Banco Santander, S.a. · BME:SAN
Banco Santander — Investor Day (February 2023)
42 slides from Banco Santander's investor day presentation, Feb 28, 2023
Slide 1: José García Cantera, Group CFO
1 José García Cantera Group CFO
Slide 2: Important information: forward-looking statements
Important information Forward - looking statements Santander hereby warns that this document contains “forward - looking statements” as per the meaning of the U . S . Private Securities Litigation Reform Act of 1995 . Such statements can be understood through words and expressions like “expect”, “pr
Slide 3: APMs, non-IFRS measures and non-financial information
Nonetheless, the APMs and non - IFRS measures are supplemental information ; their purpose is not to substitute IFRS measures . Furthermore, companies in our industry and others may calculate or use APMs and non - IFRS measures differently, thus making them less useful for comparison purposes . For
Slide 4: Entering a new phase of shareholder value creation: 2023-2025 targets
4 Entering a new phase of shareholder value creation 2023 - 2025 targets Profitability RoTE 15 - 17 % >12% Strength CET1 FL c.85% Disciplined capital allocation RWA with RoRWA > CoE Pa y out Cash dividend + SBB 50% Shareholder remuneration Note: Target payout will be c.50% of group reported profit (
Slide 5: Macro framework of our guidance
5 Macro framework of our guidance | Market consensus, IMF & forward curves Source: IMF World Economic Outlook, latest estimates available; Bloomberg Forward curve OIS as at 31 - Dec - 22. EUR and USD OIS fwd. curve 1 (%) 5 4 3 2 1Y 2Y USD OIS CURVE 3Y 4Y 5Y EUR OIS ESTR 6M 2023e (Δ22) GDP 1.1% ( - 4
Slide 6: Against this backdrop, we are aiming to
6 Against this backdrop, we are aiming to: Expand customer margins Ensure proper pricing of new deposits Capitalize from higher rates Positive sensitivity to increasing rates in most countries Ensure a strong capital ratio Focusing on capital efficiency and asset rotation Focus on cost efficiency Fo
Slide 7: Low risk, conservative management, profitability, capital allocation
7 Low business risk profile Conservative financial management Improving p r ofi t ability Capi t al allocation st r a t egy Shareholder value creation
Slide 8: Low business risk profile
Low \ business risk profile
Slide 9: Diversified commercial banking model and retail deposits funded balance sheet
9 33% 23% 12% 14% 18% 48% 9% 24% 17% 3% Diversified commercial banking model and a retail deposits funded balance sheet 16% 13% 12% 6 % 15% 14% DCB Balance Sheet D e posits Demand d epo s it s 2 L o a ns Mort g ag es SMEs & C orpora t es Oth e rs DCB S C IB €1,019bn €962bn SMEs & C orpora t es SCIB
Slide 10: Balance sheet: 1/3 mortgages primarily in Europe
10 Balance sheet: 1/3 mortgages primarily in Europe. Very low risk profile Main sensitivity in Spain and UK is to unemployment 33% Mortgages out of total portfolio 79% 7% c.90% Loan - to - values <80% 12 % 2% New business with strong affordability metrics Improved overall risk profile in recent year
Slide 11: Balance sheet: 23% SMEs & Corporates, mainly in Europe
11 Balance sheet: 23% SMEs & Corporates, mainly in Europe 23% SMEs & Corporates out of total portfolio SMEs 81% 3% 16% Corporates 51% 28% 21% Corporates CRE Average LTV < c.50% in 2022 CRE new business with <1% of new business written above 60% LTV; no new loans for developers Stage 3 : 0.5% of CCB
Slide 12: Balance sheet: stable credit metrics in DCB with growing Auto market share
12 10 . 0 9.7 6000 6.0 5000 4.7 4000 70 0 0 80 0 0 90 0 0 10 0 0 0 11 0 0 0 12 0 0 0 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 SCF PSA Balance sheet: stable credit metrics in DCB with growing Auto market share 80% Auto C ons u m er loans New business captives + PSA €bn 12% DCB
Slide 13: Balance sheet: SCIB LatAm leaders, high-quality portfolio
13 Balance sheet: SCIB LatAm leaders, strengthening in Europe & US, with a high - quality portfolio 14% SCIB out of total portfolio BBB+ Rating 1 0.14% Cost of risk 1.28% NPL ratio No sectors concentrate more than 10% of the exposure Top 20 clients (average rating 1 of A+/A - ) constitute 13% of the
Slide 14: Balance sheet: Brazil well-balanced, focusing on higher rating customers
14 Balance sheet: Brazil well - balanced, focusing on higher rating customers & secured Cost of risk path Individual + CF portfolio breakdown Stable CoR in 2023 Improvement of our portfolio structure: Selective production, significantly increasing the exposure to lower risk and collateralized portfo
Slide 15: Balance sheet: US Auto Finance, shifting to Prime and deposit funding
15 Balance sheet: US Auto Finance, shifting to Prime and more deposit funding Manheim index 2 124 133 138 142 159 177 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 238 198 185 182 Auto loan portfolio mix shift Deposit funding allows us to consistently compete across credit spectrum Illustrative
Slide 16: Balance sheet: just 4% medium-high risk, with adequate risk-reward
16 Balance sheet Balance sheet: just 4% medium - high risk, with adequate risk - reward L o a n s Low risk profile Me d i u m - high risk profile Consumer 4% 96% Mort g ag es SMEs & C orpora t es DCB Oth e rs S C IB 33% 23% 12% 14% 18% € 1,019bn 23% of the total Group provisions 1 Our 4% higher risk
Slide 17: We expect CoR to remain at c.1% through-the-cycle
17 We expect CoR to remain at c.1% through - the - cycle and below 1.2% in 2023 10 .1 9 .5 9 .1 8 .9 9 .3 12 .2 7 .4 10 .5 1 . 2 5 1 .18 1 .07 1 .00 1 .00 1 .28 0 .77 0 .99 0 0. 2 0. 4 0. 6 0. 8 1 1. 2 1. 4 0 2 4 6 8 10 12 Credit provisions (€bn) CoR (%) 73 74 65 67 68 76 71 68 4 .4 3 .9 4 .1 3 .7 3
Slide 18: Conservative financial management
Conservative financial management
Slide 19: Our balance sheet: simple, transparent & easy to analyze
19 Our balance sheet: simple, transparent & easy to analyze Stable deposit structure Solid liquidity ratios R i sk Liquidity Coverage and Net Stable Funding Ratios strong across all subsidiaries Liquidity buffer consists of 98% EHQLA’s and diversified by currencies: €312bn HQLAs Significant early re
Slide 20: We will continue rebuilding our EUR ALCO portfolio
20 13% 3% 5% 13% 19% 16% 18% 10% 2% We will continue rebuilding our EUR ALCO portfolio Bond portfolio 1 €107bn R i sk Rate risk ALCO IRR BB €82bn Li qui d ity port f olio €25bn ALCO IRRBB portfolio €82bn o/w HTC €35bn ALCO portfolio in Spain Continue rebuilding ALCO portfolio: ALCO in Spain would ha
Slide 21: Comfortable financial plan that complies with TLAC & MREL requirements
21 % RWAs T L A C M R EL Comfortable financial plan that complies with TLAC & MREL requirements 26% 36% 24% 37% 33.8% 23 % 37% Surplus Total ratio Requirement 36.1% 36.1% 21 .9 % 21 .9 % 21 .9 % Banco Santander S.A. funding plan R i sk Rate risk Liquidity position remains solid, with LCR and NFSR ab
Slide 22: Conservative approach to FX risk in P&L and capital ratio
22 Conservative approach to FX risk in P&L and capital ratio Financial results Tactically: hedge to protect the Group P&L generated in non - Euro currencies Decisions based on current estimates €1.2bn CET1 ratio: 100% excess 1 hedged 2022 2025 target €23bn c.€20bn €0.6 - 1.0bn FX Exposure Cost of he
Slide 23: Improving profitability
Improving profitability
Slide 24: We have ambitious profitability targets in all our businesses
2 4 24 We have ambitious profitability targets in all our businesses Payout 50% Cash + SBB TNAVps +DPS Double - digit growth Average through - the - cycle Aiming to be the most profitable bank where we operate RoTE targets 13.4% 15 - 17 % 2022 9.3% 2025 c.15% 11.1% c.15% 1 18.8% c.19% DCB 13.7% c.15
Slide 25: Strong revenue growth ahead
25 Strong revenue growth ahead… Other r e v en u e 1 R e v en u e 2022 R e v en u e 2025 c.7 - 8% Fee i n c ome c. 8 - 9 % NII c.6 - 7% 22 - 25 Group revenue % CAGR 22 - 25 target (Constant €) 1) Other revenue includes gains (losses) on financial transactions and other operating income.
Slide 26: Led by NII mainly in Europe and higher fees from global and network businesses
26 … led by NII mainly in Europe and higher fees leveraging on global and network businesses Capitalizing on our global coverage and product factories c.10% CAGR 22 - 25 (Constant €) Cross - border and collaboration revenue Increasing global revenue and customer penetration c.10% CAGR 22 - 25 Privat
Slide 27: Tailwinds from higher interest rates in 2023 support revenue CAGR target
27 Tailwinds from higher interest rates in 2023 support our c.7 - 8% revenue CAGR target… 22 - 23 Δ Net interest income using forward rates with constant balance sheet and spreads € 1,700 25 - 30 (1.5%) £ 500 40 - 5 0 <(0.3%) $ 150 50 - 60 <(0.3%) Total 2,350 <(2.0%) Bala nce sheet Δ Net interest in
Slide 28: Strong volumes and double-digit growth in fee income in 2023
28 … & strong volumes and double - digit growth in fee income in 2023 Net interest income Double - digit growth Base interest rates c.+8pp Volumes c.+2% YoY Spread expansion NIM 1 c.+8bps Fee income Double - digit growth Active customers 2 c.+6% YoY Global and network businesses +3pp increase in con
Slide 29: High-single digit growth in fee income supported by global and network businesses
29 High - single digit growth in fee income supported by our global and network businesses Active customers 1 increase, +8% CAGR 22 - 25 Main countries reaching c.40% in transactional fees on average Re t ail >40% activity related to global OEM relationships in Europe Strengthening value - added ser
Slide 30: We will maintain our drive to expand operating jaws
30 1) YoY costs growth in real terms, excluding inflation impact. We will maintain our relentless drive to expand operating jaws 2025 target One Transformation Efficiencies , processes simplification and automation , the use of common platforms and synergies across the board (7. 5 %) c. 4 2% Costs c
Slide 31: Our aim is to remain best-in-class in operating leverage
31 Our aim is to remain best - in - class in operating leverage c. 4 2% Simplification and automation Shared tech platforms and services Accumulated inflation will pressure personnel costs c.42% Consolidating contact centers and selected operations into Mexico In US, transformation and efficiency in
Slide 32: Corporate Centre weight trending downwards
32 Corporate Centre weight trending downwards Corporate Centre weight out of Group underlying profit 1 2019 2022 2025 target 18% 13% 7% 1 Reporting changes introduced in 2022 improving allocation criteria and ensuring all costs are considered by business units : MREL/TLAC costs of eligible debt issu
Slide 33: Revenue growth and costs containment will deliver best-in-class profitability
33 Revenue growth and costs containment will deliver best - in - class profitability 15 - 17% RoTE target 15 - 17 % c. + 5 p p c. + 2 p p (c. 2 p p ) 13% (c.2pp) (c.1pp) Fee income LLPs NII C o s ts Other RoTE 2025 RoTE 2022 Strong revenue growth ahead , led by NII and leveraging our global and netw
Slide 34: Capital allocation strategy
tal /allocation ~~ strategy
Slide 35: Clear road ahead to further increase shareholder remuneration
35 Clear road ahead (even post Basel III) to further increase shareholder remuneration c .2 0 0 b p s (c.100bps) (40 - 50bps) (20 - 25bps) >12% 2 3 12% 201 5 - 2022 1 3 0 b p s 3 (10bp s) ( 30b p s) ( 20b p s) (40bps) Low payout due to scrips Δ ratio to reach 12% c.30bps 10% 12% 50 % payout (10 - 20
Slide 36: Capital allocation discipline is a key element to improve profitability
36 40% 70% 80% 85% 60% 30% 20% 15% Capital allocation discipline is a key element to improve profitability and create value Maximize capital productivity by: Front book pricing Asset rotation and risk transfer activities RoRWA of New Book 2021 2022 2025 2.1% 2.6% 2.6% 1% 1% 1% 2% 2% 2% 2% 2% 3% 3% 2
Slide 37: Shareholders & Santander
Share’ older & Santander
Slide 38: 2016-2022: 10% average RoTE created 5% per share value
38 2016 - 2022: 7 years average 10% RoTE created 5% per share value 1 in euros € b n - 0.5 - 0.8 - 0.1 c. € - 3bn - 1.5 RoTE +10% ( 1% ) (3%) ( 1% ) 0% ( 1% ) +5% FX Share count inflation Value c r eation Others 3 I n t e r e st Rates FX A T1s +6.7 Organic gen e r ation 2 TN A V ps (BoP) Value creat
Slide 39: 2022: value creation offset by interest rates
39 2022: value creation offset by interest rates, which will reverse over time 10% ( 1 %) +1% +6% +3% + 6 .3 - 0 .5 + 0 .4 - 4 .0 - 5 .4 4.12 4.37 Will reverse +2% +0.04 +0.11 € b n Buyback Cash DPS 3 Shareholder remuneration Value c r ea tion Others 2 I n t e r e st Rates FX A T1s Organic gen e r a
Slide 40: 2023-2025: TNAVps growth to benefit from higher profitability & share count accretion
40 2023 - 2025: TNAVps growth to benefit from higher profitability & share count accretion (SBB) ( 5 %) ( 1 %) 15 - 17% ( 5 %) c . + 2 % Double - digit 1 Looking at specific measures to reduce TNAV impacts Note: 2023 - 2025 TNAV build - up assuming value accretion generated by SBBs on future periods
Slide 41: Entering a new phase of shareholder value creation: 2023-2025 targets
41 Entering a new phase of shareholder value creation 2023 - 2025 targets Profitability RoTE 15 - 17 % >12% Strength CET1 FL c.85% Disciplined capital allocation RWA with RoRWA > CoE Pa y out Cash dividend + SBB 50% Shareholder remuneration Note: Target payout will be c.50% of group reported profit
Slide 42: Thank You
4 2 Our purpose is to help people and business prosper. Our culture is based on believing that everything we do should be: Thank You. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigne