Banco de Sabadell, S.A. (SAB) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Banco Sabadell's Capital Markets Day. Today, we've also published our quarterly results presentation. This presentation was prerecorded and is accessible too with the audio webcast on the quarterly results through our website. As usual, we are joined today by our CEO, Cesar Gonzalez-Bueno Wittgenstein, and our CFO, Sergio Palavecino. Let me share with you the agenda for today. Firstly, our CFO -- sorry, our CEO, will begin by explaining the 4 main pillars of our strategy for the next 3 years. Then our CFO will cover the guidance for the main P&L items, the capital evolution and the shareholder value creation. Finally, we will do a Q&A session, in which we will be happy to answer any questions regarding the strategic plan and the quarterly results. I will now hand over to Cesar Gonzalez-Bueno to kick off the presentation.

Thank you, Lluc. Thank you all for attending this Capital Markets Day. As Lluc mentioned, I will cover the strategy, [Sergio, ] the financials and then we will take Q&A for both Q2 results and the Capital Markets Day. Let's just start with what has happened over the last 4 years in a very synthetic way. And we are aiming at profitability, and we are aiming at capital generation. So we went from EUR 200 million net profit to EUR 1.6 billion in 2024 and from a return on tangible equity of 0% to 14%. One of the things I would like you to pay attention is to those small mentions with a thumbs up that there are all across the presentation. This is because we are going to try to show you that the projections that we are doing for '27 are perfectly in line with the year-on-year that ends in the first half of '25. And therefore, we are aiming for a return on tangible equity of 16%, and we are already on our way because we have achieved the 14.4% during the first half. And we are also aiming at the EUR 1.6 billion -- above EUR 1.6 billion for 2027. On the right-hand side, we have capital generation. And why do we have that next to each other? Because not all returns on tangible equity are equal. You can have returns on tangible equity that are higher but because of inflation and devaluations, then the capital generation is seriously affected because of fair value adjustments and higher growth of risk-weighted assets. In our case, that analogy is quite substantial. So our growth in return on tangible equity should mean that we also grow our ability to distribute, to generate and distribute capital. If you look on the right-hand side, the evolution has been very positive from 37 basis points in '21 up to 210. And we expect an extraordinary distribution after the sale of TSB of 400 basis points and then an ongoing of 175 basis points per year. So it progresses in the right direction. If we move to the key elements of our strategy. We're talking about Spain. After the disposal -- expected disposal of TSB, we're going to be a Spanish bank. And Spain is doing well. It's a safe country. It's growing above its peers. Our story is a story about growth. And what is very difficult is to grow and generate capital at the same time, and we will try to convince you which are the elements of -- the next element, which is execution that allow us to do that. Usually, when you grow, you put at risk, either pricing or risk, and we will try to show to you that, that's not what we are doing. We are growing prudently. We are going to grow prudently. We are going to gain moderately market share, but we are going to do it in a way that generates value. And finally, last but not least, I think we have a spectacular shareholder remuneration to share with you based on our strong capacity to generate capital. This is what we're going to talk about now. A brief introduction around Spain. Spain is doing well. Second, we will talk about growth and how that growth can be profitable, how that growth generates value. Third, we will mention a little bit about the execution, our track record. We are very proud of our track record over the last 4.5 years. And finally, we will close with shareholder remuneration before giving the floor to Sergio. So let's start with Spain. Spain, I mean everything looks basically right. Private debt is at very healthy levels, almost half of what they have been historical and the lowest of the last 20 years. Our labor dynamics, we have never been the best in that. But in terms of dynamics and relative terms, we are at a very good level, much lower than in the past. And our GDP performance agreed by the -- all the international and national projectors say that we are going to be above in terms of GDP and in line in terms of inflation. That leads us to use as a backbone for our plan something, a growth of around 4%, a bit above for household lending, but around 4%, both for customer deposits and corporate lending. And this is very simple. This is the sum of the growth of the nominal GDP plus inflation, and that yields that 4%, with the projections of ECB interest rates standing at around 2% by the end of 2027. Let's go to growth now. Preparation for growth. This is basic banking. And I hope I don't bore you with this, but it's at the core of our relentless focus on execution. Banking is about doing the risks right, doing the pricing right and having the correct processes and journeys. We have transformed in-depth our risk models. We'll talk a bit about that. Pricing, it's very analytical. It's not only based on risk, but it's also based on price sensitivity. And we have reviewed all the processes and journeys in order to improve the customer experience and in order to improve the conversion in our sales processes. And we have leapfrogged in digital capabilities. We were behind, and I think we are becoming state-of-the-art. On the right-hand side, you have some internal enablers that I will cover at the end of the presentation, but that are still also extremely relevant, although they might seem a bit qualitative, which is the metrics incentives. They have been transformational in our bank, the technology, the support of it and our team. But let me go through some examples and I will use an example for risk, an example for pricing, an example for processes and journeys. We have covered them for all products, but of course, the presentation would be horrendously lengthy if I cover them all. I'm just going to give you a flavor of each one of them. Let's just start with risk. Microenterprises, the ones that sell below EUR 2 million. I mean, our management of that has been extremely focused. We are a little bit late to tell you the truth. We started in '23. Look in '23, it was only 3% of the book on the left-hand side, and it represented 22% of the cost of risk of the bank. It was absolutely disproportionate. If you look in the center of the slide and you see how the PDs of the new unsecured loans have declined systematically, and that's based on models, it's based on authorizations, it's based on processes. It's a number of things that have completely transformed this portfolio and we have cleaned it up. But this, of course, churns over the portfolio. This is just the entry. This is the probabilities of default of the new lending and it takes a while to scale through the portfolio in order to improve the cost of risk. And that's why we are expecting, and this is in the plan that by '27, it will still be 3% of the loan book but it will represent 14% of the total cost of risk. Even today, it has a positive RaRoC but very meager. By then, it will have a handsome RaRoC based on this clear improvement of risk. And because this is so important, and this is just an example. Let me show you in the next slide, what has happened with all the asset products. With all the PDs of consumer loans, self-employed, SMEs, mortgages, microenterprises is at the center bottom of the slide, it's exactly the same one that we covered and CIB. You see that there is a dramatic improvement in the acceptance, in the caliber, in the quality of the risks that we are accepting, minus 60% in consumer loans, minus 57% in self-employed unsecured, minus 36% in SMEs and so on. And this, as I said before, it's absolutely crucial and that's why we say that our projection of 40 cost of risk -- 40 basis points cost of risk going forward towards '27, it's absolutely reasonable because all the portfolios are progressively improving at different speeds, depends on the duration on the term duration of each of the products. Let's move to the second element. You remember, we were talking risk, pricing and processes. Now an example on pricing. And we have chosen here consumer loans. Consumer loans have been reviewed upside down in all elements in risk, in pricing and in processes. But here, it's only the example around pricing. And I think there's something that is especially noticeable. Well, first, look at the growth between '21, where we -- the new lending was EUR 1.5 billion. In '24, it's EUR 2.5 billion. So we are growing 1.6x faster. But what is more relevant is that if you look at the right-hand side of the slide in the center, the new lending spread has decreased. So we are lending cheaper, 150 basis points cheaper. Is that good or bad? Well, we think it's very good. Because if you look at the cost of risk of the stock, and that is even more conservative because we are comparing a flow with the stock has gone down by 400 basis points. So that's a tremendous value creation. So not only are we lending much more, we are lending cheaper, but it overcompensates from a profitability point of view because of the way we engage and the quality of the new pricing has made it to be much safer than before. So absolutely a good business. Let's move to processes. SMEs. I think here, the opportunity is fantastic. I think we have a franchise with 15 years of average length of relationship. We have seen during all this process of the potential hostile takeover, the reaction of our customers, the support of our customers. It's a bank that has been next to its customers, and it's very much appreciated. And that -- those relationships have a lot of value. And 1 in 2 SMEs is a client of Banco Sabadell. But at the same time, our share of wallet is not that large. It's a 16%. By the way, in the last 1.5 years, it has grown by 7%. So it was below 15% before. And that is precisely where we are focusing. We are less focusing on acquiring new clients, we are focusing much more in increasing the share of wallet of the clients we have. And I won't bore you with all the elements that we have driven through, processes and journeys have been improved. We have specialization. We have caught up with digital in a big way. We have, from a risk perspective, I think we talked marginally about it before. We have done a phenomenal transformation. But look at the last point that I will leave for later on, incentives. Incentives are going to be the key driver for further acceleration because they will be fully aligned with the strategy of generating growth and capital. And I'll leave that for later. But this is the jewel of the crown, and I think it's going to give us lots of further satisfactions. It already does in the future. Complex slide. Apologies for that. But I think retail is detail, and it's about execution. And I think it's important to understand that the transformation that we have applied to the bank has been progressive, constant, sequential and extremely focused. And here, you have 3 elements. You have, first, the volumes. I'm reading the left-hand column. You have first the volumes growth and you have the products that are mainly on the asset side. Then you have the fees and then you have the growth in number of customers. And this is what is driving the growth. And you see on the lines when we have done that, mean transformation. The colors show that in gray, it's retail banking, in darker blue, it's SMEs, private banking and in light blue, is corporate and investment banking. And you see that some things have been finalized in terms of transformation. We have to see still continuous improvement, especially on the risk cost and especially in fine-tuning all the acquisition levers that we apply. But what you see is that, that transformation that we did in year '21, when we said, okay, let's break this, business units has delivered because we have been able to do different things simultaneously without stopping the bank because it was different teams that were supporting that strategy. And you see that there are ticks there, which is when we did the major transformation. And in the next slide, you will see how growth has changed dramatically after that tick happened, but you also see that some things are still well on their way. So is the glass half empty or is the glass half full? I would say that we are somewhere in between and that we are well on our way of continuing to develop a transformation of the bank that is unfinished. And therefore, we still have clear potential for improvement. I think you see on the right-hand side, so beyond the '25, that we have to finalize the transformation of self-employed and businesses that we have the second round of CIB that is coming to us soon, that insurance, we are just finishing and starting to collect a phenomenal return from that transformation. On payments, we will see an acceleration if and when we do the agreement with Nexi, which should happen naturally. Both parties are happy to continue engaging soon after the hostile takeover is over. And then in payments and cards, we haven't done much. So that is pending. And therefore, here, you have a little bit the schedule of the whole story of the last 4.5 years and a little bit of the view going forward. What does it mean in terms of numbers? So we are going to see now the results of that. This is at an aggregated level. If you look at volumes, you see again that we have these volumes, fees and commissions and number of customers. If you look at volumes, we grew very slowly between '21 and '24, very meager growth. What did we do? We reduced dramatically the cost of risk. We were transforming the bank. Between '24 and '27, what do we expect? We expect a mid-digit -- mid-single-digit growth, compounded average growth rate. And you see again that thumbs up, which says that during the last year, year-on-year, we have delivered. We have already started the process with that 5.7% year-on-year growth. Fees and commissions, exactly the same with the additional element that we had the single premiums and that we had to change into yearly premiums, and that showed a significant decrease between '21 and '24. But now that, that is behind us and that the transformation of the products that provide fees is on its way, we are again thumbs up with a 4.6% year-on-year, ending in the first half of '25, and that allows us to project to a mid-single-digit growth. In customers, look at '21, -- the gray bar is branch acquisition. The blue part is digital acquisition. We had 0 in '21. Since then, it has been growing. We are accelerating that, and I will cover a bit more of that in a second. Let me go now one by one to volumes, to fees and commissions and to customers. Volumes. I will not make you suffer and go through the whole page. But look on the left, we are talking volumes. It's the asset side, consumers, mortgages, SMEs, self-employed, CIB. And let me keep just at the growth that you see after the [tick], which is the one that corresponds to the previous slide. So after '22, we are growing at a compounded average growth rate in consumers up 17%, 3% in mortgages, 3% in SMEs. We are ready to grow in self-employed and micro enterprises after fixing that major problem that we had in the entry of the PD, CIB growing at 12%. What is our projection, '25, '27? Well above market for consumers, for consumer loans. What have we done? A growth of 20%. Mortgages, in line with the market. We have done a 5.7% and these are stock values. And SME, self-employed and CIB, we are going to grow above market, and we have done a 3.2% year-on-year. What does this mean? Are we going crazy? Are we growing beyond our means? Are we doing something that would put at risk the franchise? The answer is no. We have currently a weighted average market share of 8%. And we are aiming after these 3 years to be at an 8.3%. Being at that 8% is a very good place to be because you have, at the same time, the critical mass, you're not a minor player, but at the same time, you don't cannibalize yourself as you grow. But the question, this is growth. But the question you can have is, is this a healthy growth? And I think we can answer this in this transparency. For the sake of brevity, let me just turn to the right-hand side of the slide. When we talk about new lending profitability in '24, that is higher than the stock. Look at the RaRoCs. RaRoCs include -- so we've said we are growing healthy. We are growing slightly above market. We are doing well. But the question if are we growing at the expense of pricing? Or are we growing at the expense of risk? And the answer is no, because that will be captured in the RaRoCs and the RaRoCs are clearly healthier than the ones in the past. In consumer lending, clearly above, in mortgages, clearly above, in SMEs above, in self-employed and macro enterprises clearly above the historical RaRoC -- the RaRoC of the stock and the same for corporates. So growth, but it's healthy growth. The pricings are right and the risk, as we saw before, the PDs are showing a very, very clear improvement. Let's go now to fees. So you remember, we talk about growth, which is asset products, now fees and commissions. On the left-hand side, what you see is in gray, the ones that are linked to transactionality and volumes, those are pretty stable. It's the ones that are related to the general transactions that we do with our customers that includes, for example, the fees that we charge in current accounts for the clients that are not prime, for example. What is relevant is the growth that we are going to see in the upper part, in the 3 fee-generating businesses that are savings and investments, insurance and payments, and that the transformation is phenomenal. Let's go to the right-hand side. And let me refresh you. This has been a little bit backloaded in our strategy plan, in our transformation over the course of the years, but their time has come now. In savings and investments, which is basically related to the transformation that we've done in private banking, but also about products, it's also about value propositions. We have grown at 4.8% year-on-year ending in the first half of '25. And we are projecting a mid-single-digit growth. In insurance, we are projecting high teens. Here, the transformation has been phenomenal. I can assure you, we have reviewed with Zurich everything. We have updated products, journeys, pricing, retention, you mention it. Everything has been done, and we have been the fastest growing in terms of gross net premiums over the last year with a 13%. So again, thumbs up. And in payments, we have historically a 20% market share. We are already well on path at 21.8%, and we expect that the agreement with Nexi will bring us to the next stage by '27 of having a 25% market penetration. And now let's move to the last element, which is Digital Customer growth. This is a little bit more detail on what we saw before. You see the blue bars growing, which is the digital part, which was starting at 0. But I think what is worth mentioning are the things at the bottom -- right-hand side bottom of the slide, 12% of the gross margin has been generated by clients that we acquired between '22 and '24. And this is a growing element because as you see on the further right, the engagement of these customers is progressive and growing. As a sign, the debit card usage has gone from 34% for these new clients in '23 to 58% in '24. So that closes the growth. Let's talk briefly about the enablers. This first one is very dear to me. And I think it's very much embedded in the organization. And I think it has been at the core of our transformation. I think what you measure and what you incentivize is what moves the needle. And in '21, we were just measuring income and revenue. And we were missing out, and this was -- when we did the budgets, EXANTE, we gave everyone an objective of revenue. But that ignored the asset quality, it ignored the costs, it ignored the capital consumption. So very quickly, where we had a return on tangible equity and RaRoC. What is the problem with that? And that was a major advancement that I think has given us a lot of mileage. But how do you weigh each other? And we were also doing it EXANTE at the beginning of the year. We gave everyone a target of revenue, a target of RaRoC. One is absolute, one is relative, very difficult to combine them in what is value creation, and we did at EXANTE. What are we doing since the end of '24, during '25, and it's a progressive implementation that we expect to have finalized by the end of the year. And it's going very well because when you do this transformation, sometimes you can have a negative reaction from the organization, it's exactly the opposite. It's being accepted by the organization as a fantastic way forward. And we're talking about value creation. The value creation is as close as it gets to capital generation. We start with revenues, we subtract costs, then we subtract the expected loss because we have the PD per product and per transaction. We subtract the cost of capital and we come to value. For every portfolio, for every manager, we have the value that they have as a stock, and we can measure the delta of that value. And last but not least, and this is a huge transformation. It's going to be based on rankings. So enough of saying at the beginning of the year, we know what is going to happen, and these are your incentives and this is what you have to do because over the year, things changed dramatically. And we have seen over our lives that people run very fast if they don't reach their objectives, even hurting pricing, even hurting risk or if they reach their incentives, they stop and hold for next year. This is relative rankings. This is our percentile and people will be remunerated, evaluated and compensated based on the relative doing on how they manage value for the bank. Let me cover quickly. Sabadell's technology. It's one of the areas of which I'm more proud. I think our business model is so simple and it allows to operate on a single IT platform, and we have done all the transformations that were required. The fact that we have these partnerships with Zurich and Amundi that someone else does for us, those very expensive and continuous transformations with world-class caliber is extremely efficient and allows us to profit of a size that we don't have in major elements that require investments. And the IT cash out is increasingly oriented to growth projects. Let me tell you. The transformation of the IT infrastructure, the security, the cyber elements, the everything, we are top-notch. But furthermore, I have the satisfaction to deal with the bank where 60% of the CapEx is devoted to change the bank, to improve customer experience, to improve products and not to run the bank or to regulatory elements. And last but not least, I will not entertain you with this slide. But our team, the commitment is at its highest. We are able to attract and retain, and we have a corporate culture that enhances growth and focuses on customers and shareholders. Let me leave it at that. This one is crucial. But I guess that it would sound like rhetoric. It is not. It is at the core of who we are and what we do. Finally, a little bit of track record with all modesty. I mean in gray, you see the guidances that we have been given over time. And in blue, you see the achievements at year-end. I think it has been a relentless story of outperformance to our own guidance. Does that mean that we guide prudently? Yes. It means that we guide prudently. We do it bottom up. We do it with all detail. And necessarily, we have always left buffers because it is our obligation not to surprise negatively the market. Finally, the last slide before turning to Sergio. I think this one is quite spectacular to tell you the truth. EUR 6.3 billion in the course of 3 years. [ EUR 1.3 billion ] are the recurrent capital generation and distribution for '25. We had the extraordinary dividend of EUR 2.5 billion. That means that in the course of the next 12 months, we are going to distribute EUR 3.8 billion. Together with the EUR 2.5 billion on the back of '26 and '27, that brings us to EUR 6.3 billion. Is that a lot or not? Well, I don't know there are many precedents of anyone announcing with this level of certainty that they are going to distribute 40% of their market cap in the course of the next 3 years. This is on the back of our dividend policy. We are not doing anything extraordinary. We are just following what we said we would do a 60% payout and then distributing every excess above 13% core Tier 1. Of course, there's the extraordinary element of the EUR 2.5 billion because of the proceeds of the sale of TSB. But let me also emphasize that the cash dividend per share in '25, '26 and '27 is clearly expected to be higher than the one of '24. And with this, I pass it on to you to Sergio.

Okay. Thank you, Cesar, and good morning, everybody, and thank you very much for attending today's presentation. Also big thanks to also Sabadell colleagues that have made this possible with lots of hard work behind. It's actually a privilege for me to be presenting for the first time today, Sabadell business plan as after the sale of TSB, we'll be focused in Spain. Spain has shown a strong economic dynamics and is expected to keep on showing a strong economic dynamics. GDP will grow in average 2% during the next 3 years, inflation will be also around 2%. Unemployment rate is expected to be reduced. So therefore, employment dynamics to improve. That combined with the fact that Spain is gaining population, as a matter of fact, will affect the economic dynamics and will be further supportive. All that combined will also be positive for the volumes of the banking activity. We expect private sector credit to grow at a 4% CAGR over the next 3 years and deposit -- and the private sector deposits, a similar figure. How realistic is that? Well, I think Cesar touched before on the low level of leverage in the Spanish private sector. And then when we look at these numbers, 4% actually comes as a very similar growth than the expected growth of the nominal GDP, 2% real GDP growth, 2% inflation. So that combined is at 4%. So with these levels of growth for the Spanish economy, the leverage could not even be increased, could simply be maintained. Then when looking at the interest rate levels, interest rate levels have been normalizing. Currently, ECB is at 2%, and we are expecting ECB to bottom out rates after the summer with 1.75%. Then we expect ECB to get back to 2% by mid-2027. With that, we expect Euribor 12 months to finish 2027 at 2.3%, so a gradual recovery from current levels and the 10-year euro swap rate, which is important for the pricing of our fixed-rate mortgages is expected to be at a 2.7%. So some steepening and our assumptions, I think, are quite well aligned with current market expectations. Let's move on to the loan growth volumes. We expect loan growth to -- loan volumes to grow at a mid-single digit. And that is a little bit above the figure that we expect for the industry. Regarding mortgages, we're expecting to grow in line with the sector. In consumer and SMEs, we're expected to outperform. More clearly, in consumer as we're coming from behind, and I think Cesar explained well the dynamics and a bit of outperforming in the SME space. This is going to be profitable growth. We are convinced of that. We have the discipline. We have the tools. We have the know-how. I think Cesar has been explaining all the efforts and all the technology that we've been applying in order to grow safely and in a profitable way. And I think, again, connecting with the previous presentation, when we look at how this is progressing in the first half of the year, already a growth of 5.7%. So on a combined basis, already well on track to meet that mid-single-digit growth, and that's why sums up. In the next slide, customer funds, which are expected to grow in line with the volumes, also a mid-single digit with off-balance sheet funds outperforming growth. In the first half of the year, we enjoyed a 4% growth in on-balance sheet and as much as 13% growth in off-balance sheet. All combined, 6.7% growth, so pretty positive, again, sums up. Let me share with you some data points regarding the quality of the deposit franchise of Sabadell. In the on-balance sheet funding structure, nearly 80% are current accounts, site deposit and the vast majority of them transactionals. Then a minor part of those are actually remunerated. So when you account for the global, taking into account that then 20% are term deposits, actually, what we have is that just 1/3 of the on-balance sheet funds are remunerated. 2/3 of that are not remunerated and this applies to the EUR 127 billion figure. So roughly EUR 85 billion are non-remunerated. So the pricing dynamics of that, what is the pass-through, then 0 remuneration for 2/3. The pass-through on the other 1/3 is high, is around 90%, 80%, that's connected with our corporate activity, our public sector customers, our digital deposits. The combination of having 2/3 non-remunerated, 1/3 high pass-through is roughly pass-through of deposits of rates into the cost of deposits. At the end of the last quarter, our cost of deposits in Spain was 65 basis points, trending down and well aligned with these figures. We expect cost of deposits to keep on trending down as we passed on this new scenario of normalized rates and the cost of deposits are expected to land around 50 basis points, between 50 to 55 basis points. And again, let me highlight the very healthy and good growth that we are enjoying in the off-balance sheet customer funds. I hope you find this table interesting. We have tried to summarize the guidance for this year 2025 and for the entire life of the plan, so up to 2027. Starting from the 2025 guidance, we -- I'm sure that you have been able to see in the results presentation that we have just upgraded the expected profitability for the year to 14.5%. And therefore, that is going to be higher than the recurring profitability of 2024 that came at 14%, as you can also see in the table. The driver of this improvement comes from cost of risk. We are upgrading our cost of risk guidance at the group level to 35 basis points on the back of very strong quality asset dynamics in the book. While for the net interest income, we are adjusting from more than 4.9% to at around 4.9%. For fees and commissions, we maintained the low single-digit expectation. And for cost, we are improving our expectation from circa 1% to flattish. We are now also providing 2025 guidance for the ex-TSB perimeter, which after the sale of TSB is the perimeter that will continue. We are expecting NII to land at around EUR 3.6 billion this year, fees and commission to grow mid-single digit, total costs to grow low single digit and cost of risk at around 40 basis points. And that could be the sort of starting point of the plan, although we're referring to 2024 to get to 2027. For that journey, we're expecting NII to grow on the back of the volume dynamics that we just mentioned to EUR 3.9 billion. Fees and commissions to continue performing at mid-single digit. Total cost at a 3% CAGR, cost of risk at 40 basis points. We will touch on all this on the next pages. And all combined, a return on tangible equity in 2027 that will be delivered at 16%. Let me get into the details, starting from NII. NII, 3.9%, as mentioned, for the remaining perimeter after the sale of TSB in 2027. And that is a figure which is very similar to the one that we had last year, 2024. And we try to -- we do show with you the bridge that we expect for the period. Starting from left to right, I hope you remember that we had a one-off of EUR 40 million last year. Then for customer NII, we expect a net positive of EUR 100 million. And behind this net positive are the movement between rates, yields and volumes, which is not minor. You see that we expect an adverse customer margin of EUR 400 million, which is connected to the customer spread that you can see behind. Customer spread peaked last year at around 330 basis points and are expected to come to 300 basis points in 2027. And and that is the reason why we expect an adverse contribution of EUR 400 million. While volumes, which are growing at the rates that [Richard] mentioned, will more than offset that effect and will add EUR 500 million. Then for the rest of the main contributors to the NII. We have, first, the ALCO and the liquidity that will be adverse EUR 200 million. This is connected with the lower ECB rates for the liquidity. And also, let me mention that in the ex-TSB perimeter, we have some MREL securities of TSB, that, as you know, we have agreed to sell to Santander. That is also -- that has also been taken into account in this impact. But all that will be fully offset by the savings that we will achieve in the wholesale funding. And we'll get more into the details later on. In the left part of this slide is simply how we're going in 2025. As mentioned, guidance, 3.6% in the first half, 1.8%. So therefore, we are performing well in line with this expectation. Let's get into the sensitivity of interest rate -- of the NII to interest rate. I think that you are aware that we've been reducing that sensitivity over the last years, as shown in the graph on the right-hand side of this page. We used to have something like above 8% sensitivity to 100 basis points. And by extending a bit the duration on the assets and lowering the duration of the liabilities, we've been reducing that sensitivity to the -- between 1% to 2% that we have today. To be precise, we've been doing that by benefiting of the fixed rate new business in the loan book and buying some bonds fixed rate for the ALCO book. With that, the fixed rate portion of assets that we identified is close to 56%, while the insensitive part of the liabilities is 60% after hedging the vast majority of the wholesale bonds that we have issued. So with this, what we mean is that, we aim to provide a lot of stability to the NII and derisking and have more predictability on the earnings. Fees. Fees are underpinned by higher activity and asset management fees are expected to play a more significant role going forward. You see that asset management contribution today is 20% of this PLA line and is expected to grow up to 28%. And this is thanks to the success in the distribution model with the changes in what we did in our private banking business that has proven to be quite successful. On the rest, looking forward, we see positive underlying trends in banking services with higher activity, more business, more transaction and more trading. All combined, we'll deliver this mid-single-digit CAGR, which is already in line with what we are seeing in the first half of the year with a growth of 4.6%. And finally, with all this, we expect our -- the fee contribution to be higher on a relative terms to our revenues. It used to be 24% in 2024. It's going to get to 27% and further derisking revenues from rates. And I believe this is quite high-quality revenues. Then getting into the cost evolution. We believe that the cost discipline of the bank is very high. We are showing in the first half of the year, a very modest increase of cost, 1.8%, that it comes as a testament of our commitment. Going forward, we plan to invest in making this business growth in IT, and all that has been taken into account and is embedded into that 3% CAGR that we expect for the next 3 years. Before getting into the cost of risk description, let me briefly describe how our loan book looks like as of today. And in this ring, you can see that what we would call the lower risk part of the business, which are mortgages to individuals, public sector and social security advances and corporates actually represents today 2/3 of our balance sheet of our loan book, being definitely this low-risk components. Within the corporates, 80% of the names are investment grade. In mortgages to individuals, we find very good metrics of risk. More than 67% of them are fixed rate, so low sensitivity in the installments to the -- low sensitivity of the affordability and a weighted average loan-to-value of less than 60%. And then when we look at the SMEs and self-employed is 30% in total. And I really would like to highlight the long-lasting relationship with our customers that Sabadell enjoys more than 15 years in the case of SMEs and 10 years in the case of self-employed and micro-enterprises. I would also like to highlight the focus that we have had in the last years in improving the quality of the book. And I think Cesar has described very well how we -- how this -- how we have developed metrics that has been embedded in the businesses, in the managers. And as a testament of that, we are seeing an improvement in the probabilities of defaults in the range of more than 35% for SMEs and as much as 50% for self-employed. And these are at the core of the explanation of the improvement that we are showing in the credit quality metrics, which I think it's self-explained in the graph on the right-hand side on this page, a very consistent and clear downward trend of the cost of risk. We are, as we speak, at a 37 basis points cost of risk. And we are currently and very comfortably guiding for 40 basis points this year and also 40 for the end of the plan. And this is interesting because actually, the dynamics that we are observing, they keep on kicking in. So the quality of the book, the new business keeps on being better than the back book quality. So on the back of this positive trend, we do not expect any worsening of the quality of the book, any increase of credit quality. However, we are also expecting growth relatively higher in the consumer space and in the SME book. And for that, we are budgeting a little bit more of -- a little bit of a buffer of cost of risk. All that has been embedded in the 40 basis points of cost of risk for 2027, at which we feel extremely comfortable, taking into account the dynamics that we are currently seeing in our book. That is further supported by the metrics that you can see in the graph below, which are the NPL ratio and the coverage. NPL ratio trending down in the ex-TSB perimeter 2.8%, 30 basis points reduction in the quarter, 100 basis points reduction year-on-year, and we are guiding to a less than 2.5% in 2027. Again, we feel extremely comfortable with this expectation. Finally, let us share with you, hopefully, for your facility of understanding how we are seeing the planned dynamics, the RoTE, the contribution of all these elements into the final construction of the return on tangible equity. From left to right, again, starting from the profitability that we had last year, 14.9%. We have mentioned several times that there were one-off items that when excluded, the recurring profitability was 14%. If we do an analytic exercise of how does the ex-TSB perimeter look like versus last year, then we could add 60 basis points. And therefore, the starting point for 2024 could be 14.6%. By the way, extremely well aligned with the current profitability. And then going forward to 2027, we expect revenues to add 1.6 points. We expect cost to detract 1.4 points. So looking into this number, it's easy to see that efficiency is going to look similar in 2027 when compared to 2024, but the benefits in asset quality and the reduction in cost of risk is going to add 130 basis points to our profitability. Finally, in others, we have a minus 0.1%. The main components there are, first, the adverts for RoTE of the increased equity and also for as much facility as possible, we are sharing with you our best estimate of the tangible book value for 2027, EUR 10.5 billion. And offsetting that increase in the equity in that others, we have including the smaller expected payment of the banking tax. We expect EUR 60 million less banking tax because of the new scheme in 2027 than the one that we paid in 2024. Getting into the last section, funding capital and shareholding value creation. Just 3 more slides and one final. Regarding the funding plan, I think the remarkable thing is that when we sell TSB, our MREL buffer is going to jump up. In a pro forma basis, without TSB, the MREL buffer would move from 3.7% to 7.2%. What we will do is we will -- that would effectively lower our funding needs. We are expecting negative net new issuances that will bring the MREL buffer back to our target of around 250 basis points. And this is connected to the savings that we expect in NII coming from wholesale funding. So savings, therefore, will come from lower volumes, but not only lower volumes. The securities that we issue will benefit from the improvements in the ratings that we have already had in the last year. We have benefited from 4 notches upgrade from the rating agencies, 2 from S&P, S&P Standard & Poor's that have left our senior unsecured rating at A- and 2 from Fitch, and we have a credit watch positive in Fitch as well. For the rest of the liquidity metrics in the right-hand side, I could say that very sound, circa 90% loan-to-deposit, more than 150% liquidity coverage ratio and more than 130% net stable funding ratio. So all of them look sound. In this slide, we do bridge the CET1, again, for your -- hopefully, your benefit and showing the capital accretion and the connection with distributions. Again, starting from left to right, starting from the 13% CET1 at the end of last year. As announced, we expect the TSB to contribute with a positive 400 basis points to capital and the recurring capital accretion for the period is more than 700 basis points. Then we need to account for business growth, the risk-weighted asset increase connected to the loan book increase, and that is expected to be 200 basis points. Then we will have the benefit of SRT. And here, the benefit is only 10 basis points. But again, behind this 10 basis points, it's going to be a lot of activity because we have the rolling of our 16 positions, and then we will do transactions to roll the existing positions and to increase a little bit the benefit. So the benefit currently is 40 basis points that mostly will roll off during the period, and then we will do transactions that for an equivalent of 50, so a net positive of 10. AT1 coupons that, of course, we will be paying on a timely manner, 70 basis points. And then finally, distributions, EUR 6.3 billion, which are equivalent to 8.7 percentage points. Of this, 5.2% will come from recurring shareholder distribution because of the net capital accretion that we achieved through the plan, and I think Cesar touched on that point early on. We will finish again on a 13% CET1, which is, as you know, our target ratio, the threshold for distribution. We feel comfortable on an operational level of 12% to 13%, but certainly, in order to -- the commitment for distributions are above 13%, an MDA buffer of 360 basis points that we think compares well with the rest of the industry. This last slide of the section, dividends and shareholder value creation. I find this very interesting. I'm a shareholder myself. So regarding shareholder value creation, we expect a tangible equity per share plus dividends to increase at a CAGR of 15% over the plan. And this is precisely the same figure that we're sharing with you at the end of the first quarter. 15% is the year-on-year figure that you can see the details in the second quarter results presentation. And this is very well connected with our profitability between 15% to 16% during this period. So I could say that there are no leakages of profitability when transforming P&L profitability into shareholder or tangible book value creation and distributions. A comment on the left, I think Cesar touched on this already. If I may get a bit into the details of when we say cash dividend per share in 2025, 2026 and 2027, expected to be higher than the one that we had in 2024, that was 20.4%. That is connected with the expected improvement in profitability, but also with the reduced number of shares. We are making lots of progress in our share buyback program. We are getting close to completion. And after completion, the final number of shares are expected to be around 5 billion shares. Going forward, we are expecting to keep the dividend payout between 40% to 60%. And as you know, we are accruing today at a 60% dividend payout, and we are committed to distribute all excess capital over 13% to our shareholders, and that is what it has been embedded into these numbers. Then finally, to wrap up. This plan is focused on growth, profitability and shareholder remuneration. In 2027, net interest income is expected to land at EUR 3.9 billion. Fees and commissions are expected to grow at a mid-single digit and cost at a 3% CAGR. With total cost of risk of around 40 basis points, we expect to deliver a profitability of 16% return on tangible equity with a 13% CET1 fully loaded ratio. All that combined will deliver cumulative shareholder remuneration of EUR 6.3 billion over this period from 2025 to 2027. And with this, I will hand over to you again, Cesar, to conclude the presentation today and start the Q&A session.

Don't be worried, it's just one slide. So if you can push the slide next. Thank you, Sergio. Very briefly, and I'm not going to repeat everything that we have said before. This is about Spain, it's about growth, it's about execution, it's about shareholder remuneration. We will land at a 16% return on tangible equity, and we will distribute shareholder remuneration in the next 3 years, north of 40% of our market cap. And with that, I pass it on to you, Lluc, for the Q&A.

Perfect. Let's start then the Q&A session. [Operator Instructions] So operator, could you open the line for the first question, please.

First question is coming from Maksym Mishyn from JB Capital.

I have 2. So the first one is on the outlook for loan book growth. Could you please explain why are you less bullish in the mortgage market? You expect to gain market share in both corporate and consumer loans, but not in the mortgage market. And then the second question is on the TSB. The NII fell quarter-on-quarter. And what was the reason for the decline? And is this the reason for a more cautious NII guidance for 2025?

So on mortgages, I think we are just planning to grow with the market. It's -- I think we are having very healthy RaRoCs. I think after all the fine-tuning that we have done in pricing, in risk, in procedures, I think we are very satisfied. But at the same time, it's not the most profitable among all the products in Spain. So we just plan to grow with the market. And that's going to be a healthy growth because the market is growing handsomely. It's safe. It's profitable, but it's not the most profitable product in the whole portfolio.

And regarding the NII at TSB, there was a small decline in the quarter. This is connected with some one-off that we recorded in the first quarter. The underlying dynamics are as good as we were expecting them to be. And we are confirming the guidance of high single-digit growth. However, we have seen a small depreciation of the sterling. So in sterling, the growth is expected to be high single digit, fully as expected. When you see the year-on-year evolution, it's absolutely in line with that expectation. However, the depreciation of the sterling then is a bit less when converting into euros. And yes, that is one of the reasons we are adjusting a bit the NII guidance for the year. This lower contribution or lower contribution because of the FX is adverse in the NII, but positive in the cost. So it's a bit bigger within the different P&L lines that in the bottom line. And the bottom line is not so important. And actually, you see that all that is being embedded and taking that into account, we are improving the overall expectation for profitability for 2025.

Thank you, Maks. Could we move to the next question, please, operator?

Second question is coming from Ignacio Ulargui from BNP Paribas Exane.

I have 2 questions. I mean the first one is on fees. I mean, looking to the plan outlook, I mean, if I just compare what has happened in 2Q with the trends that you expect to have in the future, there's a very clear shift from whatever you could call service banking fees to asset management and insurance. And just wanted to get a bit of a sense of where do you think when we would start seeing that shift that starting recovery of asset management? Also linked to that, what is the role of that insurance? I mean you have made a very clear work on how much you have worked on the insurance [indiscernible] if you could give us some examples of where you think that there is upside in the insurance business would be great. And then on volume growth and just looking to the kind of conversion of the volume growth into [indiscernible] just wanted to see if you expect any change in risk weightings throughout the plan? Or it's just a pure conversion of long growth into [indiscernible]?

So taking your first question, thank you very much. I think we showed very clearly that the growth has started. So it's not that we are projecting for a future growth that has not occurred during the last year. The savings and investments have grown the fees by 4.8% year-on-year. And that's a very healthy number, and it's very much in line with our mid-single-digit. I think we will continue to grow at that pace, and that's what we are projecting. Everything is in place. We are just fine-tuning the final elements. In insurance, as I mentioned during the presentation, we have been the highest growing insurance producer in the year with a 13% growth in gross written premiums. We have just finalized the transformation. So I think we should see even more and better or the same and it's across all segments. It's life, it's health. Of course, we don't do auto. But with the exception of that, it's across all business lines in insurance. I have to say that the partnership with Zurich is at its best, and it's a level of cooperation. We have a joint venture in which they have 51%, we have 49%. But at the same time, we make income from there, and we also make income from the fees for the commercialization of the products. They are extremely proud of us. We are providing a tremendous delta in their growth. And that is very satisfying for them, and we expect more coming forward. Our market share in insurance is below our market share overall. So we are just the same as we are doing in consumer lending. We're just catching up, and there's a lot of room to catch up now that we have, I think, a top-notch products, value proposition retention is playing a big, big role. We have specialists that are focused solely on the sale of insurance. You have to realize that the transformation has also meant that many of the things that we have digitalized have freed up human capital to focus on sales. And that is the specialized people that we have in all these products, certainly in private banking and certainly in insurance. And payments. I think payments will also grow handsomely. We have a very good -- very, very good market share there. We do very well. We will continue learning and developing if the deal with Nexi goes through. But even besides that, the interaction that we have had with Nexi has helped us to learn a lot, and we expect handsome results from that. So as I said during the presentation, fees and commissions is backloaded. You saw a decline in the past, mainly due to the single premium moving to multiyear premium, and we are ready to grow. And I think that's going to be very relevant because it's going to make more balanced our P&L. And from a capital perspective, it's very effective to grow this fee business. And we will do it for sure.

Yes. Maybe [Nacho] your question is connected with the fact that there is a decline in asset management fees and insurance fees in the quarter. But the explanation of that is that in the first quarter of this year, we recorded the performance fees. So therefore, the best way to look into this is on a year-on-year basis. On a year-on-year basis, we are delivering that 4.6% growth, which is, as Cesar explained, so growth is already taking place. And even quarter-on-quarter, we do offset that with the services fees that have changed the trend and now are growing and expected to keep on growing. So you can see 1.5% quarter-on-quarter and 4.6% and the decline in the quarter for asset management and insurance was already taken into account because of the extraordinaries in the first quarter. Regarding the volume growth connected with the risk-weighted asset inflation, nothing special to comment on. We are expecting also mid-single-digit growth somewhat lower than the loan growth because, as mentioned before, we will keep on using SRTs. We see them very efficient and very good for optimization, but that is going to be somewhat marginal. So pretty much in line growth of risk-weighted assets and loan book, of course, adjusted by our density.

So operator, could we open the line for the next question, please?

Next question is coming from Francisco Riquel from Alantra.

The first one is on the EUR 2.5 billion of distributions for '26 and '27, which gives an average of EUR 1.25 billion per annum, similar to the EUR 1.3 billion that you have committed for '25, but you will not have TSB. So the question is whether you will be compensating the loss of TSB with extraordinary capital gains, such as the Nexi JV that you postponed or increasing the resort to SRTs by the end of the period, any other measure? Or if you believe that the EUR 2.5 billion will be generated in an ordinary way with the improved results from the ex-TSB operations? My second -- sorry, just had a second question, which is this EUR 2.5 billion, if this is a forecast of available capital for distribution or if you are really committed to returning it to shareholders. So what is your hierarchy when it comes to capital allocation between organic growth and M&A? And related to M&A, what is your strategic and financial criteria when addressing M&A opportunities?

Okay. Let me cover in very simple terms. The EUR 2.5 billion is organic. It's natural. It's a normal course of business. It's no divestment. The plan doesn't include Nexi at all. In terms of available for growth and for capital generation, the plan includes the capital consumption that is required to grow at the rhythms that we have stated in the plan. And on top of that, to generate those EUR 2.5 billion in an ordinary manner. But I'm sure that Sergio can give more light your comments.

Yes, sure. When it comes to the discussion of capital hierarchy that you were mentioning, if there is more loan growth in the way is actually probably the nice problem to have, right? And when we have thought about that, and we have from some sensitivity numbers, the growth, let's see where it comes from, the higher growth than expected. If it comes from mortgages, which so far has been the case, mortgages has been a surprise to us on the strength of the market, mortgages have very low risk weighting. So it's very easy to manage incremental growth with the existing capital. Then if it's on the SME space, the densities there are between 40% to 50%. For consumer, it might be a bit higher, but then that comes with higher profitability. And then for those particular parts of the business and for the higher density ones, we have developed our SRTs, and we have programs in place for consumer, SMEs, project finance, which, by the way, are the ones with the higher density. So should opportunities for growth occur in these higher-density products as long as they are profitable, then we could make more use of the SRT going forward. Therefore, when running different sensitivity scenarios of this shareholder remuneration, we feel very comfortable that we will be able to deliver this amount and Cesar also explained fully organically.

I think Paco was also asking about M&A.

No M&A in expectation. I've said that 1,000 times, that doesn't make any sense for the bigger players in Spain. They have already enough market share. And for the smaller ones, it makes sense for all of them. But at this point in time, there's no appetite in the market. Everybody is doing well. Everybody is performing, everybody is generating capital. Everybody is profitable. So I don't think you should anticipate in the near future any type of M&A. So we don't need this plan. It's on the basis of its own merits. In the long run, who knows. But in the foreseeable future and probably in the term of this plan, I think you should count on our organic growth and in the developments that we have pointed out in this presentation. The only thing that could reasonably happen is a transaction with Nexi, which is not included in the plan, but of which we gave you clear flavor in the past, and no need to give you more flavor at this time. But I think the 2 parties are still interested and the chances are that it will happen in the near future after the hostile takeover declines.

Okay. So shall we move on to the next question, please?

Next question is coming from Borja Ramirez from Citi.

I have a question. Firstly, I would like to ask you seem, you are targeting more market share gains in deposits. Can you kind of provide some [indiscernible].

Could you Borja raise your voice a little bit, if you're so kind.

Can you hear me better now?

If you could raise your voice a little bit, please.

Can you hear me better now?

Not so clear, but let's try. I think you were asking about market share in customer deposits, is it possible?

Yes. And linked to that, what are your assumption on the ALCO portfolio? And also if you give some details on the interest rate [indiscernible]

I think, Borja, we cannot hear you very clear. I tried to -- could we check if it's because you were asking about the ALCO portfolio and what were the assumptions and the contribution that we are expecting for the business plan. Is that right?

Yes, that's correct.

Right. So the ALCO. Yes.

Yes. We have increased a bit our ALCO portfolio that is connected with the liquidity that we hold. The ALM. And going forward, the assumption is [further] stability, an increase in line with the expected increase in the balance sheet. So this will -- this line is expected to increase in line with the increase in the loan book and the deposit -- in the customer deposit book.

Okay. Let's jump to the next question. I'm sorry, Borja, because we couldn't hear you very well. So operator, thank you.