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Annual General Meeting José Antonio Álvarez speech

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Annual General Meeting José Antonio Álvarez speech

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Annual General Meeting José Antonio Álvarez speech

  1. 1. 1 JOSÉ ANTONIO ÁLVAREZ ANNUAL GENERAL MEETING SHAREHOLDERS SANTANDER– 27 MARCH 2015 Mr. President of Cantabria Mayor of Santander Ladies and gentlemen, Shareholders of Banco Santander Good morning and thank you for attending this meeting. Today, I am going to speak about four things. First of all, I will look at Grupo Santander’s 2014 results and then our outlook for the economic and regulatory environment in which we operate. This will be followed by the performance of the Group’s main units in 2014 and their management priorities for this year. Lastly, I will spend a few minutes on summing up our financial objectives and how we plan to achieve them.
  2. 2. 2 1. Results and activity Ladies and gentlemen shareholders, Last year, in an environment of slight economic recovery but with increasing regulatory requirements and competitive pressures, the Group focused on two objectives:  First, boost profits and profitability, gaining market share and improving the loyalty of our customers.  Second, maintain a strong, liquid and low-risk balance sheet. Grupo Santander’s profit in 2014 was 39% higher at €5,816 million, putting us in a noteworthy position among the big international banks and the leader, by far, in the euro zone. Moreover, the quality of these results was also better:  Almost all units increased their gross income and degree of recurrence, mainly through stronger business.  We improved our efficiency, backed by the Efficiency and Productivity Plan we are developing and with which we expect to generate €2 billion of cost savings. This plan enables us to combine savings with the investments needed to be able to grow our business.  In 2014, we reduced loan-loss provisions and thus, the cost of credit improved, particularly in the countries most affected by recession or economic slowdown in the last few years. Furthermore, we increased coverage by two points to 67%. As a result, we have had a widespread increase in our profits, as I will refer to later. As regards the balance sheet, we reversed the trend in lending. It grew 5% after two years of decline. This growth came from both individual customers, as well as SMEs, companies and large corporations, and reflected the effort we have put into offering new and more specialised products and services for each segment.
  3. 3. 3 All countries except for Portugal, which continues to deleverage, increased their lending last year. Deposits and mutual funds also registered an excellent performance. Balances increased 6%, mainly demand deposits and mutual funds, and we reduced their financial cost significantly. The European Central Bank’s comprehensive assessment underscored the strength and quality of our balance sheet, as the Chairman has stated. Two main conclusions can be drawn from this:  The first one is that Santander has a healthy and prudently assessed balance sheet.  The second is that it would withstand an adverse economic environment much better than its peers. Ladies and gentlemen shareholders, the Group ended 2014 with a growing and more solid balance sheet:  In 2014 we improved the credit quality of the main units and consequently that of the Group. For the first time since the onset of the crisis the non- performing loan ratio was lower. Furthermore, the coverage ratio increased. We expect to maintain both trends in the coming years.  We continue to have a comfortable liquidity position. The loan-to-deposit ratio is in our comfort level and we are complying ahead of schedule with the regulatory metrics in both the Group as well as in the main subsidiaries.  And, under our capital management policy, we are increasing the ratios through: o Organic generation. o January’s capital increase, which puts us in a good position to take advantage of growth opportunities. o And issuance of Additional Tier 1 and Tier 2 capital instruments, with which we are further strengthening the total capital ratio. All these factors are enabling us to anticipate future requirements and optimise our capital structure.
  4. 4. 4 In short, the profit growth and balance sheet evolution produced a 24% rise in earnings per share and the return on tangible equity (RoTE) increased by 1.3 percentage points to 11%. This level, which compares well with many of our domestic and international competitors, is still below our potential and our objective. 2. Economic and regulatory outlook Ladies and gentlemen shareholders, We believe we can improve our profitability even in a global environment of low interest rates and tougher regulatory requirements. The outlook for the global economy this year shows a continued trend of gradual recovery led by the developed economies and particularly in many of our core markets such as Spain, United States and United Kingdom. These countries will benefit from still expansive monetary policies, less restrictive fiscal policies, lower commodity prices, adjustments largely completed and greater financial stability that will favour the main domestic demand components of these countries: consumption and investment. Emerging economies meanwhile will continue to slow down, although their pace of growth will still be higher than that of developed countries, which will enable them to keep on increasing their participation in the global economy. At the same time, and as the chairman has mentioned, we are seeing tougher regulatory requirements that are impacting banks’ structural profitability through various ways:
  5. 5. 5  First, and in order to reduce the probability of new banking crises, the quantity and quality of capital requirements has risen. Moreover, additional loss absorbency capacity requirements are being established that could condition the structure of banks’ liabilities.  Second, a more demanding regulatory environment in all business aspects is affecting both revenues, particularly fee income, as well as the necessary costs for the implementation of the new regulations. Santander is fully aware of the importance and correctness of the objectives of the new regulatory environment, but also of the increasing complexity and costs generated. In short, although there are still challenges and uncertainties in the banking industry, we believe the worst of the crisis is over and we are embarking on a new phase where the priority is to improve business profitability. We began 2015 with good trends in results and volumes. These trends, coupled with the strategies announced by the chairman, enable us to be confident that profitability will improve and with it the shareholders return. 3. Evolution and outlook by business area Ladies and gentleman shareholders: I will now turn to the business units, with a look at their results last year and the management priorities for 2015.
  6. 6. 6 Spain Last year saw the return to growth in profits and business volumes. Attributable profit more than doubled to €1,121 million, and lending rose for the first time since 2008, spurred by companies and SMEs. We are also seeing strong growth in new household mortgages and in customer funds. This performance happened in a year when we completed the integration of Santander, Banesto and Banif ahead of schedule. We took advantage of this integration to optimise the segmentation of branches and develop products such as Select for personal banking or Santander Advance for SMEs, which includes an offer of non-financial activities in which more than 10,000 companies participated last year. I can assure you that as a result of the integration we have a stronger and more prepared commercial network in Spain, which will enable us to grow consistently. In 2015, in a firmly recovering economy, profits and profitability will continue on their path to normalisation. We envisage:  A gain in market share after completion of the integration.  Strict cost management maintained, compatible with multi-channel improvements.  A further fall in the cost of credit. United Kingdom Attributable profit rose 30% at constant exchange rate to €1,576 million. The transformation of the commercial franchise and the favourable economic environment had a positive impact on commercial revenues and provisions. Also noteworthy is the growth in lending to companies, higher than that of the market, and the change of trend in mortgages. We will keep the same strategic lines in 2015, which have been successful in the last few years:
  7. 7. 7  Increase the number of loyal customers with their primary account in Santander, and boost lending to companies and mortgages.  Continue to invest in technology developments in order to improve multi- channel service.  Maintain good credit quality and continue to strengthen the balance sheet, liquidity and capital. Brazil Brazil’s attributable profit was 8% higher at €1,558 million at constant exchange rate. In an environment of moderate GDP decline, Santander has a well-positioned franchise and is improving its business model through more commercial activity, greater revenue recurrence and a lower risk cost. The main initiatives this year centre on:  Increasing customer loyalty.  Boosting lending, particularly to SMEs thanks to the launch of the Advance strategy.  Improving commercial productivity, keeping growth in costs below the inflation rate. Santander Consumer Finance Santander Consumer Finance (SCF) is one of the areas that has evolved the best during the crisis, outperforming its competitors. Attributable profit in 2014 grew 12% to €891 million. The recently acquired business in the Nordic countries and the agreement with Banque PSA Finance will consolidate our leadership in auto finance in various countries and enable entry into new markets such as France and Switzerland. The priorities this year are:  Carry out a model integration of the new operations in order to extract all their potential.
  8. 8. 8  Grow in the rest of units at adequate spreads, taking advantage of brand agreements and our leadership position. United States Santander USA posted an attributable profit of €800 million, similar to that in 2013. Before minority interests, which increased because of Santander Consumer USA’s initial public offering, profit was up 5%. We are continuing to work this year on strengthening the Group’s position in the country, with two overriding objectives:  Improve the commercial franchise further.  Comply as quickly as possible with the regulator’s requirements taking into account that the regulatory framework for non-US banks has changed dramatically, which required us to create a new Bank Holding Company for which we must assign all the human and technical resources needed for effective business management in the US. In this sense, and in relation to the stress tests conducted by the US Federal Reserve, Santander Holding USA surpassed the quantitative part, with a Tier 1 common ratio of 9.4% in the severely adverse scenario. This put us in 11th place among the 31 banks analysed and underscores our balance sheet soundness and solvency. However, we have to improve the qualitative part, where the Fed pointed out some shortcomings in the bank’s internal processes, which are only circumscribed to the US. As a result, we have been working in the last few months on two fronts:  Strengthening the governance and management structure, for which we have appointed a new chairman and CEO of Santander Holding USA.  Ensuring the holding has the necessary resources to comply with its functions.
  9. 9. 9 This is part of a project we are developing over several years to improve the bank, comply with the regulator’s expectations and with our own standards of excellence. Mexico Attributable profit was lower at €660 million because of the higher tax charge. Pre-tax profit increased 9% at constant exchange rate. The Group will complete its three-year branch-opening plan this year, which is strengthening our presence in the country. This should enable us to take advantage of the opportunities of an economy whose growth potential is being raised by the reforms undertaken. Specifically, we aim to keep on growing faster than the market in target segments and participate actively in financing the government’s infrastructure plan, as well as in projects related to energy sector reforms. Chile Attributable profit amounted to €509 million, 35% more than in 2013 at constant exchange rate. This excellent result was due to business growth and the favourable impact on revenues of the inflation-indexed portfolio. This year the strategy focuses on:  Continuing the retail banking transformation in order to improve the customer experience.  Deepen the loyalty of high-income clients (Select) and the relationship model with companies, institutions and large corporations, where we expect to grow more strongly. Poland Attributable profit increased 7% to €358 million at constant exchange rate.
  10. 10. 10 We began 2015 from a good market position, following the completed integration of BZ WBK and Kredyt Bank. In a growing economy and with interest rates at historic lows, the priorities are:  Develop the Next Generation Bank strategic programme whose main aim is to make us the leading bank for customers and employees. This is being driven by our leadership in cards, mobile banking and online banking.  Increase our market share. Argentina Attributable profit was 33% higher at €298 million. We continue to be the country’s leading private sector bank by volumes, have a very transaction-based business model and a solid and low structural risk balance sheet. The priorities this year are to enhance the Group’s commercial position in order to take better advantage of the country’s greater degree of banking development. Portugal Santander continues to be the country’s most profitable bank. Attributable profit rose 65% to €189 million. In a market with competitors in a weak situation, we have the opportunity to gain market share organically, growing in customers and revenues. The priorities are:  Continue to normalise the cost of deposits and credit in a recovering economy.  Maintain efficiency plans to cut costs.  Increase market share in SMEs and companies. Lastly, Uruguay and Peru’s profits increased by 16% and 31%, respectively, in their local currencies.
  11. 11. 11 In global businesses, Santander Global Banking and Markets made a profit of €1,614 million, 16% more than in 2013 in constant euros. The drivers were strong customer revenues and lower provisions. We will continue in 2015 to increase our presence in the segment for large multinationals that operate in our core markets: Europe and United Kingdom, North America and Latin America. These results would not have been possible without the contribution of the Corporate Centre, which contributes value to the Group with well-defined functions: control, support, improved global/local relationship and enabling best practices transmission within the areas. In our increasingly competitive world, it is vital that the Corporate Centre provides global skills and know-how to the subsidiaries in order to outperform local competitors without such support. 4. Objectives Ladies and gentlemen shareholders, I will conclude with some basic ideas for the coming years:  We have good growth dynamics in business volumes and results.  We have comfortable liquidity and capital positions to grow in an environment of greater activity in our core markets.  With this starting point, we know what to do in order to be commercially successful: make the customer the focal point of our management.  We will remain focused on operational excellence in order to simplify internal processes, transform the bank digitally and improve efficiency and customer service.  We are reinforcing risk management, an all-time priority for Banco Santander.  We will use capital much more efficiently, focusing on growth areas.  We will have more streamlined and simple structures. We have simplified the corporate structure, reducing the number of divisions from 15 to 11. This boosts our response capacity and strengthens risk control.
  12. 12. 12  Our overriding objective is to improve the profitability of the capital employed. These aspirations are crystallised in ambitious financial and non-financial medium-term objectives whose goal is to create value for our employees, customers, shareholders and society as a whole. The chairman has already stated some of them:  The objective for our employees is to make Santander the best bank to work for. Our strategic human resources plan will manage talent globally, we are going to listen even more to employees and introduce new ways of working.  The basic objective for our customers is to improve the quality of service and the level of satisfaction. This should help us to increase customer engagement in all the countries where we operate, as I have been commenting on throughout my speech.  And as regards society, we will continue to invest in education, in providing opportunities for young people and in social projects. I would like here to praise the commitment of our professionals to society. More than 63,000 employees in 2014 took part in volunteer activities. Lastly, I will comment on our three-year financial objectives for improving key aspects of banking activity and which should be positively reflected in the return for our shareholders. 1. Increase our business at a faster pace than our main competitors and so gain market share. 2. Improve our operational efficiency so that the cost/income ratio is below 45%. 3. Reduce the non-performing loan ratio to below 5% permanently. 4. Maintain core capital ratios under Basel 3 criteria of between 10% and 11%. 5. Increase earnings per share above that of our main competitors and achieve a return on tangible capital of between 12% and 14%, with a dividend distribution mainly in cash and in accordance with the growth in profits.
  13. 13. 13 This is what we want to do, but just as important as the “what” and the “how much” is “how” we achieve it. That is, how we act and behave day to day. And this is summarized in three words: Simple, Personal and Fair. We have a skilled, experienced and committed team with which to achieve these objectives, and I would like to congratulate them for their efforts and hard work in a very demanding year. I trust that, with the support and motivation of our employees and the confidence of our customers and shareholders, we will be able to achieve all the objectives proposed for the coming years. Thank you very much for your attention.