Banco Santander, S.A.(SAN)Q2 2026 法說會逐字稿

Good morning, everyone, and thank you for joining Santander's first-half 2026 results presentation. Today's presentation will follow the usual structure. First, Héctor will talk about our results with a special focus on the performance of our global businesses. José will then cover the financial results in more detail. Finally, Héctor will close with the outlook before we open the line for Q&A. Before we start, I would like to highlight that this is the first quarter in which TSB is included in our results after the acquisition closed on April 30th. Our underlying metrics exclude the impact of Poland and TSB integration-related restructuring costs to provide a clearer view of the underlying trends. With that, Héctor, over to you.

Thanks, Raúl, good morning to everyone. Q2 was another record quarter for Santander, demonstrating again the strength of our strategy and the resilience of our business model. Our quarterly profit hit a new record of EUR 3.8 billion, making H1 2026 the best half ever, driven by strong revenue growth across global businesses and our growing franchise of 182 million customers, up by more than 12 million year-on-year, including the 4 million TSB customers we welcomed to the group in May. We achieved this while executing ONE Transformation, making excellent progress towards a simpler and more integrated model. This is translating into tangible results, with efficiency improving by three percentage points and underlying RoTE increasing to 15.6%. Our balance sheet remains very solid, with robust credit quality and a strong CET1 ratio of 14%, which includes the impact of TSB. In this context of high capital levels, underlying RoTE, adjusted for excess capital, is close to 17%. All of this continues to translate into strong shareholder value creation, with TNAV plus dividend per share growing 19%. Before I move on, let me make a brief comment on TSB. As Raúl mentioned, TSB closed on April 30th, only contributing two months of results, so the impact on year-on-year trend is limited. José will provide more detail where relevant later in the presentation. Our P&L remains very solid, with underlying profit growing 14% year-on-year. We delivered strong top-line growth, with revenue up 6% in constant Euro, supported by NII increasing 6% on the back of margin resilience and profitable volumes growth, as well as record fees up 7%, rising across all businesses and countries. This reflects the structural trends driven by deeper customer relationships and stronger connectivity across the group. Revenue grew while we reduced cost once again, showcasing the possibility and the positive effects of our transformation. LLPs were affected by Argentina, reflecting sector-wide trends in the country. Excluding Argentina, provisions were broadly stable year-on-year. Finally, in H1, we recorded EUR 245 million gross impact related to motor finance in Openbank Europe, most of it booked in Q1. All in all, as we have shown over time, our results are sustainable and less volatile than peers, even in challenging environments. What we are seeing again this quarter clearly reflects the strategy we presented at Investors Day. Our unique business model combines global and in-market scale with customer focus and diversification across Europe and the Americas. The model keeps delivering consistent results: higher revenue, lower cost, improved profitability, and stronger shareholder value creation. Let me talk about our customers. Three structural trends continue to strengthen the quality of our results. First, we are attracting more customers. Second, customers are doing more with us. Active customers are growing faster, and fees per active customer increased by 3%, reflecting higher engagement and broader use of our products and services. Third, we continue to improve our efficiency across the group. Together, these three trends make our profitability improvements increasingly sustainable over time. As you can see, we continue to deliver on our transformation, driving operational leverage through structural improvements that are under our control. Simplification and automation have delivered more than one percentage point of efficiencies. Our network businesses are generating strong positive jaws, and our global technology platforms continue to improve productivity while we start to capture benefits from AI. Our five global businesses continue to deliver strong and balanced growth, driven by customer activity, diversification, and scale. Retail and Openbank illustrate the power of our model. Revenue grew 4% and costs fell by 3%, driving higher profitability through operational leverage. At the same time, CIB, Wealth, and Payments demonstrate the power of our global capabilities and connectivity, driving strong revenue growth and improving efficiency. Together, these businesses, combined with our focus on disciplined capital allocation, are driving high returns and solid progress towards our targets. Let's now look at each of them. In retail, we continue to transform our model, combining cutting-edge technology with the expertise and proximity of our teams to deliver the best customer experience. Our customer interaction platform is live in five markets and is now ready to roll out in Spain. It helps us to personalize customer interactions at scale, improving conversion and strengthening customer primacy. In commercial, our new model is delivering excellent results in Spain, with revenue up 17% and cost down 3% year-on-year. We are better aligning our service model with customer needs, improving their experience while reducing our cost base. Using advanced analytics, we identify high-growth companies and connect them with more valuable solutions, deepening relationships and capturing a greater share of their financial needs. Following this success, we are now rolling out the model across Brazil, Mexico, U.K., Chile, and Portugal. As a result, retail fees grew 6%, cost per active customer declined 6%, and productivity keeps improving. Overall, retail's underlying profit grew 12% year-on-year, driven by strong operational leverage, while asset quality remained robust with cost of risk improving, excluding Argentina. As you probably know, Webster also reported another strong quarter yesterday, demonstrating again the quality of the franchise with a 17% return on tangible equity, excluding transaction costs and continued volume growth. Overall, these results were in line with market expectations. Looking ahead, we expect profitable growth to continue as we scale our model, deepen customer relationships, and capture additional efficiencies from TSB and Webster. This quarter, we closed the acquisition of TSB, a highly strategic transaction, and we have taken the first steps in the integration process, which is progressing according to our plan. It adds scale in a core market, it strengthens our funding mix through a high-quality deposit base, and enhances our risk profile through a low-risk mortgage portfolio. The combination accelerates the execution of our strategy, enabling us to simplify the business, capture significant efficiencies, and improve the profitability of Santander U.K. This will help us deliver an RoTE of around 16% in Santander U.K. by 2028, supported by at least EUR 400 million of synergies. With Openbank, we are building a more integrated, scalable, and efficient business supported by our global digital platform. We are broadening our customer proposition to become our customers' primary digital bank. In mobility finance, we're expanding beyond traditional auto lending with new solutions, while we continue to scale our embedded finance business through Openbank Pay, which already serves more than 2.6 million customers. At the same time, our focus on funding optimization keeps supporting profitability through significant cost savings, especially in the U.S. This is already translating into a strong underlying performance, with solid revenue increase, lower cost, and credit quality under control, driving 15% growth in Profit Before Tax, excluding motor finance. As anticipated, profit is affected by the end of electric vehicle tax incentives in the U.S. The tax rate is now expected to remain stable. Looking ahead, we expect profitability to improve as we continue to scale the business, optimize funding, and deliver further efficiencies. In CIB, we continue to build a world-class business for our corporate and institutional clients, leveraging the strength of our global network. We are now moving from building capabilities to scaling our franchise, translating them into stronger client relationships. What differentiates us is the connectivity to our franchise, bringing together Santander capabilities to serve our clients in a much more integrated way. A good example is a client in the aerospace sector, where commercial banking, CIB, and private banking have worked together throughout the company's growth journey, from day-to-day banking to financing, advising on the latest capital raise and connecting it with private investors. At the same time, we continue to transform our operating model through global platforms and AI, delivering high productivity and better customer service. For example, our automated pricer in global markets allows us to serve more clients and improve funding decisions. Even in a more challenging environment, strong client activity continues to drive profitable growth as we focus on efficiency and capital discipline. As a result, profit rose 17% year-on-year, while maintaining one of the best efficiency ratios in the sector and originating new business at a RoTE of around 23%. In Wealth, we continue to deliver solid growth while executing our strategy, leveraging our global scale and capabilities. In private banking, we're strengthening our advisory proposition for ultra-high-net-worth and family office clients. We're leveraging our international franchise to connect clients with the best of Santander globally. As a result, customer assets and liabilities grew 15%, and client cross-border referrals increased by more than 20% year-on-year. In insurance and asset management, we're increasingly operating as one integrated platform to deliver a more differentiated value proposition. Insurance is one of the biggest growth opportunities across the group. We continue to strengthen our position in Spain and Portugal while extending our model to other markets such as Brazil, Mexico, and Chile. We have integrated life and pensions in Brazil and Portugal. In health, we continue to roll out innovative solutions such as OneCare in Portugal and Saúde Comparada in Brazil. This is already supporting double-digit premium growth across our current insurance businesses. Together, these initiatives are making our business more scalable, more resilient, and increasingly fee-based. As a result, profit rose 19%, driven by strong commercial momentum across all our business lines. Finally, payments, our high-growth platform business. We continue to combine scale with innovation, strengthening our position across the global payments value chain. In Getnet, we launched the first agentic payments use case in Latin America, positioning us at the forefront of the next generation of digital commerce. Our Getnet platforms processed around 15 billion transactions in the last 12 months alone and support multiple payment methods across markets, driving much better efficiency. In Ebury, the recent private placements reinforce its long-term growth potential. This is translating into a strong performance on the financial side, with revenue up 17%, EBITDA margin improving to 33%, and profit increasing four-fold year-on-year, resulting in our Rule of 40 score above 50%. Overall, the business keeps building strong momentum with clear upside as we continue to scale. Our strong operational and financial performance continues to drive capital generation, higher profitability, and double-digit value creation. Our CET1 ratio rose to 14%, on track to achieve our year-end target comfortably above our 12-13 operating range. Underlying RoTE improved to 15.6% and is close to 17% at normalized CET1 levels, with further upside from M&A and ONE Transformation. Underlying earnings per share grew 20%, and TNAV plus cash dividend per share increased 19%, reflecting a strong profit generation and the impact of buybacks. We have received the approval from the ECB for a new buyback program for up to EUR 1.8 billion against 2026 results. Once the corresponding corporate approvals have been obtained, total share buybacks, including the program currently underway, will reach around EUR 9 billion, close to our commitment of distributing at least EUR 10 billion for 2025 and 2026. With that, I will now hand it over to José, who will take you through the financials in more detail.

Thank you, Héctor, and good morning, everyone. I will now take you through the group's P&L and capital performance in more detail. Before I begin, let me make two brief points. First, as Héctor and Raúl mentioned, the group's P&L includes two months of TSB's results following its consolidation in May. I will only refer to its impact where material. Second, as usual, we present growth rates in both current and constant Euro. This period, the difference was not relevant. Turning to performance. As Héctor mentioned, we are yet again delivering record results in the first half, with solid commercial activity and structural cost efficiency generating strong operational leverage. Revenue grew 6% on the back of solid business activity, while cost declined even after incorporating TSB. Loan loss provisions were impacted by portfolio deterioration in Argentina, reflecting sector trends in the country. Excluding Argentina, provisions were broadly stable year-on-year. The other results line includes motor finance provisions in Openbank Europe of around EUR 245 million, largely booked in the first quarter. As a result, profit grew 14% year-on-year in constant Euro, keeping us firmly on track to deliver our guidance of more than EUR 14.1 billion of profit in 2026, excluding M&A. Total revenue increased 6% year-on-year in line with the target we set for 2026. This growth was underpinned by deeper client relationships, higher levels of engagement, and a total of 12 million new customers over the last 12 months. All global businesses contributed to revenue growth, which was mainly supported by another record period in CIB, up 16%, backed by growing client flows across business lines with a notable acceleration in global banking fees. In retail, on the back of stronger customer engagement reflected in solid NII and fees, and in Openbank, which performed well, supported by higher net interest income and fees. Payments and wealth did well in fee-generating activities, client inflows in wealth, and strong volumes overall. Fee growth continued to outpace NII, in line with our guidance, reinforcing the quality and diversification of our revenue base. The group's net interest income increased 6% year-on-year. The vast majority of our net interest income comes from retail and Openbank. At this time, CIB also contributed significantly to the overall growth, supported by capital-efficient, high-return activities, mainly in global markets. Additionally, NII was resilient in retail across most countries, driven by volumes and active balance sheet management. Openbank delivered solid NII growth, supported by higher volumes and margins, both in Europe and South America. On a quarter-on-quarter basis, net interest income was up 3%, excluding TSB, for similar reasons, particularly in retail in Spain and Chile. By country, Spain delivered a particularly strong quarter, with NII up 8% versus the first quarter, driven by solid commercial momentum, improving margins, and active balance sheet management. Brazil NII grew 2% both quarter-on-quarter and year-on-year, even as interest rates are normalizing more slowly than initially expected. All in all, this reflects a stronger and more resilient NII profile than anticipated in Investor Day guidance, as the benefits from higher for longer rate environment in most markets more than offset the more moderate contribution from Brazil. Net fee income increased 7% year-on-year, supported by customer growth, increased activity, and a better mix towards higher value-added products, driven by our network businesses and ONE Transformation. This is visible across the group. Retail rose 6%, with solid performances widespread across our footprint, backed by customer growth. Openbank's fees increased 6%, especially in Europe and Brazil, supported by new business volumes and higher insurance activity. In CIB, the sharp pickup in fees was driven by strong global banking activity across markets, especially in CIB U.S., where fees grew 40%, up from already high levels last year, reflecting the success of our U.S. build-out initiatives. In Wealth, fees rose double digits, supported by client inflows mainly in private banking, and we saw 8% growth in payments, driven by high activity levels across all business lines, with total payment volumes increasing 10%. ONE Transformation remains a key driver of our profitability improvement, leveraging our global platforms and connectivity to deliver operational leverage. This is reflected in our efficiency ratio, which improved year-on-year to 42.8%, supported by strong underlying business dynamics, with revenue increasing and cost declining 1% year-on-year, down 5% in real terms. In Retail and Openbank, which are leading our transformation and represent 75% of our cost base, cost declined by 3%, even after incorporating TSB, and as we continue to roll out our global platforms. Revenue grew 4%, resulting in very positive operating jaws. In our network businesses, CIB, Wealth and Payments, costs grew below total revenue and fee income, reflecting targeted investments in capabilities to drive capital-light growth, maintaining high recurrence levels. This excellent performance resulted in an 11% rise in net operating income, up from already very high levels last year. Looking ahead, we remain on track to reduce costs despite inflationary pressures. ONE Transformation and our targeted cost management actions are the two levers that remain firmly within our control. Our balance sheet risk profile remains low, with sound credit quality across our footprint, even in a more complex environment, supported by prudent risk management and resilient labor markets in general. Having said that, metrics in the first half continue to be impacted by Argentina, reflecting sector-wide trends in the country. The cost of risk declined quarter-on-quarter, showing the first signs of stabilization as the impact of lower new production begins to feed through. Excluding Argentina, the group's underlying credit quality remained very solid. Loan loss provisions were broadly stable year-on-year, and cost of risk improved 2 basis points, even after absorbing less favorable exchange rate movements. This reflects the resilience across most of our markets, which more than offset the pressure we are beginning to see from a slower-than-expected rate normalization in Brazil, particularly in corporates and SMEs. Our non-performing loan ratio remained low, as the impact from Argentina was broadly offset by the contribution from TSB. Our NPL portfolio has collateral guarantees and provisions that account for almost 90% of its total exposure. Retail and consumer represent over 90% of the group's loan loss provisions. In retail, cost of risk improved, excluding Argentina, with solid performances in key markets such as Spain and Brazil. In Openbank, cost of risk was stable, even with the impact of Argentina, supported by continued strong trends in the U.S. CIB was affected by a limited number of single names in Europe and Brazil. As of today, we are not seeing a significant deterioration in employment, and credit quality remains stable. As long as labor markets remain solid, we would not expect material impact in credit quality, as resilience across most developed markets is expected to keep offsetting pressures in Brazil and challenges in Argentina, showing the benefits of diversification. Moving on to capital, we delivered another quarter of strong capital generation. Our CET1 ratio stood at 14% after absorbing the 55 basis points impact from TSB. Excluding this impact, the CET1 ratio increased by 20 basis points, demonstrating once again our ability to generate capital while investing in profitable growth. We generated 27 basis points of net organic capital in the quarter, driven by disciplined capital allocation to high-return opportunities with a new business RoTE of around 21%, and by a strong contribution from our risk transfer initiatives, which offset 31 basis points of risk-weighted asset growth. This strong capital generation keeps us on track to end the year in line with our 12.8% target after absorbing the impact from Webster in the second half of the year, and further regulatory impacts during the rest of this year, leaving us close to the upper end of our 12%-13% CET1 operating range. Héctor, back to you.

Thanks, José. In conclusion, this has been our strongest first half ever, putting us in an excellent position to deliver our 2026 targets, with our performance running slightly ahead of plan. Our businesses continue to show solid momentum, with ONE Transformation improving both revenue and cost, driving strong operational leverage. As a result, we delivered record underlying profit, a robust capital position, and double-digit value creation. Even excluding TSB, we are generating more underlying profit than last year when Poland was still part of the group. In summary, our result remains consistent and predictable, with very positive trends that we expect to continue in the second half of the year. On the back of this strong first half, we remain confident in delivering sustainable growth and creating value for our shareholders. Our financial North Star is clear: to deliver an RoE above 20% by 2028. This is about execution with precision, disciplined capital allocation, ONE Transformation, and scaling our global businesses to accelerate value creation. That is exactly what we are consistently delivering. Now, we are happy to take your questions.

Thanks very much, Héctor. Let's begin the Q&A session. Operator, could we have the first question, please?

The first question comes from Francisco Riquel from Alantra. Your line is open.

Yes. Thank you for taking my questions. I want to start with Spain, particularly NII. If you can update on your guidance for the year, the low to mid single digit growth, because first half has been above expectations. Particularly, also comment on two points here, which is loan growth, which I see is up 8%, but retail is just 0.6%. Strong CIB this Q2. How sustainable into the second half? Also, on the ALCO bond portfolio is up almost EUR 20 billion in the first half of the year. You can update on your size and ALCO strategy, size and duration. My second question on Spain is if you can comment on the early retirement plan just agreed with the trade unions, and if you can update on your cost-to-income target for Spain once this plan is fully implemented. Thank you.

Hello, Francisco. It's Héctor, good morning. Thank you for your question. In Spain, NII, as you have seen, the first half profit is up 12% year-on-year, mainly driven by 4% revenue growth with an increase in active customers. It's very important that you see that we're growing 200,000 customers per quarter on a net basis. It's very important to acknowledge the benefits of ONE Transformation. Cost is down 3%. Efficiency ratio improved 240 basis points year-on-year to 33.6%. What you're seeing is exactly the operating leverage that we promised on ONE Transformation, which is more revenues and less cost. That is what's helping us quite a lot. Trading gains are down EUR 132 million year-on-year from the lower activity markets in CIB after a record first half in 2025. The quarterly drop is driven by a one-off from state valuation in Q1. LLPs fell by 1% with strong asset quality and the portfolio sales in retail offsetting single names in CIB. Other results were around EUR 33 million worse due to the transformation cost. On the ALCO, José will tell you. Let me talk a little bit about the loan growth. What we're concentrating on here is always profitability. Where we see the margins and an opportunity, we deploy capital. It's a very dynamic process, and what we're doing is managing capital in such a way. Where we see opportunities, we deploy capital. That's exactly what we're doing and how you see the portfolio growing. We started, for example, in the first half of the year, growing in mortgages in a strong way because we saw an opportunity when the rates basically helped us out in that sense. With that, I will give it to José to explain about the ALCO as well.

Morning, Francisco. Let me split the answer into two parts. First, the client business; rates went up slightly in the quarter, and we have positive sensitivity to rates, which helped, particularly with the very good management of the client base. We are adding around 5% of new clients on an annualized basis, and many of these are transactional. When you look at the cost of deposits, because we are growing transactional accounts, it has performed very well. The first component of the very good performance in NII is the consequence of our commercial strategy. Second, the ALCO portfolio: we have EUR 60 billion of ALCO at an average yield of 3.3% and a six-year duration. This is slightly more than we had anticipated because, as I said, we are growing current accounts more than expected because of the success of our commercial strategy. Because we want to keep the interest rate sensitivity stable around EUR 500 million per 100 basis points, we increased the ALCO portfolio to this EUR 60 billion. We plan to keep it at this level. We don't plan to increase the ALCO portfolio above this level. Right now, the interest rate sensitivity is below EUR 500 million; it's around EUR 450 million. We want to keep it at this point. The other hedging strategies that we commented on in the past are doing very well. Liability repricing of mortgages, pre-fixing, and other repricing mechanisms are also contributing well. The first half NII was up 7.7%, and we see these trends continuing into the second half. We see no reason for a different trend in the second half relative to the first half.

Great. Thanks very much, Francisco. Next question, please.

Ladies and gentlemen, I would like to remind you that if you want to ask a question, press star five on your telephone. The next question comes from Ignacio Ulargui from BNP Paribas. Now your line is open.

Thanks very much for the presentation. Good morning, everyone. I just have two questions, if I may. The first one is on the activity levels. We have seen very strong NII and fees, and you have highlighted in the presentation strong activity across the board in retail, CIB, most of the units. I just wanted to see how you see that activity going forward, especially in terms of lending and deposit growth. I was curious to see the strong retail deposit growth in the quarter. If you could elaborate a bit more on the strategy in terms of gathering deposits, that would be helpful. The second question is on cost of risk evolution. For the first half, you have had a stable 115 basis points, which is slightly above the initial target that you gave for the plan of 100 to 110 basis points. You flagged in Q1 results and reiterated now that Argentina has been a big driver of that increase. How should we think about that in the second half? Should we expect a normalization? I would also like a bit of color on how to think about cost of risk in Brazil in light of José's comments about SMEs and corporates being a bit more stressed given the level of rates. Also, could you elaborate on the U.S. performance, which has been very strong in the quarter in cost of risk? Thank you.

Thank you, Ignacio. Very big questions. First, on activity levels, we are on track. As José said, a key profit generator is exactly what we are delivering: strong momentum within our business, and we are on track to exceed some of our targets set for the year. Our outlook is better for the retail and commercial businesses in Europe, as well as for Openbank. We continue to expect fees to grow faster than NII. This is ONE Transformation at a mid to high single digits, excluding M&A. On asset quality, we continue to expect a broadly stable outcome with a cost of risk around 115 basis points. The acquisition of TSB and Webster will improve the cost of risk towards the 1.0 to 1.1 range over 2027–2028. In the second half, we expect some improvement in the cost of risk in Argentina. The hardest quarter was Q1; it improved a little in Q2, but it is still impacting us. We stopped lending in Argentina and are performing better than peers. We expect cost of risk in Argentina to improve and be offset by the usual seasonality in the U.S. auto business. This demonstrates how diversification helps us: when some places are hurt, others offset. All in all, I expect PBT to continue to improve in H2 over H1. We expect an effective tax rate for the year around 27% at the lower end of our usual 27%–28% range. We are on track to be above EUR 14.1 billion net profit ex M&A guidance for the year. On Brazil, we believe the worst is over. We have taken good decisions on portfolio mix. For example, our CIB and commercial portfolios include significant U.S. dollar exposure, reflecting a tilt to exporters and trade finance. On the individual side, we are focusing more on the affluent segment and auto loans. Margins tighten a little with this mix, but cost of risk is more controllable. I don't see cost of risk exceeding the 4.2% we expect for the whole year. On the U.S., it's a great example of ONE Transformation benefits: profit is up 26% year-on-year at EUR 989 million, efficiency improved to 45.8%, RoTE improved to 13.2%. Q2 total revenue is up around 9% year-on-year. NII is up 4%, driven mainly by CIB and funding optimization in Openbank. Cost of risk 12-month is 1.47% with seasonality in auto where Q3 and Q4 will be higher. Labor markets in the U.S. remain quite strong.

Thanks, Héctor. I think we left out, in terms of the first question, on early retirements. Just going back to Francisco Riquel's question. Apologies, Francisco. Héctor, would you mind addressing that?

Yes. We signed yesterday the agreement with the unions. I think it was a good result. This will help us do what is needed towards the end of the year. It will help us deliver the ONE Transformation that we outlined and will help us manage Spain better going forward.

Thanks very much, Héctor. The costs of that are already in the other results line within restructuring. Could we have the next question, please?

The next question comes from Alvaro Serrano from Morgan Stanley. Your line is open.

Great. Good morning. Thanks for taking my questions. Follow up on Brazil and another on capital. On Brazil, I take note of your comments around cost of risk, Héctor, and that it was a pretty good result for the group and regionally. Brazil, in terms of revenues, wasn't great either. How much of that weaker fees and trading do you think is due to company-specific disruptions from implementation of Gravity, or is it purely macro? More importantly, what to expect on the revenue front over the next few quarters. As we think about Brazil, can Gravity offset those revenue headwinds going forward? The second question is on capital. You've had another good capital print this quarter. The model updates are now turning into tailwinds a second quarter in a row. From memory, José, you've given guidance for the full year of 20 basis points headwinds, which may need updating. Can you give color on that, and should we expect regulatory headwinds given ECB policy changes? Thank you.

Alvaro, given the current macro scenario, I believe Brazil had a good performance. ONE Transformation is delivering and there is more to come. The macro is experiencing a soft landing; growth is expected to remain resilient in 2026. There are discussions on sustainability of growth after the October elections, but our best case is continued stability. Activity is supported by fiscal stimulus, resilient household consumption, favorable exports, and a tight labor market. Credit is reflecting restrictive monetary policy; the Central Bank has started a gradual easing cycle. Tighter external financial conditions and sticky inflation expectations limit room for significant cuts. Our business in Brazil represents 9% of group loans and remains resilient. Diversification is working: higher rates and inflation in Brazil are offset by strong performance in Europe and other businesses. NII increased around 2% year-on-year, mainly driven by Openbank and CIB. We focus on profitable products and segments and aim to lower ALM pressure. We expect similar growth in the second half. Cost is up 3% mainly due to higher IT costs related to ONE Transformation and the Gravity migration, and some impact from Trabajadores costs, which are in cost. Cost-to-income is 14.5%. Provision increases are mostly single names and Openbank motor finance provisions. Cost of risk remains stable around 4.14% and we expect no more than 4.2% for the rest of the year. Inter-rate curves have shifted higher for longer. We believe Brazil can improve returns to around 20% RoTE in the next few years driven by ONE Transformation. We also appointed a new CEO on July 6th to accelerate execution.

Morning, Álvaro. The positive impact of what we called supervisory regulatory charges in the first quarter related to the implementation of CRR as we updated some of our models. It was not related to direct supervisory actions. We still think we will have around 15 to 20 basis points negative impact from supervisory actions in the second half of the year. If you look at our capacity to generate capital and improving profitability, we think that from the current level, we should be in line or above our 12.8% target by the end of the year. Yes, we would still expect some negative impact in the second half of the year.

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

The next question comes from Cecilia Romero from Barclays. Your line is open.

Thank you very much, José and Héctor, for taking my questions. My first one is on rates. Since Investor Day, we've seen rate expectations generally move higher across your core markets. Despite the potential headwind in Brazil, do you see the overall change as a net tailwind to the group's low to mid single digit NII payback target for the 2025 to 2028 period? If so, could you give guidance where within that range you now expect NII growth to land? My second question is on Mexico outlook. Mexico's macro and policy backdrop has become more uncertain, particularly following the move towards biannual USMCA reviews. Do you see a risk to your Mexico growth expectations as a result of prolonged trade uncertainty affecting investment decisions? Also, Nubank has received approval to operate as a bank in Mexico. How do you expect that to affect competition? Do you see implications for pricing, deposit gathering, or customer acquisition across the sector? Thank you.

Thank you, Cecilia. Regarding our guidance, we see the dynamics of NII remaining in line with our Investor Day guidance for 2025 to 2028. We may be slightly better given current dynamics, but there is a long way to go. The group is executing ONE Transformation and remains on track. On Mexico, negotiations are expected to start in the next two weeks. If an agreement is not reached, the treaty can renew automatically for another year. I'm not overly worried because Mexico and the U.S. are interdependent economically. I visited Mexico recently and see good dynamics: consumption is picking up with a better outlook for H2. On competition, we don't discuss competitors in detail, but the competitive environment is manageable. The competitive pressure has been contained by our discipline; we have maintained portfolio and pricing discipline. We see opportunities in Mexico, especially in midsize corporates and SMEs, and we are deploying capital there. We have reduced participation in credit cards and personal loans where we see risk and focused more on auto, mortgages, and payroll-secured loans. Deposit growth has been strong and funding cost is improving due to ONE Transformation and transactional deposits.

Let me add some color on net interest margin. The group's net interest margin in Q2 is the highest of the last 12 months. We have a structural positive sensitivity to rates, driven by Spain and now with TSB in the U.K. We have a negative sensitivity in Brazil, but Brazilian rates are currently high. The NIM level is explained by strong activity and how we've structured balance sheet management with overall positive sensitivity to rates. Looking ahead to the next three years is difficult, but for Spain we see no reason for a change in trends in H2.

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

The next question comes from Ignacio Cerezo from UBS. Your line is open.

Hi, good morning. Quick couple of questions. First, when do you think headcount numbers on a group basis are going to start falling? You're cutting costs in many geographies already, but headcount seems stable quarter-on-quarter. Some information on how that metric might evolve would be helpful. Second, on Webster, can you give an update on when you think the deal will close? We've heard risks about possible delays or cancellations due to political interference. What's your view on that? Thank you.

Thank you, Ignacio. On headcount, we are executing ONE Transformation with simplification and automation, and headcount will improve over time. The last number I have seen for the group is approximately 180,000, noting TSB was incorporated in the second quarter.

Even with TSB, if we look from December 2025 to June 2026, headcount is down over 2,000 people. Net of TSB, headcount is down about 3%–4%. Headcount reduction is the consequence of implementing ONE Transformation. It's a long-term trend that should continue. The focus is not headcount reduction per se; it's the result of implementing transformation.

In terms of Webster, we received ECB authorization to proceed with the transaction. We have constructive engagement with supervisors and approvals needed to close during the quarter. We also received OCC approval. The process is proceeding fully in line with our expectation to close in H2, as we have said. No news beyond that.

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

The next question comes from Andrea Filtri from Mediobanca. Your line is open.

Yes, thank you for taking my question. First, on capital: it looks like capital is trending ahead of targets, and we are seeing signs from Brussels of potential easing of regulation. Do you feel you will have a capital reserve soon? Where are you on the Danish Compromise approval? I seem to recall you were expecting approval by June 2026. The second question is on other provisions, which have been higher than expected. Are these reflecting restructuring charges to accelerate ONE Transformation, and if so, can you quantify how much sooner you could hit cost targets or even exceed objectives? Thank you.

Thank you, Andrea. On capital, José will give more detail. Regarding the Danish Compromise, we expect it in the next couple of months. Governments have completed the necessary steps and it has been submitted to the ECB; we expect approval sooner rather than later. On other provisions, what you are seeing reflects ONE Transformation execution. We are focused on simplification: we started with 10,000 products three and a half years ago and reduced to almost 4,000, but there is more to do. There is significant automation and legacy removal to complete. This is a long job, but you see the evolution each quarter and it will continue until 2028. I believe we will deliver our cost targets for 2028, though I will not overpromise given inflation and other variables. I'm slightly positive.

On the Danish Compromise, we expected approval in August and it should come any time now. There is talk about easing capital requirements, but nothing concrete so far. We are not seeing changes in ECB supervisory actions. It's premature to assume these discussions will significantly impact capital for European banks.

Thanks very much. Operator, could we take the next question, please?

The next question comes from Carlos Peixoto from CaixaBank. Your line is open.

Hi, good morning. Two clarifications. First, can you provide additional color on the single name provisions you mentioned related to CIB in Europe and Brazil? How much did that impact the group's cost of risk in H1 or in Q2? Second, on NII in Portugal: NII is falling year-on-year while loans are growing 8%. What dynamics are behind that NII change? Finally, when you said NII in Spain in H2 should have similar trends to H1, do you mean H2 will be similar in Euro terms or that the 11% growth pace should be kept? On early retirements, are those provisions in other results or operating costs, and are they accounted in Spain or corporate center? Thank you.

Carlos, quick answers. Early retirement costs are in Spain and are within the budget and guidance for the year; they are included in other results within restructuring. On single names and credit quality: 12-month cost of risk in Q2 2026 is 1.15%. The higher provisions are from Argentina and single names in CIB. Excluding Argentina, asset quality improved by 2 basis points to 1.07%. There is no underlying deterioration of portfolios. Our plan assumes average GDP growth of around 1%–2% across the footprint. We see resilient labor markets and expect Brazil rates to fall by the end of 2028. High rates in Brazil could drive slightly higher provisions, but manageable within our plan. I expect cost of risk to remain around 1.15% in 2026. In H2, Argentina should improve, and TSB and Webster acquisitions will help reduce cost of risk over time, though seasonality in the U.S. will add provisions in Q3 and Q4. On NII in Portugal, the decline is driven by business mix and mortgage pricing to focus on profitability over the life cycle. Cost of deposits is 22 basis points lower year-on-year due to new transactional clients. On the asset side, yields were higher on consumer loans and credit cards but lower on mortgages by around 60 basis points because of portfolio mix and focus on long-term relationship profitability. Regarding Spain, when I said H2 should be similar to H1, I meant that the components of NII that we saw in H1 should remain in H2—the ALCO size, good management of liabilities, and repricing dynamics—so similar trends in terms of drivers, not necessarily exactly the same percentage growth.

Thanks very much. Operator, could we get the next question, please?

The next question comes from Benjamin Toms from RBC. Your line is open.

Thank you both for taking my questions. Two on the U.K. In the last quarter you mentioned intense competition in U.K. deposits. Are you still seeing that elevated competition? Do you expect it to subside into H2? Now that TSB integration is complete, can you talk about cost savings expected by 2028? You've had time to look at assets—do you see potential upsides to your U.K. cost-saving guidance? Thank you.

Benjamin, the U.K. market remains competitive, especially in mortgages and deposits, which compresses margins. However, our ONE Transformation execution is helping reduce costs and increase revenue through better customer relationships. TSB is a strong addition: it adds scale and a high-quality deposit base. We expect to deliver the EUR 400 million of synergies by 2028. It's too early to say we will exceed that, given the Part 7 process and integration details, but we are confident in delivering the target. We have already included EUR 250 million of non-recurring restructuring items for TSB in the numbers to date, and we expect around another EUR 250 million of non-recurring charges in upcoming quarters, aiming to execute sooner rather than later.

To help forecast NII in the U.K. post-TSB, structurally our hedge has changed. In December we had GBP 103 billion of structural hedge; in June that was GBP 118 billion. Duration has increased from 2.3 to 2.6 and yield from 3% to 3.2%. We now have a structural hedge with slightly longer duration and higher yields. Post-TSB, we have 27 million customers and 16 million active customers in the U.K., a strong client base to work with going forward.

Great. Thank you very much. Operator, could we have the next question, please?

Next question comes from Borja Ramirez from Citi. Your line is open.

Hello, good morning. Two questions. First, on deposits: Santander now has critical mass across core markets with market share of at least 10% and growing retail deposits faster than peers. Given these structural improvements, do you think consensus fully appreciates the benefit from lower funding costs? Which regions offer the biggest opportunities to improve funding costs from here? Second, on capital: can you remind me of the capital benefit from SRTs in Q2 and what to expect for H2? Thank you.

Borja, deposit improvements are a direct result of ONE Transformation and becoming the number one bank for customers, which increases transactional deposits. This lowers deposit costs and supports NII because it reduces reliance on wholesale funding. Openbank also contributes by funding consumer and auto businesses and reducing expensive wholesale funding. All regions benefit: Mexico, Brazil, Spain, and the U.K. will see improvements, and TSB and Webster add significant deposits that strengthen funding and profitability. This strategy is central to ONE Transformation and execution is ongoing.

On risk-weighted assets in Q2, there was an increase of around EUR 16 billion; EUR 13.1 billion came from TSB. Net of TSB, RWA increase was muted despite healthy loan growth. We mobilized EUR 13.4 billion of assets in the quarter: about 50% securitizations (cash and synthetic), 37% asset sales mostly NPLs, and 13% guarantees and other actions. In H2, we expect similar amounts to H1, with potentially more in Q4 due to seasonality. Regarding securitizations and asset mobilization, as long as demand for private credit remains strong, we can continue mobilizing assets on a recurring basis. EUR 35 billion to EUR 40 billion a year is feasible.

Thank you very much. Operator, could we have the next question, please?

The next question comes from Miruna Chirea from Jefferies. Your line is open.

Good morning. Two questions: on Mexico, loans are growing around 8% year-on-year in June, a slight deceleration from March but still healthy. How do you think lending growth in Mexico will be for the full year—should we expect deceleration in H2 or similar levels? For Brazil, could you remind us of your rate expectations for year-end Selic for 2026, 2027, 2028? Given that, how should we view your medium-term target of 20% RoTE in Brazil? Thank you.

Miruna, on Mexico, we are disciplined in capital deployment and will grow where margins and risk profiles are attractive. We see opportunities in midsize corporates and SMEs and will deploy capital selectively. We may cautiously grow cards and personal loans if labor markets remain strong, but we are selective and prioritize auto, mortgages, and payroll-secured lending. Expect continued loan growth in Mexico at a healthy pace but managed for profitability.

On Brazil rates, rates are normalizing more slowly than anticipated. We still expect some cuts this year but not significant; more substantial easing should come over the next couple of years because current real rates are high. Market expectations are around 13.5%–14% for year-end 2026, with gradual cuts of 100 to 150 basis points over the next couple of years. We are confident we can reach 20% RoTE by 2028 in Brazil driven by structural changes, business mix improvement, and not solely by rates. Despite higher deposit costs, NII held up due to business mix changes and better asset side positioning.

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

The next question comes from Britta Schmidt from Autonomous Research. Your line is open.

Morning. Thank you for taking my questions. First, on Spanish NII, it seems about half of the growth is coming from CIB. Could you give color on drivers and sustainability? Also, is it likely you're growing more than low to mid single digits in NII in Spain this year? Second, on CIB trading: trading result was weak this quarter versus a high Q1. Can you give color on drivers and whether you expect a higher run rate for the remainder of the year? Finally, on TSB restructuring costs: what's the timing and size of remaining charges you intend to take this year? Thank you.

Britta, on TSB restructuring, you will see EUR 281 million of transformation charges across the group; EUR 250 million is already included for TSB and we expect another circa EUR 250 million in upcoming quarters. We aim to execute earlier rather than later. On CIB and trading, the year-on-year decline in trading income is mainly explained by FX hedges, which were a headwind this year and a tailwind last year. The weaker quarter-on-quarter trading is seasonal with lower volatility in global markets and the business mix—our focus is not in equities but predominantly fixed income and client-driven flows. The business depends on client activity and market volatility; if client activity strengthens, trading income should improve. CIB's strength is broader than trading and includes global banking fee acceleration. On Spain NII, the performance is sustainable due to customer acquisition, positive ALCO management, and liability repricing. CIB contributes to NII through client flows and the network effect: CIB serves as a factory for the rest of the bank, supporting mid-corporates and SMEs with trade finance and other services that generate NII and fees. Spain also acts as a hub for CIB Europe, so we see continued support for NII in Spain.

To better understand CIB performance, look at gross revenue or total revenue as accounting between NII and income from financial transactions can move between lines depending on timing and distribution of transactions. Gross revenue is a better indicator of structural performance. On timing for TSB costs, as Héctor said, we expect the remaining non-recurring charges to be taken in upcoming quarters.

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

The next question comes from Sofie Peterzens from Goldman Sachs. Your line is open.

Hi, Sofie from Goldman Sachs. On NII, Chile NII was up more than 25% quarter-on-quarter. Could you discuss what drove that and how sustainable it is? Any one-offs to be mindful of? Also, NII in the Corporate Center was more negative this quarter versus prior quarter. How should we think about NII trajectory in the Corporate Center going forward? Finally, your leverage ratio continues to trend down at 4.8% this quarter. Does that limit SRT capacity over the next two to three years? Would you be comfortable running a 4% leverage ratio? Thank you.

Sofie, in Chile the NII uplift was driven by inflation dynamics and currency composition—Chile's inflation-linked exposures and the mix of assets and liabilities linked to UF and dollars. There are no one-offs; this is driven by inflation and currency movements and is sustainable while those dynamics persist. Chile is performing well and ONE Transformation is being implemented successfully there. On the corporate center NII, José will explain the drivers. On leverage and SRT capacity, as long as market conditions remain supportive with demand for private credit, we can continue mobilizing assets and manage leverage. José will provide details on securitizations and capacity.

Sofie, in Chile there are three currencies at play—US dollar, peso, and UF (inflation-linked currency)—and assets and liabilities tied to inflation. The increase in the quarter is explained by inflation-linked dynamics. For the corporate center NII weakness, two reasons: we paid for TSB, so less cash and lower return from that cash, and we increased issuances ahead of the Webster acquisition to meet TLAC/MREL requirements. We will need to issue around EUR 10 billion of senior non-preferred for Webster TLAC/MREL needs. On securitizations, as long as investor demand remains strong, we can mobilize assets—cash and synthetic securitizations, sales of NPLs, guarantees—at a similar rate as H1. EUR 35 billion to EUR 40 billion per year is a reasonable run rate under current market conditions.

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

The last question comes from Fernando Gil de Santivañes from Intesa Sanpaolo. Your line is open.

Hello. Thank you for taking my questions. Two questions. First, on wealth management and insurance: these grew decisively in the quarter. What regions and segments are driving this growth, and what can we expect going forward? Second, on capital, the regulatory capital impact expected for the rest of the year—does the 15–20 basis points you mentioned reflect the Danish Compromise benefit? If not, can you clarify the impact? Thank you.

Fernando, on wealth management and insurance, these are growing strongly and are a significant fee opportunity for the group. Insurance, in particular, is one of the biggest growth opportunities. We punch below our natural market share in many markets, so there is upside in Spain, Portugal, Brazil, Mexico, and Chile. We are integrating life and pensions in Brazil and Portugal, rolling out health solutions like OneCare in Portugal and Saúde Comparada in Brazil, and operating insurance and asset management as an integrated platform. If we reach our natural quotas in markets, insurance will be a meaningful contributor to group fees and profit over the coming years.

The Danish Compromise will not add any capital to Santander. Future investments will benefit from Danish Compromise treatment, but there is no immediate capital impact from it. The 15–20 basis points expected from supervisory actions in H2 are separate from the Danish Compromise and reflect potential regulatory or supervisory impacts we expect this year. Thank you, Fernando.

Thank you, everybody. Thanks, Héctor. Thanks, José, for your time. The investor relations team is available if you've got any follow-up questions. This concludes our first half results call. I wish you all a very good day.