Alvaro Serrano

Alvaro Serrano asked for more color on the substantial $800 million cost synergies for the Webster acquisition, noting it's over half of Webster's cost base. He also questioned the rationale for a 15% return on invested capital (ROIC) given a previous 20% hurdle rate for disposals, especially for the US market which has had mixed results historically, and how execution risk is compensated.

Answer

Ana Botín (Executive Chair) clarified that the $800 million cost synergies, representing 19% of the combined cost base, are similar to TSB and exclude significant revenue synergies. She detailed the breakdown: $480 million from headquarters/overheads and $280 million from technology integrations, emphasizing a pragmatic approach to system integration. Botín defended the 15% ROIC by comparing it to the 9% return from share buybacks, maintaining consistency with Santander's capital hierarchy. She respectfully disagreed with the 'mixed results' assessment for the US, highlighting its top-three position in value creation for Santander over the last five years and 30% profit growth over the last three years.

Alvaro Serrano asked about the significant $800 million cost synergies from the Webster acquisition, questioning how they are achieved given they represent more than half of Webster's cost base. He also questioned the rationale behind the 15% ROIC target for the U.S. investment, especially considering past mixed results in the region and the 20% hurdle rate previously mentioned for disposals like Poland.

Answer

Ana Botín (Executive Chair, Banco Santander) explained that the $800 million cost synergies are primarily from headquarters and overheads ($480 million) due to significant duplication, and technology integrations ($280 million) by adopting Webster's commercial systems and Openbank for consumer front-end. She also highlighted potential revenue synergies not included in the numbers. Regarding the 15% ROIC, she stated it's consistent with their capital hierarchy, offering a 6-point spread over share buybacks, and respectfully disagreed about mixed U.S. results, noting the U.S. has been a top-three geography for value creation over the last five years with profits up 30% in the last three years.

Alvaro Serrano inquired about the substantial $800 million cost synergies from the Webster acquisition, seeking more color on how they are achieved, and questioned the 15% Return on Invested Capital (ROIC) for the US deal compared to the 20% hurdle rate previously cited for the Poland disposal, asking for justification given past mixed results in the US market.

Answer

Executive Chair Ana Botín detailed the synergy breakdown, including $480 million from headquarters/overheads and $280 million from technology integration, emphasizing the pragmatic approach of leveraging Webster's systems for commercial banking and Openbank for consumer front-end. She also defended the 15% ROIC by highlighting the 6-point spread over share buybacks and reiterated the US market's strong value creation for Santander shareholders over the last five years. CFO José García Cantera clarified the capital impact calculation.

Alvaro Serrano inquired about Santander's strategic growth priorities, particularly the importance of the U.S. market, and how capital might be redeployed. He also asked about regulatory model headwinds and RWA savings from SRTs in the quarter.

Answer

Executive Hector Blas Grisi Checa affirmed the U.S. is a 'really important growth market' and outlined capital deployment priorities as organic growth, share buybacks, and focusing on the business transformation. CFO José Antonio García Cantera noted that asset mobilization was seasonally low in Q1 but should accelerate, and he expects regulatory headwinds on capital to be minimal going forward.

Alvaro Serrano asked for details on the U.S. CIB fee run-rate and pipeline, clarification on a prior-year one-off in Brazil's payment business, and the net interest income (NII) outlook for Brazil and the U.K.

Answer

CEO Héctor Grisi confirmed a strong U.S. pipeline and clarified a EUR 95 million one-off in Brazil Payments in Q1 2023 impacted the year-over-year comparison. CFO José García Cantera projected mid-to-high teens NII growth in Brazil for 2024 and a mid-single-digit NII decline in the U.K., resulting in sequential NII growth for the group throughout the year.

Alvaro Serrano from Morgan Stanley asked about the sustained strong performance of NatWest Markets, questioning whether it's cyclical or due to business changes, and if a normalization of non-interest income should be expected in 2026. He also inquired about the sustainability of the current loan growth momentum, particularly in the corporate and mid-market segments.

Answer

CFO Katie Murray attributed NatWest Markets' robust non-interest income to the strategic merger into the Commercial and Institutional (CNI) business, enhancing customer delivery and risk management amidst volatile markets. CEO Paul Thwaite highlighted a multi-year track record of broad-based lending growth across all three businesses, with Q3's £3 billion growth in the commercial franchise split between large corporates and mid-market, driven by structural trends in areas like social housing and infrastructure.

Alvaro Serrano from Morgan Stanley followed up on private credit, asking if Barclays is satisfied with collateral integrity after reviewing the book post-Tricolor, and if the 20% growth rate in financing should be expected to slow. He also questioned if the U.S. cards business has the right scale to achieve a 15% ROTE post-American Airlines, and sought comments on the pipeline for new JVs or contract wins.

Answer

CS Venkatakrishnan, Group Chief Executive, Barclays, confirmed that the review of private credit, focusing on financial stretching and control strength, is complete, and the bank is satisfied with its portfolio, while remaining vigilant. He noted that private credit growth has been relatively stable and slow, with lending decisions made case-by-case. Anna Cross, Group Finance Director, Barclays, stated that a large part of achieving the mid-teens ROTE aspiration for U.S. cards is within Barclays' control, citing progress in efficiency (43% cost-income ratio) and NIM. She emphasized growing the book organically and inorganically (like GM), always assessing opportunities for ROTE generation, and balancing existing partner expansion with new acquisitions.

Alvaro Serrano followed up on private credit, asking if Barclays is satisfied with collateral integrity after the Tricolor review and if growth in this area is expected to slow from its 20% run rate. He also inquired about the US cards business, specifically if it has the right scale post-American Airlines to achieve a 15% ROTE, and the pipeline for new JVs or contract wins.

Answer

CS Venkatakrishnan, Group Chief Executive, Barclays, confirmed that the private credit review, focusing on financial stretch and control strength, is completed, and Barclays is satisfied with its portfolio but will remain vigilant. He noted that growth in this area has been relatively stable and slow, with lending decisions made case-by-case, and a tendency not to grow aggressively, utilizing risk transfer transactions. Anna Cross, Group Finance Director, Barclays, stated that a large part of the mid-teens ROTE aspiration for US cards is within Barclays' control, citing progress in efficiency (43% CIR) and NIM. She emphasized growing the book without sacrificing ROTE, through both organic and inorganic opportunities like GM, and continuously assessing portfolios for ROTE generation, balancing existing partnerships with new acquisitions.

Alvaro Serrano from Morgan Stanley asked about the feasibility of achieving the $40 billion US cards receivables target by 2026 amid cyclical concerns. He also requested color on the Investment Bank's performance trends during Q1 and visibility for the remainder of the year.

Answer

Executive Coimbatore Venkatakrishnan stated that US cards growth is a long-term strategic decision based on organic growth, risk transfers, and portfolio deals, which won't be derailed by short-term volatility. Executive Angela Cross added that the Investment Bank's strong Q1 reflected broad-based strength in FICC and Equities, offsetting a softer banking environment, demonstrating the franchise's resilience.

Alvaro Serrano of Morgan Stanley followed up on deposit trends, asking about the drivers of unusual seasonality, whether the improved deposit mix is a sustainable trend, and the maturity of new ALCO portfolio investments.

Answer

Gonzalo Gortázar Rotaeche (executive) attributed the positive deposit trend to strong structural growth in disposable income and savings rates, plus significant client acquisition (340,000), which is offsetting typical seasonal weakness. Javier Pano Riera (executive) confirmed this positive trend in non-interest-bearing deposits creates more ALCO opportunities. He specified that new derivative hedges are typically for 4-5 years, while new fixed-income investments are going longer, up to 10 years, to capture the steepening yield curve.

Alvaro Serrano of Morgan Stanley followed up on the NII outlook, asking if volume growth could accelerate further in 2025 and whether this growth could offset NII sensitivity to lower rates. He also inquired about loan pricing spreads amid the strong growth.

Answer

CEO Gonzalo Gortázar expressed optimism that volume growth in 2025 would be better than in 2024, signaling a potential inflection point in the long-term credit cycle. CFO Javier Pano noted that the lending market remains highly competitive, particularly in mortgages, but the increasing share of fixed-rate loans helps stabilize NII sensitivity. He confirmed these dynamics are incorporated into their projections.

Alvaro Serrano challenged the NII guidance, noting that a mid-single-digit growth for the year implies a steep second-half decline and asked if this was due to conservatism. He also asked how the bank would react to a potential 100 basis point countercyclical buffer.

Answer

CEO Gonzalo Gortázar addressed the buffer, stating it would not alter the €12 billion capital plan and that any implementation would likely have a transition period. CFO Javier Pano clarified the NII outlook, providing a key assumption of an average 80 bps cost of deposits for the year and suggesting NII would likely see a quarter-on-quarter reduction starting in Q2.

Asked for an update on interest rate sensitivity, expectations for deposit volumes in a lower rate environment, and the thinking behind the 60% dividend payout versus the risk of a future dividend cut.

Answer

Earnings are expected to be resilient. The dividend is based on a payout ratio, which adjusts with profits, and is supported by a declining share count from buybacks. The bank's NII sensitivity to a 100bps rate drop is now 5%, and they are cautious about hedging it further. Deposit volumes are expected to remain stable and grow in line with the market.

Alvaro Serrano from Morgan Stanley requested a potential range for Mexico's loan growth under different political scenarios and asked for clarification on remaining Basel IV impacts after 2025.

Answer

Executive Onur Genç emphasized Mexico's structural advantages, such as low manufacturing costs and low private sector leverage, which support resilient growth. He expressed high confidence in the high single-digit loan growth guidance. Regarding Basel IV, Genç stated no impact is expected in 2026 or 2027, with only a potential marginal impact from operational risk in 2028. He noted BBVA is unaffected by the output floor due to its high RWA density.

Inquired about the sustainability of the strong Investment Bank fee performance, asking if there were any lumpy deals and about the pipeline. He also asked for color on the leveraged finance marks taken during a quarter with tight credit spreads.

Answer

The executive stated there was nothing special to call out in the Q3 fee performance and expects activity to remain firm, barring major surprises. The leveraged finance marks were described as an episodic, business-as-usual part of their quarterly fair value assessment of the balance sheet.

Alvaro Serrano asked about seasonality expectations for the Investment Bank's markets and DCM businesses and sought clarity on when US card delinquencies are projected to peak to support the long-term provision guidance.

Answer

CEO Coimbatore Venkatakrishnan anticipated normal seasonality for the Investment Bank but noted that rate volatility remains a key variable for DCM activity. Group Finance Director Angela Cross explained that while their models expect a rise in US unemployment and delinquencies, the economic outlook has improved, and the bank has robust coverage ratios and has taken proactive credit actions.