB and institutions.

 

 

Customer deposits were slightly up compared to 2017. Demand deposits rose 8%, driven by the 1|2|3 account (up EUR 5.3 billion in the year), offseting the fall in time deposits following the strategy of reducing the cost of funding.

Results

Underlying attributable profit in 2018 was 21% higher at EUR 1,738 million, as follows:

 

 

Gross income was up 15%, notably net interest income (+15%) driven by the sustained improvement in the customer spreads, due to the reduction in the cost of deposits (-21 bps in the year). Fee income grew 13%, favoured by the increase in transactions. Gains on financial transactions increased 28%, mainly thanks to management of the ALCO portfolios.

 

 

Operating expenses rose 11%. In the quarter, the first synergies from the optimisation measures being implemented in the integration process began to be registered.

 

 

Loan-loss provisions increased 21%, mainly due to the perimeter. The cost of credit was only 33 bps at the end of 2018.

The fourth quarter’s results were affected by the EUR 226 million contribution to the Deposit Guarantee Fund (before tax).

 

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SANTANDER CONSUMER FINANCE

   EUR 1,296 Mn

 

Highlights (changes in constant euros)

   Attributable profit

 

 

Santander is the European leader in consumer finance

 

 

The main focal points were: to remain leader in the auto finance, supporting producers and dealers in their digital transformation process, and to increase consumer finance

 

 

Underlying attributable profit rose 4% in 2018 in constant euros. High profitability (RoTE of 16%; RoRWA at 2.3%), cost of credit at historic lows and high geographic diversification with critical mass in markets

 

Commercial activity

 

 

SCF continued to gain market share, backed by a solid business model, as well as the signing and development of new agreements. SCF focused on supporting both retail distributors as well as producers in their commercial transformation process, and hence, in increasing the value proposal for the final customer.

 

 

In consumer business, we launched two core projects: the e-commerce platform, which helps our partners to create, manage and grow their business; and digital interaction, which optimises the relationship between agents and customers.

 

 

The plan to integrate the retail networks of SC Germany progressed as scheduled.

 

 

SCF was recognised with the Top Employer Europe 2018 stamp in Austria, Belgium, Germany, Italy, the Netherlands and Poland.

Business performance

 

 

New lending increased 7% in 2018. Growth in almost all countries, supporting producers and retail chains in their commercial policy. Of note were France, Poland, the Nordic countries and Italy.

 

 

SCF is benefiting from having banking licenses in most of the countries in which it operates, enabling it to take deposits in many of them. It also has a high diversification of funding sources, with a good structure that enables it to access markets through securitisations and other issues.

Results

Underlying attributable profit of EUR 1,296 million in 2018, 4% higher, with the following detail:

 

 

Gross income grew 3%, due to net interest income (+5%) thanks to higher volumes and lower funding costs. Fee income dropped 9%, mainly due to the adaptation of insurance business.

 

 

Operating expenses grew 1% and the efficiency ratio ended the year at 43.1%.

 

 

Loan-loss provisions increased 36%, due to the positive impact in 2017 of the sale of portfolios and other releases. The cost of credit remained low at 0.38%.

 

 

Other results and provisions amounted to EUR -74 million, 38% lower than in 2017 (in that year SCF recorded provisions for possible litigation and customers’ complaints).

 

 

The largest profits were generated in Germany (EUR 349 million), Spain (EUR 246 million) and the Nordic countries (EUR 331 million).

The fourth quarter profit was impacted by positive non-recurring results, such as the sale of written-off portfolios in Germany and in Nordic countries, and negative ones as the anticipated deterioration of intangible assets and transformation projects.

 

 

 

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POLAND

   EUR 343 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

The Group strengthened its position in Poland with the integration of the retail and SME businesses acquired from Deutsche Bank Polska (DBP). BZ WBK was renamed Santander Bank Polska S.A.

 

 

Strong growth in volumes reflected in market share gains in a very competitive environment

 

 

Third bank in Poland in customer satisfaction and also leading positions in employee satisfaction

 

 

Underlying attributable profit fell slightly (-1%) due to the sale of portfolios in 2017, the cost of rebranding in 2018 and the charges associated with the integration in November of Deutsche Bank Polska. Including badwill (EUR 45 million), attributable profit rose 14%

Commercial activity

 

 

The Bank continued its strategy to become the Bank of First Choice, responding to and predicting customer expectations.

 

 

The digital transformation continued with the launch of mSignature, a mobile authorisation app and digitalisation of post-sale services related to credit cards and loans.

 

 

The As I Want It Account was successfully launched (more than one million openings in the year). It was recognised as the best account for young people in the financial portal money.pl.

 

 

We made significant headway in the implementation of the agile methodology in the Retail Banking division.

 

 

All these actions enabled us to be accorded important recognitions in Poland, notably Bank of the Year in Poland by The Banker and second place in the Banking Stars ranking (third in 2017). We continued to increase the number of our loyal and digital customers.

Business performance

 

 

Volumes were positively impacted by the acquisition of DPB. Loans increased 30% in 2018 backed by all target segments: SME (+59%), individuals (+37%), companies (+14%) and SCIB (+10%).

 

 

Deposits rose 36%, with double-digit growth in those from SME and companies as well as individuals. Total customer funds increased 32%.

Results

The fourth quarter was affected by the integration of DBP. Attributable profit for the year was EUR 343 million, 14% higher than in 2017, with the following detail:

 

 

Gross income rose 5% driven by net interest income (+7%) and fee income (+2%), while the gain on financial transactions fell 15%.

 

 

Operating expenses grew 5% due to transformation project costs and pressure on salaries.

 

 

Higher loan-loss provisions, partly because of the sale of a non-performing loan portfolio in the first half of 2017.

 

 

The NPL ratio dropped to 4.28% from 4.57% in 2017 and the cost of credit was 0.65% (0.62% at the end of 2017).

 

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PORTUGAL

  

EUR 500 Mn

Attributable profit

 

Highlights

 

 

The operational and technological integration of Banco Popular Portugal completed in October 2018 strengthened Santander Totta’s position as the country’s largest privately owned bank by assets and loans in domestic activity

 

 

The digital and commercial transformation continued, boosting sales via digital channels and spurring growth in loyal and digital customers

 

 

Underlying attributable profit increased 10% due to the improvement in efficiency and lower provisions. The NPL ratio improved significantly and the cost of credit was only 9 bps

 

Commercial activity

The strategy of adjusting the range of products and services to customers’ needs was maintained in 2018, with the focus on boosting loyalty:

 

 

We launched new digital platforms such as the Santander Empresas app, push mobile notifications, real-time alerts for cards and accounts, card blocking services and credit card payments in instalments (PagaSimples).

 

 

In personal credit, CreditSimples already accounts for around 28% of new loans.

 

 

In funds, deposits grew faster than the market average, with the consequent gain in market share. The Bank launched the Conta SIM, a simple and more digital account.

As a result, loyal customers increased 9% and digital ones 32%. Additionally, Santander continued to be recognised by Global Finance as the Best Bank in Portugal in 2018 and by World Finance as the Best Retail Bank in Portugal. It was also recently recognised as the Best Private Bank 2019 by Global Finance.

Credit rating agencies also improved their ratings during 2018.

Business performance

 

 

Growth in loans remained strong. Our market share of new loans to companies increased to 20% (+2.7 pp over 2017). In financing lines to SME, the Bank remains the market leader with a market share of 23%. The market share of mortgage lending reached 22% (+0.9 pp).

 

 

The stock of lending, however, fell 2%, hit by the sale of unprofitable portfolios.

 

 

Deposits rose 10% in 2018, favoured by the campaign to capture funds (demand deposits: +15% and time: +5%).

Results

Attributable profit increased 15% in 2018. Excluding the non-recurring impacts associated with the second quarter’s inorganic operations, underlying profit was 10% higher, due to:

 

 

Gross income increased 8% largely driven by net interest income (+9%).

 

 

Costs rose to a lesser extent, enabling net operating income to increase 11% and the efficiency ratio to improve to 47.8% (-1.6 pp year-on-year).

 

 

Provisions increased, but the cost of credit was only 0.09%. The NPL ratio was 5.94% (7.51% at the end of 2017) and coverage 50%.

Year-on-year growth rates were impacted by the incorporation of Popular.

 

 

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UNITED KINGDOM

   EUR 1,362 Mn

Highlights (changes in constant euros)

  

Attributable profit

 

 

In an uncertain environment, we continued to prioritise growth in lower risk areas whilst actively managing costs in order to improve operational efficiency and the customer experience

 

 

Good business evolution: growth in retail current account balances and mortgages in a highly competitive market, while further reducing commercial real estate exposure

 

 

Our results reflect competitive income pressures and higher regulatory, risk and control costs, as well as strategic investment in business transformation and digital enhancement. Cost of credit at just 7 basis points

 

 

Commercial activity

 

 

We continued to focus on expanding our multi-channel investment proposition: Digital Investment Adviser (easy access to online investment advice), 1I2I3 Business current account (innovative proposition to UK SMEs). We further developed our international offering with 3 trade corridors established in 2018.

 

 

In addition, we enhanced our digital proposition improving our metrics: we retained 55% of refinanced mortgage loans online, we also opened 43% of current accounts and 65% of credit cards through digital channels.

 

 

We continued to gain loyal customers: retail (+3%) and corporates (+5%). We attracted around 467,000 digital customers.

 

 

In 2018 we completed the transition to our ring-fence compliant structure.

Business performance

 

 

Customer lending increased slightly driven by strong mortgage growth with a management focus on customer service and retention, partially offset by active management of CRE exposures.

 

 

Customer deposits fell 1%, with growth in current accounts (+2%) offset by savings and time deposits due to management pricing actions. Mutual funds down 11% predominately driven by negative market movements and reduced net flows this year.

Results

Underlying attributable profit amounted to EUR 1,362 million in the year, 8% lower year-on-year, due to:

 

 

Gross income declined 4% with competitive pressure on mortgage spreads, continued SVR attrition and lower gains on financial transactions, largely due to absence of capital gains recorded in 2017. Fee income, on the other hand, rose 3% backed by income from asset management, partly offset by lower SCIB income.

 

 

Operating expenses rose 6% driven by increased regulatory, risk and control project costs and ongoing investment in strategic and digital transformation projects.

 

 

Provisions decreased 14%, with a cost of credit of just 7 bps. The NPL and coverage ratios improved, backed by our prudent approach to risk and the resilience of the UK economy.

 

 

Other income and provisions had a positive impact in the year (-26%), with reduced conduct charges, predominantly for payment protection insurance.

Results in the quarter were affected by lower gains on financial transactions due to the market environment, a charge of historical probate and bereavement processes and additional provision for consumer credit business operations.

 

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BRAZIL

   EUR 2,605 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

Santander Brasil is the third largest privately owned bank and the largest foreign bank in the country

 

 

We are leaders in customer satisfaction in all segments. In less than four years, we have succeeded in strategically repositioning retail banking, and there is still potential to improve further

 

 

Prudent risk management underscored by the growth in lending. Profitable market share gains, compatible with lower NPL ratio and cost of credit

 

 

Underlying attributable profit rose 22% and profitability improved (RoTE of 19.8%), reflecting greater productivity and the best efficiency ratio of recent years

Commercial activity

We progressed in commercial and digital actions:

 

 

In the digital strategy, we launched Select Direct and the app Meus Compromissos. For the fourth consecutive year, we held the Santander Black Week.

 

 

In payroll credit (consignado), new lending rose 28%, notably that by digital channels that increased exponentially.

 

 

In acquiring business, we implemented the PoS digital and SuperGet maintained a notable growth in revenue (+32% year-on-year), which produced a gain in market share to 14.4% (+292 bps).

 

 

In cards, increase in revenue (20%) and in market share. The Santander Way app is one of the main instruments in the customer relationship and digitalisation.

 

 

We strengthened our brand and culture, and for the third year running, we were recognised as one of the best companies to work for in the GPTW ranking.

Business performance

 

 

Loans rose 13% in 2018, with growth in individuals, consumer finance, SME, where we gained market share, and SCIB, where we increased the customer base and diversified revenue.

 

 

Deposits were up 23%, with strong growth in time deposits (+29%) and savings (+14%), offsetting the fall in letras financieras. This evolution was reflected in market share gains on the liabilities side, mainly in savings, time deposits and agribusiness letters of credit.

Results

Underlying attributable profit of EUR 2,605 million in 2018, 22% more, with the following detail:

 

 

Net interest income rose 16% due to larger volumes. Fee income grew 15%, with a positive evolution in almost all lines notably cards (+16%), current accounts (+11%), mutual funds (+54%) and insurance (+13%).

 

 

Operating expenses rose 5%, in line with business growth. The efficiency ratio was the best of the last five years at 33.6%.

 

 

Credit quality ratios improved: the cost of credit declined to 4.06% from 4.36% in December 2017. The NPL ratio improved to 5.25% from 5.29% a year earlier and the coverage ratio rose to 107% from 93%.

The fourth quarter profit was 1% higher than the third quarter’s. Of note was the good performance of fee income, mainly cards and seasonal revenue in insurance. Net interest income was lower due to market factors, as the customer NII rose. Operating expenses increased because of end-of-year marketing campaigns and implementing the salary agreement.

 

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MEXICO

   EUR 760 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

The strategy continued to focus on the transformation of the branch network and the launch of new business such as auto finance, reflected in greater customer attraction and increased loyalty

 

 

In volume terms, growth in lending, notably to companies (+12%) and SME (8%). In customer funds, growth continued to be driven by deposits from individuals and SME

 

 

Good trend in profit. Underlying attributable profit rose 14% in 2018, driven by the good performance of net interest income, fee income and loan-loss provisions

 

Commercial activity

We continued to improve multichanneling, strengthening the distribution model and launching new commercial initiatives to drive the digital channels and boosting loyalty and attracting new customers, with new products and services:

 

 

As regards the distribution model, we transformed 314 branches during the year. We also launched the Agile Branch model and the digital transformation of payroll programme. The number of latest generation full function ATMs reached 817.

 

 

In digitalisation, we launched the Campaña Libertad, to reduce operations in branches and free up time for business activities. We also continued to strengthen functionalities in mobile phones, both in Súper Móvil, Súper Wallet and contactless payments.

 

 

We launched a new electronic banking system for SME and medium-sized firms, becoming the first bank in Mexico to launch a digital account for SME under the SAS regime (Sociedad por Acciones Simplificadas).

 

 

Our commercial strategy was backed by new products and services, such as: Hipoteca Plus, Súper Auto and Select Me. Santander Plus registered more than 4.7 million clients, 55% of them new.

All these actions were reflected in strong growth in loyal and digital customers. Of note was the 61% growth in mobile banking.

Business performance

 

 

Lending grew 10% in 2018, with the focus on profitability. Loans to individuals (consumer credit: +4%; cards: +4% and mortgages: +9%) as well as to SME, companies, and large companies rose.

 

 

Customer funds increased due to demand deposits that rose 5% and time deposits 9%.

Results

The underlying attributable profit in the year was EUR 760 million, 14% higher, as follows:

 

 

Net interest income rose 13%, driven by increased volumes and higher interest rates. Fee income grew 8%, mainly from credit cards, mutual funds and insurance.

 

 

Operating expenses increased in line with the ongoing investment plans.

 

 

The cost of credit improved to 2.75% and the NPL ratio was also lower.

Compared to the third quarter, attributable profit was 8% higher, backed by the good performance of net interest income and provisions, which offset the lower gains on financial transactions.

 

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CHILE

   EUR 614 Mn

Highlights (changes in constant euros)

  

Attributable profit

 

 

We continued the transformation of the branch network, driving digitalisation and increasing our value offer with new products and services

 

 

Growth in business volumes, at a faster pace in some segments. Of note the rise in loans to companies and the growth in fee-generating businesses in SCIB

 

 

Underlying attributable profit increased 8% in 2018, driven by net interest income and fee income

 

Commercial activity

Santander is the leading privately owned bank in Chile in terms of assets and customers. In 2018, the strategy continued to focus on offering an attractive return in a low risk country, where economic growth is accelerating.

We focused on the phygital transformation, a proposal that combines the best of the digital and physical worlds, and with which we made the following headway:

 

 

We continued opening Work Café branches, launched the Work Café 2.0 pilot and a new branch model for the segments of Select and Private Banking.

 

 

Under the digitalisation strategy, we launched the new 2.0 app with significant improvements, and Santander Wallet, the first app for mobile payments in Chile. We also signed an alliance with Amazon in order to be able to manage purchases in its platform with Santander cards.

 

 

Promoting of Digital Onboarding platform, the first fully digital platform to attract non-customers and turn them into loyal ones.

 

 

We continued offering specialised propositions for each segment, such as: Onepay for companies and the launch of Santander Life 2.0, with greater benefits for customers that are already part of the programme.

As a result, both loyal and digital customers increased 7% each.

Business performance

 

 

Loans increased 10% compared to 2017, backed by those to individuals and companies.

 

 

Deposits increased 7%. Of note was the 11% increase in demand deposits (+11%), backed by the Select segment. Mutual funds grew 12%.

Results

Underlying attributable profit in the year was 8% higher at EUR 614 million. Of note were:

 

 

Gross income rose underpinned by net interest income (+5%, due to increased volumes, higher interest rates and a better mix of funds) and fee income (+12%, due to that from insurance, mutual funds and greater use of cards).

 

 

Operating expenses increased slightly more than gross income, keeping the efficiency ratio at around 41%.

 

 

The cost of credit remained stable, the NPL ratio dropped to 4.66% and coverage was 61%.

 

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Business information

 

 

ARGENTINA

   EUR 84 Mn

Highlights (changes in constant euros)

  

Attributable profit

 

 

Santander Río consolidated itself as the leading privately owned bank in Argentina by banking business

 

 

The business focus was on digital transformation, customer experience and key segments: Select and Pymes Advance, reflected in growth in loyal and digital customers and in high levels of digital penetration

 

 

Underlying attributable profit was EUR 84 million, affected by the impact of the high inflation adjustment and the peso’s depreciation

 

Commercial activity

Santander Río consolidated its position as Argentina’s largest privately owned bank in terms of loans and deposits.

The Bank focused on fulfilling its four strategic pillars: growth, risk control, operational excellence and the customer experience, via loyalty and digitalisation, with new products and services.

Loyal customers increased 6% and digital ones 7%, who already account for 47% and 71% of active customers, respectively.

Launch of the new Online Banking, improved functionalities in Mobile Banking, inaugurating the Remote Attention Centre for Select clients and start of the process for approving the licence for Openbank Argentina and opening the first Santander Work Café branch.

The magazine Global Finance again chose us as the Best Digital Bank in Argentina, The Banker and Global Finance named us the Best Bank in Argentina and we were ranked one of the five best companies to work for by GPTW.

Business performance

 

 

Year-on-year growth of peso balances: loans rose 18% (mainly mortgages, auto finance and companies) and deposits 33%.

 

 

Moreover, volumes were positively impacted by dollar balances (impact of the peso’s depreciation).

 

 

These increases were lower than in previous quarter because of the strategy of selective growth started in the fourth quarter.

Results

Following the third quarter loss, the fourth recorded a profit of EUR 17 million after a high inflation adjustment of EUR -70 million.

Underlying attributable profit for the year was EUR 84 million, after including a negative extraordinary adjustment of EUR 239 million as Argentina has a high inflation economy (EUR -193 million for monetary adjustment and EUR -46 million for the exchange rates). As regards business performance:

 

 

Net interest income grew 52%, driven by greater volumes in an environment of high inflation and higher interest rates.

 

 

Fee income rose 47%, spurred by greater foreign currency activity in a volatile exchange rate environment and fee income for cash deposits.

 

 

The growth in costs reflected investments in digitalisation projects, the automatic revision of salary agreements because of the rise in inflation and peso’s depreciation against the dollar.

 

 

Provisions rose because of individual borrowers, especially medium and low income customers. The NPL ratio rose to 3.2% and coverage from 100% to 135%. The fourth quarter’s provisions stabilised.

 

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Business information   

 

URUGUAY

Highlights (changes in constant euros)

 

 

Banco Santander continued to be the leading privately owned bank in the country, focused on growing in retail banking and improving efficiency and the quality of service

 

 

Underlying attributable profit rose 43% spurred by the good performance of customer revenue

 

Commercial activity

 

 

Santander continued to focus on increasing loyalty and improving customer satisfaction, where we are ranked second.

 

 

We continued to advance in our digital transformation strategy: the number of digital customers increased 30% and digital penetration was 58% (49% in 2017). Consumer finance companies increased lending via digital channels. At Creditel they already account for 30% of new loans. Santander is also the leading private sector bank in the business of families and mortgages, thanks to the specialised home and car centre.

 

 

Loans up 25%, driven by growth in target segments, products and currencies: +20% in consumer credit and cards and +18% in the national currency portfolio. Deposits rose 13%, with peso balances up 12% and foreign currency ones 1%.

Results

The underlying attributable profit was 43% higher in 2018 at EUR 132 million. High RoTE of 27.0%.

 

 

Gross income rose 17%, driven by net interest income and in general, by the main revenue lines. The efficiency ratio was 44.6%, 3.9 pp better than in 2017.

 

 

Despite the rise in provisions because of the entry into force of IFRS 9 regulation and other impacts, the NPL ratio remained at a low level (3.4%), coverage was high (112%) and the cost of credit was 2.80%.

PERU

Highlights (changes in constant euros)

 

 

We expanded the base of products and customers in all business segments, diversified funding sources and increased treasury services for customers through exchange rate operations, forwards and other derivatives.

 

 

Santander continued to contribute to the development of public infrastructure and participated in a USD 2 billion international bond issue of the Peruvian state.

 

 

Lending rose 43% in 2018 and deposits 16%.

 

 

Underlying attributable profit in the year was 8% higher at EUR 41 million (RoTE of 22.2%). The good performance of fee income, net interest income and gains on financial transactions more than offset the rise in costs from the incorporation of corporate projects. The efficiency ratio was 33.1% and coverage remained high (224%).

COLOMBIA

Highlights (changes in constant euros)

 

 

Business activity in Colombia remained focus on SCIB customers, large companies and corporates, contributing solutions in treasury, risk hedging, foreign trade and confirming, and developing investment banking products and supporting the country’s infrastructure plan. In order to fulfill this offer, Santander Securities Services Colombia already has all the authorisations needed to begin to offer custody services in 2019.

 

 

We continued the strategy to consolidate the auto financing business. This will enable us to have the critical mass needed to position ourselves in this market.

 

 

Lending increased 107% in 2018 with a good evolution of peso loans, while deposits rose 46% thanks to demand and especially time deposits (+116%).

 

 

Attributable profit was EUR 9 million in 2018 (+61%). Of note was the good performance of gross income (+67%), driven by growth in net interest income, fee income and gains on financial transactions.

 

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Business information

 

 

UNITED STATES

   EUR 552 Mn

Highlights (changes in constant euros)

 

   Attributable profit
 

The Federal Reserve terminated the 2015 Written Agreement with Santander Holdings USA, demonstrating the significant improvements the US has made to the way it operates. SHUSA also passed the Federal Reserve’s capital stress test for the second consecutive year

 

 

Lending increased year-on-year both at Santander Bank (9%) and SC USA (5%)

 

 
Santander US underlying attributable profit amounted to EUR 552 million, 42% higher than in 2017 excluding exchange rate impact, driven by higher income from leasing and loans, lower costs and improved cost of credit

 

Commercial activity

In 2018, Santander US achieved significant regulatory milestones, strengthened business performance and improved profitability. We remained focused on the following priorities:

Santander Bank improved customer experience and product offering across the digital and physical channels. We also improved earning asset mix to drive improvements to the margin.

Santander Consumer USA focused on dealer experience and pricing, which drove strong growth in originations across all channels. In addition, SC nearly completed USD 200 million share repurchase programme in 2018.

Business performance

 

 

Lending rose supported by higher origination volumes at SC USA, and growth in Consumer, companies, and SCIB at Santander Bank.

 

 

Deposits increased 5%, as the outflow of public sector balances and higher interest rates were more than offset by the increase in time deposits.

Results

Underlying attributable profit in the year was EUR 552 million, 42% higher year-on-year, driven by the strong growth in Santander Bank and SC USA. By lines:

 

 

Gross income increased 5%. Net interest income rose 1% due to higher loan volume, despite lower spreads on loans in SC USA and higher cost of funding in SBNA. Fee income decreased (-7%) due to lower fees at SC USA and the New York branch.

 

 

Gains on financial transactions amounted to EUR 72 million (they were close to zero in 2017). Other revenue increased 60% due to higher income from leasing.

 

 

The cost trend continued to improve (-1%) mainly because of lower technology depreciation.

 

 

Loan-loss provisions decreased 1%. The cost of credit ratio improved to 3.27% from 3.42% in December 2017.

In the fourth quarter, underlying attributable profit was 29% lower than in the third, due to higher provisions from strong loan growth, together with seasonal factors of SC USA. In addition, there was a change in methodology in the fourth quarter in the accrual of troubled debt restructuring (TDR) that affected net interest income and provisions (both increased). This impact, of around EUR 180 million, corresponds to the whole year.

 

 

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Business information   

 

CORPORATE CENTRE

   EUR -1,761 Mn

Highlights

 

   Attributable profit

 

The Corporate Centre’s objective is to aid the operating units by contributing value-added and carrying out the corporate function of oversight and control. It also develops functions related to financial and capital management

 

 

The underlying attributable loss was 9% lower in 2018, due to the reduced cost of hedging exchange rates

 

Strategy and functions

The Corporate Centre contributes value to the Group in various ways:

 

 

It makes the Group’s governance more solid, through global control frameworks and supervision.

 

 

Fostering the exchange of best practices in management of costs and economies of scale. This enables us to be one of the most efficient banks in the sector.

 

 

The Corporate Centre contributes to the Group’s revenue growth, by sharing the best commercial practices, launching global commercial initiatives and accelerating the digital transformation simultaneously in all countries.

It also coordinates the relationship with the European regulators and develops functions related to financial and capital management, as follows:

 

 

Financial Management functions:

 

Structural management of liquidity risk associated with funding the Group’s recurring activity, stakes of a financial nature and management of net liquidity related to the needs of some business units.

 

This activity is carried out by diversifying the different funding sources (issuances and other), maintaining an adequate profile at each moment in volumes, maturities and costs. The price at which these operations are made with other Group units is the market rate (euribor or swap) plus the premium, which in the concept of liquidity, the Group supports by immobilising funds during the term of the operation.

 

Interest rate risk is also actively managed in order to soften the impact of interest rate changes on net interest income, conducted via high credit quality, very liquid and low capital consumption derivatives.

 

Strategic management of the exposure to exchange rates on equity and dynamic on the countervalue of the units’ results in euros for the next 12 months. Net investments in equity are currently covered by EUR 23,025 million (mainly Brazil, UK, Mexico, Chile, US, Poland and Norway) with different instruments (spot, fx, forwards).

 

 

Management of total capital and reserves: capital allocated to each of the units.

Results

Attributable loss in the year of EUR 1,761 million (net of tax), down from a loss of EUR 2,326 million in 2017. 2018 included restructuring costs and 2017 writedown of stakes and intangible assets, the capital gain from the sale of Allfunds Bank and writedown of goodwill.

Excluding these impacts, loss of EUR 1,721 million in 2018 compared to EUR 1,889 million in 2017. This improvement was mainly due to lower costs of hedging exchange rates.

On the other hand, net interest income was hit by the volume of issuances made under the funding plan, largely focused on eligible TLAC instruments, and costs related to the greater liquidity buffer requirements.

Operating expenses increased 4% as a result of two effects that offset each other: the streamlining and simplification measures and the investment in global projects for the Group’s digital transformation.

 

CORPORATE CENTRE

                 
     EUR million    Q4’18              Q3’18              Chg. %              2018              2017              Chg. %  

  Gross income

     (295)        (257)        14.7        (1,028)        (1,220)        (15.7)  

  Net operating income

     (423)        (380)        11.3        (1,523)        (1,696)        (10.2)  

  Underlying attributable profit to the Group

     (369)        (456)        (18.9)        (1,721)        (1,889)        (8.9)  

  Attributable profit to the Group

     (369)        (456)        (18.9)        (1,761)        (2,326)        (24.3)  
Detailed financial information on page 57                              

 

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Business information

 

RETAIL BANKING

   EUR 7,579 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

The Group continued to focus on customer loyalty and digital transformation, with new products and services that cover the current needs of our customers

 

 

At the end of 2018, the Group had almost 20 million loyal customers and 32 million digital customers

 

 

Underlying attributable profit of EUR 7,793 million, boosted by the good dynamics of customer revenue, improved efficiency and the perimeter effect of Banco Popular’s incorporation

 

Commercial activity

Santander is immersed in a commercial transformation process which rests on two main priorities to continue to deliver the best customer service: to make all our products and services digital and do it in the fastest and most efficient way. To this end, our core banks are focused in 5 key areas:

 

 

Transforming the front.

 

 

Transforming the back.

 

 

Evolving our IT architecture and systems.

 

 

Onboarding new technologies.

 

 

Becoming an agile and data driven organisation. In 2018, the agile methodology was already used in 35% of our projects.

As regards digital platforms and apps, of note were:

 

 

In Poland, launch of Działalnosc.pl designed to support businesspeople and mSignature, a mobile app authorisation tool as an alternative for SMS code.

 

 

In Brazil, the Santander Way app is regarded as the best financial market app.

 

 

The UK installed a new digital clearing system that offers customers faster clearance of cheques.

 

 

In Mexico, Súper Wallet now incorporates payment of purchases done with rewards points.

On the other hand, we are also developing new independent digital businesses in order to support the core banks as well as to offer disruptive products and services:

 

 

Openbank, Grupo Santander’s fully digital bank, began to be expanded to other countries.

 

 

OnePay Fx, based on blockchain and which makes it possible for retail customers in UK, Spain, Brazil and Poland to complete international transfers in the same day or by the next day.

 

 

Superdigital, a low-cost financial solution alternative to traditional banking, mainly focused on the unbanked population of Latin America.

Thanks to these measures, digital customers increased 26% in 2018, which already amount to half of our active customers. Loyal customers rose 15%, with an improved experience.

In addition, we continued to transform the traditional network, improving customer experience and cutting waiting time. We also invested in new generation full function ATMs, in contact centres, in making the CRM more robust and better after-sale service. As a recognition, our contact centre in Spain was awarded the Gold CRC for excellence in customer attention.

Results (in constant euros)

Underlying attributable profit was up 12%, driven by the good dynamics in customer revenue. Operating expenses increased due to the ongoing commercial transformation and greater digitalisation, while credit quality ratios improved in almost all units.

 

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Business information   

 

 

CORPORATE & INVESTMENT BANKING

   EUR 1,705 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

Strategy focused on the expansion of our product offer and development of our franchises in the United Kingdom and the United States, the consolidation of Continental Europe as a single business unit and the implementation of the Multinational Coverage Model (MNC)

 

 

Good progress in the Global Infrastructure Programme (GIP) and completion of the banking structural reform project in the UK. The retail banking network integration and enhanced offer of value-added products drove business growth (+21%)

 

 

Underlying attributable profit was 8% higher in 2018, due to higher customer revenue and lower provisions

 

 

Commercial activity and business performance

Main actions performed during the year by lines:

 

 

Cash management: double-digit growth, both in transactional business as well as in funds. Santander Cash Nexus was consolidated with a record one million transactions per month, increasing our active customer base exponentially.

 

 

Export & agency finance: Santander consolidated its leadership as one of the world’s greatest banks by volume of managed assets. We also worked during the year in new origination in the Group’s non-core markets where this business has a high potential.

 

 

Trade & working capital solutions: strong growth due to increased international transactions in the countries where the Group operates. We consolidated our leadership in Spain, Brazil, Mexico and the UK, while expanding our business towards new markets such as the US and Asia.

 

 

Debt capital markets: Santander held its leadership in Latin America, leading placements of sovereign bonds in euros in Mexico and Chile as well as corporate issuances and financial institutions such as the Brazilian Development Bank.

 

 

Syndicated corporate loans: of note was the acquisition of Gemalto by Thales and Westfield by Unibail, as well as the merger between Telecom Argentina and Cablevision. Also, support for sustainable financing in restructuring the assets of Enel Green Power and the loan to Generali.

 

 

Structured financing: the Group remained the global leader in Latin America, Europe and the United States. We also topped the global ranking of financial advice by number of operations.

 

 

Global markets: activity decreased slightly. Nevertheless, positive evolution of sales continued, mainly in the corporate sector and maintaining a greater contribution from management of books in Argentina, the US and Asia.

Results (in constant euros)

Underlying attributable profit of EUR 1,705 million in the year, 8% higher:

 

 

Gross income grew because of the 8% rise in net interest income (good performance in the fourth quarter), partially offset by lower gains on financial transactions, which were high in the first quarter of 2017.

 

 

Higher costs associated with transformation projects.

 

 

Provisions were significantly lower in Spain, the UK ,Brazil and the US.

 

 

Better results from global transactional banking and global debt financing, while income from global markets decreased.

The fourth quarter profit was slightly lower, but net interest income rose 12%, offset by lower gains on financial transactions.

 

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Business information

 

 

WEALTH MANAGEMENT

  

Asset Management and Private Banking

   EUR 528 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

Total contribution to profit (net profit + fee income) amounted to EUR 1,015 million, 13% more than that estimated for 2017

 

 

The volumes of collaboration among countries grew 19% in 2018 to EUR 3,727 million

 

 

Lending rose 12%, spurred by development of the Private Wealth segment, which offers a differential service to the Group’s largest clients

 

 

Commercial activity

 

 

In its first year, Wealth Management carried out the following commercial initiatives:

 

 

Private Banking: development of a global and connected proposal, taking advantage of Santander’s presence in over 10 countries. Thanks to this, business volumes among countries increased 19% in 2018 to EUR 3,727 million. Moreover, the Private Wealth (UHNW – Ultra High Net Worth) segment was launched during the year, offering a differential service to the Group’s most valued clients.

For the second year running The Banker and Global Finance chose Santander Private Banking as the Best Private Bank in Spain. Global Banking also recognised Santander Private Banking Portugal as the country’s Best Private Bank.

 

 

Santander Asset Management (SAM) improved and expanded its range of products. Of note were its investment strategies in Spain and Latin America, where Citywire recognised SAM as the Best Manager of Equities in Spain, and we have the best Latin American fixed income fund in its class (Latin American Corporate Bond Fund).

 

 

Digital transformation: we installed in Mexico, Brazil and Chile the global private banker tool SPiRIT and launched our new front of Virginia clients in International Private Banking. SAM began the migration of our investment platform to the most differential solution in the market: Aladdin.

Business performance

 

 

Total assets under management amounted to EUR 329 billion, 2% lower than in 2017, affected by the instability in markets, which generated depreciation of assets, particularly in custody, but also in marketed investment products.

In Private Banking 6% growth in customer deposits and 12% in loans, driven by development of Private Wealth.

Results

The underlying attributable profit was EUR 528 million in the year, 17% more:

 

 

Net interest income rose 12% and fee income increased 63%, spurred by value-added volumes under management.

 

 

Increase in operating expenses, partly affected by investments in the Private Wealth (UHNW) project.

 

 

The increase in revenue and costs was affected by the greater stake in Santander Asset Management.

 

 

By units, of note in profit growth were Brazil (+16%) and International Private Banking (+12%).

 

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Corporate Governance  

 

CORPORATE GOVERNANCE

A responsible bank has a solid governance model with well-defined functions, it manages risks and opportunities prudently and defines its long-term strategy watching out for the interests of all its stakeholders and society in general.

 

LOGO    LOGO    LOGO    LOGO
Balanced    Respect for    Maximum    At the forefront of best
composition of    shareholders’    transparency    corporate governance
the Board    rights    in remuneration    practices

The changes in the Board of Directors and in the organisational structure of the Group’s senior management agreed in the fourth quarter are set out below:

 

 

Changes in the board’s composition

 

  }

There were no changes in the board in the fourth quarter of 2018.

 

  }

The change already announced and effective after the end of the year is set out below:

 

   

As of 1 January 2019, Mr. Juan Miguel Villar Mir ceased to be a member of Banco Santander’s board.

 

  }

The following changes were agreed by the board and announced on 15 January 2019:

 

   

The appointment of Mr. Andrea Orcel as a new member of the board and as chief executive officer of Banco Santander, S.A., agreed on 25 September 2018, was left without effect.

 

   

Mr. José Antonio Álvarez Álvarez will continue to be the CEO of Banco Santander, S.A., and has also been appointed vice chairman of the board, leaving without effect his appointment as chairman of Santander Spain, also agreed on 25 September 2018.

 

   

Mr. Rodrigo Echenique Gordillo, who was scheduled to stop being chairman of Santander Spain as of March, will continue in the post until his successor is appointed and will remain vice chairman of Banco Santander’s board.

 

   

Mr. Guillermo de la Dehesa Romero will remain director of the Bank but is no longer vice chairman.

 

 

Changes in the composition of the board’s committees

 

  }

There were no changes in the Group’s senior management in the fourth quarter of 2018.

 

  }

Changes effective after the end of the year are set out below:

 

   

Mr. Enrique Álvarez Labiano, Global Head of Strategy and of the Executive Chairman’s Office, has been appointed head of Strategy, Corporate Development and Development of New Businesses at Santander UK, a post he will take up on 15 February 2019.

 

   

Mr. José Luis de Mora Gil-Gallardo, head of Corporate Development and Planning, will also assume as of 15 February 2019 the function of the Group’s Strategy, becoming responsible for Corporate Development and Strategy.

 

   

As of 1 January 2019, Mr. Javier San Félix García, the former head of Retail and Commercial Banking at Santander UK, became head of Global Strategic Initiatives within the Group’s Technology and Operations division.

 

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Sustainability

 

SUSTAINABILITY

We develop our activity in a responsible way, contributing to the economic and social progress of the communities in which we operate, taking into account our impact on the environment and fostering stable relationships with our main stakeholders.

Grupo Santander continued to develop new measures within its corporate social responsibility commitment. The main ones in the fourth quarter were:

 

 

Sustainable governance

 

}

Santander supports the Responsible Banking Principles, together with 27 other large banks from five continents, in order to adapt the financial sector to the UN’s Sustainable Development Goals and to the Paris agreement on climate change. The principles are currently in a phase of public consultation. As of their signing in September 2019, banks will commit to publically assume them.

 

 

Indexes and analysts

 

}

Banco Santander is ranked the third bank in the world and the first in Europe in the Dow Jones Sustainability Index (DJSI), the reference international index that measures companies’ performance in the sphere of sustainability in the economic, social and environmental dimensions.

 

}

The DJSI accorded Santander the maximum score (100) in aspects such as financial inclusion and energy efficiency, among other sustainability management elements. The bank has formed part of the index for 18 consecutive years, and for the eighth year running Santander was in first place among Spanish banks.

 

 

Investment in communities

 

}

Santander Asset Management launched Santander Equality Acciones, the first mutual fund in Spain in favour of gender equality.

 

}

Santander took part in the International Day of Persons with Disabilities through various initiatives and programmes that promote education, entrepreneurship, employability and the social wellbeing of this collective. In 2018, more than 4,800 people with disabilities benefited from the programmes that Santander promotes via the Universia Foundation.

 

}

Santander celebrated International Volunteer Day, with many initiatives in the countries where it operates. In Spain alone, and at the Corporate Centre, more than 1,000 employees participated in various solidarity activities.

 

}

The Global Compact Network Spain recognised Santander X, the international university entrepreneurial project, promoted by Santander Universities, as one of the best good practices for its contribution to the 2030 Sustainable Development Goals.

 

 

Environment and climate change

 

}

Santander is participating in advising and funding various renewable energy projects, including the transaction under which Atlantica Yield acquired 50 MW of wind-power in Uruguay, financing the Moray East wind-power park, one of the largest in the high seas, and leading ENCE Energía’s mega project, as well as being the only bookrunner in the green financing for building a new 46MW biomass plant, both in Puertollano.

 

}

SCIB was also joint bookrunner in the launch of the sustainable Italian EUR 500 million bond issued by Cassa Depositi e Prestiti, the first Italian sustainable bond in accordance with the guidelines of the International Capital Markets Association (IMCA) and the UN’s Sustainable Development Goals in matters of clean water and sanitation.

 

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The Santander share   

 

SANTANDER SHARE

 

 

Shareholder remuneration

 

}

Shareholders in November were able to opt to receive, under the Santander Scrip Dividend programme for 2018, the second interim dividend of EUR 0.035 per share in cash or the equivalent amount in shares. Some 76.55% of the capital chose the latter option.

 

}

The board agreed to pay, as of 1 February, the third interim dividend of EUR 0.065 per share charged to 2018’s earnings.

 

 

(*) The options, time periods and procedures indicated can present particularities for holders of Santander shares on foreign stock markets where the Bank is listed.

 

 

Share price performance

 

}

Markets ended 2018 much lower, after a start to the year with rises driven by the positive impact of the US’s tax reform. This positive environment, however, dissipated in the following months because of greater volatility in stock markets mainly due to: (i) the political uncertainty in Italy and Brazil; (ii) the lack of agreement over Brexit, (iii) the increase in financial tensions in developing countries because of the dollar’s appreciation, after the Fed raised its interest rates and the ECB continued its policy of monetary normalisation and announced the end of quantitative easing, and (iv) the escalation of trade tensions between the US and China and its possible impact on confidence and the global economy. Fears of slowdown in the global economy, coupled with the partial shutdown of the US government, intensified the fall in shares in the last part of the year.

 

}

In this context, the main indices and the Santander share ended lower. The Santander share was down 27.5% at EUR 3.973, while Euro Stoxx Banks and Stoxx Banks fell 33.3% and 28.0%, respectively. The Ibex 35 benchmark index of the Madrid Stock Exchange declined 15.0%, the DJ Stoxx 50 13.1% and the MSCI World Banks 19.7%.

 

}

Santander’s total shareholder return was 24.3% lower.

 

}

The share price as we went to press was EUR 4.344 up 9.3% in the month.

 

 

Market capitalisation and trading

 

}

As of 31 December, Santander was the largest bank in the eurozone by market capitalisation (EUR 64,508 million) and the 16th in the world.

 

}

The share’s weighting in the DJ Stoxx 50 was 1.94%, 7.98% in the DJ Stoxx Banks and 14.52% in the Ibex 35.

 

}

A total of 19,040 million Santander shares were traded in 2018 for an effective value of EUR 95,501 million, the largest amount among the shares that comprise the EuroStoxx (liquidity ratio of 118%). The average daily trading volume was EUR 375 million (75 million shares on average).

 

 

Shareholder base

 

}

The total number of Santander shareholders at the end of 2018 was 4,131,489 of which 3,857,687 were European (77.3% of the capital stock) and 256,366 from the Americas (21.6%).

 

}

At the end of the year, excluding the board of Grupo Santander, which represents 1.1% of the Bank’s capital stock, retail shareholders hold 39.8% and institutional shareholders 59.1%.

 

THE SANTANDER SHARE. December 2018

 

  Shareholders and trading data        

  Shareholders (number)

     4,131,489  

  Shares (number)

     16,236,573,942  

  Average daily turnover (number of shares)

     74,665,290  

  Share liquidity (%)

     118  

  (Number of shares traded during the year / number of shares)

  
  Price movements during the year        

  Highest

     6.093  

  Lowest

     3.800  

  Last (31.12.18)

     3.973  

  Market capitalisation (millions) (31.12.18)

     64,508  
  Stock market indicators        

  Price / Tangible book value (X)

     0.95  

  P/E ratio (X)

     8.84  

  Yield* (%)

     4.65  
  (*) Last three dividends paid and one announced / 2018 average share price         

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Appendix   

 

 

NET FEE INCOME. CONSOLIDATED

                 

    EUR million

                                                     
      Q4’18      Q3’18      Chg. %      2018      2017      Chg. %  

Fees from services

     1,829        1,605        14.0        7,037        7,350        (4.2)  

Wealth management and marketing of customer funds

     940        874        7.4        3,654        3,406        7.3  

Securities and custody

     187        161        16.1        794        841        (5.6)  

Net fee income

     2,956        2,640        12.0        11,485        11,597        (1.0)  

OPERATING EXPENSES. CONSOLIDATED

                 

EUR million

                                                     
      Q4’18      Q3’18      Chg. %      2018      2017      Chg. %  

Personnel expenses

     3,068        2,837        8.1        11,865        11,972        (0.9)  

General expenses

     2,217        1,967        12.7        8,489        8,353        1.6  

Information technology

     441        347        27.2        1,550        1,257        23.4  

Communications

     145        120        20.0        527        529        (0.5)  

Advertising

     193        143        35.3        646        757        (14.6)  

Buildings and premises

     492        427        15.2        1,846        1,798        2.7  

Printed and office material

     33        28        19.4        122        133        (8.2)  

Taxes (other than tax on profits)

     152        118        28.6        557        583        (4.5)  

Other expenses

     761        784        (2.9)        3,240        3,296        (1.7)  

Personnel and general expenses

     5,285        4,804        10.0        20,354        20,325        0.1  

Depreciation and amortisation

     651        557        16.9        2,425        2,593        (6.5)  

Operating expenses

     5,936        5,361        10.7        22,779        22,918        (0.6)  

 

OPERATING MEANS

                                                              
     Employees                    Branches  
      Dec-18          Dec-17          Chg.              Dec-18      Dec-17      Chg.  

Continental Europe

     67,572        67,922        (350)                 5,998        6,298        (300)  

o/w: Spain

     32,313        33,271        (958)                 4,366        4,485        (119)  

Santander Consumer Finance

     14,865        15,131        (266)                 438        546        (108)  

Poland

     12,515        11,572        943                 611        576        35  

Portugal

     6,705        6,822        (117)                 572        681        (109)  

United Kingdom

     25,872        25,971        (99)                 756        808        (52)  

Latin America

     90,196        89,014        1,182                 5,803        5,908        (105)  

o/w: Brazil

     46,914        47,135        (221)                 3,438        3,465        (27)  

Mexico

     19,859        18,557        1,302                 1,418        1,401        17  

Chile

     12,008        11,675        333                 381        439        (58)  

Argentina

     9,324        9,277        47                 468        482        (14)  

USA

     17,309        17,560        (251)                 660        683        (23)  

Operating areas

     200,949        200,467        482                 13,217        13,697        (480)  

Corporate Centre

     1,764        1,784        (20)                                      

Total Group

     202,713        202,251        462                 13,217        13,697        (480)  

 

NET LOAN-LOSS PROVISIONS. CONSOLIDATED

                 

    EUR million

                                                     
      Q4’18      Q3’18      Chg. %      2018      2017      Chg. %  

Non-performing loans

     2,919        2,395        21.9        10,426        10,726        (2.8)  

Country-risk

     (5)        1               5        5        (7.6)  

Recovery of written-off assets

     (460)        (275)        67.2        (1,558)        (1,621)        (3.9)  

Net loan-loss provisions

     2,455        2,121        15.7        8,873        9,111        (2.6)  

 

Financial Report 2018     LOGO     43


Table of Contents

JANUARY - DECEMBER

Appendix

 

 

LOANS AND ADVANCES TO CUSTOMERS. CONSOLIDATED

              

    EUR million

                                            
      Dec-18      Dec-17      Absolute
change
     %      Dec-16  

Commercial bills

     33,301        29,287        4,014        13.7        23,894  

Secured loans

     478,067        473,935        4,132        0.9        454,676  

Other term loans

     265,680        257,441        8,239        3.2        232,289  

Finance leases

     30,758        28,511        2,247        7.9        25,357  

Receivable on demand

     8,794        6,721        2,073        30.8        8,102  

Credit cards receivable

     23,076        21,809        1,267        5.8        21,363  

Impaired assets

     34,241        36,280        (2,039)        (5.6)        32,573  

Gross loans and advances to customers (excl. reverse repos)

         873,917            853,985            19,932            2.3            798,254  

Reverse repos

     32,310        18,864        13,446        71.3        16,609  

Gross loans and advances to customers

     906,227        872,848        33,379        3.8        814,863  

Loan-loss allowances

     23,306        23,934        (628)        (2.6)        24,393  

Loans and advances to customers

     882,921        848,914        34,007        4.0        790,470  

TOTAL FUNDS. CONSOLIDATED

              

    EUR million

                                            
      Dec-18      Dec-17      Absolute
change
     %      Dec-16  

Demand deposits

     548,711        525,072        23,639        4.5        467,261  

Time deposits

     199,025        199,650        (625)        (0.3)        181,089  

Mutual funds

     157,888        165,413        (7,525)        (4.5)        147,416  

Customer deposits excl. repos + Mutual funds

     905,624        890,135        15,489        1.7        795,766  

Pension funds

     15,393        16,166        (773)        (4.8)        11,298  

Managed portfolios

     26,785        26,393        392        1.5        23,793  

Subtotal

     947,802        932,694        15,108        1.6        830,858  

Repos

     32,760        53,009        (20,249)        (38.2)        42,761  

Total funds

     980,562        985,703        (5,141)        (0.5)        873,618  

ELIGIBLE CAPITAL (FULLY LOADED)

              

    EUR million

                                            
      Dec-18      Dec-17      Absolute
change
     %      Dec-16  

Capital stock and reserves

     114,148        111,362        2,786        2.5        101,437  

Attributable profit

     7,810        6,619        1,191        18.0        6,204  

Dividends

     (3,292)        (2,998)        (295)        9.8        (2,469)  

Other retained earnings

     (23,606)        (23,108)        (498)        2.2        (16,116)  

Minority interests

     6,892        7,228        (336)        (4.6)        6,784  

Goodwill and intangible assets

     (28,644)        (28,537)        (107)        0.4        (28,405)  

Other deductions

     (6,404)        (5,004)        (1,400)        28.0        (5,368)  

Core CET1

     66,904        65,563        1,341        2.0        62,068  

Preferred shares and other eligible T1

     8,923        7,730        1,193        15.4        5,767  

Tier 1

     75,826        73,293        2,534        3.5        67,834  

Generic funds and eligible T2 instruments

     11,743        14,295        (2,552)        (17.9)        13,749  

Eligible capital

     87,569        87,588        (19)        (0.0)        81,584  

Risk-weighted assets

     592,319        605,064        (12,745)        (2.1)        588,088  

    

                                            

CET1 capital ratio

     11.30        10.84        0.46                 10.55  

T1 capital ratio

     12.80        12.11        0.69                 11.53  

Total capital ratio

     14.78        14.48        0.30                 13.87  

 

44     LOGO     Financial Report 2018


Table of Contents

JANUARY - DECEMBER  

Appendix   

 

 

CONTINENTAL EUROPE

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q4’18                        %      % excl. FX      2018      %      % excl. FX  

Net interest income

     2,609                 2.7        2.7        10,107        9.5        9.8  

Net fee income

     1,073                 (2.2)        (2.2)        4,419        6.1        6.2  

Gains (losses) on financial transactions

     276                 (1.1)        (1.2)        916        46.4        47.0  

Other operating income

     44                 (70.1)        (70.1)        440        11.5        11.8  

Gross income

     4,002                 (1.5)        (1.5)        15,881        10.2        10.4  

Operating expenses

     (2,061)                 1.6        1.5        (8,278)        8.0        8.3  

General administrative expenses

     (1,933)                 3.4        3.4        (7,658)        7.9        8.1  

Personnel

     (1,074)                 6.0        5.9        (4,158)        12.9        13.2  

Other general administrative expenses

     (860)                 0.3        0.3        (3,500)        2.4        2.6  

Depreciation and amortisation

     (128)                 (19.9)        (19.9)        (620)        10.0        10.3  

Net operating income

     1,940                 (4.5)        (4.5)        7,604        12.6        12.9  

Net loan-loss provisions

     (262)                 (31.1)        (31.1)        (1,399)        26.2        26.4  

Other income

     (280)                 95.7        95.5        (704)        (5.7)        (5.6)  

Underlying profit before tax

     1,398                 (7.3)        (7.3)        5,501        12.3        12.6  

Tax on profit

     (361)                 (12.2)        (12.2)        (1,461)        11.1        11.3  

Underlying profit from continuing operations

     1,037                 (5.5)        (5.5)        4,040        12.7        13.1  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     1,037                 (5.5)        (5.5)        4,040        12.7        13.1  

Minority interests

     91                 (15.3)        (15.3)        397        4.1        4.2  

Underlying attributable profit to the Group

     946                 (4.4)        (4.4)        3,642        13.7        14.1  

Net capital gains and provisions*

     46                         (214)        (44.4)        (44.4)  

Attributable profit to the Group

     992                 0.3        0.3        3,428        21.7        22.2  

 

(*) In 2018, charges related to integrations (mainly restructuring costs), net of tax impacts, in Spain (EUR -280 million) and Portugal (EUR 20 million) and badwill in Poland (EUR 45 million). In 2017, integration costs (Popular: EUR -300 million and Germany: EUR -85 million)

 

 

Balance sheet                                                                  

Loans and advances to customers

     383,020                 1.4        1.6        383,020        0.8        1.0  

Cash, central banks and credit institutions

     142,813                 3.9        3.9        142,813        24.2        24.2  

Debt securities

     89,030                 (1.5)        (1.4)        89,030        (10.7)        (10.6)  

o/w: designated at fair value through other comprehensive income

     61,855                 2.8        2.9        61,855        (14.7)        (14.5)  

Other financial assets

     36,012                 5.0        5.0        36,012        (9.8)        (9.8)  

Other assets

     31,011                 (14.6)        (14.6)        31,011        (28.6)        (28.6)  

Total assets

     681,887                 0.9        1.0        681,887        0.6        0.7  

Customer deposits

     369,730                 2.4        2.5        369,730        4.9        5.1  

Central banks and credit institutions

     158,761                 (2.1)        (2.0)        158,761        (0.6)        (0.8)  

Debt securities issued

     62,018                 7.7        8.1        62,018        1.3        1.5  

Other financial liabilities

     37,142                 (10.1)        (10.1)        37,142        (19.1)        (19.1)  

Other liabilities

     14,827                 (3.5)        (3.4)        14,827        (14.3)        (14.2)  

Total liabilities

     642,479                 0.8        0.9        642,479        0.9        1.0  

Total equity

     39,408                 2.1        2.4        39,408        (4.7)        (4.4)  

Other managed and marketed customer funds

     97,774                 (6.0)        (6.0)        97,774        (4.2)        (4.2)  

Mutual funds

     70,562                 (6.7)        (6.7)        70,562        (4.7)        (4.5)  

Pension funds

     15,295                 (3.2)        (3.2)        15,295        (5.4)        (5.4)  

Managed portfolios

     11,917                 (5.4)        (5.4)        11,917        0.0        (0.3)  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     390,794                 1.5        1.7        390,794        1.7        1.9  

Funds (customer deposits excl. repos + mutual funds)

     436,913                 0.6        0.7        436,913        2.7        2.9  
Ratios (%) and operating means                                                        

Underlying RoTE

     10.94                 (0.54)                 10.64        0.82           

Efficiency ratio (with amortisations)

     51.5                 1.5                 52.1        (1.0)           

NPL ratio

     5.25                 (0.32)                 5.25        (0.57)           

NPL coverage

     52.2                 (2.2)                 52.2        (2.2)           

Number of employees

     67,572                 1.5                 67,572        (0.5)           

Number of branches

     5,998                 (0.6)                 5,998        (4.8)           

 

Financial Report 2018     LOGO     45


Table of Contents

JANUARY - DECEMBER

Appendix

 

 

SPAIN

           

    (EUR million)

                                   
Income statement    Q4’18          % QoQ      2018          % YoY  

Net interest income

     1,150        3.0        4,360        15.2  

Net fee income

     634        (3.0)        2,631        12.8  

Gains (losses) on financial transactions

     95        (58.1)        560        28.4  

Other operating income

     1        (99.2)        343        11.8  

Gross income

     1,880        (11.1)        7,894        15.1  

Operating expenses

     (1,110)        0.7        (4,480)        10.9  

General administrative expenses

     (1,061)        3.2        (4,191)        11.1  

Personnel

     (629)        9.9        (2,371)        19.9  

Other general administrative expenses

     (432)        (5.2)        (1,820)        1.4  

Depreciation and amortisation

     (49)        (34.6)        (289)        7.4  

Net operating income

     770        (23.9)        3,414        21.1  

Net loan-loss provisions

     (129)        (34.7)        (728)        20.7  

Other income

     (70)        (31.6)        (362)        68.3  

Underlying profit before tax

     571        (19.9)        2,325        16.1  

Tax on profit

     (139)        (25.2)        (586)        7.3  

Underlying profit from continuing operations

     432        (18.0)        1,739        19.4  

Net profit from discontinued operations

                           

Underlying consolidated profit

     432        (18.0)        1,739        19.4  

Minority interests

     0        (67.8)        1        (96.8)  

Underlying attributable profit to the Group

     432        (18.0)        1,738        20.8  

Net capital gains and provisions*

                   (280)        (6.8)  

Attributable profit to the Group

     432        (18.0)        1,458        28.1  

(*)  In 2018, restructuring costs (EUR -280 million). In 2017, integration costs (EUR -300 million)

           
Balance sheet                                

Loans and advances to customers

     206,776        (2.6)        206,776        (6.2)  

Cash, central banks and credit institutions

     117,215        2.8        117,215        28.3  

Debt securities

     60,720        (5.0)        60,720        (20.9)  

o/w: designated at fair value through other comprehensive income

     44,020        (1.3)        44,020        (22.8)  

Other financial assets

     32,727        5.4        32,727        (10.9)  

Other assets

     16,644        (21.7)        16,644        (36.8)  

Total assets

     434,082        (1.9)        434,082        (3.9)  

Customer deposits

     255,402        0.9        255,402        1.0  

Central banks and credit institutions

     93,854        (7.4)        93,854        (6.8)  

Debt securities issued

     24,608        4.5        24,608        (6.4)  

Other financial liabilities

     35,054        (10.7)        35,054        (19.5)  

Other liabilities

     8,878        (1.7)        8,878        (20.9)  

Total liabilities

     417,796        (2.0)        417,796        (3.9)  

Total equity

     16,286        0.8        16,286        (5.1)  

Other managed and marketed customer funds

     85,973        (6.7)        85,973        (4.8)  

Mutual funds

     61,406        (7.5)        61,406        (5.2)  

Pension funds

     14,142        (3.5)        14,142        (5.6)  

Managed portfolios

     10,425        (5.9)        10,425        (1.2)  

Pro memoria:

           

Gross loans and advances to customers excl. reverse repos

     209,630        (2.2)        209,630        (4.1)  

Funds (customer deposits excl. repos + mutual funds)

     315,351        (1.1)        315,351        (0.5)  
Ratios (%) and operating means                                

Underlying RoTE

     10.83        (2.37)        10.81        0.51  

Efficiency ratio (with amortisations)

     59.1        6.9        56.8        (2.1)  

NPL ratio

     6.19        (0.04)        6.19        (0.13)  

NPL coverage

     45.0        (2.7)        45.0        (1.8)  

Number of employees

     32,313        (0.3)        32,313        (2.9)  

Number of branches

     4,366        (0.7)        4,366        (2.7)  

 

46     LOGO     Financial Report 2018


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JANUARY - DECEMBER  

Appendix   

 

 

SANTANDER CONSUMER FINANCE

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q4’18                        %      % excl. FX      2018      %      % excl. FX  

Net interest income

     943                 0.6        0.7        3,723        4.3        4.9  

Net fee income

     189                 (8.5)        (8.5)        798        (9.1)        (9.0)  

Gains (losses) on financial transactions

     35                               55                

Other operating income

     21                 66.4        65.5        34        6.8        8.3  

Gross income

     1,187                 2.7        2.7        4,610        2.8        3.3  

Operating expenses

     (494)                 4.1        4.1        (1,985)        0.4        0.9  

General administrative expenses

     (456)                 5.5        5.5        (1,817)        1.1        1.6  

Personnel

     (221)                 5.7        5.8        (870)        2.6        3.1  

Other general administrative expenses

     (235)                 5.3        5.3        (948)        (0.3)        0.1  

Depreciation and amortisation

     (39)                 (10.0)        (9.9)        (168)        (6.7)        (6.2)  

Net operating income

     693                 1.7        1.7        2,625        4.8        5.3  

Net loan-loss provisions

     (47)                 (62.5)        (62.4)        (360)        35.4        36.1  

Other income

     (166)                               (125)        (20.4)        (20.5)  

Underlying profit before tax

     480                 (14.6)        (14.5)        2,140        2.8        3.3  

Tax on profit

     (122)                 (22.1)        (22.0)        (577)        (1.9)        (1.4)  

Underlying profit from continuing operations

     358                 (11.7)        (11.6)        1,564        4.6        5.2  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     358                 (11.7)        (11.6)        1,564        4.6        5.2  

Minority interests

     62                 (15.8)        (15.8)        268        10.9        10.9  

Underlying attributable profit to the Group

     296                 (10.8)        (10.7)        1,296        3.4        4.1  

Net capital gains and provisions*

                                    (100.0)        (100.0)  

Attributable profit to the Group

     296                 (10.8)        (10.7)        1,296        10.9        11.7  

(*) In 2017, integration costs (EUR -85 million)

                    
Balance sheet                                                        

Loans and advances to customers

     95,366                 3.6        4.3        95,366        5.9        6.1  

Cash, central banks and credit institutions

     6,096                 5.4        6.5        6,096        24.5        24.9  

Debt securities

     3,325                 (3.5)        (2.6)        3,325        3.2        4.0  

o/w: designated at fair value through other comprehensive income

     1,898                 (0.7)        (0.5)        1,898        (41.1)        (40.6)  

Other financial assets

     31                 56.8        58.4        31        44.8        45.2  

Other assets

     2,890                 (6.4)        (5.9)        2,890        (17.6)        (17.3)  

Total assets

     107,708                 3.2        3.9        107,708        5.9        6.2  

Customer deposits

     36,579                 (0.3)        0.5        36,579        3.2        3.5  

Central banks and credit institutions

     24,966                 (1.0)        (0.4)        24,966        7.0        7.2  

Debt securities issued

     31,281                 13.6        14.5        31,281        9.0        9.3  

Other financial liabilities

     771                 (11.8)        (11.6)        771        (22.6)        (22.4)  

Other liabilities

     3,520                 (6.9)        (6.5)        3,520        (3.2)        (3.0)  

Total liabilities

     97,117                 3.2        4.0        97,117        5.4        5.7  

Total equity

     10,591                 2.5        3.5        10,591        10.1        10.5  

Other managed and marketed customer funds

                                          (100.0)        (100.0)  

Mutual funds

                                          (100.0)        (100.0)  

Pension funds

                                          (100.0)        (100.0)  

Managed portfolios

                                                  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     97,707                 3.4        4.1        97,707        5.7        6.0  

Funds (customer deposits excl. repos + mutual funds)

     36,531                 (0.3)        0.5        36,531        3.2        3.5  
Ratios (%) and operating means                                                        

Underlying RoTE

     13.70                 (2.18)                 15.86        (0.58)           

Efficiency ratio (with amortisations)

     41.6                 0.6                 43.1        (1.1)           

NPL ratio

     2.29                 (0.16)                 2.29        (0.21)           

NPL coverage

     106.4                                 106.4        5.0           

Number of employees

     14,865                 0.0                 14,865        (1.8)           

Number of branches

     438                 (0.7)                 438        (19.8)           

 

Financial Report 2018     LOGO     47


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JANUARY - DECEMBER

Appendix

 

 

POLAND

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q4’18                        %      % excl. FX      2018      %      % excl. FX  

Net interest income

     265                 9.0        8.8        996        7.3        7.4  

Net fee income

     115                 3.4        3.2        453        2.2        2.3  

Gains (losses) on financial transactions

     9                 (37.3)        (37.0)        44        (15.4)        (15.3)  

Other operating income

     0                               (4)        35.8        36.0  

Gross income

     390                 6.1        6.0        1,488        4.8        4.9  

Operating expenses

     (165)                 5.3        5.1        (636)        5.2        5.3  

General administrative expenses

     (151)                 6.2        6.0        (578)        5.6        5.8  

Personnel

     (90)                 8.2        8.1        (338)        5.9        6.0  

Other general administrative expenses

     (61)                 3.2        3.1        (241)        5.2        5.4  

Depreciation and amortisation

     (14)                 (3.1)        (3.2)        (58)        0.6        0.7  

Net operating income

     225                 6.7        6.6        851        4.5        4.7  

Net loan-loss provisions

     (41)                 24.4        23.8        (161)        17.3        17.4  

Other income

     (61)                 132.3        131.1        (135)        40.0        40.2  

Underlying profit before tax

     123                 (18.9)        (18.8)        555        (4.4)        (4.3)  

Tax on profit

     (34)                 (7.9)        (7.8)        (131)        (11.3)        (11.2)  

Underlying profit from continuing operations

     88                 (22.5)        (22.4)        424        (2.0)        (1.9)  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     88                 (22.5)        (22.4)        424        (2.0)        (1.9)  

Minority interests

     27                 (20.5)        (20.4)        126        (4.8)        (4.7)  

Underlying attributable profit to the Group

     62                 (23.4)        (23.2)        298        (0.7)        (0.6)  

Net capital gains and provisions*

     45                         45                

Attributable profit to the Group

     107                 32.8        32.4        343        14.4        14.5  

(*) In 2018, badwill (EUR 45 million)

                    
Balance sheet                                                        

Loans and advances to customers

     28,164                 19.1        19.8        28,164        26.8        30.5  

Cash, central banks and credit institutions

     3,260                 53.2        54.1        3,260        96.3        102.2  

Debt securities

     10,570                 8.8        9.4        10,570        55.8        60.4  

o/w: designated at fair value through other comprehensive income

     8,239                 11.8        12.4        8,239        38.3        42.4  

Other financial assets

     534                 15.2        15.8        534        8.7        12.0  

Other assets

     1,140                 5.3        5.9        1,140        12.4        15.8  

Total assets

     43,669                 17.9        18.6        43,669        35.7        39.8  

Customer deposits

     33,417                 19.2        19.9        33,417        37.8        41.9  

Central banks and credit institutions

     2,163                 31.8        32.6        2,163        127.2        134.0  

Debt securities issued

     1,789                 17.2        17.8        1,789        117.9        124.4  

Other financial liabilities

     558                 22.1        22.8        558        6.8        10.0  

Other liabilities

     809                 10.3        10.9        809        18.3        21.8  

Total liabilities

     38,736                 19.6        20.3        38,736        42.2        46.5  

Total equity

     4,933                 6.1        6.7        4,933        (0.1)        2.9  

Other managed and marketed customer funds

     4,384                 12.5        13.1        4,384        9.4        12.7  

Mutual funds

     4,012                 5.6        6.2        4,012        2.9        5.9  

Pension funds

                                                  

Managed portfolios

     373                 277.6        279.7        373        246.0        256.3  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     29,033                 19.2        19.9        29,033        26.4        30.1  

Funds (customer deposits excl. repos + mutual funds)

     35,554                 18.5        19.1        35,554        27.9        31.7  
Ratios (%) and operating means                                                        

Underlying RoTE

     8.20                 (3.00)                 10.29        (1.27)           

Efficiency ratio (with amortisations)

     42.2                 (0.3)                 42.8        0.1           

NPL ratio

     4.28                 0.05                 4.28        (0.29)           

NPL coverage

     67.1                 (4.5)                 67.1        (1.1)           

Number of employees

     12,515                 10.9                 12,515        8.1           

Number of branches

     611                 17.7                 611        6.1           

 

48     LOGO     Financial Report 2018


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JANUARY - DECEMBER  

Appendix   

 

 

PORTUGAL

           

    (EUR million)

                                   
Income statement    Q4’18              % QoQ      2018              % YoY  

Net interest income

     211        0.1        858        8.9  

Net fee income

     96        4.5        377        4.7  

Gains (losses) on financial transactions

     12        112.8        75        (1.0)  

Other operating income

     14        2.4        34        61.4  

Gross income

     334        3.5        1,344        8.0  

Operating expenses

     (162)        3.0        (642)        4.5  

General administrative expenses

     (151)        2.8        (600)        4.4  

Personnel

     (94)        2.4        (372)        6.1  

Other general administrative expenses

     (57)        3.4        (228)        1.8  

Depreciation and amortisation

     (11)        5.9        (42)        5.5  

Net operating income

     172        3.9        702        11.3  

Net loan-loss provisions

     (12)        7.9        (32)        160.6  

Other income

     36        186.6        18         

Underlying profit before tax

     196        17.3        688        19.8  

Tax on profit

     (59)        14.1        (205)        50.5  

Underlying profit from continuing operations

     137        18.8        483        10.3  

Net profit from discontinued operations

                           

Underlying consolidated profit

     137        18.8        483        10.3  

Minority interests

     1        (4.5)        2        9.5  

Underlying attributable profit to the Group

     136        18.9        480        10.3  

Net capital gains and provisions*

                   20         

Attributable profit to the Group

     136        18.9        500        14.9  
(*) In 2018, provisions and restructuring costs associated with inorganic operations, net of tax impacts (EUR 20 million)

 

Balance sheet                                

Loans and advances to customers

     35,470        (0.4)        35,470        (0.6)  

Cash, central banks and credit institutions

     3,454        8.2        3,454        14.5  

Debt securities

     12,303        3.7        12,303        4.2  

o/w: designated at fair value through other comprehensive income

     5,904        14.2        5,904        6.8  

Other financial assets

     1,877        (3.3)        1,877        2.6  

Other assets

     1,904        (17.2)        1,904        (32.1)  

Total assets

     55,007        0.2        55,007        (0.2)  

Customer deposits

     37,217        0.2        37,217        9.5  

Central banks and credit institutions

     8,007        2.5        8,007        (20.1)  

Debt securities issued

     4,259        (1.1)        4,259        (21.3)  

Other financial liabilities

     257        5.8        257        (21.6)  

Other liabilities

     1,197        (13.4)        1,197        (4.8)  

Total liabilities

     50,937        0.1        50,937        (0.1)  

Total equity

     4,070        1.4        4,070        (1.2)  

Other managed and marketed customer funds

     3,541        (7.1)        3,541        (6.4)  

Mutual funds

     1,926        (5.8)        1,926        (9.6)  

Pension funds

     1,154        0.7        1,154        (1.7)  

Managed portfolios

     462        (25.5)        462        (4.1)  

Pro memoria:

           

Gross loans and advances to customers excl. reverse repos

     36,568        (1.4)        36,568        (2.5)  

Funds (customer deposits excl. repos + mutual funds)

     39,143        (0.1)        39,143        8.4  
Ratios (%) and operating means                                

Underlying RoTE

     13.50        1.91        12.06        0.41  

Efficiency ratio (with amortisations)

     48.5        (0.2)        47.8        (1.6)  

NPL ratio

     5.94        (1.49)        5.94        (1.57)  

NPL coverage

     50.5        (2.9)        50.5        (11.6)  

Number of employees

     6,705        (3.0)        6,705        (1.7)  

Number of branches

     572        (14.2)        572        (16.0)  

 

Financial Report 2018     LOGO     49


Table of Contents

JANUARY - DECEMBER

Appendix

 

 

UNITED KINGDOM

                    

    (EUR million)

                                                              
                              QoQ             YoY  
Income statement    Q4’18              %      % excl. FX      2018      %      % excl. FX  

Net interest income

     1,033                 (0.0)        (0.6)        4,136        (5.2)        (4.3)  

Net fee income

     257                 (0.3)        (0.9)        1,023        2.0        2.9  

Gains (losses) on financial transactions

     16                 (75.0)        (75.0)        199        (29.4)        (28.7)  

Other operating income

     26                 95.9        94.6        62        (7.9)        (7.0)  

Gross income

     1,332                 (2.6)        (3.2)        5,420        (5.2)        (4.3)  

Operating expenses

     (738)                 1.2        0.5        (2,995)        4.7        5.7  

General administrative expenses

     (618)                 (7.8)        (8.4)        (2,604)        3.6        4.6  

Personnel

     (403)                 (0.9)        (1.5)        (1,628)        19.9        21.1  

Other general administrative expenses

     (214)                 (18.6)        (19.0)        (976)        (15.6)        (14.8)  

Depreciation and amortisation

     (121)                 102.6        99.7        (391)        12.4        13.5  

Net operating income

     593                 (6.9)        (7.4)        2,426        (15.0)        (14.2)  

Net loan-loss provisions

     (44)                 73.1        70.4        (173)        (15.3)        (14.5)  

Other income

     (155)                 148.8        147.2        (327)        (30.0)        (29.3)  

Underlying profit before tax

     394                 (28.3)        (28.6)        1,926        (11.8)        (11.0)  

Tax on profit

     (103)                 (35.2)        (35.4)        (539)        (18.6)        (17.8)  

Underlying profit from continuing operations

     291                 (25.5)        (25.9)        1,387        (8.9)        (8.0)  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     291                 (25.5)        (25.9)        1,387        (8.9)        (8.0)  

Minority interests

     5                 (12.5)        (13.1)        25        0.7        1.6  

Underlying attributable profit to the Group

     286                 (25.7)        (26.1)        1,362        (9.1)        (8.2)  

Net capital gains and provisions

                                            

Attributable profit to the Group

     286                 (25.7)        (26.1)        1,362        (9.1)        (8.2)  
Balance sheet                                                        

Loans and advances to customers

     257,284                 0.7        1.5        257,284        5.6        6.5  

Cash, central banks and credit institutions

     39,843                 (3.5)        (2.7)        39,843        (29.8)        (29.2)  

Debt securities

     29,190                 8.5        9.3        29,190        11.5        12.4  

o/w: designated at fair value through other comprehensive income

     14,789                 (0.7)        0.1        14,789        49.6        50.8  

Other financial assets

     13,397                 (35.2)        (34.7)        13,397        (45.7)        (45.3)  

Other assets

     9,638                 4.9        5.8        9,638        (3.4)        (2.6)  

Total assets

     349,353                 (1.2)        (0.4)        349,353        (3.3)        (2.5)  

Customer deposits

     210,388                 (2.8)        (2.0)        210,388        (8.7)        (8.0)  

Central banks and credit institutions

     33,430                 7.8        8.6        33,430        20.1        21.1  

Debt securities issued

     67,556                 (0.5)        0.3        67,556        10.5        11.5  

Other financial liabilities

     16,583                 (7.5)        (6.8)        16,583        (21.7)        (21.0)  

Other liabilities

     4,181                 6.3        7.1        4,181        (3.0)        (2.2)  

Total liabilities

     332,137                 (1.5)        (0.7)        332,137        (3.7)        (2.9)  

Total equity

     17,216                 4.5        5.4        17,216        5.6        6.5  

Other managed and marketed customer funds

     7,672                 (9.6)        (8.8)        7,672        (11.4)        (10.7)  

Mutual funds

     7,576                 (9.5)        (8.8)        7,576        (11.3)        (10.6)  

Pension funds

                                                  

Managed portfolios

     96                 (12.8)        (12.0)        96        (16.2)        (15.5)  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     235,753                 (0.6)        0.2        235,753        (0.0)        0.8  

Funds (customer deposits excl. repos + mutual funds)

     206,630                 0.7        1.5        206,630        (1.7)        (0.9)  
Ratios (%) and operating means                                                        

Underlying RoTE

     7.70                 (2.77)                 9.32        (0.94)           

Efficiency ratio (with amortisations)

     55.4                 2.1                 55.2        5.2           

NPL ratio

     1.05                 (0.05)                 1.05        (0.28)           

NPL coverage

     33.0                 (0.1)                 33.0        1.0           

Number of employees

     25,872                 0.3                 25,872        (0.4)           

Number of branches

     756                 (1.4)                 756        (6.4)           

 

50     LOGO     Financial Report 2018


Table of Contents

JANUARY - DECEMBER  

Appendix   

 

 

LATIN AMERICA

                    

    (EUR million)

                                                              
                              QoQ             YoY  
Income statement    Q4’18              %      % excl. FX      2018      %      % excl. FX  

Net interest income

     4,115                 11.8        0.4        15,654        (2.1)        15.1  

Net fee income

     1,436                 30.3        8.5        5,253        (4.4)        15.7  

Gains (losses) on financial transactions

     140                 6.0        (35.7)        600        (40.8)        (28.5)  

Other operating income

     (154)                 53.5        22.1        (306)                

Gross income

     5,537                 15.0        0.6        21,201        (5.9)        11.6  

Operating expenses

     (2,213)                 27.9        6.7        (7,996)        (8.3)        9.9  

General administrative expenses

     (2,002)                 28.2        7.0        (7,237)        (8.4)        9.9  

Personnel

     (1,061)                 19.2        1.3        (3,989)        (9.0)        8.6  

Other general administrative expenses

     (941)                 40.1        14.2        (3,249)        (7.7)        11.5  

Depreciation and amortisation

     (212)                 25.1        3.9        (759)        (7.3)        10.1  

Net operating income

     3,324                 7.8        (3.0)        13,204        (4.3)        12.7  

Net loan-loss provisions

     (1,183)                 14.0        1.7        (4,567)        (8.2)        7.1  

Other income

     (160)                 0.7        (23.4)        (666)        (49.9)        (38.8)  

Underlying profit before tax

     1,981                 5.0        (3.6)        7,971        6.3        25.3  

Tax on profit

     (695)                 (5.8)        (13.9)        (2,904)        21.7        45.3  

Underlying profit from continuing operations

     1,286                 11.9        3.0        5,067        (0.8)        16.1  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     1,286                 11.9        3.0        5,067        (0.8)        16.1  

Minority interests

     218                 7.9        6.1        840        3.2        14.2  

Underlying attributable profit to the Group

     1,068                 12.8        2.4        4,228        (1.6)        16.5  

Net capital gains and provisions

                                            

Attributable profit to the Group

     1,068                 12.8        2.4        4,228        (1.6)        16.5  
Balance sheet                                                        

Loans and advances to customers

     150,544                 2.9        2.1        150,544        1.8        11.3  

Cash, central banks and credit institutions

     60,721                 5.8        2.9        60,721        8.3        20.9  

Debt securities

     59,367                 7.1        5.0        59,367        2.7        9.9  

o/w: designated at fair value through other comprehensive income

     30,351                 10.7        8.7        30,351        (7.8)        (1.1)  

Other financial assets

     14,994                 10.5        10.7        14,994        5.4        9.5  

Other assets

     17,731                 6.3        3.6        17,731        2.6        13.2  

Total assets

     303,356                 4.8        3.3        303,356        3.4        12.8  

Customer deposits

     142,576                 0.3        (1.2)        142,576        (0.5)        9.3  

Central banks and credit institutions

     48,104                 7.1        5.5        48,104        21.4        30.6  

Debt securities issued

     37,698                 8.1        7.1        37,698        9.5        18.4  

Other financial liabilities

     36,851                 17.7        15.4        36,851        2.1        10.9  

Other liabilities

     10,867                 9.5        7.0        10,867        (1.4)        7.6  

Total liabilities

     276,095                 4.9        3.4        276,095        4.4        13.9  

Total equity

     27,261                 4.1        2.5        27,261        (5.8)        3.0  

Other managed and marketed customer funds

     78,322                 0.2        (2.4)        78,322        (3.0)        7.1  

Mutual funds

     71,568                 (0.2)        (2.9)        71,568        (3.9)        6.1  

Pension funds

     98                               98                

Managed portfolios

     6,657                 3.9        2.5        6,657        5.7        16.4  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     157,022                 3.3        2.4        157,022        2.4        11.9  

Funds (customer deposits excl. repos + mutual funds)

     197,598                 1.8        (0.0)        197,598        1.3        11.8  
Ratios (%) and operating means                                                        

Underlying RoTE

     19.08                 1.15                 19.12        1.18           

Efficiency ratio (with amortisations)

     40.0                 4.0                 37.7        (1.0)           

NPL ratio

     4.34                 0.01                 4.34        (0.12)           

NPL coverage

     97.3                 0.2                 97.3        12.3           

Number of employees

     90,196                 0.7                 90,196        1.3           

Number of branches

     5,803                 (2.4)                 5,803        (1.8)           

 

Financial Report 2018     LOGO     51


Table of Contents

JANUARY - DECEMBER

Appendix

 

 

BRAZIL

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q4’18                        %      % excl. FX      2018      %      % excl. FX  

Net interest income

     2,475                 4.1        (1.2)        9,758        (3.2)        15.7  

Net fee income

     929                 19.8        12.7        3,497        (3.9)        14.8  

Gains (losses) on financial transactions

     21                 (32.0)        (36.0)        136        (73.4)        (68.2)  

Other operating income

     (29)                 613.9        549.1        (46)                

Gross income

     3,396                 6.8        1.2        13,345        (6.5)        11.7  

Operating expenses

     (1,191)                 15.5        9.1        (4,482)        (11.8)        5.4  

General administrative expenses

     (1,091)                 16.6        10.2        (4,065)        (11.1)        6.3  

Personnel

     (576)                 6.6        0.9        (2,277)        (11.2)        6.0  

Other general administrative expenses

     (515)                 30.3        22.9        (1,789)        (10.8)        6.5  

Depreciation and amortisation

     (101)                 5.1        (0.9)        (417)        (18.2)        (2.3)  

Net operating income

     2,205                 2.6        (2.7)        8,863        (3.6)        15.2  

Net loan-loss provisions

     (726)                 9.3        2.8        (2,963)        (12.7)        4.2  

Other income

     (198)                 13.6        8.3        (697)        (41.2)        (29.7)  

Underlying profit before tax

     1,281                 (2.2)        (7.0)        5,203        12.8        34.8  

Tax on profit

     (529)                 (13.6)        (17.3)        (2,264)        31.2        56.7  

Underlying profit from continuing operations

     752                 7.7        2.0        2,940        1.8        21.7  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     752                 7.7        2.0        2,940        1.8        21.7  

Minority interests

     89                 12.5        6.6        335        (2.2)        16.8  

Underlying attributable profit to the Group

     663                 7.1        1.4        2,605        2.4        22.3  

Net capital gains and provisions

                                            

Attributable profit to the Group

     663                 7.1        1.4        2,605        2.4        22.3  
Balance sheet                                                        

Loans and advances to customers

     70,850                 9.0        4.1        70,850        0.6        12.5  

Cash, central banks and credit institutions

     37,015                 3.1        (1.6)        37,015        6.0        18.6  

Debt securities

     40,718                 16.3        11.1        40,718        5.2        17.7  

o/w: designated at fair value through other comprehensive income

     19,221                 15.5        10.3        19,221        (9.9)        0.8  

Other financial assets

     6,133                 18.3        13.0        6,133        5.8        18.3  

Other assets

     11,320                 1.6        (3.0)        11,320        (4.3)        7.1  

Total assets

     166,036                 9.0        4.1        166,036        2.7        14.9  

Customer deposits

     68,306                 (1.1)        (5.5)        68,306        (2.5)        9.0  

Central banks and credit institutions

     29,758                 19.5        14.2        29,758        26.1        41.1  

Debt securities issued

     21,218                 16.8        11.6        21,218        5.8        18.3  

Other financial liabilities

     24,241                 24.2        18.6        24,241        1.9        14.0  

Other liabilities

     7,237                 14.4        9.3        7,237        (4.0)        7.4  

Total liabilities

     150,760                 9.3        4.4        150,760        3.9        16.3  

Total equity

     15,276                 6.8        2.0        15,276        (8.3)        2.6  

Other managed and marketed customer funds

     57,174                 2.0        (2.6)        57,174        (2.2)        9.4  

Mutual funds

     52,811                 1.2        (3.3)        52,811        (3.6)        7.8  

Pension funds

                                                  

Managed portfolios

     4,363                 12.4        7.3        4,363        17.9        31.9  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     75,282                 8.8        3.9        75,282        1.3        13.3  

Funds (customer deposits excl. repos + mutual funds)

     110,243                 3.4        (1.3)        110,243        3.1        15.3  
Ratios (%) and operating means                                                        

Underlying RoTE

     19.30                 (0.68)                 19.77        2.86           

Efficiency ratio (with amortisations)

     35.1                 2.7                 33.6        (2.0)           

NPL ratio

     5.25                 (0.01)                 5.25        (0.04)           

NPL coverage

     106.9                 (2.2)                 106.9        14.3           

Number of employees

     46,914                 0.5                 46,914        (0.5)           

Number of branches

     3,438                 (3.2)                 3,438        (0.8)           

 

52     LOGO     Financial Report 2018


Table of Contents

JANUARY - DECEMBER  

Appendix   

 

 

MEXICO

                    

    (EUR million)

                                                              
                              QoQ             YoY  
Income statement    Q4’18              %      % excl. FX      2018      %      % excl. FX  

Net interest income

     733                 0.7        3.0        2,763        6.2        13.2  

Net fee income

     181                 (8.9)        (6.6)        756        0.9        7.5  

Gains (losses) on financial transactions

     2                 (93.4)        (93.6)        101        (32.5)        (28.0)  

Other operating income

     (20)                 (16.9)        (14.6)        (94)        135.3        150.7  

Gross income

     897                 (3.7)        (1.4)        3,527        1.9        8.6  

Operating expenses

     (376)                 (2.0)        0.3        (1,462)        5.8        12.8  

General administrative expenses

     (339)                 (3.4)        (1.1)        (1,329)        5.6        12.5  

Personnel

     (176)                 (2.4)        (0.2)        (679)        4.1        10.9  

Other general administrative expenses

     (163)                 (4.4)        (2.2)        (649)        7.2        14.3  

Depreciation and amortisation

     (37)                 13.5        16.5        (134)        8.0        15.1  

Net operating income

     521                 (4.8)        (2.6)        2,064        (0.7)        5.8  

Net loan-loss provisions

     (215)                 (5.4)        (3.3)        (830)        (8.2)        (2.2)  

Other income

     17                               (3)        (91.3)        (90.8)  

Underlying profit before tax

     323                 2.5        5.1        1,230        8.5        15.6  

Tax on profit

     (61)                 (5.9)        (3.5)        (255)        10.9        18.2  

Underlying profit from continuing operations

     262                 4.7        7.3        975        7.9        14.9  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     262                 4.7        7.3        975        7.9        14.9  

Minority interests

     56                 2.1        4.7        215        11.1        18.4  

Underlying attributable profit to the Group

     206                 5.5        8.0        760        7.0        14.0  

Net capital gains and provisions

                                            

Attributable profit to the Group

     206                 5.5        8.0        760        7.0        14.0  
Balance sheet                                                        

Loans and advances to customers

     30,632                 (2.6)        0.6        30,632        15.8        10.0  

Cash, central banks and credit institutions

     12,403                 8.2        11.7        12,403        24.6        18.4  

Debt securities

     14,142                 (9.2)        (6.3)        14,142        3.4        (1.7)  

o/w: designated at fair value through other comprehensive income

     6,868                 3.6        7.0        6,868        (1.5)        (6.3)  

Other financial assets

     5,683                 2.4        5.8        5,683        1.0        (4.0)  

Other assets

     3,016                 3.7        7.1        3,016        21.6        15.5  

Total assets

     65,876                 (1.6)        1.6        65,876        13.2        7.6  

Customer deposits

     34,327                 0.1        3.3        34,327        12.9        7.4  

Central banks and credit institutions

     9,536                 (16.3)        (13.6)        9,536        15.6        9.9  

Debt securities issued

     6,194                 (0.8)        2.4        6,194        19.9        13.9  

Other financial liabilities

     8,281                 13.1        16.8        8,281        7.8        2.5  

Other liabilities

     2,168                 6.9        10.4        2,168        21.9        15.9  

Total liabilities

     60,507                 (1.3)        1.9        60,507        13.6        8.0  

Total equity

     5,369                 (5.0)        (1.9)        5,369        8.8        3.4  

Other managed and marketed customer funds

     10,022                 (10.8)        (7.9)        10,022        1.0        (3.9)  

Mutual funds

     9,925                 (11.6)        (8.8)        9,925        0.1        (4.9)  

Pension funds

     98                               98                

Managed portfolios

                                                  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     31,192                 (2.1)        1.1        31,192        15.7        10.0  

Funds (customer deposits excl. repos + mutual funds)

     38,630                 (4.4)        (1.3)        38,630        8.7        3.3  
Ratios (%) and operating means                                                        

Underlying RoTE

     21.33                 1.32                 20.35        0.85           

Efficiency ratio (with amortisations)

     41.9                 0.7                 41.5        1.5           

NPL ratio

     2.43                 0.02                 2.43        (0.26)           

NPL coverage

     119.7                 (0.8)                 119.7        22.2           

Number of employees

     19,859                 1.9                 19,859        7.0           

Number of branches

     1,418                 0.6                 1,418        1.2           

 

Financial Report 2018     LOGO     53


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JANUARY - DECEMBER

Appendix

 

 

CHILE

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q4’18                        %      % excl. FX      2018      %      % excl. FX  

Net interest income

     477                 (0.7)        (0.1)        1,944        1.9        5.4  

Net fee income

     95                 (6.2)        (5.6)        424        8.3        12.0  

Gains (losses) on financial transactions

     46                 3.6        4.5        149        (30.1)        (27.7)  

Other operating income

     3                 (33.7)        (32.5)        19        62.3        67.8  

Gross income

     622                 (1.5)        (0.9)        2,535        0.5        3.9  

Operating expenses

     (258)                 0.4        1.0        (1,045)        1.9        5.4  

General administrative expenses

     (229)                 (0.8)        (0.2)        (937)        2.1        5.6  

Personnel

     (136)                 (7.0)        (6.2)        (573)        (0.2)        3.3  

Other general administrative expenses

     (93)                 10.0        10.3        (364)        6.0        9.6  

Depreciation and amortisation

     (28)                 11.1        11.5        (107)        (0.3)        3.1  

Net operating income

     364                 (2.8)        (2.2)        1,491        (0.5)        3.0  

Net loan-loss provisions

     (120)                 2.5        3.1        (473)        2.5        6.0  

Other income

     31                 63.2        61.6        103        345.6        360.9  

Underlying profit before tax

     275                 (0.6)        (0.0)        1,121        5.8        9.5  

Tax on profit

     (49)                 (13.1)        (12.3)        (220)        10.0        13.7  

Underlying profit from continuing operations

     226                 2.5        3.0        901        4.9        8.5  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     226                 2.5        3.0        901        4.9        8.5  

Minority interests

     73                 6.9        7.3        287        4.9        8.5  

Underlying attributable profit to the Group

     153                 0.6        1.2        614        4.9        8.5  

Net capital gains and provisions

                                            

Attributable profit to the Group

     153                 0.6        1.2        614        4.9        8.5  
Balance sheet                                                        

Loans and advances to customers

     37,908                 (2.7)        1.0        37,908        2.0        10.0  

Cash, central banks and credit institutions

     4,247                 10.9        15.2        4,247        (1.7)        6.0  

Debt securities

     3,106                 (17.4)        (14.2)        3,106        (25.0)        (19.2)  

o/w: designated at fair value through other comprehensive income

     3,009                 (7.6)        (4.0)        3,009        (13.8)        (7.0)  

Other financial assets

     3,164                 12.4        16.8        3,164        13.4        22.3  

Other assets

     2,486                 33.5        38.7        2,486        27.6        37.5  

Total assets

     50,911                 (0.6)        3.2        50,911        1.1        9.0  

Customer deposits

     25,908                 1.9        5.8        25,908        (0.5)        7.3  

Central banks and credit institutions

     5,867                 (5.1)        (1.5)        5,867        6.8        15.2  

Debt securities issued

     9,806                 (2.4)        1.3        9,806        9.4        17.9  

Other financial liabilities

     3,535                 (5.9)        (2.3)        3,535        (1.8)        5.9  

Other liabilities

     919                 (13.1)        (9.8)        919        (24.8)        (18.9)  

Total liabilities

     46,035                 (1.0)        2.8        46,035        1.6        9.5  

Total equity

     4,876                 2.6        6.5        4,876        (3.1)        4.4  

Other managed and marketed customer funds

     9,712                 1.1        5.0        9,712        (0.5)        7.3  

Mutual funds

     7,419                 4.7        8.7        7,419        3.6        11.7  

Pension funds

                                                  

Managed portfolios

     2,294                 (9.0)        (5.6)        2,294        (11.7)        (4.8)  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     39,019                 (2.8)        1.0        39,019        2.0        10.0  

Funds (customer deposits excl. repos + mutual funds)

     33,279                 2.5        6.4        33,279        0.5        8.4  
Ratios (%) and operating means                                                        

Underlying RoTE

     18.29                 (0.74)                 18.39        0.50           

Efficiency ratio (with amortisations)

     41.5                 0.8                 41.2        0.6           

NPL ratio

     4.66                 (0.12)                 4.66        (0.30)           

NPL coverage

     60.6                 1.0                 60.6        2.4           

Number of employees

     12,008                 0.0                 12,008        2.9           

Number of branches

     381                 (6.6)                 381        (13.2)           

 

54     LOGO     Financial Report 2018


Table of Contents

JANUARY - DECEMBER  

Appendix   

 

 

ARGENTINA

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q4’18                        %      % excl. FX      2018      %      % excl. FX  

Net interest income

     327                        8.8        768        (22.0)        52.5  

Net fee income

     192                        12.3        448        (24.8)        47.0  

Gains (losses) on financial transactions

     60                 258.6        (45.1)        170        15.2        125.3  

Other operating income

     (106)                 41.5        2.5        (177)                

Gross income

     472                        0.6        1,209        (30.8)        35.4  

Operating expenses

     (323)                        10.7        (749)        (22.8)        51.0  

General administrative expenses

     (283)                        12.1        (662)        (26.4)        43.9  

Personnel

     (139)                        17.5        (324)        (27.3)        42.1  

Other general administrative expenses

     (144)                        7.4        (338)        (25.5)        45.6  

Depreciation and amortisation

     (41)                 304.7        2.0        (87)        23.7        141.8  

Net operating income

     149                        (19.9)        460        (40.8)        15.8  

Net loan-loss provisions

     (99)                        2.7        (231)        45.4        184.4  

Other income

     9                 101.0               (45)        (51.5)        (5.2)  

Underlying profit before tax

     58                        183.8        185        (64.9)        (31.4)  

Tax on profit

     (41)                        2.6        (100)        (39.0)        19.2  

Underlying profit from continuing operations

     17                               84        (76.7)        (54.4)  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     17                               84        (76.7)        (54.4)  

Minority interests

     (0)                 (76.9)               1        (71.9)        (45.2)  

Underlying attributable profit to the Group

     17                               84        (76.7)        (54.5)  

Net capital gains and provisions

                                            

Attributable profit to the Group

     17                               84        (76.7)        (54.5)  
Balance sheet                                                        

Loans and advances to customers

     5,334                 (10.5)        (18.9)        5,334        (31.7)        30.1  

Cash, central banks and credit institutions

     5,096                 26.3        14.3        5,096        6.9        103.7  

Debt securities

     825                 72.4        56.1        825        498.9         

o/w: designated at fair value through other comprehensive income

     806                 86.2        68.5        806        569.6         

Other financial assets

     6                 (64.8)        (68.2)        6        (9.7)        72.1  

Other assets

     742                 25.6        13.7        742        1.4        93.2  

Total assets

     12,003                 8.3        (1.9)        12,003        (10.8)        70.0  

Customer deposits

     8,809                 9.4        (1.0)        8,809        (13.9)        64.0  

Central banks and credit institutions

     848                 (20.8)        (28.3)        848        41.4        169.4  

Debt securities issued

     422                 12.4        1.7        422        105.0        290.4  

Other financial liabilities

     743                 11.9        1.3        743        (24.3)        44.3  

Other liabilities

     307                 16.5        5.5        307        26.0        139.9  

Total liabilities

     11,130                 6.7        (3.4)        11,130        (9.3)        72.8  

Total equity

     872                 34.2        21.5        872        (26.3)        40.5  

Other managed and marketed customer funds

     1,382                 13.5        2.8        1,382        (47.3)        0.4  

Mutual funds

     1,382                 13.5        2.8        1,382        (47.3)        0.4  

Pension funds

                                                  

Managed portfolios

                                                  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     5,574                 (3.9)        (13.0)        5,574        (26.7)        39.5  

Funds (customer deposits excl. repos + mutual funds)

     10,191                 9.9        (0.5)        10,191        (20.7)        51.0  
Ratios (%) and operating means                                                        

Underlying RoTE

     1.43                 n.s.                 11.83        (20.19)           

Efficiency ratio (with amortisations)

     68.5                 n.s.                 61.9        6.4           

NPL ratio

     3.17                 0.70                 3.17        0.67           

NPL coverage

     135.0                 11.0                 135.0        34.9           

Number of employees

     9,324                 (0.4)                 9,324        0.5           

Number of branches

     468                 (2.7)                 468        (2.9)           

 

Financial Report 2018     LOGO     55


Table of Contents

JANUARY - DECEMBER

Appendix

 

 

UNITED STATES

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q4’18                        %      % excl. FX      2018      %      % excl. FX  

Net interest income

     1,553                 16.1        14.5        5,391        (3.2)        1.3  

Net fee income

     217                 4.7        2.9        859        (11.6)        (7.4)  

Gains (losses) on financial transactions

     11                 (48.7)        (51.3)        72        669.2        705.0  

Other operating income

     185                 9.9        8.0        628        53.1        60.3  

Gross income

     1,967                 13.4        11.6        6,949        (0.1)        4.5  

Operating expenses

     (795)                 6.3        4.5        (3,015)        (5.7)        (1.3)  

General administrative expenses

     (742)                 7.9        6.1        (2,787)        (3.0)        1.5  

Personnel

     (402)                 1.1        (0.7)        (1,580)        (5.1)        (0.6)  

Other general administrative expenses

     (340)                 17.1        15.5        (1,208)        (0.3)        4.4  

Depreciation and amortisation

     (53)                 (12.1)        (14.2)        (228)        (29.6)        (26.3)  

Net operating income

     1,172                 18.7        17.1        3,934        4.6        9.5  

Net loan-loss provisions

     (945)                 45.5        44.0        (2,618)        (5.8)        (1.4)  

Other income

     (57)                 (17.6)        (19.7)        (199)        122.1        132.5  

Underlying profit before tax

     170                 (36.6)        (39.2)        1,117        25.2        31.0  

Tax on profit

     (47)                 (49.3)        (52.1)        (347)        35.5        41.9  

Underlying profit from continuing operations

     123                 (29.8)        (32.3)        770        21.1        26.7  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     123                 (29.8)        (32.3)        770        21.1        26.7  

Minority interests

     31                 (38.1)        (40.8)        218        (4.5)        (0.0)  

Underlying attributable profit to the Group

     92                 (26.4)        (28.9)        552        35.4        41.7  

Net capital gains and provisions*

                                    (100.0)        (100.0)  

Attributable profit to the Group

     92                 (26.4)        (28.9)        552        66.2        74.0  

(*) In 2017, fiscal reform, provisions for hurricanes, increased stake in Santander Consumer USA and other (EUR 76 million)

 

Balance sheet                                                        

Loans and advances to customers

     85,564                 7.1        5.9        85,564        18.9        13.5  

Cash, central banks and credit institutions

     16,442                 15.0        13.7        16,442        23.6        18.0  

Debt securities

     13,160                 (0.7)        (1.8)        13,160        (4.9)        (9.2)  

o/w: designated at fair value through other comprehensive income

     9,822                 (0.0)        (1.1)        9,822        (16.6)        (20.4)  

Other financial assets

     4,291                 (15.9)        (16.8)        4,291        27.4        21.6  

Other assets

     15,585                 6.4        5.3        15,585        30.8        24.9  

Total assets

     135,043                 6.2        5.0        135,043        18.1        12.7  

Customer deposits

     57,568                 (2.3)        (3.3)        57,568        12.5        7.4  

Central banks and credit institutions

     16,505                 25.5        24.1        16,505        3.9        (0.8)  

Debt securities issued

     37,564                 22.3        21.0        37,564        43.5        37.0  

Other financial liabilities

     3,098                 (29.8)        (30.6)        3,098        23.8        18.2  

Other liabilities

     3,798                 (0.6)        (1.7)        3,798        10.5        5.5  

Total liabilities

     118,532                 6.8        5.6        118,532        19.5        14.1  

Total equity

     16,511                 2.0        0.9        16,511        8.6        3.7  

Other managed and marketed customer funds

     16,291                 (2.9)        (3.9)        16,291        (0.9)        (5.3)  

Mutual funds

     8,176                 (3.3)        (4.3)        8,176        (2.3)        (6.7)  

Pension funds

                                                  

Managed portfolios

     8,115                 (2.5)        (3.6)        8,115        0.6        (3.9)  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     83,696                 3.7        2.6        83,696        11.0        6.0  

Funds (customer deposits excl. repos + mutual funds)

     64,239                 3.6        2.5        64,239        8.3        3.4  
Ratios (%) and operating means                                                        

Underlying RoTE

     2.58                 (1.04)                 4.12        0.99           

Efficiency ratio (with amortisations)

     40.4                 (2.7)                 43.4        (2.6)           

NPL ratio

     2.92                 (0.08)                 2.92        0.13           

NPL coverage

     142.8                 (2.7)                 142.8        (27.4)           

Number of employees

     17,309                 0.0                 17,309        (1.4)           

Number of branches

     660                 (0.6)                 660        (3.4)           

 

56     LOGO     Financial Report 2018


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CORPORATE CENTRE

                 

    (EUR million)

                                                     
Income statement    Q4’18      Q3’18      %      2018      2017      %  

Net interest income

     (249)        (241)        3.5        (947)        (851)        11.3  

Net fee income

     (28)        (24)        14.6        (69)        (38)        82.4  

Gains (losses) on financial transactions

     (4)        10               11        (227)         

Other operating income

     (14)        (2)        497.4        (23)        (104)        (78.1)  

Gross income

     (295)        (257)        14.7        (1,028)        (1,220)        (15.7)  

Operating expenses

     (128)        (123)        4.2        (495)        (476)        3.9  

Net operating income

     (423)        (380)        11.3        (1,523)        (1,696)        (10.2)  

Net loan-loss provisions

     (21)        (28)        (24.9)        (115)        (45)        154.9  

Other income

     47        (55)               (101)        (181)        (44.5)  

Underlying profit before tax

     (397)        (463)        (14.2)        (1,739)        (1,923)        (9.6)  

Tax on profit

     29        7        308.2        20        32        (36.8)  

Underlying profit from continuing operations

     (368)        (456)        (19.2)        (1,718)        (1,890)        (9.1)  

Net profit from discontinued operations

                                         

Underlying consolidated profit

     (368)        (456)        (19.2)        (1,718)        (1,890)        (9.1)  

Minority interests

     1        (0)               2        (1)         

Underlying attributable profit to the Group

     (369)        (456)        (18.9)        (1,721)        (1,889)        (8.9)  

Net capital gains and provisions*

                          (40)        (436)        (90.8)  

Attributable profit to the Group

     (369)        (456)        (18.9)        (1,761)        (2,326)        (24.3)  

(*) In 2018, restructuring costs (EUR -40 million). In 2017, charges for equity stakes and intangible assets (EUR -130 million)

 

Balance sheet                                                

Debt securities

     377        330        14.5        377        1,768        (78.7)  

Goodwill

     25,466        24,956        2.0        25,466        25,769        (1.2)  

Capital assigned to Group areas

     81,112        81,336        (0.3)        81,112        81,791        (0.8)  

Other financial assets

     14,763        20,307        (27.3)        14,763        7,841        88.3  

Other assets

     17,917        14,417        24.3        17,917        14,929        20.0  

Total assets

     139,634        141,346        (1.2)        139,634        132,099        5.7  

Debt securities issued

     41,783        42,948        (2.7)        41,783        35,030        19.3  

Other financial liabilities

     1,568        916        71.2        1,568        2,127        (26.3)  

Other liabilities

     8,206        7,922        3.6        8,206        8,092        1.4  

Total liabilities

     51,557        51,786        (0.4)        51,557        45,248        13.9  

Total equity

     88,077        89,561        (1.7)        88,077        86,850        1.4  

Other managed and marketed customer funds

     7        7        0.6        7        2        239.5  

Mutual funds

     7        7        0.6        7        2        239.5  

Pension funds

                                         

Managed portfolios

                                         
Resources                                                

Number of employees

     1,764        1,805        (2.3)        1,764        1,784        (1.1)  

 

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Appendix

 

 

RETAIL BANKING

                 

    (EUR million)

                                                     
            QoQ             YoY  
Income statement    Q4’18      %      % excl. FX      2018      %      % excl. FX  

Net interest income

     8,500        7.3        2.4        32,522        0.6        8.8  

Net fee income

     2,334        12.9        3.1        8,946        (3.9)        6.0  

Gains (losses) on financial transactions

     238        8.9        0.9        720        6.0        11.0  

Other operating income

     34        (83.4)        (76.7)        644        11.0        15.7  

Gross income

     11,106        6.7        1.2        42,832        (0.2)        8.3  

Operating expenses

     (5,025)        12.0        4.4        (19,255)        (2.1)        5.8  

Net operating income

     6,081        2.6        (1.4)        23,577        1.5        10.5  

Net loan-loss provisions

     (2,354)        15.7        8.6        (8,461)        2.2        13.0  

Other income

     (608)        59.2        42.4        (1,707)        (28.7)        (20.7)  

Underlying profit before tax

     3,119        (11.1)        (12.4)        13,408        6.8        14.6  

Tax on profit

     (960)        (19.4)        (21.6)        (4,329)        12.6        22.2  

Underlying profit from continuing operations

     2,159        (6.8)        (7.7)        9,080        4.2        11.3  

Net profit from discontinued operations

                                         

Underlying consolidated profit

     2,159        (6.8)        (7.7)        9,080        4.2        11.3  

Minority interests

     296        (7.8)        (8.5)        1,287        2.4        8.4  

Underlying attributable profit to the Group

     1,863        (6.7)        (7.5)        7,793        4.5        11.7  

Net capital gains and provisions*

     46                      (214)        (51.6)        (51.3)  

Attributable profit to the Group

     1,909        (4.4)        (5.3)        7,579        8.1        16.0  

(*)In 2018, charges related to integrations (mainly restructuring costs), net of tax impacts, in Spain (EUR -280 million) and Portugal (EUR 20 million) and Badwill in Poland (EUR 45 million). In 2017, integration costs (Popular: EUR -300 million and Germany: EUR -85 million), USA fiscal reform (EUR 73 million) and in the US provisions for hurricanes, increased stake in Santander Consumer USA and other (EUR -149 million)

 

 

CORPORATE & INVESTMENT BANKING

                 

    (EUR million)

                                                     
            QoQ             YoY  
Income statement    Q4’18      %      % excl. FX      2018      %      % excl. FX  

Net interest income

     713        24.4        12.2        2,378        (2.6)        7.6  

Net fee income

     379        14.8        7.1        1,512        (7.1)        0.3  

Gains (losses) on financial transactions

     179        (31.8)        (46.0)        1,004        (17.2)        (5.8)  

Other operating income

     72        153.0        144.1        194        (12.6)        (11.1)  

Gross income

     1,343        12.5        0.3        5,087        (7.6)        1.7  

Operating expenses

     (551)        5.1        (1.3)        (2,105)        3.8        10.7  

Net operating income

     792        18.2        1.4        2,982        (14.2)        (3.7)  

Net loan-loss provisions

     (56)        33.9        21.0        (217)        (68.5)        (66.1)  

Other income

     (43)        78.7        76.3        (108)        49.2        64.8  

Underlying profit before tax

     693        14.7        (2.6)        2,657        (2.0)        11.1  

Tax on profit

     (205)        12.1        (5.5)        (792)        5.6        21.8  

Underlying profit from continuing operations

     488        15.9        (1.3)        1,865        (5.0)        7.2  

Net profit from discontinued operations

                                         

Underlying consolidated profit

     488        15.9        (1.3)        1,865        (5.0)        7.2  

Minority interests

     41        11.1        6.8        160        (12.2)        (2.8)  

Underlying attributable profit to the Group

     447        16.3        (2.0)        1,705        (4.2)        8.2  

Net capital gains and provisions

                                         

Attributable profit to the Group

     447        16.3        (2.0)        1,705        (4.2)        8.2  

 

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Appendix   

 

 

WEALTH MANAGEMENT

                       

    (EUR million)

                                                                       
                   QoQ                    YoY  
Income statement    Q4’18                        %      % excl. FX                        2018      %      % excl. FX  

Net interest income

     109                 4.7        (1.6)                 420        4.0        11.9  

Net fee income

     271                 1.8        (1.8)                 1,097        56.7        62.7  

Gains (losses) on financial transactions

     25                 90.6        74.0                 62        64.5        74.2  

Other operating income

     (11)                 23.2        17.8                 (36)                

Gross income

     393                 5.2        0.5                 1,543        27.3        34.1  

Operating expenses

     (181)                 0.8        (1.9)                 (730)        38.3        45.6  

Net operating income

     212                 9.2        2.7                 813        18.8        25.3  

Net loan-loss provisions

     (5)                                        (9)        (4.9)        (1.6)  

Other income

     2                                        (8)        (5.3)        (2.7)  

Underlying profit before tax

     209                 10.2        3.5                 797        19.5        26.0  

Tax on profit

     (64)                 19.3        12.0                 (234)        41.9        49.5  

Underlying profit from continuing operations

     145                 6.6        0.2                 563        12.1        18.3  

Net profit from discontinued operations

                                                           

Underlying consolidated profit

     145                 6.6        0.2                 563        12.1        18.3  

Minority interests

     9                 5.3        3.4                 35        42.0        54.0  

Underlying attributable profit to the Group

     136                 6.7        (0.0)                 528        10.6        16.5  

Net capital gains and provisions*

                                       (100.0)        (100.0)  

Attributable profit to the Group

     136                 6.7        (0.0)                 528        15.1        21.3  

(*) Tax reform in the US in 2017

 

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Alternative performance measures

 

ALTERNATIVE PERFORMANCE MEASURES (APM)

Below we set out information on alternative performance measures in order to comply with the Guidelines on Alternative Performance Measures published by the European Securities and Markets Authority, ESMA, on 5 October 2015 (Guidelines on Alternative Performance Measures, ESMA/2015/1415en).

 

 

The Group uses the following indicators for managing its business. They enable profitability and efficiency, credit portfolio quality, the volume of tangible equity per share and the net loan-to-deposit ratio to be measured, analysing their evolution over time and comparing them with those of our competitors.

 

 

The purpose of the profitability and efficiency ratios is to measure the ratio of profit to capital, to tangible capital, to assets and to risk weighted assets, while the efficiency ratio measures how much general administrative expenses (personnel and other) and amortisation costs are needed to generate revenue.

 

 

The credit risk indicators measure the quality of the credit portfolio and the percentage of non-performing loans covered by provisions.

 

 

The capitalisation indicator provides information on the volume of tangible equity per share.

 

 

Other indicators are also included. The loan-to-deposit ratio (LTD) identifies the relationship between net customer loans and advances and customer deposits, assessing the proportion of loans and advances granted by the Group that are funded by customer deposits. The Group also uses gross customer loan magnitudes excluding reverse repurchase agreements (repos) and customer deposits excluding repos. In order to analyse the evolution of the traditional commercial banking business of granting loans and capturing deposits, repos and reverse repos are excluded, as they are mainly treasury business products and highly volatile.

 

 

Impact of exchange rate movements on profit and loss accounts

The Group presents, at both the Group level as well as the business unit level, the real changes in the income statement as well as the changes excluding the exchange rate effect, as it considers the latter facilitates analysis, since it enables businesses movements to be identified without taking into account the impact of converting each local currency into euros.

Said variations, excluding the impact of exchange rate movements, are calculated by converting P&L lines for the different business units comprising the Group into our presentation currency, the euro, applying the average exchange rate of 2018 to all periods contemplated in the analysis. The average exchange rates for the main currencies in which the Group operates are set out on page 9.

 

 

Impact of exchange rate movements on the balance sheet

The Group presents, at both the Group level as well as the business unit level, the real changes in the balance sheet as well as the changes excluding the exchange rate effect for loans and advances to customers excluding reverse repos and customer funds (which comprise deposits and mutual funds) excluding repos. As with the income statement, the reason is to facilitate analysis by isolating the changes in the balance sheet that are not caused by converting each local currency into euros.

These changes excluding the impact of exchange rate movements are calculated by converting loans and advances to customers excluding reverse repos and customer funds excluding repos, into our presentation currency, the euro, applying the closing exchange rate on the last working day of December 2018 to all periods contemplated in the analysis. The end-of-period exchange rates for the main currencies in which the Group operates are set out on page 9.

 

 

Impact of non-recurring items on the consolidated profit and loss accounts

With regard to the results, a summary of the consolidated profit and loss accounts for 2018 and 2017 can be found on page 66. In these accounts, results are included in their corresponding accounting item, even when, in the Group’s opinion, they distort the comparison between periods.

Therefore, summarised profit and loss accounts for 2018 and of 2017 and for the previous two quarters of 2018 on page 10. In these accounts, results, including those of said items, net of tax and minority interests, are included in a separate line which the Group names net capital gains and provisions just above the Group’s attributable profit. The Group believes that this statement explains more clearly the changes in the income statement. Those capital gains and provisions considered as non-recurring are subtracted from each of the income statement lines where they were naturally recorded.

 

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Alternative performance measures

 

Additionally, for informational purposes, the following table reconciles attributable profit by isolating the non-recurring impacts in the given periods. Further information on “net capital gains and provisions” is included on pages 10 and 11.

 

ADJUSTED ATTRIBUTABLE PROFIT TO THE GROUP

                

    EUR Million

                                                    
      Q4’18      Q3’18      Chg. (%)     2018      2017      Chg. (%)  

Unadjusted attributable profit to the Santander Group

     2,068        1,990        +4     7,810        6,619        +18

(-) Net capital gains and provisions

     46                     (254)        (897)        (72 %) 

Adjusted attributable profit to the Santander Group

     2,022        1,990        +2     8,064        7,516        +7

The definitions of each of the previously-mentioned indicators and how they are calculated are given below:

 

Profitability and Efficiency

    

Ratio

   Formula    Relevance of the metric

 

  

 

  

 

RoE

(Return on equity)

  

Group’s attributable profit

Average stockholders’ equity* (excl. minority interests)

   This ratio measures the return that shareholders obtain on the funds invested in the entity and as such measures the company’s ability to pay shareholders.

RoTE

(Return on tangible equity)

  

Group’s attributable profit

Average stockholders’ equity* (excl. minority interests) -

intangible assets

   This is a very common indicator, used to evaluate the profitability of the company as a percentage of a its tangible equity. It’s measured as the return that shareholders receive as a percentage of the funds invested in the entity less intangible assets.
Underlying RoTE   

Group’s underlying attributable profit

Average stockholders’ equity* (excl. minority interests) -

intangible assets

   This indicator measures the profitability of the tangible equity of a company arising from ordinary activities, i.e. excluding net capital gains and provisions.

RoA

(Return on assets)

  

Consolidated profit

Average total assets

   This metric, commonly used by analysts, measures the profitability of a company as a percentage of its total assets. It is an indicator that reflects the efficiency of the company’s total funds in generating profit over a given period.

RoRWA

(Return on risk weighted assets)

  

Consolidated profit

Average risk weighted assets

   The return adjusted for risk is an derivative of the RoA metric. The difference is that RoRWA measures profit in relation to the bank’s risk weighted assets.
Underlying RoRWA   

Underlying consolidated profit

Average risk weighted assets

   This relates the underlying profit (excluding net capital gains and provisions) to the bank’s risk weighted assets.
Efficiency   

Operating expenses**

Gross income

   One of the most commonly used indicators when comparing productivity of different financial entities. It measures the amount of funds used to generate the bank’s operating income.

 

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Alternative performance measures

 

Credit risk

    

Ratio

   Formula    Relevance of the metric

 

  

 

  

 

NPL ratio

(Non-performing loans ratio)

  

Non-performing loans and advances to customers, customer guarantees and customer commitments granted

 

Total Risk***

   The NPL ratio is an important variable regarding financial institutions’ activity since it gives an indication of the level of risk the entities are exposed to. It calculates risks that are, in accounting terms, declared to be non-performing as a percentage of the total outstanding amount of customer credit and contingent liabilities.
Coverage ratio   

Provisions to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments granted

Non-performing loans and advances to customers, customer guarantees and customer commitments granted

   The coverage ratio is a fundamental metric in the financial sector. It reflects the level of provisions as a percentage of the non-performing assets (credit risk). Therefore it is a good indicator of the entity’s solvency against client defaults both present and future.
Cost of Credit   

Allowances for loan-loss provisions over the last

12 months

Average loans and advances to customers over the last 12 months

   This ratio quantifies loan-loss provisions arising from credit risk over a defined period of time for a given loan portfolio. As such, it acts as an indicator of credit quality.

Market Capitalisation

    

Ratio

   Formula    Relevance of the metric

 

  

 

  

 

TNAV per share
(Tangible net asset value per share)
  

Tangible book value****

Number of shares excluding treasury stock Formula

   This is a very commonly used ratio used to measure the company’s accounting value per share having deducted the intangible assets. It is useful in evaluating the amount each shareholder would receive if the company were to enter into liquidation and had to sell all the company’s tangible assets.

Other indicators

    

Ratio

   Formula    Relevance of the metric

 

  

 

  

 

LtD

(Loan-to-deposit)

  

Net loans and advances to customers

Customer deposits

   This is an indicator of the bank’s liquidity. It measures the total (net) loans and advances to customers as a percentage of customer funds.
Loans and advances (excl. reverse repos)    Gross loans and advances to customers excluding reverse repos    In order to aid analysis of the commercial banking activity, reverse repos are excluded as they are highly volatile treasury products.
Deposits (excl. repos)    Customer deposits excluding repos    In order to aid analysis of the commercial banking activity, repos are excluded as they are highly volatile treasury products.
PAT + After tax fees paid to SAN (in Wealth Management)    Net profit + Fees paid from Santander Asset Management to Santander, net of taxes, excluding Private Banking customers    Metric to assess Wealth Management’s total contribution to Grupo Santander profits

(*) Stockholders’ equity = Capital and Reserves + Accumulated other comprehensive income + Group attributable profit + Dividends

(**) Operating expenses: General administrative expenses + Depreciation and amortisation

(***) Total risk = Total loans & advances and guarantees to customers (performing and non-performing) + non-performing contingent liabilities

(****) Tangible book value = Stockholders’ equity—intangible assets

 

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Alternative performance measures   

 

Finally, below the numerical value of each indicator is given for each period.

 

Profitability and efficiency    Q4’18     Q3’18     2018     20’17  

RoE

     8.46     8.43     8.21     7.14

Attributable profit to the Group

     8,138       7,957       7,810       6,619  

Average stockholders’ equity (excluding minority interests)

     96,187       94,391       95,071       92,638  

RoTE

     12.00     11.95     11.70     10.41

Attributable profit to the Group

     8,138       7,957       7,810       6,619  

Average stockholders’ equity (excl. minority interests) - intangible assets

     67,815       66,578       66,740       63,594  

Underlying RoTE

     11.93     11.95     12.08     11.82

Underlying attributable profit to the Group

     8,092       7,957       8,064       7,516  

Average stockholders’ equity (excl. minority interests) - intangible assets

     67,815       66,578       66,740       63,594  

RoA

     0.65     0.66     0.64     0.58

Consolidated profit

     9,522       9,424       9,292       8,205  

Average total assets

     1,459,756       1,431,897       1,442,861       1,407,681  

RoRWA

     1.60     1.59     1.55     1.35

Consolidated profit

     9,522       9,424       9,292       8,205  

Average risk weighted assets

     593,562       592,061       598,741       606,308  

Underlying RoRWA

     1.60     1.59     1.59     1.48

Underlying consolidated profit

     9,476       9,424       9,546       8,963  

Average risk weighted assets

     593,562       592,061       598,741       606,308  

Efficiency ratio

     47.3     45.7     47.0     47.4

Operating expenses

     5,936       5,361       22,779       22,918  

Gross income

     12,542       11,720       48,424       48,392  
Credit risk    Dec-18     Sep-18     Dec-18     Dec-17  

NPL ratio

     3.73     3.87     3.73     4.08

Non-performing loans and advances to customers customer guarantees and customer commitments granted

     35,692       36,332       35,692       37,596  

Total risk

     958,153       939,685       958,153       920,968  

Coverage ratio

     67.4     67.9     67.4     65.2

Provisions to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments granted

     24,061       24,685       24,061       24,529  

Non-performing loans and advances to customers customer guarantees and customer commitments granted

     35,692       36,332       35,692       37,596  

Cost of credit

     1.00     0.98     1.00     1.07

Allowances for loan-loss provisions over the last 12 months

     8,873       8,600       8,873       9,111  

Average loans and advances to customers over the last 12 months

     887,028       879,772       887,028       853,479  
Market capitalization    Dec-18     Sep-18     Dec-18     Dec-17  

TNAV (tangible book value) per share

     4.19       4.16       4.19       4.15  

Tangible book value

     67,912       67,122       67,912       66,985  

Number of shares excl. treasury stock (million)

     16,224       16,125       16,224       16,132  
Other    Dec-18     Sep-18     Dec-18     Dec-17  

Loan-to-deposit ratio

     113     111     113     109

Net loans and advances to customers

     882,921       866,226       882,921       848,914  

Customer deposits

     780,496       778,751       780,496       777,730  
      Q4’18     Q3’18     2018     2017  

PAT + After tax fees paid to SAN (in Wealth Management) (Constant EUR million)

     253       255       1,015       902  

Profit after taxes

     143       142       563       476  

Net fee income net of tax

     111       113       452       426  

Notes:

(1)

Averages included in the RoE, RoTE, RoA and RoRWA denominators are calculated using 4 months’ worth of data in the case of quarterly figures (from September to December in Q4 and June to September in Q3) and 13 months in the case of annual figures (December to December).

 

(2)

For periods less than one year, and if there are results in the net capital gains and provisions line, the profit used to calculate RoE and RoTE is the annualised underlying attributable profit to which said results are added without annualising.

 

(3)

For periods less than one year, and if there are results in the net capital gains and provisions line, the profit used to calculate RoA and RoRWA is the annualised underlying consolidated profit, to which said results are added without annualising.

 

(4)

The risk weighted assets included in the denominator of the RoRWA metric are calculated in line with the criteria laid out in the CRR (Capital Requirements Regulation).

 

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JANUARY - DECEMBER

Condensed consolidated financial statements

 

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET

CONSOLIDATED INCOME STATEMENT

 

NOTE:

The financial information for 2018 and 2017 (attached herewith) corresponds to that included in the consolidated summarised financial statements at these dates, drawn up in accordance with the International Accounting Standards (IAS) 34, Interim Financial Information. The accounting policies and methods used are those established by the International Financial Reporting Standards adopted by the European Union (IFRS-EU), Circular 4/2017 of the Bank of Spain, which replaces Circular 4/2004 for those years starting as of 1 January 2018, and the International Financial Reporting Standards issued by the International Accounting Standards Board (IFRS-IASB).

 

CONDENSED CONSOLIDATED BALANCE SHEET (EUR million)

                 
Assets    Dec-18      Dec-17  

Cash, cash balances at central banks and other deposits on demand

     113,663        110,995  

Financial assets held for trading

     92,879        125,458  

Memorandum items:lent or delivered as guarantee with disposal or pledge rights

     23,495        50,891  

Non-trading financial assets mandatorily at fair value through profit or loss

     10,730     

Memorandum items:lent or delivered as guarantee with disposal or pledge rights

         

Financial assets designated at fair value through profit or loss

     57,460        34,782  

Memorandum items:lent or delivered as guarantee with disposal or pledge rights

     6,477        5,766  

Financial assets at fair value through other comprehensive income

     121,091     

Memorandum items:lent or delivered as guarantee with disposal or pledge rights

     35,558     

Financial assets available-for-sale

        133,271  

Memorandum items:lent or delivered as guarantee with disposal or pledge rights

        43,079  

Financial assets at amortised cost

     946,099     

Memorandum items:lent or delivered as guarantee with disposal or pledge rights

     18,271     

Loans and receivables

        903,013  

Memorandum items:lent or delivered as guarantee with disposal or pledge rights

        8,147  

Investments held-to-maturity

        13,491  

Memorandum items:lent or delivered as guarantee with disposal or pledge rights

        6,996  

Hedging derivatives

     8,607        8,537  

Changes in the fair value of hedged items in portfolio hedges of interest risk

     1,088        1,287  

Investments

     7,588        6,184  

Joint ventures companies

     979        1,987  

Associated entities

     6,609        4,197  

Assets under insurance or reinsurance contracts

     324        341  

Tangible assets

     26,157        22,974  

Property, plant and equipment

     24,594        20,650  

For own-use

     8,150        8,279  

Leased out under an operating lease

     16,444        12,371  

Investment property

     1,563        2,324  

Of which Leased out under an operating lease

     1,195        1,332  

Memorandum ítems:acquired in financial lease

     98        96  

Intangible assets

     28,560        28,683  

Goodwill

     25,466        25,769  

Other intangible assets

     3,094        2,914  

Tax assets

     30,251        30,243  

Current tax assets

     6,993        7,033  

Deferred tax assets

     23,258        23,210  

Other assets

     9,348        9,766  

Insurance contracts linked to pensions

     210        239  

Inventories

     147        1,964  

Other

     8,991        7,563  

Non-current assets held for sale

     5,426        15,280  

TOTAL ASSETS

     1,459,271        1,444,305  

 

64     LOGO     Financial Report 2018


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JANUARY - DECEMBER  

Condensed consolidated financial statements  

 

 

CONDENSED CONSOLIDATED BALANCE SHEET (EUR million)

     
Liabilities    Dec-18      Dec-17  

Financial liabilities held for trading

     70,343        107,624  

Financial liabilities designated at fair value through profit or loss

     68,058        59,616  

Memorandum ítems:subordinated liabilities

             

Financial liabilities at amortised cost

     1,171,630        1,126,069  

Memorandum ítems:subordinated liabilities

     23,820        21,510  

Hedging derivatives

     6,363        8,044  

Changes in the fair value of hedged items in portfolio hedges of interest rate risk

     303        330  

Liabilities under insurance or reinsurance contracts

     765        1,117  

Provisions

     13,225        14,489  

Pensions and other post-retirement obligations

     5,558        6,345  

Other long term employee benefits

     1,239        1,686  

Taxes and other legal contingencies

     3,174        3,181  

Contingent liabilities and commitments

     779        617  

Other provisions

     2,475        2,660  

Tax liabilities

     8,135        7,592  

Current tax liabilities

     2,567        2,755  

Deferred tax liabilities

     5,568        4,837  

Other liabilities

     13,088        12,591  

Liabilities associated with non-current assets held for sale

             

TOTAL LIABILITIES

     1,351,910        1,337,472  

Equity

             

Shareholders’ equity

     118,613        116,265  

Capital

     8,118        8,068  

Called up paid capital

     8,118        8,068  

Unpaid capital which has been called up

             

Share premium

     50,992        51,053  

Equity instruments issued other than capital

     565        525  

Equity component of the compound financial instrument

             

Other equity instruments issued

     565        525  

Other equity

     234        216  

Accumulated retained earnings

     56,756        53,437  

Revaluation reserves

             

Other reserves

     (3,566)        (1,602)  

(-) Own shares

     (59)        (22)  

Profit attributable to shareholders of the parent

     7,810        6,619  

(-) Interim dividends

     (2,237)        (2,029)  

Other comprehensive income

     (22,141)        (21,776)  

Items not reclassified to profit or loss

     (2,936)        (4,034)  

Items that may be reclassified to profit or loss

     (19,205)        (17,742)  

Non-controlling interest

     10,889        12,344  

Other comprehensive income

     (1,292)        (1,436)  

Other elements

     12,181        13,780  

TOTAL EQUITY

     107,361        106,833  

TOTAL LIABILITIES AND EQUITY

     1,459,271                1,444,305  

MEMORANDUM ITEMS

     

Loans commitment granted

     218,083        207,671  

Financial guarantees granted

     11,723        14,499  

Other commitments granted

     74,389        64,917  

 

Financial Report 2018     LOGO     65


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JANUARY - DECEMBER

Condensed consolidated financial statements

 

 

CONDENSED CONSOLIDATED INCOME STATEMENT (EUR million)

                 
      2018      2017  

Interest income

     54,325        56,041  

Financial assets at fair value through other comprehensive income

     4,481        4,384  

Financial assets at amortised cost

     47,560        49,096  

Other interest income

     2,284        2,561  

Interest expense

     (19,984)        (21,745)  

Net interest income

     34,341        34,296  

Dividend income

     370        384  

Share of results of entities accounted for using the equity method

     737        704  

Commission income

     14,664        14,579  

Commission expense

     (3,179)        (2,982)  

Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net

     604        404  

Financial assets at amortised cost

     39     

Other financial assets and liabilities

     565     

Gain or losses on financial assets and liabilities held for trading, net

     1,515        1,252  

Reclassification of financial assets at fair value through other comprehensive income

         

Reclassification of financial assets at amortised cost

         

Other gains (losses)

     1,515     

Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss

     331     

Reclassification of financial assets at fair value through other comprehensive income

         

Reclassification of financial assets at amortised cost

         

Other gains (losses)

     331     

Gain or losses on financial assets and liabilities measured at fair value through profit or loss, net

     (57)        (85)  

Gain or losses from hedge accounting, net

     83        (11)  

Exchange differences, net

     (679)        105  

Other operating income

     1,643        1,618  

Other operating expenses

     (2,000)        (1,966)  

Income from assets under insurance and reinsurance contracts

     3,175        2,546  

Expenses from liabilities under insurance and reinsurance contracts

     (3,124)        (2,489)  

Gross income

     48,424        48,355  

Administrative expenses

     (20,354)        (20,400)  

Staff costs

     (11,865)        (12,047)  

Other general administrative expenses

     (8,489)        (8,353)  

Depreciation and amortisation cost

     (2,425)        (2,593)  

Provisions or reversal of provisions, net

     (2,223)        (3,058)  

Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss, net

     (8,986)        (9,259)  

Financial assets at fair value with changes in other comprehensive income

     (1)     

Financial assets at amortized cost

     (8,985)     

Financial assets measured at cost

        (8)  

Financial assets available-for-sale

        (10)  

Loans and receivables

        (9,241)  

Held-to-maturity investments

         

Impairment of investments in subsidiaries, joint ventures and associates, net

     (17)        (13)  

Impairment on non-financial assets, net

     (190)        (1,260)  

Tangible assets

     (83)        (72)  

Intangible assets

     (117)        (1,073)  

Others

     10        (115)  

Gain or losses on non financial assets and investments, net

     28        522  

Negative goodwill recognised in results

     67         

Gains or losses on non-current assets held for sale not classified as discontinued operations

     (123)        (203)  

Profit or loss before tax from continuing operations

     14,201        12,091  

Tax expense or income from continuing operations

     (4,886)        (3,884)  

Profit for the period from continuing operations

     9,315        8,207  

Profit or loss after tax from discontinued operations

             

Profit for the period

     9,315        8,207  

Profit attributable to non-controlling interests

     1,505        1,588  

Profit attributable to the parent

     7,810        6,619  

Earnings per share

     

Basic

     0.449        0.404  

Diluted

     0.448        0.403  

 

66     LOGO     Financial Report 2018


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JANUARY - DECEMBER  

 

 

NOTE

i. Important information

In addition to the financial information prepared under International Financial Reporting Standards (“IFRS”), this report certain alternative performance measures (“APMs”) as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415en) as well as non-IFRS measures (“Non-IFRS Measures”). The APMs and Non-IFRS Measures are performance measures that have been calculated using the financial information from the Santander Group but that are not defined or detailed in the applicable financial information framework and therefore have neither been audited nor are capable of being completely audited. These APMs and Non-IFRS Measures are been used to allow for a better understanding of the financial performance of the Santander Group but should be considered only as additional information and in no case as a replacement of the financial information prepared under IFRS. Moreover, the way the Santander Group defines and calculates these APMs and Non-IFRS Measures may differ to the way these are calculated by other companies that use similar measures, and therefore they may not be comparable. For further details of the APMs and Non-IFRS Measures used, including its definition or a reconciliation between any applicable management indicators and the financial data presented in the consolidated financial statements prepared under IFRS, please also see Section 26 of the Documento de Registro de Acciones for Banco Santander, S.A. (“Santander”) filed with the Spanish Securities Exchange Commission (the “CNMV”) on 28 June 2018 (the “Share Registration Document”) and Item 3A of the Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission of the United States of America (the “SEC”) on 28 March 2018 (the “Form 20-F”). These documents are available on Santander’s website (www.santander.com).

The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicable accounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries.

Santander cautions that this financial report contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expect”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “RoRAC”, “RoRWA”, “TNAV”, “target”, “goal”, “objective”, “estimate”, “future” and similar expressions. These forward-looking statements are found in various places throughout this report and include, without limitation, statements concerning our future business development and economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, industry, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. Numerous factors, including those reflected in the Form

20-F– under “Key Information-Risk Factors”- and in the Share Registration Document–under “Risk Factors”- could affect the future results of Santander and could result in other results deviating materially from those anticipated in the forward-looking statements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.

Forward-looking statements speak only as of the date of this report and are based on the knowledge, information available and views taken on such date; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The information contained in this report is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person’s own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in this report. No investment activity should be undertaken on the basis of the information contained in this report. In making this report available Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever.

Neither this report nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this report is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000.

Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this report should be construed as a profit forecast.

 

Financial Report 2018     LOGO     67


Table of Contents
 

 

Investor Relations

 

Ciudad Grupo Santander

Edificio Pereda, 2nd floor

Avda de Cantabria s/n

28660 Boadilla del Monte

Madrid (Spain)

Tel: +34 (91) 259 65 14 / +34 (91) 259 65 20

Fax: +34 (91) 257 02 45

e-mail: [email protected]

 

Legal Head Office:

Paseo Pereda 9-12, Santander (Spain)

Tel: +34 (942) 20 61 00

 

Operational Head Office:

Ciudad Grupo Santander

Avda. de Cantabria s/n

28660 Boadilla del Monte, Madrid (Spain)

 

 
 

    

    

 

 

 

 

LOGO

 

www.santander.com


Table of Contents

Item 3

 

LOGO

30 January 2019 2018 Earnings Presentation Ana Botín Group Executive Chairman José Antonio Álvarez Group CEO


Table of Contents

LOGO

Information In addition to the financial information prepared under International Financial Reporting Standards (“IFRS”), this presentation certain alternative performance measures (“APMs”) as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415en) as well as non-IFRS measures (“Non-IFRS Measures”). The APMs and Non-IFRS Measures are performance measures that have been calculated using the financial information from the Santander Group but that are not defined or detailed in the applicable financial information framework and therefore have neither been audited nor are capable of being completely audited. These APMs and Non-IFRS Measures are been used to allow for a better understanding of the financial performance of the Santander Group but should be considered only as additional information and in no case as a replacement of the financial information prepared under IFRS. Moreover, the way the Santander Group defines and calculates these APMs and Non-IFRS Measures may differ to the way these are calculated by other companies that use similar measures, and therefore they may not be comparable. For further details of the APMs and Non-IFRS Measures used, including its definition or a reconciliation between any applicable management indicators and the financial data presented in the consolidated financial statements prepared under IFRS, please see Q4 2018 Financial Report, published as Relevant Fact on 30 January 2019, Section 26 of the Documento de Registro de Acciones for Banco Santander, S.A. (“Santander”) filed with the Spanish Securities Exchange Commission (the “CNMV”) on 28 June 2018 (the “Share Registration Document”) and Item 3A of the Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission of the United States of America (the “SEC”) on 28 March 2018 (the “Form 20-F”). These documents are available on Santander’s website (www.santander.com). The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicable accounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries. Santander cautions that this presentation contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expect”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “RoRAC”, “RoRWA”, “TNAV”, “target”, “goal”, “objective”, “estimate”, “future” and similar expressions. These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, industry, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. Numerous factors, including those reflected in the Form 20-F– under “Key Information-Risk Factors”- and in the Share Registration Document–under “Risk Factors”- could affect the future results of Santander and could result in other results deviating materially from those anticipated in the forward-looking statements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.


Table of Contents

LOGO

Important Information Forward-looking statements speak only as of the date of this presentation and are based on the knowledge, information available and views taken on such date; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person’s own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in this presentation. No investment activity should be undertaken on the basis of the information contained in this presentation. In making this presentation available Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever. Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000. Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this presentation should be construed as a profit forecast.


Table of Contents

LOGO

2018 performance ahead of plan as we continued to invest for our customers Accelerating the implementation of our commercial & digital transformation for our 144 Mn customers Group & Business areas review Key takeaways & mid-term targets


Table of Contents

LOGO

2018 was an excellent year… Change vs.2017 EUR mn 2018 % % constant € Net interest income 34,341 0 9 Fee income 11,485 -1 9 Customer revenues 45,826 0 9 ROF and other 2,598 4 14 Gross income 48,424 0 9 Operating expenses -22,779 -1 7 Net operating income 25,645 1 11 Net loan-loss provisions -8,873 -3 7 PBT 14,776 9 20 Underlying attributable profit 8,064 7 18 Attributable profit 7,810 18 32


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LOGO

…we delivered strong results in a sustainable way… 2018 (vs. 2017) Growth Profitability Strength Loyal customers Underlying RoTE FL CET1 19.9 Mn (+15%) 12.1 % (+26 bps) 11.30 % (+46 bps) Customer revenues Cost-to-income NPL ratio €45.8 Bn (+9%1) 47 % (-40 bps) 3.73 % (-35 bps)


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LOGO

and we have successfully completed our 3 year plan 2015 2018 Loyal customers (Mn) 13.8 19.9 Digital customers (Mn) 16.6 32.0 Fee income1 - ~10% Cost of credit 1.25% 1.12%2 Cost-to-income 48% 47% EPS growth - 11.2% DPS (€) 0.20 0.233 FL CET1 10.05% 11.30% RoTE4 10.0% 11.7% (1) % change (constant euros), 2018 figure relates to 2015-18 CAGR (2) 2018 figure relates to 2015-18 average (3) Total dividend charged to 2018 earnings is subject to the Board and 2019 AGM approval (4) Underlying RoTE 2015: 11.0%. Underlying RoTE 2018 12.1% Note: 2015 metrics have been re-stated to reflect the capital increase


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LOGO
3 year plan achievements Our loyalty strategy is built around a virtuous cycle in which a committed team generates customer loyalty leading to strong financial results Team engagement Loyal customers (Mn) Fee income RoTE1 (Constant €Bn) +7pp +44% +31% +171bps 82% 19.9 11.5 11.7% 8.7 13.8 75% 10.0% 2015 2018 2015 2018 2015 2018 2015 2018 Growth Profitability Strength (1) Underlying RoTE 2015: 11.0%. Underlying RoTE 2018 12.1%


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3 year plan achievements Growth Increasing loyal and digital customers… Loyal customers Higher returns x3.4 Revenue per customer 1 (€) Lower -churn 66% Attrition rate (%) Digital activity Digital customers x2 32.0Mn 16.6Mn 2015 2018 Digital sales over total sales x2 32% 15% 2015 2018 (1) Individuals and SMEs in retail franchises


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3 year plan achievements Growth …allows us to generate superior profitable growth Group customer revenues increased by 24% NII + Fees (Constant €Bn) +24% 45.8 37.0 2015 2018 In 2 countries representing 25% of Group’s TNAV, RoTE increased to 20% RoTE 20% 20% 14% 13% 2015 2018 2015 2018 Digital customers x2.6 x3.3 Loyal customers +65% +81%


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3 year plan achievements Profitability We have reached double digit EPS growth in 2018 as committed RoTE +171bps 11.7% 10.0% 2015 2018 RoRWA +35bps 1.55% 1.20% 2015 2018 Earnings per share Double digit growth 11.2% (2018 vs.2017) Cash dividend per share +31% Increase since 2015 Note: 2015 metrics have been re-stated to reflect the capital increase


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3 year plan achievements Profitability Improvement across most of our geographies with strong focus on capital allocation RoRWAs 2015 2018 0.93% 1.32% 2.01% 2.28% 2.40% 2.10% 1.79% 2.19% 1.88% 1.46% 1.94% 3.70% 2.94% 3.77% 2.17% 2.73% 1.99% 1.04% In 2015 In 2018 Only SBNA1 (c.10% c.60% of TNAV with of Group´s TNAV) RoTE < CoE with adjusted RoTE2 of 7.1% < CoE… …all other countries are above 20.6% adjusted RoTE2 SCUSA SBNA excluding US HoldCo. Adjusted RoTE for 11.30% CET1


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3 year plan achievements Strength We’ve become even more resilient, while growing our business and increasing dividends, generating €25.3Bn of capital organically Capital generation 2015-2018 (bps) +435 -35 -214 +118 +304 +186 Organic capital Organic capital generation Perimeter Dividends generation 2015 capital Total capital exc. Popular + AT1 after dividends increase accumulated +€25.3Bn -€2.3Bn -€12.8Bn +€10.2Bn +€7.5Bn +€17.7Bn


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Delivering our plan through our digital transformation while building a responsible bank Digital transformation Responsible bank


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The digital transformation of our core banks (Supertankers) is customer focused with two key priorities… Two key priorities for digital transformation of the core banks… …to continue to deliver the best customer service All our products & services through E2E digital channels More digital customers Increased customer engagement Stronger loyal relationships Deliver all products & services in a fast and efficient way Best-in-class in operational excellence C/I as of 9M´18 Top 3 bank 63% 47% in 7 core countries for customer Peer´s satisfaction1 average


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…hence we are re-engineering our core banks (Supertankers) leveraging Group scale and innovation… Transforming the FRONT All products and services to be available in digital channels (end-to-end) Transforming the BACK Re-engineering, digitizing and automatizing all our processes Evolving our IT architecture and systems Our Core banking system is a structural advantage Onboarding new technologies Rapid integration of new technologies in our day-to-day operations Becoming an agile and data-driven organisation 15% Cloud adoption 15-30% efficiencies over IT infrastructure cost Machine Learning -40% customer churn, +20% conversion rate improvement 1,200 robots allow c.10% cost reduction of processes Santander Agile Way 35% of projects in agile (450 teams)


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…and the positive evolution of our digital metrics proves that our transformation is paying off x2 digital more x2 transactions… …and x2 customers… engaged… increase sales 2015 vs. 2018 16.6Mn vs 14 vs 18 X2 15% 32% vs monthly more transactions in digital 32Mn digital sales over total accesses per customer channels since 2015 30% vs 48% 68% 38% 15% digital customers over accesses through of digital transactions digital sales through active mobile1 through mobile1 mobile1


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We have launched autonomous ventures (Speedboats) that serve our core banks with new solutions while competing in the open market Largest fully digital bank by balance sheet with full suite of products & services +370% Mortgages1 (front book) c.90% Asset growth1 +19% Deposit growth1 1st Blockchain-based retail payments solution Launched in 4 geographies simultaneously +55% YoY FX transactions growth since launched in Spain Financial solution for the unbanked c.70% active customer growth vs 2016 (c.400k) +130% revenue growth vs 2016 Breakeven with 1M€ EBITDA (1) YoY growth, digital mortgages were launched in 2017


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Our teams are proud to work for a responsible bank with a Simple, Personal and Fair culture… Embedding a common culture that is truly changing the way we do things Top 3 bank to work for in 7 of our 10 geographies Team engagement 82% >6pp than the avg. financial industry 75% 2015 2018 1 69% 63% 74% 63% 75% 79% 2015 2018 (1) Percentage of employees that consider that the Bank is Simple, Personal and Fair


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…while delivering profits in a responsible way, supporting inclusive and sustainable growth Supporting our communities… +12% ahead target 5.6Mn1 people supported vs.1.2Mn in 2015 +5% ahead target 136k1 scholarships granted vs.35k in 2015 Santander X 96 Universities from 8 different countries …promoting financial inclusion… 200Mn $620Bn Unbanked Credit gap in population in unbanked LatAm LatAm SMEs …and sustainable growth rd 3 in the world st 1 in Europe Leading Global Bank in the financing of renewable energy projects2 (1) It refers to 2016-18 cumulative activity (2) #1 position based on number of operations; #2 position based on volume; Source: Dealogic


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Growing TNAVPS + Cash DPS by 21% in plan period (€) 4.19 TNAVps +4.8% Reaching double 4.00 digit EPS growth 2015 2018 +31% 0.20 1 in 2018 (vs. 2017) 0.15 Cash DPS 2015 2018 Statutory 0.397 0.449 EPS (1) Total dividend charged to 2018 earnings is subject to the Board and 2019 AGM approval Note: 2015 metrics have been re-stated to reflect the capital increase


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2018 performance ahead of plan as we continued to invest for our customers Accelerating the implementation of our commercial & digital transformation for our 144 Mn customers Group & Business areas review Key takeaways & mid-term targets


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In 2018 a more committed team did better for our customers which in turn led to higher revenues and improved profitability Team engagement Loyal customers (Mn) Fee income RoTE1 (EUR Bn constant) 82% +15% 19.9 +9% 11.5 11.7% 10.6 +5 pp +129 bps 17.3 77% 10.4% 2017 2018 2017 2018 2017 2018 2017 2018 Growth Profitability Strength (1) Underlying RoTE 2017: 11.8%. Underlying RoTE 2018 12.1% 23


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Double digit profit growth with sustainable quarterly performance % vs. 2017 2018 Constant EUR mn Euros euros Net interest income 34,341 0 9 Fee income 11,485 -1 9 Customer revenues 45,826 0 9 ROF and other 2,598 4 14 Gross income 48,424 0 9 Operating expenses -22,779 -1 7 Net operating income 25,645 1 11 Net loan-loss provisions -8,873 -3 7 Other provisions -1,996 -29 -22 PBT 14,776 9 20 Underlying attrib. profit 8,064 7 18 Net capital gains and provisions1 -254 -72 -72 Attributable Profit 7,810 18 32 (1) Details on slide 55 Underlying attributable profit Constant EUR mn +12% Q4’18 vs Q4’17 2,084 2,016 1,986 1,978 1,844 1,803 1,618 1,541 Q1’17 Q2 Q3 Q4 Q1’18 Q2 Q3 Q4 Attributable profit 1,618 1,541 1,329 1,424 1,986 1,678 2,084 2,062 Note: Contribution to the SRF (net of tax) recorded in Q2’17 (EUR -146 mn) and Q2’18 (EUR -187 mn). Contribution to the DGF in Spain (net of tax) in Q4’17 (EUR -155 mn) and Q4’18 (EUR -158 mn)


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Revenues: for yet another year, growth driven by strong recurring customer revenues 8,969 Net interest 8,179 income 7,458 2,775 2,908 Fee 2,499 income Other 687 revenues1 483 512 Q1’17 Q2 Q3 Q4 Q1’18 Q2 Q3 Q4 YoY growth due to greater volumes and management of spreads, with improvement in 9 of our 10 core markets Sustained QoQ evolution Q4 favoured by TDR reclassification in the US (c. EUR 180mn) Higher fee income reflecting greater activity and customer loyalty QoQ improvement partially due to seasonality (Brazil) YoY increase in the majority of our main markets Low Q4’18 affected by DGF contribution in Spain and high inflation adjustment in Argentina Note: Constant euros (1) Other income includes gains/losses on financial transactions, income from the equity accounted method, dividends and other operating results. Contribution to the SRF recorded in Q2’17 and Q2’18. Contribution to the DGF in Spain recorded in Q4’17 and Q4’18. (2) TDR (Troubled Debt Restructuring)


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Costs: best-in-class cost-to-income ratio while enhancing customer experience Cost evolution 2018 vs. 2017, % Nominal1 In real terms2 5.4 1.2 10.9 -5.5 5.7 1.9 0.9 -0.9 12.8 7.0 5.4 2.0 -1.3 -3.9 4.5 -3.0 5.3 1.4 51.0 -1.0 3.9 2.3 Group costs in real terms -0.5% in 2018 +0.3% in 2017 Group cost-to-income 47.0% in 2018 47.4% in 2017 Top 3 in customer satisfaction3 in 7 core markets Note: Constant euros (1) Spain and Portugal include Popular (2) Excluding inflation and perimeter (3) Internal benchmark of active customers’ experience and satisfaction


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Continued credit quality enhancement: YoY improvement in all metrics % -7 bps 1.07 Cost of credit 1.00 -35 bps 4.08 NPL ratio 3.73 +2 pp 67 Coverage 65 ratio 2017 2018 Cost of credit ratio improved or maintained low levels in 2018 Lower NPL ratio in most units


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Capital: we surpassed our goal of 11% in 2018 Fully loaded CET1 % +0.11 +0.10 -0.02 11.30 11.11 10.84 Dec-17 Sep-181 Organic Perimeter2 Other Dec-181 generation High organic capital generation in 2018 +64 bps FL Total Capital ratio Dec-18 14.78% Leverage ratio Dec-18 5.1% Our positive results over the 7 stress tests since 2008 demonstrate the strength and diversification of our model (1) Data calculated using the IFRS 9 transitional arrangements, otherwise the total impact would have been -27 bps (2) WiZink: +8 bps


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Banco Santander S.A. funding plan 2017 2018 2019 EUR bn issued issued issuance plan2 Covered bonds 0.4 1.0 3—5 Senior preferred 0.7 0.2 3—5 Senior non-preferred 9.9 6.3 — Hybrids 2.9 2.8 1.5 TOTAL 13.9 10.3 7.5—11.5 o/w Subordinated 12.8 9.1 1.5 Santander S.A. meets current MREL requirement1 and Group capital buffers (AT1: 1.5%; T2: 2%) During the last 2 years Santander S.A.’s Funding Plan has been focused on TLAC-eligible instruments… … and in 2019 the Funding Plan is expected to cover debt maturities, and manage our funding structure (1) Santander’s understanding of current policy under the existing recovery and resolution rules (2) Issuance plan subject to, amongst other considerations, market conditions and regulatory requirements


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Breakdown by geographies


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Group profit growth driven by most markets 2018 Underlying attributable profit1 Americas Europe 48% 52% Other Latam; Other 2% Europe; Argentina; 1% 1% Chile; 6% UK; 13% Spain; Brazil; 17% 26% SCF; 13% Mexico; 8% Portugal; 5% USA; 5% Poland; 3% 2018 Underlying attributable profit in core markets EUR mn and % change vs. 2017 in constant euros 2,605 +22% 1,738 +21% 1,362 -8% 1,296 +4% 760 +14% 614 +8% 552 +42% 480 +10% 298 -1% 84 -54% (1) Excluding Corporate Centre and Spain Real Estate Activity


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Brazil: transformation focused on customers and sustainable profitable growth. YoY double-digit profit growth, higher RoTE and improvement in customer service and satisfaction P&L* Q4’18 % Q3’18 2018 % 2017 NII 2,475 -1.2 9,758 15.7 Fee income 929 12.7 3,497 14.8 Gross income 3,396 1.2 13,345 11.7 Operating expenses -1,191 9.1 -4,482 5.4 LLPs -726 2.8 -2,963 4.2 PBT 1,281 -7.0 5,203 34.8 Attributable profit 663 1.4 2,605 22.3 (*) EUR mn and % change in constant euros ACTIVITY Volumes in EUR bn and % change in constant euros 110 Yield on loans 15.41% 15.64% 16.08% 15.62% 15.73% 75 -1% +4% QoQ QoQ Cost of deposits +15% +13% YoY 5.59% 5.02% 4.66% 4.57% 4.44% YoY Loa Funds Q4’17 Q1’18 Q2 Q3 Q4 +25% +33% Loyal Digital customers customers 4.06% 5.25% (-30 bps) (-4 bps) Cost of NPL ratio credit 33.6% 20% Efficiency RoTE ratio Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds Customers and credit quality ratios YoY change


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Spain: commercial dynamism achieved. Double-digit profit growth YoY boosted by NII and cost synergies. Q4’18 profit affected by DGF contribution P&L* Q4’18 % Q3’18 2018 % 2017 NII 1,150 3.0 4,360 15.2 Fee income 634 -3.0 2,631 12.8 Gross income¹ 1,880 -11.1 7,894 15.1 Operating expenses -1,110 0.7 -4,480 10.9 LLPs -129 -34.7 -728 20.7 PBT 571 -19.9 2,325 16.1 Underlying att. profit 432 -18.0 1,738 20.8 Net capital gains and provisions² 0 — -280 -6.8 Attributable profit 432 -18.0 1,458 28.1 (*) EUR mn (1) Q4’18 DGF contribution of EUR 226 mn; (2) Restructuring costs after tax ACTIVITY Volumes in EUR bn 315 Yield on loans 210 -1% 2.03% 1.96% 1.96% 1.97% 2.02% -2% QoQ QoQ Cost of deposits -4% 0% YoY YoY 0.41% 0.35% 0.27% 0.21% 0.20% Loans Funds Q4’17 Q1’18 Q2 Q3 Q4 +40% +51% Loyal Digital customers customers 0.33% 6.19% (+3 bps) (-13 bps) Cost of NPL ratio credit 56.8% 11% Efficiency RoTE ratio Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds. Underlying RoTE Customers and credit quality ratios YoY change


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UK: our results reflect competitive revenue pressures and higher regulatory and strategic project costs in the current uncertain environment. Q4’18 impacted by other provisions1 P&L* Q4’18 % Q3’18 2018 % 2017 NII 1,033 -0.6 4,136 -4.3 Fee income 257 -0.9 1,023 2.9 Gross income 1,332 -3.2 5,420 -4.3 Operating expenses -738 0.5 -2,995 5.7 LLPs -44 70.4 -173 -14.5 PBT 394 -28.6 1,926 -11.0 Attributable profit 286 -26.1 1,362 -8.2 (*) EUR mn and % change in constant euros ACTIVITY Volumes in EUR bn and % change in constant euros Yield on loans 236 207 2.78% 2.81% 2.75% 2.76% 2.77% 0% +2% QoQ QoQ Cost of deposits +1% -1% YoY YoY 0.63% 0.64% 0.64% 0.64% 0.67% Loan unds Q4’17 Q1’18 Q2 Q3 Q4 +4% +9% Loyal Digital customers customers 0.07% 1.05% (-1 bp) (-28 bps) Cost of NPL ratio credit 55.2% 9% Efficiency RoTE ratio Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds Customers and credit quality ratios YoY change (1) Relating to historical probate and bereavement processes and consumer credit business operations


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SCF: Leadership in Europe with best-in-class profitability (RoRWA: 2.3%) and efficiency. Historically low NPL ratio and cost of credit. Q4’18 profit impacted by non-recurring items1 P&L* Q4’18 % Q3’18 2018 % 2017 NII 943 0.7 3,723 4.9 Fee income 189 -8.5 798 -9.0 Gross income 1,187 2.7 4,610 3.3 Operating expenses -494 4.1 -1,985 0.9 LLPs -47 -62.4 -360 36.1 PBT 480 -14.5 2,140 3.3 Underlying att. profit 296 -10.7 1,296 4.1 Net capital gains and provisions 0 — 0 -100.0 Attributable profit 296 -10.7 1,296 11.7 (*) EUR mn and % change in constant euros ACTIVITY Volumes in EUR bn and % change in constant euros 98 42 Yield on loans +4% 0% QoQ QoQ 4.61% 4.60% 4.55% 4.51% 4.45% +6% +7% YoY YoY Loa N lending Q4’17 Q1’18 Q2 Q3 Q4 19.4 mn 43.1% Active Efficiency customers ratio 0.38% 2.29% (+8 bps) (-21 bps) Cost of NPL ratio credit 2.3% 16% RoRWA RoTE Note: Loans excluding reverse repos. Underlying RoTE (1) Impairment of intangible assets, restructuring costs and written-off portfolio sales. Excluding Santander Consumer UK profit, which is recorded in Santander UK results. Including it, 2018 underlying attributable profit: EUR 1,421 mn (+4% vs. 2017) and Q4’18 underlying attributable profit: EUR 331 mn (-9% vs. Q3’18)


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Units’ performance: larger customer base, higher profits and better credit quality Attributable profit Continued to strengthen our distribution model, reflected in an increase in customer base, volumes and profitability EUR 760 mn 20% +14% Double-digit profit growth due to improving customer revenue and cost of credit Business volumes grew at a faster pace in core segments EUR 614 mn 18% Higher profitability, lower NPL ratio and stable cost of credit. Profit up driven by +8% customer revenue Positive year for Santander US: achieved significant regulatory milestones, strengthened business performance and turned around profits 1 SBNA increased volumes with higher NIM. SC USA maintained high RoTE (20.6%2) EUR 552 mn 7.6%2 +42% In the quarter, reclassification of TDRs and LLPs up due seasonality and strong originations Note: % change vs. 2017 in constant euros (1) Underlying attributable profit (2) Adjusted RoTE for 11.30% CET1, otherwise Santander US 4% and SC USA 13.3%


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Units’ performance: larger customer base and integration processes Attributable profit RoTE Integration of Banco Popular completed in Q4’18 EUR 480 mn1 12% Strong profit growth thanks to better efficiency and a very low cost of credit +10% (significant improvement in credit quality). Gaining market share YoY volume growth across all key products, increase in customer revenue, rebranding costs and lower NPL ratio EUR 298 mn1 10% In Nov-18, integration of DB Polska. Including badwill generated in the -1% transaction, attributable profit increased 14% After the agreement with the IMF, the economic programme was revamped. Nevertheless, the country is still affected for this situation EUR 84 mn 12% Good evolution of revenues not reflected in profit as it was hit by high inflation -54% adjustments2 (Q4 and Q3) Note: Attributable profit. % change vs. 2017 in constant euros. Underlying RoTE 37 (1) Underlying attributable profit (2) Total impact EUR -239 mn (monetary adjustment EUR -193 mn; use of fixing exchange rates instead of average rates EUR -46 mn)


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Corporate Centre P&L* 2018 2017 NII -947 -851 Gains/Losses on FT 11 -227 Operating expenses -495 -476 Provisions and other income -216 -227 Tax and minority interests 18 33 Underlying att. profit -1,721 -1,889 Net capital gains and provisions -40 -436 Attributable profit -1,761 -2,326 (*) EUR mn Higher loss in NII due to increased volume of issuances (TLAC) Better FX hedging results reflected in gains on financial transactions Operating expenses remained virtually unchanged as a result of streamlining and simplification measures Restructuring costs in 2018 and charges for equity stakes and intangible assets in 2017


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2018 performance ahead of plan as we continued to invest for our customers Accelerating the implementation of our commercial & digital transformation for our 144 Mn customers Group & Business areas review Key takeaways & mid-term targets


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Our purpose To help people and businesses prosper Our aim as a bank To be the best open financial services platform, by acting responsibly and earning the lasting loyalty of our people, customers, shareholders and communities Our how Everything we do should be Simple, Personal and Fair


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Our vision, strategy and progress since 2015 plus our core strengths will allow us to accelerate execution Predictable Scale Business Diversification & profitable model growth Accelerate Execution


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Scale Our scale benefits our leading local banks Leadership position by market share1 in our local markets… Top bank2in 6 out of our 10 Markets Top #3 3 Top #5 4 144Mn customers in markets with a total population of >1Bn people …while accelerating collaboration across the Group • €200Mn savings by centralising the global negotiations with T&O providers • 25-35% mid-term potential savings in 3 Group transversal processes by building them globally • €1.4Bn revenue synergies from leveraging CIB value proposition to Corporates & SMEs (~8% CAGR since 2015) (1) Market share by lending (2) Only private sector banks in the case of Poland, Argentina and Portugal. 42 (3) Only private sector banks in the case of Brazil. UK mortgages (excluding Social Housing), Consumer credit and commercial loans (excluding Financial Institutions) (4) Non-prime auto lending


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Business model Unique personal relationships strengthens customer loyalty 100,000 People talking to our customers everyday 13,000 #1 Branch Branches across all network 1 our geographies (1) Excluding Chinese banks and Sberbank 43


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Diversification Our business model & geographical diversification make us more resilient than our peers… Balanced diversification1 Underlying attributable profit 2018 48% 52% Americas Europe ~97% of our profits from our 10 core markets Best performer under stress test Capital depletion EBA adverse scenario Santander -1.4% vs. -1.99% in 2016 BBVA -1.9% Intesa SP. -2.2% Nordea -2.7% BNP -2.9% Unicredit -3.3% Commerzbank -3.4% S. Generale -3.6% ING -3.8% Average -4.0% vs. -3.35% in 2016 C. Agricole -4.4% HSBC -5.3% Deutsche -5.8% RBS -6.2% Barclays -6.6% (1) Excluding Corporate Centre and Spain Real Estate Activity Source: EBA stress test 2018 44


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Predictability …resulting in higher earnings predictability Quarterly reported EPS volatility1, 1999-Q3’18 703% 348% 125% 110% 89% 77% 57% 45% 43% 33% 9% -2x 3x -1x -1x 6x 3x 4x 3x 1x 10x 4x Net income increase 1999-2017 (1) Source: Bloomberg, with GAAP Criteria. Note: Standard deviation of the quarterly EPS starting from the first available data since Jan-99 45


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Accelerate execution Accelerate the digital transformation through increased collaboration across the Group—creating a model with improved profitability Digital Capital light transformation model Delivering excellent products and services to our customers, leveraging and accelerating collaboration across the Group Enhanced profitability


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Digitalising our core banks (Supertankers) at a faster pace and building global processes… Complete digitalisation of the core… 100% …products and services available through digital channels …processes E2E digitalised/ automatised …data sources accessible for ML/AI algorithms …leveraging Group capabilities Common… For example …Reference architecture, leveraging cloud, Contact Centre infrastructure and tools digitalisation €200Mn cost …set of components and synergies, and services €100Mn sales uplift mid-term opportunity …data models


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…while launching new initiatives to build loyalty and attract new customers Operating at full speed Expansion of a single platform, cloud-based model to new markets in Europe and LatAm ~20Mn€ set up cost in new countries and mid-term RoE target c.20% All Santander countries connected #1 NPS vs alternative Millions of transactions processed More new ventures to come…


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Accelerating the execution to continue delivering growth, profitability and strength Mid-term targets RoTE CET1 FL 13-15% 11-12%


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3 april 2019 london 50


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2018 performance ahead of plan as we continued to invest for our customers Accelerating the implementation of our commercial & digital transformation for our 144 Mn customers Group & Business areas review Key takeaways & mid-term targets


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2015-18 plan completed: exceeding our targets while building the foundations for continued success Continue building on our strengths with a clear strategy to fulfil our aim and purpose Focus on customer loyalty and digital excellence to continue delivering profitable growth Accelerating in building a smartly connected Group to the benefit of all our stakeholders Mid-term RoTE CET1 FL targets 13-15% 11%-12%


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Appendix


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Appendix Net capital gains and provisions Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements


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Net capital gains and provisions detail 2017 EUR million net of tax -897 -1,267 Equity stakes and -130 intangible assets -85 Germany integration costs -300 Popular integration costs -149 USA (hurricanes and other) 370 USA tax 73 reform -603 Goodwill (SC USA and other) Allfunds 297 capital gains Positive net capital Negative net capital gains and provisions gains and provisions 2018 EUR million net of tax -254 -320 Corporate Centre -40 integration costs 66 -280 Spain integration Portugal Integration 20 costs Badwill Poland 45 Positive net capital Negative net capital gains and provisions gains and provisions Net capital gains and provisions detail 2017 EUR million net of tax -897 -1,267 Equity stakes and -130 intangible assets -85 Germany integration costs -300 Popular integration costs -149 USA (hurricanes and other) 370 USA tax 73 reform -603 Goodwill (SC USA and other) Allfunds 297 capital gains Positive net capital Negative net capital gains and provisions gains and provisions 2018 EUR million net of tax -254 -320 Corporate Centre -40 integration costs 66 -280 Spain integration Portugal Integration 20 costs Badwill Poland 45 Positive net capital Negative net capital gains and provisions gains and provisions


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Appendix Net capital gains and provisions Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements


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Overall increase in loans and customer funds, boosted by developing markets Loan portfolio MATURE MARKETS DEVELOPING MARKETS Dec-18 EUR bn YoY Chg. Dec-18 EUR bn YoY Chg. Spain 210 -4% Poland 29 30% UK 236 1% Brazil 75 13% USA 84 6% Mexico 31 10% SCF 98 6% Chile 39 10% Portugal 37 -2% Argentina 6 40% Other individuals, 9% Home mortgages, 36% CIB, 11% EUR Corporates, 16% 874 bn. SMEs, 11% Consumer, 17% Customer funds MATURE MARKETS DEVELOPING MARKETS Dec-18 EUR bn YoY Chg. Dec-18 EUR bn YoY Chg. Spain 315 0% Poland 36 32% UK 207 -1% Brazil 110 15% USA 64 3% Mexico 39 3% SCF 37 4% Chile 33 8% Portugal 39 8% Argentina 10 51% Individuals demand deposits, 36% CIB, 10% Corporates, 12% EUR 906 bn. SMEs, 10% Individuals time deposits, 14% Consumer, 4% Individuals mutual funds, 14% Note: Loans excluding reverse repos. Customer funds: deposits excluding repos + marketed mutual funds. % change in constant euros.


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Appendix Net capital gains and provisions Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements


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Mexico:continued to strengthen our distribution model, reflected in the increase of customer base, volumes and profitability. Double-digit profit growth due to customer revenues and cost of credit P&L* Q4’18 % Q3’18 2018 % 2017 NII 733 3.0 2,763 13.2 Fee income 181 -6.6 756 7.5 Gross income 897 -1.4 3,527 8.6 Operating expenses -376 0.3 -1,462 12.8 LLPs -215 -3.3 -830 -2.2 PBT 323 5.1 1,230 15.6 Attributable profit 206 8.0 760 14.0 (*) EUR mn and % change in constant euros ACTIVITY Volumes in EUR bn and % change in constant euros Yield on loans 39 31 12.02% 12.09% 12.35% 12.49% 12.66% -1% +1% QoQ Cost of deposits QoQ +10% +3% 3.39% 3.48% 3.57% 3.64% 3.66% YoY YoY Loans Funds Q4’17 Q1’18 Q2 Q3 Q4 +26% +48% Loyal Digital customers customers 2.75% 2.43% (-33 bps) (-26 bps) Cost of NPL ratio credit 41.5% 20% Efficiency RoTE ratio Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds Customers and credit quality ratios YoY change


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Chile: business volumes grew at a faster pace in core segments. Higher profitability, lower NPL ratio and stable cost of credit. Profit up driven by customer revenues P&L* Q4’18 % Q3’18 2018 % 2017 NII 477 -0.1 1,944 5.4 Fee income 95 -5.6 424 12.0 Gross income 622 -0.9 2,535 3.9 Operating expenses -258 1.0 -1,045 5.4 LLPs -120 3.1 -473 6.0 PBT 275 0.0 1,121 9.5 Attributable profit 153 1.2 614 8.5 (*) EUR mn and % change in constant euros ACTIVITY Volumes in EUR bn and % change in constant euros 39 Yield on loans 33 +1% 7.33% 7.52% 7.53% 7.35% 7.43% QoQ +6% QoQ Cost of deposits +10% +8% YoY YoY 1.87% 1.78% 1.73% 1.75% 1.84% Loa ds Q4’17 Q1’18 Q2 Q3 Q4 +7% +7% Loyal Digital customers customers 1.19% 4.66% (-2 bps) (-30 bps) Cost of NPL ratio credit 41.2% 18% Efficiency RoTE ratio Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds Customers and credit quality ratios YoY change


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USA: very positive year for Santander US (achieved significant regulatory milestones, strengthened business performance and turned around profits). In Q4, reclassification of TDRs3 and LLPs up due to seasonality and strong originations P&L* Q4’18 % Q3’18 2018 % 2017 NII 1,553 14.5 5,391 1.3 Fee income 217 2.9 859 -7.4 Gross income 1,967 11.6 6,949 4.5 Operating expenses -795 4.5 -3,015 -1.3 LLPs -945 44.0 -2,618 -1.4 PBT 170 -39.2 1,117 31.0 Underlying att. profit 92 -28.9 552 41.7 Net capital gains and provisions 0 — 0 -100.0 Attributable profit 92 -28.9 552 74.0 (*) EUR mn and % change in constant euros ACTIVITY Volumes in EUR bn and % change in constant euros Santander Bank Santander Consumer USA 47 49 46 40 +5% +1% +3% +2% QoQ QoQ QoQ QoQ +9% +2% +14% +12% YoY YoY YoY YoY Loans Funds Loans¹ Managed assets +12% +10% Loyal Digital customers customers 3.27% 2.92% (-15 bps) (+13 bps) Cost of NPL ratio credit 43.4% 7.6% Efficiency 2 RoTE ratio Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds Customers and credit quality ratios YoY change Santander Bank’s customers (1) Include leasing (2) Adjusted RoTE for 11.30% CET1, otherwise Santander US 4% and SC USA 13.3% (3) Impact on NII and LLPs


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Portugal: integration of Popular completed. Strong profit growth thanks to better efficiency and a very low cost of credit (significant improvement in credit quality). Market share gains P&L* Q4’18 % Q3’18 2018 % 2017 NII 211 0.1 858 8.9 Fee income 96 4.5 377 4.7 Gross income 334 3.5 1,344 8.0 Operating expenses -162 3.0 -642 4.5 LLPs -12 7.9 -32 160.6 PBT 196 17.3 688 19.8 Underlying att. profit 136 18.9 480 10.3 Net capital gains and provisions¹ 0 -- 20 -- Attributable profit 136 18.9 500 14.9 (*) EUR mn (1) Provisions and restructuring costs associated with inorganic operations, net of tax impacts ACTIVITY Volumes in EUR bn 37 39 Yield on loans -1% 0% 1.84% 1.86% 1.81% 1.74% 1.83% QoQ QoQ Cost of deposits -2% +8% YoY YoY 0.19% 0.18% 0.18% 0.15% 0.18% Loans Funds Q4’17 Q1’18 Q2 Q3 Q4 +9% +32% Loyal Digital customers customers 0.09% 5.94% (+5 bps) (-157 bps) Cost of NPL ratio credit 47.8% 12% Efficiency RoTE ratio Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds. Underlying RoTE Customers and credit quality ratios YoY change


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Poland: volume growth across all key products, increase in customer revenues, rebranding costs and lower NPL ratio. In Q4 DBP1 integration P&L* Q4’18 % Q3’18 2018 % 2017 NII 265 8.8 996 7.4 Fee income 115 3.2 453 2.3 Gross income 390 6.0 1,488 4.9 Operating expenses -165 5.1 -636 5.3 LLPs -41 23.8 -161 17.4 PBT 123 -18.8 555 -4.3 Underlying att. profit 62 -23.2 298 -0.6 Net capital gains and provisions² 45 — 45 — Attributable profit 107 32.4 343 14.5 (*) EUR mn and % change in constant euros (2) DBP badwill ACTIVITY Volumes in EUR bn and % change in constant euros Yield on loans 36 4.15% 4.18% 4.13% 4.10% 4.07% 29 +19% +20% QoQ oQ Cost of deposits +30% +32% YoY YoY 0.72% 0.68% 0.78% 0.83% 0.89% Loans ds Q4’17 Q1’18 Q2 Q3 Q4 +30% +5% Loyal Digital customers customers 0.65% 4.28% (+3 bps) (-29 bps) Cost of NPL ratio credit 42.8% 10% Efficiency RoTE ratio Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds. Underlying RoTE (1) DBP: Deutsche Bank Polska, integrated in Nov-2018. Impact in volumes, integration costs and badwill Customers and credit quality ratios YoY change


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Argentina: good evolution of revenues not reflected in profit as it was hit by high inflation adjustments in Q4 and Q3 and regulatory changes P&L* Q4’18 % Q3’18 2018 % 2017 NII 327 8.8 768 52.5 Fee income 192 12.3 448 47.0 Gross income 472 0.6 1,209 35.4 Operating expenses -323 10.7 -749 51.0 LLPs -99 2.7 -231 184.4 PBT 58 — 185 -31.4 Attributable profit 17 — 84 -54.5 (*) EUR mn and % change in constant euros ACTIVITY Volumes in EUR bn and % change in constant euros 24.54% 10 18.65% 19.03% 20.57% 17.76% Yield on loans 6 -0% -13% QoQ 11.25% QoQ 7.79% +40% +51% 4.64% 5.25% 6.32% YoY YoY Cost of deposits Loans Funds Q4’17 Q1’18 Q2 Q3 Q4 +6% +7% Loyal Digital customers customers 3.45% 3.17% (+160 bps) (+67 bps) Cost of NPL ratio credit 61.9% 12% Efficiency RoTE ratio Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds Customers and credit quality ratios YoY change. Efficiency ratio and RoTE impacted by high inflation adjustments account


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Other Latin American countries URUGUAY Constant EUR mn +43% 132 92 27% RoTE 2017 2018 PERU Constant EUR mn +8% 41 38 22% RoTE 2017 2018 Focusing on loyalty, transactions and target segments Uruguay’s profit driven by higher NII and fee income, with improved C/I Peru’s higher revenue more than offset the cost increase


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Appendix Net capital gains and provisions Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements


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Appendix Retail Banking: continued to focus on customer loyalty and digital transformation with new products and services that cover the current need of our customers. Strong growth in loyal and digital customers P&L* Q4’18 % Q3’18 2018 % 2017 NII 8,500 2.4 32,522 8.8 Fee income 2,334 3.1 8,946 6.0 Gross income 11,106 1.2 42,832 8.3 Operating expenses -5,025 4.4 -19,255 5.8 LLPs -2,354 8.6 -8,461 13.0 PBT 3,119 -12.4 13,408 14.6 Underlying att. profit 1,863 -7.5 7,793 11.7 Net capital gains and provisions¹ 46 — -214 -51.3 Attributable profit 1,909 -5.3 7,579 16.0 (*) EUR mn and % change in constant euros ACTIVITY EUR bn and % change in constant euros 755 714 +2% QoQ 0% QoQ +3% YoY +2% YoY Loans Funds +15% +26% Loyal Digital customers customers YoY YoY Commercial transformation with two priorities to continue to deliver the best customer service: to make all our products and services digital for our customers and do it in the fastest and most efficient way. Profit boosted by the strong performance in customer revenue (1) Charges related to integrations in Spain and Portugal (mainly restructuring costs), net of tax impacts, and badwill in Poland.


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Appendix Corporate & Investment Banking: Profit growth underpinned by higher revenues and significantly lower provisions in Spain, the UK, Brazil and the US P&L* Q4’18 % Q3’18 2018 % 2017 NII 713 12.2 2,378 7.6 Fee income 379 7.1 1,512 0.3 Gross income 1,343 0.3 5,087 1.7 Operating expenses -551 -1.3 -2,105 10.7 LLPs -56 21.0 -217 -66.1 PBT 693 -2.6 2,657 11.1 Attributable profit 447 -2.0 1,705 8.2 (*) EUR mn and % change in constant euros REVENUE Constant EUR mn TOTAL 5,000 +2% 5,087 Capital & Other 501 +8% 539 Global Markets 1,561 -1% 1,544 Global Debt Financing 1,315 1,333 +1% Global Transaction 1,622 1,671 Banking +3% 2017 2018 +21% 1.85% Collaboration RoRWA revenues (constant euros) Leading positions in Latam and Europe, particularly in export & agency finance, debt capital markets and structured financing Continued support to global customers in their capital issuances, with financing solutions and transactional services


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Appendix Wealth Management: In our first year we launched the following strategic initiatives: development of Private Wealth (UHNW) proposition, Private Banking digital platform, strengthening of SAM value proposition P&L* Q4’18 % Q3’18 2018 % 2017 NII 109 -1.6 420 11.9 Fee income 271 -1.8 1,097 62.7 Gross income 393 0.5 1,543 34.1 Operating expenses -181 -1.9 -730 45.6 LLPs -5 — -9 -1.6 PBT 209 3.5 797 26.0 Underlying att. profit 136 0.0 528 16.5 Net capital gains and provisions 0 — 0 -100.0 Attributable profit 136 0.0 528 21.3 (*) EUR mn and % change in constant euros Total contribution to Cross-border Group’s profit1 collaboration volumes EUR 1,015 mn EUR 3,727 mn +13% +19% ACTIVITY Constant EUR bn and % change vs 2017 Management Total Assets Under 329 -2% Funds and 203 -2% investments* - SAM 172 -1% - Private Banking 55 -2% Custody of customer funds 81 -6% Customer deposits 45 +6% Customer loans 14 +12% (*) Total adjusted for funds from private banking customers managed by SAM Note: Total assets marketed and/or managed in 2018 and 2017 Profit growth driven by volumes of higher added value Loans increased 12% driven by the development of the Private Wealth segment, which offers a differential service to the Group’s largest clients 69 (1) Profit after tax + total fee income generated by this business


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Appendix Spain Real Estate activity: Management continued to be aimed at reducing these assets, particularly loans and foreclosed assets Real estate exposure1 EUR bn 9.3 4.6 4.7 Gross value Provisions Net value Dec-18 Dec-18 Net value EUR bn Dec-18 Real estate assets 3.8 Foreclosed assets 2.6 Rental assets 1.2 RE non-performing loans (NPLs) 0.9 RE assets + RE non-performing loans 4.7 The agreement with a subsidiary of Cerberus Capital Management to sell properties for approximately EUR 1,535 million is expected to be closed in the first quarter of 2019 Loss of EUR 242 million in 2018 vs loss of EUR 308 million in 2017, due to the reduced need for provisions (1) Spain Real Estate activity 70


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Appendix Net capital gains and provisions Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements


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Appendix In 2018 we made good headway in our funding plan to enhance the Group’s TLAC position Key liquidity ratios Dec-18 Net loan-to-deposit ratio (LTD): 113% Deposits + M/LT funding / net loans: 114% Liquidity Coverage Ratio (LCR)1: 160% Comfortable liquidity position (Group and subsidiaries) Funding plan—issuances Jan-Dec 18 Group issuances2 EUR 24bn (~EUR 13bn TLAC-eligible) Main issuers Parent bank, SCF and UK Main issuance currencies EUR, USD, GBP Focus on TLAC-eligible instruments, following our decentralised liquidity and funding model (1) Provisional data (2) Parent Bank, UK, SCF and USA. Excluding covered bonds and securitisations


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Appendix Net capital gains and provisions Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements


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Appendix Coverage ratio by stage Exposure1 Coverage EUR bn Dec-18 Dec-18 Jan-18 Stage 1 845 0.5% 0.6% Stage 2 53 9.2% 8.6% Stage 3 36 42.4% 44.2% (1) Exposure subject to impairment. Additionally, there are EUR 24 bn in customer loans not subject to impairment recorded at mark to market with changes through P&L


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Appendix NPL ratio % Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Continental Europe 5.62 8.70 6.30 5.82 5.81 5.68 5.57 5.25 Spain 5.22 10.52 6.82 6.32 6.27 6.24 6.23 6.19 Santander Consumer Finance 2.62 2.61 2.60 2.50 2.48 2.44 2.45 2.29 Poland 5.20 4.66 4.70 4.57 4.77 4.58 4.23 4.28 Portugal 8.47 9.10 8.39 7.51 8.29 7.55 7.43 5.94 United Kingdom 1.31 1.23 1.32 1.33 1.17 1.12 1.10 1.05 Latin America 4.50 4.40 4.41 4.46 4.43 4.40 4.33 4.34 Brazil 5.36 5.36 5.32 5.29 5.26 5.26 5.26 5.25 Mexico 2.77 2.58 2.56 2.69 2.68 2.58 2.41 2.43 Chile 4.93 5.00 4.95 4.96 5.00 4.86 4.78 4.66 Argentina 1.82 2.21 2.34 2.50 2.54 2.40 2.47 3.17 USA 2.43 2.64 2.56 2.79 2.86 2.91 3.00 2.92 Operating Areas 3.77 5.40 4.27 4.10 4.04 3.94 3.87 3.71 Total Group 3.74 5.37 4.24 4.08 4.02 3.92 3.87 3.73


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Appendix Coverage ratio % Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Continental Europe 60.6 59.7 53.7 54.4 56.8 55.2 54.4 52.2 Spain 49.1 56.6 46.2 46.8 51.1 49.0 47.7 45.0 Santander Consumer Finance 108.9 106.5 104.3 101.4 107.2 107.7 106.4 106.4 Poland 61.2 67.5 67.6 68.2 72.0 72.1 71.6 67.1 Portugal 61.7 55.6 56.1 62.1 53.9 52.7 53.4 50.5 United Kingdom 33.8 32.6 31.5 32.0 34.6 34.0 33.1 33.0 Latin America 90.5 89.2 90.1 85.0 98.4 96.8 97.1 97.3 Brazil 98.1 95.5 97.6 92.6 110.4 108.7 109.1 106.9 Mexico 104.8 113.8 110.3 97.5 113.5 116.1 120.5 119.7 Chile 58.9 58.2 58.5 58.2 61.0 60.0 59.6 60.6 Argentina 134.1 109.9 102.8 100.1 121.3 121.5 124.0 135.0 USA 202.4 183.1 187.5 170.2 169.1 156.9 145.5 142.8 Operating Areas 74.6 67.6 65.7 65.1 69.7 68.3 67.6 67.1 Total Group 74.6 67.7 65.8 65.2 70.0 68.6 67.9 67.4


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Appendix Non-performing loans and loan-loss allowances. December 2018 Non-performing loans 100%: EUR 35,692 million Other, 6% USA, 8% Argentina, 1% Spain, 42% Chile, 5% Mexico, 2% Brazil, 12% UK, 8% SCF*, 6% Portugal, 6% Poland, 4% Loan-loss allowances 100%: EUR 24,061 million Other, 3% USA, 16% Spain, 28% Argentina, 1% Chile, 5% Mexico, 4% SCF*, 10% Brazil, 20% Poland, 4% UK, 4% Portugal, 5% Percentage over Group’s total (*) Excluding SCF UK


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Appendix Cost of credit % Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Continental Europe 0.38 0.36 0.32 0.31 0.32 0.34 0.37 0.36 Spain 0.33 0.32 0.28 0.30 0.29 0.31 0.35 0.33 Santander Consumer Finance 0.39 0.37 0.34 0.30 0.36 0.37 0.40 0.38 Poland 0.66 0.65 0.61 0.62 0.69 0.71 0.69 0.65 Portugal 0.07 0.03 0.10 0.04 0.08 0.10 0.03 0.09 United Kingdom 0.03 0.02 0.03 0.08 0.10 0.10 0.08 0.07 Latin America 3.36 3.36 3.25 3.15 3.12 3.04 2.94 2.95 Brazil 4.84 4.79 4.55 4.36 4.35 4.30 4.17 4.06 Mexico 2.94 3.01 3.14 3.08 2.95 2.78 2.72 2.75 Chile 1.42 1.37 1.27 1.21 1.22 1.18 1.18 1.19 Argentina 1.68 1.75 1.85 1.85 2.06 2.47 2.92 3.45 USA 3.63 3.65 3.57 3.42 3.29 3.02 3.00 3.27 Operating Areas 1.18 1.18 1.12 1.07 1.03 0.99 0.97 0.99 Total Group 1.17 1.17 1.12 1.07 1.04 0.99 0.98 1.00


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Appendix Net capital gains and provisions Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements


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Appendix Grupo Santander EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 11,246 11,522 11,569 11,556 11,409 11,411 10,989 12,017 45,892 45,826 Gross income 12,029 12,049 12,252 12,062 12,151 12,011 11,720 12,542 48,392 48,424 Operating expenses (5,543) (5,648) (5,766) (5,961) (5,764) (5,718) (5,361) (5,936) (22,918) (22,779) Net operating income 6,486 6,401 6,486 6,101 6,387 6,293 6,359 6,606 25,473 25,645 Net loan-loss provisions (2,400) (2,280) (2,250) (2,181) (2,282) (2,015) (2,121) (2,455) (9,111) (8,873) Other (775) (848) (645) (544) (416) (487) (488) (605) (2,812) (1,996) Underlying profit before taxes 3,311 3,273 3,591 3,375 3,689 3,791 3,750 3,546 13,550 14,776 Underlying consolidated profit 2,186 2,144 2,347 2,285 2,409 2,412 2,356 2,369 8,963 9,546 Underlying attributable profit 1,867 1,749 1,976 1,924 2,054 1,998 1,990 2,022 7,516 8,064 Net capital gains and provisions* — — (515) (382) — (300) — 46 (897) (254) Attributable profit 1,867 1,749 1,461 1,542 2,054 1,698 1,990 2,068 6,619 7,810 (*) Including: in Q3’17 charges for integration costs and equity stakes and intangible assets in Q4’17 Allfunds capital gains, USA fiscal reform, goodwill charges and in the US, provisions for hurricanes, increased stake in Santander Consumer USA and other in Q2’18 costs associated to integrations (mainly restructuring costs), net of tax impacts, in Spain, Corporate Centre and Po rtugal in Q4’18 badwill in Poland for the integration of Deutsche Bank Polska


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Appendix Grupo Santander Constant EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 9,957 10,401 10,870 10,954 11,100 11,316 11,532 11,877 42,181 45,826 Gross income 10,644 10,871 11,517 11,437 11,834 11,901 12,300 12,390 44,468 48,424 Operating expenses (4,981) (5,153) (5,466) (5,689) (5,634) (5,666) (5,636) (5,843) (21,287) (22,779) Net operating income 5,663 5,718 6,051 5,748 6,200 6,234 6,664 6,547 23,180 25,645 Net loan-loss provisions (2,080) (2,030) (2,098) (2,068) (2,230) (1,998) (2,225) (2,420) (8,276) (8,873) Other (691) (760) (598) (514) (400) (476) (526) (594) (2,563) (1,996) Underlying profit before taxes 2,893 2,928 3,355 3,166 3,569 3,760 3,913 3,533 12,342 14,776 Underlying consolidated profit 1,908 1,908 2,197 2,151 2,335 2,392 2,455 2,363 8,164 9,546 Underlying attributable profit 1,618 1,541 1,844 1,803 1,986 1,978 2,084 2,016 6,805 8,064 Net capital gains and provisions* — — (515) (379) — (300) — 46 (894) (254) Attributable profit 1,618 1,541 1,329 1,424 1,986 1,678 2,084 2,062 5,912 7,810 (*) Including: in Q3’17 charges for integration costs and equity stakes and intangible assets in Q4’17 Allfunds capital gains, USA fiscal reform, goodwill charges and in the US, provisions for hurricanes, increased stake in 81 Santander Consumer USA and other in Q2’18 costs associated to integrations (mainly restructuring costs), net of tax impacts, in Spain, Corporate Centre and Po rtugal in Q4’18 badwill in Poland for the integration of Deutsche Bank Polska


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Appendix Spain EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 1,206 1,409 1,753 1,749 1,710 1,729 1,769 1,783 6,117 6,991 Gross income 1,539 1,475 2,011 1,835 2,063 1,837 2,114 1,880 6,860 7,894 Operating expenses (798) (893) (1,161) (1,188) (1,145) (1,123) (1,103) (1,110) (4,040) (4,480) Net operating income 741 582 850 647 918 714 1,012 770 2,820 3,414 Net loan-loss provisions (163) (144) (120) (175) (207) (196) (197) (129) (603) (728) Other (64) (64) (62) (25) (104) (86) (102) (70) (215) (362) Underlying profit before taxes 514 374 667 447 608 432 713 571 2,002 2,325 Underlying consolidated profit 367 267 489 333 455 326 526 432 1,456 1,739 Underlying attributable profit 362 262 484 330 455 325 526 432 1,439 1,738 Net capital gains and provisions* — — (300) — — (280) — — (300) (280) Attributable profit 362 262 184 330 455 45 526 432 1,139 1,458 (*) Including: in Q3’17 charges for integration costs in Q2’18 restructuring costs


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Santander Consumer Finance EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 1,121 1,096 1,121 1,110 1,130 1,116 1,143 1,132 4,449 4,521 Gross income 1,118 1,099 1,135 1,132 1,140 1,126 1,157 1,187 4,484 4,610 Operating expenses (502) (485) (484) (506) (509) (507) (475) (494) (1,978) (1,985) Net operating income 616 614 650 625 631 619 682 693 2,506 2,625 Net loan-loss provisions (61) (57) (90) (58) (120) (69) (124) (47) (266) (360) Other (37) (35) (30) (55) 24 13 5 (166) (157) (125) Underlying profit before taxes 518 522 531 512 535 563 562 480 2,083 2,140 Underlying consolidated profit 370 382 370 373 388 412 405 358 1,495 1,564 Underlying attributable profit 314 319 309 311 323 346 332 296 1,254 1,296 Net capital gains and provisions* — — (85) — — — — — (85) — Attributable profit 314 319 224 311 323 346 332 296 1,169 1,296 (*) Including: in Q3’17 charges for integration costs 83


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Appendix Santander Consumer Finance Constant EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 + Fee income 1,111 1,091 1,117 1,109 1,128 1,116 1,144 1,133 4,427 4,521 Gross income 1,108 1,093 1,130 1,131 1,139 1,125 1,157 1,189 4,462 4,610 Operating expenses (498) (483) (482) (506) (508) (507) (475) (495) (1,968) (1,985) operating income 610 611 648 625 630 619 682 694 2,493 2,625 loan-loss provisions (60) (58) (89) (58) (120) (69) (124) (47) (264) (360) Other (37) (35) (30) (56) 24 13 5 (166) (158) (125) Underlying profit before taxes 513 519 529 511 534 562 563 481 2,072 2,140 Underlying consolidated profit 366 379 369 373 388 411 406 359 1,486 1,564 Underlying attributable profit 310 316 308 311 322 346 332 296 1,245 1,296 capital gains and provisions* — — (85) — — — — — (85) — Attributable profit 310 316 223 311 322 346 332 296 1,160 1,296 (*) Including: in Q3’17 charges for integration costs 84


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Appendix Poland EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 318 343 350 360 359 355 354 380 1,371 1,448 Gross income 321 363 358 378 333 398 367 390 1,419 1,488 Operating expenses (146) (150) (149) (160) (154) (162) (156) (165) (605) (636) Net operating income 175 212 209 218 179 236 211 225 814 851 Net loan-loss provisions (27) (34) (36) (40) (46) (41) (33) (41) (137) (161) Other (23) (27) (28) (19) (13) (34) (26) (61) (96) (135) Underlying profit before taxes 125 152 144 159 120 161 151 123 581 555 Underlying consolidated profit 86 120 110 116 89 132 114 88 432 424 Underlying attributable profit 59 83 76 81 63 93 80 62 300 298 Net capital gains and provisions* — — — — — — — 45 — 45 Attributable profit 59 83 76 81 63 93 80 107 300 343 (*) Including: in Q4’18 badwill for the integration of Deutsche Bank Polska 85


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Appendix Poland PLN million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 1,374 1,449 1,489 1,522 1,500 1,512 1,525 1,632 5,835 6,170 Gross income 1,386 1,532 1,525 1,599 1,390 1,695 1,579 1,674 6,041 6,338 Operating expenses (630) (634) (636) (675) (642) (690) (672) (707) (2,576) (2,711) Net operating income 756 898 889 924 748 1,005 907 967 3,465 3,627 Net loan-loss provisions (116) (142) (155) (171) (191) (175) (143) (177) (585) (687) Other (100) (112) (119) (78) (55) (146) (113) (261) (410) (575) Underlying profit before taxes 539 644 614 674 502 684 651 528 2,471 2,366 Underlying consolidated profit 372 506 470 492 373 560 491 381 1,840 1,805 Underlying attributable profit 257 351 324 344 264 393 346 265 1,276 1,269 Net capital gains and provisions* — — — — — — — 193 — 193 Attributable profit 257 351 324 344 264 393 346 458 1,276 1,461 (*) Including: in Q4’18 badwill for the integration of Deutsche Bank Polska 86


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Appendix Portugal EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 261 262 311 313 320 305 303 307 1,147 1,234 Gross income 294 275 345 330 341 346 323 334 1,245 1,344 Operating expenses (139) (142) (166) (167) (158) (165) (157) (162) (614) (642) Net operating income 155 133 179 163 183 182 166 172 630 702 Net loan-loss provisions 10 5 (37) 10 (8) (0) (11) (12) (12) (32) Other (14) (9) (16) (5) (9) (22) 13 36 (44) 18 Underlying profit before taxes 151 129 126 168 166 159 167 196 574 688 Underlying consolidated profit 126 111 81 120 128 104 115 137 438 483 Underlying attributable profit 125 110 80 119 127 103 114 136 435 480 Net capital gains and provisions* — — — — — 20 — — — 20 Attributable profit 125 110 80 119 127 123 114 136 435 500 (*) Including: in Q2’18 provisions and restructuring costs associated with inorganic operations, net of tax impacts 87


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Appendix United Kingdom EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 1,349 1,409 1,317 1,291 1,274 1,304 1,291 1,290 5,366 5,159 Gross income 1,432 1,544 1,397 1,344 1,349 1,373 1,367 1,332 5,716 5,420 Operating expenses (723) (723) (694) (721) (764) (763) (730) (738) (2,861) (2,995) Net operating income 709 821 703 623 586 610 637 593 2,855 2,426 Net loan-loss provisions (15) (42) (66) (81) (66) (37) (26) (44) (205) (173) Other (105) (171) (89) (101) (62) (47) (62) (155) (466) (327) Underlying profit before taxes 588 608 547 441 457 526 549 394 2,184 1,926 Underlying consolidated profit 423 414 382 304 326 380 391 291 1,523 1,387 Underlying attributable profit 416 408 377 297 320 372 385 286 1,498 1,362 Net capital gains and provisions — — — — — — — — — — Attributable profit 416 408 377 297 320 372 385 286 1,498 1,362


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Appendix United Kingdom GBP million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 1,160 1,213 1,183 1,146 1,125 1,142 1,152 1,144 4,702 4,564 Gross income 1,231 1,329 1,255 1,193 1,192 1,203 1,220 1,181 5,008 4,795 Operating expenses (622) (622) (623) (639) (675) (669) (651) (655) (2,507) (2,649) Net operating income 609 706 632 554 517 534 568 526 2,502 2,146 Net loan-loss provisions (13) (36) (59) (72) (58) (32) (23) (39) (179) (153) Other (90) (147) (81) (90) (55) (41) (56) (137) (408) (289) Underlying profit before taxes 506 524 492 392 404 461 490 350 1,914 1,704 Underlying consolidated profit 364 356 344 270 288 333 348 258 1,334 1,227 Underlying attributable profit 358 351 339 265 282 326 343 254 1,313 1,205 Net capital gains and provisions — — — — — — — — — — Attributable profit 358 351 339 265 282 326 343 254 1,313 1,205


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Appendix Brazil EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 3,455 3,413 3,392 3,458 3,403 3,296 3,153 3,404 13,718 13,256 Gross income 3,717 3,502 3,542 3,512 3,445 3,323 3,180 3,396 14,273 13,345 Operating expenses (1,314) (1,233) (1,244) (1,289) (1,165) (1,095) (1,031) (1,191) (5,080) (4,482) Net operating income 2,403 2,269 2,298 2,223 2,280 2,228 2,149 2,205 9,193 8,863 Net loan-loss provisions (910) (852) (819) (814) (822) (750) (665) (726) (3,395) (2,963) Other (358) (349) (268) (211) (154) (170) (174) (198) (1,186) (697) Underlying profit before taxes 1,135 1,068 1,211 1,198 1,304 1,308 1,310 1,281 4,612 5,203 Underlying consolidated profit 713 689 747 738 761 730 698 752 2,887 2,940 Underlying attributable profit 634 610 659 642 677 647 619 663 2,544 2,605 Net capital gains and provisions — — — — — — — — — — Attributable profit 634 610 659 642 677 647 619 663 2,544 2,605


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Appendix Brazil BRL million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 11,561 12,036 12,567 13,139 13,568 14,121 14,451 14,779 49,304 56,920 Gross income 12,438 12,367 13,129 13,367 13,737 14,241 14,579 14,747 51,301 57,304 Operating expenses (4,397) (4,355) (4,613) (4,895) (4,644) (4,697) (4,736) (5,169) (18,259) (19,245) Net operating income 8,041 8,013 8,516 8,472 9,093 9,544 9,843 9,579 33,042 38,059 Net loan-loss provisions (3,045) (3,008) (3,045) (3,105) (3,276) (3,220) (3,070) (3,155) (12,203) (12,721) Other (1,198) (1,231) (1,007) (825) (615) (727) (793) (859) (4,261) (2,994) Underlying profit before taxes 3,798 3,773 4,464 4,543 5,202 5,597 5,981 5,564 16,578 22,344 Underlying consolidated profit 2,386 2,431 2,757 2,802 3,034 3,127 3,200 3,264 10,376 12,624 Underlying attributable profit 2,121 2,152 2,432 2,438 2,699 2,772 2,837 2,877 9,143 11,184 Net capital gains and provisions — — — — — — — — — — Attributable profit 2,121 2,152 2,432 2,438 2,699 2,772 2,837 2,877 9,143 11,184


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Appendix Mexico EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 804 856 879 811 836 841 927 915 3,350 3,519 Gross income 824 914 892 830 831 868 931 897 3,460 3,527 Operating expenses (319) (361) (356) (345) (340) (363) (384) (376) (1,382) (1,462) Net operating income 505 553 536 485 491 505 547 521 2,078 2,064 Net loan-loss provisions (233) (246) (240) (187) (200) (189) (227) (215) (905) (830) Other (4) (6) (4) (24) (3) (12) (5) 17 (39) (3) Underlying profit before taxes 267 301 292 274 288 305 315 323 1,134 1,230 Underlying consolidated profit 211 238 231 225 225 238 250 262 904 975 Underlying attributable profit 163 187 182 178 175 184 195 206 710 760 Net capital gains and provisions — — — — — — — — — — Attributable profit 163 187 182 178 175 184 195 206 710 760


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Appendix Mexico MXN million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 17,348 17,505 18,399 18,076 19,257 19,435 20,475 20,671 71,327 79,838 Gross income 17,779 18,706 18,677 18,508 19,143 20,058 20,546 20,264 73,671 80,011 Operating expenses (6,894) (7,386) (7,460) (7,683) (7,832) (8,381) (8,467) (8,497) (29,423) (33,177) Net operating income 10,886 11,320 11,218 10,825 11,310 11,678 12,079 11,767 44,248 46,834 Net loan-loss provisions (5,032) (5,019) (5,015) (4,201) (4,610) (4,357) (5,020) (4,853) (19,267) (18,840) Other (90) (131) (89) (522) (72) (272) (115) 383 (832) (77) Underlying profit before taxes 5,764 6,170 6,113 6,102 6,628 7,049 6,944 7,296 24,149 27,917 Underlying consolidated profit 4,548 4,865 4,841 4,996 5,181 5,511 5,516 5,918 19,250 22,126 Underlying attributable profit 3,523 3,829 3,808 3,963 4,021 4,259 4,306 4,652 15,123 17,239 Net capital gains and provisions — — — — — — — — — — Attributable profit 3,523 3,829 3,808 3,963 4,021 4,259 4,306 4,652 15,123 17,239


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Appendix Chile EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 592 589 534 583 601 612 582 573 2,298 2,367 Gross income 645 644 604 630 640 642 632 622 2,523 2,535 Operating expenses (264) (260) (253) (248) (258) (272) (257) (258) (1,025) (1,045) Net operating income 381 383 351 382 382 370 375 364 1,498 1,491 Net loan-loss provisions (122) (122) (108) (110) (121) (115) (117) (120) (462) (473) Other 2 7 11 3 22 32 19 31 23 103 Underlying profit before taxes 261 267 255 276 282 287 276 275 1,059 1,121 Underlying consolidated profit 214 218 209 218 223 232 221 226 859 901 Underlying attributable profit 147 149 143 146 151 158 153 153 586 614 Net capital gains and provisions — — — — — — — — — — Attributable profit 147 149 143 146 151 158 153 153 586 614


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Appendix Chile CLP million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 413,110 430,039 403,461 434,470 444,260 453,403 449,145 444,368 1,681,080 1,791,177 Gross income 450,136 469,704 456,238 469,635 473,564 475,595 486,844 482,500 1,845,714 1,918,503 Operating expenses (184,039) (189,977) (191,129) (184,867) (190,863) (201,511) (198,000) (199,964) (750,012) (790,338) Net operating income 266,097 279,727 265,110 284,768 282,700 274,084 288,844 282,536 1,095,702 1,128,165 Net loan-loss provisions (85,110) (89,381) (81,474) (81,875) (89,852) (84,920) (90,252) (93,034) (337,840) (358,059) Other 1,438 4,750 8,384 2,363 16,034 23,790 14,617 23,614 16,935 78,054 Underlying profit before taxes 182,425 195,096 192,020 205,256 208,882 212,954 213,209 213,115 774,797 848,161 Underlying consolidated profit 149,458 158,760 157,744 162,572 164,822 171,559 170,114 175,302 628,535 681,798 Underlying attributable profit 102,796 108,904 107,839 109,081 111,380 116,945 117,586 118,954 428,619 464,865 Net capital gains and provisions — — — — — — — — — — Attributable profit 102,796 108,904 107,839 109,081 111,380 116,945 117,586 118,954 428,619 464,865


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Appendix Argentina EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 374 428 382 398 343 367 (12) 518 1,582 1,217 Gross income 405 470 423 449 377 430 (70) 472 1,747 1,209 Operating expenses (221) (269) (235) (244) (218) (207) (0) (323) (970) (749) Net operating income 184 201 187 205 159 223 (70) 149 777 460 Net loan-loss provisions (29) (42) (46) (41) (49) (75) (7) (99) (159) (231) Other 1 (35) (35) (23) (17) (41) 4 9 (92) (45) Underlying profit before taxes 156 123 106 141 92 107 (73) 58 526 185 Underlying consolidated profit 108 86 71 97 67 72 (71) 17 362 84 Underlying attributable profit 108 85 70 96 66 71 (71) 17 359 84 Net capital gains and provisions — — — — — — — — — — Attributable profit 108 85 70 96 66 71 (71) 17 359 84


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Appendix Argentina ARS million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 6,241 7,378 7,644 8,101 8,293 10,046 12,292 13,530 29,364 44,160 Gross income 6,764 8,104 8,460 9,103 9,117 11,729 11,492 11,557 32,431 43,896 Operating expenses (3,690) (4,640) (4,713) (4,964) (5,278) (5,707) (7,693) (8,516) (18,007) (27,193) Net operating income 3,074 3,464 3,747 4,139 3,840 6,022 3,800 3,042 14,424 16,703 Net loan-loss provisions (486) (730) (903) (828) (1,196) (2,021) (2,546) (2,615) (2,947) (8,379) Other 17 (596) (659) (466) (411) (1,077) (849) 721 (1,704) (1,616) Underlying profit before taxes 2,606 2,138 2,185 2,845 2,232 2,923 404 1,148 9,774 6,708 Underlying consolidated profit 1,807 1,486 1,462 1,960 1,610 1,961 (612) 104 6,715 3,063 Underlying attributable profit 1,795 1,477 1,453 1,948 1,599 1,946 (618) 112 6,672 3,039 Net capital gains and provisions — — — — — — — — — — Attributable profit 1,795 1,477 1,453 1,948 1,599 1,946 (618) 112 6,672 3,039


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Appendix United States EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 1,763 1,738 1,545 1,495 1,435 1,500 1,545 1,770 6,540 6,250 Gross income 1,879 1,880 1,604 1,596 1,578 1,670 1,735 1,967 6,959 6,949 Operating expenses (837) (845) (743) (773) (735) (737) (748) (795) (3,198) (3,015) Net operating income 1,042 1,035 861 824 843 932 987 1,172 3,761 3,934 Net loan-loss provisions (811) (697) (634) (638) (579) (445) (649) (945) (2,780) (2,618) Other (32) (24) (2) (31) (23) (50) (69) (57) (90) (199) Underlying profit before taxes 199 314 225 155 241 437 269 170 892 1,117 Underlying consolidated profit 138 235 154 109 174 298 175 123 636 770 Underlying attributable profit 95 149 93 71 125 210 125 92 408 552 Net capital gains and provisions* — — — (76) — — — — (76) — Attributable profit 95 149 93 (5) 125 210 125 92 332 552 (*) Including: in Q4’17 fiscal reform, provisions for hurricanes, increased stake in Santander Consumer USA and other 98


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Appendix United States USD million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income 1,877 1,912 1,820 1,765 1,764 1,787 1,796 2,028 7,373 7,374 Gross income 2,001 2,068 1,893 1,884 1,940 1,990 2,018 2,252 7,845 8,199 Operating expenses (891) (929) (875) (909) (904) (878) (868) (907) (3,605) (3,557) Net operating income 1,109 1,138 1,018 975 1,036 1,112 1,149 1,345 4,240 4,642 Net loan-loss provisions (863) (768) (749) (753) (712) (528) (758) (1,092) (3,134) (3,089) Other (34) (27) (4) (36) (28) (60) (81) (65) (101) (235) Underlying profit before taxes 212 343 265 186 296 524 310 188 1,006 1,318 Underlying consolidated profit 147 257 182 132 214 357 201 136 717 909 Underlying attributable profit 101 163 111 85 154 252 144 102 460 651 Net capital gains and provisions* — — — (85) — — — — (85) — Attributable profit 101 163 111 (0) 154 252 144 102 374 651 (*) Including: in Q4’17 fiscal reform, provisions for hurricanes, increased stake in Santander Consumer USA and other 99


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Appendix Corporate Centre EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 2017 2018 NII + Fee income (198) (223) (227) (240) (233) (241) (265) (277) (889) (1,016) Gross income (341) (340) (300) (238) (227) (250) (257) (295) (1,220) (1,028) Operating expenses (119) (118) (118) (120) (121) (122) (123) (128) (476) (495) Net operating income (460) (458) (419) (359) (348) (372) (380) (423) (1,696) (1,523) Net loan-loss provisions (5) (11) (22) (8) (37) (30) (28) (21) (45) (115) Other (32) (53) (54) (43) (43) (50) (55) 47 (181) (101) Underlying profit before taxes (497) (522) (495) (410) (427) (452) (463) (397) (1,923) (1,739) Underlying consolidated profit (471) (561) (481) (378) (421) (474) (456) (368) (1,890) (1,718) Underlying attributable profit (468) (563) (480) (378) (421) (475) (456) (369) (1,889) (1,721) Net capital gains and provisions* — — (130) (306) — (40) — — (436) (40) Attributable profit (468) (563) (610) (684) (421) (515) (456) (369) (2,326) (1,761) (*) Including: in Q3’17 equity stakes and intangible assets in Q4’17 goodwill charges 100 in Q2’18 restructuring costs


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Glossary


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Glossary—Acronyms AT1: Additional Tier 1 NPL: Non-performing loans bn: Billion PBT: Profit before tax CET1: Common equity tier 1 P&L: Profit and loss CIB: Corporate & Investment Bank QoQ: Quarter on Quarter CoE: Cost of equity Repos: Repurchase agreements C/I: Cost to income ROE: Return on equity DGF: Deposit guarantee fund ROF: Gains on financial transactions DPS: Dividend per share RoRWA: Return on risk-weighted assets GDP: Gross domestic product RoTE: Return on tangible equity FL: Fully-loaded RWA: Risk-weighted assets EPS: Earning per share SBNA: Santander Bank NA LLPs: Loan-loss provisions SCF: Santander Consumer Finance LCR: Liquidity coverage ratio SC USA: Santander Consumer USA LTD: Loan to deposit SME: Small and Medium Enterprises M/LT: Medium- long- term SRF: Single Resolution Fund mn: million ST: Short term n.a.: Not available TLAC: Total loss absorbing capacity NII: Net interest income TNAV: Tangible net asset value NIM: Net interest margin YoY: Year on Year MREL: Minimum requirement for eligible liabilities UK: United Kingdom n.m.: Not meaningful US: United States


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Glossary – definitions PROFITABILITY AND EFFICIENCY RoTE: Return on tangible capital: Group attributable profit / average of: net equity (excluding minority interests) – intangible assets (including goodwill) RoRWA: Return on risk-weighted assets: consolidated profit / average risk-weighted assets Efficiency: Operating expenses / gross income. Operating expenses defined as general administrative expenses + amortisations CREDIT RISK NPL ratio: Non-performing loans and customer advances, customer guarantees and contingent liabilities / total risk. Total risk is defined as: normal and non-performing balances of customer loans and advances, customer guarantees and contingent liabilities NPL coverage ratio: Provisions to cover losses due to impairment of customer loans and advances, customer guarantees and contingent liabilities / non-performing balances of customer loans and advances, customer guarantees and contingent liabilities Cost of credit: Provisions to cover losses due to impairment of loans in the last 12 months / average customer loans and advances of the last 12 months CAPITALISATION Tangible net asset value per share – TNAV: Tangible stockholders’ equity / number of shares (excluding treasury shares). Tangible stockholders’ equity calculated as shareholders equity + accumulated other comprehensive income—intangible assets Notes: 1) The averages for the RoTE and RoRWA denominators are calculated on the basis of thirteen months from December to December. 2) For periods of less than a year, and in the event of non-recurring results existing, the profit used to calculate the RoTE is the annualised underlying attributable profit (excluding non-recurring results), to which are added non-recurring results without annualising them. 3) For periods of less than a year, and in the event of non-recurring results existing, the profit used to calculate the RoRWA is the consolidated annualised result (excluding non-recurring results), to which is added non-recurring results without annualising them. 4) The risk-weighted assets included in the RoRWA denominator are calculated in accordance with the criteria defined by the Capital Requirements Regulation (CRR).


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Thank You. Our purpose is to help people and businesses prosper. Our culture is based on believing that everything we do should be:


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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Banco Santander, S.A.

Date: January 31, 2019

  By:  

/s/ José García Cantera

      Name:   José García Cantera
      Title:   Chief Financial Officer