And if you see the operational leverage that we have on the — what I presented on retail, you see that the operational leverage is working like that, okay? So our target is basically to maintain cost the way it is. And I believe that the trend would continue like this. So I feel very confident on the way we’re managing things. And I believe that we could be able to reach and to be more or less flattish in terms of cost. The question of insurance is quite a good one. We love that business. We believe that we have huge upside mainly in markets such as Spain and in Brazil, I could tell you, Mexico where insurance penetration is quite low. So we see huge opportunities on that, and we continue to better up our systems. For example, we are simplifying products in that sense in a very important way.
Today, average by market, we have 222 different products per market. The idea is basically to go down to 25 basic products that I believe that would help us in order to be much more concentrated for our teams to be able to sell to the clients exactly what they expect and to continue a really good trend. So that’s a huge opportunity, as you say. The other side of the coin is that we have JVs that in place on the long-term basis, mainly in Latin America and Spain and Portugal. And then we will continue to have them over the years because they are long term. I would love to internalize that business, what unfortunately is what it is. We have the JVs and we need to respect what we have there. But as you say, there’s a huge opportunity in that sense, not just because of the change and sweets in regulation, but also because of the — the advantages and that we have given the amount of customers that we have and the low penetration in the different markets.
Andrea Filtri: Thank you.
Begoña Morenés: Thank you. Can we have the next question, please?
Operator: Benjamin Toms from RBC. Please go ahead.
Benjamin Toms: Thank you for taking my questions. At the full year results, you noted that you do not expect any material impact from the FCA’s review of mode’s Finance in the UK. And since then, one of the large banks in the UK has made a significant provision in respect to that issue, do you still expect no material impact here? And are there any numbers you can provide us with to help frame the issue? And then secondly, we’ve seen consolidation in the space in the UK from banks looking to improve their return profiles, your ROTE in the UK is slightly below that of your major peers despite a favorable asset mix, do you believe you can improve returns in this geography using organic methods? Thank you.
Héctor Grisi: Thank you. I mean, first of all, on the UK motor finance issue, I mean the resolution of such matters, as you know, is not possible to predict. There are some significant uncertainties that remain with regards to the existence, the scope and the timing of any possible outcome there. So as a result, we’re not yet in a position to disclose the extent of any potential impact. And I don’t believe until basically this, I understand there is an expert basically running through that. So I don’t believe that we can give you an idea. What I can tell you is that so far, we’re doing well in the sense of the settlements that we have. And so far, we’ve been doing better than we expected. In terms of consolidation in the UK, I don’t see that we should play in a consolidation at this point. I don’t believe that that’s a market that we should invest more at this point. That would be my view in that sense.
Begoña Morenés: Thank you. Can we have the next question, please?
Operator: Next question from Chris Hallam from Goldman Sachs. Please go ahead.
Chris Hallam: Yes, good morning, everybody. So two for me. So first on Basel IV and then on Argentina. So hope thanks for the color earlier on Basel IV. I mean I suppose it sounds very possible that FRTB gets pushed to align with a revised US time frame, let’s say, towards July 1, 2026. And you mentioned the delegated act provision for FRTB here in Europe. So just within your day one and fully loaded guidance, how much is FRTB and how much is all the rest of it, i.e., if we only get parts of Basel IV in January 1, 2025, and then FRTB follows on July 1, 2026, how much would that change the phasing of the capital headwinds you talked about earlier? And then second, on Argentina. So clearly, it has quite a distortive effect on the group figures.
And then there’s the associated cost of hedging, and it’s below 5% of group earnings. So I just wondered whether you’ve reassessed your footprint plans in Argentina, I guess, especially in light of the announcement that one of your peers is exiting that market? Or are there any sort of interconnectivity with other parts of the group that would make such an exit on economic?
José García-Cantera: So the answer to your third question. Yes, when — we’ve always mentioned Basel III, but when we gave the impacts, we were including FRTB, you’re right. So when we said day one impact of Basel III, was Basel III plus FRTB. FRTB isolated is 10 basis points. So if FRTB gets postponed, we will not have this 10 basis point impact on day one that we were accounting for in our estimates. I hope this clarifies the matter.
Héctor Grisi: Thank you. In terms of Argentina, I think that we need to leave our options open given what’s going on in Argentina, basically can sustain what’s going, and we’re trying to be positive about what could happen, I don’t believe that we have no downside or upside given the situation. So there are no plans to do anything at this point, and we’ll just wait and we will continue operating our business. Our business is doing well. It’s very good structured, is one of the best banks that we have in terms of client penetration, in terms of the transactionality that we have from our clients, fee generation. So we will continue to be there and see what our options are later on
Begoña Morenés: Thank you. Can we have the next question, please?
Operator: The last question comes from the line of Andrea Filtri from Mediobanca. Please go ahead.
Andrea Filtri: Yes, thank you. Just having a second go. Asking for absolute numbers on your net profit guidance for 2024, the 16% rate implies over €12.3 billion, can you be more specific about what number you’re actually targeting? And then your own cost, the same story. I’m asking for a nominal euro-denominated group cost target for 2024? Thank you.
José Garcia-Cantera: Insufficient numbers and growth rates in the P&L to really estimate what we believe is our most likely figure for net income and cost. So, again, for net income, 13% — sorry, 16% return on tangible equity gives you a figure in line with what you are saying around 12 — north of €12 billion, it’s what — it’s the conclusion of the 16%, we agree with that. And in terms of costs, we are looking at a cost growth, which is going to be around 2% this year, 2% to 2.5% this year. Going forward, as we’ve discussed, we are targeting flat costs in absolute terms going forward. That is going to be difficult. Obviously, we are still in a relatively high inflationary environment. We believe that — well, it is a very ambitious target, but that’s the internal target we have.
We haven’t given any guidance for 2025. But what I’m saying is that long, medium term, our target is to keep costs flat or down in absolute terms. We are not there yet in 2024, close. We think we could be closer there in 2025, but it’s too early. We are still in early 2023 — sorry, 2024. So, we’ll give you this guidance in due course. But again, our medium long-term objective is to keep costs flat or down in absolute terms.
Begoña Morenés: Thank you very much. Thank you, Héctor, and thank you, José. I believe there are no more questions. Thank you all analysts and investors for your attendance. Our Investor Relations team is, as always, at your disposal for any further questions you may have. Good bye.
