Santander CFO Cantera on Covid-19 Impact, Earnings, Dividend

Well, good morning, and thank you for having me. This impairment is a non-capital, non-cash accounting charge. We have to review the value of our acquisitions every year, and due to the pandemic, but also due to lower-for-longer rates and higher volatility, higher cost of capital associated with volatility, we decided to make the impairment. But the underlying profitability in the quarter was really strong. We were able to extend substantial financial support to our customers. We delivered strong operating performance despite the highly challenging environment. And more importantly, the more we are into this pandemic, we can now confirm that our expectations for cost of risk, in the region of 1.4 to 1.5 percent, are confirmed. So also another very important point in the quarter is our capital, which went up significantly, reaching 11.8 percent at the top end of our 11 to 12 target. So the underlying performance in the quarter was really strong given the pandemic and the macroeconomic impact of the COVID.

Well, if you look at our — again, this is a non-cash, non-capital accounting charge, which is a valuation adjustment of our historical investments. So I think the important thing is to look at the underlying profits. And in the first half, we almost made 2 billion of underlying profits. So we would expect to see a pretty decent return, quite a good return on tangible equity for the year as a whole, yes, definitely.

Well, of course, we've made two announcements following our quarterly results. One is that the board will propose a scrip dividend in October, paid in new shares. But we are also accruing in our capital six basis points of capital for future dividend payments, because the ECB is basically holding dividend payments until January 1st of next year. Given the underlying performance of our business and the evolution of our capital, we are quite confident that if these numbers are confirmed for the year as a whole and following regulatory recommendations, we will be able to pay a dividend next year on this year's profits.

Well, I was referring to dividends. So bonuses — already the bank announced at the beginning of the pandemic that our chair and our CEO were forgoing all their bonus payments for the year. And the remuneration committee will analyze at year-end what to do for the rest of senior management. But this is a decision to be taken by the end of the year, and obviously we always follow regulatory recommendations to be prudent, and more so at these times with regards to bonus distributions.

Well, I'm not an epidemiologist, but it seems that when confinement was lifted, it was foreseeable that there could be an increase in cases. However, Spain remains a very safe and open destination for tourism, and many of its more popular regions are doing much better than some European countries. So for instance, just to give you some data: in terms of cases diagnosed in the last 14 days out of 100,000 inhabitants, when we look at the most touristic areas of Spain, like Andalusia it was 13, the Balearic Islands nine, the Canary Islands seven, and this compares with the UK at 13, France at 12, Portugal at 33. So definitely Spain remains a very safe place for tourists to come.

Well, I think the pandemic clearly is making everybody, not only banks but all companies, to rethink their business and operating models. And I think we are in that evaluation phase. But one could imagine that out of this there will be changes in operating models and business models. Right now, obviously, our focus is to help businesses and families, which is what we did. We grew our loan portfolio in the quarter by almost 20 billion euros, supporting families and SMEs. But definitely, we think that as the economies recover, we can continue operating under the new environment and keeping profitability at the levels that we had announced previously. So we think we could get back to the 13 to 15 return on tangible equity in the medium term.