Banco Santander, S.A. (SAN) Earnings Call Transcript

Good morning, everyone, and thank you for joining Santander's Third Quarter 2026 Results Presentation. Today's presentation will follow the usual structure. First, Hector will talk about our results with a special focus on the performance of our global businesses. Jose will then cover the financial results in more detail. And finally, Hector will close with final remarks before we open the line for Q&A. Before we start, let me highlight two points. First, this is the first quarter in which both TSP and Webster are included in our results. with Webster consolidating from August 20. Second, to provide a clearer view of the underlying trends, our underlying metrics exclude the impact of Poland as well integration costs related to TSB and Webster. With that, Hector, over to you.

Thanks, Raul, and good morning, everyone. Q3 was another strong quarter for Santander, demonstrating once again the strength of our strategy and the resilience of our business model. Our underlying profit for the first 9 months of '26 hit a new record of EUR 11.2 billion, driven by strong customer activity, revenue growth and our growing franchise of 189 million customers, which now includes TSB and Webster. At the same time, ONE transformation continues to drive excellent forwards towards a simpler and more integrated model. This is translating in tangible results, efficiency improving by almost 2 percentage points. Underlying RoTE increasing to 16%. Our balance sheet remains very solid with robust credit quality and CET1 ratio of 12.7%. We have generated close to 90 basis points of capital this year helping us to absorb the impacts from TSB and Webster while maintaining a solid capital position. Overall, our disciplined capital allocation continues to drive strong results and shareholder value creation. Before I move on, as you may notice, the impact of TSB and Webster on year-on-year trends remains very limited at around 1.3 percentage points across the main P&L lines. Our P&L remains very solid, with underlying profit growing 14% year-on-year in constant euros. We continue to deliver strong revenue growth across our global businesses with revenue up 7%, supported by NII up 8%, driven by a profitable volume growth and record fees up 7%, outpacing NII growth ex M&A with the strong customer activity across our businesses. This reflects the structural trends as customers do more with us and we capture the benefits of stronger connectivity across the group. At the same time, cost decline, excluding TSB and Webster, demonstrating the positive effects of our transformation. LLPs remain impacted by Argentina, reflecting sector-wide trends in the country. In the rest of the group, provisions grew broadly in line with organic portfolio growth. All in all, these results once again demonstrate the quality and resilience of of our earnings. What we are seeing again this quarter clearly reflects the strategy we presented at Investor Day. Our unique business model combines scale with customer focus and diversification across Europe and the Americas. Together with ONE Transformation and our the network businesses continues to drive operational leverage, higher profitability and strong shareholder value creation. Now let's talk about our customers. Through structural trends continue to strengthen the quality of our results. First, we continue to grow our customer base. Second, Customers are doing more with us, supported by higher engagement, better products and stronger connectivity across the group, driving fixed proactive customers up 2%. And third, we continue to structurally reduce our cost to serve as ONE Transformation continues to scale across the group. Together, more active customers deeper relationships and lower cost to serve are making our profitability more sustainable over time. We continue to deliver on our transformation, driving structural efficiency and gains from levers we control. Simplification and automation have delivered almost 2 percentage points of efficiencies. Our network businesses are generating a strong positive jaws. Our global technology platforms are scaling across the group, and AI is now making a measurable contribution. As a result, our efficiency has improved significantly with further upside ahead. Our five global businesses continue to deliver strong results, supported by customer activity, diversification and scale. Retail and Openbank are delivering strong operational leverage through revenue growth and lower cost. CIB, Wealth & Payments continued to leverage our global capabilities and connectivity to deliver double-digit revenue growth and further efficiency gains. Together a global business model is driving higher profitability and continued progress towards our '28 targets. Now let me take you through each global business. In Retail, we continue to transform our model, combining cutting-edge technology with expertise and proximity of our teams to deliver the best customer experience. We continue to scale up our global platforms with new app now live in five countries and the custom interaction platform available in six, following its rollout in Spain. Together, they are enabling a simpler, more personalized and more consistent customer experience across the markets. In Commercial, our new model continues to generate strong results in Spain and the U.K., connecting high-growth companies with more value-added solutions delivering 17 percentage points of operating jaws in each market with strong revenue growth and lower cost year-on-year. At the same time, Webster strengthens our commercial capabilities in the U.S., adding scale, deposits and further cross-border opportunities across the U.S. LatAm corridor, leveraging our global footprint. Overall, Retail fees grew 8%. Cost per active customer declined 5% and productivity continued to improve. Profit grew 12% year-on-year, supported by strong operational leverage and solid asset quality with cost of risk relatively stable ex Argentina. Looking ahead, we expect profitable growth to continue as we scale our model, deepen customer relationships and capture additional revenue and cost synergies from TSB and Webster. With Openbank, we are building a more integrated scalable and efficient business with a broader customer proposition across our key markets. In Mobility Finance, we continue to strengthen our core Auto Lending business with 12 new agreements with OEMs, reinforcing our position as a strategic partner. At the same time, we are broadening our offering beyond traditional outdoor lending expanding our leasing platform in Europe and improving the digital customer experience. In Digital Banking, our customer proposition continues to gain traction. This is reflected in Embed Finance, where Openbank pay continues to scale, including the recent expansion of our Amazon patenership to Poland. At the same time, our focus on funding optimization continues to support profitability, particularly in the U.S., where Digital Bank has already raised around EUR 11 billion of deposits since its launch. This is translating into a strong underlying performance with positive operational leverage driving 13% growth in profit before tax, excluding Motor Finance. As anticipated, profit continues to reflect the end of [ electric vagal ] tax incentives in the U.S. The tax rate is now expected to remain broadly stable. We expect profitability to improve as we continue to scale the business and deliver further efficiencies. Santander U.S. is already delivering strong results with clear improvements in profitability, efficiency and funding. In just 9 months, Santander U.S. RoTE has improved by around 2 percentage points. While profit is up 20% -- 24% year-on-year, excluding Webster, supported by strong operating leverage and lower provisions. Openbank has been an important contributor to this progress, particularly through the improvement in our funding profile. And with Webster, now part of the group our loan-to-deposit ratio is below 100%. Webster further accelerates this progress adding scale, a more balanced business mix and a significant cost synergies and put on a clear path to around 80% RoTE by '28. In CIB, we continue to build a world-class business for our corporate and institutional clients, leveraging the strength of our global network. Our business model combines in deep industry expertise, advice, financing and risk management capabilities, helping us to build deeper strategic relationships with our clients. A good example is a role in the largest offshore wind project in the German Baltic Sea, where we supported our client as debt and M&A adviser lender and hedge counterparty. What continues to differentiate us is the connectivity of our franchise, bringing CIB capabilities to clients across the group in a much more integrated way. Our recent Airport Financing illustrates this very well with our export finance capabilities supporting a Commercial Banking client. At the same time, we continue to transform our operating model through our global platforms and AI, improving productivity, customer service and risk management. Strong client activity, efficacy and capital discipline continued to drive profitable growth. As a result, profit rose 15% year-on-year while maintaining one of the best efficiency ratios in the sector and creating new business at an RoTE of around 22%. In Wealth, we continue to deliver solid growth while enhancing our value proposition, leveraging our global scale and capabilities. In Private Banking, we are further strengthening our global advisory model and connectivity across countries and businesses. This is already translating into stronger client activity with cross-border referrals of more than 40% year-on-year. In Insurance & 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. Our integrated life and pensions model is already delivering tangible results in Spain, where life saving sales increased 43% year-on-year. In Protection, our specialized sales model in Brazil is driving higher productivity and conversion rates while reducing churn through expert advice. This is supporting a 20% premium growth across our core insurance businesses. Together, these initiatives, making our business more scalable, more resilient and increasingly fee-based. Overall, profit rose almost 20%, driven by strong client inflows, fee growth and continued efficiency gains. Finally, payments, our high-growth platform business. We continue to combine scale with innovation. In Getnet, we remain focused on reinforcing our value proposition through innovation, including a single-entry platform that allows agents to accept payments across Europe. Getnet platforms is already processing around 2 billion transactions per month, helping to reduce the cost per payment transaction by 39%. And Ivory, we are accelerating international expansion, product development and innovation. This is translating into strong financial performance with revenue up 15% EBITDA margin improving to 34% and profit more than doubling year-on-year. Overall, the business keeps building a strong momentum with significant upside as we continue to scale our global platforms. Our strong operational and financial performance continues to drive organic capital generation high profitability and double-digit value creation. We have generated almost 1 percentage point of capital organically during the year, leaving our CET1 ratio of 12.7% on track to achieve a global year-end target. Underlying RoTE improved to 16% and is close to 17% at a normalized average CET1 ratio of 13%. Underlying earnings per share were 21% reflecting strong profit generations and buybacks, while TNAV plus cash dividend per share increased 11% even after the initial impact from Webster. Including program currently underway, total share buybacks will reach around EUR 9 billion, close to our commitment to distribute at least EUR 10 billion for '25 and '26. I will now hand over to Jose who will walk you through the financials in much more detail.

Thank you, Hector, and good morning, everyone. I will take you through the group's P&L and capital performance in more detail. Let me start with two brief comments. First, the group's P&L includes 40 days of Webster results following its acquisition in August and obviously, a complete TSB quarter. I will only refer to the impact of TSB and Webster where material. Second, as usual, we present growth rates in both current and constant euros. The difference this period was around 2 percentage points, mainly due to the appreciation of the Brazilian real and the Mexican peso. Turning to the results. As Hector said, we are delivering record results once again supported by good commercial activity and structural cost efficiencies, generating strong operational leverage. Revenue grew 7%, while costs were stable even with the consolidation of TSB and Webster. Loan loss provisions were again this quarter, affected by Argentina, reflecting sector-wide trends in the country. Excluding Argentina, provisions grew in line with the loan portfolio. The other resource line includes Motor Finance provisions in Openbank Europe booked in the first half as well as restructuring costs related to the execution of our transformation. As a result, profit grew 14% year-on-year in constant euros, putting us in a very strong position to exceed our guidance of more than EUR 14.1 billion profit in 2026, excluding M&A. Total revenue increased 7% year-on-year, supported by deeper client relationships, higher engagement and 17 million new customers over the last 12 months. All five global businesses contributed to revenue growth. In Retail, stronger customer engagement drove solid growth in both NII and fees. Openbank reported solid NII performance, particularly in Europe and South America. CIB was up 14%, supported by strong client activity across business lines. Wealth & Payments delivered double-digit growth driven by fee-generating activity, client flows in Wealth and higher volumes in Payments. Excluding M&A, revenue grew 5%, keeping us on track to deliver our mid-single-digit growth target. Overall, these results demonstrate the strength and diversification of our revenue base. The group's net interest income increased 8% year-on-year supported by the contribution from TSB and Webster in Retail and Openbank. Excluding their impact, NII rose 5%. Retail delivered a positive performance across most countries, supported by higher volumes and active balance sheet management. Openbank also performed well driven by volumes and disciplined margin management, particularly in Europe, together with the contribution from our broader presence in South America. CIB also contributed significantly led by capital-efficient, high-return activities, particularly in Global Markets. On a quarter-on-quarter basis, net interest income rose 2% on the back of strong trends in Retail Spain and the U.K. as well as the inclusion of Webster. In Spain, Retail continued to perform strongly with NII up 2% quarter-on-quarter, supported by improved loan pricing and active balance sheet management. The U.K. also delivered a strong quarter with NII up 6% quarter-on-quarter, excluding TSB, supported by higher yields and volumes. However, the quarter was affected by the normalization of CIB after a strong quarter, the shift towards a lower risk portfolio mix and they come differences between loans and deposits in Brazil and lower U.S. in Chile. Just these last two effects explain the drop at group level. Overall, NII is providing -- is proving stronger than anticipated at Investor Day, a solid activity and a more favorable rate environment in Europe more than offset higher rates in Brazil. Net fee income increased 7% year-on-year, supported by customer growth, higher activity and a greater contribution from value-added products as ONE Transformation depends customer relationships. This is visible across the group. In Retail, fees rose 8%, with strong performances across most of our footprint. Openbank fees were broadly stable as solid growth in South America was offset by the U.S., where the comparison was affected by high servicing fees in 2025 related to portfolio sales. CIB delivered a particularly strong fee performance driven by global banking activity, especially in the U.S., where fees grew more than 30%. Wealth continued to deliver double-digit fee growth with a strong contribution from Private Banking. And Payments also performed strongly with fees up 6%, with Getnet total payment volumes increasing 9%. ONE Transformation remains a key driver of our profitability improvement enabling us to invest at scale in best-in-class global platforms. These platforms give us the capabilities and customer experience needed to compete with leading digital players, attract more customers, deepen relationships and support growth. At the same time, our global approach reduces duplication and structural costs across markets. This is reflected in our efficiency ratio, which now stands at 42.6%, the best level in 17 years with both revenue and costs improving at the same time. In Retail and Openbank, which represents roughly 75% of our cost base, cost declined by 2%, even after incorporating TSB and Webster and while we continue to invest in our global platforms, and revenues grew 6% with a strong positive operating jobs. In our Network businesses, CIB, Wealth & Payments costs grew well below revenue reflecting targeted investments in capabilities that support capital-light growth and recurrence. As a result, net operating income was up 12%, increasing from already high levels last year. Looking ahead, we see further room for cost improvement despite inflationary pressures without taking into account the synergies from TSB and Webster. All of them, levers that are friendly within our control. Our balance sheet's risk profile remains low with sound credit quality across the group supported by prudent risk management and resilient labor markets in most of our core geographies. As in previous quarters, metrics are impacted by Argentina, reflecting sector-wide trends in the country. However, cost of risk in Argentina improved again this quarter. Following the stabilization trend we anticipated earlier this year, slower new production begins to feed through. Excluding Argentina, the group's underlying credit quality remains solid. Loan loss provisions grew in line with organic loan growth, while cost of risk was broadly stable at 109% even after absorbing less favorable FX movements. Retail, Openbank represents over 90% of the group's loan loss provisions. In Retail, cost of risk was stable year-on-year, excluding Argentina, supported by key markets such as Spain and Brazil. In Openbank Europe, cost of risk reflected model updates and growth in Openbank Pay, while in the U.S. continued to perform well. In CIB, provisions were affected by a limited number of single names. Our NPL ratio remains low as the negative impact from Argentina was broadly offset by the positive contributions from TSB and Webster. Overall, credit quality remains resilient. As long as labor markets do not deteriorate, we would not expect material impacts on trade quality. Moving on to capital. We reported another good quarter of organic capital generation. Our CET1 ratio stood at 12.7% after absorbing the 147 basis points impact from Webster. Excluding this impact, the CET1 ratio increased around 15 basis points in the quarter, demonstrating our ability to generate capital while investing in profitable growth. This quarter, we generated 59 basis points of capital from profit, which enabled us to build capital while growing new businesses at a return on tangible equity of around 21%, compensating capital distribution charges for shareholder remuneration in line with our payout target and absorbing other impacts, including regulatory charges in line with our expectations. This solid organic capital generation keeps us on track to end the year at or above our 12.8% target at the upper end of our 12% to 13% CET1 operating range, after absorbing the remaining regulatory charges and integration impacts from TSB and Webster in the fourth quarter. Hector back to you.

Thanks Jose. In conclusion, these strong results put us comfortably on track to deliver all our targets. Our business continues to show solid momentum with ONE Transformation driving a strong operational leverage. This has translated into record underlying profit, a robust capital position and double-digit shareholder value creation. Even excluding TSB and Wetter, we are generating more underlying profit than last year when Poland was still part of the group. In summary, our results remain consistent and predictable. As we enter the final quarter, we remain focused on profitable growth, further efficiency gains and continued value creation. We are building a simpler, more connected and more profitable Santander able to create value across different economic cycles. And finally, our financial north star is clear: to deliver an RoTE above 20% by '28. Disciplined capital allocation, ONE Transformation and our global businesses are the engine of our progress and the results we are delivering today give us confidence in the path ahead. And now we are happy to take your questions.

Thanks, Hector, Jose. With this, let's start the Q&A session. Operator, could we have the first question, please?

[Operator Instructions] Our first question comes from the line of Francisco Riquel from Alantra.

So, I want to focus on Brazil. So you are positively geared to lower selling rates, but the cost of deposits has gone up in this quarter. I also see NIM is under pressure. I understand you are also derisking the loan book, but the cost of risk remains high and NPLs are still trending up. So if you can update on NIM and cost of risk dynamics and what shall we expect for the remainder of the year. And then looking more into the medium term. In Brazil, the election has changed the outlook for interest rates. So I wondered how much of the uplift to the 20% RoTE target was based on on this, on external tailwinds such as lower selling rates? And how can you offset for that if you could consider further restructuring? And also related to this, if you can update the gravity rollout in Brazil, which I understand is not on plan.

Thank you Francisco and thank you for your questions. Okay. I believe it's important when we talk about Brazil to put things into perspective on what sense, first of all, to understand that now 80% of the group is basically based upon a developed market, okay? So the portfolio of the total group is 80% developed markets. Brazil is just 9% of the total portfolio of the bank. So it's important to understand, and that's the beauty of diversification that even when some of the countries are not doing so well, we have a particular situation within the U.K. and the U.S., things are going much better than expected. So it's important to understand that situation. Also, it's important to say that when we went to the Investor Day, our base case, [indiscernible] was going to win. It's important to understand that just 90 days ago, everybody thought that [indiscernible] Will win, then things changed. And then things changed so abruptly that Mr. Bolsonaro was going to win, that basically created a rally on the market, and you saw the result when the -- when the result basically did not come out as everyone expected, okay? I do believe that, first of all, we believe it's an overreaction. I mean when you see rates going all the way to 300 basis points, some of that has come back already 200 basis points is now at 200 basis points. And we will see that situation would be normalizing over the next few months. But it is important to understand now the particular situation that we have. This quarter is down basically because of two factors. First of all, you already talked about it is our decision to derisk the portfolio and also the decision that we took to change the mix of that portfolio. So those two things are affecting NII, but will change exactly what we're doing towards in the future, which would help us exactly managing the cost of risk, all right? So -- and you see the -- I mean you don't see the benefits of the cost price today, but you will see them in the future. If you see some of the things that we're making -- we talked about it, some of it last quarter was, for example, Commercial, 40% of the portfolio is now concentrated in dollars and mainly in Trade Finance. In CIB, we're talking about 30% of the portfolio is already dollar-denominated and it's also a lot of it in Export and Trade Finance directed, all right? So we see that the benefits will show later. But this is exactly what we're doing, and it's exactly the way it's way designed. On the other side, all the upside that we have projected in Brazil for the future is due to ONE Transformation. So we're doing a huge amount of simplification in our bank. You see exactly how we are delivering already on the cost because ONE Transformation is exactly all about this, is exactly simplifying the bank, automating, having less layers in the structure of management, to have a much leaner bank, much more efficient. And this is exactly where we're going towards too. So the plan does not change from what we had. It's exactly the same one. You're going to see the benefits and the great opportunity that we have today in Brazil. I agree with you that rates are not going to come down as much as we thought in the plan. But nonetheless, we have control sensibility, and maybe Jose can explain you a little bit more of what we're doing in terms of the sensibility, but it is important to say that we don't have that much sensibility as we used to have in Brazil. all right? So it's important to acknowledge that. On gravity, I must tell you that things are as expected. I mean we're going to be able to do the migration at the end of the year, beginning of the next one. It's exactly what we expected. Some of the suppliers have taken a little bit more time giving us equipment, given the huge demand that is on the market vis-a-vis computing because all the data centers in the U.S., et cetera, but we're going to be delivering that, and we are working really hard to have it on time. Okay? So, that's exactly what's going on there. But the outlook what we have is that we see that the model is changing, that we're concentrated on that, and we're going to deliver on what we have said. Jose, I don't know if you are going to complete anything in terms of the sensibility.

As Hector said, we decreased the sensibility to rates to more or less half of what we had 6 months ago. So we have now 200 basis points movement downwards around EUR 30 million to EUR 40 million sensitivity to rates. So it's a lot less than we had 6 months ago.

Let me tell you a little bit more about the derisking strategy and what should we expect in terms of cost of risk and the credit quality in Brazil, okay? So our derisking strategy is already very visible. If you look at 90-plus days, past to launch in Brazil, we started from broadly stable as a system at around 3.3% in March '25. Our ratio has now stabilized at 4.1% and the system has deteriorated reaching almost 5% in August. So it's starting to work. And if you look at early delinquencies, that 15 to 90 days, the leading indicator is already improving. We're starting at around 4.1% in March '25, and the early delinquency ratio has improved 3.9% in August, while the market subsequently deteriorated up to 4.7% okay? So we did Francisco -- I believe that I answered your question.

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

Our next question comes from the line of Ignacio Ulargui from BNP Pariba.

I have two questions. The first one is on costs. I just wanted to get a bit of a sense of -- how should we think about the cost performance over the coming quarters? You have delivered a very good quarter this time around despite the perimeter change. Just wanted to get a bit of if there is a scope for acceleration and the cost savings from ONE Transformation so we could offset some headwinds in revenues via costs? And the second question is on capital. I mean, you flagged that Jose did in the presentation, I just wanted to get a bit of a sense of the regulatory headwinds that are pending from memory, there should be around 10 basis points still to come in regulatory headwinds and how that will impact the 12.8% that you confirmed during the quarter?

Thank you, Ignacio. Okay. So this is what ONE Transformation is all about is all about. I mean we're delivering really structural savings. Remember that ONE Transformation is a process in which first, we are deeply going into simplification, all right, then a lot of automation. But at the same time, we're doing quite a lot in the mainly, if you take a look at it, it's mainly Retail, which we are really changing the way we work and the way we do things, okay? As you can see, year-to-date costs fell around 2% year-on-year, excluding M&A. That basically put us on track to deliver the lower cost base in '26. Q3 costs fell alone 4% in the quarter -- quarter-on-quarter, excluding M&A. In Retail, as I was saying, year-to-date cost improved around 5% year-on-year, excluding M&A, reflecting the benefits of what we're talking about in terms of simplification and automation. The omnichannel model and the enhanced digital capabilities is with 73% of the products digital enabled are helping on efficiency, and we see transactionality basically coming up quite a lot and people are using much more the digital-based products that we have, and that's helping us quite a lot. So what I see is positive operating leverage will remain a key differentiator for the bank as a whole. We are growing revenue at around 5% with lower cost improvement in the cost-to-income ratio. That's 2.8 percentage points to 42.6%. And this will continue to be the norm. So the group will continue to that, and you'll see the operating leverage basically working. In terms of synergies and what you were saying about what cost is going to help what revenue is not coming, we foresee the revenue is going to go up as well. But nonetheless, cost will help out and will give us exactly what we're looking for. In terms of the synergies, I believe that right now, it's too early to tell, okay? It's important to understand that we just took over about 1.5 months Webster. And in that sense, we're still basically looking at ways to execute on synergies as fast as we can. I think that the team is already working together. We're having a pretty good run at things, but I think it's too early to tell you if we're going to be able to advance synergies. On the U.K., I believe also that we're going to be able to deliver exactly the synergies that we tell you -- that we told you. The thing is there, we have the Part VII, the Part VII, I foresee that it's going to finish over the first quarter of next year. As soon as we are basically done with the Part VII, I believe we could be able to do the migration and have all the platforms and Santander products basically offered to TSB customers towards the third quarter of '27. And that basically will enable us to get to the synergy numbers that we told you about I have a good outlook, but nonetheless, I don't want to be ahead of myself in any way. On capital, Jose?

For the fourth quarter, we expect supervisory charges roughly around 5 basis points, which may -- also remember that in the fourth quarter, we have the operational risk charge that happens once a year that is around 8 basis points. However, also in the fourth quarter, is the most active in terms of asset sales and mobilization, where we expect to see a pretty strong quarter despite market conditions. We are -- we have closed already several transactions. Some are about to close. So we would expect to do better than [ 12.8 ] than at year-end. So we will report the number that will be above most likely the target we set for the year in terms of capital.

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

Our next question from Andrea Filtri from Mediobanca.

Could you please update us on the buyback of Brazilian minorities? And on the operational outlook you have for this unit going forward, when will we see a Hector, the cost of risk benefit that you mentioned? And also, tax rate was very low this quarter. Can you give us an indication for Q4 and 2027 in terms of tax rate in Brazil? Finally, if you can update us on your French compromise application.

Thank you, Andrea. Okay. So what's going on in terms of the buyback, I mean, -- what we see is that we will continue with it. This doesn't change anything that we have seen, and we're going to go ahead with the same conditions that we basically have expressed. So there's no change on that. In terms of the operational outlook, what I see is exactly what I was telling you in terms of -- I see basically one Transformation is helping us quite a lot, all right? We believe that in terms of the cost of risk, I think we have quite a outlook in the sense that, I mean, three months cost of risk is stable. I mean you see Q3 '26 is at 1.14%. That's minus 1 basis points quarter-on-quarter. The LLP growth was plus 2.8% quarter-on-quarter, if you exclude the M&A and was driven mainly by auto seasonality, it's partly offset by the improvements that we have seen in Argentina and the U.K. 12 months cost of risk was 116%. That's 1 basis point quarter-on-quarter, that's 3 basis points year-on-year, with Brazil cost of risk at around [ 425 ] So if you exclude Argentina, the cost of risk would be around [ 1.09 ], and LLP growth around 6%, broadly in line with organic loan growth that we have had. So it's important to understand that with the loan growth that we have had, cost of risk goes up, but it's going to be under control and towards the end of the year. We expect the cost of risk at around 115%, for '26, its slightly -- I mean, given the cost of risk in Brazil and the longer interest rates that we see there, but we see it improving towards 1.1% in '27 and '28 as we see the benefit from TSB, Webster because that mix helped us quite a lot. Remember that I said 80% now of the loan portfolio in the bank is in developed countries. So if you see NPLs, the ratio improved to 2.9%, that's 3 basis points quarter-on-quarter and 1 basis point year-to-date. So coverage is around 64%, flat quarter-on-quarter. So that how I see is that on the tax rate. Jose, could you comment?

No, we expect to have a relatively low tax rate in Brazil for the coming quarters. This is also benefiting the group. So we do not expect to see significant changes in the coming quarters.

Okay. In terms of the Danish compromise, we are already under the hand supervision and that's a step, as you know, prior to the Danish compromise approval, which we expect to obtain it within the next 2 or 3 quarters. I had a conversation with ECB. They're taking a little bit longer with us because we have a much more complex businesses with the JVs, everything that we have in Latin America, et cetera, but it's on track. It is important to acknowledge that it will not be an immediate capital release event. The benefit is better capital treatment for the future insurance growth and a vehicle to add insurance assets over time, specifically to grow a live factory in-house, which we are doing because it's a great opportunity that we have. Just take a look at the growth in terms of fees, on insurance its 20% year-on-year. So this is a big opportunity for us and also to penetrate the customer base that we have that if you see our natural quota in every single market versus the amount of insurance we do is a lot less. So that's a huge opportunity that we have. Thank you, Andre.

Thanks to Hector, thanks Andrea. Could we have the next question, please?

This question comes from the line of Ignacio Cerezo from UBS.

The first one is -- sorry, slightly open ended. If you can give us a view on the deposit environment in Spain, U.K., U.S. and how that have an impact in terms of customers' grade and NII in the future? If you see basically that as a headwind for net interest income development in those three countries. And the second one is on the CIB book, EUR 178 billion growing around 28% per annum with big growth actually in Spain and the U.S. So if you can give us some color on breakdown of that book between different segments, industries exposure to take data centers. Again, that qualitative color in actually that can educate our guests a little bit better.

Thank you, Ignacio. Okay. In terms of what we see in the deposit cost and what should we expect for the deposit cost is we are seeing some migration towards higher yielding deposits particularly, as you say, in Spain, U.K. and Brazil, but it remains very manageable, okay? Customer spreads are very, very resilient okay? In Spain, we had a one-off that it basically moves the number, but you're going to see that Spain numbers are going to come back down towards the end of the year. So nothing to worry about that. We don't -- I mean we don't foresee anything going on in the U.S. I think that on the other side, TSB -- sorry, Webster is helping us out with the deposit mix that we have there. So we believe that is going to help us and help us in the margin there. Let me go much more specifically. It's very important to tell you that we are managing deposit betas, and we are protecting them through stronger primacy. That's a change of the model, okay? And also, it's exactly what one Transformation is all about because we're concentrated on doing much more with our customers. The moment that you have primacy with a customer, all the transactional deposits come in. So what's going on in the deposit markets, basically doesn't hurt you as much because the tractional deposits. people need to keep them in the current account for all they need over the month. So that is getting us quilt.And you see those numbers going up in Spain, in Brazil, basically in all the group, okay? So we have also a tremendous discipline pricing, active balance sheet management and we grow in stable transactional balances, as I explained, okay? Retail paying to go a little bit more in detail and be very specific about what's going on. On the line, beta remains very controlling. In the quarter, deposit beta is higher, as I said, as a one-off, that we are expecting retail to normalize towards 18%, 19% in the fourth quarter. In terms of Retail U.K., the structural hedge and the asset repricing offset quite a lot the mix pressure with cost of deposits remaining very stable. And in Retail Brazil, we are shifting towards a more granular lower cost deposit base. In the quarter, we saw higher deposit costs, which were seasonally impacted by a higher number of business days, okay? So, all in all, I think we're doing a pretty good job in deposits, and we are actually having a much better deposit base given the transformation that we're doing. I can tell you that this is the most important thing that the teams in every single country and every single unit of the bank concentrate on deposits is exactly how to do well in bad times and good times and we'll concentrate on that. In terms of CIB growth, I must tell you that, I mean, we are concentrated in exactly what we do best, which is project finance, energy, in the sectors that are core for us is exactly what we're doing. In this particular market, I think it's much better to use our capabilities in CIB that helps us basically grow in a very fast and also in the segments that we know quite well with the customers that we know well, and you see margins basically open up a little bit, and we're taking advantage of that. In terms of the concentration that we have, I must tell you, in data centers, we have less of the total balance sheet of the bank in data center. So there is nothing to worry about. Data centers is important to understand is project finance. That's something that the bank knows very well how to do. And what we have seen that the biggest barrier of entry in data centers is access to energy and electricity. And given that we are being very cautious in the way that all the data center products -- that we come in, we have the energy behind them. So -- and also with the best of takers with the best risk available in the market. So, we understand you right, but I must tell you that we are on top of that, and this is something that we know how to do very well. I don't know, Jose, if you want to complement anything?

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

The next question comes from the line of Miruna Chirea, from Jefferies.

Firstly, wondering if you could help us with the profit bridge to 2027. So I guess this year, you're going to be at EUR 15 billion or slightly above. You guided for more than EUR 20 billion in 2028. But what is it reasonable to expect in terms of profit in 2027? And how much of that would you think is underlying growth from 2026 versus the impact from M&A? And then just a follow-up on the customer margins in Retail Spain. Could you give us more color in terms of how much loan yield expanded in the quarter versus the increase in cost of deposits? And you were mentioning before there was a one-off in the quarter on the cost of deposits. So could you clarify what that is, please?

So in terms net-net, as you have said, we expect to be well ahead of our previous guidance of at least EUR 14.1 billion net profit ex M&A for '26, okay? And we are on track to be above EUR 15 billion of underlying net profit, including M&A for the whole year. What is important to say is that for the numbers that you can run for '27, '28 onwards is exactly what you mean is the track that we're going to get by '28 to what we guided the market towards above 20% RoTE, then you can make your numbers and you're going to see that we're on the right track to get there. So with that, Jose, you can take.

Yes, yes. So average volumes year-on-year in Spain, Loans was up 5%, and and Deposits was also up 5%. So average volumes in the quarter, third quarter this year compared with third quarter last year. Yield on assets was down 18 basis points. This is client averages, so 18% -- 18 basis points down. In Deposits, we had almost EUR 5 billion transaction with a public institution in Spain that distorts the net interest margin in the quarter quite substantially. We would expect the margins to normalize again in the fourth quarter. The outlook, obviously, for the margins as rates increase in Spain, and we maintain positive sensitivity to rates is positive.

Thanks very much, Jose. And Miruna, we can help offline if you want to get into the modeling details as well. So can we get the next question, please, operator?

Our next question comes from the line of Marta Sanchez Romero from JPMorgan.

My first question is from Brazil. So it's kind of at a run rate of EUR 2.1 billion this year. Consensus is EUR 2.8 billion in 2027 and EUR 3.3 billion in 2028, which is a remarkable improvement. Are you comfortable with that? And then my second question is on U.K. It looks like you're doing better at managing your pricing. So the customer spread expanded in the quarter. But I see that your loan growth is barely moving and it's falling well behind the targets that you set out at the Capital Markets Day. So no growth this quarter. I understand that the mortgage market is kind of like not doing much. But can you tell us what you're thinking about in terms of risk appetite, loan growth and pricing.

Thank you. In terms of the EUR 2.1 billion, I think it's one of the possible outcomes that we have designed for that. So I mean, that could be as you have said. In terms of -- in terms of the U.K., I think that the U.K. has got a pretty good performance. Year-to-date profit in the U.K. grew around 22%, excluding M&A year-on-year. That's basically by 4% year-on-year core revenue growth, is important. And the important thing is that you see the effects of ONE Transformation. This is probably the best franchise in terms of ONE Transformation is impacting because you see an 11% year-on-year cost decline in the franchise and a very low cost of risk at about just 12 basis points. So the business is both benefiting for length and duration of the structural hedge, which we have been implementing and resilient customer spreads, okay? And we see loan repricing offsetting deposit mix shifts, and this is helping us out. We have, as you have seen, a very disciplined cost reduction and execution of on transformation. And these structural drivers will remain tailwinds in the franchise going forward. Also on the second thing, you have the integration of TSB that basically further medium-term earnings growth, which helps us quite a lot. As I basically already said, on the Part 7 remains on track for completion on the Q1 of '27 and the integration milestones are progressing as planned. So I'm very comfortable that we're going to get to the numbers that we told you in terms of what are we doing in there in terms of synergies. Our EUR 400 million cost synergy targets, as I said, it's exactly the number that we're going to come up with. And combined with the benefits from ONE Transformation, we continue to see the RoTE improving to around 16% RoTE for'28.

If I may add -- give you some color on the outlook for NII because we remain very constructive on NII in the U.K. Loan yields year-on-year were higher by 3 basis points. Cost of deposits was lower by 3 basis points. So the underlying business despite the not so favorable interest rate environment, it's been managed very, very well. On top of that, we have, as mentioned, as Hector said, GBP 119 billion in the structural hedge with an average duration of 2.6 years and a yield of 3.4%. Remember, the yield in the third quarter, this is the yield in the third quarter. If we look at yield for the first 9 months, it was 3.2%, compared to 2.6% in the 9 months of 2025. So the combination of very good outlook in terms of volumes, pricing management and structural hedge give us a quite constructive outlook also for the NII.

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