Banco Santander, S.A. Q2 FY2021 Earnings Call

Good morning, everyone. Thanks for joining today's Grupo Santander first-half 2021 earnings call. As our normal procedure, our group CEO, Mr. Jose Antonio Alvarez, will start the presentation with the highlights on the group's first half this year performance, followed by our group CFO, Jose Garcia-Cantera, who will address in detail the different aspects of the first half by business areas before handing over back to our CEO for the key takeaways. And obviously, plenty of time for a Q&A session. So Jose Antonio, please.

Thank you, Sergio. Thank you to everyone for joining us this morning. I would say, when I look at the first half of the year, I would say that we continue to show the main features of our bank in the sense that we continue to grow. Growth has been one of the features that we emphasized during this time. The growth is reflected both in customers, volumes, deposits, mutual funds, and loans. And also, we translate this into revenues, into the operating profit that grew 13% year on year in constant euros. So our operating income consistently keeps growing. We delivered in volumes, well-diversified across regions and businesses. The performance was supported during this year, particularly in the pandemic, by increasing digitalization with a strong growth in digital customers and digital sales. The Q1 profit reflects this growth in volumes into profitability. Q2 '21 profit was EUR 2.1 billion, including the Single Resolution Fund contribution of almost EUR 370 million. Excluding this, quarter-on-quarter growth was 8%. No extraordinary items were recorded this quarter. In the first half of the year, we reached a recurrent attributable profit of EUR 3.6 billion. As you know, we did a charge for restructuring costs in the first Q, so the underlying profit was EUR 4.2 billion, the largest since 2010. The return on tangible equity increased to 12.6%. Compared to the first half of 2020, revenue was higher, efficiency improved, and the cost of credit dropped notably to 94 basis points. We announced the agreement to acquire Amherst Pierpont in the U.S. and a proposal to acquire the 20% we do not own in SCUSA. Our capital position remains solid, with a core equity Tier 1 ratio of 12.11%, above our target range, and we continue to generate organic capital quarter-on-quarter and risk-weighted asset growth on the accrual for shareholder remuneration inside our range of 40% to 50% payout. Finally, our tangible net asset value per share increased 4% this quarter to around EUR 4 per share. In short, I would say we achieved our targets. We exceeded our targets in the first half, and we remain very focused on building more resilient, inclusive, and greener businesses. As I said, we kept growing the customer base by 3%. As you may expect, digital transactions kept booming in this environment, up 38%, and digital sales increased by 8 percentage points. This is well-spread across the board among the different products: mortgages, consumer cards, deposits, investments, and insurance. Digitalization is making good progress across the board, while we relate this, as I mentioned before, to our income that kept growing. Operating income and efficiency, on the back of our efficiency plan, improved our cost-income ratio to 45.7%. We are also among the top three in NPS in seven markets where we operate, which reinforces our management by the market. The exchange rate had a difference compared to the quarters, with a very small impact in the quarter but still a strong negative impact year-on-year of minus 7 percentage points in revenue and 6 percentage points in cost. Looking at the results on a constant euro basis, revenue grew mainly related to customers and cost discipline in an environment where inflation is accelerating all across. We continue to reduce loan loss provisions compared with the previous quarter while improving the cost of credit. We didn't record any extraordinary items in Q2, having recorded the EUR 530 million restructuring cost in Q1. Additionally, in the same period last year, we recorded equitable adjustments. We delivered first-half underlying profit of EUR 4.2 billion. Importantly, I want to underline that our regions and global business are performing very well. All three regions contributed roughly 30% to the group profits with strong profit increases in all of them. Once again, the U.S. performance stands out, with a profit of EUR 700 million in Q2 and EUR 1.3 billion in the first half of 2021. The Digital Consumer Bank, which contributes to 11% of the group underlying profit, also significantly increased its profit amid a challenging environment in the early months of the year. In terms of global businesses, CIB had another excellent quarter, generating around EUR 500 million in net profit this quarter after a record performance in the previous quarter. Wealth Management & Insurance has gradually recovered in recent quarters and grew at double-digit rates, both in volumes and phasing in the first half of this year. This positive performance by region, together with the support of our global business, continues to demonstrate that our geographic and business diversification is a fundamental pillar of our business model. We see trends and consistent trends across the board. NII and fees increased and reached pre-pandemic levels. I will run you through this in more detail in the following slides. Cost control, along with rising inflation and increased expenses related to higher activity, is essential. Loan loss provisions declined 13%, with widespread improvements in the cost of credit. To summarize, it was a very good quarter reflecting the strong rebound in activity, particularly in June. If we go to NII, it grew by 8% compared to first-half 2020 and 3% quarter on quarter, driven by higher volumes. The margin management showed repricing liabilities in Europe, the U.K., and Mexico. In Europe, mainly in the U.K., and improving loan spreads in the U.S., U.K., and Poland. In addition, a positive impact stemmed from TLTRO. Finally, despite the hikes in Brazil, Mexico, and Chile, average rates continue to have a negative impact. These increases will positively influence NII in the upcoming quarters. When it comes to fee income, it reflects clearly the rebound in activity. You can see from the provided slide that several key products recorded growth compared with the first half of 2020 and quarter on quarter, with the quarter-on-quarter increase particularly intense on the back of normalization of activity levels. We're witnessing strong growth in main businesses like acquiring business cards or private banking. While we expect this growth to continue, especially as normalization progresses. Regarding cost, our efficiency improved by 159 basis points year-on-year. Europe recorded the highest efficiency savings with an 8 percentage point reduction. We continue to see significant inflation increases in all countries, particularly in the U.S., where inflation spiked significantly. In this context, group costs rose by 3%. In real terms, excluding inflation, costs were 0.4% lower after investments in IT. In Europe, costs decreased by 1.5%. Overall, we are progressing toward reducing EUR 1 billion in costs in Europe. While the U.K. is slightly lagging, we expect to accelerate in the second quarter and beyond. Efficiency in the region in Europe stood at 51%, while in North America, costs increased by 7%, mainly driven by technology expenses and amortizations. In South America, increasing costs of 7% were highly influenced by significant inflation in Argentina. Nevertheless, in real terms, costs declined by 3% across the region. Finally, in the Digital Consumer Bank, we recorded cost increases due to changes in perimeters, particularly from the leasing business we acquired one year ago in Germany and investments in digitalization. We continue with the bank's transformation, which will be reflected in our cost/income ratio improvement as we progress, especially in Europe, where we are committed to deeper transformation. The cost of credit remained flat, as I mentioned, at 94 basis points, with expectations around 1% for the whole year. The NPL ratio remains stable, with loan loss reserves still at EUR 24 billion and a nonperforming loan coverage ratio of 73%. What we are seeing in terms of trends is reflecting better behavior than what our models anticipated for various segments, including mortgages and consumer credit, due to lower unemployment and better house prices. For SMEs, we are still taking a prudent stance and need to evaluate the recovery's intensity before making significant assessments. Compared to our expectations from a year ago, the situation is considerably better. Return on tangible equity reached 12.6%, and the underlying EPS is north of EUR 0.22 per share, while TNAV grew 4% quarter on quarter. The return on tangible equity and risk-weighted assets ratios are higher than in 2019. As for capital, we continue to generate capital organically in the quarter. We accrued a 50% payout on underlying profit, organically generating capital. Regulatory model-related impacts were 24 basis points in the quarter. After that, the CET1 phase-in ratio was 12.11%, so we are above our targets; above the upper limit of the range, and we have a significant management buffer. We expect to maintain solid performance in the upcoming EBA stress test results expected on Friday. Historically, we have performed well with minimal capital depletion compared to our peers in Europe. We expect our return on tangible equity to progress to our medium-term target of 13% to 15%, allowing significant business growth and a payout within the range of 40% to 50% while preparing for potential regulatory impacts in the future. Lastly, regarding ESG, we made strong commitments. We became a founding member of the Net-Zero Banking Alliance, requiring specific targets in power generation, oil, and gas. This includes our published target for the Net-Zero Banking Alliance in power generation. We are working in three directions: improving financial products for our customers, issuing green bonds (where we've already issued EUR 1 billion this year), and mobilizing green finance. We mobilized EUR 8 billion in green finance in the first half, bringing our total to EUR 42 billion since our commitment began in 2019. We are a market leader in financing the renewable sector and continue to lead project finance league tables. On the social side, Santander Finance for All is helping individuals access financial systems, crucial in microcredit and financial education. Our microfinance initiatives are launched in Brazil, Mexico, Uruguay, and Colombia and planned for Peru this year. As a result of these efforts, we were recognized as the best bank for sustainable finance in Latin America by Euromoney. Regarding governance, we maintain robust governance across group subsidiaries, ensuring ongoing board effectiveness, balanced tenure, and diversity. Additionally, we include ESG metrics in our executive's bonus scorecard. Now I will hand the call to Jose to elaborate on regional business performances.

Thank you, Jose Antonio, and good morning, everyone. I will start with a brief summary of the regions, then elaborate on the main countries. In Europe, we accelerate One Santander's transformation, enabling us to progress toward our medium-term targets. We had positive volume growth year-on-year in almost all markets, consistent with trends seen since the beginning of the year. Revenue increased by 14% year-on-year, maintaining cost control and improving efficiency. Additionally, we observed reductions in loan loss provisions in most countries and a lower cost of risk at 49 basis points. In North America, we experienced strong profit growth boosted by improvements in the cost of credit in the U.S., effective cost control, and increased revenue. Revenues went up by 8%, excluding disposals, while the return on tangible equity in the region reached 15%. In South America, we are strengthening regional ties to continue growing profitably, supported by record new customer increases in recent months. We had a robust rise in loyal customers, up 24%, and digital customers, up 20%, reflected in double-digit volume growth, resulting in a return on tangible equity of 20%. The Digital Consumer Bank also showed positive year-on-year performance after significant activity pickups this quarter. Overall, we delivered robust performance in all regions this quarter. Let me analyze the main countries in more detail. In Spain, as economic activity began to recover, our stock of loans expanded by 1%. New mortgage lending reached its highest level in three years, while consumer lending recovered to pre-pandemic levels. Year-on-year, the loan portfolio increased, mainly in SMEs and corporates that lagged after the 2020 eco-loan boost. Underlying profit was heavily influenced by the SFR contribution of EUR 116 million in Spain. Excluding that, net operating income was 4% higher, driven by positive fee income and cost performance. In the first half, profits increased by 56% year-on-year, and NII grew by 10% driven by TLTRO and active management of funding costs. Insurance and mutual funds showed record inflows in the first half. Furthermore, we reduced costs by 7%, resulting in an efficiency ratio well below the peers' average. Positive jaws delivered over 16% growth in pre-provision profit. We remain cautious about the recovery of key sectors in the Spanish economy, particularly tourism. For the second half, we expect trends to continue, with a slight increase in loans and deposits. Revenue is projected to recover to pre-pandemic levels with low single-digit rates, while costs are expected to maintain a downward trend, with a 7% decrease anticipated by year-end. In the U.K., total income increased significantly due to NII growth of 29% year-on-year, stemming from management actions to reprice deposits, reflected in a net interest margin improvement of 26 basis points. Volumes grew driven by mortgages and government-backed business loans. Costs continued to decline, reflecting progress on our transformation program, which resulted in a strong efficiency improvement of 13 percentage points. Loan loss provision releases of EUR 86 million in the quarter reflected the absence of significant charges and an improved economic outlook. In summary, it was another positive quarter with a strong increase in profitability, and we expect to maintain positive NII trends by year-end while costs will decrease as optimization plans are executed. We don’t see signs of deterioration in asset quality. Brazil continued to deliver excellent performance in volume and profitability. We maintained significant growth in new mortgage lending to individuals, reaching record highs in card sales, along with substantial income growth from Getnet. We also remain the leader in auto loans. As a result, loans grew by 15%, customer deposits by 11%, and profits rose by 44% year-on-year, with return on tangible equity increasing to 22%. Total income rose by 9%, supported by strong NII performance, where larger volumes offset margin pressures from lower average interest rates. However, these rates have increased in the quarter, contributing to net fee income growth. Enhanced productivity and expense management let us achieve record efficiency levels. Loan loss provisions decreased notably, improving cost of credit performance that fell to 3.51%, down 116 basis points year-on-year. Profits increased by 6% compared to the first quarter, driven by NII and fee income growth, which offset lower gains on financial transactions and higher individual provisions. We expect to see the same growth trends in the second half. In the U.S., our efforts from recent years have uniquely positioned us to benefit from improving market conditions. Loan growth was impacted by disposals, yet excluding these perimeter changes, growth was 1% year on year, with auto origination increasing by 29% in the first half. The U.S. became the largest contributor to the group's underlying profit, both in Q2 and the first half, reaching EUR 700 million and EUR 1.3 billion, respectively. Net operating income increased due to resilient NII, where deposit pricing actions offset lower rates, strong auto leasing, and wealth management and cards fee income. Without the disposals, net operating income increased 23%. Loan loss provisions fell sharply due to an improved macroeconomic outlook, customer loan relief, and higher used car prices leading to robust credit performance. Additionally, profit increased in the first quarter due to better lease performance and the release of loan loss provisions. In line with our strategy to accelerate growth in the U.S., we announced two transactions: the proposal to acquire all outstanding shares of Santander Consumer we do not own (around 20%) and the agreement to acquire Amherst Pierpont Securities. These transactions aim to reduce complexity, increase profitability with minimal operational risk, and enhance business diversification. We expect to sustain strong performance in net operating income with double-digit growth through deposit pricing, solid wealth management, CIB fee income performance, and robust momentum in auto leases. Loan loss provision expenses are forecasted to significantly improve against last year, although gradual normalization may occur in the second half after an abnormally low first half. In Mexico, our multichannel innovation continues to strengthen our value proposition, enabling us to increase our loyal and digital customer bases at double-digit rates. Lending performance remains strong in auto loans and mortgages, gaining market share. However, total loan portfolio decreased in line with the system due to the normalization of corporate loans. We are shifting our funding mix toward demand deposits and mutual funds. Profit was slightly down year-on-year, while total income fell, affected by NII pressure from lower rates and volumes, along with decreased trading gains from ALCO sales in the second quarter of last year. Conversely, fee income increased due to transactional revenues. Costs fell 2% in real terms despite higher technology investments and amortizations. Loan loss provisions dropped 21%, resulting in a cost of risk below 3%. Aligned with our strategy, the tender offer to acquire the remaining 8.3% of Santander Mexico shares is on track for a third-quarter launch, pending regulatory approvals. For the second half, we expect volume recoveries, with fees growing at high single-digit rates and a gradual pickup in NII. Regarding the Digital Consumer Bank, activity trends improved, with new lending performing well in Q2 after pandemic controls eased in Central Europe, delivering 20% growth year-on-year. In this quarter, profit headwinds included the SRF (Single Resolution Fund) contribution, where excluding profits would have shown a 6% increase, alongside higher provisions in the Swiss franc mortgage portfolio in Poland. Conversely, recovery in activity was reflected in NII, fee income, and cost of risk improvements. In the first half, profits increased by 11% year-on-year, while costs grew by 5% year-on-year due to perimeter changes such as Sixt, TIMFIN, and digitalization investments. On a like-for-like basis, costs were down. Looking ahead, we anticipate strong cyclical growth in consumer finance demand, achieving mid-single-digit revenue growth, flattish costs, and a stable cost of risk between 60 to 70 basis points. Now, let me review the global businesses, starting with CIB. As Jose Antonio mentioned, CIB had another excellent quarter in activity and outcomes, despite the quarter-on-quarter comparison being affected by record-high Q1 '21 results. In the first half, CIB reached leading positions in structured finance rankings, topping globally by transaction count. We were first in DCM in Spain and top three in Mexico and Chile, as well as top three in ECM in Spain, Mexico, and Poland. We generated outstanding first-half results, driven by overall revenue improvements across businesses, mainly in markets and global transactional banking. We expect continued strong performance throughout 2021, likely within normalized trends. In wealth management and insurance, total assets under management saw double-digit growth year-on-year, driven by market movements and commercial inflows. In private banking, Santander Asset Management managed over EUR 9 billion, accounting for 2% of the total volume. In insurance, gross written premiums rose 12% year-on-year, driven mainly by noncredit-related protection business. In summary, total fee income grew by 10%, and the total contribution to the group's profits rose by 9% year-on-year. In PagoNxt, payments form the cornerstone of our strategy to enhance customer loyalty. In the first half, revenue increased by 23% year-on-year, mainly due to a strong increase in fees, up 39% at constant exchange rates. We expect revenue to remain strong in the second half, targeting around 50% growth to reach EUR 1 billion in the medium term. To provide context, in merchant solutions, Getnet is already among the top three acquirers in Latin America, with solid performance exceeding pre-pandemic levels in active merchants and total payment volumes. Getnet Brazil saw robust commercial performance, capturing over 15.5% market share. Getnet in Chile initiated its commercial activities, while Mexico progressed in its migration plan to the global platform. In Europe, we are transitioning from our domestic acquiring business in Spain to Getnet Europe, which will provide integrated offerings to European customers by year-end. Overall, we achieved 1.2 million active merchants, an increase of 24% year-on-year, and total payments volume in the first half approached EUR 50 billion, rising 53% year-on-year. The second component is Trade Solutions, supporting SMEs and corporates that operate internationally through state-of-the-art solutions. One Trade is now connected with customers in eight countries after launching in Mexico and Poland, with over 6,000 active customers, a 50% increase compared to Q1. We aim to expand exponentially by adding new services. In Ebury, we continue investing in project developments and platforms, although volumes and revenues were temporarily hindered by the pandemic. Lastly, in consumer solutions, we will soon roll out the new global platform in Argentina, Peru, and Colombia. Let me conclude with the corporate center results, which improved by 6% compared to the first half of last year, primarily due to the positive trend in operating expenses and declines in loan loss and other provisions resulting from one-off provisions recorded in the first half of last year for certain stakes whose value was affected by the crisis. On the flip side, net interest income suffered due to increasing liquidity buffers and lower gains on financial transactions. We recorded positive foreign currency hedging results in 2020. Now I'll turn the call back to Jose Antonio for his concluding remarks. Thank you very much.

Thank you, Jose. I will take just one minute to summarize the results we presented to you. I would say our first-half results were solid and consistent across geographies and businesses, supported by volume growth, strong revenue, efficiency improvement, better cost of credit, core equity Tier 1 above our target range, and return on tangible equity significantly exceeding the cost of equity. Looking forward, we continue our strategic transformation, growing and increasing profitability while helping our customers and societies by building a strong customer base, achieving greater customer satisfaction with our services, and helping our customers become more digitized. Based on the results obtained year to date and our constructive business outlook for the second half, I believe we are well on track to outperform our full-year '21 goals. We expect to close the year with a cost of credit around 1% and increase our profitability ratios well over 10%. Finally, we remain at your disposal for any questions you may have. Thank you.

Thanks, Jose Antonio, indeed. Now we have plenty of time for the Q&A session. So please, operator, let's proceed with the first question. Yes. We can move to the Q&A session, please. We seem to have some problems. Bear with us one minute. [Technical difficulty] -- a high level of confidence in your capital position. But can you give us a bit more color on how you see capital allocation between the returns and the growth, organic and inorganic? Should we expect this sort of bolt-on acquisition to be a regular feature of Santander going forward? And can you maybe discuss whether you see any technical or regulatory barrier for Santander not looking at buying back the Brazil minorities at some point in the future?

OK. Let me elaborate on our capital. I mentioned during the main presentation that looking at the medium term, we established a medium-term target for return on tangible equity in the region of 13% to 15%. Based on our business evolution, I feel confident that we will achieve this. In terms of capital deployment, I look for risk-weighted asset growth. This is a growth story, particularly as we're aiming for double-digit growth in Latin America, despite potential currency depreciation. However, in Europe, we anticipate a more flat evolution of risk-weighted assets. This will likely lead to risk-weighted asset growth, around 3% to 5% year-on-year. Additionally, we are maintaining a payout policy to remunerate shareholders between 40% to 50%. You do the math, and we have some capacity for potential regulatory headwinds we might face in the future. Regarding acquisitions, we have not contemplated any large acquisitions, but small acquisitions are on the table. I feel confident in maintaining our range of 11% to 12% for the coming quarters and probably for the coming years. So it's still too early to tell, but we stand by this.

Good morning. Thank you. I have two follow-up questions also on capital in the U.S. First, I want to confirm the year-to-date headwinds of 37 basis points, and your guidance was 40. Is there anything that is getting better or worse that you can share for the rest of the year? Secondly, regarding a follow-up question I asked in Q1, have you given any further thought to splitting your distribution between dividends and share buybacks? Any color you can provide on potentially quantifying share buybacks that you might be considering? When can you be more precise about that? For the second question, more strategic on the U.S., you bought the minority SCUSA and also a broker in the U.S. I wanted to ask if you could elaborate on the strategic rationale behind these two acquisitions. Presuming you’re after dollar clearing with the broker, the timing of both acquisitions seems interesting. Can you talk about why now, and what are you trying to build in the U.S.? Is it a universal bank? Would the consumer bank be integrated with retail?

OK. Let me elaborate on capital. I wouldn't say we have encountered surprises, although there are regulatory issues affecting estimates, which may reflect in headwinds of five to ten basis points more than early estimations. Regarding capital allocation, the board needs to consider different options for remuneration to shareholders within the established 40% to 50% policy. Share buybacks and cash dividends are potential avenues we could discuss in September as the board reviews options. Regarding our U.S. strategy, we see several business lines that can benefit from improved efficiencies. We have a robust consumer finance building in SCUSA, with strong origination. We are also developing a growing deposit base in SBNA, which is expanding, along with growth in CIB and private banking, primarily in Miami, which is profitable and growing in double digits. The combination of these factors gives us confidence that we can achieve above our cost of equity with diversified growth.

Yes. The two factors causing the increased capital expectations relate to the new definition of default from regulators, which is not neutral for capital impact, and difficulties in counter-party credit risk for derivatives that were already accounted for in Q2.

The second question regarding buybacks remains contingent on the upcoming ECB indications on dividends, expected after the end of September. Just to reiterate, last week the ECB announced that the bank's dividend policy will be reviewed. Clearly, our 40% to 50% remuneration policy to shareholders remains applicable. The board will examine different options regarding potential cash dividends or buybacks as our share price is trading below tangible net asset value per share. Concerning the U.S. strategy, we aim to expand across four primary areas without restrictions to their legal structures: first being our growing consumer finance business in SCUSA; second, a growing deposit base in SBNA; third, the ongoing development of CIB with impressive growth; and finally, our high-performing private banking business in Miami. These areas will be prioritized in a bid for profitability through a coherent business model.

Yes. Thank you for taking my questions. I have a follow-up question and one on Spain. Regarding the follow-up, if I understood correctly, you are increasing the guidance on regulatory headwinds from roughly 40 to 55 basis points this year. I'd like to know if you have any expectations for 2022, as the stock seems to have reacted relatively flat despite a clear beat in results. On Spain, the cost of risk appears to remain high and definitely does not reflect the same evolution seen in other geographies. What is your outlook for Spain? Are you bringing forward some future trends based on anticipation or simply being cautious due to low visibility? Additionally, what is the timing for allocating the overlay provisions of last year? If the macro does not align with your expectations, when might you actually release those overlay provisions?

I will address the cost of risk questions and pass it over to you regarding capital. Regarding the cost of risk in Spain, my thoughts are as follows: in terms of individual families for consumer and mortgages, we’re seeing substantially better trends than what our models anticipated when estimating overlays based on expected future losses. This is a positive outcome attributed to lower unemployment and better house prices than expected. However, for SMEs, the uncertainty remains high. While economies are rebounding, Spain's specific dependency on tourism adds complexity. We are still midway through this rebound. At this stage, we must advise caution as we evaluate the recovery's trajectory; this could take three to four quarters based on economic normalization. As for overlays, their allocation will depend on our risk assessments reflecting economic changes over the next few quarters. While the current economic scenario looks far better than what we assessed a year ago, timing these releases will depend on our comfort levels surrounding economic conditions.

With respect to regulatory expectations, yes, we initially expected around 40 to 45 basis points; now it seems more likely around 10 basis points higher. Most of the increase is anticipated in the third quarter. Nonetheless, we are confident that we will remain at the upper end of our target range this year in 2021.

Thanks very much for taking my questions. Good morning, all. I have two questions on P&L operating trends—one regarding costs. When will we start to see benefits from the U.K.? While you mentioned that the second half should be better, it seems that costs have been weaker than my expectations in the U.K. Additionally, regarding the Digital Consumer Bank, we noticed a cost increase in the quarter; could you provide some color on whether this is coming from the consumer finance business or open banking? Also, on NII in Brazil, it has been very strong this quarter, and mechanically should remain strong next quarter due to FX appreciation. Could you update us on your focus in terms of loan growth and the expected margin impact in Q3?

Regarding your question about U.K. costs, I mentioned in the presentation that we expect an acceleration of cost reductions in the U.K., as we are committed to our targets in Europe for the four main units of Spain, the U.K., Poland, and Portugal to achieve EUR 1 billion. U.K. will see acceleration in this regard. The Digital Consumer Bank situation is more complex. What you see is simply a growing business and as we reach new agreements with OEMs to expand our activities, particularly in the leasing space, we are focusing on efficiency in transaction costs related to our revenues. It is imperative to view the Digital Consumer Bank as a growth story. Our originations lagged through the first few months of the year, but in June, we were close to expected origination levels. For the second half, we aim to reach normalized levels. However, the scarcity of new cars due to chipset shortages is creating challenges. We are optimistic for strength in used car sales, particularly in Germany. In Brazil, while we remain on pace for strong NII growth and market share gain, the recent interest rates adjustments have had limited impact. However, we effectively managed costs, leading to continued healthy growth and strong customer attraction. Overall, we don't foresee significant change from our projections over the coming quarters.

Thank you, Ignacio. Next question, please?

Hi there. Good morning. I've got three questions and a clarification, please. My first question concerns PagoNxt. You mentioned the EUR 1 billion revenue target over the medium term; can you clarify what you mean by medium term and when you consider the business to become breakeven in terms of profits? My second question is on legal issues: What is your current view on the Polish FX mortgage scenario? You have taken another provision in the quarter. What do you see as the endgame? Additionally, could you comment on whether there's any potential impact on your business in Germany due to the BGH ruling on deposit fees? And are you concerned that this might lead to similar actions or legal challenges in other geographies? Finally, could you give us an updated figure regarding the macro provisions considering recent releases in the U.K. and U.S.?

Let me address your questions regarding PagoNxt first. As presented, we anticipate 50% revenue growth in the second half of this year compared to the first half after acquiring Wirecard assets recently. Consequently, we expect rapid revenue growth over the next few quarters while largely maintaining our cost base. Medium term usually implies a two- to three-year timeframe for revenue volume targets nearing EUR 1 billion. In terms of breakeven, we estimate the acquiring business could achieve profitability in one year or 18 months, while the trade segment could realize breakeven more quickly. The delays in some areas relate to deploying networks in countries like the U.K. and Poland, which may take longer to realize. Regarding the Polish FX mortgage situation, we expect a Supreme Court ruling by early September with current provisions standing at about 15% of the EUR 2 billion portfolio. The uncertainty surrounding this issue doesn't have a material impact on the group. Regarding actions in Germany, we don't charge deposits aside from institutional or non-operational large corporate deposits. I would not foresee a significant impact unless the ruling affects the professional market as well. Finally, in terms of macro provisions, we have only assigned overlays in Spain and a minimal amount in Mexico; the rest are currently unused.

Thank you, Britta. Next question, please?

Hi, good morning. Thank you for taking my questions. I would like to follow up regarding the costs of risk in the U.K. and U.S. You witnessed write-backs that I believe stem from macro input adjustments in the provisioning model. Going forward, what type of underlying cost of risk should we expect from these two business lines? Furthermore, regarding NII in the U.K., could you share some guidance on what to expect throughout this year and possibly next year?

For the underlying cost of risk in the U.K., it has traditionally been quite low—around 10 to 15 basis points due to the mortgage-heavy business. In contrast, the U.S. runs a different cost of risk designation, particularly for SCUSA, which historically has been around 6% with some inherent volatility. You may see some seasonal variations in this business. If we maintain the current mix, the expected cost of risk varies, but largely should be within reasonable fluctuations of 20 to 30 basis points. As for NII guidance in the U.K., we have seen a year-on-year improvement of about 26 basis points in the first half. Therefore, we expect a similar figure to be realized for the full year, targeting double-digit growth in NII throughout the U.K. for 2021.

Thank you, Carlos. Next question, please?

Good morning. Thanks for taking my question. Santander has been involved in a branch trial in the U.K. where several banks have formed a bank hub within one branch. Do you see this as a strategy that could potentially roll out across rural areas in the U.K.? It appears to be quite a promising idea.

The branch model is largely idiosyncratic. This varies in different countries. In the U.K., we have a unique structure that relies heavily on IFAs specializing in savings and mortgages, in contrast to other countries where branches act more like supermarkets for a broader array of financial products. Thus, the model in the U.K. is slightly different from our existing structure in other areas. We continue focusing on investing to enhance digital distributions and packages across multiple products, particularly those yielding fee income.

Thank you, Benjamin. Next question?