Carlos Cobo Catena: Hi, thank you for the presentation. Just a couple of questions because most of the doubts have been clear. But on the U.K., we’ve seen how cost of deposit also starting to accelerate. And if you could elaborate a little bit on the structural hedge. And when do you foresee the peak in net interest income because you’ve said this year, it’s going to be more of flattish NII, if I understood correctly. Does it mean that we still have to see the benefits of the structural head going forward in ’24 and ’25 or how do you expect NII to combine competitive dynamics and the structural hedge upside. And the second one, if you could just explain a little bit better what was this change in the EBA criteria to have that positive impact on capital, just to understand the rationale. Thank you very much.
Jose Garcia-Cantera: Okay. I’ll take the two of them. Let me answer the second one first, which is easy. What basically the EBA has ruled that minority interest in local currency does not need to be adjusted with the exchange rate because obviously, if capital is eventually used, let’s say, Brazil, if capital is eventually used in Brazil, it will be used in reals, not in euros. So before this, the interpretation was that the capital needed to be adjusted through the exchange rate and now obviously, because the capital will be used in local currency doesn’t need to be adjusted. That’s a net between positives in some countries like Brazil and slightly negative in some countries like Mexico, where the currency has appreciated net-net, 13 basis points.
U.K., okay. So in the U.K., yes, we still have around €100 billion structural position, which will help NII going forward. We would expect mortgages to go down this year more or less around 5%. So volumes a bit down in the year, but very positive NII sensitivity to rates, and we still think rates might go up a little bit. So we would expect NII to go up mid-single digits, probably a bit more than mid-single digits. So that’s the expectation for this year in the U.K.
Begona Morenes: Thank you, Carlos, for your questions. Can we have the next question, please?
Operator: Next question from Marta Sánchez Romero from Citi. Please go ahead.
Marta Sánchez Romero: Good morning. Thank you very much. My first question is about the NII from your euro balance sheet. The problem we have is that transfer prices across the different constituents of that balance sheet make it very difficult to track your NII performance and compare it with your peers. So you guided at the Capital Markets Day that you would make €1.7 billion of extra NII in the euro balance sheet this year through that curve at the time. Could you please update that number today and how it breaks down between Spain, the corporate center, the digital bank, other Europe and Portugal. The second question is on the U.S. deposits. That was one of your — expanding your deposit base as one of the pillars of your plan to improve profitability there that is now becoming more and more expensive.
Where do you see the cost of deposits in the U.S. by year-end and what are you doing to differentiate yourselves and being able to raise deposits and having to pay much more than your competition? And just a quick one, if you could update us on the U.K. on what do you see for mortgage margins, please. Thank you.
Jose Garcia-Cantera: Sorry, I’ll take the first one. Marta, I will get back to you with the breakdown. But basically, it’s all a euro balance sheet. It’s not that difficult to do the sensitivity, but I will get back to you. The sensitivity remains the same. Remember, we said €1.7 billion using the forward rates — forward curve rates as of December. In the first quarter, the curves have remained after having moved up and down, they are basically where they were at the end of December. So we would still expect for the next 12 months, a sensitivity similar to the one that we have experienced in the first quarter and in line with that guidance we gave because as Hector explained, we would see the repreciation of our mortgage books in Spain and in Portugal to gradually gain speed throughout the year.
Hector Grisi: Thank you, Jose. Okay. Let me tell you, Marta, about the U.S. deposits, okay. The U.S., basically accumulated beta has reached around 35%, and the cost is around 1.67%, okay? The higher interest rates reflected on the saving accounts have been showing improvements on the time deposits. So what I can tell you is the majority of our deposits in the U.S. basically is individuals, okay? That’s the bulk of them, okay? And they have proven themselves very stable. We have really not lose any deposits at all in the individual side. We have seen a little bit of movement in the mid-corporate, okay, which we are basically diversifying deposits, but nothing material in that sense, okay? What is important to tell you is that we don’t foresee really high increases on that.
I mean there is a lot of competition in the market, but our deposit base has been — even with this situation, maintained itself very stable. So we don’t foresee that we’re going to have a huge increase even with the competition from some other players that we have seen in the market, okay? And we are not changing our assumptions at this time in the way we see the deposits in the U.S., okay?
Jose Garcia-Cantera: And the final question is U.K. mortgage margins. Yes, the margins for that specific business are under pressure. We would expect a slightly weaker margins in the mortgage business going forward. We are — right now, we have a market share of 11.3% when we look at stock mortgages in the U.K. But when you look at the first quarter, we have originated on average around 6% or 7% of the market because we are focusing on only on high-quality mortgages that obviously have slightly lower margins. But again, the combination of all our structural position, volume growth and margin management in the U.K. should lead to mid- to high single digits in NII in 2023.
Begona Morenes: Thank you. And thank you, Marta, for your questions. Can we have the next question, please?
Operator: Next question from Andrea Filtri from Mediobanca. Please go ahead.
Andrea Filtri: Yes, thank you for taking my questions. I have one question and two quick clarifications. The first is essentially, if we take your Q1 numbers and the clean underlying number you provided, and we just basically add up till the end of the year, we would reach €11 billion profit in 2023, where consensus is well below that. Where do you see consensus being too conservative on your — on the estimates for 2023?And two clarifications. The first is on Brazilian cost of risk. You indicated a flattish evolution excluding one-offs. I just want to make sure I understood correctly that the €474 million charged on provisions this quarter is not a one-off. And so the guidance you’re giving is at 4.4% to 4.5% cost of risk in 2023. The second is again on the guidance you have given before. I didn’t understand it was related to NII growth or volumes when you said Mexico up double-digit, U.S. down mid-single digit and Brazil up low-single digit. Thank you.
Jose Garcia-Cantera: Okay. So let me take consensus and the cost of risk in Brazil, and I will try to clarify that. What is consensus below where we think we might be, I think we are a bit more constructive on fees, and I think the first quarter shows a very good performance of fees, basically on the back of the contribution of our global businesses. You’ve seen in the presentation that our global businesses, CIB, Wealth Management, PagoNxt, they’re doing very, very well. Also, cost of risk, we guided for lower than 1.2% cost of risk. We are at 1.05% in the first quarter, probably the market is a bit skeptical about our capacity to keep cost of risk under control. So those, I think, are the two — this is a bit on NII, but it’s not significant and a bit on cost.
So generally, I think its provisions and fees. Cost of risk in Brazil. So the €474 million is not in the P&L and that has been used to reinforce our balance sheet in Brazil, around one-fourth of that for one-off cases and the rest is just a generic strengthening of our balance sheet in Brazil. So the 4.4% cost of risk in the first quarter is clean in the sense that it doesn’t have any one-offs for specific cases. From now on, as I said, I would expect if interest rates remain at 13.75% until after the summer, probably we are going to see cost of risk drifting upwards because of the gradual deterioration of the corporate sector, but by no means in excess of the cost of risk we had last year. So that’s why we are saying more or less cost of risk in line with 2022, excluding the one-off, which is already excluded in the provisioning number in the first quarter.
I think that clarifies my comments. And then on Mexico.
Hector Grisi: Yes. On Mexico, what I can tell you is that you’re going to see very good growth in terms of NII, okay, because of your positive in the sensitivity there. Also, what you’re going to see is very positive growth in terms of fees because we are growing clients in a very good way, okay? Mainly credit cards is one of the main drivers. Also, CIB is an important driver of fees, okay? And also, you’re going to see that the cost of risk is actually very much under control, okay? So you’re going to see an all in all very good performance in the country, given that particular situation and also that economic situation in the country is doing very well.
Begona Morenes: Thank you. And thank you, Andrea, for your questions. Can we have the next question, please?
Operator: Next question from Britta Schmidt from Autonomous. Please go ahead.
Britta Schmidt: Hi there. Good morning. I’ll ask a couple of questions on the deposit development in Spain, the decline. Can you maybe split the trends between corporate and retail deposits there? And also a question — a follow-up question on the cost of deposits in Spain. There was quite a meaningful increase Q-on-Q. Do you swap any of your deposit base? And is that included in the number? And then lastly, of course, there was also a loan yield expansion regarding the management of your net interest income in Spain. Do you look more at the customer spread? Or do you look at the individual costing of the balance sheet? And then a couple of follow-ups. On Brazil, could you just clarify that last year’s cost of risk, excluding one-off was around 460, 470 basis points, I think.
Another question on the Polish FX saga. Do you expect there to be more provisions to come for the Polish Swiss franc mortgages and lastly, one question on the regulatory outlook. Do you expect there to be any rethink either in Spain or on a global level of deposit insurance charges and the funding of deposit insurance funds. Thank you.
Jose Garcia-Cantera: So deposits in Spain, as I said, €21 billion, €22 billion drop from corporate deposits, flat, slightly down retail deposits in the quarter. Basically, when you look at early mortgage repayments, they are very much aligned. So — and if we look at February and March, as I mentioned, positive trends in both retail and corporate deposits because again, the €21 billion drop was associated with the year-end balance sheets of our corporate deposits. I’m not sure I understood your second question well. Your question was if we swap deposits or – no, we don’t. Obviously, no, no, we don’t swap the deposits. We manage net interest income — sorry, interest rate risk through the asset side not through the liability side.
How do we manage NII, if I understand correctly, do we look at customer margins or how do we manage that? I don’t understand well your question, but obviously, again, interest rate risk management is mostly managed through the asset side and we look at the overall net interest margin of our interest-earning assets. Brazil, the cost of risk…
Hector Grisi: Cost of risk is around 4.58%. And excluding the one-off that we had, okay, and that’s — and in terms of the mortgages that you asked for Poland, up to now, the portfolio basically is 48% reserved, okay? That’s exactly, and we are actually looking at what we’re going to do, depending on how the portfolio evolves, okay? But we are now 48% coverage of the total portfolio.
Begona Morenes: Thank you, and thank you, Britta, for your questions. Can we have the next question, please?
Operator: Next question from Alvaro Serrano from Morgan Stanley. Please go ahead.
Alvaro Serrano: Hi, very quickly, hopefully. Two questions for me on provisions. On the U.S., I know you touched on an earlier question on it. But I just wanted to understand the car prices so far have been better certainly year-to-date. And looking at the citation data that’s also doing slightly better and the NPLs are down. So why the provisions in a seasonally lower quarter, they didn’t go down as much. Is there a lag effect here? How quickly do the secondhand car prices feed into the model? Maybe some handholding there? And I don’t know if you could be more specific on your updated views for the full year cost of risk in the U.S. And on Brazil, I don’t know if you’ve touched on this, but should we expect any more top-ups or one-offs in Brazil beyond the recurrent cost of risk that you’ve already touched on Jose? Thanks.
Hector Grisi: Alvaro, in the provisions on the U.S., okay, it’s very important that you understand that. I already explained exactly how the vintages are performing. The other — the previous vintages are basically performing quite well, okay? The thing is there are a couple of things. First of all, if you remember with the stimulus, we actually dropped quite a lot the amount of provisions that we had. What we’re having right now is we’re having to make some of the provisions that the portfolio needs to have in order to basically be in the same level that we need to be with IFRS, okay? IFRS, as you understand, the new definition of the folder was put in place two years ago didn’t hit us as much in the U.S. because the portfolio was performing completely different, okay?
So when you turn that portfolio to IFRS, the NOD, the new definition of default basically requires you to create a lot more provisions even though you may not need them because the portfolio is performing well beyond 90 days, okay? I don’t know if I’m explaining it correctly because it’s quite complicated. So what I’m trying to tell you that IFRS does not see that the portfolio could be so irregular in the way it performs, okay? So normally, a portfolio in Europe beyond 90 days, et cetera, will be — I mean, go for repossession. A portfolio in the U.S. is not performing exactly like that. It’s actually beyond 90 days is performing much better, and the client might pay you one installment, two installments, and then would pay you, not to pay you one installment and they will pay again, et cetera, okay?
So that’s why you see those differences and the movements in the provisions on the car prices. Even though you’re right, car prices are better than — much better than we expected, and the Manheim is actually at better levels. At the end, cost of risk in the U.S. is going to be around 2%, okay? It’s exactly what we think and in terms of…
