Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Banco Santander SA (SAN, Financial) reported a record profit of EUR 3.2 billion in Q2 2024, a 20% increase from Q2 2023.
- The efficiency ratio improved by 261 basis points to 41.6%, the best in 15 years.
- Return on tangible equity rose 137 basis points to 15.9%, or 16.3% excluding the temporary levy in Spain.
- Solid balance sheet with a CET1 ratio of 12.5%, supported by strong organic capital generation.
- Revenue growth target upgraded to high single digits, with better NII and fee income expected.
Negative Points
- Loan loss provisions continue to normalize, impacting overall profitability.
- One-time charges of EUR 450 million affected the net profit.
- NII in Spain is expected to peak and then slightly decline in the second half of 2024.
- The US business is still struggling to deliver positive jaws due to high investment in CIB.
- Brazil's NII growth might be less intense than initially anticipated due to smaller rate cuts.
Q & A Highlights
Q: Did I hear it correctly that you saw EUR30 billion of risk-weighted asset disposals in the quarter? And what will be the revenue impact going forward from securitizing some of the loans?
A: Yes, EUR30 billion was risk-weighted assets in the first half. About 40% of this is SRTs, with the rest being other transactions like asset sales and hedges. The cost of mobilizing this EUR30 billion was slightly below 10% RoTE equivalent, and we reinvested the capital at 23%. This generated increased profits with the same capital of around EUR500 million annually. We expect to continue this trend, with significant demand for private credit in the second half.
Q: Could you elaborate on the revenue performance in Europe and LatAm, and what should we expect in terms of NII for the UK?
A: Revenue has been stronger than expected, with good performance across businesses. LatAm is expected to perform well in the second half, particularly in Brazil and Chile. In the UK, we expect a better second half due to more rational market behavior and effective cost control initiatives. NII in Spain is expected to peak and then stabilize, with mid-single-digit growth for 2024.
Q: Can you provide more details on the US tax credits and their impact on your P&L?
A: The tax credits are federal and linked to leases on electric vehicles. We receive the tax credit in one lump sum, which impacts the tax line rather than revenue. The program depends on our capacity to absorb these credits, and while we can't predict future political changes, we hope the program continues.
Q: How do you see the NII in Spain evolving, and what are your expectations for the US business?
A: NII in Spain is expected to slightly decrease in the second half of this year, with year-on-year growth between 5% to 7%. For 2025, NII should be fairly flat relative to the second half of this year. In the US, revenue is expected to continue growing, with better profitability in the second half due to improved provisions and strong fee performance.
Q: What are your expectations for the cost of risk in Brazil, and how is the loan mix changing?
A: The increase in provisions in Brazil is linked to loan growth, with cost of risk remaining stable. We are changing the loan mix to focus on profitability and reduce risk, which has helped maintain sound credit quality. We expect the cost of risk to remain stable for the rest of the year, with potential improvements if economic conditions continue to improve.
Q: Can you provide more color on the structural hedge in the UK and its impact on NII?
A: The structural hedge in the UK is designed to protect the balance sheet from decreasing interest rates. We have accelerated planned investments for 2024, reducing our sensitivity to rate changes. The current hedge is GBP114 billion with a duration of 2.5 years and a yield slightly over 2%. This should help stabilize NII in the UK.
Q: How do you see the revenue performance in the US, and what are your expectations for the UK NII?
A: US revenue is expected to continue growing, with strong performance in CIB and retail. The UK NII is expected to improve in the second half due to more rational market behavior and effective cost control. We expect mid-single-digit decreases in NII for the full year, with better performance in 2025.
Q: What are your expectations for the cost of risk in Brazil, and how is the loan mix changing?
A: The increase in provisions in Brazil is linked to loan growth, with cost of risk remaining stable. We are changing the loan mix to focus on profitability and reduce risk, which has helped maintain sound credit quality. We expect the cost of risk to remain stable for the rest of the year, with potential improvements if economic conditions continue to improve.
Q: Can you provide more color on the structural hedge in the UK and its impact on NII?
A: The structural hedge in the UK is designed to protect the balance sheet from decreasing interest rates. We have accelerated planned investments for 2024, reducing our sensitivity to rate changes. The current hedge is GBP114 billion with a duration of 2.5 years and a yield slightly over 2%. This should help stabilize NII in the UK.
Q: How do you see the revenue performance in the US, and what are your expectations for the UK NII?
A: US revenue is expected to continue growing, with strong performance in CIB and retail. The UK NII is expected to improve in the second half due to more rational market behavior and effective cost control. We expect mid-single-digit decreases in NII for the full year, with better performance in 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
