Banco Santander SA

MAD:SAN

Earnings Call Transcript 2019-Q4

[Sergio Gámez Martínez, Global Head of Shareholder & Investor Relations]

Good morning, everyone. Thanks for joining to this Grupo Santander 2019 Earnings Presentation headed by our group Executive Chairman, Ana Botín; and José Antonio Álvarez, the group Chief Executive Officer. Our Chairman will address in detail the performance of 2019 in terms of P&L, balance sheet. And obviously, our group CEO will cover in much more detail, the bottom-up on a country-by-country basis. The Chairman then will follow-up with our business model that delivers the prospects in terms of profitability growth, and we'll jump into Q&A.So with no further delays, please, Ana.

[Ana Botín-Sanz de Sautuola y O'Shea]

So thank you. Good morning. So thank you very much, Sergio, and good morning to everybody. I will begin by summing up the year. 2019 was a very good year for us. We have delivered on both growth, profitability and strength targets. We grew loyal and digital customers again by 9% and 15%, respectively, year-on-year, and this has resulted in quality growth in our revenues of 4%. That's, again, year-on-year.Profitability. Our underlying return on risk-weighted assets has improved by 5 basis points. We have maintained an underlying return on tangible equity of 11.8% while increasing, by the way, our tangible equity by EUR 4.5 billion. And that puts us well on track to achieve our medium-term goals of 13% to 15%.We continue to be one of the most efficient and profitable banks among our peers, and our cost-to-income of 47% remains best-in-class. And the combination has allowed us to further strengthen our balance sheet, raising our fully loaded CET1 to 11.65%. And that is despite regulatory headwinds this year of 62 basis points.So based on these excellent results, we have announced today that the Board will propose to the 2020 AGM in April a total dividend per share on 2019 results of EUR 0.23. Importantly though, EUR 0.20 will be paid in cash, and this represents a close to 3% increase in our cash DPS this year. Again, we continue growing, as we have over the past few years, our cash dividend. And basically, we have more than doubled the total cash dividend per share over the last 5 years.So going now to the next slide. Here, you can see the P&L for the year. It's been a challenging environment, especially in Europe. We have delivered very solid and consistent revenue and profit growth, with total revenues increasing 3% year-on-year on a constant currency basis and reaching a record EUR 49.5 billion, with underlying attributable profit for the year also up 3% on a constant currency basis up to EUR 8.3 billion. And very importantly, accelerating again in Q4. It's been an excellent quarter, better than the full year growing underlying profits at 5%.Going on to the next slide, I would like to cover the 3 strategic priorities we set for ourselves back in April and briefly summarize. You can see here how we have made progress this year on all 3 of them: improving the operating performance across all regions; continuing to allocate our capital to those regions and businesses with great discipline, by the way, that generate highest returns; and of course, accelerating the digital transformation through Santander Global Platform. And underlying all of this and very important for us and for all the team is continuing to focus on building a responsible bank, doing a lot of progress on culture across the group, changing the way we are working with very different initiatives from flexi working to diversity to the rollout in many more countries of agile teams working together across the group in all our core banks.So allow me to cover briefly the progress on each one of these pillars. During the year, if you go to the next slide, we further leveraged the diversification and scale of the group, and we have been improving our operational performance across the regions but also in our global businesses. We have simplified into a 3-region management structure, which is delivering excellent results. We announced this in April. There is a much more effective collaboration across the regions in parallel but also convergent against a common group, ultimately building one single platform.Europe is successfully driving a simplification effort and delivering results on efficiency. We generated about EUR 200 million in net cost savings. That is about 20% of the EUR 1 billion net cost savings target. And across Europe, Europe as a region has delivered 10% return on tangible equity.North America, again, growing double-digit in all the key metrics benefiting from high operational leverage from the group with underlying profit in the U.S. growing by 24% year-on-year, again, after a very good year in 2018 and improving the return on tangible equity by 111 basis points. This is adjusted for excess capital.Mexico, again, excellent performance. We've done major investment in Mexico, increasing customers and maintaining a 19% year-on-year increase in profits and return on tangible equity of close to 21%.And last but not least, South America, which remains the group growth engine led by Brazil, delivering best results ever with an 18% increase year-on-year in underlying and, at the same time, getting ready for the future, increasing efficiency and return on tangible equity up by 179 basis points to 21%.If we now cover briefly the global businesses, this is a very, very important priority for all of us José Antonio, myself and all the teams to really build global businesses so we can more and more leverage the group's scale and strength. And you can see that today, these 2 global businesses are contributing 26% of the group's profit, increasingly driving network effects and enhancing the competitiveness of our core banks.Corporate and investment banking continues to grow strongly. Underlying profit was 10% higher and driven by a strong growth in revenues. With a return on risk-weighted assets of 1.8%, continues to improve over the years, one of the best among peers.Our Wealth Management division and Insurance, which was created recently, continues to improve. Total assets under management growing by 13% in 2019 to very close to EUR 400 billion, and underlying profit growing by 11% to EUR 1 billion.Last but not least, and I will give you a bit more detail on this later, Santander Global Platform continues to progress, again, working across the group on a horizontal basis and really helping us all the countries and businesses create efficiencies but also grow revenues and customer experience. Our digitization strategy is paying off, and you can see this in the positive evolution of digital metrics. We focus on improving customer experience as the big driver to improve growth in customers. And this, especially true in mobile, we now have 37 million digital customers. As a reminder, we started 5 years ago with 14 million. But just year-on-year, that's a 15% increase. And that now represents more than half our active customers. Our digital customers are more and more engaged. Just to give you an idea, digital customers engage online with us 5x per week. This results in 700 million digital touch points per month. But very importantly, this is also translating into sales, and sales on the mobile channel have grown by 2x in 2018. As a result of all of this, 36% of new products across the group sold in 2019 were through digital channels and reaching, by the way, 39% in December 2019. That's a 7 percentage point year-on-year growth. It's important because customers are increasingly using digital, so we are using and refocusing the branches more and more on the higher value-added and more complex products, which, of course, is adding to strengthen relationships but also profitability. And you can see some of these numbers in the next slide. The fact that digital sales are growing so strongly, it's driving profitability. So our investments in digital are evident in these numbers. We can now deliver products more efficiently. As you can see, the marginal cost of transaction is going down dramatically. Again, as an example, in Brazil, you have it here on the slide, the cost for the bank of doing a transfer through digital channels is 99% less than if the customer does this in a branch. But the U.K., which is another great example, the cost of selling a mortgage online is 50% less if done on a digital basis. So the improved operating performance and optimization of our capital allocation is enabling us to enhance our profitability, and we are very, very focused on improving the return on risk-weighted asset performance by regions. You can see here, we've been very consistent in terms of allocating more capital to the higher growth and higher opportunity markets. As a summary in 2019, 73% of the group's risk-weighted assets generated already returns above the reference, return on risk-weighted assets, RoRWA, of 1.2%, which is well above our cost of equity. This is 3 points increase over last year. And really, what it means is that we are bringing and we've been doing this every year. But in 2019, an additional EUR 20 billion of risk-weighted and EUR 40 billion in nominal term loans were now above the cost of equity compared to last year and improving the underlying RoRWA, as we said, by 5 basis points. All of this is supported, of course, by improvements across the Americas and across the group.Just as a reminder also where we are coming from, if we look back 5 years, 2014, the RoRWA was 1.27%. If we calculate the capital we had back in 2014 and the RoRWA we have today of 1.61%, we would actually be at a return on tangible equity of 17%. This is just a way to look at how we have improved the businesses over these 5 years. Of course, we continue, as I said, with this accretive capital rebalancing, and there's more capital allocated in this case to South America, North America in a very consistent way. In Europe, the RoRWA allocated to Europe is minus 1%; in North America, it's plus 4%; and South America, plus 7%. And this is, again, a measure of how we are maximizing profitability and at the same time balancing this with keeping the franchise and investing for the future. Another example of this rebalancing, of course, is the buyback of the minorities in Mexico, which we did in 2019. In terms of what happened in 2019 in gross capital generation, as this business model and execution of our strategy is progressing, we have generated a record 97 gross capital in 2019. That is more than double the guidance. This was, of course, partially offset by the 62 basis points of regulatory impacts, which resulted in a net plus 35 basis points increase to a CET1 of 11.65%. It's important we have done this while increasing cash dividends per share and investing in the business. In total, as you can see in the slide, during 2019, we generated the equivalent of EUR 9.4 billion of capital pre-minorities. We are at these levels very comfortable with our current not just capital levels but also buffers over regulatory requirements. And again, this is due to the resilience and diversification of our business.Considering our 2019 CET1 and also the historical consistency, 5-year track record, where we've been generating 40 basis points per year, we expect to be close to 12% by year-end 2020. This would place us ahead of time at the top end of our 11% to 12% mid-term goal. In 2020, we expect some quarterly volatility. We have agreed to certain acquisitions during this year that will close. This is factored into the numbers and the expectation. One of the examples is Allianz Insurance business, which we bought back recently or the acquisition of Ebury. And of course, reaching the top end of this capital goal by the end of 2020 means we will not need to continue to accumulate capital and will provide additional strategic flexibility in terms of capital.In summary, I would say 2019 has been an excellent year. We've made very significant progress in executing our strategy. We've generated what I consider and what we consider outstanding results, and we've done this while investing for the future and transforming the bank. We have also created shareholder value. We have increased our tangible book value per share plus cumulative cash dividend by 8%. And importantly, we have done this while conducting our business in a responsible and sustainable way that has been really important for all of us, and it's increasingly important to all 200,000 people and teams across the Santander Group. I am very proud. We are very proud that Santander has been recognized as the most sustainable bank in the world by the Dow Jones Sustainability Index. We have also been named leader again for the second year in the Bloomberg Gender-Equality Index. We are more and more diverse at the Board and at leadership level, and we have been improving and have very high levels of employee engagement. 86% of our teams are proud to work at Santander, and this is recognized also as -- across the countries where we have been recognized one of the top 10 Best Companies to Work For in 5 of our markets; and as a group, one of the top 25 best companies in the world to work for.Again, we're working hard on all these levels, supporting financial inclusion, but also supporting our customers in the transition to a low-carbon economy and, as I said, helping inclusion and the underserved customers in all our markets. So I now leave you with José Antonio, who will cover in a bit more detail operating performance.

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Thanks, Ana, and good morning to everyone. 2019 P&L reflects, I would say, solid growth in customer revenue, good cost management that reflects the synergies obtained in some countries and provisions growing basically in line with volumes. I also want to say that we see great sustainability quarter-on-quarter after quarter. In Q4, we generated underlying profit of around EUR 2.1 billion. That is 5% higher than the fourth quarter last year and excluding the deposit guarantee fund contribution in Spain, 5% more than the third quarter 2019.In addition, we have had this quarter the positive impact of EUR 711 million, the net capital gains and provisions, which boosted attributable profit in the quarter to around [ EUR 2 billion ]. Further, you have the detail of nonrecurring items in the Appendix in Page 47 broken down by quarter. So I will summarize now the main items in Q4 that were the capital gains from custody -- for custody, EUR 693 million; DTA recoveries due to changes in tax regulation in Brazil, EUR 551 million; net capital losses related to the disposal of real estate business in Spain, EUR 225 million; restructuring costs in several countries, EUR 140 million. Those are the main items. So as a result, net capital gains and provisions in 2019 amounted to EUR 1.7 billion, of which approximately EUR 1.5 billion do not impact capital. Going to the revenues, we reached record-high revenues of more than EUR 49 billion. While revenue of -- will be -- is characterized with very high quality, 95% of the revenue comes from the most recurrent and stable lines, NII and fee income. And the total revenue grew 4%, boosted by the Americas and our global business while Europe remained flat. Net interest income grew 4%, very much in line with the business volumes, combined with active management of spreads. We continue to see -- expect further improvement in the cost of deposits.Net fee income grew 5%. Well, it's worth stressing, as Ana said, that our global business are growing significantly faster than that. And the global business already represent 40% of the total fees generated by the group. We are confident that we can continue to deliver high-quality revenue going forward.On the cost side, this reflects very well with the -- our execution. In Europe, costs dropped in nominal terms, 1.3%; in real terms, 2.4%, reflecting the synergies integration and optimization and simplification process that Ana referred to previously. The decrease in Spain was EUR 300 million of the cost base. We expect additional strong for next year. Portugal is also using costs. And U.K. is probably -- we are starting to see the results in the transformation program with the second half of 2019, the costs coming down and a process that will accelerate in 2020. In North America, both countries are increasing cooperation in order to improve commercial capabilities and eliminate duplicate cost. Lastly, cost control in South America, combined with business growth and strong improvement in efficiency. So in short, cost management enabled us to remain leaders in efficiency with a cost-to-income ratio of 47%. Credit quality. Well, very few seems to add. The NPL ratio continues to fall. The cost of credit is flat; the coverage is at healthy levels. Let me do -- make a short summary of the group performance in the year, increasing our underlying profit, strengthening the capital ratio, improving credit quality while maintaining best-in-class efficiency, high profitability both in terms of return on tangible equity on RoRWA and improved tangible net asset value per share plus dividend. Going to the business areas, you can see the 53% will remain very well diversified. 53% of the underlying profit comes from the Americas and 47% from Europe, while the profit is growing in 9 out of our 10 core markets. Particularly, it's growing double-digit in Brazil, U.S., Mexico and Poland. Our global business has also increased at double-digit rates, enable us to strengthen our local franchise to the global business.When it comes to volumes, loan growth was 4%; deposit growth, pretty much the same; mutual funds grew 15%. In the loan growth, you see different patterns, in line with our previous guidance. Still deleverage in Spain and Brazil and being more Spain -- sorry, deleverage in Spain and Portugal, being more selective in our lending in those countries due to the profitability issues and growing in all the other markets, particularly in South America. And also I want to remark the U.S. that is growing pretty well.Going by countries. 2019 in Spain has been gearing, which we complete the Popular integration. This was the main task for the year. Having said that, we have seen positive dynamics in individual growth in consumer activity and in value-generating business, such as insurance and mutual funds. Nevertheless, the stock upgrade fell 6% year-on-year due to wholesale banking deleveraging and slowdown in mortgages, mainly some of these deleverages because we are, as Ana already mentioned, being more active in our capital allocation.In results, profit fell 18% in the quarter. If we exclude the deposit guarantee scheme, grew 14%. Underlying profit in the year was higher, mainly driven by a strong reduction in costs. Total income was -- we improved the retail customer NII primarily boosted by the fall of -- in cost of funding. [ Digital sales ] was offset by the lower contribution from the ALCO portfolio, the negative impact of IFRS 16 and lower wholesale balances. NPL ratio keep improving. In 2020, we expect the cost to continue to fall sharply and credit quality indicators should improve. In revenue, we expect a stable NIM with better funding costs and lower revenue from financial transactions due to the smaller ALCO portfolio. We expect profitability to remain well above of our cost effect.In Consumer Finance, another good year. Our market share gains in the market -- auto market is now growing in Europe. We are growing 5% in market share gains and -- while we continue to reach agreements with OEMs that provide a good starting point for the future to keep growing, as we've been doing in the last couple of years. In 2020, we see volume growth, some pressure on margins. The costs are growing below business growth, and the cost of credit remained at good level going forward. In the U.K., we face a operating environment characterized by high levels of competition and uncertainty, good gearing volumes. Revenue was affected by pressure on mortgage margins, particularly SVR attrition and overdraft regulation. Costs were down 2.7% in real terms, better trend in second half, as I said before, and we maintain very low cost of credit.In the quarter where the top line trends, in particular in NII and costs, net operating income after provision increased 8%. By 2020, we expect continued revenue pressure, which will be offset with the cost reduction. To be on -- we expect to be on track to achieve our medium-term profitability targets announced in Investor Day. When it comes to Mexico, excellent performance, both in the year in terms of cost and volume for growth. Our trend seasonality is growing at more than 50%. It's a remarkable number. Well, we continue to improve our profitability with return on tangible equity close to 21%. Well, the year was good, 19% profit growth year-on-year. In 2020, we expect solid business dynamics to continue. It should drive future further profit growth.In the States, I would say, another good year in the States: Underlying profit grew 24%; volumes grew significantly, [ credit ] 12%; customer funds, 11%; revenue increased due to greater volumes, offset lower interest rates; loan loss provisions increased only by 1%. In Q4, as you well know, we have the usual seasonal impact, particularly in the SCUSA, that by the way, is doing very well. Originations grew significantly during the year, and credit quality remains healthy. In 2020, we are confident that this performance will continue, thanks to our commercial and operative capabilities and the greater cooperation with Mexico. Finally, we're elaborating Brazil. Positive momentum, we keep gaining market share in key markets. Our -- in retail, our growth was 16%; consumer finance, 17% year-on-year; and demand deposits, 24%. Profitability improved again. Our return on tangible equity is above 21% and underlying profit grew 16%. Net interest income was driven by volumes, some margin pressure. Net fee income grew very well based on insurance market share gains, payments gains and securities market share gains. Efficiency and cost of credit, historical lows, from around 40% 5 years ago to 33% cost to income and cost of credit from 5% to below 4% that we think is sustainable. In 2020, we expect to maintain high profitability boosted by market share gains and profit growth backed by greater volumes that will offset margin pressures. No material change in the cost of credit we expect in 2020.Well, to finish other countries, I'm not going to elaborate in other countries. You have all the information in the appendix. You have the information. Positive performance in Portugal, Poland, Argentina, Chile and the others growing well. And with all of them double digit except Chile, 7%, slightly impacted by the fourth quarter in the country. In relation with the Corporate Centre, 2 -- only to mention 2 points. We have -- the income was impacted by greater foreign currency hedging in the region of EUR 300 million. The counterpart of this is in the conversion of results to euros in certain countries, lower NII due to the higher stock of issuance and IFRS 16 impact. Costs decreased by 12%. You have further detail in the regions and global business already commented. You can find all of this information in the appendix. I now hand back to Ana to finish this presentation.

[Ana Botín-Sanz de Sautuola y O'Shea]

Thank you very much, José Antonio. So I would like now just to briefly look at the future and really remind us of our strategy. Our strategy has not changed. We have a clear vision. We have a clear purpose. We are aiming to help people and businesses prosper and do this in a way that is simple and personal and fair. Our aim is to be the best open financial services platform by acting responsibly and also earning the lasting loyalty of our stakeholders. I am very proud of the progress we have made since we launched in 2014. And I must say, I am, every time, every year, more excited about the future. So we will continue to leverage our unique business model to drive performance and also to make us better place for the future. We have maintained and built this year again based on our global scale with leading market positions in market positions, in lending in 9 of our 10 core markets. We are relentlessly focusing on customers. We have improved our loyal customer base by 72% since 2014. And we are very proud that we rank amongst the top 3 banks in customer satisfaction as measured by NPS in 6 countries. Finally, we have a diversified geographical footprint operating in both emerging and mature markets. And it is precisely this acceleration in execution, which we aimed for the beginning of 2019. We have done this, coupled with our loyalty strategy and our focus on profitability, which has allowed us once more to be more resilient, more predictable than peers and also to generate growth. Since 2014, we've built a very strong foundation for the future. We have significantly reinforced our capital with a CET1 increasing by EUR 22 billion over the period, that is 338 basis points in 5 years. At the same time, we've improved our return on tangible equity by 84 basis points. Our return on risk-weighted assets is 34 basis points higher and earnings per share has grown over the period by 22%. Importantly, this performance has been also targeted -- sorry, also supported by additional investments, and that includes around EUR 5 billion per annum in digital and technology, restructuring our legacy but also investing for the future and increasing efficiency. We also spent over EUR 2 billion over the period to restructure our banks. We have grown our capital and invested in our business. We have also delivered value for our shareholders. We have returned to shareholders over this time EUR 18 billion in dividends. I want to stress this because this is a very strong signal that the Board and management has huge confidence in the future. And we've grown our tangible net asset value per share by 19%. Just note that this includes minorities. So again, we are confident that our strategy will allow us to achieve our mid-term targets. We made this public in April last year. We are, today, also adding another guidance to the market, which is high single-digit underlying EPS CAGR over the next 3 years. And this compares very favorably with our peer group and European banks, and we believe that this is something we can deliver. Going back to what I already mentioned and we set out in April of last year. So I would like briefly to cover the future in terms of the 3 pillars that we're working across the group, which is, again, continuing to improve the operating performance across the regions; continuing and we've taken additional organizational incentives in 2019 that we're implementing again in 2020 to make sure that everybody is aligned towards the goal of maximizing profitability and return on risk-weighted assets; but very importantly, also working to accelerate Santander Global Platform. I want to also stress that building a more responsible bank is a huge priority for all of us. And this is not just slides, this is more and more embedded across the organization at all levels. We're implementing new measures. We recently announced in November or December that we aim to have our own activity as a bank, carbon footprint by net 0 by reducing emissions and compensating where we are not able to reduce down to 0. And this plan is at the core. It's not just about the carbon footprint, it's much more than that, of course. It's diversity and so on. And this is at the core of our performance going forward. You can see here the targets. We maintain all the targets we set out in April. So you've seen this before, we reiterate our targets for both Europe, for North America and South America. And really, the goal behind this is, as I said, to operate as one Santander. We are working across the regions to accelerate this aim, and it's working. But obviously, the goal is to converge. Europe is going to remain challenging, but I see it on the positive side. If we can succeed in Europe, we'll be much more successful eventually in the rest of the world because it is the hardest environment by far. We do not just want to reduce costs, we want to do this in a structural way by having the vision of where banking is going for the future and then implementing towards that vision. In North America, we're also working together, leveraging the size of our Mexican bank and actually working together with the U.S. with a very ambitious plan that we set out 3, 4 years ago. And we, again, will be focusing here on profitable growth. But in South America, exactly the same. We are not just working on revenues. We're also working on building common platforms, and you will see more of this in 2020. So just in summary to say that I'm very confident we will achieve the return on tangible equity and efficiency targets that we set out in April of last year. So at the core of our plans for the last 5 years, we've accelerated the optimization of capital this year. We needed to do that. And you can see that when we need -- we're able to manage our balance sheet to deliver more growth in organic capital. We continue to reweight to the most profitable geographies. We are setting minimum profitability thresholds not just by country, but by segments. We have already and it's taken us a couple of years, but we have the tools to manage this across the group, and we're working on faster asset rotation that you'll see this again this year. We have a new organization where our CFOs also have the mandate of CIOs, Chief Investment Officers. This has been implemented or will be implemented in the next month. And we expect that the combination of all these efforts will enable us to deliver these mid-term underlying RoRWA 1.8% to 2%. So if we look at now at digitalization and building Santander Global Platform, this is probably the most strategic of our goals, but it really is working on 2 levels. We're going to continue the digitalization of our banks and the group, transforming our core banks to be completely digital front to back. And we can see the progress in some of the numbers I gave you earlier. We are leveraging more and more common capabilities. We have many examples of tools that are developed centrally or in a country and then shared across the group. We have a lot of agile teams working already, which are improving customer experience and helping us on efficiency. Just let me mention one. We just recently were in Mexico, and Mexico as a country saved about 80% of the cost to develop its SME best-in-class mobile app by using the global services, which we have developed together across the group on the individual banking app. Again, this is happening more and more, sharing across countries. And we are also and that's the second part of our strategy, building global digital banking solutions with payments at the core. And this will be not just for our own banks, but for others, for third parties. And this is going to amplify these investments we're making in the payments platform and the global digital bank. Just very briefly on SGP, you'll be hearing more and more about this over the next few years. We have already created the segment, but it's still work in progress. It's not the end product. It's really a move to become a global leader in payments and digital banking solutions because these are key drivers. This is not new, it's always been the case, but the key drivers of customer loyalty, both for SMEs and individuals. And similar to the way our global businesses of corporate banking and wealth and insurance, what SGP aims is to leverage our scale, our footprint and our expertise in payments and financial services, which will enable us, it's actually already enabling us, to build our own digital assets and fintech solutions just once and then deploy across the group. And this will dramatically lower development cost and time to market.As I said, we expect SGP to serve initially our own banks and their customers, but in a second state, also third parties, and we're actually beginning already to test this and to build best-in-class payment and digital banking solutions. As of today, we are focusing on these 4 high growth, large addressable markets in which we can and are already delivering results. I'll briefly cover that. In the next slide, if we think about SMEs, we are focusing on 2 verticals, one is merchant acquiring and the other one is international trade. Global Merchant Services is based on a company we acquired in Brazil, GetNet. GetNet has doubled market share in Brazil, a very competitive market in the last 5 years, very high customer engagement, about 30% annual transaction growth since 2013. I want to say that Santander is already a top 10 global acquirer by turnover volume in the world. And we're already launching in Mexico this quarter, and we have plans -- detailed plans to roll it out in another 8 countries over the next couple of years. Global Trade Services. Again, we have 200,000 SME customers, real, very loyal customers across the group that trade. This is a large and a growth market. To accelerate our progress, we are basically following the footprint -- same footprint or path as we did with GetNet. Ebury, we worked for 2, 3 years really scouting the whole world, what is the kind of team we wanted. And I want to stress that Ebury team is one of the main reasons that we've done this acquisition, but they also have a great track record, a growing 45% top line year-on-year. And it is a best-in-class trade and foreign exchange facilitator. We're going to build around it, again, a global platform for trade for all our countries, and we expect them to be rolling out to 20 markets very soon.Finally, for individuals, we are again working on 2 lines, on the affluent segment, even though it's also very interesting for others, and the underserved. Superdigital, again, a Brazilian small acquisition. It's a simple and flexible way. We call it pre-banking service. It's really a market where, just in Latin America, we estimate 300 million underserved people -- customers. We aim to provide them with basic financial products in a way that is also profitable or, let's say, gives sensible returns for the bank. To give you also a vision of what we're building around SGP, Superdigital is already working in Brazil with GetNet GMS. So really, all of these building blocks can work with each other. We're actually already live with Superdigital in not just Brazil, but Mexico and Chile, and growing customers at about 60% annually and transactions almost 2x faster. And the goal is to reach over 5 million active customers over the next few years.And finally, Openbank, which is our global full service digital bank. What's different from Openbank to other new banks is that there are real customer relationships. These are not just users. Openbank was either first or second highest growth bank in Spain in 2019, or 2018, I don't remember the year. And very importantly, and this is a very important measure, with 115 payroll accounts, which means that there is more and more loyal customers. And as you can see, 4.4 products per customer, but a new product, which is mortgages -- end-to-end mortgages, growing at 134%. This is a business model, which should give us in a steady state around 20% ROE in Europe. And we are live already, not just in Spain, but Germany, the Netherlands and Portugal, and launching in other countries over the next few years. So as a summary, again, 2019 was a very good year. All the regions delivered solid operating performance. We grew the top line, record revenue, and we improved profitability. Our capital position is strong. It's been a record year in terms of organic capital generation, reaching 11.65% CET1. We are very comfortable with our current capital levels and buffers and are well positioned to take advantage of what we see as very significant opportunities for profitable growth and creating value for our shareholders. Based on this performance, the Board agreed yesterday to propose a close to 3% increase in our 2019 cash dividend per share.Just to end, I'd say that as we head into 2020 and beyond, we have a clear -- we have a focused strategy in place, which gives us a very high degree of confidence that we will deliver on our medium-term goals, including the high single-digit earnings per share CAGR over the next 3 years. So thank you very much, and we now have time for questions.

[Sergio Gámez Martínez, Global Head of Shareholder & Investor Relations]

Yes. So thanks, Ana, José Antonio. Indeed, we can proceed now with the Q&A.

[Operator]

[Operator Instructions] The first question comes from Francisco Riquel from Alantra.

[Francisco Riquel, Head of Research]

I wanted to start with capital. So first of all, if you can update on the regulatory impacts on capital ratios expected for 2020, either negative, the pending impact from TRIM or eventually positive. If you can update on the -- what have you on the models in the U.K. And then also on the corporate transactions and you can comment on the impact from the SCUSA tender offer, and if you think that this, together with the sale of Puerto Rico, will be enough to offset the other acquisitions of the Allianz and the Ebury deal. And then also beyond 2020, what are the regulatory impacts shall we expect? And in particular, if you can update on the guidance for Basel IV and where do you plan to be in terms of capital in a post-Basel IV world?

[Ana Botín-Sanz de Sautuola y O'Shea]

So as we said, I mean I want to reiterate, and it's very important that 11.65%, we are very comfortable with the level and with the buffers vis-à-vis regulatory requirements. Regarding 2020, we are keeping our mid-term goal of being between 11% to 12%. What we are doing is we're accelerating, reaching 12%. So we said medium-term close to 12%, we expect, given the business model transformation and profitability and the fact that we generated 40 basis points per year, to be close by 12% by year-end. There will be some inter-quarterly volatility. As you know and as you said, we will have Allianz and Ebury and some other purchases. We will have some offsetting -- partially offsetting sales, and there will be some remaining negative headwinds. With all of that in consideration, we expect to be close to 12% by the end of 2020. In terms of Basel IV, again, what we are saying here is that we are very confident we can absorb Basel IV and maintain an attractive dividend policy and finance profitable growth. I want to say that we absorbed 60 basis points of regulatory headwinds in 2019. At the same time, we grew our loans by 4%. And as I mentioned, we are proposing to the shareholders' meeting, cash EPS growth of close to 3%. The number that was mentioned in the Q3 call of 100 basis points has several caveats. First, that it is a very preliminary number and it is pre-mitigation. So there are some mitigation measures that were not considered. Second is that we do expect other positive regulatory issues. It could be the capital treatment of intangibles, for example, that would help us. But last but not least, we still expect the impact to be less than peers. I think I've answered all of the questions. Thank you.

[Operator]

It comes from Alvaro Serrano from Morgan Stanley.

[Alvaro Serrano Saenz de Tejada, Lead Analyst]

My question -- 2 questions. First of all, on the 12% target for this year. When you think about -- obviously, there's been some disappointments for the last couple of years. When you think about visibility of those headwinds that you've outlined and that 12% target, are you much more confident on the visibility now of the regulatory headwinds, in particular, TRIM or EBA guidelines or the long list? Has the visibility of those impacts improved? And are you in a position as a result to sort of get rid of the scrip dividend for 2020? And the second question is on your high single-digit EPS growth consensus, I think, is probably half of that. When you think of the last year, since you gave your targets, obviously, margin pressure is worth sharing developed markets than you probably thought. So is cost the offset of that? Is it that once you reach your 12% target, you're going to be able to deploy more capital to grow the business? Just a bit of color on -- if it's going to be front-end loaded, back-end loaded versus consensus expectations as a general commentary.

[Ana Botín-Sanz de Sautuola y O'Shea]

So please let me be clear that the target is not 12%. The target is to be between 11% and 12%. So as we said in April, our target is to be between 11% and 12%. We are going to get close to 12% just by the natural profitability of improvement of our model. We have delivered every year what we said we would deliver. And it's clear that not -- we're very predictable year-on-year, but it's hard to be very predictable quarter-on-quarter. And my sense is that when 1 quarter were a bit below, again, what matters is not just the levels, but the buffers against the regulatory requirements. And as we've said, we are very comfortable. And I have to say, over the last 5 years, just to give you an example, U.K. capital levels, our bank in the U.K. is now going to be at 14%. That's 100 basis points more than a year ago. So there have been, in some places, increases, and we've been able to absorb that. And I think what gives us high confidence is that when we need to absorb 60 basis points, we can do that organically. Obviously, risk-weighted assets grew less in 2019 than we probably could have done, by the way, profitably. So what you'll see once we don't have these 60 basis points like we had this year is you should expect higher profitable growth. Places like Brazil, I mean Brazil should grow faster next year. And given -- we still have some regulatory headwinds next year. We've actually taken some of that already in Q4, something like 9, 10 basis points. You should see some impact, but nothing near what we saw this year. So to answer your question, I think we do have higher visibility. The tone is actually different. There are some positives ahead that will come in play, even in 2020 in terms of being able to cover through Pillar II, some of the requirements. But I want to stress that our aim is to be between 11% and 12%, get close to 12%, and then be able to have some volatility there to maximize the opportunities for our shareholders. The high single-digit EPS, that is for the 3 years. Again, it might be more 1 year than another. So it's not a mathematical, let's say, progression. But what's important is the CAGR for these 3 years. And the model we have always means that some countries are going to do a bit better than others, the opportunities, because of the macro, because of the market conditions, better in 1 market than another. And that is essentially the model we have where we can rebalance and reallocate capital. Just to give you an idea of the flexibility we have in terms of capital allocation and what we've done in 2019 very successfully is that about 1/3 of our balance sheet gets replaced every year. So we have a lot of control as to what assets we put into the books. We are doing more and more originate to distribute because other entities and more efficient holders of loans. But we want to maintain the relationship with our customers because that's what give us the strength to build a global platform. So I'd say that, again, the earnings per share goal for the next 3 years is I think a very good sign that the medium-term targets we set for ourselves will be reached. Sorry, sorry. No, I forgot the scrip. I forgot the scrip. Yes, the scrip. Sorry about that. So the scrip is -- we explained this last year. And my job and the job of the Board, José Antonio, all of us, is to try to make all our shareholders happy, but not all shareholders are the same and about 45% of the company is owned by retail shareholders, and they love the scrip. And so we've been reducing it. With the proposal we are taking, we are taking it down to 13% of the total will be scrip. And we have said that depending on how the year progresses, we might actually buy back the scrip. So that's something that gives us added flexibility. We're trying to keep everybody happy and not everybody is going to be happy -- as happy all the time. But we're really -- I mean the current management is very focused on earnings per share, tangible NAV per share, and we are very conscious that this is important for many of you on the call, but we also have to consider our 45% retail shareholders. So depending on the year, we might -- I'm saying we might. We have authorization from the shareholders. We asked for that last year.

[Operator]

The next question comes from Andrea Unzueta from Crédit Suisse.

[Andrea Unzueta, Vice President]

I wanted to get more clarity on your expectations of earnings growth for Brazil and Mexico in particular. We're seeing a lot of increased competition in both regions, in fees in particular, in Brazil, and a lot of margin pressures in Mexico. And so a bit of visibility on what your earnings growth expectations are in those regions would be helpful. And also if you could remind me whether the impact of a higher taxes in Brazil should have an impact on our expectations for 2020.

[Ana Botín-Sanz de Sautuola y O'Shea]

Sure. So let me just give you the sort of my high-level view, and then I will ask José Antonio to complement a bit more guidance. But I'd say, all in all, the good news for us is that in 2019 across South America and Mexico, growth was more or less 0. So from Mexico down to all of South America, 0 growth. This year, we are expecting Brazil actually to be between 2% to 3% growth. We're expecting Mexico to grow a bit more. Chile is the only one we're expecting less growth. So the first message -- the first positive is that we expect volume growth. I always say this that we make a lot of our profits in South and Latin America, but we lend very little money. We actually, you can see that, and that's a huge opportunity. There's a lot of profitable growth ahead. So especially in Brazil, margins will obviously be much lower with interest rates at 4%, 4.5%, but volumes -- and very good quality growth is ahead. To give you an example, last year, we did already EUR 2 billion in mortgages in Brazil. I mean a few years ago, that was like unheard of. So we expect volume growth to compensate margin.But very importantly, and this is something in Latin America, we have not waited for things to happen. We started in April of last year working across the region with very significant -- and you can see the numbers already in Brazil with a lot of focus on cost, a lot of focus on building common platforms. So you are going to see efficiency improvements. We're going to invest, but we're going to follow in this -- the other way, the example of Europe that we need to become much more efficient. So those 2 things are important. Taxes will go up in Brazil by 3, I think. 3 points?

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Correct. 3 points.

[Ana Botín-Sanz de Sautuola y O'Shea]

Three points. Yes, and that's considered. So when you consider all of that, Mexico, Brazil, we're expecting roughly the same profitability this year. Roughly. And I think this guidance was given in October by Brazil. We reiterate the guidance of Mexico, Brazil, somewhere around 20%, 21% return on tangible equity. [Foreign Language]

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

[Foreign Language]

[Ana Botín-Sanz de Sautuola y O'Shea]

I think that's -- so José Antonio says he's fine, so next.

[Operator]

The next question comes from Benjamin Toms from RBC.

[Benjamin Toms, Analyst]

Firstly, on Poland, can you give us an update on Polish Swiss franc mortgage litigation? Did you take a provision in the quarter? And secondly, the ECB hosted call yesterday on SREP requirements. In the call, they stated that the average Pillar 2G for G-SIBs in universal banks was 1%. I know you're not allowed to tell us your Pillar 2G, but is there any reason why Santander wouldn't be in line with the average G-SIB in universal banks? Could Santander in fact be any better than average due to the relatively strong performances in the stress tests?

[Ana Botín-Sanz de Sautuola y O'Shea]

So I will let José Antonio answer on Poland. But on ECB, the SREP, obviously, we cannot comment on P2G, but it's clear that Santander has delivered through the cycle, more predictable, more sustainable growth. The diversification works across 25, 20 and 5 years. That's all I can say. But obviously, the G-SIFI is the difference. And so it doesn't necessarily have to be the same SREP requirements. We cannot say anything, right? Good. So we cannot say more than that, but we do -- I mean I might say, we are seeing a bit of a change in the tone, and there's a Pillar 2 change that will come into effect at the beginning of next year which was obviously a benefit -- would be a benefit for most banks, including ourselves. And Poland?

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Well, in relation with the Swiss franc portfolio, we have a portfolio in Poland of around CHF 2.6 billion portfolio, CHF 2 billion in the bank, CHF 600 million in the consumer finance operation. After the ECB court ruling in September 2018, the final outcome will be decided by -- on a case-by-case basis by the courts. As a matter of fact, the rulings we have had till now in the courts that are a small number, around 30 cases. We won around 2/3 of this and 1/3 were in favor of the customer. So we took a provision in the fourth quarter that I think cover us for the current expectations. So it's what I can -- we can say at this time. We're going to see on a case-by-case basis what happens in the courts in the coming years. But we feel comfortable with the provision we took at the end of the year.

[Operator]

The next question comes from Mario Ropero from Fidentiis.

[Mario Ropero, Senior Banking Analyst]

The first one is about the cost-to-income in Spain, excluding trading income. It seems still very weak. So a couple of issues related to that. Could you help us understand when you expect stabilization in the top line in Spain? And please, could you give more details on cost savings in Spain next year -- well, next year -- current year 2020? And then finally, in Spain, again. Could you give us some color on the impairments in Spain? I mean your NPL ratio is still very high, coverage below peers. So there is an obvious trade-off between accelerating the reduction of NPLs and impairments. Could you give us some clarity on impairments?

[Ana Botín-Sanz de Sautuola y O'Shea]

Yes. Let me just take that and then José Antonio please, if you can complement. But I understand Spain this year, cost-to-income was 53%, which is actually not that bad if you consider negative rates and where other banks, including the -- some of the large American banks are. But we certainly aim to improve that. And the cost savings for next year will continue. I think we're aiming for something like mid-single digit.But remember that the key numbers are Europe because we have a number of transversal across the group European initiatives. So that is what matters now. I mean that is the great strength of Santander. It's not a Spanish bank, it's not a U.K. bank, it's a European bank with about EUR 11 billion, I think, we closed in 2018. And we've said we'd reduce EUR 1 billion, EUR 1.2 billion over the next few years. So there are very significant savings coming in of that EUR 1 billion next year much more than this year. I mean in this year, it was about EUR 200 billion. We did have a change in perimeter this year. We're not expecting that for next year, I understand, but José Antonio, maybe you can help me there. So you can see not just Spain but Europe coming down significantly in the cost base next year. Impairments, I mean -- and NPLS, all of this obviously comes in great measure by Popular. Do you want to comment on those, please?

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Yes, impairments. It's true that we have of the -- our peers in NPLs. It comes from Popular. We need to reduce these impairments. So what I can tell you is we are reducing quite rapidly these NPLs, and we expect to continue to do so with the cost of credit, cost of risk that is going to be in line or below the one we have had this year. So it's true that we are -- I feel comfortable with the coverage we have, but it's true that it's still going to take a little of time to reduce this level to the level we should have that is currently above 6%. As a matter of comparison, if you were only Santander, business will be around 3% or below 3%, yes? So this is -- comes basically from this. But the most important thing from a P&L point of view, the cost of risk is going to remain in line with what we have or slightly below. And the cost, probably to elaborate a little bit more on the cost side, we reduced this year at a cost in Spain EUR 300 million. This is a nominal number. Probably next year, we're going to be aligned with this number again. We are making a great effort, and the Popular integration is going to be reflected -- somehow were reflected this year, but next year it's going to come in the same line. And in Europe, as Ana mentioned, our target was to reduce -- is to reduce EUR 1 billion nominal costs down. This year, we've got EUR 200 million. What you see in the numbers is EUR 130 million. We have some changes in perimeter in Poland and some others, but the number is EUR 200 million this year. Probably next year, probably should be the double of this, around double of this nominal number going down in Europe coming from basically Spain and U.K.

[Operator]

Next question comes from José Abad from Goldman Sachs.

[José Maria Abad Hernandez, Executive Director]

My first question is on capital. In the quarterly report, you mentioned that part of the organic generation in the quarter was due to some risk-weighted asset optimization. So here, I think I have 2 questions, which is, one is that the -- you signed a risk sale agreement with EIB for a EUR 2 billion SME loan portfolio in Spain. I think that was in late October. So the question here is whether the full impact from this scheme is already fully captured by Q4 numbers or that we should expect the impact from this scheme to be accrued gradually over the next few quarters? Related to this topic is if you could tell us about what's the potential amount of capital CET1 that you plan to generate through the full implementation of your IRB internal models rollout plan across the group. And if I may, one quickly on credit quality. It's clear that you are positive based on your last comment, but we see diverge interest within the group. So we see a margin sequential increase in the cost of risk in Santander Consumer Finance, at the same time, a meaningful decline in Spain. So I think -- I guess here, would be useful to have your view on what's driving actually better credit quality trends in your view, in a context of a slower growth globally. And in particular, if you could also comment on what is the level on your expectations for the cost of risk in the consumer segment in Spain.

[Ana Botín-Sanz de Sautuola y O'Shea]

Okay. On capital, again, we generated 97 gross in 2019. I mean -- as I said before, looking every quarter, I understand sometimes that you expect more and other times less. But what we have done is deliver across the year. And this is what I would like to stress is we are very confident on the model, on the predictability, sustainability. But it's very difficult to measure quarters, approvals and markets. And so we've been very consistent for 5 years, 40 basis points per year. When we needed to do more, we have done more, and we've done it, I believe, the right way by basically increasing thresholds in terms of assets that come on the books. We are ready to do that because our focus is on profitable growth, but profitability is very important. Securitizations will continue. I mean I will let José Antonio answer that very technical question, although we're going to see the impact next year. Internal models, I mean as you know, that's one of the factors, both pluses and minus for all European banks. But we have higher, higher -- much higher visibility now on what's coming and what the effects are. And so that's why we're -- given the guidance we're giving, we expect to be at 12% given the profitability and given what we know today. But I'll let José Antonio answer you on what happened in Q4, but there was a lot more securitization. We are using this as a BAU tool, by the way, because we want to keep the customer relationships. We think that is very profitable business for the bank. And we have thresholds and we securitize where it makes more sense in terms of returns on capital.Very briefly on credit quality. Across the group -- cost of credit across the group this year was 100 basis points. And for next year, I can give you guidance that it should be the same, about 100 basis points, but there are some ups and downs. I'm not sure how much guidance you want to give on that. But José Antonio, maybe you can take it from there?

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Well, you mentioned that the slower growth globally may affect our cost of risk. I should say that I cannot agree with this. Yes, Brazil is going to grow faster in 2020 than it grew in 2019; Mexico is going to do the same. So our main portfolios -- some of our portfolios that have a relatively high cost of risk, we expect a better environment.You refer specifically to Santander Consumer Finance. The gross provisions were pretty much the same in the fourth quarter than in the third quarter. You saw in the fourth quarter higher provisions because we disposed less portfolios. But the gross provisions were pretty much the same. And in Spain, I already comment on this.You mentioned the consumer segment in Spain. We are not seeing a particular trend in Spain, although I seen in the media some numbers ticking up. Remember that our consumer lending in Spain, in consumer, is basically auto lending, is behaving very well. It's basically new cars. It's good quality. And in the bank, our loyal customers we -- is granted credit that we have a strong relationship with the customers.You asked specifically for a the EIB. EIB, what shows is our policy vis-à-vis securitizations that the guide for our securitizations that is becoming, as Ana said, business-as-usual, is with security size as long as we can release capital, free up capital at a cost that is well, well below our cost of equity. So -- and this is mainly is happening in our consumer finance operations, both -- in both sides of the Atlantic, in SCUSA in the U.S. and Consumer Finance in Europe. And we continue to do so. I will qualify this as an asset business as usual more than that we are doing something on a one-on-one basis. EIB operation was included in Q4, but is meaningless in terms of capital, yes? It's very small.

[Operator]

The next question comes from Ignacio Ulargui from Exane BNP.

[Ignacio Ulargui, Former Research Analyst]

Yes. Just have 1 question. On the strategy in Spain, just a bit to understand. When do you think the deleveraging of the loan book will finish? We have seen, again, a year of weak lending growth. I have a feeling that you are resetting a lot the balance sheet, focusing on more profitable segments. But if you can just elaborate a bit on that, what will be the impact in NII for 2020.

[Ana Botín-Sanz de Sautuola y O'Shea]

So the deleveraging in Spain has been mainly in the larger corporates. I mean it's a sector that continues to deleverage and partly the public sector. As you well said, we're growing very well in consumer lending. And I think our guidance for next year will be more stable. So not a for, but more stable volumes. And actually, we're aiming for stable margins also on the customer side. But I would like to flag that for next year also -- and you can see that because you can see that in the numbers this year, there will be less of a financial revenues through the ALCO because we have disposed some portfolios. So I'd say next year, you should expect higher quality earnings in Spain, good management of margins, stable volumes overall, but less financial income.

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Yes. As a matter of fact, the delevering you are seeing is driven by the -- our -- we being selective, being conscious of the good usage of capital in segments where the profitability is very low, yes? And so we're being -- we're elaborating the previous quarters around this and that affect, as Ana said, the corporate -- the large corporates and institutions. So those are the segments in which we are not seeing a good use of our capital if we deploy there because profitability is relatively poor because the competition is extremely strong, yes?

[Operator]

The next question comes from Marta Romero from Bank of America.

[Marta Sánchez Romero, Director and Analyst]

The first one is a follow-up on capital. Now do you expect the implementation of [ filling the ] provisions and all the NPLs to have a negative impact on capital by the end of 2020? And the second one is in the U.K., you seem to be committing more capital again in this market. We've seen a 2% growth in the quarterly mortgages. Is this something that will continue? Is this a bit of seasonality, one-offs? Have your views on the market generally changed? Because it looked like you were withdrawing from this market and now you're committing more capital. And does your guidance on net interest income in the U.K. incorporate any potential interest rate cuts?

[Ana Botín-Sanz de Sautuola y O'Shea]

So we already have begun in 2019, even at the end of 2018, to manage really our capital on a group basis, not just by countries, but by segments. And the return on capital of U.K. mortgages actually is attractive, and that's the reason we're growing on mortgages. And so I'd say that it's consistent with the deployment of capital, but it's also consistent with the fact that we have a great business and franchise in the U.K. And this is -- we've grown about EUR 7 billion in mortgages in the year. But we've also grown very well. For example, on the business side, the business 1|2|3 return has grown really well. So it's consistent with the discipline in capital allocation across the U.K. and across the group. In terms of the provisions, NPLs for next year, I mean I mentioned some slight -- the answer is no. But there will be some regulatory effects, and it's difficult to know if it's going to be a net 0, it's going to be slightly positive, slightly negative, but we are ready for that. As I said, we can manage our balance sheet actively. Maybe not every quarter, as we've seen over the last few years, but every single year for the last 5 years, we've delivered the 40 basis points. And this year again, 35 with very strong generation organically, as you've seen.

[Operator]

The next question comes from Fernando Gil de Santivañes from Barclays.

[Fernando Gil de Santivañes d´Ornellas, Research Analyst]

A question on Spain. So I understood that you aim to continue improving the NPL ratio and the coverage ratio going forward. I just want to clarify on that. And the second question would be in the U.K., what is the actual balance of the SVR book? And what is the impact on that in the NII?

[Ana Botín-Sanz de Sautuola y O'Shea]

So I'll answer the U.K. And I know better that you answer Spain. So SVR balances will come down much less next year. I think this year, it came down by about EUR 4 billion and next year will be coming down less than that. I think somewhere between EUR 2 billion to 3 billion. So you'll have a lot less impact next year. Again, what we are working very hard is also on the efficiency side and ensuring we're doing more and more mortgages online with a much better return in terms of efficiency. So I think that is the answer on SVR. NPLs?

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Well, NPL ratio, I already elaborate on this. I said that I expect the NPL ratio to keep going down significantly in Spain. The coverage ratio you mentioned depends more on the kind of collateralized or non-collateralized loans that we have. But normally, and then it should happen same in 2020, the collateralized loan tend to stay longer in the balance sheet than non-collateralized loans. So very likely, the coverage will be -- remain flat or slightly down, depending on -- if the NPLs are collateralized or not. That is the main factor between the coverage ratio. You have recovered value or you don't have recovered value. Plenty of the NPLs that we inherit from Popular comes from the SME segment. And while those tend to be lower collateralized than more -- naturally than the mortgages and for that reason, this is what drives the coverage ratios more than our specific policy. Supply in IFRS 9 is expected to loss taking into account collateralization of the NPLs, yes?

[Operator]

The next question comes from Sofie Peterzens from JPMorgan.

[Sofie Caroline Elisabet Peterzens, Analyst]

Yes. Here is Sofie from JPMorgan. So I wanted to -- just a follow-up on the Core Equity Tier 1. Of the 35 basis point improvement that we saw quarter-on-quarter in the fourth quarter, is there anything that could potentially reverse in coming quarters that we should be aware of? And then the second question would be, how should we think about your dividend per share going forward, buybacks, M&A? Should we expect the dividend per share to remain stable around EUR 0.23? Or do you have intentions to grow with that? My last question would be on CECL in the U.S. Did you see any big impact from the new provisioning requirements in the U.S.?

[Ana Botín-Sanz de Sautuola y O'Shea]

So I'll start by the last one. CECL will not have an impact on group...

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

It is in local accounting.

[Ana Botín-Sanz de Sautuola y O'Shea]

It's local accounting, yes.

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Local accounting, it's not group accounting.

[Ana Botín-Sanz de Sautuola y O'Shea]

And it's been reported by Santander Consumer. I believe it's about EUR 2 billion, something like this, impact. I think that has been informed already in Q3. So there's nothing new there. And again, no impact on the group. In terms of dividends, so what we are focusing very much is on the cash dividend per share. Our intention is to get rid of the scrip. But it's also important to consider our retail shareholders. And again, that's what we said. Again, because it's difficult to predict everything that's going to happen during the year. Our aim is to first, 40% to 50% on the underlying results; second, that the cash dividend per share should be, as much as possible, aligned with the underlying growth in our profits. And I think that is what we're doing this year. If you look, underlying profit growth is around 3%. And that's what we're proposing in terms of the increase in the cash dividend per share. Total dividend will stay stable. So the scrip is reduced. It's now only 13%. So again, we've returned to shareholders over these 5 years, EUR 18 billion, which shows the confidence of management and the Board in the sustainability of our results. And this is something which we expect to be hopefully reflected soon and also in the market. So this is the policy. We are not changing that. It's stable. And we'll be proposing this to the shareholders in April.There is nothing -- in the quarter, there is some negative regulatory headwinds which we're actually anticipating for next year because we have information on that. About 9 basis points, I believe. There's more securitizations and less growth in risk-weighted assets than other quarters. But it's -- again, it's a bit of a seasonal impact in that sense. Less growth, but also more securitizations happening in the fourth quarter. You're going to get volatility in the quarterlies, that's for sure. We have some acquisitions coming in. We also have some divestments. And the timing of that quarter is difficult to calculate. Again, what is important is management and the Board's confidence that at 11.65%, the level and the buffers against regulatory requirements are very comfortable.And by the way, the future -- because Basel IV and what happens ahead, I think the very important signal is we're able to deliver profitability growth, and we're able to manage our balance sheet to accommodate these kind of instances, like we had this year with 60 basis points which we don't anticipate to be obviously anywhere near those levels for the next few years.

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

But 35, no reversion in the 35 basis points at all going forward.

[Ana Botín-Sanz de Sautuola y O'Shea]

Well, of course. Yes, I mean that is obviously -- this is no reversion. Thank you, José Antonio. To be clear, no reversion on the country. Thank you.

[Operator]

The next question comes from Stefan Nedialkov from Citigroup.

[Stefan Rosenov Nedialkov, Director]

It's Stefan from Citi. A couple of questions on my side. I'll try not to beat dead horse here, but you did mention strategic flexibility on capital when you get closer to 12% CET1. Just wanted to get more color on what do you mean by strategic. Do you mean M&A or do you mean just generally being able to face organic growth opportunities, regulatory challenges, et cetera? So is it M&A detriment or non-M&A?And the second question is on the divisions. Mexican fees seem to be down. Mexican loan growth, half of the yearly growth seemed to be bunched up in 4Q. Yes, that is seasonal, but still a big skew towards 4Q. What's going on there? It looks like it's corporate and government lending. Any color for 2020 would be good as well. And in another division in the U.S., the cost of deposits seems to be going up quite a bit while loan repricing is down, obviously because of lower rates. How should we think about these quite different dynamics? Why are deposits going up so much in terms of cost?

[Ana Botín-Sanz de Sautuola y O'Shea]

Yes, in terms of what happens when we don't have to accumulate more capital, I mean strategic flexibility means we can choose to either increase dividends faster. We can buy back shares, of course. But very importantly, we have a lot of opportunities for profitable growth. So we will have to find a balance between these options. There is no plans for M&A. We've always said M&A would be very disciplined. We -- in our core markets, when there's -- and we've done this in certain places over the last couple of years, we will be very strict in our criteria. We have seen opportunities, we have not taken those opportunities over the last few years. And in a couple of instances we have because it added to the franchise and the return was accretive after 2, 3 years, which is the benchmark which we have set. I will answer the U.S. and then let José Antonio answer on Mexico, but I think the U.S. is very important. So I'd say, on the U.S., we have really made exceptional and I mean exceptional progress over the last couple of years. We've grown profits double digit in '18, '19, and we can guide to, again, double-digit growth in 2020. In the U.S., we have 3 important blocks. One is Consumer Finance. That's a business that has a huge excess capital, but even with that excess capital is at around 13%, 14% return on tangible equity.Second is that there are very strong links which we're now capitalizing, not just within the U.S., but with the group. Just to give you an example of how we're improving the profitability, and we're going to do more of this, 22% -- and by the way, I just joined the U.S. Board because I want to make sure we understand that better, of how the organic growth is possible. We -- 22% of the originations in 2019 of Santander Consumer were prime auto loans which are on the balance sheet of SBNA. It's now 10% of the SBNA loans are coming from originations at Santander Consumer. This also improves the profitability of consumer because it's becoming -- it already is a best-in-class servicer. Again, very high return on that business. So -- and there are examples, I don't want to take too long, but there are examples on the mid corp segment with SBNA in Mexico, SBNA in the U.K., which is increasingly integrated. We're investing together in technology also. The last point I'd like to make on margins, and it's possible that the deposit costs might have risen slightly, but what's important is that the year-on-year in terms of current accounts of our bank, and very importantly, on the experience is one of the best in its peer group. And the -- overall, in the region and for the regional banks, the margins are much more attractive than they are in Europe. So we're trying to bring our knowledge and what we've learned in terms of managing the business in Europe at much lower margins, both to -- actually, all of the Americas. So we're guiding again to double-digit growth in the U.S. next year and getting to the targets that we announced in Investor Day.So I hope -- the specific on the quarter, honestly, I don't know if -- Sergio, José Antonio, the deposit cost in the quarter and SBNA?

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

As a matter of fact, we will go faster in relatively high-cost deposits. We are going the other way around. It depends on the deposit growth who grew 11%, and who grew faster than kind of institutional deposits that are more expensive, yes?

[Sergio Gámez Martínez, Global Head of Shareholder & Investor Relations]

Yes, we'll follow up off-line, Stefan, but the cost of the deposit actually has been going down on a quarterly basis is at the lowest, so consistent with the rates in the U.S. But we'll follow-up, if that's okay with you.

[Ana Botín-Sanz de Sautuola y O'Shea]

Yes. Sorry, just to follow-up. As I said, the building blocks, I just realized I just commented on 2 of them. So we have 3 building blocks. One is Santander Consumer, which is well-known, very profitable; the other, SBNA. Clearly, there's work to be done. Might I say that for the last few years, we could not do even launching -- I mean it was very difficult for us to grow even organically because of our regulatory situation. That's changing. Again, we're going to be able to do more activities, and you should see that coming in, in 2021. But there's a third very profitable block also which is wealth management, which is less known. We are very good at this. We're growing that really well. It's part of the global wealth management and asset insurance division, and we have EUR 25 billion under management, okay? And that is the third U.S., highly profitable, scalable business, which is in the U.S. And we'll have increasing connections to SBNA as we go forward and have more flexibility.

[Sergio Gámez Martínez, Global Head of Shareholder & Investor Relations]

Thank you. We're running out of time.

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Let me elaborate a little bit in Mexico. Mexico has a -- in the quarter a number that are mixed by accounting issues. So you have gross income growing 3.5% quarter-on-quarter. That is a very good growth. And you have some impact coming from the corporate business. The corporate and investment banking business that produce capital gains and reduced the net interest income, and it's a translation from one line to another. If you look at the gross income, we are growing 3.5% quarter-on-quarter. That is a very healthy rate. Going forward, we are, as I said in the presentation, optimistic about 2020. Mexico barely grew in 2019. The economy was basically flat on growth, and we expect the better trends in 2020 and growing the franchise along these lines. It's true that we -- or at least the market consensus is expecting some slowdown in reduction in interest rates that may affect something, but we have plenty of room to reduce our deposit cost. So overall, I'm optimistic about our capacity to keep growing revenues in Mexico, yes.

[Operator]

The next question comes from Carlos Cobo from Societe Generale.

[Carlos Cobo Catena, Equity Analyst]

Sorry. I think the message on capital is super clear. But sorry to go back to the specifics because the Basel IV impact before used to be 30 to 100 basis points. I know there's been a lot of discussion around the quarter here. Could you please explain if that guidance doesn't change or you just prefer to keep it more flexible, which is kind of what I understood?And secondly, on -- again, sorry, asset quality in Spain. I'd like to understand your point of view. Santander has always taken a -- probably more risk here. You retained a larger stake in the JV that you sold with the nonperforming assets of Popular, and now you seem to be retaining a larger share of nonperforming assets. You are now having a NPA ratio substantially above the average in Spain. I wanted to understand why aren't you taking a more aggressive approach. Is it just because you see more value there or because you are trying to protect capital?And lastly, if you could just guide us if you were able to -- if you decide to do so could you sell a big block as the other peers have done in Spain?

[Ana Botín-Sanz de Sautuola y O'Shea]

Okay. On Basel IV, I would like to say that I and we are very confident that Basel IV can be easily -- and let me stress, easily absorbed whilst maintaining both an attractive dividend policy and financing profitable growth. And why do I say this? Because for 5 years, we have a strong track record. Five years of 40 basis points annual organic capital generation. And also we are continuously transforming our model. Again, 2019, we absorbed 60 basis points -- actually, 62 basis points exactly on regulatory impacts. We grew loans at 4%. We are proposing to increase the cash EPS close to 3%. The 100 basis points guidance that was given in Q3 was very preliminary. And it was incomplete in the sense that it was pre-mitigation. Beyond 2020, there are, of course, other regulatory impacts at play. Not just the negative, but for example, as I mentioned, the capital treatment of intangibles which would have a net positive for Santander. And last but not least, Santander should be lower impact than peers. But again, let me stress that we, as management, today have precise tools to manage, on a quarterly basis and even more on a yearly basis, our -- let's say, the -- our risk-weighted assets and how much business we put on the books. We are working on a originate-to-distribute model, which we are already implementing. So we have a much, much bigger flexibility, and that is the high confidence we're giving you on capital. But we are keeping the 11% to 12% because we believe that is the right target. And again, because we think 11.65% is a comfortable level and gives us comfortable buffers. I would say, even -- and I've said very comfortable buffers against regulatory requirements. I hope that answers the question. And there were 2 more which maybe José Antonio can take?

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Yes, it was asset quality in Spain. If the question, if I understood well, it was if we are changing our policy towards disposing the nonperforming loans or nonperforming assets. The short answer is no. We've done plenty of deals. As you know, we incorporate companies, Merlin, Metrovacesa, Landmark in 2019, Quasar, we dispose Apple. We continue to analyze our portfolios and to analyze the possibility to dispose in a market at a price. We are price-conscious, but your suggestion that we may be slowing down our disposal of the portfolios because capital issues, I tell you that is more -- we continue with the same policy. We are conscious of the pricing, and we continue to reduce our NPLs, our nonperforming assets in line with our traditional way of managing these issues, yes?

[Operator]

The next question comes from Andrea Filtri from Mediobanca.

[Andrea Filtri, Research Analyst]

They are follow-ups on capital. Can you please update us on the pending regulatory hurdles for 2020 with a split? The guidance was 80 to 90 basis points on the Q3 call. You've taken over 60 in 2019. Can you just confirm there is 20 to 30 basis points left for 2020? And also following up on the development on the regulatory front, the approval of CRD V and in particular Article 104a, do you intend to use it? How and when? And what needs to happen for you to use it in your view? And does the progress of CET1 that you have made, your positive capital outlook and the more constructive regulatory environment allow you to implement a more visible dividend policy for the future?

[Ana Botín-Sanz de Sautuola y O'Shea]

So again, the guidance for 2020 on regulatory effect is we have taken some in Q4, actually, because we are -- we had a very strong performance. So we've taken about 1/3 of that. So I think the 2030 could be more like 10, 20 next year. But again, there's some inorganic also positives and negatives. Again, we have said we expect to be close to 12% which is the upper end of the range that we set and which we're not changing that guidance. In terms of CRD V, my understanding if this gets approved in January of 2020, we haven't really looked at what this means, so we're not counting on that in our guidance. But obviously, it could provide flexibility because you could cover some of the CET1 with Pillar 2. And the approval is expected in January. That could be an upside, which again, we're not counting but could come into force in maybe '22, '23 or after that. And in terms of the dividend policy, well, we believe we have a very clear dividend policy, but I'm not sure what more we can say. We can say that 40 to 50 on an underlying, I think I mentioned before that the cash DPS, we would like that it increases. Our aim is that it increases in line with the underlying profit growth. The aim is to reduce the scrip. But we believe that for now, the flexibility is good, not because of institutions, which we know you're not that keen, but because our retail investors like it. And the reason we got approval to repurchase shares is because as the year goes by, to ensure that we do what we commit, we like to have that extra flexibility, to be very honest, because there's been less visibility on regulatory issues, and that gave us some extra flexibility. But we are reducing that again this year to 13%. So that is the dividend policy that we have set and approved. And I think I answered both questions. Thank you.

[Operator]

The next question comes from Carlos Peixoto from Caixabank-BPI.

[Carlos Peixoto, Analyst]

So the first question was actually beyond fees, particularly in Spain. This quarter wasn't particularly strong, as seen in the explanation regarding investment banking fees. I was wondering if you could shed some light on how you see it evolving over the next quarters or over the next years? How basically this is aligned with some of your peers have [ flagged ] a particularly positive stance on. I was wondering how -- what's your view on that.Secondly, on NII in Brazil, if you could give us also some views on how you see it evolving. You mentioned you expect to compensate some of the pressure in margin with volume growth. But I was wondering how do you see the NII figure itself evolving? What's the net-net of these 2 basically? And then as a follow-up question on capital. Just basically, in the next year, so you have this guidance of 12% on considering the transitional arrangement of IFRS 16. Could you remind us what will be the impact from the phasing in of transitional arrangements in 2020?

[Ana Botín-Sanz de Sautuola y O'Shea]

So there's still -- I think there's 19 basis points left on IFRS. That's in 20...

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

'23 now. And end of the next year it will be 18 or 17...

[Ana Botín-Sanz de Sautuola y O'Shea]

Yes. And that's factored -- obviously, that's factored in on a year-by-year basis. So 24, right? So do you want to answer the other questions? Thank you.

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Well, the other question where fees in Spain and how do we see this evolving in coming quarters, we have had some impacts from CIB business this year in the fee income. We've been sharing with you this. On ex CIB, we have some translation with that lower funding cost that impacts of how should fees show the changes in 1|2|3. You can elaborate your numbers in relation with this, probably positive in NIM, some negative in fee income and CIB, well, it depends on the year -- the activity we see in the year. As you know we are the market leader in CIB in Spain. And well, how the market evolves affect us significantly. The second question was NII in Brazil. Well, I said in the presentation that we expect in Brazil with GDP growing north of 2%, a healthy growth in volumes and with some margin pressure. Some of those you already know, the main one was the cap on overdraft, that has a significant impact. For that reason, we expect some margin pressure. We expect to be in clearly in positive territory in Brazil in net interest income with pressures coming from the regulatory side. The most important one you already know is the cap on overdraft that went down from 12% to 8% on a monthly basis.Basically, that's it. We are fairly positive in fee income in Brazil, where we expect to keep growing given the market share gains that we are getting on the level of transactionality we are having, the insurance payments and private banking business should support a healthy growth probably into double digit in Brazil in 2020.

[Sergio Gámez Martínez, Global Head of Shareholder & Investor Relations]

Okay. I'm afraid we need to leave it here. So thanks, Ana, José Antonio for your time. And obviously, the IR team is at your disposal for any follow-up in detail. So thanks very much, everyone.

[Ana Botín-Sanz de Sautuola y O'Shea]

Thank you very much, everybody, and I hope we answered all the questions that were asked. So again, thank you. And anything else, Sergio and José, we're all at your disposal. Thank you very much until next year.

[José Antonio Álvarez Álvarez, CEO & Vice Chairman]

Thank you. Bye.